1) The amounts of individual assets that make up total assets,
represented by accounts receivable, inventories, equipment, and
other assets, reflect a firms financing decisions, each measured at
the balance sheet date.
Answer:
2) A firm makes investments to obtain productive capacity to carry out
its business activities.
Answer:
3) What are the steps in preparing pro forma financial statements?
Answer:
4) The assets in a defined benefit pension plan will usually not equal
the liabilities of the plan, resulting in an overfunded or
underfunded plan.
Answer:
5) Explain the terms debit and credit. In your discussion, also
present the debit and credit rules that are critical for
maintaining T-accounts, as well as the equality of the balance
sheet.
Answer:
6) Discuss callable preferred shares from the issuers point-of-view.
Answer:
7) The percentage-of-completion method measures the proportion of
total work carried out during the accounting period either from
engineers’ estimates of the degree of completion or from the ratio
of costs incurred to date to the total costs expected for the
entire contract.
Answer:
8) What disclosures about marketable securities are required by U.S.
GAAP?
Answer:
9) Firms typically finance long-term assets, particularly property,
plant, and equipment, with long-term borrowing or funds provided
directly or indirectly by shareholders.
Answer:
10) Firms sometimes acquire assets by exchanging an asset other than
cash or by issuing common stock. In these cases, acquisition cost
is either the fair value of the consideration given or the fair
value of the asset received, depending on which value the firms can
more reliably measure.
Answer:
11) The product life-cycle concept from microeconomics and marketing
provides useful insights into the relations between cash flows from
operating, investing, and financing activities. When a product
matures,
A.operations generate positive cash flow, enough to finance
expenditures on property, plant, and equipment
B.firms use the excess cash flow to repay borrowing from the
introduction and growth phases and to begin paying dividends to
shareholders
C.capital expenditures usually maintain, rather than increase,
productive capacity
D.all of the above
E.none of the above
Answer:
12) Under the direct method, cash paid to suppliers can be computed as
cost of goods sold for the period
A.plus an increase in inventory and minus an increase in accounts
payable
B.plus a decrease in inventory and minus an increase in accounts
payable
C.minus an increase in inventory and plus an increase in accounts
payable
D.minus a decrease in inventory and plus an increase in accounts
payable
E.None of these answer choices is correct
Answer:
13) The value of fixed assets (such as plant, property, and equipment)
included in total assets on the statement of financial position is
the
A.loan value
B.wholesale or liquidation value
C.real estate tax basis assessment
D.acquisition cost reduced by accumulated deprecation
E.current net realizable value
Answer:
14) Which of the following is/are true?
A.Firms report accounts receivable they expect to collect within
one year at the amount of cash the firms expect to receive
B.Both U.S. GAAP and IFRS require firms with significant
uncollectible accounts receivable to estimate the amount of
uncollectible accounts related to a particular periods sales and
recognize that amount as bad debt expense in the same period as the
related revenues
C.Firms typically use a contra account to accounts receivable, such
as Allowance for Uncollectibles, to reflect the amount of accounts
receivable they do not expect to collect
D.The entry to recognize estimated uncollectible amounts involves a
debit to Bad Debt Expense and a credit to Allowance for
Uncollectibles
E.all of the above
Answer:
15) The economic value of a building may decline below its book value
but an impairment loss would not be recognized when the
A.undiscounted future cash flows exceed its book value
B.undiscounted future cash flows exceed its market value
C.discounted future cash flows exceed its book value
D.discounted future cash flows exceed its market value
E.discounted future cash flows exceed its liquidation value
Answer:
16) Which of the following is true regarding the investing activities
of charitable organizations?
A.are not similar to business firms
B.acquire productive capacity (for example, buildings) to carry out
their activities
C.issue common stock
D.issue bonds
E.issue preferred stock
Answer:
17) Which of the following is/are not true regarding the fair value of
long-lived assets?
A.U.S. GAAP does not permit firms to increase the balance sheet
carrying values of tangible and intangible long-lived assets when
the fair values of their assets increase
B.IFRS permits upward asset revaluations, the recognition of
unrealized increases in the fair value of tangible and intangible
long-lived assets under certain conditions
C.IFRS requires that firms credit the increase in the tangible and
intangible revalued assets balance sheet carrying value to net
income
D.U.S. GAAP firms recognize the increase in the fair value of the
tangible and intangible asset only as the firm realizes the value
increase through either sale or continuing use
E.all of the above
Answer:
18) Rock Aerospace Company
Rock Aerospace Company signed a contract on April 1, Year 4, to
build a satellite for $28,000,000. Estimated costs for the contract
are:
| Year 4 | $5,600,000 |
| Year 5 | $11,200,000 |
| Year 6 | $5,600,000 |
Assume that actual costs incurred coincide with
expectations. Cash collections of the contract price are as
follows:
| Year 4 | $4,200,000 |
| Year 5 | $7,000,000 |
| Year 6 | $16,800,000 |
Refer to the Rock Aerospace Company example. Income from the
contract for Year 5 under the cost-recovery-first method is:
A.$1,000,000
B.$1,400,000
C.$2,800,000
D.$3,360,000
E.None of the above
Answer:
19) A common-sized income statement permit(s)
A.analysis of changes or differences in relations between revenues,
expenses, and net income
B.identification of relations that the analyst should explore
further
C.analysis of changes or differences in relations between assets,
liabilities, and shareholders’ equity
D.both choices a and b
E.both choices a and c
Answer:
20) Many countries around the world require a
A.statement of cash flows
B.cash reconciliation statement
C.statement of funds flow
D.statement of cash created
E.statement of cash receipts and disbursements
Answer:
21) Shareholders of Augusta Corporation have received $35,000 in
dividends in the current year. At year end the corporation has
total assets of $500,000, total liabilities equal to $300,000, and
contributed capital totaling $100,000. If retained earnings at the
beginning of the year was $80,000, what was Augustas net income for
the current year?
A.$80,000
B.$215,000
C.$55,000
D.$10,000
E.$45,000
Answer:
22) Macon Company
Macon Company owns an apartment building that originally cost $40
million and by the end of the current period has accumulated
depreciation of $10 million, with net carrying value of $30
million. Macon Company had originally expected to collect rentals
of $3.34 million each year for 30 years before selling the building
for $16 million. Unanticipated placement of a new shopping center
has caused Macon Company to reassess the future rentals. Macon
Company expects the building to provide rentals for only 15 more
years before Macon will sell it. Macon Company uses a discount rate
of 8% per year in discounting expected rentals from the
building.
Macon now expects to receive annual rentals of $2.7 million per
year for 15 years and to sell the building for $10.0 million after
15 years; these payments, in total, have a present value of $26.2
million when discounted at 8% per year. The buildings fair value is
$25 million today. Costs to sell are estimated at $1,000,000.
Using the Macon Company data, the application of IFRS
indicates:
A.no impairment loss has occurred
B.an impairment loss has occurred in the amount of $3.8 million
C.an impairment loss has occurred in the amount of $6 million
D.an impairment gain has occurred in the amount of $6 million
E.an impairment gain has occurred in the amount of $3.8 million
Answer:
23) Firms often acquire derivative instruments to hedge interest rate,
exchange rate, commodity price, and other risks. U.S. GAAP and IFRS
classify derivatives into which of the following categories?
A.Fair value hedges of a recognized asset or liability or of an
unrecognized firm commitment, only
B.Cash flow hedges of an existing asset or liability or of a
forecasted transaction, only
C.Nonhedging derivative, only
D.Fair value hedges of a recognized asset or liability or of an
unrecognized firm commitment, cash flow hedges of an existing asset
or liability or of a forecasted transaction, and nonhedging
derivative
E.none of the above
Answer:
24) Historically, _____ has described a preference for financial
reporting such that possible errors in measurement be in the
direction of understatement rather than overstatement of net income
and net assets.
A.conservatism
B.reliability
C.realization
D.recognition
E.relevance
Answer:
25) Retained earnings are
A.a source of financing for assets
B.cash
C.other non-cash assets
D.the sum of a firms dividend declarations
E.the source of net assets generated by the earnings process
Answer:
26) U.S. GAAP requires firms holdingtrading securities to report
unrealized holding gains and losses on the investments
A.in the income statement
B.as an adjustment to the Capital stock section of the balance
sheet
C.in the footnotes to the financial statements
D.as an adjustment to the Treasury stock section of the balance
sheet
E.none of the above
Answer:
27) Clarion Realty
Clarion Realty has decided to construct its own office building.
The construction will be partially financed through a construction
loan and any remainder will be financed from internally generated
funds. The internal accountants have collected the following
information concerning the construction.
| Average Balance | Construction | Other | |
| Year | Construction Account | Debt @ 6% | Debt @ 10% |
| 1 | $2,000,000 | $1,000,000 | $500,000 |
| 2 | $4,000,000 | $1,000,000 | $250,000 |
| 3 | $3,000,000 | $800,000 | $200,000 |
The amount, if any, of capitalized interest cost for Year 2 is
A.$0
B.$50,000
C.$60,000
D.$180,000
E.$230,000
Answer:
28) The requirement that U.S. firms using LIFO for tax reporting
purposes must also use LIFO for financial reporting purposes is
called the _____ rule.
A.financial/tax conformity rule
B.income tax conformity
C.last-in, first-out method
D.LIFO conformity
E.cost-flow conformity
Answer:
29) Analysis of the Return on Assets has particular relevance to
the
A.lenders
B.employees
C.lower-level managers
D.government regulators
E.unions
Answer:
30) Which of the following is/are not true regarding repairs?
A.Repairs include routine costs such as for cleaning and
adjusting
B.Repairs include the costs of restoring an assets service
potential after breakdowns or other damage
C.Repairs do not extend the estimated service life or increase its
productive capacity of an asset beyond original expectations
D.U.S. GAAP and IFRS treat repair expenditures as expenses of the
period when the firm makes the expenditure
E.Distinguishing repairs from maintenance is difficult but
typically not necessary because expenditures for both are period
expenses
Answer:
31) Earnings per share of common stock (assuming no convertible or
other potentially dilutive securities outstanding)
A.equals net income attributable to common stock divided by the
weighted average number of common shares outstanding during the
period
B.equals net income attributable to common stock divided by the
number of common shares outstanding at the beginning of the
period
C.equals net income attributable to common stock divided by the
number of common shares outstanding at the end of the period
D.all of the above
E.none of the above
Answer:
32) Bonds are issued at greater than par value when
A.the bonds are risk free
B.the market interest rate is less than the stated interest rate on
the bond
C.the market rate of interest is declining
D.the market interest rate is greater than the stated interest rate
on the bond
E.the market interest rate equals the stated interest rate on the
bond
Answer:
33) Dmitri Company reported the following changes in the balance sheet
accounts between Year 1 and Year 2.
| Change In | Dr.(Cr.) |
| Cash | $100 |
| Accounts receivable | (50) |
| Inventory | 80 |
| Equipment | 100 |
| Accumulated depreciation | (20) |
| Prepaid insurance | (10) |
| Accounts payable | (20) |
| Warranties payable | (10) |
| Deferred tax liability | (10) |
| Notes payable | (110) |
| Retained earnings | (30) |
| Common stock | 0 |
| Preferred stock | (20) |
Assume that there were no sales of equipment and that no
dividends were declared or paid.
Required:
Given the changes in the balance sheet for Year 2,
state:
| a. |
whether the change in each account indicates that an addition or subtraction needs to be made to determine cash flow, and |
| b. |
in what section of the statement of cash flows the adjustment would appear. Indicate if no adjustment is necessary. |
a., b.
Answer:
34) Sigma Company suffers a loss to its building in a fire and spends
$100,000 on repairs and improvements. It judges that $80,000 of the
expenditure replaces long-lived assets lost in the fire, and
$20,000 represents improvements to the building. Which of the
following is the single journal entry that Sigma Company will
make?
A.Building . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . 100,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . 100,000
B.Loss from Fire . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . 100,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 100,000
C.Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . 100,000
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . 20,000
Loss from Fire . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . 80,000
D.Building . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 20,000
Loss from Fire . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . 80,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 100,000
E.Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 100,000
Loss from Fire . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . 100,000
Answer:
35) 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 and then make the
cash payments during the early part of the next period. The
firm
A.decreases cash flow from financing during the first period but
increases cash flow from financing during the second period
B.increases cash flow from operations during the first period but
decreases cash flow from operations during the second period
C.decreases cash flow from operations during the first period but
increases cash flow from operations during the second period
D.increases cash flow from financing during the first period but
decreases cash flow from financing during the second period
E.increases cash flow from investing during the first period but
decreases cash flow from investing during the second period
Answer:
36) The FASBs conceptual framework for financial reporting objectives
identify _____as the principal users of financial reports.
A.current and potential investors, only
B.management, only
C.current and potential employees, only
D.the Federal, State, and Local governments, only
E.current and potential investors and creditors
Answer:
37) If the firm measures an asset at acquisition cost on the balance
sheet, it measures expenses based on the _____ of the asset
consumed.
A.fair market value
B.acquisition cost
C.current value
D.liquidation value
E.replacement value
Answer:
38) ROCE disaggregates into the following components:
A.Profit Margin for ROCE Ratio x Inventory Turnover Ratio x Debt
Ratio
B.Profit Margin for ROCE Ratio x Total Assets Turnover Ratio x Debt
Ratio
C.Profit Margin for ROCE Ratio x Inventory Turnover Ratio x Capital
Structure Leverage Ratio
D.Profit Margin for ROCE Ratio x Total Assets Turnover Ratio x
Capital Structure Leverage Ratio
E.Profit Margin x Total Assets Turnover Ratio x Debt Ratio
Answer:
39) In Year 1, the firm purchased a portfolio of marketable securities
for $1,000, which it holds as current assets. At the end of Year 1,
the portfolio had a market value of $700. During Year 2, the firm
sold some of the securities for $160 which had originally cost
$100, but which had a market value of $80 at the end of Year 1. At
the end of Year 2, the remaining securities had a market value of
$850.
Required:
| a. |
Assume the firm treats its holdings as available-for-sale. |
| 1> Record the entry made at the end of Year 1 . | |
|
2>Record the entries made during Year 2 and at the end of Year 2 . |
|
| b. |
Assume the firm treats its holdings as trading securities. |
| 1> Record the entry made at the end of Year 1 . | |
|
2>Record the entries made during Year 2 and at the end of Year 2 . |
|
Answer:
40) Cash flow from ____ activities includes purchases and sales of
marketable securities, investments in securities, property, plant,
and equipment, and intangibles.
A.operating
B.investing
C.financing
D.purchasing
E.exchanging
Answer:
41) Which of the following is/are true?
A.Common terminology refers to the financial contract underlying
bank loans as a note
B.Financial contracts underlying bank loans usually appear on the
balance sheet under the title Notes Payable
C.Notes of business firms generally have maturity dates less than
approximately ten years
D.No public market for Notes Payable exists, so the borrower will
have difficulty disengaging from the borrowing arrangement prior to
maturity
E.all of the above
Answer:
42) The income statement of Ride-on Motors, an automotive manufacturer,
for the year ended December 31, 20×1, reported revenues $7,400
million and cost of sales of $6,000 million. In addition, it
reported other operating expenses of $900 million, a loss of $2
million on the sale of a business, and net financing income of $200
million. Tax expense for the year was $100 million. Compute the
amount of net income or loss that Ride-on Motors reported for
20×1.
A.net income of $198 million
B.net income of $698 million
C.net loss of $698 million
D.net income of $598 million
E.net loss of 598 million
Answer:
43) A steel manufacturer experienced a decrease in its fixed asset
turnover from .9 in Year 5 to .7 in Year 6. This change is
consistent with which of the following explanations?
A.The firm sold a fully-depreciated factory on January 1, Year 6
that had been closed in Year 4 and held for sale since then
B.The steel industry operated at capacity during Year 6, permitting
all firms to raise selling prices
C.The firm recognized an impairment loss on a factory that became
obsolete during Year 6 because of new environmental regulations
D.The firm decreased the number of units produced and sold because
of an inability to obtain needed raw materials
E.none of the above
Answer: