19) 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?
A. Net income was correct and current assets were understated.
B. Net income and current assets were overstated and current liabilities were understated.
C. Net income, current assets, and retained earnings were understated.
D. Net income, current assets, and retained earnings were overstated.
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.
29) An essential element of a lease conveyance is that the
A. 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.
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. lessor conveys less than his or her total interest in the property.
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. a lease reflects the purchase or sale of a quantifiable right to the use of property.
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. 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.
31) The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as
A. an amount received or paid to obtain a new debt instrument and, as such, should be amortized over the life of the new debt.
B. a difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption.
C. an amount that should be considered a cash adjustment to the cost of any other debt issued over the remaining life of the old debt instrument.
D. an adjustment to the cost basis of the asset obtained by the debt issue.
32) 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 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.
B. The balance of mortgage payable at a given balance sheet date will be reported as a long-term liability.
C. The amount of interest expense will remain constant over the 10-year period.
D. The balance of mortgage payable will remain a constant amount over the 10-year period.
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?
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, how much interest expense will be recognized in 2007?
36) Limeway Company issues $5,000,000, 6%, 5-year bonds dated January 1, 2007, on January 1, 2007. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue?
Present value of a single sum for 5 periods
Present value of a single sum for 10 periods
Present value of an annuity for 5 periods
Present value of an annuity for 10 periods
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.
39) The interest on the projected benefit obligation component of pension expense
A. is the same as the expected return on plan assets.
B. reflects the rates at which pension benefits could be effectively settled.
C. reflects the incremental borrowing rate of the employer.
D. may be stated implicitly or explicitly when reported.
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.
41) 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. stated value per share.
B. par value per share.
C. book value per share.
D. market value per share.
42) Dividends are not paid on
A. treasury common stock.
B. Dividends are paid on all of these.
C. noncumulative preferred stock.
D. nonparticipating preferred stock.
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?
Identifiable Profit (Loss)
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.