1) If market value of an impaired asset recovers after an impairment has been
recognized, the impairment may be reversed in a subsequent period.
2) Both IFRS and U.S. GAAP allow for comprehensive income to be reported in either
a
Statement of Stockholders’ Equity or a Statement of Recognized Income and Expense.
3) The FASB requires allocations of joint, common, or company-wide costs for external
reporting purposes.
4) The statement of cash flows reports only the cash effects of operations during a
period and financing transactions.
5) Reversing entries are made at the end of the accounting cycle to correct errors in the
original recording of transactions.
6) Contingent liabilities are not reported in the financial statements but may be
disclosed in the notes to the financial statements if the likelihood of an unfavorable
outcome is possible.
7) The rate of return on common stock equity is computed by dividing net income by
the average common stockholders equity.
8) The indirect method adjusts net income for items that affected reported net income
but did not affect cash.
9) The profit margin on sales ratio is a measure for analyzing the use of property, plant,
and equipment.
10) If the fair value of an unlimited life intangible other than goodwill is less than its
book value, an impairment loss must be recognized.
11) IFRS uses a ceiling to determine market.
12) Companies should classify the balances in the deferred tax accounts on the balance
sheet as noncurrent assets and noncurrent liabilities.
13) Trade discounts are used to avoid frequent changes in catalogs and to alter prices
for different quantities purchased.
14) Jamar Co. sold its headquarters building at a gain, and simultaneously leased back
the building. The lease was reported as a capital lease. At the time of the sale, the gain
should be reported as
a.operating income
b.an extraordinary item, net of income tax
c.a separate component of stockholders equity
d.a deferred gain
15) The first step in the preparation of the statement of cash flows requires the use of
information included in which comparative financial statements?
a.Statements of cash flows
b.Balance sheets
c.Income statements
d.Statements of retained earnings
16) IFRS 1 requires information in a companys first IFRS statement to:
a.be same as in GAAP statement
b.be transparent
c.be as lengthy as possible
d.provide a suitable ending point
17) On June 1, 2014, Nott Corp. loaned Horn $800,000 on a 12% note, payable in five
annual installments of $160,000 beginning January 2, 2015 . In connection with this
loan, Horn was required to deposit $5,000 in a noninterest-bearing escrow account. The
amount held in escrow is to be returned to Horn after all principal and interest payments
have been made. Interest on the note is payable on the first day of each month
beginning July 1, 2014 . Horn made timely payments through November 1, 2014 . On
January 2, 2015, Nott received payment of the first principal installment plus all interest
due. At December 31, 2014, Nott’s interest receivable on the loan to Horn should be
a.$0
b.$8,000
c.$16,000
d.$24,000
18) Koehn Corporation accounts for its investment in the common stock of Sells
Company under the equity method. Koehn Corporation should ordinarily record a cash
dividend received from Sells as
a.a reduction of the carrying value of the investment
b.additional paid-in capital
c.an addition to the carrying value of the investment
d.dividend income
19) Ocean Company follows IFRS for its external financial reporting. Which of the
following methods of reporting are acceptable under IFRS for the items shown?
Interest receivedDividends received
a. Operating Investing
b. Investing Financing
c. Financing Investing
d. Operating Financing
20) Dixon Construction Company was awarded a contract to construct an interchange at
the junction of U.S. 94 and Highway 30 at a total contract price of $12,000,000. The
estimated total costs to complete the project were $9,000,000.
Instructions
(a)Make the entry to record construction costs of $5,400,000, on construction in process
to date.
(b)Make the entry to record progress billings of $3,000,000.
(c)Make the entry to recognize the profit that can be recognized to date, on a
percentage-of-completion basis.
21) The stockholders’ equity section is usually divided into what three parts?
a.Preferred stock, common stock, treasury stock
b.Preferred stock, common stock, retained earnings
c.Capital stock, additional paid-in capital, retained earnings
d.Capital stock, appropriated retained earnings, unappropriated retained earnings
22) How is the gross profit method used as it relates to inventory valuation?
a.Verify the accuracy of the perpetual inventory records
b.Verify the accuracy of the physical inventory
c.To estimate cost of goods sold
d.To provide an inventory value of LIFO inventories
23) Which of the following is not considered cash for financial reporting purposes?
a.Petty cash funds and change funds
b.Money orders, certified checks, and personal checks
c.Coin, currency, and available funds
d.Postdated checks and I. O. U.’s
24) The numerator of the acid-test ratio consists of
a.total current assets
b.cash inventory and marketable securities
c.cash inventory and net receivables
d.cash, marketable securities, and net receivables
25) Rossi Company has a defined-benefit plan. At the end of 2015, it has determined
the following information related to its pension plan:
Projected benefit obligation$730,000
Accumulated benefit obligation660,000
Fair value of pension plan assets610,000
The amount of pension liability that is reported in Rossi’s balance sheet at the end of
2015 is
a.$150,000
b.$120,000
c.$70,000
d.$50,000
26) Changing the method of inventory valuation should be reported in the financial
statements under what qualitative characteristic of accounting information?
a.Consistency
b.Verifiability
c.Timeliness
d.Comparability
27) The following information is related to the pension plan of Long, Inc. for 2015 .
Actual return on plan assets$200,000
Amortization of net gain82,500
Amortization of prior service cost due to increase in benefits150,000
Expected return on plan assets230,000
Interest on projected benefit obligation362,500
Service cost850,000
Pension expense for 2015 is
a.$1,245,000
b.$1,215,000
c.$1,080,000
d.$1,050,000
28) Information for Ramirez Corp. is given below:
Ramirez Corp.
Balance Sheet
December 31, 2015
AssetsEquities
Cash$ 200,000Accounts payable$ 420,000
Accounts receivable (net)1,300,000Income taxes payable126,000
Inventories1,626,000Miscellaneous accrued payables150,000
Plant and equipment,Bonds payable (10%, due 2017)1,250,000
net of depreciation1,322,000Preferred stock ($100 par, 6%
Patents174,000cumulative nonparticipating)500,000
Other intangible assets 50,000Common stock (no par, 30,000
Total Assets$4,672,000shares authorized, issued
and outstanding)750,000
Retained earnings1,626,000
Treasury stock1,000 shares
of preferred (150,000)
Total Equities$4,672,000
Ramirez Corp.
Income Statement
Year Ended December 31, 2015
Net sales$6,000,000
Cost of goods sold 4,000,000
Gross profit2,000,000
Operating expenses (including bond interest expense) 1,000,000
Income before income taxes 1,000,000
Income tax 300,000
Net income$ 700,000
Additional information:
There are no preferred dividends in arrears, the balances in the Accounts Receivable
and Inventory accounts are unchanged from January 1, 2015, and there were no changes
in the Bonds Payable, Preferred Stock, or Common Stock accounts during 2015 .
Assume that preferred dividends for the current year have not been declared.
The number of times interest was earned during 2015 was
a. 700 / 125
b.1,000 / 125
c.1,124 / 125
d. 874 / 125
29) What is consigned inventory?
a.Goods that are shipped, but title transfers to the receiver
b.Goods that are sold, but payment is not required until the goods are sold
c.Goods that are shipped, but title remains with the shipper
d.Goods that have been segregated for shipment to a customer
30) On December 31, 2014, Pacer Co. adopted the dollar-value LIFO retail inventory
method. Inventory data for 2015 are as follows:
LIFO Cost Retail
Inventory, 12/31/14$750,000$1,050,000
Inventory, 12/31/15?1,375,000
Increase in price level for 201510%
Cost to retail ratio for 201570%
Under the LIFO retail method, Pacer’s inventory at December 31, 2015, should be
a.$904,000
b.$962,500
c.$977,500
d$1,000,250
31) Morgan Corporation purchased a depreciable asset for $400,000 on January 1, 2012
. The estimated salvage value is $40,000, and the estimated useful life is 9 years. The
straight-line method is used for depreciation. In 2015, Morgan changed its estimates to
a total useful life of 5 years with a salvage value of $60,000. What is 2015 depreciation
expense?
a.$40,000
b.$60,000
c.$110,000
d.$120,000