FAR Unit 1

Scott Corporation sold a fixed asset used for operations for greater than its carrying amount. Scott should report the transaction in the income statement using the:

a. net concept, showing the total gain as part of continuing operations, not net of income taxes

b. net concept, showing the total amount as a component of other comprehensive income, net of income taxes

c. gross concept, showing the proceeds as part of revenues and the carrying amount as part of expenses in the continuing operations section

d. net concept, showing the total gain as part of discontinued operations, net of income taxes

a. net concept, showing the total gain as part of continuing operations, not net of income taxes

In Dart Co.'s Year 2 single-step income statement, as prepared by Dart's controller, the section titled "Revenues" consisted of the following:

Sales	250,000
Purchase discounts	3,000
Recovery of accounts written off	10,000
Total revenues	263,000

In its Year 2 single-step income statement, what amount should Dart report as total revenues?

a. $250,000

b. $260,000

c. $253,000

d. $263,000

a. $250,000

During January Year 3, Doe Corp. agreed to sell the assets and product line of its Hart division. The decision represents a major strategic shift for Doe and will have a significant effect on its operations and financial results. The division qualified as held for sale in Year 3. The sale was completed on January 15, Year 4, and resulted in a gain on disposal of $900,000. Hart's operating losses were $600,000 for Year 3 and $50,000 for the period January 1 through January 15, Year 4. Disregarding income taxes, what amount of net gain (loss) should be reported in Doe's comparative Year 4 and Year 3 income statements?

		Year 3	Year 4
	A.	$0	$250,000
	B.	$250,000	$0
	C.	$(600,000)	$850,000
	D.	$(650,000)	$900,000

c. $(600,000), $850,000

One of the elements of a financial statement is comprehensive income. Comprehensive income excludes changes in equity resulting from which of the following?

a. loss from discontinued operations

b. unrealized loss on investments in non-current marketable equity securities

c. gain on foreign currency transactions

d. dividends paid to stockholders

d. dividends paid to stockholders

On September 22, Year 4, Yumi Corp. purchased merchandise from an unaffiliated foreign company for 10,000 units of the foreign company's local currency. On that date, the spot rate was $0.55. Yumi paid the bill in full on March 20, Year 5, when the spot rate was $0.65. The spot rate was $0.70 on December 31, Year 4. What amount should Yumi report as a foreign currency transaction loss in its income statement for the year ended December 31, Year 4?

a. $1,000

b. $1,500

c. $500

d. $0

b. $1,500

For a company to obtain a retail business license in a particular state, the company is required to pay the state the equivalent of three months of sales taxes on its projected retail sales. This amount is fully refundable after five years, provided the company has filed all required sales tax returns and paid all sales taxes due. Initially the company should report the payment related to this licensing requirement as:

a. a noncurrent asset

b. a current asset

c. a noncurrent liability

d. an expense

a. a noncurrent asset

A company's year-end comparative statement of financial position reflects the following changes from the prior year: cash increased by $40,000, total liabilities increased by $32,000, and all other assets decreased by $65,000. Which of the following statements is correct regarding the current-year change in the company's stockholders' equity?

a. it increased by $25,000

b. it decreased by $57,000

c. it increased by $105,000

d. it decreased by $32,000

b. it decreased by $57,000

Gar Inc.'s trial balance reflected the following liability account balances at December 31, Year 1:

Accounts payable	$19,000
Bonds payable, due Year 2	34,000
Deferred income tax payable	4,000
Discount on bonds payable	2,000
Dividends payable on 2/15/Year 2	5,000
Income tax payable	9,000
Notes payable, due 1/19/Year 3	6,000

The deferred income tax payable is based on temporary differences that will reverse in Year 3 and Year 4.
In Gar's December 31, Year 1, balance sheet, the current liabilities total was:

a. $69,000

b. $71,000

c. $67,000

d. $65,000

d. $65,000

Under U.S. GAAP, a gain that is both unusual and infrequent should be reported as which of the following?

a. income from continuing operations

b. comprehensive income

c. income from continuing operations, net of tax

d. net of tax, following discontinued operations

a. income from continuing operations

Brock Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative. The adjusted trial balance at December 31 included the following expense and loss accounts:

Accounting and legal fees	120,000
Advertising	150,000
Freight out	80,000
Interest	70,000
Loss on sale of long-term investment	30,000
Officers' salaries	225,000
Rent for office space	220,000
Sales salaries and commissions	140,000

One-half of the rented premises is occupied by the sales department. Brock's total selling expenses are:

a. $400,000

b. $480,000

c. $370,000

d. $360,000

b. $480,000

Coffey Corp.'s trial balance of Income Statement Accounts for the year ended December 31 as follows:

	Debit	Credit
Net sales		1,600,000
Cost of goods sold	960,000
Selling expenses	235,000
Administrative expenses	150,000
Interest expense	25,000
Gain on debt extinguishment		10,000
Totals	1,370,000	1,610,000

Coffey uses U.S. GAAP and has an income tax rate of 30%. The gain on debt extinguishment is considered a usual and recurring part of Coffey's operations. Coffey prepares a multiple-step income statement.

Income from continuing operations before income tax is:

a. $190,000

b. $200,000

c. $230,000

d. $240,000

d. $240,000

A company's activities for Year 2 included the following:

Gross sales	3,600,000
Cost of goods sold	1,200,000
Selling and administrative expense	500,000
Adjustment for a prior-year understatement of amortization expense	59,000
Sales returns	34,000
Gain on sale of available-for-sale securities	8,000
Gain on disposal of a discontinued business segment	4,000
Unrealized gain on available-for-sale debt securities	2,000

The company has a 30 percent effective income tax rate. What is the company's net income for Year 2?

a. $1,316,000

b. $1,314,600

c. $1,273,300

d. $1,267,700

b. $1,314,600

A company has the following items on its year-end trial balance:

Net sales	500,000
Common stock	100,000
Insurance expense	75,000
Wages	50,000
Cost of goods sold	100,000
Cash	40,000
Accounts payable	25,000
Interest payable	20,000

What is the company's gross profit?

a. $230,000

b. $275,000

c. $400,000

d. $500,000

c. $400,000

A company's draft income statement for the year ended December 31, Year 5, reported $370,000 of income from continuing operations before taxes. The following items were excluded:

Loss on sale of property	$160,000
Income from discontinued operations	90,000

The discontinued operation is expected to be sold within six months and meets all of the criteria to be categorized as held for sale. If the company's income tax rate is 20%, which of the following amounts should be reported as net income for the year ended December 31, Year 5?

a. $368,000

b. $296,000

c. $240,000

d. $168,000

c. $240,000

Peame Zone Co. plans to sell its manufacturing division. Which of the following conditions would prevent the division from being classified as held for sale?

a. the division is available for immediate sale in its present condition

b. management plans to continue operating the division for two years before selling

c. management is actively seeking potential buyers

d. the division represents a major line of business

b. management plans to continue operating the division for two years before selling

Envoy Co. manufactures and sells household products. Envoy experienced losses associated with its small appliance group. Operations and cash flows for this group can be clearly distinguished from the rest of Envoy's operations. Envoy plans to sell the small appliance group with its operations. What is the earliest point at which Envoy should report the small appliance group as a discontinued operation?

a. when Envoy classifies it as held for sale

b. when Envoy receives an offer for the segment

c. when Envoy first sells any of the assets of the segment

d. when Envoy sells the majority of the assets of the segment

a. when Envoy classifies it as held for sale

Peak Industries has a division with a carrying value of $8,000,000. On May 31, management decides to sell the division and determines that its fair value less costs to sell is $6,000,000. On December 31, the fair value less costs to sell increases to $6,500,000. What amount should Peak recognize as a gain in December?

a. $500,000

b. $6,500,000

c. $1,500,000

d. $2,000,000

a. $500,000

Biscalli Manufacturing Co. has a division that meets the criteria to be classified as held for sale. How should the company account for the depreciation of the division's assets?

a. continue depreciation until the sale is completed

b. depreciate at half the normal rate until sold

c. stop depreciation once classified as held for sale

d. accelerate depreciation to the current market value

c. stop depreciation once classified as held for sale

Kidell Global Inc. has a division with a carrying value of $7,800,000. On June 30, management decides to sell it and determines its fair value is $7,600,000. Estimated costs to sell and exit the division include:

• Sales broker commission: $40,000

• Title transfer fees: $10,000

• Employee severance: $50,000

• Software cancellation fees: $20,000

If Kidell's tax rate is 30%, what is the after-tax impairment loss?

a. $224,000

b. $250,000

c. $175,000

d. $320,000

c. $175,000

On December 31, Year 1, the Board of Directors of Maxy Manufacturing, Inc. committed to a plan to discontinue the operations of its Alpha division. The decision represents a major strategic shift and will have a significant effect on its operations and financial results. The division qualified as held for sale in Year 1. Maxy estimated that Alpha's Year 2 operating loss would be $500,000 and that the fair value of Alpha's facilities was $300,000 less than their carrying amounts. The estimate for Year 2 turned out to be correct. Alpha's Year 1 operating loss was $1,400,000, and the division was actually sold for $400,000 less than its carrying amount. Maxy's effective tax rate is 30%.

In its Year 2 income statement, what amount should Maxy report as loss from discontinued operations?

a. $420,000

b. $600,000

c. $500,000

d. $350,000

a. $420,000

For the eight months ended August 31, Year 5, the carpet division of a flooring company, which is considered a major line of business, had an operating loss of $115,000 from operations. On September 1, Year 5, the board of directors voted to discontinue the division's operations. On December 31, Year 5, the division was sold for a pretax loss of $135,000. The division's operating loss for Year 5 was $240,000. The company's income tax rate is 30 percent. What amount of loss should the company report as discontinued operations in the December 31, Year 5, income statement?

a. $168,000

b. $182,000

c. $260,000

d. $262,500

d. $262,500

The current exchange rate is 1.59 U.S. dollars per British pound. If a retailer in Great Britain were to quote the exchange rate using the direct method, he would say:

a. 1 British pound is equal to 1.59 U.S. dollars

b. 1 U.S. dollar is equal to 1.59 British pounds

c. 0.63 British pounds are equal to 1 U.S. dollar

d. 0.63 U.S. dollars are equal to 1 British pound

c. 0.63 British pounds are equal to 1 U.S. dollar

The balance in the accumulated other comprehensive income account at the end of the current year is a debit balance. Where in the financial statements should the balance be properly shown?

a. as an expense on the statement of comprehensive income

b. in the balance sheet as an asset

c. in the balance sheet as a reduction of equity

d. as an expense net of tax between discontinued operations and net income

c. in the balance sheet as a reduction of equity

Noshima, a Japanese company, exports goods to Jacobs, a U.S. company. If the transaction is to be settled in yen, which of the following statements is correct?

a. Jacobs will book a gain if the U.S. dollar appreciates versus the Japanese yen

b. Noshima will book a gain if the Japanese yen depreciates versus the U.S. dollar

c. Jacobs will book a gain if the Japanese yen appreciates versus the U.S. dollar

d. Noshima will book a gain if the U.S. dollar appreciates versus the Japanese yen

a. Jacobs will book a gain if the U.S. dollar appreciates versus the Japanese yen

Which of the following statements regarding comprehensive income is correct?

a. discontinued operations are the last items recorded in comprehensive income

b. comprehensive income must always equal or exceed net income

c. the relationship between net income and retained earnings is analogous to the relationship between other comprehensive income and accumulated other comprehensive income

d. other comprehensive income is a permanent account, which never gets closed, thus it carries its balance over from one year to the next

c. the relationship between net income and retained earnings is analogous to the relationship between other comprehensive income and accumulated other comprehensive income

What is the purpose of reporting comprehensive income?

a. to reconcile the difference between net income and cash flows provided from operating activities

b. to summarize all changes in equity from nonowner sources

c. to provide information for each segment of the business

d. to provide a consolidation of the income of the firm’s segments

b. to summarize all changes in equity from nonowner sources

Fay Corp. had a realized foreign exchange loss of $15,000 for the year ended December 31, Year 1, and must also determine whether the following items will require year-end adjustment:

• Fay had an $8,000 loss resulting from the translation of the accounts of its wholly owned foreign subsidiary for the year ended December 31, Year 1.

• Fay had an account payable to an unrelated foreign supplier payable in the supplier's local currency. The U.S. dollar equivalent of the payable was $64,000 on the October 31, Year 1 invoice date, and it was $60,000 on December 31, Year 1. The invoice is payable on January 30, Year 2.

In Fay's Year 1 consolidated income statement, what amount should be included as foreign exchange loss?

a. $11,000

b. $23,000

c. $19,000

d. $15,000

a. $11,000

Toigo Co. purchased merchandise from a vendor in England on November 20 for 500,000 British pounds. Payment was due in British pounds on January 20. The spot rates to purchase one pound were as follows:

November 20	1.25
December 31	1.20
January 20	1.17

How should the foreign currency transaction gain be reported on Toigo's financial statements at December 31?

a. a gain of $40,000 as a separate component of stockholders’ equity

b. a gain of $40,000 in the income statement

c. a gain of $25,000 as a separate component of stockholders’ equity

d. a gain of $25,000 in the income statement

d. a gain of $25,000 in the income statement

On June 19, Don Co., a U.S. company, sold and delivered merchandise on a 30-day account to Cologne GmbH, a German corporation, for 200,000 euros. On July 19, Cologne paid Don in full. Relevant currency exchange rates were:

	June 19	July 19
Spot rate	$.988	$.995
30-day forward rate	.990	1.000

What amount should Don record on June 19 as an account receivable for its sale to Cologne?

a. $199,000

b. $198,000

c. $197,000

d. $200,000

c. $197,000

On October 31, Year 1, a U.S. auto parts company purchased brake pads on credit from a Canadian auto parts wholesale supplier for C$250,000. The Canadian supplier will be paid (settled) on January 31, Year 2. The following (US$/C$) exchange rates are in effect:

October 31, Y1	US$0.90
December 31, Y1	US$0.85
January 31, Y2	US$0.93

What is the journal entry (if any) made December 31, Year 1, by the U.S auto parts company assuming the initial journal entry was made October 31, Year 1?

a.

	Debit (Dr)	Credit (Cr)
Accounts payable	$12,500
Foreign exchange transaction gain		$12,500

b.

	Debit (Dr)	Credit (Cr)
Accounts payable	11,250
Foreign exchange transaction gain		11,250

c. no journal entry

d.

	Debit (Dr)	Credit (Cr)
Foreign exchange transaction loss	12,500
Accounts payable		12,500

a.

	Debit (Dr)	Credit (Cr)
Accounts payable	$12,500
Foreign exchange transaction gain		$12,500

Candy Co., a U.S. company, imported goods for 790,000 yen on November 15, Year 1. Candy Co. paid for the goods on December 15 of the same year. The following exchange rates were applicable:

Date	Exchange Rate
Nov. 15, Yr. 1	$0.013
Dec. 15, Yr. 1	$0.020

On November 15, Year 1, Candy Co. will book a:

a. credit to foreign exchange transaction loss of $5,530

b. debit to accounts payable of $10,270

c. credit to foreign exchange transaction gain of $5,530

d. debit to purchases of $10,270

d. debit to purchases of $10,270

Stuff Inc., a U.S. company, imported goods for 50,000 euro on December 10, Year 1, and paid for them in Euros on January 10, Year 2. The following exchange rates were applicable in Years 1 and 2:

Date	Exchange Rate
Dec. 10, Yr. 1	0.79 €
Dec. 31, Yr. 1	0.82 €
Jan. 10, Yr. 2	0.75 €

What is the unrealized foreign currency gain or loss Stuff must record on December 31, Year 1?

a. a gain of $2,500

b. a gain of $1,500

c. a loss of $2,500

d. a loss of $1,500

a. a gain of $2,500

A partial listing of a company's accounts is presented below:

Revenues	80,000
Operating expenses	50,000
Foreign currency translation adjustment gain, net of tax	4,000
Income tax expense	10,000

What amount should the company report as net income?

a. $20,000

b. $34,000

c. $30,000

d. $24,000

a. $20,000

Which of the following items would not be found in comprehensive income?

a. unrealized losses from changes in the value of available-for-sale debt securities

b. recognition of prior service cost due to pension plan amendment

c. income from continuing operations

d. nonmonetary exchanges of common stock for productive assets

d. nonmonetary exchanges of common stock for productive assets

Ignoring taxes, which of the following situations will cause comprehensive income to decrease?

a. an unrealized gain on an avaliable-for-sale security

b. the amortization of an actuarial pension loss

c. a dividend payout to company shareholders

d. an unrealized loss on a trading security

d. an unrealized loss on a trading security

Which of the following assets or transactions is an element of comprehensive income?

a. sales revenue

b. deferred revenue

c. investments by owners

d. distribution to owners

a. sales revenue

Which of the following items is not classified as "other comprehensive income?"

a. actuarial losses impacting the funded status of a defined benefit pension plan

b. unrealized gains for the year on available-for-sale debt securities

c. foreign currency translation adjustments

d. gains from extinguishment of debt

d. gains from extinguishment of debt

Which of the following items is included in accumulated other comprehensive income or loss?

a. unrealized gains and losses from a derivative properly designated as a fair value hedge

b. unrealized holding gains and losses on securities classified as trading securities

c. gains and losses from defined benefit pension plan accounting

d. a reduction of shareholders’ equity related to employee stock ownership plans

c. gains and losses from defined benefit pension plan accounting

A company reports the following information as of December 31:

Sales revenue	$800,000
Cost of goods sold	600,000
Operating expenses	90,000
Unrealized holding gain on available-for-sale debt securities, net of tax	30,000

What amount should the company report as comprehensive income as of December 31?

a. $30,000

b. $110,000

c. $140,000

d. $200,000

c. $140,000

For the fiscal year ended September 30, Year 1, Safe Instruments Company (SIC) reported net sales, gross profit, and operating income of $375,000,000, $180,000,000, and $135,000,000, respectively. The company also reported net interest expense of $45,000,000 and had a tax rate of 40%. Other pertinent income statement items included a discontinued operations loss of $20,000,000, net of tax. If SIC had other comprehensive income totaling $3,500,000 during the fiscal year, what is the company's reported comprehensive income for September 30, Year 1?

a. $56,500,000

b. $83,500,000

c. $37,500,000

d. $45,100,000

c. $37,500,000

Lift Inc. has the following four holdings in its portfolio of marketable securities:

• Bond W, classified as an available-for-sale security.

• Bond X, classified as a held-to-maturity security.

• Bond Y, classified as a trading security.

• Stock Z, classified as a trading security.

Which of the following events will impact Lift's other comprehensive income balance?

a. bond W has an unrealized gain

b. bond X is sold prior to maturity for a loss

c. bond Y has an unrealized loss for the year

d. stock Z is sold for a realized gain in the current year

a. bond W has an unrealized gain

A company reported the following information for Year 1:

Net income	$34,000
Owner contribution	9,000
Deferred gain on a cash-flow hedge	8,000
Foreign currency translation gain	2,000
Prior service cost not recognized in net periodic pension cost	5,000

 What is the amount of other comprehensive income for Year 1?

a. $5,000

b. $14,000

c. $15,000

d. $43,000

a. $5,000

Which of the following is true regarding the presentation of comprehensive income.

		Must be shown on the face of the income statement	Related tax effects for components must be disclosed
	A.	No	Yes
	B.	Yes	Yes
	C.	Yes	No
	D.	No	No

a. No, Yes

Which of the following is an accurate statement regarding tax reporting issues pertaining to other comprehensive income items?

a. the individual components of other comprehensive income may be either reported on a before tax basis with an aggregate tax amount reported after these items or individually on a net of tax basis

b. the income tax expense or benefit for each other comprehensive income component must be disclosed on the face of the financial statements that these components appear

c. the individual components of other comprehensive income must be reported on a net of tax basis

d. the income tax expense or benefit for each other comprehensive income component must be disclosed in the footnotes to the financial statements

a. the individual components of other comprehensive income may be either reported on a before tax basis with an aggregate tax amount reported after these items or individually on a net of tax basis

Each of the following events is required to be reported to the United States Securities and Exchange Commission on Form 8-K, except:

a. the unregistered sale of equity securities

b. the quarterly results of operations and financial condition of a registrant

c. a change in a registrant’s certifying accountant

d. the creation of an obligation under an off-balance sheet arrangement of a registrant

b. the quarterly results of operations and financial condition of a registrant

On December 1 of the current year, Clay Co. declared and issued a 6 percent stock dividend on its 100,000 shares of outstanding common stock. There was no other common stock activity during the year. What number of shares should Clay use in determining basic earnings per share for the current year?

a. 100,500

b. 103,000

c. 100,000

d. 106,000

d. 106,000

Ute Co. had the following capital structure during Year 1 and Year 2:

Preferred stock, $10 par, 4% cumulative, 25,000 shares issued and outstanding	$250,000
Common stock, $5 par, 200,000 shares issued and outstanding	1,000,000

Ute reported net income of $500,000 for the year ended December 31, Year 2. Ute paid no preferred dividends during Year 1 and paid $16,000 in preferred dividends during Year 2. In its December 31, Year 2, income statement, what amount should Ute report as basic earnings per share?

a. $2,48

b. $2.42

c. $2,50

d. $2.45

d. $2.45

West Co. had earnings per share of $15.00 for the current year before considering the effects of any convertible securities. No conversion or exercise of convertible securities occurred during the year. However, possible conversion of convertible bonds would have reduced earnings per share by $0.75. The effect of possible exercise of common stock options would have increased earnings per share by $0.10. What amount should West report as diluted earnings per share for the current year?

a. $14.25

b. $15.00

c. $14.35

d. $15.10

a. $14.25

Ian Co. is calculating earnings per share amounts for inclusion in Ian's annual report to shareholders. Ian has obtained the following information from the controller's office as well as shareholder services:

Net income from January 1 to December 31		125,000
Number of outstanding shares:
	January 1 to March 31	15,000
	April 1 to May 31	12,500
	June 1 to December 31	17,000

In addition, Ian has issued 10,000 incentive stock options with an exercise price of $30 to its employees and a year-end market price of $25 per share. What amount is Ian's diluted earnings per share for the year ended December 31?

a. $4.63

b. $4.85

c. $7.35

d. $7.94

d. $7.94

Which of the following is the annual report that is filed with the United States Securities and Exchange Commission?

a. Form S-1

b. Form 8-K

c. Form 10-Q

d. Form 10-K

d. Form 10-K

A company is an accelerated filer that is required to file Form 10-K with the United States Securities and Exchange Commission (SEC). What is the maximum number of days after the company's fiscal year end that the company has to file Form 10-K with the SEC?

a. 60 days

b. 90 days

c. 75 days

d. 120 days

c. 75 days

A company is required to file quarterly financial statements with the United States Securities and Exchange Commission on Form 10-Q. The company operates in an industry that is not subject to seasonal fluctuations that could have a significant impact on its financial condition. In addition to the most recent quarter end, for which of the following periods is the company required to present balance sheets on Form 10-Q?

a. the end of the preceding fiscal year and the end of the corresponding fiscal quarter of the preceding fiscal year

b. the end of the corresponding fiscal quarter of the preceding fiscal year

c. the end of the preceding fiscal year and the end of the prior two fiscal years

d. the end of preceding fiscal year

d. the end of preceding fiscal year

A company that is a large accelerated filer must file its Form 10-Q with the United States Securities and Exchange Commission within how many days after the end of the period?

a. 40 days

b. 45 days

c. 30 days

d. 60 days

a. 40 days

Which of the following reports would a company file to meet the U.S. Securities and Exchange Commission's requirements for unaudited, interim financial statements reviewed by an independent accountant?

a. 14A Proxy Statement

b. Form S-1

c. Form 10-K

d. Form 10-Q

d. Form 10-Q

In order for the shareholders to receive a public company's 10-Q report in a timely manner, an accelerated filer with a quarter ending on June 30 has until which date to issue its report?

a. August 29

b. August 14

c. September 13

d. August 9

d. August 9

Audited financial statements will most likely be found in which of the following SEC required forms?

a. the Form 10-K

b. the Form 6-K

c. the Form 8-K

d. the Form 10-Q

a. the Form 10-K

On January 16, Tree Co. paid $60,000 in property taxes on its factory for the current calendar year. On April 2, Tree paid $240,000 for unanticipated major repairs to its factory equipment. The repairs will benefit operations for the remainder of the calendar year. What amount of these expenses should Tree include in its third quarter interim financial statements for the three months ended September 30?

a. $15,000

b. $75,000

c. $0

d. $95,000

d. $95,000

A U.S. publicly traded company's second fiscal quarter ends on March 31. If the company is an accelerated filer, what is the latest date that the 10-Q should be filed with the U.S. SEC?

a. May 10

b. June 29

c. May 15

d. May 30

a. May 10

Condensed financial statements related to a public company's operations are a component of which of the following forms filed with the U.S. SEC?

a. Form 10-Q

b. Form 4

c. Form 10-K

d. Form 11-K

a. Form 10-Q

Under U.S. GAAP, earnings per share data should be reported for:

		Discontinued operations	Income from continuing operations
	A.	Yes	Yes
	B.	Yes	No
	C.	No	Yes
	D.	No	No

a. Yes, Yes

Earnings per share disclosure is required for which of the following:

a. non-public companies

b. investment companies

c. companies who have made a filing with the SEC in preparation for a sale of public securities

d. wholly-owned subsidiaries of public companies

c. companies who have made a filing with the SEC in preparation for a sale of public securities

Deck Co. had 120,000 shares of common stock outstanding at January 1, Year 2. On July 1, Year 2, it issued 40,000 additional shares of common stock. Outstanding all year were 10,000 shares of nonconvertible cumulative preferred stock. What is the number of shares that Deck should use to calculate Year 2 earnings per share?

a. 160,000

b. 170,000

c. 150,000

d. 140,000

d. 140,000

The following information pertains to Jet Corp.'s outstanding stock for Year 2:

Common stock, $5 par value
Shares outstanding, 1/1/Year 2	20,000
2-for-1 stock split, 4/1/Year 2	20,000
Shares issued, 7/1/Year 2	10,000
Preferred stock, $10 par value, 5% cumulative
Shares outstanding, 1/1/Year 2	4,000

What are the number of shares Jet should use to calculate Year 2 earnings per share?

a. 50,000

b. 40,000

c. 45,000

d. 54,000

c. 45,000

Poe Co. had 300,000 shares of common stock issued and outstanding at December 31, Year 1. No common stock was issued during Year 2. On January 1, Year 2, Poe issued 200,000 shares of nonconvertible preferred stock. During Year 2, Poe declared and paid $75,000 cash dividends on the common stock and $60,000 on the preferred stock. Net income for the year ended December 31, Year 2 was $330,000. What should be Poe's Year 2 earnings per common share?

a. $0.90

b. $0.65

c. $0.85

d. $1.10

a. $0.90

A medical technology firm had 18,000 shares of common stock issued and outstanding at the beginning of the year. The following transactions occurred during the year:

Date	Transaction
April 1	Issued additional 3,000 shares
December 1	Purchased 1,200 shares of treasury stock

How many shares would be used to calculate basic earnings per share?

a. 21,000

b. 20,150

c. 20,250

d. 20,350

b. 20,150

Dilutive stock options would generally be used in the calculation of:

		Basic earnings per share	Diluted earnings per share
	A.	No	Yes
	B.	No	No
	C.	Yes	No
	D.	Yes	Yes

a. No, Yes

Jones Corp.'s capital structure was as follows:

		December 31
		Year 1	Year 2
Outstanding shares of stock:
	Common	110,000	110,000
	Convertible preferred	10,000	10,000
8% convertible bonds		1,000,000	1,000,000

During Year 2, Jones fully paid the required dividends of $3.00 per share on its preferred stock. The preferred shares are convertible into 20,000 shares of common stock. The 8% bonds are convertible into 30,000 shares of common stock. Net income for Year 2 is $850,000. Assume that the income tax rate is 30%.

The diluted earnings per share for Year 2 is:

a. $4.66

b. $5,81

c. $6.47

d. $5.66

d. $5.66

The following information is relevant to the computation of Chan Co.'s earnings per share to be disclosed on Chan's income statement for the year ending December 31:

• Net income for 2002 is $600,000.

• $5,000,000 face value 10-year convertible bonds outstanding on January 1. The bonds were issued at a discount, and the current year's discount amortization is $20,000. The stated rate of interest on the bonds is 9%, and the bonds were issued to yield 10%. Each $1,000 bond is convertible into 20 shares of Chan's common stock.

• Chan's corporate income tax rate is 25%.

Chan has no preferred stock outstanding, and no other convertible securities. What amount should be used as the numerator in the fraction used to compute Chan's diluted earnings per share assuming that the bonds are dilutive securities?

a. $247,500

b. $1.070,000

c. $952,500

d. $922,500

c. $952,500

A firm has basic earnings per share of $1.29. If the tax rate is 30%, which of the following securities would be dilutive?

a. six percent, $100 par cumulative convertible preferred stock, issued at par, with each preferred share convertible into four shares of common stock

b. ten percent convertible bonds, issued at part, with each $1,000 bond convertible into 20 shares of common stock

c. cumulative 8%, $50 par preferred stock

d. Seven percent convertible bonds, issued at part with each $1,000 bond convertible into 40 shares of common stock

d. Seven percent convertible bonds, issued at part with each $1,000 bond convertible into 40 shares of common stock

At December 31, Year 1, Eagle Corp. reported $1,750,000 of appropriated retained earnings for the construction of a new office building, which was completed in Year 2 at a total cost of $1,500,000. In Year 2, Eagle appropriated $1,200,000 of retained earnings for the construction of a new plant. Also, $2,000,000 of cash was restricted for the retirement of bonds due in Year 3. In its Year 2 balance sheet, Eagle should report what amount of appropriated retained earnings?

a. $2,950,000

b. $3,200,000

c. $1,450,000

d. $1,200,000

d. $1,200,000

Porter Co. began its business last year and issued 10,000 shares of common stock at $3 per share. The par value of the stock is $1 per share. During January of the current year, Porter bought back 500 shares at $6 per share, which were reported by Porter as treasury stock. The treasury stock shares were reissued later in the current year at $10 per share. Porter used the cost method to account for its equity transactions. What amount should Porter report as paid-in capital related to its treasury stock transactions on its balance sheet for the current year?

a. $1,500

b. $20,000

c. $2,000

d. $4,500

c. $2,000

Mag, Inc.'s December 31 unadjusted current assets and stockholders' equity sections are as follows:

	Current Assets:
Cash	$15,000
Investments in marketable equity securities (including $75,000 of Mag, Inc. common stock)	100,000
Trade accounts receivable	85,000
Inventories	37,000
Total	$237,000
Stockholders' Equity:
Common stock	$556,000
Retained earnings (deficit)	(56,000)
Total	$500,000

The investments and inventories are reported at their costs, which approximate market values.

Mag's stockholders' equity at December 31 should be:

a. $425,000

b. $481,000

c. $500,000

d. $556,000

a. $425,000

At December 31, Year 1 and Year 2, Carr Corp. had outstanding 4,000 shares of $100 par value 6% cumulative preferred stock and 20,000 shares of $10 par value common stock. At December 31, Year 1, dividends in arrears on the preferred stock were $12,000. Cash dividends declared in Year 2 totaled $44,000. Of the $44,000, what amounts were payable on each class of stock?

		Preferred stock	Common stock
	A.	$24,000	$20,000
	B.	$32,000	$12,000
	C.	$36,000	$8,000
	D.	$44,000	$0

c. $36,000, $8,000

At December 31, Year 2 and Year 3, Apex Co. had 3,000 shares of $100 par, 5% cumulative preferred stock outstanding. No dividends were in arrears as of December 31, Year 1. Apex did not declare a dividend during Year 2. During Year 3, Apex paid a cash dividend of $10,000 on its preferred stock. Apex should report dividends in arrears in its Year 3 financial statements as a(an):

a. accrued liability of $20,000

b. accrued liability of $15,000

c. disclosure of $15,000

d. disclosure of $20,000

d. disclosure of $20,000

On March 1, Rya Corp. issued 1,000 shares of its $20 par value common stock and 2,000 shares of its $20 par value convertible preferred stock for a total of $80,000. At this date, Rya's common stock was selling for $36 per share, and the convertible preferred stock was selling for $27 per share. What amount of the proceeds should be allocated to Rya's convertible preferred stock?

a. $44,000

b. $60,000

c. $54,000

d. $48,000

d. $48,000

During the current year, Onal Co. purchased 10,000 shares of its own stock at $7 per share. The stock was originally issued at $6. The firm sold 5,000 of the treasury shares for $10 per share. The firm uses the cost method to account for treasury stock. What amount should Onal report in its income statement for these transactions?

a. $10,000 loss

b. $15,000 gain

c. $0

d. $5,000 gain

c. $0

Each of the following transactions will cause a decrease in stockholders' equity, except:

a. a loss on the sale of a discontinued segment

b. the sale of treasury stock at less than cost

c. a loss from a foreign currency translation adjustment

d. the declaration of a cash dividend

b. the sale of treasury stock at less than cost

Regency Inc. originally issued 1 million shares of its $1 par value common stock at $32 per share. One year later, the company repurchased 200,000 shares at $40 per share. Assuming that half of these repurchased shares are now reissued to investors at $45 per share, what accounts and amounts are credited in the journal entry to reflect the reissuance transaction under the cost method?

a. treasury stock - $3,200,000; additional paid-in capital TS - $1,300,000

b. treasury stock - $3,200,000; retained earnings - $800,000; additional paid-in capital TS - $500,000

c. treasury stock - $4,000,000; additional paid-in capital TS - $500,000

d. treasury stock - $4,000,000; retained earnings - $500,000

c. treasury stock - $4,000,000; additional paid-in capital TS - $500,000

Cyan Corp. issued 20,000 shares of $5 par common stock at $10 per share. On December 31, Year 1, Cyan's retained earnings were $300,000. In March, Year 2, Cyan reacquired 5,000 shares of its common stock at $20 per share. In June, Year 2, Cyan sold 1,000 of these shares to its corporate officers for $25 per share. Cyan uses the cost method to record treasury stock. Net income for the year ended December 31, Year 2, was $60,000. At December 31, Year 2, what amount should Cyan report as retained earnings?

a. $365,000

b. $360,000

c. $375,000

d. $380,000

b. $360,000

Murphy Co. had 200,000 shares outstanding of $10 par common stock on March 30 of the current year. Murphy reacquired 30,000 of those shares at a cost of $15 per share, and recorded the transaction using the cost method on April 15. Murphy reissued the 30,000 shares at $20 per share, and recognized a $50,000 gain on its income statement on May 20. Which of the following statements is correct?

a. Murphy should have recognized a $50,000 loss on its income statement for the current year

b. Murphy’s net income for the current year is overstated

c. Murphy’s comprehensive income for the current year is correctly stated

d. Murphy’s net income for the current year is understated

b. Murphy’s net income for the current year is overstated

Which of the following is a true statement regarding the cost method as compared to the legal (par/stated value) method when accounting for treasury stock transactions?

a. gains from the sales of treasury stock are recorded as an adjustment to APIC - treasury stock only under the legal method

b. gains from the sales of treasury stock are recorded as an adjustment to APIC - treasury stock only under the cost method

c. the gain or loss from treasury stock transactions are reported on the income statement only under the legal method

d. the gain or loss from treasury stock transactions are reported on the income statement only under the cost method

b. gains from the sales of treasury stock are recorded as an adjustment to APIC - treasury stock only under the cost method

Two years ago, Carlisle Industries commenced its business by issuing 250,000 shares of $5 par value stock for $28 per share. During the fourth quarter of the current year, the company repurchased 75,000 shares at $32 per share. Assuming that the par value (legal) method is used and there have been no stock repurchases to date, what account(s) and amount(s) are debited for this buyback transaction?

a. treasury stock - $2,400,000

b. treasury stock - $375,000; additional paid-in capital C/S - $1,725,000; retained earnings - $300,000

c. treasury stock - $2,100,000; additional paid-in capital C/S - $300,000

d. treasury stock - $375,000; additional paid-in capital C/S - $2,025,000

b. treasury stock - $375,000; additional paid-in capital C/S - $1,725,000; retained earnings - $300,000

Asp Co. was organized on January 2, Year 1, with 30,000 authorized shares of $10 par common stock. During Year 1, the corporation had the following capital transactions:

January 5	Issued 20,000 shares at $15 per share.
July 14	Purchased 5,000 shares at $17 per share.
December 27	Reissued the 5,000 shares held in treasury at $20 per share.

Asp used the U.S. GAAP par value method to record the purchase and reissuance of the treasury shares. In its December 31, Year 1, balance sheet, what amount should Asp report as additional paid-in capital?

a. $150,000

b. $100,000

c. $140,000

d. $125,000

d. $125,000

Lem Co., which accounts for treasury stock under the par value method, acquired 100 shares of its $6 par value common stock for $10 per share. The shares had originally been issued by Lem for $7 per share. By what amount would Lem's additional paid-in capital from common stock decrease as a result of the acquisition?

a. $400

b. $300

c. $0

d. $100

d. $100

Selected information from the accounts of Row Co. at December 31, Year 5, follows:

Total income since incorporation	$420,000
Total cash dividends paid	130,000
Total value of property dividends distributed	30,000
Excess of proceeds over cost of treasury stock sold, accounted for using the cost method	110,000

In its December 31, Year 5, financial statements, what amount should Row report as retained earnings?

a. $400,000

b. $370,000

c. $290,000

d. $260,000

d. $260,000

On December 1, Nilo Corp. declared a property dividend of marketable securities to be distributed on December 31 to stockholders of record on December 15. On December 1, the marketable securities had a carrying amount of $60,000 and a fair value of $78,000. What is the effect of this property dividend on Nilo's retained earnings, after all nominal accounts are closed?

a. $0

b. $18,000 increase

c. $60,000 decrease

d. $78,000 decrease

c. $60,000 decrease

On April 1, Hyde Corp., a newly formed company, had the following stock issued and outstanding:

• Common stock, no par, $1 stated value, 20,000 shares originally issued for $30
  per share.

• Preferred stock, $10 par value, 6,000 shares originally issued for $50 per share.

Hyde's April 1 statement of stockholders' equity should report:

		Common stock	Preferred stock	Additional paid-in capital
	A.	$600,000	$300,000	$0
	B.	$20,000	$60,000	$820,000
	C.	$20,000	$300,000	$580,000
	D.	$600,000	$60,000	$240,000

b. $20,000, $60,000, $820,000

On January 15, Year 1, Rico Co. declared its annual cash dividend on common stock for the year ended January 31, Year 1. The dividend was paid on February 9, Year 1, to stockholders of record as of January 28, Year 1. On what date should Rico decrease retained earnings by the amount of the dividend?

a. January 28, Year 1

b. January 15, Year 1

c. February 9, Year 1

d. January 31, Year 1

b. January 15, Year 1

On January 2, Year 2, Lake Mining Co.'s board of directors declared a cash dividend of $400,000 to stockholders of record on January 18, Year 2, payable on February 10, Year 2. The dividend is permissible under law in the state where Lake is incorporated. Selected balances from its December 31, Year 1 balance sheet are as follows:

Accumulated depletion	$100,000
Capital stock	500,000
Additional paid-in capital	150,000
Retained earnings	300,000

The $400,000 dividend includes a liquidating dividend of:

a. $150,000

b. $100,000

c. $300,000

d. $0

b. $100,000

Long Co. had 100,000 shares of common stock issued and outstanding at January 1, Year 2. During Year 2, Long took the following actions:

March 15	Declared a 2-for-1 stock split, when the fair value of the stock was $80 per share.
December 15	Declared a $.50 per share cash dividend.

In Long's statement of stockholders' equity for Year 2, what amount should Long report as dividends?

a. $850,000

b. $950,000

c. $100,000

d. $50,000

c. $100,000

Cobb Co. purchased 10,000 shares (2% ownership) of Roe Co. on February 12, Year 1. Cobb received a stock dividend of 2,000 shares on March 31, Year 1, when the carrying amount per share on Roe's books was $35 and the market value per share was $40. Roe paid a cash dividend of $1.50 per share on September 15, Year 1. In Cobb's income statement for the year ended October 31, Year 1, what amount should Cobb report as dividend income?

a. $88,000

b. $18,000

c. $15,000

d. $98,000

b. $18,000

Mio Corp was the sole stockholder of Plasti Corp. On September 30, Mio declared a property dividend of Plasti's 2,000 outstanding shares of $1 par value common stock, distributable to Mio's stockholders. On that date, the book value of Plasti's stock was $1.50 per share. Immediately after the distribution, the market value of Plasti's stock was $4.50 per share. What amount should Mio report in its financial statements as gain on disposal of the Plasti stock?

a. $6,000

b. $1,00

c. $3,000

d. $2,000

a. $6,000

At its meeting held on October 25, the board of directors of Camp Corp. declared dividends to be paid to shareholders of record on November 15. The dividend was paid on December 29. On what date should Camp create a liability for dividends payable?

a. December 31

b. December 29

c. November 15

d. October 25

d. October 25

On February 4, Year 2, a company declared a dividend of $0.10 per share for the year ended December 31, Year 1. The dividend was declared before the financial statements were issued. There were 2 million shares outstanding on December 31, Year 1, and 3 million shares outstanding on February 4, Year 2. How much, if any, should the company recognize as a liability for the dividend in its December 31, Year 1, financial statements?

a. $150,000

b. $300,000

c. $0

d. $200,000

c. $0

How would a 5% stock dividend affect each of the following?

		Assets	Total stockholders' equity	Retained earnings
	A.	Increase	Increase	Decrease
	B.	Decrease	Decrease	No effect
	C.	No effect	Decrease	Decrease
	D.	No effect	No effect	Decrease

d. no effect, no effect, decrease

Plack Co. purchased 10,000 shares (2% ownership) of Ty Corp. on February 14, Year 1. Plack received a stock dividend of 2,000 shares on April 30, Year 1, when the market value per share was $35. Ty paid a cash dividend of $2 per share on December 15, Year 1. In its Year 1 income statement, what amount should Plack report as dividend income?

a. $90,000

b. $20,000

c. $24,000

d. $94,000

c. $24,000

A company that uses the accrual method of accounting started the fiscal year with assets of $600,000 and liabilities of $400,000. During the fiscal year the company recorded credit sales of $250,000, of which $8,000 remained to be collected at year-end, and incurred expenses of $90,000, of which $72,000 was paid in cash. A stock dividend valued at $10,000 was declared and issued to stockholders during the year. What is the year-end balance of total equity?

a. $370,000

b. $380,000

c. $360,000

d. $350,000

c. $360,000

A corporation declared a 10 percent stock dividend on 15,000 shares outstanding of $5 par common stock when the fair value was $10 per share. Which change in the corporation's stockholders' equity accounts is correct?

a. common stock is decreased by $7,500

b. common stock is increased by $15,000

c. retained earnings is decreased by $15,000

d. additional paid-in-capital is increased by $15,000

c. retained earnings is decreased by $15,000

As of December 31, Year 2, a company reported retained earnings of $600,000. The following occurred during Year 3:

• 2,000 shares of stock that were issued in Year 1 at their $100 par were repurchased for constructive retirement at a cost of $90 per share.

• A stock dividend with a fair value of $150,000 was declared and issued.

• Net income of $400,000 was recorded.

What amount should be reported as retained earnings in the company's December 31, Year 3, classified balance sheet?

a. $1,020,000

b. $1,000,000

c. $870,000

d. $850,000

d. $850,000

Rudd Corp. had 700,000 shares of common stock authorized and 300,000 shares outstanding at December 31, Year 1. The following events occurred during Year 2:

January 31	Declared 10% stock dividend
June 30	Purchased 100,000 shares
August 1	Reissued 50,000 shares
November 30	Declared 2-for-l stock split

At December 31, Year 2, how many shares of common stock did Rudd have outstanding?

a. 560,000

b. 600,000

c. 630,000

d. 660,000

a. 560,000