Chapter 18 Multiple Choice- Computational, Ch 17, Chapter 17, Chapter 17 Multiple Choice- Computational, Chapter 17 Investment, Intermediate 2 (Ch. 17), Accounting, ACCT 3312 Ch 16, Intermediate Accounting Chapter 16

Tracy Company owns 4,000 of the 10,000 outstanding shares of Penn Corporation common stock. During 2015, Penn earns $300,000 and pays cash dividends of $100,000. If the beginning balance in the investment account was $600,000, the balance at December 31, 2015 should be A. $600,000. B. $680,000. C. $720,000. D. $800,000.

B. $680,000.

The following information relates to Windom Company for 2015: Realized gain on sale of available-for-sale securities= $30,000 Unrealized holding gains arising during the period on available-for-sale securities= $60,000 Reclassification adjustment for gains included in net income= $20,000 Windom's 2015 other comprehensive income is A. $50,000. B. $70,000. C. $90,000. D. $110,000.

B. $70,000.

Instrument Corporation has the following investments which were held throughout 2014-2015: Fair Value Cost 12/31/14 12/31/15 Trading=$600,000/$800,000/$760,000 Available-for-sale=600,000/640,000/720,000 What amount of gain or loss would Instrument Corporation report in its income statement for the year ended December 31, 2015 related to its investments? A. $40,000 gain. B. $40,000 loss. C. $280,000 gain. D. $160,000 gain.

B. $40,000 loss

On November 1, 2014, Horton Company purchased Lopez, Inc., 10-year, 9%, bonds with a face value of $600,000, for $540,000. An additional $15,000 was paid for the accrued interest. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2021. Horton uses the straight-line method of amortization. Ignoring income taxes, the amount reported in Horton's 2014 income statement as a result of Horton's available-for-sale investment in Lopez was A. $10,500. B. $10,000. C. $9,000. D. $8,000.

A. $10,500.

On October 1, 2014, Menke Company purchased to hold to maturity, 400, $1,000, 9% bonds for $416,000. An additional $12,000 was paid for accrued interest. Interest is paid semiannually on December 1 and June 1 and the bonds mature on December 1, 2018. Menke uses straight-line amortization. Ignoring income taxes, the amount reported in Menke's 2014 income statement from this investment should be A. $9,000. B. $8,040. C. $9,960. D. $10,920.

B. $8,040

Kern Company purchased bonds with a face amount of $800,000 between interest payment dates. Kern purchased the bonds at 102, paid brokerage costs of $12,000, and paid accrued interest for three months of $20,000. The amount to record as the cost of this long-term investment in bonds is A. $848,000. B. $828,000. C. $816,000. D. $800,000.

B. $828,000.

During 2012, Hauke Company purchased 4,000, $1,000, 9% bonds. The carrying value of the bonds at December 31, 2014 was $3,920,000. The bonds mature on March 1, 2019, and pay interest on March 1 and September 1. Hauke sells 2,000 bonds on September 1, 2015, for $1,976,000, after the interest has been received. Hauke uses straight-line amortization. The gain on the sale is A. $0. B. $9,600. C. $16,000. D. $22,400.

B. $9,600.

Patton Company purchased $900,000 of 10% bonds of Scott Company on January 1, 2015, paying $846,225. The bonds mature January 1, 2025; interest is payable each July 1 and January 1. The discount of $53,775 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. For the year ended December 31, 2015, Patton Company should report interest revenue from the Scott Company bonds of: A. $95,382. B. $93,169. C. $93,078. D. $90,000.

B. $93,169.

During 2014, Grambling Company purchased 10,000 shares of Southern Corp. common stock for $215,000 as an available-for-sale investment. The fair value of these shares was $289,000 at December 31, 2014. During 2015, Grambling sold all of the Southern stock for $226,000. Grambling Company should report a realized gain on the sale of stock in 2015 of $37,000. $25,000. $26,000. $11,000.

$11,000.The difference between the selling price ($226,000) and the cost ($215,000) of available-for-sale securities is the gain (loss) on sale.

The following information relates to Boulder Company for 2014: Realized gain on sale of available-for-sale securities $45,000 Unrealized holding gains arising during the period on available-for-sale securities 105,000 Reclassification adjustment for gains included in net income 30,000 Boulder's 2014 other comprehensive income is $150,000. $120,000. $180,000. $75,000.

$120,000.

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 times (one minus the income tax rate) c. Annual preferred dividend times the income tax rate d. Annual preferred dividend divided by the income tax rate

A. annual preferred dividend

Transfers between categories A. are accounted for at fair value for all transfers. B. are considered unrealized and unrecognized if transferred out of held-to-maturity into trading. C. will always result in an impact on net income. D. result in companies omitting recognition of fair value in the year of the transfer.

A. are accounted for at fair value for all transfer

Brown Corporation earns $480,000 and pays cash dividends of $160,000 during 2014. Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown. How much investment income should Dexter report in 2014? A. $160,000. B. $144,000. C. $96,000. D. $480,000.

B. $144,000.

On January 2, 2015 Pod Company purchased 25% of the outstanding common stock of Jobs, Inc. and subsequently used the equity method to account for the investment. During 2015 Jobs, Inc. reported net income of $840,000 and distributed dividends of $360,000. The ending balance in the Investment in Pod Company account at December 31, 2015 was $640,000 after applying the equity method during 2015. What was the purchase price Pod Company paid for its investment in Jobs, Inc? A. $340,000 B. $520,000 C. $760,000 D. $940,000

B. $520,000

21. Which of the following is not a debt security? a. Convertible bonds b. Commercial paper c. Loans receivable d. All of these are debt securities.

C

23. Securities which could be classified as held-to-maturity are a. redeemable preferred stock. b. warrants. c. municipal bonds. d. treasury stock.

C

24. Unrealized holding gains or losses which are recognized in income are from securities classified as a. held-to-maturity. b. available-for-sale. c. trading. d. none of these.

C

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. held-to-maturity debt securities. b. trading debt securities. c. available-for-sale debt securities. d. never-sell debt securities.

C

32. Solo Co. purchased $300,000 of bonds for $315,000. If Solo intends to hold the securities to maturity, the entry to record the investment includes a. a debit to Held-to-Maturity Securities at $300,000. b. a credit to Premium on Investments of $15,000. c. a debit to Held-to-Maturity Securities at $315,000. d. none of these.

C

34. In accounting for investments in debt securities that are classified as trading securities, a. a discount is reported separately. b. a premium is reported separately. c. any discount or premium is not amortized. d. none of these.

C

35. Investments in debt securities are generally recorded at a. cost including accrued interest. b. maturity value. c. cost including brokerage and other fees. d. maturity value with a separate discount or premium account.

C

37. Investments in debt securities should be recorded on the date of acquisition at a. lower of cost or market. b. market value. c. market value plus brokerage fees and other costs incident to the purchase. d. face value plus brokerage fees and other costs incident to the purchase.

C

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

C

41. When investments in debt securities are purchased between interest payment dates, preferably the a. securities account should include accrued interest. b. accrued interest is debited to Interest Expense. c. accrued interest is debited to Interest Revenue. d. accrued interest is debited to Interest Receivable.

C

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

C

45. 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. Income Income b. A reduction of the investment A reduction of the investment c. Income A reduction of the investment d. A reduction of the investment Income

C

53. A reclassification adjustment is reported in the a. income statement as an Other Revenue or Expense. b. stockholders' equity section of the balance sheet. c. statement of comprehensive income as other comprehensive income. d. statement of stockholders' equity.

C

58. All of the following statements regarding accounting for derivatives are correct except that a. they should be recognized in the financial statements as assets and liabilities. b. they should be reported at fair value. c. gains and losses resulting from speculation should be deferred. d. gains and losses resulting from hedge transactions are reported in different ways, depending upon the type of hedge.

C

60. The accounting for fair value hedges records the derivative at its a. amortized cost. b. carrying value. c. fair value. d. historical cost.

C

On October 1, 2010, Renfro Co. purchased to hold to maturity, 1,000, $1,000, 9% bonds for $990,000 which includes $15,000 accrued interest. The bonds, which mature on February 1, 2019, pay interest semiannually on February 1 and August 1. Renfro uses the straight-line method of amortization. The bonds should be reported in the December 31, 2010 balance sheet at a carrying value of a. $975,000. b. $975,750. c. $990,000. d. $990,250

B. 975,750 $975,000 + ($25,000 × 3/100) = $975,750.

Chang Corporation issued $3,000,000 of 9%, ten-year convertible bonds on July 1, 2010 at 96.1 plus accrued interest. The bonds were dated April 1, 2010 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2011, $600,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. What was the effective interest rate on the bonds when they were issued? a. 9% b. Above 9% c. Below 9% d. Cannot determine from the information given.

B. Above 9% Bonds issued at a discount, market rate > coupon rate.

The conversion of preferred stock may be recorded by the a. incremental method. b. book value method. c. market value method. d. par value method.

B. Book value method

On July 4, 2010, Chen Company issued for $4,200,000 a total of 40,000 shares of $100 par value, 7% noncumulative preferred stock along with one detachable warrant for each share issued. Each warrant contains a right to purchase one share of Chen $10 par value common stock for $15 per share. The stock without the warrants would normally sell for $4,100,000. The market price of the rights on July 1, 2010, was $2.50 per right. On October 31, 2010, when the market price of the common stock was $19 per share and the market value of the rights was $3.00 per right, 16,000 rights were exercised. As a result of the exercise of the 16,000 rights and the issuance of the related common stock, what journal entry would Chen make? a. Cash 240,000 Common Stock 160,000 Paid-in Capital in Excess of Par 80,000 b. Cash 240,000 Paid-in Capital—Stock Warrants 40,000 Common Stock 160,000 Paid-in Capital in Excess of Par 120,000 c. Cash 240,000 Paid-in Capital—Stock Warrants 100,000 Common Stock 160,000 Paid-in Capital in Excess of Par 180,000 d. Cash 240,000 Paid-in Capital—Stock Warrants 60,000 Common Stock 160,000 Paid-in Capital in Excess of Par 140,000

B. Cash 240,000 Paid-in Capital—Stock Warrants 40,000 Common Stock 160,000 Paid-in Capital in Excess of Par 120,000 Dr. Cash: 16,000 × $15 = $240,000 Dr. Paid-in Capital—Stock Warrants: $100,000 × 16/40 = $40,000 Cr. Common Stock: 16,000 × $10 = $160,000 Cr. Paid-in Capital in Excess of Par: ($5 + $2.50) × 16,000 = $120,000.

When a bond issuer offers some form of additional consideration (a "sweetener") to induce conversion, the sweetener is accounted for as a(n) a. extraordinary item. b. expense. c. loss. d. none of these.

B. Expense

At December 31, 2015, Atlanta Company has a stock portfolio valued at $80,000. Its cost was $66,000. If the Securities Fair Value Adjustment (Available-for-Sale) has a debit balance of $4,000, which of the following journal entries is required at December 31, 2015? A. Fair Value Adjustment (available-for-sale)(dr) 14,000 Unrealized Holding Gain or Loss-Equity(cr) 14,000 B. Fair Value Adjustment (available-for-sale)(dr) 10,000 Unrealized Holding Gain or Loss-Equity(cr)10,000 C. Unrealized Holding Gain or Loss-Equity(dr) 14,000 Fair Value Adjustment (available-for-sale)(cr)14,000 D. Unrealized Holding Gain or Loss-Equity(dr) 10,000 Fair Value Adjustment (available-for-sale)(cr) 10,000

B. Fair Value Adjustment (available-for-sale)(dr) 10,000 Unrealized Holding Gain or Loss-Equity(cr)10,000

The primary iGAAP reporting standards related to financial instruments, including dilutive securities, is a. IAS 33. b. IAS 39. c. IFRS 2. d. IAS 2.

B. IAS 39

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

B. Income; A reduction of the investment

When computing diluted earnings per share, convertible securities are a. ignored. b. recognized only if they are dilutive. c. recognized only if they are antidilutive. d. recognized whether they are dilutive or antidilutive.

B. Recognized only if they are dilutive

At December 31, 2011, Atlanta Co. has a stock portfolio valued at $40,000. Its cost was $33,000. If the Securities Fair Value Adjustment (Available-for-Sale) has a debit balance of $2,000, which of the following journal entries is required at December 31, 2011? a. Securities Fair Value Adjustment 7,000 (Available-for-Sale) Unrealized Holding Gain or Loss-Equity 7,000 b. Securities Fair Value Adjustment 5,000 (Available-for-Sale) Unrealized Holding Gain or Loss-Equity 5,000 c. Unrealized Holding Gain or Loss-Equity 7,000 Securities Fair Value Adjustment 7,000 (Available-for-Sale) d. Unrealized Holding Gain or Loss-Equity 5,000 Securities Fair Value Adjustment 5,000 (Available-for-Sale)

B. Securities Fair Value Adjustment 5,000 (Available-for-Sale) Unrealized Holding Gain or Loss-Equity 5,000 ($40,000 - $33,000) - $2,000 = $5,000 unrealized gain.

A company estimates the fair value of SARs, using an option-pricing model, for a. share-based equity awards. b. share-based liability awards. c. both equity awards and liability awards. d. neither equity awards or liability awards.

B. Share-based liability awards

The major difference between convertible debt and stock warrants is that upon exercise of the warrants a. the stock is held by the company for a defined period of time before they are issued to the warrant holder. b. the holder has to pay a certain amount of cash to obtain the shares. c. the stock involved is restricted and can only be sold by the recipient after a set period of time. d. no paid-in capital in excess of par can be a part of the transaction.

B. The holder has to pay a certain amount of cash to obtain the shares

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

B. held-to-maturity debt securities

An executive pays no taxes at time of exercise in a(an) a. stock appreciation rights plan. b. incentive stock option plan. c. nonqualified stock option plan. d. Taxes would be paid in all of these.

B. incentive stock option plan

At December 31, 2010, Hancock Company had 500,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 100,000 of which were issued on October 1, 2010. Net income for the year ended December 31, 2010, was $1,020,000. What should be Hancock's 2010 earnings per common share, rounded to the nearest penny? a. $2.02 b. $2.55 c. $2.40 d. $2.27

C 2.40

Ziegler Corporation purchased 25,000 shares of common stock of the Sherman Corporation for $40 per share on January 2, 2017. Sherman Corporation had 100,000 shares of common stock outstanding during 2018, paid cash dividends of $150,000 during 2018, and reported net income of $500,000 for 2018. Ziegler Corporation should report revenue from investment for 2018 in the amount of A. $137,500. B. $37,500. C. $125,000. D. $87,500.

C. $125,000

The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2014 are as follows: Goebel Company Balance Sheet December 31, 2014 Assets= $1,200,000 LiabilitieS= $150,000 Capital stock= $600,000 Retained earningS= $450,000 Total equities= $1,200,000 Dobbs Company Balance Sheet December 31, 2014 Assets= $900,000 Liabilities= $205,000 Capital stock= $575,000 Retained earnings= $120,000 Total equities= $900,000 If Goebel Company acquired a 20% interest in Dobbs Company on December 31, 2014 for $175,000 and the fair value method of accounting for the investment were used, the amount of the debit to Equity Investments (Dobbs) would have been A. $139,000. B. $115,000. C. $175,000. D. $180,000.

C. $175,000

Myers Company acquired a 60% interest in Gannon Corporation on December 31, 2014 for $1,575,000. During 2015, Gannon had net income of $1,000,000 and paid cash dividends of $250,000. At December 31, 2015, the balance in the investment account should be A. $1,575,000. B. $2,175,000. C. $2,025,000. D. $2,325,000.

C. $2,025,000.

Instrument Corp. has the following investments which were held throughout 2010-2011: Market Value Cost 12/31/10 12/31/11 Trading $300,000 $400,000 $380,000 Available-for-sale 300,000 320,000 360,000 What amount would be reported as accumulated other comprehensive income related to investments in Instrument Corp.'s balance sheet at December 31, 2010? a. $40,000 gain. b. $60,000 gain. c. $20,000 gain. d. $120,000 gain.

C. $20,000 gain $320,000 - $300,000 = $20,000 gain

Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $450,000 on January 2, 2015. During 2015, Darby Company declared dividends of $75,000 and reported earnings for the year of $300,000. If Blanco Company uses the equity method of accounting for its investment in Darby Company, its Equity Investment (Darby) account at December 31, 2015 should be A. $435,000. B. $450,000. C. $495,000. D. $510,000.

C. $495,000.

Harrison Company owns 20,000 of the 50,000 outstanding shares of Taylor, Inc. common stock. During 2015, Taylor earns $1,000,000 and pays cash dividends of $800,000. If the beginning balance in the investment account was $625,000, the balance at December 31, 2015 should be A. $1,025,000. B. $825,000. C. $705,000. D. $625,000.

C. $705,000.

Brown Corporation earns $480,000 and pays cash dividends of $160,000 during 2014. Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown. What amount should Dexter show in the investment account at December 31, 2014 if the beginning of the year balance in the account was $640,000? A. $784,000. B. $640,000. C. $736,000. D. $960,000.

C. $736,000.

Ziegler Corporation purchased 25,000 shares of common stock of the Sherman Corporation for $40 per share on January 2, 2014. Sherman Corporation had 100,000 shares of common stock outstanding during 2015, paid cash dividends of $90,000 during 2015, and reported net income of $300,000 for 2015. Ziegler Corporation should report revenue from investment for 2015 in the amount of A. $22,500. B. $52,500. C. $75,000. D. $82,500.

C. $75,000

When $5,000,000 in convertible bonds are issued at par with $800,000 in value of the equity option embedded in the bond, the iGAAP journal entry will include a debit of a. $800,000 to Paid-in Capital — Convertible Bonds and a credit to Premium on Bonds Payable. b. $800,000 to Premium on Bonds Payable and a credit to Paid-in Capital — Convertible Bonds. c. $800,000 to Discount on Bonds Payable and a credit to Paid-in Capital — Convertible Bonds. d. $4,200,000 to Cash along with a debit of $800,000 to Discount on Bonds Payable and a credit to Bonds Payable and a credit to Paid-in Capital — Convertible Bonds.

C. $800,000 to Discount on Bonds Payable and a credit to Paid-in Capital — Convertible Bonds.

On November 1, 2014, Howell Company purchased 800 of the $1,000 face value, 9% bonds of Ramsey, Incorporated, for $842,000, which includes accrued interest of $12,000. The bonds, which mature on January 1, 2019, pay interest semiannually on March 1 and September 1. Assuming that Howell uses the straight-line method of amortization and that the bonds are appropriately classified as available-for-sale, the net carrying value of the bonds should be shown on Howell's December 31, 2014, balance sheet at A. $800,000. B. $830,000. C. $828,800. D. $842,000.

C. $828,800.

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 no effect c. Decrease and increase d. Increase and decrease

C. decrease and increase

Tracy Company owns 4,000 of the 10,000 outstanding shares of Penn Corporation common stock. During 2015, Penn earns $300,000 and pays cash dividends of $100,000. Tracy should report investment revenue for 2015 of A. $40,000. B. $80,000. C. $100,000. D. $120,000.

D. $120,000.

Richman Company purchased $900,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $937,422 at an effective interest rate of 7%. Using the effective interest method, Richman Company decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $3,186 and $3,294, respectively. At December 31, 2014, the fair value of the Carlin, Inc. bonds was $954,000. What should Richman Company report as other comprehensive income and as a separate component of stockholders' equity? A. $0 B. $6,480 C. $16,578 D. $23,058

D. $23,058

On January 3, 2014, Moss Company acquires $300,000 of Adam Company's 10-year, 10% bonds at a price of $319,254 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Company uses the effective-interest method, what is the amount of interest revenue that would be recognized in 2015 related to these bonds? A. $30,000 B. $31,925 C. $28,734 D. $28,619

D. $28,619

Instrument Corporation has the following investment which was held throughout 2018-2019: Fair Value Equity investment $900,000 - Cost $1,200,000 - 12/31/18 $1,140,000 - 12/31/19 What amount of gain or loss would Instrument Corporation report in its income statement for the year ended December 31, 2019 related to its investment? A. $240,000 gain. B. $60,000 gain. C. $300,000 gain. D. $60,000 loss.

D. $60,000 loss

63. All of the following are requirements for disclosures related to financial instruments except a. disclosing the fair value and related carrying value of the instruments. b. distinguishing between financial instruments held or issued for purposes other than trading. c. combining or netting the fair value of separate financial instruments. d. displaying as a separate classification of other comprehensive income the net gain/loss on derivative instruments designated in cash flow hedges.

C

On January 2, 2018 Pod Company purchased 25% of the outstanding common stock of Jobs, Inc. and subsequently used the equity method to account for the investment. During 2018 Jobs, Inc. reported net income of $1,260,000 and distributed dividends of $540,000. The ending balance in the Investment in Pod Company account at December 31, 2018 was $960,000 after applying the equity method during 2018. What was the purchase price Pod Company paid for its investment in Jobs, Inc? A. $1,410,000 B. $1,140,000 C. $510,000 D. $780,000

D. $780,000

Patton Company purchased $400,000 of 10% bonds of Scott Co. on January 1, 2011, paying $376,100. The bonds mature January 1, 2021; interest is payable each July 1 and January 1. The discount of $23,900 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. On July 1, 2011, Patton Company should increase its Held-to-Maturity Debt Securities account for the Scott Co. bonds by a. $2,392. b. $1,371. c. $1,196. d. $686.

D. 686 ($376,100 × .055) - ($400,000 × .05) = $686.

Antidilutive securities a. should be included in the computation of diluted earnings per share but not basic earnings per share. b. are those whose inclusion in earnings per share computations would cause basic earnings per share to exceed diluted earnings per share. c. include stock options and warrants whose exercise price is less than the average market price of common stock. d. should be ignored in all earnings per share calculations.

D. should be ignored in all earnings per share calculations

Assume there are two dilutive convertible securities. The one that should be used first to recalculate earnings per share is the security with the a. greater earnings adjustment. b. greater earnings per share adjustment. c. smaller earnings adjustment. d. smaller earnings per share adjustment.

D. smaller earnings per share adjustment

The distribution of stock rights to existing common stockholders will increase paid-in capital at the

Date of Issuance of the Rights - NO Date of Exercise of the Rights - YES

On its December 31, 2014, balance sheet, Estes Co. reported its investment in trading securities, which had cost $500,000, at fair value of $475,000. At December 31, 2015, the fair value of the securities was $492,500. What should Estes report on its 2015 income statement as a result of the increase in fair value of the investments in 2015? Realized gain of $17,500. $0. Unrealized loss of $7,500. Unrealized gain of $17,500.

To adjust the Securities Fair Value Adjustment account from a $25,000 credit balance to a $7,500 credit balance, the company would debit the account and credit an unrealized gain for the difference, $17,500.

Select the correct statement regarding the impact on stockholders' equity of a transfer from available-for-sale to trading. The separate component of stockholders' equity is increased or decreased by the unrealized gain or loss at the date of transfer. The unrealized gain or loss at the date of transfer increases or decreases stockholders' equity. The unrealized gain or loss at the date of transfer is recognized in income. The unrealized gain or loss at the date of transfer carried as a separate component of stockholders' equity is amortized over the remaining life of the security.

The unrealized gain or loss at the date of transfer increases or decreases stockholders' equity.

Fryman Furniture uses the installment-sales method. No further collections could be made on an account with a balance of $24,000. It was estimated that the repossessed furniture could be sold as is for $7,200, or for $8,400 if $400 were spent reconditioning it. The gross profit rate on the original sale was 40%. The loss on repossession was a. $6,400. b. $6,000. c. $16,000. d. $16,800.

a. $6,400.

Daily, Inc. appropriately used the installment method of accounting to recognize income in its financial statement. Some pertinent data relating to this method of accounting include: 2014/2015 Installment sales: $750,000/ $900,000 Cost of sales: 450,000/ 630,000 Gross profit:$300,000/ $270,000 Collections during year: On 2014 sales: 200,000/ 200,000 On 2015 sales: 240,000 What amount to be realized gross profit should be reported on Daily's income statement for 2015? a. $132,000 b. $152,000 c. $176,000 d. $216,000

b. $152,000

An ownership interest of 15% in another company's voting stock should be accounted for using the: consolidation method. cost method. equity method. fair value method.

fair value method.

Debt securities that are bought and held primarily for sale in the near term are reported at: realizable value. fair value. cost. amortized cost.

fair value.

A correct valuation is none of these answer choices are correct. trading securities at amortized cost. available-for-sale securities at amortized cost. held-to-maturity securities at amortized cost.

held-to-maturity securities at amortized cost.

An executive pays no taxes at time of exercise in an

incentive stock option plan

An executive pays no taxes at the time of exercise in a(an)

incentive stock option plan.

The date on which to measure the compensation element in a stock option granted to a corporate employee is the date on which the employee

is granted the option

The date on which to measure the compensation element in a stock option granted to a corporate employee ordinarily is the date on which the employee

is granted the option.

Recovery of impairment is not permitted by IFRS for held-for-collection securities. is permitted by IFRS for held-for-collection securities but prohibited by US GAAP for held-to-maturity securities. is permitted by US GAAP for held-to-maturity securities. is prohibited by both IFRS and US GAAP for any debt security.

is permitted by IFRS for held-for-collection securities but prohibited by US GAAP for held-to-maturity securities.

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

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

Convertible bonds

may be exchanged for equity securities.

Under the intrinsic value method, compensation expense resulting from an incentive stock option is

not recognized if the market price does not exceed the option price at the date of grant.

For stock appreciation rights, the measurement date for computing compensation is the date

of exercise

For stock appreciation rights, the measurement date for computing compensation is the date

of exercise.

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

other comprehensive income and included in the equity section of the balance sheet.

The unrealized holding gain or loss on trading securities is reported as: a separate component of stockholders' equity. part of net income. an addition to (deduction from) the trading securities other comprehensive income.

part of net income.

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

premium on bonds payable

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

premium on bonds payable.

When computing diluted earnings per share, convertible securities are

recognized only if they are dilutive

Under the equity method, if an investee company generates net income, the investor company: records its proportionate share as an unrealized gain. does not recognize any share of the net income. records its proportionate share of the net income as dividend income. records its proportionate share as an increase in its investment account.

records its proportionate share as an increase in its investment account.

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

reflected currently in income, but not as an extraordinary item

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

reflected currently in income, but not as an extraordinary item.

The unrealized gains and losses on available-for-sale securities are: reported on individual securities. none of these answer choices are correct. not reported at all. reported on the portfolio of investments.

reported on the portfolio of investments.

A company estimates the fair value of SARs using an option pricing model for

share-based liability awards

A company estimates the fair value of SARs, using an option-pricing model, for

share-based liability awards.

Characteristics of a non-compensatory stock option plan

substantially all full time employees may participate on an equitable basis, the plan offers no substantive option feature, discount from the market price of the stock no greater than would be reasonable in an offer of stock to stockholders or others

The major difference between convertible debt and stock warrants is that upon exercise of the warrants

the holder has to pay a certain amount of cash to obtain the shares

The major difference between convertible debt and stock warrants is that upon exercise of the warrants

the holder has to pay a certain amount of cash to obtain the shares.

Proceeds from an issue of debt securities having stock warrants should not be allocated between debt and equity features when

the warrants issued with the debt securities are nondetachable

Proceeds from an issue of debt securities having stock warrants should not be allocated between debt and equity features when

the warrants issued with the debt securities are nondetachable.

Unrealized holding gains or losses which are recognized in income are from securities classified as none of these answer choices are correct. trading. held-to-maturity. available-for-sale.

trading.

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

treated as a direct reduction of retained earnings

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

treated as a direct reduction of retained earnings.

Foucault Company. owns 40,000 of the 100,000 outstanding shares of Mango Inc. common stock. During 2015, Mango earns $640,000 and pays cash dividends of $480,000. If the beginning balance in Foucault's investment account was $430,000, the balance at December 31, 2015 should be $430,000. $494,000. $686,000. $366,000.

$430,000 plus ($640,000 X 40%) less ($480,000 X 40%) equals $494,000.

Rosenblum Company's trading securities portfolio which is appropriately included in current assets is as follows: December 31, 2014 Cost Fair Value Unrealized Gain (Loss) Boston Corp. $450,000 $421,000 $(29,000) Greening, Inc. 233,000 255,000 22,000 $683,000 $676,000 $(7,000) Ignoring income taxes, what amount should be reported as a charge against income in Rosenblum's 2014 income statement if 2014 is Yellowtail's first year of operation? $0. $22,000. $29,000. $7,000.

$7,000.

Trading securities are generally held for less than: 3 weeks. 3 months. 12 months. 6 months.

3 months.

On its December 31, 2014, balance sheet, Trump Company reported its investment in available-for-sale securities, which had cost $600,000, at fair value of $550,000. At December 31, 2015, the fair value of the securities was $585,000. What should Trump report on its 2015 income statement as a result of the increase in fair value of the investments in 2015? A. $0. B. Unrealized loss of $15,000. C. Realized gain of $35,000. D. Unrealized gain of $35,000.

A. $0.

25. 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 amount of interest accrued since the last interest receipt date. b. notify the issuer and request that a special payment be made for the appropriate portion of the interest period. c. 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. d. do nothing special and ignore the fact that the accounting period does not coincide with the bond's interest period.

A

26. Debt securities that are accounted for at amortized cost, not fair value, are a. held-to-maturity debt securities. b. trading debt securities. c. available-for-sale debt securities. d. never-sell debt securities.

A

29. 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. available-for-sale securities where a company has holdings of less than 20%. b. trading 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%.

A

38. An available-for-sale debt security is purchased at a discount. The entry to record the amortization of the discount includes a a. debit to Available-for-Sale Securities. b. debit to the discount account. c. debit to Interest Revenue. d. none of these.

A

44. 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. No Effect Decrease b. Increase Decrease c. No Effect No Effect d. Decrease No Effect

A

48. 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. a reduction of the carrying value of the investment. b. additional paid-in capital. c. an addition to the carrying value of the investment. d. dividend income.

A

57. Companies that attempt to exploit inefficiencies in various derivative markets by attempting to lock in profits by simultaneously entering into transactions in two or more markets are called a. arbitrageurs. b. gamblers. c. hedgers. d. speculators.

A

62. An option to convert a convertible bond into shares of common stock is a(n) a. embedded derivative. b. host security. c. hybrid security. d. fair value hedge.

A

On January 3, 2014, Moss Company acquires $300,000 of Adam Company's 10-year, 10% bonds at a price of $319,254 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Company uses the straight-line method, what is the amount of premium amortization that would be recognized in 2016 related to these bonds? A. $1,925 B. $1,266 C. $1,380 D. $1,506

A. $1,925

A requirement for a security to be classified as held-to-maturity is A. all of these are required. B. the security must be a debt security. C. positive intent. D. ability to hold the security to maturity.

A. all of these are required

During 2014, Woods Company purchased 60,000 shares of Holmes Corporation common stock for $945,000 as an available-for-sale investment. The fair value of these shares was $900,000 at December 31, 2014. Woods sold all of the Holmes stock for $17 per share on December 3, 2015, incurring $42,000 in brokerage commissions. Woods Company should report a realized gain on the sale of stock in 2015 of A. $33,000. B. $75,000. C. $78,000. D. $120,000.

A. $33,000.

Morgan 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, 2010, 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 Morgan credit to the account "paid-in capital in excess of par," as a result of this conversion? a. $330,000. b. $160,000. c. $1,440,000. d. $720,000.

A. $330,000 ($2,400,000 ÷ $1,000) × 40 × $20 = $1,920,000 (common stock) ($2,400,000 ÷ $16,000,000) × $1,000,000 = $150,000 (unamortized discount) $2,400,000 - $1,920,000 - $150,000 = $330,000.

On its December 31, 2014 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Fair Value Adjustment (available-for-sale) account. There was no change during 2015 in the composition of Calhoun's portfolio of equity investments held as available-for-sale securities. The following information pertains to that portfolio: Security/CosT/Fair value at 12/31/15 X= $125,000/$160,000 Y= 100,000/90,000 Z= 175,000/125,000 Total= $400,000$375,000 The amount of unrealized loss to appear as a component of comprehensive income for the year ending December 31, 2015 is A. $35,000. B. $25,000. C. $15,000. D. $0.

A. $35,000.

Harrison Company owns 20,000 of the 50,000 outstanding shares of Taylor, Inc. common stock. During 2015, Taylor earns $1,000,000 and pays cash dividends of $800,000. Harrison should report investment revenue for 2015 of A. $400,000. B. $320,000. C. $80,000. D. $0.

A. $400,000.

Landis Company purchased $2,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $2,083,160 at an effective interest rate of 7%. Using the effective-interest method, Landis Company decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $7,080 and $7,320, respectively. At December 31, 2014, the fair value of the Ritter, Inc. bonds was $2,120,000. What should Landis Company report as other comprehensive income and as a separate component of stockholders' equity? A. $51,240. B. $36,840. C. $14,400. D. No entry should be made.

A. $51,240.

Grimm Company has 1,800,000 shares of common stock outstanding on December 31, 2010. An additional 150,000 shares of common stock were issued on July 1, 2011, and 300,000 more on October 1, 2011. On April 1, 2011, Grimm issued 6,000, $1,000 face value, 8% convertible bonds. Each bond is convertible into 40 shares of common stock. No bonds were converted into common stock in 2011. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively, for the year ended December 31, 2011? a. 1,950,000 and 2,130,000 b. 1,950,000 and 1,950,000 c. 1,950,000 and 2,190,000 d. 2,250,000 and 2,430,000

A. 1,950,000 and 2,130,000

At December 31, 2010 Rice Company had 300,000 shares of common stock and 10,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2010 or 2011. On January 30, 2012, prior to the issuance of its financial statements for the year ended December 31, 2011, Rice declared a 100% stock dividend on its common stock. Net income for 2011 was $950,000. In its 2011 financial statements, Rice's 2011 earnings per common share should be a. $1.50. b. $1.58. c. $3.00. d. $3.17.

A. 1.50

Landis Co. purchased $500,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2011, with interest payable on July 1 and January 1. The bonds sold for $520,790 at an effective interest rate of 7%. Using the effective-interest method, Landis Co. decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2011 and December 31, 2011 by the amortized premiums of $1,770 and $1,830, respectively. At December 31, 2011, the fair value of the Ritter, Inc. bonds was $530,000. What should Landis Co. report as other comprehensive income and as a separate component of stockholders' equity? a. $12,810. b. $9,210. c. $3,600. d. No entry should be made.

A. 12,810 $530,000 - ($520,790 - $1,770 - $1,830) = $12,810.

In order to retain certain key executives, Jensen Corporation granted them incentive stock options on December 31, 2009. 50,000 options were granted at an option price of $35 per share. Market prices of the stock were as follows: December 31, 2010 $46 per share December 31, 2011 51 per share The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2010. The Black-Scholes option pricing model determines total compensation expense to be $500,000. What amount of compensation expense should Jensen recognize as a result of this plan for the year ended December 31, 2010 under the fair value method? a. $250,000. b. $500,000. c. $550,000. d. $1,750,000.

A. 250,000 $500,000 ÷ 2 = $250,000.

On November 1, 2010, Horton Co. purchased Lopez, Inc., 10-year, 9%, bonds with a face value of $250,000, for $225,000. An additional $7,500 was paid for the accrued interest. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2017. Horton uses the straight-line method of amortization. Ignoring income taxes, the amount reported in Horton's 2010 income statement as a result of Horton's available-for-sale investment in Lopez wa

A. 4,375 ($250,000 × .045) + ($25,000 × 2/80) - $7,500 = $4,375.

On January 3, 2010, Moss Co. acquires $100,000 of Adam Company's 10-year, 10% bonds at a price of $106,418 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Co. uses the straight-line method, what is the amount of premium amortization that would be recognized in 2012 related to these bonds? *a. $642 b. $422 c. $460 d. $502

A. 642 ($106,418 - $100,000) ÷ 10 = $642.

On August 1, 2014, Fowler Company acquired $300,000 face value 10% bonds of Kasnic Corporation at 104 plus accrued interest. The bonds were dated May 1, 2014, and mature on April 30, 2019, with interest payable each October 31 and April 30. The bonds will be held to maturity. What entry should Fowler make to record the purchase of the bonds on August 1, 2014? A. Debt Investments(dr) 312,000 Interest Revenue(dr) 7,500 Cash(cr) 319,500 B. Debt Investments(dr) 319,500 Cash(cr) 319,500 C. Debt Investments(dr) 319,500 Interest Revenue(dr) 7,500 Cash(cr) 312,000 D. Debt Investments(dr) 300,000 Premium on Bonds(dr)19,500 Cash(cr) 319,500

A. Debt Investments(dr) 312,000 Interest Revenue(dr) 7,500 Cash(cr) 319,500

On August 1, 2010, Fowler Company acquired $200,000 face value 10% bonds of Kasnic Corporation at 104 plus accrued interest. The bonds were dated May 1, 2010, and mature on April 30, 2015, with interest payable each October 31 and April 30. The bonds will be held to maturity. What entry should Fowler make to record the purchase of the bonds on August 1, 2010? a. Held-to-Maturity Securities 208,000 Interest Revenue 5,000 Cash 213,000 b. Held-to-Maturity Securities 213,000 Cash 213,000 c. Held-to-Maturity Securities 213,000 Interest Revenue 5,000 Cash 208,000 d. Held-to-Maturity Securities 200,000 Premium on Bonds 13,000 Cash 213,000

A. Held-to-Maturity Securities 208,000 Interest Revenue 5,000 Cash 213,000 Dr. Held-to-Maturity Securities: $200,000 × 1.04 = $208,000 Dr. Interest Revenue: $200,000 × .05 × 3/6 = $5,000 Cr. Cash: $208,000 + $5,000 = $213,000.

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. reflected currently in income, but not as an extraordinary item. b. reflected currently in income as an extraordinary item. c. treated as a prior period adjustment. d. treated as an adjustment of additional paid-in capital.

A. Reflected currently in income but not as an extraordinary item

In applying the treasury stock method to determine the dilutive effect of stock options and warrants, the proceeds assumed to be received upon exercise of the options and warrants a. are used to calculate the number of common shares repurchased at the average market price, when computing diluted earnings per share. b. are added, net of tax, to the numerator of the calculation for diluted earnings per share. c. are disregarded in the computation of earnings per share if the exercise price of the options and warrants is less than the ending market price of common stock. d. none of these.

A. are used to calculate the number of common shares repurchased at the average market price, when computing diluted earnings per share.

The if-converted method of computing earnings per share data assumes conversion of convertible securities as of the a. beginning of the earliest period reported (or at time of issuance, if later). b. beginning of the earliest period reported (regardless of time of issuance). c. middle of the earliest period reported (regardless of time of issuance). d. ending of the earliest period reported (regardless of time of issuance).

A. beginning of the earliest period reported (or at time of issuance, if later).

Investments in debt securities are generally recorded at A. cost including brokerage and other fees. B. cost including accrued interest. C. maturity value with a separate discount or premium account. D. maturity value.

A. cost including brokerage and other fees

Fogel Co. has $2,500,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2010, the holders of $800,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $175,000. Fogel should record, as a result of this conversion, a a. credit of $136,000 to Paid-in Capital in Excess of Par. b. credit of $120,000 to Paid-in Capital in Excess of Par. c. credit of $56,000 to Premium on Bonds Payable. d. loss of $8,000.

A. credit of $136,000 to Paid-in Capital in Excess of Par.

Lang Co. issued bonds with detachable common stock warrants. Only the warrants had a known market value. The sum of the fair value of the warrants and the face amount of the bonds exceeds the cash proceeds. This excess is reported as a. Discount on Bonds Payable. b. Premium on Bonds Payable. c. Common Stock Subscribed. d. Paid-in Capital in Excess of Par—Stock Warrants.

A. discount on bonds payable

With regard to recognizing stock-based compensation a. iGAAP and U.S. GAAP follow the same model. b. iGAAP and U.S. GAAP standards are undergoing major reform on valuation issues. c. it has been agreed that these standards will not be merged due to the differences in currencies. d. the reform of U.S. GAAP standards will not be addressed until iGAAP standards have been finalized.

A. iGAAP and U.S. GAAP follow the same model

With regard to contracts that can be settled in either cash or shares a. iGAAP requires that share settlement must be used. b. iGAAP gives companies a choice of either cash or shares. c. U.S. GAAP requires that share settlement must be used. d. the FASB project proposes that the IASB adopt the U.S. GAAP approach, requiring that share settlement must be used

A. iGAAP requires that share settlement must be used

The date on which to measure the compensation element in a stock option granted to a corporate employee ordinarily is the date on which the employee a. is granted the option. b. has performed all conditions precedent to exercising the option. c. may first exercise the option. d. exercises the option.

A. is granted the option

The date on which total compensation expense is computed in a stock option plan is the date a. of grant. b. of exercise. c. that the market price coincides with the option price. c. that the market price exceeds the option price.

A. of grant

The fair value option allows a company to A. report most financial instruments at fair value at any point of time. B. record income when the fair value of its bonds increases. C. value its own liabilities at fair value. D. all of these choices are true of the fair value option.

A. report most financial instruments at fair value at any point of time

On January 1, 2010, Korsak, Inc. established a stock appreciation rights plan for its executives. It entitled them to receive cash at any time during the next four years for the difference between the market price of its common stock and a pre-established price of $20 on 60,000 SARs. Current market prices of the stock are as follows: January 1, 2010 $35 per share December 31, 2010 38 per share December 31, 2011 30 per share December 31, 2012 33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2010. On December 31, 2012, 16,000 SARs are exercised by executives. What amount of compensation expense should Korsak recognize for the year ended December 31, 2012? a. $285,000 b. $195,000 c. $585,000 d. $78,000

A: 285,000 ($33 - $20) × 60,000 × .75 = $585,000 $585,000 - $300,000 = $285,000.

22. A correct valuation is a. available-for-sale at amortized cost. b. held-to-maturity at amortized cost. c. held-to-maturity at fair value. d. none of these.

B

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

B

31. Held-to-maturity securities are reported at a. acquisition cost. b. acquisition cost plus amortization of a discount. c. acquisition cost plus amortization of a premium. d. fair value.

B

43. When a company has acquired a "passive interest" in another corporation, the acquiring company should account for the investment a. by using the equity method. b. by using the fair value method. c. by using the effective interest method. d. by consolidation.

B

46. 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 always use the equity method to account for its investment. b. 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. 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.

B

54. When an investment in a held-to-maturity security is transferred to an available-for-sale security, the carrying value assigned to the available-for-sale security should be a. its original cost. b. its fair value at the date of the transfer. c. the lower of its original cost or its fair value at the date of the transfer. d. the higher of its original cost or its fair value at the date of the transfer.

B

55. When an investment in an available-for-sale security is transferred to trading because the company anticipates selling the stock in the near future, the carrying value assigned to the investment upon entering it in the trading portfolio should be a. its original cost. b. its fair value at the date of the transfer. c. the higher of its original cost or its fair value at the date of the transfer. d. the lower of its original cost or its fair value at the date of the transfer.

B

59. 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. requires a large investment at the inception of the contract. c. requires or permits net settlement. d. All of these are characteristics.

B

61. Gains or losses on cash flow hedges are a. ignored completely. b. recorded in equity, as part of other comprehensive income. c. reported directly in net income. d. reported directly in retained earnings.

B

The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2014 are as follows: Goebel Company Balance Sheet December 31, 2014 Assets= $1,200,000 LiabilitieS= $150,000 Capital stock= $600,000 Retained earningS= $450,000 Total equities= $1,200,000 Dobbs Company Balance Sheet December 31, 2014 Assets= $900,000 Liabilities= $205,000 Capital stock= $575,000 Retained earnings= $120,000 Total equities= $900,000 If Goebel Company acquired a 20% interest in Dobbs Company on December 31, 2014 for $145,000 and during 2015 Dobbs Company had net income of $75,000 and paid a cash dividend of $30,000, applying the fair value method would give a debit balance in the Equity Investments (Dobbs) account at the end of 2015 of A. $115,000. B. $145,000. C. $160,000. D. $154,000.

B. $145,000.

On October 1, 2014, Renfro Company purchased to hold to maturity, 3,000, $1,000, 9% bonds for $2,970,000 which includes $45,000 accrued interest. The bonds, which mature on February 1, 2023, pay interest semiannually on February 1 and August 1. Renfro uses the straight-line method of amortization. The bonds should be reported in the December 31, 2014 balance sheet at a carrying value of A. $2,925,000. B. $2,927,250. C. $2,970,000. D. $2,970,750.

B. $2,927,250.

Instrument Corp. has the following investments which were held throughout 2010-2011: Market Value Cost 12/31/10 12/31/11 Trading $300,000 $400,000 $380,000 Available-for-sale 300,000 320,000 360,000 What amount of gain or loss would Instrument Corp. report in its income statement for the year ended December 31, 2011 related to its investments? a. $20,000 gain. b. $20,000 loss. c. $140,000 gain. d. $80,000 gain.

B. $20,000 loss $400,000 - $380,000 = $20,000 loss

The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2014 are as follows: Goebel Company Balance Sheet December 31, 2014 Assets= $1,200,000 LiabilitieS= $150,000 Capital stock= $600,000 Retained earningS= $450,000 Total equities= $1,200,000 Dobbs Company Balance Sheet December 31, 2014 Assets= $900,000 Liabilities= $205,000 Capital stock= $575,000 Retained earnings= $120,000 Total equities= $900,000 If Goebel Company acquired a 30% interest in Dobbs Company on December 31, 2014 for $215,000 and the equity method of accounting for the investment were used, the amount of the debit to Equity Investments (Dobbs) would have been A. $270,000. B. $215,000. C. $172,500. D. $208,500.

B. $215,000.

The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2014 are as follows: Goebel Company Balance Sheet December 31, 2014 Assets= $1,200,000 LiabilitieS= $150,000 Capital stock= $600,000 Retained earningS= $450,000 Total equities= $1,200,000 Dobbs Company Balance Sheet December 31, 2014 Assets= $900,000 Liabilities= $205,000 Capital stock= $575,000 Retained earnings= $120,000 Total equities= $900,000 If Goebel Company acquired a 30% interest in Dobbs Company on December 31, 2014 for $220,000 and during 2015 Dobbs Company had net income of $75,000 and paid a cash dividend of $30,000, applying the equity method would give a debit balance in the Equity Investments (Dobbs) account at the end of 2015 of A. $220,000. B. $233,500. C. $242,500. D. $211,000.

B. $233,500.

On its December 31, 2014 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Fair Value Adjustment (available-for-sale) account. There was no change during 2015 in the composition of Calhoun's portfolio of equity investments held as available-for-sale securities. The following information pertains to that portfolio: Security/CosT/Fair value at 12/31/15 X= $125,000/$160,000 Y= 100,000/90,000 Z= 175,000/125,000 Total= $400,000$375,000 What amount of unrealized loss on these securities should be included in Calhoun's stockholders' equity section of the balance sheet at December 31, 2015? A. $35,000. B. $25,000. C. $15,000. D. $0.

B. $25,000.

Milo Co. had 600,000 shares of common stock outstanding on January 1, issued 126,000 shares on May 1, purchased 63,000 shares of treasury stock on September 1, and issued 54,000 shares on November 1. The weighted average shares outstanding for the year is a. 651,000. b. 672,000. c. 693,000. d. 714,000.

B. 672,000

Richman Company purchased $900,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $937,422 at an effective interest rate of 7%. Using the effective interest method, Richman Company decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $3,186 and $3,294, respectively. At February 1, 2015, Richman Company sold the Carlin bonds for $927,000. After accruing for interest, the carrying value of the Carlin bonds on February 1, 2015 was $930,375. Assuming Richman Company has a portfolio of available-for-sale debt investments, what should Richman Company report as a gain (or loss) on the bonds? A. $0. B. ($3,375). C. ($19,683). D. ($26,433).

B. ($3,375).

Richman Co. purchased $300,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2010, with interest payable on July 1 and January 1. The bonds sold for $312,474 at an effective interest rate of 7%. Using the effective interest method, Richman Co. decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2010 and December 31, 2010 by the amortized premiums of $1,062 and $1,098, respectively. At February 1, 2011, Richman Co. sold the Carlin bonds for $309,000. After accruing for interest, the carrying value of the Carlin bonds on February 1, 2011 was $310,125. Assuming Richman Co. has a portfolio of Available-for-Sale Debt Securities, what should Richman Co. report as a gain (or loss) on the bonds? a. $0. b. ($1,125). c. ($6,561). d. ($8,811).

B. (1,125) $310,125 - $309,000 = $1,125.

Kasravi Co. had net income for 2011 of $300,000. The average number of shares outstanding for the period was 200,000 shares. The average number of shares under outstanding options, at an option price of $30 per share is 12,000 shares. The average market price of the common stock during the year was $36. What should Kasravi Co. report for diluted earnings per share for the year ended 2011? a. $1.50 b. $1.49 c. $1.43 d. $1.42

B. 1.49

At December 31, 2010, Tatum Company had 2,000,000 shares of common stock outstanding. On January 1, 2011, Tatum issued 500,000 shares of preferred stock which were convertible into 1,000,000 shares of common stock. During 2011, Tatum declared and paid $1,500,000 cash dividends on the common stock and $500,000 cash dividends on the preferred stock. Net income for the year ended December 31, 2011, was $5,000,000. Assuming an income tax rate of 30%, what should be diluted earnings per share for the year ended December 31, 2011? (Round to the nearest penny.) a. $1.50 b. $1.67 c. $2.50 d. $2.08

B. 1.67

On January 2, 2010, Perez Co. issued at par $10,000 of 6% bonds convertible in total into 1,000 shares of Perez's common stock. No bonds were converted during 2010. Throughout 2010, Perez had 1,000 shares of common stock outstanding. Perez's 2010 net income was $3,000, and its income tax rate is 30%. No potentially dilutive securities other than the convertible bonds were outstanding during 2010. Perez's diluted earnings per share for 2010 would be (rounded to the nearest penny) a. $1.50. b. $1.71. c. $1.80. d. $3.42.

B. 1.71

At December 31, 2010, Sager Co. had 1,200,000 shares of common stock outstanding. In addition, Sager had 450,000 shares of preferred stock which were convertible into 750,000 shares of common stock. During 2011, Sager paid $600,000 cash dividends on the common stock and $400,000 cash dividends on the preferred stock. Net income for 2011 was $3,400,000 and the income tax rate was 40%. The diluted earnings per share for 2011 is (rounded to the nearest penny) a. $1.24. b. $1.74. c. $2.51. d. $2.84.

B. 1.74

Didde Co. had 300,000 shares of common stock issued and outstanding at December 31, 2010. No common stock was issued during 2011. On January 1, 2011, Didde issued 200,000 shares of nonconvertible preferred stock. During 2011, Didde declared and paid $100,000 cash dividends on the common stock and $80,000 on the preferred stock. Net income for the year ended December 31, 2011 was $620,000. What should be Didde's 2011 earnings per common share? a. $2.07 b. $1.80 c. $1.73 d. $1.47

B. 1.80

At December 31, 2011 and 2010, Miley Corp. had 180,000 shares of common stock and 10,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2011 or 2010. Net income for 2011 was $400,000. For 2011, earnings per common share amounted to a. $2.22. b. $1.94. c. $1.67. d. $1.11.

B. 1.94

On June 30, 2008, Norman Corporation granted compensatory stock options for 30,000 shares of its $20 par value common stock to certain of its key employees. The market price of the common stock on that date was $36 per share and the option price was $30. The Black-Scholes option pricing model determines total compensation expense to be $360,000. The options are exercisable beginning January 1, 2011, provided those key employees are still in Norman's employ at the time the options are exercised. The options expire on June 30, 2012. On January 4, 2011, when the market price of the stock was $42 per share, all 30,000 options were exercised. What should be the amount of compensation expense recorded by Norman Corporation for the calendar year 2010 using the fair value method? a. $0. b. $144,000. c. $180,000. d. $360,000.

B. 144,000 (360,000 * 12/30) = $144,000.

On December 1, 2010, Lester Company issued at 103, two hundred of its 9%, $1,000 bonds. Attached to each bond was one detachable stock warrant entitling the holder to purchase 10 shares of Lester's common stock. On December 1, 2010, the market value of the bonds, without the stock warrants, was 95, and the market value of each stock purchase warrant was $50. The amount of the proceeds from the issuance that should be accounted for as the initial carrying value of the bonds payable would be a. $193,640. b. $195,700. c. $200,000. d. $206,000.

B. 195,700 ($200,000 × .95) + (200 × $50) = $200,000; $200,000 × 1.03 = $206,000 $190,000 ———— × $206,000 = $195,700. $200,000

Information concerning the capital structure of Piper Corporation is as follows: December 31, 2011 2010 Common stock 150,000 shares 150,000 shares Convertible preferred stock 15,000 shares 15,000 shares 9% convertible bonds $2,400,000 $2,400,000 During 2011, Piper paid dividends of $1.20 per share on its common stock and $3.00 per share on its preferred stock. The preferred stock is convertible into 30,000 shares of common stock. The 9% convertible bonds are convertible into 75,000 shares of common stock. The net income for the year ended December 31, 2011, was $600,000. Assume that the income tax rate was 30%. What should be the diluted earnings per share for the year ended December 31, 2011, rounded to the nearest penny? a. $3.20 b. $2.95 c. $2.83 d. $2.35

B. 2.95

Vernon Corporation offered detachable 5-year warrants to buy one share of common stock (par value $5) at $20 (at a time when the stock was selling for $32). The price paid for 2,000, $1,000 bonds with the warrants attached was $205,000. The market price of the Vernon bonds without the warrants was $180,000, and the market price of the warrants without the bonds was $20,000. What amount should be allocated to the warrants? a. $20,000 b. $20,500 c. $24,000 d. $25,000

B. 20,500 [$20,000 ÷ ($20,000 + $180,000)] × $205,000 = $20,500.

On May 1, 2010, Marly Co. issued $500,000 of 7% bonds at 103, which are due on April 30, 2020. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marly's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2010, the fair value of Marly's common stock was $35 per share and of the warrants was $2. On May 1, 2010, Marly should credit Paid-in Capital from Stock Warrants for a. $35,000 b. $20,600 c. $20,000 d. $19,200

B. 20,600 500 × 20 × $2 = $20,000 ($20,000 ÷ $500,000) × $515,000 = $20,600.

April 1, 2010 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2011, $600,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. What should be the amount of the unamortized bond discount on April 1, 2011 relating to the bonds converted? a. $23,400. b. $21,600. c. $11,700. d. $22,200.

B. 21,600 $117,000 ÷ 117 = $1,000/month $600,000 $117,000 - [($1,000 × 3) + ($1,000 × 6] × ————— = $21,600 $3,000,000

Litke Corporation issued at a premium of $5,000 a $100,000 bond issue convertible into 2,000 shares of common stock (par value $40). At the time of the conversion, the unamortized premium is $2,000, the market value of the bonds is $110,000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds? a. $25,000 b. $22,000 c. $32,000 d. $40,000

B. 22,000 $100,000 + $2,000 - (2,000 × $40) = $22,000.

On January 1, 2010, Korsak, Inc. established a stock appreciation rights plan for its executives. It entitled them to receive cash at any time during the next four years for the difference between the market price of its common stock and a pre-established price of $20 on 60,000 SARs. Current market prices of the stock are as follows: January 1, 2010 $35 per share December 31, 2010 38 per share December 31, 2011 30 per share December 31, 2012 33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2010. What amount of compensation expense should Korsak recognize for the year ended December 31, 2010? a. $180,000 b. $270,000 c. $225,000 d. $1,080,000

B. 270,000 ($38 - $20) × 60,000 × .25 = $270,000.

On January 2, 2011, Mize Co. issued at par $300,000 of 9% convertible bonds. Each $1,000 bond is convertible into 30 shares. No bonds were converted during 2007. Mize had 50,000 shares of common stock outstanding during 2011. Mize 's 2011 net income was $160,000 and the income tax rate was 30%. Mize's diluted earnings per share for 2011 would be (rounded to the nearest penny) a. $2.71. b. $3.03. c. $3.20. d. $3.58.

B. 3.03

On January 2, 2011, Worth Co. issued at par $2,000,000 of 7% convertible bonds. Each $1,000 bond is convertible into 10 shares of common stock. No bonds were converted during 2011. Worth had 200,000 shares of common stock outstanding during 2011. Worth's 2011 net income was $600,000 and the income tax rate was 30%. Worth's diluted earnings per share for 2011 would be (rounded to the nearest penny): a. $3.49. b. $3.17. c. $3.00. d. $3.36.

B. 3.17

On January 1, 2010, Korsak, Inc. established a stock appreciation rights plan for its executives. It entitled them to receive cash at any time during the next four years for the difference between the market price of its common stock and a pre-established price of $20 on 60,000 SARs. Current market prices of the stock are as follows: January 1, 2010 $35 per share December 31, 2010 38 per share December 31, 2011 30 per share December 31, 2012 33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2010. What amount of compensation expense should Korsak recognize for the year ended December 31, 2011? a. $0 b. $30,000 c. $300,000 d. $150,000

B. 30,000 ($30 - $20) × 60,000 × .5 = $300,000 $300,000 - $270,000 = $30,000.

On June 30, 2010, Yang Corporation granted compensatory stock options for 20,000 shares of its $24 par value common stock to certain of its key employees. The market price of the common stock on that date was $31 per share and the option price was $28. Using a fair value option pricing model, total compensation expense is determined to be $64,000. The options are exercisable beginning January 1, 2012, providing those key employees are still in the employ of the company at the time the options are exercised. The options expire on June 30, 2013. On January 4, 2012, when the market price of the stock was $36 per share, all options for the 20,000 shares were exercised. The service period is for two years beginning January 1, 2010. Using the fair value method, what should be the amount of compensation expense recorded by Yang Corporation for these options on December 31, 2010? a. $64,000 b. $32,000 c. $15,000 d. $0

B. 32,000 $64,000 ÷ 2 = $32,000.

On January 1, 2011, Gridley Corporation had 125,000 shares of its $2 par value common stock outstanding. On March 1, Gridley sold an additional 250,000 shares on the open market at $20 per share. Gridley issued a 20% stock dividend on May 1. On August 1, Gridley purchased 140,000 shares and immediately retired the stock. On November 1, 200,000 shares were sold for $25 per share. What is the weighted-average number of shares outstanding for 2011? a. 510,000 b. 375,000 c. 358,333 d. 258,333

B. 375,000

For stock appreciation rights, the measurement date for computing compensation is the date a. the rights mature. b. the stock's price reaches a predetermined amount. c. of grant. d. of exercise.

D. of exercise

Yoder, Incorporated, has 3,200,000 shares of common stock outstanding on December 31, 2010. An additional 800,000 shares of common stock were issued on April 1, 2011, and 400,000 more on July 1, 2011. On October 1, 2011, Yoder issued 20,000, $1,000 face value, 8% convertible bonds. Each bond is convertible into 20 shares of common stock. No bonds were converted into common stock in 2011. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively? a. 4,000,000 and 4,000,000 b. 4,000,000 and 4,100,000 c. 4,000,000 and 4,400,000 d. 4,400,000 and 5,200,000

B. 4,000,000 and 4,100,000

On October 1, 2010, Menke Co. purchased to hold to maturity, 200, $1,000, 9% bonds for $208,000. An additional $6,000 was paid for accrued interest. Interest is paid semiannually on December 1 and June 1 and the bonds mature on December 1, 2014. Menke uses straight-line amortization. Ignoring income taxes, the amount reported in Menke's 2010 income statement from this investment should be a. $4,500. b. $4,020. c. $4,980. d. $5,460.

B. 4,020 ($200,000 × .09 × 3/12) - ($8,000 × 3/50) = $4,020.

During 2008, Hauke Co. purchased 2,000, $1,000, 9% bonds. The carrying value of the bonds at December 31, 2010 was $1,960,000. The bonds mature on March 1, 2015, and pay interest on March 1 and September 1. Hauke sells 1,000 bonds on September 1, 2012, for $988,000, after the interest has been received. Hauke uses straight-line amortization. The gain on the sale is a. $0. b. $4,800. c. $8,000. d. $11,200.

B. 4,800 Discount amortization: $40,000 × 8/50 = $6,400 ($1,960,000 + $6,400) ÷ 2 = $983,200; $988,000 - $983,200 = $4,800 gain.

Patton Company purchased $400,000 of 10% bonds of Scott Co. on January 1, 2011, paying $376,100. The bonds mature January 1, 2021; interest is payable each July 1 and January 1. The discount of $23,900 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. For the year ended December 31, 2011, Patton Company should report interest revenue from the Scott Co. bonds of: a. $42,392. b. $41,409. c. $41,368. d. $40,000.

B. 41,409 $376,100 × .055 = $20,686 ($376,100 + $686) × .055 - $20,723; $20,686 + $20,723 = $41,409.

Kern Company purchased bonds with a face amount of $400,000 between interest payment dates. Kern purchased the bonds at 102, paid brokerage costs of $6,000, and paid accrued interest for three months of $10,000. The amount to record as the cost of this long-term investment in bonds is a. $424,000. b. $414,000. c. $408,000. d. $400,000.

B. 414,000 ($400,000 × 1.02) + $6,000 = $414,000.

Foyle, Inc., had 560,000 shares of common stock issued and outstanding at December 31, 2010. On July 1, 2011, an additional 40,000 shares of common stock were issued for cash. Foyle also had unexercised stock options to purchase 32,000 shares of common stock at $15 per share outstanding at the beginning and end of 2011. The average market price of Foyle's common stock was $20 during 2011. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2011? a. 580,000 b. 588,000 c. 608,000 d. 612,000

B. 588,000

On January 1, 2011 Reese Company granted Jack Buchanan, an employee, an option to buy 100 shares of Reese Co. stock for $40 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $1,200. Buchanan exercised his option on September 1, 2011, and sold his 100 shares on December 1, 2011. Quoted market prices of Reese Co. stock during 2011 were: January 1 $40 per share September 1 $48 per share December 1 $54 per share The service period is for two years beginning January 1, 2011. As a result of the option granted to Buchanan, using the fair value method, Reese should recognize compensation expense for 2011 on its books in the amount of a. $0. b. $600. c. $1,200 d. $1,400

B. 600 $1,200 ÷ 2 = $600.

On July 1, 2010, Ellison Company granted Sam Wine, an employee, an option to buy 400 shares of Ellison Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $1,800. Wine exercised his option on October 1, 2010 and sold his 400 shares on December 1, 2010. Quoted market prices of Ellison Co. stock in 2010 were: July 1 $30 per share October 1 $36 per share December 1 $40 per share The service period is for three years beginning January 1, 2010. As a result of the option granted to Wine, using the fair value method, Ellison should recognize compensation expense on its books in the amount of a. $1,800. b. $600. c. $450. d. $0.

B. 600 $1,800 ÷ 3 = $600.

An ownership interest of 30% of the common stock of another corporation should be accounted for using the: equity method. cost method. fair value method. consolidated method.

equity method.

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 always use the equity method to account for its investment. B. 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. 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.

B. 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.

A convertible bond issue should be included in the diluted earnings per share computation as if the bonds had been converted into common stock, if the effect of its inclusion is Dilutive Antidilutive a. Yes Yes b. Yes No c. No Yes d. No No

B. Yes, No

Due to the importance of earnings per share information, it is required to be reported by all Public Companies Nonpublic Companies a. Yes Yes b. Yes No c. No No d. No Yes

B. Yes, No

On July 1, 2010, an interest payment date, $60,000 of Parks Co. bonds were converted into 1,200 shares of Parks 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, Parks would record a. no change in paid-in capital in excess of par. b. a $3,600 increase in paid-in capital in excess of par. c. a $7,200 increase in paid-in capital in excess of par. d. a $4,800 increase in paid-in capital in excess of par.

B. a $3,600 increase in paid-in capital in excess of par. $800,000 + ($175,000 × .32) - (800 × 30 × $30) = $136,000.

Debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses that are included as other comprehensive income and as a separate component of stockholders' equity are A. trading debt securities. B. available-for-sale debt securities. C. never-sell debt securities. D. held-to-maturity debt securities.

B. available-for-sale debt securities

When applying the treasury stock method for diluted earnings per share, the market price of the common stock used for the repurchase is the a. price at the end of the year. b. average market price. c. price at the beginning of the year. d. none of these.

B. average market price

When a company has acquired a "passive interest" in another corporation, the acquiring company should account for the investment A. by using the equity method. B. by using the fair value method. C. by consolidation. D by using the effective interest method.

B. by using the fair value method

Dilutive convertible securities must be used in the computation of a. basic earnings per share only. b. diluted earnings per share only. c. diluted and basic earnings per share. d. none of these.

B. diluted earnings per share only

n May 1, 2010, Payne Co. issued $300,000 of 7% bonds at 103, which are due on April 30, 2020. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2010, the fair value of Payne's common stock was $35 per share and of the warrants was $2. On May 1, 2010, Payne should record the bonds with a a. discount of $12,000. b. discount of $3,360. c. discount of $3,000. d. premium of $9,000

B. discount of 3,360 $300,000 - (288,000/300,000)*309,000= $3,360.

GAAP specifies that, regarding the amortization of a premium or discount on a debt security, the A. straight-line method of allocation must be used. B. effective-interest method of allocation should be used but other methods can be applied if there is no material difference in the results obtained. C. par value method must be used and therefore no allocation is necessary. D. effective-interest method of allocation must be used.

B. effective-interest method of allocation should be used but other methods can be applied if there is no material difference in the results obtained.

Kramer Company's trading securities portfolio which is appropriately included in current assets is as follows: December 31, 2010 Fair Unrealized Cost Value Gain (Loss) Catlett Corp. $250,000 $200,000 $(50,000) Lyman, Inc. 245,000 265,000 20,000 $495,000 $465,000 $(30,000) Ignoring income taxes, what amount should be reported as a charge against income in Kramer's 2010 income statement if 2010 is Kramer's first year of operation? a. $0. b. $20,000. c. $30,000. d. $50,000.

C. $30,000 $30,000 (unrealized loss).

Richman Company purchased $1,200,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2018, with interest payable on July 1 and January 1. The bonds sold for $1,249,896 at an effective interest rate of 7%. Using the effective interest method, Richman Company decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2018 and December 31, 2018 by the amortized premiums of $4,248 and $4,392, respectively. At December 31, 2018, the fair value of the Carlin, Inc. bonds was $1,272,000. What should Richman Company report as other comprehensive income and as a separate component of stockholders' equity? A. $8,640 B. $22,104 C. $30,744 D. $0

C. $30,744

Kramer Company's trading securities portfolio which is appropriately included in current assets is as follows: December 31, 2014 Cost /FairValue/UnrealizedGain (Loss) Catlett Corp.= $260,000/$205,000/$(55,000) Lyman, Inc.= 245,000/265,000/20,000 Total= $505,000/$470,000/ $(35,000) Ignoring income taxes, what amount should be reported as a charge against income in Kramer's 2014 income statement if 2014 is Kramer's first year of operation? A. $0. B. $20,000 gain. C. $35,000 loss. D. $55,000 loss.

C. $35,000 loss.

Instrument Corporation has the following investments which were held throughout 2014-2015: Fair Value Cost/ 12/31/14|12/31/15 Trading=$600,000/$800,000/$760,000 Available-for-sale=600,000/640,000/720,000 What amount would be reported as accumulated other comprehensive income related to investments in Instrument Corporation's balance sheet at December 31, 2014? A. $80,000 gain. B. $120,000 gain. C. $40,000 gain. D. $240,000 gain.

C. $40,000 gain.

Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $450,000 on January 2, 2015. During 2015, Darby Company declared dividends of $75,000 and reported earnings for the year of $300,000. If Blanco Company used the fair value method of accounting for its investment in Darby Company, its Equity Investment (Darby) account on December 31, 2015 should be A. $435,000. B. $495,000. C. $450,000. D. $510,000.

C. $450,000.

Landis Company purchased $2,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $2,083,160 at an effective interest rate of 7%. Using the effective-interest method, Landis Company decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $7,080 and $7,320, respectively. At April 1, 2015, Landis Company sold the Ritter bonds for $2,060,000. After accruing for interest, the carrying value of the Ritter bonds on April 1, 2015 was $2,064,960. Assuming Landis Company has a portfolio of Available-for-Sale Debt Securities, what should Landis Company report as a gain or loss on the bonds? A. ($58,740). B. ($43,740). C. ($4,960). D. $ 0.

C. ($4,960).

Landis Co. purchased $500,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2011, with interest payable on July 1 and January 1. The bonds sold for $520,790 at an effective interest rate of 7%. Using the effective-interest method, Landis Co. decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2011 and December 31, 2011 by the amortized premiums of $1,770 and $1,830, respectively. At April 1, 2012, Landis Co. sold the Ritter bonds for $515,000. After accruing for interest, the carrying value of the Ritter bonds on April 1, 2012 was $516,875. Assuming Landis Co. has a portfolio of Available-for-Sale Debt Securities, what should Landis Co. report as a gain or loss on the bonds? a. ($14,685). b. ($10,935). c. ($1,875). d. $ 0.

C. (1875) $516,875 - $515,000 = $1,875.

On December 31, 2010, Houser Company granted some of its executives options to purchase 45,000 shares of the company's $50 par common stock at an option price of $60 per share. The Black-Scholes option pricing model determines total compensation expense to be $900,000. The options become exercisable on January 1, 2011, and represent compensation for executives' past and future services over a three-year period beginning January 1, 2011. What is the impact on Houser's total stockholders' equity for the year ended December 31, 2010, as a result of this transaction under the fair value method? a. $900,000 decrease b. $300,000 decrease c. $0 d. $300,000 increase

C. 0 $900,000 - (900,000 * 2/3) = $300,000 increase (from the credit to Paid-in Capital—Stock Options). Offset by $300,000 decrease (from the debit to Compensation Expense).

Hill Corp. had 600,000 shares of common stock outstanding on January 1, issued 900,000 shares on July 1, and had income applicable to common stock of $1,050,000 for the year ending December 31, 2010. Earnings per share of common stock for 2010 would be a. $1.75. b. $.83. c. $1.00. d. $1.17.

C. 1.00

Colt Corporation purchased Massey Inc. and agreed to give stockholders of Massey Inc. 50,000 additional shares in 2012 if Massey Inc.'s net income in 2011 is $400,000 or more; in 2010 Massey Inc.'s net income is $410,000. Colt has net income for 2010 of $800,000 and has an average number of common shares outstanding for 2010 of 500,000 shares. What should Colt report as earnings per share for 2010? Basic Earnings Diluted Earnings Per Share Per Share a. $1.60 $1.60 b. $1.45 $1.60 c. $1.60 $1.45 d. $1.45 $1.45

C. 1.60, 1.45

At December 31, 2010 Pine Company had 200,000 shares of common stock and 10,000 shares of 4%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2010 or 2011. On February 10, 2012, prior to the issuance of its financial statements for the year ended December 31, 2011, Pine declared a 100% stock split on its common stock. Net income for 2011 was $720,000. In its 2011 financial statements, Pine's 2011 earnings per common share should be a. $3.40. b. $3.20. c. $1.70. d. $1.00.

C. 1.70

Beaty Inc. purchased Dunbar Co. and agreed to give stockholders of Dunbar Co. 10,000 additional shares in 2012 if Dunbar Co.'s net income in 2011 is $500,000; in 2010 Dunbar Co.'s net income is $520,000. Beaty Inc. has net income for 2010 of $200,000 and has an average number of common shares outstanding for 2010 of 100,000 shares. What should Beaty report as diluted earnings per share for 2010? a. $2.22 b. $2.00 c. $1.82 d. $1.67

C. 1.82

On December 31, 2010, Kessler Company granted some of its executives options to purchase 50,000 shares of the company's $10 par common stock at an option price of $50 per share. The options become exercisable on January 1, 2011, and represent compensation for executives' services over a three-year period beginning January 1, 2011. The Black-Scholes option pricing model determines total compensation expense to be $300,000. At December 31, 2011, none of the executives had exercised their options. What is the impact on Kessler's net income for the year ended December 31, 2011 as a result of this transaction under the fair value method? a. $100,000 increase b. $0 c. $100,000 decrease d. $300,000 decrease

C. 100,000 decrease $300,000 ÷ 3 = $100,000.

n May 1, 2010, Payne Co. issued $300,000 of 7% bonds at 103, which are due on April 30, 2020. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2010, the fair value of Payne's common stock was $35 per share and of the warrants was $2. On May 1, 2010, Payne should credit Paid-in Capital from Stock Warrants for a. $11,520. b. $12,000. c. $12,360. d. $21,000.

C. 12,360 ($300,000 × .96) + (6,000 × $2) = $300,000; $300,000 × 1.03 = $309,000 $12,000 ———— × $309,000 = $12,360. $300,000

On its December 31, 2017, balance sheet, Trump Company reported its investment in equity securities, which had cost $600,000, at fair value of $560,000. At December 31, 2018, the fair value of the securities was $585,000. What should Trump report on its 2018 income statement as a result of the increase in fair value of the investments in 2018? A. $0. B. Realized gain of $25,000. C. Unrealized gain of $25,000. D. Unrealized loss of $15,000.

C. Unrealized gain on $25,000

During 2010, Gordon Company issued at 104 three hundred, $1,000 bonds due in ten years. One detachable stock warrant entitling the holder to purchase 15 shares of Gordon's common stock was attached to each bond. At the date of issuance, the market value of the bonds, without the stock warrants, was quoted at 96. The market value of each detachable warrant was quoted at $40. What amount, if any, of the proceeds from the issuance should be accounted for as part of Gordon's stockholders' equity? a. $0 b. $12,000 c. $12,480 d. $11,856

C. 12,480 ($300,000 × .96) + (300 × $40) = $300,000; $300,000 × 1.04 = $312,000 $12,000 ———— × $312,000 = $12,480. $300,000

On January 1, 2011, Evans Company granted Tim Telfer, an employee, an option to buy 1,000 shares of Evans Co. stock for $25 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $7,500. Telfer exercised his option on September 1, 2011, and sold his 1,000 shares on December 1, 2011. Quoted market prices of Evans Co. stock during 2011 were January 1 $25 per share September 1 $30 per share December 1 $34 per share The service period is for three years beginning January 1, 2011. As a result of the option granted to Telfer, using the fair value method, Evans should recognize compensation expense for 2011 on its books in the amount of a. $9,000. b. $7,500. c. $2,500. d. $1,500.

C. 2,500 $7,500 ÷ 3 = $2,500.

The following information is available for Barone Corporation: January 1, 2011 Shares outstanding 1,250,000 April 1, 2011 Shares issued 200,000 July 1, 2011 Treasury shares purchased 75,000 October 1, 2011 Shares issued in a 100% stock dividend 1,375,000 The number of shares to be used in computing earnings per common share for 2011 is a. 2,825,500. b. 2,737,500. c. 2,725,000. d. 1,706,250.

C. 2,725,000

At December 31, 2010, Emley Company had 1,200,000 shares of common stock outstanding. On September 1, 2011, an additional 400,000 shares of common stock were issued. In addition, Emley had $12,000,000 of 6% convertible bonds outstanding at December 31, 2010, which are convertible into 800,000 shares of common stock. No bonds were converted into common stock in 2011. The net income for the year ended December 31, 2011, was $4,500,000. Assuming the income tax rate was 30%, what should be the diluted earnings per share for the year ended December 31, 2011, rounded to the nearest penny? a. $2.11 b. $3.38 c. $2.35 d. $2.45

C. 2.35

Lerner Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 10% convertible bonds outstanding during 2011. The preferred stock is convertible into 40,000 shares of common stock. During 2011, Lerner paid dividends of $.90 per share on the common stock and $3.00 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2011 was $600,000 and the income tax rate was 30%. Diluted earnings per share for 2011 is (rounded to the nearest penny) a. $2.14. b. $2.25. c. $2.35. d. $2.46.

C. 2.35

Shipley Corporation had net income for the year of $480,000 and a weighted average number of common shares outstanding during the period of 200,000 shares. The company has a convertible bond issue outstanding. The bonds were issued four years ago at par ($2,000,000), carry a 7% interest rate, and are convertible into 40,000 shares of common stock. The company has a 40% tax rate. Diluted earnings per share are a. $1.65 b. $2.23. c. $2.35. d. $2.58.

C. 2.35

Fultz Company had 300,000 shares of common stock issued and outstanding at December 31, 2010. During 2011, no additional common stock was issued. On January 1, 2011, Fultz issued 400,000 shares of nonconvertible preferred stock. During 2011, Fultz declared and paid $180,000 cash dividends on the common stock and $150,000 on the nonconvertible preferred stock. Net income for the year ended December 31, 2011, was $960,000. What should be Fultz's 2011 earnings per common share, rounded to the nearest penny? a. $1.16 b. $2.10 c. $2.70 d. $3.20

C. 2.70

Grant, Inc. had 40,000 shares of treasury stock ($10 par value) at December 31, 2010, which it acquired at $11 per share. On June 4, 2011, Grant issued 20,000 treasury shares to employees who exercised options under Grant's employee stock option plan. The market value per share was $13 at December 31, 2010, $15 at June 4, 2011, and $18 at December 31, 2011. The stock options had been granted for $12 per share. The cost method is used. What is the balance of the treasury stock on Grant's balance sheet at December 31, 2011? a. $140,000. b. $180,000. c. $220,000. d. $240,000.

C. 220,000 20,000 × $11 = $220,000

On January 2, 2010, for past services, Rosen Corp. granted Nenn Pine, its president, 16,000 stock appreciation rights that are exercisable immediately and expire on January 2, 2011. On exercise, Nenn is entitled to receive cash for the excess of the market price of the stock on the exercise date over the market price on the grant date. Nenn did not exercise any of the rights during 2010. The market price of Rosen's stock was $30 on January 2, 2010, and $45 on December 31, 2010. As a result of the stock appreciation rights, Rosen should recognize compensation expense for 2010 of a. $0. b. $80,000. c. $240,000. d. $480,000.

C. 240,000 ($45 - $30) × 16,000 = $240,000.

On December 31, 2010, Gonzalez Company granted some of its executives options to purchase 100,000 shares of the company's $10 par common stock at an option price of $50 per share. The Black-Scholes option pricing model determines total compensation expense to be $750,000. The options become exercisable on January 1, 2011, and represent compensation for executives' services over a three-year period beginning January 1, 2011. At December 31, 2011 none of the executives had exercised their options. What is the impact on Gonzalez's net income for the year ended December 31, 2011 as a result of this transaction under the fair value method? a. $250,000 increase. b. $750,000 decrease. c. $250,000 decrease. d. $0.

C. 250,000 decrease $750,000 ÷ 3 = $250,000 decrease.

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 10% convertible bonds outstanding during 2011. The preferred stock is convertible into 40,000 shares of common stock. During 2011, Hanson paid dividends of $1.20 per share on the common stock and $4 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2011 was $800,000 and the income tax rate was 30%. Diluted earnings per share for 2011 is (rounded to the nearest penny) a. $2.77. b. $2.81. c. $3.05. d. $3.33.

C. 3.05

Information concerning the capital structure of Piper Corporation is as follows: December 31, 2011 2010 Common stock 150,000 shares 150,000 shares Convertible preferred stock 15,000 shares 15,000 shares 9% convertible bonds $2,400,000 $2,400,000 During 2011, Piper paid dividends of $1.20 per share on its common stock and $3.00 per share on its preferred stock. The preferred stock is convertible into 30,000 shares of common stock. The 9% convertible bonds are convertible into 75,000 shares of common stock. The net income for the year ended December 31, 2011, was $600,000. Assume that the income tax rate was 30%. What should be the basic earnings per share for the year ended December 31, 2011, rounded to the nearest penny? a. $2.66 b. $2.92 c. $3.70 d. $4.00

C. 3.70

At December 31, 2010, Kifer Company had 500,000 shares of common stock outstanding. On October 1, 2011, an additional 100,000 shares of common stock were issued. In addition, Kifer had $10,000,000 of 6% convertible bonds outstanding at December 31, 2010, which are convertible into 225,000 shares of common stock. No bonds were converted into common stock in 2011. The net income for the year ended December 31, 2011, was $3,000,000. Assuming the income tax rate was 30%, the diluted earnings per share for the year ended December 31, 2011, should be (rounded to the nearest penny) a. $6.52. b. $4.80. c. $4.56. d. $4.00.

C. 4.56

On March 1, 2010, Ruiz Corporation issued $800,000 of 8% nonconvertible bonds at 104, which are due on February 28, 2030. In addition, each $1,000 bond was issued with 25 detachable stock warrants, each of which entitled the bondholder to purchase for $50 one share of Ruiz common stock, par value $25. The bonds without the warrants would normally sell at 95. On March 1, 2010, the fair market value of Ruiz's common stock was $40 per share and the fair market value of the warrants was $2.00. What amount should Ruiz record on March 1, 2010 as paid-in capital from stock warrants? a. $28,800 b. $33,600 c. $41,600 d. $40,000

C. 41,600 ($800,000 × .95) + (800 × 25 × $2) = $800,000; $800,000 × 1.04 = $832,000 $40,000 ———— × $832,000 = $41,600. $800,000

On January 1, 2010, Trent Company granted Dick Williams, an employee, an option to buy 100 shares of Trent Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $900. Williams exercised his option on September 1, 2010, and sold his 100 shares on December 1, 2010. Quoted market prices of Trent Co. stock during 2010 were: January 1 $30 per share September 1 $36 per share December 1 $40 per share The service period is for two years beginning January 1,2010. As a result of the option granted to Williams, using the fair value method, Trent should recognize compensation expense for 2010 on its books in the amount of a. $1,000. b. $900. c. $450. d. $0.

C. 450 $900 ÷ 2 = $450.

Warrants exercisable at $20 each to obtain 30,000 shares of common stock were outstanding during a period when the average market price of the common stock was $25. Application of the treasury stock method for the assumed exercise of these warrants in computing diluted earnings per share will increase the weighted average number of outstanding shares by a. 30,000. b. 24,000. c. 6,000. d. 7,500.

C. 6,000

On November 1, 2010, Howell Company purchased 600 of the $1,000 face value, 9% bonds of Ramsey, Incorporated, for $632,000, which includes accrued interest of $9,000. The bonds, which mature on January 1, 2015, pay interest semiannually on March 1 and September 1. Assuming that Howell uses the straight-line method of amortization and that the bonds are appropriately classified as available-for-sale, the net carrying value of the bonds should be shown on Howell's December 31, 2010, balance sheet at a. $600,000. b. $623,000. c. $622,080. d. $632,000.

C. 622,080 $632,000 - $9,000 = $623,000 $623,000 - ($23,000 × 2/50) = $622,080.

On January 1, 2010, Sharp Corp. granted an employee an option to purchase 6,000 shares of Sharp's $5 par value common stock at $20 per share. The Black-Scholes option pricing model determines total compensation expense to be $140,000. The option became exercisable on December 31, 2011, after the employee completed two years of service. The market prices of Sharp's stock were as follows: January 1, 2010 $30 December 31, 2011 50 For 2011, should recognize compensation expense under the fair value method of a. $90,000. b. $30,000. c. $70,000. d. $0.

C. 70,000 $140,000 ÷ 2 = $70,000.

Weiser Corp. on January 1, 2007, granted stock options for 40,000 shares of its $10 par value common stock to its key employees. The market price of the common stock on that date was $23 per share and the option price was $20. The Black-Scholes option pricing model determines total compensation expense to be $240,000. The options are exercisable beginning January 1, 2010, provided those key employees are still in Weiser's employ at the time the options are exercised. The options expire on January 1, 2011. On January 1, 2010, when the market price of the stock was $29 per share, all 40,000 options were exercised. The amount of compensation expense Weiser should record for 2009 under the fair value method is a. $0. b. $40,000. c. $80,000. d. $120,000.

C. 80,000 $240,000 ÷ 3 = $80,000/year.

Under the intrinsic value method, compensation expense resulting from an incentive stock option is generally a. not recognized because no excess of market price over the option price exists at the date of grant. b. recognized in the period of the grant. c. allocated to the periods benefited by the employee's required service. d. recognized in the period of exercise.

C. Allocated to the periods benefited by the employee's required service

Compensation expense resulting from a compensatory stock option plan is generally a. recognized in the period of exercise. b. recognized in the period of the grant. c. allocated to the periods benefited by the employee's required service. d. allocated over the periods of the employee's service life to retirement.

C. Allocated to the periods benefited by the employee's required service.

On August 1, 2010, Dambro Co. acquired 200, $1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1, 2010, and mature on April 30, 2016, with interest paid each October 31 and April 30. The bonds will be added to Dambro's available-for-sale portfolio. The preferred entry to record the purchase of the bonds on August 1, 2010 is a. Available-for-Sale Securities 198,500 Cash 198,500 b. Available-for-Sale Securities 194,000 Interest Receivable 4,500 Cash 198,500 c. Available-for-Sale Securities 194,000 Interest Revenue 4,500 Cash 198,500 d. Available-for-Sale Securities 200,000 Interest Revenue 4,500 Discount on Debt Securities 6,000 Cash 198,500

C. Available-for-Sale Securities 194,000 Interest Revenue 4,500 Cash 198,500 Dr. Available-for-Sale Securities: 200 × $1,000 × .97 = $194,000 Dr. Interest Revenue: $200,000 × .045 × 3/6 = $4,500 Cr. Cash: $194,000 + $4,500 = $198,500.

On April 7, 2010, Kegin Corporation sold a $2,000,000, twenty-year, 8 percent bond issue for $2,120,000. Each $1,000 bond has two detachable warrants, each of which permits the purchase of one share of the corporation's common stock for $30. The stock has a par value of $25 per share. Immediately after the sale of the bonds, the corporation's securities had the following market values: 8% bond without warrants $1,008 Warrants 21 Common stock 28 What accounts should Kegin credit to record the sale of the bonds? a. Bonds Payable $2,000,000 Premium on Bonds Payable 77,600 Paid-in Capital—Stock Warrants 42,400 b. Bonds Payable $2,000,000 Premium on Bonds Payable 16,000 Paid-in Capital—Stock Warrants 84,000 c. Bonds Payable $2,000,000 Premium on Bonds Payable 35,200 Paid-in Capital—Stock Warrants 84,800 d. Bonds Payable $2,000,000 Premiums on Bonds Payable 120,000

C. Bonds Payable $2,000,000 Premium on Bonds Payable 35,200 Paid-in Capital—Stock Warrants 84,800 (2,000 × $1,008) + (4,000 × $21) = $2,100,000 $2,016,000 ————— × $2,120,000 = $2,035,200, bonds: $2,000,000 $2,100,000 $84,000 Premium: $35,200; ————— × $2,120,000 = $84,800. $2,100,000

On August 1, 2014, Dambro Company acquired 800, $1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1, 2014, and mature on April 30, 2020, with interest paid each October 31 and April 30. The bonds will be added to Dambro's available-for-sale portfolio. The preferred entry to record the purchase of the bonds on August 1, 2014 is A. Debt Investments(dr) 794,000 Cash(cr) 794,000 B. Debt Investments(dr) 776,000 Interest Receivable(dr) 18,000 Cash(cr) 794,000 C. Debt Investments(dr) 776,000 Interest Revenue(dr) 18,000 Cash(cr) 794,000 D. Debt Investments(dr) 800,000 Interest Revenue(dr) 18,000 Discount on Debt Investments (cr) 24,000 Cash (cr) 794,000

C. Debt Investments(dr) 776,000 Interest Revenue(dr) 18,000 Cash(cr) 794,000

At December 31, 2018, Atlanta Company has an equity portfolio valued at $160,000. Its cost was $132,000. If the Securities Fair Value Adjustment has a debit balance of $8,000, which of the following journal entries is required at December 31, 2018? A. Fair Value Adjustment 28,000 Unrealized Holding Gain or Loss-Equity 28,000 B. Unrealized Holding Gain or Loss-Equity 20,000 Fair Value Adjustment 20,000 C. Fair Value Adjustment 20,000 Unrealized Holding Gain or Loss-Equity 20,000 D. Unrealized Holding Gain or Loss-Equity 28,000 Fair Value Adjustment 28,000

C. Fair Value Adjustment 20,000 Unrealized Holding Gain or Loss-Equity 20,000

The distribution of stock rights to existing common stockholders will increase paid-in capital at the Date of Issuance Date of Exercise of the Rights of the Rights a. Yes Yes b. Yes No c. No Yes d. No No

C. No, Yes

Corporations issue convertible debt for two main reasons. One is the desire to raise equity capital that, assuming conversion, will arise when the original debt is converted. The other is a. the ease with which convertible debt is sold even if the company has a poor credit rating. b. the fact that equity capital has issue costs that convertible debt does not. c. that many corporations can obtain financing at lower rates. d. that convertible bonds will always sell at a premium.

C. That many corporations can obtain financing at lower rates.

Which of the following is not a characteristic of a noncompensatory stock option plan? a. Substantially all full-time employees may participate on an equitable basis. b. The plan offers no substantive option feature. c. Unlimited time period permitted for exercise of an option as long as the holder is still employed by the company. d. Discount from the market price of the stock no greater than would be reasonable in an offer of stock to stockholders or others.

C. Unlimited time period permitted for exercise of an option as long as the holder is still employed by the company.

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 fair value method. cost method. divesture method. equity method.

equity method.

On May 1, 2010, Marly Co. issued $500,000 of 7% bonds at 103, which are due on April 30, 2020. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marly's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2010, the fair value of Marly's common stock was $35 per share and of the warrants was $2. On May 1, 2010, Marly should record the bonds with a a. discount of $20,000. b. discount of $5,000. c. discount of $5,600. d. premium of $15,000.

C. discount of $5,600. ($500,000 × .96) + (500 × 20 × $2) = $500,000 ($480,000 ÷ $500,000) × ($500,000 × 1.03) = $494,400 $500,000 - $494,400 = $5,600.

With respect to the computation of earnings per share, which of the following would be most indicative of a simple capital structure? a. Common stock, preferred stock, and convertible securities outstanding in lots of even thousands b. Earnings derived from one primary line of business c. Ownership interest consisting solely of common stock d. None of these

C. ownership interest consisting solely of common stock

Equity securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses are A. securities where a company has holdings of more than 20%. B. securities where a company has holdings of between 20% and 50%. C. securities where a company has holdings of less than 20%. D. securities where a company has holdings of more than 50%.

C. securities where a company has holdings of less than 20%

Unrealized holding gains or losses which are recognized in income are from debt securities classified as A. held-to-maturity. B. available-for-sale. C. trading. D. none of these answers are correct.

C. trading

Chang Corporation issued $3,000,000 of 9%, ten-year convertible bonds on July 1, 2010 at 96.1 plus accrued interest. The bonds were dated April 1, 2010 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2011, $600,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. If "interest payable" were credited when the bonds were issued, what should be the amount of the debit to "interest expense" on October 1, 2010? a. $64,500. b. $67,500. c. $70,500. d. $135,000.

C: 70,500 ($3,000,000 - $2,883,000) ÷ 117 = $1,000/month ($3,000,000 × .09 × 3/12) + ($1,000 × 3) = $70,500.

30. A requirement for a security to be classified as held-to-maturity is a. ability to hold the security to maturity. b. positive intent. c. the security must be a debt security. d. All of these are required.

D

33. Which of the following is not correct in regard to trading securities? a. They are held with the intention of selling them in a short period of time. b. Unrealized holding gains and losses are reported as part of net income. c. Any discount or premium is not amortized. d. All of these are correct.

D

36. Pippen Co. purchased ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the principal by the table value for a. 10 periods and 10% from the present value of 1 table. b. 10 periods and 8% from the present value of 1 table. c. 20 periods and 5% from the present value of 1 table. d. 20 periods and 4% from the present value of 1 table.

D

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

D

47. 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. cost method. b. fair value method. c. divesture method. d. equity method.

D

49. Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the a. investor sells the investment. b. investee declares a dividend. c. investee pays a dividend. d. earnings are reported by the investee in its financial statements.

D

50. Dane, Inc., owns 35% of Marin Corporation. During the calendar year 2007, Marin had net earnings of $300,000 and paid dividends of $30,000. Dane mistakenly recorded these transactions using the fair value method rather than the equity method of accounting. What effect would this have on the investment account, net income, and retained earnings, respectively? a. Understate, overstate, overstate b. Overstate, understate, understate c. Overstate, overstate, overstate d. Understate, understate, understate

D

51. An unrealized holding loss on a company's available-for-sale securities should be reflected in the current financial statements as a. an extraordinary item shown as a direct reduction from retained earnings. b. a current loss resulting from holding securities. c. a note or parenthetical disclosure only. d. other comprehensive income and deducted in the equity section of the balance sheet.

D

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

D

56. A debt security is transferred from one category to another. Generally acceptable accounting principles require that for this particular reclassification (1) the security be transferred at fair value at the date of transfer, and (2) the unrealized gain or loss at the date of transfer currently carried as a separate component of stockholders' equity be amortized over the remaining life of the security. What type of transfer is being described? a. Transfer from trading to available-for-sale b. Transfer from available-for-sale to trading c. Transfer from held-to-maturity to available-for-sale d. Transfer from available-for-sale to held-to-maturity

D

Terry Corporation had 300,000 shares of common stock outstanding at December 31, 2010. In addition, it had 90,000 stock options outstanding, which had been granted to certain executives, and which gave them the right to purchase shares of Terry's stock at an option price of $37 per share. The average market price of Terry's common stock for 2010 was $50. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2010? a. 300,000 b. 331,622 c. 366,600 d. 323,400

D 323,400

Patton Company purchased $900,000 of 10% bonds of Scott Company on January 1, 2015, paying $846,225. The bonds mature January 1, 2025; interest is payable each July 1 and January 1. The discount of $53,775 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. On July 1, 2015, Patton Company should increase its Debt Investments account for the Scott Company bonds by A. $5,382. B. $3,084. C. $2,691. D. $1,542.

D. $1,542.

During 2010 Logic Company purchased 4,000 shares of Midi, Inc. for $30 per share. The investment was classified as a trading security. During the year Logic Company sold 1,000 shares of Midi, Inc. for $35 per share. At December 31, 2010 the market price of Midi, Inc.'s stock was $28 per share. What is the total amount of gain/(loss) that Logic Company will report in its income statement for the year ended December 31, 2010 related to its investment in Midi, Inc. stock? a. ($8,000) b. $5,000 c. ($3,000) d. ($1,000)

D. ($1,000) [($35 - $30) × 1,000] - [($30 - $28) × 3,000] = ($1,000).

During 2014 Logic Company purchased 8,000 shares of Midi, Inc. for $30 per share. The investment was classified as a trading security. During the year Logic Company sold 2,000 shares of Midi, Inc. for $35 per share. At December 31, 2014 the market price of Midi, Inc.'s stock was $28 per share. What is the total amount of gain/(loss) that Logic Company will report in its income statement for the year ended December 31, 2014 related to its investment in Midi, Inc. stock? A. ($16,000) B. $10,000 C. ($6,000) D. ($2,000)

D. ($2,000)

In 2010, Eklund, Inc., issued for $103 per share, 60,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Eklund's $25 par value common stock at the option of the preferred stockholder. In August 2011, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $30 per share. What total amount should be credited to additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock? a. $1,020,000. b. $780,000. c. $1,500,000. d. $1,680,000.

D. 1,680,000 $6,180,000 - (60,000 × 3 × $25) = $1,680,000.

Marsh Co. had 2,400,000 shares of common stock outstanding on January 1 and December 31, 2011. In connection with the acquisition of a subsidiary company in June 2010, Marsh is required to issue 100,000 additional shares of its common stock on July 1, 2012, to the former owners of the subsidiary. Marsh paid $200,000 in preferred stock dividends in 2011, and reported net income of $3,400,000 for the year. Marsh's diluted earnings per share for 2011 should be a. $1.42. b. $1.36. c. $1.33. d. $1.28.

D. 1.28

Lerner Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 10% convertible bonds outstanding during 2011. The preferred stock is convertible into 40,000 shares of common stock. During 2011, Lerner paid dividends of $.90 per share on the common stock and $3.00 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2011 was $600,000 and the income tax rate was 30%. Basic earnings per share for 2011 is (rounded to the nearest penny) a. $2.21. b. $2.42. c. $2.51. d. $2.70.

D. 2.70

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 10% convertible bonds outstanding during 2011. The preferred stock is convertible into 40,000 shares of common stock. During 2011, Hanson paid dividends of $1.20 per share on the common stock and $4 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2011 was $800,000 and the income tax rate was 30%. Basic earnings per share for 2011 is (rounded to the nearest penny) a. $2.94. b. $3.22. c. $3.35. d. $3.60.

D. 3.60

On January 1, 2011, Ritter Company granted stock options to officers and key employees for the purchase of 10,000 shares of the company's $1 par common stock at $20 per share as additional compensation for services to be rendered over the next three years. The options are exercisable during a five-year period beginning January 1, 2014 by grantees still employed by Ritter. The Black-Scholes option pricing model determines total compensation expense to be $90,000. The market price of common stock was $26 per share at the date of grant. The journal entry to record the compensation expense related to these options for 2011 would include a credit to the Paid-in Capital—Stock Options account for a. $0. b. $18,000. c. $20,000. d. $30,000.

D. 30,000 $90,000 ÷ 3 = $30,000.

In order to retain certain key executives, Smiley Corporation granted them incentive stock options on December 31, 2009. 80,000 options were granted at an option price of $35 per share. Market prices of the stock were as follows: December 31, 2010 $46 per share December 31, 2011 51 per share The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2010. The Black-Scholes option pricing model determines total compensation expense to be $800,000. What amount of compensation expense should Smiley recognize as a result of this plan for the year ended December 31, 2010 under the fair value method? a. $1,400,000. b. $880,000. c. $800,000. d. $400,000.

D. 400,00 $800,000 ÷ 2 = $400,000.

Stine Inc. had 300,000 shares of common stock issued and outstanding at December 31, 2010. On July 1, 2011 an additional 300,000 shares were issued for cash. Stine also had stock options outstanding at the beginning and end of 2011 which allow the holders to purchase 90,000 shares of common stock at $28 per share. The average market price of Stine's common stock was $35 during 2011. The number of shares to be used in computing diluted earnings per share for 2011 is a. 672,000 b. 618,000 c. 522,000 d. 468,000

D. 468,000

Richman Co. purchased $300,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2010, with interest payable on July 1 and January 1. The bonds sold for $312,474 at an effective interest rate of 7%. Using the effective interest method, Richman Co. decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2010 and December 31, 2010 by the amortized premiums of $1,062 and $1,098, respectively. At December 31, 2010, the fair value of the Carlin, Inc. bonds was $318,000. What should Richman Co. report as other comprehensive income and as a separate component of stockholders' equity?

D. 7,686 $318,000 - ($312,474 - $1,062 - $1,098) = $7,686

Fugate Company had 500,000 shares of common stock issued and outstanding at December 31, 2010. On July 1, 2011 an additional 500,000 shares were issued for cash. Fugate also had stock options outstanding at the beginning and end of 2011 which allow the holders to purchase 150,000 shares of common stock at $20 per share. The average market price of Fugate's common stock was $25 during 2011. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2011? a. 1,030,000 b. 870,000 c. 787,500 d. 780,000

D. 780,000

On January 3, 2010, Moss Co. acquires $100,000 of Adam Company's 10-year, 10% bonds at a price of $106,418 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Co. uses the effective-interest method, what is the amount of interest revenue that would be recognized in 2011 related to these bonds? a. $10,000 b. $10,642 c. $9,578 *d. $9,540

D. 9,540 ($106,418 × .09) - ($100,000 × .10) = ($422) ($106,418 - $422) × .09 = $9,540.

Which of the following is not a characteristic of a noncompensatory stock purchase plan? a. It is open to almost all full-time employees. b. The discount from market price is small. c. The plan offers no substantive option feature. d. All of these are characteristics.

D. All of these are characteristics

Which of the following is not correct in regard to trading securities? A. They are held with the intention of selling them in a short period of time. B. Unrealized holding gains and losses are reported as part of net income. C. Any discount or premium is amortized. D. All of these choices are correct.

D. All of these choices are correct

A corporation issues bonds with detachable warrants. The amount to be recorded as paid-in capital is preferably a. zero. b. calculated by the excess of the proceeds over the face amount of the bonds. c. equal to the market value of the warrants. d. based on the relative market values of the two securities involved.

D. Based on the relative market values of the two securities involved.

The conversion of bonds is most commonly recorded by the a. incremental method. b. proportional method. c. market value method. d. book value method.

D. Book Value method

Convertible BondsConvertible bonds a. have priority over other indebtedness. b. are usually secured by a first or second mortgage. c. pay interest only in the event earnings are sufficient to cover the interest. d. may be exchanged for equity securities.

D. May be exchanged for equity securities

Stock warrants outstanding should be classified as a. liabilities. b. reductions of capital contributed in excess of par value. c. assets. d. none of these.

D. None of these

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. additional paid-in capital from stock warrants. b. retained earnings. c. a liability account. d. premium on bonds payable.

D. Premium on bonds payable

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

D. The warrants issued with the debt securities are nondetachable

The conversion of preferred stock into common 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. reflected currently in income, but not as an extraordinary item. b. reflected currently in income as an extraordinary item. c. treated as a prior period adjustment. d. treated as a direct reduction of retained earnings.

D. Treated as a direct reduction of retained earnings

On January 2, 2010, Farr Co. issued 10-year convertible bonds at 105. During 2012, these bonds were converted into common stock having an aggregate par value equal to the total face amount of the bonds. At conversion, the market price of Farr's common stock was 50 percent above its par value. On January 2, 2010, cash proceeds from the issuance of the convertible bonds should be reported as a. paid-in capital for the entire proceeds. b. paid-in capital for the portion of the proceeds attributable to the conversion feature and as a liability for the balance. c. a liability for the face amount of the bonds and paid-in capital for the premium over the face amount. d. a liability for the entire proceeds.

D. a liability for the entire proceeds

When computing diluted earnings per share, convertible bonds are a. ignored. b. assumed converted whether they are dilutive or antidilutive. c. assumed converted only if they are antidilutive. d. assumed converted only if they are dilutive.

D. assumed converted only if they are dilutive

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. fairly present diluted earnings per share on a prospective basis. b. fairly present the maximum potential dilution of diluted earnings per share on a prospective basis. c. 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. be antidilutive.

D. be antidilutive.

In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are a. weighted by the number of days outstanding. b. weighted by the number of months outstanding. c. considered outstanding at the beginning of the year. d. considered outstanding at the beginning of the earliest year reported.

D. considered outstanding at the beginning of the earliest year reported.

In determining diluted earnings per share, dividends on nonconvertible cumulative preferred stock should be a. disregarded. b. added back to net income whether declared or not. c. deducted from net income only if declared. d. deducted from net income whether declared or not.

D. deducted from net income whether declared or not

In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the a. preferred dividends in arrears. b. preferred dividends in arrears times (one minus the income tax rate). c. annual preferred dividend times (one minus the income tax rate). d. none of these.

D. none of these

Derivatives should be reported at amortized cost. True False

False

Derivatives such as fair value hedges are recorded at amortized cost. True False

False

In a variable-interest entity all stockholders have decision-making rights. True False

False

Investments are reported at market value on the balance sheet under the equity method. True False

False

To qualify for special accounting for hedges treatment, the hedging transaction must be at least moderately effective. True False

False

Unrealized gains and losses on held-to-maturity securities are reported on the income statement. True False

False

Unrealized holding gains and losses on cash flow hedges are included in net income. True False

False

Which of the following statements related to impairments of investments is not correct? A bankruptcy being experienced by an investee is an example of a permanent loss in value. The amount of any write-down in value is accounted for as a realized loss. If the decline in value is considered temporary, the cost of the individual security is written down to a new cost basis. Subsequent increases/decreases in the fair value of impaired available-for-sale securities are included as other comprehensive income.

If the decline in value is considered temporary, the cost of the individual security is written down to a new cost basis.

Which of the following is an advantage of a restricted-stock plan?

It creates new job opportunities in a company.

During 2014, Jackson Company purchased 17,000 shares of Monticello Corp. common stock for $382,500 as an available-for-sale investment. The fair value of these shares was $373,150 at December 31, 2014. Jackson sold all of the Monticello stock for $27.25 per share on July 3, 2015, incurring $15,000 in brokerage commissions. Jackson Company should report a realized gain on the sale of stock in 2015 of $90,100. $65,750. $75,100. $80,750.

Net proceeds of ($463,250 less $15,000) $448,250 less $382,500 results in a realized gain of $65,750.

The distribution of stock rights to existing common stockholders will increase APIC at the Date of Issuance | Date of Exercise

No | Yes

A debt security is transferred from one category to another. Generally accepted accounting principles require that for this particular reclassification (1) the security be transferred at fair value at the date of transfer, and (2) the unrealized gain or loss at the date of transfer currently carried as a separate component of stockholders' equity be amortized over the remaining life of the security. What type of transfer is being described? Transfer from held-to-maturity to available-for-sale Transfer from available-for-sale to held-to-maturity Transfer from trading to available-for-sale Transfer from available-for-sale to trading

Transfer from available-for-sale to held-to-maturity

A fair value hedge may be used to offset the exposure to changes in the fair value of an unrecognized commitment. True False

True

An option to convert a convertible bond into shares of common stock is a(n)embedded derivative. True False

True

Both IFRS and U.S. GAAP use the same test to determine whether the equity method of accounting should be used. True False

True

Both the FASB and the IASB believe that reporting fair values for financial assets and liabilities provides more useful and relevant information relative to historical cost. True False

True

Derivatives should be recognized in the financial statements as assets and liabilities. True False

True

Gains and losses on cash flow hedges are recorded in equity as part of other comprehensive income. True False

True

Holdings between 20% and 50% of another company's voting stock are accounted for using the equity method. True False

True

In a variable-interest entity, stockholders may not absorb losses or receive the returns of a normal stockholder. True False

True

One required disclosure for financial instrument is that a separate classification of other comprehensive income the net gain/loss on derivative instruments designated in cash flow hedges must be presented. True False

True

Recovery of impairment is prohibited by US GAAP for held-to-maturity securities. True False

True

The fair value and related carrying value of the instrument is a required disclosures related to financial instruments. True False

True

Savannah Corporation purchased 35,000 shares of common stock of the Boulet Corporation for $50 per share on January 2, 2014. During 2014, Boulet Corporation had 140,000 shares of common stock outstanding, paid cash dividends of $120,000, and reported net income of $320,000. Savannah Corporation should report revenue from investment for 2014 in the amount of $0. $30,000. $80,000. $50,000.

Under the equity method, the investor's share of the investee's income is reported as revenue: 25% X $320,000 = $80,000.

Which of the following is not a characteristic of a noncompensatory stock option plan?

Unlimited time period permitted for exercise of an option as long as the holder is still employed by the company.

During 2014, Vaughn Corporation sold merchandise costing $2,250,000 on an installment basis for $3,000,000. The cash receipts related to these sales were collected as follows: 2014, $1,200,000; 2015, $1,050,000; 2016, $750,000. ~If expenses, other than the cost of the merchandise sold, related to the 2014 installment sales amounted to $135,000, by what amount would Vaughn's net income for 2014 increase as a result of installment sales? a. $ 165,000 b. $ 266,250 c. $ 300,000 d. $1,065,000

a. $ 165,000

On January 1, 2015, Shaw Co. sold land that cost $840,000 for $1,120,000, receiving a note bearing interest at 10%. The note will be paid in three annual installments of $450,380 starting on December 31, 2015. Because collection of the note is very uncertain, Shaw will use the cost-recovery method. How much revenue from this sale should Shaw recognize in 2015? a. $0 b. $84,000 c. $112,000 d. $280,000

a. $0

Horner Construction Co. uses the percentage-of-completion method. In 2014, Horner began work on a contract for $16,500,000; it was completed in 2015. The following cost data pertain to this contract: Year Ended December 31 2014/ 2015 Cost incurred during the year $5,850,000/ $4,200,000 Estimated costs to complete at the end of year: 3,900,000/— ~The amount of gross profit to be recognized on the income statement for the year ended December 31, 2015 is a. $2,400,000. b. $2,580,000. c. $2,700,000. d. $6,450,000.

a. $2,400,000.

Kiner, Inc. began work in 2014 on a contract for $16,800,000. Other data are as follows: 2014/ 2015 Costs incurred to date $7,200,000/ $11,200,000 Estimated costs to complete 4,800,000/ — Billings to date: 5,600,000/ 16,800,000 Collections to date 4,000,000/ 14,400,000 ~If Kiner uses the percentage-of-completion method, the gross profit to be recognized in 2014 is a. $2,880,000. b. $3,200,000. c. $4,320,000. d. $4,800,000.

a. $2,880,000.

During 2014, Martin Corporation sold merchandise costing $3,500,000 on an installment basis for $5,000,000. The cash receipts related to these sales were collected as follows: 2014, $2,000,000; 2015, $1,750,000; 2016, $1,250,000. ~What amount would be shown in the December 31, 2015 financial statements for realized gross profit on 2014 installment sales, and deferred gross profit on 2014 installment sales, respectively? a. $525,000 and $375,000 b. $975,000 and $525,000 c. $375,000 and $1,125,000 d. $525,000 and $1,125,000

a. $525,000 and $375,000

Dexter purchases equipment from Ray Company for a price of $5,000,000 and chooses Ray to do the installation. Ray doesn't charge for the installation of equipment. The price of the installation service is estimated to have a fair value of $60,000. Assuming the transaction to be multiple-deliverable arrangement, compute the amount to be allocated to installation. a. $59,289 b. $60,720 c. $60,000 d. $61,457

a. $59,289

Eilert Construction Company had a contract starting April 2015, to construct a $21,000,000 building that is expected to be completed in September 2016, at an estimated cost of $19,250,000. At the end of 2015, the costs to date were $8,855,000 and the estimated total costs to complete had not changed. The progress billings during 2015 were $4,200,000 and the cash collected during 2015 was $2,800,000. Eilert uses the percentage-of-completion method. ~At December 31, 2015, Eilert would report Construction in Process in the amount of a. $9,660,000. b. $8,855,000. c. $8,260,000. d. $805,000.

a. $9,660,000.

During 2014, Martin Corporation sold merchandise costing $3,500,000 on an installment basis for $5,000,000. The cash receipts related to these sales were collected as follows: 2014, $2,000,000; 2015, $1,750,000; 2016, $1,250,000. ~What is the rate of gross profit on the installment sales made by Martin Corporation during 2014? a. 30% b. 40% c. 60% d. 70%

a. 30%

Gorman Construction Co. began operations in 2015. Construction activity for 2015 is shown below. Gorman uses the completed-contract method. Contract/Contract Price/Billings thru 12/31/15/Collectings thru 12/31/15/Costs to 12/31/15/EstCost to complete 1 /$4,800,000/ $4,725,000/$3,900,000/$3,225,000/— 2 /3,600,000/ 1,500,000/ 1,000,000/ 820,000/ $1,880,000 3 3,300,000/1,900,000/ 1,800,000/ 2,250,000/ 1,200,000 ~Which of the following should be shown on the balance sheet at December 31, 2015 related to Contract 3? a. Inventory, $200,000 b. Inventory, $350,000 c. Inventory, $2,100,000 d. Inventory, $2,250,000

a. Inventory, $200,000

On May 1, 2015, TV Inc. consigned 80 TVs to Ed's TV. The TVs cost $450. Freight on the shipment paid by Ed's TV was $1,000. On July 10, TV Inc. received an account sales and $21,500 from Ed's TV. Thirty TVs had been sold and the following expenses were deducted: Freight $1,000 Commission (20% of sales price) ? Advertising 650 Delivery 350 ~The inventory of TVs will be reported on whose balance sheet and at what amount? Balance Sheet of / Amount of Inventory a. TV Inc./ $23,125 b. TV Inc./ $22,500 c. Ed's TV/ $23,125 d. Ed's TV/ $22,500

a. TV Inc./ $23,125

A requirement for a security to be classified as held-to-maturity is ability to hold the security to maturity. the security must be a debt security. all of these answer choices are correct. positive intent.

all of these answer choices are correct.

Debt securities may be classified as: all of these answer choices are correct. held-to-maturity. trading. available-for-sale.

all of these answer choices are correct.

Compensation expense resulting from a compensatory stock option plan is generally

allocated to the periods benefited by the employee's required service

Under the intrinsic value method, compensation expense resulting from an incentive stock option is generally

allocated to the periods benefited by the employee's required service

Compensation expense resulting from a compensatory stock option plan is generally

allocated to the periods benefited by the employee's required service.

Unrealized holding gains or losses are recognized as other comprehensive income for: long-term securities. trading securities. available-for-sale securities. held-to-maturity securities.

available-for-sale securities.

Coaster manufactures and sells logging equipment. Due to the nature of its business, Coaster is unable to reliably predict bad debts. During 2014, Coaster sold equipment costing $4,800,000 for $7,200,000. The terms of the sale were 20% down, with equal payments due quarterly over the next 3 years. All payments for 2014 were made on schedule. Round answers to two places. ~Assuming that Coaster uses the cost-recovery method of accounting for its installment sales, what amount of realized gross profit will Coaster report in its income statement for the year ended December 31, 2015? a. $0 b. $ 480,000 c. $ 633,600 d. $1,920,000

b. $ 480,000

Carperter Company has used the installment method of accounting since it began operations at the beginning of 2015. The following information pertains to its operations for 2015: Installment sales: $ 2,800,000 Cost of installment sales: 1,960,000 Collections of installment sales: 1,120,000 General and administrative expenses: 280,000 The amount to be reported on the December 31, 2015 balance sheet as Deferred Gross Profit should be a. $ 336,000. b. $ 504,000. c. $ 672,000. d. $1,680,000.

b. $ 504,000.

Gomez, Inc. began work in 2014 on contract #3814, which provided for a contract price of $14,400,000. Other details follow: 2014/ 2015 Costs incurred during the year $2,400,000/ $7,350,000 Estimated costs to complete, as of December 31: 7,200,000/0 Billings during the year 2,700,000/ 10,800,000 Collections during the year 1,800,000/ 11,700,000 ~Assume that Gomez uses the percentage-of-completion method of accounting. The portion of the total gross profit to be recognized as income in 2014 is a. $900,000. b. $1,200,000. c. $3,600,000. d. $4,800,000.

b. $1,200,000.

Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of $1,240,000 each quarter. The total contract price is $14,880,000 and Seasons estimates total costs of $14,200,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2014. ~At December 31, 2015, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $14,400,000 due to unanticipated price increases. What is reported in the balance sheet at December 31, 2015 for Seasons as the difference between the Construction in Process and the Billings on Construction in Process accounts, and is it a debit or a credit? Difference between the accounts|Debit/Credit a. $3,380,000/Credit b. $1,240,000/Debit c. $880,000/Debit d. $1,240,000/Credit

b. $1,240,000/Debit

Wynne Inc. charges an initial franchise fee of $1,840,000, with $400,000 paid when the agreement is signed and the balance in five annual payments. The present value of the future payments, discounted at 10%, is $1,091,744. The franchisee has the option to purchase $240,000 of equipment for $192,000. Wynne has substantially provided all initial services required and collectibility of the payments is reasonably assured. The amount of revenue from franchise fees is a. $ 400,000. b. $1,443,744. c. $1,491,744. d. $1,840,000.

b. $1,443,744.

Under the equity method, the investment account is decreased by all of the following except the investor's proportionate share of: all of these answer choices are correct. declines in the fair value of the investment. dividends paid by the investee. the losses of the investee.

declines in the fair value of the investment.

In 2015, Fargo Corporation began construction work under a three-year contract. The contract price is $4,800,000. Fargo uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2015, follow: Balance Sheet Accounts receivable—construction contract billings: $200,000 Construction in progress: $600,000 Less contract billings: 480,000 Costs and recognized profit in excess of billings: 120,000 Income Statement Income (before tax) on the contract recognized in 2015 $120,000 ~How much cash was collected in 2015 on this contract? a. $200,000 b. $280,000 c. $40,000 d. $480,000

b. $280,000

Kiner, Inc. began work in 2014 on a contract for $16,800,000. Other data are as follows: 2014/ 2015 Costs incurred to date $7,200,000/ $11,200,000 Estimated costs to complete 4,800,000/ — Billings to date: 5,600,000/ 16,800,000 Collections to date 4,000,000/ 14,400,000 ~If Kiner uses the completed-contract method, the gross profit to be recognized in 2015 is a. $2,720,000. b. $5,600,000. c. $2,800,000. d. $11,200,000.

b. $5,600,000.

Cooper Construction Company had a contract starting April 2015, to construct a $18,000,000 building that is expected to be completed in September 2017, at an estimated cost of $16,500,000. At the end of 2015, the costs to date were $7,590,000 and the estimated total costs to complete had not changed. The progress billings during 2015 were $3,600,000 and the cash collected during 2015 was 2,400,000. ~For the year ended December 31, 2015, Cooper would recognize gross profit on the building of: a. $632,500 b. $690,000 c. $810,000 d. $0

b. $690,000

Remington Construction Company uses the percentage-of-completion method. During 2014, the company entered into a fixed-price contract to construct a building for Sherman Company for $24,000,000. The following details pertain to the contract: At December 31, 2014/ At December 31, 2015 Percentage of completion: 25%/ 60% Estimated total cost of contract: $18,000,000/ $20,000,000 Gross profit recognized to date: 1,500,000/ 2,400,000 The amount of construction costs incurred during 2015 was a. $12,000,000. b. $7,500,000. c. $4,500,000. d. $2,000,000.

b. $7,500,000.

Melton Company sold some machinery to Addison Company on January 1, 2014. The cash selling price would have been $947,700. Addison entered into an installment sales contract which required annual payments of $250,000, including interest at 10%, over five years. The first payment was due on December 31, 2014. What amount of interest income should be included in Melton's 2015 income statement (the second year of the contract)? a. $25,000 b. $79,247 c. $50,000 d. $69,770

b. $79,247

Nolte Co. has 4,000,000 shares of common stock outstanding on December 31, 2010. An additional 200,000 shares are issued on April 1, 2011, and 480,000 more on September 1. On October 1, Nolte issued $6,000,000 of 9% convertible bonds. Each $1,000 bond is convertible into 40 shares of common stock. No bonds have been converted. The number of shares to be used in computing basic earnings per share and diluted earnings per share on December 31, 2011 is a. 4,310,000 and 4,310,000. b. 4,310,000 and 4,370,000. c. 4,310,000 and 4,550,000. d. 5,080,000 and 5,320,000.

b. 4,310,000 and 4,370,000.

Spicer Corporation has a normal gross profit on installment sales of 30%. A 2013 sale resulted in a default early in 2015. At the date of default, the balance of the installment receivable was $32,000, and the repossessed merchandise had a fair value of $18,000. Assuming the repossessed merchandise is to be recorded at fair value, the gain or loss on repossession should be a. $0. b. a $4,400 loss. c. a $4,400 gain. d. a $10,000 loss.

b. a $4,400 loss.

Hiser Builders, Inc. is using the completed-contract method for a $9,800,000 contract that will take two years to complete. Data at December 31, 2015, the end of the first year, are as follows: Costs incurred to date: $4,480,000 Estimated costs to complete: 5,740,000 Billings to date: 4,200,000 Collections to date: 3,500,000 The gross profit or loss that should be recognized for 2015 is a. $0. b. a $420,000 loss. c. a $210,000 loss. d. a $184,800 loss.

b. a $420,000 loss.

With regard to recognizing stock-based compensation under iGAAP the fair value of shares and options awarded to employees is recognized a. in the first fiscal period of the employees' service. b. over the fiscal periods to which the employees' services relate. c. in the last fiscal period of the employees' service when the total value can be calculated. d. after last fiscal period of the employees' service when the total value can be calculated.

b. over the fiscal periods to which the employees' services relate

A corporation issues bonds with detachable warrants. The amount to be recorded as APIC is preferably

based on the relative market values of the two securities involved

A corporation issues bonds with detachable warrants. The amount to be recorded as paid-in capital is preferably

based on the relative market values of the two securities involved.

The if-converted method of computing earnings per share data assumes conversion of convertible securities as of the

beginning of the earliest period reported (or at the time of issuance, if later)

The conversion of preferred stock may be recorded by the

book value method

The conversion of bonds is most commonly recorded by the

book value method.

The conversion of preferred stock is recorded by the

book value method.

Horner Construction Co. uses the percentage-of-completion method. In 2014, Horner began work on a contract for $16,500,000; it was completed in 2015. The following cost data pertain to this contract: Year Ended December 31 2014/ 2015 Cost incurred during the year $5,850,000/ $4,200,000 Estimated costs to complete at the end of year: 3,900,000/— ~If the completed-contract method of accounting was used, the amount of gross profit to be recognized for years 2014 and 2015 would be 2014 2015 a. $6,750,000. $0. b. $6,450,000. $(300,000). c. $0. $6,450,000. d. $0. $6,750,000.

c. $0. $6,450,000

In determining diluted earnings per share, dividends on non-convertible cumulative preferred stock should be

deducted from net income whether declared or not

Coaster manufactures and sells logging equipment. Due to the nature of its business, Coaster is unable to reliably predict bad debts. During 2014, Coaster sold equipment costing $4,800,000 for $7,200,000. The terms of the sale were 20% down, with equal payments due quarterly over the next 3 years. All payments for 2014 were made on schedule. Round answers to two places. ~Assuming that Coaster uses the installment-sales method of accounting for its installment sales, what amount of realized gross profit will Coaster report in its income statement for the year ended December 31, 2014? a. $3,360,000 b. $2,240,000 c. $1,120,000 d. $ 739,200

c. $1,120,000

Adler Construction Co. uses the percentage-of-completion method. In 2014, Adler began work on a contract for $6,600,000 and it was completed in 2015. Data on the costs are: Year Ended December 31 2014/ 2015 Costs incurred: $2,340,000/ $1,680,000 Estimated costs to complete: 1,560,000/— For the years 2014 and 2015, Adler should recognize gross profit in 2014 and 2015 of 2014 2015 a. $0 $2,580,000 b. $1,548,000 $1,032,000 c. $1,620,000 $960,000 d. $1,620,000 $2,580,000

c. $1,620,000 $960,000

Monroe Construction Company uses the percentage-of-completion method of accounting. In 2015, Monroe began work on a contract it had received which provided for a contract price of $25,000,000. Other details follow: 2015 Costs incurred during the year: $12,000,000 Estimated costs to complete as of December 31: 8,000,000 Billings during the year: 11,000,000 Collections during the year: 6,500,000 What should be the gross profit recognized in 2015? a. $1,000,000 b. $13,000,000 c. $3,000,000 d. $5,000,000

c. $3,000,000

Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of $1,240,000 each quarter. The total contract price is $14,880,000 and Seasons estimates total costs of $14,200,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2014. ~Seasons Construction completes the remaining 25% of the building construction on December 31, 2016, as scheduled. At that time the total costs of construction are $15,000,000. What is the total amount of Revenue from Long-Term Contracts and Construction Expenses that Seasons will recognize for the year ended December 31, 2016? Revenue Expenses a. $14,880,000 $15,000,000 b. $3,720,000 $ 3,750,000 c. $3,720,000 $ 4,200,000 d. $3,750,000 $ 3,750,000

c. $3,720,000 $ 4,200,000

Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of $1,240,000 each quarter. The total contract price is $14,880,000 and Seasons estimates total costs of $14,200,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2014. ~At December 31, 2014, Seasons estimates that it is 30% complete with the construction, based on costs incurred. What is the total amount of Revenue from Long-Term Contracts recognized for 2014 and what is the balance in the Accounts Receivable account assuming Cannon Cafe has not yet made its last quarterly payment? Revenue/ Accounts Receivable a. $4,960,000/ $4,960,000 b. $4,260,000/$1,240,000 c. $4,464,000/$1,240,000 d. $4,260,000/$4,960,000

c. $4,464,000/$1,240,000

Gomez, Inc. began work in 2014 on contract #3814, which provided for a contract price of $14,400,000. Other details follow: 2014/ 2015 Costs incurred during the year $2,400,000/ $7,350,000 Estimated costs to complete, as of December 31: 7,200,000/0 Billings during the year 2,700,000/ 10,800,000 Collections during the year 1,800,000/ 11,700,000 ~Assume that Gomez uses the completed-contract method of accounting. The portion of the total gross profit to be recognized as income in 2015 is a. $1,800,000. b. $2,700,000. c. $4,650,000. d. $14,400,000.

c. $4,650,000.

Cooper Construction Company had a contract starting April 2015, to construct a $18,000,000 building that is expected to be completed in September 2017, at an estimated cost of $16,500,000. At the end of 2015, the costs to date were $7,590,000 and the estimated total costs to complete had not changed. The progress billings during 2015 were $3,600,000 and the cash collected during 2015 was 2,400,000. ~At December 31, 2015 Cooper would report Construction in Process in the amount of: a. $690,000 b. $7,590,000 c. $8,280,000 d. $7,080,000

c. $8,280,000

Eilert Construction Company had a contract starting April 2015, to construct a $21,000,000 building that is expected to be completed in September 2016, at an estimated cost of $19,250,000. At the end of 2015, the costs to date were $8,855,000 and the estimated total costs to complete had not changed. The progress billings during 2015 were $4,200,000 and the cash collected during 2015 was $2,800,000. Eilert uses the percentage-of-completion method. ~For the year ended December 31, 2015, Eilert would recognize gross profit on the building of a. $0. b. $737,917. c. $805,000. d. $945,000.

c. $805,000.

Hayes Construction Corporation contracted to construct a building for $4,500,000. Construction began in 2014 and was completed in 2015. Data relating to the contract are summarized below: Year ended December 31, 2014/ 2015 Costs incurred:$1,800,000/ $1,350,000 Estimated costs to complete:1,200,000/— Hayes uses the percentage-of-completion method as the basis for income recognition. For the years ended December 31, 2014, and 2015, respectively, Hayes should report gross profit of a. $810,000 and $540,000. b. $2,700,000 and $1,800,000. c. $900,000 and $450,000. d. $0 and $1,350,000.

c. $900,000 and $450,000.

Gorman Construction Co. began operations in 2015. Construction activity for 2015 is shown below. Gorman uses the completed-contract method. Contract/Contract Price/Billings thru 12/31/15/Collectings thru 12/31/15/Costs to 12/31/15/EstCost to complete 1 /$4,800,000/ $4,725,000/$3,900,000/$3,225,000/— 2 /3,600,000/ 1,500,000/ 1,000,000/ 820,000/ $1,880,000 3 3,300,000/1,900,000/ 1,800,000/ 2,250,000/ 1,200,000 ~Which of the following should be shown on the balance sheet at December 31, 2015 related to Contract 2? a. Inventory, $680,000 b. Inventory, $820,000 c. Current liability, $680,000 d. Current liability, $1,500,000

c. Current liability, $680,000

Gorman Construction Co. began operations in 2015. Construction activity for 2015 is shown below. Gorman uses the completed-contract method. Contract/Contract Price/Billings thru 12/31/15/Collectings thru 12/31/15/Costs to 12/31/15/EstCost to complete 1 /$4,800,000/ $4,725,000/$3,900,000/$3,225,000/— 2 /3,600,000/ 1,500,000/ 1,000,000/ 820,000/ $1,880,000 3 3,300,000/1,900,000/ 1,800,000/ 2,250,000/ 1,200,000 ~Which of the following should be shown on the income statement for 2015 related to Contract 1? a. Gross profit, $675,000 b. Gross profit, $1,500,000 c. Gross profit, $1,575,000 d. Gross profit, $900,000

c. Gross profit, $1,575,000

On January 1, 2015 Dairy Treats, Inc. entered into a franchise agreement with a company allowing the company to do business under Dairy Treats's name. Dairy Treats had performed substantially all required services by January 1, 2015, and the franchisee paid the initial franchise fee of $840,000 in full on that date. The franchise agreement specifies that the franchisee must pay a continuing franchise fee of $72,000 annually, of which 20% must be spent on advertising by Dairy Treats. What entry should Dairy Treats make on January 1, 2015 to record receipt of the initial franchise fee and the continuing franchise fee for 2015? a.Cash 912,000 Franchise Fee Revenue 840,000 Revenue from Franchise Fees 72,000 b.Cash 912,000 Unearned Franchise Fees 912,000 c.Cash 912,000 Franchise Fee Revenue 840,000 Revenue from Franchise Fees 57,600 Unearned Franchise Fees 14,400 d.Prepaid Advertising 14,400 Cash 912,000 Franchise Fee Revenue 840,000 Revenue from Franchise Fees 72,000 Unearned Franchise Fees 14,400

c.Cash 912,000 Franchise Fee Revenue 840,000 Revenue from Franchise Fees 57,600 Unearned Franchise Fees 14,400

Stock warrants outstanding should be classified as a)liabilities b) reductions of capital contributed in excess of par value c) assets d) none of these

d

During 2014, Martin Corporation sold merchandise costing $3,500,000 on an installment basis for $5,000,000. The cash receipts related to these sales were collected as follows: 2014, $2,000,000; 2015, $1,750,000; 2016, $1,250,000. ~If expenses, other than the cost of the merchandise sold, related to the 2014 installment sales amounted to $200,000, by what amount would Martin's net income for 2014 increase as a result of installment sales? a. $1,800,000 b. $ 600,000 c. $ 450,000 d. $ 400,000

d. $ 400,000

Sutton Company sells plasma-screen televisions on an installment basis and appropriately uses the installment-sales method of accounting. A customer with an account balance of $2,400 refuses to make any more payments and the merchandise is repossessed. The gross profit rate on the original sale is 40%. Sutton estimates that the television can be sold as is for $750, or for $900 if $60 is spent to refurbish it. The loss on repossession is a. $1,650. b. $960. c. $ 690. d. $ 600.

d. $ 600.

During 2014, Vaughn Corporation sold merchandise costing $2,250,000 on an installment basis for $3,000,000. The cash receipts related to these sales were collected as follows: 2014, $1,200,000; 2015, $1,050,000; 2016, $750,000. ~What amount would be shown in the December 31, 2015 financial statement for realized gross profit on 2014 installment sales, and deferred gross profit on 2014 installment sales, respectively? a. $262,500 and $562,500 b. $487,500 and $262,500 c. $562,500 and $187,500 d. $262,500 and $187,500

d. $262,500 and $187,500

On May 1, 2015, TV Inc. consigned 80 TVs to Ed's TV. The TVs cost $450. Freight on the shipment paid by Ed's TV was $1,000. On July 10, TV Inc. received an account sales and $21,500 from Ed's TV. Thirty TVs had been sold and the following expenses were deducted: Freight $1,000 Commission (20% of sales price) ? Advertising 650 Delivery 350 ~The total sales price of the TVs sold by Ed's TV was a. $25,625. b. $26,875. c. $27,313. d. $29,375.

d. $29,375.

Oliver Co. uses the installment-sales method to record the sale of dining room sets. When an account had a balance of $14,000, no further collections could be made and the dining room set was repossessed. At that time, it was estimated that the dining room set could be sold for $4,000 as repossessed, or for $5,000 if the company spent $500 reconditioning it. The gross profit rate on this sale was 70%. The gain or loss on repossession was a a. $9,800 loss. b. $10,000 loss. c. $1,000 gain. d. $300 gain.

d. $300 gain.

Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of $1,240,000 each quarter. The total contract price is $14,880,000 and Seasons estimates total costs of $14,200,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2014. ~At December 31, 2015, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $14,400,000 due to unanticipated price increases. What is the total amount of Construction Expenses that Seasons will recognize for the year ended December 31, 2015? a. $10,800,000 b. $6,300,000 c. $6,390,000 d. $6,540,000

d. $6,540,000

In 2015, Fargo Corporation began construction work under a three-year contract. The contract price is $4,800,000. Fargo uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2015, follow: Balance Sheet Accounts receivable—construction contract billings: $200,000 Construction in progress: $600,000 Less contract billings: 480,000 Costs and recognized profit in excess of billings: 120,000 Income Statement Income (before tax) on the contract recognized in 2015 $120,000 ~What was the initial estimated total income before tax on this contract? a. $600,000 b. $640,000 c. $800,000 d. $960,000

d. $960,000

During 2014, Vaughn Corporation sold merchandise costing $2,250,000 on an installment basis for $3,000,000. The cash receipts related to these sales were collected as follows: 2014, $1,200,000; 2015, $1,050,000; 2016, $750,000. ~What is the rate of gross profit on the installment sales made by Vaughn Corporation during 2014? a. 75% b. 60% c. 40% d. 25%

d. 25%

In 2012, Concord Inc. sells inventory with a cost of $32,000 for $50,000. Concord will receive payments of $14,000 in 2012, $26,000 in 2013, and $10,000 in 2014. If the cost-recovery method applies to this transaction, what would be the journal entry to recognize gross profit at the end of 2013? a.Deferred Gross Profit:10,000 Realized Gross Profit: 10,000 b.Realized Gross Profit:18,000 Deferred Gross Profit: 18,000 c.Sales Revenue 50,000 Cost of sales 32,000 Deferred Gross Profit 18,000 d.Deferred Gross Profit8,000 Realized Gross Profit8,000

d.Deferred Gross Profit8,000 Realized Gross Profit8,000