1) which of the following is a fundamental characteristic of useful accounting
information?
a.comparability
b.relevance
c.neutrality
d.materiality
2) what is the rationale behind the ceiling when applying the lower-of-cost-or-market
method to inventory?
a.prevents understatement of the inventory value
b.allows for a normal profit to be earned
c.allows for items to be valued at replacement cost
d.prevents overstatement of the value of obsolete or damaged inventories
3) on june 1, 2012, nott corp. loaned horn $600,000 on a 12% note, payable in five
annual installments of $120,000 beginning january 2, 2013. 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, 2012. horn made timely payments through november 1, 2012. on
january 2, 2013, nott received payment of the first principal installment plus all interest
due. at december 31, 2012, nott’s interest receivable on the loan to horn should be
a.$0
b.$6,000
c.$12,000
d.$18,000
4) all of the following may be included under the heading of “cash” except
a.currency
b.money market funds
c.checking account balance
d.savings account balance
5) the following items were among those that were reported on dye co.’s income
statement for the year ended december 31, 2012:
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.$660,000
b.$765,000
c.$930,000
d.$1,290,000
6) palomo corp has a tax rate of 30 percent and income before non-operating items of
$714,000. it also has the following items (gross amounts).
unusual gain$ 46,000
loss from discontinued operations366,000
dividend revenue12,000
income increasing prior
period adjustment148,000
what is the amount of income tax expense palomo would report on its income
statement?
a.$231,600
b.$121,800
c.$166,200
d.$217,800
7) the elements of financial statements include investments by owners. these are
increases in an entity’s net assets resulting from owners’
a.transfers of assets to the entity
b.rendering services to the entity
c.satisfaction of liabilities of the entity
d.all of these
8) which of the following items would be reported at its gross amount on the face of the
income statement?
a.extraordinary loss
b.prior period adjustment
c.cumulative effect of a change in an accounting principle
d.unusual gain
9) which of the following are considered equity securities?
i.convertible debt.
ii.redeemable preferred stock.
iii.call or put options.
a.i and ii only
b.i and iii only
c.ii only
d.iii only
10) on may 1, 2012, payne co. issued $500,000 of 7% bonds at 103, which are due on
april 30, 2022. twenty detachable stock warrants entitling the holder to purchase for $40
one share of paynes common stock, $15 par value, were attached to each $1,000 bond.
the bonds without the warrants would sell at 96. on may 1, 2012, the fair value of
paynes common stock was $35 per share and of the warrants was $2.
on may 1, 2012, payne should record the bonds with a
a.discount of $20,000
b.discount of $5,600
c.discount of $5,000
d.premium of $15,000
11) if bonds are issued between interest dates, the entry on the books of the issuing
corporation could include a
a.debit to interest payable
b.credit to interest receivable
c.credit to interest expense
d.credit to unearned interest
12) 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.
13) logan corp.’s trial balance of income statement accounts for the year ended
december 31, 2012 included the following:
debit credit
sales revenue$280,000
cost of good sold$100,000
administrative expenses50,000
loss on disposal of equipment18,000
sales commission expense16,000
interest revenue10,000
freight-out6,000
loss due to earthquake damage24,000
bad debt expense 6,000
totals$220,000$290,000
other information:
logan’s income tax rate is 30%. finished goods inventory:
january 1, 2012$160,000
december 31, 2012140,000
on logan’s multiple-step income statement for 2012,
income before extraordinary item is
a.$128,000
b.$94,000
c.$65,800
d.$49,000
14) smiley’s net cash used in investing activities for 2013 was
a.$700,000
b.$375,000
c.$200,000
d.$75,000
15) to be consistent with the historical cost principle, overhead costs incurred by an
enterprise constructing its own building should be
a.allocated on the basis of lost production
b.eliminated completely from the cost of the asset
c.allocated on an opportunity cost basis
d.allocated on a pro rata basis between the asset and normal operations