Exam: 061510NR - Instruments and Liabilities, Part 1

Exam: 061510NR - Instruments and Liabilities, Part 1

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Exam: 061510NR - Instruments and Liabilities, Part 1

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Questions 1 to 20: Select the best answer to each question. Note that a question and its
answers may be split across a page break, so be sure that you have seen the entire question
and all the answers before choosing an answer.
1. Bloomfield Bakers accounts for its investment in Clor Confectionary under the equity method.
Bloomfield carried the Clor investment at $150,000 and $165,000 at December 31 of 2010 and
2011, respectively. During 2011 Clor recognized $80,000 of net income and paid dividends of
$30,000. Assuming that Bloomfield owned the same percentage of Clor throughout 2011, their
percentage ownership must have been
A. 50%.
B. 30%
C. 18.75%.
D. 5%.
2. On January 1, 2011, Green Corporation purchased 20% of the outstanding voting common
stock of Gold Company for $300,000. The book value of the acquired shares was $275,000.
The excess of cost over book value is attributable to an intangible asset on Gold’s books that
was undervalued and had a remaining useful life of five years. For the year ended December
31, 2011, Gold reported net income of
$125,000 and paid cash dividends of $25,000. What is the carrying value of Green’s
investment in Gold at December 31, 2011?
A. $320,000 B. $300,000 C. $295,000 D. $315,000
3. Classifying liabilities as either current or long-term helps creditors assess
A. profitability.
B. the degree of a firm’s liabilities.
C. the amount of a firm’s liabilities.
D. the relative risk of a firm’s liabilities.
4. On January 1, 2011, G Corporation agreed to grant its employees two weeks vacation each
year, with the stipulation that vacations earned each year can be taken the following year. For
the year ended December 31, 2011, G’s employees each earned an average of $800 per
week. 500 vacation weeks earned in 2011 were not taken during 2011. Wage rates for
employees rose by an average of 5 percent by the time vacations actually were taken in 2012.
What is the amount of G’s 2012 wages expense related to 2011 vacation time?
A. $420,000
B. $20,000

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C. $400,000
D. $0
5. On July 1, 2011, Tremen Corporation acquired 40% of the shares of Delany Company.
Tremen paid
$3,000,000 for the investment, and that amount is exactly equal to 40% of the fair value of
identifiable net assets on Delany’s balance sheet. Delany recognized net income of $1,000,000
for 2011, and paid
$150,000 quarterly dividends to its shareholders. After all closing entries are made, Tremen’s
"Investment in Delany Company" account would have a balance of
A. $3,200,000.
B. $3,000,000.
C. $3,160,000.
D. $3,080,000.
6. Which of the following situations would not require that long-term liabilities be reported as
current liabilities on a classified balance sheet?
A. All of these situations require the current classification.
B. The long-term debt is callable by the creditor.
C. The long-term debt matures within the upcoming year.
D. The creditor has the right to demand payment due to a contractual violation.
7. Under IAS No. 39, which is not a category for accounting for investments?
A. Fair value through other comprehensive income
B. Available-for-sale
C. Fair value through profit and loss
D. Held-to-maturity
8. General Product, Inc., shipped 100 million coupons in products it sold in 2011. The coupons
are redeemable for thirty cents each. General anticipates that 70% of the coupons will be
redeemed. The coupons expire on December 31, 2012. There were 45 million coupons
redeemed in 2011, and 30 million redeemed in 2012.
What was General’s coupon liability as of December 31, 2011?
A. $16.5 million
B. $7.5 million
C. $21.0 million
D. $13.5 million
9. In 2009, Osgood Corporation purchased $4 million in ten-year municipal bonds at face value.
On December 31, 2011, the bonds had a market value of $3,600,000 and Osgood reclassified
the bonds from held to maturity to trading securities. Osgood’s December 31, 2011, balance
sheet and the 2011 income statement would show the following:

A. Option d
B. Option a
C. Option b
D. Option c
10. If Ziggy Company concluded that an investment originally classified as held to maturity
would now more appropriately be classified as available for sale, Ziggy would
A. reclassify the investment as available for sale and immediately recognize in net income any
unrealized gain or loss on the reclassification date.
B. need to restate earnings, as the original classification was in error.
C. reclassify the investment as available for sale and immediately recognize in accumulated
other comprehensive income any unrealized gain or loss on the reclassification date.
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D. not reclassify the investment, as original classifications are irrevocable.
11. Beresford, Inc., purchased several investment securities during 2008, its first year of
operations. The following information pertains to these securities. The fluctuations in their fair
values aren’t considered permanent.

What would be the balance in Beresford’s accumulated other comprehensive income with
respect to these investments in its 12/31/11 balance sheet (ignore taxes)?
A. $55,100
B. $50,200
C. $26,500
D. $10,400
12. What is the effective interest rate (rounded) on a 3-month, noninterest-bearing note with a
stated rate of 12% and a maturity value of $200,000?
A. 12.0 %
B. 11.5%
C. 12.4%
D. 3.0%
13. Liabilities payable within the coming year are classified as long-term liabilities if refinancing
is completed before date of issuance of the financial statements under
A. US GAAP.
B. IFRS.
C. IRS.
D. Neither U.S. GAAP nor IFRS.
14. Goofy, Inc., bought 15,000 shares of Crazy Co.’s stock for $150,000 on May 5, 2010, and
classified the stock as available for sale. The market value of the stock declined to $118,000 by
December 31, 2010. Goofy reclassified this investment as trading securities in December of
2011 when the market value had risen to $125,000. What effect on 2011 income should be
reported by Goofy for the Crazy Co. shares?
A. $32,000 net loss
B. $25,000 net loss
C. $0
D. $7,000 net gain
15. Beresford, Inc., purchased several investment securities during 2008, its first year of
operations. The following information pertains to these securities. The fluctuations in their fair
values aren't considered permanent.

What total unrealized holding gain would Beresford report in its 2011 income statement relative
to its investment securities?
A. $80,900 B. $36,000 C. $48,200 D. $55,900
16. During 2011, Deluxe Leather Goods sold 800,000 reversible belts under a new sales
promotional
program. Each belt carried one coupon, which entitles the customer to a $5.00 cash rebate.
Deluxe estimates that 70% of the coupons will be redeemed, even though only 350,000
coupons had been processed during 2011. At December 31, 2011, Deluxe should report a
liability for unredeemed coupons of
A. $560,000.
B. $1,750,000.
C. $1,050,000.
D. $1,225,000.
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17. Assume that, on 1/1/11, Sosa Enterprises paid $5,100,000 for its investment in 36,000
shares of Orioles Co. Further, assume that Orioles has 120,000 total shares of stock issued and
estimates an 8 year remaining useful life and straight-line depreciation with no residual value for
its depreciable assets.
At 1/1/11, the book value of Orioles’ identifiable net assets was $7,000,000, and the fair value
of Orioles was $10,000,000. The difference between Orioles’ fair value and the book value of
its identifiable net assets is attributable to $1,800,000 of land and the remainder to depreciable
assets. Goodwill was not part of this transaction.
The following information pertains to Orioles during 2011:
Net income $600,000
Dividends declared and paid $360,000 Market price of common stock on 12/31/11 $80/share
What amount would Sosa Enterprises report in its year-end 2011 balance sheet for its
investment in Orioles Co.?
A. $3,200,000 B. $3,180,000 C. $3,027,000 D. $3,135,000
18. Jack Corporation purchased a 20% interest in Jill Corporation for $1,500,000 on January 1,
2011. Jack can significantly influence Jill. On December 10, 2011, Jill declared and paid $1
million in dividends. Jill reported a net loss of $6 million for the year. What amount of loss should
Jack report in its income statement for 2011 relative to its investment in Jill?
A. $1,500,000 B. $1,400,000 C. $1 000,000 D. $1,200,000
19. When cash is received from customers in the form of a refundable deposit, the cash account
is increased with a corresponding increase in
A. shareholders’ equity.
B. a current liability.
C. revenue.
D. paid-in capital.
20. On December 31, 2011, L, Inc., had a $1,500,000 note payable outstanding, due July 31,
2012. L
borrowed the money to finance construction of a new plant. L planned to refinance the note by
issuing
long-term bonds. Because L temporarily had excess cash, it prepaid $500,000 of the note on
January 23, 2012. In February 2012, L completed a $3,000,000 bond offering. L will use the
bond offering proceeds to repay the note payable at its maturity and to pay construction costs
during 2012. On March 13, 2012, L issued its 2011 financial statements. What amount of the
note payable should L include in the current liabilities section of its December 31, 2011, balance
sheet?
A. $0
B. $1,000,000 C. $500,000 D. $1,500,000

End of exam

Exam: 061510NR - Instruments and Liabilities, Part 1

Attachments
Exam_061510NR_-_Instruments_and_Liabilities,_Part_1.docx (84.67 KB)

Preview: shareholders xxxxx all xxxxxxx entries are xxxxx Tremen’s "Investment xx Delany
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 xxxxxxxx xxxxxxx would xxxx a balance xxx $3,200,000 B xxxxxxxxxx C xxxxxxxxxx x
$3,080,000 xxxxx of the xxxxxxxxx situations would xxx require xxxx xxxxxxxxx liabilities xx
reported as xxxxxxx liabilities on x classified xxxxxxx xxxxxxxxx of xxxxx situations require xxx
current classification xxx long-term xxxx xx callable xx the creditor xxx long-term debt xxxxxxx
within xxx xxxxxxxx year xxx creditor has xxx right to xxxxxx payment xxx xx a xxxxxxxxxxx
violation Under xxx No 39, xxxxx is xxx x category xxx accounting for xxxxxxxxxxxxxxxx value
through xxxxx comprehensive xxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxx through xxxxxx and
lossHeld-to-maturityGeneral xxxxxxxx Inc , xxxxxxx 100 xxxxxxx xxxxxxx in xxxxxxxx it sold xx
2011 The xxxxxxx are xxxxxxxxxx xxx thirty xxxxx each General xxxxxxxxxxx that 70% xx the
xxxxxxx xxxx be xxxxxxxx The coupons xxxxxx on December xxx 2012 xxxxx xxxx 45 xxxxxxx
coupons redeemed xx 2011, and xx million xxxxxxxx xx 2012 xxxx was General’s xxxxxx
liability as xx December xxx xxxxxxxx 5 xxxxxxxxx 5 million$21 x million$13 5 xxxxxxxxx 2009,
xxxxxx xxxxxxxxxxx purchased xx million in xxxxxxxx municipal bonds xx face xxxxx xx
December xxx 2011, the xxxxx had a xxxxxx value xx xxxxxxxxxx and xxxxxx reclassified the
xxxxx from held xx maturity xx xxxxxxx securities xxxxxxxxxx December 31, xxxxx balance
sheet xxx the xxxx xxxxxx statement xxxxx show the xxxxxxxxxxxxxxxx dOption aOption
xxxxxxx cIf xxxxx xxxxxxx concluded xxxx an investment xxxxxxxxxx classified as xxxx to
xxxxxxxx xxxxx now xxxx appropriately be xxxxxxxxxx as available xxx sale, xxxxx
xxxxxxxxxxxxxxx the xxxxxxxxxx as available xxx sale and xxxxxxxxxxx recognize xx xxx
income xxx unrealized gain xx loss on xxx reclassification xxxx xxxx to xxxxxxx earnings, as xxx
original classification xxx in xxxxx xxxxxxxxxx the xxxxxxxxxx as

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