1) prepaid insurance should be included in the numerator when computing the acid-test
(quick) ratio.
2) the recognition criteria for an asset retirement obligation (aro) are more stringent
under ifrs.
3) although the fasb has developed a conceptual framework, no statements of financial
accounting concepts have been issued to date.
4) under ifrs, a company may classify expenses by function, but must also disclose the
classification of expenses by nature.
5) savings accounts are usually classified as cash on the balance sheet.
6) under the completed-contract method, companies recognize revenue and costs only
when the contract is completed.
7) in a troubled debt restructuring, the loss recognized by the creditor will equal the
gain recognized by the debtor.
8) when a company purchases land with the intention of developing it for a particular
use, interest costs associated with those expenditures qualify for interest capitalization.
9) in most situations, the gross profit percentage is stated as a percentage of cost.
10) avoidable interest is the amount of interest cost that a company could theoretically
avoid if it had not made expenditures for the asset.
11) the securities and exchange commission appointed the committee on accounting
procedure.
12) the percentage-of-receivables approach of estimating uncollectible accounts
emphasizes matching over valuation of accounts receivable.
13) the average days to sell inventory represents the average number of days sales for
which a company has inventory on hand.
14) compound interest, rather than simple interest, must be used to properly evaluate
long- term investment proposals.
15) changes in estimates are handled prospectively by dividing the assets book value
less any salvage value by the remaining estimated life.
16) interest cost that is capitalized should
a.be written off over the remaining term of the debt
b.be accumulated in a separate deferred charge account and written off equally over a
40-year period
c.not be written off until the related asset is fully depreciated or disposed of
d.none of these
17) in measuring an impairment loss, ifrs uses
a.undiscounted cash flows
b.discounted cash flows
c.a fair value test
d.a replacement value test
18) given below are the present value factors for $1.00 discounted at 10% for one to
five periods. each of the items 69 to 72 is based on 10% interest compounded annually.
what amount should an individual have in a bank account today before withdrawal if
$5,000 is needed each year for four years with the first withdrawal to be made today
and each subsequent withdrawal at one-year intervals? (the balance in the bank account
should be zero after the fourth withdrawal.)
a.$5,000 + ($5,000 0.909) + ($5,000 0.826) + ($5,000 0.751)
b.$5,000 0.683 4
c.($5,000 0.909) + ($5,000 0.826) + ($5,000 0.751) + ($5,000 0.683)
d.$5,000 0.909 4
19) rivera company purchased a tooling machine on january 3, 2006 for $700,000. the
machine was being depreciated on the straight-line method over an estimated useful life
of 10 years, with no salvage value. at the beginning of 2013, the company paid
$175,000 to overhaul the machine. as a result of this improvement, the company
estimated that the useful life of the machine would be extended an additional 5 years
(15 years total). what should be the depreciation expense recorded for the machine in
2013?
a.$48,125
b.$58,333
c.$70,000
d.$77,000
20) at ruth company, events and transactions during 2012 included the following. the
tax rate for all items is 30%.
(1)depreciation for 2010 was found to be understated by $60,000.
(2)a strike by the employees of a supplier resulted in a loss of $50,000.
(3)the inventory at december 31, 2010 was overstated by $80,000.
(4)a flood destroyed a building that had a book value of $1,000,000. floods are very
uncommon in that area.
the effect of these events and transactions on 2012 net income net of tax would be
a.($35,000)
b.($735,000)
c.($777,000)
d.($833,000)
21) recording inventory at net realizable value is permitted, even if it is above cost,
when there are no significant costs of disposal involved and
a.the ending inventory is determined by a physical inventory count
b.a normal profit is not anticipated
c.there is a controlled market with a quoted price applicable to all quantities
d.the internal revenue service is assured that the practice is not used only to distort
reported net income
22) harlan mining co. has recently decided to go public and has hired you as an
independent cpa. one statement that the enterprise is anxious to have prepared is a
statement of cash flows. financial statements of harlan mining co. for 2013 and 2012
are provided below.
23) rich, inc. acquired 30% of doane corp.’s voting stock on january 1, 2012 for
$600,000. during 2012, doane earned $240,000 and paid dividends of $150,000. rich’s
30% interest in doane gives rich the ability to exercise significant influence over
doane’s operating and financial policies. during 2013, doane earned $300,000 and paid
dividends of $90,000 on april 1 and $90,000 on october 1. on july 1, 2013, rich sold
half of its stock in doane for $396,000 cash.
the carrying amount of this investment in rich’s december 31, 2012 balance sheet should
be
a.$600,000
b.$627,000
c.$672,000
d.$690,000
24) the following balance sheet was prepared by the bookkeeper for kraus company as
of december 31, 2012.
kraus company
balance sheet
as of december 31, 2012
the following additional information is provided:
1>cash includes the cash surrender value of a life insurance policy $9,400, and a bank
overdraft of $2,500 has been deducted.
2>the net accounts receivable balance includes:
(a)accounts receivabledebit balances $60,000;
(b)accounts receivablecredit balances $4,000;
(c)allowance for doubtful accounts $3,800.
instructions
3>inventory does not include goods costing $3,000 shipped out on consignment.
receivables of $3,000 were recorded on these goods.
4>investments include investments in common stock, trading $19,000 and
available-for-sale $48,300, and franchises $9,000.
5>equipment costing $5,000 with accumulated depreciation $4,000 is no longer used
and is held for sale. accumulated depreciation on the other equipment is $40,000.
instructions
prepare a balance sheet in good form (stockholders’ equity details can be omitted.)
25) ortiz co. had the following account balances:
sales revenue$ 180,000
cost of goods sold90,000
salaries and wages expense15,000
depreciation expense30,000
dividend revenue6,000
utilities expense12,000
rent revenue30,000
interest expense18,000
sales returns and allow.16,500
advertising expense19,500
what would ortiz report as total revenues in a single-step income statement?
a.$199,500
b.$ 15,000
c.$216,000
d.$180,000
26) elo corporation purchased a patent for $180,000 on september 1, 2010. it had a
useful life of 10 years. on january 1, 2012, elo spent $44,000 to successfully defend the
patent in a lawsuit. elo feels that as of that date, the remaining useful life is 5 years.
what amount should be reported for patent amortization expense for 2012?
a.$41,200
b.$40,000
c.$37,600
d.$31,200
27) jenks corporation acquired linebrink products on january 1, 2012 for $6,000,000,
and recorded goodwill of $1,125,000 as a result of that purchase. at december 31, 2012,
linebrink products had a fair value of $5,100,000. the net identifiable assets of the
linebrink (excluding goodwill) had a fair value of $4,350,000 at that time. what amount
of loss on impairment of goodwill should jenks record in 2012?
a.$ -0-
b.$375,000
c.$525,000
d.$900,000
28) the objectives of financial reporting include all of the following except to provide
information that
a.is useful to the internal revenue service in allocating the tax burden to the business
community
b.is useful to those making investment and credit decisions
c.is helpful in assessing future cash flows
d.identifies the economic resources (assets), the claims to those resources (liabilities),
and the changes in those resources and claims
29) the original sale of the $50 par value common shares of gray company was recorded
as follows:
instructions
record the treasury stock transactions (given below) under the cost method:
transactions:
(a)bought 350 shares of common stock as treasury shares at $62.
(b)sold 100 shares of treasury stock at $60.
(c)sold 50 treasury shares at $68.
30) panda corporation paid cash of $30,000 on june 1, 2012 for one years rent in
advance and recorded the transaction with a debit to prepaid rent. the december 31,
2012 adjusting entry is
a.debit prepaid rent and credit rent expense, $12,500
b.debit prepaid rent and credit rent expense, $17,500
c.debit rent expense and credit prepaid rent, $17,500
d.debit prepaid rent and credit cash, $12,500
31) how do these prepaid expenses expire?
32) ocean company follows ifrs for its external financial reporting. which of the
following methods of reporting are acceptable under ifrs for the items shown?
33) the distribution of stock rights to existing common stockholders will increase
paid-in capital at the
34) during 2012, larue co., a manufacturer of chocolate candies, contracted to purchase
100,000 pounds of cocoa beans at $4.00 per pound, delivery to be made in the spring of
2013. because a record harvest is predicted for 2013, the price per pound for cocoa
beans had fallen to $3.30 by december 31, 2012.
of the following journal entries, the one which would properly reflect in 2012 the effect
of the commitment of larue co. to purchase the 100,000 pounds of cocoa is
35) match the approach, ifrs or u.s. gaap, with the location where tax effects are
reported:
36) horner construction co. uses the percentage-of-completion method. in 2012, horner
began work on a contract for $11,000,000; it was completed in 2013. the following cost
data pertain to this contract:
if the completed-contract method of accounting was used, the amount of gross profit to
be recognized for years 2012 and 2013 would be
37) present, in journal form, the adjustments that would be made on july 31, 2013, the
end of the fiscal year, for each of the following.
1>.the supplies inventory on august 1, 2012 was $7,350. supplies costing $22,150 were
acquired during the year and charged to the supplies inventory. a count on july 31, 2013
indicated supplies on hand of $8,810.
2>.on april 30, a ten-month, 6% note for $20,000 was received from a customer.
3>.on march 1, $12,000 was collected as rent for one year and a nominal account was
credited.
38) briefly describe some of the similarities and differences between u.s. gaap and ifrs
with respect to cash flow reporting.
39) pierson corporation owned 10,000 shares of hunter corporation. these shares were
purchased in 2009 for $90,000. on november 15, 2013, pierson declared a property
dividend of one share of hunter for every ten shares of pierson held by a stockholder. on
that date, when the market price of hunter was $21 per share, there were 90,000 shares
of pierson outstanding. what gain and net reduction in retained earnings would result
from this property dividend?
40) a corporation declared a dividend, a portion of which was liquidating. how would
this distribution affect each of the following?
