Donated assets are recorded at:
a. Zero (memo entry only).
b. The donor’s book value.
c. The donee’s stated value.
d. Fair value.
F Co. declares a 5% stock dividend. If the market price at declaration is $12 per share, a
shareholder with 110 shares likely would receive:
a. Five additional shares.
b. Fractional share rights for 5½ shares.
c. Five additional shares and $6 in cash.
d. Five additional shares and a fractional share right for 2½ shares.
Lack of long-term solvency refers to:
a. Risk of nonpayment relative to liabilities in the capital structure.
b. The length of time before long-term debt becomes due.
c. The ability to refinance long-term debt when it becomes due.
d. Long-term assets.
On January 1, 2016, Kendall Inc. began construction of an automated cattle feeder
system. The system was finished and ready for use on September 30, 2017.
Expenditures on the project were as follows:
Kendall borrowed $750,000 on a construction loan at 12% interest on January 1, 2016.
This loan was outstanding throughout the construction period. The company had
$4,500,000 in 9% bonds payable outstanding in 2016 and 2017. Interest capitalized for
2017 was:
a. $104,625.
b. $ 86,805
c. $ 87,875.
d. $ 67,500.
Interest expense is:
a. The effective interest rate times the amount of the debt outstanding during the interest
period.
b. The stated interest rate times the amount of the debt outstanding during the interest
period.
c. The effective interest rate times the face amount of the debt.
d. The stated interest rate times the face amount of the debt.
Goods and services are capable of being distinct if:
a. The seller regularly sells the good or service separately.
b. A buyer could use the good or service on its own.
c. A buyer could use the good or service in combination with goods or services the
buyer could obtain elsewhere.
d. The seller regularly sells the good or service separately, or the buyer could use the
good or service on its own, or the buyer could use the good or service in combination
with goods or services the buyer could obtain elsewhere.
Which of the following terms or phrases is more associated with financial statements
prepared in accordance with U.S. GAAP than those prepared in accordance with
International Financial Reporting Standards?
a. Ordinary shares.
b. Asset revaluation reserve.
c. Share premium.
d. Accumulated other comprehensive income.
Straight-line amortization of bond discount or premium:
a. Can be used for amortization of discount or premium in all cases and circumstances.
b. Provides the same amount of interest expense each period as does the effective
interest method.
c. Is appropriate for deep discount bonds.
d. Provides the same total amount of interest expense over the life of the bond issue as
does the effective interest method.
Research and development costs for projects other than software development should
be:
a. Expensed in the period incurred.
b. Expensed in the period they are determined to be unsuccessful.
c. Deferred pending determination of success.
d. Expensed if unsuccessful, capitalized if successful.
Compared to dollar-value LIFO, unit LIFO is:
a. Less costly to implement.
b. Less susceptible to LIFO liquidation.
c. More costly to implement.
d. More concerned with cost indexes.
Discount-Mart issued ten thousand $1,000 bonds on January 1, 2016. The bonds have a
10-year term and pay interest semiannually. This is the partial bond amortization
schedule for the bonds.
What is the effective annual rate of interest on the bonds?
a. 3%.
b. 4%.
c. 6%.
d. 8%.
A change in the estimated useful life and residual value of machinery in the current year
is handled as:
a. A retrospective change back to the date of acquisition as though the current estimated
life and residual value had been used all along.
b. A prospective change from the current year through the remainder of its useful life,
using the new estimates.
c. A cumulative adjustment to income in the current year for the difference in
depreciation under the new versus old estimates.
d. All of these answer choices are incorrect.
Refer to the following lease amortization schedule. The 10 payments are made annually
starting with the inception of the lease. Title does not transfer to the lessee and there is
no bargain purchase option or guaranteed residual value. The asset has an expected
economic life of 12 years. The lease is noncancelable.
What would the lessee record as annual depreciation on the asset using the straight-line
method?
a. $ 5,328.
b. $ 6,328.
c. $ 6,392.
d. $10,000.
Hobson Company bought the securities listed below during 2015. These securities were
classified as trading securities. In its December 31, 2015, income statement Hobson
reported a net unrealized loss of $13,000 on these securities. Pertinent data at the end of
June, 2016 is as follows:
What amount of loss on these securities should Hobson include in its income statement
for the six months ended June 30, 2016?
a. $41,000.
b. $54,000.
c. $13,000.
d. $ 0
Which of the following is not an inflow of cash?
a. Depletion.
b. Cash borrowed on a short-term note.
c. Sale of a computer.
d. Cash borrowed on a long-term note.
Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below.
HHF’s debt to equity ratio is (rounded):
a. 0.75.
b. 1.13.
c. 0.53.
d. 1.80.
ABC declared a property dividend. The dividend consisted of 10,000 common shares of
its investment in XYZ Company. The shares had originally been purchased at $4 per
share and had a $1 par value. The value of the shares on the declaration date is $7 per
share. What is the first entry that should be recorded related to this dividend?
a. Retained earnings 70,000
Property dividends payable
70,000
b. Retained earnings 70,000
Property dividends payable
40,000
Gain
30,000
c. Investment in XYZ 30,000
Retained earnings
30,000
d. Investment in XYZ 30,000
Gain on investment
30,000
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.
What is restricted stock? Describe how compensation expense is determined and
recorded for a restricted stock plan.
On March 30, 2016, Calvin Exploration purchased a drilling machine for $840,000. The
estimated useful life of the machine is 10 years and no residual value is anticipated. An
important component of the machine is the drill housing component that will need to be
replaced in five years. The $200,000 cost of the drill housing component is included in
the $840,000 cost of the machine. Calvin uses the straight-line depreciation method for
all machinery. The company’s fiscal year ends on December 31.
Required:
1> Calculate depreciation on the drilling machine for 2016 and 2017 applying the
typical U.S. GAAP treatment.
2> Repeat requirement 1 applying IFRS.
You have recently been hired as the assistant controller for Clayton, Inc., a large,
publicly held manufacturing company. Your immediate superior is the controller who,
in turn, is responsible to the chief financial officer. The controller has assigned the task
of preparing the year-end adjusting entry for bad debts to you. The allowance for
uncollectibles accounts has a credit balance of $86,000 before the year-end adjustment.
Your analysis indicates that an appropriate balance for the allowance account is
$210,000. After showing your analysis to the controller, she tells you to adjust the
allowance account to $310,000. Tactfully, you ask the controller for an explanation for
the amount and she tells you, “We are having a really good year. Let’s bump up the
allowance.” Required:
Discuss the ethical dilemma you face. Consider your options and responsibilities along
with the possible consequences of any action you might take.
Bunker Auto Supply purchased merchandise on January 4, 2016, at a price of $70,000,
subject to credit terms of 2/10, n/30. Bunker uses the gross method for recording
purchases and uses a periodic inventory system.
Required:
1> Prepare the journal entry to record the purchase.
2> Prepare the journal entry to record the payment of one-half the invoice amount on
January 11, 2016.
3> Prepare the journal entry to record the balance of the amount due on February 2,
2016.
On March 17, 2016, a flood destroyed the entire inventory of Beatty Co. The following
information is available from its accounting records:
Required:
Compute the estimated cost of inventory lost in the flood.
On December 28, 2016, Omega Steel, Inc. sold $100,000 of steel sheets to a car
manufacturer. Due to holidays, Omega was unable to find a truck driver to deliver the
product. Delivery was finally made on January 5, 2017.
Required: How much revenue should Omega recognize in 2016 for the sale to the car
manufacturer? Explain your answer.