1) When the entity has substantially accomplished what it must do to be entitled to the
benefits represented by the revenues, revenues are considered
a.earned
b.realized
c.recognized
d.All of these answers are correct
2) Midland Company follows U.S. GAAP for its external financial reporting whereas
Bailey Company follows IFRS for its external financial reporting. The remaining
service lives of employees at both firms is estimated to be 10 years. The following
information is available for each company at December 31, 2015 related to their
respective defined-benefit pension plans.
MidlandBailey
Net of pension assets and liabilities$110,000$140,000
Prior service cost$220,000$175,000
What is the amount of Pension Asset/Liability recognized by each company in its
balance sheet at December 31, 2015?
MidlandBailey
a.$110,000$140,000
b.$ 11,000$140,000
c.$110,000$ 14,000
d.$ 11,000$ 14,000
3) Galt Company acquired a tract of land containing an extractable natural resource.
Galt is required by the purchase contract to restore the land to a condition suitable for
recreational use after it has extracted the natural resource. Geological surveys estimate
that the recoverable reserves will be 4,000,000 tons, and that the land will have a value
of $600,000 after restoration. Relevant cost information follows:
Land$6,400,000
Estimated restoration costs1,200,000
If Galt maintains no inventories of extracted material, what should be the charge to
depletion expense per ton of extracted material?
a.$1.60
b.$1.75
c.$2.00
d.$1.90
4) On January 1, 2015, Frost Corp. changed its inventory method to FIFO from LIFO
for both financial and income tax reporting purposes. The change resulted in a $700,000
increase in the January 1, 2015 inventory. Assume that the income tax rate for all years
is 30%. The cumulative effect of the accounting change should be reported by Frost in
its 2015
a.retained earnings statement as a $490,000 addition to the beginning balance
b.income statement as a $490,000 cumulative effect of accounting change
c.retained earnings statement as a $700,000 addition to the beginning balance
d.income statement as a $700,000 cumulative effect of accounting change
5) Milford Company had 500 units of Tank in its inventory at a cost of $4 each. It
purchased, for $2,800, 300 more units of Tank. Milford then sold 400 units at a selling
price of $10 each, resulting in a gross profit of $1,600. The cost flow assumption used
by Milford
a.is FIFO
b.is LIFO
c.is weighted average
d.cannot be determined from the information given
6) Kasravi Co. had net income for 2015 of $500,000. The average number of shares
outstanding for the period was 200,000 shares. The average number of shares under
outstanding options, at an option price of $30 per share is 12,000 shares. The average
market price of the common stock during the year was $36. What should Kasravi Co.
report for diluted earnings per share for the year ended 2015?
a.$2.50
b.$2.48
c.$2.38
d.$2.36
7) Penner Builders contracted to build a high-rise for $28,000,000. Construction began
in 2014 and is expected to be completed in 2017 . Data for 2014 and 2015 are:
2014 2015
Costs incurred to date$3,600,000$10,400,000
Estimated costs to complete14,400,0009,600,000
Penner uses the percentage-of-completion method.
(a)How much gross profit should be reported for 2014? Show your computation.
(b)How much gross profit should be reported for 2015?
(c)Make the journal entry to record the revenue and gross profit for 2015 .
8) According to the FASB’s conceptual framework, the calculation of comprehensive
income includes which of the following?
Income fromDistributions
Continuing Operationsto Owners
a.NoNo
b.YesNo
c.YesYes
d.NoYes
9) IFRS and U.S. GAAP
a.are diametrically opposed in their accounting for impairments of assets held for
disposal
b.are similar in the accounting for impairments of assets held for disposal
c.are moving toward common ground in their accounting for impairments of assets held
for disposal
d.are moving further apart in their accounting for impairments of assets held for
disposal
10) The accounting problem in a lump sum issuance is the allocation of proceeds
between the classes of securities. An acceptable method of allocation is
a.the pro forma method
b.the proportional method
c.the incremental method
d.either the proportional method or the incremental method
11) On December 31, 2013, Short Co. is in financial difficulty and cannot pay a note
due that day. It is a $1,000,000 note with $100,000 accrued interest payable to Bryan,
Inc. Bryan agrees to forgive the accrued interest, extend the maturity date to December
31, 2015, and reduce the interest rate to 4%. The present value of the restructured cash
flows is $856,000.
Instructions
Prepare entries for the following:
(a)The restructure on Shorts books.
(b)The payment of interest on December 31, 2014 .
(c)The restructure on Bryans books.
12) Opera Corp. uses dollar-value LIFO method of computing its inventory cost. Data
for the past three years is as follows:
Year endedInventory atPrice
December 31End-of-year PricesIndex
2013 $ 390,0001.00
2014756,0001.05
2015810,0001.10
What is the 2014 inventory balance using dollar-value LIFO?
a.$756,000
b.$771,000
c.$736,500
d.$754,500
13) Consistency is best demonstrated when
a.expenses are reported as charges against the period in which incurred
b.the effect of changes in accounting methods is properly disclosed
c.extraordinary gains and losses are not reported on the income statement
d.accounting procedures are adopted which give a consistent rate of net income
14) Falcon Corporation purchased a depreciable asset for $630,000 on January 1, 2012 .
The estimated salvage value is $63,000, and the estimated total useful life is 9 years.
The straight-line method is used for depreciation. In 2015, Falcon changed its estimates
to a useful life of 5 years with a salvage value of $105,000. What is 2015 depreciation
expense?
a.$63,000
b.$105,000
c.$168,000
d.$189,000
15) On January 1, 2014, Korsak, Inc. established a stock appreciation rights plan for its
executives. It entitled them to receive cash at any time during the next four years for the
difference between the market price of its common stock and a pre-established price of
$20 on 100,000 SARs. Current market prices of the stock are as follows:
January 1, 2014$35 per share
December 31, 201438 per share
December 31, 201530 per share
December 31, 201633 per share
Compensation expense relating to the plan is to be recorded over a four-year period
beginning January 1, 2014 .
What amount of compensation expense should Korsak recognize for the year ended
December 31, 2014?
a.$ 300,000
b.$ 450,000
c.$ 375,000
d.$1,800,000