1) in the retail inventory method, abnormal shortages are deducted from both the cost
and retail amounts and reported as a loss.
2) the fasb states that when an issuer makes an additional payment to encourage
conversion, the payment should be reported as an expense.
3) a company reduces a deferred tax asset by a valuation allowance if it is probable that
it will not realize some portion of the deferred tax asset.
4) costs incurred subsequent to the acquisition of an asset are capitalized if they provide
future benefits.
5) companies report the results of operations of a component of a business that will be
disposed of separately from continuing operations.
6) the primary purpose of a statement of cash flows is to report the cash effects of
operations during a period.
7) periodic alterations to existing products are an example of research and development
costs.
8) stock splits and large stock dividends have the same effect on a companys retained
earnings and total stockholders equity.
9) ifrs and u.s. gaap are similar in the treatment of asset retirement obligations.
10) the post-closing trial balance consists of asset, liability, owners’ equity, revenue and
expense accounts.
11) under ifrs, all potential liabilities associated with uncertain tax positions are
recognized.
12) the dollar-value lifo method measures any increases and decreases in a pool in
terms of total dollar value and physical quantity of the goods.
13) variable overhead costs incurred to self-construct an asset should be included in the
cost of the asset.
14) written, inc. has outstanding 500,000 shares of $2 par common stock and 100,000
shares of no-par 8% preferred stock with a stated value of $5. the preferred stock is
cumulative and nonparticipating. dividends have been paid in every year except the past
two years and the current year.
assuming that $105,000 will be distributed as a dividend in the current year, how much
will the preferred stockholders receive?
a.$35,000
b.$40,000
c.$80,000
d.$105,000
15) on january 1, 2012, the accumulated depreciationmachinery account of a particular
company showed a balance of $740,000. at the end of 2012, after the adjusting entries
were posted, it showed a balance of $790,000. during 2012, one of the machines which
cost $250,000 was sold for $121,000 cash. this resulted in a loss of $8,000. assuming
that no other assets were disposed of during the year, how much was depreciation
expense for 2012?
a.$171,000
b.$187,000
c.$50,000
d.$121,000
16) an option to convert a convertible bond into shares of common stock is a(n)
a.embedded derivative
b.host security
c.hybrid security
d.fair value hedge
17) an improvement made to a machine increased its fair value and its production
capacity by 25% without extending the machine’s useful life. the cost of the
improvement should be
a. expensed
b.debited to accumulated depreciation
c.capitalized in the machine account
d.allocated between accumulated depreciation and the machine account
18) on september 1, 2012, lowe co. issued a note payable to national bank in the amount
of $900,000, bearing interest at 12%, and payable in three equal annual principal
payments of $300,000. on this date, the bank’s prime rate was 11%. the first payment
for interest and principal was made on september 1, 2013. at december 31, 2013, lowe
should record accrued interest payable of
a.$36,000
b.$33,000
c.$24,000
d.$22,000
19) the characteristic that is demonstrated when a high degree of consensus can be
secured among independent measurers using the same measurement methods is
a.relevance
b.faithful representation
c.verifiability
d.neutrality
20) mars, inc. follows ifrs for its external financial reporting. on january 1, 2013, mars,
inc. purchased 25% of the outstanding stock of jerome company (which uses u.s. gaap
for its external financial reporting) for $740,000, and appropriately uses the equity
method to account for its investment. jerome company reports the following activity for
the year ended december 31, 2013:
jerome company uses the completed-contract method for revenue recognition related to
its long-term construction contracts, while mars, inc. uses the percentage-of-completion
method. mars, inc. determines that if jerome company had used the
percentage-of-completion method, its income would have been $100,000 higher during
2013. what is the balance in the investment in jerome company that will be reported on
mars, inc.s balance sheet at december 31, 2013?
a.$775,000
b.$720,000
c.$740,000
d.$735,000
21) barkley company will receive $300,000 in a future year. if the future receipt is
discounted at an interest rate of 8%, its present value is $189,051. in how many years is
the $300,000 received?
a.5 years
b.6 years
c.7 years
d.8 years
22) which of the following is a nominal (temporary) account?
a.unearned revenue
b.salary expense
c.inventory
d.retained earnings
23) which organization was responsible for issuing accounting research bulletins?
a.accounting principles board
b.committee on accounting procedure
c.the sec
d.
24) a company uses the equity method to account for an investment. this would result in
what type of difference and in what type of deferred income tax?
25) at december 31, 2013, seasons construction estimates that it is 75% complete with
the building; however, the estimate of total costs to be incurred has risen to $10,800,000
due to unanticipated price increases. what is reported in the balance sheet at december
31, 2013 for seasons as the difference between the construction in process and the
billings on construction in process accounts, and is it a debit or a credit?
26) the stockholders’ equity section of lemay corporation shows the following on
december 31, 2013:
instructions
assuming that all of the company’s retained earnings are to be paid out in dividends on
12/31/13 and that preferred dividends were last paid on 12/31/11, show how much the
preferred and common stockholders should receive if the preferred stock is cumulative
and fully participating.
27) on the right are six diagrams representing six different present and future value
concepts stated on the left. identify the diagrams with the concepts by writing the
identifying letter of the diagram on the blank line at the left. assume n = 4 and i = 8%.
28) alice, inc. has the following deferred tax assets at december 31, 2012:
what amount would alice, inc. report as a current deferred tax asset under ifrs and under
u.s. gaap?
29) 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.
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.
30) the various classifications listed below have been used in the past by hale company on
its balance sheet.
instructions
indicate by letter how each of the items below should be classified at december 31, 2012.
if an item is not reported on the december 31, 2012 balance sheet, use the letter “x” for
your answer. if the item is a contra account within the particular classification, place
parentheses around the letter. a letter may be used more than once or not at all.
sample question and
31) presented below is an income statement for kinder company for the year ended
december 31, 2012.
kinder company
income statement
for the year ended december 31, 2012
net sales$800,000
costs and expenses:
cost of goods sold560,000
selling, general, and administrative expenses70,000
other, net 20,000
total costs and expenses 650,000
income before income taxes150,000
income taxes 45,000
net income$105,000
additional information:
1>’selling, general, and administrative expenses” included a usual but infrequent charge
of $7,000 due to a loss on the sale of investments.
2>”other, net” consisted of interest expense, $10,000, and an extraordinary loss of
$10,000 before taxes due to earthquake damage. if the extraordinary loss had not
occurred, income taxes for 2012 would have been $24,000 instead of $21,000.
3>kinder had 20,000 shares of common stock outstanding during 2012.
instructions
using the single-step format, prepare a corrected income statement, including the
appropriate per share disclosures.
32) the financial accounting standards board was established because many groups
interested in financial reporting believed that the accounting principles board was not
effective. discuss the apparent advantages that the fasb should have over its earlier
counterpart, the apb.
33) which of the following is generally associated with payables classified as accounts
payable?