1) In computing the annual lease payments, the lessor deducts only a guaranteed
residual value from the fair value of a leased asset.
2) Prior service cost is amortized into income over the expected service lives of
employees under both U.S. GAAP and IFRS.
3) The historical cost principle would be of limited usefulness if not for the going
concern assumption.
4) The direct method, also called the reconciliation method, reports cash receipts and
cash disbursements from operating activities.
5) Users of financial statements are assumed to need no knowledge of business and
financial accounting matters to understand information contained in financial
statements.
6) Research and development costs that result in patents may be capitalized to the
extent of the fair value of the patent.
7) Under IFRS, interest costs incurred during construction of a plant asset cannot be
capitalized.
8) Under IFRS, the discount rate should reflect risks for which future cash flow
estimates have been adjusted.
9) The change in the LIFO Reserve from one period to the next is recorded as an
adjustment to Cost of Goods Sold.
10) Barkley Company will receive $400,000 in a future year. If the future receipt is
discounted at an interest rate of 8%, its present value is $252,068. In how many years is
the $400,000 received?
a.5 years
b.6 years
c.7 years
d.8 years
11) Which of the following costs incurred internally to create an intangible asset is
generally expensed?
a.Research and development costs
b.Filing costs
c.Legal costs
d.All of these answer choices are correct
12) Plank Co. uses the retail inventory method. The following information is available
for the current year.
Cost Retail
Beginning inventory$ 234,000$366,000
Purchases885,0001,245,000
Freight-in15,000
Employee discounts6,000
Net markups45,000
Net markdowns60,000
Sales revenue1,170,000
Assuming that the LIFO inventory method is used, that the beginning inventory is the
base inventory when the index was 100, and that the index at year end is 112, the
ending inventory at dollar-value LIFO retail cost is
a.$241,379
b.$278,271
c.$287,700
d.$307,440
13) On August 1, 2014, Hayes Corporation purchased a new machine on a deferred
payment basis. A down payment of $12,000 was made and 4 monthly installments of
$10,000 each are to be made beginning on September 1, 2014 . The cash equivalent
price of the machine was $48,000. Hayes incurred and paid installation costs amounting
to $2,000. The amount to be capitalized as the cost of the machine is
a.$48,000
b.$50,000
c.$52,000
d.$54,000
14) Which of the following is not considered research and development costs?
a.Planned search or critical investigation aimed at discovery of new knowledge
b.Translation of research findings or other knowledge into a plan or design for a new
product or process
c.Translation of research findings or other knowledge into a significant improvement of
an existing product
d.Cost of marketing research to promote a new product
15) On January 1, 2014, Haley Co. issued ten-year bonds with a face amount of
$4,000,000 and a stated interest rate of 8% payable annually on January 1 . The bonds
were priced to yield 10%. Present value factors are as follows:
At 8%At 10%
Present value of 1 for 10 periods0.4630.386
Present value of an ordinary annuity of 1 for 10 periods6.7106.145
The total issue price of the bonds was
a.$4,000,000
b.$3,920,000
c.$3,680,000
d.$3,510,400
16) Which of the following types of intangible assets result from interactions and
relationships with outside parties?
a.Marketing-related intangible assets
b.Customer-related intangible assets
c.Contract-related intangible assets
d.Artistic-related intangible assets
17) 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. Each of the following accounts increased during 2015:
Accounts receivable$2,200
Inventory$4,500
Prepaid rent$6,800
Available-for-sale securities$1,000
Accounts payable$5,000
What is the amount of cash provided by operating activities for Jarvis, Inc. for the year
ended December 31, 2015?
a.$41,200
b.$43,900
c.$32,200
d.$42,200
18) In order to be classified as an extraordinary item in the income statement, an event
or transaction should be
a.unusual in nature, infrequent, and material in amount
b.unusual in nature and infrequent, but it need not be material
c.infrequent and material in amount, but it need not be unusual in nature
d.unusual in nature and material, but it need not be infrequent
19) Which of the following is not a basic assumption of the gross profit method?
a.The beginning inventory plus the purchases equal total goods to be accounted for
b.Goods not sold must be on hand
c.If the sales, reduced to the cost basis, are deducted from the sum of the opening
inventory plus purchases, the result is the amount of inventory on hand
d.The total amount of purchases and the total amount of sales remain relatively
unchanged from the comparable previous period
20) At the beginning of 2015, Pitman Co. purchased an asset for $1,200,000 with an
estimated useful life of 5 years and an estimated salvage value of $100,000. For
financial reporting purposes the asset is being depreciated using the straight-line
method; for tax purposes the double-declining-balance method is being used. Pitman
Co.s tax rate is 40% for 2015 and all future years.
At the end of 2015, what are the book basis and the tax basis of the asset?
Book basisTax basis
a.$880,000$620,000
b.$980,000$620,000
c.$980,000$720,000
d.$880,000$720,000
21) Tongas Company applies revaluation accounting to plant assets with a carrying
value of $1,600,000, a useful life of 4 years, and no salvage value. Depreciation is
calculated on the straight-line basis. At the end of year 1, independent appraisers
determine that the asset has a fair value of $1,500,000.
The journal entry to adjust the plant assets to fair value and record revaluation surplus
in year one will include a
a.debit to Accumulated Depreciation for $100,000
b.credit to Depreciation Expense for $300,000
c.credit to Plant Assets for $300,000
d.credit to Revaluation Surplus for $300,000
22) In all pension plans, the accounting problems include all the following except
a.measuring the amount of pension obligation
b.disclosing the status and effects of the plan in the financial statements
c.allocating the cost of the plan to the proper periods
d.determining the level of individual premiums
23) Under IFRS, which of the following would be included in the cost of inventories?
a.Product specific designer costs
b.Abnormal waste materials
c.Selling costs
d.All of these would be included in the cost of inventories.
24) The information below relates to Milton Company’s trading securities in 2014 and
2015 .
(a)Prepare the journal entries for the following transactions.
January 1, 2014Purchased $400,000 par value of GLF Company bonds at 97 plus
accrued interest. The bonds pay interest annually at 9% each December 31 . Broker’s
commission was $4,000.
September 1, 2014Sold $200,000 par value of GLF Company bonds at 94 plus accrued
interest. Broker’s commission, taxes, and fees were $2,000.
September 5, 2014Purchased 5,000 shares of Hayes, Inc. common stock for $30 per
share. The broker’s commission on the purchase amounted to $2,000.
December 31, 2014Make the appropriate entry for the GLF Company bonds.
December 31, 2014The market prices of the trading securities at December 31 were:
Hayes, Inc. common stock, $31 per share; and GLF Company bonds, 99. Make the
appropriate entry.
July 1, 2015Milton sold 1/2 of the Hayes, Inc. common stock at $33 per share. Broker’s
commissions, taxes, and fees were $1,000.
December 1, 2015Milton purchased 600 shares of Ramirez, Inc. common stock at $45
per share. Broker’s commission was $500.
December 31, 2015Make the appropriate entry for the GLF Company bonds.
December 31, 2015The market prices of the trading securities at December 31 were:
Hayes, Inc. common stock, $34 per share; GLF Company bonds, 98; and Ramirez, Inc.
common stock, $47 per share. Make the appropriate entry.
(b)Present the financial statement disclosure (balance sheet and income statement) of
Milton Company’s transactions in trading securities for each of the years 2014 and 2015
. Appropriate financial statement subheadings must be disclosed.
25) Which of the following properly describes a deferral?
a.Cash is received after revenue is recognized
b.Cash is received before revenue is recognized
c.Cash is paid after expense is incurred
d.Cash is paid in the same time period that an expense is incurred
26) Nominal accounts are also called
a.temporary accounts
b.permanent accounts
c.real accounts
d.None of these answer choices are correct
27) Telfer Co. uses the gross method to record sales made on credit. On July 1, 2014, it
made sales of 75,000 with terms 2/10 n/30. On July 9, 2014, Telfer received full
payment for the July 1 sale. Prepare the required journal entries for Telfer Co.
28) Miles Co. had the following selected balances at December 31, 2015:
Projected benefit obligation$4,650,000
Accumulated benefit obligation4,550,000
Fair value of plan assets4,340,000
Accumulated OCI (PSC)170,000
Instructions
Calculate the pension asset / liability to be recorded at December 31, 2015 .
29) What accounting treatment is required for convertible debt and why? What
accounting treatment is required for debt issued with stock warrants and why?
30) GAAP is a product of careful logic or empirical findings and is not influenced by
political action.
31) Montoya Company has available the following information about its
defined-benefit pension plan for the year ending December 31, 2015:
Service cost for 2015$ 25,000
Accumulated benefit obligation683,000
Plan assets at fair value630,000
Accumulated OCI (PSC)300,000
Vested benefit obligation505,000
Market-related asset value725,000
Projected benefit obligation845,000
Accumulated OCI net gain90,000
Interest on projected benefit obligation64,000
Instructions
Calculate the pension asset / liability to be recorded at December 31, 2015 .
Calculate the 2016 amortization of the net gain. The average remaining service life of
employees is 10 years.
32) The net changes in the balance sheet accounts of Eusey, Inc. for the year 2015 are
shown below:
Account Debit Credit
Cash$ 95,600
Accounts receivable$ 64,000
Allowance for doubtful accounts10,000
Inventory197,200
Prepaid expenses20,000
Long-term investments144,000
Land400,000
Buildings650,000
Machinery100,000
Equipment28,000
Accumulated depreciation:
Buildings24,000
Machinery20,000
Equipment12,000
Accounts payable183,200
Accrued liabilities72,000
Dividends payable128,000
Premium on bonds36,000
Bonds payable900,000
Preferred stock ($50 par)60,000
Common stock ($10 par)156,000
Additional paid-in capitalcommon223,200
Retained earnings 87,200
$1,805,200$1,805,200
Additional information:
1>Income Statement Data for Year Ended December 31, 2015
Income before extraordinary item$272,000
Extraordinary loss: Condemnation of land 132,000
Net income$140,000
2>Cash dividends of $128,000 were declared December 15, 2015, payable January 15,
2016 . A 5% stock dividend was issued March 31, 2015, when the market value was
$22.00 per share.
3>The long-term investments were sold for $140,000.
4>A building and land which cost $480,000 and had a book value of $350,000 were
sold for $400,000. The cost of the land, included in the cost and book value above, was
$20,000.
5>The following entry was made to record an exchange of an old machine for a new
one:
Machinery 160,000
Accumulated DepreciationMachinery40,000
Machinery 60,000
Cash 140,000
6>A fully depreciated copier machine which cost $28,000 was written off.
7>Preferred stock of $60,000 par value was redeemed for $80,000.
8>The company sold 12,000 shares of its common stock ($10 par) on June 15, 2015 for
$25 a share. There were 87,600 shares outstanding on December 31, 2015 .
9>Bonds were sold at 104 on December 31, 2015 .
10>Land that was condemned had a book value of $240,000.
Instructions
Prepare a statement of cash flows (indirect method). Ignore tax effects.
33) Quigley Co. bought a machine on January 1, 2013 for $1,400,000. It had a
$120,000 estimated residual value and a ten-year life. An expense account was debited
on the purchase date. Quigley uses straight-line depreciation. This was discovered in
2015 .
Instructions
Prepare the entry or entries related to the machine for 2015 .
34) Below is the information relative to an exchange of assets by Stanton Company.
The exchange lacks commercial substance.
Which of the following would be correct for Stanton to record in Case II?
35) Reed Co. wishes to enter receipts and payments in such a manner that adjustments
at the end of the period will not require reversing entries at the beginning of the next
period. Record the following transactions in the indicated manner and give the adjusting
entry on December 31, 2014 . (Two entries for each part.)
1>An insurance policy for two years was acquired on April 1, 2014 for $18,000.
2>Rent of $12,000 for six months for a portion of the building was received on
November 1, 2014 .
36) Users of financial reports of a company use the information provided by these
reports to make their capital allocation decisions.