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1) An employer does not have to report a liability on its balance sheet in a
defined-benefit plan.
2) Companies must consider presently enacted changes in the tax rate that become
effective in future years when determining the tax rate to apply to existing temporary
differences.
3) Many companies do not segregate the sales tax collected and the amount of the sale
at the time of the sale.
4) Trading securities are securities bought and held primarily for sale in the near term to
generate income on short-term price differences.
5) Inadequacy is the replacement of one asset with another more efficient and
economical asset.
6) Activity ratios measure the degree of protection for long-term creditors and investors.
7) Nominal (temporary) accounts are revenue, expense, and dividend accounts and are
periodically closed.
8) In 2014, Bargain shop reported net income of $5.7 billion, net sales of $175 billion,
and average total assets of $70 billion. What is Bargain shop's return on total assets?
a.8.1%
b.30.7%
c.25%
d.12.3%
9) If you invest $50,000 to earn 8% interest, which of the following compounding
approaches would return the lowest amount after one year?
a.Daily
b.Monthly
c.Quarterly
d.Annually
10) When computing the amount of interest cost to be capitalized, the concept of
"avoidable interest" refers to
a.the total interest cost actually incurred
b.a cost of capital charge for stockholders' equity
c.that portion of total interest cost which would not have been incurred if expenditures
for asset construction had not been made
d.that portion of weighted-average accumulated expenditures on which no interest cost
was incurred
11) Under IFRS, which of the following is used to measure a liability, if a range of
estimates is predicted and no amount in the range is more likely than any other amount
in the range?
a.Minimum of the range
b.Maximum of the range
c.Mid-point of the range
d.Average of the range
12) Which of the following is not a condition that must be satisfied before interest
capitalization can begin on a qualifying asset?
a.Interest cost is being incurred
b.Expenditures for the assets have been made
c.The interest rate is equal to or greater than the company's cost of capital
d.Activities that are necessary to get the asset ready for its intended use are in progress
13) A reconciliation of Gentry Company's pretax accounting income with its taxable
income for 2014, its first year of operations, is as follows:
Pretax accounting income$3,000,000
Excess tax depreciation (150,000)
Taxable income$2,850,000
The excess tax depreciation will result in equal net taxable amounts in each of the next
three years. Enacted tax rates are 40% in 2014, 35% in 2015 and 2016, and 30% in
2017 . The total deferred tax liability to be reported on Gentry's balance sheet at
December 31, 2014, is
a.$60,000
b.$50,000
c.$52,500
d.$45,000
14) On January 1, 2008, Hernandez Corporation issued $9,000,000 of 10% ten-year
bonds at 103. The bonds are callable at the option of Hernandez at 105. Hernandez has
recorded amortization of the bond premium on the straight-line method (which was not
materially different from the effective-interest method).
On December 31, 2014, when the fair value of the bonds was 96, Hernandez
repurchased $2,000,000 of the bonds in the open market at 96. Hernandez has recorded
interest and amortization for 2014 . Ignoring income taxes and assuming that the gain is
material, Hernandez should report this reacquisition as
a.a loss of $98,000
b.a gain of $98,000
c.a loss of $122,000
d.a gain of $122,000
15) Which of the following is a period cost?
a.Labor costs
b.Freight in
c.Production costs
d.Selling costs
16) The following items were among those that were reported on Dye Co.'s income
statement for the year ended December 31, 2014:
Legal and audit fees$520,000
Rent for office space720,000
Interest on inventory floor plan840,000
Loss on abandoned equipment used in operations140,000
The office space is used equally by Dye's sales and accounting departments. What
amount of the above-listed items should be classified as general and administrative
expenses in Dye's multiple-step income statement?
a.$880,000
b.$1,020,000
c.$1,240,000
d.$1,720,000
17) Slotkin Products purchased a machine for $39,000 on July 1, 2014 . The company
intends to depreciate it over 8 years using the double-declining balance method.
Salvage value is $3,000. Depreciation for 2015 to the closest dollar is
a.$19,500
b.$4,875
c.$8,531
d.$7,500
18) Harrison Company has a loan receivable with a carrying value of $15,000 at
December 31, 2013 . On January 3, 2014, the borrower, Thomas Clark Imports,
declares bankruptcy, and Harrison estimates that it will collect only 60% of the loan
balance.
Assume that on January 5, 2015, Harrison learns that Thomas Clark Imports has
emerged from bankruptcy. As a result, Harrison now estimates that all but $1,500 will
be repaid on the loan. Under IFRS, which of the following entries would be made on
January 5, 2015?
a.Loan Receivable4,500
Recovery of Impairment Loss4,500
b.Loan Receivable1,500
Recovery of Impairment Loss1,500
c.Bad Debt Expense1,500
Impairment Loss1,500
d.No journal entry is allowed under IFRS.
19) The four types of accounting changes, including error correction, are:
Code
a.Change in accounting principle.
b.Change in accounting estimate.
c.Change in reporting entity.
d.Error correction.
Instructions
Following are a series of situations. You are to enter a code letter to the left to indicate
the type of change.
1> Change from presenting nonconsolidated to consolidated financial statements.
2> Change due to charging a new asset directly to an expense account.
3> Change from expensing to capitalizing certain costs, due to a change in periods
benefited.
4> Change from FIFO to LIFO inventory procedures.
5> Change due to failure to recognize an accrued (uncollected) revenue.
6> Change in amortization period for an intangible asset.
7> Changing the companies included in combined financial statements.
8> Change in the loss rate on warranty costs.
9> Change due to failure to recognize and accrue income.
10> Change in residual value of a depreciable plant asset.
11> Change from an unacceptable to an acceptable accounting principle.
12> Change in both estimate and acceptable accounting principles.
13> Change due to failure to recognize a prepaid asset.
14> Change from straight-line to sum-of-the-years'-digits method of depreciation.
15> Change in life of a depreciable plant asset.
16> Change from one acceptable principle to another acceptable principle.
17> Change due to understatement of inventory.
18> Change in expected recovery of an account receivable.
20) Crabbe Company reported $80,000 of selling and administrative expenses on its
income statement for the past year. The company had depreciation expense and an
increase in prepaid expenses associated with the selling and administrative expenses for
the year. Assuming use of the direct method, how would these items be handled in
converting the accrual based selling and administrative expenses to the cash basis?
Increase in
DepreciationPrepaid Expenses
a.Deducted FromDeducted From
b.Added ToAdded To
c.Deducted FromAdded To
d.Added ToDeducted From
21) Which of the following methods to account for sales is used when a high degree of
uncertainty exists related to the collection of receivables?
a.Cost-recovery method
b.Percentage-of-completion method
c.Deposit method
d.Completed-contract method
22) The following data are provided:
December 31,
2015 2014
5% Cumulative preferred stock, $50 par$100,000$100,000
Common stock, $10 par140,00090,000
Additional paid-in capital80,00070,000
Retained earnings (includes current year net income)240,000215,000
Net income60,000
Additional information:
On May 1, 2015, 5,000 shares of common stock were issued. The preferred dividends
were not declared during 2015 . The market price of the common stock was $50 at
December 31, 2015 .
The book value per share of common stock at 12/31/15 is calculated as
a.455 / 14
b.380 / 14
c.220 / 14
d.460 / 14
23) Which of the following best describes current practice in accounting for leases?
a.Leases are not capitalized
b.Leases similar to installment purchases are capitalized
c.All long-term leases are capitalized
d.All leases are capitalized
24) During 2014, Gordon Company issued at 104 four hundred, $1,000 bonds due in
ten years. One detachable stock warrant entitling the holder to purchase 15 shares of
Gordons common stock was attached to each bond. At the date of issuance, the market
value of the bonds, without the stock warrants, was quoted at 96 . The market value of
each detachable warrant was quoted at $40. What amount, if any, of the proceeds from
the issuance should be accounted for as part of Gordons stockholders' equity?
a.$0
b.$16,000
c.$16,640
d.$15,808
25) Which of the following is not considered an advantage of LIFO when prices are
rising?
a.The inventory will be overstated
b.The more recent costs are matched against current revenues
c.There will be a deferral of income tax
d.A company's future reported earnings will not be affected substantially by future price
declines
26) With respect to the computation of earnings per share, which of the following
would be most indicative of a simple capital structure?
a.Common stock, preferred stock, and convertible securities outstanding in lots of even
thousands
b.Earnings derived from one primary line of business
c.Ownership interest consisting solely of common stock
d.None of these
