1) The lessor will recover a greater net investment if the residual value is guaranteed
instead of unguaranteed.
2) The preemptive right allows stockholders the right to vote for directors of the
company.
3) Unlike U.S. GAAP, interest costs incurred during construction are not capitalized
under IFRS.
4) Companies may use parenthetical explanations, notes, cross references, and
supporting schedules to disclose pertinent information.
5) Companies may not use the fair value option for investments that follow the equity
method of accounting.
6) Some intangible assets are not required to be amortized every year.
7) Depreciation is based on the decline in the fair market value of the asset.
8) Earnings management generally makes income statement information more useful
for predicting future earnings and cash flows.
9) The first step in determining whether an impairment has occurred is to estimate the
future net cash flows expected from the use of that asset and its eventual disposition.
10) The International Accounting Standards Board has seven members.
11) Under U.S. GAAP, the rate used to compute deferred taxes is either the enacted tax
rate, or a substantially enacted tax rate (virtually certain).
12) Landis Company purchased $2,000,000 of 8%, 5-year bonds from Ritter, Inc. on
January 1, 2014, with interest payable on July 1 and January 1 . The bonds sold for
$2,083,160 at an effective interest rate of 7%. Using the effective-interest method,
Landis Company decreased the Available-for-Sale Debt Securities account for the
Ritter, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums
of $7,080 and $7,320, respectively.
At December 31, 2014, the fair value of the Ritter, Inc. bonds was $2,120,000. What
should Landis Company report as other comprehensive income and as a separate
component of stockholders’ equity?
a.$51,240
b.$36,840
c.$14,400
d.No entry should be made
13) Under IFRS, short-term obligations expected to be refinanced can be classified as
noncurrent if the refinancing is completed:
a.by the financial reporting date
b.by issue date of the financial statement
c.either by the financial statement date or before the date the financial statement is
issued
d.after the maturity date of the obligation
14) When a company is the recipient of a donated asset, the account credited may be a
a.paid-in capital account
b.revenue account
c.deferred revenue account
d.All of these answers are correct
15) Cash dividends are paid on the basis of the number of shares
a.authorized
b.issued
c.outstanding
d.outstanding less the number of treasury shares
16) Foxx Corp.’s comparative balance sheet at December 31, 2015 and 2014 reported
accumulated depreciation balances of $830,000 and $600,000, respectively. Property
with a cost of $50,000 and a carrying amount of $38,000 was the only property sold in
2015 . Depreciation charged to operations in 2015 was
a.$218,000
b.$230,000
c.$242,000
d.$268,000
17) In calculating earnings per share, companies deduct preferred dividends from net
income if:
a.they are noncumulative though not declared
b.the dividends are declared
c.they are convertible preferred shares
d.they are callable preferred shares
18) Flavor Food Company distributes to consumers coupons which may be presented
(on or before a stated expiration date) to grocers for discounts on certain products of
Flavor. The grocers are reimbursed when they send the coupons to Flavor. In Flavor’s
experience, 50% of such coupons are redeemed, and generally one month elapses
between the date a grocer receives a coupon from a consumer and the date Flavor
receives it. During 2014 Flavor issued two separate series of coupons as follows:
ConsumerAmount Disbursed
Issued OnTotal ValueExpiration Dateas of 12/31/14
1/1/14$500,0006/30/14$236,000
7/1/14720,00012/31/14300,000
The only journal entry recorded to date is: debit to coupon expense and credit to cash of
$715,000. The December 31, 2014 balance sheet should include a liability for
unredeemed coupons of:
a.$0
b.$60,000
c.$124,000
d.$360,000
19) A company has a factory building that originally cost the company $250,000. The
current fair value of the factory building is $3 million. The president would like to
report the difference as a gain. The write-up would represent a violation of which
accounting assumption or principle?
a.Revenue recognition
b.Going concern
c.Historical cost
d.Monetary unit
20) The cost of an intangible asset includes all of the following except
a.purchase price
b.legal fees
c.other incidental expenses
d.All of these choices are included
21) On April 2, Kelvin sold $30,000 of inventory items on credit with the terms 1/10,
net 30. Payment on $18,000 sales was received on April 8 and the remaining payment
on $12,000 sales was received on April 27 . Assuming Kelvin uses the net method of
accounting for sales discounts, the entry recorded on April 27 would include a:
a.debit to Cash and credit to Accounts Receivable for $11,880
b.debit to Accounts Receivable and credit to Sales Revenue for $30,000
c.debit to Accounts Receivable and credit to Sales Discount Forfeited for $120
d.debit to Cash and credit to Sales Discount Forfeited for $300