Acct 201B Exam 2
On January 1, 2018, Piper Corp. purchased 40% of the voting common stock of Betz, Inc. and appropriately accounts for its investment by the equity method. During 2018, Betz reported earnings of $1,200,000 and paid dividends of $400,000. Piper assumes that all of Betz's undistributed earnings will be distributed as dividends in future periods when the enacted tax rate will be 30%. Ignore the dividend-received deduction. Piper's current enacted income tax rate is 25%. The increase in Piper's deferred income tax liability for this temporary difference is a. $240,000. b. $200,000. c. $144,000. d. $ 96,000.
d. $ 96,000.
A requirement for a security to be classified as held-to-maturity is a. ability to hold the security to maturity. b. positive intent. c. the security must be a debt security. d. All of these are required
d. All of these are required
On January 1, 2018, Reston Company purchased 25% of Ace Corporation's common stock; no goodwill resulted from the purchase. Reston appropriately carries this investment at equity and the balance in Reston's investment account was $1,170,000 at December 31, 2018. Ace reported net income of $700,000 for the year ended December 31, 2018, and paid common stock dividends totaling $280,000 during 2018. How much did Reston pay for its 25% interest in Ace? a. $1,065,000. b. $1,240,000. c. $1,275,000. d. $1,415,000.
a. $1,065,000.
The following facts relate to the postretirement benefits plan of Keller, Inc. for 2018: Service cost $780,000 Discount rate 8% APBO, January 1, 2018 $4,000,000 EPBO, January 1, 2018 $4,800,000 Average remaining service to full eligibility 20 years Average remaining service to expected retirement 25 years The amount of postretirement expense for 2018 is a. $1,100,000. b. $1,260,000. c. $1,300,000. d. $1,164,000.
a. $1,100,000.
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 $128,000. The installation is considered a separate performance obligation and is expected to take 3 months to complete. The transaction price allocated to the pool and the installation is a. $124,541 and $19,459 respectively b. $144,000 and $20,000 respectively c. $128,000 and $20,000 respectively d. $110,702 and $17,298 respectively
a. $124,541 and $19,459 respectively
Haag Corp.'s 2018 income statement showed pretax accounting income of $2,500,000. To compute the federal income tax liability, the following 2018 data are provided: Income from exempt municipal bonds $ 100,000 Depreciation deducted for tax purposes in excess of depreciation deducted for financial statement purposes 200,000 Estimated federal income tax payments made 500,000 Enacted corporate income tax rate 30% What amount of current federal income tax liability should be included in Hagg's December 31, 2018 balance sheet? a. $160,000 b. $220,000 c. $250,000 d. $660,000
a. $160,000
Munoz Corp.'s books showed pretax financial income of $3,600,000 for the year ended December 31, 2018. In the computation of federal income taxes, the following data were considered: Gain on an involuntary conversion $1,560,000 (Munoz has elected to replace the property within the statutory period using total proceeds.) Depreciation deducted for tax purposes in excess of depreciation deducted for book purposes 240,000 Federal estimated tax payments, 2018 300,000 Enacted federal tax rate, 2018 30% What amount should Munoz report as its current federal income tax liability on its December 31, 2018 balance sheet? a. $240,000 b. $312,000 c. $540,000 d. $612,000
a. $240,000
During 2017, Woods Company purchased 80,000 shares of Holmes Corporation common stock for $1,260,000 as an equity investment. The fair value of these shares was $1,200,000 at December 31, 2017. Woods sold all of the Holmes stock for $17 per share on December 3, 2018, incurring $56,000 in brokerage commissions. Woods Company should report a realized gain on the sale of stock in 2018 of a. $44,000. b. $100,000. c. $104,000. d. $160,000.
a. $44,000.
In its 2018 income statement, Cohen Corp. reported depreciation of $3,700,000 and interest revenue on municipal obligations of $700,000. Cohen reported depreciation of $5,500,000 on its 2018 income tax return. The difference in depreciation is the only temporary difference, and it will reverse equally over the next three years. Cohen's enacted income tax rates are 35% for 2018, 30% for 2019, and 25% for 2020 and 2021. What amount should be included in the deferred income tax liability in Hertz's December 31, 2018 balance sheet? a. $480,000 b. $620,000 c. $750,000 d. $875,000
a. $480,000
Dunn, Inc. uses the accrual method of accounting for financial reporting purposes and appropriately uses the installment method of accounting for income tax purposes. Installment income of $3,000,000 will be collected in the following years when the enacted tax rates are: Collection of Income Enacted Tax Rates 2017 $300,000 35% 2018 600,000 30% 2019 900,000 30% 2020 1,200,000 25% The installment income is Dunn's only temporary difference. What amount should be included in the deferred income tax liability in Dunn's December 31, 2018 balance sheet? a. $750,000 b. $855,000 c. $945,000 d. $1,050,000
a. $750,000
Marle Construction enters into a contract with a customer to build a warehouse for $950,000 on March 30, 2018 with a performance bonus of $50,000 if the building is completed by July 31, 2018. The bonus is reduced by $10,000 each week that completion is delayed. Marle commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by Probability July 31, 2018 65% August 7, 2018 25% August 14, 2018 5% August 21, 2018 5% The transaction price for this transaction is a. $995,000 b. $950,000 c. $652,500 d. $685,000
a. $995,000
On August 1, 2018, Fowler Company acquired $500,000 face value 10% bonds of Kasnic Corporation at 104 plus accrued interest. The bonds were dated May 1, 2018, and mature on April 30, 2023, with interest payable each October 31 and April 30. The bonds will be held to maturity. What entry should Fowler make to record the purchase of the bonds on August 1, 2018? a. Debt Investments 520,000 Interest Revenue 12,500 Cash 532,500 b. Debt Investments 532,500 Cash 532,500 c. Debt Investments 532,500 Interest Revenue 12,500 Cash 520,000 d. Debt Investments 500,000 Premium on Bonds 32,500 Cash 532,500
a. Debt Investments 520,000 Interest Revenue 12,500 Cash 532,500
Santo Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods? Fair Value Method Equity Method a. No Effect Decrease b. Increase Decrease c. No Effect No Effect d. Decrease No Effect
a. No Effect Decrease
Presented below is information related to Decker Manufacturing Company as of December 31, 2018: Projected benefit obligation $1,700,000 Accumulated OCI -net gain 600,000 Accumulated OCI (PSC) 810,000 The amount for the prior service cost is related to an increase in benefits. The fair value of the pension plan assets is $1,200,000. The pension asset / liability reported on the balance sheet at December 31, 2018 is a. Pension liability of $500,000 b. Pension liability of $1,200,000 c. Pension liability of $1,700,000 d. Pension liability of $2,510,000
a. Pension liability of $500,000
Seadrill Engineering licensed software to oil-drilling firms for 5 years. In addition to providing the software, the company also provides consulting services and support to ensure smooth operation of the software. The total transaction price is $420,000. Based on standalone values, the company estimates the consulting services and support have a value of $120,000 and the software license has a value of $300,000. Assuming the performance obligations are not interdependent, the journal entry to record the transaction includes a. a credit to Sales Revenue for $300,000 and a credit to Unearned Service Revenue of $120,000. b. a credit to Service Revenue of $120,000. c. a credit to Unearned Service Revenue of $120,000. d. a credit to Sales Revenue of $420,000.
a. a credit to Sales Revenue for $300,000 and a credit to Unearned Service Revenue of $120,000.
Koehn Corporation accounts for its investment in the common stock of Sells Company under the equity method. Koehn Corporation should ordinarily record a cash dividend received from Sells as a. a reduction of the carrying value of the investment. b. additional paid-in capital. c. an addition to the carrying value of the investment. d. dividend income.
a. a reduction of the carrying value of the investment.
When multiple performance obligations exists in a contract, they should be accounted for as a single performance obligation when a. each service is interdependent and interrelated. b. both performance obligations are distinct but interdependent. c. the product is distinct within the contract. d. determination cannot be made.
a. each service is interdependent and interrelated.
Ohlman, Inc. maintains a defined-benefit pension plan for its employees. As of December 31, 2018, the market value of the plan assets is less than the accumulated benefit obligation. The projected benefit obligation exceeds the accumulated benefit obligation. In its balance sheet as of December 31, 2018, Ohlman should report a liability in the amount of the a. excess of the projected benefit obligation over the fair value of the plan assets. b. excess of the accumulated benefit obligation over the fair value of the plan assets. c. projected benefit obligation. d. accumulated benefit obligation.
a. excess of the projected benefit obligation over the fair value of the plan assets.
Debt securities that are accounted for at amortized cost, not fair value, are a. held-to-maturity debt securities. b. trading debt securities. c. available-for-sale debt securities. d. never-sell debt securities.
a. held-to-maturity debt securities.
When an investor's accounting period ends on a date that does not coincide with an interest receipt date for bonds held as an investment, the investor must a. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the amount of interest accrued since the last interest receipt date. b. notify the issuer and request that a special payment be made for the appropriate portion of the interest period. c. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the total amount of interest to be received at the next interest receipt date. d. do nothing special and ignore the fact that the accounting period does not coincide with the bond's interest period.
a. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the amount of interest accrued since the last interest receipt date.
The percentage-of-completion method a. recognizes revenue and gross profit each period based upon progress. b. is used primarily for short-term contracts. c. accumulates construction costs in the Billings on Construction in Progress account. d. recognizes revenue and gross profits only when contract is completed.
a. recognizes revenue and gross profit each period based upon progress.
Equity securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses are a. securities where a company has holdings of less than 20%. b. securities where a company has holdings of more than 20%. c securities where a company has holdings of between 20% and 50%. d. securities where a company has holdings of more than 50%.
a. securities where a company has holdings of less than 20%.
Kern Company purchased bonds with a face amount of $1,000,000 between interest payment dates. Kern purchased the bonds at 102, paid brokerage costs of $15,000, and paid accrued interest for three months of $25,000. The amount to record as the cost of this long-term investment in bonds is a. $1,060,000. b. $1,035,000. c. $1,020,000. d. $1,000,000.
b. $1,035,000.
Rich, Inc. acquired 30% of Doane Corporation's voting stock on January 1, 2018 for $1,000,000. During 2018, Doane earned $400,000 and paid dividends of $250,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2019, Doane earned $500,000 and paid dividends of $150,000 on April 1 and $150,000 on October 1. On July 1, 2019, Rich sold half of its stock in Doane for $660,000 cash. The carrying amount of this investment in Rich's December 31, 2018 balance sheet should be a. $1,000,000. b. $1,045,000. c. $1,120,000. d. $1,150,000.
b. $1,045,000.
On October 1, 2018, Menke Company purchased to hold to maturity, 500, $1,000, 9% bonds for $520,000. An additional $15,000 was paid for accrued interest. Interest is paid semiannually on December 1 and June 1 and the bonds mature on December 1, 2022. Menke uses straight-line amortization. Ignoring income taxes, the amount reported in Menke's 2018 income statement from this investment should be a. $11,250. b. $10,050. c. $12,450. d. $13,650.
b. $10,050.
The following information relates to Windom Company for 2018: Realized gain on sale of available-for-sale debt securities $45,000 Unrealized holding gains arising during the period on available-for-sale debt securities 90,000 Reclassification adjustment for gains included in net income 30,000 Windom's 2018 comprehensive income is a. $75,000. b. $105,000. c. $135,000. d. $165,000.
b. $105,000.
During 2018, Hauke Company purchased 6,000, $1,000, 9% bonds. The carrying value of the bonds at December 31, 2018 was $5,880,000. 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 a. $0. b. $14,400. c. $24,000. d. $33,600.
b. $14,400.
On December 31, 2017, Patel Company purchased debt securities as trading securities. Pertinent data are as follows: Fair Value Security Cost At 12/31/18 A $132,000 $119,000 B 172,000 186,000 C 288,000 263,000 On December 31, 2018, Patel transferred its investment in security C from trading to available-for-sale because Patel intends to retain security C as a long-term investment. What total amount of gain or loss on its securities should be included in Patel's income statement for the year ended December 31, 2018? a. $1,000 gain. b. $24,000 loss. c. $25,000 loss. d. $38,000 loss.
b. $24,000 loss.
At December 31, 2018, the following information was provided by the Vargas Corp. pension plan administrator: Fair value of plan assets $5,400,000 Accumulated benefit obligation 6,700,000 Projected benefit obligation 8,900,000 What is the amount of the pension liability that should be shown on Vargas' December 31, 2018 balance sheet? a. $8,900,000 b. $3,500,000 c. $2,200,000 d. $1,300,000
b. $3,500,000
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 a. $3,900,000. b. $3,903,000. c. $3,960,000. d. $3,961,750.
b. $3,903,000.
The following facts relate to the Gamble Co. postretirement benefits plan for 2018: Service cost $236,000 Discount rate 10% EPBO, January 1, 2018 $1,095,000 APBO, January 1, 2018 $900,000 Actual return on plan assets in 2018 $31,500 Expected return on plan assets in 2018 $24,000 The amount of postretirement expense for 2018 is a. $294,500. b. $302,000. c. $321,500. d. $326,000.
b. $302,000.
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 a. $8,100,000. b. $6,885,000. c. $1,215,000. d. $0 until approval is received
b. $6,885,000.
Green Construction Co. has consistently used the percentage-of-completion method of recognizing revenue. During 2018, Green entered into a fixed-price contract to construct an office building for $28,000,000. Information relating to the contract is as follows: At December 31 2018 2019 Percentage of completion 15% 45% Estimated total cost at completion $21,000,000 $22,400,000 Gross profit recognized (cumulative) 1,400,000 3,360,000 Contract costs incurred during 2019 were a. $6,720,000. b. $6,930,000. c. $7,350,000. d. $10,080,000.
b. $6,930,000.
Instrument Corporation has the following investment which was held throughout 2018-2019: Fair Value Cost 12/31/18 12/31/19 Equity investment $900,000 $1,200,000 $1,140,000 What amount of gain or loss would Instrument Corporation report in its income statement for the year ended December 31, 2019 related to its investment? a. $60,000 gain. b. $60,000 loss. c. $300,000 gain. d. $240,000 gain.
b. $60,000 loss.
Didde Corp. prepared the following reconciliation of income per books with income per tax return for the year ended December 31, 2018: Book income before income taxes $2,700,000 Add temporary difference Construction contract revenue which will reverse in 2019 240,000 Deduct temporary difference Depreciation expense which will reverse in equal amounts in each of the next four years (960,000) Taxable income $1,980,000 Didde's effective income tax rate is 34% for 2018. What amount should Didde report in its 2018 income statement as the current provision for income taxes? a. $ 81,600 b. $673,200 c. $918,000 d. $999,600
b. $673,200
Rathke, Inc. has a defined-benefit pension plan covering its 50 employees. Rathke agrees to amend its pension benefits. As a result, the projected benefit obligation increased by $2,700,000. Rathke determined that all its employees are expected to receive benefits under the plan over the next 5 years. In addition, 20% are expected to retire or quit each year. Assuming that Rathke uses the years-of-service method of amortization for prior service cost, the amount reported as amortization of prior service cost in year one after the amendment is a. $540,000. b. $900,000. c. $270,000. d. $720,000.
b. $900,000.
At December 31, 2018, Atlanta Company has an equity portfolio valued at $160,000. Its cost was $132,000. If the Securities Fair Value Adjustment has a debit balance of $8,000, which of the following journal entries is required at December 31, 2018? a. Fair Value Adjustment 28,000 Unrealized Holding Gain or Loss-Income 28,000 b. Fair Value Adjustment 20,000 Unrealized Holding Gain or Loss-Income 20,000 c. Unrealized Holding Gain or Loss-Income 28,000 Fair Value Adjustment 28,000 d. Unrealized Holding Gain or Loss-Income 20,000 Fair Value Adjustment 20,000
b. Fair Value Adjustment 20,000 Unrealized Holding Gain or Loss-Income 20,000
When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies? a. The investor should always use the equity method to account for its investment. b. The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee. c. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee. d. The investor should always use the fair value method to account for its investment.
b. The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee.
Held-to-maturity securities are reported at a. acquisition cost. b. acquisition cost plus amortization of a discount. c. acquisition cost plus interest. d. fair value.
b. acquisition cost plus amortization of a discount.
When a contract modification does not result in a separate performance obligation, the additional products are priced at the a. standalone price of the product. b. blended price of original contract and contract modification. c. average selling price of original selling price and standalone price. d. selling price specified in contract modification
b. blended price of original contract and contract modification.
Botanic Choice sell natural supplements to customers with an unconditional sales return if they are not satisfied. The sales returns extends 60 days. On February 10, 2018, a customer purchases $4,000 of products (cost $2,000). Assuming that based on prior experience, estimated returns are 20%. The journal entry to record the expected sales return and cost of goods sold includes a a. debit to Cash and a credit to Sales Revenue of $4,000. b. debit to Allowance for Sales Returns of $800 and a credit to Cost of Goods sold of $400. c. debt to Cost of Goods Sold and credit to Inventory for $2,000. d. credit to Estimated Inventory Returns of $400
b. debit to Allowance for Sales Returns of $800 and a credit to Cost of Goods sold of $400.
When a company has an obligation or right to repurchase an asset for an amount greater than or equal to its selling price, the transaction should be treated as a a. outright sale. b. financing transaction. c. repurchase transaction. d. put option.
b. financing transaction.
Interest cost included in pension expense recognized for a period by an employer sponsoring a defined-benefit pension plan represents the a. shortage between the expected and actual returns on plan assets. b. increase in the projected benefit obligation due to the passage of time. c. increase in the fair value of plan assets due to the passage of time. d. amortization of the discount on accumulated OCI (PSC).
b. increase in the projected benefit obligation due to the passage of time.
Monroe Construction Company uses the percentage-of-completion method of accounting. In 2018, Monroe began work on a contract it had received which provided for a contract price of $37,500,000. Other details follow: 2018 Costs incurred during the year $18,000,000 Estimated costs to complete as of December 31 12,000,000 Billings during the year 16,500,000 Collections during the year 9,500,000 What should be the gross profit recognized in 2018? a. $ 1,500,000 b. $19,500,000 c. $ 4,500,000 d. $ 7,500,000
c. $ 4,500,000
On November 1, 2018, Howell Company purchased 1,000 of the $1,000 face value, 9% bonds of Ramsey, Incorporated, for $1,052,500, which includes accrued interest of $15,000. The bonds, which mature on January 1, 2023, pay interest semiannually on March 1 and September 1. Assuming that Howell uses the straight-line method of amortization and that the bonds are appropriately classified as available-for-sale, the net carrying value of the bonds should be shown on Howell's December 31, 2018, balance sheet at a. $1,000,000. b. $1,037,500. c. $1,036,000. d. $1,052,500.
c. $1,036,000.
Rich, Inc. acquired 30% of Doane Corporation's voting stock on January 1, 2018 for $1,000,000. During 2018, Doane earned $400,000 and paid dividends of $250,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2019, Doane earned $500,000 and paid dividends of $150,000 on April 1 and $150,000 on October 1. On July 1, 2019, Rich sold half of its stock in Doane for $660,000 cash. 38. Before income taxes, what amount should Rich include in its 2018 income statement as a result of the investment? a. $400,000. b. $250,000. c. $120,000. d. $75,000.
c. $120,000.
Rich, Inc. acquired 30% of Doane Corporation's voting stock on January 1, 2018 for $1,000,000. During 2018, Doane earned $400,000 and paid dividends of $250,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2019, Doane earned $500,000 and paid dividends of $150,000 on April 1 and $150,000 on October 1. On July 1, 2019, Rich sold half of its stock in Doane for $660,000 cash. What should be the gain on sale of this investment in Rich's 2019 income statement? a. $160,000. b. $137,500. c. $122,500. d. $100,000.
c. $122,500.
For calendar year 2018, Kane Corp. reported depreciation of $1,600,000 in its income statement. On its 2018 income tax return, Kane reported depreciation of $2,400,000. Kane's income statement also included $300,000 accrued warranty expense that will be deducted for tax purposes when paid. Kane's enacted tax rates are 30% for 2018 and 2019, and 24% for 2020 and 2021. The depreciation difference and warranty expense will reverse over the next three years as follows: Depreciation Difference Warranty Expense 2019 $320,000 $ 60,000 2020 280,000 100,000 2021 200,000 140,000 $800,000 $300,000 These were Kane's only temporary differences. In Kane's 2018 income statement, the deferred portion of its provision for income taxes should be a. $267,600. b. $150,000. c. $135,600. d. $146,400.
c. $135,600.
At December 31, 2018, Jeter Corporation had the following debt securities that were purchased during 2018, its first year of operation: Fair Unrealized Cost Value Gain (Loss) Trading Securities: Security A $ 85,000 $ 65,000 $(20,000) B 15,000 20,000 5,000 Totals $100,000 $ 85,000 $(15,000) Available-for-Sale Securities: Security Y $ 70,000 $ 80,000 $ 10,000 Z 85,000 55,000 (30,000) Totals $155,000 $135,000 $(20,000) All market declines are considered temporary. Fair value adjustments at December 31, 2018 should be established with a corresponding charge against Income Stockholders' Equity a. $40,000 $ 0 b. $25,000 $30,000 c. $15,000 $20,000 d. $15,000 $ 0
c. $15,000 $20,000
Kramer Company's equity securities portfolio which is appropriately included in current assets is as follows: December 31, 2018 Fair Unrealized Cost Value Gain (Loss) Catlett Corp. $260,000 $215,000 $(45,000) Lyman, Inc. 245,000 265,000 20,000 $505,000 $480,000 $(25,000) Ignoring income taxes, what amount should be reported as a charge against income in Kramer's 2018 income statement if 2018 is Kramer's first year of operation? a. $0. b. $20,000 gain. c. $25,000 loss. d. $45,000 loss.
c. $25,000 loss.
Kraft, Inc. sponsors a defined-benefit pension plan. The following data relates to the operation of the plan for the year 2018. Service cost $ 345,000 Contributions to the plan 330,000 Actual return on plan assets 270,000 Projected benefit obligation (beginning of year) 3,600,000 Fair value of plan assets (beginning of year) 2,400,000 The expected return on plan assets and the settlement rate were both 10%. The amount of pension expense reported for 2018 is a. $345,000. b. $435,000. c. $465,000. d. $705,000.
c. $465,000.
Wright Co., organized on January 2, 2018, had pretax accounting income of $960,000 and taxable income of $3,120,000 for the year ended December 31, 2018. The only temporary difference is accrued product warranty costs which are expected to be paid as follows: 2019 $720,000 2020 360,000 2021 360,000 2022 720,000 The enacted income tax rates are 35% for 2018, 30% for 2019 through 2021, and 25% for 2022. If Wright expects taxable income in future years, the deferred tax asset in Wright's December 31, 2018 balance sheet should be a. $432,000. b. $504,000. c. $612,000. d. $756,000.
c. $612,000.
On January 1, 2018, Gore, Inc. purchased a machine for $2,250,000 which will be depreciated $225,000 per year for financial statement reporting purposes. For income tax reporting, Gore elected to expense $250,000 and to use straight-line depreciation which will allow a cost recovery deduction of $200,000 for 2018. Assume a present and future enacted income tax rate of 30%. What amount should be added to Gore's deferred income tax liability for this temporary difference at December 31, 2018? a. $135,000 b. $75,000 c. $67,500 d. $60,000
c. $67,500
Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income? a. Subscriptions received in advance. b. Prepaid royalty received in advance. c. An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes. d. Interest received on a municipal obligation.
c. An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes.
An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as Fair Value Method Equity Method a. Income Income b. A reduction of the investment A reduction of the investment c. Income A reduction of the investment d. A reduction of the investment Income
c. Income A reduction of the investment
Which of the following is not a debt security? a. Convertible bonds b. Commercial paper c. Loans receivable d. All of these are debt securities
c. Loans receivable
Logan Corp., a company whose stock is publicly traded, provides a noncontributory defined-benefit pension plan for its employees. The company's actuary has provided the following information for the year ended December 31, 2018: Projected benefit obligation $730,000 Accumulated benefit obligation 545,000 Fair value of plan assets 860,000 Service cost 240,000 Interest on projected benefit obligation 24,000 Amortization of prior service cost 60,000 Expected and actual return on plan assets 82,500 The market-related asset value equals the fair value of plan assets. No contributions have been made for 2018 pension cost. In its December 31, 2018 balance sheet, Logan should report a pension asset / liability of a. Pension liability of $730,000 b. Pension asset of $860,000 c. Pension asset of $130,000 d. Pension liability of $545,000
c. Pension asset of $130,000
Watt Company purchased $300,000 of bonds for $315,000. If Watt intends to hold the securities to maturity, the entry to record the investment includes a. a debit to Debt Investments at $300,000. b. a credit to Premium on Debt Investments of $15,000. c. a debit to Debt Investments at $315,000. d. None of these choices are correct.
c. a debit to Debt Investments at $315,000.
Stuart Corporation's taxable income differed from its accounting income computed for this past year. An item that would create a permanent difference in accounting and taxable incomes for Stuart would be a. a balance in the Unearned Rent account at year end. b. using accelerated depreciation for tax purposes and straight-line depreciation for book purposes. c. a fine resulting from violations of OSHA regulations. d. making installment sales during the year.
c. a fine resulting from violations of OSHA regulations.
In accounting for investments in debt securities, a. a discount is reported separately. b. a premium is reported separately. c. any discount or premium is amortized. d. None of these answers are correct.
c. any discount or premium is amortized.
Debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses that are included as other comprehensive income and as a separate component of stockholders' equity are a. held-to-maturity debt securities. b. trading debt securities. c. available-for-sale debt securities. d. never-sell debt securities.
c. available-for-sale debt securities.
Investments in debt securities are generally recorded at a. cost including accrued interest. b. maturity value. c. cost including brokerage and other fees. d. maturity value with a separate discount or premium account.
c. cost including brokerage and other fees.
P & G Auto Parts sells parts to AAA Car Repair during 2018. P&G offers rebates of 2% on purchases up to $60,000 and 3% on purchases above $60,000 if the customer's purchases for the year exceed $200,000. In the past, AAA normally purchases $300,000 in parts during a calendar year. On March 25, 2018, AAA Car Repair purchased $74,000 of parts. The journal entry to record the purchase includes a a. debit to Accounts Receivable for $74,000. b. debit to Accounts Receivable for $72,800. c. credit to Sales Revenue for $72,380. d. credit to Sales Revenue for $72,800.
c. credit to Sales Revenue for $72,380.
Meyer & Smith is a full-service technology company. They provide equipment, installation services as well as training. Customers can purchase any product or service separately or as a bundled package. Container Corporation purchased computer equipment, installation and training for a total cost of $144,000 on March 15, 2018. Estimated standalone fair values of the equipment, installation and training are $90,000, $60,000 and $30,000 respectively. The journal entry to record the transaction on March 15, 2018 will include a a. credit to Sales Revenue for $144,000. b. debit to Unearned Service Revenue of $30,000. c. credit to Unearned Service Revenue of $24,000. d. credit to Service Revenue of $60,000.
c. credit to Unearned Service Revenue of $24,000.
GAAP specifies that, regarding the amortization of a premium or discount on a debt security, the a. effective-interest method of allocation must be used. b. straight-line method of allocation must be used. c. effective-interest method of allocation should be used but other methods can be applied if there is no material difference in the results obtained. d. par value method must be used and therefore no allocation is necessary.
c. effective-interest method of allocation should be used but other methods can be applied if there is no material difference in the results obtained.
All of the following are procedures for the computation of deferred income taxes except to a. identify the types and amounts of existing temporary differences. b. measure the total deferred tax liability for taxable temporary differences. c. measure the total deferred tax liability for deductible temporary differences. d. determine taxes payable.
c. measure the total deferred tax liability for deductible temporary differences.
Noncash consideration should be a. recognized on the basis of fair value of what is given up. b. recognized on the basis of original cost paid by customer. c. recognized on the basis of fair value of what is received. d. recognized on the basis of fair value of equivalent goods or services.
c. recognized on the basis of fair value of what is received.
On January 15, 2018, Bella Vista Company enters into a contract to build custom equipment for ABC Carpet Company. The contract specified a delivery date of March 1. The equipment was not delivered until March 31. The contract required full payment of $75,000 30 days after delivery. This contract should be a. recorded on January 15, 2018. b. recorded on March 1, 2018. c. recorded on March 31, 2018. d. recorded on April 30, 2018.
c. recorded on March 31, 2018.
When sales are made with a right of return, the company a. should not recognize any revenue. b. should recognize revenue for the full sales price. c. records the returned asset in a separate inventory account. d. records the estimated returns in the Sales Returns account.
c. records the returned asset in a separate inventory account.
Disclosure related to revenue a. does not require capitalized costs to obtain and fulfill a contract. b. does not require judgments that affect amount and timing of revenues from contracts. c. requires disclosure of remaining performance obligations. d. requires disaggregation of revenues by reportable segments.
c. requires disclosure of remaining performance obligations.
An option to purchase a warranty is recorded as a. an expense in the period the goods or services are sold. b. a warranty liability for all costs incurred after sale due to correction of defects. c. revenue in the period that the service-type warranty is in effect. d. an assurance type warranty which is included in the sales price of the product.
c. revenue in the period that the service-type warranty is in effect.
A reclassification adjustment is reported in the a. income statement as an Other revenue or expense. b. stockholders' equity section of the balance sheet. c. statement of comprehensive income as other comprehensive income. d. statement of stockholders' equity.
c. statement of comprehensive income as other comprehensive income.
Unrealized holding gains or losses which are recognized in income are from debt securities classified as a. held-to-maturity. b. available-for-sale. c. trading. d. None of these answers are correct.
c. trading.
Bruner Constructors, Inc. has consistently used the percentage-of-completion method of recognizing income. In 2018, Bruner started work on a $49,000,000 construction contract that was completed in 2019. The following information was taken from Bruner's 2018 accounting records: Progress billings $15,400,000 Costs incurred 14,700,000 Collections 9,600,000 Estimated costs to complete 29,400,000 What amount of gross profit should Bruner have recognized in 2018 on this contract? a. $4,900,000 b. $3,266,667 c. $2,450,000 d. $1,633,333
d. $1,633,333
On June 1, 2018, Johnson & Sons sold equipment to James Landscaping Services. In exchange for a zero-interest bearing note with a face value of $110,000, with payment due in 12 months. The fair value of the equipment on the date of sale was $100,000. The amount of revenue to be recognized on this transaction in 2018 is a. $110,000. b. $10,000 c. $100,000 d. $100,000 sales revenue and $5,833 interest revenue.
d. $100,000 sales revenue and $5,833 interest revenue.
Valet Corporation began operations in 2018. An analysis of Valet's debt securities portfolio acquired in 2018 shows the following totals at December 31, 2018 for trading and available-for-sale debt securities: Trading Available-for-Sale Securities Securities Aggregate cost $180,000 $220,000 Aggregate fair value 160,000 190,000 What amount should Valet report in its 2018 income statement for unrealized holding loss? a. $50,000. b. $10,000. c. $30,000. d. $20,000.
d. $20,000.
During 2018, Gates Corp. started a construction job with a total contract price of $21,000,000. The job was completed on December 15, 2019. Additional data are as follows: 2018 2019 Actual costs incurred during the year $8,100,000 $9,150,000 Estimated remaining costs 8,100,000 — Billed to customer 7,200,000 13,800,000 Received from customer 6,000,000 14,400,000 Under the completed-contract method, what amount should Gates recognize as gross profit for 2019? a. $1,350,000 b. $1,875,000 c. $2,850,000 d. $3,750,000
d. $3,750,000
Foltz Corp.'s 2018 income statement had pretax financial income of $500,000 in its first year of operations. Foltz uses an accelerated cost recovery method on its tax return and straight-line depreciation for financial reporting. The differences between the book and tax deductions for depreciation over the five-year life of the assets acquired in 2018, and the enacted tax rates for 2018 to 2022 are as follows: Book Over (Under) Tax Tax Rates 2018 $(100,000) 35% 2019 (130,000) 30% 2020 (30,000) 30% 2021 120,000 30% 2022 140,000 30% There are no other temporary differences. In Foltz's December 31, 2018 balance sheet, the noncurrent deferred income tax liability and the income taxes currently payable should be Noncurrent Deferred Income Taxes Income Tax Liability Currently Payable a. $78,000 $100,000 b. $78,000 $140,000 c. $30,000 $120,000 d. $30,000 $140,000
d. $30,000 $140,000
Meyer & Smith is a full-service technology company. They provide equipment, installation services as well as training. Customers can purchase any product or service separately or as a bundled package. Container Corporation purchased computer equipment, installation and training for a total cost of $144,000 on March 15, 2018. Estimated standalone fair values of the equipment, installation, and training are $90,000, $60,000, and $30,000 respectively. The transaction price allocated to equipment, installation and training is a. $90,000, $60,000, $30,000 respectively b. $48,000, $48,000, $48,000 respectively c. $144,000 for the entire bundle. d. $72,000, $48,000 and $24,000 respectively.
d. $72,000, $48,000 and $24,000 respectively.
On October 1, 2017, Wenn Company purchased 800 of the $1,000 face value, 8% bonds of Loy, Inc., for $936,000, including accrued interest of $16,000. The bonds, which mature on January 1, 2024, pay interest semiannually on January 1 and July 1. Wenn used the straight-line method of amortization and appropriately recorded the bonds as available-for-sale. On Wenn's December 31, 2018 balance sheet, the carrying value of the bonds is a. $920,000. b. $912,000. c. $908,800. d. $896,000.
d. $896,000.
The following information pertains to Hopson Co.'s pension plan: Actuarial estimate of projected benefit obligation at 1/1/18 $82,000 Assumed discount rate 10% Service costs for 2018 $23,000 Pension benefits paid during 2018 $15,000 If no change in actuarial estimates occurred during 2018, Hopson's projected benefit obligation at December 31, 2018 was a. $90,200. b. $90,000. c. $113,200. d. $98,200.
d. $98,200.
During 2018 Logic Company purchased 10,000 shares of Midi, Inc. for $30 per share. During the year Logic Company sold 2,500 shares of Midi, Inc. for $35 per share. At December 31, 2018 the market price of Midi, Inc.'s stock was $28 per share. What is the total amount of unrealized gain/(loss) that Logic Company will report in its income statement for the year ended December 31, 2018 related to its investment in Midi, Inc. stock? a. ($20,000) b. $12,500 c. ($7,500) d. ($2,500)
d. ($2,500)
Which of the following is not correct in regard to trading securities? a. They are held with the intention of selling them in a short period of time. b. Unrealized holding gains and losses are reported as part of net income. c. Any discount or premium is amortized. d. All of these choices are correct
d. All of these choices are correct
Companies are required to disclose the total of each of the following except a. all deferred tax assets. b. all deferred tax liabilities. c. the total valuation allowance. d. All of these choices must be disclosed.
d. All of these choices must be disclosed.
On December 29, 2019, James Company sold a debt security that had been purchased on January 4, 2018. James owned no other debt securities. An unrealized holding loss was reported in the 2018 income statement. A realized gain was reported in the 2019 income statement. Was the debt security classified as available-for-sale and did its 2018 market price decline exceed its 2019 market price recovery? 2018 Market Price Decline Exceeded 2019 Available-for-Sale Market Price Recovery a. Yes Yes b. Yes No c. No Yes d. No No
d. No No
On its December 31, 2017, balance sheet, Trump Company reported its investment in equity securities, which had cost $600,000, at fair value of $560,000. At December 31, 2018, the fair value of the securities was $585,000. What should Trump report on its 2018 income statement as a result of the increase in fair value of the investments in 2018? a. $0. b. Unrealized loss of $15,000. c. Realized gain of $25,000. d. Unrealized gain of $25,000.
d. Unrealized gain of $25,000.
When a customer purchases a product but is not yet ready for delivery, this is referred to as a. a repurchase agreement. b. a consignment. c. a principal-agent relationship. d. a bill-and-hold arrangement
d. a bill-and-hold arrangement
New Age Computers manufactures and sells pagers and radio paging systems which include a 180 day warranty on product defects. It also sells an extended warranty which provides an additional two years of protection. On May 10, it sold a paging system for $4,500 and an extended warranty for another $1,400. The journal entry to record this transaction would include a. a credit to Warranty Revenue of $5,900. b. a credit to Warranty Revenue of $1,400 c. a credit to Sales of $4,500 and a credit to Warranty Revenue of $1,400 d. a credit to Unearned Warranty Revenue of $1,400.
d. a credit to Unearned Warranty Revenue of $1,400.
Entertainment Tonight, Inc. manufactures and sells stereo systems that include an assurance-type warranty for the first 90 days. Entertainment Tonight also offers an optional extended coverage plan under which it will repair or replace any defective part for 2 years beyond the expiration of the assurance-type warranty. The total transaction price for the sale of the stereo system and the extended warranty is $3,000. The standalone price of each is $2,300 and $900, respectively. The estimated cost of the assurance-warranty is $350. The accounting for warranty will include a a. debit to Warranty Expense, $900. b. debit to Warranty Liability, $350 c. credit to Warranty Liability, $900 d. credit to Unearned Warranty Revenue, $900
d. credit to Unearned Warranty Revenue, $900
On July 31, O'Malley Company contracted to have two products built by Taylor Manufacturing for a total of $370,000. The contract specifies that payment will only occur after both products have been transferred to O'Malley Company. O'Malley determines that the standalone prices are $200,000 for Product 1 and $170,000 for Product 2. On August 1, when Product 1 has been transferred, the journal entry to record this event include a a. debit to Accounts Receivable for $200,000. b. debit to Accounts Receivable for $170,000. c. debit to Contract Assets for $170,000. d. debit to Contract Assets for $200,000.
d. debit to Contract Assets for $200,000.
If the parent company owns 90% of the subsidiary company's outstanding common stock, the company should generally account for the income of the subsidiary under the a. cost method. b. fair value method. c. divesture method. d. equity method.
d. equity method.
Impairments are a. based on discounted cash flows for securities. b. recognized as a realized loss if the impairment is judged to be temporary. c. based on fair value for available-for-sale investments and on negotiated values for held-to-maturity investments. d. evaluated at each reporting date for every investment.
d. evaluated at each reporting date for every investment.
Seigel Co. maintains a defined-benefit pension plan for its employees. At each balance sheet date, Seigel should report a pension asset / liability equal to the a. accumulated benefit obligation. b. projected benefit obligation. c. accumulated benefit obligation. d. funded status relative to the projected benefit obligation.
d. funded status relative to the projected benefit obligation.
A company must account for a contract modification as a new contract if the a. goods or services are interdependent on each other. b. promised goods or services are distinct. c. company has the right to receive consideration equal to standalone price. d. goods or services are distinct and company has right to receive the standalone price.
d. goods or services are distinct and company has right to receive the standalone price.
Companies are permitted to offset any balances in income taxes payable against a. deferred tax assets balances. b. deferred tax liabilities balances. c. income tax expense. d. related income tax refund receivable or prepaid income taxes balances.
d. related income tax refund receivable or prepaid income taxes balances.
A major distinction between temporary and permanent differences is a. permanent differences are not representative of acceptable accounting practice. b. temporary differences occur frequently, whereas permanent differences occur only once. c. once an item is determined to be a temporary difference, it maintains that status; however, a permanent difference can change in status with the passage of time. d. temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse.
d. temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse.
