Practice Exam, Chapters 19-21

Solutions

Problem IRequirement 1

$5 fair value per option

x 20 million options granted
= $100 million fair value of award

Requirement 2
no entry

Requirement 3

($ in millions)
Compensation expense ($100 million ÷ 4 years) 25
Paid-in capital - stock options..................... 25
 ($ in millions, except per share amount)
Problem II

Solution:
net preferred
income dividends
$465 – $15 $450
—————————————————————————————————————— = —— = $1.87
200 (1.10) + 24 (10/12) (1.10) – 6 (2/12) 241
shares new retired
at Jan. 1 shares shares

____stock dividend___
adjustment
Diluted EPS
net preferred after-tax
income dividends Interest savings
$465 – $15 + $60 - 40% ($60) $486
—————————————————————————————————————— = —— = $1.82
200 (1.10) + 24 (10/12) (1.10) – 6 (2/12) + (12 – 10*)
267
shares new retired exercise conversion
at Jan. 1 shares shares of options of bonds

____stock dividend___
adjustment

*Shares Reacquired for Basic EPS

12 million shares
x $25 (exercise price)
$300 million
÷ $30 (average market price)
10 million shares reacquired

AmountCategory
Problem III
1. Cash collections from customers (direct method). $145,0001 O
2. Payments for purchase of property, plant, and
equipment. $ 50,0002 I
3. Proceeds from sale of equipment. $ 31,0003 I
4. Cash dividends paid. $ 12,0004 F
5. Redemption of bonds payable. $ 17,0005 F

1 Summary Entry
Cash (received from customers) 145,000
Accounts receivable ($34,000 – 24,000) 10,000
Sales revenue (given) 155,000
2 P, P, & E
________________________________________
Beginning balance 247

Acquired with B/P 20

40 Equipment sold
Purchased ?
____________
Ending balance 277

$277,000 + 40,000 – 247,000 – 20,000 = $50,000

3 Summary Entry
Cash (sale of equipment) 31,000
Accumulated depreciation (determined below) 22,000
P, P, & E (given) 40,000
Gain on sale of equipment (given) 13,000

Accumulated Depreciation
_____________________________________
167 Beginning balance

33 Depreciation expense
Equipment sold ?
____________
178 Ending balance

$167,000 + 33,000 – 178,000 = $22,000

4 Summary Entry
Retained earnings (determined below) 15,000
Dividends payable ($8,000 – 5,000) 3,000
Cash (paid for dividends) 12,000

Retained Earnings
_____________________________________
91 Beginning balance

28 Net income
Dividends declared?
____________
104 Ending balance

$91,000 + 28,000 – 104,000 = $15,000

5 Summary Entry
Bonds payable (determined below) 17,000
Cash 17,000

Bonds payable
_____________________________________
46 Beginning balance

20 Issued for P, P, & E

Bonds redeemed ?
____________
49 Ending balance

$46,000 + 20,000 – 49,000 = $17,000

Multiple Choice
1 a
2 b
3 a
4 d
5 b
6 c