On January 2, 2015, Parr Company purchased 100% of the common stock
of Sneed Company for $420,000. The fair value of Sneed Company’s assets
and liabilities are equal to their book values except that land has a fair
value of $120,000 and building have a fair value of $260,000.
Instructions
(a) Complete the worksheet below for preparing a consolidated balance
sheet. You may add accounts to the worksheet if necessary.
(b) Prepare a consolidated balance sheet for Parr Company and Subsidiary
on January 2, 2015.
Answer:
When the selling price of treasury stock is greater than its cost, the company credits the
difference to
a. Gain on Sale of Treasury Stock.
b. Paid-in Capital from Treasury Stock.
c. Paid-in Capital in Excess of Par.
d. Treasury Stock.
Answer:
Depreciation based on revaluation of land and buildings is permitted under
a. GAAP but not IFRS.
b. IFRS but not GAAP.
c. both IFRS and GAAP.
d. neither IFRS nor GAAP.
Answer:
In recording the sale of accounts receivable, the commission charged by a factor is
recorded as
a. Bad Debt Expense.
b. Commission Expense.
c. Loss on Sale of Receivables.
d. Service Charge Expense.
Answer:
Which one of the following is not a primary problem associated with accounts
receivable?
a. Depreciating accounts receivable
b. Recognizing accounts receivable
c. Valuing accounts receivable
d. Disposing of accounts receivable
Answer:
Farris Company borrowed $800,000 from BankTwo on January 1, 2014 in order to
expand its mining capabilities. The five-year note required annual payments of
$208,349 and carried an annual interest rate of 8.5%. What is the amount of expense
Farris must recognize on its 2015 income statement?
a. $68,000.
b. $56,070.
c. $43,127.
d. $50,290.
Answer:
Presented below are three different aircraft lease transactions that occurred for Western
Airways in 2015. All the leases start on January 1, 2015. In no case does Western
receive title to the aircraft during or at the end of the lease period; nor is there a bargain
purchase option.
Instructions
(a) Which of the above leases are operating leases and which are capital leases? Explain
your answer.
(b) How should the lease transaction with Utah Insurance be recorded in 2015?
(c) How should the lease transaction with Laine Leasing be recorded in 2015?
Answer:
Beane Corporation shows income tax expense of $82,000. There has been a $6,000
decrease in federal income taxes payable and a $7,000 increase in state income taxes
payable during the year. What was Beane’s cash payment for income taxes?
a. $82,000
b. $81,000
c. $76,000
d. $95,000
Answer:
The IASB and FASB are working on a converged statement of financial position using
the headings of
a. assets, liabilities, and equity.
b. revenues and expenses.
c. assets, liabilities, revenues, expenses and equity.
d. operating, investing, and financing.
Answer:
During August, 2015, Baxter’s Supply Store generated revenues of $60,000. The
company’s expenses were as follows: cost of goods sold of $36,000 and operating
expenses of $4,000. The company also had rent revenue of $1,000 and a gain on the
sale of a delivery truck of $2,000.
Baxter’s gross profit for August, 2015 is
a. $20,000.
b. $21,000.
c. $23,000.
d. $24,000.
Answer:
If bonds can be converted into common stock,
a. they will sell at a lower price than comparable bonds without a conversion feature.
b. they will carry a higher interest rate than comparable bonds without the conversion
feature.
c. they will be converted only if the issuer calls them in for conversion.
d. the bondholder may benefit if the market price of the common stock increases
substantially.
Answer:
Equipment was purchased for $300,000. Freight charges amounted to $14,000 and there
was a cost of $40,000 for building a foundation and installing the equipment. It is
estimated that the equipment will have a $60,000 salvage value at the end of its 5-year
useful life. Depreciation expense each year using the straight-line method will be
a. $70,800.
b. $58,800.
c. $49,200.
d. $48,000.
Answer:
The Income Summary account is an important account that is used
a. during interim periods.
b. in preparing adjusting entries.
c. annually in preparing closing entries.
d. annually in preparing correcting entries.
Answer:
Ermler Company purchased a machine at a cost of $80,000. The machine is expected to
have a $5,000 salvage value at the end of its 5-year useful life.
Instructions
Compute annual depreciation for the first and second years using the
(a) straight-line method.
(b) double-declining-balance method.
Answer:
Lang, Inc. purchases 1,000 shares of its own previously issued $5 par common stock for
$15,000. The treasury stock is resold by Lang, Inc. for $20,000. What effect does this
transaction have on (a) net income, (b) total assets, (c) total paid-in capital, and (d) total
stockholders’ equity?
Answer:
Matador Company purchases $1,300 of equipment from Danger Mouse Inc. for cash.
The effect on the components of the basic accounting equation of Matador Company is
a. an increase in assets and liabilities.
b. a decrease in assets and liabilities.
c. no change in total assets.
d. an increase in assets and a decrease in liabilities.
Answer:
Saint, Inc. declares a 15% common stock dividend when it has 30,000 shares of $10 par
value common stock outstanding. If the market value of $24 per share is used, the
amounts debited to Stock Dividends and credited to Paid-in Capital in Excess of Par
are:
Answer:
Reisner Company prepared the following adjusting entries at year end on December 31,
2015:
In an effort to minimize errors in recording transactions, Reisner Company utilizes
reversing entries.
Instructions
Prepare reversing entries on January 1, 2016, for the adjusting entries given where
appropriate.
Answer:
A multiple-step income statement provides users with more information about a
company’s income performance.
Answer:
Net sales appears on both the multiple-step and single-step forms of an income
statement.
Answer:
Horizontal analysis (trend analysis) percentages for Staas Company’s sales, cost of
goods sold, and expenses are listed here.
Instructions
Explain whether Staas’ net income increased, decreased, or remained unchanged over
the 3-year period.
Answer: