1) if a company plans to retire long-term debt from a bond retirement fund, it should
report the debt as current.
2) the ifrs statement of recognized income and expenses is identical to the u.s. gaap
statement of retained earnings beginning balance retained earnings, plus net income,
less dividends, equals ending balance retained earnings.
3) in a business combination, a company assigns the cost, where possible, to the
identifiable tangible and intangible assets, with the remainder recorded as goodwill.
4) purchase discounts lost is a financial expense and is reported in the other expenses
and losses section of the income statement.
5) a strength of the income statement as compared to the balance sheet is that items that
cannot be measured reliably can be reported in the income statement.
6) ifrs requires that any indirect effect of a change in accounting policy, such as
increased royalty payments, be recognized in income in the year of the change in policy.
7) under the fair value method, companies compute total compensation expense based
on the fair value of options on the date of exercise.
8) free cash flow is net income less capital expenditures and dividends.
9) a company should add a decrease in a deferred tax liability to income tax payable in
computing income tax expense.
10) the transaction approach of income measurement focuses on the income-related
activities that have occurred during the period.
11) the expected profit from a sales type warranty that covers several years should all
be recognized in the period the warranty is sold.
12) internally generated intangible assets are initially recorded at fair value.
13) the debit for a sales tax properly levied and paid on the purchase of machinery
preferably would be a charge to
a.the machinery account
b.a separate deferred charge account
c.miscellaneous tax expense (which includes all taxes other than those on income)
d.accumulated depreciationmachinery
14) which dividends do not reduce stockholders’ equity?
a.cash dividends
b.stock dividends
c.property dividends
d.liquidating dividends
15) fuller food company distributes to consumers coupons which may be presented (on
or before a stated expiration date) to grocers for discounts on certain products of fuller.
the grocers are reimbursed when they send the coupons to fuller. in fuller’s experience,
50% of such coupons are redeemed, and generally one month elapses between the date
a grocer receives a coupon from a consumer and the date fuller receives it. during 2012
fuller issued two separate series of coupons as follows:
the only journal entries to date recorded debits to coupon expense and credits to cash of
$715,000. the december 31, 2012 balance sheet should include a liability for
unredeemed coupons of
a.$0
b.$60,000
c.$124,000
d.$360,000
16) blanco company purchased 200 of the 1,000 outstanding shares of darby company’s
common stock for $600,000 on january 2, 2013. during 2013, darby company declared
dividends of $100,000 and reported earnings for the year of $400,000.
if blanco company used the fair value method of accounting for its investment in darby
company, its equity investment (darby) account on december 31, 2013 should be
a.$580,000
b.$660,000
c.$600,000
d.$680,000
17) if jethro wanted to save a set amount each month in order to buy a new pick-up
truck when the new models are next available, which time value concept would be used
to determine the monthly payment?
a.present value of one
b.future value of one
c.present value of an annuity due
d.future value of an ordinary annuity
18) at december 31, 2012, sues boutique had 1,000 gift certificates outstanding, which
had been sold to customers during 2012 for $75 each. sues operates on a gross profit of
60% of its sales. what amount of revenue pertaining to the 1,000 outstanding gift
certificates should be deferred at december 31, 2012?
a.$0
b.$30,000
c.$45,000
d.$75,000
19) which of the following publications does not qualify as a statement of generally
accepted accounting principles?
a.statements of financial standards issued by the fasb
b.accounting interpretations issued by the fasb
c.apb opinions
d.accounting research studies issued by the
20) at the beginning of 2011, gannon company received a three-year
zero-interest-bearing $1,000 trade note. the market rate for equivalent notes was 8% at
that time. gannon reported this note as a $1,000 trade note receivable on its 2011
year-end statement of financial position and $1,000 as sales revenue for 2011. what
effect did this accounting for the note have on gannon’s net earnings for 2011, 2012,
2013, and its retained earnings at the end of 2013, respectively?
a.overstate, overstate, understate, zero
b.overstate, understate, understate, understate
c.overstate, overstate, overstate, overstate
d.none of these
21) key similarities between u.s. gaap and igaap include all of the following except
a.the definition used for cash equivalents
b.accounting and reporting issues related to recognition and measurement of
receivables, such as the use of allowance accounts
c.working toward implementing fair value measurement for all financial instruments
d.the same criteria is used to derecognize a receivable
22) the current project of the iasb and the fasb related to financial statement
presentation indicates
a.that the ifrs statement of recognized income and expenses will most likely be adopted
by the fasb as a u.s. requirement in the near future
b.that the ifrs statement of recognized income and expenses will probably be eliminated
c.that the u.s. gaap standard for reporting comprehensive income will most likely be
adopted by the iasb for ifrs
d.that hybrid financial instruments are unacceptable
23) show how the following independent errors will affect net income on the income
statement and the stockholders’ equity section of the balance sheet using the symbol +
(plus) for overstated, (minus) for understated, and 0 (zero) for no effect.
1>ending inventory in 2012 overstated.
2>failed to accrue 2012 interest
revenue.
3>a capital expenditure for factory equipment (useful life, 5 years) was erroneously
charged to maintenance expense in 2012.
4>failed to count office supplies on hand at 12/31/12. cash expenditures have been
charged to a supplies expense account during the year 2012.
5>failed to accrue 2012 wages.
6>ending inventory in 2012 understated.
7>overstated 2012 depreciation
expense; 2013 expense correct.
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) santo corporation declares and distributes a cash dividend that is a result of current
earnings. how will the receipt of those dividends affect the investment account of the
investor under each of the following accounting methods?
26) a trial balance before adjustment included the following:
give journal entries assuming that the estimate of uncollectibles is determined by taking
(1) 5% of gross accounts receivable and (2) 1% of net sales.
27) answer each of the following questions.
1>a plant asset purchased for $250,000 has an estimated life of 10 years and a residual
value of $20,000. depreciation for the second year of use, determined by the
declining-balance method at twice the straight-line rate is $_____________.
2>a plant asset purchased for $300,000 at the beginning of the year has an estimated
life of 5 years and a residual value of $30,000. depreciation for the second year,
determined by the sum-of-the-years’-digits method is $______________.
3>a plant asset with a cost of $320,000 and accumulated depreciation of $90,000, is
given together with cash of $120,000 in exchange for a similar asset worth $330,000.
the gain or loss recognized on the disposal (indicate by “g” or “l”) is $______________.
4>a plant asset with a cost of $270,000, estimated life of 5 years, and residual value of
$45,000, is depreciated by the straight-line method. this asset is sold for $200,000 at the
end of the second year of use. the gain or loss on the disposal (indicate by “g” or “l”) is
$___________.