Present and future value tables of 1 at 11% are presented below.
Polo Publishers purchased a multi-color offset press with terms of $50,000 down and a
noninterest-bearing note requiring payment of $20,000 at the end of each year for five
years. The interest rate implicit in the purchase contract is 11%. Polo would record the
asset at:
a. $73,918.
b. $123,918.
c. $130,000.
d. $169,560.
The amount of impairment loss is the excess of book value over:
a. Amortized cost.
b. Undiscounted future cash flows.
c. Fair value.
d. Future revenues.
On January 31, 2016, B Corp. issued $600,000 face value, 12% bonds for $600,000
cash. The bonds are dated December 31, 2015, and mature on December 31, 2025.
Interest will be paid semiannually on June 30 and December 31. What amount of
accrued interest payable should B report in its September 30, 2016, balance sheet?
a. $18,000.
b. $36,000.
c. $54,000.
d. $48,000.
When a company sells land for cash and recognizes a $25,000 gain:
a. Its acid-test ratio decreases.
b. Its current ratio decreases.
c. Its debt to equity ratio decreases.
d. Cannot determine from the given information.
Pro forma earnings:
a. Could be considered management’s view of permanent earnings.
b. Are needed for the correction of errors.
c. Are standardized under generally accepted accounting principles
d. Are useful to compare two different firms’ performance.
The FASB issues accounting standards in the form of:
a. Accounting Research Bulletins.
b. Accounting Standards Updates.
c. Financial Accounting Standards.
d. Financial Technical Bulletins.
Rent collected in advance is:
a. An asset account in the balance sheet.
b. A liability account in the balance sheet.
c. A shareholders’ equity account in the balance sheet.
d. A temporary account, not in the balance sheet at all.
Which of the following is not included among the assumptions needed to estimate
postretirement health care benefits?
a. Employee turnover.
b. Expected retirement age of plan participants.
c. Life expectancy of plan participants.
d. Return on plan assets.
Lopez Plastics Co. (LPC) issued callable bonds on January 1, 2016. LPC’s accountant
has projected the following amortization schedule from issuance until maturity:
LPC calls the bonds at 103 immediately after the interest payment on 12/31/2017 and
retires them. What gain or loss, if any, would LPC record on this date?
a. No gain or loss
b. $3,717 gain
c. $6,000 loss
d. $2,283 loss
On January 1, 2016, G Corp. granted stock options to key employees for the purchase
of 80,000 shares of the company’s common stock at $25 per share. The options are
intended to compensate employees for the next two years. The options are exercisable
within a four-year period beginning January 1, 2018, by the grantees still in the employ
of the company. No options were terminated during 2016, but the company does have
an experience of 4% forfeitures over the life of the stock options. The market price of
the common stock was $31 per share at the date of the grant. G Corp. used the Binomial
pricing model and estimated the fair value of each of the options at $10. What amount
should G charge to compensation expense for the year ended December 31, 2016?
a. $307,200.
b. $320,000.
c. $384,000.
d. $400,000.
Present and future value tables of $1 at 3% are presented below:
Carol wants to invest money in a 6% CD account that compounds semiannually. Carol
would like the account to have a balance of $50,000 five years from now. How much
must Carol deposit to accomplish her goal?
a. $35,069.
b. $43,131.
c. $37,220.
d. $35,000.
Cutter Enterprises purchased equipment for $72,000 on January 1, 2016. The equipment
is expected to have a five-year life and a residual value of $6,000. Using the
double-declining balance method, the book value at December 31, 2017, would be:
a. $14,400.
b. $24,960.
c. $27,360.
d. $25,920.
What is the stated annual rate of interest on the bonds?
a. 3%.
b. 4%.
c. 6%.
d. 8%.
a) What non-accounting factors are important before evaluating whether a pending
lawsuit should be accrued as a liability and reflected in the financial statements?
b) What accounting factors should be considered in determining whether a pending
lawsuit should be accrued as a liability and reflected in the financial statements?
Distinguish between:
(a) Secured and unsecured bonds.
(b) Coupon and registered bonds.
The following information is taken from the 2013 annual report to shareholders of
Hewlett-Packard (HP) Co.
Using a T-account for the allowance for doubtful accounts, identify the changes in the
account during fiscal year 2013.
What provisions did the Public Company Accounting Reform and Investor Protection
(Sarbanes-Oxley) Act of 2002 make for performance of nonaudit services by an audit
firm?
Optimus Pools, Inc. constructs outdoor swimming pools for wealthy individuals.
Recently it obtained an order to build a three-lane swimming pool of 25 yards in length
in the customer’s backyard. Under the contract, Optimus is also obligated to install a
water heater and a filtration system, which are necessary to make a swimming pool
fully functional. Total price for the construction was $55,000. Each of these smaller
components would typically cost $40,000, $10,000, and 20,000 if installed separately.
Required: Given the information above, how many performance obligations are
included in this contract?
Assuming that Composition had Dividends Payable of $17,450 thousand at December
31, 2014, compute the balance in that account at December 31, 2016.
How do U.S. GAAP and International Financial Reporting Standards (IFRS) differ with
respect to debt and equity for preferred stock?
Listed below are five terms followed by a list of phrases that describe or characterize
each of the terms. Match each phrase with the number for the correct term.
Give an example of a violation of the stable monetary unit assumption. How would it
affect the quality of financial statement information?
On January 3, 2016, Michelson & Sons acquired a tract of land just outside the city
limits. The land and existing building were purchased for $2.4 million. Michelson paid
$400,000 and signed a noninterest-bearing note requiring the company to pay the
remaining $2,000,000 on December 31, 2017. An interest rate of 7% properly reflects
the time value of money for this type of loan agreement. Transfer taxes, title insurance,
and other costs totaling $24,000 were paid at closing.
During February, the old building was demolished at a cost of $120,000, and an
additional $100,000 was paid to clear and grade the land. Construction of a new
building began on March 1 and was completed on October 30. Construction
expenditures were as follows:
Michelson did not borrow specifically for the construction project, but did have the
following debt outstanding throughout 2016: $6,000,000, 8% long-term note payable
$2,000,000, 5% long-term note payable In December, the company purchased
equipment and office furniture and fixtures for a lump-sum price of $800,000. The fair
values of the equipment and the furniture and fixtures were $540,000 and $360,000,
respectively. In December, Michelson paid $340,000 for the construction of parking lots
and landscaping.Required:
1> Determine the initial values of the various assets that Michelson acquired or
constructed during 2016.
2> How much interest expense will Michelson report in its 2016 income statement?
The following note disclosure is taken from the 2016 annual report to shareholders of
Winchester International Corporation. NOTE 5: ALLOWANCE FOR LOAN LOSSES
The allowance for loan loss is maintained at a level to absorb probable losses inherent
in the loan portfolio. This allowance is increased by provisions charged to operating
expense and by recoveries on loans previously charged off, and reduced by charge-offs
on loans. The following is a summary of the changes in the allowances for loan losses
for three years:
Winchester also reported (in thousands) in its comparative balance sheet that it held
Loans receivable, net, of $6,869,911 and $6,819,209 at December 31, 2016, and
December 31, 2015, respectively. If Winchester is using the balance sheet approach to
determining loan losses and the Allowance account balance, what percentage did it use
in 2016?