ACC 3020
Werth Company has 100,000 shares of $10 par value common stock and 5,000 shares of $100 par value 5% cumulative preferred stock outstanding. No dividends had been paid in either 2016 or 2017. Werth Company is planning to pay a cash dividend in 2018. If the cash dividend is for $200,000 in total, how much will be received by common stockholders?
$200,000 $175,000 $140,000 **$125,000**
At the end of year 1, Rome Inc. held debt securities classified as available-for-sale securities. The securities were carried at market value of $57,320 with a cumulative unrealized loss of $12,350. What was the historical cost of the debt securities available for sale?
$57,320 **$69,670** $44,970 $63,495
Which of the following statements is true regarding earnings per share (EPS) disclosures under GAAP?
**All public companies are required to report EPS amounts related to income from continuing operations, income from discontinued operations, and net income.**
A company reacquired some of its own stock to be held as treasury stock and used for its employee's 401K plan. In their statement of cash flows how would this cash outflow be reported?
-Under operating activities. -Either under operating activities or financing activities. **-Under financing activities.** -Either under investing activities or financing activities.
At the end of 2018, Shore Co. held trading securities that cost $17,500 and which had a year-end market value of $19,000. All of these securities were sold during 2019 for $22,000. For the year ended on December 31, 2019, Shore should report a gain off
$0 $1,500 **$3,000** $4,500
Data regarding Rock Corp.'s available-for-sale securities follows: Cost Market ValueDecember 31, 2018$80,000 $65,000 December 31, 2019$80,000 $90,000 Differences between cost and market values are considered temporary. Rock does not elect the fair value option of accounting for available-for-sale securities. By what amount should Rock increase (credit) its 2019 other comprehensive income?
$0 $10,000 **$25,000** $15,000
On December 29, 2017, Almond Company granted 100,000 stock options to a group of 100 employees, enabling each employee to buy 1,000 shares for $20 per share. On the grant date, the shares had a market value of $16 per share and the options had a market value of $3.00 per option. The options vest over a 3-year period and become exercisable on January 1, 2021. Almond Company expects that, based on historical turnover, they will lose approximately 3 of the employees receiving the options per year during the vesting period. Compensation expense will be recognized uniformly over the vesting period. How much compensation expense will Almond Company recognize in 2018?
$0 $100,000 $97,000 **$91,000**
Caradonna Company has 100,000 shares of $5 par common stock issued and outstanding as of January 1, 2018. The shares were originally issued for $22 per share. On February 3, 2018, Caradonna repurchased 5,000 shares at $19 per share for the purposes of retiring them. On April 10, 2018, Caradonna repurchased an additional 2,000 shares at $25 per share. No other transactions involving common stock occurred during the year. What will be the balance in additional paid in capital from retired stock as a result of those transactions?
$0 **$9,000** $15,000 $21,000
On May 1 of the current year, Cassandra Corp. issued $600,000 of 4% bonds payable at par with interest payment dates of April 1 and October 1. In its income statement for the current year ended December 31, what amount of interest expense should Cassandra report?
$10,000 $4,000 $14,000 **$16,000**
On June 30, 2018, Adonis Co. had outstanding 4%, $4,000,000 face value bonds, originally issued at 98, maturing on June 30, 2023. Interest was payable semiannually every June 30 and December 31. Adonis did not elect the fair value option for reporting its financial liabilities. On June 30, 2018, after amortization was recorded for the period, the unamortized bond discount and bond issue costs were $40,000 and $30,000 respectively. On that date, Adonis acquired all its outstanding bonds on the open market at 97 and retired them. At June 30, 2018, what amount should Adonis recognize as gain before income taxes on redemption of bonds?
$10,000 **$50,000** $110,000 $130,000
Blue Co.'s worksheet for the preparation of its 2018 statement of cash flows included the following: December 31 January 1 Accounts receivable, before any allowance$19,000 $15,000 Allowance for uncollectible accounts 650 400 Prepaid insurance expense 5,200 8,300 Accounts payable 12,600 9,800 Blue's 2018 net income is $125,000. What amount should Blue include as net cash provided by operating activities in the statement of cash flows?
$120,950 $125,000 $126,650 **$127,150**
Caspela Corp. had the same capital structure in 2017 and 2018, consisting of the following: Preferred stock, $12 par, 5% cumulative, 20,000 shares issued and outstanding$240,000Common stock, $6 par, 250,000 shares issued and outstanding 1,500,000 Caspela reported net income of $600,000 for 2018. No preferred dividends were paid during 2017, but Caspela paid $20,000 in preferred dividends in 2018. In its 2018 income statement what amount should Caspela report as basic earnings per share?
$2.30 $2.32 **$2.35** $2.37
Bell Co. prepares its statement of cash flows using the indirect method. Selected items pertaining to its cash flow are listed below. What amount should Bell Co. report as net cash provided by financing activities in its statement of cash flows for the year? Bonds issued$90,000 Treasury stock repurchased$23,000 Trading securities purchased$35,000 Cash dividends paid$15,000 Gain on available-for-sale investment$11,000
$28,000 **$52,000** $63,000 $90,000
On January 1, 2018, Blue Co. leased a new machine from Green Co. The following information pertains to the lease: Lease term 5yearsAnnual rental payable at beginning of each year$55,000 Useful life of machine 7yearsBlue's incremental borrowing rate 12%Implicit interest rate in lease (known by Blue) 10%Present value of annuity of $1 in advance for 5 periods at 10% 4.17 12% 4.04 There is no bargain purchase option but title transfers to Blue Co. at the end of the lease. The cost of the machine on Green's accounting records is $294,500. At the beginning of the lease term, Blue Co. should record a lease liability of
$294,500 $222,200 **$229,350** $0
On January 1, 2018, Crimson Corp., a closely held corporation, issued 5% bonds with a maturity value of $90,000, together with 1,500 shares of its $3 par value common stock, for a combined cash amount of $121,800. The market value of Crimson's stock is uncertain. If the bonds had been issued separately they would have sold at 102. What amount should Crimson report for additional paid-in capital (or paid-in capital—excess of par) upon issuing the stock?
$30,000 $34,500 $31,800 **$25,500**
Red, Inc. had the following activities during 2018: Acquired a bond investment for $40,000, which Red intends to hold to maturity. Sold equipment to another corporation for $24,000 when the carrying value was $22,000. Acquired a stock investment for $8,500, which Red intends to hold for trading. Made a loan to an employee for $12,500. Collected interest on a bond investment of $2,500. In Red's 2018 statement of cash flows, net cash used in investing activities should be
$37,000 **$28,500** $56,500 $39,500
On January 1, 2019, Alsvin Company enters into a lease of equipment with Benni Company with a lease term of four years. The lease is properly accounted for as an operating lease. The rate Benni charges Alsvin in the lease is not readily determinable by Alsvin, whose incremental borrowing rate is 8%. The first annual payment, due at the inception of the lease, is $20,000. The annual payment increases each year by an amount equal to $20,000 multiplied by the annual Consumer Price Index (CPI) increase. The CPI is expected to increase at a rate of 2% per year on a noncumulative basis. Additional information: Present value of an annuity due of $1 for 4 periods at 8%3.58 Present value of $1 in one period at 8%0.93 Present value of $1 in two periods at 8%0.86 Present value of $1 in three periods at 8%0.79 Present value of $1 in four periods at 8%0.74 At the beginning of the lease term, Alsvin Company should initially record a right-of-use asset of
$73,464 $76,612 $73,608 **$71,600**
On January 1, 2019 SaniTruck, Inc. leases two specialized materials cleanup trucks with a fair value of $79,205 from TruxCo., a financing intermediary, for a lease term of 7 years. TruxCo. includes an ongoing maintenance contract, charged at $3,000 per year, as part of the lease payments of $20,000 per year, payable on January 1 each year starting in 2019. Also included in the payments is legally required hazard insurance of $1,500 per year. Assuming that SaniTruck wishes to minimize the amount of lease payable recorded, at what amount should SaniTruck initially record a right-of-use asset at the beginning of the lease? Additional information: Present value of an annuity due of $1 for 7 periods at 8%5.62 Present value of an annuity due of $1 for 7 periods at 10%5.36 Present value of an annuity due of $1 for 7 periods at 12%5.11
$79,205 **$86,870** $94,535 $102,200
Cansay Co. has 100,000 shares of $10 par value common stock and 5,000 shares of $100 par value 5% cumulative preferred stock outstanding. No dividends had been paid in either 2016 or 2017. Cansay Co. is planning to pay a cash dividend in 2018. If the cash dividend is for $60,000 in total, how much will be received by common stockholders?
**$0** $10,000 $35,000 $70,000
Cormorant Corp. manufactured equipment at a cost of $600,000 and leased it to Boreal Corp. on January 1, 2019 for an eight-year period expiring December 31, 2026. Eight years is considered a major part of the asset's economic life. Equal payments under the lease are $60,000 and are due on January 1 and July 1 of each year. The first payment was made on January 1, 2019. The list selling price of the equipment is $750,000 and the implicit rate used by Cormorant is 8%. What amount of selling profit or loss should Cormorant report for the year ended December 31, 2019? Additional information: Present value of an annuity due of $1 for 8 periods at 8%6.21 Present value of an annuity due of $1 for 16 periods at 4%12.12 Present value of an annuity due of $1 for 16 periods at 8%9.56
**$127,200 profit** $26,400 $227,400 loss None of the above
Liberty Corporation had net income of $120,000 during the year. Depreciation expense was $6,000. The following information is available: Held- to-Maturity Bonds purchased25,000increase Common Stock issued70,000increase AccountsReceivable10,000decrease Accounts Payable15,000increaseGain on sale of AFS Investment5,000increase What amount should Liberty report as net cash provided by operating activities in its statement of cash flows for the year?
**$146,000** $10,000 $20,000 $30,000
With a lease commencement date of January 1, 2019, Emgrand Company leases equipment with a fair value of $625,000 to Bolero Company under the following terms: Lease term 3yearsAnnual rental payable at beginning of each year$200,000 Useful life of equipment 5yearsBolero's incremental borrowing rate 6%Implicit interest rate in lease (known by Bolero) 8%Present value of annuity of $1 in advance for 3 periods at 6% 2.8334 8% 2.7833 Emgrand routinely leases equipment of this nature. Bolero has no other leased equipment. Neither entity considers the 3-year term to be a major part of the asset's 5-year life. Nor do they consider the present value of the lease payments to be substantially all of the fair value of the asset.Considering only the above information, what amount of total lease expense should Bolero report in its December 31, 2019 financial statements?
**$200,000** $188,893 $400,000 $185,553
Card Corp. purchased bonds at a discount of $49,000. The bonds were classified as available for sale. Subsequently, Card sold these bonds at a premium of $12,000. During the period that Card held this investment, amortization of the discount amounted to $19,000. What amount should Card report as gain on the sale of bonds?
**$42,000** $61,000 $12,000 $31,000
Hammaker Corp. began operations in 2016 and reported taxable net income of $10 million and $4 million in 2016 and 2017, respectively. In 2018, Hammaker reports a net operating loss (NOL) of $16 million, and elects to carry back that NOL to the extent possible. The tax rate for the years 2016 through 2018 is 35%, but the enacted tax rate for 2019 and later years will be 40%. As part of year-end adjusting entries, what total tax benefit will Hammaker record as a result of the 2018 NOL?
**$5,700,000** $4,900,000 $6,400,000 $5,600,000
RedCo. reported cash paid for interest of $55,000 in its statement of cash flows for the current year. Red did not capitalize any interest during the current year. The following changes on their balance sheet occurred: accrued interest payable decreased by $13,000 along with a decrease in prepaid interest of $21,500. What amount should Red report as interest expense in its current year statement of income?
**$63,500** $68,000 $76,500 $89,500
Truck Co., organized January 7th, 2018, has pretax accounting income of $720,000 and taxable income of $950,000 for the year ended December 31, 2018. The only temporary difference is accrued product warranty costs that are expected to be paid as follows: 2019$150,0002020$70,0002021$50,0002022$120,000 Truck has never had any operating losses (book or tax) and does not expect any in the future. There were no temporary differences in prior years. The enacted income tax rates are 30% for 2018 and 25% for 2019 through 2022. How should the deferred income tax associated with accrued product warranty be recorded in Truck's December 31, 2018 balance sheet?
**$97,500 Asset** $117,000 Asset $97,500 Liability $117,000 Liability
Green Co. purchased commercial paper with a maturity of 60 days. Green Co. treats as cash equivalents all highly liquid investments with an original maturity of three months or less when purchased. How should this purchase be reported in Green's statement of cash flows?
**-Not reported.** -As an outflow from investing activities. -As an outflow from financing activities. -As an outflow from operating activities.
Endymion Co. is preparing the electronic spreadsheet below, to amortize the discount on its 10-year, 4%, $500,000 bonds payable. Bonds were issued on December 31 to yield 6%. Interest is paid annually. Endymion uses the effective interest method to amortize bond discounts. ABCDEFG1YearCarrying Amount atBeginning of YearEffective Interest RateInterest ExpenseCash PaymentAmortizationof DiscountNew Carrying Amount21 6%$25,584 32=G2 Which formula should Endymion use in cell G2 to calculate the bonds' carrying amount at the end of Year 1?
**B2+F2** B2+D2 B2-D2 B2-F2
Choose the correct statement(s) regarding changes in accounting estimates: I. Changes in accounting estimates generally result from the availability of new information. II. Disclosure of current period effects is generally required for changes in estimate. III. A change in accounting principle that is inseparable from a change in estimate is accounted for prospectively, but with footnote disclosure of retrospective effects.
**I only.** I and II only. III only. II and III only.
BlueCo. prepares its statement of cash flows using the indirect method. Blue's bad debt allowance increased by $18,000 during the year and no accounts were written off. How should Blue report the change in its bad debt allowance in the statement of cash flows?
-As an investing cash outflow. -As a financing cash outflow. -As a subtraction from net income in the operating activities section. **-As an addition to net income in the operating activities section.**
Maholm Company declared a cash dividend payable to common stockholders of record as of December 24, 2017. The dividend was declared on December 10, 2017 and will be paid on January 7, 2018. On what date or dates will stockholders' equity decrease as a result of the dividend?
-December 10, 2017 and January 7, 2018 -December 24, 2017 only **-December 10, 2017 only** -January 7, 2018 only
During the current year, Pacific Co. experienced a loss on the sale of equipment which was used to manufacture its products. Pacific prepares its statement of cash flows using the direct method. How should Pacific report the loss on the sale of equipment on its statement of cash flows?
-Under financing activities -Under operating activities -Under investing activities **-Not reported on the statement of cash flows**
Brick Co. has 170,000 shares of common stock outstanding at January 1, 2018. On May 1, 2018, it issued 30,000 additional shares of common stock. Outstanding all year were 12,000 shares of convertible cumulative preferred stock. Each share of the convertible preferred stock, which was dilutive in 2018, is convertible into one share of Brick's common stock. What is the number of shares that Brick should use to calculate 2018 diluted earnings per share?
170,000 **202,000** 182,000 212,000
Kasar Co. has net income, before taxes, of $335,000, including $35,000 in interest revenue from municipal bonds and $12,000 paid for nondeductible officers' life insurance premiums where the company is the beneficiary. The effective tax rate for the current year is 29.5%. What is Kasar's actual tax rate for the current year?
29.5% 30.0% 31.0% **31.7%**
Clio Co. issued 5-year $500,000 debenture bonds on January 2. The bonds pay interest semiannually. Clio uses the effective interest method to amortize bond premiums and discounts. The carrying value of the bonds on January 2 was $337,806. A journal entry was recorded for the first interest payment on June 30, debiting interest expense for $13,512 and crediting cash for $15,000. What is the annual stated interest rate for the debenture bonds?
3% **6%** 4% 8%
For the year ended December 31, 2018, Pering Co. reported pretax financial income of $550,000. Its current tax expense (excluding deferred tax expense) was $144,000. Pering reported a difference between pretax financial statement income and taxable income. This difference is due to accelerated depreciation for income tax purposes. Pering's effective income tax rate is 30% and Pering made estimated tax payments during 2018 of $75,000. What amount did Paring report as taxable income for 2018?
405,000 **480,000** 475,000 550,000
A company has basic earnings per share of $12.18. If the tax rate is 25%, which of the following securities would be dilutive? I. 15,000 incentive stock options with an exercise price of $17 to its employees and an average market price of $15 per share. II. Cumulative 9%, $30 par preferred stock.
I and II I only II only **Neither I nor II**
Which statement(s) is (are) true about reporting debt securities held to maturity? I. Investments in debt securities that are classified as held to maturity are reported at amortized cost. II. The market value of investments in debt securities that are classified as held to maturity must be disclosed. III. Unrealized gains and losses on debt securities that are classified as held to maturity are recognized in income in the period of the change.
I, II, and III **I and II only** I only I and III only
Canterbury Co. issues a discounted, non-interest-bearing note in exchange for borrowed funds. Choose whether the cash received will be higher or lower than the face value of the note, and whether the effective annual interest rate will be higher or lower than the discount rate: Cash Received vs. Face Value of Note Effective Rate vs. Discount Ratea.Higher Lowerb.Lower Higherc.Lower Lowerd.Higher Higher
Option a **Option b** Option c Option d
Which statement is true about reporting unrealized gains and losses from available-for-sale securities?
Unrealized gains and losses from available-for-sale securities should be reported as a component of income from continuing operations if the fair value option to report these securities is elected.