At the end of the current year, a company failed to accrue interest of $500,000 on its
investments in municipal bonds. Its tax rate is 30%. As a result of this error, net income
is:
a. Unaffected.
b. Understated by $350,000.
c. Understated by $500,000.
d. Understated by $150,000.
On March 1, 2020, when the market price of Wilson’s stock was $14 per share, 3
million of the options were exercised. The journal entry to record this would include:
Wilson Inc. developed a business strategy that uses stock options as a major
compensation incentive for its top executives. On January 1, 2016, 20 million options
were granted, each giving the executive owning them the right to acquire five $1 par
common shares. The exercise price is the market price on the grant date-$10 per share.
Options vest on January 1, 2020. They cannot be exercised before that date and will
expire on December 31, 2022. The fair value of the 20 million options, estimated by an
appropriate option pricing model, is $40 per option. Ignore income tax.
a. A debit to paid-in capital-stock options for $42 million
b. A credit to paid-in capital-excess of par for $255 million
c. A credit to common stock for $75 million
d. All of these answer choices are correct.
On September 30, 2016, Bricker Enterprises purchased a machine for $200,000. The
estimated service life is 10 years with a $20,000 residual value. Bricker records
partial-year depreciation based on the number of months in service. Depreciation for
2016, using double-declining balance, would be:
a. $40,000.
b. $10,000.
c. $36,000.
d. $ 9,000.
When accounting for pensions, delayed recognition of gains and losses in earnings
achieves:
a. Income averaging.
b. Expense averaging.
c. Income optimization.
d. Income smoothing.
Recognizing tax benefits in a loss year due to a net operating loss carryforward
requires:
a. Creating a tax refund receivable.
b. Note disclosure only.
c. Creating a deferred tax asset.
d. Creating a deferred tax liability.
El Dorado Foods Inc. owns a chain of specialty stores in the Pacific Northwest.
Recently, four of the stores have experienced declining profits due to market saturation
in the area. As a result, management gathered data about possible impairment of the
assets of the stores. The information gathered was as follows: Book value: $17.5
million
Fair value: $14.9 million
Undiscounted sum of future cash flows: $16.5 million Required:
Assume that the undiscounted sum of future cash flows is $18.2 million, instead of
$16.5 million. Determine the amount, if any, of the impairment loss that El Dorado
must recognize on these assets.
Revenue likely is recognized over time for all the following arrangements except for
a. Bank earning interest on a long term loan
b. Construction of a building
c. Providing a two-year gym membership
d. Manufacturing generally stocked items ordered by a favored customer
Chez Fred Bakery estimates the allowance for uncollectible accounts at 3% of the
ending balance of accounts receivable. During 2016, Chez Fred’s credit sales and
collections were $125,000 and $131,000, respectively. What was the balance of
accounts receivable on January 1, 2016, if $180 in accounts receivable were written off
during 2016 and if the allowance account had a balance of $750 on December 31,
2016?
a. $5,820.
b. $31,000.
c. $31,180.
d. None of these answer choices are correct.
Assets do not include:
a. Property, plant, and equipment.
b. Investments.
c. Paid-in capital.
d. Unexpired insurance.
Hazelton Manufacturing prepares a bank reconciliation at the end of every month. At
the end of May, the general ledger checking account showed a balance of $1,360 and
the bank statement showed a bank balance of $1,445. Outstanding checks totaled $350
and deposits in transit were $150. The bank statement listed service charges of $30 and
NSF checks totaling $85. The corrected cash balance is:
a. $1,130.
b. $1,160.
c. $1,245.
d. $1,445.
Fulbright Corp. uses the periodic inventory system. During its first year of operations,
Fulbright made the following purchases (listed in chronological order of acquisition):
– 40 units at $100
– 70 units at $ 80
– 170 units at $ 60 Sales for the year totaled 270 units, leaving 10 units on hand at the
end of the year. Ending inventory using the FIFO method is:
a. $ 650.
b. $1,000.
c. $ 707.
d. $ 600.
Cooper Inc. took physical inventory at the end of 2015. Purchases that were acquired
FOB destination were in transit, so they were not included in the physical count.
a. Cooper needs to correct an accounting error.
b. Cooper has made a change in accounting principle, requiring retrospective
adjustment.
c. Cooper is required to adjust a change in accounting estimate prospectively.
d. Cooper is not required to make any accounting adjustments.
Listed below are year-end account balances (in $millions) taken from the records of
Symphony Stores.
What would Symphony report as total current assets?
a. $823.
b. $838.
c. $843.
d. $1,696.
Retrospective restatement usually is appropriate for a change in:
Accounting Estimate Accounting Principle
a. Yes Yes
b. Yes No
c. No Yes
d. No No
An exception that is so serious that even a qualified opinion is not justified would result
in:
a. A disclaimer.
b. An unqualified opinion.
c. An adverse opinion.
d. A consistency exception.
Summary data for Benedict Construction Co.’s (BCC) Job 1227, which was completed
in 2016, are presented below:
Assuming BCC recognizes revenue over time according to percentage of completion
for this contract, the gross profit recognized in 2016 would be (rounded to the nearest
thousand):
a. $ 6,000.
b. $39,000.
c. $42,000.
d. $45,000.
The following table presents a summary of ratio analysis for Uncle Joe’s Coffee, based
on the most recent 12 months and five-year comparisons of Uncle Joe’s with averages
in the restaurant industry and the services sector, respectively.
Using the information provided above, briefly summarize the operating performance of
Uncle Joe’s relative to its benchmark competitors.
In 2016, the internal auditors of Blooper Inc. discovered that goods costing $12 million
that were shipped f.o.b. shipping point in December of 2015 were in transit on
December 31. The goods were recorded as a purchase in December of 2015 but were
not included in the 2015 year-end inventory.
Required:
Prepare the journal entry needed in 2016 to correct the error. Also, briefly describe any
other measures Blooper would take in connection with correcting the error. (Ignore
income taxes.)
When stock is issued for consideration other than cash, what is the measurement
objective?
The following information is taken from the accounting records of Madeline Inc. for the
year 2016. Missing information has been left blank. Inventory is the only supply that
Madeline purchases on credit. Required: Compute the missing amounts.
Contrast the asset/liability and revenue/expense approaches to accounting standard
setting.