1) Employer contributions to defined benefit pension plans are subject
to several forms of government regulation.
Answer:
2) Tangible long-lived assets typically appear under the title
Property, Plant, and Equipment, among the current assets.
Answer:
3) Discuss the definition, recognition, and measurement of revenue.
Answer:
4) How are long-lived assets analyzed?
Answer:
5) What are convertible bonds and convertible preferred stock and how
does U.S. GAAP and IFRS account for their issuance? Describe the
accounting for conversion of convertible bonds and convertible
preferred.
Answer:
6) Depreciation charges provide cash to the firm. because the indirect
method adds depreciation expense to net income to calculate cash
provided by operations.
Answer:
7) Long-lived assets with extremely long useful lives, such as land
and works of art, are treated as having an indefinite life.
Answer:
8) IFRS does not require firms to allocate a portion of the issue
price of convertible bonds and convertible preferred stock to the
conversion feature.
Answer:
9) A balance sheet prepared according to U.S. GAAP lists assets from
most liquid to least liquid, where liquid refers to the ease of
converting the asset into cash.
Answer:
10) Most firms display the components of cost of sales.
Answer:
11) A balance sheet account with a credit balance requires a closing
entry that debits that account, because a debit closing entry will
result in a zero ending balance in the account.
Answer:
12) Firms must amortize the difference between the issue price and the
face value as an adjustment to interest expense over the life of
the bonds.
Answer:
13) The U.S. taxing authorities permit a firm to use LIFO for tax
purposes as long as it also uses LIFO for financial reporting
purposes.
Answer:
14) An employer must recognize changes in the funded status of a
defined benefit retirement plan on its balance sheet each period
and recognize these changes immediately in net income.
Answer:
15) Chen Company
Chen Company office equipment costs $10,000, has an expected life
of four years and a salvage value of $400. The firm has depreciated
this asset on a straight-line basis. The firm has recorded
depreciation for two years and then sells the equipment at midyear
in the third year.
If the Chen Company sells the equipment for $4,600 cash, the entry
to record the sale would be as follows:
A.Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 4,600
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .6,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . 10,000
Gain on Sale of Equipment . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 600
B.Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 4,600
Salvage Value . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . 6,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . 10,000
Gain on Sale of Equipment . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 600
C.Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 4,600
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .6,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . 10,000
Salvage Value . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 600
D.Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 10,000
Gain on Sale of Equipment . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . 600
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . 4,600
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .6,000
E.Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 10,000
Salvage Value . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 600
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . 4,600
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .6,000
Answer:
16) _____ is the amount that results from using an appropriate interest
rate to discount one or more future cash flows to the present. It
is the sum of the present values of the individual future cash
inflows and outflows associated with an asset. It is not, in and of
itself, a measurement attribute. Rather, it is a means of arriving
at a measurement attribute.
A.Current Replacement Cost
B.Net Realizable Value
C.Fair Value
D.Present Value of Future Net Cash Flows
E.Acquisition cost
Answer:
17) The amortization of patents should be presented in a statement of
cash flows prepared using the indirect method as a(n)
A.inflow and outflow of cash
B.outflow of cash
C.addition to net income in the adjustments to reconcile net income
to cash from operating activities
D.deduction from net income in the adjustments to reconcile net
income to cash from operating activities
E.None of these answers is correct
Answer:
18) _____ are creditors claims for funds, usually because they have
provided funds, or goods and services, to the firm.
A.Revenues
B.Expenses
C.Liabilities
D.Assets
E.Shareholder Equity
Answer:
19) During Year 7, Frank Company had a net increase in accounts
receivable of $10,000. The T-account work sheet for preparing the
statement of cash flows
A.adds the increase in accounts receivable in deriving cash flow
from operating activities
B.subtracts the increase in accounts receivable in deriving cash
flow from operations
C.adds the increase in accounts receivable in deriving cash flow
from financing activities
D.subtracts the increase in accounts receivable in deriving cash
flow from financing activities
E.subtracts the increase in accounts receivable in deriving cash
flow from investing activities
Answer:
20) A zero coupon bond provides for _____ periodic payments of interest
while the bond is outstanding; and the bond requires payment of all
_____ at maturity.
A.six month; principal
B.no; principal and interest
C.annual; principal
D.monthly; principal
E.none of the above
Answer:
21) Some assets, such as a nuclear power plant, are not readily salable
at the end of their useful lives, and retiring them may impose
substantial costs. Which of the following is/are true?
A.Firms must estimate the fair value of the dismantling costs and
include that amount in the initial measurement of the asset
B.Firms recognize a liability, referred to as an asset retirement
obligation at the estimated fair value of the dismantling costs
C.Firms compute depreciation based on the combined cost of the
plant assets, including the fair value of the dismantling
obligations
D.all of the above
E.none of the above
Answer:
22) Prepare journal entries to record each of the following Year 1
transactions for Satar Co.
a.Issue 12,000 shares of common stock with a par value of $2 for $5
a share.
b.Issue 30 shares of 8% cumulative preferred stock with a par value
of $1,000 for $1,100 a share.
c.Pay dividends of $10,000 with cash.
d.Repurchase 1,000 shares of common stock for $6 a share.
e.Resell 400 shares of the treasury stock for $7 a share.
Answer:
23) Some bonds are _____, which means the issuing firm has the right to
repurchase the bonds prior to maturity at a specified price.
A.convertible
B.callable
C.zero coupon
D.serial
E.debentures
Answer:
24) Temporary differences between pretax book income and taxable income
arises from
A.tax-exempt interest revenue, only
B.certain fines, only
C.depreciation on long-lived assets, only
D.bad debt expense, only
E.depreciation on long-lived assets and bad debt expense
Answer:
25) Most publicly traded firms operate as corporations. Which of the
following is/are not true?
A.If the corporation becomes insolvent, creditors can claim only
the assets of the corporate entity and cannot claim the assets of
the individual owners
B.To settle debts of general partnerships, creditors have a claim
on the owners business and personal assets
C.To settle debts of sole proprietorships, creditors have a claim
on the owners business and personal assets
D.In recent years, many partnerships and sole proprietorships have
become limited liability companies (LLCs), or limited liability
partnerships (LLPs), to limit their owners personal liability for
business debts and other obligations
E.none of the above
Answer:
26) (CMA adapted, Dec 87 #1) When a balance sheet amount is related to
an income statement amount in computing a ratio,
A.the balance sheet amount should be converted to an average for
the year
B.the income statement amount should be converted to an average for
the year
C.both amounts should be converted to market value
D.the ratio loses its historical perspective because a
beginning-of-the-year amount is combined with an end-of-the-year
amount
E.none of the above
Answer:
27) If Barton Company purchases a minority active interest in Laramie
Company for $150,000, Barton will make which of the following
entries to record the purchase using the equity method?
A.Equity in Laramie Company 150,000
Cash 150,000
B.Investment in Laramie Company 150,000
Cash 150,000
C.Deferred Revenue–Laramie Company 150,000
Cash 150,000
D.Common Stock–Laramie Company 150,000
Cash 150,000
E.Paid-in-Capital–Laramie Company 150,000
Cash 150,000
Answer:
28) There are several types of adjustments required to compute cash
flow from operations from net income. One adjustment is an addition
to net income each year for _____ because it uses no cash during
that period.
A.payments to employees
B.payments to suppliers
C.tax payments
D.depreciation and amortization
E.none of the above
Answer:
29) Which method of depreciation will result in the greatest
depreciation charge in the last year of the asset’s life?
A.125% declining balance
B.straight-line
C.150% declining balance
D.sum-of-the-years’ digits
E.double declining balance
Answer:
30) Flower 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. Which of the following is/are not true?
A.Cost of Goods Sold is $5,000 larger when the firm records ending
inventory at lower of cost or market than when it records the
inventory at acquisition cost
B.The loss of $5,000 increases Cost of Goods Sold by $5,000 and
therefore reduces net income by $5,000, compared to the acquisition
cost basis
C.The firm should disclose the existence of large write-downs
included in Cost of Goods Sold in the notes so that users of
financial statements understand the components of the Cost of Goods
Sold account
D.The firm should disclose the existence of large write-downs
included in Cost of Goods Sold in Managements Discussion and
Analysis so that users of financial statements understand the scope
of the asset impairment
E.none of the above
Answer:
31) Which of the following is/are not true regarding a merchandising
firm?
A.Inventory appears on the merchandisers balance sheet initially as
an asset
B.Inventory for a merchandiser is measured at acquisition cost
C.When a sale takes place, the merchandising firm recognizes the
cost of the inventory as an expense (cost of goods sold) on the
income statement
D.When a sale takes place, the merchandising firm recognizes the
inventory reduction on the statement of cash flows
E.All of the above are false regarding a merchandising firm
Answer:
32) Often, the parent does not own 100% of the voting stock of a
consolidated subsidiary. The parent refers to the owners of the
remaining shares of voting stock as a
A.noncontrolling interest
B.nonconsolidated group
C.consolidated subsidiary
D.noninfluential interest
E.nonvoting interest
Answer:
33) Baldwin Corporation
Excerpts from the Statement of Financial Position for Baldwin
Corporation as of September 30, Year 5, are presented
below.
| Cash | $950,000 |
| Accounts receivable (net) | 1,675,000 |
| Inventories | 2,806,000 |
| Total current assets | $5,431,000 |
| Accounts payable | $1,004,000 |
| Accrued liabilities | 785,000 |
| Total current liabilities | $1,789,000 |
The Board of directors of Baldwin Corporation met on
October 4, Year 5, and declared regular quarterly cash dividends
amounting to $750,000 ($0.60 per share). The dividend is payable on
October 25, Year 5, to all shareholders of record as of October 12,
Year 5.
Assume that the only transactions to affect Baldwin Corporation
during October Year 5 are the dividend transactions and that the
closing entries have been made.
(CMA adapted, Dec 89 #15) Refer to the Baldwin Corporation example.
Baldwins total shareholders’ equity would be
A.unchanged by the dividend declaration and decreased by the
dividend payment
B.decreased by the dividend declaration and increased by the
dividend payment
C.unchanged by either the dividend declaration or the dividend
payment
D.decreased by the dividend declaration and unchanged by the
dividend payment
E.none of the above
Answer:
34) If the accountant cannot objectively measure the value of the stock
warrants separately from the value of the bond or preferred stock
at date of issuance, the accountant credits
A.the full purchase price to the bond or preferred stock and none
of the price to the common stock warrant
B.95 percent of the purchase price to the bond or preferred stock
and 5 percent of the price to the common stock warrant
C.90 percent of the purchase price to the bond or preferred stock
and 10 percent of the price to the common stock warrant
D.85 percent of the purchase price to the bond or preferred stock
and 15 percent of the price to the common stock warrant
E.80 percent of the purchase price to the bond or preferred stock
and 20 percent of the price to the common stock warrant
Answer:
35) Prepare the journal entries necessary to record the following
transactions for the Falcon Company:
a. On January 1, Year 1, the company issued 10,000 shares of common
stock (par value $5) at $15 per share.
b. On January 1, Year 2, the company issued $200,000 of convertible
bonds at par. The bonds have a face value of $1,000, pay 8%
annually and are convertible into 40 shares of common shares.
Without the conversion feature, the bonds would have been issued
at
c. On June 1, Year 2, the company repurchased 8,000 of the common
shares when the market price per share was $25.
d. On January 1, Year 3, the convertible bonds were exchanged for
treasury shares. The market price of common stock on that date is
$30. (Hint: recognize a gain or loss on conversion.)
Answer:
36) Using these abbreviations–DL = Direct Labor, MO = Manufacturing
Overhead, DM = Direct Materials, WIP = Work-in-Process, FG =
Finished Goods, COGS = Cost of Goods Sold–how would you represent
the flow of manufacturing costs through the accounts? (Use + to
mean “add to” and to mean “is transferred to.”)
A.DL + MO WIP DM COGS
B.DM + DL + MO WIP FG COGS
C.WIP FG COGS
D.DM + DL WIP + MO FG COGS
E.none of the above
Answer:
37) Gordon Corporation
Information relating to Gordon Corporation for Year 1 and Year 2 is
as follows:
| Year 1 | Year 2 | |
| Income before taxes | $5,000,000 | $4,000,000 |
|
Interest income included above that was not subject to income taxes |
100,000 | 100,000 |
|
Income before income taxes in Year 1 included rent revenue of $80,000 that was not subject to income tax until its receipt in Year 2 |
|
|
Gordon was subject to an effective income tax rate of 40% in Year 1 and 2. |
|
(CMA adapted, Jun 86, #9) Refer to the Gordon Corporation example.
Gordon Corporation’s current income tax expense for Year 2 was
A.$1,560,000
B.$1,570,000
C.$1,592,000
D.$1,600,000
E.$1,632,000
Answer:
38) Manufacturing overhead include(s):
A.costs that the firm cannot associate with particular products
B.expenditures for factory utilities, property taxes, insurance,
and depreciation on manufacturing plant and equipment
C.expenditures for supervisors salaries
D.costs that jointly benefit all goods produced during the period,
not any one particular item
E.all of the above
Answer:
39) Which of the following is not a derivative?
A.an option to purchase a share of stock
B.a commitment to purchase a certain amount of foreign currency in
the future
C.interest rate, foreign exchange rate, and commodity price
hedges
D.debt securities available for liquidation
E.all of the above
Answer:
40) Firms have some choice as to when they disburse cash. A firm may
delay making payments to suppliers, employees, and others during
the last several days of an accounting period. When this firm makes
the cash payments during the early part of the next period, cash
flow from
A.operations decreases
B.operations increases
C.financing decreases
D.financing increases
E.investing decreases
Answer:
41) Which of the following is/are not capitalized as an intangible
asset?
A.costs of an internally developed patent
B.legal costs to defend a patent successfully
C.goodwill acquired when a company purchases another company
D.costs to purchase a patent
E.none of the above
Answer:
42) The criteria for recognition of a liability does not include which
of the following?
A.The obligation represents a present obligation
B.The obligation exists as a result of a past transaction or
exchange, called the obligating event
C.The obligation requires the probable future sacrifice of an
economic resource that the firm has little or no discretion to
avoid
D.The obligation has a relevant measurement attribute that the firm
can quantify with sufficient reliability
E.The obligation represents a potential future commitment or intent
Answer:
43) Inventory flows for Ramos Company for the month of January are as
follows:
| # of units | Unit cost | |
| Beginning inventory* | 250 | $1.00 |
| Purchases: | ||
| January 3 | 100 | 1.10 |
| January 15 | 150 | 1.15 |
| January 17 | 300 | 1.05 |
| Sales: | ||
| January 5 | 200 | |
| January 18 | 100 | |
| January 24 | 150 | |
*Assume the same for FIFO, LIFO, and weighted average cost
flow assumptions.
Required:
Compute the cost of goods sold and ending inventory for the Ramos
Company using the following assumptions:
a. FIFO cost flow assumption and a periodic inventory system
b. LIFO cost flow assumption and a periodic inventory system
c. Weighted average cost flow assumption and a periodic inventory
system
Answer:
44) Income before taxes for financial reporting usually differs from
taxable income reported to tax authorities. Which of the following
is/are not true?
A.Some of the differences may arise because of permanent
differences (items that affect income for financial reporting but
never affect taxable income, or vice versa)
B.Some of the differences may arise because of temporary
differences (items that affect income for financial reporting in a
different period than for tax reporting)
C.The difference between income tax expense and income tax payable
represents the tax effects of temporary differences: either the
firm will receive future benefits (deferred tax assets) or it must
pay future taxes (deferred tax liabilities)
D.U.S. GAAP and IFRS require firms to measure income tax expense
based on the taxes assessed on the firm by income tax
authorities
E.all of the above
Answer:
45) A firm sold an investment in securities available for sale
originally costing $30,000, for $28,000. At the beginning of the
year, the investment had a valuation allowance of $3,000, debit.
What is the correct disclosure for these events in the statement of
cash flows prepared under the direct method, assuming this is the
only investment in securities available for sale?
A.$28,000 investing cash inflow; add $33,000 in the reconciliation
of earnings and net operating cash flow
B.$28,000 investing cash inflow; add $2,000 in the reconciliation
of earnings and net operating cash inflow
C.$28,000 investing cash inflow; add $5,000 in the reconciliation
of earnings and net operating cash inflow
D.Add $5,000 in the reconciliation of earnings and net operating
cash flow
E.None of these answers is correct
Answer:
46) _____ is a residual interest or claimthat is, the owners
(shareholders) of a firm have a claim on assets not required to
meet the claims of creditors.
A.Retained Earnings
B.Shareholders equity
C.Additional Paid-in-Capital
D.Deficit
E.Par Value
Answer:
47) Which of the following is/are true?
A.Comprehensive income equals the net amount of revenues, expenses,
gains, and losses during an accounting period
B.Authoritative guidance classifies revenues and expenses arising
from a firms core business as components of net income
C.Net income includes gains and losses from sales or exchanges of
assets or settlements of liabilities related incidentally or
peripherally to the firms core business
D.Authoritative guidance classifies gains and losses from the
remeasurement of certain assets and liabilities as either net
income or other comprehensive income
E.All of the above answer choices are true
Answer: