WGU D104 Pre- Assessment V1– Intermediate Accounting II (Latest 2026/ 2027 Update) 100% Verified Questions & Answers | Grade A

WGU D104 Pre- Assessment V1– Intermediate Accounting II (Latest 2026/ 2027 Update) 100% Verified Questions & Answers | Grade A Question: A company issued a 5-year note payable in the amount of $15,000. The note bears the market interest rate of 5%. At Year 3, the market rate of interest is 3%. Which journal entry is appropriate for recording interest at the end of the third year? A. Debit Interest Expense for $450; credit Cash for $450 B. Debit Interest Expense for $750; credit Discount on Note Payable for $300; credit Cash for $450 C. Debit Interest Expense for $750; credit Cash for $750 D. Debit Interest Expense for $450; debit Premium on Note Payable for $300; credit Cash for $750 C. Debit Interest Expense for $750; credit Cash for $750 $750 = $15,000 x 0.05. When the stated and effective interest rates are the same, annual interest is calculated by multiplying the face of the note times the interest rate. Interest rates do not change in subsequent years if the market rate changes. Equipment is placed in service on January 1. The cost of the equipment is $250,000 with a salvage value of $25,000 and an estimated useful life of five years. Which amount of annual depreciation expense should be recorded on December 31 of Year 2 under the sum-of-years' digits method? $45,000 $60,000 $75,000 $100,000 $60,000 A company placed an asset into service on Day 1 of Year 1 with the following data related to the purchase: Cost of machinery $225,000 Estimated salvage value $75,000 Product life hours 75,000 hours Useful life 5 years Hours used in Year 1 5,000 hours Which amount of annual depreciation expense should be recorded in the first year using the activity method? $3,000 $10,000 $15,000 $30,000 $10,000 $225,000-$75,000=$150,000 ($150,000*5,000 hours)/75,000 On July 1, a company placed into service a vehicle for $50,000 with an estimated useful life of five years and no salvage value. The company prepares accrual-basis financial statements on a calendar-year basis. How many months should be included in the calculation of depreciation expense for the year of acquisition using the double-declining-balance method? 5 6 7 12 6 A company purchased a piece of equipment for $120,000 and estimated that the asset will have no salvage value at the end of its 15-year useful life. At the end of Year 5 of ownership, when accumulated depreciation was $40,000 and the asset's book value was $80,000, the company revised the asset's estimated useful life to a total of 10 years. What is the appropriate accounting treatment beginning with Year 6? The equipment will depreciate $80,000 over the next five years. The equipment will depreciate $40,000 over the next five years. The equipment will depreciate $40,000 over the next 10 years. The equipment will depreciate $80,000 over the next 10 years. The equipment will depreciate $80,000 over the next five years. A company using the composite approach to depreciation sells equipment for $10,000. The equipment was purchased five years earlier for $15,000, and the company has already recorded $5,000 in accumulated depreciation. What is included in the journal entry for the sale of the equipment? Debit loss on sale of equipment for $5,000 Credit loss on sale of equipment for $5,000 Debit accumulated depreciation-equipment for $5,000 Credit accumulated depreciation-equipment for $5,000 Debit accumulated depreciation-equipment for $5,000 A steel manufacturer uses the production variable method for depreciating assets. Which combination best describes the depreciation method used? Straight-line and activity Double-declining balance and activity Straight-line and sum-of-years'-digits Double-declining balance and sum-of-years'-digits Straight-line and activity A company owns an asset with an original cost of $300,000 and a current book value of $160,000. During a review of the asset for impairment, the company estimates the expected future cash flows from the use and disposal of the asset to be $200,000. There is an active market for this asset, and the fair value of the asset, calculated as the present value of expected future cash flows, is $140,000. Should this asset be considered impaired? Yes, because fair value is less than the original cost. Yes, because the fair value is less than the book value. No, because the estimate of expected future cash flows (undiscounted) is greater than the book value No, because the estimate of expected future cash flows (undiscounted) is greater than the actual fair value. No, because the estimate of expected future cash flows (undiscounted) is greater than the book value. Several years ago, a company acquired an asset at a cost of $400,000. Last year, the company recognized an impairment loss of $25,000 and properly reduced the asset's book value from $250,000 to $225,000. Using the asset's new base of $225,000, the company calculates depreciation for the current year to be $10,000, bringing the book value down to $215,000. However, the company has also determined that the asset's fair value has recovered and is now estimated to be $260,000. How should the company measure the asset on its current balance sheet? The company should reverse the prior impairment and measure the asset at its current fair value of $260,000. The company should reverse the prior impairment and measure the asset at its fair value prior to the initial impairment of $250,000. The company should not reverse the impairment and should depreciate the asset by $10,000 to a new book value of $215,000. The compan The company should not reverse the impairment and should depreciate the asset by $10,000 to a new book value of $215,000. A company invests $15,000,000 into a coal mine estimated to have 20 million tons of coal. The coal mine is estimated to be in operation for the next five years. In Year 1, the company extracted and sold 1 million tons of coal. How much is depletion in Year 1? $750,000 $1,000,000 $2,250,000 $3,000,000 $750,000 $15,000,000/20,000,000= $.75 $.75*1,000,000=$750,000 A company invested $15,000,000 in a coal mine estimated to have 1,500,000 tons of coal. In the first year, the company extracted 100,000 tons of coal. At the end of the first year, it became clear that the coal mine was likely to have only another 700,000 tons of coal remaining. Which depletion rate will be used starting in the second year? $6.36 per ton $10.00 per ton $20.00 per ton $21.43 per ton $20.00 per ton $15,000,000/700,000 A company reported total assets of $10,000,000 as of December 31, 2018, and $14,000,000 as of December 31, 2019. Net sales revenue was $6,000,000 for the year ending December 31, 2018, and $8,000,000 for the year ending December 31, 2019. What was the company's asset turnover ratio for the year ending December 31, 2019? 0.50 0.57 0.60 0.67 0.67 8,000,000/(10,000,000+14,000,000/2) 8,000,000/12,000,000=.67 A company's profit margin on sales was 2.50%, and its asset turnover was 0.50. What was the company's return on assets for this period? 0.20% 1.25% 5.00% 125.00% 1.25% Profit Margin on Sales*Asset Turnover 2.5*.5 A company reported the following information in its 2019 annual report: Net sales $ 750,000 Total assets at the end of year 2 $ 500,000 Total assets at the end of year 1 $ 450,000 Net income $ 120,000 What is the company's profit margin on sales? 16% 84% 417% 625% 16% Net Income/Net Sales $120,000/$750,000 = .16 A company reported the following information in its 2019 annual report: Net sales $ 750,000 Total assets at the end of year 2 $ 500,000 Total assets at the end of year 1 $ 450,000 Net income $ 120,000 What is the company's return on assets? 0.24 0.25 1.58 1.67 0.25 Net Income/Ave. Total Assets A local restaurant has taken a $40,000 loan from their bank to perform needed renovations. The restaurant must repay the borrowed funds in eight months with 3% interest. How should the restaurant record the loan? Debit Cash for $40,000; Credit Notes Payable for $40,000 On January 1, a company received $24,000 in advance for monthly pest services for the year. Which entry should the company use to record the month of May's revenue? Debit Unearned Sales Revenue for $2,000; Credit Sales Revenue for $2,000 A company's normal operating cycle is one year, and they have the following account balances taken from the trial balance: Accounts payable: $50,000 Accounts receivable: $25,000 Notes payable (due in 30 months): $15,000 Customer advances: $10,000 Bonds payable (due in 60 months): $30,000 Sales tax payable: $5,000 Which amount should be included as current liabilities on the balance sheet? $65,000 Accounts Payable+Customer Advances+Sales Tax Payable A manufacturing company produced 900 items this year. By December 31, 850 of the items were sold. The company also sells an extended warranty at a cost of $50 per item. Warranties were purchased on 725 of the items. The company incurred and paid an average of $35 per item warranty expense this year. Which amount of unearned warranty revenue should be recorded at the time of the sale? $36,250 $50*725=$36,250 A corporation has been sued by a customer, and legal counsel believes it is probable that the corporation will lose the lawsuit. The loss is estimated to be $500,000. What is the proper presentation and disclosure for this lawsuit? The corporation will record a $500,000 loss contingency and related liability. The corporation also will disclose the nature of the contingency. A company reported the following excerpts from its balance sheet: Cash: $150,000 Short-term investments: $350,000 Accounts receivable (net): $200,000 Inventory: $300,000 Property, plant, and equipment (net): $500,000 Total current liabilities: $400,000 What is the company's current ratio? 2.50 Current Assets/Current Liabilities (Cash+Short-Term Investments+Accounts Rec.+Inventory)/Current Liabilities On February 1, a company borrowed $24,600 from a bank. The terms of the loan require five equal annual installments beginning January 31. The company has a calendar year-end. Which entry should the company use to record the loan? Debit cash $24,600, credit current maturities of long-term debt $4,920, credit note payable $19,680 A company issues $10,000,000 in 20-year bonds at a 9% interest rate, paid annually. On the issue date, the bonds sold for $9,875,000. At which value were the bonds issued? Discount A company issues bonds at par with a 10-year term for $1,000,000 on January 1 of Year 1. The bonds bear interest at an annual rate of 7% payable semiannually on January 1 and July 1. Which journal entry should be recorded on July 1 of Year 1? Debit Interest Expense for $35,000; Credit Cash for $35,000 A company issues bonds with a face value of $1,000,000 with a 10-year term at 95 on January 1 of Year 1. The bonds bear interest at an annual rate of 5% payable semiannually on January 1 and July 1. Which journal entry should be recorded on January 1 of Year 1? Debit Cash for $950,000; Debit Discount on Bonds Payable for $50,000; Credit Bonds Payable for $1,000,000 On July 22, a company issues bonds at 105, bonds with a par value of $1,000,000, due in 20 years. Five years after the issue date, the company calls the entire issue at 101 and redeems it. At that time, the unamortized premium balance is $37,500. What is the effect of this transaction? $27,500 gain A company issued a 30-year mortgage note with a face value of $425,000 to purchase a new production plant. The lender assessed 3 points to close the financing. Which amount should be recorded on the balance sheet for the Mortgage Note Payable? $425,000 On January 1 in Year 1 a company signs a three-year $100,000 note with a stated and effective interest rate of 8%. Interest payments are made annually on the anniversary of the note, and the principal will be paid in a lump sum when the note matures. How much interest should the company pay on January 1 in Year 2? $8,000 $100,000*.08 = $8,000 A company reports the following financial information: Net income: $45,000 Interest expense: $13,000 Income tax expense: $9,000 R&D expense: $8,000 Operating income: $70,000 What is the company's times interest earned? 5.15 (Net Income+Interest Expense+Interest Tax Expense)/Interst Expense ($45,000+$13,000+$9,000)/$13,000=5.15 A share of stock has a preemptive right. From which event is the stockholder protected? Involuntary dilution of ownership interest An accountant is explaining to a client that each share of common stock comes with rights and privileges for the owner and that a specific right protects existing stockholders from having their interest diluted. Which right is the accountant referencing to this client? Right to share in new issues of common stock A company's balance sheet displays common stock of $150,000, preferred stock of $50,000, additional paid-in capital from common stock of $100,000, and retained earnings of $80,000. Which amount represents stockholders' equity? $380,000 $150,000+$50,000+$100,000+$80,000 A company has acquired 15,000 shares of its treasury stock at $10 per share using the cost method. The company now decides to sell 2,000 of its treasury stock for $12 per share. The journal entry to record the sale of treasury stock includes a debit to Cash for $24,000. What is the correct credit entry? Treasury Stock for $20,000 and Paid-in Capital Treasury Stock for $4,000 On Year 1, a company issued 10,000 shares of $2 par stock at $12 per share. On Year 3, the company reacquired 1,000 shares of its stock for $15 per share. How will this transaction in Year 3 affect Additional Paid-in Capital, if at all? It will not affect Additional Paid-in Capital. A company has 10,000 shares of $6 par value common stock outstanding. The market value of the stock is $10. What is the impact of a 2-for-1 stock split? Par value of the stock is is reduced to $3 per share. $6/2 = $3 A company reported the following information in its financial statements: Net income: $70,000 Preferred dividends: $10,000 Beginning common stockholders' equity: $100,000 Ending common stockholders' equity: $200,000 Common shares outstanding: 50,000 What is the return on common stockholders' equity? 40% (Net Income - Preferred Stockholders Equity)/Ave. common stockholders Equity ($70,000-$10,000)/$150,000=40% When a company issued 100 shares of preferred stock with a par value of $1 per share, it recorded a $50 premium. The company recently converted this preferred stock into 100 shares of common stock with a par value of $5 per share. Which information should be included in the journal entry at the time of conversion? Debit Paid-in Capital in Excess of Par-Preferred Stock for $50 A company has a $1,000 bond that is convertible into 100 shares of common stock (par value $10). How will this conversion impact earnings per share if the company chooses to convert the debt? Decreases immediately A company receives a lump sum of $1,015 for a $1,000 par value bonds with one warrant attached. The warrant is for the purchase one share of common stock for $30 within the next five years when the stock is trading at $60, and the warrant can be traded separately from the bond. The bond's market price is 99. How much of the lump-sum sale proceeds is allocated to the warrant if the incremental method is used? $25 On January 1, a company uses the fair value method of reporting stock options. It grants its employees 1,000 shares of $1 par value common stock options, which can be exercised anytime within the next five years. Under an acceptable option-pricing model, the total compensation expense is $30,000. The employees exercise all 1,000 options for $15,000. Which part of the journal entry should be recorded for the exercise of the options? Debit Paid-in Capital - Stock Options for $30,000 A company reports a net income of $5,000,000. Shares outstanding at the beginning of the calendar year equal 1,000,000. There are 950,000 shares outstanding on April 1. How much are earnings per share? $5.19 (Net Income-Preferred Dividends)/Weighted Ave. Common Stock Shares Outstanding Corporation A issues convertible bonds. If the bonds where converted, the net savings from retiring the bonds is greater than the impact on earnings per share. What is the effect on earnings per share? Antidilutive A company had both outstanding convertible bonds and stock warrants during the current year. The company determined that if the bonds had been converted during the year, calculated basic earnings per share (EPS) would have decreased, and if the warrants had been exercised during the year, calculated basic EPS would have increased. How should the company consider these securities when calculating and presenting diluted earnings per share on the income statement? The company should include the effect of the bonds, but exclude the effect of the warrants. A company purchases an asset on April 5 of the current year. The company would like to use the depreciation policy that will result in the highest deprecation expense in the last year of its useful life. Which depreciation policy should be used? A. Full year in acquisition period B. Half-year convention C. Nearest full month D. Nearest fraction of the year B. Half-year convention Half-year convention will depreciate the asset for six months in the year of acquisition and six months in the final year of the useful life. This policy results in the highest depreciation expense in the last year of the useful life. A pizza delivery chain buys several assets with varying useful lives at the start of the year and is trying to determine which special depreciation method to use. The following assets were purchased: -12 delivery trucks -4 pizza ovens -6 point-of-sale systems -20 sets of tables and chairs Which depreciation method allows the pizza delivery chain to use one rate to depreciate all the assets? A. Per unit B. Hybrid C. Composite D. Group C. Composite The company can create an average rate and average estimated useful life to depreciate all the assets using one rate. This method can be used for dissimilar assets with varying useful lives. A company wants to calculate a loss on impairment on an asset. How is the loss calculated? A. Carrying value less the fair value B. Original cost less the carrying value C. Original cost less the fair value D. Carrying value less the expected future cash flow (undiscounted) A. Carrying value less the fair value The carrying amount of the asset less the fair value is the correct formula for determining a loss on impairment The asset turnover for a company in the most recent accounting year is 1.50. Which statement accurately describes the meaning of this ratio? A. The company generated net sales of $1.50 per dollar of assets in the most recent year. B. The company had 1.50 times more assets than net sales in the current year. C. The company had 1.50 more assets than net income in the current year. D. The company generated a net income of $1.50 per dollar of assets in the most recent year. A. The company generated net sales of $1.50 per dollar of assets in the most recent year. The asset turnover, calculated as net sales divided by the simple average of current year and prior year total assets, defines how efficiently a company uses its assets to generate sales A company purchased and placed into service a piece of machinery with an original cost of $100,000. It estimates a 10-year useful life with no salvage value. At the beginning of Year 8, when accumulated depreciation was $70,000 and the asset's book value was $30,000, the company estimates that it will use the machine for a total of 12 years. Which statement describes the proper accounting treatment beginning with Year 8? A. The company will depreciate the $30,000 book value over the next five years. B. The company will depreciate $100,000 over the next five years. C. The company will depreciate the $30,000 book value over the next 12 years. D. The company will depreciate $100,000 over the next 12 years. A. The company will depreciate the $30,000 book value over the next five years. At the start of year 8, the net book value is $30,000 ($100,000 - ($100,000 / 10 x 7). Since the asset has 5 more years of estimated use (years 8 through 12), the net book value of $30,000 is depreciated over the remaining 5 years. A company purchased a plot of land for $500,000 for the purposes of harvesting timber for resale. The company paid $10,000 to have the property boundaries marked by a land surveyor. The company also acquired a bulldozer for $100,000. The bulldozer will be used at this plot of land in addition to other locations where the company harvests trees. What will be the company's depletion base for the land? A. $490,000 B. $510,000 C. $500,000 D. $610,000 B. $510,000 The depletion base should include all costs associated with the acquisition of the natural resource. The $10,000 cost of placing survey stakes should be included with the $500,000 purchase price when determining the depletion base. A company owns an asset with an original cost of $300,000 and a current book value of $160,000. In reviewing the asset for impairment, the company estimates that the expected future cash flows from the use and disposal of the asset will be $220,000. The fair value of the asset, calculated as the present value of expected future cash flows, is $180,000. The company wants to identify why the asset is not considered impaired, according to the recoverability test. Which statement identifies why the asset was not impaired? A. The fair value is greater than accumulated depreciation. B. The expected future cash flows are greater than the book value. C. The expected future cash flows are greater than accumulated depreciation. D. The fair value is greater than the book value. B. The expected future cash flows are greater than the book value. The recoverability test compares the expected future cash flows to the asset's book value. A company believes a property contains natural resources and pays $80,000 for the property. The company spends $50,000 on a bulldozer to be used in multiple projects, $10,000 to dig the land to find the natural resources, and $3,000 on intangible development costs. How much is the depletion base for the natural resources? A. $143,000 B. $133,000 C. $93,000 D. $80,000 $93,000 C. Cost of land, exploration, and intangible development cost are all part of the depletion base: $93,000 = $80,000+$10,000+$3,000 A company placed an asset into service on Day 1 of Year 1 with the following data related to the purchase: Cost of machinery: $225,000 Estimated salvage value: $75,000 Product life hours: 75,000 hours Useful life: 5 years Hours used in Year: 15,000 hours Which amount of annual depreciation expense should be recorded at the end of Year 2 using the sum-of-years'-digits method? A. $60,000 B. $50,000 C. $30,000 D. $40,000 D. $40,000 $40,000 = ($225,000- $75,000) X 4/15. Cost minus salvage value multiplied by the year two fraction of 4/15. An asset costs $200,000 with an expected useful life of five years. At the end of five years, the salvage value is expected to be $20,000. What is the depreciation base? A. $20,000 B. $36,000 C. $200,000 D. $180,000 D. $180,000 The depreciation base is the difference between the cost and the salvage value: $200,000 - $20,000 = $180,000. Recent, negative events in an operating division have caused a company to believe that it is possible that it will not be able to fully recover the book value of a group of assets. What is the first step the company should take in reviewing the assets? A. Determine if an impairment exists because the assets' book value is greater than the expected future cash flows (undiscounted) B. Measure the amount of impairment as the excess of the assets' book value over their fair value C. Determine if an impairment exists because the assets' expected future cash flows (undiscounted) are greater than their book value D. Measure the amount of impairment as the excess of the assets' fair value over their book value A. Determine if an impairment exists because the assets' book value is greater than the expected future cash flows (undiscounted) The first step when events or circumstances suggest an asset's book value may not be fully recoverable is to perform a recoverability test, comparing the assets' book value and expected future cash flows (undiscounted). If the expected future cash flows (undiscounted) are less than the book value, the asset is considered to be impaired. A company placed an asset into service on Day 1 of Year 1 with the following data related to the purchase: Cost of machinery: $225,000 Estimated salvage value: $75,000 Product life hours: 75,000 hours Useful life: 5 years Hours used in Year 1 5,000 hours Which amount of annual depreciation expense should be recorded in the first year using the straight-line method? A. $30,000 B. $45,000 C. $90,000 D. $10,000 A. $30,000 $30,000 = ($225,000-$75,000) / 5. The formula for straight line depreciation is cost minus salvage value divided by the useful life. A company purchased a plot of land for $550,000 in July 2015, which included $500,000 for the land and $50,000 for attorney's fees. In December 2019, the company paid $100,000 to clear debris off the land. The company believes the fair market value of the land is $700,000 as of December 2019. Which depletion base should the company use when it begins to harvest timber from this land? A. $700,000 B. $500,000 C. $650,000 D. $600,000 C. $650,000 $650,000 = $500,000 + $50,000 + $100,000. The depletion base should include all historical costs required to prepare for timber to be harvested. A company purchased a plot of land for $140,000 for the purposes of harvesting timber for resale. The company estimates that it will be able to sell the land for $40,000 after it harvests all the timber and believes it will harvest 50,000 board-feet of lumber from the land over the next 10 years. Which depletion rate should the company use? A. $2.00 per board-foot B. $14,000 per year C. $2.80 per board-foot D. $10,000 per year A. $2.00 per board-foot $2.00 = ($140,000 - $40,000) / 50,000. The company should select an activity-based method. This choice reflects the $100,000 depletion base divided by the expected quantity of timber to be harvested. A company placed an asset into service on Day 1 of Year 1 with the following data related to the purchase: Cost of machinery: $225,000 Estimated salvage value: $75,000 Product life hours:75,000 hours Useful life: 5 years Hours used in Year: 15,000 hours What is the book value of the machinery at the end of Year 1 after recording annual depreciation using the double-declining balance method? A. $135,000 B. $180,000 C. $195,000 D. $225,000 A. $135,000 $225,000 - ($225,000 X 0.4). The 40% rate is calculated by taking double the straight-line rate of .4 = (1/5) x 2. The selected financial statement information for a company includes the following items: -total assets of $300,000 at the end of the current year -total assets of $500,000 at the end of the prior year -net sales of $3,000,000 in the current year -net income of $1,200,000 in the current year What is the asset turnover for the current year? A. 10.0 B. 3.0 C. 4.0 D. 7.5 D. 7.5 Asset turnover calculates as net sales divided by simple average of total assets. $3,000,000 / (($300,000 + $500,000)/2) A company spends $180,000,000 to purchase and prepare a quarry to mine granite and expects to mine 400,000 tons of granite. The salvage value of the property is $15,000,000, and the expected useful life of the property is 15 years. What is the proper journal entry to record depletion if the company extracts 80,000 tons in the first year? A. Debit depreciation expense for $36,000,000; credit accumulated depreciation for $36,000,000 B. Debit depreciation expense for $33,000,000; credit accumulated depreciation for $33,000,000 C. Debit inventory for $36,000,000; credit granite quarry for $36,000,000 D. Debit inventory for $33,000,000; credit granite quarry for $33,000,000 D. Debit inventory for $33,000,000; credit granite quarry for $33,000,000 $33,000,000 = (($180,000,000 - $15,000,000)/400,000) x 80,000. The journal entry to record depletion expense would include a debit to inventory and a credit to Granite Quarry. A company invests $50,000,000 into a coal mine estimated to have 20 million tons of coal. The company estimates that it can sell the coal mine for $3,000,000 after it spends $1,000,000 to restore the property after extraction. In Year 1, the company extracted and sold 4,000,000 tons of coal. How much depletion expense is incurred in Year 1? A. $10,000,000 B. $9,600,000 C. $9,400,000 D. $10,200,000 B. $9,600,000 $9,600,000 = ($50,000,000 + $1,000,000 - $3,000,000) x (4,000,000 / 20,000,000). The salvage value and restoration costs need to be considered in the calculation of depletion. A company has a policy of calculating depreciation using the nearest fraction of a year policy. On May 10, the company purchased and placed in service an asset costing $50,000 with a five year useful life.Which prorated fraction was used to calculate the depreciation expense on December 31? A. 7.00/12 B. 7.67/12 C. 8.00/12 D. 7.33/12 B. 7.67/12 The nearest fraction of a year policy states that the depreciation expense is prorated by the time the asset is actually in service: (7.67/12) x ($50,000/5). A company reported the following information in its annual report: Net sales: $ 750,000 Total assets at the end of year 2: $500,000 Total assets at the end of year 1: $450,000 Net income: $120,000 What is the company's asset turnover ratio at the end of year 2? A. 1.67 B. 1.58 C. 0.25 D. 0.24 B. 1.58 1.58 = $750,000 / (($500,000 + $450,000) / 2). Asset turnover is calculated by taking net sales and dividing it by the average total assets. A company redeemed bonds before the maturity date with a reacquisition price that was less than the current net carrying value. The original bond issuance was recorded at 103.Which account should be debited in the journal entry to record this transaction? A. Loss on Redemption of Bonds B. Discount on Bonds Payable C. Gain on Redemption of Bonds D. Premium on Bonds Payable D. Premium on Bonds Payable Since the reacquisition price was less than the current net carrying value, the extinguishment of debt will be recorded as a gain. Additionally, since the original bond issuance was recorded at a premium of 103 and the bonds were redeemed before the maturity date, there is still a balance in the Premium account. Premiums are originally credited, so the account needs to be debited at the redemption date. A company does not segregate sales tax and the amount of sale at the time of sale. At quarter end, the company must record the sales tax. The Sales Revenue account shows a balance of $200,000, which includes 6% sales tax. Which entry should be used to record the amount due to the taxing unit? A. Debit Sales Revenue for $11,321; credit Sales Taxes Payable for $11,321 B. Debit Sales Tax Expense for $11,321; credit Sales Taxes Payable for $11,321 C. Debit Sales Revenue for $12,000; credit Sales Taxes Payable for $12,000 D. Debit Sales Tax Expense for $12,000; credit Sales Taxes Payable for $12,000 A. Debit Sales Revenue for $11,321; credit Sales Taxes Payable for $11,321 $11,321 = $200,000 - ($200,000/1.06). This is the correct calculation and accounts to record this transaction. A company purchases a factory and signs a 30-year mortgage with a face value of $500,000 and a fixed interest rate of 6.75% per year. The bank is requiring 4 points upon closing. How much should be recorded in the Mortgages Payable account upon closing? A. $520,000 B. $500,000 C. $480,000 D. $533,750 B. $500,000 Mortgages will be recorded at face value A company borrows $20,000 by issuing a three-year note with a stated and effective rate of 5%. How much will the company record in the Notes Payable account upon signing the note? A. $22,000 B. $20,000 C. $21,000 D. $23,000 B. $20,000 The note will be recorded at face value. A company reported the following accounts from its year-end balance sheet: Cash: $50,000 Short-term investments: $125,000 Accounts receivable: $230,000 Inventory: $720,000 Property, plant, and equipment, net: $800,000 Investments: $95,000 Accounts payable: $193,000 Accrued liabilities: $29,000 Current portion of long-term debt: $170,000 Long-term debt: $715,000 Stockholder's equity: $963,000 What is the company's quick ratio? A. 0.5 B. 1.0 C. 2.5 D. 2.9 B. 1.0 Quick Assets = $50,000 + $125,000 + $230,000 = $405,000. Current Liabilities = $193,000 + $29,000 + $170,000 = $392,000. Quick Ratio = Quick assets/Current liabilities = $405,000/392,000 = 1.0 (rounded to tenths). A company reported the following accounts from its year-end balance sheet: Cash: $50,000 Short-term investments: $125,000 Accounts receivable: $230,000 Inventory: $720,000 Property, plant, and equipment, net: $800,000 Investments: $95,000 Accounts payable: $193,000 Accrued liabilities: $29,000 Current portion of long-term debt: $170,000 Long-term debt: $715,000 Stockholder's equity: $963,000 What is the company's debt-equity ratio? A. 0.2 B. 0.4 C. 0.5 D. 1.1 D. 1.1 Debt to Equity = Total liabilities/Stockholders' equity. Total liabilities = $193,000 + $29,000 + $170,000 + $715,000 = $1,107,000. Debt to Equity = $1,107,000/$963,000 = 1.1. On May 1, a company took out a $60,000, 8%, five-year loan from a bank to purchase new equipment. Payments on the principal and interest are due January 1 of each year. Principal is to be repaid in five even installments. Which entry should be used to record the note? A. Debit Cash for $60,000, credit Current Maturities of Long-Term Debt for 12,000, credit Long-Term Debt of $48,000 B. Debit Cash for $60,000, debit Interest Expense of $3,200, credit Current Maturities of Long Term Debt for 8,000, credit Long-Term Debt of $52,000, credit Interest Payable of $3,200 C. Debit Cash for $60,000, credit Current Maturities of Long-Term Debt for 8,000, credit Long Term Debt of $52,000 D. Debit Cash for $60,000, debit Interest Expense of $4,800, credit Current Maturities of Long Term Debt for 12,000, credit Long-Term Debt of $48,000, credit Interest Payable of $4,800 A. Debit Cash for $60,000, credit Current Maturities of Long-Term Debt for 12,000, credit Long-Term Debt of $48,000 Long-term debt is broken into two parts: current maturities of long-term debt with the remaing portion posted to long-term debt. Current maturities is anything due within the next twelve months. $60,000/5 = $12,000 per year. Debit Cash $60,000 (Credit) Current Maturities of Long Term Debt $12,000 (Credit) Long-term Debt $48,000 A company reports the following financial information: -Current assets: $300,000 -Long-term assets: $500,000 -Current liabilities: $300,000 -Long-term liabilities: $400,000 -Stockholder's equity: $100,000 What is the company's debt-to-asset ratio, rounded to the nearest percent? A. 50% B. 78% C. 100% D. 88% D. 88% 88% = (($400,000 + $300,000) / ($500,000 + $300,000)) x 100. This choice correctly divides total liabilities by total assets. A company knows that certain loss contingencies should be recorded in an effort to be conservative. Which type of loss contingencies must be recorded? A. Risk of loss or damage by fire B. Expected premiums to be awarded to customers C. Expected loss from general business risk D. Risk of litigation loss that cannot be estimated B. Expected premiums to be awarded to customers This is both probable and can be estimated. Expected premiums to be awarded to customers should be recorded as a loss contingency. A company issued a 5-year note payable in the amount of $15,000. The note bears the market interest rate of 5%. At Year 3, the market rate of interest is 3%. Which journal entry is appropriate for recording interest at the end of the third year? A. Debit Interest Expense for $450; credit Cash for $450 B. Debit Interest Expense for $750; credit Discount on Note Payable for $300; credit Cash for $450 C. Debit Interest Expense for $750; credit Cash for $750 D. Debit Interest Expense for $450; debit Premium on Note Payable for $300; credit Cash for $750 C. Debit Interest Expense for $750; credit Cash for $750 $750 = $15,000 x 0.05. When the stated and effective interest rates are the same, annual interest is calculated by multiplying the face of the note times the interest rate. Interest rates do not change in subsequent years if the market rate changes. A company has two pending lawsuits and is trying to determine if the losses should be recorded in the December 31, Year 1 financial statements. It was already determined that the outcomes will be unfavorable and can be reasonably estimated. Lawsuit A involved an event that occurred on November 28, Year 1, and Lawsuit B involved an event that occurred on January 3, Year 2 after the financial statement date, but before the issuance. Which loss contingency should be recorded by this company in Year 1? A. For Lawsuit A only B. For both Lawsuit A and Lawsuit B C. For Lawsuit B only D. For neither Lawsuit A or Lawsuit B A. For Lawsuit A only The event occurred before the date of the financial statement, unfavorable outcome is probable, and the amount of loss can be reasonably estimated. These situations must be present to record a loss contingency A company originally sold 20-year bonds with a face value of $500,000 for a $20,000 discount. The bonds were held to maturity. How much will the gain be on the maturity date? A. $20,000 B. $500,000 C. $0 D. $480,000 C. $0 If a company holds the bonds to maturity, the company does not compute any gains or losses. It will have fully amortized any premium or discount at the date the bonds mature. A company issues a $25,000 three-year note. The stated and effective interest rates are 2%. Which journal entry should be used to record the annual interest expense at the end of the first year? A. Debit Cash for $500; credit Interest Expense for $500 B. Debit Interest Expense for $1,500; credit Cash for $1,500 C. Debit Cash for $1,500; credit Interest Expense for $1,500 D. Debit Interest Expense for $500; credit Cash for $500 D. Debit Interest Expense for $500; credit Cash for $500 $500 = ($25,000 x 0.02). When the stated and effective interest rates are the same, annual interest is calculated by multiplying the face of the note times the interest rate. A hardware retailer recently purchased $1,000,000 of lawn mowers from a local manufacturer with terms 2/10, n/30.How should this transaction be reported on the balance sheet? A. Accounts payable B. Notes payable C. Unearned revenue D. Returnable cash deposits A. Accounts payable Accounts payable are balances owed for goods or services to vendors. A company reports the following financial information: -Net income: $110,000 -Interest expense: $47,000 -Income tax expense: $22,000 -R&D expense: $38,000 -Operating income: $190,000 What is the company's times interest earned? A. 5.51 B. 4.62 C. 6.32 D. 3.81 D. 3.81 3.81 = ($110,000 + $47,000+ $22,000) / $47,000. This choice correctly sums net income, interest expense, and income tax expense and divides it by interest expense. A company collected sales tax of $2,800 on sales of $35,000. The sales tax rate is 8.5%.Which entry should be used to record the amount due to the taxing agency? A. Debit Sales Revenue for $2,800; credit Cash for $2,800 B. Debit Sales Revenue for $2,800; debit Loss on sales tax collection of $175; credit Cash of $2,975 C. Debit Cash for $2,800; credit Sales Tax Revenue $2,800 D. Debit Cash for $2,975; credit Sales Revenue for $2,800; credit Loss on sales tax collections $175 B. Debit Sales Revenue for $2,800; debit Loss on sales tax collection of $175; credit Cash of $2,975 Sales tax revenue = $35,000 * .0825 = $2,975. The company undercollected sales tax by $175. Debit Sales Revenue $2,800 Debit Loss on Sales Tax Collection $175 (Credit) Cash $2,975 A company's most recent balance sheet depicts the following amounts: -Current assets: $300,000 -Long-term assets: $400,000 -Current liabilities: $100,000 -Long-term liabilities: $200,000 What is the company's debt-to-assets ratio, rounded to the nearest percent? A. 14% B. 43% C. 33% D. 50% B. 43% 43% = ($100,000 + $200,000) / ($300,000 + $400,000). The debt-to-assets ratio is calculated as total liabilities divided by total assets. A private airline company sold 110 tickets at $350 each on March 1 for a round-trip ticket to a sporting event occurring on February 1 of the following year. Which entry should the company use to record the sale of the tickets? A. Debit Cash for $38,500; credit Unearned Passenger Revenue for $38,500 B. Debit Unearned Passenger Revenue for $38,500; credit Cash for $38,500 C. Debit Passenger Revenue for $3,500; debit Unearned Passenger Revenue for $35,000; credit Cash for $38,500 D. Debit Cash for $38,500; credit Passenger Revenue for $3,500; credit Unearned Passenger Revenue for $35,000 A. Debit Cash for $38,500; credit Unearned Passenger Revenue for $38,500 $350 x 110 = $38,500. Debit Cash for $38,500 and credit Unearned Revenue for $38,500. Revenue is not earned until the airline provides the service. A company issues $500,000 of bonds at 98. How should the premium or discount be recorded upon bond issuance? A. Credit to Discount on Bonds Payable for $10,000 B. Credit to Premium on Bonds Payable for $10,000 C. Debit to Premium on Bonds Payable for $10,000 D. Debit to Discount on Bonds Payable for $10,000 Correct! Discount is debited when the bonds are sold for less than par value. When bonds are sold for less than 100 (par value), then they are sold for a discount, which will be recorded as a debit in the debt issuance journal entry. In this instance, bonds are sold for 98% of par value, or a 2% of $500,000 discount (calculating to $10,000). D. Debit to Discount on Bonds Payable for $10,000 Discount is debited when the bonds are sold for less than par value. When bonds are sold for less than 100 (par value), then they are sold for a discount, which will be recorded as a debit in the debt issuance journal entry. In this instance, bonds are sold for 98% of par value, or a 2% of $500,000 discount (calculating to $10,000). A company redeemed bonds before the maturity date with a reacquisition price that was less than the current net carrying value. The original bond issuance was recorded at 103. Which account should be debited in the journal entry to record this transaction? A. Discount on Bonds Payable B. Gain on Redemption of Bonds C. Premium on Bonds Payable D. Loss on Redemption of Bonds C. Premium on Bonds Payable Since the reacquisition price was less than the current net carrying value, the extinguishment of debt will be recorded as a gain. Additionally, since the original bond issuance was recorded at a premium of 103 and the bonds were redeemed before the maturity date, there is still a balance in the Premium account. Premiums are originally credited, so the account needs to be debited at the redemption date. A company does not segregate sales tax and the amount of sale at the time of sale. At quarter end, the company must record the sales tax. The Sales Revenue account shows a balance of $200,000, which includes 6% sales tax. Which entry should be used to record the amount due to the taxing unit? A. Debit Sales Revenue for $11,321; credit Sales Taxes Payable for $11,321 B. Debit Sales Tax Expense for $11,321; credit Sales Taxes Payable for $11,321 C. Debit Sales Revenue for $12,000; credit Sales Taxes Payable for $12,000 D. Debit Sales Tax Expense for $12,000; credit Sales Taxes Payable for $12,000 A. Debit Sales Revenue for $11,321; credit Sales Taxes Payable for $11,321 $11,321 = $200,000 - ($200,000/1.06). This is the correct calculation and accounts to record this transaction. A company purchases a factory and signs a 30-year mortgage with a face value of $500,000 and a fixed interest rate of 6.75% per year. The bank is requiring 4 points upon closing. How much should be recorded in the Mortgages Payable account upon closing? A. $500,000 B. $480,000 C. $520,000 D. $533,750 A. $500,000 Mortgages will be recorded at face value. A company borrows $20,000 by issuing a three-year note with a stated and effective rate of 5%. How much will the company record in the Notes Payable account upon signing the note? A. $21,000 B. $23,000 C. $20,000 D. $22,000 C. $20,000 The note will be recorded at face value. A company reported the following accounts from its year-end balance sheet: -Cash: $50,000 -Short-term investments: $125,000 -Accounts receivable: $230,000 -Inventory: $720,000 -Property, plant, and equipment, net: $800,000 -Investments: $95,000 -Accounts payable: $193,000 -Accrued liabilities: $29,000 -Current portion of long-term debt: $170,000 -Long-term debt: $715,000 -Stockholder's equity: $963,000 What is the company's quick ratio? A. 0.5 B. 1.0 C. 2.5 D. 2.9 B. 1.0 Quick Assets = $50,000 + $125,000 + $230,000 = $405,000. Current Liabilities = $193,000 + $29,000 + $170,000 = $392,000. Quick Ratio = Quick assets/Current liabilities = $405,000/392,000 = 1.0 (rounded to tenths). A company issued a 5-year note payable in the amount of $15,000. The note bears the market interest rate of 5%. At Year 3, the market rate of interest is 3%. Which journal entry is appropriate for recording interest at the end of the third year? A. Debit Interest Expense for $450; credit Cash for $450 B. Debit Interest Expense for $750; credit Discount on Note Payable for $300; credit Cash for $450 C. Debit Interest Expense for $750; credit Cash for $750 D. Debit Interest Expense for $450; debit Premium on Note Payable for $300; credit Cash for $750 C. Debit Interest Expense for $750; credit Cash for $750 $750 = $15,000 x 0.05. When the stated and effective interest rates are the same, annual interest is calculated by multiplying the face of the note times the interest rate. Interest rates do not change in subsequent years if the market rate changes. A company reported the following accounts from its year-end balance sheet: -Cash: $50,000 -Short-term investments: $125,000 -Accounts receivable: $230,000 -Inventory: $720,000 -Property, plant, and equipment, net: $800,000 -Investments: $95,000 -Accounts payable: $193,000 -Accrued liabilities: $29,000 -Current portion of long-term debt: $170,000 -Long-term debt: $715,000 -Stockholder's equity: $963,000 What is the company's debt-equity ratio? A. 0.5 B. 0.4 C. 1.1 D. 0.2 C. 1.1 Debt to Equity = Total liabilities/Stockholders' equity. Total liabilities = $193,000 + $29,000 + $170,000 + $715,000 = $1,107,000. Debt to Equity = $1,107,000/$963,000 = 1.1. On May 1, a company took out a $60,000, 8%, five-year loan from a bank to purchase new equipment. Payments on the principal and interest are due January 1 of each year. Principal is to be repaid in five even installments. Which entry should be used to record the note? A. Debit Cash for $60,000, debit Interest Expense of $3,200, credit Current Maturities of Long Term Debt for 8,000, credit Long-Term Debt of $52,000, credit Interest Payable of $3,200 B. Debit Cash for $60,000, credit Current Maturities of Long-Term Debt for 8,000, credit Long Term Debt of $52,000 C. Debit Cash for $60,000, debit Interest Expense of $4,800, credit Current Maturities of Long Term Debt for 12,000, credit Long-Term Debt of $48,000, credit Interest Payable of $4,800 D. Debit Cash for $60,000, credit Current Maturities of Long-Term Debt for 12,000, credit Long-Term Debt of $48,000 D. Debit Cash for $60,000, credit Current Maturities of Long-Term Debt for 12,000, credit Long-Term Debt of $48,000 Long-term debt is broken into two parts: current maturities of long-term debt with the remaing portion posted to long-term debt. Current maturities is anything due within the next twelve months. $60,000/5 = $12,000 per year. Debit Cash $60,000 (Credit) Current Maturities of Long Term Debt $12,000 (Credit) Long-term Debt $48,000 A company reports the following financial information: -Current assets: $300,000 -Long-term assets: $500,000 -Current liabilities: $300,000 -Long-term liabilities: $400,000 -Stockholder's equity: $100,000 What is the company's debt-to-asset ratio, rounded to the nearest percent? A. 100% B. 50% C. 88% D. 78% C. 88% 88% = (($400,000 + $300,000) / ($500,000 + $300,000)) x 100. This choice correctly divides total liabilities by total assets. A company knows that certain loss contingencies should be recorded in an effort to be conservative. Which type of loss contingencies must be recorded? A. Risk of loss or damage by fire B. Expected premiums to be awarded to customers C. Expected loss from general business risk D. Risk of litigation loss that cannot be estimated B. Expected premiums to be awarded to customers This is both probable and can be estimated. Expected premiums to be awarded to customers should be recorded as a loss contingency. A corporation currently has 4% convertible preferred stock outstanding. Which computation should be used to determine the diluted earnings per share? A. Subtract the annual preferred dividends from net income B. Subtract the number of common stock shares exercisable from the preferred stock from the number of outstanding common stock shares C. Add the annual preferred dividends to net income D. Add the number of common stock shares exercisable from the preferred stock to the number of outstanding common stock shares D. Add the number of common stock shares exercisable from the preferred stock to the number of outstanding common stock shares The corporation will consider the potential number of common stock shares from the convertible preferred and include them in its diluted earnings per share calculations as shares outstanding. A company exchanges 10,000 shares of stock for land, which has been advertised for sale at a price of $180,000. At the time of the transaction, the company's $5 par shares are actively traded for $15 per share. What is the journal entry for this transaction? A. Debit Land for $180,000; Credit Common Stock for $180,000 B. Debit Land for $180,000; Credit Common Stock for $50,000; Credit Paid-in Capital in Excess of Par $130,000 C. Debit Land for $150,000; Credit Common Stock for $150,000 D. Debit Land for $150,000; Credit Common Stock for $50,000; Credit Paid-in Capital in Excess of Par $100,000 D. Debit Land for $150,000; Credit Common Stock for $50,000; Credit Paid-in Capital in Excess of Par $100,000 $150,000 = $15 x 10,000. $50,000 = $5 x 10,000. The land should be recorded at the actively traded share price of $15 per share. A company's board of directors declares a $0.75 per share cash dividend. The company has 375,000 shares of common stock issued and 50,000 shares of treasury stock on the date of record. What is the journal entry to record this event? A. Debit Retained Earnings for $243,750; Credit Dividends Payable for $243,750 B. Debit Retained Earnings for $281,250; Credit Dividends Payable for $281,250 C. Debit Common Stock for $243,750; Credit Dividends Payable for $243,750 D. Debit Dividend Expense for $281,250; Credit Dividends Payable for $281,250 A. Debit Retained Earnings for $243,750; Credit Dividends Payable for $243,750 $243,750 = (375,000 - 50,000) x 0.75. Retained Earnings are debited on the date of declaration of a cash dividend. Simultaneously, a liability of Dividends Payable is established. A company is preparing an expansion and wants to improve its return on equity to be more attractive to investors. How could this be accomplished? A. Increase net income B. Issue additional shares of stock C. Increase preferred dividends D. Issue a stock split A. Increase net income The numerator increasing will increase return on equity. A company reports net income of $1,000,000. Dividends paid to preferred shareholders are $100,000. Shares outstanding at the beginning of the calendar year equal 700,000. The company purchased 200,000 treasury shares on October 1. Which amount is the earnings per share? A. $1.54 B. $1.29 C. $1.38 D. $1.80 C. $1.38 $1.38 = ($1,000,000 - $100,000) / ((700,000 x 9/12) + ((700,000- 200,000) x 3/12)). Shares must be averaged on a weighted basis. A company has a net income of $100,000; cash dividends to common stockholders of $7,500; and cash dividends to preferred shareholders of $2,500. Which value is the company's payout ratio? A, 5.0% B. 2.5% C. 7.7% D. 10.0% C. 7.7% 0.076923 = $7,500 / ($100,000 - 2,500). The payout ratio is cash dividends to common shareholders divided by net income less the preferred dividends. A company issues 1,000 shares of $1 par value common stock upon conversion of 1,000 shares of $5 par value preferred stock that was originally issued for a $150 premium. How much should be credited to the common stock account? A. $850 B. $5,000 C. $1,150 D. $1,000 D. $1,000 $1,000 = (1,000 x $1). Common stock will be credited for the par value. A company reported the following information in its financial statements: -Net income: $70,000 -Preferred dividends: $10,000 -Common stockholders' equity: $200,000 -Common shares outstanding: 50,000 What is the book value per share? A. $1.40 B. $1.20 C. $3.80 D. $4.00 D. $4.00 $4.00 = $200,000 / 50,000. This is the common stockholders' equity divided by the outstanding common shares. A company declares a cash dividend on May 1, the date of record is May 15, and the date of payment is June 11. The dividend is $3.00 per share. The company only has common stock, and there are 10,000 shares authorized, 8,000 shares issued, and 5,000 shares outstanding. Which account should be debited on June 11? A. Dividends payable for $24,000 B. Retained earnings for $15,000 C. Retained earnings for $24,000 D. Dividends payable for $15,000 D. Dividends payable for $15,000 $15,000 = 5,000 x $3. Dividends Payable is debited when the dividend is paid. The dividend per share is multiplied by the number of shares outstanding. A company is buying a patent in exchange for 1,000 shares of common stock in the company at $5 a share. The fair market value of the stock is $10, and the market value of the patent is unknown.Which journal entry should the company use to account for the purchase of the patent? A. Debit Common Stock for $5,000; Debit Paid-in Capital for $5,000; Credit Patents for $10,000 B. Debit Common Stock for $10,000; Credit Patents for $5,000; Credit Paid-in Capital for $5,000 C. Debit Patents for $10,000: Debit Paid-in Capital for $5,000; Credit Common Stock for $15,000 D. Debit Patents for $10,000; Credit Common Stock for $5,000; Credit Paid-in Capital for $5,000 D. Debit Patents for $10,000; Credit Common Stock for $5,000; Credit Paid-in Capital for $5,000 The entry is made for the exchange of the patent for the value of the common stock. A company issues 15,000 shares of $1 par value common stock in exchange for a trademark with a fair market value of $20,000. Additionally, the company paid underwriting costs of $5,000. Which journal entry should be used to record this common stock issuance? A. Debit Trademark for $20,000; Debit Paid-in Capital in Excess of Par-Common Stock for $5,000; Credit Common Stock for $20,000; Credit Cash for $5,000 B. Debit Trademark for $15,000; Debit Paid-in Capital in Excess of Par-Common Stock for $5,000; Credit Common Stock for $15,000; Credit Cash for $5,000 C. Debit Trademark for $20,000; Credit Common Stock for $15,000; Credit Cash for $5,000 D. Debit Trademark for $20,000; Credit Common Stock for $15,000; Credit Paid-in Capital in Excess of Par-Common Stock for $5,000 C. Debit Trademark for $20,000; Credit Common Stock for $15,000; Credit Cash for $5,000 The trademark should be valued at the fair market value, and common stock should be recorded at the par value. A corporation receives a lump sum of $1,010.25 for a $1,000 par value bond with one warrant attached. The warrant is to purchase one share of common stock for $30 within the next five years when the stock is trading at $60. The warrant can be traded separately from the bond. The bond's market price cannot be determined, but the market price for the warrant is $30.90. How much of the bond sale proceeds is allocated to the bonds using the incremental method? A. $1,030.90 B. $980.25 C. $979.35 D. $1,010.25 C. $979.35 $979.35 = $1,010.25 - $30.90. The company received the $1,010.25 for the bond with the warrant attached. Knowing the warrant has a fair value of $30.90, the remaining is allocated to the bond. A company currently has stock warrants outstanding. The company needs to determine when these warrants impact its earnings per share. When should they be included in the calculation? A. When the warrants have a dilutive effect on earnings per share B. When the warrants have an antidilutive effect on earnings per share C. When the warrants are exercisable D. When the warrants will expire within the current period A. When the warrants have a dilutive effect on earnings per share The warrants that have a dilutive effect on earnings per share are included in the diluted earnings per share calculation A company reports net income of $1,000,000 for the year. Shares outstanding during the first three months of the year equal 500,000, and shares outstanding during the final nine months of the year equal 1,000,000. There are $100,000 of preferred dividends. What is the earnings per share? A. $1.14 B. $1.80 C. $1.03 D. $0.90 C. $1.03 $1.03 = ($1,000,000 - $100,000) / ((500,000 x 3/12) + (1,000,000 x 9/12)). Share must be averaged on a weighted basis during the year. A company has a complex capital structure regarding dilutive securities currently outstanding. The company is making a financial statement disclosure regarding their common stock and may include a note in their financial statements. Which note must be included, if any? A. A description of the rights assigned to the diluted securities B. Dilutive securities that will not become antidilutive in the future C. Individual owners and quantities of the dilutive securities D. No disclosure required regarding dilutive securities A. A description of the rights assigned to the diluted securities A disclosure is required in the financial statements describing the rights and privileges of the dilutive securities. This disclosure provides detail useful to the financial statement user regarding the potential effects of the dilutive securities. A company announces a $500,000 dividend payable to common stockholders. The cash dividend announcements noted that stockholders should consider $400,000 of the dividend as income and the remainder as a return of capital. Which journal entry should be used to record this dividend? A. Debit Retained Earnings for $500,000; Credit Paid-in Capital in Excess of Par - Common Stock for $100,000; Credit Dividends Payable for $400,000 B. Debit Retained Earnings for $400,000; Credit Dividends Payable for $400,000 C. Debit Retained Earnings for $500,000; Credit Dividends Payable for $500,000 D. Debit Retained Earnings for $400,000; Debit Paid-in Capital in Excess of Par - Common Stock for $100,000; Credit Dividends Payable for $500,000 D. Debit Retained Earnings for $400,000; Debit Paid-in Capital in Excess of Par - Common Stock for $100,000; Credit Dividends Payable for $500,000 $100,000 = $500,000 - $400,000. This is a liquidating dividend. The difference between the return of capital should be debited to the Paid-in Capital in Excess of Par - Common Stock account. A company allows all full-time employees--but no part-time employees--to participate in its employee stock purchase plan. The employees have the option to purchase common stock discounted by 25%, and the plan offers no substantive option feature. What is one of the three required features that causes the plan to be considered compensatory? A. There is no substantive option feature. B. The company only includes common stock as part of the plan. C. The stock is discounted by 25%. D. Part-time employees are excluded from the stock option plan. C. The stock is discounted by 25%. Non-compensatory plans can only be discounted for 5% or less. A company has issued bonds with a total face value of $5,000,000 with a detachable warrant. The fair value of the bonds without the warrants was $4,800,000, and the fair value of the warrants amounted to $100,000. Which amount should be debited to Discount on Bonds Payable using the proportional method? A. $200,000 B. $102,041 C. $4,897,959 D. $100,000 B. $102,041 $102,041 =$5,000,000 -((($4,800,000 / ($5,000,000 - $100,000)) x $5,000,000)). This shows the amount allocated to the warrants that will be debited to Discount on Bonds Payable. A bookkeeper is reviewing transactions for a company that acquired 12,000 shares of its $1 par value common stock at $10 per share using the cost method. The shares were originally issued at $1 over par value. The first sale of the treasury stock was for 1,000 shares at $10, the second sale was for 5,000 shares at $2 above cost, and the third sale was for 5,000 shares at $4 below cost. The company retired the remaining 1,000 shares of treasury stock on the last day of the year. Which transaction includes a debit to Paid-on Capital from Treasury stock for $10,000? A. First sale of 1,000 shares B. The retirement of 1,000 shares C. Second sale of 5,000 shares D. Third sale of 5,000 shares D. Third sale of 5,000 shares $50,000 = 5,000 x $10; $30,000 = 5,000 x ($10 - $4); $10,000 = 5,000 x ($4 - $2); $10,000 = $50,000 - $30,000 - $2,000. The journal entry for the third sale is as follows: Debit Cash for $30,000; Debit Paid-in Capital from Treasury Stock for $10,000; Debit Retained Earnings for $10,000; Credit Treasury Stock for $50,000. Lundy Company purchased a depreciable asset for $99,000 on January 1. The estimated salvage value is $18,000, and the estimated useful life is 9 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset? (Please round the double declining balance rate to 2 decimal places, e.g. 0.35 or 35% in your intermediate calculations.) A. $17,820 B. $16,988 C. $13,900 D. $11,000 B. $16,988 Double declining method ignores salvage value. It calculates depreciation at 200% of the straight-line rate each year and multiplies that by the book value of the asset at the beginning of the period. Since the asset in this case has a useful life of 9 years, the straight-line depreciation rate is 11% per year. The double-declining method rate, therefore is 22%. First year depreciation is $99,000 x 22% = $21,780. The book value at the beginning of the 2nd year is $77,220 ($99,000 - $21,780). The second year depreciation is $77,220 x 22% = $16,988. For 2017, Lassiter Company reports beginning of the year total assets of $900,000, end of the year total assets of