On January 1, 2007, Lowry Co. issued ten-year bonds with a face value of $1,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are:

Present value of 1 for 10 periods at 10%		.386
Present value of 1 for 10 periods at 12%		.322
Present value of 1 for 20 periods at 5%		.377
Present value of 1 for 20 periods at 6%		.312
Present value of annuity for 10 periods at 10%		6.145
Present value of annuity for 10 periods at 12%		5.650
Present value of annuity for 20 periods at 5%		12.462
Present value of annuity for 20 periods at 6%		11.470

Instructions (round answers to nearest dollar) (a) Calculate the issue price of the bonds.

(b) Without prejudice to your solution in part (a), assume that the issue price was $884,000. Prepare the journal entry(s) for 2007.

2

Described below are certain transactions of Larson Company for 2010:

1. On May 10, the company purchased goods from Fry Company for $50,000, terms 2/10, n/30. Purchases and accounts payable are recorded at net amounts. The invoice was paid on June 18. Larson uses a periodic inventory system.

2. On June 1, the company purchased equipment for $60,000 from Raney Company, paying $20,000 in cash and giving a one-year, 9% note for the balance.

3. On September 30, the company discounted at 10% its $120,000, one-year zero-interestbearing note at First State Bank.

Instructions

(a) Prepare the journal entries necessary to record the transactions above using appropriate dates. (b) Prepare the adjusting entries necessary at December 31, 2010 in order go properly report interest expense related to the above transactions. Assume straight-line amortization of discounts.

3

Parker Corporation has issued 2,000 shares of common stock and 400 shares of preferred stock for a lump sum of $76,000 cash. The company uses the proportional method.

Instructions

(a) Give the entry for the issuance assuming the par value of the common was $5 and the fair value $30, and the par value of the preferred was $40 and the fair value $50. (Each valuation is on a per share basis and there are ready markets for each stock.)

Question 4 (15 points)

Ellison Company's balance sheet shows:

Common stock, $20 par

Paid-in capital in excess of par

Retained earnings 750,000

Instructions

Record the following transactions by the cost method.

(a) Bought 6,000 shares of its common stock at $29 a share.

(b) Sold 3,000 treasury shares at $30 a share.

(c) Sold 1,500 shares of treasury stock at $26 a share.

Rensing, Inc., has $800,000 of 6% preferred stock and $1 of common stock outstanding, each having a par value of $10 per share. No dividends have been paid or declared during 2011 and 2012. As of December 31, 2013, it is desired to distribute $396,000 in dividends.

Instructions How much will the preferred and common stockholders receive under each of the following assumptions:

1. The preferred is noncumulative and nonparticipating.
2. The preferred is cumulative and nonparticipating.
3. The preferred is cumulative and fully participating. Cupola Awning Corporation introduced a new line of commercial awnings in 2013 that carry a two-year warranty against manufacturer's defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 3% of sales. Sales and actual warranty expenditures for the first year of selling the product were:Sales Actual Warranty Expenditures $37,500REQUIRED:
4. Prepare journal entries that summarize sales of awnings (assume all credit sales) and any aspects of the warranty that should be recorded during 2013.
5. What amount should Cupola report as a liability at December 13, 2013? Sterling Co. includes one coupon in each bag of dog food it sells. In return for 4 coupons, customers receive a dog toy that the company purchases for $1.50 each. Sterling's experience indicates that 60 percent of the coupons will be redeemed. During 2014, 100,000 bags of dog food were sold, 12,000 toys were purchased, and 40,000 coupons were redeemed. During 2015, 120,000 bags of dog food were sold, 16,000 toys were purchased, and 60,000 coupons were redeemed.InstructionsDetermine the premium expense to be reported in the income statement and the premium liability on the balance sheet for 2014 and 2015.