When bonds are sold at a discount and the effective interest method is used, at each
interest payment date, the interest expense:
a. Increases.
b. Decreases.
c. Remains the same.
d. Is equal to the change in book value.
Which of the following causes a temporary difference between taxable and pretax
accounting income?
a. Investment expenses incurred to generate tax-exempt income.
b. MACRS used for depreciating equipment.
c. The dividends received deduction.
d. Life insurance proceeds received due to the death of an executive.
You are reviewing the December 31, 2016, financial statements of Ellie’s Antiques.
Ellie’s management is considering an initial public offering of their shares. The
following items come to your attention:
a. Included in long-term investments are 10-year U.S. Treasury bonds that mature
March 31, 2017. The bonds were purchased November 20, 2016.
b. The property, plant, and equipment account is stated at cost, except that it includes a
parcel of land purchased for investment purposes at a cost of $40,000. Because of rising
land prices, the value of the land has been written up to $60,000. The company has an
independent appraisal that attests to this amount.
c. The accounts receivable account includes $20,000 due in three years from officers
and employees and a two-year, 8% note for $25,000 due from a customer. The loan
enabled the customer to buy equipment needed to process materials purchased from
Ellie’s Antiques.
Required: Determine the proper balance sheet presentation and amounts for the above
items.
Rampart Inc. recorded the following transaction:
In the statement of cash flows, this would be reported as a:
a. $3 million outflow from investing activities.
b. $15 million outflow from investing activities.
c. $3 million outflow from investing activities and $12 million noncash investing and
financing activity.
d. None of these answer choices is correct.
Cutter Enterprises purchased equipment for $72,000 on January 1, 2016. The equipment
is expected to have a five-year life and a residual value of $6,000. Using the
straight-line method, depreciation for 2016 would be:
a. $13,200.
b. $14,400.
c. $72,000.
d. None of these answer choices are correct.
On July 10, 2016, Johnson Corporation signed a purchase commitment to purchase
inventory for $200,000 on or before February 15, 2017. The company’s fiscal year-end
is December 31. The contract was exercised on February 1, 2017, and the inventory was
purchased for cash at the contract price. On the purchase date of February 1, the market
price of the inventory was $210,000. The market price of the inventory on December
31, 2016, was $180,000. The company uses a perpetual inventory system.
How much loss on purchase commitment will Johnson recognize in 2016?
a. $10,000.
b. $20,000.
c. $30,000.
d. None.
When the retrospective approach is used for a change to the FIFO method, which of the
following accounts is usually not adjusted?
a. Deferred Income Taxes.
b. Inventory.
c. Retained Earnings.
d. All of these answer choices are usually are adjusted.
Which of the following is not a required segment reporting disclosure according to
International Financial Reporting Standards?
a. Segment profit or loss.
b. Segment assets.
c. Segment liabilities.
d. All are required disclosures.
Consider the following:
I. Present value of vested benefits at present pay levels.
II. Present value of nonvested benefits at present pay levels.
III. Present value of additional benefits related to projected pay increases.
Which of the above constitutes the vested benefit obligation?
a. I & II.
b. I, II, III.
c. II.
d. I only.
Refer to the following lease amortization schedule. The 10 payments are made annually
starting with the inception of the lease. Title does not transfer to the lessee and there is
no bargain purchase option or guaranteed residual value. The asset has an expected
economic life of 12 years. The lease is noncancelable.
What would be the outstanding balance after payment 10?
a. $0.
b. $ 2,028.
c. $ 8,929.
d. $10,000.
In comparing the direct method with the indirect method of preparing the statement of
cash flows:
a. Only operating activities are presented differently.
b. Only investing activities are presented differently.
c. Only financing activities are presented differently.
d. All activities are presented differently.
If a company incurs disposition obligations as a result of acquiring an asset:
a. The company recognizes the obligation at fair value when the asset is acquired.
b. The company recognizes the obligation at fair value when the asset is disposed.
c. The company records the difference between the fair value of the asset and the
obligation when the asset is acquired.
d. None of these answer choices are correct.
If the fair value of equity securities is not determinable and the equity method is not
appropriate, the securities should be reported at:
a. Amortized cost.
b. Cost.
c. Consolidated value.
d. Net present value.
FX Services granted 15 million of its $1 par common shares to executives, subject to
forfeiture if employment is terminated within three years. The common shares have a
market price of $8 per share on the grant date. Ignoring taxes, what is the effect on
earnings in the year after the shares are granted to executives?
a. $ 0.
b. $ 15 million.
c. $ 40 million.
d. $120 million.
On January 1, 2016, Kendall Inc. began construction of an automated cattle feeder
system. The system was finished and ready for use on September 30, 2017.
Expenditures on the project were as follows:
Kendall borrowed $750,000 on a construction loan at 12% interest on January 1, 2016.
This loan was outstanding throughout the construction period. The company had
$4,500,000 in 9% bonds payable outstanding in 2016 and 2017. Average accumulated
expenditures for 2016 was:
a. $300,000.
b. $350,000.
c. $500,000.
d. $400,000.
When we assume conversion of convertible bonds, the numerator is increased by:
a. The amount of after-tax interest.
b. The gross amount of interest.
c. The weighted-average interest.
d. The amount of cash paid during the current year for interest.
Missoula Inc. reported the following selected financial statement data:
Required: Compute the return on assets for 2016.
Boulter, Inc. began business on January 1, 2016. At the end of December 2016, Boulter
had the following investments in equity securities:
All declines in value are deemed to be temporary in nature. How should the
corresponding losses be reflected in the financial statements at December 31, 2016?
Assume that GM signs a contract to deliver 10 buses to the Tompkins Consolidated
Area Transit (TCAT), which provides transit service throughout Tompkins County, for
$4 million. Under the contract, TCAT makes a cash payment of $4 million to GM, and
the 10 buses are shipped immediately from GM’s existing inventory. At the same time,
GM obtains the right to advertise its products on all of TCAT buses for six months, and
makes a cash payment of $20,000 to GM for the advertising service. The fair value of
the advertising service is $18,000. Required: Prepare the journal entries GM should
record to account for the sale of the buses and the purchase of the advertisements.
Indicate the amount of revenue GM should recognize for its sale of buses to TCAT.
AstroTech Semiconductor incurred the following costs in 2016 related to a new product
design:
The development costs were incurred after technological and commercial feasibility
was established and after the future economic benefits were deemed probable. The
project was successfully completed, and the new product was patented before the end of
the 2016 fiscal year. Required:
1> Calculate the amount of research and development expense AstroTech should report
in its 2016 U.S. GAAP income statement related to this project.
2> Repeat Requirement 1 assuming that AstroTech prepares its financial statements
according to International Financial Reporting Standards (IFRS).
The following partial income statement and balance sheet information (in $ millions)
comes from the Annual Report of Saratoga Springs Co. for the year ending 12/31/2016:
Required: Compute the following amounts for Saratoga Springs Co.
Its profit margin on sales for 2016. Round your answer to one decimal place, e.g., .1234
as 12.3%.
Assuming the decrease in accrued expenses during fiscal year 2015 included a $20,000
reduction due to taxes, compute the income tax expense for Kinney in that year.
In its 2015 Annual Report to Shareholders, Kinney Inc. reported the following
Consolidated Statement of Cash Flows:
For the years ended December 31,
Define the following:
1> Liabilities that are definite in amount.
2> Liabilities that must be estimated.
3> Liabilities that are contingent.