2023 1 During 2011 P Company discovered that the ending inventories reported on | Assignments Online

 

1. During 2011, P Company discovered that the ending inventories reported on its financial statements

were incorrect by the following amounts:

2009 $120,000 understated

2010 $150,000 overstated

P uses the periodic inventory system to ascertain year-end quantities that are converted to dollar amounts

using the FIFO cost method. Prior to any adjustments for these errors and ignoring income taxes, P’s

retained earnings at January 1, 2011 would be

A. $150,000 understated.

B. correct.

C. $30,000 overstated.

D. $150,000 overstated.

2. In its 2011 income statement, WME reported $695,000 for service revenue earned from membership

fees. WME received $681,000 cash in advance from members during 2011. In its reconciliation schedule,

WME should show a

A. $14,000 positive adjustment to net income under the indirect method for the decrease in unearned revenue.

B. $14,000 negative adjustment to net income under the indirect method for the increase in unearned revenue.

C. $14,000 positive adjustment to net income under the indirect method for the increase in unearned revenue.

D. $14,000 negative adjustment to net income under the indirect method for the decrease in unearned revenue.

3. During 2011, Falwell Inc. had 500,000 shares of common stock and 50,000 shares of 6% cumulative

preferred stock outstanding. The preferred stock has a par value of $100 per share. Falwell did not declare

or pay any dividends during 2011.

Falwell’s net income for the year ended December 31, 2011, was $2.5 million. The income tax rate is 40%.

Falwell granted 10,000 stock options to its executives on January 1 of this year. Each option gives its

holder the right to buy 20 shares of common stock at an exercise price of $29 per share. The options vest

after one year. The market price of the common stock averaged $30 per share during 2011.

What is Falwell’s basic earnings per share for 2011, rounded to the nearest cent?

A. $5.00

B. The correct answer isn’t given.

C. $3.14

D. $4.40

4. If bond interest expense is $800,000, bond interest payable increased by $8,000 and bond discount

decreased by $2,000, cash paid for bond interest is

A. $790,000.

B. $784,000.

C. $910,000.

D. $806,000.

5. Getaway Travel Company reported net income for 2011 in the amount of $50,000. During 2011,

Getaway declared and paid $2,000 in cash dividends on its nonconvertible preferred stock. Getaway also

paid $10,000 cash dividends on its common stock. Getaway had 40,000 common shares outstanding from

January 1 until 10,000 new shares were sold for cash on July 1, 2011. A 2-for-1 stock split was granted on

July 5, 2011. What is the 2011 basic earnings per share?

A. $.53

B. $.42

C. $.56

D. $.47

6. Red Corp. constructed a machine at a total cost of $70 million. Construction was completed at the end

of 2007 and the machine was placed in service at the beginning of 2008. The machine was being

depreciated over a 10-year life using the straight-line method. The residual value is expected to be $4

million. At the beginning of 2011, Red decided to change to the sum-of-the-years’-digits method. The

residual value remains at $4 million. Ignoring income taxes, what will be Red’s depreciation expense for

2011?

A. $4.8 million

B. $5.4 million

C. $6.6 million

D. $11.55 million

7. Selected information from Large Corporation’s accounting records and financial statements for 2011 is

as follows ($ in millions):

Large prepares its financial statements in accordance with IFRS. In its statement of cash flows, Large most

likely reports net cash outflows from investing activities of

Cash paid to acquire a patent $28

Treasury stock purchased for cash 25

Proceeds from sale of land and buildings 45

Gain from the sale of land and buildings 26

Investment revenue received 5

Cash paid to acquire office equipment 40

A. $28 million.

B. $68 million.

C. $38 million.

D. $18 million.

8. After issuing its financial statements, a company discovered that its beginning inventory was overstated

by $100,000. Its tax rate is 30%. As a result of this error, net income was

A. understated by $30,000.

B. overstated by $30,000.

C. understated by $70,000.

D. overstated by $70,000.

9. Powell Company had the following errors over the last two years:

2009: Ending inventory was overstated by $30,000 while depreciation expense was overstated by $24,000.

2010: Ending inventory was understated by $5,000 while depreciation expense was understated by $4,000.

By how much should retained earnings be adjusted on January 1, 2011? (Ignore taxes)

A. Increase by $25,000

B. Increase by $15,000

C. Decrease by $25,000

D. Decrease by $6,000

10. On January 1, 2011, G Corp. granted stock options to key employees for the purchase of 80,000

shares of the company’s common stock at $25 per share. The options are intended to compensate

employees for the next two years. The options are exercisable within a four-year period beginning January

1, 2013, by the grantees still in the employ of the company. No options were terminated during 2011, but

the company does have an experience of 4% forfeitures over the life of the stock options. The market price

of the common stock was $31 per share at the date of the grant. G Corp. used the binomial pricing model

and estimated the fair value of each of the options at $10. What amount should G charge to compensation

expense for the year ended December 31, 2011?

A. $384,000

B. $307,200

C. $320,000

D. $400,000

11. During 2011, Angel Corporation had 900,000 shares of common stock and 50,000 shares of 6%

preferred stock outstanding. The preferred stock does not have cumulative or convertible features. Angel

declared and paid cash dividends of $300,000 and $150,000 to common and preferred shareholders,

respectively, during 2011.

On January 1, 2010, Angel issued $2,000,000 of convertible 5% bonds at face value. Each $1,000 bond is

convertible into 5 common shares.

Angel’s net income for the year ended December 31, 2011, was $6 million. The income tax rate is 20%.

What is Angel’s basic earnings per share for 2011, rounded to the nearest cent?

A. $5.57

B. $6.50

C. $9.20

D. $5.29

12. Under its executive stock option plan, Q Corporation granted options on January 1, 2011, that permit

executives to purchase 15 million of the company’s $1 par common shares within the next eight years, but

not before December 31, 2013 (the vesting date). The exercise price is the market price of the shares on

the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing

model, is $4 per option. No forfeitures were anticipated, however unexpected turnover during 2012 caused

the forfeiture of 5% of the stock options. Ignoring taxes, what is the effect on earnings in 2013?

A. $0

B. $18 million

C. $19 million

D. $20 million

13. A firm reported ($ in millions) net cash inflows (outflows) as follows: operating $75, investing ($200),

and financing $350. The beginning cash balance was $250. What was the ending cash balance?

A. $25

B. $875

C. $475

D. $125

14. Which of the following statements is true regarding correcting errors in previously issued financial

statements prepared in accordance with International Financial Reporting Standards?

A. The error can be reported in the current period if it’s not considered practicable to report it prospectively.

B. The error can be reported in the current period if it’s not considered practicable to report it retrospectively.

C. The error can be reported prospectively if it’s not considered practicable to report it retrospectively.

D. Retrospective application is required with no exception.

15. Blue Cab Company had 50,000 shares of common stock outstanding on January 1, 2011. On April 1,

2011, the company issued 20,000 shares of common stock. The company had outstanding fully vested

incentive stock options for 5,000 shares exercisable at $10 that had not been exercised by its executives.

The end-of-year market price of common stock was $13 while the average price for the year was $12. The

company reported net income in the amount of $269,915 for 2011. What is the diluted earnings per share

(rounded)?

A. $4.10.

B. $4.50.

C. $3.81.

D. $3.60.

16. Baldwin Company had 40,000 shares of common stock outstanding on January 1, 2011. On April 1,

2011 the company issued 20,000 shares of common stock. The company had outstanding fully vested

incentive stock options for 10,000 shares exercisable at $10 that had not been exercised by its executives.

The average market price of common stock for the year was $12.

What number of shares of stock (rounded) should be used in computing diluted earnings per share?

A. 56,667

B. 61,667

C. 55,000

D. 65,000

17. Bowers Corporation reported the following ($ in 000s) for the year:

Sales on account were $1,900, and bad debt expense was $18 for the year. How much cash was collected

from customers on account?

A. $2,142

B. $1,627

C. $1,642

D. $1,638

18. B Company switched from the sum-of-the-years-digits depreciation method to straight-line depreciation

in 2011. The change affects machinery purchased at the beginning of 2009 at a cost of $72,000. The

machinery has an estimated life of five years and an estimated residual value of $3,600. What is B’s 2011

depreciation expense?

A. $15,840

B. $9,120

C. $13,680

D. $19,200

19. Morrison Corporation had the following common stock record during the current calendar year:

What is the number of shares to be used in computing basic EPS?

Outstanding—January 1 2,000,000

Additional shares issued 3/31 100,000

Distributed a 10% stock dividend on 6/30

Additional shares issued 9/30 100,000

A. 2,200,000

B. 2,000,000

C. 2,307,500

D. 2,310,000

20. In preparing its cash flow statement for the year ended December 31, 2011, Green Co. gathered the

following data:

Gain on sale of land $12,000

Proceeds from sale of land 20,000

Purchase of Black, Inc., bonds (face value $200,000) 360,000

Amortization of bond discount 4,000

Cash dividends declared 90,000

Cash dividends paid 76,000

In its December 31, 2011, statement of cash flows, what amount should Green report as net cash from

financing activities?

Proceeds from sales of common stock (carrying value $130,000) 150,000

A. $40,000

B. $54,000

C. $60,000

D. $74,000

21. On January 2, 2011, Tobias Company began using straight-line depreciation for a certain class of

assets. In the past, the company had used double-declining-balance depreciation for these assets. As of

January 2, 2011, the amount of the change in accumulated depreciation is $40,000. The appropriate tax

rate is 40%. The separately reported change in 2011 earnings is

A. an increase of $24,000.

B. not given here.

C. a decrease of $40,000.

D. an increase of $40,000.

22. On June 4, White Corporation issued $400 million of bonds for $386 million. During the same year, $1

million of the bond discount was amortized. In a statement of cash flows prepared by the indirect method,

White Corporation should report a(an)

A. deduction from net income of $1 million.

B. financing activity of $400 million.

C. addition to net income of $1 million.

D. investing activity of $386 million.

23. Which of the following is not a change in reporting entity?

A. Presenting consolidated financial statements for the first time

B. All are changes in reporting entity

C. Changing the companies that comprise a consolidated group

D. Reporting using comparative financial statements for the first time

24. In a statement of cash flows using the indirect method, an increase in available-for-sale securities due to

an increase in their fair value

A. should be reported as an investing activity.

B. should be reported as an addition to net income in determining cash flows from operating activities.

C. should not reported.

D. should be reported as a deduction from net income in determining cash flows from operating activities.

25. During 2011, Angel Corporation had 900,000 shares of common stock and 50,000 shares of 6%

preferred stock outstanding. The preferred stock does not have cumulative or convertible features. Angel

declared and paid cash dividends of $300,000 and $150,000 to common and preferred shareholders,

respectively, during 2011.

On January 1, 2010, Angel issued $2,000,000 of convertible 5% bonds at face value. Each $1,000 bond is

convertible into 5 common shares.

End of exam

Angel’s net income for the year ended December 31, 2011, was $6 million. The income tax rate is 20%.

What will Angel report as diluted earnings per share for 2011, rounded to the nearest cent?

A. $6.43

B. The correct answer isn’t given.

C. $6.22

 

D. $6.25