The first step, when using dollar-value LIFO retail method for inventory, is to:
a. Determine the estimated ending inventory at current year retail prices.
b. Determine the estimated cost of goods sold for the current year.
c. Determine the cost-to-retail percentage for the current year transactions.
d. Price index adjust the LIFO inventory layers.
On September 30, 2016, Bricker Enterprises purchased a machine for $200,000. The
estimated service life is 10 years with a $20,000 residual value. Bricker records
partial-year depreciation based on the number of months in service. Depreciation (to the
nearest dollar) for 2017, using sum-of-the-years’ digits, would be:
a. $31,909.
b. $29,455.
c. $35,456.
d. $54,000.
Liberty Company issued 10-year bonds at 105 during the current year. In the year-end
financial statements, the premium should be:
a. Reported as an intangible asset.
b. Included in revenue for the year of sale.
c. Deducted from bonds payable.
d. Added to bonds payable.
Fad City sells novel clothes that are subject to a great deal of price volatility. A recent
item that cost $20 was marked up $12, marked down for a sale by $6 and then had a
markdown cancellation of $3. The latest selling price is:
a. $23.
b. $26.
c. $29.
d. $35.
The adjustment to the weighted-average shares for retired shares is the same as for
issuing new shares except:
a. The shares are deducted rather than added.
b. The shares are added rather than deducted.
c. The shares are treated as being acquired at the end of the year.
d. The shares are treated as being acquired at the beginning of the year.
Prior to 1993, postretirement benefits other than pensions generally were accounted for
on the:
a. Accrual basis.
b. Cash basis.
c. Modified accrual basis.
d. Hybrid basis.
Two of the three primary account classifications within shareholders’ equity are:
a. Preferred stock and retained earnings.
b. The par value of common stock and retained earnings.
c. Paid-in capital and retained earnings.
d. Preferred and common stock.
The cumulative effect of most changes in accounting principle is reported:
a. In the income statement between income from continuing operations and net income.
b. In the income statement after income and before income tax.
c. In the income statement before income from continuing operations. n.
d. In the balance sheet accounts affected.
Renaldo Cross Company views share buybacks as treasury stock. Renaldo repurchased
shares and then later sold the shares at more than their acquisition price. What is the
effect of the sale of the treasury stock on each of the following?
La Casita Restaurants changed from the FIFO method of inventory costing to the
weighted average method during 2016. When reported in the 2016 comparative
financial statements, the 2015 inventory amount will be:
a. Increased.
b. Decreased.
c. Increased or decreased, depending on how prices changed.
d. Unaffected.
In a defined benefit pension plan, the journal entry to record pension expense will not
include:
a. a debit to service cost
b. a credit to projected benefit obligation
c. a debit to amortization of prior service cost
d. a debit to plan assets
With respect to delaying revenue recognition until completion of a long-term contract, it
is the case that:
a. Estimated losses on the overall contract are recognized before the contract is
completed.
b. Expenses are recognized each period, but revenue is only recognized when the
contract is completed.
c. Use of this approach is not permitted under generally accepted accounting principles.
d. Neither gains nor losses are recognized until the contract is completed.
Providing a monetary rebate program for purchasing a product:
a. Is accounted for similarly to product warranties.
b. Creates an expense for the seller in the period of sale.
c. Creates a contingent liability for the seller at the time of sale.
d. All these answer choices are correct.
Mega Loan Company has very stringent credit requirements and, accordingly, has
negligible losses from uncollectible accounts. The company’s independent accountants
did not protest when, contrary to GAAP, the company recorded bad debt expense only
when specific accounts were determined to be uncollectible, rather than use an
allowance for uncollectible accounts. The concept demonstrated is:
a. Comparability.
b. Faithful representation.
c. Cost-effectiveness.
d. Materiality.
Moon Company owns 56 million shares of stock of Center Company classified as
available for sale. During 2016, the fair value of those shares increased by $34 million.
What effect did this increase have on Moon’s 2016 statement of cash flows?
a. Cash from operating activities increased.
b. Cash from investing activities increased.
c. Cash from financing activities increased.
d. No effect.
Clarabell Inc. 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. 54.9%.
b. 58.9%.
c. 53.6%.
d. 70.6%.
False Value Hardware began 2016 with a credit balance of $32,000 in the allowance for
sales returns account. Sales and cash collections from customers during the year were
$650,000 and $610,000, respectively. False Value estimates that 6% of all sales will be
returned. During 2016, customers returned merchandise for credit of $28,000 to their
accounts.
False Value’s 2016 income statement would report net sales of:
a. $622,000.
b. $607,000.
c. $646,000.
d. $611,000.
Present and future value tables of $1 at 3% are presented below:
Rosie’s Florist borrows $300,000 to be paid off in six years. The loan payments are
semiannual with the first payment due in six months, and interest is at 6%. What is the
amount of each payment?
a. $25,750.
b. $29,761.
c. $30,139.
d. $25,500.
Which of the following is considered a performance obligation?
a. Up-front registration fees for a gym membership
b. Extended warranties on electronic products
c. Quality-assurance warranties on electronic products
d. A processing fee to obtain a bank loan
On April 1st, Bob the Builder entered into a contract of one-month duration to build a
barn for Nolan. Bob is guaranteed to receive a base fee of $5,000 for his services in
addition to a bonus depending on when the project is completed. Nolan created
incentives for Bob to finish the barn as soon as he can without jeopardizing the
structural integrity of the barn. Nolan offered to pay an additional 30% of the base fee if
the project finished 2 weeks early and 10% if the project finished a week early. The
probability of finishing 2 weeks early is 30% and the probability of finishing a week
early is 60%. What is the expected transaction price with variable consideration
estimated as the most likely amount?
a. $4,750
b. $5,000
c. $5,500
d. $5,750
On January 1, 2016, Boomer Universal issued 12% bonds dated January 1, 2016, with a
face amount of $200 million. The bonds mature in 2025 (10 years). For bonds of similar
risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and
December 31.
Required:
1> Determine the price of the bonds at January 1, 2016.
2> Prepare the journal entry to record the bond issuance by Boomer on January 1, 2016.
3> Prepare the journal entry to record interest on June 30, 2016, using the straight-line
method.
4> Prepare the journal entry to record interest on December 31, 2016, using the
straight-line method.
Briefly explain how a material adjustment to inventory due to application of the lower
of cost and net realizable value rule should be reported in the financial statements.
On July 1, 2016, Clearwater Inc. purchased 6,000 shares of the outstanding common
stock of Mountain Corporation at a cost of $140,000. Mountain had 30,000 shares of
outstanding common stock. Assume the total book value and fair value of net assets is
$650,000. Both companies have a January through December fiscal year. The following
data pertains to Mountain Corporation during 2016:
Required:
1) Prepare the entry to record the original investment in Mountain.
2) Compute the goodwill (if any) on the acquisition.
3) Prepare the necessary entries (other than acquisition) for 2016 under the equity
method.
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Green Acres Co. has elected to use the dollar-value LIFO retail method to value its
inventory. The following data has been accumulated from the accounting records:
Pertinent retail price indexes:
Required:
Estimate the cost of ending inventory for December 31, 2016.