Arrow Printers paid $2,000 interest on short-term notes payable, $10,000 interest on
long-term bonds, and $6,000 in dividends on its common stock. Arrow would report
cash outflows from activities, as follows:
a. Operating, $2,000; financing, $16,000.
b. Operating, $0; financing, $18,000.
c. Operating, $12,000; financing, $6,000.
d. Operating, $18,000; financing, $0.
On July 10, 2016, Johnson Corporation signed a purchase commitment to purchase
inventory for $200,000 on or before February 15, 2017. The company’s fiscal year-end
is December 31. The contract was exercised on February 1, 2017, and the inventory was
purchased for cash at the contract price. On the purchase date of February 1, the market
price of the inventory was $210,000. The market price of the inventory on December
31, 2016, was $180,000. The company uses a perpetual inventory system.
At what amount will Johnson record the inventory purchased on February 1, 2017?
a. $210,000.
b. $200,000.
c. $180,000.
d. $190,000.
On December 15, 2016, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for
$4,500,000. Rigsby appropriately uses the installment sales method of accounting for
this transaction. Terms called for a down payment of $500,000 with the balance in two
equal annual installments payable on December 15, 2017, and December 15, 2018.
Ignore interest charges. Rigsby has a December 31 year-end. In 2017, Rigsby would
recognize realized gross profit of:
a. $0.
b. $450,000.
c. $300,000.
d. $400,000.
Research and development (R&D) costs:
a. Generally pertain to activities that occur prior to the start of production.
b. May be expensed or capitalized, at the option of the reporting entity.
c. Must be capitalized and amortized.
d. None of these answer choices are correct.
The compensation associated with restricted stock under a stock award plan is:
a. The book value of an unrestricted share of the same stock times the number of shares.
b. The estimated fair value of a share of similar stock times the number of shares.
c. Allocated to expense over the service period which usually is the vesting period.
d. The book value of a share of similar stock times the number of shares.
On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese
Inc. for $80 million. The sale was completed on December 31, 2016. The following
additional facts pertain to the transaction:
– The Footwear Division qualifies as a component of the entity according to GAAP
regarding discontinued operations.
– The book value of Footwear’s assets totaled $48 million on the date of the sale.
– Footwear’s operating income was a pre-tax loss of $10 million in 2016.
– Foxtrot’s income tax rate is 40%.
In the 2016 income statement for FoxtrotCo., it would report:
a. Income (loss) on its total operations for the year without separation.
b. Income (loss) on its continuing operation only.
c. Income (loss) from its continuing and discontinued operations separately.
d. Income and gains separately from losses.
Excerpts from Hulkster Company’s December 31, 2016 and 2015, financial statements
are presented below:
Hulkster’s 2016 asset turnover is (rounded):
a. 3.73.
b. 2.79.
c. 2.24.
d. 0.46.
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 correct term.
A primary goal of earnings per share determination is:
a. Conservatism.
b. Comparability.
c. Materiality.
d. Objectivity.
Which of the following is not true?
a. Licensing fees are recognized as revenue over time for any licenses for which the
seller expects its ongoing activities to affect the benefits that the buyer receives from
intellectual property.
b. License fees are recognized over time for any license that is viewed as providing a
right of access.
c. License fees are recognized as revenue at a point in time if the buyer expects that the
seller’s future activities will not affect the benefit the buyer derives from the intellectual
property.
d. Licensing fees are recognized as revenue at the end of the license period, when the
seller has completed its performance obligation to provide access to its intellectual
property.
JL Health Services reported a net loss-AOCI in last year’s balance sheet. This year, the
company revised its estimate of future salary levels causing its PBO estimate to decline
by $24. Also, the $48 million actual return on plan assets was less than the $54 million
expected return. As a result:
a. The statement of comprehensive income will report a $6 million gain and a $24
million loss.
b. The net pension liability will increase by $18 million.
c. Accumulated other comprehensive income will increase by $18 million.
d. The net pension liability will decrease by $24 million.
Memorex Disks sells computer disk drives with right-of-return privileges. Returns are
material and reasonably predictable. Memorex should:
a. Not record sales until the right to return has expired.
b. Record an allowance for sales returns in the year of the sale.
c. Debit sales returns in the period of the return.
d. Debit sales in the period of the return.
During 2016, P Company discovered that the ending inventories reported on its
financial statements were incorrect by the following amounts:
2014 $120,000 understated
2015 150,000 overstated
P uses the periodic inventory system to ascertain year-end quantities that are converted
to dollar amounts using the FIFO cost method. Prior to any adjustments for these errors
and ignoring income taxes, P’s retained earnings at January 1, 2016, would be:
a. Correct.
b. $ 30,000 overstated.
c. $150,000 overstated.
d. $270,000 overstated.
In its first year of operations, Woodmount Corporation reported pretax accounting
income of $500 million for the current year. Depreciation reported in the tax return in
excess of depreciation in the income statement was $60 million. The excess tax will
reverse itself evenly over the next three years. The current year’s tax rate of 40% will be
reduced under the current law to 35% next year and 30% for all subsequent years. At
the end of the current year, the deferred tax liability related to the excess depreciation
will be:
a. $21 million.
b. $24 million.
c. $18 million.
d. $19 million.
Discuss the accounting for postretirement benefits prior to 1993 and under current
GAAP. What are the key differences?
Cheney Company sold a 20-ton mechanical draw press for $60,000. The old draw press
cost $77,000 and had a book value of $55,000.
Required:
Prepare the journal entry to record the disposition.
The following data are available pertaining to Firewall Corporation’s retiree health plan
for 2016:
Required:
1) What is the APBO at the beginning of 2016?
2) What is the interest cost for 2016?
3) What is service cost for 2016?
4) Prepare the journal entry to record the postretirement benefit expense for 2016.
Shown below is activity for one of the products of Denver Office Equipment: January 1
balance, 500 units @ $55 $27,500
Purchases:
January 10: 500 units @ $60
January 20: 1,000 units @ $63
Sales:
January 12: 800 units
January 28: 750 units Required: Compute the January 31 ending inventory and cost of
goods sold for January, assuming Denver uses LIFO and a perpetual inventory system.
Which is the correct entry to record the exercise of 90% the options on April 15, 2019,
when the market price of the stock was $8?
Wall Drugs offered an incentive stock option plan to its employees. On January 1, 2016,
options were granted for 60,000 $1 par common shares. The exercise price equals the
$5 market price of the common stock on the grant date. The options cannot be exercised
before January 1, 2019, and expire December 31, 2020. Each option has a fair value of
$1 based on an option pricing model.
Briefly explain the difference between an account receivable, a contract asset, and a
contract liability.
Zeba Company granted 27 million of its no par common shares to executives, subject to
forfeiture if employment is terminated within three years. Zeba’s common shares have a
market price of $10 per share on January 1, 2015, the grant date.
Required:
When calculating diluted EPS at December 31, 2016, what will be the net increase in
the denominator of the EPS fraction if the market price of the common shares averaged
$10 during 2016?
Using the chart of accounts provided, indicate by account number the account or
accounts that would be debited and credited in the following transactions and indicate
the type of transaction as: (1) an external transaction, (2) an internal transaction
recorded as an adjusting journal entry, or (3) a closing entry. The company uses a
perpetual inventory system. All prepayments are initially recorded in permanent
accounts.
Received payment for services to be performed next year.
The following information is taken from the 2013 annual report to shareholders of
Hewlett-Packard (HP) Co.
Is there any evidence in HP’s disclosures above that are consistent with earnings
management?