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Questions: 1. In 2009, Winn, Inc. issued $1 par value common stock for $35 per share. No other common
stock transactions occurred until July 31, 2011, when Winn acquired some of the issued shares for $30
per share and retired them. Which of the following statements correctly states an effect of this
acquisition and retirement?



Additional paid-in capital is decreased.

2011 net income is decreased.

2011 net income is increased.

Retained earnings is increased.

2. When stock is issued in exchange for property, the best evidence of fair value might be any of the
following except:



The average book value of outstanding stock.

The selling price of the stock in a recent transaction.

The price of the stock quoted on the stock exchange.

The appraised value of the property received.
3. Rick Co. had 30 million shares of $1 par common stock outstanding at January 1, 2011. In October,
2011, Rick Co.'s Board of Directors declared and distributed a 1% common stock dividend when the
market value of its common stock was $60 per share. In recording this transaction, Rick would:



Debit retained earnings for $18 million.

Credit paid-in capital - excess of par for $18 million.

Credit common stock for $18 million.

None of the above is correct.
4.
Poodle Corporation was organized on January 3, 2011. The firm was authorized to issue 83,000 shares of
$5 par common stock. During 2011, Poodle had the following transactions relating to shareholders'
equity:

Issued 36,000 shares of common stock at $7.00 per share.
Issued 22,000 shares of common stock at $9.40 per share.
Reported a net income of $95,000.
Paid dividends of $42,000.

What is total Paid-in capital at the end of 2011?




$458,800.

$416,800.

$461,300.

$553,800.
5.
Boxer Company owned 17,000 shares of King Company that were purchased in 2009 for $490,000. On
May 1, 2011, Boxer declared a property dividend of 1 share of King for every 10 shares of Boxer stock.
On that date, there were 46,000 shares of Boxer stock outstanding. The market value of the King stock
was $29 per share on the date of declaration and $37 per share on the date of distribution. By how
much is retained earnings reduced by the property dividend?




$133,400.

$0.

$170,400.

$136,400.
6. Beagle Corporation has 20,000 shares of $10 par common stock outstanding and 10,000 shares of
$100 par, 6% cumulative, nonparticipating preferred stock outstanding. Dividends have not been paid
for the past two years. This year, a $300,000 dividend will be paid. What are the dividends per share
payable to preferred and common, respectively?



$6; $12.
$18; $6.

$6; $6.

None of the above is correct.
7.
Black Enterprises reported the following ($ in 000s) as of December 31, 2011. All accounts have normal
balances.

Deficit 1,900
Common stock 2,800
Paid-in capital-stock options 2,900
Treasury stock at cost 350
Paid-in capital-excess of par 30,000

During 2012 ($ in 000s), net income was $10,800; 25% of the treasury stock was resold for $510; cash
dividends declared were $630; cash dividends paid were $440; and all of the stock options expired.

What ($ in 000s) was shareholders' equity as of December 31, 2012?




$44,130.

$43,810.

$44,250.

$45,630.
8. When recognizing compensation under a stock option plan, unanticipated forfeitures are treated as:



A loss.

A change in accounting principle.

A change in estimate.

An income item.
9. The adjustment to the weighted-average shares for retired shares is the same as for issuing new
shares except:
The shares are deducted rather than added.

The shares are added rather than deducted.

The shares are treated as being acquired at the beginning of the year.

The shares are treated as being acquired at the end of the year.
10. Which of the following is not a potential common stock?



Convertible bonds.

Stock rights.

Participating preferred stock.

Convertible preferred stock.
11. Preferred dividends would not be subtracted from earnings when computing earnings per share in a
year when the dividends are not declared if the preferred stock is:



Participating.

Convertible.

Cumulative.

Noncumulative.
12.
On January 1, 2011, Oliver Foods issued stock options for 42,000 shares to a division manager. The
options have an estimated fair value of $8 each. To provide additional incentive for managerial
achievement, the options are not exercisable unless Oliver Foods' stock price increases by 4% in four
years. Oliver Foods initially estimates that it is not probable the goal will be achieved. How much
compensation will be recorded in each of the next four years?




$21,000

$84,000
$83,300

no effect
13.
Pastore Inc. granted options for one million shares of its $1 par common stock at the beginning of the
current year. The exercise price is $32 per share, which was also the market value of the stock on the
grant date. The fair value of the options was estimated at $5.50 per option. If the options have a vesting
period of five years, what would be the balance in "Paid-in Capital – Stock Options" three years after the
grant date?




A debit of $3.3 million.

A debit of $9.2 million.

A credit of $9.2 million.

A credit of $3.3 million.
14.
On January 1, 2011, D Corp. granted an employee an option to purchase 5,500 shares of D's $4 par
common stock at $23 per share. The options became exercisable on December 31, 2012, after the
employee completed two years of service. The option was exercised on January 10, 2013. The market
prices of D's stock were as follows: January 1, 2011, $32; December 31, 2012, $52; and January 10, 2013,
$45. An option pricing model estimated the value of the options at $9 each on the grant date. For 2011,
D should recognize compensation expense of:




$88,000.

$ 0.

$19,250.

$24,750.
15. When preparing a statement of cash flows using the direct method, accrual of payroll expense is:



Reported as an operating activity.
Reported as an investing activity.

Reported as a financing activity.

None of the above is correct.
16. The amortization of bond discount is included in the statement of cash flows (indirect method) as:



An investing activity.

An addition to net income.

A financing cash inflow.

A deduction from net income.
17. In determining cash flows from operating activities (indirect method), adjustments to net income
should not include:



An addition for patent amortization.

An addition for a gain on sale of equipment.

An addition for bond discount amortization.

An addition for depreciation expense.
18. Which of the following would be added to net income when determining cash flows from operating
activities under the indirect method?



A gain on the sale of land.

A decrease in accounts payable.

An increase in prepaid expenses.

A decrease in accounts receivable.
19.
Dooling Corporation reported balances in the following accounts for the current year:

Beginning Ending
Inventories $680 $380
Accounts payable 300 500

Cost of goods sold was $7,000. What was the amount of cash paid to suppliers?




$7,200.

$6,700.

$6,500.

$7,000.
20.
Bowers Corporation reported the following ($ in 000s) for the year:

Balance
Beginning Ending
Accounts receivable $680 $915
Allowance for bad debts 48 40

Sales on account were $1,980 and bad debt expense was $26 for the year. How much cash was collected
from customers on account?




$1,719.

$1,711.

$1,756.

$2,189.
21.
A company reported interest expense of $530,000 for the year. Interest payable was $28,000 and
$68,000 at the beginning and the end of the year, respectively. What was the amount of interest paid?




$598,000.

$558,000.
$570,000.

$490,000.
22.
In preparing its cash flow statement for the year ended December 31, 2011, Red Co. gathered the
following data:

Gain on sale of land $ 12,700
Proceeds from sale of land 24,000
Purchase of Blue, Inc. bonds (face value $211,000) 351,000
Amortization of bond discount 4,200
Cash dividends declared 92,000
Cash dividends paid 70,000
Proceeds from sales of common stock (carrying value $137,000) 160,000

In its December 31, 2011, statement of cash flows, what amount should Red report as net cash outflows
from investing activities?




$375,000

$327,000

$314,300

$187,000
23.
In preparing its cash flow statement for the year ended December 31, 2011, Green Co. gathered the
following data:

Gain on sale of land $ 12,300
Proceeds from sale of land 21,500
Purchase of Black, Inc. bonds (face value $230,000) 369,000
Amortization of bond discount 4,300
Cash dividends declared 94,000
Cash dividends paid 71,000
Proceeds from sales of common stock (carrying value $139,000) 158,000

In its December 31, 2011, statement of cash flows, what amount should Green report as net cash from
financing activities?
$87,000

$64,000

$23,000

$139,000
24.
Dulce Corporation had 170,000 shares of common stock outstanding during the current year. At the
beginning of the year, options for 12,500 shares of common stock were granted with an exercise price of
$20. The market price of the common stock averaged $25 for the year. Net income was $4.3 million.
What is diluted EPS? (Round your answer to 2 decimal places.)




$25.29.

$24.93.

$27.30.

$23.56.
25.
On December 31, 2010, Beta Company had 320,000 shares of common stock issued and outstanding.
Beta issued a 6% stock dividend on June 30, 2011. On September 30, 2011, 34,000 shares of common
stock were reacquired as treasury stock. What is the appropriate number of shares to be used in the
basic earnings per share computation for 2011?




375,240.

347,700.

339,200.

330,700.

				
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