1) In selecting an accounting method for a newly contracted long-term construction
project, the principal factor to be considered should be
a.the terms of payment in the contract
b.the degree to which a reliable estimate of the costs to complete and extent of progress
toward completion is practicable
c.the method commonly used by the contractor to account for other long-term
construction contracts
d.the inherent nature of the contractor’s technical facilities used in construction
2) RS Corporation, a manufacturer of ethnic foods, contracted in 2014 to purchase 600
pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of 2015 .
By 12/31/14, the price per pound of the spice mixture had risen to $5.40 per pound. In
2014, RS should recognize
a.a loss of $3,000
b.a loss of $240
c.no gain or loss
d.a gain of $240
3) Lower-of-cost-or-market
a.is most conservative if applied to the total inventory
b.is most conservative if applied to major categories of inventory
c.is most conservative if applied to individual items of inventory
d.must be applied to major categories for taxes
4) Nolte Co. has 4,500,000 shares of common stock outstanding on December 31,
2014 . An additional 200,000 shares are issued on April 1, 2015, and 480,000 more on
September 1 . On October 1, Nolte issued $6,000,000 of 9% convertible bonds. Each
$1,000 bond is convertible into 40 shares of common stock. No bonds have been
converted. The number of shares to be used in computing basic earnings per share and
diluted earnings per share on December 31, 2015 is
a.4,810,000 and 4,810,000
b.4,810,000 and 4,870,000
c.4,810,000 and 5,050,000
d.5,580,000 and 5,020,000
5) Generally, revenue from sales should be recognized at a point when
a.management decides it is appropriate to do so
b.the product is available for sale to the ultimate consumer
c.the entire amount receivable has been collected from the customer and there remains
no further warranty liability
d.None of these answer choices are correct
6) An analysis of stockholders’ equity of Hahn Corporation as of January 1, 2014, is as
follows:
Common stock, par value $20; authorized 100,000 shares;
issued and outstanding 90,000 shares$1,800,000
Paid-in capital in excess of par800,000
Retained earnings 760,000
Total$3,360,000
Hahn uses the cost method of accounting for treasury stock and during 2014 entered
into the following transactions:
Acquired 2,500 shares of its stock for $75,000.
Sold 2,000 treasury shares at $35 per share.
Sold the remaining treasury shares at $20 per share.
Assuming no other equity transactions occurred during 2014, what should Hahn report
at December 31, 2014, as total additional paid-in capital?
a.$795,000
b.$800,000
c.$805,000
d.$815,000
7) The following information is available for October for Barton Company.
Beginning inventory$250,000
Net purchases750,000
Net sales1,500,000
Percentage markup on cost 66.67%
A fire destroyed Bartons October 31 inventory, leaving undamaged inventory with a
cost of $15,000. Using the gross profit method, the estimated ending inventory
destroyed by fire is
a.$85,000
b.$385,000
c.$400,000
d.$500,000
8) A limitation of the balance sheet that is not also a limitation of the income statement
is
a.the use of judgments and estimates
b.omitted items
c.the numbers are affected by the accounting methods employed
d.valuation of items at historical cost
9) During 2015, Bond Company purchased the net assets of May Corporation for
$2,000,000. On the date of the transaction, May had $600,000 of liabilities. The fair
value of May’s assets when acquired were as follows:
Current assets$ 1,080,000
Noncurrent assets 2,520,000
$3,600,000
How should the $1,000,000 difference between the fair value of the net assets acquired
($3,000,000) and the cost ($2,000,000) be accounted for by Bond?
a.The $1,000,000 difference should be credited to retained earnings
b.The $1,000,000 difference should be recognized as a gain
c.The current assets should be recorded at $1,080,000 and the noncurrent assets should
be recorded at $1,520,000
d.A deferred credit of $1,000,000 should be set up and then amortized to income over a
period not to exceed forty years
10) Consider each of the items below. Place the proper letter in the blank space
provided to indicate the nature of the account or accounts to be debited when recording
each transaction using the preferred accounting treatment. Prepayments should be
recorded in balance sheet accounts. Disregard income tax considerations unless
instructed otherwise.
a.asset(s) only
b.accumulated amortization, depletion, or depreciation only
c.expense only
d.asset(s) and expense
e.some other account or combination of accounts
1> A motor in one of North Companys trucks was overhauled at a cost of $600. It is
expected that this will extend the life of the truck for two years.
2> Machinery which had originally cost $130,000 was rearranged at a cost of $450,
including installation, in order to improve production.
3> Orlando Company recently purchased land and two buildings for a total cost of
$35,000, and entered the purchase on the books. The $1,200 cost of razing the smaller
building, which has an appraisal value of $6,200, is recorded.
4> Jantzen Company traded its old machine with a net book value of $3,000 plus cash
of $7,000 for a new one which had a fair market value of $9,000.
5> Jim Parra and Mary Lawson, maintenance repair workers, spent five days in
unloading and setting up a new $6,000 precision machine in the plant. The wages
earned in this five-day period, $480, are recorded.
6> On June 1, the Milton Hotel installed a sprinkler system throughout the building at a
cost of $13,000. As a result the insurance rate was decreased by 40%.
7> An improvement, which extended the life but not the usefulness of the asset, cost
$6,000.
8> The attic of the administration building was finished at a cost of $3,000 to provide
an additional office.
9> In March, the Lyon Theatre bought projection equipment on the installment basis.
The contract price was $23,610, payable $5,610 down, and $2,250 a month for the next
eight months. The cash price for this equipment was $22,530.
10> Lambert Company recorded the first years interest on 6% $100,000 ten-year bonds
sold a year ago at 94 . The bonds were sold in order to finance the construction of a
hydroelectric plant. Six months after the sale of the bonds, the construction of the
hydroelectric plant was completed and operations were begun. (Only cash interest, and
not discount amortization, is to be considered.)