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1) An electronics store is running a promotion where for every video game purchased,
the customer receives a coupon upon checkout to purchase a second game at a 50%
discount. The coupons expire in one year. The store normally recognized a gross profit
margin of 40% of the selling price on video games. How would the store account for a
purchase using the discount coupon?
a.The reduction in sales price attributed to the coupon is recognized as premium
expense
b.The difference between the cost of the video game and the cash received is
recognized as premium expense
c.Premium expense is not recognized
d.The difference between the cost of the video game and the selling price prior to the
coupon is recognized as premium expense
2) During 2014 Logic Company purchased 8,000 shares of Midi, Inc. for $30 per share.
The investment was classified as a trading security. During the year Logic Company
sold 2,000 shares of Midi, Inc. for $35 per share. At December 31, 2014 the market
price of Midi, Inc.s stock was $28 per share. What is the total amount of gain/(loss) that
Logic Company will report in its income statement for the year ended December 31,
2014 related to its investment in Midi, Inc. stock?
a.($16,000)
b.$10,000
c.($6,000)
d.($2,000)
3) The total amount of patent cost amortized to date is usually
a.shown in a separate Accumulated Patent Amortization account which is shown contra
to the Patents account
b.shown in the current income statement
c.reflected as credits in the Patents account
d.reflected as a contra property, plant and equipment item
4) The following information was taken from the books and records of Ludwick, Inc.:
1>Net income$ 420,000
2>Capital structure:
a.Convertible 6% bonds. Each of the 300, $1,000 bonds is convertible
into 50 shares of common stock at the present date and for the next
10 years.420,000
b.$10 par common stock, 200,000 shares issued and outstanding
during the entire year.2,000,000
c.Stock warrants outstanding to buy 16,000 shares of common stock
at $20 per share.
3>Other information:
a.Bonds converted during the yearNone
b.Income tax rate30%
c.Convertible debt was outstanding the entire year
d.Average market price per share of common stock during the year$32
e.Warrants were outstanding the entire year
f.Warrants exercised during the yearNone
Instructions
Compute basic and diluted earnings per share.
5) What is prudence or conservatism?
a.Understating assets and net income
b.When in doubt, recognizing the option that is least likely to overstate assets and
income
c.Recognizing the option that is least likely to overstate assets and income
d.Recognizing revenue when earned and realized
6) Which of the following gives rise to the requirement to accrue a liability for the cost
of compensated absences?
a.Payment is probable
b.Employee rights vest or accumulate
c.Amount can be reasonably estimated
d.All of these answers are correct
7) In 2014, Hobbs Corp. acquired 12,000 shares of its own $1 par value common stock
at $18 per share. In 2015, Hobbs issued 8,000 of these shares at $25 per share. Hobbs
uses the cost method to account for its treasury stock transactions. What accounts and
what amounts should Hobbs credit in 2015 to record the issuance of the 6,000 shares?
TreasuryAdditionalRetainedCommon
StockPaid-in CapitalEarnings Stock
a.$144,000$140,000
b.$144,000$56,000
c.$192,000$8,000
d.$136,000$56,000$8,000
8) Is the following exception applicable to IFRS or U.S. GAAP?
If determining the effect of a change in accounting principle is considered
impracticable, then a company should report the effect of the change in the period in
which it believes it practicable to do so.
IFRSU.S. GAAP
a. Yes Yes
b. Yes No
c. No Yes
d. NoNo
9) Under the cash-basis of accounting, revenues are recorded
a.when they are recognized and realized
b.when they are recognized and realizable
c.when they are recognized
d.when they are realized
10) Which of the following is not a generally practiced method of presenting the
income statement?
a.Including prior period adjustments in determining net income
b.The single-step income statement
c.The consolidated statement of income
d.Including gains and losses from discontinued operations of a component of a business
in determining net income
11) Sawyer Corporation has a machine (Machine A) that it acquired on 1/1/14 for
$540,000. On 12/31/14 such machines have a selling price and fair value of $621,000.
When used in production, such machines have an estimated useful life of 10 years with
no salvage value. Use the straight-line method.
Brown Corporation has a machine (Machine B) that it acquired on 1/1/14 for $729,000.
On 12/31/14 such machines have a selling price and fair value of $540,000. When used
in production, such machines have an estimated useful life of 10 years with no salvage
value. Use the straight-line method.
On 12/31/14 Brown gave Machine B plus $81,000 cash to Sawyer in return for
Machine A .
Assume that both Sawyer and Brown are new machine dealers and that the machines
are still new. Also assume that the exchange lacks commercial substance. At what
amount will Machine A be recorded on Browns books?
a.$729,000
b.$621,000
c.$810,000
d.$540,000
12) Both IFRS and U.S. GAAP permit valuation of long-term debt and other liabilities
at
a.present value discounted at the firms cost of capital
b.current market values of the obligations, based on changes in the discount rate with
unrealized gains and losses reflected in a separate account in stockholders equity
c.fair value with gains and losses on changes in fair value recorded in income in certain
situations
d.historic costs without reflecting changes in valuation as obligations will be retired at
their maturity date
13) At December 31, 2014, Hancock Company had 500,000 shares of common stock
issued and outstanding, 400,000 of which had been issued and outstanding throughout
the year and 100,000 of which were issued on October 1, 2014 . Net income for the
year ended December 31, 2014, was $1,360,000. What should be Hancock's 2014
earnings per common share, rounded to the nearest penny?
a.$2.69
b.$3.40
c.$3.20
d.$3.03
14) Which of the following is an implication of the going concern assumption?
a.The historical cost principle is credible
b.Depreciation and amortization policies are justifiable and appropriate
c.The current-noncurrent classification of assets and liabilities is justifiable and
significant
d.All of these
