FAR - Pop Quiz Flashcards
The following information pertains to Jet Corp. outstanding stock for Year 1:
Common Stock, $5 par value
Shares outstanding, 1/1/01……………………………20,000
2-for-1 stock split, 4/1/Year 1…………………………20,000
Shares issued, 7/1/Year 1……………………………….10,000
Preferred stock, $10 par value, 5% cumulative
Shares outstanding, 1/1/01………………………………4,000
What are the number of shares Jet should use to calculate Year 1 earnings per share (EPS)?
The effect of the stock is applied retroactively to all changes in the number of shares of common stock outstanding before the split.
Weighted average shares outstanding for Year 1:
45,000 = [20,000(2) + 10,000(1/2)]. The split affects ONLY the shares issued before date of the split. July 1 issuance is weighted only by 1/2 a year b/c the shares were outstanding only 1/2 a year. EPS is computed only on common stock outstanding. Preferred shares have NO EFFECT on computation.
A company had the following outstanding shares as of Jan 1, year 2.
Preferred stock, $60 par, 4%, cumulative………..10,000 shares
Common stock, $3 par……………………………………..50,000 shares
On April 1, year 2, the company sold 8,000 shares of previously unissued common stock. No dividends were in arrears on January 1, year 2, and no dividends were declared or paid during year 2. Net income for year 2 totaled $236,000. What amount is basic earnings per share for the year ended Dec. 31, year 2?
Basic EPS = Net Income - Preferred Dividends / Weighted shares outstanding. The numerator is $236,000 - preferred dividends [($60 x 10,000) x 0.04 = 24,000] = $212,000. The denominator is 50,000 (12/12) + 8,000(9/12) = 56,000 shares. $212,000 / 56,000 = $3.786 or $3.79
Which of the following qualifies as a reportable operating segment?
A. Corporate headquarters, which oversees $1 billion in sales for the entire company
B. North American segment, whose assets are 12% of the company’s assets of all segments, and management reports to the chief
operating officer
C. South American segment, whose results of operations are reported directly to the chief operating officer, and has 5% of the company’s as
sets, 9% of revenues, and 8% of the profits
North American segment, whose assets are 12% of the company’s assets of all segments, and management reports to the chief operating officer.
Only the North American segment meets at least one of the three quantitative criteria at the 10% level (revenue, income, assets) AND reports to the
chief operating decision maker of the firm as a whole. For all three criteria, the segment must account for 10% or more of the combined amount for
all operating segments. Reporting to the company-wide chief operating decision maker is also a requirement of an operating segment.
The following information pertains to revenue earned by Timm Co.’s industry segments for the year ending Dec. 31, 2005:
Segment……..Sales to unaffiliated…..interseg-…….Total Rev
customers mented sales
Alo……………….$5,000………………….$3,000…………..$8,000
Bix…………………8,000…………………….4,000…………….12,000
Cee……………….4,000……………………… — ……………..4,000
Dil………………….43,000…………………..16,000……………59,000
Combined……..60,000…………………23,000……………83,000
Elimination….. — ……………………..(23,000)…………(23,000)
Consolidated..60,000………………… — ……………..60,000
In conformity with the revenue test, Timm’s reportable segments were
Only Bix and Dill.
To meet the revenue test, an operating segment must have TOTAL SALES (including intersegment sales) of 10% or more of the combined segment sales (including intersegment sales). $83,000 is the test number.
Only Bix ($12,000) and Dil ($59,000) have sales in excess of $8,300 (0.10 x $83,000)
A corporation issues quarterly interim financial statements and uses the lower cost or net realizable value to value its inventory in its annual financial statements. Which of the following statements is correct regarding how the corporation should value its inventory in its interim financial statements?
A. Inventory losses generally should be recognized in the interim statements.
B. Temporary market declines should be recognized in the interim statements.
C. Only the cost method of valuation should be used.
D. Gains from valuations in previous interim periods should be fully recognized.
Inventory losses generally should be recognized in the interim statements.
Only temporary losses expected to be recovered are not recognized in interim periods. Because most inventory losses are permanent, this is the best answer of the four.
In general, an enterprise preparing interim financial statements should:
A. Defer recognition of seasonal revenue.
B. Disregard permanent decreases in the market value of its inventory.
C. Allocate revenues and expenses evenly over the quarters, regardless of when they actually occurred.
D. Use the same accounting principles followed in preparing its latest annual financial statements.
Use the same accounting principles followed in preparing its latest annual financial statements.
Interim financial statements generally should reflect the same accounting principles used in preparing annual financial statements. Interim periods are considered an integral part of the annual period, with some exceptions.
Farr Corp. had the following transactions during the quarter ended March 31, 20X5:
Loss on early extinguishment of debt $………….70,000
Pymt of fire insur premium for cal. yr 20X5…..100,000
What amount should be included in Farr’s income statement for the quarter ended Mar 31, 20X5?
$70,000; $25,000
In large measure, accounting principles are interim periods are the same as far annual periods. The extinguishment loss is a ONE-TIME event and is recognized ENTIRELY in the first quarter. The insurance payment covers an annual period. Thus, only 1/4 of the payment (Mar = 3/12 = 1/4, also first quarter), or $25,000 ($100,000 x 0.25), is allocated to the first quarter.
Financial Statements prepared on a modified cash basis of accounting would contain items measured on which, if either, of the following bases?
Cash Basis - Yes; Accrual Basis - Yes
A modified cash basis of accounting would contain items (accounts) measured under both the cash basis of accounting and the accrual basis of accounting. The modified cash basis of accounting uses cash basis accounting modified to incorporate accrual basis accounting for certain types of transactions/events. Modifications must be logical and consistent with accrual basis accounting under US GAAP.
The General Fund pays an invoice for telecommunications that includes charges owed by the Water Utility Enterprise Fund. The Enterprise Fund subsequently remits its share of the telecommunications charges to the General Fund. The General Fund records the amount received from the Enterprise Fund as:
A. An increase to revenue.
B. An increase to Operating Transfers In.
C. A decrease in expenses.
D. A decrease in Expenditures.
A decrease in expenditures.
A modified cash basis of accounting would contain items (accounts) measured under both the cash basis of accounting and the accrual basis of
accounting. The modified cash basis of accounting uses cash basis accounting modified to incorporate accrual basis accounting for certain types of transactions/events. Modifications must be logical and consistent with accrual basis accounting under U.S. GAAP.
At Dec. 31, year 5, Haft’s tax advisor believed that an unfavorable outcome was probable. A reasonable estimate of additional taxes was $200,000 but could be as much as $300,000. After the year 5 financial statements were issued, Haft received and accepted an IRS settlement offer of $275,000.
What amount of accrued liability should Haft have reported in its Dec. 31, year 5 balance sheet?
$200,000
When a range of possible losses is estimated, and no one amount is considered more probable than the others, the LOWEST ESTIMATE is accrued, if also probable.
Dunn Trading Stamp Co. records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Dunn’s past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Dunn’s liability for stamp redemptions was $6,000,000 at Dec 31, Year 5. Additional information for Year 6 is as follows:
Stamp svc rev from stamps sold to licensees…….$4M
Cost of redemptions (stamps sold prior 1/1/Y6)….$2.75M
If all the stamps sold in Y6 were presented for redemption in Y7, the redemption cost would be $2,250,000. What amount should Dunn report as a liability for stamp redemptions as Dec 31, Y6?
$5,050,000
Beg Liability Balance……………….$6,000,000
+ est. redemptions for Y6:….0.80($2.25M)……..1,800,000
- actual redemtion in Y6…………..(2,750,000)
= ending liability balance…………$5,050,000
The firm estimates the redemption cost in the year of sale, much like a warranty liability. For Y6, this increases the redemption liability by $1,800,000. When actual redemptions occur, the liabliity is extinguished at the cost of the redemptions ($2,750,000.
The market price of a bond issued at a premium is equal to the present value of its principal amount
A. Only, at the stated interest rate.
B. In addition to the present value of all future interest payments, at the stated interest rate
C. Only, at the market (effective) interest rate
D. In addition to the present value of all future interest payments at the market (effective) interest rate
In addition to the present value of all future interest payments at the market (effective) interest rate
A company issues bonds at 98, with a maturity value of $500,00. The entry the company uses to record the original issue should include which of the following?
A. A debit to bond discount of $1,000.
B. A credit to bonds payable of $49,000
C. A credit to bond premium of $1,000
D. A debit to bonds payable of $50,000
A debit to bond discount of $1,000.
The price of 98 refers to 98% of the face value or $49,000 ($50,000 x .98). The issuance entry is: dr. Cash $49,000, dr. Discount $1,000, cr. Bonds Payable $50,000. The discount is a contra bonds payable account.
On July 1, Y1, Howe Corp. issued 300 of its 10%, $1,000 bonds at 99 plus accrued interest.
The bonds are dated April 1, Y1 and mature on April 1, Y11. Interest is payable semiannually on April 1 and Oct 1.
What amount did How received form the bond issuance?
$304,500
The amount received is the price of the bonds plus interest from Apr 1, the bond date, to July 1, the issue date:
Amt received = .99(300)($1,000) + .10(3/12 year)(300)($1,000) = $304,500
The second term in the above calculation uses 3/12 of a year, which is the portion of a year between Apr 1 and July 1.
A bond issued on June 1, Y1, has interest payment dates of Apr 1 and Oct 1. The bond interest expense for the year ended Dec 31, Y1 is for a period of
A. Three months.
B. Four months.
C. Six months.
D. Seven months.
Seven months.
The bonds have been outstanding seven months by the end of Y1. The firm has borrowed money for seven months. Therefore, seven months’ interest should be recognized in Y1. (Date of issue - Jun 1 - to year end - Dec 31 = 7 months)
Only six months (Apr1 to Oct 1 pymt dates) of interest was PAID in Y1 because the bonds were issued after Apr 1 (one of the two interest payment dates per year), but that is not what the question asks.
