1) Companies account for a change in depreciation methods as a change in accounting
principle.
2) One purpose of a trial balance is to prove that debits and credits are equal in the
general ledger.
3) The three factors involved in the depreciation process are the depreciation base, the
useful life, and the risk of obsolescence.
4) Accounting policies are the specific accounting principles and methods a company
uses and considers most appropriate to present fairly its financial statements.
5) An individual deferred tax asset or liability is classified as current or noncurrent
based on the classification of the related asset/liability for financial reporting purposes.
6) When changing from the equity method to the fair value method, a company must
eliminate the balance in Unrealized Holding Gain or Loss.
7) If a new patent is acquired through modification of an existing patent, the remaining
book value of the original patent may be amortized over the life of the new patent.
8) GAAP has a concept statement to guide estimation of fair values when
market-related data is not available.
9) The statement of cash flows provides information to help investors and creditors
assess the cash and noncash investing and financing transactions during the period.
10) Which of the following pronouncements were issued by the Accounting Principles
Board?
a.Accounting Research Bulletins
b.APB Opinions
c.APB Statements of Position
d.Statements of Financial Accounting Concepts
11) McDonald Company acquired machinery on January 1, 2009 which it depreciated
under the straight-line method with an estimated life of fifteen years and no salvage
value. On January 1, 2014, McDonald estimated that the remaining life of this
machinery was six years with no salvage value. How should this change be accounted
for by McDonald?
a.As a prior period adjustment
b.As the cumulative effect of a change in accounting principle in 2014
c.By setting future annual depreciation equal to one-sixth of the book value on January
1, 2014
d. By continuing to depreciate the machinery over the original fifteen year life
12) Errors and irregularities are defined as intentional distortions of facts.
ErrorsIrregularities
a.YesYes
b.YesNo
c. NoYes
d. NoNo
13) ughey Co. as lessee records a capital lease of machinery on January 1, 2014 . The
seven annual lease payments of $700,000 are made at the end of each year. The present
value of the lease payments at 10% is $3,408,000. Hughey uses the effective-interest
method of amortization and sum-of-the-years-digits depreciation (no residual value).
Instructions (Round to the nearest dollar.)
(a)Prepare an amortization table for 2014 and 2015 .
(b)Prepare all of Hugheys journal entries for 2014 .
14) Foster Corporation received the following report from its actuary at the end of the
year:
December 31, 2014December 31, 2015
Projected benefit obligation$2,000,000$2,200,000
Accumulated benefit obligation1,300,0001,480,000
Fair value of pension plan assets1,380,0001,440,000
The amount reported as the pension liability at December 31, 2014 is
a.$ -0-
b.$80,000
c.$620,000
d.$700,000
15) Kaniper Company has the following items at year-end:
Cash in bank$30,000
Petty cash300
Short-term paper with maturity of 2 months5,500
Postdated checks1,400
Kaniper should report cash and cash equivalents of
a.$30,000
b.$30,300
c.$35,800
d.$37,200
16) Seigel Co. maintains a defined-benefit pension plan for its employees. At each
balance sheet date, Yeager should report a pension asset / liability equal to the
a.accumulated benefit obligation
b.projected benefit obligation
c.accumulated benefit obligation
d.funded status relative to the projected benefit obligation
17) Otto Corp. purchased merchandise during 2014 on credit for $500,000; terms 2/10,
n/30. All of the gross liability except $80,000 was paid within the discount period. The
remainder was paid within the 30-day term. At the end of the annual accounting period,
December 31, 2014, 90% of the merchandise had been sold and 10% remained in
inventory. The company uses a periodic system.
Instructions
(a)Assuming that the net method is used for recording purchases, prepare the entries for
the purchase and two subsequent payments.
(b)What dollar amounts should be reported for the final inventory and cost of goods
sold under the (1) net method; (2) gross method? Assume that there was no beginning
inventory.
18) The following are part of the “due process” system used by the FASB in the
evolution of a typical FASB Accounting Standards Update:
1>Exposure Draft
2>FASB Accounting Standards Update
3>Preliminary Views
The chronological order in which these items are released is as follows:
a.1, 2, 3
b.1, 3, 2
c.2, 3, 1
d.3, 1, 2
19) The pre-emptive right enables a stockholder to
a.receive the same amount of dividends on a percentage basis as the preferred
stockholders
b.receive cash dividends before other classes of stock without the pre-emptive right
c.sell capital stock back to the corporation at the option of the stockholder
d.none of these answers are correct
20) On December 31, 2014, Kessler Company granted some of its executives options to
purchase 45,000 shares of the company’s $10 par common stock at an option price of
$50 per share. The options become exercisable on January 1, 2015, and represent
compensation for executives’ services over a three-year period beginning January 1,
2015 . The Black-Scholes option pricing model determines total compensation expense
to be $270,000. At December 31, 2015, none of the executives had exercised their
options. What is the impact on Kessler’s net income for the year ended December 31,
2015 as a result of this transaction under the fair value method?
a.$90,000 increase
b.$0
c.$90,000 decrease
d.$270,000 decrease
21) Chase County owned an idle parcel of real estate consisting of land and a factory
building. Chase gave title to this realty to Patton Co. as an incentive for Patton to
establish manufacturing operations in the County. Patton paid nothing for this realty,
which had a fair market value of $250,000 at the date of the grant. Patton should record
this nonmonetary transaction as a
a.memo entry only
b.credit to Contribution Revenue for $250,000
c.credit to Extraordinary Income for $250,000
d.credit to Donated Capital for $250,000