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WGU D104 Intermediate Accounting II Units 4-6 Questions
and Answers
Question 1
Journal entry to record the issue of restricted stock to an employee
Correct Answer
debit unearned compensation, credit common stock, credit additional paid in capital - common stock
Question 2
Bond issuance costs should
Correct Answer
Be accumulated in a deferred charge account and amortized over the life of the bonds.
Question 3
Stock may be issued in exchange for cash, property or services. How is it recorded?
Correct Answer
Property or service is recorded at the fair or market value of the stock. If the fair or market value is not available, the fair or market value of the property or services received is used.
acid-test ratio
Correct Answer
(cash + short-term investments + net receivables) / current liabilities
Question 5
Journal entry to record stock dividend when declared with fair market value above par
Correct Answer
Debit retained earnings, credit common stock dividend distributable, credit paid in capital i excess of par - common stock.
Question 6
Employee stock purchase plans generally permit all employees to purchase stock at a discounted price for a short period of time. These plans are compensatory unless
Correct Answer
- all full time employees may participate equally 2. the discount is small. If under 5% no compensation recorded. 3. The plan offers no substantive option feature. This would make it non-compensatory.
Question 7
payout ratio
Correct Answer
cash dividends / (net income - preferred dividends)
Journal entry to record accrued interest expense
Correct Answer
Debit interest expense, credit interest payable
Question 13
activity method
Correct Answer
(actual activity in period / total estimate activity) X (cost - salvage value)
Question 14
A complex capital structure exists when
Correct Answer
a company has convertible securities (bonds/ preferred stock), options, warrants, or other rights that upon conversion or exercise could dilute earnings per share.
Question 15
How much should be recorded in the mortgages payable account on closing with 4 points upon closing
Correct Answer
Points reduce cash received, but do not affect the basis of the mortgage liability.
Journal entry to record the issuance of convertible preferred stock
Correct Answer
debit cash, credit preferred stock, credit paid in capital in excess of par - preferred stock
Question 17
Dilutive security
Correct Answer
a security that can be converted to common stock.
Question 18
Variable charge depreciation method (activity method or units-of-activity/ production approach)
Correct Answer
((cost - salvage value) X current units) / total estimated units
Question 19
Journal entry declaring a property dividend with the fair value method
Correct Answer
Debit retained earnings, credit to property dividends payable at an amount equal to the fair value of the distributed property.
The if-converted method assumes
Correct Answer
the conversion of the convertible securities at the beginning of the period (or at the time of issuance of the security, if issued during the period).
Question 25
Journal entry for payment of dividends
Correct Answer
Debit dividends payable, credit cash.
Question 26
Journal entry to record redemption of gift cards
Correct Answer
debit unearned gift card revenue, credit sales revenue
Question 27
If a dividend exceeds 25%
Correct Answer
The par value method is used. Retained earnings is debited and common stock is credited for the stock's par value.
Journal entry to record compensation expense on incentive stock option plan for the year
Correct Answer
debit compensation expense, credit additional paid in capital - stock options
Question 29
Journal entry to record the granting of stock options evenly over two years.
Correct Answer
debit compensation expense, credit additional paid in capital - stock options
Question 30
Payout ratio
Correct Answer
cash dividends declared on common stock / (net income - preferred dividends)
Question 31
Journal entry to record stock issued
Correct Answer
debit common stock dividend distributable, credit common stock.
Earnings per share
Correct Answer
(net income (after tax) - preferred dividends) / weighted average outstanding common stock (i.e. 3/12, 12/12)
Question 37
Purchase of treasury stock
Correct Answer
Debit treasury stock (cost), credit cash.
Question 38
Stockholders' equity is generally classified into two major categories
Correct Answer
earned capital and contributed capital.
Question 39
Stock split
Correct Answer
Results in an increase or decrease in the number of shares outstanding with a corresponding decrease or increase in the par or stated value per share.
Journal entry to record bond interest payment end of the year
Correct Answer
Debit interest expense, credit interest payable
Question 41
A small stock dividend will
Correct Answer
have no effect on total assets or total stockholders' equity.
Question 42
Intrinsic value method (stocks)
Correct Answer
measures stock compensation by the excess of the market price of the stock over its exercise price at the grand date. (not GAAP)
Question 43
What shares are part of dividend declaration?
Correct Answer
Shares issued - shares held as treasury stock.
Which of the following is not considered a dilutive security?
Correct Answer
participating preferred stock.
Question 49
Journal entry to record payment of the note at maturity
Correct Answer
Debit notes payable, debit interest expense, credit cash
Question 50
Contingencies not accrued
Correct Answer
Risk of loss or damage of enterprise property by fire, explosion or other hazards, general or unspecified business risks, or risk of loss from catastrophes assumed by property and casualty insurance companies including reinsurance.
Question 51
Dilution refers to the effect that convertible securities and rights such as options, stock rights and stock warrants could have on
Correct Answer
basic earnings per share if these securities were exchanged for common stock.
Long term debt that matures within one year and is to be converted into stock should be reported as?
Correct Answer
Noncurrent and accompanied with a note explaining the method to be used in its liquidation.
Question 53
How is stock options allocated
Correct Answer
with the straight line method using the fair value of the stock options granted over the service period (grant date to the vesting date).
Question 54
When is the restoration of an impairment loss permitted?
Correct Answer
When an assets is held for disposal. Impairment loss is reported at the lower of cost or net realizable value (fair value - cost to sell/dispose) not to exceed amount of initial impairment loss.
Question 55
Journal entry at payment date of dividends with gain on investment (fair value)
Correct Answer
Debit property dividends payable, credit investment in stock.
How to record a contingent warranty liability that is probably and estimable, but not fulfilled?
Correct Answer
Debit warranty expense and credit warranty liability.
Question 61
Journal entry to record interest expense on a bond at premium mid year
Correct Answer
Debit interest expense, debit premium on bonds payable, credit cash.
Question 62
Fair value method (stocks)
Correct Answer
uses an option pricing model to value the stock options at the date of grant. (GAAP)
Question 63
Times interest earned ratio
Correct Answer
(Net Income + Interest Expense + Income Tax Expense) / Interest Expense
Journal entry to record bond interest payment mid-year
Correct Answer
Debit interest expense, credit cash
Question 65
The accounting for restricted stock is
Correct Answer
similar to the accounting for stock options.
Question 66
double declining balance method
Correct Answer
An accelerated depreciation method that computes annual depreciation by multiplying the depreciable asset's decreasing book value by a constant percent that is two times the straight-line depreciation rate.
Question 67
diluted earnings per share
Correct Answer
(net income - preferred dividends) + (convertible debt interest) X (1 - tax rate) / (weighted average common shares outstanding + shares from conversion of conv. debt)
How does the declaration and distribution of a stock dividend affect stockholders' equity?
Correct Answer
The balances of different accounts in stockholders' equity will change, but total stockholders equity is unchanged.
Question 73
rate of return on common stock equity
Correct Answer
(net income - preferred dividends) / average common stockholders' equity
Question 74
A dividend which is a return to stockholders of a portion of their original investments is a
Correct Answer
liquidating dividend
Question 75
The compensation cost associated with employee stock option plans is
Correct Answer
allocated to expense over the service period.
Journal entry for impairment
Correct Answer
Debit impairment loss, credit accumulated depreciation
Question 77
If an employee doesn't fulfill vesting requirements
Correct Answer
stock options and restricted stock both require that compensation expense recorded to date be reversed.
Question 78
Journal entry to record payment to sales tax agency if sales tax is not segregated and there is a gain on sales tax
Correct Answer
Debit sales revenue, credit gain on sales tax collection, credit cash
Question 79
Journal entry to record the ore sold
Correct Answer
Debit cost of goods sold, credit inventory (ore)
