1) Companies should recognize the expense and related liability for compensated
absences in the year earned by employees.
2) It is unlikely that the basic concepts related to the existing conceptual framework
will change.
3) The Construction in Process account includes only construction costs under the
percentage-of-completion method.
4) Many U.S. companies that have international operations use LIFO for U.S. purposes
but use FIFO for their foreign subsidiaries.
5) A reclassification adjustment is necessary when a company reports realized
gains/losses as part of net income but also shows unrealized gains/losses as part of other
comprehensive income.
6) Companies report trading securities at fair value, with unrealized holding gains and
losses reported in net income.
7) Bonds that pay no interest unless the issuing company is profitable are called
a.collateral trust bonds
b.debenture bonds
c.revenue bonds
d.income bonds
8) Lankton Company has the following account balances at year-end:
Accounts receivable$80,000
Allowance for doubtful accounts4,800
Sales discounts3,200
Lankton should report accounts receivable at a net amount of
a.$72,000
b.$75,200
c.$76,800
d.$80,000
9) Didde Co. had 300,000 shares of common stock issued and outstanding at December
31, 2014 . No common stock was issued during 2015 . On January 1, 2015, Didde
issued 200,000 shares of nonconvertible preferred stock. During 2015, Didde declared
and paid $75,000 cash dividends on the common stock and $60,000 on the preferred
stock. Net income for the year ended December 31, 2015 was $465,000. What should
be Didde’s 2015 earnings per common share?
a.$1.55
b.$1.35
c.$1.30
d.$1.10
10) On June 30, 2014, Norman Corporation granted compensatory stock options for
50,000 shares of its $20 par value common stock to certain of its key employees. The
market price of the common stock on that date was $36 per share and the option price
was $30. The Black-Scholes option pricing model determines total compensation
expense to be $600,000. The options are exercisable beginning January 1, 2015,
provided those key employees are still in Normans employ at the time the options are
exercised. The options expire on June 30, 2016 .
On January 4, 2015, when the market price of the stock was $42 per share, all 50,000
options were exercised. What should be the amount of compensation expense recorded
by Norman Corporation for the calendar year 2014 using the fair value method?
a.$0
b.$240,000
c.$300,000
d.$600,000
11) Kiner, Inc. began work in 2014 on a contract for $16,800,000. Other data are as
follows:
2014 2015
Costs incurred to date$7,200,000$11,200,000
Estimated costs to complete4,800,000
Billings to date5,600,00016,800,000
Collections to date4,000,00014,400,000
If Kiner uses the percentage-of-completion method, the gross profit to be recognized in
2014 is
a.$2,880,000
b.$3,200,000
c.$4,320,000
d.$4,800,000
12) On January 2, 2014, Wine Corporation wishes to issue $4,000,000 (par value) of its
8%, 10-year bonds. The bonds pay interest annually on January 1 . The current yield
rate on such bonds is 10%. Using the interest factors below, compute the amount that
Wine will realize from the sale (issuance) of the bonds.
Present value of 1 at 8% for 10 periods0.4632
Present value of 1 at 10% for 10 periods0.3855
Present value of an ordinary annuity at 8% for 10 periods6.7101
Present value of an ordinary annuity at 10% for 10 periods6.1446
a.$4,000,000
b.$3,508,272
c.$4,000,024
d.$4,424,104
13) Link Co. purchased machinery that cost $1,800,000 on January 4, 2013 . The entire
cost was recorded as an expense. The machinery has a nine-year life and a $120,000
residual value. The error was discovered on December 20, 2015 . Ignore income tax
considerations.
Before the correction was made, and before the books were closed on December 31,
2015, retained earnings was understated by
a.$1,800,000
b.$1,613,333
c.$1,426,667
d.$1,240,000
14) Olsen Company paid or collected during 2014 the following items:
Insurance premiums paid$ 25,800
Interest collected62,800
Salaries paid260,400
The following balances have been excerpted from Olsen’s balance sheets:
December 31, 2014December 31, 2013
Prepaid insurance$ 2,400$ 3,000
Interest receivable7,4005,800
Salaries and wages payable24,60021,200
The insurance expense on the income statement for 2014 was
a.$20,400
b.$25,200
c.$26,400
d.$31,200
15) Gains trading or cherry picking involves
a.moving securities whose value has decreased since acquisition from available-for-sale
to held-to-maturity in order to avoid reporting losses
b.reporting investment securities at fair value but liabilities at amortized cost
c.selling securities whose value has increased since acquisition while holding those
whose value has decreased since acquisition
d.All of the above are considered methods of gains trading or cherry picking
16) The following data are for the pension plan for the employees of Lockett Company.
1/1/1412/31/1412/31/15
Accumulated benefit obligation$2,500,000$2,600,000$3,400,000
Projected benefit obligation2,700,0002,800,0003,700,000
Plan assets (at fair value)2,300,0003,000,0003,300,000
AOCL – net loss-0-480,000500,000
Settlement rate (for year)10%9%
Expected rate of return (for year)8%7%
Locketts contribution was $420,000 in 2015 and benefits paid were $375,000. Lockett
estimates that the average remaining service life is 15 years.
Assume that the actual return on plan assets in 2015 was $265,000. The unexpected
gain on plan assets in 2015 was
a.$32,000
b.$55,000
c.$35,000
d.$34,000
17) The deferred tax expense is the
a.increase in balance of deferred tax asset minus the increase in balance of deferred tax
liability
b.increase in balance of deferred tax liability minus the increase in balance of deferred
tax asset
c.increase in balance of deferred tax asset plus the increase in balance of deferred tax
liability
d.decrease in balance of deferred tax asset minus the increase in balance of deferred tax
liability
18) Smiley Corp.’s transactions for the year ended December 31, 2015 included the
following:
Purchased real estate for $625,000 cash which was borrowed from a bank.
Sold available-for-sale securities for $500,000.
Paid dividends of $600,000.
Issued 500 shares of common stock for $250,000.
Purchased machinery and equipment for $125,000 cash.
Paid $450,000 toward a bank loan.
Reduced accounts receivable by $100,000.
Increased accounts payable $200,000.
Smiley’s net cash used in financing activities for 2015 was
a.$225,000
b.$175,000
c.$450,000
d.$425,000
19) Grover Corporation purchased a truck at the beginning of 2014 for $93,600. The
truck is estimated to have a salvage value of $3,600 and a useful life of 120,000 miles.
It was driven 21,000 miles in 2014 and 29,000 miles in 2015 . What is the depreciation
expense for 2014?
a.$17,010
b.$15,750
c.$21,750
d.$37,500
20) Interest cost included in pension expense recognized for a period by an employer
sponsoring a defined-benefit pension plan represents the
a.shortage between the expected and actual returns on plan assets
b.increase in the projected benefit obligation due to the passage of time
c.increase in the fair value of plan assets due to the passage of time
d.amortization of the discount on accumulated OCI (PSC)
21) Midland Company follows U.S. GAAP for its external financial reporting whereas
Bailey Company follows IFRS for its external financial reporting. Both companies have
defined-benefit pension plans. At December 31, 2015, prior to any adjusting entries,
Midland Companys actuarial loss subject to amortization/recognition amounted to
$55,000 and Bailey Companys actuarial loss subject to amortization/recognition
amounted to $76,000. The remaining services lives of employees at both firms is
estimated to be 10 years. What is the maximum amount of loss that could be recognized
by each company in its income statement for the year ended December 31, 2015?
MidlandBailey
a.$ 5,500$76,000
b.$55,000$76,000
c.$55,000$ 7,600
d.$ 5,500$ 7,600
22) December 31,
2015 2014
Assets
Cash$ 440,000$ 200,000
Short-term investments600,000
Accounts receivable (net)1,020,0001,020,000
Inventory1,380,0001,200,000
Long-term investments400,000600,000
Plant assets3,400,0002,000,000
Accumulated depreciation(900,000)(900,000)
Patent 180,000 200,000
Total assets$6,520,000$4,320,000
Liabilities and Stockholders’ Equity
Accounts payable and accrued liabilities$1,660,000$1,440,000
Notes payable (nontrade)580,000
Common stock, $10 par1,600,0001,400,000
Additional paid-in capital800,000500,000
Retained earnings 1,880,000 980,000
Total liabilities and stockholders’ equity$6,520,000$4,320,000
Information relating to 2015 activities:
Net income for 2015 was $1,300,000.
Cash dividends of $400,000 were declared and paid in 2015 .
Equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in
2015 for $360,000.
A long-term investment was sold in 2015 for $320,000. There were no other
transactions affecting long-term investments in 2015 .
20,000 shares of common stock were issued in 2015 for $25 a share.
Short-term investments consist of treasury bills maturing on 6/30/16.
Net cash used in Jamisons 2015 investing activities was
a.$2,320,000
b.$1,820,000
c.$1,680,000
d.$1,720,000
23) Which of the following is not a required component of financial statements
prepared in accordance with generally accepted accounting principles?
a.President’s letter to shareholders
b.Balance sheet
c.Income statement
d.Notes to financial statements
24) Putnam, Inc.
Comparative Balance Sheets
December 31,
20152014
Assets:
Current Assets:
Cash$ 1,380,000$1,080,000
Accounts Receivable (net)3,120,0002,160,000
Inventory3,900,0002,520,000
Prepaid Expenses 702,000 630,000
Total Current Assets9,102,0006,390,000
Long-Term Investments450,000
Plant Assets:
Property, Plant & Equipment4,380,0002,880,000
Accumulated Depreciation (900,000) (540,000)
Total Plant Assets 3,480,000 2,340,000
Total Assets$13,032,000$8,730,000
Equities:
Current Liabilities:
Accounts Payable$ 2,550,000$2,190,000
Accrued Expenses618,000564,000
Dividends Payable 402,000
Total Current Liabilities3,570,0002,754,000
Long-Term Notes Payable1,650,000
Stockholders’ Equity:
Common Stock6,000,0004,800,000
Retained Earnings 1,812,000 1,176,000
Total Equities$13,032,000$8,730,000
Putnam, Inc.
Comparative Income Statements
December 31,
20152014
Net Credit Sales$14,040,000$7,506,000
Cost of Goods Sold 7,830,000 3,762,000
Gross Profit6,210,0003,744,000
Operating Expenses (including Income Tax) 5,172,000 2,748,000
Net Income$1,038,000$ 996,000
Additional Information:
a.Accounts receivable and accounts payable relate to merchandise held for sale in the
normal course of business. The allowance for bad debts was the same at the end of 2015
and 2014, and no receivables were charged against the allowance. Accounts payable are
recorded net of any discount and are always paid within the discount period.
b.The proceeds from the note payable were used to finance the acquisition of property,
plant, and equipment. Capital stock was sold to provide additional working capital.
The amount to be shown on the cash flow statement as net cash provided by investing
activities would total what amount?
a.$450,000
b.$1,500,000
c.$1,590,000
d.$1,950,000
25) James, Inc. incurred the following infrequent losses during 2014:
A $210,000 write-down of equipment leased to others.
A $120,000 adjustment of accruals on long-term contracts.
A $180,000 write-off of obsolete inventory.
In its 2014 income statement, what amount should James report as total infrequent
losses that are not considered extraordinary?
a.$510,000
b.$390,000
c.$330,000
d.$300,000
26) Braun, Inc. appropriately uses the installment-sales method of accounting to
recognize income in its financial statements. Some pertinent data relating to this method
of accounting include:
2014 2015
Installment sales$750,000$720,000
Cost of installment sales 570,000 504,000
Gross profit$180,000$216,000
Rate of gross profit24%30%
Balance of deferred gross profit at year end:
2014$108,000$ 36,000
2015 198,000
Total$108,000$234,000
What amount of installment accounts receivable should be presented in Braun’s
December 31, 2015 balance sheet?
a.$720,000
b.$810,000
c.$780,000
d.$866,666