ACG 4111 Final Exam review Questions

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Florida International University *

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4111

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Accounting

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Jun 23, 2024

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1. On June 1, 2020, PCA Co. borrowed cash by issuing a 6-month noninterest- bearing note with a maturity value of $460,000 and a discount rate of 8%. Assuming straight-line amortization of the discount, what is the carrying value of the note as of September 30, 2020? (Round all calculations to the nearest whole dollar amount.) A. $490,667. B. $429,333. C. $441,600. D. $453,867. 2. MANGO Department Stores, Inc. records $3,000,000 in gift card sales and receives cash in year 1. Customers redeemed 65% of the gift cards to purchase merchandise in year 2. Which of the following would be included in the summary journal entry to reflect the year 2 redemption transactions? A. Debit Sales Revenue $1,950,000 B. Credit Sales Revenue $1,050,000 C. Debit Unearned Revenue $1,950,000 D. Credit Unearned Revenue $1,050,000 3. Acme, Inc. gives its employees two weeks of vacation time each year. Vacations earned each year can be taken the following year. For the year ended December 31, 2020, Acme’s employees each earned an average of $200 per day. Each employee has a 5-day work week. Eight hundred vacation weeks earned in 2020 were not taken during 2020. Six hundred vacation weeks earned in 2020 were taken in 2020. The entry for vacations earned but not taken during 2020 includes: A. Debit to Wages expense for $200,000 B. Debit to Wages expense for $800,000 C. Credit to Liability – compensated future absences for $600,000 D. Credit to Liability – compensated future absences for $1,400,000

4. Wertheim LLC. had a quality-assurance warranty liability of $353,000 at the beginning of 2021 and $303,000 at the end of 2021. Warranty expense is based on 4% of sales, which were $48 million for the year. What amount of warranty costs were paid during 2021? A. $1,920,000. B. $1,870,000. C. $0. D. $1,970,000. 5. Panther Co. issued 13% bonds, dated January 1, with a face value of $100,000 on January 1, 2020. The bonds mature in 2030 (10 years). Interest is paid semiannually on June 30 and December 31. For bonds of similar risk and maturity the market yield is 14%. What was the issue price of the bonds? (Use appropriate factor(s) from the tables provided.) A. $68,861. B. $64,730. C. $94,703. D. $98,320. 6. PCA, Inc. issued $780,000 bonds at 104. Legal, accounting, printing and underwriting fees were $12,000. The journal entry at issuance would include which of the following: A. Debit to Cash of $811,200. B. Debit to Cash of $823,200. C. Credit to Premium and Debt Issue Costs of $19,200. D. Credit to Premium and Debt Issue Costs of $31,200.

Chess Corporation issued $800,000 of bonds on January 1, 2019. They have an 8-year term and pay interest semiannually on June 30 and December 31 of each year. This is the partial bond amortization schedule for the bonds. 7. What is the effective annual rate of interest on the bonds? A. 3.5%. B. 4.5%. C. 7.0%. D. 9.0%. 8. What is the interest expense on the income statement for the year ended December 31, 2020? A. $32,514. B. $32,320. C. $64,834. D. $56,000. 9. What is the amount of unamortized discount as of December 31, 2020? A. $4,514. B. $16,924. C. $72,947. D. $727,052.

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10. Roarie LLC issued 10,000, $1,000 bonds on January 1, 2020. The bonds have a 10-year term and pay interest semiannually. This is a partial bond amortization schedule for the bonds: What would be the total interest cost of the bonds over their full term? A. $4,261,329 B. $7,738,658 C. $4,000,000 D. $3,738,658 11. On January 1, 2020, MANGO Corp. issued 3,500 of its 10%, $1,000 bonds for $3,620,000. These bonds were to mature on January 1, 2030 but were callable at 101 any time after December 31, 2023. Interest was payable semiannually on July 1 and January 1. On July 1, 2025, F called all of the bonds and retired them. The bond premium was amortized on a straight-line basis. Before income taxes, F Corp.'s gain or loss in 2025 on this early extinguishment of debt was: A. $95,000 gain. B. $19,000 gain. C. $31,000 gain.

D. $35,000 loss. 12. During 2020, Panther Company was encountering financial difficulties and seemed likely to default on a $210,000, 7%, four-year note dated January 1, 2018, payable to Fifth Bank. Interest was last paid on December 31, 2020. On December 31, 2020, Fifth Bank accepted $185,000 in settlement of the note. Ignoring income taxes, what amount should Panther Company report as a gain from the debt restructuring in its 2020 income statement? A. $9,925. B. $25,000. C. $39,700. D. $0. 13. On December 31, 2020, MANGO Corporation leased a plane from PantherAero Company for an eight-year period expiring December 30, 2028. Equal annual payments of $150,000 are due on December 31 of each year, beginning with December 31, 2020. The lease is properly classified as a finance lease on MANGO’s books. The present value at December 31, 2020 of the eight lease payments over the lease term discounted at 10% is $880,264. Assuming the payments are made on time, the amount that should be reported by MANGO Corporation as the lease liability on its December 31, 2021 balance sheet (after the payment was made) is A. $76,974. B. $568,619. C. $653,290. D. $818,290

On January 1, 2018, BBC Co. recorded a right-of-use asset of $270,360 in an operating lease. The lease calls for ten annual payments of $40,000 at the beginning of each year. The interest rate charged by the lessor was 10%. 14. What amount will BBC Co. record for interest expense at December 31, 2019? A. $23,036 B. $27,036 C. $31,036 D. $40,000 15. What amount will BBC Co. record for amortization expense at December 31, 2019? A. $23,036 B. $27,036 C. $16,964 D. $63,036 16. The following information pertains to BurgerK Co.’s defined benefit pension plan: If no change in actuarial estimates occurred during the year, BurgerK Co.’s PBO at December 31 was A. $164,400 B. $128,400

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C. $150,000 D. $158,400 17. Panther Company purchased a machine for $200,000 on January 1, 2018. Panther Co. depreciates machines of this type by the straight-line method over a 10-year period with the residual value of $20,000. Due to a change in sales patterns, on January 1, 2021, management determines the useful life of the machine to be a total of seven years. What amount should Panther Co. record for depreciation expense for 2021? A. $31,500 B. $18,000 C. $35,000 D. $36,500 18. Panther LLC manufactures equipment for sale or lease. The equipment has a fair value or “selling price” of $2,400,000 and it costs $1,800,000. The equipment has no residual value at the end of the lease and the leases do not contain bargain purchase options. Panther LLC wishes to earn 12% interest on a four-year lease of this equipment. What is the amount of the annual lease payment to be made at the beginning of each year as calculated by Panther LLC (rounded)? A. $450,000 B. $529,127 C. $600,000 D. $705,503 19. Roarie Co. recorded a right-of-use asset of $810,000 in a 9-year finance lease. The interest rate charged by the lessor was 9%. The balance in the right-of- use asset after three years will be: A. $540,000.

B. $812,250. C. $958,950. D. $575,100. 20. PC Enterprises leased equipment from Roarie Co. on July 1, 2021, in a finance lease. The present value of the lease payments discounted at 11% was $39,200. Ten annual lease payments of $6,000 are due each year beginning July 1, 2021. Roarie Co. had constructed the equipment recently for $35,000, and its retail fair value was $39,200. The total decrease in earnings (pretax) in PC Enterprises December 31, 2021, income statement would be (ignore taxes): A. $1,826 B. $3,786 C. $4,116 D. $7,572 21. Which of the following creates a deferred tax liability? A. Prepaid rent. B. An unrealized loss from a debt investment. C. Rent received in advance. D. Estimated expenses from post-retirement employee benefits. 22. Which of the following creates a deferred tax asset due to its respective treatment on the books versus the tax return? A. Revenues reported on the income statement now, but on tax return later. B. Expenses reported on the income statement now, but on tax return later. C. Revenues reported on the tax return now, but on income statement later. D. None of the above.

23. For the current year ($ in millions), LitoR Corp. had $108 in pretax accounting income. This included •warranty expense of $9; $8 of warranty costs were incurred •depreciation expense of $26; depreciation deductions in the tax return amounted to $41. There were no other temporary or permanent differences. What was LitoR’s income tax payable currently, assuming a tax rate of 25%? A. $33.6 Million B. $19.3 Million C. $23.5 Million D. $21.1 Million 24. In 2020, HUDI had reported a deferred tax asset of $234 million with no valuation allowance. At December 31, 2021, the account balances of HUDI Services showed a deferred tax asset of $300 million before assessing the need for a valuation allowance and income taxes payable of $116 million. HUDI determined that it was more likely than not that 30% of the deferred tax asset ultimately would not be realized. HUDI made no estimated tax payments during 2021. What amount should HUDI report as income tax expense in its 2021 income statement? (Round your calculations to the nearest whole million.) A. $68 million B. $140 million C. $188 million D. $116 million

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Horngreen Inc. reported $500,000 pretax accounting income for 2018, its first year of operations. Included in the income statement was an installment sale of property in the amount of $80,000. However, for tax purposes, Horngreen Inc. reported the income in the year the cash was collected. Cash collected on the installment sale was $50,000 in 2019 and $30,000 in 2020. In 2018, Horngreen Inc. also had $20,000 in cash proceeds from an executive’s life insurance contract. The income tax rate is 35%. 25. What is the income tax expense in the 2018 income statement? A.$140,000 B. $161,000 C. $168,000 D. $189,000 26. Assume pretax accounting income is $610,000 in 2019. There are no other additional permanent or temporary differences. What is the tax expense for 2019? A. $213,500 B. $231,000 C. $248,500 D. $241,500 27. Clinton Corp. operates in an industry for which NOL carryback is not allowed, and had the following pretax income (loss) over its first four years of operations

For each year there were no deferred income taxes and the tax rate was 25%. No valuation account was deemed necessary for the deferred tax asset as of December 31, 2020. What amount should Clinton report as current income tax payable in 2021? A. 375,000 B. 150,000 C. 107,500 D. 225,000 Maddow Inc. has taken a position in its 2020 tax return and claims that it will save the company $10 million (direct reduction of current tax payment). Maddow Inc. has determined that its sustainability is “more likely than not”, based on the claim’s technical merits (i.e. probable to uphold some of its benefit position). Management’s estimate of the likelihood of various amounts of benefit are: 28. Pretax accounting income is $60 million and the tax rate is 40%. What amount was recorded for Liability for Unrecognized Tax Benefits by Maddow Inc. in its 2020 financial statements A. $10 million B. $8 million C. $2 million D. $0 million

29. In the resolution of the uncertainty, assume the firm experiences the worst case scenario. The journal entry will include a: A. Debit to income tax payable for $10 B. Debit to income tax expense for $8 C. Credit to Liability for Unrecognized Tax Benefits for $2 D. Credit to income tax expense for $2 30. Assume that Maddow had determined that the sustainability of the tax benefit was “not” more likely than not (i.e. assume Step 1 had failed and Maddow would not uphold its position). Maddow’s initial journal entry would include a: A. Debit to income tax expense for $24 B. Debit to income tax expense for $16 C. Credit to income tax payable for 24 D. Credit to Unrecognized Tax Benefits for $2 Little Twinkle Enterprises issued 400,000 shares of its $1 par common stock for $13 during its first year of operations in 2020. In 2021, Little Twinkle completed the treasury stock transactions listed below. January 1: Reacquired 9,000 shares at $16. May 1: Sold 3,000 shares at $19. October 1: Sold 5,000 shares at $10. 31. Under the cost method of accounting for treasury stock, the balance of treasure stock after the above transactions is: A. a debit balance of $16,000 B. a credit balance of 16,000 C. a debit balance of $37,000 D. a credit balance of 37,000

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32. Under the cost method of accounting for treasury stock, the October 1, 2021 sale of the treasury stock would: A. Reduce retained earnings by $9,000. B. Reduce paid-in capital-share repurchase by $30,000. C. Reduce retained earnings by $21,000. D. Reduce retained earnings by $30,000. 33. The shareholders' equity section of Time Company's comparative balance sheets for the years ended December 31, 2021 and 2020, reported the following data: During 2021, Time declared and paid cash dividends of $107 million. The company also declared and issued a small stock dividend. No other changes occurred in shares outstanding during 2021. What was Time's net income for 2021? A. $45 million B. $152 million C. $181 million D. $246 million 34. Teddy Bear Corp. has 30,000 shares of common stock outstanding at the end of 2019. Teddy Bear Corp. also has 50, 15-year, 8% convertible bonds, each with face value of $1,000. Each bond is convertible into 40 shares of common stock. During 2020, Teddy Bear Corp. earned a net income of $61,200 after deducting all expenses. The tax rate was 40%. Compute the diluted earnings per share for 2020:

A. $2.12 B. $1.96 C. $1.99 D. $2.04 35. Bug Guy’s capital structure was as follows: During 2018, Bug Guy paid dividends of $3.00 per share on its preferred stock. The preferred shares are convertible into 2,000 shares of common stock, and the 10% bonds are convertible into 3,000 shares of common stock. Assume the income tax rate is 30%. If net income for 2018 is $42,000, Bug Guy should report diluted earnings per share as A. 3.16 B. 3.50 C. 3.90 D. 3.36