Question-Keller Graduate School of Management AC555ON Financial 7 PassMaster
CPA-00928 Type1 M/C A-D Corr Ans: A PM#1 F 7-01
1. CPA-00928 FARE R03 #4 Page 5
On November 2, 2001, Platt Co. entered into a 90-day futures contract to purchase 50,000 Swiss francs
when the contract quote was $.70. The purchase was for speculation in price movement. The following
exchange rates existed during the contract period:
|
30-day futures |
Spot rate |
|
|
November 2, 2001 |
$0.62 |
$0.63 |
|
December 31, 2001 |
0.65 |
0.64 |
|
January 30, 2002 |
0.65 |
0.68 |
What amount should Platt report as foreign currency exchange loss in its income statement for the year
ended December 31, 2001?
CPA-00930 Type1 M/C A-D Corr Ans: D PM#3 F 7-01
2. CPA-00930 FARE C98 #1 Page 3
Fair value disclosure of financial instruments may be made in the:
CPA-00931 Type1 M/C A-D Corr Ans: B PM#4 F 7-01
3. CPA-00931 FARE C98 #2 Page 3
Disclosures about the following kinds of risks are required for most financial instruments.
CPA-00933 Type1 M/C A-D Corr Ans: B PM#5 F 7-01
4. CPA-00933 FARE C98 #3 Page 3
Which of the following assets are financial instruments?
CPA-00934 Type1 M/C A-D Corr Ans: D PM#6 F 7-01
5. CPA-00934 FARE C98 #4 Page 3
Which of the following must be disclosed for most financial instruments?
CPA-00936 Type1 M/C A-D Corr Ans: A PM#7 F 7-01
6. CPA-00936 FARE C98 #5 Page 4
In order for a financial instrument to be a derivative for accounting purposes, the financial instrument
must:
I. Have one or more underlyings.
II. Require an initial net investment.
CPA-00938 Type1 M/C A-D Corr Ans: C PM#8 F 7-01
7. CPA-00938 FARE C98 #6 Page 4
The determination of the value or settlement amount of a derivative involves a calculation which uses:
I. An underlying.
II. A notional amount.
CPA-00941 Type1 M/C A-D Corr Ans: B PM#9 F 7-01
8. CPA-00941 FARE C98 #7 Page 6
On December 31, 199X, the end of its fiscal year, Smarti Company held a derivative instrument which it
had acquired for speculative purposes during November, 199X. Since its acquisition the fair value of the
derivative had increased materially. On December 31, how should the increase in fair value of the
derivative instrument be reported by Smarti in its financial statements?
CPA-00945 Type1 M/C A-D Corr Ans: C PM#11 F 7-01
9. CPA-00945 FARE C98 #9 Page 6
Gains and losses from changes in the fair value of a derivative designated and qualified as a fair value
hedge should be:
CPA-00948 Type1 M/C A-D Corr Ans: A PM#12 F 7-01
10. CPA-00948 FARE C98 #10 Page 5
Qualified derivatives may be used to hedge the cash flow associated with an/a:
CPA-00951 Type1 M/C A-D Corr Ans: C PM#13 F 7-01
11. CPA-00951 FARE C98 #11 Page 6
A change in the fair value of a derivative qualified as a cash flow hedge is determined to be either
effective in offsetting a change in the hedged item or ineffective in offsetting such a change. How should
the effective and ineffective portions of the change in value of a derivative which qualifies as a cash flow
hedge be reported in financial statements?
12. CPA-00954 FARE R96 #8 Page 4
Which of the following risks are inherent in an interest rate swap agreement?
I. The risk of exchanging a lower interest rate for a higher interest rate.
II. The risk of nonperformance by the counterparty to the agreement.
CPA-00958 Type1 M/C A-D Corr Ans: C PM#15 F 7-01
13. CPA-00958 FARE R96 #9 Page 3
If it is not practicable for an entity to estimate the fair value of a financial instrument, which of the
following should be disclosed?
I. Information pertinent to estimating the fair value of the financial instrument.
II. The reasons it is not practicable to estimate fair value.
CPA-00965 Type1 M/C A-D Corr Ans: A PM#16 F 7-01
14. CPA-00965 FARE May 95 #4 Page 3
Disclosure of information about significant concentrations of credit risk is required for:
CPA-04658 Type1 M/C A-D Corr Ans: B PM#17 F 7-01
15. CPA-04658 Released 2005 Page 3
Where in its financial statements should a company disclose information about its concentration of credit
risks?
CPA-05221 Type1 M/C A-D Corr Ans: D PM#26 F 7-01
16. CPA-05221 Released 2006 Page 3
Whether recognized or unrecognized in an entity’s financial statements, disclosure of the fair values of the
entity’s financial instruments is required when:
CPA-05193 Type1 M/C A-D Corr Ans: D PM#27 F 7-01
17. CPA-05193 Released 2006 Page 3
Which of the following financial instruments is not considered a derivative financial instrument?
CPA-00971 Type1 M/C A-D Corr Ans: A PM#2 F 7-02
18. CPA-00971 FARE R99 #10 Page 18
On January 15, 2000, Rico Co. declared its annual cash dividend on common stock for the year ended
January 31, 2000. The dividend was paid on February 9, 2000, to stockholders of record as of January
28, 2000. On what date should Rico decrease retained earnings by the amount of the dividend?
CPA-00976 Type1 M/C A-D Corr Ans: A PM#4 F 7-02
19. CPA-00976 FARE Nov 95 #18 Page 20
Nest Co. issued 100,000 shares of common stock. Of these, 5,000 were held as treasury stock at
December 31, 1993. During 1994, transactions involving Nest’s common stock were as follows:
May 3 – 1,000 shares of treasury stock were sold.
August 6 – 10,000 shares of previously unissued stock were sold.
November 18 – A 2-for-1 stock split took effect.
Laws in Nest’s state of incorporation protect treasury stock from dilution. At December 31, 1994, how
many shares of Nest’s common stock were issued and outstanding?
CPA-00981 Type1 M/C A-D Corr Ans: A PM#5 F 7-02
20. CPA-00981 FARE Nov 95 #19 Page 13
Cyan Corp. issued 20,000 shares of $5 par common stock at $10 per share. On December 31, 1993,
Cyan’s retained earnings were $300,000. In March 1994, Cyan reacquired 5,000 shares of its common
stock at $20 per share. In June 1994, Cyan sold 1,000 of these shares to its corporate officers for $25
per share. Cyan uses the cost method to record treasury stock. Net income for the year ended
December 31, 1994, was $60,000. At December 31, 1994, what amount should Cyan report as retained
earnings?
CPA-01003 Type1 M/C A-D Corr Ans: C PM#7 F 7-02
21. CPA-01003 FARE Nov 95 #21 Page 17
A company issued rights to its existing shareholders without consideration. The rights allowed the
recipients to purchase unissued common stock for an amount in excess of par value. When the rights are
issued, which of the following accounts will be increased?
CPA-01004 Type1 M/C A-D Corr Ans: C PM#8 F 7-02
22. CPA-01004 FARE Nov 95 #22 Page 17
In September 1989, West Corp. made a dividend distribution of one right for each of its 120,000 shares of
outstanding common stock. Each right was exercisable for the purchase of 1/100 of a share of West’s
$50 variable rate preferred stock at an exercise price of $80 per share. On March 20, 1993, none of the
rights had been exercised, and West redeemed them by paying each stockholder $0.10 per right. As a
result of this redemption, West’s stockholders’ equity was reduced by:
CPA-01007 Type1 M/C A-D Corr Ans: A PM#9 F 7-02
23. CPA-01007 FARE Nov 94 #28 Page 17
East Co. issued 1,000 shares of its $5 par common stock to Howe as compensation for 1,000 hours of
legal services performed. Howe usually bills $160 per hour for legal services. On the date of issuance,
the stock was trading on a public exchange at $140 per share. By what amount should the additional
paid-in capital account increase as a result of this transaction?
CPA-01009 Type1 M/C A-D Corr Ans: A PM#10 F 7-02
24. CPA-01009 FARE Nov 94 #29 Page 9
During 1992, Brad Co. issued 5,000 shares of $100 par convertible preferred stock for $110 per share.
One share of preferred stock can be converted into three shares of Brad’s $25 par common stock at the
option of the preferred shareholder. On December 31, 1993, when the market value of the common stock
was $40 per share, all of the preferred stock was converted. What amount should Brad credit to
Common Stock and to Additional Paid-in Capital- Common Stock as a result of the conversion?
CPA-01011 Type1 M/C A-D Corr Ans: A PM#11 F 7-02
25. CPA-01011 FARE Nov 94 #30 Page 18
When a company declares a cash dividend, retained earnings is decreased by the amount of the dividend
on the date of:
CPA-01014 Type1 M/C A-D Corr Ans: B PM#12 F 7-02
26. CPA-01014 FARE Nov 94 #31 Page 18
Long Co. had 100,000 shares of common stock issued and outstanding at January 1, 1993. During 1993,
Long took the following actions:
March 15 – Declared a 2-for-1 stock split, when the fair value of the stock was $80 per share.
December 15 – Declared a $.50 per share cash dividend.
In Long’s statement of stockholders’ equity for 1993, what amount should Long report as dividends?
CPA-01018 Type1 M/C A-D Corr Ans: C PM#13 F 7-02
27. CPA-01018 FARE Nov 94 #32 Page 13
If a corporation sells some of its treasury stock at a price that exceeds its cost, this excess should be:
CPA-01025 Type1 M/C A-D Corr Ans: C PM#14 F 7-02
28. CPA-01025 FARE Nov 94 #37 Page 11
The primary purpose of a quasi-reorganization is to give a corporation the opportunity to:
CPA-01028 Type1 M/C A-D Corr Ans: D PM#15 F 7-02
29. CPA-01028 FARE May 94 #31 Page 18
East Corp., a calendar-year company, had sufficient retained earnings in 1993 as a basis for dividends,
but was temporarily short of cash. East declared a dividend of $100,000 on April 1, 1993, and issued
promissory notes to its stockholders in lieu of cash. The notes, which were dated April 1, 1993, had a
maturity date of March 31, 1994, and a 10% interest rate.
How should East account for the scrip dividend and related interest?
CPA-01031 Type1 M/C A-D Corr Ans: B PM#16 F 7-02
30. CPA-01031 FARE May 94 #32 Page 18
On January 2, 1994, Lake Mining Co.’s board of directors declared a cash dividend of $400,000 to
stockholders of record on January 18, 1994, payable on February 10, 1994. The dividend is permissible
under law in the state where Lake is incorporated. Selected balances from its December 31, 1993
balance sheet are as follows:
Accumulated depletion $100,000
Capital stock 500,000
Additional paid-in capital 150,000
Retained earnings 300,000
CPA-01041 Type1 M/C A-D Corr Ans: A PM#18 F 7-02
31. CPA-01041 Th Nov 93 #15 Page 17
On November 2, 1992, Finsbury, Inc. issued warrants to its stockholders giving them the right to purchase
additional $20 par value common shares at a price of $30. The stockholders exercised all warrants on
March 1, 1993. The shares had market prices of $33, $35, and $40 on November 2, 1992, December 31,
1992, and March 1, 1993, respectively. What were the effects of the warrants on Finsbury’s additional
paid-in capital and net income?
CPA-01043 Type1 M/C A-D Corr Ans: C PM#19 F 7-02
32. CPA-01043 PI Nov 93 #48 Page 19
Cobb Co. purchased 10,000 shares (2% ownership) of Roe Co. on February 12, 1993. Cobb received a
stock dividend of 2,000 shares on March 31, 1993, when the carrying amount per share on Roe’s books
was $35 and the market value per share was $40. Roe paid a cash dividend of $1.50 per share on
September 15, 1993. In Cobb’s income statement for the year ended October 31, 1993, what amount
should Cobb report as dividend income?
CPA-01046 Type1 M/C A-D Corr Ans: A PM#20 F 7-02
33. CPA-01046 PII May 93 #1 Page 13
Rudd Corp. had 700,000 shares of common stock authorized and 300,000 shares outstanding at
December 31, 1991. The following events occurred during 1992:
January 31 Declared 10% stock dividend
June 30 Purchased 100,000 shares
August 1 Reissued 50,000 shares
November 30 Declared 2-for-l stock split
At December 31, 1992, how many shares of common stock did Rudd have outstanding?
CPA-01048 Type1 M/C A-D Corr Ans: D PM#21 F 7-02
34. CPA-01048 PII May 93 #2 Page 13
Beck Corp. issued 200,000 shares of common stock when it began operations in 1990 and issued an
additional 100,000 shares in 1991. Beck also issued preferred stock convertible to 100,000 shares of
common stock. In 1992, Beck purchased 75,000 shares of its common stock and held it in Treasury. At
December 31, 1992, how many shares of Beck’s common stock were outstanding?
CPA-01050 Type1 M/C A-D Corr Ans: A PM#22 F 7-02
35. CPA-01050 Th May 93 #2 Page 18
A property dividend should be recorded in retained earnings at the property’s:
36. CPA-01052 PII May 93 #3 Page 11
The following changes in Vel Corp.’s account balances occurred during 1992:
Increase
Assets $89,000
Liabilities 27,000
Capital stock 60,000
Additional paid-in capital 6,000
Except for a $13,000 dividend payment and the year’s earnings, there were no changes in retained
earnings for 1992. What was Vel’s net income for 1992?
CPA-01056 Type1 M/C A-D Corr Ans: B PM#24 F 7-02
37. CPA-01056 PII May 93 #4 Page 9
At December 31, 1991 and 1992, Carr Corp. had outstanding 4,000 shares of $100 par value 6%
cumulative preferred stock and 20,000 shares of $10 par value common stock. At December 31, 1991,
dividends in arrears on the preferred stock were $12,000. Cash dividends declared in 1992 totaled
$44,000. Of the $44,000, what amounts were payable on each class of stock?
CPA-01058 Type1 M/C A-D Corr Ans: A PM#25 F 7-02
38. CPA-01058 PII May 93 #5 Page 11
At December 31, 1991, Eagle Corp. reported $1,750,000 of appropriated retained earnings for the
construction of a new office building, which was completed in 1992 at a total cost of $1,500,000. In 1992,
Eagle appropriated $1,200,000 of retained earnings for the construction of a new plant. Also, $2,000,000
of cash was restricted for the retirement of bonds due in 1993. In its 1992 balance sheet, Eagle should
report what amount of appropriated retained earnings?
CPA-01061 Type1 M/C A-D Corr Ans: A PM#26 F 7-02
39. CPA-01061 PI May 93 #6 Page 8
On April 1, 1993, Hyde Corp., a newly formed company, had the following stock issued and outstanding:
• Common stock, no par, $1 stated value, 20,000 shares originally issued for $30 per share.
• Preferred stock, $10 par value, 6,000 shares originally issued for $50 per share.
Hyde’s April 1, 1993, statement of stockholders’ equity should report:
CPA-01094 Type1 M/C A-D Corr Ans: C PM#27 F 7-02
40. CPA-01094 Th May 93 #10 Page 15
In 1990, Fogg, Inc. issued $10 par value common stock for $25 per share. No other common stock
transactions occurred until March 31, 1992, when Fogg acquired some of the issued shares for $20 per
share and retired them. Which of the following statements correctly states an effect of this acquisition
and retirement?
CPA-01095 Type1 M/C A-D Corr Ans: D PM#28 F 7-02
41. CPA-01095 PI May 93 #11 Page 15
On December 1, 1992, Line Corp. received a donation of 2,000 shares of its $5 par value common stock
from a stockholder. On that date, the stock’s market value was $35 per share. The stock was originally
issued for $25 per share. By what amount would this donation cause total stockholders’ equity to
decrease?
CPA-01097 Type1 M/C A-D Corr Ans: D PM#29 F 7-02
42. CPA-01097 Th May 93 #13 Page 9
Quoit, Inc. issued preferred stock with detachable common stock warrants. The issue price exceeded the
sum of the warrants’ fair value and the preferred stock’s par value. The preferred stock’s fair value was
not determinable. What amount should be assigned to the warrants outstanding?
CPA-01099 Type1 M/C A-D Corr Ans: D PM#30 F 7-02
43. CPA-01099 Th May 93 #14 Page 22
In a compensatory stock option plan for which the grant and exercise dates are different, the stock
options outstanding account should be reduced at the:
CPA-04681 Type1 M/C A-D Corr Ans: A PM#31 F 7-02
44. CPA-04681 Released 2005 Page 19
Universe Co. issued 500,000 shares of common stock in the current year. Universe declared a 30%
stock dividend. The market value was $50 per share, the par value was $10, and the average issue price
was $30 per share. By what amount will Universe decrease stockholders’ equity for the dividend?
CPA-04682 Type1 M/C A-D Corr Ans: B PM#32 F 7-02
45. CPA-04682 Released 2005 Page 13
Murphy Co. had 200,000 shares outstanding of $10 par common stock on March 30 of the current year.
Murphy reacquired 30,000 of those shares at a cost of $15 per share, and recorded the transaction using
the cost method on April 15. Murphy reissued the 30,000 shares at $20 per share, and recognized a
$50,000 gain on its income statement on May 20. Which of the following statements is correct?
CPA-05228 Type1 M/C A-D Corr Ans: B PM#33 F 7-02
46. CPA-05228 Released 2006 Page 13
Porter Co. began its business last year and issued 10,000 shares of common stock at $3 per share. The
par value of the stock is $1 per share. During January of the current year, Porter bought back 500 shares
at $6 per share, which were reported by Porter as treasury stock. The treasury stock shares were
reissued later in the current year at $10 per share. Porter used the cost method to account for its equity
transactions. What amount should Porter report as paid-in capital related to its treasury stock
transactions on its balance sheet for the current year?
CPA-05442 Type1 M/C A-D Corr Ans: A PM#35 F 7-02
47. CPA-05442 Released 2007 Page 13
Baker Co. issued 100,000 shares of common stock in the current year. On October 1, Baker
repurchased 20,000 shares of its common stock on the open market for $50.00 per share. At that date,
the stock’s par value was $1.00 and the average issue price was $40.00 per share. Baker uses the cost
method for treasury stock transactions. On December 1, Baker reissued the stock for $60.00 per share.
What amount should Baker report as treasury stock gain at December 31?
CPA-01102 Type1 M/C A-D Corr Ans: A PM#1 F 7-03
48. CPA-01102 FARE R01 #9 Page 29
Deck Co. had 120,000 shares of common stock outstanding at January 1, 1998. On July 1, 1998, it
issued 40,000 additional shares of common stock. Outstanding all year were 10,000 shares of
nonconvertible cumulative preferred stock. What is the number of shares that Deck should use to
calculate 1998 earnings per share?
CPA-01105 Type1 M/C A-D Corr Ans: B PM#2 F 7-03
49. CPA-01105 FARE C98 #10 Page 29
Which of the following items, if dilutive and if other conditions are met, would enter into the determination
of the weighted average shares outstanding to be used in the basic earnings per share (basic EPS)
calculation?
I. Stock options.
II. Contingent shares.
CPA-01107 Type1 M/C A-D Corr Ans: C PM#3 F 7-03
50. CPA-01107 FARE C98 #11 Page 28
Elizabeth Corporation acquired Allen Corporation at the end of 19X8. Under terms of the acquisition
agreement, Elizabeth agreed to provide former Allen shareholders 1,000 additional shares of Elizabeth
stock for each new retail outlet opened during 19X9. Two new outlets were opened during 19X9:
One on May 1, 19X9
One on September 1, 19X9
What number of shares related to the openings of the new retail outlets should enter into the calculation
of Elizabeth’s basic earnings per share as of December 31, 19X9, the end of its fiscal year?
CPA-01123 Type1 M/C A-D Corr Ans: A PM#4 F 7-03
51. CPA-01123 FARE R98 #5 Page 28
In computing the weighted-average number of shares outstanding during the year, which of the following
midyear events must be treated as if it had occurred at the beginning of the year?
CPA-01193 Type1 M/C A-D Corr Ans: B PM#5 F 7-03
52. CPA-01193 FARE C97 #1 Page 35
Earnings per share disclosure is required for which of the following:
CPA-01195 Type1 M/C A-D Corr Ans: B PM#6 F 7-03
53. CPA-01195 FARE C97 #3 Page 34
Which one of the following is not considered contingent shares for purposes of computing EPS?
CPA-01201 Type1 M/C A-D Corr Ans: A PM#10 F 7-03
54. CPA-01201 Th Nov 93 #16 Page 27
When computing the weighted average of common shares outstanding for basic earnings per share,
convertible securities are:
CPA-01203 Type1 M/C A-D Corr Ans: B PM#11 F 7-03
55. CPA-01203 PI May 93 #60 Page 29
The following information pertains to Jet Corp.’s outstanding stock for 1992:
Common stock, $5 par value
Shares outstanding, 1/1/92 20,000
2-for-1 stock split, 4/1/92 20,000
Shares issued, 7/1/92 10,000
Preferred stock, $10 par value, 5% cumulative
Shares outstanding, 1/1/92 4,000
What are the number of shares Jet should use to calculate 1992 earnings per share?
CPA-01205 Type1 M/C A-D Corr Ans: C PM#12 F 7-03
56. CPA-01205 FARE Nov 92 #23 Page 28
On January 31, 1992, Pack, Inc. split its common stock 2 for 1, and Young, Inc. issued a 5% stock
dividend. Both companies issued their December 31, 1991, financial statements on March 1, 1992.
Should Pack’s 1991 earnings per share (EPS) take into consideration the stock split, and should Young’s
1991 EPS take into consideration the stock dividend?
CPA-01209 Type1 M/C A-D Corr Ans: B PM#13 F 7-03
57. CPA-01209 PI Nov 91 #60 Page 29
Strauch Co. has one class of common stock outstanding and no other securities that are potentially
convertible into common stock. During 1989, 100,000 shares of common stock were outstanding. In
1990, two distributions of additional common shares occurred: On April 1, 20,000 shares of treasury stock
were sold, and on July 1, a 2-for-1 stock split was issued. Net income was $410,000 in 1990 and
$350,000 in 1989. What amounts should Strauch report as earnings per share in its 1990 and 1989
comparative income statements?
CPA-01210 Type1 M/C A-D Corr Ans: A PM#14 F 7-03
58. CPA-01210 FARE May 91 #29 Page 32
In determining earnings per share, interest expense, net of applicable income taxes, on convertible debt
that is dilutive should be:
CPA-01211 Type1 M/C A-D Corr Ans: B PM#15 F 7-03
59. CPA-01211 FARE Nov 90 #34 Page 33
When computing diluted earnings per share, convertible securities are:
CPA-01213 Type1 M/C A-D Corr Ans: B PM#16 F 7-03
60. CPA-01213 PI Nov 90 #52 Page 27
Poe Co. had 300,000 shares of common stock issued and outstanding at December 31, 1988. No
common stock was issued during 1989. On January 1, 1989, Poe issued 200,000 shares of
nonconvertible preferred stock. During 1989, Poe declared and paid $75,000 cash dividends on the
common stock and $60,000 on the preferred stock. Net income for the year ended December 31, 1989
was $330,000. What should be Poe’s 1989 earnings per common share?
CPA-01214 Type1 M/C A-D Corr Ans: D PM#17 F 7-03
61. CPA-01214 PII May 90 #51 Page 27
Peters Corp.’s capital structure was as follows:
December 31
19X1 19X2
Outstanding shares of stock:
Common 110,000 110,000
Convertible preferred 10,000 10,000
8% convertible bonds $1,000,000 $1,000,000
During 19X2, Peters paid dividends of $3.00 per share on its preferred stock. The preferred shares are
convertible into 20,000 shares of common stock. The 8% bonds are convertible into 30,000 shares of
common stock. Net income for 19X2 was $850,000. Assume that the income tax rate is 30%. The basic
earnings per share for 19X2 is:
CPA-01217 Type1 M/C A-D Corr Ans: B PM#18 F 7-03
62. CPA-01217 PI Nov 89 #54 Page 32
Jones Corp.’s capital structure was as follows:
December 31
1988 1987
Outstanding shares of stock:
Common 110,000 110,000
Convertible preferred 10,000 10,000
8% convertible bonds $1,000,000 $1,000,000
During 1988, Jones paid dividends of $3.00 per share on its preferred stock. The preferred shares are
convertible into 20,000 shares of common stock. The 8% bonds are convertible into 30,000 shares of
common stock. Net income for 1988 is $850,000. Assume that the income tax rate is 30%.
The diluted earnings per share for 1988 is:
CPA-01218 Type1 M/C A-D Corr Ans: B PM#19 F 7-03
63. CPA-01218 FARE Nov 88 #33 Page 30
Dilutive stock options would generally be used in the calculation of:
Basic Diluted
earnings per share earnings per share
CPA-04775 Type1 M/C A-D Corr Ans: B PM#20 F 7-03
64. CPA-04775 Released 2005 Page 27
During the current year, Comma Co. had outstanding: 25,000 shares of common stock, 8,000 shares of
$20 par, 10% cumulative preferred stock, and 3,000 bonds that are $1,000 par and 9% convertible. The
bonds were originally issued at par, and each bond was convertible into 30 shares of common stock.
During the year, net income was $200,000, no dividends were declared, and the tax rate was 30%. What
amount was Comma’s basic earnings per share for the current year?
CPA-05417 Type1 M/C A-D Corr Ans: A PM#20 F 7-03
65. CPA-05417 Released 2007 Page 27
Jen Co. had 200,000 shares of common stock and 20,000 shares of 10%, $100 par value cumulative
preferred stock. No dividends on common stock were declared during the year. Net income was
$2,000,000. What was Jen’s basic earnings per share?
CPA-05446 Type1 M/C A-D Corr Ans: C PM#22 F 7-03
66. CPA-05446 Released 2007 Page 28
The following information pertains to Ceil Co., a company whose common stock trades in a public market:
Shares outstanding at 1/1 100,000
Stock dividend at 3/31 24,000
Stock issuance at 6/30 5,000
What is the weighted-average number of shares Ceil should use to calculate its basic earnings per share
for the year ended December 31?
CPA-01219 Type1 M/C A-D Corr Ans: B PM#1 F 7-04
67. CPA-01219 FARE R97 #3 Page 38
In its 1996 income statement, Kilm Co. reported cost of goods sold of $450,000. Changes occurred in
several balance sheet accounts as follows:
Inventory $160,000 decrease
Accounts payable-suppliers 40,000 decrease
What amount should Kilm report as cash paid to suppliers in its 1996 cash flow statement, prepared
under the direct method?
CPA-01221 Type1 M/C A-D Corr Ans: D PM#2 F 7-04
68. CPA-01221 FARE Nov 95 #47 Page 36
Mend Co. purchased a three-month U.S. Treasury bill. Mend’s policy is to treat as cash equivalents all
highly liquid investments with an original maturity of three months or less when purchased. How should
this purchase be reported in Mend’s statement of cash flows?
CPA-01223 Type1 M/C A-D Corr Ans: D PM#3 F 7-04
69. CPA-01223 FARE Nov 95 #48 Page 42
Which of the following is not disclosed on the statement of cash flows when prepared under the direct
method, either on the face of the statement or in a separate schedule?
CPA-01227 Type1 M/C A-D Corr Ans: C PM#6 F 7-04
70. CPA-01227 FARE May 95 #49 Page 40
Which of the following information should be disclosed as supplemental information in the statement of
cash flows?
CPA-01228 Type1 M/C A-D Corr Ans: C PM#7 F 7-04
71. CPA-01228 FARE Nov 94 #7 Page 42
Which of the following should not be disclosed in an enterprise’s statement of cash flows prepared using
the indirect method?
CPA-01231 Type1 M/C A-D Corr Ans: C PM#8 F 7-04
72. CPA-01231 FARE May 94 #5 Page 36
The primary purpose of a statement of cash flows is to provide relevant information about:
CPA-01232 Type1 M/C A-D Corr Ans: B PM#9 F 7-04
73. CPA-01232 FARE May 94 #50 Page 40
Fara Co. reported bonds payable of $47,000 at December 31, 1992, and $50,000 at December 31, 1993.
During 1993, Fara issued $20,000 of bonds payable in exchange for equipment. There was no
amortization of bond premium or discount during the year. What amount should Fara report in its 1993
statement of cash flows for redemption of bonds payable?
CPA-01233 Type1 M/C A-D Corr Ans: A PM#10 F 7-04
74. CPA-01233 PI Nov 93 #5 Page 38
Lino Co.’s worksheet for the preparation of its 1992 statement of cash flows included the following:
December 31 January 1
Accounts receivable $29,000 $23,000
Allowance for uncollectible accounts 1,000 800
Prepaid rent expense 8,200 12,400
Accounts payable 22,400 19,400
Lino’s 1992 net income is $150,000. What amount should Lino include as net cash provided by operating
activities in the statement of cash flows?
CPA-01234 Type1 M/C A-D Corr Ans: B PM#11 F 7-04
75. CPA-01234 PI Nov 93 #6 Page 38
Karr, Inc. reported net income of $300,000 for 1992. Changes occurred in several balance sheet
accounts as follows:
Equipment $25,000 increase
Accumulated depreciation 40,000 increase
Note payable 30,000 increase
Additional information:
• During 1992, Karr sold equipment costing $25,000, with accumulated depreciation of $12,000, for a
gain of $5,000.
• In December 1992, Karr purchased equipment costing $50,000 with $20,000 cash and a 12% note
payable of $30,000.
• Depreciation expense for the year was $52,000.
In Karr’s 1992 statement of cash flows, net cash provided by operating activities should be:
CPA-01235 Type1 M/C A-D Corr Ans: A PM#12 F 7-04
76. CPA-01235 PI Nov 93 #7 Page 39
Karr, Inc. reported net income of $300,000 for 1992. Changes occurred in several balance sheet
accounts as follows:
Equipment $25,000 increase
Accumulated depreciation 40,000 increase
Note payable 30,000 increase
Additional information:
• During 1992, Karr sold equipment costing $25,000, with accumulated depreciation of $12,000, for a
gain of $5,000.
• In December 1992, Karr purchased equipment costing $50,000 with $20,000 cash and a 12% note
payable of $30,000.
• Depreciation expense for the year was $52,000.
In Karr’s 1992 statement of cash flows, net cash used in investing activities should be:
CPA-01239 Type1 M/C A-D Corr Ans: C PM#13 F 7-04
77. CPA-01239 PI Nov 93 #8 Page 40
During 1992, Xan, Inc. had the following activities related to its financial operations:
Payment for the early retirement of long-term
bonds payable (carrying amount $370,000) $375,000
Distribution in 1992 of cash dividend declared in 1991 to preferred shareholders 31,000
Carrying amount of convertible preferred stock in Xan, converted into common shares 60,000
Proceeds from sale of Treasury stock (carrying amount at cost, $43,000) 50,000
In Xan’s 1992 statement of cash flows, net cash used in financing operations should be:
CPA-01241 Type1 M/C A-D Corr Ans: D PM#14 F 7-04
78. CPA-01241 PI Nov 93 #9 Page 38
Duke Co. reported cost of goods sold of $270,000 for 1992. Additional information is as follows:
December 31 January 1
Inventory $60,000 $45,000
Accounts payable 26,000 39,000
If Duke uses the direct method, what amount should Duke report as cash paid to suppliers in its 1992
statement of cash flows?
CPA-01242 Type1 M/C A-D Corr Ans: A PM#15 F 7-04
79. CPA-01242 Th Nov 93 #41 Page 39
In a statement of cash flows, if used equipment is sold at a gain, the amount shown as a cash inflow from
investing activities equals the carrying amount of the equipment:
CPA-01244 Type1 M/C A-D Corr Ans: C PM#16 F 7-04
80. CPA-01244 Th Nov 93 #42 Page 40
On July 1, 1992, Dewey Co. signed a 20-year building lease that it reported as a capital lease. Dewey
paid the monthly lease payments when due. How should Dewey report the effect of the lease payments
in the financing activities section of its 1992 statement of cash flows?
a. An inflow equal to the present value of future lease payments at July 1, 1992, less 1992 principal and
interest payments.
CPA-01245 Type1 M/C A-D Corr Ans: D PM#17 F 7-04
81. CPA-01245 Th May 93 #32 Page 39
On September 1, 1992, Canary Co. sold used equipment for a cash amount equaling its carrying amount
for both book and tax purposes. On September 15, 1992, Canary replaced the equipment by paying cash
and signing a note payable for new equipment. The cash paid for the new equipment exceeded the cash
received for the old equipment. How should these equipment transactions be reported in Canary’s 1992
statement of cash flows?
CPA-01247 Type1 M/C A-D Corr Ans: C PM#18 F 7-04
82. CPA-01247 Th May 93 #33 Page 38
How should a gain from the sale of used equipment for cash be reported in a statement of cash flows
using the indirect method?
CPA-04657 Type1 M/C A-D Corr Ans: C PM#19 F 7-04
83. CPA-04657 Released 2005 Page 37
In its cash flow statement for the current year, Ness Co. reported cash paid for interest of $70,000. Ness
did not capitalize any interest during the current year. Decreases occurred in several balance sheet
accounts as follows:
Accrued interest payable $17,000
Prepaid interest 23,000
In its income statement for the current year, what amount should Ness report as interest expense?
CPA-04691 Type1 M/C A-D Corr Ans: D PM#20 F 7-04
84. CPA-04691 Released 2005 Page 36
The following are held by Smite Co.:
Cash in checking account $20,000
Cash in bond sinking fund account 30,000
Post-dated check from customer dated one month from balance sheet date 250
Petty cash 200
Commercial paper (matures in two months) 7,000
Certified of deposit (matures in six months) 5,000
What amount should be reported as cash and cash equivalents on Smite’s balance sheet?
CPA-04653 Type1 M/C A-D Corr Ans: B PM#20 F 7-04
85. CPA-04653 Released 2005 Page 36
Reed Co.’s 2001 statement of cash flows reported cash provided from operating activities of $400,000.
For 2001, depreciation of equipment was $190,000, amortization of goodwill was $5,000, and dividends
paid on common stock were $100,000. In Reed’s 2001 statement of cash flows, what amount was
reported as net income?
CPA-05202 Type1 M/C A-D Corr Ans: C PM#22 F 7-04
86. CPA-05202 Released 2006 Page 37
Payne Co. prepares its statement of cash flows using the indirect method. Payne’s unamortized bond
discount account decreased by $25,000 during the year. How should Payne report the change in
unamortized bond discount in its statement of cash flows?
CPA-05219 Type1 M/C A-D Corr Ans: C PM#23 F 7-04
87. CPA-05219 Released 2006 Page 37
Which of the following items is included in the financing activities section of the statement of cash flows?
CPA-05229 Type1 M/C A-D Corr Ans: C PM#24 F 7-04
88. CPA-05229 Released 2006 Page 37
New England Co. had net cash provided by operating activities of $351,000; net cash used by investing
activities of $420,000; and cash provided by financing activities of $250,000. New England’s cash
balance was $27,000 on January 1. During the year, there was a sale of land that resulted in a gain of
$25,000 and proceeds of $40,000 were received from the sale. What was New England’s cash balance
at the end of the year?
CPA-05423 Type1 M/C A-D Corr Ans: A PM#26 F 7-04
89. CPA-05423 Released 2007 Page 39
Paper Co. had net income of $70,000 during the year. Dividend payment was $10,000. The following
information is available:
Mortgage repayment $20,000
Available-for-sale securities purchased 10,000 increase
Bonds payable – issued 50,000 increase
Inventory 40,000 increase
Accounts payable 30,000 decrease
What amount should Paper report as net cash provided by operating activities in its statement of cash
flows for the year?
CPA-05450 Type1 M/C A-D Corr Ans: D PM#27 F 7-04
90. CPA-05450 Released 2007 Page 39
Savor Co. had $100,000 in cash-basis pretax income for 1999. At December 31, 1999, accounts
receivable had increased by $10,000 and accounts payable had decreased by $6,000 from their
December 31, 1998, balances. Compared to the accrual basis method of accounting, Savor’s cash
pretax income is:
CPA-05462 Type1 M/C A-D Corr Ans: B PM#28 F 7-04
91. CPA-05462 Released 2007 Page 39
During the current year, Ace Co. amortized a bond discount. Ace prepares its statement of cash flows
using the indirect method. In which section of the statement should Ace report the amortization of the
bond discount?
CPA-01458 Type1 M/C A-D Corr Ans: D PM#1 F 7-99
92. CPA-01458 Nov 89 #20 Page 10
A corporation was organized in January 1988 with authorized capital of $10 par value common stock. On
February 1, 1988, shares were issued at par for cash. On March 1, 1988, the corporation’s attorney
accepted 5,000 shares of the common stock in settlement for legal services with a fair value of $60,000.
Additional paid-in capital would increase on:
CPA-01460 Type1 M/C A-D Corr Ans: B PM#2 F 7-99
93. CPA-01460 Nov 89 #21 Page 18
A corporation declared a dividend, a portion of which was liquidating. How would this declaration affect
each of the following?
CPA-01463 Type1 M/C A-D Corr Ans: A PM#3 F 7-99
94. CPA-01463 May 90 #14 Page 18
Pott Co. owned shares in Rose Co. On December 1, 1989, Pott declared and distributed a property
dividend of Rose shares when their fair value exceeded the carrying amount. As a consequence of the
dividend declaration and distribution, the accounting effects would be:
CPA-01466 Type1 M/C A-D Corr Ans: B PM#4 F 7-99
95. CPA-01466 Nov 90 L #17 Page 20
All of the following distributions to stockholders are considered asset or capital distributions, except:
CPA-01467 Type1 M/C A-D Corr Ans: C PM#5 F 7-99
96. CPA-01467 Nov 90 #32 Page 19
How would the declaration of a 15% stock dividend by a corporation affect each of the following?
CPA-01471 Type1 M/C A-D Corr Ans: D PM#6 F 7-99
97. CPA-01471 May 91 I #12 Page 13
Mag, Inc.’s December 31, 1990, unadjusted current assets and stockholders’ equity sections are as
follows:
Current Assets:
Cash $ 15,000
Investments in marketable equity securities
(including $75,000 of Mag, Inc. common stock) 100,000
Trade accounts receivable 85,000
Inventories 37,000
Total $237,000
Stockholders’ Equity:
Common stock $556,000
Retained earnings (deficit) (56,000)
Total $500,000
The investments and inventories are reported at their costs, which approximate market values.
Mag’s stockholders’ equity at December 31,1990, should be:
CPA-01490 Type1 M/C A-D Corr Ans: A PM#7 F 7-99
98. CPA-01490 May 91 I #19 Page 13
Pugh Co. reported the following in its statement of stockholders’ equity on January 1, 1990:
Common stock, $5 par value, authorized 200,000 shares, issued 100,000 shares $ 500,000
Additional paid-in capital 1,500,000
Retained earnings 516,000
2,516,000
Less treasury stock, at cost, 5,000 shares (40,000)
Total stockholders’ equity $2,476,000
The following events occurred in 1990:
May 1 – 1,000 shares of treasury stock were sold for $10,000.
July 9 – 10,000 shares of previously unissued common stock were sold for $12 per share.
October 1 – The distribution of a 2-for-1 stock split resulted in the common stock’s per share par value
being halved.
Pugh accounts for treasury stock under the cost method. Laws in the state of Pugh’s incorporation
protect shares held in treasury from dilution when stock dividends or stock splits are declared.
In Pugh’s December 31, 1990, statement of stockholders’ equity, the par value of the issued common
stock should be:
CPA-01491 Type1 M/C A-D Corr Ans: D PM#8 F 7-99
99. CPA-01491 May 91 I #20 Page 13
Pugh Co. reported the following in its statement of stockholders’ equity on January 1, 1990:
Common stock, $5 par value, authorized 200,000 shares, issued 100,000 shares $ 500,000
Additional paid-in capital 1,500,000
Retained earnings 516,000
2,516,000
Less treasury stock, at cost, 5,000 shares (40,000)
Total stockholders’ equity $2,476,000
The following events occurred in 1990:
May 1 – 1,000 shares of treasury stock were sold for $10,000.
July 9 – 10,000 shares of previously unissued common stock were sold for $12 per share.
October 1 – The distribution of a 2-for-1 stock split resulted in the common stock’s per share par value
being halved.
Pugh accounts for treasury stock under the cost method. Laws in the state of Pugh’s incorporation
protect shares held in treasury from dilution when stock dividends or stock splits are declared.
The number of outstanding common shares at December 31, 1990, should be:
CPA-01492 Type1 M/C A-D Corr Ans: B PM#9 F 7-99
100. CPA-01492 May 91 II #12 Page 19
The following stock dividends were declared and distributed by Sol Corp.:
Percentage of common
shares outstanding at
declaration date Fair value Par value
10 $15,000 $10,000
28 40,000 30,800
What aggregate amount should be debited to retained earnings for these stock dividends?
CPA-01493 Type1 M/C A-D Corr Ans: A PM#10 F 7-99
101. CPA-01493 Nov 91 II #1 Page 20
Of the 125,000 shares of common stock issued by Vey Corp., 25,000 shares were held as treasury stock
at December 31, 1989. During 1990, transactions involving Vey’s common stock were as follows:
January 1 through October 31 – 13,000 treasury shares were distributed to officers as part of a stock
compensation plan.
November 1 – A 3-for-1 stock split took effect.
December 1 – Vey purchased 5,000 of its own shares to discourage an unfriendly takeover. These
shares were not retired.
At December 31, 1990, how many shares of Vey’s common stock were issued and outstanding?
CPA-01494 Type1 M/C A-D Corr Ans: D PM#11 F 7-99
102. CPA-01494 Nov 91 II #3 Page 18
Hoyt Corp.’s current balance sheet reports the following stockholders’ equity:
5% cumulative preferred stock, par value $100 per share;
2,500 shares issued and outstanding $250,000
Common stock, par value $3.50 per share; 100,000 shares issued and outstanding 350,000
Additional paid-in capital in excess of par value of common stock 125,000
Retained earnings 300,000
Dividends in arrears on the preferred stock amount to $25,000. If Hoyt were to be liquidated, the
preferred stockholders would receive par value plus a premium of $50,000. The book value per share of
common stock is:
CPA-01495 Type1 M/C A-D Corr Ans: D PM#12 F 7-99
103. CPA-01495 Nov 91 II #6 Page 18
Ole Corp. declared and paid a liquidating dividend of $100,000. This distribution resulted in a decrease in
Ole’s:
CPA-01496 Type1 M/C A-D Corr Ans: C PM#13 F 7-99
104. CPA-01496 Nov 91 #39 Page 13
Posy Corp. acquired treasury shares at an amount greater than their par value, but less than their original
issue price. Compared to the cost method of accounting for treasury stock, does the par value method
report a greater amount for additional paid-in capital and a greater amount for retained earnings?
CPA-01520 Type1 M/C A-D Corr Ans: C PM#14 F 7-99
105. CPA-01520 Nov 91 #40 Page 13
Grid Corp. acquired some of its own common shares at a price greater than both their par value and
original issue price but less than their book value. Grid uses the cost method of accounting for treasury
stock. What is the impact of this acquisition on total stockholders’ equity and the book value per common
share?
CPA-01521 Type1 M/C A-D Corr Ans: C PM#15 F 7-99
106. CPA-01521 May 92 II #4 Page 18
On December 1, 1991, Nilo Corp. declared a property dividend of marketable securities to be distributed
on December 31, 1991, to stockholders of record on December 15, 1991. On December 1, 1991, the
marketable securities had a carrying amount of $60,000 and a fair value of $78,000. What is the effect of
this property dividend on Nilo’s 1991 retained earnings, after all nominal accounts are closed?
CPA-01523 Type1 M/C A-D Corr Ans: A PM#16 F 7-99
107. CPA-01523 May 92 I #3 Page 19
The following format was used by Gee, Inc. for its 1991 statement of owners’ equity:
Common Additional
stock paid-in Retained
$1 par capital earnings
Balance at 1/1/91 $90,000 $800,000 $175,000
Additions and deductions:
100% stock dividend
5% stock dividend
Balance at 12/31/9
When both the 100% and the 5% stock dividends were declared, Gee’s common stock was selling for
more than its $1 par value.
How would the 5% stock dividend affect the additional paid-in capital and retained earnings amounts
reported in Gee’s 1991 statement of owners’ equity?
CPA-01527 Type1 M/C A-D Corr Ans: A PM#17 F 7-99
108. CPA-01527 May 92 II #6 Page 11
The following information pertains to Meg Corp.:
• Dividends on its 1,000 shares of 6%, $10 par value cumulative preferred stock have not been
declared or paid for 3 years.
• Treasury stock that cost $15,000 was reissued for $8,000.
What amount of retained earnings should be appropriated as a result of these items?
CPA-01530 Type1 M/C A-D Corr Ans: D PM#18 F 7-99
109. CPA-01530 May 92 #36 Page 18
Instead of the usual cash dividend, Evie Corp. declared and distributed a property dividend from its
overstocked merchandise. The excess of the merchandise’s carrying amount over its market value
should be:
CPA-01532 Type1 M/C A-D Corr Ans: D PM#19 F 7-99
110. CPA-01532 May 92 #43 Page 9
For the last 10 years, Woody Co. has owned cumulative preferred stock issued by Hadley, Inc. During
1991, Hadley declared and paid both the 1991 dividend and the 1990 dividend in arrears. How should
Woody report the 1990 dividend in arrears that was received in 1991?
CPA-01534 Type1 M/C A-D Corr Ans: C PM#20 F 7-99
111. CPA-01534 May 92 II #1 Page 16
On March 1, 1992, Rya Corp. issued 1,000 shares of its $20 par value common stock and 2,000 shares
of its $20 par value convertible preferred stock for a total of $80,000. At this date, Rya’s common stock
was selling for $36 per share, and the convertible preferred stock was selling for $27 per share. What
amount of the proceeds should be allocated to Rya’s convertible preferred stock?
CPA-01538 Type1 M/C A-D Corr Ans: A PM#21 F 7-99
112. CPA-01538 Nov 92 I #7 Page 8
On September 1, 1992, Hyde Corp., a newly formed company, had the following stock issued and
outstanding:
• Common stock, no par, $1 stated value, 5,000 shares originally issued for $15 per share.
• Preferred stock, $10 par value, 1,500 shares originally issued for $25 per share.
Hyde’s September 1, 1992, statement of stockholders, equity should report:
CPA-01543 Type1 M/C A-D Corr Ans: C PM#22 F 7-99
113. CPA-01543 Nov 92 II #42 Page 15
Cross Corp. had outstanding 2,000 shares of 11% preferred stock, $50 par. On August 8, 1992, Cross
redeemed and retired 25% of these shares for $22,500. On that date, Cross’ additional paid-in capital
from preferred stock totaled $30,000. To record this transaction, Cross should debit (credit) its capital
accounts as follows:
Preferred Additional Retained
stock paid-in capital earnings
CPA-01545 Type1 M/C A-D Corr Ans: D PM#23 F 7-99
114. CPA-01545 Nov 92 II #45 Page 18
Mio Corp was the sole stockholder of Plasti Corp. On September 30, 1991, Mio declared a property
dividend of Plasti’s 2,000 outstanding shares of $1 par value common stock, distributable to Mio’s
stockholders. On that date, the book value of Plasti’s stock was $1.50 per share. Immediately after the
distribution, the market value of Plasti’s stock was $4.50 per share. What amount should Mio report in its
1991 financial statements as gain on disposal of the Plasti stock?
CPA-01548 Type1 M/C A-D Corr Ans: B PM#24 F 7-99
115. CPA-01548 Nov 92 #18 Page 16
When collectibility is reasonably assured, the excess of the subscription price over the stated value of the
no par common stock subscribed should be recorded as:
CPA-01559 Type1 M/C A-D Corr Ans: C PM#25 F 7-99
116. CPA-01559 Nov 92 #22 Page 19
A corporation issuing stock should charge retained earnings for the market value of the shares issued in
a(an):
CPA-01561 Type1 M/C A-D Corr Ans: D PM#26 F 7-99
117. CPA-01561 May 94 #8 Page 9
At December 31, 1992 and 1993, Apex Co. had 3,000 shares of $100 par, 5% cumulative preferred stock
outstanding. No dividends were in arrears as of December 31, 1991. Apex did not declare a dividend
during 1992. During 1993, Apex paid a cash dividend of $10,000 on its preferred stock. Apex should
report dividends in arrears in its 1993 financial statements as a(an):
CPA-01562 Type1 M/C A-D Corr Ans: D PM#27 F 7-99
118. CPA-01562 Nov 94 #39 Page 19
Stock dividends on common stock should be recorded at their fair market value by the investor when the
related investment is accounted for under which of the following methods?
CPA-01563 Type1 M/C A-D Corr Ans: A PM#28 F 7-99
119. CPA-01563 Nov 88 I #41 Page 23
On January 1, 2004, Ward Corp. granted stock options to corporate executives for the purchase of
20,000 shares of the company’s $20 par value common stock at $48 per share. All stock options were
exercised on December 28, 2004. Using an acceptable option pricing model, Ward calculated total
compensation cost of $240,000. The quoted market prices of Ward’s $20 par value common stock were
as follows:
January 1, 2004 $45
December 28, 2004 60
As a result of the grant and exercise of the stock options and the issuance of the common stock, Ward’s
additional paid-in capital increased by:
CPA-01565 Type1 M/C A-D Corr Ans: C PM#29 F 7-99
120. CPA-01565 May 91 I #51 Page 23
On January 1, 20X1, Lord Corp. granted stock options for 10,000 shares at $38 per share as additional
compensation for services to be rendered over the next three years. Using an acceptable option pricing
model, Lord calculated total compensation cost of $90,000. The options are exercisable during a 4-year
period beginning January 1, 20X4, by grantees still employed by Lord. Market price of Lord’s stock was
$47 per share at the grant date. No stock options were terminated during 20X1. In Lord’s 20X1 income
statement, what amount should be reported as compensation expense pertaining to the options?
CPA-01566 Type1 M/C A-D Corr Ans: C PM#30 F 7-99
121. CPA-01566 Nov 91 II #20 Page 22
Wall Corp.’s employee stock purchase plan specifies the following:
• For every $1 withheld from employees’ wages for the purchase of Wall’s common stock, Wall
contributes $2.
• The stock is purchased from Wall’s treasury stock at market price on the date of purchase.
The following information pertains to the plan’s 1990 transactions:
• Employee withholdings for the year $ 350,000
• Market value of 150,000 shares issued 1,050,000
• Carrying amount of treasury stock issued (cost) 900,000
Before payroll taxes, what amount should Wall recognize as expense in 1990 for the stock purchase
plan?
CPA-01567 Type1 M/C A-D Corr Ans: D PM#31 F 7-99
122. CPA-01567 Nov 91 #38 Page 17
Tem Co. issued rights to its existing stockholders without consideration. A stockholder received a right to
buy one share for each 20 shares held. The exercise price was in excess of par value, but less than the
current market price. Retained earnings decreases when:
CPA-01569 Type1 M/C A-D Corr Ans: B PM#32 F 7-99
123. CPA-01569 Nov 92 II #56 Page 21
On June 1, 20X1, Oak Corp. granted stock options to certain key employees as additional compensation.
The options were for 1,000 shares of Oak’s $2 par value common stock at an option price of $15 per
share. Market price of this stock on June 1,20X1, was $17 per share. Using an acceptable option pricing
model Oak determined that total compensation cost under the stock option plan was $5,000. The options
were exercisable beginning January 2, 20X2, and expire on December 31,20X3. On April 1, 20X2, when
Oak’s stock was trading at $21 per share, all the options were exercised. What amount of pretax
compensation should Oak report in 20X1 in connection with the options?
CPA-01570 Type1 M/C A-D Corr Ans: A PM#33 F 7-99
124. CPA-01570 Nov 93 I #12 Page 17
On March 4, 1992, Evan Co. purchased 1,000 shares of LVC common stock at $80 per share. On
September 26, 1992, Evan received 1,000 stock rights to purchase an additional 1,000 shares at $90 per
share. The stock rights had an expiration date of February 1, 1993. On September 30, 1992, LVC’s
common stock had a market value, ex-rights, of $95 per share and the stock rights had a market value of
$5 each. What amount should Evan report on its September 30, 1992, balance sheet for investment in
stock rights?
CPA-01572 Type1 M/C A-D Corr Ans: B PM#34 F 7-99
125. CPA-01572 Nov 94 #33 Page 21
On January 2, 20X1, Farm Co. granted an employee an option to purchase 1,000 shares of Farm’s
common stock at $40 per share. The option became exercisable on December 31, 20X2, after the
employee had completed two years of service, and was exercised on that date. The market prices of
Farm’s stock were as follows:
January 2, 20X1 $48
December 31, 20X1 63
December 31, 20X2 65
Using an acceptable option pricing model, Farm determined that the fair value of the options granted was
$10,000. What amount should Farm recognize as compensation expense for 20X2?
CPA-01573 Type1 M/C A-D Corr Ans: D PM#35 F 7-99
126. CPA-01573 May 92 II #3 Page 18
Bal Corp. declared a $25,000 cash dividend on May 8, 1991, to stockholders of record on May 23, 1991,
payable on June 3, 1991. As a result of this cash dividend, working capital:
CPA-01574 Type1 M/C A-D Corr Ans: D PM#36 F 7-99
127. CPA-01574 May 92 #37 Page 11
A retained earnings appropriation can be used to:
CPA-05432 Type1 M/C A-D Corr Ans: B PM#50 F 7-99
128. CPA-05432 Released 2007 Page 51
Stent Co. had total assets of $760,000, capital stock of $150,000, and retained earnings of $215,000.
What was Stent’s debt-to-equity ratio?
CPA-05460 Type1 M/C A-D Corr Ans: B PM#51 F 7-99
129. CPA-05460 Released 2007 Page 48
The controller of Peabody, Inc. has been asked to present an analysis of accounts receivable collections
at the upcoming staff meeting. The following information is used:
12/31, year 2 12/31, year 1
Accounts receivable $100,000 $130,000
Allowance, doubtful accounts (20,000) (40,000)
Sales 400,000 200,000
Cost of goods sold 350,000 70,000
What is the receivables turnover ratio as of December 31, year 2?
CPA-04574 Type1 M/C A-L Corr Ans: K PM#53 F 7-99
130. CPA-04574 PI May 92 #4a 1A Page 3
Following are selected balance sheet accounts of Zach Corp. at December 31, 1991 and 1990, and the
increases or decreases in each account from 1990 to 1991. Also presented is selected income statement
information for the year ended December 31, 1991, and additional information.
Increase
Selected balance sheet accounts 1991 1990 (Decrease)
Assets:
Accounts receivable $ 34,000 $ 24,000 $10,000
Property, plant, and equipment 277,000 247,000 30,000
Accumulated depreciation (178,000) (167,000) (11,000)
Liabilities and stockholders’ equity:
Bonds payable 49,000 46,000 3,000
Dividends payable 8,000 5,000 3,000
Common stock, $1 par 22,000 19,000 3,000
Additional paid-in capital 9,000 3,000 6,000
Retained earnings 104,000 91,000 13,000
Selected income statement information for the year ended December 31, 1991
Sales revenue $155,000
Depreciation 33,000
Gain on sale of equipment 13,000
Net income 28,000
Additional information
• Accounts receivable relate to sales of merchandise.
• During 1991, equipment costing $40,000 was sold for cash.
• During 1991, $20,000 of bonds payable were issued in exchange for property, plant, and equipment.
There was no amortization of bond discount or premium.
This question represents an activity that will be reported in Zach’s statement of cash flows for the year
ended December 31, 1991. Determine the amount that should be reported in Zach’s 1991 statement of
cash flows.
CPA-04575 Type1 M/C O,I,F Corr Ans: O PM#54 F 7-99
131. CPA-04575 PI May 92 #4a 1B Page 3
Following are selected balance sheet accounts of Zach Corp. at December 31, 1991 and 1990, and the
increases or decreases in each account from 1990 to 1991. Also presented is selected income statement
information for the year ended December 31, 1991, and additional information.
Increase
Selected balance sheet accounts 1991 1990 (Decrease)
Assets:
Accounts receivable $ 34,000 $ 24,000 $10,000
Property, plant, and equipment 277,000 247,000 30,000
Accumulated depreciation (178,000) (167,000) (11,000)
Liabilities and stockholders’ equity:
Bonds payable 49,000 46,000 3,000
Dividends payable 8,000 5,000 3,000
Common stock, $1 par 22,000 19,000 3,000
Additional paid-in capital 9,000 3,000 6,000
Retained earnings 104,000 91,000 13,000
Selected income statement information for the year ended December 31, 1991
Sales revenue $155,000
Depreciation 33,000
Gain on sale of equipment 13,000
Net income 28,000
Additional information
• Accounts receivable relate to sales of merchandise.
• During 1991, equipment costing $40,000 was sold for cash.
• During 1991, $20,000 of bonds payable were issued in exchange for property, plant, and equipment.
There was no amortization of bond discount or premium.
This question represents an activity that will be reported in Zach’s statement of cash flows for the year
ended December 31, 1991. Determine the category (Operating activity [O], Investing activity [I], or
Financing activity [F]) in which the amount should be reported in the statement of cash flows.
CPA-04576 Type1 M/C A-L Corr Ans: H PM#55 F 7-99
132. CPA-04576 PI May 92 #4a 2A Page 3
Following are selected balance sheet accounts of Zach Corp. at December 31, 1991 and 1990, and the
increases or decreases in each account from 1990 to 1991. Also presented is selected income statement
information for the year ended December 31, 1991, and additional information.
Increase
Selected balance sheet accounts 1991 1990 (Decrease)
Assets:
Accounts receivable $ 34,000 $ 24,000 $10,000
Property, plant, and equipment 277,000 247,000 30,000
Accumulated depreciation (178,000) (167,000) (11,000)
Liabilities and stockholders’ equity:
Bonds payable 49,000 46,000 3,000
Dividends payable 8,000 5,000 3,000
Common stock, $1 par 22,000 19,000 3,000
Additional paid-in capital 9,000 3,000 6,000
Retained earnings 104,000 91,000 13,000
Selected income statement information for the year ended December 31, 1991
Sales revenue $155,000
Depreciation 33,000
Gain on sale of equipment 13,000
Net income 28,000
Additional information
• Accounts receivable relate to sales of merchandise.
• During 1991, equipment costing $40,000 was sold for cash.
• During 1991, $20,000 of bonds payable were issued in exchange for property, plant, and equipment.
There was no amortization of bond discount or premium.
This question represents an activity that will be reported in Zach’s statement of cash flows for the year
ended December 31, 1991. Determine the amount that should be reported in Zach’s 1991 statement of
cash flows.
CPA-04577 Type1 M/C O,I,F Corr Ans: I PM#56 F 7-99
133. CPA-04577 PI May 92 #4a 2B Page 3
Following are selected balance sheet accounts of Zach Corp. at December 31, 1991 and 1990, and the
increases or decreases in each account from 1990 to 1991. Also presented is selected income statement
information for the year ended December 31, 1991, and additional information.
Increase
Selected balance sheet accounts 1991 1990 (Decrease)
Assets:
Accounts receivable $ 34,000 $ 24,000 $10,000
Property, plant, and equipment 277,000 247,000 30,000
Accumulated depreciation (178,000) (167,000) (11,000)
Liabilities and stockholders’ equity:
Bonds payable 49,000 46,000 3,000
Dividends payable 8,000 5,000 3,000
Common stock, $1 par 22,000 19,000 3,000
Additional paid-in capital 9,000 3,000 6,000
Retained earnings 104,000 91,000 13,000
Selected income statement information for the year ended December 31, 1991
Sales revenue $155,000
Depreciation 33,000
Gain on sale of equipment 13,000
Net income 28,000
Additional information
• Accounts receivable relate to sales of merchandise.
• During 1991, equipment costing $40,000 was sold for cash.
• During 1991, $20,000 of bonds payable were issued in exchange for property, plant, and equipment.
There was no amortization of bond discount or premium.
This question represents an activity that will be reported in Zach’s statement of cash flows for the year
ended December 31, 1991. Determine the category (Operating activity [O], Investing activity [I], or
Financing activity [F]) in which the amount should be reported in the statement of cash flows.
CPA-04578 Type1 M/C A-L Corr Ans: F PM#57 F 7-99
134. CPA-04578 PI May 92 #4a 3A Page 3
Following are selected balance sheet accounts of Zach Corp. at December 31, 1991 and 1990, and the
increases or decreases in each account from 1990 to 1991. Also presented is selected income statement
information for the year ended December 31, 1991, and additional information.
Increase
Selected balance sheet accounts 1991 1990 (Decrease)
Assets:
Accounts receivable $ 34,000 $ 24,000 $10,000
Property, plant, and equipment 277,000 247,000 30,000
Accumulated depreciation (178,000) (167,000) (11,000)
Liabilities and stockholders’ equity:
Bonds payable 49,000 46,000 3,000
Dividends payable 8,000 5,000 3,000
Common stock, $1 par 22,000 19,000 3,000
Additional paid-in capital 9,000 3,000 6,000
Retained earnings 104,000 91,000 13,000
Selected income statement information for the year ended December 31, 1991
Sales revenue $155,000
Depreciation 33,000
Gain on sale of equipment 13,000
Net income 28,000
Additional information
• Accounts receivable relate to sales of merchandise.
• During 1991, equipment costing $40,000 was sold for cash.
• During 1991, $20,000 of bonds payable were issued in exchange for property, plant, and equipment.
There was no amortization of bond discount or premium.
This question represents an activity that will be reported in Zach’s statement of cash flows for the year
ended December 31, 1991. Determine the amount that should be reported in Zach’s 1991 statement of
cash flows.
CPA-04579 Type1 M/C O,I,F Corr Ans: I PM#58 F 7-99
135. CPA-04579 PI May 92 #4a 3B Page 3
Following are selected balance sheet accounts of Zach Corp. at December 31, 1991 and 1990, and the
increases or decreases in each account from 1990 to 1991. Also presented is selected income statement
information for the year ended December 31, 1991, and additional information.
Increase
Selected balance sheet accounts 1991 1990 (Decrease)
Assets:
Accounts receivable $ 34,000 $ 24,000 $10,000
Property, plant, and equipment 277,000 247,000 30,000
Accumulated depreciation (178,000) (167,000) (11,000)
Liabilities and stockholders’ equity:
Bonds payable 49,000 46,000 3,000
Dividends payable 8,000 5,000 3,000
Common stock, $1 par 22,000 19,000 3,000
Additional paid-in capital 9,000 3,000 6,000
Retained earnings 104,000 91,000 13,000
Selected income statement information for the year ended December 31, 1991
Sales revenue $155,000
Depreciation 33,000
Gain on sale of equipment 13,000
Net income 28,000
Additional information
• Accounts receivable relate to sales of merchandise.
• During 1991, equipment costing $40,000 was sold for cash.
• During 1991, $20,000 of bonds payable were issued in exchange for property, plant, and equipment.
There was no amortization of bond discount or premium.
This question represents an activity that will be reported in Zach’s statement of cash flows for the year
ended December 31, 1991. Determine the category (Operating activity [O], Investing activity [I], or
Financing activity [F]) in which the amount should be reported in the statement of cash flows.
CPA-04580 Type1 M/C A-L Corr Ans: B PM#59 F 7-99
136. CPA-04580 PI May 92 #4a 4A Page 3
Following are selected balance sheet accounts of Zach Corp. at December 31, 1991 and 1990, and the
increases or decreases in each account from 1990 to 1991. Also presented is selected income statement
information for the year ended December 31, 1991, and additional information.
Increase
Selected balance sheet accounts 1991 1990 (Decrease)
Assets:
Accounts receivable $ 34,000 $ 24,000 $10,000
Property, plant, and equipment 277,000 247,000 30,000
Accumulated depreciation (178,000) (167,000) (11,000)
Liabilities and stockholders’ equity:
Bonds payable 49,000 46,000 3,000
Dividends payable 8,000 5,000 3,000
Common stock, $1 par 22,000 19,000 3,000
Additional paid-in capital 9,000 3,000 6,000
Retained earnings 104,000 91,000 13,000
Selected income statement information for the year ended December 31, 1991
Sales revenue $155,000
Depreciation 33,000
Gain on sale of equipment 13,000
Net income 28,000
Additional information
• Accounts receivable relate to sales of merchandise.
• During 1991, equipment costing $40,000 was sold for cash.
• During 1991, $20,000 of bonds payable were issued in exchange for property, plant, and equipment.
There was no amortization of bond discount or premium.
This question represents an activity that will be reported in Zach’s statement of cash flows for the year
ended December 31, 1991. Determine the amount that should be reported in Zach’s 1991 statement of
cash flows.
CPA-04581 Type1 M/C O,I,F Corr Ans: F PM#60 F 7-99
137. CPA-04581 PI May 92 #4a 4B Page 3
Following are selected balance sheet accounts of Zach Corp. at December 31, 1991 and 1990, and the
increases or decreases in each account from 1990 to 1991. Also presented is selected income statement
information for the year ended December 31, 1991, and additional information.
Increase
Selected balance sheet accounts 1991 1990 (Decrease)
Assets:
Accounts receivable $ 34,000 $ 24,000 $10,000
Property, plant, and equipment 277,000 247,000 30,000
Accumulated depreciation (178,000) (167,000) (11,000)
Liabilities and stockholders’ equity:
Bonds payable 49,000 46,000 3,000
Dividends payable 8,000 5,000 3,000
Common stock, $1 par 22,000 19,000 3,000
Additional paid-in capital 9,000 3,000 6,000
Retained earnings 104,000 91,000 13,000
Selected income statement information for the year ended December 31, 1991
Sales revenue $155,000
Depreciation 33,000
Gain on sale of equipment 13,000
Net income 28,000
Additional information
• Accounts receivable relate to sales of merchandise.
• During 1991, equipment costing $40,000 was sold for cash.
• During 1991, $20,000 of bonds payable were issued in exchange for property, plant, and equipment.
There was no amortization of bond discount or premium.
This question represents an activity that will be reported in Zach’s statement of cash flows for the year
ended December 31, 1991. Determine the category (Operating activity [O], Investing activity [I], or
Financing activity [F]) in which the amount should be reported in the statement of cash flows.
CPA-04582 Type1 M/C A-L Corr Ans: D PM#61 F 7-99
138. CPA-04582 PI May 92 #4a 5A Page 3
Following are selected balance sheet accounts of Zach Corp. at December 31, 1991 and 1990, and the
increases or decreases in each account from 1990 to 1991. Also presented is selected income statement
information for the year ended December 31, 1991, and additional information.
Increase
Selected balance sheet accounts 1991 1990 (Decrease)
Assets:
Accounts receivable $ 34,000 $ 24,000 $10,000
Property, plant, and equipment 277,000 247,000 30,000
Accumulated depreciation (178,000) (167,000) (11,000)
Liabilities and stockholders’ equity:
Bonds payable 49,000 46,000 3,000
Dividends payable 8,000 5,000 3,000
Common stock, $1 par 22,000 19,000 3,000
Additional paid-in capital 9,000 3,000 6,000
Retained earnings 104,000 91,000 13,000
Selected income statement information for the year ended December 31, 1991
Sales revenue $155,000
Depreciation 33,000
Gain on sale of equipment 13,000
Net income 28,000
Additional information
• Accounts receivable relate to sales of merchandise.
• During 1991, equipment costing $40,000 was sold for cash.
• During 1991, $20,000 of bonds payable were issued in exchange for property, plant, and equipment.
There was no amortization of bond discount or premium.
This question represents an activity that will be reported in Zach’s statement of cash flows for the year
ended December 31, 1991. Determine the amount that should be reported in Zach’s 1991 statement of
cash flows.
CPA-01269 Type1 M/C A-D Corr Ans: B PM#62 F 7-99
139. CPA-01269 FARE R03 #3 Page 55
Kline Co. had the following sales and accounts receivable balances at the end of the current year:
Cash sales $1,000,000
Net credit sales 3,000,000
Net accounts receivable, 1/1 100,000
Net accounts receivable, 12/31 400,000
What is Kline’s average collection period for its accounts receivable?
CPA-04583 Type1 M/C O,I,F Corr Ans: F PM#62 F 7-99
140. CPA-04583 PI May 92 #4a 5B Page 3
Following are selected balance sheet accounts of Zach Corp. at December 31, 1991 and 1990, and the
increases or decreases in each account from 1990 to 1991. Also presented is selected income statement
information for the year ended December 31, 1991, and additional information.
Increase
Selected balance sheet accounts 1991 1990 (Decrease)
Assets:
Accounts receivable $ 34,000 $ 24,000 $10,000
Property, plant, and equipment 277,000 247,000 30,000
Accumulated depreciation (178,000) (167,000) (11,000)
Liabilities and stockholders’ equity:
Bonds payable 49,000 46,000 3,000
Dividends payable 8,000 5,000 3,000
Common stock, $1 par 22,000 19,000 3,000
Additional paid-in capital 9,000 3,000 6,000
Retained earnings 104,000 91,000 13,000
Selected income statement information for the year ended December 31, 1991
Sales revenue $155,000
Depreciation 33,000
Gain on sale of equipment 13,000
Net income 28,000
Additional information
• Accounts receivable relate to sales of merchandise.
• During 1991, equipment costing $40,000 was sold for cash.
• During 1991, $20,000 of bonds payable were issued in exchange for property, plant, and equipment.
There was no amortization of bond discount or premium.
This question represents an activity that will be reported in Zach’s statement of cash flows for the year
ended December 31, 1991. Determine the category (Operating activity [O], Investing activity [I], or
Financing activity [F]) in which the amount should be reported in the statement of cash flows.
