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1) The IFRS statement of recognized income and expenses is identical to the U.S.
GAAP statement of retained earnings - beginning balance retained earnings, plus net
income, less dividends, equals ending balance retained earnings.
2) The ending retained earnings balance is reported on both the retained earnings
statement and the balance sheet.
3) IFRS does not intend to issue detailed guidance on the selection of a discount rate
when the time value of money is required to determine cash flows.
4) Prior service cost is recognized on the balance sheet under both U.S. GAAP and
IFRS.
5) An adjusted trial balance that shows equal debit and credit columnar totals proves the
accuracy of the adjusting entries.
6) An unrealized holding gain or loss is the net change in the fair value of the liability
from one period to another, exclusive of interest expense recognized but not recorded.
7) The tax effect of a loss carryforward represents future tax savings and results in the
recognition of a deferred tax asset.
8) If a company sells its product but gives the buyer the right to return it, the company
should not recognize revenue until the sale is collected.
9) Common stock is the residual corporate interest that bears the ultimate risks of loss.
10) Laventhol Corporation had accounts receivable of $100,000 at 1/1. The only
transactions affecting accounts receivable were sales of $1,200,000 and cash collections
of $1,150,000. The accounts receivable turnover is
a.8.0
b.8.8
c.9.6
d.12.0
11) When a corporation pays a note payable and interest,
a.the account notes payable will be increased
b.the account interest expense will be decreased
c.they will debit notes payable and interest expense
d.they will debit cash
12) Which of the following is true regarding the statement of cash flows and IFRS?
a.Cash and cash equivalents are defined differently under IFRS than under U.S. GAAP
b.Companies preparing a complete set of financial statements under IFRS may exclude
the statement of cash flows if the cash flow activity is reported in the notes to the
financial statements
c.Under IFRS most companies choose to use the direct method of reporting cash flows
from operating activities
d. Under IFRS noncash investing and financing activities are excluded from the
statement of cash flows and instead are presented in the notes to the financial
statements
13) Which of the following is a general limitation of "general purpose financial
statements"?
a.General purpose financial statements may not be the most informative for a specific
enterprise
b.General purpose financial statements are not comparable
c.General purpose financial statements do not fairly present a company's financial
operations
d.None of the answer choices are correct
14) Given the acquisition cost of product ALPHA is $34, the net realizable value for
product ALPHA is $33.50, the normal profit for product ALPHA is $2.50, and the
market value (replacement cost) for product ALPHA is $29.50, what is the proper per
unit inventory price for product ALPHA?
a.$34.00
b.$31.00
c.$29.50
d.$33.50
15) Mays Company has a machine with a cost of $500,000 which also is its fair value
on the date the machine is leased to Park Company. The lease is for 6 years and the
machine is estimated to have an unguaranteed residual value of $50,000. If the lessors
interest rate implicit in the lease is 12%, the six beginning-of-the-year lease payments
would be
a.$115,451
b.$103,082
c.$97,725
d.$83,333
16) Kant Corporation retires its $300,000 face value bonds at 102 on January 1,
following the payment of interest. The carrying value of the bonds at the redemption
date is $288,750. The entry to record the redemption will include a
a.credit of $11,250 to Loss on Bond Redemption
b.credit of $11,250 to Discount on Bonds Payable
c.debit of $17,250 to Gain on Bond Redemption
d.debit of $16,000 to Premium on Bonds Payable
17) At 12/31/14, the end of Jenner Company's first year of business, inventory was
$4,100 and $2,800 at cost and at market, respectively.
Following is data relative to the 12/31/15 inventory of Jenner:
OriginalNetNet RealizableAppropriate
CostReplacementRealizableValue LessInventory
ItemPer Unit Cost Value Normal Profit Value
A$ .65$ .45
B.45.40
C.70.75
D.75.65
E.90.85
Selling price is $1.00/unit for all items. Disposal costs amount to 10% of selling price and
a "normal" profit is 30% of selling price. There are 1,000 units of each item in the
12/31/15 inventory.
Instructions
(a)Prepare the entry at 12/31/14 necessary to implement the lower-of-cost-or-market
procedure assuming Jenner uses a contra account for its balance sheet.
(b)Complete the last three columns in the 12/31/15 schedule above based upon the
lower-of-cost-or-market rules.
(c)Prepare the entry(ies) necessary at 12/31/15 based on the data above.
(d)How are inventory losses disclosed on the income statement?
18) Altman Company will invest $700,000 today. The investment will earn 6% for 5
years, with no funds withdrawn. In 5 years, the amount in the investment fund is
a.$700,000
b.$910,000
c.$936,761
d.$938,203
19) What might a manager do during the last quarter of a fiscal year if she wanted to
decrease current annual net income?
a.Delay shipments and sales to customers until after the end of the fiscal year
b.Relax credit policies for customers
c.Pay suppliers all amounts owed
d.Delay purchases from suppliers until after the end of the fiscal year
20) When a company has cash available in another account in the same bank at which
an overdraft has occurred, the company will:
a.offset the overdraft against cash account
b.report the same in the notes to financial statement
c.report the bank overdraft amount as account payable
d.classify the bank overdraft as compensating balance
21) On February 1, 2014, Henson Company factored receivables with a carrying
amount of $500,000 to Agee Company. Agee Company assesses a finance charge of 3%
of the receivables and retains 5% of the receivables. Relative to this transaction, you are
to determine the amount of loss on sale to be reported in the income statement of
Henson Company for February.
Assume that Henson factors the receivables on a without recourse basis. The loss to be
reported is
a.$0
b.$15,000
c.$25,000
d.$40,000
22) In accounting for internally generated intangible assets, U.S. GAAP requires that
a.all costs, no matter how immaterial, be capitalized
b.only material costs be capitalized
c.planned costs be capitalized, while costs in excess of plan be expensed
d.all costs be expensed
23) Stock that has a fixed per-share amount printed on each stock certificate is called
a.stated value stock
b.fixed value stock
c.uniform value stock
d.par value stock
24) IFRS allows reversal of impairment losses when
a.the reversal is greater than the amount of the original impairment
b.the reversal falls in a subsequent fiscal year of the company's operations
c.there has been a change in economic conditions or in the expected use of the asset
d.reversal of impairment losses is never allowed
25) According to Statement of Financial Accounting Concepts No. 2, materiality is an
ingredient of the fundamental quality of
RelevanceFaithful Representation
a.YesYes
b.NoYes
c.YesNo
d.NoNo
26) Fulton Company owns the following investments:
Trading securities (fair value)$140,000
Available-for-sale securities (fair value)70,000
Held-to-maturity securities (amortized cost)94,000
Fulton will report investments in its current assets section of
a.$0
b.exactly $140,000
c.$140,000 or an amount greater than $140,000, depending on the circumstances
d.exactly $210,000
27) Santo Corporation declares and distributes a cash dividend that is a result of current
earnings. How will the receipt of those dividends affect the investment account of the
investor under each of the following accounting methods?
Fair Value MethodEquity Method
a.No EffectDecrease
b.IncreaseDecrease
c.No EffectNo Effect
d.DecreaseNo Effect
28) Financial reports in the early 21st century did not provide any information about a
companys soft assets (intangibles).
29) Presented below are three independent, unrelated statements regarding the
formulation of generally accepted accounting principles. Each statement contains some
incorrect or debatable statement(s).
Statement I
The users of financial accounting statements have coinciding and conflicting needs for
statements of various types. To meet these needs, and to satisfy the financial reporting
responsibility of management, accountants prepare different sets of financial statements
for different users.
Statement II
The FASB should be responsive to the needs and viewpoints of the entire economic
community, not just the public accounting profession. The FASB therefore will succeed
because it will deal effectively with all interested groups.
Statement III
The Securities and Exchange Commission is very concerned about financial reporting and
has formulated a committee called the Accounting Standards Executive Committee
(AcSEC). This will provide input to the FASB. In addition, after each FASB Statement is
issued, the AcSEC issues Statements of Position stating its position on the FASB
statement.
Instructions
Evaluate each of the independent statements and identify the areas of fallacious reasoning
in each. Explain why the reasoning is incorrect. Complete your discussion of each
statement before proceeding to the next statement.
30) Recently, a group of university students decided to incorporate for the purposes of
selling a process to recycle the waste product from manufacturing cheese. Some of the
initial costs involved were legal fees and office expenses incurred in starting the
business, state incorporation fees, and stamp taxes. One student wishes to charge these
costs against revenue in the current period. Another wishes to defer these costs and
amortize them in the future. Which student is correct and why?
31) Grier & Associates maintains its records on the cash basis. You have been engaged
to convert its cash basis income statement to the accrual basis. The cash basis income
statement, along with additional information, follows:
Grier & Associates
Income Statement (Cash Basis)
For the Year Ended December 31, 2014
Cash receipts from customers$450,000
Cash payments:
Salaries and wages$170,000
Income taxes65,000
Insurance40,000
Interest 25,000 300,000
Net income$150,000
Additional information:
Balances at 12/31
2014 2013
Accounts receivable$50,000$30,000
Salaries and wages payable10,00020,000
Income taxes payable24,00019,000
Prepaid insurance8,0004,000
Accumulated depreciation95,00075,000
Interest payable3,0009,000
No plant assets were sold during 2014 .
32) The stockholders' equity section of Carey Co.'s balance sheet at December 31,
2014, was as follows:
Common stock--$10 par (authorized 1,000,000 shares,
issued and outstanding 600,000 shares)$ 6,000,000
Paid-in capital in excess of par1,500,000
Retained earnings 3,250,000
$10,750,000
Instructions
Prepare journal entries ( 1, 2, and 4 ) and show proper disclosure (3) to reflect the
following treasury stock transactions showing how each is accounted for under the cost
method. (Show computations.)
1>On January 4, 2015, having idle cash, Carey Co. repurchased 25,000 shares of its
out-standing stock for $500,000.
2>On March 4, Carey sold 5,000 of these reacquired shares at $24 per share.
3>Show the proper disclosures in the stockholders' equity section of the balance sheet
issued at the end of the first quarter, March 31, 2015 . Assume net income of $100,000
during the first quarter.
4>On June 30, 2015 the firm sold 10,000 of the reacquired shares for $17 per share.
