1) The future value of a single sum is determined by multiplying the future value factor
by its present value.
2) In order to justify requiring a particular measurement or disclosure, the benefits to be
derived from it must equal the costs associated with it.
3) Short-term, highly liquid investments may be included with cash on the balance
sheet.
4) Timeliness and neutrality are two ingredients of relevance.
5) Bond issues that mature in installments are called serial bonds.
6) Changes in the fair value of a company’s available-for-sale debt instruments are
included as part of earnings in any given period.
7) IFRS does not permit the LIFO method to account for inventories.
8) Under IFRS, errors in financial statements are considered as an accounting change.
9) On the balance sheet, an adjunct account reduces either an asset, a liability, or an
owners equity account.
10) Plant assets purchased on long-term credit contracts should be accounted for at
a.the total value of the future payments
b.the future amount of the future payments
c.the present value of the future payments
d.None of these answers are correct
11) The following data are provided:
December 31
2015 2014
Cash$ 750,000$ 500,000
Accounts receivable (net)800,000600,000
Inventories1,300,0001,100,000
Plant assets (net)3,500,0003,250,000
Accounts payable550,000400,000
Income taxes payable100,00050,000
Bonds payable700,000700,000
10% Preferred stock, $50 par1,000,0001,000,000
Common stock, $10 par1,200,000900,000
Paid-in capital in excess of par800,000650,000
Retained earnings2,000,0001,750,000
Net credit sales6,400,000
Cost of goods sold4,200,000
Operating expenses1,450,000
Net income750,000
Additional information:
Depreciation included in cost of goods sold and operating expenses is $610,000. On
May 1, 2015, 30,000 shares of common stock were issued. The preferred stock is
cumulative. The preferred dividends were not declared during 2015 .
The inventory turnover for 2015 is
a.6,400 / 1,300
b.4,200 / 1,300
c.6,400 / 1,200
d.4,200 / 1,200
12) Johnstone Company has a loan receivable with a carrying value of $125,000 at
December 31, 2013 . On January 1, 2014, the borrower, Ralph Young Industries,
declares bankruptcy, and Johnstone estimates that it will collect only 45% of the loan
balance.
Which of the following entries would Johnstone make to record the impairment under
IFRS?
a.Loan Receivable56,250
Impairment Loss56,250
b.Loan Recovery Expense68,750
Loan Receivable68,750
c.Impairment Loss56,250
Loan Receivable56,250
d.Impairment Loss68,750
Loan Receivable68,750
13) The MD&A section of a company’s annual report is to cover the following three
items:
a.income statement, balance sheet, and statement of owners’ equity
b.income statement, balance sheet, and statement of cash flows
c.liquidity, capital resources, and results of operations
d.changes in the stock price, mergers, and acquisitions
14) On its December 31, 2014 balance sheet, Emig Corp. reported bonds payable of
$3,000,000 and related unamortized bond issue costs of $160,000. The bonds had been
issued at par. On January 2, 2015, Emig retired $1,500,000 of the outstanding bonds at
par plus a call premium of $35,000. What amount should Emig report in its 2015
income statement as loss on extinguishment of debt (ignore taxes)?
a.$0
b.$35,000
c.$80,000
d.$115,000
15) Seasons Construction is constructing an office building under contract for Cannon
Company. The contract calls for progress billings and payments of $1,240,000 each
quarter. The total contract price is $14,880,000 and Seasons estimates total costs of
$14,200,000. Seasons estimates that the building will take 3 years to complete, and
commences construction on January 2, 2014 .
At December 31, 2015, Seasons Construction estimates that it is 75% complete with the
building; however, the estimate of total costs to be incurred has risen to $14,400,000
due to unanticipated price increases. What is reported in the balance sheet at December
31, 2015 for Seasons as the difference between the Construction in Process and the
Billings on Construction in Process accounts, and is it a debit or a credit?
Difference between the accountsDebit/Credit
a. $3,380,000 Credit
b. $1,240,000 Debit
c. $880,000 Debit
d. $1,240,000 Credit
16) During the lifetime of an entity, accountants produce financial statements at
arbitrary points in time in accordance with which basic accounting concept?
a.Cost constraint
b.Periodicity assumption
c.Conservatism constraint
d.Expense recognition principle
17) On December 31, 2014, Houser Company granted some of its executives options to
purchase 90,000 shares of the company’s $50 par common stock at an option price of
$60 per share. The Black-Scholes option pricing model determines total compensation
expense to be $1,800,000. The options become exercisable on January 1, 2015, and
represent compensation for executives’ past and future services over a three-year period
beginning January 1, 2015 . What is the impact on Houser’s total stockholders’ equity
for the year ended December 31, 2014, as a result of this transaction under the fair
value method?
a.$1,800,000 decrease
b.$600,000 decrease
c.$0
d.$600,000 increase
18) The stockholders’ equity section of Gunkel Corporation as of December 31, 2014,
was as follows:
Common stock, par value $2; authorized 20,000 shares;
issued and outstanding 10,000 shares$ 20,000
Paid-in capital in excess of par30,000
Retained earnings 95,000
$145,000
On March 1, 2015, the board of directors declared a 15% stock dividend, and
accordingly 1,500 additional shares were issued. On March 1, 2015, the fair value of
the stock was $6 per share. For the two months ended February 28, 2015, Gunkel
sustained a net loss of $15,000.
What amount should Gunkel report as retained earnings as of March 1, 2015?
a.$71,000
b.$77,000
c.$81,000
d.$87,000
19) Kraft Company made the following journal entry in late 2014 for rent on property it
leases to Danford Corporation.
Cash120,000
Unearned Rent Revenue 90,000
The payment represents rent for the years 2015 and 2016, the period covered by the
lease. Kraft Company is a cash basis taxpayer. Kraft has income tax payable of
$184,000 at the end of 2014, and its tax rate is 35%.
What amount of income tax expense should Kraft Company report at the end of 2014?
a.$106,000
b.$142,000
c.$163,000
d.$226,000
20) Which of the following is an ingredient of faithful representation?
a.Predictive value
b.Materiality
c.Neutrality
d.Confirmatory value
21) Angst Company purchased equipment in January of 2004 for $200,000. The
equipment was being depreciated on the straight-line method over an estimated useful
life of 20 years, with no salvage value. At the beginning of 2014, when the equipment
had been in use for 10 years, the company paid $25,000 to overhaul the equipment. As a
result of this improvement, the company estimated that the useful life of the equipment
would be extended an additional 5 years. What should be the depreciation expense
recorded for this equipment in 2014?
a.$5,000
b.$8,333
c.$10,000
d.$6,667
22) Specify, to the left of each account, the letter of the financial statement
classification the account would appear in. Use only the classifications shown.
Balance SheetIncome and Retained Earnings Statement
a.Current Assetsj.Sales Revenue
b.Investmentsk.Cost of Goods Sold
c.Property, Plant, and Equipmentl. Operating Expenses
d.Intangible Assetsm.Other Revenues and Gains
e.Other Assetsn.Other Expenses and Losses
f.Current Liabilitieso.Extraordinary Item
g.Long-term Debtp.Retained Earnings Section
h.Capital Stockq.Not on the Statements
i.Retained Earnings
Account balances taken from the ledger of Morin Company on December 31, 2014
follow:
1> Common Stock, $10 par16> Inventory
2> Loss on Disposal of Equipment17> Salaries and Wages Expense
3> Buildings18> Merchandise on order with supplier
4> Office Expense19> Interest Revenue
5> Allowance for Doubtful Accounts20> Selling Expenses
6> Notes Payable (Short Term)21> Interest Expense
7> Accum. DepreciationBuildings22> Income Taxes Payable
8> Mortgage Payable due 201623> Insurance Expense
9> Depletion Expense24> Advertising Expense
10> Freight-Out25> Equity Investments
11> Sales Revenue26> Accounts Receivable
12> Dividends27> Land
13> Retained Earnings Dec. 31,28> Accounts Payable
2013
29> Error made in computing 2012
14> Cashdepreciation expense
15> Sales Discounts30> Gain on Redemption of
Debt
23) Santana Corporation has 400,000 shares of common stock outstanding throughout
2015 . In addition, the corporation has 5,000, 20-year, 9% bonds issued at par in 2013 .
Each $1,000 bond is convertible into 20 shares of common stock after 9/23/16. During
the year 2015, the corporation earned $750,000 after deducting all expenses. The tax
rate was 30%.
Instructions
Compute the proper earnings per share for 2015 .
24) Match the approach, IFRS or U.S. GAAP, with the location where tax effects are
reported:
25) Present, in journal form, the adjustments that would be made on July 31, 2015, the
end of the fiscal year, for each of the following.
1>The supplies inventory on August 1, 2014 was $9,350. Supplies costing $22,150
were acquired during the year and charged to the supplies inventory. A count on July
31, 2015 indicated supplies on hand of $8,810.
2>On April 30, a ten-month, 6% note for $30,000 was received from a customer.
3>On May 1, $12,000 was collected as rent for one year and a nominal account was
credited.
26) Shown below is an income statement for 2014 that was prepared by a poorly trained
bookkeeper of Howell Corporation.
Howell Corporation
INCOME STATEMENT
December 31, 2014
Sales revenue$ 885,000
Investment revenue19,500
Cost of goods sold(408,500)
Selling expenses(145,000)
Administrative expenses(195,000)
Interest expense (13,000)
Income before special items143,000
Special items
Loss on disposal of a component of the business(30,000)
Major casualty loss (extraordinary item)(50,000)
Net federal income tax liability (18,900)
Net income$ 44,100
Instructions
Prepare a multiple-step income statement for 2014 for Howell Corporation that is
presented in accordance with generally accepted accounting principles (including
format and terminology). Howell Corporation has 50,000 shares of common stock
outstanding and has a 30% federal income tax rate on all tax related items. Round all
earnings per share figures to the nearest cent.
27) The Public Company Accounting Oversight Board has oversight and enforcement
authority and establishes auditing and independence standards and rules.
28) Briefly describe some of the similarities and differences between U.S. GAAP and
IFRS with respect to the accounting for stockholders equity.
29) Vasquez Manufacturing Company decided to expand further by purchasing
Wasserman Company. The balance sheet of Wasserman Company as of December 31,
2015 was as follows:
Wasserman Company
Balance Sheet
December 31, 2015
AssetsLiabilities and Equities
Cash$ 210,000Accounts payable$ 375,000
Receivables550,000Common stock800,000
Inventory275,000Retained earnings 885,000
Plant assets (net) 1,025,000
Total assets$2,060,000Total liabilities and equities$2,060,000
An appraisal, agreed to by the parties, indicated that the fair value of the inventory was
$370,000 and that the fair value of the plant assets was $1,325,000. The fair value of the
receivables is equal to the amount reported on the balance sheet. The agreed purchase
price was $2,275,000, and this amount was paid in cash to the previous owners of
Wasserman Company.
Instructions
Determine the amount of goodwill (if any) implied in the purchase price of $2,275,000.
Show calculations.
30) Are all international companies subject to the same internal control
standards? Explain.
31) A trial balance before adjustment included the following:
Debit Credit
Accounts receivable$120,000
Allowance for doubtful accounts730
Sales$510,000
Sales returns and allowances8,000
Give journal entries assuming that the estimate of uncollectibles is determined by
taking (1) 5% of gross accounts receivable and (2) 1% of net sales.
