1) At the beginning of 2015, Flaherty Company had retained earnings of $350,000.
During the year Flaherty reported net income of $100,000, sold treasury stock at a gain
of $36,000, declared a cash dividend of $60,000, and declared and issued a small stock
dividend of 3,000 shares ($10 par value) when the fair value of the stock was $20 per
share. The amount of retained earnings available for dividends at the end of 2015 was
a.$330,000
b.$360,000
c.$366,000
d.$396,000
2) Which of the following should be recorded in Accounts Receivable?
a.Receivables from officers
b.Receivables from subsidiaries
c.Dividends receivable
d.None of these answer choices are correct
3) Depreciation accounting
a.provides funds
b.funds replacements
c.retains funds
d.all of these answers are correct
4) At the beginning of 2015; Elephant, Inc. had a deferred tax asset of $10,000 and a
deferred tax liability of $15,000. Pre-tax accounting income for 2015 was $750,000 and
the enacted tax rate is 40%. The following items are included in Elephants pre-tax
income:
The ending balance in Elephant, Incs deferred tax liability at December 31, 2015 is
a.$23,000
b.$38,000
c.$26,000
d.$78,000
5) The worksheet for Sharko Co. consisted of five pairs of debit and credit columns.
The dollar amount of one item appeared in both the credit column of the income
statement section and the debit column of the balance sheet section. That item is
a.net income for the period
b.beginning inventory
c.cost of goods sold
d.net loss for the period
6) Transfers between categories
a.result in companies omitting recognition of fair value in the year of the transfer
b.are accounted for at fair value for all transfers
c.are considered unrealized and unrecognized if transferred out of held-to-maturity into
trading
d.will always result in an impact on net income
7) Indicate and explain whether each of the following independent situations should be
treated as a temporary difference or a permanent difference.
(a)For accounting purposes, a company reports revenue from installment sales on the
accrual basis. For income tax purposes, it reports the revenues by the installment-sales
method, deferring recognition of gross profit until cash is collected.
(b)Pretax accounting income and taxable income differ because 80% of dividends
received from U.S. corporations was deducted from taxable income, while 100% of the
dividends received was reported for financial statement purposes.
(c)Estimated warranty costs (covering a three-year warranty) are expensed for
accounting purposes at the time of sale but deducted for income tax purposes when
paid.
8) At the beginning of 2014, Winston Corporation issued 10% bonds with a face value
of $2,000,000. These bonds mature in five years, and interest is paid semiannually on
June 30 and December 31 . The bonds were sold for $1,852,800 to yield 12%. Winston
uses a calendar-year reporting period. Using the effective-interest method of
amortization, what amount of interest expense should be reported for 2014? (Round
your answer to the nearest dollar.)
a.$221,667
b.$222,333
c.$223,006
d.$229,440
9) Rensing, Inc., has $800,000 of 5% preferred stock and $1,200,000 of common stock
outstanding, each having a par value of $10 per share. No dividends have been paid or
declared during 2013 and 2014 . As of December 31, 2015, it is desired to distribute
$340,000 in dividends.
Instructions
How much will the preferred and common stockholders receive under each of the
following assumptions:
(a)The preferred is noncumulative and nonparticipating.
(b)The preferred is cumulative and nonparticipating.
(c)The preferred is cumulative and fully participating.
(d)The preferred is cumulative and participating to 9% total.
10) Luther Inc., has 4,000 shares of 6%, $50 par value, cumulative preferred stock and
100,000 shares of $1 par value common stock outstanding at December 31, 2015, and
December 31, 2014 . The board of directors declared and paid a $10,000 dividend in
2014 . In 2015, $48,000 of dividends are declared and paid. What are the dividends
received by the preferred stockholders in 2015?
a.$34,000
b.$24,000
c.$14,000
d.$12,000
11) Vanco Company has 35 employees who work 8-hour days and are paid hourly. On
January 1, 2013, the company began a program of granting its employees 10 days of
paid vacation each year. Vacation days earned in 2013 may first be taken on January 1,
2014 . Information relative to these employees is as follows:
HourlyVacation Days EarnedVacation Days Used
YearWagesby Each Employeeby Each Employee
2013$20.50100
201422.50108
201525.501010
Vanco has chosen to accrue the liability for compensated absences at the current rates of
pay in effect when the compensated time is earned.
What is the amount of the accrued liability for compensated absences that should be
reported at December 31, 2015?
a.$84,000
b.$197,400
c.$71,400
d.$96,600
12) APB Opinion No. 28 indicates that
a.all companies that issue an annual report should issue interim financial reports
b.the discrete view is the most appropriate approach to take in preparing interim
financial reports
c.the three basic financial statements should be presented each time an interim period is
reported upon
d.the same accounting principles used for the annual report should be employed for
interim reports
13) Which of the following is a one of the criteria for recording a lease as a finance
lease, under IFRS?
a.The lease term is for the major part of the economic life of the asset
b.The lease must be cancelable
c.The lease doesnt contain a bargain-purchase option
d.The present value of the minimum lease payments amounts to 75% of the fair value
of the leased asset
14) Weiser Corp. on January 1, 2012, granted stock options for 40,000 shares of its $10
par value common stock to its key employees. The market price of the common stock
on that date was $23 per share and the option price was $20. The Black-Scholes option
pricing model determines total compensation expense to be $420,000. The options are
exercisable beginning January 1, 2015, provided those key employees are still in
Weisers employ at the time the options are exercised. The options expire on January 1,
2016 .
On January 1, 2015, when the market price of the stock was $29 per share, all 40,000
options were exercised. The amount of compensation expense Weiser should record for
2015 under the fair value method is
a.$0
b.$70,000
c.$140,000
d.$210,000
15) On March 15, a fire destroyed Interlock Company’s entire retail inventory. The
inventory on hand as of January 1 totaled $4,950,000. From January 1 through the time
of the fire, the company made purchases of $2,049,000, incurred freight-in of $234,000,
and had sales of $3,630,000. Assuming the rate of gross profit to selling price is 30%,
what is the approximate value of the inventory that was destroyed?
a.$6,144,000
b.$4,458,000
c.$4,692,000
d.$7,233,000
16) Recognizing a valuation allowance for a deferred tax asset requires that a company
a.consider all positive and negative information in determining the need for a valuation
allowance
b.consider only the positive information in determining the need for a valuation
allowance
c.take an aggressive approach in its tax planning
d.pass a recognition threshold, after assuming that it will be audited by taxing
authorities
17) Which of these statements regarding the IFRS and U.S. GAAP is correct?
a.U.S. GAAP is considered to be “principles-based”
b.U.S. GAAP is considered to be less detailed than IFRS
c.IFRS is considered to be “principles-based” and less detailed than U.S. GAAP
d.Both U.S. GAAP and IFRS are considered to be “rules-based”, but U.S. GAAP tends
to be more complex
18) The revenue recognition principle provides that revenue is recognized when
a.it is realized
b.it is realizable
c.it is realized or realizable and it is earned
d.None of these answers are correct