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Adam Co. reported sales revenue of $2,300,000 in its income statement for the year ended December 31, 2005. Additional information was as follows:

12/31/04 12/31/05
Accounts receivable $500,000 $650,000
Allowance for uncollectible accounts (30,000) (55,000)
Uncollectible accounts totaling $10,000 were written off during 2005. Under the cash basis of accounting, Adam would have reported 2005 sales of

$2,140,000
$2,150,000
$2,175,000
$2,450,000

Under the cash basis of accounting, sales equals cash collected from customers. An equation or T account may be used to determine this amount:

AR, beginning + Sales - Write-offs - customer collections = AR, ending
$500,000 $2,300,000 $10,000 ? = $650,000
Solving for the unknown (?) amount, customer collections equals $2,140,000.

This is the amount collected from customers, and is the amount that would be reported as sales under the cash basis method of accounting.

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On October 31, Dingo, Inc. had cash accounts at three different banks. One account balance is segregated solely for a November 15 payment into a bond sinking fund. A second account, used for branch operations, is overdrawn. The third account, used for regular corporate operations, has a positive balance.

How should these accounts be reported in Dingo’s October 31 classified balance sheet?

The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability.
The segregated and regular accounts should be reported as current assets, and the overdraft should be reported as a current liability.
The segregated account should be reported as a noncurrent asset, and the regular account should be reported as a current asset net of the overdraft.
The segregated and regular accounts should be reported as current assets net of the overdraft.

The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability.

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Alton Co. had a cash balance of $32,300 recorded in its general ledger at the end of the month, prior to receiving its bank statement. Reconciliation of the bank statement reveals the following information:

Bank service charge: $15

Check deposited and returned for insufficient funds check: $120

Deposit recorded in the general ledger as $258 but should be $285

Checks outstanding: $1,800

After reconciling its bank statement, what amount should Alton report as its cash account balance?

$30,338
$30,392
$32,138
$32,192

Correct! The reconciliation should be as follows:
Book balance $32,300
Less bank fees (15)
Less NSF check (120)
Plus deposit transposition error (285 – 258) 27
Corrected book balance $32,192

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When the allowance method of recognizing uncollectible accounts is used, how would the collection of an account previously written off affect accounts receivable and the allowance for uncollectible accounts?

Accounts receivable
Allowance for uncollectible accounts
Increase
Decrease
Increase
No effect
No effect
Decrease
No effect
Increase

No effect
Increase
This Answer is Correct
This answer is correct. When an account is written off, the journal entry is debit the allowance for uncollectible accounts and credit accounts receivable. If the account is subsequently collected, an entry is made to reinstate the account receivable by debiting accounts receivable and crediting the allowance for uncollectible accounts. A second entry is made for the cash collection which involves debiting cash and crediting accounts receivable. Therefore, there is no change in accounts receivable when a previously written-off account is collected; accounts receivable is debited for the reinstatement, and credited for the payment. However, when the previously written-off account is collected, there is an increase in the allowance for uncollectible accounts.

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dam Co. reported sales revenue of $2,300,000 in its income statement for the year ended December 31, 2005. Additional information was as follows:

$2,140,000
$2,150,000
$2,175,000
$2,450,000

2,300,000 + 500000 - 650000 -10000

or:

Under the cash basis of accounting, sales equals cash collected from customers. An equation or T account may be used to determine this amount:

AR, beginning + Sales - Write-offs - customer collections = AR, ending
$500,000 $2,300,000 $10,000 ? = $650,000
Solving for the unknown (?) amount, customer collections equals $2,140,000.

This is the amount collected from customers, and is the amount that would be reported as sales under the cash basis method of accounting

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Ward Co. estimates its uncollectible accounts expense to be 2% of credit sales. Ward's credit sales for 2004 were $1,000,000. During 2004, Ward wrote off $18,000 of uncollectible accounts. Ward's allowance for uncollectible accounts had a $15,000 balance on January 1, 2004. In its December 31, 2004 income statement, what amount should Ward report as uncollectible accounts expense?
$23,000
$20,000
$18,000
$17,000

20,000

The credit sales method does not adjust the allowance balance to a required ending amount, but rather simply places the appropriate percent of sales into uncollectible accounts expense and the allowance account. 2% × $1,000,000 = $20,000.

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ce Co. sold King Co. a $20,000, 8%, 5-year note that required five equal annual year-end payments. This note was discounted to yield a 9% rate to King. The present value factors of an ordinary annuity of $1 for five periods are as follows:

8% 3.992
9% 3.890
What should be the total interest revenue earned by King on this note?

$9,000
$8,000
$5,560
$5,050

5560

Total interest over the life of the note equals the total amount paid by Ace over the life of the note less the proceeds to Ace. The proceeds equal the present value of the payments at the 9% yield rate. The annual payment is found using the 8% rate because that rate is contractually set and determines the annual payment.

The annual payment P is found as: $20,000 = P(3.992). P = $5,010

Total interest revenue = total payments by Ace - proceeds to Ace

= 5($5,010) − $5,010(3.89) = $5,560.

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Roth, Inc. received from a customer a one-year, $500,000 note bearing annual interest of 8%. After holding the note for six months, Roth discounted the note at Regional Bank at an effective interest rate of 10%. What amount of cash did Roth receive from the bank?
$540,000
$523,810
$513,000
$495,238

513,000

Maturity value of the note: $500,000(1.08) $540,000
Less discount to the bank: $540,000(.10)(6/12) (27,000)
Equals proceeds to Roth $513,000
The bank charges its discount on the maturity amount, for the period it holds the note. In effect, it is charging interest on interest yet to accrue (for the last six months). This procedure is followed because the maturity value is the amount at risk.

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Seco Corp. was forced into bankruptcy and is in the process of liquidating assets and paying claims. Unsecured claims will be paid at the rate of forty cents on the dollar.

Hale holds a $30,000 noninterest-bearing note receivable from Seco collateralized by an asset with a book value of $35,000, and a liquidation value of $5,000.

The amount to be realized by Hale on this note is

$5,000
$12,000
$15,000
$17,000

15,000

30000-5000=25000
25000*.40=10000

5000+10000 = 15000

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Which of the following contingencies should generally be accrued on the balance sheet as a liability when the occurrence of the contingent event is reasonably possible and its amount can be reasonably estimated?

Expropriation of assets
Product warranty obligation
No
No
No
Yes
Yes
Yes
Yes
No

no no

his answer is correct. Per ASC Topic 450, an estimated loss from a loss contingency should be accrued if the likelihood of occurrence is probable and the amount of the loss can be reasonably estimated. In this case, the likelihood of occurrence is only reasonably possible, so neither would be accrued.

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Mann Corp.’s liability account balances at June 30, 20X3 included a 10% note payable in the amount of $3,600,000.

The note is dated October 1, 20X2, and is payable in three equal annual payments of $1,200,000 plus interest. The first interest and principal payment was made on October 1, 20X3.

In Mann’s June 30, 20X4 balance sheet, what amount should be reported as accrued interest payable for this note?

$270,000
$180,000
$90,000
$60,000

180,000

3600000-1200000 (first payment on principal made oct 03) = 2400000
2400000*.10 = 240000
240000 * 9/12 (oct 1 to June 30) = 180000

On October 1, 20X3, the first payment was made. This payment included all interest due to that point, as well as the first $1,200,000 principal payment.

Thus, on that date, the liability balance is $2,400,000 (the remaining two principal payments). June 30, 20X4 is 9 months after this first payment date. The accrued interest for 9 months is $180,000 = $2,400,000(.10)(9/12).

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The following information pertains to Camp Corp.’s issuance of bonds on July 1, 20X5:

Face amount $800,000
Term 10 years
Stated interest rate 6%
Interest payment dates Annually on July 1
Yield 9%
At 6% At 9%
Present value of 1 for 10 periods 0.558 0.422
Future value of 1 for 10 periods 1.791 2.367
Present value of ordinary annuity of 1 for 10 periods 7.360 6.418
What should be the issue price for each $1,000 bond?

$1,000
$864
$807
$700

807

The issue price for one $1,000 face value bond is the present value of all future payments discounted at the yield rate of 9%.

Issue price = $1,000(.422) + .06($1,000)(6.418) = $807

note: FACE: price/issue price use the YIELDED/MARKET RATE and PV OF $1 for X periods

and for INTEREST always use the STATED INTEREST RATE AND PV OF ORDINARY annuity of $1 for X periods THEN calculate that answer using the YIELDED/MARKET RATE PV FACTOR

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On January 1, year 1, Boston Group issued $100,000 par value, 5% five-year bonds when the market rate of interest was 8%. Interest is payable annually on December 31. The following present value information is available:

5% 8%
Present value of $1 (n = 5) 0.78353 0.68058
Present value of an ordinary annuity (n = 5) 4.32948 3.99271
What amount is the value of net bonds payable at the end of year 1?

$88,022
$90,064
$100,000
$110,638

90,064

100,000 x .68058 = 68,058
100,000 x .05 = 5,000
5,000 x 3.99271 = 19,964

68,058 + 19,964 = 88,022

For end of year, add back amortization.

88,022 x .08 = 7,042
7042-5000= 2,042

88,022 + 2,042 = 90,064

1/1
Dr Cash 88,022
Dr Discount on BP 11,978
Cr Bonds Payable 100,000

12/31
Dr Interest Expense 7,042
Cr Amortization of Discount 2,042
Cr Interest Payable/Cash 5,000

LOGICAL ANSWER:
When you encounter bond problem like this, you should pay attention which interest you will use

my tip is to calculate the PV of bond principle and interest separately

PV of bond => use market interest rate => since it is one time payment uses PV of $1
PV of interest => it is ordinary annuity cuz it is due on 12/31 => firs, calculate the annul interest and find the pv of all interest to be paid over the time

sum 1+2 => give you PV value of the bond and

do not forget amortize it

since it is issued at Discount, you have to add back the amount of atomization at the end of each reporting period.

that will give you

88,022 + 2,042 = 90,064

WILEY ANSWER:

CORRECT! The bonds were issued at a discount because the market interest rate exceeds the stated rate. The net liability at the end of year 1 reflects the issue price at the beginning of the year plus the discount amortization for year 1. Discount is a contra bond payable account. When it is amortized, the contra account is reduced, thus increasing the net bond liability. The bond price is $100,000(.68058) + .05($100,000)(3.99271) = $88,022. Interest expense for year 1 is .08($88,022) = $7,042. The journal entry for the first interest payment is: dr. Interest expense 7,042; cr. Discount 2,042; cr. Cash 5,000. Net liability at end of year 1 = $88,022 + $2,042 = $90,064.

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A bond issued on June 1, Year 1, has interest payment dates of April 1 and October 1. The bond interest expense for the year ended December 31, year 1 is for a period of
Three months.
Four months.
Six months.
Seven months.

Seven months.
This Answer is Correct
The bonds have been outstanding seven months by the end of year 1. The firm has borrowed money for seven months. Therefore, seven months’ interest should be recognized in year 1.

Only six months of interest was PAID in year 1 because the bonds were issued after April 1 (one of the two interest payment dates per year), but that is not what the question asks.

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On January 1, year 2, Southern Corporation received $107,720 for a $100,000 face amount, 12% bond, a price that yields 10%. The bonds pay interest semiannually. Southern elects the fair value option for valuing its financial liabilities. On December 31, year 2, the fair value of the bond is determined to be $106,460. Southern recognized interest expense of $12,000 in its year 2 income statement. What was the gain or loss recognized on the year 2 income statement to report this bond at fair value?
$1,260 gain
$6,460 gain
$12,000 loss
$13,260 loss

1260 GAIN

Interest expense can be measured using various methods. In this situation, Southern recognized interest expense by debiting interest expense for $12,000 and crediting cash for $12,000, which represents the coupon interest paid on the bond. Therefore, interest expense was recognized on the income statement as a separate line item. The change in fair value from January 1, year 2, to December 31, year 2, would, therefore, be recognized as a gain or loss to revalue the bond’s carrying value to fair value. The change in value is calculated as beginning of year carrying value of $107,720 less end of year carrying value of 106,460, or $1,260. Since the value of the liability decreased, this indicates a gain of $1,260 that would be recognized on the year 2 income statement

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Question 9
AICPA.901111FAR-P1-FA
Included in Lee Corp.’s liability account balances at December 31, 20x4, were the following:

14% note payable issued October 1, 20x4, maturing September 30, 20x5 $125,000
16% note payable issued April 1, 20x3, payable in six equal annual installments of $50,000 beginning April 1, 20x3 200,000
Lee’s December 31, 20x4 financial statements were issued on March 31, 20x5.

On January 15, 20x5, the entire $200,000 balance of the 16% note was refinanced by issuance of a long-term obligation payable in a lump sum. In addition, on March 10, 20x5, Lee consummated a noncancelable agreement with the lender to refinance the 14%, $125,000 note on a long-term basis, on readily determinable terms that have not yet been implemented.

Both parties are financially capable of honoring the agreement, and there have been no violations of the agreement’s provisions.

On the December 31, 20x4 balance sheet, the amount of the notes payable that Lee should classify as short-term obligations is

$175,000
$125,000
$50,000
$0

Current liabilities that are refinanced before the issuance of the financial statements can be reclassified as noncurrent provided they meet the requirements.

Essentially, as long as the firm actually refinances the liability on a noncurrent basis before issuing the financial statements, or it enters into a non-cancelable agreement to do so (again before issuing the financial statements), then the liability can be reclassified. Thus, both listed liabilities will be classified as noncurrent in the 20x4 balance sheet.

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On January 1, year 15, Hart, Inc. redeemed its 15-year bonds of $500,000 par value for 102.

They were originally issued on January 1, year 3 at 98 with a maturity date of January 1, year 18.

The bond issue costs relating to this transaction were $20,000. Hart amortizes discounts, premiums, and bond issue costs using the straight-line method.

What amount of loss should Hart recognize on the redemption of these bonds?

$16,000
$12,000
$10,000
$0

16000

The journal entry for retirement:

Bonds payable	500,000		
Loss	16,000		
Bond Discount		2,000	.02($500,000)(3/15)
Bond Issue Costs		4,000	$20,000(3/15)
Cash		510,000	$500,000(1.02)
The bond term is 15 years. Retirement is 3 years before maturity. Therefore, under the straight-line method, 3/15 of both the total bond discount and bond issue costs would remain unamortized at the retirement date. These amounts are removed along with the face value of the bonds (bonds payable account).

The original discount was 2% of $500,000. The bond issue costs are removed because they no longer have any future benefit.

On January 2, 20X5, Dix Machine Shops, Inc. signed a 10-year noncancelable lease for a heavy-duty drill press.

The lease stipulated annual payments of $30,000 starting at the end of the first year, with the title passing to Dix at the expiration of the lease. Dix treated this transaction as a lease.

The drill press has an estimated useful life of 15 years, with no salvage value. Dix uses straight-line depreciation for all of its fixed assets. Aggregate lease payments were determined to have a present value of $180,000, based on implicit interest of 10%.

In its 20X5 income statement, what amount of interest expense should Dix report from this lease transaction?

$0
$12,000
$15,000
$18,000

180000 * 10% = 18,000

Ian Co. is calculating earnings per share amounts for inclusion in the Ian’s annual report to shareholders. Ian has obtained the following information from the controller’s office as well as shareholder services:

Net income from January 1 to December 31 $125,000
Number of outstanding shares:
January 1 to March 31 15,000
April 1 to May 31 12,500
June 1 to December 31 17,000
In addition, Ian has issued 10,000 incentive stock options with an exercise price of $30 to its employees and a year-end market price of $25 per share. What amount is Ian’s diluted earnings per share for the year ended December 31?

$4.63
$4.85
$7.35
$7.94

The thing here is that the exercise price is higher than the market price and therefore this stock is antidilutive so you just calculate the basic earnings per share

15000 x 3/12 = 3750
12500 x 2/12 = 2083.33
17000 x 7/12= 9916.67

total is 15750

net income is 125000

so 125000/15750 = 7.936 or 7.94

Windco, Inc. acquired 100% of the voting common stock of Trace, Inc. by transferring the following consideration to Trace’s shareholders:

Cash $100,000
5,000 new shares of Windco’s $10 par common stock $ 50,000 (par)
(which is less than 1% of Windco’s outstanding stock)
In addition, Windco paid $12,000 direct cost of carrying out the combination.

At the date of the acquisition, Windco’s common stock was selling in an active market for $18 per share. Also, at the date of the acquisition, Trace had the following assets and liabilities with the book values and fair values shown:

Book Value	Fair Value
Accounts Receivable	$ 20,000	$ 20,000
Property and Equipment	80,000	100,000
Land	60,000	80,000
Other Assets	40,000	40,000
Total Assets	$200,000	$240,000
Accounts Payable	$ 15,000	$ 15,000
Other Short-term Debt	10,000	10,000
Long-term Debt	35,000	35,000
Total Liabilities	$ 60,000	$ 60,000
Which one of the following is the amount of goodwill that results from Windco's acquisition of Trace?

$10,000
$22,000
$30,000
$50,000

fv is 100000 + 90000 = 190000

(90K is the 5000 shares x 18 per share)

FV of net assets is 240000-60000 = 180000

190000-180000 = 10000

Which format must an Enterprise Fund use to report cash flow operating activities in the Statement of Cash Flows?
Indirect method, beginning with operating income.
Indirect method, beginning with Change in Net Position.
Direct method.
Either direct or indirect method.

direct method only for governments and operating activities from statement of cash flows

Marr Co. sells its products in reusable containers. The customer is charged a deposit for each container delivered and receives a refund for each container returned within two years after the year of delivery.

Marr accounts for the containers not returned within the time limit as being retired by sale at the deposit amount. Information for Year 5 is as follows:

Container deposits at December 31, Yr. 4 from deliveries in:

Yr. 3 $150,000
Yr. 4 430,000 Total $580,000

Deposits for containers delivered in Yr. 5 $780,000

Deposits for containers returned in Year 5 from deliveries in:

Yr. 3 $ 90,000
Yr. 4 $250,000
Yr. 5 $286,000 Total $626,000

In Marr's December 31, Yr. 5 balance sheet, the liability for deposits on returnable containers should be
$494,000
$584,000
$674,000
$734,000

the key here is to eliminate the year 3 figures due to the2 year warranty.

year4 430000-250000= 180000
year 5 780000-286000= 494000

total is 674000

On January 1, 2004, Kay Inc. issued its 10% bonds in the face amount of $400,000, which mature on January 1, 2014.

The bonds were issued for $354,000 to yield 12%, resulting in a bond discount of $46,000. Kay uses the effective interest method of amortizing bond discount. Interest is payable semiannually on July 1 and January 1.

At June 30, 2004, Kay’s unamortized bond discount would be

$46,000
$44,760
$43,700
$42,000

take the difference in the 12% and 10% values (calculating only 6/12 for interest) and subtract that from the beginning bond discount amount of 46K

so .12 x 354000 = 42480
42480 * 6/12 = 21240

now .10 x 400000= 40000
40000*6/12 = 20000

21240 - 20000 = 1240

46000-1240 = 44760

During 2004, Burr Co. had the following transactions pertaining to its new office building:

Purchase price of land $ 60,000
Legal fees for contracts to purchase land 2,000
Architects’ fees 8,000
Demolition of old building on site 5,000
Sale of scrap from old building 3,000
Construction cost of new building (fully completed) 350,000
In Burr’s December 31, 2004 Balance Sheet, what amounts should be reported as the cost of land and cost of building?

Land
Building
$60,000
$360,000
$62,000
$360,000
$64,000
$358,000
$65,000
$362,000

64K and 358K

This Answer is Correct
Land Building
Purchase price of land $ 60,000
Legal fees for contracts to purchase land 2,000
Architects’ fees 8,000
Demolition of old building on site 5,000
Sale of scrap from old building (3,000)
Construction cost of new building (fully completed) 350,000
Total cost reported $ 64,000 $358,000

``` According to the FASB conceptual framework, which of the following is not an enhancing qualitative characteristic? Comparability. Confirmatory value. Verifiability. Timeliness. ```

Confirmatory value is an ingredient of relevance. It does not relate to faithful representation. Faithful representation can be broken down into completeness, free from material error, and neutrality

On August 21, 2003, Vann Corp.'s $500,000, one-year, noninterest-bearing note due July 31, 2004 was discounted at Homestead Bank at 10.8%. Vann uses the straight-line method of amortizing bond discounts. What amount should Vann report for notes payable in its December 31, 2003 balance sheet? $500,000 $477,500 $468,500 $446,000

calculate the discount amount 500000*.108= 54000 54000*11.333= 51000 (the 11.33 is the months left until due so from August 21, 2003 to July 31, 2004) now the amount of amortization : 500000-51000= 449000 (book value at date of discounting) 51000*(4.33/11.33) = 19500 449000+19500 (add since it was a discount)= 468500

On November 30, 2004, Parlor, Inc. purchased for cash at $15 per share all 250,000 shares of the outstanding common stock of Shaw Co. On November 30, 2004, Shaw's balance sheet showed a carrying amount of net assets of $3,000,000. On that date, the fair value of Shaw's property, plant, and equipment exceeded its carrying amount by $400,000. In its November 30, 2004, consolidated balance sheet, what amount should Parlor report as goodwill? $750,000 $400,000 $350,000 $0

350000 250000*15 = 3750000 3000000+400000= 3400000 37500000-3400000= 350000

Lime Co.'s payroll for the month ended January 31, 2005, is summarized as follows: Total wages $10,000 Federal income tax withheld 1,200 All wages paid were subject to FICA. FICA tax rates were 7% each for employee and employer. Lime remits payroll taxes on the 15th of the following month. In its financial statements for the month ended January 31, 2005, what amounts should Lime report as total payroll tax liability and as payroll tax expense? ``` Liability Expense $1,200 $1,400 $1,900 $1,400 $1,900 $700 $2,600 $700 ```

10000*.07=700 - firms portion owed 700*2=1400 firms portion owed plus employees portion withheld from their pay 1200+1400=2600

Grant, Inc. acquired 30% of South Co.'s voting stock for $200,000 on January 2, 2004. Grant's 30% interest in South gave Grant the ability to exercise significant influence over South's operating and financial policies. During 2004, South earned $80,000 and paid dividends of $50,000. South reported earnings of $100,000 for the six months ended June 30, 2005, and $200,000 for the year ended December 31, 2005. On July 1, 2005, Grant sold half of its stock in South for $150,000 cash. South paid dividends of $60,000 on October 1, 2005. In Grant's December 31, 2004 Balance Sheet, what should the carrying amount of this investment be? $200,000 $209,000 $224,000 $230,000

=80000*.30=24000 =50000*.30=15000 200000+24000-15000 = 209000

``` During 200X, Papa Company sold inventory, which cost it $18,000, to its subsidiary, Sonnyco, for $27,000. At the end of 200X, Sonnyco had $9,000 of the intercompany goods still on its books. The balance had been resold to unaffiliated customers for $24,000. Which one of the following is the correct amount of profit or loss that would be recognized in the consolidated statements for 200X? $6,000 $9,000 $12,000 $15,000 ```

With an intercompany selling price of $27,000 and $9,000 of those goods on-hand at year-end, one third of the cost from non-affiliates is still on-hand and should not be included in the cost of goods sold. That amount is $6,000 (i.e., 1/3 x $18,000 = $6,000). Therefore, the consolidated profit that should be recognized for 200X is the selling price to non-affiliates ($24,000) less the cost of that inventory from non-affiliates ($18,000 - $6,000 = $12,000), or $24,000 - $12,000 = $12,000

In which one of the following cases will a non-cash asset transferred as consideration in a business combination be measured at carrying value, not at fair value? The asset transferred is a non-monetary asset. The asset transferred is a non-depreciable asset. The asset transferred remains under the control of the acquiring entity. The asset transferred has a fair value less than the carrying value.

When the transferred asset remains under the control of the acquiring entity, the asset is transferred at carrying value, not fair value; for example, when the acquirer transfers a non-cash asset (e.g., land) as consideration and the asset remains with the acquiree, over which the acquirer has control. Otherwise, all assets (and liabilities and equity) transferred as consideration in a business combination are measured at fair value, not carrying value.

On July 1, 2009, Nexto, Inc. had the following summarized balance sheet with the book values and fair values shown: Book Value Fair Value Accounts Receivable (net) $ 40,000 $ 40,000 Inventories 80,000 80,000 Plant and Equipment (net) 160,000 200,000 Land 120,000 160,000 TOTAL ASSETS $400,000 $480,000 Accounts Payable $ 20,000 $ 20,000 Short-term Note 30,000 30,000 Bonds Payable 70,000 70,000 TOTAL LIABILITIES $120,000 $120,000 On that date Pesto, Inc. acquired 100% of Nexto's voting stock from its shareholders by paying the following consideration: Cash $200,000 10,000 newly-issued shares of Pesto's $10 par common stock 100,000 (par) Prior to the combination Pesto had 1,000,000 shares of voting stock outstanding trading in an active market at $15 per share. Pesto paid $25,000 for legal and accounting fees to carry out the combination. Which one of the following is the total amount of consideration that Pesto should recognize as its cost of acquiring Nexto? $300,000 $325,000 $350,000 $375,000

The total cost (consideration transferred) of acquiring Trace should be the cash paid plus the fair value of the stock issued. Therefore, the cost would be $200,000 + (10,000 share x $15 market price = $150,000), or $200,000 + $150,000 = $350,000. The cost of carrying out the combination ($25,000) should be expensed in the period incurred.

``` During the current fiscal year, Foxx, a nongovernmental not-for-profit organization, received unrestricted pledges of $300,000. Of the pledged amount, $200,000 was designated by donors for use during the current year, and $100,000 was designated for next year. Five percent of the pledges are expected to be uncollectible. What amount should Foxx report as restricted support (contributions) in the Statement of Activities for the current year? $200,000 $190,000 $100,000 $95,000 ```

The $200,000 designated for the current year is recognized as unrestricted support net the 5% estimated uncollectible portion (i.e., $190,000). The $100,000 designated for the next year is restricted support of $95,000 (after deducting the 5% uncollectible amount). Pledges that contain a time restriction should be recognized as restricted support in the year of the pledge. When the time restriction lapses, the amount is reclassified from net assets with donor restriction to net assets without donor restriction. In all cases, contribution revenue is recognized net of the 5% estimated uncollectible amount.

``` Ande Co. estimates uncollectible accounts expense using the ratio of past actual losses from uncollectible accounts to past net credit sales, adjusted for anticipated conditions. The practice follows the accounting concept of: Consistency. Going concern. Matching. Substance over form. ```

The matching principle requires that we recognize and match expenses with the revenues generated. For all sales in a given period, some will be uncollectible. The cost of those uncollectible accounts is matched in the period that the revenue is recognized.

A firm has basic earnings per share of $1.29. If the tax rate is 30%, which of the following securities would be dilutive? Cumulative 8%, $50 par preferred stock. Ten percent convertible bonds, issued at par, with each $1,000 bond convertible into 20 shares of common stock. Seven percent convertible bonds, issued at par, with each $1,000 bond convertible into 40 shares of common stock. Six percent, $100 par cumulative convertible preferred stock, issued at par, with each preferred share convertible into four shares of common stock.

This security is dilutive. The numerator effect is $49 saving in interest ($1,000 x .07 x (1-.3)), and the denominator effect is 40 more shares outstanding. 49 / 40 = $1.225, which is less than the BEPS of $1.29, so the security is dilutive.

Lee, Inc. acquired 30% of Polk Corp.'s voting stock on January 1, 2004 for $100,000. During 2004, Polk earned $40,000 and paid dividends of $25,000. Lee's 30% interest in Polk gives Lee the ability to exercise significant influence over Polk's operating and financial policies. During 2005, Polk earned $50,000 and paid dividends of $15,000 on April 1 and $15,000 on October 1. On July 1, 2005, Lee sold half of its stock in Polk for $66,000 cash. What should the gain on sale of this investment in Lee's 2005 Income Statement be? $16,000 $13,750 $12,250 $10,000

$12,250, the correct gain amount, and the amount equals the proceeds of $66,000 less the carrying value of the 1/2 of the investment sold. Lee uses the equity method because it has significant influence over the investee. The equity method requires that the investor recognize its share of undistributed earnings of the investee in its own income. The carrying value of the portion of the investment sold reflects 1/2 of the entire income of the investee for 2005, but only the first dividend. The second dividend was declared after the sale and thus could not have affected the investment carrying value on the date of sale. The carrying value of the entire investment at the date of sale equals: $100,000 + .30[$40,000-$25,000 + .5($50,000)-$15,000] = $107,500. The gain, therefore, equals: $66,000-.5($107,500) = $12,250

``` A balance arising from the translation or remeasurement of a subsidiary's foreign currency financial statements is reported in the consolidated income statement when the subsidiary's functional currency is the: Foreign currency U.S. dollar No No No Yes Yes No Yes Yes ```

no fc yes us Two different methods can be used for converting the financial statements of a foreign subsidiary, either translation or remeasurement. Which method is used depends on the functional currency of the foreign subsidiary. If the local foreign currency is the functional currency, the statements are translated. If the U.S. dollar is the functional currency, the statements are remeasured. Remeasurement gains and losses affect the income statement, while translation gains or losses are carried directly to an equity account, bypassing the income statement entirely. This response is correct because a balance arising from remeasurement is reported in the income statement whenever the U.S. dollar is the functional currency (which requires that the financial statements be remeasured).

A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. In a Statement of Cash Flows for the purchasing company, what amount is included in financing activities for the above transaction? Cash payment. Acquisition price. Zero. Mortgage amount.

zero The cash payment is an investing cash outflow, not a financing cash flow. The transaction would show no entry in the financing section of the Statement of Cash Flows. The payment amount (only) would be reported in the investing activity section of the Statement of Cash Flows as an outflow.

On December 31, 20X5, Roe Co. leased a machine from Colt for a 5-year period. Equal annual payments under the lease were $105,000 (including $5,000 annual executory costs) and were due on December 31 of each year. The first payment was made on December 31, 20X5, and the second payment was made on December 31, 20X6. The five lease payments were discounted at 10% over the lease term. The present value of minimum lease payments at the inception of the lease and before the first annual payment was $417,000. The lease was appropriately accounted for as a finance lease by Roe. In its December 31, 20X6 balance sheet, Roe should report a lease liability of $317,000. $315,000. $285,300. $248,700.

248700 The portion of each lease payment that is applied to interest and principal (reduction of the lease liability) is $100,000 ($105,000 - $5,000). The executory costs are applied to maintenance, property taxes, and insurance. The lease liability after the first payment (at inception, December 31, 20X5) is $317,000 ($417,000 - $100,000). Entry at December 31, 20X6 Interest expense ($317,000 x .10) 31,700 Lease liability 68,300 Cash 100,000 The ending lease liability at December 31, 20X6 is $248,700 = $317,000 - $68,300.

Sun Corp. had investments in marketable debt securities costing $650,000. On June 30, 20X2, Sun decided to hold the investments indefinitely and, accordingly, reclassified them from trading to available-for-sale on that date. The investments' fair value was $575,000 at December 31, 20X1, $530,000 at June 30, 20X2, and $490,000 at December 31, 20X2. What amount should Sun report as net unrealized loss on noncurrent marketable debt securities in its 20X2 statement of stockholders' equity? $40,000 $45,000 $85,000 $160,000

Correct! The debt securities were classified as available-for-sale at June 30, 20X2. The decline in fair value from that date to December 31, 20X2 is $40,000 ($530,000 − $490,000). That amount is reported in owners' equity because holding gains and losses on securities available-for-sale are not recognized in earnings.