1. Stone Company changed its method of pricing inventories from FIFO to LIFO. What type of accounting change does this represent?
Objective: Describe the professional responsibilities of accountants in financial reporting.
2. 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
Objective: Explain the methodology used to determine deferred taxes.
3. A company records an unrealized loss on short-term securities. This might result in what type of difference and in what type of deferred income tax?
Type of Difference/Deferred Tax
Week Two: Reporting Working Capital Changes
Objective: Calculate amounts to be reported for current assets.
4. In preparing its bank reconciliation for the month of April 2007, Gregg, Inc. has available the following information:
Balance per bank statement, 4/30/07 $39,140
NSF check returned with 4/30/07 bank statement 450
Deposits in transit, 4/30/07 5,000
Outstanding checks, 4/30/07 5,200
Bank service charges for April 20
Objective: Calculate amounts to be reported for current liabilities.
5. If a short-term obligation is excluded from current liabilities because of refinancing, the footnote to the financial statements describing this event should include all of the following information EXCEPT:
Objective: Prepare a statement of cash flows.
6. A statement of cash flows typically would not disclose the effects of
Week Three: Assets
Objective: Apply inventory cost determination concepts.
7. Eller Co. received merchandise on consignment. As of January 31, Eller included the goods in inventory, but did not record the transaction. What would be the effect of this on its financial statements for January 31?
Objective: Apply fixed asset concepts.
8. The debit for a sales tax properly levied and paid on the purchase of machinery preferably would be a charge to
Objective: Construct the investment section of the balance sheet, including note disclosures.
9. 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?
Objective: Prepare the note disclosures required for lease transactions.
10. In computing depreciation of a leased asset, the lessee should subtract
Week Four: Liabilities
Objective: Analyze reporting requirements for different types of debt issuances.
11. Discount on notes payable is charged to interest expense
Objective: Create journal entries for a troubled debt restructuring.
12. A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2007. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2007, balance sheet?
Objective: Prepare the schedules and notes required for post-employment benefit reporting.
13. The interest on the projected benefit obligation component of pension expense
Week Five: Equities
Objective: Construct the equity section of the balance sheet, including note disclosures.
14. Noncumulative preferred dividends in arrears
Week Six: Consolidated Financial Statements
Objective: Prepare consolidate financial statements.
15. Donnegan Manufacturing Company employs a standard cost system. A planned volume variance in the first quarter of 2008, which is expected to be absorbed by the end of the fiscal year, ordinarily should
is today a good time for you? Or is another day better?
Well, can we work on it later today? Anytime from 5pm-11pm Central time is best for me.
That's great. Would you prefer the questions all at once or in small groups? Would 5:30pm Central time work? I am on Pacific time.
I may have to post in 3 sections which is how the tests are normally set up. Thank you very much for your help.
About 2 hours and 45 minutes left. Sorry Word was acting up. Did you receive my last reply?
1) Which of the following is NOT a retrospective-type accounting change?
A. Completed-contract method to the percentage-of-completion method for long-term contracts
B. Sum of the years' digits method to the straight-line method
C. Full-cost method to another method in the extractive industry
D. LIFO method to the FIFO method for inventory valuation
2) Which of the following is accounted for as a change in accounting principle?
A. A change in the estimated useful life of plant assets
B. A change from expensing immaterial expenditures to deferring and amortizing them as they become material
C. A change in inventory valuation from average cost to FIFO
D. A change from the cash basis of accounting to the accrual basis of accounting
3) Accounting changes are often made and the monetary impact is reflected in the financial statements of a company even though, in theory, this may be a violation of what accounting concept?
4) Presenting consolidated financial statements this year when statements of individual companies were presented last year is
A. a correction of an error.
B. an accounting change that should be reported by restating the financial statements of all prior periods presented.
C. NOT an accounting change.
D. an accounting change that should be reported prospectively.
5) Which of the following describes a change in reporting entity?
A. A company acquires a subsidiary that is to be accounted for as a purchase.
B. A company divests itself of a European branch sales office.
C. Changing the companies included in combined financial statements.
D. A manufacturing company expands its market from regional to nationwide.
6) On January 1, 2005, Baden Co. purchased a machine, which was its only depreciable asset, for $300,000. The machine has a 5-year life, and no salvage value. Sum-of-the-years'-digits depreciation has been used for financial statement reporting and the elective straight-line method for income tax reporting. Effective January 1, 2008, for financial statement reporting, Baden decided to change to the straight-line method for depreciation of the machine. Assume that Baden can justify the change.
Baden's income before depreciation, before income taxes, and before the cumulative effect of the accounting change, if any, for the year ended December 31, 2008, is $250,000. The income tax rate for 2008, and for 2005 through 2007, is 30%. What amount should Baden report as net income for the year ended December 31, 2008?
7) Interperiod income tax allocation causes
A. tax expense shown on the income statement to equal the amount of income taxes payable for the current year, plus or minus the change in the deferred tax asset or liability balances for the year.
B. tax expense shown in the income statement to bear a normal relation to the tax liability.
C. tax liability shown in the balance sheet to bear a normal relation to the income before tax reported in the income statement.
D. tax expense in the income statement to be presented with the specific revenues causing the tax.
8) At the December 31, 2007 balance sheet date, Garth Brooks Corporation reports an accrued receivable for financial reporting purposes but not for tax purposes. When this asset is recovered in 2008, a future taxable amount will occur and
A. pretax financial income will exceed taxable income in 2008.
B. Garth will record a decrease in a deferred tax liability in 2008.
C. total income tax expense for 2008 will exceed current tax expense for 2008.
D. Garth will record an increase in a deferred tax asset in 2008.
9) The deferred tax expense is the
A. increase in balance of deferred tax asset minus the increase in balance of deferred tax liability.
B. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.
C. increase in balance of deferred tax asset plus the increase in balance of deferred tax liability.
D. decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability.
10) Nottingham Corporation had accounts receivable of $100,000 on January 1st The only transactions affecting accounts receivable were sales of $900,000 and cash collections of $850,000. What is the accounts receivable turnover?
11) 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?
12) In preparing its bank reconciliation for the month of April 2007, Gregg, Inc. has available the following information:
Balance per bank statement, 4/30/07 $39,140
NSF check returned with 4/30/07 bank statement 450
Deposits in transit, 4/30/07 5,000
Outstanding checks, 4/30/07 5,200
Bank service charges in April 20
What should be the correct balance of cash at April 30, 2007?
13) Which of the following statements is false?
A. 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.
B. Cash dividends should be recorded as a liability when they are declared by the board of directors.
C. Under the cash basis method, warranty costs are charged to expense as they are paid.
D. 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.
14) Liabilities are
A. any accounts having credit balances after closing entries are made.
B. deferred credits that are recognized and measured in conformity with generally accepted accounting principles.
C. obligations to transfer ownership shares to other entities in the future.
D. obligations arising from past transactions and payable in assets or services in the future.
15) Which of the following items is a current liability?
A. Bonds for which there is an adequate sinking fund properly classified as a long-term investment, due in 3 months
B. Bonds due in 3 years
C. Bonds, for which there is an adequate appropriation of retained earnings, due in 11 months
D. Bonds to be refunded when due in 8 months, there being no doubt about the marketability of the refunding issue
16) A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows (indirect method), this event would be reflected as
A. an addition adjustment to net income in the cash flows from operating activities section.
B. a cash outflow from investing activities.
C. a cash inflow from investing activities.
D. a cash inflow from financing activities.
17) The primary purpose of the statement of cash flows is to provide information
A. about the operating, investing, and financing activities of an entity during a period.
B. that is useful in assessing cash flow prospects.
C. about the cash receipts and cash payments of an entity during a period.
D. about the entity's ability to meet its obligations, its ability to pay dividends, and its needs for external financing.
18) Of the following questions, which would NOT be answered by the statement of cash flows?
A. Where did the cash come from during the period?
B. What was the change in the cash balance during the period?
C. What was the cash used for during the period?
D. Were all the cash expenditures of benefit to the company during the period?
19) The failure to record a purchase of merchandise on account even though the goods are properly included in the physical inventory results in
A. an overstatement of assets and net income.
B. an understatement of liabilities and an overstatement of owners' equity.
C. an understatement of assets and net income.
D. an understatement of cost of goods sold and liabilities and an overstatement of assets.
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 overstatement
B. Understatement, overstatement, and no effect
C. Overstatement, understatement, and no effect
D. Understatement, overstatement, and overstatement
21) Valuation of inventories requires the determination of all of the following EXCEPT
A. The costs to be included in inventory
B. The cost flow assumption to be adopted
C. The physical goods to be included in inventory
D. The cost of goods held on consignment from other companies
22) The cost of land does not include
A. costs of grading, filling, draining, and clearing.
B. special assessments.
C. costs of removing old buildings.
D. costs of improvements with limited lives.
23) 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. depreciated over the period from acquisition to the date the hotel is scheduled to be torn down.
B. capitalized as part of the cost of the new hotel.
C. written off as an extraordinary loss in the year the hotel is torn down.
D. capitalized as part of the cost of the land.
24) Which of these is not a major characteristic of a plant asset?
A. Possesses physical substance
B. All of these are major characteristics of a plant asset.
C. Acquired for use in operations
D. Yields services over a number of years
25) 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?
26) On October 1, 2007, Porter Co. purchased to hold to maturity 1,000 of the $1,000 face value, 9% bonds for $990,000 which includes $15,000 accrued interest. The bonds, which mature on February 1, 2016, pay interest semiannually on February 1 and August 1. Porter uses the straight-line method of amortization. The bonds should be reported in the December 31, 2007 balance sheet at a carrying what value?
27) During 2005, Plano Co. purchased 2,000, $1,000, 9% bonds. The carrying value of the bonds at December 31, 2007 was $1,960,000. The bonds mature on March 1, 2012, and pay interest on March 1 and September 1. Plano sells 1,000 bonds on September 1, 2008, for $988,000, after the interest has been received. Plano uses straight-line amortization. The gain on the sale is
28) What effect does a bargain purchase option have on the present value of the minimum lease payments computed by the lessee?
A. There is no impact as the option does not enter into the transaction until the end of the lease term.
B. The minimum lease payments would be increased by the present value of the option price if, at the time of the lease agreement, it appeared certain that the lessee would exercise the option at the end of the lease and purchase the asset at the option price.
C. The lessee must increase the present value of the minimum lease payments by the present value of the option price.
D. The lessee must decrease the present value of the minimum lease payments by the present value of the option price.
29) An essential element of a lease conveyance is that the
A. lessor conveys less than his or her total interest in the property.
B. term of the lease is substantially equal to the economic life of the leased property.
C. lessee provides a sinking fund equal to one year's lease payments.
D. property that is the subject of the lease agreement must be held for sale by the lessor prior to the drafting of the lease agreement.
30) Although only certain leases are currently accounted for as a sale or purchase, there is theoretic justification for considering all leases to be sales or purchases. The principal reason that supports this idea is that
A. all leases are generally for the economic life of the property and the residual value of the property at the end of the lease is minimal.
B. during the life of the lease the lessee can effectively treat the property as if it were owned by the lessee.
C. at the end of the lease the property usually can be purchased by the lessee.
D. a lease reflects the purchase or sale of a quantifiable right to the use of property.
31) In-substance defeasance is a term used to refer to an arrangement whereby
A. a company gets another company to cover its payments due on long-term debt.
B. a company provides for the future repayment of a long-term debt by placing purchased securities in an irrevocable trust.
C. a governmental unit issues debt instruments to corporations.
D. a company legally extinguishes debt before its due date.
32) Treasury bonds should be shown on the balance sheet as
A. an asset.
B. a reduction of stockholders' equity.
C. a deduction from bonds payable issued to arrive at net bonds payable and outstanding.
D. both an asset and a liability.
33) A corporation borrowed money from a bank to build a building. The long-term note signed by the corporation is secured by a mortgage that pledges title to the building as security for the loan. The corporation is to pay the bank $80,000 each year for 10 years to repay the loan. Which of the following relationships can you expect to apply to the situation?
A. The balance of mortgage payable at a given balance sheet date will be reported as a long-term liability.
B. The amount of interest expense will decrease each period the loan is outstanding, while the portion of the annual payment applied to the loan principal will increase each period.
C. The balance of mortgage payable will remain a constant amount over the 10-year period.
D. The amount of interest expense will remain constant over the 10-year period.
34) Amstop Company issues $20,000,000 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?
35) A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2007. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2007, balance sheet?
36) A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2007. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. Using effective-interest amortization, how much interest expense will be recognized in 2007?
37) The interest on the projected benefit obligation component of pension expense
A. reflects the incremental borrowing rate of the employer.
B. is the same as the expected return on plan assets.
C. reflects the rates at which pension benefits could be effectively settled.
D. may be stated implicitly or explicitly when reported.
38) The accumulated benefit obligation measures
A. the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels.
B. 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.
C. the pension obligation on the basis of the plan formula applied to years of service to date and based on future salary levels.
D. the shortest possible period for funding to maximize the tax deduction.
39) Alternative methods exist for the measurement of the pension obligation (liability). Which measure requires the use of future salaries in its computation?
A. Vested benefit obligation
B. Projected benefit obligation
C. Accumulated benefit obligation
D. Restructured benefit obligation
40) Assume common stock is the only class of stock outstanding in the B-Bar-B Corporation. Total stockholders' equity divided by the number of common stock shares outstanding is called
A. book value per share.
B. stated value per share.
C. par value per share.
D. market value per share.
41) Which one of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements?
A. Dividend preferences
B. Call prices
C. Liquidation preferences
D. Conversion or exercise prices
42) The rate of return on common stock equity is calculated by dividing
A. net income less preferred dividends by average common stockholders’ equity.
B. net income less preferred dividends by ending common stockholders’ equity.
C. net income by average common stockholders’ equity.
D. net income by ending common stockholders’ equity.
43) 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 profit or loss is 10% or more of consolidated profit or loss.
B. Segment profit or loss is 10% or more of combined profit or loss of all company segments.
C. Segment revenue is 10% or more of combined revenue of all the company segments.
D. Segment revenue is 10% or more of consolidated revenue.
44) Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of the
A. economic entity assumption.
B. relevance characteristic.
C. comparability characteristic.
D. neutrality characteristic.
45) Presenting consolidated financial statements this year when statements of individual companies were presented last year is
B. an accounting change that should be reported prospectively.
C. an accounting change that should be reported by restating the financial statements of all prior periods presented.
D. NOT an accounting change.
Thank you for your help. I hope a bonus of $25 meets with your approval.