1) Which of the following would be subtracted from net income when using the indirect
method to derive net cash flows from operating activities?
a. Decrease in net accounts receivable
b. Loss on sale of investments
c. Decrease in salaries and wages payable
d. Depreciation expense
2) Which item describes whether the following accounts would be included in the
calculation of the acid-test (quick) ratio?
Accounts Receivable Inventories
a. No No
b. No Yes
c. Yes No
d. Yes Yes
3) Laid Back Corp. follows the practice of paying all employees for vacation. The
vacation pay is not vested, but it carries over for one year if unused. Under GAAP, the
obligation for earned but unused vacation should be
a. accrued as a current liability
b. disclosed as a contingent liability
c. ignored until incurred
d. accrued or not accrued according to the judgment of management
4) On the statement of cash flows using the indirect method, an increase in the deferred
tax liability would be shown as
a. an addition to net income
b. a deduction from net income
c. an increase in investing activities
d. an increase in financing activities
5) Which of the following is NOT added to net income as an adjustment to reconcile net
income to cash from operating activities on the statement of cash flows?
a. Increase in an accrued liability
b. Amortization of discount on bond payable
c. Loss on sale of operational asset
d. Increase in deferred tax asset
6) On January 1, 2014, Yearly Corporation issued $500,000 of 10 percent, 10-year
bonds at 88.5. Interest is payable on December 31. If the market rate of interest was 12
percent at the time the bonds were issued, how much cash was paid for interest in 2014?
a. $44,250
b. $50,000
c. $53,100
d. $60,000
7) Which of the following is NOT one of the basic shareholders rights?
a. The right to participate in earnings
b. The right to maintain one’s proportional interest in the corporation
c. The right to participate in the proceeds of the sale of corporate assets upon liquidation
of the corporation
d. The right to inspect the accounting records of the corporation
8) Modesto, Inc. leased machinery with a fair value of $250,000 from Layton Machine
Co. on December 31, 2014. The contract is a six-year noncancelable lease with an
implicit interest rate of 10 percent. The lease requires annual payments of $50,000
beginning December 31, 2014. Modesto appropriately accounted for the lease as a
capital lease. Modesto’s incremental borrowing rate is 12 percent. Assuming the present
value of an annuity due of 1 for 6 years at 10 percent is 4.7908 and the present value of
an annuity due of 1 for 6 years at 12 percent is 4.6048, what is the lease liability that
Modesto should report on the balance sheet at December 31, 2014?
a. $189,540
b. $200,000
c. $230,240
d. $239,540
9) Pueblo Corporation had 100 shares of common stock issued and outstanding at
December 31, 2013. On July 1, 2014, Pueblo issued a 10 percent stock dividend.
Unexercised stock options to purchase 20 shares of common stock (adjusted for the
2014 stock dividend) at $20 per share were outstanding at the beginning and end of
2014. The average market price of Pueblos common stock (which was not affected by
the stock dividend) was $25 per share during 2014. The ending market price was $40.
Net income for the year ended December 31, 2014, was $2,200.
What was Pueblos 2014 basic earnings per share, rounded to the nearest cent?
a. $19.30
b. $20.00
c. $20.20
d. $20.96
10) A common business transaction that would not affect the amount of owners’ equity
is
a. signing a note payable to purchase equipment
b. payment of property taxes
c. billing of customers for services rendered
d. payment of dividends
11) A trial balance is useful because it indicates that
a. owners’ equity is correct
b. net income is correct
c. all entries were made correctly
d. total debits equal total credits
12) Which of the following inventory costing methods reports most closely the current
cost of inventory on the balance sheet?
a. FIFO
b. Specific identification
c. Weighted average
d. LIFO
13) The lessee’s balance sheet liability for a capital lease would be periodically reduced
by the
a. minimum lease payment
b. minimum lease payment plus the amortization of the related asset
c. minimum lease payment less the amortization of the related asset
d. minimum lease payment less the portion of the minimum lease payment allocable to
interest
14) Which of the following is not presented in an income statement?
a. Revenues
b. Expenses
c. Net income
d. Dividends
15) Which of the following statements is NOT correct?
a. All current deferred tax liabilities and assets shall be offset and presented as a single
amount on the balance sheet
b. Deferred tax assets related to carryforwards shall be classified as current or
noncurrent on the balance sheet based on their expected date of reversal
c. All current and noncurrent deferred tax assets shall be offset and presented as a single
amount on the balance sheet
d. Deferred tax liabilities and assets shall be classified as current or noncurrent on the
balance sheet based on the classification of the asset or liability giving rise to the
deferred tax item
16) The par value of common stock represents the
a. liquidation value of the stock
b. book value of the stock
c. amount received by the corporation when the stock was originally issued
d. legal nominal value assigned to the stock
17) The stockholders’ equity section of Sliver Corporation’s balance sheet at December
31, 2014, was as follows:
On January 2, 2015, Sliver purchased and retired 100,000 shares of its stock for
$1,800,000. Sliver records treasury stock using the par value method. Immediately after
retirement of these 100,000 shares, the balances in the additional paid-in capital and
retained earnings accounts should be
Paid-In Capital Retained
in Excess of Par Earnings
a. $900,000 $1,300,000
b. $1,400,000 $800,000
c. $1,900,000 $1,300,000
d. $2,400,000 $800,000
18) Tonale Company began operations in 2014. During the first two years of operations,
Tonale made undiscovered errors in taking its year-end inventories that overstated 2014
ending inventory by $50,000 and overstated 2015 ending inventory by $40,000. The
combined effect of these errors on reported income is
2014 2015 2016
a. overstated $50,000 overstated $90,000 understated $40,000
b. overstated $50,000 overstated $40,000 not affected
c. understated $50,000 understated $90,000 not affected
d. overstated $50,000 understated $10,000 understated $40,000
19) Crescent Corporation’s interest revenue for 2013 was $13,100. Accrued interest
receivable on December 31, 2013, was $2,275 and $1,875 on December 31, 2012. The
cash received for interest during 2013 was
a. $1,350
b. $10,825
c. $12,700
d. $13,100
20) Which of the following arguments is supportive of allocation of income taxes?
a. Future predictions of net income are enhanced when income taxes are allocated
b. Income tax expense computed under interperiod tax allocation is a better predictor of
future cash flows than income taxes actually paid
c. Income tax is not an expense; it is a sharing of profits with government
d. Income tax expense based on actual payments is more understandable to users than
allocated income taxes
21) How would a stock split affect each of the following?
Total
Stockholders’ Additional
Assets Equity Paid-In Capital
a. Increase Increase No effect
b. No effect No effect No effect
c. No effect No effect Increase
d. Decrease Decrease Decrease
22) See Laramie Corporation information above. The amount reported on Laramie
Corporation’s December 31, 2015, balance sheet as stockholders’ equity was
a. $400,000
b. $550,000
c. $950,000
d. $963,000
23) Carbon Companys accounting records provided the following information (all
amounts in thousands of dollars):
All assets and liabilities of the firm are reported in the schedule above. Working capital
of $92 remained unchanged from 2012 to 2013. Net income in 2011 was $64. No
dividends were declared during 2013 and there were no other changes in owners equity.
Total long-term liabilities at the end of 2013 would be
a. $340
b. $432
c. $580
d. $616
24) Omega Company reported net incomes in 2013 and 2014 before sustaining a
significant operating loss in 2015. All of the 2015 loss can be carried back against the
income of 2013 and 2014 for purposes of determining the company’s 2015 income tax
liability. How should the carryback be presented in the company’s 2015 financial
statements?
a. As an extraordinary item in the income statement
b. As a revenue from operations in the income statement
c. As the correction of an error in the retained earnings statement
d. As a reduction in the operating loss on the income statement for the year 2015
25) Bank statements provide information about all of the following except
a. checks cleared during the period
b. NSF checks
c. bank charges for the period
d. errors made by the company
26) Gold Coast Supplies had 80,000 shares of common stock outstanding at January 1.
On May 1, Gold Coasts Supplies issued 21,500 shares of common stock. Outstanding
all year were 30,000 shares of nonconvertible preferred stock on which a dividend of $3
per share was paid in December. Net income for the year was $300,000. Gold Coast
Supplies should report basic earnings per share for the year of
a. $2.07
b. $2.23
c. $3.18
d. $3.26
27) See Harrington Co. information above. Under the percentage-of-completion
method, how much should Harrington recognize as gross profit for 2014?
a. $0
b. $40,000
c. $80,000
d. $100,000
28) One component of net pension expense, unrecognized gains and losses, comes from
which of the following sources?
a. Difference between expected and actual prior service and transition costs only
b. Difference between expected and actual return on plan assets only
c. Projected benefit obligation changes due to changes in pension assumptions only
d. Projected benefit obligation changes due to changes in pension assumptions only, and
the difference between expected and actual return on plan assets
29) Florence Enterprises, a subsidiary of Verona Company based in New York, reported
the following information at the end of its first year of operations (all in euros):
assets–1,320,000; expenses–340,000; liabilities–880,000; capital stock–80,000,
revenues–400,000. Relevant exchange rates are as follows:
As a result of the translation process, what amount is recorded on the financial
statements as the translation adjustment?
a. $25,200 debit adjustment
b. $34,800 debit adjustment
c. $34,800 credit adjustment
d. $25,200 credit adjustment
30) The total interest expense on a $300,000, 10 percent, 10-year bond issued at 95
would be
a. $290,000
b. $295,000
c. $300,000
d. $315,000
31) A firm sold an investment in securities available for sale originally costing $30,000,
for $28,000. At the beginning of the year, the investment had a valuation allowance of
$3,000, debit. What is the correct disclosure for these events in the statement of cash
flows prepared under the direct method, assuming this is the only investment in
securities available for sale?
a. $28,000 investing cash inflow; add $33,000 in the reconciliation of earnings and net
operating cash flow
b. $28,000 investing cash inflow; add $2,000 in the reconciliation of earnings and net
operating cash inflow
c. $28,000 investing cash inflow; add $5,000 in the reconciliation of earnings and net
operating cash inflow
d. Add $5,000 in the reconciliation of earnings and net operating cash flow.
32) A portion of the long-term liability footnote to the 2014 annual report of Tremor
Corporation follows:
The debentures were issued on January 1 of a previous year and pay interest each
December 31. The debentures retired were scheduled to mature December 31, 2024.
The retirement of the debentures occurred December 31, 2014. Tremor paid the market
value of the bonds which represented a yield rate of 8%.
Required:
33) Sandusky Enterprise purchased a machine on January 3, 2011. The machine cost
$46,000 with an estimated salvage value of $2,000 and an estimated useful life of 10
years. As a result of technological improvements, a revision of the machine’s useful life
and estimated salvage value was made. On January 1, 2014, the equipment was
estimated to last through 2015 with an estimated value at that time of $500. Sandusky
uses the straight-line method for depreciation.
Prepare the journal entry to record depreciation on December 31, 2014.
34) Spiritlight Ventures shows the following information in their income statements:
Calculate the following ratios for 2014 and 2013 using the given data:
35) Jaguar Corp. purchased a patent on January 2, 2009, for $700,000. The original life
of the patent was estimated to be 14 years. In December of 2014, the company received
information that the patent would be obsolete within 4 years. Accordingly, the company
decided to write off the unamortized portion of the patent cost over 5 years beginning in
2014.
How would the change in useful life be reflected in the accounts for 2014 and
subsequent years?
36) The following data are available for Lions Share Company:
The company has experienced a temporary LIFO liquidation by not maintaining the
base year inventory of 20,000 units. The company uses a perpetual inventory system.
Prepare the entries to account for the temporary liquidation and the replacement of the
liquidated units assuming that 8,000 units will be replaced at $1.60 per unit
37) The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 133, “Accounting for Derivatives and Hedging Activities,” as
part of its project on financial instruments and its effort to deal with off-balance-sheet
financing.
Explain what is meant by the term “off-balance-sheet financing” and give two reasons
why “off-balance-sheet financing” is attractive to the management of an enterprise.
38) The following is information from the books of Masters Light Corporation:
Using these data, estimate the cost of ending inventory for each situation below: