1) Pretax financial income is the amount used to compute income taxes payable.
2) All long-term debt maturing within the next year must be classified as a current
liability on the balance sheet.
3) If the loss on an account receivable results from a customers bankruptcy after the
balance sheet date, the company only discloses this information in the notes to the
financial statements.
4) The primary difference between a direct-financing lease and a sales-type lease is the
manufacturers or dealers gross profit (or loss).
5) The FASB makes it mandatory to use only the years-of-service method for
amortization of prior service cost.
6) When prepaid expenses decrease during a period, expenses on the accrual-basis are
lower than they are on a cash-basis.
7) Dividends in arrears on cumulative preferred stock should be recorded as a current
liability.
8) The rules used to account for impairments of limited-life intangible assets are
different from the rules used to account for impairments of plant and equipment.
9) Which of the following differs in GAAP and IFRS?
a.Calculation of EPS
b.Model for recognizing stock-based compensation
c.Accounting for convertible debt
d.Modification of a share option
10) In the blank to the left of each question, fill in the letter from the following list
which best describes the presentation of the item on the financial statements of Helton
Corporation for 2015 .
a.Change in estimate
b.Prior period adjustment (not due to change in principle)
c.Retrospective type accounting change with note disclosure
d.None of the above
1> In 2015, the company changed its method of recognizing income from the
completed-contract method to the percentage-of-completion method.
2> At the end of 2015, an audit revealed that the corporation’s allowance for doubtful
accounts was too large and should be reduced to 2%. When the audit was made in 2014,
the allowance seemed appropriate.
3> Depreciation on a truck, acquired in 2012, was understated because the service life
had been overestimated. The understatement had been made in order to show higher net
income in 2013 and 2014 .
4> The company switched from a LIFO to a FIFO inventory valuation method during
the current year.
5> In the current year, the company decides to change from expensing certain costs to
capitalizing these costs, due to a change in the period benefited.
6> During 2015, a long-term bond with a carrying value of $3,600,000 was retired at a
cost of $4,100,000.
7> After negotiations with the IRS, income taxes for 2013 were established at $42,900.
They were originally estimated to be $28,600.
8> In 2015, the company incurred interest expense of $29,000 on a 20-year bond issue.
9> In computing the depreciation in 2013 for equipment, an error was made which
overstated income in that year $75,000. The error was discovered in 2015 .
10> In 2015, the company changed its method of depreciating plant assets from the
double-declining balance method to the straight-line method.
11) Jarvis, Inc. reported net income of $44,000 for the year ended December 31, 2015
Included in net income were depreciation expense of $8,400 and a gain on sale of
equipment of $1,700. The equipment had an historical cost of $40,000 and accumulated
depreciation of $24,000. Each of the following accounts increased during 2015:
Patents$5,500
Prepaid rent$6,800
Available-for-sale securities$1,000
Bonds payable$5,000
What is the amount of cash provided by or used by investing activities for Jarvis, Inc.
for the year ended December 31, 2015?
a. ( $ 4,800)
b.$16,700
c.$11,200
d.$12,200
12) Alex Company prepares its statement of cash flows using the direct method for
operating activities. For the year ended December 31, 2015, Alex Company reports the
following activity:
Sales on account$1,400,000
Cash sales740,000
Decrease in accounts receivable610,000
Increase in accounts payable72,000
Increase in inventory48,000
Cost of goods sold1,050,000
What is the amount of cash payments to suppliers reported by Alex Company for the
year ended December 31, 2015?
a.$1,026,000
b.$1,074,000
c.$1,170,000
d.$ 930,000
13) All of the following statements regarding accounting for derivatives are correct
except that
a.they should be recognized in the financial statements as assets and liabilities
b.they should be reported at fair value
c.gains and losses resulting from speculation should be deferred
d.gains and losses resulting from hedge transactions are reported in different ways,
depending upon the type of hedge
14) Which of the following does not describe intangible assets?
a.They lack physical existence
b.They are financial instruments
c.They provide long-term benefits
d.They are classified as long-term assets
15) The following information is available for Kessler Company after its first year of
operations:
Income before taxes$250,000
Federal income tax payable$104,000
Deferred income tax (4,000)
Income tax expense 100,000
Net income$150,000
Kessler estimates its annual warranty expense as a percentage of sales. The amount
charged to warranty expense on its books was $85,000. Assuming a 40% income tax
rate, what amount was actually paid this year for warranty claims?
a.$95,000
b.$100,000
c.$85,000
d.$75,000
16) The following information for Cooper Enterprises is given below:
December 31, 2015
Assets and obligations
Plan assets (at fair value)$400,000
Accumulated benefit obligation740,000
Projected benefit obligation800,000
Other Items
Pension asset / liability, January 1, 201520,000
Contributions 240,000
Accumulated other comprehensive loss335,800
There were no actuarial gains or losses at January 1, 2015 . The average remaining
service life of employees is 10 years.
The amortization of Other Comprehensive Loss for 2016 is:
a.$0
b.$25,580
c.$46,000
d.$33,580
17) The failure to properly record an adjusting entry to accrue a revenue item will result
in an
a.understatement of revenues and an understatement of liabilities
b.overstatement of revenues and an overstatement of liabilities
c.overstatement of revenues and an overstatement of assets
d.understatement of revenues and an understatement of assets
18) Sutherland Company purchased machinery for $960,000 on January 1, 2011 .
Straight-line depreciation has been recorded based on a $60,000 salvage value and a
5-year useful life. The machinery was sold on May 1, 2015 at a gain of $18,000. How
much cash did Sutherland receive from the sale of the machinery?
a.$138,000
b.$162,000
c.$198,000
d.$258,000
19) How should the balances of progress billings and construction in process be shown
at reporting dates prior to the completion of a long-term contract?
a.Progress billings as deferred income, construction in progress as a deferred expense
b.Progress billings as income, construction in process as inventory
c.Net balance, as a current asset if debit balance, and current liability if credit balance
d.Net balance, as income from construction if credit balance, and loss from construction
if debit balance
20) Arlington Company is constructing a building. Construction began on January 1 and
was completed on December 31 . Expenditures were $4,800,000 on March 1,
$3,960,000 on June 1, and $6,000,000 on December 31 . Arlington Company borrowed
$2,400,000 on January 1 on a 5-year, 12% note to help finance construction of the
building. In addition, the company had outstanding all year a 10%, 3-year, $4,800,000
note payable and an 11%, 4-year, $9,000,000 note payable.
What is the avoidable interest for Arlington Company?
a.$288,000
b.$927,615
c.$328,562
d.$704,415
21) Which of the following is true regarding IFRS and GAAP?
a.Due to the broader range of options available under U.S. GAAP compared to IFRS,
note disclosures are generally more expansive under U.S. GAAP than under IFRS
b.IFRS requires companies to prepare interim reports on a quarterly basis
c.IFRS requires segment reporting, and uses the management approach to identify
reportable segments
d.U.S. GAAP requires companies to disclose transactions with related parties, including
the name of the related party and any doubtful amounts related to outstanding balances
for the related party
22) Which of the following is true of normal shortages?
a.it is ignored in the income statement of a company
b.it is deducted from both the cost and retail columns
c.These goods are no longer available for sale
d.This loss is considered in calculating cost-to-retail ratio
23) Roasten Corp.’s payroll for the pay period ended October 31, 2014 is summarized
as follows:
Federal Amount of Wages Subject
DepartmentTotalIncome Tax to Payroll Taxes
Payroll Wages Withheld F.I.C.A.Unemployment
Factory$ 75,000$ 9,000$70,000$32,000
Sales22,0003,00016,0002,000
Office 18,000 2,000 8,000
$115,000$14,000$94,000$34,000
Assume the following payroll tax rates:
F.I.C.A. for employer and employee7% each
Unemployment3%
What amount should Roasten accrue as its share of payroll taxes in its October 31, 2014
balance sheet?
a.$21,600
b.$15,020
c.$14,180
d.$7,600
24) The International Accounting Standards Board has proposed changes to IFRS
pension accounting including all of the following except
a.elimination of smoothing via the corridor approach
b.different presentation of pension costs in the income statement
c.requiring recognition of actuarial gains and losses over the expected service lives of
employees
d.a new category of pensions for accounting purpose – contribution-based promises
25) Unearned revenue on the books of one company is likely to be
a.a prepaid expense on the books of the company that made the advance payment
b.an unearned revenue on the books of the company that made the advance payment
c.an accrued expense on the books of the company that made the advance payment
d.an accrued revenue on the books of the company that made the advance payment
26) How much must be deposited on January 1, 2014 in a savings account paying 6%
annually in order to make annual withdrawals of $30,000 at the end of the years 2014
and 2015? The present value of one at 6% for one period is .9434.
a.$55,002
b.$56,610
c.$60,000
d.$26,700
27) A major objective of MACRS for tax depreciation is to
a.reduce the amount of depreciation deduction on business firms’ tax returns
b.assure that the amount of depreciation for tax and book purposes will be the same
c.help companies achieve a faster write-off of their capital assets
d.require companies to use the actual economic lives of assets in calculating tax
depreciation
28) An IFRS statement might include all of the following except
a.net income or loss
b.unrealized gains or losses on the revaluation of long-term assets
c.cumulative effect of a change in accounting principle
d.extraordinary gain or loss
29) Explain the procedures used by the lessee to account for a capital lease.
30) Briefly describe some of the similarities and differences between U.S. GAAP and
IFRS with respect to the accounting for dilutive securities, stock-based compensation,
and earnings per share.
31) Freds Company is considering the write-off of a limited life intangible asset
because of its lack of profitability. Explain to the management of Freds how to
determine whether a writeoff is permitted.
32) Contrast the cash basis of accounting with the accrual basis of accounting.
33) On April 1, Paine Co. began construction of a small building. Payments of
$240,000 were made monthly for four months beginning on April 1 . The building was
completed and ready for occupancy on August 1 . For the purpose of determining the
amount of interest cost to be capitalized, calculate the weighted-average accumulated
expenditures on the building by completing the schedule below:
DateExpendituresCapitalization PeriodWeighted-Ave. Accum. Expend.
34) On January 1, 2015, Warren Corporation had 1,000,000 shares of common stock
outstanding. On March 1, the corporation issued 150,000 new shares to raise additional
capital. On July 1, the corporation declared and issued a 2-for-1 stock split. On October
1, the corporation purchased on the market 500,000 of its own outstanding shares and
retired them.
Instructions
Compute the weighted average number of shares to be used in computing earnings per
share for 2015 .
35) During 2014 and 2015, Sawyer Corporation experienced several transactions
involving plant assets. A number of errors were made in recording some of these
transactions. For each item listed below, indicate the effect of the error (if any) in the
blanks provided by using the following codes:
O = Overstate; U = Understate; NE = No Effect
If no error was made, write NE in each of the four columns.
20142015
Net BookNet Book
Value ofValue of
Plant2014Plant2015
Assets atNetAssets atNet
Transaction12/31/14Income12/31/15Income
1>The cost of installing a new computer system in 2014 was not recorded in 2014 . It was
charged to expense in 2015 .
2>In 2015 clerical workers were trained to use the new computer system at a cost of
$15,000, which was erroneously capital-ized. The cost is to be written off over the
expected life of the new computer system.
3>A major overhaul of factory machinery in 2014, which extended its useful life by 5
years, was charged to accumulated depreciation in 2014 .
4>Interest cost qualifying for capitalization in 2014 was charged to interest expense in
2014 .
5>In 2014 land was bought for an employee parking lot. The $2,000 title search fee was
charged to expense in 2014 .
6>The cost of moving several manufacturing facilities from metropolitan locations to
suburban areas in 2014 was capitalized. The cost was written off over a 10-year period
beginning in 2014 .
36) The passage of a new FASB Accounting Standards Update requires the support of
five of the seven board members.
37) Prepare journal entries to record the following retirement. (Show computations and
round to the nearest dollar.)
The December 31, 2014 balance sheet of Wolfe Co. included the following items:
7.5% bonds payable due December 31, 2022$2,000,000
Unamortized discount on bonds payable80,000
The bonds were issued on December 31, 2012 at 95, with interest payable on June 30
and December 31 . (Use straight-line amortization.)
On April 1, 2015, Wolfe retired $400,000 of these bonds at 101 plus accrued interest.
38) Presented below is information related to Noble Inc. as of December 31, 2015.
Accumulated OCI (G/L)$ 90,000
Projected benefit obligation3,650,000
Accumulated benefit obligation3,420,000
Vested benefits1,620,000
Plan assets (at fair value)3,354,000
Accumulated OCI (PSC)-0-