1) if preferred stock is cumulative and no dividends are declared, the company subtracts
the current year preferred dividend in computing earnings per share.
2) magazine subscriptions and airline ticket sales both result in unearned revenues.
3) users of financial statements are assumed to need no knowledge of business and
financial accounting matters to understand information contained in financial
statements.
4) the recording of convertible bonds at the date of issue is the same as the recording of
straight debt issues.
5) companies report changes in accounting estimates retrospectively.
6) ifrs requires that noncash investing and financing activities be excluded from the
statement of cash flows.
7) both ifrs and u.s. gaap allow for comprehensive income to be reported in either a
statement of stockholders’ equity or a statement of recognized income and expense.
8) companies have the option of disclosing information about the nature of their
operations and the use of estimates in preparing financial statements.
9) the implicit interest rate is the rate that equates the cash received with the amounts
received in the future.
10) revenues, gains, and distributions to owners all increase equity.
11) if an employee fails to exercise a stock option before its expiration date, the
company should decrease compensation expense.
12) a sale should not be recognized as revenue by the seller at the time of sale if
a.payment was made by check
b.the selling price is less than the normal selling price
c.the buyer has a right to return the product and the amount of future returns cannot be
reasonably estimated
d.none of these
13) a debt instrument with no ready market is exchanged for property whose fair value
is currently indeterminable. when such a transaction takes place
a.the present value of the debt instrument must be approximated using an imputed
interest rate
b.it should not be recorded on the books of either party until the fair value of the
property becomes evident
c.the board of directors of the entity receiving the property should estimate a value for
the property that will serve as a basis for the transaction
d.the directors of both entities involved in the transaction should negotiate a value to be
assigned to the property
14) pole co. at the end of 2013, its first year of operations, prepared a reconciliation
between pretax financial income and taxable income as follows:
use of the depreciable assets will result in taxable amounts of $350,000 in each of the
next three years. the estimated litigation expenses of $940,000 will be deductible in
2016 when settlement is expected.
instructions
(a)prepare a schedule of future taxable and deductible amounts.
(b)prepare the journal entry to record income tax expense, deferred taxes, and income
taxes payable for 2013, assuming a tax rate of 40% for all years.
15) alonzo company in italy prepares its financial statements in accordance with ifrs. in
2012, it reported cost of goods sold of 600 million and average inventory of 150
million. what is alonzo’s inventory turnover ratio?
a.4 days
b.25 days
c.91.25 days
d.100 days
16) on september 1, hydra purchased $13,300 of inventory items on credit with the
terms 1/15, net 30, fob destination. freight charges were $280. payment for the purchase
was made on september 18. assuming hydra uses the perpetual inventory system and
the net method of accounting for purchase discounts, what amount is recorded as
inventory from this purchase?
a.$13,167
b.$13,447
c.$13,580
d.$13,300
17) angie invested $100,000 she received from her grandmother today in a fund that is
expected to earn 10% per annum. to what amount should the investment grow in five
years if interest is compounded semi-annually?
a.$155,134
b.$161,050
c.$162,890
d.$177,156
18) ifrs uses a fair value test to measure impairment loss. however, ifrs does not use the
first-stage recoverability test under u.s. gaap comparing the undiscounted cash flow to
the carrying amount. as a result, the ifrs test is
a.not as strict as u.s. gaap
b.more strict than u.s. gaap
c.essentially the same strictness as u.s. gaap
d.none of the above
19) companies should test indefinite life intangible assets at least annually for:
a.recoverability
b.amortization
c.impairment
d.estimated useful life
20) vista newspapers sold 6,000 of annual subscriptions at $125 each on september 1.
how much unearned revenue will exist as of december 31?
a.$0
b.$500,000
c.$250,000
d.$750,000
21) on january 1, 2012, guzman 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 optional straight-line method, the amount of macrs
deduction for tax purposes for the year 2012 is
a.$40,000
b.$50,000
c.$20,000
d.$25,000
22) pasta inn charges an initial fee of $900,000 for a franchise, with $180,000 paid
when the agreement is signed and the balance in four annual payments. the present
value of the annual payments, discounted at 10%, is $570,600. the franchisee has the
right to purchase $60,000 of kitchen equipment and supplies for $50,000. an additional
part of the initial fee is for advertising to be provided by pasta inn during the next five
years. the value of the advertising is $1,000 a month. collectibility of the payments is
reasonably assured and pasta inn has performed all the initial services required by the
contract.
instructions
prepare the entry to record the initial franchise fee. show supporting computations in
good form.
23) to compute interest expense for an adjusting entry, the formula is (principal x
annual rate x a fraction). the numerator and denominator of the fraction are:
24) quigley co. bought a machine on january 1, 2011 for $1,050,000. it had a $90,000
estimated residual value and a ten-year life. an expense account was debited on the
purchase date. quigley uses straight-line depreciation. this was discovered in 2013.
instructions
prepare the entry or entries related to the machine for 2013.
25) flint department store wishes to use the retail lifo method of valuing inventories for
2013. the appropriate data are as follows:
instructions
complete the following schedule (fill in all blanks and show calculations in the
parentheses):
26) in the space provided, write the word or phrase that is defined or indicated.
27) provide clear, concise answers for the following.
1>what are assets?
2>what are liabilities?
3>what is equity?
4>what are current liabilities?
5>explain what working capital is and how it is computed.
6>what are intangible assets?
7>what are current assets?
28) compare the fair value and equity methods of accounting for investments in stocks
subsequent to acquisition.
29) indicate the effect of each of the following transactions on total stockholders’ equity
by placing an “x” in the appropriate column.
30) below is the information relative to an exchange of assets by stanton company. the
exchange lacks commercial substance.
which of the following would be correct for stanton to record in case i?
31) typical balance sheet classifications are as follows.
indicate by use of the above letters how each of the following items would be classified on
a balance sheet prepared at december 31, 2012. if a contra account, or any amount that is
negative or opposite the normal balance, put parentheses around the letter selected. a letter
may be used more than once or not at all.
16>.natural resourcetimberlands
17>.deficit (no net income earned since beginning of company)
18>.goodwill
19>.90 day notes payable
20>.investment in bonds of another company; will be held to 2015 maturity
21>.land held for speculation
22>.death of company president
23>.current maturity of bonds payable
24>.investment in subsidiary; no plans to sell in near future
25>.accounts payable
26>.preferred stock ($10 par)
27>.prepaid rent
28>.copyright
29>.accumulated amortization, patents
30>.earnings not distributed to stockholders
1>accrued salaries and wages
2>rental revenues for 3 months collected in advance
3>land used as plant site
4>equity securities classified as trading
5>cash
6>accrued interest payable due in 30 days
7>premium on preferred stock issued
8>dividends in arrears on preferred
stock
9>petty cash fund
10>unamortized discount on bonds payable due 2015
11>common stock at par value
12>bond indenture covenants
13>unamortized premium on bonds payable due in 2016
14>allowance for doubtful accounts
15>accumulated depreciationequipment