1) As in U.S. GAAP, under IFRS the costs associated with research and development
are segregated into two components.
2) Companies report the cash flows from purchases and sales of trading securities as
cash flows from operating activities.
3) The cost method records all transactions in treasury shares at their cost and reports
the treasury stock as a deduction from capital stock only.
4) If two annuities have the same number of rents with the same dollar amount, but one
is an annuity due and one is an ordinary annuity, the future value of the annuity due will
be greater than the future value of the ordinary annuity.
5) IFRS permits the same depreciation methods as U.S GAAP, with the exception of the
units-of-production method, which is not allowed under IFRS.
6) Bank overdrafts are always offset against the cash account in the balance sheet.
7) Companies report Accumulated Other Comprehensive Income (PSC) as a liability on
the balance sheet.
8) A possible source of taxable income that may be available to realize a tax benefit for
loss carryforwards is future reversals of existing taxable temporary differences.
9) Goodwill is considered a master valuation accounts because it measure the value of
specifically identifiable intangible assets.
10) FASB standards directly affect financial statements, notes to the financial
statements, and managements discussion and analysis.
11) The service period in stock option plans is the time between the grant date and the
vesting date.
12) The percentage-of-sales and percentage-of-receivables approaches are used for
impairment measurement and reporting.
13) GAAP requires reporting inventory at net realizable value, even if above cost,
whenever there is a controlled market with a quoted price applicable to all quantities.
14) Rathke, Inc. has a defined-benefit pension plan covering its 50 employees. Rathke
agrees to amend its pension benefits. As a result, the projected benefit obligation
increased by $2,400,000. Rathke determined that all its employees are expected to
receive benefits under the plan over the next 5 years. In addition, 20% are expected to
retire or quit each year. Assuming that Rathke uses the years-of-service method of
amortization for prior service cost, the amount reported as amortization of prior service
cost in year one after the amendment is
a.$480,000
b.$800,000
c.$240,000
d.$640,000
15) Which of the following best describes the cash-basis method of accounting for
warranty costs?
a.Expensed based on estimate in year of sale
b.Expensed when liability is accrued
c.Expensed when warranty claims are certain
d.Expensed when incurred
16) A company offers a cash rebate of $2 on each $6 package of batteries sold during
2014 . Historically, 10% of customers mail in the rebate form. During 2014, 6,000,000
packages of batteries are sold, and 210,000 $2 rebates are mailed to customers. What is
the rebate expense and liability, respectively, shown on the 2014 financial statements
dated December 31?
a.$1,200,000; $1,200,000
b.$1,200,000; $780,000
c.$780,000; $780,000
d.$420,000; $780,000
17) On April 1, 2013, Verlin Co. purchased new machinery for $300,000. The
machinery has an estimated useful life of five years, and depreciation is computed by
the sum-of-the-years’-digits method. The accumulated depreciation on this machinery at
March 31, 2015, should be
a.$200,000
b.$180,000
c.$120,000
d.$100,000
18) What is the following is a characteristic describing the primary quality of
relevance?
a.Predictive value
b.Materiality
c.Verifiability
d.Understandability
19) On March 1, 2014, Newton Company purchased land for an office site by paying
$1,800,000 cash. Newton began construction on the office building on March 1 . The
following expenditures were incurred for construction:
DateExpenditures
March 1, 2014$ 1,200,000
April 1, 20141,680,000
May 1, 20143,000,000
June 1, 20144,800,000
The office was completed and ready for occupancy on July 1 . To help pay for
construction, and purchase of land $2,400,000 was borrowed on March 1, 2014 on a
9%, 3-year note payable. Other than the construction note, the only debt outstanding
during 2014 was a $1,000,000, 12%, 6-year note payable dated January 1, 2014 .
Assume the weighted-average accumulated expenditures for the construction project are
$2,900,000. The amount of interest cost to be capitalized during 2014 is
a.$261,000
b.$276,000
c.$300,000
d.$336,000
20) A reversing entry should never be made for an adjusting entry that
a.accrues unrecorded revenue
b.adjusts expired costs from an asset account to an expense account
c.accrues unrecorded expenses
d.adjusts unexpired costs from an expense account to an asset account
21) On January 1, 2015, Dean Corporation signed a ten-year noncancelable lease for
certain machinery. The terms of the lease called for Dean to make annual payments of
$150,000 at the end of each year for ten years with the title passing to Dean at the end
of this period. The machinery has an estimated useful life of 15 years and no salvage
value. Dean uses the straight-line method of depreciation for all of its fixed assets. Dean
accordingly accounted for this lease transaction as a capital lease. The lease payments
were determined to have a present value of $1,006,512 at an effective interest rate of
8%. With respect to this capitalized lease, Dean should record for 2015
a.lease expense of $150,000
b.interest expense of $67,101 and depreciation expense of $57,102
c.interest expense of $80,521 and depreciation expense of $67,101
d.interest expense of $68,522 and depreciation expense of $100,652
22) If Labor, Inc. uses the composite method and its composite rate is 7.5% per year,
what entry should it make when plant assets that originally cost $80,000 and have been
used for 10 years are sold for $24,000?
a.Cash24,000
Accumulated Depreciation – Plant Assets56,000
Plant Assets80,000
b.Cash24,000
Loss on Sale of Plant Assets56,000
Plant Assets80,000
c.Cash24,000
Accumulated Depreciation – Plant Assets60,000
Plant Assets80,000
Gain on Sale of Plant Assets 4,000
d.Cash24,000
Plant Assets24,000
23) Accounting recognition should be given to some or all of the gain realized on a
nonmonetary exchange of plant assets except when the exchange has
a.no commercial substance and additional cash is paid
b.no commercial substance and additional cash is received
c.commercial substance and additional cash is paid
d.commercial substance and additional cash is received
24) Davis Company purchased a new piece of equipment on July 1, 2014 at a cost of
$1,800,000. The equipment has an estimated useful life of 5 years and an estimated
salvage value of $150,000. The current year end is 12/31/1 Davis records depreciation
to the nearest month.
What is straight-line depreciation for 2015?
a.$165,000
b.$180,000
c.$330,000
d.$360,000
25) Total stockholders’ equity represents
a.a claim to specific assets contributed by the owners
b.the maximum amount that can be borrowed by a company
c.a claim against a portion of the total assets of a company
d.only the amount of earnings that have been retained in the business
26) During 2014 Carne Corporation transferred inventory to Nolan Corporation and
agreed to repurchase the merchandise early in 2015 . Nolan then used the inventory as
collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2015 when
Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan.
On whose books should the cost of the inventory appear at the December 31, 2014
balance sheet date?
a.Carne Corporation
b.Nolan Corporation
c.Norwalk Bank
d.Nolan Corporation, with Carne making appropriate note disclosure of the transaction
27) Seasons Construction is constructing an office building under contract for Cannon
Company. The contract calls for progress billings and payments of $1,240,000 each
quarter. The total contract price is $14,880,000 and Seasons estimates total costs of
$14,200,000. Seasons estimates that the building will take 3 years to complete, and
commences construction on January 2, 2014 .
At December 31, 2014, Seasons estimates that it is 30% complete with the construction,
based on costs incurred. What is the total amount of Revenue from Long-Term
Contracts recognized for 2014 and what is the balance in the Accounts Receivable
account assuming Cannon Cafe has not yet made its last quarterly payment?
RevenueAccounts Receivable
a.$4,960,000 $4,960,000
b.$4,260,000 $ 1,240,000
c.$4,464,000 $ 1,240,000
d.$4,260,000 $4,960,000
28) Which of the following is not a common disclosure for inventories?
a.Inventory composition
b.Inventory location
c.Inventory financing arrangements
d.Inventory costing methods employed
29) Vannoy Corporation will invest $60,000 every January 1st for the next six years
(2014 2019). If Vannoy will earn 12% on the investment, what amount will be in the
investment fund on December 31, 2019?
a.$246,684
b.$276,288
c.$486,912
d.$545,341
30) On January 2, 2014, Sloan Company issued a 5-year, $9,000,000 note at LIBOR
with interest paid annually. The variable rate is reset at the end of each year. The
LIBOR rate for the first year is 6.8%
Sloan Company decides it prefers fixed-rate financing and wants to lock in a rate of
6%. As a result, Sloan enters into an interest rate swap to pay 7% fixed and receive
LIBOR based on $9 million. The variable rate is reset to 7.4% on January 2, 2015 .
Instructions
(a)Compute the net interest expense to be reported for this note and related swap
transactions as of December 31, 2014 .
(b)Compute the net interest expense to be reported for this note and related swap
transactions as of December 31, 2015 .
31) On the December 31, 2014 balance sheet of Vanoy Co., the current receivables
consisted of the following:
Trade accounts receivable$ 60,000
Allowance for uncollectible accounts(2,000)
Claim against shipper for goods lost in transit (November 2014)3,000
Selling price of unsold goods sent by Vanoy on consignment
at 130% of cost (not included in Vanoy ‘s ending inventory)26,000
Security deposit on lease of warehouse used for storing
some inventories 30,000
Total$117,000
At December 31, 2014, the correct total of Vanoy’s current net receivables was
a.$61,000
b.$87,000
c.$91,000
d.$117,000
32) Which of the following represents a form of communication through financial
reporting but not through financial statements?
a.Balance sheet
b.President’s letter
c.Income statement
d.Notes to financial statements
33) Data relating to the balances of various accounts affected by adjusting or closing
entries appear below. (The entries which caused the changes in the balances are not
given.) You are asked to supply the missing journal entries which would logically
account for the changes in the account balances.
1>Interest receivable at 1/1/14 was $1,000. During 2014 cash received from debtors for
interest on outstanding notes receivable amounted to $5,000. The 2014 income
statement showed interest revenue in the amount of $6,400. You are to provide the
missing adjusting entry that must have been made, assuming reversing entries are not
made.
2>Unearned rent at 1/1/14 was $5,300 and at 12/31/14 was $8,000. The records indicate
cash receipts from rental sources during 2014 amounted to $55,000, all of which was
credited to the Unearned Rent Revenue account. You are to prepare the missing
adjusting entry.
3>Accumulated depreciationequipment at 1/1/14 was $230,000. At 12/31/14 the
balance of the account was $280,000. During 2014, one piece of equipment was sold.
The equipment had an original cost of $40,000 and was 3/4 depreciated when sold. You
are to prepare the missing adjusting entry.
4>Allowance for doubtful accounts on 1/1/14 was $50,000. The balance in the
allowance account on 12/31/14 after making the annual adjusting entry was $65,000
and during 2014 bad debts written off amounted to $30,000. You are to provide the
missing adjusting entry.
5>Prepaid rent at 1/1/14 was $29,000. During 2014 rent payments of $120,000 were
made and charged to “rent expense.” The 2014 income statement shows as a general
expense the item “rent expense” in the amount of $145,000. You are to prepare the
missing adjusting entry that must have been made, assuming reversing entries are not
made.
6>Retained earnings at 1/1/14 was $130,000 and at 12/31/14 it was $210,000. During
2014, cash dividends of $50,000 were paid and a stock dividend of $40,000 was issued.
Both dividends were properly charged to retained earnings. You are to provide the
missing closing entry.
34) Describe the journal entry for a stock dividend on common stock (which has a par
value).
35) As compared with the FIFO method of costing inventories, does the LIFO method
result in a larger or smaller net income in a period of rising prices? What is the
comparative effect on net income in a period of falling prices?
36) Briefly describe some of the similarities and differences between U.S. GAAP and
IFRS with respect to the accounting for inventories.
37) Define current assets without using the word “asset”.