1) the accrual basis recognizes revenue when earned and expenses in the period when
cash is paid.
2) dollar-value lifo techniques help protect lifo layers from erosion.
3) timeliness and neutrality are two ingredients of relevance.
4) adoption of a new principle in recognition of events that have occurred for the first
time or that were previously immaterial is treated as an accounting change.
5) the fasb encourages the use of the indirect method over the direct method.
6) lifo liquidations can occur frequently when using a specific-goods approach.
7) the same recoverability test that is used for impairments of property, plant, and
equipment is used for impairments of indefinite-life intangibles.
8) with regard to contracts that can be settled in either cash or shares
a.ifrs requires that share settlement must be used
b.ifrs gives companies a choice of either cash or shares
c.u.s. gaap requires that share settlement must be used
d.the fasb project proposes that the iasb adopt the u.s. gaap approach, requiring that
share settlement must be used
9) on april 1, 2011, verlin co. purchased new machinery for $300,000. the machinery
has an estimated useful life of five years, and depreciation is computed by the
sum-of-the-years’-digits method. the accumulated depreciation on this machinery at
march 31, 2013, should be
a.$200,000
b.$180,000
c.$120,000
d.$100,000
10) written, inc. has outstanding 500,000 shares of $2 par common stock and 100,000
shares of no-par 8% preferred stock with a stated value of $5. the preferred stock is
cumulative and nonparticipating. dividends have been paid in every year except the past
two years and the current year.
assuming that $250,000 will be distributed as a dividend in the current year, how much
will the common stockholders receive?
a.zero
b.$130,000
c.$170,000
d.$210,000
11) on november 1, 2012, howell company purchased 900 of the $1,000 face value, 9%
bonds of ramsey, incorporated, for $948,000, which includes accrued interest of
$13,500. the bonds, which mature on january 1, 2017, pay interest semiannually on
march 1 and september 1. assuming that howell uses the straight-line method of
amortization and that the bonds are appropriately classified as available-for-sale, the net
carrying value of the bonds should be shown on howell’s december 31, 2012, balance
sheet at
a.$900,000
b.$934,500
c.$933,120
d.$948,000
12) which of the following best describes the cash-basis method of accounting for
warranty costs?
a.expensed based on estimate in year of sale
b.expensed when liability is accrued
c.expensed when warranty claims are certain
d.expensed when incurred
13) which of the following is often reported as an extraordinary item?
a.amortization expense
b.impairment losses for intangible assets other than goodwill
c.impairment losses on goodwill
d.none of the above
14) equipment was purchased at the beginning of 2010 for $340,000. at the time of its
purchase, the equipment was estimated to have a useful life of six years and a salvage
value of $40,000. the equipment was depreciated using the straight-line method of
depreciation through 2012. at the beginning of 2013, the estimate of useful life was
revised to a total life of eight years and the expected salvage value was changed to
$25,000. the amount to be recorded for depreciation for 2013, reflecting these changes
in estimates, is
a.$20,625
b.$33,000
c.$38,000
d.$39,375
15) which of the following is not a benefit associated with the fasb conceptual
framework project?
a.a conceptual framework should increase financial statement users’ understanding of
and confidence in financial reporting
b.practical problems should be more quickly solvable by reference to an existing
conceptual framework
c.a coherent set of accounting standards and rules should result
d.business entities will need far less assistance from accountants because the financial
reporting process will be quite easy to apply
16) the book value of a plant asset is
a.the fair market value of the asset at a balance sheet date
b.the asset’s acquisition cost less the total related depreciation recorded to date
c.equal to the balance of the related accumulated depreciation account
d.the assessed value of the asset for property tax purposes
17) the american institute of certified public accountants (
a.developing and enforcing professional ethics
b.developing auditing standards
c.providing professional education programs
d.all of the above
18) on october 1, 2012, menke co. purchased to hold to maturity, 500, $1,000, 9%
bonds for $520,000. an additional $15,000 was paid for accrued interest. interest is paid
semiannually on december 1 and june 1 and the bonds mature on december 1, 2016.
menke uses straight-line amortization. ignoring income taxes, the amount reported in
menke’s 2012 income statement from this investment should be
a.$11,250
b.$10,050
c.$12,450
d.$13,650
19) korman company has the following securities in its portfolio of trading securities on
december 31, 2012:
all of the securities had been purchased in 2012. in 2013, korman completed the
following securities transactions:
march 1sold 5,000 shares of thomas corp., common @ $31 less fees of $1,500.
april 1bought 600 shares of werth stores, common @ $45 plus fees of $550.
the korman company portfolio of trading securities appeared as follows on december
31, 2013:
instructions
prepare the general journal entries for korman company for:
(a)the 2012 adjusting entry.
(b)the sale of the thomas corp. stock.
(c)the purchase of the werth stores’ stock.
(d)the 2013 adjusting entry.
20) moore industries manufactures exercise equipment. recently the vice president of
operations of the company has requested construction of a new plant to meet the
increasing demand for the company’s exercise equipment. after a careful evaluation of
the request, the board of directors has decided to raise funds for the new plant by
issuing $2,000,000 of 11% bonds on march 1, 2012, due on march 1, 2027, with interest
payable each march 1 and september 1. at the time of issuance, the market interest rate
for similar financial instruments is 10%. what is the selling price of the bonds?
a.$2,220,000
b.$1,269,776
c.$2,153,730
d.$1,690,970
21) duncan inc. uses the accrual method of accounting for financial reporting purposes
and appropriately uses the installment method of accounting for income tax purposes.
profits of $900,000 recognized for books in 2012 will be collected in the following
years:
the enacted tax rates are: 40% for 2012, 35% for 2013, and 30% for 2014 and 2015.
taxable income is expected in all future years. what amount should be included in the
december 31, 2012, balance sheet for the deferred tax liability related to the above
temporary difference?
a.$ 52,500
b.$225,000
c.$277,500
d.$360,000
22) recognizing a valuation allowance for a deferred tax asset requires that a company
a.consider all positive and negative information in determining the need for a valuation
allowance
b.consider only the positive information in determining the need for a valuation
allowance
c.take an aggressive approach in its tax planning
d.pass a recognition threshold, after assuming that it will be audited by taxing
authorities
23) the balance in common stock dividend distributable should be reported as a(n)
a.deduction from common stock issued
b.addition to capital stock
c.current liability
d.contra current asset
24) harrison company has a loan receivable with a carrying value of $15,000 at
december 31, 2011. on january 3, 2012, the borrower, thomas clark imports, declares
bankruptcy, and harrison estimates that it will collect only 60% of the loan balance.
assume that on january 5, 2013, harrison learns that thomas clark imports has emerged
from bankruptcy. as a result, harrison now estimates that all but $1,500 will be repaid
on the loan. under igaap, which of the following entries would be made on january 5,
2013?
25) at its date of incorporation, sauder, inc. issued 100,000 shares of its $10 par
common stock at $11 per share. during the current year, sauder acquired 20,000 shares
of its common stock at a price of $16 per share and accounted for them by the cost
method. subsequently, these shares were reissued at a price of $12 per share. there have
been no other issuances or acquisitions of its own common stock. what effect does the
reissuance of the stock have on the following accounts?
26) when you undertook the preparation of the financial statements for telfer company
at january 31, 2013, the following data were available:
instructions
compute the ending inventory at cost as of january 31, 2013, using the retail method
which approximates lower of cost or market. your solution should be in good form with
amounts clearly labeled.
27) as compared with the fifo method of costing inventories, does the lifo method result
in a larger or smaller net income in a period of rising prices? what is the comparative
effect on net income in a period of falling prices?
28) which of the following is a method to generate cash from accounts receivable?
29) development of accounting principles.
presented below are three independent, unrelated statements regarding the formulation
of generally accepted accounting principles. each statement contains some incorrect or
debatable statement(s).
statement i
the users of financial accounting statements have coinciding and conflicting needs for
statements of various types. to meet these needs, and to satisfy the financial reporting
responsibility of management, accountants prepare different sets of financial statements
for different users.
statement ii
the fasb should be responsive to the needs and viewpoints of the entire economic
community, not just the public accounting profession. the fasb therefore will succeed
because it will deal effectively with all interested groups.
statement iii
the securities and exchange commission is very concerned about financial reporting and
has formulated a committee called the accounting standards executive committee (acsec)
to provide input to the fasb. in addition, after each fasb statement is issued, the acsec issues
statements of position stating its position on the fasb statement.
instructions
evaluate each of the independent statements and identify the areas of fallacious reasoning
in each. explain why the reasoning is incorrect. complete your discussion of each statement
before proceeding to the next statement.
30) revenue recognition.
revenue is generally recognized at the point of sale. there are three exceptions, however.
name the time for each exception, give two qualifications or criteria for the use of each
exception, and give an example for each exception.
31) lehman corporation purchased a machine on january 2, 2011, for $2,000,000. the
machine has an estimated 5-year life with no salvage value. the straight-line method of
depreciation is being used for financial statement purposes and the following macrs
amounts will be deducted for tax purposes:
assuming an income tax rate of 30% for all years, the net deferred tax liability that
should be reflected on lehman’s balance sheet at december 31, 2012, should be
