1) Which of the following criteria must be met before an event or item should be
recorded for accounting purposes?
a.The event or item can be measured objectively in financial terms
b.The event or item is relevant and reliable
c.The event or item is an element
d.All of these must be met
2) On January 1, 2014, Ellison Co. issued eight-year bonds with a face value of
$4,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and
December 31 . The bonds were sold to yield 8%. Table values are:
Present value of 1 for 8 periods at 6%.627
Present value of 1 for 8 periods at 8%.540
Present value of 1 for 16 periods at 3%.623
Present value of 1 for 16 periods at 4%.534
Present value of annuity for 8 periods at 6%6.210
Present value of annuity for 8 periods at 8%5.747
Present value of annuity for 16 periods at 3%12.561
Present value of annuity for 16 periods at 4%11.652
The present value of the interest is
a.$1,379,280
b.$1,398,240
c.$1,490,400
d.$1,507,320
3) A company uses the equity method to account for an investment for financial
reporting purposes. This would result in what type of difference and in what type of
deferred income tax?
Type of DifferenceDeferred Tax
a.PermanentAsset
b.PermanentLiability
c.TemporaryAsset
d.TemporaryLiability
4) The debit and credit analysis of a transaction normally takes place
a.before an entry is recorded in a journal
b.when the entry is posted to the ledger
c.when the trial balance is prepared
d.at the end of the accounting cycle
5) Charging off the cost of a wastebasket with an estimated useful life of 10 years as an
expense of the period when purchased is an example of the application of the
a.consistency characteristic
b.expense recognition principle
c.materiality quality
d.historical cost principle
6) Which of the following are considered equity securities?
I.Convertible debt.
II.Redeemable preferred stock.
III.Call or put options.
a.I and II only
b.I and III only
c.II only
d.III only
7) On January 1, 2014, Crown Company sold property to Leary Company. There was
no established exchange price for the property, and Leary gave Crown a $4,000,000
zero-interest-bearing note payable in 5 equal annual installments of $800,000, with the
first payment due December 31, 2014 . The prevailing rate of interest for a note of this
type is 9%. The present value of the note at 9% was $2,884,000 at January 1, 2014 .
What should be the balance of the Discount on Notes Payable account on the books of
Leary at December 31, 2014 after adjusting entries are made, assuming that the
effective-interest method is used?
a.$0
b.$856,440
c.$892,800
d.$1,116,000
8) Opera Corp. uses dollar-value LIFO method of computing its inventory cost. Data
for the past three years is as follows:
Year endedInventory atPrice
December 31End-of-year PricesIndex
2013$ 390,0001.00
2014756,0001.05
2015810,0001.10
What is the 2015 inventory balance using dollar-value LIFO?
a.$810,000
b.$771,000
c.$736,500
d.$754,500
9) RF Company had January 1 inventory of $200,000 when it adopted dollar-value
LIFO. During the year, purchases were $1,200,000 and sales were $2,000,000.
December 31 inventory at year-end prices was $286,720, and the price index was 112 .
What is RF Companys ending inventory?
a.$200,000
b.$256,000
c.$262,720
d.$286,720
10) The following data are provided:
December 31
2015 2014
Cash$ 750,000$ 500,000
Accounts receivable (net)800,000600,000
Inventories1,300,0001,100,000
Plant assets (net)3,500,0003,250,000
Accounts payable550,000400,000
Income taxes payable100,00050,000
Bonds payable700,000700,000
10% Preferred stock, $50 par1,000,0001,000,000
Common stock, $10 par1,200,000900,000
Paid-in capital in excess of par800,000650,000
Retained earnings2,000,0001,750,000
Net credit sales6,400,000
Cost of goods sold4,200,000
Operating expenses1,450,000
Net income750,000
Additional information:
Depreciation included in cost of goods sold and operating expenses is $610,000. On
May 1, 2015, 30,000 shares of common stock were issued. The preferred stock is
cumulative. The preferred dividends were not declared during 2015 .
The profit margin on sales for 2015 is
a.2,200 / 6,400
b.750 / 6,400
c.2,200 / 4,200
d.750 / 4,200
11) Hoyle Company traded machinery with a book value of $475,000 and a fair value
of $450,000. It received in exchange from Durler Company a machine with a fair value
of $500,000. Hoyle also paid cash of $50,000 in the exchange. Durlers machine has a
book value of $475,000. What amount of gain or loss should Hoyle recognize on the
exchange (assuming lack of commercial substance)?
a.$50,000 gain
b.$ -0-
c.$2,500 loss
d.$25,000 loss
12) Tax rates other than the current tax rate may be used to calculate the deferred
income tax amount on the balance sheet if
a.it is probable that a future tax rate change will occur
b.it appears likely that a future tax rate will be greater than the current tax rate
c.the future tax rates have been enacted into law
d.it appears likely that a future tax rate will be less than the current tax rate
13) In presenting segment information, which of the following items must be reconciled
to the entity’s consolidated financial statements?
OperatingIdentifiable
RevenuesProfit (Loss)Assets
a.YesYesYes
b.NoYesYes
c.YesNoYes
d.YesYesNo
14) Jamison Company purchased the assets of Booker Company at an auction for
$4,200,000. An independent appraisal of the fair value of the assets is listed below:
Land$1,425,000
Building2,100,000
Equipment1,575,000
Trucks2,550,000
Assuming that specific identification costs are impracticable and that Jamison allocates
the purchase price on the basis of the relative fair values, what amount would be
allocated to the Trucks?
a.$1,400,000
b.$2,100,000
c.$2,520,000
d.$2,550,000