1) amortization of a premium increases bond interest expense, while amortization of a
discount decreases bond interest expense.
2) present value is the value now of a future sum or sums discounted assuming
compound interest.
3) the transaction approach of income measurement focuses on the income-related
activities that have occurred during the period.
4) costs in the research phase are expensed under u.s. gaap, but capitalized under ifrs.
5) the first step in the preparation of the statement of cash flows is to determine the net
cash flow from operating activities.
6) asset revaluations are permitted under ifrs and u.s. gaap.
7) the net increase (decrease) in cash reported on the statement of cash flows should
reconcile the beginning and ending cash balances reported in the comparative balance
sheets.
8) the objective of financial reporting is the foundation of the conceptual framework.
9) the period of time during which interest must be capitalized ends when
a.the asset is substantially complete and ready for its intended use
b.no further interest cost is being incurred
c.the asset is abandoned, sold, or fully depreciated
d.the activities that are necessary to get the asset ready for its intended use have begun
10) when inventory declines in value below original (historical) cost, and this decline is
considered other than temporary, what is the maximum amount that the inventory can
be valued at?
a.sales price
b.net realizable value
c.historical cost
d.net realizable value reduced by a normal profit margin
11) houghton company has the following items: common stock, $900,000; treasury
stock, $105,000; deferred taxes, $125,000 and retained earnings, $390,000. what total
amount should houghton company report as stockholders equity?
a.$1,060,000
b.$1,185,000
c.$1,310,000
d.$1,395,000
12) the use of a 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 the purchase discount allowable whether taken or not
13) cross company reported the following results for the year ended december 31, 2012,
its first year of operations:
the disparity between book income and taxable income is attributable to a temporary
difference which will reverse in 2013. what should cross record as a net deferred tax
asset or liability for the year ended december 31, 2012, assuming that the enacted tax
rates in effect are 40% in 2012 and 35% in 2013?
a.$300,000 deferred tax liability
b.$262,500 deferred tax asset
c.$300,000 deferred tax asset
d.$262,500 deferred tax liability
14) on october 1, 2012 macklin corporation issued 5%, 10-year bonds with a face value
of $2,000,000 at 104. interest is paid on october 1 and april 1, with any premiums or
discounts amortized on a straight-line basis.
the entry to record the issuance of the bonds would include a credit of
a.$50,000 to interest payable
b.$80,000 to discount on bonds payable
c.$1,920,000 to bonds payable
d.$80,000 to premium on bonds payable
15) if a petty cash fund is established in the amount of $250, and contains $150 in cash
and $95 in receipts for disbursements when it is replenished, the journal entry to record
replenishment should include credits to the following accounts
a.petty cash, $75
b.petty cash, $100
c.cash, $95; cash over and short, $5
d.cash, $100
16) fox co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. the
bonds are sold to yield 8%.
another step in calculating the issue price of the bonds is to
a.multiply $10,000 by the table value for 10 periods and 10% from the present value of
an annuity table
b.multiply $10,000 by the table value for 20 periods and 5% from the present value of
an annuity table
c.multiply $10,000 by the table value for 20 periods and 4% from the present value of
an annuity table
d.none of these
17) the failure to record a purchase of merchandise on account even though the goods
are properly included in the physical inventory results in
a.an overstatement of assets and net income
b.an understatement of assets and net income
c.an understatement of cost of goods sold and liabilities and an overstatement of assets
d.an understatement of liabilities and an overstatement of owners’ equity
18) a company estimates the fair value of sars, using an option-pricing model, for
a.share-based equity awards
b.share-based liability awards
c.both equity awards and liability awards
d. neither equity awards or liability awards
19) patton company purchased $600,000 of 10% bonds of scott co. on january 1, 2013,
paying $564,150. the bonds mature january 1, 2023; interest is payable each july 1 and
january 1. the discount of $35,850 provides an effective yield of 11%. patton company
uses the effective-interest method and plans to hold these bonds to maturity.
on july 1, 2013, patton company should increase its debt investments account for the
scott co. bonds by
a.$3,588
b.$2,056
c.$1,794
d.$1,028
20) 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 and extent of progress
toward completion is practicable
c.the method commonly used by the contractor to account for other long-term
construc-tion contracts
d.the inherent nature of the contractor’s technical facilities used in construction
21) major reasons for disclosure of deferred income tax information is (are)
a.better assessment of quality of earnings
b.better predictions of future cash flows
c.that it may be helpful in setting government policy
d.all of these
22) the accounting equation must remain in balance
a.throughout each step in the accounting cycle
b.only when journal entries are recorded
c.only at the time the trial balance is prepared
d.only when formal financial statements are prepared
23) the controller for haley corporation is concerned about certain business transactions
that the company experienced during 2013. the controller, after discussing these matters
with various individuals, has come to you for advice. the transactions at issue are
presented below.
1>the company has decided to switch from the direct write-off method in accounting
for bad debt expense to the percentage-of-sales approach. assume that haley corporation
has recognized bad debt expense as the receivables have actually become uncollectible
in the following way:
the controller estimates that an additional $65,400 will be charged off in 2014: $11,400
applicable to 2012 sales and $54,000 to 2013 sales.
2>inventory has been shipped on consignment. these transactions have been recorded as
ordinary sales and billed as such on account. at december 31, 2013, inventory billed and
in the hands of consignees amounted to $450,000. the percentage markup on selling
price is 20%. assume that consigned inventory is sold the following year. the company
uses the perpetual inventory system.
3>during the current year, the company sold $600,000 of goods on the installment
basis. the cost of sales associated with these goods sold is $420,000. the company
inadvertently handled these sales and related costs as part of the regular sales
transactions. cash of $172,000, including a down payment of $60,000, was collected on
these installment sales during the current year. due to questionable collectibility, the
installmentsales method was considered appropriate.
instructions
(a)assume that haley corporation reported net income of $1,200,000 for 2013. present a
schedule showing the corrected net income after reviewing the above transactions.
(b)prepare the journal entries necessary at december 31, 2013, assuming that the books
have been closed.