1) A statement of cash flows prepared according to IFRS requirements must be prepared
using the direct method for operating activities.
2) Revenues are realized when a company exchanges goods and services for cash or
claims to cash.
3) A qualified opinion is issued when the exception to the standard opinion is not of
sufficient magnitude to invalidate the statements as a whole.
4) Both the FASB and IASB have indicated that they believe all financial instruments
should be recorded and reported at fair value.
5) Internally generated intangible assets are initially recorded at fair value.
6) Leasing equipment reduces the risk of obsolescence to the lessee and in many cases
passes the risk of residual value to the lessor.
7) The rents that comprise an annuity due earn no interest during the period in which
they are originally deposited.
8) Nondetachable warrants, as with detachable warrants, require an allocation of the
proceeds between the bonds and the warrants.
9) The net amount reported for short-term receivables is not affected when a specific
account receivable is determined to be uncollectible.
10) LIFO is inappropriate where unit costs tend to decrease as production increases.
11) Limited-life intangibles are amortized by systematic charges to expense over their
useful life.
12) Companies report the amount of social security taxes withheld from employees as
well as the companies matching portion as current liabilities until they are remitted.
13) The following information pertains to Parsons Co.:
Preferred stock, cumulative:
Par value per share$100
Dividend rate8%
Shares outstanding10,000
Dividends in arrearsnone
Common stock:
Par value per share$10
Shares issued120,000
Dividends paid per share$2.10
Market price per share$48.00
Additional paid-in capital$500,000
Unappropriated retained earnings (after closing)$270,000
Retained earnings appropriated for contingencies$300,000
Common treasury stock:
Number of shares10,000
Total cost$250,000
Net income$630,000
Instructions
Compute (assume no changes in balances during the past year):
(a)Total amount of stockholders equity in the balance sheet
(b)Earnings per share of common stock
(c)Book value per share of common stock
(d)Payout ratio of common stock
(e)Return on common stock equity
14) What might a manager do during the last quarter of a fiscal year if she wanted to
improve current annual net income?
a.Increase research and development activities
b.Relax credit policies for customers
c.Delay shipments to customers until after the end of the fiscal year
d.Delay purchases from suppliers until after the end of the fiscal year
15) On August 31, a hurricane destroyed a retail location of Vinny’s Clothier including
the entire inventory on hand at the location. The inventory on hand as of June 30 totaled
$960,000. Since June 30 until the time of the hurricane, the company made purchases of
$255,000 and had sales of $750,000. Assuming the rate of gross profit to selling price is
40%, what is the approximate value of the inventory that was destroyed?
a.$960,000
b.$544,500
c.$615,000
d.$765,000
16) The balance sheet contributes to financial reporting by providing a basis for all of
the following except
a.computing rates of return
b.evaluating the capital structure of the enterprise
c.determining the increase in cash due to operations
d.assessing the liquidity and financial flexibility of the enterprise
17) Turner Corporation had the following information in its financial statements for the
year ended 2014 and 2015:
Cash dividends for the year 2015$ 15,000
Net income for the year ended 2015130,000
Market price of stock, 12/31/1524
Common stockholders equity, 12/31/142,200,000
Common stockholders equity, 12/31/152,400,000
Outstanding shares, 12/31/15150,000
Preferred dividends for the year ended 201530,000
What is the book value per share for Turner Corporation for the year ended 2015?
a.$15.80
b.$16.00
c.$14.67
d.$15.70
18) When the cash proceeds from a bond issued with detachable stock warrants exceed
the sum of the par value of the bonds and the fair market value of the warrants, the
excess should be credited to
a.additional paid-in capital from stock warrants
b.retained earnings
c.a liability account
d.premium on bonds payable
19) Which of the following situations may give rise to unearned revenue?
a.Providing trade credit to customers
b.Selling inventory
c.Selling magazine subscriptions
d.Providing manufacturer warranties
20) In applying the treasury stock method to determine the dilutive effect of stock
options and warrants, the proceeds assumed to be received upon exercise of the options
and warrants
a.are used to calculate the number of common shares repurchased at the average market
price, when computing diluted earnings per share
b.are added, net of tax, to the numerator of the calculation for diluted earnings per share
c.are disregarded in the computation of earnings per share if the exercise price of the
options and warrants is less than the ending market price of common stock
d.none of these
21) Deferred tax amounts that are related to specific assets or liabilities should be
classified as current or noncurrent based on
a.their expected reversal dates
b.their debit or credit balance
c.the length of time the deferred tax amounts will generate future tax deferral benefits
d.the classification of the related asset or liability
22) A company buys an oil rig for $2,000,000 on January 1, 2014 . The life of the rig is
10 years and the expected cost to dismantle the rig at the end of 10 years is $400,000
(present value at 10% is $154,220). 10% is an appropriate interest rate for this
company. What expense should be recorded for 2014 as a result of these events?
a.Depreciation expense of $240,000
b.Depreciation expense of $200,000 and interest expense of $15,422
c.Depreciation expense of $200,000 and interest expense of $40,000
d.Depreciation expense of $215,422 and interest expense of $15,422
23) Sawyer Company self-insures its property for fire and storm damage. If the
company were to obtain insurance on the property, it would cost them $1,500,000 per
year. The company estimates that on average it will incur losses of $1,200,000 per year.
During 2014, $525,000 worth of losses were sustained. How much total expense and/or
loss should be recognized by Sawyer Company for 2014?
a.$525,000 in losses and no insurance expense
b.$525,000 in losses and $675,000 in insurance expense
c.$0 in losses and $1,200,000 in insurance expense
d.$0 in losses and $1,500,000 in insurance expense
24) In certain cases, revenue is recognized at the completion of production even though
no sale has been made. Which of the following statements is not true?
a.Examples involve precious metals or farm equipment
b.The products possess immediate marketability at quoted prices
c.No significant costs are involved in selling the product
d.All of these statements are true
25) The generally accepted method of accounting for gains or losses from the early
extinguishment of debt treats any gain or loss as
a.an adjustment to the cost basis of the asset obtained by the debt issue
b.an amount that should be considered a cash adjustment to the cost of any other debt
issued over the remaining life of the old debt instrument
c.an amount received or paid to obtain a new debt instrument and, as such, should be
amortized over the life of the new debt
d.a difference between the reacquisition price and the net carrying amount of the debt
which should be recognized in the period of redemption
26) From the lessees perspective, in the earlier years of a lease, the use of the
a.capital method will enable the lessee to report higher income, compared to the
operating method
b.capital method will cause debt to increase, compared to the operating method
c.operating method will cause income to decrease, compared to the capital method
d.operating method will cause debt to increase, compared to the capital method
27) In a defined-contribution plan, a formula is used that
a.defines the benefits that the employee will receive at the time of retirement
b.ensures that pension expense and the cash funding amount will be different
c.requires an employer to contribute a certain sum each period based on the formula
d.ensures that employers are at risk to make sure funds are available at retirement
28) Grimm Company has 2,400,000 shares of common stock outstanding on December
31, 2014 . An additional 150,000 shares of common stock were issued on July 1, 2015,
and 300,000 more on October 1, 2015 . On April 1, 2015, Grimm issued 6,000, $1,000
face value, 8% convertible bonds. Each bond is convertible into 40 shares of common
stock. No bonds were converted into common stock in 2015. What is the number of
shares to be used in computing basic earnings per share and diluted earnings per share,
respectively, for the year ended December 31, 2015?
a.2,550,000 and 2,730,000
b.2,550,000 and 2,550,000
c.2,550,000 and 2,790,000
d.2,850,000 and 3,030,000
29) In January 2014, Fritz Mining Corporation purchased a mineral mine for
$6,300,000 with removable ore estimated by geological surveys at 2,500,000 tons. The
property has an estimated value of $600,000 after the ore has been extracted. Fritz
incurred $1,725,000 of development costs preparing the property for the extraction of
ore. During 2014, 390,000 tons were removed and 350,000 tons were sold. For the year
ended December 31, 2014, Fritz should include what amount of depletion in its cost of
goods sold?
a.$798,000
b.$889,200
c.$1,039,500
d.$1,158,000
30) The AICPAs Code of Professional Conduct requires that members prepare financial
statements in accordance with generally accepted accounting principles.
31) Sales salaries paid during 2014 were $85,000. Advances to salesmen were $1,100
on January 1, 2014, and $800 on December 31, 2014 . Sales salaries accrued were
$1,360 on January 1, 2014, and $1,880 on December 31, 2014 . Show the computation
of sales salaries on an accrual basis for 2014 .
32) Financial accounting is the process of identifying, measuring, analyzing, and
communicating financial information needed by management to plan, evaluate, and
control a companys operations.
33) Crone Co. has machinery that cost $120,000. It is to be leased for 15 years with rent
received at the beginning of each year. Crone wants a return of 10%. Compute the
amount of the annual rent.
34) Financial statements are the principal means through which a company
communicates its financial information to those outside it.
35) What is the objective of financial reporting? How do general-purpose financial
statements help meet this objective.