Exhibit 4-2

Exhibit 4-2

The Vogel  Corporation reported net income for Year 6 of $355000.  Vogel began the year with 200000 shares of $5 par value common shares outstanding and 5000 shares of $100 par value 8% preferred shares outstanding.  On July 1, Vogel sold (issued) 20000 shares of common stock for $12 per share.  Vogel paid dividends to both common and preferred shareholders in December.

1.       Refer to Exhibit 4-2.  What is the basic earnings per share for Year 6?

a)      $1.43 per share

b)      $1.50 per share

c)       $1.58 per share

d)      $1.61 per share

2.       Refer to Exhibit 4.2.  If each share of preferred stock is convertible into 8 shares of common stock, what is the diluted earnings per share for Year 6?

a)      $1.26 per share

b)      $1.42 per share

c)       $1.58 per share

d)      $1.61 per share

3.       By using the book value method to record the conversion of convertible bonds, managers are able to protect themselves from recording:

a)      Extraordinary gains

b)      Extraordinary losses

c)       Miscellaneous profits

d)      Ordinary losses

Exhibit 4-3

Bowers Investments bought 1000 shares of IDA Inc common stock on January 1, Year 1 for $5000 and 1000 shares of JOE Inc common stock on July 1, Year 1 for $6000.  IDA declared $500 in dividends and JOE declared $600 in dividends on December 31, Year 1.  At the end of Year 1, the market value of the IDA stock was $4500 and the market value of the JOE stock was $7000.  The stock was purchased for short-term speculation.  Bowers owns 10% of each company.

4.       Refer to Exhibit 4-3.  The entry to record the purchase of IDA Inc common stock would be which one of the following?

a)      DR Trading securities – IDA common              5000

CR Cash                                                                        5000

b)      DR Available for sale securities – IDA common            5000

CR Cash                                                                                        5000

c)       DR Cash                                                                        5000

DR Trading securities – IDA common               5000

d)      DR Cash                                                                                        5000

CR Available for sale securities – IDA common            5000

5.       Refer to Exhibit 4-3.  Bowers should record the declaration of the JOE dividend as shown in which one the following entries.

a)      DR Cash                                        500

CR Dividend income                                500

b)      DR Dividends receivable                      600

CR Dividend income                                               600

c)       DR Dividend income                               500

CR Dividends receivable                        500

d)      DR Dividend income                               600

CR Dividends receivable                        600

6.       Refer to Exhibit 4-3.  Which one of the following entries is appropriate for the mark to market adjustment by Bowers at the end of Year 1?

a)      DR Market adjustment-trading securities                    500

CR Unrealized holding gain on trading securities      500

b)      DR Unrealized holding gain on trading securities        500

CR Market adjustment-trading securities                      500

c)       DR Market adjustment-trading securities                     500

CR Unrealized holding loss on trading securities         500

d)      DR Market adjustment-trading securities                     500

CR Realized holding gain on trading securities             500

7.       An investor would be willing to pay  more than book value for an interest in a company as a result of :

a)      Fair market value being lower than cost

b)      Goodwill

c)       Historical cost being higher than fair market value

d)      Negative goodwill.

8.       Consolidation adjustments that are made to prepare consolidated financial statements of the parent and subsidiary are required in order to:

a)      Avoid double counting

b)      Eliminate transactions with third parties

c)       Follow tax laws

d)      Obey the state laws

9.       Treasury stock is considered to be a/an ______ account.

a)      Asset

b)      Contra-equity

c)       Liability

d)      Revenue

10.   When a dividend is not declared on preferred stock, and the common shareholders cannot receive a dividend until all past and current dividends are paid to the preferred shareholders, the preferred stock is:

a)      Cumulative

b)      Noncumulative

c)       Nonparticipating

d)      Participating

11.   On May 5, 1980, the Marr Company issued a 5 year stock option to the Chief Financial Officer.  The option entitled the employee to buy 1000 shares of stock for $4 per share when the stock was selling for $4 per share.  Under APB Opinion No 25, what is the compensation expense to be recorded by Marr in total over the 5 year vesting period?

A)     $0

B)      $1000

C)      $2000

D)     $4000

12.   Over the vesting period for employee stock options, SFAS No 123 request that the entire compensation expense be recognized?

a)      Equally in each year of the vesting period

b)      In the first year of the vesting period

c)       In the last year of the vesting period

d)      Only if the options are exercised

13.   For consolidation purposes, goodwill is

a)      Reported under the pooling of interests method only

b)      Reported under the purchase method only

c)       Reported under the pooling of interests method and the purchase method

d)      Never reported in a consolidation.

14.   Foreign currency monetary assets and liabilities are translated using the _____ rate of exchange as of the balance sheet date.

a)      Current

b)      Historic

c)       Present value

d)      Temporal

15.   Harter Investments bought 2000 shares of Lee Company common stock on January 1, Year 4 for $10000 and 2000 shares of Olivia Company common stock on July 1, year 4 for $12000.  At the end of year 4, the market value of the Lee stock was $14000 and the market value of the Olivia stock was $15000.  The stockers were held for their long term investment potential.  Harter owns 8% of Lee and 12% of Olivia.  The year end mark to market adjustment made by Harter should include which one of the following?

a)      A debit to income account for an unrealized holding loss

b)      A debit to an equity account for an unrealized holding loss

c)       A credit to an income account for an unrealized holding gain

d)      A credit to an equity account for an unrealized holding gain