1) On December 31, 2015 Dean Company changed its method of accounting for
inventory from weighted average cost method to the FIFO method. This change caused
the 2015 beginning inventory to increase by $840,000. The cumulative effect of this
accounting change to be reported for the year ended 12/31/15, assuming a 40% tax rate,
is
a.$840,000
b.$504,000
c.$336,000
d.$0
2) On May 1, 2014, Ziek Corp. declared and issued a 10% common stock dividend.
Prior to this dividend, Ziek had 200,000 shares of $1 par value common stock issued
and outstanding. The fair value of Ziek ‘s common stock was $20 per share on May 1,
2014 . As a result of this stock dividend, Ziek’s total stockholders’ equity
a.increased by $400,000
b.decreased by $400,000
c.decreased by $20,000
d.did not change
3) If the parent company owns 90% of the subsidiary company’s outstanding common
stock, the company should generally account for the income of the subsidiary under the
a.cost method
b.fair value method
c.divesture method
d.equity method
4) If an annuity due and an ordinary annuity have the same number of equal payments
and the same interest rates, then
a.the present value of the annuity due is less than the present value of the ordinary
annuity
b.the present value of the annuity due is greater than the present value of the ordinary
annuity
c.the future value of the annuity due is equal to the future value of the ordinary annuity
d.the future value of the annuity due is less than the future value of the ordinary annuity
5) Tongas Company applies revaluation accounting to plant assets with a carrying value
of $1,600,000, a useful life of 4 years, and no salvage value. Depreciation is calculated
on the straight-line basis. At the end of year 1, independent appraisers determine that
the asset has a fair value of $1,500,000.
The financial statements for year one will include the following information
a.Accumulated depreciation $400,000
b.Depreciation expense $100,000
c.Plant assets $1,500,000
d.Revaluation surplus $100,000
6) The most common method of recording depletion for accounting purposes is the
a.percentage depletion method
b.decreasing charge method
c.straight-line method
d.units-of-production method
7) On July 4, 2014, Chen Company issued for $8,400,000 a total of 80,000 shares of
$100 par value, 7% noncumulative preferred stock along with one detachable warrant
for each share issued. Each warrant contains a right to purchase one share of Chen $10
par value common stock for $15 per share. The stock without the warrants would
normally sell for $8,200,000. The market price of the rights on July 1, 2014, was $2.50
per right. On October 31, 2014, when the market price of the common stock was $19
per share and the market value of the rights was $3.00 per right, 32,000 rights were
exercised. As a result of the exercise of the 32,000 rights and the issuance of the related
common stock, what journal entry would Chen make?
a.Cash480,000
Common Stock 320,000
Paid-in Capital in Excess of Par 160,000
b.Cash480,000
Paid-in CapitalStock Warrants 80,000
Common Stock 320,000
Paid-in Capital in Excess of Par 240,000
c.Cash480,000
Paid-in CapitalStock Warrants 200,000
Common Stock 320,000
Paid-in Capital in Excess of Par 360,000
d.Cash480,000
Paid-in CapitalStock Warrants 120,000
Common Stock 320,000
Paid-in Capital in Excess of Par 280,000
8) Perry Corp. reports operating expenses in two categories: (1) selling and (2) general
and administrative. The adjusted trial balance at December 31, 2014, included the
following expense accounts:
Accounting and legal fees$280,000
Advertising240,000
Freight-out150,000
Interest120,000
Loss on sale of long-term investments60,000
Officers’ salaries360,000
Rent for office space360,000
Sales salaries and commissions270,000
One-half of the rented premises is occupied by the sales department.
How much of the expenses listed above should be included in Perry’s general and
administrative expenses for 2014?
a.$820,000
b.$880,000
c.$940,000
d.$1,000,000
9) What is the general approach as to when product costs are recognized as expenses?
a.In the period when the expenses are paid
b.In the period when the expenses are incurred
c.In the period when the vendor invoice is received
d.In the period when the related revenue is recognized
10) According to the FASB’s conceptual framework, predictive value is an ingredient of
RelevanceFaithful Representation
a.YesNo
b.YesYes
c.NoYes
d.NoNo
11) On January 1, 2015, Hester Co. sells machinery to Beck Corp. at its fair value of
$720,000 and leases it back. The machinery had a carrying value of $630,000, the lease
is for 10 years and the implicit rate is 10%. The lease payments of $106,500 start on
January 1, 2015 . Hester uses straight-line depreciation and there is no residual value.
Instructions
(a)Prepare all of Hesters entries for 2015 .
(b)Prepare all of Becks entries for 2015 .
12) One factor that is not considered in determining the useful life of an intangible asset
is
a. salvage value
b. provisions for renewal or extension
c. legal life
d. expected actions of competitors
13) Oliver Co. uses the installment-sales method to record the sale of dining room sets.
When an account had a balance of $14,000, no further collections could be made and
the dining room set was repossessed. At that time, it was estimated that the dining room
set could be sold for $4,000 as repossessed, or for $5,000 if the company spent $500
reconditioning it. The gross profit rate on this sale was 70%. The gain or loss on
repossession was a
a.$9,800 loss
b.$10,000 loss
c.$1,000 gain
d.$300 gain
14) Where should goods in transit that were recently purchased f.o.b. destination be
included on the balance sheet?
a.Accounts payable
b.Inventory
c.Equipment
d.Not on the balance sheet
15) On January 1, 2014, Ann Price loaned $112,695 to Joe Kiger. A
zero-interest-bearing note (face amount, $150,000) was exchanged solely for cash; no
other rights or privileges were exchanged. The note is to be repaid on December 31,
2016 . The prevailing rate of interest for a loan of this type is 10%. The present value of
$150,000 at 10% for three years is $112,695. What amount of interest income should
Ms. Price recognize in 2014?
a.$11,270
b.$15,000
c.$45,000
d.$33,810