1.West Coast Corporation had 800,000 shares of common stock outstanding on January 1, issued 200,000 shares on October 1, and had income applicable to common stock of $2,865,000 for the year ended December 31, 2013. Rounded to the nearest penny, earnings per share of common stock for 2013 would be$2.86$3.01$3.37$3.58Question 2.2.On July 1, 2013, an interest payment date, $120,000 of Tally Corporation bonds were converted into 3,100 shares of Tally Corporation common stock, each having a par value of $35 and a market value of $42. There is $5,700 unamortized discount on the bonds. Using the book value method, Tally would recorda $5,300 increase in paid-in capital in excess of para $5,800 increase in paid-in capital in excess of para $11,500 increase in paid-in capital in excess of para $15,900decrease in paid-in capital in excess of parQuestion 3.3.A corporation issues bonds with detachable warrants. The amount to be recorded as paid-in capital is preferablyzero.calculated by the excess of the proceeds over the face amount of the bonds.equal to the market value of the warrants.based on the relative market values of the bonds and warrants.Question 4.4.On January 1, 2013, Morgan Corporation granted stock options to officers and key employees for the purchase of 50,000 shares of the company’s $20 par common stock at $40 per share as additional compensation for services to be rendered over the next three years. The market price of common stock was $49 per share at the date of grant. The options are exercisable during a five-year period beginning January 1, 2016 by grantees still employed by Morgan. The Black-Scholes option pricing model determines total compensation expense to be $540,000. The journal entry to record the compensation expense related to these options for 2013 would include a credit to the Paid-in Capital – Stock Options account for$540,000$450,000$270,000$180,000Question 5.5.On July 1, 2013, Wilshire Corporation acquired 500, $1,000, 8% bonds at 97 plus accrued interest. The bonds were dated April 1, 2013, and mature on March 31, 2018, with interest paid each September 30 and March 31. The bonds will be added to Wilshire’s available-for-sale portfolio. The amount to record as the cost of this debt investment on July 1, 2013 is$485,000$495,000$500,000$540,000Question 6.6.On January 1, 2013, Capital Corporation acquired for $400,000 of 10% bonds, paying $376,100. The bonds mature January 1, 2024; interest is payable each July 1 and January 1. The discount of $23,900 provides an effective yield of 11%. Capital Corporation uses the effective-interest method and plans to hold these bonds to maturity. On July 1, 2013, Capital Corporation should increase its Debt Investments account for these bonds by (round to the nearest dollar):$4,000$3,761$1,195$686Question 7.7.Wright Company’s trading securities portfolio, which is appropriately included in current assets, is as follows on December 31, 2013: Holmes Corporation – cost of $300,000 and fair value of $240,000; Woods Corporation – cost of $500,000 and fair value of $530,000. Ignoring income taxes, what amount should be reported as a charge against income in Wright’s 2013 income statement if 2013 is Wright’s first year of operation?$30,000 Unrealized Loss$30,000 Unrealized Gain$60,000 Unrealized Gain$ -0-Question 8.8.Canton Corporation owns 3,000 of the 10,000 outstanding shares of Wallis Corporation. During 2013, Wallis Corporation earns $500,000 and pays cash dividends of $100,000. What amount should Canton show in the investment account at December 31, 2013 if the beginning of the year balance in the account was $600,000?$600,000$630,000$720,000$750,000Question 9.9.Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income?Subscriptions received in advance.Interest received on a municipal obligation.Prepaid rent received in advance.Sales accounted for on the accrual basis for financial reporting purposes and on the cash basis for tax purposes.10. Anderson Appliance Company reported the following results for the year ended December 31, 2014, its first year of operations:2014 Income (per books before income taxes) $1,500,000Taxable income $2,000,000The disparity between book income and taxable income is attributable to a temporary difference which will reverse in 2015. What should Anderson record as a net deferred tax asset or liability for the year ended December 31, 2014, assuming that the enacted tax rates in effect are 40% in 2014 and 35% in 2015? $175,000 deferred tax liability$200,000 deferred tax liability$175,000 deferred tax asset$200,000 deferred tax assetQuestion 11.11. At December 31, 2013, Edwards Corporation reported a deferred tax liability of $140,000 which was attributable to a taxable temporary difference of $400,000. The temporary difference is scheduled to reverse in 2018. During 2014, a new tax law increased the corporate tax rate from 35% to 40%. Edwards should record this change by debiting Income Tax Expense for $14,000Income Tax Expense for $20,000Retained Earnings for $14,000Retained Earnings for $20,000Question 12.12. Operating income/(loss) and tax rates for Lombard Corporation for 2012 through 2015 were as follows: 2012: $150,000, 30%; 2013: $250,000, 35%; 2014: ($500,000), 35%; 2015: $700,000, 40%. Assuming that Lombard opts to carryback its 2014 NOL, what is the amount of income tax payable at December 31, 2015? $280,000$240,000$180,000$80,000Question 14.14. Hathaway, Inc. sponsors a defined-benefit pension plan. The following data relates to the plan for 2013: Contributions to the plan, $450,000; Service cost, $500,000; Interest on projected benefit obligation, $445,000; Amortization of prior service cost due to increase in benefits, $85,000; Expected return on plan assets, $280,000. What amount should be reported for pension expense in 2013? $300,000$450,000$750,000$1,310,000Question 15.15. Johnson, Inc. sponsors a defined-benefit pension plan. The following balance sheet data relates to the plan on December 31, 2013: Plan assets (at fair value), $775,000; Accumulated benefit obligation, $1,300,000; Projected benefit obligation, $1,600,000. Contributions of $95,000 were made to the plan during the year. What amount should Johnson report as its pension liability on its balance sheet as of December 31, 2013? $1,600,000$1,300,000$825,000$730,000Question 16.16. Which of the following information about its pension plan would a company normally be required to disclose in the notes to the financial statements? The number of employees enrolled in the defined-benefit plan.The annual pension payments made to current retirees.The amount of prior service cost changed or credited in previous years.The rates used in measuring the benefit amounts.Question 17.17. Which of the following should be treated as a change in accounting principle? A change from LIFO to FIFO for inventory valuation.A change to a different method of depreciation for plant assets.A change in the estimated useful life of plant assets.A change from the cash basis of accounting to the accrual basis of accounting.Question 18.18. On January 1, 2011, Graham Corporation acquired machinery at a cost of $600,000. Graham adopted the double-declining balance method of depreciation for this machinery and had been recording depreciation over an estimated useful life of 10 years, with no residual value. At the beginning of 2013, a decision was made to change to the straight-line method of depreciation for the machinery. The depreciation expense for 2013 should be $76,800$60,000$48,000$26,74319. During 2014, a construction company changed from the completed-contract method to the percentage-of-completion method for accounting purposes but not for tax purposes. Gross profit figures under both methods for the past three years follow. Completed-Contract: 2012, $595,000; 2013, $730,000; 2014, $810,000. Percentage-of-Completion: 2012, $700,000; 2013, $850,000; 2014, $900,000. Assuming an income tax rate of 40% for all years, the affect of this accounting change on prior periods should be reported by a cre
dit of $135,000 on the 2014retained earnings statement$189,000 on the 2014retained earnings statement$135,000 on the 2014income statement$189,000 on the 2014income statementQuestion 20.20. On January 10, 2012, Montgomery Corporation purchased machinery that cost $750,000. The entire cost was recorded as an expense. The machinery has an estimated useful life of 10 years and a $30,000 salvage value. Montgomery uses the straight-line method to account for depreciation expense. The error was discovered on December 29, 2013. Ignore income tax considerations. Montgomery’s income statement for the year ended December 31, 2013, should show the cumulative effect of this error in the amount of $648,000$576,000$504,000$-0-Question 21.21. Selected information from Trolley Corporation’s 2013 accounting records is as follows: Proceeds from sale of land, $150,000; Proceeds from long-term borrowings, $325,000; Purchases of plant assets, $70,000; Purchases of inventories, $300,000; Proceeds from sale of Trolley common stock, $100,000. What is the net cash provided (used) by investing activities for the year ended December 31, 2013?$425,000$205,000$80,000$55,000Question 22.22. Selected information from Maxwell Corporation’s 2013 accounting records is as follows: Proceeds from issuance of common stock, $740,000; Proceeds from issuance of bonds, $2,400,000; Cash dividends paid on common stock, $200,000; Cash dividends paid on preferred stock paid, $80,000; Purchases of treasury stock, $200,000.What is the net cash provided (used) by financing activities for the year ended December 31, 2013? $3,060,000$2,940,000$2,860,000$2,660,000Question 23.23. An increase in inventory balance would be reported in a statement of cash flows, using the indirect method, as a(n) addition to net income in arriving at net cash flow from operating activities.deduction from net income in arriving at net cash flow from operating activities.cash outflow from investing activities.cash outflow from financing activites.Question 24.24. Which of the following formulas would a bank or an investormost likely use when evaluating a company’s cash flows? Debt to equity ratioQuick ratioCurrent ratioCash debt coverage ratioQuestion 25.25.Companies following the full disclosure principle Should report all information related to the entity’s business and operating objectives.Should report financial facts of sufficient importance to influence the judgment and decisions of an informed user.Should provide information about each account balance in the notes to the financial statements.May use the cash-basis of accounting in the financial statements, as long as accrual-basis amounts are disclosed in the notes to the financial statements.Question 26.26. The following information pertains to Nolen Corporation and its divisions for the year ended December 31, 2013:Segments Total Revenue (Unaffiliated)A $600,000 B $900,000C $1,500,000D $250,000Nolen has a reportable segment if that segment’s revenue exceeds $250,000$325,000$0$150,000Question 27.27Under generally accepted accounting principles,all companies that issue an annual report should issue interim financial reports.the same accounting principles used for the annual report should be used for interim reports.the discrete view is the most appropriate approach to take in preparing interim financial reports.the integral approach is the most appropriate view to take in preparing interim financial reports.Question 28.28.Which of the following post-balance-sheet events would require adjustment of the accounts before issuance of the financial statements? Issue of a large amount of capital stock.Loss on a lawsuit, the outcome of which was deemed uncertain at year end.Retirement of the company president.Loss of plant as a result of fire.
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