Intermediate Accounting Exam Questions and Answers, Lecture notes of Accounting

Download Intermediate Accounting Exam Questions and Answers and more Lecture notes Accounting in PDF only on Docsity! Dr. M. D. Chase Intermediate Accounting 300B Exam 1A Page 1 of 9 Read each question carefully and indicate the best answer by marking the appropriate letter on your Scantron Form. Do not mark on the examination. 1. Which of the following is an accrued liability? a. Cash dividends payable. b. Wages payable. c. Rent revenue collected one month in advance. d. Portion of long-term debt payable in current year. 2. On September 1, 1992, Filbert Company borrowed cash and signed a one-year interest-bearing note on which both the principal and interest are payable on September 1, 1993. How will the note payable and the related interest be classified in the December 31, 1992, balance sheet? Note Payable Accrued Interest a. Current liability Noncurrent liability b. Noncurrent liability Current liability c. Current liability Current liability d. Noncurrent liability No entry 3. Gain contingencies are usually recognized in the income statement when a. Realized. b. Occurrence is reasonably possible and the amount can be reasonably estimated. c. Occurrence is probable and the amount can be reasonably estimated. d. The amount can be reasonably estimated. 4. Contingencies for general or unspecified business risks should a. Be accrued in the financial statements and disclosed in the notes thereto. b. Not be accrued in the financial statements and need not be disclosed in the notes thereto. c. Not be accrued in the financial statements but should be disclosed in the notes thereto. d. Be accrued in the financial statements but need not be disclosed in the notes thereto. 5. A loss contingency for which the amount of loss can be reasonably estimated should be accrued when the occurrence of the loss is Reasonably Possible Remote a. Yes No b. Yes Yes c. No Yes d. No No 6. Tally Corporation mails coupons to consumers which may be presented by a stated expiration date at retail food stores to obtain discounts on certain Tally products. Retailers are reimbursed for the face value of coupons redeemed, plus 10% of coupon value as compensation for handling costs. Tally honors requests for coupon redemption by retailers received up to three months after the consumer expiration date. In Tally's experience, 60% of the total coupons issued are ultimately redeemed. Information with respect to the two separate series of coupons issued by Tally during 1992 is as follows: Dr. M. D. Chase Intermediate Accounting 300B Exam 1A Page 2 of 9 Series X Series Y Consumer expiration date June 30, December 31, 1992 1992 Total face value of coupons issued $180,000 $360,000 Total payments to retailers as of December 31, 1992 $108,900 $ 72,900 What amount should Tally report as a liability for unredeemed coupons at December 31, 1992? a. $0. b. $143,100. c. $164,700. d. $174,600. Dr. M. D. Chase Intermediate Accounting 300B Exam 1A Page 5 of 9 12. How should the value of nondetachable warrants attached to a debt security be accounted for? a. No value assigned. b. A separate portion of paid-in capital. c. An appropriation of retained earnings. d. A liability. 13. How should the cash proceeds from convertible bonds sold at issue date at par be recorded? a. As additional paid-in capital for the portion of the proceeds attributable to the conversion feature and as a liability for the portion of the proceeds attributable to the debt. b. As retained earnings for the portion of the proceeds attributable to the conversion feature and as a liability for the portion of the proceeds attributable to the debt. c. As a liability for the entire proceeds. d. As additional paid-in capital for the portion of the proceeds attributable to the conversion feature and as retained earnings for the portion of the proceeds attributable to the debt. 14. The generally accepted method of accounting for gains or losses from the early extinguishment of debt is based on the assumption that any gain or loss on the transaction reflects a. An adjustment to the cost basis of the asset obtained by the debt issue. b. An amount that should be considered a cash adjustment to the cost of any other debt obtained over the remaining life of the old debt instrument. c. An amount received or paid to obtain a new debt instrument and, as such, should be amortized over the life of the new debt. d. A change in the market rate of interest which should be recognized in the period of extinguishment. 15. For a troubled-debt restructuring involving only modification of terms, it is appropriate for a debtor to recognize a gain when the carrying amount of the debt a. Exceeds the aggregate future cash payments specified by the new terms. b. Is less than the total future cash payments specified by the new terms. c. Exceeds the present value of the cash flows specified by the new terms. d. Is less than the present value specified by the new terms. 16. Bond issue costs should be accounted for in which one of the following ways? a. Treated as a reduction in bond premium or addition to bond discount when the bonds are first sold. b. Treated as legal fees, accounting fees, printing costs, and so on, and expensed in the period incurred. c. Treated as, and classified with, the underlying asset acquired with the funds raised through the bond sale and amortized over the life of that asset. d. Treated as a deferred charge in the asset category of the same name and amortized over the life of the bond issue to which it relates. 17. On January 1, 1992, Wood Company lent $17,800 cash to Stook Company. The promissory note made by Stook for $20,000 did not bear explicit Dr. M. D. Chase Intermediate Accounting 300B Exam 1A Page 6 of 9 interest and was due on December 31, 1994. No other rights or privileges were exchanged. The prevailing interest for a loan of this type was 6%. The present value of $1 for two periods at 6% is 0.89. Stook should recognize interest expense in 1992 of a. $0. b. $1,068. c. $1,100. d. $1,200. 18. On March 1, 1992, Hoss Corporation issued 8% debentures dated January 1, 1992, in the face amount of $1,000,000 with interest payable on January 1 and July 1. The debentures were sold at par and accrued interest. How much should Hoss debit to cash on March 1, 1992? a. $973,333. b. $986,667. c. $1,013,333. d. $1,026,667. Dr. M. D. Chase Intermediate Accounting 300B Exam 1A Page 7 of 9 19. The December 31, 1992, general ledger of Ward Company contained an account "6% Bonds Payable." This account had a balance of $570,000 as of that date. Further examination revealed that the bonds had a face value of $600,000, with a yield of 8% and were issued at a discount. The amortization of the bond discount was recorded under the effective interest method. Interest was paid on January 1 and July 1 of each year. On July 1, 1993, several years before their maturity, Ward retired the bonds at 102, excluding accrued interest. What is the extraordinary loss that Ward should record on the early retirement of the bonds on July 1, 1993? a. $42,000. b. $46,800. c. $25,200. d. $37,200. 20. On March 1, 1992, Mandy, Inc. issued $500,000 of 8% nonconvertible bonds at 103 which are due on February 28, 2009. In addition, each $1,000 bond was issued with 30 detachable stock warrants, each of which entitled the bondholder to purchase, for $50, one share of Mandy's common stock, par value $25. On March 1, 1992, the fair market value of Mandy's common stock was $40 per share and the fair market value of each warrant was $5. What is the increase in stockholders' equity as a result of this transaction? a. $0. b. $15,000. c. $75,000. d. $750,000. 21. Fax, Inc., is indebted to Boss Finance Company under a $700,000, 10%, five-year note dated January 1, 1991. Interest, payable annually on December 31, was paid on the December 31, 1991 and 1992, due dates. However, during 1993 Fax experienced severe financial difficulties and is likely to default on the note and interest unless some concessions are made. On December 31, 1993, Fax and Boss signed an agreement restructuring the debt as follows: - Interest for 1993 was reduced to $37,500 payable March 31, 1994. - Interest payments each year were reduced to $50,000 per year for 1994 and 1995. - The principal amount was reduced to $500,000. What is the amount of gain that Fax should report on the debt restructure in its income statement for the year ended December 31, 1993? a. $0. b. $132,500. c. $200,000. d. $272,500. 22. Authorized common stock is sold on a subscription basis at a price in excess of par value. Paid-in capital in excess of par should be recorded when the subscribed stock is a. Contracted for. b. Paid for. c. Issued. d. Authorized. 23. When treasury stock which was purchased for more than the par value of the stock is subsequently sold for more than its purchase price, the Dr. M. D. Chase Intermediate Accounting 300B Exam 1A Page 10 of 9 $750,000 and paid cash dividends of $380,000. On January 5, 1993, Lander purchased 12,000 shares of its common stock at $12 per share. On December 31, 1993, 8,000 treasury shares were sold at $8 per share. Lander used the cost method of accounting for treasury shares. What is total stockholders' equity as of December 31, 1993? a. $4,790,000. b. $4,806,000. c. $4,838,000. d. $4,870,000. Dr. M. D. Chase Intermediate Accounting 300B Exam 1A Page 11 of 9 31. The following changes appeared in account balances of Skell Corporation during 1993: Increase Assets $320,400 Liabilities 102,200 Capital stock 216,000 Paid-in capital in excess of par 21,600 Assuming there were no charges to retained earnings other than for a dividend payment of $46,800, the net income for 1993 should be a. $25,200. b. $27,400. c. $46,800. d. $66,200. 32. Jordan Corporation was incorporated on January 1, 1993, with the following authorized capitalization: 150,000 shares of common stock, no par value, stated value $40 per share. 100,000 shares of 5% cumulative preferred stock, par value $10 per share. During 1993 Jordan issued 120,000 shares of common stock for a total of $6,000,000 and 30,000 shares of preferred stock at $16 per share. In addition, on December 20, 1993, subscriptions for 10,000 shares of preferred stock were taken at a purchase price of $18. These subscribed shares were paid for on January 2, 1994. What should Jordan report as total contributed capital on its December 31, 1993, balance sheet? a. $5,200,000. b. $6,480,000. c. $6,660,000. d. $7,000,000. 33. Pauls, Inc. (PI), has sold 60,000 shares of $5 par value stock for $11 per share. Tim Belt, a shareholder, donated 200 shares back to PI. The donation was accounted for by the par value method. Later, PI sold 150 shares for $3 per share. The balance in PI's donated capital account after the last transaction was a. $450. b. $700. c. $1,000. d. $2,200. 34. For a compensatory stock option plan for which the date of the grant and the measurement date are the same, what account is credited at the date of the grant? a. Retained Earnings. b. Stock Options Exercisable. c. Deferred Compensation Cost. d. Compensation Expense. 35. For a compensatory stock option plan for which the date of the grant and the measurement date are the same, compensation cost should be recognized in the income statement a. At the date of retirement. b. Of each period in which services are rendered. Dr. M. D. Chase Intermediate Accounting 300B Exam 1A Page 12 of 9 c. At the exercise date. d. At the adoption date of the plan. 36. The dollar amount of total stockholders' equity remains the same when there is a(an) a. Issuance of preferred stock in exchange for convertible debentures. b. Issuance of nonconvertible bonds with detachable stock purchase warrants. c. Declaration of a stock dividend. d. Declaration of a cash dividend. Dr. M. D. Chase Intermediate Accounting 300B Exam 1A Page 15 of 9 44. On January 1, 1992, Box Inc. granted Steve Dunn, the president, an option to purchase 400 shares of Box's $30 par value common stock at $40 per share. The option becomes exercisable on January 1, 1994, after Dunn has completed two years of service. Assume that the quoted market prices of Box's $30 par value common stock were $40 and $55 on January 1 and December 31, 1992 respectively. As a result of the option granted to Dunn, Box should recognize compensation expense in 1992 of a. $0. b. $2,000. c. $3,000. d. $6,000. 45. In 1992, Dale, Inc., issued for $105 per share 5,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Dale's $25 par value common stock at the option of the preferred shareholder. In August 1993, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $30 per share. What total amount should be credited to additional paid-in capital as a result of the issuance of the preferred stock and its subsequent conversion into common stock? a. $50,000. b. $75,000. c. $125,000. d. $150,000. 46. The Crest Company had the following classes of stock outstanding as of December 31, 1993: Common stock ($20 par value, 60,000 shares outstanding) Preferred stock (8%, $100 par value, cumulative and fully participating, 3,000 shares outstanding) Dividends on preferred stock have been in arrears for 1991 and 1992. On December 31, 1993, a total cash dividend of $270,000 was declared. What are the amounts of dividends payable on both the common and preferred stock, respectively? a. $147,000 and $123,000. b. $177,600 and $92,400. c. $216,000 and $54,000. d. $198,000 and $72,000. 47. Golden Corporation has incurred losses from operations for several years. At the recommendation of the newly hired president, the board of directors voted to implement a quasi reorganization, subject to stockholder approval. Immediately prior to the restatement, on June 30, 1992, Golden's balance sheet was as follows: Current assets $ 440,000 Property, plant and equipment (net) 1,080,000 Other assets 160,000 $1,680,000 Total liabilities $ 480,000 Common stock 1,280,000 Paid-in capital in excess of par 240,000 Dr. M. D. Chase Intermediate Accounting 300B Exam 1A Page 16 of 9 Retained earnings (deficit) (320,000) $1,680,000 The stockholders approved the quasi reorganization effective July 1, 1992, to be accomplished by a reduction in other assets of $150,000, a reduction in property, plant and equipment (net) of $350,000, and appropriate adjustment to the capital structure. To implement the quasi reorganization, Golden should reduce the common stock account in the amount of a. $0. b. $80,000. c. $500,000. d. $580,000. Dr. M. D. Chase Intermediate Accounting 300B Exam 1A Page 17 of 9 48. Simple Syndicate reported income of $650,000 for the year. Cumulative preferred dividends were $80,000 for the year. Common shares outstanding for the first three months of the year were 75,000. On April 1, 50,000 common shares were sold, and on November 1, an additional 60,000 common shares were sold. Earnings per common share for the year are a. $5.31. b. $4.65. c. $3.51. d. $3.08. 49. Elk Lodge declared two stock dividends. The first was a 10% dividend on March 1, the second was a 50% dividend on September 1. Related information appears below: Shares Date Outstanding Par Market Price 3/1 3,000 $5 $12 9/1 4,000 5 16 How much did retained earnings decrease as a result of these two stock dividends? a. $11,500. b. $13,600. c. $33,500. d. $35,600. 50. On January 1, 1991, Groove Record Company (GRC) offered its top management stock appreciation rights with the following terms: Option price (predetermined) $20 per share Number of shares 10,000 Holding period 2 years Expiration date Dec. 31, 1995 The stock appreciation is to be paid in cash upon exercise. The market value of GRC common was as follows: Jan. 1, 1991 $20 per share Dec. 31, 1991 24 per share Dec. 31, 1992 28 per share How much should GRC disclose on the December 31, 1992 balance sheet as the liability for stock appreciation rights? a. $80,000. b. $60,000. c. $40,000. d. $25,000. Dr. M. D. Chase Intermediate Accounting 300B Exam 1A Page 20 of 9 $750,000 CHAPTER:16 QUESTION: 31 30. a 300,000 shares sold @ $15 $4,500,000 $750,000 net income - $380,000 dividend 370,000 12,000 treasury shares acquired @ $12 (144,000) 8,000 treasury shares sold @ $8 64,000 $4,790,000 CHAPTER:16 QUESTION: 32 31. b Change in assets = Change in liabilities + Change in equity + $320,400 = + $102,200 + ($216,000 + $21,600 + Net income - $46,800) + $320,400 = $102,200 + $190,800 + Net income Net income = $27,400 CHAPTER:16 QUESTION: 33 32. c $6,000,000 + (30,000 x $16) + (10,000 x $18) = $6,660,000 CHAPTER:16 QUESTION: 36 33. b Donation (200 x $5) $1,000 Sale [($3 - $5) x 150] (300 ) $ 700 CHAPTER:16 QUESTION: 37 34. b CHAPTER:17 QUESTION: 19 35. b CHAPTER:17 QUESTION: 20 36. c CHAPTER:17 QUESTION: 21 37. a CHAPTER:17 QUESTION: 22 38. d CHAPTER:17 QUESTION: 23 39. b CHAPTER:17 QUESTION: 24 40. d CHAPTER:17 QUESTION: 25 41. d CHAPTER:17 QUESTION: 26 42. d Gain: ($14-$3) x (18,000/10) = $19,800 Net reduction in retained earnings: $14 x (18,000/10) - $19,800 gain = $5,400 CHAPTER:17 QUESTION: 27 43. c A stock split only requires a memorandum entry and does not affect the balances in accounts. CHAPTER:17 QUESTION: 28 Dr. M. D. Chase Intermediate Accounting 300B Exam 1A Page 21 of 9 44. a Market price - Option price at grant date ($40 - $40) = $0. Therefore, no compensation expense should be recorded. CHAPTER:17 QUESTION: 30 45. d (5,000 x $105) - (5,000 x 3 x $25) = $150,000 CHAPTER:17 QUESTION: 32 46. b Preferred 8% x $100 par = $8 x 3,000 shares = $24,000 $24,000 x 3 years = $72,000 Common 8% x $20 par = $1.60 x 60,000 shares = $96,000 Common stock $20 par x 60,000 shares = $1,200,000 = 80% Preferred stock $100 par x 3,000 shares = 300,000 = 20 % $1,500,000 100% Total dividends $270,000 Common Preferred (168,000 ) $ 96,000 $72,000 102,000 80%, 20% (102,000 ) 81,600 20,400 -0- $177,600 $92,400 CHAPTER:17 QUESTION: 33 47. d ($320,000 + $150,000 + $350,000) - $240,000 = $580,000 CHAPTER:17 QUESTION: 34 48. b Shares Share Weighted Outstanding Period Months Average 75,000 3 225,000 125,000 7 875,000 185,000 2 370,000 12 1,470,000 / 12 = 122,500 $650,000 - $80,000 = $4.65 122,500 CHAPTER:17 QUESTION: 36 49. b Reduce Shares x % Dividend x Base Retained Earnings 3,000 .10 $12 market = $ 3,600 4,000 .50 $5 par = 10,000 $13,600 ======= CHAPTER:17 QUESTION: 37 50. a 10,000 x ($28-$20) x 100% = $80,000 CHAPTER:17 QUESTION: 38