• This exam is open book & open notes; a calulator may be used.
• Write directly on this exam (or at your option, you may present your answers in an excel file – this is optional and not a requirement).
• The deadline for submission is March 6, 2016 at 11pm
• Late submissions will not be accepted without prior approval.
• Show your work and computations for full credit
• Use properly labelled solutions in good form.
• Good luck!! Course grades will be posted no later than Wednesday, March 9.
This final exam consists of the following:
30 multiple choice questions allocated 2 points each.
Problems 1 to 8 are worth a total of 40 points.
Record your answers directly after the questions (or as an option, in excel). Each problem is allocated a number of points; allocate your time accordingly.
Total Points 100
1. Coleman Services granted 15 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. The common shares have a market price of $8 per share on the grant date. Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives?
B. $15 million
C. $40 million
D. $120 million
2. If restricted stock is forfeited because an employee leaves the company, the appropriate accounting procedure is to:
A. Reverse related entries previously made.
B. Do nothing.
C. Prepare correcting entries.
D. Record an income item.
3. On January 1, 2015, Russell Inc. issued stock options for 200,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 6% in three years. Russell initially estimates that it is probable the goal will be achieved. Ignoring taxes, what is reduction in earnings in 2015?
Compensation Expense = 200,000*6 = 1,200,000
4. On January 1, 2015, Zheng Foods issued stock options for 40,000 shares to a division manager. The options have an estimated fair value of $5 each. To provide additional incentive for managerial achievement, the options are not exercisable unless Zheng Foods' stock price increases by 5% in four years. Zheng 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?
40,000*5 = 200,000/4(years) = 50,000
D. No effect
5. Which of the following results in increasing basic earnings per share?
A. Paying more than carrying value to retire outstanding bonds.
B. Issuing cumulative preferred stock.
C. Purchasing treasury stock.
D. All of these increase basic earnings per share.
6. Paige Inc declared and paid cash dividends to its common shareholders in January of the current year. The dividend:
A. Will be added to the numerator of the earnings per share fraction for the current year.
B. Will be added to the denominator of the earnings per share fraction for the current year.
C. Will be subtracted from the numerator of the earnings per share fraction for the current year.
D. Has no effect on the earnings per share for the coming year.
7. On December 31, 2014, the Meisenhelder Company had 250,000 shares of common stock issued and outstanding. On March 31, 2015, the company sold 50,000 additional shares for cash. Meisenhelder’s net income for the year ended December 31, 2015 was $700,000. During 2015, Meisenhelder declared and paid $80,000 in cash dividends on its nonconvertible preferred stock. What is the 2015 basic earnings per share (rounded)?
8. The following information pertains to Q Company's outstanding stock for 2015:
Common Stock, $1 Par
Shares Outstanding , 1/1/2015 10,000
2 for 1 stock split, 45/1/2015 10,000
Shares Issued, 7/1/2015 5,000
Preferred Stock, $100 par, 7% cumulative
Shares outstanding, 1/1/2015 4,000
What is the number of shares Q should use to calculate 2015 basic earnings per share?
Preferred stock is not included in the calculation for EPS
9. Which of the following changes would not be accounted for using the prospective approach?
A. A change to LIFO from average costing for inventories.
B. A change from the individual application of the LCM rule to aggregate approach.
C. A change from straight-line to double-declining balance depreciation.
D. A change from double-declining balance to straight-line depreciation.
10. Accounting changes occur for which of the following reasons?
A. Management is being fair and consistent in financial reporting.
B. Management compensation is affected.
C. Debt agreements are impacted.
D. All of the above.
11. Which of the following is an example of a change in accounting principle?
Different Inventory Costing Methods are considered different principles in accounting
A. A change in inventory costing methods.
B. A change in the estimated useful life of a depreciable asset.
C. A change in the actuarial life expectancies of employees under a pension plan.
D. Consolidating a new subsidiary.
12. Velasco Co. changed from straight-line to DDB depreciation. The journal entry to record the change includes:
A Note is all that is necessary for the change
A. A credit to accumulated depreciation.
B. A debit to accumulated depreciation.
C. A debit to a depreciable asset.
D. The change does not require a journal entry.
13. During 2015, Hutton Co. decides to use FIFO to account for its inventory transactions. Previously, it had used LIFO.
A. Hutton is not required to make any accounting adjustments.
B. Hutton has made a change in accounting principle requiring retrospective adjustment.
C. Hutton has made a change in accounting principle requiring prospective application.
D. Hutton needs to correct an accounting error.
14. A change in the residual value of equipment is treated ______________.
D. None of the above
15. Hemmingway Company bought a copyright for $90,000 on January 1, 2012, at which time the copyright had an estimated useful life of 15 years. On January 5, 2015, the company determined that the copyright would expire at the end of 2018. How much should Hemmingway record as amortization expense for this copyright for 2015?
6,000anuually *2= 12,000
16. Judd, Inc., owns 35% of Cosby Corporation. During the calendar year 2015, Cosby had net earnings of $300,000 and paid dividends of $30,000. Judd mistakenly recorded these transactions using the fair value method rather than the equity method of accounting. What effect would this have on the investment account, net income, and retained earnings, respectively?
A. Understate, overstate, overstate
B. Overstate, understate, understate
C. Overstate, overstate, overstate
D. Understate, understate, understate
17. Which of the following is a change in reporting entity?
A. A change to the full cost method in the extractive industries.
B. Switching to the completed contract method.
C. A change from the cost to the equity method.
D. Consolidating a subsidiary not previously included in consolidated financial statements.
18. Carlock Inc. took physical inventory at the end of 2015. Purchases that were acquired FOB destination were in transit, so they were not included in the physical count.
A. Carlock needs to correct an accounting error.
B. Carlock has made a change in accounting principle, requiring retrospective adjustment.
C. Carlock is required to adjust a change in accounting estimate prospectively.
D. Carlockis not required to make any accounting adjustments.
19. Heuer Company's prepaid insurance was $8,000 at December 31, 2014, and $10,000 at December 31, 2015. Heuer reported insurance expense of $15,000 on the 2015 income statement. What amount would be reported in the statement of cash flows as insurance paid using the direct method?
Insurance expense + change in prepaid amount = 15,000+2,000 =17,000
20. Which of the following circumstances creates a future taxable amount?
A. Service fees collected in advance from customers: taxable when received, recognized for financial reporting when earned.
B. Accrued compensation costs for future paym