1) Under IFRS, acquired intangibles are always carried at amortized cost even when an
active market is available for the intangible.
2) Firms are required to disclose executive retirement and other postemployment
compensation, generally for the ten most highly paid executives serving as corporate
officers.
3) Research shows that managers sometimes use accounting flexibility to evade
contract constraints in order to gain bonus benefits.
4) When a debt is retired on the maturity date, the book value is always equal to the
market value.
5) In theory, the abnormal earnings approach and the free cash flow approach never
produce the same valuation estimate.
6) Owners and managers have an economic incentive to supply the amount and type of
financial information that will enable the company to raise capital at the lowest cost.
7) Under U.S. GAAP, an asset that was written down can later be written back up to its
original carrying value if its value recovers to previous levels.
8) Payment default occurs when the borrower violates one or more loan covenants but
has made all principal and interest payments.
9) Certain financial statement ratios are quite useful in predicting loan default.
10) Deferred gross profit on installment sales is generally treated as a deduction from
installment sales.
11) Borrowers do not appear willing to pay substantially higher interest rates to retain
accounting flexibility that may help them avoid covenant violations.
12) Income (or loss) from discontinued operations is viewed as a transitory component
of earnings.
13) One factor that considerably affects the ease with which users employ financial
reports is that accounting is an exact science.
14) Which of the following statements is correct regarding revenue and expense
accounts?
A.These are really owners’ equity accounts
B.These are really contributed capital accounts
C.They have no impact on the balance sheet
D.These are balance sheet accounts
15) The Barden Company provides the following information from its Year 3 and Year
4 balance sheets:
The following information is available from the Year 4 income statement:
How much cash did Barden pay for inventory during Year 4? Assume all purchases are
on credit.
A.$130,000
B.$215,000
C.$225,000
D.$235,000
16) Royal, Inc. discovered that equipment purchased three years ago for $300,000 will
not last as long as originally estimated. The firm was depreciating the equipment at the
rate of $40,000 per year with an estimated salvage value of $20,000. New estimates
indicate that the equipment will last a total of five years with no salvage value. How
much should Royal, Inc. record as depreciation in year four?
A.$40,000
B.$60,000
C.$90,000
D.$120,000
17) Which of the following statements does not properly describe the accounting for
business combinations?
A.Under the purchase method, the subsidiary’s assets and liabilities are not valued at
their full fair values on the consolidated balance sheet when minority interests are
present
B.Under the acquisition method, the subsidiary’s assets and liabilities are valued at their
full fair values on the consolidated balance sheet when minority interests are present
C.The parent company has the option of choosing either the purchase method or the
acquisition method to account for the business combination
D.The noncontrolling interest is reported as a component of stockholders’ equity when
using the acquisition method
18)
The implied total earnings multiple of Firm B is
A.1.00
B.3.00
C.3.35
D.12.00
19) A contingent liability that is probable and can be reasonably estimated will
immediately result in
A.an increase in both liabilities and stockholders’ equity
B.an increase in liabilities and a decrease in net income
C.an increase in liabilities without any need for financial statement disclosure
D.an increase in liabilities and a decrease in assets
20) In the utilities industry, rate formulas are established to allow the utilities to set total
allowed revenues to recover
A.only the administrative costs of operations
B.only the operating costs associated with operations
C.all operating costs, depreciation, taxes, and a fair return on invested capital
D.all operating costs other than depreciation and taxes, and a fair return on invested
capital
21) Compensation plans should
A.not link incentive plans to financial performance
B.not be based on long-term business goals
C.align shareholders’ incentives with the objectives of managers
D.align managers’ incentives with the objectives of shareholders
22) Hooker Company sells $200,000 of ten-year, 8% bonds to yield 10% on January 1,
2011 . The bonds pay interest annually on December 31 . The bonds were sold at a
discount of $24,578. The bond carrying amount at the end of 2011 is
A.$175,422
B.$176,964
C.$200,000
D.$201,542
23) When operating earnings and cash flows from operations are dissimilar, which of
the following ratios is a better measure of long-term solvency?
A.Interest coverage
B.Long-term debt to asset
C.Long-term debt to tangible assets
D.Operating cash flow to total liabilities
24) Which of the following transactions would not be reported within the financing
activities section of the cash flow statement?
A.The payment of a cash dividend
B.An issue of preferred stock in exchange for cash
C.An issue of common stock in order to retire a bond liability
D.The payment of cash to acquire shares of common stock to be held as treasury stock
25) During its first year of operations a company recorded accrued expenses totaling
$375,000 for book purposes. For tax purposes, $175,000 of the expenses are deductible
during the first year of operations and $200,000 are deductible during the second year
of operations. The income tax rate was 40% during the first year of operations and 45%
during the second year of operations. The balance sheet at the end of the first year of
operations will report a deferred tax
A.asset of $80,000
B.liability of $80,000
C.liability of $90,000
D.asset of $90,000
26) 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 of the following entries will Equity Leasing prepare to record the receipt of
the first payment on December 31, 2011?
A.Option a
B.Option b
C.Option c
D.Option d
27) A special one-time charge resulting from corporate restructurings would be reported
on the income statement as a/an
A.extraordinary item shown net of tax
B.special item in continuing operations
C.special item in continuing operations, shown net of tax
D.special item in discontinued operations, shown net of tax
28) Ford Appliance Center records revenue on the installment sales method. The
following information is available for the first two years of business.
Which one of the following entries properly records the deferral of gross profit on Year
2 installment sales not yet collected?
A.Option a
B.Option b
C.Option c
D.Option d
29) A compensation committee should be comprised of
A.the CEO and the CFO of the company
B.the CEO of the company and the outside attorney
C.members of the Board of Directors who are also officers of the company
D.members of the Board of Directors who are outside (non-management) directors
30) Amortizable intangible assets include all of the following except
A.goodwill
B.patents
C.copyrights
D.employment contracts
31) To get revenue and expense account balances to zero requires a/an
A.adjusting entry
B.closing entry
C.operating entry
D.reversing entry
32) When a financial analyst adjusts a company’s reported depreciation expense to
improve comparisons of profitability with another firm that uses the same depreciation
method, the analyst assumes all of the following to be true except that
A.the useful lives differences are “real”
B.the dollar breakdown within asset categories is similar for both firms (i.e., both have
similar amounts of buildings vs. machinery, etc.)
C.salvage value proportions are roughly equivalent for both firms
D.the useful life differences are artificial
33) The Key Company sold a machine. The machine had accumulated depreciation of
$50,000 and a salvage value of $6,000. If the machine sold for $16,000 and a gain of
$4,000 is recognized, the original cost of the asset is
A.$54,000
B.$62,000
C.$66,000
D.$70,000
34) If the financial reporting environment were unregulated, disclosure would occur
voluntarily
A.as long as other companies in the reporting company’s industry voluntarily disclosed
financial information
B.only to analysts that the company believes will report favorably on the company’s
prospects
C.only when managers wanted to raise additional capital
D.as long as the incremental benefits to the company from supplying financial
information exceeded the incremental costs of providing the information
35) All of the following are examples of long-term construction projects except
A.military hardware
B.oil tankers
C.bridges
D.residential swimming pools
36) Condensed financial data are presented below for the Phoenix Corporation:
The total assets turnover ratio for 2012 is (rounded):
A.1.7 times
B.2.0 times
C.2.2 times
D.2.4 times
37) Research findings almost uniformly indicate that existing GAAP for both R&D and
software development is
A.satisfactory as written
B.objective
C.conservative
D.liberal
38) 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 1 to record the costs incurred
using the percentage-of-completion method of revenue recognition?
A.Option a
B.Option b
C.Option c
D.Option d
39) Continuing franchise fees should be recorded by the franchisor
A.as revenue when received
B.as revenue in the period they are earned and received
C.in accordance with the franchise agreement
D.as revenue only after the balance of the initial franchise fee has been received
40) Which one of the following items is the most common adjustment to the cash flow
from operating activities under the indirect method because cash does not increase or
decrease?
A.Change in receivables
B.Depreciation expense
C.Change in fixed assets
D.Change in cash
41) The Carrasco Company has provided you the following information pertaining to its
defined benefit pension plan that was adopted on January 1, 2011:
The service cost was $750,000 during 2011 and $1,125,000 during 2012 .
The contribution to the pension plan was $600,000 on December 31, 2011 and
$1,200,000 on December 31, 2012 .
The actuarially determined discount rate and the expected return on plan assets was
10%.
The actual return on plan assets was 10.5%.
Retirement benefits pertaining to years of service prior to 2011 were not granted to the
employees.
What is the pension expense for the year ended December 31, 2012?
A.$1,140,000
B.$1,065,000
C.$1,200,000
D.$1,137,000
42) U.S. GAAP allows companies to use the cost recovery method for recognizing
profits
A.when collections on installment sales occur over an extended period and there is no
reasonable basis for estimating collectibility
B.on any installment sale
C.only when selling to companies with strong credit ratings
D.if they are in industries where this is the accepted practice
43) When a dividend is not declared on preferred stock, and the common shareholders
cannot receive a dividend until all past and current dividends are paid to the preferred
shareholders, the preferred stock is
A.cumulative
B.noncumulative
C.participating
D.nonparticipating
44) The FASB/IASB joint discussion paper on financial statement presentation
encourages entities to disaggregate financial statement data by all of the following
except
A.the significance of the individual data items to investors and creditors
B.the primary activities in which an entity is engaged
C.how assets and liabilities are measured
D.the economic characteristics or attributes that distinguish assets, liabilities and
income and expense items that respond differently to similar economic events
45) A firm’s financial statements contain trends that give users insight into the firm’s
A.future market share
B.position within its industry
C.profitability, productivity, and liquidity
D.current market price for common and preferred stock
46) The use of a bank manager’s discretion in the timing and amount of loan loss
provisions and loan charge-offs can falsely understate the losses and
A.decrease net income
B.decrease bank obligations
C.improve the bank’s debt adequacy ratio
D.improve the bank’s capital adequacy ratio
47) When losses occur on long-term contracts using the completed-contract method,
they are recognized
A.proportionately over the contract period using costs incurred as a base
B.evenly over the contract period
C.in their entirety as soon as it becomes known that a loss will be suffered
D.at the completion of the project
48) Vent, Inc. reported net income of $770,000 for 2011 . Vent sold 15,000 shares of
treasury stock acquired in a previous year on July 1 and 15,000 new shares on
November 1 . At year-end, 180,000 shares were outstanding. Vent had 20,000 shares of
$100 par value 7% preferred stock outstanding all year. Vent paid dividends to the
preferred shareholders.
If each share of preferred stock is convertible into 2 shares of common stock, the
diluted earnings per share for 2011 is
A.$3.85 per share
B.$3.94 per share
C.$4.81 per share
D.$6.10 per share