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1) Bond issue costs are capitalized as a deferred charge and amortized to expense over
the life of the bond issue.
2) Comprehensive income includes all changes in equity during a period except those
resulting from distributions to owners.
3) Once the separate units of accounting are determined under multiple-deliverable
arrangement, the amount paid for the arrangement is allocated among the separate units
based on cost of manufacturing the separate unit.
4) When a stock dividend is less than 20-25 percent of the common stock outstanding, a
company is required to transfer the fair value of the stock issued from retained earnings.
5) The primary purpose of the statement of cash flows is to provide cash-basis
information about the companys operating, investing, and financing activities.
6) IFRS requires that changes in estimate be accounted for using the retrospective
method.
7) A ledger is where a company first records transactions and other selected events.
8) An onerous contract is one in which the unavoidable costs of satisfying the
obligations outweigh the economic benefits to be received.
9) U.S. GAAP and IFRS have the same accounting guideline for bond issue cost.
10) The units-of-production approach to depreciation is appropriate when depreciation
is a function of time instead of activity.
11) If ending inventory is understated, then net income is understated.
12) The times interest earned ratio is computed by dividing income before interest
expense by interest expense.
13) The difference between a financial forecast and a financial projection is that a
forecast provides information on what is expected to happen, while a projection
provides information on what might take place.
14) Companies should recognize revenue when it is realized and when cash is received.
15) The loss to be recognized by a creditor on an impaired loan is the difference
between the investment in the loan and the expected undiscounted future cash flows
from the loan.
16) The following information on selected cash transactions for 2015 has been provided
by Mancuso Company:
Proceeds from sale of land$210,000
Proceeds from long-term borrowings400,000
Purchases of plant assets144,000
Purchases of inventories680,000
Proceeds from sale of Mancuso common stock240,000
What is the cash provided (used) by investing activities for the year ended December
31, 2015, as a result of the above information?
a.$66,000
b.$256,000
c.$210,000
d.$850,000
17) Present value is
a.The value now of a future amount
b.The amount that must be invested now to produce a known future value
c.Always smaller than the future value
d.All of these answer choices are correct
18) Edwards Company contracted on 4/1/14 to construct a building for $2,400,000. The
project was completed in 2016 . Additional data follow:
2014 2015 2016
Costs incurred to date$ 560,000$1,350,000$1,900,000
Estimated cost to complete1,040,000450,000
Billings to date500,0001,900,0002,400,000
Collections to date400,0001,300,0002,200,000
Instructions
(a)Calculate the income recognized by Edwards under the percentage-of-completion
method of accounting in each of the years 2014, 2015, and 2016 .
(b)Prepare all necessary entries for the year 2015 .
(c)Present the balance sheet disclosures at December 31, 2015 . Proper headings or
subheadings must be indicated.
19) Donnegan Company reported operating expenses of $325,000 for 2015 . The
following data were extracted from the companys financial records:
12/31/1412/31/15
Prepaid Expenses $ 60,000 $69,000
Accrued Expenses210,000255,000
On a statement of cash flows for 2015, using the direct method, cash payments for
operating expenses should be
a.$379,000
b.$361,000
c.$289,000
d.$271,000
20) During 2015, Quirk, Incorporated purchased $3,500,000 of inventory. The cost of
goods sold for 2015 was $3,600,000 and the ending inventory at December 31, 2015,
was $400,000. What was the inventory turnover for 2015?
a.7.0
b.7.2
c.8.0
d.9.0
21) Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2015
for the purpose of leasing a machine to be used in its manufacturing operations. The
following data pertain to the agreement:
(a)The term of the noncancelable lease is 3 years with no renewal option. Payments of
$287,432 are due on January 1 of each year.
(b)The fair value of the machine on January 1, 2015, is $800,000. The machine has a
remaining economic life of 10 years, with no salvage value. The machine reverts to the
lessor upon the termination of the lease.
(c)Alt depreciates all machinery it owns on a straight-line basis.
(d)Alts incremental borrowing rate is 10% per year. Alt does not have knowledge of the
8% implicit rate used by Yates.
(e)Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in
a suit which is sufficiently material to make collectibility of future lease payments
doubtful.
Future Value of Ordinary Annuity of 1
Period 5% 6% 8% 10% 12%
11.000001.000001.000001.000001.00000
22.050002.060002.080002.100002.12000
33.152503.183603.246403.310003.37440
44.310134.374624.506114.641004.77933
55.525635.637095.866606.105106.35285
66.801916.975327.335927.715618.11519
78.142018.393848.922809.4871710.08901
89.549119.8974710.6366311.4358912.29969
911.0265611.4913212.4875613.5794814.77566
1012.5778913.1807914.4865615.9374317.54874
Present Value of an Ordinary Annuity of 1
Period 5% 6% 8% 10% 12%
1.95238.94340.92593.90909.89286
21.859411.833391.783261.735541.69005
32.723252.673012.577102.486852.40183
43.545953.465113.312133.169863.03735
54.329484.212363.992713.790793.60478
65.075694.917324.622884.355264.11141
75.786375.582385.206374.868424.56376
86.463216.209795.746645.334934.96764
97.107826.801696.246895.759025.32825
107.721737.360096.710086.144575.65022
Which of the following lease-related revenue and expense items would be recorded by
Yates if the lease is accounted for as an operating lease?
a.Rent Revenue only
b.Interest Revenue only
c.Depreciation Expense only
d.Rent Revenue and Depreciation Expense
22) Why are certain costs of doing business capitalized when incurred and then
depreciated or amortized over subsequent accounting cycles?
a.To reduce the federal income tax liability
b.To aid management in cash-flow analysis
c.To match the costs of production with revenues as recognized
d.To adhere to the accounting constraint of conservatism
23) In preparing a statement of cash flows, cash flows from operating activities
a.are always equal to accrual accounting income
b.are calculated as the difference between revenues and expenses
c.can be calculated by appropriately adding to or deducting from net income those
items in the income statement that do not affect cash
d.can be calculated by appropriately adding to or deducting from net income those
items in the income statement that do affect cash
24) Niles Co. has the following data related to an item of inventory:
Inventory, March 1200 units @ $2.10
Purchase, March 7700 units @ $2.20
Purchase, March 16140 units @ $2.25
Inventory, March 31260 units
The value assigned to ending inventory if Niles uses LIFO is
a.$580
b.$552
c.$546
d.$584
25) Each year a company has been investing an increasingly greater amount in
machinery. Since there is a large number of small items with relatively similar useful
lives, the company has been applying straight-line depreciation at a uniform rate to the
machinery as a group. The ratio of this group's total accumulated depreciation to the
total cost of the machinery has been steadily increasing and now stands at .75 to 1.00.
The most likely explanation for this increasing ratio is the
a.company should have been using one of the accelerated methods of depreciation
b.estimated average life of the machinery is less than the actual average useful life
c.estimated average life of the machinery is greater than the actual average useful life
d.company has been retiring fully depreciated machinery that should have remained in
service
26) A loss on impairment of an intangible asset is the difference between the assets
a.carrying amount and the expected future net cash flows
b.carrying amount and its fair value
c.fair value and the expected future net cash flows
d.book value and its fair value
27) Barker Pet supply uses the conventional retail method to determine its ending
inventory at cost. Assume the beginning inventory at cost (retail) were $531,200
($653,800), purchases during the current year at cost (retail) were $2,137,200
($2,772,200), freight-in on these purchases totaled $127,800, sales during the current
year totaled $2,704,000, and net markups (markdowns) were $4,000 ($192,600). What
is the ending inventory value at cost?
a.$533,400
b.$434,721
c.$722,000
d.$588,430
28) The rate of return on total assets is computed by dividing
a.Net income by ending total assets
b.Net sales by average total assets
c.Net sales by ending total assets
d.Net income by average total assets
29) Under the lower-of-cost-or-market method, the replacement cost of an inventory
item would be used as the designated market value
a.when it is below the net realizable value less the normal profit margin
b.when it is below the net realizable value and above the net realizable value less the
normal profit margin
c.when it is above the net realizable value
d.regardless of net realizable value
