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Manal Elkhoshkhany
Manal Elkhoshkhany, Bachelor's Degree
Category: Multiple Problems
Satisfied Customers: 9590
Experience:  Completed by BA degree in 1988 and graduated with a GPA of 4.0
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Knique Shoes issued $100,000, 8-month, noninterest-bearing note

Customer Question

part 1
1. A loss contingency should be accrued in a company’s financial statements only if the likelihood that a liability has been incurred is
A. reasonably possible and the amount of the loss can be reasonably estimated.
B. reasonably possible and the amount of the loss is known.
C. at least remotely possible and the amount of the loss is known.
D. probable and the amount of the loss can be reasonably estimated.
2. Knique Shoes issued a $100,000, 8-month, noninterest-bearing note. The loan was made by Second Commercial Bank whose stated discount rate is 9%. The effective interest rate on this loan (rounded) is
A. 9.50%.
B. 9.57%.
C. 9.49%.
D. 9.28%.
3. On January 1, 2011, Nana Company paid $100,000 for 8,000 shares of Papa Company common stock. These securities were classified as trading securities. The ownership in Papa Company is 10%. Papa reported net income of $52,000 for the year ended December 31, 2011. The fair value of the Papa stock on that date was $45 per share. What amount will be reported in the balance sheet of Nana Company for the investment in Papa at December 31, 2011?
A. $315,600
B. $300,000
C. $284,400
D. $360,000
4. On January 1, 2011, Green Corporation purchased 20% of the outstanding voting common stock of Gold Company for $300,000. The book value of the acquired shares was $275,000. The excess of cost over book value is attributable to an intangible asset on Gold’s books that was undervalued and had a remaining useful life of five years. For the year ended December 31, 2011, Gold reported net income of $125,000 and paid cash dividends of $25,000. What is the carrying value of Green’s investment in Gold at December 31, 2011?
A. $315,000
B. $320,000
C. $295,000
D. $300,000
5. Slotnick Chemical received customer deposits on returnable containers in the amount of $300,000 during 2011. Fifteen percent of the containers were not returned. The deposits are based on the container cost marked up 20%. How much profit did Slotnick realize on the forfeited deposits?
A. $7,500
B. $0
C. $9,000
D. $45,000
6. B Corp. has an employee benefit plan for compensated absences that gives employees 10 paid vacation days and 10 paid sick days. Both vacation and sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick days not taken. At December 31, 2011, B’s unadjusted balance of liability for compensated absences was $42,000. B estimated that there were 300 vacation days and 150 sick days available at December 31, 2011. B’s employees earn an average of $200 per day. In its December 31, 2011, balance sheet, what amount of liability for compensated absences is B required to report?
A. $90,000
B. $60,000
C. $84,000
D. $144,000
7. During 2011, Deluxe Leather Goods sold 800,000 reversible belts under a new sales promotional program. Each belt carried one coupon, which entitles the customer to a $5.00 cash rebate. Deluxe estimates that 70% of the coupons will be redeemed, even though only 350,000 coupons had been processed during 2011. At December 31, 2011, Deluxe should report a liability for unredeemed coupons of
A. $1,750,000.
B. $560,000.
C. $1,050,000.
D. $1,225,000.
8. Bloomfield Bakers accounts for its investment in Clor Confectionary under the equity method. Bloomfield carried the Clor investment at $150,000 and $165,000 at December 31 of 2010 and 2011, respectively. During 2011 Clor recognized $80,000 of net income and paid dividends of $30,000. Assuming that Bloomfield owned the same percentage of Clor throughout 2011, their percentage ownership must have been
A. 30%
B. 18.75%.
C. 50%.
D. 5%.
9. General Product, Inc., shipped 100 million coupons in products it sold in 2011. The coupons are redeemable for thirty cents each. General anticipates that 70% of the coupons will be redeemed. The coupons expire on December 31, 2012. There were 45 million coupons redeemed in 2011, and 30 million redeemed in 2012.
What was General’s coupon promotion expense in 2011?
A. $13.5 million
B. $30.0 million
C. $21.0 million
D. $7.5 million
10. Which of the following is a contingency that should be accrued?
A. The company offers a two-year warranty and the expenses can be reasonably estimated.
B. It’s probable that the company will receive $100,000 in settlement of a lawsuit.
C. The company is being sued and a loss is reasonably possible and reasonably estimable.
D. The company deducts life insurance premiums from employees’ paychecks.
11. Under IFRS No. 9, which is not a category for accounting for investments?
A. Amortized cost
B. Held-to-maturity
C. Fair value through other comprehensive income
D. Fair value through profit and loss
12. Clark’s Chemical Company received customer deposits on returnable containers in the amount of $100,000 during 2011. Twelve percent of the containers weren’t returned. The deposits are based on the container cost marked up 20%. What is cost of goods sold relative to this forfeiture?
A. $0
B. $14,400
C. $2,000
D. $10,000
13. Which of the following situations would not require that long-term liabilities be reported as current liabilities on a classified balance sheet?
A. The long-term debt matures within the upcoming year.
B. The long-term debt is callable by the creditor.
C. The creditor has the right to demand payment due to a contractual violation.
D. All of these situations require the current classification.
14. On December 31, 2011, L, Inc., had a $1,500,000 note payable outstanding, due July 31, 2012. L borrowed the money to finance construction of a new plant. L planned to refinance the note by issuing long-term bonds. Because L temporarily had excess cash, it prepaid $500,000 of the note on January 23, 2012. In February 2012, L completed a $3,000,000 bond offering. L will use the bond offering proceeds to repay the note payable at its maturity and to pay construction costs during 2012. On March 13, 2012, L issued its 2011 financial statements. What amount of the note payable should L include in the current liabilities section of its December 31, 2011, balance sheet?
A. $1,500,000
B. $500,000
C. $0
D. $1,000,000
15. Goofy, Inc., bought 15,000 shares of Crazy Co.’s stock for $150,000 on May 5, 2010, and classified the stock as available for sale. The market value of the stock declined to $118,000 by December 31, 2010. Goofy reclassified this investment as trading securities in December of 2011 when the market value had risen to $125,000. What effect on 2011 income should be reported by Goofy for the Crazy Co. shares?
A. $7,000 net gain
B. $25,000 net loss
C. $0
D. $32,000 net loss
16. Funzy Cereal includes one coupon in each package of Wheatos that it sells and offers a toy car in exchange for $1.00 and 3 coupons. The cars cost Funzy $1.50 each. Experience indicates that 40% of the coupons eventually will be redeemed. During the last month of 2011, the first month of the offer, Funzy sold 12 million boxes of Wheatos and 2.4 million of the coupons were redeemed. What amount should Funzy report as a promotional expense for coupons on its December 31, 2011, income statement?
A. $0.
B. $400,000.
C. $1,200,000.
D. $800,000.
17. If Dinsburry Company concluded that an investment originally classified as a trading security would now more appropriately be classified as held to maturity, Dinsburry would
A. reclassify the investment as held to maturity, but there would be no income effect.
B. not reclassify the investment, as original classifications are irrevocable.
C. reclassify the investment as held to maturity and treat the fair value as of the date of reclassification as the investment’s amortized cost basis for future amortization.
D. reclassify the investment as held to maturity and immediately recognize in net income all unrealized gains and losses as of the reclassification date.
18. Assume that, on 1/1/11, Sosa Enterprises paid $5,100,000 for its investment in 36,000 shares of Orioles Co. Further, assume that Orioles has 120,000 total shares of stock issued and estimates an 8 year remaining useful life and straight-line depreciation with no residual value for its depreciable assets.
At 1/1/11, the book value of Orioles’ identifiable net assets was $7,000,000, and the fair value of Orioles was $10,000,000. The difference between Orioles’ fair value and the book value of its identifiable net assets is attributable to $1,800,000 of land and the remainder to depreciable assets. Goodwill was not part of this transaction.
The following information pertains to Orioles during 2011:
Net income
$600,000
Dividends declared and paid
$360,000
Market price of common stock on 12/31/11
$80/share
What amount would Sosa Enterprises report in its year-end 2011 balance sheet for its investment in Orioles Co.?
A. $3,135,000
B. $3,027,000
C. $3,180,000
D. $3,200,000
19. Beresford, Inc., purchased several investment securities during 2008, its first year of operations. The following information pertains to these securities. The fluctuations in their fair values aren't considered permanent.
What total unrealized holding gain would Beresford report in its 2011 income statement relative to its investment securities?
A. $80,900
B. $48,200
C. $55,900
D. $36,000
20. Hawk Corporation purchased 10,000 shares of Diamond Corporation stock in 2008 for $50 per share and classified the investment as securities available for sale. Diamond's market value was $60 per share on December 31, 2009 and $65 on December 31, 2010. During 2011, Hawk sold all of its Diamond stock at $70 per share. In its 2011 income statement, Hawk would report a gain of
A. $50,000.
B. $200,000.
C. $300,000.
D. $150,000.
part ( 2 ) :
1. AMC issues a note in exchange for a machine with no stated interest rate. In accounting for the transaction,
A. 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.
B. both the note and machine are recorded at the face amount of the note or the fair value of the machine, whichever is more clearly determinable.
C. the machine should be depreciated over the note's term to maturity.
D. the note is recorded at its face amount unless the fair value of the machine is readily available.
2. Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds.
What is the interest expense on the bonds in 2012?
A. $119,241
B. $680,759
C. $342,961
D. $800,000
3. Pierce Company issued 11% bonds, dated January 1, with a face amount of $800,000 on January 1, 2011. The bonds sold for $739,816 and mature in 2030 (20 years). For bonds of similar risk and maturity the market yield was 12%. Interest is paid semiannually on June 30 and December 31. Pierce determines interest at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2011, the fair value of the bonds was $730,000. Pierce's earnings for the year will include a
A. gain from change in the fair value of debt of $10,617.
B. loss from change in the fair value of debt of $10,204.
C. gain from change in the fair value of debt of $10,204.
D. loss from change in the fair value of debt of $10,617.
4. On June 30, 2011, Hardy Corporation issued $10 million of its 8% bonds for $9.2 million. The bonds were priced to yield 10%. The bonds are dated June 30, 2011, and mature on June 30, 2018. Interest is payable semiannually on December 31 and July 1. If the effective interest method is used, by how much should the bond discount be reduced for the 6 months ended December 31, 2011?
A. $40,000
B. $46,000
C. $60,000
D. $32,000
5. C Corp. has a rate of return on assets of 10%. Not including any indirect effects on earnings, the rate of return on assets is immediately increased when C records
A Capital Lease An Operating Lease
a. yes yes
b. no no
c. yes no
d. no yes
A. Option a
B. Option c
C. Option d
D. Option b
6. On December 31, 2010, Reagan, Inc., signed a lease for some equipment having a 9-year useful life with Silver Leasing Co. The lease payments are made by Reagan annually, beginning at signing date. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2016. There's no bargain purchase option, and Reagan guarantees a residual value to the lessor on termination of the lease.
Reagan’s lease amortization schedule appears below:
What is the carrying value of the lease liability on Reagan's December 31, 2012 balance sheet (after the third lease payment is made)?
A. $356,280
B. $266,280
C. $190,530
D. $280,531
7. Discount-Mart issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds.
Payment
Cash
Effective
Interest
Decrease in
Balance
Outstanding
Balance
$8,640,967
1
300,000
345,639
345,639
8,686,606
2
300,000
347,464
347,464
8,734,070
3
300,000
349,363
349,363
8,783,433
4
300,000
What would be the total interest cost of the bonds over their full term?
A. $7,359,033
B. $6,000,000
C. $1,359,033
D. $4,640,967
8. If the lessor retains title to leased property under the terms of the lease,
A. the amount to be recovered through periodic lease payments is reduced by the present value of the residual amount.
B. the amount to be recovered will be the same as if there were no residual value.
C. the amount to be recovered through periodic lease payments is increased by the present value of the residual amount.
D. the lessor will record a greater amount of depreciation due to the residual value.
9. On January 1, 2011, Gibson Corporation entered into a 4-year operating lease. The payments were as follows: $20,000 for 2011, $18,000 for 2012, $16,000 for 2013, and $14,000 for 2014. What is the correct amount of lease expense for 2012?
A. $17,000
B. $19,000
C. $18,000
D. $20,500
10. If the residual value of a leased asset turns out to be more than the amount guaranteed by the lessee, the
A. lessee must pay the lessor the amount of the excess.
B. lessor must compensate the lessee for the excess.
C. lessee will reduce the last year's depreciation.
D. lessor isn't obligated to compensate the lessee for the excess.
11. On January 1, 2011, Zebra Corporation issued 1,000 of its 8%, $1,000 bonds at 98. Interest is payable semiannually on January 1 and July 1. The bonds mature on January 1, 2021. Zebra paid $50,000 in bond issue costs. Zebra uses the straight-line amortization method. What is the bond carrying value reported in the December 31, 2011, balance sheet?
A. $987,000
B. $1,045,000
C. $982,000
D. $1,040,000
12. Technoid, Inc., sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2011. The manufacturing cost of the computers was $12 million.
This non-cancelable lease had the following terms:
* Lease payments: $2,466,754 semiannually; first payment at January 1, 2011; remaining payments at June 30 and December 31 each year through June 30, 2015.
* Lease term: 5 years (10 semiannual payments)
* No residual value; no bargain purchase option
* Economic life of equipment: 5 years
* Implicit interest rate and lessee’s incremental borrowing rate: 5% semiannually
* Fair value of the computers at January 1, 2011: $20 million
Collectibility of the rental payments is reasonably assured, and there are no lessor costs yet to be incurred.
What is the net carrying value of the lease liability in Lone Star's June 30, 2011 balance sheet? Round your answer to the nearest dollar.
A. $17,533,246
B. $15,943,154
C. $2,466,754
D. $21,000,000
13. On December 31, 2010, Reagan, Inc., signed a lease for some equipment having a 9-year useful life with Silver Leasing Co. The lease payments are made by Reagan annually, beginning at signing date. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2016. There's no bargain purchase option, and Reagan guarantees a residual value to the lessor on termination of the lease.
Reagan’s lease amortization schedule appears below:
What is the amount of residual value guaranteed by Reagan to the lessor?
A. $34,615
B. The answer can't be determined from the given information.
C. $1,385
D. $36,000
14. Discount-Mart issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds.
Payment
Cash
Effective
Interest
Decrease in
Balance
Outstanding
Balance
$8,640,967
1
300,000
345,639
345,639
8,686,606
2
300,000
347,464
347,464
8,734,070
3
300,000
349,363
349,363
8,783,433
4
300,000
What is the effective annual rate of interest on the bonds?
A. 8%
B. 4%
C. 3%
D. 6%
15. On December 31, 2010, Reagan, Inc., signed a lease for some equipment having a 9-year useful life with Silver Leasing Co. The lease payments are made by Reagan annually, beginning at signing date. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2016. There's no bargain purchase option, and Reagan guarantees a residual value to the lessor on termination of the lease.
Reagan’s lease amortization schedule appears below:
In this situation, Reagan is the
A. lessee in a sales-type lease.
B. lessee in a capital lease.
C. lessor in a capital lease.
D. lessor in a sales-type lease.
16. Discount-Mart issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds.
Payment
Cash
Effective
Interest
Decrease in
Balance
Outstanding
Balance
$8,640,967
1
300,000
345,639
345,639
8,686,606
2
300,000
347,464
347,464
8,734,070
3
300,000
349,363
349,363
8,783,433
4
300,000
What is the carrying value of the bonds as of December 31, 2012?
A. $8,783,433
B. $8,686,606
C. $8,834,770
D. $8,734,070
17. Red Corp. has a rate of return on assets of 10% and a debt/equity ratio of 2 to 1. Not including any indirect effects on earnings, the immediate impact of retiring debt on these ratios is
Return on Assets Debt/Equity Ratio
a. increase increase
b. decrease decrease
c. increase decrease
d. decrease increase
A. Option a
B. Option d
C. Option c
D. Option b
18. Technoid, Inc., sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2011. The manufacturing cost of the computers was $12 million.
This non-cancelable lease had the following terms:
* Lease payments: $2,466,754 semiannually; first payment at January 1, 2011; remaining payments at June 30 and December 31 each year through June 30, 2015.
* Lease term: 5 years (10 semiannual payments)
* No residual value; no bargain purchase option
* Economic life of equipment: 5 years
* Implicit interest rate and lessee’s incremental borrowing rate: 5% semiannually
* Fair value of the computers at January 1, 2011: $20 million
Collectibility of the rental payments is reasonably assured, and there are no lessor costs yet to be incurred.Lone Star Company would account for this as a(an)
A. sales type lease.
B. direct financing lease.
C. capital lease.
D. operating lease.
19. Technoid, Inc., sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2011. The manufacturing cost of the computers was $12 million.
This non-cancelable lease had the following terms:
* Lease payments: $2,466,754 semiannually; first payment at January 1, 2011; remaining payments at June 30 and December 31 each year through June 30, 2015.
* Lease term: 5 years (10 semiannual payments)
* No residual value; no bargain purchase option
* Economic life of equipment: 5 years
* Implicit interest rate and lessee’s incremental borrowing rate: 5% semiannually
* Fair value of the computers at January 1, 2011: $20 million
Collectibility of the rental payments is reasonably assured, and there are no lessor costs yet to be incurred.
What is the interest revenue that Technoid would report on this lease in its 2011 income statement?
A. $0
B. $1,673,820
C. $2,466,754
D. $876,662
20. On September 1, 2011, Custom Shirts, Inc., entered into a lease agreement appropriately classified as an operating lease. The lease term is 3 years. The annual payments are (a) $20,000 for year 1, (b) $24,000 for year 2, and (c) $28,000 for year 3. How much rent expense will Custom Shirts recognize for 2011?
A. $24,000
B. $6,667
C. $20,000
D. $8,000
part ( 3 ) :
1. The changes in account balances for Elder Company for 2011 are as follows:
Assets
$480,000 debit
Common stock
250,000 credit
Liabilities
160,000 credit
Paid-in capital--excess of par
30,000 credit
Assuming the only changes in retained earnings in 2011 were for net income and a $50,000 dividend, what was net income for 2011?
A. $90,000.
B. $60,000.
C. $70,000.
D. $40,000.
2. In 2009, Winn, Inc., issued $1 par value common stock for $35 per share. No other common stock transactions occurred until July 31, 2011, when Winn acquired some of the issued shares for $30 per share and retired them. Which of the following statements correctly states an effect of this acquisition and retirement?
A. Retained earnings is increased.
B. Additional paid-in capital is decreased.
C. 2011 net income is increased.
D. 2011 net income is decreased.
3. Information for Hobson International Corp. for the current year ($ in millions):
Income from continuing operations before tax
$150
Extraordinary loss (pretax)
30
Temporary differences (all related to operating income):
Accrued warranty expense in excess of write-offs
included in operating income
10
Depreciation deducted on tax return in excess of depreciated expense
25
Permanent differences (all related to operating income):
Nondeductible portion of travel & entertainment expense
5
The applicable enacted tax rate for all periods is 40%.
What is Hobson's income tax payable for the current year?
A. $52 million
B. $48 million
C. $50 million
D. $44 million
4. ABC declared a property dividend. The dividend consisted of 10,000 common shares of its investment in XYZ Company. The shares had originally been purchased at $4 per share and had a $1 par value. The value of the shares on the declaration date is $7 per share. What is the first entry that should be recorded related to this dividend?
a. Retained earnings 70,000
Property dividends payable
70,000
b. Retained earnings 70,000
Property dividends payable
40,000
Gain
30,000
c. Investment in XYZ 30,000
Retained earnings;
30,000
d. Investment in XYZ 30,000
Gain
30,000
A. Option b
B. Option c
C. Option d
D. Option a
5. The following partial information is taken from the comparative balance sheet of Levi Corporation:
What was the average price (rounded to the nearest dollar) of the additional shares issued by Levi in 2011?
A. $39 per share
B. The answer can't be determined from the information given.
C. $5 per share
D. $26 per share
6. Beagle Corporation has 20,000 shares of $10 par common stock outstanding and 10,000 shares of $100 par, 6% cumulative, nonparticipating preferred stock outstanding. Dividends haven’t been paid for the past two years. This year, a $300,000 dividend will be paid. What are the dividends per share payable to preferred and common, respectively?
A. $6; $6
B. $12; $0
C. $6; $12
D. $18; $6
7. Louie Company has a defined benefit pension plan. On December 31 (the end of the fiscal year), the company received the PBO report from the actuary. The following information was included in the report: ending PBO, $110,000; benefits paid to retirees, $10,000; interest cost, $8,000. The discount rate applied by the actuary was 8%. What was the service cost for the year?
A. $92,000
B. $12,000
C. $18,000
D. $2,000
8. Information for Hobson International Corp. for the current year ($ in millions):
Income from continuing operations before tax
$150
Extraordinary loss (pretax)
30
Temporary differences (all related to operating income):
Accrued warranty expense in excess of write-offs
included in operating income
10
Depreciation deducted on tax return in excess of depreciated expense
25
Permanent differences (all related to operating income):
Nondeductible portion of travel & entertainment expense
5
The applicable enacted tax rate for all periods is 40%.
How much tax on income from continuing operations would be reported in Hobson's income statement?
A. $62 million
B. $60 million
C. $50 million
D. $56 million
9. The following information pertains to Havana Corporation's defined benefit pension plan:
($ in 000s)
2011
2012
Beginning
balances
Beginning
balances
Projected benefit obligation
($6,000)
($6,504)
Plan assets
5,760
6,336
Prior service cost--AOCI
600
552
Net loss--AOCI
720
786
At the end of 2011, Havana contributed $696 thousand to the pension fund and benefit payments of $624 thousand were made to retirees. The expected rate of return on plan assets was 10%, and the actuary's discount rate is 8%. There were no changes in actuarial estimates and assumptions regarding the PBO.
What is the 2011 pension expense for Havana's plan?
A. $678 thousand
B. $702 thousand
C. $594 thousand
D. $606 thousand
10. At the beginning of 2009, Emily Corporation issued 10,000 shares of $100 par, 5%, cumulative, preferred stock for $110 per share. No dividends have been paid to preferred shareholders. What amount of dividends will a shareholder owning 100 shares receive in 2011 if Emily pays $1,000,000 in dividends?
A. $500
B. $1,650
C. $1,500
D. $10,000
11. The changes in account balances for Allen Inc. for 2011 are as follows:
Assets
$225,000 debit
Common stock
125,000 credit
Liabilities
80,000 credit
Paid-in capital--excess of par
15,000 credit
Assuming the only changes in retained earnings in 2011 were for net income and a $25,000 dividend, what was net income for 2011?
A. $20,000
B. $5,000
C. $30,000
D. $15,000
12. Pug Corporation has 10,000 shares of $10 par common stock outstanding and 20,000 shares of $100 par, 6% noncumulative, nonparticipating preferred stock outstanding. Dividends have not been paid for the past two years. This year, a $150,000 dividend will be paid. What are the dividends per share for preferred and common, respectively?
A. $6; $3.
B. $6; $1.50.
C. $7.50; $1.50.
D. $7.50; $0.
13. Persoff Industries International has a defined benefit pension plan. The company revised its estimate of future salary levels causing its defined benefit obligation to increase by $16 million. Also, Persoff's $25 million actual return on plan assets exceeded the $22 million expected return. Persoff prepares its financial statements in accordance with International Financial Reporting Standards. The company will
A. report an unrecognized net gain as an increase in the net pension asset in the liability section of the balance sheet.
B. report an unrecognized net loss as an offset to the net pension liability in the liability section of the balance sheet.
C. record a $3 million decrease in its plan assets.
D. record a $16 million gain-OCI.
14. The EPBO for a particular employee on January 1, 2011, was $30,000. The APBO at the beginning of the year was $6,000. The appropriate discount rate for this postretirement plan is 5%. The employee is expected to serve the company for a total of twenty-five years with five of those years already served as of January 1, 2011. What is the APBO at December 31, 2011?
A. $7,200
B. $7,560
C. $6,300
D. $7,500
15. At the end of the current year, Newsmax Inc. has $400,000 of subscriptions received in advance included in its balance sheet. A footnote reveals that the entire $400,000 will be earned in the next year. In the absence of other temporary differences, in the balance sheet one would also expect to find a
A. Current deferred tax liability
B. Current deferred tax asset
C. Noncurrent deferred tax asset
D. Noncurrent deferred tax liability
16. Montgomery & Co., a well established law firm, provided 500 hours of its time to Fink Corporation in exchange for 1,000 shares of Fink's $5 par common stock. Mitchell's usual billing rate is $700 per hour, and Fink's stock has a book value of $250 per share. By what amount will Fink's Paid-in capital - excess of par increase for this transaction?
A. $350,000
B. $300,000
C. $295,000
D. $345,000
17. The shareholders’ equity of Red Corporation includes $200,000 of $1 par common stock and $400,000 of 6% cumulative preferred stock. The board of directors of Green declared cash dividends of $50,000 in 2011 after paying $20,000 cash dividends in 2010 and $40,000 in 2009. What is the amount of dividends common shareholders will receive in 2011?
A. $22,000
B. $28,000
C. $26,000
D. $18,000
18. JL Health Services reported a net loss-AOCI in last year's balance sheet. This year, the company revised its estimate of future salary levels causing its PBO estimate to decline by $24. Also, the $48 million actual return on plan assets was less than the $54 million expected return. As a result,
A. the statement of comprehensive income will report a $6 million gain and a $24 million loss.
B. the net pension liability will increase by $18 million.
C. accumulated other comprehensive income will increase by $18 million.
D. the net pension liability will decrease by $24 million.
19. In 2010, HD had reported a deferred tax asset of $90 million with no valuation allowance. At December 31, 2011, the account balances of HD Services showed a deferred tax asset of $120 million before assessing the need for a valuation allowance and income taxes payable of $80 million. HD determined that it was more likely than not that 30% of the deferred tax asset ultimately would not be realized. HD made no estimated tax payments during 2011. What amount should HD report as income tax expense in its 2011 income statement?
A. $50 million
B. $86 million
C. $116 million
D. $80 million
20. The Kelso Company had the following operating results:
Year Income (loss) Tax rate Income tax
2009
30,000
35%
10,500 first year of operations
2010
45,000
30%
13,500
2011
(60,000)
30%
I0
What is the income tax refund receivable?
A. $24,000
B. $18,000
C. $18,750
D. $19,500
part ( 4 ) :
1. During 2011, Angel Corporation had 900,000 shares of common stock and 50,000 shares of 6% preferred stock outstanding. The preferred stock does not have cumulative or convertible features. Angel declared and paid cash dividends of $300,000 and $150,000 to common and preferred shareholders, respectively, during 2011.
On January 1, 2010, Angel issued $2,000,000 of convertible 5% bonds at face value. Each $1,000 bond is convertible into 5 common shares.
Angel's net income for the year ended December 31, 2011, was $6 million. The income tax rate is 20%.
What is Angel's basic earnings per share for 2011, rounded to the nearest cent?
A. $5.57
B. $5.29
C. $6.50
D. $9.20
2. On January 2, 2011, Tobias Company began using straight-line depreciation for a certain class of assets. In the past, the company had used double-declining-balance depreciation for these assets. As of January 2, 2011, the amount of the change in accumulated depreciation is $40,000. The appropriate tax rate is 40%. The separately reported change in 2011 earnings is
A. an increase of $40,000.
B. an increase of $24,000.
C. not given here.
D. a decrease of $40,000.
3. Which of the following is not a change in reporting entity?
A. All are changes in reporting entity
B. Presenting consolidated financial statements for the first time
C. Reporting using comparative financial statements for the first time
D. Changing the companies that comprise a consolidated group
4. Like U.S. GAAP, international standards also require a statement of cash flows. Consistent with U.S GAAP, cash flows are classified as operating, investing, or financing activities. However, with regard to interest and dividend inflows and outflows, the international standard for cash flow statements
A. allows companies to report cash outflows from interest payments as either operating or investing cash flows.
B. allows companies to report dividends paid as either investing or operating cash flows.
C. allows companies to report cash inflows from interest and dividends as either operating or investing cash flows.
D. designates cash outflows for interest payments and cash inflows from interest and dividends received as operating cash flows.
5. During 2011, Angel Corporation had 900,000 shares of common stock and 50,000 shares of 6% preferred stock outstanding. The preferred stock does not have cumulative or convertible features. Angel declared and paid cash dividends of $300,000 and $150,000 to common and preferred shareholders, respectively, during 2011.
On January 1, 2010, Angel issued $2,000,000 of convertible 5% bonds at face value. Each $1,000 bond is convertible into 5 common shares.
Angel's net income for the year ended December 31, 2011, was $6 million. The income tax rate is 20%.
What will Angel report as diluted earnings per share for 2011, rounded to the nearest cent?
A. The correct answer isn't given.
B. $6.43
C. $6.22
D. $6.25
6. In its 2011 income statement, WME reported $11,000 of interest expense on its outstanding bonds. During the year, WME paid its regular installments of $9,000 of interest in cash. In its reconciliation schedule, WME should show a
A. $2,000 positive adjustment to net income under the indirect method for the decrease in bond premium.
B. $2,000 positive adjustment to net income under the indirect method for the decrease in bond discount.
C. $2,000 negative adjustment to net income under the indirect method for the decrease in bond premium.
D. $2,000 negative adjustment to net income under the indirect method for the decrease in bond discount.
7. During 2011, P Company discovered that the ending inventories reported on its financial statements were incorrect by the following amounts:
2009 $120,000 understated
2010 $150,000 overstated
P uses the periodic inventory system to ascertain year-end quantities that are converted to dollar amounts using the FIFO cost method. Prior to any adjustments for these errors and ignoring income taxes, P's retained earnings at January 1, 2011 would be
A. $150,000 understated.
B. correct.
C. $30,000 overstated.
D. $150,000 overstated.
8. A firm reported ($ in millions) net cash inflows (outflows) as follows: operating $75, investing ($200), and financing $350. The beginning cash balance was $250. What was the ending cash balance?
A. $475
B. $25
C. $125
D. $875
9. Freeman Company's accounting records include the following information:
Payments to suppliers
$50,000
Collections on accounts receivable
90,000
Cash sales
20,000
Income taxes paid
5,000
Equipment purchased
15,000
What is the amount of net cash provided by operating activities indicated by these transactions?
A. $60,000
B. $45,000
C. $55,000
D. $40,000
10. On June 4, White Corporation issued $400 million of bonds for $386 million. During the same year, $1 million of the bond discount was amortized. In a statement of cash flows prepared by the indirect method, White Corporation should report a(an)
A. deduction from net income of $1 million.
B. financing activity of $400 million.
C. addition to net income of $1 million.
D. investing activity of $386 million.
11. Due to an error in computing depreciation expense, Prewitt Corporation overstated accumulated depreciation by $20 million as of December 31, 2011. Prewitt has a tax rate of 30%. Prewitt's retained earnings as of December 31, 2011, would be
A. understated by $6 million.
B. overstated by $14 million.
C. overstated by $6 million.
D. understated by $14 million.
12. Under IFRS, a deferred tax asset for stock options
A. is the portion of the options' intrinsic value earned to date times the tax rate.
B. is the tax rate times the amount of compensation.
C. isn't created if the award is "in the money;" that is, it has intrinsic value.
D. is created for the cumulative amount of the fair value of the options the company has recorded for compensation expense.
13. Horrocks Company granted 180,000 restricted stock awards of its no par common shares to executives, subject to forfeiture if employment is terminated within three years. Horrocks' common shares have a market price of $10 per share on January 1, 2010, the grant date, and at December 31, 2011, averaging $10 throughout the year. When calculating diluted EPS at December 31, 2011, the net increase in the denominator of the EPS fraction will be
A. 120,000 shares.
B. 60,000 shares.
C. 0 shares.
D. 180,000 shares.
14. On January 1, 2011, G Corp. granted stock options to key employees for the purchase of 80,000 shares of the company’s common stock at $25 per share. The options are intended to compensate employees for the next two years. The options are exercisable within a four-year period beginning January 1, 2013, by the grantees still in the employ of the company. No options were terminated during 2011, but the company does have an experience of 4% forfeitures over the life of the stock options. The market price of the common stock was $31 per share at the date of the grant. G Corp. used the binomial pricing model and estimated the fair value of each of the options at $10. What amount should G charge to compensation expense for the year ended December 31, 2011?
A. $400,000
B. $384,000
C. $307,200
D. $320,000
15. Under its executive stock option plan, W Corporation granted options on January 1, 2011, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2013 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. The options are exercised on April 2, 2014, when the market price is $21 per share. By what amount will W's shareholder's equity be increased when the options are exercised?
A. $270 million
B. $330 million
C. $315 million
D. $60 million
16. In its 2011 income statement, WME reported $695,000 for service revenue earned from membership fees. WME received $681,000 cash in advance from members during 2011. In its reconciliation schedule, WME should show a
A. $14,000 negative adjustment to net income under the indirect method for the increase in unearned revenue.
B. $14,000 positive adjustment to net income under the indirect method for the decrease in unearned revenue.
C. $14,000 positive adjustment to net income under the indirect method for the increase in unearned revenue.
D. $14,000 negative adjustment to net income under the indirect method for the decrease in unearned revenue.
17. During the current year, High Corporation had 3 million shares of common stock outstanding. Five thousand, $1,000, 6% convertible bonds were issued at face amount at the beginning of the year. High reported income before tax of $4 million and net income of $2.4 million for the year. Each bond is convertible into ten shares of common. What is diluted EPS (rounded)?
A. $.79
B. $.80
C. $.86
D. $.85
18. Morrison Corporation had the following common stock record during the current calendar year:
Outstanding—January 1
2,000,000
Additional shares issued 3/31
100,000
Distributed a 10% stock dividend on 6/30
Additional shares issued 9/30
100,000
What is the number of shares to be used in computing basic EPS?
A. 2,000,000
B. 2,200,000
C. 2,310,000
D. 2,307,500
19. Under its executive stock option plan, Q Corporation granted options on January 1, 2011, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2013 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures were anticipated, however unexpected turnover during 2012 caused the forfeiture of 5% of the stock options. Ignoring taxes, what is the effect on earnings in 2013?
A. $18 million
B. $19 million
C. $0
D. $20 million
20. Which of the following statements is true regarding correcting errors in previously issued financial statements prepared in accordance with International Financial Reporting Standards?
A. The error can be reported in the current period if it’s not considered practicable to report it retrospectively.
B. The error can be reported prospectively if it’s not considered practicable to report it retrospectively.
C. The error can be reported in the current period if it’s not considered practicable to report it prospectively.
D. Retrospective application is required with no exception.
21. Prior to 2011, Trapper John, Inc., used sum-of-the-years’-digits depreciation for its store equipment. Beginning in 2011, Trapper John decided to use straight-line depreciation for these assets. The equipment cost $3 million when it was purchased at the beginning of 2009, had an estimated useful life of five years and no estimated residual value. To account for the change in 2011, Trapper John
A. would retrospectively report $600,000 in depreciation expense annually for 2009 and 2010, and report $600,000 in depreciation expense for 2011.
B. would adjust accumulated depreciation and retained earnings for the excess charges made in 2009 and 2010.
C. would report $3 million in depreciation expense for 2011.
D. would report depreciation expense of $400,000 in its 2011 income statement.
22. Powell Company had the following errors over the last two years:
2009: Ending inventory was overstated by $30,000 while depreciation expense was overstated by $24,000.
2010: Ending inventory was understated by $5,000 while depreciation expense was understated by $4,000.
By how much should retained earnings be adjusted on January 1, 2011? (Ignore taxes)
A. Increase by $15,000
B. Decrease by $6,000
C. Decrease by $25,000
D. Increase by $25,000
23. In a statement of cash flows using the indirect method, an increase in available-for-sale securities due to an increase in their fair value
A. should not reported.
B. should be reported as a deduction from net income in determining cash flows from operating activities.
C. should be reported as an addition to net income in determining cash flows from operating activities.
D. should be reported as an investing activity.
24. Baldwin Company had 40,000 shares of common stock outstanding on January 1, 2011. On April 1, 2011 the company issued 20,000 shares of common stock. The company had outstanding fully vested incentive stock options for 10,000 shares exercisable at $10 that had not been exercised by its executives. The average market price of common stock for the year was $12.
What number of shares of stock (rounded) should be used in computing diluted earnings per share?
A. 61,667
B. 65,000
C. 55,000
D. 56,667
25. If bond interest expense is $800,000, bond interest payable increased by $8,000 and bond discount decreased by $2,000, cash paid for bond interest is
A. $790,000.
B. $806,000.
C. $910,000.
D. $784,000.
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