For 2016, Rahal’s Auto Parts estimates bad debt expense at 1% of credit sales. The
company reported accounts receivable and an allowance for uncollectible accounts of
$86,500 and $2,100, respectively, at December 31, 2015. During 2016, Rahal’s credit
sales and collections were $404,000 and $408,000, respectively, and $2,340 in accounts
receivable were written off.
Rahal’s accounts receivable at December 31, 2016, are:
a. $90,500.
b. $88,160.
c. $82,500.
d. $80,160.
When you use an aging schedule approach for estimating uncollectible accounts:
a. Bad debts expense is measured indirectly, and the allowance for uncollectible
accounts balance is measured directly.
b. Bad debts expense is measured indirectly, and the allowance for uncollectible
accounts balance is measured indirectly.
c. Bad debts expense is measured directly, and the allowance for uncollectible accounts
balance is measured directly.
d. Bad debts expense is measured directly, and the allowance for uncollectible accounts
balance is measured indirectly.
A company failed to record unrealized gains of $20 million on its available for sale
security investments. Its tax rate is 30%. As a result of this error, comprehensive income
would be:
a. Understated by $14 million.
b. Understated by $6 million.
c. Understated by $20 million
d. Unaffected.
Which of the following statements regarding guaranteed residual values is true for the
lessee?
a. The asset and liability at the inception of the lease should be increased by the amount
of the residual value.
b. The asset and liability at the inception of the lease should be decreased by the amount
of the residual value.
c. The asset and liability at the inception of the lease should be increased by the present
value of the residual value.
d. The asset and liability at the inception of the lease should be decreased by the present
value of the residual value.
The following incomplete (columns have missing amounts) pension spreadsheet is for
the current year for First Republic Corporation (FRC).
What was the net pension asset / liability reported in the balance sheet at the end of the
year?
a. Net pension asset of $50.
b. Net pension asset of $24.
c. Net pension liability of $50.
d. Net pension liability of $24.
Excerpts from Dowling Company’s December 31, 2016 and 2015, financial statements
and key ratios are presented below (all numbers are in millions):
Dowling’s average inventory balance for 2016 is (rounded):
a. 11
b. 12
c. 11.5
d. 12.5
The following information is provided in the 2016 annual report to shareholders of
paris-perfume.com:
Required: Compute the missing amount in the paris-perfume.com financial statement
information, and indicate your answers by marking them (A) to (G).
HH Company uses LIFO. HH disclosed that if FIFO had been used, inventory at the
end of 2016 would have been $20 million lower than the difference between LIFO and
FIFO at the end of 2015. Assuming HH has a 30% income tax rate:
a. Its reported cost of goods for 2016 would have been $14 million less if it had used
FIFO rather than LIFO for its financial statements.
b. Its reported cost of goods for 2016 would have been $20 million less if it had used
FIFO rather than LIFO for its financial statements.
c. Its reported cost of goods sold for 2016 would have been $14 million higher if it had
used FIFO rather than LIFO for its financial statements.
d. Its reported cost of goods sold for 2016 would have been $20 million higher if it had
used FIFO rather than LIFO for its financial statements.
An OTT impairment for an equity investment is recognized in net income if fair value
declines below the investment’s cost and:
a. The company has incurred noncredit losses.
b. The company does not have the intent and ability to hold the investment until fair
value recovers.
c. The company lacks intent to hold the investment until fair value recovers.
d. The company has incurred credit losses.
Present and future value tables of $1 at 3% are presented below:
On January 1, 2016, you are considering making an investment that will pay three
annual payments of $10,000. The first payment is not expected until December 31,
2018. You are eager to earn 3%. What is the present value of the investment on January
1, 2016?
a. $26,662.
b. $27,462.
c. $28,286.
d. $29,135.
Mahogany Billiards sells upscale pool tables and related supplies. It sells a premium
package consisting of a pool table imported from Europe, a full set of cues and balls,
and on-site installation by its staff. Mahogany determines that each of these components
is a performance obligation. Mahogany sells the pool table separately for $3,000 and
the set of cues and balls for $1,000. The entire package is sold at $4,500. Mahogany
does not offer on-site installation separately, as part of company policy. It also estimates
that it incurs about $350 of compensation and other costs per each installation. Other
competing vendors sell on-site installation separately for $450, on average. Mahogany
typically earns a profit margin of 40% over cost, and its prices are generally 5% lower
than those charged by competitors. Required: Estimate the stand-alone selling price of
the installation service using (a) the adjusted market assessment approach, (b) the
expected cost plus margin approach, and (3) the residual approach.
In a nonmonetary exchange of equipment, if the exchange has commercial substance, a
gain is recognized if:
a. The fair value of the equipment received exceeds the book value of the equipment
received.
b. The book value of the equipment received exceeds the fair value of the equipment
given up.
c. The fair value of the equipment surrendered exceeds the book value of the equipment
given up.
d. None of these answer choices are correct.
The current ratio is calculated as:
a. Current assets divided by noncurrent assets.
b. Current assets divided by total assets.
c. Current assets divided by current liabilities.
d. Current assets divided by total liabilities.
Boxer Company owned 20,000 shares of King Company that were purchased in 2014
for $500,000. On May 1, 2016, Boxer declared a property dividend of 1 share of King
for every 10 shares of Boxer stock. On that date, there were 50,000 shares of Boxer
stock outstanding. The market value of the King stock was $30 per share on the date of
declaration and $32 per share on the date of distribution. By how much is retained
earnings reduced by the property dividend?
a. $0.
b. $150,000.
c. $160,000.
d. $300,000.
A statement of comprehensive income does not include:
a. Gains resulting from the return on assets exceeding expectations.
b. Gains and losses on unsold held-to-maturity securities.
c. Losses resulting from the return on pension assets falling short of expectations.
d. Prior service cost.
The allowance for uncollectible accounts is a:
a. Deferred charge to expense.
b. Contra asset account.
c. Deferred revenue account.
d. Quasi-liability account.
Beresford Inc. purchased several investment securities during 2015, its first year of
operations. The following information pertains to these securities. The fluctuations in
their fair values are not considered permanent.
What would be the balance in Beresford’s accumulated other comprehensive income
with respect to these investments in its 12/31/2016 balance sheet (ignore taxes)?
a. $55,100.
b. $26,500.
c. $10,400.
d. None of these answer choices is correct.
The following information is taken from the accounting records of Madeline Inc. for the
year 2016. Missing information has been left blank. Inventory is the only supply that
Madeline purchases on credit. Required: Compute the missing amounts.
Calloway Shoes purchased a delivery truck on September 30, 2016, for $32,000. The
estimated useful life of the truck is 10 years with no residual value. After five years, the
refrigeration unit will need to be replaced. The $8,000 cost of the unit is included in the
cost of the truck. Calloway uses the straight-line depreciation method. Depreciation for
2016 under U.S. GAAP and International Financial Reporting Standards (IFRS),
respectively, is:
Assuming a constant tax rate of 40%, what was the pre-tax accumulated unrealized gain
or loss on available-for-sale securities at 7/1/2015?
What method (direct or indirect) does Henchman & Co. use to present its Statement of
Cash Flows? Explain how you can determine which method is used.
In its 2015 Annual Report to Shareholders, Henchman & Co. provided the following
Statement of Cash Flows:
Using the chart of accounts provided, indicate by account number the account or
accounts that would be debited and credited in the following transactions and indicate
the type of transaction as: (1) an external transaction, (2) an internal transaction
recorded as an adjusting journal entry, or (3) a closing entry. The company uses a
perpetual inventory system. All prepayments are initially recorded in permanent
accounts.
Paid rent for the next three months.
Listed below are 5 terms followed by a list of phrases that describe or characterize each
of the terms. Match each phrase with the number for the correct term.
Yellow Corp. issues 10% bonds. Not including any indirect effects on earnings, the
issuance will immediately decrease Yellow’s: