1) Sawyer Corporation has a machine (Machine A) that it acquired on 1/1/14 for
$540,000. On 12/31/14 such machines have a selling price and fair value of $621,000.
When used in production, such machines have an estimated useful life of 10 years with
no salvage value. Use the straight-line method.
Brown Corporation has a machine (Machine B) that it acquired on 1/1/14 for $729,000.
On 12/31/14 such machines have a selling price and fair value of $540,000. When used
in production, such machines have an estimated useful life of 10 years with no salvage
value. Use the straight-line method.
On 12/31/14 Brown gave Machine B plus $81,000 cash to Sawyer in return for
Machine A.
Assume that instead of dealers, both Sawyer and Brown are machine manufacturers and
use the machines in production. Assume the exchange lacks commercial substance. At
what amount will Brown record Machine A?
a.$540,000
b.$621,000
c.$729,000
d.$810,000
2) Direct costs incurred to sell stock such as underwriting costs should be accounted for
as
1>a reduction of additional paid-in capital.
2>an expense of the period in which the stock is issued.
3>an intangible asset.
a.1
b.2
c.3
d.1 or 3
3) On April 7, 2014, Kegin Corporation sold a $4,000,000, twenty-year, 8 percent bond
issue for $4,240,000. Each $1,000 bond has two detachable warrants, each of which
permits the purchase of one share of the corporation’s common stock for $30. The stock
has a par value of $25 per share. Immediately after the sale of the bonds, the
corporation’s securities had the following market values:
8% bond without warrants$1,008
Warrants21
Common stock28
What accounts should Kegin credit to record the sale of the bonds?
a.Bonds Payable$4,000,000
Premium on Bonds Payable155,200
Paid-in CapitalStock Warrants84,800
b.Bonds Payable$4,000,000
Premium on Bonds Payable32,000
Paid-in CapitalStock Warrants168,000
c.Bonds Payable$4,000,000
Premium on Bonds Payable70,400
Paid-in CapitalStock Warrants169,600
d.Bonds Payable$4,000,000
Premiums on Bonds Payable240,000
4) All the following are differences between financial and managerial accounting in
how accounting information is used except to
a.plan and control company’s operations
b.decide whether to invest in the company
c.evaluate borrowing capacity to determine the extent of a loan to grant
d.All the answer choices are correct
5) Huggins Company has the following information at December 31, 2015 related to its
pension plan:
Projected benefit obligation$4,000,000
Accumulated benefit obligation3,200,000
Plan assets (fair value)4,350,000
Accumulated OCI (PSC)300,000
The amount of pension asset / liability Huggins Company would recognize at
December 31, 2015 is
a.Pension liability of $300,000
b.Pension asset of $1,150,000
c.Pension liability of $800,000
d.Pension asset of $350,000
6) Cash, short-term investments, and net receivables are the numerator for
Acid-Test RatioCurrent Ratio
a.YesNo
b.YesYes
c.NoNo
dNoYes
7) A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1,
2013 . Interest is paid on June 30 and December 31 . The proceeds from the bonds are
$19,604,144. Using straight-line amortization, what is the carrying value of the bonds
on December 31, 2015?
a.$19,670,232
b.$19,940,624
c.$19,633,832
d.$19,663,522
8) Which of the following is true of depreciation accounting?
a.It is not a matter of valuation
b.It is part of the matching of revenues and expenses
c.It retains funds by reducing income taxes and dividends
d.All of these answers are correct
9) Instrument Corporation has the following investments which were held throughout
2014-2015:
Fair Value
Cost 12/31/1412/31/15
Trading$600,000$800,000$760,000
Available-for-sale 600,000 640,000 720,000
What amount would be reported as accumulated other comprehensive income related to
investments in Instrument Corporations balance sheet at December 31, 2014?
a.$80,000 gain
b.$120,000 gain
c.$40,000 gain
d.$240,000 gain
10) For each event listed below, select the appropriate category which describes the
effect of the event on a statement of cash flows:
a.Cash provided/used by operating activities.
b.Cash provided/used by investing activities.
c.Cash provided/used by financing activities.
d.Not a cash flow.
1> Payment on long-term debt
2> Issuance of bonds at a premium
3> Collection of accounts receivable
4> Cash dividends declared
5> Issuance of stock to acquire land
6> Sale of available-for-sale securities (long-term)
7> Payment of employees’ wages
8> Issuance of common stock for cash
9> Payment of income taxes payable
10> Purchase of equipment
11> Purchase of treasury stock (common)
12> Sale of real estate held as a long-term investment
11) The December 31, 2014, balance sheet of Hess Corporation includes the following
items:
9% bonds payable due December 31, 2023$3,000,000
Unamortized premium on bonds payable81,000
The bonds were issued on December 31, 2013, at 103, with interest payable on July 1
and December 31 of each year. Hess uses straight-line amortization. On March 1, 2015,
Hess retired $1,200,000 of these bonds at 98 plus accrued interest. What should Hess
record as a gain on retirement of these bonds? Ignore taxes.
a.$56,400
b.$32,400
c.$55,800
d.$60,000
12) In the conceptual framework for financial reporting, what provides “the why”–the
purpose of accounting?
a.Recognition, measurement, and disclosure concepts such as assumptions, principles,
and constraints
b.Qualitative characteristics of accounting information
c.Elements of financial statements
d.Objective of financial reporting
13) Pember Corporation started business in 2009 by issuing 200,000 shares of $20 par
common stock for $36 each. In 2014, 25,000 of these shares were purchased for $52 per
share by Pember Corporation and held as treasury stock. On June 15, 2015, these
25,000 shares were exchanged for a piece of property that had an assessed value of
$1,010,000. Pembers stock is actively traded and had a market price of $60 on June 15,
2015 . The cost method is used to account for treasury stock. The amount of paid-in
capital from treasury stock transactions resulting from the above events would be
a.$1,000,000
b.$ 600,000
c.$ 190,000
d.$ 200,000
14) On January 2, 2015, Hernandez, Inc. signed a ten-year noncancelable lease for a
heavy duty drill press. The lease stipulated annual payments of $200,000 starting at the
beginning of the first year, with title passing to Hernandez at the expiration of the lease.
Hernandez treated this transaction as a capital lease. The drill press has an estimated
useful life of 15 years, with no salvage value. Hernandez uses straight-line depreciation
for all of its plant assets. Aggregate lease payments were determined to have a present
value of $1,200,000, based on implicit interest of 10%.
In its 2015 income statement, what amount of interest expense should Hernandez report
from this lease transaction?
a.$0
b.$81,000
c.$108,000
d.$120,000
15) Hernandez Company has 560,000 shares of $10 par value common stock
outstanding. During the year, Hernandez declared a 10% stock dividend when the
market price of the stock was $30 per share. Four months later Hernandez declared a
$.50 per share cash dividend. As a result of the dividends declared during the year,
retained earnings decreased by
a.$1,988,000
b.$ 840,000
c.$ 308,000
d.$ 280,000
16) Keen Company’s accounting records indicated the following information:
Inventory, 1/1/14$ 1,200,000
Purchases during 20146,000,000
Sales during 20147,600,000
A physical inventory taken on December 31, 2014, resulted in an ending inventory of
$1,400,000. Keen’s gross profit on sales has remained constant at 25% in recent years.
Keen suspects some inventory may have been taken by a new employee. At December
31, 2014, what is the estimated cost of missing inventory?
a.$100,000
b.$300,000
c.$400,000
d.$500,000
17) On January 1, 2014, Ball Co. exchanged equipment for a $500,000
zero-interest-bearing note due on January 1, 2017 . The prevailing rate of interest for a
note of this type at January 1, 2014 was 10%. The present value of $1 at 10% for three
periods is 0.75. What amount of interest revenue should be included in Ball’s 2015
income statement?
a.$0
b.$37,500
c.$41,250
d.$50,000
18) The tax benefit that the LIFO method provides might get nullified when:
a.unit costs tend to decrease as production increases
b.unit costs tend to increase as production increases
c.revenues are increasing faster than costs
d.a fairly constant base stock is present