Intermediate Accounting II Quiz & Test Questions

Which of the following is true of the new leasing standard?

All leases go on the balance sheet

Cash contributions to a pension plan will be recorded on the pension worksheet as:

An Increase in Plan Assets

A pension plan amendment enacted on 1/1/2019 totaling $250,000 will have which of the following impacts on the company's pension plan on 1/1/2019:

An increase in Projected Benefit Obligation

Re-Issuance of Treasury stock will ALWAYS result in:

An increase in owners equity

Assume Cooper Co. amended their pension plan on 12/31/2020 that covers 200 employees. Assume a cost per service year of $120, and 50 employees will retire on 12/31/2021, 40 on 12/31/2022, 20 on 12/31/2023 and the remaining on 2024. The amendment will cause Net Income to decrease by what amount in 2020?

0

Assume Walmart entered into an operating lease for a custom made forklift. To execute the lease, Walmart incurred $1,000 of external broker fees, and an internal attorney and her administrative assistant each spent 40 hours (1 full work week) to prepare the lease. Assuming the attorney's weekly salary is $2,100 plus benefits (e.g. 401k contributions, health benefits) totaling $400 per week, and the administrative assistant's weekly salary is $800 plus benefits totaling $200 per week. The journal entry to record the inception of the lease will include what amount related to "Initial direct costs"? Enter a debit as a positive number and a credit as a negative number.

-1000

Assume Webb & Co. have equity investments in several companies with a cost of $200,000. Assume these equity investments require a Fair Value Adjustment at the end of the year. At the end of 2020 the balance of Unrealized gain amounted to $50,000, and at the end of 2021 the balance of Unrealized gain amounted to $40,000. The journal entry at the end of 2021 will include what amount in the Fair Value account (enter debit as positive, credit as negative)

-10000

Assume ACE Hardware reported a Projected benefit obligation of $1,800,000 and Plan Assets of $1,600,000 at the beginning of 2020. If ACE recorded a pension expense of $250,000 and contributed $265,000 to the pension assets during 2020, the pension will be over(under) funded by what amount at the end of 2020?

-185000

Assume Ensign Group enters into a six year lease for exclusive use of a 2021 Ford F-150 truck with vin number 123456789ABCDEFGH on 1/1/2020. The first of six $15,000 lease payments at 5% interest is due at the commencement of the lease. Assuming this truck has an eight year economic life, and the present value of future lease payments is $79,942.15 which represents 98% of the fair market value of the truck, ownership does not transfer, there is no bargain purchase and an alternative use exists when the truck reverts back to the dealership, the lease expense in year 3 will be:

0

Assume that a piece of equipment was purchased for $500,000 on 7/18/2017. This equipment was sold for $200,000 on 12/31/2020 when accumulated depreciation totaled $168,000. When preparing a statement of cash flows using the direct method, this sale would have what impact on the operating activities section? (Enter increase as a positive number and a decrease as a negative number)

0

Assume the IRS fined ABC company $10,000 for tax evasion. ABC received the bill on 12/15/2020 , however payment is not due until 2/15/2021. Assuming a 30% tax rate in 2020 and a 35% tax rate in 2021, this event will create a deferred tax asset (liability) for ABC of:

0

Dominoes Pizza Co. issued $200,000 of 8% term bonds on 1/1/2020 due to 1/1/2025, with interest payable each July 1 and January 1. Inventors require an effective-interest rate of 10%. What is the gain (loss) recorded when extinguishing (paying off) the bond at maturity?

0

Turtle Cove Company issued the three-year, $10,000, zero-interest-bearing note to Jeremiah Company. The implicit rate that equated the total cash to be paid ($10,000 at maturity) to present value of the future cash flows ($7,721.80 cash proceeds at date of issuance) was 9 percent. The credit to cash at the end of year two will be:

0

Assume Wober Inc. reported a pension plan at the beginning of 2021 that was overfunded by $20,000. During 2021 Wober contributed $50,000 to the pension plan, pension expense totaled $40,000 and no retroactive benefit adjustments were enacted. The journal entry to record the pension expense for 2021 will include an entry to "Pension Asset/Liability" for what amount? Enter debit as positive number and credit as negative number.

10000

Assume on 7/1/2020 Nestle Co. issued 5% $500,000 bonds with interest payable semiannually on 12/31 and 6/30 when the effective rate is 4%. Nestle's journal entry on 12/31/2020 will include a debit to interest expense of (create amortization table):

10449.13

Barker Inc. had 270,000 shares of $0.01 par value common stock outstanding at 12/31/2019. On February 1, 2020 Barker Inc. issued 21,000 shares of its common stock along with 500 shares of 10% $10 par value cumulative preferred stock. Both stock classifications were issued for $20 per share. On April 1, 2020 Barker issued a 4-to-1 stock split on its common stock. On July 1 Barker issued a 10% stock dividend. On October 1 Barker repurchased 25,000 shares at $15 per share. Assuming net income of $1.2 million in 2020, what is the denominator used in the basic EPS calculation for Barker in 2020?

1266450

Assume Alex Smith has 35 years of professional experience as an attorney and is the managing partner of a regional law firm. Alex assisted Spring Co. file articles of incorporation and billed Spring Co. $2,000 for their services. In lieu of cash, the CEO of Spring Co has given Alex 500 shares of $0.01 par value Spring Co. common stock that the CEO assures Alex if an Initial Public Offering was to take place at the moment the shares would sell for $3,000. The journal entry for Alex Co. to record this transaction will include a credit to Additional Paid in Capital (APIC) of:

1995

Assume you signed a lease on 2/18/2021 to rent office space in an office building near Selma on 7/1/2021 with the first lease payment due 6/30/2021. After the prior tenant vacated the office space early on 3/15/2021 and the landlord completed minor renovations on 3/20/2021 you took control of the office space on 3/21/2021 while still making the first lease payment on 6/30/2021. The journal entry to record the commencement of the lease will be recorded on:

3/21/2021

Assume Justin Daniels has 35 years of professional experience as an attorney and is the managing partner of a regional law firm. Justin assisted Terry Co. file articles of incorporation and billed Terry Co. $4,000 for their services. In lieu of cash, the CEO of Terry Co. has given Justin 1,000 shares of $0.01 par value Terry Co. common stock that the CEO assures Justin if an Initial Public Offering was to take place at the moment the shares would sell for $8,000. The journal entry for Terry Co. to record this transaction will include a credit to Additional Paid in Capital (APIC) of:

3990

(NOT A QUESTION) Assume you signed a lease on 1/13/2020 to rent office space in an office building in Shavano Park beginning on 6/30/2020, however the first lease payment is due on 7/1/2020. The prior tenant vacated the office space early and the landlord allowed you to begin occupying the space early, thus you took control of the office space on 4/28/2020, while still making the first lease payment on 7/1/2020.

4/28/2020

Assume in 2020 MGM Resorts reported Cash Flows from Operations using the INDIRECT method of $450,000. This amounts included a Net Income of $1,200,000 along with depreciation expense of $2,400,000, amortization expense of $200,000, a Loss on sale of land of $500,000 a Gain on a sale of a building of $768,000 along with several changes in balance sheet accounts. Cash inflows from Investing activities totaled $444,000 and Cash outflows from Financing activities totaled $286,000. If MGM Resorts was to prepare a statement of cash flows using the DIRECT method, cash flows from operating activities would be (enter a cash inflow as a positive number and a cash inflow as a negative number. If you do not believe there is sufficient information provided to answer the question please type that as your answer):

450000

AOK co. issued a 5% 100,000 bond on 1/1/2018 with interest payable annually at 12/31. Assuming an effective interest rate of 3%, the fourth cash payment will be:

5000

Assume a debt investment in Valero had an amortized cost of $99,000 and a fair value of $100,000 at 12/31/2019. At 12/31/2020 the amortized cost was $98,000 and fair value $103,000. The Fair Value Adjustment at 12/31/2020 will have what impact on net income? If the answer is negative, please enter a negative sign.

6000 OR 0

Assume Nexia Co. had 500,000 shares of common stock outstanding of January 1, 2020. On April 1 Nexia issued a 2-for-1 stock split. On June 1 Nexia purchased 100,000 Treasury shares for $25 per share. Nexia reissued 30,000 of the Treasury shares purchased on December 1 for $40 per share. Assume that Nexia reported Net Income of $10 million and declared a $15,000 cash dividend on stock outstanding. The cash dividend is payable on January 22, 2021. Assume Nexia issued 500,000 5% convertible bonds on July 1, 2020 with each $1,000 being convertible into 7 shares of common stock. If Nexia's tax rate is 35%, what would the denominator be for calculating basic EPS?

944166.67

Subsequent to recording a deferred tax asset, Camden Co determines the need to record an Allowance on this deferred tax asset. The journal entry to record the Allowance will include:

A credit to Income Tax Expense OR none of the above

Assume Jackie Smith is the CFO at Lonestar Inc. On 1/1/2020 Lonestar granted 500 stock options to Jackie where each option allows Jackie to purchase one share of the company's $1 par value common stock at $30 per share. The options are exercisable beginning 1/1/2024 and can be exercised within an 8 year period. The service period for these options is four years and the fair value option-pricing model determines the total compensation expense to be $160,000. At 12/11/2025 Jackie exercised 100 options to purchase 100 shares of common stock when Lonestar's stock is trading at $60 per share. The journal entry to record the options being exercised will include:

A debit to Additional Paid in Capital - Stock options of $32,000

Assume Disney is recording a financial lease for a Right of Use Asset with a fair market value of $15,000 and the present value of future lease payments total $15,000. Assuming Disney allocated $500 of their internal attorney's time and incurred costs from an external broker totaling $200 to execute the lease. The journal entry to record this lease would include:

A debit to ROU Asset of $15,200

On 12/31/2021 Landlord Inc. received $2,000 of rent payments in advance from their tenant. This transaction will result in which of the following for 2021?

A debit to deferred tax asset

Autrey Co. issued a five year $250,000 6% term bond on 10/1/2019 that pays interest semi-annually on 3/31 and 9/30. Assuming an effective interest rate of 8% and a 12/31 fiscal year end, the journal entry at 12/31/2021 will include:

A debit to interest expense of $4,737.89, a credit to Discount on bonds payable of $987.89, a credit to Interest Payable of 3,750

Assume Bennett Co. was a startup company in 2019. On 2/9/2019 Bennett issued 100 shares of $1 par value common stock at $5 per share. Bennett Co. reported net income of 2,000 in 2019 and did not pay any dividends. On 1/15/2020 Bennett reacquired 10 shares of common stock at $15 per share. On 3/2/2020 Bennett reissued 4 of these shares for $20 per shares then reissued the remaining shares on 11/2/2020 for $11 per share. The journal entry on 11/2/2020 will include:

A debit to retained earnings of $4

Which of the following is (are) true about actuaries:

Actuaries make predictions of mortality rates

An unrealized holding gain will increase Other Comprehensive Income but NOT Net Income for which of the following:

Available-for-sale debt investments

What is the correct order of distribution of assets (from first to last) in the event of liquidation (bankruptcy)?

Bondholders > Preferred Stockholders> Common stockholders

Which of the following is true when comparing operating and financing leases under the new leasing standard?

Both leases will include cash flows in the operating section of cash flows

Interest revenue will increase net income for which of the following debt investments:

available for sale debt investments, held-to-maturity debt investments, trading securities debt investments

Solace Co. has 1,000 shares of 8%, $100 par value cumulative preferred stock outstanding (called "Class A"), 500 shares of 6%, $50 par value noncumulative preferred stock outstanding (called "Class B"), and 5,000 share of $0.01 par value common stock outstanding for all of 2020. Having which of these securities outstanding will always reduce the numerator in the basic EPS calculation?

Class A only

If Charles Co. owns 3% of Stanhope Co., and Charles Co. is unable to exercise significant influence over Stanhope, Charles will use what method to record their investment in Stanhope Co?

Fair Value Method

Assume that a piece of equipment was placed into service into the current year and an accelerated depreciation method is used for tax purposes. Depreciation will result in a(n)

Increase in Deferred Tax Liability

Which of the following statements is always true?

Issuance of common or preferred stock will increase owners equity

Assume Kultgen Co. issued two $250,000 bonds. Bond Y is a 6% ten year bond that pays interest semi-annually on 6/30 and 12/31. Bond Z is a 6% ten year convertible bond that pays interest semi-annually on 6/30 and 12/31. Each $1,000 of Bond Z is convertible into 2 shares of common stock. Which of the following is true:

Kultgen will receive more cash from the issuance of Bond Z than the issuance of Bond Y.

Unrealized holding gains or losses will be recognized for equity investments under when using:

Only the fair value method

When comparing Operating leases to Financing leases under the new leasing standard, which of the following is true?

Operating leases have lower portion of total expenses in early years as compared to Financing leases

What (which) of the following will always result in an increase in pension expense in the current year:

Service cost for the year, Interest on liability

In an effort to raise funds to remodel airport terminals in Love Field airport, Southwest Airlines has authorized the issuance of 20, 6% $50,000 bonds. Ten bonds were issued on 11/12/2020 when the market rate was 8% and the remaining bonds were issued on 1/29/2021 when the market rate was 5%. The bonds issued on 11/12/2020 were issued at _____________, and the bonds issued on 1/29/2021 were issued at _______________.

a discount; a premium

When preparing a statement of cash flows, an increase in Utilities Payable will cause ____________________ in operating cash flows using the indirect method and will cause _______________ in operating cash flows using the direct method.

an increase; an increase

Risk in a defined benefit plan is borne by the _______________, and risk in a defined Contribution plan is borne by the ______________.

employer; employee

A company should reduce a deferred tax asset by a valuation allowance if it is _________________________ that it will not realize some portion or all of the deferred tax asset.

more likely than not

A company should reduce a deferred tax asset by a valuation allowance if it is _________________________that it will not realize some portion or all of the deferred tax asset.

more likely than not

Assumes Timmy Co. declared a $0.10 cash dividend on 2 million shares of common stock outstanding on February 15, 2021 for stockholders on record February 25 payable on March 3. Assuming Timmy Co. does not have any preferred stock, the date of record will include a journal entry with:

none of the above

Assume that as a result of COVID, several local governments have issued bonds at reduced interest rates to fund infrastructure improvement projects. Both the City of San Antonio and the City of New York issued 4%, $1,000,000 bonds, however the market rate for the City of New York is 5% and the market rate for the City of San Antonio is 3%. The journal entries recording the bond issuances will include the same dollar amount for:

the credit to bonds payable

Interest revenue will increase net income for which of the following debt investments:

trading securities debt investments, available for sale debt investments, held-to-maturity debt investments