1) both revenues and gains increase both net income and owners equity.
2) earnings management generally makes income statement information more useful for
predicting future earnings and cash flows.
3) the accounting profession has concluded that an investment of more than 50 percent
of the voting stock of an investee should lead to a presumption of significant influence
over an investee.
4) real (permanent) accounts are revenue, expense, and dividend accounts and are
periodically closed.
5) when a company has a complex capital structure, it must report both basic and
diluted earnings per share.
6) internally generated goodwill associated with a business may be recorded as an asset
when a firm offer to purchase that business unit has been received.
7) u.s. gaap has less detailed rules related to the accounting for inventories, compared to
ifrs.
8) a bond may only be issued on an interest payment date.
9) under ifrs, both the investor and the associate company should follow the same
accounting practices, requiring adjustments be made to the investors books in order to
prepare financial information.
10) the securities fair value adjustment account has a normal credit balance.
11) notes receivable are generally reported as noncurrent assets.
12) when a company exchanges nonmonetary assets and a loss results, the company
recognizes the loss only if the exchange has commercial substance.
13) recording the adjusting entry for depreciation has the same effect as recording the
adjusting entry for
a.an unearned revenue
b.a prepaid expense
c.an accrued revenue
d.an accrued expense
14) pearson corporation makes an investment today (january 1, 2012). they will receive
$6,000 every december 31st for the next six years (2012 2017). if pearson wants to earn
12% on the investment, what is the most they should invest on january 1, 2012?
a.$24,668
b.$27,629
c.$48,691
d.$54,534
15) the declaration and issuance of a stock dividend larger than 25% of the shares
previously outstanding
a.increases common stock outstanding and increases total stockholders’ equity
b.decreases retained earnings but does not change total stockholders’ equity
c.may increase or decrease paid-in capital in excess of par but does not change total
stockholders’ equity
d.increases retained earnings and increases total stockholders’ equity
16) costs which are inventoriable include all of the following except
a.costs that are directly connected with the bringing of goods to the place of business of
the buyer.
b.costs that are directly connected with the converting of goods to a salable condition.
c.buying costs of a purchasing department.
d.selling costs of a sales department.
17) groh co. recorded the following data pertaining to raw material x during january
2012:
the moving-average unit cost of x inventory at january 31, 2012 is
a.$4.35
b.$4.42
c.$4.50
d.$4.70
18) a manufacturer of large equipment sells on an installment basis to customers with
questionable credit ratings. which of the following methods of revenue recognition is
least likely to overstate the amount of gross profit reported?
a.at the time of completion of the equipment (completion of production method)
b.at the date of delivery (sales method)
c.the installment-sales method
d.the costrecovery method
19) eddy co. is indebted to cole under a $600,000, 12%, three-year note dated
december 31, 2011. because of eddy’s financial difficulties developing in 2013, eddy
owed accrued interest of $72,000 on the note at december 31, 2013. under a troubled
debt restructuring, on december 31, 2013, cole agreed to settle the note and accrued
interest for a tract of land having a fair value of $540,000. eddy’s acquisition cost of the
land is $435,000. ignoring income taxes, on its 2013 income statement eddy should
report as a result of the troubled debt restructuring
gain on disposalrestructuring gain
a.$237,000$0
b.$165,000$0
c.$105,000$60,000
d.$105,000$132,000
20) arlington company is constructing a building. construction began on january 1 and
was completed on december 31. expenditures were $4,000,000 on march 1, $3,300,000
on june 1, and $5,000,000 on december 31. arlington company borrowed $2,000,000 on
january 1 on a 5-year, 12% note to help finance construction of the building. in
addition, the company had outstanding all year a 10%, 3-year, $4,000,000 note payable
and an 11%, 4-year, $7,500,000 note payable.
what is the weighted-average interest rate used for interest capitalization purposes?
a.11%
b.10.85%
c.10.5%
d.10.65%
21) which of the following is an example of a contingent liability?
a.obligations related to product warranties
b.possible receipt from a litigation settlement
c.pending court case with a probable favorable outcome
d.tax loss carryforwards
22) in 2012, megastores reported net income of $5.7 billion, net sales of $164.7 billion,
and average total assets of $61.0 billion. what is megastores’ asset turnover ratio?
a.0.37 times
b.0.09 times
c.2.7 times
d.10.7 times
23) moorman corporation reports the following information:
correction of understatement of depreciation expense
in prior years, net of tax$ 645,000
dividends declared480,000
net income1,500,000
retained earnings, 1/1/12, as reported3,000,000
moorman should report retained earnings, 12/31/12, as adjusted at
a.$2,355,000
b.$3,375,000
c.$4,020,000
d.$4,665,000
24) on january 1, 2010, hess co. purchased a patent for $714,000. the patent is being
amortized over its remaining legal life of 15 years expiring on january 1, 2025. during
2013, hess determined that the economic benefits of the patent would not last longer
than ten years from the date of acquisition. what amount should be reported in the
balance sheet for the patent, net of accumulated amortization, at december 31, 2013?
a.$428,400
b.$489,600
c.$504,000
d.$523,650
25) what accounting treatment is required for convertible debt? why? what accounting
treatment is required for debt issued with stock warrants? why?
26) presented below is information related to wyrick company:
1>the company is granted a charter that authorizes issuance of 15,000 shares of $100
par value preferred stock and 40,000 shares of no-par common stock.
2>8,000 shares of common stock are issued to the founders of the corporation for land
valued by the board of directors at $300,000. the board establishes a stated value of $10
a share for the common stock.
3>5,000 shares of preferred stock are sold for cash at $110 per share.
4>the company issues 100 shares of common stock to its attorneys for costs associated
with starting the company. at that time, the common stock was selling at $60 per share.
instructions
prepare the general journal entries necessary to record these transactions.
27) during 2012, barden building company constructed various assets at a total cost of
$10,500,000. the weighted average accumulated expenditures on assets qualifying for
capitalization of interest during 2012 were $7,000,000. the company had the following
debt outstanding at
december 31, 2012:
instructions
compute the amounts of each of the following (show computations).
1>avoidable interest.
2>total interest to be capitalized during 2012.
28) during 2012, kings drug company experienced a significant increase in the rate of
gross profit on sales, compared with the rate it has averaged in recent years. you are
asked to determine the most likely reason for this improvement. support your answer.
the following data are from the records of the company:
2012 sales (at an average price of $40 a unit) were $2,250,000.
2012 purchases (at an average cost of $24 a unit) were $1,200,000.
the company uses the lifo inventory method and has used it since 1985.
29) a company receives interest on a $40,000, 8%, 5-year note receivable each april 1.
at december 31, 2012, the following adjusting entry was made to accrue interest
receivable:
assuming that the company does use reversing entries, what entry should be made on
april 1, 2013 when the annual interest payment is received?
30) shown below is an income statement for 2012 that was prepared by a poorly trained
bookkeeper of howell corporation.
howell corporation
income statement
december 31, 2012
instructions
prepare a multiple-step income statement for 2012 for howell corporation that is
presented in accordance with generally accepted accounting principles (including
format and terminology). howell corporation has 50,000 shares of common stock
outstanding and has a 30% federal income tax rate on all tax related items. round all
earnings per share figures to the nearest cent.
31) ocean company follows ifrs for its external financial reporting. which of the
following methods of reporting are acceptable under ifrs for the items shown?
32) on january 1, 2013 dairy treats, inc. entered into a franchise agreement with a
company allowing the company to do business under dairy treats’s name. dairy treats
had performed substantially all required services by january 1, 2013, and the franchisee
paid the initial franchise fee of $700,000 in full on that date. the franchise agreement
specifies that the franchisee must pay a continuing franchise fee of $60,000 annually, of
which 20% must be spent on advertising by dairy treats. what entry should dairy treats
make on january 1, 2013 to record receipt of the initial franchise fee and the continuing
franchise fee for 2013?
33) grier & associates maintains its records on the cash basis. you have been engaged to
convert its cash basis income statement to the accrual basis. the cash basis income
statement, along with additional information, follows:
grier & associates
income statement (cash basis)
for the year ended december 31, 2012