Over the life of a particular account receivable, the same total amount of gross profit is
recognized under the installment sales method and the cost recovery method.
No time-weighting of contingently issuable shares is required when computing basic
EPS.
Amounts withheld from employees in connection with payroll often represent liabilities
to be remitted to third parties.
Cash equivalents would include investments in marketable equity securities as long as
management intends to sell the securities in the next three months.
If the contract is not in writing, revenue cannot be recognized, even though goods have
been transferred and payment is expected to be received in exchange.
A reversing entry at the beginning of a period for salaries would include a debit to
salaries expense.
Earnings per share disclosure is required only for income from continuing operations.
When changing from the average cost method to FIFO, the current year’s income
includes the cumulative after-tax difference that would have resulted if the company
had used FIFO in all prior years.
Which of the following accounts has a normal debit balance?
a. Accounts payable.
b. Accrued taxes.
c. Accumulated depreciation.
d. Advertising expense.
When a long-term note is given in exchange for equipment, the amount considered as
paid for the machine is:
a. The invoice price.
b. The wholesale price.
c. The present value of cash outflows discounted at the stated rate.
d. The present value of the note payments discounted at the market rate.
The four criteria provided in GAAP for distinguishing a capital lease from an operating
lease do not include:
a. The agreement specifies that ownership transfers at the end of the lease term.
b. The collectibility of the lease payments must be reasonably predictable.
c. The agreement contains a bargain purchase option.
d. The noncancelable lease term is 75% or more of the useful life of the leased asset.
In 2015, Antle Inc. had acquired Demski Co. and recorded goodwill of $245 million as
a result. The net assets (including goodwill) from Antle’s acquisition of Demski Co. had
a 2016 year-end book value of $580 million. Antle assessed the fair value of Demski at
this date to be $700 million, while the fair value of all of Demski’s identifiable tangible
and intangible assets (excluding goodwill) was $550 million. The amount of the
impairment loss that Antle would record for goodwill at the end of 2016 is:
a. $150 million.
b. $ 95 million.
c. $0.
d. None of these answer choices are correct.
Actuarial gains and losses are reported as OCI as they occur using:
a. U.S. GAAP.
b. IFRS.
c. Both U.S. GAAP and IFRS.
d. Neither U.S. GAAP nor IFRS.
With pensions, service cost reflects additional benefits employees earn from an
additional year’s service. The service cost for retiree health care plans is:
a. An allocation to the current year of a portion of an estimated fixed total cost.
b. An allocation to the current year of a portion of an existing liability.
c. An amount earned by a defined benefit formula.
d. The amount paid to retired employees.
Nueva Company reported the following pretax data for its first year of operations.
What is Nueva’s net income if it elects FIFO?
a. $440.
b. $264.
c. $620.
d. $372.
General Product Inc. distributed 100 million coupons in 2016. The coupons are
redeemable for 30 cents each. General anticipates that 70% of the coupons will be
redeemed. The coupons expire on December 31, 2017. There were 45 million coupons
redeemed in 2016 and 30 million redeemed in 2017. What was General’s coupon
promotional expense in 2017?
a. Zero, since all the expense should be reflected in 2016.
b. $1.5 million.
c. $7.5 million.
d. $9.0 million.
On March 1, 2016, E Corp. issued $1,000,000 of 10% nonconvertible bonds at 103, due
on February 28, 2026. Each $1,000 bond was issued with 30 detachable stock warrants,
each of which entitled the holder to purchase, for $50, one share of Evan’s $25 par
common stock. On March 1, 2016, the market price of each warrant was $4. By what
amount should the bond issue proceeds increase shareholders’ equity?
a. $ 0.
b. $ 30,000.
c. $ 90,000.
d. $120,000.
Which of the following is not a liability?
a. An unused line of credit.
b. Estimated income taxes.
c. Sales tax collected from customers.
d. Advances from customers.
The estimated medical costs are expected to be $7,500 during an employee’s retirement.
The retiree is expected to pay 30% of the cost and Medicare is expected to pay 50% of
the cost. What is the company’s estimated net cost of benefits?
a. $5,250.
b. $7,500.
c. $1,500.
d. $3,750.
The changes in account balances for Elder Company for 2016 are as follows:
Assuming the only changes in retained earnings in 2016 were for net income and a
$50,000 dividend, what was net income for 2016?
a. $40,000.
b. $60,000.
c. $70,000.
d. $90,000.
Briefly explain the accounting treatment for estimated sales returns at the end of an
accounting period for which accounts receivable remain outstanding..
Modern Day Appliances, Inc. is a wholesaler of kitchen appliances. The company uses
a periodic inventory system and the LIFO cost method. Modern Day’s December 31,
2016, fiscal year-end inventory of its main product, double-door stainless steel
refrigerators, consisted of the following (listed in chronological order of acquisition):
The replacement cost of the refrigerators throughout 2017 was $900. Modern Day sold
5,000 of these refrigerators during 2017. The company’s selling price throughout 2017
was $1,200. Required:
1> Compute the gross profit (sales minus cost of goods sold) and the gross profit ratio
for 2017 assuming that Modern Day purchased 5,200 units during the year.
2> Repeat requirement 1 assuming that Modern Day purchased only 4,500 units.
3> For requirements 1 and 2, what amount of before-tax LIFO liquidation profit or loss
would Modern Day report in its 2017 disclosure notes, if any, assuming any calculated
amount is material?
The chief accountant for Julius Co. provides you with the company’s most recent
income statement and comparative balance sheets below. The accountant has asked for
your help in preparing part of the company’s 2016 statement of cash flows.
Required:
In the space provided below, determine the cash flow from operating activities for
Julius Co., using the direct method.
Which of the following is true about the initial journal entry used to record extended
warranties?
Eckland Manufacturing Co. purchased equipment on January 1, 2014, at a cost of
$90,000. Straight-line depreciation for 2014 and 2015 was based on an estimated
eight-year life and $2,000 estimated residual value. In 2016, Eckland revised its
estimate and now believes the equipment will have a total service life of only six years,
while the residual value remains the same.
Required:
Compute depreciation for 2016 and 2017.
Bourne, Inc., acquired 50% of David Webb Enterprises for $5,000,000 on January 1,
2016. The total fair value and book value of Webb’s identifiable net assets was
$8,000,000 on that date. During 2016 Webb recognized net income of $1,000,000 and
paid dividends of $1,200,000. Webb had a fair value of $11,000,000 as of December 31,
2016.
Required: Determine the amounts that will be associated with the Investment in Webb
account and the Goodwill on Bourne’s balance sheets, assuming Bourne accounts for
the Webb investment under the equity method.
Horowitz Paint Shop sold $3,000 of paint to a local construction company for cash on
June 25, 2016. Because of a flood in the area, the customer requested that Horowitz not
ship the items from its warehouse until July 3, 2016, so Horowitz set aside the paint on
June 25, packaged and ready to ship on July 3.
Required: For the second quarter ending on June 30, how much revenue should
Horowitz
recognize for the sale to the local construction company? Explain your answer.