1) theoretically, the costs of issuing bonds could be
a.expensed when incurred
b.reported as a reduction of the bond liability
c.debited to a deferred charge account and amortized over the life of the bonds
d.any of these
2) on september 1, 2012, herman co. issued a note payable to national bank in the
amount of $1,800,000, bearing interest at 12%, and payable in three equal annual
principal payments of $600,000. on this date, the bank’s prime rate was 11%. the first
payment for interest and principal was made on september 1, 2013. at december 31,
2013, herman should record accrued interest payable of
a.$72,000
b.$66,000
c.$48,000
d.$44,000
3) tax rates other than the current tax rate may be used to calculate the deferred income
tax amount on the balance sheet if
a.it is probable that a future tax rate change will occur
b.it appears likely that a future tax rate will be greater than the current tax rate
c.the future tax rates have been enacted into law
d.it appears likely that a future tax rate will be less than the current tax rate
4) if a material amount of inventory has been ordered through a formal purchase
contract at the balance sheet date for future delivery at firm prices,
a.this fact must be disclosed
b.disclosure is required only if prices have declined since the date of the order
c.disclosure is required only if prices have since risen substantially
d.an appropriation of retained earnings is necessary
5) the purpose of statements of financial accounting concepts is to
a.establish gaap
b.modify or extend the existing fasb standards statement
c.form a conceptual framework for solving existing and emerging problems
d.determine the need for fasb involvement in an emerging issue
6) which of the following tables would show the largest value for an interest rate of
10% for 8 periods?
a.future amount of 1 table
b.present value of 1 table
c.future amount of an ordinary annuity of 1 table
d.present value of an ordinary annuity of 1 table
7) which of the following is true when accounts receivable are factored without
recourse?
a.the transaction may be accounted for either as a secured borrowing or as a sale,
depending upon the substance of the transaction
b.the receivables are used as collateral for a promissory note issued to the factor by the
owner of the receivables
c.the factor assumes the risk of collectibility and absorbs any credit losses in collecting
the receivables
d.the financing cost (interest expense) should be recognized ratably over the collection
period of the receivables
8) a franchise agreement grants the franchisor an option to purchase the franchisee’s
business. it is probable that the option will be exercised. when recording the initial
franchise fee, the franchisor should
a.record the entire initial franchise fee as a deferred credit which will reduce the
franchisor’s investment in the purchased outlet when the option is exercised
b.record the entire initial franchise fee as unearned revenue which will reduce the
amount of cash paid when the option is exercised
c.record the portion of the initial franchise fee which is attributable to the bargain
purchase option as a reduction of the future amounts receivable from the franchisee
d.none of these
9) the trial balance of winsor corporation is reproduced on the following page. the
information below is relevant to the preparation of adjusting entries needed to both
properly match revenues and expenses for the period and reflect the proper balances in
the real and nominal accounts.
as the accountant for winsor corporation, you are to prepare adjusting entries based on
the following data, entering the adjustments on the work sheet and completing the
additional columns with respect to the income statement and balance sheet. carefully
key your adjustments and label all items. (due to time constraints, an adjusted trial
balance is not required.) round all computations to the nearest dollar.
(a)winsor determined that one percent of sales will become uncollectible.
(b)depreciation is computed using the straight-line method, with an eight-year life and
$1,000 salvage value.
(c)salesmen are paid commissions of 10% of sales. commissions on sales for the last
week of december have not been paid.
(d)the note was issued on october 1, bearing interest at 8%, due feb. 1, 2013.
(e)a physical inventory of supplies indicated $340 of supplies currently in stock.
(f)provisions of a lease contract specify payments must be made one month in advance,
with monthly payments at $800/mo. this provision has been complied with as of dec.
31, 2012.
10) what is the purpose of emerging issues task force?
a.provide interpretation of existing standards
b.provide a consensus on how to account for new and unusual financial transactions
c.provide interpretive guidance
d.provide timely guidance on select issues
11) confectioners, a chain of candy stores, purchases its candy in bulk from its
suppliers. for a recent shipment, the company paid $1,800 and received 8,500 pieces of
candy that are allocated among three groups. group 1 consists of 2,500 pieces that are
expected to sell for $0.15 each. group 2 consists of 5,500 pieces that are expected to sell
for $0.36 each. group 3 consists of 500 pieces that are expected to sell for $0.72 each.
using the relative sales value method, what is the cost per item in group 1?
a.$0.150
b.$0.100
c.$0.120
d.$0.225
12) haystack, inc. owns 30% of the outstanding stock of hallmark, inc. and accordingly
uses the equity method to account for its investment. the stock was purchased on
january 1, 2013 for $780,000. during the year ended december 31, 2013, hallmark, inc.
reported the following:
net income 2,400,000
haystack, inc. uses the fifo method for costing its inventories, while hallmark, inc. uses
the lifo method to conform with other companies in its industry. haystack, inc.
determines that if hallmark, inc. had used the fifo method, its income would have been
$350,000 higher during 2013. what is the balance in the investment in hallmark, inc.
that will be reported on haystack, inc.s balance sheet at december 31, 2013 assuming
haystack, inc. follows u.s. gaap for its external financial reporting?
a.$1,725,000
b.$1,380,000
c.$1,485,000
d.$1,275,000
13) harrison co. owns 20,000 of the 50,000 outstanding shares of taylor, inc. common
stock. during 2013, taylor earns $1,200,000 and pays cash dividends of $960,000.
harrison should report investment revenue for 2013 of
a.$480,000
b.$384,000
c.$96,000
d.$0
14) for the year ended december 31, 2012, transformers inc. reported the following:
net income$120,000
preferred dividends declared20,000
common dividend declared4,000
unrealized holding loss, net of tax2,000
retained earnings160,000
common stock80,000
accumulated other comprehensive income,
beginning balance10,000
what would transformers report as its ending balance of accumulated other
comprehensive income?
a.$12,000
b.$10,000
c.$8,000
d.$2,000