MARKING GUIDE

1. A 2. D 3. C 4. D 5. B

6. B 7. D 8. B 9. C 10. C

Question 1 (3.0 points):

KENTO CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2021
Cash flows from operating activities
Net income .................................................................................... $29,300
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation expense............................................................. $14,100
Loss from disposal of the investment ................................... 4,300
Increase in inventory ............................................................. (2,200)
Decrease in accounts receivable ........................................... 1,800
Decrease in accounts payable ............................................... (2,300)
Increase in unearned revenue ................................................ 1,700 17,400
Net cash provided by operating activities ............................ 46,700
Cash flows from investing activities
Proceeds from the sale of the investment ...................................... 14,200
Acquisition of the new equipment for cash.................................... (6,200)
Net cash used by investing activities .................................... 8,000
Cash flows from financing activities
Issuance of common stock ............................................................. 32,000
Payment of cash dividends.............................................................. (15,000)
Net cash provided by financing activities ............................. . 17,000
Increase in cash .................................................................................... 71,700
Cash at beginning of period .................................................................... 22,500
Cash at end of period .............................................................................. $94,200
Question 2 (3.0 points):
On Nov. 1st, 2021, Pixie Corp. issued $5,200,000, 9.5%, 7-year bonds. The market discount rate at
that time was 9.0%. The bonds were dated Nov. 1st, 2021, and pay interest semi-annually on May 1st
and Nov. 1st. Financial statements are prepared annually on Dec. 31st.
Requirements
(a) Prepare the journal entry to record the issuance of the bonds on Nov. 1, 2021. (1.5 point)
Bond’s price:

Bond Price = C*  (1-(1+r)-n/r ) + F/(1+r)n

Bond price = $1,026/ bond

Nov. 1 Cash (5,200,000/1,000) * 1,026 5,332,897

Premium on Bonds Payable 132,897

Bonds Payable 5,200,000

(b) Prepare the journal entry to accrued bond interest on Dec. 31, 2021. (0.5 point)

Dec. 31 Interest Expense (= 82,333 - 3,164) 79,169

Premium on BP (132,897/7/12*2) 3,164

Interest Payable (5,200,000 * 9.5%/12*2) 82,333

(c) Prepare the journal entry to record the interest payment on May 1, 2022 (1.0 point)

May 1 Interest Payable 82,333

Interest Expense (= 247,000 + 6,328 – 82,333) 158,338
Premium on BP (132,897/7/12*4) 6,329
Cash (5,200,000 * 9.5% / 2) 247,000

Question 3: (2.0 points)

a. Journal entries: (2.0 points)
PS: 8,200 shares @ 37.5
CS: 315,000 shares @ 15.6
TS: 12,500 shares @ 14.2

Jan. 07 Cash ............................................................................... 68,400

Preferred Stock (1,800 X $36)............................... 64,8
Paid-in Capital in Excess of
Stated Value—Preferred Stock........................... 3,6
Apr. 14 Treasury Stock (14,200 X $15.1)..................................... 214,420
Cash ...................................................................... 214,42

Oct. 20 Cash Dividends ($36 x 14% x (8,200 + 1,800))............. 50,400

Dividends Payable................................................. 50,400

Nov. 20 Dividends Payable........................................................... 50,400

Cash ...................................................................... 50,400

Dec. 5 Cash Dividends............................................................... 348,843

[315,000* - 12,500 - 14,200)] X $1.21
Dividends Payable................................................. 348,843

Dec. 31 Dividends Payable........................................................... 348,843

Cash ...................................................................... 348,843

Dec. 31 Profit and loss summary.................................................. 810,000

Retained Earnings.................................................. 810,00

Dec. 31 Retained Earnings........................................................... 399,243

Cash dividends (348,843+ 50,400)........................ 399,243

*$4,410,000 ÷ $14