1) In 2011, Huxley Corp. began construction work under a three-year contract. The
contract price is $800,000. Huxley used the percentage-of-completion method for
financial accounting purposes. The income to be recognized each year is based on the
proportion of costs incurred to total estimated costs for completing the contract. The
financial presentations relating to this contract at December 31, 2014, appear below.
How much cash was collected in 2014 on this contract?
a. $32,000
b. $35,000
c. $47,000
d. $50,000
2) The following segments were identified for an enterprise:
Which of the five segments is a reportable segment?
a. All are reportable segments
b. All but 1 and 2
c. 3 and 5 only
d. All but 2
3) Which of the following is not among the first five steps in the accounting cycle?
a. Record transactions in journals
b. Record closing entries
c. Adjust the general ledger accounts
d. Post entries to general ledger accounts
4) Song Company started construction on a building on January 1 of this year and
completed construction on December 31 of the same year. Song had only two interest
notes outstanding during the year, and both of these notes were outstanding for all 12
months of the year. The following information is available:
What amount of interest should Song capitalize for the current year?
a. $15,000
b. $18,000
c. $22,500
d. $27,900
5) Noser Inc. shows the following data relating to its pension plan for 2014:
What amount should Noser report for pension expense in 2014?
a. $206,000
b. $238,000
c. $242,000
d. $270,000
6) Reporting in the body of the financial statements is required for
a. loss contingencies that are probable and can be reasonably estimated
b. gain contingencies that are probable and can be reasonably estimated
c. loss contingencies that are possible and can be reasonably estimated
d. all loss contingencies
7) Solara Company entered into a contract with Hammer Construction Company to
construct a building. Construction began in 2014 and was completed in 2015. As of
January 1, 2015, Solara had made total progress payments to Hammer of $50,000. In
addition, interest capitalized on the building during 2014 was $2,500. Solara made
additional payments on June 30, 2015, and December 31, 2015. Solara had issued
$80,000 of 9% bonds to finance part of the construction. The average interest on
Solaras additional debt was 11% for 2015.
How much interest should be capitalized by Solara for 2015?
a. $6,750
b. $6,975
c. $13,500
d. $13,725
8) Gains and losses on the purchase and resale of treasury stock may be reflected only
in
a. paid-in capital and retained earnings accounts
b. paid-in capital accounts
c. income, paid-in capital, and retaining earnings accounts
d. income and paid-in capital accounts
9) For purposes of computing the weighted-average number of shares outstanding
during the year, a midyear event that must be treated as occurring at the beginning of
the year is the
a. declaration and issuance of a stock dividend
b. purchase of treasury stock
c. sale of additional common stock
d. issuance of stock warrants
10) Caribou Corporation shows the following balances:
Caribou paid suppliers $100,000 during the year. What is Caribous cost of goods sold
for the year?
a. $97,500
b. $107,500
c. $102,500
d. $92,500
11) A company mistakenly expensed a $100,000 machine purchased January 1, 2011.
The machine has no salvage value and is expected to provide benefits for five years.
The error was discovered in 2014. The company shows two years of comparative
statements in its December 31 annual reports. In the companys 2013 and 2014 reports
shown comparatively, what amounts would be shown as adjustments to the respective
retained earnings balances?
2013 2014
a. $60,000 $40,000
b. $0 $40,000
c. $60,000 $0
d. $60,000 $20,000
12) The primary current source of generally accepted accounting principles for
nongovernmental operations is the
a. American Institute of Certified Public Accountants
b. Securities and Exchange Commission
c. Financial Accounting Standards Board
d. Governmental Accounting Standards Board
13) Masdirt Mining Company has a copper mine in Tanzania. The company is subject
to the pronouncements of the International Accounting Standards Board, and,
specifically, IFRS 36.
The plant and equipment used in this operation were acquired five years ago for
$1,600,000 and have been depreciated using straight-line depreciation over a 20-year
life. The controller estimates that the assets have a remaining useful life of 15 years.
The controller of the company is preparing the financial statements for the year just
ended and notes that the fair value of the plant and equipment is estimated to be
$1,150,000 at the close of last year. The controller also determines that the present
value of the discounted future cash flows associated with the assets future use equals
$1,300,000.
Prepare the entry (if any) the controller should make under IFRS 36 relating to the
current fair value of the plant & equipment. Additionally, assume that the company sold
the plant & equipment for $1,300,000 immediately after the end of last year. Prepare the
entry (if any) required under IFRS 36.
14) The SEC was given the power to establish accounting principles including setting
requirements for details shown on financial statements by the:
a. FASB
b.
c. Congress
d. AAA
15) See information regarding the Kidde Corporation above. The inventory valuation
for highlighters using the lower-of-cost-or-market method is
a. $25,600
b. $29,200
c. $31,800
d. $30,000
16) A bond issued June 1, 2013, by a calendar-year company pays interest on April 1
and
October 1. A bond is a financial security issued by a corporation in return for cash
borrowed from investors. Bonds typically pay interest twice per year. The investor
makes the investment on the date the bond is issued. Interest expense for 2013 is
recognized on these bonds by the issuer for a period of
a. Seven months
b. Six months
c. Four months
d. Three months
17) Which of the following ratios does NOT measure liquidity?
a. Current ratio
b. Quick ratio
c. Working capital to total assets
d. Debt to equity
18) On January 2, 2014 the board of directors of Moorehaven Mining Corporation
declared a cash dividend of $1,200,000 to stockholders of record on January 18, 2014,
and payable on February 10, 2014. The dividend is permissible by law in Moorehaven’s
state of incorporation. Selected data from Moorehaven’s December 31, 2013, balance
sheet follow:
The $1,200,000 dividend includes a liquidating dividend of
a. $800,000
b. $700,000
c. $600,000
d. $200,000
19) The following 3 ratios have been computed using the financial statements for the
year ended December 31, 2014, for Laramie Company:
The following additional information has been assembled:
(a) Laramie uses the LIFO method of inventory valuation. Beginning inventory was
$30,000 and ending inventory was $40,000. If Laramie had used FIFO, beginning
inventory would have been $40,000 and ending inventory would have been $55,000.
(b) Laramie’ sole depreciable asset was purchased on January 1, 2014. The asset cost
$110,000 and is being depreciated over 10 years with no estimated salvage value.
Although the 10-year life is within the acceptable range, most firms in Laramie’
industry depreciate similar assets over 8 years.
(c) For 2014, Laramie decided to recognize a $15,000 liability for future environmental
cleanup costs. Most other firms in Laramie’ industry have similar environmental
cleanup obligations but have decided that the amounts of the obligations are not
reasonably estimable at this time; on average, these firms recognized only 5% of their
total environmental cleanup obligation.
Show how the values for the 3 ratios computed above differ if Laramie had used FIFO,
depreciated the asset over 8 years, and recognized only 5% of its environmental cleanup
obligation. Compute how the financial statements would differ if the alternative
accounting methods had been used. Do not treat the use of these alternative methods as
accounting changes. Ignore any income tax effects.
20) Cash inflows from investing activities would include all of the following except
a. interest collect on notes receivable
b. proceeds from sale of investments accounted for by the equity method
c. proceeds from sale of operating assets
d. proceeds from sale of securities available for sale
21) Which of the following is characteristic of a change in accounting estimate?
a. Requires the reporting of pro forma amounts for prior periods
b. Does not affect the financial statements of prior periods
c. Never needs to be disclosed
d. Should be reported by retrospectively adjusting the financial statements for all years
reported, and reporting the cumulative effect of the change in income for all preceding
years as an adjustment to the beginning balance of retained earnings for the earliest year
reported
22) Gordon Inc. has a defined benefit plan for its employees. The following information
relates to this plan:
There was no unrecognized prior service cost or unrecognized gains or losses. Gordon’s
net periodic pension cost for the year was
a. $968,000
b. $940,000
c. $900,000
d. $880,000
23) The following information relates to Bower Companys short-term investment in
equity securities available for sale at the end of 2013 and 2014 (in 000s):
Bowers net realized and unrealized gains and losses for 2014, respectively, would be
a. $2 realized loss; $8 unrealized loss
b. $2 realized loss; $16 unrealized loss
c. $2 realized loss; $16 unrealized gain
d. $2 realized loss; $8 unrealized gain
24) The books of the Speedster Company for the year ended December 31, 2014,
showed pretax income of $295,000. In computing the taxable income for federal
income tax purposes, the following timing differences were taken into account:
What should Speedster record as its current federal income tax liability at December 31,
2014, assuming a corporate income tax rate of 30 percent?
a. $80,700
b. $84,700
c. $87,600
d. $89,400
25) Tongass had pretax accounting income of $1,400 during 2014. Tongass used
accelerated depreciation for tax purposes ($1,000) and straight-line depreciation for
financial reporting purposes ($200). During 2014, Tongass accrued warranty expenses
of $900 and paid cash to honor warranties of $500. Tongasss taxable income for 2014
would be
a. $200
b. $1,000
c. $1,800
d. $2,600
26) Which of the following ordinarily would be treated as a revenue expenditure rather
than a capital expenditure?
a. Repair and maintenance on buildings
b. The replacement of a major component of a building
c. An addition to an existing building
d. Rearrangement costs that are identifiable, material, and are expected to provide
discernable future benefits
27) FASB ASC Topic 715 states that prior service cost should be
a. offset against current service cost
b. recognized in the period of plan adoption or amendment
c. amortized over the expected service period
d. recorded as a prior period adjustment
28) Selected information from the accounting records of Espy Company is as follows:
Espy’s inventory turnover for 2014 is
a. 5.36 times
b. 3.85 times
c. 3.67 times
d. 3.57 times
29) See information regarding the four products above. Using the
lower-of-cost-or-market procedure, what is the reported inventory value at December
31 for one unit of Product II?
a. $70
b. $76
c. $90
d. $96
30) Most companies that engage in earnings management typically do NOT go beyond
which of the following activities on the earnings management continuum?
a. Strategic matching
b. Change in methods or estimates with full disclosure
c. Change in methods or estimates with little or no disclosure
d. Non-GAAP accounting
31) For a given year, beginning and ending total liabilities were $8,400 and $10,000,
respectively. At year-end, owners’ equity was $26,000 and total assets were $2,000
larger than at the beginning of the year. If new capital stock issued exceeded dividends
by $2,400, net income (loss) for the year was apparently
a. ($2,800)
b. ($2,000)
c. $400
d. $2,800
32) How is income tax expense for the third quarter interim period computed?
a. The annual rate multiplied by the third quarter pretax earnings
b. The estimated tax for the first three quarters based on an annual rate, less a similar
estimate for the first two quarters
c. The rate applicable during the third quarter multiplied by four times the third quarter
pretax earnings
d. One-half of the difference between total estimated annual income tax expense and the
income tax for the first two quarters
33) Interested parties receive information about a companys past performance from:
a. CEOs
b. the SEC
c. financial reporting
d. financial news
34) In determining earnings per share, interest expense, net of applicable income taxes,
on convertible debt which is dilutive should be
a. ignored for diluted earnings per share
b. added back to net income for diluted earnings per share
c. deducted from net income for diluted earnings per share
d. none of these
35) According to SFAS No. 34, “Capitalization of Interest Cost,” interest should be
capitalized for assets that are
a. in use or ready for their intended use in the earnings activities of the enterprise
b. being constructed or otherwise being produced as discrete projects for an enterprise’s
own use
c. not being used in the earnings activities of the enterprise and that are not undergoing
the activities necessary to get them ready for use
d. routinely produced on a repetitive basis for inventory but require an extended period
of time for completion
36) Which of the following is included in the calculation of the acid-test (quick) ratio?
Accounts Receivable Inventories
a. No No
b. No Yes
c. Yes No
d. Yes Yes
37) The use of the gross profit method assumes
a. the amount of gross profit is the same as in prior years
b. sales and cost of goods sold have not changed from previous years
c. inventory values have not increased from previous years
d. the relationship between selling price and cost of goods sold is similar to prior years
38) The premium on a two-year insurance policy expiring on June 30, 2015, was paid in
total on July 1, 2013. The original payment was debited to the insurance expense
account. The appropriate journal entry has been recorded on December 31, 2013. The
balance in the prepaid asset account on December 31, 2013, should be
a. the same as the original payment
b. higher than if the original payment had been initially debited to an asset account
c. lower than if the original payment had been initially debited to an asset account
d. the same as it would have been if the original payment had been initially debited to
an asset account
39) The following information pertains to Hermosa Corp. for the year ended September
30, 2014:
Prepare a statement of retained earnings for Hermosa Corp. for the year ended
September 30, 2014.
40) Many accountants argue that relevance and reliability often require trade-offs.
Define both relevance and reliability and explain what is meant by “trade-offs” between
relevance and reliability. Include in your explanation a specific example of where
trade-offs could occur.
41) On May 1, 2013, H. Campbell acquired $300,000 of Cobbler Enterprises 12 percent
bonds due in five years with interest payable semiannually on May 1 and November.
The bonds were purchased at $323,165–a price to return 10 percent on the investment.
On November 1, 2013, and May 1, 2014, Campbell collected the interest on the bonds.
On August 1, 2014, Campbell sold the bonds at 107 plus accrued interest.
Rounding figures to the nearest dollar, provide the entries required to record the:
42) Irvington Manufacturing Inc. purchased a new machine on January 2, 2014, that
was built to perform one function on its assembly line. Data pertaining to this machine
are:
Acquisition cost $330,000
Residual value $30,000
Estimated service life:
Years 5
Service hours 250,000
Production output 300,000
Using each of the following methods, compute the annual depreciation rate and charge
for the years ended December 31, 2014, and 2015:
43) The 2014 annual report of Arrowhead Manufacturing Company contained the
following notes to the companys financial statements:
Inventory Valuation
The company uses the last-in, first-out (LIFO) cost method of inventory valuation for
most domestic manufacturing inventories. Other manufacturing inventories are valued
at the lower of standard costs (which approximate average costs), average costs, or
market.
Inventories
If inventories valued on the LIFO basis had been valued at standard or average costs,
which approximate current costs, consolidated inventories would be higher than
reported by $21.0 million and $19.6 million at December 31, 2014, and 2013,
respectively.
Inventories that are valued at the lower of standard costs (which approximate average
costs), average costs, or market at December 31, 2014 and 2013, were approximately
$185.2 million and $125.7 million, respectively.
Required:
44) Earthen Products, Inc., has a noncontributory, defined-benefit pension plan. At
December 31, 2014, the end of the companys accounting period, the following
pension-related data were available (000s):
Required:
1> Compute the 2014 net periodic pension expense.
2> Compute the 2014 funded status of the PBO.
3> Prepare the 2014 entry to record pension expense and funding.
