1) Companies should recognize the entire increase in projected benefit obligation due to
a plan initiation or amendment as pension expense in the year of amendment.
2) The most popular input measure used to determine the progress toward completion in
long-term contracts is the cost-to-cost basis.
3) All claims held against customers and others for money, goods, or services are
reported as current assets.
4) Present value is the value now of a future sum or sums discounted assuming
compound interest.
5) Assets classified as Property, Plant, and Equipment must be both long-term in nature
and possess physical substance.
6) Research and development costs are recorded as intangible assets if it is felt they will
provide economic benefits in future years.
7) Companies recognize profit under the cost-recovery method only when cash
collections exceed the total cost of the goods sold.
8) IFRS records market in the lower-of-cost-or-market differently than U.S. GAAP.
9) Under IFRS, companies are not required to prepare a statement of cash flows if the
transactions are reported elsewhere in the financial statements.
10) For receivables sold with recourse, the seller guarantees payment to the purchaser if
the debtor fails to pay.
11) Equity security holdings between 20 and 50 percent indicates that the investor has a
controlling interest over the investee.
12) When a company makes an unconditional promise to pledge an asset in the future,
the company should report the contribution expense and related payable immediately.
13) Managements discussion and analysis section covers three financial aspects of an
enterprises business-liquidity, profitability, and solvency.
14) To compute the year-to-date tax, companies apply the estimated annual effective tax
rate to the year-to-date ordinary income at the end of each interim period.
15) Midland Company follows U.S. GAAP for its external financial reporting whereas
Bailey Company follows IFRS for its external financial reporting. The remaining
service lives of employees at both firms is estimated to be 10 years. The following
information is available for each company at December 31, 2015 related to their
respective defined-benefit pension plans.
MidlandBailey
Net of pension assets and liabilities$110,000$140,000
Prior service cost$230,000$175,000
What is the amount of prior service cost recognized by each company in its income
statement for the year ended December 31, 2015?
MidlandBailey
a.$230,000$175,000
b.$ 23,000$175,000
c.$ 23,000$ 17,500
d.$230,000$ 17,500
16) Elkins Corporation uses the perpetual inventory method. On March 1, it purchased
$30,000 of inventory, terms 2/10, n/30. On March 3, Elkins returned goods that cost
$3,000. On March 9, Elkins paid the supplier. On March 9, Elkins should credit
a.purchase discounts for $600
b.inventory for $600
c.purchase discounts for $540
d.inventory for $540
17) In 2014, Benfer Corporation reported net income of $210,000. It declared and paid
common stock dividends of $24,000 and had a weighted average of 70,000 common
shares outstanding. Compute the earnings per share to the nearest cent.
a.$2.66
b.$2.10
c.$2.70
d.$3.00
18) The major difference between the service life of an asset and its physical life is that
a.service life refers to the time an asset will be used by a company and physical life
refers to how long the asset will last
b.physical life is the life of an asset without consideration of salvage value and service
life requires the use of salvage value
c.physical life is always longer than service life
d.service life refers to the length of time an asset is of use to its original owner, while
physical life refers to how long the asset will be used by all owners
19) Surf Company follows IFRS for its external financial reporting. The following
amounts were available at December 31, 2013:
Interest paid$22,000
Dividends paid 16,000
Taxes paid 37,000
Under IFRS, what is the maximum amount that could be reported for cash used by
operating activities for Surf Company for the year ended December 31, 2013?
a.$59,000
b.$38,000
c.$53,000
d.$75,000
20) Under IFRS, what is recorded as compensation expense for all employee
share-purchase plans?
a.Par value of shares
b.Amount paid by employees
c.Amount of discount
d.Amount transferred to share premium
21) Composite provides extended service contracts on electronic equipment sold
through major retailers. The standard contract is for four years. During the current year,
Composite provided 42,000 such warranty contracts at an average price of $81 each.
Related to these contracts, the company spent $400,000 servicing the contracts during
the current year and expects to spend $2,100,000 more in the future. What is the net
profit that the company will recognize in the current year related to these contracts?
a.$902,000
b.$3,002,000
c.$400,000
d.$450,500
22) Written, Inc. has outstanding 600,000 shares of $2 par common stock and 120,000
shares of no-par 8% preferred stock with a stated value of $5. The preferred stock is
cumulative and nonparticipating. Dividends have been paid in every year except the
past two years and the current year.
Assuming that $126,000 will be distributed as a dividend in the current year, how much
will the preferred stockholders receive?
a.$42,000
b.$48,000
c.$96,000
d.$126,000
23) The amount of the liability for compensated absences should be based on
1>the current rates of pay in effect when employees earn the right to compensated
absences.
2>the future rates of pay expected to be paid when employees use compensated time.
3>the present value of the amount expected to be paid in future periods.
a.1
b.2
c.3
d.Either 1 or 2 is acceptable
24) What is the relationship between present value and the concept of a liability?
a.Present values are used to measure certain liabilities
b.Present values are not used to measure liabilities
c.Present values are used to measure all liabilities
d.Present values are only used to measure long-term liabilities
25) Kesler, Inc. estimates the cost of its physical inventory at March 31 for use in an
interim financial statement. The rate of markup on cost is 25%. The following account
balances are available:
Inventory, March 1$440,000
Purchases344,000
Purchase returns16,000
Sales during March600,000
The estimate of the cost of inventory at March 31 would be
a.$168,000
b.$288,000
c.$318,000
d.$224,000
26) The Financial Accounting Standards Board (FASB) was proposed by the
a.American Institute of Certified Public Accountants
b.Accounting Principles Board
c.Study Group on the Objectives of Financial Statements
d.Study Group on establishment of Accounting Principles (Wheat Committee)
27) At December 31, 2014, Sues Boutique had 1,000 gift certificates outstanding, which
had been sold to customers during 2014 for $60 each. Sues operates on a gross profit of
60% of its sales. What amount of revenue pertaining to the 1,000 outstanding gift
certificates should be deferred at December 31, 2014?
a.$0
b.$24,000
c.$36,000
d.$60,000
28) Franco Company uses IFRS and owns property, plant and equipment with a
historical cost of 5,000,000 euros. At December 31, 2013, the company reported a
valuation reserve of
8,565,000 euros. At December 31, 2014, the property, plant and equipment was
appraised at
5,525,000 euros.
The property, plant and equipment will be reported on the December 31, 2014 statement
of financial position at
a.5,000,000 euros
b.5,525,000 euros
c.8,565,000 euros
d.9,090,000 euros
29) King Corporation owns machinery with a book value of $380,000. It is estimated
that the machinery will generate future cash flows of $350,000. The machinery has a
fair value of $280,000. King should recognize a loss on impairment of
a.$ -0-
b.$ 30,000
c.$100,000
d.$ 70,000
30) If bonds are issued initially at a premium and the effective-interest method of
amortization is used, interest expense in the earlier years will be
a.greater than if the straight-line method were used
b.greater than the amount of the interest payments
cthe same as if the straight-line method were used
d.less than if the straight-line method were used
31) Steinert Company has the following items at year-end:
Cash in bank$35,000
Petty cash500
Short-term paper with maturity of 2 months8,200
Postdated checks 2,100
Steinert should report cash and cash equivalents of
a.$35,000
b.$35,500
c.$43,700
d.$45,800
32) Which of the following is a characteristic of a perpetual inventory system?
a.Inventory purchases are debited to a Purchases account
b.Inventory records are not kept for every item
c.Cost of goods sold is recorded with each sale
d.Cost of goods sold is determined as the amount of purchases less the change in
inventory
33) On July 1, 2014, Ellison Company granted Sam Wine, an employee, an option to
buy 1,000 shares of Ellison Co. stock for $30 per share, the option exercisable for 5
years from date of grant. Using a fair value option pricing model, total compensation
expense is determined to be $4,500. Wine exercised his option on October 1, 2014 and
sold his 1,000 shares on December 1, 2014. Quoted market prices of Ellison Co. stock
in 2014 were:
July 1$30 per share
October 1$36 per share
December 1$40 per share
The service period is for three years beginning January 1, 2014 . As a result of the
option granted to Wine, using the fair value method, Ellison should recognize
compensation expense on its books in the amount of
a.$4,500
b.$1,500
c.$1,125
d.$0
34) Briefly describe some of the similarities and differences between U.S. GAAP and
IFRS with respect to the accounting for cash and receivables.
35) Wilcox Corporation had income from continuing operations of $750,000 (after
taxes) in 2014 . In addition, the following information, which has not been considered,
is as follows.
1>In 2014, Wilcox experienced an uninsured earthquake loss in the amount of
$290,000.
2>A machine was sold for $140,000 cash during the year at a time when its book value
was $110,000. (Depreciation has been properly recorded.) The company often sells
machinery of this type.
3>Wilcox decided to discontinue its stereo division in 2014 . During the current year,
the loss on the disposal of this component of the business was $180,000 less applicable
taxes.
Instructions
Present in good form the income statement of Wilcox Corporation for 2014 starting
with “income from continuing operations.” Assume that Wilcox’s tax rate is 30% and
200,000 shares of common stock were outstanding during the year.
36) Prepare the necessary journal entries to record the following transactions relating to
the long-term issuance of bonds of Pitts Co.:
March 1
Issued $3,000,000 face value Pitts Co. second mortgage, 8% bonds for $3,270,600,
including accrued interest. Interest is payable semiannually on December 1 and June 1
with the bonds maturing 10 years from this past December 1 . The bonds are callable at
102 .
June 1
Paid semiannual interest on Pitts Co. bonds. (Use straight-line amortization of any
premium or discount.)
December 1
Paid semiannual interest on Pitts Co. bonds and purchased $1,500,000 face value bonds
at the call price in accordance with the provisions of the bond indenture.
37) During 2014, Barden Building Company constructed various assets at a total cost of
$12,600,000. The weighted average accumulated expenditures on assets qualifying for
capitalization of interest during 2014 were $8,400,000. The company had the following
debt outstanding at December 31, 2014:
1>10%, 5-year note to finance construction of various assets,
dated January 1, 2014, with interest payable annually on January 1$5,400,000
2>12%, ten-year bonds issued at par on December 31, 2008, with interest
payable annually on December 316,000,000
3>9%, 3-year note payable, dated January 1, 2013, with interest payable
annually on January 13,000,000
Instructions
Compute the amounts of each of the following (show computations).
1>Avoidable interest.
2>Total interest to be capitalized during 2014 .
38) During 2015 equipment was sold for $73,000. This equipment cost $120,000 and
had a book value of $72,000. Accumulated depreciation for equipment was $325,000 at
12/31/14 and $310,000 at 12/31/15.
Instructions
What three items would be shown on a statement of cash flows (indirect method) from
this information? Show your calculations.
39) Given the following account information for Leong Corporation, prepare a balance
sheet in report form for the company as of December 31, 2014 . All accounts have
normal balances.
Equipment60,000
Interest Expense2,400
Interest Payable600
Retained Earnings?
Dividends50,400
Land137,320
Accounts Receivable102,000
Bonds Payable78,000
Notes Payable (due in 6 months)29,400
Common Stock70,000
Accumulated Depreciation – Equip.10,000
Prepaid Advertising5,000
Service Revenue341,400
Buildings80,400
Supplies1,860
Income Taxes Payable3,000
Utilities Expense1,320
Advertising Expense1,560
Salaries and Wages Expense53,040
Salaries and Wages Payable900
Accumulated Depr. – Bld.15,000
Cash45,000
Depreciation Expense8,000
40) Answer each of the following questions.
1>A plant asset purchased for $400,000 has an estimated life of 10 years and a residual
value of $20,000. Depreciation for the second year of use, determined by the
declining-balance method at twice the straight-line rate is $_____________.
2>A plant asset purchased for $330,000 at the beginning of the year has an estimated
life of 5 years and a residual value of $30,000. Depreciation for the third year,
determined by the sum-of-the-years’-digits method is $______________.
3>A plant asset with a cost of $320,000 and accumulated depreciation of $90,000, is
given together with cash of $120,000 in exchange for a similar asset worth $330,000.
The gain or loss recognized on the disposal (indicate by “G” or “L”) is
$______________.
4>A plant asset with a cost of $270,000, estimated life of 5 years, and residual value of
$45,000, is depreciated by the straight-line method. This asset is sold for $190,000 at
the end of the second year of use. The gain or loss on the disposal (indicate by “G” or
“L”) is $___________.
41) Kohl Company lent $49,587 to Hemingway, Inc, accepting Hemingway’s 2-year,
$60,000, zero-interest-bearing note. The implied interest rate is 10%. Prepare Kohl’s
journal entries for the initial transaction, recognition of interest each year, and the
collection of $60,000 at maturity.