1) the payout ratio is determined by dividing cash dividends paid to common
stockholders by net income available to common stockholders.
2) the economic entity assumption means that economic activity can be identified with
a particular legal entity.
3) all intangibles are subject to periodic consideration of impairment with
corresponding potential write-downs.
4) under ifrs, impairment charges related to available-for-sale debt securities may be
reversed, but impairment charges related to available-for-sale equity securities may not
be reversed.
5) the unknown present value is always a larger amount than the known future value
because dollars received currently are worth more than dollars to be received in the
future.
6) when a buyer enters into a formal, noncancelable purchase contract, an asset and a
liability are recorded at the inception of the contract.
7) a deferred tax asset represents the increase in taxes refundable in future years as a
result of deductible temporary differences existing at the end of the current year.
8) stock that has a fixed per-share amount printed on each stock certificate is called
a.stated value stock
b.fixed value stock
c.uniform value stock
d.par value stock
9) the summarized balance sheets of goebel company and dobbs company as of
december 31, 2012 are as follows:
if goebel company acquired a 30% interest in dobbs company on december 31, 2012 for
$210,000 and during 2013 dobbs company had net income of $75,000 and paid a cash
dividend of $30,000, applying the equity method would give a debit balance in the
equity investments (dobbs) account at the end of 2013 of
a.$210,000
b.$223,500
c.$232,500
d.$201,000
10) generally, revenue from sales should be recognized at a point when
a.management decides it is appropriate to do so
b.the product is available for sale to the ultimate consumer
c.the entire amount receivable has been collected from the customer and there remains
no further warranty liability
d.none of these
11) on july 1, 2011, noble, inc. issued 9% bonds in the face amount of $10,000,000,
which mature on july 1, 2017. the bonds were issued for $9,390,000 to yield 10%,
resulting in a bond discount of $610,000. noble uses the effective-interest method of
amortizing bond discount. interest is payable annually on june 30. at june 30, 2013,
noble’s unamortized bond discount should be
a.$528,100
b.$510,000
c.$488,000
d.$430,000
12) a company offers a cash rebate of $1 on each $4 package of light bulbs sold during
2012. historically, 10% of customers mail in the rebate form. during 2012, 3,000,000
packages of light bulbs are sold, and 160,000 $1 rebates are mailed to customers. what
is the rebate expense and liability, respectively, shown on the 2012 financial statements
dated december 31?
a.$300,000; $300,000
b.$300,000; $140,000
c.$140,000; $140,000
d.$160,000; $140,000
13) making and collecting loans and disposing of property, plant, and equipment are
a.operating activities
b.investing activities
c.financing activities
d.liquidity activities
14) which of the following is not a condition that must be satisfied before interest
capitalization can begin on a qualifying asset?
a.interest cost is being incurred
b.expenditures for the assets have been made
c.the interest rate is equal to or greater than the company’s cost of capital
d.activities that are necessary to get the asset ready for its intended use are in progress
15) martin industries maintains its accounting records using ifrs. the company
purchases equipment with a price of $300,000. the manufacturer has offered a payment
plan that would allow martin to make 10 equal annual payments of $36,987, with the
first payment due one year after the purchase.
martin could borrow $300,000 from its bank to finance the purchase at an annual rate of
6%. should martin borrow from the bank or use the manufacturer’s payment plan to pay
for the equipment?
a.borrow from the bank.
b.use the manufacturer’s payment plan.
c.the rates for both the bank and manufacturer are the same, so martin would be
indifferent.
d.there is not enough information to answer this question.
16) on january 1, 2012, jacobs company sold property to dains company which
originally cost jacobs $950,000. there was no established exchange price for this
property. danis gave jacobs a $1,500,000 zero-interest-bearing note payable in three
equal annual installments of $500,000 with the first payment due december 31, 2012.
the note has no ready market. the prevailing rate of interest for a note of this type is
10%. the present value of a $1,500,000 note payable in three equal annual installments
of $500,000 at a 10% rate of interest is $1,243,500. what is the amount of interest
income that should be recognized by jacobs in 2012, using the effective-interest
method?
a.$0
b.$50,000
c.$124,350
d.$150,000
17) the current cash debt coverage ratio is often used to assess
a.financial flexibility
b.liquidity
c.profitability
d.solvency
18) jill morris is presently leasing a small business computer from eller office
equipment company. the lease requires 10 annual payments of $8,000 at the end of each
year and provides the lessor (eller) with an 8% return on its investment. you may use
the following 8% interest factors:
instructions
(a)assuming the computer has a ten-year life and will have no salvage value at the
expiration of the lease, what was the original cost of the computer to eller?
(b)what amount would each payment be if the ten annual payments are to be made at
the beginning of each period?
19) place the letter of the best matching phrase before each word.
1>indenture6>times interest earned ratio
2>treasury bonds7>mortgage
3>bonds issued at par8>premium on bonds
4>carrying value9>reacquisition price
5>nominal rate10>market rate
a.requires that bond discount be reported in the balance sheet as a direct deduction from
the face of the bond.
b.rate set by party issuing the bonds which appears on the bond instrument.
c.the interest paid each period is the effective interest at date of issuance.
d.rate of interest actually earned by the bondholders.
e.results when bonds are sold below par.
f.results when bonds are sold above par.
g.bonds payable reacquired by the issuing corporation that have not been canceled.
h.price paid by issuing corporation for its own bonds.
i.book value of bonds at any given date.
j.ratio of current assets to current liabilities.
k.the bond contract or agreement.
l.indicates the companys ability to meet interest payments as they come due.
m.ratio of debt to equity.
n.exclusive right to manufacture a product.
o.a document that pledges title to property as security for a loan.
20) selected amounts from trent company’s trial balance of 12/31/12 appear below:
(all of the above accounts have their standard or normal debit or credit balance.)
part a.prepare adjusting journal entries at year end, december 31, 2012, based on the
following supplemental information.
a.the equipment has a useful life of 15 years with no salvage value. (straight-line
method being used.)
b.interest accrued on the bonds payable is $15,000 as of 12/31/12.
c.expired insurance at 12/31/12 is $25,000.
d.the rent payment of $180,000 covered the six months from november 30, 2012
through may 31, 2013.
e.salaries and wages earned but unpaid at 12/31/12, $22,000.
part bindicate the proper balance sheet classification of each of the 15 numbered
accounts in the 12/31/12 trial balance before adjustments by placing appropriate
numbers after each of the following classifications. if the account title would appear on
the income statement, do not put the number in any of the classifications.
a.current assets
b.property, plant, and equipment
c.current liabilities
d.long-term liabilities
e.stockholders’ equity
21)
22) a corporation was organized in january 2009 with authorized capital of $10 par
value common stock. on february 1, 2012, shares were issued at par for cash. on march
1, 2012, the corporation’s attorney accepted 7,000 shares of common stock in settlement
for legal services with a fair value of $90,000. additional paid-in capital would increase
on
23) on january 1, 2013, warren corporation had 1,000,000 shares of common stock
outstanding. on march 1, the corporation issued 150,000 new shares to raise additional
capital. on july 1, the corporation declared and issued a 2-for-1 stock split. on october 1,
the corporation purchased on the market 400,000 of its own outstanding shares and
retired them.
instructions
compute the weighted average number of shares to be used in computing earnings per
share for 2013.
24) provide clear, concise answers for the following.
1. what are revenues?
2. what are expenses?
3. what are gains?
4. what are losses?
5. what are the criteria (in addition to materiality) that must be met to classify an
event or transaction as extraordinary?
6. when does a discontinued operation occur?
7. indicate how earnings per share is computed.
8. state the primary category of prior period adjustments and indicate how they are
reported in the financial statements.
25) both u.s. gaap and ifrs discuss income statement presentation using either a
single-step or multi-step approach.
26) aber company manufactures one product. on december 31, 2011, aber adopted the
dollar-value lifo inventory method. the inventory on that date using the dollar-value lifo
inventory method was $270,000. inventory data are as follows:
instructions
compute the inventory at december 31, 2012, 2013, and 2014, using the dollar-value
lifo method for each year.
