1) IFRS requires that gains and losses on available-for-sale securities be reported
directly in equity.
2) Paying a current liability with cash will always reduce the current ratio.
3) Companies must make correcting entries for noncounterbalancing errors, even if they
have closed the prior years books.
4) A capitalized leased asset is always depreciated over the term of the lease by the
lessee.
5) Revenues are recognized in the accounting period in which the performance
obligation is satisfied.
6) Under IFRS companies may recognize actuarial gains and losses in income
immediately.
7) The IASB has issued a conceptual framework and has agreed to develop a common
conceptual framework with the FASB.
8) The cost of acquiring a customer list from another company is recorded as an
intangible asset.
9) Relevance and faithful representation are the two primary qualities that make
accounting information useful for decision making.
10) Many companies use LIFO for both tax and internal reporting purposes.
11) In the United States, like many other countries, banks are major creditors as well as
the largest investors.
12) Wilkinson Corporation factored, with recourse, $400,000 of accounts receivable
with Huskie Financing. The finance charge is 3%, and 5% was retained to cover sales
discounts, sales returns, and sales allowances. Wilkinson estimates the recourse
obligation at $9,600. What amount should Wilkinson report as a loss on sale of
receivables?
a.$ -0-
b.$12,000
c.$21,600
d.$41,600
13) Brown Corporation earns $480,000 and pays cash dividends of $160,000 during
2014 . Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown.
How much investment income should Dexter report in 2014?
a.$160,000
b.$144,000
c.$96,000
d.$480,000
14) Historical cost is the basis advocated for recording the acquisition of property,
plant, and equipment for all of the following reasons except
a.at the date of acquisition, cost reflects fair value
b.property, plant, and equipment items are always acquired at their original historical
cost
c.historical cost involves actual transactions and, as such, is the most reliable basis
d.gains and losses should not be anticipated but should be recognized when the asset is
sold
15) Which of the following methods of determining annual bad debt expense best
achieves the matching concept?
a.Percentage of sales
b.Percentage of ending accounts receivable
c.Percentage of average accounts receivable
d.Direct write-off
16) Counterbalancing errors do not include
a.errors that correct themselves in two years
b.errors that correct themselves in three years
c.an understatement of purchases
d.an overstatement of unearned revenue
17) Which of the following does not relate to relevance?
a.Materiality
b.Predictive value
c.Confirmatory value
d.All of these answer choices relate to relevance
18) On January 1, 2014, Garrett Company purchased a machine costing $250,000. The
machine is in the MACRS 5-year recovery class for tax purposes and has an estimated
$50,000 salvage value at the end of its economic life.
Assuming the company uses the optional straight-line method, the amount of MACRS
deduction for tax purposes for the year 2014 is
a.$40,000
b.$50,000
c.$20,000
d.$25,000
19) Which of the following basic accounting assumptions is threatened by the existence
of severe inflation in the economy?
a.Monetary unit assumption
b.Periodicity assumption
c.Going-concern assumption
d.Economic entity assumption
20) For the composite method, the composite
a.rate is the total cost divided by the total annual depreciation
b.rate is the total annual depreciation divided by the total depreciable cost
c.life is the total cost divided by the total annual depreciation
d.life is the total depreciable cost divided by the total annual depreciation
21) The period of time during which interest must be capitalized ends when
a.the asset is substantially complete and ready for its intended use
b.no further interest cost is being incurred
c.the asset is fully depreciated
d.the activities that are necessary to get the asset ready for its intended use have begun
22) Two independent companies, Hager Co. and Shaw Co., are in the home building
business. Each owns a tract of land held for development, but each would prefer to
build on the other’s land. They agree to exchange their land. An appraiser was hired,
and from her report and the companies’ records, the following information was
obtained:
Hager’s LandShaw’s Land
Cost and book value$384,000$240,000
Fair value based upon appraisal480,000420,000
The exchange was made, and based on the difference in appraised fair values, Shaw
paid $60,000 to Hager. The exchange lacked commercial substance.
The new land should be recorded on Hager’s books at
a.$336,000
b.$384,000
c.$420,000
d.$480,000
23) Shipley Corporation had net income for the year of $600,000 and a weighted
average number of common shares outstanding during the period of 250,000 shares.
The company has a convertible bond issue outstanding. The bonds were issued four
years ago at par ($2,500,000), carry a 7% interest rate, and are convertible into 50,000
shares of common stock. The company has a 40% tax rate. Diluted earnings per share
are
a.$1.65
b.$2.23
c.$2.35
d.$2.58
24) 130. Harper Company commonly issues long-term notes payable to its various
lenders. Harper has had a pretty good credit rating such that its effective borrowing rate
is quite low (less than 8% on an annual basis). Harper has elected to use the fair value
option for the long-term notes issued to Barclays Bank and has the following data
related to the carrying and fair value for these notes.
Carrying Value Fair Value
December 31, 2013$81,000$81,000
December 31, 201467,00064,000
December 31, 201554,00058,000
Instructions
(a)Prepare the journal entry at December 31 (Harpers year-end) for 2013, 2014, and
2015 to record the fair value option for these notes.
(b)At what amount will the note be reported on Harpers 2014 balance sheet?
(c)What is the effect of recording the fair value option on these notes on Harpers 2015
income?
25) Which of the following most accurately reflects the concept of depreciation as used
in accounting?
a.The process of charging the decline in value of an economic resource to income in the
period in which the benefit occurred
b.The process of allocating the cost of tangible assets to expense in a systematic and
rational manner to those periods expected to benefit from the use of the asset
c.A method of allocating asset cost to an expense account in a manner which closely
matches the physical deterioration of the tangible asset involved
d.An accounting concept that allocates the portion of an asset used up during the year to
the contra asset account for the purpose of properly recording the fair market value of
tangible assets
26) Gains or losses can represent changes in
a.EPBO or the fair value of pension plan assets
b.EPBO or the book value of pension plan assets
c.APBO or the fair value of pension plan assets
d.APBO or the book value of pension plan assets
27) On January 2, 2014, Indian River Groves began construction of a new citrus
processing plant. The automated plant was finished and ready for use on September 30,
2015 . Expenditures for the construction were as follows:
Indian River Groves borrowed $2,200,000 on a construction loan at 12% interest on
January 2, 2014 . This loan was outstanding during the construction period. The
company also had $8,000,000 in 9% bonds outstanding in 2014 and 2015 .
What were the weighted-average accumulated expenditures for 2014?
a.$1,066,667
b.$1,000,000
c.$800,000
d.$2,000,000
28) Huffman Corporation constructed a building at a cost of $20,000,000.
Weighted-average accumulated expenditures were $8,000,000, actual interest was
$800,000, and avoidable interest was $400,000. If the salvage value is $1,600,000, and
the useful life is 40 years, depreciation expense for the first full year using the
straight-line method is
a.$470,000
b.$490,000
c.$510,000
d.$670,000
29) At the end of two years, what will be the balance in a savings account paying 6%
annually if $15,000 is deposited today? The future value of one at 6% for one period is
1.06.
a.$15,000
b.$15,900
c.$16,800
d.$16,854