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1) Which of the following statements is false? a.The factor for the future value of an annuity due is found by multiplying the ordinary annuity table value by one plus the interest rate b.The factor for the present value of […]

1) Special assessments for local improvements such as street lights and sewers should be accounted for as land improvements. 2) When capitalizing interest during construction of an asset, an imputed interest cost on stock financing must be included. Answer: False […]

1) Companies should consider both positive and negative evidence to determine whether it needs to record a valuation allowance to reduce a deferred tax asset. 2) Use of LIFO provides a tax benefit in an industry where unit costs tend […]

1) IFRS requires that Company A consolidate Company B when it controls and owns at least 50% of Company B. 2) The provision for a loss on an unprofitable contract may be combined with the Construction in Process account balance […]

1) On January 1, 2011, Russell Company purchased a copyright for $1,500,000, having an estimated useful life of 16 years. In January 2015, Russell paid $225,000 for legal fees in a successful defense of the copyright. Copyright amortization expense for […]

1) Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of the a.economic entity assumption b.relevance characteristic c.comparability characteristic d.neutrality characteristic 2) Beeman Company exchanged machinery with an appraised value of $3,510,000, a recorded cost of […]

1) On January 1, 2015, Morris Company sells land to Lopez Corporation for $8,000,000, and immediately leases the land back. The following information relates to this transaction: 1>The term of the noncancelable lease is 20 years and the title transfers […]

1) Which of the following post-balance-sheet events would generally require disclosure, but no adjustment of the financial statements? a.Retirement of the company president b.Settlement of litigation when the event that gave rise to the litigation occurred prior to the balance […]

1) As in U.S. GAAP, under IFRS the costs associated with research and development are segregated into two components. 2) Companies report the cash flows from purchases and sales of trading securities as cash flows from operating activities. Answer: True […]

1) Under IFRS recording for the issuance of Bonds Payable, the Discount on Bonds Payable and the Paid-in Capital-Convertible Bonds could be utilized. 2) When a company has a complex capital structure, it must report both basic and diluted earnings […]

1) A modified perpetual inventory system provides detailed inventory records of increases and decreases in quantities only-not dollar amounts. 2) Under IAS 37 and the establishment of estimate provisions, discounting is required where the time value of money is material. […]

1) Opera Corp. uses the dollar-value LIFO method of computing its inventory cost. Data for the past three years is as follows: Year endedInventory atPrice December 31End-of-year PricesIndex 2013 $390,0001.00 2014756,0001.05 2015810,0001.10 What is the 2013 inventory balance using dollar-value […]

1) Changes in estimates are handled prospectively by dividing the assets book value less any salvage value by the remaining estimated life. 2) A company excludes from the current assets section, the amount of cash restricted for purposes other than […]

1) The interest rate written in the terms of the bond indenture is known as the a.coupon rate b.nominal rate c.stated rate d.coupon rate, nominal rate, or stated rate 2) On January 1, 2015, Yancey, Inc. signs a 10-year noncancelable […]

1) Use the code letters listed below (a l) to indicate, for each balance sheet item ( 1 13 ) listed below the usual valuation reported on the balance sheet. 1>Common stock8>Long-term bonds payable 2>Prepaid insurance9>Land (in use) 3>Natural resources10>Land […]

1) The following differences enter into the reconciliation of financial income and taxable income of Abbott Company for the year ended December 31, 2014, its first year of operations. The enacted income tax rate is 30% for all years. Pretax […]

1) Sawyer Furniture Company concluded its first year of operations in which it made sales of $900,000, all on installment. Collections during the year from down payments and installments totaled $300,000. Purchases for the year totaled $710,000; the cost of […]

1) Muggs Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes cost Muggs $3 each. Muggs estimates that 45 percent of the coupons will be redeemed. […]

1) Torrey Co. manufactures equipment that is sold or leased. On December 31, 2015, Torrey leased equipment to Dalton for a five-year period ending December 31, 2020, at which date ownership of the leased asset will be transferred to Dalton. […]

1) Buerhle Company needs to determine if its indefinite-life intangibles other than goodwill have been impaired and should be reduced or written off on its balance sheet. The impairment test(s) to be used is (are) Recoverability TestFair Value Test a.YesYes […]

1) The following information is available for Naab Company for 2014: Freight-in$ 30,000 Purchase returns75,000 Selling expenses230,000 Ending inventory260,000 The cost of goods sold is equal to 400% of selling expenses. What is the cost of goods available for sale? […]

1) The following information relates to the pension plan for the employees of Turner Co.: 1/1/14 12/31/14 12/31/15 Accum. benefit obligation$6,160,000$6,440,000$8,400,000 Projected benefit obligation6,510,0006,972,0009,338,000 Fair value of plan assets5,950,0007,280,0008,036,000 AOCI – net (gain) or loss-0-(1,008,000)(1,120,000) Settlement rate (for year)11%11% Expected […]

1) The primary IFRS related to property, plant and equipment is found in a.IAS 1 and IAS 34 b.IAS 11 and IAS 17 c.IAS 16 and IAS 23 d.IAS 27 and IAS 39 2) In order to properly record a […]

1) When preparing a statement of cash flows, an increase in accounts payable during a period would require which of the following adjustments in determining cash flows from operating activities? Indirect MethodDirect Method a.IncreaseDecrease b.DecreaseIncrease c.IncreaseIncrease d.DecreaseDecrease 2) Spencer Corporation […]

1) On January 1, 2014, Garrett Company purchased a machine costing $250,000. The machine is in the MACRS 5-year recovery class for tax purposes and has an estimated $50,000 salvage value at the end of its economic life. Assuming the […]

1) Fogelberg Company purchased equipment for $25,000. Sales tax on the purchase was $1,500. Other costs incurred were freight charges of $400, repairs of $700 for damage during installation, and installation costs of $450. What is the cost of the […]

1) “In-substance defeasance” is a term used to refer to an arrangement whereby a.a company gets another company to cover its payments due on long-term debt b.a governmental unit issues debt instruments to corporations c.a company provides for the future […]

1) A company gives each of its 50 employees ( assume they were all employed continuously through 2014 and 2015 ) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates […]

1) An electronics store is running a promotion where for every video game purchased, the customer receives a coupon upon checkout to purchase a second game at a 50% discount. The coupons expire in one year. The store normally recognized […]

1) A corporation was organized in January 2014 with authorized capital of $10 par value common stock. On February 1, 2014, shares were issued at par for cash. On March 1, 2014, the corporation’s attorney accepted 7,000 shares of common […]

1) Under IFRS, impairment charges related to held-for-collection debt securities may be reversed. 2) If a company fails to post one of its journal entries to its general ledger, the trial balance will not show an equal amount of debit […]

1) If preferred stock is cumulative and no dividends are declared, the company subtracts the current year preferred dividend in computing earnings per share. 2) The recording of convertible bonds at the date of issue is the same as the […]

1) Geary Co. assigned $800,000 of accounts receivable to Kwik Finance Co. as security for a loan of $670,000. Kwik charged a 2% commission on the amount of the loan; the interest rate on the note was 10%. During the […]

1) If two annuities have the same number of rents with the same dollar amount, but one is an annuity due and one is an ordinary annuity, the present value of the annuity due will be greater than the present […]

1) Didde Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative. The adjusted trial balance at December 31, 2014 included the following expense and loss accounts: Accounting and legal fees$210,000 Advertising290,000 Freight-out120,000 Interest105,000 Loss on […]

1) The basic accounting concept that refers to the tendency of accountants to resolve uncertainty in favor of understating assets and revenues and overstating liabilities and expenses is known as a.prudence or conservatism b.the materiality concept c.the substance over form […]

1) Rowen, Inc. had pre-tax accounting income of $1,800,000 and a tax rate of 40% in 2015, its first year of operations. During 2015 the company had the following transactions: At the end of 2015, which of the following deferred […]

1) Ringler Corporation exchanges one plant asset for a similar plant asset and gives cash in the exchange. The exchange is not expected to cause a material change in the future cash flows for either entity. If a gain on […]

1) Mitchell Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2015$ 900,000 Tax exempt interest(75,000) Originating temporary difference (175,000) Taxable income$650,000 The temporary difference will reverse evenly over the next two years at […]

1) The lessor will recover a greater net investment if the residual value is guaranteed instead of unguaranteed. 2) The preemptive right allows stockholders the right to vote for directors of the company. Answer: False 3) Unlike U.S. GAAP, interest […]

1) Similar to U.S. GAAP, certain agricultural products and mineral products can be reported at net realizable value using IFRS. 2) The monetary unit assumption is a part of GAAP, but not IFRS. Answer: False 3) A strength of the […]

1) The Pension Asset / Liability account balance equals the difference between the projected benefit obligation and the fair value of pension plan assets. 2) If the Accumulated Other Comprehensive Income (G/L) account is less than the corridor, the net […]

1) When numerous adjustments are necessary, companies often use a cash flow worksheet instead of preparing a statement of cash flows. 2) When a company amends its defined benefit plan, and recognizes prior service, the projected benefit obligation is increased […]

1) Companies value and report short-term receivables at net realizable valuethe net amount they expect to receive in cash. 2) The average days to sell inventory represents the average number of days sales for which a company has inventory on […]

1) Under IFRS, assets that qualify for interest capitalization are assets that are in use or ready for their intended use. 2) The SEC makes it mandatory for companies to disclose their dividend policy in their annual report. Answer: False […]

1) Adjustments are often prepared a.after the balance sheet date, but dated as of the balance sheet date b.after the balance sheet date, and dated after the balance sheet date c.before the balance sheet date, and dated before the balance […]

1) Companies account for a change in depreciation methods as a change in accounting principle. 2) One purpose of a trial balance is to prove that debits and credits are equal in the general ledger. Answer: True 3) The three […]

1) LIFO liquidations can occur frequently when using a specific-goods LIFO approach. 2) Under IFRS, there is no specific standard related to pledging receivables. Answer: True 3) In all cases when FIFO is used, the cost of goods sold would […]

1) The first step in the preparation of the statement of cash flows is to determine the net cash flow from operating activities. 2) Compound interest, rather than simple interest, must be used to properly evaluate long- term investment proposals. […]

1) What is a purpose of having a conceptual framework? a.To enable the profession to more quickly solve emerging practical problems b.To provide a foundation from which to build more useful standards c.Neither a nor b d.To enable the profession […]

1) Bond issue costs are capitalized as a deferred charge and amortized to expense over the life of the bond issue. 2) Comprehensive income includes all changes in equity during a period except those resulting from distributions to owners. Answer: […]

1) Craig borrowed $350,000 on October 1, 2014 and is required to pay $360,000 on March 1, 2015 . What amount is the note payable recorded at on October 1, 2014 and how much interest is recognized from October 1 […]

1) Under IFRS, a deferred tax liability is classified as current or noncurrent based on the classification of the asset or liability to which it relates. 2) A benefit of leasing to the lessor is the return of the leased […]

1) Even though IFRS does not employ the first-stage recoverability test used under U.S. GAAP – comparing the undiscounted cash flows to the carrying amount, the fact that IFRS uses a fair value test to measure impairment loss makes IFRS […]

1) Which of the following criteria must be met before an event or item should be recorded for accounting purposes? a.The event or item can be measured objectively in financial terms b.The event or item is relevant and reliable c.The […]

1) Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of $172,076, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The […]

1) Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2015 and 2014 contained errors as follows: 20152014 Ending inventory$6,000 overstated$16,000 overstated Depreciation expense$4,000 understated$12,000 overstated Assume that no correcting entries were made at December 31, 2014 […]

1) A ten-year bond was issued in 2013 at a discount with a call provision to retire the bonds. When the bond issuer exercised the call provision on an interest date in 2015, the carrying amount of the bond was […]

1) Under IFRS, employee share-purchase plans must be recorded as an expense in the year it was issued by a company. 2) For counterbalancing errors, restatement of comparative financial statements is necessary even if a correcting entry is not required. […]

1) Where must earnings per share be disclosed in the financial statements to satisfy generally accepted accounting principles? a.On the face of the statement of retained earnings (or, statement of stockholders’ equity) b.In the footnotes to the financial statements c.On […]

1) Sawyer Corporation has a machine (Machine A) that it acquired on 1/1/14 for $540,000. On 12/31/14 such machines have a selling price and fair value of $621,000. When used in production, such machines have an estimated useful life of […]

1) Fill in the appropriate blanks for each of the independent situations below. Company A Company B Company C Sales revenue(a) $_______$343,400$540,000 Beginning inventory52,600(d) _______90,000 Net purchases195,300255,600(g) _______ Ending inventory52,200108,00063,000 Cost of goods sold(b) _______(e) _______427,000 Gross profit75,300118,000(h) _______ Operating […]

1) Renfro Corporation will invest $70,000 every December 31st for the next six years (2014 2019). If Renfro will earn 12% on the investment, what amount will be in the investment fund on December 31, 2019? a.$287,798 b.$322,336 c.$568,063 d.$636,230 […]

1) Total stockholders equity consists of common stock and the earnings retained in the business. 2) As with U.S. GAAP, IFRS requires that both direct and indirect costs in self-constructed assets be capitalized. Answer: False 3) Because of the historical […]

1) IFRS permits some capitalization of internally generated intangible assets, if it is probable there will be a future benefit and the amount can be readily measured. 2) The payout ratio is determined by dividing cash dividends paid to common […]

1) Which of the following statements is not true of fair value option? a.Receivables are recorded at fair value in the financial statements b.Unrealized holding gains and losses from fair value adjustments are reported as a component of comprehensive income […]

1) A depreciable asset has an estimated 15% salvage value. At the end of its estimated useful life, the accumulated depreciation would equal the original cost of the asset under which of the following depreciation methods? Straight-lineProductive Output a.YesNo b.YesYes […]

1) What is the effect of freight-in on the cost-to-retail ratio when using the conventional retail method? a.Increases the cost-to-retail ratio b.No effect on the cost-to-retail ratio c.Depends on the amount of the net markups d.Decreases the cost-to-retail ratio 2) […]

1) Which of the following should be reported for capital stock? a.The shares authorized b.The shares issued c.The shares outstanding d.All of these answer choices are correct 2) What condition is not necessary in order to use the retail method […]

1) Link Co. purchased machinery that cost $1,800,000 on January 4, 2013 . The entire cost was recorded as an expense. The machinery has a nine-year life and a $120,000 residual value. The error was discovered on December 20, 2015 […]

1) When revenue or expense has been recognized or incurred but not yet collected or paid, it is normally called a(n) ____________ revenue or expense. a.deferred b.adjusted c.estimated d.None of these answer choices are correct 2) Which of the following […]

1) Platteville Corporation has the following account balances at 12/31/15: Amortization expense$ 20,000 Goodwill280,000 Patent, net of $60,000 amortization140,000 What amount should Platteville report for intangible assets on the 12/31/12 balance sheet? a.$140,000 b.$200,000 c.$420,000 d.$440,000 2) The following information […]

1) Qualified pension plans permit deductibility of the employers contributions to the pension fund. 2) Companies record corrections of errors from prior periods as an adjustment to the beginning balance of retained earnings in the current period. Answer: True 3) […]

1) In the time diagram below, which concept is being depicted? a.Present value of an ordinary annuity b.Present value of an annuity due c.Future value of an ordinary annuity d.Future value of an annuity due 2) To compute interest expense […]

1) The number of compounding periods will always be one less than the number of rents when computing the future value of an ordinary annuity. 2) Under both IFRS and U.S. GAAP, interest costs incurred during construction must be capitalized. […]

1) At the beginning of 2015, Flaherty Company had retained earnings of $350,000. During the year Flaherty reported net income of $100,000, sold treasury stock at a gain of $36,000, declared a cash dividend of $60,000, and declared and issued […]

1) Parker Corporation has issued 2,000 shares of common stock and 400 shares of preferred stock for a lump sum of $74,000 cash. Instructions (a)Give the entry for the issuance assuming the par value of the common stock was $5 […]

1) Pretax financial income is the amount used to compute income taxes payable. 2) All long-term debt maturing within the next year must be classified as a current liability on the balance sheet. Answer: True 3) If the loss on […]

1) Jane wants to set aside funds to take an around the world cruise in four years. Jane expects that she will need $12,000 for her dream vacation. If she is able to earn 8% per annum on an investment, […]

1) In computing the annual lease payments, the lessor deducts only a guaranteed residual value from the fair value of a leased asset. 2) Prior service cost is amortized into income over the expected service lives of employees under both […]

1) In November and December 2014, Lane Co., a newly organized magazine publisher, received $60,000 for 1,000 three-year subscriptions at $20 per year, starting with the January 2015 issue. Lane included the entire $60,000 in its 2014 income tax return. […]

1) Supplementary information may include details or amounts that present a different perspective from that adopted in the financial statements. 2) A company that reports a discontinued operation or an extraordinary item must report per share amounts for these items. […]

1) Which of the following is a current liability? a.Preferred dividends in arrears b.A dividend payable in the form of additional shares of stock c.A cash dividend payable to preferred stockholders d.All of these answers are correct 2) Which of […]

1) At December 31, 2014, Emley Company had 1,200,000 shares of common stock outstanding. On October 1, 2015, an additional 400,000 shares of common stock were issued. In addition, Emley had $10,000,000 of 6% convertible bonds outstanding at December 31, […]

1) ill in the dollar changes caused in the Investment account and Dividend Revenue or Investment Revenue account by each of the following transactions, assuming Crane Company uses (a) the fair value method and (b) the equity method for accounting […]

1) On September 1, Horton purchased $13,300 of inventory items on credit with the terms 1/15, net 30, FOB destination. Freight charges were $280. Payment for the purchase was made on September 18 . Assuming Horton uses the perpetual inventory […]

1) Companies classify some cash flows relating to investing or financing activities as operating activities. 2) Prepaid insurance should be included in the numerator when computing the acid-test (quick) ratio. Answer: False 3) Employers are at risk with defined-benefit plans […]

1) In a period of rising prices, the inventory method which tends to give the highest reported inventory is a.FIFO b.moving average c.LIFO d.weighted-average 2) Company A issuing its annual financial reports within one month of the end of the […]

1) Companies should accrue an estimated loss from a loss contingency if information available prior to the issuance of financial statements indicates that it is reasonably possible that a liability has been incurred. 2) Companies must recognize the entire expected […]

1) The LIFO retail method assumes that markups and markdowns apply only to the goods purchased during the period. 2) Income from an investment in common stock using the equity method is added to net income in computing net cash […]

1) Which of the following statements is true about postretirement health care benefits? a.They are generally funded b.The benefits are well-defined and level in dollar amount c.The beneficiary is the retiree, spouse, and other dependents d.The benefit is payable monthly […]

1) In determining diluted earnings per share, dividends on nonconvertible cumulative preferred stock should be a.disregarded b.added back to net income whether declared or not c.deducted from net income only if declared d.deducted from net income whether declared or not […]

1) Discount on Notes Payable is a contra account to Notes Payable on the balance sheet. 2) The distinction between a direct-financing lease and a sales-type lease is the presence or absence of a transfer of title. Answer: False 3) […]

1) On January 1, 2014, Huff Co. sold $4,000,000 of its 10% bonds for $3,541,184 to yield 12%. Interest is payable semiannually on January 1 and July 1 . What amount should Huff report as interest expense for the six […]

1) Which of the following is a reason for recasting prior financial statements based on IFRS? a.To increase the market value of a companys shares b.To report a high income for attracting investors c.To report a low taxable income reducing […]

1) In which account are postage stamps classified? a.Cash b.Office supplies c.Receivables d.Inventory 2) Marsh Co. had 2,400,000 shares of common stock outstanding on January 1 and December 31, 2015 . In connection with the acquisition of a subsidiary company […]

1) Terry Company is unable to reliably estimate revenues and costs associated with its only long-term construction contract. Under IFRS, Terry Company must use the completed-contract method to account for this contract. 2) Noncash investing and financing activities are disclosed […]

1) For the year ended December 31, 2014, Transformers Inc. reported the following: Net income$180,000 Preferred dividends declared30,000 Common dividend declared6,000 Unrealized holding loss, net of tax3,000 Retained earnings240,000 Common stock120,000 Accumulated Other Comprehensive Income, Beginning Balance15,000 What would Transformers […]

1) Which of the following is true of accounting for changes in estimates? a.A company recognizes a change in estimate by making a retrospective adjustment to the financial statements b.A company accounts for changes in estimates only in the period […]

1) On December 31, 2015 Dean Company changed its method of accounting for inventory from weighted average cost method to the FIFO method. This change caused the 2015 beginning inventory to increase by $840,000. The cumulative effect of this accounting […]

1) A machine cost $600,000, has annual depreciation of $100,000, and has accumulated depreciation of $450,000 on December 31, 2014 . On April 1, 2015, when the machine has a fair value of $137,500, it is exchanged for a machine […]

1) A journal entry to record a receipt of rent in advance will include a a.debit to Rent Revenue b.credit to Rent Revenue c.credit to Cash d.credit to Unearned Revenue 2) For each of the items listed below, indicate how […]

1) Purchased goodwill represents a.excess of price paid over fair value of net assets obtained in a combination b.excess of price paid over the book value of the net assets obtained in a combination c.the difference in the aggregate amount […]

1) Under IFRS, interest revenue earned on specific borrowings for qualifying assets a.reduces the cost of the qualifying asset b.reduces interest expense reported on the income statement c.increases equity in the period earned d.increases the cost of the qualifying asset […]

1) On October 1, 2014 Macklin Corporation issued 5%, 10-year bonds with a face value of $4,000,000 at 104 . Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. Bond […]

1) Deductible amounts cause taxable income to be greater than pretax financial income in the future as a result of existing temporary differences. 2) Cash receipts from customers are computed by adding a decrease in accounts receivable to revenue from […]

1) Dividends representing a return of capital to stockholders are not uncommon among companies which a.use accelerated depreciation methods b.use straight-line depreciation methods c.recognize both functional and physical factors in depreciation d.none of these answers are correct 2) Which of […]

1) If a unit of inventory has declined in value below original cost, but the market value exceeds net realizable value, the amount to be used for purposes of inventory valuation is a.net realizable value b.original cost c.market value d.net […]

1) Instrument Corporation has the following investments which were held throughout 2014-2015: Fair Value Cost 12/31/1412/31/15 Trading$600,000$800,000$760,000 Available-for-sale 600,000 640,000 720,000 What amount of gain or loss would Instrument Corporation report in its income statement for the year ended December […]

1) When a company discontinues an operation and disposes of the discontinued operation (component), the transaction should be included in the income statement as a gain or loss on disposal reported as a.a prior period adjustment b.an extraordinary item c.an […]

1) On January 1, 2014, Trent Company granted Dick Williams, an employee, an option to buy 400 shares of Trent Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value […]

1) Which of the following relates to both relevance and faithful representation? a.Cost constraint b.Predictive value c.Verifiability d.Neutrality 2) A trial balance a.proves that debits and credits are equal in the ledger b.supplies a listing of open accounts and their […]

1) The interest rate of variable-rate mortgages is tied to changes in the fluctuating market rate. 2) One significant difference between a balance sheet prepared using IFRS rather than U.S. GAAP is that long-term tangible assets may be reported at […]

1) Savings accounts are usually classified as cash on the balance sheet. 2) IFRS allows for reduced disclosure of contingent liabilities if the disclosure could increase the company`s chance of losing a lawsuit. Answer: False 3) Comprehensive income includes all […]

1) If, at the end of a period, a company erroneously excluded some goods from its ending inventory and also erroneously did not record the purchase of these goods in its accounting records, these errors would cause a.the ending inventory […]

1) Farmer Company issues $25,000,000 of 10-year, 9% bonds on March 1, 2014 at 97 plus accrued interest. The bonds are dated January 1, 2014, and pay interest on June 30 and December 31 . What is the total cash […]

1) IFRS and U.S. IFRS are very similar in accounting for cash and receivables. 2) The number of financial statement elements in the IFRS conceptual framework is equal to those in GAAP. Answer: False 3) Preferred dividends are subtracted from […]

1) The accounting profession has concluded that an investment of more than 50 percent of the voting stock of an investee should lead to a presumption of significant influence over an investee. 2) Companies should report accounting transactions as they […]

1) The declining-balance method does not deduct the salvage value in computing the depreciation base. 2) Stock splits and large stock dividends have the same effect on a companys retained earnings and total stockholders equity. Answer: False 3) A markup […]

1) Wynne Inc. charges an initial franchise fee of $1,840,000, with $400,000 paid when the agreement is signed and the balance in five annual payments. The present value of the future payments, discounted at 10%, is $1,091,744. The franchisee has […]

1) Companies should recognize the entire increase in projected benefit obligation due to a plan initiation or amendment as pension expense in the year of amendment. 2) The most popular input measure used to determine the progress toward completion in […]

1) If a company uses the periodic inventory system, what is the impact on the current ratio of including goods in transit f.o.b. shipping point in purchases, but not ending inventory? a.Overstate the current ratio b.Understate the current ratio c.No […]

1) A statement of cash flows prepared according to IFRS requirements must be prepared using the direct method for operating activities. 2) Revenues are realized when a company exchanges goods and services for cash or claims to cash. Answer: True […]

1) A company offers a cash rebate of $1 on each $4 package of light bulbs sold during 2014 . Historically, 10% of customers mail in the rebate form. During 2014, 3,000,000 packages of light bulbs are sold, and 160,000 […]

1) The book value of any depreciable asset is the difference between its cost and its salvage value. 2) The future value of an ordinary annuity table is used when payments are invested at the beginning of each period. Answer: […]

1) Sun Inc assigns $3,000,000 of its accounts receivables as collateral for a $1 million 8% loan with a bank. Sun Inc. also pays a finance fee of 1% on the transaction upfront. What would be recorded as a gain […]

1) Which of the following is not a difference between the accounting treatment for depreciation and cost depletion? a.Depletion applies to natural resources while depreciation applies to plant and equipment b.Depletion refers to the physical exhaustion or consumption of the […]

1) When the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues, revenues are considered a.earned b.realized c.recognized d.All of these answers are correct 2) Midland Company follows U.S. GAAP for […]

1) The summarized balance sheets of Goebel Company and Dobbs Company as of December 31, 2014 are as follows: Goebel Company Balance Sheet December 31, 2014 Assets$1,200,000 Liabilities$ 150,000 Capital stock600,000 Retained earnings 450,000 Total equities$1,200,000 Dobbs Company Balance Sheet […]

1) If market value of an impaired asset recovers after an impairment has been recognized, the impairment may be reversed in a subsequent period. 2) Both IFRS and U.S. GAAP allow for comprehensive income to be reported in either a […]

1) An employer does not have to report a liability on its balance sheet in a defined-benefit plan. 2) Companies must consider presently enacted changes in the tax rate that become effective in future years when determining the tax rate […]

1) A sale should not be recognized as revenue by the seller at the time of sale if a.payment was made by check b.the selling price is less than the normal selling price c.the buyer has a right to return […]

1) Moorman Corporation reports the following information: Correction of understatement of depreciation expense in prior years, net of tax$ 860,000 Dividends declared640,000 Net income2,000,000 Retained earnings, 1/1/14, as reported4,000,000 Moorman should report retained earnings, 12/31/14, as adjusted at a.$3,140,000 b.$4,500,000 […]

1) Cost estimates at the end of the second year indicate that a loss will result on completion of the entire contract. Which of the following statements is correct? a.Under the completed-contract method, the loss is not recognized until the […]

1) The principal advantage of the completed-contract method is that reported revenue reflects final results rather than estimates. 2) Unrealized holding gains and losses are recognized in net income for available-for-sale debt securities. Answer: False 3) One requirement related to […]

1) On January 1, 2008, Forrest Company purchased equipment at a cost of $130,000. The equipment was estimated to have a salvage value of $4,000 and it is being depreciated over eight years under the sum-of-the-years’-digits method. What should be […]

1) Continuing franchise fees should be recorded by the franchisor a.as revenue when earned and receivable from the franchisee b.as revenue when received c.in accordance with the accounting procedures specified in the franchise agreement d.as revenue only after the balance […]

1) Risers Inc. reported total assets of $1,800,000 and net income of $240,000 for the current year. Risers determined that inventory was overstated by $18,000 at the beginning of the year (this was not corrected). What is the corrected amount […]

1) Characteristics of generally accepted accounting principles include all of the following except a.authoritative accounting that the rule-making body has established as a principle of reporting b.standards are considered useful by the profession c.each principle is approved by the SEC […]

1) At December 31, 2014 and 2015, Plank Corp. had outstanding 4,000 shares of $100 par value 8% cumulative preferred stock and 20,000 shares of $10 par value common stock. At December 31, 2014, dividends in arrears on the preferred […]

1) What would be an advantage of having all countries adopt and follow the same accounting standards? a.Agreement b.Comparability c.Lower preparation costs d.Comparability and lower preparation costs 2) Which of the following is not one of the basic questions that […]

1) Munoz Corp.’s books showed pretax financial income of $2,700,000 for the year ended December 31, 2015 . In the computation of federal income taxes, the following data were considered: Gain on an involuntary conversion$1,170,000 (Munoz has elected to replace […]

1) The use of a Purchase Discounts Lost account implies that the recorded cost of a purchased inventory item is its a.invoice price b.invoice price plus the purchase discount lost c.invoice price less the purchase discount taken d.invoice price less […]

1) Hubbard, Inc. received the following information from its pension plan trustee concerning the operation of the company’s defined-benefit pension plan for the year ended December 31, 2015 . 1/1/1512/31/15 Projected benefit obligation$11,400,000$11,760,000 Pension assets (at fair value) 6,000,0006,900,000 Accumulated […]

1) Which of the following methods of determining bad debt expense does not properly match expense and revenue? a.Charging bad debts with a percentage of sales under the allowance method b.Charging bad debts with an amount derived from a percentage […]

1) Below is a list of items. Classify each into one of the following balance sheet categories: a.Cashc.Short-term Investments b.Receivablesd.Other 1>Compensating balances held in long-term borrowing arrangements 2>Savings account 3>Trust fund 4>Checking account 5>Postage stamps 6>Treasury bills maturing in six […]

1) Stinson Corporation owned 30,000 shares of Matile Corporation. These shares were purchased in 2011 for $270,000. On November 15, 2015, Stinson declared a property dividend of one share of Matile for every ten shares of Stinson held by a […]

1) Jerome Co. has the following deferred tax liabilities at December 31, 2014: What amount would Jerome Co. report as a noncurrent deferred tax liability under IFRS and under U.S. GAAP? IFRSU.S. GAAP a.$0$450,000 b.$540,000$350,000 c.$350,000$350,000 d.$540,000$540,000 2) Rogers Co. […]

1) An expenditure made in connection with a machine being used by an enterprise should be a.expensed immediately if it merely extends the useful life but does not improve the quality b.expensed immediately if it merely improves the quality but […]

1) Because IFRS is very general in its provisions for lease accounting, the required disclosures for leases under IFRS are more detailed and extensive than those required under U.S. GAAP. 2) Under IFRS, both the investor and the investee should […]

1) Companies should recognize the expense and related liability for compensated absences in the year earned by employees. 2) It is unlikely that the basic concepts related to the existing conceptual framework will change. Answer: True 3) The Construction in […]

1) Brown Corporation earns $480,000 and pays cash dividends of $160,000 during 2014 . Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown. What amount should Dexter show in the investment account at December 31, 2014 if the […]

1) In 2014, Esther Corporation reported net income of $600,000. It declared and paid preferred stock dividends of $150,000 and common stock dividends of $60,000. During 2014, Esther had a weighted average of 250,000 common shares outstanding. Compute Esther’s 2014 […]

1) Which of the following facts concerning fixed assets should be included in the summary of significant accounting policies? Depreciation MethodComposition a.NoYes b.YesYes c.YesNo d.NoNo 2) The various classifications listed below have been used in the past by Maris Company […]

1) Franco Company uses IFRS and owns property, plant and equipment with a historical cost of 5,000,000 euros. At December 31, 2013, the company reported a valuation reserve of 8,565,000 euros. At December 31, 2014, the property, plant and equipment […]

1) When the stated rate of interest exceeds the effective rate, the present value of the note receivable will be less than its face value. 2) In most situations, an auditor issues a qualified opinion or disclaims an opinion. Answer: […]

1) Asset revaluations are permitted under IFRS and U.S. GAAP. 2) Dollar-value LIFO techniques help protect LIFO layers from erosion. Answer: True[/cpmembership] 3) Financial statement readers often assess liquidity by using the current cash debt coverage. Answer: True[/cpmembership] 4) According […]

1) Perez Company’s net accounts receivable were $800,000 at December 31, 2014 and $880,000 at December 31, 2015 . Net cash sales for 2015 were $520,000. The accounts receivable turnover for 2015 was 8.0. What were Perez’s total net sales […]

1) Mays, Inc. had net income for 2014 of $1,060,000 and earnings per share on common stock of $5. Included in the net income was $150,000 of bond interest expense related to its long-term debt. The income tax rate for […]

1) The Unrealized Holding Gain/LossEquity account is reported as a part of other compre-hensive income. 2) When a change in the tax rate is enacted, the effect is reported as an adjustment to income tax payable in the period of […]

1) The economic entity assumption means that economic activity can be identified with a particular legal entity. 2) Companies can recognize revenue prior to completion and delivery of the product under certain circumstances. Answer: True 3) GAAP requires start-up costs […]

1) Liquidity refers to the ability of an enterprise to pay its debts as they mature. 2) Service cost is the expense caused by the increase in the accumulated benefit obligation because of employees service during the current year. Answer: […]

1) In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be a.the terms of payment in the contract b.the degree to which a reliable estimate of the costs to complete […]

1) On May 1, 2015, TV Inc. consigned 80 TVs to Ed’s TV. The TVs cost $450. Freight on the shipment paid by Eds TV was $1,000. On July 10, TV Inc. received an account sales and $21,500 from Ed’s […]

1) At December 31, 2014 Rice Company had 300,000 shares of common stock and 10,000 shares of 8%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2014 or 2015 […]

1) The IFRS statement of recognized income and expenses is identical to the U.S. GAAP statement of retained earnings – beginning balance retained earnings, plus net income, less dividends, equals ending balance retained earnings. 2) The ending retained earnings balance […]

1) The future value of a single sum is determined by multiplying the future value factor by its present value. 2) In order to justify requiring a particular measurement or disclosure, the benefits to be derived from it must equal […]

1) According to the FASB, redeemable preferred stock should be a.included with common stock b.included as a liability c.excluded from the stockholders equity heading d.included as a contra item in stockholders’ equity 2) Harris Co. takes a full year’s depreciation […]

1) Costs in the research phase are expensed under U.S. GAAP, but capitalized under IFRS. 2) Both a guaranteed and an unguaranteed residual value affect the lessees computation of amounts capitalized as a leased asset. Answer: False 3) Under the […]

1) In the gross method, sales discounts are reported as a deduction from sales. 2) In order to make adequate disclosure of related party transactions, companies should report the legal form, rather than the economic substance, of these transactions. Answer: […]

1) Under IFRS compliance requirements the revaluation surplus is not considered contributed capital. 2) Companies recognize the accumulated benefit obligation in their accounts and in their financial statements. Answer: False 3) The first level of the conceptual framework identifies the […]

1) Lewis Company traded machinery with a book value of $760,000 and a fair value of $720,000. It received in exchange from Timmons Company a machine with a fair value of $800,000. Lewis also paid cash of $80,000 in the […]

1) On January 1, 2014, Ogleby Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Ogleby to make annual payments of $90,000 at the beginning of each year for five years with title passing […]

1) Which of the following is a condition for accruing a liability for the cost of compensation for future absences? a.The obligation relates to the rights that vest or accumulate b.Payment of the compensation is probable c.The obligation is attributable […]

1) Milford Company had 400 units of Tank in its inventory at a cost of $6 each. It purchased 600 more units of Tank at a cost of $9 each. Milford then sold 700 units at a selling price of […]

1) IFRS requires immediate recognition of a loss if the overall contract is going to be unprofitable. 2) If a supplier ships goods f.o.b. destination, title passes to the buyer when the supplier delivers the goods to the common carrier. […]

1) The following data are provided: December 31 2015 2014 Cash$ 750,000$ 500,000 Accounts receivable (net)800,000600,000 Inventories1,300,0001,100,000 Plant assets (net)3,500,0003,250,000 Accounts payable550,000400,000 Income taxes payable100,00050,000 Bonds payable700,000700,000 10% Preferred stock, $50 par1,000,0001,000,000 Common stock, $10 par1,200,000900,000 Paid-in capital in excess […]

1) A prepaid expense can best be described as an amount a.paid and currently matched with revenues b.paid and not currently matched with revenues c.not paid and currently matched with revenues d.not paid and not currently matched with revenues 2) […]

1) Depletion expense a.is usually part of cost of goods sold b.includes tangible equipment costs in the depletion base c.excludes intangible development costs from the depletion base d.excludes restoration costs from the depletion base 2) The sales price for a […]

1) Yoder, Incorporated, has 3,600,000 shares of common stock outstanding on December 31, 2014 . An additional 800,000 shares of common stock were issued on April 1, 2015, and 400,000 more on July 1, 2015 . On October 1, 2015, […]

1) IFRS requires that gains and losses on available-for-sale securities be reported directly in equity. 2) Paying a current liability with cash will always reduce the current ratio. Answer: False 3) Companies must make correcting entries for noncounterbalancing errors, even […]

1) IFRS prohibits use of the percentage-of-completion method of accounting for long-term construction contracts. 2) The interest rate written in the terms of the bond indenture is called the effective yield or market rate. Answer: False 3) Companies frequently describe […]