Total depreciation is the same over the life of an asset regardless of the method of
depreciation used.
The initial selling price of bonds represents the sum of all the future cash outflows
required by the obligation.
A line of credit is an agreement to provide long-term financing, typically made with a
bank or a group of banks.
The residual approach to estimate stand-alone selling prices is often used for goods or
services that are sold separately and that have stable prices.
When a creditor’s receivable becomes impaired, the receivable is revalued based on the
discounted present value of currently expected cash flows at the loan’s original effective
rate.
Net unrealized holding gains (losses) are reported in the income statement for trading
securities.
The FASB”s conceptual framework lists relevance and timeliness as the two
fundamental qualitative characteristics of decision useful information.
An annuity consists of level principal payments plus interest on the unpaid balance.
On June 1, 2015, the Crocus Company began construction of a new manufacturing
plant. The plant was completed on October 31, 2016. Expenditures on the project were
as follows ($ in millions):
On July 1, 2015, Crocus obtained a $70 million construction loan with a 6% interest
rate. The loan was outstanding through the end of October, 2016. The company’s only
other interest-bearing debt was a long-term note for $100 million with an interest rate of
8%. This note was outstanding during all of 2015 and 2016. The company’s fiscal
year-end is December 31. What is the amount of interest that Crocus should capitalize
in 2016, using the specific interest method (rounded to the nearest thousand dollars)?
a. $7,248,000 (rounded).
b. $7,283,000 (rounded).
c. $8,740,000 (rounded).
d. None of these answer choices are correct.
Which of the following is a correct statement concerning earnings per share?
a. Earnings per share can never be a negative number.
b. Earnings per share must be reported for all corporations.
c. If a company has discontinued operations, at least two EPS amounts must be
reported.
d. Reported earnings per share is the result of dividing weighted-average shares by net
income.
The transferor is considered to have surrendered control over its receivables if:
a. The transferred assets have been isolated from the transferor.
b. Each transferee has the right to pledge or exchange the assets it received.
c. The transferor does not maintain effective control over the transferred assets through
either repurchase or redemption agreements before maturity or the ability to cause the
transferee to return the assets.
d. All of these answer choices must occur.
Poppy Co. uses a periodic inventory system. Beginning inventory on January 1 was
understated by $30,000, and its ending inventory on December 31 was understated by
$17,000. In addition, a purchase of merchandise costing $20,000 was incorrectly
recorded as a $2,000 purchase. None of these errors were discovered until the next year.
As a result, Poppy’s cost of goods sold for this year was:
a. Overstated by $31,000.
b. Overstated by $5,000.
c. Understated by $31,000.
d. Understated by $48,000.
In January 2016, Vega Corporation purchased a patent at a cost of $200,000. Legal and
filing fees of $50,000 were paid to acquire the patent. The company estimated a 10-year
useful life for the patent and uses the straight-line amortization method for all intangible
assets. In January, 2019, Vega spent $40,000 in legal fees for an unsuccessful defense of
the patent and the patent is no longer usable. The amount charged to income (expense
and loss) in 2019 related to the patent should be:
a. $ 40,000.
b. $ 65,000.
c. $215,000.
d. $ 25,000.
•
Listed below are ten terms followed by a list of phrases that describe or characterize the
terms. Match each phrase with the correct term.
1> Related-party transactions a. Material events that occur after the end of the fiscal
year and before the statements are issued.
2> Deferred revenues
3> Accounts receivable b. Obligations to suppliers of merchandise or of services
purchased on account.
4> Inventories
5> Accounts payable c. Transactions with owners, managers, and affiliated
companies.
6> Prepaid expense d. Net income less dividends since inception of the corporation.
7> Retained earnings e. Management’s views on significant events.
8> Subsequent events f. Amounts due from customers.
9> MD&A g. Goods to be sold in the ordinary course of business.
10> Franchise h. Asset recorded when an expense is paid for in advance.
i. Cash received from a customer in advance of providing a good or service.
j. An intangible asset.
Misty Company reported the following before-tax items during the current year:
Misty’s effective tax rate is 40%.
What is Misty’s income from continuing operations?
a. $198.
b. $210.
c. $330.
d. $360.
If a company adopts an accounts receivable factoring program, and accounts for the
factoring as a sale of receivables, which of the following is true in the period the
company starts the program (all else equal)?
a. The accounts receivable balance will increase.
b. Cash flow from operations may increase.
c. A retroactive restatement is necessary due to a change in accounting principle.
d. The factoring arrangement needs to be with a consolidated entity to qualify for sale
accounting.
On January 1, 2016, Wellburn Corporation leased an asset from Tabitha Company. The
asset originally cost Tabitha $300,000. The lease agreement is an operating lease that
calls for four annual payments beginning on January 1, 2016, in the amount of $36,000.
The other three remaining payments will be made on January 1 of each subsequent year.
Which of the following journal entries should Tabitha record on January 1, 2016?
Cal Farms reported supplies expense of $2,000,000 this year. The supplies account
decreased by $200,000 during the year to an ending balance of $400,000. What was the
cost of supplies the Cal Farms purchased during the year?
a. $1,600,000.
b. $1,800,000.
c. $2,200,000.
d. $2,400,000.
Assume that at the beginning of the current year, a company has a net gain-AOCI of
$60,000,000. At the same time, assume the PBO and the plan assets are $300,000,000
and $450,000,000, respectively. The average remaining service period for the
employees expected to receive benefits is 10 years. What is the amount of amortization
to pension expense for the year?
a. $ 6,000,000.
b. $15,000,000.
c. $ 1,500,000.
d. $ 7,500,000.
Of the following temporary differences, which one ordinarily creates a deferred tax
asset?
a. Completed-contract method for long-term construction contracts for tax reporting.
b. Installment sales for tax reporting.
c. Accrued warranty expense.
d. Accelerated depreciation for tax reporting.
Beasley Crossing prepares its financial statements in accordance with International
Financial Reporting Standards (IFRS). The company issued shares of the company”s
Class B stock. Beasley Crossing should report the stock in the company”s statement of
financial position
a. among liabilities unless the shares are mandatorily redeemable.
b. among liabilities if the shares are mandatorily redeemable or redeemable at the
option of the shareholder.
c. as equity unless the shares are mandatorily redeemable.
d. as equity unless the shares are redeemable at the option of the issuer.
Which one of the following financial statements does not report amounts primarily on
an accrual basis?
a. Income statement.
b. Balance sheet.
c. Statement of cash flows.
d. Statement of shareholders’ equity.
On January 1, 2016, Albacore Company had 300,000 shares of its common stock
issued and outstanding. Albacore issued a 10% stock dividend on July 1, 2016. On
October 1, 2016, Albacore retired 12,000 of its common shares. When calculating basic
earnings per share for 2016, what is the appropriate number of shares for Albacore to
use in the denominator of the EPS fraction?
a. 303,000.
b. 342,000.
c. 312,000.
d. 327,000.
Benny’s Bed Co. uses a periodic inventory system and the average cost retail method to
estimate ending inventory and cost of goods sold. The following data is available from
the company records for the month of September 2016.
To the nearest thousand, estimated ending inventory is:
a. $41,000.
b. $37,000.
c. $51,000.
d. None of these answer choices are correct.
Blair Systems offers its employees a variety of share-based compensation plans
including stock options, stock appreciation rights, and restricted stock. The following is
an excerpt from a disclosure note from Blair’s 2016 financial statements:
Note 11 Employee Benefit Plans (in part)
The Company adopted SFAS 123(R) [ASC Topic 718], which requires the
measurement and recognition of compensation expense for all share-based payment
awards made to the Company’s employees and directors including employee stock
options and employee stock purchase rights, based on estimated fair values. Employee
share-based compensation expense under SFAS 124 (R) was as follows (in millions):
Required:
1) Blair’s share-based compensation includes stock options, stock appreciation rights,
and restricted stock awards. What is the general financial reporting objective when
recording compensation expense for these forms of compensation?
2) Blair reported share-based expense of $455 million in 2016. Without referring to
specific numbers and ignoring other forms of share-based compensation, describe how
this amount reflects the value of stock options.
Listed below are five terms followed by a list of phrases that describe or characterize
each of the terms. Match each phrase with the number for the correct term.
On November 10 of the current year, Flores Mills sold carpet to a customer for $8,000
with credit terms 2/10, n/30. Flores uses the gross method of accounting for cash
discounts. What is the correct entry for Flores on November 17, assuming the correct
payment was received on that date?
A zero-coupon bond pays no interest. Explain.
The table below contains data on depreciation for machinery.
Required: Fill in the missing data in the table.
Gonzaga Company has used the double-declining-balance method for depreciation
since it started business in 2012. At the beginning of 2016, the company decided to
change to the straight-line method. Depreciation as reported and what it would have
been reported if the company had always used straight-line is listed below:
Required:
What journal entry, if any, should Gonzaga make to record the effect of the accounting
change (ignore income taxes)? Explain.