1) Under U.S. GAAP, firms recognize restructuring costs when the firm
has committed to and
approved a restructuring plan that management will control.
Answer:
2) Discuss corporate distributions to shareholders.
Answer:
3) The balance sheet of a defined benefit pension plan includes the
assets in the pension plan measured at fair value and the projected
benefit obligation measured using a current interest rate on
high-quality fixed-income investments. The difference between the
assets and the liabilities indicates the extent to which a pension
plan is overfunded or underfunded.
Answer:
4) Discuss the accounting for majority, active investments.
Answer:
5) Selected balance sheet amounts for Puff Group International
Limited, a diversified electronics firm, appears next, as of
December 31, 2014, and December 31, 2013. Compute the missing
amounts for the two years.
December 31
2014 2013
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . $200,000 ?
Noncurrent Liabilities . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . 10,000 ?
Noncurrent Assets . . . . . . . . . . . . . . . . . . . . . . . …
. . . . . . . . . . . . . . ? $ 18,000
Total Liabilities and Shareholders Equity . . . . . . . . . . . . .
. . . . . . ? ?
Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . 140,000 127,000
Shareholders Equity . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . ? 54,000
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . ? ?
Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .. . . . . . 170,000 170,000
Answer:
6) The financial statements contain information for analyzing the
collectibility of accounts receivable and the adequacy of the
expense for uncollectible accounts. Typical ratios used for this
analysis include the accounts receivable turnover ratio, days
receivables outstanding, and write-off percentage.
Answer:
7) Based on the following information, prepare a statement of cash
flows for Year 2 . Use the indirect method.
|
The XYZ CorporationComparative Balance SheetAs of December 31, Year 1 and Year 2 |
|||
| December 31, | |||
| Year 1 | Year 2 | ||
| Assets | |||
| Current assets | |||
| Cash | $10,000 | $30,000 | |
| Accounts receivable | 20,000 | 15,000 | |
| Inventories | 15,000 | 20,000 | |
| Total current assets | 45,000 | 65,000 | |
| Property, plant, and equipment | |||
| Land | 10,000 | 10,000 | |
| Building and equipment | 100,000 | 120,000 | |
| Accumulated depreciation | (10,000) | (20,000) | |
| Total property, plant,and equipment | 100,000 | 110,000 | |
| Total Assets | $145,000 | $175,000 | |
| Liabilities and Shareholders’ Equity | |||
| Current liabilities | |||
| Accounts payable | $20,000 | $30,000 | |
| Total current liabilities | 20,000 | 30,000 | |
| Noncurrent liabilities | |||
| Bonds payable | 50,000 | 40,000 | |
| Notes payable | 20,000 | 30,000 | |
| Total noncurrent liabilities | 70,000 | 70,000 | |
| Shareholders’ equity | |||
| Common stock | 20,000 | 30,000 | |
| Retained earnings | 35,000 | 45,000 | |
| Total shareholders’ equity | 55,000 | 75,000 | |
| Total Liabilities and Shareholders’ Equity | $145,000 | $175,000 | |
Answer:
8) What are elements of a derivative?
Answer:
9) Describe items appearing in accumulated other comprehensive income.
What is comprehensive income and what does the shareholders equity
section of the balance sheet report?
Answer:
10) U.S. GAAP and IFRS require firms to recognize the cost of pension
plans as an expense during the years as the employees receive the
retirement benefits.
Answer:
11) Discuss the concepts of depreciation and amortization.
Answer:
12) If the firm has received a promise of payment but cannot measure
this promise with reasonable reliability, and U.S. GAAP would
permit revenue to be recognized, but IFRS would not permit revenue
to be recognized.
Answer:
13) How are notes valued and accounted for under the authoritative
guidance?
Answer:
14) The equation that describes the relationship between the balance
sheet and the income statement through the Retained Earnings
account is as follows:
Retained Earnings (beginning) + Net Income – Dividends = Retained
Earnings (ending)
Answer:
15) The principal objective of accounting reports as currently prepared
is to present accurately the results of operations and the
financial condition of the firm.
Answer:
16) Why does every accounting transaction have two effects?
Answer:
17) Describe some of the factors that would affect a firms goals and
strategies.
Answer:
18) The sum of net income and other comprehensive income is/are:
A.Comprehensive Net Income
B.Comprehensive Income
C.Comprehensive Retained Earnings
D.Net Income after comprehensive income items
E.none of the above
Answer:
19) Under U.S. GAAP, the classification of interest expense as an
operating activity and dividends paid on common or preferred shares
as a financing activity appears inconsistent to some observers as
both are payments to suppliers of funds. Authoritative guidance
requires the different treatments because
A.interest is an expense in computing net income
B.dividends represent a distribution of assets generated by net
income not an expense reducing net income
C.interest represent a distribution of assets generated by net
income not an expense reducing net income
D.dividends is an expense in computing net income
E.both choices a and b are correct
Answer:
20) Which of the following is/are true regarding the Raw Materials
Inventory account?
A.The Raw Materials Inventory account includes the cost of raw
materials purchased but not yet transferred to the factory
floor
B.The manufacturing firm records purchases of raw materials as
debits to the Raw Materials Inventory account.
C.When the manufacturer physically transfers raw materials to the
factory floor, it also transfers the cost of the raw materials from
the Raw Materials Inventory account to the Work-in-Process
Inventory account
D.When the manufacturer physically transfers raw materials to the
factory floor, it records this transfer as a credit to the Raw
Materials Inventory account for the cost of the raw materials
transferred and a debit to the Work in Process Inventory
account
E.all of the above
Answer:
21) Often cited reasons for using off-balance-sheet financing include
that this accounting technique
A.lowers the cost of borrowing and is inexpensive
B.lowers the cost of borrowing because borrowers already provide
the correct information for reporting purposes
C.lowers the cost of borrowing and avoids violation of debt
covenants
D.simplifies contracts and improves cash flows
E.simplifies contracts and lowers the cost of borrowing
Answer:
22) The transactions listed below relate to Mountain Corporation.
Indicate whether or not each transaction immediately gives rise to
an asset or liability of Mountain Corporation under
generally accepted accounting principles. If accounting recognizes
an asset or a liability, give the account title and
amount.
a. Mountain Corporation signs a 3-year employment contract with
Robert Lindsey, the chief financial officer, for $375,000.
b. Mountain Corporation sends a check for $2,400 for two years’
property insurance coverage beginning next month that would
normally cost $2,000 for a one-year policy.
c. The firm paid $250 for one-year subscriptions to ski magazines.
None of the magazines have been received to date. In addition, it
will cost the publisher $100 to fulfill the subscription
commitment.
d. The firm acquires inventory with a list price of $2,000, at a 3%
discount for cash payment. The firm treats cash discounts as a
reduction of acquisition cost.
e. The firm agrees to purchase 25,000 units of inventory from a
supplier over the next 3 years at an agreed cost of $4/unit.
Answer:
23) The Farley Company had retained earnings at the beginning of the
year totaling $100,000. At the end of the year retained earnings
totaled $200,000. Depreciation was $50,000 for the year and the
company paid dividends of $150,000. What is the amount recorded as
Net Income in the operating activities section of the statement of
cash flows prepared using the indirect method?
A.a net loss of $150,000
B.a net income of $150,000
C.a net income of $0
D.a net income of $250,000
E.a net loss of $50,000
Answer:
24) Of the three cost-flow assumptions, when prices fall FIFO results
in balance sheet figures that are _____, cost of goods sold will
_____, and _____ reported net income
A.closest to current cost, be out of date, highest
B.out of date, closest to current cost, highest
C.closest to current cost, be out of date, lowest
D.out of date, closest to current cost, lowest
E.closest to current cost, closest to current cost, highest
Answer:
25) The primary difference between a cash flow statement prepared using
the indirect method and one prepared using the direct method is
A.the financing section is different
B.the investing section is different
C.the operating section is different
D.all three sections of the cash flow statement are different
E.the investing and financing sections are different
Answer:
26) _____ provide information about liquiditya firms ability to meet
short-term obligations as they come due.
A.Working capital, only
B.Current ratio, only
C.Working capital and current ratio
D.Positive leverage ratio
E.Cash flows ratio
Answer:
27) For merchandising firms, inventory items are valued at acquisition
cost which includes
A.invoice price less any cash discounts taken for prompt
payment
B.cost of transporting, receiving, unpacking, inspecting, and
shelving
C.costs to record the purchases in the accounts
D.all of the above
E.none of the above
Answer:
28) Most publicly traded firms operate as corporations. Which of the
following is/are not true?
A. The corporate form provides the owner unlimited liability
B.The corporate form allows the firm to raise funds by issuing
shares to investors in varying amounts
C.The corporate form facilitates the transfer of ownership
interests because owners can sell their shares without affecting
the ongoing operations of the firm
D.The corporation has legal status separate from its owners
E.all of the above
Answer:
29) Bartow Company acquires common stock of Champion 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. Bartow sells these shares on August 15, 2014,
for $480,000.
a. What is the journal entry to record acquisition of securities
available-for-sale on November 1, 2013?
b. What is the journal entry to measure securities
available-for-sale on December 31, 2013?
c. What is the journal entry to record the sale of securities
available-for-sale on August 15, 2014?.
d. What is the total income from the purchase and sale of these
securities reported in the year of sale?
Answer:
30) Treasury stock or treasury shares are shares a firm has previously
issued and later reacquired. Which of the following is/are not
true?
A.Some firms believe that their own shares provide a good
investment
B.Evidence supports the notion that share prices often increase
after a firm announces a share repurchase program
C.Rather than pay dividends to all shareholders, many of whom will
owe personal income taxes on the entire dividend amount, the firm
can buy back shares from those who wish to receive cash
D.Some shareholders will have lower tax rates on receipts from
sales of shares than on dividend receipts
E.Share repurchases use up available cash and thereby increase the
attractiveness of the company to outsiders who believe that the
stock buy back makes the company an attractive target
Answer:
31) On December 30, Year 1, Plank Company entered into a contract to
purchase inventory over the next year. This is an example of
a(n)
A.debit to an intangible asset
B.debit to a tangible asset
C.credit to a current liability
D.executory contract
E.anticipatory contract
Answer:
32) Firms sometimes acquire bonds or capital stock of other entities
for their expected returns (through interest, dividends, and price
appreciation) without any intent to exert influence or control over
the other entity. Which of the following is/are not true?
A.U.S. GAAP and IFRS presume that the acquisition of any amount of
bonds, and the acquisition of less than 50% of the voting stock of
another entity implies an inability to exert significant influence
or control
B.Firms may classify such securities as debt securities held to
maturity (IFRS uses the term held-to-maturity investments)
C.Firms may classify such securities as trading securities (IFRS
uses the term financial assets at fair value through profit or
loss)
D.Firms may classify such securities as securities available for
sale (IFRS uses the term available-for-sale financial assets)
E.all of the above
Answer:
33) Armul Insurance
Armul Insurance acquired shares of Bannocks common stock on
December 28, 2013, for $400,000 and classified them as trading
securities. The fair value of these securities on December 31,
2013, was $402,000. Armul Insurance sold these shares on January 3,
2014, for $405,000.
a. What is the journal entry to record acquisition of trading
securities on December 28, 2013?
b. What is the journal entry to measure trading securities at fair
value and recognize unrealized holding gain on December 31,
2013?
c. What is the journal entry to record the sale of trading
securities at a gain on January 3, 2014?
d. What is the total income from the purchase and sale of the
securities?
Answer:
34) In historical cost accounting, the discounting process uses the
original interest rate appropriate for the particular borrower at
the time it incurred the obligation. That rate will have depended
on the amount and terms of the borrowing arrangement as well as the
risk that the borrower will default on the obligations. The rate is
known as the
A.prime interest rate
B.explicit interest rate
C.imputed interest rate
D.federal funds rate
E.applicable federal rate
Answer:
35) Which of the following is true regarding income recognition?
A.The seller must have substantially performed its obligations to
the customer (for example, by transferring ownership of goods to
the customer)
B.The seller must have obtained an asset from the customer that it
can reliably measure. If the asset is not cash, the seller must be
reasonably certain of converting it into cash
C.The firm recognizes expenses when it consumes assets
D.If an event or transaction leads to the recognition of revenue,
the firm matches the consumption of any assets (the expense), in
time, with the revenue recognized
E.all of the above
Answer:
36) Which of the following is/are true about holding gains on
assets?
A.U.S. GAAP recognizes the holding gain on the assets for the
increase in values
B.IFRS permits recognition of the holding gains under certain
circumstances
C.IFRS precludes recognition of the holding gain on assets for the
increase in values
D.Under U.S. GAAP, if in a given period, an asset increases in
value, the firm does not record depreciation and amortization
during that period
E.Under IFRS, if in a given period, an asset increases in value,
the firm does not record depreciation and amortization during that
period
Answer:
37) Long-lived assets with an indefinite life include:
A.trade names
B.trademarks
C.certain renewable licenses
D.goodwill arising from a business combination
E.all of the above
Answer:
38) The argument for measuring held-to-maturity debt securities at
amortized cost and ignoring most changes in fair value during the
contractual term of the debt is/are
A.changes in fair value are not relevant if the firm has the
intention and ability to hold the securities to maturity
B.firms would recognize impairment losses because of
conservatism
C.firms would recognize impairment losses because of impairments
due to changes in default risk that reflect changes in the amount
the investor is likely to receive
D.all of the above
E.none of the above
Answer:
39) 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 installment method is:
A.$1,000,000
B.$1,400,000
C.$2,800,000
D.$3,360,000
E.None of the above
Answer:
40) When analyzing a balance sheet
A.one looks for a reasonable match between the nature and mix of
assets and mix of liabilities plus shareholders’ equity
B.the proportion of short-term versus long-term financing should
match the proportion of current assets versus noncurrent assets
C.the mix of long-term debt versus shareholders’ equity should
reflect the degree of operating risk
D.Answers a, b, and c are correct
E.None of these answer choices is correct
Answer:
41) Dickinson Company owns a delivery truck that costs $108,000, has an
estimated salvage value of $8,000, and will provide 200,000 miles
of use before retirement. If the truck operates 24,000 miles in a
given year, the straight-line (use) depreciation charge is
A.$6,000
B.$12,000
C.$12,960
D.$24,000
E.$0
Answer:
42) Under U.S. GAAP, the classification of interest expense as a(n)
_____ activity and dividends paid on common or preferred shares as
a(n) _____ activity appears inconsistent to some observers as both
are payments to suppliers of funds.
A.operating; financing
B.investing; financing
C.financing; investing
D.financing; operating
E.investing; operating
Answer:
43) 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 would result
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 permanent 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 income for financial reporting (excluding permanent
differences) and the income tax authorities impose taxes on taxable
income
E.all of the above
Answer:
45) Which of the following accounts would you expect to find on the
balance sheet of a manufacturing company?
A.finished goods inventory, raw materials inventory, and
merchandise inventory
B.finished goods inventory, work-in-process inventory, and
merchandise inventory
C.raw materials inventory, work-in-process inventory, and
merchandise inventory
D.finished goods inventory, raw materials inventory, and
work-in-process inventory
E.none of the above
Answer:
46) Which of the following is/are not true?
A.The more long-term debt in a firms capital structure, the greater
the risk that the firm will experience difficulty making the
required payments when due
B.The more long-term debt in a firms capital structure, the greater
is the risk of default or bankruptcy
C.Financial analysts use the long-term debt ratio to assess risk
related to long-term borrowing
D.The debt-equity ratio relates long-term debt to shareholders
equity, indicating the relative mix of long-term financing obtained
from lenders versus owners
E.none of the above
Answer:
47) Ramer Company and Matson Company
Assume the following information for Ramer Company, Matson Company,
and for their common industry for a recent year.
| Ramer | Matson | Industry Average | |
| Current ratio | 3.50 | 2.80 | 3.00 |
| Accounts receivable turnover | 5.00 | 8.10 | 6.00 |
| Inventory turnover | 6.20 | 8.00 | 6.10 |
| Interest coverage ratio | 9.00 | 12.30 | 10.40 |
| Debt-equity ratio | 0.70 | 0.40 | 0.55 |
| Return on investment | 0.15 | 0.12 | 0.15 |
| Dividend payout ratio | 0.80 | 0.60 | 0.55 |
| Earnings per share | $3.00 | $2.00 | – |
(CMA adapted, Jun 90 #18) Regarding the data for Ramer and Matson
Company, if a company is profitable and is effectively using
leverage, which one of the following ratios is likely to be the
largest?
A.return on total assets
B.return on operating assets
C.return on common equity
D.return on investment
E.none of the above
Answer:
48) The usual criterion for preparing consolidated financial statements
is voting control in the form of majority ownership of common
stock. However, for some entities common stock ownership does not
indicate control because the common stock of the entity lacks one
or more of the economic characteristics associated with equity.
Which of the following is/are true?
A.U. S. GAAP refers to such entities as a variable interest entity
(VIE)
B.If the invested equity is so small that the entity requires other
financial support to sustain its activities, it meets the criteria
for a variable interest entity
C.If the equity owners lack meaningful decision rights, it meets
the criteria for a variable interest entity
D.choices a and b, only
E.choices a, b, and c
Answer:
49) An impairment loss on all assets except intangibles that do not
require amortization arises when
A.the book value of the assets exceed the undiscounted cash
flows
B.the book value of the assets exceed the market value
C.the market value of the assets exceed the undiscounted cash
flows
D.the book value of the assets exceed the discounted cash flows
E.the book value of the assets exceed the liquidation value
Answer:
50) U.S. GAAP requires firms holding debt and equity securities as
securities available-for-sale to treat unrealized holding gains or
losses each period as
A.an increase or decrease in Accumulated Other Comprehensive Income
(a separate shareholder equity account)
B.as an increase or decrease in reported Net Income for the
period
C.as an increase or decrease in reported Retained Earnings for the
period
D.a separate footnote disclosure to the financial statements
E.none of the above
Answer:
51) The more variable the firms cash flows from operating activities,
the more risk that the firm will not have sufficient cash to meet
the required payments. Failure to meet these obligations can result
in
A.default
B.creditor intervention in the management of the firm
C.regulatory intervention in the management of the firm
D.bankruptcy
E.All of these answer choices are correct
Answer:
52) The beginning and the ending balances in cash and cash equivalents
are entered in the master T-account for preparing the statement of
cash flows. Cash equivalents represent _____ in which a firm has
temporarily placed excess cash.
A.short-term, highly illiquid investments
B.short-term, highly liquid investments
C.short-term and long-term, highly liquid investments
D.short-term and long-term, highly illiquid investments
E.short-term and long-term, marketable securities
Answer:
53) Inventory Record
The inventory record for a particular item for Year 2 appears
below.
| Inventory, January 1, Year 2 | 20,000 | $0.20 | $4,000 |
| Purchases: | |||
| March 2 | 4,000 | .24 | $960 |
| April 30 | 3,000 | .28 | 840 |
| June 15 | 6,000 | .32 | 1,920 |
| September 30 | 2,000 | .26 | 520 |
| December 15 | 1,000 | .20 | 200 |
| Total purchases | 16,000 | $4,440 | |
| Total available for sale | 36,000 | $8,440 | |
| Units sold | 28,000 | ||
Refer to the Inventory Record example. The cost of goods sold for
year 2 under weighted-average cost-flow assumption is (rounded to
the nearest dollar):
A.$7,772
B.$6,972
C.$6,564
D.$6,220
E.$6,020
Answer:
54) To record the purchase of equipment that is fully financed by the
seller, you would
A.debit a liability and credit an asset
B.debit an asset and credit cash
C.debit an asset and credit a liability
D.debit an asset and credit shareholders’ equity
E.debit a liability and credit shareholders’ equity
Answer:
55) The calculation of Rate of Return on Common Shareholders Equity
(ROCE) is as follows:
Rate of Return on Common = Shareholders Equity
A. Net Income – Dividends on Preferred Stock
—————————————————
Ending Common Shareholders Equity
B. Net Income
—————————————————
Average Common Shareholders Equity
C. Net Income + Dividends on Preferred Stock
—————————————————
Average Common Shareholders Equity
D. Net Income – Dividends on Preferred Stock
—————————————————
Average Common Shareholders Equity
E. Net Income + Dividends on Preferred Stock
—————————————————
Ending Common Shareholders Equity
Answer:
56) Which of the following is not true about goodwill?
A.Goodwill reflects the value of knowledgeable employees
B.Goodwill reflects the value of a reputation for quality
products
C.Under U.S. GAAP, goodwill has an indefinite life, and firms do
not amortize the amount recognized as goodwill
D.Firms must test goodwill annually for a loss in value
E.Under IFRS, goodwill has an indefinite life, and firms amortize
the amount recognized as goodwill
Answer: