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1) IFRS requires that Company A consolidate Company B when it controls and owns at
least 50% of Company B.
2) The provision for a loss on an unprofitable contract may be combined with the
Construction in Process account balance under percentage-of-completion but not
completed-contract.
3) In a business combination, a company assigns the cost, where possible, to the
identifiable tangible and intangible assets, with the remainder recorded as goodwill.
4) A disadvantage of LIFO is that it does not match more recent costs against current
revenues as well as FIFO.
5) The phrase income from continuing operations is used only when gains or losses on
discontinued operations occur.
6) Real (permanent) accounts are revenue, expense, and dividend accounts and are
periodically closed.
7) Freight charges on goods purchased are considered a period cost and therefore are
not part of the cost of the inventory.
8) Compound interest uses the accumulated balance at each year end to compute
interest in the succeeding year.
9) U.S. GAAP, per SFAS No. 153, now requires that gains on exchanges of
nonmonetary assets be recognized if the exchange lacks commercial substance.
10) The full disclosure principle, as adopted by the accounting profession, is best
described by which of the following?
a.All information related to an entity's business and operating objectives is required to
be disclosed in the financial statements
b.Information about each account balance appearing in the financial statements is to be
included in the notes to the financial statements
c.Enough information should be disclosed in the financial statements so a person
wishing to invest in the stock of the company can make a profitable decision
d.Disclosure of any financial facts significant enough to influence the judgment of an
informed reader
11) At the end of the fiscal year, Apha Airlines has an outstanding purchase
commitment for the purchase of 1 million gallons of jet fuel at a price of $4.60 per
gallon for delivery during the coming summer. The company prices its inventory at the
lower of cost or market. If the market price for jet fuel at the end of the year is $4.25,
how would this situation be reflected in the annual financial statements?
a.Record unrealized gains of $350,000 and disclose the existence of the purchase
commitment
b.No impact
c.Record unrealized losses of $350,000 and disclose the existence of the purchase
commitment
d.Only disclose the existence of the purchase commitment
12) Day Company purchased a patent on January 1, 2014 for $480,000. The patent had
a remaining useful life of 10 years at that date. In January of 2015, Day successfully
defends the patent at a cost of $216,000, extending the patents life to 12/31/26. What
amount of amortization expense would Day record in 2015?
a.$48,000
b.$54,000
c.$58,000
d.$72,000
13) Presented below is information available for Marley Company.
Current Assets
Cash$ 4,000
Short-term investments65,000
Accounts receivable61,000
Inventory110,000
Prepaid expenses 30,000
Total current assets$270,000
Total current liabilities are $100,000. The acid-test ratio for Marley is:
a.2.80 to 1
b.2.40 to 1
c.1.30 to 1
d.0.69 to 1
14) At its date of incorporation, Sauder, Inc. issued 100,000 shares of its $10 par
common stock at $11 per share. During the current year, Sauder acquired 20,000 shares
of its common stock at a price of $16 per share and accounted for them by the cost
method. Subsequently, these shares were reissued at a price of $12 per share. There
have been no other issuances or acquisitions of its own common stock. What effect does
the reissuance of the stock have on the following accounts?
Retained EarningsAdditional Paid-in Capital
a.DecreaseDecrease
b.No effectDecrease
c.DecreaseNo effect
d.No effectNo effect
15) During 2014, Martin Corporation sold merchandise costing $3,500,000 on an
installment basis for $5,000,000. The cash receipts related to these sales were collected
as follows: 2014, $2,000,000; 2015, $1,750,000; 2016, $1,250,000.
What amount would be shown in the December 31, 2015 financial statements for
realized gross profit on 2014 installment sales, and deferred gross profit on 2014
installment sales, respectively?
a.$525,000 and $375,000
b.$975,000 and $525,000
c.$375,000 and $1,125,000
d.$525,000 and $1,125,000
16) The joint project of the Financial Accounting Standards Board (FASB) and the
International Accounting Standards Board (IASB) related to revenue recognition
includes
I. Evaluating a customer-consideration model
II. Eliminating inconsistencies in the existing conceptual guidance
III. Establishing a single, comprehensive standard
a.II and III only
b.I and II only
c.I, II, and III
d.Neither I, II, nor III are currently included in the joint project of the FASB and IASB
17) The reason goodwill is sometimes referred to as a master valuation account is
because
a.it represents the purchase price of a business that is about to be sold
b.it is the difference between the fair value of the net tangible and identifiable
intangible assets and the purchase price of the acquired business
c.the value of a business is computed without consideration of goodwill and then
goodwill is added to arrive at a master valuation
d.it is the only account in the financial statements that is based on value, all other
accounts are recorded at an amount other than their value
18) Twilight Corporation acquired End-of-the-World Products on January 1, 2014 for
$6,400,000, and recorded goodwill of $1,200,000 as a result of that purchase. At
December 31, 2015, the End-of-the-World Products Division had a fair value of
$5,440,000. The net identifiable assets of the Division (excluding goodwill) had a fair
value of $4,640,000 at that time. What amount of loss on impairment of goodwill
should Twilight record in 2015?
a.$ -0-
b.$400,000
c.$560,000
d.$960,000
19) Putnam, Inc.
Comparative Balance Sheets
December 31,
20152014
Assets:
Current Assets:
Cash$ 1,380,000$1,080,000
Accounts Receivable (net)3,120,0002,160,000
Inventory3,900,0002,520,000
Prepaid Expenses 702,000 630,000
Total Current Assets9,102,0006,390,000
Long-Term Investments450,000
Plant Assets:
Property, Plant & Equipment4,380,0002,880,000
Accumulated Depreciation (900,000) (540,000)
Total Plant Assets 3,480,000 2,340,000
Total Assets$13,032,000$8,730,000
Equities:
Current Liabilities:
Accounts Payable$ 2,550,000$2,190,000
Accrued Expenses618,000564,000
Dividends Payable 402,000
Total Current Liabilities3,570,0002,754,000
Long-Term Notes Payable1,650,000
Stockholders' Equity:
Common Stock6,000,0004,800,000
Retained Earnings 1,812,000 1,176,000
Total Equities$13,032,000$8,730,000
Putnam, Inc.
Comparative Income Statements
December 31,
20152014
Net Credit Sales$14,040,000$7,506,000
Cost of Goods Sold 7,830,000 3,762,000
Gross Profit6,210,0003,744,000
Operating Expenses (including Income Tax) 5,172,000 2,748,000
Net Income$1,038,000$ 996,000
Additional Information:
a.Accounts receivable and accounts payable relate to merchandise held for sale in the
normal course of business. The allowance for bad debts was the same at the end of 2015
and 2014, and no receivables were charged against the allowance. Accounts payable are
recorded net of any discount and are always paid within the discount period.
b.The proceeds from the note payable were used to finance the acquisition of property,
plant, and equipment. Capital stock was sold to provide additional working capital.
The amount to be shown on the cash flow statement as net cash provided by financing
activities would total what amount?
a.$2,850,000
b.$1,650,000
c.$1,200,000
d.$816,000
20) Alonzo Co. acquires 3 patents from Shaq Corp. for a total of $270,000. The patents
were carried on Shaqs books as follows: Patent AA: $5,000; Patent BB: $2,000; and
Patent CC: $3,000. When Alonzo acquired the patents their fair values were: Patent AA:
$20,000; Patent BB: $240,000; and Patent CC: $60,000. At what amount should Alonzo
record Patent BB?
a.$90,000
b.$180,000
c.$2,000
d.$202,500
21) Lopez Corp. incurred $840,000 of research and development costs to develop a
product for which a patent was granted on January 2, 2012 . Legal fees and other costs
associated with registration of the patent totaled $160,000. On March 31, 2015, Lopez
paid $300,000 for legal fees in a successful defense of the patent. The total amount
capitalized for the patent through March 31, 2015 should be
a.$460,000
b. $1,000,000
c.$1,140,000
d.$1,300,000
22) Impairments are
a.based on discounted cash flows for securities
b.recognized as a realized loss if the impairment is judged to be temporary
c.based on fair value for available-for-sale investments and on negotiated values for
held-to-maturity investments
d.evaluated at each reporting date for every investment
23) Murphy Company sublet a portion of its warehouse for five years at an annual
rental of $60,000, beginning on May 1, 2014 . The tenant, Sheri Charter, paid one year's
rent in advance, which Murphy recorded as a credit to Unearned Rent Revenue.
Murphy reports on a calendar-year basis. The adjustment on December 31, 2014 for
Murphy should be
a.No entry
b.Unearned Rent Revenue 20,000
Rent Revenue 20,000
c.Rent Revenue 20,000
Unearned Rent Revenue 20,000
d.Unearned Rent Revenue 40,000
Revenue Revenue40,000
24) The adjusted trial balance of Ryan Financial Planners appears below. Using
the information from the adjusted trial balance, you are to prepare for the month
ending December 31:
1>an income statement.
2>a retained earnings statement.
3>a balance sheet.
RYAN FINANCIAL PLANNERS
Adjusted Trial Balance
December 31, 2014
DebitCredit
Cash $ 2,900
Accounts Receivable2,200
Supplies1,800
Equipment16,000
Accumulated DepreciationEquipment$ 4,000
Accounts Payable3,300
Unearned Service Revenue5,000
Common Stock10,000
Retained Earnings4,400
Dividends2,000
Service Revenue4,200
Supplies Expense600
Depreciation Expense2,500
Rent Expense 2,900______
$30,900$30,900
25) There are four types of temporary differences. For each type: (1) indicate the cause
of the difference, (2) give an example, and (3) indicate whether it will create a taxable
or deductible amount in the future.
26) In the space provided at the right, write the word or phrase that is defined or
indicated.
1>Revenue and expense accounts.
2>An optional step in the accounting
cycle.
3>A revenue collected, but not recognized.
4>A revenue recognized, but not collected.
5>Asset, liability, and equity accounts.
6>An expense paid, but not incurred.
7>An expense incurred, but not paid.
27) The stockholders' equity section of Lemay Corporation shows the following on
December 31, 2015:
Preferred stock5%, $100 par, 5,000 shares outstanding$ 500,000
Common stock$10 par, 60,000 shares outstanding600,000
Paid-in capital in excess of par200,000
Retained earnings 113,000
Total stockholders' equity$1,413,000
Instructions
Assuming that all of the company's retained earnings are to be paid out in dividends on
12/31/15 and that preferred dividends were last paid on 12/31/13, show how much the
preferred and common stockholders should receive if the preferred stock is cumulative
and fully participating.
28) The records for Kiley Company showed the following for 2014:
Jan. 1 Dec. 31
Unearned revenue$1,100$2,160
Accrued revenue1,260920
Cash collected during the year for revenue, $65,000
Show the computation of the amount of revenue that should be reported on the income
statement.
29) A truck was acquired on July 1, 2012, at a cost of $162,000. The truck had a
six-year useful life and an estimated salvage value of $18,000. The straight-line method
of depreciation was used. On January 1, 2015, the truck was overhauled at a cost of
$15,000, which extended the useful life of the truck for an additional two years beyond
that originally estimated (salvage value is still estimated at $18,000). In computing
depreciation for annual adjustment purposes, expense is calculated for each month the
asset is owned.
Instructions
Prepare the appropriate entries for January 1, 2015 and December 31, 2015 .
30) Hodge Co. exchanged Building 24 which has an appraised value of $4,800,000, a
cost of $7,590,000, and accumulated depreciation of $3,600,000 for Building M
belonging to Fine Co. Building M has an appraised value of $4,512,000, a cost of
$9,030,000, and accumulated depreciation of $4,752,000. The correct amount of cash
was also paid. Assume depreciation has already been updated.
Instructions
Prepare the entries on both companies' books assuming the exchange had no
commercial substance. Show a check of the amount recorded for Building M on
Hodge's books. (Round to the nearest dollar.)
31) On January 1, a store had inventory of $48,000. January purchases were $46,000
and January sales were $90,000. On February 1 a fire destroyed most of the inventory.
The rate of gross profit was 25% of cost. Merchandise with a selling price of $7,500
remained undamaged after the fire. Compute the amount of the fire loss, assuming the
store had no insurance coverage. Label all figures.
32) Moon Company includes 1 coupon in each box of soap powder that it packs, 10
coupons being redeemable for a premium consisting of a kitchen utensil. In 2014, Moon
Company purchased 36,000 premiums at $1.00 each and sold 540,000 boxes of soap
powder @ $4.00 per box. Based on past experience, it is estimated that 60% of the
coupons will be redeemed. During 2014, 144,000 coupons were presented for
redemption.
During 2015, 29,000 premiums were purchased at $1.10. The company sold 1,200,000
boxes of soap at $4.00 and 495,000 coupons were presented for redemption.
Instructions
Prepare all the entries that would be made relative to sales of soap powder and to the
premium plan in both 2014 and 2015 . Assume a FIFO inventory flow.
33) Provide clear, concise answers for the following.
1>What are revenues?
2>What are expenses?
3>What are gains?
4>What are losses?
5>What are the criteria (in addition to materiality) that must be met to classify an event
or transaction as extraordinary?
6>When does a discontinued operation occur?
7>Indicate how earnings per share is computed.
8>State the primary category of prior period adjustments and indicate how they are
reported in the financial statements.
