ACCT 302 Final Exam

A noncancelable lease contains a bargain purchase option. The fair value of the asset exceeds the lessor's cost of the asset. Collectibility of the lease payments is assured and there are no material cost uncertainties surrounding the lease. Therefore, the lease will be accounted for by the lessor as a(n): A. Sales-type lease. B. Direct financing lease. C. Operating lease. D. Guaranteed lease

A

Eagle Company issued 10-year bonds at 96 (96% of face value) during the current year. In the year-end financial statements, the discount should be: A. Deducted from bonds payable B. Added to bonds payable. C. Included as an expense in the year of issue. D. Reported as a deferred charge

A

For an equity-classified award, what journal entry is made at the date of grant? A. Deferred Compensation APIC—Stock Options B. Compensation Expense APIC—Stock Options C. Deferred Compensation Common Stock D. Compensation Expense Deferred Compensation

A

N Corp. entered into a nine-year capital lease on a warehouse on December 31, 2016. Lease payments of $26,000, which includes real estate taxes of $1,000, are due annually, beginning on December 31, 2017, and every December 31 thereafter. N does not know the interest rate implicit in the lease; N's incremental borrowing rate is 9%. The rounded present value of an ordinary annuity for nine years at 9% is 6.0. What amount should N report as capitalized lease liability at December 31, 2016? A. $150,000. B. $156,000. C. $225,000. D. $234,000. The capitalized

A

On January 31, 2016, B Corp. issued $600,000 face value, 12% bonds for $600,000 cash. The bonds mature on December 31, 2025. Interest will be paid semiannually on June 30 and December 31. What amount of accrued interest payable should B report in its September 30, 2016, balance sheet? A. $18,000. B. $36,000. C. $54,000. D. $48,000

A

Recording pension expense would usually: A. Increase the PBO. B. Increase current assets. C. Increase the prior service cost-AOCI. D. Increase the net loss-AOCI.

A

The net pension liability (PBO minus plan assets) is increased by: A. Service cost. B. Expected return on plan assets. C. Amortization of prior service cost. D. Cash contributions to plan assets.

A

The projected benefit obligation (PBO) is decreased by ________. A. payment of retirement benefits B. a return on plan assets that is higher than expected C. an increase in the average life expectancy of employees D. a decrease in the actuary's assumed discount rate

A

Which of the following is not among the criteria for classifying a lease as a capital lease? A. The present value of the minimum lease payments is greater than or equal to 75% of the fair value of the asset. B. The noncancellable lease term is greater than or equal to 75% of the estimated economic life of the asset. C. The lease specifies that ownership of the asset transfers to the lessee. D. The lease contains a bargain purchase option.

A

4. Brady Corporation acquired an office building on three acres of land for a lump-sum price of $2,400,000. The building was completely furnished. According to independent appraisals, the fair values were $1,300,000, $780,000, and $520,000 for the building, land, and furniture and fixtures, respectively. The initial values of the building, land, and furniture and fixtures would be: Building Land Fixtures a.$1,300,000 $780,000$520,000 b.$1,200,000 $720,000$480,000 c.$720,000 $1,200,000$480,000 d.None of these answer choices are correct.

B

5. Ryan Stores exchanged land and cash of $5,000 for similar land. The book value and the fair value of the land were $90,000 and $100,000, respectively. Assuming that the exchange has commercial substance, Ryan would record land-new and a gain/(loss) of: Land Gain/(loss) a. $105,000 $ 0 b. $105,000 $10,000 c. $ 95,000 $ 0 d. $ 95,000 $10,000

B

An investment product promises to pay $42,000 at the end of 10 years. If an investor feels this investment should produce a rate of return of 12%, compounded annually, what's the most the investor should be willing to pay for the investment? A. $15,146. B. $13,523. C. $42,000. D. $130,446

B

Assume that you have the opportunity to receive $5,000 at the end of each of the next five years. Given an interest rate of 6%, how much would you be willing to pay for this investment today? A. $22,326 B. $21,062 C. $19,587 D. $3,736

B

In 2011, ZeeTee Inc. acquired production machinery at a cost of $630,000, which now has a accumulated depreciation of $380,000. The undiscounted cash flows from use of the machinery is $220,000. and it's fair value is $195,000. What amount should Condor recognize as a loss on impairment? A) $185,000 B) $55,000 C) $25,000 D) -0-

B

Lawson leased equipment from Tirado on January 1 of the current year. The lease is a 12 year lease with annual payments of $175,000 due on each January 1, beginning with the current year. The present value of the lease is $1,424,318. Lawson's incremental borrowing rate is 10%; Lawson knows that Tirado's implicit interest rate is 8%. What is the balance of Lawson's lease liability at December 31 or the current year? A. $1,136,636 B. $1,249,318 C. $1,017,396 D. $1,143,814

B

Louie Company has a defined benefit pension plan. On December 31 (the end of the fiscal year), the company received the PBO report from the actuary. The following information was included in the report: ending PBO, $110,000; benefits paid to retirees, $10,000; interest cost, $8,000. The discount rate applied by the actuary was 8%. What was the service cost for the year? A. $2,000. B. $12,000. C. $18,000. D. $92,000.

B

Monica wants to sell her share of an investment to Barney for $50,000 in three years. If money is worth 6% compounded semiannually, what would Monica accept today? A $8,375. B. $41,874. C. $11,941. D. $41,000.

B

On January 1, Year 1, Davenport Corporation granted an employee an option to purchase 10,000 of Davenport's $10 par common stock at $30 per share. The options became exercisable on December 31, Year 3, after the employee completed three years of service. The option was exercised on February 1, Year 4. The market prices of Davenport's stock were as follows: January 1, Year 1, $40; December 31, Year 3, $60; and February 1, Year 4, $55. An options pricing model estimated the value of the options at $12 each on the grant date. For Year 1, Davenportt should recognize compensation expense of ________. A. $0 B. $40,000 C. $100,000 D. $120,000

B

1. The Naz Company constructed a building at a total actual cost of $24,000,000. Average accumulated expenditures during the construction period amounted to $17,000,000. As a result of financing arrangements, actual interest was $2,120,000, and avoidable interest was $1,600,000. What is the capitalizable cost of the equipment? A) $19,120,000 B) $25,600,000 C) $26,120,000 D) $27,720,000

B. $25,600,000

2. Jerry Corporation purchased all of the outstanding stock of Caldwell Inc., paying $2,700,000 cash. Juliana assumed all of the liabilities of Caldwell. Book values and fair values of acquired assets and liabilities were: Book Value Fair Value Current assets (net) $420,000 $450,000 Property, plant, & equip. (net) 1,600,000 2,250,000 Liabilities 500,000 600,000 Jerry would record goodwill of: A) $1,180,000. B) $600,000. C) $880,000. D) $100,000.

B. $600,000

PBO (6)

Beginning Balance + Service Cost +Interest Cost + Prior Service Cost +/- Loss/Gain (Payments)

Plan Assets (4)

Beginning Balance +Contribution +Actual Return (Payments)

. Spielberg Inc. signed a $200,000 noninterest-bearing note due in five years from a production company eager to do business. Comparable borrowings have carried an 11% interest rate. What is the value of this debt at its inception? A. $200,000. B. $178,000. C. $118,690. D. $222,000.

C

An improvement made to a machine increased its fair value and its production capacity. The cost of the improvement should be debited to ________. A) expense B) accumulated depreciation C) equipment D) intangible assets

C

Cochran Corporation owns machinery with a book value of $190,000. It is estimated that the machinery will generate future cash flows of $175,000. The machinery has a fair value of $140,000. Cochran should recognize a loss on impairment of $ -0-. $15,000. $50,000. $35,000.

C

Hart Company purchased a depreciable asset for $360,000. The estimated salvage value is $24,000, and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset? $42,000 $63,000 $67,500 $90,000

C

If the first payment on a lease is due at the lease's inception, which compound interest table should be used to determine the amount at which the lease should be recorded? A. present value of an ordinary annuity B. present value of $1 C. present value of an annuity due D. future value of an annuity due

C

Morrison Corporation borrowed $45,000 from Commercial Bank on June 1 of the current year. The bank required 9% interest. Interest will be paid every three months until the 9-month note is paid. What is the total Interest Expense and the Interest Payable for the current year? A. Interest Expense $2,362.50; Interest Payable $2362.50 B. Interest Expense $337.50; Interest Payable $337.50 C. Interest Expense $2,362.50; Interest Payable $337.50 D. Interest Expense $3,037.50; Interest Payable $2362.50

C

On March 1 of the current year, Stafford Corporation leased equipment under a six-year noncancellable lease. The estimated economic of the equipment is nine years. The fair value of the equipment is $750,000. The lease does not contain a bargain purchase option or a transfer of title. Stafford must classify this lease as a capital lease if the present value of the minimum lease payments is at least ________. A. $500,000 B. $562,500 C. $675,000 D. $750,000

C

On October 1, 2016, Justine Company purchased equipment from Napa Inc. in exchange for a noninterest-bearing note payable in five equal annual payments of $500,000, beginning Oct 1, 2017. Similar borrowings have carried an 11% interest rate. The equipment would be recorded at: A. $2,500,000. B. $2,225,000. C. $1,847,950. D. $2,115,270.

C

The selling price of a bond is the ________. A. par value of the bond B. par value plus the discount of the bond or minus the premium of the bond C. present value of par value plus the present value of the interest payments D. present value of par value minus the present value of the interest payments

C

3. On July 1, 2016, Lewis Co. purchased a $400,000 tract of land that is intended to be the site of a new office complex. Lewis incurred additional costs and realized salvage proceeds during 2016 as follows: Demolition of existing building on site $75,000 Legal and other fees to close escrow 12,000 Proceeds from sale of demolition scrap 10,000 What would be the balance in the land account as of December 31, 2016? A) $400,000. B) $475,000. C) $477,000. D) $487,000.

C. $477,000

Ajax Company purchased a five-year certificate of deposit for its building fund in the amount of $220,000. How much should the certificate of deposit be worth at the end of five years if interest is compounded at an annual rate of 9%? A. $855,723. B. $142,985. C. $319,000. D. $338,496.

D

For an equity-classified award, what journal entry is made to record compensation expense? A. Deferred Compensation APIC—Stock Options B. Compensation Expense APIC—Stock Options C. Deferred Compensation Common Stock D. Compensation Expense Deferred Compensation

D

Regular Corp. has four divisions. One of them, Zolo Products, was acquired on January 1, 2016, for $400,000,000, and recorded goodwill of $50,750,000 as a result of that purchase. At December 31, 2016, Zolo Products had a recoverable amount of $375,000,000. The carrying value of the company's net assets at December 31, 2016 was $355,000,000 (including goodwill). What amount of loss on impairment of goodwill should Regular record in 2016? A) $45,000,000 B) $25,000,000 C) $20,000,000 D) -0-

D

What is the cost basis of an asset acquired under a capital lease? A. the sum of the gross minimum lease payments B. the present value of the minimum lease payments plus executory costs C. the present value of the minimum lease payments plus the present value of executory costs D. the present value of the minimum lease payments excluding executory costs

D

A company pays wages of $1,000,000 and has a pension plan that requires the company contribute 5% of total wages into the plan. What is the journal entry to record pension expense?

Pension Expense 50,000 Cash 50,000

Pension Expense (5)

Service Cost +Interest Cost (Expected Return) +Amortization of Prior Service Cost +/- Amortization of Gain/Loss