FINAL- multiple choice 9, 10 , 11
Erin Danielle Company, purchased equipment and incurred the following costs. Cash price $24,000 Sales taxes $1,200 Insurance during transit $200 Installation and testing $400 Total costs= $25,800 What amount should be recorded as the cost of equipment?
$25,800
*When a stockholders' equity statement is presented, it is not necessary to prepare a (an) (a) retained earnings statement (b) balance sheet (c) income statement (d) None of the above
A
Entries for cash dividends are required on the: (a) declaration date and the payment date (b) record date and the payment date (c) declaration date, record date, and payment date (d) declaration date and record date
A
For the bonds issued in Question before this, what is the carrying value of the bonds at the end of the third interest period? (a) $492,000 (b) $488,000 (c) $486,000 (d) $464,000
A
In the stockholders' equity section, the cost of treasury stock is deducted from: (a) total paid-in capital and retained earnings (b) retained earnings (c) total stockholders' equity (d) common stock in paid-in capital
A
Karson Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that: (a) the contractural interest rate exceeds the market interest rate (b) the market interest rate exceeds the contractural interest rate (c) the contractural interest rate and the market interest rate are the same (d) no relationship exists between the two rates
A
Research and development costs are: (a) expensed under GAAP (b) expensed under IFRS (c) expensed under both GAAP and IFRS (d) None of the above
A
The accounting for bonds payable is: (a) essentially thee same under IFRS and GAAP (b) differs in that GAAP requires use of the straight-line method for amortization for bond premium and discount (c) the same except that market prices may be different because the present value calculations are different between IFRS and and GAAP (d) not covered by IFRS
A
The time period for classifying a liability as current is one year or the operating cycle, whichever is (a) longer (b) shorter (c) probable (d) possible
A
Which of the following is false? (a) Under IFRS, current liabilities must always be presented before noncurrent liabilities (b) Under IFRS, an item is a current liability if it will be paid within the next 12 months (c) Under IFRS, current liabilities are sometimes netted against current assets on the statement of financial position (d) Under IFRS, a liability is only recognized if it is a present obligation
A
XYZ, Inc. sells 100 shares of $5 par value treasury stock at $13 per share. If the cost of acquiring the shares was $10 per share, the entry for the sale should include credits to: (a) Treasury Stock $1,000 and Paid-in Capital from Treasury Stock $300 (b) Treasury Stock $500 and Paid-in Capital from Treasury Stock $800 (c) Treasury Stock $1,000 and Retained Earnings $300 (d) Treasury Stock $500 and Paid-in Capital in Excess of Par $800
A
* Schopenhauer Company exchanged an old machine, with a book value of $39,000 and a fair value of $35,000, and paid $10,000 cash for a similar new machine. The transaction has commercial substance. At what amount should the machine acquired in the exchange be recorded on Schopenhauer's books? (a) $45,000 (b) $46,000 (c) $49,000 (d) $50,000
A ($35,000 + $10,000= $45,000)
Bennie Razor Company has decided to sell one of its old manufacturing machines on June 30, 2019. The machine was purchased for $80,000 on January 1, 2015, and was depreciated on a straight-line basis over a 10-year life assuming no salvage value. If the machine was sold for $26,000, how much is the gain or loss to be recorded at the time of the sale? (a) $18,000 (b) $54,000 (c) $22,000 (d) $46,000
A accumulated depreciation= $36,000 ( (80,000/10) X 4.5 years) cost of machine less accumulated depreciation= $44,000 (80,000- 36,000) loss= $18,000 (26,000 - 44,000)
Depreciation is a process of (a) valuation (b) cost allocation (c) cash accumulation (d) appraisal
B
Gester Corporation redeems its $100,000 face value bonds at 105 on January 1, following the payment of semiannual interest. The carrying value of the bonds at the redemption date is $103,745. The entry to record the redemption will include a: (a) credit of $3,745 to Loss on Bond Redemption (b) debit of $3,745 to Premium on Bonds Payable (c) credit of $1,255 to Gain on Bond Redemption (d) debit of $5,000 to Premium on Bonds Payable
B
Martha Beyerlein Company incurred $150,000 of research and development costs in its laboratory to develop a patent granted on January 2, 2019. On July 31, 2019, Beyerlein paid $35,000 for legal fees in a successful defense of the patent. The total amount debited to Patents through July 31, 2019, should be (a) $150,000 (b) $35,000 (c) $185,000 (d) $170,000
B
The basic accounting for cash dividends and stock dividends: (a) is different under IFRS versus GAAP (b) is the same under IFRS and GAAP (c) differs only for the accounting for cash dividends between GAAP and IFRS (d) differs only for the accounting for stock dividends between GAAP and IFRS
B
When there is a change in estimated depreciation: (a) previous depreciation should be corrected (b) current and future years' depreciation should be revised (c) only future years' depreciation should be revised (d) none of the above
B
Which of the following does not represent a pair of GAAP/IFRS-comparable terms? (a) Additional paid-in capital/Share premium (b) Treasury stock/Repurchase reserve (c) Common stock/Share capital (d) Preferred Stock/Preference shares
B
Which of the following is not reported under additional paid-in capital? (a) Paid-in capital in excess of par (b) Common Stock (c) Paid-in capital in excess of stated value (d) Paid-in capital from treasury stock
B
Which of the following statements is correct? (a) Both IFRS and GAAP permit revaluation of property, plant, and equipment and intangible assets (except for goodwill) (b) IFRS permits revaluation of property, plant, and equipment and intangible assets (except for goodwill) (c) Both IFRS and GAAP permit revaluation of property, plant, and equipment but not tangible assets (d) GAAP permits revaluation of property, plant, and equipment but not intangible assets
B
Which set of terms can be used to describe total stockholders' equity under IFRS? (a) Shareholders' equity, capital and reserves, other comprehensive income (b) Capital and reserves, shareholders' equity, shareholders' funds (c) Capital and reserves, retained earnings, shareholders' equity (d) All of the answer choices are correct
B
Maggie Sharrer Company borrows $88,500 on September 1, 2019, from Sandwich State Bank by signing an $88,500, 12%, one-year note. What is the accrued interest at December 31, 2019? (a) $2,655 (b) $3,540 (c) $4,425 (d) $10,620
B ($88,500 X 12% X 4/12) = $3,540
Katie Inc. reported net income of $186,000 during 2019 and paid dividends of $26,000 on common stock. It also has 10,000 shares of 6%, $100 par value, noncumulative preferred stock outstanding and paid dividends of $60,000 on preferred stock. Common stockholders' equity was $1,200,000 on January 1, 2019, and $1,600,000 on December 31, 2019. The company's return on common stockholders' equity for 2019 is: (a) 10.0% (b) 9.0% (c) 7.1% (d) 13.3%
B 186,000 - (10,000 X 0.06 X $100)= 126,000 126,000/($1,200,000 + 1,600,000/2) = 0.09 = 9%
Sensible Insurance Company collected a premium of $18,000 for a 1-year insurance policy on April 1. What amount should Sensible report as a current liability for Unearned Insurance Premiums at December 31? (a) $0 (b) $4,500 (c) $13,500 (d) $18,000
B 3 months X 1,500 = $4,500
Becky Sherrick Company has total proceeds from sales of $4,515. If the proceeds include sales taxes of 5%, the amount to be credited to Sales Revenue is: (a) $4,000 (b) $4,300 (c) $4,289.25 (d) No correct answer given
B 4,515/ 1.05 = 4,300
On January 1, Besalius Inc. issued $1,000,000, 9% bonds for $938,554. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Besalius she's the effective- Interest method of amortizing bond discount. At the end of the first year, Besalius should report unamortized bond discount of: (a) $54,900 (b) $57,591 (c) $51,610 (d) $51,000
B Beginning balance= $61,446 ($1,000,000 - 938,554) Difference is $90,000 ($1,000,000 X 9% Interest expense= $93,855 (938,554 X 10%) Balance = $57,591 (61,446 - 3,855)
Jefferson Company purchased a piece of equipment on January 1, 2019. The equipment cost $60,000 and had an estimated life of 8 years and a salvage value of $8,000. What was the depreciation expense for the asset for 2020 under the double-declining-balance method? (a) $6,500 (b) $11,250 (c) $15,000 (d) $6,562
B 2019= 60,000 X 25% (25% = 1/8 X 2) = 15,000 2020= (60,000-15,000) X 25% = $11,250
A major disadvantage of a corporation is: (a) limited liability of stockholders (b) additional taxes (c) transferable ownership rights (d) separate legal existence
B, others are advantages
The term used for bonds that are unsecured as to principal is A. series bonds B. debenture bonds C. indenture bonds. D.callable bonds.
B. debenture bonds
* On December 31, Hurley Corporation issues $500,000, 5-year, 12% Bonds at 96 with interest payable on December 31, 2019. The entry on December 31, 2020, to record payment of bond interest and the amortization of bond discount using the straight-line method will include a: (a) debit to Interest Expense $30,000 (b) debit to Interest Expense $60,000 (c) credit to Discount on Bonds Payable $4,000 (d) credit to Discount on Bonds Payable $2,000
C
*The ledger of JFK, Inc. shows common stock, common treasury stock, and no preferred stock. For this company, the formula for computing book value per share is: (a) Total paid-in capital and retained earnings divided by the number of shares of common stock issued. (b) common stock divided by the number of shares of common stock issued (c) total stockholders' equity divided by the number of shares of common stock outstanding (d) total stockholders' equity divided by the number of shares of common stock issued
C
ABC Corporation issues 1,000 shares of $10 par value common stock at $12 per share. In recording the transaction, credits are made to: (a) Common Stock $10,000 and Paid-in Capital in Excess of Stated Value $2,000 (b) Common Stock $12,000 (c) Common Stock $10,000 and Paid-in Capital in Excess of Par $2,000 (d) Common Stock $10,000 and Retained Earnings $2,000
C
Andrews Inc. issues a $497,000, 10% 3-year mortgage note on January 1. The note will be paid in three annual installments of $200,000, each payable at the end of the year. What is the amount of interest expense that should be recognized by Andrews Inc. in the second year? (a) $16,567 (b) $49,700 (c) $34,670 (d) $346,700
C
Employer payroll taxes do not include: (a) federal unemployment taxes (b) state unemployment taxes (c) federal income taxes (d) FICA taxes
C
Howard Corporation issued a 20-year mortgage note payable on January 1, 2019. On December 31, 2019 the unpaid principle balance will be reported as: (a) a current liability (b) a long-term liability (c) part current and part long term liability (d) interest payable
C
In the stockholders' equity section of the balance sheet, common stock: (a) is listed before preferred stock (b) is added to total capital stock (c) is part of paid-in capital (d) is part of additional paid-in capital
C
Indicate which of the following statements is true. (a) Since intangible assets lack physical substance, they need be disclosed only in the notes to the financial statements (b) Goodwill should be reported as a contra account in the stockholders' equity section (c) Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the notes to the financial statements. (d) Intangible assets are typically combined with plant assets and natural resources, and shown in the property, plant, and equipment section.
C
On January 1, 2019, Kelly Corp. issues $200,000, 5-year, 7% bonds at face value. The entry to record the issuance of the bonds would include a: (a) debit to cash for 14,000 (b) debit to bonds payable for $200,000 (c) credit to Bonds Payable for $200,000 (d) credit to Interest Expense if $14,000
C
Under IFRS, the amount of capital received in excess of par value would be credited to: (a) Retained earnings (b) contributed capital (c) share premium (d) Par value is not used under IFRS
C
Under IFRS, the statement of comprehensive income must include: (a) accounts payable (b) retained earnings (c) income tax expense (d) preference stock
C
When recording payroll, (a) gross earnings are recorded as salaries and wages payable (b) net pay is recorded as salaries and wages expense (c) payroll deductions are recorded as liabilities (d) more than one of the above
C
Which of the following is true regarding accounting for amortization of bond discount and premium? (a) Both IFRS and GAAP must use effective-interest method (b) GAAP must use the effective-interest method, but IFRS may use either the effective-interest method or the straight-line method (c) IFRS us required to use the effective-interest method (d) GAAP is required to use the straight-line method
C
Which of the following is true? (a) In the United States, the primary corporate stockholders are financial institutions (b) Share capital means total assets under IFRS (c) The IASB and FASB are presently studying how financial statement information should be presented (d) The accounting for treasury stock differs extensively between GAAP and IFRS
C
Which of the following statements about small stock dividends is true? (a) A debit to Retained Earnings for the par value of the shares issued should be made (b) A small stock dividend decreases total stockholders' equity (c) Market price per share should be assigned to the dividend shares (d) A small stock dividend ordinarily will have an effect on par value per share of stock
C
Lake Coffee Company reported net sales of $180,000, net income of $54,000, beginning total assets of $200,000, and ending total assets of $300,000. What was the company's asset turnover? (a) 0.90 (b) 0.20 (c) 0.72 (d) 1.39
C Asset turnover = Net Sales ($180,000/ Average total assets ($200,000 + $300,000/2) = 0.72
Dias Corporation issued $1,000,000, 14%, 5-year bonds with interest payable annually on December 31. The bonds sold for $1,072,096. The market rate of interest for these bonds was 12%. On the first Interest date, using the effective-interest method, the debit entry to Interest Expense is for: (a) $120,000 (b) $125, 581 (c) $128,652 (d) $140,000
C Interest expense = $1,072,096 X 12% = $128,652
Maggie Sharrer Company expects to extract 20 million tons of coal from a mine that cost $12 million. If no salvage value is expected, and 2 million tons are mined and sold in the first year, the entry to record depletion will include a: (a) debit to Accumulated Depletion of $2,000,000. (b) credit to Depletion Expense of $1,200,000 (c) debit to Inventory of $1,200,000 (d) credit to Accumulated Depletion of $2,000,000
C depletion per unit = $0.60 ( 12 million/20 million tons) 2 million tons X $0.60= $1,200,000
Which of the following is not a major advantage of a corporate form of organization? (a) Separate legal existence (b) Continuous life (c) Government regulations (d) Transferable ownership rights
C, that is a disadvantage
* In exchange of assets in which the exchange has commercial substance: (a) neither gains nor losses are recognized immediately (b) gains, but not losses, are recognized immediately (c) losses, but not gains, are recognized immediately (d) both gains and losses are recognized immediately
D
Additions to plant assets are (a) revenue expenditures (b) debited to the Maintenance and Repairs Expense account (c) debited to the Purchases account (d) capital expenditures
D
Earnings per share computations related to IFRS and GAAP? (a) are essentially similar (b) result in an amount referred to as earnings per share (c) must deduct preferred (preference) dividends when computing earnings per share (d) All the answers choices are correct
D
For 2019, Corn Flake Corporation reported net income of $300,000. Interest expense was $40,000 and income taxes were $100,000. The times interest earned was: (a) 3 times (b) 4.4 times (c) 7.5 times (d) 11 times
D
JD Company borrowed $70,000 on December 1 on a 6-month, 12% note. At December 31: (a) neither the note payable nor the interest payable is a current liability (b) the note payable is a current liability but the interest payable is not (c) the interest payable is a current liability but note payable is not (d) both the note payable and the interest payable are current liabilities
D
Prescher Corporation issued bonds that pay interest every July 1 and January 1. The entry to accrue bond interest at December 31 includes a: (a)debit to Interest Payable. (b)credit to Cash. (c)credit to Interest Expense. (d)credit to Interest Payable.
D
The joint projects of the FASB and IASB could potentially: (a) change the definition of liabilities (b) change the definition of equity (c) change the definition of assets (d) All of the above
D
To be classified as a current liability, a debt must be expected to be paid within: (a) one year (b) the operating cycle (c) 2 years (d) (a) or (b), whichever is longer
D
Which item is not considered part of reserves? (a) Unrealized loss on available-for-sale investments (b) Revaluation surplus (c) Retained earnings (d) Issued shares
D
Which of the following statements is false? (a) If an intangible asset has a finite life, it should be amortized (b) The amortization period of an intangible asset can exceed 20 years (c) Goodwill is recorded only when a business is purchased (d) Research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent.
D
Orlando Company has a beginning balance in retained earnings of $100,00. During the year, it had a net loss of $20,000, paid cash dividends of $3,000, and issued a small stock dividend that had a market value of $7,000 and a par value of $1,000. The ending balance in retained earnings is: (a) $120,000 (b) $80,000 (c) $79,000 (d) $70,000
D 100,000 (balance) - 20,000 (net loss) - 3,000 (dividends) - 7,000 (stock dividends) = 70,000
Able Towing Company purchased a tow truck for $60,000 on January 1, 2017. It was originally depreciated on a straight-line basis over 10 years with an estimated salvage value of $12,000. On December 31, 2019, before adjusting entries had been made, the company decided to change the remaining estimated life to 4 more years as of January 1, 2019, and the salvage value was adjusted to $2,000. How much is depreciation expense for 2019? (a) $6,000 (b) $4,800 (c) $15,000 (d) $12,100
D Accumulated Deprecation 2017- 2018 = $9,600 (((60,000 - 12,000)/ 10 yrs) X 2 years) revised depreciable cost= $48,000 (60,000 - 9,600 - 2,000) depreciation expense= $48,000/4 = $12,100
M-Bot Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2019. No dividends were declared in 2010 or 2011. If M-Bot wants to pay $375,000 of dividends in 2019, how much will common stockholders receive? (a) $0 (b) $295,000 (c) $215,000 (d) $135,000
D Total dividends= 240,000 (80,000 X 2 years) + 80,000 (current year)= 240,000 ($375,000- $240,000= 135,000)
Micah Bartlett Company purchased equipment on January 1, 2014, at a total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years. The amount of accumulated depreciation at December 31, 2015, if the straight-line method of depreciation is used, is (a) $80,000 (b) $160,000 (c) $78,000 (d) $156,000
D (400,000 - 10,000/5 = 78,000) 78,000 X 2 (2 yr of depreciation expense) = 156,000
Ann Torbert purchased a truck for $11,000 on January 1, 2018. The truck will have an estimated salvage value of $1,000 at the end of 5 years. Using the units-of-activity method, the balance in accumulated depreciation at December 31, 2019, can be computed by the following formula: (a) ($11,000 / Total estimated activity) X Units of activity for 2019 (b) ($10,000 / Total estimated activity) X Units of activity for 2019 (c) ($11,000 / Total estimated activity) X Units of activity for 2018 and 2019 (d) ($10,000 / Total estimated activity) X Units of activity for 2018 and 2019
D 11,000 - salvage value
Which of the following statements is false? (a) Ownership of common stock gives the owner a voting right (b) the stockholders' equity section begins with a paid-in capital section (c) The authorization of capital stock does not result in a formal accounting entry (d) Par value and market price of a company's stock are always the same
D, par value has nothing to do with market value
Preferred stock may have priority over common stock except in: (a) dividends (b) assets in the event of liquidation (c) cumulative dividend features (d) voting
D, preferred stock does not have voting rights/ common stock does
Which of the following is false? (a) Under GAAP, companies cannot record gains on transactions involving their own shares (b) Under IFRS, companies cannot record gains on transactions involving their own shares (c) Under IFRS, the statement of stockholders' equity is a required statement (d) Under IFRS, a company records a revaluation surplus when it experiences an increase in the price of its commons stock
d