1) Jacquin Corporation reports its income from investments under the equity method
and recognized income of $15,000 from its investment in Trapper Company during the
current year. Trapper declared no dividends during the current year. On Jacquins
statement of cash flows the $15,000 would
a. be shown as cash from investing activities
b. be shown as an addition to net income in the reconciliation of net income to cash
from operations
c. be shown as a deduction from net income in the reconciliation of net income to cash
from operations
d. not be shown
2) On October 1, 2014, Southpark Inc. issued, at 101 plus accrued interest, 800 of its 10
percent, $1,000 bonds. The bonds are dated July 1, 2014, and mature on July 1, 2021.
Interest is payable semiannually on January 1 and July 1. At the time of issuance,
Southpark would receive cash of
a. $800,000
b. $808,000
c. $820,000
d. $828,000
3) Contingent liabilities will or will not become actual liabilities depending on
a. whether they are probable and estimable
b. the degree of uncertainty
c. the present condition suggesting a liability
d. the outcome of a future event
4) The annual interest expense on a $50,000, 15-year, 10 percent bond issued for
$45,650 plus accrued interest 6 months after authorization, assuming straight-line
amortization, would be
a. $5,300
b. $5,025
c. $5,000
d. $4,975
5) Windsor Enterprises, a subsidiary of Kennedy Company based in New York, reported
the following information at the end of its first year of operations (all in British
pounds): assets–338,000; expenses–360,000; liabilities–101,000; capital
stock–80;000, revenues–517,000. 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. $26,280 debit adjustment
b. $26,280 credit adjustment
c. $6,280 credit adjustment
d. $6,280 debit adjustment
6) At the start of its business, Londres Corp. decided to use the composite method of
depreciation and prepared the following schedule of machinery owned.
Londres computes depreciation on the straight-line method. Based on the information
presented, the composite life of these assets (in years) should be
a. 13.4
b. 14.4
c. 15.9
d. 17.1
7) In January, Fanning Corporation entered into a contract to acquire a new machine for
its factory. The machine, which had a cash price of $400,000, was paid for as follows:
Prior to the machine’s use, installation costs of $10,000 were incurred. The machine has
an estimated useful life of ten years and an estimated salvage value of $10,000. What
should Hunter record as depreciation expense for the first year under the straight-line
method?
a. $38,100
b. $39,100
c. $40,000
d. $41,000
8) Cantor Company sold $400,000 to customers on account during 2014, and collected
$200,000 during the year. The company properly uses the installment sales method of
revenue recognition due to the uncertainty of collection of these installment receivables.
The company has determined that cost of sales for the $400,000 of sales was $340,000.
What is the correct balance of the companys Deferred Gross Profit account at the end of
2014, after the recognition of revenue for that year?
a. $0
b. $30,000
c. $60,000
d. $140,000
9) Asuncion Company purchased some equipment on January 2, 2011, for $24,000. The
company used straight-line depreciation based on a ten-year estimated life with no
residual value. During 2014, management decided that this equipment could be used
only three more years and then would be replaced with a technologically superior
model. What entry should the company make as of January 1, 2014, to reflect this
change?
a. No entry
b. Debit a Prior Period Adjustment account for $4,800 and credit accumulated
depreciation for $4,800
c. Debit Retained Earnings for $4,800 and credit accumulated depreciation for $4,800
d. Debit Depreciation Expense for $4,800 and credit Accumulated Depreciation for
$4,800
10) See Harrington Co. information above. Under the completed-contract method, how
much should Harrington recognize as gross profit for 2014?
a. $0
b. $30,000
c. $40,000
d. $90,000
11) Helena Co. began operations on January 1, 2014, with $100,000 from the issuance
of stock and borrowed funds of $15,000. Net income for 2014 was $5,000 and Helena
paid a $400 cash dividend on December 15. No additional activities affected owners’
equity in 2014. At December 31, 2014, Helenas liabilities had increased to $18,800. In
Helena’s December 31, 2014, balance sheet, total assets should be reported at
a. $119,600
b. $120,000
c. $123,400
d. $138,400
12) Parlor Company manufactures equipment that they sell or lease. On December 31,
2014, Parlor leased equipment to Liner Company for a five-year period after which
ownership of the leased asset will be transferred to Liner. The lease calls for equal
annual payments of $60,000, due on December 31 of each year. The first payment was
made on December 31, 2014. The normal sales price of the equipment is $320,000, and
cost is $276,000. For the year ended December 31, 2014, what amount of income
should Parlor report from the lease transaction?
a. $10,000
b. $30,000
c. $44,000
d. $74,000
13) Iowa Cattle Company uses a perpetual inventory system. Iowa purchased cattle
from Big D Ranch at a cost of $19,500, payable at time of delivery. The entry to record
the delivery would be
a. Purchases ……………………… 19,500 Accounts Payable ……………… 19,500
b. Inventory ……………………… 19,500 Accounts Payable ……………… 19,500
c. Purchases ……………………… 19,500 Cash ………………………… 19,500
d. Inventory ……………………… 19,500 Cash ………………………… 19,500
14) Southeast Company’s adjusted trial balance at December 31, 2015, includes the
following account balances:
What amount should Southeast report as total owners’ equity in its December 31, 2015,
balance sheet?
a. $840,000
b. $860,000
c. $890,000
d. $910,000
15) Most forecasting exercises begin with a forecast of
a. cash
b. total assets
c. net income
d. sales
16) See information regarding the four products above. Using the
lower-of-cost-or-market procedure, what is the reported inventory value at December
31 for one unit of Product III?
a. $50
b. $60
c. $70
d. $80
17) Following are the account balances from Browne Company’s income statement:
Given this information, the cost of merchandise available for sale during 2014 is
a. $65,000
b. $59,000
c. $69,000
d. $61,000
18) The following expenses were recognized by Koenig Company, a retailer, during
2014:
What should Koenig report as general and administrative expenses for 2014?
a. $252,000
b. $289,000
c. $284,000
d. $389,000
19) In accounting for a long-term construction contract for which there is a projected
profit, the balance in the Construction in Progress account at the end of the first year of
work using the percentage-of-completion method would be
a. zero
b. the same as the completed-contract method
c. higher than the completed-contract method
d. lower than the completed-contract method
20) During periods of rising prices, when the FIFO inventory cost flow method is used,
a perpetual inventory system would
a. not be permitted
b. result in a higher ending inventory than a periodic inventory system
c. result in the same ending inventory as a periodic inventory system
d. result in a lower ending inventory than a periodic inventory system
21) Diamond, Inc. purchased a machine under a deferred payment contract on
December 31, 2013. Under the terms of the contract, Diamond is required to make eight
annual payments of $140,000 each beginning December 31, 2014. The appropriate
interest rate is 8 percent. The purchase price of the machine is
a. $1,389,190
b. $1,120,000
c. $868,900
d. $804,530
22) When using the periodic inventory method, which of the following generally would
NOT be separately accounted for in the computation of cost of goods sold?
a. Trade discounts applicable to purchases during the period
b. Cash (purchase) discounts taken during the period
c. Purchase returns and allowances of merchandise during the period
d. Cost of transportation-in for merchandise purchases during the period
23) Which of the following intangible assets does NOT have the characteristic of
exchangeability?
a. Patent
b. Copyright
c. Goodwill
d. Franchise
24) On April 1, 2014, Ziba Inc. purchased as a temporary investment $100,000, face
amount, 10% U.S. Treasury notes; they pay interest semiannually on January 1 and July
1. The notes were purchased at 102. Which of the following entries correctly records
this purchase?
a. Trading Securities–10% U.S. Treasury Notes. 100,000 Interest
Receivable……………………. 2,500 Premium on Trading Securities…………… 2,000
Cash………………………………. 104,500
b. Trading Securities–10% U.S. Treasury Notes. 102,000 Interest
Receivable……………………. 2,500 Cash………………………………. 104,500
c. Trading Securities–10% U.S. Treasury Notes. 100,000 Interest
Receivable……………………. 4,500 Cash………………………………. 104,500
d. Trading Securities–10% U.S. Treasury Notes. 102,000 Cash……………………………….
102,000
25) Franchise fees are properly recognized as revenue
a. when received in cash
b. when a contractual agreement has been signed
c. after the franchise business has begun operations
d. after the franchiser has substantially performed its service
26) Which category includes only debt securities?
a. Held-to-maturity securities
b. Available-for-sale securities
c. Marketable equity securities
d. Trading securities
27) How should these stock rights be treated in earnings per share calculations for the
year ending December 31, 2012?
a. The stock options are antidilutive and should not be included either in basic and
diluted earnings per share
b. The stock options are dilutive and should be included both in basic and diluted
earnings per share
c. The stock options are dilutive and should be included both in basic and diluted
earnings per share in the amount of 333 shares
d. The stock options are dilutive and should be included only in diluted earnings per
share in the amount of 333 shares
28) Bluesy Company purchased land with a current market value of $240,000. Its book
value in the accounts of the seller was $130,500. In exchange for the land, Bluesy
issued 20,000 shares of its common stock, par $10, with an estimated market value of
$14 per share. Bluesy stock is not traded on an established stock exchange. What
amount should Bluesy record as the cost of the land?
a. $130,500
b. $200,000
c. $240,000
d. $280,000
29) A debit balance in the Allowance for Doubtful Accounts
a. should never occur
b. is always the result of management not providing a large enough allowance in order
to manage earnings
c. may occur before the end-of-period adjustment for uncollectibles
d. may exist even after the end-of-period adjustment for uncollectibles
30) The following data are available from the records of Mandarin, Inc.:
Prepare a single-step income statement and a retained earnings statement for Mandarin,
Inc. for the year ended December 31, 2014.
31) Current generally accepted accounting principles state that a departure from the cost
basis of pricing inventory is required when the utility of the goods is no longer as great
as its cost. Accordingly, the lower-of-cost-or-market rule is applied to inventories such
that, if market is less than cost, an adjustment is made to record the loss and to restate
ending inventory at the lower value.
What effect would the failure to apply the lower-of-cost-or-market method have on the
income statement in current and future periods?
32) See Foreman Company information above.
Required:
Explain how and why this transaction was structured as it is.
33) The changes in the account balances and the following additional information are
taken from the accounts of the Coalition Co.
Dividends for 2015 were $82,500. There were no transactions in 2015 affecting retained
earnings other than the dividends and net income. Calculate the 2015 net income.
34) Use the provisions of FASB Statement No.109 and assume that it is more likely
than not that income will be sufficient in all future years to realize any deductible
amounts.
35) The proper analysis of foreign operations by financial statement users requires that
financial statements of the foreign operations be expressed in a common currency. For a
U.S. company with a French subsidiary, this means converting the subsidiarys financial
statements from francs to U.S. dollars.
One of the major issues in translating the financial statements of a foreign branch,
division, or subsidiary is determining the functional currency of the foreign entity. The
term functional currency has been defined by the Financial Accounting Standards
Boards (FASB) as the currency of the primary economic environment in which the
entity operates; normally, the currency of the environment in which the entity primarily
generates and expends cash. Although the definition may seem relatively
straightforward, the Financial Accounting Standards Board found it necessary to list
various factors to guide management in determining the functional currency.
Required:
Identify the factors FASB identified that might be helpful in making the functional
currency decision.
36) On December 31, 2014, Luanne Inc. had outstanding 180,000 shares of common
stock. Net income for 2014 was $285,000. Outstanding options (granted July 1, 2014)
to purchase 15,000 shares of common stock at $20 per share had not been exercised by
December 31, 2014. During 2014, market prices for Luannes common stock were:
37) Comparative balance sheet data for the Veronica Co. at the end of 2013 and 2014
follows:
Prepare a common-size balance sheet comparing financial structure percentages for the
two-year period. Use total assets to standardize.
