1. Giada Foods reported $940 million in income before income taxes for 2011, its first year of operations.

Tax depreciation exceeded depreciation for financial reporting purposes by $100 million. The company also

had non-tax-deductible expenses of $80 million relating to permanent differences. The income tax rate for

2011 was 35%, but the enacted rate for years after 2011 is 40%. The balance in the deferred tax liability in

the December 31, 2011, balance sheet is

A. $40 million.

B. $56 million.

C. $16 million.

D. $35 million.

2. Information for Hobson International Corp. for the current year ($ in millions):

What is Hobson’s income tax payable for the current year?

Income from continuing operations before tax $150

Extraordinary loss (pretax) 30

Temporary differences (all related to operating income):

Accrued warranty expense in excess of write-offs

included in operating income 10

Depreciation deducted on tax return in excess of depreciated expense 25

Permanent differences (all related to operating income):

Nondeductible portion of travel & entertainment expense 5

The applicable enacted tax rate for all periods is 40%.

A. $48 million

B. $52 million

C. $50 million

D. $44 million

3. Giada Foods reported $940 million in income before income taxes for 2011, its first year of operations.

Tax depreciation exceeded depreciation for financial reporting purposes by $100 million. The company also

had non-tax-deductible expenses of $80 million relating to permanent differences. The income tax rate for

2011 was 35%, but the enacted rate for years after 2011 is 40%. The balance in the deferred tax liability in

the December 31, 2011, balance sheet is

A. $56 million.

B. $35 million.

C. $40 million.

D. $16 million.

4. Poodle Corporation was organized on January 3, 2011. The firm was authorized to issue 100,000 shares

of $5 par common stock. During 2011, Poodle had the following transactions relating to shareholders’

equity:

Issued 30,000 shares of common stock at $7 per share.

Issued 20,000 shares of common stock at $8 per share.

Reported a net income of $100,000.

Paid dividends of $50,000.

What is total Paid-in capital at the end of 2011?

A. $420,000

B. $320,000

C. $470,000

D. $370,000

5. As of December 31, 2011, Warner Corporation reported the following:

During 2012, half of the treasury stock was resold for $240,000; net income was $600,000; cash dividends

declared were $1,500,000; and stock dividends declared were $500,000. 40. What would shareholders’

equity be as of December 31, 2012?

Dividends payable 20,000

Treasury stock 600,000

Paid-in capital–share repurchase 20,000

Other paid-in capital accounts 4,000,000

Retained earnings 3,000,000

A. $5,760,000

B. $5,820,000

C. The amount isn’t shown.

D. $6,760,000

6. Woody Corp. had taxable income of $8,000 in the current year. The amount of MACRS depreciation

was $3,000 while the amount of depreciation reported in the income statement was $1,000. Assuming no

other differences between tax and accounting income, Woody’s pretax accounting income was

A. $10,000.

B. $6,000.

C. $5,000.

D. $11,000.

7. The following information pertains to Havana Corporation’s defined benefit pension plan:

($ in 000s) 2011 2012

Beginning

balances

Beginning

balances

Projected benefit obligation ($6,000) ($6,504)

At the end of 2011, Havana contributed $696 thousand to the pension fund and benefit payments of $624

thousand were made to retirees. The expected rate of return on plan assets was 10%, and the actuary’s

discount rate is 8%. There were no changes in actuarial estimates and assumptions regarding the PBO.

What is the 2011 pension expense for Havana’s plan?

Plan assets 5,760 6,336

Prior service cost–AOCI 600 552

Net loss–AOCI 720 786

A. $702 thousand

B. $594 thousand

C. $606 thousand

D. $678 thousand

8. F Co. declares a 5% stock dividend. If the market price at declaration is $12 per share, a shareholder

with 110 shares likely would receive

A. 5 additional shares.

B. 5 additional shares and a fractional share right for 2 ó shares.

C. 5 additional shares and $6 in cash.

D. fractional share rights for 5 ó shares.

9. The changes in account balances for Elder Company for 2011 are as follows:

Assuming the only changes in retained earnings in 2011 were for net income and a $50,000 dividend, what

was net income for 2011?

Assets $480,000 debit

Common stock 250,000 credit

Liabilities 160,000 credit

Paid-in capital–excess of par 30,000 credit

A. $60,000.

B. $40,000.

C. $90,000.

D. $70,000.

10. Pug Corporation has 10,000 shares of $10 par common stock outstanding and 20,000 shares of $100

par, 6% noncumulative, nonparticipating preferred stock outstanding. Dividends have not been paid for the

past two years. This year, a $150,000 dividend will be paid. What are the dividends per share for preferred

and common, respectively?

A. $6; $1.50.

B. $7.50; $0.

C. $7.50; $1.50.

D. $6; $3.

11. Information for Hobson International Corp. for the current year ($ in millions):

What should Hobson International report as net income?

Income from continuing operations before tax $150

Extraordinary loss (pretax) 30

Temporary differences (all related to operating income):

Accrued warranty expense in excess of write-offs

included in operating income 10

Depreciation deducted on tax return in excess of depreciated expense 25

Permanent differences (all related to operating income):

Nondeductible portion of travel & entertainment expense 5

The applicable enacted tax rate for all periods is 40%.

A. $72 million

B. $75 million

C. $70 million

D. $88 million

12. In 2009, Winn, Inc., issued $1 par value common stock for $35 per share. No other common stock

transactions occurred until July 31, 2011, when Winn acquired some of the issued shares for $30 per share

and retired them. Which of the following statements correctly states an effect of this acquisition and

retirement?

A. 2011 net income is increased.

B. Retained earnings is increased.

C. 2011 net income is decreased.

D. Additional paid-in capital is decreased.

13. In 2010, HD had reported a deferred tax asset of $90 million with no valuation allowance. At

December 31, 2011, the account balances of HD Services showed a deferred tax asset of $120 million

before assessing the need for a valuation allowance and income taxes payable of $80 million. HD

determined that it was more likely than not that 30% of the deferred tax asset ultimately would not be

realized. HD made no estimated tax payments during 2011. What amount should HD report as income tax

expense in its 2011 income statement?

A. $80 million

B. $50 million

C. $86 million

D. $116 million

14. Beagle Corporation has 20,000 shares of $10 par common stock outstanding and 10,000 shares of

$100 par, 6% cumulative, nonparticipating preferred stock outstanding. Dividends haven’t been paid for the

past two years. This year, a $300,000 dividend will be paid. What are the dividends per share payable to

preferred and common, respectively?

A. $6; $12

B. $12; $0

C. $6; $6

D. $18; $6

15. The following information is related to the defined benefit pension plan of Dreamworld Company for

the year:

Assuming no other relevant data exist, what is the pension expense for the year?

Service cost $60,000

Contributions to pension plan 110,000

Benefits paid to retirees 150,000

Plan assets (fair value), January 1 640,000

Plan assets (fair value), December 31 750,000

Actual return on plan assets 150,000

PBO, January 1 900,000

PBO, December 31 960,000

Discount rate 10%

Long-term expected return on plan assets 9%

A. $60,000

B. $190,000

C. $92,400

D. $170,000

16. The following incomplete (columns have missing amounts) pension spreadsheet is for the current year

for First Republic Corporation (FRC).

What was FRC’s pension expense for the year?

A. $44.

B. $107.

C. $49.

D. $47.

17. Roberto Corporation was organized on January 1, 2011. The firm was authorized to issue 100,000

shares of $5 par common stock. During 2011, Roberto had the following transactions relating to

shareholders’ equity:

Issued 10,000 shares of common stock at $7 per share.

Issued 20,000 shares of common stock at $8 per share.

Reported a net income of $100,000.

Paid dividends of $50,000.

Purchased 3,000 shares of treasury stock at $10 (part of the 20,000 shares issued at $8).

What is total shareholders’ equity at the end of 2011?

A. $200,000

B. $270,000

C. $300,000

D. $250,000

18. Fox Company received the following reports of its defined benefit pension plan for the current calendar

year:

The long-term expected rate of return on plan assets is 8%. Assuming no other data are relevant, what is

the pension expense for the year?

PBO Plan assets

Balance, January 1 $600,000 Balance, January 1 $500,000

Service cost 360,000 Actual return 50,000

Internal cost 64,000 Annual contribution 220,000

Benefits paid (90,000) Benefits paid (90,000)

Balance, December 31 $934,000 Balance, December 31 $680,000

A. $374,000

B. $360,000

C. $384,000

D. $424,000

19. Colombo Enterprises has a defined benefit pension plan. At the end of the reporting year, the following

data were available: beginning PBO, $75,000; service cost, $14,000; interest cost, $6,000; benefits paid for

the year, $9,000; ending PBO, $89,000; and the expected return on plan assets, $10,000. There were no

other pension related costs. The journal entry to record the annual pension costs will include a debit to

pension expense for

A. $10,000.

B. $15,000.

C. $20,000.

D. $12,000.

20. The following refers to the pension spreadsheet (columns have missing amounts) for the current year

for Pancho Villa Enterprises (PVE).

What was PVE’s pension expense for the year?

A. $68

B. $260

C. $50

D. $62

21. For the current year ($ in millions), Centipede Corp. had $80 in pretax accounting income. This

included bad debt expense of $6 based on the allowance method, and $20 in depreciation expense. Two

million in receivables were written off as uncollectible, and MACRS depreciation amounted to $35. In the

absence of other temporary or permanent differences, what was Centipede’s income tax payable currently,

assuming a tax rate of 40%?

A. 19.6 million

B. 29.2 million

C. 27.6 million

D. 25.2 million

22. At December 31, 2011, Moonlight Bay Resorts had the following deferred income tax items:

Deferred tax asset of $54 million related to a current liability

Deferred tax asset of $36 million related to a noncurrent liability

Deferred tax liability of $120 million related to a noncurrent asset

Deferred tax liability of $72 million related to a current asset

Moonlight Bay should report in the current section of its December 31, 2011, balance sheet a

A. Noncurrent liability of $30,000.

B. Current tax liability of $18,000.

C. Noncurrent asset of $90,000 and a non-current liability of $192,000.

D. Noncurrent asset of $84,000 and a non-current liability of $45,000.

23. In its first four years of operations Peridot Jewelers reported the following operating income (loss)

amounts:

2008 $150,000

End of exam

There were no other deferred income taxes in any year. In 2010, Peridot elected to carry back its operating

loss. The enacted income tax rate was 40%. In its 2011 income statement, what amount should Peridot

report as income tax expense?

2009 100,000

2010 (425,000)

2011 450,000

A. $170,000

B. $80,000

C. $180,000

D. $110,000

24. The following partial information is taken from the comparative balance sheet of Levi Corporation:

What was the average price (rounded to the nearest dollar) of the additional shares issued by Levi in 2011?

A. $26 per share

B. $39 per share

C. The answer can’t be determined from the information given.

D. $5 per share

25. Montgomery & Co., a well established law firm, provided 500 hours of its time to Fink Corporation in

exchange for 1,000 shares of Fink’s $5 par common stock. Mitchell’s usual billing rate is $700 per hour,

and Fink’s stock has a book value of $250 per share. By what amount will Fink’s Paid-in capital – excess of

par increase for this transaction?

A. $295,000

B. $350,000

C. $345,000

 

D. $300,000