mid06 - ERGEK llNEVERS-ET? Midaemn Emminafion Course: ACTG...

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Unformatted text preview: ERGEK llNEVERS-ET? Midaemn Emminafion Course: ACTG 3P33 Date of Examination: @C’E‘GBER 21, 2&96 Time of Examinaaien: 1.419% -= 162%) Number 0%” Fages: El Number of Smdents: 83 No. :3? Hears: 2 Enstmeior: R Reahi N0 examination aids other than those specified are permitted. Use or possession of unauthori zed materials will automatically result in The award of a zero grade for this examination. PRQGRANEMABLE CALC ‘LATQRS ARE NGT ALLGWED. Answer all questions on this examination paper and hand it in at the end 0fthe exam. Allocated 1; : STUDEN’E NAB/ER {PRINT}: V STEEENT ED #: ACTS 3P33 law a (y if Wears 2:, EQQe 3 ,1 @AGE 2 SF 13 PEGES Eroblem~lz€3fi mark§?1 iiz eaehfisMultiple Cheice. Answer all the fellegifiéggultipiem l. \ x” chaise questiens by CIRCLENG the BEST ANSWER. Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the a. inves:or sells the investment. b. inves:ee declares a dividend. c. investee pays a dividend. d. earnings are reported by the investee in its statements. financial Byner Corporation accounts for its investment in the common shares of Yount Company under the equity method. Byner Corporation should ordinarily record a cash dividend received from Yount as a reduction of the carrying value of the investment, additional paid—in capital. an addition to the carrying value of dividend income. a the investment. Q10 5.0 Comprehensive income is included as part of a. retained earnings. b. c. shareholders' equity. d. net income. unearned revenue. anestments in bonds are generally recorded at a. cost including accrued interest. b. maturity value. c. cost including brokerage and other fees. d. maturity value with a separate discount or premium account. With respect to the calculation of earnings per share, which of the following would be most indicative of a simple capital structure? a. Common shares, preferred shares, and convertible securities outstanding in lots of even thousands b. Earnings derived from one primary line 05 Ownership interest consisting solely of c d. None of these business common shares When calculating diluted earnings per share, a. ignored. b assumed converted whether they are di‘utive or antidilutive. c. assumed converted only if they are antidilutive. d assumed converted only if they are dilutive. convertible bonds are In applying the treasury shares method to determine the dilutive ' shares options and warrants, the proceeds assumed to be effect 0: received upon exercise of the options and warrants a. are used to calculate the number of common shares repurchased at the average market price, when calculating diluted earnings per share. b. are added, net of tax, to the numerator of diluted earnings per sharee c. are disregarded in the calculation of earnings per share if the exercise price of the options and warrants is less than the ending market price of common shares. d. none of these. the calculation for ACTS 3P33 smears. 2:, 243% RAGE 3 SF 11 @AGES 10. 11. 12. 13. 14. Antidilutive a. should be securities included in the calculation of diluted earnings per share but not basic earnings per share. b. are those whose inclusion in earnings per share calculations would cause basic earnings per share to exceed diluted earnings per share. c. include shares options and warrants whose exercise price is less than the average market price 0: common shares. d. should be ignored in al‘ 3 per share calculations. 1U earnin kQ At December 31, 2006, Meyer Company had 500,000 common shares issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 100,000 of which were issued on October 1, 2006. Net income for th y ar nd d Dec mb r 31, 2006, was $510,000. What should be Meyer‘s 2006 earnings per common share, rounded to the nearest penny? a. $1.02 b. $1.27 c. $1.20 d. $1.13 In calculating earnings per share, the equivalent number of convertible preferred shares are added as an adjustment to the denominator (number of shares outstanding). “; the preferred shares are cumulative, which amount should then be added as an adjustment to the numerator (net earnings)? Annual preferred dividend Annual preferred dividend times (one minus the income Annual preferred dividend times the income tax rate Annual preferred dividend divided by the income tax rate tax rate) QOUQJ When applying the treasury shares method for diluted earnings per share, the market price of the common shares used for the repurchase is the a. price at the end of the year. b. average market price. c. price at the beginning of the year. d. none of these. Long—term loans and receivables are recorded and reported at a. lower of cost and market. b. present value of the cash expected to be collected. c. fair value. d. cost. The interest revenue from a note with a discount or premium is recorded using the a. actual interest method. b. cff ctiv c. deferred interest method. int r st m thod. d. derivative interest method. The rationale for interperiod income tax allocation is to a. recognize a tax asset or liability for the tax consequences of temporary differences that exist at the balance sheet date. b. recognize a distribution of earnings to the taxing agency. c. reconcile the tax consequences of permanent and temporary differ~ ences appearing on the current year’s financial statements. d. adjust income tax expense on the income statement to be in agreement with income taxes payable on the balance sheet. ACTS 3P33 GCTQBER 21] 2396 §§§E Q QF ii PR§E$ 15. Taxable income of a corporation differs from pretax accounting income because of Permanent Temporary Differences Differences a. No No b. No Yes c. Yes Yes d. Yes No 16. lnterperiod tax allocation results in a future tax liability from a. an income item partially recogni ed for financial purposes but fully recognized for tax purposes in any one year. b. the amount 0” Future tax consequences attributed to temporary differences that resul: in net deductible amounts in future years. c. an income item fully recognized for tax and financial purposes in any one year. d. the amount of future tax consequences attributed to temporary differences that result in net taxable amounts in future years. 17. Renner Corporation‘s taxable income differed from its accounting income calculated for this past year. An item that would create a permanent difference in accounting and taxable incomes for Renner would be a. a balance in the Unearned Rent account at year end. b. using CCA for tax purposes aid straight—line amortization for book purposes. c. a payment of the golf club dies for the president‘s membership. d. making instalment sales during the year. 18. Tax rates other than the curren: tax rate may be used to calculate the future income tax amount on the balance sheet if a. it is probable that a future tax rate change will occur. b. it appears likely that a futire tax rate will be greater than the current tax rate. c. the future tax rates have been enacted into law. d. it appears likely that a futire tax rate will be less than the current tax rate. 19. Accounting for income taxes can result in the reporting 0' "uture taxes as any of the following except a a. current or long—term asset. b. current or long—term liability. c. contra~asset account. d. All of these are acceptable methods of reporting future taxes. 20. Future tax amounts that are related to specific assets or liabilities should be classified as current or noncurrent based on their expected reversal dates. b. a. C. d. tie length of time the futu tax deferral benefits. the classification of the related asset or liability. their debit or credit balance. e tax amounts will generate future ACTS SEEE flCTQBER 21, 2905 EASE 5 ®F ii @AGES Eroblemmli: {29 marks; 21, Turku Company purchased equipment for $180,000 on January 2, 2005, on its first day of operations. For book purposes, the equipment will be amortized using the straight—line method over three years with no residual value. Pretax financial income and taxable income are as follows: 2005 2006 2007 Pretax financial income $124,000 $140,000 $150,000 Taxable income alQQ,QQQ— 140L000 17£nggw Cifi>mwi2g+uob 5%“ “WE; fiat: The temporary difference between pretax financial income and'taxable income is due to the use 0: CCA for tax purposes. Instructions (a) Prepare the journal entries to record income taxes for all three years (expense, assets, and liabilities) assuming that the statutory tax rate applicable to all three years is 30%. GCTQBER 21, Zfififi EAQE 6 Q? 11 (b) Prepare the journal entries to record income taxes for all three years (expense, assets, and liabilities) assuming that the statutory tax rate as of October, 2005 is 30% but that in July; 2006, Parliament raises the income tax rate to 35% retroactive to the beginning of 2006. RCTG 3P33 QCTGBER 21, 2386 FREE 7 0F 11 QAGES Eroblemuiilzigfi marks; "aw : $2 22. Maynard Corp. had $750,000 net income in 20065 On January 1, 2006, sflUguz/QEvfi there were 200,000 common shares outs:anding, On April 1, 20,000 $:A16¢C%:i Z: shares were issued and on September l, Maynard bought 30,000 shares \ l 4 32 ,C oi treasury shares. There are 30,000 options to buy common shares 'Wfiquocfifi~ at $40 a share outstanding. The marke: price or the common shares averaged $50 during 2006° The tax rate is 40%. :iga g NQEY‘ During 2006, “here were 20,000 convertible cumulative preferred shares outstanding. The preferred pays $7 a year dividend, and is convertible into three common shares. Maynard issued $2,000,000 of 8% convertible bonds at face value during 2005. Each $1,000 bond is convertible into 20 common shares. Instructions Calculate dilited earnings per share for 2006a Complete the schedule and show all calculationsw 3” %$c%j ffl,f;§ “ 5 {Alamo i: l fl , 4 a . M a Y (a 3 viii) 5 Q rsaavga;\ (g [6, “a; 4.,“ 21331142529 :: Q j i 8 / i I ' "1 1U ' «a fail-"0, Q y’U / ’ K ?quvv' , ; ‘ a q M / 1; coo W \ x g AWW’WMMWWW“ 5 r " /» 7* i 3 Ci 5’ 5 GM “I 0:”! é’y’g’j ~ Aliiédu S, 503 ‘f «I w a / ~ ._ .. .._. m .fl...v.,l...q_, / \ '"“”“"w'“;:: " " "'t‘” \ f 3-, f (I l r\ I {1‘ I; by ‘ \ ‘ [A \\ { fnfibuiiig Lj¥wCiflJ\ f2)¥14?bbggng VLQPu E ; l - l 2 i 2 {1 [fl fix WE l §\fg a%?flw E x x 32 1 “79R -531“: C 5 C“ / /’ f J Alf} 9’ Kirk £942: v M593, b;\\ I; ‘ L; / $CTG BPBS QCTQBER 21, 2086 @ASE 8 GE 11 EAGES Problem iv $23 marks) w 23¢ Chantiri Corp, has the following portfolio of available~for~sale investments at December 31, 2006: Unrealized Investment Cost Fair Value Gain (Loss) Andrew Corp. $200,000 $160,000 $(40,000) Bocce Inc. 550,000 800,000 250,000 Total $750,000 $960,000 $210,000 During 2007, Chantiri Corp: sells Andrew Corp. for $140,000 and Bocce lnc='s fair value increases to $890,000. Instructions 1. Prepare the necessary adjusting journal entry(ies) as of December 31, 2006. s v t. - m amass e041; »—z§m , as: m (2.1 2. Prepare the necessary journal entry(ies) to record the sale of the shares of Andrew Corp. ;:::”"“\ ,1 "ff \1 a} / .. , C (“3/17 1” ’ I ./ \ 04/”! ACTS 3?33 GCTQEER 21; 2%65 @AGE g QF 11 gAGES 3. Prepare the necessary journal entry(ies) as of December 31, 2007: r" : fz/ ; 3" av i r / 4 fl 1 ~ ’ » : g e may Lg «Mead/s,» we hear/3x322 we /?f ;3 J 'f" X I M- 1‘ \3 -" jfl / (I .._.~ 7 ll 1‘ —\ \\ _/m C: IV” e a u/ 1 “EV/ L 9 L” my j>7‘{// L}é>{f x ” ACTG 3P33 QCTQBER 21, ZQQS FAGE la 3? ll PRESS Problem V {1% marks} Answer the following independent questions: 1. Compare permanent and temporary differences indicating how each affect income tax accounting“ JG \ / / I: m i/ a r 33: ‘axmvw é): cwwn‘flwmw ‘3 , » 1 w 5 Zn / {a gag/film i: h: f 12-day? germ 7 g!" “ - r n 3/5 mg C C/“LQCLE, @iLgk Lu iii a. W ~. r: m - . , w m» a 3 My Hair n, fir! fig I)“ 3 ‘ t gra (1&1; r’ (:X‘ i, a; 1 l r -=—- . A V i \‘T ‘1 l <45 MLUS 'Y'L'i {3&q w 4, ' ‘w L ” WJ‘ s\ €833 REE“ k A in i u 2 \ war J“ k “ a k. if I \ “LKLEQEK k a; :ti) 3/ i”, iqami [I Murat/w}, 7/55/91” rm”; Céu C p 4} Km JV Ma ‘~’£\ KT ‘ Wet. n r ‘ ‘ 4 L" “’1‘ ‘ “MP in, Riva a?” he p \ k W m i E ‘4 {J : k - ‘7 N I a We , wan my" N a 3’3 but : » I?" 5‘ > (*VL/ it“ X , \ 3v W L _ % I . \J r-” 754‘ L>fi©¢udfi¥ « ‘g‘k {EA—Eif‘x—JKQM m AQEG 3P33 QCTQEER 21; 2906 PEGE 13;. GE" 11 E13333 2. Compare/contrast the effect on financial statements of common share investments accounted for as Available for Sale Securities vs. common share investments accounted for using the equity method: A 5/" f g r" r ‘1 «a 1; 1 '3 z ./ ‘y/i/‘v VK mm‘w MA '3 'Ma, 1’ _____ t r M \ 1,3 , j,— W {3 ' in J/fl2%\§ L \ ganglia ,y a $5 z] k {A} :> i of) mi?) 53% ff; flat” J t I {9,9 ACTG 3§33 GCTGEER 21; 2896 EAGE 12 QF 11 EEQES 7—Page 6 ANSWLR my : E - + l e ~ + «» + Text | Bank 1 Exam I Ques Diff Lrng | Chapter{ Ref [Question Answeri Type Cat Lv1 Obj ! Page 1 +~ a + - l + ~— 1 1O 37 1 d MChoice C 1 10 36 2 a Choice C 10 15 3 c .Choice C 10 23 4 c Choice C 18 1 5 c AChoice C 18 5 6 d YChoice C 18 9 7 a YChoice C “8 11 8 d YChoice C 18 L4 9 c vChoice P 18 7 10 a NChoice C 18 -0 11 b VChoice C 10 4 12 b NChoice C 10 8 13 b NChoice C 19 2 14 a MChoice C 19 4 15 c -Choice C l '9 7 26 d Choice C 19 11 1 c VChoice C 19 17 -8 c VChoice C 19 2O 19 c NChoice C 19 22 20 d VChoice C 19 63 21 Problem 18 44 22 ProbLem 10 88 23 ProbLem ACTG 3333 scream 21, 29% EASE 13 9F 11 ——Page 7 21. $510,000 — $1.20“ 3 400,000 + (100,000 x ) 1n .Lz. (a) 2005 2006 2007 Total Book amortization Tax amortization $ 60,000 84,000 $60,000 60,000 $60,000 36,000 $180,000 180,000 Temporary difference $(24,000) ~0— 2005 Current Income Tax Expense Future Income Tax Expense Future Tax Liability ($24,000 x Income Tax Payable ($100,000 x 2006 Current Income Tax Expense Income Tax Payable ($140,000 x 2007 Future Income Tax Income Tax Payable Expense ($174,000 x 2005 Future Income Tax Expense Future Tax Liability ($24,000 x Income Tax Payable ($100,000 x 2006 Current Future Income Tax Expense Income Tax Expense Income Tax Payable ($140,000 x 2007 Current Income Tax Expense Future Income Tax Expense Income Tax Payable ($174,000 x 2007 *Future taxable amount $24,000 Future :ax @ 30% Future tax @ 35% 7,200 8,400 Adjustment $ 1,200 Current Income Tax Expense . . , z . ,. Future Tax Liability . . . . . . . . . . . .. Current Income Tax Expense . . . , . ,. Future Tax Liability a . . . , . , . . .. ,35) Future Tax Liability . . . . a . . . . . , 1. $24,000 $ ..... PEGES ACTG 3§33 GCTQBER 121,, 2696 §A§E 1% SE" 1: PAQES ...
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mid06 - ERGEK llNEVERS-ET? Midaemn Emminafion Course: ACTG...

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