1) Because IFRS is very general in its provisions for lease accounting, the required
disclosures for leases under IFRS are more detailed and extensive than those required
under U.S. GAAP.
2) Under IFRS, both the investor and the investee should follow the same accounting
practices, requiring adjustments be made to the investors books in order to prepare
financial information.
3) Under IFRS an affirmative judgment approach is used for recognizing deferred tax
assets up to the amount that is probable to be realized.
4) When the conventional retail method includes both net markups and net markdowns
in the cost-to-retail ratio, it approximates a lower-of-cost-or-market valuation.
5) Under both U.S. GAAP and IFRS, the calculation of basic and diluted earnings per
share is identical.
6) A zero-interest-bearing note payable that is issued at a discount will not result in any
interest expense being recognized.
7) When an ordinary repair occurs, several periods will usually benefit.
8) In a period of rising prices, the inventory method which tends to give the highest
reported cost of goods sold is
a.FIFO
b.average cost
c.LIFO
d.None of these choices are correct
9) The records for Bosch Co. show this data for 2015:
Gross profit on installment sales recorded on the books was $420,000. Gross profit
from collections of installment receivables was $280,000.
Life insurance on officers was $3,800.
Machinery was acquired in January for $300,000. Straight-line depreciation over a
ten-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used
and Bosch may deduct 14% for 2015 .
Interest received on tax exempt Iowa State bonds was $9,000.
The estimated warranty liability related to 2015 sales was $21,600. Repair costs under
warranties during 2015 were $13,600. The remainder will be incurred in 2016 .
Pretax financial income is $600,000. The tax rate is 30%.
Instructions
(a)Prepare a schedule starting with pretax financial income and compute taxable income.
(b)Prepare the journal entry to record income taxes for 2015 .
10) Riley Co. incurred the following costs during 2015:
Significant modification to the formulation of a chemical product$160,000
Trouble-shooting in connection with breakdowns during commercial
production150,000
Cost of exploration of new formulas200,000
Seasonal or other periodic design changes to existing products185,000
Laboratory research aimed at discovery of new technology325,000
In its income statement for the year ended December 31, 2015, Riley should report
research and development expense of
a.$685,000
b.$835,000
c.$870,000
d.$1,020,000
11) June Corp. sells one product and uses a perpetual inventory system. The beginning
inventory consisted of 40 units that cost $20 per unit. During the current month, the
company purchased 240 units at $20 each. Sales during the month totaled 180 units for
$43 each. What is the cost of goods sold using the LIFO method?
a.$ 800
b.$3,600
c.$4,800
d.$7,740
12) The accounting equation must remain in balance
a.throughout each step in the accounting cycle
b.only when journal entries are recorded
c.only at the time the trial balance is prepared
d.only when formal financial statements are prepared
13) Which of the following is not a major characteristic of a plant asset?
a.Possesses physical substance
b.Acquired for resale
c.Acquired for use
d.Yields services over a number of years
14) Which of the following is included in inventory costs?
a.Product costs
b.Period costs
c.Product and period costs
d.Neither product or period costs
15) Fina Corp. had the following transactions during the quarter ended March 31, 2015:
Loss from hurricane damage$420,000
Payment of fire insurance premium for calendar year 2015700,000
What amount should be included in Fina’s income statement for the quarter ended
March 31, 2015?
Extraordinary LossInsurance Expense
a.$420,000$700,000
b.$420,000$175,000
c.$105,000$175,000
d.$0$700,000
16) A reclassification adjustment is reported in the
a.income statement as an Other revenue or expense
b.stockholders equity section of the balance sheet
c.statement of comprehensive income as other comprehensive income
d.statement of stockholders equity
17) On June 30, 2015, Cey, Inc. exchanged 6,000 shares of Seely Corp. $30 par value
common stock for a patent owned by Gore Co. The Seely stock was acquired in 2015 at
a cost of $165,000. At the exchange date, Seely common stock had a fair value of $46
per share, and the patent had a net carrying value of $330,000 on Gore’s books. Cey
should record the patent at
a.$165,000
b.$180,000
c.$276,000
d.$330,000
18) When calculating the cost ratio for the retail inventory method,
a.if it is the conventional method, the beginning inventory is included and markdowns
are deducted
b.if it is the LIFO method, the beginning inventory is excluded and markdowns are
deducted
c.if it is the LIFO method, the beginning inventory is included and markdowns are not
deducted
d.if it is the conventional method, the beginning inventory is excluded and markdowns
are not deducted
19) Which of the following is false?
a.The future value of a deferred annuity is the same as the future value of an annuity not
deferred
b.A deferred annuity is an annuity in which the rents begin after a specified number of
periods
c.To compute the present value of a deferred annuity, we compute the present value of
an ordinary annuity of 1 for the entire period and subtract the present value of the rents
which were not received during the deferral period
d.If the first rent is received at the end of the sixth period, it means the ordinary annuity
is deferred for six periods
20) Which of the following features of preferred stock makes it more like a debt than an
equity instrument?
a.Participating
b.Voting
c.Redeemable
d.Noncumulative
21) The original sale of the $50 par value common shares of Gray Company was
recorded as follows:
Cash290,000
Common Stock250,000
Paid-in Capital in Excess of Par40,000
Instructions
Record the treasury stock transactions (given below) under the cost method:
Transactions:
(a)Bought 400 shares of common stock as treasury shares at $62.
(b)Sold 120 shares of treasury stock at $60.
(c)Sold 60 treasury shares at $68.
22) The accounting for cash discounts and trade discounts are
a.the same
b.always recorded net
c.not the same
d.tied to the timing of cash collections on the account
23) Which group of items listed below should be included in the cash account?
a.Silver coins, postage stamps, demand deposits, personal checks
b.Promissory notes, demand deposits, money orders, silver coins
c.Money orders, postdated checks, personal checks, time deposits
d.Silver coins, money orders, demand deposits, personal checks
24) Potter Variety Store uses the LIFO retail inventory method. Information relating to
the computation of the inventory at December 31, 2014, follows:
Cost Retail
Inventory, January 1, 2014$146,000$220,000
Purchases480,000700,000
Freight-in80,000
Sales770,000
Net markups160,000
Net markdowns60,000
Instructions
Assuming that there was no change in the price index during the year, compute the
inventory at December 31, 2014, using the LIFO retail inventory method.
25) Indicate which of the following securities would be included in the computation of
“basic earnings per share,” and which would be included in the computation of “diluted
earnings per share.” Place a “B” before those which affect only basic EPS, a “D” before
those which affect only diluted EPS, a “BD” before those which affect both basic and
diluted EPS, and an “N” before those securities which do not affect EPS computations.
Assume that, where applicable, the appropriate securities are dilutive.
1> Warrants to purchase additional common shares.
2> Common stock.
3> Nonconvertible debenture bonds.
4> Convertible, noncumulative preferred stock.
5> Cumulative, nonconvertible preferred stock.
6> Convertible bonds.
7> Executive stock options.
8> Notes payable.
26) Early in 2014, Dobbs Corporation engaged Kiner, Inc. to design and construct a
complete modernization of Dobbs’s manufacturing facility. Construction was begun on
June 1, 2014 and was completed on December 31, 2014 . Dobbs made the following
payments to Kiner, Inc. during 2014:
Date Payment
June 1, 2014$6,000,000
August 31, 20149,000,000
December 31, 20147,500,000
In order to help finance the construction, Dobbs issued the following during 2014:
1>$5,000,000 of 10-year, 9% bonds payable, issued at par on May 31, 2014, with
interest payable annually on May 31 .
2>1,000,000 shares of no-par common stock, issued at $10 per share on October 1,
2014 .
In addition to the 9% bonds payable, the only debt outstanding during 2014 was a
$1,250,000, 12% note payable dated January 1, 2010 and due January 1, 2020, with
interest payable annually on January 1 .
Instructions
Compute the amounts of each of the following (show computations):
1>Weighted-average accumulated expenditures qualifying for capitalization of interest
cost.
2>Avoidable interest incurred during 2014 .
3>Total amount of interest cost to be capitalized during 2014 .
27) Snow Co. began operations on January 2, 2014 . It employs 15 people who work
8-hour days. Each employee earns 10 paid vacation days annually. Vacation days may
be taken after January 10 of the year following the year in which they are earned. The
average hourly wage rate was $20.00 in 2014 and $21.25 in 2015 . The average
vacation days used by each employee in 2015 was 9 . Snow Co. accrues the cost of
compensated absences at rates of pay in effect when earned.
Instructions
Prepare journal entries to record the transactions related to paid vacation days during
2014 and 2015 .
28) LF Corporation, a manufacturer of Mexican foods, contracted in 2014 to purchase
1,500 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of
2015 . By 12/31/14, the price per pound of the spice mixture had dropped to $4.70 per
pound. In 2014, LF should recognize
aa loss of $7,500
b.a loss of $450
c.no gain or loss
d.a gain of $450
29) Briefly describe some of the differences between U.S. GAAP and IFRS with respect
to the accounting for long-term liabilities.
30) Explain the procedures used to account for a direct-financing lease.
31) The records for Todd Inc. showed the following for 2014:
Jan. 1 Dec. 31
Accrued expenses$1,300$2,150
Prepaid expenses720870
Cash paid during the year for expenses, $42,500
Show the computation of the amount of expense that should be reported on the income
statement.