1) On January 1, 2014, Garrett Company purchased a machine costing $250,000. The
machine is in the MACRS 5-year recovery class for tax purposes and has an estimated
$50,000 salvage value at the end of its economic life.
Assuming the company uses the general MACRS approach, the amount of MACRS
deduction for tax purposes for the year 2014 is
a.$50,000
b.$100,000
c.$80,000
d.$40,000
2) Glow Co. purchased machinery on January 2, 2009, for $660,000. The straight-line
method is used and useful life is estimated to be 10 years, with a $60,000 salvage value.
At the beginning of 2015 Glow spent $144,000 to overhaul the machinery. After the
overhaul, Glow estimated that the useful life would be extended 4 years (14 years total),
and the salvage value would be $30,000. The depreciation expense for 2015 should be
a.$42,375
b.$51,750
c.$60,000
d.$55,500
3) On May 1, 2014, Kirmer Corporation purchased $900,000 of 12% bonds, interest
payable on January 1 and July 1, for $843,900 plus accrued interest. The bonds mature
on January 1, 2020 . Amortization is recorded when interest is received by the
straight-line method (by months and round to the nearest dollar). (Assume bonds are
available for sale.)
Instructions
(a)Prepare the entry for May 1, 2014 .
(b)The bonds are sold on August 1, 2015 for $565,000 plus accrued interest. Prepare all
entries required to properly record the sale.
4) In situations where there is a rapid turnover, an inventory method which produces a
balance sheet valuation similar to the first-in, first-out method is
a.average cost
b.base stock
c.joint cost
d.prime cost
5) Nicole, Inc. uses IFRS for its external financial reporting. During 2013, an employee
of
the company was injured in the factory. Discussions with corporate attorneys resulted in
a
determination that the company would be required to pay between $1,500,000 and
$3,000,000 to settle the injury claim. Nicole, Inc. accrued a contingent liability on
December 31, 2013 for $1,500,000. On February 4, 2014, Nicole, Inc. settled the
lawsuit
for $3,300,000. What amount of loss should be reported on the income statement for the
year ended December 31, 2014 for Nicole, Inc. related to this lawsuit?
a.$3,300,000
b.$1,800,000
c.$1,500,000
d.$300,000
6) Given below are the future value factors for 1 at 8% for one to five periods.
PeriodsFuture Value of 1 at 8%
11.080
21.166
31.260
41.360
51.469
If $5,000 is deposited in a savings account today, what amount will be available three
years from today?
a.$5,000 / 1.260
b.$5,000 x 1.260
c.$5,000 x 1.080 x 3
d.($5,000 x 1.080) + ($5,000 x 1.166) + ($5,000 x 1.260)
7) What is the primary difference between an ordinary annuity and an annuity due?
a.The timing of the periodic payment
b.The interest rate
c.Annuity due only relates to present values
d.Ordinary annuity only relates to present values
8) In a troubled debt restructuring in which the debt is continued with modified terms
and the carrying amount of the debt is less than the total future cash flows,
a.a loss should be recognized by the debtor
b.a gain should be recognized by the debtor
c.a new effective-interest rate must be computed
d.no interest expense or revenue should be recognized in the future
9) Fryman Furniture uses the installment-sales method. No further collections could be
made on an account with a balance of $24,000. It was estimated that the repossessed
furniture could be sold as is for $7,200, or for $8,400 if $400 were spent reconditioning
it. The gross profit rate on the original sale was 40%. The loss on repossession was
a.$6,400
b.$6,000
c.$16,000
d.$16,800
10) Plank Co. uses the retail inventory method. The following information is available
for the current year.
Cost Retail
Beginning inventory$ 234,000$366,000
Purchases885,0001,245,000
Freight-in15,000
Employee discounts6,000
Net markups45,000
Net markdowns60,000
Sales revenue1,170,000
If the ending inventory is to be valued at approximately lower of average cost or
market, the calculation of the cost ratio should be based on cost and retail of
a.$900,000 and $1,290,000
b.$900,000 and $1,284,000
c.$1,119,000 and $1,650,000
d.$1,134,000 and $1,656,000
11) Mitchell Corporation prepared the following reconciliation for its first year of
operations:
Pretax financial income for 2015$ 900,000
Tax exempt interest(75,000)
Originating temporary difference (175,000)
Taxable income$650,000
The temporary difference will reverse evenly over the next two years at an enacted tax
rate of 40%. The enacted tax rate for 2015 is 35%.
In Mitchells 2015 income statement, what amount should be reported for total income
tax expense?
a.$345,000
b.$315,000
c.$315,000
d.$227,500
12) As generally used in accounting, what is depreciation?
a.It is a process of asset valuation for balance sheet purposes
b.It applies only to long-lived intangible assets
c.It is used to indicate a decline in market value of a long-lived asset
d.It is an accounting process which allocates long-lived asset cost to accounting periods
13) In accounting for a defined-benefit pension plan
a.an appropriate funding pattern must be established to ensure that enough monies will
be available at retirement to meet the benefits promised
b.the employer’s responsibility is simply to make a contribution each year based on the
formula established in the plan
c.the expense recognized each period is equal to the cash contribution
d.the liability is determined based upon known variables that reflect future salary levels
promised to employees
14) Ewing Company sells household furniture. Customers who purchase furniture on
the installment basis make payments in equal monthly installments over a two-year
period, with no down payment required. Ewing’s gross profit on installment sales equals
40% of the selling price of the furniture.
For financial accounting purposes, sales revenue is recognized at the time the sale is
made. For income tax purposes, however, the installment method is used. There are no
other book and income tax accounting differences, and Ewing’s income tax rate is 30%.
If Ewing’s December 31, 2015, balance sheet includes a deferred tax liability of
$600,000 arising from the difference between book and tax treatment of the installment
sales, it should also include installment accounts receivable of
a.$5,000,000
b.$2,000,000
c.$1,500,000
d.$450,000
15) Putnam, Inc.
Comparative Balance Sheets
December 31,
20152014
Assets:
Current Assets:
Cash$ 1,380,000$1,080,000
Accounts Receivable (net)3,120,0002,160,000
Inventory3,900,0002,520,000
Prepaid Expenses 702,000 630,000
Total Current Assets9,102,0006,390,000
Long-Term Investments450,000
Plant Assets:
Property, Plant & Equipment4,380,0002,880,000
Accumulated Depreciation (900,000) (540,000)
Total Plant Assets 3,480,000 2,340,000
Total Assets$13,032,000$8,730,000
Equities:
Current Liabilities:
Accounts Payable$ 2,550,000$2,190,000
Accrued Expenses618,000564,000
Dividends Payable 402,000
Total Current Liabilities3,570,0002,754,000
Long-Term Notes Payable1,650,000
Stockholders’ Equity:
Common Stock6,000,0004,800,000
Retained Earnings 1,812,000 1,176,000
Total Equities$13,032,000$8,730,000
Putnam, Inc.
Comparative Income Statements
December 31,
20152014
Net Credit Sales$14,040,000$7,506,000
Cost of Goods Sold 7,830,000 3,762,000
Gross Profit6,210,0003,744,000
Operating Expenses (including Income Tax) 5,172,000 2,748,000
Net Income$1,038,000$ 996,000
Additional Information:
a.Accounts receivable and accounts payable relate to merchandise held for sale in the
normal course of business. The allowance for bad debts was the same at the end of 2015
and 2014, and no receivables were charged against the allowance. Accounts payable are
recorded net of any discount and are always paid within the discount period.
b.The proceeds from the note payable were used to finance the acquisition of property,
plant, and equipment. Capital stock was sold to provide additional working capital.
What amount of cash was paid on accounts payable to suppliers during 2015?
a.$9,210,000
b.$8,850,000
c.$8,190,000
d.$7,470,000
16) Gorman Construction Co. began operations in 2015 . Construction activity for 2015
is shown below. Gorman uses the completed-contract method.
Billings CollectionsEstimated
ContractThroughThroughCosts toCosts to
Contract Price 12/31/15 12/31/15 12/31/15 Complete
1$4,800,000$4,725,000$3,900,000$3,225,000
23,600,0001,500,0001,000,000820,000$1,880,000
33,300,0001,900,0001,800,0002,250,0001,200,000
Which of the following should be shown on the balance sheet at December 31, 2015
related to Contract 2?
a.Inventory, $680,000
b.Inventory, $820,000
c.Current liability, $680,000
d.Current liability, $1,500,000
17) Gage Co. purchases land and constructs a service station and car wash for a total of
$360,000. At January 2, 2014, when construction is completed, the facility and land on
which it was constructed are sold to a major oil company for $400,000 and immediately
leased from the oil company by Gage. Fair value of the land at time of the sale was
$40,000. The lease is a 10-year, noncancelable lease. Gage uses straight-line
depreciation for its other various business holdings. The economic life of the facility is
15 years with zero salvage value. Title to the facility and land will pass to Gage at
termination of the lease. A partial amortization schedule for this lease is as follows:
Payments InterestAmortization Balance
Jan. 2, 2014$400,000.00
Dec. 31, 2014$65,098.13$40,000.00$25,098.13374,901.87
Dec. 31, 201565,098.1337,490.1927,607.94347,293.93
Dec. 31, 201665,098.1334,729.3930,368.74316,925.19
The total lease-related expenses recognized by the lessee during 2015 is which of the
following? (Rounded to the nearest dollar.)
a.$64,000
b.$65,098
c.$73,490
d.$61,490