1) Which of the following statements is not true of fair value option?
a.Receivables are recorded at fair value in the financial statements
b.Unrealized holding gains and losses from fair value adjustments are reported as a
component of comprehensive income
c.The International Accounting Standards Board believes that fair value measurement
for financial instruments provides more relevant and understandable information than
historical cost
d.An unrealized holding gain or loss is the net change in the fair value of the receivable
from one period to another, exclusive of interest revenue
2) How do you determine the acid-test ratio?
a.The sum of cash and short-term investments divided by short-term debt
b.Current assets divided by current liabilities
c.Current assets divided by short-term debt
d.The sum of cash, short-term investments and net receivables divided by current
liabilities
3) Equestrain Roads sold $80,000, of goods and accepted the customer’s $80,000 10%,
1-year note payable in exchange. Assuming 10% approximates the market rate of
return, how much interest would be recorded for the year ending December 31 if the
sale was made on June 30?
a.$0
b.$2,000
c.$4,000
d.$8,000
4) When a company amends a pension plan, for accounting purposes, prior service costs
should be
a.treated as a prior period adjustment because no future periods are benefited
b.amortized in accordance with procedures used for income tax purposes
c.recorded in other comprehensive income (PSC)
d.reported as an expense in the period the plan is amended
5) Reversing entries are
1>normally prepared for prepaid, accrued, and estimated items.
2>necessary to achieve a proper matching of revenue and expense.
3>useful in simplifying the recording of transactions in the next accounting period.
a.1
b.2
c.3
d.1 and 2
6) Walsh Retailers purchased merchandise with a list price of $125,000, subject to trade
discounts of 20% and 10%, with no cash discounts allowable. Walsh should record the
cost of this merchandise as
a.$87,500
b.$90,000
c.$97,500
d.$125,000
7) On July 1, 2014, Sport Company purchased for $2,880,000 snow-making equipment
having an estimated useful life of 5 years with an estimated salvage value of $120,000.
Depreciation is taken for the portion of the year the asset is used.
Instructions
(a)Complete the form below by determining the depreciation expense and year-end
book values for 2014 and 2015 using the
1>sum-of-the-years’-digits method.
2>double-declining balance method.
Sum-of-the-Years’-Digits Method 2014 2015
Equipment$2,880,000$2,880,000
Less: Accumulated Depreciation
Year-End Book Value
Depreciation Expense for the Year
Double-Declining Balance Method
Equipment$2,880,000$2,880,000
Less: Accumulated Depreciation
Year-End Book Value
Depreciation Expense for the Year
(b)Assume the company had used straight-line depreciation during 2014 and 2015 .
During 2016, the company determined that the equipment would be useful to the
company for only one more year beyond 2016 . Salvage value is estimated at $160,000.
(1)Compute the amount of depreciation expense for the 2016 income statement.
(2)What is the depreciation base of this asset?
8) RF Company had January 1 inventory of $200,000 when it adopted dollar-value
LIFO. During the year, purchases were $1,200,000 and sales were $2,000,000.
December 31 inventory at year-end prices was $286,720, and the price index was 112 .
What is RF Companys gross profit?
a.$856,000
b.$862,720
c.$886,920
d.$1,737,280
9) During 2014 Carne Corporation transferred inventory to Nolan Corporation and
agreed to repurchase the merchandise early in 2015 . Nolan then used the inventory as
collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2015 when
Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan.
This transaction is known as a(n)
a.consignment
b.installment sale
c.assignment for the benefit of creditors
d.product financing arrangement
10) Miles Company, a wholesaler, budgeted the following sales for the indicated
months:
June July August
Sales on account$2,700,000$2,760,000$2,850,000
Cash sales 270,000 300,000 390,000
Total sales$2,970,000$3,060,000$3,240,000
All merchandise is marked up to sell at its invoice cost plus 25%. Merchandise
inventories at the beginning of each month are at 30% of that month’s projected cost of
goods sold.
Merchandise purchases for July are anticipated to be
a.$2,295,000
b.$3,114,000
c.$2,448,000
d.$2,491,200
11) On December 31, 2014, Harris Co. leased a machine from Catt, Inc. for a five-year
period. Equal annual payments under the lease are $1,050,000 (including $50,000
annual executory costs) and are due on December 31 of each year. The first payment
was made on December 31, 2014, and the second payment was made on December 31,
2015 . The five lease payments are discounted at 10% over the lease term. The present
value of minimum lease payments at the inception of the lease and before the first
annual payment was $4,170,000. The lease is appropriately accounted for as a capital
lease by Harris. In its December 31, 2015 balance sheet, Harris should report a lease
liability of
a.$3,170,000
b.$3,120,000
c.$2,853,000
d.$2,487,000
12) The cost of land does not include
a.costs of grading, filling, draining, and clearing
b.costs of removing old buildings
c.costs of improvements with limited lives
d.special assessments
13) When a revenue is collected and recorded in advance, it is normally accounted for
as a(n) ___________ revenue.
a.accrued
b.prepaid
c.unearned
d.cash
14) Presented below are data for Antwerp Corp.
20142015
Assets, January 1$2,800$3,360
Liabilities, January 11,680?
Stockholders’ Equity, Jan. 1??
Dividends560420
Common Stock504448
Stockholders’ Equity, Dec. 31??
Net Income560448
Stockholders’ Equity at January 1, 2014 is
a.$ 704
b.$ 760
c.$1,120
d.$1,624
15) IFRS is important for U.S. investors for all of the following reasons except
a.the SEC requires that foreign companies that list on U.S. stock exchanges provide a
reconciliation between IFRS and U.S. GAAP
b.many U.S. companies, such as McDonalds, generate 50% of their sales outside the
U.S
c.mergers frequently take place between companies from different countries
d.financial markets are among the most significant international markets
16) When should the loss on an uncollectible account receivable be recorded as an
expense for accrual accounting purposes?
a.When it is determined that an account cannot be collected
b.In the same period in which the sale on account occurs
c.When the balance is past due for more than 3 months
d.When a lawyer indicates that collection efforts would cost more than the account is
worth
17) Dolan Company reports its income from investments under the equity method and
recognized income of $25,000 from its investment in Moss Co. during the current year,
even though no dividends were declared or paid by Moss during the year. On Dolan’s
statement of cash flows (indirect method), the $25,000 should
a.not be shown
b.be shown as cash inflow from investing activities
c.be shown as cash outflow from financing activities
d.be shown as a deduction from net income in the cash flows from operating activities
section
18) For a sales-type lease,
a.the sales price includes the present value of the unguaranteed residual value
b.the present value of the guaranteed residual value is deducted to determine the cost of
goods sold
c.the gross profit will be the same whether the residual value is guaranteed or
unguaranteed
d.None of these answers are correct