1) Starship Corporation incurred the following losses during 2014:
Ignoring income taxes, what amount of loss should Starship report as extraordinary on
its annual income statement?
a. $100,000
b. $520,000
c. $270,000
d. $150,000
2) Citrus Inc. declared and paid cash dividends of $100,000 on common stock and
$75,000 on preferred stock. How would these dividends be presented in Citrus
statement of cash flows?
a. As a $100,000 reduction in cash flows from investing activities
b. As a $175,000 reduction in cash flows from investing activities
c. As a $100,000 reduction in cash flows from financing activities
d. As a $175,000 reduction in cash flows from financing activities
3) Danville Corporation bought a new machine and agreed to pay for it in equal annual
installments of $6,000 at the end of each of the next five years. Assume the prevailing
interest rate for this type of transaction is 12%. Assume the present value of an ordinary
annuity of $1 at 12% for five periods is 3.60. The future amount of an ordinary annuity
of $1 at 12% for five periods is 6.35. The present value of $1 at 12% is 0.567. How
much should Danville record as the note payable on the balance sheet if financial
statements were prepared today?
a. $17,010
b. $21,600
c. $30,000
d. $38,100
4) Which of the following is NOT a purpose of the conceptual framework of
accounting?
a. To provide definitions of key terms and fundamental concepts
b. To provide specific guidelines for resolving situations not covered by existing
accounting standards
c. To assist accountants and others in selecting among alternative accounting and
reporting methods
d. To assist the FASB in the standard-setting process
5) The net amount of a bond liability that appears on the balance sheet is the
a. call price of the bond plus bond discount or minus bond premium
b. face value of the bond plus related premium or minus related discount
c. face value of the bond plus related discount or minus related premium
d. maturity value of the bond plus related discount or minus related premium
6) When computing diluted EPS for a company with a complex capital structure, what
is the denominator in the computation?
a. Number of common shares outstanding at year-end
b. Weighted-average number of common shares outstanding
c. Weighted-average number of common shares outstanding plus all other potentially
antidilutive securities
d. Weighted-average number of common shares outstanding plus all other potentially
dilutive securities
7) Global Trading Company. converts its foreign subsidiary financial statements using
the translation process. The companys Swiss subsidiary reported the following for
2014: revenues and expenses of 13,220,000 and 6,672,000 Swiss francs, respectively,
earned or incurred evenly throughout the year, dividends of 2,000,000 Swiss francs
were paid during the year. The following exchange rates are available:
Translated net income for 2014 is
a. $891,408
b. $809,544
c. $1,283,408
d. $1,165,544
8) A copyright is an example of which general category of intangible asset that should
be recognized separately according to current generally accepted accounting principles?
a. Marketing-related
b. Customer-related
c. Artistic-related
d. Contract-based
9) Creative Corporation’s income statement for the year ended December 31, 2014,
shows pretax income of $300,000. The following items are treated differently on the tax
return and in the accounting records:
Assume that Creative’s tax rate for 2014 is 40 percent. What is the current portion of
Creative’s total income tax expense for 2014?
a. $106,200
b. $120,200
c. $130,200
d. $144,200
10) The effect of a change in accounting principle that is inseparable from the effect of
a change in accounting estimate should be reported
a. by showing the pro forma effects of retroactive application
b. by restating the financial statements of all prior periods presented
c. in the period of change and future periods
d. as a correction of an error
11) On August 1, a company received cash of $9,324 for one years rent in advance and
recorded the transaction on that day as a credit to rent revenue. The December 31
adjusting entry would include
a. a debit to Rent Revenue for $3,885
b. a credit to Unearned Rent Revenue for $5,439
c. a debit to Unearned Rent Revenue for $3,885
d. a credit to Rent Revenue for $9,324
12) On January 1, 2013, Canal Locks Corporation purchased drilling equipment for
$11,500. The equipment has an estimated useful life of four years and a salvage value
of $200. Given this information, if Canal uses the sum-of-the-years’-digits method of
depreciation and then trades the equipment for new equipment with a fair market value
of $16,000 on December 31, 2014, and pays $8,000 cash in the exchange, assuming the
exchange has commercial substance, the new equipment should be recorded at
a. $16,000
b. $12,475
c. $11,590
d. $8,110
13) On January 2, 2014, Sanders Corporation granted stock options to key employees
for the purchase of 60,000 shares of the company’s common stock at $25 per share. The
options are intended to compensate employees for the next two years. The options are
exercisable within a four-year period beginning January 1, 2016, by grantees still in the
employ of the company. The fair value of the option determined by an option pricing
model is $7 at the grant date. Sanders plans to distribute up to 60,000 shares of treasury
stock when options are exercised. The treasury stock was acquired by Sanders at a cost
of $28 per share and was recorded under the cost method. Assume that no stock options
were terminated during the year. How much should Sanders charge to Compensation
Expense for the year ended December 31, 2014?
a. $420,000
b. $210,000
c. $180,000
d. $90,000
14) The following information was taken from the 2014 financial statements of Glocken
Corporation:
No accounts receivable were written off or recovered during the year. If Glocken
prepares a statement of cash flows using the direct method, what amount should be
reported as collected from customers in 2014?
a. $2,239,000
b. $2,234,000
c. $2,146,000
d. $2,141,000
15) When a property dividend is declared and the market value of the property exceeds
its book value, the excess is credited to
a. Gain on Distribution of Property Dividends
b. Retained Earnings
c. Additional Paid-In Capital
d. the related asset account
16) Assume the percentage-of-completion method of revenue recognition is used on a
long-term construction contract. Under this method, revenues that are earned but
unbilled at the balance sheet date should be disclosed
a. as a long-term receivable in the noncurrent assets section of the balance sheet
b. only as a footnote disclosure until the customer is billed for the percentage of work
completed
c. as construction in progress in the current assets section of the balance sheet
d. as construction in progress in the noncurrent assets section of the balance sheet
17) Estimation of uncollectible accounts receivable based on a percentage of sales
a. emphasizes measurement of the net realizable value of accounts receivable
b. is only acceptable for tax purposes
c. emphasizes measurement of total assets
d. emphasizes measurement of bad debt expense
18) On January 1, 2012, Costas Co. purchased a new machine for $1,250,000. The new
machine has an estimated useful life of five years and the salvage value was estimated
to be $250,000. Costas uses the sum-of-the-years’-digits method of depreciation. The
amount of depreciation expense for 2014 is
a. $200,000
b. $250,000
c. $300,000
d. $416,667
19) Which of the following transactions would not be reported on the statement of cash
flows?
a. Purchase of treasury stock
b. Declaration of a cash dividend which has not yet been paid
c. Patent amortization
d. Purchase of an operational asset by issuing common stock
20) The following changes in American Corporation’s account balances occurred during
2014:
American paid dividends of $39,000 during the year. There were no changes in
Retained Earnings for 2014 except dividends and net income. What was American’s net
income for 2014?
a. $12,000
b. $27,000
c. $39,000
d. $51,000
21) The following balances have been excerpted from Edwards’ balance sheets:
Edwards Company paid or collected during 2013 the following items:
The insurance expense on the income statement for 2013 was
a. $28,000
b. $40,000
c. $43,000
d. $55,000
22) Accounting for inventories by applying the lower-of-cost-or-market is an example
of the application of
a. conservatism
b. comparability
c. consistency
d. materiality
23) Which of the following presentation formats is permitted by Statement of Financial
Accounting Standards No. 130, “Reporting Comprehensive Income”?
a. Only I
b. I and III
c. I and II
d. I, II, and III
24) Almondine Company sold a computer for $50,000. The computer’s original cost
was $250,000, and the accumulated depreciation at the date of sale was $180,000. The
sale of the computer should appear on Almondines annual statement of cash flows
(indirect method) as
a. a reduction in cash flows from operating activities of $20,000 and an increase in cash
flows from investing activities of $50,000
b. an increase in cash flows from operating activities of $20,000 and an increase in cash
flows from investing activities of $50,000
c. a reduction in cash flows from operating activities of $20,000 and an increase in cash
flows from investing activities of $70,000
d. an increase in cash flows from operating activities of $20,000 and an increase in cash
flows from investing activities of $70,000
25) Which of the following statements is true regarding equity reserves?
a. Under U.S. GAAP, Other Comprehensive Income represents an equity reserve
b. Under U.S. GAAP, the allowance for doubtful accounts is considered an equity
reserve
c. Under U.S. GAAP, appropriations of retained earnings are considered an equity
reserve
d. Under U.S. GAAP, equity reserves are not currently allowed
26) Which of the following represents a liability?
a. The obligation to pay for goods that a company expects to order from suppliers next
year
b. The obligation to provide goods that customers have ordered and paid for during the
current year
c. The obligation to pay interest on a five-year note payable that was issued the last day
of the current year
d. The obligation to distribute shares of a company’s own common stock next year as a
result of a stock dividend declared near the end of the current year
27) Zenith Corporation bought a machine on January 1, 2014. In purchasing the
machine, the company paid $40,000 cash and signed an interest-bearing note for
$105,000. The estimated useful life of the machine is five years, after which time the
salvage value is expected to be $10,000. Given this information, how much
depreciation expense would be recorded for the year ending December 31, 2015, if the
company uses the sum-of-the-years’-digits depreciation method?
a. $45,000
b. $36,000
c. $40,000
d. $34,000
28) On January 1, 2014, Vintage Corporation changed its inventory cost flow
assumption from FIFO to LIFO. The change was made for financial statement and tax
reporting. Vintage’s inventory values at the end of each year since inception under both
methods are summarized below.
Ignoring income taxes, what is the amount of adjustment required in the 2014 accounts,
and where would it be reported in the financial statement?
29) AtomTech Corporation has a noncontributory, defined-benefit pension plan. The
following information relating to this plan was available at December 31, 2014, the end
of the companys accounting period:
Required:
1> Compute the funded status of the PBO at the end of 2014.
2> Compute the net periodic pension expense for 2014.
3> Prepare the 2014 journal entry to record pension expense and funding of the plan.
30) Keefer Inc. uses leases as a means of selling its equipment. On January 1, 2014, the
company leased a machine to Jeremy Manufacturing Inc. The cost of the machine to
Keefer was $78,450. The fair market value (which was the sales price) was $101,184 at
the time of the lease. Annual lease payments are $13,500 and are payable in advance for
12 years. At the end of the lease term, title to the machine will pass to Jeremy
Manufacturing.
31) Prepare a statement of comprehensive income in a two-statement format.
32) The percentage-of-completion method is used to recognize revenue and gross profit
for construction and other types of projects that extend beyond one accounting period.
A problem similar to long-term construction projects exists in accounting for service
revenue that is earned for more than one performance act where such activity extends
beyond one accounting period.
Provide examples of service activities that might extend beyond one accounting period
and propose means of recognizing revenues for such activities.
33) Oriole Industries computed a pretax financial income of $118,500 for the first year
of its operations ended December 31, 2014. Oriole uses an accelerated cost recovery
method on its tax return, and straight-line depreciation on its books.
The difference between the tax and book deduction for depreciation over the five-year
life of the assets acquired in 2014 are as follows:
34) The price-earnings ratio frequently is used by analysts and investors for evaluating
stock prices because it relates the earnings of the business to the current market price of
the stock. The ratio is computed by dividing the market price per share by the earnings
per share before extraordinary items.
Explain how the price-earnings ratio should be interpreted, including any problems
associated with the interpretation of the ratio.
35) Patterson, Inc., has the following comparative balance sheets and income statement
available for your examination:
Additional information:
Prepare a statement of cash flows for Patterson, Inc., for 2014 employing the indirect
method of identifying cash flows from operating activities.