ACCT 304 Final Review

Johnston Controls began operation in 2014 using FIFO inventory methods. In 2015, management decided they should have chosen LIFO to more accurately portray financial position and performance. The beginning 2015 inventory using FIFO was $100,000. Under the LIFO method the beginning inventory would have been $120,000. The adjustment to inventory for the accounting principal change for 2014 would be:

$0

Ripa, Inc. issued 5000 of its $1000 par value bonds for $1000, providing total cash proceeds of $5,000,000. The bonds contained non-detachable stock warrants. Similar bonds without the warrants were selling at $990. What amount of Paid-in-Capital - Stock Warrant will be recorded?

$0

Caesar Company issued 2700 shares of its $4 par value common stock for $10 per share. They will record ______ in the common stock account at par value and ______ as additional paid-in-capital.

$10,800; $16,200

Wilson Corp. issued $7,000,000 of 5% bonds on April 30 at par value. The bonds were dated January 1. The company pays interest on June 30 and December 31 each year. How much will the buyer need to pay the company in accrued interest?

$116,667

Harrison Corporation borrowed $42,000 from F&M Bank on June 1 of the current year. The bank required 6% interest. Interest will be paid when the nine-month note becomes due. What is the interest expense for the current year?

$1470

Price Co. reported net income of $18,000 for the current year. It had unrealized losses on available-for-sale securities of $1400 after tax, and a foreign currency translation loss of $500 after tax. What is the comprehensive income for the current year?

$16,100

In 2014, Squirrel Corp. recorded book income of $175,000. It has one temporary difference which relates to a $50,000 warranty expense that it recorded for book purposes, and no permanent differences. Squirrel anticipates satisfying this liability equally over the following two years. The current enacted tax rate is 40%. The enacted tax rates for the following four years are 30%, 35%, 30%, and 40%, respectively. Under US GAAP, what deferred tax amount should Squirrel Corp. record for this temporary difference?

$16,250

Mozart & Company paid cash dividends totaling $170,000 in 2013 and $90,000 in 2014. In 2015, the company will pay cash dividends of $800,000. There were no dividends in arrears as of January 1, 2013. There are 25,000 shares of common stock outstanding and 100,000 shares of 6%, $50 par cumulative preferred. What is the amount of cash dividends payable to common stockholder in 2015?

$160,000

Eagle Exporters purchased 40,000 of the 100,000 outstanding shares of Giant Distributors for $2,000,000. Eagle has significant influence over Giant and will account for this investment using the equity method. During the year, Giant declared dividends of $140,000 and reported Net Income of $800,000. What is the balance in the Investment in Giant account at year end?

$2,264,000

Svengool Inc. financial statements included the following amounts for the current year: Retired bonds: $67,000 Proceeds from collection of note receivable: $37,000 Dividends received: $11,000 Acquired production machinery: $59,000 Sold treasury stock: $41,000 Based on this information, what is the amount of net cash flows from financing activities?

$26,000 net outflow

On January 1, Year 1, Fields Corporation granted 100,000 stock options to certain executives. The options are exercisable no sooner than December 31, Year 3, and expire on January 1, Year 7. Each option can be exercised to acquire one share of $10 par common stock for $15. An appropriate option-pricing model estimates the fair value of each option to be $9 on the date of grant. What amount should Fields recognize as compensation expense for Year 1?

$300,000

Onopea Inc. considered two contingencies at the end of 2016: o A probable loss in the range of $300,000 to $700,000 o A reasonably possible loss of $180,000 Under US GAAP, what is the balance for contingent liabilities at the end of 2016?

$300,000

Gabbit Publishers sold 5000 annual subscriptions at $100 each on September 1. How much unearned revenue will be recognized for the year ending December 31?

$333,333

Teague Corporation permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 10% discount. During July, employees purchased 15,000 shares at a time when the established market price was $25 per share. Teague will record compensation expense associated with July purchases of:

$37,500

HdG, Inc. accepts a $100,000, 5% note from Aberdeen Unlimited on 4/1/16 and lends money to Aberdeen. Aberdeen agrees to pay 5 equal annual payments on this note beginning 3/31/17. The market rate at the date of issuance of this note was 5%. How much Interest Revenue will HdG record on 12/31/16, the end of its fiscal year?

$3750

Zambrano Corp. decided to go into the market to repurchase bonds before their due date. The following are in the balances of the accounts on the date of the retirement: o Bonds Payable: $5,000,000 o Bond Discount: $30,000 o Unamortized Bond Issue Cost: $50,000 o Cash Paid for Bonds: $4,877,000 What is the gain or loss on the early extinguishment of the bonds?

$43,000 gain

If a $9000 bond is issued with a conversion feature that is convertible into 20 shares of common stock, what is the implied exercise price of the shares?

$450

Ralirali Corporation's financial statements included the following amounts for the current year: Issued new shares of preferred stock: $98,000 Loaned cash to key supplier: $24,000 Bought new delivery truck: $54,000 Sold used production machinery: $29,000 Sold treasury stock: $31,000 Based on this information, what is the amount of net cash flows from investing activities?

$49,000 net outflow

Danio Fisheries issued 760,000 shares of $10 par value stock. The book value of Danio's common stockholders' equity is equal to $20 million. On August 1, Danio Fisheries implements a 2-for-1 stock split. After the stock split, the par value per share is _____ and the total book value is _____.

$5.00; $20 million

At the beginning of the current year, Miller Company has a net gain - Accumulated Other Comprehensive Net Income of $30,000,000. The Projected Benefit Obligation and the plan assets are $225,000,000 and $175,000,000 respectively. The average remaining service period for the employees to receive benefits is 15 years. What is the amount of amortization to pension expense for the year?

$500,000

Jorge Corp. issued $500,000 of 6%, 5-year bonds on January 2, 2016 for par. The company incurred $50,000 in bond issue costs. What is the correct amount of bond issue expense to be recorded each semi-annual interest period using GAAP?

$5000

In December 2016, Shooger Candy Company began including one coupon in each package of candy and offered customers a Stuffed Shooger Bear in exchange for $5 and five coupons. The stuffed bears cost Shooger $5.30 each. Eventually, it is expected that 40% of the coupons will be redeemed. During December, Shooger sold 220,000 packages on candy and no coupons were redeemed. In its December 31, 2016 balance sheet, what amount should Shooger report as estimated liability for the coupons?

$5280

Lifeline Biofuels built an oil rig at a cost of $8.5 million. The company estimates the oil rig will have a useful life of 20 years (with no salvage value), after which Federal regulations require that the oil rig must be dismantled and the land area restored. The fair value of the costs of this asset retirement project is $800,000. The present value of these asset retirement costs is $250,000 based on the 6% after-tax discount rate. What is the initial capitalized carrying value of the oil rig at the completion of construction?

$8,750,000

On February 1 of the current year, Greenstein Corporation leased equipment under a six-year noncancellable lease. The estimated economic of the equipment is ten years. The fair value of the equipment is $900,000. The lease does not contain a bargain purchase option or a transfer of title. Greenstein must classify this lease as a capital lease if the present value of the minimum lease payments is at least:

$810,000

Kelemen Asset Management invested in the bonds of DEF Co. on 1/1/16. Kelemen intends to hold the bonds until maturity. These 5-year bonds had a face value of $300,000, pay 5% interest on 6/30 and 12/31 of each year, and were issued when the market rate of interest was 6%, resulting in a cost of $287,205. How much interest revenue will Kelemen record on 6/30/16?

$8616

Hawks, Inc. has 72,000 shares authorized, 56,000 issued, and 20,000 shares of treasury stock. _____ shares are outstanding, and _______ are unissued.

36,000; 16,000

Blue Company's income before taxes is $400,000 and its tax rate is 40%. Blue included $40,000 of fines and penalties in the $400,000. There are no other book-tax differences. What is the effective tax rate for Blue Company?

44%

George Manufacturing had net income of $250,000 and declared preferred dividends of $25,000 during the current year. George began the year with 17,000 common shares outstanding. It issued 60,000 shares on June 30 and repurchased 12,000 of the newly issued shares on November 1. Compute George's weighted-average common shares outstanding for the year.

45,000

When must a company generally elect the fair value option for reporting assets?

A company must typically elect the fair value option at acquisition

Which one of the following is required in the notes to the financial statement for EPS?

A discussion of antidilutive securities that were excluded from the computation of diluted EPS

Which statement below most accurately describes the definition of a current note payable?

A note payable that will be liquidated from current assets or the creation of another current liability

Crystal Critters, Inc., a US GAAP reporter, has the deferred tax assets and liabilities presented below: Excess of warranty expense over warranty deductions -> Current -> $65,000 asset Accelerated depreciation for tax purposes -> Non-current -> $75,000 liability Installment sales receivable -> Current -> $35,000 liability Contingent liability-> Current -> $25,000 asset Assuming it meets the conditions to net assets and liabilities, what amount will the company report for the net current and non-current deferred taxes?

Net current deferred tax asset $55,000; non-current deferred tax liability $75,000

_______ differences between book income and taxable income result in an effective tax rate that differs from the statutory tax rate.

Permanent

Which of the following items would not be reported in the financing activities section of the statement of cash flows?

Receipt from note receivable

Which of the following is a disclosure that a lessee must make within its financial statements?

Rent expense for the three year period covered by the income statement

Which of the following is not a factor in calculating a defined benefit?

Return on plan assets

When accounting for cash dividends, a formal accounting entry is made for which dates?

The declaration date and payment date

Which one of the following is not a change in reporting entity?

The purchase of a new subsidiary

How are transfers between portfolios (i.e. from trading to available-for-sale) accounted for?

Transfers between portfolios are accounted for at fair value on the date of the transfer

A deferred tax asset represents a future reduction in income taxes payable.

True

Under some circumstances, the lessee does not record the leased asset and lease obligation on the balance sheet.

True

When pension plan assets exceed pension plan obligations, the pension plan is overfunded.

True

For equity securities are carried and reported as available for sale, when should a gain be reported on the income statement?

When the security is sold

What is the main difference in computing the selling price of a zero-coupon bond and the selling price of a traditional bond?

Zero-coupon bonds have zero interest paid during the term of the bond

In which of the following instances would a company most likely choose the carryforward option for a net operating loss?

the company expects higher tax rates in the future compared to the past

What is the account that is debited when the liability is initially capitalized for an asset retirement obligation to dismantle an ocean oil rig?

the oil rig asset account

What is the cost basis of an asset acquired under a capital lease?

the present value of the minimum lease payments excluding the executory costs

Which of the following would not be considered when evaluating whether to record a contingent loss for pending litigation?

the type of litigation involved

Firms account for material error corrections:

with the retrospective method

Stockholders' equity is also called:

net assets

The two major components of comprehensive income are ______ and _______.

net income; other comprehensive income

Treasury shares reduce the number of shares:

outstanding

When computing basic EPS, the numerator includes net income minus the:

preferred dividends for cumulative preferred stock

The selling price of a bond is the:

present value of par value plus the present value of the interest payments

The primary objective of the statement of cash flows is to:

provide information about a company's operating, financing, and investing activities over a period of time

John Pickens writes mystery novels. His publisher pays him royalties for books sold each year. He is paid royalties for the first half of the year on September 30 and the second half of the year on March 31 of the following year. He received $42,000 in September 2016. The publisher estimated that his royalties for the second half of the year would be $53,000. On March 31, 2017, he received $57,500. Assuming that he recorded $53,000 at December 31, 2016, what kind of change does this represent?

Change in estimate

Accounting changes detract from which one of the following enhancing qualitative characteristics of accounting?

Comparability

The most popular method of accounting for treasury stock is the ______ method.

Cost

What is the initial reporting basis for all investment securities?

Cost

Dante, Inc. reacquired 20,000 shares of its common stock for $18 per share on January 31. On March 1, they sold 7000 shares for $20 per share. On April 1, they sold 3000 shares for $15 per share. What is the necessary journal entry for March 1?

Debit Cash $140,000; Credit Treasury stock $126,000; credit APIC from Treasury Stock Transaction $14,000

On January 1 of the current year, Fields Corporation leased a machine from Kilmer Company. The machine originally cost Kilmer $450,000. The lease is an operating lease that requires for five annual payments of $54,000 beginning on January 1 of the current year. Which of the following journal entries should Kilmer record on January 1 of the current year?

Debit Cash $54,000; credit Unearned Rent Revenue $54,000

Mozart & Company issued 3000 shares of 5%, $60 par value, preferred stock for $160,000. The board of directors declared dividends on December 30, to be paid in January. What journal entry is necessary to record the declaration of dividends?

Debit Dividends - preferred $9000; credit Dividends payable - preferred $9000

Bach, Inc. issued 1500 shares of 8%, $130 par value, preferred stock for $120,000. The board of directors declared dividends on December 30, to be paid in January. What journal entry is necessary to record the payment of dividends?

Debit Dividends payable - preferred $15,600; credit Cash $15,600

Greene Co. has book income of $425,000 and a tax rate of 30%. Assuming there is no book-tax income difference, what will the journal entry be to record the income tax expense?

Debit Income tax expense $127,500; credit Income tax payable $127,500

If the valuation allowance is decreased, there is a(n) ______ to income tax expense and a(n) _______ to income tax benefit.

Decrease; increase

Which one of the following changes is not an accounting change?

Error

Which of the following statements regarding available for sale debt securities is true?

Fair value adjustments are treated as adjustments to other comprehensive income

Lessees capitalize expenditures for leasehold improvements as part of the carrying value of the leased asset.

False

The carrying value of liability-classified awards are not adjusted for changes in fair value.

False

What affect do unrealized holding gains and losses on available for sale securities have on retained earnings?

Gains: no change; Losses: no change

Fair values and subsequent growth of an investment are not relevant for reporting for which category of investments?

Held-to-maturity

Which of the following is a debt security for which management has both the positive intent and ability to hold the debt investment until all principal and interest is fully paid?

Held-to-maturity security

All of the following are key questions that must be addressed when accounting for investments in debt and equity securities except which one?

How is the return on equity impacted by this investment?

Given the following information from an amortization table for December 31, 2017, prepare the journal entry to record the accrual of interest at year end if the fiscal year of the company ends on September 30, assuming the last interest payment occurred on 6/30/2017: o 6% cash interest = $42,000 o 5% effective interest = $35,333 o Premium amortization = $6667 o Carrying value = $700,000

Interest expense debit $17,667; Premium on bonds payable debit $3334; Interest payable credit $21,001

Which of the following includes cash flows that relate to the acquisition and disposal of noncurrent assets?

Investing activities section

If a firm discovers a self-correcting error in the second year, and the books are still open, it:

should correct beginning retained earnings and any remaining accounts needed to correct the error for both years.

Changes in which of the following activities are included in operating activities?

Accounts payable

______ represents the amounts that common and preferred shareholders contribute in excess of the stated or par value

Additional paid-in capital

Companies are required to disclose the amount of income tax expense that is:

All of the above (current, non-current, and allocated to financial statements that are not part of income from continuing operations)

Under the indirect method, which of the following would be added to net income when determining net cash flows from operations?

Amortization expense

Which of the following statements regarding disclosures for stock-based compensation plans is false?

An entity must disclose information only for vested shares that are exercised and exercisable

Where are changes in fair value for available for sale securities reported?

As a component of accumulated other comprehensive income on the balance sheet

In February 2017, an explosion occurred at a Dinkol Company plant, causing damage to area properties. By April 15, 2017, no claims had yet been asserted against Dinkol. However, Dinkol's management and legal counsel have concluded that it is possible but not probable that Dinkol might be held responsible for negligence. Furthermore, they have determined that a reasonable estimate for the damages might be as much as $6,000,000. Dinkol's comprehensive public liability policy contains a $900,000 deductible clause. For Dinkol's December 31, 2016 financial statements, for which the auditor's fieldwork was completed in April 2015, how should this possible casualty loss be reported, if at all?

As a note disclosing a contingent loss of $900,000

Accounting standards require which one of the following groups of presentations on the income statement?

Basic and diluted EPS for all periods presented for income from continuing operations, discontinued operations, and net income.

Which of the following terms refers to gift card sales that are never redeemed?

Breakage

Keller Jewelers purchased 3,000,000 of the outstanding 10,000,000 shares of Angel & Associates. Keller has significant influence over Angel, so Keller will account for this investment using the equity method. Angel declared Net Income of $1,250,000 for the year. How will Angel's Net Income impact Keller's books?

Keller will increase the investment account and Income from the Investment for $375,000

Uncertain tax positions may results in a:

tax contingency

________ are shares for which the issuing entity has the right to "buy back" the shares at a specified price and future date

Callable preferred shares

Superbyte Corporation sells photographic equipment. Superbyte leases equipment to Laguna Madre Company on January 1 of the current year. The cost to manufacture the equipment was $12 million. The lease agreement between Superbyte and Laguna Madre had the following terms: The lease is noncancellable. The lease has no residual value or bargain purchase option. The lease term is 8 years; payments are made semiannually. Depreciation is recorded each December 31 using the straight-line approach. The economic life of the equipment is 8 years. The lessee's incremental borrowing rate and the implicit interest rate are both 12% annually. The lease's payments are $1,493,617 semiannually. The first payment is due at the inception of the lease; subsequent payments are made every July 1 and January 1. The fair value of the equipment at the inception of the lease is $16,000,000. Superbyte Corporation would account for this lease as:

a sales-type lease

What is the expense resulting from the increase in the carrying amount of an asset retirement obligation?

accretion expense

Which of the following is the proper way to report a probable contingent asset?

as a disclosure only

Where are changes in fair value for trading securities reported?

as operating income or loss on the income statement

The statement of cash flows assists financial statement users in all of the following ways except:

assessing the ability of the entity to satisfy its customers.

When applying the if-converted assumption for potentially diluted securities, conversions are assumed to occur at the:

at the beginning of the current year or on the issue date of the dilutive security if issued during the year

The total number of shares that a firm can legally issue are called:

authorized shares

Compensation expense associated with stock options is:

based upon the estimated fair value of the options

Income statement errors in the current year that do not affect the balance sheet may:

be self-correcting

The contract between a corporation and its bondholders is a:

bond indenture

For which one of the following changes is it appropriate to use the prospective method?

change in estimate

When computing diluted EPS, both the numerator and denominator are affected by:

convertible bonds

Financing liabilities require disclosure for all of the following except:

detailed disclosures of creditors

Which of the following is not an impairment indicator of investment securities?

fluctuating stock prices

When a potentially dilutive security is present, a company must test the security to see if it is dilutive or antidilutive. Antidilutive securities occur when the diluted EPS is:

greater than basic EPS

A company with convertible bonds outstanding will assume hypothetical conversion at the earliest point of the year to compute EPS. The numerator is:

increased by the after-tax expense for the fiscal year.

A primary benefit of reclassification of short-term debt into long-term debt is to improve:

liquidity ratios

Asset retirement obligations are:

long-term legal requirements to restore property

Under US GAAP, ________ preferred shares are classified as a liability.

mandatorily redeemable

Provisions for contingent losses are accrued because of the likelihood of an unfavorable outcome is:

more likely than not