B Company switched from the sum-of-the-years-digits depreciation method to
straight-line depreciation in 2016. The change affects machinery purchased at the
beginning of 2014 at a cost of $72,000. The machinery has an estimated life of five
years and an estimated residual value of $3,600. What is B’s 2016 depreciation
expense?
a. $ 9,120.
b. $13,680.
c. $15,840.
d. $19,200.
On January 1, 2016, Blue Inc. issued stock options for 200,000 shares to a division
manager. The options have an estimated fair value of $6 each. To provide additional
incentive for managerial achievement, the options are not exercisable unless divisional
revenue increases by 6% in three years. Blue initially estimates that it is not probable
the goal will be achieved, but in 2017, after one year, Blue estimates that it is probable
that divisional revenue will increase by 6% by the end of 2018. Ignoring taxes, what is
the effect on earnings in 2017?
a. $200,000.
b. $400,000.
c. $600,000.
d. $800,000.
Refer to the following lease amortization schedule. The 10 payments are made annually
starting with the inception of the lease. Title does not transfer to the lessee and there is
no bargain purchase option or guaranteed residual value. The asset has an expected
economic life of 12 years. The lease is noncancelable.
What is the total effective interest paid over the term of the lease?
a. $100,000.
b. $ 36,718.
c. $ 53,282.
d. $ 63,282.
Davis Hardware Company uses a perpetual inventory system. How should Davis record
the sale of merchandise, costing $620, and sold on account for $960?
a. Inventory 620 Accounts receivable
620Sales 960 Revenue from sales
960
b. Accounts receivable 960 Sales revenue
960Cost of goods sold 620 Inventory
620
c. Inventory 620 Gain on sale 340 Sales revenue
960
d. Accounts receivable 960 Sales revenues
620Gain on sale
340
When using the cost recovery method of accounting for long-term construction
contracts under IFRS, early in the life of the contract it is typically the case that:
a. Expenses in excess of revenues are recognized.
b. Revenues in excess of expenses are recognized.
c. An equal amount of revenue and expense is recognized.
d. There is no predictable pattern of revenue and expense.
ABC Company leased equipment to Best Corporation under a lease agreement that
qualifies as a direct financing lease. The cost of the asset is $120,000. The lease
contains a bargain purchase option that is effective at the end of the fifth year. The
expected economic life of the asset is 10 years. The lease term is five years. The asset is
expected to have a residual value of $2,000 at the end of 10 years. Using the
straight-line method, what would Best record as annual depreciation?
a. $23,600.
b. $12,200.
c. $12,000.
d. $11,800.
Zero-coupon bonds:
a. Offer a return in the form of a deep discount off the face value.
b. Result in zero interest expense for the issuer.
c. Result in zero interest revenue for the investor.
d. Are reported as shareholders’ equity by the issuer.
Which of the following is reported as a financing activity in the statement of cash
flows?
a. The amortization of a patent.
b. The exchange of common stock for a building.
c. The acquisition of long-term investments.
d. The repayment of bonds issued at face value.
When stock is issued in exchange for property, the best evidence of fair value might be
any of the following except:
a. The appraised value of the property received.
b. The selling price of the stock in a recent transaction.
c. The price of the stock quoted on the stock exchange.
d. The average book value of outstanding stock.
Wicker Corporation operates a manufacturing plant in California. Due to a change in
business climate, an impairment test is deemed appropriate. Management has acquired
the following information for the assets at the plant:
Wicker’s estimate of the total cash flows
to be generated by selling the products manufactured
at its California plant, not discounted to present value 30,000,000 The fair value of the
California plant is estimated to be $24,000,000. Required:
1> Determine the amount of impairment loss, if any.
2> If a loss is indicated, where would it appear in Wicker’s multiple-step income
statement?
3> If a loss is indicated, prepare the entry to record the loss.
4> Repeat requirement 1 assuming that the estimated undiscounted sum of future cash
flows is $27,000,000 instead of $30,000,000.
5> Repeat requirement 1 assuming that the estimated undiscounted sum of future cash
flows is $34,000,000 instead of $30,000,000.
Lacy’s Linen Mart uses the average cost retail method to estimate inventories. Data for
the first six months of 2016 include: beginning inventory at cost and retail were
$60,000 and $120,000, net purchases at cost and retail were $312,000 and $480,000,
and sales during the first six months totaled $490,000. The estimated inventory at June
30, 2016, would be:
a. $ 68,200.
b. $ 55,000.
c. $ 71,500.
d. $ 63,250.
Which of the following situations would not require that long-term liabilities be
reported as current liabilities on a classified balance sheet?
a. The long-term debt is callable by the creditor.
b. The creditor has the right to demand payment due to a contractual violation.
c. The long-term debt matures within the upcoming year.
d. The company intended to refinance the debt and did so prior to issuance of the
financial statements.
When converting an income statement from a cash basis to an accrual basis, which of
the following is incorrect?
a. An adjustment for depreciation reduces net income.
b. A decrease in salaries payable decreases net income.
c. A reduction in prepaid expenses decreases net income.
d. An increase in accrued payables decreases net income.
In periods when costs are rising, LIFO liquidations:
a. Can’t occur.
b. Are used to reduce tax liabilities.
c. Are a source of off-balance-sheet financing.
d. Distort the net income.
What is the “if converted method”?
Identify or define the following terms: economic entity, going concern.
Imagine that the Ace Construction Company (ACC) concludes that it must switch from
recognizing revenue on long-term contracts over time according to percentage of
completion to recognizing revenue upon completion of each contract. Assume that none
of their construction projects are going to produce a loss. Is it possible that, in a
particular year, ACC will show higher gross profit under the new approach (recognizing
revenue upon contract completion) than they did under the old approach (recognizing
revenue over time according to percentage of completion)? Explain.
It’s not unusual for one company to buy another company in order to obtain technology
that the acquired company has developed or is in the process of developing.Required:
Explain the accounting treatment of purchased technology.
Listed below are five terms are followed by a list of phrases that describe or
characterize five of the terms. Match each phrase with the correct number code for the
term.
Listed below are five terms followed by a list of phrases that describe or characterize
each of the terms. Match each phrase with the number for the most correct term.
Briefly compare and contrast the two approaches to estimating bad debt expense. In
your answer, indicate which approach, if either, is superior.
Using the chart of accounts provided, indicate by account number the account or
accounts that would be debited and credited in the following transactions and indicate
the type of transaction as: (1) an external transaction, (2) an internal transaction
recorded as an adjusting journal entry, or (3) a closing entry. The company uses a
perpetual inventory system. All prepayments are initially recorded in permanent
accounts.
Purchased inventory on account.
Listed below are five terms followed by a list of phrases that describe or characterize
each of the terms. Match each phrase with the number for the correct term.
Kinney reported cost of goods sold of $168,114,150 in its fiscal 2015 income statement.
Compute its net inventory purchases during the year.
In its 2015 Annual Report to Shareholders, Kinney Inc. reported the following
Consolidated Statement of Cash Flows:
For the years ended December 31,
