1) Under IFRS, employee share-purchase plans must be recorded as an expense in the
year it was issued by a company.
2) For counterbalancing errors, restatement of comparative financial statements is
necessary even if a correcting entry is not required.
3) IFRS includes both International Financial Reporting Standards and International
Accounting Standards.
4) Lessors classify and account for all leases that dont qualify as sales-type leases as
operating leases.
5) A company incorporated in Japan uses the dollar as its unit of measurement.
6) Magazine subscriptions and airline ticket sales both result in unearned revenues.
7) Retrospective application refers to the application of a different accounting principle
to recast previously issued financial statementsas if the new principle had always been
used.
8) Year-end net assets would be overstated and current expenses would be understated
as a result of failure to record which of the following adjusting entries?
a.Expiration of prepaid insurance
b.Depreciation of fixed assets
c.Use of supplies
d.All of these answer choices are correct
9) Wise Company adopted the dollar-value LIFO method on January 1, 2014, at which
time its inventory consisted of 6,000 units of Item A @ $5.00 each and 3,000 units of
Item B @ $16.00 each. The inventory at December 31, 2014 consisted of 12,000 units
of Item A and 7,000 units of Item B. The most recent actual purchases related to these
items were as follows:
Quantity
ItemsPurchase DatePurchasedCost Per Unit
A12/7/142,000$ 6.00
A12/11/1410,0005.75
B12/15/147,00017.00
Using the double-extension method, what is the price index for 2014 that should be
computed by Wise Company?
a.108.33%
b.109.59%
c.111.05%
d.220.51%
10) Which of the following is false regarding accounting for deferred taxes under
IFRS?
a.A deferred tax liability is classified as current or noncurrent based on the
classification of the asset or liability to which it relates
b.A deferred tax asset is recognized up to the amount that is probable to be realized
c.Tax effects of certain items are recognized in equity
d.The rate used to compute deferred taxes is either the enacted tax rate, or a
substantially enacted tax rate (virtually certain)
11) The accumulated benefit obligation measures
a.the pension obligation on the basis of the plan formula applied to years of service to
date and based on existing salary levels
b.the pension obligation on the basis of the plan formula applied to years of service to
date and based on future salary levels
c.the level cost that will be sufficient, together with interest to provide the total benefits
at retirement
d.the shortest possible period for funding to maximize the tax deduction
12) On December 31, 2014, Patel Company purchased equity securities as trading
securities. Pertinent data are as follows:
Fair Value
Security CostAt 12/31/15
A$132,000$117,000
B168,000186,000
C288,000263,000
On December 31, 2015, Patel transferred its investment in security C from trading to
available-for-sale because Patel intends to retain security C as a long-term investment.
What total amount of gain or loss on its securities should be included in Patel’s income
statement for the year ended December 31, 2015?
a.$3,000 gain
b.$17,000 loss
c.$20,000 loss
d.$35,000 loss
13) Abel Company’s business year ends on December 31 . Listed below are purchase
transactions which occurred during the last few days of 2014 or during the first few
days of 2015 . The inventory, determined by physical count, was taken after the close of
business on December 31, 2014 . The only adjusting entry recorded to date has been to
enter the December 31 physical inventory on the books and to remove the beginning
inventory.
Instructions
(a)On the accompanying chart, indicate the effect of each of these transactions on the
ending inventory and on reported net income for 2014, by writing the words overstated,
understated, or no effect in the appropriate column. Both columns must be answered for
each transaction.
(b)Prepare all necessary correcting entries for 2014 .
(c)Indicate which of the correcting entries must be reversed in 2013 by preparing the
necessary reversing entries.
12/31/14
Physical 2014
Inventory Income
1>An invoice for $7,000, terms f.o.b. shipping point, was received
and entered December 30 . The invoice shows that the
merchandise was shipped December 29, and the receiving
report indicates the merchandise was received January 2 .
2>An invoice for $300, terms f.o.b. shipping point, was received
and entered December 30 . The invoice shows that
merchandise was shipped December 29, and the receiving
report shows the merchandise was received December 31 .
3>An invoice for $4,000, terms f.o.b. shipping point, was
received and entered January 2 . The invoice shows the
merchandise was shipped December 30, and the receiving
report indicates the merchandise was received December 31 .
4>An invoice for $800, terms f.o.b. destination, was received and
entered December 30 . The receiving report shows the
merchandise was received January 2 .
5>An invoice for $500, terms f.o.b. destination, was received and
entered December 29 . The receiving report indicates that the
merchandise was received December 31 .
6>An invoice for $1,500, terms f.o.b. destination, was received
and entered January 2 . The receiving report indicates the
merchandise was received December 31 .
7>Merchandise costing $15,000 and with a selling price of
$18,000 was on consignment to Maris Distributing Company
and was on that company’s premises on December 31 . No
entry has been made for the consignment.
14) Al Darby wants to withdraw $20,000 (including principal) from an investment fund
at the end of each year for five years. How should he compute his required initial
investment at the beginning of the first year if the fund earns 10% compounded
annually?
a.$20,000 times the future value of a 5-year, 10% ordinary annuity of 1
b.$20,000 divided by the future value of a 5-year, 10% ordinary annuity of 1
c.$20,000 times the present value of a 5-year, 10% ordinary annuity of 1
d.$20,000 divided by the present value of a 5-year, 10% ordinary annuity of 1
15) Income taxes are allocated to
a.extraordinary items
b.discontinued operations
c.prior period adjustments
d.all of these answer choices are correct
16) Cooper Construction Company had a contract starting April 2015, to construct a
$18,000,000 building that is expected to be completed in September 2017, at an
estimated cost of $16,500,000. At the end of 2015, the costs to date were $7,590,000
and the estimated total costs to complete had not changed. The progress billings during
2015 were $3,600,000 and the cash collected during 2015 was 2,400,000.
For the year ended December 31, 2015, Cooper would recognize gross profit on the
building of:
a.$632,500
b.$690,000
c.$810,000
d.$0
17) In a period of falling prices, which inventory method generally provides the greatest
amount of net income?
a.Average cost
b.FIFO
c.LIFO
d.Specific identification
18) Ecker Company purchased a new machine on May 1, 2006 for $352,000. At the
time of acquisition, the machine was estimated to have a useful life of ten years and an
estimated salvage value of $16,000. The company has recorded monthly depreciation
using the straight-line method. On March 1, 2015, the machine was sold for $48,000.
What should be the loss recognized from the sale of the machine?
a.$0
b.$7,200
c.$16,000
d.$23,200
19) Brown Company’s account balances at December 31, 2014 for Accounts Receivable
and the related Allowance for Doubtful Accounts are $920,000 debit and $1,400 credit,
respectively. From an aging of accounts receivable, it is estimated that $23,000 of the
December 31 receivables will be uncollectible. The necessary adjusting entry would
include a credit to the allowance account for
a.$23,000
b.$24,400
c.$21,600
d.$1,400
20) Khan, Inc. reports a taxable and financial loss of $1,950,000 for 2015 . Its pretax
financial income for the last two years was as follows:
2013$900,000
20141,200,000
The amount that Khan, Inc. reports as a net loss for financial reporting purposes in
2015, assuming that it uses the carryback provisions, and that the tax rate is 30% for all
periods affected, is
a.$1,950,000 loss
b.$ -0-
c.$585,000 loss
d.$1,365,000 loss
21) Landmark Book Store has decided to switch to the LIFO retail method for the
period beginning 1/1/15.
Instructions
Prepare a schedule showing the computation of the 12/31/15 inventory under the LIFO
retail method adjusted for price level changes (i.e., dollar-value LIFO Retail.) Without
prejudice to your answer in requirement A above, assume that the 12/31/14 inventory
computed under the LIFO Retail method was $40,000 and $27,500 at retail and cost,
respectively, for purposes of this requirement. Data for 2015 follows:
Cost Retail
Purchases (net)$360,000$485,000
Sales (net)420,000
Markups (net)30,000
Markdowns (net)15,000
2014 Price Index100
2015 Price Index120
22) Selected financial statement information and additional data for Stanislaus Co. is
presented below. Prepare a statement of cash flows for the year ending December 31,
2014
December 31
20132014
Cash$42,000$65,000
Accounts receivable (net)84,000144,200
Inventory168,000206,600
Land58,80021,000
Equipment504,000 789,600
TOTAL$856,800$1,226,400
Accumulated depreciation$84,000$115,600
Accounts payable50,40086,000
Notes payable – short-term67,20029,400
Notes payable – long-term168,000302,400
Common stock420,000487,200
Retained earnings67,200 205,800
TOTAL$856,800$1,226,400
Additional data for 2014:
1>Net income was $220,200.
2>Depreciation was $31,600.
3>Land was sold at its original cost.
4>Dividends of $81,600 were paid.
5>Equipment was purchased for $84,000 cash.
6>A long-term note for $201,600 was used to pay for an equipment purchase.
7>Common stock was issued to pay a $67,200 long-term note payable.
23) The FASBs Codification creates a new set of GAAP.
24) Investors are interested in financial reporting because it provides information that is
useful for making decisions.
25) Sharp Company
Comparative Balance Sheet
December 31
2015 2014
Cash$ 54,000$ 36,000
Accounts receivable, net53,00057,000
Inventory161,000123,000
Land180,000285,000
Building300,000300,000
Accumulated depreciationbuilding (75,000) (60,000)
Equipment1,565,000900,000
Accumulated depreciationequipment (177,000) (141,000)
$2,061,000$1,500,000
Accounts payable$ 202,000$ 150,000
Bonds payable450,000-0-
Capital stock, $10 par1,250,0001,250,000
Retained earnings 159,000 100,000
$2,061,000$1,500,000
Additional Data:
1>Net income for the year amounted to $109,000.
2>Cash dividends were paid amounting to 4% of par value.
3>Land was sold for $120,000.
4>Sharp sold equipment, which cost $225,000 and had accumulated depreciation of
$90,000, for $115,000.
Instructions
Prepare a statement of cash flows using the indirect method.
26) Sutherland Corporation sold goods to Rice Decorators for $50,000 on September 1,
2014, accepting Rices $50,000, 6-month, 6% note. Prepare Sutherlands September 1
entry, December 31, annual adjusting entry, and March 1 entry for the collection of the
note and interest.
27) Briefly describe some of the similarities and differences between U.S. GAAP and
IFRS with respect to the accounting for property, plant, and equipment.
28) On September 1, 2015, Vernon Corporation acquired Barlow Enterprises for a cash
payment of $850,000. At the time of purchases, Barlow’s balance sheet showed assets
of $620,000, liabilities of $240,000, and owner’s equity of $420,000. The fair value of
Barlow’s assets is estimated to be $970,000. Compute the amount of goodwill acquired
by Vernon.
29) During 2014, Kings Drug Company experienced a significant increase in the rate of
gross profit on sales, compared with the rate it has averaged in recent years. You are
asked to determine the most likely reason for this improvement. Support your answer.
The following data are from the records of the company:
2014 sales (at an average price of $40 a unit) were $2,300,000.
2014 purchases (at an average cost of $24 a unit) were $1,200,000.
The company uses the LIFO inventory method and has used it since 1985 .
30) In the space provided, write the word or phrase that is defined or indicated.
1>Net income minus preferred dividends
divided by the weighted average of shares
outstanding.
2>All changes in equity during a period except
those resulting from investments by owners
and distributions to owners.
3>A correction of an error is reported as a
4>An event or transaction which is unusual
in nature and infrequent in occurrence.
5>The income statement category for a
disposal of a component of a business.
6>Relating tax expense to specific items
on the income statement.