Bond X and bond Y both are issued by the same company. Each of the bonds has a
maturity value of $100,000 and each pays interest at 8%. The current market rate of
interest is 8% for each. Bond X matures in 7 years while bond Y matures in 10 years.
Which of the following is correct?
a. Both bonds sell for the same amount.
b. Both bonds sell for more than $100,000.
c. Bond X sells for more than bond Y.
d. Bond Y sells for more than bond X.
Which of the following is not true regarding the statement of cash flows?
a. The indirect method derives cash flows indirectly by starting with sales revenue and
“working backwards” to convert that amount to a cash basis.
b. Noncash transactions sometimes are reported in conjunction with the statement.
c. Either the direct or the indirect method can be used to calculate and report the net
cash increase or decrease from operating activities.
d. The statement of cash flows provides information about cash flows that the other
statements either do not provide or provide only indirectly.
Which is a shareholders’ equity account in the balance sheet?
a. Accumulated depreciation.
b. Paid-in capital.
c. Salaries payable.
d. Accounts receivable.
Under the MLB deferred compensation plan, payments made at the end of each year
accumulate up to retirement and then retirees are given two options. Option 1 allows the
retiree to select the amount of the annual payment to be received, and option 2 allows
the retiree to specify over how many years payments are to be received. Assume Sosa
has had $5,000 deposited at the end of each year for 40 years, and that the long-term
interest rate has been 7%.
Required:
a. How much has accumulated in Sosa’s deferred compensation account?
b. How much will Sosa be able to withdraw at the beginning of each year if he elects to
receive payments for 20 years?
c. For how many years will Sosa be able to receive payments if he chooses to receive
$115,000 per year at the beginning of each year?
Cash may not include:
a. Foreign currency.
b. Money orders.
c. Restricted cash.
d. Undeposited customer checks.
Martin Corp. permits any of its employees to buy shares directly from the company
through payroll deduction. There are no brokerage fees and shares can be purchased at a
10% discount. During 2016, employees purchased 8 million shares; during this same
period, the shares had a market price of $15 per share at the end of the year. Martin’s
2016 pretax earnings will be reduced by:
a. $ 0.
b. $ 12 million.
c. $108 million.
d. $120 million.
Mary Alice just won the lottery and is trying to decide between the annual cash flow
payment option of $250,000 per year for 25 years beginning today and the lump-sum
option. Mary Alice can earn 6% investing this money. At what lump-sum payment
amount would she be indifferent between the two alternatives?
a. $6,250,000.
b. $3,195,840.
c. $3,637,590.
d. $3,387,590.
The LIFO Conformity Rule states that if LIFO is used for:
a. One class of inventory, it must be used for all classes of inventory.
b. Tax purposes, it must be used for financial reporting.
c. One company in an affiliated group, it must be used by all companies in an affiliated
group.
d. Domestic companies, it must be used by foreign partners.
COSO defines internal control as a process, affected by an entity’s board of directors,
management, and other personnel, designed to provide reasonable assurance regarding
the achievement of objectives in:
a. Effectiveness and efficiency of operations.
b. Reliability of financial advice.
c. Compliance with local ordinances.
d. All of these answer choices are correct.
Refer to the following lease amortization schedule. The 10 payments are made annually
starting with the inception of the lease. Title does not transfer to the lessee and there is
no bargain purchase option or guaranteed residual value. The asset has an expected
economic life of 12 years. The lease is noncancelable.
What is the effective annual interest rate?
a. 9%.
b. 10%.
c. 11%.
d. 12%.
Cash equivalents have each of the following characteristics except:
a. Little risk of loss.
b. Highly liquid.
c. Maturity of at least three months.
d. Short-term.
Stock splits are issued primarily to:
a. Increase the number of outstanding shares.
b. Increase the number of authorized shares.
c. Increase legal capital.
d. Induce a decline in market value per share.
Morrison Corporation had the following common stock record during the current
calendar year:
What is the number of shares to be used in computing basic EPS?
a. 2,000,000.
b. 2,205,000.
c. 2,307,500.
d. 2,335,000.
Cramer Company sold five-year, 8% bonds on October 1, 2016. The face amount of the
bonds was $100,000, while the issue price was $102,000. Interest is payable on April 1
of each year. The fiscal year of Cramer Company ends on December 31. How much
interest expense will Cramer Company report in its December 31, 2016, income
statement (assume straight-line amortization)?
a. $ 2,000.
b. $ 1,900.
c. $ 1,778.
d. $ 2,040.
Goodwill is:
a. Amortized over the greater of its estimated life or 40 years.
b. Only recorded by the seller of a business.
c. The excess of the fair value of a business over the fair value of all net identifiable
assets.
d. None of these answer choices are correct.
What is Angel’s basic earnings per share for 2016, rounded to the nearest cent?
During 2016, 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 2016.
On January 1, 2015, Angel issued $2,000,000 of convertible 5% bonds at face value.
Each $1,000 bond is convertible into five common shares.
Angel’s net income for the year ended December 31, 2016, was $6 million. The income
tax rate is 20%.
a. $5.29.
b. $5.57.
c. $6.50.
d. None of these answer choices is correct.
On December 31, 2015, Reagan Inc. signed a lease for some equipment having a
nine-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, 2021. There is 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:
a. is the lessee in a sales-type lease.
b. is the lessee in a capital lease.
c. is the lessor in a capital lease.
d. is the lessor in a sales-type lease.
From the perspective of the lessor, leases may be classified as either:
a. Direct financing or sales-type.
b. Operating, capital, or direct financing.
c. Operating, sales-type, indirect financing.
d. Operating, direct financing, or sales-type.
The EPBO for a particular employee on January 1, 2016, was $150,000. The APBO at
the beginning of the year was $30,000. The appropriate discount rate for this
postretirement plan is 5%. The employee is expected to serve the company for a total of
25 years with 5 of those years already served as of January 1, 2016. What is the APBO
at December 31, 2016?
a. $37,800.
b. $42,800.
c. $31,500.
d. $30,000.
Assume that, on January 1, 2016, Matsui Co. paid $1,200,000 for its investment in
60,000 shares of Yankee Inc. Further, assume that Yankee has 200,000 total shares of
stock issued. The book value and fair value of Yankee’s identifiable net assets were both
$4,000,000 at January 1, 2016. The following information pertains to Yankee during
2016:
What amount would Matsui report in its year-end 2016 balance sheet for its investment
in Yankee?
a. $1,320,000.
b. $1,260,000.
c. $1,242,000.
d. None of these answer choices is correct.
Spartan Sportswear’s current assets consist of cash, marketable securities, accounts
receivable, and inventories. The following data were abstracted from a recent financial
statement:
Required: Compute the following for Spartan: Noncurrent assets
Listed below are five terms followed by a list of phrases that describe or characterize
each of the terms. Match each phrase with the number for the correct term.
Dharma Initiative, Inc., has a defined benefit pension plan. Characteristics of the plan
during 2016 are as follows:
($ in 000s)
‘ƒDBO balance, January 1 $960
Plan assets balance, January 1 600
Service cost 150
‘ƒInterest cost (10%) 96
‘ƒGain from change in actuarial assumption 44
Benefits paid (72)
‘ƒActual return on plan assets 40
‘ƒContributions 2016 120
The expected long-term rate of return on plan assets was 8%. There were no AOCI
balances related to pensions on January 1, 2016, but at the end of 2016, the company
amended the pension formula creating a prior service cost of $24 million. Dharma
Initiative prepares its financial statements according to International Financial
Reporting Standards (IFRS).
Bronco Electronics’ current assets consist of cash, marketable securities, accounts
receivable, and inventories. The following data were abstracted from a recent financial
statement:
Required: Compute the following for Bronco:
Noncurrent assets
Explain how a company could manipulate cash flow from operations by changing the
extent to which it factors accounts receivable and treats those factoring arrangements as
sales of receivables.