1) The Pension Asset / Liability account balance equals the difference between the
projected benefit obligation and the fair value of pension plan assets.
2) If the Accumulated Other Comprehensive Income (G/L) account is less than the
corridor, the net gains and losses are subject to amortization.
3) Under U.S. GAAP companies may either recognize actuarial gains and losses in
income immediately or amortize them over the expected service lives of employees.
4) The FASB agrees with the capitalization approach and requires companies to
capitalize all long-term leases.
5) Normally, companies compute depletion on a straight-line basis.
6) On December 1, Miser Corporation exchanged 4,000 shares of its $25 par value
common stock held in treasury for a parcel of land to be held for a future plant site. The
treasury shares were acquired by Miser at a cost of $40 per share, and on the exchange
date the common shares of Miser had a fair value of $50 per share. Miser received
$12,000 for selling scrap when an existing building on the property was removed from
the site. Based on these facts, the land should be capitalized at
a.$148,000
b.$160,000
c.$188,000
d.$200,000
7) Which of the following describes a change in reporting entity?
a.A company acquires a subsidiary that is to be accounted for as a purchase
b.A manufacturing company expands its market from regional to nationwide
c.A company divests itself of a European branch sales office
d.Changing the companies included in combined financial statements
8) The calculation of the times interest earned involves dividing
a.net income by annual interest expense
b.net income plus income taxes by annual interest expense
c.net income plus income taxes and interest expense by annual interest expense
d.None of these answers are correct
9) On January 1, 2015, Yancey, Inc. signs a 10-year noncancelable lease agreement to
lease a storage building from Holt Warehouse Company. Collectibility of lease
payments is reasonably predictable and no important uncertainties surround the amount
of costs yet to be incurred by the lessor. The following information pertains to this lease
agreement.
(a)The agreement requires equal rental payments at the beginning each year.
(b)The fair value of the building on January 1, 2015 is $4,000,000; however, the book
value to Holt is $3,300,000.
(c)The building has an estimated economic life of 10 years, with no residual value.
Yancey depreciates similar buildings on the straight-line method.
(d)At the termination of the lease, the title to the building will be transferred to the
lessee.
(e)Yanceys incremental borrowing rate is 11% per year. Holt Warehouse Co. set the
annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by
Yancey, Inc.
(f)The yearly rental payment includes $10,000 of executory costs related to taxes on the
property.
Future Value of Ordinary Annuity of 1
Period 5% 6% 8% 10% 12%
11.000001.000001.000001.000001.00000
22.050002.060002.080002.100002.12000
33.152503.183603.246403.310003.37440
44.310134.374624.506114.641004.77933
55.525635.637095.866606.105106.35285
66.801916.975327.335927.715618.11519
78.142018.393848.922809.4871710.08901
89.549119.8974710.6366311.4358912.29969
911.0265611.4913212.4875613.5794814.77566
1012.5778913.1807914.4865615.9374317.54874
Present Value of an Ordinary Annuity of 1
Period 5% 6% 8% 10% 12%
1.95238.94340.92593.90909.89286
21.859411.833391.783261.735541.69005
32.723252.673012.577102.486852.40183
43.545953.465113.312133.169863.03735
54.329484.212363.992713.790793.60478
65.075694.917324.622884.355264.11141
75.786375.582385.206374.868424.56376
86.463216.209795.746645.334934.96764
97.107826.801696.246895.759025.32825
107.721737.360096.710086.144575.65022
Yancey, Inc. would record depreciation expense on this storage building in 2015 of
(Rounded to the nearest dollar.)
a.$0
b.$330,000
c.$400,000
d.$650,981
10) Assume in each case that the selling expenses are $8 per unit and that the normal
profit is $5 per unit. Calculate the limits for each case. Then enter the amount that
should be used for lower of cost or market.
SellingReplacement
PriceUpper Limit CostLower LimitCost LCM
(a)$54$______$38$______$42$______
(b)47______36______40______
(c)56______39______40______
(d)48______42______40______
11) The primary difference between a direct-financing lease and a sales-type lease is the
a.manner in which rental receipts are recorded as rental income
b.amount of the depreciation recorded each year by the lessor
c.recognition of the manufacturers or dealers profit at (or loss) the inception of the lease
d.allocation of initial direct costs by the lessor to periods benefited by the lease
arrangements
12) Milner Company will invest $500,000 today. The investment will earn 6% for 5
years, with no funds withdrawn. In 5 years, the amount in the investment fund is
a.$500,000
b.$650,000
c.$669,115
d.$670,145
13) In considering interim financial reporting, how does the profession conclude that
such reporting should be viewed?
a.As a ‘special” type of reporting that need not follow generally accepted accounting
principles
b.As useful only if activity is evenly spread throughout the year so that estimates are
unnecessary
c.As reporting for a basic accounting period
d.As reporting for an integral part of an annual period
14) The amount to be recorded as the cost of an asset under capital lease is equal to the
a.present value of the minimum lease payments
b.present value of the minimum lease payments or the fair value of the asset, whichever
is lower
c.present value of the minimum lease payments plus the present value of any
unguaranteed residual value
d.carrying value of the asset on the lessors books
15) Sealy Corporation had the following information in its financial statements for the
years ended 2014 and 2015:
Cash dividends for the year 2015$ 5,000
Net income for the year ended 201587,000
Market price of stock, 12/31/1410
Market price of stock, 12/31/1512
Common stockholders equity, 12/31/141,000,000
Common stockholders equity, 12/31/151,200,000
Outstanding shares, 12/31/15100,000
Preferred dividends for the year ended 201510,000
What is the rate of return on common stock equity for Sealy Corporation for the year
ended 2015?
a.7.9%
b.6.4%
c.7.0%
d.6.5%
16) Which of the following must be disclosed relative to long-term debt maturities and
sinking fund requirements?
a.The present value of future payments for sinking fund requirements and long-term
debt maturities during each of the next five years
b.The present value of scheduled interest payments on long-term debt during each of
the next five years
c.The amount of scheduled interest payments on long-term debt during each of the next
five years
d.The amount of future payments for sinking fund requirements and long-term debt
maturities during each of the next five years
17) Which of the following is considered cash?
a.Certificates of deposit (CDs)
b.Money market checking accounts
c.Money market savings certificates
d.Postdated checks
18) Doran Realty Company purchased a plot of ground for $900,000 and spent
$3,100,000 in developing it for building lots. The lots were classified into Highland,
Midland, and Lowland grades, to sell at $120,000, $90,000, and $60,000 each,
respectively.
Instructions
Complete the table below to allocate the cost of the lots using a relative sales value
method.
No. of Selling Total % of Apportioned Cost
GradeLots Price Revenue Total Sales Total Per Lot
Highland20$$$$
Midland40$$
Lowland100$ $
160$ $
19) Gibbs Company has 200 employees who are expected to receive benefits under the
company’s defined-benefit pension plan. The total number of service-years of these
employees is 2,000. The actuary for the company’s pension plan calculated the
following net gains and losses:
For the Year Ended
December 31(Gain) Or Loss
2014$640,000
2015(554,000)
2016990,000
Prior to 2014, there was no unrecognized net gain or loss.
Information about the company’s projected benefit obligation and market-related (and
fair) value of plan assets follows:
As of January 1
2014 2015 2016
Projected benefit obligation$2,100,000$2,340,000$2,940,000
Fair value of plan assets1,680,0002,460,0002,550,000
Instructions
Based on the above information about Gibbs Company, prepare a schedule which
reflects the amount of net gain or loss to be amortized by the company as a component
of pension expense for the years 2014, 2015, and 2016 . The company amortizes net
gains or losses using the straight-line method over the average service life of
participating employees.
20) Show how the following independent errors will affect net income on the Income
Statement and the stockholders’ equity section of the Balance Sheet using the symbol +
(plus) for overstated, – (minus) for understated, and 0 (zero) for no effect.
20142015
IncomeBalanceIncomeBalance
Statement SheetStatement Sheet
1>Ending inventory in 2014 overstated.
2>Failed to accrue 2014 interest
revenue.
3>A capital expenditure for factory equipment (useful life, 5 years) was erroneously
charged to Maintenance Expense in 2014 .
20142015
IncomeBalanceIncomeBalance
Statement SheetStatement Sheet
4>Failed to count office supplies on hand at 12/31/14. Cash expenditures have been
charged to Supplies Expense during the year 2014 .
5>Failed to accrue 2014 wages.
6>Ending inventory in 2014 understated.
7>Overstated 2014 depreciation
expense; 2015 expense correct.
21) U.S. companies that list overseas are required to use International Financial
Reporting Standards, issued by the International Accounting Standards Board.
22) On December 31, 2014 Felt Company’s inventory burned. Sales and purchases for
the year had been $1,500,000 and $980,000, respectively. The beginning inventory (Jan.
1, 2014) was $170,000; in the past Felt’s gross profit has averaged 40% of selling price.
Instructions
Compute the estimated cost of inventory burned, and give entries as of December 31,
2014 to close merchandise accounts.
23) What factors are considered in estimating the useful life of an intangible asset?