1) Mays, Inc. had net income for 2014 of $1,060,000 and earnings per share on
common stock of $5. Included in the net income was $150,000 of bond interest expense
related to its long-term debt. The income tax rate for 2014 was 30%. Dividends on
preferred stock were $200,000. The payout ratio on common stock was 25%. What
were the dividends on common stock in 2014?
a.$215,000
b.$265,000
c.$241,250
d.$322,500
2) Which of the following is a product cost as it relates to inventory?
a.Selling costs
b.Interest costs
c.Raw materials
d.Abnormal spoilage
3) The revenue recognition principle provides that revenue is recognized when (1) it is
realized or realizable and (2) it is earned.
Instructions
Explain when revenues are (a) realized, (b) realizable, and (c) earned.
4) Debt securities that are accounted for at amortized cost, not fair value, are
a.held-to-maturity debt securities
b.trading debt securities
c.available-for-sale debt securities
d.never-sell debt securities
5) The statement of cash flows provides answers to all of the following questions
except
a.where did the cash come from during the period?
b.what was the cash used for during the period?
c.what is the impact of inflation on the cash balance at the end of the year?
d.what was the change in the cash balance during the period?
6) The estimated life of a building that has been depreciated for 30 years of an
originally estimated life of 50 years has been revised to a remaining life of 10 years.
Based on this information, the accountant should
a.continue to depreciate the building over the original 50-year life
b.depreciate the remaining book value over the remaining life of the asset
c.adjust accumulated depreciation to its appropriate balance, through net income, based
on a 40-year life, and then depreciate the adjusted book value as though the estimated
life had always been 40 years
d.adjust accumulated depreciation to its appropriate balance through retained earnings,
based on a 40-year life, and then depreciate the adjusted book value as though the
estimated life had always been 40 years
7) In 2015, Fischer Corporation changed its method of inventory pricing from LIFO to
FIFO. Net income computed on a LIFO as compared to a FIFO basis for the four years
involved is: (Ignore income taxes.)
LIFO FIFO
2012$78,200$85,700
201384,50088,100
201487,00091,400
201592,50092,700
Instructions
(a)Indicate the net income that would be shown on comparative financial statements
issued at 12/31/15 for each of the four years, assuming that the company changed to the
FIFO method in 2015 .
(b)Assume that the company had switched from the average cost method to the FIFO
method with net income on an average cost basis for the four years as follows: 2012,
$80,400; 2013, $86,120; 2014, $90,300; and 2015, $93,600. Indicate the net income
that would be shown on comparative financial statements issued at 12/31/15 for each of
the four years under these conditions.
(c)Assuming that the company switched from the FIFO to the LIFO method, what
would be the net income reported on comparative financial statements issued at
12/31/15 for 2012, 2013, and 2014?
8) Which method of inventory pricing best approximates specific identification of the
actual flow of costs and units in most manufacturing situations?
a.Average cost
b.First-in, first-out
c.Last-in, first-out
d.Base stock
9) Mathis Co. at the end of 2014, its first year of operations, prepared a reconciliation
between pretax financial income and taxable income as follows:
Pretax financial income$ 800,000
Estimated litigation expense2,000,000
Installment sales (1,600,000)
Taxable income$ 1,200,000
The estimated litigation expense of $2,000,000 will be deductible in 2016 when it is
expected to be paid. The gross profit from the installment sales will be realized in the
amount of $800,000 in each of the next two years. The estimated liability for litigation
is classified as noncurrent and the installment accounts receivable are classified as
$800,000 current and $800,000 noncurrent. The income tax rate is 30% for all years.
The income tax expense is
a.$240,000
b.$360,000
c.$400,000
d.$800,000
10) Mortenson Corporation sells its product, a rare metal, in a controlled market with a
quoted price applicable to all quantities. The total cost of 5,000 pounds of the metal
now held in inventory is $150,000. The total selling price is $420,000, and estimated
costs of disposal are $15,000. At what amount should the inventory of 5,000 pounds be
reported in the balance sheet?
a.$135,000
b.$150,000
c.$405,000
d.$420,000
11) Unruh Corp. and its divisions are engaged solely in manufacturing operations. The
following data (consistent with prior years’ data) pertain to the industries in which
operations were conducted for the year ended December 31, 2015 .
Assets
Industry Revenue Profit 12/31/15
A$ 8,000,000$1,320,000$16,000,000
B6,400,0001,120,00014,000,000
C4,800,000960,00010,000,000
D2,400,000440,0005,200,000
E3,400,000540,0005,600,000
F 1,200,000 180,000 2,400,000
$26,200,000$4,560,000$53,200,000
In its segment information for 2015, how many reportable segments does Unruh have?
a.Three
b.Four
c.Five
d.Six
12) The net cash provided by operating activities in Sosa Company’s statement of cash
flows for 2015 was $155,000. For 2015, depreciation on plant assets was $45,000,
amortization of patent was $8,000, and cash dividends paid on common stock was
$54,000. Based only on the information given above, Sosas net income for 2015 was
a.$155,000
b.$102,000
c.$8,000
d.$156,000
13) When an expense is paid in cash before it is used, it is called a(n)
a.prepaid expense
b.accrued expense
c.estimated expense
d.cash expense
14) Vance Company reported net incomes for a three-year period as follows:
2013, $191,000;2014, $199,000;2015, $180,000.
In reviewing the accounts in 2016 after the books for the prior year have been closed,
you find that the following errors have been made in summarizing activities:
2013 2014 2015
Overstatement of ending inventory$37,000$51,000$26,000
Understatement of accrued advertising expense6,60012,0007,200
Instructions
(a)Determine corrected net incomes for 2013, 2014, and 2015 .
(b)Give the entry to bring the books of the company up to date in 2016, assuming that
the books have been closed for 2015 .
15) At December 31, 2014, Sager Co. had 1,200,000 shares of common stock
outstanding. In addition, Sager had 450,000 shares of preferred stock which were
convertible into 750,000 shares of common stock. During 2015, Sager paid $900,000
cash dividends on the common stock and $600,000 cash dividends on the preferred
stock. Net income for 2015 was $5,100,000 and the income tax rate was 40%. The
diluted earnings per share for 2015 is (rounded to the nearest penny)
a.$1.86
b.$2.62
c.$3.75
d.$4.25