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Financial Reporting - Sample Quiz

1) Mast, Inc. reports a taxable and financial loss of $650,000 for 2009. Its pretax financial income for the last two years was as follows:
2007 $300,000
2008 400,000
The amount that Mast,Inc. reports as a net loss for financial reporting purposes is 2009, assuming that it uses the carry back provisions, and that the tax rate is 30% for all periods affected, is
A) $650,000 loss
B) $0
C) $4195,000 loss
D) $455,000 loss.

2.For Calendar year 2007, Neer Corp. reported depreciation of $1,200,000 in its income statement. On its 2007 tax return, Neer reported depreciation of $1,800,000.
Neer's income statement also included$225,000 accrued warranty expense that will be deducted for tax purposes when paid. Neer's enacted tax rates are 30% for 2007 and 2008, and 24% for 2009 and 2010. The depreciation difference and warranty expense will reverse over the next three years as follows:
Depreciation difference Warranty Expense
2008 $240,000 $45,000
2009 210,000 75,000
2010 150,000 105,000
Total 600,000 25,000
These were Neer's only temporary differences. In Neer's 2007 income statement, the deferred portion of its provision for income taxes should be
A) $200,700
B) $112,500
C) $101,700
D) $109,800

3. Simson company has 35 employees who work 8-hr days and are paid hourly. On January 1, 2007, the company began a program of granting its employees 10 days of paid vacation each year. Vacation days earned in 2007 may first be taken on January 1, 2008. Information relative to these employees is as follows:
Hourly Vacation Days earned Vacation Days Used
Year Wages by Each Employee by each Employee
2007 $25.80 10 0
2008 27.00 10 8
2009 28.50 10 10
Simson has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time is earned.

What is the amount of expense relative to compensated absences that should be reported on Simson's income statement for 2007?
A) $0
B) 68,880
C) 75,600
D) 72,240

4. On December 31, 2007. Jansen company granted some of its executives options to purchase 45,000 shares of the company's $50 par common stock at an option price of $60 par share. The Black-Scholes option pricing model determines total compensation expense to be $900,000. The options become exercisable on January 1, 2008 and represent compensation for executives' past and future services over a three-year period beginning January 1, 2008. What is the impact on Jansen's total stockholders' equity for the year ended December 31, 2007, as a result of this transaction under the fair value method?
A) 900,000 decrease
B) 300,000 decrease
C) 0
D) 300,000 increase

5.On January 1, 2008, Kinder Co. has the following balances:
Projected benefit obligation $2,100,000
Fair value of plan assets 1,800,000
The settlement rate is 10%. Other data related to the pension plan for 2008 are: Service cost $180,000
Amortization of prior service cost due to increase in
benefits 60,000
Contributions 300,000
Benefits paid 105,000
Actual return on plan assets 237,000
Amortization of net gain 18,000

The balance of the projected benefit obligation at December 31, 2008 is
A) $2,685,000.
B) $2,385,000.
C) $2,355,000.
D) $2,337,000.

6. The fair value of plan assets at December 31, 2008 is
A) $2,430,000.
B) $2,250,000.
C) $2,232,000.
D) $2,214,000.

7.On January 1, 2008, Dalton Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Dalton to make annual payments of $50,000 at the beginning of each year for five years with title to pass to Dalton at the end of this period. The equipment has
an estimated useful life of 7 years and no salvage value. Dalton uses the straight-line method of depreciation for all of its fixed assets. Dalton accordingly accounts for this lease transaction as a
capital lease. The minimum lease payments were determined to have a present value of $208,493 at an effective interest rate of 10%.

8 In 2008, Dalton should record interest expense of
A) $15,849.
B) $29,151.
C) $20,849.
D) $34,151.

9. On December 31, 2008, Dodd Corporation leased a plane from Aero Company for an eight-year period expiring December 30, 2016. Equal annual payments of $150,000 are due on December 31 of each year, beginning with December 31, 2008. The lease is properly classified as a capital lease on Dodd's books. The present value at December 31, 2008 of the eight lease payments over the lease term discounted at 10% is $880,264. Assuming the first payment is made on time, the amount that should be reported by
Dodd Corporation as the lease liability on its December 31, 2008 balance sheet is
A) $880,264.
B) $818,290.
C) $792,238.
D) $730,264.

Solution Preview

Please find the solutions below

Regards,
Manal Elkhoshkhany, OTA ID 104980

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1. Mast, Inc. reports a taxable and financial loss of $650,000 for 2009. Its pretax financial income for the last two years was as follows:
2007 $300,000
2008 400,000
The amount that Mast, Inc. reports as a net loss for financial reporting purposes is 2009, assuming that it uses the carry back provisions, and that the tax rate is 30% for all periods affected, is
A) $650,000 loss
B)$0
C) 4195,000 loss
D)$455,000 loss.

$650,000 - (30% × $650,000) = $455,000.

2. For Calendar year 2007, Neer Corp. reported depreciation of $1,200,000 in its income statement. On its 2007 tax return, Neer reported depreciation of $1,800,000.
Neer's income statement also included$225,000 accrued warranty expense that will be deducted for tax purposes when paid. Neer's enacted tax rates are 30% for 2007 and 2008, and 24% for 2009 and 2010. The depreciation difference and warranty expense will reverse over the next three years as follows:
Depreciation difference Warranty Expense
2008 $240,000 $45,000
2009 210,000 75,000
2010 150,000 105,000
Total 600,000 25,000
These were Neer's only temporary differences. In ...

Solution Summary

This solution answers various questions regarding financial reporting.

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