1) The principal advantage of the completed-contract method is that reported revenue
reflects final results rather than estimates.
2) Unrealized holding gains and losses are recognized in net income for
available-for-sale debt securities.
3) One requirement related to fair value disclosure is that both the cost and the fair
value of all instruments be reported in the notes to the financial statements.
4) Simple interest is computed on principal and on any interest earned that has not been
withdrawn.
5) Under IFRS, a company may classify expenses by function, but must also disclose
the
classification of expenses by nature.
6) Under IFRS true no-par shares should be carried in the accounts at issue price
without any share premium reported.
7) The internal control standards applicable to SarbanesOxley (SOX) apply only to
large public companies listed on U.S. exchanges.
8) When the lessee agrees to make up any deficiency below a stated amount that the
lessor realizes in residual value, that stated amount is the guaranteed residual value.
9) If a decline in a securitys value is judged to be temporary, a company needs to write
down the cost basis of the individual security to a new cost basis.
10) On March 1, 2014, Ruiz Corporation issued $1,500,000 of 8% nonconvertible
bonds at 104, which are due on February 28, 2034 . In addition, each $1,000 bond was
issued with 25 detachable stock warrants, each of which entitled the bondholder to
purchase for $50 one share of Ruiz common stock, par value $25. The bonds without
the warrants would normally sell at 95. On March 1, 2014, the fair value of Ruizs
common stock was $40 per share and the fair value of the warrants was $2.00. What
amount should Ruiz record on March 1, 2014 as paid-in capital from stock warrants?
a.$55,200
b.$63,900
c.$78,000
d.$75,000
11) A seller is using the cost-recovery method for a sale. Interest will be earned on the
future payments. Which of the following statements is not correct?
a.After all costs have been recovered, any additional cash collections are included in
income
b.Interest revenue may be recognized before all costs have been recovered
c.The deferred gross profit is offset against the related receivable on the balance sheet
d.Subsequent income statements report the gross profit as a separate item of revenue
when it is recognized as earned
12) Which of the following is a benefit of providing financial information?
a.Potential litigation
b.Auditing
c.Disclosure to competition
d.Improved allocation of resources
13) When a business enterprise enters into what is referred to as off-balance-sheet
financing, the company
a.is attempting to conceal the debt from shareholders by having no information about
the debt included in the balance sheet
b.wishes to confine all information related to the debt to the income statement and the
statement of cash flow
c.can enhance the quality of its financial position and perhaps permit credit to be
obtained more readily and at less cost
d.is in violation of generally accepted accounting principles
14) For which of the following transactions would the use of the present value of an
ordinary annuity concept be appropriate in calculating the present value of the asset
obtained or the liability owed at the date of incurrence?
a.A capital lease is entered into with the initial lease payment due one month
subsequent to the signing of the lease agreement
b.A capital lease is entered into with the initial lease payment due upon the signing of
the lease agreement
c.A ten-year 8% bond is issued on January 2 with interest payable semiannually on
January 2 and July 1 yielding 7%
d.A ten-year 8% bond is issued on January 2 with interest payable semiannually on
January 2 and July 1 yielding 9%
15) On February 1, 2014, Henson Company factored receivables with a carrying
amount of $500,000 to Agee Company. Agee Company assesses a finance charge of 3%
of the receivables and retains 5% of the receivables. Relative to this transaction, you are
to determine the amount of loss on sale to be reported in the income statement of
Henson Company for February.
Assume that Henson factors the receivables on a with recourse basis. The recourse
obligation has a fair value of $2,500. The loss to be reported is
a.$15,000
b.$17,500
c.$25,000
d.$42,500
16) During the current fiscal year, Jeremiah Corp. signed a long-term noncancellable
purchase commitment with its primary supplier. Jeremiah agreed to purchase $1.5
million of raw materials during the next fiscal year under this contract. At the end of the
current fiscal year, the raw material to be purchased under this contract had a market
value of $1.2 million. What is the journal entry at the end of the current fiscal year?
a.Debit Unrealized Holding Gain or Loss for $300,000 and credit Estimated Liability
on Purchase Commitment for $300,000
b.Debit Estimated liability on Purchase Commitments for $300,000 and credit
Unrealized Holding Gain or Loss for $300,000
c.Debit Unrealized Holding Gain or Loss for $1,200,000 and credit Estimated Liability
on Purchase Commitments for $1,200,000
d.No journal entry is required
17) Groh Co. recorded the following data pertaining to raw material X during January
2014:
Units
DateReceived CostIssuedOn Hand
1/1/14Inventory$6.003,200
1/11/14Issue1,6001,600
1/22/14Purchase4,000$7.055,600
The moving-average unit cost of X inventory at January 31, 2014 is
a.$6.52
b.$6.63
c.$6.75
d.$7.05
18) For stock appreciation rights, the measurement date for computing compensation is
the date
a.the rights mature
b.the stocks price reaches a predetermined amount
c.of grant
d.of exercise
19) Carperter Company has used the installment method of accounting since it began
operations at the beginning of 2015. The following information pertains to its
operations for 2015:
Installment sales$ 2,800,000
Cost of installment sales1,960,000
Collections of installment sales1,120,000
General and administrative expenses280,000
The amount to be reported on the December 31, 2015 balance sheet as Deferred Gross
Profit should be
a.$ 336,000
b.$ 504,000
c.$ 672,000
d.$1,680,000
20) For the year ended December 31, 2014, Dent Co. estimated its allowance for
uncollectible accounts using the year-end aging of accounts receivable. The following
data are available:
Allowance for uncollectible accounts, 1/1/14$84,000
Provision for uncollectible accounts during 2014
(2% on credit sales of $3,000,000)60,000
Uncollectible accounts written off, 11/30/1469,000
Estimated uncollectible accounts per aging, 12/31/14104,000
After year-end adjustment, the uncollectible accounts expense for 2014 should be
a.$69,000
b.$60,000
c.$104,000
d.$89,000