1) A corporation issues bonds with detachable warrants. The amount to be recorded as paid-in capital is preferably A.

calculated by the excess of the proceeds over the face amount of the bonds. B. equal to the market value of the warrants. C. based on the relative market values of the two securities involved. D. zero.

2) Gains" on sales of treasury stock (using the cost method) should be credited to A. paid-in capital from treasury stock. B. capital stock. C. retained earnings. D. other income.

3) Wilson Corp. purchased its own par value stock on January 1, 2007 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from A. additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings. B. additional paid-in capital without regard as to whether or NOT there have been previous net "gains" from sales of the same class of stock included therein. C. retained earnings. D. net income.

4) In January 2007, Castro Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2007, Castro Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares A. decreased total stockholders' equity.

B. increased total stockholders' equity. C. did NOT change total stockholders' equity. D. decreased the number of issued shares. 5) In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are A. weighted by the number of days outstanding. B. weighted by the number of months outstanding. C. considered outstanding at the beginning of the year. D. considered outstanding at the beginning of the earliest year reported.

6) What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively? A. Decrease and no effect B. Increase and no effect C. Decrease and increase D. Increase and decrease

7) On May 1, 2007, Kent Corp. declared and issued a 10% common stock dividend. Prior to this dividend, Kent had 100,000 shares of $1 par value common stock issued and outstanding. The fair value of Kent 's common stock was $20 per share on May 1, 2007. As a result of this stock dividend, Kent's total stockholders' equity A. increased by $200,000. B. decreased by $200,000. C. decreased by $10,000. D. did NOT change.

8) Palmer Corp. owned 20,000 shares of Dixon Corp. purchased in 2003 for $240,000. On December 15, 2006, Palmer declared a property dividend of all of its Dixon Corp. shares on the basis of one share of Dixon for every 10 shares of Palmer common stock held by its stockholders. The property dividend was distributed on January 15, 2007. On the declaration date, the aggregate market price of the Dixon shares held by Palmer was $400,000.

The entry to record the declaration of the dividend would include a debit to Retained Earnings of A. $0. B. $400,000. C. $160,000. D. $240,000.

9) A reclassification adjustment is reported in the A. income statement as an Other Revenue or Expense. B. statement of stockholders equity. C. stockholders equity section of the balance sheet. D. statement of comprehensive income as other comprehensive income.

10) An unrealized holding gain on a company's available-for-sale securities should be reflected in the current financial statements as A. an extraordinary item shown as a direct increase to retained earnings. B. other comprehensive income and included in the equity section of the balance sheet. C. a current gain resulting from holding securities. D. a note or parenthetical disclosure only.

11) Investments in debt securities should be recorded on the date of acquisition at A. lower of cost or market. B. face value plus brokerage fees and other costs incident to the purchase. C. market value. D. market value plus brokerage fees and other costs incident to the purchase.

12) Securities which could be classified as held-to-maturity are A. redeemable preferred stock. B. treasury stock. C. warrants. D. municipal bonds.

13) Investments in debt securities are generally recorded at A. cost including accrued interest. B. maturity value with a separate discount or premium account. C. maturity value. D. cost including brokerage and other fees.

14) Bista Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods? Fair Value Method | Equity Method A. No Effect | Decrease B. Decrease | No Effect C. Increase | Decrease D. No Effect | No Effect

15) Use of the effective-interest method in amortizing bond premiums and discounts results in

A. a greater amount of interest income over the life of the bond issue than would result from use of the straight-line method. B. a variable rate of return on the book value of the investment. C. a varying amount being recorded as interest income from period to period. D. a smaller amount of interest income over the life of the bond issue than would result from use of the straight-line method.

16) A requirement for a security to be classified as held-to-maturity is A. ability to hold the security to maturity. B. positive intent. C. the security must be a debt security. D. All of these are required.

17) If the parent company owns 90% of the subsidiary company's outstanding common stock, the company should generally account for the income of the subsidiary under the A. cost method. B. equity method. C. fair value method. D. divesture method.

18) An option to convert a convertible bond into shares of common stock is a(n) A. embedded derivative. B. hybrid security. C. host security.

D. fair value hedge.

19) All of the following are characteristics of a derivative financial instrument EXCEPT the instrument A. has one or more underlyings and an identified payment provision. B. requires or permits net settlement. C. requires a large investment at the inception of the contract. D. All of these are characteristics

20) Taxable income of a corporation A. differs from accounting income due to differences in intraperiod allocation between the two methods of income determination. B. is based on generally accepted accounting principles. C. differs from accounting income due to differences in interperiod allocation and permanent differences between the two methods of income determination. D. is reported on the corporation's income statement.

21) At the December 31, 2007 balance sheet date, Garth Brooks Corporation reports an accrued receivable for financial reporting purposes but NOT for tax purposes. When this asset is recovered in 2008, a future taxable amount will occur and A. pretax financial income will exceed taxable income in 2008. B. total income tax expense for 2008 will exceed current tax expense for 2008. C. Garth will record a decrease in a deferred tax liability in 2008. D. Garth will record an increase in a deferred tax asset in 2008.

22) The deferred tax expense is the A. increase in balance of deferred tax asset minus the increase in balance of deferred tax liability. B. increase in balance of deferred tax asset plus the increase in balance of deferred tax liability. C. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset. D. decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability.

23) In a defined-benefit plan, the process of funding refers to A. determining the projected benefit obligation. B. determining the accumulated benefit obligation. C. making the periodic contributions to a funding agency to ensure that funds are available to meet retirees' claims. D. determining the amount that might be reported for pension expense.

24) In all pension plans, the accounting problems include all the following EXCEPT A. measuring the amount of pension obligation. B. disclosing the status and effects of the plan in the financial statements. C. allocating the cost of the plan to the proper periods. D. determining the level of individual premiums.

25) The projected benefit obligation is the measure of pension obligation that

A. is required to be used for reporting the service cost component of pension expense. B. requires pension expense to be determined solely on the basis of the plan formula applied to years of service to date and based on existing salary levels. C. requires the longest possible period for funding to maximize the tax deduction. D. is NOT sanctioned under generally accepted accounting principles for reporting the service cost component of pension expense.

26) Effective January 1, 2007, Quayle Co. established a defined-benefit plan with no retro-active benefits. The first of the required equal annual contributions was paid on December 31, 2007. A 10% discount rate was used to calculate service cost and a 10% rate of return was assumed for plan assets. All information on covered employees for 2007 and 2008 is the same. How should the service cost for 2008 compare with 2007, and should the 2007 balance sheet report an accrued or a prepaid pension cost? Service Cost for 2008 Compared to 2007 | Pension Cost Reported on the 2007 Balance Sheet A. Equal to | Accrued B. Equal to | Prepaid C. Greater than | Accrued D. Greater than | Prepaid

27) On January 1, 2005, Baden Co., purchased a machine (its only depreciable asset) for $300,000. The machine has a five-year life, and no salvage value. Sum-of-the-years'-digits depreciation has been used for financial statement reporting and the elective straight-line method for income tax reporting. Effective January 1, 2008, for financial statement reporting, Baden decided to change to the straight-line method for depreciation of the machine. Assume that Baden can justify the change. Baden's income before depreciation, before income taxes, and before the cumulative effect of the accounting change (if any), for the year ended December 31, 2008, is $250,000. The income tax rate for 2008, as well as for the years 2005-2007, is 30%. What amount should Baden report as net income for the year ended December 31, 2008? A. $60,000

B. $91,000 C. $154,000 D. $175,000

28) On December 31, 2008, Kean Company changed its method of accounting for inventory from weighted average cost method to the FIFO method. This change caused the 2008 beginning inventory to increase by $420,000. The cumulative effect of this accounting change to be reported for the year ended 12/31/08, assuming a 40% tax rate, is A. $420,000. B. $252,000. C. $168,000. D. $0.

29) During 2008, a construction company changed from the completedcontract method to the percentage-of-completion method for accounting purposes but NOT for tax purposes. Gross profit figures under both methods for the past three years appear below: Completed-Contract Percentage-of-Completion 2006 $ 475,000 $ 800,000 2007 625,000 950,000 2008 700,000 1,050,000

$1,800,000 $2,800,000 Assuming an income tax rate of 40% for all years, the effect of this accounting change on prior periods should be reported by a credit of A. $600,000 on the 2008 income statement. B. $390,000 on the 2008 retained earnings statement. C. $600,000 on the 2008 retained earnings statement. D. $390,000 on the 2008 income statement.

30) When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a

A. change in accounting principle. B. correction of an error. C. prior period adjustment. D. change in accounting estimate.