Pinkerton Case Study Solution



CPP's Acquisition of Pinkerton's

Wathen wanted to buy Pinkerton's for several reasons. First, he had always had the goal of creating the largest firm in the security guard industry and the acquisition of Pinkerton's would put him in a virtual tie with Baker Industries, a subsidiary of Borg Warner, and the largest provider of contract guard services. Secondly, Wathen had been convinced for some time that American Brands was mismanaging Pinkerton's and destroying a great brand name with its pricing strategy. In October 1987, American Brands announced it had decided to sell Pinkerton's because the security guard firm no longer fit into Brands' long-range business strategy. Upon this announcement, Jerry Brown, CPP's secretary and general counsel, recalls, "Tom [Wathen] called me in and from that moment I knew he was going to do whatever it took to buy Pinkerton's. Tom was always hung up on being the largest, and on Pinkerton's name."Morgan Stanley, an investment bank, was to represent American Brands in the sale and the bidding promised to be hotly contested. A task force of senior managers was quickly formed to prepare CPP's bid which they knew, given the time pressures of the sale, would not have the benefit of adequate preparation...

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Accounting MCQ A+ Answers



1. Amortization: (Points : 2)
A Is the systematic allocation of the cost of an intangible asset to expense over its estimated useful life
BIs the process of allocating to expense the cost of a plant asset to the accounting periods benefiting from its use
C Is the process of allocating the cost of natural resources to periods when they are consumed
D Is an accelerated form of expensing an asset's cost
E Is the same as depletion

2. Liabilities: (Points : 2)
A Must be certain
B Must sometimes be estimated
C Must be for a specific amount
D Must always have a definite date for payment
E Must involve an outflow of cash

3. Depreciation: (Points : 2)
A Measures the decline in market value of an asset
B Measures physical deterioration of an asset
C Is the process of allocating to expense the cost of a plant asset
D Is an outflow of cash from the use of a plant asset
E Is applied to land

4. The interest accrued on $3,600 at 7% for 60 days is: (Points : 2)
A $36
B $42
C $252
D$180
E $420

5. A special bank account used solely for the purpose of paying employees, is created by depositing the amount of each employees' net pay into the account every pay period. This account is referred to as a(n): (Points : 2)
A Federal depository bank account
B Employee's Individual Earnings account
C Employees' bank account
D Payroll register account
E Payroll bank account

6. A company had a fixed interest expense of $6,000, its income before interest expense and any income taxes was $18,000 and its net income was $8,400. The company's times interest earned ratio is equals to (Points : 2)
A 0.33
B 0.71
C 1.40
D 3.00
E 12,000

7. A change in an accounting estimate is: (Points : 2)
A Reflected in past financial statements
B Reflected in future financial statements and also requires modification of past statements
C  A change in a calculated amount that is part of financial statements that results from new information or subsequent developments and from better insight or improved judgment
D Not allowed under current accounting rules
E Considered an error in the financial statements

8. The useful life of a plant asset is: (Points : 2)
A The length of time it is used productively in a company's operations
B Never related to its physical life
C Its productive life, but not to exceed one year
D Determined by the FASB
E Determined by law

9. An employee earned $4,300 working for an employer. The current rate for FICA social security is 6.2% and the FICA Medicare rate is 1.45%. The employer's total FICA payroll tax for this employee is: (Points : 2)
A $62.35
B $266.60
C $328.95
D$657.90

10. A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. The depletion expense per ton of ore is: (Points : 2)
A $0.75
B $0.625
C $0.875
D $6.00
E $8.00

11. A contingent liability: (Points : 2)
A Is always of a specific amount
B Is a potential obligation that depends on a future event arising out of a past transaction or event
C Is an obligation not requiring future payment
D Is an obligation arising from the purchase of goods or services on credit
E Is an obligation arising from a future event
12. On October 10, 2010, Printfast Company sells a commercial printer for $2,350 with a one year warranty that covers parts. Warranty expense is project to be 4% of sales. On February 28, 2011, the printer requires repairs. The cost of the parts for the repair is $80 and Printfast pays their technician $150 to perform the repair. What is the warranty liability at the end of 2010? (Points : 2)
A $49.00
B $84.80
C $94.00
D $0, there is no liability at the end of 2010
E $230.00

13. FICA taxes include: (Points : 2)
A Social Security taxes
B Charitable giving
C Employee income taxes
D Unemployment taxes

14. Depletion: (Points : 2)
A Is the process of allocating the cost of natural resources to periods in which they are consumed
B Is also called depreciation
C Is also called amortization
D Is an unrealized expense reported in equity
E Is the process of allocating the cost of intangibles to periods in which they are used

15. Pepsi's accounts receivable turnover was 9.9 for this year and 11.0 for last year. Coke's turnover was 9.3 for this year and 9.3 for last year. These results imply that: (Points : 2)
A Coke has the better turnover for both years
B Pepsi has the better turnover for both years
C Coke's turnover is improving
D Coke's credit policies are too loose
E Coke is collecting its receivables more quickly than Pepsi in both years

16. Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as: (Points : 2)
A Convertible bonds
B Sinking fund bonds
C Callable bonds
D Serial bonds

17. Shamrock Company had net income of $30,000. On January 1, there were 8,000 shares of common stock outstanding. On April 1, the company issued an additional 2,000 shares of common stock. There were no other stock transactions. The company has an earnings per share of: (Points : 2)
A $3.75
B $3.00
C $3.33
D $15.00
E $3.16

18. A company must repay the bank $10,000 cash in 3 years for a loan. The loan agreement specifies 8% interest compounded annually. The present value factor for 3 years at 8% is 0.7938. The present value of the loan is: (Points : 2)
A $10,000
B $12,400
C $7,938
D $9,200
E $7,600

19. To provide security to creditors and to reduce interest costs, bonds and notes payable can be secured by: (Points : 2)
A Safe deposit boxes
B Mortgages
C Equity
D The FASB
E Debentures

20. The market value of a bond is equal to: (Points : 2)
A The present value of all future cash payments provided by a bond
B The present value of all future interest payments provided by a bond
C The present value of the principal for an interest-bearing bond
D The future value of all future cash payments provided by a bond
E The future value of all future interest payments provided by a bond

21. Dividend yield is the percent of cash dividends paid to common shareholders relative to the: (Points : 2)
A Common stock's market value
B Earnings per share
C Investors' purchase price of the stock
D Amount of retained earnings
E Amount of cash

22. Which of the following statements is true? (Points : 2)
A Interest on bonds is tax deductible
B Interest on bonds is not tax deductible
C Dividends to stockholders are tax deductible
D Bonds do not have to be repaid

23. If an issuer sells a bond at any other date than the interest payment date: (Points : 2)
A This means the bond sells at a premium
B This means the bond sells at a discount
C The issuing company will report a loss on the sale of the bond
D The issuing company will report a gain on the sale of the bond
E The buyer normally pays the issuer the purchase price plus any interest accrued since the prior interest payment date

24. A bond sells at a discount when the: (Points : 2)
A Contract rate is above the market rate
B Contract rate is equal to the market rate
C Contract rate is below the market rate
D Bond has a short-term life
E Bond pays interest only once a year

25. The Discount on Bonds Payable account is: (Points : 2)
A A liability
B A contra liability
C An expense
D A contra expense
E A contra equity

26. A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value factor for an annuity for 7 years at 9% is 5.0330. The present value of the loan is: (Points : 2)
A $9,000
B $5,033
C $63,000
D $57,330
E $45,297
27. The amount of income earned per share of a company's common stock is known as: (Points : 2)
A Restricted retained earnings per share
B Earnings per share
C Continuing operations per share
D Dividends per share
E Book value per share

28. The date the board of directors votes to pay a dividend is called the: (Points : 2)
A Date of stockholders' meeting
B Date of declaration
C Date of record
D Date of payment
E Liquidating date

29. Bonds that give the issuer an option of retiring them prior to the date of maturity are: (Points : 2)
A Debentures
B Serial bonds
C Sinking fund bonds
D Registered bonds
E Callable bonds

30. A company issues 9%, 20-year bonds with a par value of $750,000. The current market rate is 9%. The amount of interest owed to the bondholders for each semiannual interest payment is. (Points : 2)
A $0
B $33,750
C $67,500
D $750,000
E $1,550,000

31. Financial reporting refers to: (Points : 2)
A The application of analytical tools to general-purpose financial statements
B The communication of relevant financial information to decision makers
C Financial statements only
D Ratio analysis
E Profitability

32. Net sales divided by average accounts receivable is equal to the: (Points : 2)
A Days' sales uncollected
B Average accounts receivable ratio
C Current ratio
D Profit margin
E Accounts receivable turnover ratio

33. Accounting standards: (Points : 2)
A Allow companies to omit the statement of cash flows from a complete set of financial statements if cash is an insignificant asset
B Require that companies omit the statement of cash flows from a complete set of financial statements if the company has no investing activities
C Require that companies include a statement of cash flows in a complete set of financial statements
D Allow companies to include the statement of cash flows in a complete set of financial statements if the cash balance makes up more than 50% of the current assets
E Allow companies to omit the statement of cash flows from a complete set of financial statements if the company has no financing activities

34. The statement of cash flows reports: (Points : 2)
A Assets, liabilities and equity
B Revenues, gains, expenses and losses
C Cash inflows and outflows for an accounting period
D Equity, net income and dividends
E Changes in equity

35. A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash. The amount that should be reported as a source of cash under cash flows from investing activities is: (Points : 2)
A $50,000
B $5,000
C $45,000
D Zero. This is an operating activity
E Zero. This is a financing activity

36. Dividing ending inventory by cost of goods sold and multiplying the result by 365 is equal to the: (Points : 2)
A Inventory turnover ratio
B Profit margin
C Days' sales in inventory
D Current ratio
E Total asset turnover

37. The ability to meet short-term obligations and to efficiently generate revenues is called: (Points : 2)
A Liquidity and efficiency
B Solvency
C Profitability
D Market prospects
E Creditworthiness

38. Internal users of financial information: (Points : 2)
A Are not directly involved in operating a company
B Are those individuals involved in managing and operating the company
C Include shareholders and lenders
D Include directors and customers
E Include suppliers, regulators and the press

39. The comparison of a company's financial condition and performance across time is known as: (Points : 2)
A Horizontal analysis
B Vertical analysis
C Political analysis
D Financial reporting
E Investment analysis

40. Comparative financial statements in which each amount is expressed as a percentage of a base amount and in which the base amount is expressed as 100%, are called: (Points : 2)
A Comparative statements
B Common-size comparative statements
C General-purpose financial statements
D Base line statements
E Index statements

41. The measurement of key relations among financial statement items is known as: (Points : 2)
A Financial reporting
B Horizontal analysis
C Investment analysis
D Ratio analysis
E Risk analysis

42. External users of financial information: (Points : 2)
A Are those individuals involved in managing and operating the company
B Include internal auditors and consultants
C Are not directly involved in operating the company
D Make strategic decisions for a company
E Make operating decisions for a company

43. One of several ratios that reflects solvency includes the: (Points : 2)
A Acid-test ratio
B Current ratio
C Times interest earned ratio
D Total asset turnover
E Days' sales in inventory

44. The reporting of net cash provided or used by operating activities that lists the major items of operating cash receipts, such as receipts from customers and subtracts the major items of operating cash disbursements, such as cash paid for merchandise is referred to as the: (Points : 2)
A Direct method of reporting net cash provided or used by operating activities
B Cash basis of accounting
C Classified statement of cash flows
D Indirect method of reporting net cash provided or used by operating activities
E Net method of reporting cash flows from operating activities

45. A company's transactions with its creditors to borrow money and/or to repay the principal amounts of loans are reported as cash flows from: (Points : 2)
A Operating activities
B Investing activities
C Financing activities
D Direct activities
E Indirect activities

46. Wessen Company reports net income of $180,000 for the year ended December 31, 2010. It also reports $45,800 depreciation expense, $21,410 amortization expense and a $15,000 gain on the sale of machinery. Its comparative balance sheets reveal a $28,300 increase in accounts receivable, $20,400 decrease in accounts payable, $10,470 increase in prepaid expenses, and $33,140 decrease in wages payable. What is the net cash flows provided (used) by operating activities using the indirect method? (Points : 2)
A ($140,200)
B $133,490
C $139,900
D ($133,490)
E $78,300

47. A company has a profit margin of 5%. If net income is equal to $83,000 and average total assets is equal to $45,000, how much are net sales? (Points : 2)
A $4,150
B $2,250
C $1,660,000
D $6,400
E $128,000

48. Reporting of discontinued segments includes: (Points : 2)
Income or loss from operating the discontinued segment net of tax and gain or loss from disposal of A the segment's net assets net of tax
B Extraordinary items
C Changes in accounting principle
D Items that are both unusual and infrequent
E Writing off of receivables

49. Activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business, are classified as: (Points : 2)
A Financing activities
B Investing activities
C Operating activities
D Direct activities
E Indirect activities

50. A company had net cash flows from operations of $120,000, total cash flows of $500,000 and average total assets of $2,500,000. The cash flow on total assets ratio equals: (Points : 2)
A 4.8%
B 5.0%
C 20.0%
D 20.8%
E 24.0%

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Odd Springs Trading Company Practice Set

Odd Springs Trading Company Practice Set

As the accountant for Odd Springs Trading Company, you must
1 -- Record the transactions for the month in the general journal.
2 -- Post the general journal entries to the general ledger accounts and
also provide the proper referencing and running totals.
3 -- Prepare the trial balance, based on the ledger balances, before adjusting entries are made.
4 -- Prepare the worksheet.
5 -- Prepare any necessary adjusting journal entries to the general ledger accounts.
6 -- Post the adjusting journal entries to the general ledger accounts.
7 -- Prepare the adjusted trial balance, based on the ledger balances.
8 -- Prepare the closing journal entries as of the month end.
9 -- Post the closing journal entries to the general ledger accounts.
10 -- Prepare the post-closing trail balance, based on the ledger balances.
11 -- Prepare the financial statements, including the
Multiple-step Income Statement
Statement of Owner's Equity
Classified Balance Sheet

Download Odd Springs Trading Company Practice Set A+ 100% Correct ($14 : Excel File)

MGT 538 Final Exam

An international manager can best develop an understanding of a particular culture by
A. creating a cultural profile for that country or region in which the firm does business
B. assuming that American cultural styles and practices can be successfully transplanted
C. using stereotypes to develop cross-cultural understanding in a business setting
D. hiring locals rather than expatriates for management positions in overseas subsidiaries
MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013)

MGT 538 Final Exam

John is an American manager working at his firm’s subsidiary in Indonesia.  A local government official tells John that materials could be delivered to the firm’s facility more quickly if John pays an extra fee to the port supervisor. What should be John’s first action?
A. Consult his supervisor in the United States.
B. Discuss the issue with his local agent.
C. Refer to the company’s code of ethics.
D. Consult both American and Indonesian laws.
MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013)

MGT 538 Final Exam

Which of the following best explains why Avon expanded to the international market?
A. Increased domestic competition in the door-to-door cosmetic industry
B. Increased number of American women in the workforce
C. Decreased restrictions on cosmetics in the Chinese market
D. Decreased number of qualified sales representatives in the United States

MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013

MGT 538 Final Exam

A French businessman has a meeting scheduled with a Brazilian businessman to negotiate terms of a joint venture. The Frenchman prepares for the meeting in the way he always does when negotiating with French firms. The Frenchman assumes that the Brazilian will perceive and reason the way he does. Which of the following terms best describes the Frenchman’s mistake?
A. cognitive dissonance
B. moral idealism
C. parochialism
D. projective cognitive similarity
MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013)  

MGT 538 Final Exam

What is the most likely reason that over half of the Saudi workforce consists of foreigners?
A. High wage rates and low taxes for expatriates at Saudi-based MNEs
B. Negative attitudes among Saudi Arabians regarding hard work
C. Saudi Arabia’s tight restrictions on male and female workers
D. Lack of Saudi government support for university training

MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013)   

MGT 538 Final Exam

Which of the following is a common Chinese tactic used during negotiations with Americans?
A. Refusing to answer the Americans’ questions or respond to their inquiries
B. Suggesting that the Americans are reneging on their friendship
C. Refusing to compromise until the last possible moment
D. Asking for concessions relating to product delivery time

MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013)   

MGT 538 Final Exam

Which of the following significantly increases the complexity of corporate social responsibility for MNCs?
A. distance between the home office and the subsidiaries
B. difficult nature of training managers in different cultures
C. additional stakeholders associated with the firm’s activities
D. international laws, regulations, and moral principles

MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013)  

MGT 538 Final Exam

Problems associated with cross-cultural negotiations and decision making styles are the primary reasons for
A. lawsuits filed against MNCs by angry shareholders
B. decreasing numbers of international joint ventures
C. increasing regulations within the European Union
D. economic hardships in former socialist countries

  MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013

MGT 538 Final Exam

What is the best method for avoiding miscommunications?
A. Taking detailed notes
B. Learning foreign phrases
C. Practicing projective listening
D. Relying on a language interpreter

MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013)  

MGT 538 Final Exam

Most small and medium-sized enterprises are
A. competing only on the local level due to technological and financial constraints
B. investing heavily in world markets by offshoring their labor activities
C. contributing to their national economies through exporting
D. attempting to avoid becoming globalized too quickly

MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013)  

MGT 538 Final Exam

Which of the following is the primary reason for ineffective cross-cultural business negotiations?
A. Insufficient knowledge about native bargaining rituals
B. Highly restrictive government legislation
C. Poorly planned business strategies
D. Language differences


MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013

MGT 538 Final Exam

Sweden barring airlines from transmitting passenger information most likely illustrates the
A. dependence on the Internet by Swedish citizens
B. lax enforcement of privacy rights in Sweden
C. importance of the Internet to international business
D. impact of culture on Internet usage
MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013)  

MGT 538 Final Exam

Stereotyping should most likely be avoided by international managers because
A. current variables of culture are grossly inaccurate
B. many cultures have diverse subcultures
C. many countries outlaw the practice
D. national culture is nonexistent

MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013)  

MGT 538 Final Exam

John Smith travels back and forth between the United States and Saudi Arabia as an international manager. On John’s most recent trip to Saudi Arabia, he presents his business associate, Tariq Ahmed, with a silk scarf. The scarf is intended as a gift for Tariq’s wife. John’s actions will most likely be viewed by Tariq as
A. a thoughtful gesture from the American
B. an inappropriate and impolite gesture
C. a bribe punishable by imprisonment
D. an obligation that must be reciprocated

MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013)  

MGT 538 Final Exam

Which of the following statements about the Foreign Corrupt Practices Act (FCPA) is NOT true?
A. The FCPA allows grease payments as long as they are lawful in the host country.
B. Possible penalties for violating the FCPA include severe fines and imprisonment.
C. The FCPA allows firms to give government officials gifts in exchange for help.
D. The FCPA applies only to U.S.-based multinational corporations.

MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013

MGT 538 Final Exam

According to research, what is the most significant monetary benefit for firms that implement corporate social responsibility?
A. Employee retention
B. High recruitment rates
C. Increased brand value
D. Improved organizational culture

MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013

MGT 538 Final Exam

Arab negotiators will most likely make concessions because of their interest in
A. saving valuable time
B. preventing embarrassment
C. forming long-term relationships
D. implementing spontaneous decisions

MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013
Which of the following is a similarity between the negotiation styles of both North Americans and Latin Americans?
A. Emotional sensitivity is highly valueD.
B. A strong commitment is shown to the employer.
C. Significant importance is given to documentation.
D. Negotiators are argumentative when they think they are right

MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013

model of leadership style has been recommended by American research studies as one more likely to have positive results with American employees

The ________ model of leadership style has been recommended by American research studies as one more likely to have positive results with American employees.
A. autocratic
B. charismatic
C. transactional
D. participative

MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013

In the context of doing business in Asia, what is meant by the phrase “the contract is in the relationship, not on the paper”

In the context of doing business in Asia, what is meant by the phrase “the contract is in the relationship, not on the paper”?
A. Asian contracts are not legally binding for MNCs.
B. Contracts are ceremoniously destroyed after they are written.
C. Managers risk being offensive to Asians by requiring contracts.
D. Managers should nurture the relationship to ensure the reliability of the contract

MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013

MGT 538 Final Exam

3) Dell most likely offshores product support service jobs to India because of the
A. superior technical knowledge of Indian workers
B. extensive call center experience of Indian workers
C. lower payroll costs associated with Indian workers
D. customer preference for interacting with Indian workers

MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS  (Latest update June 2013)

MGT 538 Final Exam

Which of the following behaviors is inconsistent with Casse’s profile of successful American negotiators?
A. Refusing to make concessions in advance
B. Exhibiting a good sense of timing
C. Being quiet and not arguing
D. Understanding the issues


MGT 538 FINAL EXAM QUESTION LIST 30 QUESTIONS

Acc423 Intermediate financial accounting iii final exam




1) When the cash proceeds from a bond issued with detachable stock warrants exceed the sum of the par value of the bonds and the fair market value of the warrants, the excess should be credited to 


A.  a liability account.

B.  retained earnings.

C.  premium on bonds payable.

D.  additional paid-in capital from stock warrants.


2) The conversion of preferred stock into common stock 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.  treated as a prior period adjustment.

B.  reflected currently in income as an extraordinary item.

C.  treated as a direct reduction of retained earnings.

D.  reflected currently in income, but NOT as an extraordinary item.


3) When convertible debt is retired by the issuer, any material difference between the cash acquisition price and the carrying amount of the debt should be


A.  treated as a prior period adjustment.

B.  reflected currently in income as an extraordinary item.

C.  treated as an adjustment of additional paid-in capital.

D.  reflected currently in income, but NOT as an extraordinary item.


4) When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the


A.  market value of the shares issued.

B.  par value of the shares issued.

C.  Any of these provides an appropriate basis for recording the transaction.

D.  market value of the services received.


5) The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is the


A.  incremental method.

B.  proportional method.

C.  either the proportional method or the incremental method.

D.  pro forma method.


6) Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?


A.  unissued shares

B.  issued shares

C.  outstanding shares

D.  authorized shares


7) How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?


A.  As an increase in the amount shown for common stock.

B.  As paid-in capital from treasury stock transactions.

C.  As an extraordinary item shown on the income statement.

D.  As ordinary earnings shown on the income statement.


8) Treasury shares are


A.  issued and outstanding shares.

B.  shares held as an investment by the treasurer of the corporation.

C.  issued but NOT outstanding shares.

D.  shares held as an investment of the corporation.


9) When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited?


A.  Treasury stock for the purchase price.

B.  Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the par value.

C.  Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value.

D.  Paid-in capital in excess of par for the purchase price.


10) When computing diluted earnings per share, convertible bonds are


A.  assumed converted only if they are antidilutive.

B.  ignored.

C.  assumed converted only if they are dilutive.

D.  assumed converted whether they are dilutive or antidilutive.


11) In computing earnings per share, the equivalent number of shares of convertible preferred stock are added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is cumulative, which amount should then be added as an adjustment to the numerator (net earnings)?


A.  Annual preferred dividend times the income tax rate

B.  Annual preferred dividend

C.  Annual preferred dividend divided by the income tax rate

D.  Annual preferred dividend times (one minus the income tax rate)


12) Antidilutive securities


A.  include stock options and warrants whose exercise price is less than the average market price of common stock.

B.  should be included in the computation of diluted earnings per share but NOT basic earnings per share.

C.  should be ignored in all earnings per share calculations.

D.  are those whose inclusion in earnings per share computations would cause basic earnings per share to exceed diluted earnings per share.


13) At its date of incorporation, Wilson, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Wilson acquired 20,000 shares of its common stock at a price of $16 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $12 per share. There have been no other issuances or acquisitions of its own common stock. What effect does the reissuance of the stock have on the following accounts?

Retained Earnings | Additional Paid-in Capital


A.  Decrease | No effect

B.  Decrease | Decrease

C.  No effect | No effect

D.  No effect | Decrease


14) A corporation declared a dividend, a portion of which was liquidating. How would this distribution affect each of the following?

Additional Paid-in Capital | Retained Earnings


A.  No effect | Decrease

B.  Decrease | No effect

C.  No effect | No effect

D.  Decrease | Decrease


15) How would the declaration and subsequent issuance of a 10% stock dividend by the issuer affect each of the following when the market value of the shares exceeds the par value of the stock?

Additional Common Stock | Paid-in Capital


A.  Increase | No effect

B.  No effect | No effect

C.  Increase | Increase

D.  No effect | Increase


16) A reclassification adjustment is reported in the


A.  statement of comprehensive income as other comprehensive income.

B.  income statement as an Other Revenue or Expense.

C.  statement of stockholders’ equity.

D.  stockholders’ equity section of the balance sheet.


17) Which of the following is correct about the effective-interest method of amortization?


A.  Amortization of a premium decreases from period to period.

B.  The effective interest method applied to investments in debt securities is different from that applied to bonds payable.

C.  The effective-interest method produces a constant rate of return on the book value of the investment from period to period.

D.  Amortization of a discount decreases from period to period.


18) When investments in debt securities are purchased between interest payment dates, preferably the


A.  accrued interest is debited to Interest Revenue.

B.  securities account should include accrued interest.

C.  accrued interest is debited to Interest Receivable.

D.  accrued interest is debited to Interest Expense.


19) When an investor's accounting period ends on a date that does NOT coincide with an interest receipt date for bonds held as an investment, the investor must


A.  make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the total amount of interest to be received at the next interest receipt date.

B.  make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the amount of interest accrued since the last interest receipt date.

C.  do nothing special and ignore the fact that the accounting period does NOT coincide with the bond's interest period.

D.  notify the issuer and request that a special payment be made for the appropriate portion of the interest period.


20) Which of the following is NOT a debt security?


A.  Loans receivable

B.  Convertible bonds

C.  All of these are debt securities.

D.  Commercial paper


21) Investments in debt securities should be recorded on the date of acquisition at


A.  market value.

B.  face value plus brokerage fees and other costs incident to the purchase.

C.  lower of cost or market.

D.  market value plus brokerage fees and other costs incident to the purchase.


22) When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies?


A.  The investor should use the equity method to account for its investment unless circum-stances indicate that it is unable to exercise "significant influence" over the investee.

B.  The investor should always use the fair value method to account for its investment.

C.  The investor should always use the equity method to account for its investment.

D.  The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee.


23) An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as

Fair Value Method | Equity Method


A.  A reduction of the investment | A reduction of the investment

B.  A reduction of the investment | Income

C.  Income | Income

D.  Income | A reduction of the investment


24) Byner Corporation accounts for its investment in the common stock of Yount Company under the equity method. Byner Corporation should ordinarily record a cash dividend received from Yount as


A.  additional paid-in capital.

B.  dividend income.

C.  a reduction of the carrying value of the investment.

D.  an addition to the carrying value of the investment.


25) Use of the effective-interest method in amortizing bond premiums and discounts results in


A.  a varying amount being recorded as interest income from period to period.

B.  a smaller amount of interest income over the life of the bond issue than would result from use of the straight-line method.

C.  a greater amount of interest income over the life of the bond issue than would result from use of the straight-line method.

D.  a variable rate of return on the book value of the investment.


26) Held-to-maturity securities are reported at


A.  acquisition cost plus amortization of a discount.

B.  fair value.

C.  acquisition cost.

D.  acquisition cost plus amortization of a premium.


27) Debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses and are included as other comprehensive income and as a separate component of stockholders' equity are


A.  trading debt securities.

B.  never-sell debt securities.

C.  held-to-maturity debt securities.

D.  available-for-sale debt securities.


28) The accounting for fair value hedges records the derivative at its


A.  carrying value.

B.  historical cost.

C.  amortized cost.

D.  fair value.


29) Gains or losses on cash flow hedges are


A.  recorded in equity, as part of other comprehensive income.

B.  reported directly in retained earnings.

C.  ignored completely.

D.  reported directly in net income.


30) All of the following statements regarding accounting for derivatives are correct EXCEPT that


A.  they should be reported at fair value.

B.  gains and losses resulting from hedge transactions are reported in different ways, depending upon the type of hedge.

C.  they should be recognized in the financial statements as assets and liabilities.

D.  gains and losses resulting from speculation should be deferred.
31) The rationale for interperiod income tax allocation is to


A.  recognize a distribution of earnings to the taxing agency.

B.  adjust income tax expense on the income statement to be in agreement with income taxes payable on the balance sheet.

C.  recognize a tax asset or liability for the tax consequences of temporary differences that exist at the balance sheet date.

D.  reconcile the tax consequences of permanent and temporary differences appearing on the current year's financial statements.


32) Taxable income of a corporation differs from pretax financial income because of

Permanent Differences | Temporary Differences


A.  No | Yes

B.  Yes | No

C.  No | No

D.  Yes | Yes


33) Which of the following situations would require interperiod income tax allocation procedures?


A.  Interest received on municipal bonds

B.  Proceeds from a life insurance policy on an officer

C.  An excess of percentage depletion over cost depletion

D.  A temporary difference exists at the balance sheet date because the tax basis of an asset or liability and its reported amount in the financial statements differ


34) Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income?


A.  Prepaid royalty received in advance.

B.  An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes.

C.  Subscriptions received in advance.

D.  Interest received on a municipal obligation.


35) At the December 31, 2007 balance sheet date, Garth Brooks Corporation reports an accrued receivable for financial reporting purposes but NOT for tax purposes. When this asset is recovered in 2008, a future taxable amount will occur and


A.  Garth will record a decrease in a deferred tax liability in 2008.

B.  total income tax expense for 2008 will exceed current tax expense for 2008.

C.  pretax financial income will exceed taxable income in 2008.

D.  Garth will record an increase in a deferred tax asset in 2008.


36) Which of the following differences would result in future taxable amounts?


A.  Revenues or gains that are taxable before they are recognized in financial income.

B.  Revenues or gains that are recognized in financial income but are never included in taxable income.

C.  Expenses or losses that are tax deductible after they are recognized in financial income.

D.  Expenses or losses that are tax deductible before they are recognized in financial income.
37) In a defined-contribution plan, a formula is used that


A.  ensures that pension expense and the cash funding amount will be different.

B.  requires an employer to contribute a certain sum each period based on the formula.

C.  defines the benefits that the employee will receive at the time of retirement.

D.  ensures that employers are at risk to make sure funds are available at retirement.


38) In accounting for a defined-benefit pension plan


A.  the employer's responsibility is simply to make a contribution each year based on the formula established in the plan.

B.  the expense recognized each period is equal to the cash contribution.

C.  an appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised.

D.  the liability is determined based upon known variables that reflect future salary levels promised to employees.


39) In a defined-benefit plan, a formula is used that


A.  defines the benefits that the employee will receive at the time of retirement.

B.  requires that pension expense and the cash funding amount be the same.

C.  requires that the benefit of gain or the risk of loss from the assets contributed to the pension plan be borne by the employee.

D.  defines the contribution the employer is to make; no promise is made concerning the ultimate benefits to be paid out to the employees.


40) A corporation has a defined-benefit plan. An accrued pension cost will result at the end of the first year if the


A.  fair value of the plan assets exceeds the accumulated benefit obligation.

B.  amount of employer contributions exceeds the net periodic pension cost.

C.  accumulated benefit obligation exceeds the fair value of the plan assets.

D.  amount of net periodic pension cost exceeds the amount of employer contributions.


41) In accounting for a pension plan, any difference between the pension cost charged to expense and the payments into the fund should be reported as


A.  accrued or prepaid pension cost.

B.  an accrued actuarial liability.

C.  an offset to the liability for prior service cost.

D.  a charge or credit to unrealized appreciation and depreciation.


42) The interest on the projected benefit obligation component of pension expense


A.  reflects the rates at which pension benefits could be effectively settled.

B.  is the same as the expected return on plan assets.

C.  reflects the incremental borrowing rate of the employer.

D.  may be stated implicitly or explicitly when reported.


43) Yeager Co. maintains a defined-benefit pension plan for its employees. At each balance sheet date, Yeager should report a minimum liability at least equal to the


A.  projected benefit obligation.

B.  unfunded accumulated benefit obligation.

C.  accumulated benefit obligation.

D.  unfunded projected benefit obligation.


44) On January 1, 2008, Pratt Corp. adopted a defined-benefit pension plan. The plan's service cost of $300,000 was fully funded at the end of 2008. Prior service cost was funded by a contribution of $120,000 in 2008. Amortization of prior service cost was $48,000 for 2008. What is the amount of Pratt’s prepaid pension cost at December 31, 2008?


A.  $120,000

B.  $168,000

C.  $72,000

D.  $180,000


45) Interest cost included in the net pension cost recognized for a period by an employer sponsoring a defined-benefit pension plan represents the


A.  increase in the projected benefit obligation due to the passage of time.

B.  shortage between the expected and actual returns on plan assets.

C.  increase in the fair value of plan assets due to the passage of time.

D.  amortization of the discount on unrecognized prior service cost.
46) On January 1, 2005, Foley Corporation acquired machinery at a cost of $250,000. Foley adopted the double-declining balance method of depreciation for this machinery and had been recording depreciation over an estimated useful life of ten years, with no residual value. At the beginning of 2008, a decision was made to change to the straight-line method of depreciation for the machinery. The depreciation expense to be recorded for the machinery in 2008 is (round to the nearest dollar)


A.  $18,286.

B.  $25,600.

C.  $22,857.

D.  $25,000.


47) Accrued salaries payable of $51,000 were NOT recorded at December 31, 2007. Office supplies on hand of $24,000 at December 31, 2008 were erroneously treated as expense instead of supplies inventory. Neither of these errors was discovered nor corrected. The effect of these two errors would cause


A.  2007 net income and December 31, 2007 retained earnings to be understated $51,000 each.

B.  2008 net income to be understated $75,000 and December 31, 2008 retained earnings to be understated $24,000.

C.  2007 net income to be overstated $27,000 and 2008 net income to be understated $24,000.

D.  2008 net income and December 31, 2008 retained earnings to be understated $24,000 each.


48) On January 1, 2005, Lynn Corporation acquired equipment at a cost of $600,000. Lynn adopted the double-declining balance method of depreciation for this equipment and had been recording depreciation over an estimated life of eight years, with no residual value. At the beginning of 2008, a decision was made to change to the straight-line method of depreciation for this equipment. Assuming a 30% tax rate, the cumulative effect of this accounting change on beginning retained earnings, net of tax, is


A.  $0.

B.  $121,875.

C.  $78,750.

D.  $77,109.


49) The estimated life of a building that has been depreciated 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years. Based on this information, the accountant should


A.  depreciate the remaining book value over the remaining life of the asset.

B.  continue to depreciate the building over the original 50-year life.

C.  adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.

D.  adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.


50) Which type of accounting change should always be accounted for in current and future periods?


A.  Change in reporting entity

B.  Change in accounting principle

C.  Change in accounting estimate

D.  Correction of an error



Acc 423 Final Exam Intermediate Financial Accounting III final exam 2 (50 questions answered)

1) Proceeds from an issue of debt securities having stock warrants should NOT be allocated between debt and equity features when
A. the allocation would result in a discount on the debt security
B. the warrants issued with the debt securities are nondetachable
C. exercise of the warrants within the next few fiscal periods seems remote
D. the market value of the warrants is NOT readily available

2) The conversion of preferred stock may be recorded by the
A. market value method
B. par value method
C. book value method
D. incremental method

3) The conversion of preferred stock into common stock 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. treated as a prior period adjustment
B. treated as a direct reduction of retained earnings
C. reflected currently in income as an extraordinary item
D. reflected currently in income, but NOT as an extraordinary item

4) A primary source of stockholders' equity is
A. contributions by stockholders
B. both income retained by the corporation and contributions by stockholders
C. appropriated retained earnings
D. income retained by the corporation

5) Stockholders' equity is generally classified into two major categories:
A. retained earnings and unappropriated capital
B. earned capital and contributed capital
C. appropriated capital and retained earnings
D. contributed capital and appropriated capital

6) When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the
A. market value of the shares issued
B. Any of these provides an appropriate basis for recording the transaction
C. par value of the shares issued
D. market value of the services received

7) Treasury shares are
A. shares held as an investment by the treasurer of the corporation
B. issued but NOT outstanding shares
C. shares held as an investment of the corporation
D. issued and outstanding shares

8) "Gains" on sales of treasury stock (using the cost method) should be credited to
A. paid-in capital from treasury stock
B. other income
C. capital stock
D. retained earnings

9) How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?
A. As ordinary earnings shown on the income statement
B. As an extraordinary item shown on the income statement
C. As paid-in capital from treasury stock transactions
D. As an increase in the amount shown for common stock

10) In computing earnings per share, the equivalent number of shares of convertible preferred stock are added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is cumulative, which amount should then be added as an adjustment to the numerator (net earnings)?
A. Annual preferred dividend
B. Annual preferred dividend divided by the income tax rate
C. Annual preferred dividend times (one minus the income tax rate)
D. Annual preferred dividend times the income tax rate

11) When computing diluted earnings per share, convertible bonds are
A. ignored
B. assumed converted only if they are dilutive
C. assumed converted whether they are dilutive or antidilutive
D. assumed converted only if they are antidilutive
12) What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively?
A. Decrease and no effect
B. Increase and decrease
C. Increase and no effect
D. Decrease and increase

13) On May 1, 2007, Kent Corp. declared and issued a 10% common stock dividend. Prior to this dividend, Kent had 100,000 shares of $1 par value common stock issued and outstanding. The fair value of Kent 's common stock was $20 per share on May 1, 2007. As a result of this stock dividend, Kent's total stockholders' equity
A. did NOT change
B. increased by $200,000
C. decreased by $10,000
D. decreased by $200,000

14) How would the declaration and subsequent issuance of a 10% stock dividend by the issuer affect each of the following when the market value of the shares exceeds the par value of the stock? Additional Common Stock | Paid-in Capital
A. Increase | Increase
B. No effect | No effect
C. Increase | No effect
D. No effect | Increase

15) At its date of incorporation, Wilson, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Wilson acquired 20,000 shares of its common stock at a price of $16 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $12 per share. There have been no other issuances or acquisitions of its own common stock. What effect does the reissuance of the stock have on the following accounts? Retained Earnings | Additional Paid-in Capital
A. No effect | No effect
B. Decrease | Decrease
C. Decrease | No effect
D. No effect | Decrease

16) Which of the following is correct about the effective-interest method of amortization?
A. The effective-interest method produces a constant rate of return on the book value of the investment from period to period.
B. The effective interest method applied to investments in debt securities is different 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 period

17) An unrealized holding loss on a company's available-for-sale securities should be reflected in the current financial statements as
A. other comprehensive income and deducted in the equity section of the balance sheet.
B. an extraordinary item shown as a direct reduction from retained earnings
C. a note or parenthetical disclosure only
D. a current loss resulting from holding securities

18) An unrealized holding gain on a company's available-for-sale securities should be reflected in the current financial statements as
A. other comprehensive income and included in the equity section of the balance sheet.
B. an extraordinary item shown as a direct increase to retained earnings
C. a note or parenthetical disclosure only
D. a current gain resulting from holding securities

19) Investments in debt securities should be recorded on the date of acquisition at
A. face value plus brokerage fees and other costs incident to the purchase
B. lower of cost or market
C. market value plus brokerage fees and other costs incident to the purchase
D. market value

20) Securities which could be classified as held-to-maturity are
A. warrants
B. redeemable preferred stock
C. municipal bonds
D. treasury stock

21) Which of the following is NOT a debt security?
A. Commercial paper
B. Convertible bonds
C. Loans receivable
D. All of these are debt securities

22) An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as Fair Value Method | Equity Method
A.  A reduction of the investment | A reduction of the investment
B. Income | Income
C. Income | A reduction of the investment
D. A reduction of the investment | Income

23) When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies?
A. The investor should use the equity method to account for its investment unless circum-stances indicate that it is unable to exercise "significant influence" over the investee
B. The investor should always use the equity method to account for its investment
C. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee
D. The investor should always use the fair value method to account for its investment

24) Bista Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods? Fair Value Method | Equity Method
A. Increase | Decrease
B. No Effect | Decrease
C. No Effect | No Effect
D. Decrease | No Effect

25) Debt securities that are accounted for at amortized cost, NOT fair value, are
A. trading debt securities
B. held-to-maturity debt securities
C. available-for-sale debt securities
D. never-sell debt securities

26) Equity securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses as other comprehensive income and as a separate component of stockholders' equity are
A. trading securities where a company has holdings of less than 20%
B. available-for-sale securities where a company has holdings of less than 20%
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 discounts results in
A. a smaller amount of interest income over the life of the bond issue than would result from use of the straight-line method
B. a greater amount of interest income over the life of the bond issue than would result from use of the straight-line method
C. a varying amount being recorded as interest income from period to period
D. a variable rate of return on the book value of the investment

28) All of the following are characteristics of a derivative financial instrument EXCEPT the instrument
A. All of these are characteristics
B. has one or more underlyings and an identified payment provision
C. requires a large investment at the inception of the contract
D. requires or permits net settlement


29) The accounting for fair value hedges records the derivative at its
A. historical cost
B. amortized cost
C. carrying value
D. fair value

30) All of the following statements regarding accounting for derivatives are correct EXCEPT that
A. gains and losses resulting from hedge transactions are reported in different ways, depending upon the type of hedge
B. they should be recognized in the financial statements as assets and liabilities
C. they should be reported at fair value
D. gains and losses resulting from speculation should be deferred

31) Taxable income of a corporation differs from pretax financial income because of Permanent Differences | Temporary Differences
A. Yes | No
B. No | No
C. No | Yes
D. Yes | Yes

32) The rationale for interperiod income tax allocation is to
A. adjust income tax expense on the income statement to be in agreement with income taxes payable on the balance sheet
B. recognize a tax asset or liability for the tax consequences of temporary differences that exist at the balance sheet date
C. recognize a distribution of earnings to the taxing agency
D. reconcile the tax consequences of permanent and temporary differences appearing on the current year's financial statements

33) Interperiod income tax allocation causes
A. tax expense in the income statement to be presented with the specific revenues causing the tax
B. tax expense shown on the income statement to equal the amount of income taxes payable for the current year plus or minus the change in the deferred tax asset or liability balances for the year.
C. tax expense shown in the income statement to bear a normal relation to the tax liability
D. tax liability shown in the balance sheet to bear a normal relation to the income before tax reported in the income statement

34) At the December 31, 2007 balance sheet date, Garth Brooks Corporation reports an accrued receivable for financial reporting purposes but NOT for tax purposes. When this asset is recovered in 2008, a future taxable amount will occur and
A. Garth will record a decrease in a deferred tax liability in 2008
B. pretax financial income will exceed taxable income in 2008
C. Garth will record an increase in a deferred tax asset in 2008
D. total income tax expense for 2008 will exceed current tax expense for 2008

35) Which of the following differences would result in future taxable amounts?
A. Revenues or gains that are taxable before they are recognized in financial income
B. Expenses or losses that are tax deductible after they are recognized in financial income
C. Expenses or losses that are tax deductible before they are recognized in financial income
D. Revenues or gains that are recognized in financial income but are never included in taxable income

36) Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income?
A. Product warranty liabilities
B. Advance rental receipts
C. Fines and expenses resulting from a violation of law
D. Depreciable property

37) In a defined-contribution plan, a formula is used that
A. ensures that pension expense and the cash funding amount will be different
B. defines the benefits that the employee will receive at the time of retirement
C. ensures that employers are at risk to make sure funds are available at retirement
D. requires an employer to contribute a certain sum each period based on the formula

38) In accounting for a defined-benefit pension plan
A. the employer's responsibility is simply to make a contribution each year based on the formula established in the plan
B. an appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised
C. the liability is determined based upon known variables that reflect future salary levels promised to employees
D. the expense recognized each period is equal to the cash contribution

39) Which of the following is NOT a characteristic of a defined-contribution pension plan?
A. The benefits to be received by employees are defined by the terms of the plan
B. The employer's contribution each period is based on a formula
C. The benefit of gain or the risk of loss from the assets contributed to the pension fund are borne by the employee
D. The accounting for a defined-contribution plan is straightforward and uncomplicated

40) In accounting for a pension plan, any difference between the pension cost charged to expense and the payments into the fund should be reported as
A. a charge or credit to unrealized appreciation and depreciation
B. an offset to the liability for prior service cost
C. accrued or prepaid pension cost
D. an accrued actuarial liability

41) The projected benefit obligation is the measure of pension obligation that
A. is NOT sanctioned under generally accepted accounting principles for reporting the service cost component of pension expense
B. is required to be used for reporting the service cost component of pension expense
C. requires pension expense to be determined solely on the basis of the plan formula applied to years of service to date and based on existing salary levels
D. requires the longest possible period for funding to maximize the tax deduction

42) The relationship between the amount funded and the amount reported for pension expense is as follows:
A. pension expense may be greater than, equal to, or less than the amount funded
B. pension expense must equal the amount funded
C. pension expense will be less than the amount funded
D. pension expense will be more than the amount funded

43) On January 1, 2008, Pratt Corp. adopted a defined-benefit pension plan. The plan's service cost of $300,000 was fully funded at the end of 2008. Prior service cost was funded by a contribution of $120,000 in 2008. Amortization of prior service cost was $48,000 for 2008. What is the amount of Pratt's prepaid pension cost at December 31, 2008?
A. $180,000
B. $72,000
C. $120,000
D. $168,000

44) Reser Corp., a company whose stock is publicly traded, provides a noncontributory defined-benefit pension plan for its employees. The company's actuary has provided the following information for the year ended December 31, 2008: Projected benefit obligation$600,000 Accumulated benefit obligation525,000 Fair value of plan assets825,000 Service cost240,000 Interest on projected benefit obligation24,000 Amortization of unrecognized prior service cost60,000 Expected and actual return on plan assets82,500 The market-related asset value equals the fair value of plan assets. Prior contributions to the defined-benefit pension plan equaled the amount of net periodic pension cost accrued for the previous year end. No contributions have been made for 2008 pension cost. In its December 31, 2008 balance sheet, Reser should report an accrued pension cost of
A. $217,500
B. $406,500
C. $324,000.
D. $241,500

45) Effective January 1, 2007, Quayle Co. established a defined-benefit plan with no retro-active benefits. The first of the required equal annual contributions was paid on December 31, 2007. A 10% discount rate was used to calculate service cost and a 10% rate of return was assumed for plan assets. All information on covered employees for 2007 and 2008 is the same. How should the service cost for 2008 compare with 2007, and should the 2007 balance sheet report an accrued or a prepaid pension cost? Service Cost for 2008 Compared to 2007 | Pension Cost Reported on the 2007 Balance Sheet
A. Greater than | Prepaid
B. Equal to | Accrued
C. Equal to | Prepaid
D. Greater than | Accrued

46) On January 1, 2005, Foley Corporation acquired machinery at a cost of $250,000. Foley adopted the double-declining balance method of depreciation for this machinery and had been recording depreciation over an estimated useful life of ten years, with no residual value. At the beginning of 2008, a decision was made to change to the straight-line method of depreciation for the machinery. The depreciation expense to be recorded for the machinery in 2008 is (round to the nearest dollar)
A. $25,000
B. $25,600
C. $18,286
D. $22,857

47) During 2008, a construction company changed from the completed-contract method to the percentage-of-completion method for accounting purposes but NOT for tax purposes. Gross profit figures under both methods for the past three years appear below: Completed-ContractPercentage-of-Completion 2006$ 475,000$ 800,000 2007625,000950,000 2008700,0001,050,000 $1,800,000$2,800,000 Assuming an income tax rate of 40% for all years, the effect of this accounting change on prior periods should be reported by a credit of
A. $390,000 on the 2008 income statement
B. $600,000 on the 2008 income statement
C. $390,000 on the 2008 retained earnings statement
D. $600,000 on the 2008 retained earnings statement

48) Accrued salaries payable of $51,000 were NOT recorded at December 31, 2007. Office supplies on hand of $24,000 at December 31, 2008 were erroneously treated as expense instead of supplies inventory. Neither of these errors was discovered nor corrected. The effect of these two errors would cause
A. 2007 net income and December 31, 2007 retained earnings to be understated $51,000 each.
B. 2008 net income to be understated $75,000 and December 31, 2008 retained earnings to be understated $24,000.
C. 2008 net income and December 31, 2008 retained earnings to be understated $24,000 each.
D. 2007 net income to be overstated $27,000 and 2008 net income to be understated $24,000.
49) The estimated life of a building that has been depreciated 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years. Based on this information, the accountant should
A. depreciate the remaining book value over the remaining life of the asset.
B. continue to depreciate the building over the original 50-year life.
C. adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.
D. adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.
50) Which type of accounting change should always be accounted for in current and future periods?
A. Change in reporting entity
B. Change in accounting principle
C. Correction of an error
D. Change in accounting estimate

51) When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a
A. change in accounting estimate.
B. change in accounting principle.
C. correction of an error.
D. prior period adjustment


Bonus Questions answered

In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect assumed reacquisition of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would


A. be antidilutive.

B. fairly present diluted earnings per share on a prospective basis.

C. reflect the excess of the number of shares assumed issued over the number of shares assumed reacquired as the potential dilution of earnings per share.

D. fairly present the maximum potential dilution of diluted earnings per share on a prospective basis

On December 31, 2006, the stockholders' equity section of Clark, Inc., was as follows: Common stock, par value $10; authorized 30,000 shares.


Issued and outstanding 9,000 shares
$ 90,000
Additional paid-in capital
116,000
Retained earnings
174,000
Total stockholders' equity
$380,000


On March 31, 2007, Clark declared a 10% stock dividend, and accordingly 900 additional shares were issued, when the fair market value of the stock was $18 per share. For the three months ended March 31, 2007, Clark sustained a net loss of $32,000. The balance of Clark’s retained earnings as of March 31, 2007, should be


A. $142,000.

B. $125,800.

C. $134,800.

D. $133,000.
Which of the following is NOT generally correct about recording a sale of a debt security before maturity date?


A. A gain or loss on the sale is NOT extraordinary.

B. Accrued interest will be received by the seller even though it is NOT an interest payment date.

C. The entry to amortize a premium to the date of sale includes a credit to the Premium on Investments in Debt Securities.

D. An entry must be made to amortize a discount to the date of sale.
If the parent company owns 90% of the subsidiary company's outstanding common stock, the company should generally account for the income of the subsidiary under the


A. cost method.

B. divesture method.

C. equity method.

D. fair value method.
An option to convert a convertible bond into shares of common stock is a(n)


A. embedded derivative.

B. hybrid security.

C. fair value hedge.

D. host security.
All of the following are characteristics of a derivative financial instrument EXCEPT the instrument


A. has one or more underlyings and an identified payment provision.

B. requires or permits net settlement.

C. All of these are characteristics.

D. requires a large investment at the inception of the contract
Taxable income of a corporation


A. differs from accounting income due to differences in intraperiod allocation between the two methods of income determination.

B. is based on generally accepted accounting principles.

C. is reported on the corporation's income statement.

D. differs from accounting income due to differences in interperiod allocation and permanent differences between the two methods of income determination.
On January 1, 2005, Baden Co., purchased a machine (its only depreciable asset) for $300,000. The machine has a five-year life, and no salvage value. Sum-of-the-years'-digits depreciation has been used for financial statement reporting and the elective straight-line method for income tax reporting. Effective January 1, 2008, for financial statement reporting, Baden decided to change to the straight-line method for depreciation of the machine. Assume that Baden can justify the change. Baden's income before depreciation, before income taxes, and before the cumulative effect of the accounting change (if any), for the year ended December 31, 2008, is $250,000. The income tax rate for 2008, as well as for the years 2005-2007, is 30%. What amount should Baden report as net income for the year ended December 31, 2008?


A. $60,000


B. $91,000


C. $175,000


D. $154,000

When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a


A. change in accounting principle.

B. change in accounting estimate.

C. correction of an error.

D. prior period adjustment.


50) Hannah Company began operations on January 1, 2007, and uses the FIFO method in costing its raw material inventory. Management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed:

Final Inventory
2007
2008
FIFO
$320,000
$360,000
LIFO
240,000
300,000
Net Income (computed under the FIFO method)
500,000
600,000


Based upon the above information, a change to the LIFO method in 2008 would result in net income for 2008 of


A. $540,000.

B. $600,000.

C. $660,000.

D. $620,000.




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