ACC 423 Final Exam

Preview (7 of 21 Pages)

100%

ACC 423 Final Exam - Page 1 preview image

Loading page ...

ACC 423 Final Exam1) Proceeds from an issue of debt securities having stock warrants shouldNOT be allocated between debt and equity features whenA. the allocation would result in a discount on the debt securityB. the warrants issued with the debtsecurities are nondetachableC. exercise of the warrants within the next few fiscal periods seems remoteD. the market value of the warrants is NOT readily available2) The conversion of preferred stock may be recorded by theA. market value methodB. par value methodC. book value methodD. incremental method3) The conversion of preferred stock into common stock requires that anyexcess of the par value of the common shares issued over the carryingamount of the preferred being converted should beA. treated as a prior period adjustmentB. treated as a direct reduction of retained earningsC. reflected currently in income as an extraordinary itemD. reflected currently in income, but NOT as an extraordinary item4) A primary source of stockholders’ equity isA. contributions by stockholdersB. both income retained by the corporation and contributions bystockholdersC. appropriated retained earningsD. income retained by the corporation5) Stockholders’ equity is generally classified into two major categories:A. retained earnings and unappropriated capitalB. earned capital and contributed capitalC. appropriated capital and retained earningsD. contributed capital and appropriated capital6) When a corporation issues its capital stock in payment for services, theleast appropriate basis for recording the transaction is theA. market value of the shares issuedB. Any of these provides an appropriate basis for recording the transactionC. par value of the shares issuedD. market value of the services received7) Treasury shares areA. shares held as an investment by the treasurer of the corporationB. issued but NOT outstanding sharesC. shares held as an investment of the corporationD. issued and outstanding shares8) “Gains” on sales of treasury stock (using the cost method) should becredited toA. paid-in capital from treasury stockB. other income

ACC 423 Final Exam - Page 2 preview image

Loading page ...

ACC 423 Final Exam - Page 3 preview image

Loading page ...

C. capital stockD. retained earnings9) How should a “gain” from the sale of treasury stock be reflected whenusing the cost method of recording treasury stock transactions?A. As ordinary earnings shown on the income statementB. As an extraordinary item shown on the income statementC. As paid-in capital from treasury stock transactionsD. As an increase in the amount shown for common stock10) In computing earnings per share, the equivalent number of shares ofconvertible preferred stock are added as anadjustment to thedenominator (number of shares outstanding). If the preferred stock iscumulative, which amount should then be added as an adjustment to thenumerator (net earnings)?A. Annual preferred dividendB. Annual preferred dividend divided by the income tax rateC. Annual preferred dividend times (one minus the income tax rate)D. Annual preferred dividend times the income tax rate11) When computing diluted earnings per share, convertible bonds areA. ignoredB. assumed converted only if they are dilutiveC. assumed converted whether they are dilutive or antidilutiveD. assumed converted only if they are antidilutive12) What effect will the acquisition of treasury stock have on stockholders’equity and earnings per share, respectively?A. Decrease and no effectB. Increase and decreaseC. Increase and no effectD. Decrease and increase13) On May 1, 2007, Kent Corp. declared and issued a 10% common stockdividend. Prior to this dividend, Kent had 100,000 shares of $1 par valuecommon stock issuedand outstanding. The fair value of Kent ‘s commonstock was $20 per share on May 1, 2007. As a result of this stock dividend,Kent’s total stockholders’ equityA. did NOT changeB. increased by $200,000C. decreased by $10,000D. decreased by $200,00014) How would the declaration and subsequent issuance of a 10% stockdividend by the issuer affect each of the following when the market valueof the shares exceeds the par value of the stock?Additional Common Stock | Paid-in CapitalA. Increase | IncreaseB. No effect | No effectC. Increase | No effectD. No effect | Increase15) At its date of incorporation, Wilson, Inc. issued 100,000 shares of its

ACC 423 Final Exam - Page 4 preview image

Loading page ...

$10 par common stock at $11 per share. During the current year, Wilsonacquired 20,000 shares of its common stock at a price of $16 per share andaccounted for them by the cost method. Subsequently, these shares werereissued at a price of $12 per share. There have been no other issuances oracquisitions of its own common stock. What effect does the reissuance ofthe stock have on the following accounts?Retained Earnings | Additional Paid-in CapitalA. No effect | No effectB. Decrease | DecreaseC. Decrease | No effectD. No effect | Decrease16) Which of the following is correct about the effective-interest method ofamortization?A. The effective-interest method produces a constant rate of return on thebook value of the investment from period to period.B. The effective interest method applied to investments in debt securities isdifferent from that applied to bonds payable.C. Amortization of a premium decreases from period to period.D. Amortization of a discount decreases from period to period17) Anunrealized holding loss on a company’s available-for-sale securitiesshould be reflected in the current financial statements asA. other comprehensive income and deducted in the equity section of thebalance sheet.B. an extraordinary item shown as a direct reduction from retained earningsC. a note or parenthetical disclosure onlyD. a current loss resulting from holding securities18) An unrealized holding gain on a company’s available-for-salesecurities should be reflected in the current financial statements asA. other comprehensive income and included in the equity section of thebalance sheet.B. an extraordinary item shown as a direct increase to retained earningsC. a note or parenthetical disclosure onlyD. a current gain resulting from holding securities19) Investments in debt securities should be recorded on the date ofacquisition atA. face value plus brokerage fees and other costs incident to the purchaseB. lower of cost or marketC. market value plus brokerage fees and other costs incident to thepurchaseD. market value20) Securities which could be classified as held-to-maturity areA. warrantsB. redeemable preferred stockC. municipal bondsD. treasury stock21) Which of the following is NOT a debt security?

ACC 423 Final Exam - Page 5 preview image

Loading page ...

A. Commercial paperB. Convertible bondsC. Loans receivableD. All of these are debt securities22) An investor has a long-term investment in stocks. Regular cashdividends received by the investor are recorded asFair Value Method | Equity MethodA. A reduction of the investment | A reduction of the investmentB. Income | IncomeC. Income | A reduction of the investmentD. A reduction of the investment | Income23) When a company holds between 20% and 50% of the outstandingstock of an investee, which ofthe following statements applies?A. The investor should use the equity method to account for its investmentunless circum-stances indicate that it is unable to exercise “significantinfluence” over the investeeB. The investor should always use the equity method to account for itsinvestmentC. The investor must use the fair value method unless it can clearly demonstratethe ability to exercise “significant influence” over the investeeD. The investor should always use the fair value method to account foritsinvestment24) Bista Corporation declares and distributes a cash dividend that is aresult of current earnings. How will the receipt of those dividends affectthe investment account of the investor under each of the followingaccounting methods?Fair Value Method | Equity MethodA. Increase | DecreaseB. No Effect | DecreaseC. No Effect | No EffectD. Decrease | No Effect25) Debt securities that are accounted for at amortized cost, NOT fairvalue, areA. trading debt securitiesB. held-to-maturity debt securitiesC. available-for-sale debt securitiesD. never-sell debt securities26) Equity securities acquired by a corporation which are accounted for byrecognizing unrealized holding gains or losses as other comprehensiveincome and as a separate component of stockholders’ equity areA. trading securities where a company has holdings of less than 20%B. available-for-sale securities where a company has holdings of less than20%C. securities where a company has holdings of between 20% and 50%D. securities where a company has holdings of more than 50%27) Use of the effective-interest method in amortizing bond premiums and

ACC 423 Final Exam - Page 6 preview image

Loading page ...

discounts results inA. a smaller amount of interest income over the life of the bond issue than wouldresult from use of the straight-line methodB. a greater amount of interest income over the life of the bond issue than wouldresult from use of the straight-line methodC. a varying amount being recorded as interest income from period toperiodD. a variable rate of return on the book value of the investment28) All of the following are characteristics of a derivative financialinstrument EXCEPT the instrumentA. All of these are characteristicsB. has one or more underlyings and an identified payment provisionC. requires a large investment at the inception of the contractD. requires or permits net settlement29) The accounting for fair value hedges records the derivative at itsA. historical costB. amortized costC. carrying valueD. fair value30) All of the following statements regarding accounting for derivativesare correct EXCEPT thatA. gains and losses resulting from hedge transactions are reported in differentways, depending upon the type of hedgeB. they should be recognized in the financial statements as assets and liabilitiesC. they should be reported at fair valueD. gains and losses resulting from speculation should be deferred31) Taxable income of a corporation differs from pretax financial incomebecause ofPermanent Differences | Temporary DifferencesA. Yes | NoB. No | NoC. No | YesD. Yes | Yes32) The rationale for interperiod income tax allocation is toA. adjust income tax expense on the income statement to be in agreement withincome taxes payable on the balance sheetB. recognize a tax asset or liability for the tax consequences of temporarydifferences that exist at the balance sheet dateC. recognize a distribution of earnings to the taxing agencyD. reconcile the tax consequences of permanent and temporary differencesappearing on the current year’s financial statements33) Interperiod income tax allocation causesA. tax expense in the income statement to be presented with thespecificrevenues causing the taxB. tax expense shown on the income statement to equal the amount ofincome taxes payable for the current year plus or minus the change in the

ACC 423 Final Exam - Page 7 preview image

Loading page ...

deferred tax asset or liability balances for the year.C. tax expense shown in the income statement to bear a normal relation to thetax liabilityD. tax liability shown in the balance sheet to bear a normal relation to theincome before tax reported in the income statement34) At the December 31, 2007 balance sheet date, Garth BrooksCorporation reports an accrued receivable for financial reportingpurposes but NOT for tax purposes. When this asset is recovered in 2008, afuture taxable amount will occur andA. Garth will record a decrease in a deferred tax liability in 2008B. pretax financial income will exceed taxable income in 2008C. Garth will record an increase in a deferred tax asset in 2008D. total income tax expense for 2008 will exceed current tax expense for 200835) Which of the following differences would result in future taxableamounts?A. Revenues or gains that are taxable before they are recognized in financialincomeB. Expenses or losses that are tax deductible after they are recognizedinfinancial incomeC. Expenses or losses that are tax deductible before they are recognized infinancial incomeD. Revenues or gains that are recognized in financial income but are neverincluded in taxable income36) Which of the following are temporary differences that are normallyclassified as expenses or losses that are deductible after they arerecognized in financial income?A. Product warranty liabilitiesB. Advance rental receiptsC. Fines and expenses resulting from a violation of lawD. Depreciable property37) In a defined-contribution plan, a formula is used thatA. ensures that pension expense and the cash funding amount will be differentB. defines the benefits that the employee will receive at the time of retirementC. ensures that employers are at risk to make sure funds are available atretirementD. requires an employer to contribute a certain sum each period based onthe formula38) In accounting for a defined-benefit pension planA. the employer’s responsibility is simply to make a contribution each yearbased on the formula established in the planB. an appropriate funding pattern must be established to ensure thatenough monies will be available at retirement to meet the benefitspromisedC. the liability is determined based uponknown variables that reflect futuresalary levels promised to employeesD. the expense recognized each period is equal to the cash contribution

Preview Mode

This document has 21 pages. Sign in to access the full document!

Report

Study Now!

Document Details

Related Documents

Accounting Principles II – Traditional Cost Systems

Accounting Principles II – Statement of Cash Flows

Accounting Principles II – Partnerships

Accounting Principles II – Managerial and Cost Accounting Concepts

Accounting Principles II – Long-Term Liabilities

Accounting Principles II – Investments

Accounting Principles II – Incremental Analysis

Accounting Principles II – Flexible Budgets and Standard Costs

Accounting Principles II – Financial Statement Analysis

Accounting Principles II – Current Liabilities

Company

Explore

Study Tools