1) Deductible amounts cause taxable income to be greater than pretax financial income
in the future as a result of existing temporary differences.
2) Cash receipts from customers are computed by adding a decrease in accounts
receivable to revenue from sales.
3) Companies record and report long-term notes receivable at the present value of the
cash they expect to collect.
4) The expected profit from a sales type warranty that covers several years should all be
recognized in the period the warranty is sold.
5) Under IFRS, it is mandatory to report property, plant, and equipment at historical
cost.
6) Companies recognize the gain or loss on retiring convertible debt as an extraordinary
item.
7) IFRS allows for revaluation of long-term tangible and intangible assets with the
differences
impacting equity but not net income.
8) A company should report per share amounts for income before extraordinary items,
but not for income from continuing operations.
9) Under the installment-sales method, companies defer revenue and income
recognition until the period of cash collection.
10) A bond may only be issued on an interest payment date.
11) A company can convert net income to net cash flow from operating activities
through either the direct method or the indirect method.
12) IFRS bases revenue recognition on the concepts of earned and realized or
realizable.
13) IFRS requires that companies provide a year-by-year breakout of future
noncancelable lease payments due in years 1 through 5.
14) Permanent differences do not give rise to future taxable or deductible amounts.
15) Under IFRS, noncash investing and financing activities are excluded from the
statement of cash flows.
16) Significant accounting policies may not be
a.selected on the basis of judgment
b.selected from existing acceptable alternatives
c.unusual or innovative in application
d.omitted from financial-statement disclosure
17) The issuer of a 5% common stock dividend to common stockholders should transfer
from retained earnings to paid-in capital an amount equal to the
a.fair value of the shares issued
b.book value of the shares issued
c.minimum legal requirements
d.par or stated value of the shares issued
18) The following data concerning the retail inventory method are taken from the
financial records of Welch Company.
Cost Retail
Beginning inventory$ 147,000$ 210,000
Purchases672,000960,000
Freight-in18,000
Net markups60,000
Net markdowns42,000
Sales1,008,000
The ending inventory at retail should be
a.$222,000
b.$180,000
c.$192,000
d.$126,000
19) Most methods of pricing inventories are in accord with generally accepted
accounting principles and generally are permissible for income tax purposes. The
method that must be used for financial reporting purposes if used for tax purposes is
a.moving average
b.weighted average
c.LIFO
d.FIFO
20) When information about two different enterprises has been prepared and presented
in a similar manner, the information exhibits the characteristic of
a.relevance
b.faithful representation
c.consistency
d.None of these answer choices are correct
21) Which of the following costs should be capitalized in the year incurred?
a.Research and development costs
b.Costs to internally generate goodwill
c.Organizational costs
d.Costs to successfully defend a patent
22) Publications and organizations.
Significant accounting publications are listed below (1-8). Sources or sponsors of
accounting publications are identified next by alphabetical character (a-e). Match the
publications with their sources.
Publications
1>Accounting Research Bulletins (1953-1959)
2>Accounting Standards Updates
3>Statements of Position (SOPs)
4>Statements of Financial Accounting Concepts
5>Opinions (1962-1973)
Sources/Sponsors
a.Financial Accounting Standards Boardd.Committee on Accounting Procedure
b.Accounting Standards Executive Committeee.Accounting Principles Board
c.The AICPA
23) Prior service cost is amortized on a
a.straight-line basis over the expected future years of service
b.years-of-service method or on a straight-line basis over the average remaining service
life of active employees
c.straight-line basis over 15 years
d.straight-line basis over the average remaining service life of active employees or 15
years, whichever is longer
24) The IASB and the FASB are working on a joint project that has an objective of
developing a conceptual framework that leads to standards that are:
a.rule-based and internally consistent
b.principle-based and internally consistent
c.rule-based and flexible in nature
d.principle-based and rigid in nature
25) A company is legally obligated for the costs associated with the retirement of a
long-lived asset
a.only when it hires another party to perform the retirement activities
b.only if it performs the activities with its own workforce and equipment
c.whether it hires another party to perform the retirement activities or performs the
activities itself
d.when it is probable the asset will be retired
26) Patton Company purchased $900,000 of 10% bonds of Scott Company on January
1, 2015, paying $846,225. The bonds mature January 1, 2025; interest is payable each
July 1 and January 1 . The discount of $53,775 provides an effective yield of 11%.
Patton Company uses the effective-interest method and plans to hold these bonds to
maturity.
For the year ended December 31, 2015, Patton Company should report interest revenue
from the Scott Company bonds of:
a.$95,382
b.$93,169
c.$93,078
d.$90,000
27) Yates Company’s records provide the following information concerning certain
account balances and changes in these account balances during the current year.
Transaction information is missing from each item below.
Instructions
Prepare the entry to record the missing information for each account. (Consider each
inde-pendently.)
1>Accounts Receivable: Jan. 1, balance $41,000, Dec. 31, balance $55,000,
uncollectible accounts written off during the year, $6,000; accounts receivable collected
during the year, $139,000. Prepare the entry to record sales revenue.
2>Allowance for Doubtful Accounts: Jan. 1, balance $4,000, Dec. 31, balance $7,500,
uncollectible accounts written off during the year, $20,000. Prepare the entry to record
bad debt expense.
3>Accounts Payable: Jan. 1, balance $25,000, Dec. 31, balance $54,000, purchases on
account for the year, $120,000. Prepare the entry to record payments on account.
4>Interest Receivable: Jan. 1 accrued, $3,000, Dec. 31 accrued, $2,100, recognized for
the year, $35,000. Prepare the entry to record cash interest received.
28) The following information is available for Irwin Company for 2015:
Net Income$120,000
Realized gain on sale of available-for-sale securities10,000
Unrealized holding gain arising during the period on
available-for-sale securities34,000
Reclassification adjustment for gains included in net
income8,000
Instructions
(1)Determine other comprehensive income for 2015 .
(2)Compute comprehensive income for 2015 .
29) Cheng Company has recently decided to accept a proposal from the City of Bel Aire
that publicly owned property with a large warehouse located on it will be donated to
Cheng if Cheng will build a branch plant in Bel Aire. The appraised value of the
property is $400,000 and of the warehouse is $800,000.
Instructions
Prepare the entry by Cheng for the receipt of the properties.
30) Ford Inc. plans to acquire an additional machine on January 1, 2014 to meet the
growing demand for its product. Stever Company offers to provide the machine to Ford
using either of the options listed below (each option gives Ford exactly the same
machine and gives Stever Company approximately the same net present value cash
equivalent at 10%).
Option 1 Cash purchase $2,400,000.
Option 2 Installment purchase requiring 15 annual payments of $315,537 due
December 31 each year.
The expected economic life of this machine to Ford is 15 years. Salvage value at that
time is estimated to be $150,000. Straight-line depreciation is used. Interest expense
under Option 2 is computed using the effective interest method.
Instructions
Based upon current generally accepted accounting principles, state how, if at all, the
book value of the machine and the liability should appear on the December 31, 2014
balance sheet of Ford Inc., for each option. Present your answer on an answer sheet in
the following format. If an item should not appear in the balance sheet, write “not
shown” opposite the option.
Assets Liabilities
Account NameAmount Account NameAmount
Option 1
Option 2
31) Briefly describe some of the similarities and differences between U.S. GAAP and
IFRS with respect to the accounting for pensions.
32) Evans Construction, Inc. experienced the following construction activity in 2015,
the first year of operations.
CashCostEstimated
Total BillingsCollectionsIncurredAdditional
ContractthroughthroughthroughCosts to
Contract Price12/31/1512/31/1512/31/15Complete
X$260,000$170,000$155,000$182,000$ 63,000
Y330,000115,000115,000100,000252,000
Z 233,000 233,000 198,000 158,000 -0-
$823,000$518,000$468,000$440,000$315,000
Each of the above contracts is with a different customer, and any work remaining at
December 31, 2015 is expected to be completed in 2016 .
Instructions
Prepare a partial income statement and a partial balance sheet to indicate how the above
contract information would be reported. Evans uses the completed-contract method.
