1) companies frequently use the composite approach when the assets are similar in
nature and have approximately the same useful lives.
2) when it is impossible to determine whether a change in principle or change in
estimate has occurred, the change is considered a change in estimate.
3) similar to u.s. practice, ifrs requires that companies present current and noncurrent
liabilities on the face of the balance sheet, with current liabilities generally presented in
order of liquidity.
4) many companies do not segregate the sales tax collected and the amount of the sale
at the time of the sale.
5) under ifrs, the measurement of a provision related to a contingency is based on an
average estimate of the expenditure required to settle the obligation.
6) reversing entries are made at the end of the accounting cycle to correct errors in the
original recording of transactions.
7) the cost of acquiring a customer list from another company is recorded as an
intangible asset.
8) cash equivalents are investments with original maturities of six months or less.
9) companies record corrections of errors from prior periods as an adjustment to the
beginning balance of retained earnings in the current period.
10) when a corporation sells treasury stock below its cost, it usually debits the
difference between cost and selling price to paid-in capital from treasury stock.
11) companies account for the exchange of nonmonetary assets on the basis of the fair
value of the asset given up or the fair value of the asset received.
12) presented below is the income statement of cowan, inc.:
sales$380,000
cost of goods sold 225,000
gross profit$155,000
operating expenses 85,000
income before income taxes70,000
income taxes 28,000
net income$ 42,000
in addition, the following information related to net changes in working capital is
presented:
the company also indicates that depreciation expense for the year was $16,700 and that
the deferred tax liability account increased $2,600.
instructions
prepare a schedule computing the net cash flow from operating activities that would be
shown on a statement of cash flows:
(a)using the indirect method.
(b)using the direct method.
13) the primary ifrs related to property, plant and equipment is found in
a.ias 1 and ias 34
b.ias 11 and ias 17
c.ias 16 and ias 23
d.ias 27 and ias 39
14) why are certain costs of doing business capitalized when incurred and then
depreciated or amortized over subsequent accounting cycles?
a.to reduce the federal income tax liability
b.to aid management in cash-flow analysis
c.to match the costs of production with revenues as earned
d.to adhere to the accounting constraint of conservatism
15) discuss the accounting procedures for and illustrate the following:
(a)change in estimate
(b)change in entity
(c)correction of an error
16) adjusting entries that should be reversed include
a.all accrued revenues
b.all accrued expenses
c.those that debit an asset or credit a liability
d.all of these
17) prepare journal entries for mars co. for:
(a)accounts receivable in the amount of $1,000,000 were assigned to utley finance co.
by mars as security for a loan of $850,000. utley charged a 3% commission on the
accounts; the interest rate on the note is 12%.
(b)during the first month, mars collected $400,000 on assigned accounts after deducting
$900 of discounts. mars wrote off a $1,060 assigned account.
(c)mars paid to utley the amount collected plus one month’s interest on the note.
18) tripiani inc. incurred $800,000 of capitalizable costs to develop computer software
during 2012. the software will earn total revenues over its 5-year life as follows: 2012 –
$500,000; 2013 – $600,000; 2014 – $600,000; 2015 – $200,000; and 2016 – $100,000.
what amount of the computer software costs should be expensed in 2012?
a.$200,000
b.$160,000
c.$180,000
d.$266,667
19) link co. purchased machinery that cost $1,350,000 on january 4, 2011. the entire
cost was recorded as an expense. the machinery has a nine-year life and a $90,000
residual value. the error was discovered on december 20, 2013. ignore income tax
considerations.
before the correction was made, and before the books were closed on december 31,
2013, retained earnings was understated by
a.$1,350,000
b.$1,210,000
c.$1,070,000
d.$930,000
20) big-mouth frog corporation had revenues of $300,000, expenses of $180,000, and
dividends of $45,000. when income summary is closed to retained earnings, the amount
of the debit or credit to retained earnings is a
a.debit of $75,000
b.debit of $120,000
c.credit of $75,000
d.credit of $120,000
21) which of the following methods of determining annual bad debt expense best
achieves the matching concept?
a.percentage of sales
b.percentage of ending accounts receivable
c.percentage of average accounts receivable
d.direct write-off
22) which of the following statements about materiality is not correct?
a.an item must make a difference or it need not be disclosed
b.materiality is a matter of relative size or importance
c.an item is material if its inclusion or omission would influence or change the
judgment of a reasonable person
d.all of these are correct statements about materiality
23) if a company uses the periodic inventory system, what is the impact on net income
of including goods in transit f.o.b. shipping point in purchases, but not ending
inventory?
a.overstate net income
b.understate net income
c.no effect on net income
d.not sufficient information to determine effect on net income
24) earnings per share data are required on the face of which of the following financial
statements?
a.statement of retained earnings
b.statement of stockholders’ equity
c.income statement
d.balance sheet
25) on january 1, 2008, powell company purchased a building and machinery that have
the following useful lives, salvage value, and costs.
building, 25-year estimated useful life, $5,000,000 cost, $500,000 salvage value
machinery, 10-year estimated useful life, $700,000 cost, no salvage value
the building has been depreciated under the straight-line method through 2012. in 2013,
the company decided to switch to the double-declining balance method of depreciation
for the building. powell also decided to change the total useful life of the machinery to
8 years, with a salvage value of $35,000 at the end of that time. the machinery is
depreciated using the straight-line method.
instructions
(a)prepare the journal entry necessary to record the depreciation expense on the
building in 2013.
(b)compute depreciation expense on the machinery for 2013.
26) tender foot inc. is involved in litigation regarding a faulty product sold in a prior
year. the company has consulted with its attorney and determined that it is possible that
they may lose the case. the attorneys estimated that there is a 40% chance of losing. if
this is the case, their attorney estimated that the amount of any payment would be
$500,000. what is the required journal entry as a result of this litigation?
a.debit litigation expense for $500,000 and credit litigation liability for $500,000
b.no journal entry is required
c.debit litigation expense for $200,000 and credit litigation liability for $200,000
d.debit litigation expense for $300,000 and credit litigation liability for $300,000
27) publications and organizations.
significant accounting publications are listed below (1-8). sources or sponsors of
accounting publications are identified next by alphabetical character (a-f). match the
publications with their sources.
publications
1>accounting research bulletins (1953-1959)
2>statements on auditing standards
3>statements of position (sops)
4>emerging issues task force statements
5>opinions (1962-1973)
6>technical bulletins
7>statements of financial accounting standards
8>statements of financial accounting concepts
sources/sponsors
a.auditing standards boardd.committee on accounting procedure
b.accounting standards executive committeee.accounting principles board
c.the aicpa
d.committee on accounting procedure
e.accounting principles board
f.financial accounting standards board