Gleim Cpa Review Far Questions.docx 2
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Gleim Cpa Review Far Questions.docx 2...
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QUESTIONS 1.1 Standard Standa rd Setting for Financial Accounti Accounting ng 1. Congress Congress empowered empowered wic wic of te followin following g !odies wit wit te autorit" autorit" to to set accountin accounting g standards for pu!licl" traded companies in te U.S# a. Te Securities Securities and E$cange E$cange Commission Commission %SEC& !. Te Americ American an Institute Institute of Certified Certified 'u!lic 'u!lic Accoun Accountants tants %AIC' %AIC'A& A& c. Te Financi Financial al Accounti Accounting ng Standards Standards (oard %FAS(& %FAS(& d. Te Interna International tional Accountin Accounting g Standards Standards (oard %IAS(& %IAS(& ). Arpco* Inc.* Inc.* a for+profit for+profit pro,ide pro,iderr of ealtcare ealtcare ser,ices* ser,ices* recentl" recentl" purcase purcased d two smaller smaller comp compani anies es and and is rese resear arc cin ing g acco accoun unti ting ng issu issues es arisi arising ng from from te te two two !usi !usine ness ss com! com!ina inati tion ons. s. -ic -ic of te te foll follow owin ing g acco accoun unti ting ng pron pronoun ounce ceme ment nts s are are te te most most autoritati,e# a. FAS( FAS( Accou Accounti nting ng Standard Standards s Updates Updates.. !. FAS( FAS( Stateme Statements nts of finan financia ciall Concept Concepts. s. c. FAS( FAS( Statemen Statements ts of Financial Financial Accounti Accounting ng Standards Standards.. d. Te Acco Account unting ing Standa Standards rds Codific Codificati ation on.. /. -ic of te te followi following ng is true concerning concerning IF0Ss# IF0Ss# a. FAS( FAS( pronouncemen pronouncements ts tend to reuire reuire greater greater e$ercis e$ercise e of professional professional 2udgmen 2udgmentt in teir implementation tan IF0Ss !. Intern Internati ationa onall Account Accounting ing Standar Standards ds %IASs& %IASs& were were re,o3e re,o3ed d as a !od" !od" wen te IAS( too3 o,er te mission of promulgating a new set of glo!al financial reporting standards c. Te Te FAS( as as comm commit itte ted d itse itself lf to main mainta tain inin ing g te te inte integr grit it" " of U.S U.S 4AA' 4AA' independent of te efforts of te IAS( to acie,e glo!al armoni5ation d. Te IAS( as as committed committed itself itself to allowi allowing ng pu!lic commen commentt on e$posure e$posure drafts drafts of propose pronouncements !efore te official issuance of an IF0S. 6. Te principal principal !enefit !enefit of a single single set of of glo!al financia financiall reporting reporting standards standards is a. Te armoni5ati armoni5ation on of world financial financial reporting reporting !. Increa Increased sed ease ease of of capi capital tal flow flow c. Simplified Simplified enforce enforcement ment for local local and and national national regulato regulator" r" !odies !odies d. 7inimi5ati 7inimi5ation on of te amount amount of professi professional onal 2udgment 2udgment reuired reuired to impleme implement nt tem. tem. 8. -ic -ic of te followi following ng is true true regarding regarding te compari comparison son of manageri managerial al and financ financial ial accounting# a. 7anagerial 7anagerial accounting accounting is generall" generall" more precise. precise. !. 7anage 7anagerial rial accoun accountin ting g as a past past focus and financi financial al accounti accounting ng as a future future focus. c. Te Te emp empas asis is on mana manage geria riall acco accoun unti ting ng is rele,a rele,ance nce and te te emp empas asis is on financial accounting is timeliness. d. 7ana 7anage geri rial al acco account untin ing g need need not follow generall" accepted accounting principles %4AA'&* wile financial accounting must follow tem.
1.) Te O!2ecti,e of 4eneral+'urp 4enera l+'urpose ose Financial 0eporting
9. Accordi According ng to te FAS(: FAS(:s s concep conceptua tuall framew framewor3 or3** te o!2ect o!2ecti,e i,e of genera general+p l+purp urpose ose financial reporting is most li3el" !ased on a. 4eneral 4enerall" l" accept accepted ed account accounting ing princi principle ples. s. !. 0eporting 0eporting on ow well managem management ent as disca discarged rged its its responsi!il responsi!ilities ities.. c. Te Te need need for for con conse ser, r,at atis ism. m. d. Te need needs s of te te users users of of te inform informati ation on ;. -ic of te te following following !est reflects reflects te o!2ecti, o!2ecti,e e of general+purpos general+purpose e financial financial reporting# reporting# a. Te Te prim primar ar" " focu focus s of fina financ ncia iall repo report rtin ing g is info inform rmat atio ion n a!ou a!outt an enti entit" t":s :s resources.
!. Te !est identif identifica icatio tion n of an entit" entit":s :s a!ilit" a!ilit" to generate generate fa,ora!l fa,ora!le e cas cas flows flows is information !ased on pre,ious cas flows. c. Financial Financial accountin accounting g is e$pressl" e$pressl" designed designed to to accuratel" accuratel" measure measure te te ,alue ,alue of a !usiness. d. In,estment In,estment and and credit decisi decisions ons often often are !ased* !ased* at least in in part* on e,aluati e,aluations ons of te past performance of an entit". . -at are te Statements of Financial Accounting Accounting Concepts intended to esta!lis# esta!lis# a. 4ener 4eneral all" l" acce accept pted ed acco accoun unti ting ng prin princi cipl ples es in fina financ ncial ial repo report rtin ing g " !usi !usine ness ss enterprises. !. Te meaning meaning of ?present ?present fairl" fairl" in accordanc accordance e wit generall" generall" accept accepted ed accounting accounting principles.@ c. Te Te o!2e o!2ect cti, i,es esan and d conc concep epts ts for for use use in de,e de,elo lopi ping ng stan standa dard rds s of fina financ ncia iall accounting and reporting d. Te ierarc" ierarc" of sources sources of generall generall" " accepted accepted account accounting ing principle principles. s.
1./ O!2ecti,es of Financial 0eporting Not Not for+profit %Nongo,ernmental& Entities Entities 11. -ic -ic of te te foll follow owin ing g is ordi ordina naril ril" " not considered one of te ma2or distinguising caracteristics of non!usiness organi5ations# a. Signi Signifi fica cant nt amou amount nts s of reso resour urce ces s are are pro, pro,id ided ed !" dono donors rs in nonr nonrec ecip ipro roca call transactions !. Tere is is an a!sence a!sence of defined defined** transfera!l transfera!le e ownersip ownersip interes interests ts c. 'erf 'erfor orma manc nce e indi indica cato tors rs simi simila larr to a !usi !usine ness ss ente enterp rpri rise se:s :s prof profit it are read readilil" " a,aila!le d. Te primar" primar" operatin operating g purpose purpose is not to to pro,ide pro,ide goods or or ser,ices ser,ices at a profit 1). -ic of te following is a caracteristic of non!usiness organi5ations# organi5ations# a. None Noneco cono nomi mic c reas reason ons s seldo seldom m unde underl rlie ie te te deci decisi sion on to pro, pro,id ide e resou resourc rces es to non!usiness enterprises !. (usine (usiness ss and non!us non!usine iness ss organi5a organi5atio tions ns usuall" usuall" o!tain o!tain resour resources ces in te same wa" c. (ot (ot non! non!us usin ines ess s and and !usi !usine ness ss orga organi ni5a 5ati tion ons s use use scar scarce ce reso resour urce ces s in te te production and distri!ution of goods and ser,ices d. Te operating operating en,ironment en,ironment of non!usin non!usiness ess organi5ati organi5ations ons ordinaril" ordinaril" differs differs from from tat od !usiness organi5ations 1/. Te resource pro,iders of not+for+profit not+for+profit organi5ations a,e wic wic of te following as teir primar" concerns# I. Fina Financ nciial re return urn on on in, in,estm estmen entt II. II. Ser, Ser,ic ices es ren rende dere red d !" not not+f +for or+p +pro rofi fitt orga organi ni5a 5ati tion on III. III. Te cont continu inuing ing a!ili a!ilit" t" of te te not+fo not+for+p r+prof rofit it organi organi5at 5ation ion to to render render ser,i ser,ices ces IB. IB. Te Te a,o a,oid idan ance ce of frau fraud d or or em!e em!e55 55le leme ment nt a. I and IB !. II* II* III III** and and IB c. I* II II* an and II III d. II and III
16. All of te following following are o!2ecti,es o!2ecti,es of financial reporting reporting !" non!usiness non!usiness organi5atio organi5ations ns except a. To pro,ide pro,ide information information tat tat is useful to to current and and potential potential resource resource pro,iders pro,iders in ma3ing resource allocation decisions !. To pro,ide pro,ide informa informatio tion n tat tat concerns concerns te sources sources and uses of cas and oter liuid assets* !orrowing !orrowing and repa"ment repa"ment acti,ities* acti,ities* and oter factors affecting affecting liuidit" c. To pro,ide pro,ide inform informati ation on tat tat concer concerns ns perfor performan mance* ce* including including a single single indicato indicator r comp compar ara! a!le le to a !usi !usine ness ss ente enterpr rpris ise: e:s s net net inco income me** tat tat perm permit its s reso resour urce ce pro,iders to assess ow effecti,el" te entit" is competing wit oters d. To pro, pro,id ide e info inform rmat atio ion n tat tat conc concer erns ns econ economi omic c reso resour urce ces* s* lia!i lia!ililiti ties es** net net resources* and te effects of canges in resources and interests 18. Te reporting model descri!ed descri!ed in te guidance guidance on not+for+pr not+for+profit ofit financial financial statements applies to a. (usiness (usiness entities entities and and go,ernment go,ernmental al not+for+p not+for+profit rofit organi5 organi5ations ations.. !. (usiness (usiness entities entities and nongo,er nongo,ernmenta nmentall not+for+pro not+for+profit fit organi5at organi5ations. ions. c. Nongo,ernmen Nongo,ernmental tal not+for+pro not+for+profit fit organi5ation organi5ations. s. d. 4o,e 4o,ern rnme ment ntal al not+ not+fo for+ r+pr prof ofit it orga organi ni5a 5ati tion ons s tat tat also also use use prop propri riet etar ar" " fund fund accounting. 1.6 O!2ecti,es O!2ect i,es of Financial Financi al 0eporting 4o,ernmental Entities Entitie s
19. -ic not to a. !. c. d.
of te following o!2ecti,es of financial financial reporting is applica!le to !usiness entities* go,ernmental entities# 'ro,ide information to Assist in pu!lic accounta!ilit". accounta!ilit". Assist in e,aluating operating results. Assist in assessing ser,ices pro,ided. Assist in assessing cas flow prospects.
1;. -ic of te following following o!2ecti,es o!2ecti,es of financial financial reporting is applica!le to go,ernmental go,ernmental entities# 'ro,ide information a. Useful in ma3ing ma3ing resource resource allocat allocation ion decisi decisions. ons. !. For assessi assessing ng ser,ice ser,ice efforts efforts and and accompli accomplismen sments. ts. c. Useful in assessin assessing g management management stewardsi stewardsip p and perform performance. ance. d. A!out economic economic resourc resources* es* o!ligation o!ligations* s* net resources resources** and canges canges in tem. tem. 1*>>> eferred Income ta$ lia!ilit" )8*>>> Senior (onds* ;M* due //1 ear ; 1*>>>*>>> Te contingent lia!ilit" is an accrual for possi!le losses on a L1 million lawsuit filed against (rite. (rite:s legal counsel e$pects te suit to !e settled in ear < and as estimated tat (rite will !e lia!le for damages in te range of L68>*>>> to L;8>*>>>. Te deferred income ta$ lia!ilit" is not related to an asset for financial reporting and is e$pected to re,erse in ear >> !. L =6>*>>> c. L 1*6=>*>>> d. L 1*818*>>> Questions 6 and 8 are !ased on te following information. Te Following trial !alance of Tre" Co. at ecem!er /1* ear 9* as !een ad2usted e$cept for income ta$ e$pense. r. Cr. Cas L 88>*>>> Accounts recei,a!le* net 1*98>*>>> 'repaid ta$es />>*>>> Accounts 'a"a!le L 1)>*>>> Common Stoc3 8>>*>>> Additional paid+in capital 9*>>> 0etained Earnings 9/>*>>> Foreign Current translation 68>*>>> ad2ustment 0e,enue /*9>>*>>> E$penses )*9>>*>>> TOTAL L 8*8/>*>>> L 8*8/>*>>> Additional Information uring ear 9* estimated ta$ pa"ments of L />>*>>> were carged to prepaid ta$es. Tre" as not "et recorded income ta$ e$pense. Tere were no differences !etween financial statement and income ta$ income* and Tre":s ta$ rate is />M. •
•
Included in accounts recei,a!le is L8>>*>>> due from a customer. Special terms granted to tis customer reuire pa"ment in eual semiannual installments of L1)8*>>> e,er" April 1 and Octo!er 1.
6. In Tre":s ecem!er /1* ear 9* !alance seet* wat amount sould !e reported as total current assets# a. L 1*=8>*>>> !. L )*)>>*>>> c. L )*)8>*>>> d. L )*8>>*>>> 8. In Tre":s ecem!er /1* ear 9* !alance seet* wat amount sould !e reported as total retained earnings# a. L 1*>)=*>>> !. L 1*)>>*>>> c. L 1*//>*>>> d. L 1*9/>*>>> ).) Statement of Income* 0etained Earnings* and Compreensi,e Income 9. Te effect of a material transaction tat is infreuent in occurrence !ut not unusual in nature sould !e presented separatel" as a component of income from continuing operations wen te transaction results in a 4ainoss a. ES ES !. ES NO c. NO NO d. NO ES ;. Te canges in account !alances of te Bel Corporation during te ear 9 are presented !elow Assets ia!ilities Capital Stoc3 Additional paid+in capital
Increase L /89*>>> 1>>> )6>*>>> )6*>>>
Bel as no items of oter compreensi,e income %OCI&* and te onl" carge to retained earnings was for a di,idend pa"ment of L 8)*>>>. Tus* te net income for ear 9 is a. L 19*>>> !. L /9*>>> c. L 8)*>>> d. L 9>> >*>>> Net Income 6>>*>>> Unreali5ed gain on a,aila!le+for+sale euit" )>*>>> securities -at amount sould 0oc3 report as compreensi,e income for te "ear ended ecem!er /1#
a. !. c. d.
L6>>*>>> L6)>*>>> L8)>*>>> L8;>*>>>
)./ Oter Financial Statement 'resentations 1>. 'ersonal financial statements usuall" consist of a. A statement of net wort and a statement of canges in net wort !. A statement of net wort* an income statement* and a statement of canges in net wort. c. A statement of financial condition and a statement of canges in net wort. d. A statement of financial condition* a statement of canges in net wort* and a statement of cas flows. 11. 7rs. Taft owns a L18>*>>> insurance polic" on er us!and:s life. Te cas ,alue of te polic" is L1)8*>>>* and a L8>*>>> loan is secured !" te polic". In te Taft:s personal statement of financial condition at ecem!er /1* wat amount sould !e sown as an in,estment in life insurance# a. L18>*>>> !. L1)8*>>> c. L1>>*>>> d. ;8*>>> 1). Quinn is preparing a personal statement of financial condition as of April />. Included in Quinn:s assets are te following 8>M of te ,oting stoc3 of In3 Corp. A sareolders: agreement restricts te sale of te stoc3 and* under certain circumstances* reuires In3 to repurcase te stoc3* Quinn:s ta$ !asis for te stoc3 is L6/>*>>>* and at April />* te !u"out ,alue is L9;8*>>>. ewelr" wit a fair ,alue aggregating L;>*>>> !ased on an independent appraisal on April /> for insurance purposes. Tis 2ewelr" was acuired !" purcase and gift o,er a 1>+"ear period and as a total ta$ !asis of L6>*>>> •
•
-at is te total amount at wic te In3 stoc3 and 2ewelr" sould !e reported in Quinn:s April /> personal statement of financial condition# a. L6;>*>>> !. L8>>*>>> c. L;18*>>> d. L;68*>>> 1/. On ecem!er /1* ear 6* Sane is a full" ,ested participant in a compan"+sponsored pension plan. According to te plan:s administrator* Sane as at tat date te nonforfeita!le rigt to recei,e a lump sum of L1>>*>>> is L=>*>>> at ecem!er /1* ear 6. Te rigt is not contingent on Sane:s life e$pectanc" and reuires no future performance on Sane:s part. In Sane:s ecem!er /1* ear 6* personal statement of financial condition* te ,ested interest in te pension plan sould !e reported at a. L> !. L=>*>>> c. L=8*>>> d. L1>>*>>> 16. On ecem!er /1* ear 8* 7r. and 7rs. (la3e owned a parcel of land eld as an in,estment. Te land was purcased for L=8*>>> in ear 1 and was encum!ered !" a mortgage wit a principal !alance of L9>*>>> at ecem!er /1 * ear 8* personal statement of financial condition* at wat amount sould !e te land in,estment and mortgage pa"a!le !e reported# and In,estment 7ortgage 'a"a!le a. L18>*>>> L9>*>>> !. L=8*>>> L9>*>>> c. L=>*>>> L> d. L/8*>>> L>
18. -ic of te following is not a compreensi,e !asis of accounting oter tan te generall" accepted accounting principles# a. Cas receipts and dis!ursement !asis of accounting. !. (asis of accounting used !" an entit" to file its income ta$ returns. c. (asis of accounting used !" an entit" to compl" wit te financial reporting reuirements of a go,ernment regulator" agenc". d. (asis of accounting used !" an entit" to compl" wit te financial reporting reuirements of a lending institution. 19. On April 1* ulie !egan operating a ser,ice proprietorsip wit an initial cas in,estment of L1*>>>. Te proprietorsip pro,ided L/*)>> of ser,ices in April and recei,ed a pa"ment of L )*8>> in 7a". Te proprietorsip incurred e$penses of L 1*8>> in April tat was paid in une. uring 7a"* ulie drew L8>> from er capital account. -at was te proprietorsip:s income for te ) monts ended 7a" /1 under te following metods of accounting# Cas+(asisAccrual+(asis a. L8>> L1*)>> !. L1*>>> L1*;>> c. L)*>>> L1*)>> d. L)*8>> L1*;>> 1;. Dan Co. prepared financial statements on te cas !asis of accounting. Te cas !asis was modified so tat an accrual of income ta$es was reported. Are tese financial statements in accordance wit te modified cas !asis of accounting# a. es !. No* !ecause te modifications are illogical c. No* !ecause tere is no su!stantial support for recording income ta$es d. No* !ecause te modifications result in financial statements eui,alent to tose prepared under te accrual !asis of accounting 1>> 1>*>>> 81>*>>> 11>*>>> />*>>>
Net cas flow pro,ided !" operations for ear 9 was# a. L))>*>>> !. L)/>*>>> c. L)8>*>>> d. L)9>*>>> Questions 9 and ; are !ased on te following information. Hollar Corp.:s transactions for te "ear ended ecem!er /1* ear 9* included in te following • • • • • • • •
'urcased real estate for L88>*>>> cas !orrowed from a !an3 Sold a,aila!le+for+sale securities for L8>>*>>> 'aid di,idends of L9>>*>>> Issued 8>> sares of common stoc3 for L)8>*>>> 'urcased maciner" and euipment for L1)8*>>> cas 'aid L68>*>>> toward !an3 loan 0educed accounts recei,a!le !" L1>>*>>> Increased accounts pa"a!le !" L)>>*>>>
9. Hollar:s net cas used in in,esting acti,ities for ear 9 was a. L9;8*>>> !. L/;8*>>> c. L1;8*>>> d. 8>*>>> ;. Hollar:s net cas used for financing acti,ities for ear 9 was a. L8>*>>> !. L)8>*>>> c. L68>*>>> d. L8>>*>>> *>>>R and cas pro,ided !" financing acti,ities of L)8>* >>>. New England:s cas !alance was L);* >>> on anuar" 1. uring te "ear* tere was a sale of land tat resulted in a gain of L)8* >>> and proceeds of L6>* >>> were recei,ed from te sale. -at was New England:s cas !alance at te end of te "ear# a. L );*>>> !. L 6>*>>> c. L )>>> d. L )6>> 1). 4reen Co. ad te following euit" transaction of ecem!er /1 Cas proceeds from sale of in,estment in (lue Co. %carr"ing ,ale + L9>* >>>& i,idends recei,ed on 4re" Co. stoc3 Common stoc3 purcased from (rown Co.
L;8* >>> 1>* 8>> />>
-at amount sould 4reen recogni5ed as net cas from in,esting acti,ities in its statement cas flows at ecem!er /1# a. L /;*>>> !. L 6;*8>> c. L ;8*>>> d. L > 1/. A compan" as te following accrual+!asis te !alances at te end of its "ear of operation Unearned consulting fees Consulting fees recei,a!le Consulting fee re,enue
L )*>>> /*8>> )8*>>>
Te compan":s cas+!asis consulting re,enue is wat amount# a. L 1=*8>> !. L )/*8>> c. L )9*8>> d. L />*8>> /.) irect and Indirect 7etods of 'resenting Operating Cas Flows 16. In its cas flow statement for te current "ear* Elliot Co. reported cas paid for interest of L;>*>>>. Elliot did not capitali5e an" interest during te current "ear. Canges occurred in se,eral !alance seet account as follows
Accrued Interest 'a"a!le 'repaid Interest
L 1;*>>> )/*>>>
In its income statement for te current "ear* wat amount sould Elliot report as interest e$pense# a. L />*>>> !. L 96*>>> c. L ;9*>>> d. L 11>*>>> Questions 18 and 19 are !ased on te following information. Fla$ Corp. uses te direct metod to prepare its statement cas flows. Fla$:s trial !alance at ecem!er /1* ear 9 and ear 8* are as follows e!its ear 9 L/8*>>>
ear 8 L /)*>>>
Accounts 0ecei,a!le In,entor"
//*>>>
/>*>>>
/1*>>>
6;*>>>
'ropert"* 'lant and Euipment Unamorti5ed !ond discount Cost of goods sold Selling e$penses 4eneral and Administrati,e e$penses Interest e$pense Income ta$ e$pense
1>>*>>>
=8*>>>
Credits ear 9 Allowance for L 1*/>> uncollecti!le accounts Accumulated 19*8>> depreciation Trade accounts )8*>>> pa"a!le Income ta$es pa"a!le )1*>>>
6*8>>
8*>>>
eferred income ta$es
)8>*>>>
/*>>>
161*8>> 1/;*>>>
1;)*>>> 181*/>>
>> pa"ale Common stoc3 8>*>>> Additional paid+in =*1>> capital
6*/>> )>*6>>
)*9>> 91*)>>
0etained Earnings Sales
66*;>> 8/
96*9>> ;;>
TOTA
$756,700
$976,100
TOTA
$ 756,700
$976,10 0
Cas
8*/>>
ear 8 L 1*1>> 18*>>> 1;*8>> );*1>> 6*9>> )>*>>> 6>*>>> ;*8>>
Fla$ purcased L8*>>> in euipment during ear 9 Fla$ allocated one+tird of its depreciation e$pense to selling e$penses and te remainder to general and administrati,e e$penses* wic include te pro,ision to uncollecti!le accounts 18. -at amount sould Fla$ report in its statement of cas flows for te "ear ended ecem!er /1* ear 9* for cas collected from customers# a. L 861*> !. L 861*9>> c. L 8/9*>>> d. L 8/8*> 19. -at amount sould Fla$ report in its statement of cas flows for te "ear ended ecem!er /1* ear 9* for cas paid for income ta$es# a. L )8*> !. L )>*6>> c. L1=*;>> d. L 18*>>> • •
1;. Te statement of cas flows ma" !e presented in eiter a direct or an indirect %reconciliation& format. In wic of tese formats would cas collected from customers !e presented as a gross amount# irectIndirect a. NO NO !. NO ES c. ES ES d. ES NO 1>> during te "ear. Dow sould 'a"ne report te cange in unamorti5ed !ond discount in its statement of cas flows# a. As a financing cas inflow !. As a financing cas outflow c. As an addition to net income in te operating acti,ities section d. As a su!traction from net income in te operating acti,ities section 1=. -it respect to te content and form of te statement of cas flows a. Te pronouncements co,ering te cas flow statement encourage te use of te indirect metod !. Te indirect metod ad2usts ending retained earnings to reconcile it to net cas flows from operations c. Te direct metod of reporting cas flows from operating acti,ities include disclosing te ma2or classes of gross cas receipts and gross cas pa"ments d. Te reconciliation of te net income to net operating cas flow need not !e presented wen using te direct metod )>. Te net income for C"press* Inc.* was L/*>>>*>>> for te "ear ended ecem!er /1. Additional information is as follows epreciation on fi$ed assets 4ain from cas sale of land Increase in accounts pa"a!le i,idends paid on preferred stoc3
L 1*8>>*>>> )>>*>>> />>*>>> 6>>*>>>
Te net cas pro,ided !" operating acti,ities in te statement of cas flows for te "ear ended ecem!er /1 is a. L 6*)>>*>>> !. L 6*8>>*>>> c. L 6*9>>*>>> d. L 6*>*>>> Questions )1 troug )/ are !ased on te following information. 0o"ce Compan" ad te following transactions during te fiscal "ear ended ecem!er /1* ear ) •
•
•
• •
Accounts recei,a!le decreased from L118*>>> on ecem!er /1* ear 1* to L1>>*>>> on ecem!er /1* ear ) 0o"ce:s !oard of directors declared di,idends on ecem!er /1* ear )* of L.>8 per sare on te ).< million sareolders of record on anuar" /1* ear /. Te compan" did not declare or pa" di,idends for fiscal ear 1. Sold a truc3 wit a net carr"ing amount of L;*>>> for L8*>>> cas* reporting a loss of L)*>>> 'aid interest to !ondolders of L;*>>> Te cas !alance was L1>9*>>> on ecem!er /1* ear 1* and L)>> on ecem!er /1* ear )
)1. 0o"ce Compan" uses te direct metod to prepare its statement of cas flows at ecem!er /1* ear )*. Te interest paid to !ondolders is reported in te a. Financing section* as a use or outflow of cas
!. Operating section* as a use or outflow of cas c. In,esting section* as a use or outflow of cas d. e!t section* as a use or outflow of cas )). 0o"ce Compan" uses te indirect metod to prepare its ear ) statement of cas flows. It reports a%n& a. Source or inflow of funds of L 8*>>> from te sale of te truc3 in te financing section !. Use or outflow of funds of L 16>*>>> in te financing section* representing di,idends c. eduction of L 18*>>> in te operating section* representing te decrease in "ear+end accounts recei,a!le d. Addition of L )*>>> in te operating section for te L )*>>> loss on te sale of te truc3 )/. Te total of cas pro,ided %used& !" operating acti,ities plus cas pro,ided %used& !" in,esting acti,ities plus cas pro,ided %used& !" financing acti,ities is a. Cas pro,ided of L )>> !. Cas pro,ided of L 1;>> c. Cas used of L 8>> d. Eual to net income reported for fiscal "ear ended ecem!er /1* ear ) )6. epreciation e$pense is added to net income under te indirect metod of preparing a statement of cas flows in order to a. 0eport all assets at gross carr"ing amount !. Ensure depreciation as !een properl" reported c. 0e,erse noncas carges deducted from net income d. Calculate net carr"ing amount )8. ee:s in,entor" and accounts pa"a!le !alances at ecem!er /1* ear )* increased o,er teir ecem!er /1* ear 1* !alances. Sould tese increases !e added to or deducted from cas pa"ments to suppliers to arri,e at ear ) cost of goods sold# Increase in In,entor"Increase in Accounts 'a"a!le a. Added to educted from !. Added to Added to c. educted from educted from d. educted from Added to )9. 7etro* Inc.* reported net income of L18>*>>> for te current "ear. Canges occurred in se,eral !alance seet accounts during te current "ear as follows In,estment in Bideo 4old* Inc.* stoc3* all of wic was acuired in te pre,ious "ear* carried on te euit" !asis Accumulated depreciation* caused !" ma2or repair to pro2ection euipment 'remium on !onds pa"a!le eferred income ta$ lia!ilit" %long term&
L 8*8>> increase
)*>>> decrease 1*6>> decrease 1*> increase
In 7etro:s current "ear cas flow statement* te reported net cas pro,ided !" operating acti,ities sould !e a. L 18>*6>> !. L 16> c. L 166*=>> d. L 16)*> );. Sa,or Co. ad L1>>*>>> in cas+!asis preta$ income for ear ). At ecem!er /1* ear )* accounts recei,a!le ad increased !" L1>*>>> and accounts pa"a!le ad decreased !" L9*>>> from teir ecem!er /1* ear 1* !alances. Compared to te accrual !asis metod of accounting* Sa,or:s cas preta$ income is a. Diger !" L 6*>>> !. ower !" L 6*>>>
c. Diger !" L 19*>>> d. ower !" L 19*>>> )>> Income ta$es paid /)8*>>> i,idends paid )>>*>>> Net interest pa"ments ))>*>>> -at amount sould Tam report as supplemental disclosures in its statement of cas flows prepared using te indirect metod# a. L 868*>>> !. L ;68*>>> c. L 1*1)8*>>> d. L 1**>>> />. (a3er Co. !egan its operations during te current "ear. Te following is (a3er:s !alance seet at ecem!er /1 (a3er Co. (alance Seet Assets Cas Account recei,a!le Total assets
L1=)*>>> >> L);6*>>>
ia!ilities and Stoc3older:s Euit" Accounts pa"a!le L)6*>>> Common stoc3 )>>*>>> 0etained earnings 8>*>>> Total ia!ilities and Stoc3older:s Euit" L);6*>>> (a3er:s net income for te current "ear was L;>>* and di,idends of L)>> were declared and paid. Common stoc3 was issued for L)>>*>>>. -at amount sould (a3er report as cas pro,ided !" operating acti,ities in its statement of cas flows for te current "ear# a. !. c. d.
L )>*>>> L 8>*>>> L 1=)*>>> L )8>*>>>
QU!T"O#! .1 %iscontin&ed Operations 1. For te purpose of reporting discontinued operations* a component of an entit" is !est defined as
A. An operating segment or one le,el !elow an operating segment. (. A set of operations and cas flows clearl" distinguisa!le from te rest of te entit" for operational and financial reporting purposes. C. A separate ma2or line of !usiness or class of customer. . A significant disposal group.
2. On anuar" 1* ear 6* art* Inc.* entered into an agreement to sell te assets and product line of its a" i,ision* wic met te criteria for classification as an operating segment. Te same was consummated on ecem!er /1* ear 6* and resulted in a gain on disposal of L6>>*>>>. Te di,ision:s operations resulted in losses !efore income ta$ of L))8*>>> in ear 6 and L1)8*>>> in ear /. For !ot "ears* art:s income ta$ rate is />M* and te criteria for reporting discontinued operation a,e !een met. In a comparati,e statement of income for ear 6 and ear /* under te caption discontinued operations* art sould report a gain %loss& of
ear 6 A. (. C. .
L1))*8>> L1))*8>> L%18;*8>>& L%18;*8>>&
ear / L%>& L> L%>& L>
'. uring anuar" of ear 9* oe Corp. agreed to sell te assets and product line of its Dart di,ision. Te sale was completed on anuar"18* ear ;* and resulted in a gain on disposal of L=>>*>>>. Dart:s operating losses were L9>>*>>> for ear 9 and L8>*>>> for te period anuar" 1 troug anuar" 18* ear ;. Tese regarding income ta$es and assuming tat te criteria for reporting a discontinued operation are met* wat amount of net gain %loss& sould !e reported in tose comparati,e ear ; and ear 9 income statements#
A. (. C. .
ear ;
ear 9
L> L)8>*>>> L*>>> L=>>*>>>
L)8>*>>> L> L%9>>*>>>& L%98>*>>>&
.2 xtraordinar( "te)s . A transaction tat is unusual in nature and infreuent in occurrence sould !e reported separatel" as a component of income
A. (efore cumulati,e effect of a cange in accounting principle and after discontinued operations of a component unit. (. After cumulati,e effect of a cange in accounting principle and !efore net income. C. (efore cumulati,e effect of a cange in accounting principle and discontinued operations of a component unit. . After discontinued operations and !efore net income.
5. Strand* Inc.* incurred te following infreuent losses during te "ear 2ust ended • • •
A L=>*>>> write+down of euipment leased to oters A L8>*>>> ad2ustment of accruals on long+term contracts A L;8*>>> write+off of o!solete in,entor"
In its income statement for te "ear* wat amount sould Strand report as total infreuent losses tat are not considered e$traordinar"# A. (. C. .
L)18*>>> L198*>>> L16>*>>> L1)8*>>>
6. uring te "ear 2ust ended* Teller Co. incurred losses arising from its guilt" plea in its first antitrust action and from a su!stantial increase in production costs caused wen a ma2or supplier:s wor3ers went on stri3e. -ic of tese losses sould !e reported as an e$traordinar" item#
Antitrust Action A. (. C. es .
'roduction Costs
No No
No es No es
es
7. An e$traordinar" item sould !e reported separatel" on te income statement as a component of income
Net of Income Ta$es A. es (. es C. No . No
(efore iscontinued Operations of a Component of an Euit" es No No es
.' Acco&ntin* +an*es and rror +orrections
Questions < troug 1> are !ased on te following information. oire Co. as used te FIFO metod since it !egan operations in ear /. oire canged to te weigted+a,erage metod for in,entor" measurement at te !eginning of ear 9. Tis cange was 2ustified. In its ear 9 financial statements* oire included comparati,e statements for ear 8 and ear 6. Te following sows "ear+end in,entor" !alances under te FIFO and weigted+a,erage metods ear FIFO -eigted+A,erage / L=>*>>> L1>>> 6 189*>>> 16)*>>> 8 199*>>> 18>*>>> -. -at ad2ustment* !efore ta$es* sould oire ma3e retrospecti,el" to te !alance reported for retained earnings at te !eginning of ear 6#
A. (. C. .
L1>> increase. L1>> decrease. L6*>>> increase L>
9. -at amount sould oire report as in,entor" in its financial statements for te "ear ended ecem!er /1* ear 6* presented for comparati,e purposes#
A. (. C. .
L=>*>>> L1>>> L16)*>>> L189*>>>
10. (" wat amount sould oire:s cost of sales !e retrospecti,el" ad2usted for te "ear ended ecem!er /1* ear 8#
A. (. C. .
L>. L)*>>> increase. L16*>>> increase. L19*>>> increase.
11. Under IAS sares of common stoc3. uring te "ear* net income was L)>>*>>>* no di,idends were declared* and te ta$ rate was />M. -at amount was Comma:s !asic earnings per sare for te current "ear#
A. (. C. .
L9.;< L;./9 L;.>; L>
17. In computing te weigted+a,erage num!er of sares outstanding during te "ear* wic of te following mid"ear e,ents must !e treated as if it ad occurred at te !eginning of te "ear#
A. (. C. .
eclaration and distri!ution of a stoc3 di,idend. 'urcase of treasur" stoc3. Sale of additional common stoc3. Sale of con,erti!le preferred stoc3.
Questions 1< troug )1 are !ased on te following information. 'u!co is a pu!lic compan" tat uses a calendar "ear and as a comple$ capital structure. In te computation of its !asic and diluted earnings per sare %(E'S and E'S* respecti,el"&* 'u!co uses income !efore e$traordinar" items as te control num!er. 'u!co reported no discontinued operations* !ut it ad an e$traordinar" loss %net of ta$& of L1.) million in te first uarter wen its income !efore te e$traordinar" item was L1 million. Te a,erage mar3et price of 'u!co:s common stoc3 for te first uarter was L)8* te sares outstanding at te !eginning of te period eualed />>*>>>* and 1)*>>> sares were issued on 7arc 1. At te !eginning of te uarter* 'u!co ad outstanding L) million of 8M con,erti!le !onds* wit eac L1*>>> !ond con,erti!le into 1> sares of common stoc3. No !onds were con,erted. At te !eginning of te uarter* 'u!co also ad outstanding 1)>*>>> sares of preferred stoc3 pa"ing a uarterl" di,idend of L.1> per sare and con,erti!le to common stoc3 on a one+to+one !asis. Dolders of 9>*>>> sares of preferred stoc3 e$ercised teir con,ersion pri,ilege on Fe!ruar" 1. Trougout te first uarter* warrants to !u" 8>*>>> sares of 'u!co:s common stoc3 for L)< per sare were outstanding !ut une$ercised. 'u!co:s ta$ rate was />M. 1-. Te weigted+a,erage num!er of sares used to calculate 'u!co:s (E'S amounts for te first uarter is
A. (. C. .
666*>>> /;)*>>> /66*>>> />>*>>>
19. Te control num!er for determining weter 'u!co:s potential common sares are diluti,e or antidiluti,e for te first uarter is
A. (. C. .
L1*>>>*>>> L==6*>>> L%)>9*>>>& L%1*)>>*>>>&
)>. Te (E'S amount for 'u!co:s net income or loss a,aila!le to common sareolders for te first uarter after te e$traordinar" item is a. L )..69& c. L %>.9>& d. L %/.6=& )1. Te weigted+a,erage num!er of sares used to calculate 'u!co:s (E'S amounts for te first uarter is a. 666*>>> !. 6/>> c. /;)*>>> d. /66*>>> IB.8
ong+term construction contracts
)). Te calculation of te income recogni5ed in te tird "ear of a 8+"ear construction contract accounted for using te percentage+of+completion metod includes te ratio of a. Costs incurred in ear / to total si!lings !. Costs incurred in ear / to total estimated costs c. Total costs incurred to date to total !illings d. Total costs incurred to date to total estimated costs )/. Daft Construction Co. as consistentl" used te percentage+of+completion metod. On anuar" 1>* ear /* Daft !egan on a L/ million construction contract. At te inception date* te estimated cost of construction was L)*)8>*>>>. Te following data relate to te progress of te contract 4ross profit recogni5ed at 1)/1r / L />>*>>> Costs incurred 11>r / troug 1)/1r 6 1*>*>>> Estimated costs to complete at 1)/1r 6 9>>*>>> In its income statement for te "ear ended ecem!er /1* ear 6* wat amount of gross profit sould Daft report# a. L 68>*>>> !. L />>*>>> c. L )9)*8>> d. L 18>*>>> )6. A compan" appropriatel" uses te completed+contract metod to account for a long+term construction contract. 0e,enue is recogni5ed wen progress !illings are 0ecordedCollected a. NO ES !. ES ES c. ES NO d. NO NO )8. 'ell Co.:s construction 2o!s %descri!ed !elow& commence during te "ear 2ust ended 'ro2ect 1 'ro2ect ) Contract price L 6)>*>>> L />>*>>> Costs incurred during te )6>*>>> )*>>> "ear Estimated costs to complete 1)>*>>> 6>*>>> (illed to customers during te 18>*>>> );>*>>> "ear 0ecei,ed from customers =>*>>> )8>*>>> during te "ear If 'ell appropriatel" used te completed+contract metod* wat amount of gross profit %loss& sould 'ell report in its income statement for te "ear#
a. !. c. d.
L %)>*>>>& L> L /6>*>>> L 6)>*>>>
6.9 0e,enue 0ecognition after deli,er" )9. For financial statement purposes* te installment metod of accounting ma" !e used if te a. Collection period e$tends o,er more tan 1) monts !. Installments are due in different "ears c. Ultimate amount collecti!le is indeterminate d. 'ercentage+of+completion metod is inappropriate );. It is proper to recogni5e re,enue prior to te sale of mercandise wen I. II. a. !. c. d.
Te re,enue will !e reported as an installment sale. Te re,enue will !e reported under te cost+reco,er" metod.
I onl" II onl" (ot I and II Neiter I nor II
)>*>>>
ear 8 L 9>>*>>>
1>>*>>> />>*>>>
)>>*>>> +
18>*>>> 8>*>>> 6>M
8>*>>> + />M
-at amount sould Astor report as deferred gross profit in its ecem!er /1* ear 9* !alance seet for te ear 8 and ear 9 sales# a. L 18>*>>> !. L )1>*>>> c. L ))>*>>>
d. L )8>*>>> />. (ear Co.* wic !egan operation s on anuar" )* appropriatel" uses te installment sales metod of accounting. Te following information is a,aila!le for te "ear Installment sales 0eali5ed gross profit on installment sales 4ross profit percentage on sales
L 1*6>>*>>> )6>*>>> 6>M
For te "ear ended ecem!er /1* wat amounts sould (ear report as accounts recei,a!le and deferred gross profit# Accounts 0ecei,a!leeferred gross profit a. L 9>>*>>> L /)>*>>> !. L 9>>*>>> L /9>*>>> c. L >*>>> L /)>*>>> d. L >*>>> L 89>*>>> /1. Se,eral of Fo$* Inc.*:s customers are a,ing cas flow pro!lems. Information pertaining to tese customers for te "ears ended 7arc /1* ear ; and ear < follows Sales Cost of sales Cas collections on ear ; sales on ear < sales
//1r ; L 1>*>>> >>
//1r < L 18*>>> =*>>>
;*>>> +
/*>>> 1)*>>>
If te cost+reco,er" metod is used* wat amount would Fo$ report as gross profit from sales to tese customers for te "ear ended 7arc /1* ear >> !. L /*>>> c. L 8*>>> d. L 18*>>> 6.; Consignment Accounting /). uring te "ear 2ust ended* Ham Co. !egan offering its goods to selected retailers on a consignment !asis. Te following information for te "ear was deri,ed from Ham:s accounting records (eginning in,entor" 'rice of goods purcased Freigt+in Transportation to consignees Freigt+out Ending in,entor" + Deld !" Ham + Deld !" consignees
L 1))*>>> 86>*>>> 1>*>>> 8*>>> /8*>>> 168*>>> )>*>>>
In its income statement for te "ear* wat amount sould Ham report as cost of goods sold# a. L 8>;*>>> !. L 81)*>>> c. L 8);*>>> d. L 86;*>>> //. Soutgate Co. paid te in+transit insurance premium for consignment goods sipped to Dendon Co.* te consignee. In addition* Soutgate ad,anced part of te commissions tat will !e due wen Dendon sells te goods. Sould Soutgate include te in+transit insurance premium and te ad,anced commissions in in,entor" costs# Insurance 'remiumAd,anced Commissions a. ES ES
!. c. ES d.
NO
NO NO
NO
ES
/6. On ecem!er 1* Alt epartment Store recei,ed 8>8 sweaters eac* and te" were priced to sell at was L 1>>. Alt:s commission on consigned goods is 1>M. At ecem!er /1 !alance seet* wat amount sould Alt report as pa"a!le for consigned goods# a. L 6=*>>> !. L 68*6>> c. L 68*>>> d. L 6>*6>> IB.< Balue 7easurements
Fair
/8. For te purpose of a fair ,alue measurement %FB7& of an asset or lia!ilit"* a transaction is assumed to occur in te a. 'rincipal mar3et if one e$ists !. 7ost ad,antageous mar3et c. 7ar3et in wic te result is optimi5ed d. 'rincipal mar3et or most ad,antageous mar3et at te election of te reporting entit" /9. Fair ,alue measurements %FB7& of assets and lia!ilities are !ased on transactions !etween mar3et participants at te measurement date. 7ar3et participants a. 7ust !e specificall" identified !. 7a" !e related parties if te" are 3nowledgea!le a!out te asset or lia!ilit" c. Include parties wo are forced to engage in te transactions if te" are independent of te entit" d. Are willing and a!le to engage in transactions in,ol,ing te asset or lia!ilit" /;. Te fair ,alue measurement %FB7& of an asset a. Assumes transfer* not a settlement !. Is !ased on te e$pected use !" te reporting entit" c. 0eflects te igest and !est use !" mar3et participants d. Includes te entit":s own credit ris3 /M of earnings 8.) Segment 0eporting 6. -ic of te following ualifies as a reporta!le operating segment# a. Corporate eaduarters* wic o,ersees L1!illion in sales for te entire compan" !. Nort American segment* wose assets are 1)M of te compan":s assets of all segments* and management reports to te cief operating officer c. Sout American segment* wose results of operations are reported directl" to te cief operating officer* and as 8M of te compan":s assets* =M of re,enues* and >*>>> in ear 6. Te calculation of te measure of segment profit or loss re,iewed !" D"de:s cief operating decision ma3es does not include an allocation of interest e$pense incurred !" D"de. Dowe,er* it does include tracea!le costs. It also includes nontracea!le operating costs allocated !ased on te ratio of di,isional sales to aggregate sales. In reporting segment information* wat amount sould !e sown as Cla":s operating profit for ear 6# a. L >> !. L =>>*>>> c. L =;8*>>> d. L 1*1>>*>>>
=. (ean Co. included interest e$pense and transactions classified as e$traordinar" items in its determination of segment profit* wic (ean:s cief financial officer considered in determining te segment:s operating !udget. (ean is reuired to report te segment:s financial data in accordance wit 4AA'. -ic of te following items sould (ean disclose in reporting segment data# Interest E$pense E$traordinar" items a. NO NO !. NO ES c. ES NO d. ES ES 1>. Opto Co. is a pu!licl" traded* consolidated entit" reporting segment information. -ic of te following items is a reuired entit"+wide disclosure regarding e$ternal customers# a. Te fact tat transactions wit a particular e$ternal customer constitute more tan 1>M of te total entit" re,enues !. Te identit" of an" e$ternal customer pro,iding 1>M or more of a particular operating segemtn:s re,enue c. Te identit" of an" e$ternal customer considered to !e ?ma2or@ !" management d. Information on ma2or customers is not reuired in segment reporting 8./ Interim Financial 0eporting 11. Conceptuall"* interim financial statements can !e descri!ed as empasi5ing a. Timeliness o,er realia!ilit" !. 0elia!ilit" o,er rele,ance c. 0ele,ance o,er compara!ilit" d. Compara!ilit" o,er neutralit" 1). (ecause of a decline in mar3et price in te second uarter* 'etal Co. incurred an in,entor" loss* !ut te mar3et price was e$pected to return to pre,ious le,els !" te end of te "ear. At te end of te "ear* te decline ad not re,ersed. -en sould te loss !e reported in 'etal:s interim income statements# a. 0ata!l" o,er te second* tird* and fourt uarters !. 0ata!l" o,er te tird and fourt uarters c. In te second uarter onl" d. In te fourt uarter onl" 1/. In general* an enterprise preparing interim financial statements sould a. efer recognition of seasonal re,enue
!. isregard permanent decreases in te mar3et ,alue of its in,entor" c. Allocate re,enues and e$penses e,enl" o,er te uarters* regardless of wen te" actuall" occurred d. Use te same accounting principles followed in preparing its latest annual financial statements 16. -ilson Corp. e$perienced a L 8>*>>> decline in te mar3et ,alue of its in,entor" in te first uarter of its fiscal "ear. -ilson ad e$pected tis decline to re,erse in te tird uarter* and te tird uarter reco,er" e$ceeded te pre,ious decline !" L 1>*>>>. -ilson:s in,entor" did not e$perience an" oter declines in mar3et ,alue during te fiscal "ear. -at amounts of loss or gain sould -ilson report in its interim financial statements for te first and tird uarters# First QuarterTird Quarter a. L > L> !. L > L 1>*>>> gain c. L 8>*>>> loss L 8>*>>> gain d. L 8>*>>> loss L 9>*>>> gain 18. An in,entor" loss from a mar3et place decline occurred in te first uarter. Te loss was not e$pected to !e restored in te fiscal "ear. Dowe,er* in te tird uarter te in,entor" ad a mar3et price reco,er" tat e$ceeded te mar3et decline tat occurred in te first uarter. For interim financial reporting* te dollar amount of net in,entor" sould a. ecrease in te first uarter !" te amount of te mar3et price decline and increase in te tird uarter !" te amount of mar3et price reco,er" !. ecrease in te first uarter !" te amount of te mar3et price decline and increase in te tird uarter !" te amount of decrease in te first uarter c. ecrease in te first uarter !" te amount of te mar3et price decline and not !e affected in te tird uarter d. #ot !e affected in eiter te first uarter or te tird uarter 19. uring te first uarter of ear 6* Tec Co. ad income !efore ta$es of L )>>*>>>* and its effecti,e income ta$ rate was 18M. Tec:s ear / effecti,e annual income ta$ rate was />M* !ut Tec e$pects its ear 6 effecti,e annual income ta$ rate to !e )8M. In its first uarter interim income statement* wat amount of income ta$ e$pense sould Tec report# a. L > !. L />*>>> c. L 8>*>>> d. L9>*>>> 8.6 0elated 'art" Transactions 1;. e$ CO. as entered into a 2oint ,enture wit an affiliate to secure access to additional in,entor". Under te 2oint ,enture agreement* e$ will purcase te output of te ,enture at prices negotiated on an arm:s+lengt !asis. -ic of te following is %are& reuired to !e disclosed a!out te related part" transaction# I. Te amount due to te affiliate at te !alance seet date II. Te dollar amount of te purcases during te "ear a. I onl" !. II onl" c. (ot I and II d. Neiter I nor II 1>> )>*>>> 1)8*>>> 18>*>>>
Officers: salaries Officers: e$penses oans to officers Intercompan" sales
7ore" L 8>*>>> 1>*>>> 8>*>>> ++
Te amount reported as related part" disclosures in te notes to ean:s ear 9 consolidated statements is a. L 18>*>>> !. L 188*>>> c. L 1;8*>>> d. L //>*>>> )>. -ic of te following pa"ments !" a compan" sould !e disclosed in te notes to te financial statements as a related part" transaction# I. 0o"alties paid to a ma2or sareolder as consideration for aptents purcased from te sareolder II. Officers: salaries a. I onl" !. II onl" c. (ot I and II d. Neiter I nor II 8.8 Unconditional 'urcase O!ligations )1. 4AA' pertaining to disclosure of long+term o!ligations do not appl" to an unconditional purcase o!ligation tat is cancela!le under wic of te following conditions a. Upon te occurrence of a remote contingenc" !. -it te permission of te oter part" c. Under a replacement agreement signed !" te same parties d. Upon pa"ment of a nominal penalt" )). -itt Corp. as outstanding at ecem!er /1* ear 9* two long+term !orrowings wit annual sin3ing+fund reuirements and maturities as follows ear ; ear < ear = ear 1> ear 11
Sin3ing+fund reuirements L 1*>>>*>>> 1*8>>*>>> 1*8>>*>>> )*>>>*>>> )*>>>*>>> L >>*>>>
7aturities L+ )*>>>*>>> )*>>>*>>> )*8>>*>>> /*>>>*>>> =*8>>*>>>
In te notes to its ecem!er /1* ear 9* !alance seet* ow sould -itt report te a!o,e data# a. No disclosure is reuired !. Onl" sin3ing+fund pa"ments totaling L >>*>>> for te ne$t 8 "ears detailed !" "ear need !e disclosed c. Onl" maturities totaling L =*8>>*>>> for te ne$t 8 "ears detailed !" "ear need !e disclosed d. Te com!ined aggregate of L 1;*8>>*>>> of maturities and sin3ing+fund reuirements detailed !" "ear sould !e disclosed )/. If an unconditional purcase o!ligation is not presented in te !alance seet* certain disclosures are reuired. A disclosure tat is not reuired is a. Te nature and term of te o!ligation !. Te ,aria!le components of te o!ligation
c. Te imputed interest necessar" to reduce te unconditional purcase o!ligation to its present ,alue d. Te amounts purcased under te o!ligation for eac period an income statement is presented 8.9 Significant ris3s and uncertainties )6. Financial statements must disclose significant ris3s and uncertainties. Te reuired disclosures include a. Quantified comparisons of te relati,e importance of te different !usinesses I wic te entit" operates !. Information a!out a significant estimate used to ,alue an asset onl" if it is pro!a!le tat te financial statement effect of a condition e$isting at te !alance seet date will cange materiall" in te near term c. 0is3+reduction tecniues tat a,e successfull" mitigated losses d. Bulnera!ilit" due to a concentration if a ner+term se,ere impact is at least reasona!l" possi!le
8.; Su!seuent e,ents )8. On anuar" 18* ear )* !efore te 7aple,iew Co. released its financial statemetns for te "ear ended ecem!er /1* ear 1* its settled a long+standing lawsuit. A material loss resulted and no prior lia!ilit" ad !een recorded. Dow sould tis loss !e disclosed or recogni5ed# a. Te loss sould !e disclosed* !ut te financial statements temsel,es need not !e ad2usted !. Te loss sould !e disclosed in an e$planator" paragrap in te auditor:s report c. No disclosure or recognition is reuired d. Te loss must !e recogni5ed in te financial statements )9. Kero Corp. suffered a loss tat would a,e a material effect on its financial statements on an uncollecti!le trade accounts recei,a!le due to a customer:s !an3ruptc". Tis occurred suddenl" due to a natural disaster ten da"s after Kero:s !alance seet date !ut one mont !efore te issuance of te financial statements. Under tese circumstances* Te oss 7ust !e 0ecogni5ed in te financial StatementsTe E,ent 0euires Financial Statement isclosure Onl" a. ES ES !. ES NO c. NO NO d. NO NO 8.< Financial instrument disclosures );. -eter recogni5ed or unrecogni5ed in an entit":s financial statements* disclosure of te fair ,alues of te entit":s financial instruments is reuired wen a. It is feasi!le to estimate tose ,alues and aggregated fair ,alues are material to te entit" !. Te entit" maintains accurate cost records and aggregated fair ,alues are material to te entit" c. Aggregated fair ,alues are material to te entit" and credit ris3 as !een appropriatel" edged d. Indi,idual fair ,alues are material to te entit" or an" of te instruments are accounted for as deri,ati,es ) stamped ?NSF@. Te cec3 was redeposited on anuar" )* ear >>
8>>
mailed until anuar" 1>* ear <
/>>
Te proper amount to !e sown as cas on 0al:s !alance seet at ecem!er /1* ear ;* is A. L6*> (. L8*/>> C. L9*8>> . L9*> /. Te following information pertains to 4re" Co. at ecem!er /1* ear 6 Cec3!oo3 !alance L1)*>>> (an3 statement !alance 19*>>> Cec3 drawn on 4re":s account* pa"a!le to a ,endor* dated and recorded 1)/1r 6 !ut not mailed until 11>r 8 1*> On 4re":s ecem!er /1* ear 6* !alance seet* wat amount sould !e reported as cas# A. (. C. .
L1)*>>> L1/*> L16*)>> L19*>>>
9.) Fair Balue Option %FBO& 6. Election of te fair ,alue option %FBO& for eligi!le items A. 'ermits onl" for+profit entities to measure eligi!le items at fair ,alue. (. 0esults in recognition of unreali5ed gains and losses in earnings of a !usiness entit". C. 0euires deferral of related upfront costs. . 0esults in recognition of unreali5ed gains and losses in oter compreensi,e income of a !usiness entit". 8. Te decision weter to elect te fair ,alue option %FBO& A. (. C. .
Is irre,oca!le until te ne$t election date* if an". 7a" !e applied to a portion of a financial instrument. 7ust !e applied onl" to classes of financial instruments. 7ust !e applied to all instruments issued in a single transaction.
9. -ic of te following is an election date for te purpose of determining weter to elect te fair ,alue option %FBO&# A. Te accounting treatment of an euit" in,estment canges !ecause it is no longer su!2ect to euit"+metod accounting. (. Te entit" enters into a firm commitment to purcase so"!eans in / monts. C. Te accounting for an euit" in,estment canges !ecause te entit" no longer consolidates a su!sidiar". . Te entit" recogni5es an oter tan temporar" impairment of long+li,ed assets. ;. Te reporting entit" ma" elect te fair ,alue option %FBO& for A. An in,estment consisting of more tan 8>M of te outstanding ,oting interests of anoter entit". (. An interest in a ,aria!le interest entit" %BIE& if te reporting entit" is te primar" !eneficiar". C. Its o!ligation for pension and oter postretirement emplo"ee !enefits. . 7ost financial assets and lia!ilities.
9./ Classification of In,estments *>>> =*> >> 11*>> > L/>*>>>
Fenn Corp
Fair Balue L>> 11*>> > =*> >> L)>>
Ott:s ecem!er /1 !alance seet sould report te trading securities as
A. L)9*>>> (. L)>> C. L)=*>>> . L/>*>>> 1>. On ul" )* ear 6* -"nn Inc.* purcased as a sort+term in,estment a L1 million face ,alue Hean Co. *>>> plus accrued interest to "ield 1>M. Te !onds mature on anuar" 1* ear 11* and pa" interest annuall" on anuar" 1. On ecem!er )1* ear 6* te !onds ad a fair ,alue of L=68*>>>. In its ecem!er /1* ear 6* !alance seet* wat amount sould -"nn report for te !ond if it is classified as an a,aila!le+for+ sale securit"# A. (. C. .
L=1>*>>> L=)>*>>> L=68*>>> L=8>*>>>
11. Te following information pertains to ar3 Corp.:s a,aila!le+for+sale securities
Cost Fair Balue
ecem!er /1. ear ) ear / L1>>*>> L1>>*>> > > =>*>> 1)*>> > >
ifferences !etween cost and fair ,alues are considered to !e temporar". Te decline in fair ,alue was properl" accounted for at ecem!er /1* ear ). Ignoring ta$ effects* !" wat amount sould oter compreensi,e income %OCI& !e credited at ecem!er /1* ear /# A. (. C. .
L> L1>*>>> L)>*>>> L/>*>>>
1). Te following information was e$tracted from 4il Co.:s ecem!er /1 !alance seet Noncurrent assets A,aila!le+for+sale securities %carried at fair ,alue& Euit" Accumulated oter compreensi,e income %OCI& Unreali5ed gains and losses on a,aila!le+for+sale securities
L=9*68>
%1=*>&
Distorical cost of te a,aila!le+for+sale securities was A. (. C. .
L9/*8=8 L;9*98> L=9*68> L119*)8>
1/. uring ear 9* -all Co. purcased )*>>> sares of Demp Corp. common stoc3 for L/1*8>> tat are classified as trading securities. Te fair ,alue of tis in,estment was L)=*8>> at ecem!er /1* ear. -all sold all of te Demp common stoc3 for L16 per sare on ecem!er 18* ear ;* incurring L1*6>> in !ro3erage commissions and ta$es. In its income statement for te "ear ended ecem!er /1* ear ;* -all sould report a recogni5ed loss of A. (. C. .
L6*=>> L/*8>> L)*=>> L1*8>>
16. Te following pertains to Smo3e* Inc.:s in,estment in euit" securities •
•
On ecem!er /1* ear /* Smo3e reclassified a securit" acuired during te "ear for L;>*>>>. It ad a L8>*>>> fair ,alue wen it was reclassified from trading to a,aila!le+for+sale. An a,aila!le+for+sale securit" costing L;8*>>>* written down to L/>*>>> in ear ) !ecause of an oter+tan+temporar" impairment of fair ,alue* ad a L9>*>>> fair ,alue on ecem!er /1* ear /.
-at is te net effect of te a!o,e items on Smo3e:s net income for te "ear ended ecem!er /1* ear /# A. (. C. .
No effect. L1>*>>> increase. L)>*>>> decrease. L/>*>>> increase.
18. -en te fair ,alue of an in,estment in de!t securities e$ceeds its amorti5ed cost* ow sould eac of te following de!t securities to !e reported at te end of te "ear* gi,en no election of te fair ,alue option# e!t Securities Classified As Deld+to+7aturit"A,aila!le+for+Sale
A. (. C. .
Amorti5ed cost Amorti5ed cost Fair ,alue Fair ,alue
Amorti5ed cost Fair ,alue Fair ,alue Amorti5ed cost
9.6 Euit" 7etod 19. (ir3 Co. purcased />M of Sled Co.:s outstanding common stoc3 on ecem!er /1 for L)>>*>>>. On tat date* Sled:s euit" was L8>>*>>>* and te fair ,alue of its net assets was L9>>*>>>. On ecem!er /1* wat amount of goodwill sould (ir3 attri!ute to tis acuisition# A. (. C. .
L> L)>*>>> L/>*>>> L8>*>>>
1;. On anuar" )* -ell Co. purcased 1>M of 0ea* Inc.:s outstanding common sares for L6>>*>>>* wic eualed te carr"ing amount and te fair ,alue of te interest purcased in 0ea:s net assets. -ell is te largest single sareolder in 0ea* and -ell:s officers are a ma2orit" on 0ea:s !oard of directors. 0ea reported net income of L8>>*>>> for te "ear ended and paid di,idends of L18>*>>>. In its ecem!er /1 !alance seet* wat amount sould -ell report as in,estment in 0ea# A. (. C. .
L68>*>>> L6/8*>>> L6>>*>>> L/>>
Questions 1< troug )> are !ased on te following information. 4rant* Inc.* acuired />M of Sout Co.:s ,oting stoc3 for L)>>*>>> on anuar" )* ear 1* and did not elect te fair ,alue option. Te price eualed te carr"ing amount and te fair ,alue of te interest purcased in Sout:s net assets. 4rant />M interest in Sout ga,e 4rant te a!ilit" to e$ercise di,idends of L8>*>>>. Sout reported earnings of L1>>*>>> for te 9 monts ended une />* ear )* and L)>>*>>> for te "ear ended ecem!er /1* ear )* 4rant sold alf of its stoc3 in Sout for L18>*>>> cas. Sout paid di,idends of L9>*>>> on Octo!er 1* ear ). 1>> L)6*>>> L8>*>>> L*>>>
1=. In 4rant:s ecem!er /1* ear 1* !alance seet* wat sould !e te carr"ing amount of tis in,estment# A. (. C. .
L)>>*>>> L)>=*>>> L))6*>>> L)/>*>>>
)>. In its ear ear ) income statement* wat wat amount sould 4rant report as gain from te sale of alf of its in,estment# A. (. C. .
L)6*8>> L/>*8>> L/8*>>> L68*8>>
)1. 'ar3 Co. uses te euit" metod to account for its anuar" 1 purcases purcases of Tun* Inc.:s Inc.:s common stoc3. On anuar" 1* te fair ,alues of Tun:s FIFO in,entor" and land e$ceeded teir carr"ing amounts affect 'ar3:s reported euit" in Tun:s earnings for te "ear# In,entor" E$cess A. ecrease (. ecrease C. Increase . Increase
and E$cess ecrease No effect Increase No effect
)). 'lac3 Co. purcased 1>*>>> sares %)M ownersip& of T" Corp. on Fe!ruar" 16 and did not elect te fair ,alue option. 'lac3 recei,ed a stoc3 di,idend of )*>>> sares on April />* wen te mar3et ,alue per sare was L/8. T" paid a cas di,idend of L) per sare on ecem!er 18. In its income statement for te "ear* wat amount sould 'lac3 report as di,idend income# A. (. C. .
L)>*>>> L)6*>>> L=>*>>> L=6*>>>
)/. In its financial statements statements** 'ra3 Inc.* uses te cost metod of accounting accounting for its 18M ownersip of Sa!e Co. !ecause te fair ,alue of te sares is not readil" determina!le. At ecem!er /1* 'ra3 as a recei,a!le from Sa!e. Dow sould te recei,a!le !e reported in 'ra3:s ecem!er /1 !alance seet# A. Te total recei,a!le sould !e reported separatel". separatel". (. Te total recei,a! recei,a!le le sould !e included included as part of te in,estm in,estment ent in Sa!e* witout witout separate disclosure. C. Eigt" Eigt"+fi +fi,e ,e percen percentt of te recei,a!l recei,a!le e sould sould !e report reported ed separa separatel tel" "* wit wit te !alance offset against Sa!e:s pa"a!le to 'ra3. . Te total total recei, recei,a!le a!le sould sould !e offset offset against against Sa!e:s Sa!e:s pa"a!l pa"a!le e to 'ra3* witout witout separate disclosure.
9.8 In,estments in (onds )6. An in,estor purcased purcased a !ond as a long+term long+term in,estment in,estment !etween !etween interest dates at a premium. At te purcase date* te cas paid to te seller is A. (. C. .
Te same as te face amount of of te !ond. Te same same as te face face amount amount of te te !ond plus plus accrued accrued interest interest.. 7ore 7ore tan tan te face face amoun amountt of te !ond !ond.. ess tan te te face face amount amount of of te !ond.
)8. An in,estor purcased purcased a !ond classified classified as a long+term in,estment in,estment !etween !etween interest dates at a discount. At te purcase date* te carr"ing amount of te !ond is more tan te A. (. C. .
Cas Cas paid paid to sell seller er No No es es
Face Face amou amount nt of !ond !ond es es No No es
)9. ent Corp. purcased !onds at a discount of L1>*>>>. Su!seuentl"* Su!seuentl"* ent sold tis !ond at a premium of L16*>>>. uring te period tat ent eld tis in,estment* amorti5ation of te discount amounted to L)*>>>. -at amount sould ent report as a gain on te sale of !onds# A. (. C. .
L1)*>>> L))*>>> L)6*>>> L)9*>>>
);. On ul" ul" 1* ear ear 6* 'ell Co. purcas purcased ed 4reen 4reen Corp. 1>+"ear 1>+"ear** >*>>> for L6)>*>>>. Te !onds are classified as eld+to+maturit" and mature on une />* ear 16 and pa" interest semiannuall" on une /> and ecem!er /1. Using te interest metod* 'ell recorded !ond discount amorti5ation of L1*> for te 9 monts ended ecem!er /1* ear 6. From tis long+term in,estment* 'ell sould report ear ear 6 re,enue of A. (. C. .
L19*> L1> L)>*>>> L)1*>
9.9 Cas Surrender Balue Balue )*>>> wole+life wole+life insurance polic" polic" on its pres presid iden ent. t. Te Te annu annual al prem premiu ium m is L)*> L)*>>> >>.. Te Te comp compan an" " is te te owne ownerr and and te te !eneficiar". (eal carged officer:s life insurance e $pense as follows ear 6 L)*>>> ear 8 1*> ear 9 1*8>> ear ; 1*1>> Total L9*6>> In (eal:s ecem!er /1* ear ;* !alance seet* te in,estment in cas surrender ,alue sould !e
A. (. C. .
L> L1*9>> L9*6>> L>>
/>. In ear ear 1* Cain* Cain* Inc.* purcased a L1*>>>*>>> L1*>>>*>>> life insurance insurance polic" on its president* president* of wic wic Cain Cain is te !enefi !eneficia ciar" r".. Inform Informati ation on regard regarding ing te polic" polic" for te "ear "ear ended ended ecem!er /1* ear 9* follows Cas surrender ,alue* 11r 9 Cas surrender ,alue* 1)/1r 9 Annual ad,ance premium paid 11r 9
L>> 1>>> 6>*>>>
uring ear 9* di,idends of L9*>>> were applied to increase te cas surrender ,alue of te polic". -at amount sould Cain report r eport as life insurance e$pense for ear 9# A. (. C. .
L6>*>>> L)1*>>> L1=*>>> L1/*>>>
;.1 0ecei,a!les Fundamentals A. Te following information relates to a" Co.:s accounts recei,a!le for te "ear 2ust ended Accounts 0ecei,a!le* 11 Credit sales for te "ear Sales returns for te "ear Accounts written off during te "ear Coll ollecti ection ons s fro from m cus custo tome mers rs duri during ng te te "ea "earr Estimated fu future sa sales returns at 1) 1)/1 Estimated uncollecti!le accounts at 1)/1
L98>*>>> )*;>>*>>> ;8*>>> 6>*>>> )*18 )*18>* >*>> >>> > 8>*>>> 11>*>>>
-at amount sould a" report for accounts recei,a!le* !efore allowances for sales returns and uncollecti!le account* at ecem!er /1# A. L1*)>>*>>> (. L1*1 L1*1)8 )8*> *>>> >> C. L1*> L1*>>> >> . L=)8*>>> (. On 7erf 7erf:s :s April April />* />* ear 6* !ala !alanc nce e see seet* t* a note note rece recei, i,a! a!le le was repo report rted ed as a noncurrent asset* and its accrued interest for < monts was reported as a current asset. -ic of te following terms would fit 7erf:s note recei,a!le# A. (ot principal and interest amounts are pa"a!le on August /1* ear ear 6* and August /1* ear ear 8. (. 'rincipal 'rincipal and interes interestt are due ecem! ecem!er er /1* ea earr 6. C. (ot (ot princi principal pal and interest interest amounts amounts are pa"a!le pa"a!le on ecem! ecem!er er /1* ear ear 6* and ecem!er /1* ear 8. . 'rincipal 'rincipal is due August /1* ea earr 8. Interest Interest is due August August /1* ear ear 6* and August /1* ear 8. C. In its ecem! ecem!er er /1 !alanc !alance e seet* seet* (utler (utler Co* reporte reported d trade trade accoun accounts ts recei,a! recei,a!le le of L)8>*>>> and related allowance for uncollecti!le accounts of L)>*>>>. -at is te total amount of ris3 of accounting loss related to (utler:s trade accounts recei,a!le* and wat amount of tat ris3 is off+!alance seet ris3# A. (. C. .
0is3 of Accounting oss L> L)/>*>>> L)/>*>>> L)8>*>>>
Off+(alance Seet 0is3 L> L> L)>*>>> L)>*>>>
;.) Accounts 0ecei,a!le iscounts and 0eturns . On une 1* 'itt Corp. Corp. sold mercandise mercandise wit wit a list price of L8*>>> L8*>>> to (urr on account. account. 'itt allowed trade discounts of />M and )>M. Credit terms were )18* n6>* and te sale was made FO( sipping point. 'itt prepaid L)>> of deli,er" costs for (urr as an accomm accommoda odatio tion. n. On une une 1)* 'itt recei, recei,ed ed from from (urr (urr a remitt remittanc ance e in full full pa"ment pa"ment amounting to A. L)*;66 (. L)*=1) C. L)*=66 . L/*11) E. elta Inc.* Inc.* sells sells to wolesalers wolesalers on terms terms of )18* n/>. n/>. elta elta as no cas sales* sales* !ut 8>M of elta:s customers ta3e ad,antage of tis discount. elta uses te gross metod of recording sales and trade recei,a!les. An anal"sis of elta:s trade recei,a!les !alances at ecem!er /1 re,ealed te following Age > 18 da"s
Amount L1>>*>>>
Collecti!le 1>>M
19 /> da"s /1 9> da"s O,er 9> da"s
9>*>>> 8*>>> )*8>> L19;*>>>
=8M =>M )>M
In its ecem!er /1 !alance seet* wat amount sould elta report for allowance for discounts# A. L1*>>> (. L1*9)> C. L1*9;8 . L)*>>> Questions 9 and ; are !ased on te following information. EC4 Compan" recorded two sales on 7arc 1 of L)>*>>> and L/>*>>> under te credit terms of /1>* n/>. 'a"ment for te L)>*>>> sale was recei,ed 7arc 1>. 'a"ment for te L/>*>>> sale was recei,ed on 7arc )8. F. Under te gross metod and te net metod* net sales in EC4:s 7arc income statement are reported at wic amounts# A. (. C. .
4ross 7etod L6> L6> L6=*6>> L6=*6>>
Net 7etod L6> L6=*6>> L6> L6=*6>>
4. At wat amounts are EC4:s gross sales reported for te mont of 7arc under te gross metod and net metod# A. (. C. .
4ross 7etod L8>*>>> L8>*>>> L6=*6>> L6>
Net 7etod L8>*>>> L6> L6> L8>*>>>
D. in Co.* a distri!utor of maciner"* !ougt a macine from te manufacturer in No,em!er for L1>*>>>. On ecem!er />* in sold tis macine to Kee Dardware for L18*>>>* under te following terms )M discount if paid witin /> da"s* 1M discount if paid after /> da"s !ut witin 9> da"s* or pa"a!le in full witin => da"s if not paid witin te discount periods. Dowe,er* Kee ad te rigt to return tis macine to in if Kee was una!le to resell te macine !efore e$piration of te =>+da" pa"ment period* in wic case Kee:s o!ligation to in would !e cancelled. In in:s net sales for te "ear ended ecem!er /1* ow muc sould !e included for te sale to Kee# A. L> (. L16*;>> C. L16* . L18*>>> ;./ Accounts 0ecei,a!le 7easurement I.
In its ecem!er /1* ear /* !alance seet* Fleet Co. reported accounts recei,a!le of L1>>* >>> !efore allowance for uncollecti!le accounts of L1>*>>>. Credit sales during ear 6 were L911*>>>* and collections from customers* e$cluding reco,eries* totaled L8=1*>>>. uring ear 6* accounts recei,a!le of L68*>>> were written off and L1;* >>> were reco,ered. Fleet estimated tat L18*>>> of te accounts recei,a!le at ecem!er /1* ear 6* were uncollecti!le. In its ecem!er /1* ear 6* !alance seet* wat amount sould Fleet report as accounts recei,a!le !efore allowance for uncollecti!le accounts# A. L8>> (. L9;*>>> C. L;8*>>>
. L>> . An internal auditor is deri,ing cas flow data !ased on an incomplete set of facts. (ad de!t e$pense was L)*>>>. Additional data for tis period follo ws Credit sales 4ross accounts recei,a!le (eg. (al. Allowance for !ad de!ts (eg. (al. Accounts recei,a!le written off Increase in net accounts recei,a!le %after su!traction of allowance for !ad de!ts&
L1>>*>>> 8*>>> %8>>& 1*>>> />*>>>
Dow muc cas was collected tis period on credit sales# A. L96*>>> (. L9>> C. L9> . L;>*>>> H. -ren Co. ad te following account !alances at ecem!er /1 Accounts recei,a!le L=>>*>>> Allowance for uncollecti!le accounts %!efore 19*>>> an" pro,ision for te "ear uncollecti!le accounts e$pense& Credit sales for te "ear 1*;8>*>>> -ren is considering te following metods of estimating uncollecti!le accounts e$pense for te "ear • •
(ased on credit sales )M (ased on accounts recei,a!le 8M
-at amount sould -ren carge to uncollecti!le accounts e$pense under eac metod# 'ercentage of Credit Sales A. (. C. .
L81*>>> L81*>>> L/8*>>> L/8*>>>
'ercentage 0ecei,a!le L68*>>> L)=*>>> L68*>>> L)=*>>>
of
Accounts
;.6 Transfers of 0ecei,a!les and oter Financial Assets . A firm tat often factors its accounts recei,a!les as an agreement wit its finance compan" tat reuires te firm to maintain a 9M reser,e and carges 1M commission of te amount of recei,a!les. Te net proceeds would !e furter reduced !" an annual interest carge of 1>M on te monies ad,anced. Assuming a /9>+da" "ear* wat amount of cas %rounded to te nearest dollar& will te firm recei,e from te finance compan" at te time a L1>>*>>> account tat is due in => da"s is turned o,er to te finance compan"# A. L=/*>>> (. L=>*>>> C. L=>*9;8 . L> 7. 4ar Co. factored its recei,a!les witout recourse wit 0oss (an3. 4ar recei,ed cas as a result of tis transaction* wic is !est descri!ed as a A. oan from 0oss collaterali5ed !" 4ar:s accounts recei,a!le.
N.
O.
'.
Q.
0.
(. oan from 0oss to !e repaid !" te proceeds from 4ar:s accounts recei,a!le. C. Sale of 4ar:s accounts recei,a!le to 0oss* wit te ris3 of uncollecti!le accounts retained !" 4ar. . Sale of 4ar:s accounts recei,a!le to 0oss* wit te ris3 of uncollecti!le accounts transferred to 0oss. In accounting for te transfer of financial assets* wic of te following is te approac underl"ing te accounting prescri!ed !" 4AA'# A. Financial+components approac. (. Te ris3s+and+rewards approac. C. Insepara!le+unit approac. . in3ed+presentation. A transfer of financial assets ma" !e treated as a sale if te transferor surrenders control of te assets. -ic of te following is one of te criteria tat must !e met !efore control is deemed to !e surrendered# A. Te transferred assets are isolated from te transferor and its creditors e$cept in !an3ruptc". (. Te transferee cannot pledge or e$cange te transferred assets. C. Te transferor is not a part" to an agreement tat !ot entitles and o!ligates it to repurcase or redeem te securities prior to maturit". . An entire financial asset is transferred. ender (an3 made a large loan to a ma2or !orrower and ten transferred a participating interest in tis loan to Student Union (an3. Te transfer was on a nonrecourse !asis* and ender continued to ser,ice te loan. Student Union is not a ma2or competitor of ender. ender sould account for tis transfer as a secured !orrowing if te agreement. A. Allows Student Union (an3 to pledge its participating interest. (. oes not grant ender te rigt of first refusal on te sale of Student Union:s participating interest. C. oes not allow Student Union to sell its participating interest. . 'roi!its Student Union from selling its participating interest to !an3s tat are direct* ma2or competitors of ender. In a transaction accounted for under IF0Ss* an entit" transfers te contract rigts to te cas flows from a financial asset. Te entit" derecogni5es te financial asset. A. Onl" if su!stantiall" all ris3s and rewards of ownersip a,e !een transferred. (. If te entit" does not retain or transfer su!stantiall" all ris3s and rewards of ownersip !ut te entit" retains control. C. If te entit" does not retain or transfer su!stantiall" all ris3s and rewards of ownersip and does not retain control. . Onl" if te entit" as no continuing in,ol,ement. Under IF0Ss* wic of te following is a criterion tat permits te derecognition of a financial asset# A. Te asset represents a proportionate ownersip interest. (. 0igts to te asset:s cas flows a,e e$pired. C. Te transfer resulting in te derecogniton was on a nonrecourse* notification !asis. . Te asset arose from a secured !orrowing.
;.8 Notes 0ecei,a!le 0ecognition S. On August 18* (enet Co. sold goods for wic it recei,ed a note !earing tat mar3et rate of interest on tat date. Te 6+mont note was dated ul" 18. Note principal* togeter will all interest* is due No,em!er 18. -en te note was recorded on August 18* wic of te following accounts increased# A. Unearned discount. (. Interest recei,a!le. C. 'repaid interest. . Interest re,enue. T. On ecem!er 1* ear 6* Tigg 7ortgage Co. ga,e 'od Corp. a L)>>*>>>* 1)M loan. 'od recei,ed proceed of M1=6*>>> after te deduction of a L9*>>> nonrefunda!le loan origination fee. 'rincipal and interest are due in 9> montl" installments of L6*68>*
!eginning anuar" 1* "ear 8. Te repa"ments "ield an effecti,e interest rate of 1)M at a present ,alue of L)>>*>>> and a 1/.6M at a present ,alue of L1=6*>>>. -at amount of accrued interest recei,a!le sould Tigg include in its ecem!er /1* ear 6* !alance seet# A. L6*68> (. L)*199 C. L)*>>> . L> U. On anuar" 1* ear /* 7ill Co. e$canged euipment for a L)>>*>>>* noninterest+ !earing note due on anuar" 1* ear 9. Te pre,ailing rate of interest for a note of tis t"pe at anuar" 1 1>M for tree periods is >.;8. -at amount of interest re,enue sould !e included in 7ill:s ear 6 income statement# A. L> (. L18*>>> C. L19*8>> . L)>*>>> B. On ecem!er 1* ear 6* 7one" Co. ga,e Dome Co. a L)>>*>>>* 11M loan. 7one" paid proceeds of L1=6*>>> after te deduction of a L9*>>> nonrefunda!le loan origination fee. 'rincipal and interest are due in 9> montl" installments of L6*/1>* !eginning anuar" 1* ear 8. Te repa"ments "ield an effecti,e interest rate of 11M at a present ,alue of L)>>*>>> and 1).6M at a present ,alue of L1=6*>>>. -at amount of income from tis loan sould 7one" report in its ear 6 income statement# A. L> (. L1*>8 . L;*>> in e$cange for a L9>>*>>> noninterest+!earing note due anuar" )* "ear 9. Tere was no esta!lised e$cange price for te euipment * and te mar3et ,alue of te note cannot !e reasona!l" appro$imated. Te pre,ailing rate of interest for a note of tis t"pe at anuar" )* ear / was 1>M. Te present ,alue of 1 at 1>M for tree periods is >.;8 -. In Emme:s ear / income statement* wat amount sould !e reported as interest income# A. L18*>>> (. L68*>>> C. L6>> . L9>*>>> . In Emme:s ear / income statement* wat amount sould ! reported as gain %loss& on sale of euipment# A. L%/>*>>>& (. L/>*>>> C. L1)>*>>> . L18>*>>> ;.9 Notes 0ecei,a!le iscounting . eaf Co. purcased from Oa3 Co. a L)>*>>>* M note recei,a!le for te entire sales price. Tis note is pa"a!le in two eual
installments of L8>*>>> plus accrued interest on ecem!er /1* ear 6. ON ul" 1* ear 6* Ha" discounted te note at a !an3 at an interest rate of 1)M. Ha":s proceeds from te discounted note were A. L6> (. L8)*96> C. L8)*)8> . L81*;>> AA. 0ot Inc.* recei,ed from a customer a 1+"ear* L8>>*>>> note !earing annual interest M. -at amount of cas did 0ot recei,e from te !an3# A. L86>*>>> (. L8)> C. L81/*>>> . L6>> ;.; Affiliated Compan" 0ecei,a!les A(.In its financial statements* 'ulam Corp. uses te euit" metod of accounting for its />M ownersip of Angles Corp. at ecem!er /1* ear 6*'ulam as a recei,a!le from Angles. Dow sould te recei,a!le !e reported in 'ulam:s ear 6 financial statements# A. None of te recei,a!les sould !e reported* !ut te entire recei,a!le sould !e offset against Angles:s pa"ment to 'ulam. (. ;>M of te recei,a!le sould e separatel" reported* wit te !alance offset against />M of Angles:s pa"ment to 'ulam. C. Te total recei,a!le sould !e disclosed separatel". . Te total recei,a!le sould !e included as part of te in,estment in Angles* witout separate disclosure. AC. Sep Co. as a recei,a!le from its parent* 'ep Co. Sould tis recei,a!le !e separatel" reported in Sep:s !alance seet and in 'ep:s consolidated !alance seet# Seep:s (alance Seet 'ep:s Consolidated (alance Seet A. es No (. es es C. No No . No es A. 7r. and 7rs. art own a ma2orit" of te outstanding capital stoc3 of -all Corp.* (lac3 Co.* and -est Inc. uring ear 6* -all ad,anced cas to (lac3 and -est in te amount of L8>*>>> and L*>>>* respecti,el". -est ad,anced L;>*>>> in cas to (lac3. At ecem!er /1* ear 6* none of te ad,ances was repaid. In te com!ined ecem!er /1* ear 6* !alance seet of tese companies* wat amount !e reported as recei,a!les from affiliates# A. L)>>*>>> (. L1/>*>>> C. L9>*>>> . L> ;.< (alance Seet 'resentation AE.-ic of te following is ase in regard to te !alance seet presentation# A. isclosures are ne,er made of related part" transactions or contingencies. (. Baluation accounts sould !e separated into current and noncurrent sections. C. 0ecei,a!les sould !e separated into current and noncurrent sections. . 7aterial recei,a!les sould !e segregated.
>*>>> (. L1* 8=>*>>> C. L1* 9)>*>>>
. L1* ;1>*>>> ). In a periodic in,entor" s"stem tat uses te weigted+a,erage cost flow metod* te !eginning in,entor" is te A. Net purcases minus te ending in,entor". (. Net purcases minus te cost of goods sold. C. Total goods a,aila!le for sale minus te net purcases. . Total goods a,aila!le for sale minus te cost of goods sold. /. On anuar" 1* ear 6* Card Corp. signed a /+"ear* noncancela!le purcase contract tat allows part annuall" from art Suppl" Co. Te price is L.1> per unit* and te contract guarantees a minimum annual purcase of 1>>*>>> units. uring ear 6* te part une$pectedl" !ecame o!solete. Card ad )8>*>>> units of tis in,entor" at ecem!er /1* ear 6. And !elie,es tese parts can !e sold as scrap for L.>) per unit. -at amount of pro!a!le loss from te purcase commitment sould Card report in its ear 6 income statement# A. L)6*>>> (. L)>*>>> C. L19*>>> . L>> 6. uring ear 6* 0 Corp.* a manufacturer of cocolate candies* contracted to purcase 1>>*>>> pounds of cocoa !eans at L1.>> per pound* deli,er" to !e made in te spring of ear 8. (ecause a record ar,est is predicted for ear 8* te price per pound for cocoa !eans ad fallen to L. !" ecem!er /1* ear 6. Of te following 2ournal entries* te one tat would properl" reflect in ear 6 te effect of te commitment of 0 corp. to purcase te 1>>* >>> pounds of cocoa is A. Cocoa in,entor" L1>>* >>> Accounts pa"a!le L1>>* >>> (. Cocoa in,entor" L* >>> oss on purcase Commitments L)>* >>> Accounts pa"a!le L1>>*>>> C. oss on purcase Commitments L)>*>>> Accrued loss on 'urcase Commitments L)>* >>> . No entr" is necessar" in ear 6. 8. uring ecem!er of ear 1* Nile Co. incurred special insurance costs !ut did not record tese costs until pa"ment was made during te following "ear. Tese insurance costs related to in,entor" tat ad !een sold !" ecem!er /1* ear 1. -at is te effect of te omission on Nile:s accrued lia!ilities and retained earnings at ecem!er /1* ear 1# Accrued 0etained ia!ilities Earnings A. No effect No effect (. No effect O,erstated C. Understated O,erstated . Understated No effect
)*> 1>*) 18*6)> 8*16> />* )>*89>
-at amount sould A5ur report as cost of goods sold for te "ear# A. (. C. .
L1>)* >>> L11> L1)/* /9> L1)>
. Trans Co. uses a periodic in,entor" s"stem. Te following are in,entor" transactions for te mont of anuar" 11 18 118 1)>
(eginning in,entor" 'urcase 'urcase Sales at L1> per unit
1>*>>> units at L/ 8*>>> units at L6 8*>>> units at L8 1>*>>> units
Trans uses te a,erage pricing metod to determine te ,alue of its in,entor". -at amount sould Trans report as cost of goods sold on its income statement for te mont of anuar"# A. (. C. .
L/>* >>> L/;* 8>> L6>* >>> L1>>*>>>
Questions 11 and 1) are !ased on te following information. uring anuar"* 7etro Co.* wic maintains a perpetual in,entor" s"stem* recorded te following information pertaining to its in,entor"
(alance on 11 'urcased on 1; Sold on 1)> 'urcased on 1)8
Units
Unit +ost
Tota +ost
1*>>>
L1
L1*>>>
Units on 3and 1*>>>
9>>
/
1*>
1*9>>
=>>
+
+
;>>
6>>
8
)*>>>
1*1>>
11. Under te mo,ing+a,erage metod* wat amount sould 7etro report as in,entor" at anuar" /1# A. L)* 96> (. L/* ))8 C. L/*/>> . L/* =>> 1). Under te IFO metod* wat amount sould 7etro report as in,entor" at anuar" /1# A. L1* />> (. L)*;>> C. L/*=>>
. L6*1>> 1/. Te UNO Compan" was formed on anuar" )* ear 1* to sell a single product. O,er a )+"ear period* UNO:s costs increased steadil". In,entor" uantities eualed / monts: sales at ecem!er /1* ear 1* and 5ero at ecem!er /1* ear ). Assuming te periodic s"stem and no accounting canges* te in,entor" cost metod tat reports te igest amount for eac of te following is In,entor"
Cost of Sales
1)/1ear 1
ear )
A.
IFO
FIFO
(.
IFO
IFO
C.
FIFO
FIFO
.
FIFO
IFO
16. rew Co. uses te a,erage cost in,entor" metod for internal reporting purposes and IFO for financial statement and income ta$ reporting. At ecem!er /1* te in,entor" was L/;8*>>> using a,erage cost and L/)>*>>> using IFO. Te unad2usted credit !alance in te IFO reser,e account on ecem!er /1 was L/8*>>>. -at ad2usting entr" sould rew record to ad2ust from a,erage cost to IFO at ecem!er /1# e!it A. Cost of goods sold
L88*>>>
In,entor" (. Cost of goods sold
L88*>>> L88*>>>
IFO reser,e C. Cost of goods sold
L88*>>> L)>*>>>
In,entor" . Cost of goods sold IFO reser,e
Credit
L)>*>>> L)>*>>> L)>*>>>
*>>> L=>*>>> ear 6 la"er )>*>>> />*>>> ear 8 la"er 6>*>>> *>>> -at was te price inde$ used to compute (ac:s ear 8 dollar+,alue IFO in,entor" la"er#
A. (. C. .
1.>= 1.)8 1.// ).>>
1;. -alt Co. adopted te dollar+,alue IFO in,entor" metod as of anuar" 1* wen its in,entor" was ,alued at L8>>*>>>. -alt:s entire in,entor" constitutes a single pool. Using a rele,ant price inde$ of 1.1>* -alt determined tat its ecem!er /1 in,entor" was L8;;*8>> at current+"ear cost* and L8)8*>>> at !ase+"ear cost. -at was -alt:s dollar+ ,alue IFO in,entor" at ecem!er /1# A. (. C. .
L8)8* >>> L8);* 8>> L88)* 8>> L8;;* 8>>
1*>> ))>*>>> );9*>>>
"nentor( at base4 ear +ost L18>*>>> )>>*>>> )/>*>>>
eeant /rice "ndex
1.>> 1.1> 1.)>
'oe:s dollar+,alue IFO in,entor" at ecem!er /1* "ear * >>> L)/9* >>> L)61* >>> L)69* >>>
>>* te cocolate could !e sold as finised cand" !ars for L 6>*>>>. Cew":s normal profit margin is 1>M of sales. Under te lower+of+cost+or+mar3et+rule* wat amount sould Cew" report as cocolate in,entor" in its ecem!er /1 !alance seet# A. L)>> (. L)9*>>> C. L)6*>>> . L)>*>>> )1. Te lower+of+cost+or+mar3et rule for in,entories ma" !e applied to total in,entor"* to groups of similar items* or to eac items. -ic application generall" results in te lowers in,entor" amount# A. All applications result in te same amount. (. Total in,entor". C. 4roups of similar items. . Separatel" to eac item. )). 0ose Co. sells one product and uses te last+in* first+out metod to determine in,entor" cost. Information for te mont of anuar" follows (eginning In,entor"* 11 'urcases* 18 Sales
total units >> 1)*>>> 1>*>>>
Unit cost L ;.=>
0ose as determined tat at anuar" /1* te replacement cost of its in,entor" was L< per unit. 0ose:s normal profit margin is L1 per unit. 0ose applies te lower of cost or mar3et rule to total in,entor" and records an" resulting loss. At anuar" /1* wat sould !e te net carr"ing amount of 0ose:s in,entor"# A. L;=*>>> (. L;>> C. L*>>> . L> )/. A compan" determined te following ,alues for its in,entor" as of te end of te fiscal "ear Distorical cost L1>>*>>> Current replacement cost ;>*>>> Net reali5a!le ,alue =>*>>> Net reali5a!le ,alue minus a normal profit >> margin Fair Balue =8*>>> Under IF0Ss* wat amount sould te compan" report as in,entor" on its !alance seet# A. L;>*>>> (. L>> C. L=>*>>> . L=8*>>> *>>> 11>*>>> 1>*>>> )>*>>> =>*>>>
If te lower+of+cost+or+mar3et rule is disregarded* wat would !e te estimated cost of te ending in,entor"# A. L)6*>>> (. L)>*>>> C. L1=*)>> . L1>> );. On ecem!er /1* ear /* ason Compan" adopted te dollar+,alue IFO retail in,entor" metod. In,entor" data for ear 6 are as follows In,entor"* 1)/1ear / In,entor"* 1)/1ear 6 Increase in price le,el for ear 6 Cost+retail ratio for ear 6
L"8O +O!T L/9>*>>> #
TA"L L8>>*>>> 99>*>>> 1>M
;>M
Under te dollar+,alue OFO retail metod* ason:s in,entor" ecem!er /1* ear 6* is A. L6/;*>>> (. L69)*>>> C. L6;)*>>> . L6> )/*>>> 1*188*>>> 6)*>>> $1,00,000
Sales for te "ear totaled L1*1>9*>>>. 7ar3downs amounted to L16*>>>. Under te appro$imate lower+of+a,erage+cost+or+mar3et retail metod* Duff:s in,entor" at ecem!er /1 was A. L)*>>> (. L1=;*19> C. L1=9*>>> . L1=6*>> for its manufacturing operations and paid sipping testing and preparing te macine for use. -at amount sould 7err" record as te cost of te macine# a. L188*>>> !. L168*>>>
c. L1/8*>>> d. L1)8*>>> /. uring te "ear 2ust ended* (urr Co. ad te following transactions pertaining to its new office !uilding 'urcase price of land L 9>*>>> egal fees for contracts to purcase land )*>>> Arcitect:s fees >> emolition of te old !uilding on site 8*>>> Sale of scrap from old !uilding /*>>> Construction cost of new !uilding %full" completed& /8>*>>> In (urr:s ecem!er /1 !alance seet* wat amounts sould !e reported as te cost of land and cost of !uilding#
a. !. c. d.
Land
B&idin*
L9>*>>> L9)*>>> L96*>>> L98*>>>
L/9>*>>> L/9>*>>> L/8>> L/9)*>>>
6. On ul" 1* Casa e,elopment Co. purcased a tract of land for L1.) million. Casa incurred additional costs of L/>>*>>> during te remainder of te "ear in preparing te land for sale. Te tract was su!di,ided into residential lots as follows ot Num!er Sales 'rice Class of ots 'er ot A 1>> L)6*>>> ( 1>> 19*>>> C )>> 1>*>>> Using te relati,e sales ,alue metod* wat amount of costs sould !e allocated to te Class A lots# A. (. C. .
L/>>*>>> L/;8*>>> L9>>*>>> L;)>*>>>
8. uring anuar"* ana Co. incurred landscaping costs of L1)>*>>> to impro,e leased propert". Te estimated useful life of te landscaping is 18 "ears. Te remaining term of te term of te lease is < "ears* wit an option to renew for an additional 6 "ears. Dowe,er* ana as not reaced a decision wit regard to te renewal option. In ana:s ecem!er /1 !alance seet* wat sould !e te net carr"ing amount of landscaping costs# A. L> (. L1>8*>>> C. L11>*>>> . L11)*>>> 9. Star Co. leases a !uilding for its product sowroom. Te 1>+"ear nonrenewa!le lease will e$pire on ecem!er /1* ear 9. In anuar" ear 1 !alance seet# A. L68*9>> (. L68*>>> C. L66*>>> . L6/*)>> ;. Under IF0Ss* wen an entit" cooses te re,aluation model as its accounting polic" for measuring propert"* plant* and euipment* wic of te following statements is correct# A. -en an asset is re,alued* te entire class of propert"* plant* and euipment to wic tat asset !elongs must !e re,alued.
(. -en an asset is re,alued* indi,idual assets witin a class of propert"* plant* and euipment to wic tat asset !elongs can !e re,alued. C. 0e,aluations of propert"* plant* and euipment must !e made atleast e,er" / "ears. . Increases in an asset:s carr"ing amount as a result of te first re,aluation must !e recogni5ed as a component of profit or loss. =.) Special 7easurement Issue Internall" Constructed Assets %ICAs& (. L/>>*>>> C. L9>>*>>> . =>>*>>> =. Cole Co. !egan constructing a !uilding for its own use in anuar". uring te "ear* Cole incurred interest of L 8>*>>> on specific construction de!t and L )>*>>> on oter !orrowings. Interest computed on te weigted+a,erage amount of accumulated e$penditures for te !uilding during te "ear was L 6>*>>>. -at amount of interest cost sould Cole capitali5e# A. L)>*>>> (. L6>*>>> C. L8>*>>> . L;>*>>> 1>. A compan" is constructing an asset for its own use. Construction !egan in ear /. Te asset is !eing financed entirel" as specific new !orrowing. Construction e$penditures were made in ear /and ear 6 at te end of eac uarter. Te total amount of interest cost capitali5e in "ear 6 sould !e determined !" appl"ing te interest rate on te specific new !orrowing to te A. Total accumulated e$penditures for te asset in ear / and ear 6. (. A,erage accumulated e$penditures for te asset in ear / and ear 6. C. A,erage e$penditures for te asset in ear 6. . Total e$penditures for te asset in ear 6. 11. Cla" Compan" started construction of a new office !uilding on anuar" 1* ear >>. -at amount sould Cla" report as capitali5ed interest at ecem!er /1* ear )*>>> (. L1)>*>>> C. L18>*>>> . L)6>*>>> =./ Su!seuent E$penditure for ''E 1). An e$penditure to install an impro,e electrical s"stem is a +apita xpendit&re een&e xpendit&re A. No es (. No No C. es No . es es 1/. A !uilding suffered uninsured fire damage. Te damage portion of te !uilding was refur!ised wit ig ualit" materials. Te cost and related accumulated depreciation of te damaged portion are identifia!le. Te owner sould A. 0educe accumulated depreciation eual to te cost of refur!ising.
(. 0ecord a loss in te current period eual to te sum of te cost of refur!ising and te carr"ing amount of te damaged part of te !uilding. C. Capitali5e te cost of refur!ising and record a loss in te current period eual to te carr"ing amount of te damaged part of te !uilding. . Capitali5e te cost of refur!ising !" adding te cost to te ,ar"ing amount of te !uilding. 16. On une 1> Installation of attacment /9*>>> 0eplacement parts for o,eraul of press )9*>>> a!or and o,eread in connection wit 16*>>> o,eraul Te o,eraul resulted in a significant increase in production. Neiter te attacment nor te o,eraul increased te estimated useful life of te press. -at amount of te a!o,e costs sould !e capitali5ed# A. L> (. L>> C. L1)>*>>> . L19>*>>> 18. Tomson Co. installed new assem!l" line production euipment at a cost L1;8*>>>. Tomson ad to rearrange te assem!l" line and remo,ed a wall to install te euipment. Te rearrangement costs L 1)*>>>* and te wall remo,al cost L /*>>>. Te rearrangement did not increase te life of te assem!l" line* !ut it did ma3e more efficient. -at amount of tese costs sould !e capitali5ed !" Tomson# A. L1;8*>>> (. L1;>> C. L1>> . L1=>*>>> 19. uring te "ear 2ust ended* Fo$ Co.* made te following e$penditures relating to te plant* maciner"* and euipment 0eno,ation of a group of macines at a cost of L8>*>>> to secure greater efficienc" in production o,er teir remaining 8 "ear useful li,es. Te pro2ect was completed on ecem!er /1. Continuing* freuent* and low+cost repairs at a cost of L/8*>>> A !ro3en gear on a macine was replaced at a cost of L8*>>> •
• •
-at total amount sould !e carged to repairs and maintenance# A. (. C. .
L/8*>>> L6>*>>> L>> =>*>>>
=.6 isposals oter tan !" E$cange 1;. An entit" disposes of a nonmonetar" asset in a nonreciprocal transfer. A gain or loss sould !e recogni5ed on te disposition of te asset wen te fair ,alue of te asset transferred is determina!le and te nonreciprocal transfer is to Anoter ntit( A !areoder o te ntit( A. No es (. No No C. es No . es es
1*>>> for tis propert"* wic as a carr"ing amount of L8;8*>>>. Cor" incurred te following costs as a result of te condemnation Appraisal fees to support a L;8>*>>> ,alue Attorne" fees for te closing wit te state Attorne" fees to re,iew contract to acuire replacement propert" Title insurance on replacement propert"
L)*8>> /*8>> /*>>> 6*>>>
-at amount of cost sould Cor" use to determine te gain on te condemnation# A. L8>> (. L8>> C. L8>> . L8> 1=. On ul" 1* one of 0udd Co.:s deli,er" ,ans was destro"ed in an accident. On tat date* te ,an:s carr"ing ,alue was L)*8>>. On ul" 18* 0udd recei,ed and recorded a L;>> in,oice for a new engine installed in te ,an in 7a" and anoter L8>> in,oice for ,arious repairs. In August* 0udd recei,ed L/*8>> under its insurance polic" on te ,an in its income statement for te "ear# A. L1*>>> (. L/>> C. L> . L%)>>& )>. Ocean Corp.:s compreensi,e insurance polic" allows its assets to !e replaced at current ,alue. Te polic" as a L8>*>>> deducti!le clause. One of Ocean:s waterfront wareouses was destro"ed in a winter storm. Suc storms occur appro$imatel" e,er" 6 "ears. Ocean incurred L)>*>>> of costs in dismantling te wareouse and plans to replace it. Te following data relate to te wareouse Current carr"ing amount 0eplacement cost
L />>*>>> 1*1>>*>>>
Te gain Ocean sould report as a separate component of income !efore e$traordinar" item is A. L1*>/>*>>> (. L;*>>> C. L;/>*>>> . L> =.8 E$canges of Nonmonetar" Assets )1. Iona Co. and Siena Co. e$canged goods* eld for resale* wit eual fair ,alues. Eac will use te oter:s goods to promote its own products. Te retail price of te wic3ets tat Iona ga,e up is less tan te retail price of te wom!les recei,ed. -at gain sould Iona recogni5e on te nonmonetar" e$cange# A. A gain is not recogni5ed. (. A gain eual to te difference !etween te retail prices of te wom!les recei,ed and te wic3ets. C. A gain eual to te difference !etween te retail price and te cost of te wic3ets. . A gain eual to te difference !etween te fair ,alue and te cost of te wic3ets. )). Am!le* Inc.* e$canged truc3 wit a carr"ing amount of L1)*>>> and a fair ,alue of L)>*>>> for a truc3 and L8*>>> cas. Te fair ,alue of te truc3 recei,ed was L18*>>>. Te e$cange was not considered to a,e commercial su!stance. At wat amount sould Am!le record te truc3 recei,ed in te e$cange# A. L;*>>> (. L=*>>>
C. L1)*>>> . L18*>>> )/. 7inor (ase!all Compan" ad a pla"er contract wit oe tat was recorded in its accounting records at L168*>>>. (etter (ase!all Compan" ad a pla"er contract wit Smit tat was recorded in its accounting records at L16>*>>>. 7inor traded oe to (etter for Smit !" e$canging pla"er contracts. Te fair ,alue of eac contract was L18>*>>>. E,idence suggested tat te contract e$cange lac3ed commercial su!stance. At wat amount sould te contracts !e ,alued in accordance wit generall" accepted accounting principles at te time of te e$cange of te pa"er contracts# inor Better A. L16>*>>> L16>*>>> (. L16>*>>> L168*>>> C. L168*>>> L16>*>>> . L18>*>>> L18>*>>> )6. UB- (roadcast Co. entered into a contract to e$cange unsold ad,ertising time for tra,el and lodging ser,ices wit Dotel Co. As of une />* ad,ertising commercials of L1>*>>> were used. Dowe,er* tra,el and lodging ser,ices were not pro,ided. Dow sould UB- account for ad,ertising in its une /> financial statements# A. 0e,enue and e$pense is recogni5ed wen te agreement is complete. (. An asset and re,enue for L1>*>>> is recogni5ed. C. (ot te re,enue and e$pense of L1>*>>> are recogni5ed. . Not reported. =.9 Impairment of ong+i,ed Assets )8. Testing for possi!le impairment of a long+li,ed asset %asset group& tat an entit" e$pects to old and use is reuired A. At eac interim and annual !alance seet date. (. At annual !alance seet dates onl". C. 'eriodicall". . -ene,er e,ents or canges in circumstances indicate tat its carr"ing amount ma" not !e reco,era!le. )9. -ic of te following conditions must e$ist in order for an impairment loss to !e recogni5ed# I. Te carr"ing amount of te long+li,ed asset is less tan its fair ,alue. II. Te carr"ing amount of te long+li,ed asset is not reco,era!le. A. I onl". (. II onl". C. (ot I and II. . Neiter I nor II. );. A compan" as a long+li,ed asset wit carr"ing ,alue of L1)>*>>>* e$pected future cas flows of L1/>*>>>* present ,alue of e$pected future cas flows of L1>>*>>>* and a mar3et ,alue of L1>8*>>>. -at amount of impairment loss sould !e reported# A. L> (. L8*>>> C. L18*>>> . L)>*>>> ). Icor Co. reported euipment wit an original cost of L/;=*>>> and L/66*>>* and accumulated depreciation of L18/*>>> and L1)>>* respecti,el"* in its comparati,e financial statements for te "ears ended ecem!er /1* ear ) and ear 1. uring ear )* Icor purcased euipment costing L8>*>>> and sold euipment wit a carr"ing amount of L=*>>>. -at amount sould Icor report as depreciation e$pense for ear )# A. L1=*>>> (. L)8*>>> C. L/1*>>> . L/6*>>> /1. On anuar" 1* ear 8* Crater* Inc.* purcased euipment a,ing an estimated sal,age ,alue eual to )>M of its original cost at te end of a 1>+"ear life. Te euipment was sold ecem!er /1* ear =* for 8>M of its original cost. If te euipment:s disposition resulted in a reported loss* wic of te following depreciation metods did Crater use# A. ou!le+declining !alance. (. Sum+of+te+"ears:+digits. C. Straigt+line. . Composite. /). On anuar" )* ear 1* Union Co* purcased a macine for L)96*>>> and depreciated it !" te straigt+line metod using an estimated useful life of < "ears wit no sal,age ,alue. On anuar" )* ear 6* Union determined tat te macine ad a useful life of 9 "ears from te date of acuisition and will a,e a sal,age ,alue of L)6*>>>. An accounting cange was made in ear 6 to reflect te additional data. Te accumulated depreciation for tis macine sould a,e a !alance at ecem!er /1* ear 6* of A. L1;=*>>> (. L19>*>>> C. L186*>>> . L169*>>> //. 0"e Co. purcased a macine wit a 6+"ear estimated useful life and an estimated 1>M sal,age ,alue for L*>>> on anuar" 1* ear 9. In its income statement* wat sould 0"e report as te depreciation e$pense for a ear < using te dou!le+declining+!alance %(& metod# A. L=*>>> (. L1>*>>> C. L1>> . L)>*>>> /6. In wic of te following situations is te units+of+production metod of depreciation most appropriate# A. An asset:s ser,ice potential declines wit use. (. An asset:s ser,ice potential declines wit te passage of time. C. An asset is su!2ect to rapid o!solescence. . An asset incurs increasing repairs and maintenance wit use. /8. -ic of te following uses te straigt+line depreciation metod# :ro&p %epreciation +o)posite %epreciation A. No No (. es No C. es es . No es
/9. A compan" using te composite depreciation metod for its fleet of truc3s* cars* and campers retired one of its truc3s and recei,ed cas from a sal,age compan". Te net carr"ing amount of tese composite asset accounts was decreased !" te A. Cas proceeds recei,ed and original cost of te truc3. (. Cas proceeds recei,ed. C. Original cost of te truc3 minus te cas proceeds. . Original cost of te truc3. =.< epletion /;. In anuar"* Borst Co. purcased a mineral mine for L)*96>*>>> wit remo,a!le ore estimated at 1.) million tons. After it as e$tracted all te ore* Borst will !e reuired !" law to restore te land to its original condition at an estimated cost of L1*>>>. Borst !elie,es it will !e a!le to sell te propert" afterwards for L/>>*>>>. uring te "ear* Borst incurred L/9>*>>> of de,elopment costs preparing te mine for production and remo,ed and sold 9>*>>> tons of ore. In its income statement for te "ear* wat amount sould Borst report as depletion# A. L1/8*>>> (. L166*>>> C. L18>*>>> . L18=*>>> />*>>> tons of ore were mined and processed from ear = troug ecem!er /1* ear 19. uring anuar" ear 1;* a ,er" promising ,ein was disco,ered. Te re,ised estimate of ore still to !e mined was )8>*>>> tons. Estimated sal,age ,alue for te mine land was L1>>*>>> in !ot ear = and ear 1;. Assuming tat 1>*>>> tons of ore were mined in ear 1;* wat amount sould - 7ining Compan" report as depletion in ear 1;# A. L16*)*>>> . L;*16)
10.1 Goodwill and Other Intangible Assets 1. On June 30, Year 5, Finn, Inc., exchange ,000 shares o! "dlow #or$. %30 $ar &alue co''on stoc( !or a $atent owned b) *is( #o. +he "dlow stoc( was acuired in Year 1 at a cost o! %50,000. At the exchange date, "dlow co''on stoc( had a !air &alue o! %-0 $er share, and the $atent had a net carr)ing a'ount o! %100,000 on *is(s boo(s. Finn should record the $atent at A. %50,000 *. %/0,000 #. 0,000 . %100,000 . +ech #o. bought a trade'ar( )ears ago on Januar) . +ech accounted !or the trade'ar( as instructed under the $ro&isions o! the Accounting 2tandards #odication during the current )ear. +he intangible was being a'orti4ed o&er -0 )ears. +he carr)ing a'ount at the beginning o! the )ear was %3,000. It was deter'ined that the cash ow will be generated indenitel) at the current le&el !or the trade'ar(. 6hat a'ount should +ech re$ort as a'orti4ation ex$ense !or the current )ear7 A. %0 *. %8 #. %1,000 . %3,000 3. In accordance with generall) acce$ted accounting $rinci$les, which o! the !ollowing 'ethods o! a'orti4ation is reuired !or a'orti4able intangible assets i! the $attern o! consu'$tion o! econo'ic benets is not reliabl) deter'inable7 A. 2u'9o!9the9)ears9digits. *. 2traight9line. #. :nits9o!9$roduction. . ouble9declining9balance. -. 6hich o! the !ollowing is not a consideration in deter'ining the use!ul li!e o! an intangible asset7 A. ;egal, regulator), or contractual $ro&isions. *. onre!undable EA+ taxes 5,000 +raining sales $ersonnel on the use o! ?,000 the new trade'ar( Desearch ex$enditures associated with -,000 the $urchase o! the new trade'ar( ;egal costs incurred to register the 10,500 trade'ar( 2alaries o! the ad'inistrati&e $ersonnel 1,000 A$$l)ing IFD2s and assu'ing that the trade'ar( 'eets all o! the a$$licable initial asset recognition criteria, the entit) should recogni4e an asset in the a'ount o! A. %100,000 *. %115,500 #. %1-/,500 . %15,500 15.:nder IFD2s, which o! the !ollowing is a criterion that 'ust be 'et in order !or an ite' to be recogni4ed as an intangible asset other than goodwill7 A. +he ite's !air &alue can be 'easured reliabl). *. +he ite' is $art o! the entit)s acti&ities ai'ed at gaining new scientic or technical (nowledge.
#. +he ite' is ex$ected to be used in the $roduction or su$$l) o! goods and ser&ices. . +he ite' is identiable and lac(s $h)sical substance. 10.2 Research and Development 1/.uring the )ear ust ended, Orr #o. incurred the !ollowing costsC Desearch and de&elo$'ent ser&ices %150,000 $er!or'ed b) e) #or$. !or Orr esign, construction, and testing o! 00,000 $re$roduction $rotot)$es and 'odels +esting in search !or new $roducts or 1?5,000 $rocess alternati&es In its inco'e state'ent !or the )ear, what should Orr re$ort as research and de&elo$'ent ex$ense7 A. %150,000 *. %00,000 #. %350,000 . %55,000 1?.6est Inc., 'ade the !ollowing ex$enditures relating to o *. Yes Yes #. >o >o . >o Yes ?.;ex #or$. was a de&elo$'ent stage entit) !ro' October 10, Year , ince$tion through ece'ber 31, Year 3. +he )ear ended ece'ber 31, Year -, was the rst )ear in which ;ex ualied as an established o$erating entit). +he !ollowing are a'ong the costs incurred b) ;exC For the 2 11.1 A##O:>+2 2"2 3. In its Year - nancial state'ents, #ris #o. re$orted interest ex$ense o! %5,000 in its cash ow state'ent. +here was no $re$aid interest o! interest ca$itali4ation at either the beginning or the end o! Year -. Accrued Interest at ece'ber 31, Year 3, was %15,000. 6hat a'ount should #ris re$ort as accrued interest $a)able in its ece'ber 31, Year -, balance sheet7 A. %,000 *. %15,000
#. %1?,000 . %3,000 -. Doss #o. $a)s all salaried e'$lo)ees on a =onda) !or the 59da) wor(wee( ended the $re&ious Frida). +he last $a)roll recorded !or the )ear ended ece'ber 31, Year -, was !or the wee( ended ece'ber 5, Year -. +he $a)roll !or the wee( ended Januar) 1, Year 5, included regular wee(l) salaries o! %0,000 and &acation $a) o! %5,000 !or &acation ti'e earned in Year not ta(en b) ece'ber 31, Year -, balance sheet, what a'ount should Doss re$ort as accrued salar) and &acation $a)7 A. %/-,000 *. %/,000 #. %/8,000 . %8,000 5. On ece'ber 31, Year -, eal, Inc., !ailed to accrue the ece'ber Year sales salaries that were $a)able on Januar) /, Year 5. 6hat is the e@ect o! the !ailure to accrue sales salaries on wor(ing ca$ital and cash ows !ro' o$erating acti&ities in eals Year - nancial state'ents7 #ash Flows !ro' 6or(ing #a$ital O$erating Acti&ities A. O&erstated >o e@ect *. O&erstated O&erstated #. >o e@ect O&erstated . >o e@ect >o e@ect 11.3 #ertain +axes o&e'ber 1, Year -, a) $aid the rst install'ent o! %1,000 !or realt) taxes. 6hat a'ount o! this $a)'ent should a) record as a debit to real estate taxes $a)able7 A. %-,000 *. %,000 #. %10,000 . %1,000 11.- e$osits and Other Ad&ances 10.*arnel #or$. owns and 'anages 18 a$art'ent co'$lexes. On signing a lease, each tenant 'ust $a) the rst and last 'onths rent and a %500 re!undable securit) de$osit. +he securit) de$osits are rarel) re!unded in total, because cleaning costs o! %150 $er a$art'ent are al'ost alwa)s deducted. About 30 o! the ti'e, the tenants are also charged !or da'ages to its a$art'ent, which t)$icall) cost %100 to re$air. I! a 19)ear lease is signed on a %800 $er 'onth a$art'ent, what a'ount would *arnel re$ort as re!undable securit) de$osit7 A. %1,-00 *. %500 #. %350 . %30 11.*uc #o. recei&es de$osits !ro' its custo'ers to $rotect itsel! against non$a)'ents !or !uture ser&ices. +hese de$osits should be classied b) *uc as A. A liabilit). *. De&enue. #. A de!erred credit deducted !ro' accounts recei&able. . A contra account. 1.=arr #o. sells its $roducts in reusable containers. +he custo'er is charged a de$osit !or each container deli&ered and recei&es a re!und !or each container returned within )ears a!ter the )ear o! deli&er). =arr accounts !or the containers not returned within the ti'e li'it as being retired b) sale at the de$osit a'ount. In!or'ation !or Year -C #ontainer de$osits at ece'ber 31, Year 3, !ro' deli&eries in Year %150,000
Year 3
-30,000
%50,000
e$osits !or containers deli&ered in Year %?0,000 e$osits !or containers returned in Year Fro' deli&eries in Year %80,000 Year 3 50,000 Year /,000 %//,000 In =arrs ece'ber 31, Year -, balance sheet, the liabilit) !or de$osits on returnable containers should be A. %-8-,000 *. %5-,000 #. %/?-,000 . %?3-,000 11.5 #ou$ons and $re'iu's 13.In ece'ber Year -, =ill #o. began including one cou$on in each $ac(age o! cand) that it sells and o@ering a to) in exchange !or %.50 and &e cou$ons. +he to)s cost =ill %.0 each. "&entuall), /0 o! the cou$ons will be redee'ed. uring ece'ber, =ill sold 110,000 $ac(ages o! cand) and no cou$ons were redee'ed. In its ece'ber 31, Year -, balance sheet, what a'ounts should =ill re$ort as esti'ated liabilit) !or cou$ons7 A. %3,8/0 *. %10,5/0 #. %18,00 . %5,00 1-.unn +rading 2ta'$ #o'$an) records sta'$ ser&ice re&enue and $ro&ides !or the cost o! rede'$tions in the )ear sta'$s are sold to licensees. unns $ast ex$erience indicates that onl) 0 o! the sta'$s sold to licensees will be redee'ed. unns liabilit) !or sta'$ rede'$tions was %/ 'illion at ece'ber 31, Year 3. Additional in!or'ation !or Year - is as !ollowsC 2ta'$ ser&ice re&enue !ro' sta'$s sold to licensees #ost o! rede'$tions sta'$s sold $rior to 1L1LYr -
% -,000,000 ,?50,000
I! all the sta'$s sold in Year - were $resented !or rede'$tion in Year 5, the rede'$tion cost would be %,50,000. 6hat a'ount should unn re$ort as a liabilit) !or sta'$ rede'$tions at ece'ber 31, Year -7 A. %?,50,000 *. %5,500,000 #. %5,050,000 . %3,50,000 11./ 6arranties 15.Eadis #o. sells a$$liances that include a 39)ear warrant). 2er&ice calls under the warrant) are $er!or'ed b) an inde$endent 'echanic under a contract with Eadis. *ased on ex$erience, warrant) costs are esti'ated at %30 !or each 'achine sold. 6hen should Eadis recogni4e these warrant) costs7 A. "&enl) o&er the li!e o! the warrant). *. 6hen the ser&ice calls are $er!or'ed. #. 6hen $a)'ents are 'ade to the 'echanic. . 6hen the 'achines are sold. 1/.uring Year 3, Dex #o. introduced a new $roduct carr)ing a 9)ear warrant) against de!ects. +he esti'ated warrant) costs related to dollar sales are
within 1 'onths !ollowing the sale. 2ales and actual warrant) ex$enditures !or the )ears ended ece'ber 31, Year 3 and Year -, are as !ollowsC 2ales Year 3 Year -
Actual 6arrant) "x$enditures % 8,000 30,000 % 38,000
% /00,000 1,000,000 % 1,/00,000
At ece'ber 31, Year -, Dex should re$ort an esti'ated warrant) liabilit) o! A. %0 *. %38,000 #. %5?,000 . %8/,000 1?.Oa( #o. o@ers a 39)ear warrant) on its $roducts. Oa( $re&iousl) esti'ated warrant) costs to be sales. ue to a technological ad&ance in $roduction at the beginning o! Year -, Oa( now belie&es 1 o! sales to be a better esti'ate o! warrant) costs. 6arrant) costs o! %0,000 and %8/,000 were re$orted in Year and Year 3, res$ecti&el). 2ales !or Year - were %5 'illion. 6hat a'ount should e disclosed in Oa(s Year - nancial state'ents as warrant) ex$ense7 A. %50,000 *. %,000 #. %100,000 . %13,000 11.? Inco'e +ax accounting 9 o&er&iew 1.+he guidance on accounting !or inco'e taxes establishes standards !or taxes that are currentl) $a)able and !or A. +he tax conseuences o! re&enues and ex$enses included in taxable inco'e in a di@erent )ear !ro' the )ear in which the) are recogni4ed !or nancial re$orting $ur$oses. *. +he 'ethod o! accounting !or the :.2. !ederal in&est'ent tax credit. #. +he discounting o! inco'e taxes. . +he accounting !or inco'e taxes in general in interi' $eriods. 18.:nder current generall) acce$ted accounting $rinci$les, which a$$roach is used to deter'ine inco'e tax ex$ense7 A. Asset and liabilit) a$$roach. *. P6ith and withoutQ a$$roach. #. >et9o!9tax a$$roach. . e!erred a$$roach. 11. Inco'e tax accounting 9 te'$orar) and $er'anent di@erences 0.+e'$orar) di@erences arise when ex$enses are deductible !or tax $ur$oses A!ter +he) Are Decogni4ed in Financial Inco'e A. *. #. .
>o >o Yes Yes
*e!ore +he) Are Decogni4ed in Financial Inco'e >o Yes Yes >o
1.Orlean #o., a cash9basis tax$a)er, $re$ares accrual9basis nancial state'ents. In its current )ear balance sheet, Orleans de!erred inco'e tax liabilities increased co'$ared with those re$orted !or the $rior )ear. 6hich o!
the !ollowing changes would cause this increase in de!erred inco'e tax liabilities7 I. An increase in $re$aid insurance II. An increase in rent recei&able III. An increase in warrant) obligations A. I onl). *. I and II onl). #. II and III onl). . III onl). .In its Year - inco'e state'ent, #ere #o. re$orted inco'e be!ore inco'e taxes o! %300,000. #ere esti'ated that, because o! $er'anent di@erences, taxable inco'e !or Year - would be %0,000. uring the Year -, #ere 'ade esti'ated tax $a)'ents o! %50,000, which were debied to inco'e tax ex$ense. #ere is subect to a 30 tax rate. 6hat a'ount should #ere re$ort as inco'e tax ex$ense7 A. %3-,000 *. %50,000 #. %-,000 . %80,000 11.8 Decognition and =easure'ent o! e!erred Inco'e taxes 3.On its ece'ber 31, Year , balance sheet, 2hin #o. had inco'e taxes $a)able o! %13,000 and a current de!erred tax asset o! %0,000 be!ore deter'ining the need !or a &aluation account. 2hin had re$orted a current de!erred tax asset o! %15,000 at ece'ber 31, Year 1. >o esti'ated tax $a)'ents were 'ade during Year . At ece'ber 31, Year , 2hin deter'ined that it was 'ore li(el) than not that 10 o! the de!erred tax asset would not be reali4ed. In its Year inco'e state'ent, what a'ount should 2hin re$ort as total inco'e tax ex$ense7 A. %,000 *. %,500 #. %10,000 . %13,000 -.6est #or$. leased a building and recei&ed the %3/,000 annual rental $a)'ent on June 15, Year -. +he beginning o! the lease was Jul) 1, Year -. Dental inco'e is taxable when recei&ed. 6ests tax rates are 30 !or Year - and -0 therea!ter. 6est had no other $er'anent or te'$orar) di@erences. 6est deter'ined that no &aluation allowance was needed. 6hat a'ount o! de!erred tax asset should 6est re$ort in its ece'ber 31, Year -, balance sheet7 A. %5,-00 *. %?,00 #. %10,00 . %1-,-00 5.:nder IFD2s, a de!erred tax asset is A. Deuired to be reduced b) a &aluation allowance i! it is 'ore li(el) than not that so'e $ortion will not be reali4ed. *. =easured b) a$$l)ing the tax rates e@ecti&e when the asset is reali4ed. #. Decogni4ed to the extent that reali4ation is $robable. . Decogni4ed to reect the de!erred tax conseuences o! a taxable te'$orar) di@erence. /.=iro #o. began business on Januar) , Year 1. =iro used the double9declining balance 'ethod o! de$reciation !or nancial state'ent $ur$oses !or its building, and the straight9line 'ethod !or inco'e taxes. On Januar) 1/, Year 3. =iro elected to switch to the straight9line 'ethod !or both nancial
state'ent and tax $ur$oses. +he building cost %-0,000 in Year 1, which has an esti'ated &alue. In!or'ation related to the building is as !ollowsC Year
ouble9declining 'ethod de$reciation % 30,000 0,000
2traight9line 'ethod de$reciation % 1/,000 1/,000
1 =iros tax rate is -0. 6hich o! the !ollowing state'ents is correct7 A. +here should be no reduction in =iros de!erred tax liabilities or de!erred tax assets in Year 3. *. =iros de!erred tax liabilit) should be reduced b) %?,00 in Year 3. #. =iros de!erred tax asset should be reduced b) %55- in Year 3. . =iros de!erred tax asset should be reduced b) %?,00 in Year 3. ?.According to :.2 GAA2 1.1
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