1) Fogelberg Company purchased equipment for $25,000. Sales tax on the purchase
was $1,500. Other costs incurred were freight charges of $400, repairs of $700 for
damage during installation, and installation costs of $450. What is the cost of the
equipment?
a.$25,000
b.$26,500
c.$27,350
d.$28,050
2) The calculation of the number of times interest is earned involves dividing
a.net income by annual interest expense
b.net income plus income taxes by annual interest expense
c.net income plus income taxes and interest expense by annual interest expense
d.none of these answers are correct
3) Which of the following is a current asset?
a.Cash surrender value of a life insurance policy of which the company is the
beneficiary
b.Investment in equity securities for the purpose of controlling the issuing company
c.Cash designated for the purchase of tangible fixed assets
d.Trade installment receivables normally collectible in 18 months
4) Assuming the market interest rate is 10% per annum, how much would Green Co.
record as a note payable if the terms of the loan with a bank are that it would have to
make one $80,000 payment in two years? (The present value of $1 for two periods at
10% is 0.82645).
a.$80,000
b.$72,563
c.$72,727
d.$66,116
5) An adjusting entry to record an accrued expense involves a debit to a(an)
a.expense account and a credit to a prepaid account
b.expense account and a credit to Cash
c.expense account and a credit to a liability account
d.liability account and a credit to an expense account
6) In the first stage of creating conceptual framework, the IASB and the FASB agreed
on the objective of financial reporting and a common set of desired _________.
a.characteristics of GAAP
b.quantitative characteristics
c.qualitative characteristics
d.rule-based characteristics
7) A company acquires a patent for a drug with a remaining legal and useful life of six
years on January 1, 2013 for $2,400,000. The company uses straight-line amortization
for patents. On January 2, 2015, a new patent is received for a timed-release version of
the same drug. The new patent has a legal and useful life of twenty years. The least
amount of amortization that could be recorded in 2015 is
a.$400,000
b.$ 80,000
c.$109,090
d.$ 92,000
8) Napier Co. provided the following information on selected transactions during 2015:
Purchase of land by issuing bonds$500,000
Proceeds from issuing bonds1,500,000
Purchases of inventory1,900,000
Purchases of treasury stock300,000
Loans made to affiliated corporations700,000
Dividends paid to preferred stockholders200,000
Proceeds from issuing preferred stock800,000
Proceeds from sale of equipment150,000
The net cash provided by financing activities during 2015 is
a.$1,600,000
b.$1,800,000
c.$2,100,000
d.$2,300,000
9) A convertible bond issue should be included in the diluted earnings per share
computation as if the bonds had been converted into common stock, if the effect of its
inclusion is
DilutiveAntidilutive
a.YesYes
b.YesNo
c.NoYes
d.NoNo
10) Falcon Company purchased a depreciable asset for $125,000. The estimated salvage
value is $10,000, and the estimated useful life is 10 years. The straight-line method will
be used for depreciation. What is the depreciation base of this asset?
a.$11,500
b.$12,500
c.$115,000
d.$125,000
11) On January 2, 2014, Perez Co. issued at par $10,000 of 8% bonds convertible in
total into 1,000 shares of Perez’s common stock. No bonds were converted during
2014 . Throughout 2014, Perez had 1,000 shares of common stock outstanding. Perez’s
2014 net income was $6,000, and its income tax rate is 30%. No potentially dilutive
securities other than the convertible bonds were outstanding during 2014 . Perez’s
diluted earnings per share for 2014 would be (rounded to the nearest penny)
a.$3.00
b.$3.28
c.$3.40
d.$6.56
12) On January 1, 2014, Korsak, Inc. established a stock appreciation rights plan for its
executives. It entitled them to receive cash at any time during the next four years for the
difference between the market price of its common stock and a pre-established price of
$20 on 100,000 SARs. Current market prices of the stock are as follows:
January 1, 2014$35 per share
December 31, 201438 per share
December 31, 201530 per share
December 31, 201633 per share
Compensation expense relating to the plan is to be recorded over a four-year period
beginning January 1, 2014 .
What amount of compensation expense should Korsak recognize for the year ended
December 31, 2015?
a.$0
b.$50,000
c.$500,000
d.$250,000
13) Which of these is generally an example of an extraordinary item?
a.Loss incurred because of a strike by employees
b.Write-off of deferred marketing costs believed to have no future benefit
c.Gain resulting from the devaluation of the U.S. dollar
d.Gain resulting from the state exercising its right of eminent domain on a piece of land
used as a parking lot
14) On January 1, 2015, Newlin Co. has the following balances:
Projected benefit obligation$2,100,000
Fair value of plan assets1,800,000
The settlement rate is 10%. Other data related to the pension plan for 2015 are:
Service cost$180,000
Amortization of prior service costs due to increase in benefits60,000
Contributions300,000
Benefits paid135,000
Actual return on plan assets237,000
Amortization of net gain18,000
The balance of the projected benefit obligation at December 31, 2015 is
a.$2,490,000
b.$2,355,000
c.$2,340,000
d.$2,310,000
15) The financial statement which summarizes operating, investing, and financing
activities of an entity for a period of time is the
a.retained earnings statement
b.income statement
c.statement of cash flows
d.statement of financial position
16) During June, the following changes in inventory item 27 took place:
June 1Balance1,400 units @ $24
14Purchased800 units @ $36
24Purchased700 units @ $30
8Sold400 units @ $50
10Sold1,000 units @ $40
29Sold500 units @ $44
Perpetual inventories are maintained.
Instructions
What is the cost of the ending inventory for item 27 under the following methods?
(Show calculations.)
(a)FIFO.
(b)LIFO.
17) Lindsay Corporation had net income for 2015 of $2,500,000. Additional
information is as follows:
Depreciation of plant assets$1,200,000
Amortization of intangibles240,000
Increase in accounts receivable420,000
Increase in accounts payable540,000
Lindsay’s net cash provided by operating activities for 2015 was
a.$4,060,000
b.$3,940,000
c.$3,820,000
d.$2,180,000
18) During 2014, Woods Company purchased 60,000 shares of Holmes Corporation
common stock for $945,000 as an available-for-sale investment. The fair value of these
shares was $900,000 at December 31, 2014 . Woods sold all of the Holmes stock for
$17 per share on December 3, 2015, incurring $42,000 in brokerage commissions.
Woods Company should report a realized gain on the sale of stock in 2015 of
a.$33,000
b.$75,000
c.$78,000
d.$120,000
19) Regis Inc. bought a machine on January 1, 2004 for $400,000. The machine had an
expected life of 20 years and was expected to have a salvage value of $40,000. On July
1, 2014, the company reviewed the potential of the machine and determined that its
undiscounted future net cash flows totaled $200,000 and its discounted future net cash
flows totaled $140,000. If no active market exists for the machine and the company
does not plan to dispose of it, what should Regis record as an impairment loss on July 1,
2014?
a.$ 0
b.$11,000
c.$20,000
d.$71,000
20) On January 2, 2014, Rapid Delivery Company traded in an old delivery truck for a
newer model. The exchange lacked commercial substance. Data relative to the old and
new trucks follow:
Old Truck
Original cost$30,000
Accumulated depreciation as of January 2, 201420,000
Average published retail value9,000
New Truck
List price$50,000
Cash price without trade-in45,000
Cash paid with trade-in37,500
What should be the cost of the new truck for financial accounting purposes?
a.$37,500
b.$45,000
c.$47,500
d.$50,000