C249 - Int. Accounting II

What are two descriptions of preemptive stock rights?

A corporation issues 1,000 shares of $10 par value common stock for $12,000. Paid issuance costs are $500. How should the issuance be accounted for?

Why would a corporation reacquire stock by using the cost method rather than the par value method?

A company uses the cost method of accounting for treasury stock. On January 1, the company repurchases 1,000 shares of stock at $10 per share. On December 31, the company sells the repurchased shares back to its stockholders for $15 per share. The cash account is debited for the transaction. Which two credits should be recorded? 

What is a stockholder benefit of preferred stock?

A corporation distributes its ownership stake in a subsidiary corporation to its shareholders through a property dividend payment. The subsidiary ownership stake represents 200,000 shares, has a market value of $450,000, and has a carry value of $325,000. How should this dividend distribution be recorded?

Match each International Financial Reporting Standards (IFRS) element to its equivalent generally accepted accounting principles (GAAP) element.  Answer options may be used more than once or not at all. Share Capital—Ordinary [blank_start]Common Stock[blank_end] Share Premium Additional [blank_start]Paid-In Capital[blank_end] Statement of Changes in Equity [blank_start]Statement of Stockholders' Equity[blank_end] Preference Shares [blank_start]Preferred Stock[blank_end]

A company issues 1,000 shares of preferred stock at face value. The preferred stock shares have a par value of $2 per share and are convertible into 1,000 shares of common stock with a par value of $5 per share. What is the effect on the retained earnings of this company if the preferred stock holders convert these shares?

A company issues 1,000 bonds, each with a face value of $1,000, for $1.1 million. Each bond has a detachable warrant that allows the holder to purchase common stock for $20 per share. The market value of the bonds without the warrants is $950,000. The fair market value of the warrants is $50,000. How much should the company record as the value of the warrants?

A company compensates a senior executive with 1,000 stock options. The options have a value of $3 each and enable the executive to purchase shares of $2 par value common stock at $30 each. The following year, the executive exercises 500 of the options. Which journal entry correctly records the exercise of these options?

On January 1, a company has 700,000 shares of issued and outstanding common stock. On March 1, the company repurchases 60,000 shares. On June 1, it effects a 2-for-1 stock split. On November 1, it issues 240,000 shares. The company has a net income for the year of $2,720,000. What is the basic earnings per share of common stock for the year (rounded to the nearest cent)?

On January 1, a company establishes an executive compensation plan that includes a stock-appreciation rights (SARs) plan consisting of 200,000 SARs. The plan allows executives to receive cash payouts of the difference between the current market price at the time of exercise and an exercise price of $30, any time in the next two years. On January 1, the market price of the company’s stock is $42, and on December 31, of the same year the market price is $47. The company uses the percentage approach for recording compensation expense. What compensation expense should be recorded for the year?

How are changes in the fair value of share options recorded under generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS)?

On January 1, 2014, Corporation A purchases bonds in Corporation B. The bonds have a par value of $50,000 and a stated interest rate of 6%, with annual interest payments on December 31 and a maturity date of December 31, 2023. Corporation A purchases the bonds for $43,290 to yield 8% interest, and holds the bonds in its trading account.  On December 31, 2014, the fair value of the bonds is $45,000. When the bond market opens on January 2, 2015, Corporation B sells the bonds for an amount intended to achieve a 7% yield for Corporation A. Disregarding accrued interest, what gain (rounded to whole dollars) should Corporation A recognize on the bonds in 2015?

Company A has 3,000 common shares issued and outstanding. On June 1, Company B purchases 1,000 common shares of Company A for $12,000. Company B records the purchase in its available-for-sale account. On December 31, Company A reports a net income of $1 per share and pays a dividend of $0.25 per share. The shares have a fair market value of $10 per share. Which journal entries should Company B record on December 31?

Which two circumstances represent the significant influence of an investor over an investee that requires use of the equity method of accounting for an equity investment rather than the fair value method? Choose 2 answers 

A company has a 30% stake in another company. The investment is on the company’s books for $560,000. At the end of the current fiscal year, the investment has a fair value of $510,000. Which method should this company use to adjust the book value?

How should a company account for transfers of investment securities between categories?

Which derivative instrument protects an investment against a price decrease and preserves its ability to appreciate in value if the price increases?

An oil refinery plans to purchase raw materials on March 1. On December 1 of the preceding year, the refinery considers locking in the current market price for the purchase of one million barrels of oil. The spot price for a barrel of oil is $100. The refinery purchases 1,000 futures contracts for 1,000 barrels per contract at a price of $100 per barrel as a cash flow hedge. On December 31, the price of oil rises to $108 per barrel. How should the company record this change in the value of the futures contracts on December 31?

What are two conditions that must be met to qualify a financial instrument for hedge accounting? Choose 2 answers 

Which party must consolidate its financial statements to include a variable interest entity?

Which fair value disclosure is true for impaired, long-lived assets that are held and used?

In which situation should gains or losses be charged to other comprehensive income?

What is a difference between the recognition of revenue and the recognition of gain? 

Company A sells $100,000 of its product to Company B and transfers all risks of ownership. Company A records the following journal entry for the transaction:  Debit accounts receivable: $100,000  Credit sales revenue: $100,000  Later in the same accounting period, Company B returns $10,000 of the equipment to Company A for credit. Which journal entry should Company A record for the returned equipment? 

A company uses the completed-contract method of accounting for long-term contracts. The company completes all deliverables for a two-year contract. The contract generates a total revenue of $500,000 and a gross profit of $50,000. How much revenue should the company recognize in the current reporting period? 

A company uses the percentage-of-completion method of accounting for long-term contracts. When should the company recognize losses on an unprofitable contract?

A company repossesses goods that it sold to another company under an installment sales contract. The contract has an outstanding receivables balance of $15,000 and a deferred gross profit of $4,000. The fair value of the repossessed goods is $8,000. Which journal entry should the company record for the repossession?

How is revenue recognized under generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS)?

What is one way that a temporary difference between taxable income and financial income can become a deferred tax asset or liability?

A company has a deductible temporary difference of $5 million. The tax rate is 40%. The company determines that it is unlikely to realize $500,000 of that amount.  Which journal entry correctly records this adjustment?

What is a permanent difference between financial reporting income and taxable income?

Which tax rate applies when calculating a deferred income tax asset or liability?

A company reports the income and taxes shown in the following table.    Taxable income Tax rate Tax paid or (loss) Year 1 $5,000 30% $1,500 Year 2 $30,000 35% $10,500 Year 3 $40,000 40% $16,000 Year 4 ($50,000)     The company chooses to carry back the Year 4 tax loss. How much should this company claim as a tax refund for Year 3?

To which categories should companies allocate income tax expense on income statements?

Which accounting entry implements a principle of the asset-liability method of income tax accounting?

The following table illustrates the differences between a company’s contract revenue and recognized revenue for a four-year contract.  Contract revenue source Year 1 Year 2 Year 3 Year 4 Financial statements $40,000 $0 $0 $0 Tax return $10,000 $10,000 $10,000 $10,000 Assume tax rates of 40% in Year 1 and 50% in all other years.  How much deferred income tax liability should the company recognize at the end of Year 1? 50% * $10,000 * 3 years

Which classification of deferred taxes imposed by International Financial Reporting Standards (IFRS) further restricts the classification used by generally accepted accounting principles (GAAP)?

When should a company report a pension liability?

Which type of pension plan guarantees the benefits that employees will receive?

Which measurement of a pension obligation is computed by using vested and non-vested benefits at current salary levels?

Which calculation determines the actual return on the plan assets component of the pension expense?

A company has an unexpected gain of $1,000 on pension plan assets. Which journal entry should the company use to account for the gain?

A company determines that its pension benefit obligation for the period is overfunded. How should the company report this overfunding on the financial statements?

How does the accounting for postretirement healthcare benefits differ from accounting for pensions?

How do generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS) differ regarding the recognition of pension liability and asset gains and losses?

A company leases equipment from another company. The lease meets the criteria for a capital lease. The lease terms are as follows:  • Term: 5 years • Annual lease payment: $14,980 • Total minimum lease payments: $74,900 • Present value of minimum lease payments: $62,465 • Fair market value of equipment: $80,000 • Incremental borrowing rate: 10% Which journal entry is required by the lessee to establish the lease as a capital lease?

A company leases equipment from another company through an operating lease. The lease terms are as follows:  • Term: 5 years • Annual lease payment: $14,980 • Fair market value of equipment: $80,000 • Incremental borrowing rate: 10% Which journal entry should the lessee record for its first lease payment?

From a lessor’s perspective, what is the difference between a direct-financing lease and a sales-type lease?

A leasing company enters into a direct-financing lease agreement that includes a guaranteed residual value. The lease terms are as follows:  • Fair value of leased equipment: $80,000 • Cost of equipment to lessor: $75,000 • Present guaranteed residual value: $2,150 Which basis should the lessor use to calculate the required periodic lease payment?

Which lease element should increase the present value of the lessee’s total minimum lease payments?  

What does the guaranteed residual value of an asset represent?

Which lease obligation disclosures are required in the financial statements?

Which criteria must be met for a sale-leaseback to be considered a minor leaseback?

How does lease accounting under generally accepted accounting principles (GAAP) differ from lease accounting under International Financial Reporting Standards (IFRS)?

Which type of accounting change results when the life of a fixed asset is extended?

Which accounting decision should be reported as a change in accounting principle?

A company uses straight-line depreciation. On January 1, the company purchases fixed assets that cost $50,000. At the time of purchase, the company estimates that the assets have a useful life of 10 years. During the third year of owning the assets, the company changes its estimate of the useful life of the assets to 15 years.  How much depreciation has accumulated at the end of the fourth year of owning the assets?

Which information should a company disclose when a reporting entity changes?

A company discovers that it did not record a rent payment it made last year. This error results in an overstatement of last year’s net income in the company’s financial statements. Which account should the company debit to account for the impact of this error on net income?

International Financial Reporting Standards (IFRS) and generally accepted accounting principles (GAAP) provide guidance for reporting accounting changes and errors. Which guideline applies only under International Financial Reporting Standards (IFRS)?

Which section of the statement of cash flows displays the cash generated from normal day-to-day business activities?

Which transactions are reported in the investing section of a cash flow statement?

A company has an inventory value that is greater at the end of the year than it was at the beginning of the year. What is the effect on the company’s indirect cash flow statement?

Which adjustments are required as a result of a decrease in accounts receivable during the accounting period, under the direct and indirect methods of calculating the cash flow from operations?

Which account provides the information for calculating net cash flow from operating activities?

In its second year of business, a company has a net income of $120,000. The following table provides year-end account information.  Account Year 1 Year 2 Accounts payable $5,000 $4,000 Accumulated depreciation $65,000 $85,000 Prepaid expenses $20,000 $15,000 Fixed assets $250,000 $255,000 The company uses the indirect method to prepare a statement of cash flows for Year 2. How much should the company report as net cash provided by operating activities?

How does the reporting of taxes, interest, and dividends on the statement of cash flows differ under generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS)?

A creditor is reviewing a company’s financial statements.  Which ratio provides the information necessary for the creditor to assess the company’s ability to meet its current obligations?

What is a key difference between financial forecasts and financial projections?

On December 31 of Year 1, a company reports accounts receivable of $110,000. During Year 2, the company has net credit sales of $1 million. On December 31 of Year 2, the company reports accounts receivable of $140,000.  What is this company’s accounts receivable turnover ratio for Year 2?

A company reports the following financial information:  Year 1 Year 2 Difference Sales $20,000 $25,000 $5,000 Expenses $10,000 $12,000 $2,000 Profit $10,000 $13,000 $3,000 Which analysis technique determines that sales have increased by 25% by dividing the sales difference by the Year 1 sales?

What are two potential disadvantages of full disclosure? Choose 2 options

Which information does the Financial Accounting Standards Board (FASB) require a company to disclose about each of its operating segments?

Which inventory information should a company disclose in the notes to the financial statements?

How should interim reports account for costs that are uncertain until year-end?

An auditor’s opinion contains an exception that does not invalidate the overall financial statements. Which type of opinion should this auditor issue?

Who is ultimately responsible for the financial statements of a company?

How often are interim reports usually provided under generally accepted accounting principles (GAAP) and under International Financial Reporting Standards (IFRS)?