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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 an annuity due is found by multiplying the
ordinary annuity table value by one minus the interest rate
c.The factor for the future value of an annuity due is found by subtracting from the
ordinary annuity table value for one more period
d.The factor for the present value of an annuity due is found by adding to the ordinary
annuity table value for one less period
2) A project financing arrangement refers to:
a.an arrangement where a company creates a special-purpose entity to perform a special
project
b.an arrangement where a company borrows from its subsidiary to finance a project
c.an arrangement where a company promises future repayment by placing purchased
assets in an irrevocable trust
d.an arrangement where a company finances a project from a sinking fund established
for bond repayments
3) What is the effect of net markups on the cost-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 markdowns
d.Decreases the cost-to-retail ratio
4) Ben, Inc. follows U.S. GAAP for its external financial reporting. Ben, Inc. owns 25%
of the outstanding stock of Black, Inc. and accordingly uses the equity method to
account for its investment. Which of the following is true regarding Ben, Inc.s policies
related to Black, Inc.?
a.Ben, Inc. will increase the investment account for its pro-rata share of Black, Inc.s net
loss for the year
b.Ben, Inc. will increase the investment account for its pro-rata share of the dividends
paid out by Black, Inc. for the year
c.Ben, Inc. will conform the accounting policies of Black, Inc. to its own accounting
policies
d.None of these is true regarding how Ben, Inc. accounts for its investment in Black,
Inc
5) Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten
years from date of issue. If the bonds were issued at a premium, this indicates that
a.the effective yield or market rate of interest exceeded the stated (nominal) rate
b.the nominal rate of interest exceeded the market rate
c.the market and nominal rates coincided
d.no necessary relationship exists between the two rates
6) During 2013, Rao Co. introduced a new line of machines that carry a three-year
warranty against manufacturers defects. Based on industry experience, warranty costs
are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 5% in the
second year after sale. Sales and actual warranty expenditures for the first three-year
period were as follows: (assume the accrual method)
SalesActual Warranty Expenditures
2013$ 1,600,000$ 39,000
20142,500,00065,000
2015 2,100,000 135,000
$6,200,000$239,000
What amount should Rao report as a liability at December 31, 2015?
a.$0
b.$134,000
c.$105,000
d.$381,000
7) When an investment in an available-for-sale security is transferred to trading because
the company anticipates selling the stock in the near future, the carrying value assigned
to the investment upon entering it in the trading portfolio should be
a.its original cost
b.its fair value at the date of the transfer
c.the higher of its original cost or its fair value at the date of the transfer
d.the lower of its original cost or its fair value at the date of the transfer
8) Norton Company issues 4,000 shares of its $5 par value common stock having a fair
value of $25 per share and 6,000 shares of its $15 par value preferred stock having a
fair value of $20 per share for a lump sum of $210,000. What amount of the proceeds
should be allocated to the preferred stock?
a.$171,818
b.$131,250
c.$114,545
d.$95,454
9) Kraft Company made the following journal entry in late 2014 for rent on property it
leases to Danford Corporation.
Cash120,000
Unearned Rent Revenue 90,000
The payment represents rent for the years 2015 and 2016, the period covered by the
lease. Kraft Company is a cash basis taxpayer. Kraft has income tax payable of
$184,000 at the end of 2014, and its tax rate is 35%.
Assuming the income taxes payable at the end of 2015 is $204,000, what amount of
income tax expense would Kraft Company record for 2015?
a.$162,000
b.$183,000
c.$225,000
d.$246,000
10) The IFRS statement of recognized income and expenses
a.does not recognize charges to equity such as revaluation surplus values
b.is a required report under IFRS reporting requirements
c.reports the items that were charged directly to equity such as revaluation surplus
d.is similar to the U.S. GAAP income statement in that it only reports revenues and
expenses of the period
11) The main purpose of the Pension Benefit Guaranty Corporation is to
a.require minimum funding of pensions
b.require plan administrators to publish a comprehensive description and summary of
their plans
c.administer terminated plans and to impose liens on the employer's assets for certain
unfunded pension liabilities
d.All of these answers are correct
