1) the income statement is useful for helping to assess the risk or uncertainty of
achieving future cash flows.
2) financial reports in the early 21st century did not provide any information about a
companys soft assets (intangibles).
3) ifrs defines market as replacement cost subject to certain constraints.
4) an indirect effect of an accounting change is any change to current or future cash
flows of a company that result from making a change in accounting principle that is
applied retrospectively.
5) the purpose of the floor in lower-of-cost-or-market considerations is to avoid
overstating inventory.
6) use of a multiple-step income statement will result in the company reporting a higher
net income than if they used a single-step income statement.
7) in certain circumstances under ifrs, bank overdrafts are considered part of cash and
cash equivalents.
8) in the gross method, sales discounts are reported as a deduction from sales.
9) the indirect method adjusts net income for items that affected reported net income
but did not affect cash.
10) berry corporation has 50,000 shares of $10 par common stock authorized. the
following transactions took place during 2012, the first year of the corporations
existence:
sold 10,000 shares of common stock for $18 per share.
issued 10,000 shares of common stock in exchange for a patent valued at $200,000.
at the end of the berrys first year, total paid-in capital amounted to
a.$80,000
b.$180,000
c.$200,000
d.$380,000
11) lantos company had a 40 percent tax rate. given the following pre-tax amounts,
what would be the income tax expense reported on the face of the income statement?
a.$32,400
b.$20,400
c.$21,600
d.$ 9,600
12) a seller is properly using the cost-recovery method for a sale. interest will be earned
on the future payments. which of the following statements is not correct?
a.after all costs have been recovered, any additional cash collections are included in
income
b.interest revenue may be recognized before all costs have been recovered
c.the deferred gross profit is offset against the related receivable on the balance sheet
d.subsequent income statements report the gross profit as a separate item of revenue
when it is recognized as earned
13) wilson co. purchased land as a factory site for $800,000. wilson paid $80,000 to tear
down two buildings on the land. salvage was sold for $5,400. legal fees of $3,480 were
paid for title investigation and making the purchase. architect’s fees were $31,200. title
insurance cost $2,400, and liability insurance during construction cost $2,600.
excavation cost $10,440. the contractor was paid $2,500,000. an assessment made by
the city for pavement was $6,400. interest costs during construction were $170,000.
the cost of the land that should be recorded by wilson co. is
a.$880,480
b.$886,880
c.$889,880
d.$896,280
14) on january 1, 2012, lynn company borrows $2,000,000 from national bank at 11%
annual interest. in addition, lynn is required to keep a compensatory balance of
$200,000 on deposit at national bank which will earn interest at 5%. the effective
interest that lynn pays on its $2,000,000 loan is
a.10.0%
b.11.0%
c.11.5%
d.11.6%
15) following the peculiar nature of some business concerns, which sometimes requires
departure from basic theory is known as
a.the economic entity assumption
b.industry practices
c.the cost constraint
d.the going concern assumption
16) cortez company issues $3,000,000 face value of bonds at 96 on january 1, 2011. the
bonds are dated january 1, 2011, pay interest semiannually at 8% on june 30 and
december 31, and mature in 10 years. straight-line amortization is used for discounts
and premiums. on september 1, 2014, $1,800,000 of the bonds are called at 102 plus
accrued interest. what gain or loss would be recognized on the called bonds on
september 1, 2014?
a.$180,000 loss
b.$81,600 loss
c.$108,000 loss
d.$136,000 loss
17) noncumulative preferred dividends in arrears
a.are not paid or disclosed
b.must be paid before any other cash dividends can be distributed
c.are disclosed as a liability until paid
d.are paid to preferred stockholders if sufficient funds remain after payment of the
current preferred dividend
18) the income statement of dolan corporation for 2012 included the following items:
the following balances have been excerpted from dolan corporation’s balance sheets:
the cash paid for insurance premiums during 2012 was
a.$13,000
b.$12,200
c.$16,000
d.$14,400
19) which basic assumption is illustrated when a firm reports financial results on an
annual basis?
a.economic entity assumption
b.going concern assumption
c.periodicity assumption
d.monetary unit assumption
20) fulton company owns the following investments:
fulton will report investments in its current assets section of
a.$0
b.exactly $120,000
c.$120,000 or an amount greater than $120,000, depending on the circumstances
d.exactly $190,000
21) what might a manager do during the last quarter of a fiscal year if she wanted to
decrease current annual net income?
a.delay shipments to customers until after the end of the fiscal year
b.relax credit policies for customers
c.pay suppliers all amounts owed
d.delay purchases from suppliers until after the end of the fiscal year
22) wheeler company issued 5,000 shares of its $5 par value common stock having a
fair value of $25 per share and 7,500 shares of its $15 par value preferred stock having
a fair value of $20 per share for a lump sum of $260,000. the proceeds allocated to the
preferred stock is
a.$232,917
b.$162,500
c.$141,818
d.$118,182
23) the records for kiley company showed the following for 2012:
show the computation of the amount of revenue that should be reported on the income
statement.
24)
25) moore corporation follows a policy of a 10% depreciation charge per year on all
machinery and a 5% depreciation charge per year on buildings. the following
transactions occurred in 2013:
march 31, 2013negotiations which began in 2012 were completed and a building
purchased 1/1/04 (depreciation has been properly charged through december 31, 2012)
at a cost of $4,800,000 with a fair value of $3,000,000 was exchanged for a second
building which also had a fair value of $3,000,000. the exchange had no commercial
substance. both parcels of land on which the buildings were located were equal in
value, and had a fair value equal to book value.
june 30, 2013machinery with a cost of $480,000 and accumulated depreciation through
january 1 of $360,000 was exchanged with $300,000 cash for a parcel of land with a
fair value of $460,000.
instructions
prepare all appropriate journal entries for moore corporation for the above dates.
26) in 2012, hobbs corp. acquired 9,000 shares of its own $1 par value common stock at
$18 per share. in 2013, hobbs issued 6,000 of these shares at $25 per share. hobbs uses
the cost method to account for its treasury stock transactions. what accounts and what
amounts should hobbs credit in 2013 to record the issuance of the 6,000 shares?
27) 141. historical cost principle.
cost as a basis of accounting for assets has been severely criticized. what defense can
you build for cost as the basis for financial accounting?
28) prophet corporation has an extraordinary loss of $600,000, an unusual gain of
$420,000, and a tax rate of 40%. at what amount should prophet report each item?
29) which of the following facts concerning fixed assets should be included in the
summary of significant accounting policies?
30) given the following account information for leong corporation, prepare a balance
sheet in report form for the company as of december 31, 2012. all accounts have normal
balances.
31) basic assumptions.
briefly explain the four basic assumptions that underlie financial accounting.
32) lf corporation, a manufacturer of mexican foods, contracted in 2012 to purchase
1,000 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of
2013. by 12/31/12, the price per pound of the spice mixture had dropped to $4.70 per
pound. in 2012, lf should recognize
aa loss of $5,000
b.a loss of $300
c.no gain or loss
d.a gain of $300