1) For the year ended December 31, 2014, Transformers Inc. reported the following:
Net income$180,000
Preferred dividends declared30,000
Common dividend declared6,000
Unrealized holding loss, net of tax3,000
Retained earnings240,000
Common stock120,000
Accumulated Other Comprehensive Income,
Beginning Balance15,000
What would Transformers report as its ending balance of Accumulated Other
Comprehensive Income?
a.$18,000
b.$15,000
c.$12,000
d.$3,000
2) Prophet Corporation has an extraordinary loss of $800,000, an unusual gain of
$560,000, and a tax rate of 40%. At what amount should Prophet report each item?
Extraordinary lossUnusual gain
a.$(800,000)$560,000
b.(800,000)336,000
c.(480,000)560,000
d.(480,000)336,000
3) The various classifications listed below have been used in the past by Hale Company
on its balance sheet.
a.Current Assetse.Current Liabilities
b.Investmentsf.Long-term Liabilities
c.Plant and Equipmentg.Common Stock and Paid-in Capital in Excess of Par
d.Intangible Assetsh.Retained Earnings
Instructions
Indicate by letter how each of the items below should be classified at December 31, 2014 .
If an item is not reported on the December 31, 2014 balance sheet, use the letter “X” for
your answer. If the item is a contra account within the particular classification, place
parentheses around the letter. A letter may be used more than once or not at all.
Sample question and answer:
(a) Allowance for doubtful accounts.
1> Customers’ accounts with credit balances.
2> Bond sinking fund.
3> Salaries which the company’s cash budget shows will be paid to employees in 2015 .
4> Accumulated depreciationequipment.
5> Appropriation for plant expansion.
6> Amortization of patents for 2014 .
7> On December 31, 2014, Hale signed a purchase commitment to buy all of its raw
materials from Delta Company for the next 2 years.
8> Discount on bonds payable due March 31, 2017 .
9> Launching of Hales Internet retailing division in February, 2015 .
10> Cash dividends declared on December 15, 2014 payable to stockholders on January
15, 2015 .
4) On June 15, 2014, Wynne Corporation accepted delivery of merchandise which it
pur-chased on account. As of June 30, Wynne had not recorded the transaction or
included the merchandise in its inventory. The effect of this on its balance sheet for
June 30, 2014 would be
a.assets and stockholders’ equity were overstated but liabilities were not affected
b.stockholders’ equity was the only item affected by the omission
c.assets, liabilities, and stockholders’ equity were understated
d.assets and liabilities were understated but stockholders equity was not affected
5) The net income for the year ended December 31, 2015, for Tax Consultants INC. was
$990,000. Additional information is as follows:
Capital expenditures$1,200,000
Depreciation on plant assets450,000
Cash dividends paid on common stock180,000
Increase in noncurrent deferred tax liability45,000
Amortization of patents21,000
Based on the information given above, what should be the net cash provided by
operating activities in the statement of cash flows for the year ended December 31,
2015?
a.$1,326,000
b.$1,416,000
c.$1,461,000
d.$1,506,000
6) Gross Corporation adopted the dollar-value LIFO method of inventory valuation on
December 31, 2013 . Its inventory at that date was $550,000 and the relevant price
index was 100 . Information regarding inventory for subsequent years is as follows:
Inventory at Current
DateCurrent PricesPrice Index
December 31, 2014$642,000107
December 31, 2015725,000125
December 31, 2016812,500130
What is the cost of the ending inventory at December 31, 2016 under dollar-value
LIFO?
a.$640,600
b.$637,000
c.$625,000
d.$658,500
7) Langley Company’s December 31 year-end financial statements contained the
following errors:
Dec. 31, 2014Dec. 31, 2015
Ending inventory$22,500 understated$33,000 overstated
Depreciation expense6,000 understated
An insurance premium of $54,000 was prepaid in 2014 covering the years 2014, 2015,
and 2016 . The prepayment was recorded with a debit to insurance expense. In addition,
on December 31, 2015, fully depreciated machinery was sold for $28,500 cash, but the
sale was not recorded until 2016 . There were no other errors during 2015 or 2016 and
no corrections have been made for any of the errors. Ignore income tax considerations.
What is the total net effect of the errors on Langley’s 2015 net income?
a.Net income understated by $43,500
b.Net income overstated by $22,500
c.Net income overstated by $39,000
d.Net income overstated by $45,000
8) Midland Company follows U.S. GAAP for its external financial reporting whereas
Bailey Company follows IFRS for its external financial reporting. The amount
contributed by Midland for its defined contribution plan for 2015 amounted to $55,000
and the amount contributed by Bailey for its defined contribution plan for 2015
amounted to $76,000. The remaining service lives of employees at both firms is
estimated to be 10 years. What is the amount of expense related to pension costs
recognized by each company in its income statement for the year ended December 31,
2015?
MidlandBailey
a.$ 5,500$76,000
b.$55,000$76,000
c.$55,000$ 7,600
d.$ 5,500$ 7,600
9) Hummel Company purchased a put option on Olney common shares on July 7, 2014,
for $100. The put option is for 200 shares, and the strike price is $30. The option
expires on January 31, 2015 . The following data are available with respect to the put
option:
DateMarket Price of Olney SharesTime Value of Put Option
September 30, 2014$32 per share$52
December 31, 2014$31 per share22
January 31, 2015$33 per share0
Instructions
Prepare the journal entries for Hummel Company for the following dates:
(a)July 7, 2014Investment in put option on Olney shares.
(b)September 30, 2014 Hummel prepares financial statements.
(c)December 31, 2014 Hummel prepares financial statements.
(d)January 31, 2015Put option expires.
10) A trial balance may prove that debits and credits are equal, but
a.an amount could be entered in the wrong account
b.a transaction could have been entered twice
c.a transaction could have been omitted
d.All of these answer choices are correct
11) Which organization was responsible for issuing Accounting Research Bulletins?
a.The Accounting Principles Board
b.The Committee on Accounting Procedure
c.The SEC
d.The FASB
12) For Mortenson Company, the following information is available:
Cost of goods sold$130,000
Dividend revenue5,000
Income tax expense12,000
Operating expenses46,000
Sales revenue200,000
In Mortensons single-step income statement, gross profit
a.should not be reported
b.should be reported at $17,000
c.should be reported at $70,000
d.should be reported at $75,000
13) Hudson, Inc. is a calendar-year corporation. Its financial statements for the years
2015 and 2014 contained errors as follows:
20152014
Ending inventory$6,000 overstated$16,000 overstated
Depreciation expense$4,000 understated$12,000 overstated
Assume that the proper correcting entries were made at December 31, 2014 . By how
much will 2015 income before taxes be overstated or understated?
a.$ 2,000 understated
b.$ 2,000 overstated
c.$ 4,000 overstated
d.$10,000 overstated
14) On July 1, 2014, Ed Wynne signed an agreement to operate as a franchisee of Kwik
Foods, Inc., for an initial franchise fee of $600,000. Of this amount, $200,000 was paid
when the agreement was signed and the balance is payable in four equal annual
payments of $100,000 beginning July 1, 2015 . The agreement provides that the down
payment is not refundable and no future services are required of the franchisor. Wynne’s
credit rating indicates that he can borrow money at 14% for a loan of this type.
Information on present and future value factors is as follows:
Present value of 1 at 14% for 4 periods0.59
Future value of 1 at 14% for 4 periods1.69
Present value of an ordinary annuity of 1 at 14% for 4 periods2.91
Wynne should record the acquisition cost of the franchise on July 1, 2014 at
a.$436,000
b.$491,000
c.$600,000
d.$676,000
15) In 2014, Krause Company accrued, for financial statement reporting, estimated
losses on disposal of unused plant facilities of $2,400,000. The facilities were sold in
March 2015 and a $2,400,000 loss was recognized for tax purposes. Also in 2014,
Krause paid $100,000 in premiums for a two-year life insurance policy in which the
company was the beneficiary. Assuming that the enacted tax rate is 30% in both 2014
and 2015, and that Krause paid $780,000 in income taxes in 2014, the amount reported
as net deferred income taxes on Krause’s balance sheet at December 31, 2014, should
be a
a.$680,000 asset
b.$360,000 asset
c.$360,000 liability
d.$720,000 asset
16) Which of the following is a contract-related intangible assts?
a.Trademark
b.Copyright
c.Franchise
d.Patent
17) Under current accounting practice, intangible assets are classified as
a.amortizable or unamortizable
b.limited-life or indefinite-life
c.specifically identifiable or goodwill-type
d.legally restricted or goodwill-type
18) Key similarities between U.S. GAAP and IFRS include all of the following except
a.the definition used for cash equivalents
b.accounting and reporting issues related to recognition and measurement of
receivables, such as the use of allowance accounts
c.working toward implementing fair value measurement for all financial instruments
d.the same criteria is used to derecognize a receivable