AC 202 Final
A segment of a business enterprise is to be reported separately when the revenues of the segment exceed 10% of the
total revenues of all the enterprises industry segments
Events that occur after the December 31, 2018 balance sheet date, but before the balance sheet is issues and provide additional evidence about conditions that existed at the balance sheet date and affect the realizability of accounts receivable should be
used to record an adjustment to Bad Debt Expense for the year ending December 31, 2018/
Accounts Receivable Turnover
Sales/ Average Accounts Receivables
Price earnings ratio
Share Price/ Earnings Per Share
Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if
the future tax rates have been enacted into law
Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to
the market rate multiplied by the beginning-of-period carrying amount of the bonds
Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that
the nominal rate of interest exceeded the market rate
Long Co. issued 100,000 shares of $10 par common stock for $1,200,000. A year later Long acquired 16,000 shares of its own common stock at $15 per share. Three months later Long sold 8,000 of these shares at $19 per share. If the cost method is used to record treasury stock transactions, to record the sale of the 8,000 treasury shares, Long should credit
treasury stock for $120,000 PIC-Excess of par for $32,000
A primary source of stockholder's equity is
both income retained by the corporation and contributions by stockholders
When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be
increased by accrued interest from May 1 to June 1
Earnings per share
Net Income - Preferred Dividends/ Number of Common Stock Outstanding
Elmer Corporation has $2,500,000 of short-term debt it expects to retire with proceeds from the sale of 50,000 shares of common stock. If the stock is sold for $30 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities?
$1,500,000
Litke Corporation issued at a premium of $10,000 a $200,000 bond issue convertible into 4,000 shares of common stock ( par value $20). At the time of the conversion, the unamortized premium is $4,000, the market value of the bonds is $220,000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds?
$124,000
At the end of 2018, Hauke Company purchased 6,000, $1,000, 9% bonds. The bonds mature on March 1, 2023, and pay interest on March 1 and September 1. Hauke sells 3,000 bonds on September 1, 2019 for $2,964,000, after the interest has been received. Hauke uses straight-line amortization. The gain on the sale is
$14,400
Ziegler Corporation purchased 25,000 shares of common stock of the Sherman Corporation for $40 per share on January 2, 2017. Sherman Corporation had 100,000 shares of common stock outstanding during 2018, paid cash dividends of $150,000 during 2018, and reported net income of $500,000 for 2018. Ziegler Corporation should report revenue from investment for 2018 in the amount of
125,000
On January 1, 2017, Huber Co. sold 12% bonds with a face value of $2,000,000. The bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $2,154,500 to yield 10%. Using the effective interest rate method of amortization, interest expense for 2017 is
$215,400
On October 1, 2018, Renfro Company purchased to hold to maturity, 4,000, $1,000, 9% bonds for $3,960,000 which includes $60,000 accrued interest. The bonds, which mature on February 1, 2027, pay interest semiannually on February 1 and August 1. Renfro uses the straight-line method of amortization. The bonds should be reported in the December 31, 2018 balance sheet at a carrying value of
$3,903,000
Horton Co. was organized on January 2, 2018 with 500,000 authorized shares of $10 par value common stock. During 2018, Horton had the following capital transactions: January 5- issued 375,000 shares at $14/share July 27- purchased 25,000 shares at $11/share November 25- sold 15,000 shares of treasury stock at $13/share. Horton used the cost method to record the purchase of treasury shares. What would be the balance in the Paid-in-Capital from Treasury Stock account at December 31, 2018?
$30,000
Richman company purchased $1,200,000 of 8%, 5 year bonds from Carlin, Inc. on January 1, 2018, with interest payable on July 1 and January 1. The bonds sold for $1,249,896 at an effective interest rate of 7%. Using the effective interest method, Richman Company decreased the available-for-sale securities account for the Carlin, Inc. bonds on July 1, 2018 and December 31, 2018 by the amortized premiums of $4,248 and $4392 respectively. At December 31, 2018 the fair value of the Carlin, Inc. bonds was $1,272,000. What should Richman Company report as other comprehensive income and as a separate component of stockholders' equity.
$30,744
On January 1, 2018, Jacobs Company sold property to Dains Company which originally cost Jacobs $2,600,000. There was no established exchange price for the property. Danis gave Jacobs a $4,200,000 zero-interest-bearing note payable in three equal annual installments of $1,400,000 with the first payment being due December 31, 2018. the note has no ready market. The prevailing interest rate for a note of this type is 10%. The present value of a $4,200,000 note payable in three equal installments of $1,400,000 at a 10% interest rate is $3,481,800. What is the amount of interest income that should be recognized by Jacobs in 2018, using the effective interest method?
$348,180
Venible newspapers sold 6,000 annual subscriptions at $150 each on June 1. How much unearned revenue will exist as of December 31?
$375,000
Horner Corporation has a deferred tax asset at December 31, 2019 of $200,000 due to the recognition of potential tax benefits of an operating loss carryforward. The enacted tax rates are as follows: 40% for 2016-2018; 35% for 2019; and 30% 30% for 2020 and thereafter. Assuming that management expects that only 50% of the related benefits will actually be realized, a valuation should be established in the amount of
100,000
Return on common stockholders' equity
Net Income-Preferred Dividends/ Average Common Stockholders' Equity
Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company;s common stock for $600,000 on January 2, 2018. During 2018, Darby Company declared dividends of $100,000 and reported earnings for the year of 400,000. If Blanco Company uses the equity method of accounting for its investment in Darby Company, its Equity Investments (Darby) account at December 31, 2018 should be
$660,000
Profit margin
Net Income/ Net Sales
Bella Pool Company sells prefabricated pools that cost $80,000 to customers for $144,000. The sales price includes an installation fee, which is valued at 20,000. The fair value of the pool is expected to take 3 months to complete. The transaction price allocated to the pool and the installation is
124,541 & 19,459
Excom manufactures high-end whole home electronic systems. The company provides a one-year warranty for all products sold. The company estimates that the warranty cost is $300 per unit and reported a liability for estimated warranty costs of $10.4 million at the beginning of this year. If during the current year, the company sold 60,000 units for a total of $324 million and paid warranty claims of $12,000,000 on current and prior year sales, what amount of liability would the company report on its balance sheet at the end of the current year?
16,400,000
Nagel Co.'s prepaid insurance was 190,000 at December 31, 2018 and 90,000 at December 31, 2017. Insurance expense was 62,000 for 2018 and 54,000 for 2017. What amount of cash disbursements for insurance would be reported in Nagel's 2018 net cash provided by operating activities presented on a direct basis
162,000
At December 31, 2017 Pine Company had 200,000 shares of common stock and 10,000 shares of 6%, 100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2017 or 2018. On February 10, 2019 prior to the issuance of its financial statements for the year ended December 31, 2018, Pine decleared a 100% stock dividend on its common stock. Net income for 2018 was $960,000. In its 2018 financial statements, Pine's 2018 earnings per common share would be
2.25
Fultz Company had 300,000 shares of common stock issued and outstanding at December 31, 2017. During 2018, no additional common stock was issued. On January 1, 2018, Fultz issued 400,000 shares of nonconvertible preferred stock. During 2018, Fultz declared and paid $180,000 cash dividends on the common stock and $150,000 on the nonconvertible preferred stock. Net income for the year ended December 31, 2018, was 960,000. What should be Fultz's 2018 earnings per common share?
2.70
Jordan Company purchased ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the principal by the table value for
20 periods and 4% from the present value of 1 table
Fox Co. Issued $100,000 of ten year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the face value by the table value for
20 periods and 4%from the present value of 1 table
Fina Corp. had the following transactions during the quarter ended March 31, 2018: Payment of fire insurance premium for calendar year 2018- 800,000 What amount should be included in Fina's income statement for quarter ended March 31, 2018
200,000
Lindasy Corporation had net income of 3,000,000. Depr of Plant Assets- 1,200,000 Amort of intangibles- 240,000 Inc in A/R- 420,000 Inc. in A/P- 540,000 Lindsay's net cash provided by operating activities for 2018 was
4,560,000
On January 2, 2018, Worth Co. issued at par 2,000,000 of 7% convertible bonds. Each 1,000 bond is convertible into 10 shares of common stock. No bonds were converted during 2018. Worth had 200,000 shares of common stock outstanding during 2018. Worth's 2018 Net Income was 900,000 and the income tax rate was 30%. Worth's diluted earnings per share for 2018 would be
4.54
Roche Pharmaceuticals entered into a licensing agreement with Zenith Lab for a new drug under development. Roche will receive $8,100,000 if the new drug receives FDA approval. Based on prior approval, Roche determines that it is 85% likely that the drug will gain approval. The transaction price of this arrangement should be
8,100,000
Which of the following is a current liability? A dividend payable in the form of additional shares of stock A cash dividend payable to preferred stockholders Preferred dividends in arrears All of the above
A cash dividend payable to preferred stockholders
A performance obligation exists when
A company provides a distinct product or service
What is the difference between a financial forecast and a financial projection?
A forecast attempts to provide information on what is expected to happen, wheras a projection may provide information on hypothetical assumptions
Accounting for income taxes can result in the reporting of deferred taxes as
A non current liability
Assuming a 40% statuatory tax rate applies to all years involved, which of the following situations will give rise to reporting a deferred tax liability on the balance sheet?
A revenue is deferred for tax purposes but not for financial reporting purposes and an expense is deferred for financial reproting purposes but not for tax purposes
A requirement for a security to be classified as held-to-maturity is The security must be a debt security Ability to hold the security to maturity Positive Intent All of these are required
All of these are required
Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income?
An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes
The rate of return on a common stock equity is calculated by dividing
Net income less preferred dividends by average common stockholder's equity
Inventory Turnover
COGS/ Average Inventory
Book Value per share
Common Stockholders' Equity/ Outstanding Shares
Acid Test Ratio
Current Assets- Inventory/ Current Liabilities
Current Rato
Current Assets/ Current Liabilities
O January 1, 2018, Bacon Co. leased a building to Horner Corp. for a ten year term at an annual rental of $175,000. At inception of the lease, Bacon received $700,000 covering the first two years' rent of $350,000 and a security deposit of $350,000. This deposit will not be returned to Horner upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $700,000 should be shown as a current and long term liability, respectively, in Bacon's December 31, 2018 balance sheet?
Current- $175,000 Long Term- $350,000
GAAP specifies that, regarding the amortization of a premium or discount on a debt security, the Effective interest method of allocation must be used Effective interest method of allocation should be used but other methods can be applied if there is no material difference in the results obtained Par value method must be used and therefore no allocation is necessary Straight-line method of allocation must be used
Effective interest method of allocation should be used but other methods can be applied if there is no material difference in the results obtained
Are errors and irregularities distortions of facts?
Errors- No Irregularities- Yes
At December 31, 2018, Atlanta Company has an equity portfolio valued at $160,000. Its cost was $132,000. If the Securities Fair Value Adjustment has a debit balance of $8,000, which of the following journal entries is required at December 31, 2018?
Fair Value Adjustment 20,000 Unrealized Holding Gain or Loss- Income 20,000
Which of the following does not demonstrate evidence regarding the ability to consummate a refinancing of short term debt? Actually refinance the obligation Enter into a financing agreement that clearly permits the entity to refinance the obligation Management indicated that they are going to refinance the obligation Have capacity under existing financing agreements that can be used to refinance the obligation
Management indicated that they are going to refinance the obligation
Cash dividends are paid on the basis of the number of shares
Outstanding
Which of the following would be classified as a financing activity on a statement of cash flows?
Payment of a bond payable
Taxable income of a corporation differs from the pretax income because of
Permanent and Temporary differences
Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income?
Product warranty liabilities
Hager Company sold some of its plant assets during 2018. The original cost of the plant assets was 900,000 and the accumulated depreciation at date of sale was 840,000. The sale of the plant assets were 90,000. The information concerning the sale of the plant assets should be shown on Hager's statement of cashflows (indirect method) for the year ended December 31, 2018
Subtraction from net income of 30,000 90,000 increase in cash flows from ivesting activities.
How do you determine the acid test ratio?
The sum of cash, short-term investments, and net receivables divided by current liabilities
Debt to Assets
Total Liabilities/ Total Assets
When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited?
Treasury Stock for the purchase price
In a troubled debt restructuring in which the debt is restructured by a transfer of assets with a fair value less than the carrying amount of the debt, the debtor would recognize
a gain on the restructuring
On its December 31, 2017, balance sheet, Trump Company reported its investment in equity securities, which has cost $600,000, at fair value of $560,000. At December 31, 2018, the fair value of the securities was $585,000. What should Trump report on its 2018 income statement as a result of the increase in fair value of the investments in 2018?
Unrealized gain of 25,000
In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows
a new effective interest rate must be computed
A temporary difference arises when a revenue item is reported for tax purposes in a period
after its reported in financial income and before its reported in financial income
Compensation expense resulting from a compensatory stock option plan is generally
allocated to the periods benefited by the employee's required service
In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the
annual preferred dividend
In applying the treasury stock method to determine the dilutive effect of stock options and warrants, the proceeds assumed to be received upon exercise of the options and warrants
are used to calculate the number of common shares repurchased at the average market price, when computing diluted earnings per share
Debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses that are included as other comprehensive income and as a separate component of stockholders' equity are
available-for-sale debt securities
In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect the assumed re-acquisition of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would
be antidilutive
Dolan Company reports its income from investments under the quity method and recognized income of 25,000 from its investment in Moss Co. during the current year, even though no dividends were declared or paid by Moss during the year. On Dolan's statement of cash flows (indirect method) the 25,000 should
be shown as a deduction from net income in the cash flows from operating activities section
A transaction price for multiple performance obligations should be allocated
based on what the company could sell the goods for on a standalone basis
In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are
considered outstanding at the beginning of the earliest year reported
An available-for-sale debt security is purchased at a discount. The entry to record the amortization of the discount includes a
debit to Debt Investments
The amortization of bond premium on long term debt should be presented in a statement of cashflows (using the indirect method for operating activities) an a
deduction from net income
An example of an item which is not a liability is
dividends payable in stock
The issuer of a 5% common stock dividend to common stockholders should transfer from retained earnings to paid-in capital an amount equal to the
fair value of the shares issued
Paige Co. took advantage of market conditions to refund debt. This was the fourth refunding operation carried out by Paige within the last 3 years. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a
part of continuing operations
An employee's net (or take home) pay is determined by gross earnings minus amounts for income tax witholdings and the employee's
portion of FICA taxes and any union dues
Cost estimates on a long term contract may indicate that a loss will result on completion of the entire contract. In this case, the entire expected loss should be
recognized in the current period, regardless of whether the percentage of completion or completed-contract method is employed
When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be
reported as an adjustment to income tax expense in the period of change
Antidilutive Securities
should be ignored in all earnings per share calculations
Assume there are two dilutive convertible securties. The one that should be used first to recalculate earnings per share is the security with the
smaller earnings per share adjustment
Cash, Short Term Investments, and Net Receivables are the numerator for
the acid test ratio