1) ifrs does not permit the lifo method to account for inventories.
2) companies report the cash flows from purchases and sales of trading securities as
cash flows from operating activities.
3) it is not necessary to post the closing entries to the ledger accounts because new
revenue and expense accounts will be opened in the subsequent accounting period.
4) if both purchases and ending inventory are overstated by the same amount, net
income is not affected.
5) the change in the lifo reserve from one period to the next is recorded as an
adjustment to cost of goods sold.
6) impaired assets held for disposal should be reported at the lower of cost or net
realizable value.
7) under u.s. gaap, the rate used to compute deferred taxes is either the enacted tax rate,
or a substantially enacted tax rate (virtually certain).
8) the service period in stock option plans is the time between the grant date and the
vesting date.
9) companies should recognize revenue when it is realized and when cash is received.
10) comprehensive income includes all changes in equity during a period except those
resulting from distributions to owners.
11) application of the lower-of-cost-or-market rule results in inconsistency because a
company may value inventory at cost in one year and at market in the next year.
12) prudence or conservatism means when in doubt, choose the solution that will be
least likely to overstate liabilities or expenses.
13) when an ordinary repair occurs, several periods will usually benefit.
14) gains or losses from exchange or translation of foreign currencies are reported as
extraordinary items.
15) revenue is generally recognized when realized or realizable and earned. this
statement describes the
a.consistency characteristic
b.expense recognition principle
c.revenue recognition principle
d.relevance characteristic
16) a general journal
a.chronologically lists transactions and other events, expressed in terms of debits and
credits
b.contains one record for each of the asset, liability, stockholders equity, revenue, and
expense accounts
c.lists all the increases and decreases in each account in one place
d.contains only adjusting entries
17) lang co. issued bonds with detachable common stock warrants. only the warrants
had a known market value. the sum of the fair value of the warrants and the face
amount of the bonds exceeds the cash proceeds. this excess is reported as
a.discount on bonds payable
b.premium on bonds payable
c.common stock subscribed
d.paid-in capital in excess of parstock warrants
18) when a company holds between 20% and 50% of the outstanding stock of an
investee, which of the following statements applies?
a.the investor should always use the equity method to account for its investment
b.the investor should use the equity method to account for its investment unless
circum-stances indicate that it is unable to exercise ‘significant influence” over the
investee
c.the investor must use the fair value method unless it can clearly demonstrate the
ability to exercise ‘significant influence” over the investee
d.the investor should always use the fair value method to account for its investment
19) horner construction co. uses the percentage-of-completion method. in 2012, horner
began work on a contract for $11,000,000; it was completed in 2013. the following cost
data pertain to this contract:
the amount of gross profit to be recognized on the income statement for the year ended
december 31, 2013 is
a.$1,600,000
b.$1,720,000
c.$1,800,000
d.$4,300,000
20) what is the normal journal entry for recording bad debt expense under the
allowance method?
a.debit allowance for doubtful accounts, credit accounts receivable
b.debit allowance for doubtful accounts, credit bad debt expense
c.debit bad debt expense, credit allowance for doubtful accounts
d.debit accounts receivable, credit allowance for doubtful accounts
21) which of the following is an ethical concern of accountants?
a.earnings manipulation
b.conservative accounting
c.industry practices
d.none of the above
22) the summarized balance sheets of goebel company and dobbs company as of
december 31, 2012 are as follows:
if goebel company acquired a 20% interest in dobbs company on december 31, 2012 for
$195,000 and the fair value method of accounting for the investment were used, the
amount of the debit to equity investments (dobbs) would have been
a.$135,000
b.$111,000
c.$195,000
d.$180,000
23) an accounting record into which the essential facts and figures in connection with
all transactions are initially recorded is called the
a.ledger
b.account
c.trial balance
d.none of these
24) mathis co. at the end of 2012, its first year of operations, prepared a reconciliation
between pretax financial income and taxable income as follows:
the estimated litigation expense of $1,500,000 will be deductible in 2014 when it is
expected to be paid. the gross profit from the installment sales will be realized in the
amount of $600,000 in each of the next two years. the estimated liability for litigation is
classified as noncurrent and the installment accounts receivable are classified as
$600,000 current and $600,000 noncurrent. the income tax rate is 30% for all years.
the income tax expense is
a.$180,000
b.$270,000
c.$300,000
d.$600,000
25) which of the following intangible assets should be shown as a separate item on the
balance sheet?
a.goodwill
b.franchise
c.patent
d.trademark
26) when computing diluted earnings per share, convertible securities are
a.ignored
b.recognized only if they are dilutive
c.recognized only if they are antidilutive
d.recognized whether they are dilutive or antidilutive
27) broadway corporation was granted a patent on a product on january 1, 2001. to
protect its patent, the corporation purchased on january 1, 2012 a patent on a competing
product which was originally issued on january 10, 2008. because of its unique plant,
broadway corporation does not feel the competing patent can be used in producing a
product. the cost of the competing patent should be
a.amortized over a maximum period of 20 years
b.amortized over a maximum period of 16 years
c.amortized over a maximum period of 9 years
d.expensed in 2012
28) how should cumulative preferred dividends in arrears be shown in a corporation’s
statement of financial position?
a.note disclosure
b.increase in stockholders’ equity
c.increase in current liabilities
d.increase in current liabilities for the amount expected to be declared within the year or
operating cycle, and increase in long-term liabilities for the balance
29) at the beginning of 2012, wallace corporation issued 10% bonds with a face value
of $1,500,000. these bonds mature in the five years, and interest is paid semiannually
on june 30 and december 31. the bonds were sold for $1,389,600 to yield 12%. wallace
uses a calendar-year reporting period. using the effective-interest method of
amortization, what amount of interest expense should be reported for 2012? (round your
answer to the nearest dollar.)
a.$172,080
b.$167,255
c.$166,750
d.$166,250
30) which of the following principles best describes the current method of accounting
for research and development costs?
a.associating cause and effect
b.systematic and rational allocation
c.income tax minimization
d.immediate recognition as an expense
31) on january 1, 2012, trent company granted dick williams, an employee, an option to
buy 300 shares of trent co. stock for $30 per share, the option exercisable for 5 years
from date of grant. using a fair value option pricing model, total compensation expense
is determined to be $2,700. williams exercised his option on september 1, 2012, and
sold his 300 shares on december 1, 2012. quoted market prices of trent co. stock during
2012 were:
the service period is for two years beginning january 1,2012. as a result of the option
granted to williams, using the fair value method, trent should recognize compensation
expense for 2012 on its books in the amount of
a.$3,000
b.$2,700
c.$1,350
d.$0
32) presented below is information related to equipment owned by finley company at
december 31, 2012.
assume that finley will continue to use this asset in the future. as of december 31, 2012,
the equipment has a remaining useful life of 4 years.
instructions
(a)prepare the journal entry (if any) to record the impairment of the asset at december
31, 2012.
(b)prepare the journal entry to record depreciation expense for 2013.
(c)the fair value of the equipment at december 31, 2013 is $4,100,000. prepare the
journal entry (if any) necessary to record this increase in fair value.
33) reegan company owns a trade name that was purchased in an acquisition of
hamilton company. the trade name has a book value of $3,500,000, but according to
gaap, it is assessed for impairment on an annual basis. to perform this impairment test,
reegan must estimate the fair value of the trade name. it has developed the following
cash flow estimates related to the trade name based on internal information. each cash
flow estimate reflects reegan’s estimate of annual cash flows over the next 7 years. the
trade name is assumed to have no residual value after the 7 years. (assume the cash
flows occur at the end of each year.)
reegan determines that the appropriate discount rate for this estimation is 6%. to the
nearest dollar, what is the estimated fair value of the trade name?
a.$3,500,000
b.$ 679,000
c.$2,060,000
d.$3,790,436
34) on october 1, 2012 macklin corporation issued 5%, 10-year bonds with a face value
of $2,000,000 at 104. interest is paid on october 1 and april 1, with any premiums or
discounts amortized on a straight-line basis.
bond interest expense reported on the december 31, 2012 income statement of macklin
corporation would be
a.$23,000
b.$25,000
c.$27,000
d.$46,000
35) describe the journal entry for a stock dividend on common stock (which has a par
value).
36) johnstone company has a loan receivable with a carrying value of $125,000 at
december 31, 2011. on january 1, 2012, the borrower, ralph young industries, declares
bankruptcy, and johnstone estimates that it will collect only 45% of the loan balance.
assume that on january 4, 2013, johnstone learns that ralph young industries has
emerged from bankruptcy. as a result, johnstone now estimates that all but $11,500 will
be paid on the loan. under igaap, which of the following entries would be made on
january 4, 2013?
37) utley co. prepares monthly income statements. inventory is counted only at year
end; thus, month-end inventories must be estimated. all sales are made on account. the
rate of mark-up on cost is 20%. the following information relates to the month of may.
instructions
calculate the estimated cost of the inventory on may 31.
38) below is the information relative to an exchange of assets by stanton company. the
exchange lacks commercial substance.
which of the following would be correct for stanton to record in case ii?
39) revenue on the income statement was $145,800. accounts receivable were $3,500
on january 1 and $3,540 on december 31. unearned revenue was $1,050 on january 1
and $1,670 on december 31.
show the computation of revenue for the year on a cash basis.