An option for a customer to purchase additional goods at a discount from list price is
only a performance obligation if the discount is a material right that the customer would
not receive otherwise.
A warranty that the customer can purchase separately and that covers a long period of
time after the purchase date is likely to be a quality-assurance warranty.
To account for variable consideration using the most likely amount, the probability of
each possible amount is multiplied by the possible amount to get an expected contract
price.
A deferred annuity is one in which interest charges are deferred for a stated time period.
If a company reports discontinued operations, EPS must be disclosed for both income
from continuing operations and net income.
The main difference between perpetual and periodic inventory systems is the timing of
the allocation of costs between inventory and cost of goods sold.
Revenues from installment sales of property reported on financial statements in prior
years and currently reported in the tax return create deferred tax assets.
A net gain or net loss affects pension expense only if it exceeds 10% of the pension
benefit obligation or 10% of plan assets, whichever is lower.
Disclosure notes to the financial statements regarding significant revenue recognition
policies are only required when they will not reveal important information to
competitors, suppliers or customers.
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.
What is Rudyard’s basic EPS?
Rudyard Corporation had 100,000 shares of common stock and 10,000 shares of 8%,
$100 par convertible preferred stock outstanding during the year. Net income for the
year was $400,000 and dividends were paid to both common and preferred
shareholders. Rudyard’s effective tax rate is 40%. Each share of preferred stock is
convertible into five shares of common.
a. $2.13.
b. $4.80.
c. $4.00.
d. $3.20.
Which of the following statement is most true?
a. Variable consideration means that the transaction price is uncertain.
b. Basing an estimate on the most likely amount is always superior to basing an
estimate on the expected value.
c. The most likely estimated amount is estimated by multiplying the possible amounts
with their respective probability of occurrence.
d. When the transaction price is uncertain, revenue should not be recognized.
The Claxton Company manufactures children’s toys and also has a division that makes
automobile parts. Due to a change in its strategic focus, the company sold the
automobile parts division. The division qualifies as a component of the entity according
to GAAP. How should Claxton report the sale in its 2016 income statement?
a. Report it as restructuring costs.
b. Report it as a discontinued operation.
c. Report the income or loss from operations of the division in discontinued operations.
d. Report it as a gain on sale of investments included in income from continuing
operations.
Ludwig Company’s prepaid rent was $9,000 at December 31, 2015, and $13,000 at
December 31, 2016. Ludwig reported rent expense of $19,000 on the 2016 income
statement. What amount would be reported in the statement of cash flows as rent paid
using the direct method?
a. $15,000.
b. $19,000.
c. $23,000.
d. None of these answer choices is correct.
On January 1, 2015, 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: 2015, 20; 2016, 15; 2017, 12; 2018, 8; and 2019, 5. Twenty
employees benefit from this amendment. In 2016, the amortization amount would be:
a. $12,000.
b. $180,000.
c. $144,000.
d. $300,000.
The following information relates to Franklin Freightways for its first year of
operations (data in millions of dollars):
The applicable tax rate is 40%. There are no other temporary or permanent differences.
Franklin’s taxable income ($ in millions) is:
a. $ 40.
b. $165.
c. $110.
d. $160.
Treasury stock transactions might cause:
a. A decrease in the balance of retained earnings.
b. An increase in the balance of retained earnings.
c. An increase or a decrease in the par amount per share.
d. An increase or a decrease in the amount of net income.
What is the effect of bad debts on revenue recognition?
a. The seller must believe it is probable it will collect the amounts it is entitled to
collect.
b. Bad debts must be of a remote likelihood in order to recognize revenue.
c. Bad debts are deducted from revenue to calculate net revenue on the income
statement, similar to sales returns.
d. Bad debts are ignored when determining whether to recognize revenue, but
recognized as an expense on the income statement.
Which of the following changes would not be accounted for using the prospective
approach?
a. A change to LIFO from average costing for inventories.
b. A change from the individual application of the LCM rule to aggregate approach.
c. A change from straight-line to double-declining balance depreciation.
d. A change from double-declining balance to straight-line depreciation.
Asset retirement obligations:
a. Increase the balance in the related asset account.
b. Are measured at fair value in the balance sheet.
c. Are liabilities associated with the restoration of a long-term asset.
d. All of these answer choices are correct.
Under its executive stock option plan, N Corporation granted options on January 1,
2016, that permit executives to purchase 15 million of the company’s $1 par common
shares within the next eight years, but not before December 31, 2018 (the vesting date).
The exercise price is the market price of the shares on the date of grant, $18 per share.
The fair value of the options, estimated by an appropriate option pricing model, is $4
per option. No forfeitures are anticipated. Ignoring taxes, what is the effect on earnings
in the year after the options are granted to executives?
a. $ 0.
b. $20 million.
c. $60 million.
d. $90 million.
In a periodic inventory system, the cost of inventories sold is:
a. Debited to accounts receivable.
b. Credited to cost of goods sold.
c. Debited to cost of goods sold.
d. Not recorded at the time goods are sold.
What is the book value of the bonds as of December 31, 2017?
a. $11,432,379.
b. $11,375,350.
c. $11,316,611.
d. $11,256,109.
Inventory records for Herb’s Chemicals revealed the following: March 1, 2016,
inventory: 1,000 gallons @ $7.20 = $7,200
The ending inventory assuming FIFO is:
a. $5,140.
b. $5,080.
c. $5,060.
d. $5,050.
When a company issues bonds between interest dates, the entry to record the issuance
of the bonds will:
a. Include a credit to interest payable.
b. Include a debit to interest expense.
c. Include a debit to cash that has been reduced by interest accrued from the last interest
date.
d. Include a debit to cash that has been increased by interest that will accrue from sale
to the next interest date.
On December 31, 2015, the Bennett Company had 100,000 shares of common stock
issued and outstanding. On July 1, 2016, the company sold 20,000 additional shares for
cash. Bennett’s net income for the year ended December 31, 2016, was $650,000.
During 2016, Bennett declared and paid $89,000 in cash dividends on its
nonconvertible preferred stock. What is the 2016 basic earnings per share?
a. $5.91.
b. $5.61.
c. $5.10.
d. None of these answer choices is correct.
Willie Nelson’s Boots uses the conventional retail method to estimate ending inventory.
Cost data for the most recent quarter is shown below:
The conventional cost-to-retail percentage (rounded) is:
a. 82.6%.
b. 66.7%.
c. 71.9%.
d. 75.5%.
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 number code for the term.
Oswego Clay Pipe Company sold $46,000 of pipe to Southeast Water District #45 on
April 12 of the current year with terms 1/15, n/60. Oswego uses the gross method of
accounting for cash discounts. What entry would Oswego make on June 10, assuming
the customer made the correct payment on that date?
Listed below are five terms followed by a list of phrases that describe or characterize
each of the terms. Match each phrase with the number for the most correct term.
Brunetti Co. designed and installed customized signs for Di Antonio CPA, Inc.
Brunetti’s contract specifies that it will receive a flat fee of $15,000 for providing the
customized signs, and an additional $1,000 if 30% of Di Antonio’s new customers
indicate they first learned of Di Antonio because of the signs. Based on historical
experience, Brunetti estimates that there is a 90% chance it will achieve the threshold to
receive a bonus.
Assume Brunetti uses the “expected value” approach, but is very uncertain of that
estimate due to a lack of experience with similar arrangements. What would be the
appropriate transaction price?
Indicate (by letter) the way each of the items listed below should be reported in a
balance sheet at December 31, 2016.
