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Wiley CPA Exam Review 2013 Financial Accounting And Reporting 10th Edition O. Ray Whittington - Solutions
A company declared a cash dividend on its common stock on December 15, year 1, payable on January 12, year 2. How would this dividend affect stockholders’ equity on the following dates?
Long Co. had 100,000 shares of common stock issued and outstanding at January 1, year 1. During year 1, Long took the following actions:March 15 — Declared a 2-for-1 stock split, when the fair value of the stock was $80 per share. December 15 — Declared a $.50 per share cash dividend. In
On December 1, year 1, Nilo Corp. declared a property dividend of marketable securities to be distributed on December 31, year 1, to stockholders of record on December 15, year 1. On December 1, year 1, the trading securities had a carrying amount of $60,000 and a fair value of $78,000. What is the
On June 27, year 1, Brite Co. distributed to its common stockholders 100,000 outstanding common shares of its investment in Quik, Inc., an unrelated party. The carrying amount on Brite’s books of Quik’s $1 par common stock was $2 per share. Immediately after the distribution, the market price
On January 2, year 2, Lake Mining Co.’s board of directors declared a cash dividend of $400,000 to stockholders of record on January 18, year 2, payable on February 10, year 2. The dividend is permissible under law in Lake’s state of incorporation. Selected data from Lake’s December 31, year
East Corp., a calendar-year company, had sufficient retained earnings in year 1 as a basis for dividends, but was temporarily short of cash. East declared a dividend of $100,000 on April 1, year 1, and issued promissory notes to its stockholders in lieu of cash. The notes, which were dated April 1,
At December 31, year 2 and year 3, Apex Co. had 3,000 shares of $100 par, 5% cumulative preferred stock outstanding. No dividends were in arrears as of December 31, year 1. Apex did not declare a dividend during year 2. During year 3, Apex paid a cash dividend of $10,000 on its preferred stock.
Arp Corp.’s outstanding capital stock at December 15, year 1, consisted of the following:30,000 shares of 5% cumulative preferred stock, par value $10 per share, fully participating as to dividends. No dividends were in arrears.200,000 shares of common stock, par value $1 per share.On December
Plack Co. purchased 10,000 shares (2% ownership) of Ty Corp. on February 14, year 1. Plack received a stock dividend of 2,000 shares on April 30, year 1, when the market value per share was $35. Ty paid a cash dividend of $2 per share on December 15, year 1. In its year 1 income statement, what
In year 1, Fogg, Inc. issued $10 par value common stock for $25 per share. No other common stock transactions occurred until March 31, year 3, when Fogg acquired some of the issued shares for $20 per share and retired them. Which of the following statements correctly states an effect of this
On December 31, year 1, Pack Corp.’s board of directors canceled 50,000 shares of $2.50 par value common stock held in treasury at an average cost of $13 per share. Before recording the cancellation of the treasury stock, Pack had the following balances in its stockholders’ equity
The following accounts were among those reported on Luna Corp.’s balance sheet at December 31, year 1:Available-for-sale securities (market value $140,000) $ 80,000 Preferred stock, $20 par value, 20,000 shares issued and outstanding 400,000 Additional paid-in capital on preferred stock 30,000
In year 1, Rona Corp. issued 5,000 shares of $10 par value common stock for $100 per share. In year 3, Rona reacquired 2,000 of its shares at $150 per share from the estate of one of its deceased officers and immediately canceled these 2,000 shares. Rona uses the cost method in accounting for its
Posy Corp. acquired treasury shares at an amount greater than their par value, but less than their original issue price. Compared to the cost method of accounting for treasury stock, does the par value method report a greater amount for additional paid-in capital and a greater amount for retained
On incorporation, Dee Inc. issued common stock at a price in excess of its par value. No other stock transactions occurred except treasury stock was acquired for an amount exceeding this issue price. If Dee uses the par value method of accounting for treasury stock appropriate for retired stock,
Victor Corporation was organized on January 2, year 1, with 100,000 authorized shares of $10 par value common stock. During year 1 Victor had the following capital transactions:January 5—issued 75,000 shares at $14 per share.December 27—purchased 5,000 shares at $11 per share.Victor used the
Cyan Corp. issued 20,000 shares of $5 par common stock at $10 per share. On December 31, year 1, Cyan’s retained earnings were $300,000. In March year 2, Cyan reacquired 5,000 shares of its common stock at $20 per share. In June year 2, Cyan sold 1,000 of these shares to its corporate officers
United, Inc.’s unadjusted current assets section and stockholders’ equity section of its December 31, year 1 balance sheet are as follows:Current assets Cash $ 60,000 Investments in trading securities (including $300,000 of United, Inc. common stock) 400,000 Trade accounts receivable 340,000
At December 31, year 1, Rama Corp. had 20,000 shares of $1 par value treasury stock that had been acquired in year 1 at $12 per share. In May year 2, Rama issued 15,000 of these treasury shares at $10 per share. The cost method is used to record treasury stock transactions. Rama is located in a
In year 1, Seda Corp. acquired 6,000 shares of its $1 par value common stock at $36 per share. During year 2, Seda issued 3,000 of these shares at $50 per share. Seda uses the cost method to account for its treasury stock transactions. What accounts and amounts should Seda credit in year 2 to
On December 1, year 1, shares of authorized common stock were issued on a subscription basis at a price in excess of par value. A total of 20% of the subscription price of each share was collected as a down payment on December 1, year 1, with the remaining 80% of the subscription price of each
When collectibility is reasonably assured, the excess of the subscription price over the stated value of the no par common stock subscribed should be recorded asa. No par common stock.b. Additional paid-in capital when the subscription is recorded.c. Additional paid-in capital when the subscription
Blue Co. issued preferred stock with detachable common stock warrants at a price that exceeded both the par value and the market value of the preferred stock. At the time the warrants are exercised, Blue’s total stockholders’ equity is increased by the Cash received upon exercise of the
Quoit, Inc. issued preferred stock with detachable common stock warrants. The issue price exceeded the sum of the warrants’ fair value and the preferred stock’s par value. The preferred stock’s fair value was not determinable. What amount should be assigned to the warrants outstanding?a.
During year 1, Brad Co. issued 5,000 shares of $100 par convertible preferred stock for $110 per share. One share of preferred stock can be converted into three shares of Brad’s $25 par common stock at the option of the preferred shareholder. On December 31, year 3, when the market value of the
On March 1, year 1, Rya Corp. issued 1,000 shares of its $20 par value common stock and 2,000 shares of its $20 par value convertible preferred stock for a total of $80,000. At this date, Rya’s common stock was selling for $36 per share, and the convertible preferred stock was selling for $27 per
On April 1, year 1, Hyde Corp., a newly formed company, had the following stock issued and outstanding:Common stock, no par, $1 stated value, 20,000 shares originally issued for $30 per share.Preferred stock, $10 par value, 6,000 shares originally issued for $50 per share.Hyde’s April 1, year 1
A corporation was organized in January year 1 with authorized capital of $10 par value common stock. On February 1, year 1, shares were issued at par for cash. On March 1, year 1, the corporation’s attorney accepted 5,000 shares of the common stock in settlement for legal services with a fair
Beck Corp. issued 200,000 shares of common stock when it began operations in year 1 and issued an additional 100,000 shares in year 2. Beck also issued preferred stock convertible to 100,000 shares of common stock. In year 3, Beck purchased 75,000 shares of its common stock and held it in Treasury.
On July 1, year 1, Cove Corp., a closely held corporation, issued 6% bonds with a maturity value of $60,000, together with 1,000 shares of its $5 par value common stock, for a combined cash amount of $110,000. The market value of Cove’s stock cannot be ascertained. If the bonds were issued
East Co. issued 1,000 shares of its $5 par common stock to Howe as compensation for 1,000 hours of legal services performed. Howe usually bills $160 per hour for legal services. On the date of issuance, the stock was trading on a public exchange at $140 per share. By what amount should the
Toller Corp. reports in accordance with IFRS. The controller of the company is attempting to prepare the presentation of deferred taxes on Toller’s financial statements. Which of the following is correct about the presentation of deferred tax assets and liabilities under IFRS?a. Current deferred
Which of the following is true regarding reporting deferred taxes in financial statements prepared in accordance with IFRS?a. Deferred tax assets and liabilities are classified as current and noncurrent based on their expiration dates.b. Deferred tax assets and liabilities may only be classified as
Klaus corporation prepares its financial statements in accordance with IFRS. Klaus locates its business in two jurisdictions, France and Germany. Assume that in each country Klaus has the legal right to offset the taxes receivable and payable. Klaus prepares its taxes based on taxing authority and
Which of the following statements is correct regarding the provision for income taxes in the financial statements of a sole proprietorship?a. The provision for income taxes should be based on business income using individual tax rates.b. The provision for income taxes should be based on business
No net deferred tax asset (i.e., deferred tax asset net of related valuation allowance) was recognized in the year 1 financial statements by the Chaise Company when a loss from discontinued operations was carried forward for tax purposes because it was more likely than not that none of this
The amount of income tax applicable to transactions that are not reported in the continuing operations section of the income statement is computeda. By multiplying the item by the effective income tax rate.b. As the difference between the tax computed based on taxable income without including the
On December 31, year 5, Oak Co. recognized a receivable for taxes paid in prior years and refundable through the carryback of all of its year 5 operating loss. Also, Oak had a year 5 deferred tax liability derived from the temporary difference between tax and financial statement depreciation, which
At the most recent year-end, a company had a deferred income tax liability arising from accelerated depreciation that exceeded a deferred income tax asset relating to rent received in advance which is expected to reverse in the next year. Which of the following should be reported in the company’s
Because Jab Co. uses different methods to depreciate equipment for financial statement and income tax purposes, Jab has temporary differences that will reverse during the next year and add to taxable income. Deferred income taxes that are based on these temporary differences should be classified in
Thorn Co. applies ASC Topic 740, Income Taxes. At the end of year 1, the tax effects of temporary differences were as follows:Deferred tax assets (liabilities) Related asset classification Accelerated tax depreciation $(75,000) Noncurrent asset Additional costs in inventory for tax purposes 25,000
In year 1, Rand, Inc. reported for financial statement purposes the following items, which were not included in taxable income:Installment gain to be collected equally in year 2 through year 4 $1,500,000 Estimated future warranty costs to be paid equally in year 2 through year 4 2,100,000 There
Mobe Co. reported the following operating income (loss) for its first three years of operations:Year 1 $ 300,000 Year 2 (700,000) Year 3 1,200,000 For each year, there were no deferred income taxes, and Mobe’s effective income tax rate was 30%. In its year 2 income tax return, Mobe elected to
Bishop Corporation began operations in year 1 and had operating losses of $200,000 in year 1 and $150,000 in year 2. For the year ended December 31, year 3, Bishop had pretax book income of $300,000. For the three-year period year 1 to year 3, assume an income tax rate of 40% and no permanent or
Town, a calendar-year corporation incorporated in January year 1, experienced a $600,000 net operating loss (NOL) in year 3 due to a prolonged strike. Town never had a strike in the past that significantly affected its income and does not expect such a strike in the future. Additionally, there is
Dix, Inc., a calendar-year corporation, reported the following operating income (loss) before income tax for its first three years of operations:Year 1 $100,000 Year 2 (200,000) Year 3 400,000 There are no permanent or temporary differences between operating income (loss) for financial and income
Leer Corp.’s pretax income in year 1 was $100,000. The temporary differences between amounts reported in the financial statements and the tax return are as follows:Depreciation in the financial statements was $8,000 more than tax depreciation.The equity method of accounting resulted in financial
Bart, Inc., a newly organized corporation, uses the equity method of accounting for its 30% investment in Rex Co.’s common stock. During year 1, Rex paid dividends of $300,000 and reported earnings of $900,000. In addition The dividends received from Rex are eligible for the 80% dividends
Under current generally accepted accounting principles, which approach is used to determine income tax expense?a. Asset and liability approach.b. A “with and without” approach.c. Net of tax approach.d. Periodic expense approach.D. Deferred Tax Related to Business Investments
On its December 31, year 2 balance sheet, Shin Co. had income taxes payable of $13,000 and a current deferred tax asset of $20,000 before determining the need for a valuation account. Shin had reported a current deferred tax asset of $15,000 at December 31, year 1. No estimated tax payments were
Rein Inc. reported deferred tax assets and deferred tax liabilities at the end of year 1 and at the end of year 2. For the year ended 12/31/Y2, Rein should report deferred income tax expense or benefit equal to thea. Decrease in the deferred tax assets.b. Increase in the deferred tax liabilities.c.
Quinn Co. reported a net deferred tax asset of $9,000 in its December 31, year 1 balance sheet. For year 2, Quinn reported pretax financial statement income of $300,000. Temporary differences of $100,000 resulted in taxable income of $200,000 for year 2. At December 31, year 2, Quinn had cumulative
Shear, Inc. began operations in year 1. Included in Shear’s year 1 financial statements were bad debt expenses of $1,400 and profit from an installment sale of $2,600. For tax purposes, the bad debts will be deducted and the profit from the installment sale will be recognized in year 2. The
Deferred income tax expense?a. $350b. $300c. $120d. $ 35
Current income tax expense?a. $420b. $350c. $300d. $0
For the year ended December 31, year 1, Grim Co.’s pretax financial statement income was $200,000 and its taxable income was $150,000. The difference is due to the following:Interest on municipal bonds $70,000 Premium expense on keyman life insurance (20,000) Total $50,000 Grim’s enacted income
A deferred tax liability is computed usinga. The current tax laws, regardless of expected or enacted future tax laws.b. Expected future tax laws, regardless of whether those expected laws have been enacted.c. Current tax laws, unless enacted future tax laws are different.d. Either current or
At the end of year one, Cody Co. reported a profit on a partially completed construction contract by applying the percentage-of-completion method. By the end of year two, the total estimated profit on the contract at completion in year three had been drastically reduced from the amount estimated at
Orleans Co., a cash-basis taxpayer, prepares accrual basis financial statements. In its year 2 balance sheet, Orleans’ deferred income tax liabilities increased compared to year 1. Which of the following changes would cause this increase in deferred income tax liabilities?I. An increase in
A temporary difference that would result in a deferred tax liability isa. Interest revenue on municipal bonds.b. Accrual of warranty expense.c. Excess of tax depreciation over financial accounting depreciation.d. Subscriptions received in advance.
Black Co., organized on January 2, year 1, had pretax accounting income of $500,000 and taxable income of $800,000 for the year ended December 31, year 1. The only temporary difference is accrued product warranty costs that are expected to be paid as follows:Year 2 $100,000 Year 3 50,000 Year 4
West Corp. leased a building and received the $36,000 annual rental payment on June 15, year 1. The beginning of the lease was July 1, year 1. Rental income is taxable when received. West’s tax rates are 30% for year 1 and 40% thereafter. West had no other permanent or temporary differences. West
In its December 31, year 1 balance sheet, what should Zeff report as deferred income tax liability?a. $2,000b. $4,000c. $6,000d. $8,000
In its year 1 income statement, what amount should Zeff report as income tax expense—current portion?a. $52,000b. $56,000c. $62,000d. $64,000
Mill, which began operations on January 1, year 1, recognizes income from long-term construction contracts under the percentage-of-completion method in its financial statements and under the completed-contract method for income tax reporting. Income under each method follows:Year Completed-contract
On June 30, year 1, Ank Corp. prepaid a $19,000 premium on an annual insurance policy. The premium payment was a tax deductible expense in Ank’s year 1 cash basis tax return. The accrual basis income statement will report a $9,500 insurance expense in year 1 and year 2.Ank’s income tax rate is
Tower Corp. began operations on January 1, year 1. For financial reporting, Tower recognizes revenues from all sales under the accrual method. However, in its income tax returns, Tower reports qualifying sales under the installment method. Tower’s gross profit on these installment sales under
For the year ended December 31, year 1, Tyre Co. reported pretax financial statement income of $750,000. Its taxable income was $650,000. The difference is due to accelerated depreciation for income tax purposes. Tyre’s effective income tax rate is 30%, and Tyre made estimated tax payments during
Pine Corp.’s books showed pretax income of $800,000 for the year ended December 31, year 1. In the computation of federal income taxes, the following data were considered:Gain on an involuntary conversion $350,000 (Pine has elected to replace the property within the statutory period using total
Dunn Co.’s year 1 income statement reported $90,000 income before provision for income taxes. To compute the provision for federal income taxes, the following year 1 data are provided:Rent received in advance $16,000 Income from exempt municipal bonds 20,000 Depreciation deducted for income tax
Which of the following differences would result in future taxable amounts?a. Expenses or losses that are deductible after they are recognized in financial income.b. Revenues or gains that are taxable before they are recognized in financial income.c. Expenses or losses that are deductible before
Temporary differences arise when revenues are taxable After they are recognized in financial income Before they are recognized in financial incomea. Yes Yesb. Yes Noc. No Nod. No Yes
Caleb Corporation has three financial statement elements for which the December 31, year 1 book value is different than the December 31, year 1 tax basis.As a result of these differences, future taxable amounts area. $ 50,000b. $ 80,000c. $155,000d. $205,000
Among the items reported on Cord, Inc.’s income statement for the year ended December 31, year 1, were the following:Payment of penalty $ 5,000 Insurance premium on life of an officer with Cord as owner and beneficiary 10,000 Temporary differences amount toa. $0b. $ 5,000c. $10,000d. $15,000
Justification for the method of determining periodic deferred tax expense is based on the concept ofa. Matching of periodic expense to periodic revenue.b. Objectivity in the calculation of periodic expense.c. Recognition of assets and liabilities.d. Consistency of tax expense measurements with
Under IFRS what is the interest rate used by lessees to capitalize a finance lease when the implicit rate cannot be determined?a. The prime rate.b. The lessor’s published rate.c. The lessee’s average borrowing rate.d. The lessee’s incremental borrowing rate.
Which of the following is not true regarding lease accounting under IFRS?a. Lease payments under operating leases are recognized on a straight-line basis over the life of the lease.b. Leases are classified as either operating or finance leases by both the lessee and the lessor.c. For a finance
Santiago Corp. signs an agreement to lease land and a building for 20 years. At the end of the lease, the property will not transfer to Santiago. The life of the building is estimated to be 20 years. Santiago prepares its financial statements in accordance with IFRS. How should Santiago account for
Morgan Corp. signs a lease to rent equipment for ten years. The lease payments of $10,000 per year are due on January 2 each year. At the end of the lease term, Morgan may purchase the equipment for $50. The equipment is estimated to have a useful life of 12 years. Morgan prepares its financial
On January 1, year 1, Belkor entered into a 10-year capital lease for equipment. On December 1, year 4, Belkor terminates the capital lease and incurs a $20,000 loss. How should Belkor recognize the lease termination on their financial statements?a. Recognize a $20,000 loss in year 4 as a
In January year 1, Hopper Corp. signed a capital lease for equipment with a term of twenty years. In year 3, Hopper negotiated a modification to a capital lease that resulted in the lease being reclassified as an operating lease. Hopper calculated the company had a gain of $8,000 on the lease
On January 1, year 1, Goliath entered into a five-year operating lease for equipment. In January year 3, Goliath decided that it no longer needs the equipment and terminates the contract by paying a penalty of $3,000. How should Goliath account for the lease termination costs?a. Recognize $3,000
Able sold its headquarters building at a gain, and simultaneously leased back the building. The lease was reported as a capital lease. At the time of sale, the gain should be reported asa. Operating income.b. An extraordinary item, net of income tax.c. A separate component of stockholders’
In a sale-leaseback transaction, the seller-lessee has retained the property. The gain on the sale should be recognized at the time of the sale-leaseback when the lease is classified as a(n)Capital lease Operating leasea. Yes Yesb. No Noc. No Yesd. Yes No
On January 1, year 1, Hooks Oil Co. sold equipment with a carrying amount of $100,000, and a remaining useful life of ten years, to Maco Drilling for $150,000. Hooks immediately leased the equipment back under a ten-year capital lease with a present value of $150,000 and will depreciate the
On June 30, year 1, Lang Co. sold equipment with an estimated useful life of eleven years and immediately leased it back for ten years. The equipment’s carrying amount was $450,000; the sale price was $430,000; and the present value of the lease payments, which is equal to the fair value of the
On December 31, year 1, Parke Corp. sold Edlow Corp. an airplane with an estimated remaining useful life of ten years. At the same time, Parke leased back the airplane for three years. Additional information is as follows:Sales price $600,000 Carrying amount of airplane at date of sale $100,000
The following information pertains to a sale and leaseback of equipment by Mega Co. on December 31, year 1:Sales price $400,000 Carrying amount $300,000 Monthly lease payment $ 3,250 Present value of lease payments $ 36,900 Estimated remaining life 25 years Lease term 1 year Implicit rate 12% What
On December 31, year 1, Lane, Inc. sold equipment to Noll, and simultaneously leased it back for twelve years. Pertinent information at this date is as follows:Sales price $480,000 Carrying amount 360,000 Estimated remaining economic life 15 years At December 31, year 1, how much should Lane report
Cott, Inc. prepared an interest amortization table for a five-year lease payable with a bargain purchase option of $2,000, exercisable at the end of the lease. At the end of the five years, the balance in the leases payable column of the spreadsheet was zero. Cott has asked Grant, CPA, to review
On January 1, year 1, West Co. entered into a ten-year lease for a manufacturing plant. The annual minimum lease payments are $100,000. In the notes to the December 31, year 2 financial statements, what amounts of subsequent years’ lease payments should be disclosed?Amount for appropriate
On January 1, year 1, Harrow Co. as lessee signed a five-year noncancelable equipment lease with annual payments of $100,000 beginning December 31, year 1. Harrow treated this transaction as a capital lease. The five lease payments have a present value of $379,000 at January 1, year 1, based on
The lessee should amortize the capitalizable cost of the leased asset in a manner consistent with the lessee’s normal depreciation policy for owned assets for leases that Contain a bargain purchase option Transfer ownership of the property to the lessee by the end of the lease terma. No Nob. No
On January 2, year 1, Nori Mining Co. (lessee) entered into a five-year lease for drilling equipment. Nori accounted for the acquisition as a capital lease for $240,000, which includes a $10,000 bargain purchase option. At the end of the lease, Nori expects to exercise the bargain purchase option.
On January 2, year 1, Cole Co. signed an eight-year noncancelable lease for a new machine, requiring $15,000 annual payments at the beginning of each year. The machine has a useful life of twelve years, with no salvage value. Title passes to Cole at the lease expiration date. Cole uses
A lessee had a ten-year capital lease requiring equal annual payments. The reduction of the lease liability in year two should equala. The current liability shown for the lease at the end of year one.b. The current liability shown for the lease at the end of year two.c. The reduction of the lease
A six-year capital lease expiring on December 31 specifies equal minimum annual lease payments. Part of this payment represents interest and part represents a reduction in the net lease liability. The portion of the minimum lease payment in the fifth year applicable to the reduction of the net
A six-year capital lease entered into on December 31, year 1, specified equal minimum annual lease payments due on December 31 of each year. The first minimum annual lease payment, paid on December 31, year 1, consists of which of the following?Interest expense Lease liabilitya. Yes Yesb. Yes Noc.
At the inception of a capital lease, the guaranteed residual value should bea. Included as part of minimum lease payments at present value.b. Included as part of minimum lease payments at future value.c. Included as part of minimum lease payments only to the extent that guaranteed residual value is
For a capital lease, the amount recorded initially by the lessee as a liability should normallya. Exceed the total of the minimum lease payments.b. Exceed the present value of the minimum lease payments at the beginning of the lease.c. Equal the total of the minimum lease payments.d. Equal the
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