Exam 1 Missed Questions

20,000 10-year 9% bonds were issued March 1, 2007 at 97 plus accrued interest. The bonds are
dated January 1, 2007 and pay interest on June 30 and December 31. What is the total cash
received on the issue date?
a) $19,700,000 d) $20,000,000
b) $19,400,000 e) $19,100,000
c) $20,450,000

A company failed to amortize the premium on an outstanding 5-year bond. What is the
resulting effect on interest expense and bond carrying value?
Overstated and understated
January 1, 2010 a company exchanged a $400,000 zero interest bearing note due on January 1,
2015 for equipment. The prevailing rate of interest for a note of this type on January 1, 2010
was 10%. The present value of $1 at 10% for 5 periods is 0.62. What amount of interest expense
should be recognized for the second year of the note?
a) $0 d) $27,280
b) $30,400 e) $24,800
c) $40,000

On September 1, 2010 Herm Company borrowed $1,200,000 bearing interest at 12%. Herm’s
credit rating dictated 12% even though the bank’s prime rate was 11%. The loan is payable in 3
annual payments of $400,000 plus interest. The first payment was made on September 1, 2011.
At December 31, 2011 Herm Company should record accrued interest payable of _____?
a) $48,000 c) $44,000
b) $32,000 d) $29,334

A company buys an oil rig for $1,000,000 on January 1, 2010. Life of the rig is 10 years. Expected
cost to dismantle is $200,000. Present value at 10% is $77,110. 10% is an appropriate interest
rate for this company. What expense should be recorded for 2010 as a result of these events?
a) Depr expense of $107,710 and interest expense of $7,711
b) Depr expense of $100,000 and interest expense of $7,711
c) Depr expense of $120,000
d) Depr expense of $100,000 and interest expense of $20,000

Purest owes $2 million that is due on February 28, 2019. The company borrows $1,600,000 (5
year note) on February 1, 2019 and uses the proceeds to pay down the $2 million. Purest uses
other cash to pay the balance. How much of the $2 million is classified as long term in the
December 31, 2018 balance sheet that is issued on March 15,2019?
a) $400,000 c) $2,000,000
b) $0 d) $1,600,000
Mott Company incudes 1 coupon in each bag of dog food it sells. In return for 8 coupons
customers receive a leash. The leashes cost Mott $2.00 each. Mott estimates that 40% of the
coupons will be redeemed. The coupons have no expiration date. Data for 2010 and 2020 is:
2010 2011
Bags of dog food sold 500,00 600,000
Leashes purchased 18,000 22,000
Coupons redeemed 120,000 150,000

The liability premium at December 31, 2011 is _____?

a) $42,500 c) $11,250
b) $21,250 d) $22,500

During 2012, Eaton Company introduced a new product carrying a two-year warranty against
defects. The estimated warranty costs related to dollar sales are 2% within 12 months following
the sale and 3% in the second 12 months following the sale. Sales and actual warranty
expenditures for the year ended December 31, 2012 and 2013 follows:
Sales Actual Warranty Expense
2012 $800,000 $12,000
2013 $1,000,000 $35,000
$1,800,000 $47,000

For 2012, Eaton should report a warranty expense of ___?

a) $16,000 c) $40,000
b) $12,000 d) $47,000

At December 31, 2013, Eaton should report a warranty liability of ___?

a) $43,000 c) $15,000
b) $35,000 d) $0

On January 3, 2012, Boyer Company owned a machine that had cost $300,000. The
accumulated depreciation was $180,000. The estimated salvage value was $18,000 and the fair
value was $480,000. On January 4, 2012, this machine was irreparably damaged by Pine Corp
and became worthless. In October of 2012, a court awarded damages of $480,000 against Pine
in favor of Boyer. At December 31, 2012, the final outcome of this case was awaiting appeal
and was therefore uncertain. However, in the opinion of Boyer’s attorney, Pine’s appeal will be
denied. At December 31, 2012, what amount should Boyer accrue for this gain contingency?
a) $480,000 c) $300,000
b) $360,000 d) $0

Exam 2 Missed Questions

Knight Corp. Holds 20,000 shares of its $10 par value common stock as treasury stock
reacquisitioned in year 1 for $240,000. On December 12, year 3, Knight reissued all 20,000
shares for $380,000. The reissuance resulted in a credit to ___.
a) Common Stock of $200,000
 b) APIC from Treasury Stock Transactions of $140,000
c) Retained Earnings of $140,000
d) Gain on Sale of Investment of $140,000

At its date of incorporation, Sauder Inc. issued 100,000 shares of its $10 par common stock at
$11 per share. During the current year, Sauder acquired 20,000 shares of its common stock at a
price of $16 per share. 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 issuance of the stock have on the following accounts?
a) Decrease on Retained Earnings, Decrease on APIC from Treasury Stock
b) Decrease on Retained Earnings, No effect on APIC from Treasury Stock
c) No effect on Retained Earnings, Decease on APIC from Treasury Stock
d) No effect on Retained Earnings, No effect on APIC from Treasury Stock

On June 1, Ligma Co’s board of directors declared a cash dividend of $1.00 per share on its
common stock. The company has 55,000 shares of its common stock issued, 5,000 of which is
held by the company. Shareholders on record on June 15 are eligible for the dividend which is
paid on July 1. On June 1, Ligma should:
a) Debit retained earnings for $50,000
b) Make no entry
c) Debit retained earnings for $55,000
d) Debit retained earnings for $50,000 and APIC for $5,000

At the date of declaration of a small common stock dividend, the entry should not include ____.
a) A credit to Common Stock Dividend Payable
b) A credit to PIC in Excess of Par
c) A debit to Retained Earnings
d) All of these are acceptable

On January 2, 2018, Boles Company issued 10-year convertible bonds at 105. On January 2,
2018 cash proceeds from the issuance of the convertible bonds should be reported as ____.
a) A liability for the face amount of the bonds and PIC for the premium over the face
amount
b) A liability for the entire proceeds
c) PIC for the entire proceeds
d) PIC for the portion of the proceeds attributable to the conversion feature and as a
liability for the balance

On January 1, 2017, Carter Corp granted an employee 10,000 options to purchase shares of
Carter’s $5 par value common stock at $20 per share. The options become exercisable on
December 31, 2018, after the employee completes 10 years of service. The journal entry to
record compensation expense for year 1 of Carter’s stock option plan is ___.
a) Compensation Expense
Unearned Compensation
 b) Compensation Expense
PIC – Stock Options
c) Compensation Expense
Common Stock
APIC – Common Stock
d) Unearned Compensation
PIC – Stock Options

For 2017, Carter should recognize compensation expense of ____.

a) $125,000 d) $140,000
b) $165,000 e) $115,000
c) $65,000

On January 1, year 1, 120,000 options were granted for 120,000 $1 par common shares. The
exercise price equals the $8 market price of the common stock on the grant date. The service
period is 3 years. The option cannot be exercised before January 1, year 4, and expire on
December 31, year 5. Each option has a value of $4 based upon an option-pricing model. What
is the journal entry to record the exercise of 85% of the options during year 4 when the market
price of the stock was $10?
a) Cash $816,000
Common Stock $102,000
APIC – Common Stock $714,000
b) Cash $1,020,000
Common Stock $102,000
APIC – Common Stock $918,000
c) Cash $816,000
PIC – Stock Options $408,000
Common Stock $102,000
APIC – Common Stock $1,122,000
d) Cash $1,020,000
PIC – Stock Options $408,000
Common Stock $102,000
APIC – Common Stock $1,326,000

Exam 3 Missed Questions

Held to maturity securities originally purchased at a discount are reported on the balance sheet
subsequent to acquisition at ___.
a) Acquisition cost
b) Acquisition cost plus amortized discount
c) Acquisition cost minus amortized discount
d) Fair value
e) Acquisition minus amortized discount
A company should report investments in equity securities of less than 20% at ___.
a) Fair value with holding gains or loss included in the net income if classified as a current
asset and holding gain or loss included in OCI if classified as long term
b) Fair value with holding gains or losses included in net income

During 2020, Woods Company purchased 20,000 shares of Holmes Corp common stock for
$315,000 as a no significant influence investment. The face value of these shares was $300,000
at December 31, 2020. Woods sold all of the Holmes stock for $17 per share on March 3, 2021.
Woods Company should report a realized ____.
a) Gain of $40,000 in net income
b) Gain of $25,000 in other comprehensive income
c) Gain of $25,000 in net income
d) Gain of $40,000 in other comprehensive income
e) Loss of $15,000 in net income

How should the balances of progress billings and construction in process be shown at reporting
dates prior to the completion of a long-term contract?
a) Progress billing as income, construction in process as inventory
b) Net as a current asset if debt balance and current liability if a credit balance

When a contract modification has not resulted in a separate performance obligation, the
additional products are priced at the ___.
a) Current standard price of the product
b) Selling price specified in the original contract
c) Weighted average of the selling price of the remaining units in the original contract and
the selling price of the additional units in the contract modification
d) selling price specified in the contract modification

If a company employs the net method of recording accounts receivable from customers, then
the sales discounts forfeited should be reported as ___.
a) An increase to sales revenue on the income statement
b) A deduction from sales revenue on the income statement
c) An item of other revenue and expenses on the income statement
d) Sales discount forfeited on the balance sheet and item of other revenue and expenses
on the income statement

Meyer is a full-service tech company. They provide equipment, installation services, as well as
training. Customers can purchase any product or service separate or as a bundled package.
Container Corp purchased computer equipment, installation services, and training for the total
cost of $120,000 on March 15, 2020. Estimated standalone fair values of the equipment,
installation service, and training are $75,000, $50,000, and $25,000 respectively. The
transaction price allocated to equipment, installation services, and training is ___.
a) $60,000, $40,000, and $20,000 c) $40,000, $40,000, and $40,000
b) $75,000, $50,000, and $25,000 d) None of the above
A company uses the gross method of accounting for cash discounts offered to its customers. If
payment is made before the discount period ends:
a) Sales discount is credited for the amount of discounts taken by customers
b) Sales discount is debited for the amount of discount taken by customers

Partial satisfaction of a multiple performance obligation is reported on the balance sheet as:
a) Contract asset c) Receivable
b) Contract liability d) Unearned service revenue

On August 5, 2020, Famous shipped 20 dining sets on consignment to Furniture Outlet. The cost
of each set was $350 each. The cost of shipping the dining sets amounted to $1,800 and was
paid by Famous. On December 30, 2020, the consignee reported the sale of 15 dining sets at
$850 each. The consignee remitted payment for the amount due after deducting a 6%
commission, advertising expenses of $300, and installation and set up costs of $390. The
amount of cash received by Famous is ___.
a) $11,685 c) $12,750
b) $11,295 d) $11,985

The total profit on units sold for the consignor is ___.

a) $4,695 c) $9,945
b) $6,045 d) $11,295

Exam 4 Missed Questions

The amortization of bond discount on a long-term debt should be presented in a statement of

cash flows (using the indirect method for operating activities) as a(n):
a) Deduction from net income
b) Addition to net income
c) Investing activity
d) Financing activity

Carson Company reported sales of $538,800 and bad debt expense of $600 on its 2019 income
statement. In addition, the company wrote off $400 of accounts receivable. The following data
were extracted from the company’s financial records:
12/31/2019 12/31/2018
Accounts receivable $33,000 $30,000

On the statement of cash flows for 2019, using the direct method, cash collected from
customers should be ___.
a) $535,800 d) $536,000
b) $535,200 e) $536,400
c) $535,400
A company acquired a building, paying a portion of the purchase price in cash and issuing a
mortgage note payable to the seller for the balance in the statement of cash flows. What
amount is included in the investing activities section for the above transaction?
a) Mortgage amount c) $0
b) Cash payment d) Acquisition price

On January 1, 2014, Knapp company acquired machinery at a cost of $750,000. Knapp adopted
the double declining balance method of depreciation for this machinery and have been
recording depreciation over an estimated useful life of ten years with not residual value. At the
beginning of 2017, a decision was made to change to the straight line method of depreciation
for the machinery.
2014 2015 2016
Straight Line Depr as if from beginning $75,000 $75,000 $75,000
Double Declining Balance $150,000 $120,000 $96,000

The depreciation expense for 2017 would be ___.

a) $54,858 c) $75,000
b) $38,400 d) $107,142

Ventura Corporation purchased machinery on January 1, 2017 for $630,000, The company used
the sum of the years digits method and no salvage value to depreciate the asset for the first
two years of its estimated 6 year life. At the beginning of 2019, Ventura changed to the
straight-line depreciation method for this asset. The following facts pertain:
2017 2018
Straight line as if from beginning $105,000 $105,000
Sum of the years digits $180,000 $150,000
Ignoring tax effects, the cumulative effects of this account change on the beginning 2019
retained earnings is:
a) $120,000
b) $0

What is the amount that Ventura should report for depreciation expense on its 2019 income
statement?
a) $105,000
b) $75,000
c) $120,000
d) None of the above

A company using a perpetual inventory system neglected to record a purchase of merchandise

on account at year end 2018. This merchandise was also omitted from the year end physical
count. How will these errors affect assets, liabilities, and stockholders’ equity at year end 2018
and net income for 2018?
Assets understated, Liabilities understated, S/H Equity & Net Income no effect
Stone company changed its method of pricing inventories from FIFO to LIFO. What type of
account change does this represent?
a) A change in principle for which the financial statements for the prior periods included
for comparative purposes should be presented as previously reported
b) A change in principle for which the financial statements for the prior periods included
for comparative purposes should be restated

Tone is the defendant in a lawsuit filed by Witt in year 2 disputing the validity of a copyright
held by Tone. At December 31, year 2, Tone determined that Witt would probably lose for an
estimated amount of $400,000. Appropriately, Tone accrued a $400,000 loss for the year ended
December 31, year 2. On December 15, year 3, Tone and Witt agreed to settle providing for a
cash payment of $650,000 by Tone to Witt. The settlement in year 3 will ___.
a) Reduce year 3 income before taxes by $250,000
b) Reduce beginning of year 3 retained earnings by $250,000

On January 1, 2017, Gregg Corp acquired a machine at a cost of $500,000. It is to be

depreciated on the straight-line method over a five-year period with no residual value. Because
of a bookkeeping error, no depreciation was recognized by Gregg’s 2017 financial statements.
The oversight was discovered during the preparation of Gregg’s 2018 financial statements. On
the 2018 income statement, depreciation expense on this machine should be ___.
a) $0 c) $125,000
b) $100,000 d) $200,000