1) Stinson Corporation owned 30,000 shares of Matile Corporation. These shares were
purchased in 2011 for $270,000. On November 15, 2015, Stinson declared a property
dividend of one share of Matile for every ten shares of Stinson held by a stockholder.
On that date, when the market price of Matile was $28 per share, there were 270,000
shares of Stinson outstanding. What gain and net reduction in retained earnings would
result from this property dividend?
Gain Net Reduction in
Retained Earnings
a.$0$243,000
b.$0$756,000
c.$513,000$108,000
d.$513,000$243,000
2) An optional step in the accounting cycle is the preparation of
a.adjusting entries
b.closing entries
c.a statement of cash flows
d.a post-closing trial balance
3) Sue Gray wants to invest a certain sum of money at the end of each year for five
years. The investment will earn 6% compounded annually. At the end of five years, she
will need a total of $40,000 accumulated. How should she compute her required annual
invest-ment?
a.$40,000 times the future value of a 5-year, 6% ordinary annuity of 1
b.$40,000 divided by the future value of a 5-year, 6% ordinary annuity of 1
c.$40,000 times the present value of a 5-year, 6% ordinary annuity of 1
d.$40,000 divided by the present value of a 5-year, 6% ordinary annuity of 1
4) On December 31, 2012, Nolte Co. is in financial difficulty and cannot pay a note due
that day. It is a $1,800,000 note with $180,000 accrued interest payable to Piper, Inc.
Piper agrees to accept from Nolte equipment that has a fair value of $870,000, an
original cost of $1,440,000, and accumulated depreciation of $690,000. Piper also
forgives the accrued interest, extends the maturity date to December 31, 2015, reduces
the face amount of the note to $750,000, and reduces the interest rate to 6%, with
interest payable at the end of each year.
Nolte should recognize a gain or loss on the transfer of the equipment of
a.$0
b.$120,000 gain
c.$180,000 gain
d.$570,000 loss
5) Which of the following is an application of the principle of rational and systematic
allocation?
a.Amortization of intangible assets
b.Sales commissions
c.Research and development costs
d.Officers salaries
6) The pricing of issues from inventory must be deferred until the end of the accounting
period under the following method of inventory valuation:
a.moving-average
b.weighted-average
c.LIFO perpetual
d.FIFO
7) Which of the following statements best describes the purpose of closing entries?
a.To faciliate posting and taking a trial balance
b.To determine the amount of net income or net loss for the following period
c.To reduce the balances of revenue and expense accounts to zero so that they may be
used to accumulate the revenues and expenses of the next period
d.To complete the record of various transactions that were started in a prior period
8) Presented below is information related to Starr Company.
1>Net Income [including an extraordinary gain (net of tax) of $70,000]$350,000
2>Capital Structure
a.Cumulative 8% preferred stock, $100 par,
6,000 shares issued and outstanding$600,000
b.$10 par common stock, 74,000 shares outstanding on January 1 .
On April 1, 40,000 shares were issued for cash. On October 1,
16,000 shares were purchased and retired.$1,000,000
c.On January 2 of the current year, Starr purchased Oslo Corporation.
One of the terms of the purchase was that if Starr’s net income for the
following year is $2,400,000 or more, 50,000 additional shares would
be issued to Oslo stockholders next year.
3>Other Information
a.Average market price per share of common stock during entire year$30
b.Income tax rate30%
Instructions
Compute earnings per share for the current year.
9) Tucker, Inc. on January 1, 2015 initiated a noncontributory, defined-benefit pension
plan that grants benefits to its 100 employees for services rendered in years prior to the
adoption of the pension plan. The total expected service-years of the 100 employees
who are expected to receive benefits under the plan is 1,200. An actuarial consulting
firm has indicated that the present value of the projected benefit obligation on January
1, 2015 was $5,520,000. On December 31, 2015 the following information was
provided concerning the pension plan’s operations for its first year.
Employer’s contribution at end of year$1,600,000
Service cost600,000
Projected benefit obligation6,561,600
Plan assets (at fair value)1,600,000
Expected return on plan assets9%
Settlement rate8%
Instructions
(a)Compute the pension expense recognized in 2015 . Assume the prior service cost is
amortized over the average remaining service life of the employees.
(b)Prepare the journal entries to reflect accounting for the company’s pension plan for
the year ended December 31, 2015 .
(c)Indicate the amounts that are reported on the income statement and the balance sheet
for 2015 .
10) On September 19, 2014, Markham Co. purchased machinery for $285,000. Salvage
value was estimated to be $15,000. The machinery will be depreciated over eight years
using the sum-of-the-years’-digits method. If depreciation is computed on the basis of
the nearest full month, Markham should record depreciation expense for 2015 on this
machinery of
a.$61,354
b.$58,267
c.$58,125
d.$52,500
11) Hill Corp. had 600,000 shares of common stock outstanding on January 1, issued
900,000 shares on July 1, and had income applicable to common stock of $1,470,000
for the year ending December 31, 2014 . Earnings per share of common stock for 2014
would be
a.$2.45
b.$1.16
c.$1.40
d.$1.64
12) Ryan Distribution Co. has determined its December 31, 2014 inventory on a FIFO
basis at $490,000. Information pertaining to that inventory follows:
Estimated selling price$510,000
Estimated cost of disposal20,000
Normal profit margin60,000
Current replacement cost450,000
Ryan records losses that result from applying the lower-of-cost-or-market rule. At
December 31, 2014, the loss that Ryan should recognize is
a.$0
b.$10,000
c.$20,000
d.$40,000
13) If a company constructs a laboratory building to be used as a research and
development facility, the cost of the laboratory building is matched against earnings as
a.research and development expense in the period(s) of construction
b.depreciation deducted as part of research and development costs
c.depreciation or immediate write-off depending on company policy
d.an expense at such time as productive research and development has been obtained
from the facility
14) On January 15, 2015, Vancey Company paid property taxes on its factory building
for the calendar year 2015 in the amount of $960,000. In the first week of April 2015,
Vancey made unanticipated major repairs to its plant equipment at a cost of $2,400,000.
These repairs will benefit operations for the remainder of the calendar year. How should
these expenses be reflected in Vancey’s quarterly income statements?
Three Months Ended
3/31/15 6/30/15 9/30/15 12/31/15
a.$240,000$1,040,000$1,040,000$1,040,000
b.$240,000$2,640,000$240,000$240,000
c.$960,000$1,600,000$ -0-$ -0-
d.$840,000$840,000$840,000$840,000
15) The statement of cash flows helps meet the objective of financial reporting, which
is to assess all of the following except the
a.amount of future cash flows
b.source of future cash flows
c.timing of future cash flows
d.uncertainty of future cash flows
16) On January 1, 2014, Solis Co. issued its 10% bonds in the face amount of
$6,000,000, which mature on January 1, 2024 . The bonds were issued for $6,810,000
to yield 8%, resulting in bond premium of $810,000. Solis uses the effective-interest
method of amortizing bond premium. Interest is payable annually on December 31 . At
December 31, 2014, Solis’s adjusted unamortized bond premium should be
a.$810,000
b.$754,800
c.$729,000
d.$609,000