1) In a period of rising prices, the inventory method which tends to give the highest
reported inventory is
a.FIFO
b.moving average
c.LIFO
d.weighted-average
2) Company A issuing its annual financial reports within one month of the end of the
year is an example of which enhancing quality of accounting information?
a.Comparability
b.Timeliness
c.Understandability
d.Verifiability
3) On May 1, 2015, TV Inc. consigned 80 TVs to Ed’s TV. The TVs cost $450. Freight
on the shipment paid by Eds TV was $1,000. On July 10, TV Inc. received an account
sales and $21,500 from Ed’s TV. Thirty TVs had been sold and the following expenses
were deducted:
Freight$1,000
Commission (20% of sales price)?
Advertising650
Delivery350
The inventory of TVs will be reported on whose balance sheet and at what amount?
Balance Sheet of Amount of Inventory
a.TV Inc.$23,125
b.TV Inc.$22,500
c.Ed’s TV$23,125
d.Ed’s TV$22,500
4) An accrued revenue can best be described as an amount
a.collected and currently matched with expenses
b.collected and not currently matched with expenses
c.not collected and currently matched with expenses
d.not collected and not currently matched with expenses
5) In computing the present value of the minimum lease payments, the lessee should
a.use its incremental borrowing rate in all cases
b.use either its incremental borrowing rate or the implicit rate of the lessor, whichever is
higher, assuming that the implicit rate is known to the lessee
c.use either its incremental borrowing rate or the implicit rate of the lessor, whichever is
lower, assuming that the implicit rate is known to the lessee
d.None of these answers are correct
6) Which of the following should be reported under the Other Expenses and Losses
section of the income statement?
a.Goodwill impairment losses
b.Trade name amortization expense
c.Patent impairment losses
d.None of these answer choices are correct
7) Under Statements of Financial Accounting Concepts, comprehensive income
includes which of the following?
GainsGross Margin
a.NoNo
b.NoYes
c.YesNo
d.YesYes
8) Assuming a 40% statutory tax rate applies to all years involved, which of the
following situations will give rise to reporting a deferred tax liability on the balance
sheet?
I.A revenue is deferred for financial reporting purposes but not for tax purposes.
II.A revenue is deferred for tax purposes but not for financial reporting purposes.
III.An expense is deferred for financial reporting purposes but not for tax purposes.
IV.An expense is deferred for tax purposes but not for financial reporting purposes.
a.item II only
b.items I and II only
c.items II and III only
d.items I and IV only
9) What is the normal journal entry when writing-off an account as uncollectible under
the allowance method?
a.Debit Allowance for Doubtful Accounts, credit Accounts Receivable
b.Debit Allowance for Doubtful Accounts, credit Bad Debt Expense
c.Debit Bad Debt Expense, credit Allowance for Doubtful Accounts
d.Debit Accounts Receivable, credit Allowance for Doubtful Accounts
10) On December 31, 2014, Flint Corporation sold for $100,000 an old machine having
an original cost of $180,000 and a book value of $80,000. The terms of the sale were as
follows:
$20,000 down payment
$40,000 payable on December 31 each of the next two years
The agreement of sale made no mention of interest; however, 9% would be a fair rate
for this type of transaction. What should be the amount of the notes receivable net of
the unamortized discount on December 31, 2014 rounded to the nearest dollar? (The
present value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.)
a.$70,364
b.$90,364
c.$80,000
d.$140,728
11) On January 1, 2014, Garden Company purchased a new machine for $2,800,000.
The new machine has an estimated useful life of nine years and the salvage value was
estimated to be $100,000. Depreciation was computed on the sum-of-the-years’-digits
method. What amount should be shown in Garden’s balance sheet at December 31,
2015, net of accumulated depreciation, for this machine?
a.$2,260,000
b.$1,780,000
c.$1,742,221
d.$1,659,000
12) Hager Company sold some of its plant assets during 2015 . The original cost of the
plant assets was $750,000 and the accumulated depreciation at date of sale was
$700,000. The proceeds from the sale of the plant assets were $75,000. The information
concerning the sale of the plant assets should be shown on Hager’s statement of cash
flows (indirect method) for the year ended December 31, 2015, as a(n)
a.subtraction from net income of $25,000 and a $50,000 increase in cash flows from
financing activities
b.addition to net income of $25,000 and a $75,000 increase in cash flows from
investing activities
c.subtraction from net income of $25,000 and a $75,000 increase in cash flows from
investing activities
d.addition of $75,000 to net income
13) In 2014, Eklund, Inc., issued for $103 per share, 70,000 shares of $100 par value
convertible preferred stock. One share of preferred stock can be converted into three
shares of Eklund’s $25 par value common stock at the option of the preferred
stockholder. In August 2015, all of the preferred stock was converted into common
stock. The market value of the common stock at the date of the conversion was $30 per
share. What total amount should be credited to additional paid-in capital from common
stock as a result of the conversion of the preferred stock into common stock?
a.$1,190,000
b.$ 910,000
c.$1,750,000
d.$1,960,000
14) An early extinguishment of bonds payable, which were originally issued at a
premium, is made by purchase of the bonds between interest dates. At the time of
reacquisition
a.any costs of issuing the bonds must be amortized up to the purchase date
b.the premium must be amortized up to the purchase date
c.interest must be accrued from the last interest date to the purchase date
d.All of these answers are correct
15) High-quality standards in an international environment include which of the
following?
a.They permit a wide variety of alternative practices
b.They are stated in ambiguous terms to allow practitioners the opportunity to interpret
and implement
c.They are comprehensive, covering major transactions facing companies
d.All of the above are necessary for high-quality international standards
16) IFRS requires bond issue costs:
a.to be recorded as an asset
b.to be excluded while computing the interest expense
c.to be netted against the carrying amount of the bonds
d.to be considered when computing income tax payable
17) On January 1, 2014, Dodd, Inc., declared a 15% stock dividend on its common
stock when the fair value of the common stock was $30 per share. Stockholders’ equity
before the stock dividend was declared consisted of:
Common stock, $10 par value, authorized 200,000 shares;
issued and outstanding 120,000 shares$1,200,000
Additional paid-in capital on common stock150,000
Retained earnings 700,000
Total stockholders’ equity$2,050,000
What was the effect on Dodds retained earnings as a result of the above transaction?
a.$270,000 decrease
b.$540,000 decrease
c.$900,000 decrease
d.$450,000 decrease
18) Houser Appliances accounts for all sales of its merchandise on the installment basis.
Following is the unadjusted trial balance at 12/31/16.
Cash$38,000
Installment accounts receivable201420,000
Installment accounts receivable201550,000
Installment accounts receivable201690,000
Inventory27,800
Repossessed merchandise4,600
Accounts payable$ 37,400
Deferred gross profit201415,000
Deferred gross profit201526,600
Common stock117,000
Retained earnings10,000
Installment sales125,000
Cost of installment sales85,000
Loss on repossessions2,600
Operating expenses 13,000
$331,000$331,000
Additional information:
2014 gross profit rate: 30%
Total cash receipts during 2016: $110,000
Merchandise sold in 2015 was repossessed in 2016 and the following entry was
prepared:
Deferred Gross Profit20152,800
Repossessed Merchandise4,600
Loss on Repossessions2,600
Installment Accounts Receivable201510,000
Instructions
(a)What is the gross profit rate for 2015? Show supporting computations.
(b)What is the gross profit rate for 2016? Show supporting computations.
(c)Of the total cash receipts in 2016, how much represents collections from installment
sales of: (Show supporting computations.)
(1)2014?
(2)2015?
(3)2016?
(d)What is the total realized gross profit in 2016? Show supporting computations.
19) At December 31, 2015, Atlanta Company has a stock portfolio valued at $80,000.
Its cost was $66,000. If the Securities Fair Value Adjustment (Available-for-Sale) has a
debit balance of $4,000, which of the following journal entries is required at December
31, 2015?
a.Fair Value Adjustment14,000
(available-for-sale)
Unrealized Holding Gain or Loss-Equity14,000
b.Fair Value Adjustment10,000
(available-for-sale)
Unrealized Holding Gain or Loss-Equity10,000
c.Unrealized Holding Gain or Loss-Equity14,000
Fair Value Adjustment14,000
(available-for-sale)
d.Unrealized Holding Gain or Loss-Equity10,000
Fair Value Adjustment10,000
(available-for-sale)