Intermediate ACC 2 Final Exam
Q 16.29: On January 1, 2016, Lemus Electric issued 5,000 shares of $50 par value convertible preferred stock. The conversion option stated that each share of preferred stock could be exchanged for six shares of $10 common stock after January 1, 2017. At the time the preferred shares were issued, the preferred shares had a market value of $78 and the common shares had a market value of $32. On January 2, 2017, the preferred shares had a market value of $83 and the common shares had a market value of $36. If 20% of the preferred stockholders exercised their conversion option on January 1, 2017, what would Lemus record in their journal?
Convertible Preferred Stock 50,000 Paid-in Capital in Excess of Par—Preferred Stock 28,000 Common Stock 60,000 Paid-in Capital in Excess of Par—Common Stock 18,000
Q 23.37: Cora and Dan are discussing operating cash receipts and cash disbursements. Cora says that the two are quite different from one another, but Dan disagrees. Who is correct?
Cora, operating cash receipts involve collecting money for goods or services rendered, while cash disbursements involve paying money for goods and services.
Q 12.1:If a company develops and registers a trademark in-house, how should they handle the accounting for the fees associated with registering the trademark?
Costs should be charged to an asset account that should not be amortized.
Q 12.50: A production backlog would be what type of intangible asset?
Customer-related
Q 12.13: In 2014, Herron Resources purchased Stinson Tile for $4.5 million. On December 31, 2017, the Stinson division reported net assets of $5,600,000 (including $1,800,000 of goodwill). Herron reviewed the Stinson division and determined that expected net future cash flows equaled $4,700,000 and the fair value is estimated to be only $3,900,000. What entry should Herron record concerning the Stinson division on December 31, 2017?
Debit Loss on impairment 1,700,000 Credit Goodwill 1,700,000
Q 13.27: Alro Oil erects an oil rig on January 1, 2017 at a cost of $2,000,000. The rig has a 10-year useful life, and Alro is legally required to dismantle and remove it at the end of its life. The expected cost for doing so is $400,000, present value of which is $154,200 assuming a 10% interest rate. How much depreciation (straight-line method) and interest expense should Alro record for 2017?
Depreciation expense of $215,420 and interest expense of $15,420
Q 23.71: As of December 31, 2017, Dousman Incorporated's net cash flow from operating activities was $185,400 and its net income was $194,600. Over the course of 2017, Dousman's accounts receivable balance dropped by several thousand dollars. If Dousman uses the indirect method to calculate net cash flows and the only other asset and liability is accounts payable, then which of the following statements is accurate?
Dousman must have seen a significant drop in its accounts payable balance over the course of 2017.
Q 12.21: When a company purchases a patent, the cost of the patent should be always be amortized over the remaining legal life of the patent.
False
Q 13.42: A short-term obligation can be included with current liabilities if the company intends to refinance it and can demonstrate the ability to consummate the refinancing.
False
Q 13.46: Short-term obligations are debts scheduled to mature within one year after the date of a company's balance sheet or within its operating cycle, whichever is shorter.
False
Q 23.77: When a firm's accounts receivable increase, you can add the amount of the increase to the firm's sales revenue to determine its cash receipts from customers.
False
Which of the following is true about goodwill?
Goodwill represents a unique asset in that its value can be identified only with the business as a whole.
Q 23.24: Which of the following would typically not be reported on a statement of cash flows? I. Stock dividends declared II. Capital stock issued at an amount greater than par
I only
Q 12.22: Which of the following intangible assets should be amortized? I. Lease rights. II. Copyrights. III. Customer lists. IV. Perpetual franchises.
I, II, and III.
Q 12.7: Costs associated with developing a trademark or trade name should be capitalized if they result from: I. Consulting fees. II. Design costs. III. Attorney fees. IV. Research and development cost.
I, II, and III.
Q 12.5: Which of the following characteristics are considered when determining the useful life of an intangible asset? I. Expected actions of competitors. II. Salvage value, except when it is of value to another company. III. Provisions for renewal or extension. IV. Legal life.
I, III, and IV.
Q 12.68: Which of the following are major category types of intangibles? I. Contract-related. II. Financing-related. III. Artistic-related. IV. Marketing-related.
I, III, and IV.
Which of the following are intangible assets? I. Franchises. II. Accounts receivable. III. Patents. IV. Copyrights.
I, III, and IV.
Q 12.28: Which of the following are intangible assets? I. Research and development costs. II. Trade names. III. Franchises. IV. Copyrights.
II, III, and IV.
Q 18.47: All contracts provide which of the following? I. an improvement in revenue recognition practices. II. transaction terms. III. measurement of the consideration. IV. specific promises each party must meet.
II, III, and IV.
Q 23.28: Which of the following is reported with the statement of cash flows? I. Stock dividends II. Stock splits III. Restriction on retained earnings IV. Net loss
IV only
Q 18.3: What is the first step in the process for revenue recognition?
Identify the contract with customers.
Q 13.5: Under which of the following circumstances should the currently maturing portion of long-term debt be classified as a current liability?
If the classified portion will be liquidated within one year using current assets.
Q 23.25: When preparing its statement of cash flows, a firm discovers that its accounts receivable balance has decreased over the course of the period. Given this information, which of the following statements is accurate?
If the firm is using the direct method, this discovery should lead to an upward adjustment when calculating cash receipts for customers. If it is using the indirect method, this discovery should lead to a upward adjustment when calculating cash flow from operating activities.
Q 14.3: What is the term used for bonds that pay no interest unless the issuing company is profitable?
Income bonds
Q 23.16: Which of the following methods of computing net cash flows from operating activities adjusts a firm's net income for items that affected reported net income but did not affect cash?
Indirect method
Q 23.10: Which of the following is reported in the statement of cash flows as a cash inflow or outflow?
Issuance of common stock.
Q 13.45: Which of the following does not demonstrate the ability to consummate the refinancing of a short-term obligation?
Issuing a long-term obligation to replenish current assets after the obligation is paid.
Q 15.24: Folger Industries is a newly formed corporation. On January 1, 2017, Folger issued 20,000 shares of $5 par common stock for $10 per share. On July 1, 2018, the firm reacquired 2,500 shares of this stock for $8 per share. How did the acquisition of these treasury shares affect the corporation?
It decreased Folger's total stockholders' equity.
Q 12.34: How is the cost of a successfully defended patent suit recorded?
It is capitalized and amortized over the remaining estimated useful life of the patent.
Q 12.9: Which of the following statements is true about the amortization of goodwill?
It is not recorded as goodwill is deemed to have an indefinite life.
Q 18.10: How should the transaction price for multiple performance obligations be allocated?
It should be allocated based on what the company could sell the goods for on a standalone basis.
Q 16.20: How should the difference between the cash acquisition price of retired convertible debt and the carrying amount of the debt be recorded by the issuer ?
It should be recorded currently in income
Q 23.70: Risken Company reports its income from investments under the equity method and recognized income of $25,000 from its investment in Eaton Co. during the current year, even though no dividends were declared or paid by Eaton during the year. On Risken's statement of cash flows (indirect method), how should the $25,000 be shown?
It should be shown as a deduction from net income in the cash flows from operating activities section.
Q 13.3: On November 1, 2017, JT Engineering signs a $150,000, 4 percent, one-year note for which both principal and interest are payable on November 1, 2018 On the December 31, 2017 balance sheet, how should JT classify the note and the related interest?
It should classify the note payable as a current liability and the accrued interest as a current liability.
Q 15.12: O'Brien Industries paid above par value to acquire treasury stock. They held the treasury stock for three months and then sold it again for a price higher than the acquisition price. If O'Brien uses the cost method to account for treasury stock transactions, what effect would the resale of the treasury stock have on additional paid-in capital, retained earnings, and total stockholders' equity?
It would increase both additional paid-in capital and total stockholders' equity and have no effect on retained earnings.
Q 15.38: Jane and Linda are friends who purchased stock in the same corporation. Jane purchased common stock two years ago and has stuck with the organization. Linda recently purchased preferred stock. What is the difference between Jane and Linda's stockholdings?
Jane will have a say in management decisions, whereas Linda will not have any influence on management.
Q 14.1: Oliveira Industries issued $500,000 in 10% bonds with a 10-year term. If they pay interest to bondholders on a typical schedule, they could choose to pay interest on
January 1 and July 1.
Q 15.2: Which of the following demonstrates the share system of corporate capital?
Jeffrey can sell his shares of stock in Gilbert Enterprises to anyone he wants without the knowledge or permission of Gilbert Enterprises.
Q 15.14: On June 30, 2017, Dean & Associates paid a cash dividend to stockholders that was declared on June 10, 2017. On which date will the company make a journal entry crediting cash?
June 30, 2017 only
Q 13.14: Under normal circumstances, are losses related to receivable collections and losses related to warranties accrued?
Losses related to receivable collections and losses related to warranties are both accrued.
Q 18.5: Great Visions Company entered into a contract with ABC Carpet Company on January 15, 2017. The delivery date of March 1 was specified in the contract, but Great Visions did not deliver until March 31, 2017. According to the contract, a full payment of $75,000 was due 30 days after delivery. When should this contract be recorded?
March 31, 2017
Q 14.49: The selling price of a bond is the sum of the present values of the principal and the periodic interest payments. Which of the following is used to discount the cash flows and determine present values?
Market rate
Q 15.47: At the end of 2017, RL Enterprises' retained earnings were $210,000. Based on this information and RL's balance sheet shown below, should RL pay a dividend equal to its retained earnings? Why or why not?
No, because all assets are plant assets used in operations, and payment of a cash dividend would require the sale of assets or borrowing.
Q 15.40: Washington Rare Coins reported the following stockholders' equity on December 31, 2016: On August 14, 2017, Washington declared a 2-for-1 stock split. At the time of declaration, shares were selling for $114/share. Through the first two quarters of the fiscal year, Washington recorded a net loss of $6,500. How will Washington's stockholders' equity section change as a result of this information?
Number of shares will increase to 30,000, par value will decrease to $12.50/share, and stockholders' equity will decrease to $528,500.
Q 23.34: What is the difference between operating cash receipts and cash disbursements?
Operating cash receipts involve collecting money for goods or services rendered, while cash disbursements involve paying money for goods and services.
Q 15.6: Which of the following parties will always sacrifice inherent rights in return for special preferences?
Preferred stock
Q 16.44: Dailey Lighting and Lamps issued $1,000 par value convertible bonds at 103. Which of the following accounts will record a credit at the time of issuance? (Select all that apply)
Premium on Bonds Payable Bonds Payable
Q 15.49: At the end of 2017, JT Engineering's retained earnings were $340,000. Based on this information and JT's balance sheet shown below, should JT pay a dividend equal to its retained earnings? Why or why not?
Probably not, because there is minimal working capital and a portion of the cash will probably be needed to meet current debts as they mature.
Q 12.32: Which of the following are types of patents issued by the U.S. Patent and Trademark Office?
Process patents and product patents
Q 15.16: How should a company record a property dividend?
Record the dividend by debiting retained earnings for an amount equal to the fair value of the property to be distributed.
Q 18.27: To address inconsistencies and weaknesses, a comprehensive revenue recognition standard was developed. What was the name of that standard?
Revenue from Contracts with Customers
Q 12.49: Sally and Bill are categorizing assets for their company. Sally is attempting to categorize the company's top-of-the-line customer service reputation, and Bill is attempting to categorize the company's production equipment. What is the difference between Sally and Bill?
Sally is categorizing an intangible asset, whereas Bill is categorizing a tangible asset.
Q 23.54: Steve and Kelly are looking at the financials for the Fraken Company for this period. They have noticed that the cash funded is lower than the pension expense. Steve thinks this has to do with a liability, but Kelly thinks it has to do with an asset. Who is correct?
Steve, there is likely an unfunded liability.
Q 15.18: Why does a stock dividend require a formal journal entry in the financial accounting records when a stock split does not?
Stock dividends represent a transfer from retained earnings to capital stock.
Q 13.21: Which of the following statements about short-term obligations that will be refinanced on a long-term basis is true?
Such obligations do not require the use of working capital during the next year or the next operating cycle.
Q 18.42: Pam and Sue are discussing IFRS and GAAP principles before the convergence of the standards on revenue recognition. Pam says that the two reporting standards were very similar before convergence, but Sue disagrees, explaining that they were very different from one another. Who is correct?
Sue, IFRS approaches were primarily principles-based, while GAAP used mostly rules-based approaches.
Q 18.32: Which of the following was a major difference between the IFRS and GAAP in terms of their previous accounting for revenues?
The IFRS approaches were primarily principles-based, while GAAP used mostly rules-based approaches.
Q 13.17: Which of the following statements about the use of the assurance warranty method in accounting for product warranty costs is true?
The assurance warranty method represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale.
Q 13.15: Blake Enterprises is named as a defendant in a lawsuit after the date of its 2016 financial statements but before the statements are issued. It is highly probable that the outcome of the suit will be unfavorable to Blake and that damages will be $2.5 million. In order for Blake to report a loss and the related liability in its 2016 statements, which of the following must also be true?
The cause for action occurred during the accounting period covered by the financial statements.
Q 21A.11: In order to classify a transaction as a sales-type lease, a lessor must meet one of the lease classification tests. What other criterion must the lessor meet for lease capitalization?
The collectibility of the payments from the lessee must be probable.
Q 12.58: Cedarmont Energy is creating its integrated financial and sustainability report. The company wants to include the fact that all of the energy they produce is from solar and wind power sources rather than coal or oil. Why?
The company's green energy philosophy is an intangible asset that adds value even though it does not have a specific financial value.
Q 23.31: What is the difference between the direct method and the indirect method?
The direct method works to show cash receipts and payments, while the indirect method works to differentiate between net cash flow and net income.
Q 13.6: If an enterprise intends to refinance a short-term obligation on a long-term basis, which of the following conditions must it meet in order to exclude that obligation from current liabilities?
The enterprise must be able to demonstrate the ability and intent to complete the refinancing.
Q 14.8: When considering discounts or premiums applied to a bond issue, which of the following statements is correct?
The interest expense to the seller of bonds issued at a premium will be less than the total interest payments.
Q 13.1: Which of the following is a nonessential component of a liability?
The obligation must be liquidated using cash, goods, or services that were earned by the entity in the performance of its normal business operation.
Q 21A.12: How is the lease receivable defined in a sales-type lease?
The present value of the rental payments + present value of guaranteed and unguaranteed residual values.
Q 14.17: Which of the following is not a characteristic of a project financing arrangement?
The project must be one that neither entity could enter into on its own.
Q 18.34: How are the second and fourth steps in the revenue recognition process different from one another?
The second step works to outline the performance obligations, while the fourth step allocates the transaction price to the separate performance obligations.
Q 23.33: The Horton Company offers pension plans to all of their full-time employees. During their last reporting period, Horton realized that the pension expense was higher than the cash funded. What is the most likely explanation for this?
There is currently an unfunded liability.
Q 15.8: Which of the following is the most common preference that preferred stockholders have over common stockholders?
They are assured a dividend, usually at a stated rate, before any amount may be distributed to common shareholders.
Q 13.2: Which of the following statements about current liabilities is true?
They are due within one year or one operating cycle, whichever is longer.
Q 16.1: Which of the following is one reason corporations issue convertible debt?
They can obtain financing at lower rates.
Q 12.45: A health and beauty company is developing a new line of hand lotions for very dry skin. They expect the research and development stage to take 10 years and cost approximately $12.8 million. Once they have the product line developed, they will apply for patents, which will cost approximately $200,000 in application and legal fees. As their financial advisor, how would you tell them to record these costs?
They should expense the $12.8 million as costs are incurred, and they should capitalize the $200,000.
Q 13.40: Brian Liggett owns farmland that borders the Southern Railroad right-of-way. Due to the admitted negligence of Southern, a barn on the property was set on fire and burned to the ground on September 20, 2017. In addition, Liggett has been involved in a two-year dispute with Southern concerning the ownership of a four-acre parcel of land. Southern has offered to assign any rights it may have in the land to Liggett in exchange for a release of his right to reimbursement for loss of the barn. Liggett appears inclined to accept this offer. How should Southern's 2017 financial statements reflect this information?
They should include the recognition of a loss and the creation of a liability for the value of the land.
Q 18.45: What is the role of the agent in the Principal-Agent relationship?
To arrange for the principal to provide goods or services to a customer.
Q 12.10: Which of the following is the correct reason for why the accounting profession does not allow the immediate write-off of goodwill?
To write-off goodwill immediately would lead to the incorrect conclusion that goodwill has no future service potential.
Q 15.10: Which of the following accurately describes treasury stock?
Treasury stock is included in issued shares.
Q 12.23: When a company purchases a customer list from another company, the cost is recorded as an intangible asset.
True
Q 23.27: For items that affect reported net income but do not affect cash, the indirect method adjusts net income.
True
Q 23.66: If a firm's prepaid expenses increase and its accrued expenses payable decrease, you should add both the amount of the increase and the amount of the decrease to the firm's operating expenses to determine its cash payments for operating expenses.
True
Q 13.10: How would a company following GAAP account for the liability associated with compensated absences?
Using the accrual basis but not the cash basis
Q 13.11: What is the difference between vested rights and accumulated rights when accounting for compensated absences?
Vested rights are not contingent upon an employee's future service while accumulated rights are.
Q 18.36: Roller Company enters into a contract with the Myers Company to purchase a new machine. Myers agrees to sell the machine for $125,000. What is one major difference that occurs between Roller and Myers when the contract is agreed upon and when revenue is recognized?
When the contract is agreed upon, Myers has control of the machine, whereas when revenue is recognized, Roller has control of the machine.
Q 18.39: What changes in control occur between the buyer and the seller when a contract is agreed upon and when revenue is finally recognized?
When the contract is agreed upon, the seller has control of the asset, whereas when revenue is recognized, the buyer has control of the asset.
Q 23.11: Over the course of the 2017 fiscal year, the balance in a firm's Bonds Payable account increased by $100,000. How should the firm treat this increase when preparing its statement of net cash flows?
You got it correct : D It should report the $100,000 as a cash inflow from financing activities.
Q 12.60: On January 1, 2017, Dennis Company purchases Miles Company for $4.2 million in cash. Miles' financial statement dated December 31, 2016, indicates the firm's net assets have a book value of $3.8 million. An analysis conducted by Dennis on December 31 suggests that the book value of Miles' tangible assets is $600,000 lower than their fair value. This analysis also indicates that the fair value of Miles' identifiable intangible assets exceeds their book value by $320,000. Given these figures, Dennis should recognize
a $520,000 gain.
Q 18.6: Which of the following indicates a performance obligation exists?
a company provides a distinct product or service
Q 18.8: CleanSoftware Company licensed software to technology firms for five years. The company also provides consulting services and support for their software. The company estimates standalone values for consulting services and support as $125,000 and for software licensing the value is $260,000, making the total transaction price $385,000. Assuming the performance obligations are not interdependent, the journal entry to record the transaction includes
a credit to Sales Revenue for $260,000 and a credit to Unearned Service Revenue of $125,000.
Q 18.50: Lewis Logistics sold assembly line machinery to a manufacturer. In addition to the line, Lewis will provide support services for five years. The total transaction price is $425,000. Based on standalone values, Lewis estimates the machinery to have a value of $275,000 and the support to have a value of $150,000. If the performance obligations are not interdependent, which of the following should Lewis include when journalizing this transaction?
a credit to Sales Revenue for $275,000 and a credit to Unearned Service Revenue of $150,000
Q 18.19: Palmer Music manufactures and sells MP3 players and sound systems that include a 180-day warranty on product defects. The company also sells 2-year extended warranties. On May 10, Palmer sold a sound system for $3,850 and an extended warranty for another $1,200. What should be included in the journal entry used to record this transaction?
a credit to Unearned Service Revenue of $1,200
Q 12.40: Which of the following is most likely to be classified as a limited-life intangible asset?
a patent
Q 23.59: Under the direct method, a decrease in accrued expenses payable is ________ operating expenses.
added to
Q 23.7: For the fiscal year that just ended, Sterling Enterprises had an increase in its inventory balance and a loss on the sale of equipment. If Sterling uses the indirect method to compute its net cash provided by operating activities, it should adjust its net income by
adding the amount of the loss on the sale of equipment and deducting the amount of the increase in inventory.
Q 23.14: When calculating its net cash flow from operating activities via the indirect method, a firm makes a $25,000 positive adjustment to its net income. Of the choices listed below, this adjustment was least likely related to
amortization of a bond premium.
Q 12.20: On January 3, 2006, Hamm Enterprises was granted a patent on a product. On January 8, 2018, to protect its patent, Hamm purchased a patent on a competing product that originally was issued on January 15, 2010. Because of its unique plant, Hamm does not feel that the competing patent can be used in producing a product. The cost of acquiring the competing patent should be:
amortized over a maximum period of 20 years.
Q 12.46: Darwin Manufacturing just determined that a particular patent has a carrying amount of $2 million and is expected to generate $2.2 million in future net cash flows. Based on this information, Darwin should
assume there is no impairment on the patent.
Q 16.19: If a public company has issued common stock, preferred stock, and convertible bonds, they should report ________ on their financial statements.
basic EPS and diluted EPS
Q 15.4: Because shareholders are residual owners, they
bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.
Q 18.49: The physical location of purchased merchandise immediately after a sale will be with the seller in a
bill-and-hold arrangement.
Q 16.18: When calculating diluted EPS based on the inclusion of convertible bonds, you will need to adjust
both the numerator and denominator.
Q 12.11: Burris Enterprises is testing their limited-life intangible assets for impairment. The impairment test(s) they should use include(s)
both the recoverability test and the fair value test.
Q 12.6: Jamison Enterprises acquired a franchise to operate a Good Burger Joint in January, 2013. The cost of the franchise was $360,000 and was estimated to have a limited life of 30 years. Early in the year 2018, the franchise was forced out of business due to lawsuits. Jamison should record which of the following series of expenses to their income statement for the years noted? No alt text provided for this image
c
Q 14.18: A company that enters into off-balance sheet financing
can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost.
Q 18.4: Recognizing revenue from a contract with a customer
cannot occur until a contract exists.
Q 21A.9: For a finance lease, the portion of the lease liability due within one year or the operating cycle, whichever is longer, is
classified as a current liability.
Q 16.23: When reporting the information for earnings per share, companies must compute the income available to ___________stockholders.
common
Q 18.14: Which of the following indicates a company has satisfied its performance obligation?
company has transferred physical possession of the asset.
Which of the following terms refers to rights granted to all authors, painters, musicians, sculptors, and other artists for their creations and expressions?
copyright
Q 16.40: Byers Flooring has $3,000,000 of 8% convertible bonds outstanding. Interest is paid semi-annually on January 31 and July 31, and each $1,000 bond is convertible into 30 shares of $30 par value common stock. On July 31, 2016, the holders of $960,000 bonds exercised the conversion privilege. On the date of conversion, the market price of the bonds was 105, the market price of the common stock was $36, and the total unamortized bond premium was $210,000. As a result of this conversion, Byers should record a
credit of $163,200 to Paid-in Capital in Excess of Par.
Q 18.13: Sage Technology is a full-service technology company that provides equipment, installation services, and training. Products and services can be purchased separately or as a bundled package. Big Container Corporation purchased the bundled package from Sage for $120,000. Estimated standalone fair values are: computer equipment ($75,000), installation ($50,000), and training ($25,000) on March 15, 2017. The journal entry to record the transaction on March 15, 2017 will include a
credit to Unearned Service Revenue of $20,000.
Q 18.37: Organic Gardens sells organic vegetable, fruit, and flower seeds and seedlings as well as organic bug and weed killers. They give customers a 90-day unconditional right of return if they are not satisfied with any of the products. On April 6, 2017, a customer purchased $1,500 of products (cost $750). Based on prior experience, Organic Gardens expects returns of 20%. Which of the following would be included in the journal entries to record the sale and cost of goods sold?
debit to Cash and a credit to Sales Revenue of $1,500.
Q 16.17: When calculating diluted EPS , only securities that ________ should be added to the calculation compared to securities used for the basic EPS calculation.
decrease earnings per share
Q 23.13: When calculating its net cash flow from operating activities via the indirect method, a firm makes a $17,000 negative adjustment to its net income. Of the choices listed below, this adjustment was most likely related to a(n)
decrease in income taxes payable.
Q 15.19: After a stock split, a company's par value per share will __________ and the number of shares outstanding will __________.
decrease; increase
Q 15.11: On January 1, 2017, Hanson Incorporated had an initial public offering of 10,000 shares of $10 par value common stock. The shares sold for $15 each. Six months later, Hanson reacquired 1,000 shares of its stock for $12 per share. The acquisition of these treasury shares
decreased total stockholders' equity.
Q 23.17: During the fiscal year that just ended, Okada Corporation had an unrealized holding gain of $125,000 on one of its debt investments. If Okada classified this investment as a trading investment, then it should
deduct the amount of the gain from its net income when computing its net cash flow from operating activities.
Q 23.18: During the 2018 fiscal year, Donckers Inc. was forced to sell one of its properties to the local government. The land had a carrying value of $150,000 but Donckers received $160,000 from the sale, thus resulting in a gain of $10,000. If Donckers uses the indirect method to prepare its yearly statement of cash flows, it should adjust for the effects of this sale by
deducting the $10,000 gain from net income in the operating activities section, while also reporting the $160,000 cash inflow from the sale as an investing activity.
Q 23.8: For the fiscal year that just ended, Crawford Inc. had total selling and administrative expenses of $90,000 including total depreciation expense of $45,000. Over the course of the year, the firm also experienced an increase in its prepaid expenses associated with the selling and administrative functions. If Crawford uses the direct method to prepare its statement of cash flows, it should adjust its accrual-based selling and administrative expenses by
deducting the amount of the depreciation and adding the amount of the increase in prepaid expenses.
Q 18.22: Which of the following is the third step in the process for revenue recognition?
determine the transaction price
Q 16.4: At the time of conversion of convertible preferred stock to common stock, if the par value of the common shares exceeds the carrying amount of the preferred shares, the issuer must
directly reduce retained earnings for the amount of the difference.
Q 14.15: Marion Company issued a $350,000, zero-interest-bearing, 5-year note in exchange for land with a fair market value of $287,000 from Palma Real Estate. If the present value of the note at an appropriate rate of interest is $287,000, Palma Real Estate should record a
discount on notes receivable.
Q 15.15: Fuller Enterprises reports a credit balance in retained earnings. Because of this, if they have sufficient cash, they may decide to
distribute the assets to the stockholders.
Q 15.45: Rick and Dan are discussing stockholders' equity. They are looking into the earnings of a company that set up an operation that turned very profitable after a few years. What is this capital an example of?
earned capital
Q 14.46: Carrying value of bonds at the beginning of the period multiplied by the effective-interest rate will yield the bond interest _________
expense
Q 12.35: Fairway Enterprises has determined that a particular indefinite-life intangible asset has a carrying amount of $3.5 million. If Fairway does not plan to report any loss on impairment of this asset, then the ________ than or equal to $3.5 million.
fair value of the asset must be greater
Q 18.16: A transaction should be treated as a(n) ________ when a company has an obligation or right to repurchase an asset for an amount greater than or equal to its selling price.
financing transaction
Q 12.26: The asset that would be classified as a contract-related intangible asset is a
franchise
Q 12.27: Brogan Manufacturing has determined that a particular indefinite-life intangible asset has a fair value of $850,000. If Brogan plans to report a loss on impairment of this asset, then the asset's carrying amount must be _____________ than $850,000.
greater
Q 13.33: RL Enterprises has $800,000 of short-term debt. RL issues 8,000 shares of common stock prior to the issuance of the financial statements. RL uses all of the proceeds from the sale to liquidate its short-term debt. If all $800,000 of the debt is excluded from RL's current liabilities, we can assume that the net proceeds of the sale were ___________ or equal to $800,000.
greater than
Q 14.6: Hinds Enterprises issued bonds at a premium. They traditionally use the effective interest method of amortization. Therefore, you would expect the earlier years of the bonds to have an interest expense that is
greater than if the straight-line method were used.
Q 12.29: The recoverability test is used for
impairments of property, plant, and equipment, as well as impairments of limited-life intangibles.
Q 12.61: Cortez Incorporated has determined that its Manufacturing Division has a fair value of $10.8 million and net identifiable assets (excluding goodwill) of $8.9 million. Based on this information, Cortez can calculate the ________ division's goodwill.
implied value of
Q 16.13: When a company performs a stock split or stock dividend in the middle of the year, they must restate the weighted average number of shares to reflect a(n)
increased number of shares from the beginning of the year.
Q 23.47: In order to understand the difference between these two concepts, it is imperative to recognize that the ________ method works to differentiate between net cash flow and net income, while the ________ method works to show cash receipts and payments
indirect; direct
Q 18.18: When consigned goods are transferred from the consignor to the consignee, freight costs should be considered
inventoriable by the consignor.
Q 14.2: A debenture bond issued by a corporation
is unsecured.
Q 14.4: On August 31, Jackson Enterprises issued bonds with a par value of $750,000 and a stated interest rate of 8%. Interest is payable semiannually on June 30 and December 31. If the proceeds from the issue amounted to $760,000, the bonds were likely
issued at par plus accrued interest.
Q 13.50: JT Engineering refinances a short-term obligation on a long-term basis. When JT completes the current liabilities section of its balance sheet, the portion of the original obligation excluded must be ________________ or equal to the proceeds from the new obligation.
less than
Q 21A.16: When a ________ properly accounts for an operating lease, it ________ the amount of interest on the liability to/from the straight-line lease expense to arrive at the amount of ___________.
lessee; deducts; amortization on the right-to-use asset.
When a company records an impairment loss for a(n) ___________-life asset, the fair value becomes the basis for the impaired asset, and this amount should be used to calculate amortization in future periods
limited
Q 23.72: Patents are an example of which of the following?
limited-life intangible assets
Q 12.4: For companies using GAAP, they should characterize their intangible assets as either
limited-life or indefinite-life.
Q 12.31: The science professors at Oakland University are internationally known for their research as well as their teaching and mentoring abilities. To the university, the knowledge and experience of their professors would be considered ________ assets.
long-term intangible
Q 23.9: During the 2017 fiscal year, a firm experienced an increase in accounts receivable. When determining its net cash flow from operating activities for that year, the firm would
make a downward adjustment for the amount of the increase when using the indirect method and make a downward adjustment to determine cash receipts from customers when using the direct method.
Q 21A.19: When disclosing lease information in the notes to the financial statements, which of the following should only be reported by the lessor?
management approaches for risk associated with residual value of leased assets
Q 12.33: A __________ intangible asset would include a trademark, newspaper masthead, or internet domain name.
marketing-related
Q 15.43: When a corporation conducts a treasury stock transaction, this transaction
may decrease but not increase the corporation's retained earnings.
Q 12.43: If a company recognizes an impairment on an intangible asset and the market value of that asset later recovers, the company _________ reverse the impairment in a subsequent period.
may not
Q 15.48: Current Manufacturing has 200,000 shares of unissued capital stock and 100,000 shares of treasury stock. When compiling its balance sheet, Current should ________ shares as an asset.
not treat any of these
Q 13.13: Accrued loss contingencies typically include
obligations related to product warranties.
Q 23.52: Which of the following formulas yields net cash flow from operating activities?
operating cash receipts - operating cash disbursements
Q 15.25: When using the cost method of accounting for treasury stock, a "gain" from the sale of this stock should be reflected as
paid-in capital from treasury stock transactions.
A technology-related intangible asset would include a
patent
Q 12.62: To record the amortization of a patent, most companies would credit which of the following accounts?
patents
Q 14.50: The difference between the face value and the ____________ value of the bond determines discount or premium for the bond.
present
Q 12.47: A company has just determined that the future net cash flows expected from a patent are less than the carrying amount of that patent. Given this information, the company should
proceed to a fair value test.
Q 15.3: The value of a single owner's investment in a corporation depends on the corporation's
profitability.
Q 16.14: Which of the following are required to report earnings per share information?
public companies but not private companies
Q 12.38: In 2017, Bond Inc. bought May Corporation's net assets for $2 million. At that time, May had total liabilities of $600,000, total current assets of $1.08 million, and total noncurrent assets of $2.52 million. Given these figures, Bond should account for the $1 million difference between the fair value of the net assets acquired and May's purchase price by
recognizing the $1 million difference as a gain.
Q 12.25: A firm has just determined that the future net cash flows expected from a patent are greater than the carrying amount of that patent. In making this determination, the firm has performed a ________ test.
recoverability
Q 18.2: Which of the following is an inaccurate representation regarding revenue recognition?
revenue from services rendered is recognized when cash is received or when services have been performed.
Q 18.15: The adjusting entries for expected sales returns include a debit to
sales returns and allowances.
Q 18.29: Two steps in the revenue recognition process are marginally different from one another, because the ________ step outlines the performance obligations in the contract, while the ________ step highlights transaction prices associated with the performance obligations.
second; fourth
Q 18.17: Which of the following is an inaccurate statement about consignment arrangements?
since the merchandise shipped remains the property of the consignor, the consignee has no legal obligation regarding any damage to the merchandise.
Q 18.24: Marci is going over a contract with a client. They are discussing the individual performance obligations that are detailed within the contract, and will therefore be carried out. What step is this in the revenue recognition process?
step 2
Q 18.44: Marcus and a customer are discussing a newly drafted contract. While going through the contract, the customer has a number of very specific questions about the performance obligations in the contract. What is this an example of?
step 2 of the revenue recognition process
Q 16.12: The presence of which of the following would prevent a company from having a simple capital structure?
stock warrants that expire in five years
Q 12.24: In a business acquisition, ifyou know the acquired firm's total liabilities and the fair value of its total identifiable assets, you can determine
the fair value of its identifiable net assets, but not the goodwill to be recognized.
Q 14.13: The present value of a zero-interest-bearing note given for property, goods, or services should be measured by
the fair value of the property, goods, or services or by an amount that reasonably approximates the fair value of the note.
Q 12.12: Dickinson Outerwear is calculating impairment of their indefinite-life intangibles other than goodwill. The impairment test(s) they should use include(s)
the fair value test but not the recoverability test.
Q 12.66: A firm is trying to determine whether its indefinite-life intangibles (other than goodwill) have been impaired—and if so, what amount should be reduced or written off on the firm's balance sheet. In this scenario, the firm should use
the fair value test.
Q 21A.18: If the fair value of the leased asset is less than the expected residual value, and if the lessee guaranteed the residual value,
the lessee will record a loss.
Q 21A.13: If a sales-type lease results in the lessor reporting a loss,
the lessor recognizes sales revenue and cost of goods sold.
Q 15.1: Legal capital for a corporation is defined as
the par value of all capital stock issued.
Q 14.14: When property with an indeterminable fair market value is exchanged for a debt instrument with no ready market,
the present value of the debt instrument must be approximated using an imputed interest rate.
Q 12.67: The term "gap filler" refers to the difference between
the price paid to acquire company and the fair market value of that company's net assets.
Q 12.30: A bargain purchase is said to occur whenever
the purchaser in a business combination pays less than the fair value of a company's identifiable net assets.
Q 15.7: When journalizing the sale of common stock, a debit to cash that is greater than the credit to the common stock account means that
the stated value of the common stock is less than the per share price investors were willing to pay.
Q 18.11: For revenue arrangements with multiple performance obligations, if an allocation is needed, the transaction price is allocated to the various performance obligations based on
their relative standalone selling prices.
Q 23.19: During the fiscal year that just ended, a firm purchased $50,000 of equipment in exchange for common stock. According to U.S. GAAP,
this noncash transaction should not be incorporated in the firm's statement of cash flows, but instead may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials.
Q 12.42: The remaining book value of an old patent can be added to the value of a new, replacement patent, and then the total value should be amortized over the life of the new patent.
true
Q 14.31: The present value of its future interest and principal cash flows is used to calculate the ________ payable.
value of a note
Q 18.9: Under which of the following conditions can companies use the expected value to estimate variable consideration?
when a company has a large number of contracts with similar characteristics
Q 18.7: When should multiple performance obligations that exist in a contract be accounted for as a single performance obligation?
when each service is interdependent and interrelated
Q 14.10: Bond issue costs, premiums, and discounts associated with bonds that are held to maturity
will be fully amortized as their amortization period is designed to coincide with the life of the bond issue.
Q 12.54: Doodle Industries recorded a $425,000 loss on impairment of its Manufacturing Division's goodwill. If Doodle also knows the implied value of the division's goodwill, it ____________ have enough information to calculate the division's net identifiable assets (excluding goodwill).
will not
Q 16.35: In addition to their $20 par value common stock, Gorman Outerwear has issued $12,000,000 in 8% convertible bonds. The bonds pay interest on June 30 and December 31. On June 30, 2017, holders of $1,800,000 of the bonds exercised the conversion privilege, receiving 40 shares of stock for each $1,000 bond. On the date of conversion, the bond market price was $1,100, the common stock market price was $35, and the total unamortized bond discount was $750,000. If Gorman uses the book value method, what amount will they credit to the Paid-in Capital in Excess of Par account as a result of the conversion?
$ 247,500.
Q 23.30: Fleming Company provided the following information on selected transactions during 2018: The net cash provided (used) by investing activities during 2018 is
$(300,000).
Q 14.35: Valerio Restaurants currently has restaurants throughout Arizona, Texas, and New Mexico. They would like to build five more restaurants throughout Southern California, but this would cause them to go above their current debt limitation. Valerio decided that they will form a special-purpose entity for the Southern California restaurants. For these restaurants, any food not sold will be donated to a homeless shelter for a tax write-off. They expect the tax write-off to amount to 5% of the daily cooking volume. If the new restaurants each cost $1.4 million to build and they were completely financed by debt instruments, how much debt will Valerio be required to add to their balance sheet?
$0
Q 13.37: Barrow Industries determines that it will spend $1,400,000 to obtain flood insurance on its property, while estimated average losses are only $1,100,000 per year. As such, Barrow decides to self-insure its property for flood damage. During 2017, Barrow sustains $650,000 in flood losses. What total expense and loss should Barrow recognize for 2017?
$0 insurance expense and $650,000 in losses
Q 13.25: As of December 31,2017, Red Technologies liability account balances included the following: • $250,000, 7% note payable issued October 1, 2017 maturing September 30, 2018 • $600,000, 8% note payable issued April 1, 2017 payable in four equal annual principal installments of $150,000. Red's December 31, 2017 financial statements are issued on March 31, 2018. On January 15, 2018, Red refinanced the entire $600,000 balance of the 8% note by issuing a long-term obligation payable in a lump sum. On March 10, 2018, Red also consummated a non-cancelable agreement with the lender to refinance the 7%, $250,000 note on a long-term basis, using readily determinable terms that have not yet been implemented. Based on this information, what amount of notes payable should Red classify as current on its December 31, 2017 balance sheet?
$0.
Q 23.61: Fleming Company provided the following information on selected transactions during 2018: The net cash provided (used) by financing activities during 2018 is
$1,000,000.
Q 13.28: As of December 31, 2017, RL Enterprises has $4,000,000 in short-term notes payable due on February 14, 2018. RL arranged a line of credit with Elwood bank on January 10, 2018 that would enable it to borrow up to $3,000,000 at prime + 1 for three years. On February 2, 2018, RL borrowed $2,400,000 from Elwood and used $1,000,000 in additional cash to liquidate $3,400,000 of its short-term notes payable. How much of RL's short-term notes payable should be reported as current liabilities on its December 31, 2017 balance sheet if that balance sheet is issued on March 5, 2018?
$1,600,000.
Q 13.39: Wyatt Industries intends to retire $2,500,000 in short-term debt using proceeds from the sale of 85,000 shares of common stock. The stock sells for $20 per share. How much of its short-term debt can Wyatt exclude from current liabilities if the stock sale took place after the balance sheet date but before short-term debt is due or the balance sheet is issue?
$1,700,000.
Q 15.34: Upon its organization date of January 1, 2017, Cub Incorporated was authorized for 1,000,000 shares of common stock with a par value of $8 per share. Over the course of 2017, Cub conducted the following capital transactions No alt text provided for this image Assume Cub used the cost method to account for all transactions involving treasury stock. Given this information, the firm's total amount of additional paid-in capital as of December 31, 2017 is
$1,750,000.
Q 15.28: On December 31, 2016, an analysis of Watanabe Incorporated's stockholders' equity showed the following: Over the course of 2017, Watanabe conducted several transactions that affected stockholders' equity. Specifically, it acquired 3,000 shares of its stock at $28 per share; then acquired another 3,000 treasury shares at $35 per share; and finally sold 1,800 shares of treasury stock at $30 per share. For the fiscal year that ended on December 31, 2017, Watanabe had net income of $450,000. If Watanabe uses the cost method to account for treasury stock, it should report total stockholders' equity of _______ on its December 31, 2017 balance sheet.
$1,865,000
Q 16.31: Sulton Company had 300,000 shares of common stock issued and outstanding at December 31, 2017. No common stock was issued during 2018. On January 1, 2018, Sulton issued 200,000 shares of nonconvertible preferred stock. During 2018, Sulton 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, 2018 was $465,000. Sulton's 2018 earnings per common share should be
$1.35.
Q 16.41: At December 31, 2018and 2017, Rose 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 2018or 2017. Net income for 2018was $375,000. For 2018, what did the earnings per common share amount to?
$1.75
Q 16.48: At December 31, 2017 Roland 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 2017 or 2018. On February 10, 2019, prior to the issuance of its financial statements for the year ended December 31, 2018, Roland declared a 100% stock dividend on its common stock. Net income for 2018 was $800,000. In its 2018 financial statements, Roland's 2018 earnings per common share should be which of the following?
$1.88
Q 16.26: Eastman Chocolates had 1,200,000 shares of common stock outstanding and $10,000,000 of 6% convertible bonds outstanding on December 31, 2016. The convertible bonds can be exchanged for 800,000 shares of common stock. On October 1, 2017, they issued an additional 400,000 shares of common stock. If Eastman's net income for 2017 was $3,750,000, income tax rate was 30%, and no bonds were converted, their diluted EPS for 2017 is
$1.99.
Q 23.62: Information relating to Jamison Corp.'s 2018 activities is below:• Net income for 2018was $1,300,000. • Cash dividends of $400,000 were declared and paid in 2018. • Equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in 2018for $360,000. • A long-term investment was sold in 2018for $320,000. There were no other transactions affecting long-term investments in 2018. • 20,000 shares of common stock were issued in 2018for $25 a share. • Short-term investments consist of treasury bills maturing on 6/30/19. Net cash provided by Jamison's 2018financing activities was
$100,000.
Q 12.55: On January 2, 2017, Mack Enterprises bought a trademark from Barton Industries for $3.8 million. At the time of purchase, the remaining useful life of the trademark was 35 years. Its unamortized cost on Barton's books was $2.7 million. In Mack's 2017 income statement, what amount should be reported as amortization expense?
$108,571
Q 18.33: On August 5, 2017, McClellan Art Studio shipped 50 paintings on consignment to Home Decor. The cost of each painting was $130. The cost of shipping the paintings was $300 and was paid for by McClellan Art Studio. On December 30, 2017, the consignee reported the sale of 42 paintings at $315 each. The consignee remitted payment for the amount due after deducting an 8% commission, advertising expense of $250, and setup costs of $175. How much cash should McClellan Art Studio receive?
$11,746.60
Q 13.47: Fridge Tech manufactures refrigerators and provides a one-year warranty on all products. Estimated warranty costs are $225 per unit sold. At the beginning of 2017, Fridge Tech reported a liability for an estimated $7.8 million in warranty costs. Over the course of 2017, Fridge Tech sold 60,000 units for a total of $243 million. It also paid warranty claims of $9 million on current and previous year sales. Assuming the accrual method is used, how much liability should Fridge Tech report on its balance sheet at the end of 2017?
$12,300,000.
Q 13.41: Harry's Menswear operates as a retail store in a state with a retail sales tax of 5%. Harry's does not segregate its sales tax from the amount of sale at the time of sale. During the month of June, Harry's credits $262,500 to the Sales Revenue account. How much sales tax must Harry's pay for the month of June? (Round to the nearest dollar. )
$12,500
Q 16.3: Knutson Eyewear issued 7,000 shares of common stock (par value $5) upon conversion of 7,000 shares of preferred stock (par value $3). The preferred stock initially sold for a premium of $1,400. For how much would Knutson have to debit retained earnings upon conversion?
$12,600
Q 23.65: For the year ended December 31, 2017, Luxor Inc. reported net income of $124,000. Included in this amount were depreciation expense of $12,600 and a gain on sale of equipment of $3,400. Over the course of 2017, Luxor saw the following accounts increase as follows: For the year ended December 31, 2017, Luxor's amount of cash provided by operating activities was
$122,300.
Q 12.52: On January 1, 2017, Floyd Inc. purchases Haeger Inc. for $1.6 million in cash. Haeger's balance sheet dated December 31, 2016, reports $1.24 million in total net assets. An analysis conducted by Floyd on December 31 suggests that the book value of Haeger's tangible assets is $120,000 lower than their fair value. This analysis also indicates that the fair value of Haeger's identifiable intangible assets exceeds their book value by $90,000. Given this information, Floyd should record a goodwill amount of _______ when recording its purchase of Haeger.
$150,000
Q 23.58: Kreston Co. has listed the following information on their statement of cash flows: Salaries paid: $45,000 Utilities paid: $7,000 Cash from customers: $68,000 Based on this information, what is the net cash from operations?
$16,000
Q 15.44: Alpha Industries purchased 10,000 shares of Delta Enterprises for $90,000 in 2013. On September 20, 2017, Alpha declares a property dividend in which one share of Delta will be distributed for every ten shares of Alpha outstanding. At that time, market price of Delta is $28 per share. If there are 90,000 shares of Alpha outstanding, how much gain and net reduction in retained earnings should Alpha recognize?
$171,000 gain and $81,000 net reduction in retained earnings
Q 12.64: Ramsay Enterprises incurred research and development costs of $450,000 and legal fees of $18,000 to acquire a patent. The patent has a legal life of 15 years and a useful life of 9 years. What amount should Ramsay record as Patent Amortization Expense in the first year?
$2,000
Q 15.37: On December 1, 2017, Albertson Industries took 40,000 shares of its $10 par value common stock out of treasury and traded them for a used machine. Albertson originally issued these shares at $30 each, and it later repurchased them for $40 each. On the date of the exchange, Albertson's common stock had a per-share fair value of $55. By how much will the stock-for-equipment exchange increase Albertson's total stockholders' equity?
$2,200,000
Q 13.31: After issuing its 2017 financial statements, JT Engineering enters into a financing agreement with Elwood Bank. This agreement, made on February 10, 2018, allows JT to borrow up to $6,000,000 at any time through 2019. Under the agreement, funds are borrowed at prime +2 and mature two years from the loan date. The agreement also requires JT to maintain a working capital level of $9,000,000 and prohibits payment of dividends on common stock without prior approval by Elwood. JT currently has $2,250,000 of notes payable with Scecina Bank, maturing March 15, 2018. JT intends to borrow $3,750,000 under the agreement with Elwood to liquidate these notes payable. Based on this information, how much short-term debt does JT have as of its December 31, 2017 balance sheet?
$2,250,000
Q 13.35: Sue's Furniture operates as a retail store in a state with a retail sales tax of 5%. Per state law, sales tax collected during the current month must be remitted to the state during the following month. If Sue remits $140,000 in the following month, how much in sales revenue had been earned in the current month?
$2,800,000
Q 16.47: Hooks Crochet Supplies issued $300,000 of 9% convertible bonds at par on January 2, 2017. The conversion option states that each $1,000 bond is convertible into 60 shares. In 2017, Hooks had 100,000 shares of common stock outstanding, net income of $240,000, and an income tax rate of 30%. If no bonds were converted to common stock in 2017, what would Hooks' diluted earnings per share for 2017 be?
$2.19
Q 16.30: Milton Company had 300,000 shares of common stock issued and outstanding at December 31, 2017. During 2018, no additional common stock was issued. On January 1, 2018, Milton issued 400,000 shares of nonconvertible preferred stock. During 2018, Milton 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, 2018, was $800,000. The 2018 earnings per common share, rounded to the nearest penny will be
$2.25.
Q 16.45: At December 31, 2017 Canton 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 2016 or 2017. On January 30, 2018, prior to the issuance of its financial statements for the year ended December 31, 2017, Canton declared a 100% stock dividend on its common stock. Net income for 2017 was $1,520,000. In its 2017 financial statements, Canton's 2017 earnings per common share should be which of the following?
$2.40
Q 16.39: Alonzo Tomato Products had 1,200,000 shares of common stock outstanding on December 31, 2016. They also had 450,000 shares of preferred stock that are convertible to 750,000 shares of common stock. During 2017, Alonzo paid $900,000 cash dividends on the common stock and $600,000 cash dividends on the preferred stock. If net income for 2017 was $5,100,000 and Alonzo has an income tax rate of 40%, their diluted EPS for 2017 is
$2.62.
Q 16.33: On December 31, 2016, Hamlin Electronics had 800,000 shares of common stock outstanding. They issued another 160,000 shares of common stock on October 1, 2017. In addition, Hamlin had $10,000,000 of 6% convertible bonds outstanding on December 31, 2016, convertible into 360,000 shares of common stock. No bonds were converted into common stock in 2017. In 2017, they had net income of $3,000,000 and an income tax rate of 30%. What is their diluted EPS for 2017?
$2.85
Q 16.24: Houghton Entertainment issued 5,000 stock options in 2016. The stock option states that the holder can purchase one share of common stock for $22 between 2016 and 2020. By the end of 2017, none of the stock options had yet been exercised. When calculating the diluted EPS, with which of the following average market values for common stock would the stock options be excluded from the calculation?
$20.50
Q 23.42: On the statement of cash flows for Easton Co., the cash received from customers is currently listed as $60,000. The salaries paid is entered as $32,000 and the utilities paid is $6,000. Based on this information, what is the net cash from operations?
$22,000
Q 13.48: On March 1, 2017, First National Bank agrees to lend $25,000 to JT Engineering if JT signs a $25,000, 6%, four-month note. At maturity on July 1, 2017, how much must JT pay First National?
$25,500
Q 15.36: Lewis Industries owns 600,000 shares of Compton Corporation, which it originally purchased for $8 each. On December 1, 2017, Lewis declares it will distribute these shares to its stockholders as a dividend with a December 31 date of payment. The shares have a market price of $7 on the declaration date and $9 on the distribution date. If Lewis' carrying value for the shares is $5, how much of a reduction in stockholders' equity should it record as a result of this distribution?
$3,000,000
Q 16.38: At December 31, 2017, the Riley 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, 2017. The net income for the year ended December 31, 2017, was $1,360,000. The 2017 earnings per common share, rounded to the nearest penny would be
$3.20.
Q 23.73: When calculating its net cash flow from operating activities for the 2017 fiscal year, Greenwood Inc. made adjustments for amortization of a bond discount, a decrease in income taxes payable, a decrease in inventory, and a gain on the sale of plant assets. The cumulative effect of these four adjustments was the deduction of $14,600 from the firm's net income. If Greenwood's adjustment for amortization of the bond discount was $8,500, decrease in income taxes payable was $10,900, and decrease in inventory was $18,000, then how much did the company gain on the sale of its plant assets?
$30,200
Q 13.34: During 2017, Dentifrice Toothpaste offers a cash rebate of $1 on each $4 tube of toothpaste sold. Dentifrice anticipates 10% of the rebates will be redeemed. During 2017, 3,000,000 tubes are sold and $160,000 rebate forms are redeemed. How should Dentifrice record the rebate expense and liability on its December 31, 2017 financial statements?
$300,000 expense; $140,000 liability
Q 23.12: Over the course of the fiscal year that just ended, a firm sold a warehouse for $350,000 cash, purchased a piece of equipment for $45,000 cash, and paid dividends of $25,000. Given this information, what is the firm's net cash flow from investing activities?
$305,000
Q 23.53: Knox Minerals Inc. is getting ready to prepare its annual statement of cash flows for 2018. The firm's financial statements for 2018 and 2017 are provided below. Over the course of 2018, Knox distributed $144,000 in dividends. It also sold a large piece of equipment for $180,000. This equipment had an original cost of $264,000 and a book value of $216,000 at the time of sale. When documenting the loss on the sale, Knox incorrectly charged it to cost of sales. In addition, when compiling its financial records, Knox included all depreciation expense in the selling expense category. Given all this information, what was Knox's net cash provided by operating activities for 2018?
$306,000
Q 14.42: Jolly Industries issued a $1.8 million note payable to Beckman Construction in exchange for construction services. Similar notes have an interest rate of 12 percent. Beckman Construction plans to construct the building with equal costs over the life of the note, thus equaling three annual payments of $600,000. What should Beckman record as their Discount on Notes Payable when the note is issued? Assume that the PVF-OA3, 10% = 2.48685, PVF-OA3, 12% = 2.40183, PVF3, 10% = 0.75131, and PVF3, 12% = 0.71178.
$358,902
Q 15.31: Upon its organization date of January 1, 2017, Helix Incorporated was authorized for 500,000 shares of common stock with a par value of $10 per share. Over the course of 2017, Helix conducted the following capital transactions Assume Helix uses the cost method to account for all transactions involving treasury stock. Given this information, the balance in Helix's Paid-in Capital from Treasury Stock account on December 31, 2017, should be
$36,000.
Q 13.30: Wells Enterprises introduced a new machine in January 2017. The machine carries a two-year warranty, and estimated warranty costs are 2% of sales within the first 12 months and 3% of sales within the second 12 months. 2017 sales were $700,000 and its 2018 sales were $900,000. Warranty expenditures in these two years were $10,500 and $31,500, respectively. Assuming Wells uses the assurance warranty method, what should it report as estimated warranty expense for 2018?
$39,000.
Q 14.44: In 2017, Noll Industries had a net income of $320,000, interest expense of $65,000, and a times interest earned ratio of 7. What was Noll's income before taxes for the year?
$390,000
Q 12.44: On January 1, 2017, Dennis Company purchases Miles Company for $5 million in cash. Miles' financial statement dated December 31, 2016, indicates the firm's net assets have a book value of $3.8 million. An analysis conducted by Dennis on December 31 suggests that the book value of Miles' tangible assets is $600,000 lower than their fair value. This analysis also indicates that the fair value of Miles' identifiable intangible assets exceeds their book value by $320,000. Given these figures, what was the fair value of Miles' identifiable net assets?
$4,720,000
Q 21A.14: Stovall Industries leased equipment to Arnett Manufacturing on July 1, 2016, for a ten-year period expiring June 30, 2026. The lease is properly accounted for as a finance lease by the lessee and as a sales-type lease by the lessor. The terms of the lease agreement require equal annual payments of $50,000 on July 1 of each year, starting in 2016. The effective interest rate for the lease is 9%. The present value of the payments is $350,000 at the beginning of the new lease. The cost of the equipment on Stovall's accounting records was $310,000. What amount of profit on the sale and interest revenue would Stovall record for the year ended December 31, 2016?
$40,000 and $13,500.
Q 21A.10: Jansen Company leased a machine with a cost and fair value of $250,000 to Naylor Company. The machine will have no residual value at the end of the 6-year lease. What will the six beginning-of-the-period lease payments be if the lessor's implicit interest rate is 12%? Assume that the present value of an annuity due for 6 periods at 12% is 4.60478, and the present value of an ordinary annuity for 6 periods at 12% is 4.11141
$54,291
Q 14.36: Reardon Pharmaceuticals issued a $2.7 million note payable to Nagel Chemicals in exchange for chemical products. Similar notes have an interest rate of 8 percent. Nagel Chemicals plans to pay Reardon in chemicals equally over the five years, thus equaling five annual payments of $540,000. What should Nagel record as their Discount on Notes Payable when the note is issued? Assume that the PVF-OA5, 6% = 4.21236, PVF-OA5, 8% = 3.99271, PVF5, 6% = 0.74726, and PVF5, 8% = 0.68058.
$543,936.60
Q 18.30: On August 5, 2017, McClellan Art Studio shipped 50 paintings on consignment to Home Decor. The cost of each painting was $130. The cost of shipping the paintings was $300 and was paid for by McClellan Art Studio. On December 30, 2017, the consignee reported the sale of 42 paintings at $315 each. The consignee remitted payment for the amount due after deducting an 8% commission, advertising expense of $250, and setup costs of $175. The total profit on units sold for the consignor is
$6,034.60.
Q 18.12: Sage Technology is a full-service technology company that provides equipment, installation services, and training. Products and services can be purchased separately or as a bundled package. Big Container Corporation purchased the bundled package from Sage for $120,000. Estimated standalone fair values are: computer equipment ($75,000), installation ($50,000), and training ($25,000) on March 15, 2017. The transaction price allocated to equipment, installation, and training is
$60,000, $40,000 and $20,000 respectively.
Q 15.41: On January 1, 2017, an analysis of Hogan Incorporated's stockholders' equity showed the following: Over the course of 2017, Hogan conducted several transactions involving treasury stock. Specifically, it acquired 2,500 shares of its stock for $62,500; then sold 2,000 treasury shares at $30 per share; and then sold its remaining treasury shares at $15 per share. Assume Hogan uses the cost method of accounting for treasury stock and conducted no other equity transactions during 2017. Given this information, on December 31, 2017, Hogan should report total additional paid-in capital of
$605,000.
Q 14.33: Ruffin Dog Supplies issued a $60,000, four-year note payable to Dozier Resources in exchange for cash. The note was issued at 8%, but notes with similar risk have an interest rate of 6 percent. Ruffin is expected to make four annual interest payments of $4,800 with one lump-sum payment for the principal at the end of Year 4. How much cash will Ruffin receive on the date the note was issued? Assume that the PVF-OA4, 6% = 3.46511, PVF-OA4, 8% = 3.31213, PVF4, 6% = 0.79209, and PVF4, 8% = 0.73503.
$64,157.93
Q 15.32: On December 31, 2016, McCune Incorporated had the following balances in the stockholders' equity section of its balance sheet: On March 1, 2017, McCune declared a 10% stock dividend, and accordingly 3,000 additional shares were issued. On March 1, 2017, the fair value of the stock was $26 per share. For the two months ended February 28, 2017, McCune sustained a net loss of $28,000. On March 1, 2017, McCune will have a retained earnings balance of
$644,000.
Q 15.29: On January 1, 2017, an analysis of Stellar Corporation's stockholders' equity showed the following: Over the course of 2017, Stellar conducted several transactions involving treasury stock. Specifically, it acquired 6,000 shares of its stock for $390,000; then sold 3,600 treasury shares at $70 per share; and then sold its remaining treasury shares at $61 per share. Assume Stellar uses the cost method of accounting for treasury stock and conducted no other stock transactions during 2017. Given this information, on December 31, 2017, Stellar should report total additional paid-in capital of
$683,400.
Q 23.38: After issuing employee stock options, Treaton Inc. has provided the following information: Net income: $800,000 Fair value of options: $350,000 Service period: Two years Tax rate: 40% Based on this information, at the end of the first year, what is the deferred tax asset associated with the compensation expense resulting from the stock options?
$70,000
Q 12.57: Hubbard Resources purchased a patent on January 1, 2016 for $750,000. The patent had a remaining useful life of 10 years at that date. In January of 2017, Hubbard successfully defended the patent at a cost of $195,000, extending the patent's life to 12/31/28. What amount of amortization expense would Hubbard record in 2017?
$72,500
Duran Software purchased a license to exclusively provide software to a multinational analytics firm for the next five years, including yearly upgrades as requested by each office. Duran paid $800,000 for the license. Duran expects to provide 50% of the product in the first year, 5% of the product in the second year, 25% of the product in the third year, and 10% of the product in each of the fourth and fifth years. What is the cumulative total of the amortization after the fourth year?
$720,000
Q 13.8: Bravo Industries intends to retire $950,000 in short-term debt using proceeds from the sale of 30,000 shares of common stock. The stock sells for $25 per share. How much of its short-term debt can Bravo exclude from current liabilities if the sale occurs after the balance sheet date but before the balance sheet issue?
$750,000
Q 14.48: On January 1, 2017, Reagan Enterprises sold property to Dupree Company in exchange for a $4,000,000 zero-interest-bearing note. The note is payable in 5 equal annual installments with the first payment due on December 31, 2017. The prevailing rate of interest for a note of this type is 9%. The present value of the note at 9% was $2,884,000 on the date of issuance. Assuming Dupree uses the effective-interest method, the balance of the Discount on Notes Payable account on December 31, 2017 after adjusting entries are made should be
$856,440.
Q 14.39: Turk Industries has the following included in their liabilities: 1. 10-year, $100,000 loan at 8% interest, payable at $10,000/year plus interest, obtained in 2009 2. Five-year term bond with $750,000 par value at 9% interest, issued in 2013 3. Eight-year term bond with $500,000 par value at 5% interest, issued in 2014 4. 20-year, $2 million loan at 6% interest, payable at $100,000/year plus interest, obtained in 2015 How much of these liabilities, excluding interest, will they list under current liabilities at 12/31/17?
$860,000
Q 13.9: Cohle Industries has a taxable payroll of $350,000. The company is subject to a 6.2% FUTA tax rate and a 5.4% state contribution rate. However, due to Cohle's stable employment experience, the company's state rate has been reduced to 2%. How much combined federal and state unemployment tax must Cohle pay?
$9,800
Q 23.41: On December 31, 2016, Kelvin Corporation had an accounts receivable balance of $58,400 and an accounts payable balance of $33,900. On December 31, 2017, the firm's accounts receivable balance was $55,100 and its accounts payable balance was $35,300. If Kelvin uses the indirect method and had net income of $88,700 for 2017, what was the firm's net cash flow from operating activities? This is correct answer :
$90,600
Q 13.44: JT Engineering has $960,000 of short-term debt. JT issues 10,000 shares of common stock prior to the issuance of the financial statements. JT's net proceeds from the sale are $900,000. If JT uses all of the proceeds to liquidate its short-term debt, how much of the debt can be excluded from current liabilities?
$900,000
Q 14.30: Grantham Industries' 2017 financial statements contain the following selected data: Grantham's times interest earned for 2017 is
11.3 times
Q 15.13: Which of the following are primary considerations management must make before declaring a cash dividend? 1. The tax impact on stockholders of the receipt of the dividends 2. The legal permissibility of the dividend 3. The availability of funds to pay the dividend
2 and 3 only
Q 16.16: Addison Construction issued stock warrants that are exercisable at $20 each to obtain 10,000 shares of common stock. If the average market price of the common stock was $25, exercising the warrants would increase the weighted average number of shares outstanding by how much if Addison uses the treasury stock method?
2,000.
Q 14.19: Farrar Cakes disclosed total liabilities of $5,400,000, total assets of $8,000,000, interest expense of $400,000, income taxes of $600,000, and net income after tax of $1,000,000 in their 2016 Annual Report. Based on this, Farrar Cakes' times interest earned ratio is
5
Q 16.15: Whitt Swimwear & Accessories had the following transactions related to common stock in 2018: 1. January 1 - 25,000 shares of $5 par value common stock outstanding 2. March 1 - sold an additional 50,000 shares on the open market at $25 per share 3. May 1 - issued a 20% stock dividend 4. August 1 - purchased and retired 28,000 shares 5. November 1 - sold an additional 40,000 shares for $30 per share What is Whitt's weighted average number of shares outstanding for 2018?
75,000.
Q 16.50: Robin Company had 700,000 shares of common stock outstanding on January 1. It 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. What is the weighted average shares outstanding for the year?
772,000
Q 14.5: Bowser Clothing sold $350,000 in 10-year bonds at an interest rate of 8 percent. The market rate for similar bonds is 9 percent. Bowser decides to pay interest annually. Assume that the PVF-OA10, 8% = 6.71008, PVF-OA10, 9% = 6.41766, PVF10, 8% = 0.46319, and PVF10, 9% = 0.42241. Based on this, Bowser sold the bonds for ________ of par.
93.6%
Q 23.15: When preparing a firm's statement of cash flows, which of the following adjustments would together result in a $30,000 addition to a firm's net income?
A $15,000 adjustment for amortization of a patent and a $15,000 adjustment for loss on impairment of assets
Q 21A.17: Which of the following is correct regarding executory costs? Select all that apply.
A They include property insurance and property taxes. Executory costs included in the fixed payments required by the lessor are included in the measurement of the lease liability.
Q 18.48: Which of the following occurs at the end of the revenue recognition process?
A change in control of the asset(s) occurs.
Q 13.23: In which of the following scenarios may a company exclude a short-term obligation from current liabilities?
A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis and can demonstrate an ability to consummate a refinancing.
Q 14.41: Which of the following would be considered a collateral trust bond?
A corporate bond that is backed with stock in another corporation
Q 13.4: On May 15, 2016, RL Enterprises issues a $312,000, six-month, zero-interest-bearing note to Federal Bank. The present value of the note is $300,000. Which of the following must be recorded as part of this transaction in the books of RL Enterprises?
A debit to Discount on Notes Payable of $12,000
Q 13.7: A recently graduated staff auditor is reviewing evidence of the ability and intent to complete a refinancing of a short-term obligation. Which of the following should the auditor reject as being inadequate evidence for reclassification?
A statement by the board of directors that refinancing is inevitable.
Q 15.17: Under which of the following circumstances will total stockholders' equity increase?
After neither a stock dividend nor a stock split.
Q 15.5: What is meant by the capital of a corporate organization?
Amounts paid-in or earned that represents stockholders' equity in the corporation.
Q 13.36: In the event that a short-term obligation is refinanced on a long-term basis prior to the issuance of the financial statements, how much of the short-term obligation can be excluded from current liabilities in the financial statements?
An amount not exceeding the proceeds from the new obligation
Q 14.7: How should a bond premium be reported on a balance sheet?
As a direct addition to the face amount of the bond.
Q 15.9: How are cumulative preferred dividends in arrears shown on a company's balance sheet?
As a footnote.
Q 13.49: How should a debt scheduled to mature within one year of the balance sheet date be categorized if it will not require the use of working capital during that year?
As a long-term debt
Q 13.18: Anderson Petroleum is involved in a lawsuit over the removal of underground gasoline storage tanks at the former site of one of its filling stations. Anderson's attorneys believe it is probable the outcome of the suit will be unfavorable, but can only estimate the loss within the range of $4 million to $8 million, with the minimum of $4 million being the most probable outcome. How should Anderson record this environmental liability?
As a loss and liability of $4 million.
Q 13.12: How is a contingency defined by the accounting profession?
As an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.
Q 14.20: How should long-term debt be reported if it matures within one year and the company plans to convert the debt into stock?
As noncurrent and accompanied with a note explaining the method to be used in its liquidation.
Q 14.26: Which of the following businesses would be most likely to issue only notes payable as their long-term debt instruments?
Betty's Bakery, a small hometown bakery with a single location.
Q 16.2: When recording the conversion of bonds to common stock, there will always be a debit to ________ and a credit to ________.
Bonds Payable; Common Stock
Q 23.48: When calculating its net cash flow from operating activities, Athena Corporation made a positive adjustment to reflect its gain on the sale of a warehouse and a negative adjustment to reflect its decrease in income taxes payable. In comparison, when calculating its net cash flow from operating activities, Minerva Incorporated made a positive adjustment to reflect amortization of a bond discount and a negative adjustment to reflect a decrease in accrued liabilities. Which firm handled the adjustments correctly, and why?
Both firms handled their adjustments correctly, because both made the correct blend of positive and negative adjustments to net cash flow from operations.
Q 21A.15: How is lease expense recorded for an operating lease?
By computing interest on the lease liability using the effective-interest method and then amortizing the right-of-use asset in a manner that results in equal amounts of lease expense each period.
Q 14.9: How are commissions, legal fees, and printing fees associated with a bond issue accounted for?
By recording them as a reduction to the issue amount of the bond payable and then amortizing into expense over the life of the bond, through an adjustment to the effective interest rate.
Q 23.43: When using the direct method, how does a firm calculate its cash payments to suppliers?
By starting with its cost of goods sold, then adding any increase in inventory and subtracting any increase in accounts payable
