1) Purchased goodwill represents
a.excess of price paid over fair value of net assets obtained in a combination
b.excess of price paid over the book value of the net assets obtained in a combination
c.the difference in the aggregate amount of the market prices of the stock of the
combining companies
d.a tangible asset
2) Olmsted Company has the following items: common stock, $750,000; treasury stock,
$105,000; deferred income taxes, $125,000 and retained earnings, $454,000. What total
amount should Olmsted Company report as stockholders equity?
a.$974,000
b.$1,099,000
c.$1,224,000
d.$1,349,000
3) On January 1, 2014, Jackson Company has a building with a carrying value of
$80,000 and a remaining useful life 5 years that was recently valued at $240,000.
Assuming that the company uses straight-line depreciation, IFRS would show the
depreciation as
a.$16,000
b.$48,000
c.$32,000
d.More than one of these answers could be correct
4) Myers Company acquired a 60% interest in Gannon Corporation on December 31,
2014 for $1,575,000. During 2015, Gannon had net income of $1,000,000 and paid cash
dividends of $250,000. At December 31, 2015, the balance in the investment account
should be
a.$1,575,000
b.$2,175,000
c.$2,025,000
d.$2,325,000
5) The cost of successfully defending a patent suit should be
a.charged off in the current period
b.amortized over the legal life of the purchased patent
c.added to factory overhead and allocated to production of the product
d.amortized over the remaining estimated useful life of the patent
6) Which of the following statements is false?
a.The imprest petty cash system in effect adheres to the rule of disbursement by check
b.Entries are made to the Petty Cash account only to increase or decrease the size of the
fund or to adjust the balance if not replenished at year-end
c.The Petty Cash account is debited when the fund is replenished
d.All of these answers are false
7) An example of an item which is not an element of working capital is
a.accrued interest on notes receivable
b.goodwill
c.goods in process
d.temporary investments
8) Harter Company leased machinery to Stine Company on July 1, 2015, for a ten-year
period expiring June 30, 2025 . Equal annual payments under the lease are $150,000
and are due on July 1 of each year. The first payment was made on July 1, 2013 . The
rate of interest used by Harter and Stine is 9%. The cash selling price of the machinery
is $1,050,000 and the cost of the machinery on Harters accounting records was
$930,000. Assuming that the lease is appropriately recorded as a sale for accounting
purposes by Harter, what amount of interest revenue would Harter record for the year
ended December 31, 2015?
a.$94,500
b.$81,000
c.$40,500
d.$0
9) Horner Corporation has a deferred tax asset at December 31, 2015 of $160,000 due
to the recognition of potential tax benefits of an operating loss carryforward. The
enacted tax rates are as follows: 40% for 2012-2014; 35% for 2015; and 30% for 2016
and thereafter. Assuming that management expects that only 50% of the related benefits
will actually be realized, a valuation account should be established in the amount of:
a.$80,000
b.$32,000
c.$28,000
d.$24,000
10) Chase Corp. had the following infrequent transactions during 2014:
A $375,000 gain from selling the only investment Chase has ever owned.
A $525,000 gain on the sale of equipment.
A $175,000 loss on the write-down of inventories.
In its 2014 income statement, what amount should Chase report as total infrequent net
gains that are not considered extraordinary?
a.$200,000
b.$350,000
c.$725,000
d.$900,000
11) Investments in debt securities should be recorded on the date of acquisition at
a.lower of cost or market
b.market value
c.market value plus brokerage fees and other costs incident to the purchase
d.face value plus brokerage fees and other costs incident to the purchase
12) In January, 2010, Findley Corporation purchased a patent for a new consumer
product for $840,000. At the time of purchase, the patent was valid for fifteen years.
Due to the competitive nature of the product, however, the patent was estimated to have
a useful life of only ten years. During 2015 the product was permanently removed from
the market under governmental order because of a potential health hazard present in the
product. What amount should Findley charge to expense during 2015, assuming
amortization is recorded at the end of each year?
a.$560,000
b.$420,000
c.$84,000
d.$56,000
13) An increase in inventory balance would be reported in a statement of cash flows
using the indirect method (reconciliation method) as a(n)
a.addition to net income in arriving at net cash flow from operating activities
b.deduction from net income in arriving at net cash flow from operating activities
c.cash outflow from investing activities
d.cash outflow from financing activities