1) The book value of any depreciable asset is the difference between its cost and its
salvage value.
2) The future value of an ordinary annuity table is used when payments are invested at
the beginning of each period.
3) The stated rate is the same as the coupon rate.
4) The time value of money refers to the fact that a dollar received today is worth less
than a dollar promised at some time in the future.
5) Under IFRS, both revenues and expenses and other income and expenses are
reported as part of income from operations.
6) Both IFRS and U.S. GAAP require current assets to be listed first on the balance
sheet.
7) The gross profit method can be used to approximate the dollar amount of inventory
on hand.
8) APB Opinion No. 21 specifies that, regarding the amortization of a premium or
discount on a debt security, the
a.effective-interest method of allocation must be used
b.straight-line method of allocation must be used
c.effective-interest method of allocation should be used but other methods can be
applied if there is no material difference in the results obtained
d.par value method must be used and therefore no allocation is necessary
9) Cotton Hotel Corporation recently purchased Emporia Hotel and the land on which it
is located with the plan to tear down the Emporia Hotel and build a new luxury hotel on
the site. The cost of the Emporia Hotel should be
a.depreciated over the period from acquisition to the date the hotel is scheduled to be
torn down
b.written off as an extraordinary loss in the year the hotel is torn down
c.capitalized as part of the cost of the land
d.capitalized as part of the cost of the new hotel
10) For income statement purposes, depreciation is a variable expense if the
depreciation method used is
a.units-of-production
b.straight-line
c.sum-of-the-years’-digits
d.declining-balance
11) An example of a permanent difference is
a.proceeds from life insurance on officers
b.interest expense on money borrowed to invest in municipal bonds
c.insurance expense for a life insurance policy on officers
d.All of these answers are correct
12) On January 2, 2014, for past services, Rosen Corp. granted Nenn Pine, its president,
25,000 stock appreciation rights that are exercisable immediately and expire on
January 2, 2015 . On exercise, Nenn is entitled to receive cash for the excess of the
market price of the stock on the exercise date over the market price on the grant date.
Nenn did not exercise any of the rights during 2014 . The market price of Rosen’s stock
was $30 on January 2, 2014, and $45 on December 31, 2014 . As a result of the stock
appreciation rights, Rosen should recognize compensation expense for 2014 of
a.$0
b.$150,000
c.$375,000
d.$750,000
13) The IASB and the FASB are studying several issues related to accounting for
pensions including all of the following except
a.eliminating smoothing provisions
b.requiring companies to report actual asset returns and any actuarial gains and losses
directly in the income statement
c.requiring companies to report various components of pension expense, such as
interest cost, separately in the income statement along with other interest expense
d.All of the above issues are under study by the IASB and the FASB
14) Valuation of inventories requires the determination of all of the following except
a.the costs to be included in inventory
b.the physical goods to be included in inventory
c.the cost of goods held on consignment from other companies
d.the cost flow assumption to be adopted
15) Deferred gross profit on installment sales is generally treated as a(n)
a.deduction from installment accounts receivable
b.deduction from installment sales
c.unearned revenue and classified as a current liability
d.deduction from gross profit on sales
16) On November 1, 2014, Horton Company purchased Lopez, Inc., 10-year, 9%,
bonds with a face value of $600,000, for $540,000. An additional $15,000 was paid for
the accrued interest. Interest is payable semiannually on January 1 and July 1 . The
bonds mature on July 1, 2021 . Horton uses the straight-line method of amortization.
Ignoring income taxes, the amount reported in Horton’s 2014 income statement as a
result of Horton’s available-for-sale investment in Lopez was
a.$10,500
b.$10,000
c.$9,000
d.$8,000
17) Which of the following statements about the expected postretirement benefit
obligation (EPBO) is not correct?
a.The EPBO is an actuarial present value
b.The EPBO is recorded in the accounts
c.The EPBO is used in measuring periodic expense
d.All of these are correct
18) On January 2, 2014, Indian River Groves began construction of a new citrus
processing plant. The automated plant was finished and ready for use on September 30,
2015 . Expenditures for the construction were as follows:
Indian River Groves borrowed $2,200,000 on a construction loan at 12% interest on
January 2, 2014 . This loan was outstanding during the construction period. The
company also had $8,000,000 in 9% bonds outstanding in 2014 and 2015 .
The interest capitalized for 2015 was:
a.$249,480
b.$236,610
c.$ 51,480
d.$ 198,000
19) Total payroll of Walnut Co. was $1,840,000, of which $320,000 represented
amounts paid in excess of $106,800 to certain employees. The amount paid to
employees in excess of $7,000 was $1,440,000. Income taxes withheld were $450,000.
The state unemployment tax is 1.2%, the federal unemployment tax is .8%, and the
F.I.C.A. tax is 7.65% on an employees salaries and wages to $106,800 and 1.45% in
excess of $106,800.
Instructions
(a)Prepare the journal entry for the salaries and wages paid.
(b)Prepare the entry to record the employer payroll taxes.
20) Matlock Corporation sells item A as part of its product line. Information as to
balances on hand, purchases, and sales of item A are given in the following table for the
first six months of 2014 .
Quantities
Unit Price
DatePurchasedSoldBalanceof Purchase
January 11 400$3.65
January 241,3001,700$3.90
February 83001,400
March 16560840
June 116001,440$4.10
Instructions
(a)Compute the ending inventory at June 30 under the perpetual LIFO inventory pricing
method.
(b)Compute the cost of goods sold for the first six months under the periodic FIFO
inventory pricing method.