1) Broham Manufacturing Company purchased a machine on January 2, 2014. The
invoice price of the machine was $40,000, and the vendor offered a 2 percent discount
for payment within ten days. The following additional costs were incurred in
connection with the machine:
If the invoice is paid within the discount period, Broham should record the acquisition
cost of the machine at
a. $41,650
b. $41,100
c. $40,400
d. $39,200
2) An entity would be considered the primary beneficiary of a variable interest entity
(VIE) if the entity
a. holds an equity interest equal to 10% of the total assets of the VIE
b. holds the largest voting interest in the VIE
c. provides the majority of financial support when other parties are providing financial
support to the VIE as well
d. holds an equity interest equal to 20% of the total assets of the VIE
3) In a statement of cash flows, proceeds from issuing equity instruments should be
classified as cash inflows from
a. brokerage activities
b. financing activities
c. investing activities
d. operating activities
4) Which of the following statements is true?
a. A company must use the FIFO cost flow assumption for taxes as well as for financial
accounting and reporting
b. A company may use FIFO for inventory valuation purposes on the balance sheet
provided that LIFO cost of goods sold is reported on the income statement
c. Application of LIFO for financial reporting purposes must strictly follow IRS
regulations relating to LIFO
d. LIFO is the only inventory method that must be used for financial reporting purposes
if used for tax purposes
5) Which of the following is not a post-employment benefit, according to FASB ASC
Topic 712, Employers Accounting for Postemployment Benefits?
a. Salary continuation after severance
b. Health insurance paid for a three-month period following a layoff
c. Life insurance coverage paid for retirees
d. Job training for laid-off workers
6) The following information is available from Dodger Corporation’s accounting
records for the year ended December 31, 2014:
Net cash flow provided by operating activities for 2014 was
a. $520,000
b. $500,000
c. $460,000
d. $440,000
7) A material loss should be presented separately as a component of income from
continuing operations when it is
a. infrequent in occurrence but not unusual in nature
b. infrequent in occurrence and unusual in nature
c. a cumulative effect-type change in accounting principle
d. an extraordinary item
8)
9) During 2012, Grinder Machinery company introduced a new line of machines that
carry a three-year warranty against manufacturers defects. Based on industry
experience, warranty costs are estimated at 2% of sales in the year of sale, 4% in the
year after sale, and 6% in the second year after sale. Sales and actual warranty
expenditures for the first three-year period were as follows:
What amount should Grinder Machinery report as a liability at December 31, 2014?
a. $0
b. $5,625
c. $76,500
d. $118, 125
10) Using the information above, what amount is the check, net of all deductions, that
Gabe received for the week’s pay?
a. $243.05
b. $259.60
c. $274.60
d. $277.00
11) Artigas Corporation has expanded rapidly, and segment reporting is now required.
The company has no intersegment sales. The following data are for the fiscal year
ending on December 31, 2014 (all amounts in millions):
Other information:
a. The all others includes five operating segments, none of which has revenues or assets
greater than $80 million and none with an operating profit.
b. Operating segments A and B produce very similar products and use very similar
production processes, but serve different customer types and use quite different product
distribution systems. These differences are due in part to the fact that B operates in a
regulated environment while A does not.
c. Operating segments F and G have very similar products, production processes,
product distribution systems, but are organized as separate divisions since they serve
substantially different types of customers.
d. Neither F and G operate in a regulated environment.
Required:
12) If 35 percent of the recent dividend paid by Yankees Corporation was correctly
considered to be a liquidating dividend, how would this distribution affect each of the
following accounts?
Additional Retained
Paid-In Capital Earnings
a. No effect Decrease
b. No effect No effect
c. Decrease No effect
d. Decrease Decrease
13) Which of the following is an item that is reportable in the financial records of an
enterprise?
a. The value of goodwill earned through business operations
b. The value of human resources
c. Changes in personnel
d. Changes in inventory costing methods
14)
15) Which of the following represents the best description of the projected benefit
obligation at any balance sheet date?
a. Service cost to date + interest cost to date + unrecognized gain or loss at the balance
sheet date
b. Service cost to date + prior service cost to date + unrecognized gain or loss at the
balance sheet date
c. Service cost to date + interest cost to date amortized prior service cost actual return
benefits paid to date
d. Service cost to date + interest cost + net total actuarial gain or loss + prior service
cost to date benefits paid to date
16) On June 30, 2014, Diode Inc. purchased for cash at $50 per share all 150,000 shares
of outstanding common stock of Moore Company. Moore’s balance sheet at June 30,
2014, showed net assets with a book value of $6,000,000. The fair value of Moore’s
property, plant, and equipment on June 30, 2014, was $800,000 in excess of its book
value. What amount, if any, will be recorded by Diode as goodwill on the date of
purchase?
a. $0
b. $700,000
c. $800,000
d. $1,500,000
17) Under international accounting requirements, which of the following equity
reserves is part of distributable equity?
a. Retained earnings
b. Capital redemption reserve
c. Asset revaluation reserve
d. Par value of shares
18) For a given year, beginning and ending total liabilities were $18,000 and $20,400,
respectively. At year-end, owners equity was $40,200 and total assets were $4,000
larger than at the beginning of the year. If new capital stock issued exceeded dividends
by $4,800, net income (loss) for the year was apparently
a. $(3,200)
b. $(4,000)
c. $800
d. $3,200
19) In a statement of cash flows, receipts from sales of property, plant, and equipment
would be classified as cash inflows from
a. liquidating activities
b. operating activities
c. investing activities
d. financing activities
20) For a bond issue that sells for more than its face value, the market rate of interest is
a. less than the rate stated on the bond
b. equal to the rate stated on the bond
c. dependent on the rate stated on the bond
d. higher than the rate stated on the bond
21) Nanotech Inc. leased a new machine having an expected useful life of 20 years
from Union Co. Terms of the noncancelable 15-year lease were that Nanotech would
gain title to the property upon payment of a sum equal to the fair market value of the
machine at the termination of the lease. Nanotech accounted for the lease as a capital
lease and recorded an asset and a liability in the financial records. The asset recorded
under this lease should properly be amortized over
a. 5 years (the period of actual ownership)
b. 15 years (75 percent of the 20-year asset life)
c. 20 years (the total asset life)
d. 15 years (the term of the lease)
22) Marantz Co. neglected to amortize the premium on outstanding ten-year bonds
payable. What is the effect of the failure to record premium amortization on interest
expense and bond carrying value, respectively?
a. Understate; understate
b. Understate; overstate
c. Overstate; overstate
d. Overstate; understate
23) Cash flows from financing activities would be reduced by which of the following?
a. Purchase of inventory
b. Repayment of long-term debt
c. Purchase of machinery
d. Payment of interest
24) Which of the following accounting treatments is proper for a change in reporting
entity?
a. Restatement of all financial statements presented
b. Restatement of current period financial statements
c. Note disclosure and supplementary schedules
d. Adjustment to retained earnings and note disclosure
25) At December 31, 2014, Ambrose Sales & Service has a $100,000, 120-day note
payable outstanding. The company has followed the policy of replacing the note rather
than repaying it over the last three years. The company’s treasurer says that this policy
is expected to continue indefinitely, and the arrangement is acceptable to the bank to
which the note was issued. The proper classification of the note on the December 31,
2014, balance sheet is
a. dependent on the intention of management
b. dependent on the actual ability to refinance
c. current liability, unless specific refinancing criteria are met
d. noncurrent liability
26) Samuels Company began operations on January 1, 2014, and uses the installment
sales method of accounting. The company has the following information available for
2014 and 2015:
The realized gross profit for 2015 would be
a. $1,680,000
b. $2,760,000
c. $3,120,000
d. $4,320,000
27) If the residual value of a leased asset is greater than the amount guaranteed by the
lessee, the lessee
a. pays the lessor for the difference
b. recognizes a gain at the end of the lease term
c. has no obligation related to the residual value
d. pays the lessor for the difference
28) The stockholders’ equity section of Pisano Corp. is presented below.
Complete the following table to depict the number of shares of stock and balances in
the stockholders’ equity accounts after each of the following transactions. Each situation
is to be considered independently of the others.
(a) 15 percent stock dividend, market value $25 per share
(b) 2-for-1 stock split
(c) 100 percent stock dividend, market value $25 per share
Additional Total Total
Outstanding Common Paid-In Retained Stockholders’
Shares Stock Capital Earnings Equity
(a)
(b)
(c)
29) Debentures are
a. unsecured bonds
b. secured bonds
c. ordinary bonds
d. serial bonds
30) If the ending inventory balance is understated, net income of the same period
a. will be overstated
b. will be understated
c. will be unaffected
d. cannot be determined from the information
31) Choose the combination that best reflects the appropriate classification of cash paid
for operating, investing and financing activities.
Operating Investing Financing
a. Cash paid to suppliers Interest paid Dividends paid
b. Interest paid Cash paid to suppliers Income taxes paid
c. Income taxes paid Purchase of stock of another entity Dividends paid
d. Dividends paid Income taxes paid Cash paid to suppliers
32) Windward Corporation’s books disclosed the following information for the year
ended December 31, 2014:
Windwards accounts receivable turnover is
a. 3.75 times
b. 4.35 times
c. 5.00 times
d. 5.80 times
33) Unamortized debt premium should be reported on the balance sheet of the issuer as
a
a. direct addition to the face amount of the debt
b. direct addition to the present value of the debt
c. deferred credit
d. deduction from the issue costs
34) The secondary qualitative characteristics of accounting information are
a. relevance and reliability
b. comparability and consistency
c. understandability and decision usefulness
d. materiality and conservatism
35) Knowledgeable users of financial statements recognize that the numbers reported in
a company’s financial statements depend on the accounting policies used to generate the
numbers. Various choices of accounting policies exist, such as LIFO vs. FIFO for
inventory costing and straight-line vs. double-declining balance for depreciation. APB
Opinion No. 22 requires that a company disclose the accounting policies used to ensure
that statement users have the information they need to make sound decisions.
What problems arise from the large variety of accounting choices available?
36) The following balances are from the records of the Summertime Outdoor
Equipment Company :
Prepare a partial balance sheet and income statement using the information provided
above.
37) The following data relate to the records of Mandalay Corp. for the month of
September:
Using these data, estimate the cost of ending inventory for each situation below:
38) The importance of revenue to a business enterprise has caused much discussion
among accountants as to how the term “revenue” should be defined. The FASB in
Statement of Financial Accounting Concepts No. 6, “Elements of Financial
Statements,” defines revenue as “inflows or other enhancements of assets of an entity or
settlements of its liabilities (or a combination of both) from delivering or producing
goods, rendering services, or other activities that constitute the entity’s ongoing major
or central operations.”
Evaluate the soundness of the definition of the term “revenue” provided by the FASB in
Statement of Financial Accounting Concepts No. 6.
39) Many non-accountants are confused when they hear that company has a tax refund
of $1,200, but reported an income tax expense of $7,400. These individuals believe
such a situation results from companies keeping two sets of books. They further believe
that keeping two sets of books is illegal and should be prohibited.
Required:
1> Do companies keep two sets of books and, if they do, is this illegal?
2> How can a company have a tax refund when it also reports an income tax expense?
40) A major controversy in the issuance of Statement of Financial Accounting
Standards No. 95 “Statement of Cash Flows,” centered around the possibility of the
Board’s requiring the direct method of reporting operating cash flows. Bankers who
responded to the Exposure Draft preceding the issuance of the pronouncement on cash
flows expressed a preference for the direct method. Practicing CPAs have been shown
in studies to favor the indirect method. The Board has allowed both the indirect and
direct methods to be used, although the Board expressed a preference for the direct
method.
Evaluate the strengths and weaknesses of the direct and indirect methods and why you
believe the Board decided to allow preparers of financial statements a choice between
the two methods.