1) on january 1, 2013 reese company granted jack buchanan, an employee, an option to
buy 200 shares of reese co. stock for $40 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 $2,400. buchanan exercised his option on september 1, 2013, and
sold his 100 shares on december 1, 2013. quoted market prices of reese co. stock during
2013 were:
the service period is for two years beginning january 1, 2013. as a result of the option
granted to buchanan, using the fair value method, reese should recognize compensation
expense for 2013 on its books in the amount of
a.$0
b.$1,200
c.$2,400
d.$2,800
2) adjustments are often prepared
a.after the balance sheet date, but dated as of the balance sheet date
b.after the balance sheet date, and dated after the balance sheet date
c.before the balance sheet date, but dated as of the balance sheet date
d.before the balance sheet date, and dated after the balance sheet date
3) at the beginning of 2013, hamilton company had retained earnings of $180,000.
during the year hamilton reported net income of $75,000, sold treasury stock at a gain
of $27,000, declared a cash dividend of $45,000, and declared and issued a small stock
dividend of 1,500 shares ($10 par value) when the fair value of the stock was $30 per
share. the amount of retained earnings available for dividends at the end of 2013 was:
a.$214,500
b.$192,000
c.$187,500
d.$165,000
4) which of the following is not a major characteristic of a plant asset?
a.possesses physical substance
b.acquired for resale
c.acquired for use
d.yields services over a number of years
5) which of the following is not a characteristic of a noncompensatory stock purchase
plan?
a.it is open to almost all full-time employees
b.the discount from market price is small
c.the plan offers no substantive option feature
d.all of these are characteristics
6) patton company purchased $600,000 of 10% bonds of scott co. on january 1, 2013,
paying $564,150. the bonds mature january 1, 2023; interest is payable each july 1 and
january 1. the discount of $35,850 provides an effective yield of 11%. patton company
uses the effective-interest method and plans to hold these bonds to maturity.
for the year ended december 31, 2013, patton company should report interest revenue
from the scott co. bonds of:
a.$63,588
b.$62,113
c.$62,052
d.$60,000
7) parker corporation has issued 2,000 shares of common stock and 400 shares of
preferred stock for a lump sum of $76,000 cash.
instructions
(a)give the entry for the issuance assuming the par value of the common was $5 and the
fair value $30, and the par value of the preferred was $40 and the fair value $50. (each
valuation is on a per share basis and there are ready markets for each stock.)
(b)give the entry for the issuance assuming the same facts as (a) above except the
preferred stock has no ready market and the common stock has a fair value of $26 per
share.
8) the cash debt coverage ratio is computed by dividing net cash provided by operating
activities by
a.average long-term liabilities
b.average total liabilities
c.ending long-term liabilities
d.ending total liabilities
9) an example of an item which is not a liability is
a.dividends payable in stock
b.advances from customers on contracts
c.accrued estimated warranty costs
d.the portion of long-term debt due within one year
10) langley company’s december 31 year-end financial statements contained the
following errors:
an insurance premium of $36,000 was prepaid in 2012 covering the years 2012, 2013,
and 2014. the prepayment was recorded with a debit to insurance expense. in addition,
on december 31, 2013, fully depreciated machinery was sold for $19,000 cash, but the
sale was not recorded until 2014. there were no other errors during 2013 or 2014 and no
corrections have been made for any of the errors. ignore income tax considerations.
what is the total effect of the errors on the balance of langley’s retained earnings at
december 31, 2013?
a.retained earnings understated by $20,000
b.retained earnings understated by $9,000
c.retained earnings understated by $5,000
d.retained earnings overstated by $7,000
11) the role of the securities and exchange commission in the formulation of accounting
principles can be best described as
a.consistently primary
b.consistently secondary
c.sometimes primary and sometimes secondary
d.non-existent