1) under the installment-sales method, companies defer revenue and income recognition
until the period of cash collection.
2) under ifrs, all tax effects are charged or credited to income.
3) companies may use parenthetical explanations, notes, cross references, and
supporting schedules to disclose pertinent information.
4) both ifrs and u.s. gaap allow for comprehensive income to be reported in either a
statement of stockholders’ equity or a statement of recognized income and expense.
5) companies allocate the proceeds received from a lump-sum sale of securities based
on the securities par values.
6) the passage of a new fasb standards statement requires the support of five of the
seven board members.
7) dolphin company leased an office under a six-year contract, which has been
accounted for as an operating lease. faced with the downturn in the economy, the viable
company decided to sub-lease the office. however, they have had no luck with this
effort and the landlord will not allow the lease to be cancelled. the payments are
$10,000 per year and there are five years left on the lease. the company’s most recent
interest rate for financing from a bank is 9%. the risk-free rate on government bonds is
5%. what is the provision for the lease under ifrs?
a.$50,000
b.$44,519
c.$38,897
d.$43,295
8) mathis co. at the end of 2012, its first year of operations, prepared a reconciliation
between pretax financial income and taxable income as follows:
the estimated litigation expense of $1,500,000 will be deductible in 2014 when it is
expected to be paid. the gross profit from the installment sales will be realized in the
amount of $600,000 in each of the next two years. the estimated liability for litigation is
classified as noncurrent and the installment accounts receivable are classified as
$600,000 current and $600,000 noncurrent. the income tax rate is 30% for all years.
the deferred tax asset to be recognized is
a.$0
b.$90,000 current
c.$450,000 current
d.$450,000 noncurrent
9) for the composite method, the composite
a.rate is the total cost divided by the total annual depreciation
b.rate is the total annual depreciation divided by the total depreciable cost
c.life is the total cost divided by the total annual depreciation
d.life is the total depreciable cost divided by the total annual depreciation
10) shelton company has the following account balances at year-end:
shelton should report accounts receivable at a net amount of
a.$108,000
b.$112,800
c.$115,200
d.$120,000
11) kerr co.’s accounts payable balance at december 31, 2012 was $1,300,000 before
considering the following transactions:
goods were in transit from a vendor to kerr on december 31, 2012. the invoice price was
$70,000, and the goods were shipped f.o.b. shipping point on december 29, 2012. the
goods were received on january 4, 2013.
goods shipped to kerr, f.o.b. shipping point on december 20, 2012, from a vendor were
lost in transit. the invoice price was $50,000. on january 5, 2013, kerr filed a $50,000
claim against the common carrier.
in its december 31, 2012 balance sheet, kerr should report accounts payable of
a.$1,420,000
b.$1,370,000
c.$1,350,000
d.$1,300,000
12) why is the allowance method preferred over the direct write-off method of
accounting for bad debts?
a.allowance method is used for tax purposes
b.estimates are used
c.determining worthless accounts under direct write-off method is difficult to do
d.improved matching of bad debt expense with revenue
13) hahn co. takes a full year’s depreciation expense in the year of an asset’s acquisition
and no depreciation expense in the year of disposition. data relating to one of hahn’s
depreciable assets at december 31, 2013 are as follows:
using the same depreciation method as used in 2011, 2012, and 2013, how much
depreciation expense should hahn record in 2014 for this asset?
a.$24,000
b.$36,000
c.$42,000
d.$48,000
14) ernst company purchased equipment that cost $1,500,000 on january 1, 2012. the
entire cost was recorded as an expense. the equipment had a nine-year life and a
$60,000 residual value. ernst uses the straight-line method to account for depreciation
expense. the error was discovered on december 10, 2014. ernst is subject to a 40% tax
rate.
before the correction was made and before the books were closed on december 31,
2014, retained earnings was understated by
a.$664,000
b.$672,000
c.$708,000
d.$900,000
15) during 2012, martin corporation sold merchandise costing $2,800,000 on an
installment basis for $4,000,000. the cash receipts related to these sales were collected
as follows: 2012, $1,600,000; 2013, $1,400,000; 2014, $1,000,000.
what amount would be shown in the december 31, 2013 financial statements for
realized gross profit on 2012 installment sales, and deferred gross profit on 2012
installment sales, respectively?
a.$420,000 and $300,000
b.$780,000 and $420,000
c.$300,000 and $900,000
d.$420,000 and $900,000
16) kant corporation retires its $500,000 face value bonds at 102 on january 1,
following the payment of interest. the carrying value of the bonds at the redemption
date is $481,250. the entry to record the redemption will include a
a.credit of $18,750 to loss on bond redemption
b.credit of $18,750 to discount on bonds payable
c.debit of $28,750 to gain on bond redemption
d.debit of $10,000 to premium on bonds payable
17) dividends are not paid on
a.noncumulative preferred stock
b.nonparticipating preferred stock
c.treasury common stock
d.dividends are paid on all of these
18) any given transaction may affect a statement of cash flows (using the indirect
method) in one or more of the following ways:
cash flows from operating activities
a.net income will be increased or adjusted upward.
b.net income will be decreased or adjusted downward.
cash flows from investing activities
c.increase as a result of cash inflows.
d.decrease as a result of cash outflows.
cash flows from financing activities
e.increase as a result of cash inflows.
f.decrease as a result of cash outflows.
the statement of cash flows is not affected
g.not required to be reported in the body of the statement.
instructions
for each transaction listed below, list the letter or letters from above that describe(s) the
effect of the transaction on a statement of cash flows for the year ending december 31,
2013. (ignore any income tax effects.)
1>preferred stock with a carrying value of $44,000 was redeemed for $50,000 on
january 1, 2013.
2>uncollectible accounts receivable in the amount of $3,000 were written off against
the allowance for doubtful accounts balance of $12,200 on december 31, 2013.
3>machinery which originally cost $3,000 and has a book value of $1,800 is sold for
$1,400 on december 31, 2013.
4>land is acquired through the issuance of bonds payable on july 1, 2013.
5>1,000 shares of stock, stated value $10 per share, are issued for $25 per share in
2013.
6>an appropriation of retained earnings for treasury stock in the amount of $35,000 is
established in 2013.
7>a cash dividend of $8,000 is paid on december 31, 2013.
8>the portfolio of long-term investments (available-for-sale) is at an aggregate market
value higher than aggregate cost at december 31, 2013.
19) mini corp. acquires a patent from maxi co. in exchange for 2,500 shares of mini
corp.s $5 par value common stock and $90,000 cash. when the patent was initially
issued to maxi co., mini corp.s stock was selling at $7.50 per share. when mini corp.
acquired the patent, its stock was selling for $9 a share. mini corp. should record the
patent at what amount?
a.$102,500
b.$108,750
c.$112,500
d.$90,000
20) which of the following is a required disclosure in the income statement when
reporting the disposal of a component of the business?
a.the gain or loss on disposal should be reported as an extraordinary item
b.results of operations of a discontinued component should be disclosed immediately
below extraordinary items
c. earnings per share from both continuing operations and net income should be
disclosed on the face of the income statement
d. the gain or loss on disposal should not be segregated, but should be reported together
with the results of continuing operations
21) jane wants to set aside funds to take an around the world cruise in four years. jane
expects that she will need $10,000 for her dream vacation. if she is able to earn 8% per
annum on an investment, how much will she need to set aside at the beginning of each
year to accumulate sufficient funds?
a.$2,219
b.$13,604
c.$7,350
d.$2,055
22) revenue generally should be recognized
a.at the end of production
b.at the time of cash collection
c.when realized
d.when realized or realizable and earned
23) a ten-year bond was issued in 2011 at a discount with a call provision to retire the
bonds. when the bond issuer exercised the call provision on an interest date in 2013, the
carrying amount of the bond was less than the call price. the amount of bond liability
removed from the accounts in 2013 should have equaled the
a.call price
b.call price less unamortized discount
c.face amount less unamortized discount
d.face amount plus unamortized discount
24) a material item which is unusual in nature or infrequent in occurrence, but not both
should be shown in the income statement
net of taxdisclosed separately
a.nono
b.yesyes
c.noyes
d.yesno
25) in a troubled debt restructuring in which the debt is continued with modified terms,
a gain should be recognized at the date of restructure, but no interest expense should be
recognized over the remaining life of the debt, whenever the
a.carrying amount of the pre-restructure debt is less than the total future cash flows
b.carrying amount of the pre-restructure debt is greater than the total future cash flows
c.present value of the pre-restructure debt is less than the present value of the future
cash flows
d.present value of the pre-restructure debt is greater than the present value of the future
cash flows
26) which of the following properly describes a deferral?
a.cash is received after revenue is earned
b.cash is received before revenue is earned
c.cash is paid after expense is incurred
d.cash is paid in the same time period that an expense is incurred
27) hodge co. exchanged building 24 which has an appraised value of $6,400,000, a
cost of $10,120,000, and accumulated depreciation of $4,800,000 for building m
belonging to fine co. building m has an appraised value of $6,016,000, a cost of
$12,040,000, and accumulated depreciation of $6,336,000. the correct amount of cash
was also paid. assume depreciation has already been updated.
instructions
prepare the entries on both companies’ books assuming the exchange had no
commercial substance. show a check of the amount recorded for building m on hodge’s
books. (round to the nearest dollar.)
28) according to the fasb’s conceptual framework, predictive value is an ingredient of
29) evans construction, inc. experienced the following construction activity in 2013, the
first year of operations.
each of the above contracts is with a different customer, and any work remaining at
december 31, 2013 is expected to be completed in 2014.
instructions
prepare a partial income statement and a partial balance sheet to indicate how the above
contract information would be reported. evans uses the completed-contract method.
30) gibbs manufacturing co. was incorporated on 1/2/12 but was unable to begin
manufacturing activities until 8/1/12 because new factory facilities were not completed
until that date. the land and buildings account at 12/31/12 per the books was as follows:
additional information:
1>to acquire the land and building on 1/31/12, the company paid $100,000 cash and
1,000 shares of its common stock (par value = $100/share) which is very actively traded
and had a fair value per share of $140.
2>when the old building was removed, gibbs paid kwik demolition co. $4,000, but also
received $1,500 from the sale of salvaged material.
6>because of the rising land costs, the president was sure that the land was worth at
least $75,000 more than what it cost the company.
instructions
determine the proper balances as of 12/31/12 for a separate land account and a separate
buildings account. use separate t-accounts (one for land and one for buildings) labeling
all the relevant amounts and disclosing all computations.
31) are all international companies subject to the same internal control
standards? explain.