1) Robinson Company reported a net loss of $23,000 during the year. Comparing
beginning and ending balances, you determine the following: (1) accounts receivable
increased by $8,000; and (2) accrued expenses payable increased by $5,000. What was
the amount of cash used in operating activities during the year?
a. $26,000
b. $36,000
c. $20,000
d. $10,000
2) Which of the following is the current group within the International Accounting
Standard Board organization that interprets existing standards or provides guidance in
areas for which no accounting formal standard exists?
a. Standing Interpretations Committee
b. International Accounting Standards Committee
c. Emerging Issues Task Force
d. International Financial Reporting Interpretations Committee
3) Assume Bellini Company holds the following assets at year-end and classifies as
cash equivalents everything allowed by professional standards.
What would be the total cash equivalents at year-end for Bellini Company?
a. $90,000
b. $115,000
c. $135,000
d. $160,000
4) In contrast with a multiple-step income statement, a single-step income statement
does not show the amount of
a. income taxes on continuing operations
b. cost of goods sold
c. gross profit
d. earnings per share
5) During 2014, Brent Industries, Inc. constructed a new manufacturing facility at a cost
of $12,000,000. The weighted average accumulated expenditures for 2014 were
calculated to be $5,400,000. The company had the following debt outstanding at
December 31, 2014:
(a) 10 percent, five-year note to finance construction of the manufacturing facility,
dated January 1, 2014, $3,600,000.
(b) 12 percent, 20-year bonds issued at par on April 30, 2013, $8,400,000.
(c) 8 percent, six-year note payable, dated March 1, 2013, $1,800,000.
Determine the amount of interest to be capitalized by Brent Industries for 2014.
6) At December 31, 2014 and 2013, Rollins Corp. had 200,000 shares of common stock
and 20,000 shares of 5 percent, $100 par value cumulative preferred stock outstanding.
No dividends were declared on either the preferred or common stock in 2013 or 2014.
Net income for 2014 was $1,000,000. For 2014, basic earnings per common share
amounted to
a. $5.00
b. $4.75
c. $4.50
d. $4.00
7) Which of the following is NOT an implication of the going-concern assumption?
a. The historical cost principle is credible
b. Depreciation and amortization policies are justifiable and appropriate
c. The current/noncurrent classification of assets and liabilities is justifiable and
significant
d. Amortizing research and development costs over multiple periods is justifiable and
appropriate
8) When a business segment is discontinued during the year, the gain or loss on disposal
a. is reported as an extraordinary item
b. should include only the loss or income from operating the discontinued segment for
the current period
c. excludes only the gain or loss on disposal of the segment
d. should be shown net of applicable income taxes
9) Using the information above, what is the number of shares that should be used in
computing diluted earnings per share for 2014?
a. 735,000
b. 780,000
c. 885,000
d. 910,000
10) Using the information above, assume that the price of the Upmann shares has risen
to $130 per share on March 31, 2014, and the Hall is preparing financial statements for
the quarter ending March 31. As regards this option, Hall, Inc., would report which of
the following?
a. A $30,000 realized gain
b. A $30,000 unrealized gain
c. A deferred gain of $29,800
d. Nothing would be reported in the financial statements or the notes thereto
11) Celestion should account for this lease as
a. an operating lease
b. a direct-financing lease
c. a sale-type lease
d. leveraged lease
12) On December 31, 2014, Behring Enterprises leased equipment from R & R
Equipment Rental. Pertinent lease transaction data are as follows:
Behring should record the equipment on the books at
a. $2,100,000
b. $1,533,000
c. $1,467,000
d. $0
13) Using the information above, what is the number of shares that should be used in
computing basic earnings per share for 2014?
a. 735,000
b. 780,000
c. 885,000
d. 910,000
14) Which of the following ratios would not be affected by the choice of depreciation
methods?
a. Working capital turnover
b. Earnings per share of common stock
c. Debt to equity
d. Price-earnings ratio
15) The calculation of the return on total assets ratio would use all of the following
except
a. average stockholders equity
b. total assets
c. average total assets
d. net sales
16) The following information is from the annual report Bubbly Beverage Company (all
amounts in millions of dollars):
Required:
1> Briefly describe this pension plan in terms of funding policy, cost and relative
burden of the plan, pension plan status, effect of the pension plan on earnings, and
actual return on plan assets.
2> Compute the following ratios:
a. Debt-to-equity
b. Debt-to-assets
c. Rate of return on assets
d. Rate of return on owners equity
3> Analyze the effect of nonrecognition of the PBO and delayed recognition on the
companys financial position, earnings, and any of the ratios above that would be
affected. Ignore income taxes and evaluate the effects on the rates of return using pretax
income.
17) Supplemental disclosures required only when the statement of cash flows is
prepared using the indirect method include
a. a schedule reconciling net income with net cash provided by (used in) operating
activities
b. amounts paid for interest and taxes
c. amounts deducted for depreciation and amortization
d. significant noncash investing and financing activities
18) Which of the following creates a permanent difference between financial income
and taxable income?
a. Interest received on municipal bonds
b. Completed contract method of recognizing construction revenue
c. Unearned rent revenue
d. Accelerated cost recovery on plant and equipment
19) Budson Company needs an estimate of its ending inventory balance. The following
information is available:
Given this information, when using the gross margin estimation method, ending
inventory is approximately
a. $1,000
b. $9,000
c. $19,000
d. $11,650
20) Steinman Construction Company uses the percentage-of-completion method for
long-term construction contracts. The company has a project with a contract price of
$7,000 on which $600 of gross profit has been recognized in prior years. Information
for the current year is as follows:
What is the loss that Steinman should recognize in the current year?
a. $600
b. $800
c. $1,400
d. No loss should be recognized.
21) Noncash investing and financing activities, if material, are
a. reported in the statement of cash flows under the “all-financial-resources concept”
b. reported in the statement of cash flows only if the indirect method is used
c. disclosed in a note or separate schedule accompanying the statement of cash flows
d. not reported or disclosed because they have no impact on cash
22) A company declared a cash dividend on its common stock in December 2013,
payable in January 2014. Retained Earnings would
a. increase on the date of declaration
b. not be affected on the date of declaration
c. not be affected on the date of payment
d. decrease on the date of payment
23) The following account balances pertain to the Henryville Manufacturing Co. at
December 31, 2013 (before adjusting entries).
Additional information:
(a) Prepaid insurance in the trial balance represents an advance payment for 5 months
of insurance made on November 1, 2013.
(b) In July, the accountant debited accounts payable for a $10,000 fine for a pollution
violation; Environmental Expense should have been debited.
(c) Rent expense in the trial balance represents an advance payment for 6 months rent
paid on October 1, 2013. The Company begins occupying the property on that date.
(d) Unpaid and unrecorded wages earned by employees at December 31, 2013, were
$60,000.
(e) The income tax liability for the year is $100,000, payable April 15, 2014.
Required:
(1)Prepare adjusting entries to Henryville Co.’s accounts at December 31, 2013. Each
entry should be made in general journal format. Identify each entry by using the letter
of the paragraph containing the additional information for the entry.
(2)Prepare the current year income statement
.
(3)Prepare the current year retained earnings statement.
(4)Prepare the current year balance sheet.
(5)Prepare the closing entries.
24) The projected benefit obligation is the measure of pension obligation that
a. is the only allowable estimate for reporting the service cost component of pension
expense
b. is not an allowable estimate for reporting the service cost component of pension
expense for defined benefit plans
c. is one of several allowable estimates for reporting the service cost component of
pension expense
d. can no longer be used under GAAP as an estimate for reporting the service cost
component of pension expense
25) Redman Corporation is a publicly held company that supplies tourniquets to
medical emergency centers. The company maintains a noncontributory defined benefit
pension plan for its employees. The Redman’s actuary has provided the following
information for the year ended December 31, 2014:
Prior contributions to the defined benefit pension plan equaled the amount of net
periodic pension cost accrued for the previous year end. If no contributions have been
made for 2014 pension cost, what amount should Redman report in its December 31,
2014, balance sheet for accrued pension cost?
a. $218,000
b. $242,000
c. $324,000
d. $406,000
26) On February 12, Oceans Company purchased a tract of land as a factory site for
$190,000. An existing building on the property was razed and construction was begun
on a new factory building in March of the same year. Additional data are available as
follows:
The recorded cost of the completed factory building should be
a. $1,165,000
b. $1,220,000
c. $1,027,500
d. $1,082,500
27) On July 31, 2014, Mason Company purchased for $4,000,000 cash all of the
outstanding common stock of Turquoise Company when Turquoise’s balance sheet
showed net assets of $3,200,000. Turquoise’s assets and liabilities had fair values
different from the book values as follows:
As a result of the transaction, what amount will be shown as goodwill in the July 31,
2014, consolidated balance sheet of Mason Company and its wholly owned subsidiary,
Turquoise Company?
a. $350,000
b. $250,000
c. $750,000
d. $800,000
28) Which of the following is true?
a. The FASB requires dividends paid to be classified as an operating activity
b. The FASB requires interest paid to be classified as a financing activity
c. The FASB allows dividends paid to be classified as an operating activity or as a
financing activity
d. The IASC allows dividends paid to be classified as an operating activity or as a
financing activity
29) Enrons problem with related-party transactions breached the assumption of:
a. going concerns
b. arms-length transactions
c. freedom of enterprise
d. market stability
30) The cost of a building to be used in the operations of a business should usually
include all of the following except
a. cost of renovation to prepare the building for its intended use
b. costs of building permits related to expansion of the building begun after acquisition
c. property taxes related to periods prior to acquisition that are assumed by the buyer
d. costs incurred to have existing buildings removed to make room for the construction
of new buildings
31) Which of the following most accurately describes the position taken by generally
accepted accounting principles regarding the accounting for the costs of drilling dry
wells in the oil and gas industry?
a. Only the successful efforts method may be used
b. Only the full cost method may be used
c. Both the successful efforts and full-cost methods may be used
d. Neither the successful efforts method nor the full cost method may be used pending
the development by the Securities and Exchange Commission of its own approach to
accounting for the costs of drilling dry wells
32) Warrants exercisable at $15 each to obtain 25,000 shares of common stock were
outstanding during a period when the average and year-end market price of the common
stock was $30. Application of the treasury stock method for the assumed exercise of
these warrants in computing diluted earnings per share will increase the
weighted-average number of outstanding common shares by
a. 5,000
b. 10,000
c. 11,000
d. 12,500
33) Cost of goods sold is equal to
a. the cost of inventory on hand at the end of a period plus net purchases minus the cost
of inventory on hand at the beginning of a period
b. the cost of inventory on hand at the beginning of a period minus net purchases plus
the cost of inventory on hand at the end of a period
c. the cost of inventory on hand at the beginning of a period plus net sales minus the
cost of inventory on hand at the end of a period
d. the cost of inventory on hand at the beginning of a period plus net purchases minus
the cost of inventory on hand at the end of a period
34) Which of the following statements is correct?
a. Capital stock of a foreign subsidiary is translated at the historical rate, that is, the rate
prevailing on the date the subsidiary was acquired
b. Dividends are translated at the average exchange rate for the year
c. Retained earnings are translated at the average exchange rate for the year
d. Assets and liabilities are translated at the historical rate prevailing when the
subsidiary was acquired
35) The theoretical support for using the percentage-of-completion method of
accounting for long-term construction projects is that it
a. is more conservative than the completed-contract method
b. produces a realistic matching of expenses with revenues
c. more closely conforms to the cost principle
d. reports a lower Net Income figure than the completed-contract method
36) In accordance with generally accepted accounting principles, which of the
following methods of amortization is normally recommended for intangible assets?
a. Sum-of-the-years’-digits
b. Straight-line
c. Group composite
d. Double-declining-balance
37) Bank reconciliations are normally prepared on a monthly basis to identify
adjustments needed in the depositor’s records and to identify bank errors. Adjustments
should be recorded for
a. bank errors, outstanding checks, and deposits in transit
b. all items except bank errors, outstanding checks, and deposits in transit
c. book errors, bank errors, deposits in transit, and outstanding checks
d. outstanding checks and deposits in transit
38) Leshner Corporation began business on January 1, 2014. Due to difficulties in
beginning operations, the company issued 50 shares of common stock (par $10) on
January 1, 2014, to the organizers. Twenty additional shares were also sold on that date.
The following also occurred during the year 2014:
The weighted average number of shares outstanding for 2014 was
a. 77 shares
b. 175 shares
c. 350 shares
d. 385 shares
39) Account balances taken from the ledger of Owens Company on December 31, 2013,
are as follows:
Adjustments on December 31, 2013, are required as follows:
(a) Estimated bad debt loss rate is 1/4 percent of credit sales. Credit sales for the year
amounted to $200,000. Classify bad debt expense as a selling expense.
(b) Interest on the long-term note receivable was last collected August 31, 2013.
(c) Estimated life of the equipment is 10 years, with a residual value of $20,000.
Allocate 10 percent of depreciation expense to general and administrative expense and
the remainder to selling expenses. Use straight-line depreciation.
(d) Estimated economic life of the patent is 14 years (from January 1, 2013) with no
residual value. Straight-line amortization is used. Depreciation expense is classified as
selling expense.
(e) Interest on the mortgage payable was last paid on November 30, 2013.
(f) On June 1, 2013, the company rented some office space to a tenant for one year and
collected $3,000 rent in advance for the year; the entire amount was credited to rent
revenue on this date.
(g) On December 31, 2013, the company received a statement for calendar year 2013
property taxes amounting to $1,300. The payment is due February 15, 2014. Assume
that the payment will be made on February 15, 2014, and classify expense as selling
expense.
(h) Sales supplies on hand at December 31, 2013, amounted to $300; classify as selling
expense.
(i) Assume an average income tax rate of 40 percent corporate tax rate on all items
including the extraordinary gain..
40) Stanton Industrial sells machinery on the installment plan. On September 1, 2014,
Stanton entered into an installment sale contract with Saunders Productions for a
six-year period. Equal annual payments under the installment sale are $187,500 and are
due on August 31 of each year beginning in 2015.
Additional information:
Compute the income or loss before taxes that Stanton should record for the year ended
December 31, 2014, as a result of the above transaction, assuming that circumstances
are such that the collection of the installments due under the contract
41) Grisoft Inc. computed a pretax financial income of $40,000 for the first year of its
operations ended December 31, 201 Analysis of the tax and book basis of its liabilities
disclosed $360,000 in unearned rent revenue on the books that had been recognized as
taxable income in 2014 when the cash was received.
The unearned rent is expected to be recognized on the books in the following pattern:
42) Assets constructed for a firm’s own use present the problem of whether to capitalize
interest on the funds invested during the time required to prepare the assets for their
intended use. Current generally accepted accounting principles as specified by the
FASB in Statement No. 34 require the capitalization of interest on borrowed capital, but
not to exceed the total interest paid by the firm.
Evaluate the appropriateness of the approach currently required in the professional
pronouncements now in effect.
43) Much of the dissatisfaction about Enron’s accounting centered around its use of
special purpose entities (SPEs, now referred to by the FASB as variable interest entities
or VIEs). Enterprises such as Enron have used VIEs to avoid reporting assets and
liabilities for which they are responsible, to defer the reporting of losses that have
already been incurred, or to report gains that do not exist. In response both to the abuses
of VIEs and to the fragmented and incomplete accounting standards regarding VIEs, the
FASB has proposed a new accounting interpretation. Current accounting standards
require an enterprise to include subsidiaries in which it has a controlling financial
interest in its consolidated financial statements. The focus of current standards is on a
parent-subsidiary relationship established through voting ownership interests. The
relationship between a business enterprise and a VIE is established through other
means.
The proposed interpretation would explain how to identify a VIE that is not subject to
control through voting ownership interests and would require each enterprise involved
with such a VIE to determine whether it provides financial support to the VIE through a
variable interest. If an enterprise holds a majority of the variable interests of a VIE or a
significant variable interest that is greater than any other party’s variable interest, then
that enterprise would be the primary beneficiary and would be required to include the
VIE in its consolidated financial statements.
Explain what is meant by the term “variable interests.”
44) In 2017, the company discovered errors that been made in computing the ending
inventories for 2014 and 2015, as follows:
Compute the correct net incomes for (1) 2014, (2) 2015, and (3) 2016.
45) The following information has been collected regarding Hunter Company:
Estimate a price per share for the stock of Hunter using the following equity valuation
models:
1>Constant future dividends
2>Constant dividend growth
3>Price-earnings multiple
46) On January 1, 2014, Farming Associates purchased 25 percent of the outstanding
shares of stock of Anders Corp.for $125,000 cash. The investment will be accounted for
by the equity method. On that date, Anders’s net assets (book and fair value) were
$250,000. Farming has determined that the excess of the cost of its investment in
Anders over its share of Anders’s net assets is attributable to equipment whose market
value exceeds its carrying value by $95,000 and to an operating license whose market
value exceeds its carrying value by $95,000. The remaining useful life of the equipment
is ten years and the remaining useful life of the operating license is 20 years.
Anders’s net income for the year ended December 31, 2014, was $55,000. During 2014,
Farming received $4,500 cash dividends from Anders. There were no other transactions
between the two companies.
Compute the amount that would be reported on Farming Associates’ books for the
investment in Anders Corp. at December 31, 2014.
47) On January 1, 2014, Mercury Airlines contracted with Dover Aircraft to construct
an aircraft to Mercurys specifications at a cost of $2,000,000. During 2014, Mercury
paid Dover $400,000 on January 1, and another $250,000 on September 30. On January
1, Mercury borrowed $360,000 at 13% to partially finance the construction, an
obligation still outstanding at the end of 2014. The remaining amount paid to Dover
was financed from available working capital. Mercury has approximately $1,600,000 of
additional debt outstanding at an average interest cost of 12%.
Required:
What is the total capitalized cost of the aircraft under construction at the end of 2014?
