Reference no: EM13860394

1. Which of the following does not affect the current liabilities section of the balance sheet?

A) Purchase of inventory on credit
B) Wages owing to employees but not yet paid
C) Insurance bill to be paid next month
D) Sale of goods on credit

2. When the fair value of a company's portfolio of available-for-sale equity securities exceeds its book value, the difference should be:

A) Written off as an impairment
B) Added to stockholders' equity of the investor
C) Recorded on the company's income statement
D) Added to the investment account
E) B and C
F) B and D
G) C and D

3. Paris Corporation purchases an investment in Hollywood, Inc. at a purchase price of $6 million cash, representing 45% of the book value of Hollywood, Inc. During the year, Hollywood reports net income of $700,000 and pays $180,000 of cash dividends. At the end of the year, the market value of Paris's investment is $7.4 million. What is the year-end balance of the equity investment in Hollywood?

A) $6,000,000
B) $6,520,000
C) $6,315,000
D) $6,234,000
E) $7,400,000

4. Porters Inc. issued a 4-month note in the amount of $160,000 on 12/01/12 with an annual rate of 9%. What amount of interest has accrued as of 12/31/12?

A) $0
B) $ 1,200
C) $ 3,600
D) $ 4,800
E) $14,400

5. Kirner Electric Corp. sells $100,000 of bonds to private investors. The bonds have an 8% coupon rate and interest is paid semiannually. The bonds were sold to yield 9%.

What will be the price at which the bond is issued?

A) $100,000
B) Less than $100,000
C) More than $100,000
D) There is not enough information presented to answer this question.

6. Kirner Electric Corp. sells $100,000 of bonds to private investors. The bonds have an 8% coupon rate and interest is paid semiannually. The bonds were sold to yield 9%.

What periodic interest payment does Kirner make?

A) $16,000
B) $ 9,000
C) $ 8,000
D) $ 4,500
E) $ 4,000

7. Collins Corp. sells $400,000 of bonds to private investors. The bonds are due in five years, have an 8% coupon rate, and interest is paid semiannually. The bonds were sold for $369,112 to yield 10%. What is the amount of the premium or discount?

A) $369,112 discount
B) $30,888 premium
C) $30,888 discount
D) $69,112 premium

8. Collins Corp. sells $400,000 of bonds to private investors. The bonds are due in five years, have an 8% coupon rate, and interest is paid semiannually. The bonds were sold for $369,112 to yield 10%. What is the amount of interest expense on the first interest payment date?

A) $36,911
B) $18,456
C) $29,529
D) $14,764
E) $32,000
F) $16,000

9. Credit ratings concern which of the following?

A) The price of a company's stock
B) The ability of a company to consistently pay dividends
C) The probability a company will make timely payments
D) An assessment of a company's credit-granting policies
E) None of the above

10. Why might a company repurchase its own stock?

A) It believes that the market undervalues its shares
B) To offset dilutive effects of employee stock options granted
C) To improve earnings per share by reducing the denominator
D) All of the above

11. Which one of the following items is not a component of contributed capital?

A) Preferred stock
B) Retained earnings
C) Common stock
D) Additional paid-in capital
E) All of the above are components of contributed capital.

12. If a company issues 1,000 shares of $2 par common stock at a market price of $40 per share, which of the following is the correct balance sheet effect?

A) Increase cash by $40,000 and increase common stock by $40,000
B) Increase cash by $40,000, increase common stock by $2,000 and increase additional paid in capital by $38,000
C) Increase cash by $40,000 and increase stock revenues by $40,000
D) Stock issuances are not reported on the balance sheet

13. Moore Co. issued preferred stock with an accumulating dividend preference. What does that mean?

A) Common stockholders prefer dividends to accumulate rather than be paid.
B) Preferred Stockholders are required to get dividends before common stockholders.
C) Preferred Stockholders are required to get dividends, including any in arrears for years unpaid, before common stockholders.
D) Preferred Stockholders have liquidation preference, but only if the dividends have accumulated.

14. On its 2010 balance sheet, Walgreen Co, reports treasury stock at cost of $3,101 million. The company has a total of 1,025,400,000 shares issued and 938,605,503 shares outstanding. What average price did Walgreen pay for treasury shares?

A) $ 3.02
B) $ 3.30
C) $ 3.57
D) $35.73
E) None of the above

15. Which of the following is not a correct statement about noncontrolling interest?

A) Noncontrolling interest is reported as a component of stockholders' equity on the balance sheet.
B) Noncontrolling interest represents their claim to their proportionate share of the net assets and net income of the subsidiary in which they own stock.
C) Noncontrolling interest is a residual claim, like that of any other shareholder.
D) Noncontrolling interests are entitled to preference in dividends and payouts in liquidation.

16. The equity carve-out in which the parent company distributes the subsidiary's shares as a dividend to shareholders is called which of the following?

A) Sell-Off
B) Spin-Off
C) Split-Off
D) Stock Split
E) None of the above

17. How do convertible bonds affect earnings per share?

A) They do not affect EPS, but they reduce diluted EPS
B) They do not affect EPS, but they increase diluted EPS.
C) They decrease EPS but increase diluted EPS.
D) They decrease both EPS and diluted EPS.

18. How are operating leases reported in the lessee's balance sheet?

A) As an asset that is depreciated, similar to the company's other assets.
B) As either a short-term or long-term liability, depending on the length of the lease
C) At the present value of the future minimum lease payments.
D) Operating leases are not disclosed in the lessee's balance sheet.

19. Which of the following is not a condition requiring the use of the capital lease reporting method?

A) The lease, by its terms, automatically transfers ownership of the leased asset from the lessor to the lessee at the termination of the lease.
B) The lease term is at least 75% of the economic useful life of the leased asset
C) The lease, by its terms, has no finite ending date.
D) The lease provides that the lessee can purchase the leased asset for a nominal amount (bargain purchase price) at the termination of the lease.

20. Cabela's Corp. disclosed the following lease information in its 2011 annual report (in millions). What lease liability does Cabela's report on its balance sheet?

Capital        Leases             Operating Leases
2012          $ 1,000                 $ 10,746
2013            1,000                   11,022
2014            1,000                    9,473
2015            1,000                    8,841
2016            1,000                    8,579
Thereafter    19,500                121,524
Total            24,500               $170,185

Amount representing interest (11,578)

Net present value of leases $ 12,922

A) $ 12,922
B) $ 24,500
C) $170,185
D) $183,107

21. GAAP identifies two different approaches in the reporting of leases by the lessee: capital and operating. Which of the following best describes the effects of leasing on the financial statements of the lessee?

Lease Type Assets Liabilities Expenses

A) Operating Increased Increased Depreciation and Interest
B) Capital Increased Increased Rent
C) Capital None None Depreciation and Interest
D) Operating None None Rent
E) Operating None None Depreciation and Interest

22. What are the three basic components of pension expense?

A) Service cost, benefits paid, and expected return on plan assets
B) Service cost, benefits paid, and actual return on plan assets
C) Service cost, interest cost, and actual return on plan assets
D) Service cost, interest cost, and expected return on plan assets
E) None of the above

23. Actuarial gains and losses arise from:

A) Changes in pension plan details
B) Changes in mortality rates
C) Changes in discount rate
D) Changes in inflation rates
E) All of the above

24. Abbott Laboratories' has a defined benefit retirement plan. The company's 2011 annual report includes the following excerpt about these plans (in millions):

Projected benefit obligations, January 1, 2011 $8,606
Service cost - benefits earned during the year 332
Interest cost on projected benefit obligations 446
Actuarial losses (gains) 608
Benefits paid (294)
Settlement (776)
Other, primarily foreign currency translation 41
Projected benefit obligations, December 31, 2011 $8,963

Plans' assets at fair value, January 1, 2011 $7,451
Actual return on plan assets 29
Company contributions 394
Benefits paid (294)
Settlement (776)
Other, primarily foreign currency translation 157
Plan assets at fair value, December 31, 2011 $6,961

What is the funded status of this plan?

A) The plan is underfunded by $2,002 million
B) The plan is overfunded by $2,002million
C) The plan is underfunded by $8,963 million
D) The plan is overfunded by $6,961 million
E) None of the above

25. The following pension information was disclosed by Kevin Corp. (in thousands):

The company sponsors defined contribution retirement plans covering substantially all of its domestic employees and certain employees of its foreign subsidiaries. Contributions are determined at the discretion of the Board of Directors. Aggregate amounts charged to operations under the plans in 2012, 2011, and 2010 were $58,440, $50,050, and $40,492, respectively.

Which of the following is true with respect to Kevin's retirement plan?

A) Pension expense in 2012 was $58,440 thousand, comprising service cost and interest cost less expected return on plan assets.
B) Kevin contributed $58,440 thousand to the plan in 2012.
C) There is not sufficient information above to determine whether the company's plan is overfunded or underfunded.
D) The Board of Directors can manage the pension expense by choosing pension assumptions such as discount rate and other actuarial factors.
E) None of the above