problem 1: During fiscal year 2012, KhoiLeCo earned $10,000 of interest revenue on an investment in a tax-free municipal bond. Which of the given items would be raised by the municipal bond revenue?
a) Income Tax Expense
b) Income Tax Payable
c) Effective Tax Rate
d) Interest Revenue
e) Statutory Tax Rate
problem 2: At the end of December 2013, Copeland Co. had $10,000 of Deferred Tax Assets related to its Allowance for Doubtful Accounts. In response to low public approval ratings (and after a particularly boisterous holiday party), the US Congress passed a law to decrease the Federal Statutory Tax Rate from 35% to 20% on December 31, 2013. As a US company, Copeland had to instantly adjust the balance of its DTAs based on the new law.
Which of the given items would be reduced by the entry to adjust the balance in Deferred Tax Assets?
a) Total Liabilities
b) Net Income
c) Cash from Investing Activities
d) Deferred Tax Assets
e) Accumulated Other Comprehensive Income
problem 3: Due to years of poor management, Carley Inc. had $350 million in Deferred Tax Assets due to NOL carryforwards in its various subsidiaries around the world. At the end of 2012, Carley had a Valuation Allowance of $280 million related to these DTAs. In January 2013, Carley hired Darren Kerr to take over the Liechtenstein subsidiary, which quickly returned to profitability. At the end of 2013, Carley decided that it was “more likely than not” that the Liechtenstein subsidiary would be profitable enough to use the NOLs in Liechtenstein by 2014 and made the appropriate adjustment to the Valuation Allowance.
Which of the given items would be raised by the adjustment to the Valuation Allowance?
a) Valuation Allowance
b) Income Tax Expense
c) Total Shareholders’ Equity
d) Total Assets
e) Total Liabilities
problem 4: On November 12, 2013, Omodiaogbe Ltd. repurchased 10,000 shares of its own stock at a price of $20 per share. Omodiaogbe had originally issued the stock in 2010 at a price of $15 per share.
Which of the given items would be reduced by the stock repurchase transaction?
a) Total Shareholders’ Equity
b) Loss on Repurchase
c) Total Liabilities
d) Cash from Investing Activities
e) Net Income
problem 5: On September 26, 2013, Ziadeh S.A. announced a 3-for-1 common stock split.
Which of the given items would be raised by the stock split?
a) Additional Paid in Capital
b) Shares Outstanding
c) Cash from Financing Activities
d) Total Assets
e) Total Shareholders’ Equity
On January 1, 2011, Aoki Ltd. granted its CEO, Eriko Aoki, 1,000 stock options with an exercise price of $30 per share as compensation. The options vest over 4-years and expire after 10 years. The stock price on the grant date was $30 and the fair value of the option grant was $10 per share. On December 31, 2012, Aoki Ltd. recorded a journal entry related to this option grant.
Which of the given items would be redced by the December 31, 2012 journal entry?
a) Net Income
b) Cash from Financing Activities
c) Cash from Operating Activities
d) Accumulated Other Comprehensive Income
e) Compensation Expense