84) Rusty Corporation purchased a rust-inhibiting machine by paying $50,000 cash on the
purchase date and agreeing to pay $10,000 every three months during the next two years. The
first payment is due three months after the purchase date. Rusty’s incremental borrowing rate is
8%. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the
tables provided.)
The liability reported on the balance sheet as of the purchase date, after the initial $50,000
payment was made, is closest to:
A) $123,255.
B) $130,000.
C) $80,000.
D) $73,255.
85) Rachel Corporation purchased a building by paying $90,000 cash on the purchase date,
agreeing to pay $50,000 every year for the next nine years and one payment of $100,000 ten
years from the purchase date. The first payment is due one year after the purchase date. Rachel’s
incremental borrowing rate is 10%. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the
appropriate factor(s) from the tables provided.)
The building reported on the balance sheet as of the purchase date is closest to:
A) $326,505.
B) $460,000.
C) $287,950.
D) $416,505.
86) Rachel Corporation purchased a building by paying $90,000 cash on the purchase date,
agreeing to pay $50,000 every year for the next nine years and one payment of $100,000 ten
years from the purchase date. The first payment is due one year after the purchase date. Rachel’s
incremental borrowing rate is 10%. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the
appropriate factor(s) from the tables provided.)
The liability reported at on the balance sheet as of the purchase date, after the initial $90,000
payment was made, is closest to:
A) $326,505.
B) $460,000.
C) $287,950.
D) $416,505.
87) Rudy Corporation is looking to purchase a building costing $500,000 by paying $100,000
cash on the purchase date, and agreeing to make annual payments for the next ten years. The first
payment is due one year after the purchase date. Rudy’s incremental borrowing rate is 10%. Each
of the annual payments is closest to: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the
appropriate factor(s) from the tables provided.)
A) $65,098.
B) $86,821.
C) $55,098.
D) $44,000.
88) Grant Corporation is looking to purchase a building costing $900,000 by paying $300,000
cash on the purchase date, and agreeing to make payments every three months for the next five
years. The first payment is due three months after the purchase date. Grant’s incremental
borrowing rate is 8%. Each of the payments is closest to: (FV of $1, PV of $1, FVA of $1, and
PVA of $1) (Use the appropriate factor(s) from the tables provided.)
A) $55,041.
B) $61,112.
C) $36,694.
D) $32,400.
89) Husky Corporation is looking to purchase a building costing $500,000 by agreeing to make
payments every three months for the next five years. The first payment is due three months after
the purchase date. Husky’s incremental borrowing rate is 12%. Each of the payments is closest
to: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the
tables provided.)
A) $28,000.
B) $66,940.
C) $37,981.
D) $33,608.
90) Huck Corporation is looking to purchase a truck costing $49,000 by agreeing to make
payments every three months for the next two years. The first payment is due three months after
the purchase date. Huck’s incremental borrowing rate is 8%. Each of the payments is closest to:
(FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the
tables provided.)
A) $6,248.
B) $6,689.
C) $8,527.
D) $5,709.
91) You have been asked to compute the cash equivalent price of a machine assuming the cost
(including principal and interest) is to be paid in two unequal payments after the acquisition date.
Which of the following table values would be used to find the cost of the machine?
A) Present value of a single amount.
B) Present value of an annuity.
C) Future value of a single amount.
D) Future value of an annuity.
92) Straight Industries purchased a large piece of equipment from Curvy Company on January 1,
2019. Straight Industries signed a note, agreeing to pay Curvy Company $400,000 for the
equipment on December 31, 2021. The market rate of interest for similar notes was 8%. The
present value of $400,000 discounted at 8% for three years was $317,532. On January 1, 2019,
Straight Industries recorded the purchase with a debit to equipment for $317,532 and a credit to
notes payable for $317,532.
On December 31, 2019, Straight recorded an adjusting entry to account for interest that had
accrued on the note. Assuming no adjusting entries have been made during the year, the interest
expense accrued at December 31, 2019 is closest to:
A) $25,403.
B) $32,000.
C) $29,693.
D) $27,493.
93) Straight Industries purchased a large piece of equipment from Curvy Company on January 1,
2019. Straight Industries signed a note, agreeing to pay Curvy Company $400,000 for the
equipment on December 31, 2021. The market rate of interest for similar notes was 8%. The
present value of $400,000 discounted at 8% for three years was $317,532. On January 1, 2019,
Straight Industries recorded the purchase with a debit to equipment for $317,532 and a credit to
notes payable for $317,532. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the
appropriate factor(s) from the tables provided.)
On Straight Industries’ balance sheet for the year ended December 31, 2019, the book value of
the liability for notes payable, including accrued interest would be closest to:
A) $342,935.
B) $349,520.
C) $345,013.
D) $347,213.
94) Straight Industries purchased a large piece of equipment from Curvy Company on January 1,
2019. Straight Industries signed a note, agreeing to pay Curvy Company $400,000 for the
equipment on December 31, 2021. The market rate of interest for similar notes was 8%. The
present value of $400,000 discounted at 8% for three years was $317,532. On January 1, 2019,
Straight Industries recorded the purchase with a debit to equipment for $317,532 and a credit to
notes payable for $317,532.
How much is the 2020 interest expense, assuming that the December 31, 2019 adjusting entry
was made?
A) $27,435.
B) $27,962.
C) $32,000.
D) $29,693.
95) Alden Trucking Company is replacing part of its fleet of trucks by purchasing them under a
note agreement with Kenworthy on January 1, 2019. Alden financed $37,908,000, and the note
agreement will require $10 million in annual payments starting on December 31, 2019 and
continuing for a total of four more years (final payment December 31, 2023). Kenworthy will
charge Alden Trucking Company the market interest rate of 10% compounded annually.
On January 1, 2019, Alden will record a note payable in the amount of:
A) $40,000,000
B) $37,908,000.
C) $41,698,000.
D) $50,000,000.
96) Alden Trucking Company is replacing part of its fleet of trucks by purchasing them under a
note agreement with Kenworthy on January 1, 2019. Alden financed $37,908,000, and the note
agreement will require $10 million in annual payments starting on December 31, 2019 and
continuing for a total of four more years (final payment December 31, 2023). Kenworthy will
charge Alden Trucking Company the market interest rate of 10% compounded annually.
Upon the first payment of the note on December 31, 2019, the amount of interest expense to be
recorded is:
A) $1,000,000.
B) $2,790,800.
C) $3,790,800.
D) $4,000,000.
97) Alden Trucking Company is replacing part of its fleet of trucks by purchasing them under a
note agreement with Kenworthy on January 1, 2019. Alden financed $37,908,000, and the note
agreement will require $10 million in annual payments starting on December 31, 2019 and
continuing for a total of four more years (final payment December 31, 2023). Kenworthy will
charge Alden Trucking Company the market interest rate of 10% compounded annually.
The amount of principal that is paid at December 31, 2019 is:
A) $13,790,800.
B) $6,209,200.
C) $6,000,000.
D) $10,000,000.
98) Alden Trucking Company is replacing part of its fleet of trucks by purchasing them under a
note agreement with Kenworthy on January 1, 2019. Alden financed $37,908,000, and the note
agreement will require $10 million in annual payments starting on December 31, 2019 and
continuing for a total of four more years (final payment December 31, 2023). Kenworthy will
charge Alden Trucking Company the market interest rate of 10% compounded annually.
After the first payment was made, the note payable liability on December 31, 2019 is closest to:
A) $32,908,000.
B) $31,698,800.
C) $40,000,000.
D) $27,908,000.
99) Alden Trucking Company is replacing part of its fleet of trucks by purchasing them under a
note agreement with Kenworthy on January 1, 2019. Alden financed $37,908,000, and the note
agreement will require $10 million in annual payments starting on December 31, 2019 and
continuing for a total of four more years (final payment December 31, 2023). Kenworthy will
charge Alden Trucking Company the market interest rate of 10% compounded annually.
What is the amount of the 2020 interest expense?
A) $3,169,880.
B) $3,290,800.
C) $4,000,000.
D) $2,790,800.
100) A company’s income statement reported net income of $40,000 during 2019. The income
tax return excluded a revenue item of $3,000 (reported on the income statement) because under
the tax laws the $3,000 would not be reported for tax purposes until 2020. Which of the
following statements is correct assuming a 21% tax rate?
A) A $3,000 deferred tax liability is reported as of December 31, 2019.
B) A $3,000 deferred tax asset is reported as of December 31, 2019.
C) A $630 deferred tax liability is reported as of December 31, 2019.
D) A $630 deferred tax asset is reported as of December 31, 2019.
101) A company’s income statement reported net income of $80,000 during 2019. The income
tax return excluded a revenue item of $6,000 (reported on the income statement) because under
the tax laws the $6,000 would not be reported for tax purposes until 2020. Which of the
following statements is incorrect assuming a 21% tax rate?
A) Income tax expense on the income statement exceeds the tax liability to the IRS.
B) The $6,000 of revenue creates a deferred tax liability.
C) A $1,260 deferred tax liability is reported as of December 31, 2019.
D) Income tax expense on the income statement is $15,540.
102) A company’s 2019 income tax return reported a $75,000 tax liability. During 2019, the
deferred income tax liability account increased $9,000. Which of the following statements is
correct?
A) Income tax expense on the 2019 income statement was $75,000.
B) Income tax expense on the 2019 income statement was $66,000.
C) Income tax expense on the 2019 income statement was $9,000.
D) Income tax expense on the 2019 income statement was $84,000.
103) If income tax expense reported on the income statement is $45,000 for 2019, and the tax
return for 2019 (the first year) shows an income tax liability of $42,000, the deferred income tax
on the balance sheet at the end of 2019 will be which of the following? Assume a 21% tax rate.
A) A $3,000 liability.
B) A $3,000 asset.
C) A $7,500 liability.
D) A $7,500 asset.
104) You have a goal of having $100,000 five years from today. The return on the investment is
expected to be 8% and will be compounded semiannually. The amount that needs to be invested
today is closest to:
A) $67,556.
B) $56,420.
C) $71,195.
D) $35,034.
105) Which of the following correctly describes the accounting for leases?
A) There are eight criteria used to establish whether the lessor maintains effective control of the
leased asset.
B) A lease asset and a lease liability are initially recognized for both a capital lease and an
operating lease.
C) If none of the criteria used to establish whether the lessor maintains effective control of the
leased asset are met, then the lease is classified as a capital lease.
D) The amount recorded as a lease asset and a lease liability is the sum of the required future
lease payments.
106) Which of the following is used to determine whether the lessor maintains effective control
of the leased asset?
A) Is the lease term greater than 90% of the asset’s estimated life?
B) Does the sum of the payments equal or exceed substantially all of the fair value of the
underlying asset?
C) Does the lease provide for an opportunity for the lessor to re-purchase the leased asset during
the lease term at fair market value?
D) Does the lease transfer ownership of the leased asset to the lessee by the end of the lease
term?
107) Which of the following is incorrect with regard to short-term leases?
A) When a company signs a short-term lease it does not record a lease liability.
B) A short-term lease is for 12 months or less, excluding expected renewals and extensions.
C) When a company signs a short-term lease there is no entry at the time the lease is signed.
D) A short-term lease does not contain a bargain purchase option.
108) Your goal is to be able to withdraw $5,000 for each of the next ten years beginning one year
from today. The return on the investment is expected to be 12%. The amount that needs to be
invested today is closest to: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the
appropriate factor(s) from the tables provided.)
A) $44,645.
B) $36,291.
C) $28,251.
D) $50,000.
109) Your goal is to be able to withdraw $10,000 for each of the next nine years beginning one
year from today and also to withdraw $50,000 ten years from today. The return on the
investment is expected to be 8%. The amount that needs to be invested today is closest to:
A) $60,709.
B) $85,629.
C) $69,776.
D) $117,884.
110) A loan supported by an agreement to transfer ownership of assets if the loan is not repaid is
called a:
A) Private placement of debt
B) Publicly traded debt
C) Secured debt
D) Capital lease
111) Which of the following operating activities is not correctly matched with the current
liability that results from the activity?
A) Purchase inventory of goods to be sold » Accounts payable
B) Employees earn wages » Accrued wages.
C) Customers pay in advance for future purchases » Accounts receivable.
D) Rent warehouse space to store goods » Accrued rent.
112) With regard to reporting contingent liabilities on a balance sheet, financial statements
prepared under International Financial Reporting Standards (IFRS) will:
A) Have fewer contingent liabilities accrued than under U.S. GAAP because the IFRS guideline
for “probable” is a higher percentage than the U.S. GAAP guideline for “probable”.
B) Have more contingent liabilities accrued than under U.S. GAAP because the IFRS guideline
for “probable” is a lower percentage than the U.S. GAAP guideline for “probable”.
C) Have more contingent liabilities accrued than under U.S. GAAP because IFRS requires all
lawsuits, environmental problems, and product warranties that are reasonably estimable to be
accrued while U.S. GAAP requires accrual only if losses are reasonably possible of being
incurred.
D) Have fewer contingent liabilities accrued than under U.S. GAAP because IFRS requires a
more subjective evaluation of the probability of occurrence than does U.S. GAAP.