1) According to the FASB, redeemable preferred stock should be
a.included with common stock
b.included as a liability
c.excluded from the stockholders equity heading
d.included as a contra item in stockholders’ equity
2) Harris Co. takes a full year’s depreciation expense in the year of an asset’s acquisition
and no depreciation expense in the year of disposition. Data relating to one of Harris’s
depreciable assets at December 31, 2015 are as follows:
Acquisition year2013
Cost$210,000
Residual value30,000
Accumulated depreciation144,000
Estimated useful life5 years
Using the same depreciation method as used in 2013, 2014, and 2015, how much
depreciation expense should Harris record in 2016 for this asset?
a.$24,000
b.$36,000
c.$42,000
d.$48,000
3) The following information is available for Ace Company for 2014:
Disbursements for purchases$1,360,000
Increase in trade accounts payable100,000
Decrease in merchandise inventory40,000
Cost of goods sold for 2014 was
a.$1,500,000
b.$1,420,000
c.$1,300,000
d.$1,220,000
4) One of the elements of financial statements is comprehensive income. As described
in Statement of Financial Accounting Concepts No. 6, “Elements of Financial
Statements,” comprehensive income is equal to
a.revenues minus expenses plus gains minus losses
b.revenues minus expenses plus gains minus losses plus investments by owners minus
distributions to owners
c.revenues minus expenses plus gains minus losses plus investments by owners minus
distributions to owners plus assets minus liabilities
d.None of these answer choices are correct
5) Perry Corp. reports operating expenses in two categories: (1) selling and (2) general
and administrative. The adjusted trial balance at December 31, 2014, included the
following expense accounts:
Accounting and legal fees$280,000
Advertising240,000
Freight-out150,000
Interest120,000
Loss on sale of long-term investments60,000
Officers’ salaries360,000
Rent for office space360,000
Sales salaries and commissions270,000
One-half of the rented premises is occupied by the sales department.
How much of the expenses listed above should be included in Perry’s selling expenses
for 2014?
a.$510,000
b.$660,000
c.$690,000
d.$840,000
6) Keck Co. had 150 units of product A on hand at January 1, 2014, costing $21 each.
Purchases of product A during January were as follows:
DateUnitsUnit Cost
Jan. 10200$22
1825023
2810024
A physical count on January 31, 2014 shows 200 units of product A on hand. The cost
of the inventory at January 31, 2014 under the LIFO method is
a.$4,700
b.$4,450
c.$4,250
d.$4,100
7) Lester Company received a seven-year zero-interest-bearing note on February 22,
2014, in exchange for property it sold to Porter Company. There was no established
exchange price for this property and the note has no ready market. The prevailing rate
of interest for a note of this type was 7% on February 22, 2014, 7.5% on December 31,
2014, 7.7% on February 22, 2015, and 8% on December 31, 2015. What interest rate
should be used to calculate the interest revenue from this transaction for the years ended
December 31, 2014 and 2015, respectively?
a.0% and 0%
b.7% and 7%
c.7% and 7.7%
d.7.5% and 8%
8) Darren Company becomes aware of a lawsuit after the date of the financial
statements, but before they are issued. A loss and related liability should be reported in
the financial statements if the amount can be reasonably estimated, an unfavorable
outcome is highly probable, and
a.the Darren Company admits guilt
b.the court will decide the case within one year
c.the damages appear to be material
d.the cause for action occurred during the accounting period covered by the financial
statements
9) An article in Dun’s Review made the following comments:
“Every other year, say, companies should print the notes in big type
and the base figures in smaller ones.”
Instructions
(a)Are notes considered as part of the financial statements and what basic purpose do
they serve?
(b)What are the general types of notes?
10) In a sale-leaseback transaction where none of the four leasing criteria are satisfied,
which of the following is false?
a.The seller-lessee removes the asset from its books
b.The purchaser-lessor records a gain
c.The seller-lessee records the lease as an operating lease
d.All of the answers are false statements