Gleim FSA Practice MCQs

Pubco is a public company that uses a calendar year and has a complex capital structure. Pubco reported in the first quarter income from continuing operations (net of tax) of $1 million and a loss on discontinued operations (net of tax) of $1.2 million. The average market price of Pubco's common stock for the first quarter was $25, the shares outstanding at the beginning of the period equaled 300,000, and 12,000 shares were issued on March 1. At the beginning of the quarter, Pubco also had outstanding 120,000 shares of preferred stock paying a dividend of $.10 per share at the end of each quarter and convertible to common stock on a one-to-one basis. Holders of 60,000 shares of preferred stock exercised their conversion privilege on February 1. The BEPS amount for Pubco's net income or loss available to common shareholders for the first quarter is

$(0.60) The weighted-average number of shares used in the BEPS denominator is 344,000 {300,000 + [12,000 × (1 ÷ 3)] + [60,000 × (2 ÷ 3)]}. The numerator equals net income or loss minus preferred dividends. Thus, it equals $(206,000) [$1,000,000 income from continuing operations - $1,200,000 loss on discontinued operations - (60,000 × $0.1) preferred dividends]. The BEPS amount for the net income or loss available to common shareholders is $(0.60) [$(206,000) ÷ 344,000 shares].

Ute Co. had the following capital structure during Year 1 and Year 2: Preferred stock, $10 par, 4% cumulative, 25,000 shares issued and outstanding $ 250,000 Common stock, $5 par, 200,000 shares issued and outstanding 1,000,000 The preferred stock is not convertible. Ute reported net income of $500,000 for the year ended December 31, Year 2. Ute paid no preferred dividends during Year 1 and paid $16,000 in preferred dividends during Year 2. In its December 31, Year 2, income statement, what amount should Ute report as basic earnings per share?

$2.45

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 The numerator for BEPS consists of income available to common shareholders (net income - noncumulative preferred dividends declared). For Collins, this amount is $290,000 [$350,000 - (10,000 shares × $100 par × 6%)]. The denominator consists of the weighted-average number of common shares outstanding. Because (1) no shares were issued during the year, (2) no splits occurred, and (3) treasury stock is not outstanding, the denominator is 100,000 shares. BEPS is therefore $2.90 ($290,000 ÷ 100,000).

he following information is available from Hoyt Corp.'s accounting records for the current year: Cash received from customers $950,000 Cash paid to suppliers and employees 620,000 Taxes paid 120,000 Purchase of Ramsey, Inc., bonds (par value $100,000) 90,000 Amortization of discount on bonds receivable 1,000 Cash dividends paid 20,000 In Hoyt's current-year cash flow statement, the reported net cash provided by operating activities should be

$210,000 ($950,000 - $620,000 - $120,000).

For the 8 months ended August 31, Year 5, the carpet division of a flooring company, which is considered a major line of business, had an operating loss of $115,000 from operations. On September 1, Year 5, the board of directors voted to discontinue the division's operations. On December 31, Year 5, the division was sold for a pretax loss of $135,000. The division's operating loss for Year 5 was $240,000. The company's income tax rate is 30%. What amount of loss should the company report as discontinued operations in the December 31, Year 5, income statement?

$262,500 [$375,000 × (1 - 30%)]

Atwater Company has recorded the following payments for the current period: Purchase Trillium stock $300,000 Dividends paid to Atwater shareholders 200,000 Repurchase of Atwater Company stock 400,000 The amount to be shown in the investing activities section of Atwater's statement of cash flows should be

$300,000

Summer, Inc., (lessee) entered into an 8-year operating lease on January 1, Year 1. Annual lease payments begin December 31, Year 1. They are $55,000 for Years 1-7 with a final payment in Year 8 of $100,000. The rate implicit in the lease of 8% is known to Summer. The present value of 1 at 8% for 8 years is 0.540. The present value of an ordinary annuity at 8% for 8 years is 5.747. What is the amortization amount of the right-of-use asset in Year 1 for Summer, Inc.?

$33,394 At lease commencement, given no initial direct costs, the lease liability equals the right-of-use asset. Amortization of the right-of-use asset equals the single (equal) lease expense minus the interest expense on the lease liability. The lease expense equals the total undiscounted lease payments divided by the lease term. The lease expense is $60,625 {[($55,000 × 7) + $100,000] ÷ 8 years}. Interest expense equals the carrying amount of the lease liability at the beginning of the period (January 1, Year 1) times the rate implicit in the lease (known to the lessee). Given no initial direct costs, the amounts of the lease liability and right-of-use asset initially are recognized at the present value of the lease rental payments based on the rate implicit in the lease. This amount is $340,385 {($55,000 × 5.747) + [($100,000 - $55,000) × 0.540]}. Year 1 interest expense therefore is $27,231 ($340,385 × 8%), and amortization of the right-of-use asset in Year 1 is $33,394 ($60,625 annual lease expense - $27,231 interest expense).

Dannon Co. mistakenly reported its expenses of $35,200 on a cash basis. Corporate records revealed the following information: Beginning prepaid expense $1,300 Beginning accrued expense $1,650 Ending prepaid expense $1,800 Ending accrued expense $1,200 What amount of expense should the Dannon report on its books under the accrual basis?

$34,250 The beginning balance of net expense payable is $350 ($1,650 accrued expense - $1,300 prepaid expense). The ending balance of net expense payable is -$600 ($1,200 accrued expense - $1,800 prepaid expense). The $35,200 cash expense paid during the period decreases the expense payable account. The expense recognized under the accrual method increases the expense payable account. Thus, the expense that should be reported by Dannon in its books under the accrual method can be derived from the following equation: Beginning expense payable $ 350 (Expense paid during the period) (35,200) Expense recognized under accrual method 34,250 Ending expense payable $ (600)

Karl Corp.'s trial balance of income statement accounts for the year ended December 31, Year 1, included the following: On Karl's income statement for Year 1, income from continuing operations is

$38,500 A discontinued operation includes a component of an entity that meets two criteria. (1) It has been disposed of or is classified as held for sale. (2) Its disposal is a strategic shift that has a major effect on the entity's operations and financial results. Thus, the loss on disposal of a major operating segment is a loss on a discontinued operation. This amount should be added back to the difference between total debits and total credits to determine pretax operating income. Accordingly, income from continuing operations (net of tax) is $38,500 [($155,000 - $110,000 + $10,000) × (1.0 - .30 tax rate)].

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

On June 1, Oren Co. entered into a 5-year nonrenewable operating lease, commencing on that date, for office space and made the following payments to Rose Properties: Bonus to obtain lease $30,000 First month's rent 10,000 Last month's rent 10,000 The lease term requires monthly rent payments of $10,000. In its income statement for the year ended June 30, what amount should Oren report as lease expense?

10,500

Roy Company had 120,000 common shares and 100,000 preferred shares outstanding at the close of the prior year. During the current year Roy repurchased 12,000 common shares on March 1, sold 30,000 common shares on June 1, and sold an additional 60,000 common shares on November 1. No change in preferred shares outstanding occurred during the year. The number of shares of stock outstanding to be used in the calculation of basic earnings per share at the end of the current year is

137,500

Sussman Co. prepared cash-basis financial statements for the month ended January 31. A summary of Sussman's January activities follows: Credit sales of $5,600. Collections of $1,900 relating to January credit sales. Accrued salaries of $1,200. By what amount will Sussman's cash-basis income for the month ended January 31 increase as a result of restating these activities to the accrual basis of accounting?

2,500

On January 1 of the current year, Tell Co. leased equipment from Swill Co. under a 9-year lease. The equipment had a cost of $400,000 and an estimated useful life of 15 years. Semiannual lease payments of $44,000 are due every January 1 and July 1. The present value of lease payments at the discount rate of the lease of 12% was $505,000, which equals the fair value of the equipment. What amount should Tell recognize as amortization expense on the right-of-use asset in the current year?

56,111

In its statement of cash flow for the current year, Ness Co. reported cash paid for interest of $70,000. Ness did not capitalize any interest during the current year. Changes occurred in several balance sheet accounts as follows: Accrued interest payable $17,000 decrease Prepaid interest 23,000 decrease In its income statement for the current year, what amount should Ness report as interest expense?

76,000 ($70,000 - $17,000 + $23,000).

Which of the following is a characteristic of nongovernmental not-for-profit entities (NFPs)?

Both NFPs and business entities use scarce resources in the production and distribution of goods and services.

Dividends paid to shareholders are shown on the statement of cash flows as

Cash flows from financing activities.

Each of the following statements is correct regarding the Financial Accounting Standards Board except

It develops principles and attributes that allow organizations to understand the necessary elements to ensure a robust system of internal control.

On September 30, Year 1, a component that represents a major line of an entity's business was properly classified as held for sale. This transaction is probable and is expected to qualify for recognition as a completed sale within 1 year. The component's operating loss for the period October 1 through December 31, Year 1, should be included in the Year 1 income statement as part of

Operating gain or loss of the discontinued component.

According to the FASB's conceptual framework, which of the following is not an element describing transactions, events, and circumstances during intervals of time?

Rational allocation procedures.

Balm Co. had 100,000 shares of common stock outstanding as of January 1. The following events occurred during the year: 4/1 Issued 30,000 shares of common stock. 6/1 Issued 36,000 shares of common stock. 7/1 Declared a 5% stock dividend. 9/1 Purchased as treasury stock 35,000 shares of its common stock. Balm used the cost method to account for the treasury stock. What is Balm's weighted average of common stock outstanding at December 31?

Stock dividends are treated as if they were issued at the beginning of the earliest period reported. The shares outstanding at January 1, April 1, and June 1 must be adjusted for the dividend. Moreover, a treasury stock purchase decreases the amount of outstanding stock. The calculation for weighted average common stock is: Jan 1 100,000 × (12 ÷ 12) × 1.05 = 105,000 Apr 1 30,000 × (9 ÷ 12) × 1.05 = 23,625 June 1 36,000 × (7 ÷ 12) × 1.05 = 22,050 Sept 1 (35,000) × (4 ÷ 12) = (11,667) Total = 139,008

On January 31, Year 3, Pack, Inc., split its common stock 2 for 1, and Young, Inc., issued a 5% stock dividend. Both companies issued their December 31, Year 2, financial statements on March 1, Year 3. Should Pack's Year 2 basic earnings per share (BEPS) take into consideration the stock split, and should Young's Year 2 BEPS take into consideration the stock dividend?

YES Pack's BEPS YES Young's BEPS

Which basis of accounting is most likely to provide the best assessment of an entity's past and future ability to generate net cash inflows?

accrual basis

One of the elements of financial statements is comprehensive income. Comprehensive income for a period excludes changes in equity resulting from which of the following?

dividends paid to shareholders

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

A department store ordinarily recognizes revenue when

Customers receive merchandise

Which of the following accounting pronouncements are the most authoritative?

The Accounting Standards Codification.

A lessee had a 10-year finance lease requiring equal annual payments. The reduction of the lease liability in Year 2 should equal

The current liability shown for the lease at the end of Year 1.