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University of Belize Intermediate Accounting2 Actg 301 May 2011 True/False ( 2pts each) 1) Debt security is any security

y representing an ownership interest in an entity, or the right to acquire or to dispose of a an ownership right at a fixed price .. ...............................True or False 2) Debt and Equity securities that are bought and held primarily to be sold in the near term are classified as Securities Available for Sale ... .. ..True or False 3) Investments in securities in all classifications are initially recorded at Acquisition Cost True or False 4) Unrealized gains from trading securities are reported in Other Comprehensive Income True or False 5) Investments in Stocks may be classified as Securities Available for Sale, Trading Securities or as Held to Maturity Securities .True or False 6) Significant influence is represented by an investment in which the investor owns more than 50 percent of the voting stock of the investee .True or False 7) 8) 9) 10) If the market rate is above the stated bond rate, then the bonds typically would sell above face value at a premium .....True or False To be reported as a liability an obligation need to be payable in cash .. ..True or False Accounts payable are amounts owing by customers ..True or False Portion of Long Term debt that is due for payment within the next twelve months from the Balance Sheet Date is typically classified with other current liabilities ..True or False

Multiple Choices ( 2 pts each)


1) a) b) c) d) 2) a) b) c) d) 3) Which of the following would be an example of an accrued liability ? Customer security deposit received by BWS Amount owing to supplier for purchases made on credit Insurance premiums for one year paid in advance Bill received 15 April from BWS for consumption in March The essential characteristics of a liability do NOT include : The existence of a past casual transaction or event Present obligation The existence of a legal obligation A future sacrifice of economic benefits On November 1, Epic Distribution borrowed $ 24 million cash to fund an expansion of its facilities. The loan was made by W Corp under a short term line of credit. Epic issued a 9-month 12 percent promissory note, Interest was payable at maturity. Epic fiscal year coincides with the calendar year. In Epics adjusting entry for the note on December 31, Interest Expense will be debited for ? $0 $ 240,000 $ 480,000 $ 640,000 If market rate is less than sated rate of Bond, Bond will be sold at : Par Discount Premium Face Value Stone Rock Corporation issued $ 20,000 of 5 percent, 10 year convertible bonds. Each $ 1,000 bond was convertible to 10 shares of common stock (par $ 50) at any interest date after three years from issuance. The bonds were sold for 105. What was the amount of the bond proceeds ? $ 20,000 $ 50,000 $ 21,000 $ 105,000 Unrecognized holding gains and losses for Securities Available for Sale are : Reported as a separate component of the shareholders equity section of the Balance Sheet Included in the determination of income from operations in the period of the change Reported as extraordinary items Not reported in the Income Statement nor the Balance Sheet Unrecognized holding gains and losses for Trading Securities are : a) Reported as a separate component of the shareholders equity section of the Balance Sheet Included in the determination of income from operations in the period of the change Reported as extraordinary items Not reported in the Income Statement nor the Balance Sheet

a) b) c) d) 4) a) b) c) d) 5)

a) b) c) d) 6) a) b) c) d) 7) b) c) d)

8) a) b) c) d)

When applying the Equity Method , an investor should report dividends from the investee as : Dividends revenue An extraordinary item A reduction in the Investment account An increase in the Investment account

9) Which of the following would be the purchase of a debt security for investment purposes by an investor ? a) Common Stock b) Preferred Stock c) Stock Warrants d) Debentures 10) Western Manufacturing Company owns 40 % of the outstanding common stock of Eastern Supply Company, (Equity Method as Significant Influence ) During 2006, Western receives a $ 50 million cash dividends from Eastern. What effect did this dividend have on Westerns 2006 financial statements? a) Total assets increased b) Total assets decreased c) Net income increased d) The investment account decreased

Short Problems: Do any 4 ( 15 pts each) 1) On November 1, 2007 Drucker Company acquired the following investments in equity securities which were classified as Trading Securities: Kelly Corporation 500 shares of common stock ( $20 par) at $ 60 per share The annual reporting period ends December 31. On December 31, 2007, the quoted market Price for Kelly Corporation common stock was $ 75, Give the entry for Drucker Company to record the purchase of the securities Give any adjusting entry needed at end of 2007 for Drucker Corp

a) b)

2)

On November 1, 2007 Drucker Company acquired the following investments in equity securities which were classified as Trading Securities: Kelly Corporation 500 shares of common stock ( $20 par) at $ 60 per share The annual reporting period ends December 31. On December 31, 2007, the quoted market Price for Kelly Corporation common stock was $ 75,

a) b)

Give the entry for Kelly Corporation to record the proceeds Give any adjusting entry needed at end of 2007 for Kelly Corp

3) On January 1, 2006, M Company purchased as investment $ 1 million of 10 percent, 10 year bonds of BEL. Interest is paid semi annually-June 30 and December 31. Market rate for similar bonds is 12 percent. M paid $ 885,301 for the bonds. a) Record entry for Jan 1 , 2006 by M Company b) Record entry for Jun 30, 2006 by M Company c) Record entry for Dec 31 2006 by M Company

4) On January 1, 2006, M Company purchased as investment $ 1 million of 10 percent, 10 year bonds of BEL. Interest is paid semi annually-June 30 and December 31. Market rate for similar bonds is 12 percent. M paid $ 885,301 for the bonds. a) Record entry for Jan 1 , 2006 by BEL b) Record entry for Jun 30, 2006 by BEL c) Record entry for Dec 31 2006 by BEL

5) Record the end of month entry for payroll and payroll related costs for the month ended May 31 , 2011 which however will not be paid until June 3, 2011. Number of employees 200. Gross earnings $500,000. Tax withholding of $ 100,000, social security withholding of $ 25,000; union dues of $1,000, Family Court Withholding of $ 20,000. Courts Belize withholding of $ 4,000. Employer contribution for social security is $ 30,000

6) a)

Record the entry for the receipt of the following bond proceeds: $ 500,000 bonds sold at 105

b)

$ 500,000 bonds sold at 95

c)

$ 500,000 bonds sold at 100