1) Asset revaluations are permitted under IFRS and U.S. GAAP.
2) Dollar-value LIFO techniques help protect LIFO layers from erosion.
3) Financial statement readers often assess liquidity by using the current cash debt
coverage.
4) According to FASB concepts statement No.6, purchase commitments include only
the right to receive assets.
5) The unknown present value is always a larger amount than the known future value
because dollars received currently are worth more than dollars to be received in the
future.
6) The FASB requires lessees and lessors to disclose certain information about leases in
their financial statements or in the notes.
7) Companies must measure the loss on impairment at an undiscounted amount, not at a
present-value amount, when it records the loss.
8) The debt to assets ratio will go up if an equal amount of assets and liabilities are
added to the balance sheet.
9) Counterbalancing errors are those errors that take longer than two periods to correct
themselves.
10) Financial flexibility is a companys ability to respond and adapt to financial
adversity and unexpected needs and opportunities.
11) A deferred tax asset represents the increase in taxes refundable in future years as a
result of deductible temporary differences existing at the end of the current year.
12) All liability accounts and stockholders equity accounts are increased on the credit
side and decreased on the debit side.
13) The market price of an $800,000, ten-year, 12% (pays interest semiannually) bond
issue sold to yield an effective rate of 10% is
a.$898,312
b.$899,698
c.$906,616
d.$1,497,888
14) *The income statement of Dolan Corporation for 2014 included the following
items:
Interest revenue$121,000
Salaries and wages expense180,000
Insurance expense18,200
The following balances have been excerpted from Dolan Corporation’s balance sheets:
December 31, 2014December 31, 2013
Interest receivable$18,200$15,000
Salaries and wages payable17,8008,400
Prepaid insurance2,2003,000
The cash paid for insurance premiums during 2014 was
a.$16,000
b.$15,200
c.$19,000
d.$17,400
15) Under what conditions is an employer required to accrue a liability for sick pay?
a.Sick pay benefits can be reasonably estimated
b.Sick pay benefits vest
c.Sick pay benefits equal 100% of the pay
d.Sick pay benefits accumulate
16) The major elements of the income statement are
a.revenue, cost of goods sold, selling expenses, and general expense
b.operating section, nonoperating section, discontinued operations, extraordinary items,
and cumulative effect
c.revenues, expenses, gains, and losses
d.revenues, irregular items, and general expenses
17) Which of the following is not considered a component of generally accepted
accounting principles?
a.FASB Implementation Guides
b.Widely recognized industry practices
c.Articles published in CPA journals
d.AICPA Accounting Interpretations
18) Angie invested $150,000 she received from her grandmother today in a fund that is
expected to earn 10% per annum. To what amount should the investment grow in five
years if interest is compounded semi-annually?
a.$232,701
b.$241,575
c.$244,335
d.$265,734
19) Treasury shares are shares
a.held as an investment by the treasurer of the corporation
b.held as an investment of the corporation
c.issued and outstanding
d.issued but not outstanding
20) The IASB consists of _________ part-time members.
a.seven
b.two
c.three
d.five
21) A corporation declared a dividend, a portion of which was liquidating. How would
this distribution affect each of the following?
Additional
Paid-in CapitalRetained Earnings
a.DecreaseNo effect
b.DecreaseDecrease
c.No effectDecrease
d.No effectNo effect
22) Winger Corporation owned 600,000 shares of Fegan Corporation stock. On
December 31, 2014, when Winger’s account Equity Investments (Fegan Corporation)
had a carrying value of $5 per share, Winger distributed these shares to its stockholders
as a dividend. Winger originally paid $8 for each share. Fegan has 2,000,000 shares
issued and outstanding, which are traded on a national stock exchange. The quoted
market price for a Fegan share was $7 on the declaration date and $9 on the distribution
date.
What would be the reduction in Winger’s stockholders’ equity as a result of the above
transactions?
a.$2,400,000
b.$3,000,000
c.$4,800,000
d.$5,400,000
23) Mars, Inc. follows IFRS for its external financial reporting, while Jerome Company
uses U.S. GAAP for its external financial reporting. During the year ended December
31, 2015, both companies changed from using the completed-contract method of
revenue recognition for long-term construction contracts to the
percentage-of-completion method. Both companies experienced an indirect effect,
related to increased profit-sharing payments in 2015, of $30,000. As a result of this
change, how much expense related to the profit-sharing payment must be recognized by
each company on the income statement for the year ended December 31, 2015?
Mars, Inc. Jerome Company
a.$30,000$30,000
b.$30,000$-0-
c.$-0-$-0-
d.$-0-$30,000
24) A principal objection to the straight-line method of depreciation is that it
a.provides for the declining productivity of an aging asset
b.ignores variations in the rate of asset use
c.tends to result in a constant rate of return on a diminishing investment base
d.gives smaller periodic write-offs than decreasing charge methods
25) Martin Industries maintains its accounting records using IFRS. The company
purchases equipment with a price of $400,000. The manufacturer has offered a payment
plan that would allow Martin to make 10 equal annual payments of $49,316, with the
first payment due one year after the purchase.
Martin could borrow $400,000 from its bank to finance the purchase at an annual rate
of 6%. Should Martin borrow from the bank or use the manufacturer’s payment plan to
pay for the equipment?
a.Borrow from the bank
b.Use the manufacturer’s payment plan
c.The rates for both the bank and manufacturer are the same, so Martin would be
indifferent
d.There is not enough information to answer this question
26) According to Statement of Financial Accounting Concepts No. 2, neutrality is an
ingredient of the fundamental quality of
RelevanceFaithful Representation
a.YesYes
b.NoYes
c.YesNo
d.NoNo
27) Farmer Inc. began business on January 1, 2014 . Its pretax financial income for the
first 2 years was as follows:
2014$240,000
2015560,000
The following items caused the only differences between pretax financial income and
taxable income.
1>In 2014, the company collected $360,000 of rent; of this amount, $120,000 was
earned in 2014; the other $240,000 will be earned equally over the 2015-2016 period.
The full $360,000 was included in taxable income in 2014 .
2>The company pays $10,000 a year for life insurance on officers.
3>In 2015, the company terminated a top executive and agreed to $90,000 of severance
pay. The amount will be paid $30,000 per year for 2015-2017. The 2015 payment was
made. The $90,000 was expensed in 2015 . For tax purposes, the severance pay is
deductible as it is paid.
The enacted tax rates existing at December 31, 2014 are:
201430%201640%
201535%201740%
Instructions
(a)Determine taxable income for 2014 and 2015 .
(b)Determine the deferred income taxes at the end of 2014, and prepare the journal
entry to record income taxes for 2014 .
(c)Prepare a schedule of future taxable and (deductible) amounts at the end of 2015 .
(d)Prepare a schedule of the deferred tax (asset) and liability at the end of 2015 .
(e)Compute the net deferred tax expense (benefit) for 2015 .
(f)Prepare the journal entry to record income taxes for 2015 .
(g)Show how the deferred income taxes should be reported on the balance sheet at
December 31, 2015 .
28) What is a discount as it relates to zero-interest-bearing notes payable?
a.The discount represents the lender’s costs to underwrite the note
b.The discount represents the credit quality of the borrower
c.The discount represents the cost of borrowing
d.The discount represents the allowance for uncollectible amounts
29) On February 1, 2014, Marsh Contractors agreed to construct a building at a contract
price of $5,800,000. Marsh estimated total construction costs would be $4,000,000 and
the project would be finished in 2016 . Information relating to the costs and billings for
this contract is as follows:
2014 2015 2016
Total costs incurred to date$1,500,000$2,640,000$4,600,000
Estimated costs to complete2,500,0001,760,000-0-
Customer billings to date2,200,0004,000,0005,600,000
Collections to date2,000,0003,500,0005,500,000
Instructions
Fill in the correct amounts on the following schedule. For percentage-of-completion
accounting and for completed-contract accounting, show the gross profit that should be
recorded for 2014, 2015, and 2016 .
Percentage-of-Completion Completed-Contract
Gross ProfitGross Profit
20142014
20152015
20162016
30) Grider Industries, Inc. issued $10,000,000 of 8% debentures on May 1, 2014 and
received cash totaling $8,872,628. The bonds pay interest semiannually on May 1 and
November 1 . The maturity date on these bonds is November 1, 2022. The firm uses the
effective-interest method of amortizing discounts and premiums. The bonds were sold
to yield an effective-interest rate of 10%.
Instructions
Calculate the total dollar amount of discount or premium amortization during the first
year (5/1/14 through 4/30/15) these bonds were outstanding. (Show computations and
round to the nearest dollar.)
31) Snyder Industries had one patent recorded on its books as of January 1, 2015 . This
patent had a book value of $168,000 and a remaining useful life of 7 years. During
2015, Snyder brought a patent infringement suit against a competitor. On October 1,
2015, Snyder received the goods news that its patent was valid and that its competitor
could not use the process Snyder had patented. The company incurred $60,000 to
defined this carrying value of the patent. Compute the patent that would be reported on
the December 31, 2015, balance sheet, assuming monthly amortization of carrying
value of the patents.
32) A machine cost $240,000, has annual depreciation expense of $48,000, and has
accumulated depreciation of $120,000 on December 31, 2014 . On April 1, 2015, when
the machine has a fair value of $96,000, it is exchanged for a similar machine with a
fair value of $288,000 and the proper amount of cash is paid. The exchange lacked
commercial substance.
Instructions
Prepare all entries that are necessary at April 1, 2015 .
33) Listed below are items that are treated differently for accounting purposes than they
are for tax purposes. Indicate whether the items are permanent differences or temporary
differences. For temporary differences, indicate whether they will create deferred tax
assets or deferred tax liabilities.
1>Investments accounted for by the equity method.
2>Advance rental receipts.
3>Fine for polluting.
4>Estimated future warranty costs.
5>Excess of contributions over pension expense.
6>Expenses incurred in obtaining tax-exempt revenue.
7>Installment sales.
8>Excess tax depreciation over accounting depreciation.
9>Long-term construction contracts.
10>Premiums paid on life insurance of officers (company is the beneficiary).
34) On January 1, 2014 Lance Co. issued five-year bonds with a face value of $700,000
and a stated interest rate of 12% payable semiannually on July 1 and January 1 . The
bonds were sold to yield 10%. Present value table factors are:
Present value of 1 for 5 periods at 10%.62092
Present value of 1 for 5 periods at 12%.56743
Present value of 1 for 10 periods at 5%.61391
Present value of 1 for 10 periods at 6%.55839
Present value of an ordinary annuity of 1 for 5 periods at 10%3.79079
Present value of an ordinary annuity of 1 for 5 periods at 12%3.60478
Present value of an ordinary annuity of 1 for 10 periods at 5% 7.72173
Present value of an ordinary annuity of 1 for 10 periods at 6%7.36009
Calculate the issue price of the bonds.