ACCT 201B Final Review
In preparing Titan Inc.'s statement of cash flows for the year ended December 31, 2018, the following amounts were available: Collect note receivable $615,000 Issue bonds payable 639,000 Purchase treasury stock 300,000 What amount should be reported on Titan, Inc.'s statement of cash flows for investing activities? a. $615,000 b. $315,000 c. $1,254,000 d. $339,000
a. $615,000
A financial forecast presents to the best of the responsible party's knowledge and belief, a. an entity's expected financial position, results of operations, and cash flows. b. an assessment of the company's ability to be successful in the future. c. given one or more hypothetical assumptions, an entity's expected financial position, results of operations, and cash flows. d. a subjective assessment of the company's ability to be successful in the future under a number of different assumptions.
a. an entity's expected financial position, results of operations, and cash flows.
On June 30, 2018, Falk Co. sold equipment to an unaffiliated company for $2,000,000. The equipment had a book value of $1,080,000 and a remaining useful life of 10 years. That same day, Falk leased back the equipment at $12,000 per month for 5 years with no option to renew the lease or repurchase the equipment. Falk's rent expense for this equipment for the year ended December 31, 2018, should be a. $288,000. b. $72,000. c. $120,000. d. $96,000.
b. $72,000.
On January 1, 2018, Frost Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in a $900,000 increase in the January 1, 2018 inventory. Assume that the income tax rate for all years is 30%. The cumulative effect of the accounting change should be reported by Frost in its 2018 a. retained earnings statement as a $630,000 addition to the beginning balance. b. income statement as a $630,000 cumulative effect of accounting change. c. retained earnings statement as a $900,000 addition to the beginning balance. d. income statement as a $900,000 cumulative effect of accounting change.
a. retained earnings statement as a $630,000 addition to the beginning balance.
A lessor with a sales-type lease involving an unguaranteed residual value available to the lessor at the end of the lease term will report sales revenue in the period of inception of the lease at which of the following amounts? a. The minimum lease payments plus the unguaranteed residual value. b. The present value of the minimum lease payments. c. The cost of the asset to the lessor, less the present value of any unguaranteed residual value. d. The present value of the minimum lease payments plus the present value of the unguaranteed residual value.
b. The present value of the minimum lease payments.
On December 31, 2018, Grantham, Inc. appropriately changed its inventory valuation method to FIFO cost from weighted-average cost for financial statement and income tax purposes. The change will result in a $3,500,000 increase in the beginning inventory at January 1, 2018. Assume a 30% income tax rate. The cumulative effect of this accounting change on beginning retained earnings is a. $0. b. $1,050,000. c. $2,450,000. d. $3,000,000.
c. $2,450,000.
Mayo Corp. has estimated that total depreciation expense for the year ending December 31, 2018 will amount to $600,000, and that 2018 year-end bonuses to employees will total $1,200,000. In Mayo's interim income statement for the six months ended June 30, 2018, what is the total amount of expense relating to these two items that should be reported? a. $0. b. $300,000. c. $900,000. d. $1,800,000.
c. $900,000.
The rate of return for 2018 based on the year-end common stockholders' equity was a. 1,050 ÷ 3,519. b. 1,050 ÷ 3,564. c. 1,005 ÷ 3,519. d. 1,005 ÷ 3,564.
c. 1,005 ÷ 3,519.
Which of the following disclosures is required for a change from sum-of-the-years-digits to straight-line depreciation method? a. The cumulative effect on prior years, net of tax, in the current retained earnings statement b. Restatement of prior years' income statements c. Recomputation of current and future years' depreciation d. All of these are required.
c. Recomputation of current and future years' depreciation
For interim financial reporting, a major repair occurring in the second quarter should be a. recognized in the second quarter. b. recognized ratably over all four quarters with the first quarter being restated. c. recognized ratably over the last three quarters. d. disclosed by note only in the second quarter.
c. recognized ratably over the last three quarters.
In a lease that is recorded as a sales-type lease by the lessor, interest revenue a. should be recognized in full as revenue at the lease's inception. b. should be recognized over the period of the lease using the straight-line method. c. should be recognized over the period of the lease using the effective interest method. d. does not arise.
c. should be recognized over the period of the lease using the effective interest method.
In order to properly record a direct-financing lease, the lessor needs to know how to calculate the lease receivable. The lease receivable in a direct-financing lease is best defined as a. the amount of funds the lessor has tied up in the asset which is the subject of the direct-financing lease. b. the difference between the lease payments receivable and the fair value of the leased property. c. the present value of minimum lease payments. d. the total book value of the asset less any accumulated depreciation recorded by the lessor prior to the lease agreement.
c. the present value of minimum lease payments.
On January 15, 2018, Vancey Company paid property taxes on its factory building for the calendar year 2018 in the amount of $1,080,000. In the first week of April 2018, Vancey made unanticipated major repairs to its plant equipment at a cost of $2,700,000. These repairs will benefit operations for the remainder of the calendar year. How should these expenses be reflected in Vancey's quarterly income statements? Three Months Ended 3/31/18 6/30/18 9/30/18 12/31/18 a. $270,000 $1,170,000 $1,170,000 $1,170,000 b. $270,000 $2,640,000 $270,000 $270,000 c. $1,080,000 $1,800,000 $ -0- $ -0- d. $945,000 $945,000 $945,000 $945,000
a. $270,000 $1,170,000 $1,170,000 $1,170,000
Torrey Co. manufactures equipment that is sold or leased. On December 31, 2018, Torrey leased equipment to Dalton for a five-year period ending December 31, 2023, at which date ownership of the leased asset will be transferred to Dalton. Equal payments under the lease are $1,100,000 (including $100,000 executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2018. Collectibility of the remaining lease payments is reasonably assured, and Torrey has no material cost uncertainties. The normal sales price of the equipment is $3,850,000, and cost is $3,000,000. For the year ended December 31, 2018, what amount of income should Torrey realize from the lease transaction? a. $850,000 b. $1,100,000 c. $1,150,000 d. $1,650,000
a. $850,000
Accrued salaries payable of $102,000 were not recorded at December 31, 2017. Office supplies on hand of $58,000 at December 31, 2018 were erroneously treated as expense instead of supplies inventory. Neither of these errors was discovered nor corrected. The effect of these two errors would cause a. 2018 net income to be understated $160,000 and December 31, 2018 retained earnings to be understated $58,000. b. 2017 net income and December 31, 2017 retained earnings to be understated $102,000 each. c. 2017 net income to be overstated $44,000 and 2018 net income to be understated $58,000. d. 2018 net income and December 31, 2018 retained earnings to be understated $58,000 each.
a. 2018 net income to be understated $160,000 and December 31, 2018 retained earnings to be understated $58,000.
At December 31, 2018, the acid-test ratio was a. 3,100 ÷ 1,300. b. 3,100 ÷ 2,160. c. 4,200 ÷ 1,600. d. 5,700 ÷ 1,300.
a. 3,100 ÷ 1,300.
The book value per share of common stock at 12/31/18 is a. 7,800 ÷ 240. b. 7,760 ÷ 240. c. 7,800 ÷ 220. d. 8,000 ÷ 220.
a. 7,800 ÷ 240.
A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. In a statement of cash flows, what amount is included in investing activities for the above transaction? a. Cash payment b. Acquisition price c. Zero d. Mortgage amount
a. Cash payment
Which of the following is (are) the proper time period(s) to record the effects of a change in accounting estimate? a. Current period and prospectively b. Current period and retrospectively c. Retrospectively only d. Current period only
a. Current period and prospectively
In computing depreciation of a leased asset, the lessee should subtract a. a guaranteed residual value and depreciate over the term of the lease. b. an unguaranteed residual value and depreciate over the term of the lease. c. a guaranteed residual value and depreciate over the life of the asset. d. an unguaranteed residual value and depreciate over the life of the asset.
a. a guaranteed residual value and depreciate over the term of the lease.
A lessee with a capital lease containing a bargain purchase option should depreciate the leased asset over the a. asset's remaining economic life. b. term of the lease. c. life of the asset or the term of the lease, whichever is shorter. d. life of the asset or the term of the lease, whichever is longer.
a. asset's remaining economic life.
A company that uses the last-in, first-out (LIFO) method of inventory pricing finds at an interim reporting date that there has been a partial liquidation of the base period inventory layer. The decline is considered temporary and the partial liquidation is expected to be recovered prior to year end. The amount shown as inventory at the interim reporting date should a. be shown at the actual level, and cost of sales for the interim reporting period should include the expected cost of replacement of the liquidated LIFO base. b. be shown at the actual level, and cost of sales for the interim reporting period should reflect the historical cost of the liquidated LIFO base. c. not give effect to the LIFO liquidation, and cost of sales for the interim reporting period should reflect the historical cost of the liquidated LIFO base. d. be shown at the actual level, and the decrease in inventory level should not be reflected in the cost of sales for the interim reporting period.
a. be shown at the actual level, and cost of sales for the interim reporting period should include the expected cost of replacement of the liquidated LIFO base.
When lessors account for residual values related to leased assets, they a. include the residual value because it is assumed the residual value will be realized. b. include the unguaranteed residual value in sales revenue. c. recognize more gross profit on a sales-type lease with a guaranteed residual value than on a sales-type lease with an unguaranteed residual value. d. All of the answers are true with regard to lessors and residual values.
a. include the residual value because it is assumed the residual value will be realized.
The methods of accounting for a lease by the lessee are a. operating and capital lease methods. b. operating, sales, and capital lease methods. c. operating and leveraged lease methods. d. None of these answers are correct.
a. operating and capital lease methods.
A lessee had a ten-year capital lease requiring equal annual payments. The reduction of the lease liability in year 2 should equal a. the current liability shown for the lease at the end of year 1. b. the current liability shown for the lease at the end of year 2. c. the reduction of the lease liability in year 1. d. one-tenth of the original lease liability.
a. the current liability shown for the lease at the end of year 1.
On January 1, 2016, Hess Co. purchased a patent for $1,904,000. The patent is being amortized over its remaining legal life of 15 years expiring on January 1, 2031. During 2019, Hess determined that the economic benefits of the patent would not last longer than ten years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2019? a. $1,142,400 b. $1,305,600 c. $1,344,000 d. $1,396,400
b. $1,305,600
Mays Company has a machine with a cost of $750,000 which also is its fair value on the date the machine is leased to Park Company. The lease is for 6 years and the machine is estimated to have an unguaranteed residual value of $75,000. If the lessor's interest rate implicit in the lease is 12%, the six beginning-of-the-year lease payments would be a. $162,874. b. $154,623. c. $146,587. d. $125,000.
b. $154,623.
Nagel Co.'s prepaid insurance was $190,000 at December 31, 2018 and $90,000 at December 31, 2017. Insurance expense was $62,000 for 2018 and $54,000 for 2017. What amount of cash disbursements for insurance would be reported in Nagel's 2018 net cash provided by operating activities presented on a direct basis? a. $198,000. b. $162,000. c. $128,000. d. $62,000.
b. $162,000.
On January 1, 2017, Janik Corp. acquired a machine at a cost of $900,000. It is to be depreciated on the straight-line method over a five-year period with no residual value. Because of a bookkeeping error, no depreciation was recognized in Janik's 2017 financial statements. The oversight was discovered during the preparation of Janik's 2018 financial statements. Depreciation expense on this machine for 2018 should be a. $0. b. $180,000. c. $225,000. d. $360,000.
b. $180,000.
Fina Corp. had the following transactions during the quarter ended March 31, 2018: Payment of fire insurance premium for calendar year 2018 800,000 What amount should be included in Fina's income statement for the quarter ended March 31, 2018? a. $ -0- b. $200,000 c. $400,000 d. $800,000
b. $200,000
Smiley Corp.'s transactions for the year ended December 31, 2018 included the following: • Purchased real estate for $1,250,000 cash which was borrowed from a bank. • Sold available-for-sale securities for $1,000,000. • Paid dividends of $1,200,000. • Issued 500 shares of common stock for $500,000. • Purchased machinery and equipment for $250,000 cash. • Paid $900,000 toward a bank loan. • Reduced accounts receivable by $200,000. • Increased accounts payable $400,000. Smiley's net cash used in financing activities for 2018 was a. $450,000. b. $350,000. c. $900,000. d. $850,000.
b. $350,000.
Equipment was purchased at the beginning of 2016 for $850,000. At the time of its purchase, the equipment was estimated to have a useful life of six years and a salvage value of $100,000. The equipment was depreciated using the straight-line method of depreciation through 2018. At the beginning of 2019, the estimate of useful life was revised to a total life of eight years and the expected salvage value was changed to $62,500. The amount to be recorded for depreciation for 2019, reflecting these changes in estimates, is a. $51,562. b. $82,500. c. $95,000. d. $98,438.
b. $82,500.
Peavy Corp.'s transactions for the year ended December 31, 2018 included the following: • Acquired 50% of Gant Corp.'s common stock for $300,000 cash which was borrowed from a bank. • Issued 5,000 shares of its preferred stock for land having a fair value of $480,000. • Issued 600 of its 11% debenture bonds, due 2023, for $588,000 cash. • Purchased a patent for $330,000 cash. • Paid $180,000 toward a bank loan. • Sold available-for-sale securities for $1,194,000. • Had a net increase in returnable customer deposits (long-term) of $132,000. Peavy's net cash provided by financing activities for 2015 was a. $708,000. b. $840,000. c. $888,000. d. $1,020,000.
b. $840,000.
On December 1, 2018, Goetz Corporation leased office space for 10 years at a monthly rental of $80,000. On that date Goetz paid the landlord the following amounts: Rent deposit $ 80,000 First month's rent 80,000 Last month's rent 80,000 Installation of new walls and offices 640,000 $880,000 The entire amount of $880,000 was charged to rent expense in 2018. What amount should Goetz have charged to expense for the year ended December 31, 2018? a. $80,000 b. $85,333 c. $165,333 d. $640,000
b. $85,333
On January 1, 2016, Knapp Corporation acquired machinery at a cost of $1,250,000. Knapp adopted the double-declining balance method of depreciation for this machinery and had been recording depreciation over an estimated useful life of ten years, with no residual value. At the beginning of 2019, a decision was made to change to the straight-line method of depreciation for the machinery. The depreciation expense for 2019 would be a. $64,000. b. $91,429. c. $125,000. d. $178,570.
b. $91,429.
The profit margin on sales for 2018 is a. 4,400 ÷ 12,800. b. 1,500 ÷ 12,800. c. 4,400 ÷ 8,400. d. 1,500 ÷ 8,400.
b. 1,500 ÷ 12,800.
When preparing a statement of cash flows (indirect method), which of the following is not an adjustment to reconcile net income to net cash provided by operating activities? a. A change in interest payable b. A change in dividends payable c. A change in income taxes payable d. All of these are adjustments.
b. A change in dividends payable
Which of the following is not accounted for as a change in accounting principle? a. A change from LIFO to FIFO for inventory valuation b. A change to a different method of depreciation for plant assets c. A change from full-cost to successful efforts in the extractive industry d. A change from the completed-contract to the percentage-of-completion method
b. A change to a different method of depreciation for plant assets
Unruh Corp. and its divisions are engaged solely in manufacturing operations. The following data pertain to the segments in which operations were conducted for the year ended December 31, 2018. Assets Industry Revenue Profit 12/31/18 A $ 8,000,000 $1,320,000 $16,000,000 B 6,400,000 1,120,000 14,000,000 C 4,800,000 960,000 10,000,000 D 2,400,000 440,000 5,200,000 E 3,400,000 540,000 5,600,000 F 1,200,000 180,000 2,400,000 $26,200,000 $4,560,000 $53,200,000 In its segment information for 2018, how many reportable segments does Unruh have? a. Three b. Four c. Five d. Six
b. Four
When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is deducted from net income to compute cash provided by/used by operating activities? a. Decrease in accounts receivable. b. Gain on sale of land. c. Amortization of patent. d. All of these are deducted from net income to arrive at cash flow from operating activities.
b. Gain on sale of land.
Which of the following should be reported as a prior period adjustment? Change in Change from Estimated Lives Unaccepted Principle of Depreciable Assets to Accepted Principle a. Yes Yes b. No Yes c. Yes No d. No No
b. No Yes
Which of the following would be classified as a financing activity on a statement of cash flows? a. Declaration and distribution of a stock dividend b. Payment of a bond payable c. Sale of a loan receivable d. Payment of interest to a creditor
b. Payment of a bond payable
In a sale-leaseback transaction in which none of the four leasing criteria are satisfied, which of the following is false? a. The seller-lessee removes the asset from its books. b. The purchaser-lessor records a gain. c. The seller-lessee records the lease as an operating lease. d. All of the answers are false statements.
b. The purchaser-lessor records a gain.
Metcalf Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a capital lease for Metcalf. The six-year lease requires payment of $170,000 at the beginning of each year, including $25,000 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Metcalf should record the leased asset at a. $848,761. b. $814,435. c. $723,943. d. $694,665.
c. $723,943.
The return on common stock holders' equity for 2018 is a. 1,500 ÷ 7,200. b. 1,500 ÷ 8,000. c. 1,300 ÷ 7,200. d. 1,300 ÷ 8,000.
c. 1,300 ÷ 7,200.
The number of times interest was earned during 2018 was a. 1,050 ÷ 150. b. 1,500 ÷ 150. c. 1,650 ÷ 150. d. 1,350 ÷ 150.
c. 1,650 ÷ 150.
Presented below is information related to Tolbert Company. Current Assets Cash $ 14,000 Short-term investments 75,000 Accounts receivable 61,000 Inventories 110,000 Prepaid expenses 30,000 Total current assets $290,000 Total current liabilities are $100,000. What is the acid-test ratio? a. 2.9 to 1. b. 2.6 to 1. c. 1.5 to 1. d. 0.9 to 1.
c. 1.5 to 1.
The accounts receivable turnover for 2018 is a. 12,800 ÷ 1,600. b. 8,400 ÷ 1,600. c. 12,800 ÷ 1,400. d. 8,400 ÷ 1,400.
c. 12,800 ÷ 1,400.
During 2018, Quirk, Incorporated purchased $3,950,000 of inventory. The cost of goods sold for 2018 was $4,050,000 and the ending inventory at December 31, 2018, was $400,000. What was the inventory turnover for 2018? a. 7.9. b. 8.1. c. 9.0. d. 10.1.
c. 9.0.
A company changes from percentage-of-completion to completed-contract method, which is used for tax purposes. The entry to record this change should include a a. debit to Construction in Process. b. debit to Loss on Long-term Contracts in the amount of the difference on prior years, net of tax. c. debit to Retained Earnings in the amount of the difference on prior years, net of tax. d. credit to Deferred Tax Liability.
c. debit to Retained Earnings in the amount of the difference on prior years, net of tax.
Equipment which cost $426,000 and had accumulated depreciation of $228,000 was sold for $222,000. This transaction should be shown on the statement of cash flows (indirect method) as a(n) a. addition to net income of $24,000 and a $222,000 cash inflow from financing activities. b. deduction from net income of $24,000 and a $198,000 cash inflow from investing activities. c. deduction from net income of $24,000 and a $222,000 cash inflow from investing activities. d. addition to net income of $24,000 and a $198,000 cash inflow from financing activities.
c. deduction from net income of $24,000 and a $222,000 cash inflow from investing activities.
Jamar Co. sold its headquarters building at a gain, and simultaneously leased back the building. The lease was reported as a capital lease. At the time of the sale, the gain should be reported as a. operating income. b. comprehensive income net of income tax. c. a separate component of stockholders' equity. d. a deferred gain.
d. a deferred gain.
Minimum lease payments may include a a. penalty for failure to renew. b. bargain purchase option. c. guaranteed residual value. d. any of these provisions.
d. any of these provisions.
Dolan Company reports its income from investments under the equity method and recognized income of $25,000 from its investment in Moss Co. during the current year, even though no dividends were declared or paid by Moss during the year. On Dolan's statement of cash flows (indirect method), the $25,000 should a. not be shown. b. be shown as cash inflow from investing activities. c. be shown as cash outflow from financing activities. d. be shown as a deduction from net income in the cash flows from operating activities section.
d. be shown as a deduction from net income in the cash flows from operating activities section.
The payout ratio is calculated by dividing a. dividends per share by earnings per share. b. cash dividends by net income plus preferred dividends. c. cash dividends by market price per share. d. cash dividends by net income less preferred dividends.
d. cash dividends by net income less preferred dividends.
A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows (indirect method), this event would be reflected as a(n) a. addition adjustment to net income in the cash flows from operating activities section. b. cash outflow from investing activities. c. cash inflow from investing activities. d. cash inflow from financing activities.
d. cash inflow from financing activities.
When a company sells property and then leases it back, any gain on the sale should usually be a. recognized in the current year. b. recognized as a prior period adjustment. c. recognized at the end of the lease. d. deferred and recognized as income over the term of the lease.
d. deferred and recognized as income over the term of the lease.
Lessees prefer to account for their leases as operating lease because: a. it increases their debt to total equity ratio. b. it decreases the income tax expense. c. it increases the amount of total assets. d. it decreases the amount of liability reported.
d. it decreases the amount of liability reported.
If the residual value of a leased asset is guaranteed by a third party a. it is treated by the lessee as no residual value. b. the third party is also liable for any lease payments not paid by the lessee. c. the net investment to be recovered by the lessor is reduced. d. it is treated by the lessee as an additional payment and by the lessor as realized at the end of the lease term.
d. it is treated by the lessee as an additional payment and by the lessor as realized at the end of the lease term.
When preparing a statement of cash flows, a decrease in prepaid insurance during a period would require which of the following adjustments in determining cash flows from operating activities? Indirect Method Direct Method a. Increase Decrease b. Decrease Increase c. Increase Increase d. Decrease Decrease
a. Increase Decrease
When preparing a statement of cash flows, an increase in accounts payable during a period would require which of the following adjustments in determining cash flows from operating activities? Indirect Method Direct Method a. Increase Decrease b. Decrease Increase c. Increase Increase d. Decrease Decrease
a. Increase Decrease
Based solely upon the following sets of circumstances indicated below, which set gives rise to a sales-type or direct-financing lease of a lessor? Transfers Ownership Contains Bargain Collectibility of Lease Any Important by End of Lease? Purchase Option? Payments Assured? Uncertainties? a. No Yes Yes No b. Yes No No No c. Yes No No Yes d. No Yes Yes Yes
a. No Yes Yes No
Cash, short-term investments, and net receivables are the numerator for Acid-Test Ratio Current Ratio a. Yes No b. Yes Yes c. No No d No Yes
a. Yes No
In presenting segment information, which of the following items must be reconciled to the entity's consolidated financial statements? Operating Identifiable Revenues Profit (Loss) Assets a. Yes Yes Yes b. No Yes Yes c. Yes No Yes d. Yes Yes No
a. Yes Yes Yes
A company changes from the straight-line method to an accelerated method of calculating depreciation, which will be similar to the method used for tax purposes. The entry to record this change will include a a. credit to Accumulated Depreciation. b. debit to Retained Earnings in the amount of the difference on prior years. c. debit to Deferred Tax Asset. d. credit to Deferred Tax Liability.
a. credit to Accumulated Depreciation.
In a lease that is appropriately recorded as a direct-financing lease by the lessor, the unearned income a. should be amortized over the period of the lease using the effective interest method. b. should be amortized over the period of the lease using the straight-line method. c. does not arise. d. should be recognized at the lease's expiration.
a. should be amortized over the period of the lease using the effective interest method.
The following methods of estimating inventory can be used at interim dates for inventory pricing. Which of these methods can also be used at year end? Gross Profit Method Retail Inventory Method a. No No b. No Yes c. Yes No d. Yes Yes
b. No Yes
Presented below are four segments that have been identified by Haley Productions: Operating Segments Total Revenue Profit (Loss) Identifiable Assets A $255,000 $30,000 $900,000 B 600,000 (55,000) 800,000 C 225,000 6,000 450,000 D 90,000 4,000 225,000 For which of the segments would information have to be disclosed in accordance with professional pronouncements? a. Segments A, B, C, and D b. Segments A, B, and C c. Segments A and B d. Segments A and D
b. Segments A, B, and C
What impact does a bargain purchase option have on the present value of the minimum lease payments computed by the lessee? a. There is no impact as the option does not enter into the transaction until the end of the lease term. b. The lessee must increase the present value of the minimum lease payments by the present value of the option price. c. The lessee must decrease the present value of the minimum lease payments by the present value of the option price. d. The minimum lease payments would be increased by the present value of the option price if, at the time of the lease agreement, it appeared certain that the lessee would exercise the option at the end of the lease and purchase the asset at the option price.
b. The lessee must increase the present value of the minimum lease payments by the present value of the option price.
Advertising costs may be accrued or deferred to provide an appropriate expense in each period for Interim Year-end Financial Reporting Financial Reporting a. Yes No b. Yes Yes c. No No d. No Yes
b. Yes Yes
Counterbalancing errors do not include a. errors that correct themselves in two years. b. errors that correct themselves in three years. c. an understatement of purchases. d. an overstatement of unearned revenue.
b. errors that correct themselves in three years.
To avoid leased asset capitalization, companies can devise lease agreements that fail to satisfy any of the four leasing criteria. Which of the following is not one of the ways to accomplish this goal? a. Lessee uses a higher interest rate than that used by lessor. b. Set the lease term at something less than 75% of the estimated useful life of the property. c. Write in a bargain purchase option. d. Use a third party to guarantee the asset's residual value.
c. Write in a bargain purchase option.
Which of the following facts concerning plant assets should be included in the summary of significant accounting policies? Depreciation Method Composition a. No Yes b. Yes Yes c. Yes No d. No No
c. Yes No
Which of the following ratios should be used in evaluating the effectiveness with which the company uses its assets? Accounts Receivable Turnover Payout Ratio a. Yes Yes b. No No c. Yes No d. No Yes
c. Yes No
The primary purpose of the statement of cash flows is to provide information a. about the operating, investing, and financing activities of an entity during a period. b. that is useful in assessing future cash flow prospects. c. about the cash receipts and cash payments of an entity during a period. d. about the entity's ability to meet its obligations and to pay dividends.
c. about the cash receipts and cash payments of an entity during a period.
All of the following information about each operating segment must be reported except a. unusual items. b. interest revenue. c. cost of goods sold. d. depreciation and amortization expense.
c. cost of goods sold.
Net cash provided by Jamison's 2018 financing activities was a. $480,000. b. $520,000. c. $1,080,000. d. $1,680,000.
a. $480,000.
On January 1, 2016, Lake Co. purchased a machine for $1,980,000 and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value. On January 1, 2019, Lake determined that the machine had a useful life of six years from the date of acquisition and will have a salvage value of $180,000. An accounting change was made in 2019 to reflect these additional data. The accumulated depreciation for this machine should have a balance at December 31, 2019 of a. $1,095,000. b. $1,155,000. c. $1,200,000. d. $1,320,000.
a. $1,095,000.
On December 31, 2018, Burton, Inc. leased machinery with a fair value of $1,575,000 from Cey Rentals Co. The agreement is a six-year noncancelable lease requiring annual payments of $300,000 beginning December 31, 2018. The lease is appropriately accounted for by Burton as a capital lease. Burton's incremental borrowing rate is 11%. Burton knows the interest rate implicit in the lease payments is 10%. The present value of an annuity due of 1 for 6 years at 10% is 4.7908. The present value of an annuity due of 1 for 6 years at 11% is 4.6959. In its December 31, 2018 balance sheet, Burton should report a lease liability of a. $1,137,240. b. $1,275,000. c. $1,408,770. d. $1,437,240.
a. $1,137,240.
Net cash used in Jamison's 2018 investing activities was a. $2,320,000. b. $1,820,000. c. $1,680,000. d. $1,720,000.
a. $2,320,000.
Howell, Inc. reported net income of $88,000 for the year ended December 31, 2018. Included in net income was a gain on early extinguishment of debt of $120,000 related to bonds payable with a book value of $2,400,000. Each of the following accounts increased during 2018: Notes receivable $90,000 Deferred tax liability $20,000 Treasury stock $240,000 What is the amount of cash used by financing activities for Jarvis, Inc. for the year ended December 31, 2018? a. $2,520,000 b. $2,540,000 c. $3,800,000 d. $ 450,000
a. $2,520,000
The Lease Liability account should be disclosed as a. a current liability. b. a noncurrent liability. c. current portions in current liabilities and the remainder in noncurrent liabilities. d. deferred credits.
c. current portions in current liabilities and the remainder in noncurrent liabilities.
Black, Inc. is a calendar-year corporation whose financial statements for 2017 and 2018 included errors as follows: Year Ending Inventory Depreciation Expense 2017 $324,000 overstated $270,000 overstated 2018 128,000 understated 90,000 understated Assume that purchases were recorded correctly and that no correcting entries were made at December 31, 2017, or at December 31, 2018. Ignoring income taxes, by how much should Black's retained earnings be retroactively adjusted at January 1, 2019? a. $308,000 increase b. $92,000 increase c. $38,000 decrease d. $16,000 increase
a. $308,000 increase
During 2018, Greta Company earned net income of $262,000 which included depreciation expense of $39,000. In addition, the company experienced the following changes in the account balances listed below: Decreases Increases Accounts receivable $ 6,000 Accounts payable...... $22,500 Prepaid expenses 16,500 Inventory................ ..18,000 Accrued liabilities 12,000 Based upon this information what amount will be shown for net cash provided by operating activities for 2018? a. $316,000. b. $302,500. c. $212,500. d. $203,500.
a. $316,000.
Lindsay Corporation had net income for 2018 of $3,000,000. Additional information is as follows: Depreciation of plant assets $1,200,000 Amortization of intangibles 240,000 Increase in accounts receivable 420,000 Increase in accounts payable 540,000 Lindsay's net cash provided by operating activities for 2018 was a. $4,560,000. b. $4,440,000. c. $4,320,000. d. $2,680,000.
a. $4,560,000.
The following information pertains to Nixon Corp. and its divisions for the year ended December 31, 2018. Sales to unaffiliated customers $4,000,000 Intersegment sales of products similar to those sold to unaffiliated customers 900,000 Interest earned on loans to other operating segments 60,000 Nixon and all of its divisions are engaged solely in manufacturing operations. Nixon has a reportable segment if that segment's revenue exceeds a. $496,000. b. $490,000. c. $406,000. d. $400,000.
b. $490,000.
Peavy Corp.'s transactions for the year ended December 31, 2018 included the following: • Acquired 50% of Gant Corp.'s common stock for $300,000 cash which was borrowed from a bank. • Issued 5,000 shares of its preferred stock for land having a fair value of $480,000. • Issued 600 of its 11% debenture bonds, due 2023, for $588,000 cash. • Purchased a patent for $330,000 cash. • Paid $180,000 toward a bank loan. • Sold available-for-sale securities for $1,194,000. • Had a net increase in returnable customer deposits (long-term) of $132,000. Peavy's net cash provided by investing activities for 2018 was a. $414,000. b. $564,000. c. $864,000. d. $894,000.
b. $564,000.
On December 31, 2018 Dean Company changed its method of accounting for inventory from weighted average cost method to the FIFO method. This change caused the 2018 beginning inventory to increase by $960,000. The cumulative effect of this accounting change to be reported for the year ended 12/31/18, assuming a 40% tax rate, is a. $960,000. b. $576,000. c. $384,000. d. $0.
b. $576,000.
An increase in inventory balance would be reported in a statement of cash flows using the indirect method (reconciliation method) as a(n) a. addition to net income in arriving at net cash flow from operating activities. b. deduction from net income in arriving at net cash flow from operating activities. c. cash outflow from investing activities. d. cash outflow from financing activities.
b. deduction from net income in arriving at net cash flow from operating activities.
The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n) a. addition to net income. b. deduction from net income. c. investing activity. d. financing activity
b. deduction from net income.
If a business entity entered into certain related party transactions, it would be required to disclose all of the following information except the a. nature of the relationship between the parties to the transactions. b. nature of any future transactions planned between the parties and the terms involved. c. dollar amount of the transactions for each of the periods for which an income state-ment is presented. d. amounts due from or to related parties as of the date of each balance sheet presented.
b. nature of any future transactions planned between the parties and the terms involved.
The return on common stockholders' equity is calculated by dividing a. net income by average common stockholders' equity. b. net income less preferred dividends by average common stockholders' equity. c. net income by ending common stockholders' equity. d. net income less preferred dividends by ending common stockholders' equity.
b. net income less preferred dividends by average common stockholders' equity.
The amount to be recorded as the cost of an asset under capital lease is equal to the a. present value of the minimum lease payments. b. present value of the minimum lease payments or the fair value of the asset, whichever is lower. c. present value of the minimum lease payments plus the present value of any unguaranteed residual value. d. carrying value of the asset on the lessor's books.
b. present value of the minimum lease payments or the fair value of the asset, whichever is lower.
If the financial statements examined by an auditor lead the auditor to issue an opinion that contains an exception that is not of sufficient magnitude to invalidate the statement as a whole, the opinion is said to be a. unqualified. b. qualified. c. adverse. d. exceptional.
b. qualified.
Revenue of a segment includes a. only sales to unaffiliated customers. b. sales to unaffiliated customers and intersegment sales. c. sales to unaffiliated customers and interest revenue. d. sales to unaffiliated customers and other revenue and gains.
b. sales to unaffiliated customers and intersegment sales.
A statement of cash flows typically would not disclose the effects of a. capital stock issued at an amount greater than par value. b. stock dividends declared. c. cash dividends paid. d. a purchase and immediate retirement of treasury stock.
b. stock dividends declared.
A segment of a business enterprise is to be reported separately when the revenues of the segment exceed 10 percent of the a. total combined revenues of all segments reporting profits. b. total revenues of all the enterprise's industry segments. c. total export and foreign sales. d. combined net income of all segments reporting profits.
b. total revenues of all the enterprise's industry segments.
The focus of APB Opinion No. 22 is on the disclosure of accounting policies. This information is important to financial statement readers in determining a. net income for the year. b. whether accounting policies are consistently applied from year to year. c. the value of obsolete items included in ending inventory. d. whether the working capital position is adequate for future operations.
b. whether accounting policies are consistently applied from year to year.
An inventory loss from market decline of $1,800,000 occurred in May 2018, after its March 31, 2018 quarterly report was issued. None of this loss was recovered by the end of the year. How should this loss be reflected in the company's quarterly income statements? Three Months Ended 3/31/18 6/30/18 9/30/18 12/31/18 a. $ -0- $ -0- $ -0- $1,800,000 b. $ -0- $600,000 $600,000 $600,000 c. $ -0- $1,800,000 $ -0- $ -0- d. $450,000 $450,000 $450,000 $450,000
c. $ -0- $1,800,000 $ -0- $ -0-
Heinz Company began operations on January 1, 2017, 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: Final Inventory 2017 2018 FIFO $640,000 $ 712,000 LIFO 560,000 636,000 Net Income (computed under the FIFO method) 980,000 1,330,000 Based on the above information, a change to the LIFO method in 2018 would result in net income for 2018 of a. $1,370,000. b. $1,330,000. c. $1,254,000. d. $1,250,000.
c. $1,254,000.
On January 2, 2018, Hernandez, Inc. signed a ten-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $300,000 starting at the beginning of the first year, with title passing to Hernandez at the expiration of the lease. Hernandez treated this transaction as a capital lease. The drill press has an estimated useful life of 15 years, with no salvage value. Hernandez uses straight-line depreciation for all of its plant assets. Aggregate lease payments were determined to have a present value of $1,800,000, based on implicit interest of 10%. In its 2018 income statement, what amount of interest expense should Hernandez report from this lease transaction? a. $0 b. $135,000 c. $150,000 d. $180,000
c. $150,000
Pye Company leased equipment to the Polan Company on July 1, 2018, for a ten-year period expiring June 30, 2028. Equal annual payments under the lease are $240,000 and are due on July 1 of each year. The first payment was made on July 1, 2018. The rate of interest contemplated by Pye and Polan is 9%. The cash selling price of the equipment is $1,680,000 and the cost of the equipment on Pye's accounting records was $1,488,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Pye, what is the amount of profit on the sale and the interest revenue that Pye would record for the year ended December 31, 2018? a. $192,000 and $151,200 b. $192,000 and $129,600 c. $192,000 and $64,800 d. $0 and $0
c. $192,000 and $64,800
Net cash provided by Jamison's 2018 operating activities was a. $1,500,000. b. $2,120,000. c. $2,080,000. d. $2,160,000.
c. $2,080,000.
Howell, Inc. reported net income of $88,000 for the year ended December 31, 2018 Included in net income were depreciation expense of $16,800 and a gain on sale of equipment of $3,400. The equipment had an historical cost of $80,000 and accumulated depreciation of $48,000. Each of the following accounts increased during 2018: Patents $11,000 Prepaid rent $13,600 Available-for-sale securities $2,000 Bonds payable $10,000 What is the amount of cash provided by or used by investing activities for Jarvis, Inc. for the year ended December 31, 2018? a. ( $ 9,600) b. $33,400 c. $22,400 d. $24,400
c. $22,400
In January 2018, Post, Inc. estimated that its year-end bonus to executives would be $960,000 for 2018. The actual amount paid for the year-end bonus for 2017 was $880,000. The estimate for 2018 is subject to year-end adjustment. What amount, if any, of expense should be reflected in Post's quarterly income statement for the three months ended March 31, 2018? a. $ -0-. b. $220,000. c. $240,000. d. $960,000.
c. $240,000.
During 2018, Stout Inc. had the following activities related to its financial operations: Carrying value of convertible preferred stock in Stout, converted into common shares of Stout $ 540,000 Payment in 2018 of cash dividend declared in 2017 to preferred shareholders 279,000 Payment for the early retirement of long-term bonds payable (carrying amount $3,930,000) 3,975,000 Proceeds from the sale of treasury stock (on books at cost of $387,000) 450,000 The amount of net cash used in financing activities to appear in Stout's statement of cash flows for 2018 should be a. $2,985,000. b. $3,264,000. c. $3,804,000. d. $3,822,000.
c. $3,804,000.
In preparing Titan Inc.'s statement of cash flows for the year ended December 31, 2018, the following amounts were available: Collect note receivable $615,000 Issue bonds payable 639,000 Purchase treasury stock 300,000 What amount should be reported on Titan, Inc's statement of cash flows for financing activities? a. $ 24,000 b. $1,254,000 c. $339,000 d. $315,000
c. $339,000
Foxx Corp.'s comparative balance sheet at December 31, 2018 and 2017 reported accumulated depreciation balances of $1,245,000 and $900,000, respectively. Property with a cost of $75,000 and a carrying amount of $57,000 was the only property sold in 2018. Depreciation charged to operations in 2018 was a. $327,000. b. $345,000. c. $363,000. d. $402,000.
c. $363,000.
Smiley Corp.'s transactions for the year ended December 31, 2018 included the following: • Purchased real estate for $1,250,000 cash which was borrowed from a bank. • Sold available-for-sale securities for $1,000,000. • Paid dividends of $1,200,000. • Issued 500 shares of common stock for $500,000. • Purchased machinery and equipment for $250,000 cash. • Paid $900,000 toward a bank loan. • Reduced accounts receivable by $200,000. • Increased accounts payable $400,000. Smiley's net cash used in investing activities for 2018 was a. $1,500,000. b. $750,000. c. $500,000. d. $250,000.
c. $500,000.
Which of the following best characterizes the difference between a financial forecast and a financial projection? a. Forecasts include a complete set of financial statements, while projections include only summary financial data. b. A forecast is normally for a full year or more and a projection presents data for less than a year. c. A forecast attempts to provide information on what is expected to happen, whereas a projection may provide information on hypothetical assumptions. d. A forecast includes data which can be verified about future expectations, while the data in a projection is not susceptible to verification.
c. A forecast attempts to provide information on what is expected to happen, whereas a projection may provide information on hypothetical assumptions.
When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is added to net income to compute cash provided by/used by operating activities? a. Increase in accounts receivable. b. Gain on sale of land. c. Amortization of patent. d. All of these are added to net income to arrive at cash flow from operating activities.
c. Amortization of patent.
Lease A does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases? Lease A Lease B a. Operating lease Capital lease b. Operating lease Operating lease c. Capital lease Capital lease d. Capital lease Operating lease
c. Capital lease Capital lease
Which type of accounting change should always be accounted for in current and future periods? a. Change in accounting principle b. Change in reporting entity c. Change in accounting estimate d. Correction of an error
c. Change in accounting estimate
Which of the following ratios measures long-term solvency? a. Acid-test ratio b. Accounts receivable turnover c. Debt to assets d. Current ratio
c. Debt to assets
Crabbe Company reported $80,000 of selling and administrative expenses on its income statement for the past year. The company had depreciation expense and an increase in prepaid expenses associated with the selling and administrative expenses for the year. Assuming use of the direct method, how would these items be handled in converting the accrual based selling and administrative expenses to the cash basis? Increase in Depreciation Prepaid Expenses a. Deducted From Deducted From b. Added To Added To c. Deducted From Added To d. Added To Deducted From
c. Deducted From Added To
When preparing a statement of cash flows, a decrease in accounts receivable during a period would cause which one of the following adjustments in determining cash flow from operating activities? Direct Method Indirect Method a. Increase Decrease b. Decrease Increase c. Increase Increase d. Decrease Decrease
c. Increase Increase
How is the average inventory used in the calculation of each of the following? Acid-Test (Quick) Ratio Inventory Turnover a. Numerator Numerator b. Numerator Denominator c. Not Used Denominator d. Not Used Numerator
c. Not Used Denominator
Farr, Inc. is a multidivisional corporation which has both intersegment sales and sales to unaffiliated customers. Farr should report segment financial information for each division meeting which of the following criteria? a. Segment profit or loss is 10% or more of consolidated profit or loss. b. Segment profit or loss is 10% or more of combined profit or loss of all company segments. c. Segment revenue is 10% or more of combined revenue of all the company segments. d. Segment revenue is 10% or more of consolidated revenue.
c. Segment revenue is 10% or more of combined revenue of all the company segments.
Which of the following is not a retrospective-type accounting change? a. Completed-contract method to the percentage-of-completion method for long-term construction contracts b. LIFO method to the FIFO method for inventory valuation c. Sum-of-the-years'-digits method to the straight-line method d. "Full cost" method to another method in the extractive industry
c. Sum-of-the-years'-digits method to the straight-line method
Which of the following statements about the statement of cash flows is correct? a. The indirect method starts with income from continuing operations. b. The direct method is known as the reconciliation method. c. The direct method is more consistent with the primary purpose of the statement of cash flows. d. All of these answers are correct.
c. The direct method is more consistent with the primary purpose of the statement of cash flows.
Which of the following is shown on a statement of cash flows? a. A stock dividend b. A stock split c. An appropriation of retained earnings d. None of these answers are correct.
d. None of these answers are correct.
How should significant noncash transactions be reported in the statement of cash flows according to FASB Statement No. 95? a. They should be incorporated in the statement of cash flows in a section labeled, "Significant Noncash Transactions." b. Such transactions should be incorporated in the section (operating, financing, or investing) that is most representative of the major component of the transaction. c. These noncash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials. d. They should be handled in a manner consistent with the transactions that affect cash flows.
c. These noncash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials.
Xanthe Corporation had the following transactions occur in the current year: 1. Cash sale of merchandise inventory. 2. Sale of delivery truck at book value. 3. Sale of Xanthe common stock for cash. 4. Issuance of a note payable to a bank for cash. 5. Sale of a security held as an available-for-sale investment. 6. Collection of loan receivable. How many of the above items will appear as a cash inflow from investing activities on a statement of cash flows for the current year? a. Five items b. Four items c. Three items d. Two items
c. Three items
On December 31, 2018, special insurance costs, incurred but unpaid, were not recorded. If these insurance costs were related to work in process, what is the effect of the omission on accrued liabilities and retained earnings in the December 31, 2018 balance sheet? Accrued Liabilities Retained Earnings a. No effect No effect b. No effect Overstated c. Understated No effect d. Understated Overstated
c. Understated No effect
A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. In a statement of cash flows, what amount is included in financing activities for the above transaction? a. Cash payment b. Acquisition price c. Zero d. Mortgage amount
c. Zero
Presenting consolidated financial statements this year when statements of individual companies were presented last year is a. a correction of an error. b. an accounting change that should be reported prospectively. c. an accounting change that should be reported by restating the financial statements of all prior periods presented. d. not an accounting change.
c. an accounting change that should be reported by restating the financial statements of all prior periods presented.
The initial direct costs of leasing a. are generally borne by the lessee. b. include incremental costs related to internal activities of leasing, and internal costs related to costs paid to external third parties for originating a lease arrangement. c. are expensed in the period of the sale under a sales-type lease. d. All of the answers are true with regard to the initial direct costs of leasing.
c. are expensed in the period of the sale under a sales-type lease.
To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by a. re-recording all income statement transactions that directly affect cash in a separate cash flow journal. b. estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions. c. eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash. d. eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation.
c. eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.
An example of a correction of an error in previously issued financial statements is a change a. from the FIFO method of inventory valuation to the LIFO method. b. in the service life of plant assets, based on changes in the economic environment. c. from the cash basis of accounting to the accrual basis of accounting. d. in the tax assessment related to a prior period.
c. from the cash basis of accounting to the accrual basis of accounting.
On January 1, 2018, Dean Corporation signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Dean to make annual payments of $220,000 at the end of each year for ten years with the title passing to Dean at the end of this period. The machinery has an estimated useful life of 15 years and no salvage value. Dean uses the straight-line method of depreciation for all of its fixed assets. Dean accordingly accounted for this lease transaction as a capital lease. The lease payments were determined to have a present value of $1,342,016 at an effective interest rate of 8%. With respect to this capitalized lease, Dean should record for 2018 a. lease expense of $200,000. b. interest expense of $89,468 and depreciation expense of $76,136. c. interest expense of $107,361 and depreciation expense of $89,468. d. interest expense of $91,363 and depreciation expense of $134,202.
c. interest expense of $107,361 and depreciation expense of $89,468.
The MD&A section of a company's annual report is to cover the following three items: a. income statement, balance sheet, and statement of owners' equity. b. income statement, balance sheet, and statement of cash flows. c. liquidity, capital resources, and results of operations. d. changes in the stock price, mergers, and acquisitions.
c. liquidity, capital resources, and results of operations.
An example of an inventory accounting policy that should be disclosed in a Summary of Significant Accounting Policies is the a. amount of income resulting from the involuntary liquidation of LIFO. b. major backlogs of inventory orders. c. method used for pricing inventory. d. separation of inventory into raw materials, work-in-process, and finished goods.
c. method used for pricing inventory.
The calculation of the times interest earned involves dividing a. net income by annual interest expense. b. net income plus income taxes by annual interest expense. c. net income plus income taxes and interest expense by annual interest expense. d. None of these answers are correct.
c. net income plus income taxes and interest expense by annual interest expense.
If, at the end of a period, a company using perpetual inventory erroneously excluded some goods from its ending inventory and also erroneously did not record the purchase of these goods in its accounting records, these errors would cause a. the ending inventory and retained earnings to be understated. b. the ending inventory, cost of goods sold, and retained earnings to be understated. c. no effect on net income, working capital, and retained earnings. d. cost of goods sold and net income to be understated.
c. no effect on net income, working capital, and retained earnings.
Companies should disclose all of the following in interim reports except a. basic and diluted earnings per share. b. changes in accounting principles. c. post-balance-sheet events. d. seasonal revenue, cost, or expenses.
c. post-balance-sheet events.
The general approach for handling advertising costs which benefit future quarters in interim reports is to a. prorate them over all four quarters. b. charge the expenses in the quarter incurred. c. prorate them over the current and remaining quarters. d. disclose them only in the notes.
c. prorate them over the current and remaining quarters.
The primary difference between a direct-financing lease and a sales-type lease is the a. manner in which rental receipts are recorded as rental income. b. amount of the depreciation recorded each year by the lessor. c. recognition of the manufacturer's or dealer's profit at (or loss) the inception of the lease. d. allocation of initial direct costs by the lessor to periods benefited by the lease arrangements.
c. recognition of the manufacturer's or dealer's profit at (or loss) the inception of the lease.
For a sales-type lease, a. the sales price includes the present value of the unguaranteed residual value. b. the present value of the guaranteed residual value is deducted to determine the cost of goods sold. c. the gross profit will be the same whether the residual value is guaranteed or unguaranteed. d. None of these answers are correct.
c. the gross profit will be the same whether the residual value is guaranteed or unguaranteed.
In computing the present value of the minimum lease payments, the lessee should a. use its incremental borrowing rate in all cases. b. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is higher, assuming that the implicit rate is known to the lessee. c. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee. d. None of these answers are correct.
c. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee.
Events that occur after the December 31, 2018 balance sheet date, but before the balance sheet is issued, and provide additional evidence about conditions that existed at the balance sheet date and affect the realizability of accounts receivable should be a. discussed only in the MD&A (Management's Discussion and Analysis) section of the annual report. b. disclosed only in the Notes to the Financial Statements. c. used to record an adjustment to Bad Debt Expense for the year ending December 31, 2018 d. used to record an adjustment directly to the Retained Earnings account
c. used to record an adjustment to Bad Debt Expense for the year ending December 31, 2018
On December 31, 2018, Haden Corp. sold a machine to Ryan and simultaneously leased it back for one year. Pertinent information at this date follows: Sales price $1,080,000 Carrying amount 990,000 Present value of reasonable lease rentals ($9,000 for 12 months @ 12%) 102,000 Estimated remaining useful life 12 years In Haden's December 31, 2018 balance sheet, the deferred profit from the sale of this machine should be a. $102,000. b. $90,000. c. $12,000. d. $0.
d. $0.
Emporia Corporation is a lessee with a capital lease. The asset is recorded at $900,000 and has an economic life of 8 years. The lease term is 5 years. The asset is expected to have a fair value of $300,000 at the end of 5 years, and a fair value of $100,000 at the end of 8 years. The lease agreement provides for the transfer of title of the asset to the lessee at the end of the lease term. What amount of depreciation expense would the lessee record for the first year of the lease? a. $180,000 b. $160,000 c. $120,000 d. $100,000
d. $100,000
If the lease in a sale-leaseback transaction meets one of the four leasing criteria and is therefore accounted for as a capital lease, who records the asset on its books and which party records interest expense during the lease period? Party recording the Party recording asset on its books interest expense a. Seller-lessee Purchaser-lessor b. Purchaser-lessor Seller-lessee c. Purchaser-lessor Purchaser-lessor d. Seller-lessee Seller-lessee
d. Seller-lessee Seller-lessee
On January 2, 2018, Hernandez, Inc. signed a ten-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $300,000 starting at the beginning of the first year, with title passing to Hernandez at the expiration of the lease. Hernandez treated this transaction as a capital lease. The drill press has an estimated useful life of 15 years, with no salvage value. Hernandez uses straight-line depreciation for all of its plant assets. Aggregate lease payments were determined to have a present value of $1,800,000, based on implicit interest of 10%. In its 2018 income statement, what amount of depreciation expense should Hernandez report from this lease transaction? a. $300,000 b. $240,000 c. $180,000 d. $120,000
d. $120,000
On December 31, 2018, Kuhn Corporation leased a plane from Bell Company for an seven-year period expiring December 31, 2025. Equal annual payments of $450,000 are due on December 31 of each year, beginning with December 31, 2018. The lease is properly classified as a capital lease on Kuhn's books. The present value at December 31, 2018 of the eight lease payments over the lease term discounted at 10% is $2,640,792. Assuming the first payment is made on time, the amount that should be reported by Kuhn Corporation as the lease liability on its December 31, 2018 balance sheet is a. $2,640,792. b. $2,454,870. c. $2,376,714. d. $2,190,792.
d. $2,190,792.
On December 31, 2018, Harris Co. leased a machine from Catt, Inc. for a five-year period. Equal annual payments under the lease are $2,100,000 (including $100,000 annual executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2018, and the second payment was made on December 31, 2019. The five lease payments are discounted at 10% over the lease term. The present value of minimum lease payments at the inception of the lease and before the first annual payment was $8,340,000. The lease is appropriately accounted for as a capital lease by Harris. In its December 31, 2019 balance sheet, Harris should report a lease liability of a. $6,340,000. b. $6,240,000. c. $5,706,000. d. $4,974,000.
d. $4,974,000.
Which of the following ratios is(are) useful in assessing a company's ability to meet current maturing or short-term obligations? Acid-Test Ratio Debt to Assets Ratio a. No No b. No Yes c. Yes Yes d. Yes No
d. Yes No
During 2018, a construction company changed from the completed-contract method to the percentage-of-completion method for accounting purposes but not for tax purposes. Gross profit figures under both methods for the past three years appear below: Completed-Contract Percentage-of-Completion 2016 $ 475,000 $ 900,000 2017 625,000 950,000 2018 700,000 1,050,000 $1,800,000 $2,900,000 Assuming an income tax rate of 30% for all years, the effect of this accounting change on prior periods should be reported by a credit of a. $770,000 on the 2018 income statement. b. $525,000 on the 2018 income statement. c. $770,000 on the 2018 retained earnings statement. d. $525,000 on the 2018 retained earnings statement.
d. $525,000 on the 2018 retained earnings statement.
At December 31, 2018, the book value per share of common stock was a. $55.66. b. $58.16. c. $59.40. d. $58.65.
d. $58.65.
During 2017, a textbook written by Mercer Co. personnel was sold to Roark Publishing, Inc., for royalties of 10% on sales. Royalties are receivable semiannually on March 31, for sales in July through December of the prior year, and on September 30, for sales in January through June of the same year. • Royalty income of $243,000 was accrued at 12/31/17 for the period July-December 2017. • Royalty income of $270,000 was received on 3/31/18, and $351,000 on 9/30/18. • Mercer learned from Roark that sales subject to royalty were estimated at $4,860,000 for the last half of 2018. In its income statement for 2018, Mercer should report royalty income at a. $621,000. b. $648,000. c. $837,000. d. $864,000.
d. $864,000.
At December 31, 2018, the current ratio was a. 2,250 ÷ 630. b. 6,675 ÷ 819. c. 4,689 ÷ 819. d. 4,689 ÷ 1,044.
d. 4,689 ÷ 1,044.
The inventory turnover for 2018 is a. 12,800 ÷ 2,600. b. 8,400 ÷ 2,600. c. 12,800 ÷ 2,400. d. 8,400 ÷ 2,400.
d. 8,400 ÷ 2,400.
Cash equivalents are a. treasury bills, commercial paper, and money market funds purchased with excess cash. b. investments with original maturities of three months or less. c. readily convertible into known amounts of cash. d. All of these answers are correct.
d. All of these answers are correct.
The accounting profession requires disaggregated information in all of the following ways except: a. products or services. b. geographic areas. c. major customers. d. All of these answers are correct.
d. All of these answers are correct.
Which of the following statements is correct? a. For direct-financing leases, initial direct costs are added to the net investment in the lease. b. For sales-type leases, initial direct costs are expensed in the year of incurrence. c. For operating leases, initial direct costs are deferred and allocated over the lease term. d. All of these answers are correct.
d. All of these answers are correct.
Which of the following disclosures is required for a change from LIFO to FIFO? a. The cumulative effect on prior years, net of tax, in the current retained earnings statement b. The justification for the change c. Restated prior year income statements d. All of these are required.
d. All of these are required.
Which of the following would not be included in the Lease Receivable account? a. Guaranteed residual value b. Unguaranteed residual value c. A bargain purchase option d. All of these would be included in the Lease Receivable account.
d. All of these would be included in the Lease Receivable account.
Which of the following describes a change in reporting entity? a. A company acquires a subsidiary that is to be accounted for as a purchase. b. A manufacturing company expands its market from regional to nationwide. c. A company divests itself of a European branch sales office. d. Changing the companies included in combined financial statements.
d. Changing the companies included in combined financial statements.
Which of the following should be disclosed in a Summary of Significant Accounting Policies? a. Types of executory contracts b. Amount for cumulative effect of change in accounting principle c. Claims of equity holders d. Depreciation method followed
d. Depreciation method followed
The full disclosure principle, as adopted by the accounting profession, is best described by which of the following? a. All information related to an entity's business and operating objectives is required to be disclosed in the financial statements. b. Information about each account balance appearing in the financial statements is to be included in the notes to the financial statements. c. Enough information should be disclosed in the financial statements so a person wishing to invest in the stock of the company can make a profitable decision. d. Disclosure of any financial facts significant enough to influence the judgment of an informed reader.
d. Disclosure of any financial facts significant enough to influence the judgment of an informed reader.
Which of the following post-balance-sheet events would generally require disclosure, but no adjustment of the financial statements? a. Retirement of the company president b. Settlement of litigation that existed prior to the balance sheet date. c. Employee strikes d. Issue of a large amount of capital stock
d. Issue of a large amount of capital stock
Which of the following post-balance-sheet events would require adjustment of the accounts before issuance of the financial statements? a. Loss of plant as a result of fire b. Changes in the quoted market prices of securities held as an investment c. Loss on an uncollectible account receivable resulting from a customer's major flood loss d. Loss on a lawsuit, the outcome of which was deemed uncertain at year end.
d. Loss on a lawsuit, the outcome of which was deemed uncertain at year end.
