1) a company should abandon the historical cost principle when the future utility of the
inventory item falls below its original cost.
2) a strength of the income statement as compared to the balance sheet is that items that
cannot be measured reliably can be reported in the income statement.
3) assets classified as property, plant, and equipment must be both long-term in nature
and possess physical substance.
4) ifrs requires immediate recognition of a loss if the overall contract is going to be
unprofitable.
5) ifrs prohibits use of the percentage-of-completion method of accounting for
long-term construction contracts.
6) an adjusted trial balance that shows equal debit and credit columnar totals proves the
accuracy of the adjusting entries.
7) ifrs requires that gains and losses on available-for-sale securities be reported directly
in equity.
8) terry company is unable to reliably estimate revenues and costs associated with its
only long-term construction contract. under ifrs, terry company must use the
completed-contract method to account for this contract.
9) u.s. gaap permits recognition of a restructuring liability, once a company has
committed to a restructuring plan.
10) jeff beck is a farmer who owns land which borders on the right-of-way of the
northern railroad. on august 10, 2012, due to the admitted negligence of the railroad,
hay on the farm was set on fire and burned. beck had had a dispute with the railroad for
several years concerning the ownership of a small parcel of land. the representative of
the railroad has offered to assign any rights which the railroad may have in the land to
beck in exchange for a release of his right to reimbursement for the loss he has
sustained from the fire. beck appears inclined to accept the railroad’s offer. the railroad’s
2012 financial statements should include the following related to the incident:
a.recognition of a loss and creation of a liability for the value of the land
b.recognition of a loss only
c.creation of a liability only
d.disclosure in note form only
11) a cash equivalent is a short-term, highly liquid investment that is readily convertible
into known amounts of cash and
a.is acceptable as a means to pay current liabilities
b.has a current market value that is greater than its original cost
c.bears an interest rate that is at least equal to the prime rate of interest at the date of
liquidation
d.is so near its maturity that it presents insignificant risk of changes in interest rates
12) warrants exercisable at $20 each to obtain 50,000 shares of common stock were
outstanding during a period when the average market price of the common stock was
$25. application of the treasury stock method for the assumed exercise of these warrants
in computing diluted earnings per share will increase the weighted average number of
outstanding shares by
a.50,000
b.40,000
c.10,000
d.12,500
13) on july 1, 2012, an interest payment date, $80,000 of parks co. bonds were
converted into 1,600 shares of parks co. common stock each having a par value of $45
and a market value of $54. there is $3,200 unamortized discount on the bonds. using the
book value method, parks would record
a.no change in paid-in capital in excess of par
b.a $4,800 increase in paid-in capital in excess of par
c.a $9,600 increase in paid-in capital in excess of par
d.a $6,400 increase in paid-in capital in excess of par
14) in 2012, krause company accrued, for financial statement reporting, estimated
losses on disposal of unused plant facilities of $1,800,000. the facilities were sold in
march 2013 and a $1,800,000 loss was recognized for tax purposes. also in 2012,
krause paid $100,000 in premiums for a two-year life insurance policy in which the
company was the beneficiary. assuming that the enacted tax rate is 30% in both 2012
and 2013, and that krause paid $780,000 in income taxes in 2012, the amount reported
as net deferred income taxes on krause’s balance sheet at december 31, 2012, should be
a
a.$510,000 asset
b.$270,000 asset
c.$270,000 liability
d.$540,000 asset
15) which of the following is not an accurate representation concerning revenue
recognition?
a.revenue from selling products is recognized at the date of sale, usually interpreted to
mean the date of delivery to customers
b.revenue from services rendered is recognized when cash is received or when services
have been performed
c.revenue from permitting others to use enterprise assets is recognized as time passes or
as the assets are used
d.revenue from disposing of assets other than products is recognized at the date of sale
16) total stockholders’ equity represents
a.a claim to specific assets contributed by the owners
b.the maximum amount that can be borrowed by the enterprise
c.a claim against a portion of the total assets of an enterprise
d.only the amount of earnings that have been retained in the business
17) all of the following represent costs of providing financial information except
a.preparing
b.disseminating
c.accessing capital
d.auditing
18) given the acquisition cost of product alpha is $17, the net realizable value for
product alpha is $16.70, the normal profit for product alpha is $1.24, and the market
value (replacement cost) for product alpha is $14.72, what is the proper per unit
inventory price for product alpha?
a.$17.00
b.$15.46
c.$14.72
d.$16.70
19) in a period of rising prices, the inventory method which tends to give the highest
reported cost of goods sold is
a.fifo
b.average cost
c.lifo
d.none of these
20) harlan mining co. has recently decided to go public and has hired you as an
independent cpa. one statement that the enterprise is anxious to have prepared is a
statement of cash flows. financial statements of harlan mining co. for 2013 and 2012
are provided below.
balance sheets
the following additional data were provided:
1>dividends for the year 2013 were $144,000.
2>during the year, equipment was sold for $180,000. this equipment cost $264,000
originally and had a book value of $216,000 at the time of sale. the loss on sale was
incorrectly charged to cost of sales.
3>all depreciation expense is in the selling expense category.
questions 58 through 62 relate to a statement of cash flows (direct method) for the year
ended december 31, 2013, for harlan mining company.
the net cash provided (used) by investing activities is
a.$(264,000)
b.$36,000
c.$180,000
d.$(216,000)
21) what is a possible reason for accounts receivable turnover to increase from one year
to the next year
a.decreased credit sales during a recession
b.write-off uncollectible receivables
c.granting credit to customers with lower credit quality.
d.improved collection process
22) on august 1, 2012, hayes corporation purchased a new machine on a deferred
payment basis. a down payment of $9,000 was made and 4 monthly installments of
$7,500 each are to be made beginning on september 1, 2012. the cash equivalent price
of the machine was $36,000. hayes incurred and paid installation costs amounting to
$1,500. the amount to be capitalized as the cost of the machine is
a.$36,000
b.$37,500
c.$39,000
d.$40,500
23) on july 1, 2012, spear co. issued 3,000 of its 10%, $1,000 bonds at 99 plus accrued
interest. the bonds are dated april 1, 2012 and mature on april 1, 2022. interest is
payable semiannually on april 1 and october 1. what amount did spear receive from the
bond issuance?
a.$3,045,000
b.$3,000,000
c.$2,970,000
d.$2,895,000
24) the major distinction between the financial accounting standards board (fasb) and
its predecessor, the accounting principles board (apb), is
a.the fasb issues exposure drafts of proposed standards
b.all members of the fasb are fully remunerated, serve full time, and are independent of
any companies or institutions
c.all members of the fasb possess extensive experience in financial reporting
d.a majority of the members of the fasb are cpas drawn from public practice
25) on december 30, 2012, agh, inc. purchased a machine from grant corp. in exchange
for a zero-interest-bearing note requiring eight payments of $70,000. the first payment
was made on december 30, 2012, and the others are due annually on december 30. at
date of issuance, the prevailing rate of interest for this type of note was 11%. present
value factors are as follows:
on agh’s december 31, 2012 balance sheet, the net note payable to grant is
a.$329,840
b.$360,220
c.$366,485
d.$399,840