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500 Questions Financial Accounting And Reporting For The CPA Exam 1st Edition Frimette Kass Shraibman, Vijay Sampath, Denise Stefano, Darrel Surett - Solutions
With regard to deferred taxes, using the installment sales method for tax purposes would typically result in a I. deferred tax asset II. deferred tax liability(A) I only(B) II only(C) both I and II(D) neither I nor II
Calculate Chaucer Corp’s fully diluted EPS for Year 12.(A) $5.42(B) $5.00(C) $6.78(D) $5.77
Calculate Chaucer Corp’s basic EPS for Year 12.(A) $7.50(B) $7.80(C) $7.20(D) $7.02
The preferred dividend would be subtracted from Chaucer Corp’s net income to calculate Year 12 I. basic EPS II. fully diluted EPS(A) I only(B) II only(C) both I and II(D) neither I nor II
Gordon Corp had 360,000 shares of common stock issued and outstanding at December 31, Year 12, and 100,000 shares of nonconvertible preferred stock. On January 2, Year 13, Gordon Corp issued 100,000 more shares of nonconvertible preferred stock. Gordon Corp declared and paid $45,000 cash dividends
The following information pertains to Conover Inc.’s outstanding shares for Year 13:Preferred stock $10 par 5% cumulative 1,000 shares outstanding 1/1/Year 13What are the weighted average number of shares that Conover Inc.should use to calculate Year 13 earnings per share?(A) 25,000 (B) 23,333
On December 1 of the current year, Hackett Corp declared and issued a 3% stock dividend on its 70,000 shares of outstanding common stock. There was no other common stock activity during the year. Net income for the current year was $100,000. What number of shares should Hackett use in determining
Lansing Corp had 60,000 shares of common stock outstanding at January 1, Year 13. On July 1, Year 13, it issued 10,000 additional shares of common stock. What is the number of shares that Lansing Corp should use to calculate Year 13 EPS?(A) $60,000(B) $70,000(C) $65,000(D) none of the above
Debt that was converted into common shares during the period would be included in the denominator to calculate weighted average common shares outstanding for the computation of I. basic EPS II. fully diluted EPS(A) I only(B) II only(C) both I and II(D) neither I nor II
Dilutive stock options would generally be used to calculate I. basic EPS II. fully diluted EPS(A) I only(B) II only(C) both I and II(D) neither I nor II
Which of the following is correct regarding a net loss for the period as it related to net income available to the common shareholders, the numerator of the EPS calculation?I. In the event of a net loss for the period, declared dividends on non-cumulative preferred stock are added to the net loss
When calculating EPS, income available to common shareholders is determined by deducting the preferred dividends I. declared in the period if the preferred stock is noncumulative regardless of whether the dividend was paid II. accumulated in the current period on cumulative preferred stock
How do dividends in arrears from Year 1 relate to a Year 2 basic EPS calculation when attempting to compute net income available to common shareholders?I. Year 1 dividends in arrears are subtracted from Year 2 net income along with Year 2 unpaid dividends if the preferred stock is cumulative.II.
When calculating basic EPS, which of the following is correct regarding the calculation of weighted average common shares outstanding?I. Include the convertible preferred shares that were converted during the period in the calculation of weighted average common shares outstanding, and time-weight
A company paid both preferred dividends and common dividends to shareholders during the current year. Which of those dividends should be subtracted from net income to compute income available to common shareholders in the calculation of EPS?I. common dividends II. preferred dividends(A) I only(B)
When calculating the weighted average number of shares outstanding during the period, which of the following is treated as if it were outstanding since the beginning of the year?I. stock dividends declared in July and paid in September II. stock issued above par in August(A) I only(B) II only(C)
At December 31, Year 11 and Year 10, Baum Inc. had 60,000 shares of common stock and 10,000 shares of preferred stock outstanding. The preferred stock was 5% $100 par value cumulative preferred stock, and no dividends were paid on any class of stock for the past 5 years.Net income for Year 11 was
For purposes of calculating basic EPS, income available to common shareholders is determined by I. deducting dividends declared in the period on noncumulative preferred stock (regardless of whether they have been paid)II. deducting dividends accumulated in the period on cumulative preferred stock
A company can report basic EPS and not have to report fully diluted EPS if they have I. common stock outstanding, no preferred stock, and options that are convertible into common stock II. common stock outstanding, no preferred stock, and bonds that are convertible into common stock(A) I only(B) II
According to US generally accepted accounting principles (GAAP), which of the following entities are NOT required to present earnings per share (EPS) on the face of the income statement?I. private entities that have yet to go public or make a filing for a public offering II. entities whose shares
Which of the following is correct regarding impairment losses under US GAAP?I. Impairment losses are typically reported before tax if the impairment loss is related to discontinued operations.II. Impairment losses reduce the carrying value of an asset due to a decline in book value below fair
A company uses cost depletion to allocate the cost of removing natural resources. Which of the following is correct?I. Depletion base is the cost to purchase the property minus the estimated net residual value.II. If the number of units produced exceeds the number of units sold, the depletion
Bruder Inc. bought a battery (plug-in) truck at a cost of $70,000 in January of Year 1, and it is being depreciated using the units of production method. The truck had an estimated useful life of 10 years and a battery with an estimated total capacity of 200,000 miles. In Year 1, the truck is
A depreciable asset has an estimated 10% salvage value. Under which of the following methods, properly applied, would the accumulated depreciation equal the original cost at the end of the asset’s estimated useful life?I. sum of the years’ digits II. double declining balance III. straight
When calculating an asset’s net carrying value, the accumulated depreciation is subtracted from the asset’s depreciable base when the method of depreciation is I. straight line II. sum of the years’ digits(A) I only(B) II only(C) both I and II(D) neither I nor II
How much is the carrying value of the machine on the balance sheet dated December 31, Year 13 (the asset’s second year)?(A) $50,000(B) $35,000(C) $27,000(D) $23,000
How much depreciation expense should be taken on the December 31, Year 12, income statement?(A) $16,667(B) $15,000(C) $7,500(D) $12,000
An asset is purchased April 1, Year 1, for $75,000 and has an estimated useful life of 7 years. The asset has a salvage value of $5,000. For tax purposes, the asset is being depreciated based on a 10-year life. For GAAP purposes, how much is straight line depreciation expense on the income
Posner Inc. began constructing a building for its own use in January of Year 4. During Year 4, Posner incurred interest of $62,000 on specific construction debt related to this building and $22,000 on various other debt issued prior to Year 4. Interest computed based on the weighted average amount
Which of the following is correct regarding capitalized interest?I. Capitalized interest is reduced by income received on the unexpended portion of the construction loan.II. The amount of capitalized interest is the lower of actual interest cost incurred or computed capitalized interest.(A) I
Which of the following is a required disclosure regarding interest cost?I. total interest cost incurred for the period II. total capitalized interest cost for the period, if any(A) I only(B) II only(C) both I and II(D) neither I nor II
Frimette Fabricating Corp was constructing fixed assets that qualified for interest capitalization and had the following outstanding debt issuance during the entire year of construction:$5,000,000 face value, 7% interest$7,000,000 face value, 10% interest None of the borrowings were specified for
Interest cost after construction is completed is capitalized if the asset being constructed is I. built to use II. built to sell(A) I only(B) II only(C) both I and II(D) neither I nor II
Capitalization of interest cost is appropriate to finance the cost of items held for resale (inventory) if the assets are I. self-constructed II. acquired in the open market(A) I only(B) II only(C) both I and II(D) neither I nor II
During the current year, Hodge Corp constructed machinery for its own use and constructed machinery for sale to customers in the ordinary course of business. The Acme Credit Company financed these assets both during construction and after construction was complete. Hodge Corp should capitalize
Medina Corp is constructing a warehouse for use in manufacturing operations. The capitalization of interest cost is appropriate during a construction delay that is I. intentional II. related to permit processing or inspections(A) I only(B) II only(C) both I and II(D) neither I nor II
Under IFRS, revaluation gains are reported on the income statement when the asset is classified as I. investment property II. property plant and equipment(A) I only(B) II only(C) both I and II(D) neither I nor II
Which of the following statements regarding the accounting for investment property under IFRS is correct?I. If the entity elects the fair value method, no depreciation expense will be taken.II. Gains and losses from fair value adjustments on investment property are reported on the income
LaRue Corp is a Canadian corporation that uses IFRS. LaRue Corp has the following account balances as of December 31, Year 5:Under IFRS, what will LaRue Corp report as investment property on its December 31, Year 5, balance sheet?(A) $4,000,000 (B) $7,000,000 (C) $28,500,000 (D) $18,000,000 Land
Under IFRS, assets are classified as investment property on the balance sheet if they are I. held for rental income II. to be sold for a quick profit(A) I only(B) II only(C) both I and II(D) neither I nor II
Downey Co. purchased an office building and the land on which it is located for $800,000 cash and an existing $200,000 mortgage. For realty tax purposes, the property is assessed at $944,000, 65% of which is allocated to the building. At what amount should Downey record the building?(A) $944,000(B)
The Fleer Corporation spends $100,000 for land and building. The land was recently appraised for $20,000, but the building was appraised for $120,000. If only $100,000 is spent, how much is allocated to the land?(A) $14,280(B) $16,160(C) $20,000(D) $15,840
Van Horn Inc. owns several parcels of land. Which of the following should be charged to land improvements?I. special assessment for a sewer system on Parcel #627; the sewer system will be owned by the township II. cost of a sewer system on Parcel #381; the sewer system will be owned by Van Horn
Vijay Fitness Inc. purchased land with the intention of building its new administrative headquarters on the site. Assuming the following can be debited to either land, land improvement, or building, which of the following should be charged to land improvements?I. clearing of trees and grading II.
Which of the following is correct regarding land improvements?I. Costs incurred to construct sidewalks and fences would be capitalized to land improvements rather than to land.II. Land improvements can be depreciated.(A) I only(B) II Only(C) both I and II(D) neither I nor II
Which of the following costs would NOT be capitalized to the land account?I. filling in dirt to level the property prior to excavation II. excavating costs(A) I only(B) II only(C) both I and II(D) neither I nor II
Baker Corp purchases land for use as a future plant site. An old building on the site needs to be razed and the scrap materials will be sold. Legal fees will need to be paid to record ownership, and title insurance will need to be acquired. Which of the following should be capitalized rather than
Under US GAAP, if a hurricane causes damage to property, and extraordinary repairs are made that result in extending the life of the old property but not improving the old property, I. the cost should be recorded as an asset II. accumulated depreciation of the old asset should be reduced(A) I
If an old asset’s life is extended but not improved, and the carrying value of the specific old asset is NOT known, what happens to the amount spent to extend the life of the old asset?I. reduces accumulated depreciation of the asset class II. gets capitalized(A) I only(B) II only(C) both I and
When replacing an asset in which the cost of the old asset is known, I. replace the old carrying value with the capitalized cost of the new asset II. reduce accumulated depreciation of the asset class to increase book value(A) I only(B) II only(C) both I and II(D) neither I nor II
Fixed assets can be revalued upward from the asset’s carrying amount if the reporting framework is I. US generally accepted accounting principles (GAAP)II. IFRS(A) I only(B) II only(C) both I and II(D) neither I nor II
A company has a parcel of land to be used for a future production facility. The company applies the revaluation model under IFRS to this class of assets. In Year 3, the company acquired the land for$80,000. At the end of Year 3, the carrying amount was reduced to$70,000, which represented the fair
At the end of Year 1, Buck Inc. had a class of assets with a carrying value of $1,200,000 and recorded a revaluation gain of $150,000. On December 31, Year 2, the assets had a carrying value of $900,000 and a recoverable amount of $720,000. Under the International Financial Reporting Standards
Lavroff Corp is purchasing an asset for use in its meat packaging business. Which of the following costs associated with the machine’s purchase needs to be capitalized rather than expensed?I. cost of shipping the machine to Lavroff’s plant II. cost of readying the machine for its intended
Losses due to write-downs of assets under a quasi-reorganization would affect which of the following under US GAAP?I. retained earnings II. income statement(A) I only(B) II only(C) both I and II(D) neither I nor II
When accounting for compensatory stock options, when the employees exercise their options and purchase the shares for an amount above par but below the market price, the journal entry will include a(A) credit to additional paid-in capital-stock options(B) debit to additional paid-in capital-common
When accounting for the expense related to compensatory stock options, which of the following is decreased?I. net income II. retained earnings III. total stockholders’ equity(A) I, II, and III(B) I and II(C) I only(D) I and III
Under a compensatory stock option plan, the expense to the corporation is(A) not booked until the options are exercised(B) booked on the date the options are granted to employees(C) determined on the date the options are granted to employees(D) equal to the cash paid for the shares by the employee
When issuing stock options to employees, which of the following factors is most relevant in determining the accounting treatment under US GAAP?(A) the par value of the shares issued(B) the market value of the shares issued(C) the authorized number of shares(D) whether the stock options are issued
Which of the following is a corporation likely to attempt to reduce its number of shares outstanding and increase its market price and par value of its stock?I. stock dividend of 20% or less II. stock split III. reverse stock split(A) I, II, and III(B) II and III(C) III only(D) I and III
The Toro Corporation is splitting its 10,000 shares of $20 par value common stock 2:1. Common stock is currently $200,000, additional paid-in capital is $500,000, and retained earnings is $1,000,000. In connection with a stock split, the Toro Corporation will(A) increase total stockholders’
Which of the following dividends will result in a decrease to total stockholders’ equity?I. large stock dividend II. cash dividend III. small stock dividend(A) I, II, and III(B) II and III(C) II only(D) III only
On July 8, Year 13, the additional paid-in capital account is credited for(A) $300,000(B) $200,000(C) $600,000(D) -0-
The journal entry on June 25, Year 13, will include a credit to common stock distributable in the amount of(A) $200,000(B) $300,000(C) $600,000(D) $900,000
The journal entry to record the declaration of the stock dividend on June 25, Year 13, will include a(A) debit to retained earnings for $600,000(B) debit to retained earnings for $900,000(C) credit to additional paid-in capital for $300,000(D) credit to additional paid-in capital for $200,000
When recording the journal entry to distribute the stock dividend, Reisig Corporation will credit additional paid-in capital for(A) $80,000(B) $100,000(C) $50,000(D) $150,000
When Reisig Corporation records the journal entry for the stock dividend, retained earnings will be debited for the number of new shares multiplied by which of the following amounts?(A) par value of the shares(B) market value of the shares on January 2, Year 13(C) market value of the shares on
On January 6, Year 13, Theo Corp issues a stock dividend to investors of record on February 3, Year 13. When determining how to account for this stock dividend, which of the following factors is the most important factor to Theo Corp?(A) the par value of the shares(B) the market value of the
Assuming Handy Inc. uses the par value method to account for treasury stock transactions, how much is the ending balance of additional paid-in capital on December 31, Year 13?(A) $100,000(B) $150,000(C) $175,000(D) $200,000
Assume Handy Inc. uses the par value method to account for treasury stock transactions. Under US GAAP, the journal entry on December 29, Year 13, to reissue the treasury stock would impact additional paid-in capital in the amount of(A) $100,000(B) $150,000(C) $50,000(D) -0-
Assume Handy Inc. uses the par value method to account for treasury stock transactions. Under US GAAP, the journal entry on December 29, Year 13, would impact treasury stock in the amount of(A) $150,000 debit(B) $150,000 credit(C) $50,000 debit(D) $50,000 credit
Assume Handy Inc. uses the par value method to account for treasury stock transactions. Under US GAAP, the journal entry on June 7, Year 13, would impact retained earnings in which of the following ways?(A) no effect(B) debit of $15,000(C) debit of $40,000(D) credit of $15,000
Assume Handy Inc. uses the par value method to account for treasury stock transactions. Under US GAAP, how much is recorded for additional paid-in capital on June 7, Year 13?(A) -0-(B) $40,000 debit(C) $25,000 debit(D) $50,000 debit
Assume Handy Inc. uses the par value method of accounting for treasury stock transactions. Under US GAAP, how much is recorded for treasury stock on June 7, Year 13?(A) $50,000(B) $90,000(C) $25,000(D) $40,000
How much additional paid-in capital was recorded on January 2, Year 13?(A) $300,000(B) $150,000(C) $200,000(D) $100,000
Assume Stefano Inc. uses the cost method to account for its treasury stock transactions. Under US GAAP, the entry to record the reissuance of the 5,000 treasury shares on December 5, Year 13, would include a credit to(A) gain on sale in the amount of $15,000(B) retained earnings in the amount of
Assuming Stefano Inc. uses the cost method to account for its treasury stock transactions, under US GAAP, how much is recorded for treasury stock on July 28, Year 13?(A) $80,000 credit(B) $80,000 debit(C) $25,000 credit(D) $25,000 debit
Under US generally accepted accounting principles (GAAP), how much additional paid-in capital is recorded by Stefano Inc. on January 14?(A) $550,000(B) $220,000(C) $100,000(D) $120,000
With regard to dividends, which of the following result in a reduction of retained earnings at the date of declaration?I. property dividends II. cash dividends(A) I only(B) II only(C) both I and II(D) neither I nor II
With regard to dividends paid from one corporation to another, retained earnings of the corporation paying the dividend is debited on which of the following dates?(A) date of declaration and the date of record(B) date of declaration and the date of payment(C) date of declaration only(D) end of the
Nickki Corp purchased equipment by making a down payment of$2,000 and issuing a note payable for $16,000. A payment of $4,000 is to be made at the end of each year for 4 years. The applicable rate of interest is 7%. The present value of an ordinary annuity factor for 4 years at 7% is 4.18, and the
How much should be credited to additional paid-in capital from common stock as a result of the conversion on December 31, Year 14?(A) -0-(B) $100,000(C) $350,000(D) $450,000
What amount should be credited to additional paid-in capital-preferred stock on February 1, Year 13?(A) $500,000(B) $125,000(C) 50,000(D) -0-
Which is correct regarding cumulative preferred stock?I. Cumulative means that if the preferred stock dividend is not declared, it will have to be paid before holders of common stock can receive any dividend payment.II. The issuing company reports a liability on the balance sheet for the dividends
Which is correct regarding the rights of common and preferred stockholders?I. Preferred stock has no set rights; the rights must be defined in the stock certificate.II. All common stocks issued by companies incorporated within a state typically will have the same legal rights because they are
Mr. A subscribes to buy 1,000 shares of the common stock of Company Z for $22 per share, although the par value is only $10 per share. He pays $4 per share immediately and will pay the remaining$18 per share later. Which of the following is correct?I. Additional paid-in capital is increased at the
Yoko Corp issues 2,000 shares of its $5 par value common stock to Klein as compensation for 500 hours of trust services performed.Klein usually bills $180 per hour for similar services. On the date of issuance the Yoko Corp stock was traded on a public exchange at $100 per share. The journal entry
A company was organized in January Year 6 with authorized capital of$10 par value common stock. On February 1, Year 6, 2 shares were issued at par for cash. On March 1, Year 6, the company’s attorney accepted 5,000 shares of the common stock in settlement for legal services with a fair value of
A company has common s tock with a $10 par value and fair market value of $15. The company exchanges 1,000 shares of this common stock for an acre of land.I. The land will be debited for $10,000.II. The common stock account will be credited for $10,000 and no additional paid-in capital will be
A corporation has common stock with a $10 par value. A new share of this stock is issued for $13 to an investor. Which of the following is correct?I. The company will debit common stock for the par value of $10.II. The company will debit cash for $13 and credit gain on sale of stock for $3 if the
Singer Co. uses the equity method to account for its January 1, Year 1, purchase of Kaufman Inc.’s common stock. On January 1, Year 1, the fair values of Kaufman’s FIFO inventory and land exceeded their carrying amounts. Which of these excesses of fair values over carrying amounts will reduce
Rochelle Corp acquired 40% of Clark Inc.’s voting common stock on January 2, Year 13, for $400,000. The carrying amount of Clark’s net assets at the purchase date totaled $900,000. Fair values equaled carrying amounts for all items except equipment, for which fair values exceeded carrying
Woodley Inc. became a 4% owner of Jensen Inc. by purchasing 5,000 shares of Jensen Inc.’s stock on March 1, Year 13. Woodley Inc.received a stock dividend of 1,000 shares on September 1, Year 13, when the market value of Jensen Inc. was $20 per share. Jensen Inc.paid a cash dividend of $3 per
Which of the following if received from the investee will affect the income reported by an investor, using the equity method?I. cash dividend II. stock dividend(A) I only(B) II only(C) both I and II(D) neither I nor II
Under the cost method, the investment in investee account is reduced for I. cash dividends received that are NOT in excess of investee earnings II. ordinary losses incurred by the investee(A) I only(B) II only(C) both I and II(D) neither I nor II
With regard to investments in securities, which of the following is correct regarding the cost (fair value) method?I. The investment in investee account is adjusted for investee earnings.II. The investment in investee is adjusted to fair value at the end of the reporting period.(A) I only(B) II
Trixie Corp had the following items in the current year:Which of the following amounts would the statement of comprehensive income report as other comprehensive income or loss?(A) $15,000 other comprehensive income (B) $20,000 other comprehensive loss (C) $11,000 other comprehensive loss (D)
With regard to marketable securities held as available-for-sale, which of the following are reported in comprehensive income?I. unrealized temporary losses II. unrealized losses considered other than temporary III. unrealized gains(A) I and II(B) I and III(C) II and III(D) I, II, and III
Assume in Year 2 that the value of the security has not changed, but Azur Corp now considers the drop to be permanent. What should be the effects of the determination that the decline was other than temporary on Azur’s Year 2 net available-for-sale assets and net income?(A) decrease in net
What should be the effect on Azur Corp’s financial statements at December 31, Year 1?(A) decrease in available-for-sale assets and decrease in net income(B) no effect on available-for-sale assets and decrease in net income(C) no effect on net income and decrease on available-for-sale assets(D)
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