Midterm

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ACCT 312 Week 4 Midterm Exam Answers

1.

Question :

(TCO 1) Which event will result in a deferred tax liability?

	Student Answer:	Accelerated depreciation in the tax return
	Interest income on municipal bonds
	Subscriptions collected in advance
	Estimated warranty expense
	Instructor Explanation:	See Chapter 16.

	Points Received:	20 of 20
	Comments:

Question 2.

Question :

(TCO 1) Which of the following differences between financial accounting and tax accounting ordinarily creates a deferred tax asset?

	Student Answer:	Tax depreciation in excess of book depreciation
	The installment sales method for tax purposes
	Revenue collected in advance
	None of the above
	Instructor Explanation:	See Chapter 16.

	Points Received:	20 of 20
	Comments:

Question 3.

Question :

(TCO 2) Interest cost is calculated by multiplying the

	Student Answer:	ABO by the expected return on the plan assets.
	ABO by the discount rate.
	PBO by the expected return on plan assets.
	PBO by the discount rate.
	Instructor Explanation:	See Chapter 17.

	Points Received:	20 of 20
	Comments:

Question 4.

Question :

(TCO 3) Accounting for postretirement healthcare benefits is similar, in most respects, to accounting for

	Student Answer:	payroll taxes.
	health insurance costs for current employees.
	pension benefits.
	sick pay and vacation pay.
	Instructor Explanation:	See Chapter 17.

	Points Received:	20 of 20
	Comments:

Question 5.

Question :

(TCO 4) Retained earnings represents a companys

	Student Answer:	undistributed net assets.
	undistributed net income.
	extra paid-in capital.
	undistributed cash.
	Instructor Explanation:	See Chapter 18.

	Points Received:	20 of 20
	Comments:

Question 6.

Question :

(TCO 4) Any dividend that is considered to be a liquidating dividend will

	Student Answer:	reduce retained earnings.
	reduce paid-in capital.
	increase paid-in capital.
	reduce the common stock account.
	Instructor Explanation:	See Chapter 17.

	Points Received:	20 of 20
	Comments:

Question 7.

Question :

(TCO 5) Executive stock options should be reported as compensation expense

	Student Answer:	using the intrinsic value method.
	using the fair value method.
	using either the fair value method or the intrinsic value method.
	only on rare occasions.
	Instructor Explanation:	See Chapter 19.

	Points Received:	20 of 20
	Comments:

Question 8.

Question :

(TCO 5) Our company granted options for 2 million shares of its $1 par common stock at the beginning of the current year. The exercise price is $35 per share, which was also the market value of the stock on the grant date. The fair value of the options was estimated at $9 per option. If the options have a vesting period of 5 years, which would be the balance in Paid-in Capital Stock Options 3 years after the grant date?

	Student Answer:	A credit of $10.8 million
	A credit of $18 million
	A debit of $70 million
	A debit of $3.6 million
	Instructor Explanation:	2,000,000 $9 (3 5) = $10,800,000

	Points Received:	20 of 20
	Comments:

Question 9.

Question :

(TCO 6) Our company declared and paid cash dividends to its common shareholders in February of the current year. The dividend

	Student Answer:	will be added to the numerator of the earnings per share fraction for the current year.
	will be added to the denominator of the earnings per share fraction for the current year.
	will be subtracted from the numerator of the earnings per share fraction for the current year.
	has no effect on the earnings per share for the coming year.
	Instructor Explanation:	See Chapter 19.

	Points Received:	20 of 20
	Comments:

Question 10.

Question :

(TCO 6) Basic earnings per share is computed using

	Student Answer:	the actual number of common shares outstanding at the end of the year.
	a weighted average of preferred and common shares.
	the number of common shares outstanding plus common stock equivalents.
	weighted-average common shares outstanding for the year.
	Instructor Explanation:	See Chapter 19.

	Points Received:	20 of 20
	Comments: