1) Parker Corporation has issued 2,000 shares of common stock and 400 shares of
preferred stock for a lump sum of $74,000 cash.
Instructions
(a)Give the entry for the issuance assuming the par value of the common stock was $5
and the fair value $30, and the par value of the preferred stock was $40 and the fair
value $50. (Each valuation is on a per share basis and there are ready markets for each
stock.)
(b)Give the entry for the issuance assuming the same facts as (a) above except the
preferred stock has no ready market and the common stock has a fair value of $24 per
share.
2) A pension asset is reported when
a.the accumulated benefit obligation exceeds the fair value of pension plan assets
b.the accumulated benefit obligation exceeds the fair value of pension plan assets, but a
prior service cost exists
c.pension plan assets at fair value exceed the accumulated benefit obligation
d.pension plan assets at fair value exceed the projected benefit obligation
3) All of the following are requirements for disclosures related to financial instruments
except
a.disclosing the fair value and related carrying value of the instruments
b.distinguishing between financial instruments held or issued for purposes other than
trading
c.combining or netting the fair value of separate financial instruments
d.displaying as a separate classification of other comprehensive income the net
gain/loss on derivative instruments designated in cash flow hedges
4) Rich, Inc. acquired 30% of Doane Corporation’s voting stock on January 1, 2014 for
$800,000. During 2014, Doane earned $320,000 and paid dividends of $200,000. Rich’s
30% interest in Doane gives Rich the ability to exercise significant influence over
Doane’s operating and financial policies. During 2015, Doane earned $400,000 and paid
dividends of $120,000 on April 1 and $120,000 on October 1 . On July 1, 2015, Rich
sold half of its stock in Doane for $528,000 cash.
Before income taxes, what amount should Rich include in its 2014 income statement as
a result of the investment?
a.$320,000
b.$200,000
c.$96,000
d.$60,000
5) The Revaluation Surplus of IFRS is
a.similar to U.S. GAAP in that it allows both increases and decreases in valuation
b.similar to U.S. GAAP in that it only allows for the decrease in valuation
c.similar to U.S. GAAP in that it only allows for the increase in valuation
d.different than U.S. GAAP in that it allows the increase in valuation
6) Harlan Mining Co. has recently decided to go public and has hired you as an
independent CPA. One statement that the enterprise is anxious to have prepared is a
statement of cash flows. Financial statements of Harlan Mining Co. for 2015 and 2014
are provided below.
BALANCE SHEETS
12/31/1512/31/14
Cash$306,000$ 144,000
Accounts receivable270,000162,000
Inventory288,000360,000
Property, plant and equipment$456,000$720,000
Less accumulated depreciation (240,000) 216,000 (228,000) 492,000
$1,080,000$1,158,000
Accounts payable$ 132,000 $ 72,000
Income taxes payable264,000294,000
Bonds payable270,000450,000
Common stock162,000162,000
Retained earnings 252,000 180,000
$1,080,000$1,158,000
INCOME STATEMENT
For the Year Ended December 31, 2015
Sales revenue$6,300,000
Cost of sales 5,364,000
Gross profit936,000
Selling expenses$450,000
Administrative expenses 144,000 594,000
Income from operations342,000
Interest expense 54,000
Income before taxes288,000
Income taxes 72,000
Net income$ 216,000
The following additional data were provided:
1>Dividends for the year 2015 were $144,000.
2>During the year, equipment was sold for $180,000. This equipment cost $264,000
originally and had a book value of $216,000 at the time of sale. The loss on sale was
incorrectly charged to cost of sales.
3>All depreciation expense is in the selling expense category.
Questions 51 through 55 relate to a statement of cash flows (direct method) for the year
ended December 31, 2015, for Harlan Mining Company.
The net cash provided by operating activities is
a.$306,000
b.$216,000
c.$180,000
d.$150,000
7) The accountant preparing the income statement for Bakersfield, Inc. had some doubts
about the appropriate accounting treatment of the seven items listed below during the
fiscal year ending December 31, 2014 . Assume a tax rate of 40 percent.
1>The corporation experienced an uninsured flood loss of $70,000 before taxes. While
this loss meets the criteria of an extraordinary item, it has not been recorded.
2>The corporation disposed of its sporting goods division during 2014 . This disposal
meets the criteria for discontinued operations. The division correctly calculated income
from operating this division of $110,000 before taxes and a loss of $12,000 before taxes
on the disposal of the division. All of these events occurred in 2014 and have not been
recorded.
3>The company recorded advances of $10,000 to employees made December 31, 2014
as Salaries and Wages Expense.
4>Dividends of $10,000 during 2014 were recorded as an operating expense.
5>In 2014, Bakersfield changed its method of accounting for inventory from the
first-in-first-out method to the average cost method. Inventory in 2014 was correctly
recorded using the average cost method. The new inventory method would have
resulted in an additional $125,000 of cost of goods sold (before taxes) being reported on
prior years’ income statement.
6>Office equipment purchased January 1, 2014 for $60,000 was incorrectly charged to
Supplies Expense at the time of purchase. The office equipment has an estimated
three-year service life with no expected salvage value. Bakersfield uses the straight-line
method to depreciate office equipment for financial reporting purposes. This error has
not been recorded.
7>On January 1, 2010, Bakersfield bought a building that cost $85,000, had an
estimated useful life of ten years, and had a salvage value of $5,000. Bakersfield uses
the
straight-line depreciation method to depreciate the building. In 2014, it was estimated
that the remaining useful life was eight years and the salvage value was zero.
Depreciation expense reported on the 2014 income statement was correctly calculated
based on the new estimates. No adjustment for prior years’ depreciation estimates was
made.
Part A. For each item, record corrections to income from continuing operations before
taxes, if any. Denote any negative numbers by using brackets < >.
Part B. At January 1, 2014, Bakersfield, Inc.’s retained earnings balance was $200,000.
Assume that income from continuing operations (before taxes) and after correctly
considering any of the seven additional items was $1,400,000. Prepare the income
statement and retained earnings statement. Denote negative numbers by using
brackets < >. Do not disclose earnings per share data.
8) Ziggy is considering purchasing a new car. The cash purchase price for the car is
$39,200. What is the annual interest rate if Ziggy is required to make annual payments
of $9,100 at the end of the next five years?
a.4%
b.5%
c.6%
d.7%
9) Which of the following is recognized in the accounts and in the financial statements?
a.Accumulated postretirement benefit obligation
b.Postretirement asset / liability
c.Expected postretirement benefit obligation
d.All of these answers are correct
10) Woodson Company, a company who uses IFRS reporting standards, has identified a
group of plant assets for disposal. On January 1, 2014, the carrying value of these assets
was
$14.5 million. The assets were revalued to $13.5 million on January 5, 2014, when they
were identified as property for the disposal group. In addition, Woodson thinks that it
will cost
$1.5 million to sell these assets. What carrying amount should these assets reflect for
year-end financial statements to be prepared on January 10, 2014?
a.$14.5 million
b.$13.5 million
c.$13.0 million
d.$12.0 million
11) The retail inventory method is based on the assumption that the
a.final inventory and the total of goods available for sale contain the same proportion of
high-cost and low-cost ratio goods
b.ratio of gross margin to sales is approximately the same each period
c.ratio of cost to retail changes at a constant rate
d.proportions of markups and markdowns to selling price are the same
12) Robust Inc. has the following information related to an item in its ending inventory.
Acer Top has a cost of $125, a replacement cost of $117, a net realizable value of $133,
and a normal profit margin of $17. What is the final lower-of-cost-or-market inventory
value for Acer Top?
a.$116
b.$125
c.$117
d.$133
13) What is a LIFO reserve?
a.The difference between the LIFO inventory and the amount used for internal reporting
purposes
b.The tax savings attributed to using the LIFO method
c.The current effect of using LIFO on net income
d.Change in the LIFO inventory during the year
14) Detailed guidance regarding the accounting and reporting for the indirect effects of
changes in accounting principle is available under
a.both U.S. GAAP and IFRS
b.neither U.S. GAAP nor IFRS
c.U.S. GAAP only
d.IFRS only
15) In January, 2014, Yager Corporation purchased a mineral mine for $5,100,000 with
removable ore estimated by geological surveys at 2,000,000 tons. The property has an
estimated value of $300,000 after the ore has been extracted. The company incurred
$1,500,000 of development costs preparing the mine for production. During 2014,
500,000 tons were removed and 400,000 tons were sold. What is the amount of
depletion that Yager should expense for 2014?
a.$960,000
b.$1,200,000
c.$1,260,000
d.$1,680,000
16) A plant asset with a five-year estimated useful life and no residual value is sold at
the end of the second year of its useful life. How would using the
sum-of-the-years’-digits method of depreciation instead of the double-declining balance
method of depreciation affect a gain or loss on the sale of the plant asset?
Gain Loss
a.DecreaseDecrease
b.DecreaseIncrease
c.IncreaseDecrease
d.IncreaseIncrease