NOTE: No Question No. 5,6,9,13,15,16,18,19,29,30,31,32,35,36,39,41 and 42
1) Stone Company changed its method of pricing inventories from FIFO to LIFO. What type of accounting change does this represent?
A. A change in accounting principle in which the financial statements for prior periods included for comparative purposes should be presented as previously reported.
B. A change in accounting principle in which the financial statements for prior periods included for comparative purposes should be restated.
C. A change in accounting estimate in which the financial statements for prior periods included for comparative purposes should be presented as previously reported.
D. A change in accounting estimate in which the financial statements for prior periods included for comparative purposes should be restated.
2) Which of the following is accounted for as a change in accounting principle?
A. A change from the cash basis of accounting to the accrual basis of accounting B. A change in inventory valuation from average cost to FIFO
C. A change in the estimated useful life of plant assets
D. A change from expensing immaterial expenditures to deferring and amortizing them as they become material
3) Which of the following is NOT treated as a change in accounting principle?
A. A change to a different method of depreciation for plant assets
B. A change from completed-contract to percentage-of-completion
C. A change from LIFO to FIFO for inventory valuation
D. A change from full-cost to successful efforts in the extractive industry
4) Hannah Company began operations on January 1, 2007, and uses the FIFO method in costing its raw material inventory. Management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed:
Final Inventory 2007 2008
FIFO $320,000 $360,000
LIFO 240,000 300,000
Net Income (computed under the FIFO method) 500,000 600,000
Based upon the above information, a change to the LIFO method in 2008 would result in net income for 2008 of
7) Interperiod tax allocation results in a deferred tax liability from
A. the amount of deferred tax consequences attributed to temporary differences that result in net deductible amounts in future years.
B. an income item partially recognized for financial purposes but fully recognized for tax purposes in any year.
C. the amount of deferred tax consequences attributed to temporary differences that result in net taxable amounts in future years.
D. an income item fully recognized for tax and financial purposes in any one year.
8) The rationale for interperiod income tax allocation is to
A. recognize a distribution of earnings to the taxing agency.
B. recognize a tax asset or liability for the tax consequences of temporary differences that exist at the balance sheet date.
C. adjust income tax expense on the income statement to be in agreement with income taxes payable on the balance sheet.
D. reconcile the tax consequences of permanent and temporary differences appearing on the current year’s financial statements.
10) Mortonson Corporation factored, with recourse, $300,000 of accounts receivable with Huskie Financing. The finance charge is 3%, and 5% was retained to cover sales discounts, sales returns, and sales allowances. Mortonson estimates the recourse obligation at $7,200. What amount should Mortonson report as a loss on sale of receivables?
11) Joe Novak Corporation factored, with recourse, $100,000 of accounts receivable with Huskie Financing. The finance charge is 3%, and 5% was retained to cover sales discounts, sales returns, and sales allowances. Joe Novak estimates the recourse obligation at $2,400. What amount should Joe Novak report as a loss on sale of receivables?
12) Mike McKinney Corporation had accounts receivable of $100,000 o January 1st The only transactions affecting accounts receivable were sales of $600,000 and cash collections of $550,000. What is the accounts receivable turnover?
14) Which of the following statements is false?
A. Cash dividends should be recorded as a liability when they are declared by the board of directors.
B. Under the cash basis method, warranty costs are charged to expense as they are paid.
C. FICA taxes withheld from employees’ payroll checks should never be recorded as a liability because the employer will eventually remit the amounts withheld to the appropriate taxing authority.
D. A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis and demonstrates an ability to complete the refinancing.
17) To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by
A. estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions.
B. eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.
C. eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation.
D. rerecording all income statement transactions that directly affect cash in a separate cash flow journal.
20) If the beginning inventory for 2006 is overstated, what are the effects of this error on cost of goods sold for 2006, net income for 2006, and assets at December 31, 2007, respectively?
A. Overstatement, understatement, and no effect
B. Understatement, overstatement, and overstatement
C. Understatement, overstatement, and no effect
D. Overstatement, understatement, and overstatement
21) Valuation of inventories requires the determination of all of the following EXCEPT
A. The physical goods to be included in inventory
B. The cost of goods held on consignment from other companies
C. The cost flow assumption to be adopted
D. The costs to be included in inventory
22) Cotton Hotel Corporation recently purchased Holiday Hotel and the land on which it is located with the plan to tear down the Holiday Hotel and build a new luxury hotel on the site. The cost of the Holiday Hotel should be
A. written off as an extraordinary loss in the year the hotel is torn down.
B. capitalized as part of the cost of the land.
C. capitalized as part of the cost of the new hotel.
D. depreciated over the period from acquisition to the date the hotel is scheduled to be torn down.
23) The cost of land does not include
A. costs of improvements with limited lives. ??
B. special assessments.
C. costs of removing old buildings.
D. costs of grading, filling, draining, and clearing.
24) The cost of land typically includes the purchase price and all of the following costs EXCEPT
A. Private driveways and parking lots
B. Assumption of any liens or mortgages on the property
C. Street lights, sewers, and drainage systems cost
D. Grading, filling, draining, and clearing costs
25) On October 1, 2007, Lyman Co. purchased to hold to maturity, 200 of the $1,000 face value, 9% bonds for $208,000. An additional $6,000 was paid for accrued interest. Interest is paid semiannually on December 1 and June 1 and the bonds mature on December 1, 2011. Lyman uses straight-line amortization. Ignoring income taxes, what was the amount reported in Lyman’s 2007 income statement from this investment?
26) On its December 31, 2006, balance sheet, Quinn Co. reported its investment in available-for-sale securities, which had cost $600,000, at fair value of $550,000. At December 31, 2007, the fair value of the securities was $585,000. What should Quinn report on its 2007 income statement as a result of the increase in fair value of the investments in 2007?
A. Realized gain of $35,000
B. Unrealized gain of $35,000
C. Unrealized loss of $15,000
27) During 2007, Ellis Company purchased 20,000 shares of Hiller Corp. common stock for $315,000 as an available-for-sale investment. The fair value of these shares was $300,000 at December 31, 2007. Ellis sold all of the Hiller stock for $17 per share on December 3, 2008, incurring $14,000 in brokerage commissions. What should Ellis Company should report a realized gain on the sale of stock in 2008?
28) Which of the following best describes current practice in accounting for leases?
A. All long-term leases are capitalized.
B. All leases are capitalized.
C. Leases similar to installment purchases are capitalized.
D. Leases are not capitalized.
33) Treasury bonds should be shown on the balance sheet as
A. a reduction of stockholders’ equity.
B. an asset.
C. both an asset and a liability.
D. a deduction from bonds payable issued to arrive at net bonds payable and outstanding.
34) Benton Company issues $10,000,000 of 10-year, 9% bonds on March 1, 2007, at 97 plus accrued interest. The bonds are dated January 1, 2007, and pay interest on June 30 and December 31. What is the total cash received on the issue date?
37) The accumulated benefit obligation measures
A. an estimated total benefit at retirement and then computes the level cost that will be sufficient, together with interest expected to accumulate at the assumed rate, to provide the total benefits at retirement.
B. the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels.
C. the shortest possible period for funding to maximize the tax deduction.
D. the pension obligation on the basis of the plan formula applied to years of service to date and based on future salary levels.
38) The projected benefit obligation is the measure of pension obligation that
A. requires the longest possible period for funding to maximize the tax deduction.
B. requires pension expense to be determined solely on the basis of the plan formula applied to years of service to date and based on existing salary levels.
C. is required to be used for reporting the service cost component of pension expense.
D. is not sanctioned under generally accepted accounting principles for reporting the service cost component of pension expense.
40) Noncumulative preferred dividends in arrears
A. are disclosed as a liability until paid.
B. must be paid before any other cash dividends can be distributed.
C. are not paid or disclosed.
D. are paid to preferred stockholders if sufficient funds remain after payment of the current preferred dividend.
43) Which of the following is NOT a generally practiced method of presenting the income statement?
A. The consolidated statement of income
B. Including gains and losses from discontinued operations of a component of a business in determining net income
C. Including prior period adjustments in determining net income
D. The single-step income statement
44) In presenting segment information, which of the following items must be reconciled to the entity’s consolidated financial statements?
Operating Revenue Identifiable Profit (Loss) Assets
Option 1 Yes Yes Yes
Option 2 No Yes Yes
Option 3 Yes No Yes
Option 4 Yes Yes No
A. Option 3
B. Option 4
C. Option 1
D. Option 2
45) Parr, Inc. is a multidivisional corporation which has both intersegment sales and sales to unaffiliated customers. Parr should report segment financial information for each division meeting which of the following criteria?
A. Segment revenue is 10% or more of combined revenue of all the company segments.
B. Segment revenue is 10% or more of consolidated revenue.
C. Segment profit or loss is 10% or more of consolidated profit or loss.
D. Segment profit or loss is 10% or more of combined profit or loss of all company segments.
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