Question-Keller Graduate School Of Management AC555ON Financial 7 PassMaster

uestion-Keller Graduate School of Management AC555ON Financial 7 PassMaster

 

 

CPA-00928 Type1 M/C A-D Corr Ans: A PM#1 F 7-01

 

 

 

1. CPA-00928 FARE R03 #4 Page 5

 

 

 

On November 2, 2001, Platt Co. entered into a 90-day futures contract to purchase 50,000 Swiss francs

 

when the contract quote was $.70. The purchase was for speculation in price movement. The following

 

exchange rates existed during the contract period:

 

 

 

30-day futures Spot rate
November 2, 2001 $0.62 $0.63
December 31, 2001 0.65 0.64
January 30, 2002 0.65 0.68

 

 

 

 

 

What amount should Platt report as foreign currency exchange loss in its income statement for the year

 

ended December 31, 2001?

 

 

 

CPA-00930 Type1 M/C A-D Corr Ans: D PM#3 F 7-01

 

 

 

2. CPA-00930 FARE C98 #1 Page 3

 

 

 

Fair value disclosure of financial instruments may be made in the:

 

CPA-00931 Type1 M/C A-D Corr Ans: B PM#4 F 7-01

 

 

 

3. CPA-00931 FARE C98 #2 Page 3

 

 

 

Disclosures about the following kinds of risks are required for most financial instruments.

 

CPA-00933 Type1 M/C A-D Corr Ans: B PM#5 F 7-01

 

 

 

4. CPA-00933 FARE C98 #3 Page 3

 

 

 

Which of the following assets are financial instruments?

 

 

 

CPA-00934 Type1 M/C A-D Corr Ans: D PM#6 F 7-01

 

 

 

5. CPA-00934 FARE C98 #4 Page 3

 

 

 

Which of the following must be disclosed for most financial instruments?

 

 

 

CPA-00936 Type1 M/C A-D Corr Ans: A PM#7 F 7-01

 

 

 

6. CPA-00936 FARE C98 #5 Page 4

 

 

 

In order for a financial instrument to be a derivative for accounting purposes, the financial instrument

 

must:

 

I. Have one or more underlyings.

 

II. Require an initial net investment.

 

 

 

 

 

CPA-00938 Type1 M/C A-D Corr Ans: C PM#8 F 7-01

 

 

 

7. CPA-00938 FARE C98 #6 Page 4

 

 

 

The determination of the value or settlement amount of a derivative involves a calculation which uses:

 

 

 

I. An underlying.

 

II. A notional amount.

 

 

 

CPA-00941 Type1 M/C A-D Corr Ans: B PM#9 F 7-01

 

 

 

8. CPA-00941 FARE C98 #7 Page 6

 

 

 

On December 31, 199X, the end of its fiscal year, Smarti Company held a derivative instrument which it

 

had acquired for speculative purposes during November, 199X. Since its acquisition the fair value of the

 

derivative had increased materially. On December 31, how should the increase in fair value of the

 

derivative instrument be reported by Smarti in its financial statements?

 

 

 

CPA-00945 Type1 M/C A-D Corr Ans: C PM#11 F 7-01

 

 

 

9. CPA-00945 FARE C98 #9 Page 6

 

 

 

Gains and losses from changes in the fair value of a derivative designated and qualified as a fair value

 

hedge should be:

 

 

 

CPA-00948 Type1 M/C A-D Corr Ans: A PM#12 F 7-01

 

 

 

10. CPA-00948 FARE C98 #10 Page 5

 

 

 

Qualified derivatives may be used to hedge the cash flow associated with an/a:

 

 

 

 

 

CPA-00951 Type1 M/C A-D Corr Ans: C PM#13 F 7-01

 

 

 

11. CPA-00951 FARE C98 #11 Page 6

 

 

 

A change in the fair value of a derivative qualified as a cash flow hedge is determined to be either

 

effective in offsetting a change in the hedged item or ineffective in offsetting such a change. How should

 

the effective and ineffective portions of the change in value of a derivative which qualifies as a cash flow

 

hedge be reported in financial statements?

 

 

 

12. CPA-00954 FARE R96 #8 Page 4

 

 

 

Which of the following risks are inherent in an interest rate swap agreement?

 

 

 

I. The risk of exchanging a lower interest rate for a higher interest rate.

 

II. The risk of nonperformance by the counterparty to the agreement.

 

 

 

CPA-00958 Type1 M/C A-D Corr Ans: C PM#15 F 7-01

 

 

 

13. CPA-00958 FARE R96 #9 Page 3

 

 

 

If it is not practicable for an entity to estimate the fair value of a financial instrument, which of the

 

following should be disclosed?

 

I. Information pertinent to estimating the fair value of the financial instrument.

 

II. The reasons it is not practicable to estimate fair value.

 

CPA-00965 Type1 M/C A-D Corr Ans: A PM#16 F 7-01

 

 

 

14. CPA-00965 FARE May 95 #4 Page 3

 

 

 

Disclosure of information about significant concentrations of credit risk is required for:

 

 

 

CPA-04658 Type1 M/C A-D Corr Ans: B PM#17 F 7-01

 

 

 

15. CPA-04658 Released 2005 Page 3

 

 

 

Where in its financial statements should a company disclose information about its concentration of credit

 

risks?

 

 

 

CPA-05221 Type1 M/C A-D Corr Ans: D PM#26 F 7-01

 

 

 

16. CPA-05221 Released 2006 Page 3

 

 

 

Whether recognized or unrecognized in an entity’s financial statements, disclosure of the fair values of the

 

entity’s financial instruments is required when:

 

 

 

CPA-05193 Type1 M/C A-D Corr Ans: D PM#27 F 7-01

 

 

 

17. CPA-05193 Released 2006 Page 3

 

 

 

Which of the following financial instruments is not considered a derivative financial instrument?

 

 

 

CPA-00971 Type1 M/C A-D Corr Ans: A PM#2 F 7-02

 

 

 

18. CPA-00971 FARE R99 #10 Page 18

 

 

 

On January 15, 2000, Rico Co. declared its annual cash dividend on common stock for the year ended

 

January 31, 2000. The dividend was paid on February 9, 2000, to stockholders of record as of January

 

28, 2000. On what date should Rico decrease retained earnings by the amount of the dividend?

 

 

 

 

 

 

 

 

 

CPA-00976 Type1 M/C A-D Corr Ans: A PM#4 F 7-02

 

 

 

19. CPA-00976 FARE Nov 95 #18 Page 20

 

 

 

Nest Co. issued 100,000 shares of common stock. Of these, 5,000 were held as treasury stock at

 

December 31, 1993. During 1994, transactions involving Nest’s common stock were as follows:

 

May 3 – 1,000 shares of treasury stock were sold.

 

August 6 – 10,000 shares of previously unissued stock were sold.

 

November 18 – A 2-for-1 stock split took effect.

 

Laws in Nest’s state of incorporation protect treasury stock from dilution. At December 31, 1994, how

 

many shares of Nest’s common stock were issued and outstanding?

 

 

 

CPA-00981 Type1 M/C A-D Corr Ans: A PM#5 F 7-02

 

 

 

20. CPA-00981 FARE Nov 95 #19 Page 13

 

 

 

Cyan Corp. issued 20,000 shares of $5 par common stock at $10 per share. On December 31, 1993,

 

Cyan’s retained earnings were $300,000. In March 1994, Cyan reacquired 5,000 shares of its common

 

stock at $20 per share. In June 1994, Cyan sold 1,000 of these shares to its corporate officers for $25

 

per share. Cyan uses the cost method to record treasury stock. Net income for the year ended

 

December 31, 1994, was $60,000. At December 31, 1994, what amount should Cyan report as retained

 

earnings?

 

 

 

CPA-01003 Type1 M/C A-D Corr Ans: C PM#7 F 7-02

 

 

 

21. CPA-01003 FARE Nov 95 #21 Page 17

 

 

 

A company issued rights to its existing shareholders without consideration. The rights allowed the

 

recipients to purchase unissued common stock for an amount in excess of par value. When the rights are

 

issued, which of the following accounts will be increased?

 

 

 

CPA-01004 Type1 M/C A-D Corr Ans: C PM#8 F 7-02

 

 

 

22. CPA-01004 FARE Nov 95 #22 Page 17

 

 

 

In September 1989, West Corp. made a dividend distribution of one right for each of its 120,000 shares of

 

outstanding common stock. Each right was exercisable for the purchase of 1/100 of a share of West’s

 

$50 variable rate preferred stock at an exercise price of $80 per share. On March 20, 1993, none of the

 

rights had been exercised, and West redeemed them by paying each stockholder $0.10 per right. As a

 

result of this redemption, West’s stockholders’ equity was reduced by:

 

 

 

CPA-01007 Type1 M/C A-D Corr Ans: A PM#9 F 7-02

 

 

 

23. CPA-01007 FARE Nov 94 #28 Page 17

 

 

 

East Co. issued 1,000 shares of its $5 par common stock to Howe as compensation for 1,000 hours of

 

legal services performed. Howe usually bills $160 per hour for legal services. On the date of issuance,

 

the stock was trading on a public exchange at $140 per share. By what amount should the additional

 

paid-in capital account increase as a result of this transaction?

 

 

 

CPA-01009 Type1 M/C A-D Corr Ans: A PM#10 F 7-02

 

 

 

24. CPA-01009 FARE Nov 94 #29 Page 9

 

 

 

During 1992, Brad Co. issued 5,000 shares of $100 par convertible preferred stock for $110 per share.

 

One share of preferred stock can be converted into three shares of Brad’s $25 par common stock at the

 

option of the preferred shareholder. On December 31, 1993, when the market value of the common stock

 

was $40 per share, all of the preferred stock was converted. What amount should Brad credit to

 

Common Stock and to Additional Paid-in Capital- Common Stock as a result of the conversion?

 

 

 

CPA-01011 Type1 M/C A-D Corr Ans: A PM#11 F 7-02

 

 

 

25. CPA-01011 FARE Nov 94 #30 Page 18

 

 

 

When a company declares a cash dividend, retained earnings is decreased by the amount of the dividend

 

on the date of:

 

 

 

CPA-01014 Type1 M/C A-D Corr Ans: B PM#12 F 7-02

 

 

 

26. CPA-01014 FARE Nov 94 #31 Page 18

 

 

 

Long Co. had 100,000 shares of common stock issued and outstanding at January 1, 1993. During 1993,

 

Long took the following actions:

 

March 15 – Declared a 2-for-1 stock split, when the fair value of the stock was $80 per share.

 

December 15 – Declared a $.50 per share cash dividend.

 

In Long’s statement of stockholders’ equity for 1993, what amount should Long report as dividends?

 

 

 

CPA-01018 Type1 M/C A-D Corr Ans: C PM#13 F 7-02

 

 

 

27. CPA-01018 FARE Nov 94 #32 Page 13

 

 

 

If a corporation sells some of its treasury stock at a price that exceeds its cost, this excess should be:

 

 

 

CPA-01025 Type1 M/C A-D Corr Ans: C PM#14 F 7-02

 

 

 

28. CPA-01025 FARE Nov 94 #37 Page 11

 

 

 

The primary purpose of a quasi-reorganization is to give a corporation the opportunity to:

 

 

 

CPA-01028 Type1 M/C A-D Corr Ans: D PM#15 F 7-02

 

 

 

29. CPA-01028 FARE May 94 #31 Page 18

 

 

 

East Corp., a calendar-year company, had sufficient retained earnings in 1993 as a basis for dividends,

 

but was temporarily short of cash. East declared a dividend of $100,000 on April 1, 1993, and issued

 

promissory notes to its stockholders in lieu of cash. The notes, which were dated April 1, 1993, had a

 

maturity date of March 31, 1994, and a 10% interest rate.

 

How should East account for the scrip dividend and related interest?

 

 

 

CPA-01031 Type1 M/C A-D Corr Ans: B PM#16 F 7-02

 

 

 

30. CPA-01031 FARE May 94 #32 Page 18

 

 

 

 

 

On January 2, 1994, Lake Mining Co.’s board of directors declared a cash dividend of $400,000 to

 

stockholders of record on January 18, 1994, payable on February 10, 1994. The dividend is permissible

 

under law in the state where Lake is incorporated. Selected balances from its December 31, 1993

 

balance sheet are as follows:

 

Accumulated depletion $100,000

 

Capital stock 500,000

 

Additional paid-in capital 150,000

 

Retained earnings 300,000

 

 

 

CPA-01041 Type1 M/C A-D Corr Ans: A PM#18 F 7-02

 

 

 

31. CPA-01041 Th Nov 93 #15 Page 17

 

 

 

On November 2, 1992, Finsbury, Inc. issued warrants to its stockholders giving them the right to purchase

 

additional $20 par value common shares at a price of $30. The stockholders exercised all warrants on

 

March 1, 1993. The shares had market prices of $33, $35, and $40 on November 2, 1992, December 31,

 

1992, and March 1, 1993, respectively. What were the effects of the warrants on Finsbury’s additional

 

paid-in capital and net income?

 

 

 

CPA-01043 Type1 M/C A-D Corr Ans: C PM#19 F 7-02

 

 

 

32. CPA-01043 PI Nov 93 #48 Page 19

 

 

 

Cobb Co. purchased 10,000 shares (2% ownership) of Roe Co. on February 12, 1993. Cobb received a

 

stock dividend of 2,000 shares on March 31, 1993, when the carrying amount per share on Roe’s books

 

was $35 and the market value per share was $40. Roe paid a cash dividend of $1.50 per share on

 

September 15, 1993. In Cobb’s income statement for the year ended October 31, 1993, what amount

 

should Cobb report as dividend income?

 

 

 

CPA-01046 Type1 M/C A-D Corr Ans: A PM#20 F 7-02

 

 

 

33. CPA-01046 PII May 93 #1 Page 13

 

 

 

Rudd Corp. had 700,000 shares of common stock authorized and 300,000 shares outstanding at

 

December 31, 1991. The following events occurred during 1992:

 

January 31 Declared 10% stock dividend

 

June 30 Purchased 100,000 shares

 

August 1 Reissued 50,000 shares

 

November 30 Declared 2-for-l stock split

 

At December 31, 1992, how many shares of common stock did Rudd have outstanding?

 

 

 

CPA-01048 Type1 M/C A-D Corr Ans: D PM#21 F 7-02

 

 

 

34. CPA-01048 PII May 93 #2 Page 13

 

 

 

Beck Corp. issued 200,000 shares of common stock when it began operations in 1990 and issued an

 

additional 100,000 shares in 1991. Beck also issued preferred stock convertible to 100,000 shares of

 

common stock. In 1992, Beck purchased 75,000 shares of its common stock and held it in Treasury. At

 

December 31, 1992, how many shares of Beck’s common stock were outstanding?

 

 

 

 

 

CPA-01050 Type1 M/C A-D Corr Ans: A PM#22 F 7-02

 

 

 

35. CPA-01050 Th May 93 #2 Page 18

 

 

 

A property dividend should be recorded in retained earnings at the property’s:

 

 

 

36. CPA-01052 PII May 93 #3 Page 11

 

 

 

The following changes in Vel Corp.’s account balances occurred during 1992:

 

Increase

 

Assets $89,000

 

Liabilities 27,000

 

Capital stock 60,000

 

Additional paid-in capital 6,000

 

Except for a $13,000 dividend payment and the year’s earnings, there were no changes in retained

 

earnings for 1992. What was Vel’s net income for 1992?

 

 

 

CPA-01056 Type1 M/C A-D Corr Ans: B PM#24 F 7-02

 

 

 

37. CPA-01056 PII May 93 #4 Page 9

 

 

 

At December 31, 1991 and 1992, Carr Corp. had outstanding 4,000 shares of $100 par value 6%

 

cumulative preferred stock and 20,000 shares of $10 par value common stock. At December 31, 1991,

 

dividends in arrears on the preferred stock were $12,000. Cash dividends declared in 1992 totaled

 

$44,000. Of the $44,000, what amounts were payable on each class of stock?

 

 

 

CPA-01058 Type1 M/C A-D Corr Ans: A PM#25 F 7-02

 

 

 

38. CPA-01058 PII May 93 #5 Page 11

 

 

 

At December 31, 1991, Eagle Corp. reported $1,750,000 of appropriated retained earnings for the

 

construction of a new office building, which was completed in 1992 at a total cost of $1,500,000. In 1992,

 

Eagle appropriated $1,200,000 of retained earnings for the construction of a new plant. Also, $2,000,000

 

of cash was restricted for the retirement of bonds due in 1993. In its 1992 balance sheet, Eagle should

 

report what amount of appropriated retained earnings?

 

 

 

CPA-01061 Type1 M/C A-D Corr Ans: A PM#26 F 7-02

 

 

 

39. CPA-01061 PI May 93 #6 Page 8

 

 

 

On April 1, 1993, Hyde Corp., a newly formed company, had the following stock issued and outstanding:

 

• Common stock, no par, $1 stated value, 20,000 shares originally issued for $30 per share.

 

• Preferred stock, $10 par value, 6,000 shares originally issued for $50 per share.

 

Hyde’s April 1, 1993, statement of stockholders’ equity should report:

 

 

 

CPA-01094 Type1 M/C A-D Corr Ans: C PM#27 F 7-02

 

 

 

40. CPA-01094 Th May 93 #10 Page 15

 

 

 

In 1990, Fogg, Inc. issued $10 par value common stock for $25 per share. No other common stock

 

transactions occurred until March 31, 1992, when Fogg acquired some of the issued shares for $20 per

 

share and retired them. Which of the following statements correctly states an effect of this acquisition

 

and retirement?

 

 

 

 

 

CPA-01095 Type1 M/C A-D Corr Ans: D PM#28 F 7-02

 

 

 

41. CPA-01095 PI May 93 #11 Page 15

 

 

 

On December 1, 1992, Line Corp. received a donation of 2,000 shares of its $5 par value common stock

 

from a stockholder. On that date, the stock’s market value was $35 per share. The stock was originally

 

issued for $25 per share. By what amount would this donation cause total stockholders’ equity to

 

decrease?

 

 

 

CPA-01097 Type1 M/C A-D Corr Ans: D PM#29 F 7-02

 

 

 

42. CPA-01097 Th May 93 #13 Page 9

 

 

 

Quoit, Inc. issued preferred stock with detachable common stock warrants. The issue price exceeded the

 

sum of the warrants’ fair value and the preferred stock’s par value. The preferred stock’s fair value was

 

not determinable. What amount should be assigned to the warrants outstanding?

 

 

 

CPA-01099 Type1 M/C A-D Corr Ans: D PM#30 F 7-02

 

 

 

43. CPA-01099 Th May 93 #14 Page 22

 

 

 

In a compensatory stock option plan for which the grant and exercise dates are different, the stock

 

options outstanding account should be reduced at the:

 

 

 

CPA-04681 Type1 M/C A-D Corr Ans: A PM#31 F 7-02

 

 

 

44. CPA-04681 Released 2005 Page 19

 

 

 

Universe Co. issued 500,000 shares of common stock in the current year. Universe declared a 30%

 

stock dividend. The market value was $50 per share, the par value was $10, and the average issue price

 

was $30 per share. By what amount will Universe decrease stockholders’ equity for the dividend?

 

 

 

 

 

 

 

CPA-04682 Type1 M/C A-D Corr Ans: B PM#32 F 7-02

 

 

 

45. CPA-04682 Released 2005 Page 13

 

Murphy Co. had 200,000 shares outstanding of $10 par common stock on March 30 of the current year.

 

Murphy reacquired 30,000 of those shares at a cost of $15 per share, and recorded the transaction using

 

the cost method on April 15. Murphy reissued the 30,000 shares at $20 per share, and recognized a

 

$50,000 gain on its income statement on May 20. Which of the following statements is correct?

 

 

 

 

 

CPA-05228 Type1 M/C A-D Corr Ans: B PM#33 F 7-02

 

 

 

46. CPA-05228 Released 2006 Page 13

 

 

 

Porter Co. began its business last year and issued 10,000 shares of common stock at $3 per share. The

 

par value of the stock is $1 per share. During January of the current year, Porter bought back 500 shares

 

at $6 per share, which were reported by Porter as treasury stock. The treasury stock shares were

 

reissued later in the current year at $10 per share. Porter used the cost method to account for its equity

 

transactions. What amount should Porter report as paid-in capital related to its treasury stock

 

transactions on its balance sheet for the current year?

 

 

 

CPA-05442 Type1 M/C A-D Corr Ans: A PM#35 F 7-02

 

 

 

47. CPA-05442 Released 2007 Page 13

 

 

 

Baker Co. issued 100,000 shares of common stock in the current year. On October 1, Baker

 

repurchased 20,000 shares of its common stock on the open market for $50.00 per share. At that date,

 

the stock’s par value was $1.00 and the average issue price was $40.00 per share. Baker uses the cost

 

method for treasury stock transactions. On December 1, Baker reissued the stock for $60.00 per share.

 

What amount should Baker report as treasury stock gain at December 31?

 

 

 

CPA-01102 Type1 M/C A-D Corr Ans: A PM#1 F 7-03

 

 

 

48. CPA-01102 FARE R01 #9 Page 29

 

 

 

Deck Co. had 120,000 shares of common stock outstanding at January 1, 1998. On July 1, 1998, it

 

issued 40,000 additional shares of common stock. Outstanding all year were 10,000 shares of

 

nonconvertible cumulative preferred stock. What is the number of shares that Deck should use to

 

calculate 1998 earnings per share?

 

 

 

CPA-01105 Type1 M/C A-D Corr Ans: B PM#2 F 7-03

 

 

 

49. CPA-01105 FARE C98 #10 Page 29

 

 

 

Which of the following items, if dilutive and if other conditions are met, would enter into the determination

 

of the weighted average shares outstanding to be used in the basic earnings per share (basic EPS)

 

calculation?

 

 

 

I. Stock options.

 

II. Contingent shares.

 

 

 

CPA-01107 Type1 M/C A-D Corr Ans: C PM#3 F 7-03

 

 

 

50. CPA-01107 FARE C98 #11 Page 28

 

 

 

Elizabeth Corporation acquired Allen Corporation at the end of 19X8. Under terms of the acquisition

 

agreement, Elizabeth agreed to provide former Allen shareholders 1,000 additional shares of Elizabeth

 

stock for each new retail outlet opened during 19X9. Two new outlets were opened during 19X9:

 

• One on May 1, 19X9

 

• One on September 1, 19X9

 

What number of shares related to the openings of the new retail outlets should enter into the calculation

 

of Elizabeth’s basic earnings per share as of December 31, 19X9, the end of its fiscal year?

 

 

 

 

 

CPA-01123 Type1 M/C A-D Corr Ans: A PM#4 F 7-03

 

 

 

51. CPA-01123 FARE R98 #5 Page 28

 

 

 

In computing the weighted-average number of shares outstanding during the year, which of the following

 

midyear events must be treated as if it had occurred at the beginning of the year?

 

 

 

CPA-01193 Type1 M/C A-D Corr Ans: B PM#5 F 7-03

 

 

 

52. CPA-01193 FARE C97 #1 Page 35

 

 

 

Earnings per share disclosure is required for which of the following:

 

 

 

CPA-01195 Type1 M/C A-D Corr Ans: B PM#6 F 7-03

 

 

 

53. CPA-01195 FARE C97 #3 Page 34

 

 

 

Which one of the following is not considered contingent shares for purposes of computing EPS?

 

 

 

 

 

CPA-01201 Type1 M/C A-D Corr Ans: A PM#10 F 7-03

 

 

 

54. CPA-01201 Th Nov 93 #16 Page 27

 

 

 

When computing the weighted average of common shares outstanding for basic earnings per share,

 

convertible securities are:

 

 

 

CPA-01203 Type1 M/C A-D Corr Ans: B PM#11 F 7-03

 

 

 

55. CPA-01203 PI May 93 #60 Page 29

 

 

 

The following information pertains to Jet Corp.’s outstanding stock for 1992:

 

Common stock, $5 par value

 

Shares outstanding, 1/1/92 20,000

 

2-for-1 stock split, 4/1/92 20,000

 

Shares issued, 7/1/92 10,000

 

Preferred stock, $10 par value, 5% cumulative

 

Shares outstanding, 1/1/92 4,000

 

What are the number of shares Jet should use to calculate 1992 earnings per share?

 

 

 

CPA-01205 Type1 M/C A-D Corr Ans: C PM#12 F 7-03

 

 

 

56. CPA-01205 FARE Nov 92 #23 Page 28

 

 

 

On January 31, 1992, Pack, Inc. split its common stock 2 for 1, and Young, Inc. issued a 5% stock

 

dividend. Both companies issued their December 31, 1991, financial statements on March 1, 1992.

 

Should Pack’s 1991 earnings per share (EPS) take into consideration the stock split, and should Young’s

 

1991 EPS take into consideration the stock dividend?

 

 

 

CPA-01209 Type1 M/C A-D Corr Ans: B PM#13 F 7-03

 

 

 

57. CPA-01209 PI Nov 91 #60 Page 29

 

 

 

Strauch Co. has one class of common stock outstanding and no other securities that are potentially

 

convertible into common stock. During 1989, 100,000 shares of common stock were outstanding. In

 

1990, two distributions of additional common shares occurred: On April 1, 20,000 shares of treasury stock

 

were sold, and on July 1, a 2-for-1 stock split was issued. Net income was $410,000 in 1990 and

 

$350,000 in 1989. What amounts should Strauch report as earnings per share in its 1990 and 1989

 

comparative income statements?

 

 

 

 

 

CPA-01210 Type1 M/C A-D Corr Ans: A PM#14 F 7-03

 

 

 

58. CPA-01210 FARE May 91 #29 Page 32

 

 

 

In determining earnings per share, interest expense, net of applicable income taxes, on convertible debt

 

that is dilutive should be:

 

 

 

CPA-01211 Type1 M/C A-D Corr Ans: B PM#15 F 7-03

 

 

 

59. CPA-01211 FARE Nov 90 #34 Page 33

 

 

 

When computing diluted earnings per share, convertible securities are:

 

 

 

CPA-01213 Type1 M/C A-D Corr Ans: B PM#16 F 7-03

 

 

 

60. CPA-01213 PI Nov 90 #52 Page 27

 

 

 

Poe Co. had 300,000 shares of common stock issued and outstanding at December 31, 1988. No

 

common stock was issued during 1989. On January 1, 1989, Poe issued 200,000 shares of

 

nonconvertible preferred stock. During 1989, Poe declared and paid $75,000 cash dividends on the

 

common stock and $60,000 on the preferred stock. Net income for the year ended December 31, 1989

 

was $330,000. What should be Poe’s 1989 earnings per common share?

 

 

 

 

 

CPA-01214 Type1 M/C A-D Corr Ans: D PM#17 F 7-03

 

 

 

61. CPA-01214 PII May 90 #51 Page 27

 

 

 

Peters Corp.’s capital structure was as follows:

 

December 31

 

19X1 19X2

 

Outstanding shares of stock:

 

Common 110,000 110,000

 

Convertible preferred 10,000 10,000

 

8% convertible bonds $1,000,000 $1,000,000

 

 

 

During 19X2, Peters paid dividends of $3.00 per share on its preferred stock. The preferred shares are

 

convertible into 20,000 shares of common stock. The 8% bonds are convertible into 30,000 shares of

 

common stock. Net income for 19X2 was $850,000. Assume that the income tax rate is 30%. The basic

 

earnings per share for 19X2 is:

 

 

 

 

 

 

 

CPA-01217 Type1 M/C A-D Corr Ans: B PM#18 F 7-03

 

 

 

62. CPA-01217 PI Nov 89 #54 Page 32

 

 

 

Jones Corp.’s capital structure was as follows:

 

December 31

 

1988 1987

 

Outstanding shares of stock:

 

Common 110,000 110,000

 

Convertible preferred 10,000 10,000

 

8% convertible bonds $1,000,000 $1,000,000

 

During 1988, Jones paid dividends of $3.00 per share on its preferred stock. The preferred shares are

 

convertible into 20,000 shares of common stock. The 8% bonds are convertible into 30,000 shares of

 

common stock. Net income for 1988 is $850,000. Assume that the income tax rate is 30%.

 

The diluted earnings per share for 1988 is:

 

 

 

CPA-01218 Type1 M/C A-D Corr Ans: B PM#19 F 7-03

 

 

 

63. CPA-01218 FARE Nov 88 #33 Page 30

 

 

 

Dilutive stock options would generally be used in the calculation of:

 

 

 

Basic Diluted

 

 

 

earnings per share earnings per share

 

 

 

CPA-04775 Type1 M/C A-D Corr Ans: B PM#20 F 7-03

 

 

 

64. CPA-04775 Released 2005 Page 27

 

 

 

During the current year, Comma Co. had outstanding: 25,000 shares of common stock, 8,000 shares of

 

$20 par, 10% cumulative preferred stock, and 3,000 bonds that are $1,000 par and 9% convertible. The

 

bonds were originally issued at par, and each bond was convertible into 30 shares of common stock.

 

During the year, net income was $200,000, no dividends were declared, and the tax rate was 30%. What

 

amount was Comma’s basic earnings per share for the current year?

 

 

 

CPA-05417 Type1 M/C A-D Corr Ans: A PM#20 F 7-03

 

 

 

65. CPA-05417 Released 2007 Page 27

 

 

 

Jen Co. had 200,000 shares of common stock and 20,000 shares of 10%, $100 par value cumulative

 

preferred stock. No dividends on common stock were declared during the year. Net income was

 

$2,000,000. What was Jen’s basic earnings per share?

 

 

 

CPA-05446 Type1 M/C A-D Corr Ans: C PM#22 F 7-03

 

 

 

66. CPA-05446 Released 2007 Page 28

 

 

 

The following information pertains to Ceil Co., a company whose common stock trades in a public market:

 

Shares outstanding at 1/1 100,000

 

Stock dividend at 3/31 24,000

 

Stock issuance at 6/30 5,000

 

What is the weighted-average number of shares Ceil should use to calculate its basic earnings per share

 

for the year ended December 31?

 

 

 

 

 

CPA-01219 Type1 M/C A-D Corr Ans: B PM#1 F 7-04

 

 

 

67. CPA-01219 FARE R97 #3 Page 38

 

 

 

In its 1996 income statement, Kilm Co. reported cost of goods sold of $450,000. Changes occurred in

 

several balance sheet accounts as follows:

 

Inventory $160,000 decrease

 

Accounts payable-suppliers 40,000 decrease

 

What amount should Kilm report as cash paid to suppliers in its 1996 cash flow statement, prepared

 

under the direct method?

 

 

 

CPA-01221 Type1 M/C A-D Corr Ans: D PM#2 F 7-04

 

 

 

68. CPA-01221 FARE Nov 95 #47 Page 36

 

 

 

Mend Co. purchased a three-month U.S. Treasury bill. Mend’s policy is to treat as cash equivalents all

 

highly liquid investments with an original maturity of three months or less when purchased. How should

 

this purchase be reported in Mend’s statement of cash flows?

 

 

 

CPA-01223 Type1 M/C A-D Corr Ans: D PM#3 F 7-04

 

 

 

69. CPA-01223 FARE Nov 95 #48 Page 42

 

 

 

Which of the following is not disclosed on the statement of cash flows when prepared under the direct

 

method, either on the face of the statement or in a separate schedule?

 

 

 

 

 

CPA-01227 Type1 M/C A-D Corr Ans: C PM#6 F 7-04

 

 

 

70. CPA-01227 FARE May 95 #49 Page 40

 

Which of the following information should be disclosed as supplemental information in the statement of

 

cash flows?

 

 

 

CPA-01228 Type1 M/C A-D Corr Ans: C PM#7 F 7-04

 

 

 

71. CPA-01228 FARE Nov 94 #7 Page 42

 

 

 

Which of the following should not be disclosed in an enterprise’s statement of cash flows prepared using

 

the indirect method?

 

 

 

CPA-01231 Type1 M/C A-D Corr Ans: C PM#8 F 7-04

 

 

 

72. CPA-01231 FARE May 94 #5 Page 36

 

 

 

The primary purpose of a statement of cash flows is to provide relevant information about:

 

 

 

CPA-01232 Type1 M/C A-D Corr Ans: B PM#9 F 7-04

 

 

 

73. CPA-01232 FARE May 94 #50 Page 40

 

 

 

Fara Co. reported bonds payable of $47,000 at December 31, 1992, and $50,000 at December 31, 1993.

 

During 1993, Fara issued $20,000 of bonds payable in exchange for equipment. There was no

 

amortization of bond premium or discount during the year. What amount should Fara report in its 1993

 

statement of cash flows for redemption of bonds payable?

 

 

 

 

 

CPA-01233 Type1 M/C A-D Corr Ans: A PM#10 F 7-04

 

 

 

74. CPA-01233 PI Nov 93 #5 Page 38

 

 

 

Lino Co.’s worksheet for the preparation of its 1992 statement of cash flows included the following:

 

December 31 January 1

 

Accounts receivable $29,000 $23,000

 

Allowance for uncollectible accounts 1,000 800

 

Prepaid rent expense 8,200 12,400

 

Accounts payable 22,400 19,400

 

Lino’s 1992 net income is $150,000. What amount should Lino include as net cash provided by operating

 

activities in the statement of cash flows?

 

 

 

CPA-01234 Type1 M/C A-D Corr Ans: B PM#11 F 7-04

 

 

 

75. CPA-01234 PI Nov 93 #6 Page 38

 

 

 

Karr, Inc. reported net income of $300,000 for 1992. Changes occurred in several balance sheet

 

accounts as follows:

 

Equipment $25,000 increase

 

Accumulated depreciation 40,000 increase

 

Note payable 30,000 increase

 

Additional information:

 

• During 1992, Karr sold equipment costing $25,000, with accumulated depreciation of $12,000, for a

 

gain of $5,000.

 

• In December 1992, Karr purchased equipment costing $50,000 with $20,000 cash and a 12% note

 

payable of $30,000.

 

• Depreciation expense for the year was $52,000.

 

In Karr’s 1992 statement of cash flows, net cash provided by operating activities should be:

 

 

 

CPA-01235 Type1 M/C A-D Corr Ans: A PM#12 F 7-04

 

 

 

76. CPA-01235 PI Nov 93 #7 Page 39

 

 

 

Karr, Inc. reported net income of $300,000 for 1992. Changes occurred in several balance sheet

 

accounts as follows:

 

Equipment $25,000 increase

 

Accumulated depreciation 40,000 increase

 

Note payable 30,000 increase

 

Additional information:

 

• During 1992, Karr sold equipment costing $25,000, with accumulated depreciation of $12,000, for a

 

gain of $5,000.

 

• In December 1992, Karr purchased equipment costing $50,000 with $20,000 cash and a 12% note

 

payable of $30,000.

 

• Depreciation expense for the year was $52,000.

 

In Karr’s 1992 statement of cash flows, net cash used in investing activities should be:

 

 

 

CPA-01239 Type1 M/C A-D Corr Ans: C PM#13 F 7-04

 

 

 

77. CPA-01239 PI Nov 93 #8 Page 40

 

 

 

During 1992, Xan, Inc. had the following activities related to its financial operations:

 

Payment for the early retirement of long-term

 

bonds payable (carrying amount $370,000) $375,000

 

Distribution in 1992 of cash dividend declared in 1991 to preferred shareholders 31,000

 

Carrying amount of convertible preferred stock in Xan, converted into common shares 60,000

 

Proceeds from sale of Treasury stock (carrying amount at cost, $43,000) 50,000

 

In Xan’s 1992 statement of cash flows, net cash used in financing operations should be:

 

 

 

CPA-01241 Type1 M/C A-D Corr Ans: D PM#14 F 7-04

 

 

 

78. CPA-01241 PI Nov 93 #9 Page 38

 

 

 

Duke Co. reported cost of goods sold of $270,000 for 1992. Additional information is as follows:

 

December 31 January 1

 

Inventory $60,000 $45,000

 

Accounts payable 26,000 39,000

 

If Duke uses the direct method, what amount should Duke report as cash paid to suppliers in its 1992

 

statement of cash flows?

 

 

 

CPA-01242 Type1 M/C A-D Corr Ans: A PM#15 F 7-04

 

 

 

79. CPA-01242 Th Nov 93 #41 Page 39

 

 

 

In a statement of cash flows, if used equipment is sold at a gain, the amount shown as a cash inflow from

 

investing activities equals the carrying amount of the equipment:

 

 

 

CPA-01244 Type1 M/C A-D Corr Ans: C PM#16 F 7-04

 

 

 

80. CPA-01244 Th Nov 93 #42 Page 40

 

 

 

On July 1, 1992, Dewey Co. signed a 20-year building lease that it reported as a capital lease. Dewey

 

paid the monthly lease payments when due. How should Dewey report the effect of the lease payments

 

in the financing activities section of its 1992 statement of cash flows?

 

a. An inflow equal to the present value of future lease payments at July 1, 1992, less 1992 principal and

 

interest payments.

 

 

 

CPA-01245 Type1 M/C A-D Corr Ans: D PM#17 F 7-04

 

 

 

81. CPA-01245 Th May 93 #32 Page 39

 

 

 

On September 1, 1992, Canary Co. sold used equipment for a cash amount equaling its carrying amount

 

for both book and tax purposes. On September 15, 1992, Canary replaced the equipment by paying cash

 

and signing a note payable for new equipment. The cash paid for the new equipment exceeded the cash

 

received for the old equipment. How should these equipment transactions be reported in Canary’s 1992

 

statement of cash flows?

 

 

 

CPA-01247 Type1 M/C A-D Corr Ans: C PM#18 F 7-04

 

 

 

82. CPA-01247 Th May 93 #33 Page 38

 

 

 

How should a gain from the sale of used equipment for cash be reported in a statement of cash flows

 

using the indirect method?

 

 

 

 

 

CPA-04657 Type1 M/C A-D Corr Ans: C PM#19 F 7-04

 

 

 

83. CPA-04657 Released 2005 Page 37

 

 

 

In its cash flow statement for the current year, Ness Co. reported cash paid for interest of $70,000. Ness

 

did not capitalize any interest during the current year. Decreases occurred in several balance sheet

 

accounts as follows:

 

Accrued interest payable $17,000

 

Prepaid interest 23,000

 

In its income statement for the current year, what amount should Ness report as interest expense?

 

 

 

CPA-04691 Type1 M/C A-D Corr Ans: D PM#20 F 7-04

 

 

 

84. CPA-04691 Released 2005 Page 36

 

 

 

The following are held by Smite Co.:

 

Cash in checking account $20,000

 

Cash in bond sinking fund account 30,000

 

Post-dated check from customer dated one month from balance sheet date 250

 

Petty cash 200

 

Commercial paper (matures in two months) 7,000

 

Certified of deposit (matures in six months) 5,000

 

What amount should be reported as cash and cash equivalents on Smite’s balance sheet?

 

 

 

CPA-04653 Type1 M/C A-D Corr Ans: B PM#20 F 7-04

 

 

 

85. CPA-04653 Released 2005 Page 36

 

 

 

Reed Co.’s 2001 statement of cash flows reported cash provided from operating activities of $400,000.

 

For 2001, depreciation of equipment was $190,000, amortization of goodwill was $5,000, and dividends

 

paid on common stock were $100,000. In Reed’s 2001 statement of cash flows, what amount was

 

reported as net income?

 

 

 

CPA-05202 Type1 M/C A-D Corr Ans: C PM#22 F 7-04

 

 

 

86. CPA-05202 Released 2006 Page 37

 

 

 

Payne Co. prepares its statement of cash flows using the indirect method. Payne’s unamortized bond

 

discount account decreased by $25,000 during the year. How should Payne report the change in

 

unamortized bond discount in its statement of cash flows?

 

 

 

CPA-05219 Type1 M/C A-D Corr Ans: C PM#23 F 7-04

 

 

 

87. CPA-05219 Released 2006 Page 37

 

 

 

Which of the following items is included in the financing activities section of the statement of cash flows?

 

 

 

CPA-05229 Type1 M/C A-D Corr Ans: C PM#24 F 7-04

 

 

 

88. CPA-05229 Released 2006 Page 37

 

 

 

New England Co. had net cash provided by operating activities of $351,000; net cash used by investing

 

activities of $420,000; and cash provided by financing activities of $250,000. New England’s cash

 

balance was $27,000 on January 1. During the year, there was a sale of land that resulted in a gain of

 

$25,000 and proceeds of $40,000 were received from the sale. What was New England’s cash balance

 

at the end of the year?

 

 

 

CPA-05423 Type1 M/C A-D Corr Ans: A PM#26 F 7-04

 

 

 

89. CPA-05423 Released 2007 Page 39

 

 

 

Paper Co. had net income of $70,000 during the year. Dividend payment was $10,000. The following

 

information is available:

 

Mortgage repayment $20,000

 

Available-for-sale securities purchased 10,000 increase

 

Bonds payable – issued 50,000 increase

 

Inventory 40,000 increase

 

Accounts payable 30,000 decrease

 

What amount should Paper report as net cash provided by operating activities in its statement of cash

 

flows for the year?

 

 

 

CPA-05450 Type1 M/C A-D Corr Ans: D PM#27 F 7-04

 

 

 

90. CPA-05450 Released 2007 Page 39

 

 

 

Savor Co. had $100,000 in cash-basis pretax income for 1999. At December 31, 1999, accounts

 

receivable had increased by $10,000 and accounts payable had decreased by $6,000 from their

 

December 31, 1998, balances. Compared to the accrual basis method of accounting, Savor’s cash

 

pretax income is:

 

 

 

CPA-05462 Type1 M/C A-D Corr Ans: B PM#28 F 7-04

 

 

 

91. CPA-05462 Released 2007 Page 39

 

 

 

During the current year, Ace Co. amortized a bond discount. Ace prepares its statement of cash flows

 

using the indirect method. In which section of the statement should Ace report the amortization of the

 

bond discount?

 

 

 

 

 

CPA-01458 Type1 M/C A-D Corr Ans: D PM#1 F 7-99

 

 

 

92. CPA-01458 Nov 89 #20 Page 10

 

 

 

A corporation was organized in January 1988 with authorized capital of $10 par value common stock. On

 

February 1, 1988, shares were issued at par for cash. On March 1, 1988, the corporation’s attorney

 

accepted 5,000 shares of the common stock in settlement for legal services with a fair value of $60,000.

 

Additional paid-in capital would increase on:

 

 

 

CPA-01460 Type1 M/C A-D Corr Ans: B PM#2 F 7-99

 

 

 

93. CPA-01460 Nov 89 #21 Page 18

 

 

 

A corporation declared a dividend, a portion of which was liquidating. How would this declaration affect

 

each of the following?

 

 

 

CPA-01463 Type1 M/C A-D Corr Ans: A PM#3 F 7-99

 

 

 

94. CPA-01463 May 90 #14 Page 18

 

 

 

Pott Co. owned shares in Rose Co. On December 1, 1989, Pott declared and distributed a property

 

dividend of Rose shares when their fair value exceeded the carrying amount. As a consequence of the

 

dividend declaration and distribution, the accounting effects would be:

 

 

 

CPA-01466 Type1 M/C A-D Corr Ans: B PM#4 F 7-99

 

 

 

95. CPA-01466 Nov 90 L #17 Page 20

 

 

 

All of the following distributions to stockholders are considered asset or capital distributions, except:

 

 

 

CPA-01467 Type1 M/C A-D Corr Ans: C PM#5 F 7-99

 

 

 

96. CPA-01467 Nov 90 #32 Page 19

 

 

 

How would the declaration of a 15% stock dividend by a corporation affect each of the following?

 

 

 

CPA-01471 Type1 M/C A-D Corr Ans: D PM#6 F 7-99

 

 

 

97. CPA-01471 May 91 I #12 Page 13

 

 

 

Mag, Inc.’s December 31, 1990, unadjusted current assets and stockholders’ equity sections are as

 

follows:

 

Current Assets:

 

Cash $ 15,000

 

Investments in marketable equity securities

 

(including $75,000 of Mag, Inc. common stock) 100,000

 

Trade accounts receivable 85,000

 

Inventories 37,000

 

Total $237,000

 

Stockholders’ Equity:

 

Common stock $556,000

 

Retained earnings (deficit) (56,000)

 

Total $500,000

 

The investments and inventories are reported at their costs, which approximate market values.

 

Mag’s stockholders’ equity at December 31,1990, should be:

 

 

 

CPA-01490 Type1 M/C A-D Corr Ans: A PM#7 F 7-99

 

 

 

98. CPA-01490 May 91 I #19 Page 13

 

 

 

Pugh Co. reported the following in its statement of stockholders’ equity on January 1, 1990:

 

Common stock, $5 par value, authorized 200,000 shares, issued 100,000 shares $ 500,000

 

Additional paid-in capital 1,500,000

 

Retained earnings 516,000

 

2,516,000

 

Less treasury stock, at cost, 5,000 shares (40,000)

 

Total stockholders’ equity $2,476,000

 

The following events occurred in 1990:

 

May 1 – 1,000 shares of treasury stock were sold for $10,000.

 

July 9 – 10,000 shares of previously unissued common stock were sold for $12 per share.

 

October 1 – The distribution of a 2-for-1 stock split resulted in the common stock’s per share par value

 

being halved.

 

Pugh accounts for treasury stock under the cost method. Laws in the state of Pugh’s incorporation

 

protect shares held in treasury from dilution when stock dividends or stock splits are declared.

 

In Pugh’s December 31, 1990, statement of stockholders’ equity, the par value of the issued common

 

stock should be: