1) Which of the following features of preferred stock would most likely be opposed by
common shareholders?
a. Par or stated value
b. Participating
c. Redeemable
d. Callable
2) Stock warrants outstanding should be classified as
a. liabilities
b. reductions of capital contributed in excess of par value
c. capital stock
d. additions to contributed capital
3) Farnon Company has not declared or paid dividends on its cumulative preferred
stock in the last three years. These dividends should be reported
a. as a current liability
b. as a reduction in stockholders’ equity
c. in a note to the financial statements
d. as a noncurrent liability
4) Elio Co. purchased the following portfolio of trading securities during 2014 and
reported the following balances at December 31, 2014. No sales occurred during 2014.
All declines are considered to be temporary.
The carrying value of the portfolio at December 31, 2014, on Elio Co.’s balance sheet
would be
a. $222,000
b. $240,000
c. $242,000
d. $252,000
5) May Retailers purchased merchandise with a list price of $100,000, subject to a trade
discount of 20 percent and credit terms of 2/10, n/30. At what amount should May
record the cost of this merchandise if the gross method is used?
a. $100,000
b. $78,400
c. $98,000
d. $80,000
6) The trial balance and transaction descriptions below are for Coachman Company:
Summary transactions for February:
(a) Collected $100 on open account
(b) Purchased $130 inventory for $20 cash and the remainder on open account.
(c) Bought new equipment costing $200 for $50 cash, with the remainder due on a
mortgage payable.
(d) Paid $85 on open account.
(e) Recorded depreciation expense of $35.
(f) Sold goods costing $90 for $30 cash and $120 on open account.
What is Coachman’s total equity at the end of February?
7) Which of the following is NOT required by generally accepted accounting
principles?
a. Statement of cash flows
b. Earnings per share
c. Cash per share
d. Disclosure in notes to financial statements of the projected benefit obligation of a
defined-benefit pension plan
8) The EPS computation that is forward-looking and based on assumptions about future
transactions is
a. basic EPS
b. diluted EPS
c. continuing operations EPS
d. extraordinary EPS
9) Selected information from the accounting records of Carbine Manufacturing follows:
What is the number of days’ sales in average inventories for the year?
a. 132
b. 109
c. 101
d. 66
10) Generally accepted accounting principles
a. are accounting adaptations based on the laws of economic science
b. derive their credibility and authority from legal rulings and court precedents
c. derive their credibility and authority from the federal government through the
financial reporting section of the SEC
d. derive their credibility and authority from general recognition and acceptance by the
accounting profession
11) When bonds are retired prior to maturity with proceeds from a new bond issue, gain
or loss from the early extinguishment of debt, if material, should be
a. amortized over the remaining original life of the retired bond issue
b. recognized in income from continuing operations in the period of extinguishment
c. recognized as an extraordinary item in the period of extinguishment
d. amortized over the life of the new bond issue
12) Which of the following is not a source of cash?
a. Sale of equipment below book value at a loss
b. Issuance of bonds payable below par value at a discount
c. Collection of a long-term note receivable from a customer
d. Declaration of a cash dividend to be paid in the next accounting period
13) On December 31, 2014, the stockholders’ equity section of Pierce Co. was as
follows:
On March 31, 2015, Pierce declared a 10 percent stock dividend, and accordingly 1,800
additional shares were issued, when the fair market value of the stock was $16 per
share. For the three months ended March 31, 2015, Pierce sustained a net loss of
$64,000. The balance of Pierce’s Retained Earnings as of March 31, 2015, should be
a. $99,200
b. $110,000
c. $112,000
d. $128,000
14) An accrued expense can be described as an amount
a. paid and matched with earnings for the current period
b. paid and not matched with earnings for the current period
c. not paid and not matched with earnings for the current period
d. not paid and matched with earnings for the current period
15) The disclosure of accounting policies
a. may describe policies that are peculiar to the reporting companys industry
b. should not appear in the notes to the financial statements
c. should not describe unusual or innovative applications of GAAP
d. is encouraged but not required
16) The following information is available for Fordham Corp. for its most recent year:
The gross margin is 40 percent of net sales. What is the cost of goods available for sale?
a. $1,680,000
b. $1,920,000
c. $2,400,000
d. $2,440,000
17) Which of the following items results in a temporary difference taxable amount for a
given year?
a. Premiums on officer’s life insurance (company is beneficiary)
b. Premiums on officer’s life insurance (officer is beneficiary)
c. Vacation pay accrual
d. Accelerated depreciation for tax purposes; straight-line for financial reporting
purposes
18) In applying the treasury stock method of computing diluted earnings per share,
when is it appropriate to use the average market price of common stock during the year
as the assumed repurchase price?
a. Always
b. Never
c. When the average market price is lower than the exercise price
d. When the average market price is higher than the exercise price
19) A company sold 10,000 shares of its own $1 par value common stock for $60,000.
The entry to record the sale would include a
a. debit to treasury stock for $60,000
b. debit to contributed capital for $10,000
c. credit to common stock, $1 par value for $10,000
d. credit to common stock, $1 par value for $60,000
20) Which of the following is true?
a. Companies can raise common equity only by issuing new shares of common stock
b. There is no opportunity cost associated with use of retained earnings as a source of
common equity
c. Most large mature firms issue new shares of common stock on a regular basis
d. Companies can raise common equity by issuing new shares of common stock and
through retained earnings
21) Which of the following is most likely to be found in state laws regarding payment
of dividends?
a. Dividends may be paid from legal capital
b. Retained earnings are available for dividends unless restricted by contract or by
statute
c. Unrealized capital is available for any type of dividend
d. Capital from donated assets is available for dividends
22) Rickles, Inc. is a calendar-year corporation whose financial statements for 2013 and
2014 included errors as follows:
Assume that purchases were recorded correctly and that no correcting entries were
made at December 31, 2013, or December 31, 2014. Ignoring income taxes, by how
much should Rickles’s retained earnings be retroactively adjusted at January 1, 2015?
a. $27,000 increase
b. $27,000 decrease
c. $7,000 decrease
d. $3,000 decrease
23) Which of the following is one of the two steps of the 2-step test for derecognition of
receivables stated in IAS 39, International Accounting Standard 39, Financial
Instruments: Recognition and Measurement?
a. The transferred assets have been isolated from the transferor such that the transferor
and its creditors cannot access the assets
b. The transferee has the right to pledge or exchange the transferred assets
c. If the receivable transfer does not involve the transfer of substantially all the risks
and rewards of ownership, then test to determine if the transferor maintains effective
control over the assets through either an agreement to repurchase the assets before their
maturity, or by the ability to cause the transferee to return specific assets
d. Determine whether the receivable transfer involves a transfer of substantially all the
risks and rewards of ownership of the receivable and, if so, account for the transfer as a
sale of the receivable
24) In a statement of cash flows, payments to acquire debt instruments of other entities
would typically be classified as cash outflows for
a. financing activities
b. equity activities
c. operating activities
d. investing activities
25) Which of the following would be treated as an extraordinary item?
a. Expropriation of an entitys operations in a foreign country
b. The write-down of inventory due to obsolescence
c. A loss resulting from a strike by workers against an entity
d. The write-off of accounts receivable not expected to be collected
26) Refer to the Sculley Corporation information above. Sculley’s turnover of assets and
number of times interest earned for 2014 are respectively
Asset Turnover Times Interest Earned
a. 2.97 5.0
b. 2.94 5.0
c. 2.53 6.0
d. 2.94 7.0
27) Longhorn Corporation reported a loss for both financial reporting purposes and tax
reporting purposes of $231,000 in 2014. For financial reporting purposes, Longhorn
reported income before taxes for years 2011-2013 as listed below:
Assuming Longhorn’s tax rate is 30 percent in all periods, and that the company uses
the carryback provisions, what amount should appear in Longhorn’s statements for
financial reporting purposes as a net loss in 2014?
a. $0
b. $69,300
c. $161,700
d. $234,300
28) On February 1, 2013, Forwards Corporation purchased a parcel of land as a factory
site for $455,000. An old building on the property was demolished and construction
begun on a new warehouse that was completed April 15, 2014. Costs incurred on the
construction project are listed below.
Determine the cost of the land and new building.
29) Based on the following data, determine the net periodic pension cost:
30) The data below are from the December 31, 2014, balance sheet of the Sunshine
Corporation:
During 2015, the following transactions affecting corporate capital were recorded:
Assuming the cost method is used for treasury stock and that retained earnings are to be
reduced minimally in stock reacquisition transactions, provide the entries required to
record the above transactions.
31) Receivables can be used to generate cash through two general categories of
transactions: