ACC311 Exam 2

diluted EPS

(Adjusted income available for ordinary shares, reflecting conversion of dilutive securities)/(number of shares after conversion)

basic EPS

(Net Income - Preferred Dividends)/(Weighted Average of Shares Outstanding)

distinct good or service characteristics

- the lack of significant integration with other goods and services - the good or service does not significantly modify or customize another good or service provided in the contract - the good or service is not highly dependent on, or highly interrelated with, other promised goods or services

1. Which of the following is not an advantage of organizing a business as a corporation? A) Limited liability B) Ability to raise capital C) Transfer of ownership D) Legal restrictions

D. Legal restrictions

When a company reacquires its own stock, the entry to record the reacquisition could include an entry to Additional Paid-in Capital - Common Stock under which of the following methods? Cost Method Par Value Method a. Yes Yes b. Yes No c. No No d. No Yes

D. No yes

Core principle of recognizing revenue from contracts with customers

a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to entitled to in exchange for those goods or services

applicable constraint

a contract term that could cause the amount of consideration received to be less than the amount expected

A prior period adjustment should be reflected, net of applicable income taxes, in the financial statements of a business entity in the: a.income statement after income from continuing operations. b.income statement as part of income from continuing operations. c.retained earnings statement as an adjustment of the opening balance. d.retained earnings statement after net income but before dividends.

c. retained earnings statement as an adjustment in the opening balance

When a stock split is declared by the board of directors, A) total stockholders' equity decreases. B) total stockholders' equity increases. C) total stockholders' equity does not change. D) the debt-to-equity ratio decreases.

c. total stockholders' equity does not change

An agent will recognize

commission revenue

net position

contract assets - contract liabilities

dividend yield

dividends per share/market price per share

A disadvantage of the corporate form of organization is: double taxation. unlimited liability. limited life. difficulty in raising capital.

double taxation

When allocating the transaction price to performance obligations when a stand-alone selling price is not readily observable, GAAP suggests all of the following approaches except the expected market margin approach. residual approach. expected cost plus a margin approach. adjusted market assessment approach.

expected market margin approach

a principal will recognize

gross revenue on its products

expected value approach in estimating variable consideration

identify the range of possible outcomes and the probabilities associated with each outcome, the calculate the expected value as a sum of the probability-weighted amounts in this range (more than 2 amounts)

we do not want to recognize revenue _____________________ of the amount of the consideration we will actually receive when uncertainty is solved

in excess

Corporations disclose restrictions of retained earnings on the balance sheet as a deduction from retained earnings. in the notes to the financial statements. as a liability on the balance sheet. on a voluntary basis; it is not required.

in the notes of the financial statements

impact on diluted earnings per share

increase in earnings per share numerator / increase in earnings per share denominator

Antidilutive securities are those whose inclusion would cause EPS to (decrease/increase) rather than (decrease/increase). For convertible bonds, the if-converted method alters both the numerator and the denominator of EPS. Therefore, it is possible that the inclusion of a security in the calculation would cause EPS to increase. Antidilutive securities are (included/not included) in the calculation because the diluted EPS figure is intended to present the most diluted earnings per share amount.

increase, decrease, not included

When a company receives an upfront payment:

it must determine the performance obligation to which the upfront fee relates, and revenue should not be recognized until the performance obligation is satisfied

A large stock dividend (> 25%) is recorded at fair value. book value. cash value. par value.

par value

customer

party that has entered into a contract for goods and services

upfront payments

payments from customers before a product or service is delivered

current period revenue

progress % * allocated transaction price - previously recognized revenue

principal's performance obligation

provide goods or services to a customer

Which of the following is not included in the FASB's 5-step model for evaluating when a company should recognize revenue? Identify the contract with a customer. Identify the performance obligations in the contract. Determine the transaction price. Recognize revenue when cash payment is received.

recognize revenue when cash payment is received

control

represents the customer's ability to direct use of good or service to obtain substantially all of the remaining benefits while also restricting others from doing so

variable consideration

results from contract terms which may result in different amounts of consideration (right of return, discounts, allowances, rebates

revenues and expenses end in ____________________ on the __________________

retained earnings; balance sheet

Participating preferred shareholders participate in the management of the company. share equally with the common shareholders in any extra dividends. fully participate in voting rights with common shareholders. have none of these options.

share equally with the common shareholders in any extra dividends

increment in denominator for diluted earnings per share

shares issued from problem - (proceeds*/avg market price) *proceeds= shares given(exercise price+unrecognized compensation cost)

transaction price

the amount of consideration the seller expects to be entitled in exchange for providing the promised goods or services to the customer

Noncompensatory share purchase plans are offered to the general public. through private brokers. to qualified employees. to any employee.

to qualified employees

for a performance obligation to be satisfied over time at least one of the following criteria must be met

- the customer simultaneously receives and consumes the benefits of the seller's performance as the seller performs (gym membership) - the seller's performance creates or enhances an asset that the customer controls as the asset is created or enhances (construction company building for a customer) -the seller's performance does not create an asset with an alternative use to the seller (highly customized) (cruise line cannot sell to another customer)

If the stand-alone price is not readily observable, the company should use its best estimate using:

-adjusted market approach -expected cost plus margin approach -residual approach

indicators that a company might be an agent

-another party is primarily responsible for fulfilling the contract -company does not have inventory risk before and after the goods have been ordered, during shipping, or upon return -company does not have discretion in setting prices -company's consideration is in the form of commission

FASB (revenue)

-asset-liability approach -sales contract with customer: company receives the right to consideration from the customer while also assuming a performance obligation to transfer goods and services to the customer - revenues are recognized when the company's net position in the contract increases as it satisfies a performance obligation

when variable consideration exists the transaction price is the total amount of consideration is expected to be received when the uncertainty is resolved:

-estimate the total amount the seller expects to be entitled -determine whether there is an applicable constraint on the amount variable consideration.

output methods of mesuring progress towards a performance obligation

-measure progress based on results achieved to date using direct measurements of the value of the goods and services transferred to the customer. Theoretically, more preferrable becasue provides a more faithful representation of the progress

indicators that control has been transferred to the customer

-seller is entitled to payment -legal title is transferred -customer has physical possession -customer has significant risks and rewards of ownership -customer has accepted the goods or services

revenue from licensing unique challenges

-sellers must identify whether the performance obligation associated with a license is distinct from other performance obligations in the arrangement - sellers must determine if the license provides access to the seller's intellectual property throughout the license periods and those that provide use of the intellectual property as it exists at the point in time when the license is granted

other factors that affect transaction price

-time value of money: if not paid in 6 months; price has revenue component and finance component -variable consideration: main issue -noncash consideration: such as starbuck rewards - consideration payable to customer: such as companies paying grocery stores to have products displayed in a certain spot

distinct good or service

1. capable of being distinct (customer can benefit from product or service by itself 2. must be distinct within the context of the contract

A contract between one or more parties creates: a.revenue for recognition b.the date that cash is paid by the customer c.enforceable rights and obligations for the parties d.the fixed amount of payments for the good or service

c. enforceable rights and obligations for the parties

a company satisfies a performance obligation by transferring __________ of a promised good or service to a customer

control

common input methods

cost-to-cost method (most common) efforts-expended method

A corporation does not include potential common shares in calculating diluted earnings per share if it reports A loss from continuing operations. A loss from discontinued operations. Losses from comprehensive income items. All of these choices.

loss from continuing operations

input methods of measuring progress towards a performance obligation

measure progress based on effort expended (costs incurred, labor hours, etc) Used when direct measurement is not feasible

exercisable options value

number of shares x exercise price

5 step revenue recognition model

1. Identify the contract with a customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract 5. Recognize revenue when (or as) the company satisfies a performance obligation

Marcy Company had net income of $60,000, paid preferred dividends of $3,000, had weighted average number of common shares of 30,000, and had preferred shares of 1,500. What is the basic earnings per share?

1.90

On January 1, Year 1, Crawford Construction Company enters into a contract with a customer to build an office complex for a fixed price of $36 million. Estimated costs to complete the project are $24 million. At the end of Year 1, costs incurred to date amount to $18 million. Using the cost-to-cost method, how much revenue should be recognized in Year 1? $24 million $27 million $36 million $0

27 million

Marcy Company had 30,000 shares of common stock at the beginning of the year. On July 1, it issued 3,000 shares; on November 2, it issued another 3,000 shares; and on December 1, it reacquired 1,000 shares of treasury stock. What is its weighted average number of shares for the year? 35,000 33,000 32,083 31,917

31917

A corporation issues common stock with a $5 stated value. Its Common Stock account has a balance of $2,500, its Additional Paid-In Capital account has a balance of $5,500, and its Retained Earnings account has a balance of $8,000. How many shares of stock have been issued? 3,200 1,600 500 none of these choices.

500

In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are A. considered outstanding at the beginning of the year. B. weighted by the number of days outstanding. C. not considered. D. weighted by the number of months outstanding.

A. considered outstanding at the beginning of the year

3. The issuer of a 45% common stock dividend to common stockholders would transfer from retained earnings to contributed capital an amount equal to the A. par or stated value of the shares issued. B. book value of the shares issued. C. market value of the shares issued. D. previous cash dividend.

A. par or stated value of the shares issued.

Starbucks, which is incorporated in Washington State, USA, is a foreign corporation with respect to Ohio. Puerto Rico. England. all of these choices.

All of these choices

Diluted earnings per share (DEPS) is the earnings per share after including Preferred shares. Treasury shares. All potential common shares from exercised stock options, warrants, convertible bonds, and so forth. Preferred dividends.

All potential common shares from exercised stock options, warrants, convertible bonds, and so forth.

Which of the following is a current liability? A. Declared stock dividends that will be distributed one month from declaration. B. Declared cash dividends that will be paid one month from declaration. C. Preferred dividends in arrears that might be paid next accounting period. D. All of these.

B. declared cash dividends that will be paid one month from now

Declaration and issuance of a small stock dividend A. decreases total stockholders' equity. B. has no effect on totals of assets, liabilities, or stockholders' equity. C. increases the current ratio. D. decreases the amount of working capital.

B. has no effect on totals of assets, liabilities, or stockholders' equity

2. Which of the following items should be listed first in the stockholders' equity section of the balance sheet? A) Common stock B) Paid-in capital C) Preferred stock D) Retained earnings

C. preferred stock

Which of the following activities changes equity but does not affect a corporation's assets and liabilities? operations resulting in net income. issuance of stock to stockholders. distribution of cash dividends to stockholders. distribution of stock dividends to stockholders.

Distribution of stock dividends to stockholders

When nonrefundable upfront initiation fees are received by new members of a health club, the club recognizes the fees as Unearned revenue that may be recognized with the members' first visit. Revenue immediately. Unearned revenue that may be allocated over the contract period. The commission expense for the employee who signs up the new members.

Unearned revenue that may be allocated over the contract period.

Which of the following arises when the seller's right to consideration from a customer is conditional upon something other than the passage of time? A receivable A contract asset A contract liability None of these choices

a contract asset

licensing

a license provides the customer access to a seller's intellectual property

Which of the following disclosures regarding stock is not required to be reported on the balance sheet or in the notes to the financial statements? the par value and the number of shares authorized, issued, and outstanding. preferred stock characteristics, including dividend rate. any dividends in arrears. a list of names of stockholders.

a list of names of stockholders

a performance obligation

a promise to provide customer goods/services. May be: explicitly stated in a contract; implied creating a constructive obligation in which the seller creates a compelling expectation that it will provide the promised goods or services based on its customary business practices, published policies, or specific statements

Treasury stock is presented on the balance sheet as an asset. a liability. a reduction to equity. a memorandum in the notes.

a reduction to equity

In January 2010, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2010, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares a. decreased total stockholders' equity. b. increased total stockholders' equity. c. did not change total stockholders' equity. d.decreased the number of issued shares.

a. decreased total stockholders' equity

Crawford Corporation issues 1,000 shares of $10 par common stock that is not widely traded for an acre of land appraised at $20,000. The journal entry would include a debit to Land for $20,000. a credit to Common Stock for $10,000. a credit to Additional Paid-In Capital for $10,000. all of these.

all of these

A company's disclosures regarding contracts should include reconciliation of the opening and closing balances of contract assets and liabilities. information about performance obligations, including a description of the obligations. significant judgments used by the company to recognize revenue for performance obligations satisfied over time and why the method is appropriate. all of these choices

all of these choices

Other comprehensive income includes Unrealized gains in the fair value of available-for-sale securities. Translation adjustments from converting the financial statements of a company's foreign operations into U.S. dollars. Gains on derivative financial instruments designated as cash flow hedges. All of these choices.

all of these choices

Prior-period adjustments can arise from a change in accounting principle. a change in accounting entity. a correction of an error made in a prior period. all of these choices.

all of these choices

The cost recognized by a company for its share-based compensation plan is the total fair value of the share options that actually become vested. is recorded each year with a debit to Compensation Expense. is recorded each year with a credit to Paid-In Capital from Share Options. all of these choices.

all of these choices

The new revenue recognition standard does not apply to Leases. Insurance contracts. Financial instruments. All of these choices.

all of these choices

The statement of shareholders' equity is usually reported with Columns representing the various claims of equity shareholders. Rows reporting changes in each of the elements during the period. Ending amounts that tie to the shareholders' equity section of the year-end balance sheet. All of these choices.

all of these choices

Under which circumstances would the time value of money become a factor that affects the transaction price? The customer pays the seller well in advance of the promised goods or services being transferred. The customer pays the seller well after the promised goods or services are transferred. The customer pays with a 3-year note payable. All of these choices.

all of these choices

Which of the following creates variable consideration? Discounts Allowances Rebates All of these choices

all of these choices

Which of the following does not represent a distribution of retained earnings? a stock split. a liquidating dividend. a reverse stock split. all of these choices.

all of these choices

With noncompensatory share purchase plans, the discount may not exceed the stock issuance costs avoided by not issuing the stock to the public. employees are allowed only a short time to decide if they want to enroll. the purchase price is based on market value on the purchase date. all of these choices.

all of these choices

contract

an agreement between two or more parties that creates enforceable rights and obligations; may be written, oral, or implied by customary business practices

A contract does not qualify for revenue recognition if Either party can unilaterally cancel the contract before performance without compensating the other party. The contract is wholly unperformed. Contract terms allow cancellation without penalty by either party at any time prior to delivery of the goods. Any one of these choices apply

any one of these choices apply

agent's performance obligation

arrange for goods or services to be provided by the principal

If a contract modification adds distinct goods or services and the contract price increases by an amount that reflects the stand-alone selling price of the added goods or services, then the contract modification should be accounted for By cumulative catch-up method. By prospective method. As a new separate contract. None of these choices.

as a new separate contract

3. Preferred stock has preference over common stock relative to A) dividends and voting rights. B) dividends and assets at liquidation. C) voting rights and assets at liquidation. D) dividends and maturity date.

b. dividends and assets at liquidation

Morgan Company and its customer agree to modify their existing contract. Under which of the following situations would the modification result in a new contract? a.The modification only affects the transaction price. b.The modification adds distinct goods or services, and the contract price increases by an amount that reflects the stand-alone selling price of additional goods or services. c.The modification does not add distinct goods or services but does not affect the transaction price. d.The modification adds distinct goods or services but does not change the contract price.

b. the modification adds distinct goods or services, and the contract price increases by an amount that reflects the stand-alone selling price of additional goods or services

A constructive obligation may Be established by an implicit promise. Be established by an explicit promise. Only be established if legally enforceable. All of these choices.

be established by an implicit promise

When share options are exercised by an employee under a compensatory share option plan, the issuance of the common stock is recorded at the a) amount of cash received b) amount of cash received less the previously recorded value of the options received c) amount of cash received plus the previously recorded value of the options received d) market price minus the share option price

c) amount of cash received plus the previously recorded value of the options received

A customer obtains control over a good or service when: a.the seller receives final payment. b.the customer takes physical possession of the good or service. c.the customer has the ability to direct the use of the good or service and obtain substantially all of the remaining benefits from the good or service. d.the customer pays for the good or service.

c.the customer has the ability to direct the use of the good or service and obtain substantially all of the remaining benefits from the good or service.

One thousand shares of $10 par capital stock issued for $15 per share will be presented on the balance sheet as common stock subscribed of $15,000. paid-in capital of $15,000. common stock of $15,000. common stock of $10,000 and additional paid-in capital of $5,000

common stock of $10,000 and additional paid-in capital of $5,000

The Partial Billings account is a revenue account. contra account to Sales Revenue. contra account to the inventory account Construction in Progress. liability account

contra account to the inventory account Construction in Progress.

For a compensatory share option plan, a formal journal entry or entries would be required for which of the following dates? Issuance of Share Options on the Issuance of Stock on Grant Date the Exercise Date a. Yes Yes b. Yes No c. No No d. No Yes

d. No yes

Which one of the following equations is accurate? a. Treasury stock = Authorized stock - Issued stock b. Treasury stock = Outstanding stock - Subscribed stock c. Treasury stock = Authorized stock - Outstanding stock d. Treasury stock = Issued stock - Outstanding stock e. Treasury stock = Outstanding stock - Issued stock

d. Treasury stock = Issued stock - Outstanding stock

Pertaining to cash dividends, on which date is retained earnings decreased and liabilities increased? date of declaration. ex-dividend date. date of record. date of payment.

date of declaration

Legal capital is defined by state law and varies among states. defined by federal law and specified in all state-granted charters. the amount of shareholders' equity that must be distributed as dividends. usually defined by the amount of additional paid-in capital.

defined by state law and varies among states

performance obligations (do/do not) need to be legally enforceable

do not

Under the cost method, when the corporation reacquires its capital stock, it assumes it will reissue rather than retire the stock. debits Treasury Stock for the price paid. credits Cash for the price paid. does all of these choices

does all of these choices

When a contract contains more than one performance obligation, the seller allocates the transaction price to each performance obligation in proportion to the relative stand-alone selling prices of those goods and services. according to the standard prices for the goods and any balance remaining is allocated to services. according to the amount of labor involved with each part of the contract. according to none of these choices.

in proportion to the relative stand-alone selling prices of those goods and services.

If at the end of the second year of a 4-year contract, a company determines total estimated costs are going to exceed the contract price, it immediately recognizes the total estimated loss. it recognizes the total estimated loss in the year of completion if it is using the point-in-time method. it spreads the estimated loss over the remaining two years if it is using the recognizing-revenue-over-time method. it treats the estimated loss as a change in accounting estimate.

it immediately recognizes the total estimated loss.

companies may directly expense incremental costs for contracts where the amortization period would be less than one month. less than one year. less than 20 months and contained within 2 fiscal years. more than one year.

less than one year

cost-to-cost method

measure progress by comparing costs incurred to date with the expected total costs

efforts-expended method

measure progress by the work performed to date, such as labor hour, labor dollars, compared to the total work to be performed in the contract

a modified contract (prospective method)

new distinct goods or services are added BUT not at the regular stand-alone selling price

a new separate contract

new goods or services are added at the regular stand-alone selling price

a modified contract (cumulative catch-up method)

new non-distinct goods or services are added (construction contract)

most likely amount approach

the consideration is the single most likely amount within a range of possible variable consideration amounts (2 separate outcomes)

If a corporation fails to declare a dividend on cumulative preferred stock in a given year, the dividends in arrears accumulate from period to period. the dividends in arrears are recorded as liabilities. the common shareholders may still receive dividends in the current year. all of these options apply.

the dividends in arrears accumulate from period to period

In developing a compensatory share option plan, a company's objective is to motivate executives and employees to manage the company in a way that increases stock price. to decrease employee turnover. to enhance compensation packages without having to expend cash. to do all of these options.

to do all of these options

Which of the following journal entries is not made in the first period of a long-term contract if the company cannot make reasonably dependable estimates of the progress toward satisfaction of the performance obligation? To record construction costs. To record partial billings. To record cash collections from the customer. To record gross profit.

to record gross profit

The shares of capital stock that a corporation has issued to and reacquired from shareholders but not retired is called authorized capital stock. subscribed capital stock. outstanding capital stock. treasury stock.

treasury stock