Disclosure notes related to a change in accounting principle under the retrospective
approach should include:
a. The effect of the change on executive compensation.
b. The auditor’s approval of the change.
c. The SEC’s permission to change.
d. Justification for the change.
In a perpetual inventory system, the cost of purchases is debited to:
a. Purchases.
b. Cost of goods sold.
c. Inventory.
d. Accounts payable.
Temporary accounts would not include:
a. Salaries payable.
b. Depreciation expense.
c. Supplies expense.
d. Cost of goods sold.
When several types of potential common shares exist, the one that enters the
computation of diluted EPS first is the one with the:
a. Highest incremental effect.
b. Higher numerator.
c. Median incremental effect.
d. Lowest incremental effect.
Which of the following is recorded by a credit to accounts receivable?
a. Sale of inventory on account.
b. Estimating the annual allowance for uncollectible accounts.
c. Estimating annual sales returns.
d. Write-off of bad debts.
Recording a sales-type lease is similar to recording:
a. A purchase on account.
b. An exchange of assets.
c. A sale of a fixed asset.
d. A sale of merchandise on account.
For its first year of operations, Tringali Corporation’s reconciliation of pretax
accounting income to taxable income is as follows:
Tringali’s tax rate is 40%. Assume that no estimated taxes have been paid.
What should Tringali report as income tax payable for its first year of operations?
a. $120,000.
b. $114,000.
c. $106,000.
d. $ 8,000.
Taxon Corp. granted restricted stock units (RSUs) representing 30 million of its $1 par
common shares to executives, subject to forfeiture if employment is terminated within
three years. After the recipients of the RSUs satisfy the vesting requirement, the
company will distribute the shares. The common shares had a market price of $8 per
share on the grant date. Ignoring taxes, what is the effect on earnings in the year after
the shares are granted to executives?
A. $0.
B. $30 million.
C. $80 million.
D. $240 million.
Excerpts from Hulkster Company’s December 31, 2016 and 2015, financial statements
are presented below:
Hulkster’s 2016 average days in inventory is (rounded):
a. 61 days.
b. 92 days.
c. 101 days.
d. 90 days.
A company switched from the cash basis to the accrual basis for recognizing warranty
expense. The unrecorded liability for warranties was $2 million at the beginning of the
year. Its tax rate is 30%. The company booked a year-end warranty liability of $3
million. As a result of this change, the firm would:
a. Report a prior period adjustment decreasing retained earnings by $600,000.
b. Report a prior period adjustment decreasing retained earnings by $1,400,000.
c. Report a current period charge decreasing net income by $600,000.
d. Report a current period charge decreasing net income by $1,400,000.
The matching principle is:
a. A valuation method.
b. An expense recognition accounting principle.
c. A cash basis reporting principle.
d. An asset classification procedure.
Technoid Inc. sells computer systems. Technoid leases computers to Lone Star
Company on January 1, 2016. The manufacturing cost of the computers was $12
million.
This noncancelable lease had the following terms:
-Lease payments: $2,466,754 semiannually; first payment at January 1, 2016;
remaining payments at –June 30 and December 31 each year through June 30, 2020.
-Lease term: five years (10 semiannual payments).
-No residual value; no bargain purchase option.
-Economic life of equipment: five years.
-Implicit interest rate and lessee’s incremental borrowing rate: 5% semiannually.
-Fair value of the computers at January 1, 2016: $20 million.
Collectibility of the rental payments is reasonably assured, and there are no lessor costs
yet to be incurred.
What is the interest revenue that Technoid would report on this lease in its 2016 income
statement?
a. $0.
b. $1,673,820.
c. $876,662.
d. None of these answer choices is correct.
Cash equivalents would include:
a. Highly liquid equity securities.
b. Accounts receivable from a financial institution.
c. Restricted funds for bonds that mature in three years.
d. Debt instruments with maturity dates of less than three months from the date of the
purchase.
Tom’s Textiles shipped the wrong material to a customer, who refused to accept the
order. Upon receipt of the material, Tom’s would credit accounts receivable and debit:
a. Sales.
b. Sales discount.
c. Sales returns.
d. Sales allowances.
The primary objective of the statement of cash flows is to provide information about a
company’s:
a. Cash receipts and disbursements.
b. Noncash financing and investing activities.
c. Financial position.
d. Profitability.
Archie Co. purchased a framing machine for $45,000 on January 1, 2016. The machine
is expected to have a four-year life, with a residual value of $5,000 at the end of four
years. Using the sum-of-the years’-digits method, depreciation for 2017 and book value
at December 31, 2017, would be
a. $13,500 and $13,500.
b. $13,500 and $8,500.
c. $12,000 and $17,000.
d. $12,000 and $12,000.
Olsson Corporation received a check from its underwriters for $72 million. This was for
the issue of one million of its $5 par stock that the underwriters expect to sell for $72
per share. Which is the correct entry to record the issue of the stock?
a. Cash 72,000,000
Stock issue expense
20,000,000
Stock contract receivable
52,000,000
b. Cash 72,000,000
Deferred stock issue revenue
20,000,000
Common stock
5,000,000
Paid-in capital’”-excess of par
47,000,000
c. Cash 72,000,000
Common stock
72,000,000
d. Cash 72,000,000
Common stock
5,000,000
Paid-in capital’”-excess of par
67,000,000
If Frasquita accrued interest of $15,000 on the note in its 2016 year-end financial
statements, what amount would it record the equipment on its 6/30/2016 balance sheet?
a. $500,000.
b. $515,000.
c. $550,000.
d. $525,000.
Costs incurred by the lessor that are associated directly with originating a lease and are
essential to acquire that lease are called initial direct costs. Initial direct costs are
matched with the interest revenues they help generate in:
a. An operating lease.
b. A capital lease.
c. A direct financing lease.
d. A sales-type lease.
Amortization of capitalized computer software costs is:
a. Either the percentage-of-revenue method or the straight-line method at the company’s
option.
b. The greater of the percentage-of-revenue method or the straight-line method.
c. The lesser of the percentage-of-revenue method or the straight-line method.
d. Based on neither the percentage-of-revenue nor the straight-line method.
Calculate the pension expense for 2016.
During Bricker Company’s first year of operations, credit sales totaled $200,000 and
collections on credit sales totaled $145,000. Bricker estimates that $1,000 of its ending
accounts receivable balance will not be collected. By year-end, Bricker had written off
$330 of specific accounts as uncollectible.
Required:
1> Prepare all appropriate journal entries relative to uncollectible accounts and bad debt
expense.
2> Show the year-end balance sheet presentation for accounts receivable.
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.
Listed below are 10 terms followed by a list of phrases that describe or characterize the
terms. Match each phrase with the number for the correct term.
On November 10 of the current year, Flores Mills sold carpet to a customer for $8,000
with credit terms 2/10, n/30. Flores uses the gross method of accounting for cash
discounts.What is the correct entry for Flores on November 10?
The balance sheet for Altoid Co. is shown below.
Selected 2016 income statement information for Altoid Co. includes:
Required: Compute the following financial statement ratios for 2016: Altoid Co.’s
acid-test ratio. Round your answer to two decimal places.
The following partial income statement and balance sheet information (in $ millions)
comes from the Annual Report of Saratoga Springs Co. for the year ending 12/31/2016:
Required: Compute the following amounts for Saratoga Springs Co.
Its return on stockholders’ equity for 2016. Round your answer to one decimal place,
e.g., .1234 as 12.3%.
The following is selected financial information for Osmond Dental Laboratories for
2015 and 2016:
Osmond issued 2,000 shares of additional capital stock in 2016 for $20,000. There were
no other capital transactions.
Required: Prepare a statement of shareholders’ equity for Osmond Dental Laboratories
for the year ended December 31, 2016.
The trial balance of Kroeger Inc. included the following accounts as of December 31,
2016:
Kroeger had 300,000 shares of stock outstanding throughout the year. Income tax
expense has not yet been accrued. The effective tax rate is 40%.
Required: Prepare a 2016 single, continuous statement of comprehensive income for
Kroeger Inc. Use a multiple-step income statement format.
The note about debt included in the financial statements of Healdsburg Company for
the year ended December 31, 2015 disclosed the following: Debt. The following table
summarizes the long-term debt of the Company at December 31, 2015. All of the notes
were issued at their face (maturity) value.
Required: Assuming that the notes pay interest annually and mature on December 31
of the respective years, compute the following: Suppose that Healdsburg enters into a
sales contract with an auto manufacturer on January 1, 2016, to provide tires that cost
Healdsburg $18 million to produce. The buyer offers Healdsburg $6 million in cash and
agrees to take over only the principal payment on Healdsburg’s 6.55% debt notes.
Assume that the going market interest is 7% at the time. What would Healdsburg’s
gross profit be on the sale?