The closing process brings all temporary accounts to a zero balance and updates the
balance in the retained earnings account.
Fundamental qualitative characteristics of accounting information are:
a. Relevance and comparability.
b. Comparability and consistency.
c. Faithful representation and relevance.
d. Neutrality and consistency.
An economic resource of an entity is:
a. A revenue.
b. An asset.
c. A liability.
d. A contra asset until used.
Refer to the following lease amortization schedule. The five payments are made
annually starting with the inception of the lease. A $2,000 bargain purchase option is
exercisable at the end of the five-year lease. The asset has an expected economic life of
eight years.
What would the lessee record as annual depreciation on the asset using the straight-line
method, assuming no residual value?
a. $3,325.
b. $6,920.
c. $4,325.
d. $5,320.
Blue Co. can estimate the amount of loss that will occur if a foreign government
expropriates some of the company’s assets in that country. If the likelihood of
expropriation is remote, a loss contingency should be:
a. Disclosed but not accrued as a liability.
b. Disclosed and accrued as a liability.
c. Accrued as liability but not disclosed.
d. Neither accrued as a liability nor disclosed.
According to International Financial Reporting Standards (IFRS), biological assets are
valued at:
a. Cost less accumulated depreciation.
b. Fair value less estimated costs to sell.
c. Cost less accumulated depletion.
d. None of these answer choices are correct.
Under its executive stock option plan, M Corporation granted options on January 1,
2016, that permit executives to purchase 15 million of the company’s $1 par common
shares within the next eight years, but not before December 31, 2018 (the vesting date).
The exercise price is the market price of the shares on the date of grant, $18 per share.
The fair value of the options, estimated by an appropriate option pricing model, is $4
per option. No forfeitures were anticipated; however, unexpected turnover during 2017
caused the forfeiture of 5% of the stock options. Ignoring taxes, what is the effect on
earnings in 2017?
a. $18.5 million.
b. $18 million.
c. $20 million.
d. $19 million.
Somerset Leasing received $12,000 for 24 months’ rent in advance. How should
Somerset record this transaction?
a. Prepaid rent 12,000 Rent expense
12,000
b. Cash 12,000 Deferred revenue
12,000
c. Interest expense 12,000 Interest payable
12,000
d. Salaries expense 12,000 Salaries payable
12,000
Summary data for Benedict Construction Co.’s (BCC) Job 1227, which was completed
in 2016, are presented below:
Assuming BCC recognizes revenue over time according to percentage of completion
for this contract, the gross profit recognized in 2015 would be (rounded to the nearest
thousand):
a. $33,000.
b. $36,000.
c. $69,000.
d. $30,000.
Rowdy’s Restaurants Cash Flow (in millions)
Rowdy’s would report net cash inflows (outflows) from operating activities in the
amount of:
a. $(80).
b. $120.
c. $200.
d. $420.
The following facts apply to TinyPart Toy Company’s pending litigation as of
December 31, 2016: a. TinyPart is defending against a lawsuit and believes there is a
51% chance it will lose in court. If it loses, TinyPart estimates that damages will be
$100,000.
b. TinyPart is defending against another lawsuit for which management believes it is
virtually certain to lose in court. If it loses the lawsuit, management estimates damages
will fall somewhere in the range of $30,000 to $50,000, with each amount in that range
equally likely to occur.
c. TinyPart is defending against another lawsuit that is identical to item (b), but the
relevant losses will only occur far into the future. The present values of the endpoints of
the range are $15,000 and $25,000. TinyPart’s management believes the effects of time
value of money on these amounts are material, but also believes the timing of these
amounts is uncertain.
d. TinyPart is defending against a fourth lawsuit and believes there is only a 25%
chance it will lose in court. If TinyPart loses, it believes damages will fall somewhere in
the range of $35,000 to $40,000, with each amount in that range equally likely to occur.
Indicate how TinyPart would disclose or account for the lawsuit described in part (a)
under U.S. GAAP and under IFRS in the financial statements for the year ended
December 31, 2016.
According to generally accepted accounting principles, accounting for postretirement
benefits other than pensions must adhere to the:
a. Accrual basis of accounting.
b. Cash basis of accounting.
c. Modified accrual basis.
d. Modified cash basis.
On July 1, 2016, Flay Foods issued $100 million of its 8%, bonds for $92 million. The
bonds were priced to yield 10%. The bonds are dated July 1, 2016. Interest is payable
semiannually on December 31 and June 30. Flay records interest at the effective rate.
Flay records interest at the effective rate. Required:
1> Prepare the journal entry to record interest on December 31, 2016 (the first interest
payment).
2> Prepare the journal entry to record interest on June 30, 2017 (the second interest
payment).
Listed below are 10 terms followed by a list of phrases that describe or characterize the
terms. Match each phrase with the number for the correct term.
Briefly describe why companies that use perpetual inventory systems must still perform
physical inventories.
Fully vested incentive stock options for 100,000 shares of common stock at an exercise
price of $50 were outstanding for the entire year. The market price of the stock during
the year averaged $56.
Required:
By how many shares will the assumed exercise of these options increase the
weighted-average number of shares outstanding when calculating diluted earnings per
share?
On May 1, 2016, Joe purchased $200,000 in zero-coupon bonds that mature on May 1,
2036. The bonds pay no interest during the period of time they are outstanding. The
interest rate for such borrowings is at 9%. Interest compounds annually.
Required: Calculate the price Joe paid for the bonds.