1. Securities which could be classified as held-to-maturity are
a. redeemable preferred stock.
b. warrants.
c. municipal bonds.
d. treasury stock.
2. Unrealized holding gains or losses which
are recognized in income are from securities classified as
a. held-to-maturity.
b. available-for-sale.
c. trading.
d. none of these.
3. 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.
4. An unrealized holding loss on a company’s
available-for-sale securities should be reflected in the current financial
statements as
a. an extraordinary item shown as a direct
reduction from retained earnings.
b. a current loss resulting from holding
securities.
c. a note or parenthetical disclosure only.
d. other comprehensive income and deducted in
the equity section of the balance sheet.
Use the following
information for questions 5 and 6:
Oliver Company purchased $400,000 of 10% bonds of
McGee Co. on January 1, 2008, paying $376,100. The bonds mature January 1,
2018; interest is payable each July 1 and January 1. The discount of $23,900
provides an effective yield of 11%. Oliver Company uses the effective-interest
method and plans to hold these bonds to maturity.
5. On July 1, 2008,
Oliver Company should increase its Held-to-Maturity Debt Securities account for
the McGee Co. bonds by
a. $2,392.
b. $1,371.
c. $1,196.
d. $686.
6. For the year ended
December 31, 2008, Oliver Company should report interest revenue from the McGee
Co. bonds of:
a. $42,392.
b. $41,409.
c. $41,368.
d. $40,000.
7. On August 1, 2007, Bettis Company acquired
$200,000 face value 10% bonds of Hanson Corporation at 104 plus accrued
interest. The bonds were dated May 1, 2007, and mature on April 30, 2012, with
interest payable each October 31 and April 30. The bonds will be held to maturity.
What entry should Bettis make to record the purchase of the bonds on August 1,
2007?
a. Held-to-Maturity Securities…………………………………………….. 208,000
Interest
Revenue…………………………………………………………… 5,000
Cash………………………………………………………………… 213,000
b. Held-to-Maturity Securities…………………………………………….. 213,000
Cash………………………………………………………………… 213,000
c. Held-to-Maturity Securities…………………………………………….. 213,000
Interest
Revenue………………………………………………… 5,000
Cash………………………………………………………………… 208,000
d. Held-to-Maturity Securities…………………………………………….. 200,000
Premium
on Bonds……………………………………………………….. 13,000
Cash………………………………………………………………… 213,000
8. On its December 31, 2009, balance sheet,
Quinn Co. reported its investment in available-for-sale securities, which had
cost $600,000, at fair value of $550,000. At December 31, 2010, the fair value
of the securities was $585,000. What should Quinn report on its 2010 income
statement as a result of the increase in fair value of the investments in 2010?
a. $0.
b. Unrealized loss of $15,000.
c. Realized gain of $35,000.
d. Unrealized gain of $35,000.
Use the following
information for questions 9 and 10:
On its December 31, 2007 balance sheet, Klugman
Company appropriately reported a $10,000 debit balance in its Securities Fair
Value Adjustment (Available-for-Sale) account. There was no change during 2008
in the composition of Klugman’s portfolio of marketable equity securities held
as available-for-sale securities. The following information pertains to that
portfolio:
Security Cost Fair value at 12/31/08
X $125,000 $160,000
Y 100,000 95,000
Z
175,000 125,000
$400,000 $380,000
9. What amount of
unrealized loss on these securities should be included in Klugman’s
stockholders’ equity section of the balance sheet at December 31, 2008?
a. $30,000.
b. $20,000.
c. $10,000.
d. $0.
10. The amount of
unrealized loss to appear as a component of comprehensive income for the year
ending December 31, 2008 is
a. $30,000.
b. $20,000.
c. $10,000.
d. $0.
11. During 2007, Ellis
Company purchased 20,000 shares of Hiller Corp. common stock for $315,000 as an
available-for-sale investment. The fair value of these shares was $300,000 at
December 31, 2007. Ellis sold all of the Hiller stock for $17 per share on
December 3, 2008, incurring $14,000 in brokerage commissions. Ellis Company
should report a realized gain on the sale of stock in 2008 of
a. $11,000.
b. $25,000.
c. $26,000.
d. $40,000.
12. Under
the completed-contract method
a. revenue, cost, and gross profit are
recognized during the production cycle.
b. revenue and cost are recognized during the
production cycle, but gross profit recognition is deferred until the contract
is completed.
c. revenue, cost, and gross profit are
recognized at the time the contract is completed.
d. none of these.
13. Under the installment-sales method,
a. revenue, costs, and gross profit are
recognized proportionate to the cash that is received from the sale of the
product.
b. gross profit is deferred proportionate to
cash uncollected from sale of the product, but total revenues and costs are
recognized at the point of sale.
c. gross profit is not recognized until the
amount of cash received exceeds the cost of the item sold.
d. revenues and costs are recognized
proportionate to the cash received from the sale of the product, but gross
profit is deferred until all cash is received.
14. Reese
Construction Corporation contracted to construct a building for $1,500,000.
Construction began in 2009 and was completed in 2010. Data relating to the
contract are summarized below:
Year
ended
December 31,
2009
2010
Costs incurred $600,000 $450,000
Estimated costs to complete 400,000 —
Reese uses the
percentage-of-completion method as the basis for income recognition. For the years ended December 31, 2009, and 2010,
respectively, Reese should report gross profit of
a. $270,000 and $180,000.
b. $900,000 and $600,000.
c. $300,000 and $150,000.
d. $0 and $450,000.
15. Winsor Construction Company uses the
percentage-of-completion method of accounting. In 2010, Winsor began work on a
contract it had received which provided for a contract price of
$15,000,000. Other details follow:
2010
Costs incurred during the year $7,200,000
Estimated costs to complete as
of December 31 4,800,000
Billings during the year 6,600,000
Collections during the year 3,900,000
What should be the gross profit
recognized in 2010?
a. $600,000
b. $7,800,000
c. $1,800,000
d. $3,000,000
Use the following information for questions 16 and 17:
Ramos, Inc. began work in 2009
on contract #3814, which provided for a contract price of $7,200,000. Other details follow:
2009 2010
Costs incurred during the year $1,200,000 $3,675,000
Estimated costs to complete, as
of December 31 3,600,000 0
Billings during the year 1,350,000 5,400,000
Collections during the year 900,000 5,850,000
16. Assume that Ramos uses the
percentage-of-completion method of accounting. The portion of the total gross
profit to be recognized as income in 2009 is
a. $450,000.
b. $600,000.
c. $1,800,000.
d. $2,400,000.
17. Assume that Ramos uses the
completed-contract method of accounting. The portion of the total gross profit
to be recognized as income in 2010 is
a. $900,000.
b. $1,350,000.
c. $2,325,000.
d. $7,200,000.
Use the following
information for questions 18 and 19:
Carter
Construction Company had a contract starting April 2008, to construct a
$15,000,000 building that is expected to be completed in September 2009, at an
estimated cost of $13,750,000. At the end of 2008, the costs to date were
$6,325,000 and the estimated total costs to complete had not changed. The
progress billings during 2008 were $3,000,000 and the cash collected during
2008 was $2,000,000. Carter uses the percentage-of-completion method.
18. For the year ended
December 31, 2008, Carter would recognize gross profit on the building of
a. $0.
b. $527,083.
c. $575,000.
d. $675,000.
19. At December 31, 2008,
Carter would report Construction in Process in the amount of
a. $6,900,000.
b. $6,325,000.
c. $5,900,000.
d. $575,000.
20. Lamberson Company has
used the installment method of accounting since it began operations at the
beginning of 2008. The following
information pertains to its operations for 2008:
Installment sales $
1,400,000
Cost of installment sales 980,000
Collections of installment sales 560,000
General and administrative expenses 140,000
The amount to be reported on the December 31, 2008
balance sheet as Deferred Gross Profit should be
a. $168,000.
b. $252,000.
c. $336,000.
d. $840,000.
21. Neber Co., which began operations on
January 1, 2007, appropriately uses the installment-sales method of accounting.
The following information pertains to Neber’s operations for the year 2007:
Installment sales $1,200,000
Regular sales 480,000
Cost of installment sales 720,000
Cost of regular sales 288,000
General and administrative
expenses 96,000
Collections on installment sales 288,000
The deferred gross profit
account in Neber’s December 31, 2007 balance sheet should be
a. $115,200.
b. $192,000.
c. $364,800.
d. $480,000.
22. Taxable income of a corporation differs
from pretax financial income because of
Permanent Temporary
Differences Differences
a. No No
b. No Yes
c. Yes Yes
d. Yes No
23. Machinery was acquired at the beginning of
the year. Depreciation recorded during the life of the machinery could result
in
Future Future
Taxable
Amounts Deductible
Amounts
a. Yes Yes
b. Yes No
c. No Yes
d. No No
Use the following fact pattern
to answer Questions 24 and 25:
Frizell Co., at the end of 2007, its first year of
operations, prepared a reconciliation between pretax financial income and
taxable income as follows:
Pretax
financial income $ 750,000
Estimated
litigation expense 1,000,000
Extra
depreciation for taxes
(1,500,000)
Taxable
income $ 250,000
The
estimated litigation expense of $1,000,000 will be deductible in 2008 when it
is expected to be paid. Use of the depreciable assets will result in taxable
amounts of $500,000 in each of the next three years. The income tax rate is 30%
for all years.
24. The
deferred tax asset to be recognized is
a. $75,000 current.
b. $150,000 current.
c. $225,000 current.
d. $300,000 current.
25. The deferred tax liability to be recognized
is
Current Noncurrent
a. $150,000 $300,000
b. $150,000 $225,000
c. $0 $450,000
d. $0 $375,000
Gordon Company has the
following securities in its portfolio of trading equity securities on December 31, 2009:
Cost FairValue
5,000 shares of Milner Corp.,
Common $155,000 $139,000
10,000 shares of Eddy, Common 182,000 190,000
$337,000 $329,000
All of the securities had
been purchased in 2009. In 2010, Gordon completed the following securities
transactions:
March 1 Sold 5,000 shares of Milner Corp., Common @ $31 less fees of
$1,500.
April
1 Bought 600 shares of Yount Stores,
Common @ $45 plus fees of $550.
The
Gordon Company portfolio of trading equity securities appeared as follows on December 31, 2010:
Cost FairValue
10,000 shares of Eddy, Common $182,000 $195,500
600 shares of Yount Stores,
Common 27,550 25,500
$209,550 $221,000
Instructions
Prepare the general journal
entries for Gordon Company for:
(a) the 2009 adjusting entry.
(b) the March 1, 2010 sale of the Milner Corp.
stock.
(c) the April 1, 2010 purchase of the Yount
Stores’ stock.
(d) the 2010 adjusting entry.
Nott Co. at the end of 2007, its first year of
operations, prepared a reconciliation between pretax financial income and
taxable income as follows:
Pretax
financial income $ 420,000
Extra
depreciation taken for tax purposes (1,050,000)
Estimated
expenses deductible for taxes when paid 840,000
Taxable
income $ 210,000
Use of
the depreciable assets will result in taxable amounts of $350,000 in each of
the next three years. The estimated litigation expenses of $840,000 will be
deductible in 2010 when settlement is expected.
Instructions
(a) Prepare a schedule of future taxable and deductible amounts.
(b) Prepare the journal entry to record income tax expense, deferred
taxes, and income taxes payable for 2007, assuming a tax rate of 40% for all
years.
Stiner
Builders contracted to build a high-rise for $14,000,000. Construction began in
2009 and is expected to be completed in 2011. Data for 2009 and 2010 are:
2009
2010
Costs
incurred to date $1,800,000 $5,200,000
Estimated
costs to complete 7,200,000 4,800,000
Stiner
uses the percentage-of-completion method.
Instructions
(a) How much
gross profit should be reported for 2009?
Show your computation.
(b) How much
gross profit should be reported for 2010?
(c) Make the journal entry to record the revenue and gross profit for
2010.
