1) Under IFRS compliance requirements the revaluation surplus is not considered
contributed capital.
2) Companies recognize the accumulated benefit obligation in their accounts and in
their financial statements.
3) The first level of the conceptual framework identifies the recognition, measurement,
and disclosure concepts used in establishing accounting standards.
4) Under IFRS, if a company uses the revaluation model for fixed assets, companies
must revalue the class of assets regularly.
5) IFRS for leases is more rules-based than U.S. GAAP and includes many bright-line
criteria to determine ownership.
6) Companies must periodically review the estimated unguaranteed residual value in a
sales-type lease.
7) A company should report a restructuring charge as an extraordinary item because
these write-offs are not part of a companys ordinary and typical activities.
8) As rules for accounting for specific events sometimes differ across countries, the
double-entry accounting system is difficult to implement as the basis of worldwide
accounting system.
9) When stock dividends or stock splits occur, companies must restate the shares
outstand-ing after the stock dividend or split, in order to compute the weighted-average
number of shares.
10) Under IFRS, all troubled-debt restructurings are accounted for as extinguishments.
11) All cash dividends received by an investor from the investee decrease the
investments carrying value under the equity method.
12) Which of the following is not a correct statement about sales taxes?
a.Sales taxes are an expense of the seller
b.Many companies record sales taxes in the sales account
c.If sales taxes are included in the sales account, the first step to find the amount of
sales taxes is to divide sales by 1 plus the sales tax rate
d.Sales Taxes Payable is classified as a current liability
13) Under IFRS, which of the following current assets will be listed last in a statement
of financial position?
a.Inventory
b.Accounts Receivable
c.Short-term Investments Cash
d.Cash
14) When depreciation is computed for partial periods under a decreasing charge
depreciation method, it is necessary to
a.charge a full year’s depreciation to the year of acquisition
b.determine depreciation expense for the full year and then prorate the expense between
the two periods involved
c.use the straight-line method for the year in which the asset is sold or otherwise
disposed of
d.use a salvage value equal to the first year’s partial depreciation charge
15) Sutton Company sells plasma-screen televisions on an installment basis and
appropriately uses the installment-sales method of accounting. A customer with an
account balance of $2,400 refuses to make any more payments and the merchandise is
repossessed. The gross profit rate on the original sale is 40%. Sutton estimates that the
television can be sold as is for $750, or for $900 if $60 is spent to refurbish it. The loss
on repossession is
a. $1,650
b. $960
c. $ 690
d. $ 600
16) Reserve recognition accounting
a.is presently the generally accepted accounting method for financial reporting of oil
and gas reserves
b.is a historical cost method similar to the full cost approach and the successful efforts
approach
c.is used for reporting of oil and gas reserves for federal income tax purposes
d.requires estimates of future production costs, the appropriate discount rate, and the
expected selling price of oil and gas reserves
17) The current cash debt coverage is often used to assess
a.financial flexibility
b.liquidity
c.profitability
d.solvency
18) IFRS uses a fair value test to measure impairment loss. However, IFRS does not use
the first-stage recoverability test under U.S. GAAP – comparing the undiscounted cash
flow to the carrying amount. As a result, the IFRS test is
a.not as strict as U.S. GAAP
b.more strict than U.S. GAAP
c.essentially the same strictness as U.S. GAAP
d.None of the above
19) During 2014, Node Co. sold equipment that had cost $294,000 for $176,400. This
resulted in a gain of $12,900. The balance in Accumulated DepreciationEquipment was
$975,000 on January 1, 2014, and $930,000 on December 31 . No other equipment was
disposed of during 2014 . Depreciation expense for 2014 was
a.$45,000
b.$57,900
c.$85,500
d.$175,500
20) A company acquired a building, paying a portion of the purchase price in cash and
issuing a mortgage note payable to the seller for the balance.
In a statement of cash flows, what amount is included in investing activities for the
above transaction?
a.Cash payment
b.Acquisition price
c.Zero
d.Mortgage amount
21) The controller for Haley Corporation is concerned about certain business
transactions that the company experienced during 2015 . The controller, after discussing
these matters with various individuals, has come to you for advice. The transactions at
issue are presented below.
1>The company has decided to switch from the direct write-off method in accounting
for bad debt expense to the percentage-of-sales approach. Assume that Haley
Corporation has recognized bad debt expense as the receivables have actually become
uncollectible in the following way:
2014 2015
From 2012 sales31,80020,000
From 2013 sales45,000
The controller estimates that an additional $65,400 will be charged off in 2016: $11,400
applicable to 2014 sales and $54,000 to 2015 sales.
2>Inventory has been shipped on consignment. These transactions have been recorded
as ordinary sales and billed as such on account. At December 31, 2015, inventory billed
and in the hands of consignees amounted to $425,000. The percentage markup on
selling price is 20%. Assume that consigned inventory is sold the following year. The
company uses the perpetual inventory system.
3>During the current year, the company sold $600,000 of goods on the installment
basis. The cost of sales associated with these goods sold is $450,000. The company
inadvertently handled these sales and related costs as part of the regular sales
transactions. Cash of $172,000, including a down payment of $60,000, was collected on
these installment sales during the current year. Due to questionable collectibility, the
installmentsales method was considered appropriate.
Instructions
(a)Assume that Haley Corporation reported net income of $1,200,000 for 2015 . Present
a schedule showing the corrected net income after reviewing the above transactions.
(b)Prepare the journal entries necessary at December 31, 2015, assuming that the books
have been closed.
22) Alex Company prepares its statement of cash flows using the direct method for
operating activities. For the year ended December 31, 2015, Alex Company reports the
following activity:
Sales on account$1,400,000
Cash sales740,000
Decrease in accounts receivable610,000
Increase in accounts payable72,000
Increase in inventory48,000
Cost of good sold1,050,000
What is the amount of cash collections from customers reported by Alex Company for
the year ended December 31, 2015?
a.$2,140,000
b.$2,010,000
c.$2,750,000
d.$1,530,000
23) On January 1, 2010, Powell Company purchased a building and machinery that
have the following useful lives, salvage value, and costs.
Building, 25-year estimated useful life, $6,000,000 cost, $600,000 salvage value
Machinery, 10-year estimated useful life, $800,000 cost, no salvage value
The building has been depreciated under the straight-line method through 2014 . In
2015, the company decided to switch to the double-declining balance method of
depreciation for the building. Powell also decided to change the total useful life of the
machinery to 8 years, with a salvage value of $40,000 at the end of that time. The
machinery is depreciated using the straight-line method.
Instructions
(a)Prepare the journal entry necessary to record the depreciation expense on the
building in 2015 .
(b)Compute depreciation expense on the machinery for 2015 .
24) Which of the following best characterizes the difference between a financial
forecast and a financial projection?
a.Forecasts include a complete set of financial statements, while projections include
only summary financial data
b.A forecast is normally for a full year or more and a projection presents data for less
than a year
c.A forecast attempts to provide information on what is expected to happen, whereas a
projection may provide information on what is not necessarily expected to happen
d.A forecast includes data which can be verified about future expectations, while the
data in a projection is not susceptible to verification
25) A machine is purchased by making payments of $8,000 at the beginning of each of
the next five years. The interest rate was 10%. The future value of an ordinary annuity
of 1 for five periods is 6.10510. The present value of an ordinary annuity of 1 for five
periods is 3.79079. What was the cost of the machine?
a.$53,725
b.$48,841
c.$33,359
d.$30,327
26) The computation of pension expense includes all the following except
a.service cost component measured using current salary levels
b.interest on projected benefit obligation
c.expected return on plan assets
d.All of these are included in the computation
27) Hopkins Co. at the end of 2014, its first year of operations, prepared a
reconciliation between pretax financial income and taxable income as follows:
Pretax financial income$1,500,000
Estimated litigation expense2,000,000
Extra depreciation for taxes (3,000,000)
Taxable income$ 500,000
The estimated litigation expense of $2,000,000 will be deductible in 2015 when it is
expected to be paid. Use of the depreciable assets will result in taxable amounts of
$1,000,000 in each of the next three years. The income tax rate is 30% for all years.
Income taxes payable is
a.$0
b.$150,000
c.$300,000
d.$450,000
28) Presented below is information related to equipment owned by Porto Company at
December 31, 2014 .
Cost$7,000,000
Accumulated depreciation to date 800,000
Expected future net cash flows 5,000,000
Fair value 3,400,000
Assume that Porto will continue to use this asset in the future. As of December 31,
2014, the equipment has a remaining useful life of 4 years.
Instructions
(a)For Porto company, the recoverability test compares $______ to $______. As a
result, the asset ______ the recoverability test, because ______ is/are less than ______
so a ______ on impairment is recorded in 2014.
(b)Prepare the journal entry (if any) to record the impairment of the asset at December
31, 2014.
(c)Prepare the journal entry to record depreciation expense for 2015.
(d)The fair value of the equipment at December 31, 2015 is $4,100,000. Prepare the
journal entry (if any) necessary to record this increase in fair value.
29) A material item which is unusual in nature or infrequent in occurrence, but not both
should be shown in the income statement
Net of TaxDisclosed Separately
a.NoNo
b.YesYes
c.NoYes
d.YesNo
30) In 2015, the initial year of its existence, Dexter Company’s accountant, in preparing
both the income statement and the tax return, developed the following list of items
causing differences between accounting and taxable income:
1>The company sells its merchandise on an installment contract basis. In 2015, Dexter
elected, for tax purposes, to report the gross profit from these sales in the years the
receivables are collected. However, for financial statement purposes, the company
recognized all the gross profit in 2015 . These procedures created a $500,000 difference
between book and taxable incomes. The future collection of the installment contracts
receivables are expected to result in taxable amounts of $250,000 in each of the next
two years. (Note: the company treats installment contracts receivable as a current asset
on its balance sheet.)
2>The company has also chosen to depreciate all of its depreciable assets on an
accelerated basis for tax purposes but on a straight-line basis for accounting purposes.
These procedures resulted in $60,000 excess depreciation for tax purposes over
accounting depreciation. The temporary difference due to excess tax depreciation will
reverse equally over the three year period from 2016-2018.
3>Dexter leased some of its property to Baker Company on July 1, 2015 . The lease
was to expire on July 1, 2017 and the monthly rentals were to be $60,000. Baker,
however, paid the first year’s rent in advance and Dexter reported this entire amount on
its tax return. These procedures resulted in a $360,000 difference between book and
taxable incomes. (Note: this lease was an operating lease and Dexter classified the
unearned rent as a current liability on its balance sheet.)
4>Dexter owns $200,000 of bonds issued by the State of Oregon upon which 5%
interest is paid annually. In 2015, Dexter showed $10,000 of income from the bonds on
its income statement but did not show any of this amount on its tax return. (Note: these
bonds are classified as long-term investments on Dexter’s balance sheet.)
5>In 2015, Dexter insured the lives of its chief executives. The premiums paid
amounted to $12,000 and this amount was shown as an expense on the income
statement. However, this amount was not deducted on the tax return. The company is
the beneficiary.
Assuming that the income statement of Dexter Company showed “Income before
income taxes” of $1,500,000; that the enacted tax rates are 30% for all years; and that
no other differences between book and taxable incomes existed, except for those
mentioned above:
(a)Compute the income taxes payable.
(b)Prepare a schedule of future taxable and (deductible) amounts at the end of 2015 .
(c)Prepare a schedule of deferred tax (asset) and liability at the end of 2015 .
(d)Compute the net deferred tax expense (benefit) for 2015 .
(e)Make the journal entry recording income tax expense, income taxes payable, and
deferred income taxes for 2015 .
(f)Indicate how income tax expense and any deferred income taxes should be disclosed
on the financial statements under generally accepted accounting principles. Show the
amounts for these items and indicate specifically where they would be disclosed.
