ACCOUNTING FINAL
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1
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Depreciation is computed on the original cost less estimated salvage under which of the following depreciation methods?
Double-Declining-Balance; Productive-Output
\
Yes No
No Yes
Yes Yes
No No
Double-Declining-Balance; Productive-Output
\
Yes No
No Yes
Yes Yes
No No
No Yes
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Treasury stock is recorded on the statement of financial position as a(n)
\
Increase in assets
Decrease in shareholders' equity
Decrease in assets
Increase in shareholders' equity
\
Increase in assets
Decrease in shareholders' equity
Decrease in assets
Increase in shareholders' equity
Decrease in shareholders' equity
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Current assets are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business. Current assets most likely include
\
Intangible assets.
Trading debt securities.
Organizational costs.
Purchased goodwill.
\
Intangible assets.
Trading debt securities.
Organizational costs.
Purchased goodwill.
Trading debt securities
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On October 31, Year 1, a company with a calendar year end paid $90,000 for services that will be performed evenly over a 6-month period from November 1, Year 1, through April 30, Year 2. The company expensed the $90,000 cash payment in October Year 1 to its services expense general ledger account. The company did not record any additional journal entries in Year 1 related to the payment. What is the adjusting journal entry that the company should record to properly report the prepayment in its Year 1 financial statements?
\
Debit services expense and credit prepaid services for $60,000.
Debit services expense and credit prepaid services for $30,000.
Debit prepaid services and credit services expense for $60,000.
Debit prepaid services and credit services expense for $30,000.
\
Debit services expense and credit prepaid services for $60,000.
Debit services expense and credit prepaid services for $30,000.
Debit prepaid services and credit services expense for $60,000.
Debit prepaid services and credit services expense for $30,000.
Debit prepaid services and credit services expense for $60,000
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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 and Service Revenue
\
No No
Yes Yes
No Yes
Yes No
\
No No
Yes Yes
No Yes
Yes No
Yes No
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The types of assets that qualify for interest capitalization are
Assets that are being used in the earning activities of the reporting entity.
Inventories that are manufactured in large quantities on a continuing basis.
Assets that are ready for their intended use in the activities of the reporting entity.
Assets that are constructed for the reporting entity's own use.
Assets that are being used in the earning activities of the reporting entity.
Inventories that are manufactured in large quantities on a continuing basis.
Assets that are ready for their intended use in the activities of the reporting entity.
Assets that are constructed for the reporting entity's own use.
Assets that are constructed for the reporting entity's own use
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Dunne Co. sells equipment service contracts that cover a 2-year period. The sales price of each contract is $600. Dunne's past experience is that, of the total dollars spent for repairs on service contracts, 40% is incurred evenly during the first contract year and 60% evenly during the second contract year. Dunne sold 1,000 contracts evenly throughout the year. In its December 31 balance sheet, what amount should Dunne report as deferred service contract revenue?
\
$360,000
$540,000
$480,000
$300,000
\
$360,000
$540,000
$480,000
$300,000
$480,000
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Form 10-K must be filed within I. 60 days of the last day of the fiscal year by large accelerated filers II. 70 days of the last day of the fiscal year by small accelerated filers III. 75 days of the last day of the fiscal year by accelerated filers IV. 90 days of the last day of the fiscal year by nonaccelerated filers
\
I, II, and III.
I, II, III, and IV.
I, III, and IV.
I, II, and IV.
\
I, II, and III.
I, II, III, and IV.
I, III, and IV.
I, II, and IV.
I, III, and IV.
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Miller Mining, a calendar-year corporation, purchased the rights to a copper mine on July 1, Year 1. Of the total purchase price, $2.8 million was appropriately allocable to the copper. Estimated reserves were 800,000 tons of copper. Miller expects to extract and sell 10,000 tons of copper per month. Production began immediately. The selling price is $25 per ton. Miller uses percentage depletion (15%) for tax purposes. To aid production, Miller also purchased some new equipment on July 1, Year 1. The equipment cost $76,000 and had an estimated useful life of 8 years. After all the copper is removed from this mine, however, the equipment will be of no use to Miller and will be sold for an estimated $4,000. If sales and production conform to expectations, what is Miller's depletion expense on this mine for financial accounting purposes for the Year 1 calendar year?
\
$420,000
$215,400
$210,000
$105,000
\
$420,000
$215,400
$210,000
$105,000
$210,000
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Lano Corp.'s forest land was condemned for use as a national park. Compensation exceeded the forest land's carrying amount. Lano purchased similar, but larger, replacement forest land for an amount greater than the condemnation award. As a result of the condemnation and replacement, what is the net effect on the carrying amount of forest land reported in Lano's balance sheet?
\
The amount is increased by the excess of the replacement forest land's cost over the condemnation award.
The amount is increased by the excess of the condemnation award over the condemned forest land's carrying amount.
The amount is increased by the excess of the replacement forest land's cost over the condemned forest land's carrying amount.
No effect, because the condemned forest land's carrying amount is used as the replacement forest land's carrying amount.
\
The amount is increased by the excess of the replacement forest land's cost over the condemnation award.
The amount is increased by the excess of the condemnation award over the condemned forest land's carrying amount.
The amount is increased by the excess of the replacement forest land's cost over the condemned forest land's carrying amount.
No effect, because the condemned forest land's carrying amount is used as the replacement forest land's carrying amount.
The amount is increased by the excess of the replacement forest land's cost over the condemned forest land's carrying amount.
11
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A company determined the following values for its inventory as of the end of the fiscal year:
Historical cost: $100,000
Current replacement cost: 70,000
Net realizable value: 90,000
Net realizable value minus a normal profit margin: 85,000
Fair value: 95,000
If the company accounts for its inventories using the first-in first-out FIFO cost method, what amount should the company report as inventory on its balance sheet?
\
$90,000
$95,000
$70,000
$85,000
Historical cost: $100,000
Current replacement cost: 70,000
Net realizable value: 90,000
Net realizable value minus a normal profit margin: 85,000
Fair value: 95,000
If the company accounts for its inventories using the first-in first-out FIFO cost method, what amount should the company report as inventory on its balance sheet?
\
$90,000
$95,000
$70,000
$85,000
$90,000
12
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On June 1, Pitt Corp. sold merchandise with a list price of $5,000 to Burr on account. Pitt allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40, and the sale was made FOB shipping point. Pitt prepaid $200 of delivery costs for Burr as an accommodation. On June 12, Pitt received from Burr a remittance in full payment amounting to
\
$2,912
$2,944
$2,744
$3,112
\
$2,912
$2,944
$2,744
$3,112
$2,944
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A building suffered uninsured fire damage. The damaged portion of the building was refurbished with higher-quality materials. The cost and related accumulated depreciation of the damaged portion are identifiable. The owner should
\
Reduce accumulated depreciation equal to the cost of refurbishing.
Capitalize the cost of refurbishing by adding the cost to the carrying amount of the building.
Capitalize the cost of refurbishing and record a loss in the current period equal to the carrying amount of the damaged part of the building.
Record a loss in the current period equal to the sum of the cost of refurbishing and the carrying amount of the damaged part of the building.
\
Reduce accumulated depreciation equal to the cost of refurbishing.
Capitalize the cost of refurbishing by adding the cost to the carrying amount of the building.
Capitalize the cost of refurbishing and record a loss in the current period equal to the carrying amount of the damaged part of the building.
Record a loss in the current period equal to the sum of the cost of refurbishing and the carrying amount of the damaged part of the building.
Capitalize the cost of refurbishing and record a loss in the current period equal to the carrying amount of the damaged part of the building.
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At the beginning of the current year, Hayworth Co. sold equipment with a 2-year service warranty for a single payment of $20,000. The service warranty can be purchased separately by the customer. 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. Assuming the proper entry was made for cost of goods sold, which of the following statements is correct regarding Hayworth's current-year financial statements?
\
Net income will be overstated.
The financial statements are correct.
Total liabilities will be overstated.
Total assets will be overstated.
\
Net income will be overstated.
The financial statements are correct.
Total liabilities will be overstated.
Total assets will be overstated.
Net income will be overstated.
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Ross Co. pays all salaried employees on a Monday for the 5-day workweek ended the previous Friday. The last payroll recorded for the year ended December 31, Year 4, was for the week ended December 25, Year 4. The payroll for the week ended January 1, Year 5, included regular weekly salaries of $80,000 and vacation pay of $25,000 for vacation time earned in Year 4 not taken by December 31, Year 4. Ross had accrued a liability of $20,000 for vacation pay at December 31, Year 3. In its December 31, Year 4, balance sheet, what amount should Ross report as accrued salary and vacation pay?
\
$68,000
$89,000
$64,000
$69,000
\
$68,000
$89,000
$64,000
$69,000
$89,000
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A company uses a periodic inventory system and has its cost of ending inventory understated by $4,000. Which of the following describes the effects of this error on the company's current-year's cost of goods sold and net income, respectively? Cost of goods sold and Net income
\
Understated Overstated
Overstated Understated
Overstated Overstated
Understated Understated
\
Understated Overstated
Overstated Understated
Overstated Overstated
Understated Understated
Overstated Understated
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According to the FASB's conceptual framework, for financial reporting to be useful, it must
\
Provide information useful for making business and investment decisions.
Directly measure the value of the entity being reported on.
Be in accordance with generally accepted accounting principles.
Be understandable to those who have a limited knowledge of business activities.
\
Provide information useful for making business and investment decisions.
Directly measure the value of the entity being reported on.
Be in accordance with generally accepted accounting principles.
Be understandable to those who have a limited knowledge of business activities.
Provide information useful for making business investment decisions
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Freer Co. purchased a piece of machinery for $50,000. Freer will use the machinery in the production of its product line for five years, at which time the machinery will have a residual value of $5,000. Freer anticipates that it will produce 90,000 units the first year with total units of 450,000. Which of the following methods will allow Freer to claim the greatest amount of depreciation in the first year?
\
Straight-line.
Double declining balance.
Sum-of-the-years' digits.
Units of production.
\
Straight-line.
Double declining balance.
Sum-of-the-years' digits.
Units of production.
Double declining balance
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The FASB makes changes to the Accounting Standards Codification by issuing
\
Accounting Standards Updates
Staff Technical Bulletins.
Statements of Financial Accounting Standards.
Emerging Issues Task Force Releases.
\
Accounting Standards Updates
Staff Technical Bulletins.
Statements of Financial Accounting Standards.
Emerging Issues Task Force Releases.
Accounting Standards Updates
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Slad Co. exchanged similar productive assets with Gil Co. and, in addition, paid Gil cash of $100,000. The following information pertains to this exchange:
Assets relinquished by Gil: CA 75000 FV 140000
Assets relinquished by Slad: CA 40000 FV 40000
\
$140,000
$175,000
$75,000
$100,000
Assets relinquished by Gil: CA 75000 FV 140000
Assets relinquished by Slad: CA 40000 FV 40000
\
$140,000
$175,000
$75,000
$100,000
$140,000
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How should NSB, Inc., report significant research and development costs incurred?
\
Capitalize the costs and amortize over a 40-year period.
Expense all costs in the year incurred.
Expense all costs 2 years before and 5 years after the year incurred.
Capitalize the costs and amortize over a 5-year period.
\
Capitalize the costs and amortize over a 40-year period.
Expense all costs in the year incurred.
Expense all costs 2 years before and 5 years after the year incurred.
Capitalize the costs and amortize over a 5-year period.
Expense all costs in the year incurred
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The following information was derived from the current year accounting records of Clem Co.: DATA FOLLOWS
Beginning inventory 110000 / 12000
Purchases 480,000 / 60,000
Freight-in 10,000
Transportation to consignees X / 5,000
Freight-out 30,000 / 8,000
Ending inventory 145,000 / 20,000
Clem’s cost of sales was
\
$485,000
$507,000
$455,000
$512,000
Beginning inventory 110000 / 12000
Purchases 480,000 / 60,000
Freight-in 10,000
Transportation to consignees X / 5,000
Freight-out 30,000 / 8,000
Ending inventory 145,000 / 20,000
Clem’s cost of sales was
\
$485,000
$507,000
$455,000
$512,000
$512,000
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Which of the following characteristics of accounting information primarily allows users of financial statements to generate predictions about an organization?
\
Reliability.
Neutrality.
Relevance.
Timeliness.
\
Reliability.
Neutrality.
Relevance.
Timeliness.
Relevance.
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Yellow Co. spent $12,000,000 during the current year developing its new software package. Of this amount, $4,000,000 was spent before it was at the application development stage and the package was only to be used internally. The package was completed during the year and is expected to have a 4-year useful life. Yellow has a policy of taking a full-year's amortization in the first year. After the development stage, $50,000 was spent on training employees to use the program. What amount should Yellow report as an expense for the current year?
\
$1,600,000
$2,000,000
$6,012,500
$6,050,000
\
$1,600,000
$2,000,000
$6,012,500
$6,050,000
$6,050,000
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Stone Co. had the following consignment transactions during December:
Inventory shipped on consignment to Beta Co.: $18,000
Freight paid by Stone: 900
Inventory received on consignment from Alpha Co.: 12,000
Freight paid by Alpha: 500
No sales of consigned goods were made through December 31. Stone's December 31 balance sheet should include consigned inventory at
\
$18,000
$18,900
$12,000
$12,500
Inventory shipped on consignment to Beta Co.: $18,000
Freight paid by Stone: 900
Inventory received on consignment from Alpha Co.: 12,000
Freight paid by Alpha: 500
No sales of consigned goods were made through December 31. Stone's December 31 balance sheet should include consigned inventory at
\
$18,000
$18,900
$12,000
$12,500
$18,900
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What factor must be present to use the units-of-production (activity) method of depreciation?
\
Repair costs increase with use.
Total units to be produced can be estimated.
Production is constant over the life of the asset.
Obsolescence is expected.
\
Repair costs increase with use.
Total units to be produced can be estimated.
Production is constant over the life of the asset.
Obsolescence is expected.
Total units to be produced can be estimated
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ABC Co. is a public company that is required to file financial reports with the United States Securities and Exchange Commission (SEC). ABC acquired a significant related business, Bauer Co., through the registration and issuance of additional shares of common stock to the former stockholders of Bauer. Which of the following forms should ABC file with the SEC as a result of the acquisition of Bauer?
\
Form 8-K.
Form 10-K.
Form 10-Q.
Form S-1.
\
Form 8-K.
Form 10-K.
Form 10-Q.
Form S-1.
Form 8-K.
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A state requires quarterly sales tax returns to be filed with the sales tax bureau by the 20th day following the end of the calendar quarter. However, the state further requires that sales taxes collected be remitted to the sales tax bureau by the 20th day of the month following any month such collections exceed $500. These payments can be taken as credits on the quarterly sales tax return.
Taft Corp. operates a retail hardware store. All items are sold subject to a 6% state sales tax, which Taft collects and records as sales revenue. The sales taxes paid by Taft are charged against sales revenue. Taft pays the sales taxes when they are due.
Following is a monthly summary appearing in Taft's first quarter sales revenue account: DATA...
Sales Revenue and Sales Taxes Payable
\
$26,000 $1,560
$27,560 $1,560
$26,000 $960
$26,960 $600
Taft Corp. operates a retail hardware store. All items are sold subject to a 6% state sales tax, which Taft collects and records as sales revenue. The sales taxes paid by Taft are charged against sales revenue. Taft pays the sales taxes when they are due.
Following is a monthly summary appearing in Taft's first quarter sales revenue account: DATA...
Sales Revenue and Sales Taxes Payable
\
$26,000 $1,560
$27,560 $1,560
$26,000 $960
$26,960 $600
$26,000 $960
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Fact Pattern:On January 2, Year 3, Emme Co. sold equipment with a carrying amount of $480,000 in exchange for a $600,000 noninterest-bearing note due January 2, Year 6. There was no established exchange price for the equipment, and the market value of the note cannot be reasonably approximated. The prevailing rate of interest for a note of this type at January 2, Year 3, was 10%. The present value of 1 at 10% for three periods is 0.75. In Emme's Year 3 income statement, what amount should be reported as interest income
\
$15,000
$60,000
$45,000
$48,000
\
$15,000
$60,000
$45,000
$48,000
$45,000
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Helsing Co. bought a franchise from Anya Co. on January 1 for $204,000. An independent consultant retained by Helsing estimated that the remaining useful life of the franchise was a finite period of 50 years and that the pattern of consumption of benefits of the franchise is not reliably determinable. Its unamortized cost on Anya's books on January 1 was $68,000. What amount should be amortized for the year ended December 31, assuming no residual value?
\
$1,700
$3,400
$4,080
$5,100
\
$1,700
$3,400
$4,080
$5,100
$4,080
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Arthur Corporation uses the dollar-value last-in, first-out (LIFO) method to measure its inventories. Historical information indicates the following: DATA... During Year 4, inventory at end-of-year and base-year prices totaled $125,440 and $112,000, respectively. The ending inventory at LIFO cost for Year 4 is
\
$113,240
$112,000
$113,330
$113,390
\
$113,240
$112,000
$113,330
$113,390
$113,390
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Which of the following types of assets would typically be reported on a company's balance sheet as an intangible asset?
\
Derivative securities.
Cost of patent registrations.
Cost of research and development.
Leasehold improvements.
\
Derivative securities.
Cost of patent registrations.
Cost of research and development.
Leasehold improvements.
Cost of patent registrations
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Fact Pattern:
Blake Corporation has determined that one of its machines has experienced an impairment in value. However, the company expects to continue to use the asset for another 3 full years because no active market exists for this machine. Selected information on the impaired asset (on the date that impairment was determined to exist) is provided below.
Original cost of the machine $22,000
Carrying amount of the machine 20,000
Undiscounted future cash flows expected to be generated by the machine 15,000
fair value of the machine (determined by calculating the present value of the future cash flows expected to be generated by the machine) 12,000
What is the amount of the impairment loss to be recorded by Black?
\
$8,000
$5,000
$7,000
$3,000
Blake Corporation has determined that one of its machines has experienced an impairment in value. However, the company expects to continue to use the asset for another 3 full years because no active market exists for this machine. Selected information on the impaired asset (on the date that impairment was determined to exist) is provided below.
Original cost of the machine $22,000
Carrying amount of the machine 20,000
Undiscounted future cash flows expected to be generated by the machine 15,000
fair value of the machine (determined by calculating the present value of the future cash flows expected to be generated by the machine) 12,000
What is the amount of the impairment loss to be recorded by Black?
\
$8,000
$5,000
$7,000
$3,000
$8,000
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Thorpe Co.'s income statement for the year ended December 31, Year 1, reported net income of $74,100. The auditor raised questions about the following amounts that had been included in net income: DATA... The loss from the fire was an infrequent but not unusual occurrence in Thorpe's line of business. Thorpe's December 31, Year 1, income statement should report net income of
\
$66,100
$81,600
$65,000
$87,000
\
$66,100
$81,600
$65,000
$87,000
$87,000
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When should goodwill be recognized?
\
The fair market value of the company's assets exceeds the book value of the company's assets.
Costs have been incurred in the development of goodwill.
The company expects a future benefit from the creation of goodwill.
Goodwill has been created in the purchase of a business.
\
The fair market value of the company's assets exceeds the book value of the company's assets.
Costs have been incurred in the development of goodwill.
The company expects a future benefit from the creation of goodwill.
Goodwill has been created in the purchase of a business.
Goodwill has been created in the purchase of a business
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Heller Co. incurred the following costs in Year 1:
Research and development services
performed by Kay Corp. for Heller $150,000
Testing for evaluation of new products 125,000
Laboratory research aimed at discovery
of new knowledge 185,000
What amount should Heller report as research and development costs in its income statement for the year ended December 31, Year 1?
\
$335,000
$125,000
$150,000
$460,000
Research and development services
performed by Kay Corp. for Heller $150,000
Testing for evaluation of new products 125,000
Laboratory research aimed at discovery
of new knowledge 185,000
What amount should Heller report as research and development costs in its income statement for the year ended December 31, Year 1?
\
$335,000
$125,000
$150,000
$460,000
$460,000
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Inch Co. had the following balances at December 31, Year 4:
Cash in checking account $ 35,000
Cash in money market account 75,000
U.S. Treasury bill, purchased 12/1/Yr 4, maturing 2/28/Yr 5 200,000
U.S. Treasury bill, purchased 12/1/Yr 3, maturing 5/31/Yr 5 150,000
Inch's policy is to treat as cash equivalents all highly-liquid investments with a maturity of 3 months or less when purchased. What amount should Inch report as cash and cash equivalents in its December 31, Year 4, balance sheet?
\
$235,000
$310,000
$110,000
$460,000
Cash in checking account $ 35,000
Cash in money market account 75,000
U.S. Treasury bill, purchased 12/1/Yr 4, maturing 2/28/Yr 5 200,000
U.S. Treasury bill, purchased 12/1/Yr 3, maturing 5/31/Yr 5 150,000
Inch's policy is to treat as cash equivalents all highly-liquid investments with a maturity of 3 months or less when purchased. What amount should Inch report as cash and cash equivalents in its December 31, Year 4, balance sheet?
\
$235,000
$310,000
$110,000
$460,000
$310,000
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Wizard Co. purchased two machines for $250,000 each on January 2. The machines were put into use immediately. Machine A has a useful life of 5 years and can be used in only one research project. Machine B will be used for 2 years on a research and development project and then used by the production division for an additional 8 years. Wizard uses the straight-line method of depreciation. What amount should Wizard include in research and development expense for the year?
\
$500,000
$375,000
$75,000
$275,000
\
$500,000
$375,000
$75,000
$275,000
$275,000
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The term "more likely than not" is defined in the FASB codification as a probability of
\
90% or more.
20% or more.
More than 75%.
More than 50%.
\
90% or more.
20% or more.
More than 75%.
More than 50%.
More than 50%
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During the current year, Krey Co. increased the estimated quantity of copper recoverable from its mine. Krey uses the units-of-production depletion method. As a result of the change, which of the following should be reported in Krey's current year financial statements?
Cumulative Effect of a Change in Accounting Principle AND
Pro Forma Effect of Retrospective Application of New Depletion Base
\
No Yes
Yes Yes
No No
Yes No
Cumulative Effect of a Change in Accounting Principle AND
Pro Forma Effect of Retrospective Application of New Depletion Base
\
No Yes
Yes Yes
No No
Yes No
No No
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Salvador Co. sold 800,000 electronic can openers in Year 1. Based on past experience, the company estimated that 10,000 of the 800,000 would prove to be defective and that 60% of these would be returned for replacement under the company's standard warranty against manufacturing defects. The cost to replace an electronic can opener is $6.00.
On January 1, Year 1, the balance in the company's estimated liability for warranties account was $3,000. During Year 1, 5,000 electronic can openers were replaced under the warranty. The estimated liability for warranties reported on December 31, Year 1, should be
\
$9,000
$6,000
$39,000
$36,000
On January 1, Year 1, the balance in the company's estimated liability for warranties account was $3,000. During Year 1, 5,000 electronic can openers were replaced under the warranty. The estimated liability for warranties reported on December 31, Year 1, should be
\
$9,000
$6,000
$39,000
$36,000
$9,000
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The advantage of the last-in, first-out inventory method is based on the assumption that
\
Costs should be charged to cost of goods sold at average cost.
Costs should be charged to revenue in the order in which they are incurred.
The most recently incurred costs should be allocated to the cost of goods sold.
Current costs should be based on representative or normal conditions of efficiency and volume of operations.
\
Costs should be charged to cost of goods sold at average cost.
Costs should be charged to revenue in the order in which they are incurred.
The most recently incurred costs should be allocated to the cost of goods sold.
Current costs should be based on representative or normal conditions of efficiency and volume of operations.
The most recently incurred costs should be allocated to the cost of goods sold
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Cole Co. began constructing a building for its own use in January. During the year, Cole incurred interest of $50,000 on specific construction debt and $20,000 on other borrowings. Interest computed on the weighted-average amount of accumulated expenditures for the building during the year was $40,000. What amount of interest cost should Cole capitalize?
\
$40,000
$20,000
$70,000
$50,000
\
$40,000
$20,000
$70,000
$50,000
$40,000
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During the current year, property owned by Arp Co. was acquired by the city in connection with a condemnation proceeding, resulting in a payment of $100,000 to Arp. The property's carrying amount was $70,000. Arp paid $45,000 in the current year for replacement property. In Arp's income statement for the current year ended December 31, what amount of gain should be reported on this involuntary conversion, disregarding income tax considerations?
\
$15,000
$0
$30,000
$25,000
\
$15,000
$0
$30,000
$25,000
$30,000
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A material overstatement in ending inventory was discovered after the year-end financial statements of a company were issued to the public. What effect did this error have on the year-end financial statements? Current Assets AND Gross profit
\
Understated Overstated
Understated Understated
Overstated Understated
Overstated Overstated
\
Understated Overstated
Understated Understated
Overstated Understated
Overstated Overstated
Overstated Overstated
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Black Corp.'s accounts payable at December 31, Year 1, totaled $900,000 before any necessary year-end adjustments relating to the following transactions:
On December 27, Year 1, Black wrote and recorded checks to creditors totaling $400,000, causing an overdraft of $100,000 in Black's bank account at December 31, Year 1. The checks were mailed on January 10, Year 2.
On December 28, Year 1, Black purchased and received goods for $153,061, terms 2/10, n/30. Black records purchases and accounts payable at net amounts. The invoice was recorded and paid January 3, Year 2.
Goods shipped FOB destination on December 20, Year 1, from a vendor to Black were received January 2, Year 2. The invoice cost was $65,000.
At December 31, Year 1, what amount should Black report as total accounts payable?
\
$1,153,061
$1,450,000
$1,515,000
$1,053,061
On December 27, Year 1, Black wrote and recorded checks to creditors totaling $400,000, causing an overdraft of $100,000 in Black's bank account at December 31, Year 1. The checks were mailed on January 10, Year 2.
On December 28, Year 1, Black purchased and received goods for $153,061, terms 2/10, n/30. Black records purchases and accounts payable at net amounts. The invoice was recorded and paid January 3, Year 2.
Goods shipped FOB destination on December 20, Year 1, from a vendor to Black were received January 2, Year 2. The invoice cost was $65,000.
At December 31, Year 1, what amount should Black report as total accounts payable?
\
$1,153,061
$1,450,000
$1,515,000
$1,053,061
$1,450,000
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Dart Company's accounting records indicated the following information:
Beginning inventory
$ 500,000
Purchases during the year
2,500,000
Sales during the year
3,200,000
A physical inventory taken at year end resulted in an ending inventory of $575,000. Dart's gross profit on sales has remained constant at 25% in recent years. Dart suspects some inventory may have been taken by a new employee. At the balance sheet date, what is the estimated cost of missing inventory?
\
$175,000
$25,000
$225,000
$100,000
Beginning inventory
$ 500,000
Purchases during the year
2,500,000
Sales during the year
3,200,000
A physical inventory taken at year end resulted in an ending inventory of $575,000. Dart's gross profit on sales has remained constant at 25% in recent years. Dart suspects some inventory may have been taken by a new employee. At the balance sheet date, what is the estimated cost of missing inventory?
\
$175,000
$25,000
$225,000
$100,000
$25,000
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Which of the following conditions must exist in order for an impairment loss to be recognized?
I. The carrying amount of the long-lived asset is less than its fair value.
II. The carrying amount of the long-lived asset is not recoverable.
\
II only.
I only.
Neither I nor II.
Both I and II.
I. The carrying amount of the long-lived asset is less than its fair value.
II. The carrying amount of the long-lived asset is not recoverable.
\
II only.
I only.
Neither I nor II.
Both I and II.
II only.
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Stone Co. had the following consignment transactions during December Year 1: DATA... No sales of consigned goods were made through December 31, Year 1. What amount of consigned inventory should be included in Stone's December 31, Year 1, balance sheet?
\
$36,000
$25,000
$24,000
$37,800
\
$36,000
$25,000
$24,000
$37,800
$37,800
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In accounting for inventories, GAAP require departure from the historical cost principle when the utility of inventory has fallen below cost. Inventory accounted for under certain cost flow methods can be measured at the lower of cost or net realizable value (NRV). The term "net realizable value (NRV)" as defined here means
\
Estimated selling price minus estimated costs of completion and disposal
Fair value minus normal profit margin.
Original cost minus normal profit margin.
Fair value minus cost to sell.
\
Estimated selling price minus estimated costs of completion and disposal
Fair value minus normal profit margin.
Original cost minus normal profit margin.
Fair value minus cost to sell.
Estimated selling price minus estimated costs of completion and disposal
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Based on a physical inventory taken on December 31, Chewy Co. determined its chocolate inventory on a LIFO basis at $26,000 with a replacement cost of $20,000. Chewy estimated that, after further processing costs of $12,000, the chocolate could be sold as finished candy bars for $40,000. Chewy's normal profit margin is 10% of sales. Under the lower-of-cost-or-market rule, what amount should Chewy report as chocolate inventory in its December 31 balance sheet?
\
$26,000
$20,000
$24,000
$28,000
\
$26,000
$20,000
$24,000
$28,000
$24,000
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Simm Co. has determined its December 31 inventory on a LIFO basis to be $400,000. Information pertaining to the inventory follows:
Estimated selling price $408,000
Estimated cost of disposal 20,000
Normal profit margin 60,000
Current replacement cost 390,000
At December 31, what should be the amount of Simm's inventory?
$390,000
$328,000
$400,000
$388,000
Estimated selling price $408,000
Estimated cost of disposal 20,000
Normal profit margin 60,000
Current replacement cost 390,000
At December 31, what should be the amount of Simm's inventory?
$390,000
$328,000
$400,000
$388,000
$388,000
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How should plan investments be reported in a defined benefit plan's financial statements?
\
At cost.
At actuarial present value.
At net realizable value.
At fair value.
\
At cost.
At actuarial present value.
At net realizable value.
At fair value.
At fair value
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Which method of recording credit loss expense accounts receivable is consistent with accrual accounting? Allowance and Direct Write-Off
\
Yes Yes
Yes No
No Yes
No No
\
Yes Yes
Yes No
No Yes
No No
Yes No
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On January 1, Year 1, Warren Co. purchased a $600,000 machine, with a 5-year useful life and no salvage value. The machine was depreciated by an accelerated method for book and tax purposes. The machine's carrying amount was $240,000 on December 31, Year 2. On January 1, Year 3, Warren changed to the straight-line method for financial statement purposes only. Warren had planned the change in accordance with a consistently applied policy. Warren's income tax rate is 30%. In its Year 3 financial statements, what amount should Warren report as the cumulative effect of this change on the beginning balance of retained earnings if it issues single-period statements only?
\
$36,000
$84,000
$120,000
$0
\
$36,000
$84,000
$120,000
$0
$0
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The Hastings Company began operations on January 1, Year 1, and uses the FIFO method in costing its raw material inventory. Management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed: Based upon the above information, a change to the LIFO method in Year 2 results in net income for Year 2 of
\
$150,000
$170,000
$230,000
$110,000
\
$150,000
$170,000
$230,000
$110,000
$150,000
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The weighted average for the year inventory cost flow method is applicable to which of the following inventory systems? Periodic and Perpetual
\
No Yes
Yes Yes
No No
Yes No
\
No Yes
Yes Yes
No No
Yes No
Yes No
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Tomson Co. installed new assembly line production equipment at a cost of $175,000. Tomson had to rearrange the assembly line and remove a wall to install the equipment. The rearrangement cost $12,000, and the wall removal cost $3,000. The rearrangement did not increase the life of the assembly line, but it did make it more efficient. What amount of these costs should be capitalized by Tomson?
\
$190,000
$187,000
$175,000
$178,000
\
$190,000
$187,000
$175,000
$178,000
$190,000
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Costs that can be reasonably associated with specific revenues but not with specific products should be
\
Allocated to specific products based on the best estimate of the production processing time.
Expensed in the period in which the related revenue is recognized.
Charged to expense in the period incurred.
Capitalized and then amortized over a period not to exceed 60 months.
\
Allocated to specific products based on the best estimate of the production processing time.
Expensed in the period in which the related revenue is recognized.
Charged to expense in the period incurred.
Capitalized and then amortized over a period not to exceed 60 months.
Expensed in the period in which the related revenue is recognized
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Cado Co.'s payroll for the month ended January 31 is summarized as follows:
Total wages $100,000
Amount of wages subject to payroll taxes:
FICA 80,000
Unemployment 20,000
Payroll tax rates:
FICA for employer and employee 7% each
Unemployment 3%
In its January 31 balance sheet, what amount should Cado accrue as its share of payroll taxes?
\
$6,200
$10,000
$11,800
$17,000
Total wages $100,000
Amount of wages subject to payroll taxes:
FICA 80,000
Unemployment 20,000
Payroll tax rates:
FICA for employer and employee 7% each
Unemployment 3%
In its January 31 balance sheet, what amount should Cado accrue as its share of payroll taxes?
\
$6,200
$10,000
$11,800
$17,000
$6,200
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According to the FASB's conceptual framework, which of the following is an essential characteristic of an asset?
\
An asset is tangible
An asset is obtained at a cost
An asset provides future benefits
The claims to an asset's benefits are legally enforceable
\
An asset is tangible
An asset is obtained at a cost
An asset provides future benefits
The claims to an asset's benefits are legally enforceable
An asset provides future benefits
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Marr Co. sells its products in reusable containers. The customer is charged a deposit for each container delivered and receives a refund for each container returned within 2 years after the year of delivery. Marr accounts for the containers not returned within the time limit as being retired by sale at the deposit amount. The information for Year 4 is as follows:
In Marr's December 31, Year 4, balance sheet, the liability for deposits on returnable containers should be
\
$674,000
$734,000
$494,000
$584,000
In Marr's December 31, Year 4, balance sheet, the liability for deposits on returnable containers should be
\
$674,000
$734,000
$494,000
$584,000
$674,000
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Which one of the following actions would result in a decrease in income?
\
Liquidating last-in, first-out layers of inventory when prices have been increasing.
Changing from first-in, first-out to last-in, first-out inventory method when prices are decreasing.
Accelerating purchases at the end of the year when using last-in, first-out inventory method in times of rising prices.
Changing the number of last-in, first-out pools
\
Liquidating last-in, first-out layers of inventory when prices have been increasing.
Changing from first-in, first-out to last-in, first-out inventory method when prices are decreasing.
Accelerating purchases at the end of the year when using last-in, first-out inventory method in times of rising prices.
Changing the number of last-in, first-out pools
Accelerating purchases at the end of the year when using last-in, first-out inventory method in times of rising prices.
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On December 31 of the current year, Letterman Co.'s cost of goods sold amounted to $1,050,000. However, Letterman's auditors determined the beginning merchandise inventory was understated by $20,000 and the ending merchandise inventory was overstated by $12,000. What is the correct cost of goods sold for the current year?
\
$1,082,000
$1,018,000
$1,058,000
$1,042,000
\
$1,082,000
$1,018,000
$1,058,000
$1,042,000
$1,082,000
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Glassrod Corp. purchased Sledghammers, Inc., and recognized goodwill on the acquisition date. Glassrod made additional outlays during the year just ended to enhance this goodwill. Over how many years should Glassrod amortize these additional costs?
\
20
40
10
0
\
20
40
10
0
0
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Gar Co. factored its receivables without recourse with Ross Bank. Gar received cash as a result of this transaction, which is best described as a
\
Loan from Ross to be repaid by the proceeds from Gar's accounts receivable.
Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts retained by Gar.
Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts transferred to Ross.
Loan from Ross collateralized by Gar, accounts receivable
\
Loan from Ross to be repaid by the proceeds from Gar's accounts receivable.
Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts retained by Gar.
Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts transferred to Ross.
Loan from Ross collateralized by Gar, accounts receivable
Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts transferred to Ross.
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During the year, Hauser Co. wrote off a customer's account receivable. Hauser used the allowance method for credit losses on accounts receivable. What impact would the write-off have on net income and total assets? Net income and Total Assets
\
Decrease Decrease
No effect No effect
No effect Decrease
Decrease No effect
\
Decrease Decrease
No effect No effect
No effect Decrease
Decrease No effect
No effect No effect
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Dell Company's inventory at December 31, Year 1, was $1.2 million based on a physical count of goods priced at cost, and before any necessary year-end adjustments relating to the following:
Included in the physical count were goods billed to a customer FOB shipping point on December 30, Year 1. These goods had a cost of $25,000 and were picked up by the carrier on January 7, Year 2.
Goods shipped FOB shipping point on December 28, Year 1, from a vendor to Dell were received on January 4, Year 2. The invoice cost was $60,000.
What amount should Dell report as inventory in its December 31, Year 1, balance sheet?
\
$1,235,000
$1,175,000
$1,260,000
$1,200,000
Included in the physical count were goods billed to a customer FOB shipping point on December 30, Year 1. These goods had a cost of $25,000 and were picked up by the carrier on January 7, Year 2.
Goods shipped FOB shipping point on December 28, Year 1, from a vendor to Dell were received on January 4, Year 2. The invoice cost was $60,000.
What amount should Dell report as inventory in its December 31, Year 1, balance sheet?
\
$1,235,000
$1,175,000
$1,260,000
$1,200,000
$1,260,000
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Long-term obligations that are or will become callable by the creditor because of the debtor's violation of a provision of the debt agreement at the balance sheet date should be classified as
\
Current liabilities unless the creditor has waived the right to demand repayment for more than 1 year from the balance sheet date.
Current liabilities unless it is reasonably possible that the violation will be corrected within the grace period.
Contingent liabilities until the violation is corrected.
Long-term liabilities.
\
Current liabilities unless the creditor has waived the right to demand repayment for more than 1 year from the balance sheet date.
Current liabilities unless it is reasonably possible that the violation will be corrected within the grace period.
Contingent liabilities until the violation is corrected.
Long-term liabilities.
Current liabilities unless the creditor has waived the right to demand repayment for more than 1 year from the balance sheet date.
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Ace Co. sold to King Co. a $20,000, 8%, 5-year note that required five equal annual year-end payments. This note was discounted to yield a 9% rate to King. The present value factors of an ordinary annuity of $1 for five periods are as follows:
8% 3.992
9% 3.890
What should be the total interest revenue earned by King on this note?
\
$9,000
$5,561
$8,000
$5,050
8% 3.992
9% 3.890
What should be the total interest revenue earned by King on this note?
\
$9,000
$5,561
$8,000
$5,050
$5,561
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On December 31, Year 1, Paxton Co. had a note payable due on August 1, Year 2. On January 20, Year 2, Paxton signed a financing agreement to borrow the balance of the note payable from a lending institution to refinance the note. The agreement does not expire within 1 year, and no violation of any provision in the financing agreement exists. On February 1, Year 2, Paxton was informed by its financial advisor that the lender is not expected to be financially capable of honoring the agreement. Paxton's financial statements were issued on March 31, Year 2. How should Paxton classify the note on its balance sheet at December 31, Year 1?
As a long-term liability because the agreement does not expire within 1 year.
As a current liability because the lender is not expected to be financially capable of honoring the agreement.
As a long-term liability because no violation of any provision in the financing agreement exists.
As a current liability because the financing agreement was signed after the balance sheet date.
As a long-term liability because the agreement does not expire within 1 year.
As a current liability because the lender is not expected to be financially capable of honoring the agreement.
As a long-term liability because no violation of any provision in the financing agreement exists.
As a current liability because the financing agreement was signed after the balance sheet date.
As a current liability because the lender is not expected to be financially capable of honoring the agreement.
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On January 2, Lem Corp. bought machinery under a contract that required a down payment of $10,000, plus 24 monthly payments of $5,000 each, for total cash payments of $130,000. The cash equivalent price of the machinery was $110,000. The machinery has an estimated useful life of 10 years and estimated salvage value of $5,000. Lem uses straight-line depreciation. In its income statement for the year, what amount should Lem report as depreciation for this machinery?
\
$10,500
$12,500
$11,000
$13,000
\
$10,500
$12,500
$11,000
$13,000
$10,500
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In an exchange of assets, Junger Co. received equipment with a fair value equal to the carrying amount of the equipment given up. Junger also contributed cash equal to 10% of the fair value of the exchange. If the exchange is not considered to have commercial substance, Junger should recognize
\
A loss determined by the proportion of cash paid to the total transaction value.
A loss equal to the cash (boot) given up.
Neither gain nor loss.
A gain determined by the proportion of cash paid to the total transaction value.
\
A loss determined by the proportion of cash paid to the total transaction value.
A loss equal to the cash (boot) given up.
Neither gain nor loss.
A gain determined by the proportion of cash paid to the total transaction value.
A loss equal to the cash (boot) given up.
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Merry Co. purchased a machine costing $125,000 for its manufacturing operations and paid shipping costs of $20,000. Merry spent an additional $10,000 testing and preparing the machine for use. What amount should Merry record as the cost of the machine?
\
$125,000
$145,000
$155,000
$135,000
\
$125,000
$145,000
$155,000
$135,000
$155,000
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Markson Co. traded a concrete-mixing truck with a book value of $10,000 to Pro Co. for a cement-mixing machine with a fair value of $11,000. Markson needs to know the answer to which of the following questions in order to determine whether the exchange has commercial substance?
\
Is the exchange nontaxable?
Is the gain on the exchange less than the increase in future cash flows?
Does the book value of the asset given up exceed the fair value of the asset received?
Are the future cash flows expected to change significantly as a result of the exchange?
\
Is the exchange nontaxable?
Is the gain on the exchange less than the increase in future cash flows?
Does the book value of the asset given up exceed the fair value of the asset received?
Are the future cash flows expected to change significantly as a result of the exchange?
Are the future cash flows expected to change significantly as a result of the exchange?
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A material event that is unusual in nature or infrequent in occurrence should be reported separately on the income statement as a component of income. Net of Income Taxes AND Before Results of Discontinued Operations
\
No No
Yes No
No Yes
Yes Yes
\
No No
Yes No
No Yes
Yes Yes
No Yes
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Snart Co. had the following balances at December 31, Year 4:
Cash in checking account$ 35,000
Cash in money market account 75,000
U.S. Treasury bill, purchased 11/1/Yr 4, maturing 1/31/Yr 5 350,000
U.S. Treasury bill, purchased 12/1/Yr 4, maturing 3/31/Yr 5 400,000
Snart's policy is to treat as cash equivalents all highly liquid investments with a maturity of 3 months or less when purchased. What amount should Snart report as cash and cash equivalents in its December 31, Year 4, balance sheet?
\
$385,000
$860,000
$110,000
$460,000
Cash in checking account$ 35,000
Cash in money market account 75,000
U.S. Treasury bill, purchased 11/1/Yr 4, maturing 1/31/Yr 5 350,000
U.S. Treasury bill, purchased 12/1/Yr 4, maturing 3/31/Yr 5 400,000
Snart's policy is to treat as cash equivalents all highly liquid investments with a maturity of 3 months or less when purchased. What amount should Snart report as cash and cash equivalents in its December 31, Year 4, balance sheet?
\
$385,000
$860,000
$110,000
$460,000
$460,000
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Which of the following should be reported as a prior-period adjustment? Change in Estimated Lives of Depreciable Assets AND Change from Unaccepted Principle to Accepted Principle
\
No Yes
No No
Yes Yes
Yes No
\
No Yes
No No
Yes Yes
Yes No
No Yes
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Which of the following items is not subject to the application of intraperiod income tax allocation?
\
Income from continuing operations.
Discontinued operations.
Other comprehensive income.
Operating income.
\
Income from continuing operations.
Discontinued operations.
Other comprehensive income.
Operating income.
Operating income.
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On the December 31 balance sheet of Mann Co., the current receivables consisted of the following:
Trade accounts receivable$ 93,000
Allowance for credit losses (2,000)
Claim against shipper for goods lost intransit (November) 3,000
Selling price of unsold goods sent by Mann on consignment at 130% of cost (not included in Mann's ending inventory) 26,000
Security deposit on lease of warehouse used for storing some inventories 30,000
Total $150,000
At December 31, the correct total of Mann's current net receivables was
\
$120,000
$124,000
$94,000
$150,000
Trade accounts receivable$ 93,000
Allowance for credit losses (2,000)
Claim against shipper for goods lost intransit (November) 3,000
Selling price of unsold goods sent by Mann on consignment at 130% of cost (not included in Mann's ending inventory) 26,000
Security deposit on lease of warehouse used for storing some inventories 30,000
Total $150,000
At December 31, the correct total of Mann's current net receivables was
\
$120,000
$124,000
$94,000
$150,000
$94,000
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Under the allowance method of recognizing credit losses on accounts receivable, the entry to write-off an uncollectible account
\
Has no effect on net income.
Decreases net income.
Increases the allowance for credit losses.
Has no effect on the allowance for credit losses.
\
Has no effect on net income.
Decreases net income.
Increases the allowance for credit losses.
Has no effect on the allowance for credit losses.
Has no effect on net income
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Fact Pattern:
The following trial balance of Trey Co. at December 31, Year 6, has been adjusted except for income tax expense. DATA and Additional Information
\
$1,330,000
$1,029,000
$1,200,000
$1,630,000
The following trial balance of Trey Co. at December 31, Year 6, has been adjusted except for income tax expense. DATA and Additional Information
\
$1,330,000
$1,029,000
$1,200,000
$1,630,000
$1,330,000
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During the year just ended, Burr Co. had the following transactions pertaining to its new office building:
Purchase price of land
$ 60,000
Legal fees for contracts to purchase land
2,000
Architects' fees
8,000
Demolition of the old building on site
5,000
Sale of scrap from old building
3,000
Construction cost of new building
(fully completed)
350,000
In Burr's December 31 balance sheet, what amounts should be reported as the cost of land and cost of building? Land AND Building
\
$65,000 $362,000
$60,000 $360,000
$62,000 $360,000
$64,000 $358,000
Purchase price of land
$ 60,000
Legal fees for contracts to purchase land
2,000
Architects' fees
8,000
Demolition of the old building on site
5,000
Sale of scrap from old building
3,000
Construction cost of new building
(fully completed)
350,000
In Burr's December 31 balance sheet, what amounts should be reported as the cost of land and cost of building? Land AND Building
\
$65,000 $362,000
$60,000 $360,000
$62,000 $360,000
$64,000 $358,000
$64,000 $358,000
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United, Inc.'s unadjusted current assets section and equity section of its December 31, Year 1, balance sheet are as follows:
Current Assets
Cash $ 60,000
Investments in equity securities (including
$300,000 of United common stock) 400,000
Trade accounts receivable 340,000
Inventories 148,000
Total $948,000
Equity
Common stock $2,224,000
Retained earnings (deficit) (224,000)
Total $2,000,000
The investments and inventories are reported at their costs, which approximate fair values. In its Year 1 statement of equity, United's total amount of equity at December 31, Year 1, is
\
$1,700,000
$2,000,000
$1,924,000
$2,224,000
Current Assets
Cash $ 60,000
Investments in equity securities (including
$300,000 of United common stock) 400,000
Trade accounts receivable 340,000
Inventories 148,000
Total $948,000
Equity
Common stock $2,224,000
Retained earnings (deficit) (224,000)
Total $2,000,000
The investments and inventories are reported at their costs, which approximate fair values. In its Year 1 statement of equity, United's total amount of equity at December 31, Year 1, is
\
$1,700,000
$2,000,000
$1,924,000
$2,224,000
$1,700,000
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According to Statements of Financial Accounting Concepts, predictive value relates to... Relevance AND Faithful Representation
\
Yes Yes
No No
Yes No
No Yes
\
Yes Yes
No No
Yes No
No Yes
Yes No
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Cantor Co. purchased a coal mine for $2,000,000. It cost $500,000 to prepare the coal mine for extraction of the coal. It was estimated that 750,000 tons of coal would be extracted from the mine during its useful life. Cantor planned to sell the property for $100,000 at the end of its useful life. During the current year, 15,000 tons of coal were extracted and sold. What would be Cantor's depletion amount per ton for the current year
\
$3.30
$2.50
$2.66
$3.20
\
$3.30
$2.50
$2.66
$3.20
$3.20
87
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A collection agency spent $50,000 in staff payroll costs investigating the feasibility of developing its own software program for tracking customer contacts. After committing to funding the project, software developers were paid $200,000 to write the code, and the company incurred $70,000 in general and administrative costs related to training and software maintenance. What amount should be capitalized?
\
$250,000
$320,000
$200,000
$270,000
\
$250,000
$320,000
$200,000
$270,000
$200,000
88
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Samm Corp. purchased a plot of land for $100,000. The cost to raze a building on the property amounted to $50,000, and Samm received $10,000 from the sale of scrap materials. Samm built a new plant on the site at a total cost of $800,000 including excavation costs of $30,000. What amount should Samm capitalize in its land account
\
$150,000
$140,000
$130,000
$100,000
\
$150,000
$140,000
$130,000
$100,000
$140,000
89
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Which of the following should be expensed as incurred by the franchisee for a franchise with an estimated useful life of 10 years?
Periodic payments to the franchisor based on the franchisee's revenues.
Periodic payments to a company, other than the franchisor, for that company's franchise.
Amount paid to the franchisor for the franchise.
Legal fees paid to the franchisee's lawyers to obtain the franchise.
Periodic payments to the franchisor based on the franchisee's revenues.
Periodic payments to a company, other than the franchisor, for that company's franchise.
Amount paid to the franchisor for the franchise.
Legal fees paid to the franchisee's lawyers to obtain the franchise.
Periodic payments to the franchisor based on the franchisee's revenues.
90
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South Co. purchased a machine that was installed and placed in service on January 1, Year 1, at a cost of $240,000. Salvage value was estimated at $40,000. The machine is being depreciated over 10 years by the double-declining-balance (DDB) method. For the year ended December 31, Year 2, what amount should South report as depreciation expense?
\
$38,400
$21,600
$48,000
$32,000
\
$38,400
$21,600
$48,000
$32,000
$38,400
91
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According to the FASB's conceptual framework, which of the following best describes the distinction between expenses and losses?
\
Losses are reported net of related tax effect, and expenses are not.
Losses result from peripheral or incidental transactions, and expenses result from ongoing major or central operations of the entity.
Losses are decreases in net assets, and expenses are not.
Losses are material, and expenses are immaterial.
\
Losses are reported net of related tax effect, and expenses are not.
Losses result from peripheral or incidental transactions, and expenses result from ongoing major or central operations of the entity.
Losses are decreases in net assets, and expenses are not.
Losses are material, and expenses are immaterial.
Losses result from peripheral or incidental transactions, and expenses result from ongoing major or central operations of the entity.
92
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Based on current-year sales of music recorded by an artist under a contract with Bain Co., the artist earned $100,000 after an adjustment of $8,000 for anticipated returns. In addition, Bain paid the artist $75,000 in the current year as a reasonable estimate of the amount recoverable from future royalties to be earned by the artist. What amount should Bain report in its current-year income statement for royalty expense?
\
$183,000
$100,000
$175,000
$108,000
\
$183,000
$100,000
$175,000
$108,000
$100,000
93
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Which of the following is (are) a necessary element(s) of present value measurement?
\
Liquidity or market imperfections.
Estimates of future cash flows.
The price of uncertainty inherent in an asset or liability.
All of the answers are correct.
\
Liquidity or market imperfections.
Estimates of future cash flows.
The price of uncertainty inherent in an asset or liability.
All of the answers are correct.
All of the answers are correct.
94
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In the determination of a present value, which of the following relationships is true?
\
The lower the discount rate and the shorter the discount period, the lower the present value.
The lower the future cash flow and the shorter the discount period, the lower the present value.
The higher the discount rate and the longer the discount period, the lower the present value.
The higher the future cash flow and the longer the discount period, the lower the present value.
\
The lower the discount rate and the shorter the discount period, the lower the present value.
The lower the future cash flow and the shorter the discount period, the lower the present value.
The higher the discount rate and the longer the discount period, the lower the present value.
The higher the future cash flow and the longer the discount period, the lower the present value.
The higher the discount rate and the longer the discount period, the lower the present value.
95
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When the accounts receivable of a company are sold outright to a company which normally buys accounts receivable of other companies without recourse, the accounts receivable have been
\
Assigned.
Factored.
Pledged.
Collateralized.
\
Assigned.
Factored.
Pledged.
Collateralized.
Factored
96
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The financial statements included in the annual report to the shareholders are least useful to which one of the following?
\
Competing businesses.
Stockbrokers.
Managers in charge of operating activities.
Bankers preparing to lend money.
\
Competing businesses.
Stockbrokers.
Managers in charge of operating activities.
Bankers preparing to lend money.
Managers in charge of operating activities.
97
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Each of the following statements is correct regarding the Financial Accounting Standards Board except
\
It is recognized as authoritative by the United States Securities and Exchange Commission and the American Institute of Certified Public Accountants.
It provides a conceptual framework that helps to increase understanding of, and confidence in, financial information on the part of users of financial reports.
It develops principles and attributes that allow organizations to understand the necessary elements to ensure a robust system of internal control.
It establishes accounting concepts and standards for financial accounting and reporting and provides guidance on implementation of standards.
\
It is recognized as authoritative by the United States Securities and Exchange Commission and the American Institute of Certified Public Accountants.
It provides a conceptual framework that helps to increase understanding of, and confidence in, financial information on the part of users of financial reports.
It develops principles and attributes that allow organizations to understand the necessary elements to ensure a robust system of internal control.
It establishes accounting concepts and standards for financial accounting and reporting and provides guidance on implementation of standards.
It develops principles and attributes that allow organizations to understand the necessary elements to ensure a robust system of internal control.
98
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The following information pertains to the activities of a defined benefit pension plan for the year ended December 31, Year 1:
Net appreciation in fair value of investments $100,000
Contribution by the employer and employees 60,000
Administrative expenses 15,000
Net increase in the actuarial present value of accumulated plan benefits 300,000
Benefits paid to participants 80,000
Interest and dividends received 45,000
What should be reported as a net increase (decrease) in net assets available for benefits in the statement of changes in net assets available for benefits for the year ended December 31, Year 1?
\
$(190,000)
$10,000
$110,000
$205,000
Net appreciation in fair value of investments $100,000
Contribution by the employer and employees 60,000
Administrative expenses 15,000
Net increase in the actuarial present value of accumulated plan benefits 300,000
Benefits paid to participants 80,000
Interest and dividends received 45,000
What should be reported as a net increase (decrease) in net assets available for benefits in the statement of changes in net assets available for benefits for the year ended December 31, Year 1?
\
$(190,000)
$10,000
$110,000
$205,000
$110,000
99
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Palmyra Co. has net income of $11,000, a positive $1,000 net cumulative effect of a change in accounting principle, a $3,000 unrealized holding loss on available-for-sale debt securities, a positive $2,000 foreign currency translation adjustment, and a $6,000 increase in its common stock. What amount is Palmyra's comprehensive income?
\
$17,000
$10,000
$4,000
$11,000
\
$17,000
$10,000
$4,000
$11,000
$10,000
100
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A company reported the following for the current year:Retained earnings appropriated for plant expansion $32,500
Correction of understated depreciation expense from prior periods 9,300
Unrealized loss on available-for-sale debt securities 8,100
Unrealized gain on foreign currency translation 3,400
The company's current-year net income was $86,500, and the company has a 30% effective income tax rate. What amount of comprehensive income should be reported for the current year?
\
$81,800
$40,000
$76,700
$83,210
Correction of understated depreciation expense from prior periods 9,300
Unrealized loss on available-for-sale debt securities 8,100
Unrealized gain on foreign currency translation 3,400
The company's current-year net income was $86,500, and the company has a 30% effective income tax rate. What amount of comprehensive income should be reported for the current year?
\
$81,800
$40,000
$76,700
$83,210
$83,210
Note 
Flashcards (34)