Intermediate Accounting IIQuiz #1 (Chapter 13 – 16)Acct 311 Spring 2015Version B2015Administrative Notes:This quiz is open book & open notes a calulator may be used.Write print or type directly on this quizyou may present your answers in an excel or pdf file – excel or pdf are optional and not a requirement.Show your work in good form where applicable for full creditYou may not discuss this exam with classmates or other students –Work the questions carefully go back and check your work keep track of the due date and time – grade penalties for late submissionThis exam consists of the following:ComponentPointsProblems 1 to 10 are worth 5 points each for a total of 50 points.5025 multiple choice questions – 2 points each.50Total Points100Acct 311- Version B – 6.10.08 mjm1. On August 31 Demich Co. partially refunded $180 000 of its outstanding 10% note payable made one year ago to Best Fededral Bank by paying $180 000 plus $18 000 interest having obtained the $198 000 by using $52 400 cash and signing a new one-year $160 000 note discounted at 9% by the bank.Instructions(1) Make the entry to record the partial refunding. Assume Demich Co. makes reversing entries when appropriate.(2) Prepare the adjusting entry at December 31 assuming straight-line amortization of the discount.2. Below are three independent situations.a. In August 2012 a worker was injured in the factory in an accident partially the result of his own negligence. The worker has sued Crusher Co. for $800 000. Counsel believes it is reasonably possible that the outcome of the suit will be unfavorable and that the settlement would cost the company from $250 000 to $500 000.b. A suit for breach of contract seeking damages of $2 400 000 was filed by anauthor against Parker Co. on October 4 2012. Parker’s legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the award to the plaintiff is between $600 000 and $1 800 000. No amount within this range is a better estimate of potential damages than any other amount.c. Rose is involved in a pending court case. Rose’s lawyers believe it is probable that Rose will be awarded damages of $1 000 000.InstructionsDiscuss the proper accounting treatment including any required disclosures for each situation. Give the rationale for your answers.3. ESSAY QUESTION: What accounting treatment is required for convertibledebt? Why? What accounting treatment is required for debt issued with stock warrants? Why?4. On July 1 2013 Zheng Co. issued 1 000 of its 10% $1 000 bonds at 99 plus accrued interest. The bonds are dated April 1 2013 and mature onApril 1 2023. Interest is payable semiannually on April 1 and October 1. What amount did Spear receive from the bond issuance?5. Parker Corporation has issued 2 000 shares of common stock and 400 shares of preferred stock for a lump sum of $72 000 cash.Instructions(a) Give the entry for the issuance assuming the par value of the common was $5 and the market value $30 and the par value of the preferred was $40 and the market value $50. (Each valuation is on a per share basis and there are ready markets for each stock.)(b) Give the entry for the issuance assuming the same facts as (a) above except the preferred stock has no ready market and the common stock has a market value of $25 per share.6. Weighted average shares outstanding.On January 1 2012 Warren Corporation had 1 000 000 shares of common stock outstanding. On March 1 the corporation issued 150 000 new shares to raise additional capital. On July 1 the corporation declared and issued a 2-for-1 stock split. On October 1 the corporation purchased on the market 600 000 of its own outstanding shares and retired them.InstructionsCompute the weighted average number of shares to be used in computing earnings per share for 2012.7 – 9. General Nuisance Inc. shipped 100 million coupons in products it sold in 2013. The coupons are redeemable for thirty cents each. General anticipates that 70% of the coupons will be redeemed. The coupons expire on December 31 2014. There were 45 million coupons redeemed in 2013 and 30 million redeemed in 2014.7. What was General’s coupon liability as of December 31 2013? 8. What was General’s coupon promotion expense in 2013? 9. What was General’s coupon promotional expense in 2014? .10. Determine the price of a $200 000 bond issue under each of the following independent assumptions:MULTIPLE CHOICE.1. Which of the following is generally associated with payables classified as accounts payable?Periodic Payment Securedof Interest by Collaterala. No Nob. No Yesc. Yes Nod. Yes Yes2. On January 1 2013 Hershey Co. leased a building to Mars Corp. for a ten-year term at an annual rental of $80 000. At inception of the lease Hershey received $320 000 covering the first two years’ rent of $160 000 and a security deposit of $160 000. This deposit will not be returned to Mars upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $320 000 should be shown as a current and long-term liability respectively in Hershey’s December 31 2013 balance sheet?Current Liability Long-term Liabilitya. $0 $320 000b. $80 000 $160 000c. $160 000 $160 000d. $160 000 $80 0003. On September 1 2012 Tavani Co. issued a note payable to National Bank in the amount of $1 200 000 bearing interest at 12% and payable in three equal annual principal payments of $400 000. On this date the bank’s prime rate was 11%. The first payment for interest and principal was made on September 1 2013. At December 31 2012 Tavani should record accrued interest payable ofa. $48 000.b. $44 000.c. $32 000.d. $29 334.4. Focus Company’s salaried employees are paid biweekly. Occasionally advances made to employees are paid back by payroll deductions. Information relating to salaries for the calendar year 2013 is as follows:12/31/12 12/31/13Employee advances $12 000 $ 18 000Accrued salaries payable 65 000 ?Salaries expense during the year 650 000Salaries paid during the year (gross) 625 000At December 31 2013 what amount should Focus report for accrued salaries payable?a. $90 000.b. $84 000.c. $72 000.d. $25 000.5. Smith Co. sells major household appliance service contracts for cash. The service contracts are for a one-year two-year or three-year period. Cash receipts from contracts are credited to unearned service contract revenues. This account had a balance of $480 000 at December 31 2013 before year-end adjustment. Service contract costs are charged as incurred to the service contract expense account which had a balance of $120 000 at December 31 2013. Outstanding service contracts at December 31 2013 expire as follows:During 2014 During 2015 During 2016$100 000 $160 000 $70 000What amount should be reported as unearned service contract revenues in Smith’s December 31 2013 balance sheet?a. $360 000.b. $330 000.c. $240 000.d. $220 000.6. Duke Trading Stamp Co. records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Duke’s past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Duke’s liability for stamp redemptions was $7 500 000 at December 31 2011. Additional information for 2012 is as follows:Stamp service revenue from stamps sold to licensees $5 000 000Cost of redemptions $3 400 000If all the stamps sold in 2012 were presented for redemption in 2013 the redemption cost would be $2 500 000. What amount should Duke report as a liability for stamp redemptions at December 31 2012?a. $9 100 000.b. $6 600 000.c. $6 100 000.d. $4 100 000.Use the following information for questions 7 through 9:On January 1 2012 Hutton Co. issued eight-year bonds with a face value of $1 000 000 and a stated interest rate of 6% payable semiannually onJune 30 and December 31. The bonds were sold to yield 8%. Table values are:Present value of 1 for 8 periods at 6% .627Present value of 1 for 8 periods at 8% .540Present value of 1 for 16 periods at 3% .623Present value of 1 for 16 periods at 4% .534Present value of annuity for 8 periods at 6% 6.210Present value of annuity for 8 periods at 8% 5.747Present value of annuity for 16 periods at 3% 12.561Present value of annuity for 16 periods at 4% 11.6527. The present value of the principal isa. $534 000.b. $540 000.c. $623 000.d. $627 000.8. The present value of the interest isa. $344 820.b. $349 560.c. $372 600.d. $376 830.9. The issue price of the bonds isa. $883 560.b. $884 820.c. $889 560.d. $999 600.10. The term used for bonds that are unsecured as to principal isa. junk bonds.b. debenture bonds.c. indebenture bonds.d. callable bonds.11. Shelby Inc. issued bonds with a maturity amount of $200 000 and a maturity ten years from date of issue. If the bonds were issued at a premium this indicates thata. the effective yield or market rate of interest exceeded the stated (nominal) rate.b. the nominal rate of interest exceeded the market rate.c. the market and nominal rates coincided.d. no necessary relationship exists between the two rates.12. The rate of interest actually earned by bondholders is called thea. stated rate.b. yield rate.c. effective rate.d. effective yield or market rate.13. The residual interest in a corporation belongs to thea. management.b. creditors.c. common stockholders.d. preferred stockholders.14. In a corporate form of business organization legal capital is best defined asa. the amount of capital the state of incorporation allows the company to accumulate over its existence.b. the par value of all capital stock issued.c. the amount of capital the federal government allows a corporation to generate.d. the total capital raised by a corporation within the limits set by the Securities and Exchange Commission.15. The cumulative feature of preferred stocka. limits the amount of cumulative dividends to the par value of the preferred stock.b. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.c. means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock.d. enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends.Presented below is information related to Lewis Corporation question 16 – 17:Common Stock $1 par $4 300 000Paid-in Capital in Excess of Par—Common Stock 550 000Preferred 8 1/2% Stock $50 par 2 000 000Paid-in Capital in Excess of Par—Preferred Stock 400 000Retained Earnings 1 500 000Treasury Common Stock (at cost) 150 00016. The total stockholders’ equity of Lewis Corporation isa. $8 600 000.b. $8 750 000.c. $7 100 000.d. $7 250 000.17. The total paid-in capital (cash collected) related to the common stock isa. $4 300 000.b. $4 850 000.c. $5 250 000.d. $4 700 000.18. Thomas Company has outstanding both common stock and nonparticipating non-cumulative preferred stock. The liquidation value of the preferred is equal to its par value. The book value per share of the common stock is unaffected bya. the declaration of a stock dividend on preferred payable in preferred stock when the market price of the preferred is equal to its par value.b. the declaration of a stock dividend on common stock payable in common stock when the market price of the common is equal to its par value.c. the payment of a previously declared cash dividend on the common stock.d. a 2-for-1 split of the common stock.19. Assume common stock is the only class of stock outstanding in the Manley Corporation. Total stockholders’ equity divided by the number of common stock shares outstanding is calleda. book value per share.b. par value per share.c. stated value per share.d. market value per share.20. In computations of weighted average of shares outstanding when a stock dividend or stock split occurs the additional shares area. weighted by the number of days outstanding.b. weighted by the number of months outstanding.c. considered outstanding at the beginning of the year.d. considered outstanding at the beginning of the earliest year reported.21. What effect will the acquisition of treasury stock have on stockholders’ equity and earnings per share respectively?a. Decrease and no effectb. Increase and no effectc. Decrease and increased. Increase and decrease22. Due to the importance of earnings per share information it is required to be reported by allPublic Companies Nonpublic Companiesa. Yes Yesb. Yes Noc. No Nod. No Yes23. A convertible bond issue should be included in the diluted earnings per share computation as if the bonds had been converted into common stock if the effect of its inclusion isDilutive Antidilutivea. Yes Yesb. Yes Noc. No Yesd. No No24. Stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholdersa. are entitled to a dividend every year in which the business earns a profit.b. have the rights to specific assets of the business.c. bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.d. can negotiate individual contracts on behalf of the enterprise.25. Bobich Corp. had 600 000 shares of common stock outstanding on January 1 issued 900 000 shares on July 1 and had income applicable to common stock of $1 050 000 for the year ending December 31 2012. Earnings per share of common stock for 2012 would bea. $1.75.b. $.83.c. $1.00.d. $1.17.
