Part I: Shorter questions (24 points = about 15 minutes)

1. Which of the following statements is correct? (3 points)

A) Revenue is recognized at the time of shipment when goods are shipped FOB destination.

B) Sales returns and allowances are reported as operating expenses on an income statement.

C) A seller records revenue when title and risks of ownership transfer to the buyer.

D) Sales discounts are reported as cost of sales on an income statement.

2. If a bond is issued at 98, the coupon rate was: (3 points)

A) higher than the market rate of interest.

B) lower than the market rate of interest.

C) equal to the market rate of interest.

D) not related to the market rate of interest.

3. Which of the following statements is correct? (3 points)

A) A 2-for-1 common stock split decreases both earnings per share and stockholders' equity.

B) A 10% common stock dividend decreases both earnings per share and stockholders' equity.

C) A 2-for-1 common stock split increases both the number of common shares outstanding and stockholders' equity.

D) A 30% common stock dividend increases the number of common shares outstanding and does not affect stockholders' equity.

4. On August 1, Red Company purchased computer equipment for $10,000 cash and also gave 100 shares of White common stock that Red Company held as an investment. The White common stock cost Red Company $5,000 and on August 1 had a fair value of $4,200. The installation costs for the computer equipment were $700 and shipping costs were $500. What amount should be the total amount debited to the computer equipment account? (3 points)

A) $14,200.

B) $15,000.

C) $15,400.

D) $16,200.