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1) A journal entry to record a receipt of rent in advance will include a
a.debit to Rent Revenue
b.credit to Rent Revenue
c.credit to Cash
d.credit to Unearned Revenue
2) For each of the items listed below, indicate how it should be treated in the financial
statements. Use the following letter code for your selections:
a.Ordinary or unusual (but not extraordinary) item on the income statement
b.Discontinued operations
c.Extraordinary item on the income statement
d.Prior period adjustment
1>The bad debt rate was increased from 1% to 2%, thus increasing bad debt expense.
2>Obsolete inventory was written off. This was the first loss of this type in the
company's history.
3>An uninsured casualty loss was incurred by the company. This was the first loss of
this type in the company's 50-year history.
4>Recognition of income earned last year which was inadvertently omitted from last
year's income statement.
5>The company sold one of its warehouses at a loss.
6>Settlement of litigation with federal government related to income taxes of three
years ago. The company is continually involved in various adjustments with the federal
government related to its taxes.
7>A loss incurred from expropriation (the company owned resources in South America
which were taken over by a dictator unsympathetic to American business).
8>The company neglected to record its depreciation in the previous year.
9>Discontinuance of all production in the United States. The manufacturing operations
were relocated in Mexico.
10>Loss on sale of investments. The company last sold some of its investments two
years ago.
11>Loss on the disposal of a component of a business.
3) What is due process in the context of standard setting at the FASB?
a.The FASB operates in full view of the public
b.Public hearings are held on proposed accounting standards
c.Interested parties can make their views known
d.All of the answer choices are correct
4) Why do companies provide trade discounts?
a.To avoid frequent changes in catalogs
b.To induce prompt payment
c.To easily alter prices for different customers
d.To avoid frequent changes in catalogs and to easily alter prices for different customers
5) Fox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The
bonds are sold to yield 8%.
One step in calculating the issue price of the bonds is to multiply the principal by the
table value for
a.10 periods and 10% from the present value of 1 table
b.20 periods and 5% from the present value of 1 table
c.10 periods and 8% from the present value of 1 table
d.20 periods and 4% from the present value of 1 table
6) When lessors account for residual values related to leased assets, they
a.include the residual value because they always assume the residual value will be
realized
b.include the unguaranteed residual value in sales revenue
c.recognize more gross profit on a sales-type lease with a guaranteed residual value
than on a sales-type lease with an unguaranteed residual value
d.All of the answers are true with regard to lessors and residual values
7) Financial statements for Kiner Company are given below:
Kiner Company
Balance Sheet
January 1, 2015
AssetsEquities
Cash$ 640,000Accounts payable$ 304,000
Accounts receivable576,000
Buildings and equipment2,400,000
Accumulated depreciation
buildings and equipment(800,000)Common stock1,840,000
Patents 288,000Retained earnings 960,000
$3,104,000$3,104,000
Kiner Company
Statement of Cash Flows
For the Year Ended December 31, 2015
Increase (Decrease) in Cash
Cash flows from operating activities
Net income$800,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accounts receivable$(256,000)
Increase in accounts payable128,000
Depreciationbuildings and equipment240,000
Gain on sale of equipment(96,000)
Amortization of patents 32,000 48,000
Net cash provided by operating activities848,000
Cash flows from investing activities
Sale of equipment192,000
Purchase of land(400,000)
Purchase of buildings and equipment (768,000)
Net cash used by investing activities(976,000)
Cash flows from financing activities
Payment of cash dividend(240,000)
Sale of common stock 640,000
Net cash provided by financing activities 400,000
Net increase in cash272,000
Cash, January 1, 2015 640,000
Cash, December 31, 2015$912,000
Total assets on the balance sheet at December 31, 2015 are $4,432,000. Accumulated
deprecia-tion on the equipment sold was $224,000.
The book value of the buildings and equipment at December 31, 2015 was
a.$2,032,000
b.$2,080,000
c.$2,848,000
d.$2,352,000
8) On March 31, 2011, Hanson Corporation sold $9,000,000 of its 8%, 10-year bonds
for $8,653,500 including accrued interest. The bonds were dated January 1, 2011 .
Interest is paid semiannually on January 1 and July 1 . On April 1, 2015, Hanson
purchased 1/2 of the bonds on the open market at 99 plus accrued interest and canceled
them. Hanson uses the straight-line method for amortization of bond premiums and
discounts.
(a)What was the amount of the gain or loss on retirement of the bonds?
(b)Prepare the journal entry needed at April 1, 2015 to record retirement of the bonds.
Assume that interest and premium or discount amortization have been recorded through
January 1, 2015 . Record interest and amortization on only the bonds retired.
(c)Prepare the journal entry needed at July 1, 2015 to record interest and premium or
discount amortization.
9) Packard Corporation reports the following information:
Net cash provided by operating activities$285,000
Average current liabilities150,000
Average long-term liabilities100,000
Dividends paid60,000
Capital expenditures110,000
Payments of debt35,000
Packards free cash flow is
a.$100,000
b.$115,000
c.$175,000
d.$225,000
10) Lawson Manufacturing Company has the following account balances at year end:
Office supplies$ 4,000
Raw materials27,000
Work-in-process59,000
Finished goods102,000
Prepaid insurance6,000
What amount should Lawson report as inventories in its balance sheet?
a.$102,000
b.$106,000
c.$188,000
d.$192,000
11) On December 31, 2015, Kuhn Corporation leased a plane from Bell Company for
an eight-year period expiring December 30, 2022. Equal annual payments of $300,000
are due on December 31 of each year, beginning with December 31, 2015 . The lease is
properly classified as a capital lease on Kuhns books. The present value at December
31, 2015 of the eight lease payments over the lease term discounted at 10% is
$1,760,528. Assuming the first payment is made on time, the amount that should be
reported by Kuhn Corporation as the lease liability on its December 31, 2015 balance
sheet is
a.$1,760,528
b.$1,636,580
c.$1,584,476
d.$1,460,528.
12) Which type of accounting change should always be accounted for in current and
future periods?
a.Change in accounting principle
b.Change in reporting entity
c.Change in accounting estimate
d.Correction of an error
13) On January 1, 2015, Evans Company granted Tim Telfer, an employee, an option to
buy 3,000 shares of Evans Co. stock for $25 per share, the option exercisable for 5
years from date of grant. Using a fair value option pricing model, total compensation
expense is determined to be $22,500. Telfer exercised his option on September 1, 2015,
and sold his 1,000 shares on December 1, 2015 . Quoted market prices of Evans Co.
stock during 2015 were
January 1$25 per share
September 1$30 per share
December 1$34 per share
The service period is for three years beginning January 1, 2015. As a result of the
option granted to Telfer, using the fair value method, Evans should recognize
compensation expense for 2015 on its books in the amount of
a.$27,000
b.$22,500
c.$ 7,500
d.$ 4,500
14) Dilutive convertible securities must be used in the computation of
a.basic earnings per share only
b.diluted earnings per share only
c.diluted and basic earnings per share
d.none of these
15) If common stock was issued to acquire an $8,000 machine, how would the
transaction
appear on the statement of cash flows?
a.It would depend on whether you are using the direct or the indirect method
b.It would be a positive $8,000 in the financing section and a negative $8,000 in the
investing section
c.It would be a negative $8,000 in the financing section and a positive $8,000 in the
investing section
d.It would not appear on the statement of cash flows but rather on a schedule of
noncash investing and financing activities
16) Adjusting entries are necessary to
1>obtain a proper matching of revenue and expense.
2>achieve an accurate statement of assets and equities.
3>adjust assets and liabilities to their fair market value.
a.1
b.2
c.3
d.1 and 2
17) Pappy Corporation received cash of $24,000 on September 1, 2014 for one years
rent in advance and recorded the transaction with a credit to Unearned Rent Revenue.
The December 31, 2014 adjusting entry is
a.debit Rent Revenue and credit Unearned Rent Revenue, $8,000
b.debit Rent Revenue and credit Unearned Rent Revenue, $16,000
c.debit Unearned Rent Revenue and credit Rent Revenue, $8,000
d.debit Cash and credit Unearned Rent Revenue, $16,000
18) McGlone Corporation had a 1/1/14 balance in the Allowance for Doubtful Accounts
of $25,000. During 2014, it wrote off $18,000 of accounts and collected $5,250 on
accounts previously written off. The balance in Accounts Receivable was $500,000 at
1/1 and $600,000 at 12/31. At 12/31/14, McGlone estimates that 5% of accounts
receivable will prove to be uncollectible. What should McGlone report as its Allowance
for Doubtful Accounts at 12/31/14?
a.$12,000
b.$12,250
c.$17,250
d.$30,000
19) If a savings account pays interest at 4% compounded quarterly, then the amount of
$1 left on deposit for 5 years would be found in a table using
a.5 periods at 4%
b.5 periods at 1%
c.20 periods at 4%
d.20 periods at 1%
20) 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 used the fair value method of accounting for its investment in
Darby Company, its Equity Investment (Darby) account on December 31, 2015 should
be
a.$435,000
b.$495,000
c.$450,000
d.$510,000
