Combo with "Accounting 13-16" and 1 other

The conversion of bonds is most commonly recorded by the

A. Book Value Method

Dividends on term preferred shares, where the shares have been recorded as a liability, should be debited to

A. INTEREST EXPENSE

The date on which to measure the compensation element in a compnesatory stock option plan (CSOP) is normally the date on which the employee

A. is GRANTED the option

With regard to the measurement of hybrid/compound instruments, which of the following statements is correct?

B. IFRS requires the use of the RESIDUAL METHOD

The value of a perpetual bond is equal to

B. the present value of the INTEREST ALONE

The date on which to measure the compensation in a stock appreciation rights plan is the

C. end of each interim PERIOD up to the DATE OF EXERCISE

On January 1, 2014, Ann Price borrowed $112,695 from Joe Kiger. A zero-interest-bearing note (face amount, $150,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2016. The prevailing rate of interest for a loan of this type is 10%. The present value of $150,000 at 10% for three years is $112,695. What amount of interest espense should Ms. Price recognize in 2014? a. $11,270. b. $15,000. c. $45,000. d. $33,810.

a. $11,270

On January 1, 2013, Doty Co. redeemed its 15-year bonds of $3,500,000 par value for 102. They were originally issued on January 1, 2001 at 98 with a maturity date of January 1, 2016. The bond issue costs relating to this transaction were $210,000. Doty amortizes discounts, premiums, and bond issue costs using the straight-line method. What amount of loss should Doty recognize on the redemption of these bonds (ignore taxes)? a. $126,000 b. $84,000 c. $70,000 d. $0

a. $126,000

On July 1, 2014, Spear Co. issued 2,000 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2014 and mature on April 1, 2024. Interest is payable semiannually on April 1 and October 1. What amount did Spear receive from the bond issuance? a. $2,030,000 b. $2,000,000 c. $1,980,000 d. $1,930,000

a. $2,030,000

On January 1, 2014, Ellison Co. issued eight-year bonds with a face value of $4,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: Present value of 1 for 8 periods at 6% .627 Present value of 1 for 8 periods at 8% .540 Present value of 1 for 16 periods at 3% .623 Present value of 1 for 16 periods at 4% .534 Present value of annuity for 8 periods at 6% 6.210 Present value of annuity for 8 periods at 8% 5.747 Present value of annuity for 16 periods at 3% 12.561 Present value of annuity for 16 periods at 4% 11.652 The present value of the principal is a. $2,136,000. b. $2,160,000. c. $2,492,000. d. $2,508,000.

a. $2,136,000

Bond interest expense reported on the December 31, 2012 income statement of Macklin Corporation would be a. $23,000 b. $25,000 c. $27,000 d. $46,000

a. $23,000

On January 1, 2014, Ellison Co. issued eight-year bonds with a face value of $4,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: Present value of 1 for 8 periods at 6% .627 Present value of 1 for 8 periods at 8% .540 Present value of 1 for 16 periods at 3% .623 Present value of 1 for 16 periods at 4% .534 Present value of annuity for 8 periods at 6% 6.210 Present value of annuity for 8 periods at 8% 5.747 Present value of annuity for 16 periods at 3% 12.561 Present value of annuity for 16 periods at 4% 11.652 The issue price of the bonds is a. $3,534,240. b. $3,539,280. c. $3,558,240. d. $3,998,400.

a. $3,534,240

On July 1, 2011, Noble, Inc. issued 9% bonds in the face amount of $10,000,000, which mature on July 1, 2017. The bonds were issued for $9,390,000 to yield 10%, resulting in a bond discount of $610,000. Noble uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2013, Noble's unamortized bond discount should be a. $528,100. b. $510,000. c. $488,000. d. $430,000.

a. $528,100

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.

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).

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will a. exceed what it would have been had the effective-interest method of amortization been used. b. be less than what it would have been had the effective-interest method of amortization been used. c. be the same as what it would have been had the effective-interest method of amortiza-tion been used. d. be less than the stated (nominal) rate of interest.

a. exceed what it would have been had the effective-interest method of amortization been used

The pre-emptive right enables a stockholder to

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

On January 1, 2014, Ellison Co. issued eight-year bonds with a face value of $4,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: Present value of 1 for 8 periods at 6% .627 Present value of 1 for 8 periods at 8% .540 Present value of 1 for 16 periods at 3% .623 Present value of 1 for 16 periods at 4% .534 Present value of annuity for 8 periods at 6% 6.210 Present value of annuity for 8 periods at 8% 5.747 Present value of annuity for 16 periods at 3% 12.561 Present value of annuity for 16 periods at 4% 11.652 The present value of the interest is a. $1,379,280. b. $1,398,240. c. $1,490,400. d. $1,507,320.

b. $1,398,240

At December 31, 2013 and 2012, Miley Corp. had 180,000 shares of common stock and 10,000 shares of 6%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2013 or 2012. Net income for 2013 was $480,000. For 2013, earnings per common share amounted to

b. $2.33

Didde Co. had 300,000 shares of common stock issued and outstanding at December 31, 2012. No common stock was issued during 2013. On January 1, 2013, Didde issued 200,000 shares of nonconvertible preferred stock. During 2013, Didde declared and paid $150,000 cash dividends on the common stock and $120,000 on the preferred stock. Net income for the year ended December 31, 2013 was $930,000. What should be Didde's 2013 earnings per common share?

b. $2.70

On January 1, 2012, Solis Co. issued its 10% bonds in the face amount of $4,000,000, which mature on January 1, 2022. The bonds were issued for $4,540,000 to yield 8%, resulting in bond premium of $540,000. Solis uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2012, Solis's adjusted unamortized bond premium should be a. $540,000. b. $503,200. c. $486,000. d. $406,000.

b. $503,200

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

b. $84,000 ($24 2,500) + ($18 5,000) = $150,000. 5000x$18=$90,000 ————— × $140,000 = $84,000. $150,000

Foyle, Inc., had 610,000 shares of common stock issued and outstanding at December 31, 2012. On July 1, 2013, 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 2013. The average market price of Foyle's common stock was $20 during 2013. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2013?

b. 638,000

A corporation declared a dividend, a portion of which was liquidating. How would this distribution affect each of the following? Additional Paid-in Capital Retained Earnings

b. Decrease Decrease

On October 1, 2014 Bartley Corporation issued 5%, 10-year bonds with a face value of $5,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. The entry to record the issuance of the bonds would include a a. credit of $125,000 to Interest Payable. b. credit of $200,000 to Premium on Bonds Payable. c. credit of $4,800,000 to Bonds Payable. d. debit of $200,000 to Discount on Bonds Payable

b. credit of $200,000 to premium on bonds payable

When computing diluted earnings per share, convertible securities are

b. recognized only if they are dilutive

Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that a. the effective yield or market rate of interest exceeded the stated (nominal) rate. b. the nominal rate of interest exceeded the market rate. c. the market and nominal rates coincided. d. no necessary relationship exists between the two rates.

b. the nominal rate of interest exceeded the market rate

On January 1, 2012, Sharp Corp. granted an employee an option to purchase 9,000 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 $210,000. The option became exercisable on December 31, 2013, after the employee completed two years of service. The market prices of Sharp's stock were as follows: January 1, 2012 $30 December 31, 2013 50 For 2011, should recognize compensation expense under the fair value method of

c. $105,000 $210,000 ÷ 2 = $105,000.

On January 1, 2012, Huff Co. sold $3,000,000 of its 10% bonds for $2,655,888 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Huff report as interest expense for the six months ended June 30, 2012? a. a. $132,798 b. b. $150,000 c. c. $159,353 d. d. $180,000

c. $159,353

Farmer Company issues $25,000,000 of 10-year, 9% bonds on March 1, 2014 at 97 plus accrued interest. The bonds are dated January 1, 2014, and pay interest on June 30 and December 31. What is the total cash received on the issue date? a. $24,250,000 b. $25,562,500 c. $24,625,000 d. $23,875,000

c. $24,625,000

On June 30, 2013, Omara Co. had outstanding 8%, $4,000,000 face amount, 15-year bonds maturing on June 30, 2023. Interest is payable on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2013 were $140,000 and $40,000, respectively. On June 30, 2013, Omara acquired all of these bonds at 94 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt? a. $3,960,000. b. $3,860,000. c. $3,820,000. d. $3,760,000.

c. $3,820,000

At December 31, 2012 and 2013, Plank Corp. had outstanding 3,000 shares of $100 par value 8% cumulative preferred stock and 15,000 shares of $10 par value common stock. At December 31, 2012, dividends in arrears on the preferred stock were $12,000. Cash dividends declared in 2013 totaled $45,000. What amounts were payable on each class of stock? Preferred Stock Common Stock

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

The December 31, 2012, balance sheet of Hess Corporation includes the following items: 9% bonds payable due December 31, 2021 $2,000,000 Unamortized premium on bonds payable 54,000 The bonds were issued on December 31, 2011, at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1, 2013, Hess retired $800,000 of these bonds at 98 plus accrued interest. What should Hess record as a gain on retirement of these bonds? Ignore taxes. a. $37,600. b. $21,600. c. $37,200. d. $40,000.

c. $37,200

Horton Co. was organized on January 2, 2012, with 500,000 authorized shares of $10 par value common stock. During 2012, Horton had the following capital transactions: January 5—issued 375,000 shares at $14 per share. July 27—purchased 25,000 shares at $11 per share. November 25—sold 20,000 shares of treasury stock at $13 per share. Horton used the cost method to record the purchase of the treasury shares. What would be the balance in the Paid-in Capital from Treasury Stock account at December 31, 2012?

c. $40,000

The December 31, 2014, balance sheet of Hess Corporation includes the following items: 9% bonds payable due December 31, 2023 $3,000,000 Unamortized premium on bonds payable 81,000 The bonds were issued on December 31, 2013, at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1, 2015, Hess retired $1,200,000 of these bonds at 98 plus accrued interest. What should Hess record as a gain on retirement of these bonds? Ignore taxes. a. $56,400. b. $32,400. c. $55,800. d. $60,000.

c. $55,800

On October 1, 2014 Bartley Corporation issued 5%, 10-year bonds with a face value of $5,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. Bond interest expense reported on the December 31, 2014 income statement of Bartley Corporation would be a. $67,500 b. $115,000 c. $57,500 d. $62,500

c. $57,500

A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using effective-interest amortization, how much interest expense will be recognized in 2014? a. $390,000 b. $780,000 c. $784,249 d. $784,166

c. $784,249

Feller Company issues $10,000,000 of 10-year, 9% bonds on March 1, 2012 at 97 plus accrued interest. The bonds are dated January 1, 2012, and pay interest on June 30 and December 31. What is the total cash received on the issue date? a. $9,700,000 b. $10,225,000 c. $9,850,000 d. $9,550,000

c. $9,850,000

If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a a. debit to Interest Payable. b. credit to Interest Receivable. c. credit to Interest Expense. d. credit to Unearned Interest.

c. credit to interest expense

A ten-year bond was issued in 2011 at a discount with a call provision to retire the bonds. When the bond issuer exercised the call provision on an interest date in 2013, the carrying amount of the bond was less than the call price. The amount of bond liability removed from the accounts in 2013 should have equaled the a. call price. b. call price less unamortized discount. c. face amount less unamortized discount. d. face amount plus unamortized discount

c. face amount less unamortized discount

Paige Co. took advantage of market conditions to refund debt. This was the fourth refunding operation carried out by Paige within the last three years. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a a. gain, net of income taxes. b. loss, net of income taxes. c. part of continuing operations. d. deferred credit to be amortized over the life of the new debt.

c. part of continuing operations

Marsh Co. had 2,400,000 shares of common stock outstanding on January 1 and December 31, 2013. In connection with the acquisition of a subsidiary company in June 2012, Marsh is required to issue 100,000 additional shares of its common stock on July 1, 2014, to the former owners of the subsidiary. Marsh paid $300,000 in preferred stock dividends in 2013, and reported net income of $5,100,000 for the year. Marsh's diluted earnings per share for 2013 should be

d. $1.92

On January 1, 2008, Goll Corp. issued 4,000 of its 10%, $1,000 bonds for $4,160,000. These bonds were to mature on January 1, 2016 but were callable at 101 any time after December 31, 2011. Interest was payable semiannually on July 1 and January 1. On July 1, 2013, Goll called all of the bonds and retired them. Bond premium was amortized on a straight-line basis. Before income taxes, Goll's gain or loss in 2013 on this early extinguishment of debt was a. $120,000 gain. b. $48,000 gain. c. $40,000 loss. d. $32,000 gain.

d. $32,000 gain

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

d. $500,000.

On October 1, 2012 Macklin Corporation issued 5%, 10-year bonds with a face value of $2,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. The entry to record the issuance of the bonds would include a credit of a. $50,000 to Interest Payable. b. $80,000 to Discount on Bonds Payable. c. $1,920,000 to Bonds Payable. d. $80,000 to Premium on Bonds Payable.

d. $80,000 to premium on bonds payable

A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2011. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2013? a. $9,835,116 b. $9,970,312 c. $9,816,916 d. $9,831,762

d. $9,831,762

How would the declaration and subsequent issuance of a 10% stock dividend by the issuer affect each of the following when the fair value of the shares exceeds the par value of the stock? Additional Common Stock Paid-in Capital

d. Increase Increase

A corporation was organized in January 2009 with authorized capital of $10 par value common stock. On February 1, 2012, shares were issued at par for cash. On March 1, 2012, the corporation's attorney accepted 7,000 shares of common stock in settlement for legal services with a fair value of $90,000. Additional paid-in capital would increase on February 1, 2012 March 1, 2012

d. No Yes

On January 2, 2012, 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, 2012, cash proceeds from the issuance of the convertible bonds should be reported as

d. a liability for the entire proceeds.

In determining diluted earnings per share, dividends on nonconvertible cumulative preferred stock should be

d. deducted from net income whether declared or not

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

d. did not change.

When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will a. increase if the bonds were issued at a discount. b. decrease if the bonds were issued at a premium. c. increase if the bonds were issued at a premium. d. increase if the bonds were issued at either a discount or a premium.

d. increase if the bonds were issued at either a discount or a premium

Treasury shares are

d. issued but not outstanding shares.

Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to a. the stated (nominal) rate of interest multiplied by the face value of the bonds. b. the market rate of interest multiplied by the face value of the bonds. c. the stated rate multiplied by the beginning-of-period carrying amount of the bonds. d. the market rate multiplied by the beginning-of-period carrying amount of the bonds.

d. the market rate multiplied by the beginning-of-period carrying amount of the bonds