1) At December 31, 2014 and 2015, Plank Corp. had outstanding 4,000 shares of $100
par value 8% cumulative preferred stock and 20,000 shares of $10 par value common
stock. At December 31, 2014, dividends in arrears on the preferred stock were $16,000.
Cash dividends declared in 2015 totaled $60,000. What amounts were payable on each
class of stock?
Preferred StockCommon Stock
a.$32,000$28,000
b.$44,000$16,000
c.$48,000$12,000
d.$60,000$0
2) On June 15, 2014 Stine Corporation accepted delivery of merchandise which it
purchased on account. As of June 30 Stine had not recorded the transaction or included
the merchandise in its inventory. The effect of this error on its balance sheet for June
30, 2014 would be
a.assets and stockholders equity were overstated but liabilities were not affected
b.stockholders equity was the only item affected by the omission
c.assets and liabilities were understated but stockholders equity was not affected
d.assets and stockholders equity were understated but liabilities were not affected
3) Korte Company reported the following information for 2014:
Sales revenue$1,500,000
Cost of goods sold1,050,000
Operating expenses165,000
Unrealized holding gain on available-for-sale securities50,000
Cash dividends received on the securities6,000
For 2014, Korte would report comprehensive income of
a.$341,000
b.$335,000
c.$291,000
d.$50,000
4) On June 30, 2014, Yang Corporation granted compensatory stock options for 25,000
shares of its $24 par value common stock to certain of its key employees. The market
price of the common stock on that date was $31 per share and the option price was $28.
Using a fair value option pricing model, total compensation expense is determined to be
$80,000. The options are exercisable beginning January 1, 2016, providing those key
employees are still in the employ of the company at the time the options are exercised.
The options expire on June 30, 2017 .
On January 4, 2016, when the market price of the stock was $36 per share, all options
for the 25,000 shares were exercised. The service period is for two years beginning
January 1, 2014 . Using the fair value method, what should be the amount of
compensation expense recorded by Yang Corporation for these options on December
31, 2014?
a.$80,000
b.$40,000
c.$18,750
d.$0
5) Which of the following balance sheet classifications would normally require the
greatest amount of supplementary disclosure?
a.Current assets
b.Current liabilities
c.Plant assets
d.Long-term liabilities
6) Howard Corp. sponsors a defined-benefit pension plan for its employees. On January
1, 2015, the following balances related to this plan.
Plan assets (fair value) $550,000
Projected benefit obligation 600,000
Pension asset/liability 50,000 Cr.
Prior service cost 75,000
OCI – Loss 65,000
As a result of the operation of the plan during 2015, the actuary provided the following
additional data at December 31, 2015 .
Service cost for 2015$ 70,000
Actual return on plan assets in 2015 45,000
Amortization of prior service cost 15,000
Contributions in 2015 115,000
Benefits paid retirees in 2015 80,000
Settlement rate7%
Expected return rate8%
Average remaining service life of active employees 5 years
Instructions
(a) Compute pension expense for Howard Corp. for the year 2015 by preparing a
pension worksheet.
(b) Prepare the journal entry for pension expense.
7) On January 1, 2012, Piper Co., purchased a machine (its only depreciable asset) for
$600,000. The machine has a five-year life, and no salvage value.
Sum-of-the-years’-digits depreciation has been used for financial statement reporting
and the elective straight-line method for income tax reporting. Effective January 1,
2015, for financial statement reporting, Piper decided to change to the straight-line
method for depreciation of the machine. Assume that Piper can justify the change.
Piper’s income before depreciation, before income taxes, and before the cumulative
effect of the accounting change (if any), for the year ended December 31, 2015, is
$500,000. The income tax rate for 2015, as well as for the years 2012-2014, is 30%.
What amount should Piper report as net income for the year ended December 31, 2015?
a.$120,000
b.$182,000
c.$308,000
d.$350,000
8) Hopkins Co. at the end of 2014, its first year of operations, prepared a reconciliation
between pretax financial income and taxable income as follows:
Pretax financial income$1,500,000
Estimated litigation expense2,000,000
Extra depreciation for taxes (3,000,000)
Taxable income$ 500,000
The estimated litigation expense of $2,000,000 will be deductible in 2015 when it is
expected to be paid. Use of the depreciable assets will result in taxable amounts of
$1,000,000 in each of the next three years. The income tax rate is 30% for all years.
The deferred tax liability to be recognized is
CurrentNoncurrent
a.$300,000$600,000
b.$300,000$450,000
c.$0$900,000
d.$0$750,000
9) Which of the following is a capital expenditure?
a.Payment of an account payable
b.Retirement of bonds payable
c.Payment of Federal income taxes
d.None of these answers are correct
10) In 2014, Orear Manufacturing signed a contract with a supplier to purchase raw
materials in 2015 for $700,000. Before the December 31, 2014 balance sheet date, the
market price for these materials dropped to $510,000. The journal entry to record this
situation at December 31, 2014 will result in a credit that should be reported
a.as a valuation account to Inventory on the balance sheet
b.as a current liability
c.as an appropriation of retained earnings
d.on the income statement
11) Web World began using dollar-value LIFO for costing its inventory last year. The
base year layer consists of $400,000. Assuming the current inventory at end of year
prices equals $552,000 and the index for the current year is 1.10, what is the ending
inventory using dollar-value LIFO?
a.$552,000
b.$512,000
c.$501,818
d.$607,200
12) AG Inc. made a $15,000 sale on account with the following terms: 1/15, n/30. If the
company uses the net method to record sales made on credit, how much should be
recorded as revenue?
a.$14,700
b.$14,850
c.$15,000
d.$15,150
13) Which method may be used to record cash discounts a company receives for paying
suppliers promptly?
a.Net method
b.Gross method
c.Average method
d.Both the net method and the gross method
14) Swing High Inc. offers its 100 employees to participate in an employee
share-purchase plan. Under the terms of plan, employees are entitled to purchase 10
shares at 10% discount. The par values of shares were $10. Overall, 60 employees
accepted the offer and each employee purchased six shares. The market price on
purchase date was $100.
What is the compensation expense recorded by Swing High Inc.?
a.$32,400
b.$ 3,600
c.$36,000
d.$28,800
15) On January 2, 2014, York Corp. replaced its boiler with a more efficient one. The
following information was available on that date:
Purchase price of new boiler$140,000
Carrying amount of old boiler10,000
Fair value of old boiler4,000
Installation cost of new boiler20,000
The old boiler was sold for $4,000. What amount should York capitalize as the cost of
the new boiler?
a.$160,000
b.$154,000
c.$150,000
d.$140,000
16) The following pension plan information is for Farr Company at December 31, 2015.
Projected benefit obligation$8,500,000
Accumulated benefit obligation7,500,000
Plan assets (at fair value)6,150,000
Accumulated OCI (PSC)540,000
Pension expense for 20153,000,000
Contribution for 20152,400,000
The amount to be reported as the liability for pensions on the December 31, 2015
balance sheet is
a.$2,350,000
b.$2,150,000
c.$1,600,000
d.$1,350,000
17) Bonds for which the owners’ names are not registered with the issuing corporation
are called
a.bearer bonds
b.term bonds
c.debenture bonds
d.secured bonds
18) Wilson Co. purchased land as a factory site for $900,000. Wilson paid $80,000 to
tear down two buildings on the land. Salvage was sold for $5,400. Legal fees of $3,480
were paid for title investigation and making the purchase. Architect’s fees were $31,200.
Title insurance cost $2,400, and liability insurance during construction cost $2,600.
Excavation cost $10,440. The contractor was paid $2,800,000. An assessment made by
the city for pavement was $6,400. Interest costs during construction were $170,000.
The cost of the land that should be recorded by Wilson Co. is
a.$980,480
b.$986,880
c.$989,880
d.$996,280
19) The initial direct costs of leasing
a.are generally borne by the lessee
b.include incremental costs related to internal activities of leasing, and internal costs
related to costs paid to external third parties for originating a lease arrangement
c.are expensed in the period of the sale under a sales-type lease
d.All of the answers are true with regard to the initial direct costs of leasing
20) Rich, Inc. acquired 30% of Doane Corporation’s voting stock on January 1, 2014 for
$800,000. During 2014, Doane earned $320,000 and paid dividends of $200,000. Rich’s
30% interest in Doane gives Rich the ability to exercise significant influence over
Doane’s operating and financial policies. During 2015, Doane earned $400,000 and paid
dividends of $120,000 on April 1 and $120,000 on October 1 . On July 1, 2015, Rich
sold half of its stock in Doane for $528,000 cash.
The carrying amount of this investment in Rich’s December 31, 2014 balance sheet
should be
a.$800,000
b.$836,000
c.$896,000
d.$920,000