1) Adjustments are often prepared
a.after the balance sheet date, but dated as of the balance sheet date
b.after the balance sheet date, and dated after the balance sheet date
c.before the balance sheet date, and dated before the balance sheet date
d.before the balance sheet date, and dated after the balance sheet date
2) Chang Corporation issued $4,000,000 of 9%, ten-year convertible bonds on July 1,
2014 at 96.1 plus accrued interest. The bonds were dated April 1, 2014 with interest
payable April 1 and October 1 . Bond discount is amortized semiannually on a
straight-line basis. On April 1, 2015, $800,000 of these bonds were converted into 500
shares of $20 par value common stock. Accrued interest was paid in cash at the time of
conversion.
If “interest payable” were credited when the bonds were issued, what should be the
amount of the debit to “interest expense” on October 1, 2014?
a.$ 86,000
b.$ 90,000
c.$ 94,000
d.$180,000
3) Which of the following is not a method of disclosing pertinent information?
a.Supporting schedules
b.Parenthetical explanations
c.Cross reference and contra items
d.All of these are methods of disclosing pertinent information
4) To arrive at net cash provided by operating activities, it is necessary to report
revenues and expenses on a cash basis. This is done by
a.re-recording all income statement transactions that directly affect cash in a separate
cash flow journal
b.estimating the percentage of income statement transactions that were originally
reported on a cash basis and projecting this amount to the entire array of income
statement transactions
c.eliminating the effects of income statement transactions that did not result in a
corresponding increase or decrease in cash
d.eliminating all transactions that have no current or future effect on cash, such as
depreciation, from the net income computation
5) On January 1, 2014, Ott Co. sold goods to Flynn Company. Flynn signed a
zero-interest-bearing note requiring payment of $150,000 annually for seven years. The
first payment was made on January 1, 2014 . The prevailing rate of interest for this type
of note at date of issuance was 10%. Information on present value factors is as follows:
Present ValuePresent Value of Ordinary
Periodof 1 at 10%Annuity of 1 at 10%
6.56454.3553
7.51324.8684
Ott should record sales revenue in January 2014 of
a.$803,286
b.$730,260
c.$653,295
d.$535,500
6) Logan Corp.’s trial balance of income statement accounts for the year ended
December 31, 2014 included the following:
Debit Credit
Sales revenue$280,000
Cost of goods sold$150,000
Administrative expenses40,000
Loss on sale of equipment18,000
Commissions to salespersons16,000
Interest revenue10,000
Freight-out6,000
Loss due to earthquake damage24,000
Bad debt expense 6,000
Totals$260,000$290,000
Other information:
Logan’s income tax rate is 30%. Finished goods inventory:
January 1, 2014$160,000
December 31, 2014140,000
On Logan’s multiple-step income statement for 2014,
Extraordinary loss is
a.$16,800
b.$24,000
c.$29,400
d.$42,000
7) On November 1, 2014, Howell Company purchased 800 of the $1,000 face value,
9% bonds of Ramsey, Incorporated, for $842,000, which includes accrued interest of
$12,000. The bonds, which mature on January 1, 2019, pay interest semiannually on
March 1 and September 1 . Assuming that Howell uses the straight-line method of
amortization and that the bonds are appropriately classified as available-for-sale, the net
carrying value of the bonds should be shown on Howell’s December 31, 2014, balance
sheet at
a.$800,000
b.$830,000
c.$828,800
d.$842,000
8) Information available prior to the issuance of the financial statements indicates that it
is probable that, at the date of the financial statements, a liability has been incurred for
obligations related to product warranties. The amount of the loss involved can be
reasonably estimated. Based on the above facts, an estimated loss contingency should
be
a.accrued
b.disclosed but not accrued
c.neither accrued nor disclosed
d.classified as an appropriation of retained earnings
9) Hayes Construction Corporation contracted to construct a building for $4,500,000.
Construction began in 2014 and was completed in 2015 . Data relating to the contract
are summarized below:
Year ended
December 31,
2014 2015
Costs incurred$1,800,000$1,350,000
Estimated costs to complete1,200,000
Hayes uses the percentage-of-completion method as the basis for income recognition.
For the years ended December 31, 2014, and 2015, respectively, Hayes should report
gross profit of
a.$810,000 and $540,000
b.$2,700,000 and $1,800,000
c.$900,000 and $450,000
d.$0 and $1,350,000
10) In its 2014 income statement, Cohen Corp. reported depreciation of $1,850,000 and
interest revenue on municipal obligations of $350,000. Cohen reported depreciation of
$2,750,000 on its 2014 income tax return. The difference in depreciation is the only
temporary difference, and it will reverse equally over the next three years. Cohen’s
enacted income tax rates are 35% for 2014, 30% for 2015, and 25% for 2016 and 2017 .
What amount should be included in the deferred income tax liability in Hertz’s
December 31, 2014 balance sheet?
a.$240,000
b.$310,000
c.$375,000
d.$437,500
11) Which of the following authoritative IFRS guidance specifically addresses issues
related to cash?
a.IAS No.1 (Presentation of Financial Statements)
b.IFRS No. 7 (Financial Instruments: Disclosures)
c.IAS No. 39 (Financial Instruments: Recognition and Measurement)
d.None of these answer choices are correct.
12) Moore Industries manufactures exercise equipment. Recently the vice president of
operations of the company has requested construction of a new plant to meet the
increasing demand for the company’s exercise equipment. After a careful evaluation of
the request, the board of directors has decided to raise funds for the new plant by
issuing $3,000,000 of 11% bonds on March 1, 2014, due on March 1, 2029, with
interest payable each March 1 and September 1 . At the time of issuance, the market
interest rate for similar financial instruments is 10%. What is the selling price of the
bonds?
a.$3,330,000
b.$1,904,664
c.$3,230,594
d.$2,536,454
13) Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2015
for the purpose of leasing a machine to be used in its manufacturing operations. The
following data pertain to the agreement:
(a)The term of the noncancelable lease is 3 years with no renewal option. Payments of
$287,432 are due on January 1 of each year.
(b)The fair value of the machine on January 1, 2015, is $800,000. The machine has a
remaining economic life of 10 years, with no salvage value. The machine reverts to the
lessor upon the termination of the lease.
(c)Alt depreciates all machinery it owns on a straight-line basis.
(d)Alts incremental borrowing rate is 10% per year. Alt does not have knowledge of the
8% implicit rate used by Yates.
(e)Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in
a suit which is sufficiently material to make collectibility of future lease payments
doubtful.
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
From the viewpoint of Yates, what type of lease agreement exists?
a.Operating lease
b.Capital lease
c.Sales-type lease
d.Direct-financing lease
14) Under IFRS, inventories are classified as
a.noncurrent assets
b.current assets
c.stockholders’ equity
d.current liabilities