Discuss the questions you worked on and indicate why the answer is correct AND why the other answers are not correct

Investments

1. In a barter transaction where advertising services provided are exchanged for advertising services received, under which of the following situations can the advertising provider recognize revenue for the services performed? Assume the accounting is under IFRS guidelines.

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A. When the advertising services in the exchange are similar

B. When the fair value of the advertising services received can be reliably measured

C. When there is a nonbarter transaction for similar advertising services that can be reliably measured with the same counterparty

D. When there is a nonbarter transaction for similar advertising services that can be reliably measured with a different counterparty

2. Which one of the following is least likely to be a factor in determining how an investment in debt or equity securities is accounted for and reported in financial statements?

A. The nature of the investment

B. The method of payment used to acquire the investment

C. The extent or proportion of the investment securities acquired

D. The purpose for which the investment was made

3. Which of the following statements is true concerning the correct accounting for equity investments?

An investor must account for (measure) all equity investments using fair value.

An investor may elect to account for (measure) some equity investments at fair value.

I only.

II only.

Both I and II.

Neither I nor II.

4. In the absence of other relevant factors, what minimum level of voting ownership is considered to give an investor significant influence over an investee?

A. 10%

B. 20%

C.50%

D. 100%

5. On March 14, Apple Corporation purchased 6,000 shares of Pear Inc. for $25 per share plus a $340 brokerage fee. On June 30, when the shares were trading at $27, Apple prepared an adjustment to fair value and recorded the annual dividend of $0.40 per share. On August 14, Apple sold 4,000 shares of Pear for $29 per share less a brokerage fee of $225. The journal entry at the date of sale would include

A. a debit to cash for $115,775.

B. a debit to cash for $108,000.

C. a credit to investments for $100,000.

D. a credit to gain on the sale of investments for $8,000.

6. When an investor does not exert influence over the investee and accounts for an equity investment at fair value, cash dividends received by the investor from the investee should normally be recorded as

A.Dividend income.

B.An addition to the investor’s share of the investee’s profit.

C.A deduction from the investor’s share of the investee’s profit.

D.A deduction from the investment account.

7. Assume an entity is holding an equity security where there is not a readily determinable fair value. Which of the following is not a factor to consider in the evaluation of potential impairment?

A. A significant deterioration in the earnings performance, credit rating, asset quality, or business outlook of the investee

B.A significant adverse change in the regulatory, economic, or technological environment of the investee

C.The costs associated with gathering data on similar investments, researching valuation methodologies, and the cost to hire a valuation consultant

D.A significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates

8. Which of the following kinds of investments can result in the investor obtaining significant influence over an investee?

Equity investments Debt investments

A. Yes Yes

B. Yes No

C. No Yes

D. No No

9. In year 1, a company reported in other comprehensive income an unrealized holding loss on a debt investment classified as available-for-sale. During Year 2, these securities were sold at a loss equal to the unrealized loss previously recognized. The reclassification adjustment should include which of the following?

A. The unrealized loss should be credited to the investment account.

B. The unrealized loss should be credited to the other comprehensive income account.

C.The unrealized loss should be debited to the other comprehensive income account.

D.The unrealized loss should be credited to beginning retained earnings.

10. Which of the following is true with respect to impairment of available-for-sale securities?

A I f the decline in fair value is considered to be associated with a credit loss, the unrealized losses in OCI are reclassified to earnings.

B. If the decline in fair value is considered to be associated with a credit loss, the unrealized losses are recorded in OCI.

C. If the decline in fair value is not considered to be associated with a credit loss, the unrealized gains in OCI are reclassified to earnings.

D. If the decline in fair value is not considered to be associated with a credit loss, the unrealized gains are recorded in OCI.

Liabilities

11. Pane Co. had the following borrowings on its books at the end of the current year:

$100,000, 12% interest rate, borrowed five years ago on September 30; interest payable March 31 and September 30.

$75,000, 10% interest rate, borrowed two years ago on July 1; interest paid April 1, July 1, October 1, and January 1.

$200,000, noninterest bearing note, borrowed July 1 of current year, due January 2 of next year; proceeds of $178,000.

What amount should Pane report as interest payable in its December 31 balance sheet?

$ 4,875

$ 6,750

$26,875

$41,500

12. On September 30, World Co. borrowed $1,000,000 on a 9% note payable. World paid the first of four quarterly payments of $264,200 when due on December 30. In its December 31, balance sheet, what amount should World report as note payable?

$735,800

$750,000

$758,300

$825,800

13. On June 2, year 1, Tory, Inc. issued $500,000 of 10%, 15-year bonds at par. Interest is payable semiannually on June 1 and December 1. Bond issue costs were $6,000. On June 2, year 6, Tory retired half of the bonds at 98.

What is the net amount that Tory should use in computing the gain or loss on the retirement of debt?

$249,000

$248,500

$248,000

$247,000

14. On July 31, year 1, Dome Co. issued $1,000,000 of 10%, 15-year bonds at par and used a portion of the proceeds to call its 600 outstanding 11%, $1,000 face-value bonds, due on July 31, year 15, at 102. On that date, the unamortized bond premium relating to the 11% bonds was $65,000.

In its year 1 income statement, what amount should Dome report as a gain or loss, before income taxes, from the retirement of the bonds?

$53,000 gain

$0

$(65,000) loss

$(77,000) loss

15. Choose the correct statement concerning the classification of a liability when a firm is subject to a debt covenant.

A. All liabilities callable on demand are classified as current in all circumstances.

B. If the liability is callable on demand and the covenant is violated, then the liability is classified as current if the violation is waived by the creditor.

C. If the covenant includes a subjective acceleration clause and there is only a remote chance that debt will be called, then the liability is classified as noncurrent.

D.If a covenant grants a grace period during which it is possible that the violation will be cured, then the liability is classified as noncurrent.

Equity

16. Jones Co. had 50,000 shares of $5 par value common stock outstanding at January 1. On August 1, Jones declared a 5% stock dividend followed by a two-for-one stock split on September 1. What amount should Jones report as common shares outstanding at December 31?

105,000

100,000

52,500

50,000

17. An individual contracts for the purchase of 200 shares of $10 par common stock at a subscription price of $15. After making payments totaling $1,200, the subscriber defaults. Shares are issued in proportion to the amount of cash paid by the investor. The summary journal entry to record the net effect of these two transactions includes:

A. Debit share purchase contract receivable $1,800.

B. Credit common stock $2,000

C. Credit paid in capital in excess of par on common, $400

D. Credit share purchase contract receivable $600

18. When preferred stock is called and retired, which account or aggregate category of accounts can be increased?

Total Owners’ Equity Retained Earnings

A. Yes Yes

B. No No

C. Yes No

D. No Yes

19. 500 shares of 6%, $100 par callable preferred stock are called at $101. The shares were issued at $103 per share. The journal entry to record the retirement includes which of the following?

A. Cr. paid in capital from retirement of preferred stock, $1,000.

B. Dr. paid in capital from retirement of preferred stock $1,500.

C. Cr. retained earnings $1,000

D. Dr. preferred stock $51,500

20. During the current year, Onal Co. purchased 10,000 shares of its own stock at $7 per share.

The stock was originally issued at $6. The firm sold 5,000 of the treasury shares for $10 per share. The firm uses the cost method to account for treasury stock. What amount should Onal report in its income statement for these transactions?

A.$0

B.$ 5,000 gains.

C. $10,000 loss.

D. $15,000 gain

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