1) Discuss the interpretation of retirement benefit disclosures.
Answer:
2) Discuss the reasons that investors buy preferred stock and the
dividend rights of preferred stockholders.
Answer:
3) One of the characteristics of a fair value measurement is that the
measurement does embody a minimum probability for recognition.
Answer:
4) U.S. GAAP and IFRS requires firms to use a cost-flow assumption
that matches the actual physical flow of units within the firm.
Answer:
5) Discuss any ethical issues raised by the following actions.
Answer:
6) The activities of a business include establishing goals and
strategies, obtaining financing, making investments and conducting
operations.
Answer:
7) Notes receivable is the amount owed to a seller by customers who
have purchased goods and services on credit.
Answer:
8) The percentage-of-completion method provides information about the
sellers performance during the contract period; in contrast, the
completed contract method reports all profit only when seller
completes the contract.
Answer:
9) Given the following changes in the balance sheet for Year 2 of the
Cotton Company, prepare a statement of cash flows using the
indirect method.
| Change In | DR(CR) |
| Cash | 90,000 |
| Accounts receivable | 10,000 |
| Inventory | (20,000) |
| Accounts payable | 10,000 |
| Notes payable | (50,000) |
| Equipment | 40,000 |
| Accumulated depreciation | (20,000) |
| Retained earnings | (50,000) |
| Common stock | (10,000) |
Answer:
10) Describe the accounting for stock splits and reverse stock splits.
Answer:
11) Given the following information, indicate the cash flow amounts in
the blanks provided. (Note that the ABCCompany uses a just-in-time
inventory system and there is no beginning or ending
inventory).
|
ABC Company Income StatementFor the Year Ended December 31, Year 2 |
||
| Cash Flow | ||
| Sales revenue, 75% on credit | $200,000 | $__________ |
| Accounts receivable balance | ||
| December 31, Year 1, $50,000 | ||
| December 31, Year 2, $60,000 | ||
| Cost of good sold, 100% on credit | $60,000 | $__________ |
| Accounts payable balance | ||
| December 31, Year 1, $15,000 | ||
| December 31, Year 2, $12,000 | ||
| Expenses: | ||
| Salaries and Wages | $26,000 | $__________ |
| Accrued wages payable balance | ||
| December 31, Year 1, $1,500 | ||
| December 31, Year 2, $1,600 | ||
| Depreciation expense | $2,500 | $__________ |
| Rent expense | $1,500 | $__________ |
| No accruals | ||
| Income tax expense | $5,500 | $__________ |
| Taxes payable balance | ||
| December 31, Year 1, $1,000 | ||
| December 31, Year 2, $2,000 | ||
| Total expenses | $35,500 | |
| Net income | $104,500 | |
| Cash flow from operating activities | $ | |
Answer:
12) The term marketable securities refers to the financial instruments
that firms classify as held-to-maturity, trading, or
available-for-sale securities, recognizing that the term does not
have a precise definition in U.S. GAAP or IFRS.
Answer:
13) Describe the calculation of earnings and book value per share.
Answer:
14) The independent external auditors of a business prepare financial
statements to present meaningful information about that businesss
activities to external users.
Answer:
15) The following is Newton Corporations comparative balance sheets for
2014 and 2013:
| December 31, | ||||||||
| 2014 | 2013 | |||||||
| Cash | $ 400,000 | $ 350,000 | ||||||
| Accounts receivable | 564,000 | 584,000 | ||||||
| Inventories | 925,000 | 857,500 | ||||||
| Property, plant, and equipment | 1,653,500 | 1,483,500 | ||||||
| Accumulated depreciation | (582,500) | (520,000) | ||||||
| Investment in Trent Corporation | 152,500 | 137,500 | ||||||
| Loan receivable | 135,000 | – | ||||||
| Total assets | $ 3,247,500 | $ 2,892,500 | ||||||
| Accounts payable | $ 507,500 | $ 477,500 | ||||||
| Income taxes payable | 15,000 | 25,000 | ||||||
| Dividends payable | 40,000 | 45,000 | ||||||
| Capital lease obligation | 200,000 | |||||||
| Capital stock, common, $1 par | 250,000 | 250,000 | ||||||
| Additional paid-in capital | 750,000 | 750,000 | ||||||
| Retained earnings | 1,485,000 | 1,345,000 | ||||||
| Total liabilities and | ||||||||
| stockholders’ equity | $ 3,247,500 | $ 2,892,500 | ||||||
Additional information:
| 1> |
On December 31, 2013, Newton acquired 25 percent of Trent Corporations common stock for $137,500. On that date, the carrying value of Trents net assets and liabilities (which approximated fair value) was $550,000. Trent reported income of $60,000 for the year ended December 31, 2014. No dividend was paid on Trents common stock during the year. |
| 2> |
During 2014, Newton loaned $150,000 to Dalton Company, an unrelated entity. Dalton made the first semi-annual principal payment of $15,000, plus interest at 10 percent, on October 1, 2014. |
| 3> |
On January 2, 2014, Newton sold equipment costing $30,000, with a carrying value of $17,500, for $20,000 cash. |
| 4> |
On January 2, 2014, Newton entered into a capital lease for an office building. The present value of the annual rental payments is $200,000, which equals the fair value of the building. Newton made the first lease payment of $30,000 when due on January 2, 2015. |
| 5> | Newtons net income for 2014 was $180,000. |
| 6> |
Newton declared and paid cash dividends for 2014 and 2013 as follows: |
| 2014 | 2013 | ||||
| Declared | Dec. 15, 2014 | Dec. 15, 2013 | |||
| Paid | Feb. 28, 2015 | Feb. 28, 2014 | |||
| Amount | $ 40,000 | $ 45,000 | |||
Required:
Prepare a statement of cash flows for Newton Company for 2014 using
the indirect method. Include relevant supplemental schedules.
Answer:
16) The fixed asset turnover ratio
A.measures the relation between sales and the investment in fixed
assets such as property, plant, and equipment
B.measures the amount of sales generated from a particular level of
investments in fixed assets
C.is calculated by dividing sales by the average fixed assets for
the period
D.all of the above
E.none of the above
Answer:
17) Firms use short-term financing for
A.assets they expect to convert to cash in the short run
B.assets to be used over long periods
C.liabilities they expect to convert to cash in the short run
D.liabilities to be used over long periods
E.shareholders equity they expect to convert to cash in the short
run
Answer:
18) A common-size income statement expresses each expense and net
income as a percentage of
A.assets
B.revenues
C.liabilities
D.expenses
E.shareholders equity
Answer:
19) The ____ explains the reasons for the changes in cash and cash
equivalents during a period. This statement classifies the reasons
as relating to operating, investing, and financing activities.
A.statement of cash flows
B.balance sheet
C.income statement
D.funds flow statement
E.statement of retained earnings
Answer:
20) Which of the following is not true?
A.Convertible preferred shares give the holder of preferred shares
the right to convert the preferred shares into a specified number
of common shares under certain specified conditions
B.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
C.Convertible preferred shares provide the security holders with
the possibility of capital appreciation by converting the preferred
shares into common shares if the market price of the common shares
rises sufficiently
D.Convertible preferred shares provide the security holders with a
relatively assured dividend
E.Convertible preferred shares provide the security holders with a
claim that is senior to that of common shareholders
Answer:
21) If 10,000 stock warrants are issued to the general public for
$10,000, and later those warrants and $150,000 are exchanged for
10,000 shares of no-par stock, the entry to record the exercise of
the warrants would be:
A.Cash 150,000
Common Stock Warrants 10,000
Common Stock 160,000
B.Cash 150,000
Common Stock 140,000
Common Stock Warrants 10,000
C.Cash 150,000
Common Stock Warrants 10,000
Common Stock 150,000
Add’l Paid-in Capital-Stock Warrants 10,000
D.Cash150,000
Warrant Stock 150,000
E.Cash 150,000
Common Stock Warrants10,000
Warrant Stock 150,000
Add’l Paid-in Capital-Stock Warrants 10,000
Answer:
22) A _____ item is expected to result in a cash receipt or a cash
payment within approximately one year or less.
A.illiquid
B.long-term
C.current
D.noncurrent
E.liquid
Answer:
23) According to the FASB’s conceptual framework, comprehensive income
includes which of the following?
Gross Profit Operating Income
A.No No
B.No Yes
C.Yes Yes
D.Yes No
E.None of these answer choices is correct.
Answer:
24) Under U.S. GAAP, the statement of cash flows classifies changes in
accounts payable as a(n) _____ activity and classifies changes in
short-term bank borrowing as a(n) _____ activity.
A.operating: financing
B.financing; operating
C.investing; operating
D.operating; operating
E.financing; financing
Answer:
25) Correction of a material error occurring in prior periods is
reported as
A.an adjustment of earnings of the current period, only
B.a retroactive restatement of prior years earnings, only
C.a retroactive restatement of prior years earnings and an
adjustment to the beginning balance of retained earnings for the
current period
D.an adjustment of earnings of the current and future periods
E.an adjustment of earnings of the current period, and an
adjustment to the ending balance of retained earnings for the
current period
Answer:
26) _____ items are depicted in words and numbers on the face of the
financial statements, with amounts included in the totals.
A.Recognized
B.Realized
C.Actualized
D.Objective
E.Relevant
Answer:
27) Under IFRS, assets and liabilities in the statement of financial
position appear in order of
A.decreasing closeness-to-cash
B.increasing closeness-to-cash
C.alphabetical order
D.numerical order
E.all of the above
Answer:
28) The FASBs conceptual framework does not include which of the
following as financial reporting objectives?
A.Provide information useful for making rational investment and
credit decisions
B.Provide information to help current and potential investors and
creditors assess the amount, timing, and uncertainty of future cash
flows
C.Provide information about the economic resources of a firm and
the claims on those resources
D.Provide information about a firms expected operating performance
during the next period
E.Provide information about how an enterprise obtains and uses cash
Answer:
29) The lower-of-cost-or-market basis results in reporting
A.unrealized holding losses on inventory items currently through
lower net income amounts
B.delays reporting unrealized holding gains until the firm sells
the goods
C.unrealized holding gains on inventory items currently through
higher net income amounts
D.a and b
E.none of the above
Answer:
30) Which of the following is true regarding the remeasurement of
inventories upward to an amount exceeding their acquisition
cost?
A.Acquisition cost leads to a more conservative measure of
inventories and net income during the periods prior to sale
B.An increase in the market value of inventory likely permits the
firm to raise its selling price
C.The firm realizes the benefit of that increase in the period of
sale when the firm actually obtains a higher selling price
D.Both U.S. GAAP and IFRS delay recognition of any increase in
inventory valuation in net income until the period of sale
E.all of the above
Answer:
31) A _____ connects two successive balance sheets because it explains
the change in cash from operating, financing, and investing
activities.
A.statement of cash receipts and disbursements
B.income statement
C.funds flow statement
D.statement of cash flows
E.statement of retained earnings
Answer:
32) U.S. GAAP and IFRS aid the investors analysis process by requiring
firms to classify income transactions in particular ways in the
financial statements which include
A.Recurring versus nonrecurring
B.Central versus peripheral
C.Unrealized versus realized gains and losses from changes in the
fair values of assets and liabilities
D.Adjustments for errors and changes in accounting principles and
accounting estimates
E.all of the above
Answer:
33) Columbia Manufacturing Corp. purchased a new lathe machine for its
baseball bat manufacturing plant on January 1. The machine cost
$12,000 and is expected to be used in production for 4 years at
which time its estimated salvage value will be $2,000. The yearly
straight-line depreciation for this asset would be
A.$2,500
B.$3,000
C.$4,000
D.$12,000
E.$9,500
Answer:
34) Which of the following is/are true regarding the T-account?
A.Actual practice does not use this form of the account, except
perhaps for memoranda or preliminary analyses
B.looks like the letter T, with a horizontal line bisected by a
vertical line
C.satisfies the requirement of an account and is easy to use
D.all of the above
E.none of the above
Answer:
35) Which of the following is not true?
A.Acquisition cost for a merchandising firm includes the costs
incurred to purchase and transport the inventory prior to sale
B.Acquisition cost for a manufacturing firm includes the direct
material, direct labor, and manufacturing overhead cost to produce
the inventory
C.If the market values of inventory items decline below acquisition
cost prior to sale, firms must reduce their balance sheet carrying
values using the lower of cost or market method
D.U.S. GAAP uses a combination of replacement cost and net
realizable values to measure market value
E.U.S. GAAP and IFRS permits firms to remeasure inventories upward
when market value exceeds acquisition cost
Answer:
36) An accounting issue for accounts receivable is measurement of the
amount on the balance sheet. With regard to measurement, both U.S.
GAAP and IFRS require that sellers report accounts receivable
_____.
A.the amount that all customers have agreed to pay
B.at the present value of future cash flows
C.net of the estimated uncollectible amount
D.at the future value of present cash flows
E.plus the estimated uncollectible amount
Answer:
37) Firms that reduce the price charged to a customer after the firm
has delivered the goods and the customer has found them to be
unsatisfactory or damaged issue a
A.sales return
B.sales allowance
C.sales discount
D.sales factor
E.sales price reduction
Answer:
38) An investor can easily ascertain the _____ of common equity for a
given publicly traded firm by looking up the most recent share
price (as reported in various online services) and then multiplying
this share price times the number of common shares outstanding, as
reported on the balance sheet.
A.market value
B.state value
C.par value
D.nominal value
E.liquidation value
Answer:
39) Modern, an electric utility, reports the following information
about its income taxes for three recent years (amounts in
millions):
Components of Income Tax Expense 2015 2014
2013
Currently Payable . . . . . . . . . . . . . . . . . . . . . $ 46
$415 $ (96)
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . .
344 (74) 368
Total Income Tax Expense . . . . . . . . . . . . . . . $390 $341 $
272
a. Give the journal entries to record income tax expense for 2013,
2014, and 2015.
b. Describe the likely reasons for the pattern of taxes currently
payable and deferred for each year. Assume that deferred taxes
relate primarily to depreciation temporary differences. The
effective tax rate was relatively stable for the three years.
Answer:
40) The _____ convention, links the timing of some expenses with
revenue recognition.
A.going concern
B.conservatism
C.matching
D.materiality
E.objectivity
Answer:
41) Power Corporation acquires 30% of the outstanding voting common
shares of the Inroad Corporation for $600,000. Power Corporation
acquires the investment in Inroad Corporation by buying previously
issued shares of Inroad Corporation from other investors.
Power Corporation records income earned by Inroad Corporation as
a(n) _____, while the dividend _____, and _____ account.
A.increase in investment; returns part of the investment; decreases
the Investment in Stock of Inroad Corporation
B.increase investment revenue; returns part of the investment;
decreases the Investment in Stock of Inroad Corporation
C.increase investment revenue; decreases investment revenue;
increases the Investment in Stock of Inroad Corporation
D.decrease in investment; returns part of the investment; increases
the Investment in Stock of Inroad Corporation
E.decrease in investment; decreases investment revenue; increases
the Investment in Stock of Inroad Corporation
Answer:
42) The income statement and statement of cash flows provide
information about the _____, respectively, of a firm during a
period.
A.asset and equity position at a moment in time and
profitability
B.asset and equity position at a moment in time and liquidity
C.liquidity and profitability
D.profitability and liquidity
E.none of the above
Answer:
43) Under both U.S. GAAP and IFRS, nonmonetary transactions do not
appear in the statement of cash flows as investing or financing
activities, because they do not help in explaining the change in
cash. Firms must disclose nonmonetary investing and financing
activities in _____.
A.the body of the statement of cash flows, only
B.a separate schedule, only
C.a note, only
D.the body of the statement of cash flows, in a separate schedule,
or in a note
E.none of the above
Answer:
44) Which of the following is/are true regarding the accounting for
defined contribution plans?
A.When pension assets equal pension liabilities and the expected
rate of return on pension investments equals the discount rate used
to compute the projected benefit obligation, the amounts offset
each other
B.When the interest cost exceeds the expected return on pension
investments, either employer contributions or future earnings on
pension plan investments must make up the difference
C.Computing pension expense (or credit) using the expected return
(not the actual return) rests on the view that pension plans should
take a long-term perspective and generate earnings from investments
based on a long-term expected rate of return
D.Annual deviations from the long-term expected rate of return
should not flow through to net income as they occur
E.all of the above
Answer:
45) Which of the following is not true regarding long-lived assets with
a finite life?
A.The firm consumes the assets services over time in generating
revenues
B.The balance sheet carrying value decreases over time as the firm
recognizes the cost of the asset as an expense
C.A portion of the acquisition cost is recognized as an expense
each period
D.Management must estimate the assets finite life
E.Remains on the balance sheet at net realizable value (unless an
asset impairment occurs)
Answer:
46) For many technology and pharmaceutical firms:
A.a large portion of their value to an acquirer might relate to
in-process research and development (IPR&D)
B.in-process research and development (IPR&D) acquired in a
business combination that meets the separability criterion as an
asset is recognized and measured initially at fair value
C.The firm that developed the in-process research and development
(IPR&D) expensed the costs as they were incurred
D.all of the above
E.none of the above
Answer:
47) Explain the difference between inventories for a retailer versus a
manufacturer.
Answer:
48) Hemd Company has liabilities equal to one fourth of the total
assets. Hemds shareholdersequity is 60,000. Using the accounting
equation, what is the amount of liabilities for Hemd?
Answer: