Problem 1:
During year 4, Wall Co. purchased 2,000 shares of Hemp Corp. common stock for $31,500 as a short-term investment. The investment was appropriately classified as a trading security. The market value of this investment was $29,500 at December 31, year 4. Wall sold all of the Hemp common stock for $14 per share on January 15, year 5, incurring $1,400 in brokerage commissions and taxes. On the sale, Wall should report a Realized loss of:
Choose one answer.
a. $1,500
b. $2,900
c. $3,500
d. $4,900
Problem 2: The following information pertains to Lark Corp.'s long-term marketable equity securities portfolio:
Dec 31, 2009 Dec 31, 2008
Cost $200,000 $200,000
Fair value $240,000 $180,000
Differences between cost and market values are considered to be temporary. The decline in market value was properly accounted for at December 31, 2008. At December 31, 2009, what is the net unrealized holding gain or loss to be reported as: first column Other Comprehensive Income and the second column as Accumulated Other Comprehensive Income?
Choose one answer.
a. $60,000 gain (year) Accumulated $40,000 gain
b. $40,000 gain (year) Accumulated $40,000 gain
c. $20,000 loss (year) Accumulated $20,000 loss
d. $0 Year - Accumulated $0
Problem 3: When a product or service is delivered for which a customer advance has been previously received, the appropriate journal entry includes:
Choose one answer.
a. A debit to revenue and a credit to a liability account.
b. A debit to a revenue and a credit to an asset account.
c. A debit to an asset and a credit to a revenue account
d. A debit to a liability and a credit to a revenue account.
Problem 4: Which of the following is NOT a characteristic of a liability?
Choose one answer.
a. It represents a probable, future sacrifice of economic benefits.
b. It must be payable in cash.
c. It arises from present obligations to other entities.
d. It results from past transactions or events.
Problem 5: During 2009, Gum Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 2% within 12 months following the sale and 4% in the second 12 months following the sale. Sales and actual warranty expenditures for the years ended December 31, 2009 and 2010 are as follows:
Sales Actual Warranty Expenditures
2009 $150,000 $2,250
2010 $250,000 $7,500
Total $400,000 $9,750
What amount should Gum report as estimated warranty liability in its December 31, 2010, balance sheet?
Choose one answer.
a. $2,500
b. $4,250
c. $11,250
d. $14,250
Problem 6: A bond issue on June 1, 2009, has interest payment dates of April 1 and October 1. Bond interest expense for the year ended December 31, 2009 is for a period of:
Choose one answer.
a. Three months
b. Four months
c. Six months
d. Seven months
Problem 7: For a bond issue that sells for less than its par value, the market rate of interest is
Choose one answer.
a. Higher than the rate stated on bond.
b. Dependent on the rate stated on the bond.
c. Equal to the rate stated on the bond
d. Less than the rate stated on the bond
Problem 8: On January 31, 2009, Beau Corp. issued $300,000 maturity value, 12% bonds for $300,000 cash. The bonds are dated December 31, 2008, and mature on December 31, 2018. Interest will be paid semiannually on June 30 and December 31. What amount of accrued interest payable should Beau report in its September 30, 2009 balance sheet?
Choose one answer.
a. $9,000
b. $18,000
c. $27,000
d. $24,000
The company leases the following asset:
- Fair value of $200,000
- Useful life of 5 years with no salvage value
- Lease term is 4 years
- Annual lease payment is $30,000 and the lease rate is 11%
- The company's overall borrowing rate is 9.5%
- The firm can purchase the equipment at the end of the lease period for $45,000
Problem 9: What type of lease is this?
Choose one answer.
a. Operating
b. Capital
c. Financing
d. Long Term
Problem 10: On January 1, 2009, Blaugh Co. signed a long-term lease for an office building. The terms of the lease required Blaugh to pay $10,000 annually beginning on December 30, 2009, and continuing each year for 30 years. The lease qualifies as a capital lease. On January 1, 2009, the present value of the lease payments is $112,500 at the 8% interest rate implicit in the lease. In Blaugh's December 31, 2009, balance sheet, the capital lease liability should be
Choose one answer.
a. $102,500
b. $111,500
c. $112,500
d. $290,000
Problem 11: Neal Corp. entered into a nine-year capital lease on a warehouse on December 31, 2009. Lease payments of $52,000, which includes real estate taxes of $2,000, are due annually, Beginning on December 31, 2010, and every December 31 thereafter. Neal does not know the interest rate implicit in the lease; Neal's incremental borrowing rate is 9%. The rounded present value of an ordinary annuity for nine years at 9% is 6.0. What amount should Neal report as capitalized lease liability at December 31, 2009?
Choose one answer.
a. $300,000
b. $312,000
c. $450,000
d. $468,000
Problem 12: In 2007, Fogg, Inc. issued $10 par value common stock for $25 per share. No other common stock transactions occurred until March 31, 2009, when Fogg acquired some of the issued shares for $20 per share and retired them. Which of the following statements correctly states the effect of this acquisition and retirement?
Choose one answer.
a. 2009 net income is decreased
b. Additional paid in capital is decreased
c. 2009 net income is increased
d. Retained earnings is increased
Problem 13: When a company issues a stock dividend which of the following would be affected?
Choose one answer.
a. Earnings per share
b. Total assets
c. Total liabilities
d. Total stockholders' equity
Problem 14: Long Co. had 100,000 shares of common stock issued and outstanding at January 1, 2009. During 2009 Long took the following actions:
March 15 Declared a 2 for 1 stock split, when the fair value of the stock was $80 per share.
December 15 Declared a $0.50 per share cash dividend
In Long's statement of stockholders' equity for 2009, what amount should Long report as dividends?
Choose one answer.
a. $50,000
b. $100,000
c. $850,000
d. $950,000
Problem 15: At December 31, 2009 and 2008, Gow Corp. had 100,000 shares of common stock and 10,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2009 or 2008. Net income for 2009 was $1,000,000. For 2009, basic earnings per common share amounted to
Choose one answer.
a. $5.00
b. $9.50
c. $9.00
d. $10.00