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Wiley CPA Exam Review Problems And Solutions Vol 2 2011-2012 38th Edition O. Ray Whittington, Patrick R. Delaney - Solutions
Utter Corporation uses IFRS for financial reporting purposes and has several pension plans covering various classes of employees. When may the company net assets and liabilities of the various plans?a. Assets and liabilities may always be netted.b. Assets and liabilities may be netted when there is
Which of the following methods is used in IFRS to account for defined benefit pension plans?a. Projected-unit-credit method.b. Benefit-years-of-service method.c. Accumulated benefits method.d. Vested years of service method.
Which of the following information should be disclosed by a company providing health care benefits to its retirees?I. The assumed health care cost trend rate used to measure the expected cost of benefits covered by the plan.II. The accumulated postretirement benefit obligation.a. Both I and II.b. I
Which of the following are correct regarding a transition obligation resulting from the adoption of a defined benefit postretirement plan?I. A transition obligation may be recognized immediately.II. The transition obligation represents the difference between the accumulated postretirement benefit
An employer’s obligation for postretirement health benefits that are expected to be provided to or for an employee must be fully accrued by the date thea. Employee is fully eligible for benefits.b. Employee retires.c. Benefits are utilized.d. Benefits are paid.
Bounty Co. provides postretirement health care benefits to employees who have completed at least ten years service and are aged fifty-five years or older when retiring. Employees retiring from Bounty have a median age of sixtytwo, and no one has worked beyond age sixty-five. Fletcher is hired at
Kemp Company provides a defined benefit postretirement plan for its employees. Kemp adopted the plan on January 1, 2009. Data relating to the pension plan for 2010 are as follows:Service cost for 2010 28,000 Interest on the accumulated postretirement benefit obligation 5,000 Amortization of the
The following information pertains to Foster Co.’s defined benefit postretirement plan for the year 2010.Service cost $120,000 Benefit payment 55,000 Interest on the accumulated postretirement benefit obligation 20,000 Unrecognized transition obligation (to be amortized over twenty years) 200,000
A company with a defined benefit pension plan must disclose in the notes to its financial statements all of the following excepta. The funded status of its pension plan with the amounts recognized in the balance sheet showing separately the noncurrent assets, current liabilities, and noncurrent
The effects of a one-percentage-point increase or decrease in the trend rates for health care costs must be disclosed for which of the following relating to defined benefit postretirement plans?I. The aggregate of the service and interest cost components.II. The accumulated postretirement benefit
Jan Corp. amended its defined benefit pension plan, granting a total credit of $100,000 to four employees for services rendered prior to the plan’s adoption. The employees, A, B, C, and D, are expected to retire from the company as follows:A will retire after three years.B and C will retire after
Which of the following rates must be disclosed for defined benefit pension plans?I. Assumed discount rate.II. Expected long-term rate of return on all of the employer’s assets.III. Rate of compensation increase.a. I and III.b. II and III.c. I, II, and III.d. III only.
Which of the following is not a required disclosure for defined benefit pension plans?a. An explanation of a significant change in plan assets if not apparent from other disclosures.b. The amount of any unamortized prior service cost or credit not recognized in the statement of financial position
Which of the following defined benefit pension plan disclosures should be made in a company’s financial statements?I. The amount of net periodic pension cost for the period.II. The fair value of plan assets.a. Both I and II.b. I only.c. II only.d. Neither I nor II.
Which of the following items would appear in the reconciliation schedule related to defined benefit pension plans?Benefit payments Actual return on plan assetsa. No Yesb. No Noc. Yes Nod. Yes Yes
A company with a defined benefit pension plan must disclose in the notes to its financial statementsa. A reconciliation of the vested and nonvested benefit obligation of its pension plan with the accumulated benefit obligation.b. A reconciliation of the accrued or prepaid pension cost reported in
The Codification requires a reconciliation of the beginning and ending balances of the benefit obligation for both defined benefit pension plans and defined postretirement plans. Which of the following items would appear in the schedule related to defined benefit pension plans?Service cost Benefits
On September 1, 2010, Howe Corp. offered special termination benefits to employees who had reached the early retirement age specified in the company’s pension plan. The termination benefits consisted of lump-sum and periodic future payments. Additionally, the employees accepting the company offer
Tulip Corporation, a publicly traded company, implemented a defined benefit pension plan for its employees on January 2, 2008. The following data are provided for 2010 and as of December 31, 2010:Projected benefit obligation $700,000 Accumulated benefit obligation 550,000 Plan assets at fair value
Rose Corporation, a publicly traded company, implemented a defined benefit pension plan for its employees on January 2, 2009. The following data are provided for 2010 and as of December 31, 2010:Projected benefit obligation $400,000 Accumulated benefit obligation 360,000 Plan assets at fair value
Dawson Corporation, a publicly traded company, implemented a defined benefit pension plan for its employees on January 2, 2008. The following data are provided for 2010 and as of December 31, 2010:Projected benefit obligation $350,000 Accumulated benefit obligation 320,000 Plan assets at fair value
Claire, a publicly traded company, has the following defined benefit pension plans with the following information as of December 31, 2010:Plan A Plan B Plan C Projected benefit obligation 100,000 150,000 180,000 Accumulated benefit obligation 80,000 140,000 150,000 Fair value of plan assets 110,000
An employer sponsoring a defined benefit pension plan must report a liability on the balance sheet equal toa. The current year pension cost that was not funded.b. The difference between the fair value of plan assets less the accumulated benefit obligation.c. The difference between the accumulated
In its December 31, 2010 statement of stockholders’equity, what amount should Hall report as accumulated other comprehensive income for pension liabilities before tax effects?a. $ 5,000b. $13,000c. $17,000d. $25,000
At December 31, 2010, what amount should Hall record as pension liability on the balance sheet?a. $ 5,000b. $13,000c. $17,000d. $25,000
Payne, Inc., a nonpublicly traded company, implemented a defined benefit pension plan for its employees on January 2, 2010. The following data are provided for 2010, as of December 31, 2010:Projected benefit obligation $103,000 Plan assets at fair value 78,000 Net periodic pension cost 90,000
Nome Co. sponsors a defined benefit plan covering all employees. Benefits are based on years of service and compensation levels at the time of retirement. Nome determined that, as of September 30, 2010, its accumulated benefit obligation was $380,000, and its plan assets had a $290,000 fair value.
At December 31, 2010, the following information was provided by the Kerr Corp. pension plan administrator:Fair value of plan assets $3,450,000 Accumulated benefit obligation 4,300,000 Projected benefit obligation 5,700,000 Assume Kerr is a publicly traded company. What is the amount of the pension
For a defined benefit pension plan, the discount rate used to calculate the projected benefit obligation is determined by the Expected return on plan assets Actual return on plan assetsa. Yes Yesb. No Noc. Yes Nod. No Yes
Which of the following terms includes assumptions concerning projected changes in future compensation when the pension benefit formula is based on future compensation levels (e.g., pay-related and final pay plans)?Service cost component Projected benefit obligation Accumulated benefit obligationa.
The following information pertains to Seda Co.’s pension plan:Actuarial estimate of projected benefit obligation at 1/1/10 $72,000 Assumed discount rate 10%Service costs for 2010 18,000 Pension benefits paid during 2010 15,000 If no change in actuarial estimates occurred during 2010, Seda’s
A company that maintains a defined benefit pension plan for its employees reports an unfunded accrued pension cost. This cost represents the amount that thea. Cumulative net pension cost accrued exceeds contributions to the plan.b. Cumulative net pension cost accrued exceeds the vested benefit
Effective January 1, 2010, Flood Co. established a defined benefit pension plan with no retroactive benefits. The first of the required equal annual contributions was paid on December 31, 2010. A 10% discount rate was used to calculate service cost and a 10% rate of return was assumed for plan
On July 31, 2010, Tern Co. amended its single employee defined benefit pension plan by granting increased benefits for services provided prior to 2010. This prior service cost will be reflected in the financial statement(s) fora. Years before 2010 only.b. Year 2010 only.c. Year 2010, and years
Interest cost included in the net pension cost recognized by an employer sponsoring a defined benefit pension plan represents thea. Amortization of the discount on unrecognized prior service costs.b. Increase in the fair value of plan assets due to the passage of time.c. Increase in the projected
Which of the following components should be included in the calculation of net pension cost recognized for a period by an employer sponsoring a defined benefit pension plan?Actual return on plan assets, if any Amortization of unrecognized prior service cost, if anya. No Yesb. No Noc. Yes Nod. Yes
Visor Co. maintains a defined benefit pension plan for its employees. The service cost component of Visor’s net periodic pension cost is measured using thea. Unfunded accumulated benefit obligation.b. Unfunded vested benefit obligation.c. Projected benefit obligation.d. Expected return on plan
Webb Co., a publicly traded company, implemented a defined benefit pension plan for its employees on January 1, 2007. During 2007 and 2008, Webb’s contributions fully funded the plan. The following data are provided for 2010 and 2009:2010 Estimated 2009 Actual Projected benefit obligation,
On January 2, 2010, Loch Co. established a noncontributory defined benefit plan covering all employees and contributed $1,000,000 to the plan. At December 31, 2010, Loch determined that the 2010 service and interest costs on the plan were $620,000. The expected and the actual rate of return on plan
Bulls Corporation amends its pension plan on 1/1/10.The following information is available:1/1/10 amendment 1/1/10 after amendment Accumulated benefit obligation $ 950,000 $1,425,000 Projected benefit obligation 1,300,000 1,900,000 The total amount of unrecognized prior service cost to be amortized
Which of the following disclosures is not required of companies with a defined benefit pension plan?a. A description of the plan.b. The amount of pension expense by component.c. The weighted-average discount rate.d. The estimates of future contributions for the next five years.
Jordon Corporation obtains the following information from its actuary. All amounts given are as of 1/1/10 (beginning of the year).1/1/10 Projected benefit obligation $1,530,000 Market-related asset value 1,650,000 Unrecognized net loss 235,000 Average remaining service period 5.5 years What amount
The following information pertains to Lee Corp.’s defined benefit pension plan for 2010:Service cost $160,000 Actual and expected gain on plan assets 35,000 Unexpected loss on plan assets related to a 2009 disposal of a subsidiary 40,000 Amortization of unrecognized prior service cost 5,000
Casey Corp. entered into a troubled debt restructuring agreement with First State Bank. First State agreed to accept land with a carrying amount of $85,000 and a fair value of $120,000 in exchange for a note with a carrying amount of $185,000. What amount should Casey report as a gain from
On December 31, 2009, Marsh Company entered into a debt restructuring agreement with Saxe Company, which was experiencing financial difficulties. Marsh restructured a$100,000 note receivable as follows:• Reduced the principal obligation to $70,000.• Forgave $12,000 of accrued interest.•
Grey Company holds an overdue note receivable of$800,000 plus recorded accrued interest of $64,000. The effective interest rate is 8%. As the result of a courtimposed settlement on December 31, 2011, Grey agreed to the following restructuring arrangement:• Reduced the principal obligation to
Colt, Inc. is indebted to Kent under an $800,000, 10%, four-year note dated December 31, 2008. Annual interest of$80,000 was paid on December 31, 2009 and 2010. During 2011, Colt experienced financial difficulties and is likely to default unless concessions are made. On December 31, 2011, Kent
On October 15, 2011, Kam Corp. informed Finn Co.that Kam would be unable to repay its $100,000 note due on October 31 to Finn. Finn agreed to accept title to Kam’s computer equipment in full settlement of the note. The equipment’s carrying value was $80,000 and its fair value was $75,000.
What amount should Knob report as a gain (loss) on transfer of real estate?a. $(10,000)b. $0c. $50,000d. $60,000
What amount should Knob report as a gain (loss) on restructuring of payables?a. $(10,000)b. $0c. $50,000d. $60,000
For a troubled debt restructuring involving only a modification of terms, which of the following items specified by the new terms would be compared to the carrying amount of the debt to determine if the debtor should report a gain on restructuring?a. The total future cash payments.b. The present
On February 1, 2010, Blake Corporation issued bonds with a fair value of $1,000,000. Blake prepares its financial statements in accordance with IFRS. What methods may Blake use to report the bonds on its December 31, 2010 statement of financial position?I. Amortized cost.II. Fair value method.III.
They were originally issued on January 1, 1999, at 98 with a maturity date of January 1, 2014. The bond issue costs relating to this transaction were $20,000. Hart did not elect the fair value option for reporting its financial liabilities. Hart amortizes discounts, premiums, and bond issue costs
On January 1, 2011, Hart, Inc. redeemed its fifteen-year bonds of $500,000 par value for
Fox did not elect the fair value option for reporting its financial liabilities. On July 1, 2010, Fox called all of the bonds and retired them. Bond premium was amortized on a straight-line basis. Before income taxes, Fox’s gain or loss in 2010 on this early extinguishment of debt wasa. $30,000
On January 1, 2005, Fox Corp. issued 1,000 of its 10%,$1,000 bonds for $1,040,000. These bonds were to mature on January 1, 2015 but were callable at 101 any time after December 31, 2008. Interest was payable semiannually on July 1 and January
King did not elect the fair value option for reporting its financial liabilities. On June 30, 2010, after amortization was recorded for the period, the unamortized bond premium and bond issue costs were $30,000 and$50,000, respectively. On that date, King acquired all its outstanding bonds on the
On June 30, 2010, King Co. had outstanding 9%,$5,000,000 face value bonds maturing on June 30, 2015.Interest was payable semiannually every June 30 and December
When bonds are issued with stock purchase warrants, a portion of the proceeds should be allocated to paid-in capital for bonds issued with Detachable stock purchase warrants Nondetachable stock purchase warrantsa. No Yesb. No Noc. Yes Nod. Yes Yes
Main Co. issued bonds with detachable common stock warrants. Only the warrants had a known market value.The sum of the fair value of the warrants and the face amount of the bonds exceeds the cash proceeds. This excess is reported asa. Discount on bonds payable.b. Premium on bonds payable.c. Common
On March 1, 2010, Evan Corp. issued $500,000 of 10%nonconvertible bonds at 103, due on February 28, 2020.Each $1,000 bond was issued with thirty detachable stock warrants, each of which entitled the holder to purchase, for$50, one share of Evan’s $25 par common stock. On March 1, 2010, the market
Each $1,000 bond was issued with fifty detachable stock warrants, each of which entitled the bondholder to purchase one share of $5 par common stock for$25. Immediately after issuance, the market value of each warrant was $4. On December 31, 2010, what amount should Moss record as discount or
On December 31, 2010, Moss Co. issued $1,000,000 of 11% bonds at
On December 30, 2010, Fort, Inc. issued 1,000 of its 8%, ten-year, $1,000 face value bonds with detachable stock warrants at par. Each bond carried a detachable warrant for one share of Fort’s common stock at a specified option price of $25 per share. Immediately after issuance, the market value
Depending on whether the book value method or the market value method was used, Chard would recognize gains or losses on conversion when using the Book value method Market value methoda. Either gain or loss Gainb. Either gain or loss Lossc. Neither gain nor loss Lossd. Neither gain nor loss Gain
On January 2, 2007, cash proceeds from the issuance of the convertible bonds should be reported asa. Contributed capital for the entire proceeds.b. Contributed capital for the portion of the proceeds attributable to the conversion feature and as a liability for the balance.c. A liability for the
On March 31, 2010, Ashley, Inc.’s bondholders exchanged their convertible bonds for common stock. The carrying amount of these bonds on Ashley’s books was less than the market value but greater than the par value of the common stock issued. If Ashley used the book value method of accounting for
On July 1, 2010, after recording interest and amortization, York Co. converted $1,000,000 of its 12% convertible bonds into 50,000 shares of $1 par value common stock. On the conversion date the carrying amount of the bonds was$1,300,000, the market value of the bonds was $1,400,000, and York’s
Jent Corp. purchased bonds at a discount of $10,000.Subsequently, Jent sold these bonds at a premium of$14,000. During the period that Jent held this investment, amortization of the discount amounted to $2,000. Jent did not elect the fair value option to report these bonds. What amount should Jent
On March 1, 2010, Clark Co. issued bonds at a discount.Clark incorrectly used the straight-line method instead of the effective interest method to amortize the discount.Clark does not elect the fair value option to report these securities. How were the following amounts, as of December 31, 2010,
The investor’s interest income for the year would be highest if the bond was purchased ata. Par.b. Face value.c. A discount.d. A premium.
Annual interest was received on December
An investor purchased a bond as a long-term investment on January
Assume the fair value option is not elected for these securities. The investor’s carrying value at the end of the first year would be highest if the bond was purchased at aa. Discount and amortized by the straight-line method.b. Discount and amortized by the effective interest method.c. Premium
An investor purchased a bond as a held-to-maturity investment on January
In 2009, Lee Co. acquired, at a premium, Enfield, Inc.ten-year bonds as a long-term investment. At December 31, 2010, Enfield’s bonds were quoted at a small discount.Which of the following situations is the most likely cause of the decline in the bonds’ market value?a. Enfield issued a stock
On July 1, 2010, York Co. purchased as a held-tomaturity investment $1,000,000 of Park, Inc.’s 8% bonds for$946,000, including accrued interest of $40,000. The bonds were purchased to yield 10% interest. The bonds mature on January 1, 2017, and pay interest annually on January 1.York uses the
Park used the straight-line method of amortization and appropriately classified the bonds as heldto-maturity. On Park’s December 31, 2010 balance sheet, the bonds should be reported ata. $215,000b. $214,400c. $214,200d. $212,000
On October 1, 2009, Park Co. purchased 200 of the$1,000 face value, 10% bonds of Ott, Inc., for $220,000, including accrued interest of $5,000. The bonds, which mature on January 1, 2016, pay interest semiannually on January 1 and July
East does not elect the fair value option for reporting these securities. In its December 31, 2010 balance sheet, East should report interest receivable ofa. $18,460b. $20,000c. $23,075d. $25,000
On July 1, 2010, East Co. purchased as a long-term investment $500,000 face amount, 8% bonds of Rand Corp.for $461,500 to yield 10% per year. The bonds pay interest semiannually on January 1 and July
On July 2, 2010, Wynn, Inc., purchased as a short-term investment a $1,000,000 face value Kean Co. 8% bond for$910,000 plus accrued interest to yield 10%. The bonds mature on January 1, 2017, pay interest annually on January 1, and are classified as trading securities. On December 31, 2010, the
An issuer of bonds uses a sinking fund for the retirement of the bonds. Cash was transferred to the sinking fund and subsequently used to purchase investments. The sinking fund I. Increases by revenue earned on the investments.II. Is not affected by revenue earned on the investments.III. Decreases
On March 1, 2008, a company established a sinking fund in connection with an issue of bonds due in 2019. At December 31, 2010, the independent trustee held cash in the sinking fund account representing the annual deposits to the fund and the interest earned on those deposits. How should the sinking
Witt Corp. has outstanding at December 31, 2010, two long-term borrowings with annual sinking fund requirements and maturities as follows:Sinking fund requirements Maturities 2011 $1,000,000 $ --2012 1,500,000 2,000,000 2013 1,500,000 2,000,000 2014 2,000,000 2,500,000 2015 2,000,000
The following information relates to noncurrent investments that Fall Corp. placed in trust as required by the underwriter of its bonds:Bond sinking fund balance, 12/31/10 $ 450,000 2010 additional investment 90,000 Dividends on investments 15,000 Interest revenue 30,000 Administration costs 5,000
On January 2, 2010, Nast Co. issued 8% bonds with a face amount of $1,000,000 that mature on January 2, 2016.The bonds were issued to yield 12%, resulting in a discount of $150,000. Nast incorrectly used the straight-line method instead of the effective interest method to amortize the discount.Nast
For the issuer of a ten-year term bond, the amount of amortization using the interest method would increase each year if the bond was sold at a Discount Premiuma. No Nob. Yes Yesc. No Yesd. Yes No
Webb Co. has outstanding a 7%, ten-year $100,000 face-value bond. The bond was originally sold to yield 6%annual interest. Webb uses the effective interest rate method to amortize bond premium, and does not elect the fair value option for reporting financial liabilities. On June 30, 2010, the
West uses the interest method of amortizing bond discount and does not elect the fair value option for reporting financial liabilities. In its June 30, 2010 balance sheet, what amount should West report as bonds payable?a. $469,500b. $470,475c. $471,025d. $500,000
On January 2, 2010, West Co. issued 9% bonds in the amount of $500,000, which mature on January 2, 2020. The bonds were issued for $469,500 to yield 10%. Interest is payable annually on December
On July 1, 2010, Day Co. received $103,288 for$100,000 face amount, 12% bonds, a price that yields 10%.Assuming management does not elect the fair value option, interest expense for the six months ended December 31, 2010, should bea. $6,197b. $6,000c. $5,164d. $5,000
On January 1, 2011, Southern Corporation received$107,720 for a $100,000 face amount, 12% bond, a price that yields 10%. The bonds pay interest semiannually.Southern elects the fair value option for valuing its financial liabilities. On December 31, 2011, the fair value of the bond is determined to
Which one of the following is a true statement for a firm electing the fair value option for valuing its bonds payable?a. The effective interest method of amortization must be used to calculate interest expense.b. Discount or premium is disclosed in the notes to the financial statements.c. The fair
Mason does not elect the fair value option for reporting financial liabilities. What amount should Mason report for interest payable in its December 31, 2010 balance sheet?a. $17,500b. $16,000c. $11,667d. $10,667
On November 1, 2010, Mason Corp. issued $800,000 of its ten-year, 8% term bonds dated October 1, 2010. The bonds were sold to yield 10%, with total proceeds of$700,000 plus accrued interest. Interest is paid every April 1 and October
Dixon Co. incurred costs of $3,300 when it issued, on August 31, 2010, five-year debenture bonds dated April 1, 2010. What amount of bond issue expense should Dixon report in its income statement for the year ended December 31, 2010?a. $ 220b. $ 240c. $ 495d. $3,300
During 2010, Lake Co. issued 3,000 of its 9%, $1,000 face value bonds at 101 1/2. In connection with the sale of these bonds, Lake paid the following expenses:Promotion costs $ 20,000 Engraving and printing 25,000 Underwriters’ commissions 200,000 What amount should Lake record as bond issue
On July 1, 2010, Eagle Corp. issued 600 of its 10%,$1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2010, and mature on April 1, 2020. Interest is payable semiannually on April 1 and October 1.What amount did Eagle receive from the bond issuance?a. $579,000b. $594,000c.
The market price of a bond issued at a discount is the present value of its principal amount at the market (effective)rate of interesta. Less the present value of all future interest payments at the market (effective) rate of interest.b. Less the present value of all future interest payments at the
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