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1. On January 1, 2014, Trent Company granted Dick Williams, an employee, an option to buy 400 shares of Trent Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $3,600. Williams exercised his option on September 1, 2014, and sold his 400 shares on December 1, 2014. Quoted market prices of Trent Co. stock during 2014 were:

January 1 $30 per share

September 1 $36 per share

December 1 $40 per share

The service period is for two years beginning January 1, 2014. As a result of the option granted to Williams, using the fair value method, Trent should recognize compensation expense for 2014 on its books in the amount of

a. $4,000.

b. $3,600.

c. $1,800.

d. $0.

2. The following information is available for Barone Corporation:

January 1, 2015 Shares outstanding 2,000

April 1, 2015 Shares issued 320,000

July 1, 2015 Treasury shares purchased 120,000

October 1, 2015 Shares issued in a 100% stock dividend 2,200

The number of shares to be used in computing earnings per common share for 2015 is

a. 4,520,800.

b. 4,380,000.

c. 4,360,000.

d. 2,730,000.

3. In computing earnings per share, the equivalent number of shares of convertible preferred stock are added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is cumulative, which amount should then be added as an adjustment to the numerator (net earnings)?

a. Annual preferred dividend

b. Annual preferred dividend times (one minus the income tax rate)

c. Annual preferred dividend times the income tax rate

d. Annual preferred dividend divided by the income tax rate

4. Fugate Company had 900,000 shares of common stock issued and outstanding at December 31, 2014. On July 1, 2015 an additional 750,000 shares were issued for cash. Fugate also had stock options outstanding at the beginning and end of 2015 which allow the holders to purchase 225,000 shares of common stock at $20 per share. The average market price of Fugate's common stock was $25 during 2015. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2015?

a. 1,695,000

b. 1,455,000

c. 1,331,250

d. 1,320,000

5. The primary purpose of the statement of cash flows is to provide information

a. about the operating, investing, and financing activities of an entity during a period.

b. that is useful in assessing future cash flow prospects.

c. about the cash receipts and cash payments of an entity during a period.

d. about the entity's ability to meet its obligations and to pay dividends

6. In determining net cash flow from operating activities, a decrease in accounts payable during a period

a. means that income on an accrual basis is less than income on a cash basis.

b. requires an addition adjustment to net income under the indirect method.

c. requires an increase adjustment to cost of goods sold under the direct method.

d. requires a decrease adjustment to cost of goods sold under the direct method.

7. Which of the following is an advantage of captive leasing companies over the other players in the leasing market?

a. They have access to low-cost funds allowing them to purchase assets at lower cost.

b. They are good at developing innovative contracts that help avoid accounting problems.

c. They provide leasing arrangements for a wider range of products than the parent companys product line.

d. They have the paint-of-sale advantage in finding leasing customers.

8. Taxable income of a corporation

a. differs from accounting income due to differences in intraperiod allocation between the two methods of income determination.

b. differs from accounting income due to differences in interperiod allocation and permanent differences between the two methods of income determination.

c. is based on generally accepted accounting principles.

d. is reported on the corporation's income statement.

9. The deferred tax expense is the

a. increase in balance of deferred tax asset minus the increase in balance of deferred tax liability.

b. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.

c. increase in balance of deferred tax asset plus the increase in balance of deferred tax liability.

d. decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability.

10. Xanthe Corporation had the following transactions occur in the current year:

1. Cash sale of merchandise inventory.

2. Sale of delivery truck at book value.

3. Sale of Xanthe common stock for cash.

4. Issuance of a note payable to a bank for cash.

5. Sale of a security held as an available-for-sale investment.

6. Collection of loan receivable.

How many of the above items will appear as a cash inflow from investing activities on a statement of cash flows for the current year?

a. Five items

b. Four items

c. Three items

d. Two items

11. In computing diluted earnings per share, stock options are considered dilutive when their option price is greater than the market price.

T F

12. When the cash proceeds from a bond issued with detachable stock warrants exceed the sum of the par value of the bonds and the fair market value of the warrants, the excess should be credited to

a. additional paid-in capital from stock warrants.

b. retained earnings.

c. a liability account.

d. premium on bonds payable.

13. Stock warrants outstanding should be classified as

a. liabilities.

b. reductions of capital contributed in excess of par value.

c. assets.

d. None of these answers are correct.

14. The statement of cash flows provides information to help investors and creditors assess the cash and noncash investing and financing transactions during the period.

T F