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) The recording of convertible bonds at the date of issue is the same as the recording of
straight debt issues.
3) Accounting errors include changes in estimates that occur because a company
acquires more experience, or as it obtains additional information.
4) IFRS requires that any indirect effect of a change in accounting policy, such as
increased royalty payments, be recognized in income in the year of the change in policy.
5) Companies compute the vested benefit obligation using only vested benefits, at
current salary levels.
6) A company should add back bond premium amortization to net income to arrive at
net cash flow from operating activities.
7) A company can classify a debt security as held-to-maturity if it has the positive intent
to hold the securities to maturity.
8) If the difference between the Construction in Process and the Billings on
Construction in Process account balances is a debit, the difference is reported as a
current asset.
9) After an impairment loss is recorded for a limited-life intangible asset, the
recoverable amount becomes the basis for the impaired asset and is used to calculate
amortization in future periods.
10) Under the operating method, the lessor records each rental receipt as part interest
revenue and part rental revenue.
11) If a company develops a trademark, it should expense the costs related to attorney
fees, registration fees, and design costs.
12) A company should add a decrease in a deferred tax liability to income taxes payable
in computing income tax expense.
13) The cause for litigation must have occurred on or before the date of the financial
statements to report a liability in the financial statements.
14) Fraudulent financial reporting is intentional or reckless conduct, whether act or
omission, that results in materially misleading financial statements.
15) Which of the following situations does not base an accounting measure on present
values?
a.Pensions
b.Prepaid insurance
c.Leases
d.Sinking funds
16) Which basic element of financial statements arises from peripheral or incidental
transactions?
a.Assets
b.Liabilities
c.Gains
d.Expenses
17) The carrying value of an intangible is
a.the fair value of the asset at a balance sheet date
b.the asset’s acquisition cost less the total related amortization recorded to date
c.equal to the balance of the related accumulated amortization account
d.the assessed value of the asset for intangible tax purposes
18) Confectioners, a chain of candy stores, purchases its candy in bulk from its
suppliers. For a recent shipment, the company paid $1,500 and received 8,500 pieces of
candy that are allocated among three groups. Group 1 consists of 2,500 pieces that are
expected to sell for $0.15 each. Group 2 consists of 5,500 pieces that are expected to
sell for $0.36 each. Group 3 consists of 500 pieces that are expected to sell for $0.72
each. Using the relative sales value method, what is the cost per item in Group 2?
a.$0.19
b.$0.30
c.$0.18
d.$0.20
19) In each of the following independent cases, it is assumed that the corporation has
$800,000 of 6% preferred stock and $3,200,000 of common stock outstanding, each
having a par value of $10. No dividends have been declared for 2013 and 2014 .
(a)As of 12/31/15, it is desired to distribute $250,000 in dividends. How much will the
preferred stockholders receive if their stock is cumulative and nonparticipating?
(b)As of 12/31/15, it is desired to distribute $800,000 in dividends. How much will the
preferred stockholders receive if their stock is cumulative and participating up to 11%
in total?
(c)On 12/31/15, the preferred stockholders received a $240,000 dividend on their stock
which is cumulative and fully participating. How much money was distributed in total
for dividends during 2015?
20) Barton Company uses a periodic inventory system. On January 1, 2014, Barton
Company had 1,200 units of inventory on hand at a cost of $8 per unit. During 2014,
Barton made the following inventory purchases.
Assume Barton Company sold 2,300 units of inventory during 2014 .
If you assume that Barton follows IFRS and uses the FIFO method, what is the ending
inventory and cost of goods sold, respectively?
a.Ending inventory = $11,600; Cost of Goods Sold = $31,800
b.Ending inventory = $16,520; Cost of Goods Sold = $26,880
c.Ending inventory = $16,422; Cost of Goods Sold = $26,978
d.Ending inventory = $20,600; Cost of Goods Sold = $22,800
21) The rate of interest actually earned by bondholders is called the
a.stated rate
b.coupon rate
c.nominal rate
d.effective rate
22) Which of the following is not a characteristic of a noncompensatory stock purchase
plan?
a.It is open to almost all full-time employees
b.The discount from market price is small
c.The plan offers no substantive option feature
d.All of these are characteristics
23) The American Institute of Certified Public Accountants (AICPA) continues to be
involved in all of the following except
a.developing and enforcing professional ethics
b.developing auditing standards for public companies
c.providing professional education programs
d.All of the answer choices are correct
24) Lane Co. has a machine that cost $500,000. It is to be leased for 20 years with rent
received at the beginning of each year. Lane wants a return of 10%. Calculate the
amount of the annual rent.
Present Value of
PeriodOrdinary Annuity
198.36492
208.51356
218.64869
a.$53,391
b.$59,773
c.$74,320
d.$58,730
25) During 2015, Leon Co. incurred the following costs:
Testing in search for process alternatives$ 350,000
Costs of marketing research for new product250,000
Modification of the formulation of a process560,000
Research and development services performed by Beck Corp. for Leon475,000
In Leon’s 2015 income statement, research and development expense should be
a.$560,000
b.$1,035,000
c.$1,385,000
d.$1,635,000
26) Ridge, Inc. follows IFRS for its external financial reporting, and Cannon Company
follows U.S. GAAP for its external financial reporting. During 2015, both companies
changed depreciation methods, from double-declining balance to straight-line.
Compared to double-declining balance, for Ridge, Inc. the change resulted in a decrease
in reported depreciation expense of $90,000, and for Cannon Company the change
resulted in a reported decrease in depreciation expense of $105,000. The remaining
useful lives of the assets impacted by the change in depreciation method is 10 years for
both companies. How would this change impact the net income reported by Ridge, Inc.
and Cannon Company for the year ended December 31, 2015?
Ridge, Inc. Cannon Company
a.Decrease $90,000Decrease $105,000
b.Increase $9,000Increase $10,500
c.Increase $90,000Increase $105,000
d.Increase $90,000Increase $10,500
27) Which of the following represents the total number of shares that a corporation may
issue under the terms of its charter?
a.Authorized shares
b.Issued shares
c.Unissued shares
d.Outstanding shares
28) An entry is not made on the
a.date of declaration
b.date of record
c.date of payment
d.An entry is made on all of these dates
29) The balance in retained earnings at December 31, 2014 was $1,080,000 and at
December 31, 2015 was $873,000. Net income for 2015 was $750,000. A stock
dividend was declared and distributed which increased common stock $375,000 and
paid-in capital $165,000. A cash dividend was declared and paid.
The amount of the cash dividend was
a.$372,000
b.$417,000
c.$582,000
d.$957,000
30) Of the approaches to record cash discounts related to accounts receivable, which is
more theoretically correct?
a.Net approach
b.Gross approach
c.Allowance approach
d.All three approaches are theoretically correct
31) Which of the following is not a difference between IFRS and U.S. GAAP in
accounting for non-current liabilities?
a.Non-current liabilities follow current liabilities on the statement of financial position
under U.S. GAAP, but precede current liabilities under IFRS
b.The criteria for recognizing environmental liabilities is more stringent under U.S.
GAAP compared to IFRS
c.Bond issuance cost are recorded as a reduction of the carrying value of the debt under
U.S. GAAP but are recorded as an asset and amortized to expense over the term of the
debt under IFRS
d.Under U.S. GAAP, bonds payable is recorded at the face amount and any premium or
discount is recorded in a separate account. Under IFRS, bonds payable is recorded at
the carrying value so no separate premium or discount accounts are used
32) Adjusting entries that should be reversed include those for prepaid or unearned
items that
a.create an asset or a liability account
b.were originally entered in a revenue or expense account
c.were originally entered in an asset or liability account
d.create an asset or a liability account and were originally entered in a revenue or
expense account
33) The elements of financial statements include investments by owners. These are
increases in an entity’s net assets resulting from owners’
a.transfers of assets to the entity
b.rendering services to the entity
c.satisfaction of liabilities of the entity
d.All of these answer choices are correct
34) At the December 31, 2014 balance sheet date, Unruh Corporation reports an
accrued receivable for financial reporting purposes but not for tax purposes. When this
asset is recovered in 2015, a future taxable amount will occur and
a.pretax financial income will exceed taxable income in 2015
b.Unruh will record a decrease in a deferred tax liability in 2015
c.total income tax expense for 2015 will exceed current tax expense for 2015
d.Unruh will record an increase in a deferred tax asset in 2015