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1) Torrey Co. manufactures equipment that is sold or leased. On December 31, 2015,
Torrey leased equipment to Dalton for a five-year period ending December 31, 2020, at
which date ownership of the leased asset will be transferred to Dalton. Equal payments
under the lease are $550,000 (including $50,000 executory costs) and are due on
December 31 of each year. The first payment was made on December 31, 2015 .
Collectibility of the remaining lease payments is reasonably assured, and Torrey has no
material cost uncertainties. The normal sales price of the equipment is $1,925,000, and
cost is $1,500,000. For the year ended December 31, 2015, what amount of income
should Torrey realize from the lease transaction?
a.$425,000
b.$550,000
c.$575,000
d.$825,000
2) The following information is available for October for Norton Company.
Beginning inventory$300,000
Net purchases900,000
Net sales1,800,000
Percentage markup on cost66.67%
A fire destroyed Nortons October 31 inventory, leaving undamaged inventory with a
cost of $18,000. Using the gross profit method, the estimated ending inventory
destroyed by fire is
a.$102,000
b.$462,000
c.$480,000
d.$600,000
3) Ziegler Corporation purchased 25,000 shares of common stock of the Sherman
Corporation for $40 per share on January 2, 2014 . Sherman Corporation had 100,000
shares of common stock outstanding during 2015, paid cash dividends of $90,000
during 2015, and reported net income of $300,000 for 2015 . Ziegler Corporation
should report revenue from investment for 2015 in the amount of
a.$22,500
b.$52,500
c.$75,000
d.$82,500
4) When should an expenditure be recorded as an asset rather than an expense?
a.Never
b.Always
c.If the amount is material
d.When future benefit exists
5) In 2012, Concord Inc. sells inventory with a cost of $32,000 for $50,000. Concord
will receive payments of $14,000 in 2012, $26,000 in 2013, and $10,000 in 2014 . If the
cost-recovery method applies to this transaction, what would be the journal entry to
recognize gross profit at the end of 2013?
a.Deferred Gross Profit10,000
Realized Gross Profit10,000
b.Realized Gross Profit18,000
Deferred Gross Profit18,000
c.Sales Revenue50,000
Cost of sales32,000
Deferred Gross Profit18,000
d.Deferred Gross Profit8,000
Realized Gross Profit8,000
6) Net realizable value is
a.acquisition cost plus costs to complete and sell
b.selling price
c.selling price plus costs to complete and sell
d.selling price less costs to complete and sell
7) Hull Co. leased equipment to Riggs Company on May 1, 2015 . At that time the
collectibility of the minimum lease payments was not reasonably predictable. The lease
expires on May 1, 2016 . Riggs could have bought the equipment from Hull for
$4,800,000 instead of leasing it. Hulls accounting records showed a book value for the
equipment on May 1, 2012, of $4,200,000. Hulls depreciation on the equipment in 2015
was $540,000. During 2015, Riggs paid $1,080,000 in rentals to Hull for the 8-month
period. Hull incurred maintenance and other related costs under the terms of the lease of
$96,000 in 2015 . After the lease with Riggs expires, Hull will lease the equipment to
another company for two years.
The income before income taxes derived by Hull from this lease for the year ended
December 31, 2015, should be
a.$444,000
b.$540,000
c.$984,000
d.$1,080,000
8) A decrease in net assets arising from peripheral or incidental transactions is called
a(n)
a.capital expenditure
b.cost
c.loss
d.expense
9) A company acquired a building, paying a portion of the purchase price in cash and
issuing a mortgage note payable to the seller for the balance.
In a statement of cash flows, what amount is included in financing activities for the
above transaction?
a.Cash payment
b.Acquisition price
c.Zero
d.Mortgage amount
10) The conversion of bonds is most commonly recorded by the
a.incremental method
b.proportional method
c.market value method
d.book value method
