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Test 1 Intermediate Accounting II




Question;Use the following to answer;questions 1-2;Cox Co. issued $100,000 of;ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%.;1.;One step in calculating;the issue price of the bonds is to multiply the principal by the table value;for;A);10 periods and 10% from;the present value of 1 table.;B);20 periods and 5% from;the present value of 1 table.;C);10 periods and 8% from;the present value of 1 table.;D);20 periods and 4% from;the present value of 1 table.;2.;Another step in;calculating the issue price of the bonds is to;A);multiply $10,000 by the;table value for 10 periods and 10% from the present value of an annuity;table.;B);multiply $10,000 by the;table value for 20 periods and 5% from the present value of an annuity table.;C);multiply $10,000 by the;table value for 20 periods and 4% from the present value of an annuity table.;D);none of these.;3.;Stone, Inc. issued;bonds with a maturity amount of $200,000 and a maturity ten years from date;of issue. If the bonds were issued at;a premium, this indicates that;A);the effective yield or;market rate of interest exceeded the stated (nominal) rate.;B);the nominal rate of;interest exceeded the market rate.;C);the market and nominal;rates coincided.;D);no necessary;relationship exists between the two rates.;Use the following to answer;questions 4-6;On January 1, 2007, Bleeker Co.;issued eight-year bonds with a face value of $1,000,000 and a stated interest;rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are;Present value of 1 for;8 periods at 6%;.627;Present value of 1 for;8 periods at 8%;.540;Present value of 1 for;16 periods at 3%;.623;Present value of 1 for;16 periods at 4%;.534;Present value of;annuity for 8 periods at 6%;6.210;Present value of;annuity for 8 periods at 8%;5.747;Present value of;annuity for 16 periods at 3%;12.561;Present value of;annuity for 16 periods at 4%;11.652;4.;The present value of;the principal is;A);$534,000.;B);$540,000.;C);$623,000.;D);$627,000.;5.;The present value of;the interest is;A);$344,820.;B);$349,560.;C);$372,600.;D);$376,830.;6.;The issue price of the;bonds is;A);$883,560.;B);$884,820.;C);$889,560.;D);$999,600.;7.;Amstop Company issues;$20,000,000 of 10-year, 9% bonds on March 1, 2007 at 97 plus accrued;interest. The bonds are dated January 1, 2007, and pay interest on June 30;and December 31. What is the total cash received on the issue date?;A);$19,400,000;B);$20,450,000;C);$19,700,000;D);$19,100,000;8.;A company issues;$20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2007. Interest is paid on June 30 and December;31. The proceeds from the bonds are $19,604,145. Using effective-interest;amortization, how much interest expense will be recognized in 2007?;A);$780,000;B);$1,560,000;C);$1,568,498;D);$1,568,332;9.;The December 31, 2006;balance sheet of Eddy Corporation includes the following items;9% bonds payable due December 31, 2015;$1,000,000;Unamortized premium;on bonds payable;27,000;The bonds were issued;on December 31, 2005, at 103, with interest payable on July 1 and December 31;of each year. Eddy uses straight-line;amortization. On March 1, 2007, Eddy retired $400,000 of these bonds at 98;plus accrued interest. What should Eddy record as a gain on retirement of;these bonds? Ignore taxes.;A);$18,800.;B);$10,800.;C);$18,600.;D);$20,000.;10.;On January 1, 2001;Gonzalez Corporation issued $4,500,000 of 10% ten-year bonds at 103. The bonds are callable at the option of;Gonzalez at 105. Gonzalez has recorded amortization of the bond premium on;the straight-line method (which was not materially different from the;effective-interest method).;On December 31, 2007;when the fair market value of the bonds was 96, Gonzalez repurchased;$1,000,000 of the bonds in the open market at 96. Gonzalez has recorded;interest and amortization for 2007. Ignoring income taxes and assuming that;the gain is material, Gonzalez should report this reacquisition as;A);a loss of $49,000.;B);a gain of $49,000.;C);a loss of $61,000.;D);a gain of $61,000.;Use the following to answer;questions 11-12;Presented below is information;related to Edis Corporation;Common Stock, $1 par;$4,300,000;Paid-in Capital in;Excess of Par?Common Stock;550,000;Preferred 8 1/2% Stock;$50 par;2,000,000;Paid-in Capital in;Excess of Par?Preferred Stock;400,000;Retained Earnings;1,500,000;Treasury Common Stock;(at cost);150,000;11.;The total stockholders;equity of Edis Corporation is;A);$8,600,000.;B);$8,750,000.;C);$7,100,000.;D);$7,250,000.;12.;The total paid-in;capital (cash collected) related to the common stock is;A);$4,300,000.;B);$4,850,000.;C);$5,250,000.;D);$4,700,000.;13.;Bleeker Company issued;10,000 shares of its $5 par value common stock having a market value of $25;per share and 15,000 shares of its $15 par value preferred stock having a;market value of $20 per share for a lump sum of $480,000. How much of the proceeds would be allocated;to the common stock?;A);$50,000;B);$218,182;C);$250,000;D);$255,000;14.;Renfro Corporation;started business in 1999 by issuing 200,000 shares of $20 par common stock;for $36 each. In 2004, 20,000 of these shares were purchased for $52 per;share by Renfro Corporation and held as treasury stock. On June 15, 2008;these 20,000 shares were exchanged for a piece of property that had an;assessed value of $810,000. Renfro's;stock is actively traded and had a market price of $60 on June 15, 2008. The;cost method is used to account for treasury stock. The amount of paid-in;capital from treasury stock transactions resulting from the above events;would be;A);$800,000.;B);$480,000.;C);$390,000.;D);$160,000.;15.;King Co. issued 100,000;shares of $10 par common stock for $1,200,000. King acquired 8,000 shares of;its own common stock at $15 per share. Three months later King sold 4,000 of;these shares at $19 per share. If the cost method is used to record treasury;stock transactions, to record the sale of the 4,000 treasury shares, King;should credit;A);Treasury Stock for;$76,000.;B);Treasury Stock for;$40,000 and Paid-in Capital from Treasury Stock for $36,000.;C);Treasury Stock for;$60,000 and Paid-in Capital from Treasury Stock for $16,000.;D);Treasury Stock for;$60,000 and Paid-in Capital in Excess of Par for $16,000.;16.;The conversion of;preferred stock into common requires that any excess of the par value of the;common shares issued over the carrying amount of the preferred being;converted should be;A);reflected currently in;income, but not as an extraordinary item.;B);reflected currently in;income as an extraordinary item.;C);treated as a prior;period adjustment.;D);treated as a direct;reduction of retained earnings.;17.;Proceeds from an issue;of debt securities having stock warrants should NOT be allocated between debt;and equity features when;A);the market value of the;warrants is not readily available.;B);exercise of the;warrants within the next few fiscal periods seems remote.;C);the allocation would;result in a discount on the debt security.;D);the warrants issued;with the debt securities are nondetachable.;18.;Stock warrants;outstanding should be classified as;A);liabilities.;B);reductions of capital;contributed in excess of par value.;C);assets.;D);none of these.;19.;Vittly Corporation;owned 900,000 shares of Nixon Corporation stock. On December 31, 2007, when;Vittly's account "Investment in Common Stock of Nixon Corporation;had a carrying value of $5 per share, Vittly distributed these shares to its;stockholders as a dividend. Vittly originally paid $8 for each share. Nixon;has 3,000,000 shares issued and outstanding, which are traded on a national;stock exchange. The quoted market price for a Nixon share was $7 on the;declaration date and $9 on the distribution date.;What would be the;reduction in Vittly's stockholders' equity as a result of the above;transactions?;A);$3,600,000.;B);$4,500,000.;C);$7,200,000.;D);$8,100,000.;20.;The stockholders;equity section of Lawton Corporation as of December 31, 2006, was as follows;On March 1, 2007, the;board of directors declared a 15% stock dividend, and accordingly 1,500;additional shares were issued. On;March 1, 2007, the fair market value of the stock was $6 per share. For the two months ended February 28, 2007;Lawton;sustained a net loss of $10,000.;What amount should Lawton report as;retained earnings as of March 1, 2007?;A);$56,000.;B);$62,000.;C);$66,000.;D);$72,000.;21.;On January 1, 2007;Golden Corporation had 110,000 shares of its $5 par value common stock;outstanding. On June 1, the corporation acquired 10,000 shares of stock to be;held in the treasury. On December 1, when the market price of the stock was;$8, the corporation declared a 10% stock dividend to be issued to;stockholders of record on December 16, 2007. What was the impact of the 10%;stock dividend on the balance of the retained earnings account?;A);$50,000 decrease;B);$80,000 decrease;C);$88,000 decrease;D);No effect;Use the following to answer;questions 12-13;Tomlin, Inc. has outstanding;300,000 shares of $2 par common stock and 60,000 shares of no-par 8% preferred;stock with a stated value of $5. The preferred stock is cumulative and;nonparticipating. Dividends have been paid in every year except the past two;years and the current year.;22.;Assuming that $150,000;will be distributed as a dividend in the current year, how much will the;common stockholders receive?;A);Zero.;B);$78,000.;C);$102,000.;D);$126,000.;23.;Assuming that $183,000;will be distributed, and the preferred stock is also participating;how much will the common stockholders receive?;A);$111,000.;B);$90,000.;C);$93,000.;D);$48,000.;24.;The major difference;between convertible debt and stock warrants is that upon exercise of the;warrants;A);the stock is held by;the company for a defined period of time before they are issued to the;warrant holder.;B);the holder has to pay a;certain amount of cash to obtain the shares.;C);the stock involved is;restricted and can only be sold by the recipient after a set period of time.;D);no paid-in capital in;excess of par can be a part of the transaction.;Use the following to answer;questions 25-27;Gomez Corporation issued;$3,000,000 of 9%, ten-year convertible bonds on July 1, 2007 at 96.1 plus;accrued interest. The bonds were dated April 1, 2007 with interest payable;April 1 and October 1. Bond discount is amortized semiannually on a;straight-line basis. On April 1, 2008, $600,000 of these bonds were converted;into 500 shares of $20 par value common stock.;Accrued interest was paid in cash at the time of conversion.;25.;If "interest;payable" were credited when the bonds were issued, what should be the;amount of the debit to "interest expense" on October 1, 2007?;A);$64,500.;B);$67,500.;C);$70,500.;D);$135,000.;26.;What should be the;amount of the unamortized bond discount on April 1, 2008 relating to the;bonds converted?;A);$23,400.;B);$21,600.;C);$11,700.;D);$22,200.;27.;What was the effective;interest rate on the bonds when they were issued?;A);9%;B);Above 9%;C);Below 9%;D);Cannot determine from;the information given.;28.;Darby Corporation;issued at a premium of $5,000 a $100,000 bond issue convertible into 2,000;shares of common stock (par value $40). At the time of the conversion, the;unamortized premium is $2,000, the market value of the bonds is $110,000, and;the stock is quoted on the market at $60 per share. If the bonds are;converted into common, what is the amount of paid-in capital in excess of par;to be recorded on the conversion of the bonds?;A);$25,000;B);$22,000;C);$32,000;D);$40,000;29.;On July 4, 2007, Diaz;Company issued for $4,200,000 a total of 40,000 shares of $100 par value, 7%;noncumulative preferred stock along with one detachable warrant for each;share issued. Each warrant contains a;right to purchase one share of Diaz $10 par value common stock for $15 per;share. The stock without the warrants would normally sell for $4,100,000. The;market price of the rights on July 1, 2007, was $2.50 per right. On October;31, 2007, when the market price of the common stock was $19 per share and the;market value of the rights was $3.00 per right, 16,000 rights were exercised.;As a result of the exercise of the 16,000 rights and the issuance of the;related common stock, what journal entry would Diaz make?;A);a;B);b;C);c;D);d;30.;Sloane Corporation;offered detachable 5-year warrants to buy one share of common stock (par;value $5) at $20 (at a time when the stock was selling for $32). The price;paid for 2,000, $1,000 bonds with the warrants attached was $205,000. The;market price of the Sloane bonds without the warrants was $180,000, and the;market price of the warrants without the bonds was $20,000. What amount;should be allocated to the warrants?;A);$20,000;B);$20,500;C);$24,000;D);$25,000


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