Senior Sem w/o audit
Jones Corp. had an opportunity to use its capacity to produce an extra 5,000 units with a contribution margin of $5 per unit, or to rent out the space for $10,000. What was the opportunity cost of using the capacity?
$10,000
Fact Pattern: The following amounts pertain to Arp Co.'s manufacturing operations for March: Inventories 3/1 3/31 Direct materials $18,000 $15,000 Work-in-process 9,000 6,000 Finished goods 27,000 36,000 Additional information for the month of March: Direct materials purchased $42,000 Direct labor payroll 30,000 Direct labor rate per hour 7.50 Factory overhead rate per direct labor hour 10.00 For the month of March, Arp's cost of goods manufactured was
$118,000
Para Co. is reviewing the following data relating to an energy-saving investment proposal: Cost $50,000 Residual value at the end of 5 years 10,000 Present value of an annuity of 1 at 12% for 5 years 3.60 Present value of 1 due in 5 years at 12% 0.57 Ignoring the tax effect, what would be the annual savings needed to make the investment realize a 12% yield?
$12,306
In order to analyze sales as a function of advertising expenses, the sales manager of Smith Company developed a simple regression model. The model included the following equation, which was based on 32 monthly observations of sales and advertising expenses with a related coefficient of determination of .90. Sales = $10,000 + (2.5 × Advertising expenses) If Smith Company's advertising expenses in 1 month amounted to $1,000, the related point estimate of sales would be
$12,500
Mat Co. estimated its materials handling costs at two activity levels as follows: Kilos Handled Cost 80,000 $160,000 60,000 132,000 What is Mat's estimated cost for handling 75,000 kilos?
$153,000
Merry Co. has two major categories of manufacturing overhead: material handling and quality control. The costs expected for these categories for the coming year are as follows: Material handling $120,000 Quality inspection 200,000 The plant currently applies overhead based on direct labor hours. The estimated direct labor hours are 80,000 per year. The plant manager is asked to submit a bid and assembles the following data on a proposed job: Direct materials $4,000 Direct labor (2,000 hours) 6,000 What is the estimated product cost on the proposed job?
$18,000
Fact Pattern: Berol Company plans to sell 200,000 units of finished product in July and anticipates a growth rate in sales of 5% per month. The desired monthly ending inventory in units of finished product is 80% of the next month's estimated sales. There are 150,000 finished units in inventory on June 30. Each unit of finished product requires 4 pounds of direct materials at a cost of $1.20 per pound. There are 800,000 pounds of direct materials in inventory on June 30. Assume Berol Company plans to produce 600,000 units of finished product in the 3-month period ending September 30 and to have direct materials inventory on hand at the end of the 3-month period equal to 25% of the use in that period. The estimated cost of direct materials purchases for the 3-month period ending September 30 is
$2,640,000
On June 30, a company is preparing the cash budget for the third quarter. The collection pattern for credit sales has been 60% in the month of sale, 30% in the first month after sale, and the rest in the second month after sale. Uncollectible accounts are negligible. There are cash sales each month equal to 25% of total sales. The total sales for the quarter are estimated as follows: July, $30,000; August, $15,000; September, $35,000. Accounts receivable on June 30 were $10,000. What amount would be the projected cash collections for September?
$30,125
Sharif Co. has total debt of $420,000 and equity of $700,000. Sharif is seeking capital to fund an expansion. Sharif is planning to issue an additional $300,000 in common stock and is negotiating with a bank to borrow additional funds. The bank requires a debt-to-equity ratio of .75. What is the maximum additional amount Sharif will be able to borrow?
$330,000
Black Co.'s breakeven point was $780,000. Variable expenses averaged 60% of sales, and the margin of safety was $130,000. What was Black's contribution margin?
$364,000
DJ Co. has a job-order cost system. The following debits (credits) appeared in the work-in-process account for the month of March: March 1, balance $ 12,000 March 31, direct materials 40,000 March 31, direct labor 30,000 March 31, manufacturing overhead applied 27,000 March 31, to finished goods (100,000) DJ Co. applies overhead at a predetermined rate of 90% of direct labor cost. Job No. 101, the only job still in process at the end of March, has been charged with manufacturing overhead of $2,250. What was the amount of direct materials charged to Job No. 101?
$4,250
Lin Co. is buying machinery it expects will increase average annual operating income by $40,000. The initial increase in the required investment is $60,000, and the average increase in required investment is $30,000. To compute the accrual accounting rate of return, what amount should be used as the numerator in the ratio?
$40,000
Clay Co. has considerable excess manufacturing capacity. A special job order's cost sheet includes the following applied manufacturing overhead costs: Fixed costs $21,000 Variable costs 33,000 The fixed costs include a normal $3,700 allocation for in-house design costs, although no in-house design will be done. Instead, the job will require the use of external designers costing $7,750. What is the total amount to be included in the calculation to determine the minimum acceptable price for the job?
$40,750
The standard direct materials cost to produce a unit of Lem is 4 meters of materials at $2.50 per meter. During May, 4,200 meters of materials costing $10,080 were purchased and used to produce 1,000 units of Lem. What was the materials price variance for May?
$420 favorable.
A processing department produces joint products Ajac and Bjac, each of which incurs separable production costs after split-off. Information concerning a batch produced at a $60,000 joint cost before split-off follows: Separable Product Costs Sales Value Ajac $ 8,000 $ 80,000 Bjac 22,000 40,000 $30,000 $120,000 What is the joint cost assigned to Ajac if costs are assigned using the relative net realizable value?
$48,000
In the past, 4 direct labor hours were required to produce each unit of product Y. Material costs were $200 per unit, the direct labor rate was $20 per hour, and factory overhead was three times direct labor cost. In budgeting for next year, management is planning to outsource some manufacturing activities and to further automate others. Management estimates these plans will reduce labor hours by 25%, increase the factory overhead rate to 3.6 times direct labor costs, and increase material costs by $30 per unit. Management plans to manufacture 10,000 units. What amount should management budget for cost of goods manufactured?
$5,060,000
Jonathan Manufacturing adopted a job-costing system. For the current year, budgeted cost driver activity levels for direct labor hours and direct labor costs were 20,000 and $100,000, respectively. In addition, budgeted variable and fixed factory overhead costs were $50,000 and $25,000, respectively. Actual costs and hours for the year were as follows: Direct labor hours 21,000 Direct labor costs $110,000 Machine hours 35,000 For a particular job, 1,500 direct-labor hours were used. Using direct-labor hours as the cost driver, what amount of overhead should be applied to this job?
$5,625
Based on the following data, what is the gross profit for the company? Sales $1,000,000 Net purchases of raw materials 600,000 Cost of goods manufactured 800,000 Marketing and administrative expenses 250,000 Indirect manufacturing costs 500,000 Beginning Ending Inventory Inventory Work-in-process $500,000 $400,000 Finished goods 100,000 500,000
$600,000
Dahl Co. uses a standard costing system in connection with the manufacture of a "one size fits all" article of clothing. Each unit of finished product contains 2 yards of direct materials. However, a 20% direct materials spoilage calculated on input quantities occurs during the manufacturing process. The cost of the direct materials is $3 per yard. The standard direct materials cost per unit of finished product is
$7.50
In Year 1, a company's cash is 15% of sales, accounts receivable is 10% of sales, inventory is 20% of sales, accounts payable is 30% of sales, and long-term debt is 5% of sales. The company is preparing its forecasts and anticipates that sales will increase from $50,000 in Year 1 to $55,000 in Year 2. The company uses the percentage-of-sales method. What amount would be the required net working capital in Year 2?
$8,250
A service company's working capital at the beginning of January of the current year was $70,000. The following transactions occurred during January: Performed services on account $30,000 Purchased supplies on account 5,000 Consumed supplies 4,000 Paid utilities bill with cash 2,000 Paid short-term bank loan 6,500 Paid salaries 10,000 Accrued salaries 3,500 What is the amount of working capital at the end of January?
$80,500
Selected data from Sheridan Corporation's year-end financial statements are presented below. The difference between average and ending inventory is immaterial. Current ratio 2.0 Quick ratio 1.5 Current liabilities $120,000 Inventory turnover (based on cost of goods sold) 8 times Gross profit margin 40% Assuming no prepaid expenses are included in current assets, Sheridan's net sales for the year were
$800,000
to standard hours allowed for output of one unit of product: Hours Average historical performance for the past 3 years 1.85 Production level to satisfy average consumer demand over a seasonal time span 1.60 Engineering estimates based on attainable performance 1.50 Engineering estimates based on ideal performance 1.25 To measure controllable production inefficiencies, what is the best basis for Flint to use in establishing standard hours allowed?
1.50
A company has an outstanding 1-year bank loan of $500,000 at a stated interest rate of 8%. The company is required to maintain a 20% compensating balance in its checking account. The company would maintain a zero balance in this account if the requirement did not exist. What is the effective interest rate of the loan?
10%
Carter uses a 365-day year when computing ratios. Selected data from Carter's financial statements for the year ended December 30, Year 2, are as follows: Current ratio 1.2 Quick ratio 0.9 Days payable outstanding 23 Return on equity 7.79% Days' sales in receivables 20 Year 2 Operations Net credit sales $8,700 Cost of goods sold 4,300 Selling expenses 1,600 Interest expense 500 Selected account balances: December 31, Year 2 Inventory $ 1,900 Accounts receivable (net) 785 Fixed assets 10,000 Trading securities 1,690 The balance in accounts receivable at December 30, Year 1, is
168
This year, Nelson Industries increased earnings before interest and taxes (EBIT) by 17%. During the same period, earnings per share increased by 42%. The degree of financial leverage that existed during the year is2.47
2.47
Financial information about a company is as follows: Receivables $ 4,000,000 Inventory 2,600,000 Payables 3,700,000 Sales 50,000,000 Cost of goods sold 45,000,000 Assuming a 365-day year, what is the number of days in the company's cash conversion cycle?
20.3 days.
State College is using cost-volume-profit analysis to determine tuition rates for the upcoming school year. Projected costs for the year are as follows: Contribution margin per student $ 1,800 Variable expenses per student 1,000 Total fixed expenses 360,000 Based on these estimates, what is the approximate breakeven point in number of students?
200
A ceramics manufacturer sold cups last year for $7.50 each. Variable costs of manufacturing were $2.25 per unit. The company needed to sell 20,000 cups to break even. Net income was $5,040. This year, the company expects the following changes: sales price per cup to be $9.00, variable manufacturing costs to increase 33.3%, fixed costs to increase 10%, and the income tax rate to remain at 40%. Sales in the coming year are expected to exceed last year's sales by 1,000 units. How many units does the company expect to sell this year?
22,600
Fitzgerald Company is planning to acquire a $250,000 machine that will provide increased efficiencies, thereby reducing annual operating costs by $80,000. The machine will be depreciated by the straight-line method over a 5-year life with no salvage value at the end of 5 years. Assuming a 40% income tax rate, the machine's payback period is
3.68 years.
Using a 360-day year, what is the opportunity cost to a buyer of not accepting terms 3/10, net 45?
31.81%
ABC Co. had debt with a market value of $1 million and an after-tax cost of financing of 8%. ABC also had equity with a market value of $2 million and a cost of equity capital of 9%. ABC's weighted-average cost of capital would be
8.7%
The following computations were made from Bruckner Co.'s current-year books: Number of days' sales in inventory 55 Number of days' sales in trade accounts receivable 26 What was the number of days in Bruckner's current-year operating cycle?
81
A company currently has 1,000 shares of common stock outstanding with zero debt. It has the choice of raising an additional $100,000 by issuing 9% long-term debt or issuing 500 shares of common stock. The company has a 40% tax rate. What level of earnings before interest and taxes (EBIT) would result in the same earnings per share (EPS) for the two financing options?
An EBIT of $27,000 would result in EPS of $10.80 for both.
Inventoriable costs
Are regarded as assets before the products are sold.
A company is evaluating its experience with five recent investments. The following data are available: Cost of Amount Investment Investment Received A $ 8,500 $ 8,390 B 4,200 4,610 C 12,100 12,400 D 7,900 8,220 E 11,000 11,400 Rank the investments in order from highest rate of return to lowest.
B, D, E, C, A.
Bander Co. is determining how to finance some long-term projects. Bander has decided it prefers the benefits of no fixed charges, no fixed maturity date, and an increase in the credit-worthiness of the company. Which of the following would best meet Bander's financing requirements?
Common stock.
Tennis rackets and tennis balls are
Complementary goods.
The sale of scrap from a manufacturing process usually is recorded as a(n)
Decrease in factory overhead control.
The most likely strategy to reduce the breakeven point would be to
Decrease the fixed costs and increase the contribution margin.
Which changes in costs are most conducive to switching from a traditional inventory ordering system to a just-in-time ordering system?
Decreasing Increasing
If the average household income increases and there is relatively little change in the price of a normal good, then the
Demand curve will shift to the right.
The calculation of depreciation is used in the determination of the net present value of an investment for which of the following reasons?
Depreciation increases cash flow by reducing income taxes.
Which of the following statements is true concerning statistical sampling in tests of controls?
Deviations from specific control activities increase the likelihood of misstatements but do not always cause misstatements.
Which criterion for allocation of common costs most likely promotes acceptance of the allocation?
Direct cause-and-effect relationship.
Which of the following is necessary to be an audit committee financial expert according to the criteria specified in the Sarbanes-Oxley Act of 2002?
Experience with internal accounting controls.
Which of the following costs is deducted from revenues of a manufacturing company in order to determine gross margin, but not deducted from revenues to determine contribution margin?
Fixed manufacturing.
A plan that is created using budgeted revenue and costs but is based on the actual units of output is known as a
Flexible budget.
North Bank is analyzing Belle Corp.'s financial statements for a possible extension of credit. Belle's quick ratio is significantly better than the industry average. Which of the following factors should North consider as a possible limitation of using this ratio when evaluating Belle's creditworthiness?
Fluctuating market prices of short-term investments may adversely affect the ratio.
In a comparison of Year 2 with Year 1, Baliol Co.'s inventory turnover ratio increased substantially although sales and inventory amounts were essentially unchanged. Which of the following statements explains the increased inventory turnover ratio?
Gross profit percentage decreased.
If a $1,000 bond sells for $1,125, which of the following statements are true? The market rate of interest is greater than the coupon rate on the bond. The coupon rate on the bond is greater than the market rate of interest. The bond sells at a premium. The bond sells at a discount.
II and III.
How are the following used in the calculation of the internal rate of return of a proposed project? Ignore income tax considerations.
Include Exclude
The use of an accelerated method instead of the straight-line method of depreciation in computing the net present value of a project has the effect of
Increasing the present value of the depreciation tax shield.
The profitability index (present value index)
Is the ratio of the discounted net cash flows to initial investment.
Which of the following is an advantage of net present value modeling?
It accounts for compounding of returns.
Fact Pattern: Calculation of ratios and the determination of other factors are considered important in analysis of financial statements. Prior to the independent events described below, the corporation concerned had current and quick ratios in excess of one to one and reported a net income (as opposed to a loss) for the period just ended. Income tax effects are to be ignored. The corporation had only one class of shares outstanding. The effect of recording a 2-for-1 stock split is to
Leave working capital unaffected, decrease earnings per share, and decrease book value per share.
When purchasing temporary investments, which one of the following best describes the risk associated with the ability to sell the investment in a short period of time without significant price concessions?
Liquidity risk.
The controller of Nottingham Stores has asked a staff accountant to prepare detailed reports that summarize the firm's cash flows for the upcoming accounting period and cash position at the end of the period. Accordingly, the controller has requested preparation of a cash budget, a pro-forma statement of cash flows, a detailed listing of cash collections from customers, and a detailed listing of cash payments for merchandise purchases. Which one of the following correctly identifies the first and last document to be prepared by the accountant?
Listing of cash collections Pro-forma statement of cash flows
As required by GAAP, the fixed portion of the semivariable cost of electricity for a manufacturing plant is a
No Yes
Buff Co. is considering replacing an old machine with a new machine. Which of the following items is economically relevant to Buff's decision? (Ignore income tax considerations.)
No Yes
One hundred pounds of raw material W is processed into 60 pounds of X and 40 pounds of Y. Joint costs are $135. X is sold for $2.50 per pound, and Y can be sold for $3.00 per pound or processed further into 30 pounds of Z (10 pounds are lost in the second process) at an additional cost of $60. Each pound of Z can then be sold for $6.00. What is the effect on profits of further processing product Y into product Z?
No change.
What costs are treated as product costs under variable costing?
Only variable production costs.
In computing the current period's manufacturing cost per equivalent unit of production (EUP), the FIFO method of process costing considers current period costs
Only.
Mason Company's board of directors has determined four options to increase working capital next year. Option 1 is to increase current assets by $120 and decrease current liabilities by $50. Option 2 is to increase current assets by $180 and increase current liabilities by $30. Option 3 is to decrease current assets by $140 and increase current liabilities by $20. Option 4 is to decrease current assets by $100 and decrease current liabilities by $75. Which option should Mason choose to maximize net working capital?
Option 1.
If the coefficient of elasticity is zero, then the consumer demand for the product is said to be
Perfectly inelastic.
The relevance of a particular cost to a decision is determined by
Potential effect on the decision.
A consultant recommends that a company hold funds for the following two reasons: Reason #1: Cash needs can fluctuate substantially throughout the year. Reason #2: Opportunities for buying at a discount may appear during the year. The cash balances used to address the reasons given above are correctly classified as Reason #1 Reason #2
Precautionary Speculative balances balances
Which one of the following statements is correct regarding the effect preferred stock has on a company?
Preferred shareholders' claims take precedence over the claims of common shareholders in the event of liquidation.
A supply curve illustrates the relationship between
Price and quantity supplied.
After performing a thorough study of Michigan Company's operations, an independent consultant determined that the firm's labor standards were too tight. Which of the following is inconsistent with the consultant's conclusion?
Production supervisors found several significant fluctuations in manufacturing volume, with short-term increases in output being followed by rapid, sustained declines.
The recommended technique for evaluating projects when capital is rationed and there are no mutually exclusive projects from which to choose is to rank the projects by
Profitability index.
Galad Corp. has current assets of $180,000 and current liabilities of $360,000. Which of the following transactions would improve Galad's current ratio?
Purchasing $100,000 of merchandise inventory with a short-term account payable.
A company has a policy of frequently cutting prices to increase sales. Product demand is significantly elastic. What impact would this have on the company's situation?
Quantity increases proportionally more than the price declines.
An economy is at the peak of the business cycle. Which of the following policy packages is the most effective way to dampen the economy and prevent inflation?
Reduce government spending, increase taxes, reduce money supply, and increase interest rates.
Charlie's Service Co. is an automobile service center. For the month of June, Charlie's had the following operating statistics: Sales $750,000 Operating income 50,000 Net profit after taxes 6,000 Total assets available 700,000 Shareholders' equity 300,000 Cost of capital 8% Charlie's has a
Residual income of $(6,000).
Which of the following listings correctly describes the order in which the four types of budgets must be prepared?
Sales, production, direct materials purchases, cash disbursements.
A process costing system was used for a department that began operations in January. Approximately the same number of physical units, at the same degree of completion, were in work-in-process at the end of both January and February. Monthly conversion costs are allocated between ending work-in-process and units completed. Compared with the FIFO method, would the weighted-average method use the same or a greater number of equivalent units to calculate the monthly allocations? Equivalent Units for Weighted Average Compared with FIFO January February
Same Greater number
Farrow Co. is applying for a loan in which the bank requires a quick ratio of at least 1. Farrow's quick ratio is 0.8. Which of the following actions would increase Farrow's quick ratio?
Selling obsolete inventory at a loss.
Which one of the following is a spontaneous source of financing?
Trade credit.
To determine the best cost driver of warranty costs relating to glass breakage during shipments, Wymer Co. used simple linear regression analysis to study the relationship between warranty costs and each of the following variables: type of packaging, quantity shipped, type of carrier, and distance shipped. The analysis yielded the following statistics: Independent Coefficient of Standard Error Variable Determination of Regression Type of packaging 0.60 1,524 Quantity shipped 0.48 1,875 Type of carrier 0.45 2,149 Distance shipped 0.20 4,876 Based on these analyses, the best driver of warranty costs for glass breakage is
Type of packaging.
In inventory management, the safety stock will tend to increase if the
Variability of the lead time increases.
Which of the following statements is correct concerning start-up costs?
Costs of start-up activities, including organization costs, should be expensed as incurred.
If a corporation sells some of its treasury stock at a price that exceeds its cost, this excess should be
Credited to additional paid-in capital.
On January 1, Year 1, an entity receives a payment of $20,000 for delivering a product to a customer at the end of Year 3. Based on the contract's terms, the performance obligation will be satisfied at a point in time (upon delivery of the product). The entity determined that (1) the contract includes a significant financing component and (2) a financing rate of 6% is an appropriate discount rate. What amount of interest expense and contract liability will be recognized in the entity's December 31, Year 2, financial statements? Year 2 Interest Expense Contract Liability on December 31, Year 2
$1,272 $22,472
An organization of high school seniors performs services for patients at Leer Hospital. These students are volunteers and perform services that the hospital would not otherwise provide, such as wheeling patients in the park and reading to patients. They donated 5,000 hours of service to Leer in Year 4. At a minimum wage rate, these services would amount to $18,750, while it is estimated that the fair value of these services was $25,000. In Leer's Year 4 statement of activities, what amount should be reported as nonoperating revenue?
$0
Anthony and Cleo are married and file jointly for 2018. They received the following in 2018: Taxable pension $10,000 Interest income (taxable) 500 Anthony's Social Security benefits 6,600 Cleo's Social Security benefits 2,400 What is the amount of Anthony and Cleo's taxable Social Security benefits for 2018?
$0
At December 31, Year 2, an entity that prepares its financial statements using IFRS had the following obligations that were expected to be refinanced: 17% note payable $140,000 15% note payable $200,000 The 17% note payable was issued on October 1, Year 1, and matures on July 1, Year 3. No loan agreement existing at the balance sheet date provides for refinancing. The 15% note payable was issued on May 1, Year 1, and matures on May 1, Year 3. On February 1, Year 3, the entire $140,000 balance of the 17% note payable was refinanced by issuance of a long-term debt instrument. On February 7, Year 3, the entity entered into a noncancelable agreement with a lender to refinance the 15% note payable on a long-term basis. The financial statements were authorized to be issued on March 1, Year 3. The total amount of obligations that may be properly excluded from current liabilities on the entity's December 31, Year 2, balance sheet is
$0
Barkley owns a vacation cabin that was rented to unrelated parties for 10 days during the year for $2,500. The cabin was used by Barkley for 3 months and left vacant for the rest of the year. Expenses for the cabin were as follows. Real estate taxes $1,000 Maintenance and utilities $2,000 How much real income (loss) is included in Barkley's adjusted gross income?
$0
Day Co. received dividends from its common stock investments during the year ended December 31 as follows: A stock dividend of 400 shares from Parr Corp. on July 25 when the market price of Parr's shares was $20 per share. Day owns less than 1% of Parr's stock. A cash dividend of $15,000 from Lark Corp. in which Day owns a 25% interest. Day did not elect the fair value option to account for its investment in Lark. What amount of dividend revenue should Day report in its income statement?
$0
Dunn received 100 shares of stock as a gift from Dunn's grandparent. The stock cost Dunn's grandparent $32,000, and it was worth $27,000 at the time of the transfer to Dunn. Dunn sold the stock for $29,000. What amount of gain or loss should Dunn report from the sale of the stock?
$0
During an all-employee awards ceremony, Pedals Company gave Mollie a new bicycle for her outstanding safety record. This award was presented to Mollie for her services to the company and in accordance with Pedals's qualified employee achievement awards program. The bicycle cost Pedals $1,200 and has a fair market value of $1,700. What amount must Mollie include in income?
$0
Northstar Co. acquired a registered trademark for $600,000. The trademark has a remaining legal life of 5 years but can be renewed every 10 years for a nominal fee. Northstar expects to renew the trademark indefinitely. What amount of amortization expense should Northstar record for the trademark in the current year?
$0
On January 2, Year 1, Cruises, Inc., borrowed $3 million at a rate of 10% for 3 years and began construction of a cruise ship. The note states that annual payments of principal and interest in the amount of $1.3 million are due every December 31. Cruises used all proceeds as a down payment for construction of a new cruise ship that is to be delivered 2 years after start of construction. What should Cruises report as interest expense related to the note in its income statement for Year 2?
$0
On November 10, Year 4, a Garry Corp. truck was in an accident with an auto driven by Dacey. On January 10, Year 5, Garry received notice of a lawsuit seeking $800,000 in damages for personal injuries suffered by Dacey. Garry Corp.'s counsel believes it is reasonably possible that Dacey will be awarded an estimated amount in the range between $250,000 and $500,000, and that $400,000 is a better estimate of potential liability than any other amount. Garry's accounting year ends on December 31, and the Year 4 financial statements were issued on March 6, Year 5. What amount of loss should Garry accrue at December 31, Year 4?
$0
The following information pertains to treasury stock sold by Lee Corporation to an unrelated broker in the current year: Proceeds received $50,000 Cost 30,000 Par value 9,000 What amount of capital gain should Lee recognize in the current year on the sale of this treasury stock?
$0
Wilson Corp. experienced a $50,000 decline in the market value of its LIFO inventory in the first quarter of its fiscal year. Wilson had expected this decline to reverse in the third quarter, and the third quarter recovery exceeded the previous decline by $10,000. Wilson's inventory did not experience any other declines in market value during the fiscal year. What amounts of loss or gain should Wilson report in its interim financial statements for the first and third quarters?
$0 $0
A company owns a financial asset that is actively traded on two different exchanges (market A and market B). There is no principal market for the financial asset. The information on the two exchanges is as follows: Quoted Price of Asset Transaction Costs Market A $1,000 $ 75 Market B 1,050 150 What is the fair value of the financial asset?
$1,000
Sand purchased 100 shares of Eastern Corp. stock for $18,000 on April 1 of the prior year. On February 1 of the current year, Sand sold 50 shares of Eastern for $7,000. Fifteen days later, Sand purchased 25 shares of Eastern for $3,750. What is the amount of Sand's recognized gain or loss?
$1,000
Baler Co. prepared its statement of cash flows at year-end using the direct method. The following amounts were used in the computation of cash flows from operating activities: Beginning inventory $200,000 Ending inventory 150,000 Cost of good sold 1,200,000 Beginning accounts payable 300,000 Ending accounts payable 200,000 What amount should Baler report as cash paid to suppliers for inventory purchases?
$1,250,000
Zinc Co.'s adjusted trial balance at December 31, Year 6, includes the following account balances: Common stock, $3 par $600,000 Additional paid-in capital 800,000 Treasury stock, at cost 50,000 Net unrealized holding loss on available-for-sale securities 20,000 Retained earnings: Appropriated for uninsured earthquake losses 150,000 Retained earnings: Unappropriated 200,000 What amount should Zinc report as total equity in its December 31, Year 6, balance sheet?
$1,680,000
n January 1, Year 1, Kee Corp., a C corporation, had a $50,000 deficit in E&P. For Year 1, Kee had current E&P of $10,000 and made a $30,000 cash distribution to its shareholders. What amount of the distribution is taxable as dividend income to Kee's shareholders?
$10,000
Anna is a 22-year-old student with earned income of $9,800 from a summer job and dividend income of $1,100. Her parents claim her as a dependent on their tax return. What is Anna's basic standard deduction amount?
$10,150
For the year ended December 31, 2018, Maple Corporation's book income before federal income tax was $100,000. Included in this $100,000 were the following: Provision for state income tax expense $1,000 Interest earned on U.S. Treasury bonds 6,000 Interest expense on bank loan to purchase U.S. Treasury bonds 2,000 Maple's taxable income for 2018 was
$100,000
Hansen Construction, Inc., has consistently used the input method based on costs incurred to recognize revenue over time. During Year 1, Hansen started work on a $3 million fixed-price construction contract. The accounting records disclosed the following data for the year ended December 31, Year 1: Costs incurred $ 930,000 Estimated costs to complete 2,170,000 Amounts billed 1,100,000 Collections 700,000 How much loss should Hansen have recognized in Year 1?
$100,000
In 2018, Kara Corp. incurred the following expenditures in connection with the repurchase of its stock from shareholders: Interest on borrowings used to repurchase stock $100,000 Legal and accounting fees in connection with the repurchase 400,000 The total of the above expenditures deductible in 2018 is
$100,000
On December 31, Year 3, Matricula Corp. reported $100,000 in current liabilities. Matricula issued audited financial statements on March 31, Year 4. On February 15, Year 4, the company issued $80,000 of common stock, the proceeds of which were intended to pay the current debt. What amount of current liabilities should Matricula report in its December 31, Year 3, balance sheet prepared under IFRS?
$100,000
Vore Corp. bought equipment on January 2, Year 1, for $200,000. This equipment had an estimated useful life of 5 years and a salvage value of $20,000. Depreciation was computed by the 150%-declining-balance method. The accumulated depreciation balance at December 31, Year 2, should be
$102,000
Parker Co. amended its pension plan on January 2 of the current year. It also granted $600,000 of prior service costs to its employees. The employees are all active and expect to provide 2,000 service years in the future, with 350 service years this year. What is Parker's prior service cost amortization for the year?
$105,000
Mr. Macabee, a sole proprietor on the accrual basis, prepared the following balance sheet for his business on December 31, Year 14: Assets Accounts receivable $ 8,000 Inventory 14,000 Equipment (purchased in Year 1) 40,000 Accumulated depreciation (30,000) Goodwill (tax basis) 15,000 $47,000 Capital Macabee, capital $47,000 The goodwill was acquired in January Year 13 and $2,000 of amortization was taken on the goodwill in the past 2 years. On December 31, Year 14, Mr. Macabee sold this business. The allocation of the selling price of $63,000 was stipulated in the sales agreement as follows: Accounts receivable $ 8,000 Inventory 17,000 Equipment 16,000 Goodwill 22,000 Total selling price $63,000 How should this sale be reported in Mr. Macabee's Year 14 individual tax return?
$11,000 ordinary income and $5,000 Sec. 1231 gain.
Kareem is a full-time graduate student at the university working toward his Ph.D. in chemistry. In 2018, he received the following scholarship payments from the university: $8,000 for tuition and fees $5,000 for room and board $1,000 for fees, books, supplies, and equipment that are required for the courses at the university $7,000 for services as a part-time teaching assistant at the university for which he received a W-2 at the end of the year Kareem used both the $8,000 and $7,000 payments to pay the total annual tuition of $15,000 at the university. He used the $5,000 payment for room and board. He used the $1,000 to purchase books. What amount received from the university must Kareem include on his 2018 return as taxable income?
$12,000
Willie Coconut was injured during the year and was not able to work due to his injury and the associated emotional distress. Willie received the following payments during the year: Disability pay $3,500 Accident insurance proceeds (substitute for lost income) 7,000 Damages for emotional distress received by a lawsuit 2,000 Punitive damages 5,000 Willie has paid the premiums for all of his policies and has not taken any deductions for the medical expenses. The total amount of compensation for injury that Willie may exclude from gross income is
$12,500
Able, Inc., had the following amounts of long-term debt outstanding at December 31, Year 4: 14 1/2% term note, due Year 5 $ 3,000 11 1/8% term note, due Year 8 107,000 8% note, due in 11 equal annual principal payments, plus interest beginning December 31, Year 5 110,000 7% guaranteed debentures, due Year 9 100,000 Total $320,000 Able's annual sinking-fund requirement on the guaranteed debentures is $4,000 per year. What amount should Able report as current maturities of long-term debt in its December 31, Year 4, balance sheet?
$13,000
The following information for 2018 pertains to Bartley Corporation: Capital contributions by shareholders $50,000 Realized loss on sale of treasury stock (10,500) Income from rental property in a sinking fund (in the hands of a trustee) 5,500 Rent paid directly to a bond holder on a lease of corporate property 8,000 What is the amount of gross income to Bartley Corporation for 2018?
$13,500
On July 1, Kemp Company leased office space for 5 years at $15,000 a month. On that date, Kemp paid the lessor the following amounts: Rent security deposit $ 35,000 First month's rent 15,000 Last month's rent 15,000 Nonrefundable reimbursement to lessor for modifications to the leased premises 90,000 $155,000 Kemp made timely rental payments August 1 through December 1. What portion of the payments to the lessor should Kemp have recognized as deferred to years beyond the year just ended?
$131,000
Metro, Inc., reported net income of $150,000 for the current year. Changes occurred in several balance sheet accounts during the current year as follows: Investment in Videogold, Inc., stock, all of which was acquired in the previous year, carried on the equity basis $5,500 increase Accumulated depreciation, caused by major repair to projection equipment 2,100 decrease Premium on bonds payable 1,400 decrease Deferred income tax liability (long-term) 1,800 increase In Metro's current-year cash flow statement, the reported net cash provided by operating activities should be
$144,900
On March 15, Year 4, Krol Company paid property taxes of $180,000 on its factory building for the Year 4 calendar year. On April 1, Year 4, Krol made $300,000 in unanticipated repairs to its plant equipment. The repairs will benefit operations for the remainder of the calendar year. What total amount of these expenses should be included in Krol's quarterly income statement for the 3 months ended June 30, Year 4?
$145,000
Minor Baseball Company had a player contract with Doe that was recorded in its accounting records at $145,000. Better Baseball Company had a player contract with Smith that was recorded in its accounting records at $140,000. Minor traded Doe to Better for Smith by exchanging player contracts. The fair value of each contract was $150,000. Evidence suggested that the contract exchange lacked commercial substance. At what amount should the contracts be valued in accordance with generally accepted accounting principles at the time of the exchange of the player contracts?
$145,000 $140,000
During 2018, Sea Corporation reported gross income from operations of $100,000 and operating expenses of $150,000. Sea Corporation also received dividend income of $90,000 from a domestic corporation in which Sea is a 20% shareholder. What is the amount of Sea Corporation's net operating loss?
$18,500
Eight years ago, Ms. Jones, a farmer, inherited a large parcel of land that had a fair market value of $150,000 at that time. She used the large parcel in her farming operations. In the current year, Ms. Jones decided she no longer wanted the large parcel in her farm operations, so she offered it for sale for $250,000. Mr. Oak approached Ms. Jones with an offer to exchange a small parcel (which Ms. Jones wanted for her farming operations) and some farm equipment for the large parcel. The small parcel had a fair market value of $200,000, and the equipment had a fair market value of $50,000. Ms. Jones accepted Mr. Oak's offer and entered into a partially nontaxable exchange in which she exchanged her land for Mr. Oak's land and equipment. What is Ms. Jones's basis in the small parcel?
$150,000
Prime Corporation's building was destroyed by a tornado in a federally declared disaster area. The fair market value of the building at the time of the tornado was $400,000, and its adjusted basis was $350,000. The insurance proceeds totaled $500,000 as follows: $400,000 for the building. $100,000 for lost profits during rebuilding. Prime does not defer any gain under the involuntary conversion provisions of Sec. 1033. What amount of the insurance proceeds is taxable to Prime?
$150,000
On January 1, Year 4, Card Corp. signed a 3-year, noncancelable purchase contract that allows Card to purchase up to 500,000 units of a computer part annually from Hart Supply Co. The price is $.10 per unit, and the contract guarantees a minimum annual purchase of 100,000 units. During Year 4, the part unexpectedly became obsolete. Card had 250,000 units of this inventory at December 31, Year 4, and believes these parts can be sold as scrap for $.02 per unit. What amount of probable loss from the purchase commitment should Card report in its Year 4 income statement?
$16,000
On January 1, Year 4, Dallas, Inc., purchased 80% of Style, Inc.'s outstanding common stock for $120,000. On that date, the carrying amounts of Style's assets and liabilities approximated their fair values. During Year 4, Style paid $5,000 cash dividends to its shareholders. Summarized balance sheet information for the two companies follows: Dallas Style 12/31/Yr 4 12/31/Yr 4 1/1/Yr 4 Investment in Style (equity method) $132,000 Other assets 138,000 $115,000 $100,000 Total assets $270,000 $115,000 $100,000 Common stock $ 50,000 $ 20,000 $ 20,000 Additional paid-in capital 80,250 44,000 44,000 Retained earnings 139,750 51,000 36,000 Total liabilities and equity $270,000 $115,000 $100,000 What amount should Dallas report as earnings from subsidiary in its Year 4 parent-only income statement?
$16,000
Taft Corp. discloses operating-segment information. The following information is available for Year 4: Operating Traceable Segment Sales Operating Expenses A $1,000,000 $ 600,000 B 800,000 500,000 C 600,000 350,000 $2,400,000 $1,450,000 Additional Year 4 expenses, not included above, are as follows: Indirect operating expenses $360,000 General corporate expenses 240,000 In the measure of segment profit or loss reviewed by the chief operating decision maker, appropriate common operating expenses are allocated to segments based on the ratio of a segment's sales to total sales, but general corporate expenses are not. Segment C's Year 4 profit for external reporting purposes was
$160,000
Dr. Chester is a cash-basis taxpayer. His office visit charges are usually paid on the date of visit or within 1 month. However, services rendered outside the office are billed weekly and are usually paid within 2 months as patients collect from insurance companies. Information relating to Year 1 is as follows: Cash received at the time of office visits $ 35,000 Collections on accounts receivable 130,000 Accounts receivable, January 1 16,000 Accounts receivable, December 31 20,000 Dr. Chester's gross income from his medical practice for Year 1 is
$165,000
In Year 1, a taxpayer sold real property for $200,000, receiving $100,000 at closing and $100,000 plus accrued interest at the prime rate in the next year. The buyer also assumed a $50,000 mortgage on the property. The taxpayer's adjusted basis was $75,000, and the taxpayer incurred $10,000 of selling expenses. If this transaction qualifies for installment sale treatment, what is the gross profit on the sale?
$165,000
A hotel enters into a contract with a customer to provide 10 rooms for 10 nights for $200 per room per night. In addition to the room price per night, the hotel collects a city occupancy tax of $7 per room per night. According to the hotel's promotion, each customer that purchases in total more than 50 room nights is entitled to a credit of $3,000 on the entire purchase. What is the total transaction price of the contract?
$17,000
In preparing its August 31 bank reconciliation, Apex Corp. has the following information available: Balance per bank statement, 8/31 $18,050 Deposit in transit, 8/31 3,250 Return of customer's check for insufficient funds, 8/31 600 Outstanding checks, 8/31 2,750 Bank service charges for August 100 At August 31, Apex's cash balance is
$18,550
Martha, filing single, purchased her home on July 7, Year 1, and lived in it continuously until its sale on January 7, Year 3, due to a qualified hardship. Her gain on the sale of the home is $300,000. She did not exclude any gain on any other home sale during this time. What is the maximum amount of gain she may exclude on this sale?
$187,500
During 2018, ABC Corporation had the following income and expenses: Gross sales receipts $350,000 Salaries 175,000 Contributions to qualified charitable organizations 20,000 Capital gains 3,000 Capital loss carryback 3,000 Depreciation expense 14,000 Dividend income 30,000 Dividends-received deduction 15,000 What is ABC's charitable contribution deduction for 2018?
$19,400
For 2018, a corporation had taxable income of $70,000 without regard to the contribution deduction. Contributions made in 2018 totaled $5,000, and a $4,000 carryover of excess contributions from 2017 is available to apply to 2018. What is the amount of contribution carryover available for 2019, and what is its source?
$2,000 from 2017.
On March 31, Winn Company traded in an old machine with a carrying amount of $16,800, and paid a cash difference of $6,000 for a new machine having a total cash price of $20,500. On March 31, what amount of loss should Winn recognize on this exchange?
$2,300
On April 1, Julie began operating a service proprietorship with an initial cash investment of $1,000. The proprietorship provided $3,200 of services in April and received a payment of $2,500 in May. The proprietorship incurred expenses of $1,500 in April that were paid in June. During May, Julie drew $500 from her capital account. What was the proprietorship's income for the 2 months ended May 31 under the following methods of accounting?
$2,500 $1,700
Which of the following fringe benefits is not excludable from an employee's wages?
$2,500 of group term life insurance covering the death of an employee's spouse or dependent.
Corporation R was organized and began active business on January 4, 2018. R incurred the following expenses in connection with creating the business: Professional fees for issuance of stock $ 4,000 State incorporation fees 2,000 Printing cost for stock certificates 1,500 Broker's commissions on sale of stock 7,000 Legal fees for drafting the charter 32,000 Expense for temporary directors 5,000 Total $51,500 Electing no immediate expensing, the maximum amount of organizational expense that may be deducted by Corporation R on its 2018 income tax return i
$2,600
Koby Co. entered into a lease with a vendor for equipment on January 2 for 7 years. The equipment has no guaranteed residual value. The lease required Koby to pay $500,000 annually on January 2, beginning with the current year. The present value of an annuity due for seven years was 5.35 at the inception of the lease. What amount should Koby recognize for the lease asset?
$2,675,000
On June 1, Pitt Corp. sold merchandise with a list price of $5,000 to Burr on account. Pitt allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40, and the sale was made FOB shipping point. Pitt prepaid $200 of delivery costs for Burr as an accommodation. On June 12, Pitt received from Burr a remittance in full payment amounting to
$2,944
Ute Co. had the following capital structure during Year 1 and Year 2: Preferred stock, $10 par, 4% cumulative, 25,000 shares issued and outstanding $ 250,000 Common stock, $5 par, 200,000 shares issued and outstanding 1,000,000 The preferred stock is not convertible. Ute reported net income of $500,000 for the year ended December 31, Year 2. Ute paid no preferred dividends during Year 1 and paid $16,000 in preferred dividends during Year 2. In its December 31, Year 2, income statement, what amount should Ute report as basic earnings per share?
$2.45
The following information pertains to Cole's personal residence, which sustained (federally declared disaster area) casualty fire damage in 2018: Adjusted basis $150,000 Fair market value immediately before the fire 200,000 Fair market value immediately after the fire 180,000 Fire damage repairs paid for by Cole in 2018 10,000 The house was uninsured. Before consideration of any "floor" or other limitation on tax deductibility, the amount of this 2018 casualty loss was
$20,000
On January 2, Paye Co. acquired Shef Co. in a business combination that resulted in recognition of goodwill of $200,000 having an expected benefit period of 10 years. Shef is treated as a reporting unit, and the entire amount of the recognized goodwill is assigned to it. During the first quarter of the year, Shef spent an additional $80,000 on expenditures designed to maintain goodwill. Due to these expenditures, at December 31, Shef estimated that the benefit period of goodwill was 40 years. In its consolidated December 31 balance sheet, what amount should Paye report as goodwill?
$200,000
Talton Co. installed new assembly line production equipment at a cost of $185,000. Talton had to rearrange the assembly line and remove a wall to install the equipment. The rearrangement cost $12,000, and the wall removal cost $3,000. The rearrangement did not increase the life of the assembly line, but it did make it more efficient. What amount of these costs should be capitalized by Talton?
$200,000
The following information pertains to Eagle Co.'s current year sales: Cash sales Gross $80,000 Returns and allowances 4,000 Credit sales Gross $120,000 Discounts 6,000 On January 1, customers owed Eagle $40,000. On December 31, customers owed Eagle $30,000. Eagle uses the direct write-off method for bad debts. No bad debts were recorded in the current year. Under the cash basis of accounting, what amount of net revenue should Eagle report for the current year?
$200,000
Jent Corp. purchased bonds at a discount of $10,000. Subsequently, Jent sold these bonds at a premium of $14,000. During the period that Jent held this investment, amortization of the discount amounted to $2,000. What amount should Jent report as gain on the sale of bonds?
$22,000
The following is Gold Corp.'s June 30, Year 6, trial balance: Dr. Cr. Cash overdraft $ 10,000 Accounts receivable, net $ 35,000 Inventory 58,000 Prepaid expenses 12,000 Land held for resale 100,000 Property, plant, and equipment, net 95,000 Accounts payable and accrued expenses 32,000 Common stock 25,000 Additional paid-in capital 150,000 Retained earnings 83,000 $300,000 $300,000 Additional information: Checks amounting to $30,000 were written to vendors and recorded on June 29, Year 6, resulting in a cash overdraft of $10,000. The checks were mailed on July 9, Year 6. Land held for resale was sold for cash on July 15, Year 6. Gold issued its financial statements on July 31, Year 6. In its June 30, Year 6 balance sheet, what amount should Gold report as current assets?
$225,000
A company has the following accrual-basis balances at the end of its first year of operation: Unearned consulting fees $ 2,000 Consulting fees receivable 3,500 Consulting fee revenue 25,000 The company's cash-basis consulting revenue is what amount?
$23,500
On October 1, 2018, Donald Anderson exchanged an apartment building, having an adjusted basis of $375,000 and subject to a mortgage of $100,000, for $25,000 cash and another apartment building with a fair market value of $550,000 and subject to a mortgage of $125,000. The property transfers were made subject to the outstanding mortgages. What amount of gain should Anderson recognize in his tax return for 2018?
$25,000
Quigley, Roberk, and Storm form a corporation. Quigley exchanges $25,000 of legal fees for 30 shares of stock. Roberk exchanges land with a basis of $10,000 and a fair market value of $100,000 for 60 shares of stock. Storm exchanges $10,000 cash for 10 shares of stock. What amount of income should each shareholder recognize?
$25,000 $90,000 $0
Marvel Corporation's operating income for 2018 was $200,000 after a reduction of $60,000 for charitable contributions. What is the maximum allowable deduction for contributions on Marvel's 2018 federal income tax return?
$26,000
On January 2, Year 1, Kean Co. purchased a 30% interest in Pod Co. for $250,000. On this date, Pod's equity was $500,000. The carrying amounts of Pod's identifiable net assets approximated their fair values, except for land whose fair value exceeded its carrying amount by $200,000. Pod reported net income of $100,000 for Year 1, and paid no dividends. Kean accounts for this investment using the equity method. In its December 31, Year 1, balance sheet, what amount should Kean report as investment in Pod Co.?
$280,000
Rabb Co. records its purchases at gross amounts but wishes to change to recording purchases net of purchase discounts. Discounts available on purchases recorded from October 1, Year 3, to September 30, Year 4, totaled $2,000. Of this amount, $200 is still available in the accounts payable balance. The balances in Rabb's accounts as of and for the year ended September 30, Year 4, before conversion are Purchases $100,000 Purchase discounts taken 800 Accounts payable 30,000 What is Rabb's accounts payable balance as of September 30, Year 4, after the conversion?
$29,800
Lobster, Inc., incurs the following losses on disposition of long-term business assets during the year: Loss on the abandonment of office equipment $ 25,000 Loss on the sale of a building (straight-line depreciation taken in prior years of $200,000) 250,000 Loss on the sale of delivery trucks 15,000 What is the amount and character of the losses to be reported on Lobster's tax return?
$290,000 Sec. 1231 loss.
For the tax year ended December 31, 2018, Orange Corporation had gross income of $600,000 and operating expenses of $900,000. Contributions of $5,000 to qualified charities were included in expenses. In addition to the expenses, Orange Corporation had a net operating loss carryover of $8,000. What is Orange Corporation's net operating loss for 2018?
$295,000
Hogan exchanged a business-use storage building having an original cost of $100,000 and accumulated depreciation of $30,000 for a business-use building owned by Baker having a fair market value of $80,000 plus $1,000 cash. Baker assumed a $2,000 outstanding debt on the storage building. What taxable gain should Hogan recognize?
$3,000
Earl was engaged by Farm Corp. to perform consulting services. Earl's compensation for these services consisted of 1,000 shares of Farm's $10 par value common stock, to be issued to Earl on completion of Earl's services. On the execution date of Earl's employment contract, Farm's stock had a market value of $40 per share. Six months later, when Earl's services were completed and the stock issued, the stock's market value was $50 per share. Farm's management estimated that Earl's services were worth $100,000 in cost savings to the company. As a result of this transaction, additional paid-in capital should increase by
$30,000
A company produces widgets with budgeted standard direct materials of 2 pounds per widget at $5 per pound. Standard direct labor was budgeted at 0.5 hour per widget at $15 per hour. The actual usage in the current year was 25,000 pounds and 3,000 hours to produce 10,000 widgets. What was the direct labor efficiency variance?
$30,000 favorable.
Bain Corp. owned 20,000 common shares of Tell Corp., purchased in Year 1 for $180,000. On December 15, Year 5, Bain declared a property dividend of all its Tell Corp. shares on the basis of one share of Tell for every 10 shares of Bain common stock held by its shareholders. The property dividend was distributed on January 15, Year 6. On the declaration date, the aggregate market price of the Tell shares held by Bain was $300,000. The entry to record the declaration of the dividend should include a debit to retained earnings (or property dividends declared) of
$300,000
Corey Co.'s income statement accounts for the year ended December 31, Year 2, included the following: Sales $800,000 Cost of sales 320,000 Administrative expenses 80,000 Interest expenses 10,000 Other Information Available-for-sale debt securities held by the company had fair values of $250,000 and $300,000 on December 31, Year 1, and December 31, Year 2, respectively. On December 31, Year 2, 70,000 shares of common stock, $1.00 par, were outstanding. Corey repurchased 25,000 shares on June 1, Year 2. Corey's enacted tax rate for the current and future years is 30%. Corey's comprehensive income is
$308,000
During the current year, a tornado completely destroyed a building belonging to Holland Corp. The building cost $100,000 and had accumulated depreciation of $48,000 at the time of the loss. Holland received a cash settlement from the insurance company and reported a loss of $21,000. In Holland's current-year cash flow statement, the net change reported in the cash flows from investing activities section should be a
$31,000 increase.
On January 1, Ott Company sold goods to Fox Company. Fox signed a noninterest-bearing note requiring payment of $60,000 annually for 7 years. The first payment was made on January 1. The prevailing rate of interest for this type of note at date of issuance was 10%. Information on present value factors is as follows: Present Value of Present Value Ordinary Annuity Periods of 1 at 10% of 1 at 10% 6 .56 4.36 7 .51 4.87 Ott should record sales revenue in January of
$321,600
On January 2 of the current year, Shaw Corp., an accrual-basis, calendar-year C corporation, purchased all the assets of a sole proprietorship, including $300,000 in goodwill. Current-year federal income tax expense of $110,100 and $7,500 for annual amortization of goodwill based on a 40-year amortization period were deducted to arrive at Shaw's reported book income of $239,200. What should be the amount of Shaw's current-year taxable income, as reconciled on Shaw's Schedule M-1 of Form 1120, U.S. Corporation Income Tax Return?
$336,800
Fact Pattern: Karr, Inc. reported net income of $300,000 for the current year. Changes occurred in several balance sheet accounts as follows: Equipment $25,000 increase Accumulated depreciation 40,000 increase Note payable 30,000 increase Additional information: During the current year, Karr sold equipment costing $25,000, with accumulated depreciation of $12,000, for a gain of $5,000. In December of the current year, Karr purchased equipment costing $50,000 with $20,000 cash and a 12% note payable of $30,000. Depreciation expense for the year was $52,000. In Karr's current-year statement of cash flows, net cash provided by operating activities should be
$347,000
On January 2 of the current year, Shaw Corp., an accrual-basis, calendar-year C corporation, purchased all the assets of a sole proprietorship, including $300,000 in goodwill. Current-year federal income tax expense of $110,100 and $30,000 for annual amortization of goodwill based on a 10-year amortization period were deducted to arrive at Shaw's reported book income of $239,200. What should be the amount of Shaw's current-year taxable income, as reconciled on Shaw's Schedule M-1 of Form 1120, U.S. Corporation Income Tax Return?
$359,300
Aviary Corp. sold a building for $600,000. Aviary received a down payment of $120,000, as well as annual principal payments of $120,000 for each of the subsequent 4 years. Aviary purchased the building for $500,000 and claimed depreciation of $80,000. What amount of gain should Aviary report in the year of sale using the installment method?
$36,000
The changes in account balances of the Vel Corporation during Year 6 are presented below: Increase Assets $356,000 Liabilities 108,000 Capital stock 240,000 Additional paid-in capital 24,000 Vel has no items of other comprehensive income (OCI), and the only charge to retained earnings was for a dividend payment of $52,000. Thus, the net income for Year 6 is
$36,000
Bake Co.'s trial balance included the following at December 31, Year 1: Accounts payable $ 80,000 Bonds payable, due Year 2 300,000 Discount on bonds payable 15,000 Deferred income tax liability 25,000 The deferred income tax liability is not related to an asset for financial accounting purposes and is expected to reverse in Year 2. What amount should be included in the current liability section of Bake's December 31, Year 1, balance sheet?
$365,000
On July 1, Year 1, Mel leased property for 2 years for $700 a month. On September 30, Year 1, the owner of the property told him that if he paid the total in advance for the remainder of the lease, the rent would be reduced to $675 a month. Mel accepted his offer and on October 1, Year 1, he paid the owner $14,175. How much can Mel deduct as rental expense in Year 1?
$4,125
Easel Co. has elected to reimburse employees for business expenses under a nonaccountable plan. Easel does not require employees to provide proof of expenses and allows employees to keep any amount not spent. Under the plan, Mel, an Easel employee for a full year, gets $400 per month for business automobile expenses. At the end of the year, Mel informs Easel that the only business expense incurred was for business mileage of 8,257 at a rate of 54.5 cents per mile, the IRS standard mileage rate at the time of travel. Mel encloses a check for $300 to refund the overpayment to Easel. What amount should be reported in Mel's gross income for the year?
$4,800
On April 1, Year 1, Hall Fitness Center leased its gym to Dunn Fitness Center under a 4-year operating lease. Hall normally charges $6,000 per month to lease its gym, but as an incentive, Hall gave Dunn half off the first year's rent and one quarter off the second year's rent. Dunn's rental payments were as follows: Year 1: 12 × $3,000 = $36,000 Year 2: 12 × $4,500 = $54,000 Year 3: 12 × $6,000 = $72,000 Year 4: 12 × $6,000 = $72,000 Dunn's rent payments were due on the first day of the month, beginning on April 1, Year 1. What amount should Dunn report as rent expense in its monthly income statement for April, Year 3?
$4,875
Financial reporting by not-for-profit, nongovernmental entities should provide information useful in
All of the answers are correct.
Arp Corp.'s outstanding capital stock at December 15, Year 4, consisted of the following: 30,000 shares of 5% cumulative preferred stock, par value $10 per share, fully participating as to dividends. No dividends were in arrears. 200,000 shares of common stock, par value $1 per share On December 15, Year 4, Arp declared dividends of $100,000. What was the amount of dividends payable to Arp's common shareholders?
$40,000
Cassidy, an individual, reported the following items of income and expense during the current year (2018): Salary $50,000 Alimony paid to a former spouse 10,000 Inheritance from a grandparent 25,000 Proceeds of a lawsuit for physical injuries 50,000 What is the amount of Cassidy's adjusted gross income?
$40,000
Emil Gow owns a two-family house that has two identical apartments. Gow lives in one apartment and rents out the other. In 2018, the rental apartment was fully occupied, and Gow received $7,200 in rent. During the year ended December 31, 2018, Gow paid the following: Real estate taxes $6,400 Painting of rental apartment 800 Annual fire insurance premium 600 In 2018, depreciation for the entire house was determined to be $5,000. What amount should Gow include in his adjusted gross income for 2018?
$400
During the current year, Lyle Co. incurred $204,000 of research and development costs in its laboratory to develop a patent that was granted on July 1. Legal fees and other costs associated with registration of the patent totaled $41,000. The estimated useful life of the patent is 10 years. What amount should Lyle capitalize for the patent on July 1?
$41,000
In Year 1, Cobb adopted the dollar-value LIFO inventory method. At that time, Cobb's ending inventory had a base-year cost and an end-of-year cost of $300,000. In Year 2, the ending inventory had a $400,000 base-year cost and a $440,000 end-of-year cost. What dollar-value LIFO inventory cost would be reported in Cobb's December 31, Year 2, balance sheet?
$410,000
Rory Co.'s prepaid insurance was $50,000 at December 31, Year 2, and $25,000 at December 31, Year 1. Insurance expense was $20,000 for Year 2 and $15,000 for Year 1. What amount of cash disbursements for insurance would be reported in Rory's Year 2 net cash flows from operating activities presented on a direct basis?
$45,000
The following stock dividends were declared and distributed by Sol Corp.: Percentage of Common Shares Outstanding at Declaration Date Fair Value Par Value 10 $15,000 $10,000 28 40,000 30,800 What aggregate amount should be debited to retained earnings for these stock dividends?
$45,800
Zach Corp. pays commissions to its sales staff at the rate of 3% of net sales. Sales staff are not paid salaries but are given monthly advances of $15,000. Advances are charged to commission expense, and reconciliations against commissions are prepared quarterly. Net sales for the year ended March 31, Year 1, were $15 million. The unadjusted balance in the commissions expense account on March 31, Year 1, was $400,000. March advances were paid on April 3, Year 1. In its income statement for the year ended March 31, Year 1, what amount should Zach report as commission expense?
$450,000
Jackson owns two residences. The second residence, which has never been used for rental purposes, is the only residence that is subject to a mortgage. The following expenses were incurred for the second residence in the current year: Mortgage interest $5,000 Utilities 1,200 Insurance 6,000 For regular income tax purposes, what is the maximum amount allowable as a deduction for Jackson's second residence in the current year?
$5,000 as an itemized deduction.
As of December 15, Year 4, Aviator had dividends in arrears of $200,000 on its cumulative preferred stock. Dividends for Year 4 of $100,000 have not yet been declared. The board of directors plans to declare cash dividends on its preferred and common stock on January 16, Year 5. Aviator paid an annual bonus to its CEO based on the company's annual profits. The bonus for Year 4 was $50,000, and it will be paid on February 10, Year 5. What amount should Aviator report as current liabilities on its balance sheet at December 31, Year 4?
$50,000
On January 1, Year 1, West Co. entered into a 10-year lease for a manufacturing plant. The annual minimum lease payments are $100,000. In the notes to the December 31, Year 2, financial statements, what amounts of subsequent years' lease payments should be disclosed? Amounts for Aggregate Amount Appropriate for the Period Required Period Thereafter
$500,000 $300,000
On December 31, Year 1, a building owned by Pine Corp. was totally destroyed by fire. The building had fire insurance coverage up to $500,000. Other pertinent information as of December 31, Year 1, follows: Building, carrying amount $520,000 Building, fair market value 550,000 Removal and clean-up cost 10,000 During January Year 2, before the Year 1 financial statements were issued, Pine received insurance proceeds of $500,000. On what amount should Pine base the determination of its loss on involuntary conversion?
$530,000
Terry, an auditor, is performing test work for a not-for-profit hospital. Listed below are components of the statement of operations: Revenue relating to charity care $100,000 Bad debt expense 70,000 Net assets released from restrictions used for operations 50,000 Other revenue 80,000 Net patient service revenue (includes revenue related to charity care) 500,000 What amount would be reported as total revenues, gains, and other support on the statement of operations?
$530,000
Azure, a C corporation, reports the following: Pretax book income of $543,000. Depreciation on the tax return is $20,000 greater than depreciation on the financial statements. Rent income reportable on the tax return is $36,000 greater than rent income per the financial statements. Fines for pollution appear as a $10,000 expense in the financial statements. Interest earned on municipal bonds is $25,000. What is Azure's taxable income?
$544,000
On January 1 of the current year, Tell Co. leased equipment from Swill Co. under a 9-year lease. The equipment had a cost of $400,000 and an estimated useful life of 15 years. Semiannual lease payments of $44,000 are due every January 1 and July 1. The present value of lease payments at the discount rate of the lease of 12% was $505,000, which equals the fair value of the equipment. What amount should Tell recognize as amortization expense on the right-of-use asset in the current year?
$56,111
During 2018, Anna transferred land with an adjusted basis to her of $20,000 and a fair market value of $56,000 to Elm Corporation in exchange for 100% of Elm Corporation's only class of stock. The land was subject to a liability of $26,000, which Elm assumed for legitimate business purposes. The fair market value of Elm's stock at the time of the transfer was $30,000. What is the amount of Anna's recognized gain?
$6,000
Zeff Co. prepared the following reconciliation of its pretax financial statement income to taxable income for the year ended December 31, its first year of operations: Pretax financial income $160,000 Nontaxable interest received on municipal securities (5,000) Long-term loss accrual in excess of deductible amount 10,000 Depreciation in excess of financial statement amount (25,000) Taxable income $140,000 Zeff's tax rate for the year is 40%. In its December 31 balance sheet, what should Zeff report as deferred income tax liability?
$6,000
Ace Rentals, Inc., an accrual-basis taxpayer, reported rent receivable of $35,000 and $25,000 in its Year 2 and Year 1 balance sheets, respectively. During Year 2, Ace received $50,000 in rent payments and $5,000 in nonrefundable rent deposits. In Ace's Year 2 corporate income tax return, what amount should Ace include as rent revenue?
$65,000
Gwen owned a duplex and lived in one-half. The other half was rental property. The cost of the property was $80,000, of which $70,000 was allocated to the building and $10,000 to the land. During the current year, the property was condemned by the city. Up to that time, she had allowed/allowable depreciation of $23,000. The city paid Gwen $70,000. She bought another duplex for $85,000. Gwen lived in one-half, and the other half is a rental. What is the basis of the replacement property?
$67,000
Kew Apparel, Inc., leases and operates a retail store. The following information relates to the lease for the year ended December 31, Year 4: The store lease, an operating lease, calls for a base monthly rent of $1,500 due the first day of each month. Additional rent is computed at 6% of net sales over $300,000 up to $600,000 and 5% of net sales over $600,000, per calendar year. Net sales for Year 4 were $900,000. Kew paid executory costs to the lessor for property taxes of $12,000 and insurance of $5,000. For Year 4, Kew's expenses relating to the store lease are
$68,000
Hospital, Inc., a not-for-profit entity with no governmental affiliation, reported the following in its accounts for the current year ended December 31: Gross patient service revenue from all services provided at the established billing rates of the hospital (note that this figure includes charity care of $25,000) $775,000 Provision for bad debts 15,000 Difference between established billing rates and fees negotiated with third-party payors (contractual adjustments) 70,000 What amount would the hospital report as net patient service revenue in its statement of operations for the current year ended December 31?
$680,000
On January 1, Year 2, Neal Co. issued 100,000 shares of its $10 par value common stock in exchange for all of Frey, Inc.'s outstanding stock. The fair value of Neal's common stock on that date was $19 per share. The carrying amounts and fair values of Frey's assets and liabilities on January 1, Year 2, were as follows: Carrying Amount Fair Value Cash $ 240,000 $ 240,000 Receivables 270,000 270,000 Inventory 435,000 405,000 Property, plant, and equipment 1,305,000 1,440,000 Liabilities (525,000) (525,000) Net assets $1,725,000 $1,830,000 What is the amount of goodwill resulting from the business combination?
$70,000
Fact Pattern: Two transactions for a sole proprietorship were made during the current year. These were the only sales or exchanges of capital assets or Sec. 1231 assets (there were no unrecaptured Sec. 1231 losses from the previous year). A machine used in the business was sold for $400,000. It cost $330,000 when purchased 3 years ago, and its adjusted tax basis when sold was $210,000. Depreciation had been recorded on an accelerated basis; straight-line depreciation would have been $99,000. A $500,000 insurance recovery on a small warehouse destroyed by fire was received. It was used in the business and depreciated using the straight-line method. Its adjusted tax basis at the date of the fire was $524,000. A new warehouse was rebuilt at a cost of $600,000. What is the combined tax effect of these two transactions on the proprietor's Form 1040?
$70,000 long-term capital gain; $120,000 ordinary income; and $24,000 ordinary loss.
During Year 4 (the current year), Abby sold several shares of stock held for investment. Abby has $250,000 of ordinary income. The following is a summary of her capital transactions for the year: Acquired Sold Selling Price Cost 02/15/Year 4 07/15/Year 4 $2,100 $1,400 06/25/Year 2 08/01/Year 4 3,500 2,300 09/25/Year 3 12/15/Year 4 800 1,000 12/28/Year 1 06/15/Year 4 600 900 The stock sold on December 15 of Year 4 was Sec. 1202 certain small business stock. What is the amount of Abby's capital gain (loss) for each tax-rate basket in Year 4, after offsetting?
$700 $0 $700
A company records items on the cash basis throughout the year and converts to an accrual basis for year-end reporting. Its cash-basis net income for the year is $70,000. The company has gathered the following comparative balance sheet information: Beginning of Year End of Year Accounts payable $3,000 $1,000 Unearned revenue 300 500 Wages payable 300 400 Prepaid rent 1,200 1,500 Accounts receivable 1,400 600 What amount should the company report as its accrual-based net income for the current year?
$71,200At the inception of a capital lease, the guaranteed residual value should be
On December 31, Year 1, Neal, Inc., leased machinery with a fair value of $105,000 from Frey Rentals Co. The agreement is a 6-year, noncancelable lease requiring annual payments of $20,000 beginning December 31, Year 1. The lease is appropriately accounted for by Neal as a finance lease. Neal's incremental borrowing rate is 11%. Neal 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, Year 1 balance sheet, Neal should report a lease liability of
$75,816
Hoyt Corp.'s current balance sheet reports the following equity: 5% cumulative preferred stock, par value $100 per share; 2,500 shares issued and outstanding $250,000 Common stock, par value $3.50 per share; 100,000 shares issued and outstanding 350,000 Additional paid-in capital in excess of par value of common stock 125,000 Retained earnings 300,000 Accumulated other comprehensive income 100,000 Dividends in arrears on the preferred stock amount to $25,000. If Hoyt were to be liquidated, the preferred shareholders would receive par value plus a premium of $50,000. The book value per share of common stock is
$8.00
During the current year, Ashley Corporation charged the following payments to miscellaneous expense: Travel expense of $300 for the company president to offer voluntary testimony at the state capital against proposed legislation regarded as unfavorable to its business Christmas gifts to 20 customers at $75 each Contribution of $600 to local political candidate The maximum deduction that Ashley can claim for these payments is
$800
In 2018, Gail Judd received dividends from the following: Life Ins. Co., on Gail's life insurance policy (Total dividends received have not yet exceeded accumulated premiums paid.) $100 Safe National Bank, on bank's common stock 300 Roe Mfg. Corp., a Delaware corporation, on preferred stock 500 What amount of dividend income should Gail report in her 2018 income tax return?
$800
In 2018, Cable Corp., a calendar-year C corporation, contributed $80,000 to a qualified charitable organization. Cable's 2018 taxable income before the deduction for charitable contributions was $820,000 after a $40,000 dividends-received deduction. Cable also had carryover contributions of $10,000 from the prior year. In 2018, what amount can Cable deduct as charitable contributions?
$86,000
Fact Pattern: On January 1, Evangel Company issued 9% bonds in the face amount of $100,000, which mature in 5 years. The bonds were issued for $96,207 to yield 10%, resulting in a bond discount of $3,793. Evangel uses the effective interest method of amortizing bond discount. Interest is payable annually on December 31. What is the amount of interest Evangel will pay at the end of the first year?
$9,000
The regression analysis results for ABC Co. is shown as y = 90x + 45. The standard error (Sb) is 30 and coefficient of determination (r2) is 0.81. The budget calls for production of 100 units. What is ABC's estimate of total costs?
$9,045
For the year ended December 31, Mont Co.'s books showed income of $600,000 before provision for income tax expense. To compute taxable income for federal income tax purposes, the following items should be noted: Income from exempt municipal bonds $ 60,000 Depreciation deducted for tax purposes in excess of depreciation recorded on the books 120,000 Proceeds received from life insurance on death of officer 100,000 Estimated tax payments 0 Enacted corporate tax rate 30% Ignoring the alternative minimum tax provisions, what amount should Mont report at December 31 as its current federal income tax liability?
$96,000
Hyde Corp. has three manufacturing divisions, each of which has been determined to be a reportable operating segment. In Year 4, Clay division had sales of $3 million, which was 25% of Hyde's total sales, and had traceable operating costs of $1.9 million. In Year 4, Hyde incurred operating costs of $500,000 that were not directly traceable to any of the divisions. In addition, Hyde incurred interest expense of $300,000 in Year 4. The calculation of the measure of segment profit or loss reviewed by Hyde's chief operating decision maker does not include an allocation of interest expense incurred by Hyde. However, it does include traceable costs. It also includes nontraceable operating costs allocated based on the ratio of divisional sales to aggregate sales. In reporting segment information, what amount should be shown as Clay's operating profit for Year 4?
$975,000
In 2018, Smith, a divorced person, provided over one-half the support for his widowed mother, Ruth, and his son, Clay, both of whom are U.S. citizens. During 2018, Ruth did not live with Smith. She received $9,700 in Social Security benefits. Clay, a full-time graduate student, and his wife lived with Smith. Clay had no income but filed a joint return for 2018, owing an additional $500 in taxes on his wife's income. How many dependents was Smith entitled to claim on his 2018 tax return?
1
What is the required unit production level given the following factors? Units Projected sales 1,000 Beginning inventory 85 Desired ending inventory 100 Prior-year beginning inventory 200
1,015
Select Co. had the following financial statement relationships: Asset turnover 5 Profit margin on sales 0.02 What was Select's percentage return on assets?
10.0%
Album Co. issued 10-year $200,000 debenture bonds on January 2. The bonds pay interest semiannually. Album uses the effective interest method to amortize bond premiums and discounts. The carrying amount of the bonds on January 2 was $185,953. A journal entry was recorded for the first interest payment on June 30, debiting interest expense for $13,016 and crediting cash for $12,000. What is the annual stated interest rate for the debenture bonds?
12%
Fern Co. has net income, before taxes, of $200,000, including $20,000 interest revenue from municipal bonds and $10,000 paid for officers' life insurance premiums where the company is the beneficiary. The tax rate for the current year is 30%. What is Fern's effective tax rate?
28.5%
Cinnabar Construction Company has consistently used the input method based on costs incurred to recognize revenue from a performance obligation satisfied over time. During Year 1, Cinnabar entered into a fixed-price contract to construct an office building for $10 million. Information relating to the contract is as follows: December 31 Year 1 Year 2 Percentage of completion 20% 60% Estimated total costs at completion $7,500,000 $8,000,000 Gross profit recognized (cumulative) 500,000 1,200,000 Contract costs incurred during Year 2 were
3,300,000
On January 1, Point, Inc., purchased 10% of Iona Co.'s common stock. Point purchased additional shares bringing its ownership up to 40% of Iona's common stock outstanding on August 1. During October, Iona declared and paid a cash dividend on all of its outstanding common stock. How much income from the Iona investment should Point's income statement report?
40% of Iona's income for August 1 to December 31.
Four years ago, a self-employed taxpayer purchased office furniture for $30,000. During the current tax year, the taxpayer sold the furniture for $37,000. At the time of the sale, the taxpayer's depreciation deductions totaled $20,700. What part of the gain is taxed as long-term capital gain?
7,000
Gary Judd is an individual proprietor trading as Lake Stores, an accrual basis enterprise that had been using the allowance method for determining bad debt expense for both book and tax purposes. At December 31, 2017, Lake's allowance for doubtful accounts ("bad debt reserve") was $20,000. In Lake's 2018 budget, it was estimated that $3,000 of trade accounts receivable would become worthless in 2018. However, actual bad debts amounted to $4,000 in 2018. In Lake's 2018 Schedule C of Form 1040, Lake is allowed
A $4,000 deduction for bad debts and does not have to include any portion of the "reserve" in taxable income.
All of the following statements are true except
A brother-in-law must live with the taxpayer the entire year to be claimed as a dependent even if the other tests are met.
A heavy-equipment dealer would like to trade some business assets in a nontaxable exchange. Which of the following exchanges would qualify as nontaxable?
A corporate office building for a vacant lot.
In the case of a corporation that is not a financial institution, which of the following statements is true with regard to the deduction for bad debts?
A corporation is required to use the direct charge-off method rather than the allowance method.
Which one of the following best identifies a profit center?
A new car sales division for a large local auto agency.
Under IFRS, according to the revaluation model, an item of property, plant, and equipment must be carried at
Fair value minus any subsequent accumulated depreciation and impairment losses.
Which of the following documents is typically issued as part of the due-process activities of the Financial Accounting Standards Board (FASB) for amending the FASB Accounting Standards Codification?
A proposed accounting standards update.
Which of the following is not disclosed on the statement of cash flows when prepared under the direct method, either on the face of the statement or in a separate schedule?
A reconciliation of ending retained earnings to net cash flow from operations.
Which one of the following will result in an accruable expense for an accrual-basis taxpayer?
A repair completed prior to year end but not invoiced.
Under the (Third) Restatement of the Law of Agency, which of the following does not terminate an agency relationship?
An agent's act of filing a bankruptcy petition.
When a client accepts the services of an accountant without an agreement concerning payment, the result is
An implied-in-fact contract.
Which one of the following factors might cause a firm to increase the portion of debt in its financial structure?
An increase in the corporate income tax rate.
Acquirer and Acquiree are the combining entities in a business combination. As part of the bargain, Acquirer assumed a contingent liability based on a suit brought against Acquiree because of a defect in one of its products. However, the former owner of Acquiree has agreed to pay the amount of any damages in excess of $5,000,000. In the consolidated balance sheet issued on the acquisition date, the contingent liability is reported at acquisition-date fair value. Accordingly,
An indemnification asset is recognized at acquisition-date fair value.
How should the acquirer recognize a bargain purchase in a business acquisition?
As a gain in earnings at the acquisition date.
A building contractor has a fixed-price contract to construct a building on the customer's land. The building is expected to be completed in 2 years. Progress billings will be sent to the customer at quarterly intervals. Which of the following describes the preferable point for revenue recognition for this contract if its outcome can be reasonably measured?
As progress is made toward completion of the contract.
Joe and Barb are married, but Barb refuses to sign a Year 1 joint return. On Joe's separate Year 1 return, an exemption may be claimed for Barb if
Barb had no gross income and was not claimed as another person's dependent in Year 1.
All of the following may allow a firm to set a lower coupon rate on a bond issued at par except a
Call provision.
All of the following are considered operating budgets except the
Capital budget.
Charitable contributions subject to the 50% limit that are not fully deductible in the year made may be
Carried forward 5 years.
Chrisp, a freelance photographer, uses the cash method for business. The tax year ends on December 31. Which of the following should not be included in the determination of Chrisp's gross income for the current year?
Chrisp received a dividend check on January 4 of the following year. The dividends were declared payable on December 30 of the current year.
A nongovernmental not-for-profit entity holds an investment in common stock of a publicly traded entity and an investment in debt securities of another. The NFP holds the common stock as a long-term investment and has the intent and the ability to hold the debt securities until maturity. Investment in Investment in Common Stock Debt Securities Original cost $50,000 $35,000 Amortized cost -- $28,000 Fair value $63,000 $40,000 At year end, the statement of financial position records the stock at original cost and the debt securities at amortized cost. What adjustment(s), if any, should be made to the recorded amounts?
Debit of $13,000 Debit of $12,000
The following information pertains to Ali Corp. as of and for the year ended December 31: Liabilities $ 60,000 Equity $500,000 Shares of common stock issued and outstanding 10,000 Net income $ 30,000 During the year, Ali's officers exercised share options for 1,000 shares of stock at an option price of $8 per share. What was the effect of exercising the share options?
Debt-to-equity ratio decreased to 12%.
When production levels are expected to increase within a relevant range, what effect would be anticipated with respect to each of the following?
Decrease No change
When the allowance method of recognizing uncollectible accounts is used, the entry to record the write-off of a specific account
Decreases both accounts receivable and the allowance for uncollectible accounts.
Dee's inventory and accounts payable balances at December 31, Year 2, increased over their December 31, Year 1, balances. Should these increases be added to or deducted from cash payments to suppliers to arrive at Year 2 cost of goods sold? Increase in Increase in Inventory Accounts Payable
Deducted from Added to
A company has been sued for $100 million for producing and selling an unsafe product. Attorneys for the company cannot reasonably predict the outcome of the litigation. In its financial statements, the company should Make the following journal entry and disclose the existence of the lawsuit in a note. Estimated loss from litigation $100,000,000 Estimated liability from litigation loss $100,000,000
Disclose the existence of the lawsuit in a note without making a journal entry.
A large account receivable from Taylor Industries was considered fully collectible at September 30, Year 5, the balance sheet date. Taylor suffered a plant explosion on October 25, Year 5. Because Taylor was uninsured, it is unlikely that the account will be paid. How should this event be presented in the entity's financial statements?
Disclosure in a note to the financial statements.
For interim financial reporting, a company's income tax provision for the second quarter should be determined using the
Effective tax rate expected to be applicable for the full year as estimated at the end of the second quarter.
The objective of present value when used to determine an accounting measurement for initial recognition purposes is to
Estimate fair value.
Which of the following is not taken into account when determining if a gain or loss should be recognized on the transfer of property to a corporation in exchange for a controlling interest in stock of the corporation?
Fair market value of property transferred.
The FASB's conceptual framework explains both financial and physical capital maintenance concepts. Which capital maintenance concept is applied to currently reported net income, and which is applied to comprehensive income? Currently Reported Net Income Comprehensive Income
Financial capital Financial capital
On February 12, Harris sent Fresno a written offer to purchase Fresno's land. The offer included the following provision: "Acceptance of this offer must be by registered or certified mail, received by Harris no later than February 18 by 5:00 p.m. CST." On February 18, Fresno sent Harris a letter accepting the offer by private overnight delivery service. Harris received the letter on February 19. Which of the following statements is true?
Fresno's letter constituted a counteroffer.
Which of the following are not separate elements of financial statements prepared in accordance with IFRS?
Gains and losses.
The fringe benefit that must be included in wages and reported on Form W-2 is
Group-term life insurance coverage in excess of $50,000.
During 2018, Robert Moore, who is 50 years old and unmarried, maintained his home in which he and his widowed father, age 75, resided. His father had $3,200 interest income from a savings account and also received $3,200 from Social Security during 2018. Robert provided 60% of his father's total support for 2018. What is Robert's filing status for 2018, and how many dependents should he claim on his tax return?
Head of household and one dependent.
All of the following support the objective of financial reporting except providing information that
Helps management evaluate alternative projects.
Wilson, CPA, uses a commercial tax software package to prepare clients' individual income tax returns. Upon reviewing a client's computer-generated Year 1 itemized deductions, Wilson discovers that the schedule's deductible investment interest expense is less than the amount paid by the taxpayer and the amount that Wilson entered into the computer. After analyzing the entire tax return, Wilson determines that the computer-generated investment interest expense deduction is correct. Why is the computer-generated investment interest expense deduction correct? The client's investment interest expense exceeds net investment income. The client's qualified residence interest expense reduces the deductible amount of investment interest expense.
I only.
Lincoln Corp., a calendar-year C corporation, made a nonliquidating cash distribution of $1.5 million to its shareholders with respect to its stock. At that time, Lincoln's current and accumulated earnings and profits totaled $825,000, and its total paid-in capital for tax purposes was $10 million. Lincoln had no corporate shareholders. Which of the following statements, if any, are true regarding Lincoln's cash distribution? The distribution was taxable as $1.5 million in dividends to its shareholders. The distribution reduced its shareholders' adjusted bases in Lincoln stock by $675,000.
II only.
For Year 1, Pac Co. has a standard assurance-type warranty on its equipment. It estimated its 2-year equipment warranty costs based on $100 per unit sold in Year 1. Experience during Year 2 indicated that the estimate should have been based on $110 per unit. The effect of this $10 difference from the estimate is reported
In Year 2 income from continuing operations.
According to the FASB's conceptual framework, asset valuation accounts are
Neither assets nor liabilities.
The effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate should be reported
In the period of change and future periods if the change affects both.
At the inception of a capital lease, the guaranteed residual value should be
Included as part of minimum lease payments at present value.
Which of the following is one of the four perspectives of a balanced scorecard?
Innovation.
In Year 5, Lee Co. acquired, at a premium, Enfield, Inc., 10-year bonds as a long-term investment. At December 31, Year 6, Enfield's bonds were quoted at a small discount. Which of the following situations is the most likely cause of the decline in the bonds' fair value?
Interest rates have increased since Lee purchased the bonds.
Which of the following is not a similarity between interim reporting under U.S. GAAP and under IFRS?
Interim partial liquidation of a LIFO layer need not be reported if it is expected to be recovered by year end.
Financial information is most likely to be verifiable when an accounting transaction occurs that
Involves an arm's-length transaction between two independent parties.
If a long-lived asset satisfies the criteria for classification as held for sale,
It is not depreciated.
Intraperiod income tax allocation arises because
Items included in the determination of taxable income may be presented in different sections of the financial statements.
On June 1, Year 1, Mr. Smart purchased investment land. On January 31, Year 2, Mr. Smart traded the land plus cash for some other investment land in a non-taxable exchange. On August 15, Year 2, he sold the land received in the non-taxable exchange for a gain. What is the character of Mr. Smart's gain for Year 2?
Long-term capital gain.
Companies A and B begin with identical account balances, and their revenues and expenses for the year are identical in amount except that Company A has a higher ratio of cash to noncash expenses. If the cash balances of both companies increase as a result of operations (no financing or dividends), the ending cash balance of Company A as compared to that of Company B will be
Lower.
A typical firm doing business nationally cannot expect to accelerate its cash inflow by
Maintaining compensating balances rather than paying cash for bank services.
During 2018, Danny, a calendar-year taxpayer, acquired and placed in service the following business assets: January: Delivery trucks $ 50,000 March: Warehouse building 150,000 June: Computer system 30,000 September: Automobile 30,000 November: Office equipment 90,000 Which convention(s) is used to figure Danny's depreciation for 2018?
Mid-quarter for all assets except the warehouse building, which uses the mid-month.
A corporation's net income as presented on its income statement is usually
More than its economic profits because opportunity costs are not considered in calculating net income.
Murphy Co. had 200,000 shares outstanding of $10 par common stock on March 30 of the current year. Murphy reacquired 30,000 of those shares at a cost of $15 per share and recorded the transaction using the cost method on April 15. Murphy reissued the 30,000 shares at $20 per share and recognized a $50,000 gain on its income statement on May 20. Which of the following statements is correct?
Murphy's net income for the current year is overstated.
When a full set of general-purpose financial statements is presented, comprehensive income and its components
Must be reported in a presentation that includes the components of other comprehensive income and their total.
For regular tax purposes, with regard to the itemized deduction for qualified residence interest, home equity indebtedness incurred
Must be used to buy, build, or significantly improve a qualified residence.
An alumnus donated securities to Rex College, an NFP. The donor stipulated that the principal be held in perpetuity and that the investment income be used for faculty travel. Dividends received from the securities should be recognized as increases in
Net assets with donor restrictions.
A depreciable asset has an estimated 15% salvage value. At the end of its estimated useful life, the accumulated depreciation would equal the original cost of the asset under which of the following depreciation methods? Straight-Line Productive-Output
No No
A material event that is unusual in nature or infrequent in occurrence should be reported separately on the income statement as a component of income Net of Before Results Income Taxes of Discontinued Operations
No Yes
Able Co. leased equipment to Baker under a noncancelable lease with a transfer of title. After recognition of the lease, will Able record any depreciation expense on the leased asset and interest revenue related to the lease? Depreciation Expense Interest Revenue
No Yes
Compared with the accrual basis of accounting, the cash basis of accounting understates income by the net decrease during the accounting period of
No Yes
Unless the Internal Revenue Service consents to a change of method, the accrual method of tax reporting is mandatory for a sole proprietor when there are Year-End Accounts Receivable Merchandise for Services Rendered Inventories
No Yes
Which of the following should be disclosed as supplemental information in the statement of cash flows? Cash Flow Conversion of per Share Debt to Equity
No Yes
Rela Associates, a partnership, transferred all of its assets, with a basis of $300,000, subject to liabilities of $50,000, to a newly formed corporation in return for all of the corporation's stock. Rela then distributed this stock to the partners in liquidation. In connection with this incorporation of the partnership, Rela recognizes
No gain or loss on the transfer of its assets nor on the assumption of its liabilities by the corporation.
Gar purchased 1,000 shares of Pat Corporation common stock at $5 per share in Year 1. On September 19, Year 4, he received 1,000 stock rights entitling him to buy 250 additional shares of Pat Corporation common stock at $10 per share. On the day that the rights were issued, the fair market value of the stock was $12 per share ex-rights and that of the rights was $1 each. Gar did not exercise the rights; he let them expire on November 28, Year 4. What should be the loss that Gar can report for Year 4
No gain or loss.
Hall paid the following expenses in 2017 pertaining to her home: realty taxes, $3,400; mortgage interest, $7,000; casualty insurance, $490; assessment by city for construction of a sewer system, $910; interest of $1,000 on a personal, unsecured bank loan, the proceeds of which were used for home improvements. Hall does not rent out any portion of the home. The casualty insurance premium of $490 is
Not deductible.
A calendar-year C corporation received an automatic extension of time for filing its Year 1 return by submitting an application on Form 7004. On what date is the corporation's return due?
October 15, Year 2.
Determining the appropriate level of working capital for a firm requires
Offsetting the benefit of current assets and current liabilities against the probability of technical insolvency.
Which of the following items is not subject to the application of intraperiod income tax allocation?
Operating income.
In accordance with IFRS, in the statement of cash flows, the payment of cash dividends appears in the <List A> activities section as a <List B> of cash.
Operating or financing Use
The replacement cost of a LIFO basis inventory item is below the net realizable value and above the net realizable value minus the normal profit margin. The original cost of the inventory item is below the net realizable value minus the normal profit margin. Under the lower-of-cost-or-market (LCM) method, the inventory item should be measured at
Original cost.
When should a lessor recognize in income a nonrefundable lease bonus paid by a lessee on signing an operating lease?
Over the life of the lease.
According to the FASB's conceptual framework, the objective of general-purpose financial reporting is most likely based on
The needs of the users of the information.
On December 31, Year 4, Deal, Inc., failed to accrue the December Year 4 sales salaries that were payable on January 6, Year 5. What is the effect of the failure to accrue sales salaries on working capital and cash flows from operating activities in Deal's Year 4 financial statements?
Overstated No effect
Which of the following statements about the development of U.S. accounting standards is false?
Pronouncements of the FASB's predecessor bodies remain in force until amended or superseded by the FASB.
A distribution of stock or stock rights is generally considered a taxable dividend unless it is which of the following?
Proportionate distribution.
Election of the fair value option (FVO) for financial assets
Results in recognition of unrealized gains and losses in earnings of a business entity.
Ace engages Butler to manage Ace's retail business. Butler has no implied authority to
Sell Ace's business fixtures.
A company pays more than the fair value to acquire treasury stock. The difference between the price paid to acquire the treasury stock and the fair value should be recorded as
Shareholders' equity.
Shifty borrowed $10,000 from Easy. When Easy tried to collect the debt, she discovered that Shifty had moved to another state. Easy tracked Shifty down and demanded payment. Knowing it would cost Easy a substantial amount of time and money to collect the debt, Shifty offered to pay $5,000 on the condition that Easy cancel the remainder of the debt. Easy agreed to accept the $5,000 and cancel the remaining $5,000 of the debt. Which of the following statements is correct?
Shifty has $5,000 of income when Easy cancels the debt.
Jay White, an engineer, entered into a contract with Sky, Inc., agreeing to provide Sky with certain specified consulting services. After performing the services, White was paid pursuant to the contract, but Social Security taxes were not withheld from his check since Sky considered White an independent contractor. The IRS has asserted that White was an employee and claims that a deficiency exists because of Sky's failure to withhold and pay Social Security taxes. Which of the following factors is most likely to support the IRS's position that White is an employee?
Sky supervised and controlled the manner in which White performed the services.
In 2014, Ross was granted an incentive stock option (ISO) by his employer as part of an executive compensation package. Ross exercised the ISO in 2016 and sold the stock in 2018 at a gain. Ross's profit was subject to the income tax for the year in which the
Stock was sold.
Which accounting change should be applied prospectively?
Straight-line method of depreciation for previously recorded assets to the double-declining-balance method.
In which of the following situations may taxpayers file as married filing jointly?
Taxpayers who were married but lived apart during the year
In Year 1, Stewart Corp. properly accrued $5,000 for an income item on the basis of a reasonable estimate. In Year 2, after filing its Year 1 federal income tax return, Stewart determined that the exact amount was $6,000. Which of the following statements is true?
The $1,000 difference is includible in Stewart's Year 2 income tax return.
In Year 1, Brun Corp. properly accrued $10,000 for an income item on the basis of a reasonable estimate. In Year 2, Brun determined that the exact amount was $12,000. Which of the following statements is true?
The $2,000 difference is includible in Brun's Year 2 income tax return.
Which of the following statements about the Sec. 199A deduction is false?
The Sec. 199A deduction is taken on Schedule C.
Edgar Winter is a sales agent for Magnum Enterprises. Winter has assumed an obligation to indemnify Magnum if any of Winter's customers fail to pay. Under these circumstances, which of the following is true?
The above facts describe a del credere agency relationship, and Winter will be liable in the event his customers fail to pay Magnum.
The Sarbanes-Oxley Act of 2002 imposes which of the following requirements?
The audit committee must be composed entirely of independent members of the board.
Cott, Inc., prepared an interest amortization table for a 5-year lease payable with a purchase option having an exercise price of $2,000, effective at the end of the lease. At the end of the 5 years, the balance in the leases payable column of the spreadsheet was zero. Cott has asked Grant, CPA, to review the spreadsheet to determine the error. Only one error was made on the spreadsheet. Which of the following statements represents the best explanation for this error?
The beginning present value of the lease did not include the present value of the payment called for by the purchase option.
A lessee had a 10-year finance lease requiring equal annual payments. The reduction of the lease liability in Year 2 should equal
The current liability shown for the lease at the end of Year 1.
An appropriation of retained earnings by the board of directors of a corporation for bonded indebtedness will result in
The disclosure that management does not intend to distribute assets, in the form of dividends, equal to the amount of the appropriation.
Wood Co.'s dividends on noncumulative preferred stock have been declared but not paid. Wood has not declared or paid dividends on its cumulative preferred stock in the current or the prior year and has reported a net loss in the current year. For the purpose of computing basic earnings per share, how should the income available to common stockholders be calculated?
The dividends on the noncumulative preferred stock and the current-year dividends on the cumulative preferred stock should be added to the net loss.
A lease is classified as a finance lease because it contains a purchase option that the lessee is reasonably certain to exercise. Over what period of time should the lessee amortize the right-of-use asset?
The economic life of the asset.
Under what conditions will the statute of frauds be a defense under the Uniform Commercial Code if there is a contract for the sale of goods for $500 or more?
The goods in question are fungible and actively traded by merchants in the business community.
Under IFRS, an asset is impaired when its carrying amount exceeds its recoverable amount. The recoverable amount of an asset is
The greater of its fair value minus cost to sell or value in use.
In an installment sale, if the buyer assumes a mortgage that is greater than the installment sale basis of the property sold,
The gross profit percentage is always 100%.
The fair value of the leased asset differs from its carrying amount. What are the components of the lease receivable for a lessor involved in a sales-type lease?
The lease payments plus guaranteed residual value.
Rose Corporation, a calendar-year corporation, had accumulated earnings and profits of $40,000 as of January 1, 2018. However, for the first 6 months of 2018, Rose Corporation had an operating loss of $36,000 and finished the year with a total net operating loss for tax year 2018 of $55,000. Rose Corporation distributed $15,000 to its shareholders on July 1, 2018. Which of the following is correct?
The part of the distribution which is taxable is $12,500.
The discount rate of the Federal Reserve System is
The rate that the central bank charges for loans granted to commercial banks.
Jim entered into an oral agency agreement with Sally in which he authorized Sally to sell his interest in a parcel of real estate, Blueacre. Within 7 days, Sally sold Blueacre to Dan, signing the real estate contract on behalf of Jim. Dan failed to record the real estate contract within a reasonable time. Which of the following most likely is true?
The real estate contract is unenforceable against Jim because Sally's authority to sell Blueacre was oral.
The Saturn Titans of the Planetary Football League have a team spaceship. The spaceship developed a leak between the power source and living area causing dangerous fumes to enter occasionally. This was fixed at a cost of $100,000. The power source also needed an overhaul, which was done at a cost of $500,000. As a result of the overhaul, the useful life of the spaceship was not changed, but it can now make the trip to the players' home in the United States on Earth in half the former time and at a substantial fuel savings. How should these expenditures be treated?
The repair of the leak should be deducted, while the overhaul should be capitalized.
At October 31, Dingo, Inc., had cash accounts at three different banks. One account balance is segregated solely for a November 15 payment into a bond sinking fund. A second account, used for branch operations, is overdrawn. The third account, used for regular corporate operations, has a positive balance. How should these accounts be reported in Dingo's October 31 classified balance sheet?
The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability.
A husband and wife can file a joint return even if
The spouses have different accounting methods.
Which of the following is not valid as it applies to inventory costing methods?
The use of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO.
According to COSO, which of the following is a compliance objective?
To maintain a safe level of carbon dioxide emissions during production.
Garson Co. recorded goods in transit purchased FOB shipping point at year end as purchases. The goods were excluded from ending inventory. What effect does the omission have on Garson's assets and retained earnings at year end?
Understated Understated
Recasto owns a second residence that is used for both personal and rental purposes. During 2018, Recasto used the second residence for 50 days and rented the residence to Louis for 200 days. Which of the following statements is true?
Utilities and maintenance on the property must be divided between personal and rental use
Which of the following is subject to the Uniform Capitalization Rules of Code 263A?
Warehousing costs incurred by a manufacturing company with $12 million in annual gross receipts.
A 90-day, 15% interest-bearing note receivable is sold to a bank after being held for 30 days. The proceeds are calculated using an 18% interest rate. The note receivable has been
Yes No
A business combination must be accounted for as an acquisition. Which of the following expenses related to the business combination should be included, in total, in the determination of net income of the combined entity for the period in which the expenses are incurred? Fees of finders Registration fees for and consultants equity securities issued
Yes No
For head of household filing status, which of the following costs are considered in determining whether the taxpayer has contributed more than one-half the cost of maintaining the household? Value of Services Food Consumed Rendered in the in the Home Home by the Taxpayer
Yes No
Smart Co. uses a static budget. When actual sales are less than budget, Smart would report favorable variances on which of the following expense categories?
Yes No
Under the two-variance method for analyzing overhead, which of the following variances consists of both variable and fixed overhead elements? Controllable (Budget) Variance Volume Variance
Yes No
Which of the following facts concerning fixed assets should be included in the summary of significant accounting policies? Depreciation Method Composition
Yes No
Which of the following is included in the economic order quantity formula?
Yes No
Which of the following requirements must be met in order for a single individual to qualify for an additional standard deduction? Must Support Must Be Age 65 Dependent Child or Older or Blind or Aged Parent
Yes No
By-products may have which of the following characteristics? Zero Costs Additional Costs Beyond Split-off Beyond Split-off
Yes Yes
Gram Co. develops computer programs to meet customers' special requirements. How should Gram categorize payments to employees who develop these programs?
Yes Yes
On January 31, Year 3, Pack, Inc., split its common stock 2 for 1, and Young, Inc., issued a 5% stock dividend. Both companies issued their December 31, Year 2, financial statements on March 1, Year 3. Should Pack's Year 2 basic earnings per share (BEPS) take into consideration the stock split, and should Young's Year 2 BEPS take into consideration the stock dividend? Pack's Young's Year 2 BEPS Year 2 BEPS
Yes Yes
Martin Corporation's (a C corporation) bookkeeper told the owner that she could not have all the tax information ready for the accountant immediately after the tax year end of June 30. She was having surgery and asked if the tax return could be postponed. The accountant's answer should be:
Yes, we can request an extension until the following April 15.
