1) Which of the following typically involves the use of non-GAAP accounting?
a. Strategic matching
b. A change in accounting estimate that is fully disclosed
c. Proforma earnings
d. A change in accounting principle that is fully disclosed
2) Allure Company made the following cash expenditures during the year:
(a) Paid $100,000 for interest capitalized as part of a self-construction project.
(b) Paid $225,000 for interest that was expensed during the year.
(c) Paid $300,000 for R&D expenditures that were immediately expensed.
(d) Paid $400,000 to acquire new machinery.
Indicate where in the statement of cash flows each of the preceding items would be
reflected. Allure uses the indirect method of reporting cash flow from operations.
3) Uncertainty that the party on the other side of an agreement will abide by the terms
of the agreement is referred to as
a. credit risk
b. exchange rate risk
c. interest rate risk
d. price risk
4) Tarpon Corp. had the following long-term debt at December 31:
The debenture bonds amounted to
a. $0
b. $150,000
c. $250,000
d. $400,000
5) Stanley Company purchased a machine that was installed and placed in service on
January 2, 2013, at a total cost of $680,000. Residual value was estimated at $70,000.
The machine is being depreciated over ten years by the double-declining-balance
method. For the year 2014, Stanley should record depreciation expense of
a. $108,800
b. $97,600
c. $68,000
d. $61,000
6) One component of net pension expense, unrecognized gains and losses, comes from
the following sources:
a. the difference between expected and actual prior service cost
b. the difference between expected and actual return on plan assets only
c. PBO changes due to changes in pension assumptions only
d. PBO changes due to changes in pension assumptions, and the difference between
expected and actual return on plan assets
7) Which type of contract is unique in that it protects the owner against unfavorable
movements in the prices or rates while allowing the owner to benefit from favorable
movements?
a. Interest rate swap
b. Forward contract
c. Option
d. Futures contract
8) On December 31, 2014 and 2015, Williams Corporation had 100,000 shares of
common stock and 50,000 shares of noncumulative and nonconvertible preferred stock
issued and outstanding. Additional information:
The price-earnings ratio on common stock at December 31, 2015, was
a. 10 to 1
b. 12 to 1
c. 14 to 1
d. 16 to 1
9) If a cannery wanted to lock in the price they would pay for peaches in August four
months before harvest (in April of the same year), they would be most likely to enter
into which kind of agreement?
a. Interest rate swap
b. Fixed commodities contract
c. Futures contract
d. Option
10) Which of the following organizations has recommended that entities provide a
reconciliation to GAAP net income whenever reporting proforma numbers?
a. Auditing Standards Board
b. Financial Executives International
c. Financial Accounting Standards Board
d. Accounting Standards Executive Committee
11) On February 24, Bramlett Company purchased 4,000 shares of Delaney Corp.’s
newly issued 6 percent cumulative $75 par preferred stock for $304,000. Each share
carried one detachable stock warrant entitling the holder to acquire at $10 one share of
Delaney no-par common stock. On February 25, the market price of the preferred stock
was $72 per share, and the market price of the stock warrants was $8 per warrant. On
December 29, Bramlett sold all the stock warrants for $41,000. The gain on the sale of
the stock warrants was
a. $0
b. $1,000
c. $9,000
d. $10,600
12) The following information is available for the Underwater Company for the three
months ended March 31 of this year:
The gross margin was estimated to be 25 percent of sales. What is the estimated
inventory balance at March 31?
a. $600,000
b. $350,000
c. $562,500
d. $450,000
13) The branch of accounting that is concerned with providing information to present
and potential creditors of an enterprise is
a. auditing
b. managerial accounting
c. financial accounting
d. income tax accounting
14) A trademark is an example of which general category of intangible asset that should
be recognized separately according to current generally accepted accounting principles?
a. Marketing-related
b. Customer-related
c. Artistic-related
d. Contract-based
15) Quinn Company has a defined benefit plan. The fair value of plan assets on January
1, 2014, was $1,500,000. No unrecognized net loss or gain existed. On December 31,
2014, the fair value of the plan assets was $1,860,000. Benefits paid to retirees equaled
$300,000. Company contributions to the plan totaled $360,000. The settlement rate was
8 percent, and the expected long-term rate of return on plan assets was 10 percent. The
actual return on plan assets was
a. $150,000
b. $180,000
c. $224,000
d. $300,000
16) Information from Brian Company’s balance sheet is as follows:
What is Brian’s current ratio?
a. 0.26 to 1
b. 0.30 to 1
c. 1.80 to 1
d. 3.60 to 1
17) See information regarding the four products above. Using the
lower-of-cost-or-market procedure, what is the reported inventory value at December
31 for one unit of Product I?
a. $90
b. $80
c. $70
d. $60
18) Which of the following is true regarding the debt to equity ratio?
a. The debt to equity ratio is a stringent measure of liquidity
b. The debt to equity ratio measures the productivity and desirability of the equity
investment
c. The debt to equity ratio measures managements ability to productively employ all its
resources
d. The debt to equity ratio measures the capital structure of the entity
19) On January 1, 2013, Pastel Colors Corporation purchased drilling equipment for
$11,500. The equipment has an estimated useful life of four years and a salvage value
of $200. Assuming that Pastel Colors uses the straight-line method of depreciation, if it
trades the equipment for new equipment with a list price of $15,500 on December 31,
2014, and pays $4,050 in the exchange, assuming the exchange lacks commercial
substance, the new equipment should be recorded at
a. $15,500
b. $11,450
c. $9,850
d. $9,900
20) Which of the following best describes the proper treatment of cash discounts on
acquired machinery?
a. The historical cost of the machinery should be the invoice price; the discount should
be ignored
b. The historical cost of the machinery should be the net-of-discount amount, regardless
of whether the discount is actually taken
c. The historical cost of the machinery should be the net-of-discount amount only if the
discount is actually taken
d. The historical cost of the machinery should be the invoice price plus the amount of
the discount which is treated a interest capitalized on the purchase
21) Sanford, Inc., enters into a call option contract with Sons Investment Co. on
January 2, 2014. This contract gives Sanford the option to purchase 1,000 shares of
MAX stock at $100 per share. The option expires on April 30, 2014. MAX shares are
trading at $100 per share on January 2, 2014, at which time Sanford pays $400 for the
call option. The $400 paid by Sanford, Inc., to Sons Investment is referred to as the
a. option premium
b. notional amount
c. strike price
d. intrinsic value
22) On June 30, 2014, Lynch Co. declared and issued a 15 percent stock dividend. Prior
to this dividend, Lynch had 50,000 shares of $10 par value common stock issued and
outstanding. The market value of Lynch Co.’s common stock on June 30, 2014, was $24
per share. As a result of this stock dividend, by what amount would Lynch’s total
stockholders’ equity increase (decrease)?
a. $0
b. $75,000
c. $70,000
d. $(70,000)
23) Which of the following is NOT true regarding restructuring charges?
a. Restructuring charges reflect a loss in asset values of assets no longer consistent with
a company’s strategic plan
b. Severance pay for employees working at terminated operations may be a component
of restructuring charges
c. Restructuring charges may include plant closing costs
d. Restructuring charges are reported as extraordinary items
24) Anson Company began operations in 2013. The company’s trading securities
portfolio, which did not change in composition during 2014, is as follows:
Ignoring income taxes, what amount should be reported as an unrealized loss on trading
securities in Anson’s 2014 income statement?
a. $0
b. $15,000
c. $25,000
d. $40,000
25) Earnings management through strategic matching is best exemplified by
a. changing the useful life of a depreciable asset
b. timing transactions such that large one-time gains and losses occur in the same
quarter
c. changing the interest rate used in accounting for leases without describing the change
in the notes to the financial statements
d. capitalizing as assets expenditures that have no future economic benefit
26) Governor Corporation entered into a direct financing lease (interest rate 12 percent)
to lease Pleasant an asset that cost Governor $90,000. The lease specified annual
year-end payments for seven years. The lease also specified that, along with the last
payment, Pleasant could purchase the asset for $8,000 cash. Under this lease agreement,
Pleasant will be required to pay annual payments of
a. $11,714
b. $12,858
c. $17,966
d. $18,928
27) Which choice best describes the information that should be disclosed related to
derivative contracts?
a. Fair value
b. Notional amount
c. Both of these
d. Neither of these
28) Which of the following taxes must be paid by both the employee and the employer?
a. Social security tax (FICA)
b. State unemployment tax
c. State withholding tax
d. Federal unemployment tax
29) Spirit Leatherworks, Inc., purchased Brechner Leather Products, a Canadian
company, on January 4, 2014. On the date of purchase, the exchange rate for 1
Canadian dollar was U.S. $0.97. Brechner Leather Products balance sheet on the date of
purchase is shown below:
Brechner Leather Products
Balance Sheet
January 4, 2014
Required:
Prepare a translated balance sheet as of January 4, 2014.
30) Gabriel Co. executed the following long-term investment transactions during the
current year.
Prepare journal entries with appropriate supporting computations for the year’s
transactions.
31) One of the most critical steps in recording the acquisition of assets is the
determination of the cost assigned to the asset. Data related to assets acquired by
Mindset Manufacturing Company are as follows:
Determine the acquisition cost for each of the assets.
32) Employees of Mayhem Fabricators, Inc. earned gross wages of $140,000 during a
recent two-week period. Employee withholdings and payroll tax percentages are
presented below:
Only $78,000 of wages are subject to FICA, and $36,000 are subject to unemployment
taxes.
33) The areas of pension plans and other post retirement benefits (such as health care
benefits) appear on the surface to be quite similar. Nonetheless, the Financial
Accounting Standards Board issued its pronouncement on other postretirement benefits
some five years after the issuance of the pronouncement on pensions.
Explain why the FASB did not consider the areas of pensions and other post retirement
benefits concurrently.
34) Since its organization on January 1, 2012, Virginia Inc. failed to properly recognize
accruals and prepayments. Selected accounts revealed the following information:
Net income reported by the company was:
Compute the corrected net income for the years 2012, 2013, and 2014. (Ignore income
taxes.)
35) On January 1, 2014, the records of the Marathon Corporation showed these
balances:
During 2014 and 2015, these transactions occurred:
Provide the entries to record the declaration and payment of the stock dividends during
2014 and 2015.
36) On March 1, 2014, the Hauk Company paid $400,000 for all the issued and
outstanding stock of Bodo Corporation in a transaction properly accounted for as a
purchase. The market values of the assets and liabilities of Bodo Corporation on March
1, 2014, are as follows:
Make the journal entry necessary for Hauk to record the purchase.
