1) techtronics, a technology company that uses ifrs for its financial reporting, has been
found to have polluted the property surrounding its plant. the property is leaded for 12
years and techtronics has agreed that when the lease expires, the pollution will be
remediated before transfer back to its owner. the lease has a renewal option for another
8 years. if this option is exercised, the cleanup will be done at the end of the renewal
period. there is a 70% chance that the lease will not be renewed and the cleanup will
cost $180,000. there is 30% chance that the lease will be renewed and the cleanup costs
will be $375,000 at the end of the 20 years. if you assume that these estimates are
derived from best estimates of likely outcomes and the risk-free rate is 5%, the expected
present value of the cleanup provision is:
a.$238,500
b.$112,562
c.$277,500
d.$226,575
2) during 2012, gates corp. started a construction job with a total contract price of
$7,000,000. the job was completed on december 15, 2013. additional data are as
follows:
under the completed-contract method, what amount should gates recognize as gross
profit for 2013?
a.$450,000
b.$625,000
c.$950,000
d.$1,250,000
3) the inventory account of irick company at december 31, 2012, included the following
items:
based on the above information, the inventory account at december 31, 2012, should be
reduced by
a.$40,400
b.$45,200
c.$64,400
d.$64,000
4) 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
5) emley company has been using the lifo method of inventory valuation for 10 years,
since it began operations. its 2012 ending inventory was $60,000, but it would have
been $90,000 if fifo had been used. thus, if fifo had been used, emley’s income before
income taxes would have been
a.$30,000 greater over the 10-year period
b.$30,000 less over the 10-year period
c.$30,000 greater in 2012
d.$30,000 less in 2012
6) a plant asset has a cost of $32,000 and a salvage value of $8,000. the asset has a
three-year life. if depreciation in the third year amounted to $4,000, which depreciation
method was used?
a.straight-line
b.declining-balance
c.sum-of-the-years’-digits
d.cannot tell from information given
7) geary co. assigned $800,000 of accounts receivable to kwik finance co. as security
for a loan of $670,000. kwik charged a 2% commission on the amount of the loan; the
interest rate on the note was 10%. during the first month, geary collected $220,000 on
assigned accounts after deducting $760 of discounts. geary accepted returns worth
$2,700 and wrote off assigned accounts totaling $5,960.
entries during the first month would include a
a.debit to cash of $220,760
b.debit to bad debt expense of $5,960
c.debit to allowance for doubtful accounts of $5,960
d.debit to accounts receivable of $229,420
8) cooper construction company had a contract starting april 2013, to construct a
$12,000,000 building that is expected to be completed in september 2015, at an
estimated cost of $11,000,000. at the end of 2013, the costs to date were $5,060,000 and
the estimated total costs to complete had not changed. the progress billings during 2013
were $2,400,000 and the cash collected during 2013 was 1,600,000.
at december 31, 2013 cooper would report construction in process in the amount of:
a.$460,000
b.$5,060,000
c.$5,520,000
d.$4,720,000
9) when a business enterprise enters into what is referred to as off-balance-sheet
financing, the company
a.is attempting to conceal the debt from shareholders by having no information about
the debt included in the balance sheet
b.wishes to confine all information related to the debt to the income statement and the
statement of cash flow
c.can enhance the quality of its financial position and perhaps permit credit to be
obtained more readily and at less cost
d.is in violation of generally accepted accounting principles
10) fleming company provided the following information on selected transactions
during 2013:
the net cash provided (used) by financing activities during 2013 is
a.$(1,650,000)
b.$450,000
c.$750,000
d.$1,100,000
11) nagel co.’s prepaid insurance was $90,000 at december 31, 2013 and $45,000 at
december 31, 2012. insurance expense was $31,000 for 2013 and $27,000 for 2012.
what amount of cash disbursements for insurance would be reported in nagel’s 2013 net
cash provided by operating activities presented on a direct basis?
a.$94,000
b.$76,000
c.$59,000
d.$31,000