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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.
3) A general journal chronologically lists transactions and other events, expressed in
terms of debits and credits to accounts.
4) Companies allocate the proceeds received from a lump-sum sale of securities based
on the securities par values.
5) Companies include postdated checks and petty cash funds as cash.
6) The FASB encourages the use of the indirect method over the direct method.
7) Under IFRS, if an estimate is being developed for a large number of items with
varied outcomes, then the expected value method is used.
8) A loss in the current period on a profitable contract must be recognized under both
the percentage-of-completion and completed-contract method.
9) Both merchandising and manufacturing companies normally have multiple inventory
accounts.
10) An adjustment for wages expense, earned but unpaid at year end, is an example of
an accrued expense.
11) Trade receivables include notes receivable and advances to officers and employees.
12) If an FASB standard creates a new principle, expresses preference for, or rejects a
specific accounting principle, the change is considered clearly acceptable.
13) With respect to accounting for inventories, which of the following is a difference
that exists for IFRS, as opposed to U.S. GAAP?
a.There is required recognition of certain development costs
b.The FIFO method of inventories is prohibited
c.The specific identification method of inventories is only allowed when goods are
interchangeable
d.The weighted average method of inventories is prohibited
14) Paige Co. took advantage of market conditions to refund debt. This was the fourth
refunding operation carried out by Paige within the last three years. The excess of the
carrying amount of the old debt over the amount paid to extinguish it should be reported
as a
a.gain, net of income taxes
b.loss, net of income taxes
c.part of continuing operations
d.deferred credit to be amortized over the life of the new debt
15) Which of the following statements is true when comparing the accounting for
leasing transactions under U.S. GAAP with IFRS?
a.IFRS requires that companies provide a year-by-year breakout of future
noncancelable lease payments due in years 1 through 5
b.IFRS for leases is more rules-based than U.S. GAAP and includes many bright-line
criteria to determine ownership
c.The IFRS leasing standard is the subject of over 30 interpretations since its issuance
in 1982
d.IFRS does not provide detailed guidance for leases of natural resources,
sale-leasebacks, and leveraged leases
16) On July 1, 2014, an interest payment date, $90,000 of Parks Co. bonds were
converted into 1,800 shares of Parks Co. common stock each having a par value of $45
and a market value of $54. There is $3,600 unamortized discount on the bonds. Using
the book value method, Parks would record
a.no change in paid-in capital in excess of par
b.a $5,400 increase in paid-in capital in excess of par
c.a $10,800 increase in paid-in capital in excess of par
d.a $7,200 increase in paid-in capital in excess of par
17) Sosa Co.'s stockholders' equity at January 1, 2014 is as follows:
Common stock, $10 par value; authorized 300,000 shares;
Outstanding 225,000 shares$2,250,000
Paid-in capital in excess of par600,000
Retained earnings 2,190,000
Total$5,040,000
During 2014, Sosa had the following stock transactions:
Acquired 6,000 shares of its stock for $270,000.
Sold 3,600 treasury shares at $50 a share.
Sold the remaining treasury shares at $41 per share.
No other stock transactions occurred during 2014. Assuming Sosa uses the cost method
to record treasury stock transactions, the total amount of all additional paid-in capital
accounts at December 31, 2014 is
a.$591,600
b.$570,000
c.$608,400
d.$627,600
18) Huff Co. exchanged nonmonetary assets with Sayler Co. No cash was exchanged
and the exchange had no commercial substance. The carrying amount of the asset
surrendered by Huff exceeded both the fair value of the asset received and Sayler's
carrying amount of that asset. Huff should recognize the difference between the
carrying amount of the asset it surrendered and
a.the fair value of the asset it received as a loss
b.the fair value of the asset it received as a gain
c.Sayler's carrying amount of the asset it received as a loss
d.Sayler's carrying amount of the asset it received as a gain
19) Haystack, Inc. manufactures machinery used in the mining industry. On January 2,
2015 it leased equipment with a cost of $320,000 to Silver Point Co. The 5-year lease
calls for a 10% down payment and equal annual payments of $146,518 at the end of
each year. The equipment has an expected useful life of 5 years. Silver Points
incremental borrowing rate is 10%, and it depreciates similar equipment using the
double-declining balance method. The selling price of the equipment is $520,000, and
the rate implicit in the lease is 8%, which is known to Silver Point Co. What is the book
value of the leased asset at December 31, 2015?
a.$520,000
b.$416,000
c.$312,000
d.$332,800
20) On December 1, 2014, Kelso Company acquired new equipment in exchange for
old equipment that it had acquired in 2011 . The old equipment was purchased for
$140,000 and had a book value of $53,200. On the date of the exchange, the old
equipment had a fair value of $56,000. In addition, Kelso paid $182,000 cash for the
new equipment, which had a list price of $252,000. The exchange lacked commercial
substance. At what amount should Kelso record the new equipment for financial
accounting purposes?
a.$182,000
b.$235,200
c.$238,000
d.$252,000
21) Major reasons why a company may become involved in leasing to other companies
is (are)
a.interest revenue
b.high residual values
c.tax incentives
d.All of these answers are correct
22) During 2014, Vaughn Corporation sold merchandise costing $2,250,000 on an
installment basis for $3,000,000. The cash receipts related to these sales were collected
as follows: 2014, $1,200,000; 2015, $1,050,000; 2016, $750,000.
What is the rate of gross profit on the installment sales made by Vaughn Corporation
during 2014?
a.75%
b.60%
c.40%
d.25%
23) Which of the following is correct?
a.Selling costs are product costs
b.Manufacturing overhead costs are product costs
c.Interest costs for routine inventories are product costs
d.All of these answers are correct
24) In a defined-benefit plan, a formula is used that
a.requires that the benefit of gain or the risk of loss from the assets contributed to the
pension plan be borne by the employee
b.defines the benefits that the employee will receive at the time of retirement
c.requires that pension expense and the cash funding amount be the same
d.defines the contribution the employer is to make; no promise is made concerning the
ultimate benefits to be paid out to the employees
25) What interest rate (the nearest percent) must Charlie earn on a $226,000 investment
today so that he will have $570,000 after 12 years?
a.6%
b.7%
c.8%
d.9%
26) Intangible assets are reported on the balance sheet
a.with an accumulated depreciation account
b.in the property, plant, and equipment section
c.separately from other assets
d.None of these answer choices are correct
27) Watt Company purchased $300,000 of bonds for $315,000. If Watt intends to hold
the securities to maturity, the entry to record the investment includes
a.a debit to Held-to-Maturity Securities at $300,000
b.a credit to Premium on Investments of $15,000
c.a debit to Held-to-Maturity Securities at $315,000
d.None of these answers are correct
28) At Ruth Company, events and transactions during 2014 included the following. The
tax rate for all items is 30%.
(1)Depreciation for 2012 was found to be understated by $90,000.
(2)A strike by the employees of a supplier resulted in a loss of $75,000.
(3)The inventory at December 31, 2012 was overstated by $120,000.
(4)A flood destroyed a building that had a book value of $1,500,000. Floods are very
uncommon in that area.
The effect of these events and transactions on 2014 income from continuing operations
net of tax would be
a.($52,500)
b.($115,500)
c.($199,500)
d.($1,249,500)
29) How should unearned discounts, finance charges, and interest included in the face
amount of installment accounts receivable be presented in the balance sheet?
a.As a current liability
b.As a deduction from the related installment accounts receivable
c.Within the net amount of installment accounts receivable
d.As an addition to the related installment accounts receivable
30) Eaton Co. sells major household appliance service contracts for cash. The service
contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts
are credited to Unearned Service Revenue. This account had a balance of $3,800,000 at
December 31, 2014 before year-end adjustment. Service contract costs are charged as
incurred to the Service Contract Expense account, which had a balance of $900,000 at
December 31, 2014 .
Service contracts still outstanding at December 31, 2014 expire as follows:
During 2015$960,000
During 20161,140,000
During 2017700,000
What amount should be reported as Unearned Service Revenue in Eaton's December
31, 2014 balance sheet?
a.$2,900,000
b.$2,800,000
c.$1,900,000
d.$1,000,000
31) On January 1, 2014, Gore Co. sold to Cey Corp. $800,000 of its 10% bonds for
$708,236 to yield 12%. Interest is payable semiannually on January 1 and July 1 . What
amount should Gore report as interest expense for the six months ended June 30, 2014?
a.$35,412
b.$40,000
c.$42,494
d.$48,000
32) The basic limitations associated with ratio analysis include
a.the lack of comparability among firms in a given industry
b.the use of estimated items in accounting
c.the use of historical costs in accounting
d.All of these answers are correct
