Intermediate Accounting II - Test 3 (Chapter 8, 19 & 20)

Derby Company sells season passes to its entertainment center. The passes sell for $85 each and are good for the year. On January 1, Derby sells 3,000 passes and received cash. The amount of revenue to be recognized on January 1 is ________.

A) $0

Novella Company sells annual memberships to its auto club. The memberships cost $900 each. On January 1, Novella sold 6,000 memberships and received cash. How much revenue should Novella record on January 1? A) $0 B) $900 C) $10,800 D) $5,400,000

A) $0

On November 15, 2016, LaGrow Developers sold a parcel of land for $5,000,000. They had originally paid $3,600,000 for the land. The terms of the sale called for a $1,000,000 down payment, and the balance in two equal installments payable on November 15, 2017 and November 15, 2018. Disregard interest charges. LaGrow has a December 31 year-end. Refer to LaGrow Developers. Assuming that LaGrow uses the cost-recovery method, the company would recognize gross profit in 2017 of ________. (Do not round intermediary calculations, and round your final answer to the nearest whole dollar.) A) $0 B) $1,000,000 C) $280,000 D) $1,400,000

A) $0

Pemco Enterprises sells annual memberships to its shooting lodge. The memberships cost $210 each. On January 1, Pemco sold 2,000 memberships and received cash. Refer to Pemco Enterprises. How much revenue should Pemco recognize on January 1? A) $0 B) $420,000 C) $210,000 D) $35,000

A) $0

Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,700,000. In the first year of the contract Tullis incurs $2,100,000 of cost and the engineers determined that the remaining costs to complete the project are $4,900,000. Tullis billed $4,000,000 in year 1 and collected $3,500,000 by the end of the end of the year. How much gross profit should Tullis recognize in Year 1 assuming the use of the completed-contract method? A) $0 B) $1,900,000 C) $3,700,000 D) $7,000,000

A) $0

Tullis Construction enters into a long-term fixed price contract to build an office tower for $11,000,000. In the first year of the contract. Tullis incurs $3,000,000 of cost and the engineers determined that the remaining costs to complete are $5,000,000. Tullis billed $3,700,000 in year 1 and collected $3,200,000 by the end of the end of the year. Refer to Tullis Corporation. How much gross profit should Tullis recognize in Year 1 assuming the use of the completed-contract method? A) $0 B) $2,300,000 C) $3,000,000 D) $8,000,000

A) $0

On November 15, 2016, LaGrow Developers sold a parcel of land for $5,000,000. They had originally paid $3,600,000 for the land. The terms of the sale called for a $1,000,000 down payment, and the balance in two equal installments payable on November 15, 2017 and November 15, 2018. Disregard interest charges. LaGrow has a December 31 year-end. Refer to LaGrow Developers. Assume that LaGrow uses the installment sales method. The buyer defaulted on the note receivable after making the down payment. At the date of repossession, the land had a fair value of $4,000,000. What will be the gain or loss on repossession?

A) $0 loss or gain

Shady Equipment sells a truck to Fred for $180,000 on January 1, 2016. Payment of $180,000 is received two years later and interest is paid at the end of two years. The truck is delivered two years later. The market rate of interest is 7%. Refer to Shady Equipment. How much sales revenue will Shady report on January 1, 2016? A) $0.00 B) $180,000 C) $167,400 D) $90,000

A) $0.00

Louise paints seascapes and landscapes. In 2017 she placed nine of her most prized paintings with the Wainwright Studio Gallery. The paintings each carried a price of $1,000, and Louise made a deal with the Gallery to pay them a 40% commission on all paintings sold. At the end of the year three paintings had been sold. How much revenue will Louise recognize on the consignment sales? A) $3,000 B) $1,800 C) $1,200 D) $0

A) $3,000

On January 1, Year 1, Fields Corporation granted 300,000 stock options to certain executives. The vesting period is 3 years. The options are exercisable no sooner than December 31, Year 3 and expire on January 1, Year 7. Each option can be exercised to acquire one share of $10 par common stock for $15. An appropriate option-pricing model estimates the fair value of each option to be $13 on the date of grant. What is the fair value of the award? A) $3,900,000 B) $3,000,000 C) $900,000 D) $4,500,000

A) $3,900,000 Explanation: 300,000 options × $13 = $3,900,000.

Charlotte Engineering reported net income of $400,000 for the year. It declared $30,000 in preferred dividends on December 23. It began the year with 100,000 common shares outstanding. On July 1, Charlotte declared a 5% common stock dividend. Compute the basic EPS for the year. (Round your answer to the nearest cent.) A) $3.52 B) $3.70 C) $3.89 D) $3.61

A) $3.52 Stock dividends are applied retroactively, so the weighted average number of shares is 100,000 × 1.05 = 105,000. EPS = ($400,000 - $30,000)/105,000 = $3.52

White Labs is a wholesaler who sells microscopes for use in high schools to retailers. On August 1 White contracts with the XYZ to sell 1,000 microscopes to XYZ to be delivered September 1. The contract price is set at $370 each, with a 10% volume discount if sales exceed 2,500 microscopes within the year. The probability of sales exceeding 2,500 microscopes is expected to be 55%. Ignore any constraints on variable consideration. Using the most-likely-amount approach, the consideration to be recognized is estimated to be ________. A) $333,000 B) $370,000 C) $203,500 D) $37,000

A) $333,000 Explanation: $333,000 = 1,000 × $370 × (1 - .1)

Greenwell Farm Equipment sells a tractor to Farmer for $40,000 on January 1, 2019. The tractor is delivered that day. Greenwell agrees that the Farmer may delay the payment for 2 years. The market rate of interest is 7%. Refer to Greenwell Farms. How much interest revenue will Greenwell report over the life of this contract? (Do not round intermediary calculations, and round your final answer to the nearest whole number.) Use the formula approach. A) $5,062 B) $2,800 C) $5,600 D) $5,796

A) $5,062 Explanation: $40,000 × 1/(1 + 7%)2 = $34,938; $40,000 - $34,938 = $5,062 Interest Revenue

On November 15, 2016, LaGrow Developers sold a parcel of land for $4,000,000. They had originally paid $3,000,000 for the land. The terms of the sale called for a $1,000,000 down payment, and the balance in two equal installments payable on November 15, 2017 and November 15, 2018. Disregard interest charges. LaGrow has a December 31 year-end. Refer to LaGrow Developers. Assuming that LaGrow uses the cost-recovery method, in its December 31, 2017 balance sheet, the company would report ________. A) $500,000 net installment accounts receivable B) $3,000,000 net installment accounts receivable C) $1,500,000 net installment accounts receivable D) $2,000,000 net installment accounts receivable

A) $500,000 net installment accounts receivable

Louise paints seascapes and landscapes. In 2019 she placed nine of her most prized paintings with the Wainwright Studio Gallery. The paintings each carried a price of $6,000, and Louise made a deal with the Gallery to pay them a 40% commission on all paintings sold. At the end of the year, three paintings had been sold. How much revenue will Louise recognize on each of the consignment sales? A) $6,000 B) $3,600 C) $2,400 D) $0

A) $6,000

Gleason Construction enters into a long-term fixed price contract to build an office building for $26,000,000. In the first year of the contract, Gleason incurs $6,000,000 of cost and the engineers determined that the remaining costs to complete are $14,000,000. How much revenue should Gleason recognize in Year 1 assuming the use of the zero-gross -profit approach? A) $6,000,000 B) $26,000,000 C) $0 D) $14,000,000

A) $6,000,000

Gleason Construction enters into a long-term fixed price contract to build an office building for $27,000,000. In the first year of the contract Gleason incurs $8,000,000 of cost and the engineers determined that the remaining costs to complete are $25,000,000. How much gross profit or loss should Gleason recognize in Year 1 assuming the use of the completed-contract method? A) $6,000,000 loss B) $6,000,000 profit C) $0 D) $19,000,000 loss

A) $6,000,000 loss

Aztec Company contracted with the Kirk Company to review their revenue recognition policies for recording sales. The contract will pay Aztec $800,000 in the form of a fixed fee. Aztec will also receive $150,000 additionally if Kirk achieves $200,000 in additional revenues. Aztec estimates a 70% chance that Kirk Company will achieve $200,000 in additional revenues. Refer to Aztec Company. Assume that Aztec estimates that the transaction price is the probability weighted amount of expected consideration. The transaction price is ________.

A) $905,000 Explanation: $905,000 = $800,000 + ($150,000 × 70%)

A yacht dealer sells high performance yachts to affluent customers. The sale also includes a 90-day warranty against any defects in workmanship. The number of performance obligations for each yacht is ________. A) 1 B) 2 C) 3 D) 4

A) 1

Which of the following statements about defined benefit pension plans is correct? A) Deferring actuarial gains and losses tends to smooth earnings. B) An overfunded pension plan increases a company's leverage. C) When the settlement rate is higher, the computed pension obligation increases. D) Expected return on plan assets increases pension costs.

A) Deferring actuarial gains and losses tends to smooth earnings.

How is interest cost calculated for a defined benefit pension plan? A) Multiply the beginning balance PBO by the settlement rate. B) Multiply the beginning balance ABO by the settlement rate. C) Multiply the PBO by the expected return on the plan assets. D) Multiply the ABO by the expected return on the plan assets.

A) Multiply the beginning balance PBO by the settlement rate.

Construction costs and profits in excess of billings are carried on the balance sheet as a(n) ________. A) asset B) liability C) equity D) revenue

A) asset

Accounting standards require which one of the following groups of presentations on the income statement? A) basic and diluted EPS for all periods presented for income from continuing operations, discontinued operations, and net income B) basic and diluted EPS for all periods presented for net income only C) basic EPS for three periods for income from continuing operations and net income only D) basic and diluted EPS for the current period only for income from continuing operations, discontinued operations, and net income

A) basic and diluted EPS for all periods presented for income from continuing operations, discontinued operations, and net income

When using the percentage-of-completion method to account for a long-term contract, the percentage used to recognize gross profit in the first year is determined by dividing ________. A) costs incurred in the first year by estimated total costs of the project B) costs incurred in the first year by estimated remaining costs of the project C) costs in the first year by contract price D) estimated total profit by contract price

A) costs incurred in the first year by estimated total costs of the project

Under the completed-contract method, revenue is recognized ________. A) each year of the contract B) only the first year of the contract C) only the last year of the contract D) only when there is a loss on the contract

A) each year of the contract

Disclosures concerning significant judgments in revenue recognition include all of the following except ________. A) information regarding fair value of consideration exchanged B) methods used to recognize revenue C) allocation of the transaction price D) an assessment of whether an estimate of variable consideration is constrained

A) information regarding fair value of consideration exchanged

A seller recognizes the amount of returns from right to return sales as a(n) ________. A) liability B) asset C) revenue D) expense

A) liability

Tullis Construction enters into a long-term fixed price contract to build an office tower for $15,000,000. In the first year of the contract. Tullis incurs $3,000,000 of cost and the engineers determined that the remaining costs to complete are $5,000,000. Tullis billed $3,800,000 in year 1 and collected $3,300,000 by the end of the end of the year. Refer to Tullis Corporation. How should Tullis report Construction in Progress and Billings on Construction in Progress at the end of year 1 on the balance sheet assuming the use of the completed-contract method? A) liability of $800,000 B) asset of $800,000 C) asset of $500,000 D) liability of $500,000

A) liability of $800,000

When there are multiple dilutive securities in a firm, the antidilution test for the sequence should be from ________. A) most dilutive to least dilutive B) least dilutive to most dilutive C) convertibles first and warrants last D) convertibles debt first and options last

A) most dilutive to least dilutive

What is the effect of an equity-classified award of stock options on the grant date? A) no change in total equity or net income B) increase in total equity and increase in net income C) decrease in total equity and decrease in net income D) increase in total equity and decrease in net income

A) no change in total equity or net income

The general rule is that the transaction price should be allocated to the performance obligations based on the relative standalone selling prices unless a discount is ________. A) not related to all of the contract's performance obligations B) related to all of the contract's performance obligations C) less than the standalone selling price D) not part of the variable consideration

A) not related to all of the contract's performance obligations

The percentage-of-completion method recognizes gross profit ________. A) over the life of the contract B) at the end of the contract C) at the beginning of the contract D) one year after completion of contract

A) over the life of the contract

A good or service transferred at a point in time would include a ________. A) suit B) magazine subscription C) gym membership D) Sam's Club membership

A) suit

The timing of revenue recognition is dependent upon the control of the good being in the hands of ________. A) the buyer B) the seller C) the management D) any third party

A) the buyer

When computing diluted EPS, only the denominator is affected by ________. A) warrants and options B) convertible preferred stock C) preferred stock D) convertible bonds

A) warrants and options

Derby Company sells season passes to its entertainment center. The passes sell for $135 each and are good for the year. On January 1, Derby sells 5,400 passes and received cash. The amount of revenue to be recognized each month is ________. A) $72,900 B) $60,750 C) $729,000 D) $81,000

B) $60,750 Explanation: $60,750 = (5,400 × $135) × 1/12

ABC Company enters into a contract with Edmond Library to help them streamline their purchasing process. The contract specifies that Edmond Library will pay ABC $90,000 in the form of a fixed fee plus an additional $10,000 if the library achieves $200,000 in cost savings. ABC estimates a 55% chance that the library will achieve a $200,000 savings. Assume ABC estimates that the transaction price is the expected-value transaction price. The transaction price is recorded as ________. Ignore any constraints on variable consideration. A) $90,000 B) $95,500 C) $100,000 D) $84,500

B) $95,500 Explanation: $95,500 = $90,000 + ($10,000 × 0.55)

Able sells a piece of equipment to Smythe for $1,800 on August 1. The equipment cost $1,000. The equipment is picked up by Smythe on August 10. The contract also includes a 12 month service plan. How many performance obligations are included in this transaction?

B) 2

An automotive magazine charges an annual subscription fee of $300, with customers prepaying the fee. Subscribers receive 50 issues for the annual fee. The publisher provides the new subscribers with a discount coupon good for a 30 percent discount on a race car ride at a major track. The list price of the ride along experience is $200. The company estimates that 35% of the coupons will be utilized. What is the number of performance obligations? A) 1 B) 2 C) 3 D) 4

B) 2

Which of the following statements is false? A) Stock appreciation rights are a form of compensation similar to a bonus. B) Employees holding stock appreciation rights are required to purchase shares on the vesting date. C) The employee benefits from stock appreciation rights only if the stock price increases. D) The liability for a SAR is measured as the difference between the stock price and the pre-established price.

B) Employees holding stock appreciation rights are required to purchase shares on the vesting date.

If a pension plan is overfunded, it means that the ________. A) ABO exceeds plan assets B) PBO is less than plan assets C) ABO is less than plan assets D) PBO exceeds plan assets

B) PBO is less than plan assets

Baker Instruments reported $7,000,000 in net income for the current year. The company had $500,000 of 10% cumulative, non-convertible preferred stock outstanding all year, and issued $1,000,000 of 6% convertible bonds on June 1. Determine the numerator for both basic and diluted EPS when the tax rate is 40%. A) basic EPS $7,000,000 - $50,000; diluted EPS $7,000,000 - $50,000 + ($60,000 × 5/12)(1 - .40) B) basic EPS $7,000,000 - $50,000; diluted EPS $7,000,000 - $50,000 + ($60,000 × 7/12)(1 - .40) C) basic EPS $7,000,000 - $50,000 (7/12); diluted EPS $7,000,000 - $50,000 (7/12) + ($60,000 × 7/12)(1 - .40) D) basic EPS $7,000,000 - $50,000 (5/12); diluted EPS $7,000,000 - $50,000 (5/12) + ($60,000 × 5/12)(1 - .40)

B) basic EPS $7,000,000 - $50,000; diluted EPS $7,000,000 - $50,000 + ($60,000 × 7/12)(1 - .40) Explanation: Preferred Dividend $500,000 × 10% = $50,000; Convertible Bonds Interest Expense $1,000,000 × 6% = $60,000; after-tax interest expense = $60,000 × 60% × 7/12.

When accounting for revenue for a long-term contract, the percentage of completion used to recognize revenue in the first year usually is determined by measuring ________. A) costs incurred in the first year, divided by estimated remaining costs to complete the project B) costs incurred in the first year, divided by estimated total costs for the completed project C) costs incurred in the first year, divided by estimated gross profit D) costs incurred in the first year, divided by estimated total costs to be incurred in the remaining years of the project

B) costs incurred in the first year, divided by estimated total costs for the completed project

Stock options and warrants affect the diluted EPS calculation by changing the ________. A) numerator only B) denominator only C) both the numerator and denominator D) neither the numerator and denominator

B) denominator only

A performance obligation is a promise to transfer a good or service that is ________. A) indistinguishable B) distinct C) available D) nondescript

B) distinct

Billings in excess of costs and profits are carried on the balance sheet as a(n) ________. A) asset B) liability C) equity D) revenue

B) liability

Billings in excess of costs and recognized profits are carried on the balance sheet as a(n) ________. A) asset B) liability C) equity D) revenue

B) liability

Camey Construction enters into a long-term fixed price contract to build an office building for $6,000,000. In the first year of the contract Camey incurs $1,400,000 of cost and the engineers determined that the remaining costs to complete are $2,200,000. Camey billed $3,800,000 and collected $1,000,000 in Year 1. Refer to Camey Construction. How should Camey report Construction in Progress and Billings on Construction in Progress at the end of year 1 on the balance sheet assuming the use of the percentage-of-completion method? A) asset of $0 B) liability of $1,466,667 C) asset of $1,400,000 D) liability of $3,800,000

B) liability of $1,466,667

Companies provide information about performance obligations in contracts with customers, including information about ________. A) types of warranties but not obligations B) types of warranties and obligations C) return obligations but not refund obligations D) liabilities exchanged

B) types of warranties and obligations

Hopner Products enters into a contract with Tulles to sell three different products. Each of the products is a separate performance obligation. Based on the information presented in the table, what is the standalone price of product Z using the residual approach? A) $290,000 B) $115,000 C) $140,000 D) $255,000

C) $140,000 Explanation: $140,000 = $415,000 - $150,000 - $125,000

Ace Corporation has 10,000 shares of $100, 5%, convertible preferred shares outstanding for the whole year. Each preferred share is convertible into 2 shares of common stock. What is the incremental income per common share from the preferred stock? A) $50.00 B) $1.00 C) $2.50 D) $5.00

C) $2.50 Explanation: (10,000 shares × $100 par × 5%)/(10,000 shares × 2 shares common for each share of preferred)

George Manufacturing had net income of $150,000 and declared preferred dividends of $10,000 during the current year. George began the year with 11,000 common shares outstanding. It issued 60,000 shares on June 30 and repurchased 6,000 of the newly issued shares on November 1. Compute George's basic EPS for the year. (Round your answer to the nearest cent.) A) $3.75 B) $12.73 C) $3.50 D) $3.41

C) $3.50 Weighted average number of shares = (11,000 × 12/12) + (60,000 × 6/12) - (6,000 × 2/12) = 40,000 shares

Gleason Construction enters into a long-term fixed price contract to build an office building for $30,000,000. In the first year of the contract Gleason incurs $8,000,000 of cost and the engineers determined that the remaining costs to complete are $12,000,000. How much gross profit or loss should Gleason recognize in Year 1 assuming the use of the percentage-of-completion method? (Round the gross profit percentage to 4 decimal places) A) $22,000,000 profit B) $18,000,000 loss C) $4,000,000 profit D) $12,000,000 loss

C) $4,000,000 profit Explanation: The percentage of completion is 40.00% = $8,000,000/$20,000,000. Total Gross Profit = $30,000,000 Price - $20,000,000 Costs = $10,000,000; Gross Profit Recognized in Year 1 = 40.00% × $8,000,000 = $4,000,000

Pemco Enterprises sells annual memberships to its shooting lodge. The memberships cost $200 each. On January 1, Pemco sold 3000 memberships and received cash. Refer to Pemco Enterprises. How much revenue should Pemco recognize each month? (Round your final answer to the nearest whole number.) A) $0 B) $25,000 C) $50,000 D) $60,000

C) $50,000 Explanation: $200 × 3000 = $600,000 × 1/12 = $50,000

Gray Uniforms is a wholesaler who sells school uniforms to retailers. On August 1, Gray contracts with Excel School Uniforms to sell 2,000 uniforms to Excel to be delivered September 1. The contract price is set at $300 each. The contract provides for a 10% volume discount if sales exceed 3,000 uniforms. The probability of sales exceeding 3,000 uniforms is expected to be 71%. Using the most-likely-amount approach, the consideration is estimated to be ________. A) $813,000 B) $639,000 C) $540,000 D) $426,000

C) $540,000 Explanation: $540,000 = 2,000 × $300 × (1-.1)

Recognition of revenue as each performance obligation is satisfied is which step in the recognition process? A) 1st B) 3rd C) 5th D) 4th

C) 5th

ABC provides a product and installation to be used in conjunction with the buyer's production system. The buyer's system is unusable without ABC's product. The product and the installation are an example of ________. A) three performance obligations B) no performance obligations C) a single performance obligation D) two performance obligations

C) a single performance obligation

Pennock Inc. has convertible preferred stock outstanding. To compute the diluted EPS, it must adjust ________. A) only the numerator B) only the denominator C) both the numerator and denominator D) neither the numerator nor the denominator

C) both the numerator and denominator

When a contract is expected to affect the risk, timing, or amount of the entity's future cash flows, the contract is said to have ________. A) non-commercial substance B) no substance C) commercial substance D) no profit

C) commercial substance

) The Billings on Construction in Progress is a(n) ________. A) asset B) liability C) contra-asset D) revenue

C) contra-asset

Interest cost will ________. A) increase pension expense and reduce plan assets B) increase the PBO and reduce plan assets C) increase the PBO and increase pension expense D) increase pension expense and reduce the return on plan assets

C) increase the PBO and increase pension expense

An example of a good transferred over time is a ________. A) refrigerator B) soft drink C) magazine subscription D) suit

C) magazine subscription

When GAAP is used, revenue is recognized under the completed-contract method ________. A) each year of the contract B) only the first year of the contract C) only the last year of the contract D) only when there is a loss on the contract

C) only the last year of the contract

The retroactive assumption for stock splits and stock dividends assumes that all splits and stock dividends occur at the beginning of the year, if the stock is outstanding at the beginning of the year. The retroactive assumption is also retroactive to ________. A) the prior year B) all prior years C) the date of issue of the common shares D) the past five years reported in the current annual report

C) the date of issue of the common shares

The compensation associated with a share of stock under a restricted stock plan is computed as ________. A) the market price of a share of a similar security B) the book value of an unrestricted share of the same stock C) the market price of an unrestricted share of the same stock D) the book value of a share of similar stock

C) the market price of an unrestricted share of the same stock

Under U.S. GAAP, when a contract meets the collectibility criterion, this means ________. A) the seller believes it is 50% likely to collect the consideration in the contract B) the seller believes it is more likely than not to collect the consideration in the contract C) the seller believes it is likely to collect the consideration in the contract D) the seller believes it is unlikely to collect the consideration in the contract

C) the seller believes it is likely to collect the consideration in the contract

Which of the following statements is true concerning adjustments to Compensation Expense? A) Compensation Expense is adjusted when there is a change in vesting probability for both equity-classified and liability-classified awards. B) Compensation Expense is adjusted when there is a change in fair value for equity-classified and liability-classified awards. C) Compensation Expense is adjusted for equity-classified awards when there is a change in vesting probability or change in fair value. D) Compensation Expense is adjusted when there is a change in fair value for a liability-classified award, but not for a change in vesting probability.

Compensation Expense is adjusted when there is a change in vesting probability for both equity-classified and liability-classified awards.

Jones Corporation enters into a contract with Warner Video to add their programs to Jones' network. Warner will pay Jones an upfront fixed fee of $250,000 for 12 months of access, and will also pay a $130,000 bonus if Jones' users access Warner Video for at least 10,000 hours during the 12 month period. Jones estimates that it has a 60% chance of earning the $130,000 bonus. Ignore any constraints on variable consideration. Refer to Jones Corporation. Using the most-likely-amount approach, the transaction price would be ________. A) $130,000 B) $250,000 C) $328,000 D) $380,000

D) $380,000 Explanation: $380,000 = $250,000 + $130,000

Fare Jewelry Company is holding goods on consignment from Tomko with a selling price of $3,000,000. Fare is promised a commission of 25% for goods sold. By the end of 2019 Fare has sold $700,000 of Tomko's goods. How much revenue should Tomko recognize for 2019 on this transaction? A) $0 B) $3,000,000 C) $2,300,000 D) $700,000

D) $700,000

Amortizing a net actuarial loss for pensions will ________. A) increase retained earnings and increase accumulated other comprehensive income B) increase retained earnings and decrease accumulated other comprehensive income C) decrease retained earnings and decrease accumulated other comprehensive income D) decrease retained earnings and increase accumulated other comprehensive income

D) decrease retained earnings and increase accumulated other comprehensive income

A company that collects revenues in advance over an extended time period should disclose all the following information except ________. A) unearned revenue B) amount of revenue recognized in earnings C) amount of cash received from customers D) estimated uncollectible revenues

D) estimated uncollectible revenues

The last step in revenue recognition is to ________. A) identify contracts with customers B) allocate the transaction price to the performance obligation C) identify the performance obligations D) recognize revenue

D) recognize revenue

The net pension liability is decreased by ________. A) amortization of prior service costs B) service costs C) expected return on plan assets D) amortization of net gain in other comprehensive net income

C) expected return on plan assets

Which of the following is not a method of measuring a company's pension benefit obligation to a company? A) projected benefit obligation B) vested benefit obligation C) future benefit obligation D) accumulated benefit obligation

C) future benefit obligation

The Construction in Progress account is what type of account? A) liability B) revenue C) asset D) expense

C) asset

Gleason Construction enters into a long-term fixed price contract to build an office building for $20,000,000. In the first year of the contract Gleason incurs $7,000,000 of cost and the engineers determined that the remaining costs to complete are $7,000,000. How much gross profit or loss should Gleason recognize in Year 1 assuming the use of the completed-contract method? A) $0 B) $6,000,000 profit C) $6,000,000 loss D) $5,000,000 profit

A) $0

On November 15, 2016, LaGrow Developers sold a parcel of land for $4,000,000. They had originally paid $3,600,000 for the land. The terms of the sale called for a $1,000,000 down payment, and the balance in two equal installments payable on November 15, 2017 and November 15, 2018. Disregard interest charges. LaGrow has a December 31 year-end. Refer to LaGrow Developers. Assuming that LaGrow uses the cost-recovery method, the company would recognize gross profit in 2016 of ________. A) $0 B) $400,000 C) $3,000,000 D) $1,000,000

A) $0

Realty1 has 40,000 outstanding stock options. Its net income for the year is $250,000. Each option allows the holder to purchase a share of stock for $8. The average market value of the shares for the year was $17. What is the incremental income per common from the options? A) $0.00 B) $1.00 C) $9.00 D) $8.00

A) $0.00 Explanation: There is no incremental income from stock options.

Camey Construction enters into a long-term fixed price contract to build an office building for $8,000,000. In the first year of the contract Camey incurs $1,000,000 of cost and the engineers determined that the remaining costs to complete are $2,200,000. Camey billed $1,700,000 and collected $1,400,000 in Year 1. Refer to Camey Construction. How much gross profit should Camey recognize in Year 1 assuming the use of the percentage-of-completion method? A) $1,500,000 B) $531,250 C) $7,000,000 D) $8,000,000

A) $1,500,000

On November 15, 2016, LaGrow Developers sold a parcel of land for $4,000,000. They had originally paid $3,000,000 for the land. The terms of the sale called for a $2,000,000 down payment, and the balance in two equal installments payable on November 15, 2017 and November 15, 2018. Disregard interest charges. LaGrow has a December 31 year-end. Refer to LaGrow Developers. Assuming that LaGrow uses the installment sales method, in its December 31, 2016 balance sheet, the company would report ________. (Do not round intermediary calculations, and round your final answer to the nearest whole dollar.) A) $1,500,000 net installment account receivable B) $1,000,000 net installment account receivable C) $4,000,000 net installment account receivable D) $2,000,000 net installment account receivable

A) $1,500,000 net installment account receivable

Hopner Products enters into a contract with Tulles to sell three different products. The total transaction price is $350,000. Each of the products is a separate performance obligation. Based on the information presented in the table, what is the allocated transaction price of product Z using the adjusted market assessment approach? (Round intermediary percentages to the nearest hundredth percent, and round your final answer to the nearest whole number.) A) $104,055 B) $116,286 C) $116,667 D) $90,000

A) $104,055 Explanation: $110,000/$370,000 = 0.2973 × $350,000 = $104,055

ABC Company is holding goods with a selling price of $110,000 which cost them $70,000. On December 3, 2019, ABC sold the goods to Timmons under a bill-and-hold arrangement. At the end of 2019 ABC still holds the goods. Assume ABC meets the four conditions necessary under a bill-and-hold arrangement to claim it has transferred control to the buyer. How much revenue should ABC recognize for 2019? A) $110,000 B) $70,000 C) $40,000 D) $0

A) $110,000

Hopner Products enters into a contract with Tulles to sell three different products. The total transaction price is $370,000. Each of the products is a separate performance obligation. Based on the information presented in the table, what is the allocated transaction price of product Z using the expected-cost-plus-a-profit margin approach? A) $159,390 B) $94,868 C) $123,333 D) $185,000

A) $159,390 Explanation: $159,390 = $140,000 + [($370,000 - $325,000)/$325,000 × $140,000]

An automotive manufacturer, A-2 Auto, provides maintenance services to Mako. In exchange, A-2 Auto received 600 shares of Mako's no-par common stock. Mako's common stock is currently trading on the open market for $29 per share. The standalone value of the maintenance provided was $20,200. What is the transaction price of this contract? A) $17,400 B) $20,200 C) $19,200 D) Cannot be determined from the information given.

A) $17,400 Explanation: $17,400 = 600 shares × $29

Shady Equipment sells a truck to Fred for $160,000 on January 1, 2016. Payment of $160,000 is received is received on January 1, 2016, and interest is incurred over two years. The truck is delivered two years later. The market rate of interest is 9%. Refer to Shady Equipment. How much interest expense will Shady report over the term of the contract? (Do not round intermediary calculations, and round your final answer to the nearest whole number.) A) $30,096 B) $14,400 C) $160,000 D) $47,205

A) $30,096 Explanation: $30,096 = Year 1 $160,000 × 9% = $14,400 + year 2 ($160,000 + $14,400) × 9%

Camey Construction enters into a long-term fixed price contract to build an office building for $5,000,000. In the first year of the contract Camey incurs $1,400,000 of cost and the engineers determined that the remaining costs to complete the project are $2,500,000. Camey billed $4,000,000 and collected $1,000,000 in year 1. Refer to Camey Construction. How much gross profit should Camey recognize in Year 1 assuming the use of the percentage of completion method? (Round any intermediary percentages to the nearest hundredth percent, and round your final answer to the nearest whole dollar.) A) $394,900 B) $2,600,000 C) $525,000 D) $1,400,000

A) $394,900 Explanation: $394,900 is the gross profit to be recognized. The percentage of completion percentage is $1,400,000/$3,900,000 = 0.359. Total Gross Profit = $5,000,000 - $3,900,000 =$1,100,000. Gross Profit Recognized in Year 1 = $1,100,000 × 0.359 = $394,900

Tullis Construction enters into a long-term fixed price contract to build an office tower for $22,000,000. In the first year of the contract, Tullis incurs $9,000,000 of cost and the engineers determined that the remaining costs to complete are $5,000,000. Tullis billed $11,000,000 in year 1 and collected $4,100,000 by the end of the end of the year. Refer to Tullis Construction. How much should Tullis report as Accounts Receivable at the end of year 1 on the balance sheet assuming the use of the percentage-of-completion method? A) $6,900,000 B) $3,700,000 C) $4,100,000 D) $20,000,000

A) $6,900,000

Able Company enters into a contract with a customer to provide them with an accounts receivable program. Able will also provide installation services as part of the contract. Able will make sure that this program will be installed so that it will be customized and be able to integrate with the company's other program modules. What is the number of performance obligations for this contract? A) 1 B) 2 C) 3 D) 4

A) 1

Derby Company sells season passes to its entertainment center. The passes sell for $125 each and are good for one year. On January 1, Derby sells 4,800 passes and received cash. What journal entry should Derby Company make on January 31st assuming adjusting entries are made monthly? A) Debit Unearned Revenue; Credit Ticket Revenue B) Debit Ticket Revenue; Credit Unearned Revenue C) Debit Cash; Credit Unearned Revenue D) Debit Unearned Revenue; Credit Cash

A) Debit Unearned Revenue; Credit Ticket Revenue

What is the proper treatment of prior service costs? A) Prior service costs are included in other comprehensive income and amortized over future periods. B) Prior service costs are included in other comprehensive income and amortized retroactively over the most recent three periods. C) Prior service costs are included in net income and expensed in the current year. D) Prior service costs are included in net income and amortized over future periods.

A) Prior service costs are included in other comprehensive income and amortized over future periods.

Costs and recognized profits in excess of billings are carried on the balance sheet as a(n) ________. A) asset B) liability C) equity D) revenue

A) asset

Terrell Foods reported $820,000 in net income (not considering interest expense) and its weighted-average shares outstanding for the year is 200,000 shares. In prior years it sold $1,000,000 of 8% long-term convertible bonds at par which are still outstanding at the start of the year. The bonds are convertible into 40,000 shares of common stock. The tax rate for all years is 40%. Bondholders convert the bonds on July 1 of the current year. If Terrell has no other potentially dilutive securities and no preferred stock, what is the numerator for basic and diluted EPS? (Round your final answers to the nearest cent.) A) basic $796,000.00; diluted $820,000.00 B) basic $820,000.00; diluted $796,000.00 C) basic $844,000.00; diluted $844,000.00 D) basic $796,000.00; diluted $844,000.00

A) basic $796,000.00; diluted $820,000.00 Explanation: Basic EPS: Net income is decreased by after-tax interest for 6/12 year. Interest = $1,000,000 × 8% × 6/12 = $40,000. Tax savings = 40% × $40,000 = $16,000. After-tax interest expense = $40,000 - $16,000 = $24,000. Net income for basic = $820,000 - $24,000 = $796,000.00. Diluted EPS: If-converted assumption assumes that all were converted at the beginning of the year, so there is no interest expense and net income is $820,000.

Terrell Foods reported $680,000 in net income (not considering interest expense) and its weighted-average shares outstanding for the year is 100,000 shares. In prior years it sold $1,500,000 of 8% long-term convertible bonds at par which are still outstanding at the start of the year. The bonds are convertible into 40,000 shares of common stock. The tax rate for all years is 40%. Bondholders convert the bonds on July 1 of the current year. If Terrell has no other potentially dilutive securities and no preferred stock, what is the denominator for basic and diluted EPS? A) basic 120,000; diluted 140,000 B) basic 100,000; diluted 140,000 C) basic 140,000; diluted 140,000 D) basic 100,000; diluted 120,000

A) basic 120,000; diluted 140,000 Explanation: Basic EPS: Denominator is weighted-average number of shares outstanding = (100,000 × 12/12 months) + (40,000 × 6/12 months) = 120,000. Diluted EPS: Denominator assumes that all shares are converted at the beginning of the year, so weighted-average number of shares is 100,000 + 40,000 converted = 140,000

Harvey Inc. reported net earnings of $700,000 for the year. Harvey has 200,000 shares of common stock outstanding all year. Two years ago, the company granted 20,000 stock options that allow employees to purchase 20,000 shares for $15 each. The company stock has averaged $20 in the market during the year. Compute the basic and diluted EPS. A) basic EPS $3.50; diluted EPS $3.41 B) basic EPS $3.50; diluted EPS $3.50 C) basic EPS $3.41; diluted EPS $3.41 D) basic EPS $3.50; diluted EPS $2.34

A) basic EPS $3.50; diluted EPS $3.41

Terrell Foods reported $870,000 in net income and its weighted average shares outstanding for the year is 200,000 shares. In prior years it sold $1,500,000 of 8% long-term convertible bonds at par which are still outstanding. The bonds are convertible into 10,000 shares of common stock. The tax rate for all years is 40%. If Terrell has no other potentially dilutive securities and no preferred stock, and no conversions occur during the year, what are basic and diluted EPS? (Round your final answers to the nearest cent.) A) basic EPS $4.35; diluted EPS $4.49 B) basic EPS $4.14; diluted EPS $4.49 C) basic EPS $4.35; diluted EPS $4.71 D) basic EPS $4.14; diluted EPS $4.71

A) basic EPS $4.35; diluted EPS $4.49 Explanation: Basic EPS = $870,000/200,000 = $4.35 After-tax interest savings on bond conversion is interest expense reduced by taxes on this amount. Bond interest expense is $1,500,000 × 8% = $120,000. After-tax interest expense = $120,000 - ($120,000 × 40%) = $72,000. Bonds potentially convert into 10,000 shares of common stock, so total shares is 210,000. Diluted EPS = ($870,000 + $72,000)/210,000 = $4.49.

Terrell Foods reported $910,000 in net income (not considering interest expense) and its weighted-average shares outstanding for the year is 100,000 shares. In prior years it sold $1,500,000 of 8% long-term convertible bonds at par which are still outstanding at the start of the year. The bonds are convertible into 50,000 shares of common stock. The tax rate for all years is 40%. Bondholders convert the bonds on July 1 of the current year. If Terrell has no other potentially dilutive securities and no preferred stock, what are basic and diluted EPS? (Round your final answers to the nearest cent.) A) basic EPS $6.99 diluted EPS $6.07 B) basic EPS $5.83 diluted EPS $6.99 C) basic EPS $6.07 diluted EPS $5.83 D) basic EPS $5.83 diluted EPS $5.83

A) basic EPS $6.99 diluted EPS $6.07

Under GAAP, when a company uses the completed-contract method of accounting, ________. A) estimated losses are recognized in full prior to completion of the contract B) estimated losses are recognized ratably based upon the degree of contract completion C) neither profits nor losses are recognized until the contract is completed D) expenses are recorded each period, but revenue is not recognized until the contract is completed

A) estimated losses are recognized in full prior to completion of the contract

If noncash consideration such as stock of a publicly-traded company is given in a revenue contract, then the value to be used for the transaction price should be ________. A) fair value of stock B) book value of stock C) historical cost of stock D) net present value of revenue

A) fair value of stock

When a potentially dilutive security is present, a company must test the security to see if it is dilutive or antidilutive. Antidilutive securities occur when diluted EPS is ________. A) greater than basic EPS B) less than basic EPS C) equal to basic EPS D) less than or equal to basic EPS

A) greater than basic EPS

The first step in revenue recognition is to ________. A) identify contracts with customers B) allocate the transaction price to the performance obligation C) identify the performance obligations D) recognize revenue

A) identify contracts with customers

A seller recognizes the right to return sales as a(n) ________. A) liability B) asset C) revenue D) expense

A) liability

Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,700,000. In the first year of the contract Tullis incurs $3,000,000 of cost and the engineers determined that the remaining costs to complete the project are $5,000,000. Tullis billed $4,000,000 in year 1 and collected $3,500,000 by the end of the end of the year. How should Tullis report Construction in Progress and Billings on Construction in Progress at the end of year 1 on the balance sheet assuming the use of the completed-contract method? A) liability of $1,000,000 B) asset of $1,000,000 C) asset of $500,000 D) liability of $500,000

A) liability of $1,000,000

Pemco Enterprises sells annual memberships to its shooting lodge. The memberships cost $300 each. On January 1, Pemco sold 2,000 memberships and received cash. How should Pemco record the receipt of cash on January 1? A) liability of $600,000 B) revenue of $600,000 C) liability of $0 D) revenue of $50,000

A) liability of $600,000 Explanation: $600,000 = 2,000 × $300

Jones Corporation enters into a contract with Warner Video to add their programs to Jones' network. Warner will pay Jones an upfront fixed fee of $250,000 for 12 months of access, and will also pay a $110,000 bonus if Jones' users access Warner Video for at least 10,000 hours during the 12 month period. Jones estimates that it has a 60% chance of earning the $110,000 bonus. Refer to Jones Corporation. Upon collection of the upfront fee, Jones would recognize a(n) ________. A) unearned revenue of $250,000 B) unearned revenue of $360,000 C) prepaid revenue of $250,000 D) prepaid revenue of $360,000

A) unearned revenue of $250,000

Camey Construction enters into a long-term fixed price contract to build an office building for $6,000,000. In the first year of the contract Camey incurs $1,300,000 of cost and the engineers determined that the remaining costs to complete are $2,400,000. Camey billed $1,700,000 and collected $1,000,000 in Year 1. Refer to Camey Construction. What would be the journal entry in Year 1 to record revenue? (Do not round intermediary calculations, and round your final answer to the nearest whole dollar.) A) Accounts Receivable 1,700,000 Revenue for Long-Term Contracts 1,700,000 B) Cost of Construction 1,300,000 Construction in Progress 808,108 Revenue for Long-Term Contracts 2,108,108 C) Cost of Construction 1,300,000 Construction in Progress 400,000 Revenue for Long-Term Contracts 1,700,000 D) Cost of Construction 1,300,000 Construction in Progress 1,000,000 Revenue for Long-Term Contracts 2,300,000

B) Cost of Construction 1,300,000 Construction in Progress 808,108 Revenue for Long-Term Contracts 2,108,108

Tullis Construction enters into a long-term fixed price contract to build an office tower for $14,000,000. In the first year of the contract, Tullis incurs $5,000,000 of cost and the engineers determined that the remaining costs to complete are $5,000,000. Tullis billed $6,000,000 in year 1 and collected $3,700,000 by the end of the end of the year. Refer to Tullis Construction. What would be the journal entry in Year 1 to record revenue assuming the use of the percentage-of-completion method? (Do not round intermediary calculations, and round your final answer to the nearest whole dollar.) A) Accounts Receivable 3,700,000 Revenue for Long-Term Contracts 3,700,000 B) Cost of Construction 5,000,000 Construction in Progress 2,000,000 Revenue for Long-Term Contracts 7,000,000 C) Cost of Construction 2,000,000 Construction in Progress 5,000,000 Revenue for Long-Term Contracts 7,000,000 D) Accounts Receivable 3,700,000 Billings in Excess of Costs 2,300,000 Revenue for Long-Term Contracts 6,000,000

B) Cost of Construction 5,000,000 Construction in Progress 2,000,000 Revenue for Long-Term Contracts 7,000,000

On November 15, 2016, LaGrow Developers sold a parcel of land for $9,000,000. They had originally paid $3,000,000 for the land. The terms of the sale called for a $2,000,000 down payment, and the balance in two equal installments payable on November 15, 2017 and November 15, 2018. Disregard interest charges. LaGrow has a December 31 year-end. Refer to LaGrow Developers. Assuming that LaGrow uses the installment sales method, in its December 31, 2017 balance sheet, the company would report ________. (Do not round intermediary calculations, and round your final answer to the nearest whole dollar.) A) $3,000,000 net installment accounts receivable B) $1,166,667 net installment accounts receivable C) $3,500,000 net installment accounts receivable D) $7,000,000 net installment accounts receivable

B) $1,166,667 net installment accounts receivable

Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,100,000. In the first year of the contract Tullis incurs $3,000,000 of cost and the engineers determined that the remaining costs to complete the project are $5,000,000. Tullis billed $5,000,000 in year 1 and collected $3,500,000 by the end of the year. How much should Tullis report as Accounts Receivable at the end of year 1 on the balance sheet assuming the use of the completed-contract method? A) $0 B) $1,500,000 C) $5,000,000 D) $8,500,000

B) $1,500,000 Explanation: Accounts receivable is debited by $5,000,000 when the customer is billed and credited $3,500,000 when cash is received (collection) resulting in an ending balance (debit) of $1,500,000.

Fare Jewelry Company is holding goods on consignment from Tomko with a selling price of $1,500,000. Fare is promised a commission of 25% for goods sold. By the end of 2017 Fare has sold $440,000 of goods. Refer to Fare Jewelry. How much revenue should Fare recognize for 2017 on this transaction? A) $0 B) $110,000 C) $375,000 D) $440,000

B) $110,000

Fare Jewelry Company is holding goods on consignment from Tomko with a selling price of $4,000,000. Fare is promised a commission of 25% for goods sold. By the end of 2019 Fare has sold $600,000 of Tomko's goods. Refer to Fare Jewelry. How much revenue should Fare recognize for 2019 on this transaction? A) $0 B) $150,000 C) $600,000 D) $4,000,000

B) $150,000 Explanation: The seller (Fare) earns its revenue on consigned goods based on a 25% commission. 25% of $600,000 (the selling price of the goods sold) is $150,000.

Gleason Construction enters into a long-term fixed price contract to build an office building for $27,000,000. In the first year of the contract Gleason incurs $5,000,000 of cost and the engineers determined that the remaining costs to complete the project are $24,000,000. How much gross profit or loss should Gleason recognize in Year 1 assuming the use of the percentage-of-completion method? A) $2,000,000 profit B) $2,000,000 loss C) $0 D) $344,828 loss

B) $2,000,000 loss Explanation: Gross Loss = $27,000,000 Price - $29,000,000 Costs = ($2,000,000). Following conservatism, the entire loss of $2,000,000 is recorded in Year 1.

Tullis Construction enters into a long-term fixed price contract to build an office tower for $15,000,000. In the first year of the contract. Tullis incurs $3,000,000 of cost and the engineers determined that the remaining costs to complete are $5,000,000. Tullis billed $3,700,000 in year 1 and collected $3,100,000 by the end of the end of the year. Refer to Tullis Construction. How much gross profit should Tullis recognize in Year 1 assuming the use of the percentage-of-completion method? (Do not round intermediary calculations, and round your final answer to the nearest whole dollar.) A) $0 B) $2,625,000 C) $8,300,000 D) $600,000

B) $2,625,000

Executrain has 50,000, 7%, bonds outstanding for the second half of the year. Each $1,000 bond, sold July 1 at par, is convertible into 10 shares of common stock. The corporate tax rate is 40%. What is the incremental income per common share from the convertible bonds? A) $7.00 B) $2.10 C) $6.00 D) $4.20

B) $2.10

Tullis Construction enters into a long-term fixed price contract to build an office tower for $13,000,000. In the first year of the contract. Tullis incurs $3,000,000 of cost and the engineers determined that the remaining costs to complete are $5,000,000. Tullis billed $4,000,000 in year 1 and collected $3,200,000 by the end of the end of the year. Refer to Tullis Corporation. How much should revenue should Tullis recognize at the end of Year 1 assuming the use of the zero-gross-profit approach? A) $0 B) $3,000,000 C) $4,000,000 D) $10,000,000

B) $3,000,000

Camey Construction enters into a long-term fixed price contract to build an office building for $9,000,000. In the first year of the contract Camey incurs $1,000,000 of cost and the engineers determined that the remaining costs to complete are $2,100,000. Camey billed $1,700,000 and collected $1,300,000 in Year 1. Refer to Camey Construction. How much should Camey recognize as Accounts Receivable at the end of Year 1 assuming the use of the percentage-of-completion method?

B) $400,000

On November 15, 2016, LaGrow Developers sold a parcel of land for $6,000,000. They had originally paid $3,000,000 for the land. The terms of the sale called for a $1,000,000 down payment, and the balance in two equal installments payable on November 15, 2017 and November 15, 2018. Disregard interest charges. LaGrow has a December 31 year-end. Refer to LaGrow Developers. Assuming that LaGrow uses the installment sales method, the company would recognize gross profit in 2016 of ________. (Do not round intermediary calculations, and round your final answer to the nearest whole dollar.) A) $0 B) $500,000 C) $3,000,000 D) $1,000,000

B) $500,000

Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,100,000. In the first year of the contract Tullis incurs $2,900,000 of cost and the engineers determined that the remaining costs to complete the project are $5,100,000. Tullis billed $3,600,000 in year 1 and collected $3,500,000 by the end of the year. How much gross profit should Tullis recognize in Year 1 assuming the use of the percentage-of-completion method? (Round any intermediary percentages to the nearest hundredth percent, and round your final answer to the nearest dollar.) A) $0 B) $761,250 C) $3,661,250 D) $6,561,250

B) $761,250 Explanation: The percentage completed by year 1 is 36.25% = $2,900,000/$8,000,000. Total gross profit = ($10,100,000 - $8,000,000) = $2,100,000. Gross Profit Recognized in Year 1 = $2,100,000 × 0.3625 = $761,250

On November 15, 2016, LaGrow Developers sold a parcel of land for $6,000,000. They had originally paid $3,600,000 for the land. The terms of the sale called for a $2,000,000 down payment, and the balance in two equal installments payable on November 15, 2017 and November 15, 2018. Disregard interest charges. LaGrow has a December 31 year-end. Refer to LaGrow Developers. Assuming that LaGrow uses the installment sales method, the company would recognize gross profit in 2017 of ________. (Do not round intermediary calculations, and round your final answer to the nearest whole dollar.) A) $0 B) $800,000 C) $2,000,000 D) $4,000,000

B) $800,000

Tullis Construction enters into a long-term fixed price contract to build an office tower for $14,000,000. In the first year of the contract. Tullis incurs $2,000,000 of cost and the engineers determined that the remaining costs to complete are $5,000,000. Tullis billed $4,000,000 in year 1 and collected $3,200,000 by the end of the end of the year. Refer to Tullis Corporation. How much should Tullis report as Accounts Receivable at the end of year 1 on the balance sheet assuming the use of the completed-contract method? A) $0 B) $800,000 C) $4,000,000 D) $1,000,000

B) $800,000

Teague Corporation permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 10% discount. During July, employees purchased 33,000 shares at a time when the established market price was $26 per share. Teague will record compensation expense associated with July purchases of ________. A) $0 B) $85,800 C) $772,200 D) $858,000

B) $85,800 Explanation: The compensation expense is 33,000 × $26 × 10% = $85,800

IT Technology enters into a contract with the federal government to create a system for the price of $8 million. IT receives $3 million when the contract is signed and the other $5 million upon completion of the project. The government maintains control of the system during the creation process. IT estimates that 15,000 labor hours will be required to complete the product. During the current year 7,000 labor hours are used and during the following year, the remaining 8,000 hours were used. What is the journal entry at inception of the project? A) Debit to Cash; Credit to Sales Revenue B) Debit to Cash; Credit to Unearned Revenue C) Debit to Cash; Government Contracts D) Debit to Cash; Credit to Accounts Receivable

B) Debit to Cash; Credit to Unearned Revenue

Which one of the following is not an indicator of the transfer of control to the buyer? A) Seller has present right to payment for the asset. B) Seller has legal title to the asset. C) Seller has transferred physical possession of property. D) Customer has accepted the asset.

B) Seller has legal title to the asset.

8) Which one of the following is required in the notes to the financial statements for EPS? A) detailed calculations of weighted average shares outstanding for the period B) a discussion of antidilutive securities that were excluded from the computation of diluted EPS C) all stockholder transactions that occurred after the close of the year D) adjustments to the denominator for preferred dividends

B) a discussion of antidilutive securities that were excluded from the computation of diluted EPS

If multiple contracts are negotiated as a package and have a single commercial objective, the contracts should be combined and accounted for as ________. A) multiple contracts B) a single contract C) assets D) liabilities

B) a single contract

Austin Products reported $330,000 net income for the year with 100,000 common shares outstanding all year. Austin also had 24,000 shares of $100, 8% convertible preferred shares outstanding all year. Each preferred share is convertible into 10 shares of common stock. Determine the numerator for both basic and diluted EPS. A) basic EPS $192,000; diluted EPS $138,000 B) basic EPS $138,000; diluted EPS $330,000 C) basic EPS $138,000; diluted EPS $468,000 D) basic EPS $330,000; diluted EPS $330,000

B) basic EPS $138,000; diluted EPS $330,000 Explanation: Basic EPS: $330,000 - (24,000 × $100 × 8%) = $138,000

Austin Products reported $400,000 net income for the year with 100,000 common shares outstanding all year. Austin also had 60,000 shares of $100, 8% convertible preferred shares outstanding all year. Each preferred share is convertible into 10 shares of common stock. Determine the numerator for both basic and diluted EPS. A) basic EPS $400,000 - (60,000 × $100 × 8%); diluted EPS $400,000 - (60,000 × $100 × 8%) B) basic EPS $400,000 - (60,000 × $100 × 8%); diluted EPS $400,000 C) basic EPS $400,000 - (60,000 × $100 × 8%); diluted EPS $400,000 + (60,000 × $100 × 8%) D) basic EPS $400,000; diluted EPS $400,000

B) basic EPS $400,000 - (60,000 × $100 × 8%); diluted EPS $400,000

Tullis Construction enters into a long-term fixed price contract to build an office tower for $14,000,000. In the first year of the contract. Tullis incurs $5,000,000 of cost and the engineers determined that the remaining costs to complete are $5,000,000. Tullis billed $7,600,000 in year 1 and collected $5,800,000 by the end of the end of the year. Refer to Tullis Construction. How should Tullis report Construction in Progress and Billings on Construction in Progress at the end of year 1 on the balance sheet assuming the use of the percentage-of-completion method? A) asset of $0 B) liability of $600,000 C) asset of $5,000,000 D) liability of $5,800,000

B) liability of $600,000

When a company has a net loss from continuing operations, it should include ________. A) all potentially dilutive securities in diluted EPS B) no potentially dilutive securities in diluted EPS C) only in the money warrants and options in diluted EPS D) only convertible issues in diluted EPS

B) no potentially dilutive securities in diluted EPS

A financing component is accounted for separately in a sales contract if delivery occurs in advance of payment or payment occurs in advance of delivery by more than ________. A) six months B) one year C) two years D) three years

B) one year

In determining whether the promise to deliver goods and services is separate from other promises the accountant must often rely on ________. A) professional skepticism B) professional judgment C) professional standards D) standards of conduct

B) professional judgment

If the sum of standalone selling prices is greater than the transaction price, then any discount should be allocated to the performance obligations based on the relative ________. A) historical cost B) standalone selling prices C) book values D) net present values

B) standalone selling prices

Smythe, Inc. has four potentially dilutive securities. Computation of the antidilution sequencing recorded the following: What is the correct order of entry into the EPS computation? (Round any calculations to the nearest cent.) A) convertible preferred stock, stock warrants, convertible bonds, stock options B) stock options, stock warrants, convertible bonds, convertible preferred stock C) convertible bonds, convertible preferred stock, stock warrants D) stock options, convertible bonds, convertible preferred stock, stock warrants

B) stock options, stock warrants, convertible bonds, convertible preferred stock

Edwards Corporation has three potentially dilutive securities. Computation of the antidilution sequencing recorded the following: What is the correct order of entry into the EPS computation? (Round any calculations to the nearest cent.) A) convertible preferred stock, stock warrants, convertible bonds B) stock warrants, convertible preferred stock, convertible bonds C) convertible bonds, convertible preferred stock, stock warrants D) stock warrants, convertible bonds, convertible preferred stock

B) stock warrants, convertible preferred stock, convertible bonds

Another name for channel stuffing is ________. A) trade stuffing B) trade loading C) channel loading D) trade disclosure

B) trade loading

Charleston Yacht Club sells annual passes to its facilities. An annual pass costs $8,000 and is good for year-round use. On January 1, the company sells 90 passes and collects the cash. The entry on March 31 to record revenue is ________. (Do not round intermediary calculations, and round your final answer to the nearest whole dollar.) A) Cash $180,000 Unearned Revenue $180,000 B) Cash $180,000 Revenue $180,000 C) Unearned Revenue $180,000 Revenue $180,000 D) Revenue $180,000 Unearned Revenue $180,000

C) Unearned Revenue $180,000 Revenue $180,000

Gleason Construction enters into a long-term fixed price contract to build an office building for $30,000,000. In the first year of the contract Gleason incurs $8,000,000 of cost and the engineers determined that the remaining costs to complete are $18,000,000. How much gross profit or loss should Gleason recognize in Year 1 assuming the use of the completed-contract method? A) $4,000,000 loss B) $2,000,000 profit C) $0 profit D) $266,667 loss

C) $0 profit

Greenwell Farm Equipment sells a tractor to Farmer for $40,000 on January 1, 2019. The tractor is delivered that day. Greenwell agrees that the Farmer may delay the payment for 2 years. The market rate of interest is 8%. Refer to Greenwell Farms. How much interest revenue will Greenwell report on January 1, 2019? A) $43,200 B) $36,800 C) $0.00 D) $3,200

C) $0.00

On November 15, 2016, LaGrow Developers sold a parcel of land for $4,000,000. They had originally paid $3,600,000 for the land. The terms of the sale called for a $2,000,000 down payment, and the balance in two equal installments payable on November 15, 2017 and November 15, 2018. Disregard interest charges. LaGrow has a December 31 year-end. Refer to LaGrow Developers. Assuming that LaGrow uses the cost-recovery method, in its December 31, 2016 balance sheet, the company would report ________. A) $1,000,000 net installment accounts receivable B) $200,000 net installment accounts receivable C) $1,600,000 net installment accounts receivable D) $2,000,000 net installment accounts receivable

C) $1,600,000 net installment accounts receivable

Jones Corporation enters into a contract with Warner Video to add their programs to Jones' network. Warner will pay Jones an upfront fixed fee of $250,000 for 12 months of access, and will also pay a $100,000 bonus if Jones' users access Warner Video for at least 10,000 hours during the 12 month period. Jones estimates that it has a 60% chance of earning the $100,000 bonus. Ignore any constraints on variable consideration. Refer to Jones Corporation. Using the expected-value approach, the transaction price would be ________. A) $150,000 B) $250,000 C) $310,000 D) $350,000

C) $310,000 Explanation: $310,000 = $250,000 + ($100,000 × 0.6)

Walker Consulting helped McCall Roofers put various cost saving techniques into place. The contract specifies that Walker will receive a flat fee of $70,000 and an additional $17,000 if McCall attains a target amount of cost savings. Walker estimates a 20% chance that McCall will reach the target for cost savings. Assuming that Walker uses the expected-value approach, what is the transaction price for this product? A) $17,000 B) $70,000 C) $73,400 D) $87,000

C) $73,400 Explanation: $73,400 = $70,000 + ($17,000 × 0.2)

On January 1, Year 1, Freeman Corporation granted 120,000 stock options to key employees which allowed these employees to purchase 120,000 shares of the corporation's common stock at $30 per share. These options are intended to compensate employees for the next three years. The options may be exercised within a four-year period beginning January 1, Year 4, by the grantees still employed by the company. No options were terminated during Year 1, but Freeman does have an experience of 5% forfeitures over the life of the stock options. Freeman uses the estimated forfeiture rate to estimate compensation expense. The market price of the stock was $35 per share at the date of grant. Freeman used an appropriate pricing model and estimated the value of an option at $20. What amount should be charged to compensation expense for the year ended December 31, Year 1? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.) A) $3,600,000 B) $800,000 C) $760,000 D) $2,400,000

C) $760,000 Explanation: (120,000 × $20) = ($2,400,000 × 95%)/3 = $760,000

On November 15, 2016, LaGrow Developers sold a parcel of land for $4,500,000. They had originally paid $3,600,000 for the land. The terms of the sale called for a $1,000,000 down payment, and the balance in two equal installments payable on November 15, 2017 and November 15, 2018. Disregard interest charges. LaGrow has a December 31 year-end. Refer to LaGrow Developers. Assuming that LaGrow uses the cost-recovery method, the company would recognize gross profit in 2018 of ________. (Do not round intermediary calculations, and round your final answer to the nearest whole dollar.) A) $0 B) $3,500,000 C) $900,000 D) $200,000

C) $900,000

Able Company enters into a contract with a customer to provide them with an accounts receivable program. Able will also provide installation services as part of the contract. The customer is free to enlist the services of another entity to install the software. What is the number of performance obligations for this contract? A) 0 B) 1 C) 2 D) 3

C) 2

Pemco Enterprises sells annual memberships to its shooting lodge. The memberships cost $310 each. On January 1, Pemco sold 2,800 memberships and received cash. What journal entry should Pemco Enterprises make on January 31st if adjusting entries are completed monthly. A) Debit Unearned Revenue; Credit Cash B) Debit Membership Revenue; Credit Unearned Revenue C) Debit Unearned Revenue; Credit Membership Revenue D) Debit Cash; Credit Membership Revenue

C) Debit Unearned Revenue; Credit Membership Revenue

Which of the following is not an indicator to determine when control transfers? A) Seller has present right to payment for the asset. B) Customer has significant risk and rewards of ownership of the asset C) Seller has legal title to asset D) Seller has transferred physical possession of the asset.

C) Seller has legal title to asset

Colselo has 200,000 common shares outstanding for the year and net income of $500,000. It has issued options to acquire 10,000 shares of common stock and has 20,000 shares of $100, 6% cumulative nonconvertible preferred stock, both of which were outstanding for the entire year. The exercise price for the options is $20 per share and the average market price during the year is $15 per share. Compute basic and diluted EPS. A) basic EPS $2.50; diluted EPS $2.38 B) basic EPS $2.50; diluted EPS $1.81 C) basic EPS $1.90; diluted EPS $1.90 D) basic EPS $1.90; diluted EPS $2.38

C) basic EPS $1.90; diluted EPS $1.90 Explanation: Basic EPS = (net income - dividends to preferred)/common shares outstanding = [$500,000 - (20,000 × $100 par × 6%)]/200,000 shares = $1.90. Diluted EPS = (net income - dividends to preferred)/(common shares outstanding + shares from options if exercised) = [$500,000 - (20,000 × $100 par × 6%)]/(200,000 shares) = $1.90.

McManus Inc. reported net earnings of $800,000 for the year. McManus has 200,000 shares of common stock outstanding all year. On March 31, the company granted 40,000 stock options that allow employees to purchase 40,000 shares for $15 each. The company stock has averaged $20 in the market during the year. Compute the basic and diluted EPS. A) basic EPS $4.00; diluted EPS $3.81 B) basic EPS $4.00; diluted EPS $4.00 C) basic EPS $4.00; diluted EPS $3.86 D) basic EPS $3.86; diluted EPS $3.86

C) basic EPS $4.00; diluted EPS $3.86

Smith Instruments reported $6,000,000 in net income for the current year. The company had $500,000 of 10% cumulative, non-convertible preferred stock outstanding all year, and issued $5,000,000 of 6% convertible bonds on June 1. Each $1,000 bond is convertible into 40 shares of common stock. 400,000 common shares were outstanding all year. Determine the denominator for both basic and diluted EPS when the tax rate is 40%. A) basic EPS 400,000; diluted EPS 400,000 + (5,000 × 40) (5/12) B) basic EPS 400,000 (7/12); diluted EPS 400,000 + (5,000 × 40) (7/12) C) basic EPS 400,000; diluted EPS 400,000 + (5,000 × 40) (7/12) D) basic EPS 400,000 (5/12); diluted EPS [400,000 + (5,000 × 40)] (5/12)

C) basic EPS 400,000; diluted EPS 400,000 + (5,000 × 40) (7/12)

Two methods used to account for revenue recognition for long term contracts are the percentage-of-completion method and the ________. A) installment sales method B) cost recovery method C) completed-contract method D) sales method

C) completed-contract method

The Billings on Construction in Progress is a(n) ________. A) asset B) liability C) contra-asset D) revenue

C) contra-asset

Companies may use the completed-contract method only if the contract ________. A) is for less than two years B) exceeds five years C) does not meet criteria for percentage-of-completion method D) does not meet criteria for installment sales method

C) does not meet criteria for percentage-of-completion method

The major difference between the percentage-of-completion method and the completed-contract method is the timing of ________. A) revenue and cost recognition B) revenue and billing recognition C) revenue and gross profit recognition D) revenue and net profit recognition

C) revenue and gross profit recognition

4) The amount of consideration that an entity expects to be entitled to as a result of providing goods or services to a customer is the ________. A) performance obligation B) expected value C) transaction price D) variable consideration

C) transaction price

Schmidt Electronics offered an incentive stock plan to its employees. On January 1, Year 1, 110,000 options were granted for 110,000 $1 par common shares. The exercise price equals the $6 market price of the common stock on the grant date. The vesting period is 3 years. The options cannot be exercised before January 1, Year 4, and expire on December 31, Year 5. Each option has a value of $5 based upon an option pricing model. What is the journal entry to record compensation expense for Year 1? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.) A) Deferred Compensation 183,333 APIC - Stock Options 183,333 B) Compensation Expense 183,333 Common Stock 183,333 C) Compensation Expense 550,000 APIC - Stock Options 550,000 D) Compensation Expense 183,333 APIC- Stock Options 183,333

D) Compensation Expense 183,333 APIC- Stock Options 183,333 Explanation: 110,000 options × $5 per option = $550,000 fair value of the award, amortized equally over three years

ABC Company is holding goods with a selling price of $250,000 which cost them $86,000. On December 3, 2017, ABC sold the goods to Timmons under a bill-and-hold arrangement. At the end of 2017, ABC still holds the goods. How much revenue should ABC recognize for 2017? A) $250,000 B) $86,000 C) $164,000 D) $0

D) $0

Greenwell Farm Equipment sells a tractor to Farmer for $150,000 on January 1, 2019. The tractor is delivered that day. Greenwell agrees that the Farmer may delay the payment for 2 years. The market rate of interest is 10%. Refer to Greenwell Farms. How much sales revenue will Greenwell report on January 1, 2019? Use the formula approach. A) $150,000 B) $135,000 C) $165,000 D) $123,967

D) $123,967 Explanation: $123,967 = $150,000 × 1/(1 + 10%)2

Fare Jewelry Company is holding goods on consignment from Tomko with a selling price of $700,000. Fare is promised a commission of 25% for goods sold. By the end of 2017 Fare has sold $530,000 of goods. Refer to Fare Jewelry. How much revenue should Tomko recognize for 2017 on this transaction? A) $0 B) $175,000 C) $132,500 D) $530,000

D) $530,000

Disclosures required for revenue include all of the following except ________. A) disaggregation of revenue B) performance obligations C) assessing constraints on variable consideration D) allocating assets

D) allocating assets

Aztec Company contracted with the Kirk Company to review their revenue recognition policies for recording sales. The contract will pay Aztec $600,000 in the form of a fixed fee. Aztec will also receive $150,000 additionally if Kirk achieves $200,000 in additional revenues. Aztec estimates a 65% chance that Kirk Company will achieve $200,000 in additional revenues. Refer to Aztec Company. Assume that Aztec estimates that the transaction price is the most likely value. The transaction price is ________. A) $600,000 B) $697,500 C) $390,000 D) $750,000

D) $750,000 Explanation: $750,000 = $600,000 + $150,000

Austin Products reported $340,000 net income for the year with 100,000 common shares outstanding all year. Austin issued 26,000 shares of $100, 8% convertible preferred shares on March 1. Each preferred share is convertible into 10 shares of common stock. Determine the numerator for both basic and diluted EPS. (Do not round any intermediate calculations. Round your final answers to the nearest dollar.) A) basic EPS $305,333; diluted EPS $166,667 B) basic EPS $305,333; diluted EPS $132,000 C) basic EPS $340,000; diluted EPS $340,000 D) basic EPS $166,667; diluted EPS $340,000

D) Basic EPS $166,667; diluted EPS $340,000 Explanation: Basic EPS $340,000 - dividends to preferred [10/12 × (26,000 × $100 × 8%)] = $166,667 Diluted EPS assumes conversion happens at the date of issue on March 1 and no preferred dividends are owed, so diluted EPS is $340,000.

Which one of the following is not an indicator of a consignment arrangement? A) Consignor controls product until a specific event occurs. B) Consignor can require the goods be returned. C) Consignee does not have an unconditional obligation to pay for product. D) Consignor cannot require goods to be returned.

D) Consignor cannot require goods to be returned.

Which one of the following is not an indicator of a consignment arrangement? A) Consignor controls product until a specific event occurs. B) Consignor can require the goods be returned. C) Consignee does not have an unconditional obligation to pay. D) Consignor cannot require goods to be returned.

D) Consignor cannot require goods to be returned.

IT Technology enters into a contract with the federal government to create a system for the price of $19 million. IT receives $7.6 million when the contract is signed and the other $11.4 million upon completion of the project. The government maintains control of the system during the creation process. IT estimates that 36,000 labor hours will be required to complete the product. During the current year 10,800 labor hours are used and during the following year, the remaining 25,200 hours were used. What will be included in the journal entry at the end of the current year? (Round any intermediary calculations to the nearest cent, and round your final answer to the nearest dollar.) A) Debit to Service Revenue for $5,700,024 B) Credit to Unearned Revenue for $11,400,000 C) Credit to Service Revenue for $13,299,976 D) Debit to Unearned revenue for $5,700,024

D) Debit to Unearned revenue for $5,700,024 Explanation: $19,000,000/36,000 hours = $527.78 an hour × 10,800 = $5,700,024

If a pension plan is underfunded, it means that the ________. A) ABO exceeds plan assets B) PBO is less than plan assets C) ABO is less than plan assets D) PBO exceeds plan assets

D) PBO exceeds plan assets

Which of the following is not a characteristic of a restricted stock plan? A) The employee cannot sell the awarded shares until the vesting period has expired. B) A restricted stock plan has value as long as the underlying shares are selling above zero. C) Restricted shares are not stock options. D) The employee is taxed on the stock award when it is granted.

D) The employee is taxed on the stock award when it is granted.

Austin Products reported $330,000 net income for the year with 100,000 common shares outstanding all year. Austin issued 20,000 shares of $100, 8% convertible preferred shares on March 1. Each preferred share is convertible into 10 shares of common stock. Determine the numerator for both basic and diluted EPS. A) basic EPS $330,000 - [(20,000 × $100 × 8%) (2/12)]; diluted EPS $330,000 B) basic EPS $330,000 - [(20,000 × $100 × 8%) (2/12)]; diluted EPS $330,000 - (20,000 × $100 × 8%) C) basic EPS $330,000; diluted EPS $330,000 D) basic EPS $330,000 - [(20,000 × $100 × 8%) (10/12)]; diluted EPS $330,000

D) basic EPS $330,000 - [(20,000 × $100 × 8%) (10/12)]; diluted EPS $330,000

When computing diluted EPS, both the numerator and denominator are affected by ________. A) stock options B) stock warrants C) preferred stock D) convertible bonds

D) convertible bonds

The percentage of-completion method accounting should not be used if ________. A) completion rates are determinable B) completion time on projects exceeds four years C) profits are low D) it is not possible to make dependable estimates of progress

D) it is not possible to make dependable estimates of progress

Novella Company sells annual memberships to its auto club. The memberships cost $300 each. On January 1, Novella sold 16,000 memberships and received cash. How should Novella record the receipt of cash on January 1? A) revenue of $300 B) liability of $300 C) revenue of $4,800,000 D) liability of $4,800,000

D) liability of $4,800,000 Explanation: $4,800,000 = 16,000 × $300

The method of reporting gross profit for long term contracts that does a better job of providing relevant information on the income statement is the ________. A) completed-contract-method B) installment sales method C) cost recovery method D) percentage-of-completion method

D) percentage-of-completion method

Which one of the following approaches is not a method for allocating a transaction price to multiple performance obligations? A) adjusted market assessment B) expected-cost-plus-a-margin C) residual D) present cost basis

D) present cost basis

The treasury stock method is used when the organizational structure includes ________. A) convertible preferred stock B) convertible bonds C) only stock options D) stock options or warrants

D) stock options or warrants

Carrolton, Inc. has four potentially dilutive securities. Computation of the antidilution sequencing recorded the following: What is the correct order of entry into the EPS computation? (Round any calculations to the nearest cent.) A) convertible preferred stock, stock warrants, convertible bonds B) stock warrants, convertible preferred stock, convertible bonds C) convertible bonds, convertible preferred stock, stock warrants D) stock warrants, convertible bonds, convertible preferred stock

D) stock warrants, convertible bonds, convertible preferred stock

Among Fortune 500 companies, which of the following compensation plans is most common? A) stock options B) profit-sharing C) employee stock ownership D) deferred compensation

A) stock options

The projected benefit obligation (PBO) is decreased by ________. A) payment of retirement benefits B) a return on plan assets that is higher than expected C) an increase in the average life expectancy of employees D) a decrease in the actuary's assumed discount rate

A) payment of retirement benefits

Premier Sports Inc has a beginning PBO balance of $615,000 and a beginning market-related value of plan assets of $550,000. The net actuarial gain at the beginning of the period is $89,000 and the average employee base has a remaining service life of 20 years. What is the corridor? A) $61,500 B) $55,000 C) $27,500 D) $58,250

A) $61,500 The corridor is 10% of the larger of the beginning balance of the PBO or the beginning balance of the plan assets at market-related value.

Schmidt Electronics offered an incentive stock plan to its employees. On January 1, Year 1, 120,000 options were granted for 120,000 $1 par common shares. The exercise price equals the $6 market price of the common stock on the grant date. The vesting period is 3 years. The options cannot be exercised before January 1, Year 4, and expire on December 31, Year 5. Each option has a value of $3 based upon an option pricing model. What is the entry to record the expiration of 15% of the options on December 31, Year 5? A) APIC-Stock Options 54,000 APIC—Expired Stock Options 54,000 B) APIC-Stock Options 54,000 Retained Earnings 54,000 C) APIC-Stock Options 54,000 Compensation Expense 54,000 D) Stock Options Receivable 90,000 Common Stock 30,000 APIC 60,000

A) APIC-Stock Options 54,000 APIC—Expired Stock Options 54,000 Explanation: 120,000 × 15% = 18,000 × $3 = $54,000

On January 1, Year 1, Axis Corporation granted employees 63,000 stock options for 63,000 shares of $3 par value common stock. The exercise price on the date of issue was equal to the market price of $24. There is a two-year vesting period and the options expire in four years. Employees have the right to sell back the shares to the corporation within six months of exercise. At the time of issue, the fair value of the options is estimated to be $31 per option. Two years later, the options are exercised. What is the appropriate journal entry? A) Cash 1,512,000 Liability for Stock-based Compensation 1,953,000 Common Stock 189,000 APIC in Excess of Par - Common 3,276,000 B) Cash 1,512,000 Common Stock 189,000 APIC in Excess of Par - Common 1,323,000 C) Cash 976,500 Common Stock 189,000 APIC in Excess of Par - Common 787,500 D) Cash 189,000 Liability for Stock-based Compensation 1,953,000 Common Stock 189,000 APIC in Excess of Par - Common 1,953,000

A) Cash 1,512,000 Liability for Stock-based Compensation 1,953,000 Common Stock 189,000 APIC in Excess of Par - Common 3,276,000

Schmidt Electronics offered an incentive stock plan to its employees. On January 1, Year 1, 120,000 options were granted for 120,000 $1 par common shares. The exercise price equals the $8 market price of the common stock on the grant date. The vesting period is 3 years. The options cannot be exercised before January 1, Year 4, and expire on December 31, Year 5. Each option has a value of $4 based upon an option pricing model. What is the journal entry to record the exercise of 85% of the options during Year 4 when the market price of the stock was $10? A) Cash 816,000 APIC - Stock Options 408,000 Common Stock 102,000 APIC in Excess of Par - Common 1,122,000 B) Cash 816,000 APIC—Stock Options 408,000 Common Stock 120,000 APIC in Excess of Par - Common 1,104,000 C) Cash 408,000 APIC—Stock Options 102,000 Common Stock 102,000 APIC in Excess of Par - Common 408,000 D) Cash 120,000 APIC—Stock Options 102,000 Common Stock 120,000 APIC in Excess of Par - Common 102,000

A) Cash 816,000 APIC - Stock Options 408,000 Common Stock 102,000 APIC in Excess of Par - Common 1,122,000 Compensation expense is recognized as the stock options vest. At the end of three years, APIC - Stock Options has been credited for the number of options times the fair value per option, which equals $480,000 (120,000 × $4). When the 85% of the options are exercised, the company receives cash of $8 per option times 85% exercise rate × 120,000 options. Cash 120,000 options × 85% × $8 = $816,000; APIC-Stock Options $480,000 × 85% = $408,000; Common Stock 120,000 shs × 85% × $1 = $102,000; APIC in Excess of Par-Common = $816,000 + $408,000 - $102,000 = $1,122,000

On January 1, Year 1, Axis Corporation granted employees 53,500 stock options for 53,500 shares of $3 par value common stock. The exercise price on the date of issue was equal to the market price of $24. There is a two-year vesting period and the options expire in four years. Employees have the right to sell back the shares to the corporation within six months of exercise. The fair value of the options has been estimated to be $39 per option and the company does not expect any forfeitures of the options. What is the journal entry for compensation expense for Year 1? A) Compensation Expense 1,043,250 Liability for Stock-based Compensation 1,043,250 B) Compensation Expense 1,284,000 Liability for Stock-based Compensation 1,284,000 C) Compensation Expense 1,043,250 Deferred Compensation 1,043,250 D) Compensation Expense 1,284,000 Deferred Compensation 1,284,000

A) Compensation Expense 1,043,250 Liability for Stock-based Compensation 1,043,250

On January 1, Year 1, Axis Corporation granted employees 66,000 stock options for 66,000 shares of $3 par value common stock. The exercise price on the date of issue was equal to the market price of $20. There is a two-year vesting period and the options expire in four years. Employees have the right to sell back the shares to the corporation within six months of exercise. The fair value of the options has been estimated to be $39 per option and the company does not expect any forfeitures of the options. At the end of Year 2, the fair value of each option is $44. What is the journal entry for compensation expense for Year 2? A) Compensation Expense 1,617,000 Liability for Stock-based Compensation 1,617,000 B) Compensation Expense 1,320,000 Liability for Stock-based Compensation 1,320,000 C) Compensation Expense 1,617,000 Deferred Compensation 1,617,000 D) Compensation Expense 1,320,000 Deferred Compensation 1,320,000 Answer: A

A) Compensation Expense 1,617,000 Liability for Stock-based Compensation 1,617,000

On January 1, 2017, Cable Corporation issues 11,500 stock-appreciation rights to its key executives. The terms of the plan state that the holders of the rights will receive a cash payment equal to the difference between the market price of the stock on the date of exercise and the pre-established price of $9 per share. There is a three-year vesting period and the rights may be exercised on January 1, 2020. The rights expire on January 1, 2022. The closing market prices follow: December 31, 2017 $12 per share December 31, 2018 $15 per share December 31, 2019 $14 per share What is the appropriate journal entry on December 31, 2017? (Do not round any intermediate calculations. Round your final answer to the nearest dollar.) A) Compensation Expense 11,500 Obligation under SAR Plan 11,500 B) Obligation under SAR Plan 103,500 Deferred Compensation 103,500 C) Compensation Expense 138,000 Obligation under SAR Plan 138,000 D) Compensation Expense 15,333 APIC - SAR 15,333

A) Compensation Expense 11,500 Obligation under SAR Plan 11,500

On January 1, Year 1, Axis Corporation granted employees 48,000 stock options for 48,000 shares of $2 par value common stock. The exercise price on the date of issue was equal to the market price of $23. There is a two-year vesting period and the options expire in four years. Employees have the right to sell back the shares to the corporation within six months of exercise. The fair value of the options has been estimated to be $31 per option and the company does not expect any forfeitures of the options. What is the amount of compensation expense for Year 1? A) $744,000 B) $0 C) $1,488,000 D) $1,104,000

A) $744,000

On January 1, 2017, Cable Corporation issues 6,000 stock-appreciation rights to its key executives. The terms of the plan state that the holders of the rights will receive a cash payment equal to the difference between the market price of the stock on the date of exercise and the pre-established price of $9 per share. There is a three-year vesting period and the rights may be exercised on January 1, 2020. The rights expire on January 1, 2022. The closing market prices follow: December 31, 2017 $12 per share December 31, 2018 $15 per share December 31, 2019 $14 per share What is the appropriate journal entry on December 31, 2018? (Do not round any intermediate calculations. Round your final answer to the nearest dollar.) A) Compensation Expense 18,000 Obligation under SAR Plan 18,000 B) Obligation under SAR Plan 6,000 Deferred Compensation 6,000 C) Compensation Expense 72,000 Obligation under SAR Plan 72,000 D) Compensation Expense 2,000 APIC - SAR 2,000

A) Compensation Expense 18,000 Obligation under SAR Plan 18,000

On January 1, Year 1, Axis Corporation granted employees 82,000 stock options for 82,000 shares of $2 par value common stock. The exercise price on the date of issue was equal to the market price of $22. There is a two-year vesting period and the options expire in four years. Employees have the right to sell back the shares to the corporation within six months of exercise. At the time of issue, the fair value of the options is estimated to be $31 per option. Unfortunately, the company experiences a series of setbacks and the stock price falls in Year 4. At December 31, Year 4, the options have a fair value of $18 per option. At the end of four years, none of the options have been exercised. What is the appropriate journal entry to record the expiration of the options? A) Liability for Stock-based Compensation 1,476,000 APIC - Expired Stock Options 1,476,000 B) APIC - Expired Stock Options 2,542,000 Compensation Expense 2,542,000 C) APIC - Expired Stock Options 1,271,000 Compensation Expense 1,271,000 D) Liability for Stock-based Compensation 1,271,000 Common Stock 164,000 APIC - Common 1,107,000

A) Liability for Stock-based Compensation 1,476,000 APIC - Expired Stock Options 1,476,000

Apple Plumbing reports actual returns on plan assets of $200,000, while the expected return was $181,000. In addition, an employee wellness program has resulted in changes in actuarial assumptions that result in an increase in the PBO of $24,000. What is the journal entry to record the change in actuarial assumptions? A) OCI - Actuarial Gains/Losses 24,000 Projected Benefit Obligation 24,000 B) Pension Plan Assets 43,000 OCI - Actuarial Gains/Losses 43,000 C) Pension Plan Assets 24,000 OCI - Pension Plan Gains/Losses 24,000 D) Pension Plan Assets 5,000 Pension Plan Assets 5,000

A) OCI - Actuarial Gains/Losses 24,000 Projected Benefit Obligation 24,000

Merciful Industries has a beginning PBO balance of $600,000 and a settlement rate of 6%. What is the journal entry to record interest expense on the pension obligation? A) Pension Expense 36,000 Projected Benefit Obligation 36,000 B) Pension Expense 36,000 Other Comprehensive Income 36,000 C) Pension Expense 600,000 Projected Benefit Obligation 600,000 D) Pension Expense 600,000 Other Comprehensive Income 600,000

A) Pension Expense 36,000 Projected Benefit Obligation 36,000 Explanation:Pension Expense is 6% settlement rate × $600,000 PBO = $36,000

Merciful Industries has a beginning PBO balance of $600,000 and a settlement rate of 6%. As a result of an amendment to the current union contract, there are prior service costs of $52,000. What is the journal entry to record interest expense on the pension obligation? A) Pension Expense 39,120 Projected Benefit Obligation 39,120 B) Pension Expense 36,000 Other Comprehensive Income 36,000 C) Pension Expense 130,400 Projected Benefit Obligation 130,400 D) Pension Expense 48,880 Other Comprehensive Income 48,880

A) Pension Expense 39,120 Projected Benefit Obligation 39,120 Prior service costs increase PBO balance to $652,000. Pension Expense = $652,000 × 6% = $39,120.

Apple Plumbing reports actual returns on plan assets of $140,000, while the expected return was $121,000. In addition, an employee wellness program has resulted in changes in actuarial assumptions that result in an increase in the PBO of $24,000. What is the journal entry to record the gain on plan assets? A) Pension Plan Assets 19,000 OCI - Actuarial Gains/Losses 19,000 B) Pension Plan Assets 19,000 Retained Earnings 19,000 C) Pension Plan Assets 19,000 OCI - Pension Plan Gains/Losses 19,000 D) OCI - Pension Plan Gains/Losses 19,000 Pension Plan Assets 19,000

A) Pension Plan Assets 19,000 OCI - Actuarial Gains/Losses 19,000

Merciful Industries has a beginning PBO balance of $900,000 and a settlement rate of 6%. The expected return is 7%. The beginning balance of pension plan assets is $1,000,000. What is the journal entry to record the expected return on plan assets? A) Pension Plan Assets 70,000 Pension Expense - Expected Return 70,000 B) Pension Expense 63,000 Other Comprehensive Income 63,000 C) Pension Expense 66,500 Pension Plan Assets 66,500 D) Pension Expense 9,000 Other Comprehensive Income 9,000

A) Pension Plan Assets 70,000 Pension Expense - Expected Return 70,000 Explanation: Expected return = 7% × $1,000,000 = $70,000

Premier Sports Inc has a beginning PBO balance of $628,000 and a beginning market-related value of plan assets of $560,000. The net actuarial gain at the beginning of the period is $87,500 and the average employee base has a remaining service life of 20 years. What is the required amortization of actuarial gains or losses for the current year? A) $1,235 B) $3,140 C) $4,375 D) $24,700

A) $1,235

On January 1, 2017, Bubert Corporation issues 8,500 shares of $2 par restricted stock to its key executives. The market value of unrestricted shares of the same stock on the date of issue is $25 and there is a four-year vesting period. What is the amount of deferred compensation recorded on January 1, 2017? A) $212,500 B) $195,500 C) $17,000 D) $178,500

A) $212,500 Explanation: On the date that the restricted shares are issued, Deferred Compensation is debited for the number of shares times the market price.

On January 1, 2017, Bubert Corporation issues 12,500 shares of $2 par restricted stock to its key executives. The market value of unrestricted shares of the same stock on the date of issue is $19 and there is a four-year vesting period. What is the amount of compensation expense recorded on December 31, 2017? A) $59,375 B) $53,125 C) $237,500 D) $25,000

A) $59,375 Explanation: On the date that the restricted shares are issued, Deferred Compensation is debited for the number of shares times the market price, 12,500 shares × $19 = $237,500. This amount is amortized over the four-year vesting period and compensation expense for each year is $237,500/4 = $59,375.

Which of the following is a characteristic of a defined-contribution pension plan? A) Employer contributions are typically based upon salary levels of employees. B) Employers must make contributions for prior service costs to a defined contribution plan. C) Pension plan assets draw interest that may be used to reduce annual contributions to the plan. D) Employers bear the risk of loss on pension fund assets.

A) Employer contributions are typically based upon salary levels of employees.

For an equity-classified award of stock options, what journal entry is made at the date of grant? A) No journal entry is prepared. B) Compensation Expense APIC—Stock Options C) Deferred Compensation Common Stock D) Compensation Expense Deferred Compensation

A) No journal entry is prepared.

On January 1, 2017, Cable Corporation issues 15,000 stock-appreciation rights to its key executives. The terms of the plan state that the holders of the rights will receive a cash payment equal to the difference between the market price of the stock on the date of exercise and the pre-established price of $9 per share. There is a three-year vesting period and the rights may be exercised on January 1, 2020. The rights expire on January 1, 2022. The closing market prices follow: December 31, 2017 $12 per share December 31, 2018 $15 per share December 31, 2019 $13 per share What is the appropriate journal entry on December 31, 2019? (Do not round any intermediate calculations. Round your final answer to the nearest dollar.) A) No journal entry. B) Obligation under SAR Plan 15,000 Deferred Compensation 15,000 C) Compensation Expense 195,000 Obligation under SAR Plan 195,000 D) Compensation Expense 19,500 APIC - SAR 19,500

A) No journal entry.

Which of the following is not a situation in which employee compensation is classified as a liability? A) The option is granted for the acquisition of securities classified as equity securities. B) The option is granted for the acquisition of securities classified as liabilities, such as redeemable preferred stock. C) The employee can sell back the acquired shares to the employer corporation at the exercise price within a reasonable period of time. D) The compensation is in the form of cash-settled stock appreciation rights.

A) The option is granted for the acquisition of securities classified as equity securities.

) If an unexpected forfeiture of options occurs under a stock option plan, the change in compensation is treated as ________. A) a change in estimate B) an adjustment to additional paid in capital C) an adjustment to deferred compensation D) a change in other comprehensive income

A) a change in estimate

At December 31, Year 1, Musslewhite Corporation reported a net loss of $2.5 million related to its pension plan, because the actuarial assumptions related to future salary levels changed. Musslewhite's entry to record the results of this change will include ________. A) a debit to OCI — Actuarial Gains/Losses and a credit to Projected Benefit Obligation B) a debit to Projected Benefit Obligation and a credit to OCI - Loss C) a debit to pension expense and a credit to Projected Benefit Obligation D) a debit to pension expense and a credit to OCI - Loss

A) a debit to OCI — Actuarial Gains/Losses and a credit to Projected Benefit Obligation

Which of the following is not an element of pension cost that must be disclosed? A) actual return on plan assets B) service cost C) interest cost D) amortization of prior service cost

A) actual return on plan assets

Which of the following is not a key element of pension expense under a defined-benefit pension plan? A) amortization of future benefit obligations B) service cost C) expected return on plan assets D) interest on projected benefit obligation

A) amortization of future benefit obligations

The denominator of the basic EPS equation contains the ________. A) weighted-average number of shares of common stock outstanding for the year B) number of shares of common stock outstanding at the end of the year C) largest number of common shares outstanding during the year D) total of common and preferred shares outstanding during the year

A) weighted-average number of shares of common stock outstanding for the year

On January 1, 2017, Cable Corporation issues 12,500 stock-appreciation rights to its key executives. The terms of the plan state that the holders of the rights will receive a cash payment equal to the difference between the market price of the stock on the date of exercise and the pre-established price of $8 per share. There is a three-year vesting period and the rights may be exercised on January 1, 2020. The rights expire on January 1, 2022. The closing market prices follow: December 31, 2017 $11 per share December 31, 2018 $14 per share December 31, 2019 $12 per share What is the appropriate journal entry when the stock-appreciation rights are exercised on January 1, 2020 when the market price is $12 per share? A) Obligation under SAR Plan 50,000A) Obligation under SAR Plan 50,000 Cash 50,000 Cash 50,000 B) Obligation under SAR Plan 150,000 Deferred Compensation 150,000 C) Compensation Expense 150,000 Obligation under SAR Plan 150,000 D) Cash 15,000 APIC - SAR 15,000

A)Obligation under SAR Plan 50,000 Cash 50,000

Interurban Company began operations on the first day of the year. On that day they issued 90,000 shares. On March 1 they issued 60,000 shares and on July 1, another 20,000 shares. On December 1, Interurban repurchased 6000 shares of outstanding shares. Compute basic EPS for the first year of operation if net income was $100,000. (Round number of shares to the nearest whole number, and your final answer to the nearest cent.) A) $1.11 B) $0.67 C) $1.67 D) $0.80

B) $0.67 Explanation: Weighted average number of shares = (90,000 × 12/12) + (60,000 × 10/12) + - (6000 × 1/12) = 149,500 shares EPS = $100,000/149,500 = $0.67

On January 1, Year 1, Gallagher Corporation issued 700,000 stock options for 700,000 shares to a division manager. The options have an estimated fair value of $10 each. These options are not exercisable unless division revenue increases by 8% in four years. Gallagher estimates that it is probable that the goal will be achieved. What is pretax compensation expense for year 1? A) $0 B) $1,750,000 C) $2,333,333 D) $7,000,000

B) $1,750,000 Explanation: (700,000 × $10) / 4 years = $1,750,000

Block Corporation permits key employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 10% discount. During July, employees purchased 36,000 shares at a time when the established market price was $31 per share. Block will record salary expense associated with July purchases of ________. A) $0 B) $111,600 C) $1,004,400 D) $1,116,000

B) $111,600 Explanation: Salary expense = 36,000 × $31 × 10% = $111,600

On January 1, Year 1, Fields Corporation granted 500,000 stock options to certain executives. The options are exercisable no sooner than December 31, Year 3 and expire on January 1, Year 7. The vesting period is 3 years. Each option can be exercised to acquire one share of $10 par common stock for $15. An appropriate option-pricing model estimates the fair value of each option to be $12 on the date of grant. What amount should Fields recognize as compensation expense for Year 1? A) $0 B) $2,000,000 C) $750,000 D) $6,000,000

B) $2,000,000 Explanation: 500,000 × $12 = $6,000,000/3 = $2,000,000

On January 1, Year 1, Davenport Corporation granted an employee 10,000 options to purchase 10,000 shares of Davenport's $10 par common stock at $30 per share. The options became exercisable on December 31, Year 3, after the employee completed three years of service. The option was exercised on February 1, Year 4. The market prices of Davenport's stock were as follows: January 1, Year 1, $40; December 31, Year 3, $60; and February 1, Year 4, $55. An options pricing model estimated the value of the options at $20 each on the grant date. For Year 1, Davenport should recognize compensation expense of ________. (Do not round intermediate calculations. Only round your final answer to the nearest dollar.) A) $0 B) $66,667 C) $100,000 D) $200,000

B) $66,667 Explanation: (10,000 × $20) = $200,000/3 years = $66,667

George Manufacturing had net income of $275,000 and declared preferred dividends of $20,000 during the current year. George began the year with 16,000 common shares outstanding. It issued 60,000 shares on June 30 and repurchased 12,000 of the newly issued shares on November 1. Compute George's weighted-average common shares outstanding for the year. A) 64,000 B) 44,000 C) 74,000 D) 76,000

B) 44,000 Explanation: (16,000 × 12/12) + (60,000 × 6/12) - (12,000 × 2/12) = 44,000 shares

Which of the following is a characteristic of the accumulated benefit obligation measurement? A) It considers only vested employees. B) It does not use projected future salary levels. C) It is required by GAAP for measurement of the pension obligation. D) It considers only current employees.

B) It does not use projected future salary levels.

Which of the following is a characteristic of the projected benefit obligation measurement? A) It considers only vested employees. B) It uses projected future salary levels. C) It is the smallest estimate of the pension obligation. D) It considers only current employees.

B) It uses projected future salary levels.

Which of the following is a characteristic of a defined-benefit pension plan? A) It raises few accounting issues for employers. B) Retirement benefits are based on the plan benefit formula. C) It is simple to construct. D) Retirement benefits are contingent on how much an employee has accumulated in a retirement account.

B) Retirement benefits are based on the plan benefit formula.

Edmond Biometrics reported net income of $200,000 for both last year and the current year. The shares outstanding for the prior year were 100,000 shares for the whole year. On December 1 of the current year, Edmond declared a two for one stock split. There were no other stock transactions in either year. Compute the EPS that would be shown on a comparative income statement for Years 1 and 2. (Round your answer to the nearest cent.) A) Year 1 $2.00; Year 2 $1.00 B) Year 1 $1.00; Year 2 $1.00 C) Year 1 $2.00; Year 2 $1.33 D) Year 1 $2.00; Year 2 $0.80

B) Year 1 $1.00; Year 2 $1.00 The weighted-average number of shares for Year 1 was 100,000. The stock split in Year 2 is applied retroactively, making the weighted-average number of shares EPS for each year is

Robertson Corporation reported net income for Year 1 of $220,000 and Year 2 of $340,000. The weighted-average common shares outstanding 140,000 in Year 1 and 130,000 in Year 2. Robertson also has 10,000 shares of $100 par value, cumulative, 5% preferred stock outstanding in both years. Dividends were not declared in Year 1, but both years' dividends were declared and paid in Year 2. Compute EPS for both years. (Round your answers to the nearest cent.)

B) Year 1, $1.21; Year 2, $2.23 Explanation: For each year, preferred dividends are 10,000 shares × $100 par value × 5% = $50,000. When calculating EPS, preferred dividends are subtracted from net income when paid or in arrears, so net income for each year is reduced by this amount. Year 1 EPS: ($220,000 - $50,000)/140,000 = $1.21 Year 2 EPS: ($340,000 - $50,000)/130,000 = $2.23

Compensation expense associated with stock options is ________. A) based upon the book value of the options B) based upon the estimated fair value of the options C) recorded on the date that the options are granted D) allocated as expense over the time period until the options expire

B) based upon the estimated fair value of the options

Which of the following items is generally not specified by a compensation arrangement involving stock options? A) number of options granted B) current market price C) exercise price D) vesting period

B) current market price

When computing basic EPS, the numerator includes net income minus the ________. A) present value of stock options B) current year preferred dividends paid and current year preferred dividends in arrears C) cost of interest paid on bonds, net of tax D) cash paid for dividends during the year

B) current year preferred dividends paid and current year preferred dividends in arrears

Amortizing a net actuarial gain for pensions will ________. A) increase retained earnings and increase accumulated other comprehensive income B) increase retained earnings and decrease accumulated other comprehensive income C) decrease retained earnings and decrease accumulated other comprehensive income D) decrease retained earnings and increase accumulated other comprehensive income

B) increase retained earnings and decrease accumulated other comprehensive income

A company with convertible bonds outstanding will assume hypothetical conversion at the earliest point of the year to compute diluted EPS. The numerator is ________. A) increased by the interest paid on the bonds during the fiscal year B) increased by the after-tax interest expense on the bonds for the fiscal year C) decreased by the interest paid on the bonds during the fiscal year D) decreased by the after-tax interest paid on the bonds during the fiscal year

B) increased by the after-tax interest expense on the bonds for the fiscal year

The increase in the projected benefit obligation from one additional year of service from employees is referred to as ________. A) employer contribution B) service cost C) expected return on plan assets D) prior service cost

B) service cost

The compensation associated with equity-classified awards of stock options is ________. A) the estimated book value of the options B) the estimated fair value of the options C) allocated to compensation expense until the options expire D) recorded as compensation expense when the options are granted

B) the estimated fair value of the options

Schmidt Electronics offered an incentive stock plan to its employees. On January 1, Year 1, 90,000 options were granted for 90,000 $1 par common shares. The exercise price equals the $6 market price of the common stock on the grant date. The vesting period is 3 years. The options cannot be exercised before January 1, Year 4, and expire on December 31, Year 5. Each option has a value of $3 based upon an option pricing model. At the end of the first year, it is expected that 100% of employees will exercise the options. By the end of Year 2, it is expected that only 80% of the options will be exercised. Schmidt chooses to adjust the fair value of the options for the estimated forfeitures. What is the journal entry to record compensation expense for year 2? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.) A) Deferred Compensation 54,000 Compensation Expense 54,000 B) Compensation Expense 216,000 Deferred Compensation 216,000 C) Compensation Expense 54,000 APIC - Stock Options 54,000 D) Compensation Expense 54,000 Deferred Compensation 54,000

C) Compensation Expense 54,000 APIC - Stock Options 54,000

Merciful Industries has a beginning PBO balance of $500,000 and a settlement rate of 6%. As a result of an amendment to the current union contract, there are prior service costs of $49,000. What is the journal entry to record the change to the current union contract? A) Pension Expense 2,940 Projected Benefit Obligation 2,940 B) Pension Expense 30,000 Other Comprehensive Income 30,000 C) Other Comprehensive Income-Prior Service Costs 49,000 Projected Benefit Obligation 49,000 D) Pension Expense 46,060 Other Comprehensive Income 46,060

C) Other Comprehensive Income-Prior Service Costs 49,000 Projected Benefit Obligation 49,000

Gray Corporation reported $500,000 in interest expense for the current year for bonds that were issued in prior years. Gray's tax rate is 40%. By what amount is the numerator of diluted EPS positively adjusted? A) $0 B) $200,000 C) $300,000 D) $500,000

C) $300,000 Explanation: After-tax interest savings on bond conversion is interest expense reduced by taxes on this amount: $500,000 - (40% × $500,000) = $300,000.

) Schmidt Electronics offered an incentive stock plan to its employees. On January 1, Year 1, 110,000 options were granted for 110,000 $1 par common shares. The exercise price equals the $6 market price of the common stock on the grant date. The vesting period is 3 years. The options cannot be exercised before January 1, Year 4, and expire on December 31, Year 5. Each option has a value of $4 based upon an option pricing model. What is the fair value of the award? A) $110,000 B) $330,000 C) $440,000 D) $660,000

C) $440,000 Explanation: 110,000 × $4 = $440,000

Hudson Motors reported $735,000 net income for the current year. Beginning common shares outstanding were 120,000. Hudson also had 10,000, 6% nonconvertible, cumulative, $100 par value preferred shares outstanding for the entire year. No cash dividends were declared. Compute basic earnings per share. (Round your answer to the nearest cent.) A) $6.13 B) $6.12 C) $5.63 D) $5.19

C) $5.63 When calculating EPS, net income is reduced by preferred dividends paid or in arrears.

17) Teague Corporation permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 10% discount. During July, employees purchased 40,000 shares at a time when the established market price was $26 per share. Teague will record an increase in cash of ________ associated with July purchases. A) $0 B) $104,000 C) $936,000 D) $1,040,000

C) $936,000 Explanation: 40,000 shares × $26/share × 90% = $936,000.

Greenwell Coffee Company began operations on the first day of the year. On that day they issued 100,000 shares. On March 1 they issued 23,000 shares and on July 1, another 30,000 shares. On December 1, Greenwell repurchased 6,000 shares of outstanding shares. Compute the weighted-average shares of stock for the first year of operation. (Round your final answer to the nearest whole number.) A) 147,000 B) 134,667 C) 133,667 D) 134,167

C) 133,667 Explanation: Weighted average number of shares = (100,000 × 12/12) + (23,000 × 10/12) + - (6,000 × 1/12) = 133,667 shares

Charlotte Engineering had net income of $450,000 for the year. It declared $30,000 in preferred dividends on December 23. It began the year with 600,000 common shares outstanding. On July 1, Charlotte declared a 10% common stock dividend. Compute the weighted-average common shares outstanding for the year. A) 600,000 B) 540,000 C) 660,000 D) 720,000

C) 660,000 Stock dividends are applied retroactively, so the weighted average number of shares is 600,000 × 1.1 = 660,000.

Which of the following statements regarding disclosures for stock-based compensation plans is false? A) An entity is required to disclose the intrinsic values of outstanding stock options granted. B) The effect on the stock-based compensation plans on the entity's cash flows must be disclosed. C) An entity must disclose information only for vested shares that are exercised and exercisable. D) An entity must provide a reconciliation of beginning and ending amounts for the number and weighted average exercise price of share options.

C) An entity must disclose information only for vested shares that are exercised and exercisable.

Which of the following statements regarding stock options is true? A) An employee will exercise a stock option only when the current market price of the stock is less than the option price. B) Unexercised options may be sold or transferred in the open market. C) Employee stock options are a restricted form of a call option. D) Companies expense stock-based compensation at the fair value of the stock on the expected date of exercise.

C) Employee stock options are a restricted form of a call option.

Which of the following statements about pension plan disclosures is true? A) The difference between the projected benefit obligation and the plan assets at fair value represents the unfunded status of the plan reported on the balance sheet. B) Public entities are not required to disclose the components of net pension benefit cost. C) The footnote must disclose assumptions used for discount rates and expected return on assets on a weighted average basis. D) Nonpublic entities must separately disclose the components of net pension benefit cost.

C) The footnote must disclose assumptions used for discount rates and expected return on assets on a weighted average basis.

Which of the following statements about liability-classified awards is true? A) When a company records compensation expense, it will adjust additional paid-in capital at the grant date. B) In accounting for liability-classified awards, a company records deferred compensation at the grant date. C) The value of a liability-classified award is typically based on the company's equity. D) The value of liability classified awards remains unchanged until the award is settled.

C) The value of a liability-classified award is typically based on the company's equity.

When compensation is recognized under an equity-classified award of stock options, the expiration of stock options is treated as ________. A) a prior period adjustment B) an adjustment to compensation expense C) a reclassification of shareholders' equity D) a change in accounting estimate

C) a reclassification of shareholders' equity

Which of the following is not a component of annual pension expense? A) service cost B) amortization of prior service costs C) actual return on plan assets D) interest on the projected benefit obligation

C) actual return on plan assets

A company with convertible bonds outstanding will need to adjust the denominator of the diluted EPS equation. If the bonds are outstanding all year, the adjustment will consist of the ________. A) number of bonds in the debt issue B) conversion ratio times the number of bonds outstanding net of taxes C) conversion ratio times the number of bonds outstanding D) number of bonds issued during the current year

C) conversion ratio times the number of bonds outstanding

2) Which one of the following does not require the computation of diluted earnings per share? A) convertible bonds B) stock warrants C) preferred stock D) stock options

C) preferred stock

Which of the following measures of benefit obligations does the FASB require for pension computations? A) vested benefit obligation B) accumulated benefit obligation C) projected benefit obligation D) future benefit obligation

C) projected benefit obligation

Which one of the following items is not a way for management to influence EPS computations to meet target goals? A) measurements of impairments on plant, property and equipment B) determination of tax contingencies C) recording the sale of merchandise on account D) choice of inventory cost flow assumptions

C) recording the sale of merchandise on account

Which of the following is not a factor in calculating a defined benefit for a pension? A) percentage B) current salary level C) return on plan assets D) credits for years of service

C) return on plan assets

Merciful Industries has a beginning PBO balance of $500,000 and a settlement rate of 7%. As a result of an amendment to the current union contract, there are prior service costs of $46,500. What is the journal entry to record amortization of the prior service costs for the second year, assuming that the company uses a 5-year amortization period? A) Pension Expense 3,255 Projected Benefit Obligation 3,255 B) Pension Expense 35,000 Other Comprehensive Income 35,000 C) Other Comprehensive Income-Prior Service Costs 9,300 Projected Benefit Obligation 9,300 D) Pension Expense 9,300 Other Comprehensive Income-Prior Service Costs 9,300

D) Pension Expense 9,300 Other Comprehensive Income-Prior Service Costs 9,300 Explanation: Prior service costs are amortized over 5 years, so $46,500/5 = $9,300 per year.

Hornet Motors reported $535,000 net income for the current year. Beginning common shares outstanding were 110,000. Hudson also had 10,000, 6% nonconvertible, cumulative, $100 par value preferred shares outstanding for the entire year. No cash dividends were declared but Hornet did declare and distribute a 10% stock dividend on common shares on July 1. Compute basic earnings per share. (Round your answer to the nearest cent.) A) $4.92 B) $4.42 C) $4.32 D) $3.93

D) $3.93 Explanation: Stock dividends are applied retroactively to the beginning of the year, so the number of shares outstanding is 110,000 × 110% = 121,000 When calculating EPS, net income is reduced by preferred dividends paid or in arrears. [[$535,000 - (10,000 shares × 6% × $100 par)]/121,000 = $3.93.

) A company's defined-benefit pension plan had a projected benefit obligation (PBO) of $380,000 on January 1, Year 1. During Year 1, pension benefits paid were $70,000. The settlement rate for the plan for Year 1 was 12%. Service cost for the year was $109,000. Plan assets (fair value) increased during the year by $50,000. What was the PBO at December 31, Year 1? A) $310,000 B) $425,600 C) $489,000 D) $464,600

D) $464,600 Explanation: PBO, January 1 $380,000 Service Cost 109,000 Interest Cost 45,600 ($380,000 × 12 %) Benefits Paid (70,000) PBO, December 31 $464,600

On January 1, Year 1, Fields Corporation granted 200,000 stock options to certain executives. The vesting period is 3 years. The options are exercisable no sooner than December 31, Year 3 and expire on January 1, Year 7. Each option can be exercised to acquire one share of $10 par common stock for $15. An appropriate option-pricing model estimates the fair value of each option to be $11 on the date of grant. Fields chooses to adjust the fair value of the options for the estimated forfeitures. If unexpected turnover in Year 2 caused Fields to estimate that 12% of the options would be forfeited, what amount of compensation expense should Fields recognize in Year 2? (Round intermediate calculations and your final answer to the nearest dollar.) A) $0 B) $1,290,667 C) $733,333 D) $557,334

D) $557,334 Compensation expense recognized in Year 1 = (200,000 × $11 = $2,200,000)/3 = $733,333. Expected value of options at end of Year 2 = 200,000 × $11 = $2,200,000 × 88% = $1,936,000 Cumulative compensation expense at end of Year 2 = $1,936,000 × 2/3 = $1,290,667 Compensation expense for Year 2 = Cumulative expense $1,290,667 recognized in Year 1 $733,333 = $557,334

Which of the following conditions is not required for an employee stock purchase plan to be non-compensatory? A) The plan is made available to substantially all employees. B) After the plan is established, there is a maximum one-month period to elect to participate in the plan. C) The discount is not larger than 5% of the open market price. D) Top-level employees may purchase no more than a set percentage of shares available.

D) Top-level employees may purchase no more than a set percentage of shares available.

When applying the if-converted assumption for potentially dilutive securities, conversions are assumed to occur at the ________. A) end of the prior year for hypothetical conversions B) beginning of the year for hypothetical conversions C) middle of the current year for actual conversions D) beginning of the current year or on the issue date of the dilutive security if issued during the current year

D) beginning of the current year or on the issue date of the dilutive security if issued during the current year

The retroactive assumption for stock dividends and splits helps financial statement users to ________. A) recompute their net worth in the company B) be assured that management is effective C) hold management accountable for poor timing in the decision D) compare the company's EPS changes over time

D) compare the company's EPS changes over time

) On January 1, 2017, Smart Corporation issues 12,500 shares of $2 par restricted stock to a key executive. The market value of unrestricted shares of the same stock on the date of issue is $18 and there is a four-year vesting period. On January 1, 2018, the executive leaves and forfeits the restricted stock award. The journal entry to record the forfeiture includes which of the following? A) credit Deferred Compensation $56,250 B) credit Common Stock $25,000 C) debit Deferred Compensation for $25,000 D) credit Compensation Expense for $56,250

D) credit Compensation Expense for $56,250

Which of the following areas is not an area that financial statements users seek to analyze in a company's defined benefit pension plan? A) funded status B) actuarial gains and losses in other comprehensive income C) settlement rate and return on plan asset assumptions D) future payout assumptions.

D) future payout assumptions.

When a company amends their existing pension plan to increase the defined-benefit rate, the associated expense is referred to as ________. A) employer contribution B) service cost C) expected return on plan assets D) prior service cost

D) prior service cost

When a pension plan is amended to recognize previous service of currently employed employees, what component of pension expense is created? A) transition costs B) amendment costs C) past service costs D) prior service costs

D) prior service costs

The portion of the obligation than plan participants are entitled to receive regardless of their continued employment is called the ________. A) retiree benefit obligation B) projected benefit obligation C) accumulated benefit obligation D) vested benefit obligation

D) vested benefit obligation