FAR Wiley CH 2

Wood Corp., a debtor-in-possession under Chapter 11 of the Federal Bankruptcy Code, granted an equity interest to a creditor in full settlement of a $28,000 debt owed to the creditor. At the date of this transaction, the equity interest had a fair value of $25,000. What amount should Wood recognize as a gain on restructuring of debt? $0 $ 3,000 $25,000 $28,000

$ 3,000 The gain should be recorded as the excess of the carrying amount of the debt over the fair value of the equity interest granted, in this case $3,000 ($28,000 − $25,000).

Last year, Katt Co. reduced the carrying amount of its long-lived assets used in operations from $120,000 to $100,000 in connection with its annual impairment review. During the current year, Katt determined that the fair value of the same assets had increased to $130,000. What amount should Katt record as restoration of previously recognized impairment loss in the current year's financial statements? $0 $10,000 $20,000 $30,000

$0 Recovery of impairment losses is prohibited under U.S. GAAP.

Ball Labs incurred the following costs: Direct costs of doing contract research and development work for the government to be reimbursed by governmental unit $400,000 Research and development costs not included above were: Depreciation $300,000 Salaries 700,000 Indirect costs appropriately allocated 200,000 Materials 180,000 What was Ball's total research and development expense? $1,080,000 $1,380,000 $1,580,000 $1,780,000

$1,380,000 ($300,000 + $700,000 + $200,000 + $180,000).

The following information pertains to Rik Co.'s two employees: Name Ryan Todd Weekly Salary $800 $600 Number of Weeks Worked in Year 2 52 52 Vacation Rights Vest or Accumulate Yes No Neither Ryan nor Todd took the usual 2-week vacation in year 2. In Rik's December 31, year 2 financial statements, what amount of vacation expense and liability should be reported? $2,800 $1,600 $1,400 $0

$1,600 These criteria are met for Ryan but not for Todd since Todd's rights do not vest or accumulate. Rik Co. would record $1,600 ($800 per week × 2 weeks vacation) as an expense and liability for future vacation pay owed to Ryan.

Post, Inc. had a credit translation adjustment of $30,000 for the year ended December 31, year 1. The functional currency of Post's subsidiary is the currency of the country in which it is located. Additionally, Post had a receivable from a foreign customer payable in the local currency of the customer. On December 31, year 1, this receivable for 200,000 local currency units (LCU) was correctly included in Post's balance sheet at $110,000. When the receivable was collected on February 15, year 2, the United States dollar equivalent was $120,000. In Post's year 2 consolidated income statement, how much should be reported as foreign exchange transaction gain? $0 $10,000 $30,000 $40,000

$10,000 Therefore, a foreign exchange transaction gain of $10,000 ($120,000 − $110,000) should be reported on the year 2 income statement.

Foster Co. adjusted its allowance for uncollectible accounts at year-end. The general ledger balances for the accounts receivable and the related allowance account were $1,000,000 and $40,000, respectively. Foster uses the percentage-of-receivables method to estimate its allowance for uncollectible accounts. Accounts receivable were estimated to be 5% uncollectible. What amount should Foster record as an adjustment to its allowance for uncollectible accounts at year-end? $10,000 decrease. $10,000 increase. $50,000 decrease. $50,000 increase.

$10,000 increase. This answer is correct because the required balance of the allowance is $50,000 ($1,000,000 × 5%), and the existing balance is $40,000. Therefore an increase of $10,000 is required.

Verona Co. had $500,000 in short-term liabilities at the end of the current year. Verona issued $400,000 of common stock subsequent to the end of the year, but before the financial statements were issued. The proceeds from the stock issue were intended to be used to pay the short-term debt. What amount should Verona report as a short-term liability on its balance sheet at the end of the current year? $0 $100,000 $400,000 $500,000

$100,000 $500,000-$400,000

The following information pertains to Grey Co. on December 31, year 3: Checkbook balance $12,000 Bank statement balance 16,000 Check drawn on Grey's account, payable to a vendor, dated and recorded 12/31/Y3 but not mailed until 1/10/Y4 1,800 On Grey's December 31, year 3 balance sheet, what amount should be reported as cash? $12,000 $13,800 $14,200 $16,000

$13,800 ($12,000+$1,800)

North Corp. has an employee benefit plan for compensated absences that gives employees ten paid vacation days and ten paid sick days per year. Both vacation and sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick days not taken. At December 31, 2004, North's unadjusted balance of liability for compensated absences was $21,000. North estimated that there were 150 vacation days and 75 sick days available at December 31, 2004. North's employees earn an average of $100 per day. In its December 31, 2004 balance sheet, what amount of liability for compensated absences is North required to report? $36,000 $22,500 $21,000 $15,000

$15,000 The liability must be accrued only for the vacation pay, because it is probable that paid vacations will be taken. Therefore, the liability is $15,000 (150 days × $100 per day).

On January 2, Year 1, Saxe Company purchased 20% of Lex Corporation's common stock for $150,000. Saxe Corporation intends to hold the stock indefinitely. This investment did not give Saxe the ability to exercise significant influence over Lex. During Year 1 Lex reported net income of $175,000 and paid cash dividends of $100,000 on its common stock. There was no change in the fair value of the common stock during the Year. The balance in Saxe's investment in Lex Corporation account at December 31, Year 1, should be $130,000. $150,000. $165,000. $185,000.

$150,000. As there has been no change in the fair value, the investment account would still have a balance of $150,000 at 12/31/Y1.

On June 18, year 4, Dell Printing Co. incurred the following costs for one of its printing presses: Purchase of collating and stapling attachment $84,000 Installation of attachment 36,000 Replacement parts for overhaul of press 26,000 Labor and overhead in connection with overhaul 14,000 The overhaul resulted in a significant increase in production. Neither the attachment nor the overhaul increased the estimated useful life of the press. What amount of the above costs should be capitalized? $0 $ 84,000 $120,000 $160,000

$160,000 ($84,000+$36,000+$26,000+$14,000)

On January 1, Year 1, Justo purchases 30,000 shares of the 100,000 outstanding shares of stock in Bonita Corp. for $5 per share. During the year, Bonita Corporation has $20,000 of net income and pays $4,000 in dividends. On December 31, Year 1, the value of a share of Bonita Corporation stock is $6 per share. Assuming Justo elects the fair value option to account for its investment in Bonita, what is the amount recorded as Investment in Bonita on the December 31, Year 1, balance sheet? $150,000 $156,000 $154,800 $180,000

$180,000($30,000x$6)

On March 1, year 1, Fine Co. borrowed $10,000 and signed a two-year note bearing interest at 12% per annum compounded annually. Interest is payable in full at maturity on February 28, year 3. What amount should Fine report as a liability for accrued interest at December 31, year 2? $0 $1,000 $1,200 $2,320

$2,320 Interest for the first year is $1,200 ($10,000 × 12%). $1,120 ($11,200 × 12% × 10/12), and total accrued interest at 12/31/Y2 is $2,320 ($1,200 + $1,120).

On September 30, year 2, fire at Brock Company's only warehouse caused severe damage to its entire inventory. Based on recent history, Brock has a gross profit of 30% of net sales. The following information is available from Brock's records for the 9 months ended September 30, year 2: Inventory at 1/1/Y2 $550,000 Purchases 3,000,000 Net sales 4,000,000 A physical inventory disclosed usable damaged goods which Brock estimates can be sold to a jobber for $50,000. Using the gross profit method, the estimated cost of goods sold for the 9 months ended September 30, year 2, should be $2,050,000 $2,485,000 $2,750,000 $2,800,000

$2,800,000 A short cut is to realize that if the gross profit rate is 30%, cost of goods sold must be 70% of sales; therefore, CGS is $2,800,000 ($4,000,000 × 70%).

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 was $12,000 and the wall removal cost was $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? $185,000 $188,000 $197,000 $200,000

$200,000 ($185,000+$12,000+$3,000)

Darnell Company reported a loss of $40,000 on its year 1 income statement related to long-lived assets which it intended to sell. On Darnell's December 31, year 1 balance sheet, these long-lived assets were reported at $200,000. During year 2, Darnell did not sell any of these long-lived assets, and, at December 31, year 2, Darnell compiled the following information related to these assets which it intended to sell: Fair value$220,000Cost to sell15,000 On Darnell's December 31, year 2 balance sheet, what amount should be reported for the long-lived assets which were being held for sale? $200,000 $220,000 $240,000 $205,000

$220,000 - $15,000 = $205,000

Young Corp. purchased equipment by making a down payment of $4,000 and issuing a note payable for $18,000. A payment of $6,000 is to be made at the end of each year for three years. The applicable rate of interest is 8%. The present value of an ordinary annuity factor for three years at 8% is 2.58, and the present value for the future amount of a single sum of one dollar for three years at 8% is .735. Shipping charges for the equipment were $2,000, and installation charges were $3,500. What is the capitalized cost of the equipment? $19,480 $21,480 $24,980 $27,500

$24,980 The fair value of the equipment is $4,000 + (2.58 × $6,000) = $19,480. The shipping charges and installation charges should also be capitalized. Therefore, the total capitalized cost of the equipment is $24,980 ($19,480 + $2,000 + $3,500).

On December 31, year 2, Largo, Inc. had a $750,000 note payable outstanding, due July 31, year 3. Largo borrowed the money to finance construction of a new plant. Largo planned to refinance the note by issuing long-term bonds. Because Largo temporarily had excess cash, it prepaid $250,000 of the note on January 12, year 3. In February year 3, Largo completed a $1,500,000 bond offering. Largo will use the bond offering proceeds to repay the note payable at its maturity and to pay construction costs during year 3. On March 3, year 3, Largo issued its year 2 financial statements. What amount of the note payable should Largo include in the current liabilities section of its December 31, year 2 balance sheet? $750,000 $500,000 $250,000 $0

$250,000

During Year 3, Manfred Corp. guaranteed a supplier's $500,000 loan from a bank. On October 1, Year 4, Manfred was notified that the supplier had defaulted on the loan and filed for bankruptcy protection. Counsel believes Manfred will probably have to pay between $250,000 and $450,000 under its guarantee. As a result of the supplier's bankruptcy, Manfred entered into a contract in December Year 4 to retool its machines so that Manfred could accept parts from other suppliers. Retooling costs are estimated to be $300,000. What amount should Manfred report as a liability in its December 31, Year 4, balance sheet? $250,000 $450,000 $550,000 $750,000

$250,000 The amount depends on the outcome of the bankruptcy proceedings. When a range of values is estimated with no one value being more probable than the others, the lowest amount is accrued. Thus, $250,000 is accrued as of the end of Year 4.

A company exchanged land with an appraised value of $50,000 and an original cost of $20,000 for machinery with a fair value of $55,000. Assuming that the transaction has commercial substance, what is the gain on the exchange? $0 $5,000 $30,000 $35,000

$30,000 The gain will be the difference between the book value and the fair value of the asset given or $50,000 − $20,000 = $30,000.

Seafood Trading Co. commenced operations during the year as a large importer and exporter of seafood. The imports were all from one country overseas. The export sales were conducted as drop shipments and were merely transshipped at Seattle. Seafood Trading reported the following data: Purchases during the year $12.0 million Shipping costs from overseas 1.5 million Shipping costs to export customers 1.0 million Inventory at year end 3.0 million What amount of shipping costs should be included in Seafood Trading's year-end inventory valuation? $0 $250,000 $375,000 $625,000

$375,000 (3.0million/12.0millionx1.5million) Inventory represents $3/$12 or 25% of total purchases. Therefore, 25% of $1.5 million, or $375,000, of transportation-in is included in inventory. Shipping costs to customers are treated as a period cost.

On December 31, 20X4, Pack Corp.'s Board of Directors canceled 50,000 shares of $2.50 par value common stock held in treasury at an average cost of $13 per share. Before recording the cancellation of the treasury stock, Pack had the following balances in its stockholders' equity accounts: Common stock $540,000 Additional paid-in capital 750,000 Retained earnings 900,000 Treasury stock, at cost 650,000 In its balance sheet at December 31, 20X4, Pack should report common stock outstanding of $0 $250,000 $415,000 $540,000

$415,000 $415,000 = $540,000 − 50,000($2.50).

A private NFP hospital has the following account balances: Amounts charged to patients$500,000 Revenue from newsstand15,000 Undesignated gifts40,000 Contractual adjustments70,000 Interest income12,000 Salaries expense—nurses120,000 Provision for bad debts8,000 What is the hospital's net patient service revenue, assuming the bad debts are associated with patient service revenue? $422,000 $430,000 $500,000 $302,000

$422,000 Gross patient service revenue of $500,000 less the contractual adjustments of $70,000 and bad debts of $8,000 equals $422,000.

On March 1, 20X5, Rya Corp. issued 1,000 shares of its $20 par value common stock and 2,000 shares of its $20 par value convertible preferred stock for a total of $80,000.At this date, Rya's common stock was selling for $36 per share, and the convertible preferred stock was selling for $27 per share. What amount of the proceeds should be allocated to Rya's convertible preferred stock? $60,000 $54,000 $48,000 $44,000

$48,000 The total proceeds are allocated to the two securities based on relative market values. Market value of common: 1,000($36) =$36,000Market value of preferred: 2,000($27) =54,000Total market value$90,000 Allocation of proceeds to preferred = ($54,000/$90,000)$80,000 = $48,000

During the current year, Casual Wear Co. had total retail sales of $800,000 and collected a 5% state sales tax on all sales. At the end of the prior year, Casual Wear had $4,500 in sales taxes that had not been remitted to state authorities. During the current year, Casual Wear remitted $39,500 in state sales tax. What amount should be recorded in Casual Wear's current-year financial statements? $5,000 in sales tax payable $39,500 in sales tax expense $40,000 in sales tax revenue $840,000 in sales revenue

$5,000 in sales tax payable Beginning balance $4,500 Collections of sales tax ($800,000 × .05) 40,000 Less sales tax remitted (39,500) Ending balance $5,000

Ace Corp. entered into a troubled debt restructuring agreement with National Bank. National agreed to accept land with a carrying amount of $75,000 and a fair value of $100,000 in exchange for a note with a carrying amount of $150,000. Disregarding income taxes, what amount should Ace report as a gain on restructuring the debt? $0 $25,000 $50,000 $75,000

$50,000 $150,000 CV of note 100,000 FMV of land $50,000 Gain on restructuring the debt

The following information was abstracted from the accounts of the Oar Corporation at December 31, Year 2: Total income since incorporation $840,000 Total cash dividends paid 260,000 Proceeds from sale of donated stock (FV on date of donation was $30,000) 90,000 Total value of stock dividends distributed 60,000 Excess of proceeds over cost of treasury stock sold 140,000 The donated stock was classified as a trading security. What should be the current balance of retained earnings? $520,000 $580,000 $610,000 $670,000

$520,000 $840,000−$260,000−$60,000

Dey Corp. began operations in Year 1. An analysis of Dey's debt securities portfolio acquired in Year 1 shows the following totals at December 31, Year 1, for available-for-sale and held-to-maturity securities: Available-for-sale securities Held-to-maturity securities Aggregate cost $45,000 $65,000 Aggregate market value 39,000 57,000 Dey does not elect to use the fair value option in reporting financial assets. What amount of unrealized loss should Dey report in its December 31, Year 1, balance sheet? $14,000 $ 9,000 $ 7,000 $ 6,000

$6,000 ($45,000-$39,000)

A firm has spent the last two years constructing a building to be used as the firm's headquarters. At the end of the first year of construction, the balance of building under construction was $400,000, which includes capitalized interest. During year two, the firm paid $240,000 to the contractor on March 1, and $600,000 on October 1. The building was not finished by the end of the second year. The firm had one loan outstanding all year, an 8%, $3,000,000 construction loan. Compute capitalized interest for year two. $28,000 $240,000 $60,000 $65,600

$60,000 Average accumulated expenditures for the second year = $400,000(12/12) + $240,000(10/12) + $600,000(3/12) = $750,000. Interest capitalized = .08($750,000) = $60,000.

On July 1, year 2, Casa Development Co. purchased a tract of land for $1,200,000. Casa incurred additional cost of $300,000 during the remainder of year 2 in preparing the land for sale. The tract was subdivided into residential lots as follows: Lot class A B C Number of lots 100 100 200 Sales price per lotA $24,000 16,000 10,000 Using the relative sales value method, what amount of costs should be allocated to the Class A lots? $300,000 $375,000 $600,000 $720,000

$600,000 The total cost of acquiring the land and preparing it for sale ($1,200,000 + $300,000 = $1,500,000) should be allocated to the residential lots based on their relative sales value, as computed below. Lot class# of lotsSales priceTotal sales value A 100 × $24,000 = $2,400,000 B 100 × 16,000 = 1,600,000 C 200 × 10,000 = 2,000,000 $6,000,000 Total costFraction allocated to Class AAllocated cost $1,500,000 × ($2,400/$6,000) = $600,000

The Amlin Corporation was incorporated on January 1, year 1, with the following authorized capitalization: 20,000 shares of common stock, no par value, stated value $40 per share. 5,000 shares of 5% cumulative preferred stock, par value $10 per share. During year 1 Amlin issued 12,000 shares of common stock for a total of $600,000 and 3,000 shares of preferred stock at $16 per share. In addition, on December 20, year 1, subscriptions for 1,000 shares of preferred stock were taken at a purchase price of $17. These subscribed shares were paid for on January 2, year 2. What should Amlin report as total contributed capital on its December 31, year 1 balance sheet? $520,000 $648,000 $665,000 $850,000

$665,000 Common $600,000 Preferred 48,000 ($3,000x$16) Preferred subscribed 17,000 ($1,000x$17) $665,000

On December 29, 20X4, Action Corp. signed a 7-year finance lease for an airplane to transport its sports team around the country. The airplane's fair value was $841,500. Action made the first annual lease payment of $153,000 on December 31, 20X4. Action's incremental borrowing rate was 12%, and the interest rate implicit in the lease, which was known by Action, was 9%. The following are the rounded present value factors for an annuity due: 9% for 7 years 5.5 12% for 7 years 5.1 What amount should Action report as lease liability in its December 31, 20X4 balance sheet? $841,500 $780,300 $688,500 $627,300

$688,500 After the first payment was made, which is all principal because it was made at the inception, the remaining lease liability is $688,500 ($841,500 − $153,000).

Shaw Company engages Maya Company to produce a large machine, install the machine, and train their employees on the machine. The machine, installation, and training are distinct, and Maya determines that the contract includes three separate performance obligations. The machine, installation, and training typically cost $800,000, $100,000, and $100,000 respectively when each is provided in a separate contract. Shaw and Maya agree to a total contract price of $920,000. How much of the contract price should Maya allocate to the machine, installation, and training, respectively? $736,000; $92,000; $92,000 $800,000; $100,000; $100,000 $732,000; $94,000; $94,000 $736,000; $184,000

$736,000; $92,000; $92,000 Maya should allocate the total contract price based on the proportion of total standalone prices that each performance obligation represents. The machine is assigned $736,000 (920,000 × 800,000 / 1,000,000); the installation is assigned $92,000 (920,000 × 100,000 / 1,000,000); the training is assigned $92,000 (920,000 × 100,000 / 1,000,000).

On January 1, year 1, a company grants 5,000 nonqualified stock options to an employee with a strike price of $3 per option and fair value of $8 per option. All of the options vest at the end of five years from the grant date. At the end of year 1, the company's stock price was $10 per share. What amount of annual stock compensation cost should the company report for year 1? $0 $3,000 $5,000 $8,000

$8,000 The fair value of the options is $40,000 (5,000 options × $8) divided over 5 years or $8,000 compensation expense per year.

On January 1, year 2, the Carpet Company lent $100,000 to its supplier, Loom Corporation, evidenced by a note, payable in 5 years. Interest at 5% is payable annually with the first payment due on December 31, year 3. The going rate of interest for this type of loan is 10%. The parties agreed that Carpet's inventory needs for the loan period will be met by Loom at favorable prices. Assume that the present value (at the going rate of interest) of the $100,000 note is $81,000 at January 1, year 2. What amount of interest income, if any, should be included in Carpet's year 2 income statement? $0 $4,050 $5,000 $8,100

$8,100 $81,000 (carrying value of note) × 10% (imputed interest rate) = $8,100 interest income

Kamy Corp. is in liquidation under Chapter 7 of the Federal Bankruptcy Code. The bankruptcy trustee has established a new set of books for the bankruptcy estate. After assuming custody of the estate, the trustee discovered an unrecorded invoice of $1,000 for machinery repairs performed before the bankruptcy filing.In addition, a truck with a carrying amount of $20,000 was sold for $12,000 cash. This truck was bought and paid for in the year before the bankruptcy. What amount should be debited to estate equity as a result of these transactions? $0 $1,000 $8,000 $9,000

$9,000 This amount is $9,000 ($1,000 repair cost + $8,000 loss on the truck). The $8,000 loss is the difference between the $20,000 carrying amount and the $12,000 proceeds.

Ivy Co. operates a retail store. All items are sold subject to a 6% state sales tax, which Ivy collects and records as sales revenue. Ivy files quarterly sales tax returns when due, by the twentieth day following the end of the sales quarter. However, in accordance with state requirements, Ivy remits sales tax collected by the twentieth day of the month following any month such collections exceed $500. Ivy takes these payments as credits on the quarterly sales tax return. The sales taxes paid by Ivy are charged against sales revenue. Following is a monthly summary appearing in Ivy's first quarter year 2 sales revenue account: Debit Credit January $ - 10,600 February 600 7,420 March -- 8,480 $ 600 $26,500 In its March 31, year 2 balance sheet, what amount should Ivy report as sales taxes payable?

$900 To determine the correct amount for sales revenue, Ivy must divide the total of sales and sales taxes by 100% plus the sales tax percentage (6%) as indicated below. Month Total Percentage Sales revenue Jan. $10,600 ÷106%= $10,000 Feb. $ 7,420 ÷106%= 7,000 March $ 8,480 ÷106%= 8,000 Sales taxes payable would include all sales taxes collected, less any sales taxes already remitted. January sales taxes ($10,600 − $10,000) $600* February sales taxes ($7,420 − $7,000) 420 March sales taxes ($8,480 − $8,000) 480 Total $1,500 Less taxes remitted 600 Sales taxes payable $900

The following information was taken from Cody Co.'s accounting records for the year ended December 31, 2005: Decrease in raw materials inventory $15,000 Increase in finished goods inventory 35,000 Raw materials purchased 430,000 Direct labor payroll 200,000 Factory overhead 300,000 Freight-out 45,000 There was no work-in-process inventory at the beginning or end of the year. Cody's 2005 cost of goods sold is $895,000 $910,000 $950,000 $955,000

$910,000 Raw materials purchased$430,000 Plus decrease in raw materials15,000 *Direct labor200,000 Factory overhead300,000 Less finished goods increase(35,000) **Cost of goods sold$910,000

A plant asset under construction by a firm for its own use was completed at the end of the current year. The following costs were incurred: Materials $60,000 Labor 30,000 Incremental overhead 10,000 Capitalized interest 20,000 The asset has a service life of 10 years, estimated residual value of $10,000, and will be depreciated under the double declining balance method. At completion, the asset was worth $105,000 at fair value. What amount of depreciation will be recognized on the asset in total over its service life? $105,000 $120,000 $95,000 $90,000

$95,000 The sum of the four listed costs is $120,000, which exceeds fair value of $105,000. Therefore, the asset is capitalized at $105,000, the lesser of the two amounts. Subtracting the $10,000 residual value yields $95,000 depreciable cost-the total depreciation over the life of the asset.

A bank reconciliation with the headings "Balance per Books" and "Balance per Bank" lists three adjustments under the former and four adjustments under the latter. The company makes separate adjusting entries for each item in the reconciliation that requires an adjustment. How many adjusting entries are recorded? 3 4 7 0

3

A bond issued on June 1, year 1, has interest payment dates of April 1 and October 1. Bond interest expense for the year ended December 31, year 1, would be for a period of 3 months. 4 months. 6 months. 7 months.

7 months *Count from June to December*

Zinc Company does not elect to use the fair value option for reporting financial assets. An unrealized gain, net of tax, on Zinc's held-to-maturity portfolio of marketable debt securities should be reflected in the current financial statements as An extraordinary item shown as a direct increase to retained earnings. A current gain resulting from holding marketable debt securities. A footnote or parenthetical disclosure only. A valuation allowance and included in the equity section of the statement of financial position.

A footnote or parenthetical disclosure only.

Which of the following statements describes the proper accounting for losses when nonmonetary assets are exchanged for other nonmonetary assets? A loss is recognized immediately, because assets received should not be valued at more than their cash-equivalent price. A loss is deferred so that the asset received in the exchange is properly valued. A loss, if any, which is unrelated to the determination of the amount of the asset received should be recorded. A loss can occur only when assets are sold or disposed of in a monetary transaction.

A loss is recognized immediately, because assets received should not be valued at more than their cash-equivalent price.

If the payment of employees' compensation for future absences is probable, the amount can be reasonably estimated, and the obligation relates to rights that accumulate, the compensation should be Accrued if attributable to employees' services not already rendered. Accrued if attributable to employees' services already rendered. Accrued if attributable to employees' services, whether already rendered or not. Recognized when paid.

Accrued if attributable to employees' services already rendered.

A not-for-profit organization is exempt from reporting which of the following contributed services as revenue? A CPA prepares the organization's tax return. A special education teacher tutors children with learning disabilities. A carpenter builds shelves for the office. An attorney solicits contributions on behalf of the organization.

An attorney solicits contributions on behalf of the organization.

On January 1, year 3, Roem Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in a $500,000 increase in the January 1, year 3 inventory, which is the only change that could be calculated from the accounting records. Assume that the income tax rate for all years is 30%. Retrospective application would result in An increase in ending inventory in the year 2 balance sheet. A decrease in ending inventory in the year 3 balance sheet. A decrease in net income in year 2. A gain from cumulative effect of change on the income statement in year 3.

An increase in ending inventory in the year 2 balance sheet.

An expenditure to install an improved electrical system is a Capital expenditure Revenue expenditure No Yes No No Yes No Yes Yes

Capital expenditure Revenue expenditure Yes No

A business combination is accounted for appropriately as a business combination. Which of the following should be deducted in determining the combined corporation's net income for the current period? Direct costs of acquisition General expenses related to acquisition Yes No Yes Yes No Yes No No

Direct costs of acquisition General expenses related to acquisition Yes Yes

The double extension method and the link-chain method are two variations of which of the following inventory cost flow methods? Moving average. FIFO. Dollar-value LIFO. Conventional (lower of cost or market) retail.

Dollar-value LIFO.

Which of the following is used to account for probable sales discounts, sales returns, and sales allowances? Due from factor Recourse liability Yes No Yes Yes No Yes No No

Due from factor Recourse liability Yes No

A company issued rights to its existing shareholders to purchase shares of common stock. When the rights are exercised, additional paid-in capital would be credited if the purchase price Exceeded the par value. Was the same as the par value. Was the same as the par value, but less than the market value at the date of exercise. Was less than the par value.

Exceeded the par value

Which inventory costing method would a company that wishes to maximize profits in a period of rising prices use? FIFO Dollar-value LIFO. Weighted average. Moving average.

FIFO

During periods of rising prices, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory cost flow methods? FIFO LIFO Yes No Yes Yes No No No Yes

FIFO LIFO Yes No

When the accounts receivable of a company are sold outright to a company which normally buys accounts receivable of other companies without recourse, the accounts receivable have been Pledged. Assigned. Factored. Collateralized.

Factored

How should a nongovernmental not-for-profit organization report investments in its financial statements? Historical cost with no gains or losses reported Par value with gains and losses reported in the statement of activities Fair value with gains and losses reported in the statement of activities Amortized value with gains and losses reported in the statement of comprehensive income

Fair value with gains and losses reported in the statement of activities

An impairment loss for a long-lived asset, which is being used in the operations of a business, is measured by the excess of the asset's carrying amount over its Expected undiscounted selling price, less expected costs of disposal. Fair value. Expected undiscounted future cash flows from use and disposal. Fair value less cost to sell.

Fair value.

When practicable to estimate, an entity must disclose the value of financial instruments at Net realizable value. Book value. Historical cost. Fair value.

Fair value.

On December 31, year 1, Jet Co. received two $10,000 notes receivable from customers in exchange for services rendered. On both notes, interest is calculated on the outstanding balance at the interest rate of 3% compounded annually and payable at maturity. The note from Hart Corp., made under customary trade terms, is due in nine months and the note from Maxx, Inc. is due in five years. The market interest rate for similar notes on December 31, year 1, was 8%. The compound interest factors are as follows: Future value of $1 due in nine months at 3% 1.0225 Future value of $1 due in five years at 3% 1.1593 Present value of $1 due in nine months at 8% 0.944 Present value of $1 due in five years at 8% 0.680 Jet does not elect the fair value option for reporting its financial assets. At what amounts should these two notes receivable be reported in Jet's December 31, year 1 balance sheet? Hart Maxx $9,440 $6,800 $9,652 $7,820 $10,000

Hart Maxx $10,000 $7,883 The Maxx receivable would be recorded at its present value, since it matures in five years. The Maxx receivable will result in a lump-sum collection of $11,593 ($10,000 × 1.1593), so its present value is $7,883 ($11,593 × .680).

On February 1, year 1, Blake Corporation issued bonds with a fair value of $1,000,000. What methods may Blake use to report the bonds on its December 31, year 1 statement of financial position? I.Amortized cost. II.Fair value through other comprehensive income. III.Fair value through profit or loss. I only. II only. I and III only. III only.

I and III only.

Generally, which of the following items acquired in a business combination should be measured at fair value? Identifiable Assets Acquired Liabilities Assumed Noncontrolling Interest Yes Yes No Yes No No Yes No Yes Yes Yes Yes

Identifiable Assets Acquired Liabilities Assumed Noncontrolling Interest Yes Yes Yes

A debtor and a creditor have negotiated new terms on a note. How can you determine whether the restructuring is a troubled debt restructure? If the interest rate as stated in the restructuring agreement has been reduced relative to the original loan agreement If the present value of the restructured flows using the original interest rate is less than the book value of the debt at the date of the restructure. If the interest rate that equates (1) the book value of the debt at the date of the restructure and (2) the present value of restructured cash flows, exceeds the original interest rate f the present value of the restructured flows using the original interest rate is less than the book value of the debt at the date of the restructure.

If the present value of the restructured flows using the original interest rate is less than the book value of the debt at the date of the restructure.

When the allowance method of recognizing bad debt expense is used, the entries at the time of collection of a small account previously written off would Increase net income. Decrease the allowance for doubtful accounts. Have no effect on the allowance for doubtful accounts. Increase the allowance for doubtful accounts.

Increase the allowance for doubtful accounts.

A firm selling put options to sell the firm's stock Increases owners' equity for the fair value of the options. Does not recognize any change in its financial position at sale of the options. Increases a liability for the fair value of the options. Records an expense equal to the fair value of the options.

Increases a liability for the fair value of the options.

Theoretically, which of the following costs incurred in connection with a machine purchased for use in a company's manufacturing operations would be capitalized? Insurance on machine while in transit Testing and preparation of machine for use Yes Yes Yes No No Yes No No

Insurance on machine while in transit Testing and preparation of machine for use Yes Yes

Legal fees incurred in successfully defending a patent suit should be capitalized when the patent has been Internally developed Purchased from an inventor Yes No Yes Yes No Yes No No

Internally developed Purchased from an inventor Yes Yes

Lease Y contains a bargain purchase option and the lease term is equal to 75% of the estimated economic life of the leased property. Lease Z contains a bargain purchase option and the lease term is less than 75% of the estimated economic life of the leased property. How should the lessee classify these leases? Lease Y Lease Z Operating lease Operating lease Operating lease Finance lease Finance lease Finance lease Finance lease Operating lease

Lease Y Lease Z Finance lease Finance lease

A company issued a short-term note payable to a bank with a stated 12 percent rate of interest . The bank charged a .5% loan origination fee and remitted the balance to the company. The effective interest rate paid by the company in this transaction would be Equal to 12.5%. More than 12.5% Less than 12.5%. Independent of 12.5%

More than 12.5% The .5% loan origination fee reduces the proceeds to the borrower AND increases the total interest to be paid by the same amount.

Which of the following terms is used to indicate that a donor provided a gift with explicit instructions that the gift is to be used for a specific purpose by the not-for-profit organization but the entire amount may be spent right away? Board-designated net assets Endowment assets Net assets without donor restriction Net assets with donor restriction

Net assets with donor restriction

The statement of financial position (balance sheet) for Founders Library, a private nonprofit organization, should report separate dollar amounts for the library's net assets according to which of the following classifications? Unrestricted and permanently restricted Temporarily restricted and permanently restricted Unrestricted and temporarily restricted Net assets with donor restriction, net assets without donor restriction, and total net assets

Net assets with donor restriction, net assets without donor restriction, and total net assets

During the current year, Mill Foundation, a nongovernmental not-for-profit organization, received $100,000 in unrestricted contributions from the general public. Mill's board of directors stipulated that $75,000 of these contributions would be used to create an endowment. At the end of the current year, how should Mill report the $75,000 in the net assets section of the statement of financial position? Permanently restricted Net assets without donor restriction Temporarily restricted Donor restricted

Net assets without donor restriction

Which of the following is/are acceptable methods to account for a business combination? Purchase Method Acquisition Method Pooling of Interests Method Yes Yes Yes Yes Yes No Yes No No No Yes No

Purchase Method Acquisition Method Pooling of Interests Method No Yes No

How would the declaration of a 10% stock dividend by a corporation affect each of the following on its books? Retained earnings (RE) Total stockholders' equity (SE) Decrease No effect Decrease Decrease No effect Decrease No effect No effect

Retained earnings (RE) Total stockholders' equity (SE) Decrease No effect

In which of the following circumstances will goodwill be recognized in a business combination? The acquired entity had the asset "Goodwill" on its books immediately prior to the business combination. The fair value of the investment by the acquiring entity and any noncontrolling interest in the acquired entity is greater than the book value of the acquired entity's net assets. The fair value of the investment by the acquiring entity and any noncontrolling interest in the acquired entity is greater than the fair value of the acquired entity's net assets. The fair value of the investment by the acquiring entity and any noncontrolling interest in the acquired entity is less than the fair value of the acquired entity's net assets.

The fair value of the investment by the acquiring entity and any noncontrolling interest in the acquired entity is greater than the fair value of the acquired entity's net assets.

When allocating costs to inventory produced for the period, fixed overhead should be based upon The actual amounts of goods produced during the period. The normal capacity of production facilities. The highest production levels in the last three periods. The lowest production level in the last three periods.

The normal capacity of production facilities.

Pine Corp.'s books showed pretax income of $800,000 for the year ended December 31, year 3. In the computation of federal income taxes, the following data were considered: Gain on an involuntary conversion (Pine has elected to replace the property within the statutory period using total proceeds)$350,000 Depreciation deducted for tax purposes in excess of depreciable deducted for book purposes 50,000 Federal estimated tax payments, year 3 70,000 Enacted federal tax rate, year 3 30% What amount should Pine report as its current federal income tax liability on its December 31, year 3 balance sheet? $ 50,000 $ 65,000 $120,000 $135,000

This answer is correct. The current federal income tax liability is based on taxable income, which is computed in the "book to tax reconciliation" below. Accounting income$800,000 Nontaxable gain (350,000) Excess tax depreciation (50,000) Taxable income$400,000 The gain on involuntary conversion was included in accounting income but is deferred for tax purposes. Depreciation deducted for tax purposes in excess of book depreciation also causes taxable income to be less than accounting income. Taxes payable before considering estimated tax payments is $120,000 ($400,000 × 30%). Since tax payments of $70,000 have already been made, the 12/31/Y3 current federal income tax liability is $50,000 ($120,000 − $70,000).

In year 1 Newt Corp. acquired 6,000 shares of its own $1 par value common stock at $18 per share. In year 2, Newt issued 3,000 of these shares at $25 per share. Newt uses the cost method to account for its treasury stock transactions. What accounts and amounts should Newt credit in year 2 to record the issuance of the 3,000 shares? Treasury stock Additional paid-in capital Retained earnings Common stock $54,000 $21,000 $54,000 $21,000 $72,000 $3,000 $51,000 $21,000 $3,000

Treasury stock Additional paid-in capital $54,000 $21,000