1) The interest rate written in the terms of the bond indenture is known as the
a.coupon rate
b.nominal rate
c.stated rate
d.coupon rate, nominal rate, or stated rate
2) On January 1, 2015, Yancey, Inc. signs a 10-year noncancelable lease agreement to
lease a storage building from Holt Warehouse Company. Collectibility of lease
payments is reasonably predictable and no important uncertainties surround the amount
of costs yet to be incurred by the lessor. The following information pertains to this lease
agreement.
(a)The agreement requires equal rental payments at the beginning each year.
(b)The fair value of the building on January 1, 2015 is $4,000,000; however, the book
value to Holt is $3,300,000.
(c)The building has an estimated economic life of 10 years, with no residual value.
Yancey depreciates similar buildings on the straight-line method.
(d)At the termination of the lease, the title to the building will be transferred to the
lessee.
(e)Yanceys incremental borrowing rate is 11% per year. Holt Warehouse Co. set the
annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by
Yancey, Inc.
(f)The yearly rental payment includes $10,000 of executory costs related to taxes on the
property.
Future Value of Ordinary Annuity of 1
Period 5% 6% 8% 10% 12%
11.000001.000001.000001.000001.00000
22.050002.060002.080002.100002.12000
33.152503.183603.246403.310003.37440
44.310134.374624.506114.641004.77933
55.525635.637095.866606.105106.35285
66.801916.975327.335927.715618.11519
78.142018.393848.922809.4871710.08901
89.549119.8974710.6366311.4358912.29969
911.0265611.4913212.4875613.5794814.77566
1012.5778913.1807914.4865615.9374317.54874
Present Value of an Ordinary Annuity of 1
Period 5% 6% 8% 10% 12%
1.95238.94340.92593.90909.89286
21.859411.833391.783261.735541.69005
32.723252.673012.577102.486852.40183
43.545953.465113.312133.169863.03735
54.329484.212363.992713.790793.60478
65.075694.917324.622884.355264.11141
75.786375.582385.206374.868424.56376
86.463216.209795.746645.334934.96764
97.107826.801696.246895.759025.32825
107.721737.360096.710086.144575.65022
If the lease were nonrenewable, there was no purchase option, title to the building does
not pass to the lessee at termination of the lease and the lease were only for eight years,
what type of lease would this be for the lessee?
a.Sales-type lease
b.Direct-financing lease
c.Operating lease
d.Capital lease
3) Balance sheet information is useful for all of the following except
a.assessing a company’s risk
b.evaluating a company’s liquidity
c.evaluating a company’s financial flexibility
d.determining free cash flows
4) Warrants exercisable at $20 each to obtain 60,000 shares of common stock were
outstanding during a period when the average market price of the common stock was
$25. Application of the treasury stock method for the assumed exercise of these
warrants in computing diluted earnings per share will increase the weighted average
number of outstanding shares by
a.60,000
b.48,000
c.12,000
d.15,000
5) The statement of cash flows reports all of the following except
a.the net change in cash for the period
b.the cash effects of operations during the period
c.the free cash flows generated during the period
d.investing transactions
6) An amount is deposited for eight years at 8%. If compounding occurs quarterly, then
the table value is found at
a.8% for eight periods
b.2% for eight periods
c.8% for 32 periods
d.2% for 32 periods
7) What is interest?
a.Payment for the use of money
b.An equity investment
c.Return on capital
d.Loan
8) For 2014, cost of goods available for sale for Tate Corporation was $2,700,000. The
gross profit rate on sales was 20%. Sales for the year were $2,400,000. What was the
amount of the ending inventory?
a.$0
b.$780,000
c.$540,000
d.$480,000
9) The following information is available for the first three years of operations for
Cooper Company:
1>YearTaxable Income
2014$500,000
2015350,000
2016400,000
2>On January 2, 2014, heavy equipment costing $600,000 was purchased. The
equipment had a life of 5 years and no salvage value. The straight-line method of
depreciation is used for book purposes and the tax depreciation taken each year is listed
below:
Tax Depreciation
2014 2015 2016 2017 Total
$198,000$270,000$90,000$42,000$600,000
3>On January 2, 2015, $300,000 was collected in advance for rental of a building for a
three-year period. The entire $300,000 was reported as taxable income in 2015, but
$200,000 of the $300,000 was reported as unearned revenue at December 31, 2015 for
book purposes.
4>The enacted tax rates are 40% for all years.
Instructions
(a)Prepare a schedule comparing depreciation for financial reporting and tax purposes.
(b)Determine the deferred tax (asset) or liability at the end of 2014 .
(c)Prepare a schedule of future taxable and (deductible) amounts at the end of 2015 .
(d)Prepare a schedule of the deferred tax (asset) and liability at the end of 2015 .
(e)Compute the net deferred tax expense (benefit) for 2015 .
(f)Prepare the journal entry to record income tax expense, deferred income taxes, and
income tax payable for 2015 .
10) Kramer Company’s trading securities portfolio which is appropriately included in
current assets is as follows:
December 31, 2014
FairUnrealized
Cost ValueGain (Loss)
Catlett Corp.$260,000 $205,000$(55,000)
Lyman, Inc. 245,000 265,000 20,000
$505,000$470,000$(35,000)
Ignoring income taxes, what amount should be reported as a charge against income in
Kramer’s 2014 income statement if 2014 is Kramer’s first year of operation?
a.$0
b.$20,000 gain
c.$35,000 loss
d.$55,000 loss