Becker Week 3

C. Unrealized holding loss from available-for-sale debt securities.

According to the FASB conceptual framework, which of the following would cause earnings to differ from comprehensive income?

A. Dividends declared but not paid.

B. Realized gain from sale of held-to-maturity debt security.

C. Unrealized holding loss from available-for-sale debt securities.

D. Unrealized holding gain from trading debt securities.

C. Current liability.

A company receives an advance payment for special order goods that are to be manufactured and delivered within six months. The advance payment should be reported in the company's balance sheet as a:

A. Deferred charge.

B. Contra asset account.

C. Current liability.

D. Noncurrent liability.

B. Delivered to the customer.

After speaking to the company's sales manager, a customer placed a large order. The customer has no immediate need for the products, so the customer asked the company to wait 60 days before delivering the products. In this case, the company should recognize revenue for the sale when the order is:

A. Placed by the customer.

B. Delivered to the customer.

C. Packed and ready for shipment.

D. Verified as in-stock by the company.

B. One-fifth of the cabinet costs in selling, general, and administrative expenses.

On January 1, Year 1, Brecon Co. installed cabinets to display its merchandise in customers' stores. Brecon expects to use these cabinets for five years. Brecon's Year 1 multi-step income statement should include:

A. One-fifth of the cabinet costs in cost of goods sold.

B. One-fifth of the cabinet costs in selling, general, and administrative expenses.

C. All of the cabinet costs in cost of goods sold.

D. All of the cabinet costs in selling, general, and administrative expenses.

A. Yes/Yes

Under U.S. GAAP, the effect of a material transaction that is infrequent in occurrence but not unusual in nature should be presented separately as a component of income from continuing operations when the transaction results in a:

Gain/Loss

A. Yes/Yes

B. Yes/No

C. No/No

D. No/Yes

$50,000

Macklin Co. entered into a service agreement with Heath Co. for an initial fee of $50,000. Macklin received $10,000 when the agreement was signed. The balance was to be paid at a rate of $10,000 per year, starting the next year. All services were performed by Macklin and the refund period had expired. Operations started in the current year. What amount should Macklin recognize as revenue in the current year?

D. Unearned revenue for the entire proceeds.

How would the proceeds received from the advance sale of nonrefundable tickets for a theatrical performance be reported in the seller's financial statements before the performance?

A. Revenue for the entire proceeds.

B. Revenue to the extent of related costs expended.

C. Unearned revenue to the extent of related costs expended.

D. Unearned revenue for the entire proceeds.

B. Recognized only if they are dilutive.

When computing diluted earnings per share, convertible securities are:

I and III

Which of the following will not have a separate earnings per share calculation and disclosure under U.S. GAAP? (Pick 2)

I. Extraordinary items of the period

II. Discontinued operations

III. Unrealized gains/losses on available-for-sale securities

$150,000

Haft Construction Co. has consistently used the percentage-of-completion method. On January 10, Year 1, Haft began work on a $3,000,000 construction contract. At the inception date, the estimated cost of construction was $2,250,000. The following data relate to the progress of the contract:

Income recognized at 12/31/Year 1

300,000

Costs incurred 1/10/ Year 1 through 12/31/Year 2

1,800,000

Estimated cost to complete at 12/31/Year 2

600,000

In its income statement for the year ended December 31, Year 2, what amount of gross profit should Haft report?

B. The services are all similar in nature and provided in the same manner.

A contract contains multiple service-related performance obligations. All of the following criteria below will lead to the treatment of each service as a distinct obligation except:

A. The buyer is able to benefit from each service independently.

B. The services are all similar in nature and provided in the same manner.

C. The promise to deliver each service is separately identifiable from the other services.

D. The buyer can benefit from each service when combined with her other available resources.

B. The correction of a mathematical error in the calculation of prior years' depreciation.

In which of the following situations should a company report a prior-period adjustment?

A. A change in the estimated useful lives of fixed assets purchased in prior years.

B. The correction of a mathematical error in the calculation of prior years' depreciation.

C. A switch from the straight-line to double-declining balance method of depreciation.

D. The scrapping of an asset prior to the end of its expected useful life.

C. Gain on reissuance of treasury stock under the cost method.

Which of the following is not used in the calculation of comprehensive income?

A. Unrealized gain on available-for-sale debt securities held at year-end.

B. Realized losses on trading debt securities sold during the year.

C. Gain on reissuance of treasury stock under the cost method.

D. Losses from foreign currency translations.

D. Net concept, showing the total gain as part of continuing operations, not net of income taxes.

Scott Corporation sold a fixed asset used for operations for greater than its carrying amount. Scott should report the transaction in the income statement using the:

A. Gross concept, showing the proceeds as part of revenues and the carrying amount as part of expenses in the continuing operations section.

B. Net concept, showing the total amount as a component of other comprehensive income, net of income taxes.

C. Net concept, showing the total gain as part of discontinued operations, net of income taxes.

D. Net concept, showing the total gain as part of continuing operations, not net of income taxes.

D. In the period of change and future periods if the change affects both.

Which of the following describes the appropriate reporting treatment for a change in accounting estimate?

A. In the period of change with no future consideration.

B. By reporting pro forma amounts for prior periods.

C. By restating amounts reported in financial statements of prior periods.

D. In the period of change and future periods if the change affects both.

C. Benefits are received by the buyer as the seller performs.

Which of the following situations would require that the seller recognize revenue over time rather than at a point in time?

A. The buyer has legal title to the asset.

B. Rewards and risks of ownership remain with the seller.

C. Benefits are received by the buyer as the seller performs.

D. Physical possession of the asset has transferred to the buyer.

B. Income from continuing operations.

Under U.S. GAAP, a gain that is both unusual and infrequent should be reported as which of the following?

A. Comprehensive income.

B. Income from continuing operations.

C. Income from continuing operations, net of tax.

D. Net of tax, following discontinued operations.

A. To summarize all changes in equity from nonowner sources.

What is the purpose of reporting comprehensive income?

A. To summarize all changes in equity from nonowner sources.

B. To reconcile the difference between net income and cash flows provided from operating activities.

C. To provide a consolidation of the income of the firm's segments.

D. To provide information for each segment of the business.

B. Retrospectively, including note disclosures, and application to all prior period financial statements presented.

When there is a change in the reporting entity, how should the change be reported in the financial statements?

A. Prospectively, including note disclosures.

B. Retrospectively, including note disclosures, and application to all prior period financial statements presented.

C. Currently, including note disclosures.

D. Note disclosures only.

$1,314,600

A company's activities for Year 2 included the following:

Gross sales

3,600,000

Cost of goods sold

1,200,000

Selling and administrative expense

500,000

Adjustment for a prior-year understatement of amortization expense

59,000

Sales returns

34,000

Gain on sale of available-for-sale securities

8,000

Gain on disposal of a discontinued business segment

4,000

Unrealized gain on available-for-sale debt securities

2,000

The company has a 30 percent effective income tax rate. What is the company's net income for Year 2?

$400,000

A company has the following items on its year-end trial balance:

Net sales

500,000

Common stock

100,000

Insurance expense

75,000

Wages

50,000

Cost of goods sold

100,000

Cash

40,000

Accounts payable

25,000

Interest payable

20,000

What is the company's gross profit?

A. Decrease/Decrease

A retail store sold gift certificates that are redeemable in merchandise. The gift certificates lapse one year after they are issued. How would the deferred revenue account be affected by each of the following?

Redemption of certificates/Lapse of certificates

A. Decrease/Decrease

B. Decrease/No effect

C. No effect/Decrease

D. No effect/No effect

D. Yes/No

An automobile dealer sells service contracts. The contracts stipulate that the dealer will perform specific repairs on covered vehicles. The contracts vary in length from 12 to 36 months. Do the following increase when service contracts are sold?

Deferred revenue/Service revenue

A. Yes/Yes

B. No/No

C. No/Yes

D. Yes/No

A. Adjustment to beginning retained earnings.

During Year 2, Orca Corp. decided to change from the FIFO method of inventory valuation to the weighted-average method. Inventory balances under each method were as follows:

FIFO/Weighted Average

January 1, Year 2

$71,000

$77,000

December 31, Year 2

79,000

83,000

Orca's income tax rate is 30%.

Orca should report the cumulative effect of this accounting change as a(n)

A. Adjustment to beginning retained earnings.

B. Component of income from continuing operations.

C. Separate item after income from continuing operations.

D. Adjustment to ending retained earnings.

D. Comprehensive income may be presented in a single financial statement that presents both net income and comprehensive income.

Which of the following statements is correct regarding the reporting of comprehensive income?

A. All companies must present a statement of comprehensive income.

B. Other comprehensive income per share is presented in a statement of comprehensive income.

C. The statement of comprehensive income can be shown as part of the footnotes only or as a separate financial statement.

D. Comprehensive income may be presented in a single financial statement that presents both net income and comprehensive income.

C. Allocate it proportionally to all obligations within the contract.

When the total consideration for a contract with multiple embedded obligations reflects a discount, the most appropriate way to assign that discount is to:

A. Assign it equally across all obligations.

B. Assign it to the obligation with the highest stand-alone price.

C. Allocate it proportionally to all obligations within the contract.

D. Reduce the smallest obligation by the full amount of the discount.

$500,000

Mill Construction Co. uses the percentage-of- completion method of accounting. During Year 1, Mill contracted to build an apartment complex for Drew for $20,000,000. Mill estimated that total costs would amount to $16,000,000 over the period of construction. In connection with this contract, Mill incurred $2,000,000 of construction costs during Year 1. Mill billed and collected $3,000,000 from Drew in Year 1. What amount should Mill recognize as gross profit for Year 1?

B. Foreign-currency translation adjustment.

Which of the following items should be shown as a component of comprehensive income?

A. Dividend paid to a shareholder.

B. Foreign-currency translation adjustment.

C. Additional capital contribution.

D. Deferred revenue.

$140,000

Coffey Corp.'s trial balance of income statement accounts for the year ended December 31 as follows:

Net sales

1,600,000

Cost of goods sold

960,000

Selling expenses

235,000

Administrative expenses

150,000

Interest expense

25,000

Hurricane damage

40,000

Gain on debt extinguishment

10,000

Totals

1,410,000 DB

1,610,000 CR

Coffey's uses U.S. GAAP and has an income tax rate of 30%. The gain on debt extinguishment is considered a usual and recurring part of Coffey's operations. The hurricane is considered an unusual and infrequent event. Coffey prepares a multiple-step income statement.

Net income is:

B. Yes/Yes/Yes

Which of the following would be considered an element of comprehensive income?

Operating Losses/Revenues/Foreign Currency Translation Adjustment

A. No/No/No

B. Yes/Yes/Yes

C. Yes/No/Yes

D. No/No/Yes

$240,000

Coffey Corp.'s trial balance of Income Statement Accounts for the year ended December 31 as follows:

Net sales

1,600,000

Cost of goods sold

960,000

Selling expenses

235,000

Administrative expenses

150,000

Interest expense

25,000

Gain on debt extinguishment

10,000

Totals

1,370,000 DB

1,610,000 CR

Coffey uses U.S. GAAP and has an income tax rate of 30%. The gain on debt extinguishment is considered a usual and recurring part of Coffey's operations. Coffey prepares a multiple-step income statement.

Income from continuing operations before income tax is:

$1,200,000

The Cougars football team sells season tickets in advance for $480 each. The season consists of 16 games. Half of these games are home games, and half of them are away games. For Year 3, the team has sold and collected payment for 10,000 season tickets. Through November 30, Year 3, six home games and five away games have been played. How much unearned revenue should be recognized on the balance sheet as of November 30, Year 3?

$20,000

A partial listing of a company's accounts is presented below:

Revenues: 80,000

Operating expenses: 50,000

Foreign currency translation adjustment gain, net of tax: 4,000

Income tax expense: 10,000

What amount should the company report as net income?

C. No/Yes

Which of the following is true regarding the presentation of comprehensive income.

Must be shown on the face of the income statement/Related tax effects for components must be disclosed

A. Yes/Yes

B. Yes/No

C. No/Yes

D. No/No

$0

In November and December Year 1, Dorr Co., a newly organized magazine publisher, received $72,000 for 1,000 three-year subscriptions at $24 per year, starting with the January Year 2 issue. Dorr elected to include the entire $72,000 in its Year 1 income tax return. What amount should Dorr report in its Year 1 income statement for subscriptions revenue?

C. Dividends paid to stockholders.

One of the elements of a financial statement is comprehensive income. Comprehensive income excludes changes in equity resulting from which of the following?

A. Loss from discontinued operations.

B. Prior period error correction.

C. Dividends paid to stockholders.

D. Unrealized loss on investments in non-current marketable equity securities.

D. Evenly over the contract year as the services are performed.

For $50 a month, Rawl Co. visits its customers' premises and performs insect control services. If customers experience problems between regularly scheduled visits, Rawl makes service calls at no additional charge. Instead of paying monthly, customers may pay an annual fee of $540 in advance. For a customer who pays the annual fee in advance, Rawl should recognize the related revenue under U.S. GAAP:

A. When the cash is collected.

B. At the end of the fiscal year.

C. At the end of the contract year after all of the services have been performed.

D. Evenly over the contract year as the services are performed.

B. No/Yes

Which of the following should be reported as a prior period adjustment?

Change in estimated lives of depreciable assets/Change from unaccepted principle to accepted principle

A. Yes/Yes

B. No/Yes

C. Yes/No

D. No/No

$260,000

The following costs were incurred by Griff Co., a manufacturer:

Accounting and legal fees: $25,000

Freight-in: 175,000

Freight-out: 160,000

Officers' salaries: 150,000

Insurance: 85,000

Sales representatives' salaries: 215,000

What amount of these costs should be reported as general and administrative expenses?

$14,000

Topper Company began operations during the current year and experienced the following events:

I. Unrealized holding gains from trading debt securities of $12,000.

II. Realized gains from selling available-for-sale debt securities of $15,000.

III. Unrealized holding gains from available-for-sale debt securities of $20,000.

Topper's tax rate is 30%.

In Toppers' December 31 balance sheet, Accumulated Other Comprehensive Income would be:

B. Cumulative currency-translation adjustments.

Which of the following is a component of other comprehensive income?

A. Minimum accrual of vacation pay.

B. Cumulative currency-translation adjustments.

C. Changes in market value of inventory.

D. Unrealized gain or loss on trading securities.

A. Ignored.

When computing the weighted average of common shares outstanding for basic earnings per share, convertible securities are:

A. Ignored.

B. Recognized whether they are dilutive or anti-dilutive.

C. Recognized only if they are anti-dilutive.

D. Recognized only if they are dilutive.

B. Current liability.

How should unearned rent that has already been paid by tenants for the next eight months of occupancy be reported in a landlord's financial statements?

A. Current asset.

B. Current liability.

C. Long-term asset.

D. Long-term liability.

I, II, III, IV

Under U.S. GAAP, which of the following would be included in income from continuing operations on the income statement?

I. A large loss from a foreign currency transaction.

II. A union strike that shuts down operations for three months.

III. A foreign government takes possession of a company's only plant.

IV. Damage to a factory due to an earthquake in an area that had not previously experienced earthquakes.

D. In the period of change and future periods if the change affects both.

How should the effect of a change in accounting estimate be accounted for?

A. By restating amounts reported in financial statements of prior periods.

B. By reporting pro forma amounts for prior periods.

C. As a prior period adjustment to beginning retained earnings.

D. In the period of change and future periods if the change affects both.

B. Income from continuing operations—unusual or infrequent items section.

XYZ Communications, manufacturer of smart cellular phones, had to write down the value of its unsold smartphone inventory by $20,000,000. XYZ had to decrease the price of its smartphones due to sudden unexpected competition from a new competitor's smartphone, leading to a drop in its profit margins and the inventory write-down. How should XYZ account for the $20,000,000 loss in its quarterly multistep income statement?

A. Income from continuing operations—normal treatment.

B. Income from continuing operations—unusual or infrequent items section.

C. As a part of cost of sales.

D. Accumulated other comprehensive income.

A. Deferred revenue is a liability until the service has been performed.

Which of the following statements is correct regarding deferred revenues recorded by a company that provides services to customers?

A. Deferred revenue is a liability until the service has been performed.

B. Deferred revenues represent revenues earned but not yet received in cash.

C. Deferred revenues result from services that have been performed but have not been billed.

D. A deferred revenue on the books of one company is an accrued expense on the books of another company.

B. Sales revenue.

Which of the following assets or transactions is an element of comprehensive income?

A. Investments by owners.

B. Sales revenue.

C. Distributions to owners.

D. Deferred revenue.

B. Yes/Yes

Under U.S. GAAP, earnings per share data should be reported for:

Discontinued operations/Income from continuing operations

A. Yes/No

B. Yes/Yes

C. No/Yes

D. No/No

$260,000

The following costs were incurred by Griff Co., a manufacturer, during the current year:

Accounting and legal fees: $25,000

Freight-in: 175,000

Freight-out: 160,000

Officers salaries: 150,000

Insurance: 85,000

Sales representatives salaries: 215,000

What amount of these costs should be reported as general and administrative expenses for the current year?

A. Unearned service revenue account.

Jersey Inc. is a retailer of home appliances and offers a service contract on each appliance sold. Jersey sells appliances on installment contracts, but all service contracts must be paid in full at the time of sale. Collections received for service contracts should be recorded as an increase in a:

A. Unearned service revenue account.

B. Sales contracts receivable valuation account.

C. Stockholders' valuation account.

D. Service revenue account for the amount paid in full.

B. Net income will be overstated.

At the beginning of the current year, Hayworth Co. sold equipment with a two-year service contract for a single payment of $20,000. The fair value of the equipment was $18,000. Hayworth recorded this transaction with a debit of $20,000 to cash and a credit of $20,000 to sales revenue. Which of the following statements is correct regarding Hayworth's current-year financial statements?

A. The financial statements are correct.

B. Net income will be overstated.

C. Total assets will be overstated.

D. Total liabilities will be overstated.