1) Discount on Notes Payable is a contra account to Notes Payable on the balance sheet.
2) The distinction between a direct-financing lease and a sales-type lease is the presence
or absence of a transfer of title.
3) Adjusting entries for prepayments record the portion of the prepayment that
represents the expense incurred or the revenue recognized in the current accounting
period.
4) Under the completion-of-production basis, companies recognize revenue when
agricul-tural crops are harvested since the sales price is reasonably assured and no
significant costs are involved in product distribution.
5) Minimum rental payments are the same as minimum lease payments.
6) Variable overhead costs incurred to self-construct an asset should be included in the
cost of the asset.
7) The accumulated benefit obligation bases the deferred compensation amount on both
vested and nonvested service using future salary levels.
8) Significant influence over an investee may be indicated by material intercompany
trans-actions and interchange of managerial personnel.
9) Melverns Corporation has an investment in 15,000 shares of Wallace Company
common stock with a cost of $654,000. These shares are used in a property dividend to
stockholders of Melverns. The property dividend is declared on May 25 and scheduled
to be distributed on July 31 to stockholders of record on June 15 . The fair value per
share of Wallace stock is $63 on May 25, $66 on June 15, and $68 on July 31 . The net
effect of this property dividend on retained earnings is a reduction of
a.$1,020,000
b.$ 990,000
c.$ 945,000
d.$ 654,000
10) Bell Inc. took a physical inventory at the end of the year and determined that
$810,000 of goods were on hand. In addition, the following items were not included in
the physical count. Bell, Inc. determined that $96,000 of goods purchased were in
transit that were shipped f.o.b. destination (goods were actually received by the
company three days after the inventory count).The company sold $40,000 worth of
inventory f.o.b. destination. What amount should Bell report as inventory at the end of
the year?
a.$810,000
b.$906,000
c.$850,000
d.$946,000
11) Piazza Co. purchased a machine on July 1, 2014, for $800,000. The machine has an
estimated useful life of five years and a salvage value of $160,000. The machine is
being depreciated from the date of acquisition by the 150% declining-balance method.
For the year ended December 31, 2014, Piazza should record depreciation expense on
this machine of
a.$240,000
b.$160,000
c.$120,000
d.$96,000
12) Rushia Company has an available-for-sale investment in the 10%, 10-year bonds of
Pear Company The investments carrying value is $3,200,000 at December 31, 2014 .
On January 9, 2015, Rushia learns that Pear Company has lost its primary
manufacturing facility in an uninsured fire. As a result, Rushia determines that the
investment is impaired and now has a fair value of $2,300,000. In June, 2016, Pear
Company has succeeded in rebuilding its manufacturing facility, and its prospects have
improved as a result.
If Rushia Company determines that the fair value of the investment is now $2,900,000
and is using IFRS for its external financial reporting, which of the following is true?
a.Rushia is prohibited from recording the recovery in value of the impaired investment
b.Rushia may record a recovery of $600,000
c.Rushia may record a recovery of $900,000
d.Rushia may record a recovery, but is limited to 80% of the value of the recovery
13) Norton, Inc. purchased equipment in 2013 at a cost of $800,000. Two years later it
became apparent to Norton, Inc. that this equipment had suffered an impairment of
value. In early 2015, the book value of the asset is $520,000 and it is estimated that the
fair value is now only $320,000. The entry to record the impairment is
a.No entry is necessary as a write-off violates the historical cost principle.
b.Retained Earnings200,000
Accumulated DepreciationEquipment200,000
c.Loss on Impairment of Equipment200,000
Accumulated DepreciationEquipment200,000
d.Retained Earnings200,000
Reserve for Loss on Impairment of Equipment200,000
14) During 2015, Oldham Corporation, which uses the allowance method of accounting
for doubtful accounts, recorded a provision for bad debt expense of $35,000 and in
addition it wrote off, as uncollectible, accounts receivable of $10,000. As a result of
these transactions, net cash flows from operating activities would be calculated (indirect
method) by adjusting net income with a
a.$35,000 increase
b.$10,000 increase
c.$25,000 increase
d.$25,000 decrease
15) A company that uses the last-in, first-out (LIFO) method of inventory pricing finds
at an interim reporting date that there has been a partial liquidation of the base period
inventory level. The decline is considered temporary and the partial liquidation is
expected to be replaced prior to year end. The amount shown as inventory at the interim
reporting date should
a.be shown at the actual level, and cost of sales for the interim reporting period should
include the expected cost of replacement of the liquidated LIFO base
b.be shown at the actual level, and cost of sales for the interim reporting period should
reflect the historical cost of the liquidated LIFO base
c.not give effect to the LIFO liquidation, and cost of sales for the interim reporting
period should reflect the historical cost of the liquidated LIFO base
d.be shown at the actual level, and the decrease in inventory level should not be
reflected in the cost of sales for the interim reporting period
16) Which of the following is an acceptable method of presenting the income
statement?
a.A single-step income statement
b.A multiple-step income statement
c.A consolidated statement of income
d.All of these answer choices are correct
17) Which of the following statements is correct?
a.A company may exclude a short-term obligation from current liabilities if the firm
intends to refinance the obligation on a long-term basis
b.A company may exclude a short-term obligation from current liabilities if the firm can
demonstrate an ability to consummate a refinancing
c.A company may exclude a short-term obligation from current liabilities if it is paid off
after the balance sheet date and subsequently replaced by long-term debt before the
balance sheet is issued
d.None of these answers are correct
18) Bell Inc. took a physical inventory at the end of the year and determined that
$830,000 of goods were on hand. In addition, Bell, Inc. determined that $60,000 of
goods that were in transit that were shipped f.o.b. shipping point were actually received
two days after the inventory count and that the company had $90,000 of goods out on
consignment. What amount should Bell report as inventory at the end of the year?
a.$830,000
b.$890,000
c.$920,000
d.$980,000