Quiz 5

6 ] Alton Co. had a cash balance of $32,300 recorded in its general ledger at the end of the month, prior to receiving its bank statement. Reconciliation of the bank statement reveals the following information: Bank service charge - $15 Check deposited and returned for insufficient funds check - $120 Deposit recorded in the general ledger as $258 but should be $285 Checks outstanding - $1,800 After reconciling its bank statement, what amount should Alton report as its cash account balance? A. $30,338 B. $30,392 C. $32,138 D. $32,192

D

[ 1 ] The following are held by Smite Co.: Cash in checking account $20,000 Cash in bond sinking fund account 30,000 Post-dated check from customer dated one month from balance sheet date 250 Petty cash 200 Commercial paper (matures in two months) 7,000 Certificate of deposit (matures in six months) 5,000 What amount should be reported as cash and cash equivalents on Smite's balance sheet? A. $57,200 B. $32,200 C. $27,450 D. $27,200

D

[ 14 ] The following information pertains to Lark Corp.'s available-for-sale debt securities: December 31 Year 2 Year 3 Cost $100,000 $100,000 Fair value 90,000 120,000 Differences between cost and fair values are considered to be temporary. The decline in fair value was properly accounted for at December 31, Year 2. Ignoring tax effects, by what amount should other comprehensive income (OCI) be credited at December 31, Year 3? A. $0 B. $10,000 C. $20,000 D. $30,000

D

[ 20 ] Investments classified as held-to-maturity are measured at A. Fair value, with unrealized gains and losses reported in net income. B. Fair value, with unrealized gains and losses reported in other comprehensive income (OCI). C. Replacement cost, with no unrealized gains or losses reported. D. Amortized cost, with no unrealized gains or losses reported.

D

[ 22 ] Debt securities held primarily for sale in the near term to generate income on shortterm price differences are known as A. Available-for-sale securities. B. Discontinued operations. C. Held-to-maturity securities. D. Trading securities.

D

[ 26 ] On January 1 of the current year, Barton Co. paid $900,000 to purchase two-year, 8%, $1,000,000 face value bonds that were issued by another publicly-traded corporation. Barton plans to sell the bonds in the first quarter of the following year. The fair value of the bonds at the end of the current year was $1,020,000. At what amount should Barton report the bonds in its balance sheet at the end of the current year? A. $900,000 B. $950,000 C. $1,000,000 D. $1,020,000

D

[ 27 ] At the beginning of Year 2, a company invested $40,000 in a debt security. At that time the security was appropriately classified as an available-for-sale security. At the end of Year 2, the security had a fair value of $28,500. The change in fair value is deemed temporary. How should this change in fair value be reported in the financial statements? A. As a realized loss of $11,500 as part of net income. B. As a realized loss of $11,500 as part of other comprehensive income. C. As an unrealized loss of $11,500 as part of net income. D. As an unrealized loss of $11,500 as part of other comprehensive income

D

[ 28 ] 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? A. Held-to-maturity securities. B. Trading securities. C. Equity securities. D. Available-for-sale debt securities.

D

[ 33 ] On July 1, Year 3, Kay Corp. sold equipment to Mando Co. for $100,000. Kay accepted a 10% note receivable for the entire sales price. This note is payable in two equal installments of $50,000 plus accrued interest on December 31, Year 3, and December 31, Year 4. On July 1, Year 4, Kay discounted the note at a bank at an interest rate of 12%. Kay's proceeds from the discounted note were A. $48,400 B. $52,640 C. $52,250 D. $51,700

D

[ 9 ] An entity should report an investment in marketable equity securities that does not result in significant influence or control over the investee at A. Lower of cost or market, with holding gains and losses included in earnings. B. Lower of cost or market, with holding gains included in earnings only to the extent of previously recognized holding losses. C. Fair value, with holding gains included in earnings only to the extent of previously recognized holding losses. D. Fair value, with holding gains and losses included in earnings.

D

31 ] On January 1, Year 1, Purl Corp. purchased as a long-term investment $500,000 face amount of Shaw, Inc.'s 8% bonds for $456,200. The bonds were purchased to yield 10% interest. The bonds mature on January 1, Year 6, and pay interest annually on January 1. Purl uses the effective interest method of amortization. What amount (rounded to nearest $100) should Purl report on its December 31, Year 2, balance sheet for these held-to-maturity bonds? A. $468,000 B. $466,200 C. $461,800 D. $456,200

A

Fact Pattern: Sun Corp. had investments in trading debt securities costing $650,000. On June 30, Year 2, Sun decided to hold the investments indefinitely and accordingly reclassified them as available-for-sale debt securities on that date. The investments' fair value was $575,000 at December 31, Year 1, $530,000 at June 30, Year 2, and $490,000 at December 31, Year 2. [ 17 ] What amount of loss should Sun report in its Year 2 earnings? A. $45,000 B. $85,000 C. $120,000 D. $160,000

A

[ 16 ] A reclassification of available-for-sale debt securities to the held-to-maturity category results in A. The amortization of an unrealized gain or loss existing at the transfer date. B. The recognition in earnings on the transfer date of an unrealized gain or loss. C. The reversal of any unrealized gain or loss previously recognized in earnings. D. The reversal of any unrealized gain or loss previously recognized in other comprehensive income.

A

[ 2 ] At October 31, Dingo, Inc., had cash accounts at three different banks. One account balance is segregated solely for a November 15 payment into a bond sinking fund. A second account, used for branch operations, is overdrawn. The third account, used for regular corporate operations, has a positive balance. How should these accounts be reported in Dingo's October 31 classified balance sheet? A. The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability. B. The segregated and regular accounts should be reported as current assets, and the overdraft should be reported as a current liability. C. The segregated account should be reported as a noncurrent asset, and the regular account should be reported as a current asset net of the overdraft. D. The segregated and regular accounts should be reported as current assets net of the overdraft

A

[ 29 ] 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 A. Recognized in earnings immediately. B. Amortized over the period to date of sale. C. Transferred to other comprehensive earnings. D. Deferred and recognized when the security is sold.

A

[ 32 ] On January 1, Welling Company purchased 100 of the $1,000 face value, 8%, 10- year bonds of Mann, Inc. The bonds mature on January 1 in 10 years, and pay interest annually on January 1. Welling purchased the bonds to yield 10% interest. Information on present value factors is as follows: Present value of $1 at 8% for 10 periods 0.4632 Present value of $1 at 10% for 10 periods 0.3855 Present value of an annuity of $1 at 8% for 10 periods 6.7101 Present value of an annuity of $1 at 10% for 10 periods 6.1446 How much did Welling pay for the bonds? A. $87,707 B. $92,230 C. $95,477 D. $100,000

A

[ 36 ] After being held for 40 days, a 120-day, 12% interest-bearing note receivable was discounted at a bank at 15%. The proceeds received from the bank upon discounting is the A. Maturity amount minus the discount at 15%. B. Maturity amount plus the discount at 15%. C. Face amount minus the discount at 12%. D. Face amount plus the discount at 15%.

A

[ 39 ] Rand, Inc., accepted from a customer a $40,000, 90-day, 12% interest-bearing note dated August 31. On September 30, Rand discounted the note at the Apex State Bank at 15%. However, the proceeds were not received until October 1. In Rand's September 30 balance sheet, the amount receivable from the bank, based on a 360-day year, includes accrued interest revenue of A. $170 B. $300 C. $376 D. $462

A

23 ] Unrealized gains and losses on trading debt securities should be presented in the A. Statement of financial position. B. Income statement. C. Notes to the financial statements. D. Statement of retained earnings.

B

[ 10 ] Plack Co. purchased 10,000 shares (2% owner ship) 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? A. $20,000 B. $24,000 C. $90,000 D. $94,000

B

[ 12 ] Janson traded stock in Flax Co. marketable equity securities during Year 1 as follows: Number of shares purchased (sold) Price per share February 3, Year 1 1,100 $11 April 15, Year 1 2,500 9 May 28, Year 1 (750) 13 July 5, Year 1 1,400 12 September 30, Year 1 (4,000) 15 No other transactions took place for Flax during the remainder of the year. At December 31, Year 1, Flax is trading at $10 per share. Janson trades securities on a last in, first out basis. What amount is the net value of the investment in Flax at year end? A. $(250) B. $2,500 C. $2,750 D. $3,750

B

[ 13 ] 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 A. Cost. B. Amortized cost. C. Fair value. D. Lower of cost or market

B

[ 15 ] For available-for-sale debt securities included in noncurrent assets, which of the following amounts should be included in the period's net income? I. Unrealized holding losses during the period II. Realized gains during the period III. Changes in fair value during the period A. III only. B. II only. C. I and II only. D. I, II, and III.

B

[ 18 ] On both December 31, Year 1, and December 31, Year 2, Kopp Co.'s only availablefor-sale debt security had the same fair value, which was below amortized cost. Kopp considered the decline in value to be temporary in Year 1 but other than temporary in Year 2. At the end of both years the security was classified as a noncurrent asset. What should be the effects of the determination that the decline was other than temporary on Kopp's Year 2 net noncurrent assets and net income? A. No effect on both net noncurrent assets and net income. B. No effect on net noncurrent assets and decrease in net income. C. Decrease in net noncurrent assets and no effect on net income. D. Decrease in both net noncurrent assets and net income.

B

[ 19 ] At December 31, Hull Corp. had the following debt securities that were purchased during the year, its first year of operations: Fair Unrealized Cost value gain (loss) In Current Assets: Security A $ 90,000 $ 60,000 $(30,000) Security B 15,000 20,000 5,000 Totals $105,000 $ 80,000 $(25,000) In Noncurrent Assets: Security Y $ 70,000 $ 80,000 $ 10,000 Security Z 90,000 45,000 (45,000) Totals $160,000 $125,000 $(35,000) All changes in fair value are considered temporary. Security A is a trading security, and the other securities are available-for-sale securities. What amounts should be charged to earnings and other comprehensive income at December 31? Other Comprehensive Earnings Income A. $(60,000) $0 B. $(30,000) $(30,000) C. $(25,000) $(30,000) D. $(25,000) $0

B

[ 21 ] Which one of the following statements with regard to marketable securities is incorrect? A. In the portfolio of marketable equity securities, unrealized gains and losses are recorded on the income statement. B. In the available-for-sale portfolio of marketable debt securities, unrealized gains and losses are recorded on the income statement. C. The held-to-maturity portfolio consists only of debt securities. D. Debt securities may be transferred from the held-to-maturity to the available-for-sale portfolio

B

[ 24 ] Vanity Corporation holds investments in debt securities. These investments were acquired last year and have been properly classified as available-for-sale (AFS) securities. During the current year, the company sold some of the AFS securities at a loss. At year end, the remaining portfolio of AFS securities had appreciated in total value compared with the value at the end of last year. Based on these facts, which one of the following should Vanity report in its financial statements at the end of the current year? Income Statement Balance sheet A. Unrealized loss on sale of AFS securities Unrealized holding gain on appreciation of AFS securities B. Realized loss on sale of AFS securities Unrealized holding gain on appreciation of AFS securities C. Unrealized holding gain on appreciation of AFS securities Unrealized loss on sale of AFS securities. D. Realized loss on sale of AFS securities and unrealized holding gain on appreciation of AFS securities Unrealized holding gains/losses not reported here on AFS securities

B

[ 25 ] 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? A. The unrealized loss should be credited to the investment account. B. The unrealized loss should be credited to the other comprehensive income account. C. The unrealized loss should be debited to the other comprehensive income account. D. The unrealized loss should be credited to beginning retained earnings.

B

[ 30 ] Jent Corp. purchased bonds at a discount of $10,000. Subsequently, Jent sold these bonds at a premium of $14,000. During the period that Jent held this investment, amortization of the discount amounted to $2,000. What amount should Jent report as gain on the sale of bonds? A. $12,000 B. $22,000 C. $24,000 D. $26,000

B

[ 34 ] Leaf Co. purchased from Oak Co. a $20,000, 8%, 5-year note that required five equal, annual year-end payments of $5,009. The note was discounted to yield a 9% rate to Leaf. At the date of purchase, Leaf recorded the note at its present value of $19,485. What should be the total interest revenue earned by Leaf over the life of this note? A. $5,045 B. $5,560 C. $8,000 D. $9,000

B

[ 5 ] At June 30, Almond Co.'s cash balance was $10,012 before adjustments, while its ending bank statement balance was $10,772. Check number 101 was issued June 2 in the amount of $95, but was erroneously recorded in Almond's general ledger balance as $59. The check was correctly listed in the bank statement at $95. The bank statement also included a credit memo for interest earned in the amount of $35, and a debit memo for monthly service charges in the amount of $50. What was Almond's adjusted cash balance at June 30? A. $9,598 B. $9,961 C. $10,048 D. $10,462

B

[ 7 ] Star Corp. had the following accounts and balances in its general ledger as of December 31: Petty cash $ 500 XYZ Bank -- checking account 20,000 Marketable equity security 10,000 Marketable debt security 7,500 ABC Bank -- depository account 5,000 What amount should Star report as cash and cash equivalents in the balance sheet as of December 31? A. $25,000 B. $25,500 C. $35,000 D. $42,500

B

[ 8 ] On December 31, Ott Co. had investments in equity securities as follows: Fair Cost Value Man Co. $10,000 $ 8,000 Kemo, Inc. 9,000 11,000 Fenn Corp. 11,000 9,000 $30,000 $28,000 Ott's December 31 balance sheet should report the equity securities as A. $26,000 B. $28,000 C. $29,000 D. $30,000

B

[ 11 ] 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 A. $4,900 B. $3,500 C. $2,900 D. $1,500

C

[ 3 ] Companies A and B begin with identical account balances, and their revenues and expenses for the year are identical in amount except that Company A has a higher ratio of cash to noncash expenses. If the cash balances of both companies increase as a result of operations (no financing or dividends), the ending cash balance of Company A as compared to that of Company B will be A. Higher. B. The same. C. Lower. D. Indeterminate from the information given

C

[ 35 ] Roth, Inc., received from a customer a 1-year, $500,000 note bearing annual interest of 8%. After holding the note for 6 months, Roth discounted the note at Regional Bank at an effective interest rate of 10%. What amount of cash did Roth receive from the bank? A. $540,000 B. $528,400 C. $513,000 D. $486,000

C

[ 37 ] On July 1, Lee Co. sold goods in exchange for a $200,000 8-month noninterestbearing note receivable. At the time of the sale, the note's market rate of interest was 12%. What amount did Lee receive when the note was discounted at a bank at 10% on September 1? A. $180,000 B. $186,667 C. $190,000 D. $188,000

C

[ 38 ] Ace Co. sold to King Co. a $20,000, 8%, 5-year note that required five equal annual year-end payments. This note was discounted to yield a 9% rate to King. The present value factors of an ordinary annuity of $1 for five periods are as follows: 8% 3.992 9% 3.890 What should be the total interest revenue earned by King on this note? A. $9,000 B. $8,000 C. $5,561 D. $5,050

C

[ 4 ] Cook Co. had the following balances at December 31, Year 1: Cash in checking account $350,000 Cash in money-market account 250,000 U.S. Treasury bill, purchased 12/1/Yr 1, maturing 2/28/Yr 2 800,000 U.S. Treasury bond, purchased 3/1/Yr 1, maturing 2/28/Yr 2 500,000 Cook's policy is to treat as cash equivalents all highly liquid investments with a maturity of 3 months or less when purchased. What amount should Cook report as cash and cash equivalents in its December 31, Year 1, balance sheet? A. $600,000 B. $1,150,000 C. $1,400,000 D. $1,900,000

C

[ 40 ] A 90-day, 15% interest-bearing note receivable is sold to a bank after being held for 30 days. The proceeds are calculated using an 18% interest rate. The note receivable has been Discounted Pledged A. No Yes B. No No C. Yes No D. Yes Yes

C