1) a company should add back bond premium amortization to net income to arrive at
net cash flow from operating activities.
2) companies include postdated checks and petty cash funds as cash.
3) the future value of a deferred annuity is less than the future value of an annuity not
deferred.
4) in determining present value, a company moves backward in time using a process of
accumulation.
5) the cost of purchased patents should be amortized over the remaining legal life of the
patent.
6) the major objection to the straight-line method is that it assumes the assets economic
usefulness and repair expense are the same each year.
7) a deferred tax liability represents the increase in taxes payable in future years as a
result of taxable temporary differences existing at the end of the current year.
8) common stock is the residual corporate interest that bears the ultimate risks of loss.
9) trade discounts are used to avoid frequent changes in catalogs and to alter prices for
different quantities purchased.
10) landis co. purchased $1,000,000 of 8%, 5-year bonds from ritter, inc. on january 1,
2012, with interest payable on july 1 and january 1. the bonds sold for $1,041,580 at an
effective interest rate of 7%. using the effective-interest method, landis co. decreased
the available-for-sale debt securities account for the ritter, inc. bonds on july 1, 2012
and december 31, 2012 by the amortized premiums of $3,540 and $3,660, respectively.
at april 1, 2013, landis co. sold the ritter bonds for $1,030,000. after accruing for
interest, the carrying value of the ritter bonds on april 1, 2013 was $1,033,750.
assuming landis co. has a portfolio of available-for-sale debt securities, what should
landis co. report as a gain or loss on the bonds?
a.($29,370)
b.($21,870)
c.($3,750)
d.$ 0
11) glen inc. and armstrong co. have an exchange with no commercial substance. the
asset given up by glen inc. has a book value of $48,000 and a fair value of $60,000. the
asset given up by armstrong co. has a book value of $80,000 and a fair value of
$76,000. boot of $16,000 is received by armstrong co.
what amount should glen inc. record for the asset received?
a.$60,000
b.$64,000
c.$76,000
d.$80,000
12) peter invests $100,000 in a 3-year certificate of deposit earning 3.5% at his local
bank. which time value concept would be used to determine the maturity value of the
certificate?
a.present value of one
b.future value of one
c.present value of an annuity due
d.future value of an ordinary annuity
13) consider the following: cash in bank checking account of $18,500, cash on hand of
$500, post-dated checks received totaling $3,500, and certificates of deposit totaling
$124,000. how much should be reported as cash in the balance sheet?
a.$ 18,500
b.$ 19,000
c.$ 22,500
d.$136,500
14) peterson company purchased machinery for $480,000 on january 1, 2009.
straight-line depreciation has been recorded based on a $30,000 salvage value and a
5-year useful life. the machinery was sold on may 1, 2013 at a gain of $9,000. how
much cash did peterson receive from the sale of the machinery?
a.$69,000
b.$81,000
c.$99,000
d.$129,000
15) luther inc., has 3,000 shares of 6%, $50 par value, cumulative preferred stock and
100,000 shares of $1 par value common stock outstanding at december 31, 2013, and
december 31, 2012. the board of directors declared and paid a $7,500 dividend in 2012.
in 2013, $36,000 of dividends are declared and paid. what are the dividends received by
the preferred stockholders in 2013?
a.$25,500
b.$18,000
c.$ 10,500
d.$ 9,000
16) which of the following is true?
a.rents occur at the beginning of each period of an ordinary annuity
b.rents occur at the end of each period of an annuity due
c.rents occur at the beginning of each period of an annuity due
d.none of these
17) in preparing a statement of cash flows, which of the following transactions would
be considered an investing activity?
a.sale of equipment at book value
b.sale of merchandise on credit
c.declaration of a cash dividend
d.issuance of bonds payable at a discount
18) in a troubled debt restructuring in which the debt is continued with modified terms
and the carrying amount of the debt is less than the total future cash flows,
a.a loss should be recognized by the debtor
b.a gain should be recognized by the debtor
c.a new effective-interest rate must be computed
d.no interest expense or revenue should be recognized in the future
19) watts corporation made a very large arithmetical error in the preparation of its
year-end financial statements by improper placement of a decimal point in the
calculation of depreciation. the error caused the net income to be reported at almost
double the proper amount. correction of the error when discovered in the next year
should be treated as
a.an increase in depreciation expense for the year in which the error is discovered
b.a component of income for the year in which the error is discovered, but separately
listed on the income statement and fully explained in a note to the financial statements
c.an extraordinary item for the year in which the error was made
d.a prior period adjustment
20) a company changes from percentage-of-completion to completed-contract, which is
the method used for tax purposes. the entry to record this change should include a
a.debit to construction in process
b.debit to loss on long-term contracts in the amount of the difference on prior years, net
of tax
c.debit to retained earnings in the amount of the difference on prior years, net of tax
d.credit to deferred tax liability
21) which of the following statements regarding the iasb and fasb conceptual
frameworks is not correct?
a.the existing iasb and fasb conceptual frameworks are organized in similar ways
b.the two assumptions of the iasb framework are that the financial statements are
prepared on an accrual basis and that the reporting entity is a going concern
c.the fasb and iasb agree that the sole objective of financial reporting is to provide users
with information that is useful for decision-making
d.the fasb conceptual framework discusses the concept of accrual basis accounting in
detail, but does not specifically identity it as an assumption
22) on june 30, 2012, when ermler co.’s stock was selling at $65 per share, its capital
accounts were as follows:
if a 100% stock dividend were declared and distributed, capital stock would be
a.$4,000,000
b.$4,600,000
c.$8,000,000
d.$8,800,000
23) the double-entry accounting system means
a.each transaction is recorded with two journal entries
b.each item is recorded in a journal entry, then in a general ledger account
c.the dual effect of each transaction is recorded with a debit and a credit
d.more than one of the above
24) ace co. prepared an aging of its accounts receivable at december 31, 2012 and
determined that the net realizable value of the receivables was $600,000. additional
information is available as follows:
for the year ended december 31, 2012, ace’s uncollectible accounts expense would be
a.$50,000
b.$46,000
c.$32,000
d.$18,000
25) mune company recorded journal entries for the declaration of $100,000 of
dividends, the $64,000 increase in accounts receivable for services rendered, and the
purchase of equipment for $42,000. what net effect do these entries have on owners
equity?
a.decrease of $142,000
b.decrease of $78,000
c.decrease of $36,000
d.increase of $22,000
26) which of the following earnings per share figures must be disclosed on the face of
the income statement?
a.eps on income from continuing operations
b.the effect on eps from operations of a discontinued division, net of taxes
c.the effect on eps from an extraordinary item, net of taxes
d.all of the above
27) assets that qualify for interest cost capitalization include
a.assets under construction for a company’s own use
b.assets that are ready for their intended use in the earnings of the company
c.assets that are not currently being used because of excess capacity
d.all of these assets qualify for interest cost capitalization
28) during 2012, bond company purchased the net assets of may corporation for
$2,000,000. on the date of the transaction, may had $600,000 of liabilities. the fair
value of may’s assets when acquired were as follows:
how should the $1,000,000 difference between the fair value of the net assets acquired
($3,000,000) and the cost ($2,000,000) be accounted for by bond?
a.the $1,000,000 difference should be credited to retained earnings
b.the $1,000,000 difference should be recognized as a gain
c.the current assets should be recorded at $1,080,000 and the noncurrent assets should
be recorded at $1,520,000
d.a deferred credit of $1,000,000 should be set up and then amortized to income over a
period not to exceed forty years
29) a company gives each of its 50 employees (assume they were all employed
continuously through 2012 and 2013) 12 days of vacation a year if they are employed at
the end of the year. the vacation accumulates and may be taken starting january 1 of the
next year. the employees work 8 hours per day. in 2012, they made $24.50 per hour and
in 2013 they made $28 per hour. during 2013, they took an average of 9 days of
vacation each. the companys policy is to record the liability existing at the end of each
year at the wage rate for that year. what amount of vacation liability would be reflected
on the 2012 and 2013 balance sheets, respectively?
a.$117,600; $163,800
b.$134,400; $168,000
c.$117,600; $168,000
d.$134,400; $163,800
30) both ifrs and u.s. gaap require that specific items be reported on the balance sheet.
31) sandstrom corporation has an extraordinary loss of $150,000, an unusual gain of
$105,000, and a tax rate of 40%. at what amount should sandstrom report each item?
32) hopkins co. at the end of 2012, its first year of operations, prepared a reconciliation
between pretax financial income and taxable income as follows:
the estimated litigation expense of $1,200,000 will be deductible in 2013 when it is
expected to be paid. use of the depreciable assets will result in taxable amounts of
$600,000 in each of the next three years. the income tax rate is 30% for all years.
the deferred tax liability to be recognized is
33) which of the following should be reported as a prior period adjustment?
34) colson corp. had $600,000 net income in 2013. on january 1, 2013 there were
200,000 shares of common stock outstanding. on april 1, 20,000 shares were issued and
on september 1, adcock bought 30,000 shares of treasury stock. there are 30,000 options
to buy common stock at $40 a share outstanding. the market price of the common stock
averaged $50 during 2013. the tax rate is 40%.
during 2013, there were 40,000 shares of convertible preferred stock outstanding. the
preferred is $100 par, pays $3.50 a year dividend, and is convertible into three shares of
common stock.
colson issued $2,000,000 of 8% convertible bonds at face value during 2012. each
$1,000 bond is convertible into 30 shares of common stock.
instructions
compute diluted earnings per share for 2013. complete the schedule and show all
computations.
35) fill in the appropriate blanks for each of the independent situations below.
