1) an item that should be classified as an extraordinary item is
a.write-off of goodwill
b.gains from transactions involving foreign currencies
c.losses from moving a plant to another city
d.gains from a company selling the only investment it has ever owned
2) electronics4u manufactures high-end whole home electronic systems. the company
provides a one-year warranty for all products sold. the company estimates that the
warranty cost is $200 per unit sold and reported a liability for estimated warranty costs
$7.8 million at the beginning of this year. if during the current year, the company sold
60,000 units for a total of $243 million and paid warranty claims of $9,000,000 on
current and prior year sales, what amount of liability would the company report on its
balance sheet at the end of the current year?
a.$3,000,000
b.$4,200,000
c.$10,800,000
d.$12,000,000
3) company a issuing its annual financial reports within one month of the end of the
year is an example of which ingredient of fundamental quality of accounting
information?
a.neutrality
b.timeliness
c.predictive value
d.completeness
4) for each of the items listed below, indicate how it should be treated in the financial
statements. use the following letter code for your selections:
1. ordinary or unusual (but not extraordinary) item on the income statement
2. discontinued operations
3. extraordinary item on the income statement
4. prior period adjustment
______ 1. the bad debt rate was increased from 1% to 2%, thus increasing bad debt
expense.
______ 2. obsolete inventory was written off. this was the first loss of this type in the
company’s history.
______ 3. an uninsured casualty loss was incurred by the company. this was the first
loss of this type in the company’s 50-year history.
______ 4. recognition of income earned last year which was inadvertently omitted
from last year’s income statement.
______ 5. the company sold one of its warehouses at a loss.
______ 6. settlement of litigation with federal government related to income taxes of
three years ago. the company is continually involved in various adjustments with the
federal government related to its taxes.
______ 7. a loss incurred from expropriation (the company owned resources in south
america which were taken over by a dictator unsympathetic to american business).
______ 8. the company neglected to record its depreciation in the previous year.
______ 9. discontinuance of all production in the united states. the manufacturing
operations were relocated in mexico.
______ 10. loss on sale of investments. the company last sold some of its investments
two years ago.
______ 11. loss on the disposal of a component of the business.
5) ellison company sells large store-rack systems and frequently accepts notes
receivable from customers as payment. ellison conducts a through credit check on its
customers, and it charges a fairly low interest rate (1/2 of 1% payable monthly) on these
notes. ellison has elected to use the fair value option for one of these notes and has the
following data related to the carrying and fair value for its note
instructions
prepare the journal entry at december 31 (ellisons year-end) for 2012 and 2013, to
record the fair value option for these notes.
6) surf company follows ifrs for its external financial reporting. the following amounts
were available at december 31, 2013:
under ifrs, what is the maximum amount that could be reported for cash used by
financing activities for surf company for the year ended december 31, 2013?
a.$59,000
b.$38,000
c.$53,000
d.$75,000
7) on january 1, 2012, ann price loaned $90,156 to joe kiger. a zero-interest-bearing
note (face amount, $120,000) was exchanged solely for cash; no other rights or
privileges were exchanged. the note is to be repaid on december 31, 2014. the
prevailing rate of interest for a loan of this type is 10%. the present value of $120,000 at
10% for three years is $90,156. what amount of interest income should ms. price
recognize in 2012?
a.$9,016
b.$12,000
c.$36,000
d.$27,048
8) the following information is available for october for barton company.
a fire destroyed bartons october 31 inventory, leaving undamaged inventory with a cost
of $9,000. using the gross profit method, the estimated ending inventory destroyed by
fire is
a.$51,000
b.$231,000
c.$240,000
d.$300,000
9) agler corporation’s balance sheet reported the following:
the following transactions occurred this year:
(a)purchased 160 shares of capital stock to be held as treasury stock, paying $60 per
share.
(b)sold 120 of the shares of treasury stock at $65 per share.
(c)sold the remaining shares of treasury stock at $50 per share.
instructions
prepare the journal entry for these transactions under the cost method of accounting for
treasury stock.
10) year-end net assets would be overstated and current expenses would be understated
as a result of failure to record which of the following adjusting entries?
a.expiration of prepaid insurance
b.depreciation of fixed assets
c.accrued wages payable
d.all of these
11) if the beginning inventory for 2012 is overstated, the effects of this error on cost of
goods sold for 2012, net income for 2012, and assets at december 31, 2013,
respectively, are
a.overstatement, understatement, overstatement
b.overstatement, understatement, no effect
c.understatement, overstatement, overstatement
d.understatement, overstatement, no effect
12) find the present value of an investment in plant and equipment if it is expected to
provide annual earnings of $26,000 for 15 years and to have a resale value of $50,000
at the end of that period. assume a 10% rate and earnings at year end. the present value
of 1 at 10% for 15 periods is .23939. the present value of an ordinary annuity at 10%
for 15 periods is 7.60608. the future value of 1 at 10% for 15 periods is 4.17725.
a.$197,758
b.$209,728
c.$247,758
d.$401,970
13) on october 1, 2012, wenn co. purchased 800 of the $1,000 face value, 8% bonds of
loy, inc., for $936,000, including accrued interest of $16,000. the bonds, which mature
on january 1, 2019, pay interest semiannually on january 1 and july 1. wenn used the
straight-line method of amortization and appropriately recorded the bonds as
available-for-sale. on wenn’s december 31, 2013 balance sheet, the carrying value of the
bonds is
a.$920,000
b.$912,000
c.$908,800
d.$896,000
14) for the year ended december 31, 2012, transformers inc. reported the following:
what would transformers report as the ending balance of retained earnings?
a.$278,000
b.$266,000
c.$256,000
d.$254,000
15) wellington corp. has outstanding accounts receivable totaling $6.5 million as of
december 31 and sales on credit during the year of $24 million. there is also a credit
balance of $12,000 in the allowance for doubtful accounts. if the company estimates
that 8% of its outstanding receivables will be uncollectible, what will be the amount of
bad debt expense recognized for the year?
a.$ 532,000
b.$ 520,000
c.$1,920,000
d.$ 508,000
16) when a plant asset is acquired by issuance of common stock, the cost of the plant
asset is properly measured by the
a.par value of the stock
b.stated value of the stock
c.book value of the stock
d.fair value of the stock