Q1. On July 1, 2004, Risen Co. issued 500 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2004 and mature on April 1, 2014. Interest is payable semiannually on April 1 and October 1. What amount did Risen receive from the bond issuance?
a. $507,500
b. $500,000
c. $495,000
d. $482,500
Q2. On July 1, 2002, Moon, Inc. issued 9% bonds in the face amount of $2,000,000, which mature on July 1, 2012. The bonds were issued for $1,878,000 to yield 10%, resulting in a bond discount of $122,000. Moon uses the effective interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2004, Moon's unamortized bond discount should be
a. $105,620.
b. $102,000.
c. $97,600.
d. $86,000.
Q3. On January 1, 2004, Harry Co. redeemed its 15-year bonds of $1,500,000 par value for 102. They were originally issued on January 1, 1992 at 98 with a maturity date of January 1, 2007. The bond issue costs relating to this transaction were $90,000. Harry amortizes discounts, premiums, and bond issue costs using the straight-line method. What amount of loss should Harry recognize on the redemption of these bonds (ignore taxes)?
a. $54,000
b. $36,000
c. $30,000
d. $0
Q4. A corporation was organized in January 2004 with authorized capital of $10 par value common stock. On February 1, 2004, shares were issued at par for cash. On March 1, 2004, 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, 2004 March 1, 2004
a. Yes No
b. Yes Yes
c. No No
d. No Yes
Q5. At its date of incorporation, Wilson, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Wilson 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
Q6. On May 1, 2004 Lett Corp. declared and issued a 15% common stock dividend. Prior to this dividend, Lett had 100,000 shares of $1 par value common stock issued and outstanding. The fair value of Lett's common stock was $20 per share on May 1, 2004. As a result of this stock dividend, Lett's total stockholders' equity
a. increased by $300,000.
b. decreased by $300,000.
c. decreased by $15,000.
d. did not change.
Q7. On January 1, 2004, Cater Corp. granted an employee an option to purchase 10,000 shares of Cater's $5 par value common stock at $20 per share. The Black-Scholes option pricing model determines total compensation expense to be $220,000. The option became exercisable on December 31, 2005, after the employee completed two years of service. The market prices of Cater's stock were as follows:
January 1, 2004 $30
December 31, 2005 50
For 2005, Cater should recognize compensation expense under the fair value method of
a. $150,000.
b. $50,000.
c. $110,000.
d. $0.
Q8. At December 31, 2004 and 2003, Glass Corp. had 120,000 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 2004 or 2003. Net income for 2004 was $400,000. For 2004, earnings per common share amounted to
a. $3.33.
b. $2.92.
c. $2.50.
d. $1.67.
Q9. In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect assumed reacquisition of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would
a. fairly present diluted earnings per share on a prospective basis.
b. fairly present the maximum potential dilution of diluted earnings per share on a prospective basis.
c. reflect the excess of the number of shares assumed issued over the number of shares assumed reacquired as the potential dilution of earnings per share.
d. be antidilutive.
Q10. Reese Co. had 300,000 shares of common stock issued and outstanding at December 31, 2003. No common stock was issued during 2004. On January 1, 2004, Reese issued 200,000 shares of nonconvertible preferred stock. During 2004, Reese declared and paid $125,000 cash dividends on the common stock and $100,000 on the preferred stock. Net income for the year ended December 31, 2004 was $775,000. What should be Reese's 2004 earnings per common share?
a. $2.59
b. $2.25
c. $2.16
d. $1.84