1) Similar to U.S. GAAP, certain agricultural products and mineral products can be
reported at net realizable value using IFRS.
2) The monetary unit assumption is a part of GAAP, but not IFRS.
3) A strength of the income statement as compared to the balance sheet is that items
which cannot be measured reliably can be reported in the income statement.
4) IFRS requires the use of straight-line method for amortization of a discount or
premium.
5) Taxable temporary differences will result in taxable amounts in future years when the
related assets are recovered.
6) A company should allocate the proceeds from the sale of debt with detachable stock
warrants between the two securities based on their market values.
7) In general, IFRS adheres to very different principles than U.S. GAAP.
8) The post-closing trial balance consists of asset, liability, owners’ equity, revenue and
expense accounts.
9) Intraperiod tax allocation relates the income tax expense of a fiscal period to the
specific items that give rise to the amount of the tax provision.
10) Companies should assign no portion of fixed overhead to self-constructed assets.
11) Companies often restrict retained earnings to comply with contractual requirements
or current necessity.
12) A reason for valuing inventory at net realizable value is that sometimes it is too
difficult to obtain the cost figures.
13) Significant financing and investing activities that do not affect cash are not reported
in the statement of cash flows or any other place.
14) One of the disclosure requirements for a change in accounting principle is to show
the cumulative effect of the change on retained earnings as of the beginning of the
earliest period presented.
15) Companies always treat gains or losses from an involuntary conversion as
extraordinary items.
16) Dyke Company’s net incomes for the past three years are presented below:
2016 2015 2014
$480,000$450,000$360,000
During the 2016 year-end audit, the following items come to your attention:
1>Dyke bought equipment on January 1, 2013 for $392,000 with a $32,000 estimated
salvage value and a six-year life. The company debited an expense account and credited
cash on the purchase date for the entire cost of the asset. (Straight-line method)
2>During 2016, Dyke changed from the straight-line method of depreciating its cement
plant to the double-declining balance method. The following computations present
depreciation on both bases:
2016 2015 2014
Straight-line36,00036,00036,000
Double-declining46,08057,60072,000
The net income for 2016 was computed using the double-declining balance method, on
the January 1, 2016 book value, over the useful life remaining at that time. The
depreciation recorded in 2016 was $72,000.
3>Dyke, in reviewing its provision for uncollectibles during 2014, has determined that
1% is the appropriate amount of bad debt expense to be charged to operations. The
company had used 1/2 of 1% as its rate in 2015 and 2016 when the expense had been
$18,000 and $12,000, respectively. The company recorded bad debt expense under the
new rate for 2016 . The company would have recorded $6,000 less of bad debt expense
on December 31, 2016 under the old rate.
Instructions
(a)Prepare in general journal form the entry necessary to correct the books for the
transaction in part 1 of this problem, assuming that the books have not been closed for
the current year.
(b)Compute the net income to be reported each year 2014 through 2016 .
(c)Assume that the beginning retained earnings balance (unadjusted) for 2014 was
$1,260,000. At what adjusted amount should this beginning retained earnings balance
for 2014 be stated, assuming that comparative financial statements were prepared?
(d)Assume that the beginning retained earnings balance (unadjusted) for 2016 is
$1,800,000 and that non-comparative financial statements are prepared. At what
adjusted amount should this beginning retained earnings balance be stated?
17) Martinez Co. has a loss contingency to accrue. The loss amount can only be
reasonably estimated within a range of outcomes. No single amount within the range is
a better estimate than any other amount. The amount of loss accrual should be
a.zero
b.the minimum of the range
c.the mean of the range
d.the maximum of the range
18) Arlington Company is constructing a building. Construction began on January 1 and
was completed on December 31 . Expenditures were $4,800,000 on March 1,
$3,960,000 on June 1, and $6,000,000 on December 31 . Arlington Company borrowed
$2,400,000 on January 1 on a 5-year, 12% note to help finance construction of the
building. In addition, the company had outstanding all year a 10%, 3-year, $4,800,000
note payable and an 11%, 4-year, $9,000,000 note payable.
What is the actual interest for Arlington Company?
a.$1,758,000
b.$1,782,000
c.$1,470,000
d.$704,415
19) The cumulative feature of preferred stock
a.limits the amount of cumulative dividends to the par value of the preferred stock
b.requires that dividends not paid in any year must be made up in a later year before
dividends are distributed to common shareholders
c.means that the shareholder can accumulate preferred stock until it is equal to the par
value of common stock at which time it can be converted into common stock
d.enables a preferred stockholder to accumulate dividends until they equal the par value
of the stock and receive the stock in place of the cash dividends
20) Ebbert Companys salaried employees are paid biweekly. Occasionally, advances
made to employees are paid back by payroll deductions. Information relating to salaries
for the calendar year 2015 is as follows:
12/31/14 12/31/15
Employee advances$24,000$ 36,000
Accrued salaries payable140,000?
Salaries expense during the year1,400,000
Salaries paid during the year (gross)1,250,000
At December 31, 2015, what amount should Ebbert report for accrued salaries payable?
a.$290,000
b.$162,000
c.$114,000
d.$150,000
21) Robertson Corporation acquired two inventory items at a lump-sum cost of
$90,000. The acquisition included 3,000 units of product CF, and 7,000 units of product
3B. CF normally sells for $27 per unit, and 3B for $9 per unit. If Robertson sells 1,000
units of CF, what amount of gross profit should it recognize?
a.$3,375
b.$10,125
c.$18,000
d.$21,375
22) Jamison Company purchased the assets of Booker Company at an auction for
$4,200,000. An independent appraisal of the fair value of the assets is listed below:
Land$1,425,000
Building2,100,000
Equipment1,575,000
Trucks2,550,000
Assuming that specific identification costs are impracticable and that Jamison allocates
the purchase price on the basis of the relative fair values, what amount would be
allocated to the Building?
a.$1,589,190
b.$2,100,000
c.$3,825,000
d.$1,152,941
23) Carson Company purchased a depreciable asset for $280,000. The estimated
salvage value is $14,000, and the estimated useful life is 10,000 hours. Carson used the
asset for 1,500 hours in the current year. The activity method will be used for
depreciation. What is the depreciation expense on this asset?
a.$26,600
b.$39,900
c.$44,100
d.$266,000
24) Accounting information is considered to be relevant when it
a.can be depended on to represent the economic conditions and events that it is intended
to represent
b.is capable of making a difference in a decision
c.is understandable by reasonably informed users of accounting information
d.is verifiable and neutral
25) The measurement principle includes the
a.fair value principle only
b.historical cost principle only
c.revenue recognition principle and expense recognition principle
d.historical cost principle and the fair value principle
26) Which of the following is not True concerning a conceptual framework in
accounting?
a.It should be a basis for standard-setting
b.It should allow practical problems to be solved more quickly by reference to it
c.It should be based on fundamental truths that are derived from the laws of nature
d.All of these answer choices are True
27) Venible newspapers sold 6,000 of annual subscriptions at $125 each on June 1 .
How much unearned revenue will exist as of December 31?
a.$0
b.$312,500
c.$375,000
d.$750,000
28) Garretson Corporation will receive $10,000 today (January 1, 2014), and also on
each January 1st for the next five years (2015 2019). What is the present value of the
six $10,000 receipts, assuming a 12% interest rate?
a.$41,114
b.$46,048
c.$81,152
d.$90,890
29) The following trial balance of Reese Corp. at December 31, 2014 has been properly
adjusted except for the income tax expense adjustment.
Reese Corp.
Trial Balance
December 31, 2014
Dr. Cr.
Cash$ 775,000
Accounts receivable (net)2,695,000
Inventory2,085,000
Property, plant, and equipment (net)7,566,000
Accounts payable and accrued liabilities$ 1,701,000
Income taxes payable654,000
Deferred income tax liability85,000
Common stock2,350,000
Additional paid-in capital3,680,000
Retained earnings, 1/1/143,450,000
Net sales and other revenues13,560,000
Costs and expenses11,180,000
Income tax expenses 1,179,000
$25,480,000$25,480,000
Other financial data for the year ended December 31, 2014:
Included in accounts receivable is $1,200,000 due from a customer and payable in
quarterly installments of $150,000. The last payment is due December 29, 2016 .
The balance in the Deferred Income Tax Liability account pertains to a temporary
difference that arose in a prior year, of which $20,000 is classified as a current liability.
During the year, estimated tax payments of $525,000 were charged to income tax
expense. The current and future tax rate on all types of income is 30%.
In Reese’s December 31, 2014 balance sheet, the final retained earnings balance is
a.$4,651,000
b.$4,736,000
c.$5,176,000
d.$5,105,000
30) In preparing Titan Inc.s statement of cash flows for the year ended December 31,
2015, the following amounts were available:
Collect note receivable$410,000
Issue bonds payable 426,000
Purchase treasury stock 200,000
What amount should be reported on Titan, Inc.s statement of cash flows for investing
activities?
a.$410,000
b.$210,000
c.$836,000
d.$226,000
31) Finley, Inc.s checkbook balance on December 31, 2014 was $42,400. In addition,
Finley held the following items in its safe on December 31 .
(1)A check for $900 from Peters, Inc. received December 30, 2014, which was not
included in the checkbook balance.
(2)An NSF check from Garner Company in the amount of $1,800 that had been
deposited at the bank, but was returned for lack of sufficient funds on December 29.
The check was to be redeposited on January 3, 2015 . The original deposit has been
included in the December 31 checkbook balance.
(3)Coin and currency on hand amounted to $2,900.
The proper amount to be reported on Finley’s balance sheet for cash at December 31,
2014 is
a.$42,600
b.$40,800
c.$44,400
d.$43,550
32) The effective interest on a 12-month, zero-interest-bearing note payable of
$300,000, discounted at the bank at 7% is
a.6.54%
b.7%
c.14.29%
d.7.53%