Assignment: Intermediate Accounting

Instructions:

• Use the answer sheet provided.
• For the multiple choice answers, use upper case letters.
• Only submit you answer sheet in the Assignment Folder NLT No late examinations will be accepted.
• For the Problem, you must support your answer with computations.
• Do not submit support for the multiple choice questions.

1) ABC Company reported $950,000 in net income and its weighted average shares outstanding for the year is 200,000 shares. In prior years it sold $2,000,000 of 8% long-term bonds at par which are still outstanding. The bonds are convertible into 50,000 shares of common stock. The tax rate for all years is 40%. If ABC has no other potentially dilutive securities and no preferred stock, what are basic and diluted EPS?
A) basic EPS $5.34; diluted EPS $4.18
B) basic EPS $4.75; diluted EPS $4.18
C) basic EPS $4.75; diluted EPS $3.80
D) basic EPS $5.34; diluted EPS $3.80

2) DEF Company. reported net earnings of $500,000 for the year. DEF Company has 200,000 shares of common stock outstanding all year. Two years ago the company granted 20,000 stock options that allow employees to purchase shares for $15 each. The company stock has averaged $20 in the market during the year. Compute the basic and diluted EPS.
A) basic EPS $2.50; diluted EPS $2.50
B) basic EPS $2.50; diluted EPS $2.44
C) basic EPS $2.44; diluted EPS $2.44
D) basic EPS $2.50; diluted EPS $2.27

3) MNO Company has 200,000 common share outstanding for the year and net income of $400,000. It has 20,000 stock options and 20,000 shares of $100, 6% cumulative preferred stock, both of which were outstanding for the entire year. Compute basic and diluted EPS.
A) basic EPS $2.00; diluted EPS $1.27
B) basic EPS $1.40; diluted EPS $1.27
C) basic EPS $1.40; diluted EPS $1.67
D) basic EPS $2.00; diluted EPS $1.67

4) Time Company purchased 40,000 of the 100,000 outstanding shares of Tiny Company for $2,000,000. Time has significant influence over Tiny and will account for this investment using the equity method. During the year, Tiny declared dividends of $140,000 and reported Net Income of $800,000. What is the balance in the Investment in Tiny account at year end?
A) $1,340,000
B) $1,736,000
C) $2,264,000
D) $2,660,000

5) XYZ Co. pays a weekly payroll of $95,000 that includes federal taxes withheld of $12,700, FICA taxes withheld of $7,270, and retirement withholdings of $6,000. What is the effect of assets and liabilities from this transaction?
A) Assets decrease $69,030 and liabilities decrease $25,970.
B) Assets decrease $69,030 and liabilities increase $25,970.
C) Assets decrease $85,000 and liabilities decrease $25,970.
D) Assets decrease $85,000 and liabilities increase $25,970.

6) In December, 2016, Bowie Company began including one coupon in each package of candy and offered customers a decoder ring in exchange for $5 and five coupons. The decoder ring cost Bowie $5.30 each. Eventually, it is expected that 40% of the coupons will be redeemed. During December, Bowie sold 280,000 packages of candy and no coupons were redeemed. In its December 31, 2016 balance sheet, what amount should Bowie report as estimated liability for the coupons?
A) $168,000
B) $10,080
C) $6,720
D) $118,720

7) PQR Company reported income before taxes of $175,000 for the years 2013, 2014, and 2015. In 2016 they experienced a loss of $300,000. PQR had a tax rate of 25% in 2013 and 2014, and a rate of 35% is 2015 and 2016. Assuming the company uses the carryback provisions for the net operating loss, what amount should be reported as Income Tax Refund Receivable in 2016?
A) $105,000
B) $43,750
C) $87,500
D) $75,000

8) If a pension plan is underfunded, it means that the ________.
A) ABO exceeds plan assets
B) PBO is less than plan assets
C) PBO exceeds plan assets
D) ABO is less than plan assets

9) When a pension plan is amended to recognize previous service of currently enrolled employees, what component of pension expense is created?
A) past service costs
B) transition costs
C) amendment costs
D) prior service costs

10) Which of the following measures of benefit does the FASB require for pension computations?
A) accumulated benefit obligation
B) future benefit obligation
C) vested benefit obligation
D) projected benefit obligation

11) When bonds are issued at a discount, interest expense will be less than interest paid.
A) True
B) False

Use the following data for Questions 12-13:

On November 1, 2016, SJLL sold a parcel of land for $6,000,000. They had originally paid $3,600,000 for the land. The terms of the sale called for a $1,000,000 down payment, and the balance in two equal installments payable on November 1, 2017 and November 15, 2018. Disregard interest charges. SJLL has a December 31 year-end.

12) Assuming that SJLL uses the installment sales method, the company would recognize gross profit in 2016 of ________.
A) $1,000,000
B) $0
C) $600,000
D) $400,000

13) Assuming that SJLL uses the installment sales method, the company would recognize gross profit in 2017 of ________.
A) $2,500,000
B) $1,500,000
C) $1,000,000
D) $0

14) The selling price of a bond is the ________.
A) present value of par value plus the present value of the interest payments
B) present value of par value minus the present value of the interest payments
C) par value of the bond
D) par value plus the discount of the bond or minus the premium of the bond

15) HIJ Co. financial statements included the following amounts for the current year:

Based on this information, what is the amount of net cash flows from investing activities?
A) $21,000 net inflow
B) $22,000 net outflow
C) $23,000 net inflow
D) $42,000 net outflow

16) In determining net cash flow from operating activities, an increase in merchandise inventory during a period ________.
A) requires a subtraction adjustment to financing cash flows under the indirect method
B) requires an addition adjustment to net income under the indirect method
C) requires an addition adjustment to payments to suppliers under the direct method
D) requires a subtraction adjustment to sales to customers under the direct method

17) In determining net cash flow from operating activities, a decrease in accounts payable during a period ________.
A) requires a subtraction adjustment to payments to suppliers under the direct method
B) requires a subtraction adjustment to net income under the indirect method
C) does not require an adjustment under the indirect method
D) does not require an adjustment under the direct method

18) Under the indirect method, which of the following would be subtracted from net income when determining net cash flows from operations?
A) decrease in prepaid rent
B) increase in salaries payable
C) gain on the sale or a used truck
D) amortization expense

19) Under the indirect method, which of the following would be added to net income when determining net cash flows from operations?
A) amortization expense
B) increase in inventory
C) decrease in accounts payable
D) gain on the sale or a used truck

20) BGE financial statements included the following amounts for the current year:

Based on this information, what is the amount of net cash flows from financing activities?
A) $56,000 net outflow
B) $92,000 net inflow
C) $18,000 net outflow
D) $9,000 net inflow

21) Ravens Inc. considered two contingencies at the end of 2016:
** a probable loss in the range of $300,000 to $500,000
** a reasonably possible loss of $150,000
Under U.S. GAAP, what is the balance for contingent liabilities at the end of 2016?
A) $550,000
B) $400,000
C) $450,000
D) $300,000

22) Nationals Company. decided to go into the market to repurchase bonds before their due date. The following are the balances of the accounts on the date of the retirement:
Bonds Payable $5,000,000
Bond Discount $30,000
Unamortized Bond Issue Cost $45,000
Cash Paid for Bonds $4,900,000
What is the gain or loss on the early extinguishment of the bonds?
A) $85,000 loss
B) $25,000 gain
C) $25,000 loss
D) No gain or loss is recognized.

23) On the books of a lessee, a lease may be classified as either ________.
A) capital or operating
B) direct financing or sales-type
C) direct financing or operating
D) capital or direct financing

24) Which of the following costs are excluded from a minimum lease payment?
A) a guaranteed residual value
B) executory costs
C) a penalty for failure to renew the lease
D) a bargain purchase option

25) For a lease to be classified as a capital lease, the present value of the minimum lease payments must be greater than or equal to ________.
A) 90% of the cost of the asset
B) 75% of the cost of the asset
C) 90% of the fair value of the asset
D) 75% of the fair value of the asset

26) Which of the following statements are correct regarding an operating lease?
A) The lessee receives title to the asset at the end of the lease.
B) The lessee records interest expense.
C) The lessor records depreciation expense and lease revenue.
D) The lessee records the leased asset as a long-term asset.

27) The cost of a leasehold improvement is depreciated over which of the following time periods?
A) the life of the improvement
B) the shorter of the physical life of the asset or the lease term
C) the term of the lease
D) a time period determined by management

28) Which one of the following is a change in estimate effected by a change in an accounting principle?
A) change from declining-balance to straight-line depreciation
B) changes in pension plan asset revenues
C) estimated life of an asset
D) salvage value of an asset

29) For a lease to be classified as a capital lease, the lease term must be greater than or equal to ________.
A) 50% of the expected economic life of the leased property
B) 90% of the expected economic life of the leased property
C) 75% of the expected economic life of the leased property
D) 80% of the expected economic life of the leased property

30) On January 1, William Company leased office equipment from Tell Corporation. The lease qualifies as an operating lease. The term is three years and calls for semiannual payments of $25,000 each, payable on June 30 and December 31 of each year. Tell acquired the machines at a cost of $150,000 on January 1 of the current year. The expected life is five years with no residual value expected.

Required:

1. Prepare all the appropriate journal entries for the lessee for the first year for: (a) leasee and (b) lessor

2. Show how the lessor would disclose this lease on the face of the balance sheet for December 31 of the current year.