Question;1) A company changes from percentage-of-completion to;completed-contract, which is the method used for tax purposes. The entry to;record this change should include a;A. debit;to Retained Earnings in the amount of the difference on prior years, net of;tax.;B. debit to Loss on Long-Term Contracts in the amount of the;difference on prior years, net of tax.;C. credit to Deferred Tax Liability.;D. debit to Construction in Process.;2) Which of the following is accounted for as a change in accounting;principle?;A. A change from expensing immaterial expenditures to;deferring and amortizing them as they become material;B. A change from the cash basis of accounting to the accrual basis;of accounting;C. A change in;inventory valuation from average cost to FIFO;D. A change in the estimated useful life of plant assets;3) A company changes from straight-line to an accelerated method of;calculating depreciation, which will be similar to the method used for tax;purposes. The entry to record this change should include a;A. debit to Deferred Tax Asset.;B. debit to Retained Earnings in the amount of the difference;on prior years.;C. credit to Deferred Tax Liability.;D. credit to Accumulated;Depreciation.;4) Presenting consolidated financial statements this year when;statements of individual companies were presented last year is;A. an;accounting change that should be reported by restating the financial statements;of all prior periods presented.;B. an accounting change that should be reported prospectively.;C. NOT an accounting change.;D. a correction of an error.;5) During 2008, a construction company changed from the;completed-contract method to the percentage-of-completion method for accounting;purposes but not for tax purposes. The following lists include gross profit;figures under both methods for the past 3 years;Completed-Contract;Percentage-of-Completion;2006;$ 475,000;$ 800,000;2007;625,000;950,000;2008;700,000;1,050,000;$1,800,000;$2,800,000;Assuming an income tax rate of 40% for all years, the affect of this accounting;change on prior periods should be reported by a credit of what?;A. $390,000 on the 2008 income statement;B. $600,000 on the 2008 income statement;C. $390,000 on the;2008 retained earnings statement;D. $600,000 on the 2008 retained earnings statement;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?;A. $91,000;B. $60,000;C. $175,000;D. $154,000;7) The deferred tax expense is the;A. increase;in balance of deferred tax liability minus the increase in balance of deferred;tax asset.;B. increase in balance of deferred tax asset minus the;increase in balance of deferred tax liability.;C. decrease in balance of deferred tax asset minus the;increase in balance of deferred tax liability.;D. increase in balance of deferred tax asset plus the increase;in balance of deferred tax liability.;8) 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;Option 1;Temporary;Liability;Option 2;Temporary;Asset;Option 3;Permanent;Liability;Option 4;Permanent;Asset;A. Option 2;B. Option 1;C. Option 4;D. Option 3;9) A company uses the equity method to account for an investment.;This would result in what type of difference and in what type of deferred;income tax?;Type of Difference;Deferred Tax;Option 1;Permanent;Asset;Option 2;Permanent;Liability;Option 3;Temporary;Asset;Option 4;Temporary;Liability;A. Option 2;B. Option 1;C. Option 4;D. Option 3;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?;A. 6.6;B. 6.0;C. 9.0;D. 7.2;11) If a petty cash fund is established in the amount of $250, and;contains $150 in cash and $95 in receipts for disbursements when it is;replenished, the journal entry to record replenishment should include credits;to which of the following accounts?;A. Petty Cash, $100;B. Petty Cash, $75;C. Cash, $100;D. Cash, $95, Cash Over and Short, $5;12) If the month-end bank statement shows a balance of $36,000;outstanding checks are $12,000, a deposit of $4,000 was in transit at month;end, and a check for $500 was erroneously charged by the bank against the;account, what is the correct balance in the bank account at month end?;A. $28,500;B. $27,500;C. $43,500;D. $20,500;13) 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;A. the terms of the new obligation incurred or to be;incurred.;B. the number of;financing institutions that refused to refinance the debt, if any.;C. the terms of any equity security issued or to be issued.;D. a general description of the financing arrangement.;14) Stock dividends distributable should be classified on the;A. balance sheet as an asset.;B. balance sheet as;an item of stockholders' equity.;C. balance sheet as a liability.;D. income statement as an expense.;15) Which of the following items is a current liability?;A. Bonds due in 3 years;B. Bonds to be refunded when due in 8 months, there being no;doubt about the marketability of the refunding issue;C. Bonds, for which;there is an adequate appropriation of retained earnings, due in 11 months;D. Bonds for which there is an adequate sinking fund properly;classified as a long-term investment, due in 3 months;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. a cash outflow from investing activities.;B. a cash inflow;from financing activities.;C. a cash inflow from investing activities.;D. an addition adjustment to net income in the cash flows from;operating activities section.;17) An increase in inventory balance would be reported in a;statement of cash flows using the indirect method (reconciliation method) as;A. a;deduction from net income in arriving at net cash flow from operating;activities.;B. a cash outflow from financing activities.;C. a cash outflow from investing activities.;D. an addition to net income in arriving at net cash flow from;operating activities.;18) The primary purpose of the statement of cash flows is to provide;information;A. that is useful in assessing cash flow prospects.;B. about the entity's ability to meet its obligations, its;ability to pay dividends, and its needs for external financing.;C. about the cash;receipts and cash payments of an entity during a period.;D. about the operating, investing, and financing activities of;an entity during a period.;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, current assets, and retained earnings were;understated.;C. Net income and current assets were overstated and current;liabilities were understated.;D. Net income;current assets, and retained earnings were overstated.;20) Cross Co. accepted delivery of merchandise that it purchased on;account. As of December 31, Cross had recorded the transaction, but did not;include the merchandise in its inventory. What would be the effect of this on;its financial statements for December 31?;A. Net income was correct and current assets were;understated.;B. Net income was overstated and current assets were;understated.;C. Net income was understated and current liabilities were;overstated.;D. Net income;current assets, and retained earnings were understated.;21) 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 understatement of assets and net income.;B. an understatement;of cost of goods sold and liabilities and an overstatement of assets.;C. an overstatement of assets and net income.;D. an understatement of liabilities and an overstatement of;owners' equity.;22) Fences and parking lots are reported on the balance sheet as;A. land;improvements.;B. land.;C. current assets.;D. property and equipment.;23) Which of these is not a major characteristic of a plant asset?;A. Acquired;for use in operations;B. Yields services over a number of years;C. Possesses physical substance;D. All of these are major characteristics of a plant asset.;24) The debit for a sales tax properly levied and paid on the;purchase of machinery preferably would be a charge to;A. a separate deferred charge account.;B. miscellaneous tax expense, which includes all taxes other;than those on income.;C. the machinery;account.;D. accumulated depreciation?machinery.;25) On November 1, 2007, Little Company purchased 600 of the $1,000;face value, 9% bonds of Player, Incorporated, for $632,000, which includes;accrued interest of $9,000. The bonds, which mature on January 1, 2012, pay;interest semiannually on March 1 and September 1. Assuming that Little uses the;straight-line method of amortization and that the bonds are appropriately;classified as available-for-sale, what would the net carrying value of the;bonds be shown as on Little's December 31, 2007, balance sheet?;A. $623,000;B. $622,080;C. $600,000;D. $632,000;26) 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?;A. $4,020;B. $4,980;C. $4,500;D. $5,460;27) 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?;A. $975,750;B. $990,000;C. $975,000;D. $990,250;28) 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. at the end of the lease the property usually can be;purchased by the lessee.;B. a lease reflects;the purchase or sale of a quantifiable right to the use of property.;C. 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.;D. during the life of the lease the lessee can effectively;treat the property as if it were owned by the lessee.;29) An essential element of a lease conveyance is that the;A. lessee provides a sinking fund equal to one year's;lease payments.;B. 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.;C. lessor conveys;less than his or her total interest in the property.;D. term of the lease is substantially equal to the economic;life of the leased property.;30) Which of the following is a correct statement of one of the;capitalization criteria?;A. The lease contains a purchase option.;B. The lease transfers ownership of the property to the;lessor.;C. The lease term is;equal to or more than 75% of the estimated economic life of the leased;property.;D. The minimum lease payments, excluding executory costs;equal or exceed 90% of the fair value of the leased property.;31) Discount on notes payable is charged to interest expense;A. only in the year the note is issued.;B. equally over the life of the note.;C. using the;effective-interest method.;D. only in the year the note matures.;32) 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 that should be considered a cash adjustment;to the cost of any other debt issued over the remaining life of the old debt;instrument.;B. an adjustment to the cost basis of the asset obtained by;the debt issue.;C. an amount received or paid to obtain a new debt instrument;and, as such, should be amortized over the life of the new debt.;D. a difference;between the reacquisition price and the net carrying amount of the debt which;should be recognized in the period of redemption.;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 will remain a;constant amount over the 10-year 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 decrease each period the loan is outstanding, while the;portion of the annual payment applied to the loan principal will increase each;period.;D. The amount of interest expense will remain constant over;the 10-year period.;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. What is the total cash received on the;issue date?;A. $10,225,000;B. $9,700,000;C. $9,850,000;D. $9,550,000;35) 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?;2.5%;3.0%;5.0%;6.0%;Present value of a single sum for 5 periods;.88385;.88261;.78353;.74726;Present value of a single sum for 10 periods;.78120;.74409;.61391;.55839;Present value of an annuity for 5 periods;4.64583;4.57971;4.32948;4.21236;Present value of an annuity for 10 periods;8.75206;8.53020;7.72173;7.36009;A. $5,216,494;B. $5,000,000;C. $5,218,809;D. $5,217,308;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?;A. $1,560,000;B. $780,000;C. $1,568,498;D. $1,568,332;37) Which of the following is not a characteristic of a;defined-contribution pension plan?;A. The;benefits to be received by employees are defined by the terms of the plan.;B. The employer's contribution each period is based on a;formula.;C. The accounting for a defined-contribution plan is;straightforward and uncomplicated.;D. The benefit of gain or the risk of loss from the assets;contributed to the pension fund are borne by the employee.;38) In accounting for a defined-benefit pension plan;A. the employer's responsibility is simply to make a;contribution each year based on the formula established in the plan.;B. an appropriate;funding pattern must be established to ensure that enough monies will be;available at retirement to meet the benefits promised.;C. the expense recognized each period is equal to the cash;contribution.;D. the liability is determined based upon known variables that;reflect future salary levels promised to employees.;39) The interest on the projected benefit obligation component of;pension expense;A. reflects;the rates at which pension benefits could be effectively settled.;B. reflects the incremental borrowing rate of the employer.;C. is the same as the expected return on plan assets.;D. may be stated implicitly or explicitly when reported.;40) Windsor Company has outstanding both common stock and;nonparticipating, noncumulative preferred stock. The liquidation value of the;preferred is equal to its par value. The book value per share of the common;stock is unaffected by;A. the declaration of a stock dividend on common stock;payable in common stock when the market price of the common is equal to its par;value.;B. a 2-for-1 split of the common stock.;C. the declaration of a stock dividend on preferred payable in;preferred stock when the market price of the preferred is equal to its par;value.;D. the payment of a;previously declared cash dividend on the common stock.;41) Dividends are not paid on;A. nonparticipating preferred stock.;B. Dividends are paid on all of these.;C. noncumulative preferred stock.;D. treasury common;stock.;42) 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. par value per share.;B. market value per share.;C. book value per;share.;D. stated value per share.;43) Preparation of consolidated financial statements when a;parent-subsidiary relationship exists is an example of the;A. relevance characteristic.;B. neutrality characteristic.;C. economic entity;assumption.;D. comparability characteristic.;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 2;B. Option 4;C. Option 1;D. Option 3;45) Presenting consolidated financial statements this year when;statements of individual companies were presented last year is;A. an accounting change that should be reported;prospectively.;B. NOT an accounting change.;C. a correction of an error.;D. an accounting;change that should be reported by restating the financial statements of all;prior periods presented.
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