1. On January 3, 2014, Menke Company acquired $300,000 of Carlin Company’s 10-year, 10% bonds at a price of $319,254 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Menke Company uses the effective-interest method, what is the amount of interest revenue that would be recognized in 2015 related to these bonds? (Points : 4)

$30,000

$31,925

$28,734

$28,619

Question 2.2. On August 1, 2014, Kern Company acquired 800, $1,000, 9% bonds at 97 plus accrued interest. the bonds were dated May 1, 2014, and mature on April 30, 2020, with interest paid each October 31 and April 30. The bonds will be added to Kern’s available-for-sale portfolio. The preferred entry to record the purchase of the bonds on August 1, 2014 will include (Points : 4)

a debit to Debt Investments of $776,000.

a debit to Debt Investments of $800,000.

a debit to cash of $794,000.

a credit to cash of $776,000.

Question 3.3. Richman Inc. had the following investments in equity securities:

Cost Fair Value 12/31/14 Fair Value 12/31/15

Trading $600,000 $800,000 $760,000

Available-for-sale $600,000 $640,000 $720,000

What amount of gain or loss would Richman report in its income statement for the year ended December 31, 2015 related to its investments? (Points : 4)

$40,000 gain

$40,000 loss

$280,000 gain

$160,000 gain

Question 4.4.

On its December 31, 2014 balance sheet, Harrison Company appropriately reported a $10,000 debit balance in its Fair Value Adjustment (available-for-sale) account. There was no change during 2015 in the composition of Harrison’s portfolio of equity investments held as available-for-sale securities. The following information pertains to this portfolio:

Security Cost Fair Value at 12/31/15

X $125,000 $160,000

Y $100,000 $90,000

Z $175,000 $125,000

$400,000 $375,000

The amount of unrealized loss to appear as a component of comprehensive income for the year ending December 31, 2015 is

(Points : 4)

$35,000.

$25,000.

$15,000.

$0.

Question 5.5. Colorado Company bought 18,000 shares of the voting common stock of Rodger Corporation in January 2014. In December, Rodger announced $200,000 net income for 2014 and declared and paid a cash dividend of $2 per share on the 200,000 shares of outstanding common stock. Colorado Company’s dividend revenue from Rodger Corporation in December 2014 would be: (Points : 4)

$ 0.

$32,000.

$56,000.

$36,000

Question 6.6.

Darby Company owns 20,000 of the 50,000 outstanding shares of Taylor, Inc. common stock. During 2015, Taylor earns $1,000,000 and pays cash dividends of $800,000.

If the beginning balance in the investment account was $625,000, the balance at December 31, 2015 should be

(Points : 4)

$1,025,000.

$825,000.

$705,000.

$625,000.

Question 7.7. Tompkins Inc. incurred a financial and taxable loss for 2015. Tompkins therefore decided to use the carryback provisions, as it had been profitable up to this year. How should the tax benefit related to the carryback be reported in the 2015 financial statements? (Points : 4)

The refund claimed should be reported as a prior period adjustment.

The refund claimed should be reported as a deferred charge and amortized over five years.

The refund claimed should be reported as revenue in the current year.

The refund claimed should be shown as a reduction of the loss in 2015.

Question 8.8. Hopkins Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:

Pretax financial income $1,500,000

Estimated litigation expense 2,000,000

Extra depreciation for taxes (3,000,000)

Taxable income $ 500,000

The estimated litigation expense of $2,000,000 will be deductible in 2015 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $1,000,000 in each of the next three years. The income tax rate is 30% for all years.

2014 income taxes payable is

(Points : 4)

$0.

$150,000.

$300,000.

$450,000.

Question 9.9. Hopkins Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:

Pretax financial income $1,500,000

Estimated litigation expense 2,000,000

Extra depreciation for taxes (3,000,000)

Taxable income $ 500,000

The estimated litigation expense of $2,000,000 will be deductible in 2015 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $1,000,000 in each of the next three years. The income tax rate is 30% for all years.

2014 income tax expense is

(Points : 4)

$150,000.

$300,000.

$450,000.

$600,000

Question 10.10.

Cross Company reported the following results for the year ended December 31, 2014, its

first year of operations:

2014

Income (per books before income taxes) $ 1,500,000

Taxable income 2,400,000

The disparity between book income and taxable income is attributable to a temporary difference which will reverse in 2015. What should Cross record as a net deferred tax asset or liability for the year ended December 31, 2014, assuming that the enacted tax rates in effect are 40% in 2014 and 35% in 2015? (Points : 4)

$360,000 deferred tax liability

$315,000 deferred tax asset

$360,000 deferred tax asset

$315,000 deferred tax liability

Urgency: HIGH

11.

Nickerson Corporation began operations in 2013. There have been no permanent or

temporary differences to account for since the inception of the business. The following data are available:

Year

2013

2014

2015

2016

Enacted Tax Rate

45%

40%

35%

30%

Taxable Income

$1,500,000

1,800,000

Taxes Paid

$675,000

720,000

In 2015, Nickerson had an operating loss of $1,860,000. What amount of income tax benefits should be reported on the 2015 income statement due to this loss assuming that it uses the carryback provision? (Points : 4)

$819,000.

$747,000.

$744,000.

$558,000.

Question 12.12. Endeavor Inc. had one temporary difference at the end of 2014, due to installment sales revenue, that will reverse and cause taxable amounts of $100,000 in 2015, 125,000 in 2016, and $75,000 in 2017. The tax rate is 40% for all years. There are no deferred taxes at the beginning of 2014.

The 2015 journal entry to record income taxes will include (Points : 4)

a $40,000 debit to Deferred Tax Liability

a $40,000 credit to Deferred Tax Liability

an $80,000 debit to Deferred Tax Liability

an $80,000 credit to Deferred Tax Liability

Question 13.13.

Wright Co., organized on January 2, 2014, had pretax accounting income of $640,000 and taxable income of $2,080,000 for the year ended December 31, 2014. The only temporary difference is accrued product warranty costs which are expected to be paid as follows:

2015 480,000

2016 240,000

2017 240,000

2018 480,000

The enacted income tax rates are 35% for 2014, 30% for 2015 through 2017, and 25% for 2018. If Wright expects taxable income in future years, the deferred tax asset in Wright’s December 31, 2014 balance sheet should be (Points : 4)

$288,000

$336,000

408,000

$504,000

17. Held-to-maturity securities are reported in the balance sheet at (Points : 4)
acquisition cost.
acquisition cost plus amortization of a premium.
acquisition cost plus amortization of a discount.
fair value.Question