Please provide solutions to #2, 4,7,9,10,12,13,14,18,19,20.

Student ID: 21671982 Exam: 061510NR - INSTRUMENTS AND LIABILITIES, PART 1 When you have completed your exam and reviewed your answers, click Submit Exam. Answers will not be recorded until you hit Submit Exam. If you need to exit before completing the exam, click Cancel Exam. Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer. 1. When cash is received from customers in the form of a refundable deposit, the cash account is increased with a corresponding increase in A. shareholders' equity. B. a current liability. C. revenue. D. paid-in capital. 2. General Product, Inc., shipped 100 million coupons in products it sold in 2011. The coupons are redeemable for thirty cents each. General anticipates that 70% of the coupons will be redeemed. The coupons expire on December 31, 2012. There were 45 million coupons redeemed in 2011, and 30 million redeemed in 2012. What was General's coupon liability as of December 31, 2011? A. $7.5 million B. $13.5 million C. $16.5 million D. $21.0 million 3. On January 1, 2011, Nana Company paid $100,000 for 8,000 shares of Papa Company common stock. These securities were classified as trading securities. The ownership in Papa Company is 10%. Papa reported net income of $52,000 for the year ended December 31, 2011. The fair value of the Papa stock on that date was $45 per share. What amount will be reported in the balance sheet of Nana Company for the investment in Papa at December 31, 2011? A. $284,400 B. $300,000 C. $360,000 D. $315,600 4. Beresford, Inc., purchased several investment securities during 2008, its first year of operations. The following information pertains to these securities. The fluctuations in their fair values aren't considered permanent. What total unrealized holding gain would Beresford report in its 2011 income statement relative to its investment securities? A. $36,000 B. $48,200 C. $80,900 D. $55,900 5. A loss contingency should be accrued in a company's financial statements only if the likelihood that a liability has been incurred is A. reasonably possible and the amount of the loss is known. B. reasonably possible and the amount of the loss can be reasonably estimated. C. at least remotely possible and the amount of the loss is known. D. probable and the amount of the loss can be reasonably estimated. 6. What is the effective interest rate (rounded) on a 3-month, noninterest-bearing note with a stated rate of 12% and a maturity value of $200,000? A. 11.5% B. 3.0% C. 12.4% D. 12.0 % 7. Smith buys and sells securities which it typically classifies as available for sale. On December 15, 2011, Smith purchased $500,000 of Jones shares, and elected the fair value option to account for the Jones investment. As of December 31, 2011, the Jones shares had a fair value of $525,000. In the 2011 financial statements, Smith will show (ignore taxes) A. investment income of $25,000 in its income statement. B. accumulated other comprehensive income of $525,000. C. an investment in Jones of $500,000. D. other comprehensive income of $25,000. 8. Jack Corporation purchased a 20% interest in Jill Corporation for $1,500,000 on January 1, 2011. Jack can significantly influence Jill. On December 10, 2011, Jill declared and paid $1 million in dividends. Jill reported a net loss of $6 million for the year. What amount of loss should Jack report in its income statement for 2011 relative to its investment in Jill? A. $1,500,000 B. $1 000,000 C. $1,400,000 D. $1,200,000 9. During 2011, Deluxe Leather Goods sold 800,000 reversible belts under a new sales promotional program. Each belt carried one coupon, which entitles the customer to a $5.00 cash rebate. Deluxe estimates that 70% of the coupons will be redeemed, even though only 350,000 coupons had been processed during 2011. At December 31, 2011, Deluxe should report a liability for unredeemed coupons of A. $1,225,000. B. $560,000. C. $1,750,000. D. $1,050,000. 10. Hawk Corporation purchased 10,000 shares of Diamond Corporation stock in 2008 for $50 per share and classified the investment as securities available for sale. Diamond's market value was $60 per share on December 31, 2009 and $65 on December 31, 2010. During 2011, Hawk sold all of its Diamond stock at $70 per share. In its 2011 income statement, Hawk would report a gain of A. $50,000. B. $300,000. C. $150,000. D. $200,000. 11. Under IFRS No. 9, which is not a category for accounting for investments? A. Held-to-maturity B. Fair value through other comprehensive income C. Fair value through profit and loss D. Amortized cost 12. Beresford, Inc., purchased several investment securities during 2008, its first year of operations. The following information pertains to these securities. The fluctuations in their fair values aren't considered permanent. What balance sheet amount would Beresford report for its total investment securities at 12/31/10? A. $625,800 B. $644,500 C. $645,400 D. $637,000 13. Clark's Chemical Company received customer deposits on returnable containers in the amount of $100,000 during 2011. Twelve percent of the containers weren't returned. The deposits are based on the container cost marked up 20%. What is cost of goods sold relative to this forfeiture? A. $10,000 B. $0 C. $14,400 D. $2,000 14. In 2009, Osgood Corporation purchased $4 million in ten-year municipal bonds at face value. On December 31, 2011, the bonds had a market value of $3,600,000 and Osgood reclassified the bonds from held to maturity to trading securities. Osgood's December 31, 2011, balance sheet and the 2011 income statement would show the following: A. Option c B. Option d C. Option a D. Option b 15. Under IAS No. 39, which is not a category for accounting for investments? A. Fair value through other comprehensive income B. Available-for-sale C. Fair value through profit and loss D. Held-to-maturity 16. Liabilities payable within the coming year are classified as long-term liabilities if refinancing is completed before date of issuance of the financial statements under A. IRS. B. Neither U.S. GAAP nor IFRS. C. US GAAP. D. IFRS. 17. Which of the following situations would not require that long-term liabilities be reported as current liabilities on a classified balance sheet? A. The long-term debt is callable by the creditor. B. The long-term debt matures within the upcoming year. C. All of these situations require the current classification. D. The creditor has the right to demand payment due to a contractual violation. 18. Bloomfield Bakers accounts for its investment in Clor Confectionary under the equity method. Bloomfield carried the Clor investment at $150,000 and $165,000 at December 31 of 2010 and 2011, respectively. During 2011 Clor recognized $80,000 of net income and paid dividends of $30,000. Assuming that Bloomfield owned the same percentage of Clor throughout 2011, their percentage ownership must have been A. 30% B. 50%. C. 5%. D. 18.75%. 19. On July 1, 2011, Tremen Corporation acquired 40% of the shares of Delany Company. Tremen paid $3,000,000 for the investment, and that amount is exactly equal to 40% of the fair value of identifiable net assets on Delany's balance sheet. Delany recognized net income of $1,000,000 for 2011, and paid $150,000 quarterly dividends to its shareholders. After all closing entries are made, Tremen's "Investment in Delany Company" account would have a balance of A. $3,000,000. B. $3,160,000. C. $3,080,000. D. $3,200,000. 20. Classifying liabilities as either current or long-term helps creditors assess A. the degree of a firm's liabilities. B. the amount of a firm's liabilities. C. profitability. D. the relative risk of a firm's liabilities. End of exam Student ID: 21671982 Exam: 061512NR - INSTRUMENTS AND LIABILITIES, PART 3 When you have completed your exam and reviewed your answers, click Submit Exam. Answers will not be recorded until you hit Submit Exam. If you need to exit before completing the exam, click Cancel Exam. Questions 1 to 25: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer. 1. Information for Hobson International Corp. for the current year ($ in millions): Income from continuing operations before tax $150 Extraordinary loss (pretax) 30 Temporary differences (all related to operating income): Accrued warranty expense in excess of write- offs included in operating income 10 Depreciation deducted on tax return in excess of depreciated expense 25 Permanent differences (all related to operating income): Nondeductible portion of travel & entertainment expense 5 The applicable enacted tax rate for all periods is 40%. What should Hobson International report as net income? A. $70 million B. $88 million C. $75 million D. $72 million 2. Giada Foods reported $940 million in income before income taxes for 2011, its first year of operations. Tax depreciation exceeded depreciation for financial reporting purposes by $100 million. The company also had non-tax-deductible expenses of $80 million relating to permanent differences. The income tax rate for 2011 was 35%, but the enacted rate for years after 2011 is 40%. The balance in the deferred tax liability in the December 31, 2011, balance sheet is A. $16 million. B. $35 million. C. $56 million. D. $40 million. 3. The following information pertains to Havana Corporation's defined benefit pension plan: ($ in 000s) 2011 2012 Beginning Beginning balances balances Projected benefit obligation ($6,000) ($6,504) Plan assets 5,760 6,336 Prior service cost-- AOCI Net loss-- AOCI 600 720 552 786 At the end of 2011, Havana contributed $696 thousand to the pension fund and benefit payments of $624 thousand were made to retirees. The expected rate of return on plan assets was 10%, and the actuary's discount rate is 8%. There were no changes in actuarial estimates and assumptions regarding the PBO. What is the 2011 service cost for Havana's plan? A. The answer can't be determined from the information given. B. $276 thousand C. $648 thousand D. $528 thousand 4. Boxer Company owned 20,000 shares of King Company that were purchased in 2009 for $500,000. On May 1, 2011, Boxer declared a property dividend of 1 share of King for every 10 shares of Boxer stock. On that date, there were 50,000 shares of Boxer stock outstanding. The market value of the King stock was $30 per share on the date of declaration and $32 per share on the date of distribution. By how much is retained earnings reduced by the property dividend? A. $150,000 B. $160,000 C. $300,000 D. $0 5. Giada Foods reported $940 million in income before income taxes for 2011, its first year of operations. Tax depreciation exceeded depreciation for financial reporting purposes by $100 million. The company also had non-tax-deductible expenses of $80 million relating to permanent differences. The income tax rate for 2011 was 35%, but the enacted rate for years after 2011 is 40%. The balance in the deferred tax liability in the December 31, 2011, balance sheet is A. $56 million. B. $40 million. C. $16 million. D. $35 million. 6. Pug Corporation has 10,000 shares of $10 par common stock outstanding and 20,000 shares of $100 par, 6% noncumulative, nonparticipating preferred stock outstanding. Dividends have not been paid for the past two years. This year, a $150,000 dividend will be paid. What are the dividends per share for preferred and common, respectively? A. $6; $1.50. B. $7.50; $0. C. $7.50; $1.50. D. $6; $3. 7. The following incomplete (columns have missing amounts) pension spreadsheet is for the current year for First Republic Corporation (FRC). What was the net pension asset/liability reported in the balance sheet at the end of the year? A. Net pension asset of $50. B. Net pension liability of $24. C. Net pension liability of $50. D. Net pension asset of $24. 8. As of December 31, 2011, Warner Corporation reported the following: Dividends payable Treasury stock Paid- in capital-- share repurchase Other paid- in capital accounts Retained earnings 20,000 600,000 20,000 4,000,000 3,000,000 During 2012, half of the treasury stock was resold for $240,000; net income was $600,000; cash dividends declared were $1,500,000; and stock dividends declared were $500,000. 40. What would shareholders' equity be as of December 31, 2012? A. $5,760,000 B. $5,820,000 C. $6,760,000 D. The amount isn't shown. 9. The Kelso Company had the following operating results: Year 2009 2010 2011 Income (loss) 30,000 45,000 (60,000) Tax rate 35% 30% 30% Income tax 10,500 first year of operations 13,500 I0 What is the income tax refund receivable? A. $19,500 B. $24,000 C. $18,000 D. $18,750 10. At the end of the current year, Newsmax Inc. has $400,000 of subscriptions received in advance included in its balance sheet. A footnote reveals that the entire $400,000 will be earned in the next year. In the absence of other temporary differences, in the balance sheet one would also expect to find a A. Current deferred tax liability B. Noncurrent deferred tax asset C. Noncurrent deferred tax liability D. Current deferred tax asset 11. In 2009, Winn, Inc., issued $1 par value common stock for $35 per share. No other common stock transactions occurred until July 31, 2011, when Winn acquired some of the issued shares for $30 per share and retired them. Which of the following statements correctly states an effect of this acquisition and retirement? A. 2011 net income is decreased. B. Retained earnings is increased. C. 2011 net income is increased. D. Additional paid- in capital is decreased. 12. The following refers to the pension spreadsheet (columns have missing amounts) for the current year for Pancho Villa Enterprises (PVE). What was PVE's pension expense for the year? A. $50 B. $260 C. $68 D. $62 13. Woody Corp. had taxable income of $8,000 in the current year. The amount of MACRS depreciation was $3,000 while the amount of depreciation reported in the income statement was $1,000. Assuming no other differences between tax and accounting income, Woody's pretax accounting income was A. $5,000. B. $11,000. C. $10,000. D. $6,000. 14. The following information pertains to Havana Corporation's defined benefit pension plan: ($ in 000s) 2011 2012 Beginning Beginning balances balances Projected benefit obligation ($6,000) ($6,504) Plan assets 5,760 6,336 Prior service cost-- AOCI 600 552 Net loss-- AOCI 720 786 At the end of 2011, Havana contributed $696 thousand to the pension fund and benefit payments of $624 thousand were made to retirees. The expected rate of return on plan assets was 10%, and the actuary's discount rate is 8%. There were no changes in actuarial estimates and assumptions regarding the PBO. What is Havana's 2011 actual return on plan assets? A. $504 thousand B. $1,128 thousand C. $6,336 thousand D. $618 thousand 15. For the current year ($ in millions), Centipede Corp. had $80 in pretax accounting income. This included bad debt expense of $6 based on the allowance method, and $20 in depreciation expense. Two million in receivables were written off as uncollectible, and MACRS depreciation amounted to $35. In the absence of other temporary or permanent differences, what was Centipede's income tax payable currently, assuming a tax rate of 40%? A. 19.6 million B. 29.2 million C. 25.2 million D. 27.6 million 16. The following information is related to the defined benefit pension plan of Dreamworld Company for the year: Service cost Contributions to pension plan Benefits paid to retirees Plan assets (fair value), January 1 Plan assets (fair value), December 31 Actual return on plan assets PBO, January 1 $60,000 110,000 150,000 640,000 750,000 150,000 900,000 PBO, December 31 Discount rate Long- term expected return on plan assets 960,000 10% 9% Assuming no other relevant data exist, what is the pension expense for the year? A. $92,400 B. $190,000 C. $170,000 D. $60,000 17. In 2010, HD had reported a deferred tax asset of $90 million with no valuation allowance. At December 31, 2011, the account balances of HD Services showed a deferred tax asset of $120 million before assessing the need for a valuation allowance and income taxes payable of $80 million. HD determined that it was more likely than not that 30% of the deferred tax asset ultimately would not be realized. HD made no estimated tax payments during 2011. What amount should HD report as income tax expense in its 2011 income statement? A. $50 million B. $86 million C. $116 million D. $80 million 18. Persoff Industries International has a defined benefit pension plan. The company revised its estimate of future salary levels causing its defined benefit obligation to increase by $16 million. Also, Persoff's $25 million actual return on plan assets exceeded the $22 million expected return. Persoff prepares its financial statements in accordance with International Financial Reporting Standards. The company will A. report an unrecognized net gain as an increase in the net pension asset in the liability section of the balance sheet. B. record a $3 million decrease in its plan assets. C. record a $16 million gain- OCI. D. report an unrecognized net loss as an offset to the net pension liability in the liability section of the balance sheet. 19. A reconciliation of pretax financial statement income to taxable income is shown below for Fieval Industries for the year ended December 31, 2011, its first year of operations. The income tax rate is 40%. Pretax accounting income (income statement) Interest revenue on municipal securities Warranty expense in excess of deductible amount Depreciation in excess of financial statement amount Taxable income (tax return) $300,000 (15,000) 25,000 (70,000) $240,000 What amount(s) should Fieval report related to deferred income taxes in its 2011 balance sheet? A. Current asset of $10,000 and noncurrent liability of $28,000 B. Noncurrent liability of $18,000 C. Noncurrent liability of $24,000 D. Current asset of $4,000 and noncurrent liability of $28,000 20. At December 31, 2011, Moonlight Bay Resorts had the following deferred income tax items: Deferred tax asset of $54 million related to a current liability Deferred tax asset of $36 million related to a noncurrent liability Deferred tax liability of $120 million related to a noncurrent asset Deferred tax liability of $72 million related to a current asset Moonlight Bay should report in the current section of its December 31, 2011, balance sheet a A. Current tax liability of $18,000. B. Noncurrent asset of $90,000 and a non- current liability of $192,000. C. Noncurrent asset of $84,000 and a non- current liability of $45,000. D. Noncurrent liability of $30,000. 21. Alamo, Inc., had $300 million in taxable income for the current year. Alamo also had a decrease in deferred tax assets of $30 million and an increase in deferred tax liabilities of $60 million. The company is subject to a tax rate of 40%. The total income tax expense for the year was A. $150 million. B. $180 million. C. $210 million. D. $ 390 million. 22. The following incomplete (columns have missing amounts) pension spreadsheet is for the current year for First Republic Corporation (FRC). What was FRC's pension expense for the year? A. $44. B. $49. C. $47. D. $107. 23. JL Health Services reported a net loss-AOCI in last year's balance sheet. This year, the company revised its estimate of future salary levels causing its PBO estimate to decline by $24. Also, the $48 million actual return on plan assets was less than the $54 million expected return. As a result, A. the net pension liability will decrease by $24 million. B. accumulated other comprehensive income will increase by $18 million. C. the statement of comprehensive income will report a $6 million gain and a $24 million loss. D. the net pension liability will increase by $18 million. 24. ABC declared a property dividend. The dividend consisted of 10,000 common shares of its investment in XYZ Company. The shares had originally been purchased at $4 per share and had a $1 par value. The value of the shares on the declaration date is $7 per share. What is the first entry that should be recorded related to this dividend? a. Retained earnings Property dividends payable b. Retained earnings Property dividends payable Gain c. Investment in XYZ Retained earnings; d. Investment in XYZ Gain 70,000 70,000 70,000 40,000 30,000 30,000 30,000 30,000 30,000 A. Option c B. Option b C. Option d D. Option a 25. The EPBO for a particular employee on January 1, 2011, was $150,000. The APBO at the beginning of the year was $30,000. The appropriate discount rate for this postretirement plan is 5%. The employee is expected to serve the company for a total of twenty-five years, with five of those years already served as of January 1, 2011. What is the APBO at December 31, 2011? A. $37,800. B. $30,000. C. $31,500. D. $42,800. End of exam Student ID: 21671982 Exam: 061511NR - INSTRUMENTS AND LIABILITIES, PART 2 When you have completed your exam and reviewed your answers, click Submit Exam. Answers will not be recorded until you hit Submit Exam. If you need to exit before completing the exam, click Cancel Exam. Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer. 1. C Corp. has a rate of return on assets of 10%. Not including any indirect effects on earnings, the rate of return on assets is immediately increased when C records A Capital Lease An Operating Lease a. yes yes b. no no c. yes no d. no yes A. Option a B. Option d C. Option c D. Option b 2. Francisco leased equipment from Julio on December 31, 2011. The lease is a 10-year lease with annual payments of $150,000 due on December 31 of each year. The present value of the lease is $1,020,000. Francisco's incremental borrowing rate is 12% for this type of lease. The implicit rate of 10% is known by the lessee. What should be the balance in Francisco lease liability at December 31, 2012? A. $807,000. B. $824,400. C. $806,400. D. $792,000. 3. On December 31, 2011, B Corp. sold a machine to Royal and simultaneously leased it back for one year. Pertinent information at this date follows: Sales price Carrying amount Present value of lease rentals ($6,000 for 12 months at 12% Estimated remaining useful life $720,000 660,000 68,200 12 years In B's December 31, 2011, balance sheet, the deferred revenue from the sale of this machine should be A. $8,200. B. $0. C. $60,000. D. $68,200. 4. On December 31, 2011, Perry Corporation leased equipment to Admiral Company for a 5-year period. The annual lease payment, excluding executory costs, is $40,000. The interest rate for this lease is 10%. The payments are due on December 31 of each year. The first payment was made on December 31, 2011. The normal cash price for this type of equipment is $125,000 while the cost to Perry was $105,000. For the year ended December 31, 2011, by what amount will Perry's pretax earnings increase from this lease? A. $28,500. B. $40,000. C. $20,000. D. $24,000. 5. If the lessor retains title to leased property under the terms of the lease, A. the amount to be recovered will be the same as if there were no residual value. B. the amount to be recovered through periodic lease payments is reduced by the present value of the residual amount. C. the amount to be recovered through periodic lease payments is increased by the present value of the residual amount. D. the lessor will record a greater amount of depreciation due to the residual value. 6. Technoid, Inc., sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2011. The manufacturing cost of the computers was $12 million. This non-cancelable lease had the following terms: * Lease payments: $2,466,754 semiannually; first payment at January 1, 2011; remaining payments at June 30 and December 31 each year through June 30, 2015. * Lease term: 5 years (10 semi-annual payments) * No residual value; no bargain purchase option * Economic life of equipment: 5 years * Implicit interest rate and lessee's incremental borrowing rate: 5% semi-annually * Fair value of the computers at January 1, 2011: $20 million Collectibility of the rental payments is reasonably assured, and there are no lessor costs yet to be incurred. Technoid would account for this as a(an) A. capital lease. B. direct financing lease. C. operating lease. D. sales-type lease. 7. On December 31, 2010, Reagan, Inc., signed a lease for some equipment having a 9-year useful life with Silver Leasing Co. The lease payments are made by Reagan annually, beginning at signing date. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2016. There's no bargain purchase option, and Reagan guarantees a residual value to the lessor on termination of the lease. Reagan's lease amortization schedule appears below: In this situation, Reagan is the A. lessee in a capital lease. B. lessor in a capital lease. C. lessee in a sales-type lease. D. lessor in a sales-type lease. 8. AMC issues a note in exchange for a machine with no stated interest rate. In accounting for the transaction, A. both the note and machine are recorded at the face amount of the note or the fair value of the machine, whichever is more clearly determinable. B. the machine should be depreciated over the note's term to maturity. C. if fair values of the note and machine are unavailable, the note should be recorded at its present value, discounted at the market rate of interest. D. the note is recorded at its face amount unless the fair value of the machine is readily available. 9. On December 31, 2010, Reagan, Inc., signed a lease for some equipment having a 9-year useful life with Silver Leasing Co. The lease payments are made by Reagan annually, beginning at signing date. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2016. There's no bargain purchase option, and Reagan guarantees a residual value to the lessor on termination of the lease. Reagan's lease amortization schedule appears below: At what amount would Reagan record the leased asset at inception of the agreement? A. $519,115 B. $576,000 C. $429,115 D. $540,000 10. Discount-Mart issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds. Payment Cash Effective Interest Decrease in Balance Outstanding Balance $8,640,967 1 300,000 345,639 345,639 8,686,606 2 300,000 347,464 347,464 8,734,070 3 300,000 349,363 349,363 8,783,433 4 300,000 What is the carrying value of the bonds as of December 31, 2012? A. $8,834,770 B. $8,686,606 C. $8,734,070 D. $8,783,433 11. Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds. What is the effective annual rate of interest on the bonds? A. 8% B. 6% C. 3% D. 4% 12. If the residual value of a leased asset turns out to be more than the amount guaranteed by the lessee, the A. lessor must compensate the lessee for the excess. B. lessor isn't obligated to compensate the lessee for the excess. C. lessee will reduce the last year's depreciation. D. lessee must pay the lessor the amount of the excess. 13. Pierce Company issued 11% bonds, dated January 1, with a face amount of $800,000 on January 1, 2011. The bonds sold for $739,816 and mature in 2030 (20 years). For bonds of similar risk and maturity the market yield was 12%. Interest is paid semiannually on June 30 and December 31. Pierce determines interest at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2011, the fair value of the bonds was $730,000. Pierce's earnings for the year will include a A. gain from change in the fair value of debt of $10,204. B. loss from change in the fair value of debt of $10,617. C. gain from change in the fair value of debt of $10,617. D. loss from change in the fair value of debt of $10,204. 14. Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds. What is the stated annual rate of interest on the bonds? A. 3% B. 8% C. 6% D. 4% 15. Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds. What is the interest expense on the bonds in 2012? A. $119,241 B. $680,759 C. $800,000 D. $342,961 16. Red Corp. has a rate of return on assets of 10% and a debt/equity ratio of 2 to 1. Not including any indirect effects on earnings, the immediate impact of retiring debt on these ratios is Return on Assets Debt/Equity Ratio a. increase increase b. decrease decrease c. increase decrease d. decrease increase A. Option c B. Option a C. Option b D. Option d 17. Yellow Corp. issues 10% bonds. Not including any indirect effects on earnings, the issuance will immediately decrease Yellow's _______. Return on Assets Debt/Equity Ratio a. yes yes b. no no c. yes no d. no yes A. Option c B. Option d C. Option a D. Option b 18. On January 1, 2011, Princess Corporation leased equipment to King Company. The lease term is 8 years. The first payment of $675,000 was made on January 1, 2011. The equipment cost Princess Corporation $3,600,000. The present value of the minimum lease payments is $3,960,000. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 10%, how much interest revenue will Princess record in 2012 on this lease? A. $261,000. B. $293,850. C. $328,500. D. $325,350. 19. On December 31, 2010, Reagan, Inc., signed a lease for some equipment having a 9-year useful life with Silver Leasing Co. The lease payments are made by Reagan annually, beginning at signing date. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2016. There's no bargain purchase option, and Reagan guarantees a residual value to the lessor on termination of the lease. Reagan's lease amortization schedule appears below: What is the effective annual interest rate charged to Reagan on this lease? A. 4%. B. 8%. C. 17%. D. 6%. 20. Nickel, Inc., owns $100,000 of 10-year, 6% bonds as an investment on December 31, 2010. The bonds have 3 years remaining to maturity. The unamortized premium remaining on these bonds was $6,000. Nickel uses straight-line amortization. On May 1, 2011, $10,000 of the bonds were redeemed at 110. How much, and what type of gain or loss, most likely results from this redemption? A. $467 ordinary gain B. $467 extraordinary gain C. $467 extraordinary loss D. $467 ordinary loss End of exam Student ID: 21671982 Exam: 061513NR - ADDITIONAL FINANCIAL REPORTING ISSUES When you have completed your exam and reviewed your answers, click Submit Exam. Answers will not be recorded until you hit Submit Exam. If you need to exit before completing the exam, click Cancel Exam. Questions 1 to 25: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer. 1. Which of the accounting changes listed below is more associated with financial statements prepared in accordance with U.S. GAAP than with International Financial Reporting Standards? A. Change in reporting entity B. Change in depreciation methods C. Change to the LIFO method from the FIFO method D. Change in accounting estimate 2. Morrison Corporation had the following common stock record during the current calendar year: OutstandingJanuary 1 Additional shares issued 3/31 Distributed a 10% stock dividend on 6/30 Additional shares issued 9/30 2,000,000 100,000 100,000 What is the number of shares to be used in computing basic EPS? A. 2,307,500 B. 2,200,000 C. 2,000,000 D. 2,310,000 3. Blue Cab Company had 50,000 shares of common stock outstanding on January 1, 2011. On April 1, 2011, the company issued 20,000 shares of common stock. The company had outstanding fully vested incentive stock options for 5,000 shares exercisable at $10 that had not been exercised by its executives. The end-of-year market price of common stock was $13 while the average price for the year was $12. The company reported net income in the amount of $269,915 for 2011. What is the diluted earnings per share (rounded)? A. $3.60. B. $4.50. C. $4.10. D. $3.81. 4. Under its executive stock option plan, Q Corporation granted options on January 1, 2011, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2013 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures were anticipated, however unexpected turnover during 2012 caused the forfeiture of 5% of the stock options. Ignoring taxes, what is the effect on earnings in 2013? A. $20 million B. $18 million C. $19 million D. $0 5. Rampart, Inc., recorded the following transaction: Land Notes Payable Cash 15 million 12 million 3 million In the statement of cash flows, this would be reported as a A. $3 million noncash investing and financing activity. B. $3 million outflow from investing activities. C. $15 million outflow from investing activities. D. $3 million outflow from investing activities and $12 million noncash investing and financing activity. 6. Under its executive stock option plan, W Corporation granted options on January 1, 2011, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2013 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. The options are exercised on April 2, 2014, when the market price is $21 per share. By what amount will W's shareholder's equity be increased when the options are exercised? A. $315 million B. $60 million C. $330 million D. $270 million 7. Getaway Travel Company reported net income for 2011 in the amount of $50,000. During 2011, Getaway declared and paid $2,000 in cash dividends on its nonconvertible preferred stock. Getaway also paid $10,000 cash dividends on its common stock. Getaway had 40,000 common shares outstanding from January 1 until 10,000 new shares were sold for cash on July 1, 2011. A 2-for-1 stock split was granted on July 5, 2011. What is the 2011 basic earnings per share? A. $.47 B. $.42 C. $.56 D. $.53 8. In preparing its cash flow statement for the year ended December 31, 2011, Green Co. gathered the following data: Gain on sale of land Proceeds from sale of land $12,000 20,000 Purchase of Black, Inc., bonds (face value $200,000) Amortization of bond discount Cash dividends declared Cash dividends paid Proceeds from sales of common stock (carrying value $130,000) 360,000 4,000 90,000 76,000 150,000 In its December 31, 2011, statement of cash flows, what amount should Green report as net cash from financing activities? A. $40,000 B. $54,000 C. $60,000 D. $74,000 9. C Co. reported a retained earnings balance of $200,000 at December 31, 2010. In September 2011, C determined that insurance premiums of $30,000 for the three-year period beginning January 1, 2010, had been paid and fully expensed in 2010. C has a 30% income tax rate. What amount should C report as adjusted beginning retained earnings in its 2011 statement of retained earnings? A. $210,000 B. $220,000 C. $214,000 D. $221,000 10. Horrocks Company granted 180,000 restricted stock awards of its no par common shares to executives, subject to forfeiture if employment is terminated within three years. Horrocks' common shares have a market price of $10 per share on January 1, 2010, the grant date, and at December 31, 2011, averaging $10 throughout the year. When calculating diluted EPS at December 31, 2011, the net increase in the denominator of the EPS fraction will be A. 180,000 shares. B. 60,000 shares. C. 120,000 shares. D. 0 shares. 11. Freeman Company's accounting records include the following information: Payments to suppliers Collections on accounts receivable Cash sales Income taxes paid Equipment purchased $50,000 90,000 20,000 5,000 15,000 What is the amount of net cash provided by operating activities indicated by these transactions? A. $60,000 B. $45,000 C. $40,000 D. $55,000 12. During the current year, High Corporation had 3 million shares of common stock outstanding. Five thousand, $1,000, 6% convertible bonds were issued at face amount at the beginning of the year. High reported income before tax of $4 million and net income of $2.4 million for the year. Each bond is convertible into ten shares of common. What is diluted EPS (rounded)? A. $.86 B. $.79 C. $.85 D. $.80 13. Ignatius Corporation had 7 million shares of common stock outstanding during the current calendar year. It issued ten thousand, $1,000, convertible bonds on January 1. On June 30, Ignatius issued 100,000 shares of $100 par 6% cumulative preferred stock. Dividends are declared and paid semiannually. The bonds were issued at face amount and pay interest quarterly at an annual rate of 10%. Each bond is convertible into 50 shares of common stock. Ignatius has an effective tax rate of 40%. Ignatius would report the following EPS data (rounded) on its net income of $20 million. A. Basic EPS Diluted EPS $2.85 $2.67 B. Basic EPS Diluted EPS $2.81 $2.68 C. Basic EPS Diluted EPS $2.81 $2.71 D. Basic EPS Diluted EPS $2.77 $2.67 14. B Company switched from the sum-of-the-years-digits depreciation method to straight-line depreciation in 2011. The change affects machinery purchased at the beginning of 2009 at a cost of $72,000. The machinery has an estimated life of five years and an estimated residual value of $3,600. What is B's 2011 depreciation expense? A. $9,120 B. $13,680 C. $15,840 D. $19,200 15. After issuing its financial statements, a company discovered that its beginning inventory was overstated by $100,000. Its tax rate is 30%. As a result of this error, net income was A. understated by $70,000. B. overstated by $70,000. C. understated by $30,000. D. overstated by $30,000. 16. Baldwin Company had 40,000 shares of common stock outstanding on January 1, 2011. On April 1, 2011 the company issued 20,000 shares of common stock. The company had outstanding fully vested incentive stock options for 10,000 shares exercisable at $10 that had not been exercised by its executives. The average market price of common stock for the year was $12. What number of shares of stock (rounded) should be used in computing diluted earnings per share? A. 55,000 B. 61,667 C. 56,667 D. 65,000 17. If bond interest expense is $800,000, bond interest payable increased by $8,000 and bond discount decreased by $2,000, cash paid for bond interest is A. $784,000. B. $910,000. C. $790,000. D. $806,000. 18. In its 2011 income statement, WME reported $11,000 of interest expense on its outstanding bonds. During the year, WME paid its regular installments of $9,000 of interest in cash. In its reconciliation schedule, WME should show a A. $2,000 positive adjustment to net income under the indirect method for the decrease in bond discount. B. $2,000 negative adjustment to net income under the indirect method for the decrease in bond discount. C. $2,000 positive adjustment to net income under the indirect method for the decrease in bond premium. D. $2,000 negative adjustment to net income under the indirect method for the decrease in bond premium. 19. During 2011, P Company discovered that the ending inventories reported on its financial statements were incorrect by the following amounts: 2009 $120,000 understated 2010 $150,000 overstated P uses the periodic inventory system to ascertain year-end quantities that are converted to dollar amounts using the FIFO cost method. Prior to any adjustments for these errors and ignoring income taxes, P's retained earnings at January 1, 2011 would be A. $150,000 understated. B. $30,000 overstated. C. $150,000 overstated. D. correct. 20. Bowers Corporation reported the following ($ in 000s) for the year: Sales on account were $1,900, and bad debt expense was $18 for the year. How much cash was collected from customers on account? A. $2,142 B. $1,638 C. $1,627 D. $1,642 21. In its 2011 income statement, WME reported $58,000 for insurance expense. WME paid $72,000 in insurance premiums during 2011. In its reconciliation schedule, WME should show a A. $14,000 positive adjustment to net income under the indirect method for the decrease in prepaid insurance. B. $14,000 negative adjustment to net income under the indirect method for the increase in prepaid insurance. C. $14,000 negative adjustment to net income under the indirect method for the decrease in prepaid insurance. D. $14,000 positive adjustment to net income under the indirect method for the increase in prepaid insurance. 22. Which of the following changes would not be accounted for using the prospective approach? A. A change from double-declining balance to straight-line depreciation B. A change from straight-line to double-declining balance depreciation C. A change to LIFO from average costing for inventories D. A change from the individual application of the LCM rule to aggregate approach 23. Burnet Company had 30,000 shares of common stock outstanding on January 1, 2011. On April 1, 2011, the company issued 15,000 shares of common stock. The company had outstanding fully vested incentive stock options for 5,000 shares exercisable at $10 that had not been exercised by its executives. The average market price of common stock was $9. The company reported net income in the amount of $189,374 for 2011. What is the effect of the options? A. The options are anti-dilutive. B. The options will dilute EPS by $.09 per share. C. The options will dilute EPS by $.17 per share. D. The options will dilute EPS by $.33 per share. 24. During the current year, East Corporation had 2 million shares of common stock outstanding. Two thousand, $1,000, 8% convertible bonds were issued at face amount at the beginning of the year. East reported income before tax of $3 million and net income of $1.8 million for the year. Each bond is convertible into ten shares of common stock. What is diluted EPS (rounded)? A. $.89 B. $.95 C. $.94 D. $.90 25. Like U.S. GAAP, international standards also require a statement of cash flows. Consistent with U.S GAAP, cash flows are classified as operating, investing, or financing activities. However, with regard to interest and dividend inflows and outflows, the international standard for cash flow statements A. designates cash outflows for interest payments and cash inflows from interest and dividends received as operating cash flows. B. allows companies to report cash inflows from interest and dividends as either operating or investing cash flows. C. allows companies to report dividends paid as either investing or operating cash flows. D. allows companies to report cash outflows from interest payments as either operating or investing cash flows. End of exam