Intermediate Exam II

On January 1, 2017, 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 120000 SARs. Current market prices of the stock are as follows: January 1, 2017 $35 per share December 31, 2017 38 per share December 31, 2018 30 per share December 31, 2019 33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2017. What amount of compensation expense should Korsak recognize for the year ended December 31, 2017? $ 450000 $ 540000 $ 360000 $2160000

$ 540000

On January 2, 2018, Mize Co. issued at par $300000 of 6% convertible bonds. Each $1,000 bond is convertible into 60 shares. No bonds were converted during 2018. Mize had 100000 shares of common stock outstanding during 2018. Mize's 2018 net income was $160000 and the income tax rate was 30%. Mize's diluted earnings per share for 2018 would be (rounded to the nearest penny) $1.46. $1.51. $1.35. $1.60.

$1.46.

At December 31, 2017, Tatum Company had 2000000 shares of common stock outstanding. On January 1, 2018, Tatum issued 500000 shares of preferred stock which were convertible into 1000000 shares of common stock. During 2018, Tatum declared and paid $1200000 cash dividends on the common stock and $400000 cash dividends on the preferred stock. Net income for the year ended December 31, 2018, was $5000000. Assuming an income tax rate of 30%, what should be diluted earnings per share for the year ended December 31, 2018? (Round to the nearest penny.) $2.07 $1.67 $1.50 $2.50

$1.67

Black Bear Construction Company has a contract to construct a $6,000,000 bridge at an estimated cost of $5,300,000. The contract is to start in July 2017, and the bridge is to be completed in October 2019. The following data pertain to the construction period. (Note that by the end of 2018, Black Bear has revised the estimated total cost from $5,300,000 to $5,400,000.) 2017 2018 2019 Costs to date $1,325,000 $3,780,000 $5,430,000 Estimated costs to complete 3,975,000 1,620,000 — Progress billings during the year 1,200,000 3,200,000 1,600,000 Cash collected during the year 1,000,000 2,340,000 2,660,000 What amount of gross profit should Black Bear recognize in 2019 using the percentage-of-completion method? $169,000 $210,000 $530,000 $150,000

$150,000

Hayes Construction Corporation contracted to construct a building for $7500000. Construction began in 2018 and was completed in 2019. Data relating to the contract are summarized below: Year endedDecember 31, 2018 2019 Costs incurred $3000000 $2250000 Estimated costs to complete 2000000 0 Hayes uses the percentage-of-completion method as the basis for income recognition. For the years ended December 31, 2018, and 2019, respectively, Hayes should report gross profit of $0 and $2250000. $1350000 and $900000. $4500000 and $3000000. $1500000 and $750000.

$1500000 and $750000.

Holt Company enters into a contract to build a new plant facility for Segal Company for $2,500,000. In the contract, Segal will pay a performance bonus of $100,000 if Holt is able to complete the facility by October 1, 2017. The performance bonus is reduced by 50% for each of the first two weeks after October 1, 2017. If the completion is delayed more than two weeks, then Holt forfeits the entire performance bonus. Holt's prior experience with performance bonuses on similar contracts indicates the following probabilities of completion outcomes: Completed by Probability October 1, 2017 80% October 8, 2017 10% October 15, 2017 5% After October 15, 2017 5% How much should Holt record as the transaction price of the contract and why? $2,500,000 because the performance bonus is not guaranteed. $2,586,250 because Holt should use the probability-weighted method. $2,600,000 because the most likely outcome is that Holt will deliver the facility by October 1, 2017. $2,461,250 because Holt should use the expected cost method.

$2,586,250 because Holt should use the probability-weighted method.

Hanson Co. had 200000 shares of common stock, 20000 shares of convertible preferred stock, and $1500000 of 5% convertible bonds outstanding during 2018. The preferred stock is convertible into 40000 shares of common stock. During 2015, Hanson paid dividends of $0.90 per share on the common stock and $3 per share on the preferred stock. Each $1,000 bond is convertible into 30 shares of common stock. The net income for 2018 was $600000 and the income tax rate was 30%.Diluted earnings per share for 2018 is (rounded to the nearest penny) $2.08. $2.29. $2.12. $2.50.

$2.29.

Fultz Company had 300000 shares of common stock issued and outstanding at December 31, 2017. During 2018, no additional common stock was issued. On January 1, 2018, Fultz issued 400000 shares of nonconvertible preferred stock. During 2018, Fultz declared and paid $180000 cash dividends on the common stock and $150000 on the nonconvertible preferred stock. Net income for the year ended December 31, 2018, was $960000. What should be Fultz's 2018 earnings per common share, rounded to the nearest penny? $2.70 $3.20 $1.15 $2.10

$2.70

Hanson Co. had 200000 shares of common stock, 20000 shares of convertible preferred stock, and $1500000 of 5% convertible bonds outstanding during 2018. The preferred stock is convertible into 40000 shares of common stock. During 2015, Hanson paid dividends of $0.9 per share on the common stock and $3 per share on the preferred stock. Each $1,000 bond is convertible into 30 shares of common stock. The net income for 2018 was $600000 and the income tax rate was 30%.Basic earnings per share for 2018 is (rounded to the nearest penny) $2.20. $2.70. $2.50. $2.42.

$2.70.

Hill Corp. had 600000 shares of common stock outstanding on January 1, issued 900000 shares on July 1, and had income applicable to common stock of $2940000 for the year ending December 31, 2018. Earnings per share of common stock for 2018 would be (rounded to the nearest penny) $4.90. $3.28. $2.32. $2.80.

$2.80.

Shipley Corporation had net income for the year of $720000 and a weighted average number of common shares outstanding during the period of 250000 shares. The company has a convertible bond issue outstanding. The bonds were issued four years ago at par ($3000000), carry a 7% interest rate, and are convertible into 50000 shares of common stock. The company has a 40% tax rate. Diluted earnings per share are (rounded to the nearest penny) $1.98. $2.68. $2.82. $3.10.

$2.82.

Kasravi Co. had net income for 2018 of $600000. The average number of shares outstanding for the period was 200000 shares. The average number of shares under outstanding options, at an option price of $30 per share is 12000 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 2018? (rounded to the nearest penny) $3.00 $2.97 $2.86 $2.83

$2.97

On January 1, 2018, Ellison Company granted Sam Wine, an employee, an option to buy 1,000 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 $6000. Wine exercised his option on October 1, 2018 and sold his 1,000 shares on December 1, 2018. Quoted market prices of Ellison Co. stock in 2018 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, 2018. As a result of the option granted to Wine, using the fair value method, Ellison should recognize compensation expense for 2018 on its books in the amount of $2000. $6000. $1500. $0

$2000.

Black Bear Construction Company has a contract to construct a $6,000,000 bridge at an estimated cost of $5,300,000. The contract is to start in July 2017, and the bridge is to be completed in October 2019. The following data pertain to the construction period. (Note that by the end of 2018, Black Bear has revised the estimated total cost from $5,300,000 to $5,400,000.) 2017 2018 2019 Costs to date $1,325,000 $3,780,000 $5,430,000 Estimated costs to complete 3,975,000 1,620,000 — Progress billings during the year 1,200,000 3,200,000 1,600,000 Cash collected during the year 1,000,000 2,340,000 2,660,000 What amount of gross profit should Black Bear recognize in 2018 using the percentage-of-completion method? $ 0 $245,000 $315,000 $270,000

$245,000

Adler Construction Co. uses the percentage-of-completion method. In 2018, Adler began work on a contract for $11000000 and it was completed in 2019. Data on the costs are: Year Ended December 31 20182019Costs incurred$3900000$2800000Estimated costs to complete26000000 For the years 2018 and 2019, Adler should recognize gross profit of 2018 2019 $2580000 $1720000 $0 $4300000 $2700000 $1600000 $2700000 $4300000

$2700000 $1600000

A company had the following outstanding shares as of January 1, year 2: Preferred stock, $60 par, 4%, cumulative 10,000 shares Common stock, $3 par 50,000 shares On April 1, year 2, the company sold 8,000 shares of previously unissued common stock. No dividends were in arrears on January 1, year 2, and no dividends were declared or paid during year 2. Net income for year 2 totaled $236,000. What amount is basic earnings per share for the year ended December 31, year 2? $4.21 $3.66 $3.79 $4.07

$3.79

On January 2, 2017, Morey Corp. granted Dean, its president, 20,000 stock appreciation rights for past services. Those rights are exercisable immediately and expire on January 1, 2020.On exercise, Dean is entitled to receive cash for the excess of the stock's market price on the exercise date over the market price on the grant date. Dean did not exercise any of the rights during 2017. The market price of Morey's stock was $30 on January 2, 2017 and $45 on December 31, 2017.As a result of the stock appreciation rights, Morey should recognize compensation expense for 2017 of $300,000. $100,000. $600,000. $0.

$300,000

On June 30, 2015, Norman Corporation granted compensatory stock options for 75000 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 $900000. The options are exercisable beginning January 1, 2018, provided those key employees are still in Norman's employ at the time the options are exercised. The options expire on June 30, 2019.On January 4, 2018, when the market price of the stock was $42 per share, all 75000 options were exercised. What should be the amount of compensation expense recorded by Norman Corporation for the calendar year 2017 using the fair value method? $450000. $900000. $0. $360000.

$360000.

Kiner, Inc. began work in 2018 on a contract for $21000000. Other data are as follows: 2018 2019 Costs incurred to date $9000000 $14000000 Estimated costs to complete 6000000 0 Billings to date 7000000 21000000 Collections to date 5000000 18000000 If Kiner uses the percentage-of-completion method, the gross profit to be recognized in 2018 is $4000000. $3600000. $5600000. $6000000.

$3600000.

Monroe Construction Company uses the percentage-of-completion method of accounting. In 2018, Monroe began work on a contract it had received which provided for a contract price of $37500000. Other details follow: 2018 Costs incurred during the year $18000000 Estimated costs to complete as of December 31 12000000 Billings during the year 16500000 Collections during the year 9500000 What should be the gross profit recognized in 2018? $7500000 $1500000 $19500000 $4500000

$4500000

Sherman Company enters into a contract with a customer to build a warehouse for $400,000, with a performance bonus of $100,000 that will be paid based on the timing of completion. The amount of the performance bonus decreases by 20% per week for every week beyond the agreed-upon completion date. The contract requirements are similar to contracts that Sherman has performed previously, and management believes that such experience is predictive for this contract. Management estimates that there is a 50% probability that the contract will be completed by the agreed-upon completion date, a 30% probability that it will be completed 1 week late, and a 20% probability that it will be completed 2 weeks late. What is the total transaction price for this revenue arrangement? $480,000 $486,000 $460,000 $500,000

$486,000

Sufjan Company has a contract to sell 200 units to a customer for $14,000. After 140 units have been delivered, Sufjan modifies the contact by promising to deliver 30 more units for an additional $60 per unit (the standalone selling price at the time of the contract modification). What is the additional revenue to be earned after the modification? $5,400 $6,300 $1,800 $6,000

$6,000

On January 1, 2017, 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 120000 SARs. Current market prices of the stock are as follows: January 1, 2017 $35 per share December 31, 2017 38 per share December 31, 2018 30 per share December 31, 2019 33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2017. What amount of compensation expense should Korsak recognize for the year ended December 31, 2018? $0 $60000 $600000 $300000

$60000

Gomez, Inc. began work in 2018 on contract #3814, which provided for a contract price of $19200000. Other details follow: 2018 2019 Costs incurred during the year $3200000 $9800000 Estimated costs to complete , as of December 31 9600000 0 Billings during the year 3600000 14400000 Collections during the year 2400000 15600000 Assume that Gomez uses the completed-contract method of accounting. The portion of the total gross profit to be recognized as income in 2019 is $6200000. $3600000. $19200000. $2400000.

$6200000.

During the current year, Comma Co. had outstanding: 25,000 shares of common stock, 8,000 shares of $20 par, 10% cumulative preferred stock, and 3,000 bonds that are $1,000 par and 9% convertible. The bonds were originally issued at par, and each bond was convertible into 30 shares of common stock. During the year, net income was $200,000, no dividends were declared, and the tax rate was 30%.What amount was Comma's basic earnings per share for the current year? $7.55 $7.36 $8.00 $3.38

$7.36

Kiner, Inc. began work in 2018 on a contract for $21000000. Other data are as follows: 2018 2019 Costs incurred to date $9000000 $14000000 Estimated costs to complete 6000000 0 Billings to date 7000000 21000000 Collections to date 5000000 18000000 If Kiner uses the completed-contract method, the gross profit to be recognized in 2019 is $7000000. $3500000. $14000000. $3000000.

$7000000.

Meyer & Smith is a full-service technology company. They provide equipment, installation services as well as training. Customers can purchase any product or service separately or as a bundled package. Container Corporation purchased computer equipment, installation and training for a total cost of $144000 on March 15, 2018. Estimated standalone fair values of the equipment, installation, and training are $90000, $60000, and $30000 respectively. The transaction price allocated to equipment, installation and training is $48000, $48000, $48000 respectively. $90000, $60000, $30000 respectively. $144000 for the entire bundle. $72000, $48000, $24000 respectively.

$72000, $48000, $24000 respectively.

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

Decrease and increase

Roche Pharmaceuticals entered into a licensing agreement with Zenith Lab for a new drug under development. Roche will receive $8100000 if the new drug receives FDA approval. Based on prior approval, Roche determines that it is 85% likely that the drug will gain approval. The transaction price of this arrangement should be $8100000. $6885000. $0 until approval is received. $1215000.

$8100000.

Cooper Construction Company had a contract starting April 2018, to construct a $24000000 building that is expected to be completed in September 2020, at an estimated cost of $22000000. At the end of 2018, the costs to date were $10120000 and the estimated total costs to complete had not changed. The progress billings during 2018 were $480000 and the cash collected during 2018 was 3200000. Cooper uses the percentage-of-completion method.For the year ended December 31, 2018, Cooper would recognize gross profit on the building of: $0. $843333. $920000. $11880000.

$920000.

Marle Construction enters into a contract with a customer to build a warehouse for $950000 on March 30, 2018 with a performance bonus of $50000 if the building is completed by July 31, 2018. The bonus is reduced by $10000 each week that completion is delayed. Marle commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by Probability July 31, 2018 65% August 7, 2018 25% August 14, 2018 5% August 21, 2018 5% Using the expected value approach, the transaction price for this transaction is $652500 $662500 $950000 $995000

$995000

Warrants exercisable at $20 each to obtain 80000 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 64000. 16000. 20000. 80000.

16000.

Chape Co. had the following information related to common and preferred shares during the year: Common shares outstanding, 1/1 700,000 Common shares repurchased, 3/31 20,000 Conversion of preferred shares, 6/30 40,000 Common shares repurchased, 12/1 36,000 Chape reported net income of $2,000,000 at December 31. What amount of shares should Chape use as the denominator in the computation of basic earnings per share? 684,000 700,000 702,000 740,000

702,000

Milo Co. had 800000 shares of common stock outstanding on January 1, issued 126000 shares on May 1, purchased 63000 shares of treasury stock on September 1, and issued 54000 shares on November 1. The weighted average shares outstanding for the year is 851000. 872000. 893000. 914000.

872000.

The following information is available for Barone Corporation: January 1, 2018 Shares outstanding 4000000 April 1, 2018 Shares issued 640000 July 1, 2018 Treasury shares purchased 240000 October 1, 2018 Shares issued in a 100% stock dividend 4400000 The number of shares to be used in computing earnings per common share for 2018 is 9041600. 8760000. 8720000. 5460000.

8720000.

The following information is available about a signed agreement between two entities: • The entities have agreed to specific performance obligations. • The entities have agreed on a price related to the performance obligations. • No work has begun on the performance obligations and the contract is cancelable without payment of penalty or other consideration. • It is probable that the company completing the work will collect the agreed upon consideration.Does a contract exist between the entities to which the revenue recognition criteria may be applied? A contract to which the revenue recognition criteria applies exists because the contract includes important terms such as the agreed upon price and specific performance obligations. A contract to which the revenue recognition criteria applies does not exist because the transaction price has not yet been allocated to the specific performance obligations. A contract to which the revenue recognition criteria applies exists because it identifies specific performance obligations and collectibility of the consideration is probable. A contract to which the revenue recognition criteria applies does not exist because it is cancelable without penalty and no work on the performance obligations has begun.

A contract to which the revenue recognition criteria applies does not exist because it is cancelable without penalty and no work on the performance obligations has begun.

An example of a correction of an error in previously issued financial statements is a change A.) from the FIFO method of inventory valuation to the LIFO method. B.) in the service life of plant assets, based on changes in the economic environment. C.) in the tax assessment related to a prior period. D.) from the cash basis of accounting to the accrual basis of accounting.

D.) from the cash basis of accounting to the accrual basis of accounting.

Stone Company changed its method of pricing inventories from FIFO to LIFO. What type of accounting change does this represent? A.) A change in accounting principle for which the financial statements for prior periods included for comparative purposes should be restated. B.) A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be presented as previously reported. C.) A change in accounting principle for which the financial statements for prior periods included for comparative purposes should be presented as previously reported. D.) A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be restated.

A.) A change in accounting principle for which the financial statements for prior periods included for comparative purposes should be restated.

Which of the following should be reported as a prior period adjustment? Change inEstimated Livesof Depreciable Assets? Change from Unaccepted Principle to Accepted Principle? A.) No Yes B.) Yes No C.) No No D.) Yes Yes

A.) No Yes

Heinz Company began operations on January 1, 2017, and uses the FIFO method in costing its raw material inventory. Management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed: Final Inventory 2017 2018 FIFO $640000 $ 712000 LIFO 560000 636000 Net Income (computed under the FIFO method) 980000 1330000 Based on the above information, a change to the LIFO method in 2018 would result in net income for 2018 of A.) $1250000. B.) $1254000. C.) $1330000. D.) $980000.

B.) $1254000.

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

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

Which of the following is (are) the proper time period(s) to record the effects of a change in accounting estimate? A.) Current period and retrospectively B.) Current period and prospectively C.) Retrospectively only D.) Current period only

B.) Current period and prospectively

When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a A.) change in accounting principle. B.) change in accounting estimate. C.) prior period adjustment. D.) correction of an error.

B.) change in accounting estimate.

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

D.) A change in inventory valuation from average cost to FIFO.

A company changes from the straight-line method to an accelerated method of calculating depreciation, which will be similar to the method used for tax purposes. The entry to record this change will include a A.) debit to Deferred Tax Asset. B.) debit to Retained Earnings in the amount of the difference on prior years. C.) credit to Deferred Tax Liability. D.) credit to Accumulated Depreciation.

D.) credit to Accumulated Depreciation.

On January 1, 2017, Janik Corp. acquired a machine at a cost of $900000. It is to be depreciated on the straight-line method over a 5-year period with no residual value. Because of a bookkeeping error, no depreciation was recognized in Janik's 2017 financial statements. The oversight was discovered during the preparation of Janik's 2018 financial statements. Depreciation expense on this machine for 2018 should be A.) $0. B.) $360000. C.) $180000. D.) $225000.

C.) $180000.

On December 31, 2018, Grantham, Inc. appropriately changed its inventory valuation method to FIFO cost from weighted-average cost for financial statement and income tax purposes. The change will result in a $3500000 increase in the beginning inventory at January 1, 2018. Assume a 30% income tax rate. The cumulative effect of this accounting change on beginning retained earnings is A.) $0. B.) $1050000. C.) $2450000. D.) $3500000.

C.) $2450000.

Equipment was purchased at the beginning of 2016 for $850000. At the time of its purchase, the equipment was estimated to have a useful life of 6 years and a salvage value of $100000. The equipment was depreciated using the straight-line method of depreciation through 2018. At the beginning of 2019, the estimate of useful life was revised to a total life of 8 years and the expected salvage value was changed to $62500. The amount to be recorded for depreciation for 2019, reflecting these changes in estimates, is A.) $95000. B.) $98438. C.) $82500. D.) $53571.

C.) $82500.

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

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

Which type of accounting change should always be accounted for in current and future periods? A.) Change in reporting entity B.) Change in accounting principle C.) Change in accounting estimate D.) Correction of an error

C.) Change in accounting estimate

The first step in the process for revenue recognition is to A.) identify the separate performance obligations in the contract. B.) allocate transaction price to the separate performance obligations. C.) determine the transaction price. D.) identify the contract with customers.

D.) identify the contract with customers.

The estimated life of a building that has been depreciated for 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years. Based on this information, the accountant should A.) adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years. B.) continue to depreciate the building over the original 50-year life. C.) depreciate the remaining book value over the remaining life of the asset. D.) adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.

C.) depreciate the remaining book value over the remaining life of the asset.

Under IFRS, how are convertible debt recorded? Convertible debt is added to current liability section, as it will be converted to equity. Convertible debt is recorded under stockholders' equity. Convertible debt is recorded as long-term liability. Convertible debt is separated into equity component and debt component.

Convertible debt is separated into equity component and debt component.

On January 1, 2016, Lake Co. purchased a machine for $1980000 and depreciated it by the straight-line method using an estimated useful life of 8 years with no salvage value. On January 1, 2019, Lake determined that the machine had a useful life of 6 years from the date of acquisition and will have a salvage value of $180000. An accounting change was made in 2019 to reflect these additional data. The accumulated depreciation for this machine should have a balance at December 31, 2019 of A.) $1155000. B.) $1200000. C.) $1320000. D.) $1095000.

D.) $1095000.

What approach does the FASB require when accounting for changes in accounting principle? Cumulative. Allowance. Prospective. Retrospective.

Retrospective.

Convertible bonds are separated into the equity component of the bond issue and the debt component under GAAP and IFRS. Neither GAAP nor IFRS. IFRS only. GAAP only.

IFRS only.

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? Progress Billings as deferred income, Construction in Progress as a deferred expense. Net balance, as a current asset if debit balance, and current liability if credit balance. Net balance, as income from construction if credit balance, and loss from construction if debit balance. Progress Billings as income, Construction in Process as inventory.

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

The proceeds from a bond issued with detachable stock purchase warrants should be accounted for Entirely as bonds payable. Partially as unearned revenue, and partially as bonds payable. Partially as stockholders' equity, and partially as bonds payable. Entirely as stockholders' equity.

Partially as stockholders' equity, and partially as bonds payable.

FASB ASC 606, commonly referred to as the revenue recognition standard, includes all of the following in its five step process to recognize revenue except: Recognize revenue when (or as) the entity is paid for a performance obligation. Identify the performance obligations in the contract. Identify the contract with the customer. Allocate the transaction price to the performance obligations in the contract.

Recognize revenue when (or as) the entity is paid for a performance obligation.

The treasury stock method would apply to which of the following securities? Stock warrants. Convertible preferred stock. Preferred stock. Treasury stock.

Stock warrants.

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 No Yes No No Yes Yes Yes No

Yes No

Continuing the prior clicker questions. On January 1, 2020 Lake Co. purchased a machine for $792,000 and depreciated it by the straight-line method using an estimated useful life of 8 years with no salvage value. On January 1, 2023, Lake determined that the machine had a useful life of 6 years from the date of acquisition and will have a salvage value of $72,000. An accounting change was made in 2023 to reflect these additional data. The accumulated depreciation for this machine should have a balance at December 31, 2023 of a. $438,000 b. $462,000 c. $480,000 d. $528,000

a. $438,000

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

allocate transaction price to the separate performance obligations.

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

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

In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the preferred dividends in arrears times (one minus the income tax rate). preferred dividends in arrears. annual preferred dividend times (one minus the income tax rate). annual preferred dividend.

annual preferred dividend.

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

assumed converted only if they are dilutive.

On January 1, 2021 the Norman Company granted 1,000 stock options to its key employees. The option price is $30. On that day the Black-Scholes option pricing model determines that the "total" fair value of the options is $50,000. The options are exercisable on January 1, 2026 and expire at the end of that year. On January 1, 2025 the Black-Scholes model suggested the total fair value of the options had increased to $60,000 and on January 1, 2026 the value was $70,000. What amount of Stock Option Compensation Expense should Norman record for the 2025 year? a. $ 8,000 b. $ 4,000 c. $10,000 d. $ 6,000 e.$3,333

b. $ 4,000

On January 1, 2020, Janik Corp. acquired a machine at a cost of $500,000. It is to be depreciated on the Straight-line method over a 5 year period. Because of a bookkeeping error no depreciation was recognized in Janik's 2020 financial statements. The error was discovered during the preparation of Janik's 2021 financial statements. Depreciation expense on this machine for 2021 should be a. $0 b. $100,000 c. $125,000 d. $200,000

b. $100,000

A company discovered that Salary Expense had somehow been left out of last year's Income Statement? What type of change is this and how does GAAP require you handle the change when preparing the financial statements? Type of Change Method to Handle a. Change in Principles/Retrospective Application Method b. Error/Restatement Method c. Change in Principles/Current and Prospective Method d. Change in Estimate/Retrospective Application Method e. Error/Current and Prospective Method

b. Error/Restatement Method

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

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

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

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

When a contract modification does not result in a separate performance obligation, the additional products are priced at the selling price specified in contract modification. standalone price of the product. average selling price of original selling price and standalone price. blended price of original contract and contract modification.

blended price of original contract and contract modification.

At the end of 2021, the Fallon Company reported Net Income of $10,000. The company had 2,000 Common Stock shares issued and outstanding the entire year. The company reports that they had one type of dilutive security outstanding during the year - stock warrants. The company has 100 stock warrants outstanding that allow the holders to buy one share of Common Stock for $6 each. The average market price for the company stock this year was $7.50 per share and the market price at year end was $10 per share. What is DILUTIVE EPS for the year? a. $4.76 b. $4.90 c. $4.95 d. $5.00

c. $4.95

On December 31, 2021 the Suppa Company had 400,000 shares of Common Stock issued and outstanding. Of those shares 300,000 were outstanding the entire year and 100,000 were issued October 1, 2021. Net income for the year was $2,000,000. The company has 100,000 shares of $10 par, 5% cumulative, nonconvertible Preferred Stock Outstanding, but no preferred stock cash dividend was declared in 2021. What is the company BASIC EPS for the year? a. $4.88 b. $5.00 c. $6.00 d. $6.15

c. $6.00

Marle Co. enters into a contract with a customer to build a warehouse for $950,000 on March 30 , 2021 with a performance bonus of $50,000 if the building is completed by July 31, 2021. The bonus is reduced by $10,000 each week that completion is delayed. Marle Co. commonly includes completion bonuses its contracts and, based on prior experience, estimates completion outcomes: Completed by: July 31, 2021 65% probability August 7, 2021 25% probability August 12, 2021 5% probability August 21, 2021 5% probability Using expected value approach, the transaction price for this transaction is: a. $950,000 b. $652,500 c. $995,000 d. $662,500

c. $995,000

On January 1, 2020 Lake Co. purchased a machine for $792,000 and depreciated it by the straight-line method using an estimated useful life of 8 years with no salvage value. On January 1, 2023, Lake determined based on usage information that the machine had a useful life of 6 years from the date of acquisition and will have a salvage value of $72,000. An accounting change was made in 2023 to reflect these additional data. What type of accounting change is this and how should it be handled? a. Change in Principles, Current and Prospective b. Change in Principles, Retrospective Application c. Change in Estimate, Current and Prospective d. Change in Estimate, Retrospective Application e. Error, Current and Prospective

c. Change in Estimate, Current and Prospective

When a company changes from an accelerated method to the straight-line method of depreciation, this change should be handled as a change in accounting principle. change in accounting estimate. correction of an error. prior period adjustment.

change in accounting estimate.

Whenever it is impossible to determine whether a change in principle or a change in estimate has occurred, the change should be considered a: correction of an error. change in estimate. change in accounting principle. counterbalancing error.

change in estimate.

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

considered outstanding at the beginning of the earliest year reported.

The Billings on Construction in Progress account is a(n) contract revenue account. contra-inventory account. construction expense account. inventory account.

contra-inventory account.

Meyer & Smith is a full-service technology company. They provide equipment, installation services and training. Customers can purchase any product or service separately or as a bundled package. Container Corp. purchased computer equipment, installation and training for a total cost of $144,000 on March 15, 2021. Estimated standalone fair values of the equipment, installation, and training are $90,000, $60,000, and $30,000 respectively. The transaction price allocated to equipment, installation and training respectively is: a. $90,000, $60,000, $30,000 respectively b. $48,000, $48,000, $48,000 respectively c. $144,000 for the entire bundle. d. $72,000, $48,000, $24,000 respectively.

d. $72,000, $48,000, $24,000 respectively.

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

determine the transaction price.

Gomez, Inc. began work in 2020 on Contract #3814 which provides for a fixed contract price of $7,200,000. Other details follows: 2020 2021 Costs incurred during the year $1,200,000 $3,675,000 Estimated costs to complete as of 12/31 $3,600,000 $0 Billings during the year $1,350,000 $5,400,000 Collections during the year $ 900,000 $5,850,000 Assume Gomez uses the percentage-of-completion method of accounting. How much gross profit is recognized in the Income Statement in 2021 (the second year)? a. $ 600,000 b. $1,800,000 c. $2,325,000 d.$1,725,000

d.$1,725,000

Sufjan Company has a contract to sell 200 hats to a customer for $2,000 (i.e., $10 each). After 150 hats have been delivered Sufjan received a complaint from the customer as to the quality of the hats and they agree the customer will only need to pay $5 for the remaining 50 hats which is below standalone price. The original $10 per hat still applies to the delivered 150. What is the total revenue that would appear on the Income Statement after the modification date? (If you have to adjust revenues recorded before the modification assume that does not affect your after modification revenue when answering this question.) a. $ 250.00 b. $ 1,750.00 c. $ 1,312.50 d.$437.50

d.$437.50

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

deducted from net income whether declared or not.

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

of exercise.

Sufjan Company has a contract to sell 200 hats to a customer for $2,000 (i.e., $10 each). After 150 hats have been delivered, Sufjan modifies the contact by promising to deliver 30 shirts for $5 per shirt (the standalone selling price at the time of the contract modification). What is the total revenue (for both shirts and hats) that would be recorded after the modification date? a. $ 500 b. $ 2,000 c. $ 2,150 d. $ 150 e. $ 650

e. $ 650

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

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

The second step in the process for revenue recognition is to identify the contract with customers. allocate transaction price to the separate performance obligations. identify the separate performance obligations in the contract. determine the transaction price.

identify the separate performance obligations in the contract.

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 has performed all conditions precedent to exercising the option. may first exercise the option. exercises the option. is granted the option.

is granted the option.

Stock warrants outstanding should be classified as paid-in capital-stock warrants. reductions of capital contributed in excess of par value. assets. liabilities.

paid-in capital-stock warrants.

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

recognize revenue when each performance obligation is satisfied.

The percentage-of-completion method recognizes revenue and gross profits only when contract is completed. recognizes revenue and gross profit each period based upon progress. is used primarily for short-term contracts. accumulates construction costs in the Billings on Construction in Progress account.

recognizes revenue and gross profit each period based upon progress.

On January 15, 2018, Bella Vista Company enters into a contract to build custom equipment for ABC Carpet Company. The contract specified a delivery date of March 1. The equipment was not delivered until March 31. The contract required full payment of $75,000 30 days after delivery. The revenue for this contract should be recorded on April 30, 2018. recorded on January 15, 2018. recorded on March 1, 2018. recorded on March 31, 2018.

recorded on March 31, 2018.

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

share-based liability awards.

Accounting for stock option plans must be based on: the option-pricing method. the intrinsic value method. either the fair value method or the intrinsic value method. the fair value method.

the fair value method.

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

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

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

total estimated cost.