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1) Hubbard, Inc. received the following information from its pension plan trustee
concerning the operation of the company's defined-benefit pension plan for the year
ended December 31, 2015 .
1/1/1512/31/15
Projected benefit obligation$11,400,000$11,760,000
Pension assets (at fair value) 6,000,0006,900,000
Accumulated benefit obligation2,400,0002,760,000
Net (gains) and losses-0-240,000
The service cost component of pension expense for 2015 is $890,000 and the
amortization of prior service cost due to an increase in benefits is $180,000. The
settlement rate is 10% and the expected rate of return is 8%. What is the amount of
pension expense for 2015?
a.$1,766,000
b.$1,730,000
c.$1,658,000
d.$1,490,000
2) Elton Industries, a company who uses IFRS reporting standards, has assets and
liabilities of a disposal group classified as held-for-sale shown on its statement of
financial position. Which of the following presents the best treatment for these?
a.These assets and liabilities should be netted and presented as a single amount - either
a current asset or a current liability on the statement of financial position
b.On the balance sheet, the disposal group assets should be shown separately from other
assets, while the disposal group liabilities should be shown separately from other
liabilities
c.The assets and liabilities should be netted and presented as a deduction from equity on
the statement of financial position
d.There should be no separate disclosure of these assets and liabilities on the statement
of financial position
3) Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On
December 31, 2014, Houser distributed these shares of stock as a dividend to its
stockholders. This is an example of a
a.property dividend
b.stock dividend
c.liquidating dividend
d.cash dividend
4) Goodwill may be recorded when
a.it is identified within a company
b.one company acquires another in a business combination
c.the fair value of a companys assets exceeds their cost
d.a company has exceptional customer relations
5) On January 1, Martinez Inc. issued $5,000,000, 11% bonds for $5,325,000. The
market rate of interest for these bonds is 10%. Interest is payable annually on December
31 . Martinez uses the effective-interest method of amortizing bond premium. At the
end of the first year, Martinez should report unamortized bond premium of:
a.$308,550
b.$307,500
c.$289,250
d.$275,000
6) Securities which could be classified as held-to-maturity are
a.redeemable preferred stock
b.warrants
c.municipal bonds
d.treasury stock
7) Information for Ramirez Corp. is given below:
Ramirez Corp.
Balance Sheet
December 31, 2015
AssetsEquities
Cash$ 200,000Accounts payable$ 420,000
Accounts receivable (net)1,300,000Income taxes payable126,000
Inventories1,626,000Miscellaneous accrued payables150,000
Plant and equipment,Bonds payable (10%, due 2017)1,250,000
net of depreciation1,322,000Preferred stock ($100 par, 6%
Patents174,000cumulative nonparticipating)500,000
Other intangible assets 50,000Common stock (no par, 30,000
Total Assets$4,672,000shares authorized, issued
and outstanding)750,000
Retained earnings1,626,000
Treasury stock1,000 shares
of preferred (150,000)
Total Equities$4,672,000
Ramirez Corp.
Income Statement
Year Ended December 31, 2015
Net sales$6,000,000
Cost of goods sold 4,000,000
Gross profit2,000,000
Operating expenses (including bond interest expense) 1,000,000
Income before income taxes 1,000,000
Income tax 300,000
Net income$ 700,000
Additional information:
There are no preferred dividends in arrears, the balances in the Accounts Receivable
and Inventory accounts are unchanged from January 1, 2015, and there were no changes
in the Bonds Payable, Preferred Stock, or Common Stock accounts during 2015 .
Assume that preferred dividends for the current year have not been declared.
The rate of return for 2015 based on the year-end common stockholders' equity was
a.700 / 2,346
b.700 / 2,376
c.670 / 2,346
d.670 / 2,376
8) Harlan Mining Co. has recently decided to go public and has hired you as an
independent CPA. One statement that the enterprise is anxious to have prepared is a
statement of cash flows. Financial statements of Harlan Mining Co. for 2015 and 2014
are provided below.
BALANCE SHEETS
12/31/1512/31/14
Cash$306,000$ 144,000
Accounts receivable270,000162,000
Inventory288,000360,000
Property, plant and equipment$456,000$720,000
Less accumulated depreciation (240,000) 216,000 (228,000) 492,000
$1,080,000$1,158,000
Accounts payable$ 132,000 $ 72,000
Income taxes payable264,000294,000
Bonds payable270,000450,000
Common stock162,000162,000
Retained earnings 252,000 180,000
$1,080,000$1,158,000
INCOME STATEMENT
For the Year Ended December 31, 2015
Sales revenue$6,300,000
Cost of sales 5,364,000
Gross profit936,000
Selling expenses$450,000
Administrative expenses 144,000 594,000
Income from operations342,000
Interest expense 54,000
Income before taxes288,000
Income taxes 72,000
Net income$ 216,000
The following additional data were provided:
1>Dividends for the year 2015 were $144,000.
2>During the year, equipment was sold for $180,000. This equipment cost $264,000
originally and had a book value of $216,000 at the time of sale. The loss on sale was
incorrectly charged to cost of sales.
3>All depreciation expense is in the selling expense category.
Questions 51 through 55 relate to a statement of cash flows (direct method) for the year
ended December 31, 2015, for Harlan Mining Company.
The net cash provided (used) by financing activities is
a.$(180,000)
b.$36,000
c.$(324,000)
d.$144,000
9) Lessees prefer to account for their leases as operating lease because:
a.it increases their debt to total equity ratio
b.it decreases the income tax expense
c.it increases the amount of total assets
d.it decreases the amount of liability reported
10) Use of the sum-of-the-years'-digits method
a.results in salvage value being ignored
b.means the denominator is the years remaining at the beginning of the year
c.means the book value should not be reduced below salvage value
d.all of these answers are correct
11) Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2015
for the purpose of leasing a machine to be used in its manufacturing operations. The
following data pertain to the agreement:
(a)The term of the noncancelable lease is 3 years with no renewal option. Payments of
$287,432 are due on January 1 of each year.
(b)The fair value of the machine on January 1, 2015, is $800,000. The machine has a
remaining economic life of 10 years, with no salvage value. The machine reverts to the
lessor upon the termination of the lease.
(c)Alt depreciates all machinery it owns on a straight-line basis.
(d)Alts incremental borrowing rate is 10% per year. Alt does not have knowledge of the
8% implicit rate used by Yates.
(e)Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in
a suit which is sufficiently material to make collectibility of future lease payments
doubtful.
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
What type of lease is this from Alt Corporations viewpoint?
a.Operating lease
b.Capital lease
c.Sales-type lease
d.Direct-financing lease
12) Dennis Company purchases Miles Company for $4,200,000 cash on January 1,
2015 . The book value of Miles Company's net assets reported on its December 31,
2014 financial statement was $3,800,000. An analysis indicated that the fair value of
Miles's tangible assets exceeded the book value by $600,000, and the fair value of
identifiable intangible assets exceeded book value by $320,000. What amount of gain or
goodwill is recognized by Dennis?
a.$920,000 gain
b.$400,000 goodwill
c.$520,000 gain
d.$520,000 goodwill
13) The balance sheet data of Kohler Company at the end of 2015 and 2014 follow:
2015 2014
Cash$ 100,000$ 140,000
Accounts receivable (net)240,000180,000
Inventory280,000180,000
Prepaid expenses40,000100,000
Buildings and equipment360,000300,000
Accumulated depreciationbuildings and equipment(72,000)(32,000)
Land 360,000 160,000
Totals$1,308,000$1,028,000
Accounts payable$272,000$220,000
Accrued expenses48,00072,000
Notes payablebank, long-term160,000
Mortgage payable120,000
Common stock, $10 par836,000636,000
Retained earnings (deficit) 32,000 (60,000)
$1,308,000$1,028,000
Land was acquired for $200,000 in exchange for common stock, par $200,000, during
the year; all equipment purchased was for cash. Equipment costing $20,000 was sold
for $8,000; book value of the equipment was $16,000 and the loss was reported as an
ordinary item in net income. Cash dividends of $40,000 were charged to retained
earnings and paid during the year; the transfer of net income to retained earnings was
the only other entry in the Retained Earnings account. In the statement of cash flows for
the year ended December 31, 2015, for Naley Company:
The net cash provided by operating activities was
a.$104,000
b.$132,000
c.$112,000
d.$96,000
14) In determining the present value of the prospective benefits (often referred to as the
projected benefit obligation), which of the following are considered by the actuary?
a.Retirement and mortality rate
b.Interest rates
c.Benefit provisions of the plan
d.All of these are considered
15) Which of the following may be a current liability?
a.Withheld Income Taxes
b.Deposits Received from Customers
c.Deferred Revenue
d.All of these answers are correct
16) The journal entries for a bank reconciliation
a.are taken from the "balance per bank" section only
b.may include a debit to Office Expense for bank service charges
c.may include a credit to Accounts Receivable for an NSF check
d.may include a debit to Accounts Payable for an NSF check
