Listed below are five terms followed by a list of phrases that describe or characterize
each of the terms. Match each phrase with the correct term. 1)Donated assets
2)Software development costs
3)Restoration costs
4)Lump-sum purchase
5)Copyright
A. Capitalized between points of technological feasibility and date of product release
B. Revenue recorded upon receipt
C. Price allocated in proportion to relative fair values
D. Exclusive right of protection given to the creator of a published work
E. Costs to bring back an asset to its original condition
Answer:
Lake Incorporated purchased all of the outstanding stock of Huron Company paying
$950,000 cash. Lake assumed all of the liabilities of Huron. Book values and fair values
of acquired assets and liabilities were:
Lake would record goodwill of: A. $0.
B. $75,000.
C. $445,000.
D. $250,000.
Answer:
When bonds are sold at a discount and the effective interest method is used, at each
interest payment date, the interest expense: A. Increases.
B. Decreases.
C. Remains the same.
D. Is equal to the change in book value.
Answer:
Which of the following is not a provision of the Public Company Accounting Reform
and Investor Protection Act of 2002 (Sarbanes-Oxley)? The Act: A.Changed the entity
responsible for setting auditing standards.
B.Increased corporate executive responsibility for financial statements.
C.Limited nonaudit services that can be performed by auditors for audit clients.
D.Changed the entity responsible for setting accounting standards.
Answer:
When tax rates are changed subsequent to the creation of a deferred tax asset or
liability, GAAP requires that: A. All deferred tax accounts be adjusted to reflect the new
tax rates.
B. The beginning deferred tax accounts are left unchanged.
C. Only the current deferred tax accounts are adjusted to reflect the new tax rates.
D. Only the noncurrent deferred tax accounts are adjusted to reflect the new tax rates.
Answer:
Refer to the following lease amortization schedule. The five payments are made
annually starting with the inception of the lease. A $2,000 bargain purchase option is
exercisable at the end of the five-year lease. The asset has an expected economic life of
eight years.
What is the effective annual interest rate? A. 9%.
B. 10%.
C. 11%.
D. 20%.
Answer:
The Kelso Company had the following operating results:
What is the income tax refund receivable? A. $18,000
B. $19,500
C. $18,750
D. $24,000
Answer:
Listed below are five terms followed by a list of phrases that describe or characterize
each of the terms. Match each phrase with the correct term. 1)Single-step income
statement
2)Investing activities
3)Financing activities
4)Held for sale component
5)Nonoperating activities (income statement)
A. Groups all revenues and gains.
B. Related to the external financing of the company.
C. Likely to be discontinued within a year.
D. Not directly related to a firm’s principal revenue-generating activities.
E. Related to the acquisition and disposition of long-term assets.
Answer:
Under the retail inventory method: A. A company measures inventory on its balance
sheet by converting retail prices to cost.
B. A company measures inventory on its balance sheet at current selling prices.
C. A company measures inventory on its balance sheet on a LIFO basis.
D. None of the above is correct.
Answer:
Which of the following is reported as an operating activity in the statement of cash
flows? A. The payment of dividends.
B. The sale of office equipment.
C. The payment of interest on long-term notes.
D. The issuance of a stock dividend.
Answer:
Plunder Inc. accepted a six-month noninterest-bearing note for $2,800 on January 1,
2013. The note was accepted as payment of a delinquent receivable of $2,500. What is
the correct entry to record the note? A.
B.
C.
D.
Answer:
Cash may not include: A. Foreign currency.
B. Money orders.
C. Restricted cash.
D. Undeposited customer checks.
Answer:
Excerpts from Hulkster Company’s December 31, 2013 and 2012, financial statements
are presented below:
Hulkster’s 2013 receivables turnover is: A. 2.85.
B. 4.70.
C. 5.00.
D. 10.63.
Answer:
Assume that, on January 1, 2013, Sosa Enterprises paid $3,000,000 for its investment in
36,000 shares of Orioles Co. Further, assume that Orioles has 120,000 total shares of
stock issued and estimates an eight-year remaining useful life and straight-line
depreciation with no residual value for its depreciable assets.
At January 1, 2013, the book value of Orioles’ identifiable net assets was $7,000,000,
and the fair value of Orioles was $10,000,000. The difference between Orioles’ fair
value and the book value of its identifiable net assets is attributable to $1,800,000 of
land and the remainder to depreciable assets. Goodwill was not part of this transaction.
The following information pertains to Orioles during 2013:
What amount would Sosa Enterprises report in its year-end 2013 balance sheet for its
investment in Orioles Co.? A. $3,200,000.
B. $3,180,000.
C. $3,135,000.
D. $3,027,000.
Answer:
On January 1, 2013, Gibson Corporation entered into a four-year operating lease. The
payments were as follows: $20,000 for 2013, $18,000 for 2014, $16,000 for 2015, and
$14,000 for 2016. What is the correct amount of lease expense for 2014? A. $20,500.
B. $19,000.
C. $17,000.
D. $18,000.
Answer:
When converting an income statement from a cash basis to an accrual basis, cash
received for services: A. Exceed service revenue.
B. May exceed or be less than service revenue.
C. Is less than service revenue.
D. Equals service revenue.
Answer:
In a periodic inventory system, the cost of inventories sold is: A. Debited to accounts
receivable.
B. Credited to cost of goods sold.
C. Debited to cost of goods sold.
Answer:
Marilee’s Electronics 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 June 2013:
To the nearest thousand, estimated ending inventory is: A. $41,000.
B. $37,000.
C. $51,000.
D. None of the above is correct.
Answer:
Bonds usually sell at their: A. Maturity value.
B. Face value.
C. Present value.
D. Statistical expected value.
Answer:
Listed below are five terms followed by a list of phrases that describe or characterize
each of the terms with respect to accounting under IFRS. Match each phrase with the
correct term. 1)Impairment
2)Available for sale
3)Control
4)Risks and rewards
5)Overdraft
A. This accounting approach can be used for receivables if elected upon initial
recognition
B. Can be netted against positive cash balances on the balance sheet
C. Can be recovered to increase income if fair value increases
D. Primary consideration for determining whether transfer of a receivable is a sale
E. Secondary consideration for determining whether transfer of a receivable is a sale
Answer:
Cutter Enterprises purchased equipment for $72,000 on January 1, 2013. The equipment
is expected to have a five-year life and a residual value of $6,000.
Using the double-declining balance method, depreciation for 2013 and the book value
at December 31, 2013, would be: A. $26,400 and $45,600.
B. $28,800 and $43,200.
C. $28,800 and $37,200.
D. $26,400 and $36,600.
Answer:
Below is information relative to an exchange of similar assets by Grand Forks Corp.
Assume the exchange has commercial substance.
In Case A, Grand Forks would record the new equipment at: A. $65,000.
B. $75,000.
C. $50,000.
D. $60,000.
Answer:
Retained earnings represent a company’s: A. Undistributed net income.
B. Undistributed net assets.
C. Extra paid-in capital.
D. Undistributed cash.
Answer:
Which of the following is not true about recognizing unrealized gains and losses on
equity investments? A. If the investor does not have significant influence over the
investee, the equity investment is always accounted for as FV-NI.
B. The investor can use the FV-OCI approach if the equity is held for purposes of
maximizing return on investment or managing risk.
C. The investor will recognize unrealized gains and losses in earnings in the period in
which fair value of the investment changes.
D. If the investor has significant influence but not control over the investee, the equity
method is used.
Answer:
Listed below are five terms followed by a list of phrases that describe or characterize
each of the terms. Match each phrase with the most correct term. 1) Accumulated other
comprehensive income
2) Vesting requirements
3) Service cost
4) Defined benefit plan
5) Retiree benefits paid
A. Included in the calculation of pension expense
B. Reported as a shareholders’ equity account.
C. Retirement benefits specified by formula
D. Protection for employee pension rights
E. Reduce(s) both the PBO and plan assets
Answer:
XYZ Corporation receives $100,000 from investors for issuing them shares of its stock.
XYZ’s journal entry to record this transaction would include a: A. Debit to investments.
B. Credit to retained earnings.
C. Credit to capital stock.
D. Credit to revenue.
Answer:
Harvey’s Junk Jewelry started business January 1, 2013, and uses the LIFO retail
method to estimate ending inventory. Listed below is data accumulated for the year
ended December 31, 2013:
To the nearest thousand, the estimated ending inventory at cost is: A. $16,000.
B. $15,000.
C. $13,000.
D. $19,000.
Answer:
Red Company is a calendar-year U.S. firm with operations in several countries. At
January 1, 2013, the company had issued 40,000 executive stock options permitting
executives to buy 40,000 shares of stock for $25. The vesting schedule is 20% the first
year, 30% the second year, and 50% the third year (graded-vesting). The fair value of
the options is estimated as follows:
What is the compensation expense related to the options to be recorded in 2014? A.
$48,000.
B. $96,000.
C. $128,000.
D. $140,000.
Answer:
Accumulated other comprehensive income is reported: A. In the balance sheet as an
asset.
B. In the balance sheet as a liability.
C. In the balance sheet as a component of shareholders’ equity.
D. In the statement of comprehensive income.
Answer:
All other things equal, what is the effect on earnings per share when a corporation
acquires shares of its own stock on the open market?A. Decrease.
B. No effect if the shares are held as treasury shares.
C. Increase only if the shares are considered to be retired.
D. Increase.
Answer:
Property dividends distributed are reported in connection with a statement of cash flows
as: A. A financing activity.
B. An investing activity.
C. A noncash activity.
D. Not reported in the statement of cash flows.
Answer:
Indicate whether each of the actions listed below will immediately increase (I), decrease
(D), or have no effect (N) on the ratios shown. Assume each ratio is greater than 1.0
before the action is taken.
Answer:
Cheney Company sold a 20-ton mechanical draw press for $60,000. The old draw press
cost $77,000 and had a book value of $55,000.
Required:
Prepare the journal entry to record the disposition.
Answer:
What is meant by dilution of earnings per share?
Answer:
What is the purpose of the closing process?
Answer:
The following information is taken from the accounting records of Madeline Inc. for the
year 2013. Missing information has been left blank. Inventory is the only supply that
Madeline purchases on credit.
Required:
Compute the missing amounts.
Answer:
Weldon Animal Feeds has developed the following data for lower-of-cost-or-market
valuation for its products (in thousands):
The normal profit margin on all feed is 25% of selling price and disposal costs are 20%
of selling price.
Required:
Determine the balance sheet inventory carrying value assuming the LCM rule is applied
to individual types of feeds.
Answer:
Determine the amount of cash paid to suppliers for each of the four independent
situations below.
Answer:
Data pertaining to the postretirement health care benefit plan of Danielson Delivery
Service include the following for the current calendar year:
Required:
1) Determine Danielson’s postretirement benefit expense for the current year.
2) Prepare the journal entries to record the benefit expense and funding for the current
year.
Answer:
Littleton Company uses a periodic inventory system and the LIFO retail method to
estimate its ending inventories. The following partial data has been summarized for
December 31, 2013:
Required:
Determine the cost-to-retail percentage used by Littleton. Assume stable retail prices
during the period.
Answer:
The balance sheet for Altoid Co. is shown below.
Selected 2013 income statement information for Altoid Co. includes:
Required:
Compute the following financial statement ratios for 2013:
Altoid Co.’s debt to equity ratio. Round your answer to two decimal places.
Answer:
Using the chart of accounts provided, indicate by account number the account or
accounts that would be debited and credited in the following transactions and indicate
the type of transaction as: (1) an external transaction, (2) an internal transaction
recorded as an adjusting journal entry, or (3) a closing entry. The company uses a
perpetual inventory system. All prepayments are initially recorded in permanent
accounts.
Accrued the interest earned but not collected on notes receivable.
Answer:
Suppose that Laramie Company’s adjusted trial balance ignored the following
information. For each item of information, indicate what effects, if any, these omissions
would have on the stated components of Laramie Company’s 2013 Income Statement
and 12/31/13 Balance Sheet. Assume no income taxes.
Use the following code for your answers and be sure to include the dollar amounts of
the effects next to the letter O or U:
N = No Effect
O = Overstated
U = Understated
Answer:
What is the theoretical and practical trade-off when measuring the pension liability
using the projected benefit obligation compared to the accumulated benefit obligation?
Answer:
Bronco Electronics’ current assets consist of cash, marketable securities, accounts
receivable, and inventories. The following data were abstracted from a recent financial
statement:
Required:
Compute the following for Bronco:
Noncurrent assets
Answer:
Bunker Auto Supply purchased merchandise on January 4, 2013, at a price of $70,000,
subject to credit terms of 2/10, n/30. Bunker uses the gross method for recording
purchases and uses a periodic inventory system.
Required:
1. Prepare the journal entry to record the purchase.
2. Prepare the journal entry to record the payment of one-half the invoice amount on
January 11, 2013.
3. Prepare the journal entry to record the balance of the amount due on February 2,
2013.
Answer:
What are the possible components of pension expense? Which of these elements would
exist in every defined benefit plan?
Answer:
During the current year, Compton Crate Corporation purchased all of the outstanding
common stock of Little Lacy Ltd. (LLL), paying $60 million in cash. Compton
recorded the assets acquired as follows:
The book value of LLL’s assets and owners’ equity before the acquisition were $50
million and $30 million, respectively.
Required:
Compute the fair value of LLL’s liabilities that Compton assumed in the acquisition.
Answer:
On January 1, 2013, Bishop Company issued 10% bonds dated January 1, 2013, with a
face amount of $20 million. The bonds mature in 2022 (10 years). For bonds of similar
risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and
December
Required:
1) Determine the price of the bonds at January 1, 2013.
2) Prepare the journal entry to record the bond issuance by Bishop on January 1, 2013.
3) Prepare the journal entry to record interest on June 30, 2013, using the effective
interest method.
4) Prepare the journal entry to record interest on December 31, 2013, using the effective
interest method.
Answer:
On February 1, 2013, Fox Corporation issued 9% bonds dated February 1, 2013, with a
face amount of $200,000. The bonds sold for $182,841 and mature in 20 years. The
effective interest rate for these bonds was 10%. Interest is paid semiannually on July 31
and January 31. Fox’s fiscal year is the calendar year. Fox uses the straight-line method
of amortization.
Required:
1) Prepare the journal entry to record the bond issuance on February 1,
2) Prepare the entry to record interest on July 31, 2013.
3) Prepare the necessary journal entry on December 31, 2013.
4) Prepare the necessary journal entry on January 31, 2014.
Answer: