Harvard Financial Accounting Final Exam 3
Q1. Freeman, Inc., reported net income of $40,000 for 2015. However, the
company’s income tax return excluded a revenue item of $3,000 (reported on
the income statement) because under the tax laws the $3,000 would not be
reported for tax purposes until 2016. Assuming a 30% income tax rate, this
situation would cause a 2015 deferred tax amount of
$3,000 asset.
$3,000 liability
$ 900 asset.
$ 900 liability.
Q2. What is the major accounting difference between interest incurred during
a period and cash dividends declared during the same period?
Interest decreases retained earnings while dividend declared increases retained earnings
Interest reduces net income while dividends declared do not affect net income
Interest does not affect net income while dividends reduce net income
There is no major difference. Both are treated identically for accounting purposes.
Q3. ABC expenses stock options as required by GAAP . On January 1, 2015, ABC
granted 50 key executives 100 options each. Each option entitled the option
holder to purchase 1 share of ABC common stock at $60 per share. The
options will vest on January 1st 2018. On the grant date, January 1st, 2015, the
stock was quoted on the stock exchange at $63 per share. The fair value of the
options on the grant date was estimated at $15 per option. The amounts of
compensation expense ABC should recognize with respect to the options
during 2015, 2016, and 2017 are:
1
2
3
4
Q4. International, Inc. established an allowance for bad debts at the end of
October. In November, International wrote off a $500 account receivable
because payment was considered to be remote. What would be the effect of
the $500 account receivable write-off on International’s November financial
statements? Assets would decrease, liabilities would remain constant and retained earning would decrease.
Assets would remain constant; liabilities would increase and retained earnings would decrease.
No change would be made in total assets, liabilities or shareholder’s equity.
Assets would decrease, liabilities would decrease and retained earnings would remain constant.
Q5. On June 30, 2011, Cole Inc., exchanged 3,000 shares of Stone Corp. $30 par
value common stock for a patent owned by Gore Co. The Stone stock was
acquired in 2009 at a cost of $80,000. At the exchange date, Stone common
stock had a fair value of $45 per share, and the patent had a net carrying value
of $160,000 on Gore’s books. Cole should record the patent at:
$80,000
$90,000
$135,000
$160,000
Q6. On January 1, 2007, Phillips, Inc. leased a new machine from U.S. Leasing.
The specific information on the lease is as follows:
On January 1, 2007, Phillips, Inc. should record a lease liability of:
$275,000
$359,464
$0
$250,000
Q7. FRC Inc. acquired Marketing Inc on 1/1/2014. Marketing Inc. has 10,000
shares outstanding. Each share in Marketing Inc. was exchanged for half a
Q1. Freeman, Inc., reported net income of $40,000 for 2015. However, the
company’s income tax return excluded a revenue item of $3,000 (reported on
the income statement) because under the tax laws the $3,000 would not be
reported for tax purposes until 2016. Assuming a 30% income tax rate, this
situation would cause a 2015 deferred tax amount of
$3,000 asset.
$3,000 liability
$ 900 asset.
$ 900 liability.
Q2. What is the major accounting difference between interest incurred during
a period and cash dividends declared during the same period?
Interest decreases retained earnings while dividend declared increases retained earnings
Interest reduces net income while dividends declared do not affect net income
Interest does not affect net income while dividends reduce net income
There is no major difference. Both are treated identically for accounting purposes.
Q3. ABC expenses stock options as required by GAAP . On January 1, 2015, ABC
granted 50 key executives 100 options each. Each option entitled the option
holder to purchase 1 share of ABC common stock at $60 per share. The
options will vest on January 1st 2018. On the grant date, January 1st, 2015, the
stock was quoted on the stock exchange at $63 per share. The fair value of the
options on the grant date was estimated at $15 per option. The amounts of
compensation expense ABC should recognize with respect to the options
during 2015, 2016, and 2017 are:
1
2
3
4
Q4. International, Inc. established an allowance for bad debts at the end of
October. In November, International wrote off a $500 account receivable
because payment was considered to be remote. What would be the effect of
the $500 account receivable write-off on International’s November financial
statements? Assets would decrease, liabilities would remain constant and retained earning would decrease.
Assets would remain constant; liabilities would increase and retained earnings would decrease.
No change would be made in total assets, liabilities or shareholder’s equity.
Assets would decrease, liabilities would decrease and retained earnings would remain constant.
Q5. On June 30, 2011, Cole Inc., exchanged 3,000 shares of Stone Corp. $30 par
value common stock for a patent owned by Gore Co. The Stone stock was
acquired in 2009 at a cost of $80,000. At the exchange date, Stone common
stock had a fair value of $45 per share, and the patent had a net carrying value
of $160,000 on Gore’s books. Cole should record the patent at:
$80,000
$90,000
$135,000
$160,000
Q6. On January 1, 2007, Phillips, Inc. leased a new machine from U.S. Leasing.
The specific information on the lease is as follows:
On January 1, 2007, Phillips, Inc. should record a lease liability of:
$275,000
$359,464
$0
$250,000
Q7. FRC Inc. acquired Marketing Inc on 1/1/2014. Marketing Inc. has 10,000
shares outstanding. Each share in Marketing Inc. was exchanged for half a
