1) Dividends representing a return of capital to stockholders are not uncommon among
companies which
a.use accelerated depreciation methods
b.use straight-line depreciation methods
c.recognize both functional and physical factors in depreciation
d.none of these answers are correct
2) Which of the following types of interest cost incurred in connection with the
purchase or manufacture of inventory should be capitalized as a product cost?
a.Purchase discounts lost
b.Interest incurred during the production of discrete projects such as ships or real estate
projects
c.Interest incurred on notes payable to vendors for routine purchases made on a
repetitive basis
d.All of these should be capitalized
3) The actuarial gains or losses that result from changes in the projected benefit
obligation are called
AssetLiability
Gains & LossesGains & Losses
a.YesYes
b.NoNo
c.YesNo
d.NoYes
4) Cost estimates on a long-term contract may indicate that a loss will result on
completion of the entire contract. In this case, the entire expected loss should be
a.recognized in the current period, regardless of whether the percentage-of-completion
or completed-contract method is employed
b.recognized in the current period under the percentage-of-completion method, but the
completed-contract method defers recognition of the loss to the time when the contract
is completed
c.recognized in the current period under the completed-contract method, but the
percentage-of-completion method defers the loss until the contract is completed
d.deferred and recognized when the contract is completed, regardless of whether the
percentage-of-completion or completed-contract method is employed
5) Under the completed-contract method
a.revenue, cost, and gross profit are recognized during the production cycle
b.revenue and cost are recognized during the production cycle, but gross profit
recognition is deferred until the contract is completed
c.revenue, cost, and gross profit are recognized at the time the contract is completed
d.None of these answers are correct
6) The right granted to all authors, painters, musicians, sculptors, and other artists for
their creations and expressions is termed as a
a.copyright
b.trademark
c.patent
d.franchise
7) The total payroll of Trolley Company for the month of October, 2014 was $800,000,
of which $150,000 represented amounts paid in excess of $106,800 to certain
employees. $500,000 represented amounts paid to employees in excess of the $7,000
maximum subject to unemployment taxes. $150,000 of federal income taxes and
$15,000 of union dues were withheld. The state unemployment tax is 1%, the federal
unemployment tax is .8%, and the current F.I.C.A. tax is 7.65% on an employees wages
to $106,800 and 1.45% in excess of $106,800. What amount should Trolley record as
payroll tax expense?
a.$72,800
b.$66,300
c.$57,300
d.$61,200
8) Wave, Inc. follows IFRS for its external financial reporting. The statement of cash
flows reports changes in cash and cash equivalents, which of the following is not
considered cash or a cash equivalent under IFRS?
a.Coin
b.Bank overdrafts
c.Commercial paper
d.Accounts receivable
9) When using the indirect method to prepare the operating section of a statement of
cash flows, which of the following is added to net income to compute cash provided
by/used by operating activities?
a.Increase in accounts receivable
b.Gain on sale of land
c.Amortization of patent
d.All of these are added to net income to arrive at cash flow from operating activities
10) A plant asset has a cost of $32,000 and a salvage value of $8,000. The asset has a
three-year life. If depreciation in the third year amounted to $4,000, which depreciation
method was used?
a.Straight-line
b.Declining-balance
c.Sum-of-the-years’-digits
d.Cannot tell from information given
11) Which of the following is true about lower-of-cost-or-market?
a.It is inconsistent because losses are recognized but not gains
b.It usually understates assets
c.It can increase future income if the expected reductions do not materialize
d.All of these answers are correct
12) Which of the following is not a principal purpose of an unadjusted trial balance?
a.It proves that debits and credits of equal amounts are in the ledger
b.It is the basis for any adjustments to the account balances
c.It supplies a listing of open accounts and their balances
d.It proves that debits and credits were properly entered in the ledger accounts
13) Which type of account is always debited during the closing process?
a.Dividends
b.Expense
c.Revenue
d.Retained earnings
14) On January 2, 2015, Hernandez, Inc. signed a ten-year noncancelable lease for a
heavy duty drill press. The lease stipulated annual payments of $200,000 starting at the
beginning of the first year, with title passing to Hernandez at the expiration of the lease.
Hernandez treated this transaction as a capital lease. The drill press has an estimated
useful life of 15 years, with no salvage value. Hernandez uses straight-line depreciation
for all of its plant assets. Aggregate lease payments were determined to have a present
value of $1,200,000, based on implicit interest of 10%.
In its 2015 income statement, what amount of depreciation expense should Hernandez
report from this lease transaction?
a.$200,000
b.$160,000
c.$120,000
d.$80,000
15) For a nonmonetary exchange of plant assets, accounting recognition should not be
given to
a.a loss when the exchange has no commercial substance
b.a gain when the exchange has commercial substance
c.part of a gain when the exchange has no commercial substance and cash is paid (cash
paid/received is less than 25% of the fair value of the exchange)
d.part of a gain when the exchange has no commercial substance and cash is received
(cash paid or received is less than 25% of the fair value of the exchange)
16) The realization of income on installment sales transactions involves
a.recognition of the difference between the cash collected on installment sales and the
cash expenses incurred
b.recording the net income related to installment sales and recognizing the income as
cash is collected
c.deferring gross profit while recognizing operating or financial expenses in the period
incurred
d.deferring gross profit and all additional expenses related to installment sales until cash
is ultimately collected
17) Given the historical cost of product Z is $40, the selling price of product Z is $50,
costs to sell product Z are $6, the replacement cost for product Z is $41, and the normal
profit margin is 40% of sales price, what is the amount that should be used to value the
inventory under the lower-of-cost-or-market method?
a.$22
b.$40
c.$42
d.$41