1) Which of the following post-balance-sheet events would generally require disclosure,
but no adjustment of the financial statements?
a.Retirement of the company president
b.Settlement of litigation when the event that gave rise to the litigation occurred prior to
the balance sheet date
c.Employee strikes
d.Issue of a large amount of capital stock
2) What is the quality of information that is capable of making a difference in a
decision?
a.Faithful representation
b.Materiality
c.Timeliness
d.Relevance
3) Which of the following is a generally accepted method of determining the amount of
the adjustment to bad debt expense?
a.A percentage of sales adjusted for the balance in the allowance
b.A percentage of sales not adjusted for the balance in the allowance
c.A percentage of accounts receivable not adjusted for the balance in the allowance
d.An amount derived from aging accounts receivable and not adjusted for the balance in
the allowance
4) East Corporations computation of cost of goods sold is:
Beginning inventory$ 60,000
Add: Cost of goods purchased 482,000
Cost of goods available for sale542,000
Ending inventory 100,000
Cost of goods sold$442,000
The average days to sell inventory for East are
a.49.3 days
b.53.7 days
c.66.4 days
d.83.0 days
5) Worthington Chandler Company purchased equipment for $36,000. Sales tax on the
purchase was $2,400. Other costs incurred were freight charges of $600, repairs of $350
for damage during installation, and installation costs of $675. What is the cost of the
equipment?
a.$36,000
b.$38,400
c.$39,675
d.$40,725
6) A debt security is transferred from one category to another. Generally acceptable
accounting principles require that for this particular reclassification (1) the security be
transferred at fair value at the date of transfer, and (2) the unrealized gain or loss at the
date of transfer currently carried as a separate component of stockholders’ equity be
amortized over the remaining life of the security. What type of transfer is being
described?
a.Transfer from trading to available-for-sale
b.Transfer from available-for-sale to trading
c.Transfer from held-to-maturity to available-for-sale
d.Transfer from available-for-sale to held-to-maturity
7) Phase D of convergence project addresses the _______.
a.elements and recognition
b.reporting entity
c.monetary unit assumption
d.periodicity assumption
8) On October 1, 2014 Bartley Corporation issued 5%, 10-year bonds with a face value
of $5,000,000 at 104 . Interest is paid on October 1 and April 1, with any premiums or
discounts amortized on a straight-line basis.
The entry to record the issuance of the bonds would include a
a.credit of $125,000 to Interest Payable
b.credit of $200,000 to Premium on Bonds Payable
c.credit of $4,800,000 to Bonds Payable
d.debit of $200,000 to Discount on Bonds Payable
9) Horton Co. was organized on January 2, 2014, with 500,000 authorized shares of $10
par value common stock. During 2014, Horton had the following capital transactions:
January 5issued 375,000 shares at $14 per share.
July 27purchased 25,000 shares at $11 per share.
November 25sold 18,000 shares of treasury stock at $13 per share.
Horton used the cost method to record the purchase of the treasury shares. What would
be the balance in the Paid-in Capital from Treasury Stock account at December 31,
2014?
a.$0
b.$18,000
c.$36,000
d.$54,000
10) The date on which to measure the compensation element in a stock option granted
to a corporate employee ordinarily is the date on which the employee
a.is granted the option
b.has performed all conditions precedent to exercising the option
c.may first exercise the option
d.exercises the option
11) Challenges to convergence of IFRS with U.S. GAAP include all of the following
except
a.cultural differences exist between countries
b.the litigious environment in the U.S. is best suited to very detailed standards
c.legal barriers to change include the difficulty associated with changing loan covenants
d.political issues result in politicians setting the final accounting standards
12) Why is the liability section of the balance sheet of primary importance to bankers?
a.To evaluate the entity’s credit quality
b.To assist in understanding the entity’s liquidity
c.To better understand sources of repayment
d.To evaluate operating efficiency
13) On October 1, 2014, Renfro Company purchased to hold to maturity, 3,000, $1,000,
9% bonds for $2,970,000 which includes $45,000 accrued interest. The bonds, which
mature on February 1, 2023, pay interest semiannually on February 1 and August 1 .
Renfro uses the straight-line method of amortization. The bonds should be reported in
the December 31, 2014 balance sheet at a carrying value of
a.$2,925,000
b.$2,927,250
c.$2,970,000
d.$2,970,750
14) Mini Corp. acquires a patent from Maxi Co. in exchange for 2,500 shares of Mini
Corp.s $5 par value common stock and $95,000 cash. When the patent was initially
issued to Maxi Co., Mini Corp.s stock was selling at $7.50 per share. When Mini Corp.
acquired the patent, its stock was selling for $9 a share. Mini Corp. should record the
patent at what amount?
a.$107,500
b.$113,750
c.$117,500
d.$95,000
15) Contreras Corporation acquired a patent on May 1, 2015 . Contreras paid cash of
$25,000 to the seller. Legal fees of $900 were paid related to the acquisition. What
amount should be debited to the patent account?
a.$900
b.$24,100
c.$25,000
d.$25,900
16) What would you pay for an investment that pays you $30,000 at the end of each
year for the next ten years and then returns a maturity value of $450,000 after ten years?
Assume that the relevant interest rate for this type of investment is 8%.
a.$208,437
b.$201,303
c.$217,404
d.$409,737
17) Valuing assets at their liquidation values rather than their cost is inconsistent with
the
a.periodicity assumption
b.expense recognition principle
c.materiality constraint
d.historical cost principle
18) In January 2014, Finley Corporation, a newly formed company, issued 10,000
shares of its $10 par common stock for $15 per share. On July 1, 2014, Finley
Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The
acquisition of these treasury shares
a.decreased total stockholders’ equity
b.increased total stockholders’ equity
c.did not change total stockholders’ equity
d.decreased the number of issued shares
19) Earnings per share data are required on the face of the
a.statement of retained earnings
b.statement of stockholders’ equity
c.income statement
d.balance sheet
20) What is the rationale behind the ceiling when applying the lower-of-cost-or-market
method to inventory?
a.Prevents understatement of the inventory value
b.Allows for a normal profit to be earned
c.Allows for items to be valued at replacement cost
d.Prevents overstatement of the value of obsolete or damaged inventories