1) Sawyer Furniture Company concluded its first year of operations in which it made
sales of $900,000, all on installment. Collections during the year from down payments
and installments totaled $300,000. Purchases for the year totaled $710,000; the cost of
merchandise on hand at the end of the year was $80,000.
Instructions
Using the installment-sales method, make summary entries to record:
(a)the installment sales and cash collections;
(b)the cost of installment sales;
(c)the unrealized gross profit;
(d)the realized gross profit.
2) Neer Co. has a probable loss that can only be reasonably estimated within a range of
outcomes. No single amount within the range is a better estimate than any other
amount. The loss accrual should be
a.zero
b.the maximum of the range
c.the mean of the range
d.the minimum of the range
3) If a company prepares a consolidated income statement, IFRS requires that net
income be reported for:
a.the controlling interest only
b.the noncontrolling interest only
c.both the controlling and the noncontrolling interest
d.as a single amount only
4) The failure to record a purchase of merchandise on account even though the goods
are properly included in the physical inventory results in
a.an overstatement of assets and net income
b.an understatement of assets and net income
c.an understatement of cost of goods sold and liabilities and an overstatement of assets
d.an understatement of liabilities and an overstatement of owners’ equity
5) Barton Corporation acquires a coal mine at a cost of $1,500,000. Intangible
development costs total $360,000. After extraction has occurred, Barton must restore
the property (estimated fair value of the obligation is $180,000), after which it can be
sold for $510,000. Barton estimates that 5,000 tons of coal can be extracted. If 900 tons
are extracted the first year, which of the following would be included in the journal
entry to record depletion?
a.Debit to Accumulated Depletion for $275,400
b.Debit to Inventory for $275,400
c.Credit to Inventory for $270,000
d.Credit to Accumulated Depletion for $459,000
6) Two independent companies, Hager Co. and Shaw Co., are in the home building
business. Each owns a tract of land held for development, but each would prefer to
build on the other’s land. They agree to exchange their land. An appraiser was hired,
and from her report and the companies’ records, the following information was
obtained:
Hager’s LandShaw’s Land
Cost and book value$384,000$240,000
Fair value based upon appraisal480,000420,000
The exchange was made, and based on the difference in appraised fair values, Shaw
paid $60,000 to Hager. The exchange lacked commercial substance.
The new land should be recorded on Shaw’s books at
a.$240,000
b.$300,000
c.$420,000
d.$480,000
7) In 2015, Edwards Corporation incurred research and development costs as follows:
Materials and equipment$ 110,000
Personnel130,000
Indirect costs 150,000
$ 390,000
These costs relate to a product that will be marketed in 2016 . It is estimated that these
costs will be recouped by December 31, 2018 . The equipment has no alternative future
use. What is the amount of research and development costs that should be expensed in
2015?
a.$0
b.$250,000
c.$280,000
d.$390,000
8) The focus of APB Opinion No. 22 is on the disclosure of accounting policies. This
information is important to financial statement readers in determining
a.net income for the year
b.whether accounting policies are consistently applied from year to year
c.the value of obsolete items included in ending inventory
d.whether the working capital position is adequate for future operations
9) The following methods of estimating inventory can be used at interim dates for
inventory pricing. May they also be used at year end?
Gross Profit MethodRetail Inventory Method
a.NoNo
b.NoYes
c.YesNo
d.YesYes
10) Given below are the present value factors for $1.00 discounted at 10% for one to
five periods.
Present Value of $1
PeriodsDiscounted at 10% per Period
10.909
20.826
30.751
40.683
50.621
What amount should an individual have in a bank account today before withdrawal if
$7,000 is needed each year for four years with the first withdrawal to be made today
and each subsequent withdrawal at one-year intervals? (The balance in the bank
account should be zero after the fourth withdrawal.)
a.$7,000 + ($7,000 x 0.909) + ($7,000 x 0.826) + ($7,000 x 0.751)
b.$7,000 / 0.683 x 4
c.($7,000 x 0.909) + ($7,000 x 0.826) + ($7,000 x 0.751) + ($7,000 x 0.683)
d.$7,000 / 0.909 x 4
11) Accrued liabilities are disclosed in financial statements by
a.a footnote to the statements
b.showing the amount among the liabilities but not extending it to the liability total
c.an appropriation of retained earnings
d.appropriately classifying them as regular liabilities in the balance sheet
12) Recognition of expense related to amortization of an intangible asset illustrates
which principle of accounting?
a.Expense recognition
b.Full disclosure
c.Revenue recognition
d.Historical cost
13) Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible
preferred stock, and $1,000,000 of 5% convertible bonds outstanding during 2015 . The
preferred stock is convertible into 40,000 shares of common stock. During 2015,
Hanson paid dividends of $.60 per share on the common stock and $2 per share on the
preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The
net income for 2015 was $400,000 and the income tax rate was 30%.
Diluted earnings per share for 2015 is (rounded to the nearest penny)
a.$1.39
b.$1.41
c.$1.53
d.$1.67
14) Under IFRS, the standard for revenue recognition states that the
I. Revenue be realized or realizable.
II. Economic benefits associated with the transaction will flow to the company selling
the goods.
III. Costs must be capable of being reliably measured.
a.I, II, and III
b.I and III only
c.II only
d.II and III only
15) A ‘secret reserve” will be created if
a.inadequate depreciation is charged to income
b.a capital expenditure is charged to expense
c.liabilities are understated
d.stockholders’ equity is overstated