1) In the gross method, sales discounts are reported as a deduction from sales.
2) In order to make adequate disclosure of related party transactions, companies should
report the legal form, rather than the economic substance, of these transactions.
3) Trade loading is a practice through which manufacturers try to show sales, profits,
and market share they don’t actually have.
4) The primary purpose of a statement of cash flows is to report the cash effects of
operations during a period.
5) If a company plans to retire long-term debt from a bond retirement fund, it should
report the debt as current.
6) Companies should always offset interest revenue against interest cost when
determining the amount of interest to be capitalized as part of the construction cost of
assets.
7) Which of the following is not a basic element of financial statements?
a.Assets
b.Balance sheet
c.Losses
d.Revenue
8) When a portion of inventories has been pledged as security on a loan,
a.the value of the portion pledged should be subtracted from the debt
b.an equal amount of retained earnings should be appropriated
c.the fact should be disclosed but the amount of current assets should not be affected
d.the cost of the pledged inventories should be transferred from current assets to
noncurrent assets
9) A statement of cash flows typically would not disclose the effects of
a.capital stock issued at an amount greater than par value
b.stock dividends declared
c.cash dividends paid
d.a purchase and immediate retirement of treasury stock
10) A markup of 20% on cost is equivalent to what markup on selling price?
a.17%
b.20%
c.80%
d.83%
11) Which of the following is false regarding the accounting for pensions under IFRS
and U.S. GAAP?
a.Prior service cost is recognized on the balance sheet under U.S. GAAP only
b.Under U.S. GAAP companies must amortize actuarial gains and losses over the
expected service lives of employees
c.Prior service cost is amortized into income over the expected service lives of
employees under U.S. GAAP only
d.Under IFRS companies may recognize actuarial gains and losses in income
immediately
12) At the beginning of 2014, Wallace Corporation issued 10% bonds with a face value
of $3,000,000. These bonds mature in the five years, and interest is paid semiannually
on June 30 and December 31 . The bonds were sold for $2,779,200 to yield 12%.
Wallace uses a calendar-year reporting period. Using the effective-interest method of
amortization, what amount of interest expense should be reported for 2014? (Round
your answer to the nearest dollar.)
a.$344,160
b.$334,510
c.$333,500
d.$332,500
13) Dunston Company will receive $300,000 in a future year. If the future receipt is
discounted at an interest rate of 10%, its present value is $153,948. In how many years
is the $300,000 received?
a.5 years
b.6 years
c.7 years
d.8 years
14) Agler Corporation’s balance sheet reported the following:
Capital stock outstanding, 5,000 shares, par $30 per share$150,000
Paid-in capital in excess of par80,000
Retained earnings100,000
The following transactions occurred this year:
(a)Purchased 200 shares of capital stock to be held as treasury stock, paying $60 per
share.
(b)Sold 150 of the shares of treasury stock at $65 per share.
(c)Sold the remaining shares of treasury stock at $50 per share.
Instructions
Prepare the journal entry for these transactions under the cost method of accounting for
treasury stock.
15) Transactions for the month of June were:
PurchasesSales
June 1(balance) 1,600 @ $3.20June 21,200 @ $5.50
34,400 @ 3.1063,200 @ 5.50
72,400 @ 3.3092,000 @ 5.50
153,600 @ 3.4010800 @ 6.00
221,000 @ 3.50182,800 @ 6.00
25400 @ 6.00
Assuming that perpetual inventory records are kept in units only, the ending inventory
on an average-cost basis, rounded to the nearest dollar, is
a.$8,192
b.$8,476
c.$8,580
d.$8,644
16) When inventory declines in value below original (historical) cost, and this decline is
considered other than temporary, what is the maximum amount that the inventory can
be valued at?
a.Sales price
b.Net realizable value
c.Historical cost
d.Net realizable value reduced by a normal profit margin
17) Financial statements for Kiner Company are given below:
Kiner Company
Balance Sheet
January 1, 2015
AssetsEquities
Cash$ 640,000Accounts payable$ 304,000
Accounts receivable576,000
Buildings and equipment2,400,000
Accumulated depreciation
buildings and equipment(800,000)Common stock1,840,000
Patents 288,000Retained earnings 960,000
$3,104,000$3,104,000
Kiner Company
Statement of Cash Flows
For the Year Ended December 31, 2015
Increase (Decrease) in Cash
Cash flows from operating activities
Net income$800,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accounts receivable$(256,000)
Increase in accounts payable128,000
Depreciationbuildings and equipment240,000
Gain on sale of equipment(96,000)
Amortization of patents 32,000 48,000
Net cash provided by operating activities848,000
Cash flows from investing activities
Sale of equipment192,000
Purchase of land(400,000)
Purchase of buildings and equipment (768,000)
Net cash used by investing activities(976,000)
Cash flows from financing activities
Payment of cash dividend(240,000)
Sale of common stock 640,000
Net cash provided by financing activities 400,000
Net increase in cash272,000
Cash, January 1, 2015 640,000
Cash, December 31, 2015$912,000
Total assets on the balance sheet at December 31, 2015 are $4,432,000. Accumulated
deprecia-tion on the equipment sold was $224,000.
The balance in the Retained Earnings account at December 31, 2015 was
a.$720,000
b.$1,760,000
c.$1,520,000
d.$2,000,000
18) At December 31, 2014, the following information was available from Kohl Co.’s
accounting records:
Cost Retail
Inventory, 1/1/14$147,000$ 203,000
Purchases833,0001,155,000
Additional markups 42,000
Available for sale$980,000$1,400,000
Sales for the year totaled $1,200,000. Markdowns amounted to $10,000. Under the
lower-of-cost-or-market method, Kohl’s inventory at December 31, 2014 was
a.$294,000
b.$147,000
c.$140,000
d.$133,000
19) Presented below is information related to Hale Corporation:
Common Stock, $1 par$4,500,000
Paid-in Capital in Excess of ParCommon Stock550,000
Preferred 8 1/2% Stock, $50 par2,000,000
Paid-in Capital in Excess of ParPreferred Stock400,000
Retained Earnings1,500,000
Treasury Common Stock (at cost)150,000
The total paid-in capital (cash collected) related to the common stock is
a.$4,500,000
b.$5,050,000
c.$5,450,000
d.$4,900,000
20) When a company has a policy of making sales for which credit is extended, it is
reasonable to expect a portion of those sales to be uncollectible. As a result of this, a
company must recognize bad debt expense. There are basically two methods of
recognizing bad debt expense: (1) direct write-off method, and (2) allowance method.
Instructions
(a)Describe fully both the direct write-off method and the allowance method of
recognizing bad debt expense.
(b)Discuss the reasons why one of the above methods is preferable to the other and the
reasons why the other method is not usually in accordance with generally accepted
accounting principles.
21) The following data are provided:
December 31
2015 2014
Cash$ 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 accounts receivable turnover for 2015 is
a.6,400 / 800
b.4,200 / 800
c.6,400 / 700
d.4,200 / 700
22) Equity securities acquired by a corporation which are accounted for by recognizing
unrealized holding gains or losses as other comprehensive income and as a separate
component of stockholders’ equity are
a.available-for-sale securities where a company has holdings of less than 20%
b.trading securities where a company has holdings of less than 20%
csecurities where a company has holdings of between 20% and 50%
d.securities where a company has holdings of more than 50%
23) Kern Company purchased bonds with a face amount of $800,000 between interest
payment dates. Kern purchased the bonds at 102, paid brokerage costs of $12,000, and
paid accrued interest for three months of $20,000. The amount to record as the cost of
this long-term investment in bonds is
a.$848,000
b.$828,000
c.$816,000
d.$800,000
24) Inventory may be recorded at net realizable value if
a.there is a controlled market with a quoted price
b.there are no significant costs of disposal
c.the inventory consists of precious metals or agricultural products
d.All of these answers are correct
25) What is disclosed in an income statement? Be specific.
26) Selected financial statement information and additional data for Johnston
Enterprises is presented below. Prepare a statement of cash flows for the year ending
December 31, 2014
Johnston Enterprises
Balance Sheet and Income Statement Data
December 31,December 31,
2014 2013___
Current Assets:
Cash$143,000$119,000
Accounts Receivable228,000306,000
Inventory 391,000 340,000
Total Current Assets762,000765,000
Property, Plant, and Equipment1,261,0001,122,000
Less: Accumulated Depreciation (476,000) (442,000)
Total Assets$1,547,000$1,445,000
Current Liabilities:
Accounts Payable$187,000$102,000
Notes Payable51,00068,000
Income Taxes Payable 85,000 76,500
Total Current Liabilities323,000246,500
Bonds Payable350,000391,000
Total Liabilities673,000637,500
Stockholders’ Equity:
Common Stock510,000467,500
Retained Earnings364,000340,000
Total Stockholders’ Equity 874,000 807,500
Total Liabilities & Stockholders’ Equity$1,547,000$1,445,000
Sales Revenue1,615,000$1,513,000
Less Cost of Goods Sold781,000731,000
Gross Profit834,000782,000
Expenses:
Depreciation Expense153,000136,000
Salaries and Wages Expense391,000357,000
Interest Expense34,00034,000
Loss on Sale of Equipment 12,000 0
Income Before Taxes244,000255,000
Less Income Tax Expense 98,000 102,000
Net Income$146,000$153,000
Additional Information:
During the year, Johnston sold equipment with an original cost of $133,000 and
accumulated depreciation of $119,000 and purchased new equipment for $272,000.
27) Flint Department Store wishes to use the retail LIFO method of valuing inventories
for 2015 . The appropriate data are as follows:
At Cost At Retail
December 31, 2014 inventory (base layer)$1,250,000$2,100,000
Purchases (net of returns, allowances, markups, and markdowns)2,100,0003,500,000
Sales revenue3,290,000
Price index for 2015105
Instructions
Complete the following schedule (fill in all blanks and show calculations in the
parentheses):
Computation of Retail Inventory for 2015 Cost Retail Ratio
Inventory, December 31, 2014$1,250,000$2,100,000
Purchases (net of returns, allowances,
markups, and markdowns)%
Total available$
____________________________________
Inventory, December 31, 2015, at retail$
Adjustment of Inventory to LIFO Basis Cost Retail
Ending inventory at base year prices$
()
Beginning inventory at base year prices$
Increase at base year prices$
Increase at 2015 retail()$
Increase at 2015 cost()
Inventory, December 31, 2015, at LIFO cost$
28) Alice, Inc. has the following deferred tax assets at December 31, 2014:
What amount would Alice, Inc. report as a current deferred tax asset under IFRS and
under U.S. GAAP?
_IFRS_U.S. GAAP
a$510,000$510,000
b.$0$255,000
c.$255,000 $510,000
d.$510,000$255,000
29) During periods of rising prices, the use of FIFO (as compared with LIFO) will
result in what effect on the financial statements?
30) The stockholders’ equity section of Benton Corporation’s balance sheet as of
December 31, 2014 is as follows:
Stockholders’ Equity
Common stock, $5 par value; authorized, 2,000,000 shares;
issued, 400,000 shares$2,000,000
Paid-in capital in excess of par850,000
Retained earnings 3,000,000
$5,850,000
The following events occurred during 2015:
1>Jan. 530,000 shares of authorized and unissued common stock were sold for $8 per
share.
2>Jan. 16Declared a cash dividend of 20 cents per share, payable February 15 to
stock-holders of record on February 5 .
3>Feb. 1040,000 shares of authorized and unissued common stock were sold for $12
per share.
4>March 1A 30% stock dividend was declared and issued. Fair value per share is
currently $15.
5>April 1A two-for-one split was carried out. The par value of the stock was to be
reduced to $2.50 per share. Fair value on March 31 was $18 per share.
6>July 1A 15% stock dividend was declared and issued. Fair value is currently $10 per
share.
7>Aug. 1A cash dividend of 20 cents per share was declared, payable September 1 to
stockholders of record on August 21 .
Instructions
Enter the above events into the following work sheet showing how each event affects
the column. Event No. 1 will serve as an example.
Common Stock
No. ofTotalPaid-in Capital In
ItemShares Issued Par Value Excess of ParRetained Earnings
Beginning Balance1/1/13400,000$2,000,000$850,000$3,000,000
Event #1Jan. 5 30,000 150,000 90,000 -0-
Balance430,000$2,150,000$940,000$3,000,000
Event # 2Jan. 16 (and events 3 through 7)