1) Which of the following facts concerning fixed assets should be included in the
summary of significant accounting policies?
Depreciation MethodComposition
a.NoYes
b.YesYes
c.YesNo
d.NoNo
2) The various classifications listed below have been used in the past by Maris
Company on its balance sheet. It asks your professional opinion concerning the
appropriate classification of each of the items 1-14 below.
a.Current Assetsf.Current Liabilities
b.Investmentsg.Long-Term Liabilities
c.Plant and Equipmenth.Common Stock and Paid-in Capital in Excess of Par
d.Intangible Assetsi.Retained Earnings
e.Other Assets
Indicate by letter how each of the following items should be classified. If an item need not
be reported on the balance sheet, use the letter “X”. A letter may be used more than once or
not at all. If an item can be classified in more than one category, choose the category most
favored by the authors of your textbook.
1> Employees’ payroll deductions.
2> Cash in sinking fund.
3> Rent revenue collected in advance.
4> Equipment retired from use and held for sale.
5> Patents.
6> Payroll cash fund.
7> Goods held on consignment.
8> Accrued revenue on short-term investments.
9> Advances to salespersons.
10> Premium on bonds payable due two years from date.
11> Bank overdraft.
12> Salaries which company budget shows will be paid to employees within the next year.
13> Work in process.
14> Appropriation for bonded indebtedness.
3) Perez Company began operations in 2013 . Since then, it has reported the following
gains and losses for its investments in trading securities on the income statement:
2013 2014 2015
Gains (losses) from sale of trading securities$ 15,000$(20,000)$ 14,000
Unrealized holding losses on valuation of trading securities(25,000)(15,000)
Unrealized holding gain on valuation of trading securities10,000
At January 1, 2016, Perez owned the following trading securities:
Cost
BKD Common (15,000 shares)$450,000
LRF Preferred (2,000 shares)210,000
Drake Convertible bonds (100 bonds)115,000
During 2016, the following events occurred:
1>Sold 5,000 shares of BKD for $170,000.
2>Acquired 1,000 shares of Horton Common for $40 per share. Brokerage
commissions totaled $1,000.
At 12/31/16, the fair values for Perez’s trading securities were:
BKD Common, $29 per share
LRF Preferred, $110 per share
Drake Bonds, $1,020 per bond
Horton Common, $45 per share
Instructions
(a)Prepare a schedule which shows the balance in the Fair Value Adjustment (trading)
account at December 31, 2015 (after the adjusting entry for 2015 is made).
(b)Prepare a schedule which shows the aggregate cost and fair values for Perez’s trading
securities portfolio at 12/31/16.
(c)Prepare the necessary adjusting entry based upon your analysis in (b) above.
4) Huge Cart Inc. gives you the following information pertaining to the year 2014 .
Net sales$850,000
Cost of goods sold500,000
Current assets500,000
Current liabilities250,000
Average total assets900,000
Total liabilities550,000
Net income150,000
The rate of return on assets Huge Cart Inc. is:
a.55.5%
b.30.0%
c.18.7%
d.16.6%
5) Which of the following is the proper way to report a gain contingency?
a.As an accrued amount
b.As deferred revenue
c.As an account receivable with additional disclosure explaining the nature of the
contingency
d.As a disclosure only
6) Danks Corporation purchased a patent for $675,000 on September 1, 2013 . It had a
useful life of 10 years. On January 1, 2015, Danks spent $165,000 to successfully
defend the patent in a lawsuit. Danks feels that as of that date, the remaining useful life
is 5 years. What amount should be reported for patent amortization expense for 2015?
a.$154,500
b.$150,000
c.$141,000
d.$117,000
7) Easton Company and Lofton Company were combined in a purchase transaction.
Easton was able to acquire Lofton at a bargain price. The sum of the fair values of
identifiable assets acquired less the fair value of liabilities assumed exceeded the cost of
acquiring Easton. Easton will report the excess amount as
a.a gain
b.part of current income in the year of combination
c.a deferred credit and amortize it
d.paid-in capital
8) Carr Corporation retires its $300,000 face value bonds at 105 on January 1,
following the payment of interest. The carrying value of the bonds at the redemption
date is $311,235. The entry to record the redemption will include a
a.credit of $11,235 to Loss on Bond Redemption
b.debit of $11,235 to Premium on Bonds Payable
c.credit of $3,765 to Gain on Bond Redemption
d.debit of $15,000 to Premium on Bonds Payable
9) Match the following cost items with these appropriate accounts:
a.Landc.Land Improvements
b.Buildingsd.Other
1> Interest cost incurred during building construction.
2> Back taxes on purchased plot of land to be used for building site.
3> Assessment by city for drainage system.
4> Building permits.
5> Landscaping shrubs planted after building has been constructed.
6> Demolition costs of building on land bought for plant site.
7> Interest cost incurred after completion of building construction.
8> Recording fees for land.
9> Architect’s fees.
10> Grading and filling building site.
11> Parking lots.
12> Fences.
10) Indicate the major section or subsection of a multiple-step income statement in
which each of the following items would usually appear:
a.Advertising
b.Depletion
c.Dividend revenue
d.Freight-in
e.Loss on disposal of a component of a business, net of tax
f.Income taxes
g.Major casualty loss, net of tax
h.Purchase discounts
i.Sales discounts
j.Officers’ salaries
k.Freight-out
l.Interest income
11) A company uses income from continuing operations to determine whether potential
common stock is dilutive or antidilutive, and this is referred to as
a.the control number
b.the potential number
c.dilutive information
d.impact information
12) Barton Company uses a periodic inventory system. On January 1, 2014, Barton
Company had 1,200 units of inventory on hand at a cost of $8 per unit. During 2014,
Barton made the following inventory purchases.
Assume Barton Company sold 2,300 units of inventory during 2014 .
Based on your answers to Questions 6 and 7, which of the following is a disadvantage
of using the IFRS FIFO method, as compared to Average-cost under U.S. GAAP?
a.Under FIFO, during periods of inflation, inventory costs matched against sales are
lower than the inventory replacement cost
b.When price levels increase and inventory quantities do not decrease, taxes are greater
under FIFO
c.FIFO may cause poorer buying habits as management attempts to manipulate net
income
d.FIFO typically causes lower reported earnings
13) Dream Home Inc., a real estate developing company, was accounting for its
long-term contracts using the completed contract method prior to 2015 . In 2015, it
changed to the percentage-of-completion method.
The company decided to use the same for income tax purposes. The tax rate enacted is
40%.
Income before taxes under both the methods for the past three years appears below.
20132014 2015
Completed contract$300,000$200,000$100,000
Percentage-of-completion 500,000 250,000 180,000
What amount will be debited to Construction in Process account, to record the change
at beginning of 2015?
a.$250,000
b.$100,000
c.$150,000
d.$50,000
14) Ellison Company’s balance sheet shows:
Common stock, $20 par$3,000,000
Paid-in capital in excess of par1,050,000
Retained earnings750,000
Instructions
Record the following transactions by the cost method.
(a)Bought 8,000 shares of its common stock at $29 a share.
(b)Sold 4,000 treasury shares at $30 a share.
(c)Sold 2,000 shares of treasury stock at $26 a share.