Financial Accounting Ii

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Question # 1

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Transaction costs that are directly attributable to the “issuance of new shares” should be: a. Expensed immediately b. Charged to retained earnings c. Deducted from equity d. Deducted from equity, net of related income tax benefit

ANSWER
D
Deducted from equity, net of related income tax benefit

Question # 2

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The following information pertains to Hopson Co.'s pension plan: Projected benefit obligation at 1/1/13 $72,000 Assumed discount rate 10% Service costs for 2013 $28,000 Pension benefits paid during 2013 $15,000 If no change in actuarial estimates occurred during 2013, Hopson's projected benefit obligation at December 31, 2013 was a. $74,200. b. $85,000. c. $90,200. d. $92,200.

Answer
D. $92,200

PBO, beginning Current service cost Interest cost (72,000 x 10%) Payment PBO, ending

$72,000 28,000 7,200 (15,000) $92,200

Question # 3

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What is the accounting for treasury shares? a. On repurchase of treasury shares, a gain or loss is recognized equal to the difference between the amount at which the shares were issued and the repurchase price for the shares. b. On reissuance of treasury shares, a gain or loss is recognized equal to the difference between the previous repurchase price and the reissuance price c. On repurchase or reissuance of previously repurchased own shares, no gain or loss is recognized. d. Treasury shares are accounted for as financial assets.

ANSWER
C
On repurchase or reissuance of previously repurchased own shares, no gain or loss is recognized.

Question # 4
On January 1, 2012, Jones Company issued P8 M of 10% bonds at 105 which are due on December 31, 2017. Each P1,000 bond was issued with 20 nondetachable share warrants each of which entitled the bondholder to purchase one share of Jones for P45 with a par value of P20 per share. On January 1, 2012, the market value of each warrant is P4 while the bonds ex-warrant were selling at par. On January 31, 2013, the bondholders exercised the warrants to purchase the shares. What is the net increase in equity as a result of exercising the warrants in 2013?

ANSWER
C. P7,200,000
8,000,000/1,000 x 20 x 45 = 7,200,000

Question # 5

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Transaction costs directly attributable to the issuance of new shares include all of the following except a. Documentary stamp tax and other percentage tax b. Underwriting fee c. SEC registration fee for new shares d. Stock listing fee

ANSWER
B
Underwriting fee

Question # 6

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