Combo with "Accounting Chapter 15 test bank" and 3 others

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$1,450,000 - (3,000 × $28) - (3,000 × $35) + (1,800 × $30) + $450,000 = $1,765,000.

129

$154,000 - $32,000 - (900 × $18) = $105,800.

At the beginning of 2013, Hamilton Company had retained earnings of $180,000. During the year Hamilton reported net income of $75,000, sold treasury stock at a "gain" of $27,000, declared a cash dividend of $45,000, and declared and issued a small stock dividend of 1,500 shares ($10 par value) when the fair value of the stock was $30 per share. The amount of retained earnings available for dividends at the end of 2013 was: a. $214,500. b. $192,000. c. $187,500. d. $165,000.

$180,000 + $75,000 - $45,000 - (1,500 × $30) = $165,000.

At the beginning of 2013, Flaherty Company had retained earnings of $250,000. During the year Flaherty reported net income of $100,000, sold treasury stock at a "gain" of $36,000, declared a cash dividend of $60,000, and declared and issued a small stock dividend of 3,000 shares ($10 par value) when the fair value of the stock was $20 per share. The amount of retained earnings available for dividends at the end of 2013 was a. $230,000. b. $260,000. c. $266,000. d. $296,000.

$250,000 + $100,000 - $60,000 - (3,000 × $20) = $230,000.

Written, Inc. has outstanding 500,000 shares of $2 par common stock and 100,000 shares of no- par 8% 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 $250,000 will be distributed as a dividend in the current year, how much will the common stockholders receive? a. Zero. b. $130,000. c. $170,000. d. $210,000.

$250,000 - (100,000 × $5 × .08 × 3) = $130,000.

Mann Co. has outstanding 60,000 shares of 8% preferred stock with a $10 par value and 150,000 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 $300,000 is distributed, the common stockholders will receive a. $0. b. $204,000. c. $252,000. d. $300,000.

$300,000 - ($600,000 × 8% × 2) = $204,000.

Farmer Corp. owned 20,000 shares of Eaton Corp. purchased in 2009 for $300,000. On December 15, 2012, Farmer declared a property dividend of all of its Eaton Corp. shares on the basis of one share of Eaton for every 10 shares of Farmer common stock held by its stockholders. The property dividend was distributed on January 15, 2013. On the declaration date, the aggregate market price of the Eaton shares held by Farmer was $500,000. The entry to record the declaration of the dividend would include a debit to Retained Earnings of a. $0. b. $200,000. c. $300,000. d. $500,000.

$500,000 (fair value).

82 and 83

$700,000 + (2,000 × $5) - (500 × $10) = $705,000. (900,000 × $4) + (120,000 × $7) = $4,440,000.

$700,000 + (3,600 × $5) - (2,400 × $4) = $708,400.

$95,000 - $10,000 - (1,500 × $6) = $76,000.

($270,000 ÷ $10) × $21 = $567,000 [$21 - ($270,000 ÷ 30,000)] × 27,000 = $324,000 $567,000 - $324,000 = $243,000.

130

($300,000 × .08) + $12,000 = $36,000 $45,000 - $36,000 = $9,000.

Pember Corporation started business in 2007 by issuing 200,000 shares of $20 par common stock for $36 each. In 2012, 30,000 of these shares were purchased for $52 per share by Pember Corporation and held as treasury stock. On June 15, 2013, these 30,000 shares were exchanged for a piece of property that had an assessed value of $810,000. Perber's stock is actively traded and had a market price of $60 on June 15, 2013. 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 a. $1,200,000. b. $720,000. c. $585,000. d. $240,000.

($60 - $52) × 30,000 = $240,000.

($90,000 ÷ $10) × $21 = $189,000 [$21 - ($90,000 ÷ 10,000)] × 9,000 = $108,000 $189,000 - $108,000 = $81,000.

Melvern's Corporation has an investment in 10,000 shares of Wallace Company common stock with a cost of $436,000. These shares are used in a property dividend to stockholders of Melvern's. The property dividend is declared on May 25 and scheduled to be distributed on July 31 to stockholders of record on June 15. The fair value per share of Wallace stock is $63 on May 25, $66 on June 15, and $68 on July 31. The net effect of this property dividend on retained earnings is a reduction of a. $680,000. b. $660,000. c. $630,000. d. $436,000.

(10,000 × $63) = $630,000 $630,000 - ($630,000 - $436,000) = $436,000.

Gibbs Corporation owned 20,000 shares of Oliver Corporation's $5 par value common stock. These shares were purchased in 2009 for $240,000. On September 15, 2013, Gibbs declared a property dividend of one share of Oliver for every ten shares of Gibbs held by a stockholder. On that date, when the market price of Oliver was $21 per share, there were 180,000 shares of Gibbs outstanding. What NET reduction in retained earnings would result from this property dividend? a. $162,000 b. $378,000 c. $108,000 d. $216,000

(180,000 ÷ 10) × $21 = $378,000 $378,000 - [$378,000 - ($240,000 × 18/20)] = $216,000.

At April 1, 2013, Landis Co. sold the ritter bonds for $1,030,000. After accruing for interest, the carrying value of the Ritter bonds on April 1, 2013 was $1,033,750. 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. (29,370) b. (21,870) c. (3,750) d. 0

(3,750)

Winger Corporation owned 300,000 shares of Fegan Corporation stock. On December 31, 2012, when Winger's account "Equity Investment (Fegan Corporation") had a carrying value of $5 per share, Winger distributed these shares to its stockholders as a dividend. Winger originally paid $8 for each share. Fegan has 1,000,000 shares issued and outstanding, which are traded on a national stock exchange. The quoted market price for a Fegan share was $7 on the declaration date and $9 on the distribution date. What would be the reduction in Winger's stockholders' equity as a result of the above transactions? a. $1,200,000. b. $1,500,000. c. $2,400,000. d. $2,700,000.

(300,000 × $7) - [($7 - $5) × 300,000] = $1,500,000.

123

(6,000 × $18) = $108,000; (6,000 × $7) = $42,000.

On its December 31, 2012, balance sheet, Trump Co. reported its investment in available-for-sale securities, which had cost $600,000, at fair value of $550,000. At December 31, 2013, the fair value of the securities was $585,000. What should Trump report on its 2013 income statement as a result of the increase in fair value of teh investments in 2013? a. 0 b. unrealized loss of $15,000 c. realized gain of $35,000 d. unrealized gain of $35,000

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 a. 1 b. 2 c. 3 d. 1 or 3

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.

Patton Company purchased $600,000 of 10% bonds of Scott Co. on January 1, 2013, paying $564,150. The bonds mature January 1, 2023; interest is payable each July 1 and January 1. THe discount of $35,850 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. On July 1, 2013, Patton Company should increase its Debt Investments account for the Scott Co. bonds by a. 3,588 b. 2,056 c. 1,794 d. 1,028

1,028

Winger Corporation owned 300,000 shares of Fegan Corporation stock. On December 31, 2012, when Winger's account "Equity Investment (Fegan Corporation)" had a carrying value of $5 per share, Winger distributed these shares to its stockholders as a dividend. Winger originally paid $8 for each share. Fegan has 1,000,000 shares issued and outstanding, which are traded on a national stock exchange. The quoted market price for Fegan share was $7 on the declaration date and $9 on the distribution date. What would be the reduction in Winger's stockholders' equity as a result of the above transactions? a. 1,200,000 b. 1,500,000 c. 2,400,000 d. 2,700,000

1,500,000

Hernandez Company has 490,000 shares of $10 per value common stock outstanding. During the year, Hernandez declared a 10% stock dividend when the market price of the stock was $30 per share. Four months later Hernandez declared a $.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by a. 1,739,500 b. 735,000 c. 269,500 d. 245,000

1,739,500

Masterson Company has 420,000 shares of $10 par value common stock outstanding. During the year Masterson declared a 10% stock dividend when the market price of the stock was $36 per share. Three months later Masterson declared $.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by a. 1,789,000 b. 1,512,000 c. 277,200 d. 264,000

1,789,200

On October 1, 2012, Renfro Co. purchased to hold to maturity 2,000, $1,000, 9% bonds for $1,980,000 which includes $30,000 accrued interest. The bonds which mature on February 1, 2021, pay interest semiannually on February 1, and August 1. Renfro uses the stright line method of amortization. The bonds should be reported in the December 31, 2012 balance sheet at a carrying value of a. 1,950,000 b. 1,951,500 c. 1,980,000 d. 1,980,500

1,951,500

Anders, Inc., has 10,000 shares of 5%, $100 par value, cumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2013. There were no dividends declared in 2011. The board of directors declares and pays a $90,000 dividend in 2012 and in 2013. What is the amount of dividends received by the common stockholders in 2013? a. $30,000 b. $50,000 c. $90,000 d. $0

10,000 × $100 × .05 = $50,000 ($90,000 × 2) - ($50,000 × 3) = $30,000.

Zieglar Corporation purhcased 25,000 shares of common stock of the Sherman Corporation for $40 per share on January 2, 2010. Sharman Corporation had 100,000 shares of common stock outstanding during 2013, paid cash dividends of $120,000 during 2013, and reported net income of $400,000 for 2013. Ziegler Corproation should report revenue from investment for 2013 in the amoutn of a. 30,000 b. 70,000 c. 100,000 d. 110,000

100,000

Assuming that $105,000 will be distributed as a dividend in the current year, how much will the preferred stockholders receive? a. $35,000. b. $40,000. c. $80,000. d. $105,000.

100,000 × $5 × .08 × 3 = $120,000 > $105,000.

On January 1, 2012, Culver Corporation had 110,000 shares of its $5 par value common stock outstanding. On June 1, the corporation acquired 10,000 shares of stock to be held in the treasury. On December 1, when the market price of the stock was $8, the corporation declared a 15% stock dividend to be issued to stockholders of record on December 16, 2012. What was the impact of the 15% stock dividend on the balance of the retained earnings account? a. $ 75,000 decrease b. $120,000 decrease c. $132,000 decrease d. No effect

100,000 × .15 × $8 = $120,000.

120,000 × .15 × $20 = $360,000.

The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2012 are as follows: Goebel Company Balance Sheet December 31, 2012 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, 2012 Assets 900,000 Liabilities 225,000 Capital Stock 555,000 Retained Earnings 120,000 Total Equities 900,000 If Goebel Company acquired a 20% interest in Dobbs Company on December 31, 2011 for $135,000 and during 2013 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 2013 of a. 111,000 b. 135,000 c. 150,000 d. 144,000

135,000

On September 1, 2012, Valdez Company reacquired 16,000 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 $160,000. b. Common Stock for $160,000. c. Common Stock for $160,000 and Paid-in Capital in Excess of Par for $60,000. d. Treasury Stock for $240,000.

16,000 × $15 = $240,000.

160,000 × .10 × $35 = $560,000.

Yoder, Inc. has 100,000 shares of $10 par value common stock and 50,000 shares of $10 par value, 6%, cumulative, participating preferred stock outstanding. Dividends on the preferred stock are one year in arrears. Assuming that Yoder wishes to distribute $270,000 as dividends, the common stockholders will receive a. $60,000. b. $110,000. c. $160,000. d. $210,000.

160000

Gibbs Corporation owned 20,000 shares of Oliver Corporation's $5 par value common stock. These shares were purchased in 2009 for $180,000. On September 15, 2013, Gibbs declared a property dividend of one share of Oliver for every ten shares of Gibbs held by a stockholder. On that date, when the market price of Oliver was $21 per share, there were 180,000 shares of Gibbs outstanding. What NET reduction in retained earnings would result from this property dividend? a, 162,000 b. 378,000 c. 108,000 d. 216,000

162,000

The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2012 are as follows: Goebel Company Balance Sheet December 31, 2012 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, 2012 Assets 900,000 Liabilities 225,000 Capital Stock 555,000 Retained Earnings 120,000 Total Equities 900,000 If Goebel Company acquired a 20% interest in Dobbs Company on December 31, 2012 for $195,000 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. 135,000 b. 111,000 c. 195,000 d. 180,000

195,000

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 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

2,790,000 3,150,000

122

20,000 × $2 = $40,000.

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: A/Rec--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 how much cash was collected in 2013 on this contract? a. 150,000 b. 210,000 c. 30,000 d. 360,000

210,000

During 2012, Woods Company purchased 40,000 shares of Holmes Corp. common stock for $630,000 as an available for sale investment. The fair value of these shares was $600,000 at December 31, 2012. Woods sold all of the Holmes stock for $17 per share on December 3, 2013, incurring $28,000 in brokerage commissios. Woods Company should report a realized gain on the sale of stock in 2013 of a. 22,000 b. 50,000 c. 52,000 d. 80,000

22,000

The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2012 are as follows: Goebel Company Balance Sheet December 31, 2012 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, 2012 Assets 900,000 Liabilities 225,000 Capital Stock 555,000 Retained Earnings 120,000 Total Equities 900,000 If Goebel Company acquired a 30% interest in Dobbs Company on December 31, 2012 for $210,000 and during 2013 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 2013 of a. 210,000 b. 223,500 c. 232,500 d. 201,000

223,500

The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2012 are as follows: Goebel Company Balance Sheet December 31, 2012 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, 2012 Assets 900,000 Liabilities 225,000 Capital Stock 555,000 Retained Earnings 120,000 Total Equities 900,000 If Goebel Company acquired a 30% interest in Dobbs Company on December 31, 2912 for $225,000 and the equity method of accounting for the investment were used, the amount of the debit to Equity Investments (Dobbs) would have been a. 285,000 b. 225,000 c. 180,000 d. 202,500

225,000

At the beginning of 2012, Flaherty Company had retained earnings of $250,000. During the year Flaherty reported net income of $100,000, sold treasury stock at a "gain" of $36,000, declared a cash dividend of $60,000, and declared and issued a small stock dividend of 3,000 shares ($10 par value) when the fair value of the stock was $20 per share. The amount of retained earnings available for dividends at the end of 2013 was a. 230,000 b. 260,000 c. 266,000 d. 296,000

230,000

Oliver Co. uses the installment-sales method. When an account had a balance of $11,200, 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 $3,2000 as repossessed or for $4,000 if the company spent $400 reconditioning it. The gross profit rate on this sale was 70%. The gain or loss on repossession was a a. 7,840 loss b. 8,000 loss c. 800 gain d. 240 gain

240 gain

Kramer Company's trading securities portfolio which is appropriately included in current assets is as follows: December 31, 2012 Cost Fair Value Unrealized Gain Catlett Corp 250,000 205,000 (45,000) Lyman Inc. 245,000 265,000 20,000 495,000 470,000 (25,000) Ignoring income taxes, what amount should be reported as a charge against income in Kramer's 2012 income statement if 2012 is Kramer's first year of operation? a. 0 b. 20,000 c. 25,000 d. 45,000

25,000

Luther Inc., has 3,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2013, and December 31, 2012. The board of directors declared and paid a $7,500 dividend in 2012. In 2013, $36,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2013? a. $25,500 b. $18,000 c. $ 10,500 d. $ 9,000

3,000 × $50 × .06 = $9,000 ($9,000 - $7,500) + $9,000 = $10,500.

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. 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 Cage 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

3,348,000 930,000

On its December 31, 2012 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 2013 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 12/31/13 X 125,000 160,000 Y 100,000 85,000 Z 175,000 125,000 400,000 370,000 What amount of unrealized loss on these securities should be included in Calhoun's stockholders; equity section of the balance sheet at December 31, 2013? a. 40,000 b. 30,000 c. 10,000 d. 0

30,000

Instrument Corp. has the following investments which were held throughout 2012-2013: Fair Value Cost 12/31/12 12/31/13 Trading 450,000 600,000 570,000 Available for sale 450,000 480,000 540,000 What amount would be reported as accumulated other comprehensive income related to investments in Instrument Corp's balance sheet at December 31, 2012? a. 60,000 gain b. 90,000 gain c. 30,000 agin d. 180,000 gain

30,000 gain

Instrument Corp. has the following investments which were held throughout 2012-2013: Fair Value Cost 12/31/12 12/31/13 Trading 450,000 600,000 570,000 Available for sale 450,000 480,000 540,000 What amount of gain or loss would Instrument Corp. report in its income statement for the year ended December 31, 2013 related to its investments? a. 30,000 gain b. 30,000 loss c. 210,000 gain d. 120,000 gain

30,000 loss

On December 1, 2012, Abel Corporation exchanged 30,000 shares of its $10 par value common stock held in treasury for a used machine. The treasury shares were acquired by Abel at a cost of $40 per share, and are accounted for under the cost method. On the date of the exchange, the common stock had a fair value of $55 per share (the shares were originally issued at $30 per share). As a result of this exchange, Abel's total stockholders' equity will increase by a. $300,000. b. $1,200,000. c. $1,650,000. d. $1,350,000.

30,000 × $55 = $1,650,000.

Stinson Corporation owned 30,000 shares of Matile Corporation. These shares were purhcased in 2009 for $270,000. On November 15, 2013, Stinson declared a property dividend of one share of Matile for every ten shares of Stinson held by a stockholders. On that date, when the market price of Matile was $21 per share, there were 270,000 shares of Stinson outstanding. What gain and net reduction in retained earnings would result from this property dividend? Gain Net reduction in retained earnings a. 0 243,000 a. 0 567,000 a. 324,000 81,000 a. 324,000 243,000

324,000 243,000

On January 1, 2012, Dodd Inc., declared a 15% stock dividend on its common stock when the fair value of common stock was $20 per share. Stockholders' equity before the stock dividend was declared consisted of: Common stock, $10 part value, authorized 200,000 shares; issued and outstanding 120,000 shares 1,200,000 Additional paid-in capital on common stock 150,000 Retained earnings 700,000 Total stockholders' equity 2,050,000 What was the effect on Dodd's retained earnings as a result of the above transaction? a. 180,000 decrease b. 360,000 decrease c. 600,000 decrease d. 300,000 decrease

360,000 decrease

On January 2, 2013 Pod Company purchased 25% of the outstanding common stock of Jobs, Inc. and subsequentyly used the equity method to accoutn for the investment. During 2013, Jobs, Inc. reported net income of $630,000 and distributed dividends of $270,000. The ending balance in the Investment in Pod Company account at December 31, 2013 was $480,000 after applying the equity method during 2013. What was the purchase price Pod Company paid for its investment in Jobs, Inc? a. 255,000 b. 390,000 c. 570,000 d. 705,000

390,000

Gannon Company acquired 8,000 shares of its own common stock at $20 per share on February 5, 2012, and sold 4,000 of these shares at $27 per share on August 9, 2013. The fair value of Gannon's common stock was $24 per share at December 31, 2012, and $25 per share at December 31, 2013. The cost method is used to record treasury stock transactions. What account(s) should Gannon credit in 2013 to record the sale of 4,000 shares? a. Treasury Stock for $108,000. b. Treasury Stock for $80,000 and Paid-in Capital from Treasury Stock for $28,000. c. Treasury Stock for $80,000 and Retained Earnings for $28,000. d. Treasury Stock for $96,000 and Retained Earnings for $12,000.

4,000 × $20 = $80,000; 4,000 × $7 = $28,000.

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. 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 recognized for the year ended December 31, 2013? a. 8,100,000 b. 4,725,000 c. 4,792,500 d. 4,905,000

4,905,000

On its December 31, 2012 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 2013 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 12/31/13 X 125,000 160,000 Y 100,000 85,000 Z 175,000 125,000 400,000 370,000 The amount of unrealized loss to appear as a component of comprehensive incmoe fo the year ending December 31, 2013 is a. 40,000 b. 30,000 c. 10,000 d. 0

40,000

Masterson Company has 420,000 shares of $10 par value common stock outstanding. During the year Masterson declared a 10% 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. $1,789,200 b. $1,512,000 c. $277,200 d. $264,000

420,000 × .10 × $36) + (420,000 × 1.10 × $.60) = $1,789,200.

436,000

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 For the year ended December 31, 2013, Cooper would recognized gross profit on building of a. 421,667 b. 460,000 c. 540,000 d. 0

460,000

Hernandez Company has 490,000 shares of $10 par value common stock outstanding. During the year, Hernandez declared a 10% stock dividend when the market price of the stock was $30 per share. Four months later Hernandez declared a $.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by a. $1,739,500. b. $735,000. c. $269,500. d. $245,000

490,000 × .10 × $30 = $1,470,000 $1,470,000 + (490,000 × 1.10 × $.50) = $1,739,500.

Long Co. issued 100,000 shares of $10 par common stock for $1,200,000. Long acquired 10,000 shares of its own common stock at $15 per share. Three months later Long sold 5,000 of these shares at $19 per share. If the cost method is used to record treasury stock transactions, to record the sale of the 5,000 treasury shares, Long should credit a. Treasury Stock for $95,000. b. Treasury Stock for $50,000 and Paid-in Capital from Treasury Stock for $45,000. c. Treasury Stock for $75,000 and Paid-in Capital from Treasury Stock for $20,000. d. Treasury Stock for $75,000 and Paid-in Capital in Excess of Par for $20,000.

5,000 × $15 = $75,000; 5,000 × $4 = $20,000.

Presented below is information related to Hale Corporation Common stock, $1 par: $4,800,000 Paid-in capital in excess of par---common stock 550,00 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 paid-in capital (cash collected) related to the common stock is a. $4,800,000 b. $5,350,000 c. %5,750,000 d. $5,200,000

5,350,0000

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 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

5,520,000

The stockholders' equity of Howell Company at July 31, 2012 is presented below: Common stock, par value $20 authorized 400,000 shares; issued and outstanding 160,000 shares 3,200,000 Paid-in capital in excess of par 160,000 Retained earnings 650,000 On August 1, 2012 the board of directors of Howell declared a 10% stock dividend on common stock, to be distributed on September 15th. The market price of Howell's common stock was $35 on August 1, 2012, and $38 on Sepetmber 15, 2012. What is the amount of the debit to retained earnings as a result of the declaration and distribution of this stock dividend? a. 320,000 b. 560,000 c. 608,000 d. 400,000

560,000

Mingenback Company has 560,000 shares of $10 par value common stock outstanding. During the year Mingenback declared a 10% stock dividend when the market price of the stock was $48 per share. Two months later Mingenback declared a $.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by: a. $352,000. b. $369,600. c. $2,688,000. d. $3,057,600.

560,000 × .10 × $48) + (560,000 × 1.10 × $.60) = $3,057,600.

Hayes Construction Corporation contracted to construct a building for $3,000,000. Construtction began in 2012 and was completed in 2013. Data relating to the contract are summarized below: Year Ended 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

600,000 and 300,000

Patton Company purchased $600,000 of 10% bonds of Scott Co. on January 1, 2013, paying $564,150. The bonds mature January 1, 2023; interest is payable each July 1 and January 1. THe discount of $35,850 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, 2013, Patton Company should report interest revenue from the Scott Co. bonds of: a. 63,588 b. 62,113 c. 62,052 d. 60,000

62,113

Kern Company purchased bonds with a face amount of $600,000 between interest payment dates. Kern purcahsed the bonds at 102, paid brokerage costs of $9,000 and paid accrued interest for three months of $15,000. The amount to record as the cost of this long-term investment in bonds is a. 636,000 b. 621,000 c. 612,000 d. 600,000

621,000

Eilert Construction Company had a contract starting April 2013, to construct a $18,000,000 building that is expected to be completed in September 2014, at an estimated cost of $16,500,000. At the end of 2013, the costs to date were $7,590,000 and the estimated total costs to complete had not changed. The progress billings during 2013 were $3,600,000 and the cash collected during 2013 was $2,400,000. Eilert uses the percentage of completion method. For the year ended, December 31, 2013, Eilert would recognize gross profit on the building of a. 0 b. 632,500 c. 690,000 d. 810,000

690,000

The stockholders' equity section of Gunkel Corporation as of December 31, 2012, was a follows: Comon stock, par value $2; authorized 20,000 shares; issued and outstanding 10,000 shares $20,000 Paid-in capital in excess of par 30,000 Retained earnings 95,000 =145,000 On march 1, 2013, the board of directors declared a 15% stock dividend, and accordingly 1,5000 additional shares were issued. On March 1, 2011 the fair value of the stock was $6 per share. For the two months ended February 28, 2013, Gunkel sustained a net loss of $10,000. What amount should Gunkel report as retained earnings as of March 1, 2013? a. $76,000 b. $82,000 c. $86,000 d. $92,000

76,000

On June 30,2012 when Ermler Co.'s stock was selling at $65 per share, its capital accounts were as follows: Capital stock (par value $50; 80,000 shares issued) 4,000,000 Premium on capital stock 600,000 Retained Earnings 4,200,000 If a 100% stock dividend were declared and distributed, capital stock would be a. 4,000,000 b. 4,600,000 c. 8,000,000 d. 8,800,000

8,000,000

Eilert Construction Company had a contract starting April 2013, to construct a $18,000,000 building that is expected to be completed in September 2014, at an estimated cost of $16,500,000. At the end of 2013, the costs to date were $7,590,000 and the estimated total costs to complete had not changed. The progress billings during 2013 were $3,600,000 and the cash collected during 2013 was $2,400,000. Eilert uses the percentage of completion method. At December 31, 2013, Eilert would report Construction in Process in the amount of a. 8,280,000 b. 7,590,000 c. 7,080,000 d. 690,000

8,280,000

80,000 × $50) + $4,000,000 = $8,000,000.

Colson Inc. declared a $240,000 cash dividend. It currently has 9,000 shares of 7%, $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. $114,000. b. $126,000. c. $177,000. d. None.

9,000 × $100 × .07 = $63,000 $240,000 - ($63,000 × 2) = $114,000.

Presented below is information related to Hale Corporation Common stock, $1 par: $4,800,000 Paid-in capital in excess of par---common stock 550,00 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. $9,100,000 b. $9,250,000 c. $7,600,000 d. $7,750,000

9,100,000

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. 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 $10,900,000 due to unanticipated price increases. What is reported int he 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 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

930,000 Debit

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 available-for-sale securities where a company has holdings of less than 20%

On its December 31, 2010, balance sheet, Trump Co. reported its investment in available-for-sale securities, which had cost $600,000, at fair value of $550,000. At December 31, 2011, the fair value of the securities was $585,000. What should Trump report on its 2011 income statement as a result of the increase in fair value of the investments in 2011? a. $0. b. Unrealized loss of $15,000. c. Realized gain of $35,000. d. Unrealized gain of $35,000.

A. $0 $0 (available-for-sale securities).

During 2010, Woods Company purchased 20,000 shares of Holmes Corp. common stock for $315,000 as an available-for-sale investment. The fair value of these shares was $300,000 at December 31, 2010. Woods sold all of the Holmes stock for $17 per share on December 3, 2011, incurring $14,000 in brokerage commissions. Woods Company should report a realized gain on the sale of stock in 2011 of a. $11,000. b. $25,000. c. $26,000. d. $40,000.

A. $11,000 [(20,000 × $17) - $14,000] - $315,000 = $11,000.

On its December 31, 2010 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Securities Fair Value Adjustment (Available-for-Sale) account. There was no change during 2011 in the composition of Calhoun's portfolio of marketable equity securities held as available-for-sale securities. The following information pertains to that portfolio: Security Cost Fair value at 12/31/11 X $125,000 $160,000 Y 100,000 95,000 Z 175,000 125,000 $400,000 $380,000 The amount of unrealized loss to appear as a component of comprehensive income for the year ending December 31, 2011 is a. $30,000. b. $20,000. c. $10,000. d. $0.

A. $30,000 $10,000 + $20,000 = $30,000.

Morgan Corporation had two issues of securities outstanding: common stock and an 8% convertible bond issue in the face amount of $16,000,000. 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 $1,000 bond. On June 30, 2010, the holders of $2,400,000 face value bonds exercised the conversion privilege. The market price of the bonds on that date was $1,100 per bond and the market price of the common stock was $35. The total unamortized bond discount at the date of conversion was $1,000,000. In applying the book value method, what amount should Morgan credit to the account "paid-in capital in excess of par," as a result of this conversion? a. $330,000. b. $160,000. c. $1,440,000. d. $720,000.

A. $330,000 ($2,400,000 ÷ $1,000) × 40 × $20 = $1,920,000 (common stock) ($2,400,000 ÷ $16,000,000) × $1,000,000 = $150,000 (unamortized discount) $2,400,000 - $1,920,000 - $150,000 = $330,000.

On January 1, 2010, Reston Co. purchased 25% of Ace Corp.'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 $720,000 at December 31, 2010. Ace reported net income of $450,000 for the year ended December 31, 2010, and paid common stock dividends totaling $180,000 during 2010. How much did Reston pay for its 25% interest in Ace? a. $652,500. b. $765,000. c. $787,500. d. $877,500.

A. $652,000 $720,000 - ($450,000 × 25%) + ($180,000 × 25%) = $652,500.

Grimm Company has 1,800,000 shares of common stock outstanding on December 31, 2010. An additional 150,000 shares of common stock were issued on July 1, 2011, and 300,000 more on October 1, 2011. On April 1, 2011, Grimm issued 6,000, $1,000 face value, 8% convertible bonds. Each bond is convertible into 40 shares of common stock. No bonds were converted into common stock in 2011. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively, for the year ended December 31, 2011? a. 1,950,000 and 2,130,000 b. 1,950,000 and 1,950,000 c. 1,950,000 and 2,190,000 d. 2,250,000 and 2,430,000

A. 1,950,000 and 2,130,000

At December 31, 2010 Rice Company had 300,000 shares of common stock and 10,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2010 or 2011. On January 30, 2012, prior to the issuance of its financial statements for the year ended December 31, 2011, Rice declared a 100% stock dividend on its common stock. Net income for 2011 was $950,000. In its 2011 financial statements, Rice's 2011 earnings per common share should be a. $1.50. b. $1.58. c. $3.00. d. $3.17.

A. 1.50

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.

In order to retain certain key executives, Jensen Corporation granted them incentive stock options on December 31, 2009. 50,000 options were granted at an option price of $35 per share. Market prices of the stock were as follows: December 31, 2010 $46 per share December 31, 2011 51 per share The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2010. The Black-Scholes option pricing model determines total compensation expense to be $500,000. What amount of compensation expense should Jensen recognize as a result of this plan for the year ended December 31, 2010 under the fair value method? a. $250,000. b. $500,000. c. $550,000. d. $1,750,000.

A. 250,000 $500,000 ÷ 2 = $250,000.

Harrison should report investment revenue for 2011 of a. $320,000. b. $256,000. c. $64,000. d. $0.

A. 320,000 $800,000 × (20,000 ÷ 50,000) = $320,000.

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, 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.

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. No Effect Decrease b. Increase Decrease c. No Effect No Effect d. Decrease No Effect

A. No effect, Decrease

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.

A. Reflected currently in income but not as an extraordinary item

Rushia Company has an available-for-sale investment in the 10%, 10-year bonds of Pear Co. The investment's carrying value is $3,200,000 at December 31, 2010. On January 9, 2011, Rushia learns that Pear Co. has lost its primary manufacturing facility in an uninsured fire. As a result, Rushia determines that the investment is impaired and now has a fair value of $2,300,000. In June, 2012, Pear Co. has succeeded in rebuilding its manufacturing facility, and its prospects have improved as a result. If Rushia Company determines that the fair value of the investment is now $3,900,000 and is using U.S. GAAP for its external financial reporting, which of the following is true? a. Rushia is prohibited from recording the recovery in value of the impaired investment. b. Rushia may record a recovery of $900,000. c. Rushia may record a recovery of $700,000. d. Rushia may record a recovery of $1,600,000.

A. Rushia is prohibited from recordingthe recovery in value of the impaired investment.

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)? a. Annual preferred dividend b. Annual preferred dividend times (one minus the income tax rate) c. Annual preferred dividend times the income tax rate d. Annual preferred dividend divided by the income tax rate

A. annual preferred dividend

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. arbitrageurs

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 added, net of tax, to the numerator of the calculation for diluted earnings per share. c. 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. d. none of these.

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

The if-converted method of computing earnings per share data assumes conversion of convertible securities as of the a. beginning of the earliest period reported (or at time of issuance, if later). b. beginning of the earliest period reported (regardless of time of issuance). c. middle of the earliest period reported (regardless of time of issuance). d. ending of the earliest period reported (regardless of time of issuance).

A. beginning of the earliest period reported (or at time of issuance, if later).

Fogel Co. has $2,500,000 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, 2010, the holders of $800,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $175,000. Fogel should record, as a result of this conversion, a a. credit of $136,000 to Paid-in Capital in Excess of Par. b. credit of $120,000 to Paid-in Capital in Excess of Par. c. credit of $56,000 to Premium on Bonds Payable. d. loss of $8,000.

A. credit of $136,000 to Paid-in Capital in Excess of Par.

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. debit to Available-for-Sale Securities

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 a. Discount on Bonds Payable. b. Premium on Bonds Payable. c. Common Stock Subscribed. d. Paid-in Capital in Excess of Par—Stock Warrants.

A. discount on bonds payable

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. embedded derivative

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. held-to-maturity debt securities

With regard to recognizing stock-based compensation a. iGAAP and U.S. GAAP follow the same model. b. iGAAP and U.S. GAAP standards are undergoing major reform on valuation issues. c. it has been agreed that these standards will not be merged due to the differences in currencies. d. the reform of U.S. GAAP standards will not be addressed until iGAAP standards have been finalized.

A. iGAAP and U.S. GAAP follow the same model

With regard to contracts that can be settled in either cash or shares a. iGAAP requires that share settlement must be used. b. iGAAP gives companies a choice of either cash or shares. c. U.S. GAAP requires that share settlement must be used. d. the FASB project proposes that the IASB adopt the U.S. GAAP approach, requiring that share settlement must be used

A. iGAAP requires that share settlement must be used

A variable-interest entity has a. insufficient equity investment at risk. b. stockholders who have decision-making rights. c. stockholders who absorb the losses or receive the benefits of a normal stockholder. d. All of the above are characteristics of a variable-interest entity.

A. insufficient equity investment at risk

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.

A. is granted the option

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. 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.

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.

A. of grant

Koehn Corporation accounts for its investment in the common stock of Sells Company under the equity method. Koehn Corporation should ordinarily record a cash dividend received from Sells 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. reduction of the carrying value of the investment

The fair value option allows a company to a. value its own liabilities at fair value. b. record income when the fair value of its bonds increases. c. report most financial instruments at fair value by recording gains and losses as a separate component of stockholders' equity. d. All of the above are true of the fair value option.

A. value its own liabilities at fair value

On January 1, 2010, Korsak, Inc. established a stock appreciation rights plan for its executives. It entitled them to receive cash at any time during the next four years for the difference between the market price of its common stock and a pre-established price of $20 on 60,000 SARs. Current market prices of the stock are as follows: January 1, 2010 $35 per share December 31, 2010 38 per share December 31, 2011 30 per share December 31, 2012 33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2010. On December 31, 2012, 16,000 SARs are exercised by executives. What amount of compensation expense should Korsak recognize for the year ended December 31, 2012? a. $285,000 b. $195,000 c. $585,000 d. $78,000

A: 285,000 ($33 - $20) × 60,000 × .75 = $585,000 $585,000 - $300,000 = $285,000.

see word doc, question 101

B $135,000, acquisition cost.

see word doc, question 102

B $202,500 + ($75,000 × .3) - ($30,000 × .3) = $216,000.

see word doc, question 100

B $225,000, acquisition cost.

On its December 31, 2010 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Securities Fair Value Adjustment (Available-for-Sale) account. There was no change during 2011 in the composition of Calhoun's portfolio of marketable equity securities held as available-for-sale securities. The following information pertains to that portfolio: Security Cost Fair value at 12/31/11 X $125,000 $160,000 Y 100,000 95,000 Z 175,000 125,000 $400,000 $380,000 What amount of unrealized loss on these securities should be included in Calhoun's stockholders' equity section of the balance sheet at December 31, 2011? a. $30,000. b. $20,000. c. $10,000. d. $0.

B. $20,000 ($400,000 - $380,000) = $20,000.

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 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

On January 2, 2010 Pod Company purchased 25% of the outstanding common stock of Jobs, Inc. and subsequently used the equity method to account for the investment. During 2010 Jobs, Inc. reported net income of $420,000 and distributed dividends of $180,000. The ending balance in the Investment in Pod Company account at December 31, 2010 was $320,000 after applying the equity method during 2010. What was the purchase price Pod Company paid for its investment in Jobs, Inc? a. $170,000 b. $260,000 c. $380,000 d. $470,000

B. $260,000 X + [($420,000 - $180,000) × .25] = $320,000 X + $60,000 = $320,000 X = $260,000.

On December 31, 2010, Patel Co. purchased equity securities as trading securities. Pertinent data are as follows: Fair Value Security Cost At 12/31/11 A $132,000 $117,000 B 168,000 186,000 C 288,000 258,000 On December 31, 2011, 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, 2011? a. $3,000 gain. b. $27,000 loss. c. $30,000 loss. d. $45,000 loss.

B. $27,000 loss $18,000 - $15,000 - $30,000 = $27,000 loss.

Tracy Co. owns 4,000 of the 10,000 outstanding shares of Penn Corp. common stock. During 2010, Penn earns $120,000 and pays cash dividends of $40,000. If the beginning balance in the investment account was $240,000, the balance at December 31, 2010 should be a. $240,000. b. $272,000. c. $288,000. d. $320,000.

B. $272,000 $240,000 + ($120,000 × .4) - ($40,000 × .4) = $272,000

The following information relates to Windom Company for 2010: Realized gain on sale of available-for-sale securities $15,000 Unrealized holding gains arising during the period on available-for-sale securities 35,000 Reclassification adjustment for gains included in net income 10,000 Windom's 2010 other comprehensive income is a. $25,000. b. $40,000. c. $50,000. d. $60,000.

B. $40,000 $15,000 + $35,000 - $10,000 = $40,000.

Rich, Inc. acquired 30% of Doane Corp.'s voting stock on January 1, 2010 for $400,000. During 2010, Doane earned $160,000 and paid dividends of $100,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2011, Doane earned $200,000 and paid dividends of $60,000 on April 1 and $60,000 on October 1. On July 1, 2011, Rich sold half of its stock in Doane for $264,000 cash. The carrying amount of this investment in Rich's December 31, 2010 balance sheet should be a. $400,000. b. $418,000. c. $448,000. d. $460,000.

B. $418,000 $400,000 + $48,000 - ($100,000 × 30%) = $418,000.

Brown Corporation earns $240,000 and pays cash dividends of $80,000 during 2010. Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown. How much investment income should Dexter report in 2010? a. $80,000. b. $72,000. c. $48,000. d. $240,000.

B. $72,000 $240,000 × .3 = $72,000

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 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.

Kasravi Co. had net income for 2011 of $300,000. The average number of shares outstanding for the period was 200,000 shares. The average number of shares under outstanding options, at an option price of $30 per share is 12,000 shares. The average market price of the common stock during the year was $36. What should Kasravi Co. report for diluted earnings per share for the year ended 2011? a. $1.50 b. $1.49 c. $1.43 d. $1.42

B. 1.49

At December 31, 2010, Tatum Company had 2,000,000 shares of common stock outstanding. On January 1, 2011, Tatum issued 500,000 shares of preferred stock which were convertible into 1,000,000 shares of common stock. During 2011, Tatum declared and paid $1,500,000 cash dividends on the common stock and $500,000 cash dividends on the preferred stock. Net income for the year ended December 31, 2011, was $5,000,000. Assuming an income tax rate of 30%, what should be diluted earnings per share for the year ended December 31, 2011? (Round to the nearest penny.) a. $1.50 b. $1.67 c. $2.50 d. $2.08

B. 1.67

On January 2, 2010, Perez Co. issued at par $10,000 of 6% bonds convertible in total into 1,000 shares of Perez's common stock. No bonds were converted during 2010. Throughout 2010, Perez had 1,000 shares of common stock outstanding. Perez's 2010 net income was $3,000, and its income tax rate is 30%. No potentially dilutive securities other than the convertible bonds were outstanding during 2010. Perez's diluted earnings per share for 2010 would be (rounded to the nearest penny) a. $1.50. b. $1.71. c. $1.80. d. $3.42.

B. 1.71

At December 31, 2010, Sager Co. had 1,200,000 shares of common stock outstanding. In addition, Sager had 450,000 shares of preferred stock which were convertible into 750,000 shares of common stock. During 2011, Sager paid $600,000 cash dividends on the common stock and $400,000 cash dividends on the preferred stock. Net income for 2011 was $3,400,000 and the income tax rate was 40%. The diluted earnings per share for 2011 is (rounded to the nearest penny) a. $1.24. b. $1.74. c. $2.51. d. $2.84.

B. 1.74

Didde Co. had 300,000 shares of common stock issued and outstanding at December 31, 2010. No common stock was issued during 2011. On January 1, 2011, Didde issued 200,000 shares of nonconvertible preferred stock. During 2011, Didde declared and paid $100,000 cash dividends on the common stock and $80,000 on the preferred stock. Net income for the year ended December 31, 2011 was $620,000. What should be Didde's 2011 earnings per common share? a. $2.07 b. $1.80 c. $1.73 d. $1.47

B. 1.80

At December 31, 2011 and 2010, Miley Corp. had 180,000 shares of common stock and 10,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2011 or 2010. Net income for 2011 was $400,000. For 2011, earnings per common share amounted to a. $2.22. b. $1.94. c. $1.67. d. $1.11.

B. 1.94

On June 30, 2008, Norman Corporation granted compensatory stock options for 30,000 shares of its $20 par value common stock to certain of its key employees. The market price of the common stock on that date was $36 per share and the option price was $30. The Black-Scholes option pricing model determines total compensation expense to be $360,000. The options are exercisable beginning January 1, 2011, provided those key employees are still in Norman's employ at the time the options are exercised. The options expire on June 30, 2012. On January 4, 2011, when the market price of the stock was $42 per share, all 30,000 options were exercised. What should be the amount of compensation expense recorded by Norman Corporation for the calendar year 2010 using the fair value method? a. $0. b. $144,000. c. $180,000. d. $360,000.

B. 144,000 (360,000 * 12/30) = $144,000.

On December 1, 2010, Lester Company issued at 103, two 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, 2010, 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. $193,640. b. $195,700. c. $200,000. d. $206,000.

B. 195,700 ($200,000 × .95) + (200 × $50) = $200,000; $200,000 × 1.03 = $206,000 $190,000 ———— × $206,000 = $195,700. $200,000

Information concerning the capital structure of Piper Corporation is as follows: December 31, 2011 2010 Common stock 150,000 shares 150,000 shares Convertible preferred stock 15,000 shares 15,000 shares 9% convertible bonds $2,400,000 $2,400,000 During 2011, Piper paid dividends of $1.20 per share on its common stock and $3.00 per share on its preferred stock. The preferred stock is convertible into 30,000 shares of common stock. The 9% convertible bonds are convertible into 75,000 shares of common stock. The net income for the year ended December 31, 2011, was $600,000. Assume that the income tax rate was 30%. What should be the diluted earnings per share for the year ended December 31, 2011, rounded to the nearest penny? a. $3.20 b. $2.95 c. $2.83 d. $2.35

B. 2.95

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 2,000, $1,000 bonds with the warrants attached was $205,000. The market price of the Vernon bonds without the warrants was $180,000, and the market price of the warrants without the bonds was $20,000. What amount should be allocated to the warrants? a. $20,000 b. $20,500 c. $24,000 d. $25,000

B. 20,500 [$20,000 ÷ ($20,000 + $180,000)] × $205,000 = $20,500.

On May 1, 2010, Marly Co. issued $500,000 of 7% bonds at 103, which are due on April 30, 2020. 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, 2010, the fair value of Marly's common stock was $35 per share and of the warrants was $2. On May 1, 2010, Marly should credit Paid-in Capital from Stock Warrants for a. $35,000 b. $20,600 c. $20,000 d. $19,200

B. 20,600 500 × 20 × $2 = $20,000 ($20,000 ÷ $500,000) × $515,000 = $20,600.

April 1, 2010 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2011, $600,000 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, 2011 relating to the bonds converted? a. $23,400. b. $21,600. c. $11,700. d. $22,200.

B. 21,600 $117,000 ÷ 117 = $1,000/month $600,000 $117,000 - [($1,000 × 3) + ($1,000 × 6] × ————— = $21,600 $3,000,000

Litke Corporation issued at a premium of $5,000 a $100,000 bond issue convertible into 2,000 shares of common stock (par value $40). At the time of the conversion, the unamortized premium is $2,000, the market value of the bonds is $110,000, 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? a. $25,000 b. $22,000 c. $32,000 d. $40,000

B. 22,000 $100,000 + $2,000 - (2,000 × $40) = $22,000.

On January 1, 2010, Korsak, Inc. established a stock appreciation rights plan for its executives. It entitled them to receive cash at any time during the next four years for the difference between the market price of its common stock and a pre-established price of $20 on 60,000 SARs. Current market prices of the stock are as follows: January 1, 2010 $35 per share December 31, 2010 38 per share December 31, 2011 30 per share December 31, 2012 33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2010. What amount of compensation expense should Korsak recognize for the year ended December 31, 2010? a. $180,000 b. $270,000 c. $225,000 d. $1,080,000

B. 270,000 ($38 - $20) × 60,000 × .25 = $270,000.

On January 2, 2011, Mize Co. issued at par $300,000 of 9% convertible bonds. Each $1,000 bond is convertible into 30 shares. No bonds were converted during 2007. Mize had 50,000 shares of common stock outstanding during 2011. Mize 's 2011 net income was $160,000 and the income tax rate was 30%. Mize's diluted earnings per share for 2011 would be (rounded to the nearest penny) a. $2.71. b. $3.03. c. $3.20. d. $3.58.

B. 3.03

On January 2, 2011, Worth Co. issued at par $2,000,000 of 7% convertible bonds. Each $1,000 bond is convertible into 10 shares of common stock. No bonds were converted during 2011. Worth had 200,000 shares of common stock outstanding during 2011. Worth's 2011 net income was $600,000 and the income tax rate was 30%. Worth's diluted earnings per share for 2011 would be (rounded to the nearest penny): a. $3.49. b. $3.17. c. $3.00. d. $3.36.

B. 3.17

On January 1, 2010, Korsak, Inc. established a stock appreciation rights plan for its executives. It entitled them to receive cash at any time during the next four years for the difference between the market price of its common stock and a pre-established price of $20 on 60,000 SARs. Current market prices of the stock are as follows: January 1, 2010 $35 per share December 31, 2010 38 per share December 31, 2011 30 per share December 31, 2012 33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2010. What amount of compensation expense should Korsak recognize for the year ended December 31, 2011? a. $0 b. $30,000 c. $300,000 d. $150,000

B. 30,000 ($30 - $20) × 60,000 × .5 = $300,000 $300,000 - $270,000 = $30,000.

On June 30, 2010, Yang Corporation granted compensatory stock options for 20,000 shares of its $24 par value common stock to certain of its key employees. The market price of the common stock on that date was $31 per share and the option price was $28. Using a fair value option pricing model, total compensation expense is determined to be $64,000. The options are exercisable beginning January 1, 2012, providing those key employees are still in the employ of the company at the time the options are exercised. The options expire on June 30, 2013. On January 4, 2012, when the market price of the stock was $36 per share, all options for the 20,000 shares were exercised. The service period is for two years beginning January 1, 2010. Using the fair value method, what should be the amount of compensation expense recorded by Yang Corporation for these options on December 31, 2010? a. $64,000 b. $32,000 c. $15,000 d. $0

B. 32,000 $64,000 ÷ 2 = $32,000.

On January 1, 2011, Gridley Corporation had 125,000 shares of its $2 par value common stock outstanding. On March 1, Gridley sold an additional 250,000 shares on the open market at $20 per share. Gridley issued a 20% stock dividend on May 1. On August 1, Gridley purchased 140,000 shares and immediately retired the stock. On November 1, 200,000 shares were sold for $25 per share. What is the weighted-average number of shares outstanding for 2011? a. 510,000 b. 375,000 c. 358,333 d. 258,333

B. 375,000

Yoder, Incorporated, has 3,200,000 shares of common stock outstanding on December 31, 2010. An additional 800,000 shares of common stock were issued on April 1, 2011, and 400,000 more on July 1, 2011. On October 1, 2011, Yoder issued 20,000, $1,000 face value, 8% convertible bonds. Each bond is convertible into 20 shares of common stock. No bonds were converted into common stock in 2011. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively? a. 4,000,000 and 4,000,000 b. 4,000,000 and 4,100,000 c. 4,000,000 and 4,400,000 d. 4,400,000 and 5,200,000

B. 4,000,000 and 4,100,000

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.

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.

Foyle, Inc., had 560,000 shares of common stock issued and outstanding at December 31, 2010. On July 1, 2011, an additional 40,000 shares of common stock were issued for cash. Foyle also had unexercised stock options to purchase 32,000 shares of common stock at $15 per share outstanding at the beginning and end of 2011. The average market price of Foyle's common stock was $20 during 2011. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2011? a. 580,000 b. 588,000 c. 608,000 d. 612,000

B. 588,000

On January 1, 2011 Reese Company granted Jack Buchanan, an employee, an option to buy 100 shares of Reese Co. stock for $40 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 $1,200. Buchanan exercised his option on September 1, 2011, and sold his 100 shares on December 1, 2011. Quoted market prices of Reese Co. stock during 2011 were: January 1 $40 per share September 1 $48 per share December 1 $54 per share The service period is for two years beginning January 1, 2011. As a result of the option granted to Buchanan, using the fair value method, Reese should recognize compensation expense for 2011 on its books in the amount of a. $0. b. $600. c. $1,200 d. $1,400

B. 600 $1,200 ÷ 2 = $600.

On July 1, 2010, Ellison Company granted Sam Wine, an employee, an option to buy 400 shares of Ellison 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 $1,800. Wine exercised his option on October 1, 2010 and sold his 400 shares on December 1, 2010. Quoted market prices of Ellison Co. stock in 2010 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, 2010. As a result of the option granted to Wine, using the fair value method, Ellison should recognize compensation expense on its books in the amount of a. $1,800. b. $600. c. $450. d. $0.

B. 600 $1,800 ÷ 3 = $600.

Milo Co. had 600,000 shares of common stock outstanding on January 1, issued 126,000 shares on May 1, purchased 63,000 shares of treasury stock on September 1, and issued 54,000 shares on November 1. The weighted average shares outstanding for the year is a. 651,000. b. 672,000. c. 693,000. d. 714,000.

B. 672,000

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.

Chang Corporation issued $3,000,000 of 9%, ten-year convertible bonds on July 1, 2010 at 96.1 plus accrued interest. The bonds were dated April 1, 2010 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2011, $600,000 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 was the effective interest rate on the bonds when they were issued? a. 9% b. Above 9% c. Below 9% d. Cannot determine from the information given.

B. Above 9% Bonds issued at a discount, market rate > coupon rate.

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.

B. Book value method

On July 4, 2010, Chen Company issued for $4,200,000 a total of 40,000 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 $4,100,000. The market price of the rights on July 1, 2010, was $2.50 per right. On October 31, 2010, when the market price of the common stock was $19 per share and the market value of the rights was $3.00 per right, 16,000 rights were exercised. As a result of the exercise of the 16,000 rights and the issuance of the related common stock, what journal entry would Chen make? a. Cash 240,000 Common Stock 160,000 Paid-in Capital in Excess of Par 80,000 b. Cash 240,000 Paid-in Capital—Stock Warrants 40,000 Common Stock 160,000 Paid-in Capital in Excess of Par 120,000 c. Cash 240,000 Paid-in Capital—Stock Warrants 100,000 Common Stock 160,000 Paid-in Capital in Excess of Par 180,000 d. Cash 240,000 Paid-in Capital—Stock Warrants 60,000 Common Stock 160,000 Paid-in Capital in Excess of Par 140,000

B. Cash 240,000 Paid-in Capital—Stock Warrants 40,000 Common Stock 160,000 Paid-in Capital in Excess of Par 120,000 Dr. Cash: 16,000 × $15 = $240,000 Dr. Paid-in Capital—Stock Warrants: $100,000 × 16/40 = $40,000 Cr. Common Stock: 16,000 × $10 = $160,000 Cr. Paid-in Capital in Excess of Par: ($5 + $2.50) × 16,000 = $120,000.

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.

B. Expense

The primary iGAAP reporting standards related to financial instruments, including dilutive securities, is a. IAS 33. b. IAS 39. c. IFRS 2. d. IAS 2.

B. IAS 39

When computing diluted earnings per share, convertible securities are a. ignored. b. recognized only if they are dilutive. c. recognized only if they are antidilutive. d. recognized whether they are dilutive or antidilutive.

B. Recognized only if they are dilutive

Rushia Company has an available-for-sale investment in the 10%, 10-year bonds of Pear Co. The investment's carrying value is $3,200,000 at December 31, 2010. On January 9, 2011, Rushia learns that Pear Co. has lost its primary manufacturing facility in an uninsured fire. As a result, Rushia determines that the investment is impaired and now has a fair value of $2,300,000. In June, 2012, Pear Co. has succeeded in rebuilding its manufacturing facility, and its prospects have improved as a result. If Rushia Company determines that the fair value of the investment is now $2,900,000 and is using iGAAP for its external financial reporting, which of the following is true? a. Rushia is prohibited from recording the recovery in value of the impaired investment. b. Rushia may record a recovery of $600,000. c. Rushia may record a recovery of $900,000. d. Rushia may record a recovery, but is limited to 80% of the value of the recovery.

B. Rushia may record a recover of $600,000

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 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.

B. Share-based liability awards

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. The holder has to pay a certain amount of cash to obtain the shares

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 circum-stances 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. 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

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 Antidilutive a. Yes Yes b. Yes No c. No Yes d. No No

B. Yes, No

Due to the importance of earnings per share information, it is required to be reported by all Public Companies Nonpublic Companies a. Yes Yes b. Yes No c. No No d. No Yes

B. Yes, No

On July 1, 2010, an interest payment date, $60,000 of Parks Co. bonds were converted into 1,200 shares of Parks Co. common stock each having a par value of $45 and a market value of $54. There is $2,400 unamortized discount on the bonds. Using the book value method, Parks would record a. no change in paid-in capital in excess of par. b. a $3,600 increase in paid-in capital in excess of par. c. a $7,200 increase in paid-in capital in excess of par. d. a $4,800 increase in paid-in capital in excess of par.

B. a $3,600 increase in paid-in capital in excess of par. $800,000 + ($175,000 × .32) - (800 × 30 × $30) = $136,000.

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. a varying amount being recorded as interest income from period to period.

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. acquisition cost plus amortization of a discount

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

When applying the treasury stock method for diluted earnings per share, the market price of the common stock used for the repurchase is the a. price at the end of the year. b. average market price. c. price at the beginning of the year. d. none of these.

B. average market price

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. by using the fair value method

Dilutive convertible securities must be used in the computation of a. basic earnings per share only. b. diluted earnings per share only. c. diluted and basic earnings per share. d. none of these.

B. diluted earnings per share only

n May 1, 2010, Payne Co. issued $300,000 of 7% bonds at 103, which are due on April 30, 2020. 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, 2010, the fair value of Payne's common stock was $35 per share and of the warrants was $2. On May 1, 2010, Payne should record the bonds with a a. discount of $12,000. b. discount of $3,360. c. discount of $3,000. d. premium of $9,000

B. discount of 3,360 $300,000 - (288,000/300,000)*309,000= $3,360.

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. held-to-maturity at amortized cost.

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.

B. incentive stock option plan

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. its fair value at the date of the transfer

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. its fair value at the date of transfer

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. recorded in equity, as part of other comprehensive income

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. requires a large investment at the inception of the contract

see word doc, question 99

C $195,000, acquisition cost.

At December 31, 2010, Hancock Company had 500,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 100,000 of which were issued on October 1, 2010. Net income for the year ended December 31, 2010, was $1,020,000. What should be Hancock's 2010 earnings per common share, rounded to the nearest penny? a. $2.02 b. $2.55 c. $2.40 d. $2.27

C 2.40

Myers Co. acquired a 60% interest in Gannon Corp. on December 31, 2010 for $945,000. During 2011, Gannon had net income of $600,000 and paid cash dividends of $150,000. At December 31, 2011, the balance in the investment account should be a. $945,000. b. $1,305,000. c. $1,215,000. d. $1,395,000.

C. $1,215,000 $945,000 + ($600,000 × .6) - ($150,000 × .6) = $1,215,000.

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

At December 31, 2010, Jeter Corp. had the following equity securities that were purchased during 2010, its first year of operation: Fair Unrealized Cost Value Gain (Loss) Trading Securities: Security A $ 90,000 $ 60,000 $(30,000) B 15,000 20,000 5,000 Totals $105,000 $ 80,000 $(25,000) Available-for-Sale Securities: Security Y $ 70,000 $ 80,000 $ 10,000 Z 85,000 55,000 (30,000) Totals $155,000 $135,000 $(20,000) All market declines are considered temporary. Fair value adjustments at December 31, 2010 should be established with a corresponding charge against Income Stockholders' Equity a. $45,000 $ 0 b. $30,000 $30,000 c. $25,000 $20,000 d. $25,000 $ 0

C. $25,000 $20,000

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).

Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $300,000 on January 2, 2010. During 2010, Darby Company declared dividends of $50,000 and reported earnings for the year of $200,000. If Blanco Company used the fair value method of accounting for its investment in Darby Company, its Investment in Darby Company account on December 31, 2010 should be a. $290,000. b. $330,000. c. $300,000. d. $340,000.

C. $300,000 $300,000, acquisition cost.

Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $300,000 on January 2, 2010. During 2010, Darby Company declared dividends of $50,000 and reported earnings for the year of $200,000. If Blanco Company uses the equity method of accounting for its investment in Darby Company, its Investment in Darby Company account at December 31, 2010 should be a. $290,000. b. $300,000. c. $330,000. d. $340,000.

C. $330,000 $300,000 + ($200,000 × .2) - ($50,000 × .2) = $330,000.

Brown Corporation earns $240,000 and pays cash dividends of $80,000 during 2010. 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, 2010 if the beginning of the year balance in the account was $320,000? a. $392,000. b. $320,000. c. $368,000. d. $480,000.

C. $368,000 $320,000 + ($240,000 × .3) - ($80,000 × .3) = $368,000.

Rich, Inc. acquired 30% of Doane Corp.'s voting stock on January 1, 2010 for $400,000. During 2010, Doane earned $160,000 and paid dividends of $100,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2011, Doane earned $200,000 and paid dividends of $60,000 on April 1 and $60,000 on October 1. On July 1, 2011, Rich sold half of its stock in Doane for $264,000 cash. Before income taxes, what amount should Rich include in its 2010 income statement as a result of the investment? a. $160,000. b. $100,000. c. $48,000. d. $30,000.

C. $48,000 $160,000 × 30% = $48,000.

Rich, Inc. acquired 30% of Doane Corp.'s voting stock on January 1, 2010 for $400,000. During 2010, Doane earned $160,000 and paid dividends of $100,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2011, Doane earned $200,000 and paid dividends of $60,000 on April 1 and $60,000 on October 1. On July 1, 2011, Rich sold half of its stock in Doane for $264,000 cash. What should be the gain on sale of this investment in Rich's 2011 income statement? a. $64,000. b. $55,000. c. $49,000. d. $40,000.

C. $49,000 $418,000 - ($60,000 × 30%) + ($200,000 × 50% × 30%) = $430,000. $264,000 - ($430,000 ÷ 2) = $49,000.

Ziegler Corporation purchased 25,000 shares of common stock of the Sherman Corporation for $40 per share on January 2, 2008. Sherman Corporation had 100,000 shares of common stock outstanding during 2011, paid cash dividends of $60,000 during 2011, and reported net income of $200,000 for 2011. Ziegler Corporation should report revenue from investment for 2011 in the amount of a. $15,000. b. $35,000. c. $50,000. d. $55,000.

C. $50,000 $200,000 × (25,000 ÷ 100,000) = $50,000.

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 iGAAP journal entry will include a debit of a. $800,000 to Paid-in Capital — Convertible Bonds and a credit to Premium on Bonds Payable. b. $800,000 to Premium on Bonds Payable and a credit to Paid-in Capital — Convertible Bonds. c. $800,000 to Discount on Bonds Payable and a credit to Paid-in Capital — Convertible Bonds. d. $4,200,000 to Cash along with a debit of $800,000 to Discount on Bonds Payable and a credit to Bonds Payable and a credit to Paid-in Capital — Convertible Bonds.

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

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 December 31, 2010, Houser Company granted some of its executives options to purchase 45,000 shares of the company's $50 par common stock at an option price of $60 per share. The Black-Scholes option pricing model determines total compensation expense to be $900,000. The options become exercisable on January 1, 2011, and represent compensation for executives' past and future services over a three-year period beginning January 1, 2011. What is the impact on Houser's total stockholders' equity for the year ended December 31, 2010, as a result of this transaction under the fair value method? a. $900,000 decrease b. $300,000 decrease c. $0 d. $300,000 increase

C. 0 $900,000 - (900,000 * 2/3) = $300,000 increase (from the credit to Paid-in Capital—Stock Options). Offset by $300,000 decrease (from the debit to Compensation Expense).

Hill Corp. had 600,000 shares of common stock outstanding on January 1, issued 900,000 shares on July 1, and had income applicable to common stock of $1,050,000 for the year ending December 31, 2010. Earnings per share of common stock for 2010 would be a. $1.75. b. $.83. c. $1.00. d. $1.17.

C. 1.00

Colt Corporation purchased Massey Inc. and agreed to give stockholders of Massey Inc. 50,000 additional shares in 2012 if Massey Inc.'s net income in 2011 is $400,000 or more; in 2010 Massey Inc.'s net income is $410,000. Colt has net income for 2010 of $800,000 and has an average number of common shares outstanding for 2010 of 500,000 shares. What should Colt report as earnings per share for 2010? Basic Earnings Diluted Earnings Per Share Per Share a. $1.60 $1.60 b. $1.45 $1.60 c. $1.60 $1.45 d. $1.45 $1.45

C. 1.60, 1.45

At December 31, 2010 Pine Company had 200,000 shares of common stock and 10,000 shares of 4%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2010 or 2011. On February 10, 2012, prior to the issuance of its financial statements for the year ended December 31, 2011, Pine declared a 100% stock split on its common stock. Net income for 2011 was $720,000. In its 2011 financial statements, Pine's 2011 earnings per common share should be a. $3.40. b. $3.20. c. $1.70. d. $1.00.

C. 1.70

Beaty Inc. purchased Dunbar Co. and agreed to give stockholders of Dunbar Co. 10,000 additional shares in 2012 if Dunbar Co.'s net income in 2011 is $500,000; in 2010 Dunbar Co.'s net income is $520,000. Beaty Inc. has net income for 2010 of $200,000 and has an average number of common shares outstanding for 2010 of 100,000 shares. What should Beaty report as diluted earnings per share for 2010? a. $2.22 b. $2.00 c. $1.82 d. $1.67

C. 1.82

On December 31, 2010, Kessler Company granted some of its executives options to purchase 50,000 shares of the company's $10 par common stock at an option price of $50 per share. The options become exercisable on January 1, 2011, and represent compensation for executives' services over a three-year period beginning January 1, 2011. The Black-Scholes option pricing model determines total compensation expense to be $300,000. At December 31, 2011, none of the executives had exercised their options. What is the impact on Kessler's net income for the year ended December 31, 2011 as a result of this transaction under the fair value method? a. $100,000 increase b. $0 c. $100,000 decrease d. $300,000 decrease

C. 100,000 decrease $300,000 ÷ 3 = $100,000.

n May 1, 2010, Payne Co. issued $300,000 of 7% bonds at 103, which are due on April 30, 2020. 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, 2010, the fair value of Payne's common stock was $35 per share and of the warrants was $2. On May 1, 2010, Payne should credit Paid-in Capital from Stock Warrants for a. $11,520. b. $12,000. c. $12,360. d. $21,000.

C. 12,360 ($300,000 × .96) + (6,000 × $2) = $300,000; $300,000 × 1.03 = $309,000 $12,000 ———— × $309,000 = $12,360. $300,000

During 2010, Gordon Company issued at 104 three 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. $12,000 c. $12,480 d. $11,856

C. 12,480 ($300,000 × .96) + (300 × $40) = $300,000; $300,000 × 1.04 = $312,000 $12,000 ———— × $312,000 = $12,480. $300,000

On January 1, 2011, Evans Company granted Tim Telfer, an employee, an option to buy 1,000 shares of Evans Co. stock for $25 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 $7,500. Telfer exercised his option on September 1, 2011, and sold his 1,000 shares on December 1, 2011. Quoted market prices of Evans Co. stock during 2011 were January 1 $25 per share September 1 $30 per share December 1 $34 per share The service period is for three years beginning January 1, 2011. As a result of the option granted to Telfer, using the fair value method, Evans should recognize compensation expense for 2011 on its books in the amount of a. $9,000. b. $7,500. c. $2,500. d. $1,500.

C. 2,500 $7,500 ÷ 3 = $2,500.

The following information is available for Barone Corporation: January 1, 2011 Shares outstanding 1,250,000 April 1, 2011 Shares issued 200,000 July 1, 2011 Treasury shares purchased 75,000 October 1, 2011 Shares issued in a 100% stock dividend 1,375,000 The number of shares to be used in computing earnings per common share for 2011 is a. 2,825,500. b. 2,737,500. c. 2,725,000. d. 1,706,250.

C. 2,725,000

At December 31, 2010, Emley Company had 1,200,000 shares of common stock outstanding. On September 1, 2011, an additional 400,000 shares of common stock were issued. In addition, Emley had $12,000,000 of 6% convertible bonds outstanding at December 31, 2010, which are convertible into 800,000 shares of common stock. No bonds were converted into common stock in 2011. The net income for the year ended December 31, 2011, was $4,500,000. Assuming the income tax rate was 30%, what should be the diluted earnings per share for the year ended December 31, 2011, rounded to the nearest penny? a. $2.11 b. $3.38 c. $2.35 d. $2.45

C. 2.35

Lerner Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 10% convertible bonds outstanding during 2011. The preferred stock is convertible into 40,000 shares of common stock. During 2011, Lerner paid dividends of $.90 per share on the common stock and $3.00 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2011 was $600,000 and the income tax rate was 30%. Diluted earnings per share for 2011 is (rounded to the nearest penny) a. $2.14. b. $2.25. c. $2.35. d. $2.46.

C. 2.35

Shipley Corporation had net income for the year of $480,000 and a weighted average number of common shares outstanding during the period of 200,000 shares. The company has a convertible bond issue outstanding. The bonds were issued four years ago at par ($2,000,000), carry a 7% interest rate, and are convertible into 40,000 shares of common stock. The company has a 40% tax rate. Diluted earnings per share are a. $1.65 b. $2.23. c. $2.35. d. $2.58.

C. 2.35

Fultz Company had 300,000 shares of common stock issued and outstanding at December 31, 2010. During 2011, no additional common stock was issued. On January 1, 2011, Fultz issued 400,000 shares of nonconvertible preferred stock. During 2011, 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, 2011, was $960,000. What should be Fultz's 2011 earnings per common share, rounded to the nearest penny? a. $1.16 b. $2.10 c. $2.70 d. $3.20

C. 2.70

Grant, Inc. had 40,000 shares of treasury stock ($10 par value) at December 31, 2010, which it acquired at $11 per share. On June 4, 2011, Grant issued 20,000 treasury shares to employees who exercised options under Grant's employee stock option plan. The market value per share was $13 at December 31, 2010, $15 at June 4, 2011, and $18 at December 31, 2011. The stock options had been granted for $12 per share. The cost method is used. What is the balance of the treasury stock on Grant's balance sheet at December 31, 2011? a. $140,000. b. $180,000. c. $220,000. d. $240,000.

C. 220,000 20,000 × $11 = $220,000

On January 2, 2010, for past services, Rosen Corp. granted Nenn Pine, its president, 16,000 stock appreciation rights that are exercisable immediately and expire on January 2, 2011. On exercise, Nenn is entitled to receive cash for the excess of the market price of the stock on the exercise date over the market price on the grant date. Nenn did not exercise any of the rights during 2010. The market price of Rosen's stock was $30 on January 2, 2010, and $45 on December 31, 2010. As a result of the stock appreciation rights, Rosen should recognize compensation expense for 2010 of a. $0. b. $80,000. c. $240,000. d. $480,000.

C. 240,000 ($45 - $30) × 16,000 = $240,000.

On December 31, 2010, Gonzalez Company granted some of its executives options to purchase 100,000 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 $750,000. The options become exercisable on January 1, 2011, and represent compensation for executives' services over a three-year period beginning January 1, 2011. At December 31, 2011 none of the executives had exercised their options. What is the impact on Gonzalez's net income for the year ended December 31, 2011 as a result of this transaction under the fair value method? a. $250,000 increase. b. $750,000 decrease. c. $250,000 decrease. d. $0.

C. 250,000 decrease $750,000 ÷ 3 = $250,000 decrease.

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 10% convertible bonds outstanding during 2011. The preferred stock is convertible into 40,000 shares of common stock. During 2011, Hanson paid dividends of $1.20 per share on the common stock and $4 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2011 was $800,000 and the income tax rate was 30%. Diluted earnings per share for 2011 is (rounded to the nearest penny) a. $2.77. b. $2.81. c. $3.05. d. $3.33.

C. 3.05

Information concerning the capital structure of Piper Corporation is as follows: December 31, 2011 2010 Common stock 150,000 shares 150,000 shares Convertible preferred stock 15,000 shares 15,000 shares 9% convertible bonds $2,400,000 $2,400,000 During 2011, Piper paid dividends of $1.20 per share on its common stock and $3.00 per share on its preferred stock. The preferred stock is convertible into 30,000 shares of common stock. The 9% convertible bonds are convertible into 75,000 shares of common stock. The net income for the year ended December 31, 2011, was $600,000. Assume that the income tax rate was 30%. What should be the basic earnings per share for the year ended December 31, 2011, rounded to the nearest penny? a. $2.66 b. $2.92 c. $3.70 d. $4.00

C. 3.70

At December 31, 2010, Kifer Company had 500,000 shares of common stock outstanding. On October 1, 2011, an additional 100,000 shares of common stock were issued. In addition, Kifer had $10,000,000 of 6% convertible bonds outstanding at December 31, 2010, which are convertible into 225,000 shares of common stock. No bonds were converted into common stock in 2011. The net income for the year ended December 31, 2011, was $3,000,000. Assuming the income tax rate was 30%, the diluted earnings per share for the year ended December 31, 2011, should be (rounded to the nearest penny) a. $6.52. b. $4.80. c. $4.56. d. $4.00.

C. 4.56

On March 1, 2010, Ruiz Corporation issued $800,000 of 8% nonconvertible bonds at 104, which are due on February 28, 2030. 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, 2010, the fair market value of Ruiz's common stock was $40 per share and the fair market value of the warrants was $2.00. What amount should Ruiz record on March 1, 2010 as paid-in capital from stock warrants? a. $28,800 b. $33,600 c. $41,600 d. $40,000

C. 41,600 ($800,000 × .95) + (800 × 25 × $2) = $800,000; $800,000 × 1.04 = $832,000 $40,000 ———— × $832,000 = $41,600. $800,000

On January 1, 2010, Trent Company granted Dick Williams, an employee, an option to buy 100 shares of Trent 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 $900. Williams exercised his option on September 1, 2010, and sold his 100 shares on December 1, 2010. Quoted market prices of Trent Co. stock during 2010 were: January 1 $30 per share September 1 $36 per share December 1 $40 per share The service period is for two years beginning January 1,2010. As a result of the option granted to Williams, using the fair value method, Trent should recognize compensation expense for 2010 on its books in the amount of a. $1,000. b. $900. c. $450. d. $0.

C. 450 $900 ÷ 2 = $450.

If the beginning balance in the investment account was $500,000, the balance at December 31, 2011 should be a. $820,000. b. $660,000. c. $564,000. d. $500,000.

C. 564,000 $500,000 + [($800,000 - $640,000) × (20,000 ÷ 50,000)] = $564,000.

Warrants exercisable at $20 each to obtain 30,000 shares of common stock were outstanding during a period when the average market price of the common stock was $25. Application of the treasury stock method for the assumed exercise of these warrants in computing diluted earnings per share will increase the weighted average number of outstanding shares by a. 30,000. b. 24,000. c. 6,000. d. 7,500.

C. 6,000

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 January 1, 2010, Sharp Corp. granted an employee an option to purchase 6,000 shares of Sharp's $5 par value common stock at $20 per share. The Black-Scholes option pricing model determines total compensation expense to be $140,000. The option became exercisable on December 31, 2011, after the employee completed two years of service. The market prices of Sharp's stock were as follows: January 1, 2010 $30 December 31, 2011 50 For 2011, should recognize compensation expense under the fair value method of a. $90,000. b. $30,000. c. $70,000. d. $0.

C. 70,000 $140,000 ÷ 2 = $70,000.

Weiser Corp. on January 1, 2007, granted stock options for 40,000 shares of its $10 par value common stock to its key employees. The market price of the common stock on that date was $23 per share and the option price was $20. The Black-Scholes option pricing model determines total compensation expense to be $240,000. The options are exercisable beginning January 1, 2010, provided those key employees are still in Weiser's employ at the time the options are exercised. The options expire on January 1, 2011. On January 1, 2010, when the market price of the stock was $29 per share, all 40,000 options were exercised. The amount of compensation expense Weiser should record for 2009 under the fair value method is a. $0. b. $40,000. c. $80,000. d. $120,000.

C. 80,000 $240,000 ÷ 3 = $80,000/year.

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.

C. Allocated to the periods benefited by the employee's required service

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.

C. Allocated to the periods benefited by the employee's required service.

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 April 7, 2010, Kegin Corporation sold a $2,000,000, twenty-year, 8 percent bond issue for $2,120,000. 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 $2,000,000 Premium on Bonds Payable 77,600 Paid-in Capital—Stock Warrants 42,400 b. Bonds Payable $2,000,000 Premium on Bonds Payable 16,000 Paid-in Capital—Stock Warrants 84,000 c. Bonds Payable $2,000,000 Premium on Bonds Payable 35,200 Paid-in Capital—Stock Warrants 84,800 d. Bonds Payable $2,000,000 Premiums on Bonds Payable 120,000

C. Bonds Payable $2,000,000 Premium on Bonds Payable 35,200 Paid-in Capital—Stock Warrants 84,800 (2,000 × $1,008) + (4,000 × $21) = $2,100,000 $2,016,000 ————— × $2,120,000 = $2,035,200, bonds: $2,000,000 $2,100,000 $84,000 Premium: $35,200; ————— × $2,120,000 = $84,800. $2,100,000

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. Income, A reduction of the investment

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. Loans receivable

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. No, Yes

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.

C. That many corporations can obtain financing at lower rates.

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. The entry to amortize a premium to the date of sale includes a credit to the Premium on Investments in Debt Securities.

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.

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

Watt Co. 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 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. a debit to Held-to-Maturity Securities at $315,000

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. accrued interest is debited to Interest Revenue

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. any discount or premium is not amortized

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. available-for-sale debt securities.

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. combining or netting the fair value of separate financial instruments

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. cost including brokerage and other fees

What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively? a. Decrease and no effect b. Increase and no effect c. Decrease and increase d. Increase and decrease

C. decrease and increase

On May 1, 2010, Marly Co. issued $500,000 of 7% bonds at 103, which are due on April 30, 2020. 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, 2010, the fair value of Marly's common stock was $35 per share and of the warrants was $2. On May 1, 2010, Marly should record the bonds with a a. discount of $20,000. b. discount of $5,000. c. discount of $5,600. d. premium of $15,000.

C. discount of $5,600. ($500,000 × .96) + (500 × 20 × $2) = $500,000 ($480,000 ÷ $500,000) × ($500,000 × 1.03) = $494,400 $500,000 - $494,400 = $5,600.

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. effective-interest method of allocation should be used but other methods can be applied if there is no material difference in the results obtained

The accounting for fair value hedges records the derivative at its a. amortized cost. b. carrying value. c. fair value. d. historical cost.

C. fair value

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. gains and losses resulting from speculation should be deferred

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. market value plus brokerage fees and other cost incident to the purchase

Securities which could be classified as held-to-maturity are a. redeemable preferred stock. b. warrants. c. municipal bonds. d. treasury stock.

C. municipal bonds.

With respect to the computation of earnings per share, which of the following would be most indicative of a simple capital structure? a. Common stock, preferred stock, and convertible securities outstanding in lots of even thousands b. Earnings derived from one primary line of business c. Ownership interest consisting solely of common stock d. None of these

C. ownership interest consisting solely of common stock

"Gains trading" or "cherry picking" involves a. moving securities whose value has decreased since acquisition from available-for-sale to held-to-maturity in order to avoid reporting losses. b. reporting investment securities at fair value but liabilities at amortized cost. c. selling securities whose value has increased since acquisition while holding those whose value has decreased since acquisition. d. All of the above are considered methods of "gains trading" or "cherry picking."

C. selling securities whose value has increased since acquisition while holding those whose value has decreased since acquisition.

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. statement of comprehensive income as other comprehensive income

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. trading

Chang Corporation issued $3,000,000 of 9%, ten-year convertible bonds on July 1, 2010 at 96.1 plus accrued interest. The bonds were dated April 1, 2010 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2011, $600,000 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. If "interest payable" were credited when the bonds were issued, what should be the amount of the debit to "interest expense" on October 1, 2010? a. $64,500. b. $67,500. c. $70,500. d. $135,000.

C: 70,500 ($3,000,000 - $2,883,000) ÷ 117 = $1,000/month ($3,000,000 × .09 × 3/12) + ($1,000 × 3) = $70,500.

Terry Corporation had 300,000 shares of common stock outstanding at December 31, 2010. In addition, it had 90,000 stock options outstanding, which had been granted to certain executives, and which gave them the right to purchase shares of Terry's stock at an option price of $37 per share. The average market price of Terry's common stock for 2010 was $50. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2010? a. 300,000 b. 331,622 c. 366,600 d. 323,400

D 323,400

Valet Corp. began operations in 2010. An analysis of Valet's equity securities portfolio acquired in 2010 shows the following totals at December 31, 2010 for trading and available-for-sale securities: Trading Available-for-Sale Securities Securities Aggregate cost $90,000 $110,000 Aggregate fair value 65,000 95,000 What amount should Valet report in its 2010 income statement for unrealized holding loss? a. $40,000. b. $10,000. c. $15,000. d. $25,000.

D. $25,000 $90,000 - $65,000 = $25,000.

Tracy Co. owns 4,000 of the 10,000 outstanding shares of Penn Corp. common stock. During 2010, Penn earns $120,000 and pays cash dividends of $40,000. Tracy should report investment revenue for 2010 of a. $16,000. b. $32,000. c. $40,000. d. $48,000.

D. $48,000 $120,000 × .4 = $48,000.

On October 1, 2010, Wenn Co. purchased 600 of the $1,000 face value, 8% bonds of Loy, Inc., for $702,000, including accrued interest of $12,000. The bonds, which mature on January 1, 2017, 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, 2011 balance sheet, the carrying value of the bonds is a. $690,000. b. $684,000. c. $681,600. d. $672,000.

D. $672,000 $702,000 - $12,000 = $690,000 $690,000-(90,000 * 15/75)= 672,000

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).

In 2010, Eklund, Inc., issued for $103 per share, 60,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Eklund's $25 par value common stock at the option of the preferred stockholder. In August 2011, 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? a. $1,020,000. b. $780,000. c. $1,500,000. d. $1,680,000.

D. 1,680,000 $6,180,000 - (60,000 × 3 × $25) = $1,680,000.

Marsh Co. had 2,400,000 shares of common stock outstanding on January 1 and December 31, 2011. In connection with the acquisition of a subsidiary company in June 2010, Marsh is required to issue 100,000 additional shares of its common stock on July 1, 2012, to the former owners of the subsidiary. Marsh paid $200,000 in preferred stock dividends in 2011, and reported net income of $3,400,000 for the year. Marsh's diluted earnings per share for 2011 should be a. $1.42. b. $1.36. c. $1.33. d. $1.28.

D. 1.28

Lerner Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 10% convertible bonds outstanding during 2011. The preferred stock is convertible into 40,000 shares of common stock. During 2011, Lerner paid dividends of $.90 per share on the common stock and $3.00 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2011 was $600,000 and the income tax rate was 30%. Basic earnings per share for 2011 is (rounded to the nearest penny) a. $2.21. b. $2.42. c. $2.51. d. $2.70.

D. 2.70

Jordan 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. 20 periods and 4% from the present value of 1 table.

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 10% convertible bonds outstanding during 2011. The preferred stock is convertible into 40,000 shares of common stock. During 2011, Hanson paid dividends of $1.20 per share on the common stock and $4 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2011 was $800,000 and the income tax rate was 30%. Basic earnings per share for 2011 is (rounded to the nearest penny) a. $2.94. b. $3.22. c. $3.35. d. $3.60.

D. 3.60

On January 1, 2011, Ritter Company granted stock options to officers and key employees for the purchase of 10,000 shares of the company's $1 par common stock at $20 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, 2014 by grantees still employed by Ritter. The Black-Scholes option pricing model determines total compensation expense to be $90,000. The market price of common stock was $26 per share at the date of grant. The journal entry to record the compensation expense related to these options for 2011 would include a credit to the Paid-in Capital—Stock Options account for a. $0. b. $18,000. c. $20,000. d. $30,000.

D. 30,000 $90,000 ÷ 3 = $30,000.

In order to retain certain key executives, Smiley Corporation granted them incentive stock options on December 31, 2009. 80,000 options were granted at an option price of $35 per share. Market prices of the stock were as follows: December 31, 2010 $46 per share December 31, 2011 51 per share The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2010. The Black-Scholes option pricing model determines total compensation expense to be $800,000. What amount of compensation expense should Smiley recognize as a result of this plan for the year ended December 31, 2010 under the fair value method? a. $1,400,000. b. $880,000. c. $800,000. d. $400,000.

D. 400,00 $800,000 ÷ 2 = $400,000.

Stine Inc. had 300,000 shares of common stock issued and outstanding at December 31, 2010. On July 1, 2011 an additional 300,000 shares were issued for cash. Stine also had stock options outstanding at the beginning and end of 2011 which allow the holders to purchase 90,000 shares of common stock at $28 per share. The average market price of Stine's common stock was $35 during 2011. The number of shares to be used in computing diluted earnings per share for 2011 is a. 672,000 b. 618,000 c. 522,000 d. 468,000

D. 468,000

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.

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

Fugate Company had 500,000 shares of common stock issued and outstanding at December 31, 2010. On July 1, 2011 an additional 500,000 shares were issued for cash. Fugate also had stock options outstanding at the beginning and end of 2011 which allow the holders to purchase 150,000 shares of common stock at $20 per share. The average market price of Fugate's common stock was $25 during 2011. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2011? a. 1,030,000 b. 870,000 c. 787,500 d. 780,000

D. 780,000

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.

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.

D. All of these are characteristics

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. All of these are correct

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. All of these are required

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. Based on the relative market values of the two securities involved.

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

D. Book Value method

Dublin Co. holds a 30% stake in Club Co. which was purchased in 2011 at a cost of $3,000,000. After applying the equity method, the Investment in Club Co. account has a balance of $3,040,000. At December 31, 2011 the fair value of the investment is $3,120,000. Which of the following values is acceptable for Dublin to use in its balance sheet at December 31, 2011? I. $3,000,000 II. $3,040,000 III. $3,120,000 a. I, II, or III. b. I or II only. c. II only. d. II or III only.

D. II or III only

Which of the following are considered equity securities? I. Convertible debt. II. Redeemable preferred stock. III. Call or put options. a. I and II only. b. I and III only. c. II only. d. III only.

D. III only

Convertible BondsConvertible 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.

D. May be exchanged for equity securities

On December 29, 2011, James Co. sold an equity security that had been purchased on January 4, 2010. James owned no other equity securities. An unrealized holding loss was reported in the 2010 income statement. A realized gain was reported in the 2011 income statement. Was the equity security classified as available-for-sale and did its 2010 market price decline exceed its 2011 market price recovery? 2010 Market Price Decline Exceeded 2011 Available-for-Sale Market Price Recovery a. Yes Yes b. Yes No c. No Yes d. No No

D. No, No

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.

D. None of these

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. Premium on bonds payable

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. The effective-interest method produces a constant rate of return on the book value of the investment from period to period

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. The warrants issued with the debt securities are nondetachable

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. Transfer from available-for-sale to held-to-maturity

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.

D. Treated as a direct reduction of retained earnings

Judd, Inc., owns 35% of Cosby Corporation. During the calendar year 2010, Cosby had net earnings of $300,000 and paid dividends of $30,000. Judd 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. Understate, understate, understate

Under U.S. GAAP, which of the following models may be used to determine if an investment is consolidated? Risk-and-reward model Voting-interest approach a. Yes No b. No Yes c. No No d. Yes Yes

D. Yes, Yes

On January 2, 2010, Farr Co. issued 10-year convertible bonds at 105. During 2012, 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, 2010, cash proceeds from the issuance of the convertible bonds should be reported as a. paid-in capital for the entire proceeds. b. paid-in capital for the portion of the proceeds attributable to the conversion feature and as a liability for the balance. c. a liability for the face amount of the bonds and paid-in capital for the premium over the face amount. d. a liability for the entire proceeds.

D. a liability for the entire proceeds

When computing diluted earnings per share, convertible bonds are a. ignored. b. assumed converted whether they are dilutive or antidilutive. c. assumed converted only if they are antidilutive. d. assumed converted only if they are dilutive.

D. assumed converted only if they are dilutive

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 a. fairly present diluted earnings per share on a prospective basis. b. fairly present the maximum potential dilution of diluted earnings per share on a prospective basis. c. reflect the excess of the number of shares assumed issued over the number of shares assumed reacquired as the potential dilution of earnings per share. d. be antidilutive.

D. be antidilutive.

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. weighted by the number of months outstanding. c. considered outstanding at the beginning of the year. d. considered outstanding at the beginning of the earliest year reported.

D. considered outstanding at the beginning of the earliest year reported.

In determining diluted earnings per share, dividends on nonconvertible cumulative preferred stock should be a. disregarded. b. added back to net income whether declared or not. c. deducted from net income only if declared. d. deducted from net income whether declared or not.

D. deducted from net income whether declared or not

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. earnings are reported by the investee in its financial statements

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. equity method

Impairments are a. based on discounted cash flows for securities. b. recognized as a realized loss if the impairment is judged to be temporary. c. based on fair value for available-for-sale investments and on negotiated values for held-to-maturity investments. d. evaluated at each reporting date for every investment.

D. evaluated at each reporting date for every investment

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. preferred dividends in arrears. b. preferred dividends in arrears times (one minus the income tax rate). c. annual preferred dividend times (one minus the income tax rate). d. none of these.

D. none of these

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.

D. of exercise

Antidilutive securities a. should be included in the computation of diluted earnings per share but not basic earnings per share. b. are those whose inclusion in earnings per share computations would cause basic earnings per share to exceed diluted earnings per share. c. include stock options and warrants whose exercise price is less than the average market price of common stock. d. should be ignored in all earnings per share calculations.

D. 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 a. greater earnings adjustment. b. greater earnings per share adjustment. c. smaller earnings adjustment. d. smaller earnings per share adjustment.

D. smaller earnings per share adjustment

On August 1, 2012, Dambro Co. acquired 400, $1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1, 2012 and mature on April 30, 2018, 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 pruchase of the bonds on August 1, 2012 is a. Debt Investments 397,000 Cash 397,000 b. Debt Investments 388,000 Interest Receivable 9,000 Cash 397,000 c. Debt Investments 388,000 Interest Revenue 9,000 Cash 397,000 d. Debt Investments 400,000 Interest Revenue 9,000 Discount on Debt Investments 12,000 Cash 397,000

Debt Investments 388,000 Interest Revenue 9,000 Cash 397,000

On August 1, 2012 Fowler Company acquired $600,000 face value 10% bodns of Kasnic Corporation at 104 plus accrued interest. The bonds were dated May 1, 2012, and mature on April 30, 2017, 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, 2012? a. Debt Investments 624,000 Interest Revenue 15,000 Cash 639,000 b. Debt Investments 639,000 Cash 639,000 c. Debt Investments 639,000 Interest Revenue 15,000 Cash 624,000 d. Debt Investments 600,000 Premium on Bonds 39,000 Cash 639,000

Debt Investments 624,000 Interest Revenue 15,000 Cash 639,000

What effect does the issuance of a 2-for-1 stock split have on each of the following? Par Value per share Retained earnings a. No effect No effect b. Increase No effect c. Decrease No effect d. Decrease Decrease

Decrease; No effect

At December 31, 2013, Atlanta Co. has a stock portfolio values at $120,000. Its cost was 499,000. If the Securities Fair Value Adjustment (Available for sale) has a debit balance of $6,000. which of the following journal entries is required at December 31, 2013? a. Fair Value Adjustment (A-F-S) 21,000 Unrealized Holding Gain or loss--Equity 21,000 b. Fair Value Adjustment (A-F-S) 15,000 Unrealized Holding Gain or loss--Equity 15,000 c. Unrealized holding gain or loss--equity 21,000 Fair Value Adjustmetn (A-F-S) 21,000 d. Unrealized holding gain or loss--equity 15,000 Fair Value Adjustmetn (A-F-S) 15,000

Fair Value Adjustment (A-F-S) 15,000 Unrealized Holding Gain or loss--Equity 15,000

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

Par value

Which of the following is not an accurate representation concerning revenue recognition? a. Revenue from selling products is recognized at the date of sale, usually interpreted to mean the date of delivery to customers b. Revenue from services rendered is recognized when cash is received or when services have been performed c. Revenue from permitting others to use enterprise assets is recognized as time passes or as the assets are used d. Revenues from disposing of assets other than products is recognized at the date of sale

Revenue from services rendered is recognized when cash is received or when services have been performed

Gannon Company acquired 8,000 shares of its own common stock at $20 per share on February 5, 2012, and sold 4,000 of these shares at $27 per share on August 9, 2013. The fair value of Gannon's common stock was $24 per share at December 31, 2012, and $25 per share at December 31, 2013. The cost method is used to record treasury stock transactions. What account(s) should Gannon credit in 2013 to record the sale of 4,000 shares? a. Treasury stock for $108,000 b. Treasury Stock for $80,000 and Paid-in Capital from Treasury Stock for $28,000 c. Treasury Stock for $80,000 and Retained Earnings for $28,000 d. Treasury Stock for $96,000 and Retained Earnings for $12,000

Treasury Stock for $80,000 and Paid-in capital from Treasury Stock for $28,000

Mays, Inc. had net income for 2012 of $3,180,000 and earnings per share on common stock of $5. Included in the net income was $450,000 of bond interest expense related to its long-term debt. The income tax rate for 2012 was 30%. Dividends on preferred stock were $600,000. The payout ratio on common stock was 25%. What were the dividends on common stock in 2012? a. $645,000. b. $795,000. c. $723,750. d. $967,500.

X ——————————— = .25, X = $645,000. ($3,180,000 - $600,000)

Glavine Company issues 6,000 shares of its $5 par value common stock having a fair value of $25 per share and 9,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $312,000. The proceeds allocated to the common stock is a. $32,500 b. $141,818 c. $162,500 d. $170,182

[(6,000 × $25) ÷ [(6,000 × $25) + (9,000 × $20)]] × $312,000 = $141,818.

Wheeler Company issued 5,000 shares of its $5 par value common stock having a fair value of $25 per share and 7,500 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $260,000. The proceeds allocated to the preferred stock is a. $232,917 b. $162,500 c. $141,818 d. $118,182

[(7,500 × $20) ÷ [(5,000 × $25) + (7,500 × $20)]] × $260,000 = $141,818.

Spicer Corporation has a normal gross profit on installment sales of 30%. A 2011 sale resulted in a default early in 2013. At the date of default, the balance of the installment receivable was $40,000, and the repossessed merchandise had a fair value of $22,500. Assuming the repossessed merchandise is to be recorded at fair value, the gain or loss on repossession should be a. 0 b. a 5,500 loss c. a 5,500 gain d. a 12,500 loss

a 5,500 loss

A "secret reserve" will be created if a. inadecquate depreciation is charged to income b. a capital expenditure is charged to expense c. liabilities are understated d. stockholders' equity is overstated

a capital expenditure is charged to expense

Total stockholders' equity represents a. a claim to specific assets contributed by the owners b. the maximum amount that can be borrowed by the enterprise c. a claim against a portion of the total assets of an enterprise d. only the amount of earnings that have been retained in the business

a claim against a portion of the total assets of an enterprise

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

a footnote

A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to a. Retained Earnings b. a paid-in capital account c. Accumualted Depletion d. Accumulated Depreciation

a paid-in capital account

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

a reduction of the carrying amount of the investment

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 that 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

a varying amount being recorded as interest income from period to period

How should cumulative preferred dividends in arrears be shown in a corporation's statement of financial position? a. Note disclosure b. Increase in stockholders' equity c. Increase in current liabilities d. Increase in current liabilities for the amount expected to be declared within the year or operating cycle, and increase in long-term liabilities for the balance

a. Note disclosure

At the date of declaration of a small stock dividend the entry should not include a. a credit to Common Stock Dividend Payable. b. a credit to Paid-in Capital in Excess of Par. c. a debit to Retained Earnings. d. All of these are acceptable.

a. a credit to Common Stock Dividend Payable.

Porter Corp. purchased its own par value stock on January 1, 2012 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from a. 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. b. 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. c. retained earnings. d. net income.

a. 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.

In January 2012, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2012, 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.

A dividend which is a return to stockholders of a portion of their original investments is a a. liquidating dividend. b. property dividend. c. liability dividend. d. participating dividend.

a. liquidating dividend.

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

a. paid-in capital from treasury stock.

Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2012, Houser distributed these shares of stock as a dividend to its stockholders. This is an example of a a. property dividend. b. stock dividend. c. liquidating dividend. d. cash dividend.

a. property dividend.

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

acquisition cost plus amortization of a discount

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

addition to capital stock

An alternative availabe when the seller is exposed to continued risk of ownership through return of the product is a. recording the sale, and accounting for returns as they occur in future periods b. not recording a sale until all return privileges have expired c. recordning the sale, but reducing sales by an estimate of future returns d. all of these

all of these

The criteria for recognition of revenue at the completion of production of precious metals and farm products include a. an established market with quoted prices b. low additional costs of completion and selling c. units are interchangeable d. all of these

all of these

Which of the following is not a reason why revenue is recognized at time of sale? a. realization has occured b. the sale is the critical event c. title legally passes from seller to buyer d. all of these are reasons to recognize revenue at time of sale

all of these are reasons to recognize revenue at time of sale

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

all of these are required

In certain cases, revenue is recognized at the completion of production even though no sale has been made. Which of the following statements is not true? a. examples involve precious metals on farm equipment b. the products possess immediate marketability at quoted prices c. no significant costs are involved in selling the product d. all of these statements are true

all of these statements are true

Noncumulative preferred dividends in arrears a. are not paid or disclosed b. must be paid before any other cash dividends can be distributed c. are disclosed as a liability until paid d. are paid to preferred stockholders if sufficient funds remain after payment of the current preferred dividend

are not paid or disclosed

How should earned 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? a. as construction in process in the current asset section of the balance sheet b. as construction in process in the noncurrent asset section of the balance sheet c. as a receivable in the noncurrent asset section of the balance sheet d. in a note to the financial statements until the customer is formally billed for the portion of work completed

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

How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions? a. as ordinary earnings shown on the income statement b. as paid-in capital from treasury stock transactions c. as an increase in the amount shown for common stock d. as an extraordinary item shown on the income statement

as paid-in capital from treasury stock transactions

Which of the following represents the total number of shares that a corporation may issued under the terms of its charter? a. authorized shares b. issued shares c. unissued shares d. outstanding shares

authorized shares

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%

available for sale securities where a company has holdings of less than 20%

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On July 1, 2012, 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 $140,000. 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 a. $70,000. b. $84,000. c. $90,000. d. $77,000.

Nolte Co. has 4,000,000 shares of common stock outstanding on December 31, 2010. An additional 200,000 shares are issued on April 1, 2011, and 480,000 more on September 1. On October 1, Nolte issued $6,000,000 of 9% convertible bonds. Each $1,000 bond is convertible into 40 shares of common stock. No bonds have been converted. The number of shares to be used in computing basic earnings per share and diluted earnings per share on December 31, 2011 is a. 4,310,000 and 4,310,000. b. 4,310,000 and 4,370,000. c. 4,310,000 and 4,550,000. d. 5,080,000 and 5,320,000.

b. 4,310,000 and 4,370,000.

How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions? a. As ordinary earnings shown on the income statement. b. As paid-in capital from treasury stock transactions. c. As an increase in the amount shown for common stock. d. As an extraordinary item shown on the income statement.

b. As paid-in capital from treasury stock transactions.

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

Which of the following is not a legal restriction related to profit distributions by a corporation? a. The amount distributed to owners must be in compliance with the state laws governing corporations. b. The amount distributed in any one year can never exceed the net income reported for that year. c. Profit distributions must be formally approved by the board of directors. d. Dividends must be in full agreement with the capital stock contracts as to preferences and participation.

b. The amount distributed in any one year can never exceed the net income reported for that year.

A "secret reserve" will be created if a. inadequate depreciation is charged to income. b. a capital expenditure is charged to expense. c. liabilities are understated. d. stockholders' equity is overstated.

b. a capital expenditure is charged to expense.

A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to a. Retained Earnings. b. a paid-in capital account. c. Accumulated Depletion. d. Accumulated Depreciation.

b. a paid-in capital account.

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.

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

b. decreases retained earnings but does not change total stockholders' equity.

Match the approach and location where gains and losses from available-for-sale securities are reported: Location where gains/ Approach losses reported_ __ a. GAAP Equity b. iGAAP Equity c. GAAP Income d. iGAAP Comprehensive income

b. iGAAP Equity

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. included as a liability.

With regard to recognizing stock-based compensation under iGAAP the fair value of shares and options awarded to employees is recognized a. in the first fiscal period of the employees' service. b. over the fiscal periods to which the employees' services relate. c. in the last fiscal period of the employees' service when the total value can be calculated. d. after last fiscal period of the employees' service when the total value can be calculated.

b. over the fiscal periods to which the employees' services relate

When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the a. market value of the services received. b. par value of the shares issued. c. market value of the shares issued. d. Any of these provides an appropriate basis for recording the transaction.

b. par value of the shares issued.

legal capital is best defined as a. the amount of capital the state of incorporation allows the company to accumulate a corporate form of business organization, legal capital is best defined as over its existence. b. the par value of all capital stock issued. c. the amount of capital the federal government allows a corporation to generate. d. the total capital raised by a corporation within the limits set by the Securities and Exchange Commission.

b. the par value of all capital stock issued.

Stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders a. are entitled to a dividend every year in which the business earns a profit b. have the rights to specific assets of the business c. bear the ultimate risk and uncertainties and receive the benefits of enterprise ownership d. can negotiate individual contracts on behalf of the enterprise

bear the ultimate risk and uncertainties and receive the benefits of enterprise ownership

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

by using the fair value method

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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

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. Redeemable

Which of the following statements about property dividends is not true? a. A property dividend is usually in the form of securities of other companies. b. A property dividend is also called a dividend in kind. c. The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred. d. All of these statements are true.

c. The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred.

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.

Total stockholders' equity represents a. a claim to specific assets contributed by the owners. b. the maximum amount that can be borrowed by the enterprise. c. a claim against a portion of the total assets of an enterprise. d. only the amount of earnings that have been retained in the business.

c. a claim against a portion of the total assets of an enterprise.

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.

Younger Company has outstanding both common stock and nonparticipating, non- cumulative preferred stock. The liquidation value of the preferred is equal to its par value. The book value per share of the common stock is unaffected by a. the declaration of a stock dividend on preferred payable in preferred stock when the market price of the preferred is equal to its par value. b. the declaration of a stock dividend on common stock payable in common stock when the market price of the common is equal to its par value. c. the payment of a previously declared cash dividend on the common stock. d. a 2-for-1 split of the common stock.

c. the payment of a previously declared cash dividend on the common stock.

Dividends are not paid on a. noncumulative preferred stock. b. nonparticipating preferred stock. c. treasury common stock. d. Dividends are paid on all of these.

c. treasury common stock

The installment sales method of recognizing profit for accounting purposes is acceptable if a. collections in the year of sale do not exceed 30% of the total sales price b. an unrealized profit account is credited c. collection of the sales prices is not reasonably assured d. the method is consistently used for all sales of similar merchandise

collection of sales prices is not reasonably assured

The residual interest in a corporation belongs to the a. management b. creditors c. common stockholders d. preferred stockholders

common stockholders

One of the more popular input measures used to determine the progress toward completion in the percentage of completion method is a. revenue percentage basis b. cost percentage basis c. progress completion basis d. cost to cost basis

cost to cost basis

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On May 1, 2012, Ziek Corp. declared and issued a 10% common stock dividend. Prior to this dividend, Ziek had 100,000 shares of $1 par value common stock issued and outstanding. The fair value of Ziek 's common stock was $20 per share on May 1, 2012. As a result of this stock dividend, Ziek's total stockholders' equity a. increased by $200,000. b. decreased by $200,000. c. decreased by $10,000. d. did not change.

Berry Corporation has 50,000 shares of $10 par common stock authorized. The following transactions took place during 2012, the first year of the corporation's existence: Sold 10,000 shares of common stock for $18 per share. Issued 10,000 shares of common stock in exchange for a patent valued at $200,000. At the end of the Berry's first year, total paid-in capital amounted to a. $80,000. b. $180,000. c. $200,000. d. $380,000.

d. $380,000.(10,000 × $18) + $200,000 = $380,000.

Stock that has a fixed per-share amount printed on each stock certificate is called a. stated value stock. b. fixed value stock. c. uniform value stock. d. par value stock.

d. par value stock.

An entry is not made on the a. date of declaration b. date of record c. date of payment d. an entry is made on all of these dates

date of record

What effect does the issuance of a 2-for-1 stock split have on each of the following? Par Value per share Retained Earnings a. no effect no effect b. increase no effect c. decrease no effect d. decrease decrease

decrease no effect

In January 2012, Finely Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock of $15 per share. On July 1, 2012, Finely 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

decreased total stockholders' equity

Dot Point, Inc. is a retailer of washers and dryers and offers a three-year service contract on each appliance sold. Although Dot Point sells the appliances on an installment basis, all service contracts are cash sales at the time of purchase by the buyer. Colletions received for service constracts should be recorded as a. service revenue b. deferred service revenue c. a reduction in installment accounts receivable d. a direct addtion to retained earnings

deferred service revenue

When the entity has substantially accomplished waht it must do to be entitled to the benefits represented by the revenues, revenues are a. earned b. realized c. recognized d. all of these

earned

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

earnings are reported by the investee in its financial statements

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

embedded derivative

Impairments are a. based on discounted cash flows for securities b. recognized as a realized loss if the impairment is judged to be temporary c. based on fair value for available for sale investments and on negotiated values for held to maturity investments d. evaluated at each reporting date for every investment

evaluated at each reporting date for every investment

The principal disadvantage of using the percentage of completion method of recognizing revenue from long term contracts is that it a. is unacceptable for income tax purposes b. gives results based upon estimates which may be subject to considerable uncertainty c. is likely to assign a small amount of revenue to a period during which much revenue was actually earned d. none of these

gives results based upon estimates which may be subject to considerable uncertainty

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

issued but not outstanding shares

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

its fair value at the date of the transfer

A dividend which is a return to stockholders of a portion of their original investments is a a. liquidating dividend b. property dividend c. liability dividend d. participating dividend

liquidating dividend

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? a. progress billings as deferred income, construction in progress as a deferred expense b. progress billings as income, construction in process as inventory c. net, as a current asset if debit balance, and current liability if credit balance d. net, as income from construction if credit balance, and loss from construction if debit balance

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

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 account methods? Fair value method Equity Method a. no effect decrease b. increase decrease c. no effect no effect d. decrease no effect

no effect decrease

When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the a. market value of the services received b. par value of the shares issued c. market value of the shares issued d. any of these provides an appropriate basis for recording the transaction

par value of the shares issued

When work to be done and costs to be incurred on a long-term contract can be estimated dependably, which of the following methods of revenue recognition is preferable? a. installment sales method b. percentage of completion method c. completed contract method d. none of these

percentage of completion method

Substance over form is similar to (per class discussion) a. completed projects b. principles vs. rules c. gross profit vs. net profit d. conservatism vs. aggressive accounting

principles vs. rules

At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the a. declaration of a stock split b. declaration of a stock dividend c. purchase of treasury stock d. payment in full of subscribed stock

purchase of treasury stock

At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as the result of the a. declaration of a stock split b. declaration of a stock dividend c. purchase of treasury stock d. payment in full of subscribed stock

purchase of treasury stock

The process of formally recording or incorporating an item in the financial statements of an entity is a. allocation b. articulation c. realization d. recognition

recognition

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 a. recognized in the current period, regardless of whether the percentage of completion or completed contract method is employed b. recognized in the current period under the percentage of completion method but the completed contract method should defer recognition of the loss to the time when the contract is completed c. recognized in the current period under the completed-contract method, but the percentage of completion method should defer the loss until the contract is completed d. 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

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

recorded in equity, as part of other comprehensive income

The principal advantage of the completed contract method is that a. reported revenue is based on final results rather than estimates of unperformed work b. it reflects current performance when the period of a contract extends into more than one accounting period c. it is not necessary to recognize revenue at the point of sale d. a greater amount of gross profit and net income is reported than is the case when the percentage of completion method is used

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

under the completed contract method a. revenue cost, and gross profit are recognized during the production cycle b. revenue and cost are recognized during the production cycle, but gross profit recognition is deferred until the contract is completed c. revenue, cost and gross profit are recognized at the time the contract is completed d. none of these

revenue, cost and gross profit are recognized at the time the contract is completed

"Gains trading" or "cherry picking" involves a. moving securities whose value has decreased since acquisition from available for sale to held to maturity in order to avoid reporting losses b. reporting investment securities at fair value but liabilities at amortized cost c. selling securities whose value has increased since acquisition while holding those whose value has decreased since acquisition d. all of the above are considered methods of "gain trading" or "cherry picking"

selling securities whose value has increased since acquisition while holding those whose value has decreased since acquisition

The pre-emptive right of a common stockholder is the right to a. share proportionately in a corporate asset upon liquidation b. share proportionately in any new issues of stock of the same class c. receive cash dividends before they are distributed to preferred stockholders d. exclude preferred stockholders from voting rights

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

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

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

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

that there is no effect on total stockholders' equity

Which of the following is not a legal restriction related to profit distributions by a corporation? a. the amount distributed to owners must be in compliance with the state laws governing corporations b. the amount distributed in any one year can never exceed the net income reported for that year c. profit distributions must be formally approved by the board of directors d. dividends must be in full agreement with the capital stock contracts as to preferences and participation

the amount distributed in any one year can never exceed the net income reported for that year

The percentage of completion method must be used when certain conditions exist. Which of the following is not one of those necessary conditions? a. estimates of progress toward completion, revenues, and costs are reasonably dependable b. the contractor can be expected to perform the contractual obligation c. the buyer can be expected to satisfy some of the obligations under the contract d. the contract clearly specifies the enforceable rights of the parties, the consideration to be exchanged and the manner and terms of settlement

the buyer can be expected to satisfy some of the obligations under the contract

A sale should not be recognized as revenue by the seller at the time of sale if a. payment was made by check b. the selling price is less than the normal selling price c. the buyer has a right to return the product and the amount of future returns cannot be reasonably estimated d. none of these

the buyer has a right to return the product and the amount of future returns cannot be reasonably estimated

The FASB concluded that if a company sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at the time of sale only if all of six conditions have been met. Which of the following is not one of these six conditions? a. the amount of future returns can be reasonably estimated b. the seller's price is substantially fixed or determinable at time of sale c. the buyer's obligation to the seller would not be changed in the event of theft or damage of the product d. the buyer is obligated to pay the seller upon resale of the product

the buyer is obligated to pay the seller upon resale of the product

In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be a. the terms of payment in the contract b. the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable c. the method commonly used by the contractor to account for other long-term construction contracts d. the inherent nature of the contractor's technical facilities used in construction

the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable

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 a. total costs incurred to date b. total estimated cost c. unbilled portion of the contract price d. total contract price

total estimated cost

A debt security is transferred from one category to another. Generally accepted accounting principles require that for this particular reclassification (1) the security by transferred by 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 by 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

transfer from available for sale to held to maturity

Dividends are not paid on a. noncumulative preferred stock b. nonparticipating preferred stock c. treasury common stock d. dividend are paid on all of these

treasury common stock

Gannon Company acquired 8,000 shares of its own common stock at $20 per sahre on February 5, 2012, and sold 4,000 of these shares at $27 per share on August 9, 2013. The fair value of Gannon's common stock was $24 per share at December 31, 2012, and $25 per share at December 31, 2013. The cost method is used to record treasury stock transacations. What account(s) should Gannon credit in 2013 to record the sale of 4,000 shares? a. treasury stock for $108,000 b. treasury stock for $80,000 and Paid-in capital and treasury stock for $28,000 c. treasury stock for $80,000 and retained earnings for $28,000 d. treasury stock for $96,000 and retained earnings for $12,000

treasury stock for $80,000 and paid-in capital and treasury stock for $28,000

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 part value and paid-in capital in excess of par for the excess of the purchase price over the part 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 reatined earnings for the excess of the purchase price over the par value

treasury stock for the purchase price

Cost estimates at the end of the second year indicate a loss will result on completion of the entire contract. Which of the following statements is correct? a. under the completed contract method, the loss is not recognized until the year the construction is completed b. under the percentage of completion method, the gross profit recognized in the first year must not be changed 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 d. under the completed-contract method, when the construction in process balance exceeds the billings, the estimated loss is added to the accumulated costs

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

Judd, Inc., owns 35% of Cosby Corporation. During the calendar year 2012, Cosby had net earnings of $300,000 and paid dividends of $30,000. Judd 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

understate, understate, understate

Deferred gross profit on installment sales is generally treated as a(n) a. deduction from installment accounts receivable b. deduction from installment sales c. unearned revenue and classified as a current liability d. deduction from gross profit on sales

unearned revenue and classified as a current liability

The fair value option allows a company to a. value its own liabilities at fair value b. record income when the fair value of its bonds increases c. report most financial instruments at fair value by recording gains and losses as a separate component of stockholders' equity d. all of the above are true of the fair value option

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