Multiple Choice, Question

29

Under current accounting practice, intangible assets are classified as

amortizable or unamortizable.

limited-life or indefinite-life.

specifically identifiable or goodwill-type.

legally restricted or goodwill-type.

Multiple Choice, Question

87

A convertible bond issue should be included in the diluted earnings per share computation as if the bonds
had been converted into common stock, if the effect of its inclusion is

Dilutive Antidilutive
Yes No

No Yes

No No

Yes Yes

Multiple Choice, Question

41

Which of the following does not demonstrate evidence regarding the ability to consummate a refinancing of
short-term debt?

Management indicated that they are going to refinance the obligation.

 Enter into a financing agreement that clearly permits the entity to refinance the obligation.

Have capacity under existing financing agreements that can be used to refinance the
obligation.

Actually refinance the obligation.

Multiple Choice, Question

79

Alonzo Co. acquires 3 patents from Shaq Corp. for a total of $360,000. The patents were carried on Shaq's
books as follows: Patent AA: $5,000; Patent BB: $2,000; and Patent CC: $3,000. When Alonzo acquired the
patents their fair market values were: Patent AA: $20,000; Patent BB: $240,000; and Patent CC: $60,000.
At what amount should Alonzo record Patent BB?

$2,000

$120,000

$270,000

$240,000

Multiple Choice, Question

66

Jeff Beck is a farmer who owns land which borders on the right-of-way of the Northern Railroad. On August
10, 2010, due to the admitted negligence of the Railroad, hay on the farm was set on fire and burned. Beck
had had a dispute with the Railroad for several years concerning the ownership of a small parcel of land. The
representative of the Railroad has offered to assign any rights which the Railroad may have in the land to
Beck in exchange for a release of his right to reimbursement for the loss he has sustained from the fire.
Beck appears inclined to accept the Railroad's offer. The Railroad's 2010 financial statements should include
the following related to the incident:

creation of a liability only.

disclosure in note form only.

 recognition of a loss and creation of a liability for the value of the
land.

recognition of a loss only.

Multiple Choice, Question

26

The conversion of preferred stock into common requires that any excess of the par value of the common
shares issued over the carrying amount of the preferred being converted should be

reflected currently in income, but not as an extraordinary item.

treated as a prior period adjustment.

reflected currently in income as an extraordinary item.

treated as a direct reduction of retained earnings.

Multiple Choice, Question

89

A company acquires a patent for a drug with a remaining legal and useful life of six years on January 1,
2009 for $1,800,000. The company uses straight-line amortization for patents. On January 2, 2011, a new
patent is received for a timed-release version of the same drug. The new patent has a legal and useful life of
twenty years. The least amount of amortization that could be recorded in 2011 is

$60,000.

$81,818.

$69,000.

$300,000.

Multiple Choice, Question

103
Jenkins Corporation has $2,500,000 of short-term debt it expects to retire with proceeds from the sale of
75,000 shares of common stock. If the stock is sold for $20 per share subsequent to the balance sheet date,
but before the balance sheet is issued, what amount of short-term debt could be excluded from current
liabilities?

$0

$1,500,000

$2,500,000

$1,000,000

Multiple Choice, Question

40

An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase
of the bonds between interest dates. At the time of reacquisition

any costs of issuing the bonds must be amortized up to the purchase date.

the premium must be amortized up to the purchase date.

interest must be accrued from the last interest date to the purchase date.

All of these.

Multiple Choice, Question

24

Corporations issue convertible debt for two main reasons. One is the desire to raise equity capital that,
assuming conversion, will arise when the original debt is converted. The other is
 the fact that equity capital has issue costs that convertible debt does not.

that many corporations can obtain financing at lower rates.

that convertible bonds will always sell at a premium.

the ease with which convertible debt is sold even if the company has a poor credit rating.

Multiple Choice, Question 42

Which of the following best describes a possible result of treasury stock transactions by a corporation?

May decrease but not increase retained earnings.

May increase net income if the cost method is used.

May increase but not decrease retained earnings.

May decrease but not increase net income.

Multiple Choice, Question

49

When a business enterprise enters into what is referred to as off-balance-sheet financing, the company

is in violation of generally accepted accounting principles.

wishes to confine all information related to the debt to the income statement and the statement of
cash flow.

is attempting to conceal the debt from shareholders by having no information about the debt included
in the balance sheet.
 can enhance the quality of its financial position and perhaps permit credit to be obtained more readily
and at less cost.

Multiple Choice, Question 35

The date on which to measure the compensation element in a stock option granted to a corporate employee
ordinarily is the date on which the employee

has performed all conditions precedent to exercising the option.

exercises the option.

may first exercise the option.

is granted the option.

Multiple Choice, Question

69

Noncumulative preferred dividends in arrears

are not paid or disclosed.

are disclosed as a liability until paid.

are paid to preferred stockholders if sufficient funds remain after payment of the current preferred
dividend.

must be paid before any other cash dividends can be

distributed.

Multiple Choice, Question 95

Cortez Company issues $5,000,000 face value of bonds at 96 on January 1, 2009. The bonds are dated
January 1, 2009, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years.
Straight-line amortization is used for discounts and premiums. On September 1, 2012, $3,000,000 of the
bonds are called at 102 plus accrued interest. What gain or loss would be recognized on the called bonds on
September 1, 2012?

$300,000 loss

$136,000 loss

$180,000 loss

$226,667 loss

Multiple Choice, Question

123

In 2010, Hobbs Corp. acquired 9,000 shares of its own $1 par value common stock at $18 per share. In
2011, Hobbs issued 4,000 of these shares at $25 per share. Hobbs uses the cost method to account for its
treasury stock transactions. What accounts and what amounts should Hobbs credit in 2011 to record the
issuance of the 4,000 shares?

Treasury Additional Retained Common

Stock Paid-in Capital Earnings Stock
  $68,000 $28,000 $4,000

  $96,000   $4,000

$72,000   $70,000  

$72,000 $28,000  

Multiple Choice, Question 51

On December 1, 2010, Lester Company issued at 103, two hundred of its 9%, $1,000 bonds. Attached to
each bond was one detachable stock warrant entitling the holder to purchase 10 shares of Lester's common
stock. On December 1, 2010, the market value of the bonds, without the stock warrants, was 95, and the
market value of each stock purchase warrant was $50. The amount of the proceeds from the issuance that
should be accounted for as the initial carrying value of the bonds payable would be
 $193,640.

$200,000.

$206,000.

$195,700.

Multiple Choice, Question

75

Capitalized costs incurred while developing computer software to be sold should be amortized using the:

lower of the percent-of-revenue method or the percent-of-completion method.

higher of the percent-of-revenue method or the percent-of-completion method.

higher of the straight-line method or the percent-of-revenue method.

lower of the straight-line method or the percent-of-revenue method.

Multiple Choice, Question 52

Which of the following is a condition for accruing a liability for the cost of compensation for future absences?

The obligation relates to the rights that vest or accumulate.

Payment of the compensation is probable.

The obligation is attributable to employee services already

performed.
 All of these are conditions for the accrual.

Multiple Choice, Question

62

On January 1, 2010, Ellison Co. issued eight-year bonds with a face value of $1,000,000 and a stated
interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%.
Table values are:

Present value of 1 for 8 periods at 6% 0.627

Present value of 1 for 8 periods at 8% 0.540
Present value of 1 for 16 periods at 3% 0.623
Present value of 1 for 16 periods at 4% 0.534
Present value of annuity for 8 periods at 6% 6.210
Present value of annuity for 8 periods at 8% 5.747
Present value of annuity for 16 periods at 3% 12.561
Present value of annuity for 16 periods at 4% 11.652

The issue price of the bonds is

$883,560

$999,600

$884,820

$889,560

Multiple Choice, Question

39

"Gains" on sales of treasury stock (using the cost method) should be credited to

other income.

capital stock.
 retained earnings.

paid-in capital from treasury stock.

Multiple Choice, Question

44

The reason goodwill is sometimes referred to as a master valuation account is because

the value of a business is computed without consideration of goodwill and then goodwill is added to
arrive at a master valuation.

it is the difference between the fair market value of the net tangible and identifiable intangible assets
as compared with the purchase price of the acquired business.

it is the only account in the financial statements that is based on value, all other accounts are
recorded at an amount other than their value.

it represents the purchase price of a business that is about to be sold.

Multiple Choice, Question 26

If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest
expense in the earlier years will be

less than if the straight-line method were used.

greater than the amount of the interest payments.

greater than if the straight-line method were used.

the same as if the straight-line method were used.

Multiple Choice, Question

84
Sosa Co.'s stockholders' equity at January 1, 2010 is as follows:

Common stock, $10 par value; authorized 300,000 shares;  

Outstanding 225,000 shares $2,250,000
Paid-in capital in excess of par 900,000
Retained earnings 2,190,000
Total $5,340,000

During 2010, Sosa had the following stock transactions:

Acquired 6,000 shares of its stock for $270,000.

3,600 treasury shares at $50 a share.
Sold the remaining treasury shares at $41 per share.

No other stock transactions occurred during 2010. Assuming Sosa uses the cost method to record treasury
stock transactions, the total amount of all additional paid-in capital accounts at December 31, 2010 is

$891,600.

$927,600.

$908,400.

$870,000.

Multiple Choice, Question

90

Glaus Corp. signed a three-month, zero-interest-bearing note on November 1, 2010 for the purchase of
$150,000 of inventory. The face value of the note was $152,205. Assuming Glaus used a “Discount on Note
Payable” account to initially record the note and that the discount will be amortized equally over the 3-
month period, the adjusting entry made at December 31, 2010 will include a

debit to Interest Expense for $1,470.

credit to Interest Expense for $1,470.

credit to Discount on Note Payable for $735.

debit to Discount on Note Payable for $735.