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Financial Accounting and Tax 

During the calendar year 2013, a company holds tax-free municipal bond investments and earns $50,000 in interest. On January 1, 2014, the company sells those municipal bonds for a $20,000 capital gain.

Which tax result follows from this situation?

A $20,000 temporary tax difference for calendar year 2013 and a $50,000 permanent tax difference for calendar year 2014

A $50,000 permanent tax difference for calendar year 2013

A $20,000 permanent tax difference for calendar year 2013 and a $50,000 temporary tax difference for calendar year 2014 

A $50,000 temporary tax difference for calendar year 2013

 

(SHOW WORK) A company has deferred taxes for 2012,20 13,and 2014.The tax rates are 20% for 2012 and 30% for 2013 and 2014.The future taxable amounts are $10,000 for 2012,$20,000 for 2013,and 40,000 for 2014.

What is the total deferred tax liability for 2011?

$16,000

$18,000

$20,000

$21,000

 

(SHOW WORK) A company earns a profit of $50,000 in 2011, $80,000 in 2012, and $90,000 in 2013. The company pays $15,000 in taxes in each of those three years. In 2014, the company has a net operating loss of $300,000.

How much can be carried forward in this situation?

$80,000

$130,000 

$255,000

$270.000

(SHOW WORK) A company leases equipment with a fair market value of $250,000, an economic life of 6 years, and no residual value. The lease term is 6 years with a 6% yield.

6% Table        PV of 1                        PV Annuity Due

Year 4             0.79209           3.67301

Year 5             0.74726           4.46511

Year 6             0.70496           5.21236

What is the amount of the lease payment per year, assuming payments are made at the beginning of each year?

$41,667

$47,963

$55,990

$68,064

A firm’s retirement plan does not guarantee employees a specific amount will be saved for the employee each year, but the firm does guarantee that employees will receive an annual income of $25,000 upon retirement after working for the company for 10 years.

Which type of plan is this?

A defined benefit plan since the employees receive a defined amount of income at retirement

A defined contribution plan since the company agrees to contribute $25,000 annually after retirement, regardless of the upfront investment by the firm

A defined contribution plan since the employees are guaranteed a defined contribution to income at retirement

A defined benefit plan since the company invests a flat amount in all employee retirement plans regardless of length of service

 

(SHOW WORK) The balances in selected accounts are as follows:

Accounts Receivable              $10,000

Credit Sales                                        $150,000

Cost of Goods Sold                            $52,000

Sales and Administrative Expenses   $33,000

Interest Earned                                   $3,000

Bad debts are estimated at 3% using the percent of sales method. There is a $300 credit balance in the Allowance for Bad Debt account before the adjusting entry is calculated.

What is the amount of Bad Debt expense?

S300

$4,200

$4,500

$4,800

(SHOW WORK) A sale of $10,000 is made with the terms 2/15, net 60.

What is the total amount owed?

$8,500 if paid within 2 days

$9,800 if paid within 60 days

$8,500 if paid within 15 days

$9,800 if paid within 15 days

 

(SHOW WORK) A company adopts the dollar-value LIFO method on December 31, 2012.Inventory at current prices on December 31, 2012, is $50,000, while the inventory at end-of -year prices on December 31, 2013, is $60,000. Price level increase during 2013 was 15%.

What is the ending inventory value at LIFO cost on December 31, 2013?

$52,174

$52,500

$57,375

$57,500

(SHOW WORK) A firm purchases a machine that has a total cash cost of $16,500.Of this cost, $500 is sales tax,$700 is shipping fees, and $1,200 is for supplies for a trial run of the machine. In addition to the cost of $16,500, the firm spends $1,000 in labor costs to set up the machine. The firm also receives a $2,500 credit from the supplier toward the purchase price of the machine by trading in old equipment that has a book value of $3,000.

How much will the Net PPE increase as a result of this transaction?

$16,000

$17,000

$17,500

$19,400

(SHOW WORK) A company issues a bond on March 1 at par and receives proceeds of $500,000 and the accrued interest. The bond carries a coupon rate of 6% and is issued at par. Interest on the bond is payable semiannually on dates of May 1 and November 1 of each year.

How should the firm record this transaction at issuance in its interest payable account?

Debit $5,000

Credit $5,000

Debit $10,000

Credit $10,000

(SHOW WORK) On January 1, 2012, Company A agrees to lend $20,000 to Company B in exchange for a 25%, six-month note. Company B pays back the note in full on July 1, 2012.

Which journal entry is correct for Company B on July 1, 2012?

Cash                $22,500           

Notes Payable                         $20,000

Interest Expense                     $2,500

Cash                $20,000

Notes Payable                         $20,000

Notes Payable    $20,000

Interest Expense $2,500

Cash                                        $22,500

Notes Payable $20.000

Cash                                        $20,000

 

On January 1, 2015, a company issues a statement that it will pay $2,000 cash dividend to shareholders on March 1, 2015.

Which journal entry is made on March 1, 2015?

Cash                   $2,000

Dividend Payable       $2,000

Cash                  $2,000

Dividend Expense      $2,000

Dividend Expense $2,000

Dividend Payable       $2,000

Dividend Payable $2,000

Cash                            $2,000

A leasing company leases an apartment to a tenant for three months. The lease begins on October 1, 2014, and ends on December 31, 2014. The lease is for $3,000, and the tenant pays the money up front.

Which journal entry is needed for the leasing company on November 30, 2014?

DR Cash $1000

CR Rental Revenue $1000

DR Rental Revenue $1000

CR Cash $1000

DR Unearned Revenue $1000 

CR Rental Revenue $1000

DR Rental Revenue $1000

CR unearned Revenue $1000

(SHOW WORK) Company A holds a 2-year note issued by Company B with a face value of $100,000 and a present value of $85,000. Company B will pay Company A 5% interest annually with principal payment at maturity.

What is the imputed interest rate in this situation?

2.82%

5.00%

14.12%

23.53%

(SHOW WORK) A company signs a 3-year, $8,000, zero interest-bearing note payable to purchase equipment. The rate implicit in the note is 5%

Given the following information:

Present Value of 1:

n = 3, i= 5       0.86384

n = 5, i= 3       0.86261

Present Value of Ordinary Annuity of 1:

n = 3, i= 5       2.72325

n = 5, i= 3       4.57971

What is the book value of the notes payable immediately after the purchase?

$6,901

$6,911

$8,000

$21,786

(SHOW WORK) A corporation has one million shares of authorized $2 par value common stock. The corporation issues 10,000 of the shares when the market price is $10 per share in exchange for cash and land that is appraised at $50,000.

Which journal entry is correct for this stock issuance?

Land    50,000

Cash    50,000

Common Stock                                   100,000

Common Stock           100,000           

Cash                50,000 

Land                                        50,000

Land    50,000

Cash    50,000 

Common Stock                                   20,000

Paid in Capital in Excess of Par         80,000

Land    50,000 

Cash    100,000           

Common Stock                                   20,000

Paid in Capital in Excess of Par         130,000

(SHOW WORK) A 35% stock dividend was declared on October 2 to shareholders of record on October 20,payable on November 10.The closing market price of the stock on October 2 was $18.The corporation currently has the following items on its stockholders’ equity section:

Common Stock ($2 Stated Value)       $2,000,000

Paid in Capital in Excess of Stated Value       $3,000,000

Retained Earnings                                $4,000,000

Total Stockholders’ Equity                  $9,000,000

Which journal entry would be recorded on the declaration date of the stock dividend?

DR Common Stock Dividends Distributable 700,000

CR Paid in Capital in Excess of Stated Value           700,000

DR Retained Earnings                                                700,000

CR Common Stock Dividends Distributable 700,000

DR Retained Earnings                                                700,000

CR Paid in Capital in Excess of Stated Value           700,000

DR Retained Earnings                                                700,000

CR Common Stock                                         700,000

(SHOW WORK) On January 1, a company issues options for 10,000 shares of stock to its CEO. The options vest immediately, with an exercise price of $15 per share and a fair market value of $7 per share on January 1. By December 31, this fair market value increases to $9 per share. The CEO elects not to exercise the options in the current year, but continues to hold them into the next year.

What effect will the options grant have on the firm’s balance sheet at year-end?

Increase paid-in capital by $10,000

Increase paid-in capital by $70,000

Increase paid-in capital by $90,000

Increase paid-in capital by $150,000

 

On May 15, the board of directors of a corporation declared $100,000 for the annual dividend payment to shareholders of record on May 31 payable on June 10.The corporation currently has the following items on its stockholders’ equity section:

Common Stock ($10 Stated value)    1,000,000

Which journal entry should be included on the date of declaration for the total cash dividend? 

DR Retained Earnings            100,000

CR Dividend Payable 100,000

DR Common Stock    100,000

CR Dividend Payable 100,000           

DR Dividend Payable 100,000

CR Common Stock     100, 000          

DR Dividend Payable 100,000

CR Cash                                  100,000

(SHOW WORK) 

Beginning Retained Earnings Balance          $250,000

Cash Dividends                                              $50,000

Stock Dividends                                             $25,000

Net Income                                                     $115,000

What is the ending retained earnings balance?

$290,000

$315,000

$365,000

$390,000

(SHOW WORK) A company purchases three different investments in a lump-sum transaction for a total of $52,000. The fair market values of the investments are as follows:

Investment A $20,000

Investment B $25,000

Investment C $30,000

At which amount should Investment C be recorded?

$7,000

$20,800

$25,000

$30,000

(SHOW WORK) A company has 2 million shares of stock outstanding and options issued for an additional 500,000 shares of stock. The exercise price of the option is above the current fair market value of the stock. The company has income from continuing operations of $6 million. The company also has a loss from discontinued operations of $1 million.

What are the company’s fully diluted earnings per share?

$2.00

$2.40

$2.50

$3.00