ACC 432/ACC432 FINAL EXAM LATEST

1) Proceeds from an issue of debt securities
having stock warrants should NOT be allocated between debt and equity features
when
A. the allocation would result in a discount
on the debt security.
B. the warrants issued with the debt
securities are nondetachable.
C. exercise of the warrants within the next
few fiscal periods seems remote.
D. the market value of the warrants is NOT
readily available.
2) The conversion of preferred stock may be
recorded by the
A. market value method.
B. par value method.
C. book value method.
D. incremental method.
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
A. treated as a prior period adjustment.
B. treated as a direct reduction of retained
earnings.
C. reflected currently in income as an
extraordinary item.
D. reflected currently in income, but NOT as
an extraordinary item.
4) A primary source of stockholders’ equity
is
A. contributions by stockholders.
B. both income retained by the corporation
and contributions by stockholders.
C. appropriated retained earnings.
D. income retained by the corporation.
5) Stockholders’ equity is generally
classified into two major categories:
A. retained earnings and unappropriated
capital.
B. earned capital and contributed capital.
C. appropriated capital and retained
earnings.
D. contributed capital and appropriated
capital.
6) When a corporation issues its capital
stock in payment for services, the least appropriate basis for recording the
transaction is the
A. market value of the shares issued.
B. Any of these provides an appropriate basis
for recording the transaction.
C. par value of the shares issued.
D. market value of the services received.
7) Treasury shares are
A. shares held as an investment by the
treasurer of the corporation.
B. issued but NOT outstanding shares.
C. shares held as an investment of the
corporation.
D. issued and outstanding shares.
8) “Gains” on sales of treasury
stock (using the cost method) should be credited to
A. paid-in capital from treasury stock.
B. other income.
C. capital stock.
D. retained earnings.
9) How should a “gain” from the
sale of treasury stock be reflected when using the cost method of recording
treasury stock transactions?
A. As ordinary earnings shown on the income
statement.
B. As an extraordinary item shown on the
income statement.
C. As paid-in capital from treasury stock
transactions.
D. As an increase in the amount shown for
common stock.
10) In computing earnings per share, the
equivalent number of shares of convertible preferred stock are added as an
adjustment to the denominator (number of shares outstanding). If the preferred
stock is cumulative, which amount should then be added as an adjustment to the
numerator (net earnings)?
A. Annual preferred dividend
B. Annual preferred dividend divided by the
income tax rate
C. Annual preferred dividend times (one minus
the income tax rate)
D. Annual preferred dividend times the income
tax rate
11) When computing diluted earnings per
share, convertible bonds are
A. ignored.
B. assumed converted only if they are
dilutive.
C. assumed converted whether they are
dilutive or antidilutive.
D. assumed converted only if they are
antidilutive.
12) 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 decrease
C. Increase and no effect
D. Decrease and increase
13) On May 1, 2007, Kent Corp. declared and
issued a 10% common stock dividend. Prior to this dividend, Kent had 100,000
shares of $1 par value common stock issued and outstanding. The fair value of
Kent ‘s common stock was $20 per share on May 1, 2007. As a result of this
stock dividend, Kent’s total stockholders’ equity
A. did NOT change.
B. increased by $200,000.
C. decreased by $10,000.
D. decreased by $200,000.
14) How would the declaration and subsequent
issuance of a 10% stock dividend by the issuer affect each of the following
when the market value of the shares exceeds the par value of the stock?
Additional Common Stock | Paid-in Capital
A. Increase | Increase
B. No effect | No effect
C. Increase | No effect
D. No effect | Increase
15) 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? Retained Earnings |
Additional Paid-in Capital
A. No effect | No effect
B. Decrease | Decrease
C. Decrease | No effect
D. No effect | Decrease
16) Which of the following is correct about
the effective-interest method of amortization?
A. The effective-interest method produces a
constant rate of return on the book value of the investment from period to
period.
B. The effective interest method applied to
investments in debt securities is different from that applied to bonds payable.

C. Amortization of a premium decreases from
period to period.
D. Amortization of a discount decreases from
period to period.
17) An unrealized holding loss on a company’s
available-for-sale securities should be reflected in the current financial
statements as
A. other comprehensive income and deducted in
the equity section of the balance sheet.
B. an extraordinary item shown as a direct
reduction from retained earnings.
C. a note or parenthetical disclosure only.
D. a current loss resulting from holding
securities.
18) An unrealized holding gain on a company’s
available-for-sale securities should be reflected in the current financial
statements as
A. other comprehensive income and included in
the equity section of the balance sheet.
B. an extraordinary item shown as a direct
increase to retained earnings.
C. a note or parenthetical disclosure only.
D. a current gain resulting from holding
securities.
19) Investments in debt securities should be
recorded on the date of acquisition at
A. face value plus brokerage fees and other
costs incident to the purchase.
B. lower of cost or market.
C. market value plus brokerage fees and other
costs incident to the purchase.
D. market value.
20) Securities which could be classified as
held-to-maturity are
A. warrants.
B. redeemable preferred stock.
C. municipal bonds.
D. treasury stock.
21) Which of the following is NOT a debt
security?
A. Commercial paper
B. Convertible bonds
C. Loans receivable
D. All of these are debt securities.
22) An investor has a long-term investment in
stocks. Regular cash dividends received by the investor are recorded as Fair
Value Method | Equity Method
A. A reduction of the investment | A
reduction of the investment
B. Income | Income
C. Income | A reduction of the investment
D. A reduction of the investment | Income
23) When a company holds between 20% and 50%
of the outstanding stock of an investee, which of the following statements
applies?
A. The investor should use the equity method
to account for its investment unless circum-stances indicate that it is unable
to exercise “significant influence” over the investee.
B. The investor should always use the equity
method to account for its investment.
C. The investor must use the fair value
method unless it can clearly demonstrate the ability to exercise
“significant influence” over the investee.
D. The investor should always use the fair
value method to account for its investment.
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
A. Increase | Decrease
B. No Effect | Decrease
C. No Effect | No Effect
D. Decrease | No Effect
25) Debt securities that are accounted for at
amortized cost, NOT fair value, are
A. trading debt securities.
B. held-to-maturity debt securities.
C. available-for-sale debt securities.
D. never-sell debt securities.
26) Equity securities acquired by a
corporation which are accounted for by recognizing unrealized holding gains or
losses as other comprehensive income and as a separate component of
stockholders’ equity are
A. trading securities where a company has
holdings of less than 20%.
B. available-for-sale securities where a
company has holdings of less than 20%.
C. securities where a company has holdings of
between 20% and 50%.
D. securities where a company has holdings of
more than 50%.
27) Use of the effective-interest method in
amortizing bond premiums and discounts results in
A. a smaller amount of interest income over
the life of the bond issue than would result from use of the straight-line
method.
B. a greater amount of interest income over
the life of the bond issue than would result from use of the straight-line
method.
C. a varying amount being recorded as
interest income from period to period.
D. a variable rate of return on the book
value of the investment.
28) All of the following are characteristics
of a derivative financial instrument EXCEPT the instrument A. All of these are
characteristics.
B. has one or more underlyings and an
identified payment provision.
C. requires a large investment at the
inception of the contract.
D. requires or permits net settlement.
29) The accounting for fair value hedges
records the derivative at its
A. historical cost.
B. amortized cost.
C. carrying value.
D. fair value.
30) All of the following statements regarding
accounting for derivatives are correct EXCEPT that
A. gains and losses resulting from hedge
transactions are reported in different ways, depending upon the type of hedge.
B. they should be recognized in the financial
statements as assets and liabilities.
C. they should be reported at fair value.
D. gains and losses resulting from
speculation should be deferred.