1) At December 31, 2014, Emley Company had 1,200,000 shares of common stock
outstanding. On October 1, 2015, an additional 400,000 shares of common stock were
issued. In addition, Emley had $10,000,000 of 6% convertible bonds outstanding at
December 31, 2014, which are convertible into 800,000 shares of common stock. No
bonds were converted into common stock in 2015. The net income for the year ended
December 31, 2015, was $3,750,000. Assuming the income tax rate was 30%, what
should be the diluted earnings per share for the year ended December 31, 2015, rounded
to the nearest penny?
a.$1.59
b.$2.07
c.$1.99
d.$2.88
2) What effect will the acquisition of treasury stock have on stockholders’ equity and
earnings per share, respectively?
a.Decrease and no effect
b.Increase and no effect
c.Decrease and increase
d.Increase and decrease
3) Assuming that the ideal measure of short-term receivables in the balance sheet is the
discounted value of the cash to be received in the future, failure to follow this practice
usually does not make the balance sheet misleading because
a.most short-term receivables are not interest-bearing
b.the allowance for uncollectible accounts includes a discount element
c.the amount of the discount is not material
d.most receivables can be sold to a bank or factor
4) On December 31, 2014, Lang Corporation leased a ship from Fort Company for an
eight-year period expiring December 30, 2022. Equal annual payments of $300,000 are
due on December 31 of each year, beginning with December 31, 2014 . The lease is
properly classified as a capital lease on Lang s books. The present value at December
31, 2014 of the eight lease payments over the lease term discounted at 10% is
$1,760,528. Assuming all payments are made on time, the amount that should be
reported by Lang Corporation as the total obligation under capital leases on its
December 31, 2015 balance sheet is
a.$1,636,581
b.$1,500,238
c.$1,306,581
d.$1,800,000
5) Which of the following transactions would require the use of the present value of an
annuity due concept in order to calculate the present value of the asset obtained or
liability owed at the date of incurrence?
a.A capital lease is entered into with the initial lease payment due upon the signing of
the lease agreement
b.A capital lease is entered into with the initial lease payment due one month
subse-quent to the signing of the lease agreement
c.A ten-year 8% bond is issued on January 2 with interest payable semiannually on July
1 and January 1 yielding 7%
d.A ten-year 8% bond is issued on January 2 with interest payable semiannually on July
1 and January 1 yielding 9%
6) Crispy Frosted Flakes Company offers its customers a pottery cereal bowl if they
send in 4 boxtops from Crispy Frosted Flakes boxes and $1. The company estimates
that 60% of the boxtops will be redeemed. In 2014, the company sold 500,000 boxes of
Frosted Flakes and customers redeemed 220,000 boxtops receiving 55,000 bowls. If the
bowls cost Crispy Company $3 each, how much liability for outstanding premiums
should be recorded at the end of 2014?
a.$150,000
b.$40,000
c.$60,000
d.$84,000
7) During 2014, which was the first year of operations, Oswald Company had
merchandise purchases of $985,000 before cash discounts. All purchases were made on
terms of 2/10, n/30. Three-fourths of the items purchased were paid for within 10 days
of purchase. All of the goods available had been sold at year end.
Which of the following recording procedures would result in the highest net income for
2014?
1> Recording purchases at gross amounts
2>Recording purchases at net amounts, with the amount of discounts not taken shown
under “other expenses” in the income statement
a.1
b.2
c.Either 1 or 2 will result in the same net income
d.Cannot be determined from the information provided
8) Which of the following is not an internal event?
a.Depreciation
b.Using raw materials in the production process
c.Dividend declaration and subsequent payment
d.All of these are internal transactions
9) Hart Corporation owns machinery with a book value of $285,000. It is estimated that
the machinery will generate future cash flows of $300,000. The machinery has a fair
value of $210,000. Hart should recognize a loss on impairment of
a.$ -0-
b.$15,000
c.$75,000
d.$90,000
10) On December 1, 2015, Goetz Corporation leased office space for 10 years at a
monthly rental of $90,000. On that date Goetz paid the landlord the following amounts:
Rent deposit$ 90,000
First months rent90,000
Last months rent90,000
Installation of new walls and offices 720,000
$990,000
The entire amount of $990,000 was charged to rent expense in 2015 . What amount
should Goetz have charged to expense for the year ended December 31, 2015?
a.$90,000
b.$96,000
c.$186,000
d.$720,000
11) Which of the following best exemplifies a contingency that is reported in the notes
to the financial statements?
a.Losses from potential future lawsuits
b.Loss from a lawsuit settled out of court prior to the end of the fiscal year
c.Warranty claims on future sales
d.Estimated loss from an ongoing lawsuit
12) For 2014, Hammer Company reports beginning of the year total assets of $900,000,
end of the year total assets of $1,100,000, net sales of $750,000, and net income of
$150,000.
Hammers 2014 asset turnover ratio is
a.0.14 times
b.0.15 times
c.0.68 times
d.0.75 times
13) On January 1 of the current year, Feller Corporation issued $5,000,000 of 10%
debenture bonds on a basis to yield 9%, receiving $5,224,300. Interest is payable
annually on December 31 and the bonds mature in 6 years. The effective-interest
method is used.
(a)What is the interest expense for the first year?
(b)What is the interest expense for the second year?
14) Revenue generally should be recognized
a.at the end of production
b.at the time of cash collection
c.when realized
d.when the performance obligation is satisfied
15) Sawyer Corporation has a machine (Machine A) that it acquired on 1/1/14 for
$540,000. On 12/31/14 such machines have a selling price and fair value of $621,000.
When used in production, such machines have an estimated useful life of 10 years with
no salvage value. Use the straight-line method.
Brown Corporation has a machine (Machine B) that it acquired on 1/1/14 for $729,000.
On 12/31/14 such machines have a selling price and fair value of $540,000. When used
in production, such machines have an estimated useful life of 10 years with no salvage
value. Use the straight-line method.
On 12/31/14 Brown gave Machine B plus $81,000 cash to Sawyer in return for
Machine A.
Given the assumptions in 15 above, at what amount will Brown record Machine A?
a.$540,000
b.$737,100
c.$621,000
d.$656,100
16) All of the following are problems associated with the valuation of accounts
receivable except
a.uncollectible accounts
b.returns
c.cash discounts under the net method
d.allowances granted