1) Liquidity refers to the ability of an enterprise to pay its debts as they mature.
2) Service cost is the expense caused by the increase in the accumulated benefit
obligation because of employees service during the current year.
3) Under the loss carryback approach, companies must apply a current year loss to the
most recent year first and then to an earlier year.
4) Prudence or conservatism means when in doubt, choose the solution that will be least
likely to overstate liabilities or expenses.
5) When buying receivables with recourse, the purchaser assumes the risk of
collectibility and absorbs any credit loss.
6) If 10 percent or more of company revenue is derived from a single customer, the
company must disclose the total amount of revenue from each such customer by
segment.
7) A short-term obligation can be excluded from current liabilities if the company
intends to refinance it on a long-term basis and demonstrates the ability to consummate
the refinancing.
8) In a basket purchase, the cost of the individual assets acquired is determined on the
basis of their relative sales value.
9) The primary advantage of the multiple-step format lies in the simplicity of
presentation and the absence of any implication that one type of revenue or expense
item has priority over another.
10) The same recoverability test that is used for impairments of property, plant, and
equipment is used for impairments of indefinite-life intangibles.
11) Companies must disclose a reconciliation of how the projected benefit obligation
and the fair value of plan assets changed during the year either in their financial
statements or in the notes.
12) Companies recognize a gain or loss when stockholders exercise convertible
preferred stock.
13) Under IFRS, all potential liabilities associated with uncertain tax positions are
recognized.
14) Why would a company sell receivables to another company?
a.To improve the quality of its credit granting process
b.To limit its legal liability
c.To accelerate access to amounts collected
d.To comply with customer agreements
15) On December 31, 2014, Green Company finished consultation services and
accepted in exchange a promissory note with a face value of $600,000, a due date of
December 31, 2017, and a stated rate of 5%, with interest receivable at the end of each
year. The fair value of the services is not readily determinable and the note is not
readily marketable. Under the circumstances, the note is considered to have an
appropriate imputed rate of interest of 10%.
The following interest factors are provided:
Interest Rate
Table Factors For Three Periods 5% 10%
Future Value of 11.157631.33100
Present Value of 1.86384.75132
Future Value of Ordinary Annuity of 13.152503.31000
Present Value of Ordinary Annuity of 12.723252.48685
Instructions
(a)Determine the present value of the note.
(b)Prepare a Schedule of Note Discount Amortization for Green Company under the
effective interest method. (Round to whole dollars.)
(c)Explain how the accounting for a zero-interest-bearing note would differ in (a) and
(b) above.
16) Given below are the present value factors for $1.00 discounted at 10% for one to
five periods.
Present Value of $1
PeriodsDiscounted at 10% per Period
10.909
20.826
30.751
40.683
50.621
What amount should be deposited in a bank today to grow to $6,000 three years from
today?
a.$6,000 / 0.751
b.$6,000 x 0.909 x 3
c.($6,000 x 0.909) + ($6,000 x 0.826) + ($6,000 x 0.751)
d.$6,000 x 0.751
17) Which of the following contingencies need not be disclosed in the financial
statements or the related notes?
a.Probable losses not reasonably estimable
b.Environmental liabilities that cannot be reasonably estimated
c.Guarantees of indebtedness of others
d.All of these must be disclosed.
18) Kiner, Inc. began work in 2014 on a contract for $16,800,000. Other data are as
follows:
2014 2015
Costs incurred to date$7,200,000$11,200,000
Estimated costs to complete4,800,000
Billings to date5,600,00016,800,000
Collections to date4,000,00014,400,000
If Kiner uses the completed-contract method, the gross profit to be recognized in 2015
is
a.$2,720,000
b.$5,600,000
c.$2,800,000
d.$11,200,000
19) Which of the following is not a part of generally accepted accounting principles?
a.The FASB Interpretations
b.The CAP Accounting Research Bulletins
c.The APB Opinions
d.All of these are part of generally accepted accounting principles
20) During 2014, Kimmel Co. incurred weighted-average accumulated expenditures of
$800,000 during construction of assets that qualified for capitalization of interest. The
only debt outstanding during 2014 was a $1,000,000, 10%, 5-year note payable dated
January 1, 2012 . What is the amount of interest that should be capitalized by Kimmel
during 2014?
a.$0
b.$20,000
c.$80,000
d.$100,000
21) Plank Co. uses the retail inventory method. The following information is available
for the current year.
Cost Retail
Beginning inventory$ 234,000$366,000
Purchases885,0001,245,000
Freight-in15,000
Employee discounts6,000
Net markups45,000
Net markdowns60,000
Sales revenue1,170,000
If the ending inventory is to be valued at approximately LIFO cost, the calculation of
the cost ratio should be based on cost and retail amounts of
a.$1,134,000 and $1,656,000
b.$1,134,000 and $1,596,000
c.$900,000 and $1,230,000
d.$900,000 and $1,290,000
22) Barton Company, a company who maintains its accounting records using IFRS,
manufactures furniture. Barton sells a $90,000 order to Save-A Lot Furniture in
exchange for a zero-interest-bearing note due from the customer in two years. Since
there is no stated interest rate on the note, the controller uses the current market rate of
8% to derive the present value factor. Based on this information and the incorporation
of the time value of money, which of the following would be recorded by Barton to
recognize this sale?
a.A credit to Discount on Notes Receivable for $12,839
b.A credit to Sales Revenue for $90,000
c.A debit to Notes Receivable for $77,161
d.A debit to Discount on Notes Receivable for $7,200
23) What is “recourse” as it relates to selling receivables?
a.The obligation of the seller of the receivables to pay the purchaser in case the debtor
fails to pay
b.The obligation of the purchaser of the receivables to pay the seller in case the debtor
fails to pay
c.The obligation of the seller of the receivables to pay the purchaser in case the debtor
returns the product related to the sale
d.The obligation of the purchaser of the receivables to pay the seller if all of the
receivables are collected
24) 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
25) When valuing raw materials inventory at lower-of-cost-or-market, what is the
meaning of the term “market”?
a.Net realizable value
b.Net realizable value less a normal profit margin
c.Current replacement cost
d.Discounted present value