Intermediate Acct. Final
In 2015, the Magtag Company sold 16,000 ovens. Magtag estimated that 14% of the machines would require repairs under the two-year assurance-type warranty at an average cost of $60. During 2015, Magtag had an actual outlay of $62,000 for repairs under warranty. Magtag uses the GAAP approach of accruing warranty expense (and the related liability) in the year of the sale. Refer to Exhibit 9-2. At what amount should the company record warranty expense for 2015? $62,000 $42,000 $134,400 $116,000
$134,400
During 2016, the Thomas Company began selling a new type of machine that carries a two-year assurance-type warranty against all defects. Based on past industry and company experience, estimated warranty costs should total $2,000 per machine sold. During 2016, sales and actual warranty expenditures were $4,000,000 (80 machines) and $44,000, respectively. Thomas uses the GAAP approach of accruing warranty expense (and the related liability) in the year of the sale. Refer to Exhibit 9-4. What amount should Thomas report as its warranty expense for 2016? $320,000 $0 $160,000 $44,000
$160,000
Mary Co. exchanged a piece of equipment that had cost $40,000 (now 75% depreciated) for a truck with a current appraised value of $18,000. Mary Co. gave the other company the piece of equipment, which had a fair value of $12,000 at the time of the exchange, and $10,000 cash. Mary Co. should record a $8,000 loss a $2,000 loss a $4,000 loss a $2,000 gain
$2,000 gain
On June 1, 2016, Bagby Co. purchased a new car for $36,000 with a useful life of eight years and a residual value of $4,800. If the company used double-declining-balance depreciation computed to the nearest whole year, depreciation expense for 2017 was $5,250.00 $5,850.00 $6,750.00 $7,687.50
$6,750.00
Devon Manufacturing Company purchased a new canning machine on July 1, 2015, for $190,000. The estimated salvage value is $15,000. The company uses units-of-production depreciation and estimates the machine will produce 125,000 units during its useful life. In 2015, the company manufactured 5,000 units after acquiring the machine. Depreciation expense for 2015 will be $6,500 $7,000 $14,000 $7,600
$7,000
Wayne Co. purchased $40,000 of equipment with a salvage value of $5,000 and a useful life of nine years on August 15, 2016. If the company used sum-of-the-years'-digits depreciation computed to the nearest whole year, depreciation expense for 2017 was $8,000 $6,222 $7,000 $7,111
$7,000
On January 1, Year 1, Hills purchased equipment for $350,000. The equipment had an estimated useful life of ten years and an estimated residual value of $50,000. Use the double-declining-balance method to answer the following question. Refer to Exhibit 11-1. How much depreciation should Hills record on the asset in year 1? $30,600 $70,000 $35,000 $60,000
$70,000
On February 1, 2016, Rupport Corporation purchased a parcel of land as a factory site for $50,000. An old building on the property was demolished, and construction began on a new building that was completed on December 12, 2016. Costs incurred during this period are listed below: Legal fees for title investigation and purchase contract 5,000 Demolition of old building $ 15,000 Architect's fees 42,000 Construction costs 1,500,000 Rupport should record the cost of the land and the cost of the new building, respectively, as $50,000 and $1,562,000 $55,000 and $1,557,000 $65,000 and $1,547,000 $70,000 and $1,542,000
$70,000 and $1,542,000
On January 1, 2016, Flo, Inc. purchased an asset for $48,000. It was estimated that the asset life was seven years, after which it would have a residual value of $4,100. Assuming the use of the sum-of-the-years'-digits method, depreciation expense for 2016 would be $5,487.50 $12,804 $12,000 $10,975
10,975
Camp, Inc. exchanged an old truck that cost $30,000 (now 50% depreciated) with a current fair value of $18,000 for equipment with an appraised value of $25,000. In addition, Camp paid cash of $6,000. At what value should Camp record the new equipment? $25,000 $21,000 $24,000 $22,000
24,000
Mark Industries uses the straight-line depreciation method. One asset had been purchased for $11,000. Annual depreciation expense was $2,000 after considering residual value of $1,000. What was the estimated useful life of the asset? 5.00 years 11.00 years 10.00 years 5.50 year
5.00 years
How many FASB members currently make up the Board? 5 7 33 21
7
The major components of the income statement are listed below: A = revenues B = income from continuing operations C = earnings per share D = results from discontinued operations E = operating income In what sequence do they normally appear on the income statement? B-A-E-D-C B-D-C-D-E A-E-B-D-C E-B-A-C-D
A-E-B-D-C
Which of the following statements is true? -FASB accounting standards are the result of clearly defined objectives, an integrated body of theory, and the known consequences of actions. -Accounting standards, which have economic and political consequences, are often the result of compromise. -In order to remain impartial, the FASB discourages public input during development of standards. -The FASB deliberates and issues accounting standards only after receiving a formal letter of request from the SEC.
Accounting standards, which have economic and political consequences, are often the result of compromise.
Which of the following is required to be disclosed, pursuant to GAAP? -a description of facts and circumstances leading up to the sale of a discontinued component within the notes of the financial statements -operating income or loss from discontinued component reported on the income statement -all gains or losses from sale of the component reported on the income statement or in the footnotes -All of these answer choices are correct.
All of these answer choices are correct.
Which of the following is included in comprehensive income? -translation adjustments from converting foreign statements into U.S. dollars -gains and losses associated with derivative financial instruments that hedge future cash flows -unrealized gains or losses associated with fair value of available-for-sale securities -All of these answer choices are included in comprehensive income.
All of these answer choices are included in comprehensive income.
Which accounts are increased by using debits? Assets, Cost of Goods Sold, Expenses Cost of Goods Sold, Common Stock, Assets Liabilities, Capital Stock, Revenue Dividends, Revenue, Liabilities
Assets, Cost of Goods Sold, Expenses
Use the following letters to represent items: P = Purchases (net) C = Cost of goods sold B = Beginning inventory E = Ending inventory Which equation is correct? P − E = B + C B = C − E + P B − E = C + P B − C + P = E
B − C + P = E
On December 1, 2016, Old Car Co. borrowed money at the bank by signing a 90-day non-interest-bearing note for $24,000 that was discounted at 8%. Which of the following entries is correct? December 1, 2016 Cash 24,000 Note Payable 24,000 December 31, 2016 Interest Expense 160 Discount on Notes Payable 160 December 31, 2016 Interest Expense 160 Interest Payable 160 March 1, 2017 Note Payable 23,520 Cash 23,520
December 31, 2016 Interest Expense 160 Discount on Notes Payable 160
On October 1, Robins's Online Sales sold goods for $50,000 and accepted a six-month noninterest-bearing note. Current interest rates were 10%. The December 31 adjusting entry should be Interest Revenue 1,250 Discount on Notes Receivable 1,250 Discount on Notes Receivable 2,500 Interest Receivable 2,500 Discount on Notes Receivable 1,250 Interest Revenue 1,250 Interest Receivable 2,500 Interest Revenue 2,500
Discount on Notes Receivable 1,250 Interest Revenue 1,250
Which of the following statements about fair value is true? -Fair value is a measure of market-based entry value. -Fair value accounting is also known as "mark-to-market" accounting. -Level 1 inputs should be used to determine fair value only when Level 2 and Level 3 inputs are not available. -Level 3 inputs are observable market prices for similar assets in active markets.
Fair value accounting is also known as "mark-to-market" accounting.
________ is a contractual obligation that requires a company to deliver cash or other financial asset to another party. Capital structure Financial leverage Financial liability Detachable warrant.
Financial liability
Which of the following is a major difference between IFRS and GAAP regarding valuation of property, plant, and equipment? -IFRS and GAAP differ greatly on recognition of gains and losses from nonmonetary exchanges. -IFRS allow valuation increases to be recorded in certain circumstances, but GAAP does not permit increases. -IFRS require capitalization of all repairs and maintenance while GAAP does not. -IFRS allocate lump-sum purchase costs based on relative book values rather than relative market values
IFRS allow valuation increases to be recorded in certain circumstances, but GAAP does not permit increases
Which of the following statements is true? -One of the essential characteristics of a liability is that the transaction or other event obligating the entity will probably occur in the future. -In order to have a liability, the identity of the recipient must be known. -In order for there to be a liability, a duty or responsibility must be present that obligates a particular entity. -In order for there to be a liability, a legally enforceable claim must be present
In order for there to be a liability, a duty or responsibility must be present that obligates a particular entity
On March 31, 2015, the Turi Company purchased a two-year fire insurance policy. Turi recorded the purchase by debiting Prepaid Insurance and crediting Cash for $10,000. Which of the following adjusting entries should Turi prepare at the end of 2015? Prepaid Insurance 3,750 Insurance Expense 3,750 Insurance Expense 5,000 Prepaid Insurance 5,000 Insurance Expense 3,750 Prepaid Insurance 3,750 Prepaid Insurance 5,500 Insurance Expense 5,500
Insurance Expense 3,750 Prepaid Insurance 3,750
Which inventory cost flow assumption is not allowed for financial reporting in many foreign countries? specific identification FIFO LIFO average
LIFO
The agreement in 2002 by the FASB and IASB to develop high quality, compatible accounting standards that could be used by both domestic and cross-border financial reporting was called the Financial Accounting Standards Board Global agreement Norwalk agreement United GAAP agreement International Accounting Standards agreement
Norwalk agreement
Bond issue costs are reported on the financial statements as Deferred Liabilities. a reduction to Premium on Bonds Payable. an addition to Discount on Bonds Payable. Other Assets.
Other Assets.
Which of the following is not a major standard-setting body responsible for the establishment of U.S. and international GAAP (Generally Accepted Accounting Principles)? SEC (Securities Exchange Commission) IASB (International Accounting Standards Board) FASB (Financial Accounting Standards Board) PCAOB (Public Company Accounting Oversight Board)
PCAOB (Public Company Accounting Oversight Board)
Which of the following is a temporary account? Accounts Receivable Purchases Returns and Allowances Retained Earnings Accumulated Depreciation
Purchases Returns and Allowances
Which of the following organizations has legal authority to prescribe accounting principles and reporting practices for all corporations issuing publicly traded securities within the U.S. capital markets? Financial Accounting Standards Board Committee on Accounting Procedure Securities and Exchange Commission Accounting Principles Board
Securities and Exchange Commission
For any given company, the amount of bad debt expense may be based on the historical relationships between actual bad debts incurred and Accounts Accounts Set Receivable Sales Payable I. Yes No No II. No No Yes III. No Yes No IV. Yes Yes No Set I Set IV Set III Set II
Set IV
Which one of the following statements is false? -Under conditions of rising prices, the LIFO method results in lower income than the FIFO method. -The FIFO method includes holding gains in income. -The LIFO method produces a higher ending inventory value than the FIFO method. -In most cases, the FIFO method approximates the physical flow of items in inventory.
The LIFO method produces a higher ending inventory value than the FIFO method
Which statement is true? -Total interest expense will increase each year if the bonds are issued at a discount and the straight-line method of amortization is used. -Total interest expense will increase each year if the bonds are issued at a premium and the effective interest method of amortization is used. -The carrying amount of the bonds will decrease each year if the bonds were issued at a discount. -The carrying amount of the bonds will decrease each year if the bonds were issued at a premium
The carrying amount of the bonds will decrease each year if the bonds were issued at a premium
According to current GAAP, which of the following is not a condition suggesting that an accrual for vacation pay should be made? The obligation must relate to rights that vest. The payment of compensation is probable. The obligation must relate to employee services already rendered. The amount can be reasonably estimated.
The obligation must relate to rights that vest
Which T-account is incorrect? Interest Receivable + - Unearned Rent + - Depreciation Expense + - Capital Stock + -
Unearned Rent + -
All of the following are non-monetary assets except patents. goodwill. inventory. accounts receivable.
accounts receivable
Which of the following assets is reported at net realizable value on the balance sheet? Short-term investments Accounts receivable Merchandise inventory Prepaid insurance
accounts receivable
Which of the following is a measurement method that reflects historical value? Replacement cost Acquisition cost Fair value Net realizable value
acquisition costs
A company that discontinues and disposes of an operation (component) should include the gain or loss on sale in the income statement as a(n) -an amount that is reported after income from continuing operations but before net income. -bulk sale of fixed assets included in income from continuing operations. -a component of other comprehensive income. -prior-period adjustment
an amount that is reported after income from continuing operations but before net income.
According to GAAP, interest must be capitalized for assets that are ready for use. inventories that are produced in large quantities on a repetitive basis. assets constructed for a firm's own use. assets that are not being used in the earning activities of the company.
assets constructed for a firm's own use.
When the market rate of interest is less than the contract rate of interest, the bonds will sell below face value. at a discount. at a premium. behind par value.
at a premium.
Adjusting journal entries are made anytime we need to adjust an account when revenue is realized (or realizable) at the end of the accounting period at the beginning of the accounting period
at the end of the accounting period
Compensating balance agreements are held against short-term borrowings should -be separately classified as noncurrent assets on the balance sheet. -not be shown on the balance sheet. -only be described in the footnotes to the financial statements. -be separately reported in the current assets portion of the balance sheet.
be separately reported in the current assets portion of the balance sheet.
Morris recently purchased a building and the tract of land on which it is located. Morris plans to raze the building immediately and to erect a new building on the site. The appraised value of the original building should be -capitalized as part of the cost of the land. -written off as an extraordinary loss in the year the building is razed. -depreciated over the period from the date of acquisition to the date that the building is to be razed. -capitalized as part of the cost of the new building.
capitalized as part of the cost of the land
An improvement made to a machine increased its production capacity by 25% without extending the machine's useful life. The cost of the improvement should be debited to Accumulated Depreciation. recorded as an expense. capitalized in the machine account. allocated between Accumulated Depreciation and the machine account.
capitalized in the machine account.
Which of the following would be included in cash and cash equivalents on the balance sheet? sinking fund commercial paper compensating balances bank overdrafts
commercial paper
Discount on Bonds Payable is a(n) valuation account. contra account. accumulation account. adjunct account.
contra account.
The sales returns and allowances account is reported as a -contra-revenue account on the income statement. -current liability on the balance sheet. -contra-asset reducing accounts receivable on the balance sheet. -selling expense on the income statement.
contra-revenue account on the income statement
An unsecured bond is called a mortgage bond. serial bond. registered bond. debenture bond.
debenture bond.
The Oliver Construction Company received $18,000 for six months rental income in advance on November 1, 2015, and credited the Rental Revenue account. The required adjusting entry on December 31, 2015, would include a credit to Rental Revenue for $6,000 debit to Rental Revenue for $12,000 debit to Rental Revenue for $6,000 credit to Rental Receivable for $12,000
debit to Rental Revenue for $12,000
Taylor Company changed its inventory cost flow assumption from FIFO to LIFO in a period of rising prices. What would be the effect of this change on ending inventory in the year of the change? decreased ending inventory no change in ending inventory increased ending inventory cannot be determined from the information given
decreased ending inventory
If a company sells its 20-year bonds at a discount, how is the discount account reported on the balance sheet? unearned liability deduction from bonds payable addition to the bonds payable accrued expense
deduction from bonds payable
Which of the following methods is not an appropriate method for estimating bad debt expense for companies whose uncollectible accounts are material? percentage of outstanding accounts receivable direct write-off method percentage of net credit sales aging of accounts receivable
direct write-off method
Management's choice to use LIFO or FIFO can make a financial analyst's efforts to compare companies difficult. The financial analyst's job is made easier because of the fact that most companies in an industry use the specific identification method use of the weighted average method disclosure of the LIFO reserve requirement that the financial statements and tax return must use the same inventory valuation methodology
disclosure of the LIFO reserve
Which of the following is an economic resource that should be depreciated over the accounting periods estimated to be benefited? equipment purchased for use in the business operations rent collected in advance for a three-year rental period interest revenue accrued on investment in bonds salaries incurred but unpaid at year-end
equipment purchased for use in the business operation
Which one of the following types of costs is most likely to be included in determining the cost of inventory? freight-out costs marketing costs freight-in costs interest cost for amounts borrowed to finance the purchase of inventory
freight-in costs
Which one of the following types of assets should not be classified as property, plant, and equipment? leasehold improvements idle land and buildings long-lived tangible assets fully-depreciated building (still in use)
idle land and buildings
When goods are sold FOB shipping point, ownership of the inventory is passed when the inventory is shipped to the buyer inventory arrives at the destination purchase order for the inventory is complete inventory sold is segregated from the seller's other inventory
inventory is shipped to the buyer
When a company amortizes a premium, the interest expense recorded is more than the cash paid. equal to the cash paid. less than the cash paid. All of these choices are correct.
less than the cash paid.
A balance sheet account that is usually reported at fair value is Land. Marketable Securities. Accounts Payable. Inventory.
marketable securities
Which qualitative characteristic is an ingredient of relevance? neutrality understandability representational faithfulness materiality
materiality
Most trade receivables are initially recorded at their net realizable values. maturity values. present values. discounted values.
maturity values.
Short-term debt expected to be refinanced -may be classified as long-term if off-balance-sheet financing has been obtained. -must always be reported as a current liability. -may be classified as long-term if there is an intent to refinance. -may be classified as long-term if both the intent to refinance and the ability to refinance exist.
may be classified as long-term if both the intent to refinance and the ability to refinance exist.
Which of the following is not a general category of shareholders' equity? Net income Noncontrolling interest Contributed capital Earned capital
net income
Comprehensive income consists of -other comprehensive income + unrealized changes in the value of available-for-sale securities. -net income + other comprehensive income. -net income + other adjustments to retained earnings. -operating income + other income and losses.
net income + other comprehensive income.
Which fundamental characteristic is an ingredient of faithful representation? timeliness confirmatory value predictive value neutrality
neutrality
Current liabilities includes all of the following except income tax payable. mortgage due to be paid this year. notes receivable. advance payments from customers.
notes receivable
Which of the following is the third major step in the accounting cycle? prepare and post adjusting entries prepare the financial statements record the daily transactions in a journal post the journal entries to the accounts in the ledger
prepare and post adjusting entries
Which of the following is not a factor in computing depreciation for a period? service life method of cost allocation residual value present value
present value
Which one of the following is not an advantage of using the FIFO cost flow assumption? does not produce unusual results when inventory liquidation occurs provides a relevant ending inventory value is not as susceptible to profit manipulation by management produces lowest net income in periods of rising prices
produces lowest net income in periods of rising prices
All of the following are nontrade receivables except -promissory note from a customer. -deposit paid to utility companies. -declared dividend from an investment. -advances to executives and employees.
promissory note from a customer.
The FASB and IASB concluded that the most general objective of financial reporting is to -meet the needs of internal users -provide information about an entity's earnings -provide information about an entity's cash flows -provide information useful in the decisions made by external users
provide information useful in the decisions made by external users
Which of the following events would be classified as an operating activity in a statement of cash flows? receipt of a cash dividend from an equity investment sale of a long-term investment issuing notes payable payment of cash dividends
receipt of a cash dividend from an equity investment
The purpose of closing entries is to -update the retained earnings account on a daily basis. -apportion prepaid expenses and unearned revenues to bring the accounts up to date. -reduce all temporary accounts to zero. -update a periodic inventory account for credit sales.
reduce all temporary accounts to zero.
According to the FASB hierarchy of fundamental qualitative characteristics, the two primary qualities making accounting information useful are understandability and decision usefulness verifiability and neutrality relevance and faithful representation predictive value and feedback value
relevance and faithful representation
When aging of accounts receivable is used, each age group is multiplied by its own estimated uncollectible percentage to determine each age group's estimated uncollectible amount. The sum of the amounts thus determined is the -required ending balance for the allowance for doubtful accounts. -amount of bad debt expense for the year. -increase to the existing credit balance in the allowance for doubtful accounts. -amount that should be written off as uncollectible for the year.
required ending balance for the allowance for doubtful accounts.
Which of the following loss contingencies is not usually accrued? premium offer obligations noncollectibility of receivables risk of loss from fire product warranty obligations
risk of loss from fire
Which is least likely to be classified as a sale of a component? -sale by an apparel manufacturer of a woolen suit manufacturing plant in order to concentrate on the manufacture of suits from synthetic products -sale by a communications company of its radio stations, but none of its television stations -sale by a meat-packing company of its (entire) 20% interest in a professional football team -sale by a food distributor of its wholesale supermarket division while maintaining its wholesale fast-food restaurants division
sale by an apparel manufacturer of a woolen suit manufacturing plant in order to concentrate on the manufacture of suits from synthetic products
Which of the following events would be classified as an investing activity on a statement of cash flows? payment of interest on a loan sale of an office building at a gain purchase of inventory receipt of cash dividends on an available-for-sale investment
sale of an office building at a gain
Which of the following depreciation methods should be used when the expected benefits to be received from an asset will decline each period? sum-of-the-years'-digits method compound-interest method straight-line method units-of-production method
sum-of-the-years'-digits method
Which one of the following statements is not a disclosure requirement for depreciation? a general description of the method(s) used for depreciation the useful lives for each major class of depreciable asset the accumulated depreciation for each major class of depreciable asset the balance of major classes of depreciable assets
the useful lives for each major class of depreciable asset
Accrual accounting relates the financial effects of a company's transactions -so that the costs of nonoperational events are matched to the balance sheet in the period impacted -so that the impact of every transaction is reflected in the statement of cash flows -to the period in which they occur rather than to when the cash receipts or payment occurs -so that the revenue impact of every transaction in a period is properly reflected in the income statement
to the period in which they occur rather than to when the cash receipts or payment occurs
The service life of an asset may be measured by all of the following except units of output units of input units of time units of activity
units of input
Which of the following would appear after the heading of operating income? a. other operating income items (gains or losses) b. operating expenses c. cost of goods sold d. unusual gains or losses
unusual gains or losses
When is interest expense less than interest paid? when bonds are sold at par when bonds are sold at a premium when bonds are sold at a yield when bonds are sold at a discount
when bonds are sold at a premium