Financial Reporting Final

The correct amount of prepaid insurance shown on a company's December 31, 2018, balance sheet was $900. On July 1, 2019, the company paid an additional insurance premium of $600. In the December 31, 2019, balance sheet, the amount of prepaid insurance was correctly shown as $500. The amount of insurance expense that should appear in the company's 2019 income statement is: $1,500 $1,400 $1,000 $600

$1,000

Hailey wants to cash in her winning lottery ticket. She can either receive eight $200,000 semiannual payments starting today, based on a 6% annual interest rate, or she can receive a single-amount payment today. What is the single-amount payment she can receive today that would be equivalent to the eight-payment option except that she would not have to wait for years to collect her prize money? $1,403,938. $1,283,438. $1,578,80 $1,446,056.

$1,446,056.

Alpaca Corporation had revenues of $265,000 in its first year of operations. The company has not collected on $19,200 of its sales and still owes $27,300 on $97,500 of merchandise it purchased. The company had no inventory on hand at the end of the year. The company paid $13,000 in salaries. Owners invested $15,500 in the business and $15,500 was borrowed on a five-year note. The company paid $4,100 in interest that was the amount owed for the year, and paid $8,100 for a two-year insurance policy on the first day of business. Alpaca has an effective income tax rate of 40%. (Assume taxes are paid in the same year). Compute the cash balance at the end of the first year for Alpaca Corporation. $175,838 $143,838 $122,860 $154,838

$122,860

A company reports the following information at year-end: Book ValueEstimated Cash Flows Fair ValueBuilding$500,000 $380,000 $360,000 Patent$35,000 $40,000 $38,000 Copyright$40,000 $38,000 $39,000 Machine$100,000 $120,000 $85,000 Based on the above information, what is the total amount of impairment loss that the company should record at year-end? $141,000. $126,000. $123,000. $122,000.

$141,000.

The following information pertains to one item of inventory of the Simon Company: Per unitCost$180 Replacement cost 150 Selling price 195 Costs to sell 35 Applying the lower of cost or net realizable value rule, this item should be valued at: $150 $180 $160 $195

$160

During 2021 Belair Company was encountering financial difficulties and seemed likely to default on a $600,000, 10%, four-year note dated January 1, 2019, payable to Second Bank. Interest was last paid on December 31, 2020. On December 31, 2021, Second Bank accepted $500,000 in settlement of the note. Ignoring income taxes, what amount should Belair report as a gain from the debt restructuring in its 2021 income statement? $40,000 $100,000 $160,000 $0

$160,000

The Compton Press Company reported income before taxes of $250,000. This amount included a $50,000 loss on discontinued operation. The amount reported as income from continuing operations, assuming a tax rate of 25%, is: $250,000 $225,000 $75,000 $300,000

$225,000

On October 1, 2016, Parton Industries borrowed $12 million cash to provide working capital. The loan was made by Second Bank under a short-term line of credit. Parton issued an 8-month, "noninterest-bearing note." 8% is the bank's stated "discount rate." Parton's fiscal period is the calendar year. In Parton's 2016 income statement interest expense for the note will be: $0 $240,000 $360,000 $480,000

$240,000

A machine is purchased on September 30, 20X1, for $60,000. Useful life is estimated at four years and no residual value is anticipated. The straight-line depreciation method is used. The company's fiscal year ends on December 31. Depreciation expense for 20X1 should be: $6,000 $30,000 $11,250 $3,750

$3,750

The Toso Company uses the retail inventory method. The following information is available for the year ended December 31, 20X1: CostRetailInventory 1/1/20X1$390,000 $650,000 Net purchases for the year 1,402,000 1,835,000 Net markups 75,000 Net markdowns 45,000 Net sales 1,845,000 Assume that on 1/1/20X1 Toso adopted the dollar-value LIFO retail inventory method and that the retail price index at the end of 20X1 is 1.02. Toso's inventory at December 31, 20X1, is estimated at: $477,392 $469,000 $395,262 $405,035

$395,262

During 20X1, the Balboa Software Company incurred development costs of $2,000,000 related to a new software project. Of this amount, $400,000 was incurred after technological feasibility was achieved. The project was completed in the middle of the year and the product was available for release to customers on July 1. Revenues from the sale of the new software in 20X1 were $500,000 and the company anticipated future additional revenues of $4,500,000. The economic life of the software is estimated at four years. What amount of the software development costs would be capitalized in 20X1 (ignore amortization)? $2,000,000 $1,600,000 $400,000 $0

$400,000

The Toso Company uses the retail inventory method. The following information is available for the year ended December 31, 20X1: CostRetailInventory 1/1/20X1$390,000 $650,000 Net purchases for the year 1,402,000 1,835,000 Net markups 75,000 Net markdowns 45,000 Net sales 1,845,000 Applying the LIFO retail inventory method, Toso's inventory at December 31, 20X1, is estimated at: $477,392 $469,000 $395,159 $405,035

$405,035

The Richards Company purchased a machine for $5,000 down and $300 a month payable at the end of each of the next 36 months. How would the cash price of the machine be calculated, assuming the annual interest rate is given? $5,000 plus the present value of $10,800 ($300 x 36). $5,000 plus the present value of an annuity due of $300 for 36 periods. $15,800. $5,000 plus the present value of an ordinary annuity of $300 for 36 periods.

$5,000 plus the present value of an ordinary annuity of $300 for 36 periods.

In 20X1, Cordova Inc. acquired Cordant Corporation and $140 million in goodwill was recorded. At the end of its 20X3 fiscal year, management has provided the following information for a required goodwill impairment test ($ in millions): Fair value of Cordant (approximates fair value less costs to sell)$980 Fair value of Cordant's net assets (excluding goodwill) 900 Book value of Cordant's net assets (including goodwill) 1,050 Present value of estimated future cash flows 1,000 Assuming that Cordant is considered a reporting unit, the amount of goodwill impairment loss that Cordova should recognize according to International Financial Reporting Standards is: None. $20 million. $50 million. $70 million.

$50 million.

Harmon Sporting Goods received a $60,000, 6-month, 10% note from a customer. Four months after receiving the note, it was discounted at a local bank at a 12% discount rate. The cash proceeds received by Harmon were: $63,000 $64,680 $61,740 $67,200

$61,740

The following financial information is from Cook Company: Accounts Payable$55,000 Land$90,000 Inventory$10,500 Accounts Receivable$7,500 Equipment$8000 Deferred Revenue$58,500 Short-Term Investments$20,000 Notes Receivable (due in 8 months)$45,500 Interest Payable$2,000 Patents$75,000 What is the amount of intangible assets assuming the accounts above reflect normal $95,000. $75,000. $120,500. $140,500.

$75,000.

Harry Morgan plans to make 30 quarterly deposits of $200 into a savings account. The first deposit will be made immediately. The savings account pays interest at an annual rate of 8%, compounded quarterly. How much will Harry have accumulated in the savings account at the end of the seven and a half-year period? $8,114 $24,469 $6,000 $8,276

$8,276

On October 1, 20X1, a company purchased a piece of land by agreeing to pay the seller $450,000 in two years. If the company had borrowed the money from a bank to pay the seller immediately, management estimates the bank would have required interest of 9%. Calculate the amount of interest expense the company would record for its year ending December 31, 20X1 (rounded to the nearest dollar). (PV of $1, and PVA of $1) $40,500. $9,289. $10,125. $8,522.

$8,522.

On September 1, 2021, Expert Materials, issued at 98 plus accrued interest, $800,000 of its 10% bonds. The bonds are dated June 1, 2021, and mature on May 30, 2029. Interest is payable semiannually on June 1 and December 1. At the time of issuance, Expert would receive cash of: $784,000 $803,600 $804,000 $820,000

$804,000

Which of the following might be classified as a cash equivalent? Cash in a checking account. 30-day treasury bill. Money orders waiting to be deposited. 120-day treasury bill.

30-day treasury bill.

For its fiscal year, the King Pharmaceutical Company reported sales of $10,500,000, cost of goods sold of $6,300,000, and net income of $525,000. The company's gross profit ratio for the year is: 40% 60% 5% 67%

40%

When a magazine company collects cash for selling a subscription, it is an example of: An accrued liability transaction. An accrued receivable transaction. A prepaid expense transaction. A deferred revenue transaction.

A deferred revenue transaction.

Rent collected in advance is: An asset account in the balance sheet. A liability account in the balance sheet. A shareholders' equity account in the balance sheet. A temporary account, not in the balance sheet at all.

A liability account in the balance sheet.

We can state the accounting equation as: A + L= OE. A = L − OE. −A + L − OE = 0. A − L − OE = 0.

A − L − OE = 0.

Which of the following adjusting entries causes an increase in liabilities? Accruing unrecorded interest expense. Recording the amount of expired prepaid insurance. Accruing unrecorded interest revenue. Recording depreciation expense.

Accruing unrecorded interest expense.

Which of the following is not used when analyzing long-term solvency? Times interest earned ratio. Debt to equity ratio. Acid-test ratio. Total liabilities.

Acid-test ratio.

GAAP includes which of the following pronouncements: Statements of Financial Accounting Standards. Accounting Research Bulletins. Accounting Principles Board Opinions. All of the choices are correct.

All of the choices are correct.

A company had a decrease in the LIFO reserve during the year from $40,000 to $30,000. Which of the following would be true (ignore tax effects)? Reported profits are higher under LIFO than under FIFO by $10,000 for that year. Ending inventory is higher under FIFO than under LIFO by $30,000 at the end of the year. Cost of goods sold is higher under FIFO than under LIFO by $10,000 for that year. All of the other answers are true.

All of the other answers are true.

Which of the following is not a factor in encouraging high-quality financial reporting? The Sarbanes-Oxley Act. Auditors who attest to a company's financial statements. Internal control systems. All of these are factors encouraging high-quality financial reporting.

All of these are factors encouraging high-quality financial reporting.

A series of equal periodic payments in which the first payment is made one compounding period after the date of the contract is: A deferred annuity. An ordinary annuity. An annuity due. A delayed annuity.

An ordinary annuity.

A discount on bonds should be reported in the balance sheet: At the present value of the future addition to bond interest expense due to the discount. As a reduction in bond issue costs. As a reduction of the face amount of the bond. As a deferred credit.

As a reduction of the face amount of the bond.

Which of the following would result in a credit to a deferred revenue liability? A. Sale of a gift card. B. Receipt of cash in exchange for a service to be performed next month. C. Both A and B are correct. D. Neither A nor B are correct.

C. Both A and B are correct.

Compensating balances represent: Cash in a bank account that can't be spent Balances in a payroll checking account. Accounts that are subject to bank service charges. Accounts on which banks pay interest, e.g. NOW accounts.

Cash in a bank account that can't be spent

Which of the following is not a provision of the Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley)? The Act: Changed the entity responsible for setting auditing standards. Increased corporate executive responsibility for financial statements. Limited nonaudit services that can be performed by auditors for audit clients. Changed the entity responsible for setting accounting standards.

Changed the entity responsible for setting accounting standards.

Company A is identical to Company B in every regard except that Company A uses FIFO and Company B uses LIFO. In an extended period of rising inventory costs, which of the following is true of Company A compared to Company B? Company A's gross profit is lower and inventory turnover is lower. Company A's gross profit is higher and inventory turnover is higher. Company A's gross profit is higher and inventory turnover is lower. Company A's gross profit is lower and inventory turnover is higher.

Company A's gross profit is higher and inventory turnover is lower.

Relevance requires that information possess predictive and/or: Neutrality. Completeness. Confirmatory value. Freedom from error.

Confirmatory value.

The allowance for uncollectible accounts is a: Deferred charge to expense. Contra asset account. Deferred revenue account. Quasi-liability account.

Contra asset account.

Which of the following is considered a practical constraint on the qualitative characteristics? Verifiability. Conservatism. Cost effectiveness. Timeliness.

Cost effectiveness.

Which of the following groups is not among the external users for whom financial statements are prepared? Customers. Suppliers. Employees. Customers, suppliers, and employees are all external users of financial statements.

Customers, suppliers, and employees are all external users of financial statements.

Using a perpetual inventory system, the purchase of inventory on account is recorded with a: Debit to inventory. Debit to cost of goods sold. Debit to accounts payable. Credit to sales revenue.

Debit to inventory.

Incurring an expense on account would be recorded by: Debiting liabilities. Crediting assets. Debiting an expense. Debiting assets.

Debiting an expense.

Which of the following items represents cash received from customers for goods or services to be provided in a future period? Accounts receivable. Current maturities of long-term debt. Deferred revenues. Accounts payable.

Deferred revenues.

Examples of external transactions include all of the following except: Paying employee salaries. Purchasing equipment. Depreciating equipment. Collecting a receivable.

Depreciating equipment.

Accounting for the pledging of accounts receivable as collateral for a loan requires: Reporting the receivables net of the borrowed amount. Removal of the pledged receivables from current assets and including them with noncurrent investments. Disclosure of the arrangement in notes to the financial statements. None of these answer choices are correct.

Disclosure of the arrangement in notes to the financial statements.

The usual difference between accounts payable and notes payable is: Legally enforceable debt. Current-Long-term classification. Known payment terms. Explicitly stated interest.

Explicitly stated interest.

Financial statements generally include all of the following except: Income statement. Federal income tax return. Balance sheet. Statement of cash flows.

Federal income tax return.

Which of the following inventory changes does not require the company to report the change retrospectively? From LIFO to FIFO. From FIFO to LIFO. From average to FIFO. From FIFO to average.

From FIFO to LIFO.

Cash equivalents do not include: Money market funds. High grade marketable equity securities. U.S. treasury bills. Commercial paper.

High grade marketable equity securities.

Which of the following explains why a company's book value as reported in the balance sheet may not equal the company's market value? I. Many assets are measured at their historical cost rather than amounts for which the assets could be sold. II. Many valuable resources of the company are not directly reported as assets in the balance sheet. III. Investors do not use the balance sheet to judge a company's value. I. I and II. III. I,II, and III.

I and II.

Which of the following is NOT true about accounting for a troubled debt restructuring? If a receivable becomes impaired, it is remeasured at the discounted present value of currently expected cash flows. If a receivable is remeasured, the discount rate is based on the loan's original effective rate. If a receivable is continued, but with modified terms, no loss is typically recorded. Sometimes receivables are settled outright at the time of a restructuring.

If a receivable is continued, but with modified terms, no loss is typically recorded.

The difference in the calculation of the cost-to-retail percentage applying the LIFO method and the average cost method is that the average cost method: Excludes beginning inventory. Excludes markdowns. Includes beginning inventory. Includes markdowns.

Includes beginning inventory.

Patents, copyrights, franchises, and trademarks are examples of: Current assets. Investments. Intangible assets. Property, plant and equipment.

Intangible assets.

BVA Corporation exchanged a $96,000, noninterest-bearing, 3-year note for land with a fair value of $60,000. The $36,000 difference represents: A loss on the purchase of land. A premium on notes payable. Interest expense to be recorded over three years. None of the choices are correct.

Interest expense to be recorded over three years.

When bonds are issued at a discount and interest expense is recorded at the effective interest rate, interest expense in the earlier years of the term to maturity will be: Less than the cash interest payments made. Less than if the straight-line method were used. Greater than if the straight-line method were used. The same as if the straight-line method were used.

Less than if the straight-line method were used.

On January 1, 20X1, a company purchased a commercial truck for $48,000 and uses the straight-line depreciation method. The truck has a useful life of eight years and an estimated residual value of $8,000. On December 31, 20X3, the company sold the truck for $30,000. What amount of gain or loss should the company record on December 31, 20X3? Gain $22,000 Loss $18,000 Gain $5,000 Loss $3,000

Loss $3,000

Companies that purchase inventories that are primarily in finished form for resale to customers are known as: Delivering companies. Service companies. Merchandising companies. Manufacturing companies.

Merchandising companies.

The conceptual framework's qualitative characteristic of faithful representation includes: Predictive value. Neutrality. Confirmatory value. Timeliness.

Neutrality.

The application of intraperiod income taxes requires that income taxes be apportioned to each of the following items except: Income from continuing operations. Operating income. Discontinued operations. All of the other answer choices are incorrect.

Operating income.

Which of the following captions would more likely be found in a multiple-step income statement? Total expenses. Total revenues and gains. Operating income. All of the other answer choices are incorrect.

Operating income.

The balance in retained earnings at the end of the year is determined by retained earnings at the beginning of the year: Plus revenues, minus liabilities. Plus accruals, minus deferrals. Plus net income, minus dividends. Plus assets, minus liabilities.

Plus net income, minus dividends.

The initial cost of land would include all of the following except: The cost of grading. Title search costs. Recording fees. Property taxes for the current period.

Property taxes for the current period.

Which of the following items would not be included as a cash flow from operating activities in a statement of cash flows? Collections from customers. Interest on note payable. Purchase of equipment. Purchase of inventory.

Purchase of equipment.

In a periodic inventory system, the cost of purchases is debited to: Purchases. Cost of goods sold. Inventory. Accounts payable.

Purchases.

Consider the following scenarios: Scenario 1:In the current year, a toy manufacturer spends $900,000 on R&D costs to develop a new toy. By the end of the year, the design for the new toy has been patented. Legal and filing fees associated with the patent are $50,000. The patent has a fair value $1,500,000 and an estimated useful life of 10 years. Scenario 2:In the current year, a toy manufacturer purchases a patent for the exclusive right to produce a toy from a third party for $1,500,000. The patent has an estimated useful life of 10 years. Under which scenario would the company report greater research and development expense in the current year? Scenario 1 Scenario 2 The expense would be the same under each scenario An expense is not recorded under either scenario

Scenario 1

The use of LIFO during a long inflationary period can result in: A net increase in income tax expense. An inflated balance sheet. Significant cash flow advantages over FIFO. A reduction in inventory turnover over FIFO.

Significant cash flow advantages over FIFO.

Dollar-value LIFO: Starts with ending inventory measured at current costs and re-creates LIFO layers for measuring inventory costs. Increases the recordkeeping costs of LIFO. Only is allowed for internal reporting purposes. None of these answer choices are correct.

Starts with ending inventory measured at current costs and re-creates LIFO layers for measuring inventory costs.

An enterprise should accrue a liability for compensation of employees' unpaid vacations if certain conditions exist. Each of the following is a condition for accrual except: Compensation for the vacations is probable. The employee has the right to carry forward the vacation time beyond the current period. The amount of compensation is known. The employee benefit has been earned.

The amount of compensation is known.

Which of the following is not a characteristic of the balance sheet? The major classifications of the balance sheet are assets, liabilities, and owners' equity. The balance sheet reports the change in financial position. Assets generally are listed in order of their liquidity. The balance sheet provides information useful in assessing liquidity.

The balance sheet reports the change in financial position.

Under U.S. GAAP, liabilities payable within one year can be excluded from current liabilities only if: The business intends to refinance the obligations on a long-term basis. The business has the demonstrated ability to refinance the obligations on a long-term basis. The business has the intent and the ability to refinance the obligation on a long-term basis. Liabilities payable within one year always must be classified as current liabilities.

The business has the intent and the ability to refinance the obligation on a long-term basis.

Warren Advertising becomes aware of a lawsuit after the end of the fiscal year, but prior to the issuance of financial statements. A loss should be accrued and a liability should be reported if the amount can be reasonably estimated and: The cause for action occurred prior to the end of the fiscal year. The damages would be payable within a year. The cause for action occurred prior to the end of the fiscal year and the damages would be payable within a year. The contingency should not be accrued.

The cause for action occurred prior to the end of the fiscal year.

Which of the following is an intangible asset reported in the balance sheet? Land that is being held for future company expansion. Investments in equity securities of another company. Natural resources such as mineral mines. The exclusive right to use a franchisor's trademark or tradename.

The exclusive right to use a franchisor's trademark or tradename.

A company implements the following policy regarding inventory in transit: Goods purchased are included in inventory records, while goods sold are not included in inventory records. Management feels this policy is reasonable because it assigns inventory in transit to the party that initiated the transactions. Which of the following concepts is management not considering in implementing this policy? The likelihood that inventory purchased or sold will be returned. The quantity of the inventory involved in the transaction. The party who has title to the inventory while in transit. The materiality of shipping costs.

The party who has title to the inventory while in transit.

Which of the following approaches cannot be used to determine the fair value of an impaired asset? Prices of similar assets. The market price of the asset. The sum of the discounted expected cash flows. The sum of the undiscounted expected cash flows.

The sum of the undiscounted expected cash flows.

The closing process involves: Recording year-end adjusting entries. Transferring revenue and expense balances to retained earnings. Closing out the permanent account balances. All of these answer choices are incorrect.

Transferring revenue and expense balances to retained earnings.

Management adopts of policy of reporting all shipping costs (freight-in and freight-out) in an operating expense account - Shipping Expense - at the time those costs are incurred. The cost of the physical units sold are reported in the Cost of Goods Sold account at the time those units are sold. Management believes this policy better communicates its inventory decisions to financial statement users. Which of the following statements is correct? Management's policy is not correct because the cost of inventory includes all costs necessary to get the inventory ready for sale. Management's policy is not correct because freight-in should be expensed only when the inventory is sold. Management's policy is not correct because the cost of freight-out represents a reduction of revenue, not an expense. Two of the other answers are correct.

Two of the other answers are correct.

An important argument in support of historical cost information is: Relevance. Predictive quality for future cash flows. Materiality. Verifiability.

Verifiability.

Which of the following is true regarding accounting for transfers of receivables under IFRS? Transfers of receivables can never be treated as a sale of receivables. Transfers of receivables can never be treated as a secured borrowing. Whether the risks and rewards of ownership have been transferred is sometimes the key factor for determining how to account for a transfer of receivables. None of the choices are true.

Whether the risks and rewards of ownership have been transferred is sometimes the key factor for determining how to account for a transfer of receivables.

Loan A has the same original principal, interest rate, and payment amount as Loan B. However, Loan A is structured as an annuity due, while Loan B is structured as an ordinary annuity. The present value of Loan A will be: higher than Loan B. lower than Loan B. the same as Loan B. Indeterminate with respect to Loan B.

higher than Loan B.

The distinction between operating and nonoperating income relates to: continuity of income. primary activities of the reporting entity. consistency of income stream. reliability of measurements.

primary activities of the reporting entity.