1) The accounting profession has concluded that an investment of more than 50 percent
of the voting stock of an investee should lead to a presumption of significant influence
over an investee.
2) Companies should report accounting transactions as they occur, and expense
recognition should not change with the period of time covered under the integral
approach.
3) Under IFRS companies report preference shares at par value as the last item in the
equity section.
4) Companies do not report changes in the fair value of available-for-sale debt
securities as income until the security is sold.
5) Deferred gross profit is generally treated as unearned revenue and classified as a
current liability under the installment-sales method.
6) The purpose of the floor in lower-of-cost-or-market considerations is to avoid
overstating inventory.
7) The first step in the accounting cycle is the journalizing of transactions and selected
other events.
8) A conceptual framework is a coherent system of concepts that flow from an
objective.
9) Companies report the results of operations of a component of a business that will be
disposed of separately from continuing operations.
10) When a company purchases land with the intention of developing it for a particular
use, interest costs associated with those expenditures qualify for interest capitalization.
11) Intangible assets derive their value from the right (claim) to receive cash in the
future.
12) A corporation is incorporated in only one state regardless of the number of states in
which it operates.
13) Swift Company purchased a machine on January 1, 2012, for $600,000. At the date
of acquisition, the machine had an estimated useful life of six years with no salvage.
The machine is being depreciated on a straight-line basis. On January 1, 2015, Swift
determined, as a result of additional information, that the machine had an estimated
useful life of eight years from the date of acquisition with no salvage. An accounting
change was made in 2015 to reflect this additional information.
What is the amount of depreciation expense on this machine that should be charged in
Swift’s income statement for the year ended December 31, 2015?
a.$ 60,000
b.$ 75,000
c.$120,000
d.$150,000
14) A major distinction between temporary and permanent differences is
a.permanent differences are not representative of acceptable accounting practice
b.temporary differences occur frequently, whereas permanent differences occur only
once
c.once an item is determined to be a temporary difference, it maintains that status;
however, a permanent difference can change in status with the passage of time
d.temporary differences reverse themselves in subsequent accounting periods, whereas
permanent differences do not reverse
15) On August 1, 2014, Dambro Company acquired 800, $1,000, 9% bonds at 97 plus
accrued interest. The bonds were dated May 1, 2014, and mature on April 30, 2020,
with interest paid each October 31 and April 30 . The bonds will be added to Dambros
available-for-sale portfolio. The preferred entry to record the purchase of the bonds on
August 1, 2014 is
a.Debt Investments794,000
Cash794,000
b.Debt Investments776,000
Interest Receivable18,000
Cash794,000
c.Debt Investments776,000
Interest Revenue18,000
Cash794,000
d.Debt Investments800,000
Interest Revenue18,000
Discount on Debt Investments24,000
Cash 794,000
16) In a statement of cash flows, receipts from sales of property, plant, and equipment
and other productive assets should generally be classified as cash inflows from
a.operating activities
b.financing activities
c.investing activities
d.selling activities
17) What is meant by comparability when discussing financial accounting information?
a.Information has predictive or confirmatory value
b.Information is reasonably free from error
c.Information that is measured and reported in a similar fashion across companies
d.Information is timely
18) Accounting principles are modified for the following at interim dates.
RevenueLosses
a.YesYes
b.YesNo
c.NoYes
d.NoNo
19) In reporting extraordinary transactions on a statement of cash flows (indirect
method), the
a.gross amount of an extraordinary gain should be deducted from net income
b.net of tax amount of an extraordinary gain should be added to net income
c.net of tax amount of an extraordinary gain should be deducted from net income
d.gross amount of an extraordinary gain should be added to net income
20) On January 1, 2015, McGee Co. had the following balances:
Projected benefit obligation$7,400,000
Fair value of plan assets7,400,000
Other data related to the pension plan for 2015:
Service cost315,000
Contributions to the plan459,000
Benefits paid450,000
Actual return on plan assets444,000
Settlement rate9%
Expected rate of return6%
Instructions
(a)Determine the projected benefit obligation at December 31, 2015 . There are no net
gains or losses.
(b)Determine the fair value of plan assets at December 31, 2015 .
(c)Calculate pension expense for 2015 .
(d)Prepare the journal entry to record pension expense and the contributions for 2015 .
21) The process of identifying, measuring, analyzing, and communicating financial
information needed by management to plan, evaluate, and control an organizations
operations is called
a.financial accounting
b.managerial accounting
c.tax accounting
d.auditing
22) Logan Corp., a company whose stock is publicly traded, provides a noncontributory
defined-benefit pension plan for its employees. The company’s actuary has provided the
following information for the year ended December 31, 2015:
Projected benefit obligation$700,000
Accumulated benefit obligation525,000
Fair value of plan assets825,000
Service cost240,000
Interest on projected benefit obligation24,000
Amortization of prior service cost60,000
Expected and actual return on plan assets82,500
The market-related asset value equals the fair value of plan assets. No contributions
have been made for 2015 pension cost. In its December 31, 2015 balance sheet, Logan
should report a pension asset / liability of
a.Pension liability of $700,000
b.Pension asset of $825,000
c.Pension asset of $125,000
d.Pension liability of $525,000
23) Underwood Company maintains its accounting records using IFRS. The company
recently signed a lease for a new office building, for a lease period of 10 years. Under
the lease agreement, a security deposit of $25,000 is made, with the deposit to be
returned at the expiration of the lease, with interest compounded at 10% per year. What
amount will the company receive at the time the lease expires?
a.$64,844
b.$50,000
c.$153,615
d.$34,639
24) Florence Inc. issued 8,000, 5-year convertible bonds of $2,000 each for $4,000,000
at the beginning of 2012 . The bonds have a stated rate of interest of 9% and interest is
payable annually. Each bond can be convertible into 100 shares with a par value of $10.
The market rate of similar nonconvertible debt is 10%.
Determine the fair value of liability component using the with-and-without method.
a.$3,848,288
b.$2,483,600
c.$1,365,688
d.$ 151,712