Multiple Choice Questions

A long-term liability should be reported as a current liability in a classified balance sheet if the long-term debt: a. is callable by the creditor b. is secured by adequate collateral c. will be refinanced with stock d. will be refinanced with debt

A

An impairment loss for property, plans and equipment is indicated (step one-recoverability test) if book value exceeds: a. undiscounted future cash flows b. present value of expected cash flows c. amortized cost d. fair value

A

Which of the following is recorded by a credit to accounts receivable? a. write-off of bad debts b. sale of inventory account c. estimating the annual allowance for uncollectible accounts d. estimating annual sales returns

A.

Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition): -40 units at $100 -70 units at $80 -170 units at $60 Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year. Ending inventory using the FIFO method is: a. $650 b. $600 c. $1,000 d. $707

B

Research and development expense for a given period includes: a. the full cost of newly acquired equipment that has an alternative future use. b. depreciation on a research and development facility c. research and development conducted on a contract basis for another entity d. patent filing and legal costs

B

Simpson and homer corporation acquired an office building on three acres of and for a lump sum price of $2,400,000. The building was completely furnished. According to independent appraisals, the fair values were $1,300,000, $780,000 and $520,000 for the building, land, and furniture respectively. The initial values of the land and furniture would be:

Building= 7,200,000 Land= 720,000 fixtures= 480,000

Cost of goods sold is given by: a. beginning inventory - net purchases + ending inventory b. beginning inventory + accounts payable - net purchases c. net purchases + beginning inventory - ending inventory d. net purchases + ending inventory - beginning inventory

C

When a long-term note is given in exchange for equipment, the amount considered as paid for the machine is: a. the present value of the invoice price b. the future value of the wholesale price c. the present value of all future cash outflows discounted at the stated rate d. the present value of all note related payments discounted at the market rate

D

When an investor classifies an investment in common stock as securities available for sale, cash dividends received on that investment are classified by the investor as: a. a return of capital b. a deduction in other comprehensive income c. a deduction from the investment account d. dividend income

D

True or false: A company should accrue a liability for a loss contingency if it is at least reasonably possible that assets have been impaired, and the amount of potential loss can be reasonably estimated.

FALSE. It has to be probable reasonably estimated to be accrued

Which of the following is not a liability? a. an unused line of credit b. estimated income taxes c. sales tax collected from customers d. advances from customers

a

A bond issue with a face amount of $200,000 bears interest at the rate of 10%. The current market rate of interest is 11%. These bonds will sell at a price that is: a. more than $200,000 b. less than $200,000 c. equal to $200,000 d. cannot be determined

b

Net income reflects changes in the fair values of securities for which type of securities? a. securities available for sale b. trading securities c. consolidated securities d. held-to-maturity securities

b

A loss contingency should be accrued in a company's financial statements only if the likelihood that a liability has been incurred is: a. at least remotely possible and the amount of the loss is known b. reasonably possible and the amount of the loss is known c. probable and the amount of the loss can be reasonably estimated d. reasonably possible and the amount of the loss can be reasonably estimated

c

Current liabilities are normally recorded at: a. present value b. cost c. maturity value d. expected value

c

Goodwill is: a. recorded by the seller of a business b. amortized over the greater of its estimated life or 40 years c. the excess of purchase price over the fair value of identifiable assets d. impaired when the seller agrees to sell the net assets

c

For a bond issue that sells for more than the bond face amount, the effective (or market) interest rate is: a. the rate printed on the face of the bond b. the wall street journal prime rate c. more than the rate stated on the face of the bond d. less than the rate stated on the face of the bond

d

Montana Co. has determined its year-end inventory on a FIFO basis to be $600,000. Information pertaining to that inventory is as follows: -selling price $620,000 -costs to sell 30,000 -replacement cost 520,000 What should be the reported value of Montana's inventory? a. 600,000 b. 620,000 c. 520,000 d. 590,000

d

True or false: net unrealized holding gains (losses) are always reported in net income

false; can be on income statement or other comprehensive income

True or False: both debt and equity securities can be categorized as trading securities

true

True or false: both trading securities and securities available for sale are reported at their fair values

true

Brewer Inc. is owned $200,000 by Carol Co. Under a 10% note with two years remaining to maturity. Due to financial difficulties Carol Co. did not pay the prior year's interest. Brewer agrees to settle the receivables (and accrued interest) in exchange for a cash payment of $150,000. The Journal entry that Brewer would make to record this transaction would include a loss on troubled debt restructuring of: a. $70,000 b. $50,000 c. $20,000 d. $0

A

Holiday Laboratories purchased a high-speed centrifuge at a cost of $420,000. Shipping costs totaled $15,000. Foundation work to house the centrifuge cost $8,000. An additional water line had to be run to the equipment at a cost of $3,000. Labor and testing costs totaled $6,000. Materials used up in testing cost $3,000. The capitalized cost is: a. $455,000 b. 452,000 c. 446,000 d. 435,000

A

Which of the following investments are NOT reported at fair value on the balance sheet? a. debt securities held to maturity b. common stock held as available for sale securities c. preferred stock held as trading securities d. all of these are reported at fair value

A

When bonds are sold at premium and the effective interest method is used, at each subsequent interest payment date, the cash paid is: a. less than the effective interest b. equal to the effective interest c. greater than the effective interest d. more than if the bonds had been sold at a discount

C

If a company uses the balance sheet approach to estimate bad debt expense, bad debt expense for a period can be determined by: a. multiplying net credit sales by the bad debt experience ratio b. adding the beginning balance in the AFDA accounts to the provision for uncollectible accounts and deducting the desired ending balance in the allowance for uncollectible accounts c. taking the difference between the unadjusted balance in the allowance account and the desired balance d. multiplying ending accounts receivable in each age category by the expected loss ratio for each age category

C

The rate of interest printed on the face of a note payable is called the: a. yield rate b. stated rate c. market rate d. effective rate

b

Which of the following is true about accounting for a troubled debt restructuring? a. if a receivable becomes impaired, the debt is remeasured at the discounted present value of the cash flows that were originally expected to be collected, but at a revised discount rate b. if a receivable is continued, but with modified terms, a loss is typically recorded c. receivables are not remeasured; instead, fair values are obtained from reliable factors d. receivables are never settled outright at the time of a restructuring

b

A change in the estimated useful life and residual value of machinery in the current year is handled as: a. a retrospective change back to the date of acquisition as through the current estimated life and residual value had been used all along b. a cumulative adjustment to income in the current year for the difference in depreciation under the new versus old estimates c. a prospective change from the current year through the remainder of its useful life, using the new estimates

c

Short-term obligations can be reported as long-term liabilities if: a. the firm has the ability to refinance on a long-term basis b. the firm has tentative plans to issue long-term bonds c. the firm intends to and had the ability to refinance as long-term d. the firm has a long-term line of credit

c

Which of the following is considered a sale of receivables? a. pledging receivables b. assigning receivables c. factoring receivables without recourse d. none of these answers are correct

c

Bonds are issued on June 1 with interest payment dates of April 1 and October 1. Bond interest expense reported in the December 31, 2016, income statement will cover a period of how many months? a. three months b. four months c. six months d. seven months

d

Drebin Security Systems sold merchandise to a customer in exchange for a $50,000, 5-year, non interest bearing note when an equivalent loan would carry 10% interest. Drebin would record sales revenue on the date of sale equal to: a. zero b. $50,000 c. the present value of an annuity of $50,000 using a 10% interest rate d. the present value of $50,000 using a 10% interest rate

d

On Jan 2, 2013, Sandy Sales Co. issued zero-coupon bonds with a face value of $6,000,000 for cash. The bonds mature in 10 years and were issued at a price of $3,050,100. What is the total amount of interest payments that Sandy Sales Co. will pay to its bondholders through Jan 1, 2014? a. 6 million b. 600,000 c. 305,010 d. 0

d

Software development costs are capitalized if they are incurred: a. prior to the point at which technological feasibility has been established. b. after commercial production has begun c. after the product is available for sale d. after technological feasibility but prior to the availability date

d

The LIFO conformity rule states that if LIFO is used for: a. one company in an affiliated group, it must be used by all companies in an affiliated group b. domestic companies, it must be used by foreign partners c. one class of inventory, it must be used for all classes of inventory d. tax purposes, it must be used for financial reporting

d

The acquisition costs of property, plant, and equipment do NOT include: a. the costs necessary to bring the asset to desired condition and location for use b. the net invoice price c. legal fees, delivery charges, installation, and any applicable sales tax d. maintenance costs during the first 30 days of use

d

The investment category for which the investor's "positive intent and ability to hold" is important is: a. securities reported under the equity method b. trading securities c. securities classified as held to maturity d. securities available for sale

d