1) A machine cost $600,000, has annual depreciation of $100,000, and has accumulated
depreciation of $450,000 on December 31, 2014 . On April 1, 2015, when the machine
has a fair value of $137,500, it is exchanged for a machine with a fair value of $675,000
and the proper amount of cash is paid. The exchange had commercial substance.
The gain to be recorded on the exchange is
a.$0
b.$12,500
c.$25,000
d.$75,000
2) The two fundamental qualities that make accounting information useful for decision
making are
a.comparability and timeliness
b.materiality and neutrality
c.relevance and faithful representation
d.faithful representation and comparability
3) The interest on the projected benefit obligation component of pension expense
a.reflects the incremental borrowing rate of the employer
b.reflects the rates at which pension benefits could be effectively settled
c.is the same as the expected return on plan assets
d.may be stated implicitly or explicitly when reported
4) The quality of information that means the numbers and descriptions match what
really existed or happened is
a.relevance
b.faithful representation
c.completeness
d.neutrality
5) Which of the following research and development expenditures should be capitalized
and depreciated?
a.Engineering costs incurred to advance the new product to a production stage
b.Cost of marketing research to promote a new product
c.Material, labor, and overhead costs incurred in developing a new product
d.Acquisition of machinery that can also be used for future R&D projects
6) Fugate Company had 900,000 shares of common stock issued and outstanding at
December 31, 2014 . On July 1, 2015 an additional 750,000 shares were issued for
cash. Fugate also had stock options outstanding at the beginning and end of 2015 which
allow the holders to purchase 225,000 shares of common stock at $20 per share. The
average market price of Fugate’s common stock was $25 during 2015 . What is the
number of shares that should be used in computing diluted earnings per share for the
year ended December 31, 2015?
a.1,695,000
b.1,455,000
c.1,331,250
d.1,320,000
7) Blanco Company purchased 200 of the 1,000 outstanding shares of Darby
Company’s common stock for $450,000 on January 2, 2015 . During 2015, Darby
Company declared dividends of $75,000 and reported earnings for the year of
$300,000.
If Blanco Company uses the equity method of accounting for its investment in Darby
Company, its Equity Investment (Darby) account at December 31, 2015 should be
a.$435,000
b.$450,000
c.$495,000
d.$510,000
8) At December 31, 2015, the following information was provided by the Vargas Corp.
pension plan administrator:
Fair value of plan assets$4,500,000
Accumulated benefit obligation5,580,000
Projected benefit obligation7,400,000
What is the amount of the pension liability that should be shown on Vargas’ December
31, 2013 balance sheet?
a.$7,400,000
b.$2,900,000
c.$1,820,000
d.$1,080,000
9) The body that has the power to prescribe the accounting practices and standards to be
employed by companies that fall under its jurisdiction is the
a.FASB
b.AICPA
c.SEC
d.APB
10) Accrued salaries payable of $51,000 were not recorded at December 31, 2014 .
Office supplies on hand of $29,000 at December 31, 2015 were erroneously treated as
expense instead of supplies inventory. Neither of these errors was discovered nor
corrected. The effect of these two errors would cause
a.2015 net income to be understated $80,000 and December 31, 2015 retained earnings
to be understated $29,000
b.2014 net income and December 31, 2014 retained earnings to be understated $51,000
each
c.2014 net income to be overstated $22,000 and 2015 net income to be understated
$29,000
d.2015 net income and December 31, 2015 retained earnings to be understated $29,000
each
11) While only certain leases are currently accounted for as a sale or purchase, there is
theoretic justification for considering all leases to be sales or purchases. The principal
reason that supports this idea is that
a.all leases are generally for the economic life of the property and the residual value of
the property at the end of the lease is minimal
b.at the end of the lease the property usually can be purchased by the lessee
c.a lease reflects the purchase or sale of a quantifiable right to the use of property
d.during the life of the lease the lessee can effectively treat the property as if it were
owned