1) The staff interpretations statements issued by the SEC are called:
a. Staff Accounting Research Bulletins
b. Statements on Accounting Principles
c. Financial Accounting Standards
d. Staff Accounting Bulletins
2) In a business combination, goodwill is defined as the excess of cost over the
a. net book value of assets acquired
b. fair value of assets acquired
c. book value of assets acquired less the liabilities assumed
d. fair value of assets acquired less the liabilities assumed
3) The following data were abstracted from the records of Ballistic Corporation for the
year:
How many times was bond interest earned?
a. 18.0
b. 15.0
c. 11.0
d. 10.0
4) Refer to the Sculley Corporation information above. Sculley’s current ratio as of
December 31, 2014, is
a. 2.84 to 1
b. 3.37 to 1
c. 2.91 to 1
d. 3.33 to 1
5) The following 3 ratios have been computed using the financial statements for the
year ended December 31, 2014, for Crown Company:
The following additional information has been assembled:
(a) Crown uses the FIFO method of inventory valuation. Beginning inventory was
$48,000 and ending inventory was $58,500. If Crown had used LIFO, beginning
inventory would have been $36,000 and ending inventory would have been $43,000.
(b) Crown’s sole depreciable asset was purchased on January 1, 2011. The asset cost
$120,000 and is being depreciated over 7 years with no estimated salvage value.
Although the 7-year life is within the acceptable range, most firms in Crown’s industry
depreciate similar assets over 12 years.
(c) For 2014, Crown decided to recognize only 5% of an $18,000 liability for future
environmental cleanup costs. Most other firms in Crown’s industry have similar
environmental cleanup obligations but have decided that the amounts of the obligations
are reasonably estimable and have recognized the full amount of the liability.
Show how the values for the 3 ratios computed above differ if Crown had used LIFO,
depreciated the asset over 12 years, and recognized the full amount of its environmental
cleanup obligation. Compute how the financial statements would differ if the alternative
accounting methods had been used. Do not treat the use of these alternative methods as
accounting changes. Ignore any income tax effects.
6) Teller Inc. reported an allowance for doubtful accounts of $30,000 (credit) at
December 31, 2013, before performing an aging of accounts receivable. As a result of
the aging, Teller Inc. determined that an estimated $52,000 of the December 31, 2013,
accounts receivable would prove uncollectible. The adjusting entry required at
December 31, 2013, would be
a. Doubtful Accounts Expense ……….. 22,000 Allowance for Doubtful Accounts …
22,000
b. Allowance for Doubtful Accounts ….. 22,000 Accounts Receivable …………… 22,000
c. Doubtful Accounts Expense ……….. 52,000 Allowance for Doubtful Accounts …
52,000
d. Allowance for Doubtful Accounts ….. 52,000 Doubtful Accounts Expense ………
52,000
7) Partial balance sheet data and additional information for Bohemian Industries are
given below:
Bohemian Industries
Partial Balance Sheet
December 31, 2014 and 2013
Assets
Additional Information:
Prepare the operating activities section of the statement of cash flows, using the indirect
method, for the year ending December 31, 2014.
8) Which of the following statements characterizes a sales-type lease?
a. The lessor recognizes a dealer’s profit at lease inception and interest revenue over the
lease term
b. The lessor recognizes only interest revenue over the lease term
c. The lessor recognizes only interest revenue over the life of the asset
d. The lessor recognizes a dealer’s profit at lease inception and interest revenue over the
asset life
9) A company with substantial operating profits prepares its statement of cash flows
using the indirect method. The gain on the sale of a long-term investment should be
disclosed separately as a(n)
a. inflow from operating activities
b. adjustment to net income in the reconciliation of net income to cash from operating
activities
c. inflow from investing activities
d. outflow from investing activities
10) Which of the following need not be disclosed on a segmental basis for a subunit
identified as a reportable segment?
a. Net assets
b. Sales
c. Identifiable assets
d. Total depreciation, depletion, and amortization
11) On January 1, 2014, Bijou Company purchased investment securities costing
$3,000 and classified them as available-for-sale. During 2014, Bijou Company sold a
portion of these available-for-sale securities with a cost of $1,800 for $1,500. The
market value of the remainder of these securities available-for-sale at December 31,
2014, was $1,300. Bijou prepares its statement of cash flows using the indirect method.
Which of the following represents the effect of these transactions on the statement of
cash flows for Bijou Company for the year ending December 31, 2014?
Operating Activities Investing Activities
a. $200 increase $1,500 decrease
b. $300 decrease $1,400 decrease
c. $300 increase $1,400 decrease
d. $300 increase $1,500 decrease
12) In the preparation of a statement of cash flows, adjustments to net income to
reconcile net income to cash from operating activities include
a. amortization of organization cost
b. the difference between the purchase price and the resale price of treasury stock
(assuming the cost method of accounting for treasury stock)
c. dividends received
d. redemption premium on preferred stock redeemed during the period
13) Waltham Corporation was organized on January 2 with 100,000 authorized shares
of $10 par value common stock. During the year, Waltham had the following capital
transactions:
Waltham used the par value method to record the purchase of the treasury shares.
What would be the balance in the paid-in capital from treasury stock account at
December 31?
a. $0
b. $5,000
c. $15,000
d. $20,000
14) A review of the financial records of Stonehenge, Inc. for the current year revealed
the following information:
(a) Reported interest expense of $36,000. The Interest Payable balance decreased
$4,000.
(b) Declared and paid cash dividends of $175,000.
(c) Purchased a $400,000 building with a $220,000 long-term mortgage note. The
remainder was paid in cash.
(d) Issued bonds with a $600,000 par value to retire 6,000 shares of $100 par value
preferred stock.
(e) Held-to-maturity securities with a book value of $7,600 were sold for $9,000 during
the year.
(f) Reported income tax expense of $55,000. The Income Taxes Payable balance
increased $15,000.
(g) The Accounts Payable balance increased $7,740.
(h) Cash of $127,000 was paid to purchase business assets consisting of:
Explain how each of the preceding items is presented in the cash flow statement,
indirect method, or disclosed in the financial statements of Stonehenge, Inc. Indicate
“not included” for any item that would not be reported or disclosed. Evaluate each item
separately.
15) The sum of reportable segment sales must be a least equal to what percent of total
company sales?
a. 100%
b. 75%
c. 50%
d. 65%
16) The following information applied to Michaels Company for 2014:
Michaels’ inventoriable cost for 2014 was
a. $409,000
b. $407,500
c. $406,000
d. $405,000
17) Which of the following is not correct regarding IAS 39, International Accounting
Standard 39, Financial Instruments: Recognition and Measurement, and SFAS No. 140,
Statement of Financial Accounting Standards No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities: A Replacement of
FASB Statement No. 125?
a. IAS 39 represents a principles-based approach to standard setting
b. SFAS No. 140 represents a principles-based approach to standard setting
c. SFAS No. 140 represents a rule-based approach to standard setting
d. In the large majority of cases, application of the two standards will result in the same
accounting treatment for a receivable transfer
18) A truck that cost $12,000 was originally being depreciated over four years using the
straight-line method with no salvage value. If after one year, it was decided that the
truck would last an additional four years (or a total of five years), the second year’s
depreciation would be
a. $1,500
b. $2,250
c. $2,400
d. $3,000
19) What is the correct treatment of a stock dividend issued in mid-year when
computing the weighted-average number of common shares outstanding for earnings
per share purposes?
a. The stock dividend should be weighted by the length of time that the additional
number of shares are outstanding during the period
b. The stock dividend should be included in the weighted-average number of common
shares outstanding only if the additional shares result in a decrease of 3 percent or more
in earnings per share
c. The stock dividend should be weighted as if the additional shares were issued at the
beginning of the year
d. The stock dividend should be ignored since no additional capital was received
20) In 2014, Climber Corporation issued for $110 per share, 18,000 shares of $100 par
value convertible preferred stock. One share of preferred stock may be converted into
three shares of Climber’s $30 par value common stock at the option of the preferred
shareholder. On December 31, 2015, all of the preferred stock was converted into
common stock. The market value of the common stock at the conversion date was $40
per share. What amount should be credited to the common stock account on December
31, 2015?
a. $1,620,000
b. $1,800,000
c. $1,318,000
d. $1,960,000
21) Which of the following is NOT a required disclosure for lessors?
a. Total of minimum sublease rentals to be received in the future under noncancelable
subleases
b. Unearned interest revenue
c. Unguaranteed residual values accruing to the benefit of the lessor
d. A general description of the lessor’s leasing arrangements
22) Moodrocker Company had 1,000 common shares issued and outstanding at January
1. During the year, Moodrocker also had the common stock transactions listed below.
Given this information, what is the weighted-average number of shares that
Moodrocker should use for earnings per share purposes?
a. 2,880
b. 8,640
c. 8,820
d. 9,720
23) Stellar Inc. carries Product A in inventory on December 31 at its unit cost of $22.50.
Because of a sharp decline in demand for the product, the selling price is reduced to
$24.00 per unit. Stellar’s normal profit margin on Product A is $4.80, disposal costs are
$3.00 per unit, and the replacement cost is $15.90. Under the rule of lower of cost or
market, Stellar’s December 31 inventory of Product A should be valued at a unit cost of
a. $15.90
b. $16.20
c. $21.00
d. $22.50
24) Under the direct method, which one of the following would represent cash paid?
a. Losses on sales of plant assets
b. Gains on sales of plant assets
c. Interest expense, adjusted for changes in interest payable and amortization of bond
premium or discount
d. Depreciation expense, adjusted for changes in depreciation methods
25) See information for Alana’s Clothing Store above. Using this information, periodic
FIFO cost of goods sold is
a. $330
b. $300
c. $430
d. $250
26) Internal earnings targets represent an important tool in motivating managers to
increase sales efforts, control costs, and use resources more efficiently. Such internal
targets also can cause managers to resort to extreme measures in order to meet goals
established by upper management. Earnings management often appears in a variety of
forms as a means of reaching these internal goals.
Earnings management also is associated with earnings-based internal bonus plans
which are also a form of internal target.
Explain how earnings management is related to earnings-based internal bonus plans and
how managers behave in response to such plans.
27) Sonnys Dry Cleaners, Inc. charges an initial franchise fee of $195,000. When the
agreement is signed, a payment of $75,000 is due, followed by four annual payments of
$30,000 at the end of each period. Sonnys normal borrowing rate is 12%. Prepare the
entries to record the initial franchise fee on the books of Sonnys under each of the
following circumstances.
28) The following data are available for the P. J. Berry Company
The company has experienced a temporary LIFO liquidation by not maintaining the
base year inventory of 30,000 units. The company uses a perpetual inventory system.
Prepare the entries to account for the temporary liquidation and the replacement of the
liquidated units assuming that 9,000 units will be replaced at $1.60 per unit
29) Financial statements should provide information that is both relevant and reliable.
The current model upon which financial statements are based is the historical cost
model. Over the past fifty years, however, various individuals and groups have
advocated the implementation of current value models of accounting. One such model
represents the amount of cash for which an asset might be sold or a liability might be
refinanced, sometimes referred as the current-exit-price approach. The current exit price
is generally agreed to correspond (1) to the selling price under conditions of orderly
rather than forced liquidation, and (2) to the selling price at the time of measurement.
All assets and liabilities are thus revalued at their exit prices at each reporting date.
Required:
Evaluate the historical cost and current-exit-price models in terms of relevance and
reliability.
30) On July 23, Amigo Company declared a cash dividend totaling $80,000.
Stockholders were notified that $15,000 of this dividend represented a liquidating
dividend. At the time, the balance in Paid-In Capital in Excess of Par was $113,000.
Make the journal entries to record (1) the declaration and (2) the payment of this
dividend.
31) Holster Western Wear, Inc. has a defined benefit pension plan covering its 120
employees. Information relating to the plan follows:
Holster expects a 10 percent return on its pension fund assets. Compute the difference
between the actual return and the expected return and explain how this amount affects
net periodic pension cost for 2014.
