1) In a lease that is recorded as an operating lease by the lessee, the equal monthly
rental payments should be
a. allocated between interest expense and depreciation expense
b. allocated between a reduction of the liability for leased assets and interest expense
c. recorded as a reduction in the liability for leased assets
d. recorded as a rental expense
2) If an inventory account is understated at year end, the effect will be to overstate the
a. net purchases
b. gross margin
c. cost of goods available for sale
d. cost of goods sold
3) Which one of the following statements is NOT correct?
a. The accounting function should be separated from the custodianship of a company’s
assets
b. Certain clerical personnel in a company should be rotated among various jobs
c. A company’s personnel should be given well-defined responsibilities
d. The responsibility of receiving merchandise and paying for it usually should be given
to one person
4) Which of the following principles best describes the current method of accounting
for research and development costs?
a. Immediate recognition as an expense
b. Systematic and rational allocation
c. Income tax minimization
d. Associating cause and effect
5) Which of the following is not correct regarding the provisions of IAS No. 8 on
accounting changes and error corrections?
a. A change in accounting estimate is reflected in the current and future periods
b. A change in depreciation method (such as from an accelerated method to the
straight-line method) is classified as a change in estimate
c. A change in depreciation method (such as from accelerated method to the
straight-line method) is classified as a change in accounting principle
d. IAS No. 8 generally reflects a preference for restating prior results to improve
comparability of financial statements
6) An agreement between two parties to exchange a specified amount of a commodity,
security, or foreign currency at a specified date in the future with the price or exchange
rate being set now is referred to as a(n)
a. interest rate swap
b. forward contract
c. futures contract
d. option
7) In a statement of cash flows, if equipment is sold at a gain, the amount shown as a
cash inflow from investing activities equals the carrying amount of the equipment
a. with no addition or subtraction
b. plus the gain and less the amount of tax attributable to the gain
c. plus the gain only
d. plus both the gain and the amount of tax attributable to the gain
8) Nielsen Cargo Company recently exchanged an old truck, which cost $108,000 and
was one-third depreciated, and paid $70,000 cash for a similar truck having a current
fair value of $130,000. The exchange lacked commercial substance. At what amount
should the truck be recorded on the books of Nielsen?
a. $70,000
b. $108,000
c. $130,000
d. $142,000
9) A gain on the sale of a plant assets should be included in which of the following
sections of a statement of cash flows prepared using the indirect method?
a. Investing activities
b. Operating activities
c. Financing activities
d. Non-cash investing and financing activities
10) The International Accounting Standards Board was formed to
a. enforce FASB standards in foreign countries
b. develop worldwide accepted accounting standards
c. establish accounting standards for U.S. multinational companies
d. develop accounting standards for countries that do not have their own
standard-setting bodies
11) Which of the following depreciation methods is computed in the same way as
depletion?
a. Straight-line
b. Sum-of-the-years’-digits
c. Double-declining-balance
d. Productive-output
12) During 2014, Stewart Company reported revenues on an accrual basis of $70,000.
Accounts receivable decreased during the year from $35,000 at the beginning to
$24,500 at the end. How much cash was provided by collections from customers during
the year?
a. $45,500
b. $59,500
c. $70,000
d. $80,500
13) In June 2015, the enterprise decided to reclassify the Mingo stock as trading
securities. The stock had a market value of $41,000 at the time of the reclassification.
What amount of holding gain or loss is immediately recognized in 2015 earnings?
a. $2,000 gain
b. $1,000 gain
c. $3,000 gain
d. $1,000 loss
14) Accrued revenues would normally appear on the balance sheet as
a. plant assets
b. current liabilities
c. long-term liabilities
d. current assets
15) A new product introduced by Sunbound Promotions carries a two-year warranty
against defects. The estimated warranty costs related to dollar sales are as follows:
Sales and actual warranty expenditures for the years ended December 31, 2013 and
2014, are as follows:
What amount should Sunbound report as its estimated liability as of December 31,
2014?
a. $4,000
b. $24,000
c. $56,000
d. $74,000
16) Based on its past collection experience, Base Company provides for bad debts at the
rate of 2 percent of net credit sales. On January 1, 2014, the allowance for doubtful
accounts credit balance was $10,000. During 2014, Base wrote off $18,000 of
uncollectible receivables and recovered $5,000 on accounts written off in prior years. If
net credit sales for 2014 totaled $1,000,000, the doubtful accounts expense for 2014
should be
a. $17,000
b. $20,000
c. $23,000
d. $35,000
17) Harris Company reported the following results from operations for 2014:
Income before extraordinary items was
a. $97,200
b. $83,280
c. $87,200
d. $88,400
18) Rowan Corporation, a calendar-year firm, is authorized to issue $200,000 of 10
percent, 20-year bonds dated January 1, 2014, with interest payable on January 1 and
July 1 of each year. If the bonds were issued to yield 12 percent, the entry to account for
the discount amortization and accrual of interest on December 31, 2014, would include
a
a. debit to Discount on Bonds Payable
b. credit to Cash
c. credit to Interest Payable
d. debit to Bonds Payable
19) The if-converted method of computing EPS data assumes conversion of convertible
securities at the
a. beginning of the earliest period reported (or at time of issuance, if later)
b. beginning of the earliest period reported (regardless of time of issuance)
c. middle of the earliest period reported (regardless of time of issuance)
d. ending of the earliest period reported (regardless of time of issuance)
20) The exercise price and market price of stock under a fixed compensatory stock
option plan are equal on the grant date. The fair value of the options is greater than the
option price. Under the fair value method,
a. compensation expense will be recognized in connection with the option plan
b. no compensation expense will be recognized in connection with the option plan
c. deferred compensation will be recognized
d. no paid-in capital from stock options will be recognized
21) The following information is available for Superior Company for 2014:
What amount should Superior report as cost of goods sold for 2014?
a. $510,000
b. $550,000
c. $610,000
d. $650,000
22) Which of the following shareholder rights is most commonly enhanced in an issue
of preferred stock?
a. The right to vote for the board of directors
b. The right to maintain one’s proportional interest in the corporation
c. The right to receive a full cash dividend before dividends are paid to other classes of
stock
d. The right to vote on major corporate issues
23) Which of the following taxes is NOT included in the payroll tax expense of the
employer?
a. State unemployment taxes
b. Federal income taxes
c. FICA taxes
d. Federal unemployment taxes
24) Which of the following is not correct regarding the translation of a foreign entitys
accounts?
a. Translation uses the historical rate at the date a foreign subsidiary was acquired for
the paid-in capital amounts
b. Translation uses the current rate method
c. Translation should be used in a translating the accounts of a foreign entity operating
in a highly inflationary economy
d. Foreign currency translation adjustments are displayed under the accumulated
comprehensive income section of the translated balance sheet
25) Bond discount should be presented in the financial statements of the issuer as a(n)
a. adjunct liability
b. contra liability
c. deferred charge
d. contra asset
26) See Abe Company information above. How much was the total Sales Discounts
given to Bee during July?
a. $7
b. $0
c. $441
d. $2,441
27) Which of the following is true regarding the accounting for property, plant, and
equipment under international accounting standards?
a. Upward revaluations of property, plant, and equipment are not allowed
b. The option is available for an entity to adjust upward the carrying value of property,
plant, and equipment to fair value
c. All entities must adjust upward the carrying value of property, plant, and equipment
to fair value
d. An entity has the option to adjust upward the carrying value of property, plant, and
equipment to fair value, with gains and losses being shown in other comprehensive
income
28) Melville Company manufactures electronic components. The company is a
calendar-year company. The records of the company show the following information:
Melville paid suppliers $122,500 during 2013. What is Melvilles cost of goods sold?
a. $136,250
b. $123,750
c. $121,250
d. $108,750
29) Shorecrest Company recently accepted a donation of land with a fair value of
$250,000 from the city of Sutton in return for a promise to build a plant in Sutton.
The entry that Shorecrest should use to record this land is:
a. Land………………………… 250,000 Donated Capital-Land 250,000
b. Land………………………… 250,000 Gain from Receipt of Donated Land 250,000
c. Land………………………… 250,000 Unrealized Gain from Receipt of Donated
Land……………… 250,000
d. Land………………………… 250,000 Retained Earnings……………. 250,000
30) Accrual-basis net income is most useful for
a. determining the amount of income tax a company should pay
b. predicting the short-term performance of an enterprise
c. predicting the long-term performance of an enterprise
d. determining the amount of dividends a company should pay
31) Hyde Company traded in an old machine with a book value of $15,000 on a new
machine. The exchange did not have commercial substance. The new machine, which
had a cash price of $75,000, was purchased for $64,000 cash plus the old machine.
Hyde should record the cost of the new machine as
a. $64,000
b. $71,000
c. $75,000
d. $79,000
32) Carryon Co., a manufacturer, had inventories at the beginning and end of its current
year as follows:
During the year, the following costs and expenses were incurred:
Carryons cost of goods sold for the year is
a. $257,000
b. $260,500
c. $261,000
d. $269,500
33) When a company acquires an asset that will provide benefits for several years, the
cost of the asset is allocated over the assets useful life. The allocation process is
operationalized through the choice of one of the generally accepted depreciation
methods. In choosing a depreciation method to apply, company management is required
to make several estimates as part of this allocation process such as the following:
Required:
34) Panther Corp. reported the following pretax amounts for the year ending December
31, 2014:
The income tax rate applicable to Panther is 30 percent. Prepare a partial income
statement for the year ending December 31, 2014, beginning with “Income from
continuing operations before income taxes.” Include the presentation of earnings per
share, assuming 50,000 shares were outstanding during the year.
35) Tundra Electronics Company sends appliances to dealers on a consignment basis.
The selling price per unit is $920 and the dealer earns a 30% commission. The
manufacturing cost of the appliance to Tundra Electronics is $570. Assume that in 2014,
800 units were sent on consignment to Farber Hardware. Four hundred of these units
were sold for cash, and by December 31, 2011, remittance had been made to Tundra
Electronics for 380 units.
Prepare the required journal entries on the books of Tundra Electronics Company and
Farber Hardware for the transactions in 2014.
36) Harrison Company is located in Taiwan and uses international accounting
standards. Harrison Company purchased equipment 8 years ago for $1,000,000. The
equipment has been depreciated using the straight-line method with a 20-year useful
life and 10% residual value. Harrison’s operations have experienced significant losses
for the past 2 years and, as a result, the company has decided that the equipment should
be evaluated for possible impairment. The management of Harrison Company estimates
that the equipment has a remaining useful life of 7 years. The discounted value of the
future net cash inflows from the use of the equipment is $220,000. The fair value of the
equipment is $240,000. No goodwill was associated with the purchase of the
equipment. Harrison Company has chosen to recognize increases in the value of
long-term operating assets in accordance with the allowable alternative under IAS 36.
37) Ladrillo Enterprises, Inc., has two operating divisions, one manufactures farm
machinery and the other manufactures office furniture. Both divisions are considered
separate components as defined by SFAS No. 144. The management of Ladrillo
Enterprises wants to focus on the manufacturing of farm machinery and accordingly
adopted a formal plan to sell the office furniture division on September 20, 2014. The
sale was completed on March 10, 2015. At December 31, 2014, the office furniture
component was considered as held for sale.
On December 31, 2014, the companys fiscal year-end, the book value of the assets of
the office furniture division was $1,000,000. On that date, the fair value of the assets,
less costs to sell, was $900,000. The before-tax operating loss of the division for the
year was $130,000. The companys tax rate is 40%. The after-tax income from
continuing operations for 2014 was $350,000.
Prepare a partial income statement for 2014 beginning with income from continuing
operations. Ignore EPS disclosures.
38) On January 1, 2014, Hannah Ventures, Inc., received a three-year, $1 million loan
with interest payments due at the end of each year and the principal to be repaid on
December 31, 2016. The interest rate for the first year is the prevailing market rate of 9
percent, and the rate each succeeding year will be equal to the prevailing market rate on
January 1 of that year. Hannah also entered into an interest rate swap agreement related
to this loan. Under the terms of the swap agreement, in the years 2015 and 2016,
Hannah will receive a swap payment based on the principal amount of $1 million. If the
January 1 interest rate is greater than 9 percent, Hannah will receive a swap payment
for the difference; and if the January 1 interest rate is less than 9 percent, Hannah will
make a swap payment for the difference. The swap payments are made on December 31
of each year. On January 1, 2015, the interest rate is 8 percent, and on January 1, 2016,
the interest rate is 12 percent.
Make all the journal entries necessary on Hannah’s books at the dates shown below. For
purposes of estimating future swap payments, assume that the current interest rate is the
best forecast of the future interest rate (round all entries to the nearest dollar).
39) On July 1, 2014, Hilltop Systems acquired 8,000 shares of Accurate Services’
40,000 outstanding common shares at a cost of $240,000. The book value of Accurate’s
net assets on that date was $880,000. The following data pertain to Accurate Services
for 2014:
Any excess of cost over book value is attributable to depreciable properties the market
value of which exceeds the carrying value. The remaining life of the equipment is 10
years.
40) Use the provisions of FASB Statement No. 109.
41) Baron Co. began operations on January 1, 2011, at which time it acquired
depreciable assets of $100,000. The assets have an estimated useful life of ten years and
no salvage value.
In 2014, Baron Co. changed from the sum-of-the-years’-digits depreciation method to
the straight-line depreciation method.
Required:
Determine the depreciation expense for 2014 and prepare the appropriate journal entry.
