Defined contribution pension plans that link the amount of contributions to company
performance are often called: A. Incentive savings plans.
B. Thrift plans.
C. Savings plans.
D. None of the above is correct.
Answer:
Canliss Mining uses the retirement method to determine depreciation on its office
equipment. During 2011, its first year of operations, office equipment was purchased at
a cost of $14,000. Useful life of the equipment averages four years and no salvage value
is anticipated. In 2013, equipment costing $5,000 was sold for $600 and replaced with
new equipment costing $6,000. Canliss would record 2013 depreciation of: A. $3,500.
B. $4,400.
C. $5,400.
D. None of the above is correct.
Answer:
Assuming that Auerbach issued the bonds for $255,369,000, what interest expense
would it recognize in its 2013 income statement? A. $0.
B. $3,830,535.
C. $5,107,380.
D. $7,661,070.
Answer:
When a company pays its bill from a plumber for previous services on account:A. Its
debt to equity ratio always decreases.
B. Its acid-test ratio always remains unchanged.
C. Its current ratio always remains unchanged.
D. All of the above are correct.
Answer:
Which of the following statements is true as to GAAP regarding accounting for income
taxes, and its use of the asset and liability approach? A. Considerable flexibility is
permitted in the balance sheet classification of deferred tax amounts.
B. The approach recognizes the time value of money.
C. The approach is consistent with a balance sheet emphasis of U.S. GAAP and the
International Financial Reporting Standards (IFRS).
D. The approach is consistent with cash basis accounting.
Answer:
Listed below are five terms followed by a list of phrases that describe or characterize
each of the terms. Match each phrase with the correct term by placing the number
designating the best term in the space provided by the phrase. 1) Preferred dividends
2) Antidilutive security
3) Issuance of new shares
4) Convertible bonds
5) Reacquired shares
A. Does not affect and is not affected by EPS calculations
B. Time-weighted decrease in the basic EPS denominator
C. Decrease in the EPS numerator
D. Time-weighted increase in the basic EPS denominator.
E. Potentially dilutive debt
Answer:
When a magazine company collects cash for selling a subscription, it is an example of:
A. An accrued liability transaction.
B. An accrued receivable transaction.
C. A prepaid expense transaction.
D. An unearned revenue transaction.
Answer:
The following information is related to the defined benefit pension plan of Simpson
Company for the year:
Assuming no other relevant data exist, what is the pension expense for the year? A.
$90,000.
B. $230,600.
C. $121,400.
D. $154,000.
Answer:
Portman Inc. uses the conventional retail inventory method. Expressed in millions of
dollars, information about Portman’s 2013 inventory account is expressed in the table
below:
What is the value of Portman’s inventory at 12/31/13? A. $150 million.
B. $252 million.
C. $300 million.
D. None of the above is correct.
Answer:
Shady Lane’s income tax payable account decreased from $14 million to $12 million
during 2013. If its income tax expense was $80 million, what was shown as an
operating cash flow under the direct method? A. A cash outflow of $12 million.
B. A cash outflow of $78 million.
C. A cash outflow of $80 million.
D. A cash outflow of $82 million.
Answer:
You are the independent accountant assigned to the audit of Neophyte Company. The
company’s accountant, a graduate of Rival State University, has prepared financial
statements that contained the following questionable items:
a) The balance sheet reports land at $100,000. Included in this amount is a property
held for speculation at a cost of $30,000.
b) Current liabilities include $50,000 for long-term debt that is due in three months. The
company has received a suitable firm commitment to refinance the debt for five years
and intends to do so.
c) Investments in marketable securities include $20,000 in short-term, high-grade
commercial paper, which is a cash equivalent.
Required:
Describe the appropriate balance sheet presentation for the above items.
Answer:
On January 1, 2013, Green Corporation purchased 20% of the outstanding voting
common stock of Gold Company for $300,000. The book value of the acquired shares
was $275,000. The excess of cost over book value is attributable to an intangible asset
on Gold’s books that was undervalued and had a remaining useful life of five years. For
the year ended December 31, 2013, Gold reported net income of $125,000 and paid
cash dividends of $25,000. What is the carrying value of Green’s investment in Gold at
December 31, 2013? A. $295,000.
B. $300,000.
C. $315,000.
D. $320,000.
Answer:
If an available-for-sale investment is sold for which there are unrealized losses in
accumulated other comprehensive income (AOCI), the total effect on total
comprehensive income is: A. An increase.
B. A decrease.
C. No effect.
D. Cannot be determined given this information.
Answer:
When a change in accounting principle is reported, what is sometimes sacrificed? A.
Relevance.
B. Consistency.
C. Conservatism.
D. Representational faithfulness.
Answer:
General Product Inc. shipped 100 million coupons in products it sold in 2013. The
coupons are redeemable for 30 cents each. General anticipates that 70% of the coupons
will be redeemed. The coupons expire on December 31, 2014. There were 45 million
coupons redeemed in 2013 and 30 million redeemed in 2014
What was General’s coupon promotional expense in 2014? A. Zero, since all the
expense should be reflected in 2013.
B. $1.5 million.
C. $7.5 million.
D. $9.0 million.
Answer:
Arizona Desert Homes (ADH) constructed a new subdivision during 2012 and 2013
under contract with Cactus Development Co. Relevant data are summarized below:
ADH uses the percentage-of-completion method to recognize revenue.
In its December 31, 2012, balance sheet, ADH would report:A. The asset, cost and
profits in excess of billings, of $500,000.
B. The liability, billings in excess of cost, of $300,000.
C. The asset, contract amount in excess of billings, of $1,500,000.
D. The asset, deferred profit, of $400,000.
Answer:
Information for Hobson Corp. for the current year ($ in millions):
What should Hobson report as income from continuing operations? A. $94 million.
B. $90 million.
C. $88 million.
D. $150 million.
Answer:
Harvey’s Wholesale Company sold supplies of $46,000 to Northeast Company on April
12 of the current year, with terms 1/15, n/60. Harvey uses the net method of accounting
for cash discounts.
What entry would Harvey’s make on June 10, assuming the customer made the correct
payment on that date? A.
B.
C.
D.
Answer:
When a company accrues federal income taxes at the end of the accounting period:A.
Its acid-test ratio increases.
B. Its current ratio increases.
C. Its debt to equity ratio decreases.
D. Its debt to equity ratio increases.
Answer:
When a capital lease is first recorded at the inception of the lease, the lessee typically
debits: A. Leased asset.
B. Rent expense.
C. Lease expense.
D. Lease receivable.
Answer:
N Corp. entered into a nine-year capital lease on a warehouse on December 31, 2013.
Lease payments of $26,000, which includes real estate taxes of $1,000, are due
annually, beginning on December 31, 2014, and every December 31 thereafter. N does
not know the interest rate implicit in the lease; N’s incremental borrowing rate is 9%.
The rounded present value of an ordinary annuity for nine years at 9% is 6.0. What
amount should N report as capitalized lease liability at December 31, 2013? A.
$150,000.
B. $156,000.
C. $225,000.
D. $234,000.
Answer:
If a debt instrument is viewed as complex, which of the following is most likely not
true? A. The debt is always classified as FV-NI.
B. The investor will recognize large unrealized losses in the period in which fair value
of the debt changes.
C. The debt may be accounted for at FV-OCI, depending on the investor’s business
purpose for holding the debt.
D. The debt may be a derivative.
Answer:
At the start of the current year, SBC Corp. purchased 30% of Sky Tech Inc. for $45
million. At the time of purchase, the carrying value of Sky Tech’s net assets was $75
million. The fair value of Sky Tech’s depreciable assets was $15 million in excess of
their book value. For this year, Sky Tech reported a net income of $75 million and
declared and paid $15 million in dividends.
The amount of purchased goodwill is: A. $18 million.
B. $30 million.
C. $60 million.
D. None of the above is correct.
Answer:
Which of the following is not true about the “fair value through profit and loss”
approach for accounting for investments under IFRS? A. Allowed under both IAS No.
39 and IFRS No. 9.
B. Includes unrealized gains in earnings.
C. Requires reclassification of realized gains from other comprehensive income.
D. Not vulnerable to other-than-temporary impairments.
Answer:
Listed below are five terms followed by a list of phrases that describe or characterize
each of the terms. Match each phrase with the correct term. 1) Securities available for
sale only
2) Trading securities only
3) Trading securities and securities available for sale
4) Unrealized losses
5) Dividends received
A. Changes in market value affect net income
B. Changes in market value affect comprehensive income, but not net income
C. Temporary declines in the fair value of an available for sale security
D. Reduces the investment account balance under the equity method
E. Reported at fair value
Answer:
The pension expense includes periodic changes that occur: A. In the PBO.
B. In the PBO and the plan assets.
C. In the plan assets.
D. In the PBO and the ABO.
Answer:
Retrospective restatement usually is appropriate for a change in:
A. Option a
B. Option b
C. Option c
D. Option d
Answer:
A company’s defined benefit pension plan had a PBO of $265,000 on January 1, 2013.
During 2013, pension benefits paid were $40,000. The discount rate for the plan for this
year was 10%. Service cost for 2013 was $80,000. Plan assets (fair value) increased
during the year by $45,000. The amount of the PBO at December 31, 2013, was: A.
$225,000.
B. $305,000.
C. $331,500.
D. None of the above is correct.
Answer:
Listed below are 5 terms followed by a list of phrases that describe or characterize each
of the terms. Match each phrase with the most correct term. 1) Serial bonds
2) Debt issue costs
3) Discount on bonds
4) Premium on bonds
5) Installment notes
A. Market rate less than stated rate
B. Market rate higher than stated rate
C. Many separate maturity dates
D. No maturity payment
E. Legal, accounting, printing
Answer:
On January 1, 2012, WOW amended its defined benefit pension plan. The amount of
prior service costs caused by this action was $720,000. WOW uses the service method
for amortizing prior service costs. The following service years were provided by the
company actuary: 2012, 20; 2013, 15; 2014, 12; 2015, 8; and 2016, 5. Twenty
employees benefit from this amendment. In 2013, the amortization amount would be:
A. $12,000.
B. $180,000.
C. $144,000.
D. $300,000.
Answer:
Accumulated Other Comprehensive Income in the shareholders’ equity section of the
balance sheet reflects changes in the fair value of securities for which type of securities?
A. Securities available for sale.
B. Trading securities.
C. Consolidated securities.
D. Held-to-maturity securities.
Answer:
GAAP regarding accounting for income taxes requires the following procedure: A.
Computation of deferred tax assets and liabilities based on temporary differences.
B. Computation of deferred income tax based on permanent differences.
C. Computation of income tax expense based on taxable income.
D. Computation of deferred income tax based on temporary and permanent differences.
Answer:
Recording revenue that is earned, but not yet collected, is an example of: A. A prepaid
expense transaction.
B. An unearned revenue transaction.
C. An accrued liability transaction.
D. An accrued receivable transaction.
Answer:
Briefly define extraordinary items and explain how they are reported according to U.S.
GAAP.
Answer:
The following information is taken from the accounting records of Madeline Inc. for the
year 2013. Missing information has been left blank. Inventory is the only supply that
Madeline purchases on credit.
Required:
Compute the missing amounts.
Answer:
Listed below are 5 terms followed by a list of phrases that describe or characterize the
terms. Match each phrase with the correct term. 1)Return on assets
2)Profit margin on sales
3)Asset turnover
4)Equity multiplier
5)Return on shareholders’ equity
•Return on assets divided by profit margin.
•Return on equity divided by return on assets.
•Net income divided by net sales.
•Net income divided by average assets.
•Net income divided by average shareholders’ equity.
•
Answer:
The trial balance of Rollins Inc. included the following accounts as of December 31,
2013:
Rollins had 100,000 shares of stock outstanding throughout the year. Income tax
expense has not yet been accrued. The effective tax rate is 40%.
Required:
Prepare a 2013 single, continuous statement of comprehensive income for Rollins Inc.
Answer:
The following information comes from the 2011 American Greetings Corporation (AG)
Corporation annual report to shareholders:
Inventories included the following ($ in thousands):
Inventories are valued at the lower of cost or market, with cost being determined by the
LIFO method for 80% of inventories. The cost of all other inventories is determined
primarily by the FIFO method. AG’s cost of goods sold for 2011 was $682,368
thousand.
Required:
If AG used only FIFO for all of its inventories instead of its current policy, what would
its cost of goods sold have been for 2011?
Answer:
Octagon Co. appropriately uses the installment sales method of accounting for its
installment sales. During 2013, Octagon made installment sales of $400,000 and
received payments of $250,000 on those sales. Octagon’s gross profit margin is 40%.
Required: Prepare journal entries to record the sale, collection, and recognition of
gross profit.
Answer:
Briefly discuss why straight-line is the most common depreciation method used in
practice.
Answer:
Pocus, Inc., reports warranty expense when related products are sold. For tax purposes,
the warranty costs are deductible as incurred. At the end of the current year, Pocus has a
warranty liability of $200,000 and taxable income of $20,000,000. At the end of the
previous year, Pocus reported a deferred tax asset of $80,000 related to the difference in
reporting warranty expense, its only temporary difference. The enacted tax rate is 30%
each year.
Required:
Prepare the appropriate journal entry for Pocus to record the income tax provision for
the current year. Show well-labeled supporting computations.
Answer:
Silver Springs Company has an unfunded retiree health care plan. Each of the
company’s four employees has been with the organization since its inception at the
beginning of 2012. As of the end of 2013, the actuary estimates the total net cost of
providing benefits to employees during their retirement years to have a present value of
$196,000. Each of the employees will become fully eligible for benefits after 28 more
years of service, but aren’t expected to retire for 30 more years. The interest rate is 8%.
Required:
1) What is the expected postretirement benefit obligation at the end of 2013?
2) What is the accumulated postretirement benefit obligation at the end of 2013?
Answer:
Walker Corporation exchanged land and $4,500 cash for material handling equipment.
The land had a book value of $45,000 and a fair value of $58,000. Assume the
exchange has commercial substance.
Required:
Prepare the journal entry to record the exchange.
Answer:
When is interest capitalized? Briefly describe how the amount to be capitalized is
computed.
Answer:
Suppose that Laramie Company’s adjusted trial balance ignored the following
information. For each item of information, indicate what effects, if any, these omissions
would have on the stated components of Laramie Company’s 2013 Income Statement
and 12/31/13 Balance Sheet. Assume no income taxes.
Use the following code for your answers and be sure to include the dollar amounts of
the effects next to the letter O or U:
N = No Effect
O = Overstated
U = Understated
Answer:
Diablo Company leased a machine from Juniper Corporation on January 1, 2013. The
machine has a fair value of $20,000,000. The lease agreement calls for four equal
payments at the end of each year in the amount of $6,309,410. The useful life of the
machine was expected to be four years with no residual value. The appropriate interest
rate for this lease is 10%.
Required:
1) Prepare the journal entry for Diablo Company at the inception of the lease.
2) Prepare the journal entry for the first lease payment.
3) Prepare the journal entry for the second lease payment.
Answer:
The components of postretirement benefit expense are similar to the components of
pension expense. How does the service cost component differ between the two
expenses?
Answer:
On January 1, 2013, Tom’s Transport Company’s accumulated postretirement benefit
obligation was $30,000,000. At the end of 2013, retiree benefits paid were $3,500,000.
Service cost for 2013 is $6,000,000. At the end of 2013, there was no prior service cost
or net gain or loss. Assumptions regarding the trend of future health care costs were
revised at the end of 2013. This revision caused the actuary to revise downward the
estimate of the APBO by $500,000. The appropriate discount rate was 6%.
Required:
Determine the amount of the accumulated postretirement benefit obligation at
December 31, 2013.
Answer:
Diversified Industries sells perishable electronic products. Some must be shipped in
reusable containers. Customers pay a deposit for each container. The deposit is equal to
the container’s cost. Customers receive a refund when the container is returned. During
2013, deposits collected on containers shipped were $700,000. Deposits are forfeited if
containers are not returned in 18 months. Containers held by customers on January 1,
2013, were $330,000. During 2013, $410,000 was refunded and deposits of $25,000
were forfeited.
Required:
1) Prepare the appropriate journal entries for the deposits received and returned during
2013.
2) Determine the liability for refundable deposits to be reported in the December 31,
2013, balance sheet.
Answer:
Indicate the nature of each of the situations described below using the following
three-letter code.
CODE DESCRIPTION
CPR: Change in principle reported retrospectively
CPP: Change in principle reported prospectively
CES: Change in estimate
CRE: Change in reporting entity
PPA: Prior period adjustment required
____ Technological advance that renders worthless a patent with an unamortized cost of
$45,000.
____ Change from LIFO inventory costing to average inventory costing.
____ Including in the consolidated financial statements a subsidiary acquired several
years earlier that was appropriately not included in previous years.
____ Change from FIFO inventory method to LIFO.
____ Pension plan assets for a defined benefit pension plan achieving a rate of return in
excess of the amount anticipated.
____ Change from the pay-as-you-go method to estimating warranty expense in the
period the related product is sold.
____ Change from declining balance depreciation to straight-line.
____ Change from determining lower of cost or market for inventories by the individual
item approach to the aggregate approach.
____ Settling a lawsuit for less than the amount accrued previously as a loss
contingency.
____ Change in the estimated useful life of office equipment.
Answer:
Briefly explain the differences between U.S. GAAP and International Financial
Reporting Standards in the application of the lower-of-cost-or-market rule for valuing
inventory.
Answer: