1) On January 1, 2014, Ogleby Corporation signed a five-year noncancelable lease for
equipment. The terms of the lease called for Ogleby to make annual payments of
$90,000 at the beginning of each year for five years with title passing to Ogleby at the
end of this period. The equipment has an estimated useful life of 7 years and no salvage
value. Ogleby uses the straight-line method of depreciation for all of its fixed assets.
Ogleby accordingly accounts for this lease transaction as a capital lease. The minimum
lease payments were determined to have a present value of $375,289 at an effective
interest rate of 10%.
With respect to this capitalized lease, for 2014 Ogleby should record
a.rent expense of $90,000
b.interest expense of $28,529 and depreciation expense of $75,058
c.interest expense of $28,529 and depreciation expense of $53,613
d.interest expense of $45,000 and depreciation expense of $90,978
2) Information for Ramirez Corp. is given below:
Ramirez Corp.
Balance Sheet
December 31, 2015
AssetsEquities
Cash$ 200,000Accounts payable$ 420,000
Accounts receivable (net)1,300,000Income taxes payable126,000
Inventories1,626,000Miscellaneous accrued payables150,000
Plant and equipment,Bonds payable (10%, due 2017)1,250,000
net of depreciation1,322,000Preferred stock ($100 par, 6%
Patents174,000cumulative nonparticipating)500,000
Other intangible assets 50,000Common stock (no par, 30,000
Total Assets$4,672,000shares authorized, issued
and outstanding)750,000
Retained earnings1,626,000
Treasury stock1,000 shares
of preferred (150,000)
Total Equities$4,672,000
Ramirez Corp.
Income Statement
Year Ended December 31, 2015
Net sales$6,000,000
Cost of goods sold 4,000,000
Gross profit2,000,000
Operating expenses (including bond interest expense) 1,000,000
Income before income taxes 1,000,000
Income tax 300,000
Net income$ 700,000
Additional information:
There are no preferred dividends in arrears, the balances in the Accounts Receivable
and Inventory accounts are unchanged from January 1, 2015, and there were no changes
in the Bonds Payable, Preferred Stock, or Common Stock accounts during 2015 .
Assume that preferred dividends for the current year have not been declared.
At December 31, 2015, the current ratio was
a.1,500 / 420
b.4,450 / 546
c.3,126 / 546
d.3,126 / 696
3) Kessler, Inc. received the following information from its pension plan trustee
concerning the operation of the company’s defined-benefit pension plan for the year
ended December 31, 2015:
January 1, 2015December 31, 2015
Projected benefit obligation$2,500,000$2,850,000
Fair value of plan assets1,250,0001,600,000
Accumulated benefit obligation 1,930,0002,620,000
Accumulated OCI – (PSC) 540,000 300,000
The service cost component for 2015 is $140,000 and the amortization of prior service
cost is $240,000. The company’s actual funding of the plan in 2015 amounted to
$500,000. The expected return on plan assets and the settlement rate were both 8%.
Instructions
(a)Determine the pension expense to be reported in 2015 .
(b)Prepare the journal entry to record pension expense and the employers’ contribution
to the pension plan in 2015 .
4) Which of the following transactions would best use the present value of an annuity
due of 1 table?
a.Fernetti, Inc. rents a truck for 5 years with annual rental payments of $20,000 to be
made at the beginning of each year
b.Edmiston Co. rents a warehouse for 7 years with annual rental payments of $120,000
to be made at the end of each year
c.Durant, Inc. borrows $20,000 and has agreed to pay back the principal plus interest in
three years
d.Babbitt, Inc. wants to deposit a lump sum to accumulate $50,000 for the construction
of a new parking lot in 4 years
5) The following information relates to the pension plan for the employees of Turner
Co.:
1/1/14 12/31/14 12/31/15
Accum. benefit obligation$6,160,000$6,440,000$8,400,000
Projected benefit obligation6,510,0006,972,0009,338,000
Fair value of plan assets5,950,0007,280,0008,036,000
AOCI – net (gain) or loss-0-(1,008,000)(1,120,000)
Settlement rate (for year)11%11%
Expected rate of return (for year)8%7%
Turner estimates that the average remaining service life is 16 years. Turner’s
contribution was $882,000 in 2015 and benefits paid were $658,000.
The actual return on plan assets in 2015 is
a.$476,000
b.$532,000
c.$686,000
d.$756,000
6) Sealy Corporation had the following information in its financial statements for the
years ended 2014 and 2015:
Cash dividends for the year 2015$ 5,000
Net income for the year ended 201587,000
Market price of stock, 12/31/1410
Market price of stock, 12/31/1512
Common stockholders equity, 12/31/141,000,000
Common stockholders equity, 12/31/151,200,000
Outstanding shares, 12/31/15100,000
Preferred dividends for the year ended 201510,000
What is the payout ratio for Sealy Corporation for the year ended 2015?
a.13.0%
b. 5.7%
c. 6.5%
d.17.2%
7) Deposits held as compensating balances
a.usually do not earn interest
b.if legally restricted and held against short-term credit may be included as cash
c.if legally restricted and held against long-term credit may be included among current
assets
d.none of these answers are correct
8) Frank Company reported the following data:
20142015
Sales$3,000,000$4,200,000
Net Income300,000400,000
Assets at year end1,800,0002,500,000
Liabilities at year end1,100,0001,500,000
What is Franks asset turnover for 2015?
a.1.68
b.1.72
c.1.95
d.2.33
9) Neutrality is an ingredient of which fundamental quality of information?
a.Faithful representation
b.Comparability
c.Relevance
d.Understandability
10) AG Inc. made a $15,000 sale on account with the following terms: 2/10, n/30. If the
company uses the net method to record sales made on credit, what is/are the debit(s) in
the journal entry to record the sale?
a.Debit Accounts Receivable for $14,700
b.Debit Accounts Receivable for $14,700 and Sales Discounts for $300
c.Debit Accounts Receivable for $15,000
d.Debit Accounts Receivable for $15,000 and Sales Discounts for $300
11) How does failure to record accrued revenue distort the financial reports?
a.It understates revenue, net income, and current assets
b.It understates net income, stockholders equity, and current liabilities
c.It overstates revenue, stockholders equity, and current liabilities
d.It understates current assets and overstates stockholders equity
12) Durler Company traded machinery with a book value of $720,000 and a fair value
of $1,200,000. It received in exchange from Hoyle Company a machine with a fair
value of $1,080,000 and cash of $120,000. Hoyles machine has a book value of
$1,140,000. What amount of gain should Durler recognize on the exchange (assuming
lack of commercial substance)?
a.$ -0-
b.$48,000
c.$120,000
d.$480,000
13) What are compensated absences?
a.Unpaid time off
b.A form of healthcare
c.Payroll deductions
d.Paid time off
14) Holland Company estimates its annual warranty expense as 2% of annual net sales.
The following data relate to the calendar year 2014:
Net sales$1,500,000
Warranty liability account
Balance, Dec. 31, 2014$10,000debit before adjustment
Balance, Dec. 31, 201420,000credit after adjustment
Which one of the following entries was made to record the 2014 estimated warranty
expense?(assume the accrual method)
a.Warranty Expense 30,000
Retained Earnings (prior-period adjustment) 5,000
Warranty Liability 25,000
b.Warranty Expense 25,000
Retained Earnings (prior-period adjustment) 5,000
Warranty Liability 30,000
c.Warranty Expense 20,000
Warranty Liability 20,000
d.Warranty Expense 30,000
Warranty Liability 30,000
15) Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2015
for the purpose of leasing a machine to be used in its manufacturing operations. The
following data pertain to the agreement:
(a)The term of the noncancelable lease is 3 years with no renewal option. Payments of
$287,432 are due on January 1 of each year.
(b)The fair value of the machine on January 1, 2015, is $800,000. The machine has a
remaining economic life of 10 years, with no salvage value. The machine reverts to the
lessor upon the termination of the lease.
(c)Alt depreciates all machinery it owns on a straight-line basis.
(d)Alts incremental borrowing rate is 10% per year. Alt does not have knowledge of the
8% implicit rate used by Yates.
(e)Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in
a suit which is sufficiently material to make collectibility of future lease payments
doubtful.
Future Value of Ordinary Annuity of 1
Period 5% 6% 8% 10% 12%
11.000001.000001.000001.000001.00000
22.050002.060002.080002.100002.12000
33.152503.183603.246403.310003.37440
44.310134.374624.506114.641004.77933
55.525635.637095.866606.105106.35285
66.801916.975327.335927.715618.11519
78.142018.393848.922809.4871710.08901
89.549119.8974710.6366311.4358912.29969
911.0265611.4913212.4875613.5794814.77566
1012.5778913.1807914.4865615.9374317.54874
Present Value of an Ordinary Annuity of 1
Period 5% 6% 8% 10% 12%
1.95238.94340.92593.90909.89286
21.859411.833391.783261.735541.69005
32.723252.673012.577102.486852.40183
43.545953.465113.312133.169863.03735
54.329484.212363.992713.790793.60478
65.075694.917324.622884.355264.11141
75.786375.582385.206374.868424.56376
86.463216.209795.746645.334934.96764
97.107826.801696.246895.759025.32825
107.721737.360096.710086.144575.65022
If Yates records this lease as a direct-financing lease, what amount would be recorded
as Lease Receivable at the inception of the lease?
a.$287,432
b.$786,282
c.$800,000
d.$862,296
16) Which of the following is a characteristic of a current liability but not a long-term
liability?
a.Unavoidable obligation
b.Present obligation that entails settlement by probable future transfer or use of cash,
goods, or services
c.Liquidation is reasonably expected to require use of existing resources classified as
current assets or create other current liabilities
d.Transaction or other event creating the liability has already occurred
17) The covenants and other terms of the agreement between the issuer of bonds and
the lender are set forth in the
a.bond indenture
b.bond debenture
c.registered bond
d.bond coupon
18) Equestrain Roads accepted a customer’s $50,000 zero-interest-bearing six-month
note payable in a sales transaction. The product sold normally sells for $46,000. If the
sale was made on June 30, how much interest revenue from this transaction would be
recorded for the year ending December 31?
a.$0
b.$2,000
c.$4,000
d.$5,000
19) On January 1, 2015, Reston Company purchased 25% of Ace Corporation’s
common stock; no goodwill resulted from the purchase. Reston appropriately carries
this investment at equity and the balance in Restons investment account was $1,120,000
at December 31, 2015 . Ace reported net income of $700,000 for the year ended
December 31, 2015, and paid common stock dividends totaling $280,000 during 2015 .
How much did Reston pay for its 25% interest in Ace?
a.$1,015,000
b.$1,190,000
c.$1,225,000
d.$1,365,000