Intermediate Accounting Quiz 1 ACCT 311 Fall 2017

Intermediate Accounting Iiquiz 1acct 311 7982 Fall 2017professor

Intermediate Accounting II Quiz #1 Acct ), Fall, 2017 Professor: Leon Hutton, CPA, CGFM, MBA, MA Student: _____________________ Due: Sunday, November 12, 2017 by 11pm (EST) Administrative Notes: · This quiz is open book & open notes, a calculator should be used. · Write, print or type directly on this quiz · you may present your answers in a Word, excel or pdf file. · Show your work, in good form, where applicable for full credit –even for the multiple choice questions, show your work (points deducted for not showing computations) · You may not discuss this quiz with classmates or other students – our UMUC Honor Code prevents you from obtaining outside or classmate assistance – contact me with any questions or concerns in this matter. · Work the questions carefully, take your time, do not rush, go back and check your work, keep track of the due date and time – · Scan your answers into 1 document (pdf, Word, Excel, etc) and submit in the Quiz 1 section. · Out of fairness to the students who complete and submit the quiz on time, I will have to assess grade penalties for late submission. The absolute latest you can submit this quiz is Tuesday, November 14. This quiz consists of the following: Component Points 20 multiple choice questions - 4 points each. 80 Problems 1 to 4 are worth 5 points each for a total of 20 points. 20 Total Points 100 MULTIPLE CHOICE. 1. Which of the following is generally associated with payables classified as accounts payable? Periodic Payment Secured of Interest by Collateral a. No No b. No Yes c. Yes No d. Yes Yes 2. On January 1, 2018, Fiorenza Co. leased a building to Cedar Corp. for a ten-year term at an annual rental of $80,000. At inception of the lease, Fiorenza received $320,000 covering the first two years' rent of $160,000 and a security deposit of $160,000. This deposit will not be returned to Cedar upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $320,000 should be shown as a current and long-term liability, respectively, in Fiorenza’s December 31, 2018 balance sheet? Current Liability Long-term Liability a. $0 $320,000 b. $80,000 $160,000 c. $160,000 $160,000 d. $160,000 $80,. On September 1, 2017, Demich Co. issued a note payable to National Bank in the amount of $2,400,000, bearing interest at 12%, and payable in three equal annual principal payments of $800,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal is scheduled for September 1, 2018. At December 31, 2017, Demich should record accrued interest payable of a. $58,000. b. $54,000. c. $64,000. d. $96, Carlock Company’s salaried employees are paid biweekly. Occasionally, advances made to employees are paid back by payroll deductions. Information relating to salaries for the calendar year 2017 is as follows: 12/31/16 12/31/17 Employee advances $12,000 $ 18,000 Accrued salaries payable 75,000 ? Salaries expense during the year 650,000 Salaries paid during the year (gross) 625,000 At December 31, 2017, what amount should Carlock report for accrued salaries payable? a. $100,000. b. $84,000. c. $92,000. d. $55,000. 5. Close Co. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to unearned service contract revenues. This account had a balance of $480,000 at December 31, 2015 before year-end adjustment. Service contract costs are charged as incurred to the service contract expense account, which had a balance of $120,000 at December 31, 2015. Outstanding service contracts at December 31, 2015 expire as follows: During 2016 During 2017 During 2018 $100,000 $160,000 $70,000 What amount should be reported as unearned service contract revenues in Close’s December 31, 2015 balance sheet? a. $360,000. b. $330,000. c. $240,000. d. $220,000. 6. Camacho Trading Stamp Co. records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Camacho’s past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Camacho’s liability for stamp redemptions was $7,500,000 at December 31, 2015. Additional information for 2016 is as follows: Camacho Trading Stamp service revenue from stamps sold to licensees $5,000,000 Cost of redemptions $3,400,000 If all the stamps sold in 2015 were presented for redemption in 2016, the redemption cost would be $2,500,000. What amount should Camacho report as a liability for stamp redemptions at December 31, 2016? a. $9,100,000. b. $6,600,000. c. $6,100,000. d. $4,100,000. Use the following information for questions 7 and 8: On January 1, 2016, Daley 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% .627 Present value of 1 for 8 periods at 8% .540 Present value of 1 for 16 periods at 3% .623 Present value of 1 for 16 periods at 4% .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.. The present value of the principal is a. $534,000. b. $540,000. c. $623,000. d. $627,000. 8. The present value of the interest is a. $344,820. b. $349,560. c. $372,600. d. $376,830. 9. The term used for bonds that are unsecured as to principal is a. junk bonds. b. debenture bonds. c. indebenture bonds. d. callable bonds. 10. Best, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that a. the effective yield or market rate of interest exceeded the stated (nominal) rate. b. the nominal rate of interest exceeded the market rate. c. the market and nominal rates coincided. d. no necessary relationship exists between the two rates. 11. The rate of interest actually earned by bondholders is called the a. stated rate. b. yield rate. c. effective rate. d. effective, yield, or market rate. 12. In a corporate form of business organization, legal capital is best defined as a. the amount of capital the state of incorporation allows the company to accumulate over its existence. b. the par value of all capital stock issued. c. the amount of capital the federal government allows a corporation to generate. d. the total capital raised by a corporation within the limits set by the Securities and Exchange Commission. 13. The cumulative feature of preferred stock a. limits the amount of cumulative dividends to the par value of the preferred stock. b. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders. c. means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock. d. enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends. Presented below is information related to Lyndon Corporation, question 14: Common Stock, $1 par $4,300,000 Paid-in Capital in Excess of Par—Common Stock 550,000 Preferred 8 1/2% Stock, $50 par 2,000,000 Paid-in Capital in Excess of Par—Preferred Stock 400,000 Retained Earnings 1,500,000 Treasury Common Stock (at cost) 150,. The total stockholders' equity of Lyndon Corporation is a. $8,600,000. b. $8,750,000. c. $7,100,000. d. $7,250,000. 15. Starr Company has outstanding both common stock and nonparticipating, non-cumulative preferred stock. The liquidation value of the preferred is equal to its par value. The book value per share of the common stock is unaffected by a. the declaration of a stock dividend on preferred payable in preferred stock when the market price of the preferred is equal to its par value. b. the declaration of a stock dividend on common stock payable in common stock when the market price of the common is equal to its par value. c. the payment of a previously declared cash dividend on the common stock. d. a 2-for-1 split of the common stock. 16. Assume common stock is the only class of stock outstanding in the Bosch Corporation. Total stockholders' equity divided by the number of common stock shares outstanding is called a. book value per share. b. par value per share. c. stated value per share. d. market value per share. 17. In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are a. weighted by the number of days outstanding. b. weighted by the number of months outstanding. c. considered outstanding at the beginning of the year. d. considered outstanding at the beginning of the earliest year reported. 18. What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively? a. Decrease and no effect b. Increase and no effect c. Decrease and increase d. Increase and decrease 19. Due to the importance of earnings per share information, it is required to be reported by all Public Companies Nonpublic Companies a. Yes Yes b. Yes No c. No No d. No Yes 20. 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 a. Yes Yes b. Yes No c. No Yes d. No No PROBLEMS 1. On August 31, Able Co. partially refunded $180,000 of its outstanding 10% note payable made one year ago to Best Federal Bank by paying $180,000 plus $18,000 interest, having obtained the $198,000 by using $52,400 cash and signing a new one-year $160,000 note discounted at 9% by the bank. Instructions (1) Make the entry to record the partial refunding. Assume Able Co. makes reversing entries when appropriate. (2) Prepare the adjusting entry at December 31, assuming straight-line amortization of the discount. 2. On July 1, 2017, Wilcutts Co. issued 1,000 of its 8%, $1,000 bonds at 97 plus accrued interest. The bonds are dated April 1, 2017 and mature on April 1, 2027. Interest is payable semiannually on April 1 and October 1. What amount did Wilcutts receive from the bond issuance? 3. Weighted average shares outstanding. On January 1, 2016, Patrick Corporation had 1,000,000 shares of common stock outstanding. On March 1, the corporation issued 150,000 new shares to raise additional capital. On July 1, the corporation declared and issued a 2-for-1 stock split. On October 1, the corporation purchased on the market 600,000 of its own outstanding shares and retired them. Instructions Compute the weighted average number of shares to be used in computing earnings per share for 2016. 4. Determine the price of a $300,000 bond issue under each of the following three independent assumptions: Assumption Maturity Interest Paid Stated Interest Rate Effective (or Market) Interest Rate years annually 7% 12% years semiannually 8% 12% years semiannually 10% 12%

Paper For Above instruction

The provided quiz encompasses a comprehensive assessment of key topics in intermediate accounting, including accounts payable classification, lease liabilities, interest accruals, payroll liabilities, revenue recognition, liability estimation, bond valuation, stockholders’ equity, earnings per share, and bond issuance calculations. Each question emphasizes critical accounting principles, requiring not only conceptual understanding but also practical application through calculations and journal entries, fostering a deep grasp of financial reporting standards and issues faced by organizations.

The first multiple-choice question addresses the nature of payables typically associated with accounts payable, distinguishing between secured and unsecured obligations. Accurate classification influences subsequent accounting treatment and disclosures, and knowledge of whether interest is secured by collateral or paid periodically is essential (Kieso, Weygandt, & Warfield, 2019).

The second question evaluates understanding of lease accounting, specifically the treatment of lease deposits that are non-refundable and applied to future rent payments. The leasing standards mandate that at inception, lease liabilities include the present value of lease payments, and classification as current or long-term depends on contractual terms and payment schedules (FASB, 2016). In Fiorenza’s case, the security deposit’s non-refundable nature and application toward future rent influence its liability classification.

Interest accrual at year-end is examined in the third question involving a note payable with periodic principal payments and a stated interest rate. Recognizing accrued interest payable involves calculating the interest earned from the last interest date to the reporting date using the effective or market rate, with emphasis on amortization of discounts or premiums (Brigham & Ehrhardt, 2019).

Payroll liabilities, a critical component of current liabilities, are tested through Carlock Company’s scenario involving accrued salaries payable. The challenge is to determine accrued salaries based on total expenses, actual payments, and advances, reconciling accumulations over the period to reflect accurate liabilities (Weygandt et al., 2018).

Revenue recognition for service contracts, based on unearned revenue adjustments, underpins the point about deferred revenue and expired contracts. Proper matching of revenues and costs, especially when contracts extend over multiple periods, aligns with GAAP principles (Schroeder, Clark, & Cathey, 2018).

Estimating liabilities for future redemptions of stamps involves probability-based accruals, accounting for redemption rates, past experience, and projected redemptions costs. Recognizing the appropriate liability ensures accurate reflection of probable future expenditures (Schroeder et al., 2018).

Bond valuation is addressed through present value calculations of principal and interest components, considering interest rates, payment periods, and bond yields. Accurate valuation impacts how bonds are issued, recorded, and reported (Gibson, 2017).

The concepts of unsecured bonds, bond premiums, and the effective interest rate provide insight into debt financing and the associated accounting implications. Premium bonds indicate market rates are below the stated rate, affecting amortization and interest expense (Gibson, 2017).

Stockholders’ equity questions explore components like common stock, paid-in capital, preferred stock with its cumulative feature, and the effects of dividends, splits, and stock dividends on book values. Understanding how these components interact is fundamental for accurate equity reporting (FASB, 2016).

Analysis of earnings per share and the effect of corporate actions like stock dividends, stock splits, and treasury stock acquisitions emphasizes the importance of weighted-average shares computation for consistent comparability (Weygandt et al., 2018).

Bond issuance pricing under varying market conditions illustrates the relationship between stated, effective, and market interest rates, reinforcing fundamental valuation techniques (Gibson, 2017).

Overall, this quiz integrates theoretical knowledge with practical exercises, preparing students for real-world financial reporting and decision-making scenarios in accordance with GAAP and IFRS standards. Mastery of these areas is crucial for accurate financial statement preparation and analysis in a professional setting (Kieso et al., 2019; FASB, 2016; Brigham & Ehrhardt, 2019; Schroeder et al., 2018; Gibson, 2017; Weygandt et al., 2018).

References

• Brigham, E. F., & Ehrhardt, M. C. (2019). Financial Management: Theory & Practice. Cengage Learning.
• FASB. (2016). Leases (ASC 842). Financial Accounting Standards Board.
• Gibson, C. H. (2017). Financial Reporting & Analysis. Cengage Learning.
• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting. Wiley.
• Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2018). Financial Accounting Theory and Analysis. Wiley.
• Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. (2018). Intermediate Accounting. Wiley.