1) The following data are provided:
December 31
2015 2014
Cash$ 750,000$ 500,000
Accounts receivable (net)800,000600,000
Inventories1,300,0001,100,000
Plant assets (net)3,500,0003,250,000
Accounts payable550,000400,000
Income taxes payable100,00050,000
Bonds payable700,000700,000
10% Preferred stock, $50 par1,000,0001,000,000
Common stock, $10 par1,200,000900,000
Paid-in capital in excess of par800,000650,000
Retained earnings2,000,0001,750,000
Net credit sales6,400,000
Cost of goods sold4,200,000
Operating expenses1,450,000
Net income750,000
Additional information:
Depreciation included in cost of goods sold and operating expenses is $610,000. On
May 1, 2015, 30,000 shares of common stock were issued. The preferred stock is
cumulative. The preferred dividends were not declared during 2015 .
The return on common stock equity for 2015 is
a.750 / 3,600
b.750 / 4,000
c.650 / 3,600
d.650 / 4,000
2) The accountant for the Pryor Sales Company is preparing the income statement for
2014 and the balance sheet at December 31, 2014 . Pryor uses the periodic inventory
system. The January 1, 2014 merchandise inventory balance will appear
a.only as an asset on the balance sheet
b.only in the cost of goods sold section of the income statement
c.as a deduction in the cost of goods sold section of the income statement and as a
current asset on the balance sheet
d.as an addition in the cost of goods sold section of the income statement and as a
current asset on the balance sheet
3) An accounting record into which the essential facts and figures in connection with all
transactions are first recorded is called the
a.ledger
b.account
c.trial balance
d.None of these answer choices are correct
4) The term “depreciable base,” or “depreciation base,” as it is used in accounting,
refers to
a.the total amount to be charged (debited) to expense over an asset’s useful life
b.the cost of the asset less the related depreciation recorded to date
c.the estimated market value of the asset at the end of its useful life
d.the acquisition cost of the asset
5) On January 1, 2012, Lake Co. purchased a machine for $1,320,000 and depreciated it
by the straight-line method using an estimated useful life of eight years with no salvage
value. On January 1, 2015, Lake determined that the machine had a useful life of six
years from the date of acquisition and will have a salvage value of $120,000. An
accounting change was made in 2015 to reflect these additional data. The accumulated
depreciation for this machine should have a balance at December 31, 2015 of
a.$912,500
b.$770,000
c.$800,000
d.$880,000
6) On October 1, 2014, Menke Company purchased to hold to maturity, 400, $1,000,
9% bonds for $416,000. An additional $12,000 was paid for accrued interest. Interest is
paid semiannually on December 1 and June 1 and the bonds mature on December 1,
2018 . Menke uses straight-line amortization. Ignoring income taxes, the amount
reported in Menke’s 2014 income statement from this investment should be
a.$9,000
b.$8,040
c.$9,960
d.$10,920
7) Which of the following statement is true?
a.Operating leases under GAAP are referred to as finance leases under IFRS
b.IFRS has an additional lessor criterion for capitalization that collectability of the
payments required from the lessee is reasonably predictable
c.IFRS is more general in its provisions for determining if a lease arrangement transfers
the risks and rewards of ownership
d.Under IFRS, in computing the present value of the minimum lease payments, the
lessee is required to use the incremental borrowing rate
8) The intangible asset goodwill may be
a.capitalized only when purchased
b.capitalized either when purchased or created internally
c.capitalized only when created internally
d.written off directly to retained earnings
9) How should cumulative preferred dividends in arrears be shown in a corporation’s
statement of financial position?
a.Note disclosure
b.Increase in stockholders’ equity
c.Increase in current liabilities
d.Increase in current liabilities for the amount expected to be declared within the year or
operating cycle, and increase in long-term liabilities for the balance
10) Hall Co. incurred research and development costs in 2015 as follows:
Materials used in research and development projects$ 650,000
Equipment acquired that will have alternate future uses in future research
and development projects3,000,000
Depreciation for 2015 on above equipment500,000
Personnel costs of persons involved in research and development projects750,000
Consulting fees paid to outsiders for research and development projects300,000
Indirect costs reasonably allocable to research and development projects 225,000
$5,425,000
The amount of research and development costs charged to Hall’s 2015 income
statement should be
a.$1,700,000
b.$2,000,000
c.$2,425,000
d.$4,700,000
11) Which of the following would represent the least likely use of an income statement
prepared for a business enterprise?
a.Use by customers to determine a company’s ability to provide needed goods and
services
b.Use by labor unions to examine earnings closely as a basis for salary discussions
c.Use by government agencies to formulate tax and economic policy
d.Use by investors interested in the financial position of the entity
12) Discuss the following ideas related to pension assets:
(a)Market-related asset value.
(b)Actual return on plan assets.
(c)Expected return on plan assets.
(d)Unexpected gains and losses on plan assets.
13) Assume there are two dilutive convertible securities. The one that should be used
first to recalculate earnings per share is the security with the
a.greater earnings adjustment
b.greater earnings per share adjustment
c.smaller earnings adjustment
d.smaller earnings per share adjustment
14) If bonds are issued between interest dates, the entry on the books of the issuing
corporation could include a
a.debit to Interest Payable
b.credit to Interest Receivable
c.credit to Interest Expense
d.credit to Unearned Interest
15) Crane Sales Company uses the retail inventory method to value its merchandise
inventory. The following information is available for the current year:
Cost Retail
Beginning inventory$ 30,000$ 45,000
Purchases175,000240,000
Freight-in2,500
Net markups8,500
Net markdowns10,000
Employee discounts1,000
Sales revenue205,000
If the ending inventory is to be valued at the lower-of-cost-or-market, what is the
cost-to-retail ratio?
a.$207,500 / $285,000
b.$207,500 / $293,500
c.$205,000 / $295,000
d.$207,500 / $283,500
16) When a company decides to switch from the double-declining balance method to
the straight-line method, this change should be handled as a
a.change in accounting principle
b.change in accounting estimate
c.prior period adjustment
d.correction of an error
17) Durler Company’s account balances at December 31 for Accounts Receivable and
the related Allowance for Doubtful Accounts are $1,200,000 and $19,500, respectively.
From an analysis of accounts receivable, it is estimated that $42,000 of the December
31 receivables will be uncollectible. After adjustment for the above facts, the net
realizable value of accounts receivable would be
a.$1,200,000
b.$1,180,500
c.$1,138,500
d.$1,158,000
18) The summarized balance sheets of Goebel Company and Dobbs Company as of
December 31, 2014 are as follows:
Goebel Company
Balance Sheet
December 31, 2014
Assets$1,200,000
Liabilities$ 150,000
Capital stock600,000
Retained earnings 450,000
Total equities$1,200,000
Dobbs Company
Balance Sheet
December 31, 2014
Assets$900,000
Liabilities$205,000
Capital stock575,000
Retained earnings 120,000
Total equities$900,000
If Goebel Company acquired a 20% interest in Dobbs Company on December 31, 2014
for $145,000 and during 2015 Dobbs Company had net income of $75,000 and paid a
cash dividend of $30,000, applying the fair value method would give a debit balance in
the Equity Investments (Dobbs) account at the end of 2015 of
a.$115,000
b.$145,000
c.$160,000
d.$154,000