1) Terry Company is unable to reliably estimate revenues and costs associated with its
only long-term construction contract. Under IFRS, Terry Company must use the
completed-contract method to account for this contract.
2) Noncash investing and financing activities are disclosed either in a separate schedule
or in a separate note to the financial statements.
3) FASB Statement 131 requires that general purpose financial statements include
selected information on a single basis of segmentation.
4) The present value of an annuity due table is used when payments are made at the end
of each period.
5) The FASB believes that the deferred tax method is the most consistent method for
accounting for income taxes.
6) The LIFO conformity rule requires that if a company uses LIFO for tax purposes, it
must also use LIFO for financial accounting purposes.
7) Recognition of a recourse liability will make a loss on sale of receivables larger than
it would otherwise have been.
8) International Financial Reporting Standards preceded International Accounting
Standards
9) In a lease that is appropriately recorded as a direct-financing lease by the lessor, the
unearned income
a.should be amortized over the period of the lease using the effective interest method
b.should be amortized over the period of the lease using the straight-line method
c.does not arise
d.should be recognized at the leases expiration
10) Taxable income of a corporation
a.differs from accounting income due to differences in intraperiod allocation between
the two methods of income determination
b.differs from accounting income due to differences in interperiod allocation and
permanent differences between the two methods of income determination
c.is based on generally accepted accounting principles
d.is reported on the corporation’s income statement
11) On January 2, 2014, Gold Star Leasing Company leases equipment to Brick Co.
with 5 equal annual payments of $80,000 each, payable beginning January 2 31, 2014 .
Brick Co. agrees to guarantee the $50,000 residual value of the asset at the end of the
lease term. Bricks incremental borrowing rate is 10%, however it knows that Gold Stars
implicit interest rate is 8%. What journal entry would Gold Star make at January 2,
2014 assuming this is a direct-financing lease?
PV Annuity DuePV Ordinary AnnuityPV Single Sum
8%, 5 periods 4.31213 3.99271 .68508
10%, 5 periods 4.16986 3.79079 .62092
a.Cash80,000
Lease Receivable370,000
Equipment450,000
b.Cash80,000
Lease Receivable264,970
Loss105,030
Equipment450,000
c.Cash80,000
Lease Receivable284,635
Equipment364,635
d.Cash80,000
Lease Receivable299,224
Equipment379,224
12) For 2014, Hammer Company reports beginning of the year total assets of $900,000,
end of the year total assets of $1,100,000, net sales of $750,000, and net income of
$150,000.
The rate of return on assets for Hammer in 2014 is
a.12.0%
b.13.6%
c.15.0%
d.16.7%
13) Flint Co. records purchase discounts lost and uses perpetual inventories. Prepare
journal entries in general journal form for the following:
(a)Purchased merchandise costing $2,500 with terms 2/10, n/30.
(b)Payment was made thirty days after the purchase.
14) A schedule of machinery owned by Micco Co. is presented below:
EstimatedEstimated
Total CostSalvage ValueLife in Years
Machine X$300,000$20,00012
Machine Y400,00040,00010
Machine Z150,00030,0006
Micco computes depreciation by the composite method.
The composite life (in years) for these assets is
a.15.6
b.8.6
c.8.9
d.10.0
15) In a statement of cash flows, interest payments to lenders and other creditors should
be classified as cash outflows for
a.operating activities
b.borrowing activities
c.lending activities
d.financing activities
16) Haystack, Inc. manufactures machinery used in the mining industry. On January 2,
2015 it leased equipment with a cost of $320,000 to Silver Point Co. The 5-year lease
calls for a 10% down payment and equal annual payments at the end of each year. The
equipment has an expected useful life of 5 years. If the selling price of the equipment is
$520,000, and the rate implicit in the lease is 8%, what are the equal annual payments?
PV Annuity DuePV Ordinary AnnuityPV Single Sum
8%, 5 periods 4.31213 3.99271 .68508
10%, 5 periods 4.16986 3.79079 .62092
a.$117,214
b.$108,530
c.$121,315
d.$130,237
17) At a lump-sum cost of $72,000, Pratt Company recently purchased the following
items for resale:
ItemNo. of Items PurchasedResale Price Per Unit
M4,000$3.75
N2,00012.00
O6,0006.00
The appropriate cost per unit of inventory is:
MNO
a.$3.75$12.00$6.00
b.$3.11$19.86$3.32
c.$3.60$11.52$5.76
d.$6.00$6.00$6.00
18) Broadway Corporation was granted a patent on a product on January 1, 2004 . To
protect its patent, the corporation purchased on January 1, 2015 a patent on a competing
product which was originally issued on January 10, 2011 . Because of its unique plant,
Broadway Corporation does not feel the competing patent can be used in producing the
product. The cost of the competing patent should be
a.amortized over a maximum period of 20 years
b.amortized over a maximum period of 16 years
c.amortized over a maximum period of 9 years
d.expensed in 2015
19) Under the intrinsic value method, compensation expense resulting from an
incentive stock option is
a.not recognized if the market price does not exceed the option price at the date of grant
b.recognized in the period of the grant
c.allocated to the periods benefited by the employee’s required service
d.recognized in the period of exercise
20) On October 1, 2014, Gomez Inc. assigns $1,600,000 of its accounts receivable to
Ottawa National bank as collateral for a $1,200,000 note. The bank assesses a finance
charge of 2% of the receivables assigned and interest on the note of 7%. Prepare the
October 1 journal entries for both Gomez and Ottawa.
21) The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2014,
contained the following accounts.
5-year Bonds Payable 8%$2,500,000
Interest Payable50,000
Premium on Bonds Payable100,000
Notes Payable (3 months.)40,000
Notes Payable (5 yr.)165,000
Mortgage Payable ($15,000 due currently)200,000
Salaries and wages Payable18,000
Income Taxes Payable (due 3/15 of 2015)25,000
The total long-term liabilities reported on the balance sheet are
a.$2,865,000
b.$2,850,000
c.$2,965,000
d.$2,950,000
22) Which of the following errors will cause an imbalance in the trial balance?
a.Omission of a transaction in the journal
b.Posting an entire journal entry twice to the ledger
c.Posting a credit of $720 to Accounts Payable as a credit of $720 to Accounts
Receivable
d.Listing the balance of an account with a debit balance in the credit column of the trial
balance
23) Sisco Co. purchased a patent from Thornton Co. for $620,000 on July 1, 2012 .
Expenditures of $119,000 for successful litigation in defense of the patent were paid on
July 1, 2015 . Sisco estimates that the useful life of the patent will be 20 years from the
date of acquisition.
Instructions
Prepare a computation of the carrying value of the patent at December 31, 2015 .
24) Find the present value of an investment in equipment if it is expected to provide
annual savings of $30,000 for 10 years and to have a resale value of $75,000 at the end
of that period. Assume an interest rate of 9% and that savings are realized at year end.
25) Ellison Company sells large store-rack systems and frequently accepts notes
receivable from customers as payment. Ellison conducts a through credit check on its
customers, and it charges a fairly low interest rate (1/2 of 1% payable monthly) on these
notes. Ellison has elected to use the fair value option for one of these notes and has the
following data related to the carrying and fair value for its note
Carrying ValueFair Value
December 31, 2014 88,000 85,000
December 31, 2015 72,000 76,000
Instructions
Prepare the journal entry at December 31 (Ellisons year-end) for 2014 and 2015, to
record the fair value option for these notes.
26) Vogts Company sells TVs. The perpetual inventory was stated as $38,500 on the
books at December 31, 2014 . At the close of the year, a new approach for compiling
inventory was used and apparently a satisfactory cut-off for preparation of financial
statements was not made. Some events that occurred are as follows.
1>TVs shipped to a customer January 2, 2015, costing $5,000 were included in
inventory at December 31, 2014 . The sale was recorded in 2015 .
2>TVs costing $12,000 received December 30, 2014, were recorded as received on
January 2, 2015 .
3>TVs received during 2014 costing $4,600 were recorded twice in the inventory
account.
4>TVs shipped to a customer December 28, 2014, f.o.b. shipping point, which cost
$9,000, were not received by the customer until January, 2015 . The TVs were included
in the ending inventory.
5>TVs on hand that cost $6,100 were never recorded on the books.
Instructions
Compute the correct inventory at December 31, 2014 .
27) Presented below is information related to Wyrick Company:
1>The company is granted a charter that authorizes issuance of 15,000 shares of $100
par value preferred stock and 40,000 shares of no-par common stock.
2>9,000 shares of common stock are issued to the founders of the corporation for land
valued by the board of directors at $300,000. The board establishes a stated value of
$10 a share for the common stock.
3>6,000 shares of preferred stock are sold for cash at $110 per share.
4>The company issues 150 shares of common stock to its attorneys for costs associated
with starting the company. At that time, the common stock was selling at $60 per share.
Instructions
Prepare the general journal entries necessary to record these transactions.
28) On January 2, 2014, Jensen Company borrowed $120,000 from Lyon Country
Bank. The terms of the loan agreement specified 4 equal annual payments at 6% annual
interest. Computer the amount of each of these payments, assuming, they begin on
December 31, 2014 .