ACCT 301 final
Link Co. purchased machinery that cost $3,000,000 on January 4, 2016. The entire cost was recorded as an expense. The machinery has a nine-year life and a $200,000 residual value. The error was discovered on December 20, 2018. Ignore income tax considerations. Link's income statement for the year ended December 31, 2018, should show the cumulative effect of this error in the amount of a) $2,377,778. b) $2,066,667. c) $0. d) $2,333,333.
$0 (CE = $0, correction of error.)
Dream Home Inc., a real estate developing company, was accounting for its long-term contracts using the completed contract method prior to 2018. In 2018, it changed to the percentage-of-completion method. The company decided to use the same for income tax purposes. The tax rate enacted is 40%. Income before taxes under both the methods for the past three years appears below. 2016 2017 2018 Completed contract $450,000 $300,000 $150,000 Percentage-of-completion 750,000 375,000 270,000 What amount will be debited to Construction in Process account, to record the change at beginning of 2018? a) $150,000 b) $225,000 c) $75,000 d) $375,000
$375,000 (($750,000 - $450,000) + ($375,000 - $300,000) = $375,000.)
During 2018, equipment was sold for $468,000. The equipment cost $786,000 and had a book value of $432,000. Accumulated Depreciation—Equipment was $2,061,000 at 12/31/17 and $2,205,000 at 12/31/18. Depreciation expense for 2018 was a) $498,000. b) $576,000. c) $144,000. d) $288,000.
$498,000 ($2,205,000 - $2,06,000 + ($786,000 - $432,000) = $498,000)
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) $576,000. b) $384,000. c) $960,000. d) $0.
$576,000 ($960,000 × (1 - .40) = $576,000.)
Perez Company's net accounts receivable were $800,000 at December 31, 2017 and $880,000 at December 31, 2018. Net cash sales for 2018 were $520,000. The accounts receivable turnover for 2018 was 9.0. What were Perez's total net sales for 2018? a) $7,920,000. b) $7,560,000. c) $4,680,000. d) $8,080,000.
$8,080,000 ( (X - $520,000) / ($800,000 + $880,000) / 2 = 8.0, X = $8,080,000) )
Dream Home Inc., a real estate developing company, was accounting for its long-term contracts using the completed contract method prior to 2018. In 2018, it changed to the percentage-of-completion method. The company decided to use the same for income tax purposes. The tax rate enacted is 40%. Income before taxes under both the methods for the past three years appears below. 2016 2017 2018 Completed contract $450,000 $300,000 $150,000 Percentage-of-completion 750,000 375,000 270,000 Which of the following will be included in the journal entry made by Dream Home to record the income effect? a) A debit to Retained Earnings for $225,000 b) A debit to Retained Earnings for $150,000 c) A credit to Retained Earnings for $150,000 d) A credit to Retained Earnings for $225,000
A credit to Retained Earnings for $225,000 ([($300,000 - ($300,000 × .40)) + ($75,000 - ($75,000 × .40))] = $225,000.)
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
Current period and prospectively
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) Gain on sale of land. b) Increase in accounts receivable. c) Amortization of patent. d) All of these are added to net income to arrive at cash flow from operating activities.
Amortization of patent
How does the accounting profession view interim financial reports? a) As reporting for an integral part of an annual period. b) As useful only if activity is evenly spread throughout the year so that estimates are unnecessary. c) As a "special" type of reporting that need not follow generally accepted accounting principles. d) As reporting for a discrete accounting period.
As reporting for an integral part of an annual period
Which of the following ratios measures long-term solvency? a) Current ratio b) Acid-test ratio c) Accounts receivable turnover d) Debt to assets
Debt to assests
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) Added To Deducted From b) Deducted From Deducted From c) Added To Added To d) Deducted From Added To
Deducted From, Added To
Which of the following should be disclosed in a Summary of Significant Accounting Policies? a) Depreciation method followed b) Claims of equity holders c) Types of executory contracts d) Amount for cumulative effect of change in accounting principle
Depreciation method followed
When preparing a statement of cash flows, the following are used for which method in determining cash flows from operating activities? Gross Accounts Receivable Net Accounts Receivable a) Neither Indirect b) Indirect Direct c) Direct Indirect d) Direct Direct
Direct, Indirect
Which of the following is false? a) GAAP and IFRS have the same absolute standard regarding the reporting of error corrections in previously issued financial statements. b) The accounting for changes in estimates is similar between GAAP and IFRS. c) GAAP has detailed guidance on the accounting and reporting of indirect effects; IFRS does not. d) Under IFRS, the impracticability exception applies both to changes in accounting principles and to the correction of errors.
GAAP and IFRS have the same absolute standard regarding the reporting of error corrections in previously issued financial statements
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.
Gain on sale of land
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 Increase b) Decrease Decrease c) Increase Decrease d) Decrease Increase
Increase, Decrease
Accounting principles are modified for the following at interim dates. Revenue Losses a) No No b) No Yes c) Yes Yes d) Yes No
No, No
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 Yes b) Yes Yes c) No No d) Yes No
No, Yes
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
Recomputation of current and future years' depreciation
To address inconsistencies and weaknesses in revenue recognition, a comprehensive revenue recognition standard was developed entitled the a) Rules-based Revenue Accounting. b) Revenue from Contracts with Customers. c) Principle-based Revenue Accounting. d) Revenue Recognition Principle.
Revenue from Contracts with Customers
Presented below are four segments that have been identified by Haley Productions: Total Revenue Operating Identifiable (Unaffiliated) Profit (Loss) Assets Segments 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 and D c) Segments A, B, and C d) Segments A and B
Segments A, B, and C
The balance in retained earnings at December 31, 2017 was $1,440,000 and at December 31, 2018 was $1,164,000. Net income for 2018 was $1,000,000. A stock dividend was declared and distributed which increased common stock $500,000 and paid-in capital $220,000. A cash dividend was declared and paid. The stock dividend should be reported on the statement of cash flows (indirect method) as a) an outflow from investing activities of $720,000. b) Stock dividends are not shown on a statement of cash flows. c) an outflow from financing activities of $500,000. d) an outflow from financing activities of $720,000.
Stock dividends are not shown on a statement of cash flows
All of these are limitations of ratio analysis, except for: a) The use of historical costs as the basis for ratios. b) The usefulness of a single ratio by itself. c) These all are limitations. d) The lack of comparability among firms in a given industry
These are all limitations
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) Three items b) Two items c) Five items d) Four items
Three items
A contract liability is a company's obligations to transfer goods or services to a customer for which the company has received consideration from the customer. An example of a contract liability is a) Unearned magazine subscription. b) Service Revenue. c) Prepaid subscription. d) Mortgage Payable.
Unearned magazine subscription
A performance obligation exists when a) a company provides a distinct product or service. b) a contract is approved and signed. c) a company receives the right to receive consideration. d) a company provides interdependent product or service.
a company provides a distinct product or service
New Age Computers manufactures and sells pagers and radio paging systems which include a 180 day warranty on product defects. It also sells an extended warranty which provides an additional two years of protection. On May 10, it sold a paging system for $4,500 and an extended warranty for another $1,400. The journal entry to record this transaction would include a) a credit to Unearned Warranty Revenue of $1,400. b) a credit to Warranty Revenue of $5,900. c) a credit to Warranty Revenue of $1,400. d) a credit to Sales of $4,500 and a credit to Warranty Revenue of $1,400.
a credit to Unearned Warranty Revenue of $1,400
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.
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.
all of these are required
Presenting consolidated financial statements this year when statements of individual companies were presented last year is a) not an accounting change. b) an accounting change that should be reported by restating the financial statements of all prior periods presented. c) a correction of an error. d) an accounting change that should be reported prospectively.
an accounting change that should be reported by restating the financial statements of all prior periods presented
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) given one or more hypothetical assumptions, an entity's expected financial position, results of operations, and cash flows. c) a subjective assessment of the company's ability to be successful in the future under a number of different assumptions. d) an assessment of the company's ability to be successful in the future.
an entity's expected financial position, results of operations, and cash flows
The role of the agent in a Principal-Agent relationship is to a) market the principal goods and services to prospective customers. b) develop and maintain goodwill of the principal's customers. c) arrange for the principal to provide goods or services to a customer. d) provide the goods or services for a customer.
arrange for the principal to provide goods or services to a customer
A transaction price for multiple performance obligations should be allocated a) based on forecasted cost of satisfying performance obligation. b) based on total transaction price less residual value. c) based on selling price from the company's competitors. d) based on what the company could sell the goods for on a standalone basis.
based on what the company could sell the goods for on a standalone basis
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 reflect the historical cost of the liquidated LIFO base. b) 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. c) 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. d) 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
be shown at the actual level, and the cost of sales for the interim reporting period should include the expected cost of replacement of the liquidated LIFO base
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) cash inflow from investing activities. b) cash inflow from financing activities. c) addition adjustment to net income in the cash flows from operating activities section. d) cash outflow from investing activities.
cash inflow from financing activities
Which type of accounting change should always be accounted for in current and future periods? a) Correction of an error b) Change in accounting principle c) Change in reporting entity d) Change in accounting estimate
change in accounting estimate
A company has satisfied its performance obligation when the a) company has received payment for goods or services. b) company has transferred physical possession of the asset. c) company has significant risks and rewards of ownership. d) company has legal title to the asset.
company has transferred physical possession of the asset
Consigned goods are recognized as revenues by the a) consignor when the merchandise has been shipped to a consignee. b) consignor when it receives payment from consignee for goods sold. c) consignee when a sale to a third party has occurred. d) consignor when a sale to a third party has occurred.
consignor when it receives payment from consignee for goods sold
The Billings on Construction in Progress account is a(n) a) inventory account. b) contract revenue account. c) contra-inventory account. d) construction expense account.
contra-inventory account
All of the following information about each operating segment must be reported except a) depreciation and amortization expense. b) unusual items. c) interest revenue. d) cost of goods sold.
cost of goods sold
The third step in the process for revenue recognition is to a) determine the transaction price. b) allocate transaction price to the separate performance obligations. c) identify the separate performance obligations in the contract. d) recognize revenue when each performance obligation is satisfied.
determine the transaction price
When a company has an obligation or right to repurchase an asset for an amount greater than or equal to its selling price, the transaction should be treated as a a) repurchase transaction. b) outright sale. c) financing transaction. d) put option.
financing transaction
The first step in the process for revenue recognition is to a) determine the transaction price. b) identify the contract with customers. c) allocate transaction price to the separate performance obligations. d) identify the separate performance obligations in the contract.
identify the contract with customers
A contract a) must be in writing to be an enforceable contract. b) is enforceable if each party can unilaterally terminate the contract. c) is an agreement that creates enforceable rights and obligations. d) does not need to have commercial substance.
is an agreement that creates enforceable rights and obligations
The use of the net method of recognizing revenue by an agent a) is appropriate as long as both revenue and costs are included. b) could result in an overstatement of the agent's revenue. c) is the correct method in a principal-agent relationship. d) could result in an understatement of the agent's revenue.
is the correct method in a principal-agent relationship
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 cash flows. b) liquidity, capital resources, and results of operations. c) changes in the stock price, mergers, and acquisitions. d) income statement, balance sheet, and statement of owners' equity.
liquidity, capital resources, and results of operations
Which of the following would be classified as a financing activity on a statement of cash flows? a) Payment of a bond payable b) Sale of a loan receivable c) Payment of interest to a creditor d) Declaration and distribution of a stock dividend
payment of a bond payable
Companies should disclose all of the following in interim reports except a) post-balance-sheet events. b) seasonal revenue, cost, or expenses. c) basic and diluted earnings per share. d) changes in accounting principles.
post-balance-sheet events
The general approach for handling advertising costs which benefit future quarters in interim reports is to a) disclose them only in the notes. b) prorate them over the current and remaining quarters. c) charge the expenses in the quarter incurred. d) prorate them over all four quarters.
prorate them over the current and remaining quarters
For interim financial reporting, a major repair occurring in the second quarter should be a) recognized ratably over the last three quarters. b) disclosed by note only in the second quarter. c) recognized in the second quarter. d) recognized ratably over all four quarters with the first quarter being restated.
recognized in the second quarter
On January 15, 2018, Bella Vista Company enters into a contract to build custom equipment for ABC Carpet Company. The contract specified a delivery date of March 1. The equipment was not delivered until March 31. The contract required full payment of $75,000 30 days after delivery. The revenue for this contract should be a) recorded on January 15, 2018. b) recorded on April 30, 2018. c) recorded on March 1, 2018. d) recorded on March 31, 2018.
recorded on March 31, 2018
Unconditional rights to receive consideration because a performance obligation has been satisfied are a) are not reported on the balance sheet. b) reported as a contract liability on the balance sheet. c) reported as a contract asset on the balance sheet. d) reported as a receivable on the balance sheet.
reported as a receivable on the balance sheet
Disclosure related to revenue a) requires disaggregation of revenues by reportable segments. b) does not require capitalized costs to obtain and fulfill a contract. c) does not require judgments that affect amount and timing of revenues from contracts. d) requires disclosure of remaining performance obligations.
requires disclosure of remaining performance obligations
Revenue of a segment includes a) sales to unaffiliated customers and intersegment sales. b) only sales to unaffiliated customers. c) sales to unaffiliated customers and interest revenue. d) sales to unaffiliated customers and other revenue and gains.
sales to unaffiliated customers and intersegment sales
Nonrefundable upfront fees a) should be recognized immediately upon receipt of payment. b) should not be recorded as revenue if they are for future delivery of products and services. c) such as activation fees for cable should be allocated over the term of the contract. d) such as a one-time initiation fee in a health club should be recognized immediately.
should not be recorded as revenue if they are for future delivery of products and services
In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be a) the terms of payment in the contract. b) the inherent nature of the contractor's technical facilities used in construction. c) the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable. d) the method commonly used by the contractor to account for other long-term construction contracts.
the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable
APB Opinion No. 28 indicates that a) all companies that issue an annual report should issue interim financial reports. b) the discrete view is the most appropriate approach to take in preparing interim financial reports. c) the three basic financial statements should be presented each time an interim period is reported upon. d) the same accounting principles used for the annual report should be employed for interim reports.
the same accounting principles used for the annual report should be employed for interim reports
If a contract involves a significant financing component, a) the time value of money is not required to determine transaction price, if the payment is scheduled to occur in more than a year. b) the transaction amount should be based on the current sales price of goods or services. c) interest must be accrued on the current sales price of goods or services. d) the time value of money is used to determine the fair value of the transaction.
the time value of money is used to determine the fair value of the transaction
A segment of a business enterprise is to be reported separately when the revenues of the segment exceed 10 percent of the a) total export and foreign sales. b) combined net income of all segments reporting profits. c) total combined revenues of all segments reporting profits. d) total revenues of all the enterprise's industry segments.
total revenues of all of 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) whether accounting policies are consistently applied from year to year. b) net income for the year. c) whether the working capital position is adequate for future operations. d) the value of obsolete items included in ending inventory.
whether accounting policies are consistently applied from year to year