1) in computing diluted earnings per share, stock options are considered dilutive when
their option price is greater than the market price.
2) u.s. companies that list overseas are required to use international financial reporting
standards, issued by the international accounting standards board.
3) financial statement readers often assess liquidity by using the current cash debt
coverage ratio.
4) companies frequently report income tax expense as the last item before net income
on a single-step income statement.
5) inadequacy is the replacement of one asset with another more efficient and
economical asset.
6) when using a perpetual inventory system, freight charges on goods purchased are
debited to freight-in.
7) a disadvantage of lifo is that it does not match more recent costs against current
revenues as well as fifo.
8) the expense recognition principle states that debits must equal credits in each
transaction.
9) a company discloses gain contingencies in the notes only when a high probability
exists for realizing them.
10) costs in the research phase are always expensed under both ifrs and u.s. gaap.
11) preparation of consolidated financial statements when a parent-subsidiary
relationship exists is an example of the
a.economic entity assumption
b.relevance characteristic
c.comparability characteristic
d.neutrality characteristic
12) langley company’s december 31 year-end financial statements contained the
following errors:
an insurance premium of $36,000 was prepaid in 2012 covering the years 2012, 2013,
and 2014. the prepayment was recorded with a debit to insurance expense. in addition,
on december 31, 2013, fully depreciated machinery was sold for $19,000 cash, but the
sale was not recorded until 2014. there were no other errors during 2013 or 2014 and no
corrections have been made for any of the errors. ignore income tax considerations.
what is the total net effect of the errors on langley’s 2013 net income?
a.net income understated by $29,000
b.net income overstated by $15,000
c.net income overstated by $26,000
d.net income overstated by $30,000
13) hudson, inc. is a calendar-year corporation. its financial statements for the years
2013 and 2012 contained errors as follows:
assume that no correcting entries were made at december 31, 2012. ignoring income
taxes, by how much will retained earnings at december 31, 2013 be overstated or
understated?
a.$1,500 understated
b.$7,500 overstated
c.$7,500 understated
d.$13,500 understated
14) for grimmett company, the following information is available:
in grimmetts balance sheet, intangible assets should be reported at
a.$195,000
b.$225,000
c.$795,000
d.$825,000
15) presented below are data for antwerp corp.
stockholders’ equity at january 1, 2012 is
a.$ 504
b.$ 560
c.$ 920
d.$1,424
16) which of the following is not considered a permanent difference?
a.interest received on municipal bonds
b.fines resulting from violating the law
c.premiums paid for life insurance on a companys ceo when the company is the
beneficiary
d.stock-based compensation expense
17) putnam, inc.
comparative balance sheets
additional information:
a.accounts receivable and accounts payable relate to merchandise held for sale in the
normal course of business. the allowance for bad debts was the same at the end of 2013
and 2012, and no receivables were charged against the allowance. accounts payable are
recorded net of any discount and are always paid within the discount period.
b.the proceeds from the note payable were used to finance the acquisition of property,
plant, and equipment. capital stock was sold to provide additional working capital.
the amount to be shown on the cash flow statement as net cash provided by financing
activities would total what amount?
a.$1,425,000
b.$825,000
c.$600,000
d.$408,000
18) companies that are listed on a stock exchange are required to submit their financial
statements to the
a.aicpa
b.apb
c.fasb
d.sec
19) which one of the following types of losses is excluded from the determination of net
income in income statements?
a.material losses resulting from transactions in the company’s investments account
b.material losses resulting from unusual sales of assets not acquired for resale
c.material losses resulting from the write-off of intangibles
d.material losses resulting from correction of errors related to prior periods
20) which of the following is a required disclosure in the income statement when
reporting the disposal of a component of the business?
a.the gain or loss on disposal should be reported as an extraordinary item
b.results of operations of a discontinued component should be disclosed immediately
below extraordinary items
c. earnings per share from both continuing operations and net income should be
disclosed on the face of the income statement
d. the gain or loss on disposal should not be segregated, but should be reported together
with the results of continuing operations
21) which of the following is an advantage of the single-step income statement over the
multiple-step income statement?
a.it reports gross profit for the year
b.expenses are classified by function
c.it matches costs and expenses with related revenues
d.it does not imply that one type of revenue or expense has priority over another
22) to produce an inventory valuation which approximates the lower of cost or market
using the conventional retail inventory method, the computation of the ratio of cost to
retail should
a.include markups but not markdowns
b.include markups and markdowns
c.ignore both markups and markdowns
d.include markdowns but not markups
23) changing the method of inventory valuation should be reported in the financial
statements under what qualitative characteristic of accounting information?
a.consistency
b.verifiability
c.timeliness
d.comparability
24) risers inc. reported total assets of $1,800,000 and net income of $200,000 for the
current year. risers determined that inventory was overstated by $15,000 at the
beginning of the year (this was not corrected). what is the corrected amount for total
assets and net income for the year?
a.$1,800,000 and $200,000
b.$1,800,000 and $215,000
c.$1,785,000 and $185,000
d.$1,815,000 and $215,000
25) on august 31, a hurricane destroyed a retail location of vinny’s clothier including the
entire inventory on hand at the location. the inventory on hand as of june 30 totaled
$640,000. since june 30 until the time of the hurricane, the company made purchases of
$170,000 and had sales of $500,000. assuming the rate of gross profit to selling price is
40%, what is the approximate value of the inventory that was destroyed?
a.$640,000
b.$363,000
c.$410,000
d.$510,000
26) under ifrs, the measurement of a provision related to a contingency is based on
a.the best estimate of the expenditure required to settle the obligation
b.the minimum amount from among a number of alternative estimates
c.an average from among a number of alternative estimates
d.whatever management feels that shareholders would be willing to accept because of
the impact on current earnings
27) which of the following is not a generally practiced method of presenting the income
statement?
a.including prior period adjustments in determining net income
b.the single-step income statement
c.the consolidated statement of income
d.including gains and losses from discontinued operations of a component of a business
in determining net income
28) if a company purchases merchandise on terms of 1/10, n/30, the cash discount
available is equivalent to what effective annual rate of interest (assuming a 360-day
year)?
a.1%
b.12%
c.18%
d.30%
29) the net changes in the balance sheet accounts of keating corporation for the year
2013 are shown below.
1>on january 2, 2013 short-term investments (classified as available-for-sale) costing
$121,000 were sold for $145,000.
2>the company paid a cash dividend on february 1, 2013.
3>accounts receivable of $16,200 and $19,400 were considered uncollectible and
written off in 2013 and 2012, respectively.
4>major repairs of $33,000 to the equipment were debited to the accumulated
depreciation account during the year. no assets were retired during 2013.
5>the wholly owned subsidiary reported a net loss for the year of $20,000. the loss was
recorded by the parent.
6>at january 1, 2013, the cash balance was $166,000.
instructions
prepare a statement of cash flows (indirect method) for the year ended december 31,
2013. keating corporation has no securities which are classified as cash equivalents.
30) jan green established a savings account for her son’s college education by making
annual deposits of $8,000 at the beginning of each of six years to a savings account
paying 8%. at the end of the sixth year, the account balance was transferred to a bank
paying 10%, and annual deposits of $8,000 were made at the end of each year from the
seventh through the tenth years. what was the account balance at the end of the tenth
year?
31) briefly describe the convergence efforts related to financial statement presentation.
32) milner co. sold a machine that cost $74,000 and had a book value of $44,000 for
$48,000. data from milner’s comparative balance sheets are:
instructions
what four items should be shown on a statement of cash flows (indirect method) from
this information? show your calculations.
33) the fasb’s conceptual framework classifies gains and losses based on whether they
are related to an entity’s major ongoing or central operations. these gains or losses may
be classified as
34) under u.s. gaap, which of the following models may be used to determine if an
investment is consolidated?
35) data relating to the balances of various accounts affected by adjusting or closing
entries appear below. (the entries which caused the changes in the balances are not
given.) you are asked to supply the missing journal entries which would logically
account for the changes in the account balances.
1>.interest receivable at 1/1/12 was $1,000. during 2012 cash received from debtors for
interest on outstanding notes receivable amounted to $5,000. the 2012 income statement
showed interest revenue in the amount of $7,400. you are to provide the missing
adjusting entry that must have been made, assuming reversing entries are not made.
2>.unearned rent at 1/1/12 was $5,300 and at 12/31/12 was $8,000. the records indicate
cash receipts from rental sources during 2012 amounted to $55,000, all of which was
credited to the unearned rent revenue account. you are to prepare the missing adjusting
entry.
3>.accumulated depreciationequipment at 1/1/12 was $230,000. at 12/31/12 the balance
of the account was $290,000. during 2012, one piece of equipment was sold. the
equipment had an original cost of $40,000 and was 3/4 depreciated when sold. you are
to prepare the missing adjusting entry.
4>.allowance for doubtful accounts on 1/1/12 was $50,000. the balance in the
allowance account on 12/31/12 after making the annual adjusting entry was $65,000
and during 2012 bad debts written off amounted to $30,000. you are to provide the
missing adjusting entry.
5>.prepaid rent at 1/1/12 was $9,000. during 2012 rent payments of $120,000 were
made and charged to “rent expense.” the 2012 income statement shows as a general
expense the item “rent expense” in the amount of $135,000. you are to prepare the
missing adjusting entry that must have been made, assuming reversing entries are not
made.
6>.retained earnings at 1/1/12 was $130,000 and at 12/31/12 it was $210,000. during
2012, cash dividends of $50,000 were paid and a stock dividend of $40,000 was issued.
both dividends were properly charged to retained earnings. you are to provide the
missing closing entry.
36) if $6,000 is deposited annually starting on january 1, 2012 and it earns 9%, how
much will accumulate by december 31, 2021?