The factors that need to be determined to compute depreciation are an asset’s:
a. Cost, residual value, and physical life.
b. Cost, replacement value, and service life.
c. Fair value, residual value, and economic life.
d. Cost, residual value, and service life.
When a company pays its bill from a plumber for previous services on account:
a. Its debt to equity ratio always decreases.
b. Its acid-test ratio always remains unchanged.
c. Its current ratio always remains unchanged.
d. Its return on shareholders’ equity always decreases.
If a stock split occurred, when calculating the current year’s EPS, the shares are treated
as issued:
a. At the end of the year.
b. On the first day of the next fiscal year.
c. At the beginning of the year.
d. On the date of distribution.
When reported in financial statements, a LIFO allowance account usually:
a. Is shown in the firm’s income statement.
b. Is added to LIFO cost to indicate what the inventory would cost on a FIFO basis.
c. Indicates the effect on income if LIFO were not used.
d. Shows the current rate of inflation for that asset.
In 2015, HD had reported a deferred tax asset of $90 million with no valuation
allowance. At December 31, 2016, the account balances of HD Services showed a
deferred tax asset of $120 million before assessing the need for a valuation allowance
and income taxes payable of $80 million. HD determined that it was more likely than
not that 30% of the deferred tax asset ultimately would not be realized. HD made no
estimated tax payments during 2016. What amount should HD report as income tax
expense in its 2016 income statement?
a. $50 million.
b. $80 million.
c. $86 million.
d. $116 million.
Short Corporation acquired Hathaway, Inc., for $52,000,000. The fair value of all
Hathaway’s identifiable tangible and intangible assets was $48,000,000. Short will
amortize any goodwill over the maximum number of years allowed. What is the annual
amortization of goodwill for this acquisition?
a. $100,000.
b. $400,000.
c. $200,000.
d. $0.
Gulf Consulting Co. reported the following on its December 31, 2016, balance sheet:
Equipment (at cost)’¦..$700,000
In a disclosure note, Gulf indicates that it uses straight-line depreciation over five years
and estimates salvage value as 10% of cost. Gulf’s equipment averages 3.5 years at
December 31, 2016. What is the book value of Gulf’s equipment at December 31, 2016?
a. $490,000.
b. $441,000.
c. $259,000.
d. $210,000.
Costs incurred by the lessor that are associated directly with originating a lease and are
essential to acquire that lease are called initial direct costs. Initial direct costs are
recorded as assets and amortized over the term of the lease in:
a. An operating lease.
b. A capital lease.
c. A direct financing lease.
d. A sales-type lease.
Gains and losses can occur with pension plans when:
a. Either the PBO or the return on plan assets turns out to be different than expected.
b. Either the ABO or the return on plan assets turns out to be different than expected.
c. Either the PBO, the ABO, or the return on plan assets turns out to be different than
expected.
d. Either the PBO or the ABO turns out to be different than expected.
Auerbach Inc. issued 4% bonds on October 1, 2016. The bonds have a maturity date of
September 30, 2026 and a face value of $300 million. The bonds pay interest each
March 31 and September 30, beginning March 31, 2017. The effective interest rate
established by the market was 6%. How much cash interest does Auerbach pay on
March 31, 2017?
a. $ 6.0 million
b. $12.0 million
c. $ 9.0 million
d. $18.0 million
On June 1, 2015, the Crocus Company began construction of a new manufacturing
plant. The plant was completed on October 31, 2016. Expenditures on the project were
as follows ($ in millions):
On July 1, 2015, Crocus obtained a $70 million construction loan with a 6% interest
rate. The loan was outstanding through the end of October, 2016. The company’s only
other interest-bearing debt was a long-term note for $100 million with an interest rate of
8%. This note was outstanding during all of 2015 and 2016. The company’s fiscal
year-end is December 31. In computing the capitalized interest for 2016, Crocus’
average accumulated expenditures are:
a. $ 46.30 million.
b. $103.54 million.
c. $122.30 million.
d. $124.25 million.
MBI Company’s largest computer has a cash selling price of $200,000. A customer
wishes to buy the computer on a lease purchase plan over five years, with the first
payment to be made at the inception of the lease. Interest is at 10%.
Required:
a. Compute the amount of the annual lease payment and the gross amount due (total
payments) under the lease.
b. Compute the amount of interest income earned by MBI for the first year of the lease.
Which of the following is not reported as an adjustment to net income when using the
indirect method of computing net cash flows from operating activities?
a. Cash dividends paid.
b. A change in accounts receivable.
c. Depreciation.
d. A change in a prepaid expense.
Creditors and investors would generally find the statement of cash flows least useful for
assessing the:
a. Ability to generate future cash flows.
b. Ability to pay dividends.
c. Financial position at a point in time.
d. Quality of earnings.
A subsequent event for an entity with a December 31, 2016, year-end would not
include:
a. A change in the estimated useful lives of equipment in January 2017.
b. An issuance of bonds in January 2017.
c. An acquisition of another company in January 2017.
d. A major uncertainty at December 31, resolved in January 2017.
On September 1, 2016, Red Co., issued $48 million of its 10% bonds at face value. The
bonds are dated June 1, 2016, and mature on May 30, 2026. Interest is payable
semiannually on June 1 and December 1. At the time of issuance, Red would receive
cash proceeds that would include accrued interest of:
a. Zero.
b. $ 600,000.
c. $1,200,000.
d. $4,800,000.
Red Company is a calendar-year U.S. firm with operations in several countries. At
January 1, 2016, the company had issued 40,000 executive stock options permitting
executives to buy 40,000 shares of stock for $25. The vesting schedule is 20% the first
year, 30% the second year, and 50% the third year (graded-vesting). The fair value of
the options is estimated as follows:
What is the compensation expense related to the options to be recorded in 2017?
a. $ 48,000.
b. $ 96,000.
c. $128,000.
d. $140,000.
Melanie Corporation declared cash dividends of $13,500 during the current year. The
beginning and ending balances in dividends payable were $450 and $750, respectively.
What was the amount of cash paid for dividends?
a. $12,750.
b. $13,800.
c. $12,900.
d. $13,200.
Which of the following has the statutory authority to set accounting standards in the
United States?
a. FASB.
b. IRS.
c. SEC.
d. AICPA.
Describe the difference between external events and internal events, and provide two
examples of each.
On December 31, 2015, Rebel Corporation’s balance sheet reported the following.
During 2016, Rebel decided to discontinue accounting for share buybacks as treasury
shares. Instead, the shares will be treated as having been retired.
Required:
Prepare the appropriate journal entry to effect this change.
Listed below are 5 terms followed by a list of phrases that describe or characterize each
of the terms. Match each phrase with the number for the correct term.
The following note disclosure is taken from the 2016 annual report to shareholders of
Winchester International Corporation. NOTE 5: ALLOWANCE FOR LOAN LOSSES
The allowance for loan loss is maintained at a level to absorb probable losses inherent
in the loan portfolio. This allowance is increased by provisions charged to operating
expense and by recoveries on loans previously charged off, and reduced by charge-offs
on loans. The following is a summary of the changes in the allowances for loan losses
for three years:
Winchester also reported (in thousands) in its comparative balance sheet that it held
Loans receivable, net, of $6,869,911 and $6,819,209 at December 31, 2016, and
December 31, 2015, respectively. For each posted entry in the Allowance account
during 2016, indicate the remaining entry(ies) in other accounts.