Corporate Accounting
Midterm Exam
Course Introduction
Corporate Accounting is a comprehensive course that explores the principles and practices of accounting as they apply to corporations. The course covers topics such as the formation and structure of corporations, the issuance of shares and debentures, the preparation of financial statements, and the accounting for corporate transactions including mergers, acquisitions, and reorganizations. Emphasis is placed on understanding regulatory frameworks, compliance with accounting standards, and the analysis of financial information for informed decision-making. Through case studies and practical exercises, students develop the skills necessary to manage and analyze the financial records of corporations in a dynamic business environment.
Recommended Textbook
Intermediate Accounting 8th Edition by J.
David Spiceland
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Chapter 1: Environment and Theoretical Structure of Financial Accounting
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Q1) Maltec Corporation has started placing its quarterly financial statements on its web page,thereby reducing by 10 days the time to get information to investors and creditors.The qualitative concept improved is:
A)Comparability.
B)Consistency.
C)Timeliness.
D)Faithful representation.
Answer: C
Q2) The assumption that in the absence of contrary information a business entity will continue indefinitely is the:
A)Periodicity assumption.
B)Entity assumption.
C)Going concern assumption.
D)Historical cost assumption.
Answer: C
Q3) How does GAAP define fair value?
Answer: Fair value is defined as the price that would be received to sell assets or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Page 3
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Chapter 2: Review of the Accounting Process
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Q1) Temporary accounts would not include:
A)Salaries payable.
B)Depreciation expense.
C)Supplies expense.
D)Cost of goods sold.
Answer: A
Q2) Which of the following accounts has a normal debit balance?
A)Accounts payable.
B)Accrued taxes.
C)Accumulated depreciation.
D)Advertising expense.
Answer: D
Q3) Sold merchandise to a customer in exchange for a promissory note.
Answer: 11ea906f_564c_ba47_a7a0_67dd83749add_TB2444_00
Q4) Purchased inventory on account.
Answer: 11ea906f_564c_ba45_a7a0_7b747dd5a756_TB2444_00
Q5) Salaries and wages have been earned but are unpaid at the end of an accounting period.
Answer: 11ea906f_564d_2f7d_a7a0_c91e918dca9f_TB2444_00
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Chapter 3: The Balance Sheet and Financial Disclosures
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Q1) Which of the following is not a required disclosure for related-party transactions?
A)The nature of the relationship.
B)A description of the transactions.
C)The amounts due from or to related parties.
D)The impact of the transactions on current year's income.
Answer: D
Q2) The ultimate responsibility for the financial statements lies with the auditors.
A)True
B)False
Answer: False
Q3) Which of the following is not a characteristic that defines a reportable operating segment according to U.S.GAAP?
A)Operating results are regularly reviewed by the enterprise's chief operating officer.
B)Discrete financial information is available.
C)Engages in business activities from which it may recognize revenues and incur expenses.
D)Represents more than 20% of total company revenues,assets,or net income.
Answer: D
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Chapter 4: The Income Statement, comprehensive Income, and
the Statement of Cash Flows
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Q1) In a recent press release,Foot Locker Inc.reported that its fiscal first-quarter net income fell 46% due to losses related to discontinued operations,but earnings from continuing operations jumped 19% amid a modest increase in sales.The specialty athletic retailer said net income was $20 million for the quarter ended May 4,compared with net income of $37 million a year earlier.The latest results included a loss of $18 million from discontinued operations.Last year,the company had earnings of $5 million,or four cents a share,from discontinued operations.Foot Locker said earnings from continuing operations were $38 million,compared with $32 million a year earlier.Discuss how Foot Locker's press release relates to its earnings quality.
Q2) Gains,but not losses,from discontinued operations must be separately reported in an income statement.
A)True
B)False
Q3) The direct and indirect methods of reporting the statement of cash flows present different information for investing and financing activities.
A)True
B)False
Q4) Briefly explain when and why intraperiod tax allocation is necessary.
Page 6
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Chapter 5: Income Measurement
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Q1) Gupta Industries received a $300,000 prepayment from Packard Associates for the sale of new equipment.Gupta will bill Packard an additional $100,000 upon delivery of the equipment.Upon receipt of the $300,000 prepayment,how much should Holt recognize for a contract asset,a contract liability,and accounts receivable?
A)Contract asset: $0;contract liability: $300,000,accounts receivable,$0.
B)Contract asset: $300,000;contract liability: $0,accounts receivable,$0.
C)Contract asset: $0;contract liability: $300,000,accounts receivable,$100,000.
D)Contract asset: $300,000;contract liability: $0,accounts receivable,$100,000.
Q2) Assume Sanjeev estimates variable consideration as the most likely amount.What is the amount of revenue Sanjeev would recognize for the first month of the contract?
A)$1,000
B)$1,333
C)$1,400
D)$1,200
Q3) Prepare Romano's April 30 journal entry to account for the revenue earned in April.
Q4) Its inventory turnover ratio for 2016.Round your answer to one decimal place.
Q5) Required: Compute the inventory turnover ratio for 2016.
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Chapter 6: Time Value of Money Concepts
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Q1) Baird Bros.Construction is considering the purchase of a machine at a cost of $125,000.The machine is expected to generate cash flows of $20,000 per year for 10 years and can be sold at the end of 10 years for $10,000.Interest is at 10%.Assume the machine purchase would be paid for on the first day of year one,but that all other cash flows occur at the end of the year.Ignore income tax considerations. Required: Determine if Baird should purchase the machine.
Q2) Touche Manufacturing is considering a rearrangement of its manufacturing operations.A consultant estimates that the rearrangement should result in after-tax cash savings of $6,000 the first year,$10,000 for the next two years,and $12,000 for the next two years.Interest is at 12%.Assume cash flows occur at the end of the year. Required: Calculate the total present value of the cash flows.
Q3) How much must be deposited at the beginning of each year to accumulate to $10,000 in four years if interest is at 9%?
A)$1,671.
B)$2,570.
C)$2,358.
D)$2,006.
Q4) Provide two examples of the use of present value techniques in accounting.
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Chapter 7: Cash and Receivables
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Q1) The income statement approach to estimating bad debts requires an adjusting entry at the end of the period to reduce receivables to net realizable value.
A)True
B)False
Q2) The annual interest rate on Note A is closest to:
A)9.14%.
B)8%.
C)9.74%.
D)9.44%.
Q3) COSO defines internal control as a process,affected by an entity's board of directors,management,and other personnel,designed to provide reasonable assurance regarding the achievement of objectives in:
A)Effectiveness and efficiency of operations.
B)Reliability of financial advice.
C)Compliance with local ordinances.
D)All of these answer choices are correct.
Q4) Briefly explain why the direct write-off of uncollectible accounts is not permitted by GAAP if bad debts are material.
Q5) Describe some key elements of an internal control system for cash.
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Chapter 8: Inventories: Measurement
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Q1) The choice of cost flow assumption (FIFO,LIFO,or average)does not depend on the actual physical flow of the product.
A)True
B)False
Q2) The main difference between perpetual and periodic inventory systems is the timing of the allocation of costs between inventory and cost of goods sold.
A)True B)False
Q3) Assuming Northwest uses the gross method to record purchases,what is the cost of goods available for sale?
A)$492,500.
B)$496,500.
C)$490,500.
D)$492,550.
Q4) What inventory balance should Badger report on its 12/31/16 balance sheet?
A)$126,000
B)$121,000
C)$120,000
D)$100,000
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Chapter 9: Inventories: Additional Issues
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Q1) Estimated ending inventory at cost is:
A)$90,720.
B)$83,500.
C)$91,600.
D)None of these answer choices are correct.
Q2) What should be the reported value of Sullivan's inventory if the company prepares its financial statements according to International Financial Reporting Standards (IFRS)?
A)$500,000.
B)$440,000.
C)$470,000.
D)$490,000.
Q3) The numerator for the current period's cost-to-retail percentage is:
A)$64,800.
B)$48,100.
C)$47,700.
D)$49,800.
Q4) Required: Determine the reported inventory value assuming the lower of cost and net realizable value rule is applied to individual types of feeds.
Q5) Determine the inventory book value for Products A,B,and C.
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Chapter 10: Property, plant, and Equipment and Intangible
Assets: Acquisition and Disposition
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Q1) Kerry,Inc. ,exchanged land and cash of $8,000 for equipment.The land had a book value of $55,000 and a fair value of $60,000.
Required:
Prepare the journal entry to record the exchange.Assume the exchange has commercial substance.
Q2) In Case B,Pensacola would record a gain/(loss)of:
A)$ 4,000.
B)$ (4,000).
C)$ (10,000).
D)None of these answer choices are correct.
Q3) Under International Financial Reporting Standards,research expenditures are:
A)Expensed in the period incurred.
B)Expensed in the period they are determined to be unsuccessful.
C)Capitalized if certain criteria are met.
D)Expensed if unsuccessful,capitalized if successful.
Q4) The fixed-asset turnover ratio provides:
A)The rate of decline in asset lives.
B)The rate of replacement of fixed assets.
C)The amount of sales generated per dollar of fixed assets.
D)The decline in book value of fixed assets compared to capital expenditures.
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Chapter 11: Property, plant, and Equipment and Intangible
Assets: Utilization and Impairment
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Q1) Ellen's Antiques reported the following in its December 31,2016,balance sheet: Equipment $4,000,000
Accumulated depreciation-equipment $3,150,000
In a disclosure note,Ellen's indicates that it uses straight-line depreciation over eight years and estimates salvage value at 10% of cost.
Required: Compute the average age of Ellen's equipment at 12/31/2015.
Q2) Required:
Compute depreciation for 2016 and 2017 and the book value of the spooler at December 31,2016 and 2017,assuming the straight-line method is used.
Q3) Belotti would record depletion in 2017 of:
A)$54,667.
B)$65,600.
C)$52,480.
D)$55,760.
Q4) Depreciation for 2017,using double-declining balance,would be:
A)$32,000.
B)$34,000.
C)$38,000.
D)$40,000.
Page 13
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Chapter 12: Investments
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Q1) Fredo,Inc. ,purchased 10% of Sonny Enterprises for $1,000,000 on January 1,2016.Sonny recognized a total of $400,000 net income during 2016,paid $30,000 of dividends to Fredo during 2016,and at December 31,2016,the market value of the Sonny investment increased to $1,040,000.
Required: Prepare the journal entries necessary to account for the Sonny investment,assuming that Fredo accounts for that investment as (1)an available-for-sale investment,and (2)elects the fair-value option.
Q2) Zwick Company bought 28,000 shares of the voting common stock of Handy Corporation in January 2016.In December,Handy announced $200,000 net income for 2016 and declared and paid a cash dividend of $2 per share on the 200,000 shares of outstanding common stock.Zwick Company's dividend revenue from Handy Corporation in December 2016 would be:
A)$ 0.
B)$28,000.
C)$56,000.
D)None of these answer choices is correct.
Q3) Prepare appropriate entry(s)at December 31,2016,and indicate how the scenario will affect net income,OCI,and comprehensive income.
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Chapter 13: Current Liabilities and Contingencies
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Q1) Which of the following is a contingency that should be accrued?
A)The company is being sued and a loss is reasonably possible and reasonably estimable.
B)The company deducts life insurance premiums from employees' paychecks.
C)The company offers a two-year warranty and the expenses can be reasonably estimated.
D)It is probable that the company will receive $100,000 in settlement of a lawsuit.
Q2) Other things being equal,most managers would prefer to report liabilities as noncurrent rather than current.The logic behind this preference is that the long-term classification permits the company to report:
A)Higher working capital and a higher inventory turnover.
B)Lower working capital and a higher current ratio.
C)Higher working capital and a higher current ratio.
D)Higher working capital and a lower debt to equity ratio.
Q3) Short-term obligations can be reported as long-term liabilities if:
A)The firm has a long-term line of credit.
B)The firm has tentative plans to issue long-term bonds.
C)The firm intends to and has the ability to refinance as long-term.
D)The firm has the ability to refinance on a long-term basis.
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Chapter 14: Bonds and Long-Term Notes
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Q1) Liberty Company issued 10-year bonds at 105 during the current year.In the year-end financial statements,the premium should be:
A)Reported as an intangible asset.
B)Included in revenue for the year of sale.
C)Deducted from bonds payable.
D)Added to bonds payable.
Q2) List at least three ways that bonds may be taken off the market prior to maturity.
Q3) TMC issued $50 million of its 12% bonds on April 1,2016,at 98 plus accrued interest.The bonds are dated January 1,2016,and mature on December 31,2035.Interest is payable semiannually on June 30 and December 31.What amount did TMC receive from the bond issuance?
A)$50.5 million.
B)$51.5 million.
C)$49.0 million.
D)$49.5 million.
Q4) Required: How much interest will Morton Sales Co.pay on these bonds in 2016?
Q5) How are bonds and notes the same? How do they differ?
Q6) A zero-coupon bond pays no interest.Explain.
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Chapter 15: Leases
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Q1) If the lessor retains title to leased property under the terms of the lease:
A)The amount to be recovered through periodic lease payments is reduced by the present value of the residual amount.
B)The amount to be recovered through periodic lease payments is increased by the present value of the residual amount.
C)The amount to be recovered will be the same as if there were no residual value.
D)The lessor will record a greater amount of depreciation due to the residual value.
Q2) On January 1,2016,Salvatore Company leased several machines from Nola Corporation under a three-year operating lease agreement.The lease calls for semiannual payments of $15,000 each,payable on June 30 and December 31 of each year.The machines were acquired by Nola at a cost of $90,000 and are expected to have a useful life of five years with no expected residual value.
Required: Prepare the appropriate journal entries for the lessor from the inception of the lease through the end of 2016.
Q3) What is meant by the term "minimum lease payments"?
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Chapter 16: Accounting for Income Taxes
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Q1) Before considering a net operating loss carryforward of $80 million,Fama Corporation reported $200 million of pretax accounting and taxable income in the current year.The income tax rate for all previous years was 40%.On January 1 of the current year,a new tax law was enacted,reducing the rate to 30% effective immediately.Fama's income tax payable for the current year would be:
A)$48 million.
B)$28 million.
C)$60 million.
D)$36 million.
Q2) In the current year,Bruno Corporation collected rent of $3,600,000.For income tax reporting,the rent is taxed when collected.For financial reporting,the rent is recognized as income in the period earned.At the end of the current year,the unearned portion of the rent collected in the current year amounted to $400,000.Bruno had no temporary differences at the beginning of the current year.Assume an income tax rate of 30%. Required:
The current year's income tax liability from the tax return is $800,000.Prepare the journal entry to record income taxes for the year.Show well-labeled computations.
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Chapter 17: Pensions and Other Postretirement Benefits
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Q1) Revenue and expense items and components of other comprehensive income can be reported in the statement of shareholders' equity using:
A)U.S.GAAP.
B)IFRS.
C)Both U.S.GAAP and IFRS.
D)Neither U.S.GAAP nor IFRS.
Q2) The EPBO for a particular employee on January 1,2016,was $30,000.The APBO at the beginning of the year was $6,000.The appropriate discount rate for this postretirement plan is 5%.The employee is expected to serve the company for a total of 25 years with 5 of those years already served as of January 1,2016.What is the APBO at December 31,2016?
A)$6,300.
B)$7,200.
C)$7,500.
D)$7,560.
Q3) A statement of comprehensive income does not include:
A)Gains from the return on pension assets exceeding expectations.
B)Gains and losses on unsold held-to-maturity securities.
C)Losses from the return on pension assets falling short of expectations.
D)Prior service cost.
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Chapter 18: Shareholders Equity
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Q1) Heidi Aurora Imports issued shares of the company's Class B stock.Heidi Aurora Imports should report the stock in the company's statement of financial position:
A)Among liabilities if the shares are mandatorily redeemable or redeemable at the option of the shareholder.
B)As equity unless the shares are mandatorily redeemable.
C)As equity unless the shares are redeemable at the option of the issuer.
D)Among liabilities unless the shares are mandatorily redeemable.
Q2) Stock designated as preferred usually has preferential rights over other classes of stock relative to dividends and liquidating distributions.
A)True B)False
Q3) When stock is issued for consideration other than cash,what is the measurement objective?
Q4) Cash dividends become a binding liability as of the record date.
A)True B)False
Q5) How do U.S.GAAP and International Financial Reporting Standards (IFRS)differ with respect to debt and equity for preferred stock?
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Chapter 19: Share-Based Compensation and Earnings Per Share
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Q1) Under its executive stock option plan,Z Corporation granted options on January 1,2016,that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years,but not before December 31,2018 (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 $4 per option.No forfeitures are anticipated.The options expired in 2022 without being exercised.By what amount will Z's shareholder's equity be increased?
A)$ 60 million
B)$270 million.
C)$315 million.
D)$330 million.
Q2) The reporting of earnings per share is required only for:
A)Private companies.
B)Companies with complex capital structures.
C)Publicly traded corporations.
D)Medium-sized and large corporations.
Q3) What is the advantage of stock appreciation rights over stock options?
Q4) How are outstanding stock options and awards taken into account in computing diluted EPS for V Co.?
Page 21
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Chapter 20: Accounting Changes
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Q1) Lundholm Company purchased a machine for $100,000 on January 1,2014.Lundholm depreciates machines of this type by the straight-line method over a 10-year period using no salvage value.Due to a change in sales patterns,on January 1,2016,management determines the useful life of the machine to be a total of five years.What amount should Lundholm record for depreciation expense for 2016? The tax rate is 40%.
A)$20,000.
B)$16,000.
C)$17,778.
D)$26,667.
Q2) Name and briefly describe the three categories of accounting changes.
Q3) Which of the following changes in inventory costing usually should not be reported by revising the financial statements of prior periods?
A)The weighted-average method to the LIFO method.
B)The weighted-average method to the FIFO method.
C)FIFO method to the weighted-average method.
D)LIFO method to the weighted-average method.
Q4) Describe the way we account for an error when that error is discovered in a subsequent reporting period.
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Chapter 21: The Statement of Cash Flows
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Q1) Which of the following is reported as an operating activity in the statement of cash flows?
A)The purchase of long-lived assets.
B)The acquisition of treasury stock.
C)The retirement of bonds.
D)The payment of prepaid insurance.
Q2) The amortization of bond discount is included in the statement of cash flows (indirect method)as:
A)A financing cash inflow.
B)An investing activity.
C)An addition to net income.
D)A deduction from net income.
Q3) Moon Company owns 56 million shares of stock of Center Company classified as available for sale.During 2016,the fair value of those shares increased by $34 million.What effect did this increase have on Moon's 2016 statement of cash flows?
A)Cash from operating activities increased.
B)Cash from investing activities increased.
C)Cash from financing activities increased.
D)No effect.
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