Question 15

January 1, 2021, Goofy Corp. granted executive stock options to purchase 33,000 of its

common shares at $7 each. The market price of common stock averaged $15 per share

during the year ending December 31, 2021. There was no change in the 156,000 shares of

outstanding common stock during the year. Net income for the year was $31,000. The

number of shares to be used in computing diluted earnings per share is:

187,000

204,600

None of the options listed

0 173,600

0 156,000

Question 16

Buzz Lightyear Corp. purchased a spacecraft machine for $330,000 on January 1, 2020.

Buzz Lightyear depreciates spacecrafts of this type by the straight-line method over a five-

year period using no salvage value. Due to an error, no depreciation was taken on this

machine in 2020. Buzz Lightyear discovered the error in 2021. What amount should Buzz

Lightyear record as depreciation expense for 2021?

$66,000.

$49,500.

None of the options listed.

$99,000.

$132,000.

Question 17

During the last week of 2020, Grandma's House Inc. received a $96,000 prepayment for

2021 rent of a building from one of its tenants, Red-Riding-Hood. Grandma's House

recorded the receipt as rent revenue. The error was discovered midway through 2021.

What journal entry should Grandma's House record in 2021 to correct the error?

dr. Retained earnings $96,000; cr. Deferred revenue $48,000; cr. Revenue $48,000.

O dr. Retained earnings $96,000; cr. Revenue $96,000.

O None of the options listed.

O dr. Deferred Revenue $96,000; cr. Revenue $96,000.

dr. Rent Expense $48,000; cr. Revenue $48,000.

18-Which of the following is a true statement?

O The retrospective approach is usually required for a change in reporting entity.

O All of the options listed.

O The retrospective approach is usually required for a change in accounting principle

O The retrospective approach is usually required for an error correction

O The prospective approach is usually required for a change in

19-Lightning McQueen, Inc. acquired a new engine from Doc Hudson Corp. Doc Hudson

completed construction of the engine on January 1, 2019. In payment for the engine,

Lightning McQueen issued a three-year installment note to be paid in three equal

payments at the end of each year. The payments include interest at the rate of 12%. A

conceptual error was made in preparing the amortization schedule, which was not

discovered until January 1, 2021. As a result of the error, Lightning McQueen understated

interest expense by $59,000 in 2019 and $54.000 in 2020.

As a result of this error, which of the following is true of Lightning McQueen's financial

statements as of January 1, 2021:

O Liabilities were overstated; Retained earnings were overstated.

O Liabilities were overstated; Retained earnings were understated.

Expense was understated; Retained earnings were understated.

O Liabilities were understated; Retained earnings were overstated.

O None of the options listed.

Question 20

For financial reporting, Nemo Corp. has used the declining-balance method for the

depreciation of a fish-tank-escape equipment acquired at the beginning of 2018 for $18

million. At the beginning of 2021, Nemo decides to change to the straight-line

method. Will Nemo apply the straight-line method retrospectively or prospectively?

O No adjustment is needed for a change in depreciation method,

Retrospectively

O None of the options listed.

O Prospectively