On January 1, 2016, Everglade Company purchased the following securities and
properly accounted for them as securities available for sale:
All declines in value are considered temporary. What amount should the Everglade
Company report relative to these securities in its 2016 statement of other
comprehensive income?
a. $0.
b. $19,000 unrealized gain.
c. $12,000 net unrealized gain.
d. $7,000 unrealized loss.
The Kelso Company had the following operating results:
What is the income tax refund receivable?
a. $18,000
b. $19,500
c. $18,750
d. $24,000
When a property dividend is declared, the property to be distributed should be revalued
to fair value as of the:
a. Record date.
b. Date of distribution.
c. Date of declaration.
d. Announcement date.
Fox Company received the following reports of its defined benefit pension plan for the
current calendar year:
The long-term expected rate of return on plan assets is 8%. Assuming no other data are
relevant, what is the pension expense for the year?
a. $384,000.
b. $360,000.
c. $424,000.
d. $374,000.
Oregon Co.’s employees are eligible for retirement with benefits at the end of the year
in which both age 60 is attained and they have completed 35 years of service. The
benefits provide 15 years reimbursement for health care services of $20,000 annually,
beginning one year from the date of retirement.
Ralph Young was hired at the beginning of 1977 by Oregon after turning age 22 and is
expected to retire at the end of 2018 (age 60). The discount rate is 4%. The plan is
unfunded.
The PV of an ordinary annuity of $1 where n = 15 and i = 4% is 11.11839.
The PV of $1 where n = 2 and i = 4% is 0.92456
With respect to Ralph, what is the service cost to be included in Oregon’s 2016
postretirement benefit expense, rounded to the nearest dollar?
a. $ 3,544.
b. $ 6,365.
c. $20,000.
d. $ 5,272.
Seybert Systems accounts for its investment in Wang Engineering as available for sale.
Seybert’s balance in accumulated other comprehensive income with respect to the Wang
investment is a credit balance of $20,000, and Seybert reports the investment at
$100,000 on its balance sheet. Seybert purchased the Wang investment for (ignore
taxes):
a. $100,000.
b. $120,000.
c. $80,000.
d. Cannot be determined from this information.
What is Falwell’s diluted earnings per share for 2016, rounded to the nearest cent?
During 2016, Falwell Inc. had 500,000 shares of common stock and 50,000 shares of
6% cumulative preferred stock outstanding. The preferred stock has a par value of $100
per share. Falwell did not declare or pay any dividends during 2016.
Falwell’s net income for the year ended December 31, 2016, was $2.5 million. The
income tax rate is 40%. Falwell granted 10,000 stock options to its executives on
January 1 of this year. Each option gives its holder the right to buy 20 shares of
common stock at an exercise price of $29 per share. The options vest after one year.
The market price of the common stock averaged $30 per share during 2016.
a. $3.14.
b. $4.90.
c. $4.34.
d. Cannot determine from the given information.
Cinnamon Buns Co. (CBC) started 2016 with $52,000 of merchandise on hand. During
2016, $280,000 in merchandise was purchased on account with credit terms of 2/10,
n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid
freight charges of $9,000. Merchandise with an invoice amount of $4,000 was returned
for credit. Cost of goods sold for the year was $316,000. CBC uses a perpetual
inventory system. What is cost of goods available for sale, assuming CBC uses the
gross method?
a. $312,480.
b. $326,000.
c. $331,480.
d. $337,000.
When an impairment of an equity investment that is classified as available for sale
occurs for a reason that is judged to be “other than temporary,” the investment is written
down to its fair value and the amount of the write-down is:
a. Recorded as a deferred credit.
b. Included in net income.
c. Recorded as deferred asset.
d. Treated as unrealized.
How many of Levi’s common shares were outstanding on 12/31/2015?
The following partial information is taken from the comparative balance sheet of Levi
Corporation:
a. 14 million.
b. 9 million.
c. 5 million.
d. None of these answer choices is correct.
Alison’s dress shop buys dresses from McGuire Manufacturing. Alison purchased
dresses from McGuire on July 17 and received an invoice with a list price amount of
$6,000 and payment terms of 2/10, n/30. Alison uses the net method to record
purchases. Alison should record the purchase at:
a. $5,940.
b. $5,880.
c. $6,000.
d. $6,120.
In accounting for oil and gas exploration costs, companies:
a. May not use the full-cost method.
b. May use the successful efforts method.
c. May use the slippery slope method.
d. All of these answer choices are correct.
Typhoon Sons & Co. manufactures various types of golf clubs to third party vendors.
On April 1, 2016, Typhoon delivers a large quantity of golf clubs to Resona Country
Club. Under the sales agreement, Resona is obligated to pay Typhoon $200,000 within
six months. On May 1, Typhoon purchases for cash the right to advertise its products
during Resona’s annual golf tournament event for $3,000. Resona normally charges
$2,500 for such services. On August 15, Resona pays Typhoon all amounts owed.
Required: Prepare the journal entries Typhoon should record to account for the
transaction on April 1, May 1 and August 15. Indicate the amount of revenue that
Typhoon should recognize on its sale of golf clubs to Resona.
On April 1 of the current year, Troubled Company factored receivables with a carrying
value of $85,000 for $60,000 in cash from Scrooge Lenders. The transfer was made
without recourse. On April 1, Troubled would:
a. Credit deferred interest expense for $25,000.
b. Credit factored accounts receivable for $85,000.
c. Debit discount on liability for $25,000.
d. Debit loss on sale of receivables for $25,000.
List at least three ways that bonds may be taken off the market prior to maturity.
DK Super Stores Inc. uses the average cost retail method to estimate its ending
inventory. Information at June 30, 2016, is as follows:
Required:
Compute the cost-to-retail percentage used by DK.
Briefly discuss why straight-line is the most common depreciation method used in
practice.
The note about debt included in the financial statements of Healdsburg Company for
the year ended December 31, 2015 disclosed the following: Debt. The following table
summarizes the long-term debt of the Company at December 31, 2015. All of the notes
were issued at their face (maturity) value.
Required: Assuming that the notes pay interest annually and mature on December 31
of the respective years, compute the following: The total cash interest payments in 2016
for these notes.
Plunder Inc. accepted a six-month noninterest-bearing note for $2,800 on January 1,
2016. The note was accepted as payment of a delinquent receivable of $2,500.
What is the correct entry to record the note?
Cherokee Company’s auditor discovered some errors. No errors were corrected during
2015. The errors are described as follows:
1) Beginning inventory on January 1, 2015, was understated by $5,000.
2) A two-year insurance policy purchased on April 30, 2015, in the amount of $24,000
was debited to Prepaid Insurance. No adjustment was made on December 31, 2015, or
on December 31, 2016.
Required:
Prepare appropriate journal entries (assume the 2016 books have not been closed).
Ignore income taxes.
Stern Corporation borrowed $10 million cash on September 1, 2016, to provide
additional working capital for the year’s production. Stern issued a 6-month, 10%
promissory note to Second State Bank. Interest on the note is payable at maturity. Each
firm uses the calendar year as the fiscal year.
Required:
1> Prepare all journal entries from issuance to maturity for Stern Corporation.
2> Prepare all journal entries from issuance to maturity for Second State Bank.
Use I = Increase, D = Decrease, or N = No effect, to indicate the effect on total
shareholders’ ‘equity for each of the listed transactions.
____ A net loss for the year.
____ A stock split effected in the form of a stock dividend.
____ A stock split in which the par per share is reduced (but not effected in the form of
a stock
dividend).
____ Declaration of a 5% stock dividend.
____ Declaration of a cash dividend.
____ Issue stock for noncash assets.
____ Payment of previously declared cash dividend.
____ Retirement of common stock at a cost greater than the original issue price.
____ Retirement of common stock at a cost less than the original issue price.
____ Resale of treasury stock for less than book value.
On January 1, 2015, Slug Corporation issued $6 million of 8%, 10-year convertible
bonds at 102. The bonds pay interest on June 30 and December 31. Each $1,000 bond is
convertible into 40 shares of $1 par common stock. Fuzz Company purchased 20% of
the issue as an investment. On July 1, 2019, Fuzz converted all of its bonds into
common stock of Slug. The market price per share for Slug was $32 at the time of the
conversion. Both companies use the straight-line method for amortization.
Required:
1> Prepare journal entries for the issuance of the bonds on the issuer and the investor
books.
2> Prepare the journal entries for the conversion on the books of the issuer and the
investor.