Acc 423 acc/423 final exam 100% correct answers

  • 57 views
Uploaded on

 

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
57
On Slideshare
0
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
1
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. ACC 423 Final Exam ANSWERS ARE HERE 1) Proceeds from an issue of debt securities having stock warrants should NOT be allocated betweendebt and equity features whenA. the allocation would result in a discount on the debt securityB. the warrants issued with the debt securities are nondetachableC. exercise of the warrants within the next few fiscal periods seems remoteD. the market value of the warrants is NOT readily available2) The conversion of preferred stock may be recorded by theA. market value methodB. par value methodC. book value methodD. incremental method3) The conversion of preferred stock into common stock requires that any excess of the par value of thecommon shares issued over the carrying amount of the preferred being converted should beA. treated as a prior period adjustmentB. treated as a direct reduction of retained earningsC. reflected currently in income as an extraordinary itemD. reflected currently in income, but NOT as an extraordinary item4) A primary source of stockholders equity isA. contributions by stockholders
  • 2. B. both income retained by the corporation and contributions by stockholdersC. appropriated retained earningsD. income retained by the corporation5) Stockholders equity is generally classified into two major categories:A. retained earnings and unappropriated capitalB. earned capital and contributed capitalC. appropriated capital and retained earningsD. contributed capital and appropriated capital6) When a corporation issues its capital stock in payment for services, the least appropriate basis forrecording the transaction is theA. market value of the shares issuedB. Any of these provides an appropriate basis for recording the transactionC. par value of the shares issuedD. market value of the services received7) Treasury shares areA. shares held as an investment by the treasurer of the corporationB. issued but NOT outstanding sharesC. shares held as an investment of the corporationD. issued and outstanding shares8) "Gains" on sales of treasury stock (using the cost method) should be credited toA. paid-in capital from treasury stock
  • 3. B. other incomeC. capital stockD. retained earnings9) How should a "gain" from the sale of treasury stock be reflected when using the cost method ofrecording treasury stock transactions?A. As ordinary earnings shown on the income statementB. As an extraordinary item shown on the income statementC. As paid-in capital from treasury stock transactionsD. As an increase in the amount shown for common stock10) In computing earnings per share, the equivalent number of shares of convertible preferred stock areadded as an adjustment to the denominator (number of shares outstanding). If the preferred stock iscumulative, which amount should then be added as an adjustment to the numerator (net earnings)?A. Annual preferred dividendB. Annual preferred dividend divided by the income tax rateC. Annual preferred dividend times (one minus the income tax rate)D. Annual preferred dividend times the income tax rate11) When computing diluted earnings per share, convertible bonds areA. ignoredB. assumed converted only if they are dilutiveC. assumed converted whether they are dilutive or antidilutiveD. assumed converted only if they are antidilutive12) What effect will the acquisition of treasury stock have on stockholders equity and earnings pershare, respectively?
  • 4. A. Decrease and no effectB. Increase and decreaseC. Increase and no effectD. Decrease and increase13) On May 1, 2007, Kent Corp. declared and issued a 10% common stock dividend. Prior to thisdividend, Kent had 100,000 shares of $1 par value common stock issued and outstanding. The fair valueof Kent s common stock was $20 per share on May 1, 2007. As a result of this stock dividend, Kentstotal stockholders equityA. did NOT changeB. increased by $200,000C. decreased by $10,000D. decreased by $200,00014) How would the declaration and subsequent issuance of a 10% stock dividend by the issuer affecteach of the following when the market value of the shares exceeds the par value of the stock?Additional Common Stock | Paid-in CapitalA. Increase | IncreaseB. No effect | No effectC. Increase | No effectD. No effect | Increase15) At its date of incorporation, Wilson, Inc. issued 100,000 shares of its $10 par common stock at $11per share. During the current year, Wilson acquired 20,000 shares of its common stock at a price of $16per share and accounted for them by the cost method. Subsequently, these shares were reissued at aprice of $12 per share. There have been no other issuances or acquisitions of its own common stock.What effect does the reissuance of the stock have on the following accounts?Retained Earnings | Additional Paid-in Capital
  • 5. A. No effect | No effectB. Decrease | DecreaseC. Decrease | No effectD. No effect | Decrease16) Which of the following is correct about the effective-interest method of amortization?A. The effective-interest method produces a constant rate of return on the book value of the investmentfrom period to period.B. The effective interest method applied to investments in debt securities is different from that appliedto bonds payable.C. Amortization of a premium decreases from period to period.D. Amortization of a discount decreases from period to period17) An unrealized holding loss on a companys available-for-sale securities should be reflected in thecurrent financial statements asA. other comprehensive income and deducted in the equity section of the balance sheet.B. an extraordinary item shown as a direct reduction from retained earningsC. a note or parenthetical disclosure onlyD. a current loss resulting from holding securities18) An unrealized holding gain on a companys available-for-sale securities should be reflected in thecurrent financial statements asA. other comprehensive income and included in the equity section of the balance sheet.B. an extraordinary item shown as a direct increase to retained earningsC. a note or parenthetical disclosure onlyD. a current gain resulting from holding securities
  • 6. 19) Investments in debt securities should be recorded on the date of acquisition atA. face value plus brokerage fees and other costs incident to the purchaseB. lower of cost or marketC. market value plus brokerage fees and other costs incident to the purchaseD. market value20) Securities which could be classified as held-to-maturity areA. warrantsB. redeemable preferred stockC. municipal bondsD. treasury stock21) Which of the following is NOT a debt security?A. Commercial paperB. Convertible bondsC. Loans receivableD. All of these are debt securities22) An investor has a long-term investment in stocks. Regular cash dividends received by the investorare recorded asFair Value Method | Equity MethodA. A reduction of the investment | A reduction of the investmentB. Income | IncomeC. Income | A reduction of the investmentD. A reduction of the investment | Income
  • 7. 23) When a company holds between 20% and 50% of the outstanding stock of an investee, which of thefollowing statements applies?A. The investor should use the equity method to account for its investment unless circum-stancesindicate that it is unable to exercise "significant influence" over the investeeB. The investor should always use the equity method to account for its investmentC. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise"significant influence" over the investeeD. The investor should always use the fair value method to account for its investment24) Bista Corporation declares and distributes a cash dividend that is a result of current earnings. Howwill the receipt of those dividends affect the investment account of the investor under each of thefollowing accounting methods?Fair Value Method | Equity MethodA. Increase | DecreaseB. No Effect | DecreaseC. No Effect | No EffectD. Decrease | No Effect25) Debt securities that are accounted for at amortized cost, NOT fair value, areA. trading debt securitiesB. held-to-maturity debt securitiesC. available-for-sale debt securitiesD. never-sell debt securities26) Equity securities acquired by a corporation which are accounted for by recognizing unrealizedholding gains or losses as other comprehensive income and as a separate component of stockholdersequity areA. trading securities where a company has holdings of less than 20%
  • 8. B. available-for-sale securities where a company has holdings of less than 20%C. securities where a company has holdings of between 20% and 50%D. securities where a company has holdings of more than 50%27) Use of the effective-interest method in amortizing bond premiums and discounts results inA. a smaller amount of interest income over the life of the bond issue than would result from use of thestraight-line methodB. a greater amount of interest income over the life of the bond issue than would result from use of thestraight-line methodC. a varying amount being recorded as interest income from period to periodD. a variable rate of return on the book value of the investment28) All of the following are characteristics of a derivative financial instrument EXCEPT the instrumentA. All of these are characteristicsB. has one or more underlyings and an identified payment provisionC. requires a large investment at the inception of the contractD. requires or permits net settlement29) The accounting for fair value hedges records the derivative at itsA. historical costB. amortized costC. carrying valueD. fair value30) All of the following statements regarding accounting for derivatives are correct EXCEPT that
  • 9. A. gains and losses resulting from hedge transactions are reported in different ways, depending uponthe type of hedgeB. they should be recognized in the financial statements as assets and liabilitiesC. they should be reported at fair valueD. gains and losses resulting from speculation should be deferred31) Taxable income of a corporation differs from pretax financial income because ofPermanent Differences | Temporary DifferencesA. Yes | NoB. No | NoC. No | YesD. Yes | Yes32) The rationale for interperiod income tax allocation is toA. adjust income tax expense on the income statement to be in agreement with income taxes payableon the balance sheetB. recognize a tax asset or liability for the tax consequences of temporary differences that exist at thebalance sheet dateC. recognize a distribution of earnings to the taxing agencyD. reconcile the tax consequences of permanent and temporary differences appearing on the currentyears financial statements33) Interperiod income tax allocation causesA. tax expense in the income statement to be presented with the specific revenues causing the taxB. tax expense shown on the income statement to equal the amount of income taxes payable for thecurrent year plus or minus the change in the deferred tax asset or liability balances for the year.C. tax expense shown in the income statement to bear a normal relation to the tax liabilityD. tax liability shown in the balance sheet to bear a normal relation to the income before tax reported inthe income statement34) At the December 31, 2007 balance sheet date, Garth Brooks Corporation reports an accruedreceivable for financial reporting purposes but NOT for tax purposes. When this asset is recovered in2008, a future taxable amount will occur and
  • 10. A. Garth will record a decrease in a deferred tax liability in 2008B. pretax financial income will exceed taxable income in 2008C. Garth will record an increase in a deferred tax asset in 2008D. total income tax expense for 2008 will exceed current tax expense for 200835) Which of the following differences would result in future taxable amounts?A. Revenues or gains that are taxable before they are recognized in financial incomeB. Expenses or losses that are tax deductible after they are recognized in financial incomeC. Expenses or losses that are tax deductible before they are recognized in financial incomeD. Revenues or gains that are recognized in financial income but are never included in taxable income36) Which of the following are temporary differences that are normally classified as expenses or lossesthat are deductible after they are recognized in financial income?A. Product warranty liabilitiesB. Advance rental receiptsC. Fines and expenses resulting from a violation of lawD. Depreciable property37) In a defined-contribution plan, a formula is used thatA. ensures that pension expense and the cash funding amount will be differentB. defines the benefits that the employee will receive at the time of retirementC. ensures that employers are at risk to make sure funds are available at retirementD. requires an employer to contribute a certain sum each period based on the formula38) In accounting for a defined-benefit pension plan
  • 11. A. the employers responsibility is simply to make a contribution each year based on the formulaestablished in the planB. an appropriate funding pattern must be established to ensure that enough monies will be available atretirement to meet the benefits promisedC. the liability is determined based upon known variables that reflect future salary levels promised toemployeesD. the expense recognized each period is equal to the cash contribution39) Which of the following is NOT a characteristic of a defined-contribution pension plan?A. The benefits to be received by employees are defined by the terms of the planB. The employers contribution each period is based on a formulaC. The benefit of gain or the risk of loss from the assets contributed to the pension fund are borne bythe employeeD. The accounting for a defined-contribution plan is straightforward and uncomplicated40) In accounting for a pension plan, any difference between the pension cost charged to expense andthe payments into the fund should be reported asA. a charge or credit to unrealized appreciation and depreciationB. an offset to the liability for prior service costC. accrued or prepaid pension costD. an accrued actuarial liability41) The projected benefit obligation is the measure of pension obligation thatA. is NOT sanctioned under generally accepted accounting principles for reporting the service costcomponent of pension expenseB. is required to be used for reporting the service cost component of pension expense
  • 12. C. requires pension expense to be determined solely on the basis of the plan formula applied to years ofservice to date and based on existing salary levelsD. requires the longest possible period for funding to maximize the tax deduction42) The relationship between the amount funded and the amount reported for pension expense is asfollows:A. pension expense may be greater than, equal to, or less than the amount fundedB. pension expense must equal the amount fundedC. pension expense will be less than the amount fundedD. pension expense will be more than the amount funded43) On January 1, 2008, Pratt Corp. adopted a defined-benefit pension plan. The plans service cost of$300,000 was fully funded at the end of 2008. Prior service cost was funded by a contribution of$120,000 in 2008. Amortization of prior service cost was $48,000 for 2008. What is the amount of Prattsprepaid pension cost at December 31, 2008?A. $180,000B. $72,000C. $120,000D. $168,00044) Reser Corp., a company whose stock is publicly traded, provides a noncontributory defined-benefitpension plan for its employees. The companys actuary has provided the following information for theyear ended December 31, 2008:Projected benefit obligation$600,000Accumulated benefit obligation525,000Fair value of plan assets825,000Service cost240,000Interest on projected benefit obligation24,000Amortization of unrecognized prior service cost60,000
  • 13. Expected and actual return on plan assets82,500The market-related asset value equals the fair value of plan assets. Prior contributions to the defined-benefit pension plan equaled the amount of net periodic pension cost accrued for the previous yearend. No contributions have been made for 2008 pension cost. In its December 31, 2008 balance sheet,Reser should report an accrued pension cost ofA. $217,500B. $406,500C. $324,000.D. $241,50045) Effective January 1, 2007, Quayle Co. established a defined-benefit plan with no retro-activebenefits. The first of the required equal annual contributions was paid on December 31, 2007. A 10%discount rate was used to calculate service cost and a 10% rate of return was assumed for plan assets.All information on covered employees for 2007 and 2008 is the same. How should the service cost for2008 compare with 2007, and should the 2007 balance sheet report an accrued or a prepaid pensioncost?Service Cost for 2008 Compared to 2007 | Pension Cost Reported on the 2007 Balance SheetA. Greater than | PrepaidB. Equal to | AccruedC. Equal to | PrepaidD. Greater than | Accrued46) On January 1, 2005, Foley Corporation acquired machinery at a cost of $250,000. Foley adopted thedouble-declining balance method of depreciation for this machinery and had been recordingdepreciation over an estimated useful life of ten years, with no residual value. At the beginning of 2008,a decision was made to change to the straight-line method of depreciation for the machinery. Thedepreciation expense to be recorded for the machinery in 2008 is (round to the nearest dollar)A. $25,000
  • 14. B. $25,600C. $18,286D. $22,85747) During 2008, a construction company changed from the completed-contract method to thepercentage-of-completion method for accounting purposes but NOT for tax purposes. Gross profitfigures under both methods for the past three years appear below:Completed-ContractPercentage-of-Completion2006$ 475,000$ 800,0002007625,000950,0002008700,0001,050,000$1,800,000$2,800,000Assuming an income tax rate of 40% for all years, the effect of this accounting change on prior periodsshould be reported by a credit ofA. $390,000 on the 2008 income statementB. $600,000 on the 2008 income statementC. $390,000 on the 2008 retained earnings statementD. $600,000 on the 2008 retained earnings statement48) Accrued salaries payable of $51,000 were NOT recorded at December 31, 2007. Office supplies onhand of $24,000 at December 31, 2008 were erroneously treated as expense instead of suppliesinventory. Neither of these errors was discovered nor corrected. The effect of these two errors wouldcauseA. 2007 net income and December 31, 2007 retained earnings to be understated $51,000 eachB. 2008 net income to be understated $75,000 and December 31, 2008 retained earnings to beunderstated $24,000C. 2008 net income and December 31, 2008 retained earnings to be understated $24,000 eachD. 2007 net income to be overstated $27,000 and 2008 net income to be understated $24,000
  • 15. 49) The estimated life of a building that has been depreciated 30 years of an originally estimated life of50 years has been revised to a remaining life of 10 years. Based on this information, the accountantshouldA. depreciate the remaining book value over the remaining life of the assetB. continue to depreciate the building over the original 50-year lifeC. adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40yearsD. adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-yearlife, and then depreciate the adjusted book value as though the estimated life had always been 40 years50) Which type of accounting change should always be accounted for in current and future periods?A. Change in reporting entityB. Change in accounting principleC. Correction of an errorD. Change in accounting estimate51) When a company decides to switch from the double-declining balance method to the straight-linemethod, this change should be handled as aA. change in accounting estimateB. change in accounting principleC. correction of an errorD. prior period adjustment