Intermediate ACCT 2 - Final Exam RogerCPA Q's Part 2

Which of the following is least likely to be included in accumulated other comprehensive income as a component of stockholders' equity?

Foreign currency transaction gain.

Cansay Co. has 100,000 shares of $10 par value common stock and 5,000 shares of $100 par value 5% cumulative preferred stock outstanding. No dividends had been paid in either 20X5 or 20X6. Cansay Co. is planning to pay a cash dividend in 20X7. If the cash dividend is for $60,000 in total, how much will be received by common stockholders?

$0

On September 30, 2015, Saucier Company declared a 5% stock dividend when its stock was selling for $10 per share. As a result, Saucier Company will issue 20,000 additional shares of its $2 par value common stock. All outstanding shares were originally issued for $6 per share. What will be the decrease to stockholders' equity as a result of the declaration and distribution of the stock dividend?

$0

Sunk Co. is unable to service its $500,000, 8%, 5-year note payable with First Bank, which agrees to restructure the debt by accepting an asset from Sunk and modifying the terms of the debt agreement. The asset given up by Sunk has a fair value of $200,000 and a carrying value of $150,000. The transfer was applied against the face amount of the note. The carrying value of Sunk's debt liability before the transfer, which includes accrued interest of $40,000, was $414,771. First Bank agrees to forgive the accrued interest, reduce the principle by $100,000, lower the interest rate to 7%, and extend the loan term to 10 years total, meaning Sunk now has exactly eight years to repay the note. After accounting for any gain on the disposal of the asset, what amount of gain will Sunk record as a result of the modification of terms?

$0

X Company purchased a patent on January 3, 20X4 from Y Company for $145,000. An attorney drew up the contract between X & Y at a total cost of $15,000, which was split equally by the parties. The patent had a carrying value of $90,000 on Y's books. X expects to be able to benefit from the patent for 10 years, after which it is expected to be of little to no value. What will be the carrying value of the patent on X Company's December 31, 20X5 balance sheet?

$122,000

Werth Company has 100,000 shares of $10 par value common stock and 5,000 shares of $100 par value 5% cumulative preferred stock outstanding. No dividends had been paid in either 2015 or 2016. Werth Company is planning to pay a cash dividend in 2017. If the cash dividend is for $200,000 in total, how much will be received by common stockholders?

$125,000

On May 1 of the current year, Cassandra Corp. issued $600,000 of 4% bonds payable at par with interest payment dates of April 1 and October 1. In its income statement for the current year ended December 31, what amount of interest expense should Cassandra report?

$16,000

For the week ended February 20, 20X5, Epsilon Co. paid gross wages of $15,000, from which federal income taxes of $1,500 were withheld. All wages paid were subject to FICA tax rates of 7% each for employer and employee. Epsilon must also pay the 2% FUTA tax employers are subject to. Epsilon makes all payroll-related disbursements from a special payroll checking account. What amount should Epsilon have deposited in the payroll checking account to cover payroll and related payroll taxes for the week ended February 20, 20X5?

$16,350

Edge Company has 500,000 shares of no par common stock with a stated value of $8 per share issued and outstanding as of January 1, 2015, originally issued for $14 per share. During 2015, Edge Company had the following transactions involving its own stock: - On March 6, acquired 12,000 shares of treasury stock at a cost of $12 per share - On April 18, resold 4,000 shares of treasury stock at $15 per share. - On June 11, resold an additional 2,000 shares of treasury stock at $18 per share If Edge uses the cost method of accounting for treasury stock, what will be the balance in additional paid in capital from treasury stock as a result of these transactions?

$24,000

Scurry Company has 500,000 shares of $8 par common stock issued and outstanding as of January 1, 2015, originally issued for $14 per share. During 2015, Scurry Company had the following transactions involving its own stock: - On March 6, acquired 12,000 shares of treasury stock at a cost of $12 per share - On April 18, resold 4,000 shares of treasury stock at $15 per share. - On June 11, resold an additional 2,000 shares of treasury stock at $18 per share If Scurry uses the par value method of accounting for treasury stock, what will be the balance in additional paid in capital from treasury stock as a result of these transactions?

$24,000

On January 1, 2015, Crimson Corp., a closely held corporation, issued 5% bonds with a maturity value of $90,000, together with 1,500 shares of its $3 par value common stock, for a combined cash amount of $121,800. The market value of Crimson's stock is uncertain. If the bonds had been issued separately they would have sold at 102. What amount should Crimson report for additional paid-in capital (or paid-in capital--excess of par) upon issuing the stock?

$25,500

Irkalla Co. has the following liabilities at December 31, 2014: Accounts payable-trade $200,000 Short-term borrowings 100,000 Bank loan, current portion 2,000,000 Other bank loan, matures June 30, 20X5 1,000,000 The bank loan of $2,000,000 requires Irkalla to maintain certain financial ratios but Irkalla has not been able to do so and is in violation of the loan agreement. The creditor has not waived its rights in regard to the loan. What amount should Irkalla report as current liabilities at December 31, 2014?

$3,300,000

The following information pertains to Carson Corp. as of December 31, 20X4: Dividends in arrears on cumulative preferred stock $120,000 20X4 dividends on preferred stock, will be declared in January 20X5 $30,000 20X4 dividends on common stock, will be declared in January 20X5 $20,000 CEO bonus for 20X4, will be paid in February 20X5 $30,000 What amount should Carson report as current liabilities on its balance sheet at December 31, 20X4?

$30,000

Toussaint Company issued 10,000 shares of its common stock in exchange for merchandise that it will resell. The merchandise had originally cost the other party $250,000 and had a fair value of $300,000 on the date of the exchange. The retail value of the inventory is $520,000. Toussaint Company is not publicly traded and cannot precisely determine the fair value of its stock. It has used some industry averages, however, and applied Black-Scholes-Merton and estimates the fair value of its stock to be about $28 per share. At what amount should the inventory be recorded?

$300,000

X Company develops software for sale to other entities. Costs incurred in the current year in relation to its most recent software consist of: - Design of program $60,000 - Initial coding $230,000 - Testing program prior to achieving technological feasibility $35,000 - Additional coding and testing after achieving technological feasibility $50,000 - Cost of producing masters after achieving technological feasibility $310,000 - Production of software to be sold $650,000 - Printing of instructions and support documentation to be included with software $40,000 How will the above costs be accounted for?

$325,000 will be reported as research and development expense.

X Company acquired three machines at the beginning of 20X2, all of which will be used by its engineering department in performing research and development activities. The three machine consist of: - Computer equipment costing $320,000 that will be used for general research and development activities. The computer has a 5-year useful life with no salvage value. - Storage equipment costing $240,000 to contain a highly volatile substance that is being used in a specific research project. The storage equipment has a useful life of 5 years with no salvage value. The research project is expected to require 3 years to complete after which the equipment will have no alternative use to the company. - A machine costing $180,000 that will be used for a specific research project that is expected to require one year. At the end of the year, the equipment, which has a 5-year useful life and no salvage value, will be used in the Company's manufacturing operations. How much will X Company report as research and development expense on its 20X2 income statement?

$340,000

In 20X1, X Company recognized an impairment loss on the trade name for its beverage product, reducing the carrying value from $485,000 to $350,000. At December 31, 20X3, while preparing its financial statements, X Company has determined that the fair value of the trade name has risen and it is now worth $500,000. What amount will be reported for the trade name on X Company's December 31, 20X3 balance sheet?

$350,000

Hebrides Corp. has an employee benefit plan for compensated absences that gives employees 10 paid vacation days and 10 paid sick days. Both vacation and sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick days not taken. Hebrides allows the use of sick days without objective evidence of sickness. At December 31, 2014, Hebrides's unadjusted balance of liability for compensated absences was $10,000. Hebrides estimated that there were 250 vacation days and 100 sick days available at December 31, 2014. Hebrides's employees earn an average of $100 per day but will receive raises such that the average daily pay in 2015 will be $110. In its December 31, 2014, balance sheet, what amount of liability for compensated absences is Hebrides required to report?

$38,500

X Company's engineering department incurred certain costs during 20X3: Design of peripherals equipment, such as molds and dies, involving required new technology $260,000 Development of plan for developing a new manufacturing process computer equipment that will be used for general research and $120,000 Development activities having a useful life of 5 years and no salvage value $210,000 Development of solutions to production problems during the commercial production of one of the company's products $110,000 How much will X Company report as research and development expense on its 20X3 income statement?

$422,000

Very early in 20X3, while developing software for sale to others, after achieving technological feasibility but before the commencement of commercial production, X Company incurred $320,000 to produce product masters and to test the software. X Company estimated that the software will be sold for a total of 10 years. After nearly a full year of selling, X had revenues from software sales of $120,000 in 20X3. Sales in future periods are expected to amount to $680,000. Costs associated with producing and packaging the software approximate 10% of revenues. What portion, if any, of the $320,000 will be recognized in income in 20X3?

$48,000

On June 30, 20X13, Adonis Co. had outstanding 4%, $4,000,000 face value bonds, originally issued at 98, maturing on June 30, 20X18. Interest was payable semiannually every June 30 and December 31. Adonis did not elect the fair value option for reporting its financial liabilities. On June 30, 20X13, after amortization was recorded for the period, the unamortized bond discount and bond issue costs were $40,000 and $30,000 respectively. On that date, Adonis acquired all its outstanding bonds on the open market at 97 and retired them. At June 30, 20X13, what amount should Adonis recognize as gain before income taxes on redemption of bonds?

$50,000

Parrish Company declared a dividend in kind in which it will distribute lots of land held for investment to shareholders. The land has a carrying value of $500,000 and a fair value of $700,000 as of both the date of declaration and the date of distribution. By how much will retained earnings be reduced as a result of the declaration and distribution of the dividend in kind?

$500,000

On May 1 of the current year, Cassandra Corp. issued $600,000 of 4% bonds payable at par with interest payment dates of April 1 and October 1. In its income statement for the current year ended December 31, what amount of accrued bond interest payable should Cassandra report?

$6,000

During 2014, Leucothea Co. became involved in a legal dispute with a supplier. At December 31, 2014, Leucothea's legal advisor believed that an unfavorable outcome was probable. A reasonable estimate of resulting monetary damages is $100,000 but could be as much as $200,000. Leucothea has legal liability insurance coverage that limits their loss to $80,000. After the 2014 financial statements were issued, Leucothea agreed to settle the case for $125,000. What amount of accrued liability should Leucothea have reported in its December 31, 2014 balance sheet?

$80,000

On December 31, 20X2, X Company paid $3,600,000 for 100% of the stock of Y Company when Y's underlying net assets had a fair value of $2,800,000. Almost immediately after the acquisition, X paid $240,000 for an advertising campaign that was designed to maintain goodwill. How much will be reported as goodwill on X Company's December 31, 20X3 balance sheet?

$800,000

Caradonna Company has 100,000 shares of $5 par common stock issued and outstanding as of January 1, 20X5. The shares were originally issued for $22 per share. On February 3, 20X5, Caradonna repurchased 5,000 shares at $19 per share for the purposes of retiring them. On April 10, 20X5, Caradonna repurchased an additional 2,000 shares at $25 per share. No other transactions involving common stock occurred during the year. What will be the balance in additional paid in capital from retired stock as a result of those transactions?

$9,000

On December 29, 20X5, Almond Company granted 100,000 stock options to a group of 100 employees, enabling each employee to buy 1,000 shares for $20 per share. On the grant date, the shares had a market value of $16 per share and the options had a market value of $3.00 per option. The options vest over a 3-year period and become exercisable on January 1, 20X9. Almond Company expects that, based on historical turnover, they will lose approximately 3 of the employees receiving the options per year during the vesting period. Compensation expense will be recognized uniformly over the vesting period. How much compensation expense will Almond Company recognize in 20X6?

$91,000

Zeta, Ltd., a company that prepares its financial statements in accordance with IFRS, has the following pending items at December 31, 2014. - The company is the defendant in a product liability lawsuit as a result of injuries incurred by purchasers of its products. Legal counsel has indicated that an unfavorable verdict in the amount of $650,000 is probable. - The company is involved in another lawsuit and their legal counsel believes it is reasonably possible that the lawsuit will result in a loss of $175,000. - The entity sells a product that is subject to a warranty. The estimated warranty liability is $150,000. In its financial statements for the period ended December 31, 2014, how much will be reported either on the balance sheet or in the footnotes for contingencies and how much for provisions?

A contingency of $175,000 will be disclosed and provisions of $800,000 will be accrued as liabilities.

Under the revaluation model allowed under IFRS for the accounting for identifiable intangible assets:

Assets are periodically revalued and adjusted to their fair values and are amortized in between revaluation dates.

On December 29, 20X5, Kolek Company granted 100,000 stock options to a group of 100 employees, enabling each employee to buy 1,000 shares for $20 per share. On the grant date, the shares had a market value of $16 per share and the options had a market value of $3.00 per option. The options vest over a 3-year period and become exercisable on January 1, 20X9. Kolek Company expects that, based on historical turnover, they will lose approximately 3 of the employees receiving the options per year during the vesting period. Compensation expense will be recognized uniformly over the vesting period. Assuming all 100,000 options are exercised, what will be the net increase or decrease in stockholders' equity as a result of the granting and exercising of the options?

An increase of $2,000,000

Endymion Co. is preparing the electronic spreadsheet below, to amortize the discount on its 10-year, 4%, $500,000 bonds payable. Bonds were issued on December 31 to yield 6%. Interest is paid annually. Endymion uses the effective interest method to amortize bond discounts. Which formula should Endymion use in cell G2 to calculate the bonds' carrying amount at the end of Year 1?

B2+F2

Management can estimate the amount of loss that will occur if the company does not prevail in a currently contested lawsuit. If losing the suit is reasonably possible, which of the following describes how the entity may report the loss contingency in the financial statements?

BS: Not accrued Notes: Disclosed

IFRS allows an entity to recognize an intangible asset if it is an identifiable intangible that lacks physical substance. In order to be considered identifiable:

Be either separable and arise from contractual or legal rights.

Canterbury Co. issues a discounted, non-interest-bearing note in exchange for borrowed funds. Choose whether the cash received will be higher or lower than the face value of the note, and whether the effective annual interest rate will be higher or lower than the discount rate:

Cash v FV: Lower Effect. v Discount: Higher

When debt is issued at a premium, interest expense over the term of debt equals the cash interest paid?

Minus premium

Maholm Company declared a cash dividend payable to common stockholders of record as of December 24, 20X2. The dividend was declared on December 10, 20X2 and will be paid on January 7, 20X3. On what date or dates will stockholders' equity decrease as a result of the dividend?

December 10, 20X2 only

Landry Co. purchased $15,000 in inventory on April 1 under terms of 1/10, net 30. Landry missed the prompt payment deadline and still holds all the inventory. Under the gross method and the net method, at what amount is the inventory carried on Landry's balance sheet?

Gross: $15,000 Net: $14,850

Under U.S. GAAP, which of the following would be included in accumulated other comprehensive income as a component of stockholders' equity on the balance sheet? Assume no fair value election for reporting investments. I. Unrealized fair value gains or losses on held-to-maturity investments II. Foreign currency translation adjustments III. Certain gains and losses on derivative financial instruments designated as fair value hedges.

II only

Identify the correct statement(s) regarding stock warrants: I. Additional paid-in capital is credited when a company issues warrants to existing shareholders to purchase unissued stock at a given exercise price. II. A company's net income decreases upon the exercise of stock warrants issued to shareholders. III. The expiration of stock warrants has no effect on the overall equity account balance.

III only

nterSlice Co.'s payroll for the month ended March 31, 20X4, is summarized as follows: Total wages $12,000 Federal income tax withheld 1,440 All wages paid were subject to FICA. FICA tax rates were 7% each for employee and employer. In InterSlice's jurisdiction, employers must also pay unemployment taxes under FUTA at a 2% rate. InterSlice remits taxes on the 15th of the following month. As a result of March 20X4 wages, what amounts should InterSlice record in its journal entry for March payroll tax expense and March withholdings due to IRS?

Payroll: $1,080 Withholdings: $2,280

Templeton Company declared a $250,000 cash dividend payable to common stockholders when its retained earnings had a balance of $175,000. How will the dividend be accounted for?

Retained earnings is reduced to zero and the remaining $75,000 reduces the balance in additional paid in capital.

FlanCrest Enterprises, Inc. has $800,000 of notes payable due June 15, 20X6. FlanCrest signed an agreement on December 1, 20X5, to borrow up to $800,000 to refinance the notes payable on a long-term basis with no payments due until 20X7. The financing agreement stipulated that borrowings may not exceed 80% of the value of the collateral FlanCrest was providing. At the date of issuance of the December 31, 20X5 financial statements, the value of the collateral was $950,000 and is not expected to fall below this amount during 20X6. In FlanCrest's December 31, 20X5 balance sheet, the obligation for these notes payable should be classified as

Short: $40,000 Long: $760,000

Acheron Co.'s December 31, 20X13 balance sheet contained the following items in the long-term liabilities section: Unsecured 5.375% registered bonds ($25,000 maturing annually beginning in 20X17) $550,000 6.5% convertible bonds, callable beginning in 20X20, due 20X33 $225,000 Secured 4.875% guaranty security bonds, due 20X33 $500,000 5.0% commodity backed bonds ($50,000 maturing annually beginning in 20X18) $150,000 What are the total amounts of term bonds and debenture bonds?

Term: $725,000 Debenture: $775,000