QUESTION 1

1. A company issues 100,000 shares of common stock and 10,000 shares

of preferred stock with a $2 cumulative dividend. In the first year, no
dividends are paid or declared. Which of the following statements are
true ?
By not paying the cumulative dividend, the company will be forced
into bankruptcy within 90 days of the beginning of the new year
The company should report a $20,000 liability on its year-end
balance sheet
All dividends in arrears on the preferred stock must be paid before
any dividends can be paid on common stock
The preferred stockholders are guaranteed to receive this $20,000
at some point in the future
2.862 points
QUESTION 2
1. A company declares a cash dividend on its common stock on
December 24, Year One, payable to owners of record on January 2,
Year Two, with checks to be mailed on January 9, Year Two. Which of
the following statements is true ?
Both the revenue and the dividend paid will be recorded by the two
companies on January 9, Year Two when payment is made
This dividend is recorded by the company as an operating expense
on its income statement
The company will have a liability on its December 31, Year One
balance sheet and the owners will record a receivable on their
December 31, Year One balance sheet
The owners will record the revenue from this transaction in Year
Two but the company will record the effect of the dividend in Year
One
2.857 points
QUESTION 3
1. The Mills Corporation was started several years ago and incorporated
in the state of Delaware. The company was granted the authorization
to issue 250,000 shares of $10 per share par value common stock. At
that time, 30,000 shares were issued for cash of $12 per share. Last
year, another 10,000 shares were issued for cash of $19 per share.
Early in the current year, the company issued 12,000 shares of this
common stock as a stock dividend when the fair value was $30 per
share. For the 52,000 shares that are now outstanding, what amount
should be reported in stockholders’ equity as additional paid-in capital ?
$220,000
$390,000
 $310.000
$150,000
2.857 points
QUESTION 4
1. The Larson Company has 100,000 shares of $10 par value common
stock outstanding that was originally issued for $18 per share. In the
current year, when the price of this stock increased to $60 per share,
the company's board of directors issued a two-for-one stock split. The
price of the stock immediately fell to $30 per share. By what amount
should the company reduce its Retained Earnings balance as a result
of this split ?
$1,000,000
$3,000,000
$6,000,000
-0-
2.857 points
QUESTION 5
1. The Lara Company has 100,000 shares of common stock outstanding
with a $10 per share par value. In addition, the company has 30,000
shares of preferred stock outstanding with a $100 par value. On this
preferred stock, there is a 5 percent annual dividend that is cumulative.
No dividend is paid on the preferred stock during Year One. Which of
the following statements is true ?
The company has to report an amount within stockholders equity
for this $150,000.
The company has to report a current liability of $150,000
The company must disclose information about the nature of this
missed dividend
The company has to report a noncurrent liability of $150,000
2.857 points
QUESTION 6
1. A company is started in Year One and has 100,000 shares of common
stock authorized with a par value of $10 per share. The company
issues 20,000 shares of this stock for $21 per share in Year One and
another 10,000 shares for $24 per share in Year Two. What is recorded
in the company's Common Stock account at the end of Year Two ?
$660,000
$240,000
$300,000
$1,000,000
 2.857 points
QUESTION 7
1. The Monroe Corporation has 100,000 common shares issued and
outstanding. This stock was issued several years ago at a price above
the $10 per share par value. During the current year, the board of
directors declared a 30 percent stock dividend so that 30,000 new
shares were issued to the stockholders when the price of the stock was
$30 per share. As a result of this dividend, what reduction was
recorded in the reported amount of retained earnings ?
$900,000
$300,000
-0-
$600,000
2.857 points
QUESTION 8
1. A company issues 10,000 shares of $10 par value common stock for
$22 in cash per share. Later, the company buys back 1,000 shares of
this stock for the same $22 per share and records it using the par
value method. Subsequently, the company sells 100 shares of this
treasury stock for $23 per share. What should the company report as
additional paid-in capital in the stockholders' equity section of its
balance sheet ?
$109,300
$120,000
$121,300
$108,100
2.857 points
QUESTION 9
1. A company issues 10,000 shares of its own $10 par value common
stock to the public for $19 per share. Later, 1,000 of these shares are
bought for $21 per share as treasury stock. Which of the following
statements is true ?
Losses on the resale of these shares would impact reported net
income for the year although gains would not
The cost of the treasury stock is reported by the company as an
asset on its balance sheet
The par value method and the cost method have the same total
impact on stockholders equity
Because this is a stock transaction, retained earnings cannot be
affected by a re-issuance of these shares
2.857 points
QUESTION 10
1. The board of directors for the Carson Corporation declares a $1 per
share cash dividend on April 1, Year One, to be paid to owners of
record on April 17, Year One, with the checks being distributed on April
29, Year One. Prior to April 1, the company had issued 100,000 shares
of common stock but held 10,000 treasury shares. Another 10,000
shares were repurchased on April 4, Year One. What is the decrease in
retained earnings created by this dividend ?
-0-
$80,000
$90,000
$100,000
2.857 points
QUESTION 11
1. The Anna Company has 100,000 shares of common stock outstanding
with a $10 per share par value. In addition, the company has 20,000
shares of preferred stock outstanding with a $100 par value. On this
preferred stock, there is a 4 percent annual dividend that is cumulative.
What does the term "cumulative" mean in this situation ?
The preferred stock dividend must be paid each year
If the preferred stock dividend is not paid in one year, an additional
(or penalty) dividend must be paid in the subsequent period
If the preferred stock dividend is not paid in one year, it must be
paid the following year.
The current and any missed dividends must be paid on the
preferred stock shares before any dividends can be paid to the
owners of the common stock
2.857 points
QUESTION 12
1. The Mulieri Company was authorized to issue 100,000 shares of
common stock with a $10 par value. The company issued 30,000
shares for cash of $15 per share. Later, when the shares were selling
for $20 per share on a stock exchange, the company issued another
9,000 shares as a stock dividend. Which of the following statements is
true about the recording of the stock dividend ?
The total amount of stockholders’ equity is not effected but retained
earnings is reduced by $180,000
Stockholders’ equity is reduced by $180,000 and retained earnings
is also reduced by $180,000
The total amount of stockholders’ equity is not affected but retained
earnings is reduced by $90,000
 Stockholders’ equity is reduced by $90,000 and retained earnings
is reduced by $135,000
2.857 points
QUESTION 13
1. The Parson Company has 100,000 common shares issued and
outstanding. This stock was issued several years ago at a price above
the $10 per share par value. During the current year, the board of
directors declared a 10 percent stock dividend so that 10,000 new
shares were issued to the stockholders when the price of the stock was
$24 per share. As a result of this dividend, what reduction was
recorded reduction in total stockholders' equity ?

$100,000
$140,000
$240,000
-0-
2.857 points
QUESTION 14
1. A company issues 10,000 shares of $10 par value common stock for
$23 in cash per share. Later, the company buys back 1,000 shares of
this stock for $25 per share and records it using the cost method.
Subsequently, the company sells 100 shares of this treasury stock for
$26 per share. What should the company report as additional paid-in
capital in the stockholders' equity section of its balance sheet ?
$130,10
$118,500
$117,000
$130,000
2.857 points
QUESTION 15
1. The initial number of authorized shares specified in the company’s
articles of incorporation is 25,000 shares of $10 par value per share
common stock. A few weeks later, the company issues 10,000 shares
of this common stock for $26 in cash per share. Later, the company
buys back 1,000 shares of this stock for the same $26 per share and
retires these shares. What is reported in this company's balance sheet
in its Common Stock account ?
$90,000
$74,000
$100,000
$250,000
 2.857 points
QUESTION 16
1. The XYZ partnership has inventory (book value of $200,000 and fair
value of $220,000) and fixed assets (book value of $800,000 and fair
value of $880,000). It has no other assets. The partnership also has
liabilities with both a book value and fair value of $300,000.
Partnership capital is recorded as $700,000. The three partners are
currently incorporating this business and plan to issue 10,000 shares
of $10 par value common stock to each individual. In setting up the
opening account balances for the new corporation, what should be
reported as additional paid-in capital ?
$100,000
$500,000
$400,000
Zero
2.857 points
QUESTION 17
1. The board of directors for the Blank Corporation declares a $1 per
share cash dividend on April 1, Year One, to be paid to owners of
record on April 17, Year One, with the checks being distributed on April
29, Year One. Prior to April 1, the company had issued 100,000 shares
of common stock but held 10,000 treasury shares. Another 10,000
shares were repurchased on April 25, Year One. On what date should
the company decrease its working capital as a result of this dividend ?
April 29, Year One
April 17, Year One
April 1, Year One
April 25, Year One
2.857 points
QUESTION 18
1. A company has both common stock authorized and preferred stock
authorized. What is the basic difference between these two types of
ownership interest ?
Common stock has a set dividend rate but preferred stock does not
The owners of common stock have rights that are set by the state
of incorporation whereas the owners of preferred stock have rights
that are set by the stock contract
The owners of common stock have voting rights whereas the
owners of preferred stock do not have voting rights
Common stock has a par value but preferred stock does not
2.857 points
QUESTION 19
1. A company ends each year with the following deferred balances:
20X1 20X2
Deferred income tax liability, noncurrent $40,000 $59,000
Deferred income tax asset, noncurrent $18,000 $17,000
3.
There is a valuation allowance on the deferred asset for $6,000 at the
end of 20X1 but there is no similar balance at the end of 20X2. On
its 20X2 income statement, what is reported as Income Tax Expense-
Deferred ?
4.
5.
$9,000
$14,000
$23,000
$18,000
2.857 points
QUESTION 20
1. In Year One, a company has revenues of $500,000 and expenses of
$300,000. Of the expenses, $50,000 represents a warranty on a
company product. However, the company only paid $10,000 as a result
of this warranty. The remainder is expected to be paid in a future year
in which company officials believe there is a 46 percent chance that
the company will have taxable income to be reduced by this warranty
cost. The enacted tax rate is 30 percent for Year One and 32 percent
in periods after that. What is the total amount of income tax expense to
be recognized in Year One ?
$72,000
$59,200
$60,000
$59,000
2.857 points
QUESTION 21
1. The FGCC Company had an enacted income tax rate of 28 percent.
The company ended Year One with a deferred income tax liability of
$40,000, a deferred income tax asset of $50,000 and a valuation
allowance of $19,000. The enacted tax rate was raised at the start of
Year Two to 30 percent. The company ended Year Two with a deferred
income tax liability of $70,000, a deferred income tax asset of $40,000,
and a valuation allowance of $24,000. On the company’s Year Two
 income statement, what is the amount of income tax expense
(deferred) that is reported ?
$15,000
$25,000
$45,000
$35,000
2.857 points
QUESTION 22
1. At the end of Year One, a company has an enacted tax rate of 30
percent. During Year One, the company reported a $110,000 gain for
financial reporting purposes that would not be taxed until Year Two.
Then, during Year Two, the company earned another gain, this one for
$180,000, that would not be taxed until Year Three. Near the end of
Year Two, Congress changed the enacted tax rate from 30 percent to
36 percent. On its Year Two income statement, what amount should be
reported as the company's income tax expense-deferred ?
$31,800
$39,600
$33,000
$64,800
2.857 points
QUESTION 23
1. The Lancaster Corporation reports net income for Year One of
$600,000. Within that income, a $50,000 expense cannot be taken
legally as a tax deduction. Of the company's revenues, $60,000 will not
be taxed until Year Two while a final $70,000 will be taxed in Year
Three. The enacted tax rate for Years One and Two is 27 percent.
After that, the enacted tax rate is 30 percent. On the company's Year
One income statement, what is the total amount reported as income tax
expense for the year ?
$150,600
$175,500
$155,500
$177,600
2.857 points
QUESTION 24
1. Which of the following is a temporary tax difference that typically
results in the recognition of a deferred income tax asset ?
Use of the installment sales method for tax purposes
Depreciation expense
 Expenses incurred due to the violation of federal laws
Rent revenue collected in advance
2.857 points
QUESTION 25
1. A deferred tax liability may result from which of the following items ?
Depreciation of tangible assets
Life insurance proceeds received on the death of key employees
Penalties paid for legal violations
Interest on municipal bonds
2.857 points
QUESTION 26
1. A company ends Year One with a noncurrent deferred income tax
liability of $42,000 and a noncurrent deferred income tax asset of
$45,000. The noncurrent asset also has a valuation allowance of
$4,000.
On its Year One balance sheet, what is shown for deferred income
taxes
A $42,000 deferred liability and a $41,000 deferred asset
A $1,000 deferred income tax liability
A deferred income tax liability—noncurrent of $26,000, a
deferred income tax asset—noncurrent of $14,000, a
deferred income tax liability—current of $16,000, and a
deferred income tax asset—current of $27,000
A $12,000 deferred liability-noncurrent and a $11,000
deferred asset-current
2.857 points
QUESTION 27
1. Which of the following creates a temporary tax difference in the
recognition of deferred income taxes ?
Use of the installment sales method for tax reporting purposes
The collection of life insurance on the death of an
individual
The receipt by a corporation of cash dividends from
another domestic corporation
The payment of federal income taxes
2.857 points
QUESTION 28
1. At the end of Year One, Omaka Corporation is preparing its balance
sheet. Depreciation of the company's equipment has created a
$200,000 temporary difference for tax purposes. Because of the large
 amount of depreciation that was deducted this year for tax purposes,
the company will have a $150,000 smaller deduction in Year Two than
for financial reporting and a $50,000 smaller deduction in Year Three.
Omaka also has a second temporary difference. This one is also
for $200,000 but results from a warranty that was given out to
customers. In Year Two, Omaka expects to have $140,000 more
warranty expense for tax purposes than for financial reporting. In
Year Three, the warranty for tax purposes is expected to be
$60,000 higher than for financial reporting.
Assume a tax rate of 20 percent. What is reported for deferred taxes
on the company's balance sheet
A current deferred income tax asset of $28,000 is reported as well
as a noncurrent deferred income tax liability of $28,000
Nothing is reported because the amounts offset each other
A current deferred income tax asset of $2,000 is reported as well
as a noncurrent deferred income tax liability of $2,000
A current deferred income tax asset of $40,000 is reported as well
as a noncurrent deferred income tax liability of $40,000
2.857 points
QUESTION 29
1. A publicly-owned company reports net income of $900,000 and pays a
$200,000 dividend on its common stock and a $100,000 dividend on its
preferred stock. The company started the year with 20,000 shares of
preferred stock outstanding but issued an additional 8,000 shares on
July 1. The company started the year with 100,000 shares of common
stock outstanding but issued an additional 20,000 shares on July 1.
The company had nothing outstanding during the year that could be
converted into common stock. What should be reported as earnings per
share ?
$5.45
$6.72
$7.27
$5.00
2.857 points
QUESTION 30
1. The Pacioli Corporation reports net income for Year One of $800,000.
The company had 155,000 shares of common stock outstanding for the
entire year as well as 90,000 shares of preferred stock. The common
stock was paid $1 per share as a dividend while the preferred
shareholders received $2 per share. The common stock had an
average price for the year of $40 per share while the preferred stock
had an average price of $60 per share. The company also had 20,000
stock options outstanding for the year. For $10, each option could be
 converted into a share of common stock. The effective tax rate is 25
percent. What should the company report as its diluted earnings per
share (rounded) for Year One ?
$3.81
$3.77
$3.54
$3.65
2.857 points
QUESTION 31
1. The Simmons Company started the year with 20,000 shares of common
stock outstanding. On May 1, a 10 percent stock dividend was issued
to the shareholders. Finally, on October 1, another 8,000 shares were
issued to the public so that the company finished the year with 30,000
shares outstanding. If the company reported net income for the year of
$100,000, what should be reported as basic earnings per share ?
$4.00
$4.17
$4.20
$4.13
2.857 points
QUESTION 32
1. A company reports net income in the current year of $600,000. During
the year, the company declares and pays $20,000 in cash dividends on
its common stock and $80,000 in dividends on its convertible preferred
stock. The company has 20,000 shares of the preferred stock
outstanding all year and each is convertible into three shares of
common stock. The company starts the year with 170,000 shares of
common stock outstanding. On July 1 of that year, 20,000 additional
shares of common stock were issued as a stock dividend so that the
company had 190,000 shares for the last six months of the year. What
should the company report as its basic earnings per share figure
(rounded) ?
$2.89
$2.74
$2.63
$2.78
2.857 points
QUESTION 33
1. Officials for the Lexington Company are preparing financial statements
for Year One. The company is reporting net income of $900,000. The
company had 100,000 shares of common stock outstanding at the
 beginning of the year but a stock split on October 1 doubled that
number to 200,000. In the previous year, the company issued 10,000
convertible bonds with a face value of $1,000 each that will come due
in ten years. Each bond is convertible into 15 shares of common stock
(adjusted for the stock split). These bonds pay 4 percent interest but
were sold for 93 percent of face value to generate a higher interest
rate for the buyers. The tax rate for the company is assumed to be 30
percent. The bond discount is being amortized by the straight-line
method. What should the company report as its diluted earnings per
share (rounded)?
$3.55
$3.81
$3.67
$3.51
2.857 points
QUESTION 34
1. The Pfeiffer Corporation reports net income in the current year of
$800,000. Pfeiffer had a nonconvertible preferred stock paying $70,000
in cash dividends. Another $2.00 per share in dividends was paid to
the common stockholders. There are 190,000 shares of this common
stock outstanding throughout the year. In addition, the company has
20,000 stock options outstanding. For $2, each option can be
converted into one share of common stock. The average price of the
stock during the year was $8. The company has an effective tax
income rate of 20 percent. What is Pfeiffer's diluted earnings per share
(rounded) ?
$3.76
$3.68
$3.48
$3.56
2.857 points
QUESTION 35
1. The Johnson Company is computing diluted earnings per share for the
current year. The company has convertible bonds outstanding that
have been judged as being anti-dilutive. What is the significance of
anti-dilution ?
The bonds must be included in the computation of diluted earnings
per share
Inclusion of the bonds in the computation will cause the reported
figure to increase so that the potential conversion of the bonds
should be excluded
Inclusion of the bonds in the computation must be made using the
most conservative method
Because of the high rate of interest on these bonds, the impact
must be separately disclosed within the computation