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1) Under IFRS, a deferred tax liability is classified as current or noncurrent based on
the classification of the asset or liability to which it relates.
2) A benefit of leasing to the lessor is the return of the leased property at the end of the
lease term.
3) In computing diluted earnings per share, stock options are considered dilutive when
their option price is greater than the market price.
4) When a buyer enters into a formal, noncancelable purchase contract, an asset and a
liability are recorded at the inception of the contract.
5) Land held for speculation is reported in the property, plant, and equipment section of
the balance sheet.
6) Companies have the option of disclosing information about the nature of their
operations and the use of estimates in preparing financial statements.
7) Depreciation is a means of cost allocation, not a matter of valuation.
8) IFRS permits an entity to reverse inventory write-downs in certain situations,
whereas U.S. GAAP does not.
9) A flood damaged a building and contents. Floods are unusual and infrequent in this
area. The receipts from insurance companies totaled $500,000, which was $150,000
less than the book values. The tax rate is 30%.
On the statement of cash flows (indirect method), the receipts from insurance
companies should
a.be shown as an addition to net income of $350,000
b.be shown as an inflow from investing activities of $350,000
c.be shown as an inflow from investing activities of $500,000
d.not be shown
10) On December 31, 2013 Berry Corporation sold some of its product to Flynn
Company, accepting a 3%, four-year promissory note having a maturity value of
$800,000 (interest payable annually on December 31). Berry Corporation pays 6% for
its borrowed funds. Flynn Company, however, pays 8% for its borrowed funds. The
product sold is carried on the books of Berry at a manufactured cost of $495,000.
Assume Berry uses a perpetual inventory system.
Instructions
(a)Prepare the journal entries to record the transaction on the books of Berry
Corporation at December 31, 2013 . (Assume that the effective interest method is used.
Use the interest tables below and round to the nearest dollar.)
(b)Make all appropriate entries for 2014 on the books of Berry Corporation.
(c)Make all appropriate entries for 2015 on the books of Berry Corporation.
Table 1
Future Value of 1
Periods2%3%4%6%8%
11.020001.030001.040001.060001.08000
21.040401.060901.081601.123601.16640
31.061211.092731.124861.191021.25971
41.082431.125511.169861.262481.36049
51.104081.159271.216651.338231.46933
Table 2
Present Value of 1
Periods2%3%4%6%8%
10.980390.970870.961540.943400.92593
20.961170.942600.924560.890000.85734
30.942320.915140.889000.839620.79383
40.923850.888490.854800.792090.73503
50.905730.862610.821930.747260.68058
Table 3
Future Value of Ordinary Annuity of 1
Periodic Rents2%3%4%6%8%
11.000001.000001.000001.000001.00000
22.020002.030002.040002.060002.08000
33.060403.090903.121603.183603.24640
44.121614.183634.246464.374624.50611
55.204045.309145.416325.637095.86660
Table 4
Present Value of Ordinary Annuity of 1
Periodic Rents2%3%4%6%8%
10.980390.970870.961540.943400.92593
21.941561.913471.886091.833391.78326
32.883882.828612.775092.673012.57710
43.807733.717103.629903.465113.31213
54.713464.579714.451824.212363.99271
11) According to a Financial Accounting Standards Board Statement, how are research
and development costs accounted for?
a.They must be capitalized when incurred and then amortized over their estimated
useful lives
b.They must be expensed in the period incurred
c.They may be either capitalized or expensed when incurred, depending upon the
materiality of the amounts involved
d.They must be expensed in the period incurred unless it can be clearly demonstrated
that the expenditure will have alternative future uses or unless contractually
reimbursable
12) Metro Company, a dealer in machinery and equipment, leased equipment to Sands,
Inc., on
July 1, 2015 . The lease is appropriately accounted for as a sales-type lease by Metro
and as a capital lease by Sands. The lease is for a 10-year period (the useful life of the
asset) expiring June 30, 2025 . The first of 10 equal annual payments of $552,000 was
made on July 1, 2015 . Metro had purchased the equipment for $3,500,000 on January
1, 2015, and established a list selling price of $4,800,000 on the equipment. Assume
that the present value at July 1, 2015, of the rent payments over the lease term
discounted at 8% (the appropriate interest rate) was $4,000,000.
What is the amount of profit on the sale and the amount of interest revenue that Metro
should record for the year ended December 31, 2015?
a.$0 and $137,920
b.$500,000 and $137,920
c.$500,000 and $160,000
d.$800,000 and $320,000
13) The assumption that a company will not be sold or liquidated in the near future is
known as the
a.economic entity assumption
b.monetary unit assumption
c.periodicity assumption
d.None of these answer choices are correct
14) The following information is available for Barkley Companys patents:
Cost$3,440,000
Carrying amount1,720,000
Expected future net cash flows1,600,000
Fair value1,300,000
Barkley would record a loss on impairment of
a.$ 120,000
b.$ 420,000
c.$1,720,000
d.$1,840,000
15) On January 1, 2015, Parks Co. has the following balances:
Projected benefit obligation$4,200,000
Fair value of plan assets3,750,000
The settlement rate is 10%. Other data related to the pension plan for 2015 are:
Service cost$240,000
Amortization of prior service costs54,000
Contributions270,000
Benefits paid250,000
Actual return on plan assets264,000
Amortization of net gain18,000
The fair value of plan assets at December 31, 2015 is
a.$3,506,000
b.$3,764,000
c.$4,034,000
d.$4,284,000
16) Present Value ofFuture Value of
Ordinary AnnuityOrdinary Annuity
7 periods5.20648.92280
8 periods5.746610.63663
9 periods6.246912.48756
(8% interest)
Korman Company wishes to accumulate $500,000 by May 1, 2022 by making 8 equal
annual deposits beginning May 1, 2014 to a fund paying 8% interest compounded
annually. What is the required amount of each deposit?
a.$87,008
b.$47,008
c.$43,525
d.$50,390
17) The accounting exchanges of nonmonetary assets has recently converged between
IFRS and U.S. GAAP, per SFAS No. 153, now requires
a.that gains on exchanges of nonmonetary assets be recognized if the exchange has
commercial substance
b.that gains on exchanges of nonmonetary assets be recognized if the exchange does not
have commercial substance
c.that gains on exchanges of nonmonetary assets be recognized if the exchange does not
have commercial substance, and has never been impaired
d.All of the above
18) Lease A does not contain a bargain purchase option, but the lease term is equal to 90
percent of the estimated economic life of the leased property. Lease B does not transfer
ownership of the property to the lessee by the end of the lease term, but the lease term is
equal to 75 percent of the estimated economic life of the leased property. How should
the lessee classify these leases?
Lease A Lease B
a.Operating leaseCapital lease
b.Operating leaseOperating lease
c.Capital leaseCapital lease
d.Capital leaseOperating lease
19) On August 31, Latty Co. partially refunded $450,000 of its outstanding 10% note
payable made one year ago to Dugan State Bank by paying $450,000 plus $45,000
interest, having obtained the $495,000 by using $131,000 cash and signing a new
one-year $400,000 note discounted at 9% by the bank.
Instructions
(1)Make the entry to record the partial refunding. Assume Latty Co. makes reversing
entries when appropriate.
(2)Prepare the adjusting entry at December 31, assuming straight-line amortization of
the discount.
20) Determine the proper unit inventory price in the following independent cases by
applying the lower of cost or market rule. Circle your choice.
1 2 3 4 5
Cost$8.00$10.50$12.00$6.00$7.20
Net realizable value8.8510.0012.204.256.90
Net realizable value less normal profit8.159.0011.403.756.00
Market replacement cost7.9010.1012.504.005.40
21) With regard to recognition of deferred tax assets, IFRS requires
22) Define temporary differences, future taxable amounts, and future deductible
amounts.
23) Hurst, Incorporated sold its 8% bonds with a maturity value of $6,000,000 on
August 1, 2013 for $5,892,000. At the time of the sale the bonds had 5 years until they
reached maturity. Interest on the bonds is payable semiannually on August 1 and
February 1 . The bonds are callable at 104 at any time after August 1, 2015 . By
October 1, 2015, the market rate of interest has declined and the market price of Hurst's
bonds has risen to a price of 101 . The firm decides to refund the bonds by selling a new
6% bond issue to mature in 5 years. Hurst begins to reacquire its 8% bonds in the
market and is able to purchase $1,000,000 worth at 101 . The remainder of the
outstanding bonds is reacquired by exercising the bonds' call feature. In the final
analysis, how much was the gain or loss experienced by Hurst in reacquiring its 8%
bonds? (Assume the firm used straight-line amortization.) Show calculations.
24) Briefly describe some of the similarities and differences between U.S. GAAP and
IFRS with respect to income tax accounting.
