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kalpan acc302 Final Exam unit 10




Question;JavaScript is required for your course. Please ensure;JavaScript is enabled in your browser preferences.;Grade Details;1. Question: When common stock is issued at an;amount greater than par value, the difference between the par value and the;proceeds from the sale is recorded by;crediting;the common stock account;debiting an additional paid-in;capital account;crediting the retained earnings;account;crediting an additional paid-in;capital account;2. Question: On January 1, 2010, Marvel, Inc.;grants a compensatory stock option plan to 10 of its executives. The plan;allows each executive to buy 1,000 shares of its $1 par common stock at $30 a;share after a three-year service period. The value of each option is estimated;to be $8. The company estimates it will have an annual 2% employee turnover;rate during the service period. What is the compensation expense for the year;ended December 31, 2011?;$0;$25,098 $50,197;$75,295;Points Received: 4 of 4;Comments;3. Question: Battleground, Inc. had never had a;treasury stock transaction prior to 2010. It experienced the following treasury;stock transactions during 2010;4/1/2010: Reacquired;1,000 shares of its own $5 par common stock, originally sold at $12 a share;for $10 a share. This was the first time that Battleground had reacquired its;own stock.;4/8/2010: Reissued;400 shares at $8 a share.;5/2/2010: Reissued;500 shares at $13 a share.;5/10/2010: Retired;the remaining 100 shares.;Assuming the cost method is used, the entry to record the;reissuance of 400 shares on 4/8/2010 would include a;credit;to Treasury Stock for $3,200 debit;to Additional Paid-in Capital from Treasury Stock for $800;debit to Retained Earnings for;$800;credit to Additional Paid-in;Capital on Common Stock for $800;4. Question: When calculating earnings per share;dividends declared on noncumulative preferred stock, but not paid, should be;added;to net income in the earnings per share numerator;excluded from the earnings per;share numerator;deducted from net income in the;earnings per share numerator;deferred from the earnings per;share numerator until paid;5. Question: Which of the following items would;not be included in a basic earnings per share calculation?;undeclared;dividends on noncumulative preferred stock;declared dividends on;noncumulative preferred stock;undeclared dividends on;cumulative preferred stock;declared dividends on cumulative;preferred stock;6. Question: On January 1, a corporation had;10,380 shares of common stock outstanding. On August 1, it sold an additional;6,000 shares. During the year, dividends of $4,800 and $56,000 were declared;and paid on the common and preferred stock, respectively. Net income for the;year was $240,000. The basic earnings per share for the year was;$10.56;$11.23;$14.29;$18.63;7. Question: Smock Corporation had 30,000 shares;of common stock outstanding during the year. In addition, there were;compensatory stock options to purchase 3,000 shares of common stock at $20 a;share outstanding the entire year. The average market price for the common;stock during the year was $36 a share. The unrecognized compensation cost (net;of tax) relating to these options was $4 a share. The denominator to compute;the diluted earnings per share is;31,000;31,333;31,667;33,000;8. Question: When a company is determining its;dividend policy, the company must adhere to legal requirements. The legal;requirements are determined by the;Financial;Accounting Standards Board (FASB);state in which the company was;incorporated;Securities and Exchange;Commission (SEC);Federal Trade Commission (FTC);9. Question: Under the treasury stock method, the;number of shares of common stock assumed to be reacquired is determined by;using the;ending;market price of the stock;average market price of the stock beginning;market price of the stock;par value of the stock;10. Question: On October 1, 2010, Black Company;declared a property dividend payable in the form of marketable equity;securities classified as "available for sale" for financial;accounting purposes. The marketable equity securities will be distributed to;the common stockholders on December 1, 2010. The investment in equity;securities originally cost Black $410,000 on August 1, 2010. The investment's;fair value on various dates is as follows;October 1, 2010;$430,000;December 1, 2010;435,000;December 31;2010 440,000;The amount credited to Realized Gain on Disposal of;Investments resulting from this dividend transaction should be;$0;$20,000 CORRECT;$25,000;$30,000;11. Question: Accrual accounting is usually;associated with;revenue;recognition in the period of sale;revenue recognition prior to the;period of sale;revenue recognition after the;period of sale;revenue recognition delayed until;a future event occurs;12. Question: Under the completed-contract method;of revenue recognition, the partial billings account is closed out against the;construction;in progress account;construction revenue account;income summary account;construction expense account;13. Question: In 2010, Alpha Construction began;work on a contract with a price of $850,000 and estimated costs of $595,000.;Data for each year of the contract are as follows;2010 2011 2012;Costs incurred during the year $238,000 $319,600 $105,000;Estimated costs to complete 357,000 139,400 -0-;Partial billings 260,000 210,000 380,000;Collections 240,000 200,000 410,000;Under the percentage-of-completion method of revenue;recognition, the balance in Construction in Progress at the end of 2011 would;be;Your Answer;$557,600 INCORRECT;$659,600;$680,000;CORRECT ANSWER;$782,000;14. Question: In 2010, Alpha Construction began;work on a contract with a price of $850,000 and estimated costs of $595,000.;Data for each year of the contract are as follows;2010 2011 2012;Costs incurred during the year $238,000 $319,600 $105,000;Estimated costs to complete 357,000 139,400 -0-;Partial billings 260,000 210,000 380,000;Collections 240,000 200,000 410,000;Under the percentage-of-completion method of revenue;recognition, the net amount reported for construction in progress inventory at;the end of 2011 would be;$87,600;$189,600;$210,000;$312,000;15. Question: The percentage-of-completion method;does not;Your Answer;recognize;profit each period during the life of the contract in proportion to the portion;of the contract completed during the period;value the inventory at cost less;any partial billings;give precedence to economic;substance over legal form;value the inventory at the costs;incurred plus the profit recognized to date less any partial billings;16. Question: The Naples Company uses the;percentage-of-completion method and the cost-to-cost method for its long-term;construction contracts. On one such contract, Naples expects total revenues of;$260,000 and total costs of $200,000. During the first year, Naples incurred;costs of $50,000 and billed the customer $30,000 under the contract. At what;net amount should Naples? Construction in Progress for this contract be;reported at the end of the first year?;$30,000;$35,000;$50,000;$65,000;17. Question: A company may recognize revenue in;full at the time of a sale if;Your Answer;the;probability of collection is not reasonably assured;there is a very high degree of;uncertainty about the collectibility of the sales price;the collection of the sales price;is improbable;the collectibility of the sales;price is not an issue;18. Question: Which one of the following;statements is not true?;Your Answer;The;use of the installment method of recognizing revenue is generally unacceptable. When;the installment method of recognizing revenue is in use, operating expenses are;not deferred and recognized in the future.;Deferred gross profit should be;disclosed as a current liability on the balance sheet.;A company may use the installment;method of revenue recognition for a sales transaction that is not an;installment sale.;19. Question: On December 31, 2009, Fort Stockton;Inc. had no temporary differences that created deferred income taxes. On;January 2, 2010, a new machine was purchased for $30,000. Straight-line;depreciation over a four-year life (no residual value) was used for financial;accounting. Depreciation expense for tax purposes was $11,000 in 2010, $9,000;in 2011, $6,000 in 2012, and $4,000 in 2013. In each year, the income tax rate;was 20% and Fort Stockton had no other items that created differences between pretax;financial income and taxable income. Fort Stockton reported the following;pretax financial income for 2010 through 2013;2010 $50,000;2011 40,000;2012 30,000;2013 60,000;The entry to record income taxes on December 31, 2011, would;include a;debit;to Deferred Tax Liability for $300;credit to Income Taxes Payable;for $8,000;debit to Income Tax Expense for;$7,700;credit to Deferred Tax Liability;for $300;20. Question: Which of the following transactions;would typically result in the creation of a deferred tax liability?;Rents;received in advance are taxable when received but are not recognized in pretax;financial income until earned.;Gross profit on installment sales;is recognized currently in pretax financial income but is not taxable for;income tax purposes until cash is received.;Losses recognized in pretax;accounting income from an investment in a subsidiary are accounted for by the;equity method but not deductible for income tax purposes until the investment;is sold.;A contingent liability is;recognized as an expense currently in pretax financial income but not;deductible for income tax purposes until paid.;21. Question: The Clear Lake Corporation reported;the following differences between its taxable income and pretax financial;income for the year ended December 31, 2010: $30,000 of additional depreciation;for tax purposes, $40,000 of rent collected in advance (taxable when received);and $38,000 of tax-exempt municipal interest revenue. Assuming an income tax rate;of 30% for all years and a taxable income of $190,000 for the year ended;December 31, 2010, income tax expense for 2010 would be;$54,000;$65,400;$71,400;$78,400;22. Question: Which of the following statements;regarding current and deferred income taxes is not correct?;The;amount of income tax expense must be allocated to various components of;comprehensive income.;The income tax obligation is;determined by applying the historical tax rates to the taxable income for the;year.;The valuation allowance account;is subtracted from the deferred tax asset account on the balance sheet.;Rent received in advance that;will be earned within the next 12 months results in the creation of a current;deferred tax asset.;23. Question: All of the following involve a;temporary difference for purposes of income tax allocation except;interest;on municipal bonds;gross profit on installment sales;for tax purposes;MACRS depreciation for tax;purposes and straight-line for accounting purposes;product warranty expenses;24. Question: Boerne Company received rent in;advance of $9,000 on December 31, 2010, which was taxable when received for;income tax purposes. The company's effective tax rate was 30%, and this was the;only temporary difference. Which of the following should be reported on the;December 31, 2010 balance sheet?;$9,000;as a current deferred tax liability;$2,700 as a current deferred tax;liability;$2,700;as a current deferred tax asset;$9,000 as a current deferred tax;asset;25. Question: As of December 31, 2010, the Austin;Company reported a deferred tax asset of $60,000 related to accrued, unpaid;warranty costs. However, since profits have been declining, Austin decides that;it is more likely than not that $24,000 of the deferred tax asset will not be;realized. The entry to record the valuation allowance would include a;debit;to Income Tax Expense for $60,000;credit to Income Tax Expense for;$24,000;debit to Allowance to Reduce;Deferred Tax Asset to Realizable Value for $24,000;credit to Allowance to Reduce;Deferred Tax Asset to Realizable Value for $24,000;26. Question: Which one of the following;statements regarding operating losses is not true?;The;tax benefit of an operating loss carryback is recognized in the period of loss;as a current receivable on the balance sheet.;Temporary differences and;operating loss carryforwards are accounted for similarly.;The journal entry to recognize an;operating loss carryback would include a credit to Income Tax Benefit from;Operating Loss Carryback.;The tax benefit of an operating;loss carryforward is to be recognized in the period of loss as a current;receivable.;27. Question: At the end of its first year of;operations on December 31, 2010, the Belton Company reported taxable income of;$100,000 and had a pretax financial loss of $60,000. Differences between;taxable income and pretax financial income included interest revenue received;from municipal obligations of $20,000 and warranty expense accruals of;$180,000. Warranty expenses of $90,000 are expected to be paid in 2011 and;$110,000 in 2012. The enacted income tax rates for 2010, 2011, and 2012 are;30%, 35%, and 40%, respectively. The journal entry to record income tax expense;on December 31, 2010, would be;Deferred;Tax Asset 75,500;Income Taxes Payable 30,000;Income Tax Benefits from;Operating Loss Carryforward;45,500;Deferred Tax Asset 30,000;Income Taxes Payable 30,000;Income Tax Expense 30,000;Income Taxes Payable 30,000;Deferred Tax Asset;Income Taxes Payable 105,500;30,000;Income Tax Benefit from;Operating Loss Carryforward 75,500;28. Question: Intraperiod tax allocation would be;appropriate for;an;extraordinary gain;a loss from operations of a;discontinued segment;the cumulative effects of changes;in accounting principles;all of these;29. Question: Income taxes for financial;accounting purposes are apportioned to each of the following items except;extraordinary;gains and losses;discontinued operations INCORRECT;other revenues and expenses CORRECT ANSWER;prior period adjustments;30. Question: Disclosures for vested benefits;are;not required;are related to the projected;benefit obligation;are related to the accumulated;benefit obligation;are related to the plan assets;31. Question: Which of the following is not a;component of the net periodic pension expense to be reported on a company's;income statement?;interest;cost;unrecognized past service cost service;cost;expected return on plan assets;32. Question: If a lease qualifies as a capital;lease, which of the following combinations of payments would be included?;minimum;periodic rental payments plus executory costs;minimum periodic rental payments;plus the payment required for a bargain purchase option;minimum periodic rental payments;minus any payment required for a guarantee of the residual value;minimum periodic rental payments;minus any payments required for failure to renew or extend the lease;33. Question: Which of the following facts would;require a lessee to classify a lease as a capital lease?;Your Answer;The;lease term is 85% of the estimated economic life of the leased property.;The present value of the minimum;lease payments is 85% of the fair market value of the leased property to the;lessor, less any investment tax credit accruing to the lessor.;The lease contains a purchase;option.;The lease does not transfer;ownership of the leased property.;34. Question: On January 1, 2010, Victor Company;signed a lease agreement requiring six annual payments of $60,000, beginning;December 31, 2010. The lease qualifies as a capital lease. Victor's incremental;borrowing rate was 9% and the lessor's implicit rate, known by Victor, was 10%.;The present value factors of an ordinary annuity of $1 for six periods for;interest rates of 9% and 10% are 4.485919 and 4.355261, respectively. The;interest expense for 2010 would be (round answers to the nearest dollar);$21,003;$22,746;$24,225;$26,133;35. Question: For a sales-type lease, cost of;goods sold is valued by the lessor at;the;recorded cost assigned to the inventory less the present value of the;guaranteed residual value of the leased property accruing to the benefit of the;lessor;the recorded cost assigned to the;inventory less the undiscounted value of the unguaranteed residual value of the;leased property accruing to the benefit of the lessor;the recorded cost assigned to the;inventory less the present value of the unguaranteed residual value of the;leased property accruing to the benefit of the lessor;the recorded cost assigned to the;inventory less the undiscounted value of the guaranteed residual value of the;leased property accruing to the benefit of the lessor;36. Question: In a statement of cash flows, the;payment of a cash dividend on common stock outstanding should be classified as;cash outflows for;operating;activities;investing activities;lending activities;financing activities;37. Question: The Robinson Company reported net;income of $90,000 in 2010.;Additional information follows;Depreciation expense;$18,000;Loss on sale of equipment;10,000;Gain on sale of land;17,000;Given just this information, what was the Robinson Company's;net cash provided by operating activities in 2010?;$79,000;$100,000;$101,000;$115,000;38. Question: Which of the following events would;not result in a cash inflow?;sale;of preferred stock;common stock issued as a stock;dividend;reissuance of treasury stock;loss of building destroyed by;fire but partially reimbursed by insurance;39. Question: Which statement is not true?;Salaries;expense + Decrease in salaries payable = Cash payments to employees;Other revenues + Increase in;unearned revenues - Gains on disposal of assets - Equity investment income =;Other operating cash receipts;Sales revenue - Increase in;accounts receivable = Cash collections from customers;Other expenses + Decrease in;prepaid expenses - Depreciation expense + Losses on disposal of assets - Equity;investment loss = Other operating cash payments;40. Question: Which of the following items would;be deducted from net income to determine net cash provided by operating;activities using the indirect method?;loss;on sale of plant assets and amortization of bond payable discount;amortization of bond payable;premium and gain on sale of equipment;amortization expense and gain on;sale of equipment;decrease in income taxes payable;and amortization of goodwill;41. Question: Bertrand, Inc. prepares a statement;of cash flows. In 2010, Bertrand had net income of $45,000. In addition, the;following information is available;Gain on sale of land $16,000;Decrease in inventories 10,000;Amortization of patents 4,000;Increase in prepaid expenses 3,000;What net cash provided by operating activities should;Bertrand report in 2010?;$46,000;$72,000;$40,000;$50,000;42. Question: When preparing a statement of cash;flows under the indirect method, an increase in ending accounts receivable over;beginning accounts receivable will result in an adjustment to net income in the;operating activities section because;cash;was increased since accounts receivable is a current asset;the accounts receivable increase;was a revenue included in net income, but it was not a source of cash;the net increase in accounts;receivable decreases net sales and represents an assumed use of cash;all changes in noncash accounts;must be disclosed on the cash flow statement;43. Question: The accounting changes identified by;current GAAP include all of the following except;correction;of an error;change in accounting principle;change in accounting estimate;change in reporting entity;44. Question: A change in accounting principle;from one that is not generally accepted to one that is generally accepted;should be treated as;an;error and corrected by prior period adjustment;a change in accounting principle;and the cumulative effect included in net income;a change in accounting principle;and prior period financial statements are restated;a change in accounting principle;and adjustments made prospectively;45. Question: Disclosure of a retrospective;adjustment should include;why;the new principle is preferable;the;net impact on assets of the retrospective adjustment;the retrospective computation of;earnings per share only for the current period;ending balance in Retained;Earnings before and after the retrospective adjustment;INCORRECT;46. Question: Which of the following statements;does not properly state a basic principle for reporting an accounting change?;retrospectively;apply a change in accounting principle;prospectively account for a;change in accounting estimate;retrospectively adjust for a;change in reporting entity;retrospectively apply a change in;accounting estimate;47. Question: An item that would not be accounted;for under current GAAP as a change in estimate would be;an;increase in the expected life of a piece of manufacturing equipment;a decrease in the estimated;residual value of a delivery van;a change from FIFO to LIFO for a;small subsidiary;an increase in defective items;for the best selling video game;48. Question: A company changes from capitalizing;and amortizing preproduction costs to recording them as an expense when;incurred, because future benefits associated with those costs have become;doubtful. This accounting change should be recognized as a;change;in accounting estimate;change in accounting principle;change in reporting entity;correction of an error;49. Question: Which of the following statements is;not an example of a correction of an error in previously issued financial;statements?;adopting;the allowance method for bad debts when the direct write-off method had been;used because direct write-off was used for tax purposes;recording depreciation on plant;assets that were not depreciated last year because of a computer problem;adopting straight-line;depreciation for newly acquired assets and continuing to use the;double-declining-balance method for existing assets;CORRECT ANSWER;correcting the ending inventory;amount from last year because inventory in transit was missed;50. Question: During a year-end evaluation of the;financial records of the Gretchen Company for the year ended December 31, 2010;the following was discovered;? Inventory;on January 1, 2010, was understated by $6,000.;? Inventory;on December 31, 2010, was understated by $18,000.;? Rent of;$20,000 collected in advance on December 29, 2010, was included in income for;2010.;? A;probable, reasonably estimated contingent liability of $30,000 was not recorded;as of December 31, 2010.;Net income for 2010 (before any of the above items) was;$100,000. The corrected net income, ignoring income taxes, for 2010 should be;Your Answer;$50,000;$58,000;$62,000;$68,000;s


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