1) The Unrealized Holding Gain/LossEquity account is reported as a part of other
compre-hensive income.
2) When a change in the tax rate is enacted, the effect is reported as an adjustment to
income tax payable in the period of the change.
3) The laws of some states require that corporations restrict their legal capital from
distribution to stockholders.
4) Who owns the goods, as well as the costs to include in inventory, are essentially
accounted for the same under IFRS and U.S. GAAP.
5) The gross profit amount in a sales-type lease is greater when a guaranteed residual
value exists.
6) IFRS and U.S. GAAP are similar in the accounting for impairments of assets held for
disposal.
7) The accounting profession has adopted a current operating performance approach to
income reporting.
8) Participating preferred stock requires that if a company fails to pay a dividend in any
year, it must make it up in a later year before paying any common dividends.
9) The cost of an asset less its salvage value is its depreciation base.
10) U.S.GAAP permits the reversal of impairment losses recorded on receivables.
11) Companies usually make bond interest payments semiannually, although the interest
rate is generally expressed as an annual rate.
12) The transaction approach of income measurement focuses on the income-related
activities that have occurred during the period.
13) A machine cost $800,000 on April 1, 2014 . Its estimated salvage value is $80,000
and its expected life is eight years.
Instructions
(1)Calculate the depreciation expense (to the nearest dollar) by each of the following
methods, showing the figures used.
(a)Straight-line for 2014
(b)Double-declining balance for 2015
(c)Sum-of-the-years’-digits for 2015
(2)Which method would result in the smallest income amount for 2015?
14) MaBelle Corporation incurred the following costs in 2015:
Acquisition of R&D equipment with a useful life of
4 years in R&D projects$800,000
Start-up costs incurred when opening a new plant140,000
Advertising expense to introduce a new product700,000
Engineering costs incurred to advance a product to full
production stage500,000
What amount should MaBelle record as research & development expense in 2015?
a.$ 700,000
b.$ 940,000
c.$1,300,000
d.$1,440,000
15) Under IFRS, a decrease in economic benefit that results in a decrease in equity is
termed as a(an):
a.Loss of economic benefit
b.Comprehensive loss
c.Expense
d.Distributions to owners
16) A schedule of machinery owned by Micco Co. is presented below:
EstimatedEstimated
Total CostSalvage ValueLife in Years
Machine X$300,000$20,00012
Machine Y400,00040,00010
Machine Z150,00030,0006
Micco computes depreciation by the composite method.
The composite rate of depreciation (in percent) for these assets is
a.8.94
b.10.59
c.8.57
d.15.56
17) (a)Describe a deferred tax asset.
(b)When should a deferred tax asset be reduced by a valuation allowance?
18) Ortiz Co. had the following account balances:
Sales revenue$ 220,000
Cost of goods sold110,000
Salaries and wages expense15,000
Depreciation expense30,000
Dividend revenue6,000
Utilities expense12,000
Rent revenue30,000
Interest expense18,000
Sales returns and allow.16,500
Advertising expense19,500
What would Ortiz report as total revenues in a single-step income statement?
a.$239,500
b.$ 35,000
c.$236,000
d.$220,000
19) Lehman Corporation purchased a machine on January 2, 2013, for $3,000,000. The
machine has an estimated 5-year life with no salvage value. The straight-line method of
depreciation is being used for financial statement purposes and the following MACRS
amounts will be deducted for tax purposes:
2013$600,0002016$345,000
2014960,0002017345,000
2015576,0002018174,000
Assuming an income tax rate of 30% for all years, the net deferred tax liability that
should be reflected on Lehman’s balance sheet at December 31, 2014 be
Deferred Tax Liability
CurrentNoncurrent
a.$0$108,000
b.$7,200$100,800
c.$100,800$7,200
d.$108,000$0
20) Palco Co., which has a taxable payroll of $900,000, is subject to FUTA tax of 6.2%
and a state contribution rate of 5.4%. However, because of stable employment
experience, the companys state rate has been reduced to 2%. What is the total amount
of federal and state unemployment tax for Palco Co.?
a.$104,400
b.$73,800
c.$36,000
d.$25,200
21) Assume common stock is the only class of stock outstanding in the Manley
Corporation. Total stockholders’ equity divided by the number of common stock shares
outstanding is called
a.book value per share
b.par value per share
c.stated value per share
d.fair value per share
22) In preparing its May 31, 2014 bank reconciliation, Catt Co. has the following
information available:
Balance per bank statement, 5/31/14$35,000
Deposit in transit, 5/31/145,400
Outstanding checks, 5/31/144,900
Note collected by bank in May1,250
The correct balance of cash at May 31, 2014 is
a.$40,400
b.$34,250
c.$35,500
d.$36,750
23) Indicate the effect of each of the following transactions on total stockholders’ equity
by placing an “X” in the appropriate column.
IncreaseDecrease No Effect
1>Treasury stock is resold at more than cost.
2>Operating loss for the period.
3>Retirement of bonds payable at more than
book value.
4>Declaration of a stock dividend.
5>Acquisition of machinery for common stock.
6>Conversion of bonds payable into common
stock.
7>Not declaring a dividend on cumulative
preferred stock.
8>Declaration of cash dividend.
9>Payment of cash dividend.
24) Compare the fair value and equity methods of accounting for investments in stocks
subsequent to acquisition.
25) A record of transactions for the month of May was as follows:
PurchasesSales
May 1(balance) 400 @ $4.20May 3200 @ $7.00
41,300 @ $4.1061,000 @ 7.00
8800 @ $4.3012900 @ 7.50
14700 @ $4.4018400 @ 7.50
221,200 @ $4.50251,400 @ 8.00
29500 @ $4.55
Assuming that perpetual inventory records are kept in dollars, determine the ending
inventory using LIFO.
26) Fill in the blanks below with the accounting principle, assumption, or related item
that best completes the sentence.
1>________________________ and _______________________ are the two
fundamental qualities that make accounting information useful for decision making.
2>Information that helps users confirm or correct prior expectations has
_________________
___________________.
3>________________________ enables users to identify the real similarities and
differences in economic events between companies.
4>_________________ is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the
measurement date.
5>Information is _______________________ if omitting it or misstating it could
influence decisions that users make on the basis of the reported financial information.
6>The ________________________ characteristic requires that the same accounting
method be used from one accounting period to the next, unless it becomes evident that
an alternative method will bring about a better description of a firm’s financial situation.
7>____________________ means when in doubt, choose the solution that will be least
likely to overstate income and assets.
8>Providing information that is of sufficient importance to influence the judgement and
decisions of an informed user is referred to as _______________________.
9>Corporations must prepare accounting reports at least yearly due to the
_______________ assumption.
10>_________________ occurs when the performance obligation is satisfied.
27) The AICPA created the Accounting Principles Board in 1959 .
28) On December 31, 2014, Federal Bank enters into a debt restructuring agreement
with Carson Company which is experiencing financial difficulties. The bank
restructures a $5,000,000 note receivable by:
1>Reducing the principal obligation from $5,000,000 to $4,000,000.
2>Extending the maturity date from 12/31/14 to 12/31/17, and
3>Reducing the interest rate from 12% to 6%.
Interest has been paid up to date as of 12/31/14.
Instructions
Discuss the nature of this transaction, indicating whether any gain or loss is recognized
by either party and preparing any 12/31/14 journal entries that may be required by the
debtor (Carson).