Archives: Quiz

As of December 31, 2015, Gill Co. reported accounts receivable of $216,000 and an allowance for uncollectible accounts of $8,400. During 2016, accounts receivable increased by $22,000, and $7,800 of bad debts were written off. An analysis of Gill Co.’s […]

What is the effect of the error on Berkshire’s 12/31/2016 balance sheet? Berkshire Inc. uses a periodic inventory system. At the end of 2015, it missed counting some inventory items, resulting in an inventory understatement by $600,000. Assume that Berkshire […]

The asset/liability approach emphasizes: a. Whether amounts on the balance sheet meet the definitions of assets and liabilities. b. A close relation between the balance sheet and the statement of cash flows. c. The distinction between net assets and gross […]

When bonds are sold at a discount and the effective interest method is used, at each interest payment date, the interest expense: a. Increases. b. Decreases. c. Remains the same. d. Is equal to the change in book value. Which […]

Which of the following usually results in an increase in a deferred tax asset? a. Accelerated depreciation for tax reporting and straight-line depreciation for financial reporting. b. Prepaid insurance. c. Subscriptions delivered for which customers had paid in advance. d. […]

King Corporation has a defined benefit pension plan. One of its employees has vested benefits under the plan, which will pay him $40,000 annually for life starting with the first payment of $40,000 on the day he retires at the […]

If an available-for-sale investment is sold for which there are unrealized losses in accumulated other comprehensive income (AOCI), the total effect on total comprehensive income is: a. An increase. b. A decrease. c. No effect. d. Cannot be determined given […]

When tax rates are changed subsequent to the creation of a deferred tax asset or liability, GAAP requires that: a. All deferred tax accounts be adjusted to reflect the new tax rates. b. The beginning deferred tax accounts are left […]

Which of the following is not true about accounting for investments using the equity method under IFRS? a. IFRS requires the equity method when the investor exercises significant influence over the investee. b. IFRS is more restrictive than U.S. GAAP […]

Average accumulated expenditures: a. Is an approximation of the average debt a firm would have outstanding if it financed all construction through debt. b. Is computed as a simple average if all construction expenditures are made at the end of […]

On January 1, 2016, Green Corporation purchased 20% of the outstanding voting common stock of Gold Company for $300,000. The book value of the acquired shares was $275,000. The excess of cost over book value is attributable to an intangible […]

For 2016, Rahal’s Auto Parts estimates bad debt expense at 1% of credit sales. The company reported accounts receivable and an allowance for uncollectible accounts of $86,500 and $2,100, respectively, at December 31, 2015. During 2016, Rahal’s credit sales and […]

On December 15, 2016, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for $4,500,000. Rigsby appropriately uses the installment sales method of accounting for this transaction. Terms called for a down payment of $500,000 with the balance […]

Donated assets are recorded at: a. Zero (memo entry only). b. The donor’s book value. c. The donee’s stated value. d. Fair value. F Co. declares a 5% stock dividend. If the market price at declaration is $12 per share, […]

Jacobsen Corporation prepares its financial statement applying International Financial Reporting Standards. During its 2016 fiscal year, the company reported before-tax income of $620,000. This amount does not include the following two items, both of which are considered to be material […]

On January 1, 2016, Glanville Company sold goods to Otter Corporation. Otter signed an installment note requiring payment of $15,000 annually for six years. The first payment was made on January 1, 2016. The prevailing rate of interest for this […]

The Model Business Corporation Act: a. Uses the words “common” and “preferred” in describing distinguishing characteristics of stock. b. Defines legal capital as the amount of net assets not available for distribution to shareholders. c. Provides guidance for choosing an […]

Orange Inc. offers a discount on an extended warranty on its oPhone when the warranty is purchased at the time the oPhone is purchased. The warranty normally has a price of $150, but Orange offers it for $120 when purchased […]

Compared to the ABO, the PBO usually is: a. Larger. b. More reliable. c. Less relevant. d. More material. The compensation associated with restricted stock units (RSUs) under a stock award plan is: A. The book value of an unrestricted […]

B Company switched from the sum-of-the-years-digits depreciation method to straight-line depreciation in 2016. The change affects machinery purchased at the beginning of 2014 at a cost of $72,000. The machinery has an estimated life of five years and an estimated […]

Which of the following is considered a sale of receivables? a. Pledging receivables. b. Assigning receivables. c. Factoring receivables without recourse. d. None of these answer choices are correct. On June 1, 2016, Dirty Harry Co. borrowed cash by issuing […]

Nevada Boot Co. reported net income of $216,000 for its year ended December 31, 2016. Purchases totaled $152,000. Accounts payable balances at the beginning and end of the year were $36,000 and $33,000, respectively. Beginning and ending inventory balances were […]

Heidi Aurora Imports applies International Financial Reporting Standards. The company issued shares of the company”s Class B stock. Heidi Aurora Imports should report the stock in the company”s statement of financial position: a. Among liabilities if the shares are mandatorily […]

When bonds are sold at a premium and the effective interest method is used, at each subsequent interest payment date, the cash paid is: a. Less than the effective interest. b. Equal to the effective interest. c. Greater than the […]

On January 1, 2016, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $100,000. The 2016 ending inventory, valued at year-end costs, was $126,000. The relative cost index for this inventory in 2016 was 1.05. […]

All investments in debt and equity securities that don’t fit the definitions of the other reporting categories are classified as: a. Trading securities. b. Securities available for sale. c. Held-to-maturity securities. d. Consolidated securities. When computing the cost-to-retail percentage for […]

Bond X and bond Y both are issued by the same company. Each of the bonds has a maturity value of $100,000 and each pays interest at 8%. The current market rate of interest is 8% for each. Bond X […]

In its 2016 income statement, WME reported $11,000 of interest expense on its outstanding bonds. During the year, WME paid its regular installments of $9,000 of interest in cash. In its reconciliation schedule, WME should: Each year, White Mountain Enterprises […]

George Jones is planning on a cruise for his 70th birthday party. He wants to know how much he should set aside at the beginning of each month at 6% interest to accumulate the sum of $4,800 in five years. […]

Of the following, which typically would not be classified as a current liability? a. Estimated liability from cash rebate program. b. A long-term note payable maturing within the coming year. c. Rent revenue received in advance. d. A six-month bank […]

The first step, when using dollar-value LIFO retail method for inventory, is to: a. Determine the estimated ending inventory at current year retail prices. b. Determine the estimated cost of goods sold for the current year. c. Determine the cost-to-retail […]

When a company issues a stock dividend, which of the following would be affected? a. Earnings per share. b. Total assets. c. Total liabilities. d. Total shareholders’ equity. Kunkle Company wishes to earn 20% annually on its investments. If it […]

Compensating balances represent: a. Funds in a bank account that can’t be spent. b. Balances in a payroll checking account. c. Accounts that are subject to bank service charges. d. Accounts on which banks pay interest, e.g., NOW accounts. When […]

Accounting for the pledging of accounts receivable as collateral for a loan requires: a. Reporting the receivables net of the borrowed amount. b. Removal of the pledged receivables from current assets and including them with noncurrent investments. c. Disclosure of […]

Cutter Enterprises purchased equipment for $72,000 on January 1, 2016. The equipment is expected to have a five-year life and a residual value of $6,000. Using the sum-of-the-years’-digits method, depreciation for 2016 and book value at December 31, 2016, would […]

Accounts receivable are normally reported at the: a. Present value of future cash receipts. b. Current value plus accrued interest. c. Expected amount to be received. d. Current value less expected collection costs. When a deposit on returnable containers is […]

Which of the following accounts has a normal credit balance? a. Salary expense. b. Accrued income taxes payable. c. Land. d. Prepaid rent. On January 1, 2016, Solo Inc. issued 1,000 of its 8%, $1,000 bonds at 98. Interest is […]

The annual pension expense for what type of pension plan(s) is recorded by a journal entry that includes a debit to pension expense and a credit to a noncurrent liability? a. A defined benefit plan only. b. A defined contribution […]

For 2016, Rahal’s Auto Parts estimates bad debt expense at 1% of credit sales. The company reported accounts receivable and an allowance for uncollectible accounts of $86,500 and $2,100, respectively, at December 31, 2015. During 2016, Rahal’s credit sales and […]

On January 1, 2016, Everglade Company purchased the following securities and properly accounted for them as securities available for sale: All declines in value are considered temporary. What amount should the Everglade Company report relative to these securities in its […]

Disclosure notes related to a change in accounting principle under the retrospective approach should include: a. The effect of the change on executive compensation. b. The auditor’s approval of the change. c. The SEC’s permission to change. d. Justification for […]

In 2014, Winn, Inc., issued $1 par value common stock for $35 per share. No other common stock transactions occurred until July 31, 2016, when Winn acquired some of the issued shares for $30 per share and retired them. Which […]

Which of the following is not an example of a change in accounting principle? a. A change in the useful life of a depreciable asset. b. A change from LIFO to FIFO for inventory costing. c. A change to the […]

Which of the following is not true about deferred revenue? a. Deferred revenue with respect to gift cards is recognized as revenue when the gift cards expire. b. Deferred revenue is a liability. c. Deferred revenue is recognized on credit […]

Inventory does not include: a. Materials used in the production of goods to be sold. b. Assets intended to be sold in the normal course of business. c. The cost of office equipment. d. Assets currently in production for normal […]

After issuing its financial statements, a company discovered that its beginning inventory was overstated by $100,000. Its tax rate is 30%. As a result of this error, net income was: a. Understated by $70,000. b. Overstated by $70,000. c. Understated […]

Of the following, the most important objective for financial reporting is to provide information useful for: a. Making decisions. b. Determining taxable income. c. Providing accountability. d. Increasing future profits. A firm reported salary expense of $239,000 for the current […]

Which of the following does not apply to a seller who is a principal? a. Has control over goods or services b. Primarily responsible for providing goods or services to customer c. Exposed to risks associated with holding inventory d. […]

Present and future value tables of 1 at 11% are presented below. Polo Publishers purchased a multi-color offset press with terms of $50,000 down and a noninterest-bearing note requiring payment of $20,000 at the end of each year for five […]

Excerpts from Dowling Company’s December 31, 2016 and 2015, financial statements and key ratios are presented below (all numbers are in millions): Dowling’s 2016 average collection period is (rounded): a. 50 days. b. 63 days. c. 57 days. d. 51 […]