Intermediate 2- Exam 2 multiple choice

At December 31, year 1, the Merlin Company had 50,000 shares of common stock issued and outstanding. On April 1, year 2, an additional 10,000 shares of common stock were issued. Merlin's net income for the year ended December 31, year 2, was $172,500. During year 2, Merlin declared and paid $100,000 cash dividends on its nonconvertible preferred stock. The basic earnings per common share, rounded to the nearest penny, for the year ended December 31, year 2, should be

$1.26

The stockholders of Meadow Corp. approved a stock-option plan that grants the company's top three executives options to purchase a maximum of 1,000 shares each of Meadow's $2 par common stock for $19 per share. The options were granted on January 1 when the fair value of the stock was $20 per share. Meadow determined that the fair value of the compensation is $300,000 and the vesting period is three years. What amount of compensation expense from the options should Meadow record in the year the options were granted?

$100,000

On January 1, year 1, the board of directors of a corporation granted 10,000 stock options to the CEO. Each option permits the purchase of one share of stock at $25 per share, the current market price of the stock. The options are exercisable on December 31, year 4, as long as the CEO is still employed. The options expire on December 31, year 5. The grant date fair value of each option is $5. The corporation must recognize

$12,500 of compensation expense per year for four years.

A restricted stock award was granted at the beginning of 2005 calling for 3,000 shares of stock to be awarded to executives at the beginning of 2009. The fair value of one option was $20 at grant date. During 2007, 100 shares were forfeited because an executive left the firm. What amount of compensation expense is recognized for 2007?

$13,500

On May 18, year 1, Sol Corp's board of directors declared a 10% stock dividend. The market price of Sol's 3,000 outstanding shares of $2 par value common stock was $9 per share on that date. The stock dividend was distributed on July 21, year 1, when the stock's market price was $10 per share. What amount should Sol credit to additional paid-in capital for this stock dividend?

$2,100

On January 2, year 1, Kine Co. granted Morgan, its president, compensatory stock options to buy 1,000 shares of Kine's $10 par common stock. The options call for a price of $20 per share and are exercisable for three years following the grant date. Morgan exercised the options on December 31, year 1. The fair value of a similar stock option with the same terms was $28 on the grant date. By what net amount should SE increase as a result of the grant and exercise of the options?

$20,000

On January 2, year 1, Kine Co. granted Morgan, its president, compensatory stock options to buy 1,000 shares of Kine's $10 par common stock. The options call for a price of $20 per share and are exercisable for three years following the grant date. Morgan exercised the options on December 31, year 1. The market price of the stock was $50 on January 2, year 1, and $70 on December 31, year 1. The fair value of a similar stock option with the same terms was $28 on the grant date. What is compensation expense for year 1 for the share-based payments?

$28,000

On July 1, year 1, Bart Corporation has 200,000 shares of $10 par common stock outstanding and the market price of the stock is $12 per share. On the same date, Bart declared a 1-for-2 reverse stock split. The par of the stock was increased from $10 to $20 and one new $20 par share was issued for each two $10 par shares outstanding. Immediately before the 1-for-2 reverse stock split, Bart's additional paid-in capital was $450,000. What should be the balance in Bart's additional paid-in capital account immediately after the reverse stock split is effected?

$450,000

A company granted its employees 100,000 stock options on January 1, Year 1. The stock options had a grant date fair value of $15 per option and a three-year vesting period. On January 1, Year 2, the company estimated the fair value of the stock options to be $18 per option. Assuming that the company did not grant any additional options or modify the terms of any existing option grants during Year 2, what amount of share-based compensation expense should the company report for the year ended December 31, Year 2?

$500,000

The following information is relevant to the computation of Chan Co.'s earnings per share to be disclosed on Chan's income statement for the year ending December 31: ● Net income for year 5 is $600,000. ● $5,000,000 face value 10-year convertible bonds outstanding on January 1. The bonds were issued four years ago at a discount which is being amortized in the amount of $20,000 per year. The stated rate of interest on the bonds is 9%, and the bonds were issued to yield 10%. Each $1,000 bond is convertible into 20 shares of Chan's common stock. ● Chan's corporate income tax rate is 25%. Chan has no preferred stock outstanding, and no other convertible securities. What amount should be used as the numerator in the fraction used to compute Chan's diluted earnings per share assuming that the bonds are dilutive securities?

$952,500

Bridgeport Inc. had 423000 shares of common stock issued and outstanding at December 31, 2020. On July 1, 2021 an additional 211000 shares were issued for cash. Bridgeport also had stock options outstanding at the beginning and end of 2021, which allow the holders to purchase 60600 shares of common stock at $28 per share. The average market price of Bridgeport's common stock was $35 during 2021. The number of shares to be used in computing diluted earnings per share for 2021 is

(423000 × 6/12) + (634000 × 6/12) + [(35 - 28)/ 35) × 60600] = 540620.

Security Cost Fair value at 12/31/Y1 A $20,000 $17,000 B 40,000 30,000 C 90,000 92,000 $150,000 $139,000 Anthony appropriately carries these securities at fair value, and the decline in value of Security B is attributed to credit loss. The change in value of securities A and C is considered to be due to factors other than credit loss. The amount of loss on these securities that will appear on Anthony's balance sheet as a component of "Accumulated other comprehensive income" at

1,000

Mann, Inc. had 300,000 shares of common stock issued and outstanding at December 31, year 1. On July 1, year 2, an additional 50,000 shares of common stock were issued for cash. Mann also had unexercised stock options to purchase 40,000 shares of common stock at $15 per share outstanding at the beginning and end of year 2. The average market price of Mann's common stock was $20 during year 2. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, year 2?

335,000

Timp, Inc. had the following common stock balances and transactions during year 1 1/1/Y1 Common stock outstanding 30,000 2/1/Y1 Issued a 10% common stock dividend 3,000 7/1/Y1 Issued common stock for cash 8,000 12/31/Y1 Common stock outstanding 41,000 What were Timp's year 1 weighted-average shares outstanding?

37,000

Which of the following is not correct concerning trading securities?

All of these choices are correct.

On December 29, 2026, James Company sold a debt security that had been purchased on January 4, 2025. James owned no other debt securities. An unrealized holding loss was reported in the 2025 income statement. A realized gain was reported in the 2026 income statement. Was the debt security classified as available-for-sale and did its 2025 market price decline exceed its 2026 market price recovery?

Available-for-Sale- NO Market Price Recovery- NO

Which of the following is correct about the effective-interest method of amortization?

It must be used to amortize a discount or premium unless some other method yields a similar result

Which of the following is not generally correct about recording a sale of a debt security before its maturity date?

The entry to amortize a premium to the date of sale includes a credit to the Premium on Debt Investments account

Use of the effective-interest method to amortize bond premiums and discounts results in

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

When investments in debt securities are sold between interest payment dates, preferably the

accrued interest is credited to Interest Revenue.

Debt 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

available-for-sale debt securities.

When an available-for-sale debt security is purchased at a discount, the entry to record the amortization of the discount includes a

debit to Debt Investments.

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

make an adjusting entry to debit Interest Receivable and credit Interest Revenue for the amount of interest accrued since the last interest receipt date.