1) A sale should not be recognized as revenue by the seller at the time of sale if
a.payment was made by check
b.the selling price is less than the normal selling price
c.the buyer has a right to return the product and the amount of future returns cannot be
reasonably estimated
d.None of these answers are correct
2) Which statement is not true about the gross profit method of inventory valuation?
a.It may be used to estimate inventories for interim statements
b.It may be used to estimate inventories for annual statements
c.It may be used by auditors
d.None of these answers are correct
3) Presented below is pension information for Green Company for the year 2015:
Expected return on plan assets$24,000
Interest on vested benefits15,000
Service cost50,000
Interest on projected benefit obligation21,000
Amortization of prior service cost due to increase in benefits18,000
The amount of pension expense to be reported for 2015 is
a.$113,000
b.$89,000
c.$60,000
d.$65,000
4) When converting from cash-basis to accrual-basis accounting, which of the following
adjustments should be made to cash paid for operating expenses to determine
accrual-basis operating expenses?
a.Add beginning accrued liabilities
b.Subtract beginning prepaid expense
c.Subtract ending prepaid expense
d.Subtract interest expense
5) Langley Company’s December 31 year-end financial statements contained the
following errors:
Dec. 31, 2014Dec. 31, 2015
Ending inventory$22,500 understated$33,000 overstated
Depreciation expense6,000 understated
An insurance premium of $54,000 was prepaid in 2014 covering the years 2014, 2015,
and 2016 . The prepayment was recorded with a debit to insurance expense. In addition,
on December 31, 2015, fully depreciated machinery was sold for $28,500 cash, but the
sale was not recorded until 2016 . There were no other errors during 2015 or 2016 and
no corrections have been made for any of the errors. Ignore income tax considerations.
What is the total effect of the errors on the balance of Langley’s retained earnings at
December 31, 2015?
a.Retained earnings understated by $30,000
b.Retained earnings understated by $13,500
c.Retained earnings understated by $7,500
d.Retained earnings overstated by $10,500
6) Paula purchased a house for $300,000. After providing a 20% down payment, she
borrowed the balance from the local savings and loan under a 30-year 6% mortgage
loan requiring equal monthly installments at the end of each month. Which time value
concept would be used to determine the monthly payment?
a.Present value of one
b.Future value of one
c.Present value of an ordinary annuity
d.Future value of an ordinary annuity
7) A pension liability is reported when
a.the projected benefit obligation exceeds the fair value of pension plan assets
b.the accumulated benefit obligation is less than the fair value of pension plan assets
c.the pension expense reported for the period is greater than the funding amount for the
same period
d.accumulated other comprehensive income exceeds the fair value of pension plan
assets
8) Given below are the present value factors for $1.00 discounted at 10% for one to five
periods.
Present Value of $1
PeriodsDiscounted at 10% per Period
10.909
20.826
30.751
40.683
50.621
What is the present value today of $9,000 to be received six years from today?
a.$9,000 x 0.909 x 6
b.$9,000 x 0.751 x 2
c.$9,000 x 0.621 x 0.909
d.$9,000 x 0.683 x 3
9) Which of the following statements is true?
a.The higher the discount rate, the higher the present value
b.The process of accumulating interest on interest is referred to as discounting
c.If money is worth 10% compounded annually, $1,100 due one year from today is
equivalent to $1,000 today
d.If a single sum is due on December 31, 2014, the present value of that sum decreases
as the date draws closer to December 31, 2014
10) Tolan Corp.’s trademark was licensed to Eddy Co. for royalties of 15% of sales of
the trademarked items. Royalties are payable semiannually on March 15 for sales in
July through December of the prior year, and on September 15 for sales in January
through June of the same year. Tolan received the following royalties from Eddy:
March 15September 15
2013$5,000$7,500
20146,0009,500
Eddy estimated that sales of the trademarked items would total $30,000 for July
through December 2014 . In Tolan’s 2014 income statement, the royalty revenue should
be
a.$14,000
b.$15,500
c.$20,000
d.$20,500
11) At the beginning of 2015; Elephant, Inc. had a deferred tax asset of $10,000 and a
deferred tax liability of $15,000. Pre-tax accounting income for 2015 was $750,000 and
the enacted tax rate is 40%. The following items are included in Elephants pre-tax
income:
Which of the following is required to adjust Elephant, Inc.s deferred tax asset to its
correct balance at December 31, 2015?
a.A credit of $52,000
b.A credit of $38,000
c.A debit of $38,000
d.A debit of $42,000
12) Which of the following earnings per share figures must be disclosed on the face of
the income statement?
a.EPS for income before taxes
b.The effect on EPS from unusual items
c.EPS for gross profit
d.EPS for income from continuing operations
13) The balance sheet is useful for analyzing all of the following except
a.liquidity
b.solvency
c.profitability
d.financial flexibility
14) Rock Company purchased a depreciable asset for $500,000 on April 1, 2012 . The
estimated salvage value is $50,000, and the estimated total useful life is 5 years. The
straight-line method is used for depreciation. What is the balance in accumulated
depreciation on May 1, 2015 when the asset is sold?
a.$196,667
b.$210,000
c.$247,500
d.$277,500
15) A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1,
2014 . Interest is paid on June 30 and December 31 . The proceeds from the bonds are
$19,604,144. What is interest expense for 2015, using straight-line amortization?
a.$1,540,208
b.$1,560,000
c.$1,569,192
d.$1,579,793