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Wiley CPA Exam Review 2013 Financial Accounting And Reporting 10th Edition O. Ray Whittington - Solutions
Pear Co.’s income statement for the year ended December 31, year 1, as prepared by Pear’s controller, reported income before taxes of $125,000. The auditor questioned the following amounts that had been included in income before taxes:Unrealized gain on available-for-sale investment $40,000
Sage, Inc. bought 40% of Adams Corp.’s outstanding common stock on January 2, year 1, for $400,000. The carrying amount of Adams’ net assets at the purchase date totaled $900,000. Fair values and carrying amounts were the same for all items except for plant and inventory, for which fair values
Moss Corp. owns 20% of Dubro Corp.’s preferred stock and 80% of its common stock. Dubro’s stock outstanding at December 31, year 1, is as follows:10% cumulative preferred stock $100,000 Common stock 700,000 Dubro reported net income of $60,000 for the year ended December 31, year 1. Assume that
In its year 2 income statement, what amount should Grant report as gain from the sale of half of its investment?a. $24,500b. $30,500c. $35,000d. $45,500
In Grant’s December 31, year 1 balance sheet, what should be the carrying amount of this investment?a. $200,000b. $209,000c. $224,000d. $230,000
Before income taxes, what amount should Grant include in its year 1 income statement as a result of the investment?a. $15,000b. $24,000c. $50,000d. $80,000
What amount should Jill report as net unrealized loss on marketable debt securities in other comprehensive income in its year 2 statement of stockholders’ equity?a. $0b. $ 40,000c. $ 45,000d. $120,000 C. Investment Where Significant Influence Does Exist Items 32 through 34 are based on the
What amount of loss from investments should Jill report in its year 2 income statement?a. $ 40,000b. $ 85,000c. $160,000d. $0
A marketable debt security is transferred from available-for-sale to held-to-maturity securities. At the transfer date, the security’s carrying amount exceeds its fair value. Assume the fair value option is not elected to report this security. What amount is used at the transfer date to record
What amount should Sun report as net unrealized loss on marketable debt securities in its year 2 statement of stockholders’ equity?a. $ 40,000b. $ 45,000c. $160,000d. $120,000
What amount of loss from investments should Sun report in its year 2 income statement?a. $ 45,000b. $ 85,000c. $120,000d. $0
In its financial statements, Pare, Inc. uses the cost method of accounting for its 15% ownership of Sabe Co. At December 31, year 1, Pare has a receivable from Sabe. How should the receivable be reported in Pare’s December 31, year 1 balance sheet?a. The total receivable should be reported
Pal Corp.’s year 1 dividend revenue included only part of the dividends received from its Ima Corp. investment. Pal Corp. has an investment in Ima Corp. that it intends to hold indefinitely. The balance of the dividend reduced Pal’s carrying amount for its Ima investment. This reflects the fact
How should Deed report the receipt and distribution of the merchandise in its statement of cash flows?a. As both an inflow and outflow for operating activities.b. As both an inflow and outflow for investing activities.c. As an inflow for investing activities and outflow for operating activities.d.
How should Deed report the receipt and distribution of the merchandise in its income statement?a. At fair value for both dividend revenue and employee compensation expense.b. At listed retail price for both dividend revenue and employee compensation expense.c. At fair value for dividend revenue and
For the last ten years, Woody Co. has owned cumulative preferred stock issued by Hadley, Inc. During year 2, Hadley declared and paid both the year 2 dividend and the year 1 dividend in arrears. How should Woody report the year 1 dividend in arrears that was received in year 2?a. As a reduction in
On both December 31, year 1, and December 31, year 2, Kopp Co.’s only marketable equity security had the same fair value, which was below cost. Kopp considered the decline in value to be temporary in year 1 but other than temporary in year 2. At the end of both years the security was classified
On January 10, year 1, Box, Inc. purchased marketable equity securities of Knox, Inc. and Scot, Inc., neither of which Box could significantly influence. Box classified both securities as available-for-sale. At December 31, year 1, the cost of each investment was greater than its fair value. The
On December 29, year 2, BJ Co. sold a marketable equity security that had been purchased on January 4, year 1. BJ owned no other marketable equity security. An unrealized loss was reported in year 1 as other comprehensive income. A realized gain was reported in the year 2 income statement. Was the
Nola has a portfolio of marketable equity securities that it does not intend to sell in the near term. Assume that Nola does not elect the fair value option to report these securities. How should Nola classify these securities, and how should it report unrealized gains and losses from these
Cap Corp. reported accrued investment interest receivable of $38,000 and $46,500 at January 1 and December 31, year 1, respectively. During year 1, cash collections from the investments included the following:Capital gains distributions $145,000 Interest 152,000 What amount should Cap report as
During year 1, Rex Company purchased marketable equity securities as a short-term investment. These securities are classified as available-for-sale. Rex does not elect the fair value option to account for available-for-sale securities. The cost and fair value at December 31, year 1, were as
Antonio Corp. acquired a portfolio of marketable equity securities that it does not intend to sell in the near term. Antonio elects the fair value option for reporting its financial assets. How should Antonio classify these securities, and how should it report unrealized gains and losses?Classify
Data regarding Shannon Corp.’s available-for-sale securities follow:Cost Fair value December 31, year 1 $150,000 $130,000 December 31, year 2 150,000 160,000 Differences between cost and fair values are considered temporary. Shannon elects to use the fair value option for reporting all
Information regarding Shelton Co.’s portfolio of available-for-sale securities is as follows:Aggregate cost as of 12/31/Y1 $150,000 Unrealized gains as of 12/31/Y1 14,000 Unrealized losses as of 12/31/Y1 26,000 Net realized gains during year 1 30,000 Shelton elects to use the fair value option
Alton Co. began operations on January 1, year 1. The following information pertains to Alton’s December 31, year 1 portfolio of marketable equity securities:Trading securities Available-for-sale securities Aggregate cost $360,000 $550,000 Aggregate fair value 320,000 450,000 Aggregate lower of
Data regarding Ball Corp.’s available-for-sale securities follow:Cost Fair value December 31, year 1 $150,000 $130,000 December 31, year 2 150,000 160,000 Differences between cost and fair values are considered temporary. Ball does not elect the fair value option to account for available-for-sale
Stone does not use the fair value option to account for available-for-sale securities. Information regarding Stone Co.’s portfolio of available-for-sale securities is as follows:Aggregate cost as of 12/31/Y2 $170,000 Unrealized gains as of 12/31/Y2 4,000 Unrealized losses as of 12/31/Y2 26,000
Reed Insurance Co. began operations on January 1, year 1. The following information pertains to Reed’s December 31, year 1 portfolio of marketable equity securities:Trading securities Available-for-sale securities Aggregate cost $360,000 $550,000 Aggregate fair value 320,000 450,000 Aggregate
Assume Tyne does not elect the fair value option to report investments. What amount should Tyne report as net unrealized loss on marketable equity securities at December 31, year 2, in accumulated other comprehensive income in stockholders’ equity?a. $0b. $10,000c. $15,000d. $20,000
What amount should Tyne report as unrealized holding gain in its year 2 income statement, assuming Tyne does not elect to use the fair value option to report its investments?a. $50,000b. $55,000c. $60,000d. $65,000
For a marketable debt securities portfolio classified as held-to-maturity, which of the following amounts should be included in the period’s net income, assuming the company elects the fair value option of reporting all of its financial instruments in the portfolio?I. Unrealized temporary losses
Bing Corporation purchased bonds at a discount on the open market as an investment and intends to hold these bonds to maturity. Assume that Bing elects the fair value option. Bing should account for these bonds ata. Cost.b. Amortized cost.c. Fair value.d. Lower of cost or market.
For a marketable debt securities portfolio classified as held-to-maturity, which of the following amounts should be included in the period’s net income, assuming the fair value option is not elected.I. Unrealized temporary losses during the period.II. Realized gains during the period.III. Changes
Kale Co. purchased bonds at a discount on the open market as an investment and intends to hold these bonds to maturity. Kale does not elect the fair value option for the bonds. Kale should account for these bonds ata. Cost.b. Amortized cost.c. Fair value.d. Lower of cost or market.
On April 1, year 1, Saxe, Inc. purchased $200,000 face value, 9% US Treasury Notes for $198,500, including accrued interest of $4,500. The notes mature July 1, year 2, and pay interest semiannually on January 1 and July 1. Saxe uses the straight-line method of amortization and intends to hold the
Puff Co. acquired 40% of Straw, Inc.’s voting common stock on January 2, year 1, for $400,000. The carrying amount of Straw’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 amounts by
Under IFRS, which of the following is not a method that may be used to account for treasury stock?a. Cost method.b. Par value method.c. Retained earnings method.d. Constructive retirement method.
Vestre Corporation prepares its financial statements under IFRS. Recently the company issued convertible debt. How should the company record this debt?a. The instrument should be presented solely as debt.b. The instrument should be presented between debt and equity.c. The instrument should be
Logan Corporation issues convertible bonds for $500,000. At the date of issuance, it is determined that the fair value of the bonds is $480,000. Logan prepares its financial statements in accordance with IFRS. How should the issuance of the bonds be recognized?a. As a bond liability for $500,000.b.
How are dividends per share for common stock used in the calculation of the following?Dividend per share payout ratio Earnings per sharea. Numerator Numeratorb. Numerator Not usedc. Denominator Not usedd. Denominator Denominator T. International Financial Reporting Standards (IFRS)
Grid Corp. acquired some of its own common shares at a price greater than both their par value and original issue price but less than their book value. Grid uses the cost method of accounting for treasury stock. What is the impact of this acquisition on total stockholders’ equity and the book
Hoyt Corp.’s current balance sheet reports the following stockholders’ equity:5% cumulative preferred stock, par value $100 per share; 2,500 shares issued and outstanding $250,000 Common stock, par value $3.50 per share; 100,000 shares issued and outstanding 350,000 Additional paid-in capital
Selected information for Irvington Company is as follows:December 31 Year 1 Year 2 Preferred stock, 8%, par $100, nonconvertible, noncumulative $125,000 $125,000 Common stock 300,000 400,000 Retained earnings 75,000 185,000 Dividends paid on preferred stock for year ended 10,000 10,000 Net income
The following information pertains to Ali Corp. as of and for the year ended December 31, year 1:Liabilities $ 60,000 Stockholders’ equity $500,000 Shares of common stock issued and outstanding 10,000 Net income $ 30,000 During year 1, Ali’s officers exercised stock options for 1,000 shares of
Nest Co. issued 100,000 shares of common stock. Of these, 5,000 were held as treasury stock at December 31, year 1. During year 2, transactions involving Nest’s common stock were as follows:May 3 1,000 shares of treasury stock were sold. August 6 10,000 shares of previously unissued stock were
Rudd Corp. had 700,000 shares of common stock authorized and 300,000 shares outstanding at December 31, year 1. The following events occurred during year 2:January 31 Declared 10% stock dividend June 30 Purchased 100,000 shares August 1 Reissued 50,000 shares November 30 Declared 2-for-1 stock
Zinc Co.’s adjusted trial balance at December 31, year 1, includes the following account balances:Common stock, $3 par $600,000 Additional paid-in capital 800,000 Treasury stock, at cost 50,000 Net unrealized loss on available-for-sale securities 20,000 Retained earnings: appropriated for
In Fay’s December 31, year 1 balance sheet, how much should be reported as a reduction of shareholders’ equity and as an endorsed note payable in respect of the ESOP?Reduction of shareholders’ equity Endorsed note payablea. $0 $0b. $0 $100,000c. $100,000 $0d. $100,000 $100,000 Stockholders’
In its year 1 income statement, how much should Fay report as compensation expense relating to the ESOP?a. $184,000b. $120,000c. $ 84,000d. $ 60,000
A company issued rights to its existing shareholders to purchase, for $30 per share, unissued shares of $15 par value common stock. Additional paid-in capital will be credited when the Rights are issued Rights lapsea. Yes Nob. No Noc. No Yesd. Yes Yes Q. Employee Stock Ownership Plan (ESOP)Items 82
On November 2, year 1, Finsbury, Inc. issued warrants to its stockholders giving them the right to purchase additional $20 par value common shares at a price of $30. The stockholders exercised all warrants on March 1, year 2. The shares had market prices of $33, $35, and $40 on November 2, year 1;
In September year 1, West Corp. made a dividend distribution of one right for each of its 120,000 shares of outstanding common stock. Each right was exercisable for the purchase of 1/100 of a share of West’s $50 variable rate preferred stock at an exercise price of $80 per share. On March 20,
On July 1, year 1, Vail Corp. issued rights to stockholders to subscribe to additional shares of its common stock. One right was issued for each share owned. A stockholder could purchase one additional share for 10 rights plus $15 cash. The rights expired on September 30, year 1. On July 1, year 1,
The stockholders’ equity section of Brown Co.’s December 31, year 1 balance sheet consisted of the following:Common stock, $30 par, 10,000 shares authorized and outstanding $300,000 Additional paid-in capital 150,000 Retained earnings (deficit) (210,000) On January 2, year 2, Brown put into
When a company goes through a quasi reorganization, its balance sheet carrying amounts are stated ata. Original cost.b. Original book value.c. Replacement value.d. Fair value.
The primary purpose of a quasi reorganization is to give a corporation the opportunity toa. Obtain relief from its creditors.b. Revalue understated assets to their fair values.c. Eliminate a deficit in retained earnings.d. Distribute the stock of a newly created subsidiary to its stockholders in
On December 30, year 1, Hale Corp. paid $400,000 cash and issued 80,000 shares of its $1 par value common stock to its unsecured creditors on a pro rata basis pursuant to a reorganization plan under Chapter 11 of the bankruptcy statutes. Hale owed these unsecured creditors a total of $1,200,000.
Kamy Corp. is in liquidation under of the Federal Bankruptcy Code. The bankruptcy trustee has established a new set of books for the bankruptcy estate. After assuming custody of the estate, the trustee discovered an unrecorded invoice of $1,000 for machinery repairs performed before the bankruptcy
Seco Corp. was forced into bankruptcy and is in the process of liquidating assets and paying claims. Unsecured claims will be paid at the rate of 40 cents on the dollar. Hale holds a $30,000 noninterest-bearing note receivable from Seco collateralized by an asset with a book value of $35,000 and a
Kent Co. filed a voluntary bankruptcy petition on August 15, year 1, and the statement of affairs reflects the following amounts:Book value Estimated current value Assets Assets pledged with fully secured creditors $ 300,000 $370,000 Assets pledged with partially secured creditors 180,000 120,000
For contingent issue agreements requiring passage of time or earnings threshold that is met, before issuing stock, these should be Included in basic earnings per share Included in computing diluted earnings per sharea. No Nob. No Yesc. Yes Nod. Yes Yes M. Corporate Bankruptcy
In determining earnings per share, interest expense, net of applicable income taxes, on convertible debt that is dilutive should bea. Added back to weighted-average common shares outstanding for diluted earnings per share.b. Added back to net income for diluted earnings per share.c. Deducted from
The if-converted method of computing earnings per share data assumes conversion of convertible securities as of thea. Beginning of the earliest period reported (or at time of issuance, if later).b. Beginning of the earliest period reported (regardless of time of issuance).c. Middle of the earliest
In determining diluted earnings per share, dividends on nonconvertible cumulative preferred stock should bea. Disregarded.b. Added back to net income whether declared or not.c. Deducted from net income only if declared.d. Deducted from net income whether declared or not.
West Co. had earnings per share of $15.00 for year 1 before considering the effects of any convertible securities. No conversion or exercise of convertible securities occurred during year 1. However, possible conversion of convertible bonds, not considered common stock equivalents, would have
On June 30, year 1, Lomond, Inc. issued twenty $10,000, 7% bonds at par. Each bond was convertible into 200 shares of common stock. On January 1, year 2, 10,000 shares of common stock were outstanding. The bondholders converted all the bonds on July 1, year 2. The following amounts were reported in
Cox Corporation had 1,200,000 shares of common stock outstanding on January 1 and December 31, year 2. In connection with the acquisition of a subsidiary company in June year 1, Cox is required to issue 50,000 additional shares of its common stock on July 1, year 3, to the former owners of the
Peters Corp.’s capital structure was as follows:December 31 Year 1 Year 2 Outstanding shares of stock: Common 110,000 110,000 Convertible preferred 10,000 10,000 During year 2, Peters paid dividends of $3.00 per share on its preferred stock. The preferred shares are convertible into 20,000 shares
Mann, Inc. had 300,000 shares of common stock issued and outstanding at December 31, year 1. On July 1, year 2, an additional 50,000 shares of common stock were issued for cash. Mann also had unexercised stock options to purchase 40,000 shares of common stock at $15 per share outstanding at the
On January 31, year 2, Pack, Inc. split its common stock 2 for 1, and Young, Inc. issued a 5% stock dividend. Both companies issued their December 31, year 1 financial statements on March 1, year 2. Should Pack’s year 1, basic earnings per share (BEPS) take into consideration the stock split, and
Earnings per share data must be reported on the income statement for Cumulative effect of a change in accounting principle Extraordinary itemsa. Yes Nob. No Noc. No Yesd. Yes Yes
Strauch Co. has one class of common stock outstanding and no other securities that are potentially convertible into common stock. During year 1, 100,000 shares of common stock were outstanding. In year 2, two distributions of additional common shares occurred: On April 1, 20,000 shares of treasury
Timp, Inc. had the following common stock balances and transactions during year 1 1/1/Y1 Common stock outstanding 30,000 2/1/Y1 Issued a 10% common stock dividend 3,000 7/1/Y1 Issued common stock for cash 8,000 12/31/Y1 Common stock outstanding 41,000 What were Timp’s year 1 weighted-average
The following information pertains to Jet Corp.’s outstanding stock for year 1:Common stock, $5 par value Shares outstanding, 1/1/Y1 20,000 2-for-1 stock split, 4/1/Y1 20,000 Shares issued, 7/1/Y1 10,000 Preferred stock, $10 par value, 5% cumulative Shares outstanding, 1/1/Y1 4,000 What are the
Ute Co. had the following capital structure during year 1 and year 2:Preferred stock, $10 par, 4% cumulative, 25,000 shares issued and outstanding $ 250,000 Common stock, $5 par, 200,000 shares issued and outstanding 1,000,000 Ute reported net income of $500,000 for the year ended December 31, year
At December 31, year 2 and year 1, Gow Corp. had 100,000 shares of common stock and 10,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in year 2 or year 1. Net income for year 2 was $1,000,000. For year 2,
On July 1, year 1, Jordan Corp. granted employees share-based payments in the form of compensatory stock options. How should Jordan account for the outstanding options in calculating earnings per share for year 1 if the options are not antidilutive?a. Include the options in the denominator of basic
Galaxy has a tax benefit and cash retained of $20,000 as a result of share-based payments to employees. How is this tax benefit disclosed in the financial statements?a. As a component of other comprehensive income.b. As a prior period adjustment.c. As a current liability on the balance sheet.d. As
Shafer Corporation (a nonpublic company) established an employee stock option plan on January 1, year 1. The plan allows its employees to acquire 20,000 shares of its $5 par value common stock at $70 per share, when the market price is $75. The options may not be exercised until five years from the
What is the measurement date for a share-based payment to employees that is classified as a liability?a. The service inception date.b. The grant date.c. The settlement date.d. The end of the reporting period.
Compensation cost for a share-based payment to employees that is classified as a liability is measured asa. The change in fair value of the instrument for each reporting period.b. The total fair value at grant date.c. The present value of cash payments due over the life of the grant.d. The actual
In what circumstances is compensation expense immediately recognized?a. In all circumstances.b. In circumstances when the options are exercisable within two years for services rendered over the next two years.c. In circumstances when options are granted for prior service, and the options are
In accounting for stock-based compensation, what interest rate is used to discount both the exercise price of the option and the future dividend stream?a. The firm’s known incremental borrowing rate.b. The current market rate that firms in that particular industry use to discount cash flows.c.
Wall Corp.’s employee stock purchase plan specifies the following:For every $1 withheld from employees’ wages for the purchase of Wall’s common stock, Wall contributes $2.The stock is purchased from Wall’s treasury stock at market price on the date of purchase.The following information
On January 2, year 1, Morey Corp. granted Dean, its president, 20,000 stock appreciation rights for past services. Those rights are exercisable immediately and expire on January 1, year 4. On exercise, Dean is entitled to receive cash for the excess of the stock’s market price on the exercise
By what net amount should stockholders’ equity increase as a result of the grant and exercise of the options?a. $20,000b. $30,000c. $50,000d. $70,000
What is compensation expense for year 1 for the share-based payments?a. $ 9,333b. $10,000c. $20,000d. $28,000
In connection with a stock option plan for the benefit of key employees, Ward Corp. intends to distribute treasury shares when the options are exercised. These shares were bought in year 1 at $42 per share. On January 1, year 2, Ward granted stock options for 10,000 shares at $38 per share as
On January 1, year 1, Doro Corp. granted an employee an option to purchase 3,000 shares of Doro’s $5 par value common stock at $20 per share. The option became exercisable on December 31, year 2, after the employee completed two years of service. The option was exercised on January 10, year 3.
A retained earnings appropriation can be used toa. Absorb a fire loss when a company is self-insured.b. Provide for a contingent loss that is probable and reasonably estimable.c. Smooth periodic income.d. Restrict earnings available for dividends.I. Share-Based Payments
The following information pertains to Meg Corp.:Dividends on its 1,000 shares of 6%, $10 par value cumulative preferred stock have not been declared or paid for three years.Treasury stock that cost $15,000 was reissued for $8,000.What amount of retained earnings should be appropriated as a result
At December 31, year 1, Eagle Corp. reported $1,750,000 of appropriated retained earnings for the construction of a new office building, which was completed in year 2 at a total cost of $1,500,000. In year 2, Eagle appropriated $1,200,000 of retained earnings for the construction of a new plant.
How would a stock split in which the par value per share decreases in proportion to the number of additional shares issued affect each of the following?Additional paid-in capital Retained earningsa. Increase No effectb. No effect No effectc. No effect Decreased. Increase Decrease H. Appropriations
On July 1, year 1, Bart Corporation has 200,000 shares of $10 par common stock outstanding and the market price of the stock is $12 per share. On the same date, Bart declared a 1-for-2 reverse stock split. The par of the stock was increased from $10 to $20 and one new $20 par share was issued for
How would total stockholders’ equity be affected by the declaration of each of the following?Stock dividend Stock splita. No effect Increaseb. Decrease Decreasec. Decrease No effectd. No effect No effect
Ray Corp. declared a 5% stock dividend on its 10,000 issued and outstanding shares of $2 par value common stock, which had a fair value of $5 per share before the stock dividend was declared. This stock dividend was distributed sixty days after the declaration date. By what amount did Ray’s
The following stock dividends were declared and distributed by Sol Corp.:Percentage of common share outstanding at declaration date Fair value Par value 10 $15,000 $10,000 28 40,000 30,800 What aggregate amount should be debited to retained earnings for these stock dividends?a. $40,800b. $45,800c.
Instead of the usual cash dividend, Evie Corp. declared and distributed a property dividend from its overstocked merchandise. The excess of the merchandise’s carrying amount over its market value should bea. Ignored.b. Reported as a separately disclosed reduction of retained earnings.c. Reported
Ole Corp. declared and paid a liquidating dividend of $100,000. This distribution resulted in a decrease in Ole’s Paid-in capital Retained earningsa. No Nob. Yes Yesc. No Yesd. Yes No
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