If the seller is an agent, the seller typically is vulnerable to risk associated with
delivering the product or service.
Use of the installment sales method indicates little uncertainty about collection of the
receivable.
A change in accounting estimate and a change in reporting entity are types of changes
in accounting principle.
When a contract includes variable consideration, the probability-weighted amount must
be used when there are different probabilities of occurrence.
Prior years’ financial statements are restated when the prospective approach is used.
The process of assigning the cost of postretirement benefits to the years during which
those benefits are assumed to be earned by employees is called:
a. Restitution.
b. Retribution.
c. Attribution.
d. Assignation.
If undetected, what is the effect of this error on Berkshire’s 12/31/2015 balance sheet?
Berkshire Inc. uses a periodic inventory system. At the end of 2015, it missed counting
some inventory items, resulting in an inventory understatement by $600,000. Assume
that Berkshire has a 30% income tax rate and that this was the only error it made.
a. Assets understated by $600,000 and shareholders’ equity understated by $600,000.
b. Assets understated by $420,000 and shareholders’ equity understated by $420,000.
c. Assets understated by $600,000, liabilities understated by $180,000, and
shareholders’ equity understated by $420,000.
d. None of the above is correct.
Binz Company provides cleaning services and sells garbage bins to office clients. On
June 1st, Binz delivered 100 garbage bins to a client, and also entered into a 5-year
contract for Binz to provide cleaning services to that client. Which of the following is
most likely to be true?
a. Revenue for the garbage bins and the cleaning services must be recognized on June
1st.
b. Revenue for the garbage bins is recognized on June 1st and no revenue will be
recognized for the cleaning services until the end of the 5th year.
c. Revenue for the garbage bins is recognized on June 1st and revenue for the cleaning
service is recognized over the 5 years as those services are performed.
d. Binz Company should not recognize any revenue until the end of the 5th year.
SFAC No.5 focuses on:
a. Objectives of financial reporting.
b. Qualitative characteristics of accounting information.
c. Recognition and measurement concepts in accounting.
d. Elements of financial statements.
In May of 2016, Raymond Financial Services became involved in a penalty dispute
with the EPA. At December 31, 2016, the environmental attorney for Raymond
indicated that an unfavorable outcome to the dispute was probable. The additional
penalties were estimated to be $770,000 but could be as high as $1,170,000. After the
year-end, but before the 2016 financial statements were issued, Raymond accepted an
EPA settlement offer of $900,000. Raymond should have reported an accrued liability
on its December 31, 2016, balance sheet of:
a. $ 770,000.
b. $ 900,000.
c. $ 970,000.
d. $1,170,000.
Which of the following is not a provision of the Public Company Accounting Reform
and Investor Protection Act of 2002 (Sarbanes-Oxley)? The Act:
a. Changed the entity responsible for setting auditing standards.
b. Increased corporate executive responsibility for financial statements.
c. Limited nonaudit services that can be performed by auditors for audit clients.
d. Changed the entity responsible for setting accounting standards.
Which of the following circumstances creates a future taxable amount?
a. Service fees collected in advance from customers: taxable when received, recognized
for financial reporting when earned.
b. Accrued compensation costs for future payments.
c. Straight-line depreciation for financial reporting and accelerated depreciation for tax
reporting.
d. Investment expenses incurred to obtain tax-exempt income (not tax deductible).
The following incomplete (columns have missing amounts) pension spreadsheet is for
the current year for First Republic Corporation (FRC).
What was the actuary’s interest (discount) rate?
a. 7%.
b. 8%.
c. 9%.
d. 10%.
Listed below are year-end account balances (in $millions) taken from the records of
Symphony Stores.
What would Symphony report as total shareholders’ equity?
a. $323.
b. $808.
c. $838.
d. $928.
As part of a promotion campaign, Funzy Cereal includes one coupon in each issue of
various national magazines and offers a toy car in exchange for $1.00 and three
coupons. The cars cost Funzy $1.50 each. Experience indicates that 4% of the coupons
eventually will be redeemed. During the last month of 2013, the first month of the offer,
12 million coupons were distributed and 240,000 million of the coupons were
redeemed. What amount should Funzy report as a promotional expense for coupons on
its December 31, 2013, income statement?
a. $ 0.
b. $ 40,000.
c. $ 80,000.
d. $120,000.
Horrocks Company granted 180,000 restricted stock awards of its no par common
shares to executives, subject to forfeiture if employment is terminated within three
years. Horrocks’ common shares have a market price of $10 per share on January 1,
2015, the grant date, and at December 31, 2016, averaging $10 throughout the year.
When calculating diluted EPS at December 31, 2016, the net increase in the
denominator of the EPS fraction will be:
a. 0 shares.
b. 60,000 shares.
c. 120,000 shares.
d. 180,000 shares.
Assuming an asset is used evenly over a four-year service life, which method of
depreciation will always result in the largest amount of depreciation in the first year?
a. Straight-line.
b. Units-of-production.
c. Double-declining balance.
d. Sum-of-the-year’s digits.
Define and distinguish between current and noncurrent liabilities.
On January 1, 2016, Morrow Inc. purchased a spooler at a cost of $40,000. The
equipment is expected to last eight years and have a residual value of $4,000. During its
eight-year life, the equipment is expected to produce 250,000 units of product. In 2016
and 2017, 42,000 and 76,000 units respectively were produced. Required:
Compute depreciation for 2016 and 2017 and the book value of the spooler at
December 31, 2016 and 2017, assuming the sum-of-the-years’-digits method is used.
Spando Appareluses the LIFO inventory method for external reporting and for income
tax purposes but maintains its internal records using FIFO. The following disclosure
note was included in a recent annual report: Inventories ($ in millions):
2016 2015
Total inventories $625 $604
LIFO reserve (83) (51)
$542 $ 553 The company’s income statement reported cost of goods sold of $3,120
million for the fiscal year ended December 31, 2016.
Required:
1> Spando adjusts the LIFO reserve at the end of its fiscal year. Prepare the December
31, 2016, adjusting entry to record the cost of goods sold adjustment.
2> If Spando had used FIFO to value its inventories, what would cost of goods sold
have been for the 2016 fiscal year?
The balance sheets of Callaway Foods list current assets followed by noncurrent assets
and current liabilities before long-term liabilities. If Callaway Foods prepared its
financial statements according to International Financial Reporting Standards, what
other approach might it take in preparing its balance sheet?
In its 2016 annual report to shareholders, Border Airlines Inc. presented the following
balance sheet information about its liabilities:
In addition, Border presented the following among its note disclosures:
Maturities of long-term debt (including sinking fund requirements) for the next five
years are: 2017 – $421 million; 2018 – $212 million; 2019 – $273 million; 2020 – $1.0
billion; 2021 – $777 million.
Required:
Consider the appropriate classification of these long-term debt obligations. Assuming
no more long-term debt will be issued, what are the implications of the information
above for Border’s liquidity and solvency risk in 2016 and the following years?
What are the five components of postretirement benefit expense?
Shown below is the activity for one of the products of Random Creations: January 1
balance, 80 units @ $50 $4,000
Purchases:
January 18: 40 units @ $51
January 28: 40 units @ $52
Sales:
January 12: 30 units
January 22: 30 units
January 31: 45 units Required: Compute the January 31 ending inventory and cost of
goods sold for January, assuming Random Creations uses LIFO and a periodic
inventory system.
On July 18, 2016, Philly Furniture Factory sold 20 reclining rockers to Dave’s Discount
Furniture for $8,000, subject to terms 2/10, n/30. Philly uses the net method of
accounting for sales discounts.
Required:
1> Prepare the journal entry to record the sale.
2> Prepare the journal entry to record receipt of the payment, assuming the correct
amount was received on July 26, 2016.
3> Prepare the journal entry to record receipt of the payment assuming the correct
amount was received on August 15, 2016.
Why are preferred dividends deducted from net income when calculating EPS?