1) Yoder, Incorporated, has 3,600,000 shares of common stock outstanding on
December 31, 2014 . An additional 800,000 shares of common stock were issued on
April 1, 2015, and 400,000 more on July 1, 2015 . On October 1, 2015, Yoder issued
20,000, $1,000 face value, 8% convertible bonds. Each bond is convertible into 20
shares of common stock. No bonds were converted into common stock in 2015 . What
is the number of shares to be used in computing basic earnings per share and diluted
earnings per share, respectively?
a.4,400,000 and 4,400,000
b.4,400,000 and 4,500,000
c.4,400,000 and 4,800,000
d.4,800,000 and 5,600,000
2) On December 31, 2015, special insurance costs, incurred but unpaid, were not
recorded. If these insurance costs were related to work in process, what is the effect of
the omission on accrued liabilities and retained earnings in the December 31, 2015
balance sheet?
Accrued LiabilitiesRetained Earnings
a.No effectNo effect
b.No effectOverstated
c.UnderstatedNo effect
d.UnderstatedOverstated
3) FASB Technical Bulletins
a.are similar to FASB Interpretations in that they establish enforceable standards under
the AICPA’s Code of Professional Ethics
b.are issued monthly by the FASB to deal with current topics
c.are not expected to have a significant impact on financial reporting in general and
provide guidance when it does not conflict with any broad fundamental accounting
principle
d.were recently discontinued by the FASB because they dealt with specialized topics
having little impact on financial reporting in general
4) Milo Co. had 700,000 shares of common stock outstanding on January 1, issued
126,000 shares on May 1, purchased 63,000 shares of treasury stock on September 1,
and issued 54,000 shares on November 1 . The weighted average shares outstanding for
the year is
a.751,000
b.772,000
c.793,000
d.814,000
5) Which of the following is not an accurate representation concerning revenue
recognition?
a.Revenue from selling products is recognized at the date of sale, usually interpreted to
mean the date of delivery to customers
b.Revenue from services rendered is recognized when cash is received or when services
have been performed
c.Revenue from permitting others to use enterprise assets is recognized as time passes
or as the assets are used
d.Revenue from disposing of assets other than products is recognized at the date of sale
6) A requirement for a security to be classified as held-to-maturity is
a.ability to hold the security to maturity
b.positive intent
c.the security must be a debt security
d.All of these are required
7) Valley, Inc., is a retail store operating in a state with a 5% retail sales tax. The state
law provides that the retail sales tax collected during the month must be remitted to the
state during the following month. If the amount collected is remitted to the state on or
before the twentieth of the following month, the retailer may keep 3% of the sales tax
collected. On April 10, 2014, Valley remitted $135,800 tax to the state tax division for
March 2014 retail sales. What was Valley’s March 2012 retail sales subject to sales tax?
a.$2,716,000
b.$2,660,000
c.$2,800,000
d.$2,741,667
8) Which of the following is not a basic assumption underlying the financial accounting
structure?
a.Economic entity assumption
b.Going concern assumption
c.Periodicity assumption
d.Historical cost assumption
9) One component of pension expense is actual return on plan assets. Plan assets
include
a.assets that a company holds to earn a reasonable return, generally at minimum risk
b.plan assets still under the control of the company
c.only assets reported on the balance sheet of the employer as prepaid pension cost
d.None of these answers are correct
10) Haystack, Inc. owns 30% of the outstanding stock of Hallmark, Inc. and
accordingly uses the equity method to account for its investment. The stock was
purchased on January 1, 2015 for $880,000. During the year ended December 31, 2015,
Hallmark, Inc. reported the following:
Dividends declared and paid$ 400,000
Net income 2,400,000
Haystack, Inc. uses the FIFO method for costing its inventories, while Hallmark, Inc.
uses the LIFO method to conform with other companies in its industry. Haystack, Inc.
determines that if Hallmark, Inc. had used the FIFO method, its income would have
been $350,000 higher during 2015 . What is the balance in the Investment in Hallmark,
Inc. that will be reported on Haystack, Inc.s balance sheet at December 31, 2015
assuming Haystack, Inc. follows U.S. GAAP for its external financial reporting?
a.$1,825,000
b.$1,480,000
c.$1,585,000
d.$1,375,000
11) Morgan Corporation had two issues of securities outstanding: common stock and an
8% convertible bond issue in the face amount of $12,000,000. Interest payment dates of
the bond issue are June 30th and December 31st. The conversion clause in the bond
indenture entitles the bondholders to receive forty shares of $20 par value common
stock in exchange for each $1,000 bond. On June 30, 2014, the holders of $1,800,000
face value bonds exercised the conversion privilege. The market price of the bonds on
that date was $1,100 per bond and the market price of the common stock was $35. The
total unamortized bond discount at the date of conversion was $750,000. In applying
the book value method, what amount should Morgan credit to the account “paid-in
capital in excess of par,” as a result of this conversion?
a.$ 247,500
b.$ 120,000
c.$1,080,000
d.$ 540,000
12) Layne Corporation had the following information in its financial statements for the
years ended 2014 and 2015:
Cash dividends for the year 2015$ 10,000
Net income for the year ended 201583,000
Market price of stock, 12/31/1410
Market price of stock, 12/31/1512
Common stockholders equity, 12/31/141,600,000
Common stockholders equity, 12/31/151,980,000
Outstanding shares, 12/31/15180,000
Preferred dividends for the year ended 201515,000
What is the payout ratio for Layne Corporation for the year ended 2015?
a.30.1%
b.18.1%
c.14.7%
d.12.0%
13) Mann Co. has outstanding 80,000 shares of 8% preferred stock with a $10 par value
and 150,000 shares of $3 par value common stock. Dividends have been paid every
year except last year and the current year. If the preferred stock is cumulative and
nonparticipating and $400,000 is distributed, the common stockholders will receive
a.$0
b.$272,000
c.$336,000
d.$400,000
14) Prepare journal entries to record the following transactions relating to long-term
bonds of Kirby, Inc. (Show computations.)
(a)On June 1, 2013, Kirby, Inc. issued $5,000,000, 6% bonds for $4,897,000, which
includes accrued interest. Interest is payable semiannually on February 1 and August 1
with the bonds maturing on February 1, 2023 . The bonds are callable at 102 .
(b)On August 1, 2013, Kirby paid interest on the bonds and recorded amortization.
Kirby uses straight-line amortization.
(c)On February 1, 2015, Kirby paid interest and recorded amortization on all of the
bonds, and purchased $3,000,000 of the bonds at the call price. Assume that a reversing
entry was made on January 1, 2015 .
15) The following data concerning the retail inventory method are taken from the
financial records of Welch Company.
Cost Retail
Beginning inventory$ 147,000$ 210,000
Purchases672,000960,000
Freight-in18,000
Net markups60,000
Net markdowns42,000
Sales1,008,000
If the ending inventory is to be valued at approximately the lower of cost or market, the
calculation of the cost-to-retail ratio should be based on goods available for sale at (1)
cost and (2) retail, respectively of
a.$837,000 and $1,230,000
b.$837,000 and $1,188,000
c.$837,000 and $1,170,000
d.$819,000 and $1,170,000
16) Given below are the present value factors for $1.00 discounted at 10% for one to
five periods.
Present Value of $1
PeriodsDiscounted at 10% per Period
10.909
20.826
30.751
40.683
50.621
If an individual deposits $8,000 in a savings account today, what amount of cash would
be available two years from today?
a.$8,000 x 0.826
b.$8,000 x 0.826 x 2
c.$8,000 / 0.826
d.$8,000 / 0.909 x 2
17) Fargo, Inc. disclosed the following information as of and for the year ended
December 31, 2015:
Net cash sales600,000
Net credit sales960,000
Inventory at beginning100,000
Inventory at end150,000
Net income30,000
Accounts receivable at beginning of year110,000
Accounts receivable at end of year130,000
Fargos receivables turnover is
a.7.4 to 1
b.8.0 to 1
c.12.0 to 1
d.13.0 to 1
18) Which of the following is not a user of financial reports?
a.Creditors
b.Government agencies
c.Unions
d.All of these are users
19) Working capital is
a.capital which has been reinvested in the business
b.unappropriated retained earnings
c.cash and receivables less current liabilities
d.none of these answer choices are correct
20) A company receives interest on a $70,000, 8%, 5-year note receivable each April 1 .
At December 31, 2014, the following adjusting entry was made to accrue interest
receivable:
Interest Receivable 4,200
Interest Revenue 4,200
Assuming that the company does use reversing entries, what entry should be made on
April 1, 2015 when the annual interest payment is received?
a.Cash 1,400
Interest Revenue 1,400
b.Cash 4,200
Interest Receivable 4,200
c.Cash 5,600
Interest Receivable 4,200
Interest Revenue 1,400
d.Cash 5,600
Interest Revenue5,600