1) The LIFO retail method assumes that markups and markdowns apply only to the
goods purchased during the period.
2) Income from an investment in common stock using the equity method is added to net
income in computing net cash provided from operating activities.
3) The FASB believes that historical cost for financial instruments provides more
relevant and understandable information than fair value.
4) Certificates of deposit are usually classified as cash on the balance sheet.
5) If a company transfers held-to-maturity securities to available-for-sale securities, the
unrealized gain or loss is recognized in income.
6) The net increase (decrease) in cash reported on the statement of cash flows should
reconcile the beginning and ending cash balances reported in the comparative balance
sheets.
7) Under IFRS, all tax effects are charged or credited to income.
8) Direct-financing leases are in substance the financing of an asset purchase by the
lessee.
9) A change in accounting principle is a change that occurs as the result of new
information or additional experience.
10) The accounts receivable turnover ratio measures the
a.number of times the average balance of accounts receivable is collected during the
period
b.percentage of accounts receivable turned over to a collection agency during the period
c.percentage of accounts receivable arising during certain seasons
d.number of times the average balance of inventory is sold during the period
11) Intangible assets have two main characteristics: (1) they lack physical existence,
and (2) they are not financial instruments.
Instructions
(a)Explain why intangible assets are classified as assets if they have no physical
existence.
(b)Explain why intangible assets are not considered financial instruments.
12) The figure .94232 is taken from the column marked 2% and the row marked three
periods in a certain interest table. From what interest table is this figure taken?
a.Future value of 1
b.Future value of annuity of 1
c.Present value of 1
d.Present value of annuity of 1
13) On July 1, 2013, Noble, Inc. issued 9% bonds in the face amount of $8,000,000,
which mature on July 1, 2019 . The bonds were issued for $7,648,000 to yield 10%,
resulting in a bond discount of $352,000. Noble uses the effective-interest method of
amortizing bond discount. Interest is payable annually on June 30 . At June 30, 2015,
Noble’s unamortized bond discount should be
a.$257,920
b.$272,000
c.$281,600
d.$248,000
14) The payout ratio can be calculated by dividing
a.dividends per share by earnings per share
b.cash dividends by net income less preferred dividends
c.cash dividends by market price per share
d.dividends per share by earnings per share and dividing cash dividends by net income
less preferred dividends
15) When should a transfer of receivables be recorded as a sale?
a.The transferred assets are isolated from the transferor
b.The transferor does not maintain effective control over the transferred assets through
an agreement to repurchase or redeem them prior to their maturity
c.The transferee has the right to pledge or exchange the transferred assets
d.All of these answers are correct
16) Which of the following is commonly referred to as the matching principle?
a.Revenue recognition principle
b.Measurement principle
c.Expense recognition principle
d.Full disclosure principle
17) Find the present value of an investment in plant and equipment if it is expected to
provide annual earnings of $39,000 for 15 years and to have a resale value of $75,000
at the end of that period. Assume a 10% rate and earnings at year end. The present value
of 1 at 10% for 15 periods is .23939. The present value of an ordinary annuity at 10%
for 15 periods is 7.60608. The future value of 1 at 10% for 15 periods is 4.17725.
a.$296,637
b.$314,592
c.$371,637
d.$602,955
18) A company estimates the fair value of SARs, using an option-pricing model, for
a.share-based equity awards
b.share-based liability awards
c.both equity awards and liability awards
d. neither equity awards or liability awards
19) Information concerning the debt of Cole Company is as follows:
Short-term borrowings:
Balance at December 31, 2014$525,000
Proceeds from borrowings in 2015325,000
Payments made in 2015 (450,000)
Balance at December 31, 2015$400,000
Current portion of long-term debt:
Balance at December 31, 2014$1,625,000
Transfers from caption “Long-Term Debt”500,000
Payments made in 2015 (1,225,000)
Balance at December 31, 2015$ 900,000
Long-term debt:
Balance at December 31, 2014$9,000,000
Proceeds from borrowings in 20152,250,000
Transfers to caption “Current Portion of Long-Term Debt”(500,000)
Payments made in 2015 (1,500,000)
Balance at December 31, 2015$9,250,000
In preparing a statement of cash flows for the year ended December 31, 2015, for Cole
Company, cash flows from financing activities would reflect
Outflow
a.$2,000,000
b.$2,250,000
c.$2,575,000
d.$3,175,000
20) Which table would you use to determine how much must be deposited now in order
to provide for 5 annual withdrawals at the beginning of each year, starting one year
hence?
a.Future value of an ordinary annuity of 1
b.Future value of an annuity due of 1
c.Present value of an annuity due of 1
d.None of these answer choices are correct
21) The distribution of stock rights to existing common stockholders will increase
paid-in capital at the
Date of IssuanceDate of Exercise
of the Rightsof the Rights
a.YesYes
b.YesNo
c.NoYes
d.NoNo
22) Why would it be advantageous for U.S. GAAP and International GAAP to be the
same?
23) The objective of financial reporting is to report the plans made by a company to
improve the productivity of its employees.
24) Remington Corporation purchases a patent from Durler Company on January.1,
2014, for $72,000. The patent has a remaining legal of 16 years. Remington feels the
patent will be useful for 10 years. Assume that at January 1, 2016, the carrying amount
of the patent on Remington’s books is $64,800. In January, Remington spends $20,000
successfully defending a patent suit. Remington still feels the patent will be useful until
the end of 2013 . Prepare Remington’s journal entries to record the amortization for
2014 and 2016 .
25) Presented below are unrelated cases involving investments in equity securities.
Case I.The fair value of the trading securities at the end of last year was 30% below
original cost, and this was properly reflected in the accounts. At the end of the current
year, the fair value has increased to 20% above cost.
Case II.The fair value of an available-for-sale security has declined to less than forty
percent of the original cost. The decline in value is considered to be other than
temporary.
Case III.An equity security, whose fair value is now less than cost, is classified as
trading but is reclassified as available-for-sale.
Instructions
Indicate the accounting required for each case separately.
26) Statements of Financial Accounting Concepts set forth fundamental objectives and
concepts that are used by the FASB in developing future standards of financial
accounting and reporting.
27) What are the IFRS requirements with respect to expense classification?