1) There is no need for an analyst to develop plausible predictions about future
economic conditions in the target company’s industry as these are readily available from
the U.S. Commerce Department.
2) Research indicates that investors treat R&D expenditures as if they are assets.
3) Net income for a particular time period will be understated if a bond issuer fails to
amortize premium on bonds payable (bond premium) during that time period.
4) A call option contract requires the holder to buy a specific underlying asset at a set
price during a specific time period.
5) The LIFO conformity rule was promulgated by the SEC to insure that all firms in a
given industry use LIFO if a majority of the firms in the industry opt to do so.
6) An expense that enters into the determination of book income but never affects
taxable income is referred to as a permanent difference.
7) When IFRS permits different accounting treatments for similar business transactions
and events, one of these treatments is labeled the benchmark treatment.
8) It is possible that the lessee and the lessor could both treat the same lease as a capital
lease.
9) A bond that has collateral to protect the bondholder is referred to as a debenture
bond.
10) Common size income statements show you how much of each sales dollar hits the
bottom line as profit.
11) GAAP prescribes a standardized format for disclosing the LIFO reserve.
12) An earnings surprise results from incorrect estimates of future earnings.
13) Earnings are deemed to be of high quality when they are sustainable; earnings
quality is also affected by management’s choice of accounting methods.
14) If a material event is either unusual in nature or an infrequent occurrence it is
classified on the income statement as a/an
A.special item in continuing operations
B.special item in continuing operations shown net of tax
C.extraordinary item
D.extraordinary item shown net of tax
15) Selected data for Kris Corporation’s comparative balance sheets for Year 1 and Year
2 are as follows:
How much cash did Kris collect from customers during Year 2? Assume all sales are on
credit.
A.$150,000
B.$750,000
C.$850,000
D.$900,000
16) An impairment loss is reported on the income statement as a/an
A.continuing operations item
B.extraordinary item
C.discontinued operations item
D.accounting change
17) On January 2, 2012, Jensen Corporation sells equipment it manufactured to
Lewisburg Fabricators in exchange for an $80,000 note due in five years. The note
bears no explicit interest, but rather requires the entire $80,000 to be repaid at the end
of five years. Jensen recently sold the same equipment to another company for $54,447.
When Lewisburg Fabricators sought bank financing for this purchase the company was
offered the funds at 8%, but decided instead to let Jensen hold the note.
What will be the balance in the Notes ReceivableLewisburg Fabricators account at the
end of 2013?
A.$54,447
B.$58,802
C.$63,507
D.$80,000
18) Guthrie Corporation reports accounts receivable at a net realizable value of
$2,940,000 (gross receivable of $3,000,000 minus allowance for uncollectible accounts
of $60,000). Assume that there is an active market for these types of receivables and
that the price is 94% of face value. To adjust the receivable’s carrying value to fair value
Guthrie would make which of the following entries?
A.Option a
B.Option b
C.Option c
D.Option d
19) The following information has been obtained from the Mastic Corporation:
550,000 shares of common stock were outstanding on January 1, 2011 .
Bonds convertible into 50,000 shares of common stock were issued on July 1, 2011; the
bonds have been determined to be dilutive.
36,000 shares of common stock were issued on November 1, 2011 .
24,000 shares of common stock were purchased on December 1, 2011 .
What is the weighted average number of shares to be used in the calculation of diluted
earnings per share for 2011?
A.612,000
B.587,000
C.604,000
D.579,000
20) A company that has earnings in Year 2 equal to the earnings of Year 1 can improve
its Year 2 reported earnings per share by
A.selling additional common stock
B.selling additional preferred stock
C.selling shares of treasury stock at a price exceeding what was paid for the treasury
stock
D.purchasing shares of treasury stock
21) Changes in the discount rate on pension plans cause material differences in
A.pension expense and pension obligations
B.interest expense and pension expense
C.pension expense and trust fund recorded on the sponsor’s balance sheet
D.interest expense and the plan assets
22) Manufacturing costs not considered to be closely associated with production are
called
A.period costs
B.product costs
C.absorption costs
D.variable costs
23) Which of the following is not a similarity between the accounting for a defined
benefit pension plan and other postretirement benefits?
A.The financial statement disclosures
B.Actuarial assumptions are extensively used
C.The funding requirements
D.The applicable GAAP standards
24) When an investor owns less than 20 percent of the investee company, the investor
may still be able to exert influence over the investee company if the other stock is
A.closely held by a few investors
B.widely distributed across a few investors
C.widely distributed across a large number of individual investors
D.controlled a small group of investors
25) Perry Investments bought 2,000 shares of Able, Inc. common stock on January 1,
2012, for $20,000 and 2,000 shares of Baker, Inc. common stock on July 1, 2012 for
$24,000. Baker paid $2,400 of previously declared dividends to Perry on December 31,
2012 . At the end of 2012, the market value of the Able stock was $18,000 and the
market value of the Baker stock was $28,000. The stocks were purchased for short-term
speculation. Perry owns 10% of each company.
Assume that the Roy Company stock was sold during 2014 for $31,000. The proper
accounting recognition at the date of sale was
A.an unrealized loss $1,000
B.a realized gain of $7,000
C.a realized gain of $6,000
D.a realized loss of $1,000
26) When the differences in useful lives of long-lived assets reflect real economic
differences, the attempt on the part of financial analysts to undo these differences may
A.impede profit and loss comparisons
B.enhance profit comparisons
C.enhance profit comparisons, but impede loss comparisons
D.enhance profit and loss comparisons
27) In a trend balance sheet, each balance sheet item is expressedas a percentage of
A.total assets
B.the base year item
C.sales
D.equity
28) Balance sheets prepared in compliance with GAAP reflect a mixture of
A.historical cost and future cash values
B.current value and discounted future cash flows
C.discounted cash flows and future values
D.historical cost, fair value, net realizable value, and discounted present values
29) A lessor mistakenly treated a direct financing lease as an operating lease. How does
this mistake impact the following at the end of the first year of the lease term?
A.Option a
B.Option b
C.Option c
D.Option d
30) The matching principle requires that expenses be recognized
A.in the same period in which all the assets are used up
B.in the same period in which the revenue generated by these expenses is recognized
C.when the costs are paid by the entity
D.in the same period in which the revenue generated by these expenses is received
31) To achieve faithful representation, the financial information must be
A.consistent, unbiased, and relevant
B.relevant, comparable, and timely
C.relevant, consistent, and timely
D.complete, neutral, and free from material error
32) Incentive stock options
A.have value only if the market price of the stock declines
B.have value only if the market price of the stock rises
C.are taxed at ordinary rates
D.do not qualify for favorable tax treatment
33) GAAP defines lessors’ treatment of leases according to Type I and Type II
characteristics. Type I characteristics are linked to
A.the critical event criteria for expense recognition
B.the critical event criteria for revenue recognition
C.measurement of collectibility for revenue recognition
D.measurement of historical cost
34) GAAP mandates that firms provide a
A.working capital statement.
B.cash flow statement.
C.statement showing inflows and outflows of current assets and current liabilities.
D.statement reporting changes in current operations.
35) GAAP defines lessors’ treatment of leases according to Type I and Type II
characteristics. Type II characteristics are linked to
A.the critical event criteria for expense recognition
B.the critical event criteria for revenue recognition
C.measurement of collectibility for revenue recognition
D.measurement of historical cost
36) The disclosure rules pertaining to GAAP accounting for business combinations
complicates financial analysis for which of the following reasons?
A.Comparative financial statements are not retroactively adjusted to include data for the
acquired company for periods prior to the acquisition
B.The inclusion of noncontrolling interest in the retroactively adjusted financial
statements complicates the analysis
C.The inclusion of acquired goodwill in the retroactively adjusted financial statements
complicates the analysis
D.The inclusion of the acquired firm’s equity within the retroactively adjusted financial
statements complicates the analysis
37) The inventory at the end of Year 2 under dollar-value LIFO is
A.$238,095
B.$240,000
C.$250,000
D.$262,500
38) In 2009, the FASB completed a five-year effort to distill the existing GAAP
literature into a single database known as
A.the accounting standards database
B.international financial reporting standards
C.the converged accounting standards
D.the accounting standards codification
39) If each share of preferred stock is convertible into 8 shares of common stock, the
diluted earnings per share for 2011 is (rounded)
A.$1.29 per share
B.$1.45 per share
C.$1.54 per share
D.$1.73 per share
40) The parent company’s investment account would include an element which is
representative of
A.the unrecorded book value of the investor’s assets
B.the recorded current value of the investee’s assets
C.the unrecorded difference between fair value and book value of the investee’s assets
D.the goodwill accrued since the purchase of the investee
41) In general, the growth rate in earnings will depend on the portion of earnings
reinvested each period and
A.the earnings retention rate
B.the rate of return earned on new investment
C.the company’s cost of equity capital
D.the company’s weighted average cost of capital
42) Perry Investments bought 2,000 shares of Able, Inc. common stock on January 1,
2012, for $20,000 and 2,000 shares of Baker, Inc. common stock on July 1, 2012 for
$24,000. Baker paid $2,400 of previously declared dividends to Perry on December 31,
2012 . At the end of 2012, the market value of the Able stock was $18,000 and the
market value of the Baker stock was $28,000. The stocks were purchased for short-term
speculation. Perry owns 10% of each company.
The entry to record the purchase of Able, Inc. common stock would be
A.Option a
B.Option b
C.Option c
D.Option d
43) IFRS frequently
A.upon issue are automatically approved for any foreign listed company
B.permit only one accounting treatment for similar business transactions and events to
promote comparability
C.allow firms less latitude when compared to U.S. GAAP
D.follow a more generalized overview approach than do U.S. GAAP counterpart
standards
44) Differences between IFRS and U.S. GAAP in accounting for pensions include:
A.Under U. S. GAAP the balance sheet asset (liability) on the balance sheet differs
from the plan’s actual funded status, while under IFRS the balance sheet asset (liability)
on the balance sheet equals the plan’s actual funded status
B.Under IFRS unamortized past service costs are off-balance-sheet
C.Under U. S. GAAP there are two methods for recognizing actuarial gains and losses
D.U. S. GAAP requires that new prior service cost would be recognized immediately as
part of service cost, while IFRS accounts for these costs off-balance-sheet