1) In November and December 2014, Lane Co., a newly organized magazine publisher,
received $60,000 for 1,000 three-year subscriptions at $20 per year, starting with the
January 2015 issue. Lane included the entire $60,000 in its 2014 income tax return.
What amount should Lane report in its 2014 income statement for subscriptions
revenue?
a.$0
b.$3,333
c.$20,000
d.$60,000
2) An example of an item which is not a liability is
a.dividends payable in stock
b.advances from customers on contracts
c.accrued estimated warranty costs
d.the portion of long-term debt due within one year
3) Palmer Co. had a deferred tax liability balance due to a temporary difference at the
beginning of 2014 related to $900,000 of excess depreciation. In December of 2014, a
new income tax act is signed into law that lowers the corporate rate from 40% to 35%,
effective January 1, 2016 . If taxable amounts related to the temporary difference are
scheduled to be reversed by $450,000 for both 2015 and 2016, Palmer should increase
or decrease deferred tax liability by what amount?
a.Decrease by $45,000
b.Decrease by $22,500
c.Increase by $22,500
d.Increase by $45,000
4) On December 1, 2014, Abel Corporation exchanged 40,000 shares of its $10 par
value common stock held in treasury for a used machine. The treasury shares were
acquired by Abel at a cost of $40 per share, and are accounted for under the cost
method. On the date of the exchange, the common stock had a fair value of $55 per
share (the shares were originally issued at $30 per share). As a result of this exchange,
Abel’s total stockholders’ equity will increase by
a.$ 400,000
b.$1,600,000
c.$2,200,000
d.$1,800,000
5) Proponents of historical cost ordinarily maintain that in comparison with all other
valuation alternatives for general purpose financial reporting, statements prepared using
historical costs are more
a.verifiable
b.relevant
c.indicative of the entity’s purchasing power
d.conservative
6) Which of the following is a method to generate cash from accounts receivable?
AssignmentFactoring
a.YesNo
b.YesYes
c.NoYes
d.NoNo
7) Vested benefits
a.usually require a certain minimum number of years of service
b.are those that the employee is entitled to receive even if fired
c.are not contingent upon additional service under the plan
d.are defined by all of these answers
8) Which of the following is false with regard to IFRS and the statement of cash flows?
a.The IASB is strongly in favor of requiring use of the direct method for operating
activities
b.In certain circumstances under IFRS, bank overdrafts are considered part of cash and
cash equivalents
c.IFRS requires that noncash investing and financing activities be excluded from the
statement of cash flows
d.All of the above statements are false with regard to IFRS and the statement of cash
flows
9) Receivables are valued based on their ________.
a.fair value
b.estimated amount collectible
c.lower-of-cost-or-market value
d.historical cost
10) The following trial balance was taken from the books of Fisk Corporation on
December 31, 2014 .
Account Debit Credit
Cash$ 9,000
Accounts Receivable40,000
Notes Receivable10,000
Allowance for Doubtful Accounts$ 1,800
Inventory44,000
Prepaid Insurance4,800
Equipment110,000
Accumulated Depreciation–Equip.15,000
Accounts Payable10,800
Common Stock44,000
Retained Earnings55,000
Sales Revenue280,000
Cost of Goods Sold126,000
Salaries and Wages Expense50,000
Rent Expense 12,800
Totals$406,600$406,600
At year end, the following items have not yet been recorded.
a.Insurance expired during the year, $2,000.
b.Estimated bad debts, 1% of gross sales.
c.Depreciation on equipment, 10% per year on original cost.
d.Interest at 5% is receivable on the note for one full year.
e.Rent paid in advance at December 31, $5,400 (originally charged to expense).
f.Accrued salaries and wages at December 31, $5,800.
Instructions
(a)Prepare the necessary adjusting entries.
(b)Prepare the necessary closing entries.
11) The cost of land typically includes the purchase price and all of the following costs
except
a.grading, filling, draining, and clearing costs
b.street lights, sewers, and drainage systems cost
c.private driveways and parking lots
d.assumption of any liens or mortgages on the property
12) Trade-offs between the characteristics that make information useful may be
necessary or beneficial. Issuance of interim financial statements is an example of a
trade-off between
a.relevance and faithful representation
b.faithful representation and periodicity
c.timeliness and materiality
d.understandability and timeliness
13) Oslo Corporation has two products in its ending inventory, each accounted for at the
lower of cost or market. A profit margin of 30% on selling price is considered normal
for each product. Specific data with respect to each product follows:
Product #1Product #2
Historical cost$20.00$ 35.00
Replacement cost22.5027.00
Estimated cost to dispose5.0013.00
Estimated selling price40.0065.00
In pricing its ending inventory using the lower-of-cost-or-market, what unit values
should Oslo use for products #1 and #2, respectively?
a.$20.00 and $32.50
b.$23.00 and $32.50
c.$23.00 and $30.00
d.$22.50 and $27.00
14) Nagel Co.’s prepaid insurance was $95,000 at December 31, 2015 and $45,000 at
December 31, 2014 . Insurance expense was $31,000 for 2015 and $27,000 for 2014 .
What amount of cash disbursements for insurance would be reported in Nagel’s 2015
net cash provided by operating activities presented on a direct basis?
a.$99,000
b.$81,000
c.$64,000
d.$31,000
15) Which of the following is true of generally accepted accounting principles?
a.GAAP includes detailed practices and procedures as well as broad guidelines of
general application
b.GAAP is influenced by pronouncements of the SEC and IRS
c.GAAP changes over time as the nature of the business environment changes
d.All of these answer choices are correct
16) During 2014, Vaughn Corporation sold merchandise costing $2,250,000 on an
installment basis for $3,000,000. The cash receipts related to these sales were collected
as follows: 2014, $1,200,000; 2015, $1,050,000; 2016, $750,000.
What amount would be shown in the December 31, 2015 financial statement for
realized gross profit on 2014 installment sales, and deferred gross profit on 2014
installment sales, respectively?
a.$262,500 and $562,500
b.$487,500 and $262,500
c.$562,500 and $187,500
d.$262,500 and $187,500
17) Logan Corp.’s trial balance of income statement accounts for the year ended
December 31, 2014 included the following:
Debit Credit
Sales revenue$280,000
Cost of goods sold$150,000
Administrative expenses40,000
Loss on disposal of equipment18,000
Sales commission expense16,000
Interest revenue10,000
Freight-out6,000
Loss due to earthquake damage24,000
Bad debt expense 6,000
Totals$260,000$290,000
Other information:
Logan’s income tax rate is 30%. Finished goods inventory:
January 1, 2014$160,000
December 31, 2014140,000
On Logan’s multiple-step income statement for 2014,
Cost of goods manufactured is
a.$176,000
b.$170,000
c.$136,000
d.$130,000