1) Total stockholders equity consists of common stock and the earnings retained in the
business.
2) As with U.S. GAAP, IFRS requires that both direct and indirect costs in
self-constructed assets be capitalized.
3) Because of the historical cost principle, fair values may not be disclosed in the
balance sheet.
4) The idea of consistency does not mean that companies cannot switch from one
accounting method to another.
5) Errors in financial statements result from mathematical mistakes or oversight or
misuse of facts that existed when preparing the financial statements.
6) IASB is working to establish high-quality auditing and assurance quality standards
throughout the world.
7) The accrual-basis of accounting recognizes revenue when the performance obligation
is satisfied and expenses when cash is paid.
8) Companies should generally use the same accounting principles for interim reports
and for annual reports.
9) Treasury stock is a companys own stock that has been reacquired and retired.
10) The cost flow assumption adopted must be consistent with the physical movement
of the goods.
11) Companies report extraordinary items in interim reports by prorating them over the
four quarters.
12) IFRS requires companies to disclose transactions with related parties, including the
name of the related party and any doubtful amounts related to outstanding balances for
the related party.
13) Financial flexibility measures the ability of an enterprise to take effective actions to
alter the amounts and timing of cash flows.
14) The following costs are incurred during the research and development phases of a
laser bone scanner
Identify which of these are research phase items and will be immediately expensed
under
U.S. GAAP and IFRS.
U.S. GAAP IFRS
a. $1,200,000 $1,200,000
b. 2,400,000 1,400,000
c. 4,400,000 4,400,000
d. 4,400,000 3,700,000
15) Define the following terms.
(a) Goodwill (b) Negative goodwill
16) Eckert Corporation’s partial income statement after its first year of operations is as
follows:
Income before income taxes$3,750,000
Income tax expense
Current$1,035,000
Deferred 90,000 1,125,000
Net income$2,625,000
Eckert uses the straight-line method of depreciation for financial reporting purposes and
accelerated depreciation for tax purposes. The amount charged to depreciation expense
on its books this year was $2,400,000. No other differences existed between book
income and taxable income except for the amount of depreciation. Assuming a 30% tax
rate, what amount was deducted for depreciation on the corporation’s tax return for the
current year?
a.$2,100,000
b.$1,125,000
c.$2,400,000
d.$2,700,000
17) The following information was available from the inventory records of Rich
Company for January:
Units Unit CostTotal Cost
Balance at January 13,000$9.77$29,310
Purchases:
January 62,00010.3020,600
January 262,70010.7128,917
Sales:
January 7(2,500)
January 31(3,700)
Balance at January 31 1,500
Assuming that Rich does not maintain perpetual inventory records, what should be the
inventory at January 31, using the weighted-average inventory method, rounded to the
nearest dollar?
a.$15,757
b.$15,356
c.$15,390
d.$15,540
18) Which of the following is not true about the discount on short-term notes payable?
a.The Discount on Notes Payable account has a debit balance
b.The Discount on Notes Payable account should be reported as an asset on the balance
sheet
c.When there is a discount on a note payable, the effective interest rate is higher than
the stated discount rate
d.Discount on Notes Payable is a contra account to Notes Payable
19) Prepare journal entries to record the following transactions related to long-term
bonds of Quirk Co.
(a)On April 1, 2013, Quirk issued $800,000, 9% bonds for $860,589 including accrued
interest. Interest is payable annually on January 1, and the bonds mature on January 1,
2023 .
(b)On July 1, 2015 Quirk retired $240,000 of the bonds at 102 plus accrued interest.
Quirk uses straight-line amortization.
20) Financial information exhibits the characteristic of consistency when
a.expenses are reported as charges against revenue in the period in which they are paid
b.a company applies the same accounting treatment to similar events, from period to
period
c.extraordinary gains and losses are not included on the income statement
d.accounting procedures are adopted which give a consistent rate of net income
21) ELO Corporation purchased a patent for $225,000 on September 1, 2013 . It had a
useful life of 10 years. On January 1, 2015, ELO spent $55,000 to successfully defend
the patent in a lawsuit. ELO feels that as of that date, the remaining useful life is 5
years. What amount should be reported for patent amortization expense for 2015?
a.$51,500
b.$50,000
c.$47,000
d.$39,000
22) Proceeds from an issue of debt securities having stock warrants should not be
allocated between debt and equity features when
a.the market value of the warrants is not readily available
b.exercise of the warrants within the next few fiscal periods seems remote
c.the allocation would result in a discount on the debt security
d.the warrants issued with the debt securities are nondetachable
23) Based on the following information, compute 2015 taxable income for South Co.
assuming that its pre-tax accounting income for the year ended December 31, 2015 is
$345,000.
Future taxable
Temporary difference(deductible) amount
a.$423,000
b.$267,000
c.$723,000
d.$333,000
24) Which of the following is not a condition necessary to exclude a short-term
obligation from current liabilities?
a.Intend to refinance the obligation on a long-term basis
b.Obligation must be due with one year
c.Demonstrate the ability to complete the refinancing
d.Subsequently refinance the obligation on a long-term basis
25) Fences and parking lots are reported on the balance sheet as
a.current assets
b.land improvements
c.land
d.property and equipment
26) On June 30, 2015, Omara Co. had outstanding 8%, $6,000,000 face amount,
15-year bonds maturing on June 30, 2025 . Interest is payable on June 30 and December
31 . The unamortized balances in the bond discount and deferred bond issue costs
accounts on June 30, 2015 were $210,000 and $60,000, respectively. On June 30, 2015,
Omara acquired all of these bonds at 94 and retired them. What net carrying amount
should be used in computing gain or loss on this early extinguishment of debt?
a.$5,940,000
b.$5,790,000
c.$5,730,000
d.$5,640,000
27) A replacement, which extended the life but did not increase the quality of units
produced by the asset, cost $15,000.
a.Asset(s) only
b.Accumulated amortization, or depletion or depreciation only
c.Expense only
d.Asset(s) and expense
28) Risers Inc. reported total assets of $3,200,000 and net income of $255,000 for the
current year. Risers determined that inventory was understated by $69,000 at the
beginning of the year and $30,000 at the end of the year. What is the corrected amount
for total assets and net income for the year?
a.$3,230,000 and $285,000
b.$3,170,000 and $294,000
c.$3,230,000 and $216,000
d.$3,200,000 and $255,000
29) Which of the following concepts relates to using the allowance method in
accounting for accounts receivable?
a.Bad debt expense is an estimate that is based on historical and prospective
information
b.Bad debt expense is based on the actual amounts determined to be uncollectible
c.Bad debt expense is an estimate that is based only on an analysis of the receivables
aging
d.Bad debt expense is management’s determination of which accounts will be sent to
the attorney for collection
30) According to the FASB’s conceptual framework, earnings
a.is the same as comprehensive income
b.excludes certain gains and losses that are included in comprehensive income
c.includes certain gains and losses that are excluded from comprehensive income
d.includes certain losses that are excluded from comprehensive income