1) On October 1, 2014 Macklin Corporation issued 5%, 10-year bonds with a face value
of $4,000,000 at 104 . Interest is paid on October 1 and April 1, with any premiums or
discounts amortized on a straight-line basis.
Bond interest expense reported on the December 31, 2014 income statement of Macklin
Corporation would be
a.$46,000
b.$50,000
c.$54,000
d.$92,000
2) At December 31, 2015 and 2014, Miley Corp. had 180,000 shares of common stock
and 10,000 shares of 6%, $100 par value cumulative preferred stock outstanding. No
dividends were declared on either the preferred or common stock in 2015 or 2014 . Net
income for 2015 was $375,000. For 2015, earnings per common share amounted to
a.$2.08
b.$1.75
c.$1.53
d.$1.42
3) On January 1, 2014, Orton Co. sold a used machine to King, Inc. for $1,050,000. On
this date, the machine had a depreciated cost of $735,000. King paid $150,000 cash on
January 1, 2014 and signed a $900,000 note bearing interest at 10%. The note was
payable in three annual installments of $300,000 plus interest beginning January 1,
2015 . Orton appropriately accounted for the sale under the installment-sales method.
King made a timely payment of the first installment on January 1, 2015 of $390,000,
which included interest of $90,000 to date of payment. At December 31, 2015, Orton
has deferred gross profit of
a.$210,000
b.$198,000
c.$180,000
d.$153,000
4) Which of the following is not a benefit associated with the FASB Conceptual
Framework Project?
a.A conceptual framework should increase financial statement users’ understanding of
and confidence in financial reporting
b.Practical problems should be more quickly solvable by reference to an existing
conceptual framework
c.A coherent set of accounting standards and rules should result
d.Business entities will need far less assistance from accountants because the financial
reporting process will be quite easy to apply
5) The following trial balance of Reese Corp. at December 31, 2014 has been properly
adjusted except for the income tax expense adjustment.
Reese Corp.
Trial Balance
December 31, 2014
Dr. Cr.
Cash$ 775,000
Accounts receivable (net)2,695,000
Inventory2,085,000
Property, plant, and equipment (net)7,566,000
Accounts payable and accrued liabilities$ 1,701,000
Income taxes payable654,000
Deferred income tax liability85,000
Common stock2,350,000
Additional paid-in capital3,680,000
Retained earnings, 1/1/143,450,000
Net sales and other revenues13,560,000
Costs and expenses11,180,000
Income tax expenses 1,179,000
$25,480,000$25,480,000
Other financial data for the year ended December 31, 2014:
Included in accounts receivable is $1,200,000 due from a customer and payable in
quarterly installments of $150,000. The last payment is due December 29, 2016 .
The balance in the Deferred Income Tax Liability account pertains to a temporary
difference that arose in a prior year, of which $20,000 is classified as a current liability.
During the year, estimated tax payments of $525,000 were charged to income tax
expense. The current and future tax rate on all types of income is 30%.
In Reese’s December 31, 2014 balance sheet, the current assets total is
a.$6,080,000
b.$5,555,000
c.$5,405,000
d.$4,955,000
6) In computations of weighted average of shares outstanding, when a stock dividend or
stock split occurs, the additional shares are
a.weighted by the number of days outstanding
b.weighted by the number of months outstanding
c.considered outstanding at the beginning of the year
d.considered outstanding at the beginning of the earliest year reported
7) Xtra Processes is involved with innovative approaches to finding energy reserves.
Xtra recently built a facility to extract natural gas at a cost of $15 million. However,
Xtra is also legally responsible to remove the facility at the end of its useful life of
twenty years. This cost is estimated to be $21 million (the present value of which is $8
million). What is the journal entry required to record the asset retirement obligation?
a.No journal entry required
b.Debit Natural Gas Facility for $21,000,000 and credit Asset Retirement Obligation for
$21,000,000
c.Debit Natural Gas Facility for $6,000,000 and credit Asset Retirement Obligation for
$6,000,000
d.Debit Natural Gas Facility for $8,000,000 and credit Asset Retirement Obligation for
$8,000,000
8) Which of the following are temporary differences that are normally classified as
expenses or losses that are deductible after they are recognized in financial income?
a.Prepaid expenses that are deducted on the tax return in the period paid
b.Product warranty liabilities
c.Depreciable property
d.Fines and expenses resulting from a violation of law
9) Stock warrants outstanding should be classified as
a.liabilities
b.reductions of capital contributed in excess of par value
c.assets
d.None of these answers are correct
10) During an accounting period, if an expense has been incurred and consumed but not
yet paid for or recorded, then the end-of-period adjusting entry would involve
a.a liability account and an asset account
b.an asset or contra asset account and an expense account
c.a liability account and an expense account
d.a receivable account and a revenue account
11) Nichols Company had 500 units of Dink in its inventory at a cost of $5 each. It
purchased, for $2,400, 300 more units of Dink. Nichols then sold 600 units at a selling
price of $10 each, resulting in a gross profit of $2,100. The cost flow assumption used
by Nichols.
a.is FIFO
b.is LIFO
c.is weighted average
d.cannot be determined from the information given
12) Watson Corporation prepared the following reconciliation for its first year of
operations:
Pretax financial income for 2015$1,800,000
Tax exempt interest (100,000)
Originating temporary difference (300,000)
Taxable income$1,400,000
The temporary difference will reverse evenly over the next two years at an enacted tax
rate of 40%. The enacted tax rate for 2015 is 28%. What amount should be reported in
its 2015 income statement as the current portion of its provision for income taxes?
a.$392,000
b.$560,000
c.$504,000
d.$720,000
13) The required approach for handling extraordinary items in interim reports is to
a.prorate them over all four quarters
b.prorate them over the current and remaining quarters
c.charge or credit the loss or gain in the quarter that it occurs
d.disclose them only in the notes
14) The following facts relate to the Gamble Co. postretirement benefits plan for 2015:
Service cost$136,000
Discount rate10%
EPBO, January 1, 2015$1,095,000
APBO, January 1, 2015$900,000
Actual return on plan assets in 2015$31,500
Expected return on plan assets in 2015$24,000
The amount of postretirement expense for 2015 is
a.$194,500
b.$202,000
c.$221,500
d.$226,000
15) On January 1, 2006, Mill Corporation purchased for $608,000, equipment having a
useful life of ten years and an estimated salvage value of $32,000. Mill has recorded
monthly depreciation of the equipment on the straight-line method. On December 31,
2014, the equipment was sold for $112,000. As a result of this sale, Mill should
recognize a gain of
a.$0
b.$22,400
c.$54,400
d.$112,000
16) The basis for classifying assets as current or noncurrent is the period of time
normally required by the accounting entity to convert cash invested in
a.inventory back into cash, or 12 months, whichever is shorter
b.receivables back into cash, or 12 months, whichever is longer
c.tangible fixed assets back into cash, or 12 months, whichever is longer
d.inventory back into cash, or 12 months, whichever is longer
17) Under which section of the balance sheet is “cash restricted for plant expansion”
reported?
a.Current assets
b.Non-current assets
c.Current liabilities
d.Stockholders’ equity
18) Machinery was acquired at the beginning of the year. Depreciation recorded during
the life of the machinery could result in
FutureFuture
Taxable AmountsDeductible Amounts
a.Yes Yes
b.YesNo
c.NoYes
d.NoNo
19) White Corporation uses the FIFO method for internal reporting purposes and LIFO
for external reporting purposes. The balance in the LIFO Reserve account at the end of
2014 was $160,000. The balance in the same account at the end of 2015 is $240,000.
Whites Cost of Goods Sold account has a balance of $1,200,000 from sales transactions
recorded during the year. What amount should White report as Cost of Goods Sold in
the 2015 income statement?
a.$1,120,000
b.$1,200,000
c.$1,280,000
d.$1,440,000