1) A lender can effectively convert a fixed-rate debt into a floating-rate debt by using an
interest rate swap.
2) IFRS rules allow firms to classify dividends paid as a component of cash flows from
operating activities in order to help users to determine the ability of an entity to pay
dividends out of operating cash flows.
3) Ignoring estimated future returns and allowances has a trivial effect on income when
the amount of actual returns and allowances does not vary greatly from year to year.
4) The parties involved in a defined benefit plan are the same as those in a defined
contribution plan.
5) A pension plan is underfunded if the projected benefit obligation exceeds the fair
value of the pension plan assets.
6) U.S. GAAP requires that virtually all costs incurred for research and development of
an internally generated patent be capitalized.
7) The principles that govern revenue and expense recognition under accrual accounting
are designed to alleviate the mismatching problems that exist under cash-basis
accounting.
8) Selling, general, and administrative expenses relating to installment sales are
deferred until the revenue is recognized, consistent with the manner in which such
expenses are handled for normal (non-installment) sales.
9) The income statement isolates a key figure called “income from sustainable
operations.”
10) A company can elect to use the fair value option to account for equity method
investments at any time.
11) If the fair value option is elected, the carrying value of a note receivable would
reflect general changes in interest rates and changes in the creditworthiness of the
borrower.
12) Firms now must provide a compensation discussion and analysis in the proxy
statement which describes the specific items of corporate performance that are taken
into account when making compensation decisions.
13) Financial statements are crucial in investment decisions that use fundamental
analysis to identify mispriced securities (i.e., securities selling for more or less than
they seem to be worth).
14) Which of the following statements does not accurately describe issues pertaining to
preparation of the cash flow statement?
A.The retirement of a fixed asset that is not fully depreciated resulting in a loss equal to
the retired asset’s book value creates a discrepancy with respect to changes in the
balance sheet relative to what is reported in the investing activities section of the cash
flow statement
B.Simultaneous non-cash financing and investing activities such as the purchase of a
building by incurring a mortgage do not need to be reported within the investing and
financing activities sections of the cash flow statement
C.Changes in working capital accounts and fixed asset accounts will always have to
correspond with the changes in these accounts within the statement of cash flows
D.The increase in the fixed asset accounts due only to a translation adjustment resulting
from the fall of the dollar will not create an investing cash flow within the investing
activities section of the cash flow statement
15) Some countries’ philosophy of financial reporting differs from U.S. GAAP because
their financial reports are required to
A.be verifiable
B.conform to tax and/or commercial law
C.be reported and measured in a similar manner across companies
D.use the same accounting methods for similar events period to period
16) The SEC says that revenue is earned and is realized or realizable when any two of
the following criteria are met: a) persuasive evidence of an exchange arrangement
exists, b) delivery has occurred or services have been rendered, c) the seller’s price to
the buyer is fixed or determinable, and d) collectibility is reasonably assured.
17) The type of analysis that does not concern itself with financial statement numbers is
A.valuation analysis
B.efficient market analysis
C.fundamental analysis
D.technical analysis
18) The rationale behind the rules for multiple-step income statements is to subdivide
the income in a manner that facilitates
A.cash flows
B.forecasting
C.tax return preparation
D.audits
19) The growth of global investing has spurred development of worldwide accounting
standards that are written by the
A.American Institute of Certified Public Accountants
B.Institute of Global Auditors
C.Global Committee on Accounting Standards
D.International Accounting Standards Board
20) Postretirement benefits are computed based upon
A.current salary amounts
B.current benefit amounts
C.future salary amounts
D.future benefit amounts
21) For the year ending December 31, 2011, the RJ Corporation reported book income
before taxes of $579,000. During 2011: RJ’s book depreciation expense was $25,000
greater than what was allowed for tax purposes due to a reversing difference; RJ
accrued $17,750 of warranty expense which is not deductible for tax purposes until
2012; RJ recognized a $29,000 unrealized loss on an investment which is not deductible
for tax purposes until the investment is sold; and RJ’s book income included municipal
bond interest of $19,500. What was the current portion of RJ Corporation’s 2011
income tax expense assuming a tax rate of 40%?
A.$252,500
B.$215,100
C.$243,800
D.$232,500
22) Sand engaged in operations at the start of 2011 and reported $550,000 in pre-tax
book income for the year. Tax depreciation for Sand exceeded book depreciation by
$50,000. The tax rate for 2011 was 30%, and Congress had enacted a tax rate of 20%
for the years after 2011 .
The journal entry to record the taxes for Sand Company at December 31, 2011 would
be
A.Option a
B.Option b
C.Option c
D.Option d
23) Expected benefit approaches for valuing long-lived assets were discarded because
the numbers generated under these methods were unreliable and
A.fictitious
B.objective
C.unverifiable
D.estimates
24) The two broad categories of differences that result from determining financial
income and taxable income are
A.temporary differences and originating differences
B.temporary differences and reversing differences
C.temporary differences and permanent differences
D.permanent differences and deferred differences
25) The ASC uses a structure in which the FASB’s authoritative accounting guidance is
organized into all of the following except
A.chapters
B.topics
C.sections
D.paragraphs
26) Baker Company issued $200,000 of ten-year bonds to yield 11% when the stated
rate of the bonds was 9%. Present value factors are:
The entry to record the sale would be
A.Option a
B.Option b
C.Option c
D.Option d
27) To recognize revenue upon completion of production, the product must be
immediately saleable at quoted market prices, no significant uncertainty exists
regarding cost of distributing the product, and
A.the seller has the right to terminate the exchange
B.the units are homogeneous
C.a firm delivery date must be established
D.a specific customer must be identified
28) Smith, Inc. has a pension plan with the following data available for 2011 and 2012:
The deferred gain or loss from the return on plan assets for 2011 is
A.$0
B.$1,000 deferred gain
C.$1,000 deferred loss
D.unknown from information provided
29) Pona, Inc. has a defined benefit pension plan for its employees. The plan assets and
projected benefit obligation at the beginning of the year were $608,000. The
accumulated benefit obligation at the beginning of the year was $456,000. The expected
return on plan assets was 8% while the actual return was 9%. The service cost for the
year was $130,841. The actuarially assumed discount rate was 7% and amortization of
prior service costs was $17,750.
The total pension expense for the year is
A.$124,761
B.$131,451
C.$136,431
D.$142,511
30) To compute the amortization on the cumulative unrecognized gains and losses for a
pension plan, the corridor is computed as 10% of the
A.average of the beginning balances of the plan assets and the projected benefit
obligation
B.higher of the beginning balances of the plan assets or the projected benefit obligation
C.higher of the beginning market-related value of the plan assets or the projected
benefit obligation
D.lower of the beginning market-related value of the plan assets or the projected benefit
obligation
31) Blue Manufacturing produces lathes at an inventory cost of $25,000 each that sell
for $32,000. For credit-approved customers, Blue leases the lathes for $8,500 per year
for five years. The lathes are guaranteed to last four years and generally have a six-year
life.
Blue Manufacturing treats a lathe lease as a/an
A.operating lease
B.ordinary capital lease
C.sales-type lease
D.direct-financing lease
32) Which of the following is not a criticism of pension accounting and reporting?
A.Net income immediately includes fund asset gains and losses, as well as projected
benefit obligation actuarial gains and losses
B.Management has the discretion with respect to choosing the expected rate of return
on plan assets
C.Some argue that operating income is misstated due to the deduction of pension
expense
D.Some argue that both the projected benefit obligation as well as the pension fund
asset should be reported on the balance sheet
33) Eagle Corporation acquired a new machine on January 2, 2011 at a cost of
$126,000. The machine has an expected 4 year life and a salvage value of $6,000.
If Eagle uses the double-declining balance depreciation method, the depreciation
expense in 2013 is
A.$12,750
B.$15,000
C.$25,500
D.$30,000
34) By comparing return on assets to return on common equity, statement users can
determine
A.if debt financing is being used to enhance the return earned by shareholders
B.past patterns of profitability within divisions
C.if return on investments exceed the current market yield
D.management’s investment strategies
35) Ace Industries has the following shareholders’ equity accounts at December 31,
2012:
Assuming that the preferred stock is cumulative, and that there are no dividends in
arrears, what is the maximum dividend that may be distributed to common shareholders
at December 31, 2012?
A.$9,500,000
B.$7,000,000
C.$7,500,000
D.$2,000,000
36) Current GAAP specifies that the compensation costs for stock options are measured
A.at the grant date only
B.at the grant date and again at the vesting date
C.at the vesting date only
D.at the grant date and again at the exercise date
37) On January 1, 2012, the Knight Corporation purchased 80% of the Red Company’s
voting stock for $1,500,000. Red’s net assets had a book value of $1,350,000; the fair
value of Red’s land was $325,000 greater than its book value. The book value of
Knight’s assets immediately after the acquisition of Red totaled $6,850,000 while Red’s
assets had a book value of $3,350,000. Assuming that Knight used the acquisition
method to prepare its consolidated balance sheet, how much goodwill was reported on
the January 1, 2012 consolidated balance sheet?
A.$525,000
B.$200,000
C.$160,000
D.$42,000
38) Cash flows arising from the acquisitions and divestitures of other companies are
cash flows from
A.investing activities
B.operating activities
C.financing activities
D.research activities
39) 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.
What amount will Palmer use to record the sale to Perez?
A.$90,000
B.$90,595
C.$100,000
D.$110,381
40) Which of the following transactions would not create a temporary difference?
A.A sale recorded using the installment method for book purposes
B.The cash collection from a life insurance policy on a company executive
C.A cash collection for services to be provided during the next period
D.The use of the percentage-of-completion method for book purposes
41)
What are the abnormal earnings for Firm B?
A.$1,000
B.$2,000
C.$12,000
D.$14,000
42) Executory costs of a lease are treated by the lessee as
A.capitalized costs of the lease
B.additional interest expense
C.operating expenses
D.deferred revenue
43)
Using the market price (production) method, how much net revenue should Sarver
recognize in Year 1?
A.$42,000
B.$50,000
C.$105,000
D.$125,000