1) Savings accounts are usually classified as cash on the balance sheet.
2) IFRS allows for reduced disclosure of contingent liabilities if the disclosure could
increase the company`s chance of losing a lawsuit.
3) Comprehensive income includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners.
4) IFRS requires that noncash investing and financing activities be excluded from the
statement of cash flows.
5) A provision differs from other liabilities in that there is greater uncertainty about the
timing and amount of settlement.
6) A financial projection is a set of prospective financial statements that present a
companys expected financial position and results of operations.
7) The major objection to the straight-line method is that it assumes the assets economic
usefulness and repair expense are the same each year.
8) An example of an internal event would be a flood that destroyed a portion of a
company’s inventory.
9) The difference between the expected return and the actual return is referred to as the
unexpected gain or loss.
10) IFRS allows reversal of impairment losses when there has been a change in
economic conditions or in the expected use of the asset. Under U.S GAAP, impairment
losses cannot be reversed for assets to be held and used.
11) A journal entry to record the sale of inventory on account will include a
a.debit to Inventory
b.debit to Accounts Receivable
c.debit to Sales Revenue
d.credit to Cost of Goods Sold
12) Ely Co. bought a patent from Baden Corp. on January 1, 2015, for $600,000. An
independent consultant retained by Ely estimated that the remaining useful life at
January 1, 2015 is 15 years. Its unamortized cost on Badens accounting records was
$300,000; the patent had been amortized for 5 years by Baden. How much should be
amortized for the year ended December 31, 2015 by Ely Co.?
a.$0
b.$30,000
c.$40,000
d.$60,000
13) Under the allowance method of recognizing uncollectible accounts, the entry to
write off an uncollectible account
a.increases the allowance for uncollectible accounts
b.has no effect on the allowance for uncollectible accounts
c.has no effect on net income
d.decreases net income
14) Product costs include each of the following except
a.overhead
b.officers salaries
c.material
d.labor
15) An example of an inventory accounting policy that should be disclosed in a
Summary of Significant Accounting Policies is the
a.amount of income resulting from the involuntary liquidation of LIFO
b.major backlogs of inventory orders
c.method used for pricing inventory
d.composition of inventory into raw materials, work-in-process, and finished goods
16) Differing measures of the pension obligation can be based on
a.all years of serviceboth vested and nonvestedusing current salary levels
b.only the vested benefits using current salary levels
c.both vested and nonvested service using future salaries
d.All of these answers are correct
17) Harlan Mining Co. has recently decided to go public and has hired you as an
independent CPA. One statement that the enterprise is anxious to have prepared is a
statement of cash flows. Financial statements of Harlan Mining Co. for 2015 and 2014
are provided below.
BALANCE SHEETS
12/31/1512/31/14
Cash$306,000$ 144,000
Accounts receivable270,000162,000
Inventory288,000360,000
Property, plant and equipment$456,000$720,000
Less accumulated depreciation (240,000) 216,000 (228,000) 492,000
$1,080,000$1,158,000
Accounts payable$ 132,000 $ 72,000
Income taxes payable264,000294,000
Bonds payable270,000450,000
Common stock162,000162,000
Retained earnings 252,000 180,000
$1,080,000$1,158,000
INCOME STATEMENT
For the Year Ended December 31, 2015
Sales revenue$6,300,000
Cost of sales 5,364,000
Gross profit936,000
Selling expenses$450,000
Administrative expenses 144,000 594,000
Income from operations342,000
Interest expense 54,000
Income before taxes288,000
Income taxes 72,000
Net income$ 216,000
The following additional data were provided:
1>Dividends for the year 2015 were $144,000.
2>During the year, equipment was sold for $180,000. This equipment cost $264,000
originally and had a book value of $216,000 at the time of sale. The loss on sale was
incorrectly charged to cost of sales.
3>All depreciation expense is in the selling expense category.
Questions 51 through 55 relate to a statement of cash flows (direct method) for the year
ended December 31, 2015, for Harlan Mining Company.
The net cash provided (used) by investing activities is
a.$(264,000)
b.$36,000
c.$180,000
d.$(216,000)
18) Which of the following best describes the accrual method of accounting for
warranty costs?
a.Expensed when paid
b.Expensed when warranty claims are certain
c.Expensed based on estimate in year of sale
d.Expensed when incurred
19) If ending accounts receivable exceeds the beginning accounts receivable
a.cash collections during the period exceed the amount of revenue recognized
b.net income for the period is less than the amount of cash-basis income
c.no cash was collected during the period
d.cash collections during the year are less than the amount of revenue recognized
20) Fleming Company has the following cumulative taxable temporary differences:
12/31/15 12/31/14
$1,280,000$1,800,000
The tax rate enacted for 2015 is 40%, while the tax rate enacted for future years is 30%.
Taxable income for 2015 is $3,200,000 and there are no permanent differences.
Flemings pretax financial income for 2015 is:
a.$1,920,000
b.$2,680,000
c.$3,460,000
d.$4,480,000
21) Mune Company recorded journal entries for the declaration of $150,000 of
dividends, the $96,000 increase in accounts receivable for services rendered, and the
purchase of equipment for $63,000. What net effect do these entries have on owners
equity?
a.Decrease of $213,000
b.Decrease of $117,000
c.Decrease of $54,000
d.Increase of $33,000
22) Which of the following is an advantage of the single-step income statement over the
multiple-step income statement?
a.It reports gross profit for the year
b.Expenses are classified by function
c.It matches costs and expenses with related revenues
d.It does not imply that one type of revenue or expense has priority over another
23) If a company offers additional considerations to convertible bondholders in order to
encourage conversion, it is called a(an):
a.forced conversion
b.sweetener
c.additional conversion
d.end conversion
24) What is a possible danger if politics plays too big a role in accounting standard
setting?
a.Accounting standards that are not truly generally accepted
b.Individuals may influence the standards
c.User groups become active
d.The FASB delegates its authority to elected officials
25) Tracy Company owns 4,000 of the 10,000 outstanding shares of Penn Corporation
common stock. During 2015, Penn earns $300,000 and pays cash dividends of
$100,000.
If the beginning balance in the investment account was $600,000, the balance at
December 31, 2015 should be
a.$600,000
b.$680,000
c.$720,000
d.$800,000