QUESTION 1: Solo Co. purchased $300,000 of bonds for $315,000. If Solo intends to hold the securities to maturity, the entry to record the investment includes
a. a debit to Held-to-Maturity Securities at $300,000.
b. a credit to Premium on Investments of $15,000.
c. a debit to Held-to-Maturity Securities at $315,000.
d. none of these.
QUESTION 2: On October 1, 2004, Porter Co. purchased to hold to maturity, 1,200, $1,000, 9% bonds for $1,188,000 which includes $18,000 accrued interest. The bonds, which mature on February 1, 2013, pay interest semiannually on February 1 and August 1. Porter uses the straight-line method of amortization. The bonds should be reported in the December 31, 2004 balance sheet at a carrying value of:
a. $1,170,000
b. $1,170,900
c. $1,188,000
d. $1,188,360
QUESTION 3: Which of the following is correct about the effective interest method of amortization?
a. The effective interest method applied to investments in debt securities is different from that applied to bonds payable. b. Amortization of a discount decreases from period to period.
c. Amortization of a premium decreases from period to period.
d. The effective interest method produces a constant rate of return on the book value of the investment from period to period.
QUESTION 4: Bass Corp.'s 2004 income statement showed pretax accounting income of $625,000. To compute the federal income tax liability, the following 2004 data are provided:
Income from exempt municipal bonds $25,000
Depreciation deducted for tax purposes in excess of depreciation deducted for financial statement purposes 50,000
Estimated federal income tax payments made 125,000
Enacted corporate income tax rate 30%
If the alternate minimum tax provisions are ignored, what amount of current federal income tax liability should be included in Bass's December 31, 2004 balance sheet?
a. $40,000
b. $55,000
c. $62,500
d. $165,00
QUESTION 4: In 2003, Singer, Inc., issued for $103 per share, 40,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Singer's $25 par value common stock at the option of the preferred stockholder. In August 2004, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $30 per share. What total amount should be credited to additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock?
a. $680,000
b. $520,000
c. $1,000,000
d. $1,120,000
QUESTION 5: Unruh Corp. began operations in 2004. An analysis of Unruh’s equity securities portfolio acquired in 2004 shows the following totals at December 31, 2004 for trading and available-for-sale securities:
Trading Available-for-Sale
Securities Securities
Aggregate cost $98,000 $130,000
Aggregate fair value 78,000 114,000
What amount should Unruh report in its 2004 income statement for unrealized holding loss?
a. $36,000
b. $30,000
c. $16,000
d. $20,000