1. To encourage employee ownership of the company's common shares, KL Corp. permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 15% discount. During May, employees purchased 11,000 shares at a time when the market price of the shares on the New York Stock Exchange was $12 per share. KL will record compensation expense associated with the May purchases of:
a) 20,500
b) 132,000
c) 19,800
d) 0
2. On January 1, 2013, Red Inc. issued stock options for 290,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 4% in three years. Red initially estimates that it is probable the goal will be achieved. Ignoring taxes, what is compensation expense for 2013? (Round your answer to the nearest dollar amount.)
a)0
b)290,000
c)580,000
d)1,740,000
3.Most, but not all, changes in accounting principle are reported using the retrospective approach.
True OR False
4.Which of the following changes should be accounted for using the retrospective approach?
a) A change in the estimated life of a depreciable asset.
b) A change from straight-line to declining balance depreciation.
c) A change to the LIFO method of costing inventories
d) A chagne from the completed-contract method of accounting for long term construction contracts.
5. Hepburn Company bought a copyright for $115,900 on January 1, 2010, at which time the copyright had an estimated useful life of 19 years. On January 5, 2013, the company determined that the copyright would expire at the end of 2018. How much should Hepburn record as amortization expense for this copyright for 2013? (Round your answer to the nearest dollar amount.)
a) 407
b) 16,267
C) 6,100
D 1,220
6. The after-tax cumulative effect on income is no longer required for changes in accounting principles.
True OR False
7. Due to an error in computing depreciation expense, Prewitt Corporation overstated accumulated depreciation by $20 million as of December 31, 2013. Prewitt has a tax rate of 40%. Prewitt's retained earnings as of December 31, 2013, would be:
A) Understated by 8,00mill
B) Overstated by 12.00 mill
C) overstated by 8,00 mill
D) Understated by 12.00 mill