FINAL EXAMS FINAL ANSWERS FINAL QUESTIONS

1. ACC 423 FINAL EXAMS
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1) When convertible debt is retired by the issuer, any material difference between the cash
acquisition price and the carrying amount of the debt should be
2) The conversion of preferred stock may be recorded by the
3) The conversion of preferred stock into common stock requires that any excess of the par value
of the common shares issued over the carrying amount of the preferred being converted should
be
4) The accounting problem in a lump sum issuance is the allocation of proceeds between the
classes of securities. An acceptable method of allocation is the
5) When a corporation issues its capital stock in payment for services, the least appropriate basis
for recording the transaction is the
6) Total stockholders' equity represents
7) When treasury stock is purchased for more than the par value of the stock and the cost method
is used to account for treasury stock, what account(s) should be debited?
8) “Gains" on sales of treasury stock (using the cost method) should be credited to
9) Wilson Corp. purchased its own par value stock on January 1, 2007 for $20,000 and debited
the treasury stock account for the purchase price. The stock was subsequently sold for $12,000.
The $8,000 difference between the cost and sales price should be recorded as a deduction from
10) When computing diluted earnings per share, convertible bonds are
11) In computations of weighted average of shares outstanding, when a stock dividend or stock
split occurs, the additional shares are
12) In the diluted earnings per share computation, the treasury stock method is used for options
and warrants to reflect assumed reacquisition of common stock at the average market price
during the period. If the exercise price of the options or warrants exceeds the average market
price, the computation would
13) On December 31, 2006, the stockholders' equity section of Clark, Inc., was as follows:
Common stock, par value $10; authorized 30,000 shares.

2. 14) At its date of incorporation, Wilson, Inc. issued 100,000 shares of its $10 par common stock
at $11 per share. During the current year, Wilson acquired 20,000 shares of its common stock at
a price of $16 per share and accounted for them by the cost method. Subsequently, these shares
were reissued at a price of $12 per share. There have been no other issuances or acquisitions of
its own common stock. What effect does the reissuance of the stock have on the following
accounts?
15) Palmer Corp. owned 20,000 shares of Dixon Corp. purchased in 2003 for $240,000. On
December 15, 2006, Palmer declared a property dividend of all of its Dixon Corp. shares on the
basis of one share of Dixon for every 10 shares of Palmer common stock held by its
stockholders. The property dividend was distributed on January 15, 2007. On the declaration
date, the aggregate market price of the Dixon shares held by Palmer was $400,000. The entry to
record the declaration of the dividend would include a debit to Retained Earnings of
16) An unrealized holding loss on a company's available-for-sale securities should be reflected in
the current financial statements as
17) When investments in debt securities are purchased between interest payment dates,
preferably the
18) A reclassification adjustment is reported in the
19) Which of the following is NOT a debt security?
20) When an investor's accounting period ends on a date that does NOT coincide with an interest
receipt date for bonds held as an investment, the investor must
21) Pippen Co. purchased ten-year, 10% bonds that pay interest semiannually. The bonds are
sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the principal
by the table value for
22) Byner Corporation accounts for its investment in the common stock of Yount Company
under the equity method. Byner Corporation should ordinarily record a cash dividend received
from Yount as
23) When a company holds between 20% and 50% of the outstanding stock of an investee,
which of the following statements applies?
24) Bista Corporation declares and distributes a cash dividend that is a result of current earnings.
How will the receipt of those dividends affect the investment account of the investor under each
of the following accounting methods? Fair Value Method | Equity Method
25) Held-to-maturity securities are reported at

3. 26) Debt securities acquired by a corporation which are accounted for by recognizing unrealized
holding gains or losses and are included as other comprehensive income and as a separate
component of stockholders' equity are
27) Use of the effective-interest method in amortizing bond premiums and discounts results in
28) All of the following are requirements for disclosures related to financial instruments
EXCEPT
29) The accounting for fair value hedges records the derivative at its
30) All of the following statements regarding accounting for derivatives are correct EXCEPT
that
31) Taxable income of a corporation differs from pre-tax financial income because of
Permanent Differences | Temporary Differences
32) Which of the following situations would require interperiod income tax allocation
procedures?
33) The rationale for interperiod income tax allocation is to
34) A major distinction between temporary and permanent differences is
35) Which of the following are temporary differences that are normally classified as expenses or
losses that are deductible after they are recognized in financial income?
36) Which of the following is a temporary difference classified as a revenue or gain that is
taxable after it is recognized in financial income?
37) In a defined-contribution plan, a formula is used that
38) Which of the following is NOT a characteristic of a defined-contribution pension plan?
39) In a defined-benefit plan, the process of funding refers to
40) The relationship between the amount funded and the amount reported for pension expense is
as follows:
41) The accumulated benefit obligation measures
42) A corporation has a defined-benefit plan. An accrued pension cost will result at the end of
the first year if the

4. 43) On January 1, 2008, Pratt Corp. adopted a defined-benefit pension plan. The plan's service
cost of $300,000 was fully funded at the end of 2008. Prior service cost was funded by a
contribution of $120,000 in 2008. Amortization of prior service cost was $48,000 for 2008. What
is the amount of Pratt’s prepaid pension cost at December 31, 2008?
44) Yeager Co. maintains a defined-benefit pension plan for its employees. At each balance sheet
date, Yeager should report a minimum liability at least equal to the
45) Reser Corp., a company whose stock is publicly traded, provides a non-contributory defined-
benefit pension plan for its employees. The company's actuary has provided the following
information for the year ended December 31, 2008:
46) On January 1, 2005, Foley Corporation acquired machinery at a cost of $250,000. Foley
adopted the double-declining balance method of depreciation for this machinery and had been
recording depreciation over an estimated useful life of ten years, with no residual value. At the
beginning of 2008, a decision was made to change to the straight-line method of depreciation for
the machinery. The depreciation expense to be recorded for the machinery in 2008 is (round to
the nearest dollar)
47) Accrued salaries payable of $51,000 were NOT recorded at December 31, 2007. Office
supplies on hand of $24,000 at December 31, 2008 were erroneously treated as expense instead
of supplies inventory. Neither of these errors was discovered nor corrected. The effect of these
two errors would cause
48) On January 1, 2005, Lynn Corporation acquired equipment at a cost of $600,000. Lynn
adopted the double-declining balance method of depreciation for this equipment and had been
recording depreciation over an estimated life of eight years, with no residual value. At the
beginning of 2008, a decision was made to change to the straight-line method of depreciation for
this equipment. Assuming a 30% tax rate, the cumulative effect of this accounting change on
beginning retained earnings, net of tax, is
49) Equipment was purchased at the beginning of 2005 for $204,000. At the time of its purchase,
the equipment was estimated to have a useful life of six years and a salvage value of $24,000.
The equipment was depreciated using the straight-line method of depreciation through 2008. At
the beginning of 2008, the estimate of useful life was revised to a total life of eight years and the
expected salvage value was changed to $15,000. The amount to be recorded for depreciation for
2008, reflecting these changes in estimates, is
50) Which type of accounting change should always be accounted for in current and future
periods?
51) When a company decides to switch from the double-declining balance method to the
straight-line method, this change should be handled as a