3201

At December 31, 2017 Mongo, Inc, reported in its balance sheet a net loss of $3 million related to its pension plan. The actuary for Mongo at the end of 2018 increased her estimate of future salary levels. Mongo's entry to record the effect of this change will include:

A debit to loss-OCI and a credit to PBO

Dividends from stock investments by a pension plan are reported by the employer as:

A reduction of the periodic pension expense

In 2018, Brock Lee Vegetables, issued $1 par value common stock for $30 per share. No other common stock transactions occurred until March 31, 2020, when Brock Lee acquired some of the issued shares for $25 per share and retired them. Which of the following statements is true for this acquisition and retirement?

Additional Paid in capital is increased

Bond X and bond Y are both issued by the same company. Each of the bonds have a maturity value of $100,000 and each matures in 10 years. Bond X pays 8% interest while bond Y pays 9%. Which of the following is correct?

Bond Y sells for more than bond X.

When a company's only potential common shares are convertible bonds: A. Diluted EPS will be greater if the bonds are actually converted than if they are not converted. B. Diluted EPS will be smaller if the bonds are actually converted than if the bonds are not converted. C. Diluted EPS will be the same whether or not the bonds are converted. D. The effect of conversion on diluted EPS cannot be determined without additional information.

Diluted EPS will the same whether or not the bonds are converted

Stock options will be antidilutive and included in the calculation of diluted EPS if the exercise price is greater than the average market value of the stock.

FALSE

A bargain purchase option is defined as the option of purchasing leased property at a price that is equal to the expected fair value of a leased asset.

False

A net gain or net loss affects pension expense only if it exceeds 10% of the PBO

False

An upward revision of inflation and compensation trends would likely cause a gain in the pension benefit obligation.

False

Future taxable amounts result in deferred tax assets.

False

If a pension plan is underfunded, the company has a net loss-OCI.

False

Periodic interest expense is the stated interest rate times the amount of debt outstanding during the period

False

When the lessee guarantees an estimated residual value of $75,000, the amount the lessee records as a leased asset and lease liability is increased by $75,000.

False

Which of the following is a correct statement concerning earnings per share?

If a company has discontinued operations, at least two EPS amounts must be reported.

AMC issues a note with no stated interest rate in exchange for a machine. In accounting for the transaction:

If fair values of the note and machine are unavailable, the note should be recorded at its present value, discounted at the market rate of interest.

AMC Corporation issued bonds at a discount. The long-term liability reported in AMC's balance sheet will:

Increase each year during the term to maturity

Which of the following is not a requirement for a qualified pension plan?

It must cover at lease 80% of the employees

A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 6%. These bonds will sell at a price that is: A. Equal to $500,000 B. More than $500,000 C. Less than $500,000 D. The answer cannot be determined from the information provided

Less than $500,000

In a ten-year finance lease, the portion of the annual lease payment in the lease's third year that represents interest is:

Less than in the second year

The beginning of a six-year finance lease is December 31, 2018. The agreement specifies equal annual lease payments on Dec 31 of each year. For the lessee, the firsts payment on December 31, 2018 includes

No- interest expense Yes- Reduction of the Lease Liability

Which of the following increases the investment account under the equity method of accounting? Decreases in the market price of the investee's stock. Dividends paid by the investee that were declared in the previous year. Net loss of the investee company. None of these answer choices are correct.

None of these answer choices are correct.

Which of the following results in increasing basic earnings per share?

Purchasing treasury stock

What is the effect of the declaration and subsequent issuance of a stock split (effected in the form of a stock dividend) on each of the following?

Retained Earnings: No effect Paid in Capital: no effect

Which of the following leases would be most likely to be classified as an operating lease by the lessee? A) The lease term is 5 years and the economic life of the leased asset is 8 years. B)Ownership of the leased asset reverts to the lessor at the end of the lease term. C) The agreement permits the lessee to buy the leased asset for one dollar at the end of the lease term. D) The fair value of the leased asset is $20 million and the present value of the lease payments is $13 million.

The agreement permits the lessee to buy the leased asset for one dollar at the end of the lease term.

Which of the following statements regarding lessee-guaranteed residual values is true for the lessee?

The asset and liability at the beginning of the lease should be increased by the present value of the residual value to the extent that guaranteed residual value is expected to exceed estimated residual value.

Which of the following statements is true regarding share appreciation rights (SAR) payable in cash?

The total amount of compensation is not known for certain until the date the SAR is exercised.

Gabriel Company views share buybacks as treasury stock. In its first treasury stock transaction, Gabriel purchased treasury stock for more than the price at which the stock was originally issued. What is the effect of the purchase of the treasury stock on each of the following?

Total paid-in capital: no effect, Retained earning: no effect (separate line item)

At the beginning a lease agreement, a lessee's debt to equity ratio and rate of return on assets are both affected regardless of whether the lease is classified as a finance lease or an operating lease.

True

Finance leases are agreements that are formulated outwardly as leases, but are installment purchases in substance

True

Crystal Corporation makes $3,200 payments every month for leasing office equipment. Crystal recorded a lease payment as follows: Lease payable DR. 1,920 Interest expense DR. 1,280 Cash CR. 3,200 Amortization expense DR. 1,920 Right-of-use asset CR. 1,920

operating lease

Straight-line amortization of bond discount or premium

provides the same total amount of interest expense over the life of the bond issue as does the effective interest method.