1) The use of a Purchase Discounts Lost account implies that the recorded cost of a
purchased inventory item is its
a.invoice price
b.invoice price plus the purchase discount lost
c.invoice price less the purchase discount taken
d.invoice price less the purchase discount allowable whether taken or not
2) The occurrence which most likely would have no effect on 2014 net income
(assuming that all amounts involved are material) is the
a.sale in 2014 of an office building contributed by a stockholder in 1983
b.collection in 2014 of a receivable from a customer whose account was written off in
2013 by a charge to the allowance account
c.settlement based on litigation in 2014 of previously unrecognized damages from a
serious accident that occurred in 2012
d.worthlessness determined in 2014 of stock purchased on a speculative basis in 2010
3) Watts Corporation made a very large arithmetical error in the preparation of its
year-end financial statements by improper placement of a decimal point in the
calculation of depreciation. The error caused the net income to be reported at almost
double the proper amount. Correction of the error when discovered in the next year
should be treated as
a.an increase in depreciation expense for the year in which the error is discovered
b.a component of income for the year in which the error is discovered, but separately
listed on the income statement and fully explained in a note to the financial statements
c.an extraordinary item for the year in which the error was made
d.a prior period adjustment
4) The gross profit method of inventory valuation is invalid when
a.a portion of the inventory is destroyed
b.there is a substantial increase in inventory during the year
c.there is no beginning inventory because it is the first year of operation
d.None of these answers are correct
5) During self-construction of an asset by Samuelson Company, the following were
among the costs incurred:
Fixed overhead for the year$1,000,000
Portion of $1,000,000 fixed overhead that would
be allocated to asset if it were normal production70,000
Variable overhead attributable to self-construction50,000
What amount of overhead should be included in the cost of the self-constructed asset?
a.$ -0-
b.$50,000
c.$70,000
d.$120,000
6) Sandy Shoes Foot Inc. is involved in litigation regarding a faulty product sold in a
prior year. The company has consulted with its attorney and determined that it is
possible that they may lose the case. The attorneys estimated that there is a 40% chance
of losing. If this is the case, their attorney estimated that the amount of any payment
would be $500,000. What is the required journal entry as a result of this litigation?
a.Debit Litigation Expense for $500,000 and credit Litigation liability for $500,000
b.No journal entry is required
c.Debit Litigation Expense for $200,000 and credit Litigation Liability for $200,000
d.Debit Litigation Expense for $300,000 and credit Litigation Liability for $300,000
7) Huge Cart Inc. gives you the following information pertaining to the year 2014 .
Net sales$800,000
Cost of goods sold500,000
Current assets500,000
Current liabilities250,000
Average total assets900,000
Total liabilities550,000
Net income150,000
The asset turnover ratio of Huge Cart Inc. is
a.0.56
b.0.17
c.0.89
d.1.13
8) The conversion of preferred stock is recorded by the
a.incremental method
b.book value method
c.market value method
d.par value method
9) Stockholders’ equity is generally classified into two major categories:
a.contributed capital and appropriated capital
b.appropriated capital and retained earnings
c.retained earnings and unappropriated capital
d.earned capital and contributed capital
10) The following data is given:
December 31,
2015 2014
Cash$ 66,000$ 50,000
Accounts receivable (net)90,00060,000
Inventories90,000110,000
Plant assets (net)383,000325,000
Accounts payable55,00040,000
Salaries and wages payable10,0005,000
Bonds payable70,00070,000
8% Preferred stock, $40 par100,000100,000
Common stock, $10 par120,00090,000
Paid-in capital in excess of par80,00065,000
Retained earnings194,000175,000
Net credit sales900,000
Cost of goods sold700,000
Net income81,000
Instructions
Compute the following ratios:
(a)Acid-test ratio at 12/31/15
(b)Accounts receivable turnover in 2015
(c)Inventory turnover in 2015
(d)Profit margin on sales in 2015
(e)Return on common stock equity in 2015
(f)Book value per share of common stock at 12/31/15
11) Manning Company has the following items: write-down of inventories, $360,000;
loss on disposal of Sports Division, $555,000; and loss due to strike, $359,000.
Ignoring income taxes, what amount should Manning Company report as extraordinary
losses?
a.$ -0-
b.$555,000
c.$719,000
d.$914,000
12) Henke Co. uses the retail inventory method to estimate its inventory for interim
statement purposes. Data relating to the computation of the inventory at July 31, 2014,
are as follows:
Cost Retail
Inventory, 2/1/14$ 200,000$ 250,000
Purchases1,000,0001,575,000
Markups, net175,000
Sales1,600,000
Estimated normal shoplifting losses20,000
Markdowns, net110,000
Under the lower-of-cost-or-market method, Henke’s estimated inventory at July 31,
2014 is
a.$162,000
b.$174,000
c.$186,000
d.$270,000
13) According to the FASB’s conceptual framework, the process of reporting an item in
the financial statements of an entity is
a.recognition
b.realization
c.allocation
d.matching
14) Events that occur after the December 31, 2015 balance sheet date (but before the
balance sheet is issued) and provide additional evidence about conditions that existed at
the balance sheet date and affect the realizability of accounts receivable should be
a.discussed only in the MD&A (Management’s Discussion and Analysis) section of the
annual report
b.disclosed only in the Notes to the Financial Statements
c.used to record an adjustment to Bad Debt Expense for the year ending December 31,
2015
d.used to record an adjustment directly to the Retained Earnings account
15) On January 1, 2015, Yancey, Inc. signs a 10-year noncancelable lease agreement to
lease a storage building from Holt Warehouse Company. Collectibility of lease
payments is reasonably predictable and no important uncertainties surround the amount
of costs yet to be incurred by the lessor. The following information pertains to this lease
agreement.
(a)The agreement requires equal rental payments at the beginning each year.
(b)The fair value of the building on January 1, 2015 is $4,000,000; however, the book
value to Holt is $3,300,000.
(c)The building has an estimated economic life of 10 years, with no residual value.
Yancey depreciates similar buildings on the straight-line method.
(d)At the termination of the lease, the title to the building will be transferred to the
lessee.
(e)Yanceys incremental borrowing rate is 11% per year. Holt Warehouse Co. set the
annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by
Yancey, Inc.
(f)The yearly rental payment includes $10,000 of executory costs related to taxes on the
property.
Future Value of Ordinary Annuity of 1
Period 5% 6% 8% 10% 12%
11.000001.000001.000001.000001.00000
22.050002.060002.080002.100002.12000
33.152503.183603.246403.310003.37440
44.310134.374624.506114.641004.77933
55.525635.637095.866606.105106.35285
66.801916.975327.335927.715618.11519
78.142018.393848.922809.4871710.08901
89.549119.8974710.6366311.4358912.29969
911.0265611.4913212.4875613.5794814.77566
1012.5778913.1807914.4865615.9374317.54874
Present Value of an Ordinary Annuity of 1
Period 5% 6% 8% 10% 12%
1.95238.94340.92593.90909.89286
21.859411.833391.783261.735541.69005
32.723252.673012.577102.486852.40183
43.545953.465113.312133.169863.03735
54.329484.212363.992713.790793.60478
65.075694.917324.622884.355264.11141
75.786375.582385.206374.868424.56376
86.463216.209795.746645.334934.96764
97.107826.801696.246895.759025.32825
107.721737.360096.710086.144575.65022
From the lessees viewpoint, what type of lease exists in this case?
a.Sales-type lease
b.Sale-leaseback
c.Capital lease
d.Operating lease
16) The following information relates to Moore Company’s inventory:
Cost of inventory = $460
Selling price of inventory = $500
Normal profit margin = 10% of selling price
Current replacement cost = $370
Cost of completion and disposal = $50
Under IFRS, which of the following would be the correct measurement value for the
inventory?
a.$460
b.$370
c.$500
d.$450