1) under the fair value method, the investor reports as revenue its share of the net
income reported by the investee.
2) companies usually make bond interest payments semiannually, although the interest
rate is generally expressed as an annual rate.
3) unlike u.s. gaap, interest costs incurred during construction are not capitalized under
ifrs.
4) a ledger is where the company initially records transactions and selected other
events.
5) companies record and report long-term notes receivable at the present value of the
cash they expect to collect.
6) companies do not report changes in the fair value of available-for-sale debt securities
as income until the security is sold.
7) certificates of deposit are usually classified as cash on the balance sheet.
8) a corporation is incorporated in only one state regardless of the number of states in
which it operates.
9) when stock dividends or stock splits occur, companies must restate the shares
outstand-ing after the stock dividend or split, in order to compute the weighted-average
number of shares.
10) the rate of return on common stock equity is computed by dividing net income by
the average common stockholders equity.
11) dividends payable in assets of the corporation other than cash are called property
dividends or dividends in kind.
12) under the loss carryback approach, companies must apply a current year loss to the
most recent year first and then to an earlier year.
13) recognition of a recourse liability will make a loss on sale of receivables larger than
it would otherwise have been.
14) intangible assets derive their value from the right (claim) to receive cash in the
future.
15) prior period adjustments can either be added or subtracted in the retained earnings
statement.
16) when the entity has substantially accomplished what it must do to be entitled to the
benefits represented by the revenues, revenues are
a.earned
b.realized
c.recognized
d.all of these
17) the estimated life of a building that has been depreciated 30 years of an originally
estimated life of 50 years has been revised to a remaining life of 10 years. based on this
information, the accountant should
a.continue to depreciate the building over the original 50-year life
b.depreciate the remaining book value over the remaining life of the asset
c.adjust accumulated depreciation to its appropriate balance, through net income, based
on a 40-year life, and then depreciate the adjusted book value as though the estimated
life had always been 40 years
d.adjust accumulated depreciation to its appropriate balance through retained earnings,
based on a 40-year life, and then depreciate the adjusted book value as though the
estimated life had always been 40 years
18) in each of the following independent cases, it is assumed that the corporation has
$600,000 of 6% preferred stock and $2,400,000 of common stock outstanding, each
having a par value of $10. no dividends have been declared for 2011 and 2012.
(a)as of 12/31/13, it is desired to distribute $250,000 in dividends. how much will the
preferred stockholders receive if their stock is cumulative and nonparticipating?
(b)as of 12/31/13, it is desired to distribute $600,000 in dividends. how much will the
preferred stockholders receive if their stock is cumulative and participating up to 11%
in total?
(c)on 12/31/13, the preferred stockholders received a $180,000 dividend on their stock
which is cumulative and fully participating. how much money was distributed in total
for dividends during 2013?
19) according to the fasb conceptual framework, which of the following elements
describes transactions or events that affect a company during a period of time?
a.assets
b.expenses
c.equity
d.liabilities
20) which of the following statements is not true as it relates to the dollar-value lifo
inventory method?
a.it is easier to erode lifo layers using dollar-value lifo techniques than it is with specific
goods pooled lifo
b.under the dollar-value lifo method, it is possible to have the entire inventory in only
one pool
c.several pools are commonly employed in using the dollar-value lifo inventory method
d.under dollar-value lifo, increases and decreases in a pool are determined and
measured in terms of total dollar value, not physical quantity
21) eaton co. sells major household appliance service contracts for cash. the service
contracts are for a one-year, two-year, or three-year period. cash receipts from contracts
are credited to unearned service revenue. this account had a balance of $3,600,000 at
december 31, 2012 before year-end adjustment. service contract costs are charged as
incurred to the service contract expense account, which had a balance of $900,000 at
december 31, 2012.
service contracts still outstanding at december 31, 2012 expire as follows:
what amount should be reported as unearned service revenue in eaton’s december 31,
2012 balance sheet?
a.$2,700,000
b.$2,600,000
c.$1,700,000
d.$1,000,000
22) sutton company sells plasma-screen televisions on an installment basis and
appropriately uses the installment-sales method of accounting. a customer with an
account balance of $2,800 refuses to make any more payments and the merchandise is
repossessed. the gross profit rate on the original sale is 40%. sutton estimates that the
television can be sold as is for $875, or for $1,050 if $70 is spent to refurbish it. the loss
on repossession is
a. $1,925
b. $1,120
c. $ 805
d. $ 700
23)
24) the conversion of preferred stock may be recorded by the
a.incremental method
b.book value method
c.market value method
d.par value method
25) use of the accrual method in accounting for product warranty costs
a.is required for federal income tax purposes
b.is frequently justified on the basis of expediency when warranty costs are immaterial
c.finds the expense account being charged when the seller performs in compliance with
the warranty
d.represents accepted practice and should be used whenever the warranty is an integral
and inseparable part of the sale
26) wise company adopted the dollar-value lifo method on january 1, 2012, at which
time its inventory consisted of 6,000 units of item a @ $5.00 each and 3,000 units of
item b @ $16.00 each. the inventory at december 31, 2012 consisted of 12,000 units of
item a and 7,000 units of item b. the most recent actual purchases related to these items
were as follows:
using the double-extension method, what is the price index for 2012 that should be
computed by wise company?
a.108.33%
b.109.59%
c.111.05%
d.220.51%
27) in determining net cash flow from operating activities, a decrease in accounts
payable during a period
a.means that income on an accrual basis is less than income on a cash basis
b.requires an addition adjustment to net income under the indirect method
c.requires an increase adjustment to cost of goods sold under the direct method
d.requires a decrease adjustment to cost of goods sold under the direct method
28) an account which would be classified as a current liability is
a.dividends payable in the company’s stock
b.accounts payabledebit balances
c.losses expected to be incurred within the next twelve months in excess of the
company’s insurance coverage
d.none of these
29) engels company purchased a depreciable asset for $800,000. the estimated salvage
value is $40,000, and the estimated useful life is 10,000 hours. engels used the asset for
1,100 hours in the current year. the activity method will be used for depreciation. what
is the depreciation expense on this asset?
a.$76,000
b.$83,600
c.$88,000
d.$760,000
30) at the end of the fiscal year, apha airlines has an outstanding purchase commitment
for the purchase of 1 million gallons of jet fuel at a price of $4.60 per gallon for
delivery during the coming summer. the company prices its inventory at the lower of
cost or market. if the market price for jet fuel at the end of the year is $4.25, how would
this situation be reflected in the annual financial statements?
a.record unrealized gains of $350,000 and disclose the existence of the purchase
commitment
b.no impact
c.record unrealized losses of $350,000 and disclose the existence of the purchase
commitment
d.disclose the existence of the purchase commitment
31) feller company issues $10,000,000 of 10-year, 9% bonds on march 1, 2012 at 97
plus accrued interest. the bonds are dated january 1, 2012, and pay interest on june 30
and december 31. what is the total cash received on the issue date?
a.$9,700,000
b.$10,225,000
c.$9,850,000
d.$9,550,000
32) under u.s. gaap, contingent assets for insurance recoveries are recognized if
__________; ifrs requires the recovery be “___________” before recognition of an
asset is permitted.
a.probable and virtually certain
b.possible and very likely
c.possible and definite
d.certain and probable
33) before year-end adjusting entries, dunn company’s account balances at december
31, 2012, for accounts receivable and the related allowance for uncollectible accounts
were $1,200,000 and $90,000, respectively. an aging of accounts receivable indicated
that $125,000 of the december 31 receivables are expected to be uncollectible. the net
realizable value of accounts receivable after adjustment is
a.$1,165,000
b.$1,075,000
c.$985,000
d.$1,110,000