1. Eichelberger Trucking won a settlement in a lawsuit and was offered four different payment alternatives by the defendants insurance company. The interest rate is 10%. Ignoring the tax considerations, which of the following four alternatives has the highest present value (and thus is the best option)? Support your answer with the appropriate calculations.

A) $180,000 now.

B) $52,000 per year for the next 4 years (end-of-year payments)

C) $5,000 now and then $24,000 per year for the next 10 years (end-of-year payments). Hint: Calculate the present value of the initial $5,000 separately. Then

calculate the present value the $24,000 annuity separately. Finally, add the two present value amounts together to get the overall present value.

D) $14,100 per year for the next 10 years (end-of-year payments) plus a lump sum payment of $230,000 at the end of the 11^th year.

Hint: Calculate the present value of the $14,100 10-year annuity separately. Then calculate the present value the $230,000 payment received at the end of

year 11 separately. Finally, add the two present value amounts together to get the overall present value.

2. Kilgore Auto Parts reported the following information at December 31, 2004:

Preferred stock, 10%, $10 par value, cumulative $60,000

Common stock, $2 par value 10,000

Additional paid-in capital Common stock 30,000

Retained earnings 50,000

Total contributed capital and retained earnings 150,000

Less: Treasury stock (100 shares common stock at cost) (5,000)

Total stockholders equity $145,000

A) How many shares of common stock are issued?

B) How many shares of preferred stock are issued?

C) How many shares of common stock are outstanding?

D) What was the average price paid for the treasury shares when the company reaquired them?

E) What is the dividend PER SHARE that preferred shareholders are entitled to when a dividend is declared?

F) What was the average price of common shares when they were issued?

G) If a 15% stock dividend were issued, by how much would the total stockholders equity balance change?

3. Frado Company provides you with following information related to payroll transactions for the current month. The numbers below are for the all of the

employees combined (there are 10 employees). Prepare journal entries to record the transactions for the current month.

Gross Salaries $60,000

Federal Income Taxes withheld $8,200

State Income Taxes withheld $2,100 Medical Insurance withheld $800

A) Record the May payroll using the payroll register information given above. Remember to record Social Security and Medicare withholdings (note that the

Social Security limit has not been reached yet).

B) Recorded the employer's payroll taxes resulting from the May payroll. The company has a state unemployment tax rate to 5.4% of the first $7,000 paid

each employee and a federal unemployment tax rate of 0.8% of the first $7,000 paid each employee. (note that the federal and state unemployment

limits have not been reached yet).

	Accounts	Debit	Credit
Part a
Part b

4. Dividend Allocation Durden Co. has $18 par value, 10% cumulative preferred stock. There are 10,000 shares issued and outstanding of the preferred stock. The

company also has 100,000 shares of $1 par value common stock. No dividends had been paid in the years 2003, 2004, 2005, and 2006. In 2007, the company paid

$45,000 in dividends. In 2008, the company paid $65,000 in dividends. Determine the allocation of dividends between preferred and common stockholders for the

years 2003 to 2008.

Year	Actual Preferred Dividends	Actual Common Dividends	Preferred Dividend Carryover
2003
2004
2005
2006
2007
2008
Totals

5. For each of the following independent transactions a through d, prepare the necessary journal entry (if necessary):

A) Declared and paid a $0.40 per share cash dividend on 200,000 shares of preferred stock outstanding.

B) Declared and distributed a 5% stock dividend on 800,000 shares of $5 par value common stock outstanding. Market price per common share on this date

was $25.

C) Declared and distributed a 2-for-1 stock split on 500,000 shares of $10 par value common stock outstanding. D) Declared and distributed a 40% stock dividend on 400,000 common shares of $5 par value common stock outstanding. Market price per common share on

this date was $20.

Accounts	Debits	Credits
A.
B.
C.
D.