1) Lewis Company traded machinery with a book value of $760,000 and a fair value of
$720,000. It received in exchange from Timmons Company a machine with a fair value
of $800,000. Lewis also paid cash of $80,000 in the exchange. Timmonss machine has
a book value of $760,000. What amount of gain or loss should Lewis recognize on the
exchange (assuming lack of commercial substance)?
a.$80,000 gain
b.$ -0-
c.$4,000 loss
d.$40,000 loss
2) Daily, Inc. appropriately used the installment method of accounting to recognize
income in its financial statement. Some pertinent data relating to this method of
accounting include:
20142015
Installment sales$750,000$900,000
Cost of sales 450,000 630,000
Gross profit$300,000$270,000
Collections during year:
On 2014 sales200,000200,000
On 2015 sales240,000
What amount to be realized gross profit should be reported on Dailys income statement
for 2015?
a.$132,000
b.$152,000
c.$176,000
d.$216,000
3) The relationship between the amount funded and the amount reported for pension
expense is as follows:
a.pension expense must equal the amount funded
b.pension expense will be less than the amount funded
c.pension expense will be more than the amount funded
d.pension expense may be greater than, equal to, or less than the amount funded
4) Included in Vernon Corp.’s liability account balances at December 31, 2014, were the
following:
7% note payable issued October 1, 2014, maturing September 30, 2015$250,000
8% note payable issued April 1, 2014, payable in six equal annual
installments of $150,000 beginning April 1, 2015600,000
Vernon’s December 31, 2014 financial statements were issued on March 31, 2015 . On
January 15, 2015, the entire $600,000 balance of the 8% note was refinanced by
issuance of a long-term obligation payable in a lump sum. In addition, on March 10,
2015, Vernon consummated a noncancelable agreement with the lender to refinance the
7%, $250,000 note on a long-term basis, on readily determinable terms that have not yet
been implemented. On the December 31, 2014 balance sheet, the amount of the notes
payable that Vernon should classify as short-term obligations is
a.$175,000
b.$125,000
c.$50,000
d.$0
5) Sandstrom Corporation has an extraordinary loss of $200,000, an unusual gain of
$140,000, and a tax rate of 40%. At what amount should Sandstrom report each item?
Extraordinary lossUnusual gain
a.$(200,000)$140,000
b.(200,000)84,000
c.(120,000)140,000
d.(120,000)84,000
6) IFRS for revenue recognition
a.is enforced by an international enforcement body, the IASB, which is comparable to
the U.S. SEC
b.bases revenue recognition on the concepts of earned and realized or realizable
c.permits use of the completed-contract method when costs are difficult to estimate
d.contains limited industry-specific guidance
7) The principal disadvantage of using the percentage-of-completion method of
recognizing revenue from long-term contracts is that it
a.is unacceptable for income tax purposes
b.gives results based upon estimates which may be subject to considerable uncertainty
c.is likely to assign a small amount of revenue to a period during which much revenue
was actually earned
d.None of these answers are correct
8) The if-converted method of computing earnings per share data assumes conversion
of convertible securities as of the
a.beginning of the earliest period reported (or at time of issuance, if later)
b.beginning of the earliest period reported (regardless of time of issuance)
c.middle of the earliest period reported (regardless of time of issuance)
d.ending of the earliest period reported (regardless of time of issuance)
9) A machine with a five-year estimated useful life and an estimated 10% salvage value
was acquired on January 1, 2013 . The depreciation expense for 2015 using the
double-declining balance method would be original cost multiplied by
a.90% x 40% x 40%
b.60% x 60% x 40%
c.90% x 60% x 40%
d.40% x 40%
10) Which of the following facts concerning plant assets should be included in the
summary of significant accounting policies?
Depreciation MethodComposition
a.NoYes
b.YesYes
c.YesNo
d.NoNo
11) Grant, Inc. had 60,000 shares of treasury stock ($10 par value) at December 31,
2014, which it acquired at $11 per share. On June 4, 2015, Grant issued 30,000 treasury
shares to employees who exercised options under Grant’s employee stock option plan.
The market value per share was $13 at December 31, 2014, $15 at June 4, 2015, and
$18 at December 31, 2015 . The stock options had been granted for $12 per share. The
cost method is used. What is the balance of the treasury stock on Grant’s balance sheet
at December 31, 2015?
a.$210,000
b.$270,000
c.$330,000
d.$360,000
12) A general journal
a.chronologically lists transactions and other events, expressed in terms of debits and
credits
b.contains one record for each of the asset, liability, stockholders equity, revenue, and
expense accounts
c.lists all the increases and decreases in each account in one place
d.contains only adjusting entries
13) Harrel Company acquired a patent on an oil extraction technique on January 1,
2014 for $6,250,000. It was expected to have a 10 year life and no residual value.
Harrel uses straight-line amortization for patents. On December 31, 2015, the expected
future cash flows expected from the patent were expected to be $750,000 per year for
the next eight years. The present value of these cash flows, discounted at Harrels market
interest rate, is $3,500,000. At what amount should the patent be carried on the
December 31, 2015 balance sheet?
a.$6,250,000
b.$6,000,000
c.$5,000,000
d.$3,500,000
14) During the year, Kiner Company made an entry to write off a $16,000 uncollectible
account. Before this entry was made, the balance in accounts receivable was $200,000
and the balance in the allowance account was $18,000. The net realizable value of
accounts receivable after the write-off entry was
a.$200,000
b.$198,000
c.$166,000
d.$182,000
15) In preparing a statement of cash flows, which of the following transactions would
be considered an investing activity?
a.Sale of equipment at book value
b.Sale of merchandise on credit
c.Declaration of a cash dividend
d.Issuance of bonds payable at a discount
16) All units in a multiple-deliverable arrangement are considered separate units of
accounting, provided that:
a.the customer can avail the unit from a third party
b.the arrangement includes a general right of repurchase relative to the delivered item
c.the seller is the sole manufacturer of the separate unit
d.performance of the undelivered item is in the control of the buyer
17) How is days to collect accounts receivable determined?
a.365 days divided by accounts receivable turnover
b.Net sales divided by 365
c.Net sales divided by average net trade receivables
d.Accounts receivable turnover divided by 365 days
18) An improvement made to a machine increased its fair value and its production
capacity by 25% without extending the machine’s useful life. The cost of the
improvement should be
a. expensed
b.debited to accumulated depreciation
c.capitalized in the machine account
d.allocated between accumulated depreciation and the machine account
19) How should a “gain” from the sale of treasury stock be reflected when using the
cost method of recording treasury stock transactions?
a.As ordinary earnings shown on the income statement
b.As paid-in capital from treasury stock transactions
c.As an increase in the amount shown for common stock
d.As an extraordinary item shown on the income statement
20) Which basic assumption may not be followed when a firm in bankruptcy reports
financial results?
a.Economic entity assumption
b.Going concern assumption
c.Periodicity assumption
d.Monetary unit assumption