Complete the mcq:
1. On July 1, 2012, Spear Co. issued 3,000 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2012 and mature on April 1, 2022. Interest is payable semiannually on April 1 and October 1. What amount did Spear receive from the bond issuance?
a. $3,045,000
b. $3,000,000
c. $2,970,000
d. $2,895,000
2. On January 1, 2012, Solis Co. issued its 10% bonds in the face amount of $4,000,000, which mature on January 1, 2022. The bonds were issued for $4,540,000 to yield 8%, resulting in bond premium of $540,000. Solis uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2012, Solis's adjusted unamortized bond premium should be
a. $540,000.
b. $503,200.
c. $486,000.
d. $406,000.
3. On July 1, 2011, Noble, Inc. issued 9% bonds in the face amount of $10,000,000, which mature on July 1, 2017. The bonds were issued for $9,390,000 to yield 10%, resulting in a bond discount of $610,000. Noble uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2013, Noble's unamortized bond discount should be
a. $528,100.
b. $510,000.
c. $488,000.
d. $430,000.
4. On January 1, 2012, Huff Co. sold $3,000,000 of its 10% bonds for $2,655,888 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Huff report as interest expense for the six months ended June 30, 2012?
a. $132,798
b. $150,000
c. $159,353
d. $180,000
5. On January 1, 2013, Doty Co. redeemed its 15-year bonds of $3,500,000 par value for 102. They were originally issued on January 1, 2001 at 98 with a maturity date of
January 1, 2016. The bond issue costs relating to this transaction were $210,000. Doty amortizes discounts, premiums, and bond issue costs using the straight-line method. What amount of loss should Doty recognize on the redemption of these bonds (ignore taxes)?
a. $126,000
b. $84,000
c. $70,000
d. $0
6. On its December 31, 2012 balance sheet, Emig Corp. reported bonds payable of $9,000,000 and related unamortized bond issue costs of $480,000. The bonds had been issued at par. On January 2, 2013, Emig retired $4,500,000 of the outstanding bonds at par plus a call premium of $105,000. What amount should Emig report in its 2013 income statement as loss on extinguishment of debt (ignore taxes)?
a. $0
b. $105,000
c. $240,000
d. $345,000
7. On January 1, 2008, Goll Corp. issued 4,000 of its 10%, $1,000 bonds for $4,160,000. These bonds were to mature on January 1, 2016 but were callable at 101 any time after December 31, 2011. Interest was payable semiannually on July 1 and January 1. On
July 1, 2013, Goll called all of the bonds and retired them. Bond premium was amortized on a straight-line basis. Before income taxes, Goll's gain or loss in 2013 on this early extinguishment of debt was
a. $120,000 gain.
b. $48,000 gain.
c. $40,000 loss.
d. $32,000 gain.
8. On June 30, 2013, Omara Co. had outstanding 8%, $4,000,000 face amount, 15-year bonds maturing on June 30, 2023. Interest is payable on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2013 were $140,000 and $40,000, respectively. On June 30, 2013, Omara acquired all of these bonds at 94 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt?
a. $3,960,000.
b. $3,860,000.
c. $3,820,000.
d. $3,760,000.
9. A ten-year bond was issued in 2011 at a discount with a call provision to retire the bonds. When the bond issuer exercised the call provision on an interest date in 2013, the carrying amount of the bond was less than the call price. The amount of bond liability removed from the accounts in 2013 should have equaled the
a. call price.
b. call price less unamortized discount.
c. face amount less unamortized discount.
d. face amount plus unamortized discount.
10. Paige Co. took advantage of market conditions to refund debt. This was the fourth refunding operation carried out by Paige within the last three years. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a
a. gain, net of income taxes.
b. loss, net of income taxes.
c. part of continuing operations.
d. deferred credit to be amortized over the life of the new debt.
11. Eddy Co. is indebted to Cole under a $600,000, 12%, three-year note dated
December 31, 2011. Because of Eddy's financial difficulties developing in 2013, Eddy owed accrued interest of $72,000 on the note at December 31, 2013. Under a troubled debt restructuring, on December 31, 2013, Cole agreed to settle the note and accrued interest for a tract of land having a fair value of $540,000. Eddy's acquisition cost of the land is $435,000. Ignoring income taxes, on its 2013 income statement Eddy should report as a result of the troubled debt restructuring
Gain on Disposal Restructuring Gain
a. $237,000 $0
b. $165,000 $0
c. $105,000 $60,000
d. $105,000 $132,000
12. A corporation was organized in January 2009 with authorized capital of $10 par value common stock. On February 1, 2012, shares were issued at par for cash. On March 1, 2012, the corporation's attorney accepted 7,000 shares of common stock in settlement for legal services with a fair value of $90,000. Additional paid-in capital would increase on
February 1, 2012 March 1, 2012
a. Yes No
b. Yes Yes
c. No No
d. No Yes
13. On July 1, 2012, Nall Co. issued 2,500 shares of its $10 par common stock and 5,000 shares of its $10 par convertible preferred stock for a lump sum of $140,000. At this date Nall's common stock was selling for $24 per share and the convertible preferred stock for $18 per share. The amount of the proceeds allocated to Nall's preferred stock should be
a. $70,000.
b. $84,000.
c. $90,000.
d. $77,000.
14. Horton Co. was organized on January 2, 2012, with 500,000 authorized shares of $10 par value common stock. During 2012, Horton had the following capital transactions:
January 5-issued 375,000 shares at $14 per share.
July 27-purchased 25,000 shares at $11 per share.
November 25-sold 20,000 shares of treasury stock at $13 per share.
Horton used the cost method to record the purchase of the treasury shares. What would be the balance in the Paid-in Capital from Treasury Stock account at December 31, 2012?
a. $0.
b. $20,000.
c. $40,000.
d. $60,000.
15. In 2012, Hobbs Corp. acquired 9,000 shares of its own $1 par value common stock at $18 per share. In 2013, Hobbs issued 6,000 of these shares at $25 per share. Hobbs uses the cost method to account for its treasury stock transactions. What accounts and what amounts should Hobbs credit in 2013 to record the issuance of the 6,000 shares?
Treasury Additional Retained Common
Stock Paid-in Capital Earnings Stock
a. $108,000 $105,000
b. $108,000 $42,000
c. $144,000 $6,000
d. $102,000 $42,000 $6,000
16. At its date of incorporation, Sauder, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Sauder 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 Decrease
b. No effect Decrease
c. Decrease No effect
d. No effect No effect
17. Farmer Corp. owned 20,000 shares of Eaton Corp. purchased in 2009 for $300,000. On December 15, 2012, Farmer declared a property dividend of all of its Eaton Corp. shares on the basis of one share of Eaton for every 10 shares of Farmer common stock held by its stockholders. The property dividend was distributed on January 15, 2013. On the declaration date, the aggregate market price of the Eaton shares held by Farmer was $500,000. The entry to record the declaration of the dividend would include a debit to Retained Earnings of
a. $0.
b. $200,000.
c. $300,000.
d. $500,000.
18. 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. Decrease No effect
b. Decrease Decrease
c. No effect Decrease
d. No effect No effect
19. On May 1, 2012, Ziek Corp. declared and issued a 10% common stock dividend. Prior to this dividend, Ziek had 100,000 shares of $1 par value common stock issued and outstanding. The fair value of Ziek 's common stock was $20 per share on May 1, 2012. As a result of this stock dividend, Ziek's total stockholders' equity
a. increased by $200,000.
b. decreased by $200,000.
c. decreased by $10,000.
d. did not change.
20. How would the declaration and subsequent issuance of a 10% stock dividend by the issuer affect each of the following when the fair value of the shares exceeds the par value of the stock?
Additional
Common Stock Paid-in Capital
a. No effect No effect
b. No effect Increase
c. Increase No effect
d. Increase Increase
21. On December 31, 2012, the stockholders' equity section of Arndt, 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 154,000
Total stockholders' equity $360,000
On March 31, 2013, Arndt declared a 10% stock dividend, and accordingly 900 additional shares were issued, when the fair value of the stock was $18 per share. For the three months ended March 31, 2013, Arndt sustained a net loss of $32,000. The balance of Arndt's retained earnings as of March 31, 2013, should be
a. $105,800.
b. $113,000.
c. $114,800.
d. $122,000.
22. At December 31, 2012 and 2013, Plank Corp. had outstanding 3,000 shares of $100 par value 8% cumulative preferred stock and 15,000 shares of $10 par value common stock. At December 31, 2012, dividends in arrears on the preferred stock were $12,000. Cash dividends declared in 2013 totaled $45,000. What amounts were payable on each class of stock?
Preferred Stock Common Stock
a. $24,000 $21,000
b. $33,000 $12,000
c. $36,000 $9,000
d. $45,000 $0
23. Didde Co. had 300,000 shares of common stock issued and outstanding at December 31, 2012. No common stock was issued during 2013. On January 1, 2013, Didde issued 200,000 shares of nonconvertible preferred stock. During 2013, Didde declared and paid $150,000 cash dividends on the common stock and $120,000 on the preferred stock. Net income for the year ended December 31, 2013 was $930,000. What should be Didde's 2013 earnings per common share?
a. $3.10
b. $2.70
c. $2.60
d. $2.20
24. At December 31, 2013 and 2012, Miley Corp. had 180,000 shares of common stock and 10,000 shares of 6%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2013 or 2012. Net income for 2013 was $480,000. For 2013, earnings per common share amounted to
a. $2.67.
b. $2.33.
c. $2.11.
d. $2.00.
25. Marsh Co. had 2,400,000 shares of common stock outstanding on January 1 and December 31, 2013. In connection with the acquisition of a subsidiary company in June 2012, Marsh is required to issue 100,000 additional shares of its common stock on July 1, 2014, to the former owners of the subsidiary. Marsh paid $300,000 in preferred stock dividends in 2013, and reported net income of $5,100,000 for the year. Marsh's diluted earnings per share for 2013 should be
a. $2.13.
b. $2.04.
c. $2.00.
d. $1.92.
26. Foyle, Inc., had 610,000 shares of common stock issued and outstanding at December 31, 2012. On July 1, 2013, an additional 40,000 shares of common stock were issued for cash. Foyle also had unexercised stock options to purchase 32,000 shares of common stock at $15 per share outstanding at the beginning and end of 2013. The average market price of Foyle's common stock was $20 during 2013. What is the number of shares that should be used in computing diluted earnings per share for the year ended
December 31, 2013?
a. 630,000
b. 638,000
c. 658,000
d. 662,000
27. When computing diluted earnings per share, convertible securities are
a. ignored.
b. recognized only if they are dilutive.
c. recognized only if they are antidilutive.
d. recognized whether they are dilutive or antidilutive.
28. In determining diluted earnings per share, dividends on nonconvertible cumulative preferred stock should be
a. disregarded.
b. added back to net income whether declared or not.
c. deducted from net income only if declared.
d. deducted from net income whether declared or not.
29. The if-converted method of computing earnings per share data assumes conversion of convertible securities as of the
a. beginning of the earliest period reported (or at time of issuance, if later).
b. beginning of the earliest period reported (regardless of time of issuance).
c. middle of the earliest period reported (regardless of time of issuance).
d. ending of the earliest period reported (regardless of time of issuance).
30. Munoz Corp.'s books showed pretax financial income of $1,800,000 for the year ended December 31, 2013. In the computation of federal income taxes, the following data were considered:
Gain on an involuntary conversion $780,000
(Munoz has elected to replace the property within the statutory
period using total proceeds.)
Depreciation deducted for tax purposes in excess of depreciation
deducted for book purposes 120,000
Federal estimated tax payments, 2013 150,000
Enacted federal tax rate, 2013 30%
What amount should Munoz report as its current federal income tax liability on its December 31, 2013 balance sheet?
a. $120,000
b. $156,000
c. $270,000
d. $306,000
31. Haag Corp.'s 2013 income statement showed pretax accounting income of $1,250,000. To compute the federal income tax liability, the following 2013 data are provided:
Income from exempt municipal bonds $ 50,000
Depreciation deducted for tax purposes in excess of depreciation
deducted for financial statement purposes 100,000
Estimated federal income tax payments made 250,000
Enacted corporate income tax rate 30%
What amount of current federal income tax liability should be included in Hagg's December 31, 2013 balance sheet?
a. $ 80,000
b. $110,000
c. $125,000
d. $330,000
32. On January 1, 2013, Gore, Inc. purchased a machine for $900,000 which will be depreciated $90,000 per year for financial statement reporting purposes. For income tax reporting, Gore elected to expense $100,000 and to use straight-line depreciation which will allow a cost recovery deduction of $80,000 for 2013. Assume a present and future enacted income tax rate of 30%. What amount should be added to Gore's deferred income tax liability for this temporary difference at December 31, 2013?
a. $54,000
b. $30,000
c. $27,000
d. $24,000
33. On January 1, 2013, Piper Corp. purchased 40% of the voting common stock of Betz, Inc. and appropriately accounts for its investment by the equity method. During 2013, Betz reported earnings of $540,000 and paid dividends of $180,000. Piper assumes that all of Betz's undistributed earnings will be distributed as dividends in future periods when the enacted tax rate will be 30%. Ignore the dividend-received deduction. Piper's current enacted income tax rate is 25%. The increase in Piper's deferred income tax liability for this temporary difference is
a. $108,000.
b. $90,000.
c. $64,800.
d. $43,200.
34. Foltz Corp.'s 2012 income statement had pretax financial income of $250,000 in its first year of operations. Foltz uses an accelerated cost recovery method on its tax return and straight-line depreciation for financial reporting. The differences between the book and tax deductions for depreciation over the five-year life of the assets acquired in 2012, and the enacted tax rates for 2012 to 2016 are as follows:
Book Over (Under) Tax Tax Rates
2012 $(50,000) 35%
2013 (65,000) 30%
2014 (15,000) 30%
2015 60,000 30%
2016 70,000 30%
There are no other temporary differences. In Foltz's December 31, 2012 balance sheet, the noncurrent deferred income tax liability and the income taxes currently payable should be
Noncurrent Deferred Income Taxes
Income Tax Liability Currently Payable
a. $39,000 $50,000
b. $39,000 $70,000
c. $15,000 $60,000
d. $15,000 $70,000
35. Didde Corp. prepared the following reconciliation of income per books with income per tax return for the year ended December 31, 2013:
Book income before income taxes $1,500,000
Add temporary difference
Construction contract revenue which will reverse in 2014 160,000
Deduct temporary difference
Depreciation expense which will reverse in equal amounts in
each of the next four years (640,000)
Taxable income $1,020,000
Didde's effective income tax rate is 34% for 2013. What amount should Didde report in its 2013 income statement as the current provision for income taxes?
a. $54,400
b. $346,800
c. $510,000
d. $564,400
36. In its 2012 income statement, Cohen Corp. reported depreciation of $1,480,000 and interest revenue on municipal obligations of $280,000. Cohen reported depreciation of $2,200,000 on its 2012 income tax return. The difference in depreciation is the only temporary difference, and it will reverse equally over the next three years. Cohen's enacted income tax rates are 35% for 2012, 30% for 2013, and 25% for 2014 and 2015. What amount should be included in the deferred income tax liability in Hertz's December 31, 2012 balance sheet?
a. $192,000
b. $248,000
c. $300,000
d. $350,000
37. Dunn, Inc. uses the accrual method of accounting for financial reporting purposes and appropriately uses the installment method of accounting for income tax purposes. Installment income of $1,500,000 will be collected in the following years when the enacted tax rates are:
Collection of Income Enacted Tax Rates
2012 $150,000 35%
2013 300,000 30%
2014 450,000 30%
2015 600,000 25%
The installment income is Dunn's only temporary difference. What amount should be included in the deferred income tax liability in Dunn's December 31, 2012 balance sheet?
a. $375,000
b. $427,500
c. $472,500
d. $525,000
38. For calendar year 2012, Kane Corp. reported depreciation of $1,200,000 in its income statement. On its 2012 income tax return, Kane reported depreciation of $1,800,000. Kane's income statement also included $225,000 accrued warranty expense that will be deducted for tax purposes when paid. Kane's enacted tax rates are 30% for 2012 and 2013, and 24% for 2014 and 2015. The depreciation difference and warranty expense will reverse over the next three years as follows:
Depreciation Difference Warranty Expense
2013 $240,000 $ 45,000
2014 210,000 75,000
2015 150,000 105,000
$600,000 $225,000
These were Kane's only temporary differences. In Kane's 2012 income statement, the deferred portion of its provision for income taxes should be
a. $200,700.
b. $112,500.
c. $101,700.
d. $109,800.
39. Wright Co., organized on January 2, 2012, had pretax accounting income of $640,000 and taxable income of $1,600,000 for the year ended December 31, 2012 The only temporary difference is accrued product warranty costs which are expected to be paid as follows: 2013 $320,000
2014 160,000
2015 160,000
2016 320,000
The enacted income tax rates are 35% for 2012, 30% for 2013 through 2015, and 25% for 2016. If Wright expects taxable income in future years, the deferred tax asset in Wright's December 31, 2012 balance sheet should be
a. $192,000.
b. $224,000.
c. $272,000.
d. $336,000.
40. The following information pertains to Hopson Co.'s pension plan:
Actuarial estimate of projected benefit obligation at 1/1/13 $72,000
Assumed discount rate 10%
Service costs for 2013 $28,000
Pension benefits paid during 2013 $15,000
If no change in actuarial estimates occurred during 2013, Hopson's projected benefit obligation at December 31, 2013 was
a. $74,200.
b. $85,000.
c. $90,200.
d. $92,200.
41. Interest cost included in pension expense recognized for a period by an employer sponsoring a defined-benefit pension plan represents the
a. shortage between the expected and actual returns on plan assets.
b. increase in the projected benefit obligation due to the passage of time.
c. increase in the fair value of plan assets due to the passage of time.
d. amortization of the discount on accumulated OCI (PSC).
42. Logan 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, 2013:
Projected benefit obligation $650,000
Accumulated benefit obligation 525,000
Fair value of plan assets 825,000
Service cost 240,000
Interest on projected benefit obligation 24,000
Amortization of prior service cost 60,000
Expected and actual return on plan assets 82,500
The market-related asset value equals the fair value of plan assets. No contributions have been made for 2013 pension cost. In its December 31, 2013 balance sheet, Logan should report a pension asset / liability of
a. Pension liability of $650,000
b. Pension asset of $825,000
c. Pension asset of $175,000
d. Pension liability of $525,000
43. Seigel Co. maintains a defined-benefit pension plan for its employees. At each balance sheet date, Yeager should report a pension asset / liability equal to the
a. accumulated benefit obligation.
b. projected benefit obligation.
c. accumulated benefit obligation.
d. funded status relative to the projected benefit obligation.
44. Ohlman, Inc. maintains a defined-benefit pension plan for its employees. As of December 31, 2013, the market value of the plan assets is less than the accumulated benefit obligation. The projected benefit obligation exceeds the accumulated benefit obligation. In its balance sheet as of December 31, 2013, Ohlman should report a liability in the amount of the
a. excess of the projected benefit obligation over the fair value of the plan assets.
b. excess of the accumulated benefit obligation over the fair value of the plan assets.
c. projected benefit obligation.
d. accumulated benefit obligation.
45. At December 31, 2013, the following information was provided by the Vargas Corp. pension plan administrator:
Fair value of plan assets $4,500,000
Accumulated benefit obligation 5,580,000
Projected benefit obligation 7,700,000
What is the amount of the pension liability that should be shown on Vargas' December 31, 2013 balance sheet?
a. $7,700,000
b. $3,200,000
c. $2,120,000
d. $1,080,000
46. Lease A does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases?
Lease A Lease B
a. Operating lease Capital lease
b. Operating lease Operating lease
c. Capital lease Capital lease
d. Capital lease Operating lease
47. On December 31, 2013, Burton, Inc. leased machinery with a fair value of $1,050,000 from Cey Rentals Co. The agreement is a six-year noncancelable lease requiring annual payments of $200,000 beginning December 31, 2013. The lease is appropriately accounted for by Burton as a capital lease. Burton's incremental borrowing rate is 11%. Burton knows the interest rate implicit in the lease payments is 10%.
The present value of an annuity due of 1 for 6 years at 10% is 4.7908.
The present value of an annuity due of 1 for 6 years at 11% is 4.6959. In its December 31, 2013 balance sheet, Burton should report a lease liability of
a. $758,160.
b. $850,000.
c. $939,180.
d. $958,160.
48. On December 31, 2012, Harris Co. leased a machine from Catt, Inc. for a five-year period. Equal annual payments under the lease are $840,000 (including $40,000 annual executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2012, and the second payment was made on December 31, 2013. The five lease payments are discounted at 10% over the lease term. The present value of minimum lease payments at the inception of the lease and before the first annual payment was $3,336,000. The lease is appropriately accounted for as a capital lease by Harris. In its December 31, 2013 balance sheet, Harris should report a lease liability of
a. $2,536,000.
b. $2,496,000.
c. $2,282,400.
d. $1,989,600.
49. A lessee had a ten-year capital lease requiring equal annual payments. The reduction of the lease liability in year 2 should equal
a. the current liability shown for the lease at the end of year 1.
b. the current liability shown for the lease at the end of year 2.
c. the reduction of the lease liability in year 1.
d. one-tenth of the original lease liability.
Use the following information for questions 104 and 105.
On January 2, 2013, Hernandez, Inc. signed a ten-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $250,000 starting at the end of the first year, with title passing to Hernandez at the expiration of the lease. Hernandez treated this transaction as a capital lease. The drill press has an estimated useful life of 15 years, with no salvage value. Hernandez uses straight-line depreciation for all of its plant assets. Aggregate lease payments were determined to have a present value of $1,500,000, based on implicit interest of 10%.
50. In its 2013 income statement, what amount of interest expense should Hernandez report from this lease transaction?
a. $0
b. $93,750
c. $125,000
d. $150,000
51. In its 2013 income statement, what amount of depreciation expense should Hernandez report from this lease transaction?
a. $250,000
b. $200,000
c. $150,000
d. $100,000
52. In a lease that is recorded as a sales-type lease by the lessor, interest revenue
a. should be recognized in full as revenue at the lease's inception.
b. should be recognized over the period of the lease using the straight-line method.
c. should be recognized over the period of the lease using the effective interest method.
d. does not arise.
53. Torrey Co. manufactures equipment that is sold or leased. On December 31, 2013, Torrey leased equipment to Dalton for a five-year period ending December 31, 2018, at which date ownership of the leased asset will be transferred to Dalton. Equal payments under the lease are $440,000 (including $40,000 executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2013. Collectibility of the remaining lease payments is reasonably assured, and Torrey has no material cost uncertainties. The normal sales price of the equipment is $1,540,000, and cost is $1,200,000. For the year ended December 31, 2013, what amount of income should Torrey realize from the lease transaction?
a. $340,000
b. $440,000
c. $460,000
d. $660,000
54. Jamar Co. sold its headquarters building at a gain, and simultaneously leased back the building. The lease was reported as a capital lease. At the time of the sale, the gain should be reported as
a. operating income.
b. an extraordinary item, net of income tax.
c. a separate component of stockholders' equity.
d. a deferred gain.
55. On December 31, 2013, Haden Corp. sold a machine to Ryan and simultaneously leased it back for one year. Pertinent information at this date follows:
Sales price $900,000
Carrying amount 825,000
Present value of reasonable lease rentals
($7,500 for 12 months @ 12%) 85,000
Estimated remaining useful life 12 years
In Haden's December 31, 2013 balance sheet, the deferred profit from the sale of this machine should be
a. $85,000.
b. $75,000.
c. $10,000.
d. $0.