1) Explain the accounting for redeemable preferred shares.
Answer:
2) The balance sheet groups individual accounts by type (asset,
liability, or shareholders equity) and lists these accounts with
their balances as of the balance sheet date.
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3) The notes to the financial statements provide information on the
components of book income before taxes, the current and deferred
portions of income tax expense, a reconciliation between income
taxes at the statutory rate and the effective rate, and the
components of deferred tax assets and deferred tax liabilities.
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4) Weakening profitability,from reduced sales or reduced profit
margins on existing sales,
signals the beginning of the decline phase, but ever-declining
accounts receivable and inventories can produce positive cash flow
from operations.
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5) Explain the accounting for the issuance of securities with warrants
attached or that have conversion privileges.
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6) Describe the fair value option applied to marketable securities and
derivatives.
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7) Convertible preferred shares require the holder of preferred shares
to convert the preferred shares into a specified number of common
shares under certain specified conditions.
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8) Describe the allowance method for uncollectible accounts.
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9) What is financial leverage?
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10) Describe the accounting for employer sponsored defined benefit
pension plans.
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11) The principle for cost inclusion is that the balance sheet amount
for inventory should include all costs incurred to acquire goods
but not to prepare them for sale.
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12) In computerized systems, posting occurs instantly and automatically
after journalizing.
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13) Wigs and Torys Plc. is a leading operator of pubs and pub
restaurants in the United Kingdom. It operates and franchises about
10 wine restaurants under the name Bottoms Up Bar, primarily in
London. Suppose that in contracting with a franchisee of an Bottoms
Up Bar wine restaurant, Wigs and Torys agrees to provide services,
including site selection, dcor design, marketing, advertising, and
recruiting; and the franchisee agrees to pay Wigs and Torys
£100,000. It is common in the industry to permit the
franchisee to pay in equal installments over several years. When
should Wigs and Torys recognize revenue from the franchisee
contract?
A.at the time Wigs and Torys Plc. signs the contract with the
franchisee
B.as the cash is received by Wigs and Torys from the franchisee
C.as the income is earned by Wigs and Torys
D.at the end of the franchise period
E.half should be recognized when Wigs and Torys Plc. signs the
contract with the franchisee and the other half after all the
installments are received
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14) The accounting for investments in common stock depends on the
A.expected holding period
B.purpose of the investment, as determined by the percentage
held
C.purpose of the investment, as determined by management intent
D.all of the above
E.none of the above
Answer:
15) Cash flow hedges are revalued to market value each period and gains
and losses from changes in the market values of such derivatives
appears
A.in accumulated other comprehensive income each period to the
extent the financial instrument is “highly effective” in
neutralizing the risk and the remainder in (current) net income
B.in the Contributed capital section each period to the extent the
financial instrument is “highly effective” in neutralizing the risk
and the remainder in net income currently
C.in net income each period regardless of effectiveness
D.in retained earnings each period regardless of effectiveness
E.in reserves for contingencies each period regardless of
effectiveness
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16) Firms account for leases using either the operating lease method or
the capital (finance) lease method. Which of the following is not
true?
A.The operating lease method treats leases as executory
contracts
B.The operating lease method does not recognize a leased asset on
the lessees balance sheet
C.The operating lease method does not recognize a lease liability
on the lessees balance sheet
D.Under the operating lease method, the lessor does not recognize
rent revenue as the lessee uses the leased asset over time
E.Under the operating lease method, the lessee recognizes rent
expense as the lessee uses the leased asset over time
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17) ValleyView Company
ValleyView Company acquires common stock of Kansas Enterprises for
$400,000 on November 1, 2013, and designates this investment as
available-for-sale. The fair value of these shares is $435,000 on
December 31, 2013 . ValleyView sells these shares on August 15,
2014, for $480,000.
(Refer to ValleyView.) The total income from the purchase and sale
of these securities is _____ reported _____
A.$80,000; in the year of sale
B.$80,000; as they occur
C.$35,000; in the year of sale
D.$35,000; as they occur
E.$45,000; in the year of sale
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18) City Bicycle
City Bicycle , a cycling store has a beginning inventory of one
bi-level touring bicycle 1, for which it paid $2,500. Suppose that
during the period the store purchases bi-level touring bicycle 2
for $2,900 and bi-level touring bicycle 3 for $3,000, and that it
sells one bicycle for $5,500. The three bicycles are physically
identical; the store acquired them at different times as their
acquisition costs changed, so only their costs differ.
Using the City Bicycle example, suppose the cycling store uses the
weighted-average cost-flow assumption. The cost of goods sold is
_____, and the ending inventory is _____.
A.$2,900; $5,500
B.$2,500; $5,900
C.$3,000; $5,400
D.$2,800; $5,600
E.cannot be determined with the information given
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19) _____ measures the net assets generated by a firm from operations
exceeding dividends declared.
A.Assets
B.Liabilities
C.Shareholders equity
D.Additional Paid-in-Capital
E.Retained earnings
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20) The joint efforts of the FASB and the IASB to set forth qualitative
characteristics of financial reporting information have led to
which of the following tentative pervasive constraints?
A.cost, only
B.materiality, only
C.understandability, only
D.timeliness, only
E.materiality and cost
Answer:
21) At December 31, Year 1, Adam Corporation has 5,000 shares of par
value common stock, additional paid-in capital of $25,000, total
shareholders’ equity of $80,000, and retained earnings of $45,000.
What is the par value per share?
A.$1.00
B.$1.50
C.$2.00
D.$2.50
E.$3.00
Answer:
22) _____ is the basis for the practice of reporting certain assets at
the lower of acquisition cost or fair value. The requirement to
test assets for impairment and to record impairment charges rests
on the notion that balance sheet carrying values of assets should
not exceed the amount of cash that the firm expects to receive by
using or selling the asset.
A.Conservatism
B.Reliability
C.Relevance
D.Recognition
E.Realization
Answer:
23) The _____ is the private-sector financial accounting standard
setter in the U.S., but has no enforcement powers.
A.Financial Accounting Standards Board (FASB)
B.Government Accountability Office (GAO)
C.International Accounting Standards Board (IASB)
D.Public Company Accounting Oversight Board (PCAOB)
E.Accounting Standards Board
Answer:
24) Some assets, such as a space shuttle, are not readily salable at
the end of their useful lives, and retiring them may impose
substantial costs. Which of the following is true?
A.Firms recognize a liability, referred to as an asset retirement
obligation at the present value of the estimated dismantling
costs
B.Firms recognize a liability, referred to as an asset retirement
obligation at the estimated fair value of the dismantling costs
C.Firms recognize a liability, referred to as an asset retirement
obligation at the estimated future value of the dismantling
costs
D.Firms recognize a liability, referred to as an asset retirement
obligation at the estimated liquidation value of the dismantling
costs
E.Firms do not recognize a liability because such costs are
uncertain in nature and the firms can always file for bankruptcy to
avoid the dismantling costs
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25)
| A. |
Discuss the effect on current-year net income each of the following inventory-related errors will have. |
|
| 1> | An overstatement of beginning inventory | |
| 2> | An overstatement of ending inventory | |
| 3> | An overstatement of purchases | |
| B. |
Discuss the effect on current-year ending inventory each of the following inventory-related errors will have. Assume that no physical inventory is taken to determine ending inventory and that the ending inventory amount is determined by the inventory equation. |
|
| 1> | An understatement of beginning inventory | |
| 2> | An overstatement of purchases | |
| 3> | An understatement of cost of goods sold | |
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26) Examples of nonmonetary transactions is/are:
A.the acquisition of equipment in exchange for shares of common
stock
B.the conversion of a firms debt into common shares
C.paying interest
D.paying dividends
E.both choices a and b
Answer:
27) Recognition of revenue usually occurs when
A.the firm pays for the related expenses
B.the revenue is earned, such as at the time of the sale or
delivery of the goods
C.a signed, legally binding contract is received
D.an advance payment for the goods is received
E.none of the above
Answer:
28) The provisions of U.S. GAAP require firms to classify marketable
securities into which categories?
A.Debt securities held to maturity for which a firm has both the
intent and the ability to hold to maturityshown on the balance
sheet at an amount based on acquisition cost, but subject to
impairment
B.Debt and equity securities held as trading securities shown on
the balance sheet at fair value, with changes in fair value of
securities held at the end of the accounting period reported each
period in net income
C.Debt and equity securities held as securities available-for-sale
shown on the balance sheet at fair value, with unrealized changes
in fair value of securities held at the end of the accounting
period included in other comprehensive income, and realized changes
in fair value included in net income when a firm sells the
securities
D.all of the above
E.choices a and b, only
Answer:
29) Which of the following is not true?
A.Firms issue common stock for assets other than cash, for example,
to acquire another firm
B.Firms generally issue common shares, both at the time of initial
incorporation and in subsequent years, for amounts greater than par
(or stated) value
C.The firm records the shares exchanged for noncash assets at the
fair value of the shares given or, if the firm cannot make a
reasonable estimate, at the fair value of the assets received
D.Firms may issue capital stock (preferred or common) for cash or
for noncash assets
E.Firms generally issue preferred shares, both at the time of
initial incorporation and in subsequent years, for amounts greater
than par (or stated) value
Answer:
30) Earnings per common share result from dividing net income
A.minus preferred stock dividends by the weighted-average number of
outstanding common shares during the accounting period
B.by the weighted-average number of outstanding common shares
during the accounting period
C.minus common stock dividends by the end-of-year number of
outstanding common shares
D.minus preferred stock dividends by the end-of-year number of
outstanding common shares
E.by the end-of-year number of outstanding common shares
Answer:
31) Both U.S. GAAP and IFRS require the allowance method for
uncollectible accounts, which involves estimating the amount of
uncollectible accounts receivable associated with
A.the cumulative total of all accounting periods total sales
B.the cumulative total of all accounting periods credit sales
C.each accounting periods total sales
D.each accounting periods credit sales
E.the cumulative total of all accounting periods cash sales
Answer:
32) Most firms prefer to prepare the statement of cash flows after they
have prepared the income statement and the balance sheet. In the
preparation of the T-account work sheet, an error
A.often results from the partial recording of a transaction in
which debits do not equal credits
B.usually becomes evident only on completion of the work sheet
C.requires the preparer to retrace each of the entries to discover
the source of the erro
D.all of the above
E.none of the above
Answer:
33) Andrews Corporation’s liability account balances at June 30, 2013,
included a 10 percent note payable. The note is dated October 1,
2011, and carried an original principal amount of $600,000. The
note is payable in three equal annual payments of $200,000 plus
interest. The first interest and principal payment was made on
October 1, 2012. In Andrews June 30, 2013, balance sheet, what
amount should be reported as Interest Payable for this note?
A.$10,000
B.$15,000
C.$30,000
D.$45,000
E.None of these answers is correct
Answer:
34) In the recognition criteria for liabilities with uncertain amount
and/or timing, probable is used in U.S. GAAP to refer to a
threshold of likelihooda rule of thumb used in practice is
approximately _____ In IFRS, probable as recognition criterion for
liabilities with uncertain amount and/or timing means approximately
_____.
A.33%; 25%
B.51%; 51%
C.60%; 25%
D.80%; 51%
E.90%; 75%
Answer:
35) In order to explain the change in the master cash account between
the beginning and the end of the period, the accountant
reconstructs the entries originally made in the accounts during the
period and enters them in appropriate T-accounts on the T-account
work sheet. By explaining the changes in balance sheet accounts
other than cash, this process also explains the change in
A.cash and cash equivalents
B.cash, only
C.working capital
D.cash and marketable securities
E.funds
Answer:
36) An example of a firm’s use of a different set of accounting
principles for financial reporting and for income tax reporting
is
A.the allowance method for financial reporting and the direct
write-off method for income tax reporting
B.the direct write-off method for financial reporting and the
allowance method for income tax reporting
C.the direct write-off method for financial reporting and the
percentage of sales method for income tax reporting
D.the allowance method for financial reporting and the percentage
of payables method for income tax reporting
E.none of the above
Answer:
37) U.S. GAAP and IFRS require complex procedures in accounting for
income taxes. For example, firms provide for estimated warranty
cost in the year they sell warranted products but delay the tax
deduction until later, when firms make actual expenditures for
warranty repairs. In this example, a
A.deferred tax asset arises
B.deferred tax liability arises
C.firm recognizes a revenue earlier for financial reporting than
for tax reporting
D.firm recognizes a revenue earlier for tax reporting than for
financial reporting
E.firm recognizes an expense earlier for tax reporting than for
financial reporting
Answer:
38) U.S. GAAP and IFRS require firms to classify derivatives as
A.fair value hedges, only
B.cash flow hedges, only
C.not a hedging instrument, only
D.fair value hedges or cash flow hedges, only
E.fair value hedges, cash flow hedges, or not a hedging instrument
Answer: