1.) On January 4, 2002 Wynn Inc. bought 15% of Parr Corporation’s common stock for $60,000. Wynn appropriately accounts for this investment by the cost method. The following data concerning Parr are

1.) On January 4, 2002 Wynn Inc. bought 15% of Parr Corporation’s common stock for $60,000. Wynn appropriately accounts for this investment by the cost method. The following data concerning Parr are available for the years ended Dec 31, 2002 and 2003.

2002: Net Income $30,000

Dividend Paid None

2003: Net Income $90,000

Dividend Paid $80,000

In its income statement for the year ended December 31, 2003, how much should wynn report as income from this investment.

a. $4,500

b. $9,000

c. $12,000

d. $13,500

2. The calculation of the income recognized in the first year of a four-year construction contract accounting for using the percentage-of-completion method is generally based on the ratio of:

a. The total estimated costs to estimated costs complete.

b. Total estimated costs to actual costs incurred to date.

c. Actual costs incurred to date to total estimated costs.

d. Estimated costs to complete to total estimated costs.

3. A company used the percentage-of-completion method of accounting for a four-year contract. Which of the following items would be used to calculate the income recognized in the second year?

Income previously recognized/Progress billings to date

a. Yes/Yes

b. No/Yes

c. Yes/No

d. No/No

4. During 2009, Tidal wave company began construction on a project scheduled for completion in 2011. At Dec 31, 2009 an overall loss was anticipated at contract completion. What would be the effect of the project on 2009 operating income under the percentage-of-completion method and the completed contract method?

Percentage of Completion/Completed Contract

a. No effect/No effect

b. No effect/decrease

c. Decrease/no effect

d. Decrease/decrease

5. Rosson Corporation, which began business on January 1, 2009, appropriately uses the installment sales method of accounting for income tax reporting purchases. The following data are available for 2008:

Installment accounts receivable, 12/31/2008 200,000

Installment Sales for 2008 350,000

Gross Profit on sales 40%

Under the istallment sales method, what would Rosson’s deferred gross profit at December 31, 2008 be?

a. 120,000

b. 90,000

c. 80,000

d. 60,000

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1.
On January 1, 2008, Rex Co. sold a used machine to Lake, Inc. for $525,000.
On
this date, the machine had a depreciated cost of $367,500.
Lake paid $75,000
cash on January 1, 2008 and signed a $450,000 note bearing interest at 10%.
The
note was payable in three annual installments of $150,000 beginning January 1,
2009.
Rex appropriately accounted for the sale under the installment method.
Lake made a timely payment of the first installment on January 1, 2009, which
included interest of $45,000 to date of payment.
At December 31, 2009, Rex has
deferred gross profit of:
a.
$105,000
b.
$99,000
c.
$90,000
d.
$76,500
2.
During 2009 Bradley Corporation issued for $110 per share, 5,000 share of $100
par value convertible preferred stock.
One share of preferred stock can be
converted into three shares of Bradley’s $25 par value common stock at the option
of the preferred stockholder.
On December 31, 2010, all of the preferred stock
was converted into common stock.
The market value of the common stock at the
conversion date was $40 per share.
What amount should be credited to the
common stock account on December 31, 2010?
a.
$375,000
b.
$500,000
c.
$550,000
d.
$600,000
3.
At the time of conversion of bonds into common stock, the market value of the
stock exceeds the net carrying amount of the bonds.
A loss on conversion would
be recognized when using the:
Book value method
Market value method
a.
Yes
No
b.
Yes
Yes
c.
No
Yes
d.
No
No
4.
Wolf Company issued 1,000 of its $1,000 face amount, 20-year bonds on June 30,
2010, for $1,020,000.
Each bond carries five detachable stock purchase warrants,
each of which entitles the holder to purchase for $60 one share of Wolf’s common
stock.
On June 30, 2010, the market prices were $50 per share of Wolf’s common
stock and $5 per warrant.
In its June 30, 2010, balance sheet, at what amount
should Wolf report the carrying amount of the bonds?
a.
$995,000
b.
$1,000,000
c.
$1,020,000
d.
$1,045,000

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5.
An investor in common stock received dividends in excess of the investor’s share
of investee’s subsequent to the date of the investment.
How will the investor’s
investment account be affected by those dividends under each of the following
accounting methods?
Cost method
Equity method
a.
No effect
No effect
b.
Decrease
No effect
c.
No effect
Decrease
d.
Decrease
Decrease
Questions 6 through 8 are based on the following
:
Lee, Inc. acquired 30% of Polk Corporation’s voting stock on January 1, 2008 for
$100,000.
During 2008, Polk earned $40,000 and paid dividends of $25,000.
Lee’s 30% interest in Polk gives Lee the ability to exercise significant influence
over Polk’s operating and financial policies.
During 2009, Polk earned $50,000
and paid dividends of $15,000 on April 1, and $15,000 on October 1.
On July 1,
2009, Lee sold half its stock in Polk for $66,000 cash.
6.
Before income taxes, what amount should Lee include in its 2008 income
statement as a result of the investment?
a.
$40,000
b.
$25,000
c.
$12,000
d.
$7.500
7.
The carrying amount of this investment in Lee’s December 31, 2008 balance sheet
should be:
a.
$100,000
b.
$104,500
c.
$112,000
d.
$115,000
8.
What should the gain on sale of this investment in Lee’s 2009 income statement?
a.
$16,000
b.
$13,750
c.
$12,250
d.
$10,000
9.
When computing fully diluted earnings per share, convertible securities that are
not
common stock equivalents are:
a.
Recognize only if they are dilutive
.
b.
Recognize only if they are anti-dilutive.

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