1) The number of compounding periods will always be one less than the number of
rents when computing the future value of an ordinary annuity.
2) Under both IFRS and U.S. GAAP, interest costs incurred during construction must be
capitalized.
3) The future value of a deferred annuity is less than the future value of an annuity not
deferred.
4) The income statement is useful in assessing the risk or uncertainty of achieving
future cash flows.
5) The FASB states that when an issuer makes an additional payment to encourage
conversion, the payment should be reported as an expense.
6) Free cash flow is calculated as net cash provided by operating activities less
a.capital expenditures
b.dividends
c.capital expenditures and dividends
d.capital expenditures and depreciation
7) The asset turnover ratio is computed by dividing
a.net income by ending total assets
b.net income by average total assets
c.net sales by ending total assets
d.net sales by average total assets
8) What accounting concept justifies the usage of depreciation and amortization
policies?
a.Going concern assumption
b.Fair value principle
c.Full disclosure principle
d.Monetary unit assumption
9) Cross Company reported the following results for the year ended December 31,
2014, its first year of operations:
2014
Income (per books before income taxes) $ 1,500,000
Taxable income2,400,000
The disparity between book income and taxable income is attributable to a temporary
difference which will reverse in 2015 . What should Cross record as a net deferred tax
asset or liability for the year ended December 31, 2014, assuming that the enacted tax
rates in effect are 40% in 2014 and 35% in 2015?
a.$360,000 deferred tax liability
b.$315,000 deferred tax asset
c.$360,000 deferred tax asset
d.$315,000 deferred tax liability
10) The ability to consummate the refinancing of a short-term obligation may be
demon- strated by
a.actually refinancing the obligation by issuing a long-term obligation after the date of
the balance sheet but before it is issued
b.entering into a financing agreement that permits the enterprise to refinance the debt
on a long-term basis
c.actually refinancing the obligation by issuing equity securities after the date of the
balance sheet but before it is issued
d.all of these answers are correct
11) Which perspective is adopted as a part of the objective of general-purpose financial
reporting?
a.A decision-usefulness perspective
b.A proprietary perspective
c.An entity perspective
d.A financial reporting perspective
12) The ratio of current assets to current liabilities is called the
a.current ratio
b.acid-test ratio
c.current asset turnover ratio
d.current liability turnover ratio
13) Research and development activities may include (a) personnel costs, (b) materials
and equipment costs, and (c) indirect costs. What is the recommended accounting
treatment for these three types of R&D costs?
14) The fair value option allows a company to
a.value its own liabilities at fair value
b.record income when the fair value of its bonds increases
c.report most financial instruments at fair value at any point of time
d.All of the above are true of the fair value option
15) A company has a performance obligation when it agrees to
a.perform a service for a customer and receives cash payment
b.sell a product to a customer after receiving payment
c.perform a service or sell a product to a customer
d.None of the answer choices are correct
16) In considering interim financial reporting, how did the Accounting Principles Board
conclude that such reporting should be viewed?
a.As a ‘special” type of reporting that need not follow generally accepted accounting
principles
b.As useful only if activity is evenly spread throughout the year so that estimates are
unnecessary
c.As reporting for a basic accounting period
d.As reporting for an integral part of an annual period
17) An executive pays no taxes at the time of exercise in a(an)
a.stock appreciation rights plan
b.incentive stock option plan
c.nonqualified stock option plan
d.Taxes would be paid in all of these
18) A company has been using the FIFO cost method of inventory valuation since it was
started 10 years ago. Its 2014 ending inventory was $180,000, but it would have been
$130,000 if LIFO had been used. Thus, if LIFO had been used, this company’s income
before taxes would have been
a.$50,000 less in 2014
b.$50,000 less over the 10-year period
c.$50,000 greater over the 10-year period
d.$50,000 greater in 2014
19) Arreaga Corp. has a tax rate of 40 percent and income before non-operating items
of $928,000. It also has the following items (gross amounts).
Unusual loss$148,000
Extraordinary loss404,000
Gain on disposal of equipment32,000
Change in accounting principle
increasing prior year’s income212,000
What is the amount of income tax expense Arreaga would report on its income
statement?
a.$371,200
b.$324,800
c.$396,800
d.$248,000
20) Wellington Corp. has outstanding accounts receivable totaling $1.27 million as of
December 31 and sales on credit during the year of $6.4 million. There is also a debit
balance of $3,000 in the allowance for doubtful accounts. If the company estimates that
1% of its net credit sales will be uncollectible, what will be the balance in the allowance
for doubtful accounts after the year-end adjustment to record bad debt expense?
a.$12,700
b.$15,700
c.$61,000
d.$67,000
21) Which of the following would not be included in the Lease Receivable account?
a.Guaranteed residual value
b.Unguaranteed residual value
c.A bargain purchase option
d.All would be included
22) In preparing its bank reconciliation for the month of April 2014, Henke, Inc. has the
following information available.
Balance per bank statement, 4/30/14$34,140
NSF check returned with 4/30/14 bank statement450
Deposits in transit, 4/30/145,000
Outstanding checks, 4/30/145,200
Bank service charges for April20
What should be the correct balance of cash at April 30, 2014?
a.$34,370
b.$33,940
c.$33,490
d.$33,470
23) Which of the following organizations has not been instrumental in the development
of financial accounting standards in the United States?
a.AICPA
b.FASB
c.IASB
d.SEC
24) How is the average inventory used in the calculation of each of the following?
Acid-Test (Quick) RatioInventory Turnover
a.NumeratorNumerator
b.NumeratorDenominator
c.Not UsedDenominator
d.Not UsedNumerator
25) In a troubled debt restructuring in which the debt is continued with modified terms,
a gain should be recognized at the date of restructure, but no interest expense should be
recognized over the remaining life of the debt, whenever the
a.carrying amount of the pre-restructure debt is less than the total future cash flows
b.carrying amount of the pre-restructure debt is greater than the total future cash flows
c.present value of the pre-restructure debt is less than the present value of the future
cash flows
d.present value of the pre-restructure debt is greater than the present value of the future
cash flows