1) Mitchell Corporation prepared the following reconciliation for its first year of
operations:
Pretax financial income for 2015$ 900,000
Tax exempt interest(75,000)
Originating temporary difference (175,000)
Taxable income$650,000
The temporary difference will reverse evenly over the next two years at an enacted tax
rate of 40%. The enacted tax rate for 2015 is 35%.
What amount should be reported in its 2015 income statement as the deferred portion of
income tax expense?
a.$70,000 debit
b.$87,500 debit
c.$70,000 credit
d.$87,500 credit
2) Why are inventories stated at lower-of-cost-or-market?
a.To report a loss when there is a decrease in the future utility
b.To keep track of the market value of the inventory
c.To report a loss when there is a decrease in the future utility below the original cost
d.To permit future profits to be recognized
3) Which of the following items should be included in pension expense calculated by an
employer who sponsors a defined-benefit pension plan for its employees?
Amortization of
Fair valueprior
of plan assetsservice cost
a.YesYes
b.YesNo
c.NoYes
d.NoNo
4) When preparing a bank reconciliation, bank credits are
a.added to the bank statement balance
b.deducted from the bank statement balance
c.added to the balance per books
d.deducted from the balance per books
5) Which of the following is an advantage for U.S. companies with international
operations to use LIFO for U.S. purposes, as opposed to using FIFO for foreign
subsidiaries?
a.LIFO creates paper profits
b.LIFO generally approximates the physical flow of items
c.Under LIFO, inventory is less vulnerable to price declines
d.LIFO eliminates balance sheet distortion
6) Keisler Corporation reports:
Cash provided by operating activities$280,000
Cash used by investing activities110,000
Cash provided by financing activities140,000
Beginning cash balance70,000
What is Keislers ending cash balance?
a.$310,000
b.$380,000
c.$530,000
d.$600,000
7) The summarized balance sheets of Goebel Company and Dobbs Company as of
December 31, 2014 are as follows:
Goebel Company
Balance Sheet
December 31, 2014
Assets$1,200,000
Liabilities$ 150,000
Capital stock600,000
Retained earnings 450,000
Total equities$1,200,000
Dobbs Company
Balance Sheet
December 31, 2014
Assets$900,000
Liabilities$205,000
Capital stock575,000
Retained earnings 120,000
Total equities$900,000
If Goebel Company acquired a 20% interest in Dobbs Company on December 31, 2014
for $175,000 and the fair value method of accounting for the investment were used, the
amount of the debit to Equity Investments (Dobbs) would have been
a.$139,000
b.$115,000
c.$175,000
d.$180,000
8) Alonzo Company in Italy prepares its financial statements in accordance with IFRS.
In 2014, it reported cost of goods sold of 600 million and average inventory of 100
million. What is Alonzo’s inventory turnover ratio?
a.6 days
b.16.7 days
c.60.8 days
d.30.4 days
9) Which of the following is not generally correct about recording a sale of a debt
security before maturity date?
a.Accrued interest will be received by the seller even though it is not an interest
payment date
b.An entry must be made to amortize a discount to the date of sale
c.The entry to amortize a premium to the date of sale includes a credit to the Premium
on Investments in Debt Securities
d.A gain or loss on the sale is not extraordinary
10) Wright Co., organized on January 2, 2014, had pretax accounting income of
$640,000 and taxable income of $2,080,000 for the year ended December 31, 2014 The
only temporary difference is accrued product warranty costs which are expected to be
paid as follows:
2015$480,000
2016240,000
2017240,000
2018480,000
The enacted income tax rates are 35% for 2014, 30% for 2015 through 2017, and 25%
for 2018 . If Wright expects taxable income in future years, the deferred tax asset in
Wright’s December 31, 2014 balance sheet should be
a.$288,000
b.$336,000
c.$408,000
d.$504,000
11) Horner Construction Co. uses the percentage-of-completion method. In 2014,
Horner began work on a contract for $16,500,000; it was completed in 2015 . The
following cost data pertain to this contract:
Year Ended December 31
2014 2015
Cost incurred during the year$5,850,000$4,200,000
Estimated costs to complete at the end of year3,900,000
The amount of gross profit to be recognized on the income statement for the year ended
December 31, 2015 is
a.$2,400,000
b.$2,580,000
c.$2,700,000
d.$6,450,000
12) Manning Company issued 10,000 shares of its $5 par value common stock having a
fair value of $25 per share and 15,000 shares of its $15 par value preferred stock having
a fair value of $20 per share for a lump sum of $530,000. How much of the proceeds
would be allocated to the common stock?
a.$250,000
b.$240,909
c.$289,091
d.$281,563
13) The following information is related to the Stone Co. postretirement benefits plan
for 2015:
Service cost$163,000
Discount rate10%
EPBO, January 1, 2015820,000
APBO, January 1, 2015660,000
Actual return on plan assets in 201522,400
Expected return on plan assets in 201529,000
Contributions (funding)224,000
Instructions
(a)Compute the amount of postretirement expense for 2015 . (Show computations.)
(b)Prepare the journal entry to record postretirement expense and Stone’s contributions
for 2015 .
14) Which accounting assumption or principle is being violated if a company is a party
to major litigation that it may lose and decides not to include the information in the
financial statements because it may have a negative impact on the company’s stock
price?
a.Full disclosure
b.Going concern
c.Historical cost
d.Expense recognition
15) An analysis of the machinery accounts of Noller Company for 2015 is as follows:
Machinery, Net of
AccumulatedAccumulated
MachineryDepreciationDepreciation
Balance at January 1, 2015$500,000$125,000$375,000
Purchases of new machinery in 2015
for cash200,000200,000
Depreciation in 2015 100,000 (100,000)
Balance at Dec. 31, 2015$700,000$225,000$475,000
The information concerning Noller’s machinery accounts should be shown in Noller’s
statement of cash flows (indirect method) for the year ended December 31, 2015, as
a(n)
a.subtraction from net income of $100,000 and a $200,000 decrease in cash flows from
financing activities
b.addition to net income of $100,000 and a $200,000 decrease in cash flows from
investing activities
c.$100,000 increase in cash flows from financing activities
d.$200,000 decrease in cash flows from investing activities
16) Which of the following characteristics do intangible assets possess?
a.Physical existence
b.Claim to a specific amount of cash in the future
c.Long-lived
d.Held for resale