Intermediate Accounting Final

Not-So Company compiled the following information for its limited-life license on December 31, 2020: Cost $2,440,000 Carrying Amount 1,920,000 Expected future net cash flows 1,600,000 Fair value 1,300,000 Not-So's 2020 income statement would record loss on impairment of

$620,000 Carrying amount - FV $1,920,000 - $1,300,000 = $620,000

Which of the following would be included in the Lease Receivable account?

- Guaranteed residual value - Unguaranteed residual value - Rental payments

Note disclosures for long-term debt generally include all of...

- the nature of the liabilities - future payments for sinking fund requirements for the next 5 years - the fair value of the debt

Six Major Categories of Intangible Assets

1) Marketing-Related 2) Customer-Related 3) Artistic-Related 4) Contract-Related 5) Technology Related 6) Goodwill

Amazing Company compiled the following information for its patent at December 31, 2020: Cost $13,440,000 Carrying amount 11,820,000 Expected future net cash flows 11,900,000 Discounted expected future net cash flows 11,400,000 Amazing's 2020 income statement would record a loss on impairment of

$0 Carrying Value - Fair Value

Dare Inc. declared a $230,000 cash dividend. It currently has 12,000 shares of 5%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Dare distribute to the common stockholders?

$110,000 12,000*5%*$100 = $60,000 $60,000*2 = $120,000 $230,000 - $120,000 = $110,000

On December 1, 2021, Caribbean Pirate Company issued at 99, $5,000,000 of its 9%, $1,000 bonds. Each bond included one detachable stock warrant entitling the holder to purchase 5 shares of the company's common stock. On that date the market value of the bonds without stock warrants was 96, and the market value of each stock warrant was $40. The amount of the proceeds from the issuance that should be assigned to the stock warrants is

$198,000

Which of the following is often reported as part of operating expenses?

Amortization Expense

On September 1, Lovett Company purchased $39,900 of inventory items on credit with terms 1/15, net 30, FOB destination. Freight charges paid by Lovett were $840. Payment for the purchase was made on September 18. Assuming Lovett used the perpetual inventory system, what is the cost of the inventory?

Amount recorded = $39,900 * (1 - .01) = $39,900 * 0.99 = $39,501 But the professor says the correct answer is: $39,900 + $840 = $40,740

A single lease expense is recognized on the income statement for

An operating lease

On January 1, Martinez Inc. issued $6,000,000, 11% bonds for $6,390,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Martinez uses the effective-interest method of amortizing bond premium. At the end of the first year, Martinez should report unamortized bond premium of:

Bond Amortization = $6,390,000*10% = $639,000 Interest Expense = $6,000,000*11% = $660,000 Discount = $660,000 - $639,000 = $21,000 $6,390,000 - $6,000,000 = $390,000 $390,000 - $21,000 = $369,000

On January 1, 2021, Happy Hemlock Co. sold $5,000,000 of its 10% bonds for $4,426,480 to yield 12%. Interest is payable semiannually on January 1 and July 1. At June 30, 2021, the entry to record the cash payment of interest and amortization of discount will include a debit to interest expense for

Bond Price = $4,426,480 Market Rate = 12% Interest Expense = $4,426,480*12%*(6/12) =$265,589

Which of the following is not one of the lease classification tests?

Collectibility

Which of the following costs would not be included in research and development expense?

Cost of marketing research for a new product

Among the short-term obligations of Lance Company as of December 31, the balance sheet date, are notes payable totaling $250,000 with the Madison National Bank. These are 90-day notes, renewable for another 90-day period. These notes should be classified on the balance sheet of Lance Company as

Current liabilities

What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively?

Decrease and increase

Which of the following items would not be reported in a stockholders' equity section?

Dividends in arrears

Ponderosa Corporation issued bonds with a face value of $500,000 at a discount and elected the fair value option. At the end of the current period, the carrying value of the bonds is $481,250 and they are trading at 101. The bonds will be reported on the current period's balance sheet at

Fair value of $505,000 $500,000*1.01 = $505,000

A gain or loss is recorded when stockholders exercise convertible preferred stock

False

A leased asset is always depreciated over the term of the lease by the lessee

False

A performance obligation is a written guarantee in a contract to provide a product or service to a customer

False

A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense being recognized

False

The interest rate written in the terms of the bond indenture is called the effective yield or market rate

False

The times interest earned is computed by dividing income before interest expense by interest expense

False

Unearned revenues are always classified as current liabilities

False

When a company sells a product but gives the buyer the right to return it, revenue should not be recognized until the sale is collected

False

When a patent is purchased, its cost should be amortized over the remaining legal life of the patent.

False

When intangible assets are internally generated, they are initially recorded at fair value.

False

GAAP requires that __________ be shown as a separate line item on the balance sheet.

Goodwill

Which of the following describes the lease term test?

If the lease term is 75% or more of the economic life, it is a finance lease

When one company is acquired by another, which of the following intangible assets, unrecorded on the acquired company's books, would not be recorded separately on the books of the buying company?

Market Share

Which of the following best describes a possible result of treasury stock transactions by a corporation?

May decrease but not increase retained earnings

Grey, Inc. leased equipment from McDreamy Company under a four-year lease requiring equal annual payments of $344,152, with the first payment due at lease inception. The lease does not transfer ownership, not is there a bargain purchase option. The equipment has a 4 year useful life an no salvage value. The rate implicit in the lease (which is known by Grey) is 8%. Grey uses the straight-line method to amortize similar assets. What is the amount of amortization expense recorded by Grey in the first year of the asset's life?

PV of Lease = $1,231,066.12 / 4 years Amortize by $307,767 per year

Dogwood Company issues $25,000,000 of 6%, 5-year bonds dated January 1, 2021 on January 1, 2021. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from bond issue?

PVIF(10,2.5%) = $25,000,000*.78120 = $19,530,000 $25,000,000*6%*(6/12) = $750,000 PVAIF(10,2.5%) = $750,000*8.75206 = $6,564,045 Add together = $26,094,045

On January 15, 2021, Bella Vista Company enters into a contract to build custom equipment for ABC Carpet Company. The contract specified a delivery date of March 1. The equipment was not delivered until March 31. The contract required full payment of $75,000 30 days after delivery. The revenue for this contract should be

Recorded on march 31, 2021

Which of the following situations may give rise to unearned revenue?

Selling magazine subscriptions

The face value of bonds is also called each of the following except

Stated value

Which of the following methods is typically used to calculate amortization expense for intangible assets?

Straight-Line

A debt instrument with no ready market is exchanged for property whose fair value is currently indeterminable. When such a transaction takes place

The present value of the debt instrument must be approximated using an imputed interest rate

On January 1, 2021, J.J. Cochran Company enters into a contract with Beltway Inc. to perform asset management services for one year. Cochran receives a quarterly management fee of 2% of Beltway's assets under management at the end of the each quarter. Cochran also receives a performance-based incentive fee of 10% of the fund's return in excess of the return of an observable index at the end of the year. When Cochran recognize the revenue from the management fee and the performance-based incentive fee?

The revenue from management fee should be recognized at the end of each quarter and the revenue from the performance-based incentive fee should be recognized at the end of each year

Which of the following is an advantage of captive leasing companies over the other players in the leasing market?

They have the point-of-sale advantage in finding leasing customers

Blue Heron Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2020 at 97 plus accrued interest. The bonds are dated January 1, 2020, and pay interest on June 30 and December 31. What is the total cash received on the issue date?

Total Cash received = Issue price + interest accrued ($20,000,000 * 97/100) + ($20,000,000*9%*(2/12)) = $19,700,000

Which of the following is not reported under the "Other Expenses and Losses" section of the income statement?

Trade name amortization expense

Which of the following is a type of marketing-related intangible asset?

Trademark

Common stock is the residual corporate interest that bears the ultimate risks of loss

True

Internally generated goodwill is not capitalized in the accounts.

True

Magazine subscriptions and airline ticket sales both result in unearned revenues.

True

The discount on a zero-interest-bearing note payable will be recognized by the borrower as interest expense over the term of the loan

True

Weighted-average shares outstanding is computed by weighting the number of shares outstanding by the portion of the year for which those shares were outstanding

True

If a company chooses the fair value option, a decrease in the fair value of the liability is recorded by crediting

Unrealized Holding Gain/Loss-Income

Marketing-Related Intangible Assets

Used to market service Example: Trademarks or Trade names

Companies can use the expected value to estimate variable consideration when

a company has a large number of contracts with similar characteristics

On May 1, 2020, 19th Street Company signed a one-year, zero-interest bearing note for $50,000 and received cash of $44,000 from Virginia State Bank. The May 1, 2021 journal entry to record payment of the note will include

a credit to Cash for $50,000

On May 1, 2020, 19th Street Company signed a one-year, zero-interest bearing note for $50,000 and received cash of $44,000 from Virginia State Bank. The May 1 journal entry to record this transaction will include

a debit to Cash for $44,000 (D) Cash $44,000 (D) Discount on Notes Payable $6,000 (C) Notes Payable $50,000

Banner Elk Inc., an equipment dealer, sells equipment on July 1, 2021, to Howard's Creek Company for $600,000. The equipment had a cost of $500,000. Banner Elk agrees to repurchase the equipment on June 30, 2023, for a price of $726,000. Banner Elk's cost of capital is 10%. At its December 31, 2021 year-end, Banner Elk's adjusting journal entry with regard to this transaction will include

a debit to interest expense for $30,000 Interest Expense 30,000 Liability to Howard's Creek Company 30,000

While only certain leases are currently accounted for as a sale or purchase, there is theoretical justification for considering all leases to be sales or purchases. The principal reason that supports this idea is that

a lease reflects the purchase or sale of a quantifiable right to the use of the property

Campbell Co. is being sued by local residents who allege negligence on the company's part. Campbell's legal defense team believes that it is probable that Campbell will lose the suit and be found liable for a judgment between $2,500,000 to $7,500,000 with the most probable cost being $4,600,000. Based on this information, Campbell should

accrue a loss contingency of $4,600,000 and disclose and additional contingency of up to $2,900,000 (7,500,000 - 4,600,0000 = 2,900,000)

The balance in Common Stock Dividend Distributable should be reported as a(n)

addition to capital stock

In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the

annual preferred dividend

Noncumulative preferred dividends in arrears

are not paid or disclosed

The role of the agent in a Principal-Agent relationship is to

arrange for the principal to provide goods or services to a customer

When computing diluted earnings per share, convertible bonds are

assumed converted only if they are dilutive

Stock Dividends distributable should be classified on the

balance sheet as an item of stockholders' equity

The if-converted method of computing earnings per share data assumes conversion of convertible securities as of the

beginning of the earlier period reported (or at the time of issuance, if later)

When a contract modification does not result in a separate performance obligation, the additional products are priced at the

blended price of original contract and contract modification

The conversion of preferred stock is recorded by the

book value method

A primary source of Stockholder's equity is

both income retained by the corporation and contributions by stockholders

A loss on impairment of an intangible asset is the difference between the asset's

carrying value and its fair value

Castle Rock Corporation issued 10,000 shares of its $.10 par common stock for $55 per share. Castel Rock subsequently reacquired 1,000 shares of its outstanding stock for $50 per share. The acquisition of these treasury shares

decreases total stockholders' equity

The third step in the process for revenue recognition is to

determine the transaction price

In an financing lease, the lessee's income statement will report

interest expense and amortization expense

In an operating lease, the lessee's income statement will report

lease expense only

The amount to be recorded as the cost of an asset under a finance lease is equal to the

present value of the lease payments

When a corporation issues its actively traded common stock in payment for a patent, the patent should be valued

the market value of the shares issued

When using the effective interest method to amortize premium or discount on bonds payable, the stated rate is multiplied by the carrying value of bonds at the beginning of the period to determine interest expense

False

The lease liability account should be disclosed as

current portions in current liabilities and the remainder in noncurrent liabilities.

In calculating earnings per share, dividends in arrears on nonconvertible, noncumulative preferred stock should be

disregarded

The classifications of a lease by the lessee are

operating and finance leases.

In computing the present value of the lease payments, the lessee should

use the implicit rate of the lessor, assuming that the implicit rate is known to the lessee

Which of the following is not a characteristic of an employee stock-purchase plan

It is not open to almost all full-time employees

Premium on bonds payable is

an adjunct account

Consigned goods are recognized as revenues by the

consignor when it receives payment from consignee for goods sold.

GAAP requires that the discount on notes payable be amortized to interest expense over the term of the not using the effective interest method

False

If a 5-year bond pays interest semi-annually, the term of the bond is 10 years

False

If the fair value of an impaired asset recovers after an impairment had been recognized, the impairment may be reversed in a subsequent period

False

If the market rate is greater than the coupon rate, bonds will be sold at a premium

False

In an operating lease, the lessee records

Lease expense

On June 1, 2021, Johnson & Sons sold equipment to James Landscaping Service in exchange for a zero-interest bearing note with a face value of $110,000, with payment due in 12 months. The fair value of the equipment on the date of sale was $100,000. The amount of revenue to be recognized on this transaction in 2021 is

$100,000 sales revenue and $5,833 interest revenue Notes Receivable 110,000 Sales Revenue 100,000 Discount on NR 10,000 Interest Revenue 10,000*(7/12) = $5,833

Presented below are accounts balances from Berringer Corporation's balance sheet dated 12/31/2020: Common stock, $.50 stated value: $1,500,000 Paid-in capital in excess of stated value---common stock 6,550,00 Preferred 4% stock, $100 par 700,000 Paid-in capital in excess of par---preferred stock 300,000 Retained Earnings 3,200,000 Treasury common stock (50,000 shares) 250,000 Paid-in capital in excess cost---treasury stock 150,000 Total stockholder's equity reported on Berringer's balance sheet is

$12,150,000 1,500,000 + 6,550,000 + 700,000 + 300,000 + 3,200,000 + 150,000 - 250,000

At December 31, 2021 and 2020, B&B Corp. had 180,000 shares of common stock and 12,000 shares of 6%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2021 or 2020. Net income for 2021 was $450,000. For 2021, earnings per common share amounted to

$2.10 450,000 - (12,000*6%*$100) = $378,000 378,000/180,000 = $2.10

On July 1, 2019, American Chestnut Inc. issued 9% bonds with a face amount of $10,000,000, which mature on July 1, 2025. The bonds were issued for $9,560,000 to yield 10%, resulting in a bond discount of $440,000. American Chestnut uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2021, American Chestnut will report a balance in Discount on Bonds Payable of

$322,400 At issuance: Cash $9,560,000 Bonds Payable $10,000,000 Discount $440,000 At the end of June 30, 2020: Discount credited for $56,000 At the end of June 30, 2021: Discount credited for $61,600 $440,000 - $56,000 - $61,600 = $322,400

Artemis Inc., had 1,200,000 shares of common stock issued and outstanding at December 31, 2020. On October 1, 2021, the company issued an additional 50,000 shares of common stock for cash. RVI also had unexercised stock options to purchase 25,000 shares of common stock at $20 per share outstanding at the beginning and end of 2021. The average market price of company's common stock was $40 during 2021. What number of shares should be used to compute diluted earnings per share for the year ended December 31, 2021?

1,225,000 Jan 1 = 1,200,000 * (9/12) = 900,000 Oct 1 = 50,000 Dec 1 = 1,250,000 *(3/12) = 312,500 25,000 - (25,000*(20/40)) = 12,500 Add = 900,000 + 312,500 + 12,500 = 1,225,000

On April 1, 2021, Scissorhands Corporation sold a $6,000,000, twenty-year, 8 percent bond issue for $6,360,000. Each $1,000 bond has two detachable warrants, each of which permits the purchase of one share of the corporation's common stock for $30. The stock has a par value of $25 per share. Immediately after the sale of the bonds, the corporation's securities had the following market values: 8% Bonds without warrants $1,008 Warrants $21 Common stock $28 What accounts should Scissorhands credit to record the sale of the bonds?

Bonds Payable $6,000,000 Premium on BP 105,600 PIC - Stock Warrant 254,000 FV of warrant(2*$21) = $42 Add: FV of bond = $1,008 Total = $1,050 Allocated to bond (1,008/1,050)*6,360,000 = 6,105,600 Less: Bonds Payable = 6,000,000 Premium on BP = $105,600 Allocated to warrant (42/1050)*6,360,000 = 254,000

The term used for bonds that are unsecured as to principal is

Debenture bonds

All long-term debt maturing within the next year must be classified as a current liability on the balance sheet.

False

Losses on the redemption of bonds are reported as

Other expenses and losses

On January 2, 2021, Rocking Horse Leasing Company leases equipment to Sandler Siding Company for 5 equal annual payments of $160,000 each, payable beginning January 2, 2021. Sandler agrees to guarantee the $150,000 residual value of the asset at the end of the lease term. The expected value of the residual is $50,000. knows that Rocking Horse's implicit interest rate is 8%. What journal entry would Sandler make at January 2, 2021 to record the lease?

Right-of-Use Asset = $758,449 Cash = $160,000 Lease Liability = $598,449 ($160,000*4.31213) + (150,000 - 50,000)*0.68508 = $758,449 ROU Cash = $160,000 (first payment) Lease Liability = $598,449 (after first payment)

Which of the following statements is not true regarding convertible debt?

The debt is convertible at the option of the issuer

A company discloses gain contingencies in the notes only when a high probability exists for realizing them

True

A contract liability is a company's obligation to transfer goods or services to a customer for which the company has received consideration from the customer

True

A corporation is incorporate in only one state regardless of the number of states in which it operates

True

Goodwill recorded in connection with a business acquisition is calculated as the excess of the purchase price over the fair value of the acquired company's net assets.

True

If the expected value of a leased asset's residual value less than or equal to guaranteed residual value, the present value of the difference between the expected and guaranteed residual value should be included in the computation of the lease libaility

True

Compensation expense resulting from a compensatory stock option plan is generally

allocated to the periods benefited by the employee's required service

In an financing lease, the lessor's income statement will report

sales revenue, cost of goods sold, and interest revenue

A contract

is an agreement between two or more parties that can be enforced by law

When sales are made with a right of return, the company

records the returned asset in a separate inventory account

Mary Poppins Company offered additional considerations to convertible bondholders in order to encourage conversion. This payment it is called a (an):

sweetener

If no impairment losses have been recognized, the carrying amount of an intangible reported on the balance sheet is

the asset's acquisition cost less the total related amortized expense recorded to date.

The debt to assets ratio is computed by dividing

total liabilities by total assets.

Common Types of Intangible Assets

-patents -copyrights -franchises or licenses -trademarks -trade names -goodwill

Which of the following items is a current liability?

Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months

On September 20, B&B Inc. purchased $20,000 of inventory on account with terms 2/10, net 30, FOB destination. Payment for the purchase was made on September 28. Assuming B&B uses the perpetual inventory system, the entry to record the payment on account will include

A credit to inventory for $400 2/10 = 2% $20,000 * 2% = $400

Edison Corp. signed a three-month, zero-interest-bearing note on November 1, 2021, for the purchase of $150,000 of inventory. The face value of the note was $152,205. Assuming Edison used a "Discount on Notes Payable" account to initially record the note and that the discount will be amortized equally over the 3-month period, the adjusting entry made at December 31, 2021 will include a

Debit to interest expense for $1,470 FV - purchase price = $152,205 - $150,000 = $2,205 (2/3) x 2,205 = $1,470 (3 month period that only covers Nov. and Dec.)

Watson Company buys an oil rig for $3,000,000 on January 1, 2021. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $600,000. Watson uses a 10% discount rate (the present value of $600,000 at 10% is $231,330). What expense(s) should be recorded for 2021 as a result of these events?

Depreciation expense of $323,133 and interest expense of $23,133 Depreciation expense = $3,000,000 + $231,330 = $3,231,330 / 10 years = $323,133 Interest Expense = $231,330 * 10% = $23,133

On August 1, Rock Tavern Consulting Group collected $9,000 on a 6-month contract to provide SEO services to Kruger Brothers Inc. Assuming that the amount is earned ratably over the 6 month period and that Rock Tavern prepares financial statements monthly, the company's August 31 adjusting entry will include

a debit to Unearned Revenue and a credit to Service Revenue for $1,500 $9,000 / 6 months = $1,500

On November 1, 2020, Scythian Company borrowed $25,000 from the High Country Bank, signing a 10%, 90-day note. The February 1 journal entry to record payment of the note will include

a debit to interest expense for $208 Interest = $25,000 * 10% * 1/12 (1 month for Janruary) Interest Expense 208 Interest Payable 208

On January 1, 2021, Yellow Birch Co. issued 10% bonds with a face amount of $8,000,000. The bonds were issued for proceeds of $9,080,000 to yield 8%. Yellow Birch uses the effective-interest method to amortize bond premium. Interest is payable annually on December 31. At December 31, 2021, the balance reported in Premium on Bonds Payable is

$1,006,400 Premium balance at issuance = $1,080,000 December 31, 2021: Cash Paid = $8,000,000*10% = $800,000 Interest Expense = $9,080,000*8% = $726,400 Premium = $73,600 Premium balance minus $73,600 = $1,006,400

Florida Corporation acquired a patent and paid cash of $1,035,000 to the seller. Legal fees of $11,500 were paid in connection with the acquisition. Florida will debit the patent accounts for

$1,046,500 ($1,035,000 + $11,500)

Atlanta Belting Corporation incurred the following costs in 2020 in connection with its research and development activities: 1) Construction of a R&D facility with a useful life of 10 years (no salvage) $2,800,000 2) Acquisition of a patent with a 3-year-remaining useful life to be used on the current research project only 180,000 3) Advertising expense to introduce a newly patented product 200,000 4) Engineering costs incurred to create prototype 600,000 5) Materials to be used on current and future research projects 25,000 6) Supplies Used 11,000 What amount should Atlanta Belting Corporation report as research & development expense in 2020?

$1,071,000 $2,800,000 / 10 years = $280,000 $280,000 + $180,000 + $600,000 + $11,000

Ariel Corporation has collected the following information as of December 31, 2020 regarding certain accounts and balances: Patents $1,000,000 Deposits with advertising agency 17,000 Premium on bonds payable 70,000 Customer List 45,000 Goodwill 180,000 Note Receivable 100,000 Trademarks 9,000 What should be reported as total intangible assets on Ariel Corporation's balance sheet as of December 31, 2020?

$1,234,000 ($1,000,000 + $45,000 + $180,000 + $9,000)

On December 31, 2020, Dieker Company sells equipment to Tabor Inc. for $125,000. Dieker includes a 1-year assurance warranty service with the sale of all its equipment. The customer receives and pays for equipment on December 31, 2020. Dieker estimates the prices to be $122,000 for the equipment and $3,000 for the cost of the warranty. In addition to the assurance warranty, Dieker sold an extended warranty for an additional 2 years for $3,000. How much warranty revenue should Dieker recognize in 2022?

$1,500

Starbucks Corporation acquired a patent on May 1, 2022, and paid cash of $35,000 to the seller. Legal fees of $1,500 were paid related to the acquisition. What amount should be debited to the patent account?

$36,500 ($35,000 + $1,500)

At December 31, 2020, Totoro Company had 1,900,000 shares of common stock issued and outstanding, 1,500,000 of which had been issued and outstanding throughout the year and 400,000 of which were issued on November 30, 2020. Net Income for the year ended December 31, 2020 was $2,700,000. The company declared and paid dividends of $500,000 to preferred shareholders during the year. What should be Totoro's 2021 earnings per common share, rounded to the nearest penny?

$1.43 Jan 1 = 1,500,000 * (11/12) = 1,375,000 Nov 30 = 400,000 Dec 1 = 1,900,000 * (1/12) = 158,333 Add = 1,533,333 2,700,000 - 500,000 / 1,533,333 = 1.43

At December 31, 2020, TMNT Company has 100,000 shares of 5%, $100 par shares of cumulative preferred stock and 2,000,000 shares of $1 par common stock issued and outstanding. The preferred shares were issued in 2019. The weighted average common shares outstanding for 2020 was 1,800,000. Net income for the year ended December 31, 2020 was $3,200,000. The company declared and paid dividends of $500,000 to preferred shareholders and $600,000 to common shareholders during the year. What should be TMNT's 2020 earnings per common share, rounded to the nearest penny?

$1.50 (3,200,000 - 500,000)/1,800,000 = 1.50

Campo Viejo Inc. declared cash dividends of $1,000,000. It currently has 100,000 shares of 3%, $100 par value cumulative, nonparticipating preferred stock outstanding. The company has not paid the preferred dividend for the past two years. How much of the dividend will Campo Viejo distribute to the common stockholders?

$100,000

Huffenpuff Corporation purchases a limited-life intangible asset for $450,000 on May 1, 2019. The asset has a legal life of 12 years and a useful life of 10 years. What total amount of amortization expense will have been recorded on the intangible asset as of December 31, 2021?

$120,000 $450,000 / 10 years = $45,000 per year 1st year: $45,000 x 8/12 = $30,000 2nd year: $45,000 3rd year: $45,000 $90,000 + $30,000

Bella Pool Company sells prefabricated pools that cost $80,000 to customers for $144,000. The sales price includes an installation fee, which is valued at $20,000. The fair value of the pool is $128,000. The installation is considered a separate performance obligation and is expected to take 3 months to complete. The transaction price allocated to the pool and the installation is

$124,541 and $19,459 respectively 128,000 + 20,000 = 148,000 Pool: (128,000/148,000) * 144,000 = 124,541 Install: (20,000/148,000) * 144,000 = 19,459

On December 31, 2020, the stockholders' equity section of Manteo, Inc. was as follows: Common stock, par value $10; authorized 30,000 shares; issued and outstanding 9,000 shares = $90,000 Additional paid-in capital = 116,000 Retained earnings = 184,000 Total = $390,000 On March 31, 2021, Manteo declared a 10% stock dividend, and accordingly 900 additional shares were issued, when the fair value of the stock was $18 per share. For the three months ended March 31, 2021, Manteo sustained a net loss of $40,000. The balance of Manteo's retained earnings as of March 31, 2021 is

$127,800

Tik-Tok Comapny incurred research and development costs of $100,000 and legal fees of $40,000 to develop a patent. The patent has a legal life of 20 years and a useful life of 10 years. What amount should Tik-Tok record as Patent Amortization Expense in the first year?

$4,000 ($40,000 / 10 = $4,000)

Presented below are accounts balances from Berringer Corporation's balance sheet dated 12/31/2020: Common stock, $.50 stated value: $1,500,000 Paid-in capital in excess of stated value---common stock 6,550,00 Preferred 4% stock, $100 par 700,000 Paid-in capital in excess of par---preferred stock 300,000 Retained Earnings 3,200,000 Treasury common stock (50,000 shares) 250,000 Paid-in capital in excess cost---treasury stock 150,000 What is the approximate average price at which the preferred stock was issued?

$142.86 Cash 1,000,000 Preferred Stock 700,000 PIC - Preferred Stock 300,000 Preferred stock = $700,000 = ($100*7,000) Cash = $1,000,000/7000 = $142.86

Tik-Tak Corporation acquired Dancer-Prancer Games on January 1, 2021 for $208,000,000, and recorded goodwill of $170,000,000 as a result of that purchase. At December 31, 2021, the Dancer-Prancer division had a fair value of $200,000,000. The division's net identifiable assets division had a carry value of $190,000,000 at that time. What amount of goodwill will Tik-Tak report on its December 31, 2021 balance sheet?

$170,000,000

OXO Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is probable that they may lose the case. The attorneys estimated that there is an 80% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be somewhere between $1,800,000 and $2,400,000 but that the most likely amount of the loss is $2,200,00. What amount should be accrued for this litigation?

$2,200,000

On December 31, 2020, Kiki's Delivery Service granted its CEO options to purchase 100,000 shares of the company's $1 par common stock at an option price of $50 per share. The total compensation expense was determined to be $5,000,000. The options become exercisable on January 1, 2021 and represent compensation for the CEO's services over a 2-year period beginning January 1, 2021. At December 31, 2021 the CEO had not exercised the options. The market price of the stock at that date is $120 per share. What is the impact of the options on Kiki's net income for the year ended December 31, 2021?

$2,500,000 increase PIC - Stock Options PIC - Expired Stock Options

Bronco Company's 12/31/21 balance sheet reported assets of $7,000,000 and liabilities of $2,800,000. All of the company's assets' book values approximate their fair values, expect for land, which has a fair value that is $420,000 greater than its book value. On 12/31/21, HP Corporation paid $7,140,000 to acquire Bronco. What amount of goodwill should HP record as a result of this purchase?

$2,520,000 ($7,000,000 + $420,000) - $2,800,000 = $4,620,000 $7,140,000 - $4,620,000

In 2020, King Lion Inc., issued for $103 per share, 90,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of King Lion's $25 par value common stock at the option of the preferred stockholder. In August 2021, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $30 per share. What total amount should be credited to additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock?

$2,520,000 Preferred Stock (90,000*100) = $9,000,000 PIC - in excess of ps ( 90,000*3) = 270,000 Common Stock (90,000*3*25) = 6,750,000 PIC - in excess of cs (plug) = 2,520,000

At December 31, 2020 Fantasia Company has 200,000 shares of common stock and 10,000 shares of 6%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2020 or 2021. On February 10, 2022, prior to the issuance of its financial statements for the year ended December 31, 2021, Fantasia declared a 100% stock dividend on its common stock. Net income for 2021 was $960,000. In its 2021 financial statements, Fantasia's 2021 earnings per common share should be

$2.25 Preferred dividend = 10,000*$100*7% = 70,000 Share outstanding = 200,000*2 = 4,000,000 Earnings per share = (960,000-70,000)/4,000,000 = .2225

At December 31, 2020, Queen Elizabeth Company had 1,200,000 shares of common stock outstanding. On October 1, 2021, the company issued an additional 400,000 shares of common stock. In addition, Queen Elizabeth had $14,000,000 of 6% convertible bonds outstanding at December 31, 2020 that are convertible into 800,000 shares of common stock. No bonds were converted during 2021. Net income for the year ended December 31, 2021, was $5,250,000. Assuming an income tax rate was 30%, what is diluted earnings per share for the year ended December 31, 2021 (rounded to the nearest penny)?

$2.78 5,250,000 + (14,000,000*6%*1-30%) = $5,838,000 1,200,000 + (400,000*(3/12)) + 800,000 = 2,100,000 Divide = $2.78

Calvin Klein Co. purchased a trademark from Rolls Royce, Inc. for $2,000,000 on January 3, 2021. Brooks Brothers LLC, an independent research company, estimated that the remaining useful life of the trademark was 10 years. The asset's unamortized cost of the Rolls Royce's books was $1,500,000. What amount should be reported as amortized expense for the trademark in Calvin Klein's 2021 income statement?

$200,000 ($2,000,000 / 10 years)

On January 1, 2021, Linville Falls Corporation had 110,000 shares of its $5 par value common stock outstanding. On June 1, the corporation acquired 10,000 shares of stock to be held in the treasury. On December 1, when the market price of the stock was $15, the corporation declared a 15% stock dividend to be issued to stockholders of record on December 16, 2021. What was the impact of the 15% stock dividend on the balance of the retained earnings account?

$225,000 decrease

Okie Company incurred research and development costs of $1,900,000 and legal fees of $45,000 to develop a patent. The patent was effective on January 1, 2020. It had legal life of 20 years and a useful life of 5 years. What will be reported on the December 31, 2022 (the second year of asset's life) for the patent?

$27,000 $45,000 / 5 years = $9,000 1st year = $45,000 - $9,000 =$36,000 2nd year = $36,000 - $9,000 = $27,000

The stockholders' equity of Mondavi Corporation as of January 1, 2020, is as follows: Common stock, par value $1; authorized 10,000,000 shares; issued and outstanding 2,800,000 shares = $2,800,000 Paid-in capital in excess of par = 3,200,000 Retained earnings = 2,760,000 Total = $3,460,000 Mondavi uses the cost method of accounting for treasury stock. During 2021, Mondavi had the following purchases and sales for treasury stock: February 6 Acquired 10,000 shares of its stock for $20,000 December 3 Sold 5,000 treasury shares at $2.50 per share Assuming no additional issuances of stock, what should Mondavi report at December 31, 2020 as total additional paid-in capital?

$3,202,500 Feb 6: TS (10,000*$2) $20,000 Cash $20,000 Dec 3: Cash (5,000*2.50) $12,500 TS (5,000*$2) $10,000 APIC - TS (plug) $2,500 $3,200,000 + $2,500 = $3,202,500

In 2020, Narnia Company had 2,300,000 shares of common stock outstanding for the entire year. In addition, Narnia had $1,000,000 of 5% convertible bonds outstanding at December 31, 2020 that are convertible into 200,000 shares of $1 par common stock. No bonds were converted during 2021. Net income for the year ended December 31, 2021, was $7,500,000. Assuming an income tax rate was 20%, what is Narnia's diluted earnings per share for the year ended December 31, 2021 (rounded to the nearest penny)?

$3.01 7,500,000 + (1,000,000*5%*(1-.20)) = 7,540,000 2,300,000 + 200,000 = 2,500,000 7,540,000/2,500,000 = $3.01

At December 31, 2021, Jackson Company had 500,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 100,000 of which were issued on October 1, 2021. Net Income for the year ended December 31, 2021, was $1,700,000. What should be Jackson's 2021 earnings per common share rounded to the nearest penny?

$3.78 Income/Weighted Average Shares Net Income = $1,700,000 Jan 1 = 400,000 * (9/12) = 300,000 Oct 1 = 100,000 Dec 31 = 500,000 * (3/12) = 125,000 $1,700,000 / 425,000 = $4 but my professor says its $3.78 so...

Snape Corporation acquired Slytherin Products on January 1, 2020, for $6,400,000, and recorded goodwill of $1,200,000 as a result of that purchase. On December 31, 2021, the Slytherin Divison had a fair value of $5,440,000. The net identifiable assets of the division (including goodwill) had a carrying value of $5,740,000 at that time. What amount of loss on impairment of goodwill should Snape record in 2021?

$300,000 Carrying Value - FV $5,740,000 - $5,440,000 = $300,000

Isbell Inc. borrowed $400,000 on April 1. The note requires interest at 12% and principal to be paid in one tear. How much interest is recognized for the period from April 1 to December 31?

$36,000 = $400,000 * 12% * (9/12) = $36,000

Variable Consideration: Build an office building at a contract price of $4,000,000. Performance bonus of $100,000. Performance bonus decreases by 20% per week for every week beyond completion date. 50% probability will be completed by June 30. 25% probability will be completed one week late. 25% probability will be completed two weeks late. What is the transaction price?

$4,085,000 100,000*20% = 20,000 50% chance of 4,100,000 = $2,050,000 25% chance of 4,080,000 = $1,020,000 25% chance of 4,060,000 = $1,015,000 Add = $4,085,000

At the beginning of 2020, Emerald Company has 630,000 shares of $10 par value common stock outstanding. During the year, Emerald declared a 15% stock dividend when the market price of the stock was $48 per share. Two months later, Emerald declared a $.60 per share cash dividend. As a result of the dividend declared during the year, retained earnings decreased by

$4,970,700 Stock Dividend = 630,000*15%*$48 = $4,536,000 Cash Dividend = 630,000*115%*$.60 = $434,700 Add = $4,970,000

On Decembers 31, 2020, Henry Company granted some of its executives options to purchase 180,000 shares of the company's $10 par common stock at an option price of $50 per share. The total compensation expense was determined to be $1,350,000. The options become exercisable on January 1, 2021 and represent compensation for executives' services over a 3-year period beginning January 1, 2021. At December 31, 2021 none of the executives had exercised their options. What is the impact on Henry's net income for the year ended December 31, 2021 as a result of this transaction under the fair value method?

$450,000 decrease ($1,350,000/3 years) = $450,000 Compensation Expense 450,000 PIC - Stock Options 450,000 The expense will cause income to decrease

Yoda Corporation purchase a patent for a new process for $960,000 in January, 2016. At the time of the acquisition, the patent had a legal life of fifteen years. The patent was estimated to have a useful life of ten years. During 2021, the process was determined to be technologically obsolete. What amount should Yoda charge to expense during 2021, assuming that amortization expense is recorded at the end of each year?

$480,000 ($960,000 / 10 years) x 5 years 2021 - 2016 = 5 years

Rancho Zabaco Corporation has 1,000,000 shares of $1 par common stock authorized. The following transaction took place during 2020, the first year of the corporation's existence: Sold 200,000 shares of common stock for $26---per share Issued 1,000 shares of common stock in exchange for a $20,000 bill for legal services related to the incorporation At 12/31/2020, Rancho Zabaco will report total paid-in-capital of

$5,220,000 Total PIC = 200,000*$26 + 20,000(bill) = $5,220,000

On December 31, 2021, Hedwig Co. leased a machine from Chang, Inc. for a five-year period. Equal annual payments under the lease are $2,100,000 and are due on December 31 of each year. The first payment was made on December 31, 2021, and the second payment was made on December 31, 2022. The five lease payments are discounted at 10% over the lease term. The present value of lease payments at the inception of the lease and before the first annual payment was $8,756,727. The lease is appropriately accounted for as a finance lease by Hedwig. In its December 31, 2022 balance sheet, Hedwig should report a lease liability of

$5,222,400 Lease liability on December 31, 2021 = $8,756,727 (PV of the lease payments) December 31, 2021, after first payment: Lease Liability lowered by $2,100,000 ($8,756,727 - $2,100,000 = $6,656,727) On December 31, 2022, calculate interest expense $6,656,727*10% = $665,673 Reduction of Liability: $2,100,000 - $665,673 = $1,434,327 Reduce $6,656,727 - $1,434,327 = $5,222,400

At 12/31/2010, Ridge Company has 1,000,000 shares of $1 par value common stock outstanding. In January 2020, the company declared a 10% stock dividend when the market price of the stock was $50 per share. In November, the company declared and paid a $.50 per share cash dividend. As a result of the two dividends declared during the year, Ridge's retained earnings decreased by

$5,550,000

Texaco Corporation purchased a trademark for $4,050,000 on July 1, 2018. On January 1, 2022, Texaco spent $1,555,000 to successfully defend the trademark in a lawsuit. What will be reported for the trademark on the December 21, 2022 balance sheet?

$5,605,000 ($4,050,000 + $1,555,000)

Filch Co. leased equipment to Umbridge, Co. on July 1, 2021, and properly recorded the sales-type lease at $135,000, the present value of the lease payments discounted at 10%. The first of eight annual lease payments of $20,000 due at the beginning of each year of the lease term was received and recorded on July 3, 2021. Filch had purchases the equipment for $110,000. What amount of interest revenue from the lease should Filch report in its 2021 income statement?

$5,750 The first payment will reduce the principle because interest has not started to accrue = $135,000 - $20,000 = $115,000 Interest revenue for full year = $115,000*10% = $11,500 $11,500*(6/12) = $5,750

Zillie Corporation has 100,000 shares of $10 par common stock authorized. The following transactions took place during 2020, the first year of the corporation's existence: Sold 20,000 shares of common stock for $13.50 per share Issued 20,000 shares of common stock in exchange for a patent valued at $300,000. At the end of the Zillie's first year, total paid-in capital amounted to

$570,000 For cash: Cash (20,000 at $13.50) = $270,000 Common Stock (20,000*$10) = $200,000 Additional PIC(plug) = $70,000 For patent: Patent (FV of patent) = $300,000 Common Stock (20,000*$10) = $200,000 Additional PIC (plug) = $100,000 Year-end Balances: Common Stock = $400,000 Additional PIC = $170,000 Add = $570,000

A company offers a cash rebate on $1 on each $4 package of batteries sold during 2021. Historically, 10% of customers mail in the rebate form. During 2021, 6,000,000 packages of batteries are sold, and 210,000 $1 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2021 financial statements dates December 31?

$600,000 and $390,000 Number of batteries sold = 6,000,000 Percentage of customers who mail in = 10% Cash rebate - $1 Rebate expense (6,000,000*10%*$1) = $600,000 Number of packages sold to customers = 210,000 Cash rebate = $1 Total = $210,000 Estimated rebate expense = $600,000 Actual Cash rebate = $210,000 Rebate liability (600,000 - 210,000) = $390,000

The general ledger of Dunkin Donuts Corporation as of December 31, 2022, includes the following accounts: Copyrights $50,000 Deposits with advertising agency (will be used to promote goodwill) 27,000 Discount on bonds payable 70,000 Excess of cost over fair value of identifiable net assets of Acquired subsidiary 480,000 Trademarks 90,000 In the preparation of Dunkin Donuts' balance sheet as of December 31, 2022, what should be reported at total intangible assets?

$620,000 ($50,000 + $480,000 + $90,000)

Presented below is information related to Hale Corporation: Common stock, $1 par: $3,500,000 Paid-in capital in excess of par---common stock 550,00 Preferred 8 1/2% stock, $50 par 2,000,000 Paid-in capital in excess of par---preferred stock 400,000 Retained Earnings 1,500,000 Treasury common stock (at cost) 150,000 The total stockholders' equity of Hale Corporation is

$7,800,000 3,500,000 + 550,000 + 2,000,000 + 400,000 + 1,500,000 - 150,000 = $7,800,000

Shires company borrowed $700,000 on October 1, 2020 and is required to pay $720,000 on March 1, 2021. At what amount is the note payable recorded on October 1, 2020 and how much interest is recognized from October 1 to December 31, 2020?

$700,000 and $12,000 Oct 1, 2020 to March 1, 2021 = 5 months Oct 1, 2020 to Dec 31, 2020 = 3 months Interest Amount = $720,000 - $700,000 = $20,000 (From Oct 1, 2020 to March 1, 2021) $20,000 x (3/5) months = $12,000 (Interest will be recognized from Oct 1, 2020 to Dec 31, 2020) Record at $700,000 at what is borrowed

Abrahams Inc. is a full-service technology company. They provide equipment, installation services as well as training. Customers can purchase any product or service separately or as a bundled package. Constantinople Corporation purchases computer equipment, installation and training for a total cost of $144,000 on March 12, 2021. Estimated standalone fair values of the equipment, installation, and training are $90,000, $60,000, and $30,000 respectively. The transaction price allocated to the equipment, installation, and training is

$72,000, $48,000, and $24,000 respectively 90,000 + 60,000 + 30,000 = 180,000 Equipment: 90,000/180,000 * 144,000 = $72,000 Installation: 60,000/180,000 * 144,000 = $48,000 Training: 30,000/180,000 * 144,000 = $24,000

On December 1, 2021, Travis Company issued at 103, 800 of its 9%, $1,000 bonds. Attached to each bond was on detachable stock warrant entitling the holder to purchase 10 shares of the company's common stock. On December 1, 2021, the market value of the bonds, without the stock warrants, was 95, and the market value of each stock purchase warrant was $50. The amount of the proceeds from the issuance that should be accounted for as the initial carrying value of the bonds payable would be

$782,800

On June 30, 2021, Red Oak Co. had outstanding 8%, $8,000,000 face amount, 15-year bonds maturing on June 30, 2031. Interest is payable on June 30 and December 31. The unamortized balance in the bond discount account on June 30, 2021 was $360,000. On June 30, 2021, Red Oak acquired all of these bonds at 94 and retired them. What carrying amount should be used in computing gain or loss on this early extinguishment of debt?

$8,000,000 - $360,000 = $7,640,000

Bellweather Pharmaceuticals entered into a licensing agreement with Zero Labs for a new drug under development. Bellweather will receive $8,100,000 if the new drug receives FDA approval. Based on prior approval, Bellweather determines that is is 85% likely that the drug will gain approval. The transaction price of their arrangement should be

$8,100,000

Larson Recycling Company and Boisclair Inc. enter into a lease agreement on January 1, 2020. The lease agreement specifies that Larson will grant right-of-use of one of its standard compactors to Bosiclair. Further information relevant to the lease is as follows. The lease agreement is non-cancelable and has a term of three years. The annual lease payments of $8,810.04 are made at the beginning of the year, with the first payment due on January 1, 2020. The present value of the lease payments is $24,962.28. The equipment has a cost and fair value at inception of the lease of $30,000, an estimated economic life of five years, and an unguaranteed residual value at $6,000. The lease contains no renewal options and the equipment is returned to Larson at the end of the lease term. Larson's implicit rate, which is known by Boisclair, is 6 percent. On January 1, 2021, Boisclair will decrease its lease liability by

$8,810.04 At beginning of January 1, 2021: Lease Liability= $24,962.28 Annual payments = $8,810.04 No interest payments = $0 Reduction of Lease Liability = $8,810.04 - $0

On December 31, 2020, Frye Co. has $2,000,000 of short-term notes payable due on February 14, 2021. On January 10, 2021, Frye arrange a line of credit with County Bank which allows Frye to borrow up to $1,500,000 at one percent above the prime rate for three years. On February 2, 2021, Frye borrowed $1,200,000 from County Bank and used $500,000 additional cash to liquidate $1,700,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as current liabilities on the December 31, 2020 balance sheet which is issued on March 5, 2021 is

$800,000 Short term notes payable $2,000,000 Less: Amount borrowed ($1,200,000) Balance of short term notes payable = $800,000

On July 1, 2021, Nall Co. issued 2,500 shares of its $10 par common stock and 5,000 shares of its $10 par convertible preferred stock for a lump sum of $140,000. At this date Nall's common stock was selling for $24 per share and the convertible preferred stock for $18 per share. The amount of the proceeds allocated to Nall's preferred stock should be

$84,000 Common: 2,500*$24 = $60,000 Preferred: 5,000*$18 = $90,000 60,000 + 90,000 = $150,000 60,000/150,000 = 2/5 90,000/150,000 = 3/5 CS: (2/5)*$140,000 = $56,000 PS: (3/5)*$140,000 = $84,000

Tesla Corporation purchased a patent for $405,000 on September 1, 2020. It had a useful life of 10 years. On January 1, 2022, Tesla spent $99,000 to successfully defend the patent in a lawsuit. Tesla feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2023?

$90,000 $405,000 / 10 years = $40,500 x (4/12) = $13,500 $405,000 - $13,500 - $40,500 = $351,000 $351,000 + $99,000 = $450,000 $450,000 / 5 years = $90,000

An analysis of stockholders' equity of OBX Corporation as of January 1, 2021, is as follows: Common stock, par value $20; authorized 100,000 shares; issued and outstanding 90,000 shares = $1,800,000 Paid-in capital in excess of par = 900,000 Retained earnings = 760,000 Total = $3,460,000 OBX uses the cost method of accounting for treasury stock during 2021 entered into the following transactions: Acquired 2,500 shares of its stock for $75,000 Sold 2,000 treasury shares at $35 per share Sold the remaining treasury shares at $20 per share Assuming no other equity transactions occurred during 2021, what should OBX report at December 31, 2021, as total additional paid-in capital?

$905,000 1. Treasury stock (2,500*$35) = $75,000 2. Cash (2,000*$35) = $70,000 Treasury Stock = $60,000 PIC - Treasury Stock = $10,000 3. Cash (500*$20) = $10,000 PIC - Treasury Stock = $5,000 Treasury Stock = $15,000 PIC-Treasury Stock = 10,000-5,000 = $5,000 Additional PID = $900,000 + $5,000 = $905,000

Zing Pharmaceuticals entered into a licensing agreement with Mega Labs for a new vaccine under development. Zing will receive $92,100,000 if the new vaccine receives FDA approval. Based on test results and past experience, Zing determines that is is 90% likelihood that the drug will be approved. The transaction price of their arrangement should be

$92,100,000

On December 31, 2020, Trapiche Corporation's stockholder's equity section was as follows: Common stock, par value $1; authorized 3,000,000 shares; issued and outstanding 900,000 shares = $900,000 Additional paid-in capital = 1,115,000 Retained earnings = 2,085,000 Total stockholders' equity 4,100,000 On October 31, 2021, Trapiche declared a 10% stock dividend when the fair value of the stock was $3 per share. The stock was distributed on November 29 when the fair value of the stock was $3.25 per share. Trapiche sustained a net loss of $840,000 for the year. The balance of the company's retained earnings at December 31, 2021 is

$975,000

All of the following must be disclosed

- Risk of damage of enterprise property by explosion - Environmental liabilities that cannot be reasonably estimated - Probable losses not reasonably estimable

The ability to consummate the refinancing of a short-term obligation may be demonstrated by

- actually refinancing the obligation by issuing equity securities after the date of the balance sheet but before it is issued - entering into a financing agreement that permits the enterprise to refinance the debt on a long-term basis - actually refinancing the obligation by issuing a long-term obligation after the date of the balance sheet but before it is issued

All may be a current liability

- income taxes withheld from employees - Deposits received from customers - Sales taxes collected from customers

When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless

- no interest rate is stated - the stated interest rate in unreasonable - the stated face amount of the note is materially different from the current cash sales price for similar items or from current fair value of the note

Direct costs incurred to sell stock such as underwriting costs should be account for as 1. a reduction of additional paid-in capital 2. an expense of the period in which the stock is issued 3. an intangible asset

1

Presented below are accounts balances from Berringer Corporation's balance sheet dated 12/31/2020: Common stock, $.50 stated value: $1,500,000 Paid-in capital in excess of stated value---common stock 6,550,00 Preferred 4% stock, $100 par 700,000 Paid-in capital in excess of par---preferred stock 300,000 Retained Earnings 3,200,000 Treasury common stock (50,000 shares) 250,000 Paid-in capital in excess cost---treasury stock 150,000 How many shares of common stock does Berringer have outstanding at 12/31/2020?

2,950,000 $1,500,000/$.50 = 3,000,000 shares CS subtract TS shares 3,000,000 - 50,000 = 2,950,000

Moc Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the face amount of the bonds by the present value interest factor for

20 periods and 4% from the PV of 1 table (10 years * 2) = 20 periods Yield rate = 8% / 2 = 4%

In 2019, Butternut Corporation had net income of $210,000, interest expense of $50,000, and income tax expense of $90,000. What was the company's times interest earned for the year?

7.0

The following information is available for Dalmatian Corporation: 1-Jan-21 Shares Outstanding 4,000,000 1-Apr-21 Shares issued 640,000 1-Jul-21 Treasury shares purchases 240,000 1-Oct-21 Shares issued in a 100% stock dividend 4,400,000 The number of shares to be used in computing earnings per common share for 2021 is

8,720,000

Royal Virginian, Inc., had 830,000 shares of common stock issued and outstanding at December 31, 2020. On July 1, 2021, the company issued an additional 40,000 shares of common stock for cash. RVI also had unexercised stock options to purchase 32,000 shares of common stock at $15 per share outstanding at the beginning and end of 2021. The average market price of company's common stock was $20 during 2021. What number of shares should be used to compute dilute earnings per share for the year ended December 31, 2021?

858,000 Jan 1 = 830,000 * (6/12) = 415,000 July 1 = 40,000 Dec 31 = 830,000+40,000 = 870,000 * (6/12) = 435,000 32,000 - (32,000*(15/20)) = 8,000 415,000+435,000+8,000 = 858,000

Inside Out Co. had 800,000 shares of common stock outstanding on January 1, issued 126,000 shares on May 1, purchases 63,000 shares of treasury stock on September 1, and issued 54,000 shares on November 1. The weighted average shares outstanding for the year is

872,000 Jan 1 = 800,000 * (4/12) = 266,667 May 1 = 126,000 = 926,000 * (4/12) = 308,667 Sep 1 = (63,000) = 863,000 * (2/12) = 143,833 Nov 1 = 54,000 Dec 31 = 917,000 *(2/12) =152,833 Add together = 872,000

When a company is acquired, which of the following intangible assets, unrecorded on the acquired company's books, might be recorded in addition to goodwill on the books of the buying company?

A brand name. A patent. A customer list.

On November 1, 2020, Scythian Company borrowed $25,000 from the High Country Bank, signing a 10%, 90-day note. The November 1 journal entry to record this transaction will include

A credit to Notes Payable for $25,000 Nov 1: Cash $25,000 Notes Payable $25,000

At December 31, 2020 the books of Lilac Laurel Corporation included the following accounts: Bonds Payable $7,000,000 Discount on BP $980,000 Interest Payable $168,000 The journal entry to record the retirement of the bonds on January 1, 2021 at 102 will include

A credit to cash for $7,140,000 $7,000,000*1.02 = $7,140,000

AX Co. is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant. AX's lawyer states that it is probable that AX will lose the suit and be found liable for a judgment costing AX anywhere from $1,200,000 to $6,000,000. However, the lawyer states that the most probable cost is $3,600,000. As a result of the above facts, AX should accrue

A loss contingency of $3,600,000 and disclose an additional contingency of up to $2,400,000. (6,000,000 - 3,600,000 = 2,400,000)

A corporation declared a dividend, a portion of which was liquidating. How would this distribution affect each of the following?

Additional Paid in Capital = Decrease Retained Earning = Decrease

Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles?

Amount of loss is reasonably estimable and occurrence of event is probable

Which of the following is the proper way to report a gain contingency?

As a disclosure only

Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?

Authorized shares

On July 1, 2019, American Chestnut Inc. issued 9% bonds with a face amount of $10,000,000, which mature on July 1, 2025. The bonds were issued for $9,560,000 to yield 10%, resulting in a bond discount of $440,000. American Chestnut uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2021, American Chestnut the carrying value of the bonds is

Cash Paid on each date = $10,000,000*9% = $900,000 June 30, 2020: Interest Expense = $9,560,000*10% = $956,000 Discount = $56,000 Carrying at end of June 30, 2020 = $9,616,000 June 30, 2021: Interest Expense = $9,616,000*10% = $961,600 Discount = $61,600 Carrying at the end of June 30, 2021 = $9,677,600

Crepe Myrtle Company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2020. Interest is paid semi-annually on June 30 and December 31. The proceeds from the bonds are $14,703,108. Using effective-interest amortization, what will the carrying value of the bonds be on Crepe Myrtle's December 31, 2020 balance sheet?

Cash Paid on each date = $15,000,000*7.8%*(6/12) = $585,000 June 30, 2020: Interest Expense = $14,703,108*8%*(6/12) = $588,124.32 Discount = $3,124.32 New Carrying Amount = $14,706,232.32 December 31, 2020: Interest Expense = $14,706,232*8%*(6/12) = $588,249.29 Discout = 3,249.29 New Carrying Amount = $14,709,481.61

At the beginning of 2020, Aspen Corporation issued 10% bonds with a face value of $4,000,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $3,705,600 to yield 12%. Aspen uses a calendar-year reporting period and the effective-interest method of amortization. What amount of interest expense should Aspen report for 2020?

Cash Payment = $4,000,000 * 10% * (6/12) = $200,000 Interest for June 30: $3,705,600*12%*(6/12) = $222,336 Discount = $222,336 - $200,000 = $22,336 At the end of June 30 = $3,705,600 + 22,336 = $3,727,936 Interest for December 31: $3,727,936*12%*(6/12) = $223,676 Add together = $223,676 + $222,336 = $446,012

Dolphin Company issues $5,000,000, 6%, 5-year bonds dated January 1, 2020 on January 1, 2020. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue?

Coupon Rate = 6% Yield Rate = 5% (5 years * 2) = 10 periods PV of principle (PVIF) = $5,000,000*(2.5%,10)(.78120) = $3,906,000 Cash payment = $5,000,000*6%*(6/12) = $150,000 PV of interest payment (PVAIF) = $150,000*(2.5%,10)(8.75206) = $1,312,809 Add them together = $3,906,000 + $1,312,809 = $5,218,809

An entry is not made on the

Date of record

REK Corp. signed a $300,00 three-month, zero-interest-bearing note on November 1, 2021. The face value of the note was $304,410. REK's adjusting entry at December 31, 2021 will include a

Debit to interest expense for $2,940 $4,410 * (2/3) = $2,940 (D) Interest Expense 2,940 (C) Discount in Notes Payable 2,940

On January 2, 2021, Soldier Creek Leasing Company leases equipment to Elberta Construction, Inc. for 5 equal annual payments of $240,000 each, payable beginning January 2, 2021. Elberta agrees to guarantee the $150,000 residual value of the asset at the end of the lease term. The expected value of the residual is $0. Soldier Creek's implicit interest rate is 8%. The journal entry Elberta makes at January 2, 2021 includes a debit to right-of-use asset for?

Equal payments = $240,000*4.31213 = $1,034,911.2(PVA) Residual value = $150,000*0.68508 = $102,762(PVSS) = 1,034,911.2 + 102,762 = $1,137,673

Contract-Related Intangible Assets

Examples: franchise and licensing agreements, construction permits, broadcast rights, and service or supply contracts

Which of the following best describes the accounting for assurance type warranty costs?

Expensed based on estimate in year of sale

On January 1, 2020, Blue Crab Co. sold 12% bonds with a face value of $2,000,000. The bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $2,154,500 to yield 10%. Using the effective-interest method of amortization, interest expense for 2020 is

Face value of bonds = $2,000,000 Bond Price = $2,154,500 Bond Coupon Rate = 12% Yield Rate = 10% Cash = $2,000,000 * 12% * (6/12) = $120,000 Interest Expense = $2,154,500 * 10% * (6/12) = $107,725 Premium Amount = $120,000 - $107,725 = $12,275 New Bond Carrying Amount = $2,154,500 - $12,275 = $2,142,225 Interest Expense = $2,142,225 * 10% * (6/12) = $107,111.25 Add the two interest expenses for the year 2020 = $107,725 + $107,111.25 = $214,836.25

An accounts payable is a more formal legal obligation than a note payable

False

Both a guaranteed and an unguaranteed residual value affect the lessee's computation of amounts capitalized as a leased asset

False

Companies should accrue an estimated loss from a loss contingency if information available prior to the issuance of financial statements indicates that it is reasonably possible that a liability has been incurred

False

Dividends in arrears on cumulative preferred stock should be reported as current liabilities

False

In 2021, Grecko Company recorded an impairment on one of its patents? If the fair value of the patent recovered in 2022, Grecko can record a recovery of impairment.

False

Neither internally generate goodwill nor patents will be reported on the balance sheet

False

Nondetachable warrants, like detachable warrants, require an allocation of the proceeds between the bonds and the warrants

False

Prepaid insurance is included in the numerator when computing the acid-test (quick) ratio

False

Research and Development costs are reported as intangible assets because they will provide economic benefits in future years.

False

Sales taxes are an expense of the seller

False

Stock splits and large stock dividends have the same effect on a company's retained earnings and total stockholder's equity

False

The cost of a patent is amortized over its remaining legal life or its remaining useful life, whichever is longer.

False

The discount on notes payable account should be reported as an asset on the balance sheet

False

The first step in the revenue recognition process is to identify the separate performance obligations in the contract.

False

Which of these is note included in an employer's payroll tax expense?

Federal income taxes

Which of the following intangible assets should be shown as a separate item on the balance sheet?

Goodwill

Which of the following statements is not true regarding the revision of amortization expense?

If impairment is recognized on an unlimited-life intangible asset, amortization expense will need to be revised.

On January 1, 2020, Ann Price loaned $187,825 to Joe Kiger. A zero-interest bearing note (face amount, $250,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2022. The prevailing rate of interest for a loan of this type is 10%. The present value of $250,000 at 10% for three years is $187,825. What amount of interest income should Ms. Price recognize in 2020?

Interest Expense = $187,825 * 10% = $18,783

On January 1, 2021, Dobby Corporation signed a 10-year noncancelable lease for machinery. The terms of the lease called for Dobby to make annual payments for $220,000 at the end of each year for ten years with the title passing to Dobby at the end of this period. The machinery has an estimated useful life of 15 years and no salvage value. Dobby uses straight-line method of depreciation for fixed assets. Dobby accordingly accounted for this lease transaction as a finance lease. The lease payments were determined to have a present value of $1,342,016 at an effective interest rate of 8%. With respect to this lease, Dobby should record for 2021

Interest expense of $107,361 and depreciation expense of $89,468 Interest Expense = $1,342,016*8% = $107,361 Depreciation Expense = $1,342,016 / 15 years = $89,468

Goose Company issues $25,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24,505,180. Using effective-interest amortization, how much interest expense will be recognized in 2020?

June 30, 2020: Cash Paid = $25,000,000 * 7.8% * (6/12) = $975,000 Interest Expense = $24,505,180 * 8% * (6/12) = $980,207.20 Discount = $980,207.20 - $975,000 = $5,207.20 New Carrying Amount = $24,510,387.20 December 31, 2020: Cash Paid = $975,000 Interest Expense = $24,510,387.20 * 8% * (6/12) = $980,415.49 Add the interest from the year 2020 together = $980,207.20 + $980,415.49 = $1,960,623

Lease A does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases?

Lease A: Finance lease Lease B: Finance lease

On January 2, 2021, Greengrass Leasing Company leases equipment to Black Co. with 5 equal annual payments of $160,000 each, payable beginning January 2, 2021. Black agrees to guarantee the $150,000 residual value of the asset at the end of the lease term. The expected value of the residual value is $50,000. Black's incremental borrowing rate is 10%, however it knows that Greengrass's implicit interest rate is 8%. What journal entry would Black make at January 1, 2022 to record the second lease payment?

Lease Liability 112,124 Interest Expense 47,876 Cash 160,000

On January 1, 2021, Sauder Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Sauder to make annual payments of $200,000 at the beginning of each year for five years beginning on January 1, 2021 with the title passing to Sauder at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Sauder uses the straight-line method of depreciation for all of its fixed assets. Sauder accordingly accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $833,972 at an effective interest rate of 10%. In 2022, Sauder should report interest expense of

Lease Receivable = $833,972 Annual Lease Payment = $200,000 January 1, 2021: Interest Expense = (833,972 - 200,000)*10% = $63,397 Reduction of Lease = 200,000 - 63,397 = 136,603 Lease Payable at end of 2021 = 833,971 - 136,603 = $697,369 January 1, 2022: Interest Expense = (697,369 - 200,000)*10% = $49,737

Which intangible assets are amortized?

Limited Life- Yes Indefinite Life- No

The recoverability test is used to determine any impairment loss on which of the following types of intangible assets?

Limited life intangibles

Artistic-Related Intangible Assets

examples: plays, literary works, musical works, pictures, photographs, and video and audiovisual material - copyright granted for the life of the creator plus 70 years - capitalize costs of acquiring and defending - amortized to expense over useful life

The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2021, contained the following accounts. 5-year Bonds Payable 8% $3,000,000 Interest Payable $50,000 Premium on Bonds Payable $100,000 Notes Payable (3 months.) $40,000 Notes Payable (5 yr.) $165,000 Mortage Payable ($15,000 due currently) $200,000 Salaries and Wages Payable $18,000 Income Taxes Payable (due 3/15 of 2022) $25,000 The total long-term, liabilities reported on the balance sheet are

Long-Term Liabilities: Bonds Payable $3,000,000 Premium on BP = $100,000 Notes Payable $165,000 Mortgage Payable $185,000 Total = $3,450,000

Sandy Shoes Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $800,000. What is the required journal entry as a result of this litigation?

No journal entry is required

Iron Giant Inc. issued bonds with detachable stock warrants. These stock warrants will be classified on the balance sheet as

Paid-in capital - Stock warrants

Stock warrants outstanding should be classified as

Paid-in capital-stock warrants

What effect does the issuance of a 2-for-1 stock split have on each of the following?

Par Value per Share: Decrease Retained Earnings: No effect

The recoverability test is used to determine any impairment loss on which of the following types of intangible assets?

Patent

Which is a type of technology-related intangible asset?

Patent

At December 31, 2020 and 2021, Fila 8 Corp. had outstanding 4,000 shares of $100 par value 6% cumulative preferred stock and 20,000 shares of $10 par value common stock. At December 31, 2020, dividends in arrears on the preferred stock were $12,000. Cash dividends declared in 2021 totaled $45,000. What amounts were payable on each class of stock?

Preferred Stock = $36,000 Common Stock = $9,000 (4,000*$100) = $400,000*6% = $24,000 + $12,000 = $36,000 ($45,000 - $36,000) = $9,000

All of the following terms are synonymous except: Maturity value Present value Par value Face value

Present value

El Campeardo Corporation owns 4,000,000 shares of stock in Bogle Corporation. On December 31, 2020, El Campeardo distributed these shares of stock as dividend its stockholders. This is an example of a

Property dividend

On December 31, 2021, Kuhn Corporation leases a plane from Bell Company for a seven-year period expiring December 31, 2028. Equal annual payments of $450,000 are due on December 31 of each year, beginning with December 31, 2021. The lease properly classified as a finance lease on Kuhn's books. The present value at December 31, 2021 of the eight lease payments over the lease term discounted at 10% is $2,640,792. Assuming the first payment is made on time, the amount that should be reported by Kuhn Corporation as the lease liability on its December 31, 2021 balance sheet is

Reduction of Lease Liability after first payment: = $2,640,792 - $450,000 =$2,190,792

Technology-Related Intangible Assets

Relate to innovations or technological advances. Ex: patented technology and trade secrets granted by the U.S. Patent and Trademark Office.

Which of the following is not reported in the "Other Expenses and Losses" section of the income statement?

Research and development expense

Malfoy Company leases a machine from Valdemort Corp. under a agreement which meets the criteria to be a finance lease for Malfoy. The six-year lease requires payments of $170,000 at the beginning of each year, including $25,000 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Malfoy should record the leased asset at

Right to use asset = Present value of minimum lease payments excluding annual maintenance cost = (170,000-25,000)*cumulative PV factor at 8% for 6 periods $145,000*4.99271 = $723,943

Grey, Inc. leased equipment from McDreamy Company under a four-year lease requiring equal annual payments of $344,152, with the first payment due at lease inception. The lease does not transfer ownership, not is there a bargain purchase option. The equipment has a 4 year useful life an no salvage value. The rate implicit in the lease (which is known by Grey) is 8%. Assuming that this lease is properly classified as a finance lease, what is the amount of interest expense recorded by Grey in the first year of the asset's life?

The PV of the lease: annual payments x PV annuity due = $344,152*3.5771 = $1,231,066.12 At first, $1,231,066.12 - $344,152 = $886,914.12 Interest Expense = $886,914.12*8% = $70,953.13

Grey, Inc. leased equipment from McDreamy Company under a four-year lease requiring equal annual payments of $344,152, with the first payment due at lease inception. The lease does not transfer ownership, not is there a bargain purchase option. The equipment has a 4 year useful life an no salvage value. The rate implicit in the lease (which is known by Grey) is 8%. Assuming that this lease is properly classified as a finance lease, by what amount is Grey's Lease Liability reduced in first year after the lease inception?

The PV of the lease: annual payments x PV annuity due = $344,152*3.5771 = $1,231,066.12 At first, $1,231,066.12 - $344,152 = $886,914.12 Interest Expense = $886,914.12*8% = $70,953.13 Reduction of Liability = $344,152 - $70,953.13 = $273,199

On November 1, 2020, Scythian Company borrowed $25,000 from the High Country Bank, signing a 10%, 90-day note. Which of the following statements is true regarding how the note and related accounts will be reported in the December 31, 2020 financial statements?

The current liabilities section of the balance sheet will report Notes Payable of $25,000 and Interest Payable of $417. $25,000 * 10% * (2/12) = $417 (for Nov and Dec)

What impact does a bargain purchase option have on the present value of the lease payments computed by the lessee?

The lessee must increase the present value of the lease payment by the present value of the option price

Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to

The market rate multiplied by beginning-of-period carrying amount of the bonds

Mayberry Co. has a loss contingency to accrue. The loss amount can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The amount of loss accrual should be

The minimum of the range

On May 1, 2020, 19th Street Company signed a one-year, zero-interest bearing note for $50,000 and received cash of $44,000 from Virginia State Bank. Which of the following statements is true regarding how the note and related accounts will be reported in the December 31, 2020 financial statements?

The note will be reported at its carrying value of $48,000 in the current liabilities section of the income statement

When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the

par value of the shares issued

Larson Recycling Company and Boisclair Inc. enter into a lease agreement on January 1, 2020. The lease agreement specifies that Larson will grant right-of-use of one of its standard compactors to Bosiclair. Further information relevant to the lease is as follows. The lease agreement is non-cancelable and has a term of three years. The annual lease payments of $8,810.04 are made at the beginning of the year, with the first payment due on January 1, 2020. The present value of the lease payments is $24,962.28. The equipment has a cost and fair value at inception of the lease of $30,000, an estimated economic life of five years, and an unguaranteed residual value at $6,000. The lease contains no renewal options and the equipment is returned to Larson at the end of the lease term. Larson's implicit rate, which is known by Boisclair, is 6 percent. Which of the following statements is true regarding this lease?

This is an operating lease to Boisclair because none of the five finance lease classification criteria are met 1) No transfer of ownership 2) No purchase option 3) Economic Life = 5 years and Lease Term = 3 years which is only 60% < 75% 4) PV = $24,962.28 FMV = $30,000, which is only 83% < 90% 5) Alternative use test - the asset is returned to Larson

On December 31, 2021, Lancaster Corporation leased a ship from Fort Company for an eight-year period expiring December 30, 2029. Equal annual payments of $500,000 are due on December 31 of each year, beginning with December 31, 2021. This lease is properly classified as a finance lease on Lancaster's books. The present value at December 31, 2021 of the eight lease payments over the lease term discounted at 10% is $2,934,213. Assuming all payments are made on time, the amount that should be reported by Lanca Corporation as the total liability for finance leases on its December 31, 2022 balance sheet is

Total liability = ($2,934,213 - $500,000)*1.10 - $500,000 = $2,177,634

In 2020, Hobbs Corp. acquired 15,000 shares of its own $1 par value common stock at $18 per share. in 2021, Hobbs issued 10,000 of these shares at $25 per share. Hobbs uses the cost method to account for its treasury stock transactions. What accounts and what amounts should Hobbs credit in 2021 to record the issuance of the 10,000 shares?

Treasury Stock = $180,000 APIC = $70,000 Cash (10,000*$25) 250,000 TS (10,000*$18) 180,000 APID (plug) 70,000

A 10-year bond that pays interest semi-annually has 20 interest periods

True

Because of the high degree of uncertainty associated with research and development expenditures, these costs are generally expensed as incurred even though some of these expenditures may ultimately provide economic benefits in future years.

True

GAAP requires the use of effective-interest method to amortize the lease liability for both operating and finance leases.

True

If the market rate is greater than the stated rate, bonds will sell at a discount

True

Limited-life intangibles such as patents are amortized by systematic charges to expense over their useful lives.

True

Revenue from a contract with a customer cannot be cognized until a contract exists

True

Revenue is recognized in the accounting period when the performance obligation is satisfied

True

The FASB believes that fair value measurement for financial instruments, including financial liabilities, provides more relevant and understandable information than amortized cost

True

The fair value of an asset retirement obligation is recorded as both an increase to the related asset and a liability

True

The future cash flows of a bonds are discounted using the market rate of interest to determine the proceeds to issuance

True

The interest rate written in the terms of the bond indenture and used to calculate the cash payment of interest to bond bondholders is the stated, coupon or nominal rate.

True

The present value of an asset retirement obligation is recorded as both an increase to the related asset and a liability

True

The stated rate is the same as the coupon rate

True

Unlimited-life intangibles such as trademarks and tradenames are not amortized by systematic charges to expense but are impairment tested annually.

True

Warranties that the product meets agree-upon specifications in the contract at the time the product is sold are referred to as assurance-type warranties

True

When a company has a complex capital structure, it must report both basic and diluted earnings per share

True

When a company sells a bundle of goods at a discount, the discount should be allocate to the product that caused the discount and not the entire bundle

True

When a contract modification is treated as a separate performance obligation or prospectively, the same amount of revenue is recognized before and after the modification

True

When a customer purchases a product but is not yet ready for delivery, this is referred to as

a bill-and-hold arrangement

Kant Corporation retires its $500,000 face value bonds at 102 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $481,250. The entry to record the redemption will include a

a credit of $18,750 to Discount on Bonds Payable (D) Bonds Payable $500,000 (D) Loss on retirement of Bonds - plug 28,750 (C) Cash (500,000*1.02) $510,000 (C) Discount on Bonds Payable(500,000-481,250) 18,750

Larson Recycling Company and Boisclair Inc. enter into a lease agreement on January 1, 2020. The lease agreement specifies that Larson will grant right-of-use of one of its standard compactors to Bosiclair. Further information relevant to the lease is as follows. The lease agreement is non-cancelable and has a term of three years. The annual lease payments of $8,810.04 are made at the beginning of the year, with the first payment due on January 1, 2020. The present value of the lease payments is $24,962.28. The equipment has a cost and fair value at inception of the lease of $30,000, an estimated economic life of five years, and an unguaranteed residual value at $6,000. The lease contains no renewal options and the equipment is returned to Larson at the end of the lease term. Larson's implicit rate, which is known by Boisclair, is 6 percent. On January 1, 2020, Boisclair's journal entry to record the lease will include

a credit to Lease Liability for $24,962.28 January 1, 2020: ROU Asset $24,962.28 Lease Liability $24,962.28

The stockholders' equity of Mondavi Corporation as of January 1, 2020, is as follows: Common stock, par value $1; authorized 10,000,000 shares; issued and outstanding 2,800,000 shares = $2,800,000 Paid-in capital in excess of par = 3,200,000 Retained earnings = 2,760,000 Total = $3,460,000 Mondavi uses the cost method of accounting for treasury stock. During 2021, Mondavi had the following purchases and sales for treasury stock: February 6 Acquired 10,000 shares of its stock for $20,000 December 3 Sold 5,000 treasury shares at $2.50 per share The December 3 journal entry to record the sale of the treasury share will include

a credit to Treasury Stock for $10,000 Feb 6: TS (10,000*$2) $20,000 Cash $20,000 Dec 3: Cash (5,000*2.50) $12,500 TS (5,000*$2) $10,000 APIC - TS (plug) $2,500

Del Rio Computers manufactures and sells tracking systems which include a 180-day warranty on product defects. It also sells an extended warranty which provides an additional two years of protection. On March 1, it sold a system for $4,500 and extended warranty for another $1,400. The journal entry to record this transaction would include

a credit to Unearned Warranty Revenue of $1,400 Cash (4,500 + 1,400) = 5,900 Sales Revenue 4,500 Unearned Warranty Revenue 1,400

At 12/31/2010, Ridge Company has 1,000,000 shares of $1 par value common stock outstanding. In January 2020, the company declared a 10% stock dividend when the market price of the stock was $50 per share. In November, the company declared and paid a $.50 per share cash dividend. The journal entry to record the declaration of the stock dividend will include

a credit to additional paid in capital for $4,900,000

Banner Elk Inc., an equipment dealer, sells equipment on June 1, 2021, to Howard's Creek Company for $600,000. The equipment had a cost of $500,000. Banner Elk agrees to repurchase the equipment on June 30, 2023, for a price of $726,000. Banner Elk's cost of capital is 10%. Banner Elk's journal entry on June 1 will include

a credit to liability to Howard's creek for $726,000

Larson Recycling Company and Boisclair Inc. enter into a lease agreement on January 1, 2020. The lease agreement specifies that Larson will grant right-of-use of one of its standard compactors to Bosiclair. Further information relevant to the lease is as follows. The lease agreement is non-cancelable and has a term of three years. The annual lease payments of $8,810.04 are made at the beginning of the year, with the first payment due on January 1, 2020. The present value of the lease payments is $24,962.28. The equipment has a cost and fair value at inception of the lease of $30,000, an estimated economic life of five years, and an unguaranteed residual value at $6,000. The lease contains no renewal options and the equipment is returned to Larson at the end of the lease term. Larson's implicit rate, which is known by Boisclair, is 6 percent. On January 1, 2020, Larson's journal entry to record the lease will include

a credit to unearned lease revenue for $8,810.04

On June 1, 2021, Tri-State Interiors entered into a contract to buy equipment for $15,000 from Mega Machinery Supply. The contract required Tri-State to pay $15,000 in advance on June 1, 2021. The equipment was delivered on July 3, 2021. The journal entry on Mega's books to record the contract on June 1, 2021 included

a credit to unearned sales revenue for $15,000

Big Bear BBQ Company sold 200 smokers during 2020, for $1,700 apiece together with a 1-year warranty. Warranty claims are estimated to be $150 per smoker. Actual warranty claims on the smokers in 2020 were $12,550. Actual warranty claims on the smokers in 2021 are $18,500. The entry to record the warranty expense in 2021 would include

a debit to warranty liability for $17,450 200 smokers * $150 = $30,000 Warranty in 2020 = $12,550 $30,000 - $12,550 = $17,450

Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as

a footnote

Mulan Company has a simple capital structure that includes a common stock and cumulative, non-convertible preferred stock. During the current year, the company paid dividends in arrears of $100,000 as well as the current year dividend of $50,000. In calculating the numerator of basic EPS, Mulan should subtract the

annual preferred dividend

A lessee with a finance lease containing a bargain purchase option should depreciate the leased asset over the

asset's remaining economic life.

Franklin Co. has $4,000,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2021, the holders of $1,280,000 bonds exercised and conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $280,000. Franklin should record, as a result of this conversion, a

credit of $217,600 to Paid-in Capital in Excess of Par 1,280,000/4,000,000 * 280,000 = $89,600 $1,280,000/$1,000 = 1,280*30*$30 = $1,152,000 1,280,000 + 89,600 - 1,152,000 = $217,600

Frozen Co. has $10,000,000 of 6.5% convertible bonds outstanding. Each $1,000 bond is convertible into 5 shares of $1 par value common stock. The bonds pay interest on January 1 and July 1. On July 1, 2020, the holders of $5,000,000 bonds exercised and conversion privilege. On that date the market price of the bonds was 99 and the market price of the common stock was $105. The balance in Discount on Bonds Payable at the date of conversion was $750,000. Frozen's journal entry to record this conversion will include a

credit of $4,600,000 to Paid-in Capital in Excess of Par

P&G Auto Parts sells parts to AAA Car Repair during 2021. P&G offers rebates of 2% on purchases up to $60,000 and 3% on purchases above $60,000 if the customer's purchases for the year exceed $200,000. In the past, AAA normally purchases $300,000 in parts during a calendar year. On March 25, 2021, AAA Car Repair purchased $74,000 of parts. The journal entry to record the purchase includes a

credit to Sales Revenue for $72,380 Rebate on $60,000 = $60,000*2% = $1,200 Rebate on above $60,000 = (74,000 - 60,000)*3% = 420 Total rebate = 1,200+420 = $1,620 Sales - Rebate = Net Sales Revenue 74,000 - 1,620 = $72,380

On November 1, 2021, Green Valley Farm entered into a contract to buy a $150,000 harvester from John Deere. The contract required Green Valley Farm to pay $150,000 in advance on November 1, 2021. The harvester (cost of $110,000) was delivered on November 30, 2021. The journal entry to record the contract on November 1, 2021 includes a

credit to Unearned Sales Revenue for $150,000 Unearned Revenue 150,000 Sales Revenue 150,000 COGS 110,000 Inventory 110,000

On July 31, O'Malley Company contracted to have two products built by Taylor Manufacturing for a total of $370,000. The contract specifies that payment will only occur after both products have been transferred to O'Malley Company. Taylor determines that the standalone prices are $200,00 for Product 1 and $170,000 for Product 1. Product 1 is delivered on August 1 and Product 2 is delivered on August 15. Payment is received by Taylor on August 27. On August 15, when Product 2 has been transferred, Taylor's journal entry to record this event includes a

credit to sales revenue for $370,000

Entertainment Tonight, Inc. manufactures and sells stereo systems that include an assurance-type warranty for the first 90 days. Entertainment Tonight also offers an optional extended coverage plan under which it will repair or replace any defective part for 2 years beyond the expiration of the assurance-type warranty. The total transaction price for the sale of the stereo system and the extended warranty is $3,000. The standalone price of each is $2,100 and $900, respectively. The estimated cost of the assurance-warranty is $350. The journal entry to record the sale will include a

credit to unearned warranty revenue, $900

At July 1, 2020, Douglas Fir Corporation issued bonds with a face value of $10,000,000 at a premium and elected the fair value option. The bonds pay interest semi-annually at January 1 and July 1. At December 31, 2020, after the adjusting entry to accrue interest and amortize premium, the carrying value of the bonds is $10,620,000. If the fair value of the bonds $10,500,000, Douglas Fir will make a second adjusting entry and

credit unrealized holding gain for $120,00

On January 1, 2020, Southern Magnolia Inc. loaned $375,650 to Maple Street Company, one of its suppliers. Maple Street issued a three-year, zero-interest-bearing note with a face amount, $500,000. The prevailing rate of interest for a loan of this type is 10%. The present value of $250,000 at 10% for three years is $375,650. In preparing its December 31, 2020 adjusting entries, Maple Street will

debit Interest Expense for $37,565 Interest Expense = $375,650*10% = $37,565

On December 31, 2020, Kiki's Delivery Service granted its CEO options to purchase 100,000 shares of the company's $1 par common stock at an option price of $50 per share. The total compensation expense was determined to be $5,000,000. The options become exercisable on January 1, 2021 and represent compensation for the CEO's services over a 2-year period beginning January 1, 2021. On July 1, 2023 when the market price of the shares was $345 per share, the CEO exercised 25% of the options. The journal entry to record the exercise of the options includes a

debit to Cash for $1,250,000 (D) Cash (100,000*25%*$50) 1,250,000 (D) PIC - Stock Options (5,000,000*25%) 1,250,000 (C) Common Stock (25,000*$1) 25,000 (C) PIC - excess in CS (plug) 2,475,000

On July 31, O'Malley Company contracted to have two products built by Taylor Manufacturing for a total of $370,000. The contract specifies that payment will only occur after both products have been transferred to O'Malley Company. Taylor determines that the standalone prices are $200,00 for Product 1 and $170,000 for Product 1. Product 1 is delivered on August 1 and Product 2 is delivered on August 15. Payment is received by Taylor on August 27. On August 1, when Product 1 has been transferred, Taylor's journal entry to record this event includes a

debit to Contract Assets for $200,000

Botanic Choice sells natural supplements to customers with an unconditional sales return if they are not satisfied. The sales returns period extends 60 days. On February 10, 2021, a customer purchases $4,000 of products (cost $2,000). Assuming that bases on prior experience, estimated returns are 20%. The journal entry to record actual return of $250 of merchandise includes a

debit to returned inventory for $125 Sales Returns and Allowances 250 Accounts Receivable 250 Returned Inventory (250*(2000/4000)) 125 Cost of Goods Sold 125

Nature's Way sells Chinese herbal supplements to customers with an unconditional sales return if they are not satisfied. The sales returns extends 90 days. On May 12, 2021, Carolina Integrated Health purchases $4,000 of products with a cost of $2,000. Based on the company's prior experience, estimated returns are 20%. The journal entry to record the expected sales return and cost of goods sold includes a

debt to allowance for sales returns of $800 and a credit to cost of goods sold of $400 Sales Returns and Allowance (4,000*20%) 800 Accounts Receivable 800 Returned Inventory (2,000/4000 * 800) 400 Cost of Goods Sold 400

In determining diluted earnings per share, dividends on nonconvertible cumulative preferred stock should be

deducted from net income whether declared or not

Customer-related intangible assets

examples: customer lists, order or production backlogs, and both contractual and non-contractual customer relationships. - capitalize acquisition costs - amortized to expense over useful life

Old Hickory Company issued ten-year bonds in 2015 at a discount with a call provision to retire the bonds. When Old Hickory exercised the call provision on an interest date in 2021, the carrying amount of the bond was less than the call price. The amount of bond liability removed from the accounts in 2021 should have equaled the

face amount less unamortized discount

After an impairment loss has been recorded, a copyright's carrying value will be equal to its

fair value

The issuer of a 5% common stock dividend to common stockholders should transfer from retained earnings to paid-in capital an amount equal to the

fair value of the shares issued

When a company has an obligation or right to repurchase as asset for an amount greater than or equal to its selling price, the transaction should be treated as a

financing transaction

A company must account for a contract modification as a new contract if the

goods or services are distinct and company has right to receive the standalone price

The entry to record the issuance of restricted stock

has no effect on total assets, liabilities or equity

Larson Recycling Company and Boisclair Inc. enter into a lease agreement on January 1, 2020. The lease agreement specifies that Larson will grant right-of-use of one of its standard compactors to Bosiclair. Further information relevant to the lease is as follows. The lease agreement is non-cancelable and has a term of three years. The annual lease payments of $8,810.04 are made at the beginning of the year, with the first payment due on January 1, 2020. The present value of the lease payments is $24,962.28. The equipment has a cost and fair value at inception of the lease of $30,000, an estimated economic life of five years, and an unguaranteed residual value at $6,000. The lease contains no renewal options and the equipment is returned to Larson at the end of the lease term. Larson's implicit rate, which is known by Boisclair, is 6 percent. At December 31, 2020, Boisclair's adjusting journal entry will

increase its lease liability by $969.14 Lease Liability = $24,962.28 - $8,810.04 = $16,512.24 $16,512.24 * 6% = $969.14

On January 1, 2021, Ogleby Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Ogleby to make annual payments of $180,000 at the beginning of each year for five years with title passing to Ogleby at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Ogleby uses the straight-line method of depreciation for all of its fixed assets. Ogleby accordingly accounts for this lease transaction as a finance lease. The lease payments were determines to have a present value of $750,578 at an effective interest rate of 10%. With respect to this lease, for 2021 Ogleby should record

interest expense of $57,058 and amortization expense of $107,225 Interest Expense = (PV of lease - annual payments)*10% = $750,578 - $180,000 = $570,578 * 10% = $57,058 Amortization = $750,578 / 7 years (useful life) = $107,225

In an operating lease, the lessor's income statement will report

lease revenue and depreciation expense

On January 1, 2020, Harry Company leases an asset to Hermione Company which is properly classified as an operating lease by both the lessee and the lessor. Hermione is making 5 annual lease payments beginning on January 1, 2020. At December 31, 2020, Harry will record

lease revenue and depreciation expense

Note disclosures for long-term debt generally include all of the following except

names of specific creditors

Cash dividends are paid on the basis of the number of shares

outstanding

St. Jean Company declared a 50% common stock dividend to common stockholders. The company will transfer from retained earnings to paid-in capital an amount equal to the

par or stated value of the shares issued

Ebay, Inc. went to court and successfully defended one of its patents from infringement by a competitor. Ebay does not expect to recover any costs as the competitor is now out of business. The cost of this defense should be charge to

patents and amortized over the remaining useful life of the patent.

The last step in the process for revenue recognition is to

recognize revenue when each performance obligation is satisfied

When computing diluted earnings per share, convertible securities are

recognized only if they are dilutive

The total amount of a patent's cost that has been amortized to date is usually

recorded as a reduction to the patents account and not separately reported on the balance sheet

On January 15, 2021, Norway Manufacturing Company enters into a contract to build custom equipment for Tri-State Textiles Company. The contract specified a delivery date of March 1. The equipment was not delivered until March 31. The contract require full payment of $75,000 30 days after delivery. The revenue for this contract should be

recorded on March 31, 2021

Unconditional Rights to receive consideration because a performance obligation has been satisfied are

reported as a receivable on the balance sheet

The cumulative feature of preferred stock

requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders

Which of the following does not decrease stockholder's equity

stock split

The major difference between convertible debt and stock warrants is that upon exercise of the warrants

the holder has to pay a certain amount of cash to obtain the shares

Redfish Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from the date of issue. If the bonds were issued at a premium, this indicates that

the nominal rate of interest exceeded the market rate

White Willow Inc. issued bonds with a par value of $10,000,000 and a term of 10 years on July 1, 2020. If the bonds were issued at a premium, this indicates that

the stated rate of interest exceeded the market rate

A company can use the expected value to estimate variable consideration when

there is a discrete set of outcomes and the company has experience with a large number of contracts with similar characteristics