Adapted from Wiley Case 15-14 Effects of Transactions BACKGROUND The events listed below relate to Rice Inc. You are to assume that at the start of the year, the corporation’s accounts showed only common stock ($100 par) outstanding, 100,000 shares issued, a current ratio of 2.7:1, and an apparent net income of about $800,000 for the year before giving effect to these events. The book value per share of stock was about $150/share, using the definition Book value per share = (total stockholders’ equity – preferred stock)/common shares outstanding. Each dated event is generally independent of the others, but beware cumulative effects, viewing them for exceptions and their relevance to subsequent events to ensure appropriate coverage for each transaction. Assume that all dated events occurred during 2014, noting the 2013 originations for some, and that the amount involved in each case is sufficiently material to distort reported net income if improperly included in the determination of net income. Assume further that each transaction was recorded in conformance with the U.S. generally accepted accounting principles and, where applicable, in conformity with the all-inclusive concept of the income statement. REQUIRED:For each Item, Numbers 1-9, perform the following, using the descriptive phrases listed below the steps in Step 3. For each Event, #1-9, please group all requirements A/B/C with the JE from A. Prepare a General Journal in good form, but insert B & C with it. Step A: Prepare a Journal Entry for each item, numbered 1-9, with an appropriate Journal Entry or the notation that “No JE is needed.” Step B: Describe what if any other reporting or disclosure action is needed along with or in lieu of a ledger posting. Step C: For each JE, numbers 1 through 9: Select as many descriptive phrases below, selecting either increased or decreased, as you deem appropriate to recognize the effect(s) of each event as of the date of the transaction. Place the comments as bullets below the JE Description with the the appropriate effect of ”Increased” or Decreased and ALL statement or ratios affected. (Could be more than one.) Descriptive phrases for disclosing attributes of the numbered transactions below for use in Step C. Increased OR Decreased the corporation’s 2014 net income. Increased OR Decreased the corporation’s total retained earnings directly (i.e., not via net income). Increased OR Decreased the corporation’s current ratio. Increased OR Decreased each stockholder’s proportionate share of total stockholders’ equity. Increased OR Decreased each stockholder’s equity per share of stock (book value). Had none of the above effects. List of Events for determination for recognition and reporting, as needed, as JE’s, disclosures, etc. 1. On January 15, the board directed the write-off $50,000 net (Gross $80,000) certain patent rights that had suddenly and unexpectedly become worthless. 2. On February 5, the corporation sold land and a building at a profit that had been idle for some time. Land Book $40,000, Building Gross $250,000 and Net $50,000. Under the terms of the sale, the corporation received a portion ($25,000) of the sales price in cash immediately, the balance maturing over 18 months, the balance due in 3 payments of $30,000 in 6-month intervals, at 6% annual interest. Record the sale with no accrued interest and a second entry for the 1st payment. 3. On March 20, 1,000 shares of Common Treasury stock, originally repurchased in 2013 and carried at $127 per share, was sold for cash at $153 per share. 4. On April 10, the corporation wrote off all of the unamortized discount $18,000 and issue expense $42,000 applicable to bonds that it refinanced in 2013. 5. On May 25, the corporation called in all its outstanding shares of stock (Par $100) and exchanged them for new shares on a 2-for-1 basis, reducing the par value at the same time to $50 per share. Additional Paid in Capital for this Stock Class is $2 million. 6. On June 15, the corporation paid a cash dividend of $0.20/share that had been recorded in the accounts at time of declaration, February 1, 2014 for Stockholders of Record on February 15. 7. On July 23, litigation involving Rice Inc. as defendant was settled in the corporation’s favor, with the plaintiff paying all court costs $23,000 and legal fees $12,000. In 2010, the corporation had appropriately established a special contingency of $140,000 for this court action. Indicate the effect of reversing the whole contingency and an immediate cash payment. 8. On August 28, the corporation received a check for $45,000 for the proceeds of an insurance policy which covered a truck stolen on July 15. No entries concerning the stolen truck, gross $100,000 and net book $55,000, had been made previously since all activity was within the quarter. The proceeds reduce but do not cover completely the loss. 9. On September 9, the remaining 500 shares of Treasury stock, which had been repurchased at and carried at $127 per share since 2013, was issued as a stock dividend. In connection with this distribution, the board of directors of Rice Inc. had authorized a transfer from retained earnings to permanent capital of an amount equal to the aggregate market value ($153 per share) of the shares issued. No entries relating to this dividend had been made previously.