1) “Purchased in-process research and development” is typically associated with
a. creative acquisition accounting
b. cookie jar reserves
c. proforma earnings amounts
d. big bath accounting
2) Callable bonds
a. can be redeemed by the issuer at some time at a pre-specified price
b. can be converted to stock
c. mature in a series of payments
d. None of these is correct
3) Refer to the Sculley Corporation information above. Sculley’s account receivable
turnover for 2014 is
a. 13.85
b. 10.00
c. 9.49
d. 7.78
4) During the year just ended, Salt Company made the following expenditures relating
to its plant building:
How much should be charged to repair and maintenance expense during the year just
ended?
a. $160,000
b. $216,000
c. $256,000
d. $328,000
5) The most conceptually appropriate method of valuing a liability under the historical
cost basis is to
a. discount the amount of expected cash outflows that are necessary to liquidate the
liability using the market rate of interest at the date the liability was initially incurred
b. discount the amount of expected cash outflows that are necessary to liquidate the
liability using the market rate of interest at the date financial statements are prepared
subsequent to issuance
c. record as a liability the amount of cash or cash-equivalent value that the company
would be required to pay to eliminate the liability in the ordinary course of business on
the date of the financial statements
d. record as a liability the amount of cash or cash-equivalent proceeds actually received
when a liability was incurred
6) Bluesy Company acquired land and paid for it in full by issuing $700,000 of its 10
percent bonds payable and 40,000 shares of its common stock, par $10. The stock was
selling at $21 per share and the bonds were trading at 102. What amount should Bluesy
record as the cost of the land?
a. $1,100,000
b. $1,540,000
c. $1,554,000
d. $1,604,000
7) On December 1, 2014, Boron Inc. signed an operating lease for a warehouse for ten
years at $15,000 per year. Upon execution of the lease, Boron paid $30,000 covering
rent for the first two years. How much should be shown in Boron’s income statement
for the year ended December 31, 2014, as rent expense?
a. $0
b. $1,250
c. $15,000
d. $30,000
8) When an enterprise increases its interest in an investment in equity securities
accounted for by the fair value method, and changes to the equity method, what is the
initial carrying value for purposes of subsequent application of the equity method?
a. Book value at the date of the change
b. Original cost plus or minus the net market value change since acquisition
c. Market value at the date of the change
d. The amount that would be reflected in the investment account had the equity method
been in use continually since the purchase of the securities
9) Harris, Inc. reported the following balances (after adjustment) at the end of 2014 and
2013.
During 2014, Harris wrote off customer accounts totaling $3,200 and collected $800 on
accounts written off in previous years. Harris doubtful accounts expense for the year
ending December 31, 2014 is
a. $1,500
b. $2,400
c. $3,000
d. $3,900
10) Which of the following is true of a premium on bonds payable?
a. It is a contra-stockholders’ equity account
b. It is an account that appears only on the books of the investor
c. It increases when amortization entries are made until it reaches its maturity value
d. It decreases when amortization entries are made until its balance reaches zero at the
maturity date
11) In January 2014, Bevis Company exchanged an old machine, with a book value of
$256,000 and a fair value of $260,000, and paid $40,000 cash for a similar used
machine having a fair value of $300,000. The exchange lacked commercial substance.
At what amount should the machine acquired in the exchange be recorded on Bevis’
books?
a. $256,000
b. $296,000
c. $300,000
d. $304,000
12) Assume cash paid to suppliers for 2014 is $420,000, that merchandise inventory
increased by $20,000 during the year, and that cost of goods sold was $415,000 for the
year. During 2014, accounts payable must have
a. increased by $5,000
b. decreased by $5,000
c. increased by $15,000
d. decreased by $15,000
13) At December 31, 2013, Joplin Company had 350 shares of common stock
outstanding. On October 1, 2014, an additional 150 shares of common stock were
issued. In addition, Joplin had $40,000 of 8 percent convertible bonds outstanding at
December 31, 2014, which are convertible in 225 shares of common stock. No bonds
were converted into common stock in 2014. Net income for the year ended December
31, 2014, was $14,000. Assuming an income tax rate of 50%, the basic earnings per
share for the year ended December 31, 2014, would be
a. $27.84
b. $36.08
c. $44.32
d. $50.91
14) Which of the following depreciation methods most closely approximates the
method used to deplete the cost of natural resources?
a. Straight-line method
b. Double-declining-balance method
c. Sum-of-the-years’-digits method
d. Units-of-production method
15) Which of the following most likely would be considered a discontinued operation?
a. Production or marketing functions are shifted from one location to another
b. A sporting goods manufacturer has a bicycle division that meets FASB’s definition of
a component of the entity and decides to outsource the manufacture of its bicycles
c. The unprofitable brands of a beauty products component of an entity that
manufactures and sells consumer products are discontinued
d. An entity that is a franchiser in the quick-service restaurant business also operates
company-owned restaurants that are unprofitable in a certain region and, as a result, the
entity decides to exit both the quick-service business as well as the company-owned
restaurants in that region
16) The following 3 ratios have been computed using the financial statements for the
year ended December 31, 2014, for King Company:
The following additional information has been assembled:
(a) King uses the LIFO method of inventory valuation. Beginning inventory was
$25,000 and ending inventory was $35,000. If King had used FIFO, beginning
inventory would have been $50,000 and ending inventory would have been $65,000.
(b) King’s sole depreciable asset was purchased on January 1, 2014. The asset cost
$130,000 and is being depreciated over 15 years with no estimated salvage value.
Although the 15-year life is within the acceptable range, most firms in King’s industry
depreciate similar assets over 10 years.
(c) For 2014, King decided to recognize a $22,000 liability for future environmental
cleanup costs. Most other firms in King’s industry have similar environmental cleanup
obligations but have decided that the amounts of the obligations are not reasonably
estimable at this time; on average, these firms recognized only 5% of their total
environmental cleanup obligation.
Show how the values for the 3 ratios computed above differ if King had used FIFO,
depreciated the asset over 10 years, and recognized only 5% of its environmental
cleanup obligation. Compute how the financial statements would differ if the alternative
accounting methods had been used. Do not treat the use of these alternative methods as
accounting changes. Ignore any income tax effects.
17) Gabor Company had granted 20,000 options to buy one share of common stock at
$10 per share to employees several years ago. The company had net income of
$200,000 this year and had 300,000 shares of common stock outstanding the entire
year. The average market price per share was $20 and the end of year price was $25.
Given only the above information, what are basic and diluted earnings per share
respectively for the year?
a. $0.67 $0.67
b. $0.67 $0.65
c. $0.65 $0.64
d. $0.64 $0.64
18) Kite Company paid $24,900 in insurance premiums during 2013. Kite showed
$3,600 in prepaid insurance on its December 31, 2013, balance sheet and $4,500 on
December 31, 2012. The insurance expense on the income statement for 2013 was
a. $16,800
b. $24,000
c. $25,800
d. $33,000
19) A firm purchased $20,000 worth of investments classified as trading securities. At
the end of the year, the investments are worth $23,000. What is the correct disclosure of
these events in the statement of cash flows prepared under the direct method?
a. Operating cash inflow, $3,000
b. Addition of $17,000 in reconciliation of earnings and net operating cash flow
c. Operating cash outflow, $20,000; subtract $3,000 in reconciliation of earnings and
net operating cash flow
d. No disclosure is needed
20) A company is constructing an asset for its own use. Construction began in 2013.
The asset is being financed entirely with a specific new borrowing. Construction
expenditures were made in 2013 and 2014 at the end of each quarter. The total amount
of interest cost capitalized in 2014 should be determined by applying the interest rate on
the specific new borrowing to the
a. total accumulated expenditures for the asset in 2014
b. average accumulated expenditures for the asset in 2014
c. average expenditures for the asset in 2014
d. total expenditures for the asset in 2014
21) On January 1, Blalock Company as lessee signed a ten-year noncancelable lease for
a machine with annual payments of $60,000. The first payment was also made on
January 1. Blalock appropriately treated this transaction as a capital lease. The ten lease
payments have a present value of $405,000 at January 1, based on implicit interest of 10
percent. For the first year, Blalock should record interest expense of
a. $0
b. $6,000
c. $34,500
d. $40,500
22) Allstair Company provides the following information (all amounts are in thousands
of dollars):
Required:
Compute the ratios listed below for the year 2014. Show supporting computations.
a. Quick ratio
b. Rate of return on assets
c. Return on common stockholders equity
d. Book value per share
e. Receivables turnover
f. Inventory turnover
23) Craig Corporation issued a $100,000, 10-year, 10 percent bond on January 1, 2013,
for $112,000. Craig uses the straight-line method of amortization. On April 1, 2016,
Craig reacquired the bonds for retirement when they were selling at 102 on the open
market. How much gain or loss should Craig recognize on the retirement of the bonds?
a. $2,000 loss
b. $3,900 gain
c. $6,100 gain
d. $8,200 loss
24) Using the information above and assuming the exchange rate on September 30 is
105=$1, what amount will Stagger pay to, or receive from, the bank (rounded to the
nearest dollar)?
a. $15,217 payment
b. $15,217 receipt
c. $16,667 payment
d. $16,667 receipt
25) The foreign currency translation adjustments amount is a(n)
a. account in the parent companys general ledger
b. account in the foreign subsidiarys general ledger
c. balancing amount for translation
d. balancing amount for remeasurement
26) What are the three types of period costs that a lessee experiences with capital
leases?
a. Interest expense, amortization expense, executory costs
b. Amortization expense, executory costs, lease expense
c. Executory costs, interest expense, lease expense
d. Lease expense, executory costs, initial costs
27) Which of the following statements characterizes defined contribution plans?
a. They are more complex in construction than defined benefit plans
b. The employer’s obligation is satisfied by making the appropriate amount of periodic
contribution
c. The investment risk is borne by the employer
d. Contributions are made in equal amounts by employer and employees
28) The following information relates to Aracely Inc. at December 31, 2014:
The total pension liability at December 31, 2014, for Aracely Inc. is
a. $0
b. $440,000
c. $480,000
d. $520,000
29) Dan Company recently acquired two items of equipment. The transactions are
described below:
June 10:
Acquired a press at an invoice price of $6,500, subject to a 2% cash discount which was
taken. Costs of freight and insurance during shipment were $205. Installation costs
were $350.
November 12:
Acquired a welding machine at an invoice price of $4,000, subject to a 4% cash
discount which was NOT taken. Additional welding supplies were acquired at a total
cost of $300.
The increase in the equipment account as a result of the above transactions would be
a. $10,525
b. $10,720
c. $10,925
d. $11,225
30) The installment method of recognizing revenue
a. should be used only in cases in which no reasonable basis exists for estimating the
collectibility of receivables
b. is not a generally accepted accounting principle under any circumstances
c. should be used for book purposes only if it is used for tax purposes
d. is an acceptable alternative accounting principle for a firm that makes installment
sales
31) Documents issued by the FASB include all of the following except
a. Statements of Financial Accounting Standards
b. Interpretations of Statements of Financial Accounting Standards
c. Statements of Financial Accounting Concepts
d. Financial Reporting Releases
32) Tussle Company began operations on January 1, 2014, and appropriately uses the
installment method of accounting. The following data are available for 2014 and 2015:
The realized gross profit for 2015 is
a. $440,000
b. $240,000
c. $390,000
d. $600,000
33) To compute the price to pay for a bond, you use
a. only the present value of $1 concept
b. only the present value of an annuity of $1 concept
c. both of these
d. neither of these
34) Net income for Parton Company for 2014 includes the effect of the following
transactions involving the sale of fixed assets:
Purchases of fixed assets during 2014 amounted to $340,000. The Accumulated
Depreciation account increased $40,000 during 2014. How much was depreciation
expense for 2014?
a. $175,000
b. $187,000
c. $197,000
d. $215,000
35) The following summary balance sheet account categories of Sun Company
increased during 2013 by the amounts shown:
Assets …………………$178,000 Liabilities ………………………$54,000
Capital Stock …………$120,000 Additional Paid-in Capital ….$12,000
The only change to retained earnings during 2013 was for $26,000 of dividends. What
was Sun Companys net income for 2011?
a. $34,000
b. $26,000
c. $18,000
d. $8,000
36) Footnote disclosures for long-term liabilities provide information that is not
conveniently presented in the balance sheet. Although detailed disclosure requirements
exist for certain specialized obligations, a set of general disclosure requirements is
applicable to most enterprises.
Identify the general disclosure requirements for long-term liabilities.
37) Hibachi, Inc., purchased Wasabi Manufacturing Company, a Japanese company, on
January 4, 2014. On the date of purchase, the exchange rate for 1 Japanese yen was
U.S. $0.0085. The balance sheet for Wasabi Manufacturing Co.,on the date of purchase
is shown below:
Wasabi Manufacturing Co.
Balance Sheet
January 4, 2014
(in Japanese yen)
Required:
Prepare a translated balance sheet as of January 4, 2014.
38) Amityville Company has two divisions, C and D. The operations and cash flows of
these two divisions are clearly distinguishable. On July 1, 2015, the company decided
to dispose of the assets and liabilities of Division D. It is probable that the disposal will
be completed early next year. The revenues and expenses of Amityville Company for
2015 and for the preceding two years are as follows:
During the latter part of 2015, Amityville disposed of a portion of Division D and
recognized a pretax loss of $10,000 on the disposal. The income tax rate for Amityville
Company is 40%.
Prepare the comparative income statements for Amityville Company for the years 2013,
2014, and 2015.
39) Allsgood Appliances computed a pretax financial loss of $60,000 for the first year
of its operations ended December 31, 2014. Analysis of the tax and book basis of its
liabilities disclosed $80,000 in accrued warranty expenses on the books that had not
been deductible from taxable income in 2014, but would be deductible in future years
when the warranty expenses were paid.
The future warranty payments are expected to occur in the following pattern:
40) On January 1, 2014, Artigas, Inc. obtained a contract to construct a building. It was
estimated at the beginning of the contract that it would take 3 years to complete the
project at an expected cost of $200,000. The contract price was $250,000. The
following information describes the status of the job at the close of production each
year:
Compute the items listed below for each year assuming the use of the percentage-of-
completion cost-to-cost method. (Round all percentages to two decimals.)
41) Carbonite Bottling purchased for $800,000 a trademark for a very successful soft
drink it markets under the name BLAST!. The trademark was determined to have an
indefinite life. A competitor recently introduced a product that is in direct competition
with the BLAST! product, thus suggesting the need for an impairment test. Data
gathered by Carbonite suggests that the useful life of the trademark is still indefinite,
but the cash flows expected to be generated by the trademark have been reduced either
to $30,000 per year (with a probability of 80%) or to $60,000 per year (with 20%
probability). The appropriate risk-free interest rate is 5%. The appropriate risk-adjusted
interest rate is 10%.
Prepare the appropriate journal entry (if needed) to record the effect of the events
described above.
42) Torrent Lumber shows the following balances in its financial records:
Prepare a partial balance sheet and income statement using the information provided
above.
43) You are an independent CPA and have just acquired a new client, Lambert
Manufacturing Company. The president of the company recently read an article
advising a firm’s management team to seek to maximize the long-run value of the firm’s
stock. The article mentioned profit maximization, earnings per share, and the role of
these two factors in stock price maximization. The president wants your advice on how
the choice of inventory cost flow methods (e.g., FIFO vs. LIFO) relates to profit
maximization, earnings per share, and stock price maximization.
44) See Foreman Company information above.
Required:
Prepare the entries on Foreman Companys books to record the sale of the equipment.
