1) Companies occasionally adopt “aggressive” revenue recognition practices which then
generate significant returns in later periods.
2) Much of the information needed for assessing the quality and value-relevance of a
company’s reported accounting numbers cannot be found in the company’s Form 10-K.
3) Periodic inventory systems provide a greater degree of management control over
inventory.
4) The determination of whether or not a valuation allowance is necessary is based on
subjective assessment.
5) When the outcome of a contract cannot be reliably estimated, IFRS rules require
firms to use the completed contract method.
6) When accounting for an operating lease, depreciation expense is recorded by the
lessee.
7) A firm’s degree of conservatism can be assessed by comparing the ratio of taxable
income to pre-tax book income.
8) IFRS are frequently much more detailed than their U.S. GAAP counterpart
standards.
9) Ignoring estimated future returns and allowances violates the matching concept.
10) When accounting for funded postretirement benefit plans, actual return on plan
assets is deducted from the postretirement benefit expense.
11) Changes in a firm’s cash position between successive balance sheet dates result only
from the firm’s operating activities.
12) Diluted earnings per share will always be shown on the income statement for
companies with complex capital structures.
13) The Keweenaw Sunshine Development Corporation reported the following for the
year ended December 31, 2011:
How much cash did Keweenaw pay for interest during 2011?
A.$51,650
B.$43,850
C.$48,150
D.$46,350
14) Susqua, Inc. has held-to-maturity debt securities it purchased in 2011 . At December
31, 2012, Susqua, Inc. reported a $120,000 impairment loss related to these securities.
During 2013, the debtor was successful in registering a new patent which improved the
debtor’s operating outlook. This change of events resulted in a reversal of $45,000 of
the impairment loss. At December 31, 2013, the fair value of the debt securities had
increased by $68,000 over the impaired value previously recorded. Susqua, Inc. uses
IFRS for its external reporting. How much, if any, of this reversal can Susqua, Inc.
report in its income for 2013?
A.$ – 0 –
B.$120,000
C.$68,000
D.$45,000
15) A company’s financial statements can be used for all of the following purposes
except
A.as a scorecard on the company’s social responsibility
B.as a management report card
C.as an early warning signal
D.as a measure of accountability
16) Which of the following does not properly describe the comparison of the effective
income tax rate and the statutory income tax rate?
A.The rates could differ due to the tax jurisdiction that a firm operates in
B.Permanent differences that cause book income to be higher than taxable income will
cause the effective rate to be lower than the statutory rate
C.The reconciliation between the rates can reflect information pertaining to a firm’s tax
policy decisions
D.A firm with aggressive tax policies will most likely have an effective tax rate that is
much higher than the statutory rate
17) Morey Corporation leases a tractor from Equity Leasing with a five-year
non-cancelable lease on January 1, 2011 under the following terms:
1> Five payments of $26,379.74 (a 9% implicit rate, known to Morey) due at the end
each year.
2> The payments were calculated based on the fair value (which is also the book value
for Equity) of the tractor.
3> The lease is nonrenewable and the tractor reverts to Equity at the end of the lease
term.
4> The tractor has a six-year economic life.
5> Morey has an excellent credit rating.
6> Equity offers no warranty on the tractor other than the manufacturer’s two-year
warranty that is handled directly with the manufacturer.
With which one of the following entries will Morey prepare to record the lease of the
tractor on January 1, 2011?
A.Option a
B.Option b
C.Option c
D.Option d
18) LIFO layers are more likely to be liquidated when inventory records are kept on
A.an inventory group basis
B.a total inventory basis
C.an item-by-item basis
D.a specific identification basis
19) As a firm liquidates old LIFO layers of inventory, the lower costs of the LIFO
layers are matched against current sales dollars resulting in a profit margin that is
A.inflated
B.deflated
C.lower than normal
D.always the same as under FIFO
20) When accounting for self-contained foreign subsidiaries, the parent company uses
which one of the following methods for the translation of its financial statements into
dollars?
A.Present value rate
B.Historical rate
C.Future value rate
D.Current rate
21) Goods held on consignment are included in the inventory valuation of
A.the consignor
B.the consignee
C.both the consignor and the consignee
D.neither the consignor nor the consignee
22) The Brand Corporation’s December 31, 2011 balance sheet reports an accrued
pension liability of $243,000. On December 31, 2011, the projected benefit obligation
was $4,975,000, the fair value of the plan assets was $4,679,000, and the accumulated
benefit obligation was $3,482,500. The December 31, 2011 balance sheet should report
a pension liability totaling
A.$243,000
B.$296,000
C.$4,975,000
D.$3,482,500
23) During 2012, a company reported an increase in the deferred tax liability account of
$77,990, an increase in the deferred tax asset account of $35,325, and an income tax
liability as per the 2012 income tax return of $398,555. What is the income tax expense
to be reported on the income statement for the year ending December 31, 2012?
A.$398,555
B.$441,220
C.$511,870
D.$285,555
24) Under the indirect method, a loss on the sale of equipment should be
A.added back to net income to arrive at cash flow from operating activities
B.subtracted from net income to arrive at cash flow from operating activities
C.a source of funds in the financing activities
D.a source of funds in the investing activities
25) The change in equity of an entity during a period from transactions and other events
from non-owner sources is known as
A.net income
B.net operating income
C.comprehensive income
D.net change in assets
26) The Palmer Corporation sells goods to its customers on a note basis with 10% credit
terms and interest payable at the end of each quarter. All notes are due in one year.
Palmer makes the following sales on July 1, 2011:
To encourage sales, Berg was given a special deal on interest. Additional information:
Future value of $100,000 in one year (quarterly interest) is $110,381.
Present value of $100,000 for one year (quarterly interest) is $90,595.
At the end of the first quarter, which one of the following entries will be made to record
the interest earned by Palmer on the Perez note?
A.Option a
B.Option b
C.Option c
D.Option d
27) Stock options are granted to the employees of Young Company on March 10, 2010 .
The employees must wait until March 10, 2014 to exercise the options. The four-year
waiting period is the
A.expected life of the options
B.grant period
C.vesting period
D.holding period
28) Noah Construction Company is building a large complex for a contract price of
$5,000,000. This is a three-year project estimated to cost $4,000,000 and the following
information is available:
Which one of the following entries would be made in Year 3 to record the completion
and acceptance of the project using the completed-contract method of revenue
recognition?
A.Option a
B.Option b
C.Option c
D.Option d
29) Which of the following statements pertaining to lease accounting is not correct?
A.The lessee will depreciate a leased asset either over the lease term or the leased
asset’s useful life dependent upon which of the required lease capitalization criteria is
(are) met
B.The lessee ignores a guaranteed salvage value when calculating depreciation expense
associated with a capital lease
C.The lessor’s annual income will decrease over time regardless of whether the lease is
a sales-type lease or a direct financing lease
D.The gross profit recorded by the lessor is the same whether or not the residual value
is guaranteed by the lessee
30) If a lease contains a residual value guarantee, the lessee must
A.add the guaranteed amount to the present value of the minimum lease payments
B.add the present value of the guaranteed amount to the present value of the minimum
lease payments
C.include the guaranteed amount in the minimum lease payments only if the lessee
intends to keep the asset at the end of the lease
D.ignore the guaranteed amount if the lessee intends to keep the asset at the end of the
lease
31) The Simon Company acquired a long-lived asset three years ago at a cost of
$125,000. Two years later the asset sustained impairment in value. At the time of the
impairment the fair value of the asset was $25,000 and the carrying value was $50,000.
The entry to record the impairment would be
A.Option a
B.Option b
C.Option c
D.Option d
32) The Financial Accounting Standards Board has responsibility for the establishment
of U. S. accounting standards and
A.full statutory power to enforce compliance with GAAP
B.authority from the SEC to enforce compliance with GAAP
C.no authority or responsibility to enforce compliance with GAAP
D.responsibility imposed by
33) The key accounting issue related to bundled (multiple-element) sales transactions
A.is the timing of revenue recognition
B.is the amount of revenue to recognize over the life of the contract
C.hinges on whether or not the customer has the ability to pay for the contracted
services
D.concerns the amount of revenue to allocate to each contract element
34) Financial statements follow
A.rigid guidelines that require specific adherence to regulated procedures
B.generally accepted guidelines that allow management to choose among different
procedures
C.general guidelines with little choice among different procedures
D.legal requirements for uniform presentation and disclosure
35) The most widely-used depreciation method for U.S. income tax purposes is
A.sum-of-the-years’ digits
B.MACRS
C.straight-line
D.units-of-production
36) On February 1, 2012, Hills Company had 10,000 pounds of inventory costing $1.50
per pound; the market value per pound was $1.95 on this date. Hills entered into a
futures contract to sell the 10,000 pounds of inventory during May 2012 at $2.25 per
pound. Which of the following statements does not accurately describe the impact of
this futures contract?
A.Hills has foregone the benefit of additional profits (the upside potential) if the price
per pound exceeds $2.25 during the month of May
B.Hills has eliminated the risk of reduced profits (the downside potential) if the price
per pound is less than $1.95 during the month of May
C.Hills’ gross profit in May will be $3,000 regardless of the actual price per pound in
May
D.The value of the futures contract decreases as the market price per pound of
inventory increases
37) Companies that are considered to be in stronger financial health and better credit
risks are able to satisfy most of their cash needs from
A.operating activities
B.investing activities
C.financing activities
D.investing and financing activities
38) The interest cost component of a defined benefit pension plan is computed as the
A.ending accrued pension liability times the discount rate
B.beginning accrued pension liability times the discount rate
C.beginning projected benefit obligation times the discount rate
D.beginning accumulated pension liability times the discount rate
39) Condensed financial data are presented below for the Phoenix Corporation:
The days receivable outstanding for 2012 is (rounded):
A.51 days
B.55 days
C.60 days
D.183 days
40) During 2012, Autumn Company had the following information related to cash
flows:
If Autumn Company’s statement of cash flows is prepared using the proposal on the
statement of cash flows put forth by the IASB and the FASB, what amount would be
reported as net cash from business activities?
A.$72,000 cash inflow
B.$156,000 cash inflow
C.$40,000 cash outflow
D.$84,000 cash inflow
41) Investors need to review transactions involving swaps carefully to ensure that there
is an underlying
A.loss
B.gain
C.rationale
D.economic benefit
42) On January 1, 2012 when the effective interest rate was 12%, Philips Co. issued
bonds with a maturity value of $200,000. The stated rate of interest is 12%and the
bonds pay interest semi-annually. Philips Co. paid $2,000 in bond issue costs on this
date. Under IFRS the bonds will be recorded on the January 1, 2012 balance sheet of
Philips Co. at
A.$200,000
B.$202,000
C.$198,000
D.Cannot be determined based on the information provided
43) Under the cash basis, how much revenue should Canon recognize in October?
A.$0
B.$16,000
C.$24,000
D.$40,000
44) The service cost component of a defined benefit pension plan is computed as the
A.present value of the change in the accrued pension liability
B.actual value of the change in the accrued pension liability
C.present value of the change in pension liability from additional employee service
D.undiscounted change in pension liability from additional employee service
45) Corona Industries purchased a stamping machine on January 2, 2008, for $100,000.
It paid $20,000 down and financed the balance over 5 years at State Bank. Terms of the
loan were 10% interest payable on December 31 each year with a required $16,000
principal payment. 2011 proves to be a difficult year and on December 1, Corona
negotiates a debt restructuring with State Bank. The settlement calls for cash payment
of accrued interest plus $4,000 on December 1 and the transfer of 200 acres of land held
by Corona that cost $15,000. The land has a current market value of $22,000.
Which one of the following entries will Corona make to adjust the land just prior to
transfer?
A.Option a
B.Option b
C.Option c
D.Option d