1) what is prudence or conservatism?
a.understating assets and net income
b.when in doubt, recognizing the option that is least likely to overstate assets and
income
c.recognizing the option that is least likely to overstate assets and income
d.recognizing revenue when earned and realized
2) the effective interest on a 12-month, zero-interest-bearing note payable of $300,000,
discounted at the bank at 8% is
a.8.51%
b.8%
c.11.49%
d.8.70%
3) which basic assumption may not be followed when a firm in bankruptcy reports
financial results?
a.economic entity assumption
b.going concern assumption
c.periodicity assumption
d.monetary unit assumption
4) durler company traded machinery with a book value of $540,000 and a fair value of
$900,000. it received in exchange from hoyle company a machine with a fair value of
$810,000 and cash of $90,000. hoyles machine has a book value of $855,000. what
amount of gain should durler recognize on the exchange?
a.$ -0-
b.$36,000
c.$90,000
d.$360,000
5) purchased goodwill should
a.be written off as soon as possible against retained earnings
b.be written off as soon as possible as an extraordinary item
c.be written off by systematic charges as a regular operating expense over the period
benefited
d.not be amortized
6) a machine cost $800,000 on april 1, 2012. its estimated salvage value is $80,000 and
its expected life is eight years.
instructions
calculate the depreciation expense (to the nearest dollar) by each of the following
methods, showing the figures used.
(a)straight-line for 2012
(b)double-declining balance for 2013
(c)sum-of-the-years’-digits for 2013
7) benedict corporation reports the following information:
benedict should report earnings per share of
a.$4.50
b.$5.40
c.$6.60
d.$7.50
8) on its december 31, 2012 balance sheet, emig corp. reported bonds payable of
$9,000,000 and related unamortized bond issue costs of $480,000. the bonds had been
issued at par. on january 2, 2013, emig retired $4,500,000 of the outstanding bonds at
par plus a call premium of $105,000. what amount should emig report in its 2013
income statement as loss on extinguishment of debt (ignore taxes)?
a.$0
b.$105,000
c.$240,000
d.$345,000
9) rich, inc. acquired 30% of doane corp.’s voting stock on january 1, 2012 for
$600,000. during 2012, doane earned $240,000 and paid dividends of $150,000. rich’s
30% interest in doane gives rich the ability to exercise significant influence over
doane’s operating and financial policies. during 2013, doane earned $300,000 and paid
dividends of $90,000 on april 1 and $90,000 on october 1. on july 1, 2013, rich sold
half of its stock in doane for $396,000 cash.
what should be the gain on sale of this investment in rich’s 2013 income statement?
a.$96,000
b.$82,500
c.$73,500
d.$60,000
10) accounting principles are “generally accepted” only when
a.an authoritative accounting rule-making body has established it in an official
pro-nouncement
b.it has been accepted as appropriate because of its universal application
c.both a and b
d.neither a nor b
11) jamison corp.’s balance sheet accounts as of december 31, 2013 and 2012 and
information relating to 2013 activities are presented below.
information relating to 2013 activities:
net income for 2013 was $1,500,000.
cash dividends of $600,000 were declared and paid in 2013.
equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in
2013 for $360,000.
a long-term investment was sold in 2013 for $320,000. there were no other transactions
affecting long-term investments in 2013.
20,000 shares of common stock were issued in 2013 for $25 a share.
short-term investments consist of treasury bills maturing on 6/30/14.
net cash provided by jamisons 2013 financing activities was
a.$480,000
b.$520,000
c.$1,080,000
d.$1,680,000
12) tracy co. owns 4,000 of the 10,000 outstanding shares of penn corp. common stock.
during 2013, penn earns $360,000 and pays cash dividends of $120,000.
tracy should report investment revenue for 2013 of
a.$48,000
b.$96,000
c.$120,000
d.$144,000
13) chase corp. had the following infrequent transactions during 2012:
a $225,000 gain from selling the only investment chase has ever owned.
a $315,000 gain on the sale of equipment.
a $105,000 loss on the write-down of inventories.
in its 2012 income statement, what amount should chase report as total infrequent net
gains that are not considered extraordinary?
a.$120,000
b.$210,000
c.$435,000
d.$540,000
14) generally accepted accounting principles
a.include detailed practices and procedures as well as broad guidelines of general
application
b.are influenced by pronouncements of the sec and irs
c.change over time as the nature of the business environment changes
d.all of these
15) the income statement of dolan corporation for 2012 included the following items:
the following balances have been excerpted from dolan corporation’s balance sheets:
the cash received for interest during 2012 was
a.$112,800
b.$127,800
c.$131,000
d.$134,200
16) malrom manufacturing company acquired a patent on a manufacturing process on
january 1, 2012 for $6,250,000. it was expected to have a 10 year life and no residual
value. malrom uses straight-line amortization for patents. on december 31, 2013, the
expected future cash flows expected from the patent were expected to be $500,000 per
year for the next eight years. the present value of these cash flows, discounted at
malroms market interest rate, is $3,000,000. at what amount should the patent be
carried on the december 31, 2013 balance sheet?
a.$6,250,000
b.$5,000,000
c.$4,000,000
d.$3,000,000
17) “when products (goods or services), merchandise, or other assets are exchanged for
cash or claims to cash” is a definition of
a.allocated
b.realized
c.realizable
d.earned
18) earnings per share should always be shown separately for
a.net income and gross margin
b.net income and pretax income
c.income before extraordinary items
d.extraordinary items and prior period adjustments