Baldwin company | Accounting homework help

1. Baldwin Company had 40,000 shares of common stock outstanding on January 1, 2011. On April 1, 2011 the company issued 20,000 shares of common stock. The company had outstanding fully vested incentive stock options for 10,000 shares exercisable at $10 that had not been exercised by its executives. The average market price of common stock for the year was $12.
What number of shares of stock (rounded) should be used in computing diluted earnings per share?

A. 55,000
B. 61,667
C. 65,000
D. 56,667

2. Which of the accounting changes listed below is more associated with financial statements prepared in accordance with U.S. GAAP than with International Financial Reporting Standards?

A. Change in depreciation methods
B. Change to the LIFO method from the FIFO method
C. Change in reporting entity
D. Change in accounting estimate

3. In its 2011 income statement, WME reported $695,000 for service revenue earned from membership fees. WME received $681,000 cash in advance from members during 2011. In its reconciliation schedule, WME should show a

A. $14,000 negative adjustment to net income under the indirect method for the increase in unearned revenue.
B. $14,000 positive adjustment to net income under the indirect method for the decrease in unearned revenue.
C. $14,000 negative adjustment to net income under the indirect method for the decrease in unearned revenue.
D. $14,000 positive adjustment to net income under the indirect method for the increase in unearned revenue.

4. During 2011, Angel Corporation had 900,000 shares of common stock and 50,000 shares of 6% preferred stock outstanding. The preferred stock does not have cumulative or convertible features. Angel declared and paid cash dividends of $300,000 and $150,000 to common and preferred shareholders, respectively, during 2011.
On January 1, 2010, Angel issued $2,000,000 of convertible 5% bonds at face value. Each $1,000 bond is convertible into 5 common shares.
Angel’s net income for the year ended December 31, 2011, was $6 million. The income tax rate is 20%.
What will Angel report as diluted earnings per share for 2011, rounded to the nearest cent?

A. $6.43
B. The correct answer isn’t given.
C. $6.25
D. $6.22

5. On December 31, 2010, Albacore Company had 300,000 shares of common stock issued and outstanding. Albacore issued a 10% stock dividend on June 30, 2011. On September 30, 2011, 12,000 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?

A. 303,000
B. 312,000
C. 327,000
D. 342,000

6. When a transfer is made between cash and cash equivalents with no gain or loss, how is the transaction treated in the statement of cash flows?

A. It’s included as an operating activity.
B. It’sincluded as an investing activity.
C. It’sincluded as a noncash financing activity.
D. It’s not reported.

7. Yellow Company is a calendar-year firm with operations in several countries. At January 1, 2011, the company had issued 40,000 executive stock options permitting executives to buy 40,000 shares of stock for $30. The vesting schedule is 20% the first year, 30% the second year, and 50% the third year (graded-vesting). The fair value of the options is estimated as follows:

Vesting Date Amount Vesting Fair Value per Option
Dec. 31, 2011 20% $37
Dec. 31, 2012 30% $8
Dec. 31, 2013 50% $12

Assuming Yellow prepares its financial statements in accordance with International Financial Reporting Standards, what is the compensation expense related to the options to be recorded in 2012?

A. $60,000
B. $130,000
C. $40,000
D. $95,000

8. After issuing its financial statements, a company discovered that its beginning inventory was overstated by $100,000. Its tax rate is 30%. As a result of this error, net income was

A. overstated by $30,000.
B. overstated by $70,000.
C. understated by $30,000.
D. understated by $70,000.

9. C Co. reported a retained earnings balance of $200,000 at December 31, 2010. In September 2011, C determined that insurance premiums of $30,000 for the three-year period beginning January 1, 2010, had been paid and fully expensed in 2010. C has a 30% income tax rate. What amount should C report as adjusted beginning retained earnings in its 2011 statement of retained earnings?

A. $214,000
B. $221,000
C. $220,000
D. $210,000

10. Horrocks Company granted 180,000 restricted stock awards of its no par common shares to executives, subject to forfeiture if employment is terminated within three years. Horrocks’ common shares have a market price of $10 per share on January 1, 2010, the grant date, and at December 31, 2011, averaging $10 throughout the year. When calculating diluted EPS at December 31, 2011, the net increase in the denominator of the EPS fraction will be

A. 120,000 shares.
B. 0 shares.
C. 180,000 shares.
D. 60,000 shares.

11. In its 2011 income statement, WME reported $11,000 of interest expense on its outstanding bonds. During the year, WME paid its regular installments of $9,000 of interest in cash. In its reconciliation schedule, WME should show a

A. $2,000 positive adjustment to net income under the indirect method for the decrease in bond premium.
B. $2,000 negative adjustment to net income under the indirect method for the decrease in bond discount.
C. $2,000 negative adjustment to net income under the indirect method for the decrease in bond premium.
D. $2,000 positive adjustment to net income under the indirect method for the decrease in bond discount.

12. On January 1, 2011, G Corp. granted stock options to key employees for the purchase of 80,000 shares of the company’s common stock at $25 per share. The options are intended to compensate employees for the next two years. The options are exercisable within a four-year period beginning January 1, 2013, by the grantees still in the employ of the company. No options were terminated during 2011, but the company does have an experience of 4% forfeitures over the life of the stock options. The market price of the common stock was $31 per share at the date of the grant. G Corp. used the binomial pricing model and estimated the fair value of each of the options at $10. What amount should G charge to compensation expense for the year ended December 31, 2011?

A. $400,000
B. $320,000
C. $307,200
D. $384,000

13. Bowers Corporation reported the following ($ in 000s) for the year:
Balance
Beginning Ending
Accounts Receivable $600 $850
Allowance for bad debts 40 35

Sales on account were $1,900, and bad debt expense was $18 for the year. How much cash was collected from customers on account?

A. $1,627
B. $1,638
C. $1,642
D. $2,142

14. Under its executive stock option plan, Q Corporation granted options on January 1, 2011, that permit executives to purchase 15 million of the company’s $1 par common shares within the next eight years, but not before December 31, 2013 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures were anticipated, however unexpected turnover during 2012 caused the forfeiture of 5% of the stock options. Ignoring taxes, what is the effect on earnings in 2013?

A. $0
B. $20 million
C. $19 million
D. $18 million

15. During 2011, Angel Corporation had 900,000 shares of common stock and 50,000 shares of 6% preferred stock outstanding. The preferred stock does not have cumulative or convertible features. Angel declared and paid cash dividends of $300,000 and $150,000 to common and preferred shareholders, respectively, during 2011.
On January 1, 2010, Angel issued $2,000,000 of convertible 5% bonds at face value. Each $1,000 bond is convertible into 5 common shares.
Angel’s net income for the year ended December 31, 2011, was $6 million. The income tax rate is 20%.
What is Angel’s basic earnings per share for 2011, rounded to the nearest cent?

A. $5.29
B. $9.20
C. $5.57
D. $6.50

16. Powell Company had the following errors over the last two years:
2009: Ending inventory was overstated by $30,000 while depreciation expense was overstated by $24,000.
2010: Ending inventory was understated by $5,000 while depreciation expense was understated by $4,000.

By how much should retained earnings be adjusted on January 1, 2011? (Ignore taxes)

A. Increase by $25,000
B. Decrease by $25,000
C. Increase by $15,000
D. Decrease by $6,000

17. During 2011, Falwell Inc. had 500,000 shares of common stock and 50,000 shares of 6% cumulative preferred stock outstanding. The preferred stock has a par value of $100 per share. Falwell did not declare or pay any dividends during 2011.
Falwell’s net income for the year ended December 31, 2011, was $2.5 million. The income tax rate is 40%. Falwell granted 10,000 stock options to its executives on January 1 of this year. Each option gives its holder the right to buy 20 shares of common stock at an exercise price of $29 per share. The options vest after one year. The market price of the common stock averaged $30 per share during 2011.

What is Falwell’s diluted earnings per share for 2011, rounded to the nearest cent?

A. $4.90
B. $3.14
C. The answer can’t be determined from the information given.
D. $4.34

18. During the current year, East Corporation had 2 million shares of common stock outstanding. Two thousand, $1,000, 8% convertible bonds were issued at face amount at the beginning of the year. East reported income before tax of $3 million and net income of $1.8 million for the year. Each bond is convertible into ten shares of common stock. What is diluted EPS (rounded)?

A. $.94
B. $.90
C. $.89
D. $.95

19. A firm reported ($ in millions) net cash inflows (outflows) as follows: operating $75, investing ($200), and financing $350. The beginning cash balance was $250. What was the ending cash balance?

A. $875
B. $475
C. $25
D. $125

20. Red Corp. constructed a machine at a total cost of $70 million. Construction was completed at the end of 2007 and the machine was placed in service at the beginning of 2008. The machine was being depreciated over a 10-year life using the straight-line method. The residual value is expected to be $4 million. At the beginning of 2011, Red decided to change to the sum-of-the-years’-digits method. The residual value remains at $4 million. Ignoring income taxes, what will be Red’s depreciation expense for 2011?

A. $6.6 million
B. $4.8 million
C. $5.4 million
D. $11.55 million

21. Which of the following is not a change in reporting entity?

A. Presenting consolidated financial statements for the first time
B. Reporting using comparative financial statements for the first time
C. All are changes in reporting entity
D. Changing the companies that comprise a consolidated group

22. During 2011, Falwell Inc. had 500,000 shares of common stock and 50,000 shares of 6% cumulative preferred stock outstanding. The preferred stock has a par value of $100 per share. Falwell did not declare or pay any dividends during 2011.
Falwell’s net income for the year ended December 31, 2011, was $2.5 million. The income tax rate is 40%. Falwell granted 10,000 stock options to its executives on January 1 of this year. Each option gives its holder the right to buy 20 shares of common stock at an exercise price of $29 per share. The options vest after one year. The market price of the common stock averaged $30 per share during 2011.

What is Falwell’s basic earnings per share for 2011, rounded to the nearest cent?

A. The correct answer isn’t given.
B. $5.00
C. $4.40
D. $3.14

23. Burnet Company had 30,000 shares of common stock outstanding on January 1, 2011. On April 1, 2011, the company issued 15,000 shares of common stock. The company had outstanding fully vested incentive stock options for 5,000 shares exercisable at $10 that had not been exercised by its executives. The average market price of common stock was $9. The company reported net income in the amount of $189,374 for 2011. What is the effect of the options?

A. The options will dilute EPS by $.09 per share.
B. The options will dilute EPS by $.33 per share.
C. The options are anti-dilutive.
D. The options will dilute EPS by $.17 per share.

24. During 2011, P Company discovered that the ending inventories reported on its financial statements were incorrect by the following amounts:

2009 $120,000 understated
2010 $150,000 overstated

P uses the periodic inventory system to ascertain year-end quantities that are converted to dollar amounts using the FIFO cost method. Prior to any adjustments for these errors and ignoring income taxes, P’s retained earnings at January 1, 2011 would be

A. $150,000 understated.
B. $150,000 overstated.
C. $30,000 overstated.
D. correct.

25. During the current year, High Corporation had 3 million shares of common stock outstanding. Five thousand, $1,000, 6% convertible bonds were issued at face amount at the beginning of the year. High reported income before tax of $4 million and net income of $2.4 million for the year. Each bond is convertible into ten shares of common. What is diluted EPS (rounded)?

A. $.85
B. $.79
C. $.80
D. $.86

 

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