1) Which of the following is not a difference between the accounting treatment for
depreciation and cost depletion?
a.Depletion applies to natural resources while depreciation applies to plant and
equipment
b.Depletion refers to the physical exhaustion or consumption of the asset while
depreciation refers to the wear, tear, and obsolescence of the asset
c.Many formulas are used in computing depreciation but only one is used to any extent
in computing depletion
d.The cost of the asset is the starting point from which computation of the amount of
the periodic charge is made to operations for depreciation, but the fair value reassessed
each year as the starting point for the periodic charge for depletion
2) Which of the following is an element of financial statements identified under IFRS?
a.Investment by owners
b.Losses
c.Comprehensive income
d.Equity
3) Dobson Construction specializes in the construction of commercial and industrial
buildings. The contractor is experienced in bidding long-term construction projects of
this type, with the typical project lasting fifteen to twenty-four months. The contractor
uses the percentage-of-completion method of revenue recognition since, given the
characteristics of the contractor’s business and contracts, it is the most appropriate
method. Progress toward completion is measured on a cost-to-cost basis. Dobson began
work on a lump-sum contract at the beginning of 2015 . As bid, the statistics were as
follows:
Lump-sum price (contract price)$4,000,000
Estimated costs
Labor$ 850,000
Materials and subcontractor1,750,000
Indirect costs 400,000 3,000,000
$1,000,000
At the end of the first year, the following was the status of the contract:
Billings to date$2,250,000
Costs incurred to date
Labor$ 464,000
Materials and subcontractor648,000
Indirect costs 193,0001,305,000
Latest forecast total cost3,000,000
It should be noted that included in the above costs incurred to date were standard
electrical and mechanical materials stored on the job site, but not yet installed, costing
$105,000. These costs should not be considered in the costs incurred to date.
Instructions
(a)Compute the percentage of completion on the contract at the end of 2015 .
(b)Indicate the amount of gross profit that would be reported on this contract at the end
of 2015 .
(c)Make the journal entry to record the income (loss) for 2015 on Dobson’s books.
(d)Indicate the account(s) and the amount(s) that would be shown on the balance sheet
of Dobson Construction at the end of 2015 related to its construction accounts. Also
indicate where these items would be classified on the balance sheet. Billings collected
during the year amounted to $1,900,000.
(e)Assume the latest forecast on total costs at the end of 2015 was $4,060,000. How
much income (loss) would Dobson report for the year 2015?
4) How should significant noncash transactions be reported in the statement of cash
flows according to FASB Statement No. 95?
a.They should be incorporated in the statement of cash flows in a section labeled,
“Significant Noncash Transactions”
b.Such transactions should be incorporated in the section (operating, financing, or
investing) that is most representative of the major component of the transaction
c.These noncash transactions are not to be incorporated in the statement of cash flows.
They may be summarized in a separate schedule at the bottom of the statement or
appear in a separate supplementary schedule to the financials
d.They should be handled in a manner consistent with the transactions that affect cash
flows
5) Which of the following is included in the normal journal entry to record the
collection of accounts receivable previously written off when using the allowance
method?
a.Debit Allowance for Doubtful Accounts, credit Accounts Receivable
b.Debit Allowance for Doubtful Accounts, credit Bad Debt Expense
c.Debit Bad Debt Expense, credit Allowance for Doubtful Accounts
d.Debit Accounts Receivable, credit Allowance for Doubtful Accounts
6) Place the letter of the best matching phrase before each word.
1> Indenture6> Times Interest Earned Ratio
2> Refunding7> Mortgage
3> Bonds Issued at Par8> Premium on Bonds
4> Carrying Value9> Reacquisition Price
5> Nominal Rate10> Market Rate
a.Requires that bond discount be reported in the balance sheet as a direct deduction
from the face of the bond.
b.Rate set by party issuing the bonds which appears on the bond instrument.
c.The interest paid each period is the effective interest at date of issuance.
d.Rate of interest actually earned by the bondholders.
e.Results when bonds are sold below par.
f.Results when bonds are sold above par.
g.The replacement of an existing bond issuance with a new one.
h.Price paid by issuing corporation for its own bonds.
i.Book value of bonds at any given date.
j.Ratio of current assets to current liabilities.
k.The bond contract or agreement.
l.Indicates the companys ability to meet interest payments as they come due.
m.Ratio of debt to equity.
n.Exclusive right to manufacture a product.
o.A document that pledges title to property as security for a loan.
7) For Grimmett Company, the following information is available:
Capitalized leases$600,000
Trademarks245,000
Long-term receivables225,000
In Grimmetts balance sheet, intangible assets should be reported at
a.$245,000
b.$275,000
c.$845,000
d.$875,000
8) Of the following items, the only one which should not be classified as a current
liability is
a.current maturities of long-term debt
b.sales taxes payable
c.short-term obligations expected to be refinanced
d.unearned revenues
9) Leonard Corporation reports the following information:
Correction of overstatement of depreciation expense
in prior years, net of tax$ 430,000
Dividends declared320,000
Net income1,000,000
Retained earnings, 1/1/14, as reported4,000,000
Leonard should report retained earnings, 1/1/14, as adjusted at
a.$3,570,000
b.$4,000,000
c.$4,430,000
d.$5,110,000
10) Arlington Company is constructing a building. Construction began on January 1 and
was completed on December 31 . Expenditures were $4,800,000 on March 1,
$3,960,000 on June 1, and $6,000,000 on December 31 . Arlington Company borrowed
$2,400,000 on January 1 on a 5-year, 12% note to help finance construction of the
building. In addition, the company had outstanding all year a 10%, 3-year, $4,800,000
note payable and an 11%, 4-year, $9,000,000 note payable.
What amount of interest should be charged to expense?
a.$765,584
b.$1,470,000
c.$1,053,585
d.$830,384
11) Maxwell Corporation factored, with recourse, $100,000 of accounts receivable with
Huskie Financing. The finance charge is 3%, and 5% was retained to cover sales
discounts, sales returns, and sales allowances. Maxwell estimates the recourse
obligation at $2,400. What amount should Maxwell report as a loss on sale of
receivables?
a.$ -0-
b.$3,000
c.$5,400
d.$10,400
12) When using dollar-value LIFO, if the incremental layer was added last year, it
should be multiplied by
a.last year’s cost ratio and this year’s index
b.this year’s cost ratio and this year’s index
c.last year’s cost ratio and last year’s index
d.this year’s cost ratio and last year’s index
13) Barton, Inc. received the following information from its pension plan trustee
concerning the operation of the company’s defined-benefit pension plan for the year
ended December 31, 2015 .
January 1, 2015December 31, 2015
Fair value of pension plan assets$4,200,000$4,500,000
Projected benefit obligation4,800,0005,160,000
Accumulated benefit obligation840,0001,020,000
Accumulated OCI – (Gains / Losses)-0-(90,000)
The service cost component of pension expense for 2015 is $450,000 and the
amortization of prior service cost due to an increase in benefits is $60,000. The
settlement rate is 10% and the expected rate of return is 9%. What is the amount of
pension expense for 2015?
a.$450,000
b.$612,000
c.$621,000
d.$522,000
14) Which of the following tables would show the smallest value for an interest rate of
5% for six periods?
a.Future value of 1
b.Present value of 1
c.Future value of an ordinary annuity of 1
d.Present value of an ordinary annuity of 1
15) Remington Corporation had accounts receivable of $100,000 at 1/1. The only
transactions affecting accounts receivable were sales of $750,000 and cash collections
of $700,000. The accounts receivable turnover is
a.5.0
b.5.5
c.6.0
d.7.5
16) On January 1, 2014, Janik Corp. acquired a machine at a cost of $700,000. It is to
be depreciated on the straight-line method over a five-year period with no residual
value. Because of a bookkeeping error, no depreciation was recognized in Janik’s 2014
financial statements. The oversight was discovered during the preparation of Janik’s
2015 financial statements. Depreciation expense on this machine for 2015 should be
a.$0
b.$140,000
c.$175,000
d.$280,000
17) Note that X in the following statement of cash flows identifies a dollar amount and
the letters (A) through (F) identify specific items which appear in the major sections of
the statement prepared using the indirect method.
Statement of Cash Flows
Cash flows from operating activities
Net incomeX
Adjustments to reconcile net income to net cash
provided by operating activities:
Add+X(A)
Deduct-X(B)
Net cash provided by operating activitiesX
Cash flows from investing activities
Inflows+X(C)
Outflows-X (D)
Net cash provided (used) by investing activitiesX
Cash flows from financing activities
Inflows+X (E)
Outflows-X(F)
Net cash provided (used) by financing activitiesX
Net increase (decrease) in cashX
Instructions
For each of the following items, indicate by letter in the blank spaces below, the section
or sections where the effect would be reported. Use the code (A through F) from above.
If the item is not required to be reported on the statement of cash flows, write the word
“none” in the blank. Assume that generally accepted accounting principles have been
followed in determining net income and that there are no short-term securities which
are considered cash equivalents.
1> After the retirement of an officer, the insurance policy was canceled, and a cash
settlement was received by the firm. These proceeds were in excess of the book value of
the policy.
2> Sales discounts lapsed and not taken by customers. (Sales are recorded at net
originally.)
3> Accrued estimated income taxes for the period. These taxes will be paid next year.
4> Amortization of premium on bonds payable.
5> Premium amortized on investment in bonds.
6> The book value of trading securities was reduced to fair value.
7> Purchase of available-for-sale securities.
8> Declaration of stock dividends (not yet issued).
9> Issued preferred stock in exchange for equipment.
10> Bad debts (under allowance method) estimated and recorded for the period
(receivables classified as current).
11> Gain on disposal of old machinery.
12> Payment of cash dividends (previously declared in a prior period).
13> Trading securities are sold at a loss.
14> Two-year notes issued at discount for a patent.
15> Amortization of Discount on Notes Receivable (long-term).
16> Decrease in Retained Earnings Appropriated for Self-insurance.
18) A high-speed multiple-bit drill press costing $960,000 has an estimated salvage
value of $80,000 and a life of ten years. What is the annual depreciation for each of the
first two full years under the following depreciation methods?
1>Double-declining-balance method:
a.Year one
b.Year two
2>Units of production (activity) method (lifetime output is estimated at 110,000 units;
the press produced 12,000 units in year one and 18,000 in year two):
a.Year one
b.Year two
3>Sum-of-the-years’-digits method:
a.Year one
b.Year two
4>Straight-line depreciation method:
a.Year one
b.Year two