1) Brown Corporation earns $480,000 and pays cash dividends of $160,000 during
2014 . Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown.
What amount should Dexter show in the investment account at December 31, 2014 if
the beginning of the year balance in the account was $640,000?
a.$784,000
b.$640,000
c.$736,000
d.$960,000
2) Smithson Corporation had a 1/1/14 balance in the Allowance for Doubtful Accounts
of $20,000. During 2014, it wrote off $14,400 of accounts and collected $4,200 on
accounts previously written off. The balance in Accounts Receivable was $400,000 at
1/1 and $480,000 at 12/31. At 12/31/14, Smithson estimates that 5% of accounts
receivable will prove to be uncollectible. What is Bad Debt Expense for 2014?
a.$4,000
b.$14,200
c.$18,400
d.$24,000
3) Which of the following is not accounted for a change in accounting principle?
a.A change from LIFO to FIFO for inventory valuation
b.A change to a different method of depreciation for plant assets
c.A change from full-cost to successful efforts in the extractive industry
d.A change from the completed-contract to the percentage-of-completion method
4) Sawyer Corporation has a machine (Machine A) that it acquired on 1/1/14 for
$540,000. On 12/31/14 such machines have a selling price and fair value of $621,000.
When used in production, such machines have an estimated useful life of 10 years with
no salvage value. Use the straight-line method.
Brown Corporation has a machine (Machine B) that it acquired on 1/1/14 for $729,000.
On 12/31/14 such machines have a selling price and fair value of $540,000. When used
in production, such machines have an estimated useful life of 10 years with no salvage
value. Use the straight-line method.
On 12/31/14 Brown gave Machine B plus $81,000 cash to Sawyer in return for
Machine A.
Given the assumption in 12 above except that the fair values of Machines A and B are
$504,000 and $675,000, respectively, at what amount will Brown record Machine A?
a.$656,100
b.$756,000
c.$675,000
d.$737,100
5) Issuance of common stock for cash affects which basic element of financial
statements?
a.Revenues
b.Losses
c.Liabilities
d.Equity
6) Layne Corporation had the following information in its financial statements for the
years ended 2014 and 2015:
Cash dividends for the year 2015$ 10,000
Net income for the year ended 201583,000
Market price of stock, 12/31/1410
Market price of stock, 12/31/1512
Common stockholders equity, 12/31/141,600,000
Common stockholders equity, 12/31/151,980,000
Outstanding shares, 12/31/15180,000
Preferred dividends for the year ended 201515,000
What is the book value per share for Layne Corporation for the year ended 2015?
a.$11.00
b.$9.92
c.$9.94
d.$8.89
7) Lyons Company deducts insurance expense of $126,000 for tax purposes in 2014,
but the expense is not yet recognized for accounting purposes. In 2015, 2016, and 2017,
no insurance expense will be deducted for tax purposes, but $42,000 of insurance
expense will be reported for accounting purposes in each of these years. Lyons
Company has a tax rate of 40% and income taxes payable of $108,000 at the end of
2014 . There were no deferred taxes at the beginning of 2014 .
What is the amount of income tax expense for 2014?
a.$158,400
b.$151,200
c.$126,000
d.$108,000
8) Use of the double-declining balance method
a.results in a decreasing charge to depreciation expense
b.means salvage value is not deducted in computing the depreciation base
c.means the book value should not be reduced below salvage value
d.all of these answers are correct
9) Which of the following elements of financial statements is not a component of
comprehensive income?
a.Revenues
b.Distributions to owners
c.Losses
d.Expenses
10) On January 1, 2014, Lynn Company borrows $2,000,000 from National Bank at
11% annual interest. In addition, Lynn is required to keep a compensatory balance of
$200,000 on deposit at National Bank which will earn interest at 5%. The effective
interest that Lynn pays on its $2,000,000 loan is
a.10.0%
b.11.0%
c.11.5%
d.11.6%
11) An account which would be classified as a current liability is
a.dividends payable in the form of a company’s stock
b.accounts payabledebit balances
c.losses expected to be incurred within the next twelve months in excess of the
company’s insurance coverage
d.none of these answers are correct
12) Slotkin Products purchased a machine for $39,000 on July 1, 2014 . The company
intends to depreciate it over 8 years using the double-declining balance method.
Salvage value is $3,000. Depreciation for 2014 is
a.$19,500
b.$4,875
c.$8,531
d.$9,000
13) The notes to the financial statements should include information about acquired
intangible assets, and aggregate amortization expense for how many succeeding years?
a.6
b.5
c.4
d.3
14) Langley Company’s December 31 year-end financial statements contained the
following errors:
Dec. 31, 2014Dec. 31, 2015
Ending inventory$22,500 understated$33,000 overstated
Depreciation expense6,000 understated
An insurance premium of $54,000 was prepaid in 2014 covering the years 2014, 2015,
and 2016 . The prepayment was recorded with a debit to insurance expense. In addition,
on December 31, 2015, fully depreciated machinery was sold for $28,500 cash, but the
sale was not recorded until 2016 . There were no other errors during 2015 or 2016 and
no corrections have been made for any of the errors. Ignore income tax considerations.
What is the total net effect of the errors on the amount of Langley’s working capital at
December 31, 2015?
a.Working capital overstated by $15,000
b.Working capital overstated by $4,500
c.Working capital understated by $13,500
d.Working capital understated by $36,000
15) The trial balance of Winsor Corporation is reproduced on the following page. The
information below is relevant to the preparation of adjusting entries needed to both
properly match revenues and expenses for the period and reflect the proper balances in
the real and nominal accounts.
Instructions
As the accountant for Winsor Corporation, you are to prepare adjusting entries based on
the following data, entering the adjustments on the work sheet and completing the
additional columns with respect to the income statement and balance sheet. Carefully
key your adjustments and label all items. (Due to time constraints, an adjusted trial
balance is not required.) Round all computations to the nearest dollar.
(a)Winsor determined that one percent of sales will become uncollectible.
(b)Depreciation is computed using the straight-line method, with an eight-year life and
$1,000 salvage value.
(c)Salesmen are paid commissions of 15% of sales. Commissions on sales for
December have not been paid.
(d)The note was issued on October 1, bearing interest at 8%, due Feb. 1, 2015 .
(e)A physical inventory of supplies indicated $340 of supplies currently in stock.
(f)Provisions of a lease contract specify payments must be made one month in advance,
with monthly payments at $800/mo. This provision has been complied with as of Dec.
31, 2014 .
Winsor Corporation
Work Sheet
For the Year Ended December 31, 2014
Trial Balance AdjustmentsIncome StatementBalance Sheet
Accounts Dr. Cr. Dr. Cr. Dr. Cr.Dr. Cr.
Cash 12,400
Equity Invest. 4,050
Accounts Rec. 30,000
Allow. for D. A.420
Inventory 16,800
Supplies 1,040
Equipment 65,000
Accum. Depr.-Equip. 9,500
Accounts Payable 4,400
Notes Payable 10,000
Common Stock 40,000
Ret. Earnings 29,690
Sales Revenue 340,000
Cost of Goods Sold 235,520
Salaries and
Wages Exp. 20,800
Sales Comm. Exp. 39,000
Rent Expense 7,200
Misc. Expense 2,200
Totals434,010434,010
16) Which of the following is true regarding the use of LIFO for inventory valuation?
a.If LIFO is used for external financial reporting, then it must also be used for internal
reports
b.For purposes of external financial reporting, LIFO may not be used with the lower of
cost or market approach
c.If LIFO is used for external financial reporting, then it cannot be used for tax purposes
d.None of these answers are correct
17) The fair value of pension plan assets is used to determine the corridor and to
calculate the expected return on plan assets.
Expected Return
Corridoron Plan Assets
a.YesYes
b.YesNo
c.NoYes
d.NoNo