1) nondetachable warrants, as with detachable warrants, require an allocation of the
proceeds between the bonds and the warrants.
2) when a company changes an accounting principle, it should report the change by
reporting the cumulative effect of the change in the current years income statement.
3) under the expense warranty approach, companies charge warranty costs only to the
period in which they comply with the warranty.
4) ifrs requires that companies with equity method investments conform the accounting
policies of their investees to their accounting policies prior to applying the equity
method of accounting.
5) collection of a loan is reported as an investing activity in the statement of cash flows.
6) the installment-sales method defers only the gross profit instead of both the sales
price and cost of goods sold.
7) discount on notes payable is a contra account to notes payable on the balance sheet.
8) when the statement of recognized income and expenses is utilized the requirement
for additional note disclosure is reduced.
9) what is not a variable that is considered in interest computations?
a.principal
b.interest rate
c.assets
d.time
10) an adjusting entry to record an accrued expense involves a debit to a(an):
a.expense account and a credit to a prepaid account
b.expense account and a credit to cash
c.expense account and a credit to a liability account
d.liability account and a credit to an expense account
11) an income statement shows income before income taxes and extraordinary items in
the amount of $2,740,000. the income taxes payable for the year are $1,440,000,
including $480,000 that is applicable to an extraordinary gain. thus, the income before
extraordinary items is
a.$1,780,000
b.$820,000
c.$1,860,000
d.$900,000
12) the credit balance that arises when a net loss on a purchase commitment is
recognized should be
a.presented as a current liability
b.subtracted from ending inventory
c.presented as an appropriation of retained earnings
d.presented in the income statement
13) on june 30, 2012, yang corporation granted compensatory stock options for 30,000
shares of its $24 par value common stock to certain of its key employees. the market
price of the common stock on that date was $31 per share and the option price was $28.
using a fair value option pricing model, total compensation expense is determined to be
$96,000. the options are exercisable beginning january 1, 2014, providing those key
employees are still in the employ of the company at the time the options are exercised.
the options expire on june 30, 2015.
on january 4, 2014, when the market price of the stock was $36 per share, all options
for the 30,000 shares were exercised. the service period is for two years beginning
january 1, 2012. using the fair value method, what should be the amount of
compensation expense recorded by yang corporation for these options on december 31,
2012?
a.$96,000
b.$48,000
c.$22,500
d.$0
14) a company has a factory building that originally cost the company $250,000. the
current fair value of the factory building is $3 million. the president would like to report
the difference as a gain. the write-up would represent a violation of which accounting
assumption or principle?
a.revenue recognition
b.going concern
c.historical cost
d.monetary unit
15) irving music shop gives its customers coupons redeemable for a poster plus a dixie
chicks cd. one coupon is issued for each dollar of sales. on the surrender of 100
coupons and $5.00 cash, the poster and cd are given to the customer. it is estimated that
80% of the coupons will be presented for redemption. sales for the first period were
$700,000, and the coupons redeemed totaled 420,000. sales for the second period were
$840,000, and the coupons redeemed totaled 750,000. irving music shop bought 20,000
posters at $2.00/poster and 20,000 cds at $6.00/cd.
instructions
prepare the following entries for the two periods, assuming all the coupons expected to
be redeemed from the first period were redeemed by the end of the second period.
entryperiod 1period 2
(a) to record coupons redeemed
(b) to record estimated liability
16) on january 1, 2010, piper co., purchased a machine (its only depreciable asset) for
$450,000. the machine has a five-year life, and no salvage value.
sum-of-the-years’-digits depreciation has been used for financial statement reporting
and the elective straight-line method for income tax reporting. effective january 1,
2013, for financial statement reporting, piper decided to change to the straight-line
method for depreciation of the machine. assume that piper can justify the change.
piper’s income before depreciation, before income taxes, and before the cumulative
effect of the accounting change (if any), for the year ended december 31, 2013, is
$375,000. the income tax rate for 2013, as well as for the years 2010-2012, is 30%.
what amount should piper report as net income for the year ended december 31, 2013?
a.$90,000
b.$136,500
c.$231,000
d.$262,500
17) ifrs rules for establishing restructuring liabilities could be used as an earnings
management tool because ifrs rules are
a.more-stringent that u.s. gaap
b.less-stringent that u.s. gaap
c.virtually the same as u.s. gaap
d.totally different than u.s. gaap
18) which of the following disclosures is not required in the financial statements
regarding depreciation?
a.accumulated depreciation, either by major classes of depreciable assets or in total.
b.details demonstrating how depreciation was calculated.
c.depreciation expense for the period.
d.balances of major classes of depreciable assets, by nature and function.
19) wilcox corporation reported the following results for its first three years of
operation:
there were no permanent or temporary differences during these three years. assume a
corporate tax rate of 30% for 2012 and 2013, and 40% for 2014.
assuming that wilcox elects to use the carryback provision, what income (loss) is
reported in 2013? (assume that any deferred tax asset recognized is more likely than not
to be realized.)
a.$(1,350,000)
b.$ -0-
c.$(1,305,000)
d.$ (825,000)
20) perry corp. reports operating expenses in two categories: (1) selling and (2) general
and administrative. the adjusted trial balance at december 31, 2012, included the
following expense accounts:
accounting and legal fees$280,000
advertising240,000
freight-out150,000
interest120,000
loss on sale of long-term investments60,000
officers’ salaries360,000
rent for office space360,000
sales salaries and commissions220,000
one-half of the rented premises is occupied by the sales department.
how much of the expenses listed above should be included in perry’s general and
administrative expenses for 2012?
a.$820,000
b.$880,000
c.$940,000
d.$1,000,000
21) on january 1, 2012, gore co. sold to cey corp. $600,000 of its 10% bonds for
$531,177 to yield 12%. interest is payable semiannually on january 1 and july 1. what
amount should gore report as interest expense for the six months ended june 30, 2012?
a.$26,559
b.$30,000
c.$31,871
d.$36,000
22) when converting from cash basis to accrual basis accounting, which of the
following adjustments should be made to cash paid for operating expenses to determine
accrual basis operating expenses?
a.add beginning accrued liabilities
b.add beginning prepaid expense
c.subtract ending prepaid expense
d.subtract interest expense
23) what is not a reason that accounting standards may differ across countries?
a.governments
b.language
c.culture
d.past practice
24) the term used for bonds that are unsecured as to principal is
a.junk bonds
b.debenture bonds
c.indebenture bonds
d.callable bonds
25) gains or losses on cash flow hedges are
a.ignored completely
b.recorded in equity, as part of other comprehensive income
c.reported directly in net income
d.reported directly in retained earnings
26) indicate the major section or subsection of a multiple-step income statement in which
each of the following items would usually appear:
a.advertising
b.depletion
c.dividend revenue
d.freight-in
e.loss on disposal of a component of the business, net of tax
f.income taxes on income
g.major casualty loss, net of tax
h.purchase discounts
i.sales discounts
j.officers’ salaries
k.freight-out
l.interest income
27) when computing diluted earnings per share, convertible bonds are
a.ignored
b.assumed converted whether they are dilutive or antidilutive
c.assumed converted only if they are antidilutive
d.assumed converted only if they are dilutive
28) a company records an unrealized loss on short-term securities. this would result in
what type of difference and in what type of deferred income tax?
29) for numerous reasons, a corporation may reacquire shares of its own capital stock.
when a company purchases treasury stock, it usually accounts for the stock using the
cost method.
instructions
explain how a company would account for each of the following:
1>purchase of shares at a price less than par value.
2>subsequent resale of treasury shares at a price less than purchase price, but more than
par value.
3>subsequent resale of treasury shares at a price greater than both purchase price and
par value.
4>effect on net income.
30) on january 1, 2012, beyer co. leased a building to heins corp. for a ten-year term at
an annual rental of $140,000. at inception of the lease, beyer received $560,000
covering the first two years’ rent of $280,000 and a security deposit of $280,000. this
deposit will not be returned to heins upon expiration of the lease but will be applied to
payment of rent for the last two years of the lease. what portion of the $560,000 should
be shown as a current and long-term liability, respectively, in beyer’s december 31,
2012 balance sheet?
31) yates company’s records provide the following information concerning certain
account balances and changes in these account balances during the current year.
transaction information is missing from each item below.
instructions
prepare the entry to record the missing information for each account. (consider each
inde-pendently.)
1>.accounts receivable: jan. 1, balance $41,000, dec. 31, balance $65,000, uncollectible
accounts written off during the year, $6,000; accounts receivable collected during the
year, $139,000. prepare the entry to record sales revenue.
2>.allowance for doubtful accounts: jan. 1, balance $4,000, dec. 31, balance $7,500,
uncollectible accounts written off during the year, $20,000. prepare the entry to record
bad debt expense.
3>.accounts payable: jan. 1, balance $25,000, dec. 31, balance $44,000, purchases on
account for the year, $120,000. prepare the entry to record payments on account.
4>.interest receivable: jan. 1 accrued, $3,000, dec. 31 accrued, $2,100, earned for the
year, $35,000. prepare the entry to record cash interest received.
32) explain the main obstacle to achieving convergence in the area of inventory
accounting.
33) determine the market price of a $300,000, ten-year, 10% (pays interest
semiannually) bond issue sold to yield an effective rate of 12%.
34) johnstone company has a loan receivable with a carrying value of $125,000 at
december 31, 2011. on january 1, 2012, the borrower, ralph young industries, declares
bankruptcy, and johnstone estimates that it will collect only 45% of the loan balance.
which of the following entries would johnstone make to record the impairment under
igaap?