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1) When the cash proceeds from a bond issued with detachable stock warrants exceed the sum of the

par value of the bonds and the fair market value of the warrants, the excess should be credited to A. B. C. a liability account. retained earnings. premium on bonds payable.

D. additional paid-in capital from stock warrants.

2) The conversion of preferred stock into common stock requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be A. B. C. D. item. treated as a prior period adjustment. reflected currently in income as an extraordinary item. treated as a direct reduction of retained earnings. reflected currently in income, but NOT as an extraordinary

3) When convertible debt is retired by the issuer, any material difference between the cash acquisition price and the carrying amount of the debt should be A. B. C. D. item. treated as a prior period adjustment. reflected currently in income as an extraordinary item. treated as an adjustment of additional paid-in capital. reflected currently in income, but NOT as an extraordinary

4) When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the A. B. market value of the shares issued. par value of the shares issued.

C. Any of these provides an appropriate basis for recording the transaction.

A. D.

market value of the shares issued. market value of the services received.

5) The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is the A. B. incremental method. proportional method.

C. either the proportional method or the incremental method. D. pro forma method.

6) Which of the following represents the total number of shares that a corporation may issue under the terms of its charter? A. B. C. shares D. shares unissued shares issued shares outstanding authorized

7) How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions? A. stock. B. As an increase in the amount shown for common As paid-in capital from treasury stock transactions.

C. As an extraordinary item shown on the income statement. D. As ordinary earnings shown on the income statement.

8) Treasury shares are

A.

issued and outstanding shares.

B. shares held as an investment by the treasurer of the corporation. C. D. issued but NOT outstanding shares. shares held as an investment of the corporation.

9) When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited? A. Treasury stock for the purchase price.

B. Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the par value. C. Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value. D. Paid-in capital in excess of par for the purchase price.

10) When computing diluted earnings per share, convertible bonds are A. B. C. assumed converted only if they are antidilutive. ignored. assumed converted only if they are dilutive.

D. assumed converted whether they are dilutive or antidilutive.

11) In computing earnings per share, the equivalent number of shares of convertible preferred stock are added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is cumulative, which amount should then be added as an adjustment to the numerator (net earnings)? A. B. C. D. rate) Annual preferred dividend times the income tax rate Annual preferred dividend Annual preferred dividend divided by the income tax rate Annual preferred dividend times (one minus the income tax

12) Antidilutive securities A. include stock options and warrants whose exercise price is less than the average market price of common stock. B. should be included in the computation of diluted earnings per share but NOT basic earnings per share. C. should be ignored in all earnings per share calculations.

D. are those whose inclusion in earnings per share computations would cause basic earnings per share to exceed diluted earnings per share.

13) At its date of incorporation, Wilson, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Wilson acquired 20,000 shares of its common stock at a price of $16 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $12 per share. There have been no other issuances or acquisitions of its own common stock. What effect does the reissuance of the stock have on the following accounts? Retained Earnings | Additional Paid-in Capital A. effect Decrease | No

B. Decrease | Decrease C. effect No effect | No

D. No effect | Decrease

14) A corporation declared a dividend, a portion of which was liquidating. How would this distribution affect each of the following? Additional Paid-in Capital | Retained Earnings A. No effect | Decrease B. effect C. effect Decrease | No No effect | No

D. Decrease | Decrease

A. No effect | Decrease

15) How would the declaration and subsequent issuance of a 10% stock dividend by the issuer affect each of the following when the market value of the shares exceeds the par value of the stock? Additional Common Stock | Paid-in Capital A. effect B. effect C. Increase Increase | No No effect | No Increase |

D. No effect | Increase

16) A reclassification adjustment is reported in the A. income. B. C. D. statement of comprehensive income as other comprehensive income statement as an Other Revenue or Expense. statement of stockholders equity. stockholders equity section of the balance sheet.

17) Which of the following is correct about the effective-interest method of amortization? A. Amortization of a premium decreases from period to period.

B. The effective interest method applied to investments in debt securities is different from that applied to bonds payable. C. The effective-interest method produces a constant rate of return on the book value of the investment from period to period. D. Amortization of a discount decreases from period to period.

18) When investments in debt securities are purchased between interest payment dates, preferably the A. accrued interest is debited to Interest Revenue. B. interest. securities account should include accrued

C. accrued interest is debited to Interest Receivable. D. accrued interest is debited to Interest Expense.

19) When an investor's accounting period ends on a date that does NOT coincide with an interest receipt date for bonds held as an investment, the investor must A. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the total amount of interest to be received at the next interest receipt date. B. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the amount of interest accrued since the last interest receipt date. C. do nothing special and ignore the fact that the accounting period does NOT coincide with the bond's interest period. D. notify the issuer and request that a special payment be made for the appropriate portion of the interest period.

20) Which of the following is NOT a debt security? A. B. Loans receivable Convertible bonds

C. All of these are debt securities. D. Commercial paper

21) Investments in debt securities should be recorded on the date of acquisition at A. B. C. market value. face value plus brokerage fees and other costs incident to the purchase. lower of cost or market.

A.

market value.

D. market value plus brokerage fees and other costs incident to the purchase.

22) When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies? A. The investor should use the equity method to account for its investment unless circum-stances indicate that it is unable to exercise "significant influence" over the investee. B. C. The investor should always use the fair value method to account for its investment. The investor should always use the equity method to account for its investment.

D. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee.

23) An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as Fair Value Method | Equity Method A. A reduction of the investment | A reduction of the investment B. C. D. A reduction of the investment | Income Income | Income Income | A reduction of the investment

24) Byner Corporation accounts for its investment in the common stock of Yount Company under the equity method. Byner Corporation should ordinarily record a cash dividend received from Yount as A. B. additional paid-in capital. dividend income.

C. a reduction of the carrying value of the investment. D. an addition to the carrying value of the investment.

25) Use of the effective-interest method in amortizing bond premiums and discounts results in

A.

a varying amount being recorded as interest income from period to period.

B. a smaller amount of interest income over the life of the bond issue than would result from use of the straight-line method. C. a greater amount of interest income over the life of the bond issue than would result from use of the straight-line method. D. a variable rate of return on the book value of the investment.

26) Held-to-maturity securities are reported at A. B. C. acquisition cost plus amortization of a discount. fair value. acquisition cost.

D. acquisition cost plus amortization of a premium.

27) Debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses and are included as other comprehensive income and as a separate component of stockholders' equity are A. B. trading debt securities. never-sell debt securities.

C. held-to-maturity debt securities. D. available-for-sale debt securities.

28) The accounting for fair value hedges records the derivative at its A. value. B. cost. C. cost. D. carrying historical amortized fair value.

A. value.

carrying

29) Gains or losses on cash flow hedges are A. income. B. C. D. recorded in equity, as part of other comprehensive reported directly in retained earnings. ignored completely. reported directly in net income.

30) All of the following statements regarding accounting for derivatives are correct EXCEPT that A. they should be reported at fair value.

B. gains and losses resulting from hedge transactions are reported in different ways, depending upon the type of hedge. C. D. they should be recognized in the financial statements as assets and liabilities. gains and losses resulting from speculation should be deferred.

31) The rationale for interperiod income tax allocation is to A. recognize a distribution of earnings to the taxing agency.

B. adjust income tax expense on the income statement to be in agreement with income taxes payable on the balance sheet. C. recognize a tax asset or liability for the tax consequences of temporary differences that exist at the balance sheet date. D. reconcile the tax consequences of permanent and temporary differences appearing on the current year's financial statements.

32) Taxable income of a corporation differs from pretax financial income because of Permanent Differences | Temporary Differences A. Yes B. No No | Yes |

A. Yes C. No D. Yes

No | No | Yes |

33) Which of the following situations would require interperiod income tax allocation procedures? A. B. C. Interest received on municipal bonds Proceeds from a life insurance policy on an officer An excess of percentage depletion over cost depletion

D. A temporary difference exists at the balance sheet date because the tax basis of an asset or liability and its reported amount in the financial statements differ

34) Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income? A. Prepaid royalty received in advance.

B. An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes. C. D. Subscriptions received in advance. Interest received on a municipal obligation.

35) At the December 31, 2007 balance sheet date, Garth Brooks Corporation reports an accrued receivable for financial reporting purposes but NOT for tax purposes. When this asset is recovered in 2008, a future taxable amount will occur and A. B. 2008. C. D. Garth will record a decrease in a deferred tax liability in 2008. total income tax expense for 2008 will exceed current tax expense for pretax financial income will exceed taxable income in 2008. Garth will record an increase in a deferred tax asset in 2008.

36) Which of the following differences would result in future taxable amounts?

A. B. income. C. D. income.

Revenues or gains that are taxable before they are recognized in financial income. Revenues or gains that are recognized in financial income but are never included in taxable Expenses or losses that are tax deductible after they are recognized in financial income. Expenses or losses that are tax deductible before they are recognized in financial

37) In a defined-contribution plan, a formula is used that A. ensures that pension expense and the cash funding amount will be different.

B. requires an employer to contribute a certain sum each period based on the formula. C. D. defines the benefits that the employee will receive at the time of retirement. ensures that employers are at risk to make sure funds are available at retirement.

38) In accounting for a defined-benefit pension plan A. the employer's responsibility is simply to make a contribution each year based on the formula established in the plan. B. the expense recognized each period is equal to the cash contribution.

C. an appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised. D. the liability is determined based upon known variables that reflect future salary levels promised to employees.

39) In a defined-benefit plan, a formula is used that A. B. defines the benefits that the employee will receive at the time of retirement. requires that pension expense and the cash funding amount be the same.

C. requires that the benefit of gain or the risk of loss from the assets contributed to the pension plan be borne by the employee. D. defines the contribution the employer is to make; no promise is made concerning the ultimate benefits to be paid out to the employees.

40) A corporation has a defined-benefit plan. An accrued pension cost will result at the end of the

first year if the A. B. C. fair value of the plan assets exceeds the accumulated benefit obligation. amount of employer contributions exceeds the net periodic pension cost. accumulated benefit obligation exceeds the fair value of the plan assets.

D. amount of net periodic pension cost exceeds the amount of employer contributions.

41) In accounting for a pension plan, any difference between the pension cost charged to expense and the payments into the fund should be reported as A. B. C. accrued or prepaid pension cost. an accrued actuarial liability. an offset to the liability for prior service cost.

D. a charge or credit to unrealized appreciation and depreciation.

42) The interest on the projected benefit obligation component of pension expense A. settled. B. C. D. reflects the rates at which pension benefits could be effectively is the same as the expected return on plan assets. reflects the incremental borrowing rate of the employer. may be stated implicitly or explicitly when reported.

43) Yeager Co. maintains a defined-benefit pension plan for its employees. At each balance sheet date, Yeager should report a minimum liability at least equal to the A. projected benefit obligation.

B. unfunded accumulated benefit obligation. C. D. accumulated benefit obligation. unfunded projected benefit obligation.

44) On January 1, 2008, Pratt Corp. adopted a defined-benefit pension plan. The plan's service cost of $300,000 was fully funded at the end of 2008. Prior service cost was funded by a contribution of $120,000 in 2008. Amortization of prior service cost was $48,000 for 2008. What is the amount of Pratts prepaid pension cost at December 31, 2008? A. 00 B. 00 C. 00 D. 000 $180, $72,0 $168,0 $120,0

45) Interest cost included in the net pension cost recognized for a period by an employer sponsoring a defined-benefit pension plan represents the A. time. B. C. D. increase in the projected benefit obligation due to the passage of shortage between the expected and actual returns on plan assets. increase in the fair value of plan assets due to the passage of time. amortization of the discount on unrecognized prior service cost.

46) On January 1, 2005, Foley Corporation acquired machinery at a cost of $250,000. Foley adopted the double-declining balance method of depreciation for this machinery and had been recording depreciation over an estimated useful life of ten years, with no residual value. At the beginning of 2008, a decision was made to change to the straight-line method of depreciation for the machinery. The depreciation expense to be recorded for the machinery in 2008 is (round to the nearest dollar) A. 86. B. 00. C. 57. D. 00. $25,0 $22,8 $25,6 $18,2

47) Accrued salaries payable of $51,000 were NOT recorded at December 31, 2007. Office supplies on hand of $24,000 at December 31, 2008 were erroneously treated as expense instead of supplies

inventory. Neither of these errors was discovered nor corrected. The effect of these two errors would cause A. 2007 net income and December 31, 2007 retained earnings to be understated $51,000 each.

B. 2008 net income to be understated $75,000 and December 31, 2008 retained earnings to be understated $24,000. C. D. 2007 net income to be overstated $27,000 and 2008 net income to be understated $24,000. 2008 net income and December 31, 2008 retained earnings to be understated $24,000 each.

48) On January 1, 2005, Lynn Corporation acquired equipment at a cost of $600,000. Lynn adopted the double-declining balance method of depreciation for this equipment and had been recording depreciation over an estimated life of eight years, with no residual value. At the beginning of 2008, a decision was made to change to the straight-line method of depreciation for this equipment. Assuming a 30% tax rate, the cumulative effect of this accounting change on beginning retained earnings, net of tax, is A. B. 75. C. 0. D. 9. $77,10 $78,75 $0. $121,8

49) The estimated life of a building that has been depreciated 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years. Based on this information, the accountant should A. B. depreciate the remaining book value over the remaining life of the asset. continue to depreciate the building over the original 50-year life.

C. adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years. D. adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.

50) Which type of accounting change should always be accounted for in current and future periods?

A. B.

Change in reporting entity Change in accounting principle

C. Change in accounting estimate D. Correction of an error

Acc 423 Final Exam Intermediate Financial Accounting III final exam 2 (50 questions answered)

1) Proceeds from an issue of debt securities having stock warrants should NOT be allocated between debt and equity features when A. the allocation would result in a discount on the debt security B. the warrants issued with the debt securities are nondetachable C. exercise of the warrants within the next few fiscal periods seems remote D. the market value of the warrants is NOT readily available

2) The conversion of preferred stock may be recorded by the A. market value method B. par value method C. book value method D. incremental method

3) The conversion of preferred stock into common stock requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be A. treated as a prior period adjustment

B. treated as a direct reduction of retained earnings C. reflected currently in income as an extraordinary item D. reflected currently in income, but NOT as an extraordinary item

4) A primary source of stockholders' equity is A. contributions by stockholders B. both income retained by the corporation and contributions by stockholders C. appropriated retained earnings D. income retained by the corporation

5) Stockholders' equity is generally classified into two major categories: A. retained earnings and unappropriated capital B. earned capital and contributed capital C. appropriated capital and retained earnings D. contributed capital and appropriated capital

6) When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the A. market value of the shares issued B. Any of these provides an appropriate basis for recording the transaction C. par value of the shares issued D. market value of the services received

7) Treasury shares are

A. shares held as an investment by the treasurer of the corporation B. issued but NOT outstanding shares C. shares held as an investment of the corporation D. issued and outstanding shares

8) "Gains" on sales of treasury stock (using the cost method) should be credited to A. paid-in capital from treasury stock B. other income C. capital stock D. retained earnings

9) How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions? A. As ordinary earnings shown on the income statement B. As an extraordinary item shown on the income statement C. As paid-in capital from treasury stock transactions D. As an increase in the amount shown for common stock

10) In computing earnings per share, the equivalent number of shares of convertible preferred stock are added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is cumulative, which amount should then be added as an adjustment to the numerator (net earnings)? A. Annual preferred dividend B. Annual preferred dividend divided by the income tax rate C. Annual preferred dividend times (one minus the income tax rate)

D. Annual preferred dividend times the income tax rate

11) When computing diluted earnings per share, convertible bonds are A. ignored B. assumed converted only if they are dilutive C. assumed converted whether they are dilutive or antidilutive D. assumed converted only if they are antidilutive 12) What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively? A. Decrease and no effect B. Increase and decrease C. Increase and no effect D. Decrease and increase

13) On May 1, 2007, Kent Corp. declared and issued a 10% common stock dividend. Prior to this dividend, Kent had 100,000 shares of $1 par value common stock issued and outstanding. The fair value of Kent 's common stock was $20 per share on May 1, 2007. As a result of this stock dividend, Kent's total stockholders' equity A. did NOT change B. increased by $200,000 C. decreased by $10,000 D. decreased by $200,000

14) How would the declaration and subsequent issuance of a 10% stock dividend by the issuer affect each of the following when the market value of the shares exceeds the par value of the stock? Additional Common Stock | Paid-in Capital

A. Increase | Increase B. No effect | No effect C. Increase | No effect D. No effect | Increase

15) At its date of incorporation, Wilson, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Wilson acquired 20,000 shares of its common stock at a price of $16 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $12 per share. There have been no other issuances or acquisitions of its own common stock. What effect does the reissuance of the stock have on the following accounts? Retained Earnings | Additional Paid-in Capital A. No effect | No effect B. Decrease | Decrease C. Decrease | No effect D. No effect | Decrease

16) Which of the following is correct about the effective-interest method of amortization? A. The effective-interest method produces a constant rate of return on the book value of the investment from period to period. B. The effective interest method applied to investments in debt securities is different from that applied to bonds payable. C. Amortization of a premium decreases from period to period. D. Amortization of a discount decreases from period to period

17) An unrealized holding loss on a company's available-for-sale securities should be reflected in the current financial statements as A. other comprehensive income and deducted in the equity section of the balance sheet.

B. an extraordinary item shown as a direct reduction from retained earnings C. a note or parenthetical disclosure only D. a current loss resulting from holding securities

18) An unrealized holding gain on a company's available-for-sale securities should be reflected in the current financial statements as A. other comprehensive income and included in the equity section of the balance sheet. B. an extraordinary item shown as a direct increase to retained earnings C. a note or parenthetical disclosure only D. a current gain resulting from holding securities

19) Investments in debt securities should be recorded on the date of acquisition at A. face value plus brokerage fees and other costs incident to the purchase B. lower of cost or market C. market value plus brokerage fees and other costs incident to the purchase D. market value

20) Securities which could be classified as held-to-maturity are A. warrants B. redeemable preferred stock C. municipal bonds D. treasury stock

21) Which of the following is NOT a debt security?

A. Commercial paper B. Convertible bonds C. Loans receivable D. All of these are debt securities

22) An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as Fair Value Method | Equity Method A. A reduction of the investment | A reduction of the investment B. Income | Income C. Income | A reduction of the investment D. A reduction of the investment | Income

23) When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies? A. The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee B. The investor should always use the equity method to account for its investment C. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee D. The investor should always use the fair value method to account for its investment

24) Bista Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods? Fair Value Method | Equity Method A. Increase | Decrease B. No Effect | Decrease

C. No Effect | No Effect D. Decrease | No Effect

25) Debt securities that are accounted for at amortized cost, NOT fair value, are A. trading debt securities B. held-to-maturity debt securities C. available-for-sale debt securities D. never-sell debt securities

26) Equity securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses as other comprehensive income and as a separate component of stockholders' equity are A. trading securities where a company has holdings of less than 20% B. available-for-sale securities where a company has holdings of less than 20% C. securities where a company has holdings of between 20% and 50% D. securities where a company has holdings of more than 50%

27) Use of the effective-interest method in amortizing bond premiums and discounts results in A. a smaller amount of interest income over the life of the bond issue than would result from use of the straight-line method B. a greater amount of interest income over the life of the bond issue than would result from use of the straight-line method C. a varying amount being recorded as interest income from period to period D. a variable rate of return on the book value of the investment

28) All of the following are characteristics of a derivative financial instrument EXCEPT the instrument A. All of these are characteristics B. has one or more underlyings and an identified payment provision C. requires a large investment at the inception of the contract D. requires or permits net settlement

29) The accounting for fair value hedges records the derivative at its A. historical cost B. amortized cost C. carrying value D. fair value

30) All of the following statements regarding accounting for derivatives are correct EXCEPT that A. gains and losses resulting from hedge transactions are reported in different ways, depending upon the type of hedge B. they should be recognized in the financial statements as assets and liabilities C. they should be reported at fair value D. gains and losses resulting from speculation should be deferred

31) Taxable income of a corporation differs from pretax financial income because of Permanent Differences | Temporary Differences A. Yes | No

B. No | No C. No | Yes D. Yes | Yes

32) The rationale for interperiod income tax allocation is to A. adjust income tax expense on the income statement to be in agreement with income taxes payable on the balance sheet B. recognize a tax asset or liability for the tax consequences of temporary differences that exist at the balance sheet date C. recognize a distribution of earnings to the taxing agency D. reconcile the tax consequences of permanent and temporary differences appearing on the current year's financial statements

33) Interperiod income tax allocation causes A. tax expense in the income statement to be presented with the specific revenues causing the tax B. tax expense shown on the income statement to equal the amount of income taxes payable for the current year plus or minus the change in the deferred tax asset or liability balances for the year. C. tax expense shown in the income statement to bear a normal relation to the tax liability D. tax liability shown in the balance sheet to bear a normal relation to the income before tax reported in the income statement

34) At the December 31, 2007 balance sheet date, Garth Brooks Corporation reports an accrued receivable for financial reporting purposes but NOT for tax purposes. When this asset is recovered in 2008, a future taxable amount will occur and A. Garth will record a decrease in a deferred tax liability in 2008 B. pretax financial income will exceed taxable income in 2008

C. Garth will record an increase in a deferred tax asset in 2008 D. total income tax expense for 2008 will exceed current tax expense for 2008

35) Which of the following differences would result in future taxable amounts? A. Revenues or gains that are taxable before they are recognized in financial income B. Expenses or losses that are tax deductible after they are recognized in financial income C. Expenses or losses that are tax deductible before they are recognized in financial income D. Revenues or gains that are recognized in financial income but are never included in taxable income

36) Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income? A. Product warranty liabilities B. Advance rental receipts C. Fines and expenses resulting from a violation of law D. Depreciable property

37) In a defined-contribution plan, a formula is used that A. ensures that pension expense and the cash funding amount will be different B. defines the benefits that the employee will receive at the time of retirement C. ensures that employers are at risk to make sure funds are available at retirement D. requires an employer to contribute a certain sum each period based on the formula

38) In accounting for a defined-benefit pension plan

A. the employer's responsibility is simply to make a contribution each year based on the formula established in the plan B. an appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised C. the liability is determined based upon known variables that reflect future salary levels promised to employees D. the expense recognized each period is equal to the cash contribution

39) Which of the following is NOT a characteristic of a defined-contribution pension plan? A. The benefits to be received by employees are defined by the terms of the plan B. The employer's contribution each period is based on a formula C. The benefit of gain or the risk of loss from the assets contributed to the pension fund are borne by the employee D. The accounting for a defined-contribution plan is straightforward and uncomplicated

40) In accounting for a pension plan, any difference between the pension cost charged to expense and the payments into the fund should be reported as A. a charge or credit to unrealized appreciation and depreciation B. an offset to the liability for prior service cost C. accrued or prepaid pension cost D. an accrued actuarial liability

41) The projected benefit obligation is the measure of pension obligation that A. is NOT sanctioned under generally accepted accounting principles for reporting the service cost component of pension expense B. is required to be used for reporting the service cost component of pension expense

C. requires pension expense to be determined solely on the basis of the plan formula applied to years of service to date and based on existing salary levels D. requires the longest possible period for funding to maximize the tax deduction

42) The relationship between the amount funded and the amount reported for pension expense is as follows: A. pension expense may be greater than, equal to, or less than the amount funded B. pension expense must equal the amount funded C. pension expense will be less than the amount funded D. pension expense will be more than the amount funded

43) On January 1, 2008, Pratt Corp. adopted a defined-benefit pension plan. The plan's service cost of $300,000 was fully funded at the end of 2008. Prior service cost was funded by a contribution of $120,000 in 2008. Amortization of prior service cost was $48,000 for 2008. What is the amount of Pratt's prepaid pension cost at December 31, 2008? A. $180,000 B. $72,000 C. $120,000 D. $168,000

44) Reser Corp., a company whose stock is publicly traded, provides a noncontributory definedbenefit pension plan for its employees. The company's actuary has provided the following information for the year ended December 31, 2008: Projected benefit obligation$600,000 Accumulated benefit obligation525,000 Fair value of plan assets825,000 Service cost240,000 Interest on projected benefit obligation24,000 Amortization of unrecognized prior service cost60,000 Expected and actual return on plan assets82,500 The market-related asset value equals the fair value of plan assets. Prior contributions to the defined-benefit pension plan equaled the amount of net periodic pension cost accrued for the previous year end. No contributions have been made for 2008 pension cost. In its December 31, 2008 balance sheet, Reser should report an accrued pension cost of

A. $217,500 B. $406,500 C. $324,000. D. $241,500

45) Effective January 1, 2007, Quayle Co. established a defined-benefit plan with no retro-active benefits. The first of the required equal annual contributions was paid on December 31, 2007. A 10% discount rate was used to calculate service cost and a 10% rate of return was assumed for plan assets. All information on covered employees for 2007 and 2008 is the same. How should the service cost for 2008 compare with 2007, and should the 2007 balance sheet report an accrued or a prepaid pension cost? Service Cost for 2008 Compared to 2007 | Pension Cost Reported on the 2007 Balance Sheet A. Greater than | Prepaid B. Equal to | Accrued C. Equal to | Prepaid D. Greater than | Accrued

46) On January 1, 2005, Foley Corporation acquired machinery at a cost of $250,000. Foley adopted the double-declining balance method of depreciation for this machinery and had been recording depreciation over an estimated useful life of ten years, with no residual value. At the beginning of 2008, a decision was made to change to the straight-line method of depreciation for the machinery. The depreciation expense to be recorded for the machinery in 2008 is (round to the nearest dollar) A. $25,000 B. $25,600 C. $18,286 D. $22,857

47) During 2008, a construction company changed from the completed-contract method to the percentage-of-completion method for accounting purposes but NOT for tax purposes. Gross profit figures under both methods for the past three years appear below: CompletedContractPercentage-of-Completion 2006$ 475,000$ 800,000 2007625,000950,000 2008700,0001,050,000 $1,800,000$2,800,000 Assuming an income tax rate of 40% for all years, the effect of this accounting change on prior periods should be reported by a credit of A. $390,000 on the 2008 income statement B. $600,000 on the 2008 income statement C. $390,000 on the 2008 retained earnings statement D. $600,000 on the 2008 retained earnings statement

48) Accrued salaries payable of $51,000 were NOT recorded at December 31, 2007. Office supplies on hand of $24,000 at December 31, 2008 were erroneously treated as expense instead of supplies inventory. Neither of these errors was discovered nor corrected. The effect of these two errors would cause A. 2007 net income and December 31, 2007 retained earnings to be understated $51,000 each. B. 2008 net income to be understated $75,000 and December 31, 2008 retained earnings to be understated $24,000. C. 2008 net income and December 31, 2008 retained earnings to be understated $24,000 each. D. 2007 net income to be overstated $27,000 and 2008 net income to be understated $24,000. 49) The estimated life of a building that has been depreciated 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years. Based on this information, the accountant should A. depreciate the remaining book value over the remaining life of the asset. B. continue to depreciate the building over the original 50-year life. C. adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years. D. adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.

50) Which type of accounting change should always be accounted for in current and future periods?
A. Change in reporting entity B. Change in accounting principle C. Correction of an error D. Change in accounting estimate

51) When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a
A. change in accounting estimate. B. change in accounting principle. C. correction of an error. D. prior period adjustment

Bonus Questions answered

In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect assumed reacquisition of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would A. B. C. be antidilutive.

fairly present diluted earnings per share on a prospective basis.

reflect the excess of the number of shares assumed issued over the number of shares assumed reacquired as the potential dilution of earnings per share. D. fairly present the maximum potential dilution of diluted earnings per share on a prospective basis

On December 31, 2006, the stockholders' equity section of Clark, Inc., was as follows: Common stock, par value $10; authorized 30,000 shares.

Issued and outstanding 9,000 shares Additional paid-in capital Retained earnings Total stockholders' equity

$ 90,000 116,000 174,000 $380,000

On March 31, 2007, Clark declared a 10% stock dividend, and accordingly 900 additional shares were issued, when the fair market value of the stock was $18 per share. For the three months ended March 31, 2007, Clark sustained a net loss of $32,000. The balance of Clarks retained earnings as of March 31, 2007, should be A. B. C. D. $142,000. $125,800. $134,800. $133,000.

Which of the following is NOT generally correct about recording a sale of a debt security before maturity date? A. B. C. A gain or loss on the sale is NOT extraordinary.

Accrued interest will be received by the seller even though it is NOT an interest payment date.

The entry to amortize a premium to the date of sale includes a credit to the Premium on Investments in Debt Securities. D. An entry must be made to amortize a discount to the date of sale.

If the parent company owns 90% of the subsidiary company's outstanding common stock, the company should generally account for the income of the subsidiary under the A. B. C. D. cost method. divesture method. equity method. fair value method.

An option to convert a convertible bond into shares of common stock is a(n) A. B. C. D. embedded derivative. hybrid security. fair value hedge. host security.

All of the following are characteristics of a derivative financial instrument EXCEPT the instrument A. has one or more underlyings and an identified payment provision. B. C. D. requires or permits net settlement. All of these are characteristics.

requires a large investment at the inception of the contract Taxable income of a corporation

A.

differs from accounting income due to differences in intraperiod allocation between the two methods of income determination. B. C. D. is based on generally accepted accounting principles. is reported on the corporation's income statement.

differs from accounting income due to differences in interperiod allocation and permanent differences between the two methods of income determination.

On January 1, 2005, Baden Co., purchased a machine (its only depreciable asset) for $300,000. The machine has a five-year life, and no salvage value. Sum-of-the-years'-digits depreciation has been used for financial statement reporting and the elective straight-line method for income tax reporting. Effective January 1, 2008, for financial statement reporting, Baden decided to change to the straight-line method for depreciation of the machine. Assume that Baden can justify the change. Baden's income before depreciation, before income taxes, and before the cumulative effect of the accounting change (if any), for the year ended December 31, 2008, is $250,000. The income tax rate for 2008, as well as for the years 2005-2007, is 30%. What amount should Baden report as net income for the year ended December 31, 2008? A. B. C. D. $60,000 $91,000 $175,000 $154,000

When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a A. B. change in accounting principle. change in accounting estimate. C. D. correction of an error. prior period adjustment.

A.

$60,000

50) Hannah Company began operations on January 1, 2007, and uses the FIFO method in costing its raw material inventory. Management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed: Final Inventory FIFO LIFO Net Income (computed under the FIFO method) 2007 2008 $320,000 $360,000 240,000 500,000 300,000 600,000

Based upon the above information, a change to the LIFO method in 2008 would result in net income for 2008 of A. B. C. D. $540,000. $600,000. $660,000. $620,000.

1. A statutory ______________ results when one company acquires all the net assets of another company and the acquired company ceases to exist as a separate legal entity. (Points: 4) a. acquisition. b. combination. c. consolidation. d. merger. 2. Under the economic unit concept, non-controlling interest in net assets is treated as (Points: 4) a. a liability. b. an asset. c. stockholders' equity. d. an expense. 3. The parent company concept adjusts subsidiary net asset values for the (Points: 4) a. differences between cost and fair value. b. differences between cost and book value.

c. total fair value implied by the price paid by the parent. d. total cost implied by the price paid by the parent. 4. SFAS 141R requires that all business combinations be accounted for using (Points: 4) the pooling of interests method. the acquisition method. either the acquisition or the pooling of interests methods. neither the acquisition nor the pooling of interests methods. 5. On May 1, 2011, the Phil Company paid $1,200,000 for 80% of the outstanding common stock of Sage Corporation in a transaction properly accounted for as an acquisition. The recorded assets and liabilities of Sage Corporation on May 1, 2011, follow: On May 1, 2011, it was determined that the inventory of Sage had a fair value of $220,000 and the property and equipment (net) has a fair value of $1,200,000. What is the amount of goodwill resulting from the business combination? (Points: 4) $0. $112,000. $140,000. $28,000. 6. Following its acquisition of the net assets of Sandy Company, Potter Company assigned goodwill of $60,000 to one of the reporting divisions. Information for this division follows:

Based on the preceding information, what amount of goodwill will be reported for this division if its fair value is determined to be $200,000? (Points: 4) $0 $60,000 $30,000 $10,000 7. On the consolidated balance sheet, consolidated stockholders' equity is: (Points: 4)

equal to the sum of the parent and subsidiary stockholders' equity. greater than the parent's stockholders' equity. less than the parent's stockholders' equity. equal to the parent's stockholders' equity. 8. Majority-owned subsidiaries should be excluded from the consolidated statements when: (Points: 4) control does not rest with the majority owner. the subsidiary operates under governmentally imposed uncertainty. a foreign subsidiary is domiciled in a country with foreign exchange restrictions or controls. any of these circumstances exist. 9. Which of the following is a limitation of consolidated financial statements? (Points: 4) Consolidated statements provide no benefit for the stockholders and creditors of the parent company. Consolidated statements of highly diversified companies cannot be compared with industry standards. Consolidated statements are beneficial only when the consolidated companies operate within the same industry. Consolidated statements are beneficial only when the consolidated companies operate in different industries. 10. On January 1, 2011, Polk Company and Sigler Company had condensed balance sheets as follows:

On January 2, 2011 Polk borrowed $240,000 and used the proceeds to purchase 90% of the outstanding common stock of Sigler. This debt is payable in 10 equal annual principal payments, plus interest, starting December 30, 2011. Any difference between book value and the value implied by the purchase price relates to land. On Polk's January 2, 2011 consolidated balance sheet, Current liabilities should be: (Points: 4) $200,000.

$184,000. $160,000. $120,000.

11. In which of the following cases would consolidation be inappropriate? (Points: 4) The subsidiary is in bankruptcy. Subsidiary's operations are dissimilar from those of the parent. The parent owns 90 percent of the subsidiary's common stock, but all of the subsidiary's nonvoting preferred stock is held by a single investor. Subsidiary is foreign.

12. Prior Industries acquired an 80 percent interest in Sanderson Company by purchasing 24,000 of its 30,000 outstanding shares of common stock at book value of $105,000 on January 1, 2010. Sanderson reported net income in 2010 of $45,000 and in 2011 of $60,000 earned evenly throughout the respective years. Prior received $12,000 dividends from Sanderson in 2010 and $18,000 in 2011. Prior uses the equity method to record its investment. Prior should record investment income from Sanderson during 2011 of: (Points: 4) $18,000. $60,000. $48,000. $33,600.

13. P Company purchased 80% of the outstanding common stock of S Company on May 1, 2011, for a cash payment of $318,000. S Company's December 31, 2010 balance sheet reported common stock of $200,000 and retained earnings of $180,000. During the calendar year 2011, S Company earned $210,000 evenly throughout the year and declared a dividend of $75,000 on November 1. What is the amount needed to establish reciprocity under the cost method in the preparation of a consolidated work paper on December 31, 2011? (Points: 4) $52,000 $65,000 $62,000

$108,000

14. Hall, Inc., owns 40% of the outstanding stock of Gloom Company. During 2011, Hall received a $4,000 cash dividend from Gloom. What effect did this dividend have on Hall's 2011 financial statements? (Points: 4) Increased total assets. Decreased total assets. Increased income. Decreased investment account.

15. Parkview Company acquired a 90% interest in Sutherland Company on December 31, 2010, for $320,000. During 2011 Sutherland had a net income of $22,000 and paid a cash dividend of $7,000. Applying the cost method would give a debit balance in the Investment in Stock of Sutherland Company account at the end of 2011 of: (Points: 4) $335,000 $333,500 $313,700 $320,000

16. In the preparation of a consolidated statement of cash flows using the indirect method of presenting cash flows from operating activities, the amount of the non-controlling interest in consolidated income is: (Points: 4) combined with the controlling interest in consolidated net income. deducted from the controlling interest in consolidated net income. reported as a significant noncash investing and financing activity in the notes. reported as a component of cash flows from financing activities.

17. Porter Company acquired an 80% interest in Strumble Company on January 1, 2010, for $270,000 cash when Strumble Company had common stock of $150,000 and retained earnings of $150,000. All excess was attributable to plant assets with a 10-year life. Strumble Company made $30,000 in 2010 and paid no dividends. Porter Company's separate income in 2010 was

$375,000. Controlling interest in consolidated net income for 2010 is: (Points: 4) $405,000. $399,000. $396,000. $375,000.

18. Scooter Company, a 70%-owned subsidiary of Pusher Corporation, reported net income of $240,000 and paid dividends totaling $90,000 during Year 3. Year 3 amortization of differences between current fair values and carrying amounts of Scooter's identifiable net assets at the date of the business combination was $45,000. The non-controlling interest in net income of Scooter for Year 3 was: (Points: 4) $58,500. $13,500. $27,000. $72,000.

19. Goodwill represents the excess of the implied value of an acquired company over the: (Points: 4) aggregate fair values of identifiable assets less liabilities assumed. aggregate fair values of tangible assets less liabilities assumed. aggregate fair values of intangible assets less liabilities assumed. book value of an acquired company.

20. The SEC requires the use of push down accounting when the ownership change is greater than: (Points: 4) 50% 80% 90% 95%

21. On January 1, 2010, Lester Company purchased 70% of Stork Corporation's $5 par common stock for $600,000. The book value of Stork net assets was $640,000 at that time. The fair value of Stork's identifiable net assets were the same as their book value except for equipment that was $40,000 in excess of the book value. In the January 1, 2010, consolidated balance sheet, goodwill would be reported at: (Points: 4) $152,000. $177,143. $80,000. $0.

22. Sales from one subsidiary to another are called (Points: 4) downstream sales. upstream sales. intersubsidiary sales. horizontal sales.

23. Failure to eliminate intercompany sales would result in an overstatement of consolidated (Points: 4) net income. gross profit. cost of sales. all of these.

24. In determining controlling interest in consolidated income in the consolidated financial statements, unrealized intercompany profit on inventory acquired by a parent from its subsidiary should: (Points: 4) not be eliminated. be eliminated in full. be eliminated to the extent of the parent company's controlling interest in the subsidiary.

be eliminated to the extent of the non-controlling interest in the subsidiary.

25. P Corporation acquired a 60% interest in S Corporation on January 1, 2011, at book value equal to fair value. During 2011, P sold merchandise that cost $135,000 to S for $189,000. Onethird of this merchandise remained in S's inventory at December 31, 2011. S reported net income of $120,000 for 2011. P's income from S for 2011 is: (Points: 4) $36,000. $50,400. $54,000. $61,200.

26. P Company owns an 80% interest in S Company. During 2011, S sells merchandise to P for $200,000 at a profit of $40,000. On December 31, 2011, 50% of this merchandise is included in P's inventory. Income statements for P and S are summarized below:

Non-controlling interest in income for 2011 is: (Points: 4) $4,000. $19,200. $20,000. $24,000.
1. In years subsequent to the year a 90% owned subsidiary sells equipment to its parent company at a gain, the non-controlling interest in consolidated income is computed by multiplying the non-controlling interest percentage by the subsidiary's reported net income: (Points: 4) minus the net amount of unrealized gain on the intercompany sale. plus the net amount of unrealized gain on the intercompany sale. minus intercompany gain considered realized in the current period. plus intercompany gain considered realized in the current period.

2. Pratt Corporation owns 100% of Stone Company's common stock. On January 1,

2011, Pratt sold equipment with a book value of $210,000 to Stone for $300,000. Stone is depreciating the equipment over a ten-year life by the straight-line method. The net adjustments to compute 2011 and 2012 consolidated income would be an increase (decrease) of: (Points: 4) ($90,000) $0 ($90,000) $9,000 ($81,000) $0 ($81,000) $9,000

3. In years subsequent to the upstream intercompany sale of non-depreciable assets, the necessary consolidated work paper entry under the cost method is to debit the (Points: 4) Non-controlling interest and Retained Earnings (Parent) accounts, and credit the non-depreciable asset. Retained Earnings (Parent) account and credit the non-depreciable asset. Non-depreciable asset, and credit the Non-controlling interest and Investment in Subsidiary accounts. No entries are necessary.

4. On January 1, 2010 S Corporation sold equipment that cost $120,000 and had a book value of $48,000 to P Corporation for $60,000. P Corporation owns 100% of S Corporation and the equipment has a 4-year remaining life. What is the effect of the sale on P Corporation's Equity from Subsidiary Income account for 2011? (Points: 4) no effect increase of $12,000. decrease of $12,000. increase of $3,000.

5. Parks Corporation owns 100% of Starr Company's common stock. On January 1, 2011, Parks sold equipment with a book value of $350,000 to Starr for $500,000. Starr is depreciating the equipment over a ten-year life by the straight-line method. The net adjustments to compute 2011 and 2012 consolidated income would be an

increase (decrease) of (Points: 4) ($150,000) $0 ($150,000) $15,000 ($135,000) $0 ($135,000) $15,000

6. In January 2008, S Company, an 80% owned subsidiary of P Company, sold equipment to P Company for $990,000. S Company's original cost for this equipment was $1,000,000 and had accumulated depreciation of $100,000. P Company continued to depreciate the equipment over its 9 year remaining life using the straight-line method. This equipment was sold to a third party on January 1, 2011 for $720,000. What amount of gain should P Company record on its books in 2011? (Points: 4) $30,000. $60,000. $120,000. $180,000.

7. In a troubled debt restructuring involving a modification of terms, the debtor's gain on restructuring: (Points: 4) will equal the creditor's gain on restructuring. will equal the creditor's loss on restructuring. may not equal the creditor's gain on restructuring. may not equal the creditor's loss on restructuring.

8. An involuntary petition filed by a firm's creditors whereby there are twelve or more creditors must be signed by at least: (Points: 4) two creditors. three creditors. five creditors.

six creditors.

9. Which of the following items is not a specified priority for unsecured creditors in a bankruptcy petition? (Points: 4) Administration fees incurred in administering the bankrupt's estate. Unsecured claims for wages earned within 90 days and are less than $4,650 per employee. Unsecured claims of governmental units for unpaid taxes. Unsecured claims on credit card charges that do not exceed $3,000.

10. When a secured claim is not fully settled by the selling of the underlying collateral, the remaining portion: (Points: 4) of the claim cannot be collected by the creditor. remains as a secured claim. is classified as an unsecured priority claim. is classified as an unsecured non-priority claim.

11. Layne Corporation entered into a troubled debt restructuring agreement with their local bank. The bank agreed to accept land with a carrying amount of $360,000 and a fair value of $540,000 in exchange for a note with a carrying amount of $765,000. Ignoring income taxes, what amount should Layne report as a gain on its income statement? (Points: 4) $0. $180,000. $225,000. $405,000.

12. The final settlement with unsecured creditors is computed by dividing: (Points: 4) total net realizable value by total unsecured creditor claims. net free assets by total secured creditor claims.

total net realizable value by total secured creditor claims. net free assets by total unsecured creditor claims.

13. A discount or premium on a forward contract is deferred and included in the measurement of the related foreign currency transaction if the contract is classified as a: (Points: 4) hedge of a net investment in a foreign entity. hedge of an exposed asset or liability position. hedge of an identifiable foreign currency commitment. contract acquired to speculate in the movement of exchange rates.

14. On September 1, 2011, Swash Plating Company entered into two forward exchange contracts to purchase 250,000 Euros each in 90 days. The relevant exchange rates are as follows:

The first forward contract was to hedge a purchase of inventory on September 1, payable on December 1. On September 30, what amount of foreign currency transaction loss should Swash Plating report in income? (Points: 4) $0. $2,500. $5,000. $10,000.

15. Caldron Company purchased equipment for 375,000 British pounds from a supplier in London on July 3, 2011. Payment in British pounds is due on Sept. 3, 2011. The exchange rates to purchase one pound is as follows:

On its August 31, 2011, income statement, what amount should Caldron report as a foreign exchange transaction gain: (Points: 4) $18,750. $3,750. $11,250.

$0.

16. The translation adjustment that results from translating the financial statements of a foreign subsidiary using the current rate method should be: (Points: 4) included as a separate item in the stockholders' equity section of the balance sheet.

1) Proceeds from an issue of debt securities having stock warrants should NOT be allocated between debt and equity features when A. the allocation would result in a discount on the debt security.

B the warrants issued with the debt securities are . nondetachable. C. exercise of the warrants within the next few fiscal periods seems remote.

D the market value of the warrants is NOT readily available. .

2) The conversion of preferred stock may be recorded by the A. B. C. market value method. par value method. book value method.

D incremental . method.

3) The conversion of preferred stock into common stock requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be

A.treated as a prior period adjustment. B. C. treated as a direct reduction of retained earnings. reflected currently in income as an extraordinary item.

D reflected currently in income, but NOT as an . extraordinary item.

4) A primary source of stockholders' equity is A.contributions by stockholders. B. both income retained by the corporation and contributions by stockholders.

C.appropriated retained earnings. D income retained by the corporation. .

5) Stockholders' equity is generally classified into two major categories: A. B. C. retained earnings and unappropriated capital. earned capital and contributed capital. appropriated capital and retained earnings.

D contributed capital and appropriated . capital.

6) When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the A.market value of the shares issued. B.Any of these provides an appropriate basis for recording

the transaction. C.par value of the shares issued. D market value of the services received. .

7) Treasury shares are A. shares held as an investment by the treasurer of the corporation.

B.issued but NOT outstanding shares. C.shares held as an investment of the corporation. D issued and outstanding shares. .

8) "Gains" on sales of treasury stock (using the cost method) should be credited to A. paid-in capital from treasury stock.

B.other income. C.capital stock. D retained earnings. .

9) How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions? A. B. C. As ordinary earnings shown on the income statement. As an extraordinary item shown on the income statement. As paid-in capital from treasury stock transactions.

D As an increase in the amount shown for

. common stock.

10) In computing earnings per share, the equivalent number of shares of convertible preferred stock are added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is cumulative, which amount should then be added as an adjustment to the numerator (net earnings)? A.Annual preferred dividend B. C. Annual preferred dividend divided by the income tax rate Annual preferred dividend times (one minus the income tax rate)

D Annual preferred dividend times the income tax rate .

11) When computing diluted earnings per share, convertible bonds are A.ignored. B. C. assumed converted only if they are dilutive. assumed converted whether they are dilutive or antidilutive.

D assumed converted only if they are antidilutive. .

12) What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively? A. B. C. Decrease and no effect Increase and decrease Increase and no effect

D Decrease and . increase

13) On May 1, 2007, Kent Corp. declared and issued a 10% common stock dividend. Prior to this dividend, Kent had 100,000 shares of $1 par value common stock issued and outstanding. The fair value of Kent 's common stock was $20 per share on May 1, 2007. As a result of this stock dividend, Kent's total stockholders' equity A.did NOT change. B. C. increased by $200,000. decreased by $10,000.

D decreased by . $200,000.

14) How would the declaration and subsequent issuance of a 10% stock dividend by the issuer affect each of the following when the market value of the shares exceeds the par value of the stock?

Additional Common Stock | Paid-in Capital A Increase | . Increase B. C. No effect | No effect Increase | No effect

D No effect | . Increase

15)

At its date of incorporation, Wilson, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Wilson acquired 20,000 shares of its common stock at a price of $16 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $12 per share. There have been no other issuances or acquisitions of its own common stock. What effect does the reissuance of the stock have on the following accounts? Retained Earnings | Additional Paid-in Capital A. B. C. No effect | No effect Decrease | Decrease Decrease | No effect

D No effect | . Decrease

16) Which of the following is correct about the effective-interest method of amortization? A. B. The effective-interest method produces a constant rate of return on the book value of the investment from period to period. The effective interest method applied to investments in debt securities is different from that applied to bonds payable.

C.Amortization of a premium decreases from period to period. D Amortization of a discount decreases from period to period. .

17) An unrealized holding loss on a company's available-for-sale securities should be reflected in the current financial statements as A. B. other comprehensive income and deducted in the equity section of the balance sheet. an extraordinary item shown as a direct reduction from retained earnings.

C.a note or parenthetical disclosure only. D a current loss resulting from holding securities. .

18) An unrealized holding gain on a company's available-for-sale securities should be reflected in the current financial statements as A. B. other comprehensive income and included in the equity section of the balance sheet. an extraordinary item shown as a direct increase to retained earnings.

C.a note or parenthetical disclosure only. D a current gain resulting from holding securities. .

19) Investments in debt securities should be recorded on the date of acquisition at A. face value plus brokerage fees and other costs incident to the purchase.

B.lower of cost or market. C. market value plus brokerage fees and other costs incident to the purchase.

D market value. .

20) Securities which could be classified as held-to-maturity are A.warrants. B. redeemable preferred stock.

C.municipal bonds. D treasury stock. .

21) Which of the following is NOT a debt security? A.Commercial paper B.Convertible bonds C.Loans receivable D All of these are debt . securities.

22) An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as Fair Value Method | Equity Method A. A reduction of the investment | A reduction of the investment

B.Income | Income C Income | A reduction of the investment . D A reduction of the investment | Income .

23) When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies? The investor should use the equity method to account for its investment A.unless circum-stances indicate that it is unable to exercise "significant influence" over the investee. B.The investor should always use the equity method to account for its investment. C. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee.

D The investor should always use the fair value method to account for its . investment.

24) Bista Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods? Fair Value Method | Equity Method A. B. C. Increase | Decrease No Effect | Decrease No Effect | No Effect

D Decrease | No . Effect

25) Debt securities that are accounted for at amortized cost, NOT fair value, are A.trading debt securities. B. C. held-to-maturity debt securities. available-for-sale debt securities.

D never-sell debt securities. .

26) Equity securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses as other comprehensive income and as a separate component of stockholders' equity are A. B. trading securities where a company has holdings of less than 20%. available-for-sale securities where a company has holdings of less than 20%.

C.

securities where a company has holdings of between 20% and 50%.

D securities where a company has holdings of more than 50%. .

27) Use of the effective-interest method in amortizing bond premiums and discounts results in A. B. a smaller amount of interest income over the life of the bond issue than would result from use of the straight-line method. a greater amount of interest income over the life of the bond issue than would result from use of the straight-line method.

C.a varying amount being recorded as interest income from period to period. D a variable rate of return on the book value of the investment. .

28) All of the following are characteristics of a derivative financial instrument EXCEPT the instrument A.All of these are characteristics. B. C. has one or more underlyings and an identified payment provision. requires a large investment at the inception of the contract.

D requires or permits net settlement. .

29) The accounting for fair value hedges records the derivative at its A. B. C. historical cost. amortized cost. carrying

value. D. fair value.

31. 11-43. Book value per share of common stock is derived by which of the following A. Stockholders equity divided by the number of shares authorized. B. Stockholders equity divided by the number of shares outstanding. C. Net income divided by the number of shares outstanding D. Net income divided by the number of shares authorized. 32. 11-44. The net assets of a corporation are equal to: A. Total assets - total liabilities. B. Total assets - retained earnings. C. Total assets + total liabilities. D. Total assets + retained earnings. 33. 11-46. When shares of stock are sold from one investor to another they will trade at: A. Par value. B. Book value. C. Market value. D. Stated Value. 34. 11-49. Which of the following is not a characteristic of the corporate form of organization? A. The owners of a corporation cannot lose more than the amount of their investment. B. Shares of stock in a corporation are more readily transferable than is an interest in a partnership. C. Stockholders have authority to decide by majority vote the amount of dividends to be paid. D. The corporation is a very efficient vehicle for obtaining large amounts of capital required for large-scale production. 35. 11-52. A primary disadvantage of the corporate form of organization is: A. Unlimited personal liability for business debts. B. Ownership is difficult to transfer. C. Corporate earnings are subject to double taxation. D. Management is separated from ownership. 36. 11-53. Public corporations are required by law or regulation to perform all of the following except: A. Submit much of their financial information to the SEC for review. B. Make regularly scheduled dividend payments to all

30) All of the following statements regarding accounting for derivatives are correct EXCEPT that A. gains and losses resulting from hedge transactions are reported in different ways, depending upon the type of hedge.

B.they should be recognized in the financial statements as assets and liabilities. C.they should be reported at fair value. D gains and losses resulting from speculation should be deferred. . 1. How would the carrying value of a bond payable be affected by amortization of each of the following? Discount A. B. C. D. No effect Increase Increase Decrease Premium No effect No effect Decrease Increase

2. White Sox Corporation issued $200,000 of 10-year bonds on January 1. The bonds pay interest on January 1 and July 1 and have a stated rate of 10 percent. If the market rate of interest at the time the bonds are sold is 8 percent, what will be the issuance price of the bonds? A. $175,078 C. $215,902 B. $211,283 D. $227,183

Please see the attached excel sheet

3. On January 1, 2007, Felipe Hospital issued a $250,000, 10 percent, 5-year bond for $231,601. Interest is payable on June 30 and December 31. Felipe uses the effective-interest method to amortize all premiums and discounts. Assuming an

effective interest rate of 12 percent, approximately how much discount will be amortized on December 31, 2007? A. $2,230 B. $1,480 C. $1,396 D. $987

Please see the attached excel sheet

4. On February 24, BMC Company purchased 4,000 shares of Winn Corp.s newly issued 6 percent cumulative $75 par preferred stock for $304,000. Each share carried one detachable stock warrant entitling the holder to acquire at $10 one share of Winn no-par common stock. On February 25, the market price of the preferred stock ex-warrants was $72 per share, and the market price of the stock warrants was $8 per warrant. On December 29, BMC sold all the stock warrants for $41,000. The gain on the sale of the stock warrants was A. $0. B. $1,000. C. $9,000. D. $10,600.

Market price of preferred stock (ex-warrant) = $75 Market Price of Warrants = $8

Proportion of warrants to Proceeds = $8/ ($72 + $8)

= $8 / $80

= 0.10 = 10%

Value of warrants = $304,000 10%

= $34,400

Gain on sale of warrants = $41,000 - $34,400

= $10,600

5. Victor Corporation was organized on January 2 with 100,000 authorized shares of $10 par value common stock. During the year, Victor had the following capital transactions:

January 5issued 75,000 shares at $14 per share December 27purchased 5,000 shares at $11 per share

Victor used the par value method to record the purchase of the treasury shares. What would be the balance in the paid-in capital from treasury stock account at December 31? A. $0 B. $5,000 C. $15,000 D. $20,000

= ($14 - $11) 5,000

= $15,000

6. On June 30, 2007, Country Inc. had outstanding 10 percent, $1,000,000 face amount, 15-year bonds maturing on June 30, 2012. Interest is paid on June 30 and December 31, and bond discount and bond issue costs are amortized on these dates. The unamortized balances on June 30, 2007, of bond discount and bond issue costs were $55,000 and $20,000, respectively. Country reacquired all of these bonds at 96 on June 30, 2007, and retired them. Ignoring income taxes, how much gain or loss should Country record on the bond retirement?

A. Loss of $15,000 C. Gain of $5,000 B. Loss of $35,000 D. Gain of $40,000

7. Ellis Company has 1,000,000 shares of common stock authorized with a par value of $3 per share of which 600,000 shares are outstanding. Ellis authorized a stock dividend when the market value was $8 per share, entitling its stockholders to one additional share for each share held. The par value of the stock was not changed. Assuming the declaration is not recorded separately, what entry, if any, should Ellis make to record distribution of the stock dividend? A. Retained Earnings Common Stock Gain on Stock Dividends B. Retained Earnings Common Stock C. Retained Earnings Common Stock Paid-In Capital from Stock Dividends $4,800,000 $1,800,000 $3,000,000 $1,800,000 $1,800,000 $4,800,000 $1,800,000 $3,000,000

D. Memorandum entry noting the number of additional shares issued as a dividend

8. Assuming the straight-line method of amortization is used, the average yearly interest expense on a $250,000, 11 percent, 20-year bond issued at 94 would be A. $26,750. C. $28,250. B. $27,500. D. $29,500.

9. Which of the following would be the entry to record the issuance of common stock for fully paid stock subscriptions? A. A memorandum entry B. Common Stock Subscribed Common Stock Additional Paid-In Capital C. Common Stock Subscribed Subscriptions Receivable D. Common Stock Subscribed Common Stock

10. If a $6,000, 10 percent, 10-year bond was issued at 104 plus accrued interest two months after the authorization date, how much cash was received by the issuer? A. $6,000 B. $6,240 C. $6,340 D. $6,600

11. On January 2, 2007, Stoner Corporation granted stock options to key employees for the purchase of 60,000 shares of the companys common stock at $25 per share. The options are intended to compensate employees for the next two years. The options are exercisable within a four-year period beginning January 1, 2009, by grantees still in the employ of the company. The market price of Stoners common stock is $32 per share at the date of grant, and application of an option pricing model results in a computed value of $10 per option as of the grant date. Assume that no stock options were terminated during the year. How much should Stoner charge to compensation expense for the year ended December 31, 2007? A. $600,000 C. $300,000 B. $420,000 D. $210,000

Total Compensation Expense = Number of Shares to Be Issued Price per Share as per the option pricing model

Total Compensation = 60,000 $10

= $600,000

This amount is expensed over the period from the date of grant till the vesting date (which is 2 years from January 2, 2007 to January 1, 2009)

Therefore Compensation Expense for the year ended December 31, 2007 = $600,000 / 2

= $300,000

12. On January 2, 2007, the board of directors of Gimli Mining Corporation declared a cash dividend of $1,200,000 to stockholders of record on January 18, 2007, and payable on February 10, 2007. The dividend is permissible by law in Gimlis state of incorporation.

Selected data from Gimlis December 31, 2006, balance sheet follow: Accumulated depletion $ 200,000 Capital stock 1,100,000 Additional paid-in capital 800,000 Retained earnings 500,000 The $1,200,000 dividend includes a liquidating dividend of A. $800,000. B. $700,000. C. $600,000. D. $200,000.

13. At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the A. declaration of a stock split. B. declaration of a stock dividend. C. purchase of treasury stock. D. payment in full of subscribed stock.

14. A company issued rights to its existing shareholders to acquire, at $15 per share, 5,000 unissued shares of common stock with a par value of $10 per share. Common Stock will be credited at A. $15 per share when the rights are exercised. B. $15 per share when the rights are issued. C. $10 per share when the rights are exercised. D. $10 per share when the rights are issued.

15. On December 10, Daniel Co. split its stock 5-for-2 when the market value was $65 per share. Prior to the split, Daniel had 200,000 shares of $15 par value stock. After the split, the par value of the stock was A. $3.00. B. $6.00. C. $15.00. D. $26.00.

16. Thorpe Corporation holds 10,000 shares of its $10 par common stock as treasury stock, which was purchased in 2006 at a cost of $120,000. On December 10, 2007, Thorpe sold all 10,000 shares for $210,000. Assuming that Thorpe used the cost method of accounting for treasury stock, this sale would result in a credit to A. Paid-In Capital from Treasury Stock of $90,000. B. Paid-In Capital from Treasury Stock of $110,000. C. Gain on Sale of Treasury Stock of $90,000.

D. Retained Earnings of $90,000.

17. The stockholders equity section of Dolphin Corporation as of December 31, 2007, contained the following accounts:

Common stock, 25,000 shares authorized; 10,000 shares issued and outstanding $ 30,000

Capital contributed in excess of par Retained earnings

40,000 80,000

$150,000

Dolphins board of directors declared a 10 percent stock dividend on April 1, 2008, when the market value of the stock was $7 per share. Accordingly, 1,000 new shares were issued. All of Dolphins stock has a par value of $3 per share. Assuming

Dolphin sustained a net loss of $12,000 for the quarter ended March 31, 2008, what amount should Dolphin report as retained earnings as of April 1, 2008? A. $61,640 B. $64,000 C. $68,000 D. $73,000

Correct answer is $61,000, please send a note to the instructor to check that, here are the calculations

The 10% stock dividend would result in 10,000 10%=1,000 new shares and reduce the retained earnings by 1,000 7=$7,000. There is a net loss of 12,000. Ending retained earnings = Beginning balance stock dividend net loss

= 80,000-7,000-12,000=$61,000

18. On September 20, 2007, Nozzle Corporation declared the distribution of the following dividend to its stockholders of record as of September 30, 2007:

Investment in 100,000 shares of Astro Corporation stock, carrying value $600,000; fair market value on September 20, $1,450,000; fair market value on September 30, $1,575,000.

The entry to record the declaration of the property dividend would include a debit to Retained Earnings of A. $1,575,000. B. $1,450,000. C. $850,000. D. $600,000.

Property dividend is based on the fair market value at the date of declaration. The amount is $1,450,000 which is fair market value on Sept 20, the date of declaration

19. At December 31, 2007, Reed Corp. owed notes payable of $1,000,000 with a maturity date of April 30, 2008. These notes didnt arise from transactions in the normal course of business. On February 1, 2008, Reed issued $3,000,000 of 10-year bonds with the intention of using part of the bond proceeds to liquidate the $1,000,000 of notes payable. Reeds December 31, 2007, financial statements were issued on March 29. How much of the $1,000,000 notes payable should be classified as current in Reeds balance sheet at December 31, 2007?

A. $0

C. $900,000

B. $100,000 D. $1,000,000

Since Reed issued $3,000,000 of long-term liabilities to liquidate the $1,000,000 notes payable on December 31, 2007, then on December 31, 2008, there are no short-term (current) liabilities to be reported on the balance sheet

20. Bonds usually sell at a premium A. when the market rate of interest is greater than the stated rate of interest on the bonds. B. when the stated rate of interest on the bonds is greater than the market rate of interest. C. when the price of the bonds is greater than their maturity value. D. in none of the above cases. 1. If the interest rate is 10%, the factor for the future value of annuity due of 1 for n = 5, i = 10% is equal to the factor for the future value of an ordinary annuity of 1 for n = 5, i = 10% (Points: 6) plus 1.10. minus 1.10. multiplied by 1.10. divided by 1.10.

2. Which statement is false? (Points: 6) The factor for the future value of an annuity due is found by multiplying the ordinary annuity table value by one plus the interest rate. The factor for the present value of an annuity due is found by multiplying the ordinary annuity table value by one minus the interest rate. The factor for the future value of an annuity due is found by subtracting 1.00000 from the ordinary annuity table value for one more period. The factor for the present value of an annuity due is found by adding 1.00000 to the ordinary annuity table value for one less period.

3. Ed Sloan wants to withdraw $20,000 (including principal) from an investment fund at the end of each year for five years. How should he compute his required initial investment at the beginning of the first year if the fund earns 10% compounded annually? (Points: 6) $20,000 times the future value of a 5-year, 10% ordinary annuity of 1. $20,000 divided by the future value of a 5-year, 10% ordinary annuity of 1. $20,000 times the present value of a 5-year, 10% ordinary annuity of 1. $20,000 divided by the present value of a 5-year, 10% ordinary annuity of 1.

4. Ann Ruth wants to invest a certain sum of money at the end of each year for five years. The investment will earn 6% compounded annually. At the end of five years, she will need a total of $40,000 accumulated. How should she compute her required annual investment? (Points: 6) $40,000 times the future value of a 5-year, 6% ordinary annuity of 1. $40,000 divided by the future value of a 5-year, 6% ordinary annuity of 1. $40,000 times the present value of a 5-year, 6% ordinary annuity of 1. $40,000 divided by the present value of a 5-year, 6% ordinary annuity of 1.

5. If an annuity due and an ordinary annuity have the same number of equal payments and the same interest rates, then (Points: 6) the present value of the annuity due is less than the present value of the ordinary annuity. the present value of the annuity due is greater than the present value of the ordinary annuity. the future value of the annuity due is equal to the future value of the ordinary annuity. the future value of the annuity due is less than the future value of the ordinary annuity.

6. If a short-term obligation is excluded from current liabilities because of refinancing, the footnote to the financial statements describing this event should include all of the following information except (Points: 6) a general description of the financing arrangement. the terms of the new obligation incurred or to be incurred. the terms of any equity security issued or to be issued. the number of financing institutions that refused to refinance the debt, if any.

7. An employee's net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee's (Points: 6) portion of FICA taxes, and unemployment taxes. and employer's portion of FICA taxes, and unemployment taxes. portion of FICA taxes, unemployment taxes, and any voluntary deductions. portion of FICA taxes, and any voluntary deductions.

8. Which of these is not included in an employer's payroll tax expense? (Points: 6) F.I.C.A. (social security) taxes Federal unemployment taxes State unemployment taxes Federal income taxes

9. Which of the following is a condition for accruing a liability for the cost of compensation for future absences? (Points: 6) The obligation relates to the rights that vest or accumulate. Payment of the compensation is probable. The obligation is attributable to employee services already performed. All of these are conditions for the accrual.

10. The amount of the liability for compensated absences should be based on 1. the current rates of pay in effect when employees earn the right to compensated absences. 2. the future rates of pay expected to be paid when employees use compensated time. 3. the present value of the amount expected to be paid in future periods. (Points: 6) 1

2 3 Either 1 or 2 is acceptable.

11. Which of the following is the proper way to report a gain contingency? (Points: 6) As an accrued amount. As deferred revenue. As an account receivable with additional disclosure explaining the nature of the contingency. As a disclosure only.

12. Treasury bonds should be shown on the balance sheet as (Points: 6) an asset. a deduction from bonds payable issued to arrive at net bonds payable and outstanding. a reduction of stockholders' equity. both an asset and a liability.

13. An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. At the time of reacquisition (Points: 6) any costs of issuing the bonds must be amortized up to the purchase date. the premium must be amortized up to the purchase date. interest must be accrued from the last interest date to the purchase date. all of these.

14. The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as (Points: 6) an adjustment to the cost basis of the asset obtained by the debt issue. an amount that should be considered a cash adjustment to the cost of any other debt issued over the remaining life of the old debt instrument. an amount received or paid to obtain a new debt instrument and, as such, should be amortized over the life of the new debt. a difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption.

15. A company issues $5,000,000, 7.8%, 20-year bonds to yield 8% on January 1,

2006. Interest is paid on June 30 and December 31. The proceeds from the bonds are $4,901,036. What is interest expense for 2007, using straight-line amortization? (Points: 6) $385,052 $390,000 $392,298 $394,948

16. On January 1, 2007, Foley Co. sold 12% bonds with a face value of $600,000. The bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $646,200 to yield 10%. Using the effectiveinterest method of amortization, interest expense for 2007 is (Points: 6) $60,000. $64,436. $64,620. $72,000.

17. On January 2, 2007, a calendar-year corporation sold 8% bonds with a face value of $600,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $553,600 to yield 10%. Using the effective-interest method of computing interest, how much should be charged to interest expense in 2007? (Points: 6) $48,000 $55,360 $55,544 $60,000

18. The December 31, 2006, balance sheet of Eddy Corporation includes the following items: 9% bonds payable due December 31, 2015 $1,000,000 Unamortized premium on bonds payable 27,000 The bonds were issued on December 31, 2005, at 103, with interest payable on July 1 and December 31 of each year. Eddy uses straight-line amortization. On March 1, 2007, Eddy retired $400,000 of these bonds at 98 plus accrued interest. What should Eddy record as a gain on retirement of these bonds? Ignore taxes. (Points: 6) $18,800 $10,800 $18,600

$20,000

19. On January 1, 2001, Gonzalez Corporation issued $4,500,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Gonzalez at 105. Gonzalez has recorded amortization of the bond premium on the straight-line method (which was not materially different from the effective-interest method). On December 31, 2007, when the fair market value of the bonds was 96, Gonzalez repurchased $1,000,000 of the bonds in the open market at 96. Gonzalez has recorded interest and amortization for 2007. Ignoring income taxes and assuming that the gain is material, Gonzalez should report this reacquisition as (Points: 6) a loss of $49,000. a gain of $49,000. a loss of $61,000. a gain of $61,000.

20. The 10% bonds payable of Klein Company had a net carrying amount of $570,000 on December 31, 2006. The bonds, which had a face value of $600,000, were issued at a discount to yield 12%. The amortization of the bond discount was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year. On July 2, 2007, several years before their maturity, Klein retired the bonds at 102. The interest payment on July 1, 2007 was made as scheduled. What is the loss that Klein should record on the early retirement of the bonds on July 2, 2007? Ignore taxes. (Points: 6) $12,000 $37,800 $33,600 $42,000

21. Pryor Corporation issued a 100% stock dividend of its common stock which had a par value of $10 before and after the dividend. At what amount should retained earnings be capitalized for the additional shares issued? (Points: 6) There should be no capitalization of retained earnings. Par value Market value on the declaration date Market value on the payment date

22. The issuer of a 5% common stock dividend to common stockholders preferably should transfer from retained earnings to contributed capital an amount equal to the (Points: 6) market value of the shares issued.

book value of the shares issued. minimum legal requirements. par or stated value of the shares issued.

23. The balance in Common Stock Dividend Distributable should be reported as a(n) (Points: 6) deduction from common stock issued. addition to capital stock. current liability. contra current asset.

24. A feature common to both stock splits and stock dividends is (Points: 6) a transfer to earned capital of a corporation. that there is no effect on total stockholders' equity. an increase in total liabilities of a corporation. a reduction in the contributed capital of a corporation.

25. What effect does the issuance of a 2-for-1 stock split have on each of the following? Par Value per Share Retained Earnings (Points: 6) No effect No effect Increase No effect Decrease No effect Decrease Decrease

26. Which one of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements? (Points: 6) Dividend preferences Liquidation preferences Call prices Conversion or exercise prices

27. The payout ratio can be calculated by dividing (Points: 6) dividends per share by earnings per share. cash dividends by net income less preferred dividends. cash dividends by market price per share. dividends per share by earnings per share and dividing cash dividends by net

income less preferred dividends.

28. Windsor Company has outstanding both common stock and nonparticipating, non-cumulative preferred stock. The liquidation value of the preferred is equal to its par value. The book value per share of the common stock is unaffected by (Points: 6) the declaration of a stock dividend on preferred payable in preferred stock when the market price of the preferred is equal to its par value. the declaration of a stock dividend on common stock payable in common stock when the market price of the common is equal to its par value. the payment of a previously declared cash dividend on the common stock. a 2-for-1 split of the common stock.

29. On July 1, 2007, an interest payment date, $60,000 of Risen Co. bonds were converted into 1,200 shares of Risen Co. common stock each having a par value of $45 and a market value of $54. There is $2,400 unamortized discount on the bonds. Using the book value method, Risen would record (Points: 6) no change in paid-in capital in excess of par. a $3,600 increase in paid-in capital in excess of par. a $7,200 increase in paid-in capital in excess of par. a $4,800 increase in paid-in capital in excess of par.

30. Quayle Corporation had two issues of securities outstanding: common stock and an 8% convertible bond issue in the face amount of $16,000,000. Interest payment dates of the bond issue are June 30th and December 31st. The conversion clause in the bond indenture entitles the bondholders to receive forty shares of $20 par value common stock in exchange for each $1,000 bond. On June 30, 2007, the holders of $2,400,000 face value bonds exercised the conversion privilege. The market price of the bonds on that date was $1,100 per bond and the market price of the common stock was $35. The total unamortized bond discount at the date of conversion was $1,000,000. In applying the book value method, what amount should Quayle credit to the account "paid-in capital in excess of par," as a result of this conversion? (Points: 6) $330,000 $160,000 $1,440,000 $720,000

31. Investments in debt securities should be recorded on the date of acquisition at

(Points: 6) lower of cost or market. market value. market value plus brokerage fees and other costs incident to the purchase. face value plus brokerage fees and other costs incident to the purchase.

32. An available-for-sale debt security is purchased at a discount. The entry to record the amortization of the discount includes a (Points: 6) debit to Available-for-Sale Securities. debit to the discount account. debit to Interest Revenue. none of these.

33. APB Opinion No. 21 specifies that, regarding the amortization of a premium or discount on a debt security, the (Points: 6) effective-interest method of allocation must be used. straight-line method of allocation must be used. effective-interest method of allocation should be used but other methods can be applied if there is no material difference in the results obtained. par value method must be used and therefore no allocation is necessary.

34. Which of the following is correct about the effective-interest method of amortization? (Points: 6) The effective interest method applied to investments in debt securities is different from that applied to bonds payable. Amortization of a discount decreases from period to period. Amortization of a premium decreases from period to period. The effective-interest method produces a constant rate of return on the book value of the investment from period to period.

35. Which of the following is not generally correct about recording a sale of a debt security before maturity date? (Points: 6) Accrued interest will be received by the seller even though it is not an interest payment date. An entry must be made to amortize a discount to the date of sale. The entry to amortize a premium to the date of sale includes a credit to the Premium on Investments in Debt Securities. A gain or loss on the sale is not extraordinary.

36. The method most commonly used to report defaults and repossessions is (Points: 6) provide no basis for the repossessed asset thereby recognizing a loss. record the repossessed merchandise at fair value, recording a gain or loss if appropriate. record the repossessed merchandise at book value, recording no gain or loss. none of these.

37. Under the installment-sales method, (Points: 6) revenue, costs, and gross profit are recognized proportionate to the cash that is received from the sale of the product. gross profit is deferred proportionate to cash uncollected from sale of the product, but total revenues and costs are recognized at the point of sale. gross profit is not recognized until the amount of cash received exceeds the cost of the item sold. revenues and costs are recognized proportionate to the cash received from the sale of the product, but gross profit is deferred until all cash is received.

38. The realization of income on installment sales transactions involves (Points: 6) recognition of the difference between the cash collected on installment sales and the cash expenses incurred. deferring the net income related to installment sales and recognizing the income as cash is collected. deferring gross profit while recognizing operating or financial expenses in the period incurred. deferring gross profit and all additional expenses related to installment sales until cash is ultimately collected.

39. A manufacturer of large equipment sells on an installment basis to customers with questionable credit ratings. Which of the following methods of revenue recognition is least likely to overstate the amount of gross profit reported? (Points: 6) At the time of completion of the equipment (completion of production method) At the date of delivery (sales method) The installment-sales method The cost-recovery method

40. A seller is properly using the cost-recovery method for a sale. Interest will be earned on the future payments. Which of the following statements is not correct? (Points: 6) After all costs have been recovered, any additional cash collections are included in income. Interest revenue may be recognized before all costs have been recovered. The deferred gross profit is offset against the related receivable on the balance sheet. Subsequent income statements report the gross profit as a separate item of revenue when it is recognized as earned.

41. According to the FASB, immediate recognition of a liability (referred to as the minimum liability) is required when the accumulated benefit obligation exceeds the fair value of plan assets. Conversely, when the fair value of plan assets exceeds the accumulated benefit obligation, the Board (Points: 6) requires recognition of an asset. requires recognition of an asset if the excess fair value of plan assets exceeds the corridor amount. recommends recognition of an asset but does not require such recognition. does not permit recognition of an asset.

42. Which of the following disclosures of pension plan information would not normally be required by Statement of Financial Accounting Standards No. 132, "Employers' Disclosure about Pensions and Other Postretirement Benefits"? (Points: 6) The major components of pension expense The amount paid from the pension fund to retirees during the period The funded status of the plan and the amounts recognized in the financial statements The rates used in measuring the benefit amounts

43. The main purpose of the Pension Benefit Guaranty Corporation is to ____________. (Points: 6) require minimum funding of pensions require plan administrators to publish a comprehensive description and summary of their plans administer terminated plans and to impose liens on the employer's assets for certain unfunded pension liabilities all of these

44. A lessee with a capital lease containing a bargain purchase option should depreciate the leased asset over the (Points: 6) asset's remaining economic life. term of the lease. life of the asset or the term of the lease, whichever is shorter. life of the asset or the term of the lease, whichever is longer.

45. If the lease were nonrenewable, there was no purchase option, title to the building does not pass to the lessee at termination of the lease and the lease were only for eight years, what type of lease would this be for the lessee? (Points: 6) Sales-type lease Direct-financing lease Operating lease Capital lease

46. Huffman Company leases a machine from Lincoln Corp. under an agreement which meets the criteria to be a capital lease for Huffman. The six-year lease requires payment of $102,000 at the beginning of each year, including $15,000 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Huffman should record the leased asset at (Points: 6) $509,256. $488,661. $434,366. $416,799.

47. Which type of accounting change should always be accounted for in current and future periods? (Points: 6) Change in accounting principle Change in reporting entity Change in accounting estimate Correction of an error

48. Which of the following is (are) the proper time period(s) to record the effects of a change in accounting estimate? (Points: 6) Current period and prospectively Current period and retrospectively

Retrospectively only Current period only

49. When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a (Points: 6) change in accounting principle. change in accounting estimate. prior period adjustment. correction of an error.

50. The estimated life of a building that has been depreciated 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years. Based on this information, the accountant should _______________. (Points: 6) continue to depreciate the building over the original 50-year life depreciate the remaining book value over the remaining life of the asset adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years

An available-for-sale debt security is purchased at a discount. The entry to record the amortization of the discount includes a (Points: 6) debit to Available-for-Sale Securities. debit to the discount account. debit to Interest Revenue. none of these.

34. APB Opinion No. 21 specifies that, regarding the amortization of a premium or discount on a debt security, the (Points: 6) effective-interest method of allocation must be used. straight-line method of allocation must be used. effective-interest method of allocation should be used but other methods can be applied if there is no material difference in the results obtained. par value method must be used and therefore no allocation is necessary.

35. Which of the following is correct about the effective-interest method of amortization? (Points: 6) The effective interest method applied to investments in debt securities is different from that applied to bonds payable. Amortization of a discount decreases from period to period. Amortization of a premium decreases from period to period. The effective-interest method produces a constant rate of return on the book value of the investment from period to period.

36. When investments in debt securities are purchased between interest payment dates, preferably the (Points: 6) securities account should include accrued interest. accrued interest is debited to Interest Expense. accrued interest is debited to Interest Revenue. accrued interest is debited to Interest Receivable.

37. Which of the following is not generally correct about recording a sale of a debt security before maturity date? (Points: 6) Accrued interest will be received by the seller even though it is not an interest payment date. An entry must be made to amortize a discount to the date of sale. The entry to amortize a premium to the date of sale includes a credit to the Premium on Investments in Debt Securities. A gain or loss on the sale is not extraordinary.

38. The method most commonly used to report defaults and repossessions is (Points: 6) provide no basis for the repossessed asset thereby recognizing a loss. record the repossessed merchandise at fair value, recording a gain or loss if appropriate. record the repossessed merchandise at book value, recording no gain or loss. none of these.

39. Under the installment-sales method, (Points: 6) revenue, costs, and gross profit are recognized proportionate to the cash that is received from the sale of the product. gross profit is deferred proportionate to cash uncollected from sale of the product, but total revenues and costs are recognized at the point of sale. gross profit is not recognized until the amount of cash received exceeds the

cost of the item sold. revenues and costs are recognized proportionate to the cash received from the sale of the product, but gross profit is deferred until all cash is received.

40. The realization of income on installment sales transactions involves (Points: 6) recognition of the difference between the cash collected on installment sales and the cash expenses incurred. deferring the net income related to installment sales and recognizing the income as cash is collected. deferring gross profit while recognizing operating or financial expenses in the period incurred. deferring gross profit and all additional expenses related to installment sales until cash is ultimately collected.

41. A manufacturer of large equipment sells on an installment basis to customers with questionable credit ratings. Which of the following methods of revenue recognition is least likely to overstate the amount of gross profit reported? (Points: 6) At the time of completion of the equipment (completion of production method) At the date of delivery (sales method) The installment-sales method The cost-recovery method

42. A seller is properly using the cost-recovery method for a sale. Interest will be earned on the future payments. Which of the following statements is not correct? (Points: 6) After all costs have been recovered, any additional cash collections are included in income. Interest revenue may be recognized before all costs have been recovered. The deferred gross profit is offset against the related receivable on the balance sheet. Subsequent income statements report the gross profit as a separate item of revenue when it is recognized as earned.

43. According to the FASB, immediate recognition of a liability (referred to as the minimum liability) is required when the accumulated benefit obligation exceeds the fair value of plan assets. Conversely, when the fair value of plan assets exceeds the accumulated benefit obligation, the Board (Points: 6) requires recognition of an asset.

requires recognition of an asset if the excess fair value of plan assets exceeds the corridor amount. recommends recognition of an asset but does not require such recognition. does not permit recognition of an asset.

44. Which of the following disclosures of pension plan information would not normally be required by Statement of Financial Accounting Standards No. 132, "Employers' Disclosure about Pensions and Other Postretirement Benefits"? (Points: 6) The major components of pension expense The amount paid from the pension fund to retirees during the period The funded status of the plan and the amounts recognized in the financial statements The rates used in measuring the benefit amounts

45. A lessee with a capital lease containing a bargain purchase option should depreciate the leased asset over the (Points: 6) asset's remaining economic life. term of the lease. life of the asset or the term of the lease, whichever is shorter. life of the asset or the term of the lease, whichever is longer.

46. On December 31, 2007, Pool Corporation leased a ship from Renn Company for an eight-year period expiring December 30, 2015. Equal annual payments of $200,000 are due on December 31 of each year, beginning with December 31, 2007. The lease is properly classified as a capital lease on Pool's books. The present value at December 31, 2007 of the eight lease payments over the lease term discounted at 10% is $1,173,685. Assuming all payments are made on time, the amount that should be reported by Pool Corporation as the total obligation under capital leases on its December 31, 2008 balance sheet is (Points: 6) $1,091,054. $1,000,159. $871,054. $1,200,000.

47. Which type of accounting change should always be accounted for in current and future periods? (Points: 6) Change in accounting principle Change in reporting entity Change in accounting estimate

Correction of an error

48. Which of the following is (are) the proper time period(s) to record the effects of a change in accounting estimate? (Points: 6) Current period and prospectively Current period and retrospectively Retrospectively only Current period only

49. The estimated life of a building that has been depreciated 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years. Based on this information, the accountant should _______________. (Points: 6) continue to depreciate the building over the original 50-year life depreciate the remaining book value over the remaining life of the asset adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years

50. Which of the following statements is correct? (Points: 6) Changes in accounting principle are always handled in the current or prospective period Prior statements should be restated for changes in accounting estimates A change from expensing certain costs to capitalizing these costs due to a change in the period benefited should be handled as a change in accounting estimate. Correction of an error related to a prior period should be considered as an adjustment to current year net income. 1. Total stockholders' equity represents a. a claim to specific assets contributed by the owners. b. the maximum amount that can be borrowed by the enterprise. c. a claim against a portion of the total assets of an enterprise. d. only the amount of earnings that have been retained in the business.

2. In law, capital is considered that portion of stockholders' equity that is required by statute to be retained in the business for protection of creditors. Legal capital is a. stated capital. b. par value of all capital stock issued. c. stated value of all no-par stock issued. d. all of these.

3. The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is the a. pro forma method. b. proportional method. c. incremental method. d. either the proportional method or the incremental method.

4. When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited? a. Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the par value. b. Paid-in capital in excess of par for the purchase price. c. Treasury stock for the purchase price. d. Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value.

5. Wilson Corp. purchased its own par value stock on January 1, 1998 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from

a. additional paid-in capital to the extent that previous net "gains" from sales or retirements of the same class of stock are included therein; otherwise, from retained earnings. b. additional paid-in capital without regard as to whether or not there have been previous net "gains" from sales or retirements of the same class of stock included therein. c. retained earnings. d. net income.

6. Various features and restrictions are often attached to preferred stock. Which of the following combinations of features are MOST typical of preferred stock with primarily debt characteristics rather than equity characteristics? a. noncumulative, participating, nonredeemable, voting b. cumulative, participating, redeemable, voting c. cumulative, nonparticipating, redeemable, non-voting d. noncumulative, nonparticipating, nonredeemable, non-voting

7. Jett Co. had issued 100,000 shares of $10 par common stock for $1,200,000. Jett acquired 8,000 shares of its own common stock at $15 per share. Three months later Jett sold 4,000 of these shares at $19 per share. If the cost method is used to record treasury stock transactions, to record the sale of the 4,000 treasury shares, Jett should credit a. Treasury Stock for $76,000. b. Treasury Stock for $40,000 and Paid-in Capital from Treasury Stock for $36,000. c. Treasury Stock $60,000 and Paid-in Capital from Treasury Stock for $16,000. d. Treasury Stock $60,000 and Paid-in Capital in Excess of Par for $16,000.

8. An analysis of stockholders' equity of Nott Corporation as of January 1, 1998, is as follows: Common stock, par value $20; authorized 100,000 shares;

issued and outstanding 90,000 shares Paid-in capital in excess of par Retained earnings Total

$1,800,000 540,000 760,000 $3,100,000

Nott uses the cost method of accounting for treasury stock and during 1998 entered into the following transactions: Acquired 1,500 shares of its stock for $75,000. Sold 1,200 treasury shares at $55 per share. Retired the remaining treasury shares. Assuming no other equity transactions occurred during 1998, what should Nott report at December 31, 1998, as total additional paid-in capital? a. $535,800 b. $540,000 c. $544,200 d. $547,800

9. Steele Corporation was organized on January 1, 1998, with an authorization of 400,000 shares of common stock with a par value of $6 per share. During 1998, the corporation had the following capital transactions: January 5 - issued 75,000 shares @ $10 per share April 6 - issued 25,000 shares @ $12 per share June 8 - issued 25,000 shares @ $14 per share July 28 - purchased 10,000 shares @ $11 per share December 31 - sold the 10,000 shares held in treasury @ $18 per share Steele used the cost method to record the purchase and reissuance of the treasury shares. What is the total amount of additional paid-in capital as of December 31, 1998? a. $-0-.

b. $580,000. c. $650,000. d. $720,000.

10. Hideo Co. was organized on January 1, 1998, with 300,000 shares of common stock with a $6 par value authorized. During 1998, Hideo had the following stock transactions: Jan. 4 Issued 60,000 shares at $10 per share. Mar. 8 Issued 20,000 shares at $11 per share. May 17 Purchased 7,500 shares at $12 per share. July 6 Issued 15,000 shares at $13 per share. Aug. 27 Sold 5,000 treasury shares at $14 per share. Hideo uses the FIFO method for purchase-sale purposes. If Hideo uses the cost method to record treasury stock transactions, the total amount of additional paid-in capital at December 31, 1998 is a. $445,000. b. $455,000. c. $465,000. d. $485,000.

11. The balance in the retained earnings account of West Co. was $320,000 at December 31, 1998. During 1998, West had the following transactions: (a) Acquired 5,000 shares of treasury stock at $27 a share. The stocks par value is $20 and was originally issued for $24 per share. (b) Net income was $115,000 in 1999. (c) Sold the 5,000 shares of treasury stock at $32 a share. If West uses the cost method of accounting for treasury stock, the balance in retained earnings at December 31, 1999 is a. $420,000.

b. $435,000. c. $450,000. d. $475,000.

12. Presented below is the stockholders' equity section of Hart Corporation at December 31, 1998: Common stock, par value $20; authorized 75,000 shares; issued and outstanding 45,000 shares Paid-in capital in excess of par value Retained earnings $ 900,000 250,000 500,000 $1,650,000 During 1999, the following transactions occurred relating to stockholders' equity: 3,000 shares were reacquired at $28 per share. 3,000 shares were reacquired at $35 per share. 1,800 shares of treasury stock were sold at $30 per share. For the year ended December 31, 1999, Hart reported net income of $450,000. Assuming Hart accounts for treasury stock under the cost method, what should it report as total stockholders' equity on its December 31, 1999, balance sheet? a. $1,965,000. b. $1,961,400. c. $1,957,800. d. $1,515,000.

13. On December 1, 1998, Hunt Corporation exchanged 20,000 shares of its $10 par value common stock held in treasury for a used computer system. The treasury shares were acquired by Hunt at a cost of $40 per share, and are accounted for under the cost method. On the date of the exchange the common stock had a market value of $55 per share (the shares were originally issued at $30 per share). As a result of this exchange, Hunt's total stockholders' equity will increase by

a. $200,000. b. $800,000. c. $1,100,000. d. $900,000. 14. On July 1, 1998, Lopez Co. issued 1,000 shares of its $10 par common stock and 2,000 shares of its $10 par convertible preferred stock for a lump sum of $55,000. At this date Lopez's common stock was selling for $24 per share and the convertible preferred stock for $18 per share. The amount of the proceeds allocated to Lopez's preferred stock should be a. $30,000. b. $33,000. c. $36,000. d. $30,250.

15. On December 1, 1998, shares of authorized common stock were issued on a subscription basis at a price in excess of par value. A total of 25% of the subscription price of each share was collected as a down payment on December 1, 1998, with the remaining 75% of the subscription price of each share due in 1999. Collectibility was reasonably assured. At December 31, 1998, the stockholders' equity section of the balance sheet would report additional paid-in capital for the excess of the subscription price over the par value of the shares of common stock subscribed and a. common stock issued for 25% of the par value of the shares of common stock subscribed. b. common stock issued for the par value of the shares of common stock subscribed. c. common stock subscribed for 75% of the par value of the shares of common stock subscribed. d. common stock subscribed for the par value of the shares of common stock subscribed.

16. At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the

a. declaration of a stock split. b. declaration of a stock dividend. c. purchase of treasury stock. d. payment in full of subscribed stock.

17. An entry is NOT made on the a. date of declaration. b. date of record. c. date of payment. d. An entry is made on all of these dates.

18. Cash dividends are paid on the basis of the number of shares a. authorized. b. issued. c. outstanding. d. outstanding less the number of treasury shares.

19. The fair value of a property dividend should be determined by referring to a. estimated realizable values in cash transactions involving similar assets. b. quoted market prices. c. independent appraisals. d. All of these are acceptable.

20. A scrip dividend results in a debit to retained earnings and a credit to a(n) a. asset account.

b. liability account. c. stockholders' equity account. d. expense account.

21. Declaration and issuance of a dividend in stock a. increases the current ratio. b. decreases the amount of working capital. c. decreases total stockholders' equity. d. has no effect on total assets, liabilities, or stockholders' equity.

22. The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding a. increases common stock outstanding and increases total stockholders' equity. b. decreases retained earnings but does not change total stockholders' equity. c. may increase or decrease paid-in capital in excess of par but does not change total stockholders' equity. d. increases retained earnings and increases total stockholders' equity.

23. The issuer of a 5% common stock dividend to common stockholders preferably should transfer from retained earnings to contributed capital an amount equal to the a. market value of the shares issued. b. book value of the shares issued. c. minimum legal requirements. d. par or stated value of the shares issued.

24. A feature common to both stock splits and stock dividends is a. a transfer to earned capital of a corporation.

b. that there is no effect on total stockholders' equity. c. an increase in total liabilities of a corporation. d. a reduction in the contributed capital of a corporation.

25. Which of the following is NOT a valid reason for a stock split? a. To benefit existing stockholders by allowing them to take advantage of an imperfect market adjustment following the split. b. To adjust the market price of the shares to a level where more individuals can afford to invest in the stock. c. To spread the stockholder base by increasing the number of shares outstanding and making them more marketable. d. All of these are valid reasons.

26. Noncumulative preferred dividends in arrears a. are not paid or disclosed. b. must be paid before any other cash dividends can be distributed. c. are disclosed as a liability until paid. d. are paid to preferred stockholders if sufficient funds remain after payment of the current preferred dividend.

27. For which of the following purposes should an appropriation for indefinite possible future losses on inventory be established? a. To match current revenues with applicable costs. b. To reduce fluctuations in net income in order to lend stability to the company. c. To charge operations in period of rising prices for the losses which may otherwise be absorbed in periods of falling prices. d. To inform stockholders that a portion of retained earnings should be set aside from amounts available for dividends because of such a contingency.

28. Companies that carry no insurance against insurable casualty losses sometimes use an account called "appropriation for self-insurance." In preparing a balance sheet, this account preferably would appear as a a. liability. b. part of retained earnings. c. deduction from the Cash Surrender Value of Insurance account. d. deferred credit.

29. Watson Corporation owned 500,000 shares of Nelsen Corporation stock. On December 31, 1998, when Watson's account "Investment in Common Stock of Nelsen Corporation" had a carrying value of $5 per share, Watson distributed these shares to its stockholders as a dividend. Watson originally paid $8 for each share. Nelsen has 1,000,000 shares issued and outstanding, which are traded on a national stock exchange. The quoted market price for a Nelsen share was $7 on the declaration date and $9 on the distribution date. What would be the reduction in Watson's stockholders' equity as a result of the above transactions? (Do not consider income tax effects.) a. $2,000,000. b. $2,500,000. c. $4,000,000. d. $4,500,000.

30. On June 30, 1998, when Wang Co.'s stock was selling at $65 per share, its capital accounts were as follows: Capital stock (par value $50; 60,000 shares issued) $3,000,000 Premium on capital stock Retained earnings 600,000 4,200,000

If a 100% stock dividend were declared and distributed and the par value per share remained at $50, capital stock would be a. $3,000,000. b. $3,600,000.

c. $6,000,000. d. $7,800,000. 31. Cash dividends on the $10 par value common stock of Matson Company were as follows: 1st quarter of 1998 2nd quarter of 1998 3rd quarter of 1998 4th quarter of 1998 $330,000 350,000 420,000 450,000

The 4th quarter cash dividend was declared on December 20, 1998, to stockholders of record on December 31, 1998. Payment of the 4th quarter cash dividend was made on January 9, 1999. In addition, Matson declared a 10% stock dividend on its $10 par value common stock on December 1, 1998, when there were 300,000 shares issued and outstanding, and the market value of the common stock was $16 per share. The shares were issued on December 21, 1998. What was the effect on Matson's stockholders' equity accounts during 1998 as a result of the above transactions? Common Stock a. $ -0Additional Paid-In Capital $ -0Retained Earnings $1,550,000 debit $1,580,000 debit $2,030,000 debit $1,850,000 debit

b. $200,000 credit c. $300,000 credit d. $300,000 credit

$180,000 credit $180,000 credit $100,000 debit

32. On January 1, 1998, Holden Corporation had 110,000 shares of its $5 par value common stock outstanding. On June 1, the corporation acquired 10,000 shares of stock to be held in the treasury. On December 1, when the market price of the stock was $8, the corporation declared a 15% stock dividend to be issued to stockholders of record on December 16, 1998. What was the impact of the 15% stock dividend on the balance of the retained earnings account? a. $75,000 decrease

b. $120,000 decrease c. $132,000 decrease d. No effect

33. Stevens, Inc. has outstanding 100,000 shares of $2 par common stock and 20,000 shares of no par 8% preferred stock with a stated value of $5. The preferred stock is cumulative and nonparticipating. Dividends have been paid in every year except the past two years and the current year. Assuming that $40,000 will be distributed as a dividend in the current year, how much will the common stockholders receive? a. Zero. b. $16,000. c. $24,000. d. $32,000.

34. Assuming that $20,000 will be distributed as a dividend in the current year, how much will the preferred stockholders receive? a. $6,667. b. $8,000. c. $16,000. d. $20,000. 35. Assuming that $55,000 will be distributed, and the preferred stock is ALSO participating, how much will the common stockholders receive? a. $31,000. b. $26,000. c. $29,000. d. $16,000.

36. Yates, Inc. has 20,000 shares of $10 par value common stock and 10,000 shares of $10 par value, 6%, cumulative, participating preferred stock outstanding. Dividends on the preferred stock are one year in arrears. Assuming that Yates wishes to distribute $60,000 as dividends, the common stockholders will receive a. $12,000. b. $24,000. c. $36,000. d. $48,000.

37. The actual total amount of a cash dividend to be paid is determined on the date of a. record. b. declaration. c. declaration or date of record, whichever is earlier. d. payment.

38. An investment in marketable securities was accounted for by the cost method. These securities were distributed to stockholders as a property dividend in a nonreciprocal transfer. The dividend should be reported at the a. fair value of the asset transferred or the recorded amount of the asset transferred, whichever is higher. b. fair value of the asset transferred or the recorded amount of the asset transferred, whichever is lower. c. fair value of the asset transferred. d. recorded amount of the asset transferred.

39. A corporation declared a dividend, a portion of which was liquidating. How would this distribution affect each of the following? Paid-in Capital Retained Earnings

a. b. c. d.

Decrease Decrease No effect No effect

No effect Decrease Decrease No effect

40. How would the declaration of a 10% stock dividend by a corporation affect each of the following? Retained Earnings a. No effect b. No effect c. Decrease d. Decrease Total Stockholders' Equity No effect Decrease No effect Decrease

41. The following information is available for the Jana Company:

Balance Sheet Information Information Total Assets Current liabilities $1,200,000 Long-term debt 120,000 Common Stock ($20 par) 1,080,000 Retained Earnings 486,000 595,000 $ 4,200,000 $ 30,000

Income Statement

Income before interest & taxes Interest expense

1,200,000 2,000,000 700,000

Income tax (45%) Net Income

Other information: Cash dividends of $220,000 were paid during the year. At year end, the market price of common was $101 per share.

Calculate the following: a. b. c. d. e. return on total assets return on total equity price earnings ratio book value per share payout ratio

ANSWER KEY

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

c d d c a c c c d b b a c b d c b c d b d b a

24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40

b d a d b b c c b b d b c a c b c

41.

a.

$594,000 = 14.14% $4,200,000 $594,000 = 22% $2,700,000

d.

$2,000,000 + $700,000 = $27. 100,000 $200 ,000 = 33.61% $595,000

a. b.

e.

c.

$101 = 17 times earnings. $5.94

16.The deferred tax expense is the a. increase in balance of deferred tax asset minus the increase in balance of deferred tax liability.

b. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.
c. increase in balance of deferred tax asset plus the increase in balance of deferred tax liability. d. decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability.

17.

The rationale for interperiod income tax allocation is to

a. recognize a tax asset or liability for the tax consequences of temporary differences that exist at the balance sheet date. b. recognize a distribution of earnings to the taxing agency. c. reconcile the tax consequences of permanent and temporary differences appearing on the current year's financial statements. d. adjust income tax expense on the income statement to be in agreement with income taxes payable on the balance sheet.
18. Interperiod tax allocation results in a deferred tax liability from

a. an income item partially recognized for financial purposes but fully recognized for tax purposes in any one year. b. the amount of deferred tax consequences attributed to temporary differences that result in net deductible amounts in future years. c. an income item fully recognized for tax and financial purposes in any one year. d. the amount of deferred tax consequences attributed to temporary differences that result in net taxable amounts in future years.
19. Markes Corporation's partial income statement after its first year of operations is as follows: Income before income taxes Income tax expense Current Deferred $1,035,000 90,000 1,125,000 $3,750,000

Net income

$2,625,000

Markes uses the straight-line method of depreciation for financial reporting purposes and accelerated depreciation for tax purposes. The amount charged to depreciation expense on its books this year was $1,500,000. No other differences existed between book income and taxable income except for the amount of depreciation. Assuming a 30% tax rate, what amount was deducted for depreciation on the corporation's tax return for the current year?

a. $1,200,000 b. $1,425,000 c. $1,500,000 d. $1,800,000 +90000/30%+1,500,000=


20. Dwyer Company reported the following results for the year ended December 31, 2007, its first year of operations: 2007 Income (per books before income taxes) Taxable income $ 750,000 1,200,000

The disparity between book income and taxable income is attributable to a temporary difference which will reverse in 2008. What should Dwyer record as a net deferred tax asset or liability for the year ended December 31, 2007, assuming that the enacted tax rates in effect are 40% in 2007 and 35% in 2008?

=1200000-750000=450000 Tax asset=450000*35%=157,500 tax asset

a. b. c. d.

$180,000 deferred tax liability $157,500 deferred tax asset $180,000 deferred tax asset $157,500 deferred tax liability