1) Preparation of consolidated financial statements when a parent-subsidiary
relationship exists is an example of the
a.economic entity assumption
b.relevance characteristic
c.comparability characteristic
d.neutrality characteristic
2) Beeman Company exchanged machinery with an appraised value of $3,510,000, a
recorded cost of $5,400,000 and accumulated depreciation of $2,700,000 with Lacey
Corporation for machinery Lacey owns. The machinery has an appraised value of
$3,390,000, a recorded cost of $6,480,000, and accumulated depreciation of
$3,564,000. Lacey also gave Beeman $120,000 in the exchange. Assume depreciation
has already been updated.
Instructions
(a)Prepare the entries on both companies’ books assuming that the exchange had
commercial substance. (Round all computations to the nearest dollar.)
(b)Prepare the entries on both companies’ books assuming that the exchange lacked
commercial substance. (Round all computations to the nearest dollar.)
3) Which of the following should be excluded from long-term liabilities?
a.Obligations payable at some date beyond the operating cycle
b.Most pension obligations
c.Long-term liabilities that mature within the operating cycle and will be paid from a
sinking fund
d.None of these answer choices are correct
4) Information for Ramirez Corp. is given below:
Ramirez Corp.
Balance Sheet
December 31, 2015
AssetsEquities
Cash$ 200,000Accounts payable$ 420,000
Accounts receivable (net)1,300,000Income taxes payable126,000
Inventories1,626,000Miscellaneous accrued payables150,000
Plant and equipment,Bonds payable (10%, due 2017)1,250,000
net of depreciation1,322,000Preferred stock ($100 par, 6%
Patents174,000cumulative nonparticipating)500,000
Other intangible assets 50,000Common stock (no par, 30,000
Total Assets$4,672,000shares authorized, issued
and outstanding)750,000
Retained earnings1,626,000
Treasury stock1,000 shares
of preferred (150,000)
Total Equities$4,672,000
Ramirez Corp.
Income Statement
Year Ended December 31, 2015
Net sales$6,000,000
Cost of goods sold 4,000,000
Gross profit2,000,000
Operating expenses (including bond interest expense) 1,000,000
Income before income taxes 1,000,000
Income tax 300,000
Net income$ 700,000
Additional information:
There are no preferred dividends in arrears, the balances in the Accounts Receivable
and Inventory accounts are unchanged from January 1, 2015, and there were no changes
in the Bonds Payable, Preferred Stock, or Common Stock accounts during 2015 .
Assume that preferred dividends for the current year have not been declared.
At December 31, 2015, the book value per share of common stock was
a.$74.21
b.$77.55
c.$79.20
d.$78.20
5) What best describes the time value of money?
a.The interest rate charged on a loan
b.Accounts receivable that are determined uncollectible
c.An investment in a checking account
d.The relationship between time and money
6) On January 1, 2015, Newlin Co. has the following balances:
Projected benefit obligation$2,100,000
Fair value of plan assets1,800,000
The settlement rate is 10%. Other data related to the pension plan for 2015 are:
Service cost$180,000
Amortization of prior service costs due to increase in benefits60,000
Contributions300,000
Benefits paid135,000
Actual return on plan assets237,000
Amortization of net gain18,000
The fair value of plan assets at December 31, 2015 is
a.$2,337,000
b.$2,100,000
c.$2,202,000
d.$2,065,000
7) Presented below is information related to the pension plan of Zimmer Inc. for the
year 2015 .
1>The service cost related to pension expense is $240,000 using the projected benefits
approach.
2>The projected benefit obligation and the accumulated benefit obligation at the
beginning of the year are $320,000 and $280,000, respectively. The expected return on
plan assets is 9% and the settlement rate is 10%.
3>The accumulated OCI – prior service cost at the beginning of the year is $140,000.
The company has a workforce of 200 employees, all who are expected to receive
benefits under the plan. The total number of service-years is 1,000 and the service-years
attributable to 2015 is 200 . The company has decided to use the years-of-service
method of amortization for these costs.
4>At the beginning of the period, fair value of pension plan assets, $280,000. The
company had an Accumulated OCI (loss) at the beginning of the period of $90,000.
Any amortization of unrecognized net loss is recognized on a straight-line basis over
the average remaining service-life of the employees.
5>The contribution made to the pension fund in 2015 was $229,000.
Instructions
(a)Determine the pension expense to be reported on the income statement for 2015 .
(Round all computations to nearest dollar.)
(b)Prepare the journal entry(ies) to record pension expense for 2015 .
8) Chess Top uses the periodic inventory system. For the current month, the beginning
inventory consisted of 360 units that cost $65 each. During the month, the company
made two purchases: 540 units at $68 each and 270 units at $70 each. Chess Top also
sold 900 units during the month. Using the LIFO method, what is the amount of cost of
goods sold for the month?
a.$60,786
b.$58,500
c.$61,470
d.$60,120
9) Song Company purchased a depreciable asset for $350,000 on April 1, 2012 . The
estimated salvage value is $35,000, and the estimated useful life is 5 years. The
straight-line method is used for depreciation. What is the balance in accumulated
depreciation on May 1, 2015 when the asset is sold?
a.$126,000
b.$147,000
c.$173,250
d.$194,250
10) Mars, Inc. follows IFRS for its external financial reporting. On January 1, 2015,
Mars, Inc. purchased 25% of the outstanding stock of Jerome Company (which uses
U.S. GAAP for its external financial reporting) for $790,000, and appropriately uses the
equity method to account for its investment. Jerome Company reports the following
activity for the year ended December 31, 2015:
Net loss$60,000
Dividends declared and paid20,000
Jerome Company uses the completed-contract method for revenue recognition related
to its long-term construction contracts, while Mars, Inc. uses the
percentage-of-completion method. Mars, Inc. determines that if Jerome Company had
used the percentage-of-completion method, its income would have been $100,000
higher during 2015 . What is the balance in the Investment in Jerome Company that will
be reported on Mars, Inc.s balance sheet at December 31, 2015?
a.$825,000
b.$770,000
c.$790,000
d.$785,000
11) Miller Company, a company who uses IFRS reporting standards, sells a non-current
asset classified as held-for-sale. Which of the following statements is true regarding the
treatment of a gain on a subsequent increase in the fair value less cost?
a.The gain should not be recognized
b.The gain should be recognized in full in the income statement
c.The gain should be recognized but only in retained earnings
d.The gain should be recognized to the extent that it is not in excess of the cumulative
impairment loss that has been recognized
12) Jane wants to set aside funds to take an around the world cruise in four years.
Assuming that Jane has $12,000 to invest today in an account expected to earn 6% per
annum, how much will she have to spend on her vacation?
a.$9,504
b.$15,150
c.$52,495
d.$16,059
13) In a statement of cash flows, payments to acquire debt instruments of other entities
(other than cash equivalents) should be classified as cash outflows for
a.operating activities
b.investing activities
c.financing activities
d.lending activities
14) Which of the following statements is not true as it relates to the dollar-value LIFO
inventory method?
a.It is easier to erode LIFO layers using dollar-value LIFO techniques than it is with
specific goods pooled LIFO
b.Under the dollar-value LIFO method, it is possible to have the entire inventory in only
one pool
c.Several pools are commonly employed in using the dollar-value LIFO inventory
method
d.Under dollar-value LIFO, increases and decreases in a pool are determined and
measured in terms of total dollar value, not physical quantity