Reference no: EM13898900

1. Burnet Company had 30,000 shares of common stock outstanding on January 1, 2011. On April 1, 2011, the company issued 15,000 shares of common stock. The company had outstanding fully vested incentive stock options for 5,000 shares exercisable at $10 that had not been exercised by its executives.
The average market price of common stock was $9. The company reported net income in the amount of $189,374 for 2011. What is the effect of the options?
A. The options will dilute EPS by $.09 per share.
B. The options will dilute EPS by $.33 per share.
C. The options are anti-dilutive.
D. The options will dilute EPS by $.17 per share.

2. Due to an error in computing depreciation expense, Prewitt Corporation overstated accumulated depreciation by $20 million as of December 31, 2011. Prewitt has a tax rate of 30%. Prewitt's retained earnings as of December 31, 2011, would be
A. understated by $6 million.
B. overstated by $14 million.
C. overstated by $6 million.
D. understated by $14 million

3. Rampart, Inc., recorded the following transaction:
Land 15 million
Notes Payable 12 million
Cash 3 million
In the statement of cash flows, this would be reported as a
A. $3 million outflow from investing activities and $12 million noncash investing and financing activity.
B. $15 million outflow from investing activities.
C. $3 million outflow from investing activities.
D. $3 million noncash investing and financing activity.

4. In its 2011 income statement, WME reported $58,000 for insurance expense. WME paid $72,000 in insurance premiums during 2011. In its reconciliation schedule, WME should show a
A. $14,000 negative adjustment to net income under the indirect method for the decrease in prepaid insurance.
B. $14,000 positive adjustment to net income under the indirect method for the increase in prepaid insurance.
C. $14,000 negative adjustment to net income under the indirect method for the increase in prepaid insurance.
D. $14,000 positive adjustment to net income under the indirect method for the decrease in prepaid insurance.

5. During 2011, Angel Corporation had 900,000 shares of common stock and 50,000 shares of 6% preferred stock outstanding. The preferred stock does not have cumulative or convertible features. Angel declared and paid cash dividends of $300,000 and $150,000 to common and preferred shareholders, respectively, during 2011.
On January 1, 2010, Angel issued $2,000,000 of convertible 5% bonds at face value. Each $1,000 bond is convertible into 5 common shares.
Angel's net income for the year ended December 31, 2011, was $6 million. The income tax rate is 20%.
What will Angel report as diluted earnings per share for 2011, rounded to the nearest cent?
A. $6.43
B. The correct answer isn't given.
C. $6.25
D. $6.22

6. Prior to 2011, Trapper John, Inc., used sum-of-the-years'-digits depreciation for its store equipment. Beginning in 2011, Trapper John decided to use straight-line depreciation for these assets. The equipment cost $3 million when it was purchased at the beginning of 2009, had an estimated useful life of five years and no estimated residual value. To account for the change in 2011, Trapper John
A. would adjust accumulated depreciation and retained earnings for the excess charges made in 2009 and 2010.
B. would report depreciation expense of $400,000 in its 2011 income statement.
C. would report $3 million in depreciation expense for 2011.
D. would retrospectively report $600,000 in depreciation expense annually for 2009 and 2010, and report $600,000 in depreciation expense for 2011.

7. In its 2011 income statement, WME reported $695,000 for service revenue earned from membership fees. WME received $681,000 cash in advance from members during 2011. In its reconciliation schedule, WME should show a
A. $14,000 positive adjustment to net income under the indirect method for the decrease in unearned revenue.
B. $14,000 negative adjustment to net income under the indirect method for the decrease in unearned revenue.
C. $14,000 positive adjustment to net income under the indirect method for the increase in unearned revenue.
D. $14,000 negative adjustment to net income under the indirect method for the increase in unearned revenue.

8. Which of the following statements is true regarding correcting errors in previously issued financial statements prepared in accordance with International Financial Reporting Standards?
A. Retrospective application is required with no exception.
B. The error can be reported in the current period if it's not considered practicable to report it retrospectively.
C. The error can be reported prospectively if it's not considered practicable to report it retrospectively.
D. The error can be reported in the current period if it's not considered practicable to report it prospectively.

9. B Company switched from the sum-of-the-years-digits depreciation method to straight-line depreciation in 2011. The change affects machinery purchased at the beginning of 2009 at a cost of $72,000. The machinery has an estimated life of five years and an estimated residual value of $3,600. What is B's 2011 depreciation expense?
A. $13,680
B. $15,840
C. $9,120
D. $19,200

10. During 2011, Falwell Inc. had 500,000 shares of common stock and 50,000 shares of 6% cumulative preferred stock outstanding. The preferred stock has a par value of $100 per share. Falwell did not declare or pay any dividends during 2011.
Falwell's net income for the year ended December 31, 2011, was $2.5 million. The income tax rate is 40%.
Falwell granted 10,000 stock options to its executives on January 1 of this year. Each option gives its holder the right to buy 20 shares of common stock at an exercise price of $29 per share. The options vest after one year. The market price of the common stock averaged $30 per share during 2011. What is Falwell's diluted earnings per share for 2011, rounded to the nearest cent?
A. $3.14
B. $4.34
C. $4.90
D. The answer can't be determined from the information given.

11. Blue Cab Company had 50,000 shares of common stock outstanding on January 1, 2011. On April 1, 2011, the company issued 20,000 shares of common stock. The company had outstanding fully vested incentive stock options for 5,000 shares exercisable at $10 that had not been exercised by its executives.
The end-of-year market price of common stock was $13 while the average price for the year was $12. The company reported net income in the amount of $269,915 for 2011. What is the diluted earnings per share (rounded)?
A. $4.10.
B. $4.50.
C. $3.60.
D. $3.81.

12. During 2011, Falwell Inc. had 500,000 shares of common stock and 50,000 shares of 6% cumulative preferred stock outstanding. The preferred stock has a par value of $100 per share. Falwell did not declare or pay any dividends during 2011.
Falwell's net income for the year ended December 31, 2011, was $2.5 million. The income tax rate is 40%.
Falwell granted 10,000 stock options to its executives on January 1 of this year. Each option gives its holder the right to buy 20 shares of common stock at an exercise price of $29 per share. The options vest after one year. The market price of the common stock averaged $30 per share during 2011.
What is Falwell's basic earnings per share for 2011, rounded to the nearest cent?
A. The correct answer isn't given.
B. $5.00
C. $3.14
D. $4.40

13. On December 31, 2010, Albacore Company had 300,000 shares of common stock issued and outstanding. Albacore issued a 10% stock dividend on June 30, 2011. On September 30, 2011, 12,000 shares of common stock were reacquired as treasury stock. What is the appropriate number of shares to be used in the basic earnings per share computation for 2011?
A. 303,000
B. 342,000
C. 327,000
D. 312,000

14. During the current year, High Corporation had 3 million shares of common stock outstanding. Five thousand, $1,000, 6% convertible bonds were issued at face amount at the beginning of the year. High reported income before tax of $4 million and net income of $2.4 million for the year. Each bond is convertible into ten shares of common. What is diluted EPS (rounded)?
A. $.86
B. $.85
C. $.80
D. $.79

15. Bowers Corporation reported the following ($ in 000s) for the year:
Balance
Beginning Ending
Account receivable $600 $850
Allowance for bad debt 40 35
Sales on account were $1,900, and bad debt expense was $18 for the year. How much cash was collected from customers on account?
A. $1,638
B. $1,627
C. $2,142
D. $1,642

16. Sneed Corporation reported balances in the following accounts for the current year:
Beginning Ending
Income tax payable $50 $30
Deferred tax liability 80 140
Income tax expense was $230 for the year. What was the amount paid for taxes?
A. $210
B. $190
C. $220
D. $280

17. Under its executive stock option plan, W Corporation granted options on January 1, 2011, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2013 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. The options are exercised on April 2, 2014, when the market price is $21 per share. By what amount will W's shareholder's equity be increased when the options are exercised?
A. $330 million
B. $315 million
C. $270 million
D. $60 million

18. Selected information from Large Corporation's accounting records and financial statements for 2011 is as follows ($ in millions):
Cash paid to acquire a patent $28
Treasury stock purchased for cash 25
Proceeds from sale of land and buildings 45
Gain from the sale of land and buildings 26
Investment revenue received 5
Cash paid to acquire office equipment 40
Large prepares its financial statements in accordance with IFRS. In its statements of cash flow Large most likely reports net cash outflows from investing activities of
A. $28 million.
B. $68 million.
C. $38 million.
D. $18 million.

19. Like U.S. GAAP, international standards also require a statement of cash flows. Consistent with U.S
GAAP, cash flows are classified as operating, investing, or financing activities. However, with regard to interest and dividend inflows and outflows, the international standard for cash flow statements
A. allows companies to report cash outflows from interest payments as either operating or investing cash flows.
B. designates cash outflows for interest payments and cash inflows from interest and dividends received as operating cash flows.
C. allows companies to report cash inflows from interest and dividends as either operating or investing cash flows.
D. allows companies to report dividends paid as either investing or operating cash flows

20. Horrocks Company granted 180,000 restricted stock awards of its no par common shares to executives, subject to forfeiture if employment is terminated within three years. Horrocks' common shares have a market price of $10 per share on January 1, 2010, the grant date, and at December 31, 2011, averaging $10 throughout the year. When calculating diluted EPS at December 31, 2011, the net increase in the denominator of the EPS fraction will be
A. 120,000 shares.
B. 60,000 shares.
C. 0 shares.
D. 180,000 shares.

21. Which of the following would not be accounted for using the retrospective approach?
A. A change from the full cost method in the oil industry
B. A change in depreciation methods
C. A change from the completed contract method to the percent-of-completion method for long-term construction contracts
D. A change from LIFO to FIFO inventory costing

22. During 2011, P Company discovered that the ending inventories reported on its financial statements were incorrect by the following amounts:
2009 $120,000 understated
2010 $150,000 overstated
P uses the periodic inventory system to ascertain year-end quantities that are converted to dollar amounts using the FIFO cost method. Prior to any adjustments for these errors and ignoring income taxes, P's retained earnings at January 1, 2011 would be
A. $30,000 overstated.
B. correct.
C. $150,000 overstated.
D. $150,000 understated.

23. Under IFRS, a deferred tax asset for stock options
A. is the portion of the options' intrinsic value earned to date times the tax rate.
B. is created for the cumulative amount of the fair value of the options the company has recorded for compensation expense.
C. isn't created if the award is "in the money;" that is, it has intrinsic value.
D. is the tax rate times the amount of compensation.


24. On January 1, 2011, G Corp. granted stock options to key employees for the purchase of 80,000 shares of the company's common stock at $25 per share. The options are intended to compensate employees for the next two years. The options are exercisable within a four-year period beginning January 1, 2013, by the grantees still in the employ of the company. No options were terminated during 2011, but the company does have an experience of 4% forfeitures over the life of the stock options. The market price of the common stock was $31 per share at the date of the grant. G Corp. used the binomial pricing model and estimated the fair value of each of the options at $10. What amount should G charge to compensation expense for the year ended December 31, 2011?
A. $320,000
B. $307,200
C. $384,000
D. $400,000

25. Which of the following is not a change in reporting entity?
A. All are changes in reporting entity
B. Reporting using comparative financial statements for the first time
C. Changing the companies that comprise a consolidated group
D. Presenting consolidated financial statements for the first time