1) Daniels Company entered into a direct-financing lease with Old 7 Corporation,
which called for seven annual rentals of $3,500 at an interest rate of 12 percent. The
payments are to be paid at the end of each year. The lease also contained a bargain
purchase option allowing Old 7 to purchase the asset for $2,500 after making the
seventh annual rental payment.
What was the cost of the asset?
a. $17,104
b. $18,473
c. $25,631
d. $27,000
2) Sunfish Construction Company uses the percentage-of-completion method of
accounting. In 2014, Sunfish began work on a project which had a contract price of
$1,600,000 and estimated costs of $1,200,000. Additional information is as follows:
The amount of gross profit Sunfish should recognize on this contract during 2014 is
a. $40,000
b. $80,000
c. $100,000
d. $200,000
3) Which of the following statements regarding discontinued operations is true?
a. The assets and liabilities of a disposal group classified as held for sale by an entity
may be offset and shown as a single item on the balance sheet of the entity
b. The assets and liabilities of a disposal group of an entity must be shown separately in
the asset and liabilities sections of the balance sheet of the entity and cannot be offset
c. An adjustment in a subsequent period to the selling price of a component of an entity
sold must be reported as a retroactive adjustment in the prior-period financial
statements of the entity in which the discontinued operation was reported
d. The gain or loss on disposal of a component of an entity classified as a discontinued
operation need not be disclosed separately from the loss from operations of the
discontinued segment
4) Barrister Corporation separates operating expenses in two categories: (1) selling, and
(2) general and administrative. The adjusted trial balance at December 31, 2014,
included the following expenses and loss accounts:
One-half of the rented premises is occupied by the sales department. Barrister’s total
selling expenses for 2014 are
a. $720,000
b. $740,000
c. $800,000
d. $960,000
5) One of the four general criteria for a capital lease specifies that the lease term be
equal to or greater than
a. the estimated economic life of the property
b. 90 percent of the estimated economic life of the property
c. 75 percent of the estimated economic life of the property
d. 50 percent of the estimated economic life of the property
6) An overstatement of ending inventory in Period 1 would result in income of Period 2
being
a. overstated
b. understated
c. correctly stated
d. The answer cannot be determined from the information given
7) On January 1, 2011, Caravanos Company purchased for $320,000 a machine with a
useful life of ten years and no salvage value. The machine was depreciated by the
double-declining-balance method, and the carrying amount of the machine was
$204,800 on December 31, 2012. Caravanos changed to the straight-line method on
January 1, 2013. Caravanos can justify the change. What should be the depreciation
expense on this machine for the year ended December 31, 2014?
a. $20,480
b. 25,600
c. 32,000
d. 52,480
8) Which one of the following would cause a decrease in the cost ratio as used in the
retail inventory method?
a. Higher retail prices
b. Lower net markups
c. More employee discounts given
d. Higher freight-in charges
9) A company records inventory at the gross invoice price. Theoretically, how should
the following affect the costs in inventory?
Warehousing Cash Discounts
Costs Available
a. No effect No effect
b. No effect Decrease
c. Increase Decrease
d. Increase No effect
10) When the FASB deliberates about an accounting standard, firms whose financial
statements would be affected by that standard
a. are legally barred from lobbying the FASB
b. are not allowed to lobby the FASB if the standard would have a negative impact on
their financial statements
c. are not allowed to lobby the FASB if the standard would have a positive impact on
their financial statements
d. are free to lobby for or against the standard
11) If a firm changes its inventory method from FIFO to LIFO just prior to a period of
rising prices, the effect in the next period will be
Current Ratio Inventory Turnover
a. No effect Increase
b. No effect Decrease
c. Increase Decrease
d. Decrease Increase
12) On a statement of cash flows prepared using the direct method, cash paid for
income taxes would be income tax expense minus
a. an increase in income taxes payable
b. a decrease in income taxes payable
c. beginning income taxes payable
d. ending income taxes payable
13) Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in
Consolidated Financial Statements: An Amendment of ARB No. 51, requires that the
amount of equity interest provided by outside shareholders of subsidiaries that are not
100 %-owned by the parent company requires this amount be shown as
a. noncontrolling interest in the liabilities section of the balance sheet
b. minority interest in the mezzanine section of the balance sheet between liabilities and
owners equity
c. noncontrolling interest in the equity section of the balance sheet
d. minority interest in the equity section of the balance sheet
14) Which of the following is classified as a cash inflow from financing activities?
a. Cash received from re-issuance of treasury stock held by the company
b. Cash received from the sale of stock held as a long-term investment
c. Cash received as dividends on stock held as a long-term investment
d. Cash received from the sale of land
15) In a consolidated balance sheet, the minority interest is reported
a. as part of long-term liabilities
b. between liabilities and stockholders equity
c. as part of stockholders equity
d. as part of long-term assets
16) A measure of profitability analysis is
a. times interest earned
b. cash flow per share
c. quick ratio
d. dividend payout ratio
17) Which of the following statements characterizes an operating lease?
a. The lessee records depreciation and interest
b. The lessee records the lease obligation related to the leased asset
c. The lessor records depreciation and lease revenue
d. The lessor transfers title of the leased property to the lessee for the duration of the
lease term
18) The allowance for doubtful accounts, which appears as a deduction from accounts
receivable on a balance sheet, is an application of the
a. going-concern assumption
b. revenue recognition principle
c. matching principle
d. materiality constraint
19) Knitness Menswear, Inc. maintains a markup of 60 percent based on cost. The
company’s selling and administrative expenses average 30 percent of sales. Annual
sales were $1,440,000. Petersen’s cost of goods sold and operating profit for the year
are
Cost of Operating
Goods Sold Profit
a. $864,000 $144,000
b. $864,000 $432,000
c. $900,000 $108,000
d. $900,000 $432,000
20) On August 1, a firm assigned $30,000 of its $56,000 of accounts receivable. The
finance company advanced 90% of the assigned accounts less a $2,000 fee. Interest is
12% and payable monthly on the beginning-of-period loan balance. A loan payment is
remitted at the end of each month. Each payment includes principal and interest. The
amount of each loan payment equals the cash collected on receivables during the month
plus interest on the loan balance.
If $8,000 was collected on accounts receivable during August, the entry for the first
loan payment would include a
a. debit to Interest Expense of $280
b. credit to Cash of $8,000
c. credit to Account Receivable Assigned of $8,000
d. debit to Notes Payable of $8,280
21) Which of the following components should be included in the calculation of net
pension cost recognized for a period by an employer sponsoring a defined benefit
pension plan?
Actual Return Amortization of
on Plan Assets, Unrecognized Prior Interest
If Any Service cost, If Any Cost
a. No No Yes
b. Yes No Yes
c. Yes Yes No
d. Yes Yes Yes
22) The impairment test for an intangible asset with a definite life compares the
a. fair value of the asset to its book value
b. sum of the undiscounted cash flows expected to be generated by the asset to its book
value
c. sum of the discounted cash flows expected to be generated by the asset to its fair
value
d. sum of the undiscounted cash flows expected to be generated by the asset to its fair
value
23) The last step in the accounting cycle is to
a. prepare a post-closing trial balance
b. journalize and post closing entries
c. prepare financial statements
d. journalize and post adjusting entries
24) Presented below is the December 31 trial balance of Cassini Studios.
(1) Prepare adjusting journal entries for the following items:
(a) Adjust the Allowance for Doubtful Accounts to 8 percent of the accounts receivable.
(b) Furniture and equipment is depreciated at 20 percent per year.
(c) Insurance expired during the year, $2,040.
(d) Interest accrued on notes payable, $2,688.
(e) Sales salaries earned but not paid, $1,920.
(f) Advertising paid in advance, $560.
(g) Office supplies on hand, $1,200, charged to Office Expense when purchased.
(2) Prepare closing entries for Cassini after the above adjusting entries have been made.
Additional information shows the inventory on December 31 was $64,000.
25) When the percentage-of-completion method of accounting for long-term
construction projects is used, why is Construction in Progress increased by the annual
recognized gross profit on long-term construction contracts?
a. The cost of the contract has increased
b. The project’s value has increased above cost
c. The economy experiences inflation over the construction period
d. Construction in Progress is not increased by the annual recognized profit
26) The following data were taken from the financial statements of Howard Corporation
for the year ended December 31, 2014:
What was Howard’s rate of return on assets for 2014?
a. 5 percent
b. 6 percent
c. 20 percent
d. 24 percent
27) See information for Digipro Inc. above. If Digipro Inc. uses the average cost
method to account for inventory, the ending inventory of VTC cameras at July 31 is
reported as
a. $153,400
b. $156,912
c. $158,736
d. $159,464
28) A method of estimating bad debts that focuses on the balance sheet rather than the
income statement is the allowance method based on
a. direct write-off
b. specific accounts determined to be uncollectible
c. credit sales
d. aging the trade receivable accounts
29) The records of Bramhall Company provided the following information for the year
ended December 31, 2014:
Additional Information:
1> Sold the long-term investment at cost, for cash. The securities were classified as
available-for-sale. The market value had not changed since acquisition.
2> Declared and paid a cash dividend of $28,000.
3> Purchased operational assets that cost $68,000 by giving a $48,000 long-term note
payable and by paying $20,000 cash.
4> Paid a $16,000 long-term note payable by issuing common stock having a market
value of $16,000.
5>Issued a stock dividend of $44,000.
Required:
Prepare a statement of cash flows using the direct method for Bramhall Company for
the year ending December 31, 2014.
30) FASB ASC Topic 250 (Presentation-Accounting Changes and Error Corrections,
requires that voluntary changes in accounting principles be reported retrospectively.
The standard recognizes that such retrospective restatement is not always practical.
Required:
31) Information concerning Santori Corporation’s intangible assets is as follows:
Santori incurred $352,000 of experimental and development costs in its laboratory to
develop a patent that was granted on January 2, 2014. Legal fees and other costs
associated with registration of the patent totaled $65,600. Thomas estimates that the
useful life of the patent will be eight years.
A second patent was purchased from Lowman Company for $160,000 on July 1, 2011.
Expenditures for successful litigation in defense of this patent totaling $40,000 were
paid on July 1, 2014. Thomas estimates that the useful life of the patent will be 20 years
from the date of acquisition.
Prepare a schedule showing the intangible assets section of Santori’s balance sheet at
December 31, 2014.
32) Asteroid Sales Corp. was organized on January 1, 2013. On December 31, 2014, the
company lost most of its inventory in a warehouse fire just before the year-end count of
inventory was to take place. Data from the records disclosed the following:
On January 1, 2014, Asteroid’s pricing policy was changed so that the gross profit rate
would be 3 percentage points higher than the one earned in 2013.
Salvaged undamaged merchandise was marked to sell at $24,000, while damaged
merchandise marked to sell at $16,000 had an estimated net realizable value of $3,600.
Determine the company’s inventory loss due to the fire that occurred on December 31,
2014.
33) Andrew Greene recently purchased on layaway a big screen television from Zack &
Zany Home Furnishings. Zack & Zany is a public company. Gary paid $100 as a cash
deposit on the television. The television cost Zack & Zany $1,500 and has a total retail
price of $2,000. Zack & Zany has set the television aside pending the payment by
Miller of the balance owed.
Zack & Zany does not require its customers to enter into an installment note or other
fixed payment commitment or agreement when the initial deposit is received.
Merchandise on layaway generally is not released to the customer until the customer
pays the full purchase price. If the customer fails to pay the remaining purchase price,
the customer forfeits his or her cash deposit. In the event the merchandise is lost,
damaged, or destroyed, Zack & Zany either must refund the cash deposit to the
customer or provide replacement merchandise.
When should Zack & Zany recognized the revenue from the sale to Greene?
Prepare the appropriate journal entries on Zack & Zany’s books to record the receipt of
the cash and the subsequent delivery of the television when the remaining balance is
collected.
34) The Alliance Corporation introduced a new line of product the profitability of
which is quite uncertain. This uncertainty has resulted in Alliance choosing to use the
cost recovery method to account for this product.
The following information relating to the new product line is available for the year
2014:
Required:
35) The following balances relate to the defined benefit pension plan of Rundgren
Industries.
No benefits were paid in either 2013 or 2014.
Compute pension expense for 2013 and 2014, assuming minimum amortization is
taken.
36) Managers of many companies frequently provide a pro forma earnings amount in
conjunction with their annual or quarterly earnings calculated in accordance with
GAAP. Managers claim that pro forma earnings numbers more fairly reflect a
companys performance.
Required:
37) During 2014, the Laverne Corporation had 370,000 shares of $20 par common
stock outstanding. On January 1, 2014, 2,000, 8 percent bonds were issued with a
maturity value of $1,000 each. To enhance the bond sale, the company offered a
conversion of 50 shares of common stock for each bond at the option of the purchaser.
Net income for 2014 was $464,000. The income tax rate was 30 percent. Compute the
diluted earnings per share of common stock.