Acc 130 Quiz 1

1) How do Merchandising and Manufacturing firms report product costs
and changes in Inventory?

Answer:

2) Examples of restructuring activities include selling or closing
divisions or plants, combining offices, moving operations from one
location to another, terminating employees or leases, and selling
assets.

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3) Income tax rates change over time, so the deferred tax liability
need not represent the amount of taxes that the firm must pay
later.

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4) How do firms account for intangibles other than goodwill?

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5) Firms currently apply the fair value option to retirement plan
obligations and report unamortized items in net income as they
arise.

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6) List three ways a firm may convert accounts receivable into cash
and briefly describe the features of each option.

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7) Discuss the fair value option in accounting for certain assets and
liabilities.

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8) Both U.S. GAAP and IFRS require the disclosure, in the notes to the
financial statements, of selected information about business
segments.

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9) The term face value refers to the principal amount printed on the
face of the bond certificate.

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10) How are expenses recognized and measured?

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11) Briefly list and describe the principal financial statements.

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12) Common terminology, but not definitions in U.S. GAAP and IFRS,
often refers to the difference between sales and cost of sales as
gross margin, gross profit, or gross income.

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13) Variable interest entities have what characteristics?

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14) Firms often incur costs to maintain, repair, and improve their
tangible assets. U.S. GAAP and IFRS require firms to treat
expenditures for _____ as _____ as incurred but _____ treat as
_____.
A.maintenance and repairs; expenses of the period; expenditures for
improvements; assets
B.maintenance and repairs; assets; expenditures for improvements;
expenses of the period
C.maintenance and repairs; expenses of the period; expenditures for
improvements; liabilities
D.maintenance and repairs; liabilities; expenditures for
improvements; expenses of the period
E.maintenance and repairs; assets; expenditures for improvements;
liabilities

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15) In a corporate acquisition the:
A.purchase price measures the fair value of the acquired
enterprise
B.goodwill reflects the fair value of assets that cannot be
separately identify
C.goodwill is an asset because it is part of the fair value of the
acquired firm
D.all of the above
E.none of the above

Answer:

16) The market value for inventory valuation purposes generally
means
A.replacement cost
B.sellers bid price
C.buyers offer price
D.the mean between the sellers bid price and the buyers offer
price
E.present value of future cash flows

Answer:

17) Prepare journal entries to record each of the following
transactions for Gordons Biking Supplies (GBS) on January 1, Year 1
.

a. GBS issues $100,000 of convertible bonds at 98% of par. Without
the conversion feature, the bonds would have traded at 88% of par.
The bonds each have a $1,000 face value and an 8% stated rate. Each
bond can be converted into 50 shares of stock with a $5 par value.
The bonds have a 10-year maturity and the straight line method of
discount amortization is used. Interest is paid annually on January
1 .
b. Prepare any entry necessary on December 31, Year 1 .
c. Prepare any entry necessary on December 31, Year 2 .
d. On January 1, Year 3, $25,000 par value of bonds are converted
when the market price per share $25. (Hint: do not record a gain or
loss on conversion.)

Answer:

18) Which of the following is not true?
A.Callable preferred shares provide the issuer with the right to
repurchase preferred shares at a specified price
B.If financing becomes available at a cost lower than the rate
fixed for the preferred shares, the issuing firm can reduce its
financing costs by issuing new securities and then exercising its
option to reacquire the outstanding callable preferred shares at a
fixed price
C.The call option is valuable to the issuing firm but makes the
shares less attractive to potential owners of the shares
D.Other things equal, a firm will receive a smaller amount from
issuing callable preferred shares than from issuing noncallable
preferred shares
E.Callable preferred shares provide the issuer with the obligation
to repurchase preferred shares at a specified price

Answer:

19) Gordon Corporation

Information relating to Gordon Corporation for Year 1 and Year 2 is
as follows:

(CMA adapted, Jun 86 #10) Refer to the Gordon Corporation example.
The amount of deferred income taxes that would have been reported
on Gordon Corporation’s Statement of Financial Position on December
31, Year 2, is
A.$40,000
B.$32,000
C.$16,000
D.$8,000
E.zero

Answer:

20) There are two approaches that management can use to estimate the
amount of credit sales that would prove to be uncollectible, they
are the _____. Over time, the two methods, correctly used, will
give the same cumulative income and asset totals. U.S. GAAP and
IFRS do not require firms to use one or the other, and some firms
use both methods.
A.gross amount of sales procedure and the
aging-of-accounts-receivable procedure
B.percentage-of-sales procedure and the
aging-of-accounts-receivable procedure
C.percentage-of-cost of good sold procedure and the amount of
accounts-receivable procedure
D.percentage-of-cost of good sold procedure and the
aging-of-notes-receivable procedure
E.gross amount of sales procedure and the amount of
accounts-receivable procedure

Answer:

21) If the firm has received a promise of payment but cannot measure
this promise with reasonable reliability,
A.U.S. GAAP would permit revenue to be recognized, but IFRS would
not permit revenue to be recognized
B.U.S. GAAP would not permit revenue to be recognized, but IFRS
would permit revenue to be recognized
C.neither U.S. GAAP nor IFRS would permit revenue to be
recognized
D.U.S. GAAP and IFRS would permit revenue to be recognized
E.none of the above

Answer:

22) Marcoff Corporation acquires 30% of the outstanding voting common
shares of the Invicta Corporation for $600,000. Marcoff Corporation
acquires the investment in Invicta Corporation by buying previously
issued shares of Invicta Corporation from other investors.

If Invicta Corporation declares and pays a dividend of $30,000 to
holders of its common stock, Marcoff Corporation records the
following journal entry:
A.Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . 9,000
Investment in Stock of Invicta Corporation . . . . . . . . . . . .
. . . . . . 9,000
B.Investment in Stock of Invicta Corporation . . . . . . . . . . .
. . . . 9,000
Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . 9,000
C.Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . .
. . . . . . . . . 9,000
Investment in Stock of Invicta Corporation . . . . . . . . . . . .
. . . . . 9,000
D.Investment in Stock of Invicta Corporation . . . . . . . . . . .
. . . . 9,000
Investment Revenue. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . 9,000
E.Investment in Stock of Invicta Corporation . . . . . . . . . . . .
. . . 9,000
Investment Revenue. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . 9,000

Answer:

23) In a modern corporate environment, the trial balance is prepared
from the
A.financial statements
B.computerized accounting systems
C.journals
D.subsidiary ledgers
E.chart of accounts

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24) Firms not experiencing rapid growth can often finance capital
expenditures with
A.cash flow from operations
B.borrowed funds
C.issue common shares
D.sales of existing noncurrent assets
E.none of the above

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25) U.S. GAAP and IFRS on accounting for repurchases and reissuances of
treasury shares follow the principle that
A.a corporation does not report a gain or loss on transactions
involving its own shares
B.the economic gain, or economic loss, are a component of
accounting income
C.that views treasury stock purchases and sales as operating
transactions and therefore debits Cash (for economic gains) or
credits Cash (for economic losses)
D.the effects are recognized in net income, other comprehensive
income and Accumulated Other Comprehensive Income, and often
Retained Earnings (depending on the specific accounting method
used)
E.none of the above

Answer:

26) Complete the following chart for items a through d, describing the
accounting treatment
using the number by one of the following four approaches listed as
follows.
(Assume that the firm does not elect the fair value option):

APPROACHES
(1) Measured at fair value with changes recognized in net
income.
(2) Measured at amortized cost.
(3) Measured at fair value with changes recognized initially
in other comprehensive income.
(4) Measurement depends on whether firm uses hedge
accounting.

In the third column of the chart, present your explanation
regarding this approach.


Marketable security/derivative Approach
Explanation
a. A derivative judged to be effective used to hedge
forecasted sales.
b. Derivatives appearing as liabilities. These derivatives
do not hedge assets or liabilities or forecasted transactions.
c. Debt securities that the firm has purchased with the
ability to hold to maturity. After the current year, the firms
intent to hold the securities until maturity is uncertain. The firm
frequently buys and sells debt of this sort.
d. Marketable equity securities held for an indefinite
period as available-for-sale securities.

Answer:

27) Fix-It Hardware

Fix-It Hardware began the month of November with 150 large brass
switchplates on hand at a cost of $4.00 each. These switchplates
sell for $7.00 each. The following schedule presents the sales and
purchases of this item during the month of November.

(CMA adapted, Dec 92 #25) Refer to the Fix-It Hardware example. If
Fix-It uses FIFO inventory pricing, the value of the inventory on
November 30 would be
A.$936
B.$1,046
C.$1,076
D.$1,104
E.$1,204

Answer:

28) Igor Corporation’s accounts receivable, net of allowance for
uncollectibles, were $250,000 at December 31, Year 3, and $350,000
at December 31, Year 4. Net cash sales for Year 4 were $300,000.
The accounts receivable turnover was 6.0. Igor’s net sales for Year
4 were
A.$1,500,000
B.$1,800,000
C.$2,000,000
D.$2,100,000
E.$2,200,000

Answer:

29) Assume that a firm uses the accrual basis of accounting. Indicate
the amount of expense the firm recognizes during the month of
November for each independent transaction.

a. Rent of $3,600 is paid on November 1 for the months November
through January.
b. Inventory costing $2,500 is ordered on account. The invoice is
received on November 25 and the goods are received on December 5
.
c. Insurance premium of $900 is paid for a full year of coverage
starting November 1 .
d. On December 3, an invoice for November utilities of $325 is
received.
e. On November 1, supplies costing $2,200 are purchased. At
November 30, $500 of supplies remained on hand.

Answer:

30) A firms decision to sell its headquarters building at a gain
A.would increase income in the year of sale
B.is not part of the core business
C.would be aggregated with other noncore, nonoperating items
D.reported below operating income, probably as Other Income
E.all of the above

Answer:

31) Which of the following is/are true?
A.An employer must recognize changes in the funded status of a
defined benefit retirement plan on its balance sheet each
period
B.U.S. GAAP and IFRS do not require the employer to recognize
changes in the funded status of a defined benefit retirement plan
immediately in net income
C.Changes in the net funded status of a defined benefit retirement
plan because investment performance differs from expectations, or
because of changes in actuarial assumptions, or in the retirement
benefit formula, initially affect other comprehensive income
D.Firms amortize the amounts in Other Comprehensive Income over the
expected period of benefit as an adjustment to retirement plan
cost
E.all of the above

Answer:

32) King Products Corporation

King Products Corporation
Statement of Financial Position
(in thousands)

(CMA adapted, Dec 96 #17) Refer to the King Products Corporation
example. King Products Corporation’s average collection period for
the fiscal year ended at June 30, Year 6, using a 360-day year,
was.
A.36 days
B.45 days
C.54 days
D.61 days
E.none of the above

Answer:

33) Analysts deciding between investments must consider the comparative
risks. Which of the following is/areindustry-wide factors that
affect the risk of business firms?
A.increased competition
B.increased government regulatory actions, such as anti-trust or
clean environment policies
C.changes in technology
D.lack of availability of raw materials
E.all of the above

Answer:

34) Income tax expense affects assessments of profitability as much as
any other expense. A common ratio for analyzing the effect of
income taxes on profitability is the _____ rate, equal to income
tax expense divided by financial reporting income before income
taxes:
A.marginal tax
B.effective tax
C.tax burden
D.statutory
E.average

Answer:

35) Healthy Lawn Maintenance Company

Healthy Lawn Maintenance Company started a lawn services business
on January 1, 2013 . It sends invoices to its customers for lawn
maintenance services at the end of each month, and expects the
customer to pay within 30 days. During 2013, Healthy Lawn
Maintenance billed its customers a total of $2,000,000 for services
rendered during the year. It made journal entries at the end of
each month.

Healthy Lawn Maintenance deems uncollectible any customer account
not paid after six months. This means that every accounting period,
Healthy Lawn Maintenance ascertains which accounts remained
uncollected for six months, and treats these customer accounts as
uncollectible by writing them off. If, during 2013, Healthy Lawn
Maintenance identified accounts of specific customers totaling
$20,000 with unpaid balances for six months and wrote them off, the
journal entry would be as follows:
A.Bad Debt Expenses . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 20,000
Accounts Receivablegross . . . . . . . . . . . . . . . . . . . . .
. . . 20,000
B.Bad Debt Expenses . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .20,000
Accounts Receivablespecific accounts . . . . . . . . . . . . . . .
. 20,000
C.Allowance for Uncollectibles . . . .. . .. . .. . .. . .. . .. .
.. . .. . .. 20,000
Accounts Receivablespecific accounts . . . . . . . . . . . . . . .
. 20,000
D.Allowance for Uncollectibles . . . . . . . . . . . . . . . . . .
. . . . . . 20,000
Accounts Receivablegross . . . . . . . . . . . . . . . . . . . . .
. . . . 20,000
E.Allowance for Uncollectibles . . . . . . . . . . . . . . . . . .
. . . . . . .20,000
Bad Debt Expenses . . . . . .. . . . . . . . . . . . . . . . . . .
. . . . . . . . 20,000

Answer:

36) The result of closing entries is that balances in all temporary
accounts
A.are adjusted to historical cost
B.include monthly depreciation
C.are adjusted to current market values
D.are adjusted to budgeted amounts
E.None of these answer choices are correct

Answer:

37) The extent to which a firm adjusts net income for changes in
noncurrent assets and noncurrent liabilities in deriving cash flow
from operations under the indirect method depends on the nature of
its operations. Service firms will likely show a small amount
of
A.subtraction from net income for capital expenditures
B.addback to net income for capital expenditures
C.subtraction from net income for depreciation expense
D.addback to net income for depreciation expense
E.addback to retained earnings for depreciation expense

Answer:

38) Using the amortization procedure, a holder of the debt securities
(the investor) records interest revenue each period by debiting the
_____ and crediting _____ which after closing entries increases
_____ The bonds are classified as held to maturity.
A.Marketable Securities account; Interest Revenue; Retained
Earnings
B.Interest Revenue; Retained Earnings; Marketable Securities
account
C.Retained Earnings; Marketable Securities account; Interest
Revenue
D.Marketable Securities account; Interest Expense; Retained
Earnings
E.Common Stock account; Interest Expense; Retained Earnings

Answer:

39) Forgone Company had beginning inventory of $19,000, purchases were
$100,000, and ending inventory had a cost of $25,000 and a market
value of $20,000. The same inventory increased $3,000 in market
value in the subsequent period. Which of the following is/are not
true?
A.Under U.S. GAAP, the firm would continue to record the inventory
at $20,000, the lower of cost or market
B.Under IFRS, the firm would reverse a portion of its previous
impairment
C.If Forgone Company is in an industry that frequently experience
inventory price fluctuations, the firm may use an allowance account
to record lower-of-cost-or-market adjustments
D.The firm should disclose the existence of large inventory
write-ups in Managements Discussion and Analysis so that users of
financial statements understand the reversal of the previous asset
impairment
E.none of the above

Answer:

40) In U.S. GAAP, which of the following accurately describe(s) the
effects of transactions involving investments on the statement of
cash flows?
A.When using the fair value method for trading securities and fair
value hedges, both realized and unrealized gains and losses appear
in net income
B.Dividends received from investee included in investors cash flow
from operations
C.When using the indirect method, add back realized holding losses,
and subtract realized holding gains included in income for the
period to derive cash flow from operations
D.All proceeds of sale of trading securities appear as
[dis-]investing source of cash
E.all of the above

Answer:

41) LIFO inventory layers
A.occur when ending inventory is less than beginning inventory
B.are liquidated when ending inventory exceeds beginning
inventory
C.are created in years in which inventory purchases exceed
sales
D.must be disclosed in the annual report
E.none of the above

Answer:

42) Under the accrual method, the timing of revenue recognition is
influenced by
A.where the purchaser gets funds to pay the seller
B.whether the buyer pays with cash or a promise
C.when the services or product are provided
D.when the seller has received a form of payment in settlement of a
purchaser’s promise
E.the nature of the services or product provided

Answer:

43) Which of the following would most likely be classified as
Marketable Securities in the Current Assets section of the balance
sheet?
A.United States Treasury Notes that the firm expects to hold for
less than one year
B.investments in securities for the purpose of exerting significant
influence over the investee’s dividend payout police
C.investments in securities for the purpose of exerting significant
influence over the investee’s licensing of a patent
D.investments in securities for the purpose of exerting control
over the investee’s day-to-day operations
E.none of the above

Answer:

44) Which of the following is/are true regarding stock rights?
A.Firms grant stock rights to current shareholders
B.Firms often issue stock rights to raise new capital from current
shareholders
C.Shareholders may exercise the stock rights or sell them to
others
D.The granting of stock rights to current shareholders requires no
accounting entries
E.all of the above

Answer:

45) Charm City Electric is a regulated monopoly providing electric
services in a large city. Property, plant, and equipment dominate
the asset side of the balance sheet. Which of the following is/are
true?
A.It relies more on long-term debt than shareholders equity to
finance these facilities
B.It may a debt-equity ratio of 100% or more
C.The regulated monopoly status practically eliminates the risk of
default or bankruptcy, so Charm City Electric faces a relatively
low borrowing cost
D.Charm City Electrics production and transmission facilities can
serve as collateral for the long-term
E.all of the above

Answer:

46) The following information is available from JB Corporation’s
accounting records for the year ended December 31, Year 4:

Net cash flow from operating activities for Year 4
totaled
A.$200,000
B.$250,000
C.$300,000
D.$330,000
E.$220,000

Answer:

47) Which of the following is/are not true concerning an employee stock
options benefit element?
A.One cannot measure the amount of the benefit element before the
exercise date
B.Stock options with exercise prices less than the current market
price of the stock have a higher value, other things equal, than
stock options with exercise prices exceeding the current market
price of the stock
C.Stock options that are in the money have a higher value, other
things equal, than stock options that are out of the money
D.A stock option whose exercise price exceeds the current market
price has economic value because of the possibility that the market
price will exceed the exercise price on the exercise date
E.none of the above

Answer:

48) Given the following inventory and inventory-related accounts, solve
for the unknown amounts:


Case A Case B
Beginning raw materials $10 $30
Raw materials purchases 100 70
Ending raw materials 70 50
Raw materials transfers (a) (e)
Beginning work-in-process 50 (f)
Direct labor 50 40
Direct material (b) (g)
Manufacturing overhead 10 10
Ending work-in-process 40 10
Work-in-process transfers (c) 100
Beginning finished goods 10 20
Transfers in (d) 100
Ending finished goods 20 30
Cost of goods sold 100 (h)

Answer:

49) A small leverage ratio may indicate that a company is
A.well managed
B.financed with a relatively large amount of common shareholders’
equity
C.financed with a relatively large number of shares of common and
preferred stock
D.financed with a relatively large amount of debt
E.financed with a relatively large amount of debt and preferred
stock

Answer:

50) Penney Corporation acquires 30% of the outstanding voting common
shares of the Instat Corporation for $600,000. Penney Corporation
acquires the investment in Instat Corporation by buying previously
issued shares of Instat Corporation from other investors.

Between the time of the acquisition and the end of Penney
Corporations next accounting period, Instat Corporation reports
earnings of $80,000. Penney Corporation records the following
journal entry:
A.Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . .
. . . . . . . . . 24,000
Investment in Stock of Instat Corporation . . . . . . . . . . . . .
. . . . .24,000
B.Investment in Stock of Instat Corporation . . . . . . . . . . . .
. . . 24,000
Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . 24,000
C.Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . .
. . . . . . . . . 80,000
Investment in Stock of Instat Corporation . . . . . . . . . . . . .
. . . . 80,000
D.Investment in Stock of Instat Corporation . . . . . . . . . . . .
. . . 80,000
Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . 80,000
E.Investment in Stock of Instat Corporation . . . . . . . . . . . .
. . . 24,000
Investment Revenue. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . 24,000

Answer:

51) If the combined market value of trading securities at the end of
the year is less than the market value of the same portfolio of
trading securities at the beginning of the year, the difference
should be accounted for by
A.reporting an unrealized loss in security investments in the
stockholders’ equity section of the balance sheet
B.reporting an unrealized loss in security investments in the
income statement
C.a footnote to the financial statements
D.a credit to Investment in Trading Securities
E.None of these answer choices is correct

Answer:

52) Why would a firm prepare pro forma financial statements?
A.to ascertain whether operations will generate sufficient cash
flows to finance expenditures on long-term assets or whether the
firm will need to borrow more
B.to analyze the effect of a change its product lines or pricing
policies and the impact on rates of return
C.to project future financial statement amounts for an acquisition
target to ascertain the price it should pay
D.all of the above
E.none of the above

Answer: