1) When the interest payment dates of a bond are May 1 and November 1, and the bond
is issued on June 1, the amount of interest expense at December 31 of the year of
issuance would be for
a. two months
b. six months
c. seven months
d. eight months
2) On January 1, 2014, Reason Co. estimated a projected benefit of $440,000 based on
a settlement rate of 12 percent. Pension benefits paid to retirees totaled $60,000.
Service costs for 2014 amounted to $148,000. The fair value of the plan assets were
$350,000 and $400,000 on December 31, 2013, and December 31, 2014, respectively.
The projected benefit obligation at December 31, 2014, was
a. $528,000
b. $580,800
c. $630,800
d. $640,800
3) The following segments have been identified for an enterprise, along with each
segments sales. No segment qualifies on any other criterion for determining reportable
segments except possibly for sales. Sales for each segment, and the total for the
enterprise follow:
What is the minimum number of reportable segments for this firm?
a. 2
b. 3
c. 4
d. 5
4) The financial statements of Bollinger Corporation for 2014 and 2015 contained the
following errors:
Assuming that none of the errors were detected or corrected, by what amount will 2015
operating income be overstated or understated?
a. $40,600 understated
b. $35,800 understated
c. $27,800 understated
d. $13,400 overstated
5) Goddard Corporation’s trial balance contained the following account balances at
December 31, 2014:
On Goddards December 31, 2014, balance sheet, the current assets total should be
a. $189,000
b. $201,000
c. $219,000
d. $243,000
6) The impairment test for an intangible asset with an indefinite life compares the
a. fair value of the asset to its book value
b. sum of the undiscounted cash flows expected to be generated by the asset to its book
value
c. sum of the discounted cash flows expected to be generated by the asset to its fair
value
d. sum of the undiscounted cash flows expected to be generated by the asset to its fair
value
7) On July 1, Crimson Corporation had 200,000 shares of $10 par common stock
outstanding. The market price of the stock was $12 per share. On the same date,
Crimson declared a 1-for-2 reverse stock split. The par value of the stock was increased
from $10 to $20, and one new $20 par share was issued for each two $10 par shares
outstanding. Immediately before the 1-for-2 reverse stock split, Crimson’s additional
paid-in capital was $650,000. What should be the balance in Crimson’s additional
paid-in capital account immediately after the reverse stock split?
a. $450,000
b. $650,000
c. $850,000
d. $1,050,000
8) A company identified four industry segments as reportable out of a total of eight
subunits of the company based on the identifiable asset criterion. Total company sales
excluding intersegment sales are $3,000,000 for the year, and the sum of sales for the
four identified segments is $2,300,000.
Given these facts, the company
a. need not report on a segment basis this period
b. must disclose only the four subunits as segments
c. must identify one or more additional segments for segmental disclosure purposes
d. treat all subunits of the firm as reportable
9) In theory (disregarding any other marketplace variables), the proceeds from the sale
of a bond will be equal to the
a. face amount of the bond
b. present value of the bond maturity value plus the present value of the interest
payments to be made during the life of the bond
c. face amount of the bond plus the present value of the interest payments made during
the life of the bond
d. sum of the face amount of the bond and the periodic interest payments
10) The following information is taken from Glenville Corporation’s 2014 financial
records:
Assume the taxable temporary difference was created entirely in 2014 and will reverse
in equal net taxable amounts in each of the next three years. If tax rates are 40 percent
in 2014, 35 percent in 2015, 35 percent in 2016, and 30 percent in 2017, then the total
deferred tax liability Glenville should report on its December 31, 2014, balance sheet is
a. $13,500
b. $15,000
c. $15,750
d. $18,000
11) Which of the following is true?
a. The Financial Accounting Standards Board has never permitted the disclosure of the
fair values of noncurrent operating assets in the notes to financial statements
b. The SEC currently requires the disclosure of the fair values of noncurrent operating
assets in the notes to financial statements of companies that are registered with the SEC
c. The Financial Accounting Standards Board currently requires the disclosure of the
fair values of noncurrent operating assets in the notes to the financial statements
d. Disclosure of the fair values of noncurrent operating assets in the notes to the
financial statements is currently encouraged but not required by the Financial
Accounting Standards Board
12) Acquired in-process research and development should be
a. capitalized when acquired but not amortized
b. capitalized when acquired and amortized over a period not to exceed 40 years
c. capitalized when acquired and amortized based on the number of units of product or
services sold each period
d. expensed when acquired
13) The following is a partial balance sheet and additional information for the
Lakehurst Company:
Lakehurst Company
Partial Balance Sheet
December 31, 2014 and 2013
Assets: 2014 2013
Cash$ 44,000$ 32,000
Accounts Receivable 436,000 520,000
Inventory 170,000 190,000
Liabilities:
Accounts Payable$210,000$270,000
Additional information:
(a) Net income for 2014 was $30,000
(b) Depreciation Expense for 2014 was $60,000
(c) Sales for 2014 totaled $980,000
(d) Cost of Goods Sold for 2014 was $700,000
Required:
Compute the total Cash paid in 2014 for Inventory purchases.
14) Which of the following regarding the weighted-average cost of capital is true?
a. The tax effect of preferred stock dividends should be included in the calculation of
weighted-average cost of capital
b. The tax effect of common stock dividends should be included in the calculation of
weighted-average cost of capital
c. The tax effect of debt should be included in the calculation of the weighted-average
cost of capital
d. Taxes do not affect the weighted-average cost of capital
15) A lease agreement included the following provisions:
How much interest revenue is recognized in 2014 by the lessor, assuming a
calendar-year fiscal year?
a. $3,600
b. $3,419
c. $2,550
d. $2,118
16) For the current year, Phoenix Company reported income tax expense of $195,000.
Income taxes payable at the end of the prior year were $125,000 and at the end of the
current year were $130,000. The deferred tax liability classified as noncurrent that
resulted from the use of MACRS for tax purposes and straight-line depreciation for
financial reporting purposes increased from $120,000 at the beginning of the current
year to $123,000 at the end of the current year. How much cash was paid for income
taxes during the year?
a. $187,000
b. $197,000
c. $195,000
d. $190,000
17) Which earnings per share computation should be reported on the face of the income
statement?
Basic EPS Diluted EPS
a. Yes Yes
b. Yes No
c. No Yes
d. No No
18) Which of the following is NOT an acceptable basis for the recognition of expenses?
a. Cash disbursement
b. Direct matching
c. Immediate recognition
d. Systematic and rational allocation
19) On August 1 of the current year, Kyle Company borrowed $278,000 from the local
bank. The loan was for 12 months at 9 percent interest payable at the maturity date. The
adjusting entry at the end of the fiscal year relating to this obligation would include a
a. debit to interest expense of $25,020
b. debit to interest expense of $10,425
c. credit to note payable of $10,425
d. debit to interest receivable of $10,425
20) Using the information above, Evasives total expense related to the January payroll
is
a. $95,120
b. $86,720
c. $88,680
d. $81,120
21) Ericton Enterprises Inc. developed a new machine for manufacturing baseballs.
Because the machine is considered very valuable, the company had it patented. The
following expenditures were incurred in developing and patenting the machine.
(a) Purchases of special equipment to be used solely for development of the new
machine …………………. $182,000
(b) Research salaries and fringe benefits for engineers and
scientists ……………………………….. 17,100
(c) Cost of testing prototype ……………………… 23,600
(d) Legal costs for filing for patent ………………. 12,700
(e) Fees paid to government patent office …………… 2,500
(f) Drawings required by patent office to be filed with patent
application ……………………………. 4,700
Ericton elected to amortize the patent over its legal life. At the beginning of the second
year, Ericton Enterprises paid $24,000 to successfully defend the patent in an
infringement suit. At the beginning of the fourth year Ericton determined that the
remaining estimated useful life of the patent was five years.
Record the above transactions in general journal form for Ericton Enterprises Inc. for
the first five years of the life of the patent. Include any amortization or depreciation for
each period.
22) A general principle of disclosure is that material related-party transactions should be
disclosed. As the auditor of the Clarence Company, you have noted the following
transactions entered into by Clarence during the past fiscal year:
Assuming all of the above transactions are material, which transaction or transactions
above most likely would be a related party transaction requiring disclosure in Clarences
financial statements?
a. Only I above
b. Both II and III above
c. Both I and III above
d. Only III above
23) Unrecognized prior service cost can be amortized based on which of the following
methods?
a. Straight-line method using any systematic rational approach
b. Straight-line method based on the average remaining service period of the qualified
employees
c. Interest method using the actuarys discount rate
d. Service method based on the average remaining service period of the qualified
employees
24) Which of the following is NOT an element identified by the
a. The construction period can be reasonably estimated
b. The buyer can be expected to satisfy obligations under the contract
c. Dependable estimates can be made of the extent of progress toward completion
d. Dependable estimates can be made of contract costs
25) In 2014, Quito Inc. purchased stock as follows:
At December 31, 2014, the market values of the securities were as follows:
The investments in common stock are classified by Quito Inc. as available-for-sale
securities accounted for by the cost method. The fiscal year of Quito ends on December
31.
26) How should these stock rights be treated in the earnings per share calculation for
the year ending December 31, 2014?
a. The stock options are antidilutive and should not be included in basic or diluted
earnings per share
b. The stock options are dilutive and should be included in diluted earnings per share in
the amount of 381 shares
c. The stock options are dilutive and should be included in diluted earnings per share in
the amount of 2,000 shares
d. The stock options are dilutive and should be included in diluted earnings per share in
the amount of 333 shares
27) Bonds usually sell at a discount when
a. investors are willing to invest in the bonds only at rates that are higher than the stated
interest rate
b. investors are willing to invest in the bonds at rates that are lower than the stated
interest rate
c. investors are willing to invest in the bonds at the stated interest rate
d. a capital gain is expected
28) A company using a periodic inventory system neglected to record a purchase of
merchandise on account at year-end. This merchandise was omitted from the year-end
physical count. How will these errors affect inventory at year-end and cost of goods
sold for the year?
Cost of
Inventory Goods Sold
a. No effect Understate
b. Understate No effect
c. Understate Understate
d. No effect Overstate
29) Warthog Enterprises, which began operations on January 1, appropriately uses the
installment method of accounting. The following information is available for its first
year:
What is the total amount of Warthogs installment sales for the first year?
a. $300,000
b. $345,000
c. $425,000
d. $525,000
30) On January 1, 2011, Always There Services Inc. purchased a new machine for
$900,000. The machine had an estimated useful life of 10 years and a salvage value of
$250,000. Always There elected to depreciate the machine using the
double-declining-balance method. On January 1, 2014, the company decided to change
to straight-line depreciation.
Ignoring income tax considerations, prepare the entries to record
31) Ballantine Products, Inc., reported an excess of warranty expense over warranty
deductions of $72,000 for the year ended December 31, 2014. This temporary
difference will reverse in equal amounts over the years 2015 to 2017. The enacted tax
rates are as follows:
The reporting for this temporary difference at December 31, 2014, would be a
a. deferred tax liability of $23,400
b. deferred tax asset of $23,400
c. current deferred tax liability of $7,200 and a noncurrent deferred tax liability of
$16,200
d. current deferred tax asset of $7,200 and a noncurrent deferred tax asset of $16,200
32) Always Distributing entered into a leasing agreement with R & D Rental. The lease
qualifies as a capital lease and calls for payments of $5,000 for 5 years with the first
payment being made on January 1, 2014, and subsequent payments being made on
December 31 of each year. Always’s incremental borrowing rate is 12 percent.
Prepare a schedule amortizing Always’s lease obligation.
33)
34) Soluble Water Products had sales during 2014 of $895,000. Soluble’s gross profit
percentage is 55 percent. Purchases of inventory during 2014 totaled $466,250 and a
count of inventory on hand at the end of the year totaled $189,500. Selling expenses are
18 percent of sales and general and administrative expenses are equal to 80 percent of
selling expenses. Soluble’s income tax rate is 30 percent and the company has 60,000
shares of common stock outstanding.
Prepare an income statement, including earnings per share data, for the year ended
December 31, 2014.
35) Indicate how each of the following transactions would be reflected in a statement of
cash flows:
36) Monsieur Retail Stores is negotiating three leases for store locations. Monsieur’s
incremental borrowing rate is 12 percent. Each store will have an economic useful life
of 30 years. Lease payments will be made at the end of each year. Based on the data
below, properly classify each of the leases as an operating lease or a capital lease. The
purchase price for each property is listed as an alternative to leasing.
Determine whether each of the leases should be classified by Monsieur as an operating
lease or a capital lease. Show computations and reasons to support your answers.
