1) Farmer Company issues $25,000,000 of 10-year, 9% bonds on March 1, 2014 at 97
plus accrued interest. The bonds are dated January 1, 2014, and pay interest on June 30
and December 31 . What is the total cash received on the issue date?
a.$24,250,000
b.$25,562,500
c.$24,625,000
d.$23,875,000
2) Eilert Construction Company had a contract starting April 2015, to construct a
$21,000,000 building that is expected to be completed in September 2016, at an
estimated cost of $19,250,000. At the end of 2015, the costs to date were $8,855,000
and the estimated total costs to complete had not changed. The progress billings during
2015 were $4,200,000 and the cash collected during 2015 was $2,800,000. Eilert uses
the percentage-of-completion method.
At December 31, 2015, Eilert would report Construction in Process in the amount of
a.$9,660,000
b.$8,855,000
c.$8,260,000
d.$805,000
3) Which of the following assets do not qualify for capitalization of interest costs
incurred during construction of the assets?
a.Assets under construction for an enterprise’s own use
b.Assets intended for sale or lease that are produced as discrete projects
c.Assets financed through the issuance of long-term debt
d.Assets not currently undergoing the activities necessary to get them ready for use
4) Garber, Inc. accounts for all sales of its merchandise on the installment basis.
Following is the unadjusted trial balance at 12/31/16:
Cash$ 64,200
Installment Accounts Receivable2014170,000
Installment Accounts Receivable2015400,000
Installment Accounts Receivable2016750,000
Inventory, 1/1/16103,000
Repossessed Merchandise22,000
Accounts Payable$ 136,000
Deferred Gross Profit201484,000
Deferred Gross Profit2015175,000
Common Stock600,000
Retained Earnings406,200
Installment Sales1,000,000
Purchases738,000
Loss on Repossession4,000
Operating Expenses 150,000
$2,401,200$2,401,200
Additional Data:2014 Gross Profit Rate = 32%; Inventory 12/31/16 = $159,000;
Repossessed merchandise 12/31/16 = $14,000;
Merchandise sold in 2015 was repossessed in 2016 and the following entry was
prepared (assume correctly):
Deferred Gross Profit201514,000
Repossessed Merchandise22,000
Loss on Repossession 4,000
Installment Accounts Receivable201540,000
Instructions
(a)Determine collections during 2016 on Installment A/R for each of the years 2014,
2015, and 2016 .
(b)Without prejudice to your answer in Part (a), assume that total collections on
Installment Accounts Receivable during 2016 were $1,060,000; $220,000 from 2014,
$300,000 from 2015, and $540,000 from 2016 . Prepare all necessary adjusting and
closing entries at 12/31/16.
5) Which of the following is not a capital expenditure?
a.Repairs that maintain an asset in operating condition
b.An addition
c.A betterment
d.A replacement
6) On December 31, 2015, Burton, Inc. leased machinery with a fair value of
$1,260,000 from Cey Rentals Co. The agreement is a six-year noncancelable lease
requiring annual payments of $240,000 beginning December 31, 2015 . The lease is
appropriately accounted for by Burton as a capital lease. Burtons incremental
borrowing rate is 11%. Burton knows the interest rate implicit in the lease payments is
10%.
The present value of an annuity due of 1 for 6 years at 10% is 4.7908.
The present value of an annuity due of 1 for 6 years at 11% is 4.6959.
In its December 31, 2015 balance sheet, Burton should report a lease liability of
a.$909,792
b.$1,020,000
c.$1,127,016
d.$1,149,792
7) What is the relationship between the present value factor of an ordinary annuity and
the present value factor of an annuity due for the same interest rate?
a.The ordinary annuity factor is not related to the annuity due factor
b.The annuity due factor equals one plus the ordinary annuity factor for n-1 periods
c.The ordinary annuity factor equals one plus the annuity due factor for n+1 periods
d.The annuity due factor equals the ordinary annuity factor for n+1 periods minus one
8) Peterson Company purchased machinery for $800,000 on January 1, 2011 .
Straight-line depreciation has been recorded based on a $50,000 salvage value and a
5-year useful life. The machinery was sold on May 1, 2015 at a gain of $15,000. How
much cash did Peterson receive from the sale of the machinery?
a.$115,000
b.$135,000
c.$165,000
d.$215,000
9) Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible
preferred stock, and $1,000,000 of 5% convertible bonds outstanding during 2015 . The
preferred stock is convertible into 40,000 shares of common stock. During 2015,
Hanson paid dividends of $.60 per share on the common stock and $2 per share on the
preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The
net income for 2015 was $400,000 and the income tax rate was 30%.
Basic earnings per share for 2015 is (rounded to the nearest penny)
a.$1.47
b.$1.61
c.$1.67
d.$1.80
10) On June 1, 2014, Penny Corp. sold merchandise with a list price of $50,000 to Linn
on account. Penny allowed trade discounts of 30% and 20%. Credit terms were 2/15,
n/40 and the sale was made f.o.b. shipping point. Penny prepaid $1,000 of delivery
costs for Linn as an accommodation. On June 12, 2014, Penny received from Linn a
remittance in full payment amounting to
a.$27,440
b.$28,420
c.$28,440
d.$27,990
11) Presented below is information related to copyrights owned by Wamser Corporation
at December 31, 2014 .
Cost$4,500,000
Carrying amount3,900,000
Expected future net cash flows3,500,000
Fair value2,400,000
Assume Wamser will continue to use this asset in the future. As of December 31, 2014,
the copyrights have a remaining useful life of 5 years.
Instructions
(a)Prepare the journal entry (if any) to record the impairment of the asset at December
31, 2014 .
(b)Prepare the journal entry to record amortization expense for 2015 .
(c)The fair value of the copyright at December 31, 2015 is $2,500,000. Prepare the
journal entry (if any) necessary to record this increase in fair value.
12) The 12% bonds payable of Nyman Co. had a carrying amount of $3,120,000 on
December 31, 2014 . The bonds, which had a face value of $3,000,000, were issued at a
premium to yield 10%. Nyman uses the effective-interest method of amortization.
Interest is paid on June 30 and December 31 . On June 30, 2015, several years before
their maturity, Nyman retired the bonds at 104 plus accrued interest. The loss on
retirement, ignoring taxes, is
a.$0
b.$24,000
c.$37,200
d.$120,000