Question
1. Assume that S Company makes sales of $400,000 during 2004 and reports the amount as sales revenue on its income statement. Also assume that
1. Assume that S Company makes sales of $400,000 during 2004 and reports the amount as sales revenue on its income statement. Also assume that the company wishes to delay the reporting of a portion of that amount for tax purposes and uses the installment sales method for tax purposes. Assume that $100,000 of collections occurred during 2004, $150,000 occurred in 2005, and the remainder will occur in 2006. Assuming a tax rate of 40 percent, what is the amount of the entry into the Deferred Tax account at the end of the year 2004?
$40,000 | ||
$60,000 | ||
$120,000 | ||
$160,000 |
2. During 2005, Bob Co. issued 5,000 shares of $100 par convertible preferred stock for $110 per share. One share of preferred stock can be converted into three shares of Bob's $25 par common stock at the option of the preferred shareholder. On December 31, 2006, when the market value of the common stock was $40 per share, all of the preferred stock was converted. What amount should Bob credit to Common Stock and to Additional Paid-in Capital as a result of the conversion?
Common Stock |
| Additional Paid-in Capital |
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3. At December 31, 2005 and 2006, C Corp. had outstanding 4,000 shares of $100 par value, 6 percent cumulative preferred stock and 20,000 shares of $10 par value common stock. At December 31, 2005, dividends in arrears on the preferred stock were $12,000. Cash dividends declared in 2006 totaled $44,000. Of the $44,000, what amounts were payable on each class of stock?
Preferred Stock |
| Common Stock |
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4. On January 1, 2005, N Inc. purchased 10-year bonds issued by B Company. The bonds have a face value of $500,000 and pay interest annually at 8 percent on each December 31. N purchased the bonds for $550,000. Ns accounting year ends on December 31. Ns management has chosen to treat the bonds purchased as an available-for-sale security. There are no other securities in the available-for-sale portfolio. Assume that on December 31, 2005, the fair market value of the bonds was $510,000. The company uses the straight-line method of amortization. What is the amount of interest income to be reported on the 2005 income statement?
$35,000 | ||||||||||||||
$40,000 | ||||||||||||||
$44,000 | ||||||||||||||
$45,000 5. Assume that Grandzol Company believes that $120,000 of a $600,000 deduction will not be utilized in future periods and that the tax rate is 40 percent for all periods. What is the amount of the valuation allowance?
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