1) salvage values must be zero.
a.1 is correct
b.2 is correct
c.1 and 2 are correct
d.all are correct
2) under ifrs, sampson company, who has a non-current asset which has been classified
as held-for-sale, should
a.test the asset’s value monthly for impairment
b.value the asset at its depreciated historical cost
c.depreciate the asset over its remaining life
d.not depreciate the asset
3) norton company issues 4,000 shares of its $5 par value common stock having a fair
value of $25 per share and 6,000 shares of its $15 par value preferred stock having a
fair value of $20 per share for a lump sum of $204,000. what amount of the proceeds
should be allocated to the preferred stock?
a.$182,750
b.$127,500
c.$111,273
d.$95,625
4) dyke company’s net incomes for the past three years are presented below:
during the 2014 year-end audit, the following items come to your attention:
1>dyke bought equipment on january 1, 2011 for $294,000 with a $24,000 estimated
salvage value and a six-year life. the company debited an expense account and credited
cash on the purchase date for the entire cost of the asset. (straight-line method)
2>during 2014, dyke changed from the straight-line method of depreciating its cement
plant to the double-declining balance method. the following computations present
depreciation on both bases:
the net income for 2014 was computed using the double-declining balance method, on
the january 1, 2014 book value, over the useful life remaining at that time. the
depreciation recorded in 2014 was $72,000.
3>dyke, in reviewing its provision for uncollectibles during 2014, has determined that
1% is the appropriate amount of bad debt expense to be charged to operations. the
company had used 1/2 of 1% as its rate in 2013 and 2014 when the expense had been
$18,000 and $12,000, respectively. the company recorded bad debt expense under the
new rate for 2014. the company would have recorded $6,000 less of bad debt expense
on december 31, 2014 under the old rate.
instructions
(a)prepare in general journal form the entry necessary to correct the books for the
transaction in part 1 of this problem, assuming that the books have not been closed for
the current year.
(b)compute the net income to be reported each year 2012 through 2014.
(c)assume that the beginning retained earnings balance (unadjusted) for 2012 was
$1,260,000. at what adjusted amount should this beginning retained earnings balance
for 2012 be stated, assuming that comparative financial statements were prepared?
(d)assume that the beginning retained earnings balance (unadjusted) for 2014 is
$1,800,000 and that non-comparative financial statements are prepared. at what
adjusted amount should this beginning retained earnings balance be stated?
5) crane, inc. is a retailer of home appliances and offers a service contract on each
appliance sold. crane sells appliances on installment contracts, but all service contracts
must be paid in full at the time of sale. collections received for service contracts should
be recorded as an increase in a
a.deferred revenue account
b.sales contracts receivable valuation account
c.stockholders’ valuation account
d.service revenue account
6) mann co. has outstanding 60,000 shares of 8% preferred stock with a $10 par value
and 150,000 shares of $3 par value common stock. dividends have been paid every year
except last year and the current year. if the preferred stock is cumulative and
nonparticipating and $300,000 is distributed, the common stockholders will receive
a.$0
b.$204,000
c.$252,000
d.$300,000
7) if a short-term obligation is excluded from current liabilities because of refinancing,
the footnote to the financial statements describing this event should include all of the
following information except
a.a general description of the financing arrangement
b.the terms of the new obligation incurred or to be incurred
c.the terms of any equity security issued or to be issued
d.the number of financing institutions that refused to refinance the debt, if any
8) both u.s. gaap and ifrs prohibit
a.the recognition of a restructuring liability, once a company has committed to a
restructuring plan
b.the recognition of liabilities for future losses
c.communicating information on a restructuring plan to employees, before a liability
can be established
d.all of the above
9) which of the following is not an acceptable approach in applying the
lower-of-cost-or-market method to inventory?
a.inventory location
b.categories of inventory items
c.individual item
d.total of the inventory
10) which of these is generally an example of an extraordinary item?
a.loss incurred because of a strike by employees
b.write-off of deferred marketing costs believed to have no future benefit
c.gain resulting from the devaluation of the u.s. dollar
d.gain resulting from the state exercising its right of eminent domain on a piece of land
used as a parking lot
11) what is the effect of net markups on the cost-retail ratio when using the
conventional retail method?
a.increases the cost-retail ratio
b.no effect on the cost-retail ratio
c.depends on the amount of the net markdowns
d.decreases the cost-retail ratio
12) on january 2, 2012, sloan company issued a 5-year, $6,000,000 note at libor with
interest paid annually. the variable rate is reset at the end of each year. the libor rate for
the first year is 6.8%
sloan company decides it prefers fixed-rate financing and wants to lock in a rate of 6%.
as a result, sloan enters into an interest rate swap to pay 7% fixed and receive libor
based on $8 million. the variable rate is reset to 7.4% on january 2, 2013.
instructions
(a)compute the net interest expense to be reported for this note and related swap
transactions as of december 31, 2012.
(b)compute the net interest expense to be reported for this note and related swap
transactions as of december 31, 2013.
13) all of the following are true regarding the revaluation model allowed under ifrs
except
a.once selected, the revaluation policy applies to an entire class of property, plant and
equipment
b.revaluations must be made regularly to ensure that the carrying value is not materially
different from fair value
c.after initial recognition, the revalued amount is fair value less subsequent depreciation
and impairment losses
d.when an asset is revalued, any increase in carrying amount is reported as
miscellaneous revenue
14) ben, inc. follows u.s. gaap for its external financial reporting. ben, inc. owns 25% of
the outstanding stock of black, inc. and accordingly uses the equity method to account
for its investment. which of the following is true regarding ben, inc.s policies related to
black, inc.?
a.ben, inc. will increase the investment account for its pro-rata share of black, inc.s net
loss for the year
b.ben, inc. will increase the investment account for its pro-rata share of the dividends
paid out by black, inc. for the year
c.ben, inc. will conform the accounting policies of black, inc. to its own accounting
policies
d.none of the above is true regarding how ben, inc. accounts for its investment in black,
inc
15) which of these statements regarding the ifrs and u.s. gaap is correct?
a.u.s. gaap is considered to be “principles-based” and more detailed than ifrs
b.u.s. gaap is considered to be “rules-based” and less detailed than ifrs
c.ifrs is considered to be “principles-based” and less detailed than u.s. gaap
d.both u.s. gaap and ifrs are considered to be “rules-based”, but u.s. gaap tends to be
more complex
16) whether a business is successful and thrives is determined by
a.markets
b.free enterprise
c.competition
d.all of these
17) income taxes are allocated to
a.extraordinary items
b.discontinued operations
c.prior period adjustments
d.all of these
18) hudson, inc. is a calendar-year corporation. its financial statements for the years
2013 and 2012 contained errors as follows:
assume that the proper correcting entries were made at december 31, 2012. by how
much will 2013 income before taxes be overstated or understated?
a.$1,500 understated
b.$1,500 overstated
c.$3,000 overstated
d.$7,500 overstated
19) cost estimates at the end of the second year indicate a loss will result on completion
of the entire contract. which of the following statements is correct?
a.under the completed-contract method, the loss is not recognized until the year the
construction is completed
b.under the percentage-of-completion method, the gross profit recognized in the first
year must not be changed
c.under the completed-contract method, when the billings exceed the accumulated
costs, the amount of the estimated loss is reported as a current liability
d.under the completed-contract method, when the construction in process balance
exceeds the billings, the estimated loss is added to the accumulated costs