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The FASB”s due process invites various interested parties to indicate their opinions about whether financial accounting standards should be changed. Some liabilities are not contractual obligations and may not be payable in cash. Answer: True Most changes in accounting principle […]

Cutter Enterprises purchased equipment for $72,000 on January 1, 2016. The equipment is expected to have a five-year life and a residual value of $6,000. Using the sum-of-the-years’-digits method, depreciation for 2016 and book value at December 31, 2016, would […]

Accounting for the pledging of accounts receivable as collateral for a loan requires: a. Reporting the receivables net of the borrowed amount. b. Removal of the pledged receivables from current assets and including them with noncurrent investments. c. Disclosure of […]

Murdock Industries uses a periodic inventory system and the LIFO retail method to estimate its ending inventories. The following data has been summarized for December 31, 2016: Required: Estimate the LIFO cost of ending inventory. Assume stable retail prices during […]

Which of the following is not true about accounting for investments using the equity method under IFRS? a. IFRS requires the equity method when the investor exercises significant influence over the investee. b. IFRS is more restrictive than U.S. GAAP […]

The annual pension expense for what type of pension plan(s) is recorded by a journal entry that includes a debit to pension expense and a credit to a noncurrent liability? a. A defined benefit plan only. b. A defined contribution […]

The factors that need to be determined to compute depreciation are an asset’s: a. Cost, residual value, and physical life. b. Cost, replacement value, and service life. c. Fair value, residual value, and economic life. d. Cost, residual value, and […]

The Yankel Corporation’s controller prepares adjusting entries only at the end of the fiscal year. The following adjusting entries were prepared on December 31, 2016: Additional information: 1> The company borrowed $30,000 on June 30, 2016. Principal and interest are […]

Briefly explain the differences between U.S. GAAP and International Financial Reporting Standards (IFRS) in accounting for government grants for the purchase of assets. In order to encourage employee ownership of the company’s $1 par common shares, T Corp. permits any […]

Harvey’s Junk Jewelry started business January 1, 2016, and uses the LIFO retail method to estimate ending inventory. Listed below is data accumulated for the year ended December 31, 2016: The estimated ending inventory at retail is: a. $27,300. b. […]

The Model Business Corporation Act: a. Uses the words “common” and “preferred” in describing distinguishing characteristics of stock. b. Defines legal capital as the amount of net assets not available for distribution to shareholders. c. Provides guidance for choosing an […]

Revenue is not recognized under the realization principle unless the earnings process is complete or virtually complete and there is reasonable certainty about the expected collection of the asset received. Periodic interest expense is the stated interest rate times the […]

Trading securities are most commonly found on the books of: a. Oil companies. b. Manufacturing companies. c. Banks. d. Foreign subsidiaries. The International Accounting Standards Board: a. Was the predecessor to the IASC. b. Can overrule the FASB when their […]

Paul Company had 100,000 shares of common stock outstanding on January 1, 2016. On September 30, 2016, Paul sold 48,000 shares of common stock for cash. Paul also had 10,000 shares of convertible preferred stock outstanding throughout 2016. The preferred […]

Which of the following accounts has a normal credit balance? a. Salary expense. b. Accrued income taxes payable. c. Land. d. Prepaid rent. On January 1, 2016, Solo Inc. issued 1,000 of its 8%, $1,000 bonds at 98. Interest is […]

On January 1, 2016, American Corporation purchased 25% of the outstanding voting shares of Short Supplies common stock for $210,000 cash. On that date, Short’s book value and fair value were both $840,000. The equity method is deemed appropriate for […]

If an available-for-sale investment is sold for which there are unrealized losses in accumulated other comprehensive income (AOCI), the total effect on total comprehensive income is: a. An increase. b. A decrease. c. No effect. d. Cannot be determined given […]

Hammerstein Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock award plan, the company, on January 1, 2016, granted 2 million of its $1 par common shares to various division managers. The shares are subject […]

When a company issues a stock dividend, which of the following would be affected? a. Earnings per share. b. Total assets. c. Total liabilities. d. Total shareholders’ equity. Kunkle Company wishes to earn 20% annually on its investments. If it […]

Total depreciation is the same over the life of an asset regardless of the method of depreciation used. The initial selling price of bonds represents the sum of all the future cash outflows required by the obligation. Answer: False A […]

Which of the following does not apply to a seller who is a principal? a. Has control over goods or services b. Primarily responsible for providing goods or services to customer c. Exposed to risks associated with holding inventory d. […]

For 2016, Rahal’s Auto Parts estimates bad debt expense at 1% of credit sales. The company reported accounts receivable and an allowance for uncollectible accounts of $86,500 and $2,100, respectively, at December 31, 2015. During 2016, Rahal’s credit sales and […]

Of the following, which typically would not be classified as a current liability? a. Estimated liability from cash rebate program. b. A long-term note payable maturing within the coming year. c. Rent revenue received in advance. d. A six-month bank […]

Baldwin Company had 40,000 shares of common stock outstanding on January 1, 2016. On April 1, 2016, the company issued 20,000 shares of common stock. The company had outstanding fully vested incentive stock options for 10,000 shares exercisable at $10 […]

Panther Co. had a quality-assurance warranty liability of $350,000 at the beginning of 2016 and $310,000 at the end of 2016. Warranty expense is based on 4% of sales, which were $50 million for the year. What were the warranty […]

Heidi Aurora Imports applies International Financial Reporting Standards. The company issued shares of the company”s Class B stock. Heidi Aurora Imports should report the stock in the company”s statement of financial position: a. Among liabilities if the shares are mandatorily […]

If cash has been collected from a customer, recognizing estimated sales returns results in recognizing a refund liability. If a long-term noninterest-bearing note is received in exchange for merchandise sold, the amount of sales revenue recognized will be greater than […]

On January 1, 2015, Bactin Corporation acquired 10% of Oakton Company for $100,000. On that date, the total book value and fair value of Oakton’s net assets was $900,000. Any difference between cost and fair value is attributable to goodwill. […]

At the end of the current year, a company failed to accrue interest of $500,000 on its investments in municipal bonds. Its tax rate is 30%. As a result of this error, net income is: a. Unaffected. b. Understated by […]

Under group and composite depreciation methods, gains and losses on the disposal of individual assets need not be computed. All changes reported using the retrospective approach require prior period adjustments. Answer: False Pension expense and funding amounts are both accounting […]

Waddle Company amended its defined benefit pension plan on January 1, 2016, to increase retirement benefits earned with each service year. The actuary estimated the prior service cost to be $216,000. Waddle’s 80 present employees are expected to retire at […]

Zulu Corporation hires a new chief executive officer and promises to pay her a signing bonus of $2 million per year for 10 years, starting five years after she joins the company. The liability for this bonus when the CEO […]

If previous experience indicates that a material number of stock options will be forfeited before they vest, the fair value estimate of the options on the grant date should be adjusted to reflect that expectation. During periods of falling prices, […]

On November 1, 2016, a $216,000, 9-month, noninterest-bearing note is issued at a 10% discount rate. Required: Prepare the appropriate journal entry to record the issuance of the note. 1> Determine the effective interest rate. 2> Prepare the appropriate journal […]

Zvinakis Mining Company paid $200,000 for the rights to mine lead in southeast Missouri. The cost to drill and erect a mine shaft was $2,400,000, and equipment to process the lead ore before shipment to the smelter was $1,800,000. The […]

Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below. HHF’s long-term debt to equity ratio equity is: a. 133.3%. b. 75%. c. 180%. d. 0%. On February 12, 2016, Mohawk Home and Garden enters into contract […]

Investors should be wary of stock buybacks during down times because the resulting decrease in shares and increase in earnings per share can be used to mask a slowdown in earnings growth. For a purchase commitment extending beyond the current […]

When interest is compounded, the stated rate of interest exceeds the effective rate of interest. Companies always recognize revenue when goods or services are transferred to customers for the amount the company expects to receive in exchange for those goods […]

When the cost recovery method is used to account for a long-term construction contract under IFRS, an equal amount of cost and revenue is typically recognized during the early life of the contract, such that high initial gross profit is […]

In 2014, Winn, Inc., issued $1 par value common stock for $35 per share. No other common stock transactions occurred until July 31, 2016, when Winn acquired some of the issued shares for $30 per share and retired them. Which […]

In its 2016 income statement, WME reported $11,000 of interest expense on its outstanding bonds. During the year, WME paid its regular installments of $9,000 of interest in cash. In its reconciliation schedule, WME should: Each year, White Mountain Enterprises […]

Following are the income statement and some additional information for Parson Corporation for 2016. All sales were on credit and accounts receivable increased by $600 in 2016 compared to 2015. Merchandise purchases were on credit with an increase in accounts […]

The purpose of assigning accounts receivable is to: a. Satisfy a court order. b. Complete the legal prerequisites to record their sale. c. Comply with form and content rules of bankruptcy proceedings. d. Provide collateral for a loan. Recording revenue […]

In using a spreadsheet to prepare the statement of cash flows, the summary entries duplicate the actual journal entries used to record the transactions during the year. Subsequent events are significant developments that take place after a firm’s year-end, and […]

Restrictions on retained earnings must be disclosed in the body of the balance sheet. A net pension asset is the excess of the projected benefit obligation over the plan assets. Answer: False A bargain purchase option is defined as the […]

If the direct method is used to report cash flows from operating activities in the body of the statement of cash flows, a reconciliation of net income to net cash flows from operating activities also is required. The primary function […]

Coastal Shores Inc. (CSI) was destroyed by Hurricane Fred on August 5, 2016. At January 1, CSI reported an inventory of $170,000. Sales from January 1, 2016, to August 5, 2016, totaled $480,000 and purchases totaled $195,000 during that time. […]

The asset/liability approach emphasizes: a. Whether amounts on the balance sheet meet the definitions of assets and liabilities. b. A close relation between the balance sheet and the statement of cash flows. c. The distinction between net assets and gross […]

B Company switched from the sum-of-the-years-digits depreciation method to straight-line depreciation in 2016. The change affects machinery purchased at the beginning of 2014 at a cost of $72,000. The machinery has an estimated life of five years and an estimated […]

On December 15, 2016, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for $4,500,000. Rigsby appropriately uses the installment sales method of accounting for this transaction. Terms called for a down payment of $500,000 with the balance […]

All changes in estimate are accounted for retrospectively. If the estimate of a transaction price is revised, the price change is allocated entirely to the remaining performance obligations that are yet to be satisfied. Answer: False Earnings quality refers to […]

Once selected for existing assets, a company must consistently use the same method of depreciation for all subsequent fixed asset acquisitions. When available-for-sale securities are sold, the amount of gain or loss realized from the date of purchase is included […]

As of December 31, 2015, Gill Co. reported accounts receivable of $216,000 and an allowance for uncollectible accounts of $8,400. During 2016, accounts receivable increased by $22,000, and $7,800 of bad debts were written off. An analysis of Gill Co.’s […]

The following note disclosure is taken from the 2016 annual report to shareholders of Winchester International Corporation. NOTE 5: ALLOWANCE FOR LOAN LOSSES The allowance for loan loss is maintained at a level to absorb probable losses inherent in the […]

When bonds are sold at a discount and the effective interest method is used, at each interest payment date, the interest expense: a. Increases. b. Decreases. c. Remains the same. d. Is equal to the change in book value. Which […]

For 2016, Rahal’s Auto Parts estimates bad debt expense at 1% of credit sales. The company reported accounts receivable and an allowance for uncollectible accounts of $86,500 and $2,100, respectively, at December 31, 2015. During 2016, Rahal’s credit sales and […]

When a lease qualifies as a capital lease, what is the cost basis of the asset acquired? a. The present value of the minimum lease payments, exclusive of executory costs. b. The present value of the minimum lease payments plus […]

From a financial accounting perspective, the main purposes of a system of internal control are to improve the accuracy and reliability of accounting information and to safeguard assets. Sellers recognize revenue for gift cards at the point in time control […]

The D Company develops, manufactures, distributes, and markets branded health care products as well as private-label vitamin products in the United States and more than 50 other countries. A disclosure note from D’s 2014 annual report is shown below: Weighted […]

What is the effect of the error on Berkshire’s 12/31/2016 balance sheet? Berkshire Inc. uses a periodic inventory system. At the end of 2015, it missed counting some inventory items, resulting in an inventory understatement by $600,000. Assume that Berkshire […]

Discount-Mart issued ten thousand $1,000 bonds on January 1, 2016. The bonds have a 10-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds. What would be the total interest cost of the bonds […]

The initial cost of property, plant, and equipment includes all the identifiable expenditures necessary to bring the asset to its desired condition and location for use. LIFO usually provides a better match of revenue and expense than does FIFO. Answer: […]

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term. On August 1, 2016, Reliable Software began developing a software program […]

Clarabell Inc. uses the conventional retail method to estimate ending inventory. Cost data for the most recent quarter is shown below: To the nearest thousand, estimated ending inventory using the conventional retail method is: a. $163,000. b. $124,000. c. $127,000. […]

On October 15, 2016, a 5% stock dividend was declared and distributed. The market value of the common stock on this date was $32 per share. Fractional share rights represented 100,000 shares. Cash was paid in lieu of issuing fractional […]

Accounts receivable are normally reported at the: a. Present value of future cash receipts. b. Current value plus accrued interest. c. Expected amount to be received. d. Current value less expected collection costs. When a deposit on returnable containers is […]

Under IFRS No. 9, equity investments are classified as either “fair value through other comprehensive income (FVOCI)” or “fair value through profit and loss (FVPL).” Accruals occur when the cash flow precedes either revenue or expense recognition. Answer: False The […]

Estimated losses on long-term contracts are recognized as ratable over the contract term regardless of whether revenue is recognized over time or upon contract completion. A temporary difference originates in one period and reverses, or turns around, in one or […]

Compensating balances represent: a. Funds in a bank account that can’t be spent. b. Balances in a payroll checking account. c. Accounts that are subject to bank service charges. d. Accounts on which banks pay interest, e.g., NOW accounts. When […]

Antonio’s Car Services provides maintenance services for motorized vehicles. In March 2016, Rick placed an order for a new set of tires for $350. When a customer purchases goods and services in excess of $300, Antonio’s gives the customer a […]

A decrease in cash dividends payable means that dividends declared were less than dividends paid. Dilutive convertible bonds affect both the numerator and the denominator in computing diluted EPS. Answer: True Comprehensive income is the total change in shareholders’ equity […]

On June 30, 2016, Prego Equipment purchased a precision laser-guided steel punch that has an expected capacity of 300,000 units and no residual value. The cost of the machine was $450,000 and is to be depreciated using the units-of-production method. […]

The probability that the customer will pay the seller does not affect whether a contract exists for purposes of revenue recognition. Most, but not all, liabilities are monetary liabilities. Answer: True Payment terms, interest rates, and other details of long-term […]

The tax benefit of a net operating loss carried back two years represents a current receivable for income tax to be refunded. Transactions that represent noncash investing and financing activities must be reported in the statement of cash flows or […]

In a good system of internal control, the person who initiates a transaction should be allowed to effectively control the processing of the transaction through its final inclusion in the accounting records. According to International Financial Reporting Standards (IFRS), the […]

Purchases and sales of securities are always reported as investing activities in a statement of cash flows. The equity method is in many ways a partial consolidation. Answer: True Bonds will sell for a premium when the market rate of […]

On January 1, 2016, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $100,000. The 2016 ending inventory, valued at year-end costs, was $126,000. The relative cost index for this inventory in 2016 was 1.05. […]

All investments in debt and equity securities that don’t fit the definitions of the other reporting categories are classified as: a. Trading securities. b. Securities available for sale. c. Held-to-maturity securities. d. Consolidated securities. When computing the cost-to-retail percentage for […]

Which of the following is not true about deferred revenue? a. Deferred revenue with respect to gift cards is recognized as revenue when the gift cards expire. b. Deferred revenue is a liability. c. Deferred revenue is recognized on credit […]

During periods when costs are rising and inventory quantities are stable, ending inventory will be: a. Higher under LIFO than FIFO. b. Lower under average cost than LIFO. c. Higher under average cost than FIFO. d. Higher under FIFO than […]

An option for a customer to purchase additional goods at a discount from list price is only a performance obligation if the discount is a material right that the customer would not receive otherwise. A warranty that the customer can […]

As part of its stock-based compensation package, on January 1, 2016, Weldon Well Supplies granted restricted stock units (RSUs) representing 100,000 $1 par common shares. At exercise, holders of the RSUs are entitled to receive cash or stock equal in […]

Revenue is recognized upon sale of gift cards, rather than being deferred. Stock options will be dilutive and included in the calculation of dilutive EPS if the exercise price is greater than the average market value of the stock. Answer: […]

The first step, when using dollar-value LIFO retail method for inventory, is to: a. Determine the estimated ending inventory at current year retail prices. b. Determine the estimated cost of goods sold for the current year. c. Determine the cost-to-retail […]

Donated assets are recorded at: a. Zero (memo entry only). b. The donor’s book value. c. The donee’s stated value. d. Fair value. F Co. declares a 5% stock dividend. If the market price at declaration is $12 per share, […]

On January 1, 2016, Green Corporation purchased 20% of the outstanding voting common stock of Gold Company for $300,000. The book value of the acquired shares was $275,000. The excess of cost over book value is attributable to an intangible […]

Which of the following is not an example of a change in accounting principle? a. A change in the useful life of a depreciable asset. b. A change from LIFO to FIFO for inventory costing. c. A change to the […]

Moretti Department Store sells gift cards that expire three years from the date of purchase. During 2014, Moretti sold $50,000 of gift cards, of which $1,500 were redeemed during 2016. At the end of 2016, it is estimated that approximately […]

Arrow Printers paid $2,000 interest on short-term notes payable, $10,000 interest on long-term bonds, and $6,000 in dividends on its common stock. Arrow would report cash outflows from activities, as follows: a. Operating, $2,000; financing, $16,000. b. Operating, $0; financing, […]

LIFO periodic and LIFO perpetual always produce the same dollar amounts for ending inventory. Under the LIFO retail method, the current period cost-to-retail percentage includes both net markdowns and net markups. Answer: True The income statement summarizes the operating activity […]

Auditors play an important role in the resource allocation process by adding credibility to financial statements. The cost-to-retail percentage used in the retail method to approximate average cost incorporates both markdowns and markups. Answer: True Demolition costs to remove an […]

When tax rates are changed subsequent to the creation of a deferred tax asset or liability, GAAP requires that: a. All deferred tax accounts be adjusted to reflect the new tax rates. b. The beginning deferred tax accounts are left […]

Compared to the ABO, the PBO usually is: a. Larger. b. More reliable. c. Less relevant. d. More material. The compensation associated with restricted stock units (RSUs) under a stock award plan is: A. The book value of an unrestricted […]

Brunetti Co. designed and installed customized signs for Di Antonio CPA, Inc. Brunetti’s contract specifies that it will receive a flat fee of $15,000 for providing the customized signs, and an additional $1,000 if 30% of Di Antonio’s new customers […]

When bonds are sold at a premium and the effective interest method is used, at each subsequent interest payment date, the cash paid is: a. Less than the effective interest. b. Equal to the effective interest. c. Greater than the […]

Which of the following creates a deferred tax liability? a. An unrealized loss from recording inventory at lower of cost or market. b. Accelerated depreciation in the tax return. c. Estimated warranty expense. d. Subscriptions collected in advance. On June […]

Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured, and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise is in condition to be re-sold. Therefore, Reliable uses […]

C Co. reported a retained earnings balance of $200,000 at December 31, 2015. In September 2016, C determined that insurance premiums of $30,000 for the three-year period beginning January 1, 2015, had been paid and fully expensed in 2015. C […]

Which of the following is considered a sale of receivables? a. Pledging receivables. b. Assigning receivables. c. Factoring receivables without recourse. d. None of these answer choices are correct. On June 1, 2016, Dirty Harry Co. borrowed cash by issuing […]

According to International Financial Reporting Standards, all research and development expenditures are expensed in the period incurred. With an annuity due, a payment is made or received on the date the agreement begins. Answer: True Income statements prepared according to […]

Ramsgate Company has used the FIFO method for inventory valuation since it began business in 2012, but has elected to change to the average cost method starting in 2015. Year-end inventory valuations under each method are shown below: Required: How, […]

Orange Inc. offers a discount on an extended warranty on its oPhone when the warranty is purchased at the time the oPhone is purchased. The warranty normally has a price of $150, but Orange offers it for $120 when purchased […]

If the seller is an agent, the seller typically is vulnerable to risk associated with delivering the product or service. Use of the installment sales method indicates little uncertainty about collection of the receivable. Answer: False A change in accounting […]

After issuing its financial statements, a company discovered that its beginning inventory was overstated by $100,000. Its tax rate is 30%. As a result of this error, net income was: a. Understated by $70,000. b. Overstated by $70,000. c. Understated […]

Bond X and bond Y both are issued by the same company. Each of the bonds has a maturity value of $100,000 and each pays interest at 8%. The current market rate of interest is 8% for each. Bond X […]

In a consignment arrangement, revenue typically should not be recognized until sale to a third party occurs, even though there has been a physical transfer of goods to the consignee, because the consignor still retains legal title to the goods. […]

In a statement of cash flows prepared under International Financial Reporting Standards, interest received is most often classified as an operating cash flow. If a pension plan is underfunded, the company has a net loss-OCI. Answer: False Valuation allowances reduce […]

Which of the following usually results in an increase in a deferred tax asset? a. Accelerated depreciation for tax reporting and straight-line depreciation for financial reporting. b. Prepaid insurance. c. Subscriptions delivered for which customers had paid in advance. d. […]

A distinguishing characteristic of intangible assets is the degree of uncertainty about when or if they will provide future benefits. Material restructuring costs are reported as an element of income from continuing operations. Answer: True Depending on the circumstances, the […]

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the most correct term. Briefly explain why the income statement is referred to as […]

Excerpts from Dowling Company’s December 31, 2016 and 2015, financial statements and key ratios are presented below (all numbers are in millions): Dowling’s 2016 average collection period is (rounded): a. 50 days. b. 63 days. c. 57 days. d. 51 […]

Of the following, the most important objective for financial reporting is to provide information useful for: a. Making decisions. b. Determining taxable income. c. Providing accountability. d. Increasing future profits. A firm reported salary expense of $239,000 for the current […]

Average accumulated expenditures: a. Is an approximation of the average debt a firm would have outstanding if it financed all construction through debt. b. Is computed as a simple average if all construction expenditures are made at the end of […]

On January 1, 2016, Everglade Company purchased the following securities and properly accounted for them as securities available for sale: All declines in value are considered temporary. What amount should the Everglade Company report relative to these securities in its […]

DeAngelo Yards, Inc., calculated pension expense for its underfunded pension plan as follows: ($ in millions) Service cost $448 Interest cost 300 Expected return on the plan assets ($200 actual, less $20 gain) (180) Amortization of prior service cost 16 […]

Alpaca Corporation had revenues of $200,000 in its first year of operations. The company has not collected on $20,000 of its sales and still owes $25,000 on $70,000 of merchandise it purchased. The company had no inventory on hand at […]

On January 1, 2016, for $18 million, Cenotaph Company purchased 10% bonds, dated January 1, 2016, with a face amount of $20 million. For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on […]

Return on shareholders’ equity is increased if a firm can maintain its return on assets but increase its leverage. Revenue should be recognized over time for the construction of an annex to a building that the customer owns, even if […]

A disclosure note is required for all material loss contingencies for which the probability of loss is reasonably possible. The FASB is currently the public-sector organization responsible for setting accounting standards in the United States. Answer: False If a company […]

Jacobsen Corporation prepares its financial statement applying International Financial Reporting Standards. During its 2016 fiscal year, the company reported before-tax income of $620,000. This amount does not include the following two items, both of which are considered to be material […]

Present and future value tables of 1 at 11% are presented below. Polo Publishers purchased a multi-color offset press with terms of $50,000 down and a noninterest-bearing note requiring payment of $20,000 at the end of each year for five […]

Under GAAP, the declaration of a property dividend may require the recognition of a gain or loss if the fair value of the property is different from its book value on the declaration date. Using the balance sheet approach, bad […]

Disclosure notes related to a change in accounting principle under the retrospective approach should include: a. The effect of the change on executive compensation. b. The auditor’s approval of the change. c. The SEC’s permission to change. d. Justification for […]

Carpenter Gems began the year with a net pension liability of $84 million (underfunded pension plan). Pension expense for the year included the following ($ in millions): service cost, $30; interest cost, $18; expected return on assets, $12; amortization of […]

Which of the accounting changes listed below is more associated with financial statements prepared in accordance with U.S. GAAP than with International Financial Reporting Standards (IFRS)? a. Change in reporting entity. b. Change to the LIFO method from the FIFO […]

Sneed Corporation reported balances in the following accounts for the current year: Income tax expense was $230 for the year. What was the amount paid for taxes? a. $280. b. $220. c. $210. d. $190. Information for Kent Corp. for […]

Over the life of a particular account receivable, the same total amount of gross profit is recognized under the installment sales method and the cost recovery method. No time-weighting of contingently issuable shares is required when computing basic EPS. Answer: […]

Identify or define the following term: historical cost. New York Sales Inc. uses the conventional retail method to estimate its ending inventories. The following data has been summarized for December 31, 2016: Required: Compute the cost-to-retail percentage used by New […]

On November 10 of the current year, Flores Mills sold carpet to a customer for $8,000 with credit terms 2/10, n/30. Flores uses the gross method of accounting for cash discounts. What is the correct entry for Flores on December […]

($ in millions) Reported in income statement: Service cost-2016 $ 150 Past service cost 24 Service cost $ 174 Net interest cost (10% x [$960 – 600]) $ 36 Reported as OCI: Remeasurement gain from assumption change-OCI $ (44) Remeasurement […]

When preferred stock carries a redemption privilege, the shareholders may: a. Purchase new shares as they become available. b. Exchange their preferred shares for common shares. c. Surrender the preferred shares for a specified amount of cash. d. Purchase treasury […]

King Corporation has a defined benefit pension plan. One of its employees has vested benefits under the plan, which will pay him $40,000 annually for life starting with the first payment of $40,000 on the day he retires at the […]

Inventory does not include: a. Materials used in the production of goods to be sold. b. Assets intended to be sold in the normal course of business. c. The cost of office equipment. d. Assets currently in production for normal […]

Nevada Boot Co. reported net income of $216,000 for its year ended December 31, 2016. Purchases totaled $152,000. Accounts payable balances at the beginning and end of the year were $36,000 and $33,000, respectively. Beginning and ending inventory balances were […]

Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term. Indicate (by letter) the way each of the items listed below […]

A liability for an unasserted claim must be accrued if it is reasonably possible that the claim will be asserted. When the right of return exists and a seller cannot make reliable estimates of future returns, the installment sales method […]

The exclusive right to benefit from a creative work, such as a film, is a: a. Patent. b. Copyright. c. Trademark. d. Franchise. Which of the following is never a current liability account? a. Accrued payroll. b. Dividends payable. c. […]

An asset for a gain contingency should not be accrued unless it is probable that the gain contingency will be realized. All current assets are either cash or assets that will be converted into cash or consumed within 12 months […]

The calculation of future value requires the removal of interest. Expenditures currently deducted in the tax return but not included with expenses in the income statement until subsequent years create deferred tax liabilities. Answer: True The primary motivation behind the […]

In its 2016 annual report to shareholders, the Goodday Chemical Company included the following disclosure note excerpts on CONTINGENCIES in its annual report to shareholders: At December 31, 2016, Goodday had recorded liabilities aggregating $66.5 million for anticipated costs related […]

The closing process brings all temporary accounts to a zero balance and updates the balance in the retained earnings account. Fundamental qualitative characteristics of accounting information are: a. Relevance and comparability. b. Comparability and consistency. c. Faithful representation and relevance. […]

The inventories disclosure note in the 2014 financial statements for SUPERVALU Inc., one of the largest grocery chains in the United States, included the following: “During fiscal 2014, 2013 and 2012, inventory quantities in certain LIFO layers were reduced. These […]

Debits increase asset accounts and decrease liability accounts. Revenue always is recognized once the buyer has physical possession of goods. Answer: False The expected postretirement benefit obligation (EPBO) is the discounted present value of the total benefits expected to be […]

Actuary and trustee reports indicate the following changes in the PBO and plan assets of Reeves Uniforms during 2016: Required: 1> Determine Reeves’ pension expense for 2016 and prepare the appropriate journal entries to record the expense as well as […]

George Jones is planning on a cruise for his 70th birthday party. He wants to know how much he should set aside at the beginning of each month at 6% interest to accumulate the sum of $4,800 in five years. […]

What is the effect of the error on Berkshire’s 2016 income statement? Berkshire Inc. uses a periodic inventory system. At the end of 2015, it missed counting some inventory items, resulting in an inventory understatement by $600,000. Assume that Berkshire […]

On January 1, 2016, Glanville Company sold goods to Otter Corporation. Otter signed an installment note requiring payment of $15,000 annually for six years. The first payment was made on January 1, 2016. The prevailing rate of interest for this […]

Ford Inc. exchanged land and $7,500 cash for material handling equipment. The land had a book value of $75,000 and a fair value of $105,000. Assume the exchange has commercial substance. Required: Prepare the journal entry to record the exchange. […]

Which one of the following is not one of the five steps for recognizing revenue? i. Identify the contract with a customer j. Recognize revenue when all the performance obligations have been satisfied k. Identify the separate performance obligation(s) in […]