1) If a company uses the periodic inventory system, what is the impact on the current
ratio of including goods in transit f.o.b. shipping point in purchases, but not ending
inventory?
a.Overstate the current ratio
b.Understate the current ratio
c.No effect on the current ratio
d.Not sufficient information to determine effect on the current ratio
2) At the end of 2014, Drew Company made four adjusting entries for the following
items:
1>Depreciation expense, $25,000.
2>Expired insurance, $2,200 (originally recorded as prepaid insurance.)
3>Interest payable, $6,000.
4>Rent receivable, $10,000.
In the normal situation, to facilitate subsequent entries, the adjusting entry or entries
that may be reversed is (are)
a.Entry No. 3 only
b.Entry No. 4 only
c.Entry No. 3 and No. 4
d.Entry No. 2, No. 3 and No. 4
3) Given the historical cost of product Z is $40, the selling price of product Z is $50,
costs to sell product Z are $6, the replacement cost for product Z is $41, and the normal
profit margin is 40% of sales price, what is the market value that should be used in the
lower-of-cost-or-market comparison?
a.$40
b.$42
c.$41
d.$22
4) James leases a ski chalet to his best friend, Janet. The lease term is five years with
$20,000 annual payments due at the beginning of each year. What is the present value
of the payments discounted at 8% per annum?
a.$86,243
b.$79,855
c.$76,346
d.$72,488
5) Hiller Corporation makes an investment today (January 1, 2014). They will receive
$50,000 every December 31st for the next six years (2014 2019). If Hiller wants to earn
12% on the investment, what is the most they should invest on January 1, 2014?
a.$205,571
b.$230,239
c.$465,760
d.$454,450
6) According to the FASB’s conceptual framework, which of the following relates to
both relevance and faithful representation?
ComparabilityNeutrality
a.YesYes
b.YesNo
c.NoYes
d.NoNo
7) A temporary difference arises when a revenue item is reported for tax purposes in a
period
After it is reportedBefore it is reported
in financial incomein financial income
a.YesYes
b.YesNo
c.NoYes
d.NoNo
8) On its December 31, 2014, balance sheet, Trump Company reported its investment in
available-for-sale securities, which had cost $600,000, at fair value of $550,000. At
December 31, 2015, the fair value of the securities was $585,000. What should Trump
report on its 2015 income statement as a result of the increase in fair value of the
investments in 2015?
a.$0
b.Unrealized loss of $15,000
c.Realized gain of $35,000
d.Unrealized gain of $35,000
9) At December 31, 2014 the following balances existed on the books of Foxworth
Corporation:
Bonds Payable$4,000,000
Discount on Bonds Payable320,000
Interest Payable100,000
Unamortized Bond Issue Costs240,000
If the bonds are retired on January 1, 2015, at 102, what will Foxworth report as a loss
on redemption?
a.$740,000
b.$640,000
c.$540,000
d.$400,000
10) On January 1, 2013, Orr Co. established a stock appreciation rights plan for its
executives. They could receive cash at any time during the next four years equal to the
difference between the market price of the common stock and a preestablished price of
$16 on 400,000 SARs. The market price is as follows: 12/31/13$21; 12/31/14$18;
12/31/15$19; 12/31/16$20. On December 31, 2015, 65,000 SARs are exercised, and the
remaining SARs are exercised on December 31, 2016 .
Instructions
(a)Prepare a schedule that shows the amount of compensation expense for each of the
four years starting with 2013 .
(b)Prepare the journal entry at 12/31/14 to record compensation expense.
(c)Prepare the journal entry at 12/31/16 to record the exercise of the remaining SARs.
11) Lohmeyer Corporation reports:
Cash provided by operating activities$320,000
Cash used by investing activities110,000
Cash provided by financing activities140,000
Beginning cash balance70,000
What is Lohmeyers ending cash balance?
a.$350,000
b.$420,000
c.$570,000
d.$640,000
12) In accounting for a pension plan, any difference between the pension cost charged
to expense and the payments into the fund should be reported as
a.an offset to the liability for prior service cost
b.pension asset/liability
c.as other comprehensive income (G/L)
d.as accumulated other comprehensive income (PSC)