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On January 1, 2008, Rex Co. sold a used machine to Lake, Inc. for $525,000. On this date, the machine had a depreciated cost of $367,500. Lake paid...

1.) On January 4, 2002 Wynn Inc. bought 15% of Parr Corporation's common stock for $60,000. Wynn appropriately accounts for this investment by the cost method. The following data concerning Parr are available for the years ended Dec 31, 2002 and 2003.
2002: Net Income $30,000
Dividend Paid None
2003: Net Income $90,000
Dividend Paid $80,000

In its income statement for the year ended December 31, 2003, how much should wynn report as income from this investment.

a. $4,500
b. $9,000
c. $12,000
d. $13,500

2. The calculation of the income recognized in the first year of a four-year construction contract accounting for using the percentage-of-completion method is generally based on the ratio of:

a. The total estimated costs to estimated costs complete.
b. Total estimated costs to actual costs incurred to date.
c. Actual costs incurred to date to total estimated costs.
d. Estimated costs to complete to total estimated costs.

3. A company used the percentage-of-completion method of accounting for a four-year contract. Which of the following items would be used to calculate the income recognized in the second year?

Income previously recognized/Progress billings to date
a. Yes/Yes
b. No/Yes
c. Yes/No
d. No/No

4. During 2009, Tidal wave company began construction on a project scheduled for completion in 2011. At Dec 31, 2009 an overall loss was anticipated at contract completion. What would be the effect of the project on 2009 operating income under the percentage-of-completion method and the completed contract method?

Percentage of Completion/Completed Contract
a. No effect/No effect
b. No effect/decrease
c. Decrease/no effect
d. Decrease/decrease

5. Rosson Corporation, which began business on January 1, 2009, appropriately uses the installment sales method of accounting for income tax reporting purchases. The following data are available for 2008:

Installment accounts receivable, 12/31/2008 200,000
Installment Sales for 2008 350,000
Gross Profit on sales 40%

Under the istallment sales method, what would Rosson's deferred gross profit at December 31, 2008 be?
a. 120,000
b. 90,000
c. 80,000
d. 60,000
1. On January 1, 2008, Rex Co. sold a used machine to Lake, Inc. for $525,000. On this date, the machine had a depreciated cost of $367,500. Lake paid $75,000 cash on January 1, 2008 and signed a $450,000 note bearing interest at 10%. The note was payable in three annual installments of $150,000 beginning January 1, 2009. Rex appropriately accounted for the sale under the installment method. Lake made a timely payment of the first installment on January 1, 2009, which included interest of $45,000 to date of payment. At December 31, 2009, Rex has deferred gross profit of: a. $105,000 b. $99,000 c. $90,000 d. $76,500 2. During 2009 Bradley Corporation issued for $110 per share, 5,000 share of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Bradley’s $25 par value common stock at the option of the preferred stockholder. On December 31, 2010, all of the preferred stock was converted into common stock. The market value of the common stock at the conversion date was $40 per share. What amount should be credited to the common stock account on December 31, 2010? a. $375,000 b. $500,000 c. $550,000 d. $600,000 3. At the time of conversion of bonds into common stock, the market value of the stock exceeds the net carrying amount of the bonds. A loss on conversion would be recognized when using the: Book value method Market value method a. Yes No b. Yes Yes c. No Yes d. No No 4. Wolf Company issued 1,000 of its $1,000 face amount, 20-year bonds on June 30, 2010, for $1,020,000. Each bond carries five detachable stock purchase warrants, each of which entitles the holder to purchase for $60 one share of Wolf’s common stock. On June 30, 2010, the market prices were $50 per share of Wolf’s common stock and $5 per warrant. In its June 30, 2010, balance sheet, at what amount should Wolf report the carrying amount of the bonds? a. $995,000 b. $1,000,000 c. $1,020,000 d. $1,045,000
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5. An investor in common stock received dividends in excess of the investor’s share of investee’s subsequent to the date of the investment. How will the investor’s investment account be affected by those dividends under each of the following accounting methods? Cost method Equity method a. No effect No effect b. Decrease No effect c. No effect Decrease d. Decrease Decrease Questions 6 through 8 are based on the following : Lee, Inc. acquired 30% of Polk Corporation’s voting stock on January 1, 2008 for $100,000. During 2008, Polk earned $40,000 and paid dividends of $25,000. Lee’s 30% interest in Polk gives Lee the ability to exercise significant influence over Polk’s operating and financial policies. During 2009, Polk earned $50,000 and paid dividends of $15,000 on April 1, and $15,000 on October 1. On July 1, 2009, Lee sold half its stock in Polk for $66,000 cash. 6. Before income taxes, what amount should Lee include in its 2008 income statement as a result of the investment? a. $40,000 b. $25,000 c. $12,000 d. $7.500 7. The carrying amount of this investment in Lee’s December 31, 2008 balance sheet should be: a. $100,000 b. $104,500 c. $112,000 d. $115,000 8. What should the gain on sale of this investment in Lee’s 2009 income statement? a. $16,000 b. $13,750 c. $12,250 d. $10,000 9. When computing fully diluted earnings per share, convertible securities that are not common stock equivalents are: a. Recognize only if they are dilutive . b. Recognize only if they are anti-dilutive.
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1. On January 1, 2008, Rex Co. sold a used machine to Lake, Inc. for $525,000. On
this date, the machine had a depreciated cost of $367,500. Lake paid $75,000
cash on January 1, 2008 and signed a...

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