Intermediate Accounting II Final

Day Co. received dividends from its common stock investments during the year ended December 31 as follows: -A stock dividend of 400 shares from Parr Corp. on July 25 when the market price of Parr's shares was $20 per share. Day owns less than 1% of Parr's stock. -A cash dividend of $15,000 from Lark Corp. in which Day owns a 25% interest. Day did not elect the fair value option to account for its investment in Lark. What amount of dividend revenue should Day report in its income statement?

$0

Poe Co. had 300,000 shares of common stock issued and outstanding at December 31, Year 1. No common stock was issued during Year 2. On January 1, Year 2, Poe issued 200,000 shares of nonconvertible preferred stock. During Year 2, Poe declared and paid $75,000 of cash dividends on the common stock and $60,000 on the preferred stock. Net income for the year ended December 31, Year 2, was $330,000. What should be Poe's Year 2 basic earnings per common share?

$0.90

On January 1, Year 1, Wolf Corp. issued its 10% bonds in the face amount of $1 million. They mature on January 1, Year 11. The bonds were issued for $1,135,000 to yield 8%, resulting in bond premium of $135,000. Wolf uses the interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, Year 1, Wolf's adjusted unamortized bond premium should be

$125,800

On November 1, Mason Corp. issued $800,000 of its 10-year, 8% term bonds dated October 1. The bonds were sold to yield 10%, with total proceeds of $700,000 plus accrued interest. Interest is paid every April 1 and October 1. What amount should Mason report for interest payable in its December 31 balance sheet?

$16,000

A hotel enters into a contract with a customer to provide 10 rooms for 10 nights for $200 per room per night. In addition to the room price per night, the hotel collects a city occupancy tax of $7 per room per night. According to the hotel's promotion, each customer that purchases in total more than 50 room nights is entitled to a credit of $3,000 on the entire purchase. What is the total transaction price of the contract?

$17,000

On April 1, Ash Corp. began offering a new product for sale under a 1-year assurance-type warranty. Of the 5,000 units in inventory at April 1, 3,000 had been sold by June 30. Based on its experience with similar products, Ash estimated that the average warranty cost per unit sold would be $8. Actual warranty costs incurred from April 1 through June 30 were $7,000. At June 30, what amount should Ash report as estimated warranty liability?

$17,000

During Year 6, Wall Co. purchased 2,000 shares of Hemp Corp. common stock for $31,500. They represent 2% of ownership in Hemp Corp. The fair value of this investment was $29,500 at December 31, Year 6. Wall sold all of the Hemp common stock for $14 per share on December 15, Year 7, incurring $1,400 in brokerage commissions and taxes. In its income statement for the year ended December 31, Year 7, Wall should report a recognized loss of

$2,900

Collins Company reported net income of $350,000 for the year. The company had 10,000 shares of $100 par value, noncumulative, 6% preferred stock and 100,000 shares of $10 par value common stock outstanding. Also, 5,000 shares of common stock were in treasury during the year. Collins declared and paid all preferred dividends as well as a $1 per share dividend on common stock. Collins Company's basic earnings per share of common stock for the year was

$2.90

Fact Pattern:Grant, Inc., acquired 30% of South Co.'s voting stock for $200,000 on January 2, Year 1, and did not elect the fair value option. The price equaled the carrying amount and the fair value of the interest purchased in South's net assets. Grant's 30% interest in South gave Grant the ability to exercise significant influence over South's operating and financial policies. During Year 1, South earned $80,000 and paid dividends of $50,000. South reported earnings of $100,000 for the 6 months ended June 30, Year 2, and $200,000 for the year ended December 31, Year 2. On July 1, Year 2, Grant sold half of its stock in South for $150,000 cash. South paid dividends of $60,000 on October 1, Year 2. In Grant's December 31, Year 1, balance sheet, what should be the carrying amount of this investment?

$209,000

Lind Co.'s salaries expense of $10,000 is paid every other Friday for the 10 workdays then ending. Lind's employees do not work on Saturdays and Sundays. The last payroll was paid on June 18. On Wednesday, June 30, the month-end balance in the salaries expense account before accruals was $14,000. What amount should Lind report as salaries expense in its income statement for the month ended June 30?

$22,000

Fact Pattern:Grant, Inc., acquired 30% of South Co.'s voting stock for $200,000 on January 2, Year 1, and did not elect the fair value option. The price equaled the carrying amount and the fair value of the interest purchased in South's net assets. Grant's 30% interest in South gave Grant the ability to exercise significant influence over South's operating and financial policies. During Year 1, South earned $80,000 and paid dividends of $50,000. South reported earnings of $100,000 for the 6 months ended June 30, Year 2, and $200,000 for the year ended December 31, Year 2. On July 1, Year 2, Grant sold half of its stock in South for $150,000 cash. South paid dividends of $60,000 on October 1, Year 2. Before income taxes, what amount should Grant include in its Year 1 income statement as a result of the investment?

$24,000

Plack Co. purchased 10,000 shares (2% ownership) of Ty Corp. on February 14 and did not elect the fair value option. Plack received a stock dividend of 2,000 shares on April 30, when the market value per share was $35. Ty paid a cash dividend of $2 per share on December 15. In its income statement for the year, what amount should Plack report as dividend income?

$24,000

An entity enters into a contract with a customer to sell products X, Y, and Z in exchange for $250,000. Control over the products will be transferred to the customer at different points in time. The entity determines that the delivery of each product is a distinct performance obligation. Products X and Y are regularly sold separately and their standalone selling prices of $40,000 and $120,000, respectively, are directly observable. The standalone selling price of product Z of $160,000 was estimated using the adjusted market assessment approach. The entity determined that the discount provided to the customer does not relate to one or more specific products in the contract. What revenue will be recognized by the entity on the sale of product X?

$31,250

Pane Co. had the following borrowings on its books at the end of the current year: $100,000, 12% interest rate, borrowed 5 years ago on September 30; interest payable March 31 and September 30. $75,000, 10% interest rate, borrowed 2 years ago on July 1; interest paid April 1, July 1, October 1, and January 1. $200,000, noninterest bearing note, borrowed July 1 of current year, due January 2 of next year; proceeds $178,000. What amount should Pane report as interest payable in its December 31 balance sheet?

$4,875

Ryan Co. sells major household appliance service contracts for cash. The service contracts are for a 1-year, 2-year, or 3-year period. Cash receipts from contracts are credited to unearned service contract revenues. This account had a balance of $720,000 at December 31, Year 1, before year-end adjustment. Service contract costs are charged as incurred to the service contract expense account, which had a balance of $180,000 at December 31, Year 1. Outstanding service contracts at December 31, Year 1, expire as follows: During Year 2 - $150,000 During Year 3 - 225,000 During Year 4 - 100,000 What amount should be reported as unearned service contract revenues in Ryan's December 31, Year 1, balance sheet?

$475,000

Oak Co. offers a standard 3-year warranty against manufacturing defects on its products. Oak previously estimated warranty costs to be 2% of sales. Due to a technological advance in production at the beginning of Year 4, Oak now believes 1% of sales to be a better estimate of warranty costs. Warranty costs of $80,000 and $96,000 were reported in Year 2 and Year 3, respectively. Sales for Year 4 were $5 million. What amount should be disclosed in Oak's Year 4 financial statements as warranty expense?

$50,000

On July 31, Year 4, Dome Co. issued $1,000,000 of 10%, 15-year bonds at par and used a portion of the proceeds to call its 600 outstanding 11%, $1,000 face amount bonds due on July 31, Year 14, at 102. On that date, unamortized bond premium relating to the 11% bonds was $65,000. In its Year 4 income statement, what amount should Dome report as gain or loss, before income taxes, from retirement of bonds?

$53,000 gain.

At the beginning of the fiscal year, End Corp. purchased 25% of Turf Co. for $550,000. At the end of the fiscal year, Turf reported net income of $65,000 and declared and paid cash dividends of $30,000. End uses the equity method of accounting. At year end, what amount should End report in its balance sheet for the investment in Turf?

$558,750

On January 1, Year 4, Celt Corp. issued 9% bonds in the face amount of $1 million, which mature on January 1, Year 14. The bonds were issued for $939,000 to yield 10%, resulting in a bond discount of $61,000. Celt uses the interest method of amortizing bond discount. Interest is payable annually on December 31. At December 31, Year 4, Celt's unamortized bond discount should be

$57,100

Green Corp. owns 30% of the outstanding common stock and 100% of the outstanding noncumulative nonvoting preferred stock of Axel Corp. In Year 1, Axel declared dividends of $100,000 on its common stock and $60,000 on its preferred stock. Green exercises significant influence over Axel's operations and uses the equity method to account for the investment in the common stock. What amount of dividend revenue should Green report in its income statement for the year ended December 31, Year 1?

$60,000

During the current year, Comma Co. had outstanding: 25,000 shares of common stock; 8,000 shares of $20 par, 10% cumulative preferred stock; and 3,000 bonds that are $1,000 par and 9% convertible. The bonds were originally issued at par, and each bond was convertible into 10 shares of common stock. During the year, net income was $200,000, no dividends were declared, and the tax rate was 30%. What amount was Comma's basic earnings per share for the current year?

$7.36

Anchor Co. owns 40% of Main Co.'s common stock outstanding and 75% of Main's noncumulative preferred stock outstanding. Anchor exercises significant influence over Main's operations. During the current period, Main declared dividends of $200,000 on its common stock and $100,000 on its noncumulative preferred stock. What amount of dividend income should Anchor report on its income statement for the current period related to its investment in Main?

$75,000

On September 30, World Co. borrowed $1,000,000 on a 9% note payable. World paid the first of four quarterly payments of $264,200 when due on December 30. In its December 31 balance sheet, what amount should World report as note payable?

$758,300

On January 1, Esther Pharmaceuticals had a balance of 10,000 shares of common stock outstanding. On June 1, the company issued an additional 2,000 shares of common stock for cash. A total of 5,000 shares of cumulative 6%, $100 par, nonconvertible preferred stock was outstanding all year. Esther's net income was $120,000 for the year. The earnings per share for the year were

$8.06

Jen Co. had 200,000 shares of common stock and 20,000 shares of 10%, $100 par value cumulative preferred stock. No dividends on common stock were declared during the year. Net income was $2,000,000. What was Jen's basic earnings per share?

$9.00

Which of the following is usually associated with payables classified as accounts payable? -Periodic Payment of Interest -Secured by Collateral

-No -No

The issue price of a bond is equal to the present value of the future cash flows for interest and principal when the bond is issued -At Par -At a Discount -At a Premium

-Yes -Yes -Yes

A bond issued on March 1 has interest payment dates of April 1 and October 1. Bond interest expense for the year ended December 31 is for a period of

10 months.

On December 1, Clay Co. declared and issued a 6% stock dividend on its 100,000 shares of outstanding common stock. There was no other common stock activity during the year. What number of shares should Clay use in determining basic earnings per share (BEPS) for the year?

106,000

On January 1, Apex Company, whose stock is publicly traded, had 100,000 shares of common stock issued and outstanding. On April 1, Apex issued a 10% stock dividend. The number of shares to be used in the computation of basic earnings per share for the fiscal year ending on December 31 is

110,000

Album Co. issued 10-year $200,000 debenture bonds on January 2. The bonds pay interest semiannually. Album uses the effective interest method to amortize bond premiums and discounts. The carrying amount of the bonds on January 2 was $185,953. A journal entry was recorded for the first interest payment on June 30, debiting interest expense for $13,016 and crediting cash for $12,000. What is the annual stated interest rate for the debenture bonds?

12%

On December 31, Year 2, Case, Inc., had 300,000 shares of common stock issued and outstanding. Case issued a 10% stock dividend on July 1, Year 3. On October 1, Year 3, Case purchased 24,000 shares of its common stock for its treasury and recorded the purchase by the cost method. What number of shares should be used in computing basic earnings per share for the year ended December 31, Year 3?

324,000

On January 1, Point, Inc., purchased 10% of Iona Co.'s common stock. Point purchased additional shares bringing its ownership up to 40% of Iona's common stock outstanding on August 1. During October, Iona declared and paid a cash dividend on all of its outstanding common stock. How much income from the Iona investment should Point's income statement report?

40% of Iona's income for August 1 to December 31.

A bond issued on June 1, Year 4, has interest payment dates of April 1 and October 1. Bond interest expense for the year ended December 31, Year 4, is for a period of

7 months.

A company issues bonds at 98, with a maturity value of $50,000. The entry the company uses to record the original issue should include which of the following?

A debit to bond discount of $1,000.

On March 1, Year 1, Somar Co. issued 20-year bonds at a discount. By September 1, Year 6, the bonds were quoted at 106 when Somar exercised its right to retire the bonds at 105. How should Somar report the bond retirement on its Year 6 income statement?

A loss in continuing operations.

When an investor uses the equity method to account for investments in common stock, the investment account will be increased when the investor recognizes

A proportionate interest in the net income of the investee.

The transaction price from contracts with customers generally should not be adjusted for the effect of the time value of money when

A substantial amount of the consideration is contingent on a future event that is not within the control of the seller.

An entity recognizes revenue from a long-term contract over time. However, early in the performance of the contract, it cannot reasonably measure the outcome, but it expects to recover the costs incurred. Revenue should be recognized based on

A zero profit margin.

In determining earnings per share, interest expense, net of applicable income taxes, on dilutive convertible debt should be

Added back to net income for diluted earnings per share.

In computing the loss per share of common stock, cumulative preferred dividends not earned should be

Added to the loss for the year.

Investments classified as held-to-maturity are measured at

Amortized cost, with no unrealized gains or losses reported.

Kale Co. purchased bonds at a discount on the open market as an investment and has the intent and ability to hold these bonds to maturity. Absent an election of the fair value option, Kale should account for these bonds at

Amortized cost.

A company issued a bond with a stated rate of interest that is less than the effective interest rate on the date of issuance. The bond was issued on one of the interest payment dates. What should the company report on the first interest payment date?

An interest expense that is greater than the cash payment made to bondholders.

When accounting for income taxes, a temporary difference occurs in which of the following scenarios?

An item is included in the calculation of net income in one year and in taxable income in a different year.

The best evidence of a standalone selling price of a promised good or service to a customer is

An observable price.

Under current generally accepted accounting principles, which approach is used to determine income tax expense?

Asset-and-liability approach.

Long Co. invested in marketable securities. At year-end, fair-value changes in this investment were included in Long's other comprehensive income. How would Long classify this investment?

Available-for-sale debt securities.

The if-converted method of computing diluted earnings per share (DEPS) amounts assumes conversion of convertible securities at the

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

The senior accountant for Carlton Co., a public company with a complex capital structure, has just finished preparing Carlton's income statement for the current fiscal year. While reviewing the income statement, Carlton's finance director noticed that the earnings-per-share data has been omitted. What changes will have to be made to Carlton's income statement as a result of the omission of the earnings-per-share data?

Carlton's income statement will have to be revised to include the earnings-per-share data.

With respect to the computation of earnings per share, which of the following would be most indicative of a simple capital structure?

Common stock, preferred stock, and debt outstanding.

In computing the weighted-average number of shares outstanding during the year, which of the following midyear events must be treated as if it had occurred at the beginning of the year?

Declaration and distribution of a stock dividend.

Treasury stock is recorded on the statement of financial position as a(n)

Decrease in shareholders' equity.

A liability that represents the accumulated difference between the income tax expense reported on the firm's books and the income tax actually paid is

Deferred taxes.

After speaking to the company's sales manager, a customer placed a large order. The customer has no immediate need for the products, so the customer asked the company to wait 60 days before delivering the products. In this case, the company should recognize revenue for the sale when the order is

Delivered to the customer.

Beach Co. determined that the decline in the fair value (FV) of an investment in debt securities was below the amortized cost and due to credit losses. The investment was classified as available-for-sale on Beach's books. The controller would properly record the decrease in FV by including it in which of the following?

Earnings section of the income statement and writing down the amortized cost basis to FV.

When the effective interest method of amortization is used for bonds issued at a premium, the amount of interest payable for an interest period is calculated by multiplying the

Face value of the bonds at the beginning of the period by the contractual interest rate.

A measurement alternative may be elected for an investment in equity securities if the

Fair value of the investment is not readily determinable and the investment does not result in control or significant influence over the investee.

An available-for-sale debt security was purchased on September 1, Year 4, between interest dates. The next interest payment date was February 1, Year 5. Because of a decline in fair value, the cost of the debt security substantially exceeded its fair value at December 31, Year 4. On the balance sheet at December 31, Year 4, the debt security should be carried at

Fair value.

A 5-year term bond was issued on January 1, Year 1, at a discount. The carrying amount of the bond at December 31, Year 2, will be

Higher than the carrying amount at December 31, Year 1.

For a bond issue that sells for less than its par value, the market rate of interest is

Higher than the rate stated on the bond.

Kamchatka sells a durable good on January 1, Year 1, and the customer is automatically given a 1-year standard warranty against manufacturing defects. The customer also buys an extended warranty package, extending the coverage for an additional 2 years to the end of Year 3. At the time of the original sale, the company expects warranty costs to be incurred evenly over the life of the warranty contracts. The customer has only one warranty claim during the 3-year period, and the claim occurs during Year 2. The company will recognize revenue from the sale of the extended warranty

In Years 2 and 3.

Which one of the following statements with regard to marketable securities is incorrect?

In the available-for-sale portfolio of marketable debt securities, unrealized gains are recorded on the income statement.

The per-share amount must be reported on the face of a public company's income statement for which of the following items?

Income from continuing operations.

Unrealized gains and losses on trading debt securities should be presented in the

Income statement.

An investor uses the equity method to account for an investment in common stock. After the date of acquisition, the investment account of the investor is

Increased by its share of the earnings of the investee, and is decreased by its share of the losses of the investee.

When revenue from contracts with customers is recognized over time, the progress toward complete satisfaction of a performance obligation may be measured using the

Input method.

Under ASC 606, adjustment of the transaction price to reflect the time value of money results in

Interest income or expense that is presented in the income statement separately from revenue.

In Year 5, Lee Co. acquired, at a premium, Enfield, Inc., 10-year bonds as a long-term investment. At December 31, Year 6, Enfield's bonds were quoted at a small discount. Which of the following situations is the most likely cause of the decline in the bonds' fair value?

Interest rates have increased since Lee purchased the bonds.

Intraperiod income tax allocation arises because

Items included in the determination of taxable income may be presented in different sections of the financial statements.

The relationship between income tax currently payable and income tax expense is that income tax currently payable

May differ from income tax expense.

An investor purchased a bond as a long-term investment between interest dates at a premium. At the purchase date, the cash paid to the seller is

More than the face amount of the bond.

Goll Co. has a 25% interest in the common stock of Rose Co. and an 18% interest in the common stock of Jave Co. Neither investment gives Goll the ability to exercise significant influence over either company's operating and financial policies. Which of the two investments should Goll account for using the equity method?

Neither Rose nor Jave.

At the beginning of the current year, Hayworth Co. sold equipment with a 2-year service warranty for a single payment of $20,000. The service warranty can be purchased separately by the customer. The fair value of the equipment was $18,000. Hayworth recorded this transaction with a debit of $20,000 to cash and a credit of $20,000 to sales revenue. Assuming the proper entry was made for cost of goods sold, which of the following statements is correct regarding Hayworth's current-year financial statements?

Net income will be overstated.

An entity entered into a contract to construct a building. Based on the contract's terms, the entity appropriately determined that the performance obligation in the contract will be satisfied over time. At an early stage of the contract, the entity cannot reasonably measure the outcome of the contract, but it expects to recover the costs incurred in the construction of the building. The revenue from the contract should be recognized

Only to the extent of the costs incurred.

Whetstone Co. took advantage of market conditions to refund debt. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a(n)

Part of continuing operations.

When debt is issued at a discount, interest expense over the term of debt equals the cash interest paid

Plus discount.

The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest

Plus the present value of all future interest payments at the market (effective) rate of interest.

On September 1, Year 1, an entity purchased a new machine that it does not have to pay for until September 1, Year 3. The total payment on September 1, Year 3, will include both principal and interest. Assuming interest at a 10% rate, the cost of the machine will be the total payment multiplied by what time value of money factor?

Present value of $1.

On July 1, Goblette Company sold some machinery to another company. The two companies entered into an installment sales contract at a predetermined interest rate. The contract required 5 equal annual payments with the first payment due on July 1, the date of sale. What present value concept is appropriate for this situation?

Present value of an annuity due of $1 for 5 periods.

When purchasing a bond, the present value of the bond's expected net future cash inflows discounted at the market rate of interest provides what information about the bond?

Price.

Earnings per share disclosures are required for

Public entities only.

Which one of the following would most likely cause basic earnings per share to increase?

Purchasing treasury stock.

Income-tax-basis financial statements differ from those prepared under GAAP because they

Recognize certain revenues and expenses in different reporting periods.

For an available-for-sale security transferred into the trading category, the portion of the unrealized holding gain or loss at the date of the transfer that has not been previously recognized in earnings shall be

Recognized in earnings immediately.

When computing diluted earnings per share (DEPS), convertible securities that are potential common stock are

Recognized only if they are dilutive.

The statement of shareholders' equity shows a

Reconciliation of the beginning and ending balances in shareholders' equity accounts.

What type of bonds mature in installments?

Serial.

A bond issued on June 1, Year 1, has interest payment dates of April 1 and October 1. Bond interest expense for the year ended December 31, Year 1, is for a period of

Seven months.

A premium on bonds payable arises when

The amount received from sale of the bonds at issuance exceeds the face value of the bonds.

A company has a 22% investment in another company that it accounts for using the equity method. Which of the following disclosures should be included in the company's annual financial statements?

The company's accounting policy for the investment.

Which of the following is not a criterion that must be met for a contract with a customer to be accounted for under the revenue recognition standard (ASC 606)?

The costs to fulfill the contract are expected to be recovered.

Which of the following situations may result in recognition over time of revenue from a contract with a customer by an entity?

The customer simultaneously receives and consumes the benefits from performance as the entity performs.

Wood Co.'s dividends on noncumulative preferred stock have been declared but not paid. Wood has not declared or paid dividends on its cumulative preferred stock in the current or the prior year and has reported a net loss in the current year. For the purpose of computing basic earnings per share, how should the income available to common stockholders be calculated?

The dividends on the noncumulative preferred stock and the current-year dividends on the cumulative preferred stock should be added to the net loss.

Under ASC 606, the transaction price generally should be adjusted for the effect of the time value of money when

The selling price of the product and the consideration promised in the contract differ significantly.

In Year 1, a company reported in other comprehensive income an unrealized holding loss on an investment in available-for-sale debt securities. During Year 2, these securities were sold at a loss equal to the unrealized loss previously recognized. The reclassification adjustment should include which of the following?

The unrealized loss should be credited to the other comprehensive income account.

A software developer enters into a contract with a new customer to sell a software license and perform installation services. The entity sometimes sells the license and installation services separately. The installation service is routinely performed by other entities and does not significantly modify the software. The entity historically provided to new customers technical support for a 5-year period for no additional consideration. The contract does not specify the terms or conditions for the technical support services. Under ASC 606, which of the following represents the performance obligations identified by the entity in this contract?

Three performance obligations: (1) Software license, (2) installation services, and (3) technical support services.

Which of the following statements is a primary objective of accounting for income taxes?

To recognize the amount of deferred tax liabilities and deferred tax assets reported for future tax consequences.

Debt securities held primarily for sale in the near term to generate income on short-term price differences are known as

Trading securities.

Vadis Co. sells appliances that include a standard 3-year assurance-type warranty. Service calls under the warranty are performed by an independent mechanic under a contract with Vadis. Based on experience, warranty costs are estimated at $30 for each machine sold. When should Vadis recognize these warranty costs?

When the machines are sold.