Intermediate Accounting Final Notecards 1

In 2021, Fargo Corporation began construction work under a three-year contract. The contract price is $7,200,000. 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, 2021, follow: Balance Sheet Accounts receivable--construction contract billings $300,000 Construction in progress $900,000 Less contract billings 720,000 Costs and recognized profit in excess of billings 180,000 Income Statement Income (before tax) on the contract recognized in 2021 $180,000 What was the initial estimated total income before tax on this contract?

$1,440,000

Stine Inc. had 1,000,000 shares of common stock issued and outstanding at December 31, 2017. On July 1, 2018 an additional 1,000,000 shares were issued for cash. Stine also had stock options outstanding at the beginning and end of 2018 which allow the holders to purchase 300,000 shares of common stock at $28 per share. The average market price of Stine's common stock was $35 during 2018. The number of shares to be used in computing diluted earnings per share for 2018 is

$1,560,000

On December 31, 2017, Houser Company granted some of its executives options to purchase 150,000 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 $3,000,000. The options become exercisable on January 1, 2018, and represent compensation for executives' past and future services over a three-year period beginning January 1, 2018. What is the impact on Houser's total stockholders' equity for the year ended December 31, 2017, as a result of this transaction under the fair value method?

$0

On January 1, 2018, Gridley Corporation had 375,000 shares of its $2 par value common stock outstanding. On March 1, Gridley sold an additional 750,000 shares on the open market at $20 per share. Gridley issued a 20% stock dividend on May 1. On August 1, Gridley purchased 420,000 shares and immediately retired the stock. On November 1, 600,000 shares were sold for $25 per share. What is the weighted-average number of shares outstanding for 2018?

$1,125,000

4. Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2021, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease. (c) Alt depreciates all machinery it owns on a straight-line basis. (d) Alt's incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates. (e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doub

$1,600,000

The stockholders' equity of Howell Company at July 31, 2018 is presented below: Common Stock, par value $20, authorized 400,000 shares, issued and outstanding 160,000 shares$3,200,000 Additional Paid-in Capital Excess of Par 160,000 Retained Earnings 650,000 Total Stockholders' Equity $4,010,000 On August 1, 2018, the board of directors of Howell declared a 15% stock dividend on common stock, to be distributed on September 15th. The market price of Howell's common stock was $70 on August 1, 2018, and $76 on September 15, 2018. What is the amount of the debit to retained earnings as a result of the declaration and distribution of this stock dividend?

$1,680,000

On June 1, 2021, Johnson & Sons sold equipment to James Landscaping Service in exchange for a zero-interest bearing note with a face value of $110,000, with payment due in 12 months. The fair value of the equipment on the date of sale was $100,000. The amount of revenue to be recognized on this transaction in 2021 is

$100,000 sales revenue and $5,833 interest revenue.

On March 1, 2018, Ruiz Corporation issued $2,000,000 of 8% nonconvertible bonds at 104, which are due on February 28, 2038. 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, 2018, 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, 2018 as paid-in capital from stock warrants?

$104,000

Colson Inc. declared a $230,000 cash dividend. It currently has 12,000 shares of 5%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Colson distribute to the common stockholders?

$110,000

On December 31, 2017, Kessler Company granted some of its executives options to purchase 60,000 shares of the company's $10 par common stock at an option price of $50 per share. The options become exercisable on January 1, 2018, and represent compensation for executives' services over a three-year period beginning January 1, 2018. The Black-Scholes option pricing model determines total compensation expense to be $360,000. At December 31, 2018, none of the executives had exercised their options. What is the impact on Kessler's net income for the year ended December 31, 2018 as a result of this transaction under the fair value method?

$120,000 decrease

On December 31, 2017, the stockholders' equity section of Arndt, Inc., was as follows: Common stock, par value $10; authorized 30,000 shares; issued and outstanding 9,000 shares $ 90,000 Additional paid-in capital 116,000 Retained earnings 184,000 Total stockholders' equity $390,000 On March 31, 2018, Arndt declared a 10% stock dividend, and accordingly 900 additional shares were issued, when the fair value of the stock was $18 per share. For the three months ended March 31, 2018, Arndt sustained a net loss of $40,000. The balance of Arndt's retained earnings as of March 31, 2018, should be

$127,800

Mann Co. has outstanding 80,000 shares of 5% preferred stock with a $10 par value and 150,000 shares of $3 par value common stock. Dividends have been paid every year except last year and the current year. If the preferred stock is cumulative and nonparticipating and $250,000 is distributed, the common stockholders will receive

$170,000

Presented below is the stockholders' equity section of Oaks Corporation at December 31, 2017: Common Stock, par value $20; authorized 75,000 shares; issued and outstanding 45,000 shares $900,000 Additional Paid-In Capital in Excess of Par 350,000 Retained Earnings 500,000 During 2018, the following transactions occurred relating to stockholders' equity: 3,000 shares were reacquired at $28 per share. 3,000 shares were reacquired at $35 per share. 1,800 shares of treasury stock were sold at $30 per share. For the year ended December 31, 2018, Oaks reported net income of $450,000. Assuming Oaks accounts for treasury stock under the cost method, what should it report as total stockholders' equity on its December 31, 2018, balance sheet?

$2,065,000

Masterson Company has 490,000 shares of $10 par value common stock outstanding. During the year Masterson declared a 15% stock dividend when the market price of the stock was $36 per share. Three months later Masterson declared a $.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by

$2,984,100

Shipley Corporation had net income for the year of $720,000 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 ($3,000,000), 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

$2.82

Hopkins Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $3,000,000 Estimated litigation expense 4,000,000 Extra depreciation for taxes (6,000,000) Taxable income $1,000,000 The estimated litigation expense of $4,000,000 will be deductible in 2021 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $2,000,000 in each of the next three years. The income tax rate is 20% for all years. Income taxes payable is

$200,000

4. Gibbs Corporation owned 20,000 shares of Oliver Corporation's $5 par value common stock. These shares were purchased in 2014 for $225,000. On September 15, 2018, Gibbs declared a property dividend of one share of Oliver for every ten shares of Gibbs held by a stockholder. On that date, when the market price of Oliver was $35 per share, there were 180,000 shares of Gibbs outstanding. What NET reduction in retained earnings would result from this property dividend?

$202,500

Manning Company issued 10,000 shares of its $5 par value common stock having a fair value of $25 per share and 15,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $520,000. How much of the proceeds would be allocated to the common stock?

$236,364

Mathis Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax Financial Income $1,200,000 Estimated litigation expense 3,000,000 Installment sales (2,400,00) Taxable income $1,800,000 The estimated litigation expense of $3,000,000 will be deductible in 2022 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $1,200,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1,200,000 current and $1,200,000 noncurrent. The income tax rate is 20% for all years. The income tax expense is

$240,000

Eckert Corporation's partial income statement after its first year of operations is as follows: Income before income taxes 3,750,000 Income tax expense-current (1,035,000) Income tax expense-deferred (90,000) Net income 2,625,000 Eckert uses the straight-line method of depreciation for financial reporting purposes and accelerated depreciation for tax purposes. The amount charged to depreciation expense on its books this year was $2,800,000. No other differences existed between book income and taxable income except for the amount of depreciation. Assuming a 20% tax rate, what amount was deducted for depreciation on the corporation's tax return for the current year?

$3,250,000

On January 1, 2021, Newlin Co. has the following balances: Service cost$ 300,000 Amortization of prior service costs due to increase in benefits 100,000 Contributions 500,000 Benefits paid 225,000 Actual return on plan assets 395,000 Amortization of net gain 30,000 Project benefit obligation - Beginning 3,500,000 Fair value of plan assets-Beginning 3,000,000 The fair value of plan assets at December 31, 2021 is

$3,670,000

On January 1, 2021, Newlin Co. has the following balances: Service cost$ 300,000 Amortization of prior service costs due to increase in benefits 100,000 Contributions 500,000 Benefits paid 225,000 Actual return on plan assets 395,000 Amortization of net gain 30,000 Project benefit obligation - Beginning 3,500,000 Fair value of plan assets-Beginning 3,000,000 The balance of the projected benefit obligation at December 31, 2021 is

$3,925,000

Cross Company reported the following results for the year ended December 31, 2021, its first year of operations: 2018 Income (per books before income taxes) $ 2,000,000 Taxable income 3,200,000 The disparity between book income and taxable income is attributable to a temporary difference which will reverse in 2022. What should Cross record as a net deferred tax asset or liability for the year ended December 31, 2021, assuming that the enacted tax rates in effect are 30% in 2021 and 25% in 2022?

$300,000 deferred tax asset

At the beginning of 2018, Hamilton Company had retained earnings of $320,000. During the year Hamilton reported net income of $75,000, sold treasury stock at a "gain" of $27,000, declared a cash dividend of $45,000, and declared and issued a small stock dividend of 1,500 shares ($10 par value) when the fair value of the stock was $30 per share. The amount of retained earnings available for dividends at the end of 2018 was:

$305,000

Morgan Corporation had two issues of securities outstanding: common stock and an 8% convertible bond issue in the face amount of $16,000,000. 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, 2018, the holders of $2,400,000 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 $1,000,000. 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?

$330,000

The following facts relate to the Patton Co. postretirement benefits plan for 2021: Service cost$ 240,000Discount Rate9.00%APBO, January 1, 2021$ 1,500,000EPBO, January 1, 2021$ 2,000,000Benefit payments to employees$ 115,000 The amount of postretirement expense for 2021 is

$375,000

At December 31, 2018, 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, 2018. Net income for the year ended December 31, 2018, was $1,700,000. What should be Hancock's 2018 earnings per common share, rounded to the nearest penny?

$4

On January 2, 2018, Worth Co. issued at par $2,000,000 of 7% convertible bonds. Each $1,000 bond is convertible into 10 shares of common stock. No bonds were converted during 2018. Worth had 200,000 shares of common stock outstanding during 2018. Worth's 2018 net income was $900,000 and the income tax rate was 30%. Worth's diluted earnings per share for 2018 would be (rounded to the nearest penny):

$4.50

Anders, Inc., has 15,000 shares of 4%, $100 par value, cumulative preferred stock and 60,000 shares of $1 par value common stock outstanding at December 31, 2018. There were no dividends declared in 2016. The board of directors declares and pays a $110,000 dividend in 2017 and in 2018. What is the amount of dividends received by the common stockholders in 2018?

$40,000

Watson Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2018 2,700,000 Tax-exempt interest income (150,000) Originating temporary difference (450,000) Taxable income 2,100,000 The temporary difference will reverse evenly over the next two years at an enacted tax rate of 30%. The enacted tax rate for 2021 is 20%. What amount should be reported in its 2021 income statement as the current portion of its provision for income taxes?

$420,000

Kraft, Inc. sponsors a defined-benefit pension plan. The following data relates to the operation of the plan for the year 2021. Service Cost$ 345,000 Contributions to the plan 330,000 Actual return on plan assets 270,000 Project benefit obligation - Beginning 3,600,000 Fair value of plan assets-Beginning 2,400,000 The expected return on plan assets and the settlement rate were both 10%. The amount of pension expense reported for 2021 is

$465,000

2. Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2021, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease. (c) Alt depreciates all machinery it owns on a straight-line basis. (d) Alt's incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates. (e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doub

$472,350

5. On June 30, 2018, when Ermler Co.'s stock was selling at $65 per share, its capital accounts were as follows: Capital stock (par value $50; 60,000 shares issued) $3,000,000 Premium on capital stock 600,000 Retained earnings 4,200,000 If a 100% stock dividend were declared and distributed, capital stock would be

$6,000,000

Presented below is pension information related to Woods, Inc. for the year 2021: Service Costs $410,000 Interest on projected benefit obligation 270,000 Interest on vested benefits 120,000 Amortization of prior service cost due to increase in benefits 60,000 Expected return on plan assets 90,000 The amount of pension expense to be reported for 2021 is

$650,000

Meyer & Smith is a full-service technology company. They provide equipment, installation services as well as training. Customers can purchase any product or service separately or as a bundled package. Container Corporation purchased computer equipment, installation and training for a total cost of $144,000 on March 15, 2021. Estimated standalone fair values of the equipment, installation, and training are $90,000, $60,000, and $30,000 respectively. The transaction price allocated to equipment, installation and training is

$72,000, $48,000 and $24,000 respectively.

Roche Pharmaceuticals entered into a licensing agreement with Zenith Lab for a new drug under development. Roche will receive $8,100,000 if the new drug receives FDA approval. Based on prior approval, Roche determines that it is 85% likely that the drug will gain approval. The transaction price of this arrangement should be

$8,100,000

Seasons Construction is constructing an office building under contract for Cannon Company and uses the percentage-of-completion method. The contract calls for progress billings and payments of $1,550,000 each quarter. The total contract price is $18,600,000 and Seasons estimates total costs of $17,750,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2021. At December 31, 2022, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $18,000,000 due to unanticipated price increases. What is the total amount of Construction Expenses that Seasons will recognize for the year ended December 31, 2022?

$8,175,000

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 800, $1,000 bonds with the warrants attached was $820,000. The market price of the Vernon bonds without the warrants was $720,000, and the market price of the warrants without the bonds was $80,000. What amount should be allocated to the warrants?

$82,000

Metcalf Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Metcalf. The six-year lease requires payment of $170,000 at the beginning of each year, including $25,000 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Metcalf should record the leased asset at

$848,761

On December 1, 2021, Goetz Corporation leased office space for 10 years at a monthly rental of $80,000. On that date Goetz paid the landlord the following amounts: Rent deposit $ 80,000 First month's rent 80,000 Last month's rent 80,000 Installation of new walls and offices 640,000 $ 880,000 The entire amount of $880,000 was charged to rent expense in 2021. What amount should Goetz have charged to expense for the year ended December 31, 2021?

$85,333

6. Torrey Co. manufactures equipment that is sold or leased. On December 31, 2021, Torrey leased equipment to Dalton for a five-year period ending December 31, 2026, at which date ownership of the leased asset will be transferred to Dalton. Equal payments under the lease are $1,100,000 (including $100,000 executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2021. Collectibility of the remaining lease payments is probable. The lease receivable before the first payment is $3,850,000, and cost is $3,000,000. For the year ended December 31, 2021, what amount of income should Torrey realize from the lease transaction?

$850,000

Rathke, Inc. has a defined-benefit pension plan covering its 50 employees. Rathke agrees to amend its pension benefits. As a result, the projected benefit obligation increased by $2,700,000. Rathke determined that all its employees are expected to receive benefits under the plan over the next 5 years. In addition, 20% are expected to retire or quit each year. Assuming that Rathke uses the years-of-service method of amortization for prior service cost, the amount reported as amortization of prior service cost in year one after the amendment is

$900,000

Lehman Corporation purchased a machine on January 2, 2020, for $4,000,000. The machine has an estimated 5-year life with no salvage value. The straight-line method of depreciation is being used for financial statement purposes and the following MACRS amounts will be deducted for tax purposes: 2020 $ 800,000 2023 $460,000 2021 1,280,000 2024 460,000 2022 768,000 2025 232,000 Assuming an income tax rate of 20% for all years, the net deferred tax liability that should be reflected on Lehman's balance sheet at December 31, 2021 be

$96,000

Marle Construction enters into a contract with a customer to build a warehouse for $950,000 on March 30, 2021 with a performance bonus of $50,000 if the building is completed by July 31, 2021. 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, 2021 65% August 7, 2021 25% August 14, 2021 5% August 21, 2021 5% The transaction price for this transaction is

$995,000

With regard to recognizing stock-based compensation - IFRS and GAAP follow the same model. - IFRS and GAAP standards are undergoing major reform on valuation issues. - it has been agreed that these standards will not be merged due to the differences in currencies. - the reform of GAAP standards will not be addressed until IFRS standards have been finalized.

- IFRS and GAAP follow the same model.

What impact does a bargain purchase option have on the present value of the minimum lease payments computed by the lessee? - There is no impact as the option does not enter into the transaction until the end of the lease term. - The lessee must increase the present value of the minimum lease payments by the present value of the option price. - The lessee must decrease the present value of the minimum lease payments by the present value of the option price. - The minimum lease payments would be increased by the option price.

- The lessee must increase the present value of the minimum lease payments by the present value of the option price.

When dealing with contract modifications, a separate performance obligation exists when - a company provides interdependent product or service. - a company provides a distinct product or service. - a company receives the right to receive consideration. - a contract is approved and signed.

- a company provides a distinct product or service.

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

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

In applying the treasury stock method to determine the dilutive effect of stock options and warrants, the proceeds assumed to be received upon exercise of the options and warrants - are used to calculate the number of common shares repurchased at the average market price, when computing diluted earnings per share. - are added, net of tax, to the numerator of the calculation for diluted earnings per share. - 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. - are not used to calculate the number of common shared repurchased at the average market price, when computing diluted earnings per share

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

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

- 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 - weighted by the number of days outstanding. - weighted by the number of months outstanding. - considered outstanding at the beginning of the year. - considered outstanding at the beginning of the earliest year reported.

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

P & G Auto Parts sells parts to AAA Car Repair during 2021. P&G offers rebates of 2% on purchases up to $60,000 and 3% on purchases above $60,000 if the customer's purchases for the year exceed $200,000. In the past, AAA normally purchases $300,000 in parts during a calendar year. On March 25, 2021, AAA Car Repair purchased $74,000 of parts. The journal entry to record the purchase includes a - credit to Sales Revenue for $72,380. - credit to Sales Revenue for $72,800. - debit to Accounts Receivable for $72,800. - debit to Accounts Receivable for $74,000.

- credit to Sales Revenue for $72,380.

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

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

In a defined-benefit plan, the process of funding refers to - determining the amount that might be reported for pension expense. - determining the accumulated benefit obligation. - making the periodic contributions to a funding agency to ensure that funds are available to meet retirees' claims. - determining the projected benefit obligation.

- making the periodic contributions to a funding agency to ensure that funds are available to meet retirees' claims.

Convertible bonds - may be exchanged for equity securities. - pay interest only in the event earnings are sufficient to cover the interest. - are usually secured by a first or second mortgage. - have priority over other indebtedness.

- may be exchanged for equity securities.

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

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

From the lessee's perspective, in the earlier years of a lease, - finance leases will enable the lessee to report higher income, compared to operating leases. - finance leases will cause debt to increase, compared to operating leases. - operating leases will cause income to increase, compared to finance leases. - operating leases will cause debt to increase, compared to finance leases.

- operating leases will cause income to increase, compared to finance leases.

The amount to be recorded as the cost of an asset under a finance lease is equal to the - present value of the lease payments. - present value of the lease payments or the fair value of the asset, whichever is lower. - present value of the lease payments plus the present value of any unguaranteed residual value. - carrying value of the asset on the lessor's books.

- present value of the lease payments.

A corporation has a defined-benefit plan. A pension liability will result at the end of the year if the - amount of pension expense exceeds the amount of employer contributions. - amount of employer contributions exceeds the pension expense. - projected benefit obligation exceeds the fair value of the plan assets. - fair value of the plan assets exceeds the projected benefit obligation.

- projected benefit obligation exceeds the fair value of the plan assets.

A pension fund gain or loss that is caused by a plant closing should be - charged or credited to the current pension expense. - recognized as a prior period adjustment. - spread over the current year and future years. - recognized immediately as a gain or loss on the plant closing.

- recognized immediately as a gain or loss on the plant closing.

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 - deferred and recognized when the contract is completed, regardless of whether the percentage-of-completion or completed-contract method is employed. - 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. - recognized in the current period, regardless of whether the percentage-of-completion or completed-contract method is employed. - recognized in the current period under the completed-contract method, but the percentage-of-completion method defers the loss until the contract is completed.

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

When sales are made with a right of return, the company - should not recognize any revenue. - should recognize revenue for the full sales price. - records the returned asset in a separate inventory account. - records the estimated returns in the Sales Revenue account.

- records the returned asset in a separate inventory account.

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

- should be ignored in all earnings per share calculations.

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

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

For a sales-type lease, - the sales price includes the present value of the unguaranteed residual value. - the present value of the guaranteed residual value is deducted to determine the cost of goods sold. - the gross profit will be the same whether the residual value is guaranteed or unguaranteed. - assets are depreciated by the lessor.

- the gross profit will be the same whether the residual value is guaranteed or unguaranteed.

The conversion of preferred stock into common stock requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be - reflected currently in income. - reflected currently in income as a discontinued operations item. - treated as a direct reduction of retained earnings. - treated as a prior period adjustment.

- treated as a direct reduction of retained earnings.

In computing the present value of the lease payments, the lessee should - use its incremental borrowing rate in all cases. - use both its incremental borrowing rate and the implicit rate of the lessor, assuming that the implicit rate is known to the lessee. - use the implicit rate of the lessor, assuming that the implicit rate is known to the lessee. - use the implicit rate in all cases.

- use the implicit rate of the lessor, assuming that the implicit rate is known to the lessee.

Prior service cost is amortized on a - straight-line basis over the average remaining service life of active employees or 15 years, whichever is longer. - straight-line basis over the expected future years of service. - years-of-service method or on a straight-line basis over the average remaining service life of active employees. - straight-line basis over 15 years.

- years-of-service method or on a straight-line basis over the average remaining service life of active employees.

Uncertain tax positions I. Are positions for which the tax authorities may disallow a deduction in whole or in part. II. Include instances in which the tax law is clear and in which the company believes an audit is likely. III. Give rise to tax expense by increasing payables or increasing a deferred tax liability.

1

Which of the following would be included in the Lease Receivable account? I. Guaranteed residual value. II. Unguaranteed residual value. III. Executory costs IV. Rental payments.

1,2, and 4

8. The Lease Liability account should be disclosed as A. a current liability. B. a noncurrent liability. C. current portions in current liabilities and the remainder in noncurrent liabilities. D. deferred credits.

C

9. The initial direct costs of leasing A. are generally borne by the lessee. B. include incremental costs. C. are expensed in the period of the sale under a sales-type lease. D. include lessor advertising costs.

C

Under IFRS, how are convertible debt recorded?

Convertible debt is separated into equity component and debt component.

7. When a company sells property and then leases it back, any gain on the sale should usually be A. deferred and recognized as income over the term of the lease. B. recognized as a prior period adjustment. C. recognized at the end of the lease. D. recognized in the current year.

D

1. Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2021, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease. (c) Alt depreciates all machinery it owns on a straight-line basis. (d) Alt's incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates. (e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of futurelease payments doubt

Finance lease

At the beginning of 2021, Pitman Co. purchased an asset for $1,800,000 with an estimated useful life of 5 years and an estimated salvage value of $150,000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-declining-balance method is being used. Pitman Co.'s tax rate is 20% for 2021 and all future years. Account Balance I. Deferred tax asset $ 78,000 II. Deferred tax liability $ 78,000 III. Deferred tax asset $117,000 IV. Deferred tax liability $117,000 At the end of 2021, which of the following deferred tax accounts and balances is reported on Pitman's balance sheet?

II

Seasons Construction is constructing an office building under contract for Cannon Company and uses the percentage-of-completion method. The contract calls for progress billings and payments of $1,550,000 each quarter. The total contract price is $18,600,000 and Seasons estimates total costs of $17,750,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2021. Revenue Accounts Receivable I.$6,200,000 $6,200,000 II.$5,325,000 $1,550,000 III.$5,580,000 $1,550,000 IV.$5,325,000 $6,200,000 At December 31, 2021, 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 2021 and what is the balance in the Accounts Receivable account assuming Cannon Company has not yet made its last quarterly payment?

III.

The accounting for treasury stock retirements under IFRS requires

a charge for the excess to paid-in capital, depending on the original transaction related to the issuance of the stock

Lease payments include: I. fixed payments. II. variable payments based on an index. III. a bargain purchase option. IV. a guaranteed residual value.

all of them

The fourth step in the process for revenue recognition is to

allocate transaction price to the separate performance obligations

In a finance lease, the lessee records

amortization expense and interest expense.

Under IFRS, what is recorded as compensation expense for all employee share-purchase plans?

amount of discount

The role of the agent in a Principal-Agent relationship is to

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

Deferred taxes should be presented on the balance sheet

as a noncurrent amount

5. Lease A does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases? Lease A Lease B a.Operating lease Finance Lease b.Operating lease Operating lease c.Finance Lease Finance Lease d.Finance Lease Operating lease

c

In January 2017, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2017, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares - increased total stockholders' equity. - did not change total stockholders' equity. - decreased the number of issued shares. - decreased total stockholders' equity.

decrease total stockholders equity

A corporation declared a dividend, a portion of which was liquidating. How would this distribution affect each of the following? - Additional paid in capital - retained earnings

decrease, decrease

The third step in the process for revenue recognition is to

determine the transaction price

Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as

footnote

The first step in the process for revenue recognition is to

identify the contract with customers

The second step in the process for revenue recognition is to

identify the separate performance obligations in the contract

Assuming a 40% statutory tax rate applies to all years involved, which of the following situations will give rise to reporting a deferred tax liability on the balance sheet? I.A revenue is deferred for financial reporting purposes but not for tax purposes. II.A revenue is deferred for tax purposes but not for financial reporting purposes. III.An expense is deferred for financial reporting purposes but not for tax purposes. IV.An expense is deferred for tax purposes but not for financial reporting purposes.

items two and three

In an operating lease, the lessee records

lease expense

Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2017, Houser distributed these shares of stock as a dividend to its stockholders. This is an example of a

property dividend

The last step in the process for revenue recognition is to

recognize revenue when each performance obligation is satisfied

Which of the following features of preferred stock makes it more like a debt than an equity instrument?

redeemable

3. Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2021, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease. (c) Alt depreciates all machinery it owns on a straight-line basis. (d) Alt's incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates. (e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doub

sales type lease

If management wishes to "capitalize" part of the earnings, it may issue a

stock dividend

Under IFRS compliance requirements the Revaluation Surplus is

utilized to record the changes in property, plant, and equipment and intangible assets.