1) A company offers a cash rebate of $1 on each $4 package of light bulbs sold during
2014 . Historically, 10% of customers mail in the rebate form. During 2014, 3,000,000
packages of light bulbs are sold, and 160,000 $1 rebates are mailed to customers. What
is the rebate expense and liability, respectively, shown on the 2014 financial statements
dated December 31?
a.$300,000; $300,000
b.$300,000; $140,000
c.$140,000; $140,000
d.$160,000; $140,000
2) Valet Corporation began operations in 2015 . An analysis of Valets equity securities
portfolio acquired in 2015 shows the following totals at December 31, 2015 for trading
and available-for-sale securities:
TradingAvailable-for-Sale
SecuritiesSecurities
Aggregate cost$90,000$110,000
Aggregate fair value80,00095,000
What amount should Valet report in its 2015 income statement for unrealized holding
loss?
a.$25,000
b.$5,000
c.$15,000
d.$10,000
3) An option to convert a convertible bond into shares of common stock is a(n)
a.embedded derivative
b.host security
c.hybrid security
d.fair value hedge
4) Jasmine Company purchased a depreciable asset for $225,000. The estimated salvage
value is $15,000, and the estimated useful life is 8 years. The double-declining balance
method will be used for depreciation. What is the depreciation expense for the second
year on this asset?
a.$26,250
b.$39,375
c.$42,188
d.$56,250
5) Slack Inc. borrowed $320,000 on April 1 . The note requires interest at 12% and
principal to be paid in one year. How much interest is recognized for the period from
April 1 to December 31?
a.$0
b.$38,400
c.$25,600
d.$28,800
6) Confectioners, a chain of candy stores, purchases its candy in bulk from its suppliers.
For a recent shipment, the company paid $1,500 and received 8,500 pieces of candy
that are allocated among three groups. Group 1 consists of 2,500 pieces that are
expected to sell for $0.15 each. Group 2 consists of 5,500 pieces that are expected to
sell for $0.36 each. Group 3 consists of 500 pieces that are expected to sell for $0.72
each. Using the relative sales value method, what is the cost per item in Group 1?
a.$0.13
b.$0.08
c.$0.10
d.$0.19
7) On April 1, 2014, West Company purchased $400,000 of 6% bonds for $415,750
plus accrued interest as an available-for-sale security. Interest is paid on July 1 and
January 1 and the bonds mature on July 1, 2019 .
Instructions
(a)Prepare the journal entry on April 1, 2014 .
(b)The bonds are sold on November 1, 2015 at 103 plus accrued interest. Amortization
was recorded when interest was received by the straight-line method (by months and
round to the nearest dollar). Prepare all entries required to properly record the sale.
8) On January 1, 2015, Piper Co. issued ten-year bonds with a face value of $3,000,000
and a stated interest rate of 10%, payable semiannually on June 30 and December 31 .
The bonds were sold to yield 12%. Table values are:
Present value of 1 for 10 periods at 10% .386
Present value of 1 for 10 periods at 12% .322
Present value of 1 for 20 periods at 5% .377
Present value of 1 for 20 periods at 6% .312
Present value of annuity for 10 periods at 10% 6.145
Present value of annuity for 10 periods at 12% 5.650
Present value of annuity for 20 periods at 5% 12.462
Present value of annuity for 20 periods at 6% 11.470
Instructions
(a)Calculate the issue price of the bonds.
(b)Without prejudice to your solution in part (a), assume that the issue price was
$2,652,000. Prepare the amortization table for 2015, assuming that amortization is
recorded on interest payment dates using the effective-interest method.
9) John Thomas has recently entered into an agreement with Longman Inc. Under this
agreement, John will sell its products using the trade name of Longman in a specified
geographical location. What type of intangible asset is this agreement between John
Thomas and Longman Inc.?
a.contract-related intangible assets
b.artistic-related intangible assets
c.marketing-related intangible assets
d.customer-related intangible assets
10) Trade discounts are
a.not recorded in the accounts; rather they are a means of computing a price
b.used to avoid frequent changes in catalogues
c.used to quote different prices for different quantities purchased
d.all of the above
11) In 2015, Fargo Corporation began construction work under a three-year contract.
The contract price is $4,800,000. Fargo uses the percentage-of-completion method for
financial accounting purposes. The income to be recognized each year is based on the
proportion of costs incurred to total estimated costs for completing the contract. The
financial statement presentations relating to this contract at December 31, 2015, follow:
Balance Sheet
Accounts receivableconstruction contract billings$200,000
Construction in progress$600,000
Less contract billings 480,000
Costs and recognized profit in excess of billings120,000
Income Statement
Income (before tax) on the contract recognized in 2015$120,000
What was the initial estimated total income before tax on this contract?
a.$600,000
b.$640,000
c.$800,000
d.$960,000
12) Based solely upon the following sets of circumstances indicated below, which set
gives rise to a sales-type or direct-financing lease of a lessor?
Transfers OwnershipContains BargainCollectibility of LeaseAny Important
By End Of Lease?Purchase Option?Payments Assured?Uncertainties?
a.NoYesYesNo
b.YesNoNoNo
c.YesNoNoYes
d.NoYesYesYes
13) A review of the December 31, 2014, financial statements of Somer Corporation
revealed that under the caption “extraordinary losses,” Somer reported a total of
$1,130,000. Further analysis revealed that the $1,130,000 in losses was comprised of
the following items:
(1)Somer recorded a loss of $300,000 incurred in the abandonment of equipment
formerly used in the business.
(2)In an unusual and infrequent occurrence, a loss of $600,000 was sustained as a result
of hurricane damage to a warehouse.
(3)During 2014, several factories were shut down during a major strike by employees,
resulting in a loss of $170,000.
(4)Uncollectible accounts receivable of $60,000 were written off as uncollectible.
Ignoring income taxes, what amount of loss should Somer report as extraordinary on its
2014 income statement?
a.$300,000
b.$600,000
c.$900,000
d.$1,130,000
14) Which of the following statements about IFRS and U.S. GAAP accounting and
reporting requirements for the balance sheet is not correct?
a.The presentation formats required by IFRS and U.S. GAAP for the balance sheet are
similar
b.One difference between the reporting requirements under IFRS and those of
U.S. GAAP balance sheet is that an IFRS balance sheet may list long-term assets first
c.Both IFRS and U.S. GAAP require that property, plant and equipment be reported at
historical cost on the balance sheet
d.Both IFRS and U.S. GAAP require that comparative information be reported
15) The following information is available for Murphy Company:
Allowance for doubtful accounts at December 31, 2013$ 16,000
Credit sales during 2014800,000
Accounts receivable deemed worthless and written off during 201418,000
As a result of a review and aging of accounts receivable in early January 2015, it has
been determined that an allowance for doubtful accounts of $11,000 is needed at
December 31, 2014 . What amount should Murphy record as “bad debt expense” for the
year ended December 31, 2014?
a.$9,000
b.$11,000
c.$13,000
d.$27,000
16) Lamar Printing Company determines that a printing press used in its operations has
suffered a permanent impairment in value because of technological changes. An entry
to record the impairment should
a.recognize an extraordinary loss for the period
b.include a credit to the equipment accumulated depreciation account
c.include a credit to the equipment account
d.not be made if the equipment is still being used
17) On January 2, 2015 Pod Company purchased 25% of the outstanding common
stock of Jobs, Inc. and subsequently used the equity method to account for the
investment. During 2015 Jobs, Inc. reported net income of $840,000 and distributed
dividends of $360,000. The ending balance in the Investment in Pod Company account
at December 31, 2015 was $640,000 after applying the equity method during 2015 .
What was the purchase price Pod Company paid for its investment in Jobs, Inc?
a.$340,000
b.$520,000
c.$760,000
d.$940,000
18) John Jones won a lottery that will pay him $3,000,000 after twenty years. Assuming
an appropriate interest rate is 5% compounded annually, what is the present value of
this amount?
a.$3,000,000
b.$7,959,900
c.$37,386,630
d.$1,130,670