1) LIFO liquidations can occur frequently when using a specific-goods LIFO approach.
2) Under IFRS, there is no specific standard related to pledging receivables.
3) In all cases when FIFO is used, the cost of goods sold would be the same whether a
perpetual or periodic system is used.
4) The IASB is considering a proposal to provide expanded guidance on estimating fair
values.
5) An accelerated depreciation method is appropriate when the assets economic
usefulness is the same each year.
6) If a long-term note payable has a stated interest rate, that rate should be considered to
be the effective rate.
7) Benefits under a pension plan can include the retiree, the retiree’s spouse, and other
dependents.
8) Taxable income is a tax accounting term and is also referred to as income before
taxes.
9) Impaired assets held for disposal should be reported at the lower of cost or net
realizable value.
10) Neither U.S. GAAP nor IFRS requires interim reports.
11) Cash payments for operating expenses are computed by subtracting an increase in
prepaid expenses and a decrease in accrued expenses payable from operating expenses.
12) Hogan Farms produced 1,600,000 pounds of cotton during the 2015 season. Hogan
sells all of its cotton to Ott Co., which has agreed to purchase Hogan’s entire production
at the prevailing market price. Recent legislation assures that the market price will not
fall below $.70 per pound during the next two years. Hogan’s costs of selling and
distributing the cotton are immaterial and can be reasonably estimated. Hogan reports
its inventory at expected exit value. During 2015, Hogan sold and delivered to Ott
1,200,000 pounds at the market price of $.70. Hogan sold the remaining 400,000
pounds during 2016 at the market price of $.72. What amount of revenue should Hogan
recognize in 2015?
a.$840,000
b.$864,000
c.$1,120,000
d.$1,152,000
13) The information provided by financial reporting pertains to
a.individual business enterprises, rather than to industries or an economy as a whole or
to members of society as consumers
b.business industries, rather than to individual enterprises or an economy as a whole or
to members of society as consumers
c.individual business enterprises, industries, and an economy as a whole, rather than to
members of society as consumers
d.an economy as a whole and to members of society as consumers, rather than to
individual enterprises or industries
14) If the LIFO inventory method was used last period, it should be used for the current
and following periods because of
a.comparability
b.materiality
c.timeliness
d.verifiability
15) Which of the following statements about the recognition of a prior service cost
related to a postretirement obligation is correct?
a.The prior service amount is recognized in the income statement in the current period
b.The prior service cost is recognized in the income statement net of tax
c.Restatement of previously issued annual financial statements is required
d.The prior service cost amount affects comprehensive income in the current period
16) Miles Company, a wholesaler, budgeted the following sales for the indicated
months:
June July August
Sales on account$2,700,000$2,760,000$2,850,000
Cash sales 270,000 300,000 390,000
Total sales$2,970,000$3,060,000$3,240,000
All merchandise is marked up to sell at its invoice cost plus 25%. Merchandise
inventories at the beginning of each month are at 30% of that month’s projected cost of
goods sold.
The cost of goods sold for the month of June is anticipated to be
a.$2,025,000
b.$2,227,500
c.$2,079,000
d.$2,376,000
17) Which of the following intangible assets should be shown as a separate item on the
balance sheet?
a.Goodwill
b.Franchise
c.Patent
d.Trademark
18) Which of the following accounts is credited in the loss method of writing-down of
inventory to its market value?
a.Inventory
b.Loss Due to Decline of Inventory to market
c.Cost of Goods Sold
d.Allowance to Reduce Inventory to Market
19) Garwood Company has the following items: write-down of inventories, $360,000;
loss on disposal of Sports Division, $555,000; and loss due to an expropriation,
$359,000. Ignoring income taxes, what amount should Garwood Company report as
extraordinary losses?
a.$359,000
b.$555,000
c.$719,000
d.$914,000
20) The following information is related to the postretirement benefits plan of Heerey,
Inc. for 2015:
Service cost$ 280,000
Discount rate8%
APBO, January 1, 20152,250,000
EPBO, January 1, 20152,400,000
Actual return on plan assets in 2015104,000
Expected return on plan assets in 201595,600
Amortization of PSC, due to benefit increase107,200
Contributions (funding)400,000
Benefit payments208,000
Instructions
(a)Compute the amount of postretirement expense for 2015 . (Show computations.)
(b)Compute the amount of the APBO at December 31, 2015 .
21) 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 disposal of equipment18,000
Sales commission expense16,000
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,
Income before extraordinary item is
a.$88,000
b.$54,000
c.$37,800
d.$21,000
22) During 2014, a textbook written by Mercer Co. personnel was sold to Roark
Publishing, Inc., for royalties of 10% on sales. Royalties are receivable semiannually on
March 31, for sales in July through December of the prior year, and on September 30,
for sales in January through June of the same year.
Royalty income of $162,000 was accrued at 12/31/14 for the period July-December
2014 .
Royalty income of $180,000 was received on 3/31/15, and $234,000 on 9/30/15.
Mercer learned from Roark that sales subject to royalty were estimated at $3,240,000
for the last half of 2015 .
In its income statement for 2015, Mercer should report royalty income at
a.$414,000
b.$432,000
c.$558,000
d.$576,000
23) Hopkins Co. at the end of 2014, its first year of operations, prepared a
reconciliation between pretax financial income and taxable income as follows:
Pretax financial income$1,500,000
Estimated litigation expense2,000,000
Extra depreciation for taxes (3,000,000)
Taxable income$ 500,000
The estimated litigation expense of $2,000,000 will be deductible in 2015 when it is
expected to be paid. Use of the depreciable assets will result in taxable amounts of
$1,000,000 in each of the next three years. The income tax rate is 30% for all years.
The deferred tax asset to be recognized is
a.$150,000 current
b.$300,000 current
c.$450,000 current
d.$600,000 current
24) Each of the following are included in both the current ratio and the acid-test ratio
except
a.cash
b.short-term investments
c.net receivables
d.inventory
25) At the beginning of 2015, Hamilton Company had retained earnings of $250,000.
During the year Hamilton reported net income of $75,000, sold treasury stock at a gain
of $27,000, declared a cash dividend of $45,000, and declared and issued a small stock
dividend of 1,500 shares ($10 par value) when the fair value of the stock was $30 per
share. The amount of retained earnings available for dividends at the end of 2015 was:
a.$284,500
b.$262,000
c.$257,500
d.$235,000
26) On January 1, 2012, Knapp Corporation acquired machinery at a cost of $750,000.
Knapp adopted the double-declining balance method of depreciation for this machinery
and had been recording depreciation over an estimated useful life of ten years, with no
residual value. At the beginning of 2015, a decision was made to change to the
straight-line method of depreciation for the machinery. The depreciation expense for
2015 would be
a.$38,400
b.$54,858
c.$75,000
d.$107,142
27) Operating losses incurred during the start-up years of a new business should be
a.accounted for and reported like the operating losses of any other business
b.written off directly against retained earnings
c.capitalized as a deferred charge and amortized over five years
d.capitalized as an intangible asset and amortized over a period not to exceed 20 years
28) One of the benefits of the statement of cash flows is that it helps users evaluate
financial flexibility. Which of the following explanations is a description of financial
flexibility?
a.The nearness to cash of assets and liabilities
b.The firm’s ability to respond and adapt to financial adversity and unexpected needs
and opportunities
c.The firm’s ability to pay its debts as they mature
d.The firm’s ability to invest in a number of projects with different objectives and costs