1) The primary purpose of the Securities and Exchange Commission is to
a. regulate the issuance and trading of securities
b. issue accounting and auditing regulations for publicly held companies
c. prevent the trading of speculative securities
d. enforce generally accepted accounting principles
2) A lease contains a bargain purchase option. In determining the lessee’s capitalizable
cost at the beginning of the lease term, the payment called for by the bargain purchase
option would be
a. subtracted at its present value
b. added at its exercise value
c. added at its present value
d. subtracted at its exercise price
3) An example of a nominal account would be
a. Allowance for Doubtful Accounts
b. Notes Payable
c. Prepaid Expense
d. Cost of Goods Sold
4) The Blazers Company began its operations in early 2014. The company carries five
different types of inventory which are listed below along with other relevant data. The
company values its inventory at the lower of cost or market. At December 31, 2014,
Blazers has exactly one unit of each item in ending inventory.
5) Which of the following best describes the condition(s) that must be present for the
recognition of revenue?
a. The revenue must be earned, measurable, and collected
b. The revenue must be earned and collectible
c. The revenue must be earned, measurable, and collectible
d. The revenue must be measurable and collectible
6) Which of the following items is included on a statement of cash flows as a noncash
exchange?
a. Depreciation
b. Issuance (sale) of common stock
c. Purchase of treasury stock
d. Retirement of long-term debt by issuance of preferred stock
7) Included in Zollar Corporation’s liability account balances at December 31, 2014,
were the following:
Zollar’s December 31, 2014, financial statements were issued on March 31, 2015. On
January 15, 2015, the entire $400,000 balance of the 16 percent note was refinanced by
issuance of a long-term obligation payable in a lump sum. In addition, on March 10,
2015, Zollar consummated a noncancelable agreement with the lender to refinance the
14 percent, $250,000 note on a long-term basis, on readily determinable terms that have
not yet been implemented. Both parties are financially capable of honoring the
agreement, and there have been no violations of the agreement’s provisions. On the
December 31, 2014, balance sheet, the amount of the notes payable that Zollar should
classify as noncurrent obligations is
a. $100,000
b. $250,000
c. $350,000
d. $650,000
8) Which of the following is not a cash inflow from investing activities?
a. Receipts from collections of sales of loans made by the enterprise
b. Receipts from sales of equity instruments of other entities
c. Receipts from issuance of equity instruments of the enterprise
d. Receipts from sales of productive assets
9) Montana Company is a wholesale electronics distributor. On December 31, 2014, it
prepared the following partial income statement:
Given this information, if Montana Company’s gross margin is 30 percent of net sales,
what is the correct ending inventory balance?
a. $40,000
b. $240,000
c. $360,000
d. $600,000
10) A credit balance in the account Market Adjustment–Trading Securities at the end of
a year should be interpreted as the net
a. realized holding loss to date
b. unrealized holding loss to date
c. realized holding loss for that year
d. unrealized holding loss for that year
11) Foreign currency translation adjustments arising from translation of the financial
statements of a foreign subsidiary are reported in
a. stockholders equity of the foreign subsidiary
b. revenue or expenses of the foreign subsidiary
c. consolidated net income of the parent company and the foreign subsidiary
d. stockholders equity of the parent company
12) Major Co.’s adjusted trial balance at December 31, 2014, includes the following
account balances:
What amount should Major report as total stockholders’ equity in its December 31,
2014, balance sheet?
a. $1,008,000
b. $1,032,000
c. $1,068,000
d. $1,092,000
13) Which of the following, if discovered by Somber Company in the accounting period
subsequent to the period of occurrence, requires the company to report the correction of
an error?
a. The estimate of the useful life of a depreciable asset should have been revised
b. Capitalization of an expense
c. A change from declining-balance depreciation method to straight-line method
d. Change in percentage of sales used for determining bad debt expense
14) How should the sale of $3,000 worth of cash equivalents costing $2,500 be
reflected on the statement of cash flows prepared under the indirect method?
a. $500 operating cash inflow
b. No disclosure
c. $500 operating cash outflow
d. $500 subtraction in the reconciliation of earnings to net operating cash flow
15) Partial balance sheet data and additional information for Earth Moving Industries
are given below:
Additional information:
(a) June 15, 2014–issued 4,000 shares of common stock for cash.
(b) July 1, 2014–purchased new equipment for cash.
(c) December 31, 2014–paid cash dividends of $40,000.
Prepare the investing and financing activities sections of the statement of cash flows for
the year ending December 31, 2014.
16) In a lease that is recorded as a direct financing lease by the lessor, unearned revenue
a. should be amortized over the period of the lease using the interest method
b. should be amortized over the period of the lease using the straight-line method
c. does not arise
d. should be recognized in full at the inception of the lease
17) The following totals are taken from the December 31, 2015, balance sheet of
Mentor Company:
Additional information:
(a) Cash of $38,000 has been placed in a fund for the retirement of long-term debt. The
cash and long-term debt have been offset and are not reflected in the financial
statements.
(b) Long-term assets include $50,000 in treasury stock.
(c) Cash of $14,000 has been set aside to pay taxes due. The cash and taxes payable
have been offset and do not appear in the financial statements.
(d) Advances on salespersons’ commissions in the amount of $21,000 have been made.
Also, sales commissions payable total $24,000. The net liability of $3,000 is included in
Current Liabilities.
After making any necessary changes, what are the totals for Mentor’s current assets and
current liabilities?
18) On July 1, 2014, Saunter issued 2,000 of its 8 percent, $1,000 bonds for $1,752,000.
The bonds were issued to yield 10 percent. The bonds are dated July 1, 2014, and
mature on July 1, 2024. Interest is payable semiannually on January 1 and July 1. Using
the effective-interest method, how much of the bond discount should be amortized for
the six months ended December 31, 2014?
a. $15,200
b. $12,400
c. $9,920
d. $7,600
19) In November and December 2013, Bee Company, a newly organized newspaper
publisher, received $72,000 for 1,000 three-year subscriptions at $24 per year, starting
with the January 2, 2014, issue of the newspaper. How much should Bee report in its
2013 income statement for subscription revenue?
a. $0
b. $12,000
c. $24,000
d. $72,000
20) On February 1, 2014, Andover Inc. had excess cash on hand. The controller
suggested to management that the company buy $300,000 of U.S. Treasury bonds
selling at 102 and paying 8 percent interest. Interest payments on these bonds are made
semiannually on January 1 and July 1.
21) Which of the following assets generally is required to be tested at least annually for
impairment?
a. Machinery
b. Patent
c. Goodwill
d. Copyright
22) On November 10, Linden Co. split its stock 5-for-2 when the market value was $55
per share. Prior to the split, Linden had 300,000 shares of $15 par value stock. After the
split, the par value of the stock was
a. $3
b. $6
c. $15
d. $26
23) If the combined market value of trading securities at the end of the year is less than
the market value of the same portfolio of trading securities at the beginning of the year,
the difference should be accounted for by
a. a credit to Investment in Trading Securities
b. reporting an unrealized loss in security investments in the stockholders’ equity
section of the balance sheet
c. a footnote to the financial statements
d. reporting an unrealized loss in security investments in the income statement
24) Assume that a company records purchases net of discount. If the company bought
merchandise valued at $15,000 on credit terms 3/15, net 30, the entry to record a
payment for half of the purchase within the discount period would include a debit to
a. Accounts Payable for $7,275 and a credit to Cash for $7,275
b. Accounts Payable for $7,500 and a credit to Cash for $7,500
c. Accounts Payable for $7,275 and to Interest Expense for $250, and a credit to Cash
for $7,500
d. Accounts Payable for $7,275 and to Interest Revenue for $250 and a credit to Cash
for $7,500.
25) The Ryan Manufacturing Company received its bank statement for the month
ending May 31. The bank statement indicates a balance of $32,400. The cash account as
of the close of business on May 31 has a balance of $8,350. In reconciling the balances,
the following items are discovered.
(a) Collection by bank of note for $1,500 less collection fees of $250.
(b) Deposits in transit, $51,000.
(c) The bank charged the depositor $800 for overdrafts.
(d) Checks outstanding on May 31, $79,100.
(e) A canceled check issued to Kate Corp. for $4,500 was not recorded on Ryan
Manufacturing Company’s books.
Prepare a bank reconciliation statement. (Use the format of reconciling bank and
depositor figures to corrected cash balance.)
26) The changes in account balances of the Dunedin Corporation during 2014 are
presented below:
Assuming there are no changes in retained earnings except for net income and a
dividend payment of $19,500, the net income for 2014 should be
a. $6,000
b. $13,500
c. $19,500
d. $25,500
27) Which of the following is true regarding the deferral of sale profits on a
sale-leaseback under IAS 17, Accounting for Leases?
a. Any profit on a sale-leaseback resulting in an operating lease is deferred and
recognized over the subsequent lease period, whereas any loss is recognized
immediately
b. Both profits and losses on a sale followed by an operating lease leaseback are
recognized immediately if the transaction is established at fair value
c. Profit from the sale should be deferred and amortized in proportion to the
amortization of the leased asset if a capital lease results from the sale-leaseback
d. Profit from the sale should be amortized in proportion to the rental payments it an
operating lease results from the sale-leaseback
28) On March 1, 2014, Oaken Furniture Co. issued $700,000 of 10 percent bonds to
yield 8 percent. Interest is payable semiannually on February 28 and August 31. The
bonds mature in ten years. Oaken Furniture Co. is a calendar-year corporation.
(1) Determine the issue price of the bonds. Show your computations.
(2) Prepare an amortization table through the first two interest periods using the
effective-interest method.
(3) Prepare the journal entries to record bond-related transactions as of the following
dates:
(a) March 1, 2014
(b) August 31, 2014
(c) December 31, 2014
(d) February 28, 2015
29) Once the FASB has established an accounting standard, the
a. standard is continually reviewed to see if modification is necessary
b. standard is not reviewed unless the SEC makes a complaint
c. task of reviewing the standard to see if modification is necessary is given to the
d. principle of consistency requires that no revisions ever be made to the standard
30) An item would be considered material and therefore would be disclosed in the
financial statements if the
a. expected benefits of disclosure exceed the additional costs
b. impact on earnings is greater than 3 percent
c. FASB definition of materiality is met
d. omission of misstatement of the amount would make a difference to the users
31) The use of a discounts lost account implies that the recorded cost of a purchased
inventory item is its
a. invoice price
b. invoice price plus the purchase discount lost
c. invoice price less the purchase discount taken
d. invoice price less the purchase discount allowable whether taken or not
32) Which of the following is an application of the principle of systematic and rational
allocation?
a. Sales commissions
b. Office salaries
c. Telephone expense
d. Depreciation expense
33) Elan Company’s Accounts Payable balance at December 31, 2014, was $1,800,000
before considering the following transactions:
In its December 31, 2011, balance sheet, Elan should report Accounts Payable of
a. $1,950,000
b. $1,900,000
c. $1,850,000
d. $1,800,000
34) In preparing a statement of cash flows (indirect method), cash flows from operating
activities
a. is calculated as the difference between revenues and expenses plus the beginning
cash balance
b. is always equal to the sum of cash flows from investing activities and cash flows
from financing activities
c. can be calculated by appropriately adding to or deducting from net income those
items in the income statement that affect cash and accruals for current assets and current
liabilities
d. can be calculated by appropriately adding to or deducting from net income those
items in the income statement that do not affect cash
35) Which of the following is true regarding the accounting for research and
development costs under international accounting standards?
a. All research and development costs of any type are expensed
b. All ordinary research and development costs are expensed, but development costs
related to computer software are capitalized
c. All ordinary research and development costs are expensed, but both research and
development costs related to computer software are capitalized
d. All development costs of any nature are capitalized
36) The Mountain Range Railway Company operates a regional railroad in the states of
Colorado, New Mexico, and Arizona. Mountain Range reported the following
information (dollar amounts in thousands) in its December 31, 2014, consolidated
statement of income:
Required:
37) Broadcast rights are an example of which general category of intangible asset that
should be recognized separately according to current generally accepted accounting
principles?
a. Contract-based
b. Customer-related
c. Artistic-related
d. Marketing-related
38) Kendall Company reported the following net income amounts:
39) Using the information below, compute the gain or loss component of net periodic
pension cost and indicate whether the amount is added or deducted in determining
pension cost for the period.
40) Jordan, Inc., loaned Julius Company $40,000 on January 1, 2010. The 8 percent,
7-year, simple-interest loan note called for annual interest payments each December 31.
The note is due December 31, 2023. Julius made the required interest payments through
December 31, 2013. In early January 2014, Julius began to default on some of its other
debts and asked Jordan to renegotiate the original debt agreement, including an
extension of the maturity date. Jordan refused but could see that the remaining
scheduled payments on the loan were in jeopardy.
Jordan reevaluated the Julius note and estimated that the remaining interest payments
would be only three-fourths of the original amount (based on the original principal
amount), and that only one-half of the principal amount would be collected.
Jordan uses the interest method to account for interest after recording a note
impairment.
Required:
41) The following information was abstracted from the records of the Norrick
Corporation:
Prepare the adjusting entry for doubtful accounts expense under each of the following
assumptions:
42) Diamond Company changed from the completed-contract method of accounting for
long-term contracts to the percentage-of-completion method, during 2014. Reported
earnings in 2013 were $50,000, and the beginning 2013 retained earnings balance was
$150,000. Net income for 2014 under the competed-contract method would have been
$140,000. No dividends were declared during 2013 and 2014.
Required:
Prepare the 2013 and 2014 comparative retained earnings statements.
43) The following are comparative data for Jobs Company for the three-year period
2012-2014:
Compute the following measurements for 2014 and 2013:
44) The accountant for the Teffen Company assembled the following data:
Prepare a 4-column bank reconciliation as of July 31, using the form that reconciles
both the book and bank balances to a correct cash amount.
45) The following information has been collected for Enzo Company:
Required:
Estimate the price per share for Enzo Companys common stock using the discounted
free cash flow model.
46) Gaston Company operates a large regional railway system. The following is an
excerpt from the companys 2013 annual report:
6 Lease Commitments
Gaston is committed under long-term lease agreements, which expire on various dates
through 2082, for equipment, rail lines, and other property. Future minimum lease
payments are as follows:
Required:
Given that lease payments occur evenly throughout the year, estimate the decline in the
capital lease liability in 2013.
47) The going-concern assumption holds that the business entity will continue its
operations long enough to realize its projects, commitments, and ongoing activities. The
assumption is that the entity is not expected to be liquidated in the foreseeable future or
that the entity will continue for an indefinite period of time.
Explain the relationship between the going-concern assumption and the historical cost
principle and the amortization of assets.