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1) Craig borrowed $350,000 on October 1, 2014 and is required to pay $360,000 on
March 1, 2015 . What amount is the note payable recorded at on October 1, 2014 and
how much interest is recognized from October 1 to December 31, 2014?
a.$350,000 and $0
b.$350,000 and $6,000
c.$360,000 and $0
d.$350,000 and $10,000
2) In order for a cost to be capitalized (capital expenditure), the following must be
present:
a.The useful life of an asset must be increased
b.The quantity of assets must be increased
c.The quality of assets must be increased
d.Any of these answers are correct
3) An operating segment is a reportable segment if
a.its operating profit is 10% or more of the combined operating profit of profitable
segments
b.its operating loss is 10% or more of the combined operating losses of segments that
incurred an operating loss
c.the absolute amount of its operating profit or loss is 10% or more of the company's
combined operating profit or loss
d.None of these answers are correct
4) Given the historical cost of product Dominoe is $22, the selling price of product
Dominoe is $30, costs to sell product Dominoe are $5, the replacement cost for product
Dominoe is $20, and the normal profit margin is 20% of sales price, what is the cost
amount that should be used in the lower-of-cost-or-market comparison?
a.$25
b.$20
c.$19
d.$22
5) Jim Dolan and Matt Stine, maintenance repairmen, spent five days in unloading and
setting up a new $30,000 precision machine in the plant. Their wages earned in this
five-day period totaled $800.
a.Asset(s) only
b.Accumulated amortization, depletion, or depreciation only
c.Expense only
d.Asset(s) and expense
6) All of the following information about each operating segment must be reported
except
a.unusual items
b.interest revenue
c.cost of goods sold
d.depreciation and amortization expense
7) 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
8) Which of the following statements about involuntary conversions is false?
a.An involuntary conversion may result from condemnation or fire
b.The gain or loss from an involuntary conversion may be reported as an extraordinary
item
c.The gain or loss from an involuntary conversion should not be recognized when the
enterprise reinvests in replacement assets
d.All of these answers are correct
9) Mayo Corp. has estimated that total depreciation expense for the year ending
December 31, 2015 will amount to $450,000, and that 2015 year-end bonuses to
employees will total $900,000. In Mayo's interim income statement for the six months
ended June 30, 2015, what is the total amount of expense relating to these two items
that should be reported?
a.$0
b.$225,000
c.$675,000
d.$1,350,000
10) Any given transaction may affect a statement of cash flows (using the indirect
method) in one or more of the following ways:
Cash flows from operating activities
a.Net income will be increased or adjusted upward.
b.Net income will be decreased or adjusted downward.
Cash flows from investing activities
c.Increase as a result of cash inflows.
d.Decrease as a result of cash outflows.
Cash flows from financing activities
e.Increase as a result of cash inflows.
f.Decrease as a result of cash outflows.
The statement of cash flows is not affected
g.Not required to be reported in the body of the statement.
For each transaction listed below, list the letter or letters from above that describe(s) the
effect of the transaction on a statement of cash flows for the year ending December 31,
2015 . (Ignore any income tax effects.)
1> Preferred stock with a carrying value of $44,000 was redeemed for $50,000 on
January 1, 2015 .
2> Uncollectible accounts receivable of $3,000 were written off against the allowance
for doubtful accounts balance of $12,200 on December 31, 2015 .
3> Machinery which originally cost $3,000 and has a book value of $1,800 is sold for
$1,400 on December 31, 2015 .
4> Land is acquired through the issuance of bonds payable on July 1, 2015 .
5> 1,000 shares of stock, stated value $10 per share, are issued for $25 per share in
2015 .
6> An appropriation of retained earnings for treasury stock of $35,000 is established in
2015 .
7> A cash dividend of $8,000 is paid on December 31, 2015 .
8> The portfolio of long-term investments (available-for-sale) is at an aggregate market
value higher than aggregate cost at December 31, 2015 .
11) Which of the following should be reported as a prior period adjustment?
Change in Estimated LivesMistakes in the Application of
of Depreciable AssetsAccounting Principles
a.YesYes
b.NoYes
c.YesNo
d.NoNo
12) On January 1, 2015, Gore, Inc. purchased a machine for $1,350,000 which will be
depreciated $135,000 per year for financial statement reporting purposes. For income
tax reporting, Gore elected to expense $150,000 and to use straight-line depreciation
which will allow a cost recovery deduction of $120,000 for 2015 . Assume a present
and future enacted income tax rate of 30%. What amount should be added to Gore's
deferred income tax liability for this temporary difference at December 31, 2015?
a.$81,000
b.$45,000
c.$40,500
d.$36,000
13) Dotel Companys 12/31/15 balance sheet reports assets of $9,000,000 and liabilities
of $3,750,000. All of Dotels assets book values approximate their fair value, except for
land, which has a fair value that is $600,000 greater than its book value. On 12/31/15,
Egbert Corporation paid $9,150,000 to acquire Dotel. What amount of goodwill should
Egbert record as a result of this purchase?
a.$ -0-
b.$ 150,000
c.$3,300,000
d.$3,900,000
14) Assume that the following data relate to Rosen, Inc. for the year 2015:
Net income (30% tax rate)$3,500,000
Average common shares outstanding 20151,000,000shares
10% cumulative convertible preferred stock:
Convertible into 80,000 shares of common$1,600,000
8% convertible bonds; convertible into 75,000
shares of common$2,500,000
Stock options:
Exercisable at the option price of $25 per share;
average market price in 2015, $3084,000shares
Instructions
Compute (a) basic earnings per share, and (b) diluted earnings per share.
15) Garr Co. issued $4,000,000 of 12%, 5-year convertible bonds on December 1, 2014
for $4,016,900 plus accrued interest. The bonds were dated April 1, 2014 with interest
payable
April 1 and October 1 . Bond premium is amortized each interest period on a
straight-line basis. Garr Co. has a fiscal year end of September 30 .
On October 1, 2015, $2,000,000 of these bonds were converted into 28,000 shares of
$15 par common stock. Accrued interest was paid in cash at the time of conversion.
Instructions
(a)Prepare the entry to record the interest expense at April 1, 2015 . Assume that interest
payable was credited when the bonds were issued (round to nearest dollar).
(b)Prepare the entry to record the conversion on October 1, 2015 . Assume that the
entry to record amortization of the bond premium and interest payment has been made.
16) When the cost-of-goods-sold method is used to record inventory at market
a.there is a direct reduction in the selling price of the product that results in a loss being
recorded on the income statement prior to the sale
b.a loss is recorded directly in the inventory account by crediting inventory and debiting
loss on inventory decline
c.only the portion of the loss attributable to inventory sold during the period is recorded
in the financial statements
d.the market value figure for ending inventory is substituted for cost and the loss is
buried in cost of goods sold
17) In 2014, its first year of operations, Kimble Corp. has a $800,000 net operating loss
when the tax rate is 30%. In 2015, Kimble has $350,000 taxable income and the tax rate
remains 30%.
Instructions
Assume the management of Kimble Corp. thinks that it is more likely than not that the
loss carryforward will not be realized in the near future because it is a new company
(this is before results of 2015 operations are known).
(a)What are the entries in 2014 to record the tax effects of the loss carryforward?
(b)What entries would be made in 2015 to record the current and deferred income taxes
and to recognize the loss carryforward? (Assume that at the end of 2013 it is more
likely than not that the deferred tax asset will be realized.)
