1) A modified perpetual inventory system provides detailed inventory records of
increases and decreases in quantities only-not dollar amounts.
2) Under IAS 37 and the establishment of estimate provisions, discounting is required
where the time value of money is material.
3) The account form and the report form of the balance sheet are both acceptable under
GAAP.
4) Costs incurred subsequent to the acquisition of an asset are capitalized if they
provide future benefits.
5) Collection of a loan is reported as an investing activity in the statement of cash
flows.
6) In certain circumstances under IFRS, bank overdrafts are considered part of cash and
cash equivalents.
7) A manufacturing concern would report the cost of units only partially processed as
inventory in the balance sheet.
8) 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 .
Seasons Construction completes the remaining 25% of the building construction on
December 31, 2016, as scheduled. At that time the total costs of construction are
$15,000,000. What is the total amount of Revenue from Long-Term Contracts and
Construction Expenses that Seasons will recognize for the year ended December 31,
2016?
RevenueExpenses
a.$14,880,000$15,000,000
b.$3,720,000$ 3,750,000
c.$3,720,000$ 4,200,000
d.$3,750,000$ 3,750,000
9) Which of the following is an advantage of captive leasing companies over the other
players in the leasing market?
a.They have access to low-cost funds allowing them to purchase assets at lower cost
b.They are good at developing innovative contracts that help avoid accounting
problems
c.They provide leasing arrangements for a wider range of products than the parent
companys product line
d.They have the paint-of-sale advantage in finding leasing customers
10) According to the FASB’s conceptual framework, comprehensive income includes
which of the following?
Gross MarginOperating Income
a.NoYes
b.NoNo
c.YesNo
d.YesYes
11) On January 2, 2014, a calendar-year corporation sold 8% bonds with a face value of
$1,500,000. These bonds mature in five years, and interest is paid semiannually on June
30 and December 31 . The bonds were sold for $1,384,000 to yield 10%. Using the
effective-interest method of computing interest, how much should be charged to interest
expense in 2014?
a.$120,000
b.$138,400
c.$138,860
d.$150,000
12) When a company develops a trademark the costs directly related to securing it
should generally be capitalized. Which of the following costs associated with a
trademark would not be capitalized?
a.Attorney fees
b.Consulting fees
c.Research and development costs
d.Design costs
13) Timmons Company traded machinery with a book value of $360,000 and a fair
value of $600,000. It received in exchange from Lewis Company a machine with a fair
value of $540,000 and cash of $60,000. Lewiss machine has a book value of $570,000.
What amount of gain should Timmons recognize on the exchange (assuming lack of
commercial substance)?
a.$ -0-
b.$24,000
c.$60,000
d.$240,000
14) Eubank Company, as lessee, enters into a lease agreement on July 1, 2014, for
equipment. The following data are relevant to the lease agreement:
1>The term of the noncancelable lease is 4 years, with no renewal option. Payments of
$782,757 are due on July 1 of each year.
2>The fair value of the equipment on July 1, 2014 is $2,800,000. The equipment has an
economic life of 6 years with no salvage value.
3>Eubank depreciates similar machinery it owns on the sum-of-the-years-digits basis.
4>The lessee pays all executory costs.
5>Eubanks incremental borrowing rate is 10% per year. The lessee is aware that the
lessor used an implicit rate of 8% in computing the lease payments (present value factor
for 4 periods at 8%, 3.57710; at 10%, 3.48685.
Instructions
(a)Indicate the type of lease Eubank Company has entered into and what accounting
treatment is applicable.
(b)Prepare the journal entries on Eubanks books that relate to the lease agreement for
the following dates: (Round all amounts to the nearest dollar. Include a partial
amortization schedule.)
1>July 1, 2014 .
2>December 31, 2014 .
3>July 1, 2015 .
4>December 31, 2015 .
15) An inventory pricing procedure in which the oldest costs incurred rarely have an
effect on the ending inventory valuation is
a.FIFO
b.LIFO
c.base stock
d.weighted-average
16) Ohlman, Inc. maintains a defined-benefit pension plan for its employees. As of
December 31, 2015, the market value of the plan assets is less than the accumulated
benefit obligation. The projected benefit obligation exceeds the accumulated benefit
obligation. In its balance sheet as of December 31, 2015, Ohlman should report a
liability in the amount of the
a.excess of the projected benefit obligation over the fair value of the plan assets
b.excess of the accumulated benefit obligation over the fair value of the plan assets
c.projected benefit obligation
d.accumulated benefit obligation
17) Selected Information about the pension plan of Roman Co. is as follows:
12/31/14 12/31/15
Accumulated benefit obligation$4,700,000$4,930,000
Projected benefit obligation4,950,0005,150,000
Accumulated OCI (PSC)1,800,0001,500,000
Fair value of plan assets4,750,0004,950,000
Pension expense1,000,0001,700,000
Contribution985,0001,350,000
Discount rate (for year)9%8%
Instructions
(a)What is the corridor for 2015?
(b)Calculate the pension asset / liability at December 31, 2015 .
(c)Prepare the entry for 2015 to record the pension expense and contribution.
18) Crane, Inc. is a retailer of home appliances and offers a service contract on each
appliance sold. Crane sells appliances on installment contracts, but all service contracts
must be paid in full at the time of sale. Collections received for service contracts should
be recorded as an increase in a
a.deferred revenue account
b.sales contracts receivable valuation account
c.stockholders’ valuation account
d.service revenue account
19) Which of the following taxes does not represent a common employee payroll
deduction?
a.Federal income taxes
b.FICA taxes
c.State unemployment taxes
d.State income taxes
20) The pre-emptive right of a common stockholder is the right to
a.share proportionately in corporate assets upon liquidation
b.share proportionately in any new issues of stock of the same class
c.receive cash dividends before they are distributed to preferred stockholders
d.exclude preferred stockholders from voting rights
21) When preparing a statement of cash flows, a decrease in prepaid insurance during a
period would require which of the following adjustments in determining cash flows
from operating activities?
Indirect MethodDirect Method
a.IncreaseDecrease
b.DecreaseIncrease
c.IncreaseIncrease
d.DecreaseDecrease
22) A Cash Over and Short account
a.is not generally accepted
b.is debited when the petty cash fund proves out over
c.is debited when the petty cash fund proves out short
d.is a contra account to Cash
23) On October 31, a fire destroyed PH Inc.’s entire retail inventory. The inventory on
hand as of January 1 totaled $2,040,000. From January 1 through the time of the fire,
the company made purchases of $495,000 and had sales of $1,080,000. Assuming the
rate of gross profit to selling price is 40%, what is the approximate value of the
inventory that was destroyed?
a.$2,040,000
b.$2,019,000
c.$1,455,000
d.$1,887,000
24) Hudson, Inc. is a calendar-year corporation. Its financial statements for the years
2015 and 2014 contained errors as follows:
20152014
Ending inventory$6,000 overstated$16,000 overstated
Depreciation expense$4,000 understated$12,000 overstated
Assume that no correcting entries were made at December 31, 2014, or December 31,
2015 and that no additional errors occurred in 2016 . Ignoring income taxes, by how
much will working capital at December 31, 2016 be overstated or understated?
a.$0
b.$ 4,000 overstated
c.$ 4,000 understated
d.$10,000 understated
25) Terry Corporation had 480,000 shares of common stock outstanding at December
31, 2014 . In addition, it had 90,000 stock options outstanding, which had been granted
to certain executives, and which gave them the right to purchase shares of Terry’s stock
at an option price of $37 per share. The average market price of Terry’s common stock
for 2014 was $50. What is the number of shares that should be used in computing
diluted earnings per share for the year ended December 31, 2014?
a.480,000
b.511,622
c.546,600
d.503,400