1) Under IFRS recording for the issuance of Bonds Payable, the Discount on Bonds
Payable and the Paid-in Capital-Convertible Bonds could be utilized.
2) When a company has a complex capital structure, it must report both basic and
diluted earnings per share.
3) Changing the cost or equity method of accounting for investments is an example of a
change in reporting entity.
4) All dividends, except for liquidating dividends, reduce the total stockholders equity
of a corporation.
5) Under the completed-contract method, companies recognize costs only when the
contract is completed.
6) Under IFRS, the direct effects of changes in the accounting policies are applied
retrospectively.
7) Depreciation, depletion, and amortization all involve the allocation of the cost of a
long-lived asset to expense.
8) Both IFRS and U.S. GAAP require that specific items be reported on the balance
sheet.
9) Debt securities include corporate bonds and convertible debt, but not U.S.
government securities.
10) Short-term debt obligations are classified as current liabilities unless an agreement
to refinance is completed before the financial statements are issued.
11) The installment-sales method defers only the gross profit instead of both the sales
price and cost of goods sold.
12) IFRS differs from U.S. GAAP in the development phase in that costs are capitalized
once technological feasibility is achieved.
13) Which of the following items represents a potential use of cash?
a.Patent amortization
b.Sale of plant assets at a loss
c.Net loss from operations
d.Declaration of a stock dividend
14) On October 1, 2014, Wenn Company purchased 700 of the $1,000 face value, 8%
bonds of Loy, Inc., for $819,000, including accrued interest of $14,000. The bonds,
which mature on January 1, 2021, pay interest semiannually on January 1 and July 1 .
Wenn used the straight-line method of amortization and appropriately recorded the
bonds as available-for-sale. On Wenn’s December 31, 2015 balance sheet, the carrying
value of the bonds is
a.$805,000
b.$798,000
c.$795,200
d.$784,000
15) The following data concerning the retail inventory method are taken from the
financial records of Welch Company.
Cost Retail
Beginning inventory$ 147,000$ 210,000
Purchases672,000960,000
Freight-in18,000
Net markups60,000
Net markdowns42,000
Sales1,008,000
Assuming that the LIFO inventory method were used in conjunction with the data and
that the inventory at retail had increased during the period, then the computation of
retail in the cost-to-retail ratio would
a.exclude both markups and markdowns and include beginning inventory
b.include markups and exclude both markdowns and beginning inventory
c.include both markups and markdowns and exclude beginning inventory
d.exclude markups and include both markdowns and beginning inventory
16) Which of the following basic elements of financial statements is more associated
with the balance sheet than the income statement?
a.Equity
b.Revenue
c.Gains
d.Expenses
17) Of the following adjusting entries, which one would cause an increase in assets at
the end of the period?
a.The entry to record the earned portion of rent received in advance
b.The entry to accrue unrecorded interest expense
c.The entry to accrue unrecorded interest revenue
d.The entry to record expiration of prepaid insurance
18) The profession requires disaggregated information in the following ways:
a.products or services
b.geographic areas
c.major customers
d.All of these answers are correct
19) Present Value ofFuture Value of
Ordinary AnnuityOrdinary Annuity
7 periods5.20648.92280
8 periods5.746610.63663
9 periods6.246912.48756
(8% interest)
What will be the balance on September 1, 2020 in a fund which is accumulated by
making $20,000 annual deposits each September 1 beginning in 2013, with the last
deposit being made on September 1, 2020? The fund pays interest at 8% compounded
annually.
a.$212,733
b.$178,458
c.$151,200
d.$114,932
20) On May 1, Dexter, Inc. factored $1,200,000 of accounts receivable with Quick
Finance on a without recourse basis. Under the arrangement, Dexter was to handle
disputes concerning service, and Quick Finance was to make the collections, handle the
sales discounts, and absorb the credit losses. Quick Finance assessed a finance charge
of 6% of the total accounts receivable factored and retained an amount equal to 2% of
the total receivables to cover sales discounts.
Instructions
(a)Prepare the journal entry required on Dexter’s books on May 1 .
(b)Prepare the journal entry required on Quick Finances books on May 1 .
(c)Assume Dexter factors the $1,200,000 of accounts receivable with Quick Finance on
a with recourse basis instead. The recourse provision has a fair value of $21,000.
Prepare the journal entry required on Dexters books on May 1 .
(d)Explain the main advantage and disadvantage of selling receivables (1) without
recourse and (2) with recourse.
21) When using the periodic inventory system, which of the following generally would
not be separately accounted for in the computation of cost of goods sold?
a.Trade discounts applicable to purchases during the period
b.Cash (purchase) discounts taken during the period
c.Purchase returns and allowances of merchandise during the period
d.Cost of freight-in for merchandise purchased during the period
22) With regard to uncertain tax positions, the FASB requires that companies recognize
a tax benefit when
a.it is probable and can be reasonably estimated
b.there is at least a 51% probability that the uncertain tax position will be approved by
the taxing authorities
c.it is more likely than not that the tax position will be sustained upon audit
d.Any of the above exist
23) The following information for Cooper Enterprises is given below:
December 31, 2015
Assets and obligations
Plan assets (at fair value)$400,000
Accumulated benefit obligation740,000
Projected benefit obligation800,000
Other Items
Pension asset / liability, January 1, 201520,000
Contributions 240,000
Accumulated other comprehensive loss335,800
There were no actuarial gains or losses at January 1, 2015 . The average remaining
service life of employees is 10 years.
What is the pension expense that Cooper Enterprises should report for 2015?
a.$304,200
b.$440,000
c.$240,000
d.$335,800
24) During 2014, Lopez Corporation disposed of Pine Division, a major component of
its business. Lopez realized a gain of $2,400,000, net of taxes, on the sale of Pine’s
assets. Pine’s operating losses, net of taxes, were $2,800,000 in 2014 . How should
these facts be reported in Lopez’s income statement for 2014?
Total Amount to be Included in
Income fromResults of
Continuing OperationsDiscontinued Operations
a.$2,800,000 loss$2,400,000 gain
b.400,000 loss0
c.0400,000 loss
d.2,400,000 gain2,800,000 loss
25) Net cash flow from operating activities for 2015 for Spencer Corporation was
$400,000. The following items are reported on the financial statements for 2015:
Cash dividends paid on common stock$20,000
Depreciation and amortization12,000
Increase in accounts receivables24,000
Based on the information above, Spencers net income for 2015 was
a.$412,000
b.$396,000
c.$364,000
d.$356,000
26) What is meant by consistency when discussing financial accounting information?
a.Information that is measured and reported in a similar fashion across points in time
b.Information is timely
c.Information is measured similarly across the industry
d.Information is verifiable
27) A financial forecast per professional pronouncements presents to the best of the
responsible party’s knowledge and belief,
a.an entity’s expected financial position, results of operations, and cash flows
b.an assessment of the company’s ability to be successful in the future
c.given one or more hypothetical assumptions, an entity’s expected financial position,
results of operations, and cash flows
d.an assessment of the company’s ability to be successful in the future under a number
of different assumptions
28) Haystack, Inc. manufactures machinery used in the mining industry. On January 2,
2015 it leased equipment with a cost of $320,000 to Silver Point Co. The 5-year lease
calls for a 10% down payment and equal annual payments at the end of each year. The
equipment has an expected useful life of 5 years. Silver Points incremental borrowing
rate is 10%, and it depreciates similar equipment using the double-declining balance
method. The selling price of the equipment is $520,000, and the rate implicit in the
lease is 8%, which is known to Silver Point Co. What is the amount of interest expense
recorded by Silver Point Co. for the year ended December 31, 2015?
PV Annuity DuePV Ordinary AnnuityPV Single Sum
8%, 5 periods 4.31213 3.99271 .68508
10%, 5 periods 4.16986 3.79079 .62092
a.$46,800
b.$37,440
c.$41,600
d.$52,000
29) Which organization is responsible for issuing Emerging Issues Task Force
Statements?
a.The FASB
b.The CAP
c.The APB
d.The SEC
30) The balance sheets for Kinder Company showed the following information.
Additional information concerning transactions and events during 2015 are presented
below.
Kinder Company
Balance Sheet
December 31
2015 2014
Cash$ 35,900$ 10,200
Accounts receivable (net)38,30020,300
Inventory35,00042,000
Long-term investments015,000
Property, plant & equipment236,500150,000
Accumulated depreciation (37,700) (25,000)
$308,000$212,500
Accounts payable$ 17,000$ 26,500
Accrued liabilities21,00017,000
Long-term notes payable70,00050,000
Common stock130,00090,000
Retained earnings 70,000 29,000
$308,000$212,500
Additional data:
1>Net income for the year 2015, $71,000.
2>Depreciation on plant assets for the year, $12,700.
3>Sold the long-term investments for $28,000 (assume gain or loss is ordinary).
4>Paid dividends of $30,000.
5>Purchased machinery costing $21,500, paid cash.
6>Purchased machinery and gave a $60,000 long-term note payable.
7>Paid a $40,000 long-term note payable by issuing common stock.
Instructions
Using the format provided on the next page, prepare a statement of cash flows (using
the indirect method) for 2015 for Kinder Company.
Kinder Company
Statement of Cash Flows
For the Year Ended December 31, 2015
Increase (Decrease) in Cash
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Net cash provided (used) by operating activities
Cash flows from investing activities
Net cash provided (used) by investing activities
Cash flows from financing activities
Net cash provided (used) by financing activities
Net increase (decrease) in cash
Cash, January 1, 2015
Cash, December 31, 2015
31) Utley Co. prepares monthly income statements. Inventory is counted only at year
end; thus, month-end inventories must be estimated. All sales are made on account. The
rate of mark-up on cost is 20%. The following information relates to the month of May.
Accounts receivable, May 1$21,000
Accounts receivable, May 3115,000
Collections of accounts during May96,000
Inventory, May 145,000
Purchases during May58,000
Instructions
Calculate the estimated cost of the inventory on May 31 .
32) Finley Company sells office equipment. On January 1, 2015, Finley entered into an
installment sale contract with Miller Company for a six-year period expiring January 1,
2021 . Equal annual payments under the installment sale are $702,000 and are due on
January 1 . The first payment was made on January 1, 2015 .
Additional information is as follows:
The cash selling price of the equipment, i.e., the amount that would be realized on an
outright sale, is $3,438,000.
The cost of sales relating to the equipment is $2,868,000.
The finance charges relating to the installment period are $774,000 based on a stated
interest rate of 7% which is appropriate. For tax purposes, Finley appropriately uses the
accrual basis for recording finance charges.
Circumstances are such that the collection of the installment sale is reasonably assured.
The installment sale qualified for the installment method of reporting for tax purposes.
Assume that the income tax rate is 30%.
Instructions
What income (loss) before income taxes should Finley appropriately record as a result
of this transaction for the year ended December 31, 2015? Show supporting
computations in good form.
33) Evolution of a statement of financial accounting standards.
In establishing financial accounting standards, two basic premises of the FASB are (1)
The FASB should be responsive to the needs and viewpoints of the entire economic
community, not just the accounting profession. (2) It should operate in full view of the
public through a “due process” system that gives interested persons ample opportunity
to make their views known. To ensure achievement of these goals, what are the steps
taken in the evolution of an FASB Statement of Financial Accounting Standards?
34) On January 1, 2014, Solano Incorporated amended its pension plan which caused an
increase of $4,800,000 in its projected benefit obligation. The company has 400
employees who are expected to receive benefits under the company’s defined-benefit
pension plan. The personnel department provided the following information regarding
expected employee retirements:
Expected Retirements
Number of Employees On December 31
402014
1202015
602016
1602017
202018
400
The company plans to use the years-of-service method in calculating the amortization
of prior service cost as a component of pension expense.
Instructions
Prepare a schedule which shows the amount of annual prior service cost amortization
that the company will recognize as a component of pension expense from 2014 through
2018 .
