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The following data are provided:
December 31
2018 2017
Cash $ 1,500,000 $ 1,000,000
Accounts receivable (net) 1,600,000 1,200,000
Inventories 2,600,000 2,200,000
Plant assets (net) 7,000,000 6,500,000
Accounts payable 1,100,000 800,000
Income taxes payable 200,000 100,000
Bonds payable 1,400,000 1,400,000
10% Preferred stock, $50 par 2,000,000 2,000,000
Common stock, $10 par 2,400,000 1,800,000
Paid-in capital in excess of par 1,600,000 1,300,000
Retained earnings 4,000,000 3,500,000
Net credit sales 12,800,000
Cost of goods sold 8,400,000
Operating expenses 2,900,000
Net income 1,500,000
Additional information:
Depreciation included in cost of goods sold and operating expenses is $1,220,000. On May 1,
2018, 60,000 shares of common stock were issued. The preferred stock is cumulative. The
preferred dividends were not declared during 2018.
*64. The accounts receivable turnover for 2018 is
a. 12,800 ÷ 1,600.
b. 8,400 ÷ 1,600.
c. 12,800 ÷ 1,400.
d. 8,400 ÷ 1,400.
Test Bank for Intermediate Accounting, Sixteenth Edition
24 – 22
*65. The inventory turnover for 2018 is
a. 12,800 ÷ 2,600.
b. 8,400 ÷ 2,600.
c. 12,800 ÷ 2,400.
d. 8,400 ÷ 2,400.
*66. The profit margin on sales for 2018 is
a. 4,400 ÷ 12,800.
b. 1,500 ÷ 12,800.
c. 4,400 ÷ 8,400.
d. 1,500 ÷ 8,400.
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*67. The return on common stock holders’ equity for 2018 is
a. 1,500 ÷ 7,200.
b. 1,500 ÷ 8,000.
c. 1,300 ÷ 7,200.
d. 1,300 ÷ 8,000.
Test Bank for Intermediate Accounting, Sixteenth Edition
24 – 24
*68. The book value per share of common stock at 12/31/18 is
a. 7,800 ÷ 240.
b. 7,760 ÷ 240.
c. 7,800 ÷ 220.
d. 8,000 ÷ 220.
*69. At December 31, 2018, the acid-test ratio was
a. 3,100 ÷ 1,300.
b. 3,100 ÷ 2,160.
c. 4,200 ÷ 1,600.
d. 5,700 ÷ 1,300.
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*70. Presented below is information related to Tolbert Company.
Current Assets
Cash $ 14,000
Short-term investments 75,000
Accounts receivable 61,000
Inventories 110,000
Prepaid expenses 30,000
Total current assets $290,000
Total current liabilities are $100,000. What is the acid-test ratio?
a. 2.9 to 1.
b. 2.6 to 1.
c. 1.5 to 1.
d. 0.9 to 1.
*71. Perez Company’s net accounts receivable were $800,000 at December 31, 2017 and
$880,000 at December 31, 2018. Net cash sales for 2018 were $520,000. The accounts
receivable turnover for 2018 was 9.0. What were Perez’s total net sales for 2018?
a. $4,680,000.
b. $7,560,000.
c. $8,080,000.
d. $7,920,000.
*72. During 2018, Quirk, Incorporated purchased $3,950,000 of inventory. The cost of goods
sold for 2018 was $4,050,000 and the ending inventory at December 31, 2018, was
$400,000. What was the inventory turnover for 2018?
a. 7.9.
b. 8.1.
c. 9.0.
d. 10.1.
Multiple Choice Answers—Computational
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Test Bank for Intermediate Accounting, Sixteenth Edition
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MULTIPLE CHOICE—CPA Adapted
73. Which of the following facts concerning plant assets should be included in the summary of
significant accounting policies?
Depreciation Method Composition
a. No Yes
b. Yes Yes
c. Yes No
d. No No
74. Farr, Inc. is a multidivisional corporation which has both intersegment sales and sales to
unaffiliated customers. Farr should report segment financial information for each division
meeting which of the following criteria?
a. Segment profit or loss is 10% or more of consolidated profit or loss.
b. Segment profit or loss is 10% or more of combined profit or loss of all company
segments.
c. Segment revenue is 10% or more of combined revenue of all the company segments.
d. Segment revenue is 10% or more of consolidated revenue.
75. Unruh Corp. and its divisions are engaged solely in manufacturing operations. The
following data pertain to the segments in which operations were conducted for the year
ended December 31, 2018.
Assets
Industry Revenue Profit 12/31/18
A $ 8,000,000 $1,320,000 $16,000,000
B 6,400,000 1,120,000 14,000,000
C 4,800,000 960,000 10,000,000
D 2,400,000 440,000 5,200,000
E 3,400,000 540,000 5,600,000
F 1,200,000 180,000 2,400,000
$26,200,000 $4,560,000 $53,200,000
In its segment information for 2018, how many reportable segments does Unruh have?
a. Three
b. Four
c. Five
d. Six
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76. The following information pertains to Nixon Corp. and its divisions for the year ended
December 31, 2018.
Sales to unaffiliated customers $4,000,000
Intersegment sales of products similar to those sold to
unaffiliated customers 900,000
Interest earned on loans to other operating segments 60,000
Nixon and all of its divisions are engaged solely in manufacturing operations. Nixon has a
reportable segment if that segment’s revenue exceeds
a. $496,000.
b. $490,000.
c. $406,000.
d. $400,000.
77. Advertising costs may be accrued or deferred to provide an appropriate expense in each
period for
Interim Year-end
Financial Reporting Financial Reporting
a. Yes No
b. Yes Yes
c. No No
d. No Yes
78. Mayo Corp. has estimated that total depreciation expense for the year ending December 31,
2018 will amount to $600,000, and that 2018 year-end bonuses to employees will total
$1,200,000. In Mayo’s interim income statement for the six months ended June 30, 2018,
what is the total amount of expense relating to these two items that should be reported?
a. $0.
b. $300,000.
c. $900,000.
d. $1,800,000.
79. Fina Corp. had the following transactions during the quarter ended March 31, 2018:
Payment of fire insurance premium for calendar year 2018 800,000
What amount should be included in Fina’s income statement for the quarter ended
March 31, 2018?
a. $ -0-
b. $200,000
c. $400,000
d. $800,000
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80. For interim financial reporting, a major repair occurring in the second quarter should be
a. recognized in the second quarter.
b. recognized ratably over all four quarters with the first quarter being restated.
c. recognized ratably over the last three quarters.
d. disclosed by note only in the second quarter.
*81. How is the average inventory used in the calculation of each of the following?
Acid-Test (Quick) Ratio Inventory Turnover
a. Numerator Numerator
b. Numerator Denominator
c. Not Used Denominator
d. Not Used Numerator
*82. Which of the following ratios is(are) useful in assessing a company‘s ability to meet
current maturing or short-term obligations?
Acid-Test Ratio Debt to Assets Ratio
a. No No
b. No Yes
c. Yes Yes
d. Yes No
*83. Which of the following ratios should be used in evaluating the effectiveness with which the
company uses its assets?
Accounts Receivable Turnover Payout Ratio
a. Yes Yes
b. No No
c. Yes No
d. No Yes
Multiple Choice Answers—CPA Adapted
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DERIVATIONS — Computational
No. Answer Derivation
Test Bank for Intermediate Accounting, Sixteenth Edition
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DERIVATIONS — Computational (cont.)
No. Answer Derivation
DERIVATIONS — CPA Adapted
No. Answer Derivation
Full Disclosure in Financial Reporting
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BRIEF EXERCISES
BE. 24-84—Notes to financial statements.
An article in Dun‘s Review made the following comments:
“Every other year companies should print the notes in big type
and the base figures in smaller ones.”
Instructions
(a) Are notes considered as part of the financial statements and what basic purpose do they
serve?
(b) What are the general types of notes?
BE. 24-85—Segment reporting.
The Financial Accounting Standards Board requires the reporting of disaggregated financial data
about the different types of business activities in which an enterprise engages.
Instructions
Identify 4 of the 6 items of disaggregated information the FASB requires that an enterprise report.
Test Bank for Intermediate Accounting, Sixteenth Edition
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EXERCISES
Ex. 24-86—Segment reporting.
Finney Company‘s condensed income statement is presented below:
Revenues $900,000
Expenses
Cost of goods sold $400,000
Operating and administrative expenses 200,000
Depreciation expense 40,000 640,000
Income before taxes 260,000
Income tax expenses 78,000
Net income $182,000
Earnings per share (100,000 shares) $1.82
The following data is compiled relative to Finney’s operating segments:
Percent Identified with Segment
Hotels Grains Candy
Revenues 42% 50% 8%
Cost of goods sold 48 49 3
Operating and administrative expense 35 50 15
Depreciation expense 46 42 12
Included in the amounts allocated to each segment on the above percentages are the following
expenses which relate to general corporate activities:
Operating Segment
Hotels Grains Candy Totals
Operating and administrative expense $12,000 $9,000 $3,000 $24,000
Depreciation expense 3,500 4,000 2,500 10,000
Instructions
(a) Prepare a schedule showing the amounts distributed to each segment.
(b) Based only on the above information, which segments must be reported and why?
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Solution 24-86 (cont.)
Ex. 24-87—Interim reports.
A few years ago, a publishing company in the fourth quarter had a net profit figure that exceeded
sales for that quarter. This situation suggests that some difficult accounting issues are involved in
interim reporting.
Instructions
(a) What are the major accounting problems related to interim reports?
(b) What problem exists with income taxes in interim reports and how does GAAP recommend
that taxes be reported? What does GAAP require?
(c) Many academicians have attempted to predict the year’s net income after the first quarter’s
income is reported. These attempts are generally unsuccessful, no matter how sophisticated
the prediction model. What might be the reason for this inability to predict?