1) On January 1, 2008, Forrest Company purchased equipment at a cost of $130,000.
The equipment was estimated to have a salvage value of $4,000 and it is being
depreciated over eight years under the sum-of-the-years’-digits method. What should be
the charge for depreciation of this equipment for the year ended December 31, 2015?
a.$3,500
b.$3,611
c.$16,250
d.$15,750
2) The net income for the year ended December 31, 2015, for Oliva Company was
$1,900,000. Additional information is as follows:
Depreciation on plant assets$600,000
Amortization of leasehold improvements340,000
Provision for doubtful accounts on short-term receivables120,000
Provision for doubtful accounts on long-term receivables100,000
Interest paid on short-term borrowings80,000
Interest paid on long-term borrowings60,000
Based solely on the information given above, what should be the net cash provided by
operating activities in the statement of cash flows for the year ended December 31,
2015?
a.$2,960,000
b.$3,060,000
c.$3,040,000
d.$3,200,000
3) Assume ABC Company deposits $70,000 with First National Bank in an account
earning interest at 6% per annum, compounded semi-annually. How much will ABC
have in the account after five years if interest is reinvested?
a.$94,074
b.$70,000
c.$91,000
d.$93,677
4) Plank Co. uses the retail inventory method. The following information is available
for the current year.
Cost Retail
Beginning inventory$ 234,000$366,000
Purchases885,0001,245,000
Freight-in15,000
Employee discounts6,000
Net markups45,000
Net markdowns60,000
Sales revenue1,170,000
The ending inventory at retail should be
a.$480,000
b.$450,000
c.$432,000
d.$420,000
5) For which of the following products is it appropriate to recognize revenue at the
completion of production even though no sale has been made?
a.Automobiles
b.Large appliances
c.Single family residential units
d.Precious metals
6) Which of the following would be classified in a different major section of a balance
sheet from the others?
a.Capital stock
b.Common stock subscribed
c.Stock dividend distributable
d.Stock investment in affiliate
7) Goods in transit which are shipped f.o.b. destination should be
a.included in the inventory of the seller
b.included in the inventory of the buyer
c.included in the inventory of the shipping company
d.none of these answers are correct
8) The principal advantage of the completed-contract method is that
a.reported revenue is based on final results rather than estimates of unperformed work
b.it reflects current performance when the period of a contract extends into more than
one accounting period
c.it is not necessary to recognize revenue at the point of sale
d.a greater amount of gross profit and net income is reported than is the case when the
percentage-of-completion method is used
9) If the month-end bank statement shows a balance of $72,000, outstanding checks are
$24,000, a deposit of $8,000 was in transit at month end, and a check for $1,000 was
erroneously charged by the bank against the account, the correct balance in the bank
account at month end is
a.$55,000
b.$57,000
c.$41,000
d.$87,000
10) The FASB’s conceptual framework classifies gains and losses based on whether
they are related to an entity’s major ongoing or central operations. These gains or losses
may be classified as
NonoperatingOperating
a.YesNo
b.YesYes
c.NoYes
d.NoNo
11) The following data are provided:
December 31
2015 2014
Cash$ 750,000$ 500,000
Accounts receivable (net)800,000600,000
Inventories1,300,0001,100,000
Plant assets (net)3,500,0003,250,000
Accounts payable550,000400,000
Income taxes payable100,00050,000
Bonds payable700,000700,000
10% Preferred stock, $50 par1,000,0001,000,000
Common stock, $10 par1,200,000900,000
Paid-in capital in excess of par800,000650,000
Retained earnings2,000,0001,750,000
Net credit sales6,400,000
Cost of goods sold4,200,000
Operating expenses1,450,000
Net income750,000
Additional information:
Depreciation included in cost of goods sold and operating expenses is $610,000. On
May 1, 2015, 30,000 shares of common stock were issued. The preferred stock is
cumulative. The preferred dividends were not declared during 2015 .
At December 31, 2015, the acid-test ratio was
a.1,550 / 650
b.1,550 / 1,080
c.2,100 / 800
d.2,850 / 650
12) Gorman Construction Co. began operations in 2015 . Construction activity for 2015
is shown below. Gorman uses the completed-contract method.
Billings CollectionsEstimated
ContractThroughThroughCosts toCosts to
Contract Price 12/31/15 12/31/15 12/31/15 Complete
1$4,800,000$4,725,000$3,900,000$3,225,000
23,600,0001,500,0001,000,000820,000$1,880,000
33,300,0001,900,0001,800,0002,250,0001,200,000
Which of the following should be shown on the income statement for 2015 related to
Contract 1?
a.Gross profit, $675,000
b.Gross profit, $1,500,000
c.Gross profit, $1,575,000
d.Gross profit, $900,000
13) Comprehensive income includes all of the following except
a.dividend revenue
b.losses on disposal of assets
c.investments by owners
d.unrealized holding gains
14) Presented below is information related to Jones Department Stores, Inc. pension
plan for 2015 .
Accumulated benefit obligation (at year-end)$600,000
Service cost540,000
Funding contribution for 2015480,000
Settlement rate used in actuarial computation10%
Expected return on plan assets9%
Amortization of PSC (due to benefit increase)100,000
Amortization of net gains48,000
Projected benefit obligation (at beginning of period)470,000
Fair value of plan assets (at beginning of period)360,000
Instructions
(a)Compute the amount of pension expense to be reported for 2015 . (Show
computations.)
(b)Prepare the journal entry to record pension expense and the employer’s contribution
for 2015 .
15) Which of the following statements is true regarding capitalization of interest?
a.Interest cost capitalized in connection with the purchase of land to be used as a
building site should be debited to the land account and not to the building account
b.The amount of interest cost capitalized during the period should not exceed the actual
interest cost incurred
c.When excess borrowed funds not immediately needed for construction are
temporarily invested, any interest earned should be offset against interest cost incurred
when determining the amount of interest cost to be capitalized
d.The minimum amount of interest to be capitalized is determined by multiplying a
weighted average interest rate by the amount of average accumulated expenditures on
qualifying assets during the period
16) Gott Company adopted the dollar-value LIFO inventory method on 12/31/13. On
this date, its inventory consisted of the following items.
ItemNumber of UnitsCost Per UnitTotal Cost
X200$2.50$ 500
Y6004.50 2,700
$3,200
Additional information: December 31
2014 2015
1>Units of X in inventory300400
2>Cost of each X unit$3.00$3.25
3>Units of Y in inventory8001,200
4>Cost of each Y unit$5.50$6.00
Instructions
(a)Compute the price index for 2014 . Round to 2 decimal places.
(b)Calculate the 12/31/14 inventory. Label all numbers.
(c)Compute the price index for 2015 . Round to 2 decimal places.
(d)Calculate the 12/31/15 inventory. Label all numbers.
17) The designated market value
a.is always the middle value of replacement cost, net realizable value, and net realizable
value less a normal profit margin
b.should always be equal to net realizable value
c.may sometimes exceed net realizable value
d.should always be equal to net realizable value less a normal profit margin
18) A company receives interest on a $70,000, 8%, 5-year note receivable each April 1 .
At December 31, 2014, the following adjusting entry was made to accrue interest
receivable:
Interest Receivable 4,200
Interest Revenue 4,200
Assuming that the company does not use reversing entries, what entry should be made
on April 1, 2015 when the annual interest payment is received?
a.Cash 1,400
Interest Revenue 1,400
b.Cash 4,200
Interest Receivable 4,200
c.Cash 5,600
Interest Receivable 4,200
Interest Revenue 1,400
d.Cash 5,600
Interest Revenue 5,600
19) If the number of periods is known, the interest rate is determined by
a.dividing the future value by the present value and looking for the quotient in the
future value of 1 table
b.dividing the future value by the present value and looking for the quotient in the
present value of 1 table
c.dividing the present value by the future value and looking for the quotient in the
future value of 1 table
d.multiplying the present value by the future value and looking for the product in the
present value of 1 table
20) On January 1, 2014, Korsak, Inc. established a stock appreciation rights plan for its
executives. It entitled them to receive cash at any time during the next four years for the
difference between the market price of its common stock and a pre-established price of
$20 on 100,000 SARs. Current market prices of the stock are as follows:
January 1, 2014$35 per share
December 31, 201438 per share
December 31, 201530 per share
December 31, 201633 per share
Compensation expense relating to the plan is to be recorded over a four-year period
beginning January 1, 2014 .
On December 31, 2016, 25,000 SARs are exercised by executives. What amount of
compensation expense should Korsak recognize for the year ended December 31, 2016?
a.$475,000
b.$325,000
c.$975,000
d.$130,000