1) A prepaid expense can best be described as an amount
a.paid and currently matched with revenues
b.paid and not currently matched with revenues
c.not paid and currently matched with revenues
d.not paid and not currently matched with revenues
2) The following data are for the pension plan for the employees of Lockett Company.
1/1/1412/31/1412/31/15
Accumulated benefit obligation$2,500,000$2,600,000$3,400,000
Projected benefit obligation2,700,0002,800,0003,700,000
Plan assets (at fair value)2,300,0003,000,0003,300,000
AOCL – net loss-0-480,000500,000
Settlement rate (for year)10%9%
Expected rate of return (for year)8%7%
Locketts contribution was $420,000 in 2015 and benefits paid were $375,000. Lockett
estimates that the average remaining service life is 15 years.
The corridor for 2015 was $300,000. The amount of AOCI-net loss amortized in 2015
was
a.$33,333
b.$32,000
c.$14,000
d.$12,000
3) What does the current ratio inform you about a company?
a.The extent of slow-moving inventories
b.The efficient use of assets
c.The company’s liquidity
d.The company’s profitability
4) A manufacturer of large equipment sells on an installment basis to customers with
questionable credit ratings. Which of the following methods of revenue recognition is
least likely to overstate the amount of gross profit reported?
a.At the time of completion of the equipment (completion of production method)
b.At the date of delivery (sales method)
c.The installment-sales method
d.The costrecovery method
5) Why are inventories included in the computation of net income?
a.To determine cost of goods sold
b.To determine sales revenue
c.To determine merchandise returns
d.Inventories are not included in the computation of net income
6) A lessee with a capital lease containing a bargain purchase option should depreciate
the leased asset over the
a.assets remaining economic life
b.term of the lease
c.life of the asset or the term of the lease, whichever is shorter
d.life of the asset or the term of the lease, whichever is longer
7) Jeff Brown is a farmer who owns land which borders on the right-of-way of the
Northern Railroad. On August 10, 2014, due to the admitted negligence of the Railroad,
hay on the farm was set on fire and burned. Brown had a dispute with the Railroad for
several years concerning the ownership of a small parcel of land. The representative of
the Railroad has offered to assign any rights which the Railroad may have in the land to
Brown in exchange for a release of his right to reimbursement for the loss he has
sustained from the fire. Brown appears inclined to accept the Railroad’s offer. The
Railroad’s 2014 financial statements should include the following related to the
incident:
a.recognition of a loss and creation of a liability for the value of the land
b.recognition of a loss only
c.creation of a liability only
d.disclosure in note form only
8) On December 31, 2012, Nolte Co. is in financial difficulty and cannot pay a note due
that day. It is a $1,800,000 note with $180,000 accrued interest payable to Piper, Inc.
Piper agrees to accept from Nolte equipment that has a fair value of $870,000, an
original cost of $1,440,000, and accumulated depreciation of $690,000. Piper also
forgives the accrued interest, extends the maturity date to December 31, 2015, reduces
the face amount of the note to $750,000, and reduces the interest rate to 6%, with
interest payable at the end of each year.
Nolte should record interest expense for 2015 of
a.$0
b.$45,000
c.$90,000
d.$135,000
9) The book value of a plant asset is
a.the fair market value of the asset at a balance sheet date
b.the asset’s acquisition cost less the total related depreciation recorded to date
c.equal to the balance of the related accumulated depreciation account
d.the assessed value of the asset for property tax purposes
10) Becky had net sales (all on account) in 2014 of $600,000. At December 31, 2013,
before adjusting entries, the balances in selected accounts were: accounts receivable
$750,000 debit, and allowance for doubtful accounts $1,500 debit. Becky estimates that
3% of its net sales will prove to be uncollectible. What is the net realizable value of the
receivables reported on the financial statements at December 31, 2014?
a.$133,500
b.$730,500
c.$732,000
d.$733,500
11) A graph is set up with “yearly depreciation expense” on the vertical axis and “time”
on the horizontal axis. Assuming linear relationships, how would the graphs for
straight-line and sum-of-the-years’-digits depreciation, respectively, be drawn?
a.Vertically and sloping down to the right
b.Vertically and sloping up to the right
c.Horizontally and sloping down to the right
d.Horizontally and sloping up to the right
12) Coaster manufactures and sells logging equipment. Due to the nature of its
business, Coaster is unable to reliably predict bad debts. During 2014, Coaster sold
equipment costing $4,800,000 for $7,200,000. The terms of the sale were 20% down,
with equal payments due quarterly over the next 3 years. All payments for 2014 were
made on schedule. Round answers to two places.
Assuming that Coaster uses the cost-recovery method of accounting for its installment
sales, what amount of realized gross profit will Coaster report in its income statement
for the year ended December 31, 2015?
a.$0
b.$ 480,000
c.$ 633,600
d.$1,920,000
13) At December 31, 2014 Pine Company had 200,000 shares of common stock and
10,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No
dividends were declared on either the preferred or common stock in 2014 or 2015 . On
February 10, 2016, prior to the issuance of its financial statements for the year ended
December 31, 2015, Pine declared a 100% stock dividend on its common stock. Net
income for 2015 was $800,000. In its 2015 financial statements, Pines 2015 earnings
per common share should be
a.$3.78
b.$3.56
c.$1.88
d.$1.11
14) Which of the following arguments is presented by FASB to explain why a gain is
recorded by a company when its creditworthiness is becoming worse?
a.The shareholders loss is the debtholders gain
b.The income of the company will increase as the amount of interest payment will
reduce
c.The decrease in market rate will increase the value of equity shares
d.The debtholders loss is the shareholders gain
15) Given the historical cost of product Dominoe is $22, the selling price of product
Dominoe is $30, costs to sell product Dominoe are $5, the replacement cost for product
Dominoe is $20, and the normal profit margin is 20% of sales price, what is the amount
that should be used to value the inventory under the lower-of-cost-or-market method?
a.$22
b.$19
c.$20
d.$25
16) Richman Company purchased $900,000 of 8%, 5-year bonds from Carlin, Inc. on
January 1, 2014, with interest payable on July 1 and January 1 . The bonds sold for
$937,422 at an effective interest rate of 7%. Using the effective interest method,
Richman Company decreased the Available-for-Sale Debt Securities account for the
Carlin, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums
of $3,186 and $3,294, respectively.
At February 1, 2015, Richman Company sold the Carlin bonds for $927,000. After
accruing for interest, the carrying value of the Carlin bonds on February 1, 2015 was
$930,375. Assuming Richman Company has a portfolio of available-for-sale debt
investments, what should Richman Company report as a gain (or loss) on the bonds?
a.$0
b.($3,375)
c.($19,683)
d.($26,433)
17) A lessor with a sales-type lease involving an unguaranteed residual value available
to the lessor at the end of the lease term will report sales revenue in the period of
inception of the lease at which of the following amounts?
a.The minimum lease payments plus the unguaranteed residual value
b.The present value of the minimum lease payments
c.The cost of the asset to the lessor, less the present value of any unguaranteed residual
value
d.The present value of the minimum lease payments plus the present value of the
unguaranteed residual value
18) (a) What are the general rules for measuring and recognizing a gain or loss by the
debtor on a settlement of troubled debt which includes the transfer of noncash assets?
(b)What are the general rules for measuring and recognizing a gain and for recording
future payments by the debtor in a troubled debt restructuring?
19) Green Construction Co. has consistently used the percentage-of-completion method
of recognizing revenue. During 2014, Green entered into a fixed-price contract to
construct an office building for $24,000,000. Information relating to the contract is as
follows:
At December 31
2014 2015
Percentage of completion15%45%
Estimated total cost at completion$18,000,000$19,200,000
Gross profit recognized (cumulative)1,200,0002,880,000
Contract costs incurred during 2015 were
a.$5,760,000
b.$5,940,000
c.$6,300,000
d.$8,640,000
20) The conversion of preferred stock into common stock requires that any excess of
the par value of the common shares issued over the carrying amount of the preferred
being converted should be
a.reflected currently in income, but not as an extraordinary item
b.reflected currently in income as an extraordinary item
c.treated as a prior period adjustment
d.treated as a direct reduction of retained earnings