1) IFRS prohibits use of the percentage-of-completion method of accounting for
long-term construction contracts.
2) The interest rate written in the terms of the bond indenture is called the effective
yield or market rate.
3) Companies frequently describe the terms of all long-term liability agreements in
notes to the financial statements.
4) The balance sheet omits many items that are of financial value to the business but
cannot be recorded objectively.
5) Under IFRS, expenses include losses that are not the result of ordinary activities.
6) Companies should record stock issued for services or noncash property at either the
fair value of the stock issued or the fair value of the consideration received, whichever
is more clearly determinable.
7) A lessee records interest expense in both a capital lease and an operating lease.
8) If a company scraps an asset without any cash recovery, it recognizes a loss equal to
the assets book value.
9) The interest component of pension expense in the current period is computed by
multiplying the settlement rate by the beginning balance of the projected benefit
obligation.
10) If an employee forfeits a stock option because of failure to satisfy a service
requirement, the company should record paid-in capital from expired options.
11) Which of the following is false concerning the statement of cash flows?
a.When pension expense exceeds cash funding, the difference is deducted from
investing activities on the statement of cash flows
b.The FASB requires companies to classify all income taxes paid as operating cash
outflows
c.Under U.S. GAAP, the purchase of land by issuing stock will be shown as a cash
outflow under investing activities and a cash inflow under financing activities
d.All of the above are true concerning the statement of cash flows
12) Purchased goodwill should
a.be written off as soon as possible against retained earnings
b.be written off as soon as possible as an extraordinary item
c.be written off by systematic charges as a regular operating expense over the period
benefited
d.not be amortized
13) In accounting for compensated absences, the difference between vested rights and
accumulated rights is that:
a.vested rights are normally for a longer period of employment than are accumulated
rights
b.vested rights are not contingent upon an employee’s future service
c.vested rights are a legal and binding obligation on the company, whereas accumulated
rights expire at the end of the accounting period in which they arose
d.vested rights carry a stipulated dollar amount that is owed to the employee;
accumulated rights do not represent monetary compensation
14) As in U.S. GAAP, under IFRS the costs associated with research and development
are segregated into
a.two components, the research phase and the production phase
b.two components, the research phase and the development phase
c.three components, the planning phase, the research phase and the production phase
d.three components, the analysis phase, the development phase and the production
phase
15) January 2, 2012, Koll, Inc. purchased a patent for a new consumer product for
$600,000. At the time of purchase, the patent was valid for 15 years; however, the
patents useful life was estimated to be only 10 years due to the competitive nature of
the product. On December 31, 2015, the product was permanently withdrawn from the
market under governmental order because of a potential health hazard in the product.
What amount should Koll charge against income during 2015, assuming amortization is
recorded at the end of each year?
a.$ 60,000
b.$360,000
c.$420,000
d.$480,000
16) Dot Point, Inc. is a retailer of washers and dryers and offers a three-year service
contract on each appliance sold. Although Dot Point sells the appliances on an
installment basis, all service contracts are cash sales at the time of purchase by the
buyer. Collections received for service contracts should be recorded as
a.service revenue
b.deferred service revenue
c.a reduction in installment accounts receivable
d.a direct addition to retained earnings
17) Piper Co. began operations on January 1, 2015 and appropriately uses the
installment-sales method of accounting. The following information pertains to Piper’s
operations for 2015:
Installment sales3,600,000
Cost of installment sales2,160,000
General and administrative expenses360,000
Collections on installment sales1,650,000
The balance in the deferred gross profit account at December 31, 2015 should be
a.$660,000
b.$990,000
c.$780,000
d.$1,440,000
18) Which of the following would not be a correct form for an adjusting entry?
a.A debit to a revenue and a credit to a liability
b.A debit to an expense and a credit to a liability
c.A debit to a liability and a credit to a revenue
d.A debit to an asset and a credit to a liability
19) Equipment that cost $220,000 and has accumulated depreciation of $100,000 is
exchanged for equipment with a fair value of $160,000 and $40,000 cash is received.
The exchange lacked commercial substance.
The new equipment should be recorded at
a.$160,000
b.$120,000
c.$100,000
d.$96,000
20) The IASB’s standard-setting structure includes all of the following except
a.the Standing Interpretations Committee
b.the Standards Advisory Council
c.the Standards Comparison Committee
d.the Trustees
21) Intangible assets may be internally generated or purchased from another party. In
either case, what costs should be included in the initial valuation of the asset is an issue.
Instructions
(a)Identify the typical costs included in the cash purchase of an intangible asset.
(b)Discuss how to determine the cost of an intangible asset acquired in a non-cash
transaction.
(c)Describe how to determine the cost of several intangible assets acquired in a basket
purchase. Provide a numerical example involving intangibles being acquired for a total
price of $90,000.
22) The process of transferring figures from the book of original entry to the ledger
accounts is called
a.adjusting
b.balancing
c.ledgering
d.posting
23) Houghton Company has the following items: common stock, $800,000; treasury
stock, $105,000; deferred income taxes, $125,000 and retained earnings, $390,000.
What total amount should Houghton Company report as stockholders equity?
a.$960,000
b.$1,085,000
c.$1,210,000
d.$1,295,000
24) Gorman Construction Co. began operations in 2015 . Construction activity for 2015
is shown below. Gorman uses the completed-contract method.
Billings CollectionsEstimated
ContractThroughThroughCosts toCosts to
Contract Price 12/31/15 12/31/15 12/31/15 Complete
1$4,800,000$4,725,000$3,900,000$3,225,000
23,600,0001,500,0001,000,000820,000$1,880,000
33,300,0001,900,0001,800,0002,250,0001,200,000
Which of the following should be shown on the balance sheet at December 31, 2015
related to Contract 3?
a.Inventory, $200,000
b.Inventory, $350,000
c.Inventory, $2,100,000
d.Inventory, $2,250,000
25) Irwin Music Shop gives its customers coupons redeemable for a poster plus a Bo
Diddley CD. One coupon is issued for each dollar of sales. On the surrender of 100
coupons and $5.00 cash, the poster and CD are given to the customer. It is estimated
that 80% of the coupons will be presented for redemption. Sales for the first period
were $700,000, and the coupons redeemed totaled 420,000. Sales for the second period
were $840,000, and the coupons redeemed totaled 750,000. Irwin Music Shop bought
20,000 posters at $2.00/poster and 20,000 CDs at $6.00/CD.
Instructions
Prepare the following entries for the two periods, assuming all the coupons expected to
be redeemed from the first period were redeemed by the end of the second period.
EntryPeriod 1Period 2
(a) To record coupons redeemed
(b) To record estimated liability
26) Lang Co. issued bonds with detachable common stock warrants. Only the warrants
had a known market value. The sum of the fair value of the warrants and the face
amount of the bonds exceeds the cash proceeds. This excess is reported as
a.Discount on Bonds Payable
b.Premium on Bonds Payable
c.Common Stock Subscribed
d.Paid-in Capital in Excess of ParStock Warrants
27) Presented below are four segments that have been identified by Haley Productions:
Total RevenueOperating
Segments(Unaffiliated)Profit (Loss)Identifiable Assets
A$255,000$30,000$900,000
B600,000(55,000)800,000
C225,0006,000450,000
D90,0004,000225,000
For which of the segments would information have to be disclosed in accordance with
professional pronouncements?
a.Segments A, B, C, and D
b.Segments A, B, and C
c.Segments A and B
d.Segments A and D
28) During the prior fiscal year, Jeremiah Corp. signed a long-term noncancellable
purchase commitment with its primary supplier to purchase $1.5 million of raw
materials. Jeremiah paid the $1.5 million to acquire the raw materials when the raw
materials were only worth $1.2 million. Assume that the purchase commitment was
properly recorded. What is the journal entry to record the purchase?
a.Debit Inventory for $1,200,000, and credit Cash for $1,200,000
b.Debit Inventory for $1,200,000, debit Unrealized Holding Gain or Loss for $300,000,
and credit Cash for $1,500,000
c.Debit Inventory for $1,200,000, debit Estimated Liability on Purchase Commitments
for $300,000 and credit Cash for $1,500,000
d.Debit Inventory for $1,500,000, and credit Cash for $1,500,000
29) How much must be invested now to receive $30,000 for ten years if the first
$30,000 is received today and the rate is 8%?
30) Provide clear, concise answers for the following.
1>Define depreciation.
2>Define depreciation accounting.
3>Does depreciation accounting provide funds? If not, what does provide funds? What
does depreciation accounting do related to funds?
31) Presented below are changes in the account balances of Wenn Company during the
year, except for retained earnings.
Increase Increase
(Decrease)(Decrease)
Cash$29,000Accounts payable$34,000
Accounts receivable (net)(18,000)Bonds payable(20,000)
Inventory52,000Common stock62,000
Plant assets (net)47,000Paid-in capital16,000
The only entries in Retained Earnings were for net income and a dividend declaration
of $17,000.
Compute the net income for the current year.
Explain what else can affect the Retained Earnings account.
32) Provide clear, concise answers for the following.
1>What are assets?
2>What are liabilities?
3>What is equity?
4>What are current liabilities?
5>Explain what working capital is and how it is computed.
6>What are intangible assets?
7>What are current assets?
33) An effective process of capital allocation promotes productivity and provides an
efficient market for buying and selling securities and obtaining and granting credit.
34) Presented below are a number of accounting procedures and practices in Ramirez
Corp. For each of these items, list the assumption, principle, information characteristic,
or modifying convention that is violated.
1>Because the company’s income is low this year, a switch from accelerated
depreciation to straight-line depreciation is made this year.
2> The president of Ramirez Corp. believes it is foolish to report financial information
on a yearly basis. Instead, the president believes that financial information should be
disclosed only when significant new information is available related to the company’s
operations.
3>Ramirez Corp. decides to establish a large loss and related liability this year because
of the possibility that it may lose a pending patent infringement lawsuit. The possibility
of loss is considered remote by its attorneys.
4>An officer of Ramirez Corp. purchased a new home computer for personal use with
company money, charging miscellaneous expense.
5>A machine, that cost $40,000, is reported at its current market value of $45,000.
35) The records of Heese Stores provided the following data for the year:
Cost Retail
(Base inventory)Inventory, January 1$150,000$ 250,000
Net purchases830,8001,318,000
Sales revenue1,207,000
Other data are: Freight-in, $14,000; net markups, $8,000; net markdowns, $6,000; and
the price index for the year is 110 .
Instructions
Determine the approximate valuation of the final inventory by the dollar-value,
LIFO-retail method. Label all figures.
CostRetailRatio
36) The following information is available for Renn Corporation’s first year of
operations:
Payment for merchandise purchases$335,000
Ending merchandise inventory135,000
Accounts payable (balance at end of year)60,000
Collections from customers280,000
The balance in accounts payable relates only to merchandise purchases. All
merchandise items were marked to sell at 35% above cost. What should be the ending
balance in accounts receivable, assuming all accounts are deemed collectible?
37) The records of Lohse Stores included the following data:
Inventory, May 1, at retail, $14,500; at cost, $10,440
Purchases during May, at retail, $42,900; at cost, $31,550
Freight-in, $2,000; purchase discounts, $250
Additional markups, $3,800; markup cancellations, $400; net markdowns, $1,300
Sales during May, $47,500
Instructions
Calculate the estimated inventory at May 31 on a LIFO basis. Show your calculations in
good form and label all amounts.
38) Merlin Corporation owns a patent that has a carrying amount of $400,000. Merlin
expects future net cash flows from this patent to total $250,000. The fair value of the
patent is $310,000. Prepare journal entry, if necessary, to record the loss on Impairment.