1) The declining-balance method does not deduct the salvage value in computing the
depreciation base.
2) Stock splits and large stock dividends have the same effect on a companys retained
earnings and total stockholders equity.
3) A markup cancellation can exceed the original markup but a markdown cancellation
cannot exceed the original markdown.
4) Provisions are only recorded if it is likely that the company will have to settle an
obligation at some point in the future.
5) Contingent assets are not reported in the statement of financial position.
6) In most situations, the gross profit percentage is stated as a percentage of cost.
7) Current liabilities are usually recorded and reported in financial statements at their
full maturity value.
8) IFRS, like U.S. GAAP, capitalizes all direct costs in self-constructed assets.
9) Selected amounts from Trent Company’s trial balance of 12/31/14 appear below:
1>Accounts Payable$160,000
2>Accounts Receivable150,000
3>Accumulated DepreciationEquipment200,000
4>Allowance for Doubtful Accounts20,000
5>Bonds Payable500,000
6>Cash150,000
7>Common Stock60,000
8>Equipment960,000
9>Prepaid Insurance30,000
10>Interest Expense10,000
11>Inventory300,000
12>Notes Payable (due 6/1/15)200,000
13>Prepaid Rent210,000
14>Retained Earnings818,000
15>Salaries and Wages Expense328,000
(All of the above accounts have their standard or normal debit or credit balance.)
Part A.Prepare adjusting journal entries at year end, December 31, 2014, based on the
following supplemental information.
a.The equipment has a useful life of 15 years with no salvage value. (Straight-line
method being used.)
b.Interest accrued on the bonds payable is $15,000 as of 12/31/14.
c.Prepaid insurance at 12/31/14 is $25,000.
d.The rent payment of $180,000 covered the six months from November 30, 2014
through May 31, 2015 .
e.Salaries and wages earned but unpaid at 12/31/14, $22,000.
Part B.Indicate the proper balance sheet classification of each of the 15 numbered
accounts in the 12/31/14 trial balance before adjustments by placing appropriate
numbers after each of the following classifications. If the account title would appear on
the income statement, do not put the number in any of the classifications.
a.Current assets
b.Property, plant, and equipment
c.Current liabilities
d.Long-term liabilities
e.Stockholders’ equity
10) Zook Incorporated, had net income for 2015 of $4,500,000. Additional information
is as follows:
Amortization of patents$ 45,000
Depreciation on plant assets1,650,000
Long-term debt:
Bond premium amortization65,000
Interest paid900,000
Provision for doubtful accounts:
Current receivables80,000
Long-term nontrade receivables30,000
What should be the net cash provided by operating activities in the statement of cash
flows for the year ended December 31, 2015, based solely on the above information?
a.$6,320,000
b.$6,370,000
c.$6,240,000
d.$6,340,000
11) The following information is available for Barone Corporation:
January 1, 2015Shares outstanding2,000
April 1, 2015Shares issued320,000
July 1, 2015Treasury shares purchased120,000
October 1, 2015Shares issued in a 100% stock dividend2,200
The number of shares to be used in computing earnings per common share for 2015 is
a.4,520,800
b.4,380,000
c.4,360,000
d.2,730,000
12) A characteristic of generally accepted accounting principles include:
a.a common set of standards and principles
b.standards and principles are based a federal statutes
c.acceptance requires an affirmative vote of Certified Public Accountants
d.practices that become accepted for at least a year by all industry members
13) Balance sheet information is useful for all of the following except to
a.compute rates of return
b.analyze cash inflows and outflows for the period
c.evaluate capital structure
d.assess future cash flows
14) Which of the following is the recommended approach to handling interest incurred
in financing the construction of property, plant and equipment?
a.Capitalize only the actual interest costs incurred during construction
b.Charge construction with all costs of funds employed, whether identifiable or not
c.Capitalize no interest during construction
d.Capitalize interest costs equal to the prime interest rate times the estimated cost of the
asset being constructed
15) Listed below are several information characteristics and accounting principles and
assumptions. Match the letter of each with the appropriate phrase that states its
application. (Items a through k may be used more than once or not at all.)
a.Economic entity assumptiong.Expense recognition principle
b.Going concern assumptionh.Full disclosure principle
c.Monetary unit assumptioni.Relevance characteristic
d.Periodicity assumptionj.Faithful representation characteristic
e.Historical cost principlek.Consistency characteristic
f.Revenue recognition principle
1>Stable-dollar assumption (do not use historical cost principle).
2>The performance obligation is satisfied.
3>Numbers and descriptions match what really existed or happened.
4>Yearly financial reports.
5>Accruals and deferrals in adjusting and closing process. (Do not use going concern.)
6>Useful standard measuring unit for business transactions.
7>Notes as part of necessary information to a fair presentation.
8>Affairs of the business distinguished from those of its owners.
9>Company assumed to have a long life.
10>Valuing assets at amounts originally paid for them.
11>Application of the same accounting principles as in the preceding year.
12>Summarizing significant accounting policies.
13>Presentation of timely information with predictive and confirmatory value.
16) Charlie Corp. is purchasing new equipment with a cash cost of $250,000 for the
assembly line. The manufacturer has offered to accept $57,400 payments at the end of
each of the next six years. What is the interest rate that Charlie Corp. will be paying?
a.8%
b.9%
c.10%
d.11%
17) In a statement of cash flows, proceeds from issuing equity instruments should be
classified as cash inflows from
a.lending activities
b.operating activities
c.investing activities
d.financing activities
18) When a company adopts a pension plan, prior service costs should be charged to
a.accumulated other comprehensive income (PSC)
b.operations of prior periods
c.Other comprehensive income (PSC)
d.retained earnings
19) The percentage-of-completion method must be used when certain conditions exist.
Which of the following is not one of these necessary conditions?
a.Estimates of progress toward completion, revenues, and costs are reasonably
dependable
b.The contractor can be expected to perform the contractual obligation
c.The buyer can be expected to satisfy some of the obligations under the contract
d.The contract clearly specifies the enforceable rights of the parties, the consideration to
be exchanged, and the manner and terms of settlement
20) In no case can “market” in the lower-of-cost-or-market rule be more than
a.estimated selling price in the ordinary course of business
b.estimated selling price in the ordinary course of business less reasonably predictable
costs of completion and disposal
c.estimated selling price in the ordinary course of business less reasonably predictable
costs of completion and disposal and an allowance for an approximately normal profit
margin
d.estimated selling price in the ordinary course of business less reasonably predictable
costs of completion and disposal, an allowance for an approximately normal profit
margin, and an adequate reserve for possible future losses
21) When using the indirect method to prepare the operating section of a statement of
cash flows, which of the following is deducted from net income to compute cash
provided by/used by operating activities?
a.Decrease in accounts receivable
b.Gain on sale of land
c.Amortization of patent
d.All of the above are deducted from net income to arrive at cash flow from operating
activities