Section 1 Assessment Questions

Reporting inventory at the lower of cost or market is a departure from the accounting principle of: Historical cost. Consistency. Conservatism. Full disclosure.

A

The FASB amends the Accounting Standards Codification through the issuance of Accounting Standards Updates. Statements of Financial Accounting Standards. Technical Bulletins. Staff Accounting Bulletins

A

The determination of fair value may be for: A Stand-alone Asset or Liability, A Group of Assets or Liabilities Yes, Yes Yes, No No, Yes No, No

A

What is the underlying concept governing the Generally Accepted Accounting Principles pertaining to recording gain contingencies? Conservatism. Relevance. Consistency. Faithful representation

A

Which of the following statements is correct regarding fair value measurement? Fair value is a market-based measurement. Fair value is an entity-specific measurement. Fair value measurement does not consider risk. Fair value measurement does not consider restrictions.

A

According to the IASB Framework, the financial statement element that is defined as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants, is Revenue. Income. Profits. Gains.

B

According to the conceptual framework, the quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called: Confirmatory value. Predictive Value. Representational faithfulness. Faithful representation.

B

At December 31, 20X0, Ashe Co. had a $990,000 balance in its advertising expense account before any year-end adjustments relating to the following: Radio advertising spots broadcast during December 20X0 were billed to Ashe on January 4, 20X1. The invoice cost of $50,000 was paid on January 15, 20X1. Included in the $990,000 is $60,000 for newspaper advertising for a January 20X1 sales promotional campaign. Ashe's advertising expense for the year ended December 31, 20X0, should be: $930,000. $980,000. $1,000,000. $1,040,000.

B

Giaconda, Inc. acquires an asset for which it will measure the fair value by discounting future cash flows of the asset. Which of the following terms best describes this fair value measurement approach? Market Income Cost Observable inputs

B

When valuing certain financial instruments, a company that has elected the fair value measurement option must apply the accounting measurement based on which of the following criteria? A portion of an asset or liability Instrument-by-instrument basis Type-by-type basis At the entity level

B

Which of the following statements includes the most useful guidance for practicing accountants concerning the FASB Accounting Standards Codification. The Codification includes only FASB Statements. The Codification is the sole source of U.S. GAAP, for nongovernmental entities. The Codification significantly modified the content of GAAP when it became effective. An accountant can be sure that all SEC rules are included in the Codification.

B

When an entity uses the fair value option for eligible financial assets and liabilities, which one of the following is not an expected outcome of the disclosures required of that entity? Users being able to understand management's reasons for using the fair value option Users being able to understand how changes in fair value affect net income Replace the kind and amount of information that would have been provided if the fair value option had not been used with information related to fair value Users being able to understand the difference between fair value and cash flows

C

Which of the following assumptions means that money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis? Going concern. Periodicity. Monetary unit. Economic entity.

C

Which of the following is a level three input to valuation techniques used to measure the fair value of an asset? Quoted prices in active markets for identical assets. Quoted prices for similar assets in active markets. Unobservable inputs for the asset. Inputs other than quoted prices that are observable for the asset

C

Which of the following items would best enable Driver Co. to determine whether the fair value of its investment in Favre Corp. is properly stated in the balance sheet? Discounted cash flow of Favre's operations. Quoted market prices available from a business broker for a similar asset. Quoted market prices on a stock exchange for an identical asset. Historical performance and return on Driver's investment in Favre

C

Which of the following statements, if any, concerning IFRS for SMEs is/are correct? I. IFRS for SMEs is based on accrual basis accounting. II. Generally, IFRS for SMEs may be used as an alternative to using OCBOA. I only. II only. Both I and II. Neither I nor II.

C

Young & Jamison's modified cash-basis financial statements indicate cash paid for operating expenses of $150,000, end-of-year prepaid expenses of $15,000, and accrued liabilities of $25,000. At the beginning of the year, Young & Jamison had prepaid expenses of $10,000, while accrued liabilities were $5,000. If cash paid for operating expenses is converted to accrual-basis operating expenses, what would be the amount of operating expenses? $125,000 $135,000 $165,000 $175,000

C

What group currently writes the Generally Accepted Accounting Principles? Internal Revenue Service. Securities and Exchange Commission. Financial Accounting Foundation. Financial Accounting Standards Board

D

Which of the following statements concerning the fair value hierarchy used in ascertaining fair value is/are correct? I. Quoted market prices should be adjusted for a "blockage factor" when a firm holds a sizable portion of the asset being valued. II. Quoted market prices in markets that are not active, because there are few relevant transactions, cannot be used. I only. II only. Both I and II. Neither I nor II.

D

Which of the following statements is true regarding developing fair value measurements for financial statement purposes? It assumes the most conservative use of the asset. It assumes the asset is held for sale in the normal course of business. It assumes an appraisal by a licensed appraiser. It assumes the highest and best use of the asset.

D

Which one of the following is not an other comprehensive basis of accounting (OCBOA)? Cash basis. Modified cash basis. Income tax basis. IFRS for SMEs.

D

Which of the following is true regarding the comparison between managerial and financial accounting? Managerial accounting is generally more precise. Managerial accounting has a past focus and financial accounting has a future focus. The emphasis on managerial accounting is relevance and the emphasis on financial accounting is timeliness. Managerial accounting need not follow Generally Accepted Accounting Principles (GAAP), while financial accounting must follow them.

D Because managerial accounting is not for external users and does not need to follow GAAP

According to SFAC 7, Using Cash Flow Information and Present Value in Accounting Measurements, the most relevant measurement of an entity's liabilities at initial recognition and fresh-start measurements should always reflect The expectations of the entity's management. Historical cost. The credit standing of the entity. The single most-likely minimum or maximum possible amount.

C

In determining the fair value of an asset in the most advantageous market, the market-based exit price should be adjusted for: Transaction Cost, Transportation Cost Yes, Yes Yes, No No, Yes No, No

C

On December 31, 20X2, Brooks Co. decided to end operations and dispose of its assets within three months. At December 31, 20X2, the net realizable value of the equipment was below historical cost. What is the appropriate measurement basis for equipment included in Brooks' December 31, 20X2, Balance Sheet? Historical cost. Current reproduction cost. Net realizable value. Current replacement cost

C

A company has an equity investment with a historical cost of $500,000 that is traded in an active market. At December 31, year 1, the quoted price for an identical investment was $400,000 and the quoted price for a similar investment was $430,000. Using the company's internal present value of cash flows model, the company arrived at a value of $410,000. What amount is the value of the investment on December 31, year 1? $400,000 $410,000 $430,000 $500,000

A

According to the FASB conceptual framework, certain assets are reported in financial statements at the amount of cash or its equivalent that would have to be paid if the same or equivalent assets were acquired currently. What is the name of the reporting concept? Replacement cost. Current market value. Historical cost. Net realizable value.

A

According to the IASB Framework, the process of reporting an item in the financial statements of an entity is: Recognition. Statement of Financial Position. Disclosure. Presentation

A

According to the conceptual framework, the process of reporting an item in the financial statements of an entity is: Recognition. Realization. Allocation. Matching.

A

Conceptually, interim financial statements can be described as emphasizing: Timeliness over faithful representation. Faithful representation over relevance. Relevance over comparability. Comparability over neutrality.

A

Dannon Co. reported its expenses of $35,200 on the cash basis. Corporate records revealed the following information: Beginning prepaid expense$1,300 Beginning accrued expense 1,650 Ending prepaid expense 1,800 Ending accrued expense 1,200 What amount of expense should Dannon report on its books under the accrual basis? $34,250 $35,150 $35,300 $36,150

A

For IFRS purposes, cash advances and loans from bank overdrafts should be reported on the statement of cash flows as Operating activities. Investing activities. Financing activities. Other significant noncash activities.

A

In which of the following circumstances, if any, would an auditor be concerned as to whether or not the price paid to acquire an asset was the fair value of the asset? I. The asset was acquired from the acquiring firm's majority shareholder. II. The asset was acquired in an active exchange market. I only. II only. Both I and II. Neither I nor II.

A

Marco has an investment that is traded in two different markets, Front market and Side market. Marco has equal access to each market. In order to determine the fair value of its investment, Marco has obtained the following per share information for the securities as of the close of business December 31, the end of its fiscal year: Front Market Selling price $52 Transaction Cost $6 Side Market Selling price $50 Transaction Cost $1 If Front market is the principal market for the security for Marco, using the market approach, which one of the following would be the per share amount used for measuring the investment at fair value? $52/sh $50/sh $49/sh $46/sh

A

On January 15, 2008, Able Co. made a significant investment in the debt securities of Baker Co., which it intends to hold until the debt matures. Able's fiscal year-end is December 31. If Able Co. intends to measure and report its investment in Baker Co. debt securities at fair value as permitted by ASC 820 on which one of the following dates must Able elect to implement the fair value option? January 15, 2008 January 31, 2008 March 31, 2008 December 31, 2008

A

Recognizing depletion expense is an example of the accounting process of: Allocation, Amortization YES, YES YES, NO NO, NO NO, YES

A

According to the conceptual framework, the process of reporting an item in the financial statements of an entity is: Allocation. Matching. Realization. Recognition

D

Compared to the accrual basis of accounting, the cash basis of accounting understates income by the net decrease during the accounting period of: Accounts receivable, Accrued expenses YES, YES YES, NO NO, NO NO, YES

D

For a firm that elects to measure certain of its financial assets and financial liabilities at fair value, required financial statement disclosures are intended to facilitate which of the following comparisons? I. Comparisons between entities that use different measurement methods for similar assets and liabilities. II. Comparisons between assets and liabilities of a single entity that uses different measurement methods for similar assets and liabilities. Neither I nor II. I only. II only. Both I and II.

D

Which of the following is not covered by SFAC 7, Using Cash Flow Information and Present Value in Accounting Measurements? Measurements at initial recognition. Interest method of amortization. Expected cash flow approach. Determining when fresh-start measurements are appropriate.

D

Under IFRS for SMEs, which of the following cost flow assumptions can be used for inventory valuation purposes? FIFO LIFO Weighted Average Cost

FIFO Weighted average cost

Roro, Inc. paid $7,200 to renew its only insurance policy for three years on March 1, Year 5, the effective date of the policy. At March 31, Year 5, Roro's unadjusted trial balance showed a balance of $300 for prepaid insurance and $7,200 for insurance expense. What amounts should be reported for prepaid insurance and insurance expense in Roro's financial statements for the three months ended March 31, Year 5?

Prepaid = 7000 IE = 500

The purpose of financial accounting is to provide information primarily for which of the following groups? Government. Internal Revenue Service. Financial Accounting Standards Board. Investors and creditors.

D

What type of income measurement are the following items: Options: IFCO, income other than IFCO, OCI, owner's equity other than the 3 above, or none of the above) 1. Gain on disposal of plant asset 2 Unearned revenue 3 Cumulative effect of change from LIFO to FIFO 4 Unrealized loss on investment in trading debt securities 5 Realized gain on investment in debt securities

1. ICOO 2. None 3. Owner's equity other 4. IFCO 5. IFCO

What type of income measurement are the following items: Options: IFCO, income other than IFCO, OCI, owner's equity other than the 3 above, or none of the above) 11. Increase in unrealized pension cost 12. Income tax expense 13. Restructuring charge 14. Loss from effect of a new regulation or law 15. Stock dividend distributed

11. OCI 12. IFCO 13. IFCO 14. IFCO 15. Other Owner's equity

Cash Flow Classification of: 1. Payments to suppliers 2. Interest Payments 3. Payments to retire bonds 4. Down payment on equipment 5. Obtain loan for land to be held as an investment 6. Purchase of treasury stock 7. Depreciation expense 8. Purchase of trading securities to be held for a short period of time 9. Monthly mortgage payment 10. Dividends received on investments 11. Loss on disposal of equipment 12. Proceeds from sale of equity securities available for sale 13. Annual lease payment on capital lease 14. Payments to fund company pension plan 15. Increase in accounts receivable for the period

1. Operating 2. Operating 3. Financing 4. Investing 5. Financing 6. Financing 7. Noncash 8. Operating 9. Operating (interest) and Financing (principal) 10. Operating 11. Noncash 12. Investing 13. Operating (interest) and Financing (principal) 14. Operating 15. Noncash

A U.S. publicly traded company's second fiscal quarter-ends on March 31. If the company is an accelerated filer, what is the latest date that the 10-Q should be filed with the U.S. SEC? May 10. May 15. May 30. June 29.

A

On April 1, 20X5, Dart Co. paid $620,000 for all the issued and outstanding common stock of Wall Corp. in a transaction properly accounted for as an acquisition. on April 1, 20X5 follow: Cash $ 60,000 Inventory 180,000 Property and equipment (net of accumulated depreciation of $220,000) 320,000 Goodwill 100,000 Liabilities (120,000) Net assets $540,000 On April 1, 20X5, Wall's inventory had a fair value of $150,000, and the property and equipment (net) had a fair value of $380,000. What is the amount of goodwill resulting from the business combination?

150,000

What type of income measurement are the following items: Options: IFCO, income other than IFCO, OCI, owner's equity other than the 3 above, or none of the above) 16. Accumulated other comprehensive income 17. Dividends received on investment in debt securities 18. Dividends received on equity method investment

16. Other Owner's equity 17. IFCO 18. None

During 20x8, a firm discontinued a component qualifying for separate disclosure within the income statement. The disposal was completed before the end of 20x8 and resulted in a $300 disposal gain. The component earned $400 in 20x7 but lost $100 (negative income) in 20x8. The 20x7 income statement reported income from continuing operations (IFCO) of $6,000. The 20x8 income statement reported $7,000 of net income. Determine the following two amounts: IFCO for 20x7 as it is reported comparatively in the 20x8 statements IFCO for 20x8

5,600 6,800

What type of income measurement are the following items: Options: IFCO, income other than IFCO, OCI, owner's equity other than the 3 above, or none of the above) 6. unrealized loss on investment in debt securities available-for-sale 7. Cumulative effect of change from FIFO to LIFO 8. Effect of change in estimate of useful life for a plant asset 9. Estimated disposal loss on discontinued component for which operations and cash flows can be distinguished from the rest of the entity for operational and financial reporting purposes 10. Deferred tax liability

6. OCI 7. Other OE 8. IFCO 9.Income other than IFCO 10. None

The following data pertain to Ruhl Corp.'s operations for the year ended December 31, 2005: Operating income $800,000 Interest expense 100,000 Income before income tax 700,000 Income tax expense 210,000 Net income $490,000 The times interest earned ratio is

8

A company buys ten shares of securities at $1,000 each on January 15, Year 1. The securities are classified as available-for-sale. The fair value of the securities increases to $1,250 per share as of December 31, Year 1. The company does not elect to use the fair value option for reporting available-for-sale securities. Assume no dividends are paid and that the company has a 30% tax rate. What is the amount of the holding gain arising during the period that is classified in other comprehensive income for the period ending December 31, Year 1? $0 $1,750 $2,500 $7,500

A

A company calculated the following data for the period: Cash received from customers $25,000 Cash received from sale of equipment 1,000 Interest paid to bank on note 3,000 Cash paid to employees 8,000 What amount should the company report as net cash provided by operating activities in its Statement of Cash Flows? $14,000 $15,000 $18,000 $26,000

A

A company decided to sell an unprofitable division of its business. The company can sell the entire operation for $800,000, and the buyer will assume all assets and liabilities of the operations. The tax rate is 30%. The assets and liabilities of the discontinued operation are as follows: Buildings $5,000,000 Accumulated depreciation 3,000,000 Mortgage on buildings 1,100,000 Inventory 500,000 Accounts payable 600,000 Accounts receivable 200,000 What is the after-tax net loss on the disposal of the division? $140,000 $200,000 $1,540,000 $2,200,000

A

A corporation issues quarterly interim financial statements and uses the lower cost or net realizable value to value its inventory in its annual financial statements. Which of the following statements is correct regarding how the corporation should value its inventory in its interim financial statements? Inventory losses generally should be recognized in the interim statements. Temporary market declines should be recognized in the interim statements. Only the cost method of valuation should be used. Gains from valuations in previous interim periods should be fully recognized.

A

A holder of a variable interest that is not the primary beneficiary acquired additional variable interests in the variable interest entity (VIE). What action, if any, should follow? The holder of the variable interest should reconsider whether it is now the primary beneficiary. The holder of the variable interest should use the voting-interest model to determine whether the VIE should be consolidated. The primary beneficiary should discontinue consolidation of the VIE because the election to consolidate is no longer allowed. No action is necessary because the primary beneficiary of a VIE does not change subsequent to the initial assessment.

A

A nonaccelerated filer, as established by the U.S. Securities and Exchange Commission, includes companies with less than exactly what amount in public equity float? $75 million $100 million $125 million $150 million

A

A partial listing of a company's accounts is presented below: Revenues $80,000 Operating expenses 50,000 Foreign currency translation adjustment gain, net of tax 4,000 Income tax expense 10,000 What amount should the company report as net income? $20,000 $24,000 $30,000 $34,000

A

ABC Co. is a public company that is required to file financial reports with the United States Securities and Exchange Commission (SEC). ABC acquired a significant related business, Bauer Co., through the registration and issuance of additional shares of common stock to the former stockholders of Bauer. Which of the following forms should ABC file with the SEC as a result of the acquisition of Bauer? Form 8-K. Form 10-K. Form 10-Q. Form S-1.

A

An inventory loss from a market price decline occurred in the first quarter, and the decline was not expected to reverse during the fiscal year. However, in the third quarter, the inventory's market price recovery exceeded the market decline that occurred in the first quarter. For interim financial reporting under IFRS, the dollar amount of net inventory should: Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the decrease in the first quarter. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the market price recovery. Decrease in the first quarter by the amount of the market price decline and not be affected in the third quarter. Not be affected in either the first quarter or the third quarter.

A

Brock Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative. The adjusted trial balance at December 31, 20x5 included the following expense and loss accounts: Accounting and legal fees $120,000 Advertising 150,000 Freight-out 80,000 Interest 70,000 Loss on the sale of long-term investments 30,000 Officers' salaries 225,000 Rent for office space 220,000 Sales salaries and commissions 140,000 One-half of the rented premises is occupied by the sales department. Brock's total selling expenses for 20x5 are: $480,000 $400,000 $370,000 $360,000

A

Darinda Corporation has a cash advance from the bank for an overdraft of $5,000 on its checking account. Darinda prepares its financial statements in accordance with IFRS. The cash advances from the bank due to the overdraft should be reported on the statement of cash flows as Operating activities. Investing activities. Financing activities. Other significant noncash activities.

A

During 200X, Papa Company sold inventory, which cost it $18,000, to its subsidiary, Sonnyco, for $27,000. At the end of 200X, Sonnyco had $9,000 of the intercompany goods still on its books. The balance had been resold to unaffiliated customers for $24,000. Which one of the following is the amount of intercompany sales that should be eliminated for 200X consolidated statements? $27,000 $24,000 $18,000 $12,000

A

During 20X1, Teb, Inc. had the following activities related to its financial operations: Payment for the early retirement of long-term bonds payable (carrying value $740,000) $750,000 Distribution in 20X1 of cash dividends declared in 20X0 to preferred Shareholders 62,000 Carrying value of convertible preferred stock in Teb, converted into common shares 120,000 Proceeds from the sale of treasury stock (carrying value at cost, $86,000) 95,000 In Teb's 20X1 Statement of Cash Flows, net cash used in financing activities should be $717,000. $716,000. $597,000. $535,000.

A

Following a business combination accomplished through a legal acquisition, transactions between the affiliated entities can originate with the/a: Parent Company, Subsidiary Company Yes, Yes Yes, No No, Yes No, No

A

Grum Corp., a publicly owned corporation, is subject to the requirements for segment reporting. In its income statement for the year ended December 31, year 1, Grum reported revenues of $50,000,000, operating expenses of $47,000,000, and net income of $3,000,000. Operating expenses include payroll costs of $15,000,000. Grum's combined identifiable assets of all industry segments at December 31, year 1, were $40,000,000. Reported revenues include $30,000,000 of sales to external customers. External revenue reported by operating segments must be at least $22,500,000 $15,000,000 $12,500,000 $37,500,000

A

Hahn Co. prepared financial statements on the cash basis of accounting. The cash basis was modified so that an accrual of income taxes was reported. Are these financial statements in accordance with the modified cash basis of accounting? Yes. No, because the modifications are illogical. No, because there is no substantial support for recording income taxes. No, because the modifications result in financial statements equivalent to those prepared under the accrual basis of accounting.

A

If everything else is held constant, earnings per share is increased by: Purchase of treasury stock. Issuance of new shares of common stock. Payment of a cash dividend to common stockholders. Payment of a cash dividend to both preferred and common stockholders.

A

If the accountant forgets to record salary expense in the Statement of Income, what is the result? Net income is too high. Net income is too low. Retained earnings is too low. Retained earnings is correctly stated, as the omission only affects the Income Statement.

A

In 20x5, a firm decided to discontinue a segment with a book value of $200 million and a fair value of $250 million. The cost to dispose of the segment in 20x6 is estimated to be $10 million. In the 20x5 income statement, what amount of disposal gain or loss will be reported in the discontinued operations section? $ -0- $50 million loss. $50 million gain. $40 million gain.

A

Jackson Company classifies investment in equity securities as an operating activity based on their nature and purpose. In a statement of cash flows in which the operating activities section is prepared under the indirect method, the realized gain on an investment in equity securities should be presented as a(n) Deduction from net income in the amount of the gain. Addition to net income in the amount of the securities' fair value at the beginning of the period. Cash inflow from investing activities. Both a deduction from net income in the amount of the gain and cash inflow from investing activities.

A

Jen Co. had 200,000 shares of common stock and 20,000 shares of 10%, $100 par value cumulative preferred stock. No dividends on common stock were declared during the year. Net income was $2,000,000. What was Jen's basic earnings per share? $9.00 $9.09 $10.00 $11.11

A

Neely Co. disclosed in the notes to its financial statements that a significant number of its unsecured trade account receivables are with companies that operate in the same industry. This disclosure is required to inform financial statement users of the existence of: Concentration of credit risk. Concentration of market risk. Risk of measurement uncertainty. Off-balance sheet risk of accounting loss.

A

On April 30, 20X5, Carty Corp. approved a plan to dispose of a segment of its business. The disposal loss is $480,000, including severance pay of $55,000 and employee relocation costs of $25,000, both of which are directly associated with the decision to dispose of the segment. The firm is a calendar-fiscal year firm, and the segment's operating loss for the entire year (20X5) through the date of disposal was $120,000. Before income taxes, what amount should be reported in Carty's income statement for the year ended December 31, 20X5, as the total income effect (loss) from discontinued operations? $600,000 $480,000 $120,000 $360,000

A

Opto Co. is a publicly traded, consolidated enterprise reporting segment information. Which of the following items is a required enterprise-wide disclosure regarding external customers? The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues The identity of any external customer providing 10% or more of a particular operating segment's revenue The identity of any external customer considered to be "major" by management Information on major customers is not required in segment reporting.

A

P Co. purchased term bonds at a premium on the open market. These bonds represented 20% of the outstanding class of bonds issued at a discount by S Co., P's wholly owned subsidiary. P intends to hold the bonds until maturity. In a consolidated balance sheet, the difference between the bond carrying amounts in the two companies would Decrease retained earnings. Increase retained earnings. Be reported as a deferred debit to be amortized over the remaining life of the bonds. Be reported as a deferred credit to be amortized over the remaining life of the bonds.

A

The SEC is comprised of five commissioners, appointed by the President of the United States, and five divisions. Which of the following divisions is responsible for overseeing compliance with the securities acts? Division of Corporate Finance. Division of Enforcement. Division of Trading and Markets. Division of Investment Management.

A

The following costs were incurred by Griff Co., a manufacturer, during 20x4: Accounting and legal fees $ 25,000 Freight-in 175,000 Freight-out 160,000 Officers' salaries 150,000 Insurance 85,000 Sales representatives' salaries 215,000 What amount of these costs should be reported as general and administrative expenses for 20x4? $260,000 $550,000 $635,000 $810,000

A

The following information pertains to shipments of merchandise from Home Office to Branch during 2007: Home Office's cost of merchandise$160,000 Intracompany billing200,000 Sales by Branch250,000 Unsold merchandise at Branch on December 31, 200720,000 In the combined income statement of Home Office and Branch for the year ended December 31, 2007, what amount of the above transactions should be included in sales? $250,000 $230,000 $200,000 $180,000

A

The if-converted method of computing earnings per share data assumes conversion of convertible securities as of the Beginning of the earliest period reported (or at time of issuance, if later). Beginning of the earliest period reported (regardless of time of issuance). Middle of the earliest period reported (regardless of time of issuance). Ending of the earliest period reported (regardless of time of issuance).

A

U Co. had cash purchases and payments on account during the current year totaling $455,000. U's beginning and ending accounts payable balances for the year were $64,000 and $50,000, respectively. What amount represents U's accrual-basis purchases for the year? $441,000 $469,000 $505,000 $519,000

A

Under IFRS, the statement of cash flows may be presented on the Direct Basis, Indirect Basis Yes, Yes Yes, No No, Yes No, No

A

Weaver Company had 100,000 shares of common stock issued and outstanding at December 31, year 1. On July 1, year 2, Weaver issued a 10% stock dividend. Unexercised stock options to purchase 20,000 shares of common stock (adjusted for the year 2, stock dividend) at $20 per share were outstanding at the beginning and end of year 2. The average market price of Weaver's common stock (which was not affected by the stock dividend) was $25 per share during year 2. Net income for the year ended December 31, year 2 was $550,000. What should be Weaver's year 2, diluted earnings per common share, rounded to the nearest penny? $4.82 $5.00 $5.05 $5.24

A

West Co. had earnings per share of $15.00 for year 1 before considering the effects of any convertible securities. No conversion or exercise of convertible securities occurred during year 1. However, possible conversion of convertible bonds, not considered common stock equivalents, would have reduced earnings per share by $0.75. The effect of possible exercise of common stock options would have increased earnings per share by $0.10. What amount should West report as diluted earnings per share for year 1? $14.25 $14.35 $15.00 $15.10

A

What information should a public company present about revenues from foreign operations? Disclose separately the amount of sales to unaffiliated customers and the amount of intracompany sales between geographical areas. Disclose as a combined amount sales to unaffiliated customers and intracompany sales between geographical areas. Disclose separately the amount of sales to unaffiliated customers but not the amount of intracompany sales between geographical areas. No disclosure of revenues from foreign operations needs to be reported.

A

What is the purpose of reporting comprehensive income? To summarize all changes in equity from nonowner sources To reconcile the difference between net income and cash flows provided from operating activities To provide a consolidation of the income of the firm's segments To provide information for each segment of the business

A

When computing diluted earnings per share, potentially dilutive securities are Recognized only if they are dilutive. Recognized only if they are antidilutive. Recognized whether they are dilutive or antidilutive. Ignored.

A

When should an item that meets the definition of an element be recognized? The item has a cost or value that can be measured reliably. It is highly unlikely that any future economic benefit associated with the item will flow to the entity. Both A and B. Neither A nor B.

A

Which of the following information should be included in Melay, Inc.'s 20x4 summary of significant accounting policies? Property, plant, and equipment is recorded at cost with depreciation computed principally by the straight-line method. During 20x4, the Delay Segment was sold. Business segment 20x4 sales are Alay $1M, Belay $2M, and Celay $3M. Future common share dividends are expected to approximate 60% of earnings

A

Which of the following information that exists at the date of an acquisition will be needed to carry out the consolidating process? I. Book values of a subsidiary's assets and liabilities. II. Fair values of a subsidiary's assets and liabilities. III. Parent's cost of its investment in the subsidiary. I, II, and III. I and II, only. II and III, only. III only.

A

Which of the following is a benefit of the fair value framework with respect to fair value measurement and fair value reporting? Increased Consistency, Increased Comparability Yes, Yes Yes, No No, Yes No, No

A

Which of the following is not an objective of using present value in accounting measurements? To capture the value of an asset or a liability in the context of a particular entity. To estimate fair value. To capture the economic difference between sets of future cash flows. To capture the elements that taken together would comprise a market price if one existed

A

Which of the following items would be recognized in financial statements prepared using an income tax basis of accounting relating to permanent differences? Nontaxable Income, Nondeductible Expenses Yes, Yes Yes, No No, Yes No, No

A

Which of the following reports would a company file to meet the U.S. Securities and Exchange Commission's requirements for unaudited, interim financial statements reviewed by an independent accountant? Form 10-Q Form 10-K 14A Proxy Statement Form S-1

A

Which of the following should be presented with the statement of cash flows in a separate schedule? Conversion of bonds to common stock Purchase of treasury stock Sale of common stock Declaration of cash dividend

A

Which of the following statements, if any, concerning disclosures about fair value measurements in periods subsequent to initial recognition is/are correct? I. The fair value hierarchy level within which fair value measurements fall must be disclosed. II. Quantitative fair value measurement disclosures must be in tabular format. Both I and II are correct. I only. II only. Neither I nor II are correct.

A

Which of the following transactions is included in the operating activities section of a cash flow statement prepared using the indirect method? Gain on sale of plant asset Sale of property, plant and equipment Payment of cash dividend to the shareholders Issuance of common stock to the shareholders

A

Which regulation governs the form and content of financial statement disclosures? Regulation S-X. Sarbanes Oxley. Regulation S-K. Regulation S-Q.

A

Within the context of the qualitative characteristics of accounting information, which of the following is a fundamental qualitative characteristic? Relevance Timeliness Comparability Confirmatory value

A

Assuming constant inventory quantities, which of the following inventory-costing methods will produce a lower inventory turnover ratio in an inflationary economy? FIFO (first in, first out). LIFO (last in, first out). Moving average. Weighted average.

A Inventory turnover ratio is Cost of Goods Sold/Average Inventory. Therefore, to produce the lowest inventory turnover ratio, we need the highest value of ending inventory. The method that produces the highest value of ending inventory in an inflationary economy (prices are rising) is FIFO.

Kell Corp. reported $111,000 of net income for the quarter ended September 30, 20X5. Additional information for the quarter: A $60,000 gain from discontinued operation, realized on April 30, 20X5, was allocated equally to the second, third, and fourth quarters of 20X5. A $16,000 cumulative-effect adjustment (dr.) resulting from a change in inventory valuation method was recognized on August 2, 20X5. The new method was used for the quarter ended September 30. The $111,000 earnings amount does not reflect the cumulative effect. In addition, Kell paid $48,000 on February 1, 20X5, for 20X5 calendar-year property taxes. Of this amount, $12,000 was allocated to the third quarter of 20X5. For the quarter ended September 30, 20X5, Kell should report net income of: $91,000 $75,000 $111,000 $95,000

A $111,000 − $60,000/3.

On January 1, 20X1, Prim, Inc. acquired all the outstanding common shares of Scarp, Inc. for cash equal to the book value of the stock. The carrying amount of Scarp's assets and liabilities approximated their fair values, except that the carrying amount of its building was more than fair value. In preparing Prim's 20X1 consolidated income statement, which of the following adjustments would be made? Depreciation expense would be decreased, and goodwill would be recognized. Depreciation expense would be increased, and goodwill would be recognized. Depreciation expense would be decreased, and no goodwill would be recognized. Depreciation expense would be increased, and no goodwill would be recognized.

A Although the cost of the investment was equal to book values, the cost of the investment was greater than the fair values, because the carrying amount of Scarp's building was more than its fair value. For consolidated statement purposes, the building would be written down to its lower fair value, and the excess of cost over fair values would be assigned to recognize goodwill. Since for consolidated purposes the building has a lower fair value than its carrying value, the depreciation expense taken on the carrying value would be greater than the depreciation expense for consolidated purposes. Thus, depreciation expense would be decreased in the consolidating process, and goodwill would be recognized.

Tam Co. reported the following items in its year-end financial statements: Capital expenditures $1,000,000 Capital lease payments 125,000 Income taxes paid 325,000 Dividends paid 200,000 Net interest payments 220,000 What amount should Tam report as supplemental disclosures in its Statement of Cash Flows prepared using the indirect method? $545,000 $745,000 $1,125,000 $1,870,000

A Although the indirect method does not report operating cash flows in the body of the statement, income taxes paid and interest payments must be disclosed in the notes or supplementary schedule.

Tulip Co. owns 100% of Daisy Co.'s outstanding common stock. Tulip's cost of goods sold for the year totals $600,000, and Daisy's cost of goods sold totals $400,000. During the year, Tulip sold inventory costing $60,000 to Daisy for $100,000. By the end of the year, all transferred inventory was sold to third parties. What amount should be reported as cost of goods sold in the consolidated statement of income? $900,000 $940,000 $960,000 $1,000,000

A CORRECT! The total amount of cost of goods sold (COGS) should equal the cost to parties outside of the consolidated entity. Tulip reported $600,000 and Daisy reported $400,000 of COGS, a total of $1,000,000. However, $100,000 of Daisy's COGS is the amount paid to Tulip and should be eliminated from the consolidated financial statements. Therefore, $900,000 should be reported on the consolidated statement of income.

Bay Manufacturing Co. purchased a three-month U.S. Treasury bill. In preparing Bay's Statement of Cash Flows, this purchase would Have no effect. Be treated as an outflow from financing activities. Be treated as an outflow from investing activities. Be treated as an outflow from lending activities.

A Cash decreased but cash equivalents increased the same amount as a result of this purchase. Thus, there is no net effect on cash and cash equivalents. Therefore, there is nothing to report in the Statement of Cash Flows.

Consolidated financial statements can be prepared for a business combination that was accounted for using which of the following accounting methods? Acquisition Method, Pooling of Interests Method Yes, Yes Yes, No No, Yes No, No

A Consolidated statements can be prepared when a business combination was accounted for using either the acquisition method or the pooling of interests method. Although the pooling of interests method can no longer be used (since June 30, 2001) to account for new business combinations, business combinations carried out under the pooling of interests method prior to that time still require the preparation of consolidated financial statements.

In financial statements prepared on the income-tax basis, how should the nondeductible portion of expenses, such as meals and entertainment, be reported? Included in the expense category in the determination of income. Included in a separate category in the determination of income. Excluded from the determination of income but included in the determination of retained earnings. Excluded from the financial statements.

A Despite the fact that these expenses are not deductible for tax purposes, they are still business expenses and need to be included in the determination of income on the financial statements. In addition, the income tax return requires information on the total meals and entertainment expense in order to calculate the deductible amount.

In Dart Co.'s year two single-step Income Statement, as prepared by Dart's controller, the section titled "Revenues" consisted of the following: Sales $250,000 Purchase discounts 3,000 Recovery of accounts written off 10,000 Total revenues $263,000 In its year two single-step Income Statement, what amount should Dart report as total revenues? $250,000 $253,000 $260,000 $263,000

A Revenues are inflows of economic resources. The purchase discounts would be netted against purchases, not sales. The recovery of accounts written off is not revenue, it is an adjustment to the allowance for uncollectible accounts.

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. Increasing market prices for Belle's inventory may adversely affect the ratio. Belle may need to sell its available-for-sale investments to meet its current obligations. Belle may need to liquidate its inventory to meet its long-term obligations.

A Since the quick ratio includes short-term investments (marketable securities) in the numerator and since short-term investments are reported at fair market value, fluctuating market prices may adversely affect the ratio (if the market price decreases).

The FASB is a(n): Private sector body. Governmental unit. International organization. Group of accounting firms.

A The FASB has no official connection with the U.S. Government although the SEC, an agency of the federal government, can modify or rescind an accounting standard adopted by the FAS

Nolan owns 100% of the capital stock of both Twill Corp. and Webb Corp. Twill purchases merchandise inventory from Webb at 140% of Webb's cost. During 2007, merchandise that cost Webb $40,000 was sold to Twill. Twill sold all of this merchandise to unrelated customers for $81,200 during 2007. In preparing combined financial statements for 2007, Nolan's bookkeeper disregarded the common ownership of Twill and Webb. What amount should be eliminated from cost of goods sold in the combined income statement for 2007? $56,000 $40,000 $24,000 $16,000

A The amount at which Webb sold the inventory to Twill ($40,000 × 1.40 = $56,000) will be the amount of cost of goods sold to Twill and should be eliminated in combining the financial statements of Webb and Twill. The cost of goods to Webb ($40,000) is the cost from an unrelated entity and should be the cost of goods sold for the combined entity. Since both the $40,000 cost of goods to Webb and the $56,000 cost of goods to Twill will be on the combining worksheet, the cost of goods to Twill (from Webb) must be eliminated, leaving only the $40,000 cost from a nonaffiliate.

Parco owns 100% of its subsidiary, Subco, which it acquired at book value. It carries its investment in Subco on its books using the equity method of accounting. At the beginning of its 2009 fiscal year, the investment in Subco account was $552,000. During Year 9, Subco reported the following: Net Income$42,000 Dividends Declared/Paid12,000 There were no other transactions between the firms in Year 9. In preparing its Year 9 fiscal year consolidated statements, which one of the following is the amount of the investment eliminating entry that Parco will make as a result of its ownership of Subco? $552,000 $582,000 $594,000 $606,000

A The amount of an investment eliminating entry is the balance in the investment account as of the beginning of the period being consolidated. In this case, that was $552,000. If the parent uses the equity method to account for its investment in the subsidiary, the entries it makes during the year are reversed so that the investment account has its beginning of the year balance.

Which of the following is not a required component of the 10-K filing? Product market share. Description of the business. Market price of common stock. Executive compensation.

A The market share of the company's product is not a required disclosure. The company may choose to voluntarily present this information, but it is not a required disclosure.

Each of the following statements is correct regarding the Financial Accounting Standards Board except: It develops principles and attributes that allow organizations to understand the necessary elements to ensure a robust system of internal control. It is recognized as authoritative by the United States Securities and Exchange Commission and the American Institute of Certified Public Accountants. It establishes accounting concepts and standards for financial accounting and reporting and provides guidance on implementation of standards. It provides a conceptual framework that helps to increase understanding of, and confidence in, financial information on the part of users of financial report

A The question asks for the exception, or which statement is false. This response is correct because it is false. The FASB does not develop guidance for elements of internal control. The FASB sets accounting standards for U.S. GAAP

During the year, Granite Co. sold a building for $100,000 resulting in a gain of $20,000. The building has a net book value of $80,000 at the time of the sale. Granite uses the indirect method when preparing its statement of cash flows. What is the amount that would be included in Granite's financing activities section because of the building sale? $0 $20,000 $80,000 $100,000

A The sale of a building is not a financing activity, so zero would be included in the financing section. The gain of $20,000 would be a reconciling item in the operating section and the cash received of $100,000 would be in the investing section, but nothing would be reported in the financing section as it relates to this transaction.

Under IFRS for SMEs, which of the following methods, if any, can be used by an investor to account for an investment in another entity (an associate) over which the investor has significant influence? Cost Method, Equity Method Yes, Yes Yes, No No, Yes No, No

A Under IFRS for SMEs, either the cost method or equity method may be used by an investor to account for an investment in another entity (called an "associate" in IFRS for SMEs) over which the investor has significant influence. Under U.S. GAAP, only the equity method may be used.

Under FASB U.S. GAAP, which of the following items would cause net earnings to differ from comprehensive income for an enterprise in an industry not having specialized accounting principles? Unrealized loss on debt investments classified as available-for-sale Unrealized loss on equity investments classified as current Loss on exchange of similar assets. Loss on exchange of dissimilar assets

A Unrealized gains and losses on securities available for sale are among the few items that appear in comprehensive income but not in earnings. Only SAS can be noncurrent. Assuming the current securities are classified as trading securities, then that unrealized loss is included in earnings. This is a change in owners' equity that is not included in earnings and is not the result of a transaction with owners. It is an "other" comprehensive income item. "Other" refers to other than net income, which is the largest component of comprehensive income. The remaining items are recognized in income.

Under IFRS, a parent may exclude a subsidiary from consolidation if all of the following conditions exist, except: It is wholly or partially owned and its other owners do not object to nonconsolidation. It reports only one class of stock in its balance sheet. Its parent prepares consolidated financial statements that comply with IFRS. It does not have any debt or equity instruments publicly traded.

B

Which one of the following circumstances will not impact directly the adjustments, eliminations, or related amounts in the consolidating process? Whether the parent company is a manufacturing firm or a service firm. Whether the parent uses the cost or equity method to carry the investment in a subsidiary on its books. Whether the parent owns 100% or less than 100% of the subsidiary. Whether transactions between the affiliated entities originate with the parent or with a subsidiary.

A Whether the parent company is a manufacturing firm or a service firm (or other type of firm) will not impact directly the adjustments, eliminations, or related amounts in the consolidating process. Whatever the type of firm, the same kinds of adjustments, eliminations, and amounts would have to be made in the consolidating process

During 200X, Papa Company sold inventory, which cost it $18,000, to its subsidiary, Sonnyco, for $27,000. At the end of 200X, Sonnyco had $9,000 of the intercompany goods still on its books. The balance had been resold to unaffiliated customers for $24,000. Which one of the following is the amount of ending inventory that should be eliminated for consolidated statements? $3,000 $6,000 $9,000 $15,000

A With a cost from non-affiliates of $18,000 and an intercompany selling price of $27,000, there is a $9,000 intercompany profit on the inventory transaction. Therefore, $9,000 profit/$27,000 cost to the buying affiliate results in a one third profit in ending inventory. Since the ending inventory at the buying affiliate's cost is $9,000, 1/3 × $9,000 = $3,000 is the intercompany profit in ending inventory and the amount that would have to be eliminated.

Pride, Inc. owns 80% of Simba, Inc.'s outstanding common stock. Simba, in turn, owns 10% of Pride's outstanding common stock. What percentage of the common stock cash dividends declared by the individual companies should be reported as dividends declared in the consolidated financial statements? Dividends declared by Pride, Dividends declared by Simba 90%, 0% 90%, 20% 100%, 0% 100%, 20%

AThis answer is correct because of the reciprocal ownership relationship that exists between the two companies. Pride (the acquirer) owns 80% of Simba (the acquiree), and Simba owns 10% of Pride. When Pride declares a cash dividend, 90% of it is distributed to outside parties and 10% goes to Simba. Because Simba is part of the consolidated entity, its 10% share is eliminated; thus, only 90% of dividends declared by Pride are reported in the consolidated statements. When Simba declares a dividend, 80% is distributed to Pride and 20% to outside parties. Pride's 80% share is eliminated as an intercompany transaction and the remaining 20% is also excluded because, from the acquirer's point of view, acquiree dividends do not represent dividends of the consolidated entity and must be eliminated.

A company had 400,000 shares of common stock issued and outstanding on January 1, year 1, and had the following equity transactions for year 1: Transactions Date Issued 200,000 new shares for cash April 1 Issued new shares as a result of a 3-for-1 stock split July 1 Purchased 300,000 shares treasury stock for cash October 1 What should the company use as the denominator for the calculation of basic earnings per share for year ended December 31, year 1? 1,650,000 1,575,000 1,325,000 1,075,000

B

A company had the following outstanding shares as of January 1, year 2: Preferred stock, $60 par, 4%, cumulative10,000 sharesCommon stock, $3 par50,000 shares On April 1, year 2, the company sold 8,000 shares of previously unissued common stock. No dividends were in arrears on January 1, year 2, and no dividends were declared or paid during year 2. Net income for year 2 totaled $236,000. What amount is basic earnings per share for the year ended December 31, year 2? $3.66 $3.79 $4.07 $4.21

B

A company reported net income available to common stockholders of $2,000,000 for the year ended December 31, year 2. The company had 1,500,000 shares of common stock outstanding as of January 1, year 2, and issued 500,000 additional shares of common stock on May 1, year 2. What amount is the company's basic earnings per share for the year ended December 31, year 2? $1.00 $1.09 $1.20 $1.33

B

A company that is a large accelerated filer must file its Form 10-Q with the United States Securities and Exchange Commission within how many days after the end of the period? 30 days. 40 days. 45 days. 60 days.

B

A firm with a net income of $30,000 and weighted average actual shares outstanding of 15,000 for the year also had the following two securities outstanding the entire year: (1) 2,000 options to purchase one share of stock for $12 per share. The average share price during the year was $20, (2) cumulative convertible preferred stock with an annual dividend commitment of $4,500. Total common shares issued on conversion are 2,900. Compute diluted EPS for this firm. $1.70 $1.60 $1.55 $1.61

B

A private company decided to adopt one of the standards issued by the Private Company Council. What are the requirements upon adoption of the PCC standard? Apply the new standard on a retrospective basis. Apply the new standard on a prospective basis. Assess whether application of the new standard is preferable and apply on a retrospective basis. Assess whether application of the new standard is preferable and apply on a prospective basis.

B

According to the conceptual framework, the usefulness of providing information in financial statements is subject to the constraint of: Consistency. Cost-benefit. Relevance. Representational faithfulness

B

An analysis of Thrift Corp.'s unadjusted prepaid expense account at December 31, Year 4, revealed the following: Thrift had an opening balance of $1,500 for its comprehensive insurance policy. Thrift had paid an annual premium of $3,000 on July 1, Year 3. A $3,200 annual insurance premium payment made July 1, Year 4 was unadjusted. A $2,000 advance rental payment for a warehouse Thrift leased for one year beginning January 1, Year 5 was included. In its December 31, Year 4, Balance Sheet, what amount should Thrift report as prepaid expenses? $5,200 $3,600 $2,000 $1,600

B

An enterprise must disclose all of the following about each reportable segment if the amounts are used by the chief operating decision maker, except Intersegment revenues. Cost of goods sold. Unusual items. Income tax expense.

B

Are the following ratios useful in assessing the liquidity position of a company? Defensive-interval ratio, Return on stockholders' equity Yes, Yes Yes, No No, Yes No, No

B

Balm Co. had 100,000 shares of common stock outstanding as of January 1. The following events occurred during the year: 4/1 Issued 30,000 shares of common stock. 6/1 Issued 36,000 shares of common stock. 7/1 Declared a 5% stock dividend. 9/1 Purchased as treasury stock 35,000 shares of its common stock. Balm used the cost method to account for the treasury stock. What is Balm's weighted average of common stock outstanding at December 31? 131,000 139,008 150,675 162,342

B

CS = 90,000 SHARES CONVERTIBLE STOCK = 10,000 SHARES During year 2, Petrock paid dividends of $1.00 per share on its common stock and $2.40 per share on its preferred stock. The preferred stock is convertible into 20,000 shares of common stock. The net income for the year ended December 31, year 2, was $285,000. Assume that the income tax rate was 30%. What should be the diluted earnings per share for the year ended December 31, year 2, rounded to the nearest penny? $2.53 $2.59 $2.90 $2.61

B

Consolidated financial statements are based on the concept that: In the preparation of financial statements, legal form takes precedence over economic substance. In the preparation of financial statements, economic substance takes precedence over legal form. Financial information should be presented separately for each legal entity. Separate financial statements are more meaningful than consolidated financial statements.

B

During the current year, Comma Co. had outstanding: 25,000 shares of common stock, 8,000 shares of $20 par, 10% cumulative preferred stock, and 3,000 bonds that are $1,000 par and 9% convertible. The bonds were originally issued at par, and each bond was convertible into 30 shares of common stock. During the year, net income was $200,000, no dividends were declared, and the tax rate was 30%. What amount was Comma's basic earnings per share for the current year? $3.38 $7.36 $7.55 $8.00

B

During the last quarter of 20x4, a firm violated U.S. securities laws, and 20x4 revenues were overestimated as a result. Although no lawsuit was brought against the firm before the 20x4 financial statements were released, management knows that in all likelihood the firm will be sued by shareholder groups and a range of possible loss amounts is estimated. Therefore, The firm has no recognized liability for 20x4. The firm should recognize the estimated loss and liability. The firm should only footnote the potential loss. The firm should wait until being sued before considering any kind of disclosure.

B

Even though the SEC delegates the creation of accounting standards to the private sector, the SEC frequently comments on accounting and auditing issues. The main pronouncements published by the SEC are: Federal Reporting Updates (FRU). Financial Reporting Releases (FRR). Staff Auditing Bulletins (SAB). Accounting Principles Opinions (APO).

B

How should unearned rent that has already been paid by tenants for the next eight months of occupancy be reported in a landlord's financial statements? Current asset Current liability Long-term asset Long-term liability

B

In a multi-step Income Statement: Total expenses are subtracted from total revenues. Gross profit (margin) is shown as a separate item. Cost of sales and operating expense are subtracted from total revenues. Other income is added to revenue from sales.

B

In determining earnings per share, interest expense, net of applicable income taxes, on convertible debt which is dilutive should be Added back to net income for basic earnings per share, and ignored for diluted earnings per share. Added back to net income for diluted earnings per share. Deducted from net income for basic earnings per share and ignored for diluted earnings per share. Deducted from net income for both basic earnings per share and diluted earnings per share.

B

Ina Co. had the following beginning and ending balances in its prepaid expense and accrued liabilities accounts for the current year: Beginning, Ending Prepaid expenses 5,000 - 10,000 Accrued liabilities 8,000 - 20,000 Debits to operating expenses totaled $100,000. What amount did Ina pay for operating expenses during the current year? $ 83,000 $ 93,000 $107,000 $117,000

B

Mann, Inc. had 300,000 shares of common stock issued and outstanding at December 31, year 1. On July 1, year 2, an additional 50,000 shares of common stock were issued for cash. Mann also had unexercised stock options to purchase 40,000 shares of common stock at $15 per share outstanding at the beginning and end of year 2. The average market price of Mann's common stock was $20 during year 2. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, year 2? 325,000 335,000 360,000 365,000

B

Marco has an investment that is traded in two different markets, Front market and Side market. Marco has equal access to each market. In order to determine the fair value of its investment, Marco has obtained the following per share information for the securities as of the close of business December 31, the end of its fiscal year: Front Market Selling price $52 Transaction Cost $6 Side Market Selling price $50 Transaction Cost $1 If neither Front market nor Side market is a principal market for the security for Marco, using the market approach which one of the following would be the per share amount used for measuring the investment at fair value? $52/sh $50/sh $49/sh $46/sh

B

On January 2, year 1, Pare Co. purchased 75% of Kidd Co.'s outstanding common stock. On that date, the fair value of the 25% noncontrolling interest was $35,000. During year 1, Kidd had net income of $20,000. During year 1 Pare and Kidd paid cash dividends of $25,000 and $5,000, respectively, to their shareholders. There were no other intercompany transactions. In its December 31, year 1 consolidated balance sheet, what amount should Pare report as dividends paid? $5,000 $25,000 $26,250 $30,000

B

On January 2, year 1, Pare Co. purchased 75% of Kidd Co.'s outstanding common stock. On that date, the fair value of the 25% noncontrolling interest was $35,000. During year 1, Kidd had net income of $20,000. During year 1 Pare and Kidd paid cash dividends of $25,000 and $5,000, respectively, to their shareholders. There were no other intercompany transactions. In its December 31, year 1 consolidated statement of retained earnings, what amount should Pare report as dividends paid? $ 5,000 $25,000 $26,250 $30,000

B

On July 1, 20X3, Roxy Co. obtained fire insurance for a three-year period at an annual premium of $72,000 payable on July 1 of each year. The first premium payment was made July 1, 20X3. On October 1, 20X3, Roxy paid $24,000 for real estate taxes to cover the period ending September 30, 20X4. This prepayment was made to obtain a discount. In its December 31, 20X3, Balance Sheet, Roxy should report prepaid expenses of: $60,000. $54,000. $48,000. $36,000.

B

On June 30, 20X5, Mill Corp. incurred a $100,000 net loss from disposal of a business segment. Also, on June 30, 20X5, Mill paid $40,000 for property taxes assessed for the calendar year 20X5. What amount of the foregoing items should be included in the determination of Mill's net income or loss for the six-month interim period ended June 30, 20X5? $140,000 $120,000 $90,000 $70,000

B

On October 31, year 1, a company with a calendar year end paid $90,000 for services that will be performed evenly over a six-month period from November 1, year 1, through April 30, year 2. The company expensed the $90,000 cash payment in October, year 1, to its services expense general ledger account. The company did not record any additional journal entries in year 1 related to the payment. What is the adjusting journal entry that the company should record to properly report the prepayment in its year 1 financial statements? Debit prepaid services and credit services expense for $30,000. Debit prepaid services and credit services expense for $60,000. Debit services expense and credit prepaid services for $30,000. Debit services expense and credit prepaid services for $60,000.

B

Palmyra Co. has net income of $11,000, a positive $1,000 net cumulative effect of a change in accounting principle, a $3,000 unrealized loss on available-for-sale debt securities, a positive $2,000 foreign currency translation adjustment, and a $6,000 increase in its common stock. What amount is Palmyra's comprehensive income? $4,000 $10,000 $11,000 $17,000

B

Stent Co. had total assets of $760,000, capital stock of $150,000, and retained earnings of $215,000. What was Stent's debt-to-equity ratio? 2.63 1.08 0.52 0.48

B

Sun Co. is a wholly owned subsidiary of Star Co. Both companies have separate general ledgers and prepare separate financial statements. Sun requires stand-alone financial statements. Which of the following statements is correct? Consolidated financial statements should be prepared for both Star and Sun. Consolidated financial statements should only be prepared by Star and not by Sun. After consolidation, the accounts of both Star and Sun should be changed to reflect the consolidated totals for future ease in reporting. After consolidation, the accounts of both Star and Sun should be combined together into one general ledger accounting system for future ease in reporting.

B

The SEC enforces the corporate registration requirements of the Securities Act of 1933 as one of its principal objectives. These requirements are intended to provide information that enables the SEC to: Evaluate the financial merits of the corporation offering the securities to the public. Ensure that investors are provided with adequate information on which to base investment decisions. Guarantee that the facts contained in the registration statement are accurate. Assure investors of the accuracy of the financial statements.

B

The choice of methods that a parent uses on its books to account for its investment in a subsidiary will affect the: Consolidating Process, Consolidated Financial Statements Yes, Yes Yes, No No, Yes No, No

B

The following data pertain to Cowl, Inc., for the year ended December 31, 2004: Net sales $ 600,000 Net income 150,000 Total assets, January 1, 2004 2,000,000 Total assets, December 31, 2004 3,000,000 What was Cowl's rate of return on assets for 2004? 5% 6% 20% 24%

B

The following financial ratios and calculations were based on information from Kohl Co.'s financial statements for the current year. Accounts receivable turnover Ten times during the year Total assets turnover Two times during the year Average receivables during the year $200,000 What were Kohl's average total assets for the year? $2,000,000 $1,000,000 $400,000 $200,000

B

The objectives of financial reporting stem from which of the following sources? The need for conservatism. The needs of the external users of the information. Reporting on management's consistency. Reporting on management's stewardship

B

The premium on a three-year insurance policy expiring on December 31, 20X4 was paid in total on January 2, 20X2. If the company has a six-month operating cycle, then on December 31, 20X2, the prepaid insurance reported as a current asset would be for: six months. 12 months. 18 months. 24 months.

B

The premium on a three-year insurance policy expiring on December 31, year 3, was paid in total on January 1, year 1. The original payment was initially debited to a prepaid asset account. The appropriate journal entry has been recorded on December 31, year 1. The balance in the prepaid asset account on December 31, year 1, should be Zero. The same as it would have been if the original payment had been debited initially to an expense account. The same as the original payment. Higher than if the original payment had been debited initially to an expense account.

B

The summary of significant accounting policies should disclose the: Pro forma effect of retroactive application of an accounting change. Basis of profit recognition on long-term construction contracts. Adequacy of pension plan assets in relation to vested benefits. Future minimum lease payments in the aggregate and for each of the five succeeding fiscal years.

B

Welnet Inc. was sued in October of 20x8 for breach of contract. Based on the advice of counsel, Welnet recognized a $2 million estimated lawsuit loss and liability at December 31, 20x8. The lawsuit was settled in February, 20x9 in the amount of $2.2 million, before Welnet's 20x8 financial statements were available to be issued. What is the appropriate accounting procedure for the 20x8 statements? Welnet recognizes $0.2 million of lawsuit loss in its 20x9 statements. Welnet recognizes the entire $2.2 million loss in its 20x8 statements. Welnet reports the $0.2 million amount as a retrospective adjustment to its 20x8 statements. Welnet recognizes the entire $2.2 million loss in its 20x9 statements.

B

When the fair value of an asset is determined as the amount that currently would be required to replace the service capacity of the asset, which one of the following valuation techniques has been used? Income approach Cost approach Expense approach Market approach

B

Where in its financial statements should a company disclose information about its concentration of credit risks? No disclosure is required. The notes to the financial statements. Supplementary information to the financial statements. Management's report to shareholders.

B

Which of the following conditions or events would least likely raise substantial doubt about an entity's ability to continue as a going concern? Default on a loan agreement. Flood damage to an insured warehouse. Loss of a significant customer or supplier. Negative cash flows from operating activities.

B

Which of the following describes IFRS's requirements regarding interim financial statements? Interim financial statements are required. If interim financial statements are presented, four basic financial statements are required. If interim financial statements are presented, at least a balance sheet and profit and loss are required. Interim financial statements must be presented with the most recent annual financial statements.

B

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 statement of position. A proposed accounting standards update. A proposed accounting research bulletin. A proposed staff accounting bulletin.

B

Which of the following is a component of other comprehensive income? Minimum accrual of vacation pay Currency-translation adjustments Changes in market value of inventory Unrealized gain or loss on equity securities carried at fair valuE

B

Which of the following is not a source of risk and uncertainty for which disclosures are required by GAAP? Nature of a firm's operations Effect of changes in government regulations Use of estimates in financial statements Vulnerability to significant concentrations

B

Which of the following is required by Regulation S-K to be included in the Management's Discussion and Analysis (MD&A) that is part of the 10-K? The Balance Sheet. Discussion of risks and uncertainties. Accounting fees and services. Executive compensation.

B

Which of the following is the annual report that is filed with the United States Securities and Exchange Commission (SEC)? Form 8-K. Form 10-K. Form S-1. Form 10-Q.

B

Which of the following statements concerning inputs used in ascertaining fair value is/are correct? I. Only observable inputs can be used. II. Inputs that incorporate the entity's assumptions may be used. I only. II only. Both I and II. Neither I nor II.

B

Which of the following statements is true regarding the fair value option for valuing financial assets and liabilities? The fair value option must be applied to all instruments in that classification. The fair value option must be applied to all interests in the same entity. The fair value option cannot be revoked until the next balance sheet date. The fair value option can be applied to a portion of a financial instrument

B

Which of the following statements, if any, concerning the preparation of consolidated financial statements is/are correct? I. The consolidating process is carried out on the books of the parent entity. II. The consolidated financial statements report two or more legal entities as though they are a single economic entity. I only. II only. Both I and II. Neither I nor II.

B

Which of the following transactions qualify as a discontinued operation? Disposal of a group of assets that are fully depreciated and have no remaining useful life. Approved sale of a segment that represents a strategic shift in the entities operations. Phasing out of a production line. Changes related to technological improvements.

B

Which of the following types of entities are required to report on business segments? Nonpublic business enterprises Publicly traded enterprises Not-for-profit enterprises Joint ventures

B

Which one of the following will occur on consolidated financial statements if an intercompany inventory transaction is not eliminated? An understatement of sales. An overstatement of sales. An understatement of purchases. An overstatement of accounts receivable.

B

In reference to proposed accounting standards, the term "negative economic consequences" includes: The cost of complying with GAAP. The inability to raise capital. The cost of government intervention when not in compliance with GAAP. The failure of internal control systems.

B A proposed standard may cause firm earnings to fall, for example when it is adopted. Firms will be concerned that lower earnings may make it more difficult to sell stock or to secure loans. As a result, negative economic consequences become a focal point for arguments against the proposed standard.

Which one of the following levels of voting ownership is normally assumed to convey significant influence over an investee? 0% - 10%. 20% - 50%. 50% - 100%. 100%.

B Between 20% and 50% voting ownership of an investee normally is assumed to give the investor significant influence over the investee. Ownership of 20% to 50% of the voting stock of an investee may not give the investor significant influence over the investee if additional special circumstances exist, but normally, it does.

Enterprise-wide disclosures include disclosures about: Geographic areas, Allocated costs Yes, Yes Yes, No No, Yes No, No

B Enterprise-wide disclosures about products and services, geographic areas, and major customers are required for all enterprises.

Strauch Co. has one class of common stock outstanding and no other securities that are potentially convertible into common stock. During Year 1, 100,000 shares of common stock were outstanding. In Year 2, two distributions of additional common shares occurred: On April 1, 20,000 shares of treasury stock were sold, and on July 1, a 2-for-1 stock split was issued.Net income was $410,000 in Year 2 and $350,000 in Year 1. What amounts should Strauch report as earnings per share in its Year 2 and Year 1 comparative income statements? Year 2, Year 1 $1.78, $3.50 $1.78, $1.75 $2.34, $1.75 $2.34, $3.50

B For EPS purposes, stock dividends and splits are retroactively applied to all periods presented, and to all share changes within the year of the split or dividend. This procedure ensures comparability.

Penn, Inc., a manufacturing company, owns 75% of the common stock of Sell, Inc., an investment company. Sell owns 60% of the common stock of Vane, Inc., an insurance company. In Penn's consolidated financial statements, should consolidation accounting or equity method accounting be used for Sell and Vane? Consolidation used for Sell and equity method used for Vane. Consolidation used for both Sell and Vane. Equity method used for Sell and consolidation used for Vane. Equity method used for both Sell and Vane.

B However, because Sell owns 60% of Vane, it controls Vane and would need to consolidate Vane. Because Penn owns 75% of Sell, it controls Vane and would need to consolidate Sell, which consolidated Vane. Thus, all three would be consolidated, making this response correct.

A subsidiary was acquired for cash in a business combination on January 1, year 1. The consideration given exceeded the fair value of identifiable net assets. The acquired company owned equipment with a market value in excess of the carrying amount as of the date of combination. A consolidated balance sheet prepared on December 31, year 1, would Report the unamortized portion of the excess of the market value over the carrying amount of the equipment as part of goodwill. Report the unamortized portion of the excess of the market value over the carrying amount of the equipment as part of plant and equipment. Report the excess of the market value over the carrying amount of the equipment as part of plant and equipment. Not report the excess of the market value over the carrying amount of the equipment because it would be expensed in the year of the acquisition.

B In general, all assets and liabilities (including equipment) should be reported at market value. The excess of the equipment's market value over its carrying amount is allocated to the equipment and amortized over the equipment's useful life. The unamortized portion of the excess of the market value over the carrying amount of the equipment is then reported as part of plant and equipment. Only the excess of the acquisition cost over the market value of the net identifiable assets acquired is reported as goodwill. The excess of the market value over the carrying amount of the equipment is capitalized and subsequently amortized over the equipment's useful life, not expensed on the date of the acquisition.

Which of the following qualifies as a reportable operating segment? Corporate headquarters, which oversees $1 billion in sales for the entire company North American segment, whose assets are 12% of the company's assets of all segments, and management reports to the chief operating officer South American segment, whose results of operations are reported directly to the chief operating officer, and has 5% of the company's assets, 9% of revenues, and 8% of the profits Eastern Europe segment, which reports its results directly to the manager of the European division, and has 20% of the company's assets, 12% of revenues, and 11% of profits

B Only the North American segment meets at least one of the three quantitative criteria at the 10% level (revenue, income, assets) AND reports to the chief operating decision maker of the firm as a whole.

Successful use of leverage is evidenced by a Rate of return on investment greater than the rate of return on stockholders' equity. Rate of return on investment greater than the cost of debt. Rate of return on sales greater than the rate of return on stockholders' equity. Rate of return on sales greater than the cost of debt.

B Successful leverage is practiced by a company when it can borrow at a particular rate of interest, and then use the proceeds to earn a higher rate of return on stockholder's equity (contributed capital investment). As long as business opportunities present themselves under these conditions, prudent borrowing is recommended.

How are amendments incorporated into the FASB Accounting Standards Codification? By issuing an exposure draft By releasing an accounting standards update By producing a discussion paper By publishing a statement of financial accounting standards

B The Accounting Standards Updates (ASU) are the final version of the new accounting guidance. ASUs are how the Codification is amended

The Private Company Council has issued modified accounting for private companies for what aspect of Goodwill? Goodwill impairment testing. Goodwill amortization. Goodwill measurement. Goodwill reporting.

B The PCC allows private companies to amortize goodwill over a period to not exceed 10 years

Which of the following will best protect investors against fraudulent financial reporting by corporations? Criminal statutes. The requirement that financial statements be audited. The fact that all firms must report the same way. The integrity of management.

B The audit of the financial statements by independent third parties provides assurance that the financial statements are fairly presented in all material respects. As part of the audit, the auditor should perform risk assessment procedures to identify and assess the risk of material misstatement due to error or fraud, which includes understanding the corporation's internal control over financial reporting.The auditors do not prepare the information, nor do they have employment ties with either the reporting firm or the intended audience of the financial statements. However, even the audit of financial statements is not a perfect protection as indicated by the frequency of fraud and audit failure.

A public entity sells steel for use in construction. One of its customer's accounts for 43% of sales, and another customer accounts for 40% of sales. What should the entity disclose in its annual financial statements about these two customers? The payment terms of accounts receivable due from each of the two customers. The amount of the entity's revenue from each of the two customers. The names of the two customers. The financial condition of the two customers.

B The entity must disclose the amount of revenues received from a single customer that total 10% or more of total revenues.

Which of the following information should be disclosed in the summary of significant accounting policies? Refinancing of debt subsequent to the balance sheet date. Guarantees of indebtedness of others. Criteria for determining which investments are treated as cash equivalents. Adequacy of pension plan assets relative to vested benefits.

C

A subsidiary, acquired for cash in a business combination, owned equipment with a market value in excess of book value as of the date of combination. A consolidated balance sheet prepared immediately after the acquisition would treat this excess as: Goodwill Plant and Equipment Retained Earnings Deferred Credits

B The excess of (fair) market value over book value of equipment would be recognized by writing up plant and equipment to fair value on the consolidated balance sheet.

Largo Corporation prepares its financial statements in accordance with IFRS. Which of the following items is required disclosure on the income statement? Revenues, cost of goods sold, and advertising expense. Finance costs, tax expense, and income. Operating expenses, nonoperating expenses, and extraordinary items. Gross profit, operating profits, and net profits

B The income statement may be prepared by presenting expenses either by nature or by function. The minimum required disclosures on the income statement include income, finance costs, share of profits and losses using the equity method, tax expense, discontinued operations, profit or loss, noncontrolling interests in profits and losses, and the net profit (loss) attributable to equity holders of the parent.

Yellow Co. received a large worker's compensation claim of $90,000 in the third quarter for an injury occurring in the third quarter. How should Yellow account for the transaction in its interim financial report? Recognize $30,000 for each of the first three quarters. Recognize $90,000 in the third quarter. Recognize $22,500 ratably over the four quarters of the year. Disclose the $90,000 in the third quarter and recognize it at year end.

B The worker's compensation claim should be reported in the period incurred, the third quarter. This is a transaction that occurred in the third quarter and does not impact other quarters.

The term chief operating decision maker Refers to a manager with a specific title. Refers to a function. Must be disclosed by title in the financial reporting for segments. Must be described in the disclosures for the financial reporting for segments

B This answer is correct. ASC Topic 280 does not require disclosures about the term chief operating decision maker, and specifically states that this term identifies a function, not necessarily a manager with a specific title.

A 70%-owned subsidiary company declares and pays a cash dividend. What effect does the dividend have on the retained earnings and noncontrolling interest equity reported on the consolidated balance sheet? No effect on either retained earnings or noncontrolling interest. No effect on retained earnings and a decrease in noncontrolling interest. Decrease in both retained earnings and noncontrolling interest. A decrease in retained earnings and no effect on noncontrolling interest.

B This answer is correct. Retained earnings reported on the consolidated balance sheet would equal only the parent's retained earnings balance at year-end. Thus, even though declaration and payment of a dividend by the subsidiary would decrease the subsidiary's retained earnings, there would be no effect on consolidated retained earnings. Noncontrolling interest equity is increased by the noncontrolling interests percentage of income of the subsidiary, and decreased by the noncontrolling interest's share of the dividend of subsidiary. This balance would include subsidiary retained earnings which would have been decreased by the declaration and payment of dividends. Thus, noncontrolling interest would also have decreased and this answer is correct.

For interim financial reporting, a company's income tax provision for the second quarter of 20X4 should be determined using the: Effective tax rate expected to be applicable for the full year of 2004 as estimated at the end of the first quarter of 20X4. Effective tax rate expected to be applicable for the full year of 2004 as estimated at the end of the second quarter of 20X4. Effective tax rate expected to be applicable for the second quarter of 20X4. Statutory tax rate for 20X4.

B To ensure the most current information, an estimate of the applicable tax rate for the entire year is made at the end of each quarter (the tax rate estimate includes federal, local, state and foreign taxes). Also at the end of each quarter, the tax for the entire portion of the year elapsed is computed, including previous quarters of that year. Finally, the previous quarters' tax is subtracted, yielding the income tax for the latest quarter.

lenda Corporation prepares its financial statements in accordance with IFRS. Glenda must report finance costs on the statement of cash flows In operating activities. Either in operating activities or financing activities. In financing activities. In investing activities or financing activities.

B Under IFRS finance costs (interest expense) may be reported in either the operating or financing section of the statement of cash flows. However, once it is disclosed in a particular section, it must be reported on a consistent basis.

Zest Co. owns 100% of Cinn, Inc. On January 2, 1999, Zest sold equipment with an original cost of $80,000 and a carrying amount of $48,000 to Cinn for $72,000. Zest had been depreciating the equipment over a five-year period using straight-line depreciation with no residual value. Cinn is using straight-line depreciation over three years with no residual value. In Zest's December 31, 1999, consolidating worksheet, by what amount should depreciation expense be decreased? $0 $8,000 $16,000 $24,000

B Zest depreciation is 16,000 (80/5) Cinn depreciation is 24,000 (72/3) Difference is 8,000

Kelly Corp. barters with Ace Corporation for goods that are similar in nature and value. The value of the goods was $1,000. The cost of the goods was $400. If Kelly uses IFRS to prepare financial statements, what amount should Kelly recognize as income? $1,000 $0 $400 $600

B if a barter transaction is for goods that are similar in nature and value, then no income or expense is recognized.

ASC 270, Interim Reporting, concluded that interim financial reporting should be viewed primarily in which of the following ways? As useful only if activity is spread evenly throughout the year. As if the interim period were an annual accounting period. As reporting for an integral part of an annual period. As reporting under a comprehensive basis of accounting other than GAAP.

C

A company is required to file quarterly financial statements with the United States Securities and Exchange Commission on Form 10-Q. The company operates in an industry that is not subject to seasonal fluctuations that could have a significant impact on its financial condition. In addition to the most recent quarter-end, for which of the following periods is the company required to present balance sheets on Form 10-Q? The end of the corresponding fiscal quarter of the preceding fiscal year. The end of the preceding fiscal year and the end of the corresponding fiscal quarter of the preceding fiscal years. The end of the preceding fiscal year. The end of the preceding fiscal year and the end of the prior two fiscal years.

C

A company reports the following information as of December 31: Sales revenue $800,000 Cost of goods sold 600,000 Operating expenses 90,000 Unrealized holding gain on the available-for-sale debt securities, net of tax 30,000 What amount should the company report as comprehensive income as of December 31? $30,000 $110,000 $140,000 $200,000

C

A company that wishes to disclose information about the effect of changing prices should report this information in The body of the financial statements. The notes to the financial statements. Supplementary information to the financial statements. Management's report to shareholders.

C

Which of the following is not an aspect of a firm's operations necessitating disclosure of risks and uncertainties? Principal markets Products and services Pension plan Geographical location

C

Adel Inc. uses the allowance method of accounting for bad debts. During 20x5, the financial condition of Botel Co., one of Adel's major customers, deteriorated rapidly due to accounting and other scandals. In February 20x6 it has become clear that Botel will go out of business, although the firm has not declared or been forced into formal bankruptcy proceedings. Adel's receivable from Botel, 9 months old as of the issuance of Adel's 20x5 financial statements, is 20 times the amount of bad debt expense otherwise reported by Adel. How should the Botel situation be reflected in Adel's 20x5 financial statements? No recognition other than that implied by the bad debt expense already recorded by Adel is necessary. The footnotes should describe the potential loss, but no separate loss or expense for the Botel receivable should be recognized. A loss in the amount of the Botel receivable should be recognized along with appropriate footnote disclosure. Increase bad debt expense by a percentage of the Botel receivable amount because bankruptcy has not been declared as of the issuance of the financial statements.

C

Alco, Inc., a small manufacturing company, prepares its financial statements using its income tax basis of accounting. In December, 2012, it determined that an error had been made in the amount of rent expense reported in its 2011 tax return. How should Alco account for the amount of the rental expense error in its 2012 financial statements? As an adjustment to 2012 rental income. As an income tax expense in 2012. As a prior period adjustment. No reporting in 2012 required.

C

Alphaco has two subsidiaries, Betaco and Charlieco, both of which are consolidated by Alphaco. Alphaco and Betaco have elected to measure their respective debt investments held-to-maturity at fair value. Charlieco measures its debt investments held-to-maturity using amortized cost. In its consolidated financial statements, for which companies, if any, may Alphaco elect to report debt investment held-to-maturity at fair value? Alphaco only Alphaco and Betaco only Alphaco, Betaco, and Charlieco None of the companies; all debt investments held-to-maturity must be measured and reported at amortized cost

C

Burns Corp. had the following items: Sales revenue $45,000 Loss on early extinguishment of bonds 36,000 Realized gain on sale of available-for-sale debt securities 28,000 Unrealized holding loss on available-for-sale debt securities 17,000 Loss on write-down of inventory 3,100 Which of the following amounts would the statement of comprehensive income report as other comprehensive income or loss? $11,000 other comprehensive income $16,900 other comprehensive income $17,000 other comprehensive loss $28,100 other comprehensive loss

C

Compared to its 20X4 cash-basis net income, Potoma Co.'s 20X4 accrual-basis net income increased when it: Declared a cash dividend in 20X3 that it paid in 20X4. Wrote off more accounts receivable balances than it reported as uncollectible accounts expense in 2004. Had lower accrued expenses on December 31, 20X4, than on January 1, 2004. Sold used equipment for cash at a gain in 20X4.

C

Consolidated financial statements are typically prepared when one company has a controlling financial interest in another unless: The subsidiary is a finance company. The fiscal year-ends of the two companies are more than three months apart. The subsidiary is in bankruptcy. The two companies are in unrelated industries, such as manufacturing and real estate.

C

Crossroads Co. chooses to report a financial asset at its fair value. The asset trades in two different markets; however, neither market is the principal market for the financial asset. In the first market, sales proceeds are $76, which is net of transaction costs of $6. In the second market, sales proceeds are $80, which is net of transaction costs of $1. What amount should Crossroads report as the fair value of the asset? $76 $80 $81 $82

C

During 2008, Popco acquired 80% of the voting stock of Sonco in a legal acquisition. Which one of the following is least likely to be a type of intercompany balance that results from transactions between Popco and Sonco during 2009? Receivable. Inventory. Goodwill. Revenue.

C

During the period when an enterprise is under the direction of a particular management, its financial statements will directly provide information about: Both enterprise performance and management performance. Management performance but does not directly provide information about enterprise performance. Enterprise performance but not directly provide information about management performance. Neither enterprise performance nor management performance.

C

Each of the following would be considered a Level 2 observable input that could be used to determine an asset or liability's fair value, except Quoted prices for identical assets and liabilities in markets that are not active. Quoted prices for similar assets and liabilities in markets that are active. Internally generated cash flow projections for a related asset or liability. Interest rates that are observable at commonly quoted intervals.

C

Faucet Company has 2,500,000 shares of common stock outstanding on December 31, year 1. An additional 500,000 shares of common stock were issued on April 1, year 2, and 250,000 more on July 1, year 2. On October 1, year 2, Faucet issued 5,000, $1,000 face value, 7% convertible bonds. Each bond is convertible into 40 shares of common stock. No bonds were converted into common stock in year 2. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively, for the year ended December 31, year 2? 2,875,000 and 2,975,000. 2,875,000 and 3,075,000. 3,000,000 and 3,050,000. 3,000,000 and 3,200,000.

C

For the purpose of consolidating financial interests, a majority voting interest is deemed to be 50% of the directly or indirectly owned outstanding voting shares of another entity. 50% of the directly or indirectly owned outstanding voting shares and at least 50% of the directly or indirectly owned outstanding nonvoting shares of another entity. Greater than 50% of the directly or indirectly owned outstanding voting shares of another. Greater than 50% of the directly or indirectly owned outstanding voting shares and at least 50% of the directly or indirectly owned outstanding nonvoting shares of another entity.

C

For which of the following circumstances is the guidance for determining fair value as provided in the fair value framework presented in ASC 820, "Fair Value Measurement," least likely to apply? Determination of the fair value to be assigned to land acquired in a business combination Determination of the fair value of a bond liability for applying the fair value option Determination of the fair value of legal services received in exchange for an entity's common stock Determination of the fair value of a production facility when assessing whether or not an impairment loss has occurred

C

How are discontinued operations that occur at midyear initially reported? Disclosed only in the notes to the year-end financial statements. Included in net income and disclosed in the notes to the year-end financial statements. Included in net income and disclosed in the notes to interim financial statements. Disclosed only in the notes to interim financial statements.

C

In a period of rising general price levels, Pollard Corp. discloses income on a current cost basis in accordance with ASC Topic 255, Changing Prices. Compared to historical cost income from continuing operations, which of the following conditions increases Pollard's current cost income from continuing operations? Current cost of equipment is greater than historical cost. Current cost of land is greater than historical cost. Current cost of cost of goods sold is less than historical cost. Ending net monetary assets are less than beginning net monetary assets.

C

In determining the fair value of a nonfinancial asset, assessing the highest and best use of the asset must take into account all but which one of the following? What is physically possible What is financially feasible How the reporting entity would use the asset What is legally permissible

C

In its cash flow statement for the current year, Ness Co. reported cash paid for interest of $70,000. Ness did not capitalize any interest during the current year. Changes occurred in several balance sheet accounts as follows: Accrued interest payable $17,000 decrease Prepaid interest 23,000 decrease What amount of interest expense for the current year will Ness report in its income statement? $ 30,000 $ 64,000 $ 76,000 $110,000

C

In which one of the following cases is the subsidiary most likely to be reported as an unconsolidated subsidiary? The subsidiary is in an industry unrelated to the parent. The subsidiary has a fiscal year-end that is one month different from the parent's year-end. The subsidiary is in legal bankruptcy. The subsidiary has a controlling interest in another entity

C

In which one of the following circumstances is the entry price to acquire an asset least likely to represent fair value of the asset? An investment security is acquired for cash through a public market. A machine is acquired from a wholesaler by giving an interest-bearing note. A significant amount of raw material inventory is acquired for cash from a bankrupt supplier. Land and a building are acquired in the open market by giving a mortgage to a lender.

C

Lew Co. sold 200,000 corrugated boxes for $2 each. Lew's cost was $1 per unit. The sales agreement gave the customer the right to return up to 60% of the boxes within the first six months, provided an appropriate reason was given.It was immediately determined, with appropriate reason, that 5% of the boxes would be returned. Lew absorbed an additional $10,000 to process the returns and expects to resell the boxes. What amount should Lew report as operating profit from this transaction? $170,000 $179,500 $180,000 $200,000

C

New England Co. had net cash provided by operating activities of $351,000; net cash used by investing activities of $420,000; and cash provided by financing activities of $250,000. New England's cash balance was $27,000 on January 1. During the year, there was a sale of land that resulted in a gain of $25,000, and proceeds of $40,000 were received from the sale. What was New England's cash balance at the end of the year? $ 27,000 $ 40,000 $208,000 $248,000

C

Nolan owns 100% of the capital stock of both Twill Corp. and Webb Corp. Twill purchases merchandise inventory from Webb at 140% of Webb's cost. During Year 4, merchandise that cost Webb $40,000 was sold to Twill. Twill sold all of this merchandise to unrelated customers for $81,200 during Year 4. In preparing combined financial statements for Year 4, Nolan's bookkeeper disregarded the common ownership of Twill and Webb. By what amount was unadjusted revenue overstated in the combined income statement for Year 4? $16,000 $40,000 $56,000 $81,200

C

On January 1 of the current year, a corporation had 10,000 shares of common stock outstanding. On March 30, the corporation issued 4,000 more shares of stock. There were no other changes in the number of shares outstanding. What is the weighted average number of shares that should be used to calculate basic earnings per share? 10,000 12,000 13,000 14,000

C

On January 1, year 1, Palm, Inc. purchased 80% of the stock of Stone Corp. for $4,000,000 cash. Prior to the acquisition, Stone had 100,000 shares of stock outstanding. On the date of acquisition, Stone's stock had a fair value of $52 per share. During the year Stone reported $280,000 in net income and paid dividends of $50,000. What is the balance in the noncontrolling interest account on Palm's balance sheet on December 31, year 1? $1,000,000 $1,040,000 $1,086,000 $1,096,000

C

On January 1, year 2, Neel Corp. issued 400,000 additional shares of $10 par value common stock in exchange for all of Pym Corp.'s common stock. Immediately before this business combination, Neel's stockholders' equity was $16,000,000 and Pym's stockholders' equity was $8,000,000. On January 1, year 2, the fair value of Neel's common stock was $20 per share, and the fair value of Pym's net assets was $8,000,000. Neel's net income for the year ended December 31, year 2, exclusive of any consideration of Pym, was $2,500,000. Pym's net income for the year ended December 31, year 2, was $600,000. During year 2 Neel paid dividends of $900,000. Neel had no business transactions with Pym in year 2. Assuming that this business combination is appropriately accounted for as a business acquisition, consolidated stockholders' equity at December 31, year 2, should be $17,600,000 $18,200,000 $26,200,000 $27,100,000

C

On January 2, year 1, Pare Co. purchased 75% of Kidd Co.'s outstanding common stock. On that date, the fair value of the 25% noncontrolling interest was $35,000. During year 1, Kidd had net income of $20,000. During year 1 Pare and Kidd paid cash dividends of $25,000 and $5,000, respectively, to their shareholders. There were no other intercompany transactions. In Pare's December 31, year 1 consolidated balance sheet, what amount should be reported as noncontrolling interest in net assets? $30,000 $35,000 $38,750 $40,000

C

On March 15, 20X4, Krol Co. paid property taxes of $90,000 on its office building for the calendar year 20X4. On April 1, 20X4, Krol paid $150,000 for unanticipated repairs to its office equipment. The repairs will benefit operations for the remainder of 20X4. What is the total amount of these expenses that Krol should include in its quarterly income statement for the three months ended June 30, 20X4? $172,500 $97,500 $72,500 $37,500

C

On March 15, Year 2, a calendar-year company issued its Year 1 financial statements. On March 1, Year 2, a fire destroyed the company's only manufacturing plant. Which of the following statements is correct regarding the treatment of the loss in the December 31, Year 1, financial statements? The loss should not be recognized or disclosed in the Year 1 financial statements. The loss should be recognized in the Year 1 financial statements. The loss should be disclosed and not recognized in the Year 1 financial statements. Any probable insurance recoveries should be recognized in the Year 1 financial statements.

C

On March 21, year 2, a company with a calendar year end issued its year 1 financial statements. On February 28, year 2, the company's only manufacturing plant was severely damaged by a storm and had to be shut down. Total property losses were $10 million and determined to be material. The amount of business disruption losses is unknown. How should the impact of the storm be reflected in the company's year 1 financial statements? Provide NO information related to the storm losses in the financial statements until losses and expenses become fully known. Accrue and disclose the property loss with NO accrual or disclosure of the business disruption loss. Do NOT accrue the property loss or the business disruption loss, but disclose them in the notes to the financial statements. Accrue and disclose the property loss and additional business disruption losses in the financial statements.

C

On November 30, 2004, Parlor, Inc. purchased for cash at $15 per share all 250,000 shares of the outstanding common stock of Shaw Co. On November 30, 2004, Shaw's balance sheet showed a carrying amount of net assets of $3,000,000. On that date, the fair value of Shaw's property, plant, and equipment exceeded its carrying amount by $400,000. In its November 30, 2004, consolidated balance sheet, what amount should Parlor report as goodwill? $750,000 $400,000 $350,000 $0

C

Sanni Co. had $150,000 in cash-basis pretax income for the year. At the current year end, accounts receivable decreased by $20,000 and accounts payable increased by $16,000 from their previous year-end balances. Compared to the accrual-basis method of accounting, Sanni's cash-basis pretax income is: Higher by $4,000. Lower by $4,000. Higher by $36,000. Lower by $36,000.

C

The following information pertains to Ash Co., which prepares its statement of cash flows using the indirect method: Interest payable at beginning of year: $15,000 Interest expense during the year: $20,000 Interest payable at end of year: $5,000 What amount of interest should Ash report as a supplemental disclosure of cash flow information? $10,000 $20,000 $30,000 $35,000

C

The following information pertains to Ceil Co., a company whose common stock trades in a public market: Shares outstanding at 1/1 100,000 Stock dividend at 3/31 24,000 Stock issuance at 6/30 5,000 What is the weighted average number of shares Ceil should use to calculate its basic earnings per share for the year ended December 31? 120,500 123,000 126,500 129,000

C

The primary purpose of a statement of cash flows is to provide relevant information about Differences between net income and associated cash receipts and disbursements. An enterprise's ability to generate future positive net cash flows. The cash receipts and cash disbursements of an enterprise during a period. An enterprise's ability to meet cash operating needs.

C

The treasury stock method of entering stock options into the calculation of diluted EPS: Is used only for dilutive treasury stock. Computes the increase in common shares outstanding from assumed exercise of options to be the number of shares under option. Is called the treasury stock method because the proceeds from assumed exercise are assumed to be used to purchase treasury stock. Assumes the treasury shares are purchased at year-end.

C

Under U.S. GAAP, the disclosure requirements when fair value measurement is used are differentiated by which of the following classifications? Between assets measured at fair value and liabilities measured at fair value Between fair value measurements that result in gains and fair value measurements that result in losses Between items measured at fair value on a recurring basis and items measured at fair value on a nonrecurring basis Between items for which fair value measurement is required and items for which fair value measurement is elected

C

Under what conditions is disclosure about risks and uncertainty pertaining to concentrations required? If the firm has any of the concentrations for which disclosures are required by GAAP If events affecting the firm negatively have already occurred, with respect to a concentration If the firm is vulnerable to a severe impact in the near term because of a concentration, and it is at least reasonably possible that the impact will occur If the Board of Directors has taken a direct action serving to reduce risk and uncertainty within a given concentration

C

Water Co. owns 80% of the outstanding common stock of Fire Co. On December 31, 2005, Fire sold equipment to Water at a price in excess of Fire's carrying amount but less than its original cost. On a consolidated balance sheet on December 31, 2005, the carrying amount of the equipment should be reported at: Water's original cost. Fire's original cost. Water's original cost less Fire's recorded gain. Water's original cost less 80% of Fire's recorded gain.

C

What is the conceptual framework intended to establish? Generally Accepted Accounting Principles in financial reporting by business enterprises. The meaning of "present fairly in accordance with Generally Accepted Accounting Principles." The objectives and concepts for use in developing standards of financial accounting and reporting. The hierarchy of sources of Generally Accepted Accounting Principles.

C

When a parent company uses the cost method on its books to carry its investment in a subsidiary, which one of the following will be recorded by the parent on its books? Parent's share of subsidiary's net income/net loss. Parent's amortization of goodwill resulting from excess investment cost over fair value of subsidiary's net assets. Parent's share of subsidiary's cash dividends declared. Parent's depreciation of excess investment cost over book values of subsidiary's net assets.

C

Which of the following information should be disclosed as supplemental information in the statement of cash flows? Cash flow per share, Conversion of debt to equity Yes, Yes Yes, No No, Yes No, No

C

Which of the following items is included in the Financing Activities section of the Statement of Cash Flows? Cash effects of transactions involving making and collecting loans Cash effects of acquiring and disposing of investments and property, plant, and equipment Cash effects of transactions obtaining resources from owners and providing them with a return on their investment Cash effects of transactions that enter into the determination of net income

C

Which of the following sets of financial statements generally cannot be prepared directly from the adjusted trial balance? Income Statement, Balance Sheet, Statement of Cash Flows Income Statement, Statement of Cash Flows Statement of Cash Flows Balance Sheet and Statement of Cash Flows

C

Which of the following statements concerning the determination of fair value at the date an asset is acquired or a liability is assumed is/are correct? I. The exit price is conceptually different than the entry price. II. The entry price and the exit price may be different amounts at the date an asset or liability is initially recognized. I only. II only. Both I and II. Neither I nor II.

C

Which of the following statements, if any, concerning the modified cash basis of accounting is/are correct? I. The modified cash basis of accounting employs some elements of accrual accounting. II. To be acceptable, modifications to the cash basis of accounting must have substantial support in practice. I only. II only. Both I and II. Neither I nor II.

C

Which one of the following can be measured at fair value at the option of the reporting entity? A liability under a lease contract A debt investment classified as held-for-trading with readily determinable fair value A debt investment classified as held-to-maturity A liability under a pension plan

C

Which one of the following financial items may not be measured and reported at fair value at the election of an entity? Accounts receivable Investment in debt securities to be held to maturity Investment in a subsidiary that is to be consolidated Accounts payable

C

Which one of the following is a characteristic of accounting under IFRS for SMEs? Interest incurred during construction must be capitalized. Earnings per share must be provided in the financial statements. Goodwill must be amortized. The LIFO cost flow assumption can be used in valuing inventories.

C

Which one of the following is not a purpose of the fair value framework as set forth in ASC 820, "Fair Value Measurement"? Provide a uniform definition of "fair value" for GAAP purposes. Provide a framework for determining fair value for GAAP purposes. Establish new measurement requirements for financial instruments. Establish expanded disclosures about fair value when it is used.

C

Which one of the following is not a required disclosure in annual financial reports for an entity that uses fair value measurement? The level of the fair value hierarchy within which fair value measurements fall The valuation techniques used to measure fair value Combined disclosures about fair value measurements required by all pronouncements A discussion of any change from the prior period in valuation techniques used to measure fair value

C

Which one of the following is not an other comprehensive basis of accounting? Pure cash basis. Modified cash basis. Pure accrual basis. Income tax basis.

C

Which one of the following is not necessarily a post-combination characteristic of a legal acquisition? The combining firms remain separate legal entities. A parent-subsidiary relationship exists. The acquiring firm owns 100% of the voting stock of the acquired firm. The combining firms are under common economic control.

C

Which one of the following kinds of accounts is least likely to be eliminated through an eliminating entry on the consolidating worksheet? Receivables. Investment. Goodwill. Payables.

C

Which one of the following would be of concern in preparing consolidated financial statements at the end of the operating period following a business combination that would not be a concern in preparing financial statements immediately following a combination? Whether or not there are intercompany accounts receivable/accounts payable. Whether or not goodwill resulted from the business combination. Whether the parent carries its investment in the subsidiary using the cost method or the equity method. Whether or not there is a noncontrolling interest in the subsidiary.

C

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 current-year dividends and the dividends in arrears on the cumulative preferred stock should be added to the net loss, but the dividends on the noncumulative preferred stock should NOT be included in the calculation. The dividends on the noncumulative preferred stock should be added to the net loss, but the current-year dividends and the dividends in arrears on the cumulative preferred stock should NOT be included in the calculation. The dividends on the noncumulative preferred stock and the current-year dividends on the cumulative preferred stock should be added to the net loss. Neither the dividends on the noncumulative preferred stock nor the current-year dividends and the dividends in arrears on cumulative preferred stock should be included in the calculation.

C

Wright Company sells for cash major household appliance service contracts agreeing to service customers' appliances for a 1-year, 2-year, or 3-year period. Cash receipts from contracts are credited to unearned service contract revenues and this account had a balance of $1,440,000 at December 31, year 1, before year-end adjustment. Service contract costs are charged to service contract expense as incurred and this account had a balance of $360,000 at December 31, year 1. Outstanding service contracts at December 31, year 1, expire as follows: During year 2 $300,000 During year 3 450,000 During year 4 200,000 What amount should Wright report as unearned service contract revenues at December 31, year 1? $ 490,000 $ 712,500 $ 950,000 $1,080,000

C

Choose the correct statement about GAAP. GAAP are laws. Only publicly traded companies must comply with GAAP. It is a violation of SEC regulations for publicly traded companies to depart from GAAP. Firms may not restate financial statements previously issued.

C The SEC requires that all registrants provide financial statements that comply with GAAP and will sanction firms and individuals involved in financial reporting that does not comply with GAAP

Bard Co., a calendar-year corporation, reported income before income tax expense of $10,000 and income tax expense of $1,500 in its interim income statement for the first quarter of the year. Bard had income before income tax expense of $20,000 for the second quarter and an estimated effective annual rate of 25%. What amount should Bard report as income tax expense in its interim income statement for the second quarter? $3,500 $5,000 $6,000 $7,500

C ($10,000 + $20,000)(.25) − $1,500 = $6,000.

A company's activities for year two included the following: Gross sales $3,600,000 Cost of goods sold 1,200,000 Selling and administrative expense 500,000 Adjustment for a prior-year understatement of amortization expense 59,000 Sales returns 34,000 Gain on sale of stock portfolio securities 8,000 Gain on disposal of a discontinued business segment 4,000 Unrealized gain on AFS debt portfolio securities 2,000 The company has a 30% effective income tax rate. What is the company's net income for year two? $1,267,700 $1,273,300 $1,314,600 $1,316,000

C All items are included in net income except the prior year adjustment to amortization expense and the unrealized gain on the AFS debt portfolio securities. The pre-tax income is $1,878,000 and after 30% taxes the net income is $1,314,600.

An intercompany depreciable fixed asset transaction resulted in an intercompany gain. Which one of the following is least likely to be reflected in the consolidated financial statements prepared at the end of the period in which the intercompany transaction occurred? Consolidated income will be less than the sum of the incomes of the separate companies being combined. Consolidated assets will be less than the sum of the assets of the separate companies being combined. Consolidated depreciation expense will be more than the sum depreciation expense of the separate companies being combined. Consolidated accumulated depreciation will be more than the sum of accumulated depreciation of the separate companies being combined.

C Consolidated depreciation expense will be less, not more, than the sum of depreciation expense of the separate companies being combined. Because the intercompany transaction resulted in a gain, the buying affiliate will have the asset on its books with the intercompany gain included in its carrying value and will depreciate that value on its books. For consolidated purposes, that depreciation on the intercompany gain will be eliminated, resulting in less depreciation expense than the sum of the depreciation expense of the separate companies.

Blythe Corp. is a defendant in a lawsuit. Blythe's attorneys believe it is reasonably possible that the suit will require Blythe to pay a substantial amount. What is the proper financial statement treatment for this contingency? Accrued and disclosed. Accrued but NOT disclosed. Disclosed but NOT accrued. No disclosure or accrual.

C Contingencies are accrued and recognized as a liability when the occurrence of the liability is probable and the amount can be reasonably estimated. This lawsuit is reasonably possible, but not probable. Reasonably possible is typically a 50/50 chance of occurrence, where probable is a higher likelihood of occurrence. This answer is correct because this lawsuit would be disclosed, but not accrued.

Which of the following statements about the differences between U.S. GAAP and IFRS in determining whether or not to consolidate an entity is/are correct? IFRS guidelines for determining the eligibility of an entity to be consolidated are more principles-based than are U.S. GAAP guidelines. In assessing an investor's level of ownership of an investee, both U.S. GAAP and IFRS consider outstanding securities that are exercisable or convertible into voting shares. Under both U.S. GAAP and IFRS, there are circumstances under which a majority-owned subsidiary does not have to be consolidated. I only. I and II only. I and III only. I, II, and III.

C Correct! Statement I and Statement III are correct; Statement II is not correct. Under IFRS, the guidelines for determining whether or not to consolidate an entity are more principles-based than are U.S. GAAP (Statement I). Under IFRS, the basic guideline is that an entity must be consolidated when another entity has the ability to govern the financial and operating policies of the entity to obtain benefits from it. U.S. GAAP has a specific two-tiered assessment process that must be followed to determine whether or not an entity should be consolidated. Under both U.S. GAAP and IFRS, there are circumstances under which a majority-owned subsidiary does not have to be consolidated (Statement III). U.S. GAAP does not require consolidation of a majority-owned subsidiary when the investor cannot exercise control of the subsidiary. IFRS does not require consolidation of a majority-owned subsidiary under certain conditions when the parent will be consolidated with a higher-level parent.

On January 31, 2004, Pack, Inc. split its common stock 2 for 1, and Young, Inc. issued a 5% stock dividend. Both companies issued their December 31, 2003, financial statements on March 1, 2004. Should Pack's 2003 earnings per share (EPS) take into consideration the stock split, and should Young's 2003 EPS take into consideration the stock dividend? Pack's 2003 EPS, Young's 2003 EPS Yes, No No, No Yes, Yes No, Yes

C EPS is used primarily as an input to predictions of future earnings. The stock split and dividend cause the number of shares outstanding to increase, and thus affect the future earnings prospects on a per share basis. These events should be included in the computation of EPS even though they did not occur as of the balance sheet date. Financial statement users view the information as if it were current as of the date of publication.

Pine Company acquired goods for resale from its manufacturing subsidiary, Strawco, at Strawco's cost to manufacture of $12,000. Pine subsequently resold the goods to a nonaffiliate for $18,000. Which one of the following is the amount of the elimination that will be needed as a result of the intercompany inventory transaction? $-0- $6,000 $12,000 $18,000

C Even though the intercompany inventory sale from Strawco to Pine was at no profit or loss (at Strawco's cost to manufacture), the intercompany sale and purchase, nevertheless, must be eliminated. Otherwise, consolidated sales and purchases (cost of goods sold) will be overstated. Therefore, the elimination related to the intercompany inventory transaction will be for $12,000, the cost of the sale from Strawco to Pine.

The FASB has maintained that: The interests of the reporting firms will be a primary consideration when developing new GAAP. GAAP should have little or no cost of compliance. New GAAP should be neutral and not favor any particular reporting objective. GAAP should result in the most conservative possible financial statements.

C One of the objectives of the FASB in setting standards is to develop rules that are unbiased. FASB statements generally do not reflect any reporting bias. For example, the requirement to expense all research and development costs is uniform across all firms and does not favor one firm over another.

A subsidiary, acquired for cash in a business combination, owned inventories with a market value different from the book value as of the date of combination. A consolidated balance sheet prepared immediately after the acquisition would include this difference as part of: Deferred Credits Goodwill Inventories Retained Earnings

C The difference between (fair) market value and book value of inventories would be recognized by adjusting inventories to fair value on the consolidated balance sheet.

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? $68,800 $70,200 $71,200 $73,200

C The general rule to convert from cash to accrual is to add decreases in liabilities and increases in assets, and subtract increases in liabilities and decreases in assets.Cash basis net income $70,000Add: Increase in accounts payable $2,000Subtract: Increase in unearned revenue $200Subtract: Increase in wages payable $100Add: Increase in prepaid rent $300Subtract: Decrease in accounts receivable $800Accrual basis net income $71,200

Bard Co. owned several subsidiaries at December 31. The following table shows each subsidiary's total liabilities, excluding intercompany transactions, and percentage of stock owned by Bard: Subsidiary Total liabilities % owned Brock Co. $4,000,000 70% Harlson Co. 2,000,000 48% Porter Co. 7,000,000 80% Nortin Co. 5,000,000 100% What amount should Bard include as liabilities in its consolidated balance sheet at December 31? $ 5,000,000 $12,000,000 $16,000,000 $18,000,000

C This answer is correct. Bard would consolidate 100% of the liabilities for which controlling interest exists (absent additional information, ownership of more than 50% of the outstanding voting stock). Therefore, Bard would consolidate Brock Co., Porter Co., and Norton, Co. ($4,000,000 + $7,000,000 + $5,000,000 = $16,000,000).

When a set of financial statements is prepared using the cash basis or the modified cash basis of accounting, which one of the following is least likely to be an appropriate financial statement title? Statement of Cash Receipts and Cash Disbursements. Balance Sheet. Income Statement. Statement of Financial Position.

C When the cash basis or the modified cash basis of accounting is used, the title Income Statement, which is appropriate when the accrual basis of accounting is used, should be replaced by the title Statement of Cash Receipts and Cash Disbursements. This helps distinguish that the statement is not based on full accrual accounting consistent with U.S. GAAP.

How should a gain from the sale of used equipment for cash be reported in a Statement of Cash Flows using the indirect method? In investment activities as a reduction of the cash inflow from the sale In investment activities as a cash outflow In operating activities as a deduction from income In operating activities as an addition to income

C deduction because on the income statement it was added to net income, so not it must be deducted.

Metro, Inc. reported net income of $150,000 for 20X5. Changes occurred in several Balance Sheet accounts during 20X5 as follows: Investment in Videogold, Inc. stock, 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 20X5 cash flow statement, the reported net cash provided by operating activities should be $150,400. $148,300. $144,900. $142,800.

C he increase in the equity method investment is Metro's share of the undistributed earnings of Videogold. This amount increases net income but causes no cash inflow and is subtracted. The amortization of bond premiums reduces interest expense relative to cash interest paid. Income, therefore, understates the cash outflow for interest. The subtraction of the premium adjusts income for the difference. The increase in the deferred tax liability increases income tax expense without any cash outflow. Therefore, the increase is added to income.

Payne Co. prepares its Statement of Cash Flows using the indirect method. Payne's unamortized bond discount account decreased by $25,000 during the year. How should Payne report the change in the unamortized bond discount in its Statement of Cash Flows? As a financing cash inflow As a financing cash outflow As an addition to net income in the operating activities section As a subtraction from net income in the operating activities section

C the requirement is to identify how the change in unamortized bond discount should be presented. The total amount of interest expense is subtracted to arrive at net income. However, only the coupon payment is paid during the current year. The $25,000 of the discount amortized during the period represents interest expensed but not yet paid. Therefore, A is corrent because the decrease in the discount account should be added to net income in the operating activities section of the statement of cash flows.

On December 30, 2004, Solomon Co. had a current ratio greater than 1:1 and a quick ratio less than 1:1. On December 31, 2004, all cash was used to reduce accounts payable. Did the current ratio and quick ratio increase or decrease?

Current --> increase Quick --> decrease

U.S. Securities and Exchange Commission (SEC) regulations for the financial statement presentation and disclosure requirements of SEC filings can be found in Regulation S-B. Regulation S-K. Regulation S-T. Regulation S-X.

D

On December 30, 2005, Vida Co. had cash of $200,000, a current ratio of 1.5:1 and a quick ratio of .5:1. On December 31, 2005, all cash was used to reduce accounts payable. How did these cash payments affect the ratios? Current ratio Quick ratio

Current ratio --> increased Quick ratio --> decreased

A company buys debt securities for $2,000 on December 31, Year 1. The debt securities are classified as available-for-sale. The company does not elect to use the fair value option for reporting its available-for-sale debt securities. The fair value of the securities increases to $7,000 on December 31, Year 2, and to $9,500 on December 31, year 3. On December 31, Year 3, the company sells the securities at fair value. Assume the company has a tax rate of 30%. What is the amount of the reclassification adjustment to other comprehensive income on December 31, Year 3? $ 7,500 credit $ 7,500 debit $ 5,250 credit $ 5,250 debit

D

A company owns a financial asset that has no principal market. The financial asset is actively traded in four markets and the company has the ability to transact in all four of these markets. The following are the quoted prices for the financial asset in each of the four markets: Market Quoted Price A $20,000 B 25,000 C 30,000 D 35,000 What is the fair value of the financial asset? $20,000 $25,000 $27,500 $35,000

D

A company owns land and a building that houses its manufacturing operations. When the company purchased the manufacturing facility 10 years ago, the purchase price allocated to the land account was $120,000. The manufacturing facility is located in an area that was once the site of many factories. The owners of many of the neighboring factories have recently sold their facilities to residential real estate developers. The company's land is also suitable for residential development. The estimated current value of the land as part of the manufacturing facility is $150,000. The estimated current value of the land as an undeveloped investment is $130,000, and the current value of the land as part of a residential development would be $180,000. What is the fair value of the land? $120,000 $130,000 $150,000 $180,000

D

A company performing its long-lived asset impairment testing is reviewing the fair value of equipment. Each of the following valuation techniques may be appropriate for measuring the fair value of the equipment except the Market approach. Income approach. Cost approach. Net realizable value approach.

D

A company's year-end comparative statement of financial position reflects the following changes from the prior year: cash increased by $40,000, total liabilities increased by $32,000, and all other assets decreased by $65,000. Which of the following statements is correct regarding the current-year change in the company's stockholders' equity? It increased by $25,000. It increased by $105,000. It decreased by $32,000. It decreased by $57,000.

D

A multi-step Income Statement is prepared: By all corporations. By a company whose main activity is sales. Because it is required by FASB. Because it is more meaningful presentation of revenue and expenses.

D

A planned volume variance in the first quarter, which is expected to be absorbed by the end of the fiscal period, ordinarily should be deferred at the end of the first quarter if it is: Favorable, Unfavorable Yes, No No, Yes No, No Yes, Yes

D

According to the IASB Framework, the financial statement element that is defined as decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants, is Revenue. Income. Loss. Expense.

D

According to the conceptual framework, the objectives of financial reporting for business enterprises are based on: The need for conservatism. Reporting on management's stewardship. Generally Accepted Accounting Principles. The needs of the users of the information.

D

An entity's current balance sheet is dated December 31, 20x7 and the 20x7 statements are issued Feb. 6, 20x8. Which of the following is a recognized subsequent event for 20x7? Issuance, in January 20x8, of debentures, which double the entity's total liabilities. Issuance, in March 20x8, of common stock, which doubles the entity's contributed capital. $4 million payment on February 2 in settlement of a lawsuit brought by a competitor for patent infringement occurring early January 20x8. Write-off of a customer receivable due to customer bankruptcy caused by conditions beginning in 20x7.

D

An inventory loss from a permanent market decline of $360,000 occurred in May Year 1. Cox Co. appropriately recorded this loss in May Year 1 after its March 31, Year 1, quarterly report was issued. What amount of inventory loss should be reported in Cox's quarterly income statement for the three months ended June 30, Year 1? $0 $90,000 $180,000 $360,000

D

Bell, Inc. owns 60% of Dart Corporation's common stock. On December 31, 20X6, Dart is indebted to Bell for a $200,000 cash advance. In preparing the consolidated balance sheet on that date, what amount of the advance should be eliminated? $-0- $80,000 $120,000 $200,000

D

Due to a decline in market price in the second quarter, Petal Co. incurred an inventory loss. The market price is expected to return to previous levels by the end of the year. At the end of the year, the decline had not reversed. When should the loss be reported in Petal's interim income statements? Ratably over the second, third, and fourth quarters. Ratably over the third and fourth quarters. In the second quarter only. In the fourth quarter only.

D

Gar, Inc.'s trial balance reflected the following liability account balances at December 31, year 1: Accounts payable $19,000 Bonds payable, due year 2 34,000 Deferred income tax liability 4,000 Discount on bonds payable 2,000 Dividends payable on 2/15/Y2 5,000 Income tax payable 9,000 Notes payable, due 1/19/Y3 6,000 The deferred income tax liability is based on temporary differences stemming from different depreciation methods for financial reporting and income taxes. In Gar's December 31, year 1 balance sheet, the current liabilities total was $71,000 $69,000 $67,000 $65,000

D

Glass Co. had net income of $70,000 during the year. Depreciation expense was $10,000. The following information is available: Accounts receivable increase $20,000 Equipment gain on sale (sale price $100,000) 10,000 Nontrade notes payable increase 50,000 Equipment Purchases 40,000 Accounts payable 30,000 increase What amount should Glass report as net cash provided by investing activities in its statement of cash flows for the year? $(40,000) $10,000 $50,000 $60,000

D

Grum Corp., a publicly owned corporation, is subject to the requirements for segment reporting. In its income statement for the year ending December 31, 2004, Grum reported revenues of $50,000,000, operating expenses of $47,000,000, and net income of $3,000,000. Operating expenses include payroll costs of $15,000,000. Grum's combined identifiable assets of all industry segments at December 31, 2004 were $40,000,000. In its 2004 financial statements, Grum should disclose major customer data if sales to any single customer amount to at least $300,000. $1,500,000. $4,000,000. $5,000,000.

D

If a company that is not a public business entity wants to apply the simplified hedge accounting approach to a cash flow hedge of a variable rate borrowing with a receive-variable, pay-fixed interest rate swap, which of the following is a condition that must be met? The notional value of the swap is greater than the principal of the hedged borrowing. The fair value of the interest rate swap executed has a value equivalent to the hedged borrowing. The variable interest rate on the interest rate swap is capped at 250 basis points above the cap on the hedged borrowing. The variable interest rate on the interest rate swap and the variable interest rate on the hedged borrowing are linked to the same index.

D

In October 20x2, a large U.S. aircraft manufacturer signed a significant contract with the government of France to build 50 jumbo jets, with delivery scheduled for 20x5. In February 20x3, the firm signed a second contract with the government of Germany to build 35 jumbo jets. The 20x2 financial statements were issued in early March 20x3. The firm did not begin work on either contract before the issuance of the 20x2 statements. Which contract(s) should be recognized in the accounts for the 20x2 financial statements? Contract 1 (French), Contract 2 (German) Yes, No No, Yes Yes, Yes No, No

D

In a statement of cash flows, which of the following items is reported as a cash outflow from financing activities? I. Payments to retire mortgage notes II. Interest payments on mortgage notes III. Dividend payments I, II, and III. II and III. I only. I and III.

D

In determining the fair value of an asset or liability, would the fair value of the asset or the fair value of the liability be determined using an entry price or an exit price? Asset Fair Value, Liability Fair Value Entry, Entry Entry, Exit Exit, Entry Exit, Exit

D

In general, an enterprise preparing interim financial statements should: Defer recognition of seasonal revenue. Disregard permanent decreases in the market value of its inventory. Allocate revenues and expenses evenly over the quarters, regardless of when they actually occurred. Use the same accounting principles followed in preparing its latest annual financial statements.

D

In preparing its cash flow statement for the year ended December 31, 20X4, Reve Co. collected the following data: Gain on the sale of equipment$ (6,000) Proceeds from the sale of equipment 10,000 Purchase of A.S., Inc. bonds (par value $200,000)(180,000) Amortization of bond discounts 2,000 Dividends declared (45,000) Dividends paid(38,000) Proceeds from the sale of treasury stock (carrying amount $65,000) 75,000 In its December 31, 20X4, Statement of Cash Flows, what amount should Reve report as net cash provided by financing activities? $20,000 $27,000 $30,000 $37,000

D

On December 31, 2008, Pico acquired $250,000 par value of the outstanding $1,000,000 bonds of its subsidiary, Sico, in the market for $200,000. On that date, Sico had a $100,000 premium on its total bond liability. Which one of the following is the amount of premium or discount on Pico's investment in Sico's bonds? $250,000 premium $100,000 premium $50,000 premium $50,000 discount

D

On January 1, year 1, Ritt Corp. purchased 80% of Shaw Corp.'s $10 par common stock for $975,000. On this date, the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net) with fair values of $100,000 in excess of their carrying amount. The fair value of the noncontrolling interest in Shaw on January 1, year 1, was $250,000. For the year ended December 31, year 1, Shaw had net income of $190,000 and paid cash dividends totaling $125,000. In the January 1, year 1 consolidated balance sheet, goodwill should be reported at $0 $ 75,000 $ 95,000 $125,000

D

On January 1, year 1, Ritt Corp. purchased 80% of Shaw Corp.'s $10 par common stock for $975,000. On this date, the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts. The fair value of the noncontrolling interest in Shaw on January 1, year 1, was $250,000. This value included the acquisition premium attributed to any goodwill. For the year ended December 31, year 1, Shaw had net income of $190,000 and paid cash dividends totaling $125,000. In the December 31, year 1 consolidated balance sheet, noncontrolling interest should be reported at $200,000 $213,000 $233,000 $263,000

D

On January 1, year 2, Ritt Corp. acquired 50,000 shares of Shaw Corp. stock which represented 80% of Shaw's $10 par common stock for $19.50 per share. On the date of acquisition, the fair value of the 12,500 shares representing the noncontrolling interest in Shaw was $18 per share. On this date, the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts. For the year ended December 31, year 2, Shaw had net income of $190,000 and paid cash dividends totaling $125,000. In the December 31, year 2, consolidated balance sheet, noncontrolling interest should be reported at $200,000 $225,000 $233,000 $238,000

D

On January 16, Tree Co. paid $60,000 in property taxes on its factory for the current calendar year. On April 2, Tree paid $240,000 for unanticipated major repairs to its factory equipment. The repairs will benefit operations for the remainder of the calendar year. What amount of these expenses should Tree include in its third quarter interim financial statements for the three months ended September 30? $0 $15,000 $75,000 $95,000

D

On May 15, Year 1, Munn, Inc. approved a plan to dispose of a segment of its business. It is expected that the sale will occur on February 1, Year 2, at a selling price of $500,000. The segment reported $195,000 in operating losses for Year 1. The segment is expected to lose $30,000 from operations in Year 2. The carrying amount of the segment at the date of sale was expected to be $850,000. Before income taxes, what amount should Munn report as a loss from discontinued operations in its Year 1 income statement? $575,000 $225,000 $195,000 $545,000

D

Ott Company acquired rights to a patent from Grey under a licensing agreement that required an advance royalty payment when the agreement was signed. Ott remits royalties earned and due under the agreement on October 31 each year. Additionally, on the same date, Ott pays, in advance, estimated royalties for the next year. Ott adjusts prepaid royalties at year-end. Information for the year ended December 31, year 2, is as follows: Date Amount 01/01/Y2 Prepaid royalties $ 65,000 10/31/Y2 Royalty payment (charged to royalty expense) 110,000 12/31/Y2 Year-end credit adjustment to royalty expense 25,000 In its December 31, year 2 balance sheet, Ott should report prepaid royalties of $25,000 $40,000 $85,000 $90,000

D

Parco has the following three subsidiaries: Finco, Serco, and Euroco. Finco is a 100% owned finance subsidiary. Serco is an 80% owned service company. Euroco is a 100% owned foreign subsidiary that conducts operations in Western Europe. Which one of the following is the most likely number of entities, including Parco, to be included in Parco's consolidated financial statements? One. Two. Three. Four.

D

Reporting accounts receivable at net realizable value is a departure from the accounting principle of: Conservatism. Fair value. Market value. Historical cost.

D

The Statement of Changes in Equity shows an increase in the common stock account of $2,000 and an increase in the additional paid-in capital account of $10,000. If the common stock has a par value of $2, and the only transactions affecting these accounts were these issues of common stock, what was the average issue price of the common stock during the year? $2 $5 $10 $12

D

The Statement of Changes in Equity: Is one of the required financial statements under U.S. GAAP Includes accounts such as the retained earnings and common share accounts but not other comprehensive income items. Is used only if a corporation frequently issues common shares Reconciles all of the beginning and ending balances in the equity accounts.

D

The following information pertains to Eagle Co.'s Year 5 sales: Cash Sales Gross $ 80,000 Returns and allowances 4,000 Credit sales Gross 120,000 Discounts 6,000 On January 1, Year 5, customers owed Eagle $40,000. On December 31, Year 5, customers owed Eagle $30,000. Eagle uses the direct write-off method for bad debts. No bad debts were recorded in Year 5. Under the cash basis of accounting, what amount of net revenue should Eagle report for Year 5? $76,000 $170,000 $190,000 $200,000

D

The summary of significant accounting policies should disclose the: Maturity dates of noncurrent debts. Terms for convertible debt to be exchanged for common stock. Concentration of credit risk of all financial instruments by geographical region. Criteria for determining which investments are treated as cash equivalents.

D

U.S. GAAP includes a very large set of accounting guidance. Choose the correct statement. The FASB Accounting Standards Codification includes guidance about items that are not under the purview of the Generally Accepted Accounting Principles, such as the income tax basis of accounting. Authoritative guidance from FASB Statements adopted before the FASB Accounting Standards Codification does not appear in the Codification. There is an implied hierarchy within the FASB Accounting Standards Codification, with FASB Statements assuming the top level. International accounting standards are not included in the FASB Accounting Standards Codification.

D

Under East Co.'s accounting system, all paid insurance premiums are debited to prepaid insurance. For interim financial reports, East makes monthly estimated charges to insurance expense with credits to prepaid insurance.Additional information for the year ended December 31, 20X5, is as follows: Prepaid insurance at December 31, 20X4 $105,000 Charges to insurance expense during 20X5 (including a year-end adjustment of 17,500) 437,500 Prepaid insurance at December 31, 20X5 122,500 What was the total amount of insurance premiums paid by East during 20X5? $322,500 $420,000 $437,500 $455,000

D

Under Gerber Company's accounting system, all insurance premiums paid are debited to prepaid insurance. For interim financial statements, Gerber makes monthly estimated charges to insurance expense with an offset to prepaid insurance. Additional information for the year ended December 31, year 2, is as follows: Prepaid insurance at December 31, year 1 $150,000 Charges to insurance expense during year 2 (including a year-end adjustment of $25,000) 625,000 Unexpired insurance premiums at December 31, year 2 175,000 What was the total amount of insurance premiums paid by Gerber during year 2? $475,000 $600,000 $625,000 $650,000

D

What information about estimates is not required to be disclosed? That estimates involve assumptions about future events Possible material financial statement effects of estimate changes That estimates are required in preparing financial statements The old and new estimate in quantitative terms

D

What is the primary objective of financial reporting? To provide economic information that is comprehensible to all users. To provide management with an accurate evaluation of their financial performance. To provide forecasts for future cash flows and financial performance. To provide information that is useful for economic decision making.

D

When a full set of general-purpose financial statements are presented, comprehensive income and its components should: Appear below income from continuing operations in the Income Statement. Be reported net of related income tax effect, in total and individually. Appear in a supplemental schedule in the notes to the financial statements. Be presented as part of the Income Statement or as a separate financial statement following the Income Statement.

D

When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of: Reliability. Materiality. Legal entity. Economic entity.

D

Which of the following characteristics of accounting information primarily allows users of financial statements to generate predictions about an organization? Reliability. Timeliness. Neutrality. Relevance

D

Which of the following characteristics relates to both accounting relevance and faithful representation? Free from error. Completeness. Neutrality. Comparability.

D

Which of the following defines equity as it relates to a business entity? Net revenues Total revenues less total expenses Total assets and liabilities Total assets less total liabilities

D

Which of the following is a true statement regarding disclosures for subsequent events? Recognize a loss for all recognized and unrecognized subsequent events in the current year financial statements. Recognize a gain or loss for any recognized subsequent event in the current year financial statements. Recognize a loss for a recognized subsequent event in the financial statements in the year when the subsequent event occurs. Recognize a loss for a recognized subsequent event in the current year financial statements.

D

Which of the following is not one of the concentrations about which disclosures are required? Concentrations in revenue Concentrations in sources of supply Concentrations in the market for the firm's products Concentrations in investment in other firm's stock for which ownership is less than 20% in any specific investment

D

Which of the following items would not appear on the Income Statement prepared using IFRS? Discontinued operations. Gross Profit. Depreciation and amortization. All items would appear on the Income Statement when using IFRS.

D

Which of the following must be included in the notes to the financial statements in a company's summary of significant accounting policies? Description of current year equity transactions. Summary of long-term debt outstanding. Schedule of fixed assets. Revenue recognition policies.

D

Which one of the following is not a characteristic associated with intercompany transactions? Intercompany transactions must be eliminated in the consolidating process. Gains and losses must be eliminated in the consolidating process. Transactions that originate with a subsidiary must be eliminated in the consolidating process. Transactions between two subsidiaries to be consolidated with the same parent do not need to be eliminated.

D

Which one of the following is not a characteristic of intercompany bonds? Intercompany bonds may occur on the date of a business combination or subsequent to a business combination. When bonds become intercompany, it is as though the bonds have been retired for consolidated purposes. Intercompany bonds can result in the recognition of a gain or a loss for consolidating purposes. When bonds become intercompany, they are written off of the books of the issuing affiliate and the investing affiliate.

D

Which statement is true with respect to noncontrolling interest? US GAAP records noncontrolling interest at the proportionate share of the value of identifiable net assets of the acquiree. IFRS only records noncontrolling interest at the proportionate share of the value of identifiable net assets of the acquiree. Both US GAAP and IFRS record noncontrolling interest at the proportionate share of the value of identifiable net assets of the acquiree. IFRS permits recording noncontrolling interests at either fair value or the proportionate share of the value of identifiable net assets of the acquiree.

D

Which type of material related-party transactions require disclosure? Only those not reported in the body of the financial statements. Only those that receive accounting recognition. Those that contain possible illegal acts. All those other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business.

D

Why do preferred stock dividends appear in the calculation of earnings per share (EPS)? Preferred stock may be converted into common stock at the option of the shareholder. Preferred stock dividends are not included in the calculation of EPS unless they have been outstanding for the entire year. The denominator includes the weighted average number of shares of both preferred and common shares outstanding. Preferred stock dividends are subtracted from the earnings for the period in the calculation of earnings per share.

D

Zeta Co. reported sales revenue of $4,600,000 in its Income Statement for the year ended December 31, 20X1. Additional information is as follows: Accounts receivable $1,000,000$1,300,000 Allowance for uncollectible accounts (60,000)(110,000) Zeta wrote off uncollectible accounts totaling $20,000 during 20X1. Under the cash basis of accounting, Zeta would have reported 20X1 sales of: $4,900,000. $4,350,000. $4,300,000. $4,280,000.

D

Cox Corporation had 1,200,000 shares of common stock outstanding on January 1 and December 31, year 2. In connection with the acquisition of a subsidiary company in June year 1, Cox is required to issue 50,000 additional shares of its common stock on July 1, year 3, to the former owners of the subsidiary. Cox paid $200,000 in preferred stock dividends in year 2, and reported net income of $3,400,000 for the year. Cox's diluted earnings per share for year 2 should be $2.83 $2.72 $2.67 $2.56

D All potential common shares that reduce current EPS must be included in the computation.

In Baer Food Co.'s 20x5 single-step Income Statement, the section titled "Revenues" consisted of the following: Net sales revenue $187,000 Results from discontinued operations: Loss from operations of the segment (net of $1,200 tax effect) $(2,400) Gain on the disposal of segment (net of $7,200 tax effect) 14,400 Interest revenue 10,200 Gain on the sale of equipment 4,700 Total revenues $213,900 In the revenues section of the 20x5 Income Statement, Baer Food should have reported total revenues of: $216,300 $215,400 $203,700 $201,900

D Discontinued operations is not a revenue; rather, it is a special item of disclosure found below income from continuing operations in the Income Statement.

AB Company reported earnings per share of $10.50 on income before discontinued operations, ($2.00) on income (loss) attributed to discontinued operations, and $8.50 on net income. Which EPS figure is more relevant to a potential investor? ($2.00) $7.50 $8.50 $10.50

D Potential investors and current investors are interested in the future earnings potential of the entity. Thus, they are interested in the earnings per share on continuing income, which would be the $10.50 per share. The EPS attributed to discontinued operations cannot be used in predicting future earnings, as they are one-time events.

For interim financial reporting, the computation of a company's second quarter provision for income taxes uses an effective tax rate expected to be applicable for the full fiscal year. The effective tax rate should reflect anticipated: Foreign tax rates, Available tax planning alternatives No, Yes No, No Yes, No Yes, Yes

D The effective tax rate should reflect anticipated investment tax credits, foreign tax rates, percentage depletion, capital gains rates, and other available tax planning alternatives.

Which one of the following is not a characteristic of consolidated financial statements prepared following an operating period that occurred after the date of a business combination? A full set of consolidated financial statements will be required. The method used by the parent to carry on its books its investment in the subsidiary will affect the consolidating process. Intercompany transactions may have occurred since the business combination. The method used by the parent to carry on its books its investment in the subsidiary will affect the final consolidated financial statements.

D The method used by the parent to carry on its books its investment in the subsidiary will not affect the final consolidated financial statements. The method used by the parent (cost, equity, or other) will affect how the investment account has changed since the date of the investment and, therefore, the investment elimination process but not the final consolidated financial statements.

Mend Co. purchased a three-month U.S. Treasury bill. Mend's policy is to treat all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents. How should this purchase be reported in Mend's Statement of Cash Flows? As an outflow from operating activities As an outflow from investing activities As an outflow from financing activities Not reported

D The purchase of a cash equivalent has no effect on the total of cash and cash equivalents.

Riley Corp., a publicly owned corporation, assesses performance and makes operating decisions using the following information for its reportable segments: Total revenues$925,000 Total profit83,000 Included in the total profit and loss is interest expense of $10,000. In addition, Riley has $1,500 of interest income for its reportable segments that is not included in the reports used internally. For purposes of segment reporting, Riley should report segment profit of $93,000 $84,500 $73,000 $83,000

D This answer is correct. Per ASC Topic 280, an enterprise shall report a measure of profit or loss based on the measure reported to the chief operating decision maker for purposes of making decisions. Therefore, this answer is correct. The information used by management includes intersegment profits and should be included.

Larimer Corporation prepares its financial statements in accordance with IFRS. Larimer acquired equipment by issuing 5,000 shares of its common stock. How should this transaction be reported on the statement of cash flows? As an outflow of cash from investing activities and inflow of cash from financing activities. As an inflow of cash from financing activities and an outflow of cash from operating activities. At the bottom of the statement of cash flows as a significant noncash transaction. In the notes to the financial statements as a significant noncash transaction.

D This transaction did not involve an exchange of cash; therefore, it is not included on the statement of cash flows.

According to the FASB conceptual framework, which of the following is an essential characteristic of an asset? The claims to an asset's benefits are legally enforceable. An asset is tangible. An asset is obtained at a cost. An asset provides future benefits.

D the common quality shared by all assets is "service potential" or "future economic benefit."

Which of the following is not disclosed on the Statement of Cash Flows, either on the face of the statement or in a separate schedule, when prepared under the direct method? The major classes of gross cash receipts and gross cash payments The amount of income taxes paid A reconciliation of net income to net cash flow from operations A reconciliation of ending retained earnings to net cash flow from operations

D the reconciliation is of net income to net cash flow from operations, not retained earnings to net cash flow from operations. The ending retained earnings balance is not related to, and does not affect, operating cash flow.

On December 31, 2008, Pico acquired $250,000 par value of the outstanding $1,000,000 bonds of its subsidiary, Sico, in the market for $200,000. At that date, Sico had a $100,000 premium on its total bond liability. Assume each company maintains its premium or discount in a separate account. Which one of the following will be the intercompany bond elimination entry made on the December 31, 2008 consolidating worksheet?

DR:Bonds Payable (250) Premium on Bonds Payable (25) Discount on Bond Investment (50) CR: Investment in Bonds (250) Gain on Constructive Retirement (75)

For each transaction below, determine the appropriate treatment on Spin Co.'s Year 5 income statement Transaction #1: Spin Co. purchased a specialized saw for $25,000 on March 1, Year 1. At the time of the purchase, the saw had a six-year estimated useful life and a $3,000 salvage value. Spin Co. depreciated it using the straight-line (SL) method. Spin Co. also uses the monthly convention to calculate the depreciation amounts for its asset acquisitions. The saw was sold on July 31, Year 5 for $7,000.

Loss of 1,806

According to the FASB conceptual framework, predictive value is an ingredient of:

Relevance

Redwood Co.'s financial statements had the following information at year end: Cash $ 60,000 Accounts receivable 180,000 Allowance for uncollectible accounts 8,000 Inventory 240,000 Short-term marketable securities 90,000 Prepaid rent 18,000 Current liabilities 400,000 Long-term debt 220,000 What was Redwood's quick ratio? 0.81 to 1 0.83 to 1 0.94 to 1 1.46 to 1

a

Selected data pertaining to Lore Co. for the calendar year 2005 is as follows: Net cash sales $ 3,000 Cost of goods sold 18,000 Inventory at beginning of year 6,000 Purchases 24,000 Accounts receivable at the beginning of the year 20,000 Accounts receivable at the end of the year 22,000 The accounts receivable turnover for 2005 was 5.0 times. What were Lore's 2005 net credit sales? $105,000 $107,000 $110,000 $210,000

a

The following information was taken from Baxter Department Store's financial statements: Inventory on January 1 $ 100,000 Inventory on December 31 300,000 Net sales 2,000,000 Net purchases 700,000 What was Baxter's inventory turnover for the year ending December 31? 2.5 3.5 5 10

a

During 2005, Rand Co. purchased $960,000 of inventory. The cost of goods sold for 2005 was $900,000, and the ending inventory on December 31, 2005 was $180,000. What was the inventory turnover for 2005? 6.4 6.0 5.3 5.0

b

TGR Enterprises provided the following information from its statement of financial position for the year ended December 31, Year 1: January 1 December 31 Cash $ 10,000 $ 50,000 Accounts receivable 120,000 100,000 Inventories 200,000 160,000 Prepaid expenses 20,000 10,000 Accounts payable 175,000 120,000 Accrued liabilities 25,000 30,000 TGR's sales and cost of sales for Year 1 were $1,400,000 and $840,000, respectively. What is the accounts receivable turnover, in days? 26.1 28.7 31.3 41.7

b

Which of the following would be reported as an investing activity in a company's statement of cash flows? Collection of proceeds from a note payable. Collection of a note receivable from a related party. Collection of an overdue account receivable from a customer. Collection of a tax refund from the government.

b

The following computations were made from Clay Co.'s 2005 books: Number of days' sales in inventory 61 Number of days' sales in trade accounts receivable 33 What was the number of days in Clay's 2005 operating cycle? 33 47 61 94

d

For each transaction below, determine the appropriate treatment on Spin Co.'s Year 5 income statement: Transaction #2: Spin Co. purchased a drill press for $10,000 on January 1, Year 4. At the time of the purchase, the drill press had a four-year estimated useful life and a $1,000 salvage value at the end of four years. Spin Co. depreciated it using the double-declining balance (DDB) method. Spin Co. also uses the monthly convention to calculate the depreciation amounts for its asset acquisitions. On December 31, Year 5, management of Spin Co. decided that it will dispose of the drill press in early Year 6 for $8,000 (based on a firm offer from a potential buyer). Therefore, depreciation of the drill press will be discontinued after December 31, Year 5 and the drill press will be reclassified on the balance sheet as "other assets".

no gain or loss recognized in year 5 gain of 5,500 in year 6