1) Which of the following is a condition for accruing a liability for the cost of
compensation for future absences?
a.The obligation relates to the rights that vest or accumulate
b.Payment of the compensation is probable
c.The obligation is attributable to employee services already performed
d.All of these are conditions for the accrual
2) Which of the following must be considered in estimating depreciation on an asset for
an accounting period?
a.The original cost of the asset
b.Its useful life
c.The decline of its fair value
d.Both the original cost of the asset and its useful life
3) Leeper Corporation incurred the following costs in 2015:
Acquisition of R&D equipment with a useful life of
4 years in R&D projects$900,000
Cost of making minor modifications to an existing product140,000
Advertising expense to introduce a new product700,000
Engineering costs incurred to advance a product to full
production stage750,000
What amount should Leeper record as research & development expense in 2015?
a.$ 975,000
b.$1,040,000
c.$1,450,000
d.$1,740,000
4) The following information was taken from the 2015 financial statements of Jenny
Gardner Corporation:
Inventory, January 1, 2015$ 90,000
Inventory, December 31, 2015120,000
Accounts payable, January 1, 2015 75,000
Accounts payable, December 31, 2015120,000
Sales revenue 600,000
Cost of goods sold400,000
If the direct method is used in the 2015 statement of cash flows, what amount should
Jenny Gardner report as cash payments to suppliers?
a.$395,000
b.$415,000
c.$445,000
d.$475,000
5) A machine which cost $300,000 is acquired on October 1, 2014 . Its estimated
salvage value is $30,000 and its expected life is eight years.
Instructions
(1)Calculate depreciation expense for 2014 and 2015 by each of the following methods,
showing the figures used.
(a)Double-declining balance
(b)Sum-of-the-years’-digits
(2)At the end of 2015, which method results in the larger accumulated depreciation
amount?
6) The balance in Common Stock Dividend Distributable should be reported as a(n)
a.deduction from common stock issued
b.addition to capital stock
c.current liability
d.contra current asset
7) Eaton Company, which uses the retail LIFO method to determine inventory cost, has
provided the following information for 2014:
Cost Retail
Inventory, 1/1/14$ 188,000$280,000
Net purchases756,0001,124,000
Net markups136,000
Net markdowns60,000
Net sales1,060,000
Assuming stable prices (no change in the price index during 2014), what is the cost of
Eaton’s inventory at December 31, 2014?
a.$256,200
b.$276,200
c.$272,000
d.$264,600
8) Sawyer Corporation has a machine (Machine A) that it acquired on 1/1/14 for
$540,000. On 12/31/14 such machines have a selling price and fair value of $621,000.
When used in production, such machines have an estimated useful life of 10 years with
no salvage value. Use the straight-line method.
Brown Corporation has a machine (Machine B) that it acquired on 1/1/14 for $729,000.
On 12/31/14 such machines have a selling price and fair value of $540,000. When used
in production, such machines have an estimated useful life of 10 years with no salvage
value. Use the straight-line method.
On 12/31/14 Brown gave Machine B plus $81,000 cash to Sawyer in return for
Machine A.
Return to the original problem. Assume that Sawyer is a dealer selling new machines
and that Brown is a manufacturer. Assume that the exchange has commercial substance.
For this transaction, at what amount will Sawyer record the truck?
a.$540,000
b.$737,100
c.$621,000
d.$656,100
9) Welch Company purchased a put option on Reese common shares on July 7, 2015,
for $215. The put option is for 300 shares, and the strike price is $51. The option
expires on July 31, 2015 . The following data are available with respect to the put
option:
DateMarket Price of Reese SharesTime Value of Put Option
March 31, 2015$49 per share$120
June 30, 2015$50 per share56
July 6, 2015$46 per share21
Instructions
Prepare the journal entries for Welch Company for the following dates:
(a)January 7, 2015Investment in put option on Reese shares.
(b)March 31, 2015 Welch prepares financial statements.
(c)June 30, 2015 Welch prepares financial statements.
(d)July 6, 2015 Welch settles the put option on the Reese shares.
10) When preparing a statement of cash flows, a decrease in accounts receivable during
a period would cause which one of the following adjustments in determining cash flow
from operating activities?
Direct MethodIndirect Method
a.IncreaseDecrease
b.DecreaseIncrease
c.IncreaseIncrease
d.DecreaseDecrease
11) Which of the following is a limitation of the balance sheet?
a.Many items that are of financial value are omitted
b.Judgments and estimates are used
c.Current fair value is not reported
d.All of these answer choices are correct
12) On January 1, 2014, Ellison Co. issued eight-year bonds with a face value of
$4,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and
December 31 . The bonds were sold to yield 8%. Table values are:
Present value of 1 for 8 periods at 6%.627
Present value of 1 for 8 periods at 8%.540
Present value of 1 for 16 periods at 3%.623
Present value of 1 for 16 periods at 4%.534
Present value of annuity for 8 periods at 6%6.210
Present value of annuity for 8 periods at 8%5.747
Present value of annuity for 16 periods at 3%12.561
Present value of annuity for 16 periods at 4%11.652
The issue price of the bonds is
a.$3,534,240
b.$3,539,280
c.$3,558,240
d.$3,998,400
13) The 10% bonds payable of Nixon Company had a net carrying amount of $950,000
on December 31, 2014 . The bonds, which had a face value of $1,000,000, were issued
at a discount to yield 12%. The amortization of the bond discount was recorded under
the effective-interest method. Interest was paid on January 1 and July 1 of each year. On
July 2, 2015, several years before their maturity, Nixon retired the bonds at 102. The
interest payment on July 1, 2015 was made as scheduled. What is the loss that Nixon
should record on the early retirement of the bonds on July 2, 2015? Ignore taxes.
a.$20,000
b.$63,000
c.$56,000
d.$70,000
14) The inventory account of Irick Company at December 31, 2014, included the
following items:
Inventory Amount
Merchandise out on consignment at sales price
(including markup of 40% on selling price)$30,000
Goods purchased, in transit (shipped f.o.b. shipping point)24,000
Goods held on consignment by Irick31,000
Goods out on approval (sales price $15,200, cost $12,800)15,200
Based on the above information, the inventory account at December 31, 2014, should
be reduced by
a.$45,400
b.$45,200
c.$69,400
d.$51,400
15) Treasury stock should be reported as a(n)
a.current asset
b.investment
c.other asset
d.reduction of stockholders’ equity