ACC 242 multiple choice

B

*41. An executive pays no taxes at time of exercise in a(an) a. stock appreciation rights plan. b. incentive stock option plan. c. nonqualified stock option plan. d. Taxes would be paid in all of these.

Trading securities are generally held for less than: 6 months. 3 weeks. 12 months. 3 months

3 months

Sheridan Company had 594000 shares of common stock outstanding on January 1, issued 898000 shares on July 1, and had income applicable to common stock of $2930000 for the year ending December 31, 2018. Earnings per share of common stock for 2018 would be (rounded to the nearest penny)

$2930000/ 594000 + (898000 × 6/12 )= = $2.81.

When $5,000,000 in convertible bonds are issued at par with $800,000 in value of the equity option embedded in the bond, the IFRS journal entry will include a debit of

$800,000 to Bonds Payable and a credit to Paid-in Capital — Convertible Bonds

Wildhorse Company owns 21000 of the 50000 outstanding shares of Taylor, Inc. common stock. During 2021, Taylor earns $1140000 and pays cash dividends of $915000.If the beginning balance in the investment account was $720000, the balance at December 31, 2021 should be $1198800. $814500. $945000. $720000.

$814500 Solution: $720000 + [($1140000 - $915000) × (21000 ÷ 50000)] = $814500.

d. $19,663,522

A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2013. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,144. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2015? a. $19,670,232 b. $19,940,624 c. $19,633,832 d. $19,663,522

c. $1,568,498

A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,144. Using effective-interest amortization, how much interest expense will be recognized in 2014? a. $780,000 b. $1,560,000 c. $1,568,498 d. $1,568,332

Accounting for income taxes can result in the reporting of deferred taxes as any of the following except:

A contra-asset account.

The rate of interest actually earned by bondholders is called the nominal rate. effective rate. coupon rate. stated rate.

B

The first step in the process for revenue recognition is to

B - Identify the contract with customers.

During 2018, Gordon Company issued at 104 five hundred, $1,000 bonds due in ten years. One detachable stock warrant entitling the holder to purchase 15 shares of Gordon's common stock was attached to each bond. At the date of issuance, the market value of the bonds, without the stock warrants, was quoted at 96. The market value of each detachable warrant was quoted at $40. What amount, if any, of the proceeds from the issuance should be accounted for as part of Gordon's stockholders' equity? a. $0 b. $20,000 c. $20,800 d. $19,760

C

Kern Company purchased bonds with a face amount of $400,000 between interest payment dates. Kern purchased the bonds at 102, paid brokerage costs of $6,000, and paid accrued interest for three months of $10,000. The amount to record as the cost of this long-term investment in bonds is a. $424,000. b. $414,000. c. $408,000. d. $400,000.

B. 414,000 ($400,000 × 1.02) + $6,000 = $414,000.

63. All of the following are requirements for disclosures related to financial instruments except a. disclosing the fair value and related carrying value of the instruments. b. distinguishing between financial instruments held or issued for purposes other than trading. c. combining or netting the fair value of separate financial instruments. d. displaying as a separate classification of other comprehensive income the net gain/loss on derivative instruments designated in cash flow hedges.

C

Cash dividends are paid on the basis of the number of shares outstanding less the number of treasury shares. authorized. outstanding. issued.

C

Accounting for income taxes can result in the reporting of deferred taxes as any of the following except a. a current or long-term asset. b. a current or long-term liability. c. a contra-asset account. d. All of these are acceptable methods of reporting deferred taxes.

C

Bramble Corp. had 1,000,000 shares of common stock issued and outstanding at December 31, 2017. On July 1, 2018 an additional 1,000,000 shares were issued for cash. Bramble also had stock options outstanding at the beginning and end of 2018 which allow the holders to purchase 298000 shares of common stock at $21 per share. The average market price of Bramble's common stock was $28 during 2018. The number of shares to be used in computing diluted earnings per share for 2018 is: 1574500 2074500 2254500 1754500

A

Coronado Industries had 596000 shares of common stock outstanding on January 1, issued 907000 shares on July 1, and had income applicable to common stock of $2938000 for the year ending December 31, 2018. Earnings per share of common stock for 2018 would be (rounded to the nearest penny) $2.80. $3.25. $4.93. $2.31.

A

Which dividends do not reduce stockholders' equity? Cash dividends Liquidating dividends Stock dividends Property dividends

C

Consideration paid or payable to customers

C - reduces the consideration received and the revenue to be recognized.

An example of a permanent difference is a. proceeds from life insurance on officers. b. interest expense on money borrowed to invest in municipal bonds. c. insurance expense for a life insurance policy on officers. d. all of these.

D

Deferred tax amounts that are related to specific assets or liabilities should be classified as current or noncurrent based on a. their expected reversal dates. b. their debit or credit balance. c. the length of time the deferred tax amounts will generate future tax deferral benefits. d. the classification of the related asset or liability.

D

Major reasons for disclosure of deferred income tax information is (are) a. better assessment of quality of earnings. b. better predictions of future cash flows. c. that it may be helpful in setting government policy. d. all of these.

D

The face value of bonds is also called each of the following except par value. principal. maturity value. stated value.

D

Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to the stated (nominal) rate of interest multiplied by the face value of the bonds. the stated rate multiplied by the beginning-of-period carrying amount of the bonds. the market rate of interest multiplied by the face value of the bonds. the market rate multiplied by the beginning-of-period carrying amount of the bonds.

D

Waterway Industries had 802000 shares of common stock outstanding on January 1, issued 126000 shares on May 1, purchased 60000 shares of treasury stock on September 1, and issued 51000 shares on November 1. The weighted average shares outstanding for the year is 894500. 914500. 854500. 874500.

D

The carrying amount of this investment in Rich's December 31, 2018 balance sheet should be a. $1,000,000. b. $1,045,000. c. $1,120,000. d. $1,150,000.

b. $1,045,000.

Richman Company purchased $900,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $937,422 at an effective interest rate of 7%. Using the effective interest method, Richman Company decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $3,186 and $3,294, respectively. At December 31, 2014, the fair value of the Carlin, Inc. bonds was $954,000. What should Richman Company report as other comprehensive income and as a separate component of stockholders' equity? A. $0 B. $6,480 C. $16,578 D. $23,058

D. $23,058

On January 3, 2014, Moss Company acquires $300,000 of Adam Company's 10-year, 10% bonds at a price of $319,254 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Company uses the effective-interest method, what is the amount of interest revenue that would be recognized in 2015 related to these bonds? A. $30,000 B. $31,925 C. $28,734 D. $28,619

D. $28,619

Recognizing revenue from a contract with a customer A. occurs even when a contract is still pending. B. occurs when the customer receives the rights to receive consideration. C. occurs even if the contract is still wholly unperformed. D. cannot occur until a contract exists.

D. cannot occur until a contract exists.

101. During 2018, Oldham Corporation, which uses the allowance method of accounting for doubtful accounts, recorded a provision for bad debt expense of $45,000 and in addition it wrote off, as uncollectible, accounts receivable of $10,000. As a result of these transactions, net cash flows from operating activities would be calculated (indirect method) by adjusting net income with a a. $45,000 increase. b. $10,000 increase. c. $35,000 increase. d. $35,000 decrease.

a. $45,000.

An essential element of a lease is that the

a. lessor conveys less than his or her total interest in the property.

Income tax expense is computed as income tax payable: a. plus or minus the change in deferred income taxes. b. less a decrease in a deferred tax asset. c. plus or minus the change in provision for income taxes. d. less an increase in a deferred tax liability.

a. plus or minus the change in deferred income taxes.

Income tax expense is based on: a. pretax income. b. taxable income. c. operating income. d. income from continuing operations.

a. pretax income.

Convertible bonds a) have priority over other indebtedness b) are usually secured by a first or second mortgage c) may be exchanged for equity securities d) pay interest only in the event earnings are sufficient to cover the interest

c) may be exchanged for equity securities

69. On December 31, 2018, Grantham, Inc. appropriately changed its inventory valuation method to FIFO cost from weighted-average cost for financial statement and income tax purposes. The change will result in a $3,500,000 increase in the beginning inventory at January 1, 2018. Assume a 30% income tax rate. The cumulative effect of this accounting change on beginning retained earnings is a. $0. b. $1,050,000. c. $2,450,000. d. $3,000,000.

c. $2,450,000. $3,500,000 × (1 - .3) = $2,450,000.

27. A company changes from percentage-of-completion to completed-contract method, which is used for tax purposes. The entry to record this change should include a a. debit to Construction in Process. b. debit to Loss on Long-term Contracts in the amount of the difference on prior years, net of tax. c. debit to Retained Earnings in the amount of the difference on prior years, net of tax. d. credit to Deferred Tax Liability.

c. debit to Retained Earnings in the amount of the difference on prior years, net of tax.

Minimum lease payments may include: I. a penalty for failure to renew. II. executory costs. III a bargain purchase option. IV. a guaranteed residual value.

d. I, III, and IV.

104. Zook Incorporated, had net income for 2018 of $5,400,000. Additional information is as follows: Amortization of patents $ 45,000 Depreciation on plant assets 1,650,000 Long-term debt: Bond premium amortization 65,000 Interest paid 900,000 Provision for doubtful accounts: Current receivables 80,000 Long-term nontrade receivables 30,000 What should be the net cash provided by operating activities in the statement of cash flows for the year ended December 31, 2018, based solely on the above information? a. $7,220,000. b. $7,270,000. c. $7,140,000. d. $7,240,000.

c. $7,140,000. $5,400,000 + $45,000 + $1,650,000 - $65,000 + $80,000 + $30,000 = $7,140,000.

When a company sells property and then leases it back, any gain on the sale should usually be

d. deferred and recognized as income over the term of the lease.

A deferred tax liability represents the a. decrease in taxes saved in future years as a result of deductible temporary differences. b. decrease in taxes payable in future years as a result of taxable temporary differences. c. increase in taxes saved in future years as a result of deductible temporary differences. d. increase in taxes payable in future years as a result of taxable temporary differences.

d. increase in taxes payable in future years as a result of taxable temporary differences.

Treasury shares are shares a. held as an investment by the treasurer of the corporation. b. held as an investment of the corporation. c. issued and outstanding. d. issued but not outstanding.

d. issued but not outstanding.

Treasury shares are shares: held as an investment of the corporation. issued but not outstanding. issued and outstanding. held as an investment by the treasurer of the corporation.

issued but not outstanding.

The right-of-use asset is increased by - lease incentives received. - lease incentives received. - lease prepayments made by the lessee and initial direct costs incurred by the lessee. - initial direct costs incurred by the lessee only.

lease prepayments made by the lessee and initial direct costs incurred by the lessee.

Unrealized gains and losses on held-to-maturity securities are: reported on the balance sheet. not reported because these securities are reported at their amortized cost. None of these answer choices are correct. reported on the income statement.

not reported because these securities are reported at their amortized cost.

Stock Issuance

occurs when a corporation distributes its shares to existing or new stockholders, usually in exchange for cash

For stock appreciation rights, the measurement date for computing compensation is the date

of exercise.

If preferred stock is noncumulative, and dividends have not been declared in the past two years but are declared in the current year, preferred stockholders' dividends should include

only the current year's dividend

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

outstanding

"Gains" on sales of treasury stock (using the cost method) should be credited to capital stock. paid-in capital from treasury stock. retained earnings. other income.

paid-in capital from treasury stock.

Treasury Stock

previously outstanding stock, reacquired after having been issued and fully paid

(16) A company estimates the fair value of SARs, using an option-pricing model, for

share-based liability awards

An executive pays no taxes at the time of exercise in a(an)

share-based liability awards

Antidilutive securities

should be ignored in all earnings per share calculations.

Assume there are two dilutive convertible securities. The one that should be used first to recalculate earnings per share is the security with the

smaller earnings per share adjustment

All dividends, except for _______________________, reduce the total stockholders equity in the corporation

stock dividends

If a company offers additional considerations to convertible bondholders in order to encourage conversion, it is called a(an):

sweetener

Income tax payable is based (computed) on: income for book purposes. taxable income. income before taxes. pretax financial income.

taxable income.

Book Value Per Share

the amount each share would receive if the company were liquidating on the basis of amounts reported on the balance sheet

A company can accomplish off-balance sheet financing using all of the following except > operating leases > nonconsolidated subsidiaries > zero-interest bearing notes > special purpose entities

zero-interest bearing notes

Which of the following best describes the accounting for assurance-type warranty costs? Expensed when incurred. Expensed based on estimate in year of sale. Expensed when warranty claims are certain. Expensed when paid.

B

Treasury Stock

A corporation's own stock that it has reacquired

Revenue for sales-based royalty payments should be recognized

A- when the amount of sales can be determined.

Remington Construction Company uses the percentage-of-completion method. During 2014, the company entered into a fixed-price contract to construct a building for Sherman Company for $24,000,000. The following details pertain to the contract: At December 31, 2014 At December 31, 2015 Percentage of completion 25% 60% Estimated total cost of contract $18,000,000 $20,000,000 Gross profit recognized to date 1,500,000 2,400,000 The amount of construction costs incurred during 2015 was

B - $7,500,000.

When there is a significant increase in the estimated total contract costs but the increase does not eliminate all profit on the contract, which of the following is correct?

B - Under the percentage-of-completion method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.

Transaction price for multiple performance obligations should be allocated

B - based on what the company could sell the goods for on a standalone basis.

Vernon Corporation offered detachable 5-year warrants to buy one share of common stock (par value $5) at $20 (at a time when the stock was selling for $32). The price paid for 800, $1,000 bonds with the warrants attached was $820,000. The market price of the Vernon bonds without the warrants was $720,000, and the market price of the warrants without the bonds was $80,000. What amount should be allocated to the warrants? a. $80,000 b. $82,000 c. $96,000 d. $100,000

B

A temporary difference arises when a revenue item is reported for tax purposes in a period a. After it is reported in financial income: Yes Before it is reported in financial income: Yes b. After it is reported in financial income: Yes Before it is reported in financial income: No c. After it is reported in financial income: No Before it is reported in financial income: Yes d. After it is reported in financial income: No Before it is reported in financial income: No

A

Bond interest paid is equal to the face amount of the bonds multiplied by the stated interest rate. carrying value of the bonds multiplied by the stated interest rate. face amount of the bonds multiplied by the effective-interest rate. carrying value of the bonds multiplied by the effective-interest rate.

A

Recognizing a valuation allowance for a deferred tax asset requires that a company:

Consider all positive and negative information in determining the need for a valuation allowance.

47. If the parent company owns 90% of the subsidiary company's outstanding common stock, the company should generally account for the income of the subsidiary under the a. cost method. b. fair value method. c. divesture method. d. equity method.

D

When the cash proceeds from a bond issued with detachable stock warrants exceed the sum of the par value of the bonds and the fair value of the warrants, the excess should be credited to a. additional paid-in capital from stock warrants. b. retained earnings. c. a liability account. d. premium on bonds payable.

D

The second step in the process for revenue recognition is to

D - identify the separate performance obligations in the contract.

Tracy Company owns 4,000 of the 10,000 outstanding shares of Penn Corporation common stock. During 2015, Penn earns $300,000 and pays cash dividends of $100,000. Tracy should report investment revenue for 2015 of A. $40,000. B. $80,000. C. $100,000. D. $120,000.

D. $120,000.

Brown Corporation earns $480,000 and pays cash dividends of $160,000 during 2014. Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown. How much investment income should Dexter report in 2014? A. $160,000. B. $144,000. C. $96,000. D. $480,000.

B. $144,000.

On its December 31, 2014 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Fair Value Adjustment (available-for-sale) account. There was no change during 2015 in the composition of Calhoun's portfolio of equity investments held as available-for-sale securities. The following information pertains to that portfolio: Security/CosT/Fair value at 12/31/15 X= $125,000/$160,000 Y= 100,000/90,000 Z= 175,000/125,000 Total= $400,000$375,000 What amount of unrealized loss on these securities should be included in Calhoun's stockholders' equity section of the balance sheet at December 31, 2015? A. $35,000. B. $25,000. C. $15,000. D. $0.

B. $25,000.

Tracy Company owns 4,000 of the 10,000 outstanding shares of Penn Corporation common stock. During 2015, Penn earns $300,000 and pays cash dividends of $100,000. If the beginning balance in the investment account was $600,000, the balance at December 31, 2015 should be A. $600,000. B. $680,000. C. $720,000. D. $800,000.

B. $680,000.

32. Solo Co. purchased $300,000 of bonds for $315,000. If Solo intends to hold the securities to maturity, the entry to record the investment includes a. a debit to Held-to-Maturity Securities at $300,000. b. a credit to Premium on Investments of $15,000. c. a debit to Held-to-Maturity Securities at $315,000. d. none of these.

C

41. When investments in debt securities are purchased between interest payment dates, preferably the a. securities account should include accrued interest. b. accrued interest is debited to Interest Expense. c. accrued interest is debited to Interest Revenue. d. accrued interest is debited to Interest Receivable.

C

58. All of the following statements regarding accounting for derivatives are correct except that a. they should be recognized in the financial statements as assets and liabilities. b. they should be reported at fair value. c. gains and losses resulting from speculation should be deferred. d. gains and losses resulting from hedge transactions are reported in different ways, depending upon the type of hedge.

C

On December 31, 2018, Patel transferred its investment in security C from trading to available-for-sale because Patel intends to retain security C as a long-term investment. What total amount of gain or loss on its securities should be included in Patel's income statement for the year ended December 31, 2018? a. $1,000 gain. b. $24,000 loss. c. $25,000 loss. d. $38,000 loss.

b. $24,000 loss.

82. Fleming Company has the following cumulative taxable temporary differences: 12/31/18 12/31/17 $1,600,000 $2,250,000 The tax rate enacted for 2018 is 40%, while the tax rate enacted for future years is 30%. Taxable income for 2018 is $4,000,000 and there are no permanent differences. Fleming's pretax financial income for 2018 is: a. $2,400,000 b. $3,350,000 c. $4,325,000 d. $5,600,000

b. $3,350,000 $4,000,000 - ($2,250,000 - $1,600,000) = $3,350,000.

Crane, Inc. uses the accrual method of accounting for financial reporting purposes and appropriately uses the installment method of accounting for income tax purposes. Installment income of $3550000 will be collected in the following years when the enacted tax rates are: Collection of Income Enacted Tax Rates 2020: $410000; 25% 2021: 710000; 20% 2022: 999000; 20% 2023: 1431000; 15% The installment income is Crane's only temporary difference. What amount should be included in the deferred income tax liability in Crane's December 31, 2020 balance sheet? a. $677950 b. $556450 c. $887500 d. $785000

b. $556450

42. On January 1, 2016, Knapp Corporation acquired machinery at a cost of $1,250,000. Knapp adopted the double-declining balance method of depreciation for this machinery and had been recording depreciation over an estimated useful life of ten years, with no residual value. At the beginning of 2019, a decision was made to change to the straight-line method of depreciation for the machinery. The depreciation expense for 2019 would be a. $64,000. b. $91,429. c. $125,000. d. $178,570.

b. $91,429. {$1,250,000 - [($1,250,000 × .2) + ($1,000,000 × .2) + ($800,000 × .2)]} ÷ 7 = $91,429.

Rowen, Inc. had pre-tax accounting income of $2,700,000 and a tax rate of 40% in 2018, its first year of operations. During 2018 the company had the following transactions: Received rent from Jane, Co. for 2019 $ 96,000 Municipal bond income $120,000 Depreciation for tax purposes in excess of book depreciation $60,000 Installment sales profit to be taxed in 2019 $162,000 79. For 2018, what is the amount of income taxes payable for Rowen, Inc? a. $904,800 b. $981,600 c. $1,029,600 d. $1,159,200

b. $981,600 $2,700,000 + $96,000 - $120,000 - $60,000 - $162,000 = $2,454,000 $2,454,000 x .40 = $981,600.

When multiple performance obligations exist in a contract, they should be accounted for as a single performance obligations when

Each service is interdependent and interrelated

D

For stock appreciation rights, the measurement date for computing compensation is the date a. the rights mature. b. the stock's price reaches a predetermined amount. c. of grant. d. of exercise.

With regard to contracts that can be settled in either cash or shares

IFRS requires that share settlement must be used

Stock warrants outstanding should be classified as

None of these answers are correct: *reductions of capital contributed in excess of par value *assets. *liabilities.

48. An entry is not made on the a. date of declaration. b. date of record. c. date of payment. d. date or payment and date of declaration

b. date of record.

(17) When a company has acquired a "passive interest" in another corporation, the acquiring company should account for the investment

by using the fair value method

The deferred tax expense is the a. increase in balance of deferred tax liability from the beginning to the end of the accounting period. b. decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability. c. increase in balance of deferred tax asset minus the increase in balance of deferred tax liability. d. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.

a. increase in balance of deferred tax liability from the beginning to the end of the accounting period

The interest rate written in the terms of the bond indenture is known as the: a. nominal rate b. stated rate c. coupon rate d. coupon rate, nominal rate, or stated rate

d

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

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

Participating Preferred Stock

share ratably with the common stockholders in any profit distributions beyond the prescribed rate

Stock Dividend

the issuance by a corporation of its own stock to its stockholders on a pro rata basis, without receiving any consideration

Outstanding Stock

the number of shares of issued stock that stockholders own

56. From the lessee's viewpoint, what type of lease exists in this case?

c. Capital lease

30. Which type of accounting change should always be accounted for in current and future periods? a. Change in accounting principle b. Change in reporting entity c. Change in accounting estimate d. Correction of an error

c. Change in accounting estimate

32. In a statement of cash flows, the cash flows from investing activities section should report a. the issuance of common stock in exchange for a factory building. b. stock dividends received. c. a major repair to machinery charged to accumulated depreciation. d. the assignment of accounts receivable.

c. a major repair to machinery charged to accumulated depreciation.

36. Presenting consolidated financial statements this year when statements of individual companies were presented last year is a. a correction of an error. b. an accounting change that should be reported prospectively. c. an accounting change that should be reported by restating the financial statements of all prior periods presented. d. not an accounting change.

c. an accounting change that should be reported by restating the financial statements of all prior periods presented.

The initial direct costs of leasing

c. are expensed in the period of the sale under a sales-type lease.

Payout Ratio

the ratio of cash dividends to net income

A deferred tax liability is the deferred tax consequence attributable to taxable temporary differences. True False

true

Companies should consider both positive and negative evidence to determine whether it needs to record a valuation allowance to reduce a deferred tax asset. True False

true

Proceeds from life insurance carried by the company on key officers or employees is an example of a permanent difference. True False

true

The valuation allowance account should be evaluated at the end of each accounting period. True False

true

Under GAAP, companies using the asset-liability method should classify all deferred taxes as non-current. True False

true

Deferred gross profit on installment sales is generally treated as a(n)

unearned revenue and classified as a current liability.

Revenue for ongoing sales-based royalty payments should be recognized

when the amount of sales can be determined

joint issuance

when the common stock is issued jointly with another security, the one price must be allocated across the two securities using either the: Proportional or Incremental Method

Cullumber Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Cullumber. The six-year lease requires payment of $182000 at the beginning of each year, including $26200 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 9%; the lessor's implicit rate is 7% and is known by the lessee. The present value of an annuity due of 1 for six years at 9% is 4.88965. The present value of an annuity due of 1 for six years at 7% is 5.10020. Cullumber should record the leased asset at $889916. $928236. $794611. $761807.

$928236. Solution: $182000 × 5.10020 = $928236.

Bramble Corp. has outstanding 599000 shares of $2 par common stock and 129000 shares of no-par 6% preferred stock with a stated value of $5. The preferred stock is cumulative and nonparticipating. Dividends have been paid in every year except the past two years and the current year.Assuming that $96000 will be distributed as a dividend in the current year, how much will the preferred stockholders receive? $34700. $96000. $77400. $38700.

$96000.

Gomez, Inc. began work in 2018 on contract #3814, which provided for a contract price of $19,200,000. Other details below: 2018 and 2019: Costs incurred during the year: $3,200,000 and $9,800,000 Estimated costs to complete, as of Dec 31: $9,600,000 and $0 Billings during the year: $3,600,000 and $14,400,000 Collections during the year: $2,400,000 and $15,600,000 Assume that Gomez uses the percentage-of-completion method of account. The portion of the total gross profit to be recognized as income in 2018 is:

$1,600,000

On January 2, 2021, Swifty Corporation issued at par $304000 of 7% convertible bonds. Each $1,000 bond is convertible into 60 shares. No bonds were converted during 2021. Swifty had 105000 shares of common stock outstanding during 2021. Swifty's 2021 net income was $154000 and the income tax rate was 30%. Swifty's diluted earnings per share for 2021 would be (rounded to the nearest penny) $1.37. $1.47. $1.26. $1.42.

$1.37 Solution: $154000 + ($304000 × 0.07 × 0.70)/ 105000 + [($304000 ÷ $1000) × 60)] = $1.37

Bramble Corp. declared a $229000 cash dividend. It currently has 12600 shares of 5%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Bramble distribute to the common stockholders? None. $166000. $103000. $126000.

$103000.

At December 31, 2018, Sheridan Company had 493000 shares of common stock issued and outstanding, 393000 of which had been issued and outstanding throughout the year and 100000 of which were issued on October 1, 2018. Net income for the year ended December 31, 2018, was $1706000. What should be Sheridan's 2018 earnings per common share, rounded to the nearest penny?

$1706000/ 393000 + (100000 × 3/12 )= $4.08.

On December 31, 2021, Blossom Corporation leased a ship from Fort Company for an eight-year period expiring December 30, 2029. Equal annual payments of $420000 are due on December 31 of each year, beginning with December 31, 2021. The lease is properly classified as a finance lease on Blossom's books. The present value at December 31, 2021 of the eight lease payments over the lease term discounted at 9% is $2533839. Assuming all payments are made on time, the amount that should be reported by Blossom Corporation as the total liability for finance leases on its December 31, 2022 balance sheet is $2533839. $2113839. $1884085. $2520000.

$1884085. Solution: $2533839 - $420000 = $2113839 × 0.09 = $190246 $2113839 - ($420000 - $190246) = $1884085.

Two methods of allocating proceeds:

1. proportional method 2. incremental method

Wildhorse Company's current income taxes payable related to its taxable income for 2020 is $378,000. In addition, Wildhorse's deferred tax asset decreased $17,000 during 2020. What is Wildhorse's income tax expense for 2020?

395000

Which of the following temporary differences results in a deferred tax asset in the year the temporary difference originates? I. Accrual for product warranty liability. II. Subscriptions received in advance. III. Prepaid insurance expense. a. I and II only. b. II only. c. III only. d. I and III only.

A

If a contract involves a significant financing component,

A - the time value of money is used to determine the fair value of the transaction.

The last step in the process for revenue recognition is to

A - the time value of money is used to determine the fair value of the transaction.

B

A company estimates the fair value of SARs, using an option-pricing model, for a. share-based equity awards. b. share-based liability awards. c. both equity awards and liability awards. d. neither equity awards or liability awards.

d. $789,896

A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. What is interest expense for 2015, using straight-line amortization? a. $1,026,805 b. $780,000 c. $784,596 d. $789,896

45 According to the FASB, redeemable preferred stock should be a. included with common stock. b. included as a liability. c. excluded from the stockholders' equity heading. d. included as a contra item in stockholders' equity.

B

Crane Company had 190000 shares of common stock, 19000 shares of convertible preferred stock, and $1400000 of 4% convertible bonds outstanding during 2018. The preferred stock is convertible into 39000 shares of common stock. During 2015, Crane paid dividends of $0.80 per share on the common stock and $2 per share on the preferred stock. Each $1,000 bond is convertible into 30 shares of common stock. The net income for 2018 was $590000 and the income tax rate was 35%.Diluted earnings per share for 2018 is (rounded to the nearest penny) $2.19. $2.15. $2.31. $2.58.

C

If a company has acquired a 20% to 50% interest in another corporation, this generally results in: A. an insignificant level of influence. B. a passive level of influence. C. a significant level of influence. D. a controlling level of influence.

C

The fourth step in the process for revenue recognition is to

C - allocate transaction price to the separate performance obligations.

The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2014 are as follows: Goebel Company Balance Sheet December 31, 2014 Assets= $1,200,000 LiabilitieS= $150,000 Capital stock= $600,000 Retained earningS= $450,000 Total equities= $1,200,000 Dobbs Company Balance Sheet December 31, 2014 Assets= $900,000 Liabilities= $205,000 Capital stock= $575,000 Retained earnings= $120,000 Total equities= $900,000 If Goebel Company acquired a 20% interest in Dobbs Company on December 31, 2014 for $175,000 and the fair value method of accounting for the investment were used, the amount of the debit to Equity Investments (Dobbs) would have been A. $139,000. B. $115,000. C. $175,000. D. $180,000.

C. $175,000

Myers Company acquired a 60% interest in Gannon Corporation on December 31, 2014 for $1,575,000. During 2015, Gannon had net income of $1,000,000 and paid cash dividends of $250,000. At December 31, 2015, the balance in the investment account should be A. $1,575,000. B. $2,175,000. C. $2,025,000. D. $2,325,000.

C. $2,025,000.

Instrument Corp. has the following investments which were held throughout 2010-2011: Market Value Cost 12/31/10 12/31/11 Trading $300,000 $400,000 $380,000 Available-for-sale 300,000 320,000 360,000 What amount would be reported as accumulated other comprehensive income related to investments in Instrument Corp.'s balance sheet at December 31, 2010? a. $40,000 gain. b. $60,000 gain. c. $20,000 gain. d. $120,000 gain.

C. $20,000 gain $320,000 - $300,000 = $20,000 gain

Harrison Company owns 20,000 of the 50,000 outstanding shares of Taylor, Inc. common stock. During 2015, Taylor earns $1,000,000 and pays cash dividends of $800,000. If the beginning balance in the investment account was $625,000, the balance at December 31, 2015 should be A. $1,025,000. B. $825,000. C. $705,000. D. $625,000.

C. $705,000.

Kiner, Inc. began work in 2014 on a contract for $16,800,000. Other data are as follows: 2014 2015 Costs incurred to date $7,200,000 $11,200,000 Estimated costs to complete 4,800,000 — Billings to date 5,600,000 16,800,000 Collections to date 4,000,000 14,400,000 If Kiner uses the completed-contract method, the gross profit to be recognized in 2015 is

B - $5,600,000.

Bonds for which the owners' names are not registered with the issuing corporation are called:

Bearer bonds

Which of the following is an inaccurate representation regarding revenue recognition? A. revenue from permitting others to use enterprise assets is recognized as time passes or as the assets are used. B. revenue from selling products is recognized at the date of sale, usually interpreted to mean the date of delivery to customers. C. revenue from services rendered is recognized when cash is received or when services have been performed. D. revenue from disposing of assets other than products is recognized at the date of sale.

C. revenue from services rendered is recognized when cash is received or when services have been performed.

Under which of the following conditions can companies use the expected value to estimate variable consideration? A. when the contract has only two possible outcomes B. when a company can use the most likely amount in a range of possible outcomes C. when a company has a large number of contracts with similar characteristics D. when a company has a small number of contracts with similar characteristics

C. when a company has a large number of contracts with similar characteristics

Franchise fees should be recognized

D - when performance obligations are satisfied.

company uses the percentage-of-completion method to account for a 4-year construction contract. Which of the following should be used in the calculation of the gross profit recognized in the first year?

For long-term construction contracts, these criteria are met in accordance with either the percentage-of-completion or the completed-contract method. Neither the issuance of a progress billing (debit accounts receivable, credit progress billings) nor the collection of cash (debit cash, credit accounts receivable) results in recognition of gross profit.

Lease payments include: I. fixed payments. II. variable payments based on an index. III a bargain purchase option. IV. a guaranteed residual value.

I, II, III, and IV.

The distribution of stock rights to existing common stockholders will increase paid-in capital at the

Issue Date Exercise Date -No -Yes

Which of the following is an advantage of a restricted-stock plan?

It creates new job opportunities in a company

A distribution of cash from the corporation to its owners that reduces retained earnings and contributed capital.

Liquidating Dividend

Which of the following best describes a possible result of treasury stock transactions by a corporation? May increase but not decrease retained earnings. May decrease but not increase net income. May increase net income if the cost method is used. May decrease but not increase retained earnings.

May decrease but not increase retained earnings.

How should the balances of progress billings and construction in process be shown at reporting dates prior to the completion of a long-term contract?

Net balance as a current asset if debit balance, and current liability if credit balance

(17) Investments in Equity Securities

No significant influence (20% or less) - fair value method Significant influence (20% - 50%) - use equity method Control imfluence (50% or more) - use equity method

Bonds that pay no interest unless the issuing company is profitable are called: a. income bonds b. collateral trust bonds c. debenture bonds d. revenue bonds

a

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

a bill-and-hold arrangement

Secret Reserves

a corporation undervalues the recorded assets as a result of the issuance of stock for property or services

Equipment that cost $875,000 and had a book value of $390,000 was sold for $450,000. Data from the comparative balance sheets are: 12/31/18 Equipment $5,400,000 12/31/17 Equipment $4,875,000 12/31/18 Accumulated Depreciation 1,650,000 12/31/17 Accumulated Depreciation 1,425,000 62. Equipment purchased during 2018 was a. $1,400,000. b. $825,000. c. $525,000. d. $915,000.

a. $1,400,000. $5,400,000 - $4,875,000 + $875,000 = $1,400,000.

The fourth step in the process for revenue recognition is to a) recognize revenue when each performance obligation is satisfied. b) allocate transaction price to the separate performance obligations. c) determine the transaction price. d) identify the separate performance obligations in the contract.

b) allocate transaction price to the separate performance obligations.

Vested benefits a) usually require a certain minimum number of years of service. b) are defined by all of these answers. c) are those that the employee is entitled to receive even if fired. d) are not contingent upon additional service under the plan.

b) are defined by all of these answers.

In determining the transaction price, the company must consider: a) non-cash consideration, but not the time value of money. b) variable consideration, non-cash consideration, time value of money, and consideration payable. c) variable consideration, but not non-cash consideration. d) the time value of money, but not consideration payable

b) variable consideration, non-cash consideration, time value of money, and consideration payable.

60. The balance in Common Stock Dividend Distributable should be reported as a(n) a. deduction from common stock issued. b. addition to capital stock. c. current liability. d. contra current asset.

b. addition to capital stock.

35. In determining net cash flow from operating activities, a decrease in accounts payable during a period a. means that income on an accrual basis is less than income on a cash basis. b. requires an addition adjustment to net income under the indirect method. c. requires an increase adjustment to cost of goods sold under the direct method. d. requires a decrease adjustment to cost of goods sold under the direct method.

c. requires an increase adjustment to cost of goods sold under the direct method.

All of the following are examples of temporary differences that result in taxable amounts in future years except: a. investments accounted for under the equity method. b. installment sales. c. subscriptions received in advance. d. long-term construction contracts (percentage-of-completion).

c. subscriptions received in advance.

No-Treble Corporation has issued 417,700 shares of $8 par value common stock and has 317,700 shares outstanding. The corporation declares a 115% stock dividend when the fair value of the stock is $66 per share. The stock dividend declaration results in what amount being entered to paid-in capital in excess of par-common stock?

$0. Only sMAll stock dividends are at MArket price, which results in a credit to paid-in capital in excess of par-common stock.

The best measure of the fair value of a performance obligation is a) residual value. b) adjusted market assessment. c) expected cost plus a margin. d) standalone selling price.

d) standalone selling price.

47. Dolan Company reports its income from investments under the equity method and recognized income of $25,000 from its investment in Moss Co. during the current year, even though no dividends were declared or paid by Moss during the year. On Dolan's statement of cash flows (indirect method), the $25,000 should a. not be shown. b. be shown as cash inflow from investing activities. c. be shown as cash outflow from financing activities. d. be shown as a deduction from net income in the cash flows from operating activities section.

d. be shown as a deduction from net income in the cash flows from operating activities section.

A primary source of stockholders equity is a. income retained by the corporation b. appropriated retained earnings c. contributions by stockholders d. both income retained by the corporation and contributions by stockholders

d. both income retained by the corporation and contributions by stockholders

26. A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows (indirect method), this event would be reflected as a(n) a. addition adjustment to net income in the cash flows from operating activities section. b. cash outflow from investing activities. c. cash inflow from investing activities. d. cash inflow from financing activities.

d. cash inflow from financing activities.

If the residual value of a leased asset is guaranteed by a third party

d. it is treated by the lessee as an additional payment and by the lessor as realized at the end of the lease term.

A major distinction between temporary and permanent differences is a. permanent differences are not representative of acceptable accounting practice. b. temporary differences occur frequently, whereas permanent differences occur only once. c. once an item is determined to be a temporary difference, it maintains that status; however, a permanent difference can change in status with the passage of time. d. temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse.

d. temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse.

Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire contract. In this case, the entire expected loss should be

recognized in the current period, regardless of whether the percentage-of-completion or completed contract method is employed.

Accumulated Other Comprehensive Income

reflects the aggregate amount of the other comprehensive income items

Unrealized gains and losses on available-for-sale securities are: not reported because these securities are reported at their amortized cost. None of these answer choices are correct. reported on the balance sheet. reported on the income statement.

reported on the balance sheet.

The principal advantage of the completed contract method is that

reported revenue is based on final results rather than estimates of unperformed work

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

The amount by which a stock dividend changes total stockholders' equity.

zero

On December 31, 2020, Coronado Industries granted some of its executives options to purchase 174000 shares of the company's $10 par common stock at an option price of $50 per share. The Black-Scholes option pricing model determines total compensation expense to be $1352100. The options become exercisable on January 1, 2021, and represent compensation for executives' services over a three-year period beginning January 1, 2021. At December 31, 2021 none of the executives had exercised their options. What is the impact on Coronado's net income for the year ended December 31, 2021 as a result of this transaction under the fair value method? $1352100 decrease. $ 450700 increase. $ 450700 decrease. $0.

$ 450700 decrease. Solution: $1352100 ÷ 3 = $450700 decrease.

On January 1, 2019, Crane Company granted Sam Wine, an employee, an option to buy 1,000 shares of Crane Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $5880. Wine exercised his option on October 1, 2021 and sold his 1,000 shares on December 1, 2021. Quoted market prices of Crane Co. stock in 2021 were: July 1. $30 per share October 1. $36 per share December 1. $40 per share The service period is for three years beginning January 1, 2021. As a result of the option granted to Wine, using the fair value method, Crane should recognize compensation expense for 2019 on its books in the amount of $0. $5880. $1470. $1960.

$1960. Solution: $5880 ÷ 3 = $1960.

Waterway Industries has outstanding 87000 shares of 5% preferred stock with a $10 par value and 151100 shares of $3 par value common stock. Dividends have been paid every year except last year and the current year. If the preferred stock is cumulative and nonparticipating and $251900 is distributed, the common stockholders will receive $251900. $0. $164900. $208400.

$164900.

Sheridan Corporation purchased 30000 shares of common stock of the Sherman Corporation for $45 per share on January 2, 2020. Sherman Corporation had 100000 shares of common stock outstanding during 2021, paid cash dividends of $155000 during 2021, and reported net income of $550000 for 2021. Sheridan Corporation should report revenue from investment for 2021 in the amount of $181500. $118500. $165000. $46500.

$165000 Solution: $550000 × (30000 ÷ 100000) = $165000.

Concord Corporation issued 9700 shares of its $10 par value common stock having a fair value of $25 per share and 15500 shares of its $10 par value preferred stock having a fair value of $25 per share for a lump sum of $514000. How much of the proceeds would be allocated to the common stock? $242500 $316151 $197849 $268750

$197849

28. Use of the effective-interest method in amortizing bond premiums and discounts results in a. a greater amount of interest income over the life of the bond issue than would result from use of the straight-line method. b. a varying amount being recorded as interest income from period to period. c. a variable rate of return on the book value of the investment. d. a smaller amount of interest income over the life of the bond issue than would result from use of the straight-line method.

B

31. Held-to-maturity securities are reported at a. acquisition cost. b. acquisition cost plus amortization of a discount. c. acquisition cost plus amortization of a premium. d. fair value.

B

43. When a company has acquired a "passive interest" in another corporation, the acquiring company should account for the investment a. by using the equity method. b. by using the fair value method. c. by using the effective interest method. d. by consolidation.

B

If a company uses the cost recovery method of revenue recognition because the collection of the sales price is not assured, they should only recognize profit when A. the entire sales price is collected. B. cash payments by the buyer exceed the seller's cost of the merchandise sold. C. the buyer formally accepts delivery of the merchandise involved in the sale. D. the seller is convinced that collection is assured beyond a reasonable doubt.

B. cash payments by the buyer exceed the seller's cost of the merchandise sold.

44 The cumulative feature of preferred stock a. limits the amount of cumulative dividends to the par value of the preferred stock. b. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders. c. means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock. d. enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends.

B

Cougar Capital Corp declares a property dividend on June 1, 2009 to common share owners of record on June 30, 2009. Cougar Capital will distribute bonds with a carrying value of $580,000 and a fair value of $480,000. By what amount is the Retained Earnings debited on the declaration date?

480,000 (FV) debit to the account. Note that the asset's mark-to-market results in a $100,000 loss, which will be closed to Retained Earnings. So, the net impact on total stockholder's equity is a $580,000 reduction.

86. Palmer Co. had a deferred tax liability balance due to a temporary difference at the beginning of 2014 related to $900,000 of excess depreciation. In December of 2014, a new income tax act is signed into law that lowers the corporate rate from 40% to 35%, effective January 1, 2016. If taxable amounts related to the temporary difference are scheduled to be reversed by $450,000 for both 2015 and 2016, Palmer should increase or decrease deferred tax liability by what amount? a. Decrease by $45,000 b. Decrease by $22,500 c. Increase by $22,500 d. Increase by $45,000

86. b $450,000 × (.35 - .40) = $22,500 decrease

Sheffield Corp. had 801000 shares of common stock outstanding on January 1, issued 123000 shares on May 1, purchased 60000 shares of treasury stock on September 1, and issued 60000 shares on November 1. The weighted average shares outstanding for the year is 873000. 893000. 913000. 853000.

873000. Solution: 801000 + (123000 × 8/12) - (60000 × 4/12) + (60000 × 2/12) = 873000.

88. Khan, Inc. reports a taxable and financial loss of $1,950,000 for 2015. Its pretax financial income for the last two years was as follows: 2013 $900,000 2014 1,200,000 The amount that Khan, Inc. reports as a net loss for financial reporting purposes in 2015, assuming that it uses the carryback provisions, and that the tax rate is 30% for all periods affected, is a. $1,950,000 loss. b. $ -0-. c. $585,000 loss. d. $1,365,000 loss.

88. d $1,950,000 - (30% × $1,950,000) = $1,365,000

48. Byner Corporation accounts for its investment in the common stock of Yount Company under the equity method. Byner Corporation should ordinarily record a cash dividend received from Yount as a. a reduction of the carrying value of the investment. b. additional paid-in capital. c. an addition to the carrying value of the investment. d. dividend income.

A

57. Companies that attempt to exploit inefficiencies in various derivative markets by attempting to lock in profits by simultaneously entering into transactions in two or more markets are called a. arbitrageurs. b. gamblers. c. hedgers. d. speculators.

A

62. An option to convert a convertible bond into shares of common stock is a(n) a. embedded derivative. b. host security. c. hybrid security. d. fair value hedge.

A

A company issues $16300000, 5.8%, 20-year bonds to yield 6% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $15923229. Using effective-interest amortization, how much interest expense will be recognized in 2017? $955543 $955419 $945400 $472700

A

A company issues $25700000, 5.8%, 20-year bonds to yield 6% on January 1, 2016. Interest is paid on June 30 and December 31. The proceeds from the bonds are $25105950. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2018? $25195058 $25541435 $25203445 $25160945

A

At December 31, 2017 the following balances existed on the books of Marigold Corp.: Bonds Payable$5920000Discount on Bonds Payable843000Interest Payable155000 If the bonds are retired on January 1, 2018, at 101, what will Marigold report as a loss on redemption? $902200 $592000 $1057200 $747200

A

Debt securities from which there is no recognized unrealized holding gains or losses in net income nor included as other comprehensive income are: A. held-to-maturity debt securities. B. trading debt securities. C. available-for-sale debt securities. D. never-sell debt securities.

A

Debt securities that are accounted for at amortized cost, not fair value are: A. held-to-maturity debt securities. B. trading debt securities. C. available-for-sale debt securities. D. never-sell debt securities.

A

During 2016, Concord Corporation introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 4% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: (assume the accrual method) SalesActual Warranty Expenditures2016$1608000$41000201725000006500020182103000133000$6211000$239000What amount should Concord report as a liability at December 31, 2018? $319990 $84120 $0 $68680

A

Equity securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses as other comprehensive income and as a separate component of stockholders' equity are: A. available-for-sale securities wher e a company has holdings of less than 20%. B. trading securities where a company has holdings of less than 20%. C. securities where a company has holdings of between 20% and 50%. D. securities where a company has holdings of more than 50%

A

Marigold manufactures high-end whole home electronic systems. The company provides a one-year warranty for all products sold. The company estimates that the warranty cost is $270per unit sold and reported a liability for estimated warranty costs $10.6 million at the beginning of this year. If during the current year, the company sold 60900 units for a total of $323million and paid warranty claims of $12060000 on current and prior year sales, what amount of liability would the company report on its balance sheet at the end of the current year? $14983000. $16443000. $2316333. $4383000.

A

On May 1, 2018, Oriole Company issued $3400000 of 7% bonds at 103, which are due on April 30, 2028. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Oriole's common stock, $15 par value, were attached to each $1000 bond. The bonds without the warrants would sell at 96. On May 1, 2018, the fair value of Oriole's common stock was $36 per share and of the warrants was $2.On May 1, 2018, Oriole should record the bonds with a discount of $38080. premium of $102000. discount of $136000. discount of $34000.

A

Oriole Company was organized on January 1, 2018, with an authorization of 1230000 shares of common stock with a par value of $5 per share. During 2018, the corporation had the following capital transactions: January 5issued 615000 shares @ $11 per shareJuly 28purchased 83000 shares @ $9 per shareDecember 31sold the 83000 shares held in treasury @ $17 per share Oriole used the cost method to record the purchase and reissuance of the treasury shares. What is the total amount of additional paid-in capital as of December 31, 2018? $4354000. $-0-. $3690000. $2710000.

A

Recognizing a valuation allowance for a deferred tax asset requires that a company a. consider all positive and negative information in determining the need for a valuation allowance. b. consider only the positive information in determining the need for a valuation allowance. c. take an aggressive approach in its tax planning. d. pass a recognition threshold, after assuming that it will be audited by taxing authorities.

A

Swifty Corporation had two issues of securities outstanding: common stock and an 7% convertible bond issue in the face amount of $15700000. Interest payment dates of the bond issue are June 30th and December 31st. The conversion clause in the bond indenture entitles the bondholders to receive forty shares of $20 par value common stock in exchange for each $1000 bond. On June 30, 2018, the holders of $2355000 face value bonds exercised the conversion privilege. The market price of the bonds on that date was $1300 per bond and the market price of the common stock was $34. The total unamortized bond discount at the date of conversion was $1070000. In applying the book value method, what amount should Swifty credit to the account "paid-in capital in excess of par," as a result of this conversion? $ 310500. $ 706500. $ 157000. $1413000.

A

46. When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies? a. The investor should always use the equity method to account for its investment. b. The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee. c. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee. d. The investor should always use the fair value method to account for its investment.

B

54. When an investment in a held-to-maturity security is transferred to an available-for-sale security, the carrying value assigned to the available-for-sale security should be a. its original cost. b. its fair value at the date of the transfer. c. the lower of its original cost or its fair value at the date of the transfer. d. the higher of its original cost or its fair value at the date of the transfer.

B

55. When an investment in an available-for-sale security is transferred to trading because the company anticipates selling the stock in the near future, the carrying value assigned to the investment upon entering it in the trading portfolio should be a. its original cost. b. its fair value at the date of the transfer. c. the higher of its original cost or its fair value at the date of the transfer. d. the lower of its original cost or its fair value at the date of the transfer.

B

59. All of the following are characteristics of a derivative financial instrument except the instrument a. has one or more underlyings and an identified payment provision. b. requires a large investment at the inception of the contract. c. requires or permits net settlement. d. All of these are characteristics.

B

61. Gains or losses on cash flow hedges are a. ignored completely. b. recorded in equity, as part of other comprehensive income. c. reported directly in net income. d. reported directly in retained earnings.

B

A company issues $15700000, 9.8%, 20-year bonds to yield 10% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $15430602. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2017 balance sheet? $15444536 $15435174 $15432832 $15700000

B

A company issues $24950000, 9.8%, 20-year bonds to yield 10% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24521880. What is interest expense for 2018, using straight-line amortization? $2417025 $2466506 $2453255 $2445100

B

A company records an unrealized loss on short-term securities. This would result in what type of difference and in what type of deferred income tax? a. Type of Difference: Temporary Deferred Tax: Liability b. Type of Difference: Temporary Deferred Tax: Asset c. Type of Difference: Permanent Deferred Tax: Liability d. Type of Difference: Permanent Deferred Tax: Asset

B

At the December 31, 2012 balance sheet date, Unruh Corporation reports an accrued receivable for financial reporting purposes but not for tax purposes. When this asset is recovered in 2013, a future taxable amount will occur and a. pretax financial income will exceed taxable income in 2013. b. Unruh will record a decrease in a deferred tax liability in 2013. c. total income tax expense for 2011 will exceed current tax expense for 2013. d. Unruh will record an increase in a deferred tax asset in 2013.

B

In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are weighted by the number of days outstanding. considered outstanding at the beginning of the earliest year reported. weighted by the number of months outstanding. considered outstanding at the beginning of the year.

B

Sheffield Corp. declared a $231000 cash dividend. It currently has 11200 shares of 4%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Sheffield distribute to the common stockholders? None. $141400. $89600. $186200

B

Taxable income of a corporation a. differs from accounting income due to differences in intraperiod allocation between the two methods of income determination. b. differs from accounting income due to differences in interperiod allocation and permanent differences between the two methods of income determination. c. is based on generally accepted accounting principles. d. is reported on the corporation's income statement.

B

The balance in Common Stock Dividend Distributable should be reported as a(n) deduction from common stock issued. addition to capital stock. current liability. contra current asset.

B

The conversion of preferred stock is recorded by the incremental method. book value method. market value method. par value method.

B

The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding increases common stock outstanding and increases total stockholders' equity. decreases retained earnings but does not change total stockholders' equity. may increase or decrease paid-in capital in excess of par but does not change total stockholders' equity. increases retained earnings and increases total stockholders' equity.

B

The deferred tax expense is the a. increase in balance of deferred tax asset minus the increase in balance of deferred tax liability. b. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset. c. increase in balance of deferred tax asset plus the increase in balance of deferred tax liability. d. decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability.

B

The major difference between convertible debt and stock warrants is that upon exercise of the warrants no paid-in capital in excess of par can be a part of the transaction. the holder has to pay a certain amount of cash to obtain the shares. the stock is held by the company for a defined period of time before they are issued to the warrant holder. the stock involved is restricted and can only be sold by the recipient after a set period of time.

B

The major difference between convertible debt and stock warrants is that upon exercise of the warrants a. the stock is held by the company for a defined period of time before they are issued to the warrant holder. b. the holder has to pay a certain amount of cash to obtain the shares. c. the stock involved is restricted and can only be sold by the recipient after a set period of time. d. no paid-in capital in excess of par can be a part of the transaction.

B

Vaughn Manufacturing acquired 22400 shares of its own common stock at $20 per share on February 5, 2017, and sold 11200 of these shares at $27 per share on August 9, 2018. The fair value of Vaughn's common stock was $24 per share at December 31, 2017, and $25 per share at December 31, 2018. The cost method is used to record treasury stock transactions. What account(s) should Vaughn credit in 2018 to record the sale of 11200 shares? Treasury Stock for $224000 and Paid-in Capital from Treasury Stock for $78400. Treasury Stock for $268800 and Retained Earnings for $33600. Treasury Stock for $302400. Treasury Stock for $224000 and Retained Earnings for $78400.

A

Waterway Industries, is a retail store operating in a state with a 5% retail sales tax. The state law provides that the retail sales tax collected during the month must be remitted to the state during the following month. If the amount collected is remitted to the state on or before the twentieth of the following month, the retailer may keep 3% of the sales tax collected. On April 10, 2017 Waterway remitted $218250 tax to the state tax division for March 2017 retail sales. What was Waterway's March 2017 retail sales subject to sales tax? $4500000. $4275000. $4412500. $4365000.

A

On its December 31, 2014, balance sheet, Trump Company reported its investment in available-for-sale securities, which had cost $600,000, at fair value of $550,000. At December 31, 2015, the fair value of the securities was $585,000. What should Trump report on its 2015 income statement as a result of the increase in fair value of the investments in 2015? A. $0. B. Unrealized loss of $15,000. C. Realized gain of $35,000. D. Unrealized gain of $35,000.

A. $0.

On January 3, 2014, Moss Company acquires $300,000 of Adam Company's 10-year, 10% bonds at a price of $319,254 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Company uses the straight-line method, what is the amount of premium amortization that would be recognized in 2016 related to these bonds? A. $1,925 B. $1,266 C. $1,380 D. $1,506

A. $1,925

On November 1, 2014, Horton Company purchased Lopez, Inc., 10-year, 9%, bonds with a face value of $600,000, for $540,000. An additional $15,000 was paid for the accrued interest. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2021. Horton uses the straight-line method of amortization. Ignoring income taxes, the amount reported in Horton's 2014 income statement as a result of Horton's available-for-sale investment in Lopez was A. $10,500. B. $10,000. C. $9,000. D. $8,000.

A. $10,500.

During 2014, Woods Company purchased 60,000 shares of Holmes Corporation common stock for $945,000 as an available-for-sale investment. The fair value of these shares was $900,000 at December 31, 2014. Woods sold all of the Holmes stock for $17 per share on December 3, 2015, incurring $42,000 in brokerage commissions. Woods Company should report a realized gain on the sale of stock in 2015 of A. $33,000. B. $75,000. C. $78,000. D. $120,000.

A. $33,000.

The total payroll of Sheffield Company for the month of October, 2017 was $1160000, of which $170000 represented amounts paid in excess of $118500 to certain employees. $603000represented amounts paid to employees in excess of the $6900 maximum subject to unemployment taxes. $170000 of federal income taxes and $18400 of union dues were withheld. The state unemployment tax is 1%, the federal unemployment tax is .8%, and the current F.I.C.A. tax is 7.65% on an employee's wages to $118500 and 1.45% in excess of $118500. What amount should Sheffield record as payroll tax expense? $105560. $88226. $88740. $95120.

B

Waterway Industries purchased Carla Vista Co. and agreed to give stockholders of Carla Vista Co. 49900 additional shares in 2020 if Carla Vista Co.'s net income in 2019 is $608000 or more; in 2018 Carla Vista Co.'s net income is $613000. Waterway has net income for 2018 of $1505000 and has an average number of common shares outstanding for 2018 of 496000 shares. What should Waterway report as earnings per share for 2018? (rounded to the nearest penny) Basic EarningsPer Share Diluted EarningsPer Share $2.76 $3.03 $3.03 $2.76 $2.76 $2.76 $3.03 $3.03

B

On October 1, 2014, Menke Company purchased to hold to maturity, 400, $1,000, 9% bonds for $416,000. An additional $12,000 was paid for accrued interest. Interest is paid semiannually on December 1 and June 1 and the bonds mature on December 1, 2018. Menke uses straight-line amortization. Ignoring income taxes, the amount reported in Menke's 2014 income statement from this investment should be A. $9,000. B. $8,040. C. $9,960. D. $10,920.

B. $8,040

Kern Company purchased bonds with a face amount of $800,000 between interest payment dates. Kern purchased the bonds at 102, paid brokerage costs of $12,000, and paid accrued interest for three months of $20,000. The amount to record as the cost of this long-term investment in bonds is A. $848,000. B. $828,000. C. $816,000. D. $800,000.

B. $828,000.

During 2012, Hauke Company purchased 4,000, $1,000, 9% bonds. The carrying value of the bonds at December 31, 2014 was $3,920,000. The bonds mature on March 1, 2019, and pay interest on March 1 and September 1. Hauke sells 2,000 bonds on September 1, 2015, for $1,976,000, after the interest has been received. Hauke uses straight-line amortization. The gain on the sale is A. $0. B. $9,600. C. $16,000. D. $22,400.

B. $9,600.

Patton Company purchased $900,000 of 10% bonds of Scott Company on January 1, 2015, paying $846,225. The bonds mature January 1, 2025; interest is payable each July 1 and January 1. The discount of $53,775 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. For the year ended December 31, 2015, Patton Company should report interest revenue from the Scott Company bonds of: A. $95,382. B. $93,169. C. $93,078. D. $90,000.

B. $93,169.

Palmer Music manufactures and sells MP3 players and sound systems that include an 180-day warranty on product defects. The company also sells 2-year extended warranties. On May 10, Palmer sold a sound system for $3,850 and an extended warranty for another $1,200. Which journal entry should be used to record this transaction? A. a credit to Service Revenue of $5,050 B. a credit to Unearned Service Revenue of $1,200 C. a credit to Service Revenue of $1,200 D. a credit to Sales of $3,850 and a credit to Service Revenue of $1,200

B. a credit to Unearned Service Revenue of $1,200

On its December 31, 2014 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Fair Value Adjustment (available-for-sale) account. There was no change during 2015 in the composition of Calhoun's portfolio of equity investments held as available-for-sale securities. The following information pertains to that portfolio: Security/CosT/Fair value at 12/31/15 X= $125,000/$160,000 Y= 100,000/90,000 Z= 175,000/125,000 Total= $400,000$375,000 The amount of unrealized loss to appear as a component of comprehensive income for the year ending December 31, 2015 is A. $35,000. B. $25,000. C. $15,000. D. $0.

A. $35,000.

Harrison Company owns 20,000 of the 50,000 outstanding shares of Taylor, Inc. common stock. During 2015, Taylor earns $1,000,000 and pays cash dividends of $800,000. Harrison should report investment revenue for 2015 of A. $400,000. B. $320,000. C. $80,000. D. $0.

A. $400,000.

Which of the following indicates a company has satisfied its performance obligation? A. company has transferred physical possession of the asset. B. company has received payment for goods or services. C. company has significant risks and rewards of ownership. D. company has legal title to the asset.

A. company has transferred physical possession of the asset.

Under what circumstances must a company account for a contract modification as a new contract? A. if goods or services are distinct and the company has the right to receive the standalone price B. if the company has the right to receive consideration equal to the standalone price C. if the promised goods or services are distinct D. if the goods or services are interdependent on each other

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

b. $640,000

At December 31, 2014 the following balances existed on the books of Foxworth Corporation: Bonds Payable $4,000,000 Discount on Bonds Payable 320,000 Interest Payable 100,000 Unamortized Bond Issue Costs 240,000 If the bonds are retired on January 1, 2015, at 102, what will Foxworth report as a loss on redemption? a. $740,000 b. $640,000 c. $540,000 d. $400,000

c. $560,000

At December 31, 2014 the following balances existed on the books of Rentro Corporation: Bonds Payable $3,500,000 Discount on Bonds Payable 280,000 Interest Payable 84,000 Unamortized Bond Issue Costs 210,000 If the bonds are retired on January 1, 2015, at 102, what will Rentro report as a loss on redemption? a. $350,000 b. $472,500 c. $560,000 d. $644,000

Vaughn Manufacturing had 197000 shares of common stock, 20900 shares of convertible preferred stock, and $1490000 of 4% convertible bonds outstanding during 2021. The preferred stock is convertible into 39800 shares of common stock. During 2021, Vaughn paid dividends of $0.90 per share on the common stock and $2 per share on the preferred stock. Each $1,000 bond is convertible into 30 shares of common stock. The net income for 2021 was $597000 and the income tax rate was 40%.Diluted earnings per share for 2021 is (rounded to the nearest penny) $2.13. $2.52. $2.25. $2.09.

$2.25. Solution: [$597000 + ($1490000 × 0.04 × 0.60)] ÷ [197000 + 39800 + (1490 × 30)] = $2.25.

b. $334,510

At the beginning of 2014, Wallace Corporation issued 10% bonds with a face value of $3,000,000. These bonds mature in the five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $2,779,200 to yield 12%. Wallace uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2014? (Round your answer to the nearest dollar.) a. $344,160 b. $334,510 c. $333,500 d. $332,500

c. $223,006

At the beginning of 2014, Winston Corporation issued 10% bonds with a face value of $2,000,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $1,852,800 to yield 12%. Winston uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2014? (Round your answer to the nearest dollar.) a. $221,667 b. $222,333 c. $223,006 d. $229,440

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

Authorized shares

22. A correct valuation is a. available-for-sale at amortized cost. b. held-to-maturity at amortized cost. c. held-to-maturity at fair value. d. none of these.

B

30. A requirement for a security to be classified as held-to-maturity is a. ability to hold the security to maturity. b. positive intent. c. the security must be a debt security. d. All of these are required.

D

33. Which of the following is not correct in regard to trading securities? a. They are held with the intention of selling them in a short period of time. b. Unrealized holding gains and losses are reported as part of net income. c. Any discount or premium is not amortized. d. All of these are correct.

D

36. Pippen Co. purchased 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 principal by the table value for a. 10 periods and 10% from the present value of 1 table. b. 10 periods and 8% from the present value of 1 table. c. 20 periods and 5% from the present value of 1 table. d. 20 periods and 4% from the present value of 1 table.

D

40. Which of the following is correct about the effective-interest method of amortization? a. The effective interest method applied to investments in debt securities is different from that applied to bonds payable. b. Amortization of a discount decreases from period to period. c. Amortization of a premium decreases from period to period. d. The effective-interest method produces a constant rate of return on the book value of the investment from period to period.

D

49. Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the a. investor sells the investment. b. investee declares a dividend. c. investee pays a dividend. d. earnings are reported by the investee in its financial statements.

D

50. Dane, Inc., owns 35% of Marin Corporation. During the calendar year 2007, Marin had net earnings of $300,000 and paid dividends of $30,000. Dane mistakenly recorded these transactions using the fair value method rather than the equity method of accounting. What effect would this have on the investment account, net income, and retained earnings, respectively? a. Understate, overstate, overstate b. Overstate, understate, understate c. Overstate, overstate, overstate d. Understate, understate, understate

D

51. An unrealized holding loss on a company's available-for-sale securities should be reflected in the current financial statements as a. an extraordinary item shown as a direct reduction from retained earnings. b. a current loss resulting from holding securities. c. a note or parenthetical disclosure only. d. other comprehensive income and deducted in the equity section of the balance sheet.

D

52. An unrealized holding gain on a company's available-for-sale securities should be reflected in the current financial statements as a. an extraordinary item shown as a direct increase to retained earnings. b. a current gain resulting from holding securities. c. a note or parenthetical disclosure only. d. other comprehensive income and included in the equity section of the balance sheet.

D

56. A debt security is transferred from one category to another. Generally acceptable accounting principles require that for this particular reclassification (1) the security be transferred at fair value at the date of transfer, and (2) the unrealized gain or loss at the date of transfer currently carried as a separate component of stockholders' equity be amortized over the remaining life of the security. What type of transfer is being described? a. Transfer from trading to available-for-sale b. Transfer from available-for-sale to trading c. Transfer from held-to-maturity to available-for-sale d. Transfer from available-for-sale to held-to-maturity

D

A company uses the equity method to account for an investment. This would result in what type of difference and in what type of deferred income tax? a. Type of Difference: Permanent Deferred Tax: Asset b. Type of Difference: Permanent Deferred Tax: Liability c. Type of Difference: Temporary Deferred Tax: Asset d. Type of Difference: Temporary Deferred Tax: Liability

D

A corporation issues bonds with detachable warrants. The amount to be recorded as paid-in capital is preferably a. zero. b. calculated by the excess of the proceeds over the face amount of the bonds. c. equal to the market value of the warrants. d. based on the relative market values of the two securities involved.

D

A major distinction between temporary and permanent differences is a. permanent differences are not representative of acceptable accounting practice. b. temporary differences occur frequently, whereas permanent differences occur only once. c. once an item is determined to be a temporary difference, it maintains that status; however, a permanent difference can change in status with the passage of time. d. temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse.

D

Sheffield Corp. started business in 2012 by issuing 190000 shares of $19 par common stock for $26 each. In 2017, 24200 of these shares were purchased for $38 per share by Sheffield Corp. and held as treasury stock. On June 15, 2018, these 24200 shares were exchanged for a piece of property that had an assessed value of $755000. Sheffield's stock is actively traded and had a market price of $44 on June 15, 2018. The cost method is used to account for treasury stock. The amount of paid-in capital from treasury stock transactions resulting from the above events would be $210200. $745000. $445200. $145200

D

Stock warrants outstanding should be classified as a. liabilities. b. reductions of capital contributed in excess of par value. c. assets. d. Paid-in capital-stock warrants

D

Swifty Corporation had 194000 shares of common stock, 19900 shares of convertible preferred stock, and $1500000 of 4% convertible bonds outstanding during 2018. The preferred stock is convertible into 40500 shares of common stock. During 2015, Swifty paid dividends of $1 per share on the common stock and $2 per share on the preferred stock. Each $1,000 bond is convertible into 30 shares of common stock. The net income for 2018 was $590000 and the income tax rate was 30%.Basic earnings per share for 2018 is (rounded to the nearest penny) $2.22. $2.42. $2.52. $2.84.

D

Tanner, Inc. incurred a financial and taxable loss for 2013. Tanner therefore decided to use the carryback provisions as it had been profitable up to this year. How should the amounts related to the carryback be reported in the 2013 financial statements? a. The reduction of the loss should be reported as a prior period adjustment. b. The refund claimed should be reported as a deferred charge and amortized over five years. c. The refund claimed should be reported as revenue in the current year. d. The refund claimed should be shown as a reduction of the loss in 2013.

D

The cumulative feature of preferred stock means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock. limits the amount of cumulative dividends to the par value of the preferred stock. enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.

D

Transfers of investments between any of the categories should be accounted for at: A. original cost. B. book value. C. equity value. D. fair valu

D

Uncertain tax positions I. Are positions for which the tax authorities may disallow a deduction in whole or in part. II. Include instances in which the tax law is clear and in which the company believes an audit is likely. III. Give rise to tax expense by increasing payables or increasing a deferred tax liability. a. I, II, and III. b. I and III only. c. II only. d. I only.

D

Waterway Industries has 100,000 shares of $10 par common stock authorized. The following transactions took place during 2017, the first year of the corporation's existence:Sold 19600 shares of common stock for $12.50 per share.Issued 20500 shares of common stock in exchange for a patent valued at $307500.At the end of the Waterway's first year, total paid-in capital amounted to $307500. $245000. $127500. $552500

D

What is a contingency? An existing situation where certainty exists as to a gain or loss that will be resolved when one or more future events occur or fail to occur. An existing situation where uncertainty exists as to possible loss that will be resolved when one or more future events occur. An existing situation where uncertainty exists as to possible gain or loss that will not be resolved in the foreseeable future. An existing situation where uncertainty exists as to possible gain or loss that will be resolved when one or more future events occur or fail to occur.

D

Which of the following differences would result in future taxable amounts? a. Expenses or losses that are tax deductible after they are recognized in financial income. b. Revenues or gains that are taxable before they are recognized in financial income. c. Revenues or gains that are recognized in financial income but are never included in taxable income. d. Expenses or losses that are tax deductible before they are recognized in financial income.

D

Which of the following is not considered a permanent difference? a. Interest received on municipal bonds. b. Fines resulting from violating the law. c. Premiums paid for life insurance on a company's CEO when the company is the beneficiary. d. Stock-based compensation expense.

D

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

D

Which of the following will not result in a temporary difference? a. Product warranty liabilities b. Advance rental receipts c. Installment sales d. All of these will result in a temporary difference.

D

Meyer & Smith 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. Container Corporation purchased computer equipment, installation and training for a total cost of $120,000 on March 15, 2014. Estimated standalone fair values of the equipment, installation, and training are $75,000, $50,000, and $25,000 respectively. The transaction price allocated to equipment, installation and training is

D - $60,000, $40,000 and $20,000 respectively.

Patton Company purchased $900,000 of 10% bonds of Scott Company on January 1, 2015, paying $846,225. The bonds mature January 1, 2025; interest is payable each July 1 and January 1. The discount of $53,775 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. On July 1, 2015, Patton Company should increase its Debt Investments account for the Scott Company bonds by A. $5,382. B. $3,084. C. $2,691. D. $1,542.

D. $1,542.

Sandhill Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Sandhill. The six-year lease requires payment of $166000 at the beginning of each year, including $24600 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 9%; the lessor's implicit rate is 7% and is known by the lessee. The present value of an annuity due of 1 for six years at 9% is 4.88965. The present value of an annuity due of 1 for six years at 7% is 5.10020. Sandhill should record the leased asset at A. $721168. B. $811682. C. $691397. D. $846633.

D. $846633. $166000 × 5.10020 = $846633.

During 2010 Logic Company purchased 4,000 shares of Midi, Inc. for $30 per share. The investment was classified as a trading security. During the year Logic Company sold 1,000 shares of Midi, Inc. for $35 per share. At December 31, 2010 the market price of Midi, Inc.'s stock was $28 per share. What is the total amount of gain/(loss) that Logic Company will report in its income statement for the year ended December 31, 2010 related to its investment in Midi, Inc. stock? a. ($8,000) b. $5,000 c. ($3,000) d. ($1,000)

D. ($1,000) [($35 - $30) × 1,000] - [($30 - $28) × 3,000] = ($1,000).

During 2014 Logic Company purchased 8,000 shares of Midi, Inc. for $30 per share. The investment was classified as a trading security. During the year Logic Company sold 2,000 shares of Midi, Inc. for $35 per share. At December 31, 2014 the market price of Midi, Inc.'s stock was $28 per share. What is the total amount of gain/(loss) that Logic Company will report in its income statement for the year ended December 31, 2014 related to its investment in Midi, Inc. stock? A. ($16,000) B. $10,000 C. ($6,000) D. ($2,000)

D. ($2,000)

Patton Company purchased $400,000 of 10% bonds of Scott Co. on January 1, 2011, paying $376,100. The bonds mature January 1, 2021; interest is payable each July 1 and January 1. The discount of $23,900 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. On July 1, 2011, Patton Company should increase its Held-to-Maturity Debt Securities account for the Scott Co. bonds by a. $2,392. b. $1,371. c. $1,196. d. $686.

D. 686 ($376,100 × .055) - ($400,000 × .05) = $686.

A temporary difference arises when a revenue item is reported (in financial income) for tax purposes in a period. (After and/or Before)

BOTH: AFTER - Yes & BEFORE - Yes

Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the machinery could result in: Future Taxable Amounts? Future Deductible Amounts?

BOTH: Future Taxable Amounts - Yes Future Deductible Amounts -Yes

Taxable income of a corporation differs from pretax financial income because of: Permanent / Temporary Differences

BOTH: Permanent Differences - Yes, Temporary Differences - Yes

The representative of the owners of a corporation that hire and fire the CEO, determine dividend payouts, and other activities but do not direct the day-to-day operations of the company

Board of Directors

A deferred tax liability is classified on the balance sheet as either a current or a noncurrent liability. The current amount of a deferred tax liability should generally be a. the net deferred tax consequences of temporary differences that will result in net taxable amounts during the next year. b. totally eliminated from the financial statements if the amount is related to a noncurrent asset. c. based on the classification of the related asset or liability for financial reporting purposes. d. the total of all deferred tax consequences that are not expected to reverse in the operating period or one year, whichever is greater.

C

A loss contingency can be accrued when an asset may have been impaired. it is certain that funds are available to settle the disputed amount. the amount of the loss can be reasonably estimated and it is probable that an asset has been impaired or a liability has been incurred. it is probable that an asset has been impaired or a liability incurred even though the amount of the loss cannot be reasonably estimated.

C

All of the following are procedures for the computation of deferred income taxes except to a. identify the types and amounts of existing temporary differences. b. measure the total deferred tax liability for taxable temporary differences. c. measure the total deferred tax asset for deductible temporary differences and operating loss carrybacks. d. All of these are procedures in computing deferred income taxes.

C

Assuming a 40% statutory tax rate applies to all years involved, which of the following situations will give rise to reporting a deferred tax liability on the balance sheet? I. A revenue is deferred for financial reporting purposes but not for tax purposes. II. A revenue is deferred for tax purposes but not for financial reporting purposes. III. An expense is deferred for financial reporting purposes but not for tax purposes. IV. An expense is deferred for tax purposes but not for financial reporting purposes. a. item II only b. items I and II only c. items II and III only d. items I and IV only

C

Deferred taxes should be presented on the balance sheet a. as one net debit or credit amount. b. in two amounts: one for the net current amount and one for the net noncurrent amount. c. in two amounts: one for the net debit amount and one for the net credit amount. d. as reductions of the related asset or liability accounts.

C

In 2017, Sheffield Corp., issued for $102 per share, 97000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Sheffield's $20 par value common stock at the option of the preferred stockholder. In August 2018, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $25 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? $2619000. $3880000. $4074000. $3084000.

C

Marigold Corp. issued 4200 shares of its $10 par value common stock having a fair value of $30 per share and 6700 shares of its $15 par value preferred stock having a fair value of $30 per share for a lump sum of $254000. The proceeds allocated to the preferred stock is $201000 $202800 $156128 $97872

C

Marigold Corp., has 4200 shares of 5%, $50 par value, cumulative preferred stock and 100000 shares of $1 par value common stock outstanding at December 31, 2018, and December 31, 2017. The board of directors declared and paid an $8400 dividend in 2017. In 2018, $35400 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2018? $29400 $21000 $12600 $10500

C

Landis Company purchased $2,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $2,083,160 at an effective interest rate of 7%. Using the effective-interest method, Landis Company decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $7,080 and $7,320, respectively. At April 1, 2015, Landis Company sold the Ritter bonds for $2,060,000. After accruing for interest, the carrying value of the Ritter bonds on April 1, 2015 was $2,064,960. Assuming Landis Company has a portfolio of Available-for-Sale Debt Securities, what should Landis Company report as a gain or loss on the bonds? A. ($58,740). B. ($43,740). C. ($4,960). D. $ 0.

C. ($4,960).

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if a. it is probable that a future tax rate change will occur. b. it appears likely that a future tax rate will be greater than the current tax rate. c. the future tax rates have been enacted into law. d. it appears likely that a future tax rate will be less than the current tax rate.

C

Taxable income of a corporation differs from pretax financial income because of a. Permanent Differences: No Temporary Differences: No b. Permanent Differences: No Temporary Differences: Yes c. Permanent Differences: Yes Temporary Differences: Yes d. Permanent Differences: Yes Temporary Differences: No

C

The distribution of stock rights to existing common stockholders will increase paid-in capital at the Date of Issuance Date of Exercise of the Rights of the Rights a. Yes Yes b. Yes No c. No Yes d. No No

C

The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as an amount received or paid to obtain a new debt instrument and, as such, should be amortized over the life of the new debt. an adjustment to the cost basis of the asset obtained by the debt issue. a difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption. an amount that should be considered a cash adjustment to the cost of any other debt issued over the remaining life of the old debt instrument.

C

The preemptive right of a common stockholder is the right to receive cash dividends before they are distributed to preferred stockholders. exclude preferred stockholders from voting rights. share proportionately in any new issues of stock of the same class. share proportionately in corporate assets upon liquidation.

C

Treasury shares are shares issued and outstanding. held as an investment by the treasurer of the corporation. issued but not outstanding. held as an investment of the corporation.

C

When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be a. handled retroactively in accordance with the guidance related to changes in accounting principles. b. considered, but it should only be recorded in the accounts if it reduces a deferred tax liability or increases a deferred tax asset. c. reported as an adjustment to tax expense in the period of change. d. applied to all temporary or permanent differences that arise prior to the date of the enactment of the tax rate change, but not subsequent to the date of the change.

C

When is a contingent liability recorded? When the future events will possibly occur and the amount can be reasonably estimated. When the amount can be reasonably estimated. When the future events are probable to occur and the amount can be reasonably estimated. When the future events are probable to occur.

C

Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income? a. Subscriptions received in advance. b. Prepaid royalty received in advance. c. An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes. d. Interest received on a municipal obligation.

C

Which of the following is an example of a contingent liability? Pending court case with a probable favorable outcome. Tax loss carryforwards. Obligations related to product warranties. Possible receipt from a litigation settlement.

C

With regard to uncertain tax positions, the FASB requires that companies recognize a tax benefit when a. it is probable and can be reasonably estimated. b. there is at least a 51% probability that the uncertain tax position will be approved by the taxing authorities. c. it is more likely than not that the tax position will be sustained upon audit. d. Any of the above exist.

C

Eilert Construction Company had a contract starting April 2015, to construct a $21,000,000 building that is expected to be completed in September 2016, at an estimated cost of $19,250,000. At the end of 2015, the costs to date were $8,855,000 and the estimated total costs to complete had not changed. The progress billings during 2015 were $4,200,000 and the cash collected during 2015 was $2,800,000. Eilert uses the percentage-of-completion method. For the year ended December 31, 2015, Eilert would recognize gross profit on the building of

C - $805,000.

Horner Construction Co. uses the percentage-of-completion method. In 2014, Horner began work on a contract for $16,500,000; it was completed in 2015. The following cost data pertain to this contract: Year Ended December 31 2014 2015 Cost incurred during the year $5,850,000 $4,200,000 Estimated costs to complete at the end of year 3,900,000 — If the completed-contract method of accounting was used, the amount of gross profit to be recognized for years 2014 and 2015 would be

C - 2014: $0 / 2015: $6,450,000

Cost estimates at the end of the second year indicate that a loss will result on completion of the entire contract. Which of the following statements is correct?

C - Under the completed-contract method, when the billings exceed the accumulated costs, the amount of the estimated loss is reported as a current liability.

Sources of revenue for franchise companies are

C - sale of initial franchise and continuing fees.

Kramer Company's trading securities portfolio which is appropriately included in current assets is as follows: December 31, 2010 Fair Unrealized Cost Value Gain (Loss) Catlett Corp. $250,000 $200,000 $(50,000) Lyman, Inc. 245,000 265,000 20,000 $495,000 $465,000 $(30,000) Ignoring income taxes, what amount should be reported as a charge against income in Kramer's 2010 income statement if 2010 is Kramer's first year of operation? a. $0. b. $20,000. c. $30,000. d. $50,000.

C. $30,000 $30,000 (unrealized loss).

Kramer Company's trading securities portfolio which is appropriately included in current assets is as follows: December 31, 2014 Cost /FairValue/UnrealizedGain (Loss) Catlett Corp.= $260,000/$205,000/$(55,000) Lyman, Inc.= 245,000/265,000/20,000 Total= $505,000/$470,000/ $(35,000) Ignoring income taxes, what amount should be reported as a charge against income in Kramer's 2014 income statement if 2014 is Kramer's first year of operation? A. $0. B. $20,000 gain. C. $35,000 loss. D. $55,000 loss.

C. $35,000 loss.

Instrument Corporation has the following investments which were held throughout 2014-2015: Fair Value Cost/ 12/31/14|12/31/15 Trading=$600,000/$800,000/$760,000 Available-for-sale=600,000/640,000/720,000 What amount would be reported as accumulated other comprehensive income related to investments in Instrument Corporation's balance sheet at December 31, 2014? A. $80,000 gain. B. $120,000 gain. C. $40,000 gain. D. $240,000 gain.

C. $40,000 gain.

Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $450,000 on January 2, 2015. During 2015, Darby Company declared dividends of $75,000 and reported earnings for the year of $300,000. If Blanco Company used the fair value method of accounting for its investment in Darby Company, its Equity Investment (Darby) account on December 31, 2015 should be A. $435,000. B. $495,000. C. $450,000. D. $510,000.

C. $450,000.

Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $450,000 on January 2, 2015. During 2015, Darby Company declared dividends of $75,000 and reported earnings for the year of $300,000. If Blanco Company uses the equity method of accounting for its investment in Darby Company, its Equity Investment (Darby) account at December 31, 2015 should be A. $435,000. B. $450,000. C. $495,000. D. $510,000.

C. $495,000.

Sage Technology is a full-service technology company that provides equipment, installation services, and training. Products and services can be purchased separately or as a bundled package. Big Container Corporation purchased the bundled package from Sage for $120,000. Estimated standalone fair values are: computer equipment ($75,000), installation ($50,000), and training ($25,000) on March 15, 2017. The transaction price allocated to equipment, installation, and training is A. $75,000, $50,000, $25,000 respectively. B. $120,000 for the entire bundle. C. $60,000, $40,000 and $20,000 respectively. D. $40,000, $40,000, $40,000 respectively.

C. $60,000, $40,000 and $20,000 respectively.

Brown Corporation earns $480,000 and pays cash dividends of $160,000 during 2014. Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown. What amount should Dexter show in the investment account at December 31, 2014 if the beginning of the year balance in the account was $640,000? A. $784,000. B. $640,000. C. $736,000. D. $960,000.

C. $736,000.

Ziegler Corporation purchased 25,000 shares of common stock of the Sherman Corporation for $40 per share on January 2, 2014. Sherman Corporation had 100,000 shares of common stock outstanding during 2015, paid cash dividends of $90,000 during 2015, and reported net income of $300,000 for 2015. Ziegler Corporation should report revenue from investment for 2015 in the amount of A. $22,500. B. $52,500. C. $75,000. D. $82,500.

C. $75,000

On November 1, 2014, Howell Company purchased 800 of the $1,000 face value, 9% bonds of Ramsey, Incorporated, for $842,000, which includes accrued interest of $12,000. The bonds, which mature on January 1, 2019, pay interest semiannually on March 1 and September 1. Assuming that Howell uses the straight-line method of amortization and that the bonds are appropriately classified as available-for-sale, the net carrying value of the bonds should be shown on Howell's December 31, 2014, balance sheet at A. $800,000. B. $830,000. C. $828,800. D. $842,000.

C. $828,800.

b. debit of $11,235 to Premium on Bonds Payable.

Carr Corporation retires its $300,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $311,235. The entry to record the redemption will include a a. credit of $11,235 to Loss on Bond Redemption. b. debit of $11,235 to Premium on Bonds Payable. c. credit of $3,765 to Gain on Bond Redemption. d. debit of $15,000 to Premium on Bonds Payable

The owners of a company that have claims on dividends and liquidation in proportion to their ownership.

Common Stockholders

C

Compensation expense resulting from a compensatory stock option plan is generally a. recognized in the period of exercise. b. recognized in the period of the grant. c. allocated to the periods benefited by the employee's required service. d. allocated over the periods of the employee's service life to retirement.

D

Convertible bonds a. have priority over other indebtedness. b. are usually secured by a first or second mortgage. c. pay interest only in the event earnings are sufficient to cover the interest. d. may be exchanged for equity securities.

Under IFRS, how are convertible debt recorded?

Convertible debt is separated into equity component and debt component

C

Corporations issue convertible debt for two main reasons. One is the desire to raise equity capital that, assuming conversion, will arise when the original debt is converted. The other is a. the ease with which convertible debt is sold even if the company has a poor credit rating. b. the fact that equity capital has issue costs that convertible debt does not. c. that many corporations can obtain financing at lower rates. d. that convertible bonds will always sell at a premium

b. $108,800 loss

Cortez Company issues $4,000,000 face value of bonds at 96 on January 1, 2013. The bonds are dated January 1, 2013, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2016, $2,400,000 of the bonds are called at 102 plus accrued interest. What gain or loss would be recognized on the called bonds on September 1, 2016? a. $240,000 loss b. $108,800 loss c. $144,000 loss d. $181,000 loss

When an available-for-sale equity security is sold, the gain (loss) on sale is the difference between the net proceeds from the sale and the security's: par value. fair value. book value. cost.

Cost

Lyons Company deducts insurance expense of $210,000 for tax purposes in 2018, but the expense is not yet recognized for accounting purposes. In 2019, 2020, and 2021, no insurance expense will be deducted for tax purposes, but $70,000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 40% and income taxes payable of $180,000 at the end of 2018. There were no deferred taxes at the beginning of 2018. 71. What is the amount of income tax expense for 2018? a. $264,000 b. $252,000 c. $210,000 d. $180,000

a. $264,000 $180,000 + ($210,000 × .40) = $264,000.

Richman Co. purchased $300,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2010, with interest payable on July 1 and January 1. The bonds sold for $312,474 at an effective interest rate of 7%. Using the effective interest method, Richman Co. decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2010 and December 31, 2010 by the amortized premiums of $1,062 and $1,098, respectively. At December 31, 2010, the fair value of the Carlin, Inc. bonds was $318,000. What should Richman Co. report as other comprehensive income and as a separate component of stockholders' equity?

D. 7,686 $318,000 - ($312,474 - $1,062 - $1,098) = $7,686

On January 3, 2010, Moss Co. acquires $100,000 of Adam Company's 10-year, 10% bonds at a price of $106,418 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Co. uses the effective-interest method, what is the amount of interest revenue that would be recognized in 2011 related to these bonds? a. $10,000 b. $10,642 c. $9,578 *d. $9,540

D. 9,540 ($106,418 × .09) - ($100,000 × .10) = ($422) ($106,418 - $422) × .09 = $9,540.

CleanSoftware Company licensed software to technology firms for five years. The company also provides consulting services and support for their software. The company estimates standalone values for consulting services and support as $125,000 and for software licensing the value is $260,000, making the total transaction price $385,000. Assuming the performance obligations are not interdependent, the journal entry to record the transaction includes A. a credit to Service Revenue of $125,000. B. a credit to Unearned Service Revenue of $125,000. C. a credit to Sales Revenue of $385,000. D. a credit to Sales Revenue for $260,000 and a credit to Unearned Service Revenue of $125,000.

D. a credit to Sales Revenue for $260,000 and a credit to Unearned Service Revenue of $125,000.

A transaction should be treated as a(n) ________ when a company has an obligation or right to repurchase an asset for an amount greater than or equal to its selling price. A. repurchase transaction B. put option C. outright sale D. financing transaction

D. financing transaction

If the bundle price is less than the sum of the standalone prices, then the discount should be allocated to the A. product cost, thereby increasing product margin. B. selling price of product or services provided. C. entire bundle of products or services. D. product (or products) causing the discount.

D. product (or products) causing the discount.

An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as Fair Value Method Fair Value Method Equity Method a) Income Income b) Income A reduction of the investment c) A reduction of the investment Income d) A reduction of the invest A reduction of the invest

Fair Value Method Equity method b) Income A reduction of the invest

(17) Santo Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods?

Fair Vaule Method: No Effect Equity Method: Decrease

Transfers between categories of investments are accounted for at: cost. book value. fair value. amortized cost

Fair value

If a long-term note payable has a stated interest rate, that rate should be considered to be the effective rate. True/False

False

T/F A long-term note is valued at its face value.

False

T/F Convertible bonds give the issuer the right to retire bonds prior to maturity.

False

T/F Under both U.S. GAAP and IFRS, bond issuance costs are recorded as deferred charges and amortized to expense over the term of the bond.

False

c. $24,625,000

Farmer Company issues $25,000,000 of 10-year, 9% bonds on March 1, 2014 at 97 plus accrued interest. The bonds are dated January 1, 2014, and pay interest on June 30 and December 31. What is the total cash received on the issue date? a. $24,250,000 b. $25,562,500 c. $24,625,000 d. $23,875,000

c. $14,775,000

Feller Company issues $15,000,000 of 10-year, 9% bonds on March 1, 2014 at 97 plus accrued interest. The bonds are dated January 1, 2014, and pay interest on June 30 and December 31. What is the total cash received on the issue date? a. $14,550,000 b. $15,337,500 c. $14,775,000 d. $14,325,000

How should the balances of progress billings and construction in progress be shown at reporting dates prior to the completion of a long-term contract?

Net, as a current asset if debit balance and current liability if credit balance. The difference between construction in progress (costs and recognized gross profit) and progress billings to date must be reported as a current asset if construction in progress exceeds total billings, and as a current liability if billings exceed construction in progress. Separate recognition is required for each project.

Santo Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods? Fair Value Method Equity Method Decrease No Effect No Effect Decrease Increase Decrease No Effect No Effect

No Effect Decrease

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

None of these answers are correct.

d. $225,000.

On December 31, 2012, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $1,800,000 note with $180,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $870,000, an original cost of $1,440,000, and accumulated depreciation of $690,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2015, reduces the face amount of the note to $750,000, and reduces the interest rate to 6%, with interest payable at the end of each year. Nolte should recognize a gain on the partial settlement and restructure of the debt of a. $0. b. $45,000. c. $165,000. d. $225,000.

Rodd Co. reports a taxable and pretax financial loss of $900,000 for 2018. Rodd's taxable and pretax financial income and tax rates for the last two years were: 2016 $900,000 30% 2017 900,000 35% The amount that Rodd should report as an income tax refund receivable in 2018, assuming that it uses the carryback provisions and that the tax rate is 40% in 2018, is a. $270,000. b. $315,000. c. $360,000. d. $405,000.

a. $270,000. ($900,000 × 30%) = $270,000.

b. credit of $200,000 to Premium on Bonds Payable

On October 1, 2014 Bartley Corporation issued 5%, 10-year bonds with a face value of $5,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. The entry to record the issuance of the bonds would include a a. credit of $125,000 to Interest Payable. b. credit of $200,000 to Premium on Bonds Payable. c. credit of $4,800,000 to Bonds Payable. d. debit of $200,000 to Discount on Bonds Payable.

a. $46,000

On October 1, 2014 Macklin Corporation issued 5%, 10-year bonds with a face value of $4,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. Bond interest expense reported on the December 31, 2014 income statement of Macklin Corporation would be a. $46,000 b. $50,000 c. $54,000 d. $92,000

d. $160,000 to Premium on Bonds Payable.

On October 1, 2014 Macklin Corporation issued 5%, 10-year bonds with a face value of $4,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. The entry to record the issuance of the bonds would include a credit of a. $100,000 to Interest Payable. b. $160,000 to Discount on Bonds Payable. c. $3,840,000 to Bonds Payable. d. $160,000 to Premium on Bonds Payable.

C

P 32. The distribution of stock rights to existing common stockholders will increase paid-in capital at the Date of Issuance Date of Exercise of the Rights of the Rights a. Yes Yes b. Yes No c. No Yes d. No No

(17) When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies?

The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee

81. Cashman Company reported net income of $530,000 for the year ended 12/31/18. Included in the computation of net income were: depreciation expense, $90,000; amortization of a patent, $48,000; income from an investment in common stock of Linda Inc., accounted for under the equity method, $72,000; and amortization of a bond premium, $18,000. Cashman also paid a $120,000 dividend during the year. The net cash provided by operating activities would be reported at a. $578,000. b. $482,000. c. $458,000. d. $362,000.

a. $578,000. $530,000 + $90,000 + $48,000 - $18,000 - $72,000 = $578,000.

Watson Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2018 $2,700,000 Tax exempt interest (150,000) Originating temporary difference (450,000) Taxable income $2,100,000 The temporary difference will reverse evenly over the next two years at an enacted tax rate of 40%. The enacted tax rate for 2018 is 28%. What amount should be reported in its 2018 income statement as the current portion of its provision for income taxes? a. $588,000 b. $840,000 c. $756,000 d. $1,080,000

a. $588,000 $2,100,000 X .28 = $588,000.

Howard Co. had the following first-year amounts for a $7,000,000 construction contract: Actual costs $2,000,000 Estimated costs to complete 6,000,000 Progress billings 1,800,000 Cash collected 1,500,000 What amount should Howard recognize as gross profit (loss) using the percentage-of-completion method?

Using the percentage-of-completion method, the estimated loss from the project is $1,000,000 ($7,000,000 contract price - $2,000,000 actual costs in the first year - $6,000,000 estimated remaining costs to complete the project). As soon as an estimated loss on any project becomes apparent, it must be recognized in full. Therefore, the total $1,000,000 loss must be recognized.

Dexter purchases equipment from Ray Company for a price of $5,000,000 and chooses Ray to do the installation. Ray doesn't charge for the installation of equipment. The price of the installation service is estimated to have a fair value of $60,000. Assuming the transaction to be multiple-deliverable arrangement, compute the amount to be allocated to installation. a. $59,289 b. $60,720 c. $60,000 d. $61,457

a. $59,289

Fryman Furniture uses the installment-sales method. No further collections could be made on an account with a balance of $24,000. It was estimated that the repossessed furniture could be sold as is for $7,200, or for $8,400 if $400 were spent reconditioning it. The gross profit rate on the original sale was 40%. The loss on repossession was a. $6,400. b. $6,000. c. $16,000. d. $16,800.

a. $6,400.

On January 1, 2018, Coronado Industries had 389000 shares of its $2 par value common stock outstanding. On March 1, Coronado sold an additional 756000 shares on the open market at $20 per share. Coronado issued a 20% stock dividend on May 1. On August 1, Coronado purchased 422000 shares and immediately retired the stock. On November 1, 609000 shares were sold for $25 per share. What is the weighted-average number of shares outstanding for 2018? (Rounded to the nearest dollar.)

[(389000 × 2 × 1.20) + (1145000 × 2 × 1.20) + (1374000 × 3) + (952000 × 3) + (1561000 × 2)] ÷ 12 = 1148467.

The following information is available for Swifty Corporation: January 1, 2018 Shares outstanding 3950000 April 1, 2018 Shares issued 638000 July 1, 2018 Treasury shares purchased 233000 October 1, 2018 Shares issued in a 100% stock dividend 4355000 The number of shares to be used in computing earnings per common share for 2018 is

[(3950000 × 3 × 2) + (4588000 × 3 × 2) + (4355000 × 3 × 2) + (8710000 × 3)] ÷ 12 = 8624000

A lessee with a finance lease containing a bargain purchase option should depreciate the leased asset over the: a. asset's remaining economic life b. term of the lease c. life of the asset or the term of the lease, whichever is longer d. period ending with the bargain purchase option date

a

A ten-year bond was issued in 2016 at a discount with a call provision to retire the bonds. When the bond issuer exercised the call provision on an interest date in 2018, the carrying amount of the bond was less than the call price. The amount of bond liability removed from the accounts in 2018 should have equaled the: a. face amount less unamortized discount b. face amount plus unamortized discount c. call price d. call price less unamortized discount

a

Fox Co. issued $100,000 of ten-year, 10% bonds that pay interest semi-annually. The bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the face value by the table value for: a. 20 periods and 4% from the PV of 1 table b. 20 periods and 5% from the PV of 1 table c. 10 periods and 10% from the PV of 1 table d. 10 periods and 8% from the PV of 1 table

a

If a bond sold at 97, the market rate was: a. greater than the stated rate b. less than the stated rate c. equal to the coupon rate d. equal to the stated rate

a

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will: a. exceed what if would have been had the effective-interest method of amortization been used b. be the same as what it would have been had the effective-interest method of amortization been used c. be less than the stated (nominal) rate of interest d. be less than what it would have been had the effective-interest method of amortization been used

a

If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a: a. credit to interest expense b. credit to unearned interest c. debit to interest payable d. credit to interest receivable

a

In an operating lease, the lessee records: a. lease expense b. interest expense c. amortization expense and lease expense d. amortization expense

a

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 Lease B a. finance lease finance lease b. finance lease operating lease c. operating lease finance lease d. operating lease operating lease

a

The classifications of a lease by the lessee are: a. operating and finance b. operating, sales, and finance c. operating and leveraged d. none of these answers are correct

a

The covenants and other terms of the agreement between the issuer of bonds and the lender are sent forth in the: a. bond indenture b. registered bond c. bond debenture d. bond coupon

a

The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as: a. a difference between the re-acquisition price and the net carrying amount of the debt which should be recognized in the period of redemption b. an adjustment to the cost basis of the asset obtained by the debt issue c. an amount that should be considered a cash adjustment to the cost of any other debt issued over the remaining life of the old debt instrument d. an amount received or paid to obtain a new debt instrument and, as such, should be amortized over the life of the new debt

a

The selling price of a bond is the sum of the present values of the principal and the periodic interest payments. The present values are determined by discounting using the: a. market rate b. stated rate c. nominal rate d. coupon rate

a

The term used for bonds that are unsecured as to principal is: a. debenture bonds b. indebenture bonds c. callable bonds d. mortgage bonds

a

On July 1, 2021, an interest payment date, $156000 of Crane Company bonds were converted into 3100 shares of Crane Company common stock each having a par value of $45 and a market value of $56. There is $5700 unamortized discount on the bonds. Using the book value method, Crane would record a $23300 increase in paid-in capital in excess of par. no change in paid-in capital in excess of par. a $17600 increase in paid-in capital in excess of par. a $10800 increase in paid-in capital in excess of par.

a $10800 increase in paid-in capital in excess of par. Solution: $156000 - (3100 × $45) - $5700 = $10800.

(16) On July 1, 2021, an interest payment date, $149000 of Waterway Industries bonds were converted into 2950 shares of Waterway Industries common stock each having a par value of $45 and a market value of $52. There is $6500 unamortized discount on the bonds. Using the book value method, Waterway would record

a $9750 increase in paid-in capital in excess of par

At the date of declaration of a small common stock dividend, the entry should not include a credit to common stock dividend distributable. a credit to Common Stock. a credit to Paid-in Capital in Excess of Par. a debit to Retained Earnings.

a credit to Common Stock.

(18) Seadrill Engineering licensed software to oil-drilling firms for 5 years. In addition to providing the software, the company also provides consulting services and support to ensure smooth operation of the software. The total transaction price is $420,000. Based on standalone values, the company estimates the consulting services and support have a value of $120,000 and the software license has a value of $300,000. Assuming the performance obligations are not interdependent, the journal entry to record the transaction includes

a credit to Sales Revenue for $300,000 and a credit to Unearned Service Revenue of $120,000

Preferred Stock

a special class of shares that possess certain preferences or features not possessed by common stock

Companies express preferred stock without a par value as ___________________________________________________

a specific dollar per share

73. During 2018, Orton Company earned net income of $494,000 which included deprecia-tion expense of $78,000. In addition, the company experienced the following changes in the account balances listed below: Increases Accounts payable $45,000 Inventory 36,000 Decreases Accounts receivable $12,000 Accrued liabilities 24,000 Prepaid insurance 33,000 Based upon this information what amount will be shown for net cash provided by operating activities for 2018? a. $602,000 b. $575,000 c. $395,000 d. $377,000

a. $602,000 $494,000 + $78,000 + $45,000 - $36,000 + $12,000 - $24,000 + $33,000 = $602,000.

75. In preparing Titan Inc.'s statement of cash flows for the year ended December 31, 2018, the following amounts were available: Collect note receivable $615,000 Issue bonds payable 639,000 Purchase treasury stock 300,000 What amount should be reported on Titan, Inc.'s statement of cash flows for investing activities? a. $615,000 b. $315,000 c. $1,254,000 d. $339,000

a. $615,000 $615,000.

A transaction price for multiple performance obligations should be allocated a) based on what the company could sell the goods for on a standalone basis. b) based on total transaction price less residual value. c) based on forecasted cost of satisfying performance obligation. d) based on selling price from the company's competitors.

a) based on what the company could sell the goods for on a standalone basis.

A company has satisfied its performance obligation when the a) company has transferred physical possession of the asset. b) company has received payment for goods or services. c) company has legal title to the asset. d) company has significant risks and rewards of ownership.

a) company has transferred physical possession of the asset.

Debt securities that are accounted for at amortized cost, not fair value, are a) held-to-maturity debt securities. b) available-for-sale debt securities. c) never-sell debt securities. d) trading debt securities.

a) held-to-maturity debt securities.

When the employer bears the entire cost of a pension plan's costs, the plan is called a a) noncontributory plan. b) contributory plan. c) funded plan. d) voluntary plan.

a) noncontributory plan.

The interest on the projected benefit obligation component of pension expense a) reflects the rates at which pension benefits could be effectively settled. b) is the same as the expected return on plan assets. c) reflects the incremental borrowing rate of the employer. d) may be stated implicitly or explicitly when reported.

a) reflects the rates at which pension benefits could be effectively settled.

Which method of measuring the fair value of a performance obligation is dependent on the standalone selling prices of other goods or services promised in the contract? a) residual value. b) standalone selling price. c) expected cost plus a margin. d) adjusted market assessment.

a) residual value.

The computation of pension expense includes all the following except a) service cost component measured using current salary levels. b) interest on projected benefit obligation. c) expected return on plan assets. d) amortization of prior service cost.

a) service cost component measured using current salary levels.

74. Haystack, Inc. manufactures machinery used in the mining industry. On January 2, 2018 it leased equipment with a cost of $480,000 to Silver Point Co. The 5-year lease calls for a 10% down payment and equal annual payments at the end of each year. The equipment has an expected useful life of 5 years. If the selling price of the equipment is $780,000, and the rate implicit in the lease is 8%, what are the equal annual payments? PV Annuity Due PV Ordinary Annuity PV Single Sum 8%, 5 periods 4.31213 3.99271 .68508 10%, 5 periods 4.16986 3.79079 .62092

a. $175,820 ($780,000 * .90)/ 3.99271 = $175,820

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

a. asset's remaining economic life.

Santo Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods? Fair Value Method Equity Method a) decreae no effect b) no effect decrese c) increase decrease d) no effect no effect

b) no effect decrese

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 a) recorded on April 30, 2021. b) recorded on March 31, 2021. c) recorded on January 15, 2021. d) recorded on March 1, 2021.

b) recorded on March 31, 2021.

The interest rate used to determine the interest on the liability component of pension expense is the: a) employer's incremental rate. b) settlement rate. c) expected rate on plan assets. d) actuarial rate used to calculate the present value of pension benefits

b) settlement rate

Coaster manufactures and sells logging equipment. Due to the nature of its business, Coaster is unable to reliably predict bad debts. During 2014, Coaster sold equipment costing $4,800,000 for $7,200,000. The terms of the sale were 20% down, with equal payments due quarterly over the next 3 years. All payments for 2014 were made on schedule. Round answers to two places. ~Assuming that Coaster uses the cost-recovery method of accounting for its installment sales, what amount of realized gross profit will Coaster report in its income statement for the year ended December 31, 2015? a. $0 b. $ 480,000 c. $ 633,600 d. $1,920,000

b. $ 480,000

Carperter Company has used the installment method of accounting since it began operations at the beginning of 2015. The following information pertains to its operations for 2015: Installment sales: $ 2,800,000 Cost of installment sales: 1,960,000 Collections of installment sales: 1,120,000 General and administrative expenses: 280,000 The amount to be reported on the December 31, 2015 balance sheet as Deferred Gross Profit should be a. $ 336,000. b. $ 504,000. c. $ 672,000. d. $1,680,000.

b. $ 504,000.

For the year ended December 31, year 3, Colt Corp. has a loss carryforward of $180,000 available to offset future taxable income. At December 31, year 3, all available evidence concerning future profitability is positive. Assume an income tax rate of 30%. What amount of the tax benefit should be reported in Colt's year 3 income statement? a. $0 b. $ 54,000 c. $180,000 d. $126,000

b. $ 54,000

Napier Co. provided the following information on selected transactions during 2018: Purchase of land by issuing bonds $1,000,000 Proceeds from issuing bonds 3,000,000 Purchases of inventory 3,800,000 Purchases of treasury stock 600,000 Loans made to affiliated corporations 1,400,000 Dividends paid to preferred stockholders 400,000 Proceeds from issuing preferred stock 1,600,000 Proceeds from sale of equipment 300,000 83. The net cash provided (used) by investing activities during 2018 is a. $300,000. b. $(1,100,000). c. $(2,100,000). d. $(4,500,000).

b. $(1,100,000). $300,000 - $1,400,000 = ($1,100,000).

Wilcox Corporation reported the following results for its first three years of operation: 2017 income (before income taxes) $ 300,000 2018 loss (before income taxes) (2,700,000) 2019 income (before income taxes) 3,000,000 There were no permanent or temporary differences during these three years. Assume a corporate tax rate of 30% for 2017 and 2018, and 40% for 2019. 90. Assuming that Wilcox elects to use the carryforward provision and not the carryback provision, what income (loss) is reported in 2018? a. $(2,700,000) b. $(1,620,000) c. $ -0- d. $(2,610,000)

b. $(1,620,000) ($2,700,000 × 40%) = $1,080,000; $2,700,000 - $1,080,000 = $1,620,000.

Fleming Company provided the following information on selected transactions during 2018: Dividends paid to preferred stockholders $ 500,000 Loans made to affiliated corporations 1,400,000 Proceeds from issuing bonds 1,600,000 Proceeds from issuing preferred stock 2,100,000 Proceeds from sale of equipment 800,000 Purchases of inventories 2,400,000 Purchase of land by issuing bonds 600,000 Purchases of treasury stock 1,200,000 98. The net cash provided (used) by investing activities during 2018 is a. $(1,200,000). b. $(600,000). c. $200,000. d. $800,000.

b. $(600,000). ($1,400,000) + $800,000 = ($600,000).

On January 1, 2016, Nobel Corporation acquired machinery at a cost of $1,600,000. Nobel adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated life of ten years, with no residual value. At the beginning of 2019, a decision was made to change to the double-declining balance method of depreciation for this machine. 47. Assuming a 30% tax rate, the cumulative effect of this accounting change on beginning retained earnings, is a. $179,200. b. $0. c. $210,560. d. $300,800.

b. $0. $0, No cumulative effect; handle prospectively.

Gomez, Inc. began work in 2014 on contract #3814, which provided for a contract price of $14,400,000. Other details follow: 2014/ 2015 Costs incurred during the year $2,400,000/ $7,350,000 Estimated costs to complete, as of December 31: 7,200,000/0 Billings during the year 2,700,000/ 10,800,000 Collections during the year 1,800,000/ 11,700,000 ~Assume that Gomez uses the percentage-of-completion method of accounting. The portion of the total gross profit to be recognized as income in 2014 is a. $900,000. b. $1,200,000. c. $3,600,000. d. $4,800,000.

b. $1,200,000.

110. Nagel Co.'s prepaid insurance was $190,000 at December 31, 2018 and $90,000 at December 31, 2017. Insurance expense was $62,000 for 2018 and $54,000 for 2017. What amount of cash disbursements for insurance would be reported in Nagel's 2018 net cash provided by operating activities presented on a direct basis? a. $198,000. b. $162,000. c. $128,000. d. $62,000.

b. $162,000. $190,000 + $62,000 - $90,000 = $162,000.

Kraft Company made the following journal entry in late 2018 for rent on property it leases to Danford Corporation. Cash 150,000 Unearned Rent Revenue 150,000 The payment represents rent for the years 2019 and 2020, the period covered by the lease. Kraft Company is a cash basis taxpayer. Kraft has income tax payable of $230,000 at the end of 2018, and its tax rate is 35%. 73. What amount of income tax expense should Kraft Company report at the end of 2018? a. $132,500 b. $177,500 c. $203,750 d. $282,500

b. $177,500 $230,000 - ($150,000 × .35) = $177,500.

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 Additional Retained Common Stock Paid-in Capital Earnings Stock a. $180,000 $175,000 b. $180,000 $70,000 c. $240,000 $10,000 d. $170,000 $70,000 $10,000

b. $180,000 $70,000

74. On January 1, 2017, Janik Corp. acquired a machine at a cost of $900,000. It is to be depreciated on the straight-line method over a five-year period with no residual value. Because of a bookkeeping error, no depreciation was recognized in Janik's 2017 financial statements. The oversight was discovered during the preparation of Janik's 2018 financial statements. Depreciation expense on this machine for 2018 should be a. $0. b. $180,000. c. $225,000. d. $360,000.

b. $180,000. $900,000 ÷ 5 = $180,000.

Pharoah Company made the following journal entry in late 2021 for rent on property it leases to Danford Corporation. Cash 154000 Unearned Rent Revenue 154000 The payment represents rent for the years 2022 and 2023, the period covered by the lease. Pharoah Company is a cash basis taxpayer. Pharoah has income tax payable of $234000 at the end of 2021, and its tax rate is 25%.What amount of income tax expense should Pharoah Company report at the end of 2021? a. $272500 b. $195500 c. $118500 d. $214750

b. $195500

100. The net cash provided by operating activities in Sosa Company's statement of cash flows for 2018 was $310,000. For 2018, depreciation on plant assets was $90,000, amortization of patent was $16,000, and cash dividends paid on common stock was $108,000. Based only on the information given above, Sosa's net income for 2018 was a. $310,000. b. $204,000. c. $16,000. d. $312,000.

b. $204,000. $310,000 - $90,000 - $16,000 = $204,000.

*99. On June 30, 2018, Falk Co. sold equipment to an unaffiliated company for $2,000,000. The equipment had a book value of $1,080,000 and a remaining useful life of 10 years. That same day, Falk leased back the equipment at $12,000 per month for 5 years with no option to renew the lease or repurchase the equipment. Falk's rent expense for this equipment for the year ended December 31, 2018, should be

b. $72,000. $12,000 × 6 = $72,000.

A reconciliation of Gentry Company's pretax accounting income with its taxable income for 2018, its first year of operations, is as follows: Pretax accounting income $4,500,000 Excess tax depreciation (225,000) Taxable income $4,275,000 The excess tax depreciation will result in equal net taxable amounts in each of the next three years. Enacted tax rates are 40% in 2018, 35% in 2019 and 2020, and 30% in 2021. The total deferred tax liability to be reported on Gentry's balance sheet at December 31, 2018, is a. $90,000. b. $75,000. c. $78,750. d. $67,500.

b. $75,000. ($75,000 × 35%) + ($75,000 × 35%) + ($75,000 × 30%) = $75,000.

When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be a. reported as an adjustment to income tax expense in the period of change. b. considered, but it should only be recorded in the accounts if it reduces a deferred tax liability or increases a deferred tax asset. c. applied to all temporary or permanent differences that arise prior to the date of the enactment of the tax rate change, but not subsequent to the date of the change. d. handled retroactively in accordance with the guidance related to changes in accounting principles.

a. reported as an adjustment to income tax expense in the period of change.

An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. At the time of reacquisition, > any costs of issuing the bonds must be amortized up to the purchase date > the premium must be amortized up to the purchase date > interest must be accrued from the last interest date to the purchase date > all of these answer choices are correct

all of these answer choices are correct

An example of a permanent difference is

all of these answers are correct: a. proceeds from life insurance on officers. b. interest expense on money borrowed to invest in municipal bonds. c. insurance expense for a life insurance policy on officers.

The fourth step in the process for revenue recognition is to allocate transaction price to the separate performance obligations. recognize revenue when each performance obligation is satisfied. determine the transaction price. identify the separate performance obligations in the contract.

allocate transaction price to the separate performance obligations.

Compensation expense resulting from a compensatory stock option plan is generally

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

Convertible Preferred Stock

allows stockholders, at their option, to exchange preferred shares for common stock at a predetermined ratio

When a note payable is issued for property, goods, or services, the present value of the note is measured by the fair value of the property, goods, or services. the fair value of the note. using an imputed interest rate to discount all future payments on the note. any of these.

any of these.

In applying the treasury stock method to determine the dilutive effect of stock options and warrants, the proceeds assumed to be received upon exercise of the options and warrants

are used to calculate the number of common shares repurchased at the average market price, when computing diluted earnings per share

In applying the treasury stock method to determine the dilutive effect of stock options and warrants, the proceeds assumed to be received upon exercise of the options and warrants are not used to calculate the number of common shared repurchased at the average market price, when computing diluted earnings per share. are disregarded in the computation of earnings per share if the exercise price of the options and warrants is less than the ending market price of common stock. are used to calculate the number of common shares repurchased at the average market price, when computing diluted earnings per share. are added, net of tax, to the numerator of the calculation for diluted earnings per share.

are used to calculate the number of common shares repurchased at the average market price, when computing diluted earnings per share.

Long-term debt that matures within one year and is to be converted into stock should be reported > as a current liability > only as non-current > as non-current and accompanied with a note explaining the method to be used in its liquidation > in a special section between liabilities and stockholders' equiry

as non-current and accompanied with a note explaining the method to be used in its liquidation

The FASB believes that the most consistent method for accounting for income taxes is the asset-liability method. benefit-obligation method. temporary-permanent method. carryback-carryforward method.

asset-liability method.

When computing diluted earnings per share, convertible bonds are

assumed converted only if they are dilutive

Debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses that are included as other comprehensive income and as a separate component of stockholders' equity are held-to-maturity debt securities. trading debt securities. never-sell debt securities. available-for-sale debt securities.

available-for-sale debt securities.

Unrealized holding gains or losses are recognized as other comprehensive income for: trading securities. held-to-maturity securities. long-term securities. available-for-sale securities

available-for-sale securities

Bond interest paid is equal to the: a. carrying value of the bonds multiplied by the effective-interest rate b. face amount of the bonds multiplied by the stated interest rate c. carrying value of the bonds multiplied by the stated interest rate d. face amount of the bonds multiplied by the effective-interest rate

b

For a sales-type lease: a. the present value of the guaranteed residual value is deducted to determine the cost of goods sold b. the gross profit will be the same whether the residual value is guaranteed or unguaranteed c. assets are depreciated by the lessor d. the sales price includes the present value of the unguaranteed residual value

b

If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be: a. less than if the straight-line method were used b. greater than if the straight-line method were used c. greater than the amount of the interest payments d. the same as if the straight line-method were used

b

In a finance lease the lessee records: a. interest expense only b. amortization expense and interest expense c. amortization expense only d. lease expense only

b

Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that a. the effective yield or market rate of interest exceeded the stated (nominal) rate. b. the nominal rate of interest exceeded the market rate. c. the market and nominal rates coincided. d. no necessary relationship exists between the two rates.

b

Stonehenge, Inc. issued bonds with a maturity amount of $5,000,000 and a maturity eight years from date of issue. If the bonds were issued at a premium, this indicates that: a. the market rate of interest exceeded the stated rate b. the stated rate of interest exceeded the market rate c. the market and stated rates coincided d. no necessary relationship exists between the two rates

b

The printing costs and legal fees associated with the issuance of bonds should: a. not be reported as an expense until the period the bonds mature or are retired b. be accumulated in a deferred charge account and amortized over the life of the bonds c. be expensed when incurred d. be reported as a reduction to the issue amount of the bond payable and then amortized to expense over the life of the bond

b

Treasury bonds should be shown on the balance sheet as a. an asset. b. a deduction from bonds payable issued to arrive at net bonds payable and outstanding. c. a reduction of stockholders' equity. d. both an asset and a liability.

b

Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to: a. the stated rate multiplied by the beginning-of-period carrying amount of the bonds b. the market rate multiplied by the beginning-of-period carrying amount of the bonds c. the stated (nominal) rate of interest multiplied by the face value of the bonds d. the market rate of interest multiplied by the face value of the bonds

b

Which of the following is a correct statement of one of the classification tests?: a. the lease contains a purchase option b. the lease term is equal to or more than 75% of the estimated economic life of the leased property c. the minimum lease payments (excluding executory costs) equal or exceed 90% of the fair value of the leased property d. the lease transfers ownership of the property to the lessor

b

A shoe retailer allows customers to return shoes within 90 days of purchase. The company estimates that 5% of sales will be returned within the 90-day period. During the month, the company has sales of $200,000 and returns of sales made in prior months of $5,000. What amount should the company record as net sales revenue for new sales made during the month? a) $185,000 b) $190,000 c) $200,000 d) $195,000

b) $190,000

In order to retain certain key executives, Smiley Corporation granted them incentive stock options on December 31, 2017. 150,000 options were granted at an option price of $35 per share. Market prices of the stock were as follows: 12/31/18 - $46 per share 12/31/19 - $51 per share The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2018. The Black-Scholes option pricing model determines total compensation expense to be $1,500,000. What amount of compensation expense should Smiley recognize as a result of this plan for the year ended December 31, 2018 under the fair value method? a) $1,650,000 b) $750,000 c) $2,625,000 d) $1,500,000

b) $750,000 Compensation expense = total compensation expense / periods of the option = 1,500,000 / 2 = 750,000

Marle Construction enters into a contract with a customer to build a warehouse for $950000 on March 30, 2021 with a performance bonus of $50000 if the building is completed by July 31, 2021. The bonus is reduced by $10000 each week that completion is delayed. Marle commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by Probability July 31, 2021 65% August 7, 2021 25% August 14, 2021 5% August 21, 2021 5% The transaction price for this transaction is a) $662500 b) $995000 c) $950000 d) $652500

b) $995000

Which of the following may decrease the annual pension expense amount? a)Service Cost. b) Actual return on plan assets. c) Interest on the liability. d) Amortization of prior service cost.

b) Actual return on plan assets.

Which of the following does the FASB argue indicates a more realistic measure of the employer's obligation under the pension plan on a going-concern basis and should be used as the basis for determining service cost? a) Vested benefit obligation. b) Projected benefit obligation. c) Accumulated benefit obligation. d) None of these answers are correct

b) Projected benefit obligation.

Compensation expense resulting from a compensatory stock option plan is generally a) allocated over the periods of the employee's service life to retirement b) allocated to the periods benefited by the employee's required service c) recognized in the period of the grant d) recognized in the period of exercise

b) allocated to the periods benefited by the employee's required service Determine expense = FV on grant date Allocate = in the periods in which its employees perform the service - the service period (required)

Transfers between categories a) result in companies omitting recognition of fair value in the year of the transfer. b) are accounted for at fair value for all transfers. c) are considered unrealized and unrecognized if transferred out of held-to-maturity into trading. d) will always result in an impact on net income.

b) are accounted for at fair value for all transfers.

In a defined-benefit plan, a formula is used that a) defines the contribution the employer is to make; no promise is made concerning the ultimate benefits to be paid out to the employees. b) defines the benefits that the employee will receive at the time of retirement. c) requires that pension expense and the cash funding amount be the same. d) requires that the benefit of gain or the risk of loss from the assets contributed to the pension plan be borne by the employee.

b) defines the benefits that the employee will receive at the time of retirement.

22. Which of the following is not accounted for as a change in accounting principle? a. A change from LIFO to FIFO for inventory valuation b. A change to a different method of depreciation for plant assets c. A change from full-cost to successful efforts in the extractive industry d. A change from the completed-contract to the percentage-of-completion method

b. A change to a different method of depreciation for plant assets

If none of the four leasing criteria are satisfied in a sale-leaseback transaction, which of the following statements is incorrect?

b. The purchaser-lessor records a gain.

29. The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n) a. addition to net income. b. deduction from net income. c. investing activity. d. financing activity.

b. deduction from net income.

64. On December 31, 2018, Kuhn Corporation leased a plane from Bell Company for an seven-year period expiring December 31, 2025. Equal annual payments of $450,000 are due on December 31 of each year, beginning with December 31, 2018. The lease is properly classified as a capital lease on Kuhn's books. The present value at December 31, 2018 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, 2018 balance sheet is

d. $2,190,792. $2,640,792 - $450,000 = $2,190,792.

89. Selected information from Dinkel Company's 2018 accounting records is as follows: Proceeds from issuance of common stock $ 800,000 Proceeds from issuance of bonds 2,400,000 Cash dividends on common stock paid 290,000 Cash dividends on preferred stock paid 120,000 Purchases of treasury stock 240,000 Sale of stock to officers and employees not included above 200,000 Dinkel's statement of cash flows for the year ended December 31, 2018, would show net cash provided (used) by financing activities of a. $120,000. b. $(470,000). c. $290,000. d. $2,750,000.

d. $2,750,000. $800,000 + $2,400,000 - $290,000 - $120,000 - $240,000 + $200,000 = $2,750,000.

Percy Corporation was organized on January 1, 2021, with an authorization of 1,200,000 shares of common stock with a par value of $6 per share. During 2021, the corporation had the following capital transactions: January 5 issued 600,000 shares @ $10 per share July 28 purchased 80,000 shares @ $11 per share December 31 sold the 80,000 shares held in treasury @ $18 per share Percy used the cost method to record the purchase and reissuance of the treasury shares. What is the total amount of additional paid-in capital as of December 31, 2021? a. $-0-. b. $1,840,000. c. $2,400,000. d. $2,960,000.

d. $2,960,000.

Valet Corporation began operations in 2018. An analysis of Valet's debt securities portfolio acquired in 2018 shows the following totals at December 31, 2018 for trading and available-for-sale debt securities: Trading Available-for-Sale Securities Securities Aggregate cost $180,000 $220,000 Aggregate fair value 160,000 190,000 What amount should Valet report in its 2018 income statement for unrealized holding loss? a. $50,000. b. $10,000. c. $30,000. d. $20,000.

d. $20,000.

78. Howell, Inc. reported net income of $88,000 for the year ended December 31, 2018 Included in net income were depreciation expense of $16,800 and a gain on sale of equipment of $3,400. The equipment had an historical cost of $80,000 and accumulated depreciation of $48,000. Each of the following accounts increased during 2018: Land $11,000 Prepaid rent $13,600 Available-for-sale securities $2,000 Bonds payable $10,000 What is the amount of cash provided by or used by investing activities for Jarvis, Inc. for the year ended December 31, 2018? a. ( $ 9,600) b. $33,400 c. $22,400 d. $24,400

c. $22,400 [($80,000 - $48,000) + $3,400] - $11,000 - $2,000 = $22,400.

Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2019 and 2018 are provided below. 52. The net cash provided (used) by investing activities is a. $(352,000). b. $48,000. c. $240,000. d. $(288,000).

c. $240,000. $240,000.

Cooper Construction Company had a contract starting April 2015, to construct a $18,000,000 building that is expected to be completed in September 2017, at an estimated cost of $16,500,000. At the end of 2015, the costs to date were $7,590,000 and the estimated total costs to complete had not changed. The progress billings during 2015 were $3,600,000 and the cash collected during 2015 was 2,400,000. ~At December 31, 2015 Cooper would report Construction in Process in the amount of: a. $690,000 b. $7,590,000 c. $8,280,000 d. $7,080,000

c. $8,280,000

Eilert Construction Company had a contract starting April 2015, to construct a $21,000,000 building that is expected to be completed in September 2016, at an estimated cost of $19,250,000. At the end of 2015, the costs to date were $8,855,000 and the estimated total costs to complete had not changed. The progress billings during 2015 were $4,200,000 and the cash collected during 2015 was $2,800,000. Eilert uses the percentage-of-completion method. ~For the year ended December 31, 2015, Eilert would recognize gross profit on the building of a. $0. b. $737,917. c. $805,000. d. $945,000.

c. $805,000.

Hopkins Corp.'s 2017 income statement showed pretax accounting income of $1,035,000. To compute the federal income tax liability, the following 2017 data are provided: Income from exempt municipal bonds: $41,000 Depreciation deducted for tax purposes in excess of depreciation deducted for financial statement purposes: 97,000 Estimated federal income tax payments made: 159,500 Enacted corporate income tax rate: 27.5% What amount of current federal income tax liability should be included in Hopkins' December 31, 2017 balance sheet? a. $109,275 b. $163,075 c. $87,175 d. $132,578

c. $87,175

Use the following information for questions 54 through 59. (Annuity tables on page 21-30.) On January 1, 2018, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement. (a) The agreement requires equal rental payments at the beginning each year. (b) The fair value of the building on January 1, 2018 is $6,000,000; however, the book value to Holt is $4,950,000. (c) The building has an estimated economic life of 10 years, with no residual value. Yancey depreciates similar buildings on the straight-line method. (d) At the termination of the lease, the title to the building will be transferred to the lessee. (e) Yancey's incremental borrowing rate is 11% per year. Holt Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Yancey, Inc. (f) The yearly rental payment includes $15,000 of executory costs related to taxes on the property. 54. What is the amount of the minimum annual lease payment? (Rounded to the nearest dollar.)

c. $887,703 $6,000,000 ÷ 6.75902 = $887,703 (PV of Annuity Due Table).

Hayes Construction Corporation contracted to construct a building for $4,500,000. Construction began in 2014 and was completed in 2015. Data relating to the contract are summarized below: Year ended December 31, 2014/ 2015 Costs incurred:$1,800,000/ $1,350,000 Estimated costs to complete:1,200,000/— Hayes uses the percentage-of-completion method as the basis for income recognition. For the years ended December 31, 2014, and 2015, respectively, Hayes should report gross profit of a. $810,000 and $540,000. b. $2,700,000 and $1,800,000. c. $900,000 and $450,000. d. $0 and $1,350,000.

c. $900,000 and $450,000.

82. An analysis of stockholders' equity of Hahn 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 Hahn uses the cost method of accounting for treasury stock and 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 Hahn report at December 31, 2021, as total additional paid-in capital? a. $895,000 b. $900,000 c. $905,000 d. $915,000

c. $905,000

34. Which of the following statements is correct? a. Changes in accounting principle are always handled in the current or prospective period. b. Prior statements should be restated for changes in accounting estimates. c. A change from expensing certain costs to capitalizing these costs due to a change in the period benefited, should be handled as a change in accounting estimate. d. Correction of an error related to a prior period should be considered as an adjustment to current year net income.

c. A change from expensing certain costs to capitalizing these costs due to a change in the period benefited, should be handled as a change in accounting estimate.

Langley Company's December 31 year-end financial statements contained the following errors: Ending inventory Dec. 31, 2017 $37,500 understated Dec. 31,2018 $55,000 overstated Depreciation expense Dec. 31, 2017 10,000 understated An insurance premium of $90,000 was prepaid in 2017 covering the years 2017, 2018, and 2019. The prepayment was recorded with a debit to insurance expense. In addition, on December 31, 2018, fully depreciated machinery was sold for $47,500 cash, but the sale was not recorded until 2019. There were no other errors during 2018 or 2019 and no corrections have been made for any of the errors. Ignore income tax considerations. 59. What is the total effect of the errors on the balance of Langley's retained earnings at December 31, 2018? a. Retained earnings understated by $50,000 b. Retained earnings understated by $22,500 c. Retained earnings understated by $12,500 d. Retained earnings overstated by $17,500

c. Retained earnings understated by $12,500 $10,000 (o) + $55,000 (o) - $30,000 (u) - $47,500 (u) = $12,500 (u).

Long Co. issued 100,000 shares of $10 par common stock for $1,200,000. A year later Long acquired 16,000 shares of its own common stock at $15 per share. Three months later Long sold 8,000 of these shares at $19 per share. If the cost method is used to record treasury stock transactions, to record the sale of the 8,000 treasury shares, Long should credit a. Treasury Stock for $152,000. b. Treasury Stock for $80,000 and Paid-in Capital from Treasury Stock for $72,000. c. Treasury Stock for $120,000 and Paid-in Capital from Treasury Stock for $32,000. d. Treasury Stock for $120,000 and Paid-in Capital in Excess of Par for $32,000.

c. Treasury Stock for $120,000 and Paid-in Capital from Treasury Stock for $32,000.

38. When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited? a. Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the par value. b. Paid-in capital in excess of par for the purchase price. c. Treasury stock for the purchase price. d. Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value.

c. Treasury stock for the purchase price.

75. On December 31, 2018, special insurance costs, incurred but unpaid, were not recorded. If these insurance costs were related to work in process, what is the effect of the omission on accrued liabilities and retained earnings in the December 31, 2018 balance sheet? Accrued Liabilities Retained Earnings a. No effect No effect b. No effect Overstated c. Understated No effect d. Understated Overstated

c. Understated No effect

23. Of the following questions, which one would not be answered by the statement of cash flows? a. Where did the cash come from during the period? b. What was the cash used for during the period? c. Were all the cash expenditures of benefit to the company during the period? d. What was the change in the cash balance during the period?

c. Were all the cash expenditures of benefit to the company during the period?

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

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

39. If, at the end of a period, a company using perpetual inventory erroneously excluded some goods from its ending inventory and also erroneously did not record the purchase of these goods in its accounting records, these errors would cause a. the ending inventory and retained earnings to be understated. b. the ending inventory, cost of goods sold, and retained earnings to be understated. c. no effect on net income, working capital, and retained earnings. d. cost of goods sold and net income to be understated.

c. no effect on net income, working capital, and retained earnings.

49. Cash dividends are paid on the basis of the number of shares a. authorized. b. issued. c. outstanding. d. outstanding less the number of treasury shares.

c. outstanding.

21. An objective of the statement of cash flows is to a. disclose changes during the period in all asset and all equity accounts. b. disclose the change in working capital during the period. c. provide information about the operating, investing, and financing activities of an entity during a period. d. None of these answers are correct.

c. provide information about the operating, investing, and financing activities of an entity during a period.

The primary difference between a direct-financing lease and a sales-type lease is the

c. recognition of the manufacturer's or dealer's profit at (or loss) the inception of the lease.

A valuation account is used to: a. reduce a deferred tax liability. b. increase a deferred tax liability. c. reduce a deferred tax asset. d. increase a deferred tax asset.

c. reduce a deferred tax asset.

*40. In the process of conversion from the equity method to the fair value method, the earnings or losses that the investor previously recognized under the equity method should: a. be ignored. b. be subtracted from the carrying value of the securities. c. remain as a part of the carrying amount of the investment. d. be shown in the income statement.

c. remain as a part of the carrying amount of the investment.

. When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be a. handled retroactively in accordance with the guidance related to changes in accounting principles. b. considered, but it should only be recorded in the accounts if it reduces a deferred tax liability or increases a deferred tax asset. c. reported as an adjustment to tax expense in the period of change. d. applied to all temporary or permanent differences that arise prior to the date of the enactment of the tax rate change, but not subsequent to the date of the change.

c. reported as an adjustment to tax expense in the period of change.

57. Hager Company sold some of its plant assets during 2018. The original cost of the plant assets was $900,000 and the accumulated depreciation at date of sale was $840,000. The proceeds from the sale of the plant assets were $90,000. The information concerning the sale of the plant assets should be shown on Hager's statement of cash flows (indirect method) for the year ended December 31, 2018, as a(n) a. subtraction from net income of $30,000 and a $60,000 increase in cash flows from financing activities. b. addition to net income of $30,000 and a $90,000 increase in cash flows from investing activities. c. subtraction from net income of $30,000 and a $90,000 increase in cash flows from investing activities. d. addition of $90,000 to net income.

c. subtraction from net income of $30,000 and a $90,000 increase in cash flows from investing activities. $90,000 - ($900,000 - $840,000) = $30,000, $90,000 (proceeds).

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if a. it appears likely that a future tax rate will be less than the current tax rate. b. it is probable that a future tax rate change will occur. c. the future tax rates have been enacted into law. d. it appears likely that a future tax rate will be greater than the current tax rate.

c. the future tax rates have been enacted into law.

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if a. it is probable that a future tax rate change will occur. b. it appears likely that a future tax rate will be greater than the current tax rate. c. the future tax rates have been enacted into law. d. it appears likely that a future tax rate will be less than the current tax rate.

c. the future tax rates have been enacted into law.

In order to properly record a direct-financing lease, the lessor needs to know how to calculate the lease receivable. The lease receivable in a direct-financing lease is best defined as

c. the present value of minimum lease payments.

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

c. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee.

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will: a. be the same as what it would have been had the effective-interest method of amortization been used b. be less than what it would have been had the effective-interest method of amortization been used c. be less than the stated (nominal) rate of interest d. exceed what it would have been had the effective-interest method of amortization been used

d

In a lease that is recorded as a sales-type lease by the lessor, interest revenue: a. should be recognized in full as revenue at the lease's inception b. does not arise c. should be recognized over the period of the lease using the straight-line method d. should be recognized over the period of the lease using the effective interest method

d

Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that: a. no necessary relationship exists between the two rates b. the market and nominal rates coincided c. the effective yield or market rate of interest exceeded the stated (nominal) rate d. the nominal rate of interest exceeded the market value

d

The FV of bonds is also called each of the following except: a. par value b. principal c. maturity value d. stated value

d

The lease liability account should be disclosed as: a. deferred credits b. all current liabilities c. all noncurrent liabilities d. current portions in current liabilities and the remainder in noncurrent liabilities

d

The lease receivable amount includes the present value of: a. rental payments plus the present value of the unguaranteed residual value only b. rental payments only c. rental payments plus the present value of the guaranteed residual value only d. rental payments plus the present value of guaranteed and unguaranteed residual values

d

Theoretically, the costs of issuing bonds could be a. expensed when incurred. b. reported as a reduction of the bond liability. c. debited to a deferred charge account and amortized over the life of the bonds. d. any of these.

d

What type of bonds mature in installments: a. debenture b. variable rate c. term d. serial

d

When a bond sells at a premium, interest expense will be: a. none of these answer choices are correct b. equal to the bond interest payment c. greater than the bond interest payment d. less than the bond interest payment

d

When a note payable is issued for property, goods, or services, the present value of the note is measured by a. the fair value of the property, goods, or services. b. the fair value of the note. c. using an imputed interest rate to discount all future payments on the note. d. any of these.

d

When debt is issued at a discount, interest expense over the term of debt equals the cash interest paid: a. minus discount b. plus discount plus par value c. minus discount minus par value d. plus discount

d

When lessors account for residual values related to leased assets, they: a. reduce the residual value by the executory costs b. recognize more gross profit on a sales-type lease with a guaranteed residual value than on a sales-type lease with an unguaranteed residual value c. include the unguaranteed residual value in sales revenue d. include the residual value in the receivable measurement because it is assumed the residual value will be realized

d

When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will a. increase if the bonds were issued at a discount. b. decrease if the bonds were issued at a premium. c. increase if the bonds were issued at a premium. d. increase if the bonds were issued at either a discount or a premium.

d

Which of the following describes the lease term test?: a. if the lease term is 90% or more of the economic life, it is a finance lease b. if there is a bargain purchase option during the lease term, it is a finance lease c. if the asset has an alternative use during the lease term, it is a finance lease d. if the lease term is 75% or more of the economic life, it is a finance lease

d

The accumulated benefit obligation measures a) the pension obligation on the basis of the plan formula applied to years of service to date and based on future salary levels. b) the level cost that will be sufficient, together with interest to provide the total benefits at retirement. c) the shortest possible period for funding to maximize the tax deduction. d) the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels

d) the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels

During 2014, Martin Corporation sold merchandise costing $3,500,000 on an installment basis for $5,000,000. The cash receipts related to these sales were collected as follows: 2014, $2,000,000; 2015, $1,750,000; 2016, $1,250,000. ~If expenses, other than the cost of the merchandise sold, related to the 2014 installment sales amounted to $200,000, by what amount would Martin's net income for 2014 increase as a result of installment sales? a. $1,800,000 b. $ 600,000 c. $ 450,000 d. $ 400,000

d. $ 400,000

Sutton Company sells plasma-screen televisions on an installment basis and appropriately uses the installment-sales method of accounting. A customer with an account balance of $2,400 refuses to make any more payments and the merchandise is repossessed. The gross profit rate on the original sale is 40%. Sutton estimates that the television can be sold as is for $750, or for $900 if $60 is spent to refurbish it. The loss on repossession is a. $1,650. b. $960. c. $ 690. d. $ 600.

d. $ 600.

Khan, Inc. reports a taxable and financial loss of $2,250,000 for 2019. Its pretax financial income for the last two years was as follows: 2017 $900,000 2018 1,200,000 The amount that Khan, Inc. reports as a net loss for financial reporting purposes in 2019, assuming that it uses the carryback provisions, and that the tax rate is 30% for all periods affected, is a. $2,250,000 loss. b. $ -0-. c. $675,000 loss. d. $1,575,000 loss.

d. $1,575,000 loss. $2, 250,000 - (30% × $2, 250,000) = $1,575,000.

Deferred tax amounts that are related to specific assets or liabilities should be classified as current or noncurrent based on a. their expected reversal dates. b. their debit or credit balance. c. the length of time the deferred tax amounts will generate future tax deferral benefits. d. the classification of the related asset or liability.

d. the classification of the related asset or liability.

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount for financial statement reporting if a. it appears likely that a future tax rate will be less than the current tax rate. b. it appears likely that a future tax rate will be greater than the current tax rate. c. it is probable that a future tax rate change will occur. d. the enacted tax rate is expected to apply in future years.

d. the enacted tax rate is expected to apply in future years.

Lessees prefer to account for their leases as operating lease because:

d. this decreases the amount of liability reported.

In 2012, Concord Inc. sells inventory with a cost of $32,000 for $50,000. Concord will receive payments of $14,000 in 2012, $26,000 in 2013, and $10,000 in 2014. If the cost-recovery method applies to this transaction, what would be the journal entry to recognize gross profit at the end of 2013? a.Deferred Gross Profit:10,000 Realized Gross Profit: 10,000 b.Realized Gross Profit:18,000 Deferred Gross Profit: 18,000 c.Sales Revenue 50,000 Cost of sales 32,000 Deferred Gross Profit 18,000 d.Deferred Gross Profit8,000 Realized Gross Profit8,000

d.Deferred Gross Profit8,000 Realized Gross Profit8,000

The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of security. An acceptable method of allocation isa. the pro forma method. b.the proportional method. c.the incremental method. d.either the proportional method or the incremental method.

d.either the proportional method or the incremental method.

When declaring a property dividend, a corporation should restate at fair value the property it will distribute, recognizing gain or loss as a difference between the property's fair value and carrying value at _________________________________

date of declaration

The entries for declaration and payment of a cash dividend is not made on the date of payment. date of payment and date of declaration. date of declaration. date of record.

date of record.

The entries for declaration and payment of a cash dividend is not made on the date of record. date of payment. date of payment and date of declaration. date of declaration.

date of record.

(16) When a bond issuer offers some form of additional consideration (a "sweetener") to induce conversion, the sweetener is accounted for as a(n)

debit an expense account

An available-for-sale debt security is purchased at a discount. The entry to record the amortization of the discount includes a none of these answers are correct. debit to Debt Investments. debit to Interest Revenue. debit to the discount account.

debit to Debt Investments.

Blossom Choice sells natural supplements to customers with an unconditional sales return if they are not satisfied. The sales returns extends 60 days. On February 10, 2021, a customer purchases $5000 of products (cost $2500). Assuming that based on prior experience, estimated returns are 30%. The journal entry to record the expected sales return and cost of goods sold includes a credit to Estimated Inventory Returns of $750. debit to Cash and a credit to Sales Revenue of $5000. debit to Sales Returns and Allowance of $1500 and a credit to Allowance for Sales Returns and Allowances of $750. debit to Cost of Goods Sold and credit to Inventory for $2500.

debit to Sales Returns and Allowance of $1500 and a credit to Allowance for Sales Returns and Allowances of $750.

On November 1, 2021, Carla Vista Farm entered into a contract to buy a $145000 harvester from John Deere. The contract required Carla Vista Farm to pay $145000 in advance on November 1, 2021. The harvester (cost of $105000) was delivered on November 30, 2021. The journal entry to record the delivery of the equipment includes a credit to Unearned Sales Revenue for $145000. debit to Unearned Sales Revenue for $145000. credit to Cost of Goods Sold for $105000. debit to Inventory for $105000.

debit to Unearned Sales Revenue for $145000.

In January 2020, Concord Corporation, a newly formed company, issued 11200 shares of its $12 par common stock for $17 per share. On July 1, 2020, Concord Corporation reacquired 1120 shares of its outstanding stock for $14 per share. The acquisition of these treasury shares decreased total stockholders' equity. increased total stockholders' equity. did not change total stockholders' equity. decreased the number of issued shares.

decreased total stockholders' equity.

In January 2020, Sheridan Company, a newly formed company, issued 9900 shares of its $12 par common stock for $17 per share. On July 1, 2020, Sheridan Company reacquired 990 shares of its outstanding stock for $14 per share. The acquisition of these treasury shares decreased the number of issued shares. decreased total stockholders' equity. increased total stockholders' equity. did not change total stockholders' equity.

decreased total stockholders' equity.

The third step in the process for revenue recognition is to identify the separate performance obligations in the contract. allocate transaction price to the separate performance obligations. determine the transaction price. recognize revenue when each performance obligation is satisfied.

determine the transaction price.

Dilutive convertible securities must be used in the computation of

diluted earnings per share only

A convertible bond issue should be included in the diluted earnings per share computation as if the bonds had been converted into common stock, if the effect of its inclusion is

dilutive - yes anti dilutive - no

Property Dividends (Dividends in Kind)

dividends paid when the corporation distributes assets, such as shares of other corporations, to its shareholders proportionate to their shareholdings instead of distributing cash

(18) When multiple performance obligations exist in a contract, they should be accounted for as a single performance obligation when

each service is interdependent and interrelated

When the entity has substantially accomplished what it must do to be entitles to the benefits represented by the revenues, revenues are considered

earned

The interest rate actually earned by bondholders is called the: nominal rate. stated rate. effective rate. coupon rate.

effective rate.

The interest rate actually earned by bondholders is called the > stated rate > nominal rate > effective yield > coupon rate

effective yield

The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is the pro forma method. the proportional method. the incremental method. either the proportional method or the incremental method.

either the proportional method or the incremental method.

Companies should record stock issued for services or property other than cash at either the fair value of stock issued or the _______ of the noncash consideration received, whichever is clearly more determinable

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 minimum legal requirements. book value of the shares issued. fair value of the shares issued. par or stated value of the shares issued.

fair value of the shares issued.

A deferred tax liability represents the decrease in taxes payable in future years as a result of a taxable temporary difference. True False

false

A loss carryback may be foregone and used as a loss carryforward for up to 25 years. True False

false

Companies should classify deferred tax accounts on the balance sheet as current assets or current liabilities. True False

false

Fines and penalties resulting from a violation of law result in deferred tax assets. True False

false

Permanent differences result in deferred tax consequences. True False

false

Pretax financial income is determined according to the Internal Revenue Code. True False

false

Taxable temporary differences give rise to recording deferred tax assets. True False

false

A company accounts for a contract modification as a new contract if the promised goods and services are distinct. the promised goods and services are distinct and the company has the right to receive an amount of consideration that reflects the standalone selling price of the promised goods or services. the company has the right to receive an amount of consideration that reflects the standalone selling price of the promised goods or services. the prospective approach is used.

the promised goods and services are distinct and the company has the right to receive an amount of consideration that reflects the standalone selling price of the promised goods or services.

Common Stock

the residual corporate interest that bears the ultimate risks of loss and receives the benefits of success

(18) If a contract involves a significant financing component,

the time value of money is used to determine the fair value of the transaction

Contributed (Paid In) Capital

the total amount paid in on capital stock - the amount provided by stockholders to the corporation for use in the business

Proceeds from an issue of debt securities having stock warrants should not be allocated between debt and equity features when

the warrants issued with the debt securities are nondetachable

Preemptive Right

to share proportionately in any new issues of stock of the same class

In accounting for a long-term construction-type contract using the percentage of completion method, the gross profit recognized during the first year would be the estimated gross profit from the contract, multiplied by the percentage of the costs incurred during the year to the

total estimated cost

In accounting for a long-term construction-type contract using the percentage-of-completion method, the gross profit recognized during the first year would be the estimated total gross profit from the contract, multiplied by the percentage of costs incurred during the year to the

total estimated cost

(17) Unrealized holding gains or losses which are recognized in income are from debt securities classified as

trading

Dividends are not paid on: treasury common stock. nonparticipating preferred stock. cumulative preferred stock. noncumulative preferred stock.

treasury common stock.

(16) The conversion of preferred stock into common requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be

treated as a direct reduction of retained earnings

The conversion of preferred stock into common stock requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be

treated as a direct reduction of retained earnings

True no par stock should be carried in the accounts at issue price ___________ (with/without) any additional paid in capital or discount reported

without

Lyons Company deducts insurance expense of $210,000 for tax purposes in 2018, but the expense is not yet recognized for accounting purposes. In 2019, 2020, and 2021, no insurance expense will be deducted for tax purposes, but $70,000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 40% and income taxes payable of $180,000 at the end of 2018. There were no deferred taxes at the beginning of 2018. 72. Assuming that income taxes payable for 2019 is $240,000, the income tax expense for 2019 would be what amount? a. $324,000 b. $268,000 c. $240,000 d. $212,000

d. $212,000 $240,000 - ($70,000 × .40) = $212,000.

During 2014, Vaughn Corporation sold merchandise costing $2,250,000 on an installment basis for $3,000,000. The cash receipts related to these sales were collected as follows: 2014, $1,200,000; 2015, $1,050,000; 2016, $750,000. ~What amount would be shown in the December 31, 2015 financial statement for realized gross profit on 2014 installment sales, and deferred gross profit on 2014 installment sales, respectively? a. $262,500 and $562,500 b. $487,500 and $262,500 c. $562,500 and $187,500 d. $262,500 and $187,500

d. $262,500 and $187,500

The following information is available for Kessler Company after its first year of operations: Income before taxes $250,000 Federal income tax payable $104,000 Deferred income tax (4,000) Income tax expense 100,000 Net income $150,000 Kessler estimates its annual warranty expense as a percentage of sales. The amount charged to warranty expense on its books was $95,000. Assuming a 40% income tax rate, what amount was actually paid this year for warranty claims? a. $105,000 b. $100,000 c. $95,000 d. $85,000

d. $85,000 $95,000 - ($4,000 ÷ .40) = $85,000.

The balance in retained earnings at December 31, 2017 was $1,440,000 and at December 31, 2018 was $1,164,000. Net income for 2018 was $1,000,000. A stock dividend was declared and distributed which increased common stock $500,000 and paid-in capital $220,000. A cash dividend was declared and paid. 69. The stock dividend should be reported on the statement of cash flows (indirect method) as a. an outflow from financing activities of $500,000. b. an outflow from financing activities of $720,000. c. an outflow from investing activities of $720,000. d. Stock dividends are not shown on a statement of cash flows.

d. Stock dividends are not shown on a statement of cash flows.

Which of the following is not considered a permanent difference? a. Interest received on municipal bonds. b. Fines resulting from violating the law. c. Premiums paid for life insurance on a company's CEO when the company is the beneficiary. d. Stock-based compensation expense.

d. Stock-based compensation expense.

A company uses the equity method to account for an investment. This would result in what type of difference and in what type of deferred income tax? Type of Difference Deferred Tax a. Permanent Asset b. Permanent Liability c. Temporary Asset d. Temporary Liability

d. Temporary Liability

Tanner, Inc. incurred a financial and taxable loss for 2013. Tanner therefore decided to use the carryback provisions as it had been profitable up to this year. How should the amounts related to the carryback be reported in the 2013 financial statements? a. The reduction of the loss should be reported as a prior period adjustment. b. The refund claimed should be reported as a deferred charge and amortized over five years. c. The refund claimed should be reported as revenue in the current year. d. The refund claimed should be shown as a reduction of the loss in 2013.

d. The refund claimed should be shown as a reduction of the loss in 2013.

79. On September 1, 2020, Valdez Company reacquired 30,000 shares of its $10 par value common stock for $15 per share. Valdez uses the cost method to account for treasury stock. The journal entry to record the reacquisition of the stock should debit a. Treasury Stock for $300,000. b. Common Stock for $300,000. c. Common Stock for $300,000 and Paid-in Capital in Excess of Par for $150,000. d. Treasury Stock for $450,000.

d. Treasury Stock for $450,000.

*108. Jamar Co. sold its headquarters building at a gain, and simultaneously leased back the building. The lease was reported as a capital lease. At the time of the sale, the gain should be reported as

d. a deferred gain.

Gulfport Corporation's taxable income differed from its accounting income computed for this past year. An item that would create a permanent difference in accounting and taxable incomes for Gulfport would be a. making installment sales during the year. b. a balance in the Unearned Rent account at year-end. c. using accelerated depreciation for tax purposes and straight-line depreciation for book purposes. d. a fine resulting from violations of OSHA regulations.

d. a fine resulting from violations of OSHA regulations.

An example of a permanent difference is a. proceeds from life insurance on officers. b. interest expense on money borrowed to invest in municipal bonds. c. insurance expense for a life insurance policy on officers. d. all of these.

d. all of these.

Major reasons for disclosure of deferred income tax information is (are) a. better assessment of quality of earnings. b. better predictions of future cash flows. c. that it may be helpful in setting government policy. d. all of these.

d. all of these.

On December 31, 2017, Winston Inc. has determined that it is more likely than not that $240,000 of a $600,000 deferred tax asset will not be realized. The journal entry to record this reduction in asset value will include a a. debit to Income Tax Payable of $240,000. b. credit to Income Tax Expense for $360,000. c. debit to Income Tax Expense for $360,000. d. credit to the Allowance to Reduce Deferred Tax Asset to Expected Realizable Value of $240,000.

d. credit to the Allowance to Reduce Deferred Tax Asset to Expected Realizable Value of $240,000.

All of the following are examples of temporary differences that result in tax deductions (benefits) in future years, except: a. estimated liabilities related to discontinued operations. b. product warranty liabilities. c. litigation accruals. d. depreciable property.

d. depreciable property.

Deferred tax expense is the: a. amount of income taxes payable for the period. b. decrease in a deferred tax liability. c. increase in a deferred tax asset. d. increase in a deferred tax liability.

d. increase in a deferred tax liability.

A deferred tax liability represents the: a. decrease in taxes payable in future years as a result of taxable temporary differences. b. decrease in taxes saved in future years as a result of deductible temporary differences. c. increase in taxes saved in future years as a result of deductible temporary differences. d. increase in taxes payable in future years as a result of taxable temporary differences.

d. increase in taxes payable in future years as a result of taxable temporary differences.

A corporations must submit _____________________ to the state in which incorporation is desired

Articles of Incorporation

24.Which of the following is accounted for as a change in accounting principle? a. A change in the estimated useful life of plant assets. b. A change from the cash basis of accounting to the accrual basis of accounting. c. A change from expensing immaterial expenditures to deferring and amortizing them as they become material. d. A change in inventory valuation from average cost to FIFO.

d. A change in inventory valuation from average cost to FIFO.

At the beginning of 2018; Elephant, Inc. had a deferred tax asset of $20,000 and a deferred tax liability of $30,000. Pre-tax accounting income for 2018 was $1,500,000 and the enacted tax rate is 40%. The following items are included in Elephant's pre-tax income: Interest income from municipal bonds $120,000 Accrued warranty costs, estimated to be paid in 2019 $260,000 Operating loss carryforward $190,000 Installment sales profit, will be taxed in 2019 $130,000 Prepaid rent expense, will be used in 2019 $60,000 77. Which of the following is required to adjust Elephant, Inc.'s deferred tax asset to its correct balance at December 31, 2018? a. A credit of $104,000 b. A credit of $76,000 c. A debit of $76,000 d. A debit of $84,000

d. A debit of $84,000 ($260,000 X .40) - $20,000 = $84,000.

25. Cash equivalents are a. treasury bills, commercial paper, and money market funds purchased with excess cash. b. investments with original maturities of three months or less. c. readily convertible into known amounts of cash. d. All of these answers are correct.

d. All of these answers are correct.

28. Which of the following disclosures is required for a change from LIFO to FIFO? a. The cumulative effect on prior years, net of tax, in the current retained earnings statement b. The justification for the change c. Restated prior year income statements d. All of these are required.

d. All of these are required.

Which of the following will not result in a temporary difference? a. Product warranty liabilities b. Advance rental receipts c. Installment sales d. All of these will result in a temporary difference.

d. All of these will result in a temporary difference.

59. If the lease was nonrenewable, there was no bargain purchase option, title to the building does not pass to the lessee at termination of the lease and the lease term was only for eight years, what type of lease would this be for the lessee?

d. Capital lease 8/10 = .8 > 75% of economic life.

At December 31, 2017 Raymond Corporation reported a deferred tax liability of $240,000 which was attributable to a taxable temporary difference of $800,000. The temporary difference is scheduled to reverse in 2021. During 2018, a new tax law increased the corporate tax rate from 30% to 40%. Raymond should record this change by debiting a. Retained Earnings for $80,000. b. Retained Earnings for $24,000. c. Income Tax Expense for $24,000. d. Income Tax Expense for $80,000.

d. Income Tax Expense for $80,000. $800,000 x (.40 - .30) = $80,000 Income Tax Expense.

What are the common stock dividend types?

Cash Property Liquidating Stock

With respect to the computation of earnings per share, which of the following would be most indicative of a simple capital structure?

Ownership interest consisting solely of common stock

A claim representing fractional ownership in a for-profit corporation.

Share of Common Stock

D

The conversion of bonds is most commonly recorded by the a. incremental method. b. proportional method. c. market value method. d. book value method.

The stated rate is the same as the coupon rate.

True

Liquidating Dividend

a dividend not based on retained earnings

12 Callable preferred stock permits the corporation at its option to redeem the outstanding preferred shares at stipulated prices.

TRUE

A company uses the EQUITY method to account for an investment for financial reporting purposes. This would result in what type of difference and in what type of deferred income tax: Type of Difference? Deferred Tax?

Temporary /Liability

b. $63,000.

The 10% bonds payable of Nixon Company had a net carrying amount of $950,000 on December 31, 2014. The bonds, which had a face value of $1,000,000, were issued at a discount to yield 12%. The amortization of the bond discount was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year. On July 2, 2015, several years before their maturity, Nixon retired the bonds at 102. The interest payment on July 1, 2015 was made as scheduled. What is the loss that Nixon should record on the early retirement of the bonds on July 2, 2015? Ignore taxes. a. $20,000. b. $63,000. c. $56,000. d. $70,000.

b. $24,000.

The 12% bonds payable of Nyman Co. had a carrying amount of $3,120,000 on December 31, 2014. The bonds, which had a face value of $3,000,000, were issued at a premium to yield 10%. Nyman uses the effective-interest method of amortization. Interest is paid on June 30 and December 31. On June 30, 2015, several years before their maturity, Nyman retired the bonds at 104 plus accrued interest. The loss on retirement, ignoring taxes, is a. $0. b. $24,000. c. $37,200. d. $120,000

At December 31 of year 1 and year 2, Pocoyo 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, year 1, dividends in arrears on the preferred stock were $15,000. Cash dividends declared in year 2 totaled $30,000. Of the $30,000, what amount is payable to preferred stockholders?

The CUMULATIVE preferred shareholders are entitled to a current dividend of $24,000 ($100 x 6% x 4,000) and dividends in arrears of $15,000 for a total of $39,000. BUT dividned of only $30,000 we declared; so, preferred stockholders get the full $30,000 and will start next year $9,000 in arrears. EXTRA: Assume that the pfd shares are NONcumulative. Then pfd stockholders are entitled to current dividend of $24,000 only AND common stockholders get $6,000 left over ($30,000 - $24,000).

c. $55,800.

The December 31, 2014, balance sheet of Hess Corporation includes the following items: 9% bonds payable due December 31, 2023 $3,000,000 Unamortized premium on bonds payable 81,000 The bonds were issued on December 31, 2013, at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1, 2015, Hess retired $1,200,000 of these bonds at 98 plus accrued interest. What should Hess record as a gain on retirement of these bonds? Ignore taxes. a. $56,400. b. $32,400. c. $55,800. d. $60,000

d. $2,950,000.

The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2014, contained the following accounts. 5-year Bonds Payable 8% $2,500,000 Interest Payable 50,000 Premium on Bonds Payable 100,000 Notes Payable (3 months.) 40,000 Notes Payable (5 yr.) 165,000 Mortgage Payable ($15,000 due currently) 200,000 Salaries and wages Payable 18,000 Income Taxes Payable (due 3/15 of 2015) 25,000 The total long-term liabilities reported on the balance sheet are a. $2,865,000. b. $2,850,000. c. $2,965,000. d. $2,950,000.

D

The conversion of preferred stock into common requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be a. reflected currently in income, but not as an extraordinary item. b. reflected currently in income as an extraordinary item. c. treated as a prior period adjustment. d. treated as a direct reduction of retained earnings.

Expenses or losses are deductible BEFORE they are recognized in financial income. Ex. Depreciable Property, Deductible Pension, Prepaid Expenses...

The cost of an ASSET may have been deducted for tax purposes faster than it was expensed for financial reporting purposes. Amounts received upon future recovery of the amount of the asset for financial reporting (through use or sale) will exceed the remaining tax basis of the asset and thereby result in TAXABLE amounts in future years.

A

The date on which to measure the compensation element in a stock option granted to a corporate employee ordinarily is the date on which the employee a. is granted the option. b. has performed all conditions precedent to exercising the option. c. may first exercise the option. d. exercises the option.

Recognition of tax benefits in the loss year due to a loss carryforward requires:

The establishment of a deferred tax asset.

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if:

The future tax rates have been enacted into law.

T/F If a company elects the fair value option for a long-term note payable, its net income will be increased (decreased) by any unrealized holding gains (losses).

True

T/F The effective interest method is preferred when amortizing bond premiums and discounts

True

T/F When assets such as land are transferred in a troubled debt restructuring, the creditor should account for the transferred assets at fair value.

True

The rate of interest actually earned by bondholders is called the Effective, yield, or market rate. True/False

True

Transactions involving the issuance of stock for services or property other than cash should be valued at the fair value of the stock issued. True/False

True

In proportion to ownership: 1. Dividends. 2. Net Assets in Liquidation.. 3. Voting. 4. Preemption

Typical Stockholders' Rights

A company uses the completed-contract method to account for a 4-year construction contract which is currently in its third year. Progress billings were recorded and collected in the third year. Based on events occurring in the third year, a loss is now anticipated on the contract. When would the effect of each of the following be reported in the company's income statement?

Under the completed-contract method, the gross profit on the contract should be recognized upon the completion of the contract. If a loss is anticipated, however, the loss should be recognized immediately. Under GAAP, the entries to record progress billings and their collection do not affect the recognition of gross profit or loss. Thus, the third-year progress billings have no effect on the income statement, but the loss anticipated in the third year should be recognized in full in that year.

C

Under the intrinsic value method, compensation expense resulting from an incentive stock option is generally a. not recognized because no excess of market price over the option price exists at the date of grant. b. recognized in the period of the grant. c. allocated to the periods benefited by the employee's required service. d. recognized in the period of exercise.

Which of the following is not a typically classified as a long-term liability? > Lease liability > Bonds Payable > Mortgage Payable > Unearned Revenue

Unearned Revenue

Which of the following is not a typically classified as a long-term liability? Lease Payable. Mortgage Payable. Unearned Revenue. Bonds Payable.

Unearned Revenue.

Which of the following is not a characteristic of a noncompensatory stock option plan?

Unlimited time period permitted for exercise of an option as long as the holder is still employed by the company.

At the December 31, 2014 balance sheet date, Unruh Corporation reports an accrued receivable for financial reporting purposes but not for tax purposes. When this asset is recovered in 2015, a future taxable amount will occur and:

Unruh will record a DECREASE in a deferred tax liability in 2015.

24. Unrealized holding gains or losses which are recognized in income are from securities classified as a. held-to-maturity. b. available-for-sale. c. trading. d. none of these.

C

Bond issuance costs are: > recorded as an asset > recorded as an interest expense > added to the issue amount of the bond payable > amortized into expense over the life time of the bond

amortized into expense over the life time of the bond

Common stock dividends distributable are reported on the balance sheet as

an addition to common stock

In a defined benefit plan, the funding level depends on all of the following factors except: a) compensation levels. b) interest earnings. c) age of the employer company. d) turnover.

c) age of the employer company.

A company issues $16800000, 5.8%, 20-year bonds to yield 6% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $16411672. Using effective-interest amortization, how much interest expense will be recognized in 2017? $984854 $984730 $974400 $487200

A

Noncash consideration should be

recognized on the basis of fair value of what is received

A major distinction between temporary and permanent differences is:

Temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse.

A company records an unrealized LOSS on Short-Term SECURITIES. This would result in what type of difference and in what type of deferred income tax? Type of Difference?Deferred Tax?

Temporary/ Asset

A distribution of cash from the corporation to its owners that reduces retained earnings only

Cash Dividend

A bond issued in the name of the owner is a: a. convertible bond b. income bond c. registered bond d. bearer bond

c

To avoid leased asset capitalization, companies can devise lease agreements that fail to satisfy any of the four leasing criteria. Which of the following is not one of the ways to accomplish this goal?

c. Write in a bargain purchase option.

Taxable income of a corporation differs from pretax financial income because of Permanent Temporary Differences Differences a. No No b. No Yes c. Yes Yes d. Yes No

c. Yes Yes

Stockholders' equity is generally classified into two major categories: retained earnings and unappropriated capital. earned capital and contributed capital. appropriated capital and retained earnings. contributed capital and appropriated capital.

B

Which of the following differs in GAAP and IFRS?

Accounting for convertible debt

Stockholders' Equity

The owners' equity in a corporation.

The interest rate actually earned by bondholders is called the: a. coupon rate b. effective yield c. nominal rate d. stated rate

b

A bond that matures in installments is called a: a. callable bond b. bearer bond c. term bond d. serial bond

d

Retained Earnings

earned capital of the company

At December 31, 2020, Novak Inc. had a deferred tax asset of $28,700. At December 31, 2021, the deferred tax asset is $56,800. The corporation's 2021 current tax expense is $63,800.What amount should Novak report as total 2021 income tax expense?

35700

A

37. The date on which total compensation expense is computed in a stock option plan is the date a. of grant. b. of exercise. c. that the market price coincides with the option price. c. that the market price exceeds the option price.

The book basis of depreciable assets for Sheffield Co. is $1,008,000, and the tax basis is $784,000 at the end of 2021. The enacted tax rate is 17% for all periods. Determine the amount of deferred taxes to be reported on the balance sheet at the end of 2021.

38080

How should earning but unbilled revenues at the balance sheet date on a long-term construction contract be disclosed if the percentage of completion method of revenue recognition is used

As construction in process in the current asset section of the balance sheet

Bonita Industries had 795000 shares of common stock outstanding on January 1, issued 125000 shares on May 1, purchased 69000 shares of treasury stock on September 1, and issued 52000 shares on November 1. The weighted average shares outstanding for the year is

795000 + (125000 × 8/12) - (69000 × 4/12) + (52000 × 2/12) = 864000.

11 Participating preferred stock requires that if a company fails to pay a dividend in any year, it must make it up in a later year before paying any common dividends.

FALSE

At December 31, 2020, Crane Company had 2100000 shares of common stock outstanding. On January 1, 2021, Crane issued 506000 shares of preferred stock which were convertible into 1010000 shares of common stock. During 2021, Crane declared and paid $1100000 cash dividends on the common stock and $410000 cash dividends on the preferred stock. Net income for the year ended December 31, 2021, was $5070000. Assuming an income tax rate of 30%, what should be diluted earnings per share for the year ended December 31, 2021? (Round to the nearest penny.) $2.03 $2.41 $1.63 $1.46

$1.63 Solution: $5070000/ 2100000 + 1010000 = $1.63

On August 5, 2018, Famous Furniture shipped 40 dining sets on consignment to Furniture Outlet, Inc. The cost of each dining set was $350 each. The cost of shipping the dining sets amounted to $1,800 and was paid for by Famous Furniture. On December 30, 2018, the consignee reported the sale of 30 dining sets at $850 each. The consignee remitted payment for the amount due after deducting a 6% commission, advertising expense of $600, and installation and setup costs of $780. The total profit on units sold for the consignor is

$10,290

On June 1, 2018, 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 2018 is

$100,000 sales revenue and $5,833 interest revenue

Sheridan Construction Company had a contract starting April 2021, to construct a $24500000 building that is expected to be completed in September 2023, at an estimated cost of $22500000. At the end of 2021, the costs to date were $11475000 and the estimated total costs to complete had not changed. The progress billings during 2021 were $5300000 and the cash collected during 2021 was 3250000. Sheridan uses the percentage-of-completion method.For the year ended December 31, 2021, Sheridan would recognize gross profit on the building of: $0. $1020000. $936735. $11025000.

$1020000.

(17) Pharoah Company purchased $1100000 of 10% bonds of Scott Company on January 1, 2021, paying $1026375. The bonds mature January 1, 2031; interest is payable each July 1 and January 1. The discount of $73625 provides an effective yield of 11%. Pharoah Company uses the effective-interest method and plans to hold these bonds to maturity. For the year ended December 31, 2021, Pharoah Company should report interest revenue from the Scott Company bonds of:

$112981

Sunland Company has outstanding 606000 shares of $2 par common stock and 126000 shares of no-par 6% preferred stock with a stated value of $5. The preferred stock is cumulative and nonparticipating. Dividends have been paid in every year except the past two years and the current year.Assuming that $235000 will be distributed as a dividend in the current year, how much will the common stockholders receive? Zero. $159400. $121600. $197200.

$121600.

Waterway Industries has outstanding 642000 shares of $2 par common stock and 127000 shares of no-par 6% preferred stock with a stated value of $5. Dividends have been paid in every year except the past two years and the current year.Assuming that $267000 will be distributed, and the preferred stock is cumulative and participating, how much will the common stockholders receive? $139370. $152649. $ 76200. $127630.

$127630.

Vaughn Manufacturing started business in 2015 by issuing 193000 shares of $19 par common stock for $26 each. In 2020, 24000 of these shares were purchased for $38 per share by Vaughn Manufacturing and held as treasury stock. On June 15, 2021, these 24000 shares were exchanged for a piece of property that had an assessed value of $751000. Vaughn's stock is actively traded and had a market price of $44 on June 15, 2021. The cost method is used to account for treasury stock. The amount of paid-in capital from treasury stock transactions resulting from the above events would be $209000. $444000. $741000. $144000.

$144000.

Crane Construction Corporation contracted to construct a building for $7480000. Construction began in 2021 and was completed in 2022. Data relating to the contract are summarized below: Year endedDecember 31, 20212022Costs incurred$2985000$2240000Estimated costs to complete19900000 Crane uses the percentage-of-completion method as the basis for income recognition. For the years ended December 31, 2021, and 2022, respectively, Crane should report gross profit of $1503000 and $752000. $1353000 and $902000. $0 and $2240000. $4495000 and $2985000.

$1503000 and $752000.

On November 1, 2021, Blossom Company purchased Sunland, Inc., 10-year, 9%, bonds with a face value of $780000, for $700000. An additional $22000 was paid for the accrued interest. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2028. Blossom uses the straight-line method of amortization. Ignoring income taxes, the amount reported in Blossom's 2021 income statement as a result of Blossom's available-for-sale investment in Sunland was $11650. $15100. $13100. $14550.

$15100 Solution: ($780000 × .09/2) + ($80000 × 2/80) - $22000 = $15100.

Vaughn Manufacturing has 163000 shares of $10 par value common stock and 81500 shares of $10 par value, 4%, cumulative, participating preferred stock outstanding. Dividends on the preferred stock are one year in arrears. Assuming that Vaughn wishes to distribute $260000 as dividends, the common stockholders will receive $108410. $194800. $ 65200. $151590.

$151590.

Oriole Company issued at a premium of $10200 a $209000 bond issue convertible into 3000 shares of common stock (par value $20). At the time of the conversion, the unamortized premium is $3700, the market value of the bonds is $229000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds? $159200 $172700 $149000 $152700

$152700 Solution: $209000 + $3700 - (3000 × $20) = $152700.

Presented below is the stockholders' equity section of Sunland Company at December 31, 2020: Common stock, par value $20; authorized 75,000 shares; issued and outstanding 44000 shares. $ 880000 Paid-in capital in excess of par value. 345000 Retained earnings 506000 $1731000 During 2021, the following transactions occurred relating to stockholders' equity: 3000 shares were reacquired at $28 per share. 3100 shares were reacquired at $34 per share. 1700 shares of treasury stock were sold at $30 per share. For the year ended December 31, 2021, Sunland reported net income of $455000. Assuming Sunland accounts for treasury stock under the cost method, what should it report as total stockholders' equity on its December 31, 2021, balance sheet? $2040600. $1592600. $2047600. $2044100.

$2047600. Solution: $1731000 - (3000 × $28) - (3100 × $34) + (1700 × $30) + $455000 = $2047600.

On December 31, 2021, Sunland Corporation leased a plane from Bell Company for an 7-year period expiring December 31, 2028. Equal annual payments of $444000 are due on December 31 of each year, beginning with December 31, 2021. The lease is properly classified as a finance lease on Sunland's books. The present value at December 31, 2021 of the 8 lease payments over the lease term discounted at 11% is $2536215. Assuming the first payment is made on time, the amount that should be reported by Sunland Corporation as the lease liability on its December 31, 2021 balance sheet is $2371199. $2092215. $2536215. $2322359.

$2092215. Solution: $2536215 - $444000 = $2092215.

The following information has been taken from the ledger accounts of Sage Corporation. Total income since incorporation $334,000 Total cash dividends paid 62,000 Total value of stock dividends distributed 32,000 Gains on treasury stock transactions 17,000 Unamortized discount on bonds payable 33,000 Determine the current balance of retained earnings.

$240000 Total income since incorporation $334,000 Less: Total cash dividends paid $62,000 and Total value of stock dividends 32,000 94,000 Current balance of retained earnings $240,000 The unamortized discount on bonds payable is shown as a contra liability; the gains on treasury stock are recorded as additional paid-in capital.

At December 31, 2017, Bonita Industries had 792000 shares of common stock outstanding. On October 1, 2018, an additional 161000 shares of common stock were issued. In addition, Bonita had $10300000 of 4% convertible bonds outstanding at December 31, 2017, which are convertible into 370000 shares of common stock. No bonds were converted into common stock in 2018. The net income for the year ended December 31, 2018, was $2430000. Assuming the income tax rate was 25%, the diluted earnings per share for the year ended December 31, 2018, should be (rounded to the nearest penny)

$2430000 + ($10300000 × 0.04 × 0.75)/ 792000 + (161000 × 3/12 ) + 370000

(16) In 2020, Sheridan Company, issued for $102 per share, 94000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Sheridan'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?

$2538000

Vaughn Manufacturing has 568000 shares of $10 par value common stock outstanding. During the year, Vaughn declared a 16% stock dividend when the market price of the stock was $28 per share. Four months later Vaughn declared a $0.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by $499840. $ 454400. $2874080. $1272320.

$2874080.

Sheffield Corp. had net income for 2021 of $601000. The average number of shares outstanding for the period was 193000 shares. The average number of shares under outstanding options, at an option price of $30 per share is 11700 shares. The average market price of the common stock during the year was $36. What should Sheffield Corp. report for diluted earnings per share for the year ended 2021? $2.94 $3.11 $3.08 $2.96

$3.08 Solution: [($36 - $30) ÷ $36] × 11700 = 1950 $601000 ÷ (193000 + 1950) = $3.08.

Oriole, Inc. leased equipment from Tower Company under a 4-year lease requiring equal annual payments of $374152, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4 year useful life and no salvage value. Oriole, Inc.'s incremental borrowing rate is 9% and the rate implicit in the lease (which is known by Oriole, Inc.) is 7%. Assuming that this lease is properly classified as a finance lease, what is the amount of Lease Liability reduction recorded from the second payment? PV Annuity Due. PV Ordinary Annuity 7%, 4 periods. 3.62432 3.38721 9%, 4 periods. 3.53129 3.23972 $374152 $285439 $305419 $253038

$305419 Solution: $374152 × 3.62432 = $1356047; $374152 - [($1356047 - $374152) × 0.07] = $305419.

The summarized balance sheets of Sandhill Company and Whispering Company as of December 31, 2021 are as follows: Sandhill Company Balance Sheet December 31, 2021 Assets $2200000 Liabilities $260000 Capital stock. 1100000 Retained earnings. 840000 Total equities. $2200000 Whispering Company Balance Sheet December 31, 2021 Assets $1640000 Liabilities. $370000 Capital stock. 1070000 Retained earnings. 200000 Total equities. $1640000 If Sandhill Company acquired a 20% interest in Whispering Company on December 31, 2021 for $310000 and the fair value method of accounting for the investment were used, the amount of the debit to Equity Investments (Whispering) would have been $254000. $328000. $214000. $310000.

$310000

Windsor financial income for Lake Inc. is $282,000, and its taxable income is $94,000 for 2021. Its only temporary difference at the end of the period relates to a $65,800 difference due to excess depreciation for tax purposes. If the tax rate is 20% for all periods, compute the amount of income tax expense to report in 2021. No deferred income taxes existed at the beginning of the year.

31960

Information concerning the capital structure of Sheridan Company is as follows: December 31, 2018 2017 Common stock 152000 shares 152000 shares Convertible preferred stock 14000 shares 14000 shares 5% convertible bonds $2350000 $2350000 During 2018, Sheridan paid dividends of $0.70 per share on its common stock and $3.00 per share on its preferred stock. The preferred stock is convertible into 29200 shares of common stock. The 5% convertible bonds are convertible into 75400 shares of common stock. The net income for the year ended December 31, 2018, was $398000. Assume that the income tax rate was 32%. What should be the basic earnings per share for the year ended December 31, 2018, rounded to the nearest penny?

$398000 - (14000 × $3.00)/152000= $2.34.

On January 2, 2021, Oriole Company issued at par $1950000 of 6% convertible bonds. Each $1000 bond is convertible into 10 shares of common stock. No bonds were converted during 2021. Oriole had 190000 shares of common stock outstanding during 2021. Oriole's 2021 net income was $904000 and the income tax rate was 35%. Oriole's diluted earnings per share for 2021 would be (rounded to the nearest penny): $4.68. $4.76. $4.82. $5.12.

$4.68. Solution: ($1950000 ÷ $1000) × 10 = 19500 $1950000 × 0.06 × (1 - 0.35) = $76050 ($904000 + $76050) ÷ (190000 + 19500) = $4.68.

Information concerning the capital structure of Sunland Company is as follows: December 31, 2018 2017 Common stock 144000 shares 144000 shares Convertible preferred stock 15800 shares 15800 shares 7% convertible bonds $2400000 $2400000 During 2018, Sunland paid dividends of $0.90 per share on its common stock and $3.00 per share on its preferred stock. The preferred stock is convertible into 31000 shares of common stock. The 7% convertible bonds are convertible into 74800 shares of common stock. The net income for the year ended December 31, 2018, was $400000. Assume that the income tax rate was 32%. What should be the diluted earnings per share for the year ended December 31, 2018, rounded to the nearest penny?

$400000 + ($2400000 × 0.07 × 0.68)/144000 + 74800 + 31000= $2.06.

Presented below is information related to Marigold Corp.: Common Stock, $1 par $3580000 Paid-in Capital in Excess of Par―Common Stock 546000 Preferred 8 1/2% Stock, $50 par 2090000 Paid-in Capital in Excess of Par―Preferred Stock 396000 Retained Earnings 1520000 Treasury Common Stock (at cost) 153000 The total paid-in capital (cash collected) related to the common stock is $4126000. $3976000. $5550000. $3580000.

$41260000 Solution: $3580000 + $546000 = $4126000.

Debt securities that are bought and held primarily for sale in the near term are reported at: fair value. cost. net realizable value. amortized cost.

Fair Value

(17) Cullumber Company purchased $2100000 of 9% bonds of Scott Company on January 1, 2021, paying $1986375. The bonds mature January 1, 2031; interest is payable each July 1 and January 1. The discount of $113625 provides an effective yield of 10%. Cullumber Company uses the effective-interest method and plans to hold these bonds to maturity. On July 1, 2021, Cullumber Company should increase its Debt Investments account for the Scott Company bonds by

$4819

Seasons Construction is constructing an office building under contract for Cannon Company and uses the percentage-of-completion method. The contract calls for progress billings and payments of $1,550,000 each quarter. The total contract price is $18,600,000 and Seasons estimates total costs of $17,750,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2018 At December 31,2018, Seasons estimates that it is 30% complete with the construction, based on costs incurred. What is the total amount of Revenue from Long-Term Contracts recognized for 2018 and what is the balance in the Accounts Receivable account assuming Cannon Company has not yet made its last quarterly payment?

$5,580,000 and $1,550,000

On January 1, 2021, Oriole Corporation signed a 5-year noncancelable lease for equipment. The terms of the lease called for Oriole to make annual payments of $191000 at the beginning of each year for 5 years beginning on January 1, 2021 with the title passing to Oriole at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Oriole uses the straight-line method of depreciation for all of its fixed assets. Oriole accordingly accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $783567 at an effective interest rate of 11%.In 2022, Oriole should record interest expense of $51342. $72352. $65182. $44172.

$51342. Solution: $783567 - $191000 = $592567 [$592567 - ($191000 - $65182)] × 0.11 = $51342.

Oriole Corporation has the following investment which was held throughout 2021-2022: Fair Value Cost 12/31/21. 12/31/22 Equity investment. $924000. $1227000. $1170000 What amount of gain or loss would Oriole Corporation report in its income statement for the year ended December 31, 2022 related to its investment, if the fair value method of accounting was used? $57000 gain. $57000 loss. $303000 gain. $246000 gain.

$57000 loss. Solution: $1227000 - $1170000 = $57000 loss.

Gomez, Inc. began work in 2018 on contract #3814, which provided for a contract price of $19,200,000. Other details below: 2018 and 2019: Costs incurred during the year: $3,200,000 and $9,800,000 Estimated costs to complete, as of Dec 31: $9,600,000 and $0 Billings during the year: $3,600,000 and $14,400,000 Collections during the year: $2,400,000 and $15,600,000 Assume that Gomez uses the completed-contract method of accounting. The portion of the total gross profit to be recognized as income in 2019 is

$6,200,000

Bramble Corp. has 100000 shares of $10 par common stock authorized. The following transactions took place during 2020, the first year of the corporation's existence:Sold 19800 shares of common stock for $14.50 per share.Issued 20900 shares of common stock in exchange for a patent valued at $313500.At the end of the Bramble's first year, total paid-in capital amounted to $600600. $313500. $133500. $287100.

$600600.

The stockholders' equity section of Waterway Industries as of December 31, 2020, was as follows: Common stock, par value $2; authorized 19300 shares; issued and outstanding 9650 shares $ 19300 Paid-in capital in excess of par 33000 Retained earnings 88000 $140300 On March 1, 2021, the board of directors declared a 16% stock dividend, and accordingly 1544 additional shares were issued. On March 1, 2021, the fair value of the stock was $7 per share. For the two months ended February 28, 2021, Waterway sustained a net loss of $15200.What amount should Waterway report as retained earnings as of March 1, 2021? $66624. $80324. $75692. $61992.

$61992.

On January 1, 2021, Sheffield Corp. granted stock options to officers and key employees for the purchase of 18000 shares of the company's $1 par common stock at $18 per share as additional compensation for services to be rendered over the next three years. The options are exercisable during a five-year period beginning January 1, 2024 by grantees still employed by Sheffield. The Black-Scholes option pricing model determines total compensation expense to be $186300. The market price of common stock was $24 per share at the date of grant. The journal entry to record the compensation expense related to these options for 2021 would include a credit to the Paid-in Capital—Stock Options account for $37260. $62100. $32400. $0.

$62100. Solution: $186300 ÷ 3 = $62100.

Cougar Capital Corp declares a property dividend on June 1, 20X1 to common share owners of record on June 30, 20X1. The dividend will be paid on July 15, 20X1. They will distribute bonds with a market value of $5,000,000 and a carrying value of $4,000,000. Record the declaration, date of record and payment date. By what amount does total stockholders' equity change as a result of the property dividend declaration and distribution?

4,000,000

On January 1, 2021, Carla Vista Corporation signed a 5-year noncancelable lease for equipment. The terms of the lease called for Carla Vista to make annual payments of $207000 at the beginning of each year for 5 years beginning on January 1, 2021 with the title passing to Carla Vista at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Carla Vista uses the straight-line method of depreciation for all of its fixed assets. Carla Vista accordingly accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $849206 at an effective interest rate of 11%.In 2021, Carla Vista should record interest expense of $136357. $113587. $93413. $70643.

$70643. Solution: ($849206 - $207000) × 0.11 = $70643.

Meyer & Smith 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. Container Corporation purchased computer equipment, installation and training for a total cost of $144,000 on March 15, 2018. Estimated standalone fair values of the equipment, installation, and training are $90,000, $60,000, and $30,000 respectively. The transaction price allocated to equipment, installation and training is

$72,000, $48,000 and $24,000 respectively

Presented below is information related to Bonita Industries: Common Stock, $1 par $3490000 Paid-in Capital in Excess of Par―Common Stock 543000 Preferred 8 1/2% Stock, $50 par 2180000 Paid-in Capital in Excess of Par―Preferred Stock 399000 Retained Earnings 1510000 Treasury Common Stock (at cost) 147000 The total stockholders' equity of Bonita Industries is $7975000. $6612000. $8122000. $6465000.

$7975000. Solution: $3490000 + $399000 + $543000 + $2180000 + $1510000 - $147000 = $7975000.

Crane Construction is constructing an office building under contract for Cannon Company and uses the percentage-of-completion method. The contract calls for progress billings and payments of $1450000 each quarter. The total contract price is $18168000 and Crane estimates total costs of $17250000. Crane estimates that the building will take 3 years to complete, and commences construction on January 2, 2021. At December 31, 2021, Crane estimates that it is 30% complete with the construction, based on costs incurred.At December 31, 2022, Crane Construction estimates that it is 80% complete with the building; however, the estimate of total costs to be incurred has risen to $17450000 due to unanticipated price increases. What is the total amount of Construction Expenses that Crane will recognize for the year ended December 31, 2022? $13960000 $8509600 $8349600 $8785000

$8785000

Sunland Construction enters into a contract with a customer to build a warehouse for $890000 on March 30, 2021 with a performance bonus of $60000 if the building is completed by July 31, 2021. The bonus is reduced by $12000 each week that completion is delayed. Sunland commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by. Probability July 31, 2021. 60% August 7, 202130%August 14, 20215%August 21, 20215% The transaction price for this transaction is

$943400

Sheridan, Inc. leased equipment from Tower Company under a 4-year lease requiring equal annual payments of $274152, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. If Sheridan, Inc.'s incremental borrowing rate is 9% and the rate implicit in the lease (which is known by Sheridan, Inc.) is 7%, what is the amount recorded for the leased asset at the lease inception? PV Annuity Due. PV Ordinary Annuity 7%, 4 periods 3.62432 3.38721 9%, 4 periods 3.53129 3.23972 $993615 $888176 $928610 $968110

$993615 Solution: $274152 × 3.62432 = $993615.

On January 2, 2018, Crane Company issued at par $1920000 of 5% convertible bonds. Each $1000 bond is convertible into 10 shares of common stock. No bonds were converted during 2018. Crane had 206000 shares of common stock outstanding during 2018. Crane's 2018 net income was $904000 and the income tax rate was 25%. Crane's diluted earnings per share for 2018 would be (rounded to the nearest penny):

($1920000 ÷ $1000) × 10 = 19200 $1920000 × 0.05 × (1 - 0.25) = $72000 ($904000 + $72000) ÷ (206000 + 19200) = $4.33

Coronado Industries had 1,000,000 shares of common stock issued and outstanding at December 31, 2017. On July 1, 2018 an additional 1,000,000 shares were issued for cash. Coronado also had stock options outstanding at the beginning and end of 2018 which allow the holders to purchase 296000 shares of common stock at $21 per share. The average market price of Coronado's common stock was $28 during 2018. The number of shares to be used in computing diluted earnings per share for 2018 is:

(1,000,000 × 6/12) + (2,000,000 × 6/12) + [((28 - 21) ÷ 28) × 296000] = 1574000.

(CPA) On July 1, 2010, 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 $125,000. 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

(24 * 2500) + (18 * 5000) = 150,000 (5,000 * 18) / 150,000 = .6 * 125,000 = 75,000

Direct costs incurred to sell stock such as underwriting costs should be accounted 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. 3 1 or 3 1 2

1

Which of the following temporary differences results in a deferred tax asset in the year the temporary difference originates? (1-4)

1 and 2 only.1. Accrual for product warranty liability. 2. Subscriptions received in advance.

On September 30, year 1, Grey Company announces a 10% stock dividend on its $10 par common stock. The market value per share at the time was $50. Grey stockholder's equity accounts immediately before issuance of the stock dividend shares were as follows: Common stock $10 par; 300,000 shares authorized outstanding $ 3,000,000 Additional paid-in capital 4,000,000 Retained Earnings 32,000,000 1) By what amount should retained earnings be reduced as a result of this stock dividend? 2) By what amount should total stockholders' equity change as a result of this stock dividend?

1) 1,500,000 2) 0

Blossom Company's current income taxes payable related to its taxable income for 2020 is $373,000. In addition, Blossom's deferred tax liability increased $42,000 and its deferred tax asset increased $11,000 during 2020. What is Blossom's income tax expense for 2020?

404000

No-Treble Corporation has issued 417,700 shares of $8 par value common stock and has 317,700 shares outstanding. The corporation declares a 15% stock dividend when the fair value of the stock is $66 per share. 1)The stock dividend declaration results in what amount being entered to retained earnings? 2)The stock dividend declaration results in what amount being entered to paid-in capital in excess of par-common stock? 3)The stock dividend declaration results in what amount of net change to total stockholders' equity?

1)317,700 * 15% * 66 = 3,145,230 2)317,700 * 15% * 8 = 381,240 3,145,230 - 381,240 = 2,763,990 3)$0. STOCK dividends don't change total stockholders' equity, total assets or total liabilities. They only result in amounts being transferred from R/E to contributed capital accounts and an increase in the number of shares outstanding.

Tarasen Co. began its business last year and issued 20,000 shares of common stock at $3 per share. The par value of the stock is $1 per share. During January of the current year, Tarasen Co. bought back 1,500 shares at $6 per share, which were reported as treasury stock. The treasury stock shares were reissued later in the current year at $10 per share. Tarasen Co. used the cost method to account for its equity transactions. What amount should Tarasen Co. report as paid-in capital related to its treasury stock transactions on its balance sheet for the current year?

1,500 * 10 = 15,000 1,500 * 6 = 9,000 15,000 - 9,000 = 6,000 or: 1500* $4=6000

(16) Stock Appreciation Rights (SARs)

1. Grant employees SARs to reward performance, they are only valuable if the mkt price goes up to a pre-specified level. 2. For equity based SARs, employee gets shares of the company if target mkt price is met. 3. For liabilty-based SARs, the employee would get cash (if target is met) at the end of the period benefit.

Revenue Recognition (5 Step Process)

1. Identify the contract with customers (commercial, parties approved, rights of the parties, payment terms identified, etc) 2. Identify the separate performance obligations (distinct products and services are one, performance obligations are separate) 3. Determine the transaction price (variable, contingent, or noncash) 4. Allocate the transaction price (Use ratio of standalone selling price. If not available use adj. mkt assestment, exptd costs + reasonable margin, residual approach) 5. Recognize revenue as performace obligations are satisfied (seller has right to pymt from customer, title transfer to customer, customer accepted product, etc)

Special Characteristics of the Corporate Form that Affect Accounting

1. Influence of state corporate law 2. Use of the capital stock or share system 3. Development of a variety of ownership investments

Uncertain tax positions...(1-4)

1. Only. 1. Uncertain tax positions are positions for which the tax authorities may disallow a deduction in whole

3 Primary Forms of Business Organization

1. Proprietorship 2. Partnership 3. Corporation

(16) 2 reasons convertible debt is issued

1. To raise equity capital ($) w/o giving up more ownership control 2. Issue debt financing at cheaper interest rates

(16) Convertible preferred stock

1. Treated as equity 2. Record it as Pref Stock and PICXSPV-PS 3. Record conversion using "book value method" **Wipe out Pref Stock and PICXSPV-PS accnt and credit Common Stock at par and if more credit is needed credit PICXSPV-CS, if more debit is needed then debit RE

(16) Stock compensation plans

1. align employees with stockholders 2. restricted form of a call option (purchase @ a fixed price over a specified period of time) 3. vesting period (time the employee must remain at the company before exercising the options) 4. Expiration date (can no longer exercise the options) **Employees will only exercise options when mkt value > (greater than) exercise price. When options are "in the money"

Reasons corporations purchase their outstanding stock

1. to provide tax efficient distributions of excess cash to shareholders 2. to increase earnings per share and return on equity 3. to provide stock for employee stock compensation contracts or to meet potential merger needs 4. to thwart takeover attempts or to reduce the number of stockholders 5. to make a market in the stock

100. Didde Corp. prepared the following reconciliation of income per books with income per tax return for the year ended December 31, 2015: Book income before income taxes $1,800,000 Add temporary difference Construction contract revenue which will reverse in 2016 160,000 Deduct temporary difference Depreciation expense which will reverse in equal amounts in each of the next four years (640,000) Taxable income $1,320,000 Didde's effective income tax rate is 34% for 2015. What amount should Didde report in its 2015 income statement as the current provision for income taxes? a. $ 54,400 b. $448,800 c. $612,000 d. $666,400

100. b ($1,320,000 × 34%) = $448,800

101. In its 2014 income statement, Cohen Corp. reported depreciation of $1,850,000 and interest revenue on municipal obligations of $350,000. Cohen reported depreciation of $2,750,000 on its 2014 income tax return. The difference in depreciation is the only temporary difference, and it will reverse equally over the next three years. Cohen's enacted income tax rates are 35% for 2014, 30% for 2015, and 25% for 2016 and 2017. What amount should be included in the deferred income tax liability in Hertz's December 31, 2014 balance sheet? a. $240,000 b. $310,000 c. $375,000 d. $437,500

101. a ($300,000 × 30%) + ($300,000 × 25%) + ($300,000 × 25%) = $240,000

102. Dunn, Inc. uses the accrual method of accounting for financial reporting purposes and appropriately uses the installment method of accounting for income tax purposes. Installment income of $1,800,000 will be collected in the following years when the enacted tax rates are: (Photo) The installment income is Dunn's only temporary difference. What amount should be included in the deferred income tax liability in Dunn's December 31, 2015 balance sheet? a. $450,000 b. $513,000 c. $567,000 d. $630,000

102. a ($360,000 × 30%) + ($540,000 × 30%) + ($720,000 × 25%) = $450,000

C

34. Which of the following is not a characteristic of a noncompensatory stock option plan? a. Substantially all full-time employees may participate on an equitable basis. b. The plan offers no substantive option feature. c. Unlimited time period permitted for exercise of an option as long as the holder is still employed by the company. d. Discount from the market price of the stock no greater than would be reasonable in an offer of stock to stockholders or others.

103. For calendar year 2014, Kane Corp. reported depreciation of $1,200,000 in its income statement. On its 2014 income tax return, Kane reported depreciation of $1,800,000. Kane's income statement also included $225,000 accrued warranty expense that will be deducted for tax purposes when paid. Kane's enacted tax rates are 30% for 2014 and 2015, and 24% for 2016 and 2017. The depreciation difference and warranty expense will reverse over the next three years as follows: (Photo) These were Kane's only temporary differences. In Kane's 2014 income statement, the deferred portion of its provision for income taxes should be a. $200,700. b. $112,500. c. $101,700. d. $109,800.

103. c ($240,000 - $45,000) × 30% = $58,500; ($210,000 - $75,000) × 24% = $32,400; ($150,000 - $105,000) × 24% = $10,800; $58,500 + $32,400 + $10,800 = $101,700

104. Wright Co., organized on January 2, 2014, had pretax accounting income of $640,000 and taxable income of $2,080,000 for the year ended December 31, 2014 The only temporary difference is accrued product warranty costs which are expected to be paid as follows: 2015 $480,000 2016 240,000 2017 240,000 2018 480,000 The enacted income tax rates are 35% for 2014, 30% for 2015 through 2017, and 25% for 2018. If Wright expects taxable income in future years, the deferred tax asset in Wright's December 31, 2014 balance sheet should be a. $288,000. b. $336,000. c. $408,000. d. $504,000.

104. c ($480,000 + $240,000 + $240,000) × 30% = $288,000; $480,000 × 25% = $120,000; $288,000 + $120,000 = $408,000

Sweet Corporation has a cumulative temporary difference related to depreciation of $628,000 at December 31, 2020. This difference will reverse as follows: 2021, $46,000; 2022, $263,000; and 2023, $319,000. Enacted tax rates are 17% for 2021 and 2022, and 20% for 2023.Compute the amount Sweet should report as a deferred tax liability at December 31, 2020.

116330

PC Law Firm provides services for Cougar Capital Corp and bills $100,000 for their services, which cost them $70,000 to provide. Cougar pays PC Law Firm with 100,000 shares of stock. Cougar's common stock has a par value of $2 per share. The common stock shares trade actively and was trading for $1.20 per share on the day Cougar issued the stock PC Law Firm. At what amount should the stock issuance be recorded on Cougar's books?

120,000

Bramble Corp., has 5000 shares of 4%, $50 par value, cumulative preferred stock and 100000 shares of $1 par value common stock outstanding at December 31, 2021, and December 31, 2020. The board of directors declared and paid an $7900 dividend in 2020. In 2021, $38200 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2021? $20000 $10000 $27900 $12100

12100

Stellar Technology Inc. began operations in 2017 and reported pretax financial income of $519,000 for the year. Stellar's tax depreciation exceeded its book depreciation by $35,000. Stellar's tax rate for 2017 and years thereafter is 35%. In its December 31, 2017, balance sheet, what amount of deferred tax liability should be reported?

12250

Coronado Industries had 1410000 shares of common stock issued and outstanding at December 31, 2017. On July 1, 2018 an additional 1246000 shares were issued for cash. Coronado also had stock options outstanding at the beginning and end of 2018 which allow the holders to purchase 376000 shares of common stock at $20 per share. The average market price of Coronado's common stock was $25 during 2018. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2018?

1410000 + (1246000 × 6/12) + [(25 - 20)/25 × 376000] = 2108200.

At the end of the year, Sheridan Co. has pretax financial income of $506,000. Included in the $506,000 is $64,400 interest income on municipal bonds, $23,000 fine for dumping hazardous waste, and depreciation of $55,200. Depreciation for tax purposes is $41,400. Compute income taxes payable, assuming the tax rate is 30% for all periods.

143520

Nash Inc. has a deferred tax liability of $55,760 at the beginning of 2021. At the end of 2021, it reports accounts receivable on the books at $73,800 and the tax basis at zero (its only temporary difference). If the enacted tax rate is 17% for all periods, and income taxes payable for the period is $188,600, determine the amount of total income tax expense to report for 2021.

145386

(CPA) Horton Co. was organized on January 2, 2010, with 500,000 authorized shares of $10 par value common stock. During 2010, Horton had the following capital transactions: January 5—issued 375,000 shares at $14 per share. July 27—purchased 25,000 shares at $11 per share. November 25—sold 15,000 shares of treasury stock at $13 per share. Horton used the cost method to record the purchase of the treasury shares. What would be the balance in the Paid-in Capital from Treasury Stock account at December 31, 2010?

15,000 * $2 = 30,000

Porter Co. began its business last year and issued 20,000 shares of common stock at $3 per share. The par value of the stock is $1 per share. During January of the current year, Porter bought back 1,000 shares at $10 per share, which were reported by Porter as treasury stock. The treasury stock shares were reissued later in the current year at $12 per share. Porter used the cost method to account for its equity transactions. What amount should Porter report as paid-in capital related to its treasury stock transactions on its balance sheet for the current year?

2,000

At December 31, 2020, Monty Corporation had an estimated warranty liability of $108,000 for accounting purposes and $0 for tax purposes. (The warranty costs are not deductible until paid.) The effective tax rate is 20%.Compute the amount Monty should report as a deferred tax asset at December 31, 2020.

21600

In 2020, Carla Corporation had pretax financial income of $172,000 and taxable income of $125,000. The difference is due to the use of different depreciation methods for tax and accounting purposes. The effective tax rate is 20%.Compute the amount to be reported as income taxes payable at December 31, 2020

25000

B

27. The conversion of preferred stock may be recorded by the a. incremental method. b. book value method. c. market value method. d. par value method.

No-Treble Corporation has issued 417,700 shares of $8 par value common stock and has 317,700 shares outstanding. The corporation declares a 115% stock dividend when the fair value of the stock is $66 per share. The stock dividend declaration results in what amount being entered to retained earnings ?

317,700 * 1.15 * 8 = 2,922,840

54. Lehman Corporation purchased a machine on January 2, 2013, for $3,000,000. The machine has an estimated 5-year life with no salvage value. The straight-line method of depreciation is being used for financial statement purposes and the following MACRS amounts will be deducted for tax purposes: 2013 $600,000 2014 960,000 2015 576,000 2016 $345,000 2017 345,000 2018 174,000 Assuming an income tax rate of 30% for all years, the net deferred tax liability that should be reflected on Lehman's balance sheet at December 31, 2014 be Deferred Tax Liability Current - Noncurrent a. $0- $108,000 b. $7,200 - $100,800 c. $100,800 - $7,200 d. $108,000 - $0

54. a ($960,000 - $600,000) × 30% = $108,000 Noncurrent

On July 1, 2010, Nall Co. issued 5,000 shares of its $10 par common stock and 10,000 shares of its $10 par convertible preferred stock for a lump sum of $800,000. At this date, Nall's common stock was selling for $40 per share and the convertible preferred stock for $50 per share. The amount of the proceeds allocated to Nall's book value of preferred stock at issuance should be

571,429

Use the following information for questions 58 through 60. Hopkins Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $1,500,000 Estimated litigation expense 2,000,000 Extra depreciation for taxes (3,000,000) Taxable income $ 500,000 The estimated litigation expense of $2,000,000 will be deductible in 2015 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $1,000,000 in each of the next three years. The income tax rate is 30% for all years. 58. Income taxes payable is a. $0. b. $150,000. c. $300,000. d. $450,000. 59. The deferred tax asset to be recognized is a. $150,000 current. b. $300,000 current. c. $450,000 current. d. $600,000 current. 60. The deferred tax liability to be recognized is Current - Noncurrent a. $300,000 - $600,000 b. $300,000 - $450,000 c. $0 - $900,000 d. $0 - $750,000

58. b ($500,000 × 30%) = $150,000. 59. d ($2,000,000 × 30%) = $600,000. 60. c ($3,000,000 × 30%) = $900,000

Cougar Capital Corp declares a property dividend on June 1, 2009 to common share owners of record on June 30, 2009. Cougar Capital will distribute bonds with a carrying value of $580,000 and a fair value of $480,000. What is the effective net change in stockholders' equity as a result of the dividend?

580,000. The book value of the property distributed because R/E is decreased by the fair value of the property but increased/decreased by gain/loss on property. The offset of the gain or loss results net in R/E being changed by the book value of the property distributed

At December 31, 2020, Sheridan Corporation had a deferred tax liability of $26,400. At December 31, 2021, the deferred tax liability is $41,300. The corporation's 2021 current tax expense is $46,700. What amount should Sheridan report as total 2021 income tax expense?

61600

65. Watson Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2015 $1,800,000 Tax exempt interest (100,000) Originating temporary difference (300,000) Taxable income $1,400,000 The temporary difference will reverse evenly over the next two years at an enacted tax rate of 40%. The enacted tax rate for 2015 is 28%. What amount should be reported in its 2015 income statement as the current portion of its provision for income taxes? a. $392,000 b. $560,000 c. $504,000 d. $720,000

65. a $1,400,000 x .28 = $392,000

Use the following information for questions 66 and 67. Mitchell Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2015 $ 900,000 Tax exempt interest (75,000) Originating temporary difference (175,000) Taxable income $650,000 The temporary difference will reverse evenly over the next two years at an enacted tax rate of 40%. The enacted tax rate for 2015 is 35%. 66. What amount should be reported in its 2015 income statement as the deferred portion of income tax expense? a. $70,000 debit b. $87,500 debit c. $70,000 credit d. $87,500 credit 67. In Mitchell's 2015 income statement, what amount should be reported for total income tax expense? a. $345,000 b. $315,000 c. $315,000 d. $227,500

66. a $175,000 × .40 = $70,000 debit 67. c ($700,000 × .35) + ($175,000 × .40) = $315,000

69. Ferguson Company has the following cumulative taxable temporary differences: 12/31/15 = $2,700,000 12/31/14 = $1,920,000 The tax rate enacted for 2015 is 40%, while the tax rate enacted for future years is 30%. Taxable income for 2015 is $4,800,000 and there are no permanent differences. Ferguson's pretax financial income for 2015 is a. $7,500,000. b. $5,580,000. c. $4,020,000. d. $2,100,000.

69. b $4,800,000 + ($2,700,000 - $1,920,000) = $5,580,000

Use the following information for questions 79 and 80. Rowen, Inc. had pre-tax accounting income of $1,800,000 and a tax rate of 40% in 2015, its first year of operations. During 2015 the company had the following transactions: Received rent from Jane, Co. for 2016 $64,000 Municipal bond income $80,000 Depreciation for tax purposes in excess of book depreciation $40,000 Installment sales revenue to be collected in 2016 $108,000 79. For 2015, what is the amount of income taxes payable for Rowen, Inc? a. $603,200 b. $654,400 c. $686,400 d. $772,800 80. At the end of 2015, which of the following deferred tax accounts and balances is reported on Rowen, Inc.'s balance sheet? Account _ Balance a. Deferred tax asset $25,600 b. Deferred tax liability $25,600 c. Deferred tax asset $41,600 d. Deferred tax liability $41,600

79. b $1,800,000 + $64,000 - $80,000 - $40,000 - $108,000 = $1,636,000 $1,636,000 x .40 = $654,400. 80. a $64,000 x .40 = $25,600 Deferred tax asset

Use the following information for questions 93 and 94 Operating income and tax rates for C.J. Company's first three years of operations were as follows: (Photo) 93. Assuming that C.J. Company opts to carryback its 2015 NOL, what is the amount of income taxes payable at December 31, 2016? a. $204,000 b. $504,000 c. $369,000 d. $324,000 94. Assuming that C.J. Company opts only to carryforward its 2015 NOL, what is the amount of deferred tax asset or liability that C.J. Company would report on its December 31, 2015 balance sheet? Amount _ Deferred tax asset or liability a. $225,000 Deferred tax liability b. $262,500 Deferred tax liability c. $300,000 Deferred tax asset d. $225,000 Deferred tax asset

93. d [$1,260,000 - ($750,000 - $300,000)] x .40 = $324,000. 94. c $750,000 x .40 = $300,000

95. Munoz Corp.'s books showed pretax financial income of $2,700,000 for the year ended December 31, 2015. In the computation of federal income taxes, the following data were considered: Gain on an involuntary conversion $1,170,000 (Munoz has elected to replace the property within the statutory period using total proceeds.) Depreciation deducted for tax purposes in excess of depreciation deducted for book purposes 180,000 Federal estimated tax payments, 2015 225,000 Enacted federal tax rate, 2015 30% What amount should Munoz report as its current federal income tax liability on its December 31, 2015 balance sheet? a. $180,000 b. $234,000 c. $405,000 d. $459,000

95. a ($2,700,000 - $1,170,000 - $180,000) × 30% = $405,000; $405,000 - $225,000 = $180,000

96. Haag Corp.'s 2015 income statement showed pretax accounting income of $1,500,000. To compute the federal income tax liability, the following 2015 data are provided: Income from exempt municipal bonds $ 60,000 Depreciation deducted for tax purposes in excess of depreciation deducted for financial statement purposes 120,000 Estimated federal income tax payments made 300,000 Enacted corporate income tax rate 30% What amount of current federal income tax liability should be included in Hagg's December 31, 2015 balance sheet? a. $ 96,000 b. $132,000 c. $150,000 d. $396,000

96. a ($1,500,000 - $60,000 - $120,000) × 30% = $396,000; $396,000 - $300,000 = $96,000

97. On January 1, 2015, Gore, Inc. purchased a machine for $1,350,000 which will be depreciated $135,000 per year for financial statement reporting purposes. For income tax reporting, Gore elected to expense $150,000 and to use straight-line depreciation which will allow a cost recovery deduction of $120,000 for 2015. Assume a present and future enacted income tax rate of 30%. What amount should be added to Gore's deferred income tax liability for this temporary difference at December 31, 2015? a. $81,000 b. $45,000 c. $40,500 d. $36,000

97. c ($150,000 + $120,000 - $135,000) × 30% = $40,500

98. On January 1, 2015, Piper Corp. purchased 40% of the voting common stock of Betz, Inc. and appropriately accounts for its investment by the equity method. During 2015, Betz reported earnings of $720,000 and paid dividends of $240,000. Piper assumes that all of Betz's undistributed earnings will be distributed as dividends in future periods when the enacted tax rate will be 30%. Ignore the dividend-received deduction. Piper's current enacted income tax rate is 25%. The increase in Piper's deferred income tax liability for this temporary difference is a. $144,000. b. $120,000. c. $ 86,400. d. $ 57,600.

98. d ($720,000 - $240,000) × 40% = $192,000; $192,000 × 30% = $57,600

99. Foltz Corp.'s 2014 income statement had pretax financial income of $250,000 in its first year of operations. Foltz uses an accelerated cost recovery method on its tax return and straight-line depreciation for financial reporting. The differences between the book and tax deductions for depreciation over the five-year life of the assets acquired in 2014, and the enacted tax rates for 2014 to 2018 are as follows: (PHOTO) There are no other temporary differences. In Foltz's December 31, 2014 balance sheet, the noncurrent deferred income tax liability and the income taxes currently payable should be Noncurrent Deferred - Income Taxes Income Tax Liability - Currently Payable a. $39,000 $50,000 b. $39,000 $70,000 c. $15,000 $60,000 d. $15,000 $70,000

99. d ($50,000 × 30%) = $15,000; ($250,000 - $50,000) × 35% = $70,000

Teal Corporation began operations in 2020 and reported pretax financial income of $212,000 for the year. Teal's tax depreciation exceeded its book depreciation by $33,000. Teal's tax rate for 2020 and years thereafter is 30%. In its December 31, 2020, balance sheet, what amount of deferred tax liability should be reported?

9900

25. When an investor's accounting period ends on a date that does not coincide with an interest receipt date for bonds held as an investment, the investor must a. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the amount of interest accrued since the last interest receipt date. b. notify the issuer and request that a special payment be made for the appropriate portion of the interest period. c. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the total amount of interest to be received at the next interest receipt date. d. do nothing special and ignore the fact that the accounting period does not coincide with the bond's interest period.

A

26. Debt securities that are accounted for at amortized cost, not fair value, are a. held-to-maturity debt securities. b. trading debt securities. c. available-for-sale debt securities. d. never-sell debt securities.

A

29. Equity securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses as other comprehensive income and as a separate component of stockholders' equity are a. available-for-sale securities where a company has holdings of less than 20%. b. trading securities where a company has holdings of less than 20%. c securities where a company has holdings of between 20% and 50%. d. securities where a company has holdings of more than 50%.

A

38. An available-for-sale debt security is purchased at a discount. The entry to record the amortization of the discount includes a a. debit to Available-for-Sale Securities. b. debit to the discount account. c. debit to Interest Revenue. d. none of these.

A

44. Bista Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods? Fair Value Method Equity Method a. No Effect Decrease b. Increase Decrease c. No Effect No Effect d. Decrease No Effect

A

Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income?

An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes.

Bella Pool Company sells prefabricated pools that cost $100,000 to customers for $180,000. The sales price includes an installation fee, which is valued at $25,000. The fair value of the pool is $160,000. 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

A - $155,676 and $24,324 respectively

Horner Construction Co. uses the percentage-of-completion method. In 2014, Horner began work on a contract for $16,500,000; it was completed in 2015. The following cost data pertain to this contract: Year Ended December 31 2014 2015 Cost incurred during the year $5,850,000 $4,200,000 Estimated costs to complete at the end of year 3,900,000 — The amount of gross profit to be recognized on the income statement for the year ended December 31, 2015 is

A - $2,400,000

Kiner, Inc. began work in 2014 on a contract for $16,800,000. Other data are as follows: 2014 2015 Costs incurred to date $7,200,000 $11,200,000 Estimated costs to complete 4,800,000 — Billings to date 5,600,000 16,800,000 Collections to date 4,000,000 14,400,000 If Kiner uses the percentage-of-completion method, the gross profit to be recognized in 2014 is

A - $2,880,000.

The third step in the process for revenue recognition is to

A - determine the transaction price.

When the bundle price is less than the sum of the standalone prices, the discount should be allocated to

A - the product (or products) causing the discount.

Temporary Differences: Expenses or losses are deductible AFTER they are recognized in financial income. Ex. Warranty Liabilities, Litigation accruals, Bad Debt Expense, Stock Based Comp., Unrealized Holding Losses...

A LIABILITY --or contra asset-- may be recognized for expenses or losses that will result in DEDUCTIBLE amounts in future years when the liability is settled.

Temporary Differences: Revenues or gains are taxable BEFORE they are recognized in financial income. Ex. Advance Subscriptions, Rental Receipts, Sales/Leasebacks, Prepaid Contracts...

A LIABILITY may be recognized for an advance payment for goods or services to be provided in future years. For tax purposes, the advance payment is included in taxable income upon the receipt of cash. Future sacrifices to provide goods or services (or future refunds to those who cancel their orders) that settle the liability will result in DEDUCTIBLE amounts in future years

d. $9,831,761

A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2013. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2015? a. $9,835,115 b. $9,970,311 c. $9,816,916 d. $9,831,761

c. $784,249

A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using effective-interest amortization, how much interest expense will be recognized in 2014? a. $390,000 b. $780,000 c. $784,249 d. $784,166

a. $9,806,321

A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2014 balance sheet? a. $9,806,321 b. $10,000,000 c. $9,812,563 d. $9,804,155

a. $19,612,642

A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,144. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2014 balance sheet? a. $19,612,642 b. $20,000,000 c. $19,625,124 d. $19,608,308

d. $1,579,793

A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,144. What is interest expense for 2015, using straight-line amortization? a. $1,540,208 b. $1,560,000 c. $1,569,192 d. $1,579,793

b. Charge $1,000,000 to a loss in the year of extinguishment.

A corporation called an outstanding bond obligation four years before maturity. At that time there was an unamortized discount of $750,000. To extinguish this debt, the company had to pay a call premium of $250,000. Ignoring income tax considerations, how should these amounts be treated for accounting purposes? a. Amortize $1,000,000 over four years. b. Charge $1,000,000 to a loss in the year of extinguishment. c. Charge $250,000 to a loss in the year of extinguishment and amortize $750,000 over four years. d. Either amortize $1,000,000 over four years or charge $1,000,000 to a loss immediately, whichever management selects

D

A corporation issues bonds with detachable warrants. The amount to be recorded as pain in capital is preferably. a. zero. b. calculated by the excess of the proceeds over the face amount of the bonds. c. equal to the market value of the warrants. d. based on the relative market values of the two securities involved.

Stuart Corporation's taxable income differed from its accounting income computed for this past year. An item that would create a permanent difference in accounting and taxable incomes for Stuart would be:

A fine resulting from violations of OSHA regulations.

A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to Accumulated Depletion. Retained Earnings. A paid-in capital account. Accumulated Depreciation.

A paid-in capital account.

All of the following are procedures for the computation of deferred income taxes except to:

Measure the total deferred tax asset for deductible temporary differences and operating loss carrybacks.

Landis Company purchased $2,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $2,083,160 at an effective interest rate of 7%. Using the effective-interest method, Landis Company decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $7,080 and $7,320, respectively. At December 31, 2014, the fair value of the Ritter, Inc. bonds was $2,120,000. What should Landis Company report as other comprehensive income and as a separate component of stockholders' equity? A. $51,240. B. $36,840. C. $14,400. D. No entry should be made.

A. $51,240.

Landis Co. purchased $500,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2011, with interest payable on July 1 and January 1. The bonds sold for $520,790 at an effective interest rate of 7%. Using the effective-interest method, Landis Co. decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2011 and December 31, 2011 by the amortized premiums of $1,770 and $1,830, respectively. At December 31, 2011, the fair value of the Ritter, Inc. bonds was $530,000. What should Landis Co. report as other comprehensive income and as a separate component of stockholders' equity? a. $12,810. b. $9,210. c. $3,600. d. No entry should be made.

A. 12,810 $530,000 - ($520,790 - $1,770 - $1,830) = $12,810.

On November 1, 2010, Horton Co. purchased Lopez, Inc., 10-year, 9%, bonds with a face value of $250,000, for $225,000. An additional $7,500 was paid for the accrued interest. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2017. Horton uses the straight-line method of amortization. Ignoring income taxes, the amount reported in Horton's 2010 income statement as a result of Horton's available-for-sale investment in Lopez wa

A. 4,375 ($250,000 × .045) + ($25,000 × 2/80) - $7,500 = $4,375.

On January 3, 2010, Moss Co. acquires $100,000 of Adam Company's 10-year, 10% bonds at a price of $106,418 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Co. uses the straight-line method, what is the amount of premium amortization that would be recognized in 2012 related to these bonds? *a. $642 b. $422 c. $460 d. $502

A. 642 ($106,418 - $100,000) ÷ 10 = $642.

On August 1, 2014, Fowler Company acquired $300,000 face value 10% bonds of Kasnic Corporation at 104 plus accrued interest. The bonds were dated May 1, 2014, and mature on April 30, 2019, with interest payable each October 31 and April 30. The bonds will be held to maturity. What entry should Fowler make to record the purchase of the bonds on August 1, 2014? A. Debt Investments(dr) 312,000 Interest Revenue(dr) 7,500 Cash(cr) 319,500 B. Debt Investments(dr) 319,500 Cash(cr) 319,500 C. Debt Investments(dr) 319,500 Interest Revenue(dr) 7,500 Cash(cr) 312,000 D. Debt Investments(dr) 300,000 Premium on Bonds(dr)19,500 Cash(cr) 319,500

A. Debt Investments(dr) 312,000 Interest Revenue(dr) 7,500 Cash(cr) 319,500

On August 1, 2010, Fowler Company acquired $200,000 face value 10% bonds of Kasnic Corporation at 104 plus accrued interest. The bonds were dated May 1, 2010, and mature on April 30, 2015, with interest payable each October 31 and April 30. The bonds will be held to maturity. What entry should Fowler make to record the purchase of the bonds on August 1, 2010? a. Held-to-Maturity Securities 208,000 Interest Revenue 5,000 Cash 213,000 b. Held-to-Maturity Securities 213,000 Cash 213,000 c. Held-to-Maturity Securities 213,000 Interest Revenue 5,000 Cash 208,000 d. Held-to-Maturity Securities 200,000 Premium on Bonds 13,000 Cash 213,000

A. Held-to-Maturity Securities 208,000 Interest Revenue 5,000 Cash 213,000 Dr. Held-to-Maturity Securities: $200,000 × 1.04 = $208,000 Dr. Interest Revenue: $200,000 × .05 × 3/6 = $5,000 Cr. Cash: $208,000 + $5,000 = $213,000.

Great Visions Company entered into a contract with ABC Carpet Company on January 15, 2017. The delivery date of March 1 was specified in the contract, but Great Visions did not deliver until March 31, 2017. According to the contract, a full payment of $75,000 was due 30 days after delivery. When should this contract be recorded? A. March 31, 2017 B. April 30, 2017 C. March 1, 2017 D. January 15, 2017

A. March 31, 2017

What impact does a bargain purchase option have on the present value of the lease payments computed by the lessee? A. The lessee must increase the present value of the lease payments by the present value of the option price. B. The lease payments would be increased by the option price. C. There is no impact as the option does not enter into the transaction until the end of the lease term. D. The lessee must decrease the present value of the lease payments by the present value of the option price.

A. The lessee must increase the present value of the lease payments by the present value of the option price.

Which of the following indicates that a performance obligation exists? A. a company provides a distinct product or service B. a company receives the right to receive consideration. C. a company provides interdependent product or service. D. a contract is approved and signed.

A. a company provides a distinct product or service

In computing earnings per share, the equivalent number of shares of convertible preferred stock are added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is cumulative, which amount should then be added as an adjustment to the numerator (net earnings)?

Annual preferred dividend

On January 1, 2021, Blossom Corporation signed a 10-year noncancelable lease for certain machinery. The terms of the lease called for Blossom to make annual payments of $185015 at the end of each year for 10 years with the title passing to Blossom at the end of this period. The machinery has an estimated useful life of 15 years and no salvage value. Blossom uses the straight-line method of depreciation for all of its fixed assets. Blossom accordingly accounted for this lease transaction as a financial lease. The lease payments were determined to have a present value of $1241466 at an effective interest rate of 8%. With respect to this lease, Blossom should record for 2021 A. interest expense of $99317 and amortization expense of $82764. B. interest expense of $83317 and amortization expense of $124147. C. lease expense of $99317. D. interest expense of $82764 and amortization expense of $69431.

A. interest expense of $99317 and amortization expense of $82764. $1241466 × 0.08 = $99317 $1241466 ÷ 15 = $82764.

Which of the following is an inaccurate statement about consignment arrangements? A. since the merchandise shipped remains the property of the consignor, the consignee has no legal obligation regarding any damage to the merchandise. B. the consignor accepts the risk that the goods on consignment might not sell and thus relieves the consignee of the need to commit working capital to inventory. C. the consignee is entitled to reimbursement from the consignor for expenses paid in connection with selling the goods and is generally entitled to a commission at an agreed rate on sale actually made. D. the merchandise shipped on consignment remains the property of the consignor until sold.

A. since the merchandise shipped remains the property of the consignor, the consignee has no legal obligation regarding any damage to the merchandise.

When should multiple performance obligations that exist in a contract be accounted for as a single performance obligation? A. when each service is interdependent and interrelated B. when the product is distinct within the contract C. when a determination cannot be made D. when both performance obligations are distinct or interdependent

A. when each service is interdependent and interrelated

Which of the following will not result in a temporary difference?

ALL of these will result in a temporary difference: a. Product warranty liabilities b. Advance rental receipts c. Installment sales

The total amount received upon issuance of common stock less its par value or stated value.

Additional Paid-In Capital (APIC)

Which of the following best describes current practice in accounting for leases?

All long-term leases are capitalized.

All of the following are part of comprehensive income except: All of these answer choices are correct. realized gains on sale of available-for-sale-securities. unrealized holding gains on available-for-sale-securities. a reclassification adjustment for gains included in net income

All of these answer choices are correct

Major reasons for disclosure of deferred income tax information is (are):

All of these answer choices are correct. a. better assessment of quality of earnings. b. better predictions of future cash flows. c. predicting future cash flows for operating loss carryforwards.

Examples of the ability to exercise significant influence over an investee include all of the following except: technological dependency. material intercompany transactions. interchange of managerial personnel. All of these answer choices are examples of significant influence.

All of these answer choices are examples of significant influence.

Which of the following is not a characteristic of a noncompensatory stock purchase plan?

All of these are characteristics: *It is open to almost all full-time employees *The plan offers no substantive option feature. *The discount from market price is small.

Which of the following is not correct in regard to trading securities? They are held with the intention of selling them in a short period of time. Unrealized holding gains and losses are reported as part of net income. Any discount or premium is amortized. All of these choices are correct.

All of these choices are correct.

A requirement for a security to be classified as held-to-maturity is: ability to hold the security to maturity. positive intent. the security must be a debt security. All of these answer choices are correct.

All these

Held-to-maturity securities are reported at their: net realizable value. amortized cost. historical cost. fair value.

Amortized cost

Under IFRS, what is recorded as compensation expense for all employee share-purchase plans?

Amount of discount

Temporary Differences: Revenues or gains are taxable AFTER they are recognized in financial income. Ex: Accrual Sales, Equity/Cost Method Investments, Gain on involuntary conversion of non-monetary assets, Unrealized Holding Gains...

An ASSET-- accounts receivable or investment-- may be recognized for revenues or gains that will result in TAXABLE amounts in future years when the asset is recovered.

On April 7, 2018, Concord Corporation sold a $5400000, twenty-year, 9 percent bond issue for $5724000. Each $1000 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: 9% bond without warrants $1007 Warrants 21 Common stock 28 What accounts should Concord credit to record the sale of the bonds? (rounded to the nearest dollar) Bonds Payable $5400000 Premium on Bonds Payable 47628 Paid-in Capital—Stock Warrants 216972 Bonds Payable $5400000 Premium on Bonds Payable 94822 Paid-in Capital—Stock Warrants 229178 Bonds Payable $5400000 Premium on Bonds Payable 324000 Bonds Payable $5400000 Premium on Bonds Payable 209411 Paid-in Capital—Stock Warrants 114589

B

On December 1, 2018, Lester Company issued at 103, eight hundred of its 9%, $1,000 bonds. Attached to each bond was one detachable stock warrant entitling the holder to purchase 10 shares of Lester's common stock. On December 1, 2018, 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 a. $774,560. b. $782,800. c. $800,000. d. $824,000.

B

On January 1, 2018, Bramble Corp. had 113000 shares of its $5 par value common stock outstanding. On June 1, the corporation acquired 11500 shares of stock to be held in the treasury. On December 1, when the market price of the stock was $16, the corporation declared a 14% stock dividend to be issued to stockholders of record on December 16, 2018. What was the impact of the 14% stock dividend on the balance of the retained earnings account? No effect $227360 decrease $253120 decrease $79100 decrease

B

On January 1, 2018, Marigold Corp. sold $5050000 of its 12% bonds for $4470740 to yield 14%. Interest is payable semiannually on January 1 and July 1. What amount should Marigold report as interest expense for the six months ended June 30, 2018? $303000 $312952 $353500 $268250

B

On January 1, 2018, Vaughn Manufacturing issued its 12% bonds in the face amount of $7990000, which mature on January 1, 2028. The bonds were issued for $9320000 to yield 10%, resulting in bond premium of $1330000. Vaughn uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2018, Vaughn's adjusted unamortized bond premium should be $1330000. $1303200. $1170400. $1108800.

B

On January 2, 2018, Waterway Industries issued at par $2050000 of 7% convertible bonds. Each $1000 bond is convertible into 10 shares of common stock. No bonds were converted during 2018. Waterway had 209000 shares of common stock outstanding during 2018. Waterway's 2018 net income was $910000 and the income tax rate was 30%. Waterway's diluted earnings per share for 2018 would be (rounded to the nearest penny): $4.84. $4.40. $4.35. $4.54.

B

On July 1, 2016, Sheffield Corp. issued 8% bonds in the face amount of $10400000, which mature on July 1, 2022. The bonds were issued for $9930000 to yield 9%, resulting in a bond discount of $470000. Sheffield uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2018, Sheffield's unamortized bond discount should be $328647. $341047. $358647. $370647.

B

On July 1, 2018, Chen Company issued for $9,450,000 a total of 90,000 shares of $100 par value, 7% noncumulative preferred stock along with one detachable warrant for each share issued. Each warrant contains a right to purchase one share of Chen $10 par value common stock for $15 per share. The stock without the warrants would normally sell for $9,225,000. The market price of the rights on July 1, 2018, was $2.50 per right. On October 31, 2018, when the market price of the common stock was $19 per share and the market value of the rights was $3.00 per right, 36,000 rights were exercised. As a result of the exercise of the 36,000 rights and the issuance of the related common stock, what journal entry would Chen make? a. Cash 540,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock 180,000 b. Cash 540,000 Paid-in Capital—Stock Warrants 90,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock 270,000 c. Cash 540,000 Paid-in Capital—Stock Warrants 225,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock 405,000 d. Cash 540,000 Paid-in Capital—Stock Warrants 135,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock 315,000

B

On May 1, 2018, Marly Co. issued $2,500,000 of 7% bonds at 103, which are due on April 30, 2028. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marly's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2018, the fair value of Marly's common stock was $35 per share and of the warrants was $2. On May 1, 2018, Marly should credit Paid-in Capital from Stock Warrants for a. $175,000 b. $103,000 c. $100,000 d. $ 96,000

B

On May 1, 2018, Payne Co. issued $1,500,000 of 7% bonds at 103, which are due on April 30, 2028. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2018, the fair value of Payne's common stock was $35 per share and of the warrants was $2. On May 1, 2018, Payne should record the bonds with a a. discount of $60,000. b. discount of $16,800. c. discount of $15,000. d. premium of $45,000.

B

On October 1, 2017 Concord Corporation issued 5%, 10-year bonds with a face value of $7930000 at 102. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis.Bond interest expense reported on the December 31, 2017 income statement of Concord Corporation would be $190320. $95160. $99125. $103090.

B

On October 1, 2017 Vaughn Manufacturing issued 4%, 10-year bonds with a face value of $5990000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis.Bond interest expense reported on the December 31, 2017 income statement of Vaughn Manufacturing would be $59900 $53910 $65890 $107820

B

Recognition of tax benefits in the loss year due to a loss carryforward requires a. the establishment of a deferred tax liability. b. the establishment of a deferred tax asset. c. the establishment of an income tax refund receivable. d. only a note to the financial statements.

B

When a company has acquired a "passive interest" in another corporation, the acquiring company should account for the investment: A. by using the equity method. B. by using the fair value method. C. by using the effective interest method. D. by consolidation.

B

When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited? Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the par value. Treasury stock for the purchase price. Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value. Paid-in capital in excess of par for the purchase price.

B

Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income? a. Advance rental receipts. b. Product warranty liabilities. c. Depreciable property. d. Fines and expenses resulting from a violation of law.

B

The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2014 are as follows: Goebel Company Balance Sheet December 31, 2014 Assets= $1,200,000 LiabilitieS= $150,000 Capital stock= $600,000 Retained earningS= $450,000 Total equities= $1,200,000 Dobbs Company Balance Sheet December 31, 2014 Assets= $900,000 Liabilities= $205,000 Capital stock= $575,000 Retained earnings= $120,000 Total equities= $900,000 If Goebel Company acquired a 20% interest in Dobbs Company on December 31, 2014 for $145,000 and during 2015 Dobbs Company had net income of $75,000 and paid a cash dividend of $30,000, applying the fair value method would give a debit balance in the Equity Investments (Dobbs) account at the end of 2015 of A. $115,000. B. $145,000. C. $160,000. D. $154,000.

B. $145,000.

On October 1, 2014, Renfro Company purchased to hold to maturity, 3,000, $1,000, 9% bonds for $2,970,000 which includes $45,000 accrued interest. The bonds, which mature on February 1, 2023, pay interest semiannually on February 1 and August 1. Renfro uses the straight-line method of amortization. The bonds should be reported in the December 31, 2014 balance sheet at a carrying value of A. $2,925,000. B. $2,927,250. C. $2,970,000. D. $2,970,750.

B. $2,927,250.

Instrument Corp. has the following investments which were held throughout 2010-2011: Market Value Cost 12/31/10 12/31/11 Trading $300,000 $400,000 $380,000 Available-for-sale 300,000 320,000 360,000 What amount of gain or loss would Instrument Corp. report in its income statement for the year ended December 31, 2011 related to its investments? a. $20,000 gain. b. $20,000 loss. c. $140,000 gain. d. $80,000 gain.

B. $20,000 loss $400,000 - $380,000 = $20,000 loss

The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2014 are as follows: Goebel Company Balance Sheet December 31, 2014 Assets= $1,200,000 LiabilitieS= $150,000 Capital stock= $600,000 Retained earningS= $450,000 Total equities= $1,200,000 Dobbs Company Balance Sheet December 31, 2014 Assets= $900,000 Liabilities= $205,000 Capital stock= $575,000 Retained earnings= $120,000 Total equities= $900,000 If Goebel Company acquired a 30% interest in Dobbs Company on December 31, 2014 for $215,000 and the equity method of accounting for the investment were used, the amount of the debit to Equity Investments (Dobbs) would have been A. $270,000. B. $215,000. C. $172,500. D. $208,500.

B. $215,000.

The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2014 are as follows: Goebel Company Balance Sheet December 31, 2014 Assets= $1,200,000 LiabilitieS= $150,000 Capital stock= $600,000 Retained earningS= $450,000 Total equities= $1,200,000 Dobbs Company Balance Sheet December 31, 2014 Assets= $900,000 Liabilities= $205,000 Capital stock= $575,000 Retained earnings= $120,000 Total equities= $900,000 If Goebel Company acquired a 30% interest in Dobbs Company on December 31, 2014 for $220,000 and during 2015 Dobbs Company had net income of $75,000 and paid a cash dividend of $30,000, applying the equity method would give a debit balance in the Equity Investments (Dobbs) account at the end of 2015 of A. $220,000. B. $233,500. C. $242,500. D. $211,000.

B. $233,500.

Instrument Corporation has the following investments which were held throughout 2014-2015: Fair Value Cost 12/31/14 12/31/15 Trading=$600,000/$800,000/$760,000 Available-for-sale=600,000/640,000/720,000 What amount of gain or loss would Instrument Corporation report in its income statement for the year ended December 31, 2015 related to its investments? A. $40,000 gain. B. $40,000 loss. C. $280,000 gain. D. $160,000 gain.

B. $40,000 loss

On January 2, 2015 Pod Company purchased 25% of the outstanding common stock of Jobs, Inc. and subsequently used the equity method to account for the investment. During 2015 Jobs, Inc. reported net income of $840,000 and distributed dividends of $360,000. The ending balance in the Investment in Pod Company account at December 31, 2015 was $640,000 after applying the equity method during 2015. What was the purchase price Pod Company paid for its investment in Jobs, Inc? A. $340,000 B. $520,000 C. $760,000 D. $940,000

B. $520,000

The following information relates to Windom Company for 2015: Realized gain on sale of available-for-sale securities= $30,000 Unrealized holding gains arising during the period on available-for-sale securities= $60,000 Reclassification adjustment for gains included in net income= $20,000 Windom's 2015 other comprehensive income is A. $50,000. B. $70,000. C. $90,000. D. $110,000.

B. $70,000.

Of the following items, the only one which should not be classified as a current liability is current maturities of long-term debt. unearned revenues. sales taxes payable. mortgages payable.

Mortgages payable

Richman Company purchased $900,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $937,422 at an effective interest rate of 7%. Using the effective interest method, Richman Company decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $3,186 and $3,294, respectively. At February 1, 2015, Richman Company sold the Carlin bonds for $927,000. After accruing for interest, the carrying value of the Carlin bonds on February 1, 2015 was $930,375. Assuming Richman Company has a portfolio of available-for-sale debt investments, what should Richman Company report as a gain (or loss) on the bonds? A. $0. B. ($3,375). C. ($19,683). D. ($26,433).

B. ($3,375).

Richman Co. purchased $300,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2010, with interest payable on July 1 and January 1. The bonds sold for $312,474 at an effective interest rate of 7%. Using the effective interest method, Richman Co. decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2010 and December 31, 2010 by the amortized premiums of $1,062 and $1,098, respectively. At February 1, 2011, Richman Co. sold the Carlin bonds for $309,000. After accruing for interest, the carrying value of the Carlin bonds on February 1, 2011 was $310,125. Assuming Richman Co. has a portfolio of Available-for-Sale Debt Securities, what should Richman Co. report as a gain (or loss) on the bonds? a. $0. b. ($1,125). c. ($6,561). d. ($8,811).

B. (1,125) $310,125 - $309,000 = $1,125.

On October 1, 2010, Menke Co. purchased to hold to maturity, 200, $1,000, 9% bonds for $208,000. An additional $6,000 was paid for accrued interest. Interest is paid semiannually on December 1 and June 1 and the bonds mature on December 1, 2014. Menke uses straight-line amortization. Ignoring income taxes, the amount reported in Menke's 2010 income statement from this investment should be a. $4,500. b. $4,020. c. $4,980. d. $5,460.

B. 4,020 ($200,000 × .09 × 3/12) - ($8,000 × 3/50) = $4,020.

During 2008, Hauke Co. purchased 2,000, $1,000, 9% bonds. The carrying value of the bonds at December 31, 2010 was $1,960,000. The bonds mature on March 1, 2015, and pay interest on March 1 and September 1. Hauke sells 1,000 bonds on September 1, 2012, for $988,000, after the interest has been received. Hauke uses straight-line amortization. The gain on the sale is a. $0. b. $4,800. c. $8,000. d. $11,200.

B. 4,800 Discount amortization: $40,000 × 8/50 = $6,400 ($1,960,000 + $6,400) ÷ 2 = $983,200; $988,000 - $983,200 = $4,800 gain.

Patton Company purchased $400,000 of 10% bonds of Scott Co. on January 1, 2011, paying $376,100. The bonds mature January 1, 2021; interest is payable each July 1 and January 1. The discount of $23,900 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. For the year ended December 31, 2011, Patton Company should report interest revenue from the Scott Co. bonds of: a. $42,392. b. $41,409. c. $41,368. d. $40,000.

B. 41,409 $376,100 × .055 = $20,686 ($376,100 + $686) × .055 - $20,723; $20,686 + $20,723 = $41,409.

On October 1, 2010, Renfro Co. purchased to hold to maturity, 1,000, $1,000, 9% bonds for $990,000 which includes $15,000 accrued interest. The bonds, which mature on February 1, 2019, pay interest semiannually on February 1 and August 1. Renfro uses the straight-line method of amortization. The bonds should be reported in the December 31, 2010 balance sheet at a carrying value of a. $975,000. b. $975,750. c. $990,000. d. $990,250

B. 975,750 $975,000 + ($25,000 × 3/100) = $975,750.

At December 31, 2015, Atlanta Company has a stock portfolio valued at $80,000. Its cost was $66,000. If the Securities Fair Value Adjustment (Available-for-Sale) has a debit balance of $4,000, which of the following journal entries is required at December 31, 2015? A. Fair Value Adjustment (available-for-sale)(dr) 14,000 Unrealized Holding Gain or Loss-Equity(cr) 14,000 B. Fair Value Adjustment (available-for-sale)(dr) 10,000 Unrealized Holding Gain or Loss-Equity(cr)10,000 C. Unrealized Holding Gain or Loss-Equity(dr) 14,000 Fair Value Adjustment (available-for-sale)(cr)14,000 D. Unrealized Holding Gain or Loss-Equity(dr) 10,000 Fair Value Adjustment (available-for-sale)(cr) 10,000

B. Fair Value Adjustment (available-for-sale)(dr) 10,000 Unrealized Holding Gain or Loss-Equity(cr)10,000

What is the first step in the process for revenue recognition? A. Determine the transaction price. B. Identify the contract with customers. C. Allocate the transaction price to the separate performance obligations. D. Identify the separate performance obligations in the contract.

B. Identify the contract with customers.

Which of the following will result in Jones Company recording a contract asset? A. Smith Company paid Jones Company for the delivery of product A but the product has not yet been delivered. B. Jones Company has delivered product A to Smith Company but will not receive payment until they also deliver product B. C. Jones Company has delivered product A to Smith Company and received payment upon delivery. D. Smith Company returned product A to Jones Company because of material defects.

B. Jones Company has delivered product A to Smith Company but will not receive payment until they also deliver product B.

At December 31, 2011, Atlanta Co. has a stock portfolio valued at $40,000. Its cost was $33,000. If the Securities Fair Value Adjustment (Available-for-Sale) has a debit balance of $2,000, which of the following journal entries is required at December 31, 2011? a. Securities Fair Value Adjustment 7,000 (Available-for-Sale) Unrealized Holding Gain or Loss-Equity 7,000 b. Securities Fair Value Adjustment 5,000 (Available-for-Sale) Unrealized Holding Gain or Loss-Equity 5,000 c. Unrealized Holding Gain or Loss-Equity 7,000 Securities Fair Value Adjustment 7,000 (Available-for-Sale) d. Unrealized Holding Gain or Loss-Equity 5,000 Securities Fair Value Adjustment 5,000 (Available-for-Sale)

B. Securities Fair Value Adjustment 5,000 (Available-for-Sale) Unrealized Holding Gain or Loss-Equity 5,000 ($40,000 - $33,000) - $2,000 = $5,000 unrealized gain.

A company should allocate the proceeds from the sale of debt with detachable stock warrants between the two securities based on their market values.

T

21. Which of the following is not a debt security? a. Convertible bonds b. Commercial paper c. Loans receivable d. All of these are debt securities.

C

23. Securities which could be classified as held-to-maturity are a. redeemable preferred stock. b. warrants. c. municipal bonds. d. treasury stock.

C

27. Debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses and are included as other comprehensive income and as a separate component of stockholders' equity are a. held-to-maturity debt securities. b. trading debt securities. c. available-for-sale debt securities. d. never-sell debt securities.

C

34. In accounting for investments in debt securities that are classified as trading securities, a. a discount is reported separately. b. a premium is reported separately. c. any discount or premium is not amortized. d. none of these.

C

35. Investments in debt securities are generally recorded at a. cost including accrued interest. b. maturity value. c. cost including brokerage and other fees. d. maturity value with a separate discount or premium account.

C

37. Investments in debt securities should be recorded on the date of acquisition at a. lower of cost or market. b. market value. c. market value plus brokerage fees and other costs incident to the purchase. d. face value plus brokerage fees and other costs incident to the purchase.

C

39. APB Opinion No. 21 specifies that, regarding the amortization of a premium or discount on a debt security, the a. effective-interest method of allocation must be used. b. straight-line method of allocation must be used. c. effective-interest method of allocation should be used but other methods can be applied if there is no material difference in the results obtained. d. par value method must be used and therefore no allocation is necessary.

C

42. Which of the following is not generally correct about recording a sale of a debt security before maturity date? a. Accrued interest will be received by the seller even though it is not an interest payment date. b. An entry must be made to amortize a discount to the date of sale. c. The entry to amortize a premium to the date of sale includes a credit to the Premium on Investments in Debt Securities. d. A gain or loss on the sale is not extraordinary.

C

43 Which of the following features of preferred stock makes the security more like debt than an equity instrument? a. Participating b. Voting c. Redeemable d. Noncumulative

C

45. An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as Fair Value Method Equity Method a. Income Income b. A reduction of the investment A reduction of the investment c. Income A reduction of the investment d. A reduction of the investment Income

C

46 Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as a. an increase in current liabilities. b. an increase in stockholders' equity. c. a footnote. d. an increase in current liabilities for the current portion and long-term liabilities for the long-term portion.

C

53. A reclassification adjustment is reported in the a. income statement as an Other Revenue or Expense. b. stockholders' equity section of the balance sheet. c. statement of comprehensive income as other comprehensive income. d. statement of stockholders' equity.

C

60. The accounting for fair value hedges records the derivative at its a. amortized cost. b. carrying value. c. fair value. d. historical cost.

C

A company issues $16100000, 9.8%, 20-year bonds to yield 10% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $15823739. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2017 balance sheet? $15826026 $15837789 $15828427 $16100000

C

On April 7, 2018, Kegin 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% bond without warrants $1,008 Warrants 21 Common stock 28 What accounts should Kegin credit to record the sale of the bonds? a. Bonds Payable $6,000,000 Premium on Bonds Payable 232,800 Paid-in Capital—Stock Warrants 127,200 b. Bonds Payable $6,000,000 Premium on Bonds Payable 48,000 Paid-in Capital—Stock Warrants 252,000 c. Bonds Payable $6,000,000 Premium on Bonds Payable 105,600 Paid-in Capital—Stock Warrants 254,400 d. Bonds Payable $6,000,000 Premiums on Bonds Payable 360,000

C

On January 1, 2017, Vaughn Manufacturing issued eight-year bonds with a face value of $5990000 and a stated interest rate of 4%, payable semiannually on June 30 and December 31. The bonds were sold to yield 6%. Table values are: Present value of 1 for 8 periods at 4% 0.731Present value of 1 for 8 periods at 6% 0.627Present value of 1 for 16 periods at 2% 0.728Present value of 1 for 16 periods at 3% 0.623Present value of annuity for 8 periods at 4% 6.733Present value of annuity for 8 periods at 6% 6.210Present value of annuity for 16 periods at 2% 13.578Present value of annuity for 16 periods at 3% 12.561 The present value of the principal is $4378690. $3755730. $3731770. $4360720

C

On January 1, 2018, Marigold Corp. had 385000 shares of its $2 par value common stock outstanding. On March 1, Marigold sold an additional 744000 shares on the open market at $20 per share. Marigold issued a 20% stock dividend on May 1. On August 1, Marigold purchased 415000 shares and immediately retired the stock. On November 1, 592000 shares were sold for $25 per share. What is the weighted-average number of shares outstanding for 2018? (Rounded to the nearest dollar.) 1531800 520965 1131750 720965

C

On January 1, Sheridan Company issued $4400000, 9% bonds for $4095000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Sheridan uses the effective-interest method of amortizing bond discount. At the end of the first year, Sheridan should report unamortized bond discount of $261000. $280500. $291500. $264050.

C

On March 1, 2018, Ruiz Corporation issued $2,000,000 of 8% nonconvertible bonds at 104, which are due on February 28, 2038. In addition, each $1,000 bond was issued with 25 detachable stock warrants, each of which entitled the bondholder to purchase for $50 one share of Ruiz common stock, par value $25. The bonds without the warrants would normally sell at 95. On March 1, 2018, the fair value of Ruiz's common stock was $40 per share and the fair value of the warrants was $2.00. What amount should Ruiz record on March 1, 2018 as paid-in capital from stock warrants? a. $73,600 b. $85,200 c. $104,000 d. $100,000

C

On May 1, 2018, Marly Co. issued $2,500,000 of 7% bonds at 103, which are due on April 30, 2028. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marly's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2018, the fair value of Marly's common stock was $35 per share and of the warrants was $2. On May 1, 2018, Marly should record the bonds with a a. discount of $100,000. b. discount of $25,000. c. discount of $28,000. d. premium of $75,000.

C

On May 1, 2018, Payne Co. issued $1,500,000 of 7% bonds at 103, which are due on April 30, 2028. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2018, the fair value of Payne's common stock was $35 per share and of the warrants was $2. On May 1, 2018, Payne should credit Paid-in Capital from Stock Warrants for a. $57,600. b. $60,000. c. $61,800. d. $105,000.

C

Sheffield Corp. issued $6480000 of 12%, ten-year convertible bonds on July 1, 2017 at 96.1 plus accrued interest. The bonds were dated April 1, 2017 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2018, $1260000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion.What should be the amount of the unamortized bond discount on April 1, 2018 relating to the bonds converted? (rounded to the nearest dollar) $49140. $46740. $45360. $24570.

C

Stock warrants outstanding should be classified as liabilities. reductions of capital contributed in excess of par value. paid-in capital-stock warrants. assets.

C

Stuart Corporation's taxable income differed from its accounting income computed for this past year. An item that would create a permanent difference in accounting and taxable incomes for Stuart would be a. a balance in the Unearned Rent account at year end. b. using accelerated depreciation for tax purposes and straight-line depreciation for book purposes. c. a fine resulting from violations of OSHA regulations. d. making installment sales during the year.

C

Swifty Corporation issues $5050000, 8%, 5-year bonds dated January 1, 2017 on January 1, 2017. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 7%. What are the proceeds from the bond issue? ff3.5%4.0%7%8%Present value of a single sum for 5 periods0.841970.821930.712990.68058Present value of a single sum for 10 periods0.708920.675560.508350.46319Present value of an annuity for 5 periods4.515054.451824.100203.99271Present value of an annuity for 10 periods8.316618.110907.023586.71008 $5050000 $5257686 $5260001 $5258501

C

Landis Co. purchased $500,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2011, with interest payable on July 1 and January 1. The bonds sold for $520,790 at an effective interest rate of 7%. Using the effective-interest method, Landis Co. decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2011 and December 31, 2011 by the amortized premiums of $1,770 and $1,830, respectively. At April 1, 2012, Landis Co. sold the Ritter bonds for $515,000. After accruing for interest, the carrying value of the Ritter bonds on April 1, 2012 was $516,875. Assuming Landis Co. has a portfolio of Available-for-Sale Debt Securities, what should Landis Co. report as a gain or loss on the bonds? a. ($14,685). b. ($10,935). c. ($1,875). d. $ 0.

C. (1875) $516,875 - $515,000 = $1,875.

On November 1, 2010, Howell Company purchased 600 of the $1,000 face value, 9% bonds of Ramsey, Incorporated, for $632,000, which includes accrued interest of $9,000. The bonds, which mature on January 1, 2015, pay interest semiannually on March 1 and September 1. Assuming that Howell uses the straight-line method of amortization and that the bonds are appropriately classified as available-for-sale, the net carrying value of the bonds should be shown on Howell's December 31, 2010, balance sheet at a. $600,000. b. $623,000. c. $622,080. d. $632,000.

C. 622,080 $632,000 - $9,000 = $623,000 $623,000 - ($23,000 × 2/50) = $622,080.

On August 1, 2010, Dambro Co. acquired 200, $1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1, 2010, and mature on April 30, 2016, with interest paid each October 31 and April 30. The bonds will be added to Dambro's available-for-sale portfolio. The preferred entry to record the purchase of the bonds on August 1, 2010 is a. Available-for-Sale Securities 198,500 Cash 198,500 b. Available-for-Sale Securities 194,000 Interest Receivable 4,500 Cash 198,500 c. Available-for-Sale Securities 194,000 Interest Revenue 4,500 Cash 198,500 d. Available-for-Sale Securities 200,000 Interest Revenue 4,500 Discount on Debt Securities 6,000 Cash 198,500

C. Available-for-Sale Securities 194,000 Interest Revenue 4,500 Cash 198,500 Dr. Available-for-Sale Securities: 200 × $1,000 × .97 = $194,000 Dr. Interest Revenue: $200,000 × .045 × 3/6 = $4,500 Cr. Cash: $194,000 + $4,500 = $198,500.

On August 1, 2014, Dambro Company acquired 800, $1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1, 2014, and mature on April 30, 2020, with interest paid each October 31 and April 30. The bonds will be added to Dambro's available-for-sale portfolio. The preferred entry to record the purchase of the bonds on August 1, 2014 is A. Debt Investments(dr) 794,000 Cash(cr) 794,000 B. Debt Investments(dr) 776,000 Interest Receivable(dr) 18,000 Cash(cr) 794,000 C. Debt Investments(dr) 776,000 Interest Revenue(dr) 18,000 Cash(cr) 794,000 D. Debt Investments(dr) 800,000 Interest Revenue(dr) 18,000 Discount on Debt Investments (cr) 24,000 Cash (cr) 794,000

C. Debt Investments(dr) 776,000 Interest Revenue(dr) 18,000 Cash(cr) 794,000

How should the transaction price for multiple performance obligations be allocated? A. It should be allocated based on forecasted cost of satisfying performance obligation. B. It should be allocated based on total transaction price less residual value. C. It should be allocated based on what the company could sell the goods for on a standalone basis. D. It should be allocated based on selling price from the company's competitors.

C. It should be allocated based on what the company could sell the goods for on a standalone basis.

Sage Technology is a full-service technology company that provides equipment, installation services, and training. Products and services can be purchased separately or as a bundled package. Big Container Corporation purchased the bundled package from Sage for $120,000. Estimated standalone fair values are: computer equipment ($75,000), installation ($50,000), and training ($25,000) on March 15, 2017. The journal entry to record the transaction on March 15, 2017 will include a A. debit to Unearned Service Revenue of $25,000. B. credit to Sales Revenue for $120,000. C. credit to Unearned Service Revenue of $20,000. D. credit to Service Revenue of $50,000.

C. credit to Unearned Service Revenue of $20,000.

When consigned goods are transferred from the consignor to the consignee, freight costs should be considered A. inventoriable by the consignee. B. an expense by the consignor. C. inventoriable by the consignor. D. an expense by the consignee.

C. inventoriable by the consignor.

Coronado Industries has 557000 shares of $10 par value common stock outstanding. During the year, Coronado declared a 15% stock dividend when the market price of the stock was $32 per share. Four months later Coronado declared a $0.40 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by $367620. $ 334200. $1336800. $2929820.

D

Crane Company retires its $560000 face value bonds at 103 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $539000. The entry to record the redemption will include a debit of $37800 to Gain on Bond Redemption. debit of $16800 to Premium on Bonds Payable. credit of $21000 to Loss on Bond Redemption. credit of $21000 to Discount on Bonds Payable.

D

Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as an increase in stockholders' equity. an increase in current liabilities for the current portion and long-term liabilities for the long-term portion. an increase in current liabilities. a footnote.

D

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 preferred dividends in arrears. preferred dividends in arrears times (one minus the income tax rate). annual preferred dividend times (one minus the income tax rate). annual preferred dividend.

D

On January 1, 2013, Bramble Corp. issued 4200 of its 10%, $1,000 bonds for $4368000. These bonds were to mature on January 1, 2023 but were callable at 101 any time after December 31, 2016. Interest was payable semiannually on July 1 and January 1. On July 1, 2018, Bramble called all of the bonds and retired them. Bond premium was amortized on a straight-line basis. Before income taxes, Bramble's gain or loss in 2018 on this early extinguishment of debt was $126000 gain. $50400 gain. $42000 loss. $33600 gain.

D

On January 1, 2017, Concord Corporation issued eight-year bonds with a face value of $5650000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are: Present value of 1 for 8 periods at 10% 0.467Present value of 1 for 8 periods at 12% 0.404Present value of 1 for 16 periods at 5% 0.458Present value of 1 for 16 periods at 6% 0.394Present value of annuity for 8 periods at 10% 5.335Present value of annuity for 8 periods at 12% 4.968Present value of annuity for 16 periods at 5% 10.838Present value of annuity for 16 periods at 6% 10.106 The present value of the interest is $3014275. $3061735. $2806920. $2854945.

D

On January 2, 2017, a calendar-year corporation sold 6% bonds with a face value of $2590000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $2380000 to yield 8%. Using the effective-interest method of computing interest, how much should be charged to interest expense in 2017? $207200. $190400. $155400. $191100.

D

On July 1, 2018, an interest payment date, $149000 of Bonita Industries bonds were converted into 2970 shares of Bonita Industries common stock each having a par value of $45 and a market value of $56. There is $6600 unamortized discount on the bonds. Using the book value method, Bonita would record a $23920 increase in paid-in capital in excess of par. a $17320 increase in paid-in capital in excess of par. no change in paid-in capital in excess of par. a $8750 increase in paid-in capital in excess of par.

D

On October 1, 2017 Waterway Industries issued 4%, 10-year bonds with a face value of $8020000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis.The entry to record the issuance of the bonds would include a credit of $7699200 to Bonds Payable. debit of $320800 to Discount on Bonds Payable. credit of $160400 to Interest Payable. credit of $320800 to Premium on Bonds Payable.

D

Presented below is information related to Oriole Company: Common Stock, $1 par $3570000 Paid-in Capital in Excess of Par―Common Stock 553000 Preferred 8 1/2% Stock, $50 par 1850000 Paid-in Capital in Excess of Par―Preferred Stock 412000 Retained Earnings 1420000 Treasury Common Stock (at cost) 146000 The total stockholders' equity of Oriole Company is $7805000. $6385000. $6239000. $7659000.

D

Proceeds from an issue of debt securities having stock warrants should not be allocated between debt and equity features when a. the market value of the warrants is not readily available. b. exercise of the warrants within the next few fiscal periods seems remote. c. the allocation would result in a discount on the debt security. d. the warrants issued with the debt securities are nondetachable.

D

On August 1, 2021, Sunland Company acquired 1140, $1000, 10% bonds at 96 plus accrued interest. The bonds were dated May 1, 2018, and mature on April 30, 2027, with interest paid each October 31 and April 30. The bonds will be added to Sunland's available-for-sale portfolio. The preferred entry to record the purchase of the bonds on August 1, 2021 is Debt Investments. 1140000 Interest Revenue. 28500 Discount on Debt Investments. 45600 Cash 1122900 Debt Investments. 1122900 Cash 1122900 Debt Investments. 1094400 Interest Receivable. 28500 Cash 1122900 Debt Investments. 1094400 Interest Revenue. 28500 Cash 1122900

Debt Investments. 1094400 Interest Revenue. 28500 Cash 1122900

(CPA) A corporation declared a dividend, a portion of which was liquidating. How would this distribution affect each of the following? APIC? R/E?

Decrease and Decrease

(CPA) At its date of incorporation, Sauder, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Sauder acquired 20,000 shares of its common stock at a price of $16 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $12 per share. There have been no other issuances or acquisitions of its own common stock. What effect does the reissuance of the stock have on the following accounts? Retained Earnings Additional Paid-in Capital

Decrease and No Effect

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

Decrease and increase

What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively? Increase and no effect Decrease and increase Increase and decrease Decrease and no effect

Decrease and increase

b. $544,000 loss

Didde Company issues $20,000,000 face value of bonds at 96 on January 1, 2013. The bonds are dated January 1, 2013, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2016, $12,000,000 of the bonds are called at 102 plus accrued interest. What gain or loss would be recognized on the called bonds on September 1, 2016? a. $1,200,000 loss b. $544,000 loss c. $720,000 loss d. $907,000 loss

Taxable income of a corporation:

Differs from accounting income due to differences in interperiod allocation and permanent differences between the two methods of income determination.

Lang Co. issued bonds with detachable common stock warrants. Only the warrants had a known market value. The sum of the fair value of the warrants and the face amount of the bonds exceeds the cash proceeds. This excess is reported as

Discount on Bonds Payable.

A distribution to the owners of a company. These distributions are a return of owners' equity and NEVER considered an expense.

Dividend

Alternative Use Test

Does the asset have an alternative use at the expiration of the lease?

Purchase Option Test

Does the lease give the lessee and option to purchase the property for a price that is significantly lower than the underlying asset's expected fair value?

Transfer of ownership test

Does the lease transfer ownership of the asset to the lessee by the end of the term?

Present Value Test

Does the present value of the lease payments equal or exceed 90% of the fair value of the asset

c. $4,175,047

Downing Company issues $4,000,000, 6%, 5-year bonds dated January 1, 2014 on January 1, 2014. 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? a. $4,000,000 b. $4,173,195 c. $4,175,047 d. $4,173,847

(17) If the parent company owns 90% of the subsidiary company's outstanding common stock, the company should generally account for the income of the subsidiary under the

Equity method

c. $20,875,236

Everhart Company issues $20,000,000, 6%, 5-year bonds dated January 1, 2014 on January 1, 2014. 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? a. $20,000,000 b. $20,865,976 c. $20,875,236 d. $20,869,232

Which of the following differences would result in future taxable amounts?

Expenses or losses that are tax deductible before they are recognized in financial income.

Nondetachable warrants, as with detachable warrants, require an allocation of the proceeds between the bonds and the warrants.

F

company appropriately uses the completed-contract method to account for a long-term construction contract. Revenue is recognized when progress billings are?

GAAP require that revenue be recognized when it is realized or realizable and earned. Under the completed-contract method, revenue recognition is appropriate only at the completion of the contract. Neither the recording nor the collection of progress billings affects this recognition.

Which of the following would be included in the Lease Receivable account? I. Guaranteed residual value. II. Unguaranteed residual value. III. Executory costs IV. Rental payments.

I, II, and IV.

With regard to recognizing stock-based compensation

IFRS and U.S. GAAP follow the same model

Gow Constructors, Inc., has consistently used the percentage-of-completion method of recognizing gross profit. In Year 1, Gow started work on an $18 million construction contract that was completed in Year 2. The following information was taken from Gow's Year 1 accounting records: Progress billings $ 6,600,000 Costs incurred 5,400,000 Collections 4,200,000 Estimated costs to complete 10,800,000 What amount of gross profit should Gow have recognized in Year 1 on this contract?

In Year 1, one-third of the estimated costs of this construction project were incurred [$5,400,000 ÷ ($5,400,000 + $10,800,000)]. The entity should therefore have recognized one-third of the estimated gross profit in Year 1. At year-end, the estimated gross profit was $1,800,000 [$18,000,000 price - $16,200,000 total estimated costs ($5,400,000 costs incurred + $10,800,000 estimated costs to complete)]. In Year 1, $600,000 ($1,800,000 × 1/3) should have been recognized as gross profit.

c. $800,000

In recent year Cey Corporation had net income of $500,000, interest expense of $100,000, and a times interest earned ratio of 9. What was Cey Corporation's income before taxes for the year? a. $1,000,000 b. $900,000 c. $800,000 d. None of these answers are correct.

a. 6.0

In the recent year Hill Corporation had net income of $210,000, interest expense of $60,000, and tax expense of $90,000. What was Hill Corporation's times interest earned ratio for the year? a. 6.0 b. 5.0 c. 4.5 d. 3.5

Deferred taxes should be presented on the balance sheet:

In two amounts: one for the net current amount and one for the net noncurrent amount.

An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as Fair Value Method Equity Method A reduction of the investment Income Income Income A reduction of the investment A reduction of the investment Income A reduction of the investment

Income. A reduction of the investment

How would the declaration and subsequent issuance of a 10% stock dividend by the issuer affect each of the following when the market value of the shares exceeds the par value of the stock? Common stock? PIC?

Increase and Increase

The deferred tax expense is the

Increase in balance of deferred tax liability minus-- the increase in balance of deferred tax asset.

Lease Term Test

Is the lease term 75% or greater than the economic life of the leased asset?

With regard to uncertain tax positions, the FASB requires that companies recognize a tax benefit when

It is more likely than not that the tax position will be sustained upon audit.

Assuming a 40% statutory tax rate applies to all years involved, which of the following situations will give rise to reporting a deferred tax liability on the balance sheet?(1-4)

Items 2 and 3 only. 2. A revenue is deferred for tax purposes but not for financial reporting purposes. 3. An expense is deferred for financial reporting purposes but not for tax purposes.

b. credit of $11,250 to Discount on Bonds Payable.

Kant Corporation retires its $300,000 face value bonds at 102 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $288,750. The entry to record the redemption will include a a. credit of $11,250 to Loss on Bond Redemption. b. credit of $11,250 to Discount on Bonds Payable. c. debit of $17,250 to Gain on Bond Redemption. d. debit of $16,000 to Premium on Bonds Payable

At December 31 of year 1 and year 2, Pocoyo 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, year 1, dividends in arrears on the preferred stock were $15,000. Cash dividends declared in year 2 totaled $25,000. Of the $25,000, what amounts were payable on preferred stock?

LOWER OR: Current + Arrears =: 4,000 * 100 * 0.06 + 15,000 = 39,000 OR $25,000 declared. So, $25,000

25,000 shares reacquired by Pearl Corporation for $50 per share were exchanged for undeveloped land that has an appraised value of $1,497,000. At the time of the exchange, the common stock was trading at $57 per share on an organized exchange. Prepare the journal entry to record the acquisition of land assuming that the purchase of the stock was originally recorded using the cost method.

Land 1425000 Treasury Stock 1250000 Paid in Capital from T.S 175000

b. $120,000 gain.

On December 31, 2012, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $1,800,000 note with $180,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $870,000, an original cost of $1,440,000, and accumulated depreciation of $690,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2015, reduces the face amount of the note to $750,000, and reduces the interest rate to 6%, with interest payable at the end of each year. Nolte should recognize a gain or loss on the transfer of the equipment of a. $0. b. $120,000 gain. c. $180,000 gain. d. $570,000 loss.

a. $0.

On December 31, 2012, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $1,800,000 note with $180,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $870,000, an original cost of $1,440,000, and accumulated depreciation of $690,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2015, reduces the face amount of the note to $750,000, and reduces the interest rate to 6%, with interest payable at the end of each year. Nolte should record interest expense for 2015 of a. $0. b. $45,000. c. $90,000. d. $135,000.

b. a gain of $98,000.

On January 1, 2008, Hernandez Corporation issued $9,000,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Hernandez at 105. Hernandez has recorded amortization of the bond premium on the straight-line method (which was not materially different from the effective-interest method). On December 31, 2014, when the fair value of the bonds was 96, Hernandez repurchased $2,000,000 of the bonds in the open market at 96. Hernandez has recorded interest and amortization for 2014. Ignoring income taxes and assuming that the gain is material, Hernandez should report this reacquisition as a. a loss of $98,000. b. a gain of $98,000. c. a loss of $122,000. d. a gain of $122,000.

a. $11,270.

On January 1, 2014, Ann Price loaned $112,695 to Joe Kiger. A zero-interest-bearing note (face amount, $150,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2016. The prevailing rate of interest for a loan of this type is 10%. The present value of $150,000 at 10% for three years is $112,695. What amount of interest income should Ms. Price recognize in 2014? a. $11,270. b. $15,000. c. $45,000. d. $33,810

b. $856,440

On January 1, 2014, Crown Company sold property to Leary Company. There was no established exchange price for the property, and Leary gave Crown a $4,000,000 zero-interest-bearing note payable in 5 equal annual installments of $800,000, with the first payment due December 31, 2014. The prevailing rate of interest for a note of this type is 9%. The present value of the note at 9% was $2,884,000 at January 1, 2014. What should be the balance of the Discount on Notes Payable account on the books of Leary at December 31, 2014 after adjusting entries are made, assuming that the effective-interest method is used? a. $0 b. $856,440 c. $892,800 d. $1,116,000

a. $3,534,240.

On January 1, 2014, Ellison Co. issued eight-year bonds with a face value of $4,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: The issue price of the bonds is a. $3,534,240. b. $3,539,280. c. $3,558,240. d. $3,998,400.

b. $1,398,240.

On January 1, 2014, Ellison Co. issued eight-year bonds with a face value of $4,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: The present value of the interest is a. $1,379,280. b. $1,398,240. c. $1,490,400. d. $1,507,320.

a. $2,136,000.

On January 1, 2014, Ellison Co. issued eight-year bonds with a face value of $4,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: The present value of the principal is a. $2,136,000. b. $2,160,000. c. $2,492,000. d. $2,508,000

b. $107,419.

On January 1, 2014, Huber Co. sold 12% bonds with a face value of $1,000,000. The bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $1,077,250 to yield 10%. Using the effective-interest method of amortization, interest expense for 2014 is a. $100,000. b. $107,419. c. $107,700. d. $120,000.

c. $174,090.

On January 1, 2014, Jacobs Company sold property to Dains Company which originally cost Jacobs $1,330,000. There was no established exchange price for this property. Danis gave Jacobs a $2,100,000 zero-interest-bearing note payable in three equal annual installments of $700,000 with the first payment due December 31, 2014. The note has no ready market. The prevailing rate of interest for a note of this type is 10%. The present value of a $2,100,000 note payable in three equal annual installments of $700,000 at a 10% rate of interest is $1,740,900. What is the amount of interest income that should be recognized by Jacobs in 2014, using the effective-interest method? a. $0. b. $70,000. c. $174,090. d. $210,000

b. $307,500

On January 1, Martinez Inc. issued $5,000,000, 11% bonds for $5,325,000. 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: a. $308,550 b. $307,500 c. $289,250 d. $275,000

b. $228,400.

On January 1, Patterson Inc. issued $4,000,000, 9% bonds for $3,756,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the first year, Patterson should report unamortized bond discount of a. $219,600. b. $228,400. c. $206,440. d. $204,000.

c. $138,860.

On January 2, 2014, a calendar-year corporation sold 8% bonds with a face value of $1,500,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $1,384,000 to yield 10%. Using the effective-interest method of computing interest, how much should be charged to interest expense in 2014? a. $120,000. b. $138,400. c. $138,860. d. $150,000.

c. $57,500

On October 1, 2014 Bartley Corporation issued 5%, 10-year bonds with a face value of $5,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. Bond interest expense reported on the December 31, 2014 income statement of Bartley Corporation would be a. $67,500 b. $115,000 c. $57,500 d. $62,500

In a par-value state of incorporation, an arbitrary value assigned to the book value of a common share that is typically much less that its actual value at issuance.

Par-Value

At December 31 of year 1 and year 2, Carr Corp. had outstanding 4,000 shares of $100 par value 5% cumulative preferred stock and 20,000 shares of $10 par value common stock. At December 31, year 1, dividends in arrears on the preferred stock were $10,000. Cash dividends declared in year 2 totaled $42,000. What amounts of dividends were payable on each class of stock?

Preferred : 30,000 Common: 12,000

A type of equity that is not ownership.

Preferred Stock

D

Proceeds from an issue of debt securities having stock warrants should not be allocated between debt and equity features when a. the market value of the warrants is not readily available. b. exercise of the warrants within the next few fiscal periods seems remote. c. the allocation would result in a discount on the debt security. d. the warrants issued with the debt securities are nondetachable.

Which of the following are temporary differences that are normally classified as expenses or losses and are deductible after they are recognized in financial income? Depreciable property. Fines and expenses resulting from a violation of law. Advance rental receipts. Product warranty liabilities.

Product warranty liabilities.

Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income?

Product warranty liabilities.

POC Company accounts for a long-term construction contract using the percentage-of-completion method. As of the end of the current fiscal year, the following information was available regarding a project expected to be completed in the following year: Cumulative progress billings $400,000 Cumulative costs incurred 300,000 Cumulative gross profit recognized 80,000 The difference between construction in progress and progress billings should be reported in the statement of financial position for the current year as?

Progress billings is an offset to construction in progress (or vice versa) on the balance sheet. The difference between construction in progress (costs and recognized gross profit) and progress billings to date is shown as a current asset if construction in progress exceeds total billings and as a current liability if billings exceed construction in progress. Because progress billings exceed construction in progress, the difference should be reported as a current liability of $20,000 [$400,000 - ($300,000 + $80,000)].

A non-cash asset distribution from the corporation to its owners that reduces retained earnings.

Property Dividend

d. 7.7 times.

Putnam Company's 2014 financial statements contain the following selected data: Income taxes $40,000 Interest expense 15,000 Net income 60,000 Putnam's times interest earned for 2014 is a. 4.0 times b. 5.0 times. c. 6.7 times. d. 7.7 times.

Which of the following features of preferred stock makes it more like a debt than an equity instrument? Participating Voting Noncumulative Redeemable

Redeemable

A source of stockholders' equity that results from operations rather than capital contributions from investors.

Retained Earnings

(18) To address inconsistencies and weaknesses in revenue recognition, a comprehensive revenue recognition standard was developed entitled the

Revenue from Contracts with Customers

__________________________ can result from excessive depreciation or amortization charges, expensing capital expenditures, excessive write downs of inventories or receivables, or any other understatement of assets or overstatement of liabilities

Secret Reserves

Concord Corporation purchased Pharoah Company and agreed to give stockholders of Pharoah Company 10700 additional shares in 2020 if Pharoah Company's net income in 2019 is $490000; in 2018 Pharoah Company's net income is $510000. Concord Corporation has net income for 2018 of $440000 and has an average number of common shares outstanding for 2018 of 99000 shares. What should Concord report as diluted earnings per share for 2018? (rounded to the nearest penny)

Since $510000 > $490000 include 10700 shares in DEPS $440000 ÷ (99000 + 10700) = $4.01.

In a no-par-value state of incorporation, an arbitrary amount per share that is typically much lower than the amount received at issuance.

Stated-Value

A pro rata distribution of shares to existing owners that decreases retained earnings and increases contributed capital.

Stock Dividend

Which dividends do not reduce stockholders' equity? Liquidating dividends Cash dividends Stock dividends Property dividends

Stock dividends

D

Stock warrants outstanding should be classified as a. liabilities. b. reductions of capital contributed in excess of par value. c. assets. d. none of these.

Which of the following is not considered a permanent difference?

Stock-based compensation expense.

When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies? The investor should always use the equity method to account for its investment. The investor should always use the fair value method to account for its investment. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee. The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee.

The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee.

B

The major difference between convertible debt and stock warrants is that upon exercise of the warrants a. the stock is held by the company for a defined period of time before they are issued to the warrant holder. b. the holder has to pay a certain amount of cash to obtain the shares. c. the stock involved is restricted and can only be sold by the recipient after a set period of time. d. no paid-in capital in excess of par can be a part of the transaction.

Tanner, Inc. incurred a financial and taxable loss for 2015. Tanner therefore decided to use the carryback provisions as it had been profitable up to this year. How should the amounts related to the carryback be reported in the 2015 financial statements?

The refund claimed should be shown as a reduction of the loss in 2015.

transactions in the companies own stock has what effect on gains/losses? Equity capital?

The transactions do not create revenue or expenses, or gains or losses. Only a reduction or increase in equity capital.

Chelsea sells equipment to a customer. The total selling price includes installation and training services. Companies other than Chelsea also provide installation and training services, but the customer has chosen to have Chelsea perform these tasks. What is (are) Chelsea's performance obligation(s)? Three separate performance obligations: the sale of the equipment, the sale of its installation and the sale of training services. Two separate performance obligations: one performance obligation consisting of the sale of the equipment and the sale of a second performance obligation: the sale of a separate unit (installation and training). One performance obligation: the sale of unit (equipment, installation, training). Two separate performance obligations: the sale of a performance obligation consisting of the sale of the equipment and its installation, and a second performance obligation: the sale of a separate unit (training).

Three separate performance obligations: the sale of the equipment, the sale of its installation and the sale of training services.

The calculation of the income recognized in the third year of a 5-year construction contract accounted for using the percentage-of-completion method includes the ratio of?

Total costs incurred to date to total estimated costs.

Unrealized holding gains or losses which are recognized in income are from securities classified as available-for-sale. trading. none of these answer choices are correct. held-to-maturity.

Trading

(17) 3 classifications for Debt Investments/Securities

Trading securities Available-for-sale Held-to-Maturity securities

Companies do not declare or pay cash dividends on ____________ stock

Treasury

Swifty Corporation acquired 18200 shares of its own common stock at $21 per share on February 5, 2020, and sold 9100 of these shares at $28 per share on August 9, 2021. The fair value of Swifty's common stock was $25 per share at December 31, 2020, and $26 per share at December 31, 2021. The cost method is used to record treasury stock transactions. What account(s) should Swifty credit in 2021 to record the sale of 9100 shares? Treasury Stock for $254800. Treasury Stock for $227500 and Retained Earnings for $27300. Treasury Stock for $191100 and Paid-in Capital from Treasury Stock for $63700. Treasury Stock for $191100 and Retained Earnings for $63700.

Treasury Stock for $191100 and Paid-in Capital from Treasury Stock for $63700.

On September 1, 2020, Sunland Company reacquired 32000 shares of its $10 par value common stock for $15 per share. Sunland uses the cost method to account for treasury stock. The journal entry to record the reacquisition of the stock should debit Common Stock for $320000. Common Stock for $320000 and Paid-in Capital in Excess of Par for $160000. Treasury Stock for $480000. Treasury Stock for $320000.

Treasury Stock for $480000. Solution: 32000 × $15 = $480000.

Companies report bond discounts as a direct deduction from the face amount of the bond.

True

If a company cannot determine fair value for any of the classes of stock involved in a lump sum exchange, it may need to use other approaches (T/F)

True

B

When a bond issuer offers some form of additional consideration (a "sweetener") to induce conversion, the sweetener is accounted for as a(n) a. extraordinary item. b. expense. c. loss. d. none of these.

A

When convertible debt is retired by the issuer, any material difference between the cash acquisition price and the carrying amount of the debt should be a. reflected currently in income, but not as an extraordinary item. b. reflected currently in income as an extraordinary item. c. treated as a prior period adjustment. d. treated as an adjustment of additional paid-in capital.

D

When the cash proceeds from a bond issued with detachable stock warrants exceed the sum of the par value of the bonds and the fair market value of the warrants, the excess should be credited to a. additional paid-in capital from stock warrants. b. retained earnings. c. a liability account. d. premium on bonds payable.

D

Which of the following is not a characteristic of a noncompensatory stock purchase plan? a. It is open to almost all full-time employees. b. The discount from market price is small. c. The plan offers no substantive option feature. d. All of these are characteristics.

At December 31, 2017 Bramble Corp. had 311000 shares of common stock and 10300 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2017 or 2018. On January 30, 2019, prior to the issuance of its financial statements for the year ended December 31, 2018, Bramble declared a 100% stock dividend on its common stock. Net income for 2018 was $1147000. In its 2018 financial statements, Bramble's 2018 earnings per common share should be (rounded to the nearest penny)

[$1147000 - (10300 × $100 × 0.05)] ÷ (311000 × 2) = $1.76.

Bonita Industries had 197000 shares of common stock, 19600 shares of convertible preferred stock, and $1600000 of 4% convertible bonds outstanding during 2018. The preferred stock is convertible into 39400 shares of common stock. During 2015, Bonita paid dividends of $0.80 per share on the common stock and $4 per share on the preferred stock. Each $1,000 bond is convertible into 30 shares of common stock. The net income for 2018 was $595000 and the income tax rate was 40%. Diluted earnings per share for 2018 is (rounded to the nearest penny)

[$595000 + ($1600000 × 0.04 × 0.60)] ÷ [197000 + 39400 + (1600 × 30)] = $2.23.

Oriole Company had 206000 shares of common stock, 20600 shares of convertible preferred stock, and $1493000 of 5% convertible bonds outstanding during 2018. The preferred stock is convertible into 39700 shares of common stock. During 2015, Oriole paid dividends of $1 per share on the common stock and $4 per share on the preferred stock. Each $1,000 bond is convertible into 30 shares of common stock. The net income for 2018 was $609000 and the income tax rate was 30%. Basic earnings per share for 2018 is (rounded to the nearest penny)

[$609000 - (20600 × $4)] ÷ 206000 = $2.56.

Waterway Industries had net income for the year of $728000 and a weighted average number of common shares outstanding during the period of 250000 shares. The company has a convertible bond issue outstanding. The bonds were issued four years ago at par ($3060000), carry a 7% interest rate, and are convertible into 49000 shares of common stock. The company has a 45% tax rate. Diluted earnings per share are (rounded to the nearest penny)

[$728000 + ($3060000 × 0.07 × 0.55)] ÷ (250000 + 49000) = $2.83.

Coronado Industries had net income for 2018 of $596000. The average number of shares outstanding for the period was 203000 shares. The average number of shares under outstanding options, at an option price of $30 per share is 11700 shares. The average market price of the common stock during the year was $36. What should Coronado Industries report for diluted earnings per share for the year ended 2018? (rounded to the nearest penny)

[($36 - $30) ÷ $36] × 11700 = 1950 $596000 ÷ (203000 + 1950) = $2.91.

Seadrill Engineering licensed software to oil-drilling firms for 5 years. In addition to providing the software, the company also provides consulting services and support to ensure smooth operation of the software. The total transaction price is $420,000. Based on standalone values, the company estimates the consulting services and support have a value of $120,000 and the software license has a value of $300,000. Assuming the performance obligations are not interdependent, the journal entry to record the transaction includes a credit to Service Revenue of $120,000. a credit to Unearned Service Revenue of $120,000. a credit to Sales Revenue of $420,000. a credit to Sales Revenue for $300,000 and a credit to Unearned Service Revenue of $120,000.

a credit to Sales Revenue for $300,000 and a credit to Unearned Service Revenue of $120,000.

New Age Computers manufactures and sells pagers and radio paging 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 May 10, it sold a paging system for $4,500 and an extended warranty for another $1,400. The journal entry to record this transaction would include

a credit to Unearned Warranty Revenue of $1,400

New Age Computers manufactures and sells pagers and radio paging 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 May 10, it sold a paging system for $4,500 and an extended warranty for another $1,400. The journal entry to record this transaction would include a credit to Unearned Warranty Revenue of $1,400. a credit to Warranty Revenue of $5,900. a credit to Warranty Revenue of $1,400. a credit to Sales of $4,500 and a credit to Warranty Revenue of $1,400.

a credit to Unearned Warranty Revenue of $1,400.

Watt Company purchased $300,000 of bonds for $315,000. If Watt intends to hold the securities to maturity, the entry to record the investment includes a debit to Debt Investments at $300,000. a credit to Premium on Debt Investments of $15,000. a debit to Debt Investments at $315,000. none of these choices are correct.

a debit to Debt Investments at $315,000.

Dividend in Arrears

a dividend payment associated with cumulative preferred stock that has not been paid, does not account as a liability unless a dividend is declared, but is disclosed in footnotes

Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as an increase in stockholders' equity. a footnote. an increase in current liabilities. an increase in current liabilities for the current portion and long-term liabilities for the long-term portion.

a footnote.

corporate charter

a legal document that the state issues to a company based on information the company provides in the articles of incorporation

On January 2, 2014, Farr Co. issued 10-year convertible bonds at 105. During 2014, these bonds were converted into common stock having an aggregate par value equal to the total face amount of the bonds. At conversion, the market price of Farr's common stock was 50 percent above its par value. On January 2, 2014, cash proceeds from the issuance of the convertible bonds should be reported as

a liability for the entire proceeds.

On January 2, 2021, Farr Co. issued 10-year convertible bonds at 105. During 2021, these bonds were converted into common stock having an aggregate par value equal to the total face amount of the bonds. At conversion, the market price of Farr's common stock was 50 percent above its par value. On January 2, 2021, cash proceeds from the issuance of the convertible bonds should be reported as a liability for the entire proceeds. a liability for the face amount of the bonds and paid-in capital for the premium over the face amount. paid-in capital for the entire proceeds. paid-in capital for the portion of the proceeds attributable to the conversion feature and as a liability for the balance.

a liability for the entire proceeds.

Companies express preferred stock with a par value as _______________________________________________

a percentage of the par value

When an investor company owns 25% of an investee company's common stock, the investor is said to have: a minor influence over the investee company. little or no influence over the investee company. a controlling interest over the investee company. a significant influence over the investee company

a significant influence over the investee company

(17) Use of the effective-interest method in amortizing bond premiums and discounts results in

a varying amount being recorded as interest income from period to period

North Co. entered into a franchise agreement with South Co. for an initial fee of $50,000. North received $10,000 at the agreement's signing. The remaining balance was to be paid at a rate of $10,000 per year, beginning the following year. North's services per the agreement were not complete in the current year. Operating activities will commence next year.What amount should North report as franchise revenue in the current year? a) $0 b) $50,000 c) $10,000 d) $20,000

a) $0

On March 1, 2018, Ruiz Corporation issued $2,000,000 of 8% nonconvertible bonds at 104, which are due on February 28, 2038. In addition, each $1,000 bond was issued with 25 detachable stock warrants, each of which entitled the bondholder to purchase for $50 one share of Ruiz common stock, par value $25. The bonds without the warrants would normally sell at 95. On March 1, 2018, the fair value of Ruiz's common stock was $40 per share and the fair value of the warrants was $2.00. What amount should Ruiz record on March 1, 2018 as paid-in capital from stock warrants? a) $104,000 b) $73,600 c) $85,200 d) $100,000

a) $104,000 FV normal bonds: 2,000,000 x .95 = 1,900,000 FV stock warrants: (2,000,000 / 1,000) x 25 x 2 = 100,000 Total FV bond and warrant: 1,900,000 + 100,000 = 2,000,000 FV of stock warrant as % of total FV: 100,000 / 2,000,000 = 5% Cash received from issue of bonds = 2,000,000 x 1.04 = 2,080,000 Amt recorded as PIC stock warrants = 2.080,000 x 5% = 104,000

In Year 1, Lobo Corp. reported for financial-statement purposes the following revenue and expenses that were not included in taxable income: Premiums on officers' life insurance under which the corporation is the beneficiary$5,000 Interest revenue on qualified-state or municipal bonds$10,000 Estimated future warranty costs to be paid in Year 2 and Year 3$60,000 Lobo's enacted tax rate for the current and future years is 30%. Lobo has paid income taxes of $170,000 for the three-year period ended December 31, Year 1. There were no temporary differences in prior years.The deferred tax benefit to be applied against current income tax expense is a) $18,000 b) $19,500 c) $22,500 d) $21,000

a) $18,000

Shaw Company engages Maya Company to produce a large machine, install the machine, and train their employees on the machine. The machine, installation, and training are distinct, and Maya determines that the contract includes three separate performance obligations. The machine, installation, and training typically cost $800,000, $100,000, and $100,000 respectively when each is provided in a separate contract. Shaw and Maya agree to a total contract price of $920,000. How much of the contract price should Maya allocate to the machine, installation, and training, respectively? a) $736,000; $92,000; $92,000 b) $732,000; $94,000; $94,000 c) $736,000; $184,000 d) $800,000; $100,000; $100,000

a) $736,000; $92,000; $92,000

Jordan Company purchased 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 principal by the table value for a) 20 periods and 4% from the present value of 1 table. b) 10 periods and 10% from the present value of 1 table. c) 10 periods and 8% from the present value of 1 table. d) 20 periods and 5% from the present value of 1 table.

a) 20 periods and 4% from the present value of 1 table.

An executive pays no taxes at the time of exercise is a (an) a) Incentive stock option plan b) Stock appreciation rights plan c) Nonqualified stock option plan d) Taxes would be paid in all of these

a) Incentive stock option plan ISO - no tax at time of exercise, taxed @ capital gains rates

Alternative methods exist for the measurement of the pension obligation (liability). Which measure requires the use of future salaries in its computation? a) Projected benefit obligation b) Restructured benefit obligation c) Vested benefit obligation d) Accumulated benefit obligation

a) Projected benefit obligation

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 a) annual preferred dividend b) annual preferred dividend times (1 - the tax rate) c) preferred dividends in arrears d) preferred dividends in arrears times (1 - the tax rate)

a) annual preferred dividend Simple EPS: only CS no dilutive securities EPS = (net income - pref. divs) / WA common shares o/s

In applying the treasury stock method to determine the dilutive effect of stock options and warrants, the proceeds assumed to be received upon exercise of the options and warrants a) are used to calculate the number of common shares repurchased at the average market price, when computing diluted earnings per share b) are not used to calculate the number of common shares repurchased at the average market price, when computing diluted earnings per share c) are added, net of tax, to the numerator of the calculation for diluted earnings per share d) are disregarded in the computation of earnings per share if the exercise price of the options and warrants is less than the ending market price of common stock

a) are used to calculate the number of common shares repurchased at the average market price, when computing diluted earnings per share Treasury Stock Method # of shares = ((market price - option price) / market price) x # of options

One component of pension expense is actual return on plan assets. Plan assets include a) assets that a company holds to earn a reasonable return, generally at minimum risk. b) plan assets still under the control of the company. c) only assets reported on the balance sheet of the employer as prepaid pension cost. d) none of these answers are correct.

a) assets that a company holds to earn a reasonable return, generally at minimum risk.

Proceeds from an issue of debt securities having stock warrants should NOT be allocated between debt and equity features when a) the warrants issued with the debt securities are nondetachable b) exercise of the warrants within the next few fiscal periods seems remote c) the market value of the warrants is not readily available d) the allocation would result in a discount on the debt security

a) the warrants issued with the debt securities are nondetachable Warrant: certificate entitled holder to shares of stock at a certain price within a certain period of time Detachable stock warrant: can be separated from stock and traded as a separate security Detachable: at time of issuance, treated as 2 separate instruments Nondetachable warrants, however, do not require an allocation of the proceeds between the bonds and the warrants

During 2014, Vaughn Corporation sold merchandise costing $2,250,000 on an installment basis for $3,000,000. The cash receipts related to these sales were collected as follows: 2014, $1,200,000; 2015, $1,050,000; 2016, $750,000. ~If expenses, other than the cost of the merchandise sold, related to the 2014 installment sales amounted to $135,000, by what amount would Vaughn's net income for 2014 increase as a result of installment sales? a. $ 165,000 b. $ 266,250 c. $ 300,000 d. $1,065,000

a. $ 165,000

On January 1, 2015, Shaw Co. sold land that cost $840,000 for $1,120,000, receiving a note bearing interest at 10%. The note will be paid in three annual installments of $450,380 starting on December 31, 2015. Because collection of the note is very uncertain, Shaw will use the cost-recovery method. How much revenue from this sale should Shaw recognize in 2015? a. $0 b. $84,000 c. $112,000 d. $280,000

a. $0

Swift Company purchased a machine on January 1, 2016, for $900,000. At the date of acquisition, the machine had an estimated useful life of six years with no salvage. The machine is being depreciated on a straight-line basis. On January 1, 2019, Swift determined, as a result of additional information, that the machine had an estimated useful life of eight years from the date of acquisition with no salvage. An accounting change was made in 2019 to reflect this additional information. 53. Assume that the direct effects of this change are limited to the effect on depreciation and the related tax provision, and that the income tax rate was 30% in 2016, 2017, 2018, and 2019. What should be reported in Swift's income statement for the year ended December 31, 2019, as the cumulative effect on prior years of changing the estimated useful life of the machine? a. $0 b. $60,000 c. $90,000 d. $315,000

a. $0 $0, no cumulative effect, handle prospectively (change in estimate).

On January 1, 2018, Reston Company purchased 25% of Ace Corporation's common stock; no goodwill resulted from the purchase. Reston appropriately carries this investment at equity and the balance in Reston's investment account was $1,170,000 at December 31, 2018. Ace reported net income of $700,000 for the year ended December 31, 2018, and paid cash dividends on common stock totaling $280,000 during 2018. How much did Reston pay for its 25% interest in Ace? a. $1,065,000. b. $1,240,000. c. $1,275,000. d. $1,415,000.

a. $1,065,000.

Nickerson Corporation began operations in 2016. There have been no permanent or temporary differences to account for since the inception of the business. The following data are available: Year 2016 2017 2018 2019 Enacted Tax Rate 45% 40% 35% 30% Taxable Income $2,000,000 2,400,000 Taxes Paid $900,000 960,000 In 2018, Nickerson had an operating loss of $2,480,000. What amount of income tax benefits should be reported on the 2018 income statement due to this loss assuming that it uses the carryback provision? a. $1,092,000 b. $996,000 c. $992,000 d. $744,000

a. $1,092,000 ($2,000,000 × .45) + [($2,480,000 - $2,000,000) × .40] = $1,092,000.

71. On January 1, 2016, Lake Co. purchased a machine for $1,980,000 and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value. On January 1, 2019, Lake determined that the machine had a useful life of six years from the date of acquisition and will have a salvage value of $180,000. An accounting change was made in 2019 to reflect these additional data. The accumulated depreciation for this machine should have a balance at December 31, 2019 of a. $1,095,000. b. $1,155,000. c. $1,200,000. d. $1,320,000.

a. $1,095,000. $1,980,000 × 3/8 = $742,500 $742,500 + [($1,980,000 - $742,500 - $180,000) × 1/3] = $1,095,000.

101. On December 31, 2018, Burton, Inc. leased machinery with a fair value of $1,575,000 from Cey Rentals Co. The agreement is a six-year noncancelable lease requiring annual payments of $300,000 beginning December 31, 2018. The lease is appropriately accounted for by Burton as a capital lease. Burton's incremental borrowing rate is 11%. Burton knows the interest rate implicit in the lease payments is 10%. The present value of an annuity due of 1 for 6 years at 10% is 4.7908. The present value of an annuity due of 1 for 6 years at 11% is 4.6959. In its December 31, 2018 balance sheet, Burton should report a lease liability of

a. $1,137,240. ($300,000 × 4.7908) - $300,000 = $1,137,240

68. Pisa, Inc. leased equipment from Tower 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, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. If Pisa, Inc.'s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%, what is the amount recorded for the leased asset at the lease inception? PV Annuity Due 8%, 4 periods: 3.57710 10%, 4 periods: 3.48685 PV Ordinary Annuity 8%, 4 periods: 3.31213 10%, 4 periods: 3.16986

a. $1,231,066 $344,152 * 3.57710 = $1,231,066.

93. Alex Company prepares its statement of cash flows using the direct method for operating activities. For the year ended December 31, 2018, Alex Company reports the following activity: Sales on account $2,100,000 Cash sales 1,110,000 Decrease in accounts receivable 915,000 Increase in accounts payable 108,000 Increase in inventory 72,000 Cost of goods sold 1,575,000 What is the amount of cash payments to suppliers reported by Alex Company for the year ended December 31, 2018? a. $1,539,000 b. $1,611,000 c. $1,755,000 d. $1,395,000

a. $1,539,000 $1,575,000 - $108,000 + $72,000 = $1,539,000.

Horner Construction Co. uses the percentage-of-completion method. In 2012, Horner began work on a contract for $11,000,000; it was completed in 2013. The following cost data pertain to this contract: Year Ended December 31 2012 .............................................2013 Cost incurred during the year $3,900,000 $2,800,000 Estimated costs to complete at the end of year 2,600,000 — The amount of gross profit to be recognized on the income statement for the year ended December 31, 2013 is a. $1,600,000. b. $1,720,000. c. $1,800,000. d. $4,300,000. If the completed-contract method of accounting was used, the amount of gross profit to be recognized for years 2012 and 2013 would be 2012................... 2013 a. $4,500,000. $0. b. $4,300,000. $(200,000). c. $0. $4,300,000. d. $0. $4,500,000.

a. $1,600,000. c. $0. $4,300,000.

Ernst Company purchased equipment that cost $3,000,000 on January 1, 2017. The entire cost was recorded as an expense. The equipment had a nine-year life and a $120,000 residual value. Ernst uses the straight-line method to account for depreciation expense. The error was discovered on December 10, 2019. Ernst is subject to a 40% tax rate. 66. Ernst's net income for the year ended December 31, 2017, was understated by a. $1,608,000. b. $1,800,000. c. $2,680,000. d. $3,000,000.

a. $1,608,000. ($3,000,000 - [($3,000,000 - $120,000) ÷ 9]) × (1 - .40) = $1,608,000.

Horner Corporation has a deferred tax asset at December 31, 2019 of $200,000 due to the recognition of potential tax benefits of an operating loss carryforward. The enacted tax rates are as follows: 40% for 2016-2018; 35% for 2019; and 30% for 2020 and thereafter. Assuming that management expects that only 50% of the related benefits will actually be realized, a valuation account should be established in the amount of: a. $100,000 b. $40,000 c. $35,000 d. $30,000

a. $100,000 $200,000 X .50 = $100,000.

Colson 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 Colson distribute to the common stockholders? a. $110,000. b. $120,000. c. $170,000. d. None.

a. $110,000.

Mitchell Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2018 $ 1,800,000 Tax exempt interest (150,000) Originating temporary difference (350,000) Taxable income $1,300,000 The temporary difference will reverse evenly over the next two years at an enacted tax rate of 40%. The enacted tax rate for 2018 is 35%. 66. What amount should be reported in its 2018 income statement as the deferred portion of income tax expense? a. $140,000 debit b. $175,000 debit c. $140,000 credit d. $175,000 credit

a. $140,000 debit $350,000 × .40 = $140,000 debit

Lehman Corporation purchased a machine on January 2, 2017, for $4,000,000. The machine has an estimated 5-year life with no salvage value. The straight-line method of depreciation is being used for financial statement purposes and the following MACRS amounts will be deducted for tax purposes: 2017 $800,000 2020 $460,000 2018 1,280,000 2021 460,000 2019 768,000 2022 232,000 Assuming an income tax rate of 30% for all years, the net deferred tax liability that should be reflected on Lehman's balance sheet at December 31, 2018 be a. $144,000 b. $134,400 c. $9,600 d. $0

a. $144,000 ($1,280,000 - $800,000) × 30% = $144,000 Noncurrent.

Presented below is the stockholders' equity section of Oaks Corporation at December 31, 2020: Common stock, par value $20; authorized 75,000 shares; issued and outstanding 45,000 shares $ 900,000 Paid-in capital in excess of par value 350,000 Retained earnings 500,000 $1,750,000 During 2021, the following transactions occurred relating to stockholders' equity: 3,000 shares were reacquired at $28 per share. 3,000 shares were reacquired at $35 per share. 1,800 shares of treasury stock were sold at $30 per share. For the year ended December 31, 2021, Oaks reported net income of $450,000. Assuming Oaks accounts for treasury stock under the cost method, what should it report as total stockholders' equity on its December 31, 2021, balance sheet? a. $2,065,000. b. $2,061,400. c. $2,057,800. d. $1,615,000.

a. $2,065,000.

Kiner, Inc. began work in 2012 on a contract for $12,600,000. Other data are as follows: 2012................................... 2013 Costs incurred to date $5,400,000 $8,400,000 Estimated costs to complete 3,600,000 — Billings to date 4,200,000 12,600,000 Collections to date 3,000,000 10,800,000 78. If Kiner uses the percentage-of-completion method, the gross profit to be recognized in 2012 is a. $2,160,000. b. $2,400,000. c. $3,240,000. d. $3,600,000. 79. If Kiner uses the completed-contract method, the gross profit to be recognized in 2013 is a. $2,040,000. b. $4,200,000. c. $2,100,000. d. $8,400,000.

a. $2,160,000. b. $4,200,000.

Information relating to 2018 activities: • Net income for 2018 was $1,500,000. • Cash dividends of $600,000 were declared and paid in 2018. • Equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in 2018 for $360,000. • A long-term investment was sold in 2018 for $320,000. There were no other transactions affecting long-term investments in 2018. • 20,000 shares of common stock were issued in 2018 for $25 a share. • Short-term investments consist of treasury bills maturing on 6/30/19. 107. Net cash used in Jamison's 2018 investing activities was a. $2,320,000. b. $1,820,000. c. $1,680,000. d. $1,720,000.

a. $2,320,000. $320,000 + $360,000 - ($3,400,000 + $1,000,000 - $2,000,000) - $600,000 = $2,320,000.

Horner Construction Co. uses the percentage-of-completion method. In 2014, Horner began work on a contract for $16,500,000; it was completed in 2015. The following cost data pertain to this contract: Year Ended December 31 2014/ 2015 Cost incurred during the year $5,850,000/ $4,200,000 Estimated costs to complete at the end of year: 3,900,000/— ~The amount of gross profit to be recognized on the income statement for the year ended December 31, 2015 is a. $2,400,000. b. $2,580,000. c. $2,700,000. d. $6,450,000.

a. $2,400,000.

79. Howell, Inc. reported net income of $88,000 for the year ended December 31, 2018. Included in net income was a gain on early extinguishment of debt of $120,000 related to bonds payable with a book value of $2,400,000. Each of the following accounts increased during 2018: Notes receivable $90,000 Deferred tax liability $20,000 Treasury stock $240,000 What is the amount of cash used by financing activities for Jarvis, Inc. for the year ended December 31, 2018? a. $2,520,000 b. $2,540,000 c. $3,800,000 d. $ 450,000

a. $2,520,000 $2,400,000 - $120,000 + $240,000 = $2,520,000.

a. Accounts receivable and accounts payable relate to merchandise held for sale in the normal course of business. The allowance for bad debts was the same at the end of 2019 and 2018, and no receivables were charged against the allowance. Accounts payable are recorded net of any discount and are always paid within the discount period. b. The proceeds from the note payable were used to finance the acquisition of property, plant, and equipment. Capital stock was sold to provide additional working capital. 97. The amount to be shown on the cash flow statement as net cash provided by financing activities would total what amount? a. $2,850,000. b. $1,650,000. c. $1,200,000. d. $816,000.

a. $2,850,000. $1,650,000 + ($6,000,000 - $4,800,000) = $2,850,000.

Kiner, Inc. began work in 2014 on a contract for $16,800,000. Other data are as follows: 2014/ 2015 Costs incurred to date $7,200,000/ $11,200,000 Estimated costs to complete 4,800,000/ — Billings to date: 5,600,000/ 16,800,000 Collections to date 4,000,000/ 14,400,000 ~If Kiner uses the percentage-of-completion method, the gross profit to be recognized in 2014 is a. $2,880,000. b. $3,200,000. c. $4,320,000. d. $4,800,000.

a. $2,880,000.

102. Masterson Company has 490,000 shares of $10 par value common stock outstanding. During the year Masterson declared a 15% stock dividend when the market price of the stock was $36 per share. Three months later Masterson declared a $.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by a. $2,984,100 b. $2,646,000 c. $ 485,100 d. $ 462,000

a. $2,984,100

Vasquez Corp.'s 2017 income statement showed pretax accounting income of $2,040,000. To compute the federal income tax liability, the following 2017 data are provided: Income from exempt municipal bonds: $ 110,000 Depreciation deducted for tax purposes in excess of depreciation deducted for financial statement purposes: 144,000 Estimated federal income tax payments made: 330,000 Enacted corporate income tax rate: 30% What amount of current federal income tax liability should be included in Vasquez's December 31, 2017 balance sheet? a. $205,800 b. $249,000 c. $271,800 d. $282,000

a. $205,800

Larsen Corporation reported $200,000 in revenues in its 2018 financial statements, of which $66,000 will not be included in the tax return until 2019. The enacted tax rate is 40% for 2018 and 35% for 2019. What amount should Larsen report for deferred income tax liability in its balance sheet at December 31, 2018? a. $23,100 b. $26,400 c. $29,400 d. $33,600

a. $23,100 $66,000 x .35 = $23,100.

Total assets on the balance sheet at December 31, 2018 are $6,648,000. Accumulated deprecia-tion on the equipment sold was $336,000. 64. The book value of the buildings and equipment at December 31, 2018 was a. $3,048,000. b. $3,120,000. c. $4,272,000. d. $3,528,000.

a. $3,048,000. ($3,600,000 - $1,200,000) - $144,000 + $1,152,000 - $360,000 = $3,048,000.

Metro Company, a dealer in machinery and equipment, leased equipment to Sands, Inc., on July 1, 2018. The lease is appropriately accounted for as a sales-type lease by Metro and as a capital lease by Sands. The lease is for a 10-year period (the useful life of the asset) expiring June 30, 2028. The first of 10 equal annual payments of $828,000 was made on July 1, 2018. Metro had purchased the equipment for $5,250,000 on January 1, 2018, and established a list selling price of $7,200,000 on the equipment. Assume that the present value at July 1, 2018, of the rent payments over the lease term discounted at 8% (the appropriate interest rate) was $6,000,000. 91. Assuming that Sands, Inc. uses straight-line depreciation, what is the amount of deprecia-tion and interest expense that Sands should record for the year ended December 31, 2018?

a. $300,000 and $206,880 [($6,000,000 ÷ 10) x (1 ÷ 2)] = $300,000. ($6,000,000 - $828,000) × .04 = $206,880.

76. Black, Inc. is a calendar-year corporation whose financial statements for 2017 and 2018 included errors as follows: Year Ending Depreciation Inventory Expense 2017 $324,000 $270,000 overstated overstated 2018 128,000 90,000 understated understated Assume that purchases were recorded correctly and that no correcting entries were made at December 31, 2017, or at December 31, 2018. Ignoring income taxes, by how much should Black's retained earnings be retroactively adjusted at January 1, 2019? a. $308,000 increase b. $92,000 increase c. $38,000 decrease d. $16,000 increase

a. $308,000 increase $128,000 (u) + $270,000 (u) - $90,000 (o) = $308,000 (u).

80. During 2018, Greta Company earned net income of $262,000 which included depreciation expense of $39,000. In addition, the company experienced the following changes in the account balances listed below: Decreases Accounts receivable $ 6,000 Prepaid expenses $16,500 Accrued liabilities 12,000 Increases Accounts payable $ 22,500 Accounts payable...... $18,000 Based upon this information what amount will be shown for net cash provided by operating activities for 2018? a. $316,000. b. $302,500. c. $212,500. d. $203,500.

a. $316,000. $262,000 + $39,000 + $22,500 - $18,000 + $6,000 + $16,500 - $12,000 = $316,000.

74. Minear Company reported net income of $480,000 for the year ended 12/31/18. Included in the computation of net income were: depreciation expense, $60,000; amortization of a patent, $32,000; income from an investment in common stock of Brett Inc., accounted for under the equity method, $48,000; and amortization of a bond discount, $12,000. Minear also paid an $80,000 dividend during the year. The net cash provided by operating activities would be reported at a. $536,000. b. $456,000. c. $424,000. d. $344,000.

a. $536,000. $480,000 + $60,000 + $32,000 - $48,000 + $12,000 = $536,000.

Mathis Co. at the end of 2017, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $ 1,200,000 Estimated litigation expense 3,000,000 Installment sales (2,400,000) Taxable income $ 1,800,000 The estimated litigation expense of $3,000,000 will be deductible in 2019 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $1,200,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1,200,000 current and $1,200,000 noncurrent. The income tax rate is 30% for all years. 55. The income tax expense is a. $360,000. b. $540,000. c. $600,000. d. $1,200,000.

a. $360,000. Income taxes payable = ($1,800,000 × 30%) = $540,000 Change in deferred tax liability = ($2,400,000 × 30%) = $720,000 Change in deferred tax asset = ($3,000,000 × 30%) = $900,000 $540,000 + $720,000 - $900,000 = $360,000 (or $1,200,000 x 30%.)

Dream Home Inc., a real estate developing company, was accounting for its long-term contracts using the completed contract method prior to 2018. In 2018, it changed to the percentage-of-completion method. The company decided to use the same for income tax purposes. The tax rate enacted is 40%. Income before taxes under both the methods for the past three years appears below. Completed contract: (2016)$450,000 (2017) $300,000 (2018) $150,000 Percentage-of-completion (2016)750,000 (2017)375,000 (2018)270,000 44. What amount will be debited to Construction in Process account, to record the change at beginning of 2018? a. $375,000 b. $150,000 c. $225,000 d. $75,000

a. $375,000 ($750,000 - $450,000) + ($375,000 - $300,000) = $375,000.

71. Lindsay Corporation had net income for 2018 of $3,000,000. Additional information is as follows: Depreciation of plant assets $1,200,000 Amortization of intangibles 240,000 Increase in accounts receivable 420,000 Increase in accounts payable 540,000 Lindsay's net cash provided by operating activities for 2018 was a. $4,560,000. b. $4,440,000. c. $4,320,000. d. $2,680,000.

a. $4,560,000. $3,000,000 + $1,200,000 + $240,000 - $420,000 + $540,000 = $4,560,000.

Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2019 and 2018 are provided below. 51. The net cash provided by operating activities is a. $408,000. b. $288,000. c. $240,000. d. $200,000.

a. $408,000. $288,000 + $48,000 + ($320,000 + $64,000 - $304,000) - $144,000 + $96,000 + $80,000 - $40,000 = $408,000.

72. Net cash flow from operating activities for 2018 for Spencer Corporation was $450,000. The following items are reported on the financial statements for 2018: Cash dividends paid on common stock $20,000 Depreciation and amortization 12,000 Increase in accounts receivable 24,000 Based on the information above, Spencer's net income for 2018 was a. $462,000. b. $446,000. c. $414,000. d. $406,000.

a. $462,000. X + $12,000 - $24,000 = $450,000; X = $462,000.

Information relating to 2018 activities: • Net income for 2018 was $1,500,000. • Cash dividends of $600,000 were declared and paid in 2018. • Equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in 2018 for $360,000. • A long-term investment was sold in 2018 for $320,000. There were no other transactions affecting long-term investments in 2018. • 20,000 shares of common stock were issued in 2018 for $25 a share. • Short-term investments consist of treasury bills maturing on 6/30/19. 108. Net cash provided by Jamison's 2018 financing activities was a. $480,000. b. $520,000. c. $1,080,000. d. $1,680,000.

a. $480,000. 20,000 × $25 = $500,000 $500,000 + $580,000 - $600,000 = $480,000.

Hull Co. leased equipment to Riggs Company on May 1, 2018. At that time the collectibility of the minimum lease payments was not reasonably predictable. The lease expires on May 1, 2019. Riggs could have bought the equipment from Hull for $5,600,000 instead of leasing it. Hull's accounting records showed a book value for the equipment on May 1, 2018, of $4,900,000. Hull's depreciation on the equipment in 2018 was $630,000. During 2018, Riggs paid $1,260,000 in rentals to Hull for the 8-month period. Hull incurred maintenance and other related costs under the terms of the lease of $112,000 in 2018. After the lease with Riggs expires, Hull will lease the equipment to another company for two years. 83. The income before income taxes derived by Hull from this lease for the year ended December 31, 2018, should be

a. $518,000. $1,260,000 - $112,000 - $630,000 = $518,000.

During 2014, Martin Corporation sold merchandise costing $3,500,000 on an installment basis for $5,000,000. The cash receipts related to these sales were collected as follows: 2014, $2,000,000; 2015, $1,750,000; 2016, $1,250,000. ~What amount would be shown in the December 31, 2015 financial statements for realized gross profit on 2014 installment sales, and deferred gross profit on 2014 installment sales, respectively? a. $525,000 and $375,000 b. $975,000 and $525,000 c. $375,000 and $1,125,000 d. $525,000 and $1,125,000

a. $525,000 and $375,000

On January 1, 2018, 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, 2018 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 capital lease. The minimum lease payments were determined to have a present value of $833,972 at an effective interest rate of 10%. 62. In 2018, Sauder should record interest expense of

a. $63,397. ($833,972 - $200,000) × .10 = $63,397.

51. Lanier Company began operations on January 1, 2017, and uses the FIFO method in costing its raw material inventory. Management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed: Final Inventory 2017 2018 FIFO $320,000 $360,000 LIFO 240,000 300,000 Net Income 500,000 750,000 (computed under the FIFO method) Based upon the above information, a change to the LIFO method in 2018 would result in net income for 2018 of a. $690,000. b. $750,000. c. $770,000. d. $810,000.

a. $690,000. $750,000 - ($360,000 - $300,000) = $690,000.

Ewing Company sells household furniture. Customers who purchase furniture on the installment basis make payments in equal monthly installments over a two-year period, with no down payment required. Ewing's gross profit on installment sales equals 40% of the selling price of the furniture. For financial accounting purposes, sales revenue is recognized at the time the sale is made. For income tax purposes, however, the installment method is used. There are no other book and income tax accounting differences, and Ewing's income tax rate is 30%. If Ewing's December 31, 2018, balance sheet includes a deferred tax liability of $900,000 arising from the difference between book and tax treatment of the installment sales, it should also include installment accounts receivable of a. $7,500,000. b. $3,000,000. c. $2,250,000. d. $675,000.

a. $7,500,000. $900,000 ÷ 30% = $3,000,000 temporary difference $3,000,000 ÷ 40% = $7,500,000.

71. Presented below is information related to Hale Corporation: Common Stock, $1 par $3,500,000 Paid-in Capital in Excess of Par—Common Stock 550,000 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 a. $7,800,000. b. $7,950,000. c. $6,300,000. d. $6,450,000.

a. $7,800,000.

Armstrong Inc. is a calendar-year corporation. Its financial statements for the years ended 12/31/17 and 12/31/18 contained the following errors: 2018 Ending inventory (2017) $50,000 overstatement (2018)$80,000 understatement Depreciation expense (2017) 20,000 understatement (2018)40,000 overstatement 55. Assume that the 2017 errors were not corrected and that no errors occurred in 2016. By what amount will 2017 income before income taxes be overstated or understated? a. $70,000 overstatement b. $30,000 overstatement c. $70,000 understatement d. $30,000 understatement

a. $70,000 overstatement $50,000 + $20,000 = $70,000 overstatement.

91. The following information was taken from the 2018 financial statements of Jenny Gardner Corporation: Inventory, January 1, 2018 $ 180,000 Inventory, December 31, 2018 240,000 Accounts payable, January 1, 2018 150,000 Accounts payable, December 31, 2018 240,000 Sales revenue 1,200,000 Cost of goods sold 800,000 If the direct method is used in the 2018 statement of cash flows, what amount should Jenny Gardner report as cash payments to suppliers? a. $770,000 b. $830,000 c. $890,000 d. $950,000

a. $770,000 $800,000 + ($240,000 - $180,000) - ($240,000 - $150,000) = $770,000.

Lyons Company deducts insurance expense of $210,000 for tax purposes in 2018, but the expense is not yet recognized for accounting purposes. In 2019, 2020, and 2021, no insurance expense will be deducted for tax purposes, but $70,000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 40% and income taxes payable of $180,000 at the end of 2018. There were no deferred taxes at the beginning of 2018. 70. What is the amount of the deferred tax liability at the end of 2018? a. $84,000 b. $72,000 c. $30,000 d. $0

a. $84,000 $210,000 × .40 = $84,000.

107. Torrey Co. manufactures equipment that is sold or leased. On December 31, 2018, Torrey leased equipment to Dalton for a five-year period ending December 31, 2023, at which date ownership of the leased asset will be transferred to Dalton. Equal payments under the lease are $1,100,000 (including $100,000 executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2018. Collectibility of the remaining lease payments is reasonably assured, and Torrey has no material cost uncertainties. The normal sales price of the equipment is $3,850,000, and cost is $3,000,000. For the year ended December 31, 2018, what amount of income should Torrey realize from the lease transaction?

a. $850,000 $3,850,000 - $3,000,000 = $850,000

Eilert Construction Company had a contract starting April 2015, to construct a $21,000,000 building that is expected to be completed in September 2016, at an estimated cost of $19,250,000. At the end of 2015, the costs to date were $8,855,000 and the estimated total costs to complete had not changed. The progress billings during 2015 were $4,200,000 and the cash collected during 2015 was $2,800,000. Eilert uses the percentage-of-completion method. ~At December 31, 2015, Eilert would report Construction in Process in the amount of a. $9,660,000. b. $8,855,000. c. $8,260,000. d. $805,000.

a. $9,660,000.

Swift Company purchased a machine on January 1, 2016, for $900,000. At the date of acquisition, the machine had an estimated useful life of six years with no salvage. The machine is being depreciated on a straight-line basis. On January 1, 2019, Swift determined, as a result of additional information, that the machine had an estimated useful life of eight years from the date of acquisition with no salvage. An accounting change was made in 2019 to reflect this additional information. 54. What is the amount of depreciation expense on this machine that should be charged in Swift's income statement for the year ended December 31, 2019? a. $90,000 b. $112,500 c. $180,000 d. $225,000

a. $90,000 ($900,000 ÷ 6) × 3 = $450,000 $450,000 ÷ 5 = $90,000.

88. The following information on selected cash transactions for 2018 has been provided by Mancuso Company: Proceeds from sale of land $315,000 Proceeds from long-term borrowings 600,000 Purchases of plant assets 216,000 Purchases of inventories 1,020,000 Proceeds from sale of Mancuso common stock 360,000 What is the cash provided (used) by investing activities for the year ended December 31, 2018, as a result of the above information? a. $99,000 b. $384,000. c. $315,000. d. $1,275,000.

a. $99,000 $315,000 - $216,000 = $99,000.

31. Direct costs incurred to sell stock such as underwriting costs should be accounted 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. a. 1 b. 2 c. 3 d. 1 or 3

a. 1

60. Accrued salaries payable of $102,000 were not recorded at December 31, 2017. Office supplies on hand of $58,000 at December 31, 2018 were erroneously treated as expense instead of supplies inventory. Neither of these errors was discovered nor corrected. The effect of these two errors would cause a. 2018 net income to be understated $160,000 and December 31, 2018 retained earnings to be understated $58,000. b. 2017 net income and December 31, 2017 retained earnings to be understated $102,000 each. c. 2017 net income to be overstated $44,000 and 2018 net income to be understated $58,000. d. 2018 net income and December 31, 2018 retained earnings to be understated $58,000 each.

a. 2018 net income to be understated $160,000 and December 31, 2018 retained earnings to be understated $58,000. 2018 NI = $102,000 (u) + $58,000 (u) = $160,000 (u). 2018 RE = $58,000 (u) [The 2017 $102,000 (o) is offset by 2018 $102,000 (u)].

During 2014, Martin Corporation sold merchandise costing $3,500,000 on an installment basis for $5,000,000. The cash receipts related to these sales were collected as follows: 2014, $2,000,000; 2015, $1,750,000; 2016, $1,250,000. ~What is the rate of gross profit on the installment sales made by Martin Corporation during 2014? a. 30% b. 40% c. 60% d. 70%

a. 30%

P33. Which of the following represents the total number of shares that a corporation may issue under the terms of its charter? a. Authorized shares b. Issued shares c. Unissued shares d. Outstanding shares

a. Authorized Shares

A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. 111. In a statement of cash flows, what amount is included in investing activities for the above transaction? a. Cash payment b. Acquisition price c. Zero d. Mortgage amount

a. Cash payment

31. Which of the following is (are) the proper time period(s) to record the effects of a change in accounting estimate? a. Current period and prospectively b. Current period and retrospectively c. Retrospectively only d. Current period only

a. Current period and prospectively

Rowen, Inc. had pre-tax accounting income of $2,700,000 and a tax rate of 40% in 2018, its first year of operations. During 2018 the company had the following transactions: Received rent from Jane, Co. for 2019 $ 96,000 Municipal bond income $120,000 Depreciation for tax purposes in excess of book depreciation $60,000 Installment sales profit to be taxed in 2019 $162,000 80. At the end of 2018, which of the following deferred tax accounts and balances exist at December 31, 2018? Account _ Balance a. Deferred tax asset $38,400 b. Deferred tax liability $38,400 c. Deferred tax asset $62,400 d. Deferred tax liability $62,400

a. Deferred tax asset $38,400 $96,000 X .40 = $38,400 Deferred tax asset.

Which of the following temporary differences results in a deferred tax asset in the year the temporary difference originates? I. Accrual for product warranty liability. II. Subscriptions received in advance. III. Prepaid insurance expense. a. I and II only. b. I and III only. c. III only. d. II only.

a. I and II only.

Which of the following temporary differences results in a deferred tax asset in the year the temporary difference originates? I. Accrual for product warranty liability. II. Subscriptions received in advance. III. Prepaid insurance expense. a. I and II only. b. II only. c. III only. d. I and III only.

a. I and II only.

36. When preparing a statement of cash flows, an increase in accounts payable during a period would require which of the following adjustments in determining cash flows from operating activities?Indirect Method Direct Method a. Increase Decrease b. Decrease Increase c. Increase Increase d. Decrease Decrease

a. Increase Decrease

37. When preparing a statement of cash flows, a decrease in prepaid insurance during a period would require which of the following adjustments in determining cash flows from operating activities?Indirect Method Direct Method a. Increase Decrease b. Decrease Increase c. Increase Increase d. Decrease Decrease

a. Increase Decrease

Gorman Construction Co. began operations in 2015. Construction activity for 2015 is shown below. Gorman uses the completed-contract method. Contract/Contract Price/Billings thru 12/31/15/Collectings thru 12/31/15/Costs to 12/31/15/EstCost to complete 1 /$4,800,000/ $4,725,000/$3,900,000/$3,225,000/— 2 /3,600,000/ 1,500,000/ 1,000,000/ 820,000/ $1,880,000 3 3,300,000/1,900,000/ 1,800,000/ 2,250,000/ 1,200,000 ~Which of the following should be shown on the balance sheet at December 31, 2015 related to Contract 3? a. Inventory, $200,000 b. Inventory, $350,000 c. Inventory, $2,100,000 d. Inventory, $2,250,000

a. Inventory, $200,000

Based solely upon the following sets of circumstances indicated below, which set gives rise to a sales-type or direct-financing lease of a lessor? Transfers Ownership by End of Lease? Contains Bargain Purchase Option? Collectibility of Lease Payments Assured? Any Important Uncertainties?

a. No Yes Yes No

Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2018 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2018, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease. (c) Alt depreciates all machinery it owns on a straight-line basis. (d) Alt's incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates. (e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful. 78. From the viewpoint of Yates, what type of lease agreement exists?

a. Operating lease

Which of the following are temporary differences that are normally classified as expenses or losses and are deductible after they are recognized in financial income? a. Product warranty liabilities. b. Advance rental receipts. c. Fines and expenses resulting from a violation of law. d. Depreciable property.

a. Product warranty liabilities

57. From the lessor's viewpoint, what type of lease is involved?

a. Sales-type lease

On May 1, 2015, TV Inc. consigned 80 TVs to Ed's TV. The TVs cost $450. Freight on the shipment paid by Ed's TV was $1,000. On July 10, TV Inc. received an account sales and $21,500 from Ed's TV. Thirty TVs had been sold and the following expenses were deducted: Freight $1,000 Commission (20% of sales price) ? Advertising 650 Delivery 350 ~The inventory of TVs will be reported on whose balance sheet and at what amount? Balance Sheet of / Amount of Inventory a. TV Inc./ $23,125 b. TV Inc./ $22,500 c. Ed's TV/ $23,125 d. Ed's TV/ $22,500

a. TV Inc./ $23,125

A temporary difference arises when a revenue item is reported for tax purposes in a period After it is reported Before it is reported in financial income in financial income a. Yes Yes b. Yes No c. No Yes d. No No

a. Yes Yes

Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the machinery could result in Future Future Taxable Amts Deductible Amts a. Yes Yes b. Yes No c. No Yes d. No No

a. Yes Yes

59. At the date of declaration of a small common stock dividend, the entry should not include a. a credit to Common Stock. b. a credit to Paid-in Capital in Excess of Par. c. a debit to Retained Earnings. d. a credit to Common Stock Dividend Distributable.

a. a credit to Common Stock.

In computing depreciation of a leased asset, the lessee should subtract

a. a guaranteed residual value and depreciate over the term of the lease.

The methods of accounting for a lease by the lessee are

a. operating and capital lease methods.

Recognizing a valuation allowance for a deferred tax asset requires that a company a. consider all positive and negative information in determining the need for a valuation allowance. b. consider only the positive information in determining the need for a valuation allowance. c. take an aggressive approach in its tax planning. d. pass a recognition threshold, after assuming that it will be audited by taxing authorities.

a. consider all positive and negative information in determining the need for a valuation allowance.

25. A company changes from the straight-line method to an accelerated method of calculating depreciation, which will be similar to the method used for tax purposes. The entry to record this change will include a a. credit to Accumulated Depreciation. b. debit to Retained Earnings in the amount of the difference on prior years. c. debit to Deferred Tax Asset. d. credit to Deferred Tax Liability.

a. credit to Accumulated Depreciation.

Taxable income of a corporation a. differs from accounting income because companies use the full accrual method for financial reporting but use the modified cash basis for tax reporting. b. is based on generally accepted accounting principles. c. differs from accounting income due to differences in intraperiod allocation between the two methods of income determination. d. is reported on the corporation's income statement.

a. differs from accounting income because companies use the full accrual method for financial reporting but use the modified cash basis for tax reporting.

58. 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 a. fair value of the shares issued. b. book value of the shares issued. c. minimum legal requirements. d. par or stated value of the shares issued

a. fair value of the shares issued.

48. In reporting unusual items on a statement of cash flows (indirect method), the a. gross amount of an unusual gain should be deducted from net income. b. net of tax amount of an unusual gain should be added to net income. c. net of tax amount of an unusual gain should be deducted from net income. d. gross amount of an unusual gain should be added to net income.

a. gross amount of an unusual gain should be deducted from net income.

A deferred tax asset represents the: a. increase in taxes saved in future years as a result of deductible temporary differences. b. increase in taxes payable in future years as a result of deductible temporary differences. c. decrease in taxes payable in previous years as a result of cumulative temporary differences. d. decrease in taxes saved in future years as a result of deductible temporary differences.

a. increase in taxes saved in future years as a result of deductible temporary differences.

70. On January 1, 2018, Frost Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in a $900,000 increase in the January 1, 2018 inventory. Assume that the income tax rate for all years is 30%. The cumulative effect of the accounting change should be reported by Frost in its 2018 a. retained earnings statement as a $630,000 addition to the beginning balance. b. income statement as a $630,000 cumulative effect of accounting change. c. retained earnings statement as a $900,000 addition to the beginning balance. d. income statement as a $900,000 cumulative effect of accounting change.

a. retained earnings statement as a $630,000 addition to the beginning balance. $900,000 × (1 - .3) = $630,000.

In a lease that is appropriately recorded as a direct-financing lease by the lessor, the unearned income

a. should be amortized over the period of the lease using the effective interest method.

103. A lessee had a ten-year capital lease requiring equal annual payments. The reduction of the lease liability in year 2 should equal

a. the current liability shown for the lease at the end of year 1.

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if a. the future tax rates have been enacted into law. b. it appears likely that a future tax rate will be greater than the current tax rate. c. it appears likely that a future tax rate will be less than the current tax rate. d. it is probable that a future tax rate change will occur.

a. the future tax rates have been enacted into law.

Future deductible amounts will cause: a. the recording of a deferred tax asset. b. a decrease in pretax financial income in future years. c. taxable income to be more than pretax financial income in the future. d. the recording of a deferred tax liability.

a. the recording of a deferred tax asset.

Bishop Co. began operations on January 1, 2017. Financial statements for 2017 and 2018 contained the following errors: Dec. 31, 2017 Ending inventory $198,000 overstated Depreciation expense 126,000 overstated Insurance expense 90,000 Prepaid insurance 90,000 overstated Dec. 31, 2018 Ending Inventory 219,000 understated Depreciation expense — Insurance expense 90,000 overstated Prepaid insurance — In addition, on December 31, 2018 fully depreciated equipment was sold for $43,20 0, but the sale was not recorded until 2019. No corrections have been made for any of the errors. Ignore income tax considerations. 61. The total effect of the errors on Bishop's 2018 net income is a. understated by $550,200. b. understated by $352,200. c. overstated by $175,800. d. overstated by $373,800.

a. understated by $550,200. $198,000 (u) + $219,000 (u) + $90,000 (u) + $43,200 (u) = $550,200 (u).

81. Hook Company leased equipment to Emley Company on July 1, 2017, for a one-year period expiring June 30, 2018, for $80,000 a month. On July 1, 2018, Hook leased this piece of equipment to Terry Company for a three-year period expiring June 30, 2021, for $100,000 a month. The original cost of the equipment was $6,400,000. The equipment, which has been continually on lease since July 1, 2013, is being depreciated on a straight-line basis over an eight-year period with no salvage value. Assuming that both the lease to Emley and the lease to Terry are appropriately recorded as operating leases for accounting purposes, what is the amount of income (expense) before income taxes that each would record as a result of the above facts for the year ended December 31, 2018? Hook Emley Terry

a.$280,000$(480,000) $(600,000) Hook: ($80,000 × 6) + ($100,000 * 6) - ($6,400,000 ÷ 8) = $280,000 Emley: ($80,000) × 6 = $(480,000) Terry: ($100,000) × 6 = $(600,000).

Swifty Corporation purchased its own par value stock on January 1, 2020 for $19400 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $11600. The $7800 difference between the cost and sales price should be recorded as a deduction from additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings. retained earnings. net income. additional paid-in capital without regard as to whether or not there have been previous net "gains" from sales of the same class of stock included therein.

additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings.

Which of the following would be included in the Lease Receivable account? I. Guaranteed residual value. II. Unguaranteed residual value. III. Executory costs IV. Penalty for failure to renew.

d. I, II, and IV.

Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of $1,240,000 each quarter. The total contract price is $14,880,000 and Seasons estimates total costs of $14,200,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2014. ~At December 31, 2015, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $14,400,000 due to unanticipated price increases. What is reported in the balance sheet at December 31, 2015 for Seasons as the difference between the Construction in Process and the Billings on Construction in Process accounts, and is it a debit or a credit? Difference between the accounts|Debit/Credit a. $3,380,000/Credit b. $1,240,000/Debit c. $880,000/Debit d. $1,240,000/Credit

b. $1,240,000/Debit

At the beginning of 2018; Elephant, Inc. had a deferred tax asset of $20,000 and a deferred tax liability of $30,000. Pre-tax accounting income for 2018 was $1,500,000 and the enacted tax rate is 40%. The following items are included in Elephant's pre-tax income: Interest income from municipal bonds $120,000 Accrued warranty costs, estimated to be paid in 2019 $260,000 Operating loss carryforward $190,000 Installment sales profit, will be taxed in 2019 $130,000 Prepaid rent expense, will be used in 2019 $60,000 76. What is Elephant, Inc.'s taxable income for 2018? a. $1,500,000 b. $1,260,000 c. $1,740,000 d. $2,260,000

b. $1,260,000 $1,500,000 - $120,000 + $260,000 - $190,000 - $130,000 - $60,000 = $1,260,000.

72. On January 1, 2016, Hess Co. purchased a patent for $1,904,000. The patent is being amortized over its remaining legal life of 15 years expiring on January 1, 2031. During 2019, Hess determined that the economic benefits of the patent would not last longer than ten years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2019? a. $1,142,400 b. $1,305,600 c. $1,344,000 d. $1,396,400

b. $1,305,600 $1,904,000 × 3/15 = $380,800 $1,904,000 - $380,800 - [($1,904,000 - $380,800) × 1/7] = $1,305,600.

Wynne Inc. charges an initial franchise fee of $1,840,000, with $400,000 paid when the agreement is signed and the balance in five annual payments. The present value of the future payments, discounted at 10%, is $1,091,744. The franchisee has the option to purchase $240,000 of equipment for $192,000. Wynne has substantially provided all initial services required and collectibility of the payments is reasonably assured. The amount of revenue from franchise fees is a. $ 400,000. b. $1,443,744. c. $1,491,744. d. $1,840,000.

b. $1,443,744.

Daily, Inc. appropriately used the installment method of accounting to recognize income in its financial statement. Some pertinent data relating to this method of accounting include: 2014/2015 Installment sales: $750,000/ $900,000 Cost of sales: 450,000/ 630,000 Gross profit:$300,000/ $270,000 Collections during year: On 2014 sales: 200,000/ 200,000 On 2015 sales: 240,000 What amount to be realized gross profit should be reported on Daily's income statement for 2015? a. $132,000 b. $152,000 c. $176,000 d. $216,000

b. $152,000

85. Mays Company has a machine with a cost of $750,000 which also is its fair value on the date the machine is leased to Park Company. The lease is for 6 years and the machine is estimated to have an unguaranteed residual value of $75,000. If the lessor's interest rate implicit in the lease is 12%, the six beginning-of-the-year lease payments would be

b. $154,623. [$750,000 - ($75,000 × .50663)] ÷ 4.60478 = $154,623.

In 2013, Fargo Corporation began construction work under a three-year contract. The contract price is $3,600,000. Fargo uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2013, follow: Balance Sheet Accounts receivable—construction contract billings $150,000 Construction in progress $450,000 Less contract billings 360,000 Costs and recognized profit in excess of billings 90,000 Income Statement Income (before tax) on the contract recognized in 2013 $90,000 73. How much cash was collected in 2013 on this contract? a. $150,000 b. $210,000 c. $30,000 d. $360,000 74. What was the initial estimated total income before tax on this contract? a. $450,000 b. $480,000 c. $600,000 d. $720,000

b. $210,000 d. $720,000

73. Manning Company issued 10,000 shares of its $5 par value common stock having a fair value of $25 per share and 15,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $520,000. How much of the proceeds would be allocated to the common stock? a. $250,000 b. $236,364 c. $283,636 d. $276,250

b. $236,364

In 2015, Fargo Corporation began construction work under a three-year contract. The contract price is $4,800,000. Fargo uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2015, follow: Balance Sheet Accounts receivable—construction contract billings: $200,000 Construction in progress: $600,000 Less contract billings: 480,000 Costs and recognized profit in excess of billings: 120,000 Income Statement Income (before tax) on the contract recognized in 2015 $120,000 ~How much cash was collected in 2015 on this contract? a. $200,000 b. $280,000 c. $40,000 d. $480,000

b. $280,000

Napier Co. provided the following information on selected transactions during 2018: Purchase of land by issuing bonds $1,000,000 Proceeds from issuing bonds 3,000,000 Purchases of inventory 3,800,000 Purchases of treasury stock 600,000 Loans made to affiliated corporations 1,400,000 Dividends paid to preferred stockholders 400,000 Proceeds from issuing preferred stock 1,600,000 Proceeds from sale of equipment 300,000 84. The net cash provided by financing activities during 2018 is a. $3,200,000. b. $3,600,000. c. $4,200,000. d. $4,600,000.

b. $3,600,000. $3,000,000 - $600,000 - $400,000 + $1,600,000 = $3,600,000.

Hopkins Co. at the end of 2017, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $3,000,000 Estimated litigation expense 4,000,000 Extra depreciation for taxes (6,000,000) Taxable income $ 1,000,000 The estimated litigation expense of $4,000,000 will be deductible in 2018 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $2,000,000 in each of the next three years. The income tax rate is 30% for all years. 58. Income taxes payable is a. $0. b. $300,000. c. $600,000. d. $900,000.

b. $300,000. ($1,000,000 × 30%) = $300,000 or Income tax expense = ($3,000,000 × 30%) = $900,000 Change in deferred tax liability = ($4,000,000 × 30%) = $1,200,000 Change in deferred tax asset = ($6,000,000 × 30%) = $1,800,000 $900,000 + $1,200,000 - $1,800,000 = $300,000.

Smiley Corp.'s transactions for the year ended December 31, 2018 included the following: • Purchased real estate for $1,250,000 cash which was borrowed from a bank. • Sold available-for-sale securities for $1,000,000. • Paid dividends of $1,200,000. • Issued 500 shares of common stock for $500,000. • Purchased machinery and equipment for $250,000 cash. • Paid $900,000 toward a bank loan. • Reduced accounts receivable by $200,000. • Increased accounts payable $400,000. 114. Smiley's net cash used in financing activities for 2018 was a. $450,000. b. $350,000. c. $900,000. d. $850,000.

b. $350,000. $1,250,000 - $1,200,000 + $500,000 - $900,000 = ($350,000).

Based on the following information, compute 2018 taxable income for South Co. assuming that its pre-tax accounting income for the year ended December 31, 2018 is $460,000. Future taxable Temporary difference (deductible) amount Installment sales $384,000 Depreciation $120,000 Unearned rent ($400,000) a. $564,000 b. $356,000 c. $964,000 d. $444,000

b. $356,000 $460,000 - $384,000 - $120,000 + $400,000 = $356,000.

Sheridan Company deducts insurance expense of $189000 for tax purposes in 2021, but the expense is not yet recognized for accounting purposes. In 2022, 2023, and 2024, no insurance expense will be deducted for tax purposes, but $63000 of insurance expense will be reported for accounting purposes in each of these years. Sheridan Company has a tax rate of 20% and income taxes payable of $166000 at the end of 2021. There were no deferred taxes at the beginning of 2021.What is the amount of the deferred tax liability at the end of 2021? a. $11500 b. $37800 c. $33200 d. $0

b. $37800

Bishop Co. began operations on January 1, 2017. Financial statements for 2017 and 2018 contained the following errors: Dec. 31, 2017 Ending inventory $198,000 overstated Dec. 31, 2018 $219,000 understated Dec. 31, 2017 Depreciation expense 126,000 overstated Dec. 31, 2018 — Dec.31,2017 Insurance expense 90,000 understated Dec. 31,2018 90,000 overstated Dec. 31,2017 Prepaid insurance 90,000 overstated Dec. 31,2018 — In addition, on December 31, 2018 fully depreciated equipment was sold for $43,20 0, but the sale was not recorded until 2019. No corrections have been made for any of the errors. Ignore income tax considerations. 62. The total effect of the errors on the balance of Bishop's retained earnings at December 31, 2018 is understated by a. $478,200. b. $388,200. c. $262,200. d. $190,200.

b. $388,200. $219,000 (u) + $126,000 (u) - $90,000 (o) + $90,000 (u) + $43,200 (u)

Gage Co. purchases land and constructs a service station and car wash for a total of $540,000. At January 2, 2018, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $600,000 and immediately leased from the oil company by Gage. Fair value of the land at time of the sale was $60,000. The lease is a 10-year, noncancelable lease. Gage uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Gage at termination of the lease. A partial amortization schedule for this lease is as follows: Payments Interest Amortization Balance Jan. 2, 2018 $600,000.00 Dec. 31, 2018 $97,646.71 $60,000.00 $37,646.71 562,353.29 Dec. 31, 2019 97,646.71 56,235.33 41,411.38 520,941.91 Dec. 31, 2020 97,646.71 52,094.19 45,552.52 475,389.39 *98. The total lease-related income recognized by the lessee during 2019 is which of the following?

b. $4,000 ($600,000 - $540,000) ÷ 15 = $4,000.

105. The net income for the year ended December 31, 2018, for Oliva Company was $2,900,000. Additional information is as follows: Depreciation on plant assets $600,000 Amortization of leasehold improvements 340,000 Provision for doubtful accounts on short-term receivables 120,000 Provision for doubtful accounts on long-term receivables 100,000 Interest paid on short-term borrowings 80,000 Interest paid on long-term borrowings 60,000 Based solely on the information given above, what should be the net cash provided by operating activities in the statement of cash flows for the year ended December 31, 2018? a. $3,960,000. b. $4,060,000. c. $4,040,000. d. $4,200,000.

b. $4,060,000. $2,900,000 + $600,000 + $340,000 + $120,000 + $100,000 = $4,060,000.

Cross Company reported the following results for the year ended December 31, 2018, its first year of operations: 2018 Income (per books before income taxes) $ 2,000,000 Taxable income 3,200,000 The disparity between book income and taxable income is attributable to a temporary difference which will reverse in 2019. What should Cross record as a net deferred tax asset or liability for the year ended December 31, 2018, assuming that the enacted tax rates in effect are 40% in 2018 and 35% in 2019? a. $480,000 deferred tax liability b. $420,000 deferred tax asset c. $480,000 deferred tax asset d. $420,000 deferred tax liability

b. $420,000 deferred tax asset ($3,200,000 - $2,000,000) × 35% = $420,000 deferred tax asset.

Cooper Construction Company had a contract starting April 2013, to construct a $12,000,000 building that is expected to be completed in September 2015, at an estimated cost of $11,000,000. At the end of 2013, the costs to date were $5,060,000 and the estimated total costs to complete had not changed. The progress billings during 2013 were $2,400,000 and the cash collected during 2013 was 1,600,000. 69. For the year ended December 31, 2013, Cooper would recognize gross profit on the building of: a. $421,667 b. $460,000 c. $540,000 d. $0 70. At December 31, 2013 Cooper would report Construction in Process in the amount of: a. $460,000 b. $5,060,000 c. $5,520,000 d. $4,720,000

b. $460,000 c. $5,520,000

On January 1, 2018, 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, 2018 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 capital lease. The minimum lease payments were determined to have a present value of $833,972 at an effective interest rate of 10%. 63. In 2019, Sauder should record interest expense of

b. $49,737. [$633,972 - ($200,000 - $63,397)] × .10 = $49,737.

Kiner, Inc. began work in 2014 on a contract for $16,800,000. Other data are as follows: 2014/ 2015 Costs incurred to date $7,200,000/ $11,200,000 Estimated costs to complete 4,800,000/ — Billings to date: 5,600,000/ 16,800,000 Collections to date 4,000,000/ 14,400,000 ~If Kiner uses the completed-contract method, the gross profit to be recognized in 2015 is a. $2,720,000. b. $5,600,000. c. $2,800,000. d. $11,200,000.

b. $5,600,000.

The balance in retained earnings at December 31, 2017 was $1,440,000 and at December 31, 2018 was $1,164,000. Net income for 2018 was $1,000,000. A stock dividend was declared and distributed which increased common stock $500,000 and paid-in capital $220,000. A cash dividend was declared and paid. 68. The amount of the cash dividend was a. $496,000. b. $556,000. c. $776,000. d. $1,276,000.

b. $556,000. $1,440,000 + $1,000,000 - ($500,000 + $220,000) - X = $1,164,000 X = $556,000.

72. Haystack, Inc. manufactures machinery used in the mining industry. On January 2, 2018 it leased equipment with a cost of $480,000 to Silver Point Co. The 5-year lease calls for a 10% down payment and equal annual payments at the end of each year. The equipment has an expected useful life of 5 years. Silver Point's incremental borrowing rate is 10%, and it depreciates similar equipment using the double-declining balance method. The selling price of the equipment is $780,000, and the rate implicit in the lease is 8%, which is known to Silver Point Co. What is the amount of interest expense recorded by Silver Point Co. for the year ended December 31, 2018? PV Annuity Due 8%, 5 periods: 4.31213 10%, 5 periods: 4.16986 PV Ordinary Annuity 8%, 5 periods: 3.99271 10%, 5 periods: 3.79079 PV Single Sum 8%, 5 periods: .68508 10%, 5 periods: .62092

b. $56,160 ($780,000 * .90)/ 3.99271 = $175,820 $175,820 * 3.99271 = $701,998 $701,998 * .08 = $56,160.

Peavy Corp.'s transactions for the year ended December 31, 2018 included the following: • Acquired 50% of Gant Corp.'s common stock for $300,000 cash which was borrowed from a bank. • Issued 5,000 shares of its preferred stock for land having a fair value of $480,000. • Issued 600 of its 11% debenture bonds, due 2023, for $588,000 cash. • Purchased a patent for $330,000 cash. • Paid $180,000 toward a bank loan. • Sold available-for-sale securities for $1,194,000. • Had a net increase in returnable customer deposits (long-term) of $132,000. 115. Peavy's net cash provided by investing activities for 2018 was a. $414,000. b. $564,000. c. $864,000. d. $894,000.

b. $564,000. ($300,000) - $330,000 + $1,194,000 = $564,000.

49. On December 31, 2018 Dean Company changed its method of accounting for inventory from weighted average cost method to the FIFO method. This change caused the 2018 beginning inventory to increase by $960,000. The cumulative effect of this accounting change to be reported for the year ended 12/31/18, assuming a 40% tax rate, is a. $960,000. b. $576,000. c. $384,000. d. $0.

b. $576,000. $960,000 × (1 - .40) = $576,000.

Total assets on the balance sheet at December 31, 2018 are $6,648,000. Accumulated deprecia-tion on the equipment sold was $336,000. 65. The accounts payable at December 31, 2018 were a. $264,000. b. $648,000. c. $192,000. d. $888,000.

b. $648,000. $456,000 + $192,000 = $648,000.

Cooper Construction Company had a contract starting April 2015, to construct a $18,000,000 building that is expected to be completed in September 2017, at an estimated cost of $16,500,000. At the end of 2015, the costs to date were $7,590,000 and the estimated total costs to complete had not changed. The progress billings during 2015 were $3,600,000 and the cash collected during 2015 was 2,400,000. ~For the year ended December 31, 2015, Cooper would recognize gross profit on the building of: a. $632,500 b. $690,000 c. $810,000 d. $0

b. $690,000

Ferguson Company has the following cumulative taxable temporary differences: 12/31/19 12/31/18 $3,600,000 $2,560,000 The tax rate enacted for 2019 is 40%, while the tax rate enacted for future years is 30%. Taxable income for 2019 is $6,400,000 and there are no permanent differences. Ferguson's pretax financial income for 2019 is a. $10,000,000. b. $7,440,000. c. $5,360,000. d. $2,800,000.

b. $7,440,000. $6,400,000 + ($3,600,000 - $2,560,000) = $7,440,000.

Remington Construction Company uses the percentage-of-completion method. During 2014, the company entered into a fixed-price contract to construct a building for Sherman Company for $24,000,000. The following details pertain to the contract: At December 31, 2014/ At December 31, 2015 Percentage of completion: 25%/ 60% Estimated total cost of contract: $18,000,000/ $20,000,000 Gross profit recognized to date: 1,500,000/ 2,400,000 The amount of construction costs incurred during 2015 was a. $12,000,000. b. $7,500,000. c. $4,500,000. d. $2,000,000.

b. $7,500,000.

41. On January 1, 2016, Neal Corporation acquired equipment at a cost of $840,000. Neal adopted the sum-of-the-years'-digits method of depreciation for this equipment and had been recording depreciation over an estimated life of eight years, with no residual value. At the beginning of 2019, a decision was made to change to the straight-line method of depreciation for this equipment. The depreciation expense for 2019 would be a. $43,750. b. $70,000. c. $105,000. d. $168,000.

b. $70,000. [(8 + 7 + 6) ÷ 36] × $840,000 = $490,000 (AD) ($840,000 -$490,000) ÷ 5 = $70,000.

Equipment that cost $875,000 and had a book value of $390,000 was sold for $450,000. Data from the comparative balance sheets are: 12/31/18 Equipment $5,400,000 12/31/17 $4,875,000 12/31/18 Accumulated Depreciation 12/31/18 1,650,000 12/31/17 1,425,000 61. Depreciation expense for 2018 was a. $770,000. b. $710,000. c. $135,000. d. $90,000.

b. $710,000. $1,650,000 - $1,425,000 + ($875,000 - $390,000) = $710,000.

Metro Company, a dealer in machinery and equipment, leased equipment to Sands, Inc., on July 1, 2018. The lease is appropriately accounted for as a sales-type lease by Metro and as a capital lease by Sands. The lease is for a 10-year period (the useful life of the asset) expiring June 30, 2028. The first of 10 equal annual payments of $828,000 was made on July 1, 2018. Metro had purchased the equipment for $5,250,000 on January 1, 2018, and established a list selling price of $7,200,000 on the equipment. Assume that the present value at July 1, 2018, of the rent payments over the lease term discounted at 8% (the appropriate interest rate) was $6,000,000. 92. What is the amount of profit on the sale and the amount of interest revenue that Metro should record for the year ended December 31, 2018?

b. $750,000 and $206,880 $6,000,000 - $5,250,000 = $750,000. ($6,000,000 - $828,000) × .04 = $206,880.

At the beginning of 2018; Elephant, Inc. had a deferred tax asset of $20,000 and a deferred tax liability of $30,000. Pre-tax accounting income for 2018 was $1,500,000 and the enacted tax rate is 40%. The following items are included in Elephant's pre-tax income: Interest income from municipal bonds $120,000 Accrued warranty costs, estimated to be paid in 2019 $260,000 Operating loss carryforward $190,000 Installment sales profit, will be taxed in 2019 $130,000 Prepaid rent expense, will be used in 2019 $60,000 78. The ending balance in Elephant, Inc.'s deferred tax liability at December 31, 2018 is a. $46,000 b. $76,000 c. $52,000 d. $156,000

b. $76,000 ($130,000 + $60,000) X .40 = $76,000.

Melton Company sold some machinery to Addison Company on January 1, 2014. The cash selling price would have been $947,700. Addison entered into an installment sales contract which required annual payments of $250,000, including interest at 10%, over five years. The first payment was due on December 31, 2014. What amount of interest income should be included in Melton's 2015 income statement (the second year of the contract)? a. $25,000 b. $79,247 c. $50,000 d. $69,770

b. $79,247

Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2019 and 2018 are provided below. 53. Under the direct method, the cash received from customers is a. $8,544,000. b. $8,256,000. c. $8,400,000. d. $8,440,000.

b. $8,256,000. $216,000 + $8,400,000 - $360,000 = $8,256,000.

a. Accounts receivable and accounts payable relate to merchandise held for sale in the normal course of business. The allowance for bad debts was the same at the end of 2019 and 2018, and no receivables were charged against the allowance. Accounts payable are recorded net of any discount and are always paid within the discount period. b. The proceeds from the note payable were used to finance the acquisition of property, plant, and equipment. Capital stock was sold to provide additional working capital. 95. What amount of cash was paid on accounts payable to suppliers during 2019? a. $9,210,000. b. $8,850,000. c. $8,190,000. d. $7,470,000.

b. $8,850,000. $2,190,000 + ($7,830,000 + $3,900,000 - $2,520,000) - $2,550,000 = $8,850,000.

work on a contract for $5,500,000 and it was completed in 2013. Data on the costs are: Year Ended December 31 2012.................................. 2013 Costs incurred $1,950,000 $1,400,000 Estimated costs to complete 1,300,000 — For the years 2012 and 2013, Adler should recognize gross profit of 2012 ...................2013 a. $0 $2,150,000 b. $1,290,000 $860,000 c. $1,350,000 $800,000 d. $1,350,000 $2,150,000 Use the following information for questions 76 and 77. Gomez, Inc. began work in 2012 on contract #3814, which provided for a contract price of $9,600,000. Other details follow: 2012............................................... 2013 Costs incurred during the year $1,600,000 $4,900,000 Estimated costs to complete, as of December 31 4,800,000 0 Billings during the year 1,800,000 7,200,000 Collections during the year 1,200,000 7,800,000 Assume that Gomez uses the percentage-of-completion method of accounting. The portion of the total gross profit to be recognized as income in 2012 is a. $600,000. b. $800,000. c. $2,400,000. d. $3,200,000. 77. Assume that Gomez uses the completed-contract method of accounting. The portion of the total gross profit to be recognized as income in 2013 is a. $1,200,000. b. $1,800,000. c. $3,100,000. d. $9,600,000.

b. $800,000. c. $3,100,000.

52. Equipment was purchased at the beginning of 2016 for $850,000. At the time of its purchase, the equipment was estimated to have a useful life of six years and a salvage value of $100,000. The equipment was depreciated using the straight-line method of depreciation through 2018. At the beginning of 2019, the estimate of useful life was revised to a total life of eight years and the expected salvage value was changed to $62,500. The amount to be recorded for depreciation for 2019, reflecting these changes in estimates, is a. $51,562. b. $82,500. c. $95,000. d. $98,438.

b. $82,500. $850,000 - {[($850,000 - $100,000) ÷ 6] × 3} = $475,000 ($475,000 - $62,500) ÷ (8 - 3) = $82,500.

Peavy Corp.'s transactions for the year ended December 31, 2018 included the following: • Acquired 50% of Gant Corp.'s common stock for $300,000 cash which was borrowed from a bank. • Issued 5,000 shares of its preferred stock for land having a fair value of $480,000. • Issued 600 of its 11% debenture bonds, due 2023, for $588,000 cash. • Purchased a patent for $330,000 cash. • Paid $180,000 toward a bank loan. • Sold available-for-sale securities for $1,194,000. • Had a net increase in returnable customer deposits (long-term) of $132,000. 116. Peavy's net cash provided by financing activities for 2015 was a. $708,000. b. $840,000. c. $888,000. d. $1,020,000.

b. $840,000. $300,000 + $588,000 - $180,000 + $132,000 = $840,000.

52. On December 1, 2018, Goetz Corporation leased office space for 10 years at a monthly rental of $80,000. On that date Goetz paid the landlord the following amounts: Rent deposit $ 80,000 First month's rent 80,000 Last month's rent 80,000 Installation of new walls and offices 640,000 $880,000 The entire amount of $880,000 was charged to rent expense in 2018. What amount should Goetz have charged to expense for the year ended December 31, 2018?

b. $85,333 $80,000 + [($640,000 ÷ 10) x (1 ÷ 12)] = $85,333.

Gage Co. purchases land and constructs a service station and car wash for a total of $540,000. At January 2, 2018, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $600,000 and immediately leased from the oil company by Gage. Fair value of the land at time of the sale was $60,000. The lease is a 10-year, noncancelable lease. Gage uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Gage at termination of the lease. A partial amortization schedule for this lease is as follows: Payments Interest Amortization Balance Jan. 2, 2018 $600,000.00 Dec. 31, 2018 $97,646.71 $60,000.00 $37,646.71 562,353.29 Dec. 31, 2019 97,646.71 56,235.33 41,411.38 520,941.91 Dec. 31, 2020 97,646.71 52,094.19 45,552.52 475,389.39 95. What is the discount rate implicit in the amortization schedule presented above?

b. 10% $60,000 ————--- = 10% $600,000 or $600,000 ————— = 6.1446* $97,646.71 *6.1446 = PV factor of ordinary annuity of $1 for 10 years at 10%.

29. Stone Company changed its method of pricing inventories from FIFO to LIFO. What type of accounting change does this represent? a. A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be presented as previously reported. b. A change in accounting principle for which the financial statements for prior periods included for comparative purposes should be presented as previously reported. c. A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be restated. d. A change in accounting principle for which the financial statements for prior periods included for comparative purposes should be restated.

b. A change in accounting principle for which the financial statements for prior periods included for comparative purposes should be presented as previously reported.

45. When preparing a statement of cash flows (indirect method), which of the following is not an adjustment to reconcile net income to net cash provided by operating activities? a. A change in interest payable b. A change in dividends payable c. A change in income taxes payable d. All of these are adjustments.

b. A change in dividends payable

Dream Home Inc., a real estate developing company, was accounting for its long-term contracts using the completed contract method prior to 2018. In 2018, it changed to the percentage-of-completion method. The company decided to use the same for income tax purposes. The tax rate enacted is 40%. Income before taxes under both the methods for the past three years appears below. Completed contract (2016)$450,000 (2017)$300,000 (2018)$150,000 Percentage-of-completion (2016)750,000 (2017)375,000 (2018) 270,000 45. Which of the following will be included in the journal entry made by Dream Home to record the income effect? a. A debit to Retained Earnings for $225,000 b. A credit to Retained Earnings for $225,000 c. A credit to Retained Earnings for $150,000 d. A debit to Retained Earnings for $150,000

b. A credit to Retained Earnings for $225,000 [($300,000 - ($300,000 * .40)) + ($75,000 - ($75,000 * .40))] = $225,000.

24. The first step in the preparation of the statement of cash flows requires the use of information included in which comparative financial statements? a. Statements of cash flows b. Balance sheets c. Income statements d. Statements of retained earnings

b. Balance sheets

Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2018 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2018, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease. (c) Alt depreciates all machinery it owns on a straight-line basis. (d) Alt's incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates. (e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful. 75. What type of lease is this from Alt Corporation's viewpoint?

b. Capital lease $574,864 × 2.73554 = $1,572,563; $1,572,563 ———— = 98% > 90%. $1,600,000

Palmer Co. had a deferred tax liability balance due to a temporary difference at the beginning of 2017 related to $1,500,000 of excess depreciation. In December of 2017, a new income tax act is signed into law that lowers the corporate rate from 40% to 35%, effective January 1, 2019. If taxable amounts related to the temporary difference are scheduled to be reversed by $750,000 for both 2018 and 2019, Palmer should increase or decrease deferred tax liability by what amount? a. Decrease by $75,000 b. Decrease by $37,500 c. Increase by $37,500 d. Increase by $75,000

b. Decrease by $37,500 $750,000 × (.35 - .40) = $37,500 decrease.

At the beginning of 2018, Pitman Co. purchased an asset for $1,800,000 with an estimated useful life of 5 years and an estimated salvage value of $150,000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-declining-balance method is being used. Pitman Co.'s tax rate is 40% for 2018 and all future years. 53. At the end of 2018, which of the following deferred tax accounts and balances is reported on Pitman's balance sheet? Account _ Balance a. Deferred tax asset $156,000 b. Deferred tax liability $156,000 c. Deferred tax asset $234,000 d. Deferred tax liability $234,000

b. Deferred tax liability $156,000 ($1,470,000 - $1,080,000) X .40 = $156,000 Deferred tax liability.

38. When preparing a statement of cash flows, the following are used for which method in determining cash flows from operating activities? Gross Accounts Net Accounts Receivable Receivable a. Indirect Direct b. Direct Indirect c. Direct Direct d. Neither Indirect

b. Direct Indirect

41. When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is deducted from net income to compute cash provided by/used by operating activities? a. Decrease in accounts receivable. b. Gain on sale of land. c. Amortization of patent. d. All of these are deducted from net income to arrive at cash flow from operating activities.

b. Gain on sale of land.

86. On January 2, 2018, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $160,000 each, payable beginning January 2, 2018. Brick Co. agrees to guarantee the $100,000 residual value of the asset at the end of the lease term. Brick's incremental borrowing rate is 10%, however it knows that Gold Star's implicit interest rate is 8%. What journal entry would Brick Co. make at January 2, 2018 to record the lease? PV Annuity Due 8%, 5 periods: 4.31213 10%, 5 periods: 4.16986 PV Ordinary Annuity 8%, 5 periods: 3.99271 10%, 5 periods: 3.79079 PV Single Sum 8%, 5 periods: .68508 10%, 5 periods: .62092

b. Leased Equipment 758,449 Cash 160,000 Lease Liability 598,449 ($160,000 * 4.31213) + ($100,000 * .68508) = $758,449.

63. Which one of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements? a. Dividend preferences b. Liquidation preferences c. Call prices d. Conversion or exercise prices

b. Liquidation preferences

68. Which of the following should be reported as a prior period adjustment? Change in Change from Estimated Lives Unaccepted of Depreciable Principle Assets to Accepted Principle a. Yes Yes b. No Yes c. Yes No d. No No

b. No Yes

57. Quirk Corporation issued a 100% stock dividend of its common stock which had a par value of $10 before and after the dividend. At what amount should retained earnings be capitalized for the additional shares issued? a. There should be no capitalization of retained earnings. b. Par value c. Fair value on the declaration date d. Fair value on the payment date

b. Par value

28. Which of the following would be classified as a financing activity on a statement of cash flows? a. Declaration and distribution of a stock dividend b. Payment of a bond payable c. Sale of a loan receivable d. Payment of interest to a creditor

b. Payment of a bond payable

Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income? a. Advance rental receipts. b. Product warranty liabilities. c. Depreciable property. d. Fines and expenses resulting from a violation of law.

b. Product warranty liabilities.

Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2018 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2018, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease. (c) Alt depreciates all machinery it owns on a straight-line basis. (d) Alt's incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates. (e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful. 76. If Alt accounts for the lease as an operating lease, what expenses will be recorded as a consequence of the lease during the fiscal year ended December 31, 2018?

b. Rent Expense

55. Which dividends do not reduce stockholders' equity? a. Cash dividends b. Stock dividends c. Property dividends d. Liquidating dividends

b. Stock dividends

Which of the following is not considered a permanent difference? a. Premiums paid for life insurance on a company's CEO when the company is the beneficiary. b. Stock-based compensation expense. c. Fines resulting from violating the law. d. Interest received on municipal bonds.

b. Stock-based compensation expense.

A company records an unrealized loss on short-term securities. This would result in what type of difference and in what type of deferred income tax? Type of Difference Deferred Tax a. Temporary Liability b. Temporary Asset c. Permanent Liability d. Permanent Asset

b. Temporary Asset

42. Which of the following is false concerning the statement of cash flows? a. When pension expense exceeds cash funding, the difference is deducted from investing activities on the statement of cash flows. b. The FASB requires companies to classify all income taxes paid as operating cash outflows. c. Under GAAP, the purchase of land by issuing stock will be shown as a cash outflow under investing activities and a cash inflow under financing activities. d. All of these are true concerning the statement of cash flows.

b. The FASB requires companies to classify all income taxes paid as operating cash outflows.

A lessor with a sales-type lease involving an unguaranteed residual value available to the lessor at the end of the lease term will report sales revenue in the period of inception of the lease at which of the following amounts?

b. The present value of the minimum lease payments.

80. Gannon Company acquired 20,000 shares of its own common stock at $20 per share on February 5, 2020, and sold 10,000 of these shares at $27 per share on August 9, 2021. The fair value of Gannon's common stock was $24 per share at December 31, 2020, and $25 per share at December 31, 2021. The cost method is used to record treasury stock transactions. What account(s) should Gannon credit in 2021 to record the sale of 10,000 shares? a. Treasury Stock for $270,000. b. Treasury Stock for $200,000 and Paid-in Capital from Treasury Stock for $70,000. c. Treasury Stock for $200,000 and Retained Earnings for $70,000. d. Treasury Stock for $240,000 and Retained Earnings for $30,000.

b. Treasury Stock for $200,000 and Paid-in Capital from Treasury Stock for $70,000.

At the December 31, 2012 balance sheet date, Unruh Corporation reports an accrued receivable for financial reporting purposes but not for tax purposes. When this asset is recovered in 2013, a future taxable amount will occur and a. pretax financial income will exceed taxable income in 2013. b. Unruh will record a decrease in a deferred tax liability in 2013. c. total income tax expense for 2011 will exceed current tax expense for 2013. d. Unruh will record an increase in a deferred tax asset in 2013.

b. Unruh will record a decrease in a deferred tax liability in 2013.

Temporary differences arise when revenues are taxable After they are recognized in financial income Before they are recognized in financial income a. No No b. Yes Yes c. Yes No d. No Yes

b. Yes Yes

Spicer Corporation has a normal gross profit on installment sales of 30%. A 2013 sale resulted in a default early in 2015. At the date of default, the balance of the installment receivable was $32,000, and the repossessed merchandise had a fair value of $18,000. Assuming the repossessed merchandise is to be recorded at fair value, the gain or loss on repossession should be a. $0. b. a $4,400 loss. c. a $4,400 gain. d. a $10,000 loss.

b. a $4,400 loss.

Hiser Builders, Inc. is using the completed-contract method for a $9,800,000 contract that will take two years to complete. Data at December 31, 2015, the end of the first year, are as follows: Costs incurred to date: $4,480,000 Estimated costs to complete: 5,740,000 Billings to date: 4,200,000 Collections to date: 3,500,000 The gross profit or loss that should be recognized for 2015 is a. $0. b. a $420,000 loss. c. a $210,000 loss. d. a $184,800 loss.

b. a $420,000 loss.

58. An analysis of the machinery accounts of Noller Company for 2018 is as follows The information concerning Noller's machinery accounts should be shown in Noller's statement of cash flows (indirect method) for the year ended December 31, 2018, as a(n) a. subtraction from net income of $100,000 and a $200,000 decrease in cash flows from financing activities. b. addition to net income of $100,000 and a $200,000 decrease in cash flows from investing activities. c. $100,000 increase in cash flows from financing activities. d. $200,000 decrease in cash flows from investing activities.

b. addition to net income of $100,000 and a $200,000 decrease in cash flows from investing activities.

A flood damaged a building and contents. The receipts from insurance companies totaled $600,000, which was $180,000 less than the book values. The tax rate is 30%. 103. On the statement of cash flows (indirect method), the flood loss should a. be shown as an addition to net income of $126,000. b. be shown as an addition to net income of $180,000. c. be shown as an inflow from investing activities of $126,000. d. not be shown.

b. be shown as an addition to net income of $180,000. 780,000-600,000

From the lessee's perspective, in the earlier years of a lease, the use of the

b. capital method will cause debt to increase, compared to the operating method.

32. When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a a. change in accounting principle. b. change in accounting estimate. c. prior period adjustment. d. correction of an error.

b. change in accounting estimate.

21. Accounting changes are often made and the monetary impact is reflected in the financial statements of a company even though, in theory, this may be a violation of the accounting concept of a. materiality. b. consistency. c. conservatism. d. objectivity.

b. consistency.

33. When preparing a statement of cash flows (indirect method), an increase in ending inventory over beginning inventory will result in an adjustment to reported net earnings because a. cash was increased while cost of goods sold was decreased. b. cost of goods sold on an accrual basis is lower than on a cash basis. c. acquisition of inventory is an investment activity. d. inventory purchased during the period was less than inventory sold resulting in a net cash increase.

b. cost of goods sold on an accrual basis is lower than on a cash basis.

43. An increase in inventory balance would be reported in a statement of cash flows using the indirect method (reconciliation method) as a(n) a. addition to net income in arriving at net cash flow from operating activities. b. deduction from net income in arriving at net cash flow from operating activities. c. cash outflow from investing activities. d. cash outflow from financing activities.

b. deduction from net income in arriving at net cash flow from operating activities.

33. The estimated life of a building that has been depreciated for 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years. Based on this information, the accountant should a. continue to depreciate the building over the original 50-year life. b. depreciate the remaining book value over the remaining life of the asset. c. adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years. d. adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.

b. depreciate the remaining book value over the remaining life of the asset.

Taxable income of a corporation a. differs from accounting income due to differences in intraperiod allocation between the two methods of income determination. b. differs from accounting income due to differences in interperiod allocation and permanent differences between the two methods of income determination. c. is based on generally accepted accounting principles. d. is reported on the corporation's income statement.

b. differs from accounting income due to differences in interperiod allocation and permanent differences between the two methods of income determination.

38. Counterbalancing errors do not include a. errors that correct themselves in two years. b. errors that correct themselves in three years. c. an understatement of purchases. d. an overstatement of unearned revenue.

b. errors that correct themselves in three years.

P45. According to the FASB, redeemable preferred stock should be a. included with common stock. b. included as a liability. c. included in stockholders' equity. d. included as a contra item in stockholders' equity.

b. included as a liability.

The deferred tax expense is the a. increase in balance of deferred tax asset minus the increase in balance of deferred tax liability. b. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset. c. increase in balance of deferred tax asset plus the increase in balance of deferred tax liability. d. decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability.

b. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.

Under the asset-liability method, a deferred income tax asset or liability is usually classified as a a. current or non-current according to the expected reversal date of the temporary difference. b. non-current asset or liability. c. current or non-current based on the classification of the related asset (liability) for financial reporting purposes. d. current asset.

b. non-current asset or liability.

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

b. present value of the minimum lease payments or the fair value of the asset, whichever is lower.

The last step (procedure) in the computation of deferred income taxes is to a. measure the total deferred tax asset (liability) using the appropriate tax rate. b. reduce deferred tax assets by a valuation allowance if necessary. c. identify the types and amounts of existing temporary differences. d. measure deferred tax assets for each type of tax credit carryforward.

b. reduce deferred tax assets by a valuation allowance if necessary.

44. The cumulative feature of preferred stock a. limits the amount of cumulative dividends to the par value of the preferred stock. b. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders. c. means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock. d. enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends.

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

44. A statement of cash flows typically would not disclose the effects of a. capital stock issued at an amount greater than par value. b. stock dividends declared. c. cash dividends paid. d. a purchase and immediate retirement of treasury stock.

b. stock dividends declared.

61. A feature common to both stock splits and stock dividends is a. a transfer to earned capital of a corporation. b. that there is no effect on total stockholders' equity. c. an increase in total liabilities of a corporation. d. a reduction in the contributed capital of a corporation.

b. that there is no effect on total stockholders' equity.

Recognition of tax benefits in the loss year due to a loss carryforward requires a. only a note to the financial statements. b. the establishment of a deferred tax asset. c. the establishment of an income tax refund receivable. d. the establishment of a deferred tax liability.

b. the establishment of a deferred tax asset.

Recognition of tax benefits in the loss year due to a loss carryforward requires a. the establishment of a deferred tax liability. b. the establishment of a deferred tax asset. c. the establishment of an income tax refund receivable. d. only a note to the financial statements.

b. the establishment of a deferred tax asset.

A deferred tax liability is classified on the balance sheet as either a current or a non-current liability. The current amount of a deferred tax liability should generally be:

based on the classification of the related asset or liability for financial reporting purposes.

A corporation issues bonds with detachable warrants. The amount to be recorded as paid-in capital is preferably

based on the relative market values of the two securities involved.

A transaction price for multiple performance obligations should be allocated

based on what the company could sell the goods for on a standalone basis

In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect assumed reacquisition of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would

be antidilutive

Common stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership. are entitled to a dividend every year in which the business earns a profit. can negotiate individual contracts on behalf of the enterprise. have the rights to specific assets of the business.

bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.

When a contract modification does not result in a separate performance obligation, the additional products are priced at the selling price specified in contract modification. blended price of original contract and contract modification. average selling price of original selling price and standalone price. standalone price of the product.

blended price of original contract and contract modification.

The conversion of bonds is most commonly recorded by the

book value method.

The conversion of preferred stock is recorded by the

book value method.

A primary source of stockholders' equity is: income retained by the corporation. appropriated retained earnings. contributions by stockholders. both income retained by the corporation and contributions by stockholders.

both income retained by the corporation and contributions by stockholders.

Monroe Construction Company uses the percentage-of-completion method of accounting. In 2013, Monroe began work on a contract it had received which provided for a contract price of $20,000,000. Other details follow: 2013 Costs incurred during the year $9,600,000 Estimated costs to complete as of December 31 6,400,000 Billings during the year 8,800,000 Collections during the year 5,200,000 What should be the gross profit recognized in 2013? a. $800,000 b. $10,400,000 c. $2,400,000 d. $4,000,000

c. $2,400,000

An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. At the time of re-acquisition: a. interest must be accrued from he last interest date to the purchase date b. the premium must be amortized up to the purchase date c. all of these answers are correct d. any costs of issuing the bonds must be amortized up to the purchase date

c

Bonds for which the owners' names are NOT registered with the issuing corporation are called: a. term bonds b. secured bonds c. bearer bonds d. debenture bonds

c

Debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses and are included as other comprehensive income and as a separate component of stockholders' equity are: A. held-to-maturity debt securities. B. trading debt securities. C. available-for-sale debt securities. D. never-sell debt securities.

c

If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a a. debit to Interest Payable. b. credit to Interest Receivable. c. credit to Interest Expense. d. credit to Unearned Interest.

c

Premium on bonds payable is: a. a contra account b. debited to a deferred charge account and amortized over the life of the bonds c. an adjunct account d. reported as a reduction of the bond liability

c

The rate of interest actually earned by bondholders is called the: a. nominal rate b. coupon rate c. effective rate d. stated rate

c

Under the effective interest method, interest expense: a. always decreases each period the bonds are outstanding b. is the same annual amount as straight-line interest expense in the earlier years c. is the same total amount as straight-line interest expense over the term of the bonds d. always increases each period the bonds are outstanding

c

When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will: a. increase only if the bonds were issued at a discount b. decrease only if the bonds were issued at a premium c. increase if the bonds were issued at either a discount or premium d. increase only if the bonds were issued at a premium

c

Fultz Company had 300,000 shares of common stock issued and outstanding at December 31, 2017. During 2018, no additional common stock was issued. On January 1, 2018, Fultz issued 400,000 shares of nonconvertible preferred stock. During 2018, Fultz declared and paid $180,000 cash dividends on the common stock and $150,000 on the nonconvertible preferred stock. Net income for the year ended December 31, 2018, was $960,000. What should be Fultz's 2018 earnings per common share, rounded to the nearest penny? a) $2.10 b) $1.15 c) $2.70 d) $3.20

c) $2.70 EPS = (net income - pref. divs) / WA common shares o/s = (960,000 - 50,000) / 300,000 = 2.70

Chang Corporation issued $6,000,000 of 9%, ten-year convertible bonds on July 1, 2017 at 96.1 plus accrued interest. The bonds were dated April 1, 2017 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2018, $1,200,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. What should be the amount of the unamortized bond discount on April 1, 2018 relating to the bonds converted? a) $23,400 b) $46,800 c) $43,200 d) $44,400

c) $43,200 Discount = 6,000,000 - (6,000,000 x .961) = 234,000 Amort = 234,000 / (120 - 3) = 2,000 = (234,000 - (2,000 x 9)) x (1,200,000 / 6,000,000) =43,000

Stine Inc. had 1,000,000 shares of common stock issued and outstanding at December 31, 2017. On July 1, 2018, an additional 1,000,000 shares were issued for cash. Stine also had stock options outstanding at the beginning and end of 2018 which allow the holders to purchase 300,000 shares of common stock at $28 per share. The average market price of Stine's common stock was $35 during 2018. The number of shares to be used in computing diluted earnings per share for 2018 is a) 2,240,000 b) 1,740,000 c) 1,560,000 d) 2,060,000

c) 1,560,000 Dec 31, 2017 - 1,000,000 shares July 1, 2018 - 1,000,000 x (6/12) = 500,000 ((35 - 28) / 35 ) x 300,000 = 60,000 = 1,560,000

The following information is available for Barone Corporation: Jan 1, 2018 - Shares outstanding - 4,000,000 April 1, 2018 - Shares issued - 640,000 July 1, 2018 - Treasury shares purchased - 240,000 October 1, 2018 - Shares issued in a 100% stock dividend - 4,400,000 The number of shares to be used in computing earnigns per common share for 2018 is a) 5,460,000 b) 8,760,000 c) 8,720,000 d) 9,041,600

c) 8,720,000

61. On December 31, 2018, Lang Corporation leased a ship from Fort Company for an eight-year period expiring December 30, 2026. Equal annual payments of $500,000 are due on December 31 of each year, beginning with December 31, 2018. The lease is properly classified as a capital lease on Lang 's books. The present value at December 31, 2018 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 Lang Corporation as the total obligation under capital leases on its December 31, 2019 balance sheet is

c. $2,177,634. $2,934,213 - $500,000 = $2,434,213 × .10 = $243,421 $2,434,213 - ($500,000 - $243,421) = $2,177,634.

Allocating a transaction price to multiple performance obligations includes which of the following steps: a) All of these choices are correct. b) Consolidate the components of the contract to two performance obligations because a contract should not have more than two performance obligations. c) Allocate the transaction price based on relative fair values.The best measure of fair value is what the good or service could be sold for on a standalone basis (standalone selling price). d) Complete each performance obligation before recognizing any revenue from the contract.

c) Allocate the transaction price based on relative fair values.The best measure of fair value is what the good or service could be sold for on a standalone basis (standalone selling price).

Which one of the following is not a component of pension expense? a) Amortization of prior service cost. b) Gain or loss. c) Amortization of projected benefit obligation. d) Service cost.

c) Amortization of projected benefit obligation

In determining the present value of the prospective benefits (often referred to as the projected benefit obligation), which of the following are not considered by the actuary? a) Interest rates. b) Benefit provisions of the plan. c) Insurance provisions of the plan. d) Retirement and mortality rate.

c) Insurance provisions of the plan.

Which type of revenue or gain is generally recognized with the passage of time? a) Revenue from sales. b) Revenue from fees or services. c) Long-term construction contracts. d) Gain or loss from disposition

c) Long-term construction contracts.

When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies? a) The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee. b) The investor should always use the fair value method to account for its investment. c) The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee. d) The investor should always use the equity method to account for its investment.

c) The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee.

Watt Company purchased $300,000 of bonds for $315,000. If Watt intends to hold the securities to maturity, the entry to record the investment includes a) a debit to Debt Investments at $300,000. b) a credit to Premium on Debt Investments of $15,000. c) a debit to Debt Investments at $315,000. d) none of these choices are correct.

c) a debit to Debt Investments at $315,000.

In accounting for a defined-benefit pension plan a) the liability is determined based upon known variables that reflect future salary levels promised to employees. b) the expense recognized each period is equal to the cash contribution. c) an appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised. d) the employer's responsibility is simply to make a contribution each year based on the formula established in the plan.

c) an appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised.

When computing diluted earnings per share, convertible bonds are a) ignored b) assumed converted only if they are antidilutive c) assumed converted only if they are dilutive d) assumed converted whether they are dilutive or antidilutive

c) assumed converted only if they are dilutive

The third step in the process for revenue recognition is to a) recognize revenue when each performance obligation is satisfied. b) allocate transaction price to the separate performance obligations. c) determine the transaction price. d) identify the separate performance obligations in the contract.

c) determine the transaction price.

The seller of a good or service should recognize revenue when a) they identify the separate performance obligations in the contract. b) they determine the transaction price. c) each performance obligation is satisfied. d) they identify the contract with customers.

c) each performance obligation is satisfied.

Commonly, in a defined benefit plan, the contributions to the plan are made by the: a) independent third party. b) employee. c) employer. d) both employee and employer

c) employer.

The first step in the process for revenue recognition is to a) identify the separate performance obligations in the contract. b) determine the transaction price. c) identify the contract with customers. d) allocate transaction price to the separate performance obligations.

c) identify the contract with customers.

A contract a) is enforceable if each party can unilaterally terminate the contract. b) does not need to have commercial substance. c) is an agreement that creates enforceable rights and obligations. d) must be in writing to be an enforceable contract.

c) is an agreement that creates enforceable rights and obligations.

Practice Question 03 Correct! In a defined-benefit plan, the process of funding refers to making the periodic contributions to a funding agency to ensure that funds are available to meet retirees' claims. In a defined-benefit plan, the process of funding refers to a) determining the amount that might be reported for pension expense. b) determining the projected benefit obligation. c) making the periodic contributions to a funding agency to ensure that funds are available to meet retirees' claims. d) determining the accumulated benefit obligation.

c) making the periodic contributions to a funding agency to ensure that funds are available to meet retirees' claims.

The approach adopted by the accounting profession to measure a firm's pension obligation is the: a) vested benefit obligation. b) accumulated benefit obligation. c) projected benefit obligation. d) defined benefit obligation.

c) projected benefit obligation.

In a defined-contribution plan, a formula is used that a) defines the benefits that the employee will receive at the time of retirement. b) ensures that pension expense and the cash funding amount will be different. c) requires an employer to contribute a certain sum each period based on the formula. d) ensures that employers are at risk to make sure funds are available at retirement

c) requires an employer to contribute a certain sum each period based on the formula

In computing the service cost component of pension expense, the FASB concluded that a) the accumulated benefit obligation provides a more realistic measure of the pension obligation on a going concern basis. b) a company should employ an actuarial funding method to report pension expense that best reflects the cost of benefits to employees. c) the projected benefit obligation using future compensation levels provides a realistic measure of present pension obligation and expense. d) the projected benefit obligation using current compensation levels provides a realistic measure of present pension obligation and expansion

c) the projected benefit obligation using future compensation levels provides a realistic measure of present pension obligation and expense.

Unrealized holding gains or losses which are recognized in income are from debt securities classified as a) held-to-maturity. b) available-for-sale. c) trading. d) none of these answers are correct.

c) trading

Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2019 and 2018 are provided below. 55. The net cash provided (used) by financing activities is a. $(240,000). b. $48,000. c. $(432,000). d. $192,000.

c. $(432,000). ($192,000) + ($240,000) = ($432,000).

Land was acquired for $200,000 in exchange for common stock, par $200,000, during the year; all equipment purchased was for cash. Equipment costing $20,000 was sold for $8,000; book value of the equipment was $16,000 and the loss was reported as an ordinary item in net income. Cash dividends of $30,000 were charged to retained earnings and paid during the year; the transfer of net income to retained earnings was the only other entry in the Retained Earnings account. In the statement of cash flows for the year ended December 31, 2018, for Naley Company: 87. The net cash provided (used) by financing activities was a. $ -0-. b. $(30,000). c. $(70,000). d. $120,000.

c. $(70,000). ($160,000) + $120,000 - $30,000 = ($70,000).

Horner Construction Co. uses the percentage-of-completion method. In 2014, Horner began work on a contract for $16,500,000; it was completed in 2015. The following cost data pertain to this contract: Year Ended December 31 2014/ 2015 Cost incurred during the year $5,850,000/ $4,200,000 Estimated costs to complete at the end of year: 3,900,000/— ~If the completed-contract method of accounting was used, the amount of gross profit to be recognized for years 2014 and 2015 would be 2014 2015 a. $6,750,000. $0. b. $6,450,000. $(300,000). c. $0. $6,450,000. d. $0. $6,750,000.

c. $0. $6,450,000

Coaster manufactures and sells logging equipment. Due to the nature of its business, Coaster is unable to reliably predict bad debts. During 2014, Coaster sold equipment costing $4,800,000 for $7,200,000. The terms of the sale were 20% down, with equal payments due quarterly over the next 3 years. All payments for 2014 were made on schedule. Round answers to two places. ~Assuming that Coaster uses the installment-sales method of accounting for its installment sales, what amount of realized gross profit will Coaster report in its income statement for the year ended December 31, 2014? a. $3,360,000 b. $2,240,000 c. $1,120,000 d. $ 739,200

c. $1,120,000

50. Heinz Company began operations on January 1, 2017, and uses the FIFO method in costing its raw material inventory. Management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed: Final Inventory 2017 2018 FIFO $640,000 $712,000 LIFO 560,000 636,000 Net Income 980,000 1,330,000 (computed under the FIFO method) Based on the above information, a change to the LIFO method in 2018 would result in net income for 2018 of a. $1,370,000. b. $1,330,000. c. $1,254,000. d. $1,250,000.

c. $1,254,000. $1,330,000 - ($712,000 - $636,000) = $1,254,000.

Ernst Company purchased equipment that cost $3,000,000 on January 1, 2017. The entire cost was recorded as an expense. The equipment had a nine-year life and a $120,000 residual value. Ernst uses the straight-line method to account for depreciation expense. The error was discovered on December 10, 2019. Ernst is subject to a 40% tax rate. 67. Before the correction was made and before the books were closed on December 31, 2019, retained earnings was understated by a. $1,328,000. b. $1,344,000. c. $1,416,000. d. $1,800,000.

c. $1,416,000. $3,000,000 - [($3,000,000 - $120,000) ÷ 9 × 2] = $2,360,000. $2,360,000 × (1 - .40) = $1,416,000.

At the beginning of 2018, Pitman Co. purchased an asset for $1,800,000 with an estimated useful life of 5 years and an estimated salvage value of $150,000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-declining-balance method is being used. Pitman Co.'s tax rate is 40% for 2018 and all future years. 52. At the end of 2018, what are the book basis and the tax basis of the asset? Book basis Tax basis a. $1,320,000 $ 930,000 b. $1,470,000 $ 930,000 d. $1,320,000 $1,080,000 c. $1,470,000 $1,080,000

c. $1,470,000 $1,080,000 $1,800,000 - [($1,800,000 - $150,000) /5)] = $1,470,000; $1,800,000 - ($1,800,000 X 1/5 X 2) = $1,080,000.

58. Yancey, Inc. would record depreciation expense on this storage building in 2018 of (Rounded to the nearest dollar.)

c. $600,000. $6,000,000 ÷ 10 = $600,000.

Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2018 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2018, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease. (c) Alt depreciates all machinery it owns on a straight-line basis. (d) Alt's incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates. (e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful. 79. If Yates records this lease as a direct-financing lease, what amount would be recorded as Lease Receivable at the inception of the lease?

c. $1,600,000 Fair value = $1,600,000.

Adler Construction Co. uses the percentage-of-completion method. In 2014, Adler began work on a contract for $6,600,000 and it was completed in 2015. Data on the costs are: Year Ended December 31 2014/ 2015 Costs incurred: $2,340,000/ $1,680,000 Estimated costs to complete: 1,560,000/— For the years 2014 and 2015, Adler should recognize gross profit in 2014 and 2015 of 2014 2015 a. $0 $2,580,000 b. $1,548,000 $1,032,000 c. $1,620,000 $960,000 d. $1,620,000 $2,580,000

c. $1,620,000 $960,000

Hopkins Co. at the end of 2017, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $3,000,000 Estimated litigation expense 4,000,000 Extra depreciation for taxes (6,000,000) Taxable income $ 1,000,000 The estimated litigation expense of $4,000,000 will be deductible in 2018 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $2,000,000 in each of the next three years. The income tax rate is 30% for all years. 60. The amount of deferred tax liability to be recognized is a. $1,200,000 b. $900,000 c. $1,800,000 d. $1,500,000

c. $1,800,000 ($6,000,000 × 30%) = $1,800,000.

Armstrong Inc. is a calendar-year corporation. Its financial statements for the years ended 12/31/17 and 12/31/18 contained the following errors: Ending inventory (2017)$50,000 overstatement (2018) $80,000 understatement Depreciation expense (2017) 20,000 understatement (2018)40,000 overstatement 56. Assume that no correcting entries were made at 12/31/17, or 12/31/18. Ignoring income taxes, by how much will retained earnings at 12/31/18 be overstated or understated? a. $80,000 overstatement b. $70,000 overstatement c. $100,000 understatement d. $30,000 understatement

c. $100,000 understatement $80,000 + $20,000 = $100,000 understatement.

Land was acquired for $200,000 in exchange for common stock, par $200,000, during the year; all equipment purchased was for cash. Equipment costing $20,000 was sold for $8,000; book value of the equipment was $16,000 and the loss was reported as an ordinary item in net income. Cash dividends of $30,000 were charged to retained earnings and paid during the year; the transfer of net income to retained earnings was the only other entry in the Retained Earnings account. In the statement of cash flows for the year ended December 31, 2018, for Naley Company: 85. The net cash provided by operating activities was a. $94,000. b. $122,000. c. $102,000. d. $86,000.

c. $102,000. $32,000 + $30,000 + $60,000 = $122,000 (NI) ($20,000 - $4,000) - $8,000 = $8,000 (Loss) $72,000 + $4,000 - $32,000 = $44,000 (Depr. exp.) $122,000 - $60,000 - $100,000 + $60,000 + $8,000 + $44,000 + $52,000 -$24,000 = $102,000.

Luther Inc., has 4,000 shares of 5%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2021, and December 31, 2020. The board of directors declared and paid an $8,000 dividend in 2020. In 2021, $40,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2021? a. $28,000 b. $20,000 c. $12,000 d. $10,000

c. $12,000

Before income taxes, what amount should Rich include in its 2018 income statement as a result of the investment? a. $400,000. b. $250,000. c. $120,000. d. $75,000.

c. $120,000.

What should the gain be on sale of this investment in Rich's 2019 income statement? a. $160,000. b. $137,500. c. $122,500. d. $100,000.

c. $122,500.

a. Accounts receivable and accounts payable relate to merchandise held for sale in the normal course of business. The allowance for bad debts was the same at the end of 2019 and 2018, and no receivables were charged against the allowance. Accounts payable are recorded net of any discount and are always paid within the discount period. b. The proceeds from the note payable were used to finance the acquisition of property, plant, and equipment. Capital stock was sold to provide additional working capital. 94. What amount of cash was collected from 2019 accounts receivable? a. $15,000,000. b. $14,040,000. c. $13,080,000. d. $6,540,000.

c. $13,080,000. $2,160,000 + $14,040,000 - $3,120,000 = $13,080,000.

All market declines are considered temporary. Fair value adjustments at December 31, 2018 should be established with a corresponding charge against Income Stockholders' Equity a. $40,000 $ 0 b. $25,000 $30,000 c. $15,000 $20,000 d. $15,000 $ 0

c. $15,000 $20,000

Total assets on the balance sheet at December 31, 2018 are $6,648,000. Accumulated deprecia-tion on the equipment sold was $336,000. 66. The balance in the Retained Earnings account at December 31, 2018 was a. $1,080,000. b. $2,640,000. c. $2,280,000. d. $3,000,000.

c. $2,280,000. $1,440,000 + $1,200,000 - $360,000 = $2,280,000.

On January 2, 2018, Hernandez, Inc. signed a ten-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $300,000 starting at the beginning of the first year, with title passing to Hernandez at the expiration of the lease. Hernandez treated this transaction as a capital lease. The drill press has an estimated useful life of 15 years, with no salvage value. Hernandez uses straight-line depreciation for all of its plant assets. Aggregate lease payments were determined to have a present value of $1,800,000, based on implicit interest of 10%. 104. In its 2018 income statement, what amount of interest expense should Hernandez report from this lease transaction?

c. $150,000 ($1,800,000 -$300,000)× .10 = $150,000.

Wildhorse Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income: $2835000 Estimated litigation expense: 3835000 Extra depreciation for taxes: (5838000) Taxable income: $ 832000 The estimated litigation expense of $3835000 will be deductible in 2021 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $1946000 in each of the next 3 years. The income tax rate is 20% for all years.Income taxes payable is a. $0. b. $400600. c. $166400. d. $600600.

c. $166400.

90. Pye Company leased equipment to the Polan Company on July 1, 2018, for a ten-year period expiring June 30, 2028. Equal annual payments under the lease are $240,000 and are due on July 1 of each year. The first payment was made on July 1, 2018. The rate of interest contemplated by Pye and Polan is 9%. The cash selling price of the equipment is $1,680,000 and the cost of the equipment on Pye's accounting records was $1,488,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Pye, what is the amount of profit on the sale and the interest revenue that Pye would record for the year ended December 31, 2018?

c. $192,000 and $64,800 $1,680,000 - $1,488,000 = $192,000; ($1,680,000 - $240,000) × .09 × 6/12 = $64,800.

Information relating to 2018 activities: • Net income for 2018 was $1,500,000. • Cash dividends of $600,000 were declared and paid in 2018. • Equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in 2018 for $360,000. • A long-term investment was sold in 2018 for $320,000. There were no other transactions affecting long-term investments in 2018. • 20,000 shares of common stock were issued in 2018 for $25 a share. • Short-term investments consist of treasury bills maturing on 6/30/19. 106. Net cash provided by Jamison's 2018 operating activities was a. $1,500,000. b. $2,120,000. c. $2,080,000. d. $2,160,000.

c. $2,080,000. $1,500,000 - $180,000 + ($900,000 - $900,000 + $680,000) - ($360,000 - $320,000) + $20,000 + $220,000 - ($320,000 - $200,000) = $2,080,000.

Link Co. purchased machinery that cost $3,000,000 on January 4, 2016. The entire cost was recorded as an expense. The machinery has a nine-year life and a $200,000 residual value. The error was discovered on December 20, 2018. Ignore income tax considerations. 65. Before the correction was made, and before the books were closed on December 31, 2018, retained earnings was understated by a. $3,000,000. b. $2,333,333. c. $2,377,778. d. $2,066,667.

c. $2,377,778. $3,000,000 -200,000 ---------------------- = $2,377,778 9

Bishop Co. began operations on January 1, 2017. Financial statements for 2017 and 2018 contained the following errors: Ending inventory Dec. 31, 2017 $198,000 overstated Dec. 31, 2018 $219,000 understated Depreciation expense Dec.31,2017 126,000 overstated Dec.31,2018 — Insurance expense Dec.31,2017 90,000 understated Dec.31,2018 90,000 overstated Prepaid insurance Dec.31,2017 90,000 overstated Dec.31,2018 — In addition, on December 31, 2018 fully depreciated equipment was sold for $43,20 0, but the sale was not recorded until 2019. No corrections have been made for any of the errors. Ignore income tax considerations. 63. The total effect of the errors on the amount of Bishop's working capital at December 31, 2018 is understated by a. $586,200. b. $460,200. c. $262,200. d. $172,200.

c. $262,200. $219,000 (u) + $43,200 (u) = $262,200 (u).

Kraft Company made the following journal entry in late 2018 for rent on property it leases to Danford Corporation. Cash 150,000 Unearned Rent Revenue 150,000 The payment represents rent for the years 2019 and 2020, the period covered by the lease. Kraft Company is a cash basis taxpayer. Kraft has income tax payable of $230,000 at the end of 2018, and its tax rate is 35%. 74. Assuming the income taxes payable at the end of 2019 is $255,000, what amount of income tax expense would Kraft Company record for 2019? a. $202,500 b. $228,750 c. $281,250 d. $307,500

c. $281,250 $255,000 + ($75,000 × .35) = $281,250.

Monroe Construction Company uses the percentage-of-completion method of accounting. In 2015, Monroe began work on a contract it had received which provided for a contract price of $25,000,000. Other details follow: 2015 Costs incurred during the year: $12,000,000 Estimated costs to complete as of December 31: 8,000,000 Billings during the year: 11,000,000 Collections during the year: 6,500,000 What should be the gross profit recognized in 2015? a. $1,000,000 b. $13,000,000 c. $3,000,000 d. $5,000,000

c. $3,000,000

Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of $930,000 each quarter. The total contract price is $11,160,000 and Seasons estimates total costs of $10,650,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2012. 65. At December 31, 2012, Seasons estimates that it is 30% complete with the construction, based on costs incurred. What is the total amount of Revenue from Long-Term Contracts recognized for 2012 and what is the balance in the Accounts Receivable account assuming Cannon Cafe has not yet made its last quarterly payment? Revenue Accounts Receivable a. $3,720,000 $3,720,000 b. $3,195,000 $ 930,000 c. $3,348,000 $ 930,000 d. $3,195,000 $3,720,000 At December 31, 2013, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $10,800,000 due to unanticipated price increases. What is the total amount of Construction Expenses that Seasons will recognize for the year ended December 31, 2013? a. $8,100,000 b. $4,725,000 c. $4,792,500 d. $4,905,000 At December 31, 2013, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $10,800,000 due to unanticipated price increases. What is reported in the balance sheet at December 31, 2013 for Seasons as the difference between the Construction in Process and the Billings on Construction in Process accounts, and is it a debit or a credit? Difference between the accounts Debit/Credit a. $2,535,000 Credit b. $930,000 Debit c. $660,000 Debit d. $930,000 Credit Seasons Construction completes the remaining 25% of the building construction on December 31, 2014, as scheduled. At that time the total costs of construction are $11,250,000. What is the total amount of Revenue from Long-Term Contracts and Construction Expenses that Seasons will recognize for the year ended December 31, 2014? Revenue Expenses a. $11,160,000 $11,250,000 b. $2,790,000 $ 2,812,000 c. $2,790,000 $ 3,150,000 d. $2,812,500 $ 2,812,500

c. $3,348,000 $ 930,000 d. $4,905,000 b. $930,000 Debit c. $2,790,000 $ 3,150,000

Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of $1,240,000 each quarter. The total contract price is $14,880,000 and Seasons estimates total costs of $14,200,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2014. ~Seasons Construction completes the remaining 25% of the building construction on December 31, 2016, as scheduled. At that time the total costs of construction are $15,000,000. What is the total amount of Revenue from Long-Term Contracts and Construction Expenses that Seasons will recognize for the year ended December 31, 2016? Revenue Expenses a. $14,880,000 $15,000,000 b. $3,720,000 $ 3,750,000 c. $3,720,000 $ 4,200,000 d. $3,750,000 $ 3,750,000

c. $3,720,000 $ 4,200,000

56. During 2018, Stout Inc. had the following activities related to its financial operations: Carrying value of convertible preferred stock in Stout, converted into common shares of Stout $ 540,000 Payment in 2018 of cash dividend declared in 2017 to preferred shareholders 279,000 Payment for the early retirement of long-term bonds payable (carrying amount $3,930,000) 3,975,000 Proceeds from the sale of treasury stock (on books at cost of $387,000) 450,000 The amount of net cash used in financing activities to appear in Stout's statement of cash flows for 2018 should be a. $2,985,000. b. $3,264,000. c. $3,804,000. d. $3,822,000.

c. $3,804,000. $450,000 - $279,000 - $3,975,000 = $3,804,000.

Cullumber Company reported the following results for the year ended December 31, 2021, its first year of operations: Income (per books before income taxes): $2049000 Taxable income: $3250000 The disparity between book income and taxable income is attributable to a temporary difference which will reverse in 2022. What should Cullumber record as a net deferred tax asset or liability for the year ended December 31, 2021, assuming that the enacted tax rates in effect are 30% in 2021 and 25% in 2022? a. $360300 deferred tax asset b. $300250 deferred tax liability c. $300250 deferred tax asset d. $360300 deferred tax liability

c. $300250 deferred tax asset

71. Pisa, Inc. leased equipment from Tower 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, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. Pisa, Inc.'s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%. Pisa, Inc. uses the straight-line method to depreciate similar assets. What is the amount of depreciation expense recorded by Pisa, Inc. in the first year of the asset's life? PV Annuity Due PV Ordinary Annuity 8%, 4 periods 3.57710 3.31213 10%, 4 periods 3.48685 3.16986

c. $307,767 $344,152 * 3.57710 = $1,231,066 ($1,231,066 - 0) / 4 = $307,767.

On January 1, 2016, Nobel Corporation acquired machinery at a cost of $1,600,000. Nobel adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated life of ten years, with no residual value. At the beginning of 2019, a decision was made to change to the double-declining balance method of depreciation for this machine. 48. The amount that Nobel should record as depreciation expense for 2019 is a. $160,000. b. $224,000. c. $320,000. d. $280,000.

c. $320,000. {($1,600,000 - [($1,600,000 ÷ 10) × 3]} ÷ 7 × 2 = $320,000.

76. In preparing Titan Inc.'s statement of cash flows for the year ended December 31, 2018, the following amounts were available: Collect note receivable $615,000 Issue bonds payable 639,000 Purchase treasury stock 300,000 What amount should be reported on Titan, Inc's statement of cash flows for financing activities? a. $ 24,000 b. $1,254,000 c. $339,000 d. $315,000

c. $339,000 639,000 - $300,000 = $339,000.

90. Donnegan Company reported operating expenses of $375,000 for 2018. The following data were extracted from the company's financial records: 12/31/17 12/31/18 Prepaid Expenses $ 60,000 $69,000 Accrued Expenses 210,000 255,000 On a statement of cash flows for 2018, using the direct method, cash payments for operating expenses should be a. $429,000. b. $411,000. c. $339,000. d. $321,000.

c. $339,000. $375,000 + $9,000 - $45,000 = $339,000.

At December 31, 2020 and 2021, Plank 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 Common Stock a. $24,000 $21,000 b. $33,000 $12,000 c. $36,000 $9,000 d. $45,000 $0

c. $36,000 $9,000

109. Foxx Corp.'s comparative balance sheet at December 31, 2018 and 2017 reported accumulated depreciation balances of $1,245,000 and $900,000, respectively. Property with a cost of $75,000 and a carrying amount of $57,000 was the only property sold in 2018. Depreciation charged to operations in 2018 was a. $327,000. b. $345,000. c. $363,000. d. $402,000.

c. $363,000. $1,245,000 - $900,000 + ($75,000 - $57,000) = $363,000.

Duncan Inc. uses the accrual method of accounting for financial reporting purposes and appropriately uses the installment method of accounting for income tax purposes. Profits of $1,200,000 recognized for books in 2017 will be collected in the following years: Collection of Profits 2018 $200,000 2019 $400,000 2020 $600,000 The enacted tax rates are: 40% for 2017, 35% for 2018, and 30% for 2019 and 2020. Taxable income is expected in all future years. What amount should be included in the December 31, 2017, balance sheet for the deferred tax liability related to the above temporary difference? a. $ 70,000 b. $300,000 c. $370,000 d. $480,000

c. $370,000 ($200,000 .35) + [($400,000 + $600,000) X .30] = $370,000.

92. Alex Company prepares its statement of cash flows using the direct method for operating activities. For the year ended December 31, 2018, Alex Company reports the following activity: Sales on account $2,100,000 Cash sales 1,110,000 Decrease in accounts receivable 915,000 Increase in accounts payable 108,000 Increase in inventory 72,000 Cost of good sold 1,575,000 What is the amount of cash collections from customers reported by Alex Company for the year ended December 31, 2018? a. $3,210,000 b. $3,015,000 c. $4,125,000 d. $2,295,000

c. $4,125,000 $2,100,000 + $1,110,000 + $915,000 = $4,125,000.

88. Geary Co. leased a machine to Dains Co. Assume the lease payments were made on the basis that the residual value was guaranteed and Geary gets to recognize all the profits. At the end of the lease term, before the lessee transfers the asset to the lessor, the leased asset and obligation accounts have the following balances: Leased equipment $400,000 Less accumulated depreciation--capital lease 384,000 $ 16,000 Interest payable $ 1,520 Lease liability 14,480 $16,000 If, at the end of the lease, the fair value of the residual value is $11,800, what gain or loss should Geary record?

c. $4,200 loss $11,800 - $16,000 = ($4,200).

Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of $1,240,000 each quarter. The total contract price is $14,880,000 and Seasons estimates total costs of $14,200,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2014. ~At December 31, 2014, Seasons estimates that it is 30% complete with the construction, based on costs incurred. What is the total amount of Revenue from Long-Term Contracts recognized for 2014 and what is the balance in the Accounts Receivable account assuming Cannon Cafe has not yet made its last quarterly payment? Revenue/ Accounts Receivable a. $4,960,000/ $4,960,000 b. $4,260,000/$1,240,000 c. $4,464,000/$1,240,000 d. $4,260,000/$4,960,000

c. $4,464,000/$1,240,000

70. The following information was taken from the 2018 financial statements of Dunlop Corporation: Bonds payable, January 1, 2018 $ 800,000 Bonds payable, December 31, 2018 4,800,000 During 2018 • A $720,000 payment was made to retire bonds payable with a face amount of $800,000. • Bonds payable with a face amount of $320,000 were issued in exchange for equipment. In its statement of cash flows for the year ended December 31, 2018, what amount should Dunlop report as proceeds from issuance of bonds payable? a. $4,000,000 b. $4,400,000 c. $4,480,000 d. $5,120,000

c. $4,480,000 $4,800,000 - $800,000 + $800,000 - $320,000 = $4,480,000.

Gomez, Inc. began work in 2014 on contract #3814, which provided for a contract price of $14,400,000. Other details follow: 2014/ 2015 Costs incurred during the year $2,400,000/ $7,350,000 Estimated costs to complete, as of December 31: 7,200,000/0 Billings during the year 2,700,000/ 10,800,000 Collections during the year 1,800,000/ 11,700,000 ~Assume that Gomez uses the completed-contract method of accounting. The portion of the total gross profit to be recognized as income in 2015 is a. $1,800,000. b. $2,700,000. c. $4,650,000. d. $14,400,000.

c. $4,650,000.

Operating income and tax rates for C.J. Company's first three years of operations were as follows: Income _ Enacted tax rate 2017 $400,000 35% 2018 ($1,000,000) 30% 2019 $1,680,000 40% 94. Assuming that C.J. Company opts only to carryforward its 2018 NOL, what is the amount of deferred tax asset or liability that C.J. Company would report on its December 31, 2018 balance sheet? Amount _ Deferred tax asset or liability a. $300,000 Deferred tax liability b. $350,000 Deferred tax liability c. $400,000 Deferred tax asset d. $300,000 Deferred tax asset

c. $400,000 Deferred tax asset $1,000,000 x .40 = $400,000.

43. On January 1, 2016, Piper Co., purchased a machine (its only depreciable asset) for $900,000. The machine has a five-year life, and no salvage value. Sum-of-the-years'-digits depreciation has been used for financial statement reporting and the elective straight-line method for income tax reporting. Effective January 1, 2019, for financial statement reporting, Piper decided to change to the straight-line method for depreciation of the machine. Assume that Piper can justify the change. Piper's income before depreciation, before income taxes, and before the cumulative effect of the accounting change (if any), for the year ended December 31, 2019, is $750,000. The income tax rate for 2019, as well as for the years 2016-2018, is 30%. What amount should Piper report as net income for the year ended December 31, 2019? a. $180,000 b. $273,000 c. $462,000 d. $525,000

c. $462,000 [(5/15 + 4/15 + 3/15) × $900,000] = $720,000 (AD) ($900,000 - $720,000) = $180,000 (BV) [$750,000 - ($180,000 ÷ 2)] × (1 - .3) = $462,000.

73. Haystack, Inc. manufactures machinery used in the mining industry. On January 2, 2018 it leased equipment with a cost of $480,000 to Silver Point Co. The 5-year lease calls for a 10% down payment and equal annual payments of $219,777 at the end of each year. The equipment has an expected useful life of 5 years. Silver Point's incremental borrowing rate is 10%, and it depreciates similar equipment using the double-declining balance method. The selling price of the equipment is $780,000, and the rate implicit in the lease is 8%, which is known to Silver Point Co. What is the book value of the leased asset at December 31, 2018?

c. $468,000 $780,000 - ($780,000 *.40) = $468,000

Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2018 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2018, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease. (c) Alt depreciates all machinery it owns on a straight-line basis. (d) Alt's incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates. (e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful. 77. If the present value of the future lease payments is $1,600,000 at January 1, 2018, what is the amount of the reduction in the lease liability for Alt Corp. in the second full year of the lease if Alt Corp. accounts for the lease as a capital lease? (Rounded to the nearest dollar.)

c. $472,350 $1,600,000 -$574,864 = $1,025,136. $574,864 - ($1,025,136 × .1) = $472,350.

Total assets on the balance sheet at December 31, 2018 are $6,648,000. Accumulated deprecia-tion on the equipment sold was $336,000. 63. When the equipment was sold, the Buildings and Equipment account received a credit of a. $288,000. b. $624,000. c. $480,000. d. $336,000.

c. $480,000. $288,000 - $144,000 = $144,000 (BV); $144,000 + $336,000 = $480,000.

60. During 2018, equipment was sold for $468,000. The equipment cost $786,000 and had a book value of $432,000. Accumulated Depreciation—Equipment was $2,061,000 at 12/31/17 and $2,205,000 at 12/31/18. Depreciation expense for 2018 was a. $144,000. b. $288,000. c. $498,000. d. $576,000.

c. $498,000. $2,205,000 - $2,061,000 + ($786,000 - $432,000) = $498,000.

Smiley Corp.'s transactions for the year ended December 31, 2018 included the following: • Purchased real estate for $1,250,000 cash which was borrowed from a bank. • Sold available-for-sale securities for $1,000,000. • Paid dividends of $1,200,000. • Issued 500 shares of common stock for $500,000. • Purchased machinery and equipment for $250,000 cash. • Paid $900,000 toward a bank loan. • Reduced accounts receivable by $200,000. • Increased accounts payable $400,000. 113. Smiley's net cash used in investing activities for 2018 was a. $1,500,000. b. $750,000. c. $500,000. d. $250,000.

c. $500,000. ($1,250,000) + $1,000,000 - $250,000 = ($500,000).

93. Roman Company leased equipment from Koenig Company on July 1, 2018, for an eight-year period expiring June 30, 2026. Equal annual payments under the lease are $800,000 and are due on July 1 of each year. The first payment was made on July 1, 2018. The rate of interest contemplated by Roman and Koenig is 8%. The cash selling price of the equipment is $4,965,000 and the cost of the equipment on Koenig's accounting records was $4,400,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Koenig, what is the amount of profit on the sale and the interest income that Koenig would record for the year ended December 31, 2018?

c. $565,000 and $166,600 $4,965,000 - $4,400,000 = $565,000. ($4,965,000 - $800,000) × .04 = $166,600.

Mitchell Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2018 $ 1,800,000 Tax exempt interest (150,000) Originating temporary difference (350,000) Taxable income $1,300,000 The temporary difference will reverse evenly over the next two years at an enacted tax rate of 40%. The enacted tax rate for 2018 is 35%. 67. In Mitchell's 2018 income statement, what amount should be reported for total income tax expense? a. $690,000 b. $630,000 c. $595,000 d. $455,000

c. $595,000 ($1,300,000 × .35) + ($350,000 × .40) = $595,000

Hayes Construction Corporation contracted to construct a building for $3,000,000. Construction began in 2012 and was completed in 2013. Data relating to the contract are summarized below: Year ended December 31, 2012 2013 Costs incurred $1,200,000 $900,000 Estimated costs to complete 800,000 — Hayes uses the percentage-of-completion method as the basis for income recognition. For the years ended December 31, 2012, and 2013, respectively, Hayes should report gross profit of a. $540,000 and $360,000. b. $1,800,000 and $1,200,000. c. $600,000 and $300,000. d. $0 and $900,000.

c. $600,000 and $300,000.

89. Harter Company leased machinery to Stine Company on July 1, 2018, for a ten-year period expiring June 30, 2028. Equal annual payments under the lease are $250,000 and are due on July 1 of each year. The first payment was made on July 1, 2018. The rate of interest used by Harter and Stine is 9%. The cash selling price of the machinery is $1,750,000 and the cost of the machinery on Harter's accounting records was $1,550,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Harter, what amount of interest revenue would Harter record for the year ended December 31, 2018?

c. $67,500 ($1,750,000 - $250,000) × .09 × 6/12 = $67,500

69. Pisa, Inc. leased equipment from Tower 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, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. Pisa, Inc.'s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%. Assuming that this lease is properly classified as a capital lease, what is the amount of interest expense recorded by Pisa, Inc. in the first year of the asset's life? PV Annuity Due 8%, 4 periods: 3.57710 10%, 4 periods: 3.48685 PV Ordinary Annuity 8%, 4 periods: 3.31213 10%, 4 periods : 3.16986

c. $70,953 $344,152 * 3.57710 = $1,231,066 ($1,231,066 - $344,152) * .08 = $70,953.

Mathis Co. at the end of 2017, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $ 1,200,000 Estimated litigation expense 3,000,000 Installment sales (2,400,000) Taxable income $ 1,800,000 The estimated litigation expense of $3,000,000 will be deductible in 2019 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $1,200,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1,200,000 current and $1,200,000 noncurrent. The income tax rate is 30% for all years. 57. The deferred tax liability to be recognized is a. $180,000. b. $540,000. c. $720,000. d. $360,000.

c. $720,000. ($2,400,000 × 30%) = $720,000.

60. Metcalf Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a capital lease for Metcalf. The six-year lease requires payment 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. Metcalf should record the leased asset at

c. $723,943. ($170,000 - $25,000) × 4.99271 = $723,943.

40. When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is added to net income to compute cash provided by/used by operating activities? a. Increase in accounts receivable. b. Gain on sale of land. c. Amortization of patent. d. All of these are added to net income to arrive at cash flow from operating activities.

c. Amortization of patent.

Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income? a. Subscriptions received in advance. b. Prepaid royalty received in advance. c. An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes. d. Interest received on a municipal obligation.

c. An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes.

100. 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 Lease B

c. Capital lease Capital lease

Gorman Construction Co. began operations in 2015. Construction activity for 2015 is shown below. Gorman uses the completed-contract method. Contract/Contract Price/Billings thru 12/31/15/Collectings thru 12/31/15/Costs to 12/31/15/EstCost to complete 1 /$4,800,000/ $4,725,000/$3,900,000/$3,225,000/— 2 /3,600,000/ 1,500,000/ 1,000,000/ 820,000/ $1,880,000 3 3,300,000/1,900,000/ 1,800,000/ 2,250,000/ 1,200,000 ~Which of the following should be shown on the balance sheet at December 31, 2015 related to Contract 2? a. Inventory, $680,000 b. Inventory, $820,000 c. Current liability, $680,000 d. Current liability, $1,500,000

c. Current liability, $680,000

30. Crabbe Company reported $80,000 of selling and administrative expenses on its income statement for the past year. The company had depreciation expense and an increase in prepaid expenses associated with the selling and administrative expenses for the year. Assuming use of the direct method, how would these items be handled in converting the accrual based selling and administrative expenses to the cash basis? Increase in Depreciation Prepaid Expenses a. Deducted Deducted From From b. Added To Added To c. Deducted From Added To d. Added To Deducted From

c. Deducted From Added To

Gage Co. purchases land and constructs a service station and car wash for a total of $540,000. At January 2, 2018, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $600,000 and immediately leased from the oil company by Gage. Fair value of the land at time of the sale was $60,000. The lease is a 10-year, noncancelable lease. Gage uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Gage at termination of the lease. A partial amortization schedule for this lease is as follows: Payments Interest Amortization Balance Jan. 2, 2018 $600,000.00 Dec. 31, 2018 $97,646.71 $60,000.00 $37,646.71 562,353.29 Dec. 31, 2019 97,646.71 56,235.33 41,411.38 520,941.91 Dec. 31, 2020 97,646.71 52,094.19 45,552.52 475,389.39 94. From the viewpoint of the lessor, what type of lease is involved above?

c. Direct-financing lease

Gorman Construction Co. began operations in 2015. Construction activity for 2015 is shown below. Gorman uses the completed-contract method. Contract/Contract Price/Billings thru 12/31/15/Collectings thru 12/31/15/Costs to 12/31/15/EstCost to complete 1 /$4,800,000/ $4,725,000/$3,900,000/$3,225,000/— 2 /3,600,000/ 1,500,000/ 1,000,000/ 820,000/ $1,880,000 3 3,300,000/1,900,000/ 1,800,000/ 2,250,000/ 1,200,000 ~Which of the following should be shown on the income statement for 2015 related to Contract 1? a. Gross profit, $675,000 b. Gross profit, $1,500,000 c. Gross profit, $1,575,000 d. Gross profit, $900,000

c. Gross profit, $1,575,000

Uncertain tax positions I. Are positions for which the tax authorities may disallow a deduction in whole or in part. II. Include instances in which the tax law is clear and in which the company believes an audit is likely. III. Give rise to tax expense by increasing payables or increasing a deferred tax liability. a. I, II, and III. b. II only. c. I only. d. I and III only.

c. I only.

34. When preparing a statement of cash flows, a decrease in accounts receivable during a period would cause which one of the following adjustments in determining cash flow from operating activities? Direct Method Indirect Method a. Increase Decrease b. Decrease Increase c. Increase Increase d. Decrease Decrease

c. Increase Increase

87. On January 2, 2018, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $160,000 each, payable beginning January 2, 2018. Brick Co. agrees to guarantee the $100,000 residual value of the asset at the end of the lease term. Brick's incremental borrowing rate is 10%, however it knows that Gold Star's implicit interest rate is 8%. What journal entry would Brick Co. make at January 1, 2019 to record the second lease payment? PV Annuity Due 8%, 5 periods: 4.31213 10%, 5 periods: 4.16986 PV Ordinary Annuity 8%, 5 periods: 3.99271 10%, 5 periods: 3.79079 PV Single Sum 8%, 5 periods: .68508 10%, 5 periods: .62092

c. Lease Liability 112,124 Interest Payable 47,876 Cash 160,000 ($160,000 * 4.31213) + ($100,000 * .68508) = $758,449 ($758,449 -$160,000) * .08 =$47,876 Interest $160,000 -$47,876 = $112,124.

42. Which of the following best describes a possible result of treasury stock transactions by a corporation? a. May increase but not decrease retained earnings. b. May increase net income if the cost method is used. c. May decrease but not increase retained earnings. d. May decrease but not increase net income.

c. May decrease but not increase retained earnings.

26. Which of the following disclosures is required for a change from sum-of-the-years-digits to straight-line depreciation method? a. The cumulative effect on prior years, net of tax, in the current retained earnings statement b. Restatement of prior years' income statements c. Recomputation of current and future years' depreciation d. All of these are required.

c. Recomputation of current and future years' depreciation

23. Which of the following is not a retrospective-type accounting change? a. Completed-contract method to the percentage-of-completion method for long-term construction contracts b. LIFO method to the FIFO method for inventory valuation c. Sum-of-the-years'-digits method to the straight-line method d. "Full cost" method to another method in the extractive industry

c. Sum-of-the-years'-digits method to the straight-line method

39. Which of the following statements about the statement of cash flows is correct? a. The indirect method starts with income from continuing operations. b. The direct method is known as the reconciliation method. c. The direct method is more consistent with the primary purpose of the statement of cash flows. d. All of these answers are correct.

c. The direct method is more consistent with the primary purpose of the statement of cash flows.

Which of the following is a correct statement of one of the capitalization criteria?

c. The lease term is equal to or more than 75% of the estimated economic life of the leased property.

50. How should significant noncash transactions be reported in the statement of cash flows according to FASB Statement No. 95? a. They should be incorporated in the statement of cash flows in a section labeled, "Significant Noncash Transactions." b. Such transactions should be incorporated in the section (operating, financing, or investing) that is most representative of the major component of the transaction. c. These noncash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials. d. They should be handled in a manner consistent with the transactions that affect cash flows.

c. These noncash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials.

27. Xanthe Corporation had the following transactions occur in the current year: 1. Cash sale of merchandise inventory. 2. Sale of delivery truck at book value. 3. Sale of Xanthe common stock for cash. 4. Issuance of a note payable to a bank for cash. 5. Sale of a security held as an available-for-sale investment. 6. Collection of loan receivable. How many of the above items will appear as a cash inflow from investing activities on a statement of cash flows for the current year? a. Five items b. Four items c. Three items d. Two items

c. Three items

Langley Company's December 31 year-end financial statements contained the following errors: Ending inventory Dec. 31, 2017 37,500 understated Dec. 31, 2018 $55,000 overstated Depreciation expense Dec. 31,2017 10,000 understated An insurance premium of $90,000 was prepaid in 2017 covering the years 2017, 2018, and 2019. The prepayment was recorded with a debit to insurance expense. In addition, on December 31, 2018, fully depreciated machinery was sold for $47,500 cash, but the sale was not recorded until 2019. There were no other errors during 2018 or 2019 and no corrections have been made for any of the errors. Ignore income tax considerations. 58. What is the total net effect of the errors on the amount of Langley's working capital at December 31, 2018? a. Working capital overstated by $25,000 b. Working capital overstated by $7,500 c. Working capital understated by $22,500 d. Working capital understated by $60,000

c. Working capital understated by $22,500 $100,000 (o) - $30,000 (u) - $47,500 (u) = $22,500 (u).

A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. 112. In a statement of cash flows, what amount is included in financing activities for the above transaction? a. Cash payment b. Acquisition price c. Zero d. Mortgage amount

c. Zero

Total stockholders Equity represents a. A claim to specific assets contributed by the owners b. the maximum amount that can be borrowed by a company c. a claim against a portion of the total assets of a company d. only the amount of earnings that have been retained in the business

c. a claim against a portion of the total assets of a company

Accounting for income taxes can result in the reporting of deferred taxes as any of the following except a. a current or long-term asset. b. a current or long-term liability. c. a contra-asset account. d. All of these are acceptable methods of reporting deferred taxes.

c. a contra-asset account.

Stuart Corporation's taxable income differed from its accounting income computed for this past year. An item that would create a permanent difference in accounting and taxable incomes for Stuart would be a. a balance in the Unearned Rent account at year end. b. using accelerated depreciation for tax purposes and straight-line depreciation for book purposes. c. a fine resulting from violations of OSHA regulations. d. making installment sales during the year.

c. a fine resulting from violations of OSHA regulations.

S46. Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as a. an increase in current liabilities. b. an increase in stockholders' equity. c. a footnote. d. an increase in current liabilities for the current portion and long-term liabilities for the long-term portion.

c. a footnote.

How would the declaration and subsequent issuance of a 10% stock dividend by the issuer affect each of the following when the fair value of the shares exceeds the par value of the stock? Additional Common Stock Paid-in Capital a. No effect No effect b. No effect Increase c. Increase No effect d. Increase Increase

d. Increase Increase

22. The primary purpose of the statement of cash flows is to provide information a. about the operating, investing, and financing activities of an entity during a period. b. that is useful in assessing future cash flow prospects. c. about the cash receipts and cash payments of an entity during a period. d. about the entity's ability to meet its obligations and to pay dividends.

c. about the cash receipts and cash payments of an entity during a period.

A deferred tax liability is classified on the balance sheet as either a current or a noncurrent liability. The current amount of a deferred tax liability should generally be a. the net deferred tax consequences of temporary differences that will result in net taxable amounts during the next year. b. totally eliminated from the financial statements if the amount is related to a noncurrent asset. c. based on the classification of the related asset or liability for financial reporting purposes. d. the total of all deferred tax consequences that are not expected to reverse in the operating period or one year, whichever is greater.

c. based on the classification of the related asset or liability for financial reporting purposes.

A flood damaged a building and contents. The receipts from insurance companies totaled $600,000, which was $180,000 less than the book values. The tax rate is 30%. 102. On the statement of cash flows (indirect method), the receipts from insurance companies should a. be shown as an addition to net income of $420,000. b. be shown as an inflow from investing activities of $420,000. c. be shown as an inflow from investing activities of $600,000. d. not be shown.

c. be shown as an inflow from investing activities of $600,000.

59. Equipment which cost $426,000 and had accumulated depreciation of $228,000 was sold for $222,000. This transaction should be shown on the statement of cash flows (indirect method) as a(n) a. addition to net income of $24,000 and a $222,000 cash inflow from financing activities. b. deduction from net income of $24,000 and a $198,000 cash inflow from investing activities. c. deduction from net income of $24,000 and a $222,000 cash inflow from investing activities. d. addition to net income of $24,000 and a $198,000 cash inflow from financing activities.

c. deduction from net income of $24,000 and a $222,000 cash inflow from investing activities. $222,000 - ($426,000 - $228,000) = $24,000, $222,000 (proceeds).

31. To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by a. re-recording all income statement transactions that directly affect cash in a separate cash flow journal. b. estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions. c. eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash. d. eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation.

c. eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.

37. An example of a correction of an error in previously issued financial statements is a change a. from the FIFO method of inventory valuation to the LIFO method. b. in the service life of plant assets, based on changes in the economic environment. c. from the cash basis of accounting to the accrual basis of accounting. d. in the tax assessment related to a prior period.

c. from the cash basis of accounting to the accrual basis of accounting.

Deferred taxes should be presented on the balance sheet a. as one net debit or credit amount. b. in two amounts: one for the net current amount and one for the net noncurrent amount. c. in two amounts: one for the net debit amount and one for the net credit amount. d. as reductions of the related asset or liability accounts.

c. in two amounts: one for the net debit amount and one for the net credit amount.

53. On January 1, 2018, Dean Corporation signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Dean to make annual payments of $220,000 at the end of each year for ten years with the title passing to Dean at the end of this period. The machinery has an estimated useful life of 15 years and no salvage value. Dean uses the straight-line method of depreciation for all of its fixed assets. Dean accordingly accounted for this lease transaction as a capital 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 capitalized lease, Dean should record for 2018

c. interest expense of $107,361 and depreciation expense of $89,468. $1,342,016 × .08 = $107,361, $1,342,016 ÷ 15 = $89,468.

On January 1, 2018, 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 capital lease. The minimum lease payments were determined to have a present value of $750,578 at an effective interest rate of 10%. 66. With respect to this capitalized lease, for 2019 Ogleby should record

c. interest expense of $44,764 and depreciation expense of $107,225. [$750,578 -$180,000 - ($180,000 - $57,058)] × .10 = $44,764.

On January 1, 2018, 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 capital lease. The minimum lease payments were determined to have a present value of $750,578 at an effective interest rate of 10%. 65. With respect to this capitalized lease, for 2018 Ogleby should record

c. interest expense of $57,058 and depreciation expense of $107,225. ($750,578 -$180,000) × .10 = $57,058; ($750,578 - 0) ÷ 7 = $107,225

With regard to uncertain tax positions, the FASB requires that companies recognize a tax benefit when a. it is probable and can be reasonably estimated. b. there is at least a 51% probability that the uncertain tax position will be approved by the taxing authorities. c. it is more likely than not that the tax position will be sustained upon audit. d. Any of the above exist.

c. it is more likely than not that the tax position will be sustained upon audit.

Assuming a 40% statutory tax rate applies to all years involved, which of the following situations will give rise to reporting a deferred tax liability on the balance sheet? I. A revenue is deferred for financial reporting purposes but not for tax purposes. II. A revenue is deferred for tax purposes but not for financial reporting purposes. III. An expense is deferred for financial reporting purposes but not for tax purposes. IV. An expense is deferred for tax purposes but not for financial reporting purposes. a. item II only b. items I and II only c. items II and III only d. items I and IV only

c. items II and III only

A net operating loss (NOL) occurs for tax purposes in a year when tax-deductible expenses exceed taxable revenues. Companies can reduce future taxable income on the amount of NOL in the following way: a. must always be carried back 2 years. b. may be carried back 2 years or carried forward up to 20 years. c. may carry the net operating loss forward indefinitely. d. must always be carried forward 20 years.

c. may carry the net operating loss forward indefinitely.

All of the following are procedures for the computation of deferred income taxes except to a. identify the types and amounts of existing temporary differences. b. measure the total deferred tax liability for taxable temporary differences. c. measure the total deferred tax asset for deductible temporary differences and operating loss carrybacks. d. All of these are procedures in computing deferred income taxes.

c. measure the total deferred tax asset for deductible temporary differences and operating loss carrybacks.

(18) When a customer is able to benefit from a good or service on its own or together with other readily available resources, the good or service

is distinct

On January 1, 2015 Dairy Treats, Inc. entered into a franchise agreement with a company allowing the company to do business under Dairy Treats's name. Dairy Treats had performed substantially all required services by January 1, 2015, and the franchisee paid the initial franchise fee of $840,000 in full on that date. The franchise agreement specifies that the franchisee must pay a continuing franchise fee of $72,000 annually, of which 20% must be spent on advertising by Dairy Treats. What entry should Dairy Treats make on January 1, 2015 to record receipt of the initial franchise fee and the continuing franchise fee for 2015? a.Cash 912,000 Franchise Fee Revenue 840,000 Revenue from Franchise Fees 72,000 b.Cash 912,000 Unearned Franchise Fees 912,000 c.Cash 912,000 Franchise Fee Revenue 840,000 Revenue from Franchise Fees 57,600 Unearned Franchise Fees 14,400 d.Prepaid Advertising 14,400 Cash 912,000 Franchise Fee Revenue 840,000 Revenue from Franchise Fees 72,000 Unearned Franchise Fees 14,400

c.Cash 912,000 Franchise Fee Revenue 840,000 Revenue from Franchise Fees 57,600 Unearned Franchise Fees 14,400

Revenue from a contract with a customer can be recognized even when a contract is still pending. cannot be recognized until a contract exists. is recognized when the customer receives the rights to receive consideration is recognized even if the contract is still wholly unperformed.

cannot be recognized until a contract exists.

A distribution of cash from the corporation to its owners that reduces retained earnings only.

cash dividend

The installment-sales method of recognizing profit for accounting purposes is acceptable if

collection of the sales price is not reasonable assured

In every corporation, the one class of stock that represents the basic ownership interest is called:

common stock

(18) The cost-to-cost basis measures progress towards completion by

comparing costs incurred to date with total costs to complete the contract

The cost-to-cost basis measures progress toward completion by

comparing costs incurred to date with total costs to complete the contract

In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are

considered outstanding at the beginning of the earliest year reported

The Billings on Construction in Progress account is a(n) construction expense account. contract revenue account. inventory account. contra-inventory account.

contra-inventory account.

(16) Potentially dilutive securities are

convertible bonds convertible preferred stock stock options/warrants contingent shares

One of the more popular input measures used to determine the progress toward completion in the percentage of completion method is the

cost to cost basis

The interest rate written in the terms of the bond indenture is known as the coupon rate, nominal rate, or stated rate. market rate. yield rate. effective rate.

coupon rate, nominal rate, or stated rate.

Vaughn Manufacturing has $4010000 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 $1300000 bonds exercised the conversion privilege. On that date the market price of the bonds was 106 and the market price of the common stock was $37. The total unamortized bond premium at the date of conversion was $283000. Vaughn should record, as a result of this conversion, a credit of $194960 to Paid-in Capital in Excess of Par. credit of $220560 to Paid-in Capital in Excess of Par. credit of $90560 to Premium on Bonds Payable. loss of $13000.

credit of $220560 to Paid-in Capital in Excess of Par. Solution: $1300000 + ($283000 × 0.32) - (1300 × 30 × $30) = $220560.

(16) Waterway Industries has $3860000 of 7% 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 $1300000 bonds exercised the conversion privilege. On that date the market price of the bonds was 104 and the market price of the common stock was $35. The total unamortized bond premium at the date of conversion was $281000. Waterway should record, as a result of this conversion, a

credit of $225540 to Paid-in Capital in Excess of Par

Preferred stockholders generally receive the largest amount of cash dividends if the preferred stock is

cumulative and fully participating

A deferred income tax asset or liability is usually classified as a current or noncurrent according to the expected reversal date of the temporary difference. current or noncurrent based on the classification of the related asset (liability) for financial reporting purposes. current asset. noncurrent asset or liability.

current or noncurrent based on the classification of the related asset (liability) for financial reporting purposes.

A bond for which the issuer has the right to call and retire the bonds prior to maturity is a: a. debenture bond b. convertible bond c. retirable bond d. callable bond

d

A lessor with a sales-type lease involving an unguaranteed residual value at the end of the lease term will report sales revenue in the period of inception of the lease at which of the following amounts?: a. the cost of the asset to the lessor, less the present value of any unguaranteed residual value b. the present value of the minimum lease payments plus the present value of the unguaranteed residual value c. the minimum lease payments plus the unguaranteed residual value d. the sales price less the present value of the residual value

d

All of the following statements related to bonds are correct regarding bonds except: a. bonds typically have a $1,000 face value b. bonds arise from a contract known as a bond indenture c. bonds represent a promise to pay a sum of money plus periodic interest d. bonds usually pay interest annually

d

Both discount on bonds payable and premium on bonds payable are: a. adjunct accounts b. contra accounts c. nominal accounts d. valuation accounts

d

The date on which to measure the compensation element in a stock option granted to a corporate employee ordinarily is the date on which the employee

is granted the option

Sherman Company enters into a contract with a customer to build a warehouse for $400,000, with a performance bonus of $100,000 that will be paid based on the timing of completion. The amount of the performance bonus decreases by 20% per week for every week beyond the agreed-upon completion date. The contract requirements are similar to contracts that Sherman has performed previously, and management believes that such experience is predictive for this contract. Management estimates that there is a 50% probability that the contract will be completed by the agreed-upon completion date, a 30% probability that it will be completed 1 week late, and a 20% probability that it will be completed 2 weeks late. What is the total transaction price for this revenue arrangement? a) $460,000 b) $480,000 c) $500,000 d) $486,000

d) $486,000

Differing measures of the pension obligation can be based on a) all years of service—both vested and nonvested—using current salary levels. b) only the vested benefits using current salary levels. c) both vested and nonvested service using future salaries. d) All of these answers are correct.

d) All of these answers are correct.

Which of the following is not a characteristic of a defined-contribution pension plan? a) The benefit of gain or the risk of loss from the assets contributed to the pension fund is borne by the employee. b) The accounting for a defined-contribution plan is straightforward and uncomplicated. c) The employer's contribution each period is based on a formula. d) The benefits to be received by employees are determined by an employee's highest compensation level defined by the terms of the plan.

d) The benefits to be received by employees are determined by an employee's highest compensation level defined by the terms of the plan.

On July 1, 2018, an interest payment date, $150,000 of Parks Co. bonds were converted into 3,000 shares of Parks Co. common stock each having a par value of $45 and a market value of $54. There is $6,000 unamortized discount on the bonds. Using the book value method, Parks would record a) a $18,000 increase in paid-in capital in excess of par b) no change in paid-in capital in excess of par c) a $12,000 increase in paid-in capital in excess of par d) a $9,000 increase in paid-in capital in excess of par

d) a $9,000 increase in paid-in capital in excess of par DR Bonds Payable 150,000 CR Discount 6,000 CR Common Stock 135,000 (3,000 x 45) CR PIC in Excess of Par 9,000

All of the following increase pension expense except: a) service cost. b) interest on the liability. c) amortization of prior service cost. d) all of these answers are correct.

d) all of these answers are correct.

Debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses that are included as other comprehensive income and as a separate component of stockholders' equity are a) never-sell debt securities. b) held-to-maturity debt securities. c) trading debt securities. d) available-for-sale debt securities.

d) available-for-sale debt securities.

In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are a) weighted by the number of days outstanding b) considered outstanding at the beginning of the year c) weighted by the number of months outstanding d) considered outstanding at the beginning of the earliest year reported

d) considered outstanding at the beginning of the earliest year reported

Appalachian Company maintains a defined-benefit pension plan for its employees. At each balance sheet date, Appalachian should report a pension asset / liability equal to the a) accumulated benefit obligation. b) projected benefit obligation. c) actual return on the plan assets. d) funded status relative to the projected benefit obligation

d) funded status relative to the projected benefit obligation

The second step in the process for revenue recognition is to a) determine the transaction price. b) allocate transaction price to the separate performance obligations. c) identify the contract with customers. d) identify the separate performance obligations in the contract.

d) identify the separate performance obligations in the contract.

The actual return on plan assets a) is equal to the change in the fair value of the plan assets during the year. b) is equal to interest expenses accrued each year on the projected benefit obligation, just as it does on any discounted debt. c) is equal to the expected rate of return times the fair value of the plan assets at the beginning of the period. d) includes interest, dividends, and changes in the fair value of the fund assets.

d) includes interest, dividends, and changes in the fair value of the fund assets.

The transaction price a) excludes time value of money if the contract involves a significant financing component. b) excludes discounts, volume rebates, coupons and free products, or services. c) does not consider noncash consideration such as donations, gifts, equipment or labor. d) is the amount of consideration that a company expects to receive from a customer.

d) is the amount of consideration that a company expects to receive from a customer.

When an investment in an available-for-sale debt security is transferred to trading because the company anticipates selling the security in the near future, the carrying value assigned to the investment upon entering it in the trading portfolio should be a) the lower of its original cost or its fair value at the date of the transfer. b) the higher of its original cost or its fair value at the date of the transfer. c) its original cost. d) its fair value at the date of the transfer.

d) its fair value at the date of the transfer.

The last step in the process for revenue recognition is to a) determine the transaction price. b) identify the contract with customers. c) allocate transaction price to the separate performance obligations. d) recognize revenue when each performance obligation is satisfied.

d) recognize revenue when each performance obligation is satisfied.

The major difference between convertible debt and stock warrants is that upon exercise of the warrants a) the stock involved is restricted and can only be sold by the recipient after a set period of time b) no paid-in capital in excess of par can be a part of the transaction c) the stock is held by the company for a defined period of time before they are issued to the warrant holder d) the holder has to pay a certain amount of cash to obtain the shares

d) the holder has to pay a certain amount of cash to obtain the shares Convertible debt: you already paid for something and are trading for something else Warrants: you have a certificate entitling you something but haven't spent the money until exercising it

Wilcox Corporation reported the following results for its first three years of operation: 2017 income (before income taxes) $ 300,000 2018 loss (before income taxes) (2,700,000) 2019 income (before income taxes) 3,000,000 There were no permanent or temporary differences during these three years. Assume a corporate tax rate of 30% for 2017 and 2018, and 40% for 2019. 89. Assuming that Wilcox elects to use the carryback provision, what income (loss) is reported in 2018? (Assume that any deferred tax asset recognized is more likely than not to be realized.) a. $(2,700,000) b. $ -0- c. $(2,610,000) d. $(1,650,000)

d. $(1,650,000) ($300,000 × 30%) = $90,000; $2,400,000 × 40% = $960,000; ($2,700,000 - $90,000 - $960,000) = $1,650,000.

Land was acquired for $200,000 in exchange for common stock, par $200,000, during the year; all equipment purchased was for cash. Equipment costing $20,000 was sold for $8,000; book value of the equipment was $16,000 and the loss was reported as an ordinary item in net income. Cash dividends of $30,000 were charged to retained earnings and paid during the year; the transfer of net income to retained earnings was the only other entry in the Retained Earnings account. In the statement of cash flows for the year ended December 31, 2018, for Naley Company: 86. The net cash provided (used) by investing activities was a. $52,000. b. $(80,000). c. $(272,000). d. $(72,000).

d. $(72,000). $8,000 - ($360,000 + $20,000 - $300,000) = ($72,000).

Link Co. purchased machinery that cost $3,000,000 on January 4, 2016. The entire cost was recorded as an expense. The machinery has a nine-year life and a $200,000 residual value. The error was discovered on December 20, 2018. Ignore income tax considerations. 64. Link's income statement for the year ended December 31, 2018, should show the cumulative effect of this error in the amount of a. $2,333,333. b. $2,377,778. c. $2,066,667. d. $0.

d. $0. CE = $0, correction of error.

*109. On December 31, 2018, Haden Corp. sold a machine to Ryan and simultaneously leased it back for one year. Pertinent information at this date follows: Sales price $1,080,000 Carrying amount 990,000 Present value of reasonable lease rentals ($9,000 for 12 months @ 12%) 102,000 Estimated remaining useful life 12 years In Haden's December 31, 2018 balance sheet, the deferred profit from the sale of this machine should be

d. $0. 102,000 -------- = 9.44%,< 10% 1,080,000 of FV of asset it is a minor leaseback

In 2018, Krause Company accrued, for financial statement reporting, estimated losses on disposal of unused plant facilities of $3,600,000. The facilities were sold in March 2019 and a $3,600,000 loss was recognized for tax purposes. Also in 2018, Krause paid $150,000 in premiums for a two-year life insurance policy in which the company was the beneficiary. Assuming that the enacted tax rate is 30% in both 2018 and 2019, and that Krause paid $1,170,000 in income taxes in 2018, the amount reported as net deferred income taxes on Krause's balance sheet at December 31, 2018, should be a a. $1,020,000 asset. b. $540,000 asset. c. $540,000 liability. d. $1,080,000 asset.

d. $1,080,000 asset. ($3,600,000 × 30%) = $1,080,000.

Hopkins Co. at the end of 2017, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $3,000,000 Estimated litigation expense 4,000,000 Extra depreciation for taxes (6,000,000) Taxable income $ 1,000,000 The estimated litigation expense of $4,000,000 will be deductible in 2018 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $2,000,000 in each of the next three years. The income tax rate is 30% for all years. 59. The deferred tax asset to be recognized is a. $300,000. b. $600,000. c. $900,000. d. $1,200,000.

d. $1,200,000. ($4,000,000 × 30%) = $1,200,000.

Hull Co. leased equipment to Riggs Company on May 1, 2018. At that time the collectibility of the minimum lease payments was not reasonably predictable. The lease expires on May 1, 2019. Riggs could have bought the equipment from Hull for $5,600,000 instead of leasing it. Hull's accounting records showed a book value for the equipment on May 1, 2018, of $4,900,000. Hull's depreciation on the equipment in 2018 was $630,000. During 2018, Riggs paid $1,260,000 in rentals to Hull for the 8-month period. Hull incurred maintenance and other related costs under the terms of the lease of $112,000 in 2018. After the lease with Riggs expires, Hull will lease the equipment to another company for two years. 82. Ignoring income taxes, the amount of expense incurred by Riggs from this lease for the year ended December 31, 2018, should be

d. $1,260,000.

(16) The date on which to measure the compensation element in a stock option granted to a corporate employee ordinarily is the date on which the employee

is granted the option.

a. Accounts receivable and accounts payable relate to merchandise held for sale in the normal course of business. The allowance for bad debts was the same at the end of 2019 and 2018, and no receivables were charged against the allowance. Accounts payable are recorded net of any discount and are always paid within the discount period. b. The proceeds from the note payable were used to finance the acquisition of property, plant, and equipment. Capital stock was sold to provide additional working capital. 96. The amount to be shown on the cash flow statement as net cash provided by investing activities would total what amount? a. $450,000. b. $1,500,000. c. $1,590,000. d. $1,950,000.

d. $1,950,000. $450,000 + ($4,380,000 - $2,880,000) = $1,950,000.

67. Emporia Corporation is a lessee with a capital lease. The asset is recorded at $900,000 and has an economic life of 8 years. The lease term is 5 years. The asset is expected to have a fair value of $300,000 at the end of 5 years, and a fair value of $100,000 at the end of 8 years. The lease agreement provides for the transfer of title of the asset to the lessee at the end of the lease term. What amount of depreciation expense would the lessee record for the first year of the lease?

d. $100,000 ($900,000 - $100,000) ÷ 8 = $100,000

On January 2, 2018, Hernandez, Inc. signed a ten-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $300,000 starting at the beginning of the first year, with title passing to Hernandez at the expiration of the lease. Hernandez treated this transaction as a capital lease. The drill press has an estimated useful life of 15 years, with no salvage value. Hernandez uses straight-line depreciation for all of its plant assets. Aggregate lease payments were determined to have a present value of $1,800,000, based on implicit interest of 10%. 105. In its 2018 income statement, what amount of depreciation expense should Hernandez report from this lease transaction?

d. $120,000 $1,800,000 ÷ 15 = $120,000.

Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2019 and 2018 are provided below 54. Under the direct method, the total taxes paid is a. $96,000. b. $40,000. c. $56,000. d. $136,000.

d. $136,000. $392,000 + $96,000 - $352,000 = $136,000.

Oriole Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income: $930000 Estimated litigation expense: 2550000 Installment sales: (2040000) Taxable income: $1440000 The estimated litigation expense of $2550000 will be deductible in 2022 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $1020000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1020000 current and $1020000 noncurrent. The income tax rate is 20% for all years.The income tax expense is a. $1020000. b. $510000. c. $288000. d. $186000.

d. $186000.

Fleming Company provided the following information on selected transactions during 2018: Dividends paid to preferred stockholders $ 500,000 Loans made to affiliated corporations 1,400,000 Proceeds from issuing bonds 1,600,000 Proceeds from issuing preferred stock 2,100,000 Proceeds from sale of equipment 800,000 Purchases of inventories 2,400,000 Purchase of land by issuing bonds 600,000 Purchases of treasury stock 1,200,000 99. The net cash provided (used) by financing activities during 2018 is a. $(3,300,000). b. $1,110,000. c. $2,600,000. d. $2,000,000.

d. $2,000,000. ($500,000) + $1,600,000 + $2,100,000 + ($1,200,000) = $2,000,000.

Treasury stock _____ (is/ is not) an asset and is essentially the same as unissued capital stock

is not

70. Pisa, Inc. leased equipment from Tower 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, nor is there a bargain purchase option. The equipment has a 4 year useful life and no salvage value. Pisa, Inc.'s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%. Assuming that this lease is properly classified as a capital lease, what is the amount of principal reduction recorded when the second lease payment is made in Year 2? PV Annuity Due PV Ordinary Annuity 8%, 4 periods 3.57710 3.31213 10%, 4 periods 3.48685 3.16986

d. $273,199 $344,152 *3.57710 = $1,231,066 $344,152 - [($1,231,066 - $344,152) * .08] = $273,199.

On May 1, 2015, TV Inc. consigned 80 TVs to Ed's TV. The TVs cost $450. Freight on the shipment paid by Ed's TV was $1,000. On July 10, TV Inc. received an account sales and $21,500 from Ed's TV. Thirty TVs had been sold and the following expenses were deducted: Freight $1,000 Commission (20% of sales price) ? Advertising 650 Delivery 350 ~The total sales price of the TVs sold by Ed's TV was a. $25,625. b. $26,875. c. $27,313. d. $29,375.

d. $29,375.

Eckert Corporation's partial income statement after its first year of operations is as follows: Income before income taxes $3,750,000 Income tax expense Current $1,035,000 Deferred 90,000 = 1,125,000 Net income $2,625,000 Eckert uses the straight-line method of depreciation for financial reporting purposes and accelerated depreciation for tax purposes. The amount charged to depreciation expense on its books this year was $2,800,000. No other differences existed between book income and taxable income except for the amount of depreciation. Assuming a 30% tax rate, what amount was deducted for depreciation on the corporation's tax return for the current year? a. $2,500,000 b. $1,125,000 c. $2,800,000 d. $3,100,000

d. $3,100,000 (30% × Temporary Difference) = $90,000; Temporary Difference = ($90,000 ÷ 30%) = $300,000; $2,800,000 + $300,000 = $3,100,000.

Total assets on the balance sheet at December 31, 2018 are $6,648,000. Accumulated deprecia-tion on the equipment sold was $336,000. 67. Capital stock (plus any additional paid-in capital) at December 31, 2018 was a. $2,400,000. b. $2,760,000. c. $1,560,000. d. $3,720,000.

d. $3,720,000. $2,760,000 + $960,000 = $3,720,000.

Oliver Co. uses the installment-sales method to record the sale of dining room sets. When an account had a balance of $14,000, no further collections could be made and the dining room set was repossessed. At that time, it was estimated that the dining room set could be sold for $4,000 as repossessed, or for $5,000 if the company spent $500 reconditioning it. The gross profit rate on this sale was 70%. The gain or loss on repossession was a a. $9,800 loss. b. $10,000 loss. c. $1,000 gain. d. $300 gain.

d. $300 gain.

102. On December 31, 2018, Harris Co. leased a machine from Catt, Inc. for a five-year period. Equal annual payments under the lease are $2,100,000 (including $100,000 annual executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2018, and the second payment was made on December 31, 2019. The five lease payments are discounted at 10% over the lease term. The present value of minimum lease payments at the inception of the lease and before the first annual payment was $8,340,000. The lease is appropriately accounted for as a capital lease by Harris. In its December 31, 2019 balance sheet, Harris should report a lease liability of

d. $4,974,000. $8,340,000 - $2,100,000 + $100,000 = $6,340,000 (2018). $6,340,000 - [$2,000,000 - ($6,340,000 × .10)] = $4,974,000 (2019).

Operating income and tax rates for C.J. Company's first three years of operations were as follows: Income _ Enacted tax rate 2017 $400,000 35% 2018 ($1,000,000) 30% 2019 $1,680,000 40% 93. Assuming that C.J. Company opts to carryback its 2018 NOL, what is the amount of income taxes payable at December 31, 2019? a. $272,000 b. $672,000 c. $492,000 d. $432,000

d. $432,000 [$1,680,000 - ($1,000,000 - $400,000)] .40 = $432,000.

Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of $1,240,000 each quarter. The total contract price is $14,880,000 and Seasons estimates total costs of $14,200,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2014. ~At December 31, 2015, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $14,400,000 due to unanticipated price increases. What is the total amount of Construction Expenses that Seasons will recognize for the year ended December 31, 2015? a. $10,800,000 b. $6,300,000 c. $6,390,000 d. $6,540,000

d. $6,540,000

Gage Co. purchases land and constructs a service station and car wash for a total of $540,000. At January 2, 2018, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $600,000 and immediately leased from the oil company by Gage. Fair value of the land at time of the sale was $60,000. The lease is a 10-year, noncancelable lease. Gage uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Gage at termination of the lease. A partial amortization schedule for this lease is as follows: Payments Interest Amortization Balance Jan. 2, 2018 $600,000.00 Dec. 31, 2018 $97,646.71 $60,000.00 $37,646.71 562,353.29 Dec. 31, 2019 97,646.71 56,235.33 41,411.38 520,941.91 Dec. 31, 2020 97,646.71 52,094.19 45,552.52 475,389.39 97. What is the amount of the lessee's liability to the lessor after the December 31, 2020 payment?

d. $475,389

Sunland Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2021: $3000000 Tax exempt interest: (156000) Originating temporary difference: (462000) Taxable income: $2382000 The temporary difference will reverse evenly over the next 2 years at an enacted tax rate of 30%. The enacted tax rate for 2021 is 20%. What amount should be reported in its 2021 income statement as the current portion of its provision for income taxes? a. $714600 b. $900000 c. $600000 d. $476400

d. $476400

82. Net cash flow from operating activities for 2018 for Graham Corporation was $495,000. The following items are reported on the financial statements for 2018: Depreciation and amortization $ 30,000 Cash dividends paid on common stock 18,000 Increase in accounts receivable 36,000 Based only on the information above, Graham's net income for 2018 was: a. $429,000. b. $441,000. c. $489,000. d. $501,000.

d. $501,000. X + $30,000 - $36,000 = $495,000 X - $6,000 = $495,000; X = $501,000.

Carla Vista Corp. prepared the following reconciliation of income per books with income per tax return for the year ended December 31, 2021: Book income before income taxes: $2770000 Add temporary difference Construction contract revenue which will reverse in 2022: 247000 Deduct temporary difference Depreciation expense which will reverse in equal amounts in each of the next four years: (976800) Taxable income: $2040200 Carla Vista's effective income tax rate is 25% for 2021. What amount should Carla Vista report in its 2021 income statement as the current provision for income taxes? a. $61750 b. $692500 c. $754250 d. $510050

d. $510050

46. During 2018, a construction company that began operations in 2016 changed from the completed-contract method to the percentage-of-completion method for accounting purposes but not for tax purposes. Gross profit figures under both methods for the past three years appear below: Completed-Contract (2016)$ 475,000 (2017) 625,000 (2018) 700,000 ------------------- $1,800,000 Percentage-of-Completion (2016)$ 900,000 (2017) 950,000 (2018) 1,050,000 ------------------------- $2,900,000 Assuming an income tax rate of 30% for all years, the effect of this accounting change on prior periods should be reported by a credit of a. $770,000 on the 2018 income statement. b. $525,000 on the 2018 income statement. c. $770,000 on the 2018 retained earnings statement. d. $525,000 on the 2018 retained earnings statement.

d. $525,000 on the 2018 retained earnings statement. [($900,000 + $950,000) - ($475,000 + $625,000)] × (1 - .30) = $525,000.

77. Jarvis, Inc. reported net income of $59,000 for the year ended December 31, 2018 Included in net income were depreciation expense of $8,400 and a gain on sale of equipment of $1,700. Each of the following accounts increased during 2018: Accounts receivable $2,200 Inventory $4,500 Prepaid rent $6,800 Available-for-sale $1,000 Securities Accounts payable $5,000 What is the amount of cash provided by operating activities for Jarvis, Inc. for the year ended December 31, 2018? a. $56,200 b. $58,900 c. $47,200 d. $57,200

d. $57,200 $59,000 + $8,400 - $1,700 - $2,200 - $4,500 - $6,800 + $5,000 = $57,200.

73. During 2017, a textbook written by Mercer Co. personnel was sold to Roark Publishing, Inc., for royalties of 10% on sales. Royalties are receivable semiannually on March 31, for sales in July through December of the prior year, and on September 30, for sales in January through June of the same year. • Royalty income of $243,000 was accrued at 12/31/17 for the period July-December 2017. • Royalty income of $270,000 was received on 3/31/18, and $351,000 on 9/30/18. • Mercer learned from Roark that sales subject to royalty were estimated at $4,860,000 for the last half of 2018. In its income statement for 2018, Mercer should report royalty income at a. $621,000. b. $648,000. c. $837,000. d. $864,000.

d. $864,000. ($270,000 - $243,000) + $351,000 + ($4,860,000 × .10) = $864,000.

On October 1, 2017, Wenn Company purchased 800 of the $1,000 face value, 8% bonds of Loy, Inc., for $936,000, including accrued interest of $16,000. The bonds, which mature on January 1, 2024, pay interest semiannually on January 1 and July 1. Wenn used the straight-line method of amortization and appropriately recorded the bonds as available-for-sale. On Wenn's December 31, 2018 balance sheet, the carrying value of the bonds is a. $920,000. b. $912,000. c. $908,800. d. $896,000.

d. $896,000.

Mathis Co. at the end of 2017, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $ 1,200,000 Estimated litigation expense 3,000,000 Installment sales (2,400,000) Taxable income $ 1,800,000 The estimated litigation expense of $3,000,000 will be deductible in 2019 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $1,200,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1,200,000 current and $1,200,000 noncurrent. The income tax rate is 30% for all years. 56. The deferred tax asset to be recognized is a. $0. b. $180,000 current. c. $900,000 current. d. $900,000 noncurrent.

d. $900,000 noncurrent. ($3,000,000 × 30%) = $900,000

55. What is the amount of the total annual lease payment?

d. $902,703 $887,703 + $15,000 = $902,703.

Gage Co. purchases land and constructs a service station and car wash for a total of $540,000. At January 2, 2018, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $600,000 and immediately leased from the oil company by Gage. Fair value of the land at time of the sale was $60,000. The lease is a 10-year, noncancelable lease. Gage uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Gage at termination of the lease. A partial amortization schedule for this lease is as follows: Payments Interest Amortization Balance Jan. 2, 2018 $600,000.00 Dec. 31, 2018 $97,646.71 $60,000.00 $37,646.71 562,353.29 Dec. 31, 2019 97,646.71 56,235.33 41,411.38 520,941.91 Dec. 31, 2020 97,646.71 52,094.19 45,552.52 475,389.39 96. The total lease-related expenses recognized by the lessee during 2019 is

d. $92,235. [($600,000 - $60,000) ÷ 15] + $56,235 = $92,235.

In 2015, Fargo Corporation began construction work under a three-year contract. The contract price is $4,800,000. Fargo uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2015, follow: Balance Sheet Accounts receivable—construction contract billings: $200,000 Construction in progress: $600,000 Less contract billings: 480,000 Costs and recognized profit in excess of billings: 120,000 Income Statement Income (before tax) on the contract recognized in 2015 $120,000 ~What was the initial estimated total income before tax on this contract? a. $600,000 b. $640,000 c. $800,000 d. $960,000

d. $960,000

During 2014, Vaughn Corporation sold merchandise costing $2,250,000 on an installment basis for $3,000,000. The cash receipts related to these sales were collected as follows: 2014, $1,200,000; 2015, $1,050,000; 2016, $750,000. ~What is the rate of gross profit on the installment sales made by Vaughn Corporation during 2014? a. 75% b. 60% c. 40% d. 25%

d. 25%

84. On January 2, 2018, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $160,000 each, payable beginning January 2, 2018. Brick Co. agrees to guarantee the $100,000 residual value of the asset at the end of the lease term. Brick's incremental borrowing rate is 10%, however it knows that Gold Star's implicit interest rate is 8%. What journal entry would Gold Star make at January 2, 2018 assuming this is a direct-financing lease? PV Annuity Due 8%, 5 periods: 4.31213 10%, 5 periods: 4.16986 PV Ordinary Annuity 8%, 5 periods: 3.99271 10%, 5 periods: 3.79079 PV Single Sum 8%, 5 periods: .68508 10%, 5 periods: .62092

d. Cash 160,000 Lease Receivable 598,449 Equipment 758,449 ($160,000 * 4.31213) + ($100,000 * .68508) = $758,449

35. Which of the following describes a change in reporting entity? a. A company acquires a subsidiary that is to be accounted for as a purchase. b. A manufacturing company expands its market from regional to nationwide. c. A company divests itself of a European branch sales office. d. Changing the companies included in combined financial statements.

d. Changing the companies included in combined financial statements.

Which of the following differences would result in future taxable amounts? a. Expenses or losses that are tax deductible after they are recognized in financial income. b. Revenues or gains that are taxable before they are recognized in financial income. c. Revenues or gains that are recognized in financial income but are never included in taxable income. d. Expenses or losses that are tax deductible before they are recognized in financial income.

d. Expenses or losses that are tax deductible before they are recognized in financial income.

Which of the following statements is correct?

d. For sales-type leases, lessor revisions in estimated unguaranteed residual values can take the form of both upward and downward adjustments.

Which of the following should be disclosed in a company's financial statements related to deferred taxes? I.The types and amounts of existing temporary differences. II.The types and amounts of existing permanent differences. III.The nature and amount of each type of operating loss and tax credit carryforward. a. II and III only. b. I, II, and III. c. I and II only. d. I and III only.

d. I and III only.

Uncertain tax positions I. Are positions for which the tax authorities may disallow a deduction in whole or in part. II. Include instances in which the tax law is clear and in which the company believes an audit is likely. III. Give rise to tax expense by increasing payables or increasing a deferred tax liability. a. I, II, and III. b. I and III only. c. II only. d. I only.

d. I only.

Which of the following are reasons why a company is involved in leasing to other companies? I. Interest revenue. II. High residual values. III. Tax incentives. IV. Guaranteed bargain purchase options.

d. I, II, and III.

Langley Company's December 31 year-end financial statements contained the following errors: Ending inventory Dec. 31, 2017 $37,500 understated Dec.31,2018 $55,000 overstated Depreciation expense Dec. 31,2017 10,000 understated Dec.31, 2018 N/A An insurance premium of $90,000 was prepaid in 2017 covering the years 2017, 2018, and 2019. The prepayment was recorded with a debit to insurance expense. In addition, on December 31, 2018, fully depreciated machinery was sold for $47,500 cash, but the sale was not recorded until 2019. There were no other errors during 2018 or 2019 and no corrections have been made for any of th e errors. Ignore income tax considerations. 57. What is the total net effect of the errors on Langley's 2018 net income? a. Net income understated by $72,500. b. Net income overstated by $37,500. c. Net income overstated by $65,000. d. Net income overstated by $75,000.

d. Net income overstated by $75,000. $37,500 (o) + $55,000 (o) + $30,000 (o) - $47,500 (u) = $75,000 (o).

On December 29, 2019, James Company sold a debt security that had been purchased on January 4, 2018. James owned no other debt securities. An unrealized holding loss was reported in the 2018 income statement. A realized gain was reported in the 2019 income statement. Was the debt security classified as available-for-sale and did its 2018 market price decline exceed its 2019 market price recovery? 2018 Market Price Decline Exceeded 2019 Available-for-Sale Market Price Recovery a. Yes Yes b. Yes No c. No Yes d. No No

d. No No

A corporation was organized in January 2021 with authorized capital of $10 par value common stock. On February 1, 2021, shares were issued at par for cash. On March 1, 2021, the corporation's attorney accepted 7,000 shares of common stock in settlement for legal services with a fair value of $90,000. Additional paid-in capital would increase on February 1, 2021 March 1, 2021 a. Yes No b. Yes Yes c. No No d. No Yes

d. No Yes

46. Declaration of a cash dividend on common stock affects cash flows from operating activities under the direct and indirect methods as follows: Direct Method Indirect Method a. Outflow Inflow b. Inflow Inflow c. Outflow Outflow d. No effect No effect

d. No effect No effect

49. Which of the following is shown on a statement of cash flows? a. A stock dividend b. A stock split c. An appropriation of retained earnings d. None of these answers are correct.

d. None of these answers are correct.

Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2018 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2018, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease. (c) Alt depreciates all machinery it owns on a straight-line basis. (d) Alt's incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates. (e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful. 80. Which of the following lease-related revenue and expense items would be recorded by Yates if the lease is accounted for as an operating lease?

d. Rent Revenue and Depreciation Expense

If the lease in a sale-leaseback transaction meets one of the four leasing criteria and is therefore accounted for as a capital lease, who records the asset on its books and which party records interest expense during the lease period? Party recording the asset on its books Party recording interest expense

d. Seller-lessee Seller-lessee

(17) When an investment in a held-to-maturity security is transferred to an available-for-sale debt security, the carrying value assigned to the available-for-sale debt security should be

its fair value at the date of the transfer

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

financing transaction

The principal disadvantage of using the percentage-of-completion method of recognizing revenue from long-term contracts is that it

gives results based upon estimates which may be subject to considerable uncertainty

(18) 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

Under the installment sales method,

gross profit is deferred proportionate to cash uncollected from sale of the product, but total revenues and costs are recognized at the point of sale

Redeemable Preferred Stock

has a mandatory redemption period or a redemption feature that the issuer cannot control

(17) Debt securities that are accounted for at amortized cost, not fair value, are

held-to-maturity debt securities

The second step in the process for revenue recognition is to identify the contract with customers. identify the separate performance obligations in the contract. allocate transaction price to the separate performance obligations. determine the transaction price.

identify the separate performance obligations in the contract.

(16) An executive pays no taxes at time of exercise in a(n)

incentive stock option plan

A company estimates the fair value of SARs, using an option-pricing model, for

incentive stock option plan.

According to the FASB, redeemable preferred stock should be included with common stock. included as a liability. included in stockholders' equity. included as a contra item in stockholders' equity.

included as a liability.

Deferred tax expense is the: increase in a deferred tax liability. decrease in a deferred tax asset. decrease in a deferred tax liability. increase in a deferred tax asset.

increase in a deferred tax liability.

A stock split ____________ the number of shares outstanding and ___________ the par or stated value per share

increases, decreases

A stock dividend __________ the number of shares outstanding and _________________________ par value

increases, does not decrease

Paid In Capital In Excess of Par

indicates any excess over par value paid in by stockholders in return for the shares issued to them

On January 1, 2021, Oriole Corporation signed a 5-year noncancelable lease for equipment. The terms of the lease called for Oriole to make annual payments of $115000 at the beginning of each year for 5 years with title passing to Oriole at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Oriole uses the straight-line method of depreciation for all of its fixed assets. Oriole accordingly accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $471781 at an effective interest rate of 11%.With respect to this lease, for 2022 Oriole should record interest expense of $39246. interest expense of $30913. interest expense of $51896. interest expense of $43563.

interest expense of $30913. Solution: ($471781 - $115000) × 0.11 = $39246 [$471781 - $115000 - ($115000 - $39246)] × 0.11 = $30913.

A contract between Boeing and Delta in which Boeing supplies planes to Delta is an agreement that creates enforceable rights and obligations for both parties. cannot create multiple performance obligations. is considered wholly unperformed until Boeing receives payment from Delta. is an agreement that creates enforceable rights and obligations for Boeing only

is an agreement that creates enforceable rights and obligations for both parties.

A major disadvantage of no par stock is that some states __________________________ on these issues

levy a high tax

A declared cash dividend is a ____________

liability

A dividend which is a return to stockholders of a portion of their original investments is a: liquidating dividend. participating dividend. property dividend. liability dividend.

liquidating dividend.

Convertible bonds

may be exchanged for equity securities.

Return on Common Stockholders Equity (ROE)

measures profitability from the common stockholders viewpoint

The rate of return on common stock equity is computed by dividing

net income less preferred dividends by average common stockholders' equity.

The par value of stock has _______ (no/some) relationship to its fair value

no

In computing amortization of a leased asset where there is no bargain purchase option, the lessee should subtract - a guaranteed residual value and depreciate over the life of the asset - an unguaranteed residual value and depreciate over the term of the lease - an unguaranteed residual value and depreciate over the life of the asset - no residual value and depreciate over the term of the lease

no residual value and depreciate over the term of the lease

Additional paid-in capital is not affected by the issuance of

no-par stock.

(16) Under the intrinsic value method, compensation expense resulting from an incentive stock option is

not recognized if the market price does not exceed the option price at the date of grant

Under the intrinsic value method, compensation expense resulting from an incentive stock option is

not recognized if the market price does not exceed the option price at the date of grant.

Cash dividends are paid on the basis of the number of shares outstanding. authorized. issued. outstanding less the number of treasury shares.

outstanding.

When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the market value of the services received. par value of the shares issued. market value of the shares issued. the market value of the services received or the market value of the share issues.

par value of the shares issued.

The preemptive right enables a stockholder to: retain their ownership interest if additional stock is issued. receive cash dividends after other classes of stock with the preemptive right. sell capital stock back to the corporation at the option of the stockholder. receive unequal amounts of dividends on a percentage basis as the preferred stockholders.

retain their ownership interest if additional stock is issued.

Under the completed-contract method

revenue, cost, and gross profit are recognized at the time the contract is completed

Franchise companies derive revenues from the

sale of initial franchises and related services and from continuing fees based on the franchise operation

Callable Preferred Stock

permits the corporation, at its option, to call or redeem the outstanding preferred shares at specified future dates and at stipulated prices

(16) When the cash proceeds from a bond issued with detachable stock warrants exceed the sum of the par value of the bonds and the fair market value of the warrants, the excess should be credited to

premium on bonds payable

When the cash proceeds from a bond issued with detachable stock warrants exceed the sum of the par value of the bonds and the fair market value of the warrants, the excess should be credited to

premium on bonds payable.

A long-term note is valued at its > present value > face value > market value > maturity value

present value

The amount to be recorded as the cost of an asset under finance lease is equal to the - carrying value of the asset on the lessor's books - present value of the lease payments plus the present value of any unguaranteed residual value - present value of the lease payments - present value of the lease payments or the fair value of the asset, whichever is lower

present value of the lease payments

If the fair value is available, the company allocates the lump sum received among the classes of securities on a _____________ basis

proportional

Due to the importance of earnings per share information, it is required to be reported by all

public companies - yes nonpublic - no

At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the purchase of treasury stock. payment in full of subscribed stock. declaration of a stock split. declaration of a stock dividend.

purchase of treasury stock.

Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire contract. In this case, the entire expected loss should be recognized in the current period under the completed-contract method, but the percentage-of-completion method defers the loss until the contract is completed. deferred and recognized when the contract is completed, regardless of whether the percentage-of-completion or completed-contract method is employed. recognized in the current period, regardless of whether the percentage-of-completion or completed-contract method is employed. recognized in the current period under the percentage-of-completion method, but the completed-contract method defers recognition of the loss to the time when the contract is completed.

recognized in the current period, regardless of whether the percentage-of-completion or completed-contract method is employed.

The method most commonly used to report defaults and repossessions is

record the repossessed merchandise at fair value, recording a gain or loss if appropriate.

On January 15, 2018, 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, 2018

(18) 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

Par (Stated) Value Method

records all transactions in the treasury shares at their par value and reports the treasury stock as a deduction from capital stock only

Direct costs incurred to sell stock should ___________ the amounts paid in account

reduce

When convertible debt is retired by the issuer, any material difference between the cash acquisition price and the carrying amount of the debt should be

reflected currently in income, but not as an extraordinary item

When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be:

reported as an adjustment to income tax expense in the period of change.

The cumulative feature of preferred stock: limits the amount of cumulative dividends to the par value of the preferred stock. means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders. enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends.

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

Cumulative Preferred Stock

requires that if a corporation fails to pay a dividend in any year, it must make it up in a later year before paying any dividends to common stockholders

Cost Method

results in debiting the treasury stock account for the reacquisition cost and in reporting this account as a deduction from the total paid in capital and retained earnings on the balance sheet

Equity securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses are securities where a company has holdings of more than 50%. securities where a company has holdings of less than 20%. securities where a company has holdings of more than 20%. securities where a company has holdings of between 20% and 50%.

securities where a company has holdings of less than 20%.

The pre-emptive right of a common stockholder is the right to

share proportionately in any new issues of stock of the same class

The preemptive right of a common stockholder is the right to exclude preferred stockholders from voting rights. share proportionately in corporate assets upon liquidation. share proportionately in any new issues of stock of the same class. receive cash dividends before they are distributed to preferred stockholders.

share proportionately in any new issues of stock of the same class.

Corporations issue convertible debt for two main reasons. One is the desire to raise equity capital that, assuming conversion, will arise when the original debt is converted. The other is

that many corporations can obtain debt financing at lower rates.

(16) Corporations issue convertible debt for two main reasons. One is the desire to raise equity capital that, assuming conversion, will arise when the original debt is converted. The other is

that many corporations can obtain financing at lower rates

A sale should NOT be recognized as revenue by the seller at the time of sale if

the buyer has a right to return the product and the amount of future returns cannot be reasonably estimated.

Earned Capital

the capital that develops from profitable operations

Deferred tax amounts that are related to specific assets or liabilities should be classified as current or non-current based on:

the classification of the related asset or liability.

Leverage Buyout (LBO)

the company borrows money to finance stock repurchases

A company uses income from continuing operations to determine whether potential common stock is dilutive or antidilutive, and this is referred to as

the control number

The most popular input measure used to determine progress toward completion of a performance obligation over a period of time is tons produced. floors completed. labor hours worked. the cost-to-cost basis

the cost-to-cost basis

Stockholders Equity

the cumulative net contributions by stockholders plus retained earnings

In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be

the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable.

stock split

the division of a single share of stock into more than one share

Recognition of tax benefits in the loss year due to a loss carryforward requires the establishment of an income tax refund receivable. only a note to the financial statements. the establishment of a deferred tax liability. the establishment of a deferred tax asset.

the establishment of a deferred tax asset.

Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that the market and nominal rates coincided. no necessary relationship exists between the two rates. the nominal rate of interest exceeded the market rate. the effective yield or market rate of interest exceeded the stated (nominal) rate.

the nominal rate of interest exceeded the market rate.

Watered Stock

the overvaluation of the stockholders equity resulting from inflated asset values

In a corporate form of business organization, legal capital is best defined as: the total capital raised by a corporation within the limits set by the Securities and Exchange Commission. the amount of capital the state of incorporation allows the company to accumulate over its existence. the par value of all capital stock issued. the amount of capital the federal government allows a corporation to generate.

the par value of all capital stock issued.

Trading on Equity

the practice of using borrowed money or issuing preferred stock in hopes of obtaining a higher rate on return on the money used

A stock split is most likely to occur when

the price of a stock becomes too high