1) When gains or losses on derivatives designated as fair value hedges exceed the gains
or losses on the item being hedged, the excess
a. affects reported net income
b. is recognized as an equity adjustment
c. is recognized as part of comprehensive income
d. is not recognized
2) If the actual return on pension fund assets exceeds the expected return for the period,
the difference is
a. a deferred loss
b. a deferred gain
c. recognized as a loss in the current period
d. recognized as a gain in the current period
3) Hermine Company wrote off an $700 uncollectible account receivable against the
allowance for doubtful accounts with a balance of $2,000. The current ratio after the
write-off of the uncollectible account
a. would be less than before the write-off of the account
b. would be greater than before the write-off of the account
c. would be the same as before the write-off of the account
d. cannot be determined with the information given
4) Iowa Cattle Company uses a periodic inventory system. Iowa purchased cattle from
Big D Ranch at a cost of $27,000 on credit. The entry to record the receipt of the cattle
would be
a. Purchases ……………………… 27,000 Accounts Payable ……………… 27,000
b. Inventory ……………………… 27,000 Accounts Payable ……………… 27,000
c. Purchases ……………………… 27,000 Cash ………………………… 27,000
d. Inventory ……………………… 27,000 Cash ………………………… 27,000
5) The term “intangible assets” is used in accounting to denote
a. current or noncurrent property items without physical characteristics
b. assets with lesser economic significance because of the nature of such assets
c. such items as patents, copyrights, and claims against customers which can be valued
on a monetary basis
d. properties without physical characteristics that have long-term effects on a business
enterprise
6) If a $6,000, 10 percent, 10-year bond was issued at 104 plus accrued interest two
months after the authorization date, how much cash was received by the issuer?
a. $6,000
b. $6,240
c. $6,340
d. $6,600
7) The Morris Corporation reported a $59,000 operating loss in 2014. In the preceding
three years, Morris reported the following income before taxes and paid the indicated
income taxes:
The amount of tax benefit to be reported in 2014 arising from the tax carryback
provisions of the current tax code would be
a. $20,650
b. $22,500
c. $21,300
d. $20,100
8) Adjusting entries normally involve
a. real accounts only
b. nominal accounts only
c. real and nominal accounts
d. liability accounts only
9) From the following information, determine the amount of ending inventory.
a. $23,000
b. $32,000
c. $33,000
d. $22,000
10) Ibarra Carpet traded cleaning equipment with a cost of $27,000 and accumulated
depreciation of $5,250 for new equipment with a fair market value of $14,500.
Assuming the exchange lacks commercial substance, Ibarra should record the new
equipment at
a. $14,750
b. $13,750
c. $14,500
d. $7,500
11) Current generally accepted accounting principles require that the translation of a
foreign subsidiarys accounting records should be accomplished by the
a. monetary/nonmonetary method
b. current rate method
c. current/noncurrent method
d. functional currency method
12) On December 27, 2014, Admission Company ordered merchandise for resale from
Eviction, Inc., that cost $7,000 (terms cash within 10 days). Eviction shipped the
merchandise f.o.b. shipping point on December 28, 2014, and the goods arrived on
January 2, 2015. The invoice was received on December 30, 2014. Admission Company
did not record the purchase in 2014 and did not include the goods in ending inventory.
The effects on Admission Companys 2014 financial statements were
a. income and owners equity were correct; liabilities were incorrect, assets were correct
b. income and owners equity were correct; assets and liabilities were incorrect
c. income, assets, liabilities, and owners equity were correct
d. income, assets, liabilities, and owners equity were incorrect
13) If all temporary differences entering into the determination of pretax accounting
income are considered in the computation of deferred taxes and income tax expense,
then the
a. no-deferral approach is being applied
b. comprehensive recognition approach is being applied
c. partial recognition approach is being applied
d. net-of-tax method is being applied
14) Overland, Inc. had 150,000 shares of common stock issued and outstanding at
December 31, 2013. On July 1, 2014, an additional 25,000 shares of common stock
were issued for cash. Overland also had unexercised stock options to purchase 20,000
shares of common stock at $15 per share outstanding at the beginning and end of 2014.
The market price of Overland’s common stock was $20 throughout 2014. What number
of shares should be used in computing diluted earnings per share for the year ended
December 31, 2014?
a. 182,500
b. 180,000
c. 167,500
d. 177,500
15) Blind Faith Company reported the following data with regard to its first quarter of
operations:
The expected annual income tax rate is 40 percent. Blind Faith should report net income
on the first quarter interim financial statements of
a. $0
b. $61,425
c. $63,225
d. $65,925
16) The interest cost component for other postretirement benefits is determined using
a. the settlement rate of interest
b. the rate of return on high quality fixed-income investments with cash flows matching
the timing and amounts of expected benefit payments
c. both of these
d. neither of these
17) This entry would be made when:
a. a customer pays its account balance
b. a customer defaults on its account
c. a previously defaulted customer pays its outstanding balance
d. estimated uncollectible receivables are too low
18) One of the four general criteria for a capital lease is that the present value at the
beginning of the lease term of the minimum lease payments equals or exceeds
a. the property’s fair market value
b. 90 percent of the property’s fair market value
c. 75 percent of the property’s fair market value
d. 50 percent of the property’s fair market value
19)
20) Winters, Inc., pays its managers a bonus consisting of 7% of net income (income
after deduction of both bonus and income taxes). The companys income tax rate is 20%.
Income for the current year is $600,000.
How much bonus would be paid for the current year (rounded to whole dollars)?
a. $42,000
b. $33,600
c. $31,818
d. $31,248
21) In calculating a company’s accounts receivable turnover, which of the following
sets of factors would be used?
a. Net income and average accounts receivable
b. Average accounts receivable and average total assets
c. Average accounts receivable and net credit sales
d. Net credit sales and average stockholders’ equity
22) In computing the change in deferred tax accounts, which of the following tax rates
is used?
a. Current tax rate
b. Estimated future tax rates
c. Enacted future tax rates
d. Past years tax rates
23) Flash Company’s inventory at June 30, 2014, was $75,000 based on a physical
count of goods priced at cost, and before any necessary year-end adjustment relating to
the following:
What amount should Flash report as inventory on its June 30, 2014, balance sheet?
a. $73,500
b. $74,000
c. $75,000
d. $76,500
24) The following are users of accounting information:
a. stakeholders
b. creditors
c. investors
d. all of the above
25) A construction company uses the percentage-of-completion method for long-term
construction contracts. A particular job was begun in 2014 and completed in 2015.
During 2014, it appeared that the project would cost 25 percent more than originally
expected. Data at the end of each year are given below:
The contract price was $700,000. Assuming the company properly recorded income in
2013, how much income should be recorded in 2014?
a. $10,000
b. $42,000
c. $160,000
d. $192,000
26) A contingency must be accrued in the accounts and reported in the financial
statements when
a. the amount of the loss can be reliably estimated and it is probable that an asset is
impaired or a liability incurred
b. it is evident that an asset has been impaired or a liability has been incurred even
though the amount of the loss cannot be reliably estimated
c. it is not certain that funds will be available to settle damages that may arise from a
pending lawsuit
d. a loss is expected and its amount is uncertain
27) Interim income tax expense is based on
a. an estimate of the annual tax rate
b. four times the interim periods pretax earnings if the interim period is a quarter
c. the interim periods pretax earnings and tax rate applicable in that period
d. the average income tax for all previous interim periods and the current interim period
28) In calculating diluted earnings per share, which of the following should not be
considered?
a. The weighted average number of common shares outstanding
b. The amount of dividends declared on cumulative preferred shares
c. The amount of cash dividends declared on common shares
d. The number of common shares resulting from the assumed conversion of debentures
outstanding
29) The following data are available for Synopsis Products, a partnership:
Compute the purchases and the net income for the partnership for 2013, 2014, and
2015, assuming that the firm sells its merchandise at 25 percent above cost.
30) On December 31, 2012, Bugler Travel Inc. had 450,000 shares of no-par common
stock issued and outstanding. All shares were sold for $7.50. On June 30, 2013, Bugler
issued an additional 135,000 shares for $7 per share. The 2013 income was $319,200.
On September 1, 2012, a 15 percent stock dividend was issued to all common
shareholders. On October 1, 2014, 60,000 shares were reacquired as treasury shares.
Net income in 2014 was $278,063.
31) A company with a 40% tax rate had 50,000 shares of common stock and the
following three potentially dilutive issues outstanding for the entire year:
32) Pheasant Tail Company’s total equity increased by $32,000 during 2013. New
stockholder investment during the year totaled $65,000. Total revenues during the year
were $500,000 and total expenses were $460,000. Cash on hand decreased by $7,500
during the year. What amount of dividends did Pheasant Tail declare during 2013?
33) The December 31, 2014, balance sheet of Far Imports includes the following items:
The bonds were issued on December 31, 2013, at 97, with interest payable on June 30
and December 31 of each year. The straight-line method is used for discount
amortization.
On March 1, 2015, Far Imports retired $400,000 of these bonds at 98 plus accrued
interest. Prepare the journal entries to record retirement of the bonds, including accrual
of interest since the last payment and amortization of the discount.
34) Income statements for Maroon Co. show the following:
From the data presented, calculate the following ratios for 2014 and 2013:
35) The following summarized information is available for Eastern Valley Company at
December 31 of the current year:
The debt of Eastern Valley has a before-tax cost rate of 11.5%, preferred stock has a
cost of 12.1%, and common equity has a cost of 14.2%. The tax rate for Eastern Valley
is 34%.
Calculate the weighted average cost of capital for Eastern Valley at December 31 of the
current year.
36) Dupe Industries purchased the net assets of Sort Company for $1,100,000 cash . A
schedule of the net assets of Sort Company, as recorded on Sort Company’s books at the
time of the acquisition, is as follows:
The following schedule shows the differences between the recorded costs and market
values of the assets of Sort Company at the date of the acquisition:
Prepare the journal entry to record this acquisition using the acquisition method
prescribed by SFAS 141R,, Business Combinations.
37) The existence of earnings management techniques does not justify their use. Some
would say that any form of earnings management is unethical. Others would say that
some amount of earnings management within certain bounds is necessary to survival in
the modern world.
Required:
Is earnings management ethical?
38) Myerson Company reported taxable income of $60,000 for 2014, its first year of
operations. This amount reflects temporary differences between financial and taxable
income that are scheduled to reverse in subsequent years as shown below. As of
December 31, 2014, the enacted tax rate for 2014 and future years was 40 percent.
Use the provisions of FASB Statement No. 109 and assume that it is more likely than
not that income will be sufficient in all future years to realize any deductible amounts.
Also assume that all the temporary differences relate to noncurrent items.
Compute the amount of the deferred tax assets and/or liabilities that would be reported
on Myerson’s balance sheet as of December 31, 2014.