final acc 305

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 5% convertible bonds outstanding during 2015. The preferred stock is convertible into 40,000 shares of common stock. During 2015, Hanson paid dividends of $.60 per share on the common stock and $2 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2015 was $400,000 and the income tax rate was 30%. 108. Basic earnings per share for 2015 is (rounded to the nearest penny) a. $1.47. b. $1.61. c. $1.67. d. $1.80. 109. Diluted earnings per share for 2015 is (rounded to the nearest penny) a. $1.39. b. $1.41. c. $1.53. d. $1.67

108 is d and 109 is c

when convertible debt is retired by the issuer, any material difference between the cash acquisiton price and the carrying amount of the debt should be A) reflected currently in income, but not as an extraordinary item B) reflected currently in income, as an extrordinary item C) treated as a prior period ADJ D) treated as an adj of additional paid in capital

A reflected currently as income but not as an extrordinary item

Fogel Co. has $3,000,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2014, the holders of $960,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $210,000. Fogel should record, as a result of this conversion, a a. credit of $163,200 to Paid-in Capital in Excess of Par. b. credit of $144,000 to Paid-in Capital in Excess of Par. c. credit of $67,200 to Premium on Bonds Payable. d. loss of $9,600

A. credit of $163,200 to Paid-in Capital in Excess of Par

the conversion of prefferred stock is recorded by the A) incremental method B) Book value method C) market value method D) par value method

B Book value method

If a company offers additional compensations to convertible bond holders in order to encourage conversion it is A) forced conversion B) sweetner C) additional conversion D) end conversion

B sweetner

covertible bonds A) have priority over other indebtness B) are usually secured by a first or second home mortgage c)pay interest only in the event earnings are sufficient to tcover the interest D) may be exchanged for equity securities

D-may be exchanged for equity securities

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

C

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

D

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

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

the conversion of bonds is most commonly recorded by the A) incremental method B) proportional method C) market value method D) book value method

D book value method

the conversion of preferred stock into common stock requires than any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be A) reflected currently as income, but not as extrordinary item B) reflected currently in income as an aextrordinary item C) treated as a prior period adjustment D) treated as a direct reduction of retained earning

D direct reduction of retained earning

when the cash proceeds from a bond issued with detachable stock warrants exceed the sum of the par value of the bonds and the fair market value of the warrants, the excess should be credited too A) additional paid in capital from stock warrants B) retained earning C) liability account D) premium on bonds payable

D premium on bonds payable

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

D the warrants issued with debt securities are nondetachable

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

Debt Investments................................................................ 312,000 Interest Revenue................................................................. 7,500 Cash........................................................................ 319,500

Morgan Corporation had two issues of securities outstanding: common stock and an 8% convertible bond issue in the face amount of $12,000,000. Interest payment dates of the bond issue are June 30th and December 31st. The conversion clause in the bond indenture entitles the bondholders to receive forty shares of $20 par value common stock in exchange for each $1,000 bond. On June 30, 2014, the holders of $1,800,000 face value bonds exercised the conversion privilege. The market price of the bonds on that date was $1,100 per bond and the market price of the common stock was $35. The total unamortized bond discount at the date of conversion was $750,000. In applying the book value method, what amount should Morgan credit to the account "paid-in capital in excess of par," as a result of this conversion? a. $ 247,500. b. $ 120,000. c. $1,080,000. d. $ 540,000.

a. $ 247,500.

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

a. $0.

On January 1, 2015, 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 $1,120,000 at December 31, 2015. Ace reported net income of $700,000 for the year ended December 31, 2015, and paid common stock dividends totaling $280,000 during 2015. How much did Reston pay for its 25% interest in Ace? a. $1,015,000. b. $1,190,000. c. $1,225,000. d. $1,365,000.

a. $1,015,000.

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

a. $1,925

Information concerning the capital structure of Piper Corporation is as follows: December 31, 2015 2014 Common stock 150,000 shares 150,000 shares Convertible preferred stock 15,000 shares 15,000 shares 6% convertible bonds $2,400,000 $2,400,000 During 2015, Piper paid dividends of $0.60 per share on its common stock and $1.50 per share on its preferred stock. The preferred stock is convertible into 30,000 shares of common stock. The 6% convertible bonds are convertible into 75,000 shares of common stock. The net income for the year ended December 31, 2015, was $300,000. Assume that the income tax rate was 30%. 124. What should be the basic earnings per share for the year ended December 31, 2015, rounded to the nearest penny? a. $1.25 b. $1.54 c. $1.85 d. $2.00

a. $1.25

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

a. $10,500.

Bella Pool Company sells prefabricated pools that cost $100,000 to customers for $180,000. The sales price includes an installation fee, which is valued at $25,000. The fair value of the pool is $160,000. 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. $155,676 and $24,324 respectively b. $160,000 and $25,000 respectively c. $180,000 and $25,000 respectively d. $138,378 and $21,622 respectively

a. $155,676 and $24,324 respectively

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

a. $2,400,000.

Kiner, Inc. began work in 2014 on a contract for $16,800,000. Other data are as follows: 2014 2015 Costs incurred to date $7,200,000 $11,200,000 Estimated costs to complete 4,800,000 — Billings to date 5,600,000 16,800,000 Collections to date 4,000,000 14,400,000 *113. If Kiner uses the percentage-of-completion method, the gross profit to be recognized in 2014 is a. $2,880,000. b. $3,200,000. c. $4,320,000. d. $4,800,000.

a. $2,880,000.

At December 31, 2014 Rice Company had 300,000 shares of common stock and 10,000 shares of 8%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2014 or 2015. On January 30, 2016, prior to the issuance of its financial statements for the year ended December 31, 2015, Rice declared a 100% stock dividend on its common stock. Net income for 2015 was $1,520,000. In its 2015 financial statements, Rice's 2015 earnings per common share should be a. $2.40. b. $2.53. c. $4.80. d. $5.07.

a. $2.40.

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

a. $33,000.

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

a. $35,000.

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

a. $400,000.

In order to retain certain key executives, Jensen Corporation granted them incentive stock options on December 31, 2014. 90,000 options were granted at an option price of $35 per share. Market prices of the stock were as follows: December 31, 2015 $46 per share December 31, 2016 51 per share The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2015. The Black-Scholes option pricing model determines total compensation expense to be $900,000. What amount of compensation expense should Jensen recognize as a result of this plan for the year ended December 31, 2015 under the fair value method? a. $450,000. b. $900,000. c. $990,000. d. $3,150,000.

a. $450,000.

On January 1, 2014, Korsak, Inc. established a stock appreciation rights plan for its executives. It entitled them to receive cash at any time during the next four years for the difference between the market price of its common stock and a pre-established price of $20 on 100,000 SARs. Current market prices of the stock are as follows: January 1, 2014 $35 per share December 31, 2014 38 per share December 31, 2015 30 per share December 31, 2016 33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2014. *77. On December 31, 2016, 25,000 SARs are exercised by executives. What amount of compensation expense should Korsak recognize for the year ended December 31, 2016? a. $475,000 b. $325,000 c. $975,000 d. $130,000

a. $475,000

Landis Company purchased $2,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $2,083,160 at an effective interest rate of 7%. Using the effective-interest method, Landis Company decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $7,080 and $7,320, respectively. 74. At December 31, 2014, the fair value of the Ritter, Inc. bonds was $2,120,000. What should Landis Company report as other comprehensive income and as a separate component of stockholders' equity? a. $51,240. b. $36,840. c. $14,400. d. No entry should be made.

a. $51,240.

Marle Construction enters into a contract with a customer to build a warehouse for $850,000 on March 30, 2014 with a performance bonus of $50,000 if the building is completed by July 31, 2014. 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, 2014 65% August 7, 2014 25% August 14, 2014 5% August 21, 2014 5% The transaction price for this transaction is a. $895,000 b. $850,000 c. $552,500 d. $585,000

a. $895,000

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

a. $9,660,000.

Grimm Company has 2,400,000 shares of common stock outstanding on December 31, 2014. An additional 150,000 shares of common stock were issued on July 1, 2015, and 300,000 more on October 1, 2015. On April 1, 2015, Grimm issued 6,000, $1,000 face value, 8% convertible bonds. Each bond is convertible into 40 shares of common stock. No bonds were converted into common stock in 2015. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively, for the year ended December 31, 2015? a. 2,550,000 and 2,730,000 b. 2,550,000 and 2,550,000 c. 2,550,000 and 2,790,000 d. 2,850,000 and 3,030,000

a. 2,550,000 and 2,730,000

In computing earnings per share, the equivalent number of shares of convertible preferred stock are added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is cumulative, which amount should then be added as an adjustment to the numerator (net earnings)? a. Annual preferred dividend b. Annual preferred dividend times (one minus the income tax rate) c. Annual preferred dividend times the income tax rate d. Annual preferred dividend divided by the income tax rate

a. Annual preferred dividend

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

a. Discount on Bonds Payable.

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

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 $350,000. Based on standalone values, the company estimates the consulting services and support have a value of $100,000 and the software license has a value of $250,000. Assuming the performance obligations are not interdependent, the journal entry to record the transaction includes a. a credit to Sales Revenue for $250,000 and a credit to Unearned Service Revenue of $100,000. b. a credit to Service Revenue of $100,000. c. a credit to Unearned Service Revenue of $100,000. d. a credit to Sales Revenue of $350,000.

a. a credit to Sales Revenue for $250,000 and a credit to Unearned Service Revenue of $100,000.

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.

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

a. arbitrageurs.

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

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

The role of the agent in a Principal-Agent relationship is to a. arrange for the principal to provide goods or services to a customer. b. provide the goods or services for a customer. c. market the principal goods and services to prospective customers. d. develop and maintain goodwill of the principal's customers

a. arrange for the principal to provide goods or services to a customer.

Continuing franchise fees should be recorded by the franchisor a. as revenue when earned and receivable from the franchisee. b. as revenue when received. c. in accordance with the accounting procedures specified in the franchise agreement. d. as revenue only after the balance of the initial franchise fee has been collected.

a. as revenue when earned and receivable from the franchisee.

Equity securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses as other comprehensive income and as a separate component of stockholders' equity are a. available-for-sale securities where a company has holdings of less than 20%. b. trading securities where a company has holdings of less than 20%. c securities where a company has holdings of between 20% and 50%. d. securities where a company has holdings of more than 50%.

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

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

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

The cost-to-cost basis measures progress towards completion by a. comparing costs incurred to date with total costs to complete the contract. b. tracking results of work completed to date; it is an output measure. c. tracking floors of a building completed versus floors still to be completed. d. tracking miles of a highway completed versus miles of highway still to be completed.

a. comparing costs incurred to date with total costs to complete the contract.

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

a. debit to Available-for-Sale Securities.

On November 1, 2014, Green Valley Farm entered into a contract to buy a $75,000 harvester from John Deere. The contract required Green Valley Farm to pay $75,000 in advance on November 1, 2014. The harvester (cost of $55,000) was delivered on November 30, 2014. The journal entry to record the delivery of the equipment includes a a. debit to Unearned Sales Revenue for $75,000. b. credit to Unearned Sales Revenue for $75,000. c. credit to Cost of Goods Sold for $55,000. d. debit to Inventory for $55,000.

a. debit to Unearned Sales Revenue for $75,000.

The third step in the process for revenue recognition is to a. determine the transaction price. b. identify the separate performance obligations in the contract. c. allocate transaction price to the separate performance obligations. d. recognize revenue when each performance obligation is satisfied.

a. determine the transaction price.

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.

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

a. embedded derivative.

6. 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.

A variable-interest entity has a. insufficient equity investment at risk. b. stockholders who have decision-making rights. c. stockholders who absorb the losses or receive the benefits of a normal stockholder. d. All of the above are characteristics of a variable-interest entity.

a. insufficient equity investment at risk.

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

a. is granted the option.

. 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.

Under the intrinsic value method, compensation expense resulting from an incentive stock option is a. not recognized if the market price does not exceed the option price at the date of grant. b. recognized in the period of the grant. c. allocated to the periods benefited by the employee's required service. d. recognized in the period of exercise.

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

Signing of the contract by the two parties is a. not recorded until one or both parties perform under the contract. b. recorded at the time the contract is approved by both parties. c. not recorded until both parties perform under the contract. d. recorded immediately after the contract is signed.

a. not recorded until one or both parties perform under the contract.

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 a. recognized in the current period, regardless of whether the percentage-of-completion or completed-contract method is employed. b. recognized in the current period under the percentage-of-completion method, but the completed-contract method defers recognition of the loss to the time when the contract is completed. c. recognized in the current period under the completed-contract method, but the percentage-of-completion method defers the loss until the contract is completed. d. deferred and recognized when the contract is completed, regardless of whether the percentage-of-completion or completed-contract method is employed.

a. recognized in the current period, regardless of whether the percentage-of-completion or completed-contract method is employed.

*68. 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.

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

c. any discount or premium is not amortized.

Unconditional rights to receive consideration because a performance obligation has been satisfied are a. reported as a receivable on the balance sheet. b. reported as a contract asset on the balance sheet. c. reported as a contract liability on the balance sheet. d. are not reported on the balance sheet

a. reported as a receivable on the balance sheet.

The principal advantage of the completed-contract method is that a. reported revenue is based on final results rather than estimates of unperformed work. b. it reflects current performance when the period of a contract extends into more than one accounting period. c. it is not necessary to recognize revenue at the point of sale. d. a greater amount of gross profit and net income is reported than is the case when the percentage-of-completion method is used.

a. reported revenue is based on final results rather than estimates of unperformed work.

A company uses income from continuing operations to determine whether potential common stock is dilutive or antidilutive, and this is referred to as a. the control number. b. the potential number. c. dilutive information. d. impact information.

a. the control number.

When the bundle price is less than the sum of the standalone prices, the discount should be allocated to a. the product (or products) causing the discount. b. the entire bundle of products or services. c. the product cost, thereby increasing product margin. d. the selling price of product or services provided.

a. the product (or products) causing the discount.

If a contract involves a significant financing component, a. the time value of money is used to determine the fair value of the transaction. b. the time value of money is not required to determine transaction price, if the payment is more than a year. c. the transaction amount should be based on the current sales price of goods or services. d. interest must be accrued on the current sales price of goods or services.

a. the time value of money is used to determine the fair value of the transaction.

The fair value option allows a company to a. value its own liabilities at fair value. b. record income when the fair value of its bonds increases. c. report most financial instruments at fair value at any point of time. d. All of the above are true of the fair value option.

a. value its own liabilities at fair value.

Revenue for sales-based royalty payments should be recognized a. when the amount of sales can be determined. b. on the date payment is received by the franchisor. c. on the date the performance obligation is satisfied. d. on the date the contract was signed.

a. when the amount of sales can be determined.

On January 1, 2014, Korsak, Inc. established a stock appreciation rights plan for its executives. It entitled them to receive cash at any time during the next four years for the difference between the market price of its common stock and a pre-established price of $20 on 100,000 SARs. Current market prices of the stock are as follows: January 1, 2014 $35 per share December 31, 2014 38 per share December 31, 2015 30 per share December 31, 2016 33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2014. *75. What amount of compensation expense should Korsak recognize for the year ended December 31, 2014? a. $ 300,000 b. $ 450,000 c. $ 375,000 d. $1,800,000

b. $ 450,000

On May 1, 2014, Marly Co. issued $1,500,000 of 7% bonds at 103, which are due on April 30, 2024. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marly's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2014, the fair value of Marly's common stock was $35 per share and of the warrants was $2. On May 1, 2014, Marly should credit Paid-in Capital from Stock Warrants for a. $105,000 b. $ 61,800 c. $ 60,000 d. $ 57,600

b. $ 61,800

Gomez, Inc. began work in 2014 on contract #3814, which provided for a contract price of $14,400,000. Other details follow: 2014 2015 Costs incurred during the year $2,400,000 $7,350,000 Estimated costs to complete, as of December 31 7,200,000 0 Billings during the year 2,700,000 10,800,000 Collections during the year 1,800,000 11,700,000 *111. Assume that Gomez uses the percentage-of-completion method of accounting. The portion of the total gross profit to be recognized as income in 2014 is a. $900,000. b. $1,200,000. c. $3,600,000. d. $4,800,000.

b. $1,200,000.

At December 31, 2015 and 2014, Miley Corp. had 180,000 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 2015 or 2014. Net income for 2015 was $375,000. For 2015, earnings per common share amounted to a. $2.08. b. $1.75. c. $1.53. d. $1.42.

b. $1.75.

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

b. $1,240,000 Debit

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

b. $1,443,744.

On July 1, 2014, Ellison Company granted Sam Wine, an employee, an option to buy 1,000 shares of Ellison Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $4,500. Wine exercised his option on October 1, 2014 and sold his 1,000 shares on December 1, 2014. Quoted market prices of Ellison Co. stock in 2014 were: July 1 $30 per share October 1 $36 per share December 1 $40 per share The service period is for three years beginning January 1, 2014. As a result of the option granted to Wine, using the fair value method, Ellison should recognize compensation expense on its books in the amount of a. $4,500. b. $1,500. c. $1,125. d. $0.

b. $1,500.

On January 1, 2015 Reese Company granted Jack Buchanan, an employee, an option to buy 300 shares of Reese Co. stock for $40 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $3,600. Buchanan exercised his option on September 1, 2015, and sold his 100 shares on December 1, 2015. Quoted market prices of Reese Co. stock during 2015 were: January 1 $40 per share September 1 $48 per share December 1 $54 per share The service period is for two years beginning January 1, 2015. As a result of the option granted to Buchanan, using the fair value method, Reese should recognize compensation expense for 2015 on its books in the amount of a. $0. b. $1,800. c. $3,600 d. $4,200

b. $1,800.

At December 31, 2014, Tatum Company had 2,000,000 shares of common stock outstanding. On January 1, 2015, Tatum issued 500,000 shares of preferred stock which were convertible into 1,000,000 shares of common stock. During 2015, Tatum declared and paid $1,200,000 cash dividends on the common stock and $400,000 cash dividends on the preferred stock. Net income for the year ended December 31, 2015, was $4,000,000. Assuming an income tax rate of 30%, what should be diluted earnings per share for the year ended December 31, 2015? (Round to the nearest penny.) a. $1.20 b. $1.33 c. $2.00 d. $1.66

b. $1.33

Didde Co. had 300,000 shares of common stock issued and outstanding at December 31, 2014. No common stock was issued during 2015. On January 1, 2015, Didde issued 200,000 shares of nonconvertible preferred stock. During 2015, Didde declared and paid $75,000 cash dividends on the common stock and $60,000 on the preferred stock. Net income for the year ended December 31, 2015 was $465,000. What should be Didde's 2015 earnings per common share? a. $1.55 b. $1.35 c. $1.30 d. $1.10

b. $1.35

During 2015, Piper paid dividends of $0.60 per share on its common stock and $1.50 per share on its preferred stock. The preferred stock is convertible into 30,000 shares of common stock. The 6% convertible bonds are convertible into 75,000 shares of common stock. The net income for the year ended December 31, 2015, was $300,000. Assume that the income tax rate was 30%. What should be the diluted earnings per share for the year ended December 31, 2015, rounded to the nearest penny? a. $1.74 b. $1.57 c. $1.33 d. $1.78

b. $1.57

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

b. $144,000.

On December 31, 2014, Patel Company purchased equity securities as trading securities. Pertinent data are as follows: Fair Value Security Cost At 12/31/15 A $132,000 $117,000 B 168,000 186,000 C 288,000 263,000 On December 31, 2015, 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, 2015? a. $3,000 gain. b. $17,000 loss. c. $20,000 loss. d. $35,000 loss.

b. $17,000 loss.

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

b. $2,927,250.

On January 2, 2015, Mize Co. issued at par $300,000 of 9% convertible bonds. Each $1,000 bond is convertible into 60 shares. No bonds were converted during 2015. Mize had 100,000 shares of common stock outstanding during 2015. Mize 's 2015 net income was $240,000 and the income tax rate was 30%. Mize's diluted earnings per share for 2015 would be (rounded to the nearest penny) a. $2.03. b. $2.19. c. $2.26. d. $2.40.

b. $2.19.

On January 2, 2015, Worth Co. issued at par $1,000,000 of 7% convertible bonds. Each $1,000 bond is convertible into 20 shares of common stock. No bonds were converted during 2015. Worth had 200,000 shares of common stock outstanding during 2015. Worth's 2015 net income was $450,000 and the income tax rate was 30%. Worth's diluted earnings per share for 2015 would be (rounded to the nearest penny): a. $2.50. b. $2.27. c. $2.25. d. $2.36.

b. $2.27.

5. Kasravi Co. had net income for 2015 of $500,000. The average number of shares outstanding for the period was 200,000 shares. The average number of shares under outstanding options, at an option price of $30 per share is 12,000 shares. The average market price of the common stock during the year was $36. What should Kasravi Co. report for diluted earnings per share for the year ended 2015? a. $2.50 b. $2.48 c. $2.38 d. $2.36

b. $2.48

At December 31, 2014, Sager Co. had 1,200,000 shares of common stock outstanding. In addition, Sager had 450,000 shares of preferred stock which were convertible into 750,000 shares of common stock. During 2015, Sager paid $900,000 cash dividends on the common stock and $600,000 cash dividends on the preferred stock. Net income for 2015 was $5,100,000 and the income tax rate was 40%. The diluted earnings per share for 2015 is (rounded to the nearest penny) a. $1.86. b. $2.62. c. $3.75. d. $4.25.

b. $2.62.

On June 30, 2014, Norman Corporation granted compensatory stock options for 50,000 shares of its $20 par value common stock to certain of its key employees. The market price of the common stock on that date was $36 per share and the option price was $30. The Black-Scholes option pricing model determines total compensation expense to be $600,000. The options are exercisable beginning January 1, 2015, provided those key employees are still in Norman's employ at the time the options are exercised. The options expire on June 30, 2016. On January 4, 2015, when the market price of the stock was $42 per share, all 50,000 options were exercised. What should be the amount of compensation expense recorded by Norman Corporation for the calendar year 2014 using the fair value method? a. $0. b. $240,000. c. $300,000. d. $600,000

b. $240,000.

On its December 31, 2014 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Fair Value Adjustment (available-for-sale) account. There was no change during 2015 in the composition of Calhoun's portfolio of equity investments held as available-forsale securities. The following information pertains to that portfolio: Security Cost Fair value at 12/31/15 X $125,000 $160,000 Y 100,000 90,000 Z 175,000 125,000 $400,000 $375,000 93. What amount of unrealized loss on these securities should be included in Calhoun's stockholders' equity section of the balance sheet at December 31, 2015? a. $35,000. b. $25,000. c. $15,000. d. $0.

b. $25,000.

Chang Corporation issued $4,000,000 of 9%, ten-year convertible bonds on July 1, 2014 at 96.1 plus accrued interest. The bonds were dated April 1, 2014 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2015, $800,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. What should be the amount of the unamortized bond discount on April 1, 2015 relating to the bonds converted? a. $31,200. b. $28,800. c. $15,600. d. $29,600.

b. $28,800.

In 2015, Fargo Corporation began construction work under a three-year contract. The contract price is $4,800,000. Fargo uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2015, follow: Balance Sheet Accounts receivable—construction contract billings $200,000 Construction in progress $600,000 Less contract billings 480,000 Costs and recognized profit in excess of billings 120,000 Income Statement Income (before tax) on the contract recognized in 2015 $120,000 *108. How much cash was collected in 2015 on this contract? a. $200,000 b. $280,000 c. $40,000 d. $480,000

b. $280,000

On January 2, 2014, Perez Co. issued at par $10,000 of 8% bonds convertible in total into 1,000 shares of Perez's common stock. No bonds were converted during 2014. Throughout 2014, Perez had 1,000 shares of common stock outstanding. Perez's 2014 net income was $6,000, and its income tax rate is 30%. No potentially dilutive securities other than the convertible bonds were outstanding during 2014. Perez's diluted earnings per share for 2014 would be (rounded to the nearest penny) a. $3.00. b. $3.28. c. $3.40. d. $6.56

b. $3.28.

On August 5, 2014, Famous Furniture shipped 20 dining sets on consignment to Furniture Outlet, Inc. The cost of each dining set was $350 each. The cost of shipping the dining sets amounted to $1,800 and was paid for by Famous Furniture. On December 30, 2014, the consignee reported the sale of 15 dining sets at $850 each. The consignee remitted payment for the amount due after deducting a 6% commission, advertising expense of $300, and installation and setup costs of $390. The total profit on units sold for the consignor is a. $11,295 b. $4,695 c. $6,045 d. $9,945

b. $4,695

On June 30, 2014, Yang Corporation granted compensatory stock options for 25,000 shares of its $24 par value common stock to certain of its key employees. The market price of the common stock on that date was $31 per share and the option price was $28. Using a fair value option pricing model, total compensation expense is determined to be $80,000. The options are exercisable beginning January 1, 2016, providing those key employees are still in the employ of the company at the time the options are exercised. The options expire on June 30, 2017. On January 4, 2016, when the market price of the stock was $36 per share, all options for the 25,000 shares were exercised. The service period is for two years beginning January 1, 2014. Using the fair value method, what should be the amount of compensation expense recorded by Yang Corporation for these options on December 31, 2014? a. $80,000 b. $40,000 c. $18,750 d. $0

b. $40,000

Fair Value Cost 12/31/14 12/31/15 Trading $600,000 $800,000 $760,000 Available-for-sale 600,000 640,000 720,000 87. What amount of gain or loss would Instrument Corporation report in its income statement for the year ended December 31, 2015 related to its investments? a. $40,000 gain. b. $40,000 loss. c. $280,000 gain. d. $160,000 gain.

b. $40,000 loss.

Arizona Communications contracted to set up a call center for the City of Phoenix. Under the terms of the contract, Arizona Communications will design and set-up a call center with the following costs: Design of call center $10,000 Computers, servers, telephone equipment $275,000 Software $85,000 Installation and testing of equipment $15,000 Selling commission $25,000 Annual service contract $50,000 In addition, Arizona Communications will maintain and service the equipment and software to ensure smooth operations of the call center for an annual fee of $90,000. Ownership of equipment installed remains with the City of Phoenix. The contract costs that should be capitalized is a. $460,000 b. $410,000 c. $360,000 d. $370,000

b. $410,000

On December 1, 2014, Lester Company issued at 103, five hundred of its 9%, $1,000 bonds. Attached to each bond was one detachable stock warrant entitling the holder to purchase 10 shares of Lester's common stock. On December 1, 2014, the market value of the bonds, without the stock warrants, was 95, and the market value of each stock purchase warrant was $50. The amount of the proceeds from the issuance that should be accounted for as the initial carrying value of the bonds payable would be a. $484,100. b. $489,250. c. $500,000. d. $515,000.

b. $489,250.

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

b. $5,600,000.

Roche Pharmaceuticals entered into a licensing agreement with Zenith Lab for a new drug under development. Roche will receive $6,750,000 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. $6,750,000. b. $5,737,500. c. $1,012,500. d. $0 until approval is received.

b. $5,737,500.

Green Construction Co. has consistently used the percentage-of-completion method of recognizing revenue. During 2014, Green entered into a fixed-price contract to construct an office building for $24,000,000. Information relating to the contract is as follows: At December 31 2014 2015 Percentage of completion 15% 45% Estimated total cost at completion $18,000,000 $19,200,000 Gross profit recognized (cumulative) 1,200,000 2,880,000 Contract costs incurred during 2015 were a. $5,760,000. b. $5,940,000. c. $6,300,000. d. $8,640,000

b. $5,940,000.

On January 1, 2014, Korsak, Inc. established a stock appreciation rights plan for its executives. It entitled them to receive cash at any time during the next four years for the difference between the market price of its common stock and a pre-established price of $20 on 100,000 SARs. Current market prices of the stock are as follows: January 1, 2014 $35 per share December 31, 2014 38 per share December 31, 2015 30 per share December 31, 2016 33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2014 What amount of compensation expense should Korsak recognize for the year ended December 31, 2015? a. $0 b. $50,000 c. $500,000 d. $250,000.

b. $50,000

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

b. $520,000

58. Vernon Corporation offered detachable 5-year warrants to buy one share of common stock (par value $5) at $20 (at a time when the stock was selling for $32). The price paid for 6,000, $1,000 bonds with the warrants attached was $615,000. The market price of the Vernon bonds without the warrants was $540,000, and the market price of the warrants without the bonds was $60,000. What amount should be allocated to the warrants? a. $60,000 b. $61,500 c. $72,000 d. $75,000

b. $61,500

Litke Corporation issued at a premium of $5,000 a $100,000 bond issue convertible into 2,000 shares of common stock (par value $20). At the time of the conversion, the unamortized premium is $2,000, the market value of the bonds is $110,000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds? a. $65,000 b. $62,000 c. $72,000 d. $60,000

b. $62,000

Tracy Company owns 4,000 of the 10,000 outstanding shares of Penn Corporation common stock. During 2015, Penn earns $300,000 and pays cash dividends of $100,000. 108. If the beginning balance in the investment account was $600,000, the balance at December 31, 2015 should be a. $600,000. b. $680,000. c. $720,000. d. $800,000.

b. $680,000.

Cooper Construction Company had a contract starting April 2015, to construct a $18,000,000 building that is expected to be completed in September 2017, at an estimated cost of $16,500,000. At the end of 2015, the costs to date were $7,590,000 and the estimated total costs to complete had not changed. The progress billings during 2015 were $3,600,000 and the cash collected during 2015 was 2,400,000. *104. For the year ended December 31, 2015, Cooper would recognize gross profit on the building of: a. $632,500 b. $690,000 c. $810,000 d. $0

b. $690,000

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

b. $7,500,000.

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

b. $70,000.

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

b. $8,040.

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

b. $828,000.

Rich, Inc. acquired 30% of Doane Corporation's voting stock on January 1, 2014 for $800,000. During 2014, Doane earned $320,000 and paid dividends of $200,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2015, Doane earned $400,000 and paid dividends of $120,000 on April 1 and $120,000 on October 1. On July 1, 2015, Rich sold half of its stock in Doane for $528,000 cash. The carrying amount of this investment in Rich's December 31, 2014 balance sheet should be a. $800,000. b. $836,000. c. $896,000. d. $920,000.

b. $836,000.

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

b. $9,600.

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

b. $93,169.

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

b. ($3,375).

Yoder, Incorporated, has 3,600,000 shares of common stock outstanding on December 31, 2014. An additional 800,000 shares of common stock were issued on April 1, 2015, and 400,000 more on July 1, 2015. On October 1, 2015, Yoder issued 20,000, $1,000 face value, 8% convertible bonds. Each bond is convertible into 20 shares of common stock. No bonds were converted into common stock in 2015. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively? a. 4,400,000 and 4,400,000 b. 4,400,000 and 4,500,000 c. 4,400,000 and 4,800,000 d. 4,800,000 and 5,600,000

b. 4,400,000 and 4,500,000

Nolte Co. has 4,500,000 shares of common stock outstanding on December 31, 2014. An additional 200,000 shares are issued on April 1, 2015, and 480,000 more on September 1. On October 1, Nolte issued $6,000,000 of 9% convertible bonds. Each $1,000 bond is convertible into 40 shares of common stock. No bonds have been converted. The number of shares to be used in computing basic earnings per share and diluted earnings per share on December 31, 2015 is a. 4,810,000 and 4,810,000. b. 4,810,000 and 4,870,000. c. 4,810,000 and 5,050,000. d. 5,580,000 and 5,020,000

b. 4,810,000 and 4,870,000.

Foyle, Inc., had 680,000 shares of common stock issued and outstanding at December 31, 2014. On July 1, 2015, an additional 40,000 shares of common stock were issued for cash. Foyle also had unexercised stock options to purchase 32,000 shares of common stock at $15 per share outstanding at the beginning and end of 2015. The average market price of Foyle's common stock was $20 during 2015. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2015? a. 700,000 b. 708,000 c. 728,000 d. 732,000

b. 708,000

On January 1, 2015, Gridley Corporation had 250,000 shares of its $2 par value common stock outstanding. On March 1, Gridley sold an additional 500,000 shares on the open market at $20 per share. Gridley issued a 20% stock dividend on May 1. On August 1, Gridley purchased 280,000 shares and immediately retired the stock. On November 1, 400,000 shares were sold for $25 per share. What is the weighted-average number of shares outstanding for 2015? a. 1,020,000 b. 750,000 c. 477,777 d. 344,444

b. 750,000

Milo Co. had 700,000 shares of common stock outstanding on January 1, issued 126,000 shares on May 1, purchased 63,000 shares of treasury stock on September 1, and issued 54,000 shares on November 1. The weighted average shares outstanding for the year is a. 751,000. b. 772,000. c. 793,000. d. 814,000.

b. 772,000.

Chang Corporation issued $4,000,000 of 9%, ten-year convertible bonds on July 1, 2014 at 96.1 plus accrued interest. The bonds were dated April 1, 2014 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2015, $800,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. What was the effective interest rate on the bonds when they were issued? a. 9% b. Above 9% c. Below 9% d. Cannot determine from the information given.

b. Above 9%

Contract liability is a company's obligations to transfer goods or services to a customer for which the company has received consideration from the customer. An example of a contract liability is a. Prepaid subscription. b. Unearned magazine subscription. c. Mortgage Payable. d. Service Revenue.

b. Unearned magazine subscription.

All of the following are characteristics of a derivative financial instrument except the instrument a. has one or more underlyings and an identified payment provision. b. requires a large investment at the inception of the contract. c. requires or permits net settlement. d. All of these are characteristics.

b. requires a large investment at the inception of the contract.

On July 4, 2014, Chen Company issued for $8,400,000 a total of 80,000 shares of $100 par value, 7% noncumulative preferred stock along with one detachable warrant for each share issued. Each warrant contains a right to purchase one share of Chen $10 par value common stock for $15 per share. The stock without the warrants would normally sell for $8,200,000. The market price of the rights on July 1, 2014, was $2.50 per right. On October 31, 2014, when the market price of the common stock was $19 per share and the market value of the rights was $3.00 per right, 32,000 rights were exercised. As a result of the exercise of the 32,000 rights and the issuance of the related common stock, what journal entry would Chen make? a. Cash................................................................................... 480,000 Common Stock ....................................................... 320,000 Paid-in Capital in Excess of Par ............................. 160,000 b. Cash................................................................................... 480,000 Paid-in Capital—Stock Warrants ........................................ 80,000 Common Stock ....................................................... 320,000 Paid-in Capital in Excess of Par ............................. 240,000 c. Cash................................................................................... 480,000 Paid-in Capital—Stock Warrants ........................................ 200,000 Common Stock ....................................................... 320,000 Paid-in Capital in Excess of Par ............................. 360,000 d. Cash................................................................................... 480,000 Paid-in Capital—Stock Warrants ........................................ 120,000 Common Stock ....................................................... 320,000 Paid-in Capital in Excess of Par ............................. 280,000

b. Cash................................................................................... 480,000 Paid-in Capital—Stock Warrants ........................................ 80,000 Common Stock ....................................................... 320,000 Paid-in Capital in Excess of Par ............................. 240,000

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

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

Which of the following is an advantage of a restricted-stock plan? a. It creates new job opportunities in a company. b. It never becomes completely worthless. c. It increases the market price of the stock. c. It increases the profit of a company

b. It never becomes completely worthless.

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.

When there is a significant increase in the estimated total contract costs but the increase does not eliminate all profit on the contract, which of the following is correct? a. Under both the percentage-of-completion and the completed-contract methods, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods. b. Under the percentage-of-completion method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods. c. Under the completed-contract method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods. d. No current period adjustment is required.

b. Under the percentage-of-completion method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.

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

b. Yes No

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

b. Yes No

44. On July 1, 2014, an interest payment date, $90,000 of Parks Co. bonds were converted into 1,800 shares of Parks Co. common stock each having a par value of $45 and a market value of $54. There is $3,600 unamortized discount on the bonds. Using the book value method, Parks would record a. no change in paid-in capital in excess of par. b. a $5,400 increase in paid-in capital in excess of par. c. a $10,800 increase in paid-in capital in excess of par. d. a $7,200 increase in paid-in capital in excess of par.

b. a $5,400 increase in paid-in capital in excess of par.

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

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

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.

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

b. are accounted for at fair value for all transfers

Transaction price for multiple performance obligations should be allocated a. based on selling price from the company's competitors. b. based on what the company could sell the goods for on a standalone basis. c. based on forecasted cost of satisfying performance obligation. d. based on total transaction price less residual value

b. based on what the company could sell the goods for on a standalone basis.

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.

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

b. by using the fair value method.

The most popular input measure used to determine the progress toward completion is a. units-of-delivery method. b. cost-to-cost basis. c. labor hours worked. d. tons produced.

b. cost-to-cost basis.

Botanic Choice sell natural supplements to customers with an unconditional right of return if they are not satisfied. The right of returns extends 60 days. On February 10, 2014, a customer purchases $3,000 of products (cost $1,500). Assuming that based on prior experience, estimated returns are 20%. The journal entry to record the sale and cost of goods sold includes a a. debit to Cash and a credit to Sales Revenue of $3,000. b. credit to Refund Liability of $600 and a credit to Sales Revenue of $2,400. c. debt to Cost of Goods Sold and credit to Inventory for $1,500. d. credit to Estimated Inventory Returns of $300

b. credit to Refund Liability of $600 and a credit to Sales Revenue of $2,400.

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

b. diluted earnings per share only.

On May 1, 2014, Payne Co. issued $900,000 of 7% bonds at 103, which are due on April 30, 2024. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2014, the fair value of Payne's common stock was $35 per share and of the warrants was $2. 6. On May 1, 2014, Payne should record the bonds with a a. discount of $36,000. b. discount of $10,080. c. discount of $ 9,000. d. premium of $27,000

b. discount of $10,080.

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.

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

b. held-to-maturity at amortized cost.

The first step in the process for revenue recognition is to a. determine the transaction price. b. identify the contract with customers. c. allocate transaction price to the separate performance obligations. d. identify the separate performance obligations in the contract.

b. identify the contract with customers

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

b. incentive stock option plan.

A contract a. must be in writing to be an enforceable contract. b. is an agreement that creates enforceable rights and obligations. c. is enforceable if each party can unilaterally terminate the contract. d. does not need to have commercial substance.

b. is an agreement that creates enforceable rights and obligations.

The transaction price a. excludes discounts, volume rebates, coupons and free products, or services. b. is the amount of consideration that a company expects to receive from a customer c. excludes time value of money if the contract involves a significant financing component. d. does not consider noncash consideration such as donations, gifts, equipment or labor.

b. is the amount of consideration that a company expects to receive from a customer

The use of the net method of recognizing revenue by an agent a. is appropriate as long as both revenue and costs are included. b. is the correct method in a principal-agent relationship. c. could result in an overstatement of the agent's revenue. d. could result in an understatement of the agent's revenue.

b. is the correct method in a principal-agent relationship.

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

b. its fair value at the date of the transfer.

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

b. its fair value at the date of the transfer.

The last step in the process for revenue recognition is to a. allocate transaction price to the separate performance obligations. b. recognize revenue when each performance obligation is satisfied. c. determine the transaction price. d. identify the contract with customers

b. recognize revenue when each performance obligation is satisfied.b. recognize revenue when each performance obligation is satisfied.

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

b. recognized only if they are dilutive.

Occasionally a franchise agreement grants the franchisee the right to make future bargain purchases of equipment or supplies. When recording the initial franchise fee, the franchisor should a. increase revenue recognized from the initial franchise fee by the amount of the expected future purchases. b. record a portion of the initial franchise fee as unearned revenue which will increase the selling price when the franchisee subsequently makes the bargain purchases. c. defer recognition of any revenue from the initial franchise fee until the bargain purchases are made. d. None of these answers are correct.

b. record a portion of the initial franchise fee as unearned revenue which will increase the selling price when the franchisee subsequently makes the bargain purchases.

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

b. recorded in equity, as part of other comprehensive income.

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

b. share-based liability awards.

In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be a. the terms of payment in the contract. b. the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable. c. the method commonly used by the contractor to account for other long-term construction contracts. d. the inherent nature of the contractor's technical facilities used in construction.

b. the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable.

Franchise revenue are recognized over time if a. franchise rights are transferred at a point in time. b. the franchisor is providing access to the right rather than transferring control. c. when performance obligations regarding franchise rights are completed. d. franchisee fee is payable upon signing of contract.

b. the franchisor is providing access to the right rather than transferring control.

Franchise revenues are recognized over time if a. franchise rights are transferred at a point in time. b. the franchisor is providing access to the right rather than transferring control. c. when performance obligations regarding franchise rights are completed. d. franchisee fee is payable upon signing of contract.

b. the franchisor is providing access to the right rather than transferring control.

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

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

In accounting for a long-term construction-type contract using the percentage-of-completion method, the gross profit recognized during the first year would be the estimated total gross profit from the contract, multiplied by the percentage of the costs incurred during the year to the a. total costs incurred to date. b. total estimated cost. c. unbilled portion of the contract price. d. total contract price.

b. total estimated cost.

Types of franchising arrangements include all of the following except a. service sponsor-retailer. b. wholesaler-service sponsor. c. manufacturer-wholesaler. d. wholesaler-retailer

b. wholesaler-service sponsor.

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

c that many corporations can obtain debt financing at lower rates

On December 31, 2014, Gonzalez Company granted some of its executives options to purchase 150,000 shares of the company's $10 par common stock at an option price of $50 per share. The Black-Scholes option pricing model determines total compensation expense to be $1,125,000. The options become exercisable on January 1, 2015, and represent compensation for executives' services over a three-year period beginning January 1, 2015. At December 31, 2015 none of the executives had exercised their options. What is the impact on Gonzalez's net income for the year ended December 31, 2015 as a result of this transaction under the fair value method? a. $ 375,000 increase. b. $1,125,000 decrease. c. $ 375,000 decrease. d. $0.

c. $ 375,000 decrease.

On January 1, 2015, Evans Company granted Tim Telfer, an employee, an option to buy 3,000 shares of Evans Co. stock for $25 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $22,500. Telfer exercised his option on September 1, 2015, and sold his 1,000 shares on December 1, 2015. Quoted market prices of Evans Co. stock during 2015 were January 1 $25 per share September 1 $30 per share December 1 $34 per share The service period is for three years beginning January 1, 2015. As a result of the option granted to Telfer, using the fair value method, Evans should recognize compensation expense for 2015 on its books in the amount of a. $27,000. b. $22,500. c. $ 7,500. d. $ 4,500

c. $ 7,500.

Chang Corporation issued $4,000,000 of 9%, ten-year convertible bonds on July 1, 2014 at 96.1 plus accrued interest. The bonds were dated April 1, 2014 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2015, $800,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. 46. If "interest payable" were credited when the bonds were issued, what should be the amount of the debit to "interest expense" on October 1, 2014? a. $ 86,000. b. $ 90,000. c. $ 94,000. d. $180,000.

c. $ 94,000.

On December 31, 2014, Houser Company granted some of its executives options to purchase 90,000 shares of the company's $50 par common stock at an option price of $60 per share. The Black-Scholes option pricing model determines total compensation expense to be $1,800,000. The options become exercisable on January 1, 2015, and represent compensation for executives' past and future services over a three-year period beginning January 1, 2015. What is the impact on Houser's total stockholders' equity for the year ended December 31, 2014, as a result of this transaction under the fair value method? a. $1,800,000 decrease b. $600,000 decrease c. $0 d. $600,000 increase

c. $0

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

c. $0. $6,450,000.

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

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

On January 1, 2014, Trent Company granted Dick Williams, an employee, an option to buy 400 shares of Trent Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $3,600. Williams exercised his option on September 1, 2014, and sold his 400 shares on December 1, 2014. Quoted market prices of Trent Co. stock during 2014 were: January 1 $30 per share September 1 $36 per share December 1 $40 per share The service period is for two years beginning January 1, 2014. As a result of the option granted to Williams, using the fair value method, Trent should recognize compensation expense for 2014 on its books in the amount of a. $4,000. b. $3,600. c. $1,800. d. $0.

c. $1,800.

Lerner Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $500,000 of 10% convertible bonds outstanding during 2015. The preferred stock is convertible into 40,000 shares of common stock. During 2015, Lerner paid dividends of $.45 per share on the common stock and $1.50 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2015 was $300,000 and the income tax rate was 30% Diluted earnings per share for 2015 is (rounded to the nearest penny) a. $1.14. b. $1.16. c. $1.28. d. $1.33.

c. $1.28.

Hill Corp. had 600,000 shares of common stock outstanding on January 1, issued 900,000 shares on July 1, and had income applicable to common stock of $1,470,000 for the year ending December 31, 2014. Earnings per share of common stock for 2014 would be a. $2.45. b. $1.16. c. $1.40. d. $1.64.

c. $1.40.

At December 31, 2014 Pine Company had 200,000 shares of common stock and 10,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2014 or 2015. On February 10, 2016, prior to the issuance of its financial statements for the year ended December 31, 2015, Pine declared a 100% stock dividend on its common stock. Net income for 2015 was $800,000. In its 2015 financial statements, Pine's 2015 earnings per common share should be a. $3.78. b. $3.56. c. $1.88. d. $1.11.

c. $1.88.

At December 31, 2014, Emley Company had 1,200,000 shares of common stock outstanding. On October 1, 2015, an additional 400,000 shares of common stock were issued. In addition, Emley had $10,000,000 of 6% convertible bonds outstanding at December 31, 2014, which are convertible into 800,000 shares of common stock. No bonds were converted into common stock in 2015. The net income for the year ended December 31, 2015, was $3,750,000. Assuming the income tax rate was 30%, what should be the diluted earnings per share for the year ended December 31, 2015, rounded to the nearest penny? a. $1.59 b. $2.07 c. $1.99 d. $2.88

c. $1.99

On August 5, 2014, Famous Furniture shipped 20 dining sets on consignment to Furniture Outlet, Inc. The cost of each dining set was $350 each. The cost of shipping the dining sets amounted to $1,800 and was paid for by Famous Furniture. On December 30, 2014, the consignee reported the sale of 15 dining sets at $850 each. The consignee remitted payment for the amount due after deducting a 6% commission, advertising expense of $300, and installation and setup costs of $390. The amount cash received by Famous furniture is a. $12,750 b. $11,985 c. $11,295 d. $11,685

c. $11,295

On January 1, 2014, Sharp Corp. granted an employee an option to purchase 12,000 shares of Sharp's $5 par value common stock at $20 per share. The Black-Scholes option pricing model determines total compensation expense to be $280,000. The option became exercisable on December 31, 2015, after the employee completed two years of service. The market prices of Sharp's stock were as follows: January 1, 2014 $30 December 31, 2015 50 For 2015, should recognize compensation expense under the fair value method of a. $180,000. b. $60,000. c. $140,000. d. $0

c. $140,000.

Weiser Corp. on January 1, 2012, granted stock options for 40,000 shares of its $10 par value common stock to its key employees. The market price of the common stock on that date was $23 per share and the option price was $20. The Black-Scholes option pricing model determines total compensation expense to be $420,000. The options are exercisable beginning January 1, 2015, provided those key employees are still in Weiser's employ at the time the options are exercised. The options expire on January 1, 2016. On January 1, 2015, when the market price of the stock was $29 per share, all 40,000 options were exercised. The amount of compensation expense Weiser should record for 2015 under the fair value method is a. $0. b. $70,000. c. $140,000. d. $210,000.

c. $140,000.

Valet Corporation began operations in 2015. An analysis of Valet's equity securities portfolio acquired in 2015 shows the following totals at December 31, 2015 for trading and available-for-sale securities: Trading Available-for-Sale Securities Securities Aggregate cost $90,000 $110,000 Aggregate fair value 80,000 95,000 What amount should Valet report in its 2015 income statement for unrealized holding loss? a. $25,000. b. $5,000. c. $15,000. d. $10,000.

c. $15,000.

During 2014, Gordon Company issued at 104 four hundred, $1,000 bonds due in ten years. One detachable stock warrant entitling the holder to purchase 15 shares of Gordon's common stock was attached to each bond. At the date of issuance, the market value of the bonds, without the stock warrants, was quoted at 96. The market value of each detachable warrant was quoted at $40. What amount, if any, of the proceeds from the issuance should be accounted for as part of Gordon's stockholders' equity? a. $0 b. $16,000 c. $16,640 d. $15,808

c. $16,640

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

c. $2,025,000.

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. record the estimated returns in the Sales Returns account.

c. records the returned asset in a separate inventory account.

Colt Corporation purchased Massey Inc. and agreed to give stockholders of Massey Inc. 50,000 additional shares in 2016 if Massey Inc.'s net income in 2015 is $600,000 or more; in 2014 Massey Inc.'s net income is $615,000. Colt has net income for 2014 of $1,000,000 and has an average number of common shares outstanding for 2014 of 500,000 shares. What should Colt report as earnings per share for 2014? Basic Earnings Diluted Earnings Per Share Per Share a. $2.00 $2.00 b. $1.82 $2.00 c. $2.00 $1.82 d. $1.82 $1.82

c. $2.00 $1.82

Fultz Company had 300,000 shares of common stock issued and outstanding at December 31, 2014. During 2015, no additional common stock was issued. On January 1, 2015, Fultz issued 400,000 shares of nonconvertible preferred stock. During 2015, Fultz declared and paid $150,000 cash dividends on the common stock and $125,000 on the nonconvertible preferred stock. Net income for the year ended December 31, 2015, was $800,000. What should be Fultz's 2015 earnings per common share, rounded to the nearest penny? a. $0.96 b. $1.75 c. $2.25 d. $2.67

c. $2.25

Shipley Corporation had net income for the year of $600,000 and a weighted average number of common shares outstanding during the period of 250,000 shares. The company has a convertible bond issue outstanding. The bonds were issued four years ago at par ($2,500,000), carry a 7% interest rate, and are convertible into 50,000 shares of common stock. The company has a 40% tax rate. Diluted earnings per share are a. $1.65 b. $2.23. c. $2.35. d. $2.58.

c. $2.35.

At December 31, 2014, Kifer Company had 800,000 shares of common stock outstanding. On October 1, 2015, an additional 160,000 shares of common stock were issued. In addition, Kifer had $10,000,000 of 6% convertible bonds outstanding at December 31, 2014, which are convertible into 360,000 shares of common stock. No bonds were converted into common stock in 2015. The net income for the year ended December 31, 2015, was $3,000,000. Assuming the income tax rate was 30%, the diluted earnings per share for the year ended December 31, 2015, should be (rounded to the nearest penny) a. $4.07. b. $3.00. c. $2.85. d. $2.50

c. $2.85.

At December 31, 2015, Jeter Corporation had the following equity securities that were purchased during 2015, its first year of operation: Fair Unrealized Cost Value Gain (Loss) Trading Securities: Security A $ 85,000 $ 60,000 $(25,000) B 15,000 20,000 5,000 Totals $100,000 $ 80,000 $(20,000) 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) Investments 17 - 27 All market declines are considered temporary. Fair value adjustments at December 31, 2015 should be established with a corresponding charge against Income Stockholders' Equity a. $40,000 $ 0 b. $25,000 $30,000 c. $20,000 $20,000 d. $20,000 $ 0

c. $20,000 $20,000

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

c. $3,000,000

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

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

At December 31, 2014, Hancock Company had 500,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 100,000 of which were issued on October 1, 2014. Net income for the year ended December 31, 2014, was $1,360,000. What should be Hancock's 2014 earnings per common share, rounded to the nearest penny? a. $2.69 b. $3.40 c. $3.20 d. $3.03

c. $3.20

Beaty Inc. purchased Dunbar Co. and agreed to give stockholders of Dunbar Co. 10,000 additional shares in 2016 if Dunbar Co.'s net income in 2015 is $500,000; in 2014 Dunbar Co.'s net income is $520,000. Beaty Inc. has net income for 2014 of $400,000 and has an average number of common shares outstanding for 2014 of 100,000 shares. What should Beaty report as diluted earnings per share for 2014? a. $4.44 b. $4.00 c. $3.64 d. $3.35

c. $3.64

Grant, Inc. had 60,000 shares of treasury stock ($10 par value) at December 31, 2014, which it acquired at $11 per share. On June 4, 2015, Grant issued 30,000 treasury shares to employees who exercised options under Grant's employee stock option plan. The market value per share was $13 at December 31, 2014, $15 at June 4, 2015, and $18 at December 31, 2015. The stock options had been granted for $12 per share. The cost method is used. What is the balance of the treasury stock on Grant's balance sheet at December 31, 2015? a. $210,000. b. $270,000. c. $330,000. d. $360,000.

c. $330,000.

Kramer Company's trading securities portfolio which is appropriately included in current assets is as follows: December 31, 2014 Fair Unrealized Cost Value Gain (Loss) Catlett Corp. $260,000 $205,000 $(55,000) Lyman, Inc. 245,000 265,000 20,000 $505,000 $470,000 $(35,000) Ignoring income taxes, what amount should be reported as a charge against income in Kramer's 2014 income statement if 2014 is Kramer's first year of operation? a. $0. b. $20,000 gain. c. $35,000 loss. d. $55,000 loss

c. $35,000 loss.

On May 1, 2014, Payne Co. issued $900,000 of 7% bonds at 103, which are due on April 30, 2024. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2014, the fair value of Payne's common stock was $35 per share and of the warrants was $2. 55. On May 1, 2014, Payne should credit Paid-in Capital from Stock Warrants for a. $34,560. b. $36,000. c. $37,080. d. $63,000

c. $37,080.

On January 2, 2014, for past services, Rosen Corp. granted Nenn Pine, its president, 25,000 stock appreciation rights that are exercisable immediately and expire on January 2, 2015. On exercise, Nenn is entitled to receive cash for the excess of the market price of the stock on the exercise date over the market price on the grant date. Nenn did not exercise any of the rights during 2014. The market price of Rosen's stock was $30 on January 2, 2014, and $45 on December 31, 2014. As a result of the stock appreciation rights, Rosen should recognize compensation expense for 2014 of a. $0. b. $150,000. c. $375,000. d. $750,000.

c. $375,000.

Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of $1,240,000 each quarter. The total contract price is $14,880,000 and Seasons estimates total costs of $14,200,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2014. * 100. At December 31, 2014, Seasons estimates that it is 30% complete with the construction, based on costs incurred. What is the total amount of Revenue from Long-Term Contracts recognized for 2014 and what is the balance in the Accounts Receivable account assuming Cannon Company has not yet made its last quarterly payment? Revenue Accounts Receivable a. $4,960,000 $4,960,000 b. $4,260,000 $ 1,240,000 c. $4,464,000 $ 1,240,000 d. $4,260,000 $4,960,000

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

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

c. $4,650,000.

Fair Value Cost 12/31/14 12/31/15 Trading $600,000 $800,000 $760,000 Available-for-sale 600,000 640,000 720,000 What amount would be reported as accumulated other comprehensive income related to investments in Instrument Corporation's balance sheet at December 31, 2014? a. $80,000 gain. b. $120,000 gain. c. $40,000 gain. d. $240,000 gain.

c. $40,000 gain.

Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $450,000 on January 2, 2015. During 2015, Darby Company declared dividends of $75,000 and reported earnings for the year of $300,000. 103. If Blanco Company used the fair value method of accounting for its investment in Darby Company, its Equity Investment (Darby) account on December 31, 2015 should be a. $435,000. b. $495,000. c. $450,000. d. $510,000.

c. $450,000.

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

c. $495,000.

Harrison Company owns 20,000 of the 50,000 outstanding shares of Taylor, Inc. common stock. During 2015, Taylor earns $1,000,000 and pays cash dividends of $800,000. 97. If the beginning balance in the investment account was $625,000, the balance at December 31, 2015 should be a. $1,025,000. b. $825,000. c. $705,000. d. $625,000.

c. $705,000.

Brown Corporation earns $480,000 and pays cash dividends of $160,000 during 2014. Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown. Investments 17 - 25 105. What amount should Dexter show in the investment account at December 31, 2014 if the beginning of the year balance in the account was $640,000? a. $784,000. b. $640,000. c. $736,000. d. $960,000.

c. $736,000.

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

c. $75,000.

52. On March 1, 2014, Ruiz Corporation issued $1,500,000 of 8% nonconvertible bonds at 104, which are due on February 28, 2034. In addition, each $1,000 bond was issued with 25 detachable stock warrants, each of which entitled the bondholder to purchase for $50 one share of Ruiz common stock, par value $25. The bonds without the warrants would normally sell at 95. On March 1, 2014, the fair value of Ruiz's common stock was $40 per share and the fair value of the warrants was $2.00. What amount should Ruiz record on March 1, 2014 as paid-in capital from stock warrants? a. $55,200 b. $63,900 c. $78,000 d. $75,000

c. $78,000

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

c. $8,280,000

Eilert Construction Company had a contract starting April 2015, to construct a $21,000,000 building that is expected to be completed in September 2016, at an estimated cost of $19,250,000. At the end of 2015, the costs to date were $8,855,000 and the estimated total costs to complete had not changed. The progress billings during 2015 were $4,200,000 and the cash collected during 2015 was $2,800,000. Eilert uses the percentage-of-completion method. *118. For the year ended December 31, 2015, Eilert would recognize gross profit on the building of a. $0. b. $737,917. c. $805,000. d. $945,000.

c. $805,000.

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

c. $828,800.

On December 31, 2014, Kessler Company granted some of its executives options to purchase 45,000 shares of the company's $10 par common stock at an option price of $50 per share. The options become exercisable on January 1, 2015, and represent compensation for executives' services over a three-year period beginning January 1, 2015. The Black-Scholes option pricing model determines total compensation expense to be $270,000. At December 31, 2015, none of the executives had exercised their options. What is the impact on Kessler's net income for the year ended December 31, 2015 as a result of this transaction under the fair value method? a. $90,000 increase b. $0 c. $90,000 decrease d. $270,000 decrease

c. $90,000 decrease

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

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

Rich, Inc. acquired 30% of Doane Corporation's voting stock on January 1, 2014 for $800,000. During 2014, Doane earned $320,000 and paid dividends of $200,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2015, Doane earned $400,000 and paid dividends of $120,000 on April 1 and $120,000 on October 1. On July 1, 2015, Rich sold half of its stock in Doane for $528,000 cash. 115. Before income taxes, what amount should Rich include in its 2014 income statement as a result of the investment? a. $320,000. b. $200,000. c. $96,000. d. $60,000.

c. $96,000.

Rich, Inc. acquired 30% of Doane Corporation's voting stock on January 1, 2014 for $800,000. During 2014, Doane earned $320,000 and paid dividends of $200,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2015, Doane earned $400,000 and paid dividends of $120,000 on April 1 and $120,000 on October 1. On July 1, 2015, Rich sold half of its stock in Doane for $528,000 cash. What should be the gain on sale of this investment in Rich's 2015 income statement? a. $128,000. b. $110,000. c. $98,000. d. $80,000.

c. $98,000.

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

c. ($4,960).

Warrants exercisable at $20 each to obtain 60,000 shares of common stock were outstanding during a period when the average market price of the common stock was $25. Application of the treasury stock method for the assumed exercise of these warrants in computing diluted earnings per share will increase the weighted average number of outstanding shares by a. 60,000. b. 48,000. c. 12,000. d. 15,000

c. 12,000.

The following information is available for Barone Corporation: January 1, 2015 Shares outstanding 2,000 April 1, 2015 Shares issued 320,000 July 1, 2015 Treasury shares purchased 120,000 October 1, 2015 Shares issued in a 100% stock dividend 2,200 The number of shares to be used in computing earnings per common share for 2015 is a. 4,520,800. b. 4,380,000. c. 4,360,000. d. 2,730,000

c. 4,360,000.

On April 7, 2014, Kegin Corporation sold a $4,000,000, twenty-year, 8 percent bond issue for $4,240,000. Each $1,000 bond has two detachable warrants, each of which permits the purchase of one share of the corporation's common stock for $30. The stock has a par value of $25 per share. Immediately after the sale of the bonds, the corporation's securities had the following market values: 8% bond without warrants $1,008 Warrants 21 Common stock 28 What accounts should Kegin credit to record the sale of the bonds? a. Bonds Payable $4,000,000 Premium on Bonds Payable 155,200 Paid-in Capital—Stock Warrants 84,800 b. Bonds Payable $4,000,000 Premium on Bonds Payable 32,000 Paid-in Capital—Stock Warrants 168,000 c. Bonds Payable $4,000,000 Premium on Bonds Payable 70,400 Paid-in Capital—Stock Warrants 169,600 d. Bonds Payable $4,000,000 Premiums on Bonds Payable 240,000

c. Bonds Payable $4,000,000 Premium on Bonds Payable 70,400 Paid-in Capital—Stock Warrants 169,600

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

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

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

c. Debt Investments................................................................ 776,000 Interest Revenue................................................................. 18,000 Cash........................................................................ 794,000

What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively? a. Decrease and no effect b. Increase and no effect c. Decrease and increase d. Increase and decrease

c. Decrease and increase

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 decurities

c. Loans receivable

How should the balances of progress billings and construction in process be shown at reporting dates prior to the completion of a long-term contract? a. Progress billings as deferred income, construction in progress as a deferred expense. b. Progress billings as income, construction in process as inventory. c. Net balance, as a current asset if debit balance, and current liability if credit balance. d. Net balance, as income from construction if credit balance, and loss from construction if debit balance.

c. Net balance, as a current asset if debit balance, and current liability if credit balance.

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

c. Ownership interest consisting solely of common stock

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

c. The entry to amortize a premium to the date of sale includes a credit to the Premium on Investments in Debt Securities

Cost estimates at the end of the second year indicate that a loss will result on completion of the entire contract. Which of the following statements is correct? a. Under the completed-contract method, the loss is not recognized until the year the construction is completed. b. Under the percentage-of-completion method, the gross profit recognized in the first year must not be changed. c. Under the completed-contract method, when the billings exceed the accumulated costs, the amount of the estimated loss is reported as a current liability. d. Under the completed-contract method, when the Construction in Process balance exceeds the billings, the estimated loss is added to the accumulated costs

c. Under the completed-contract method, when the billings exceed the accumulated costs, the amount of the estimated loss is reported as a current liability.

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

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

A performance obligation exists when a. a company receives the right to receive consideration. b. a contract is approved and signed. c. a company provides a distinct product or service. d. a company provides interdependent product or service

c. a company provides a distinct product or service.

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 Held-to-Maturity Securities at $300,000. b. a credit to Premium on Investments of $15,000. c. a debit to Held-to-Maturity Securities at $315,000. d. None of these answers are correct.

c. a debit to Held-to-Maturity Securities at $315,000.

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

c. accrued interest is debited to Interest Revenue.

The fourth step in the process for revenue recognition is to a. recognize revenue when each performance obligation is satisfied. b. identify the separate performance obligations in the contract. c. allocate transaction price to the separate performance obligations. d. determine the transaction price

c. allocate transaction price to the separate performance obligations.

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

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

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

c. available-for-sale debt securities.

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

c. combining or netting the fair value of separate financial instruments.

The Billings on Construction in Progress account is a(n) a. contract revenue account. b. inventory account. c. contra-inventory account. d. construction expense account.

c. contra-inventory account.

Partial satisfaction of a multiple performance obligation is reported on the balance sheet as a. contract liability. b. receivable. c. contract asset. d. unearned service revenue.

c. contract asset.

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.

Botanic Choice sells natural supplements to customers with an unconditional right of return if they are not satisfied. The right of returns extends 60 days. On February 10, 2014, a customer purchases $3,000 of products (cost $1,500). Assuming that based on prior experience, estimated returns are 20%. The journal entry to record the return of $200 of merchandise includes a a. credit to Refund Liability for $200. b. credit to Returned Inventory for $100. c. credit to Estimated Inventory Returns for $100. d. debit to Estimated Inventory Returns for $100.

c. credit to Estimated Inventory Returns for $100.

P & G Auto Parts sells parts to AAA Car Repair during 2014. P&G offers rebates of 2% on purchases up to $30,000 and 3% on purchases above $30,000 if the customer's purchases for the year exceed $100,000. In the past, AAA normally purchases $150,000 in parts during a calendar year. On March 25, 2014, AAA Car Repair purchased $37,000 of parts. The journal entry to record the purchase includes a a. debit to Accounts Receivable for $37,000. b. debit to Accounts Receivable for $36,400. c. credit to Sales Revenue for $36,190. d. credit to Sales Revenue for $36,400.

c. credit to Sales Revenue for $36,190.

On November 1, 2014, Green Valley Farm entered into a contract to buy a $75,000 harvester from John Deere. The contract required Green Valley Farm to pay $75,000 in advance on November 1, 2014. The harvester (cost of $55,000) was delivered on November 30, 2014. The journal entry to record the contract on November 1, 2014 includes a a. credit to Accounts Receivable for $75,000. b. credit to Sales Revenue for $75,000. c. credit to Unearned Sales Revenue for $75,000. d. debit to Unearned Sales Revenue for $75,000.

c. credit to Unearned Sales Revenue for $75,000.

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 $120,000 on March 15, 2014. Estimated standalone fair values of the equipment, installation and training are $75,000, $50,000 and $25,000 respectively. The journal entry to record the transaction on March 15, 2014 will include a a. credit to Sales Revenue for $120,000. b. debit to Unearned Service Revenue of $25,000. c. credit to Unearned Service Revenue of $20,000. d. credit to Service Revenue of $50,000.

c. credit to Unearned Service Revenue of $20,000.

On May 1, 2014, Marly Co. issued $1,500,000 of 7% bonds at 103, which are due on April 30, 2024. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marly's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2014, the fair value of Marly's common stock was $35 per share and of the warrants was $2. 59. On May 1, 2014, Marly should record the bonds with a a. discount of $60,000. b. discount of $15,000. c. discount of $16,800. d. premium of $45,000.

c. discount of $16,800.

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

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

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

c. fair value.

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

c. gains and losses resulting from speculation should be deferred.

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

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

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

c. municipal bonds.

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.

The converged standard on revenue recognition a. reduces the number of disclosures required for revenue reporting. b. increases the complexity of financial statement preparation. c. recognizes and measures revenue based on changes in assets and liabilities. d. simplify revenue recognition practices across entities and industries.

c. recognizes and measures revenue based on changes in assets and liabilities.

On January 15, 2014, 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, 2014. b. recorded on March 1, 2014. c. recorded on March 31, 2014. d. recorded on April 30, 2014

c. recorded on March 31, 2014.

Consideration paid or payable to customers a. includes volume rebates which increases the cost to the customer. b. includes discounts which reduces the cost of purchases to the company. c. reduces the consideration received and the revenue to be recognized. d. includes prompt settlement discount which increases revenues.

c. reduces the consideration received and the revenue to be recognized.

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.

Under the completed-contract method a. revenue, cost, and gross profit are recognized during the production cycle. b. revenue and cost are recognized during the production cycle, but gross profit recognition is deferred until the contract is completed. c. revenue, cost, and gross profit are recognized at the time the contract is completed. d. None of these answers are correct.

c. revenue, cost, and gross profit are recognized at the time the contract is completed.

Sources of revenue for franchise companies are a. assistance for site selection and negotiating lease. b. bookkeeping and advisory services. c. sale of initial franchise and continuing fees. d. advertising and promotion.

c. sale of initial franchise and continuing fees.

"Gains trading" or "cherry picking" involves a. moving securities whose value has decreased since acquisition from available-for-sale to held-to-maturity in order to avoid reporting losses. b. reporting investment securities at fair value but liabilities at amortized cost. c. selling securities whose value has increased since acquisition while holding those whose value has decreased since acquisition. d. All of the above are considered methods of "gains trading" or "cherry picking."

c. selling securities whose value has increased since acquisition while holding those whose value has decreased since acquisition

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 securities classified as a. held-to-maturity. b. available-for-sale. c. trading. d. None of these answers are correct.

c. trading.

In order to retain certain key executives, Smiley Corporation granted them incentive stock options on December 31, 2013. 120,000 options were granted at an option price of $35 per share. Market prices of the stock were as follows: December 31, 2014 $46 per share December 31, 2015 51 per share The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2014. The Black-Scholes option pricing model determines total compensation expense to be $1,200,000. What amount of compensation expense should Smiley recognize as a result of this plan for the year ended December 31, 2014 under the fair value method? a. $2,100,000. b. $1,320,000. c. $1,200,000. d. $ 600,000.

d. $ 600,000.

Marsh Co. had 2,400,000 shares of common stock outstanding on January 1 and December 31, 2015. In connection with the acquisition of a subsidiary company in June 2014, Marsh is required to issue 100,000 additional shares of its common stock on July 1, 2016, to the former owners of the subsidiary. Marsh paid $100,000 in preferred stock dividends in 2015, and reported net income of $1,700,000 for the year. Marsh's diluted earnings per share for 2015 should be a. $0.71. b. $0.68. c. $0.67. d. $0.64.

d. $0.64.

Bruner Constructors, Inc. has consistently used the percentage-of-completion method of recognizing income. In 2014, Bruner started work on a $42,000,000 construction contract that was completed in 2015. The following information was taken from Bruner's 2014 accounting records: Progress billings $13,200,000 Costs incurred 12,600,000 Collections 8,400,000 Estimated costs to complete 25,200,000 What amount of gross profit should Bruner have recognized in 2014 on this contract? a. $4,200,000 b. $2,800,000 c. $2,100,000 d. $1,400,000

d. $1,400,000

Patton Company purchased $900,000 of 10% bonds of Scott Company on January 1, 2015, paying $846,225. The bonds mature January 1, 2025; interest is payable each July 1 and January 1. The discount of $53,775 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. 72. On July 1, 2015, Patton Company should increase its Debt Investments account for the Scott Company bonds by a. $5,382. b. $3,084. c. $2,691. d. $1,542.

d. $1,542.

In 2014, Eklund, Inc., issued for $103 per share, 70,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Eklund's $25 par value common stock at the option of the preferred stockholder. In August 2015, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $30 per share. What total amount should be credited to additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock? a. $1,190,000. b. $ 910,000. c. $1,750,000. d. $1,960,000

d. $1,960,000.

Lerner Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $500,000 of 10% convertible bonds outstanding during 2015. The preferred stock is convertible into 40,000 shares of common stock. During 2015, Lerner paid dividends of $.45 per share on the common stock and $1.50 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2015 was $300,000 and the income tax rate was 30%. 117. Basic earnings per share for 2015 is (rounded to the nearest penny) a. $1.11. b. $1.21. c. $1.25. d. $1.35.

d. $1.35.

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

d. $120,000.

During 2014, Gates Corp. started a construction job with a total contract price of $14,000,000. The job was completed on December 15, 2015. Additional data are as follows: 2014 2015 Actual costs incurred during the year $5,400,000 $6,100,000 Estimated remaining costs 5,400,000 — Billed to customer 4,800,000 9,200,000 Received from customer 4,000,000 9,600,000 Under the completed-contract method, what amount should Gates recognize as gross profit for 2015? a. $900,000 b. $1,250,000 c. $1,900,000 d. $2,500,000

d. $2,500,000

Richman Company purchased $900,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $937,422 at an effective interest rate of 7%. Using the effective interest method, Richman Company decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $3,186 and $3,294, respectively. 17 - 20 Test Bank for Intermediate Accounting, Fifteenth Edition 84. At December 31, 2014, the fair value of the Carlin, Inc. bonds was $954,000. What should Richman Company report as other comprehensive income and as a separate component of stockholders' equity? a. $0 b. $6,480 c. $16,578 d. $23,058

d. $23,058

On January 3, 2014, Moss Company acquires $300,000 of Adam Company's 10-year, 10% bonds at a price of $319,254 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. 82. Assuming that Moss Company uses the effective-interest method, what is the amount of interest revenue that would be recognized in 2015 related to these bonds? a. $30,000 b. $31,925 c. $28,734 d. $28,619

d. $28,619

On January 1, 2015, Ritter Company granted stock options to officers and key employees for the purchase of 15,000 shares of the company's $1 par common stock at $20 per share as additional compensation for services to be rendered over the next three years. The options are exercisable during a five-year period beginning January 1, 2018 by grantees still employed by Ritter. The Black-Scholes option pricing model determines total compensation expense to be $135,000. The market price of common stock was $26 per share at the date of grant. The journal entry to record the compensation expense related to these options for 2015 would include a credit to the Paid-in Capital—Stock Options account for a. $0. b. $27,000. c. $30,000. d. $45,000

d. $45,000.

On June 1, 2014, Johnson & Sons sold equipment to James Landscaping Services. In exchange for a zero-interest bearing note with a face value of $55,000, with payment due in 12 months. The fair value of the equipment on the date of sale was $50,000. The amount of revenue to be recognized on this transaction in 2014 is a. $55,000. b. $5,000 c. $50,000 d. $50,000 sales revenue and $2,917 interest revenue.

d. $50,000 sales revenue and $2,917 interest revenue.

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

d. $6,540,000

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 $120,000 on March 15, 2014. Estimated standalone fair values of the equipment, installation, and training are $75,000, $50,000, and $25,000 respectively. The transaction price allocated to equipment, installation and training is a. $75,000, $50,000, $25,000 respectively b. $40,000, $40,000, $40,000 respectively c. $120,000 for the entire bundle. d. $60,000, $40,000 and $20,000 respectively.

d. $60,000, $40,000 and $20,000 respectively.

On October 1, 2014, Wenn Company purchased 700 of the $1,000 face value, 8% bonds of Loy, Inc., for $819,000, including accrued interest of $14,000. The bonds, which mature on January 1, 2021, pay interest semiannually on January 1 and July 1. Wenn used the straight-line method of amortization and appropriately recorded the bonds as available-forsale. On Wenn's December 31, 2015 balance sheet, the carrying value of the bonds is a. $805,000. b. $798,000. c. $795,200. d. $784,000

d. $784,000.

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

d. $960,000

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

d. ($2,000)

. Fugate Company had 900,000 shares of common stock issued and outstanding at December 31, 2014. On July 1, 2015 an additional 750,000 shares were issued for cash. Fugate also had stock options outstanding at the beginning and end of 2015 which allow the holders to purchase 225,000 shares of common stock at $20 per share. The average market price of Fugate's common stock was $25 during 2015. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2015? a. 1,695,000 b. 1,455,000 c. 1,331,250 d. 1,320,000

d. 1,320,000

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 a. 10 periods and 10% from the present value of 1 table. b. 10 periods and 8% from the present value of 1 table. c. 20 periods and 5% from the present value of 1 table. d. 20 periods and 4% from the present value of 1 table.

d. 20 periods and 4% from the present value of 1 table.

Terry Corporation had 480,000 shares of common stock outstanding at December 31, 2014. In addition, it had 90,000 stock options outstanding, which had been granted to certain executives, and which gave them the right to purchase shares of Terry's stock at an option price of $37 per share. The average market price of Terry's common stock for 2014 was $50. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2014? a. 480,000 b. 511,622 c. 546,600 d. 503,400

d. 503,400

Stine Inc. had 500,000 shares of common stock issued and outstanding at December 31, 2014. On July 1, 2015 an additional 500,000 shares were issued for cash. Stine also had stock options outstanding at the beginning and end of 2015 which allow the holders to purchase 150,000 shares of common stock at $28 per share. The average market price of Stine's common stock was $35 during 2015. The number of shares to be used in computing diluted earnings per share for 2015 is a. 1,120,000 b. 1,030,000 c. 870,000 d. 780,000

d. 780,000

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

d. All of these are characteristics.

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

d. All of these are correct.

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.

Consignments are a specialized marketing method whereby the a. Consignee purchases goods for sale and sends payment when goods are sold. b. Consignee (agent) holds title to the product. c. Consignee pays for good up front and is paid when merchandise is sold. d. Consignee takes possession of merchandise but title remains with manufacturer

d. Consignee takes possession of merchandise but title remains with manufacturer.

A company must account for a contract modification as a new contract if a. Goods or services are interdependent on each other. b. The promised goods or services are distinct. c. The 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.

Dublin Company holds a 30% stake in Club Company which was purchased in 2015 at a cost of $3,000,000. After applying the equity method, the Investment in Club Company account has a balance of $3,040,000. At December 31, 2015 the fair value of the investment is $3,120,000. Which of the following values is acceptable for Dublin to use in its balance sheet at December 31, 2015? I. $3,000,000 II. $3,040,000 III. $3,120,000 a. I, II, or III. b. I or II only. c. II only. d. II or III only

d. II or III only.

Which of the following are considered equity securities? I. Convertible debt. II. Redeemable preferred stock. III.Call or put options. a. I and II only. b. I and III only. c. II only. d. III only.

d. III only.

On December 29, 2015, James Company sold an equity security that had been purchased on January 4, 2014. James owned no other equity securities. An unrealized holding loss was reported in the 2014 income statement. A realized gain was reported in the 2015 income statement. Was the equity security classified as available-for-sale and did its 2014 market price decline exceed its 2015 market price recovery? 2014 Market Price Decline Exceeded 2015 Available-for-Sale Market Price Recovery a. Yes Yes b. Yes No c. No Yes d. No No

d. No No

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

d. None of these answers are correct.

To address inconsistencies and weaknesses, a comprehensive revenue recognition model was developed entitled the a. Revenue Recognition Principle. b. Principle-based Revenue Accounting. c. Rules-based Revenue Accounting. d. Revenue from Contracts with Customers.

d. Revenue from Contracts with Customers.

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

d. The effective-interest method produces a constant rate of return on the book value of the investment from period to period.

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

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

Judd, Inc., owns 35% of Cosby Corporation. During the calendar year 2014, Cosby had net earnings of $300,000 and paid dividends of $30,000. Judd mistakenly recorded these transactions using the fair value method rather than the equity method of accounting. What effect would this have on the investment account, net income, and retained earnings, respectively? a. Understate, overstate, overstate b. Overstate, understate, understate c. Overstate, overstate, overstate d. Understate, understate, understate

d. Understate, understate, understate

Under U.S. GAAP, which of the following models may be used to determine if an investment is consolidated? Risk-and-reward model Voting-interest approach a. Yes No b. No Yes c. No No d. Yes Yes

d. Yes Yes

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

Companies can use the expected value to estimate variable consideration when a. the contract has only two possible outcomes. b. a company has a small number of contracts with similar characteristics. c. a company can use the most likely amount in a range of possible outcomes. d. a company has a large number of contracts with similar characteristics.

d. a company has a large number of contracts with similar characteristics.

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 $3,850 and an extended warranty for another $1,200. The journal entry to record this transaction would include a. a credit to Service Revenue of $5,050. b. a credit to Service Revenue of $1,200 c. a credit to Sales of $3,850 and a credit to Service Revenue of $1,200 d. a credit to Unearned Service Revenue of $1,200.

d. a credit to Unearned Service Revenue of $1,200.

On January 2, 2014, Farr Co. issued 10-year convertible bonds at 105. During 2014, these bonds were converted into common stock having an aggregate par value equal to the total face amount of the bonds. At conversion, the market price of Farr's common stock was 50 percent above its par value. On January 2, 2014, cash proceeds from the issuance of the convertible bonds should be reported as a. paid-in capital for the entire proceeds. b. paid-in capital for the portion of the proceeds attributable to the conversion feature and as a liability for the balance. c. a liability for the face amount of the bonds and paid-in capital for the premium over the face amount. d. a liability for the entire proceeds.

d. a liability for the entire proceeds.

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

d. assumed converted only if they are dilutive.

In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect assumed reacquisition of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would a. fairly present diluted earnings per share on a prospective basis. b. fairly present the maximum potential dilution of diluted earnings per share on a prospective basis. c. reflect the excess of the number of shares assumed issued over the number of shares assumed reacquired as the potential dilution of earnings per share. d. be antidilutive.

d. be antidilutive.

Revenue from a contract with a customer a. is recognized when the customer receive the rights to receive consideration. b. is recognized even if the contract is still wholly unperformed. c. can be recognized even when a contract is still pending. d. cannot be recognized until a contract exists.

d. cannot be recognized until a contract exists.

A company has satisfied its performance obligation when the a. company has received payment for goods or services. b. company has significant risks and rewards of ownership. c. company has legal title to the asset. d. company has transferred physical possession of the asset

d. company has transferred physical possession of the asset.

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

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

Consigned goods are recognized as revenues by the a. consignor when a sale to a third party has occurred. b. consignor when the merchandise has been shipped to a consignee. c. consignee when a sale to a third party has occurred. d. consignor when it receives payment from consignee for goods sold

d. consignor when it receives payment from consignee for goods sold.

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 $800, respectively. The estimated cost of the assurance-warranty is $350. The accounting for warranty will include a a. debit to Warranty Expense, $800. b. debit to Warranty Liability, $350 c. credit to Warranty Liability, $800 d. credit to Unearned Warranty Revenue, $800

d. credit to Unearned Warranty Revenue, $800

On July 31, O'Malley Company contracted to have two products built by Taylor Manufacturing for a total of $185,000. 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 $100,000 for Product 1 and $85,000 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 $100,000. b. debit to Accounts Receivable for $85,000. c. debit to Contract Assets for $85,000. d. debit to Contract Assets for $100,000.

d. debit to Contract Assets for $100,000.

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

d. deducted from net income whether declared or not.

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

d. earnings are reported by the investee in its financial statements.

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.

The second step in the process for revenue recognition is to a. allocate transaction price to the separate performance obligations. b. determine the transaction price. c. identify the contract with customers. d. identify the separate performance obligations in the contract.

d. identify the separate performance obligations in the contract.

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

d. of exercise.

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

d. should be ignored in all earnings per share calculations.

Nonrefundable upfront fees a. should be recognized immediately upon receipt of payment. b. such as activation fees for cable should be allocated over the term of the contract. c. such as a one-time initiation fee in a health club should be recognized immediately. d. should not be recorded as revenue if they are for future delivery of products and services.

d. should not be recorded as revenue if they are for future delivery of products and services.

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

d. smaller earnings per share adjustment.

Franchise fees should be recognized a. on the date the contract was signed. b. on the date the franchise is opened for business. c. on the date the franchise fee is paid to franchisor. d. when performance obligations are satisfied.

d. when performance obligations are satisfied.