Cpa Review Mc

8/12/2019 Cpa Review Mc

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MULTIPLE CHOICECPA AdaptedChapter 14 Long Term Liabilities

1. On July 1, 2010, Spear Co. issued 1,000 of its 10%, $1,000 bonds at 99 plus accruedinterest. The bonds are dated pril 1, 2010 and !ature on pril 1, 2020. "nterest is

payable se!iannually on pril 1 and October 1. #hat a!ount did Spear receie fro! thebond issuancea. $1,01&,000b. $1,000,000c. $990,000d. $9'&,000

2. On January 1, 2010, Solis Co. issued its 10% bonds in the face a!ount of $(,000,000,)hich !ature on January 1, 2020. The bonds )ere issued for $(,*0&,000 to yield +%,resultin in bond pre!iu! of $*0&,000. Solis uses the effectie-interest !ethod ofa!ortiin bond pre!iu!. "nterest is payable annually on /ece!ber (1. t /ece!ber(1, 2010, Soliss adusted una!ortied bond pre!iu! should be

a. $*0&,000.b. $(,*00.c. $('*,&00.d. $(0*,&00.

(. On July 1, 2009, 3oble, "nc. issued 9% bonds in the face a!ount of $&,000,000, )hich!ature on July 1, 201&. The bonds )ere issued for $*,'9&,000 to yield 10%, resultin ina bond discount of $(0&,000. 3oble uses the effectie-interest !ethod of a!ortiinbond discount. "nterest is payable annually on June (0. t June (0, 2011, 3oblesuna!ortied bond discount should bea. $2'*,0&0.b. $2&&,000.

c. $2**,000.d. $21&,000.

*. On January 1, 2010, 4uff Co. sold $1,000,000 of its 10% bonds for $++&,29' to yield12%. "nterest is payable se!iannually on January 1 and July 1. #hat a!ount should4uff report as interest e5pense for the si5 !onths ended June (0, 2010a. $**,2''b. $&0,000c. $&(,11+d. $'0,000

&. On January 1, 2011, /oty Co. redee!ed its 1&-year bonds of $2,&00,000 par alue for

102. They )ere oriinally issued on January 1, 1999 at 9+ )ith a !aturity date ofJanuary 1, 201*. The bond issue costs relatin to this transaction )ere $1&0,000. /otya!orties discounts, pre!iu!s, and bond issue costs usin the straiht-line !ethod.#hat a!ount of loss should /oty reconie on the rede!ption of these bonds 6inoreta5es7a. $90,000b. $'0,000c. $&0,000d. $0


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'. On its /ece!ber (1, 2010 balance sheet, 8!i Corp. reported bonds payable of$',000,000 and related una!ortied bond issue costs of $(20,000. The bonds had beenissued at par. On January 2, 2011, 8!i retired $(,000,000 of the outstandin bonds atpar plus a call pre!iu! of $0,000. #hat a!ount should 8!i report in its 2011 inco!estate!ent as loss on e5tinuish!ent of debt 6inore ta5es7a. $0

b. $0,000c. $1'0,000d. $2(0,000

. On January 1, 200', oll Corp. issued 1,000 of its 10%, $1,000 bonds for $1,0*0,000.These bonds )ere to !ature on January 1, 201' but )ere callable at 101 any ti!e after/ece!ber (1, 2009. "nterest )as payable se!iannually on July 1 and January 1. OnJuly 1, 2011, oll called all of the bonds and retired the!. :ond pre!iu! )as a!ortiedon a straiht-line basis. :efore inco!e ta5es, olls ain or loss in 2011 on this earlye5tinuish!ent of debt )asa. $(0,000 ain.b. $12,000 ain.

c. $10,000 loss.d. $+,000 ain.

+. On June (0, 2011, O!ara Co. had outstandin +%, $(,000,000 face a!ount, 1&-yearbonds !aturin on June (0, 2021. "nterest is payable on June (0 and /ece!ber (1.The una!ortied balances in the bond discount and deferred bond issue costs accountson June (0, 2011 )ere $10&,000 and $(0,000, respectiely. On June (0, 2011, O!araac;uired all of these bonds at 9* and retired the!. #hat net carryin a!ount should beused in co!putin ain or loss on this early e5tinuish!ent of debta. $2,90,000.b. $2,+9&,000.c. $2,+'&,000.

d. $2,+20,000.

9. ten-year bond )as issued in 2009 at a discount )ith a call proision to retire thebonds. #hen the bond issuer e5ercised the call proision on an interest date in 2011,the carryin a!ount of the bond )as less than the call price. The a!ount of bond liabilityre!oed fro! the accounts in 2011 should hae e;ualed thea. call price.b. call price less una!ortied discount.c. face a!ount less una!ortied discount.d. face a!ount plus una!ortied discount.

10.


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>11. 8ddy Co. is indebted to Cole under a $*00,000, 12%, three-year note dated/ece!ber (1, 2009. :ecause of 8ddys financial difficulties deelopin in 2011, 8ddyo)ed accrued interest of $*+,000 on the note at /ece!ber (1, 2011. ?nder a troubleddebt restructurin, on /ece!ber (1, 2011, Cole areed to settle the note and accruedinterest for a tract of land hain a fair alue of $('0,000. 8ddys ac;uisition cost of theland is $290,000. "norin inco!e ta5es, on its 2011 inco!e state!ent 8ddy should

report as a result of the troubled debt restructurinain on /isposal @estructurin ain

a. $1&+,000 $0b. $110,000 $0c. $0,000 $*0,000d. $0,000 $++,000

Mltiple Choi!e Ans"ersCPA Adapted

Item Ans# Item Ans# Item Ans# Item Ans# Item Ans# Item Ans#

1. a (. a &. a . d 9. c >11. d2. b *. c '. d +. c 10. c

$o# Ans"er %eri&ation

1. a 6$1,000,000 A .997 B 6$1,000,000 A .10 A (127 D $1,01&,000.

2. b $*0&,000 E F6$(,000,000 A .107 E 6$(,*0&,000 A .0+7G D $(,*00.

(. a 2009E2010H$*,'9&,000 B F6$*,'9&,000 A .17 E 6$&,000,000 A .097GD $*,1*,&00.

2010E2011H$*,1*,&00 B 6$*1,*&0 E $*&0,0007 D $*,(&,9&0$&,000,000 E $*,(&,9&0 D $2'*,0&0.

*. c $++&,29' A .0' D $&(,11+.

&. a 6$2,&00,000 A 1.027 E 200 000

2 300 000 1215

$ ,$ , ,

+ D $90,000.

'. d 6$(,000,000 B $0,0007 E F6$',000,000 E $(20,0007 A 12G D $2(0,000.

. d 40 000

1 040 000 1120

$ ,$ , ,

E 6$1,000,000 A 1.017 D $+,000.

+. c $(,000,000 E 6$10&,000 B $(0,0007 D $2,+'&,000.

9. c Conceptual.

10. c Conceptual.

>11. d $('0,000 E $290,000 D $0,0006$*00,000 B $*+,0007 E $('0,000 D $++,000.


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Chapter 1' (to!)holders* E+it,

1. corporation )as oranied in January 200 )ith authoried capital of $10 par alueco!!on stoc=. On Iebruary 1, 2010, shares )ere issued at par for cash. On arch 1,2010, the corporations attorney accepted ,000 shares of co!!on stoc= in settle!ent

for leal serices )ith a fair alue of $90,000. dditional paid-in capital )ould increaseon

Iebruary 1, 2010 arch 1, 2010a. Kes 3ob. Kes Kesc. 3o 3od. 3o Kes

2. On July 1, 2010, 3all Co. issued 2,&00 shares of its $10 par co!!on stoc= and &,000shares of its $10 par conertible preferred stoc= for a lu!p su! of $12&,000. t this date3alls co!!on stoc= )as sellin for $2* per share and the conertible preferred stoc=for $1+ per share. The a!ount of the proceeds allocated to 3alls preferred stoc= should

bea. $'2,&00.b. $&,000.c. $90,000.d. $'+,&0.

(. 4orton Co. )as oranied on January 2, 2010, )ith &00,000 authoried shares of $10par alue co!!on stoc=. /urin 2010, 4orton had the follo)in capital transactionsH

January &Lissued (&,000 shares at $1* per share.July 2Lpurchased 2&,000 shares at $11 per share.3oe!ber 2&Lsold 1&,000 shares of treasury stoc= at $1( per share.

4orton used the cost !ethod to record the purchase of the treasury shares. #hat )ouldbe the balance in the


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&. t its date of incorporation, Sauder, "nc. issued 100,000 shares of its $10 par co!!onstoc= at $11 per share. /urin the current year, Sauder ac;uired 20,000 shares of itsco!!on stoc= at a price of $1' per share and accounted for the! by the cost !ethod.Subse;uently, these shares )ere reissued at a price of $12 per share. There hae beenno other issuances or ac;uisitions of its o)n co!!on stoc=. #hat effect does thereissuance of the stoc= hae on the follo)in accounts

@etained 8arnins dditional


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10. On /ece!ber (1, 2010, the stoc=holders e;uity section of rndt, "nc., )as as follo)sH

Co!!on stoc=, par alue $10N authoried (0,000 sharesNissued and outstandin 9,000 shares $ 90,000

dditional paid-in capital 11',000@etained earnins 1*,000

Total stoc=holders e;uity $(+0,000On arch (1, 2011, rndt declared a 10% stoc= diidend, and accordinly 900additional shares )ere issued, )hen the fair !ar=et alue of the stoc= )as $1+ pershare. Ior the three !onths ended arch (1, 2011, rndt sustained a net loss of$(2,000. The balance of rndts retained earnins as of arch (1, 2011, should bea. $12&,+00.b. $1((,000.c. $1(*,+00.d. $1*2,000.

>11. t /ece!ber (1, 2010 and 2011,


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>11. c 6$200,000 .0+7 B $+,000 D $2*,000N $(0,000 E $2*,000 D $',000

Chapter 1- %ilti&e (e!rities . Earnings Per (hare

1. On January 2, 2010, Iarr Co. issued 10-year conertible bonds at 10&. /urin 2012,these bonds )ere conerted into co!!on stoc= hain an areate par alue e;ual to

the total face a!ount of the bonds. t conersion, the !ar=et price of Iarrs co!!onstoc= )as &0 percent aboe its par alue. On January 2, 2010, cash proceeds fro! theissuance of the conertible bonds should be reported asa. paid-in capital for the entire proceeds.b. paid-in capital for the portion of the proceeds attributable to the conersion feature

and as a liability for the balance.c. a liability for the face a!ount of the bonds and paid-in capital for the pre!iu! oer

the face a!ount.d. a liability for the entire proceeds.

2. Pan Co. issued bonds )ith detachable co!!on stoc= )arrants. Only the )arrants hada =no)n !ar=et alue. The su! of the fair alue of the )arrants and the face a!ount of

the bonds e5ceeds the cash proceeds. This e5cess is reported asa. /iscount on :onds


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Mltiple Choi!e Ans"ers%ilti&e (e!rities/ CPA Adapted

Item Ans# Item Ans# Item Ans# Item Ans#

1. d 2. a (. c >*. c


1. d Conceptual.2. a Conceptual.(. c $1*0,000 Q 2 D $0,000.

>*. c 6$*& E $(07 A 1',000 D $2*0,000.

Earnings Per (hare

&. /idde Co. had (00,000 shares of co!!on stoc= issued and outstandin at /ece!ber(1, 2010. 3o co!!on stoc= )as issued durin 2011. On January 1, 2011, /idde issued200,000 shares of nonconertible preferred stoc=. /urin 2011, /idde declared and paid$100,000 cash diidends on the co!!on stoc= and $+0,000 on the preferred stoc=. 3et

inco!e for the year ended /ece!ber (1, 2011 )as $'20,000. #hat should be /iddes2011 earnins per co!!on sharea. $2.0b. $1.+0c. $1.(d. $1.*

'. t /ece!ber (1, 2011 and 2010, iley Corp. had 1+0,000 shares of co!!on stoc= and10,000 shares of &%, $100 par alue cu!ulatie preferred stoc= outstandin. 3odiidends )ere declared on either the preferred or co!!on stoc= in 2011 or 2010. 3etinco!e for 2011 )as $*00,000. Ior 2011, earnins per co!!on share a!ounted toa. $2.22.

b. $1.9*.c. $1.'.d. $1.11.

. arsh Co. had 2,*00,000 shares of co!!on stoc= outstandin on January 1 and/ece!ber (1, 2011. "n connection )ith the ac;uisition of a subsidiary co!pany in June2010, arsh is re;uired to issue 100,000 additional shares of its co!!on stoc= on July1, 2012, to the for!er o)ners of the subsidiary. arsh paid $200,000 in preferred stoc=diidends in 2011, and reported net inco!e of $(,*00,000 for the year. arshs dilutedearnins per share for 2011 should bea. $1.*2.b. $1.('.c. $1.((.d. $1.2+.

+. Ioyle, "nc., had &'0,000 shares of co!!on stoc= issued and outstandin at /ece!ber (1,2010. On July 1, 2011, an additional *0,000 shares of co!!on stoc= )ere issued forcash. Ioyle also had une5ercised stoc= options to purchase (2,000 shares of co!!onstoc= at $1& per share outstandin at the beinnin and end of 2011. The aerae!ar=et price of Ioyles co!!on stoc= )as $20 durin 2011. #hat is the nu!ber of


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shares that should be used in co!putin diluted earnins per share for the year ended/ece!ber (1, 2011a. &+0,000b. &++,000c. '0+,000d. '12,000

9. #hen co!putin diluted earnins per share, conertible securities area. inored.b. reconied only if they are dilutie.c. reconied only if they are antidilutie.d. reconied )hether they are dilutie or antidilutie.

10. "n deter!inin diluted earnins per share, diidends on nonconertible cu!ulatiepreferred stoc= should bea. disrearded.b. added bac= to net inco!e )hether declared or not.c. deducted fro! net inco!e only if declared.

d. deducted fro! net inco!e )hether declared or not.

11. The if-conerted !ethod of co!putin earnins per share data assu!es conersion ofconertible securities as of thea. beinnin of the earliest period reported 6or at ti!e of issuance, if later7.b. beinnin of the earliest period reported 6reardless of ti!e of issuance7.c. !iddle of the earliest period reported 6reardless of ti!e of issuance7.d. endin of the earliest period reported 6reardless of ti!e of issuance7.

Mltiple Choi!e Ans"ersEarnings Per (hareCPA Adapted

Item Ans# Item Ans# Item Ans# Item Ans# Item Ans# Item Ans# Item Ans#

&. b '. b . d +. b 9. b 10. d 11. a$o#Ans"er %eri&ation

&. b $'20,000 E $+0,000LLLLLLLLL D $1.+0.

(00,000

'. b $*00,000 E 610,000 A $100 A .0&7LLLLLLLLLLLLLLL D $1.9*.

1+0,000

. d $(,*00,000 E $200,000

LLLLLLLLLLE D $1.2+. 2,*00,000 B 100,000

+. b &'0,000 B 6*0,000 A '127 B F(2,000 E 6(2,000 A $1& Q $207G D &++,000.

9. b Conceptual.10. d Conceptual.11. a Conceptual.


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Chapter 10 In&estments

1. On October 1, 2010, #enn Co. purchased '00 of the $1,000 face alue, +% bonds of Poy,"nc., for $02,000, includin accrued interest of $12,000. The bonds, )hich !ature onJanuary 1, 201, pay interest se!iannually on January 1 and July 1. #enn used thestraiht-line !ethod of a!ortiation and appropriately recorded the bonds as aailable-for-sale. On #enns /ece!ber (1, 2011 balance sheet, the carryin alue of the bonds isa. $'90,000.b. $'+*,000.c. $'+1,'00.d. $'2,000.

2. Ralet Corp. bean operations in 2010. n analysis of Ralets e;uity securities portfolioac;uired in 2010 sho)s the follo)in totals at /ece!ber (1, 2010 for tradin andaailable-for-sale securitiesH

Tradin ailable-for-SaleSecurities Securities

reate cost $90,000 $110,000reate fair alue '&,000 9&,000

#hat a!ount should Ralet report in its 2010 inco!e state!ent for unrealied holdin lossa. $*0,000.b. $10,000.

c. $1&,000.d. $2&,000.

(. t /ece!ber (1, 2010, Jeter Corp. had the follo)in e;uity securities that )erepurchased durin 2010, its first year of operationH

Iair ?nrealied Cost Ralue ain 6Poss7

Tradin SecuritiesHSecurity $ 90,000 $ '0,000 $6(0,0007

: 1&,000 20,000 &,000Totals $10&,000 $ +0,000 $62&,0007

ailable-for-Sale SecuritiesHSecurity K $ 0,000 $ +0,000 $ 10,000M +&,000 &&,000 6(0,0007

Totals $1&&,000 $1(&,000 $620,0007ll !ar=et declines are considered te!porary. Iair alue adust!ents at /ece!ber (1,2010 should be established )ith a correspondin chare aainst

"nco!e Stoc=holders 8;uitya. $*&,000 $ 0b. $(0,000 $(0,000


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c. $2&,000 $20,000d. $2&,000 $ 0

*. On /ece!ber 29, 2011, Ja!es Co. sold an e;uity security that had been purchased onJanuary *, 2010. Ja!es o)ned no other e;uity securities. n unrealied holdin loss)as reported in the 2010 inco!e state!ent. realied ain )as reported in the 2011inco!e state!ent. #as the e;uity security classified as aailable-for-sale and did its

2010 !ar=et price decline e5ceed its 2011 !ar=et price recoery2010 ar=et


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c. $+,&00.d. $+,&00.

9. On /ece!ber (1, 2010,


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Chapter 12 3e&ene 3e!ognition1. ccordin to the IS:s conceptual fra!e)or=, the process of reportin an ite! in the

financial state!ents of an entity isa. reconition.b. realiation.c. allocation.d. !atchin.

2. reen Construction Co. has consistently used the percentae-of-co!pletion !ethod ofreconiin reenue. /urin 2010, reen entered into a fi5ed-price contract to constructan office buildin for $12,000,000. "nfor!ation relatin to the contract is as follo)sH

t /ece!ber (12010 2011


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b. $(12,&00c. $*&,000d. $'2&,000

&. 4oan Iar!s produced +00,000 pounds of cotton durin the 2010 season. 4oan sellsall of its cotton to Ott Co., )hich has areed to purchase 4oans entire production at thepreailin !ar=et price. @ecent leislation assures that the !ar=et price )ill not fall

belo) $.0 per pound durin the ne5t t)o years. 4oans costs of sellin and distributinthe cotton are i!!aterial and can be reasonably esti!ated. 4oan reports its inentoryat e5pected e5it alue. /urin 2010, 4oan sold and deliered to Ott '00,000 pounds atthe !ar=et price of $.0. 4oan sold the re!ainin 200,000 pounds durin 2011 at the!ar=et price of $.2. #hat a!ount of reenue should 4oan reconie in 2010a. $*20,000b. $*(2,000c. $&'0,000d. $&',000

'. :raun, "nc. appropriately uses the install!ent-sales !ethod of accountin to reconieinco!e in its financial state!ents. So!e pertinent data relatin to this !ethod of

accountin includeH 2010 2011

"nstall!ent sales $&0,000 $20,000Cost of install!ent sales &0,000 &0*,000ross profit $1+0,000 $21',000

@ate of ross profit 2*% (0%

:alance of deferred ross profit at year endH2010 $10+,000 $ (',0002011 19+,000

Total $10+,000 $2(*,000

#hat a!ount of install!ent accounts receiable should be presented in :rauns/ece!ber (1, 2011 balance sheeta. $20,000b. $+10,000c. $+0,000d. $+'','''

. 4art Co., )hich bean operations on January 1, 2010, appropriately uses theinstall!ent-sales !ethod of accountin. The follo)in infor!ation pertains to 4artsoperations for the year 2010H

"nstall!ent sales $1,200,000

@eular sales *+0,000Cost of install!ent sales 20,000Cost of reular sales 2++,000eneral and ad!inistratie e5penses 9',000Collections on install!ent sales 2++,000

The deferred ross profit account in 4arts /ece!ber (1, 2010 balance sheet shouldbea. $11&,200.


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b. $192,000.c. $('*,+00.d. $*+0,000.

+. On January 1, 2010, Orton Co. sold a used !achine to in, "nc. for $(&0,000. On thisdate, the !achine had a depreciated cost of $2*&,000. in paid $&0,000 cash onJanuary 1, 2010 and sined a $(00,000 note bearin interest at 10%. The note )as

payable in three annual install!ents of $100,000 beinnin January 1, 2011. Ortonappropriately accounted for the sale under the install!ent !ethod. in !ade a ti!elypay!ent of the first install!ent on January 1, 2011 of $1(0,000, )hich included interestof $(0,000 to date of pay!ent. t /ece!ber (1, 2011, Orton has deferred ross profit ofa. $0,000.b. $'',000.c. $'0,000.d. $&1,000.

9.


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1. a Conceptual.

2. b 6$9,'00,000 A*&%7 E 6$9,000,000 A1&%7 D $2,90,000.

$10,&00,000(. d LLLLLL A6$(&,000,000 E $(1,&00,0007 D $1,1'',''.

$(1,&00,000

*. d $(,&00,000 E $1,(&0,000 E $1,&2&,000 D $'2&,000.

&. c +00,000 lbs. A$.0 D $&'0,000.

'. b 6$(',000 Q 2*%7 B 6$19+,000 Q (0%7 D $+10,000.

. c $1,200,000 E $20,000 D $*+0,000 ross profit 6*0% ross profit rate7

$*+0,000 E 6$2++,000 A.*7 D $('*,+00.

+. c $(00,000 B $&0,000 D $(&0,000$(&0,000 E $2*&,000 D $10&,000 ross profit 6(0% ross profit rate76$(00,000 E $100,0007 A (0% D $'0,000.

9. c $1,+00,000 E $1,0+0,000 D $20,000 6*0% ross profit rate7

$20,000 E 6$+2&,000 A*0%7 D $(90,000.10. c Conceptual.11. a Conceptual.

Chapter 5

A!!onting 6or Pensions . Post 3etirement 7ene6its 1. The follo)in infor!ation pertains to 4opson Co.s pension planH

ctuarial esti!ate of proected benefit obliation at 1111 $2,000ssu!ed discount rate 10%Serice costs for 2011 $1+,000


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(. Poan Corp., a co!pany )hose stoc= is publicly traded, proides a noncontributorydefined-benefit pension plan for its e!ployees. The co!panys actuary has proided thefollo)in infor!ation for the year ended /ece!ber (1, 2011H


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Item Ans# Item Ans# Item Ans#

1. d (. c &. a

2. b *. d '. b


1. d $2,000 B $1+,000 B 6$2,000 A .107 E $1&,000 D $+2,200.

2. b Conceptual.

(. c $+2&,000 - $'00,000 D $22&,000.

*. d Conceptual.

&. a Conceptual.

'. b $,200,000 E $*,&00,000 D $2,00,000.

Chapter 1 A!!onting 6or Leases

1. Pease does not contain a barain purchase option, but the lease ter! is e;ual to 90percent of the esti!ated econo!ic life of the leased property. Pease : does not transfero)nership of the property to the lessee by the end of the lease ter!, but the lease ter!is e;ual to & percent of the esti!ated econo!ic life of the leased property. 4o) should

the lessee classify these leases Pease Pease :a. Operatin lease Capital leaseb. Operatin lease Operatin leasec. Capital lease Capital leased. Capital lease Operatin lease

2. On /ece!ber (1, 2011, :urton, "nc. leased !achinery )ith a fair alue of $+*0,000 fro!Cey @entals Co. The aree!ent is a si5-year noncancelable lease re;uirin annualpay!ents of $1'0,000 beinnin /ece!ber (1, 2011. The lease is appropriatelyaccounted for by :urton as a capital lease. :urtons incre!ental borro)in rate is 11%.:urton =no)s the interest rate i!plicit in the lease pay!ents is 10%.

The present alue of an annuity due of 1 for ' years at 10% is *.90+.The present alue of an annuity due of 1 for ' years at 11% is *.'9&9.

"n its /ece!ber (1, 2011 balance sheet, :urton should report a lease liability ofa. $'0',&2+.b. $'+0,000.c. $&1,(**.d. $'',&2+.


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(. On /ece!ber (1, 2010, 4arris Co. leased a !achine fro! Catt, "nc. for a fie-yearperiod. 8;ual annual pay!ents under the lease are $'(0,000 6includin $(0,000 annuale5ecutory costs7 and are due on /ece!ber (1 of each year. The first pay!ent )as!ade on /ece!ber (1, 2010, and the second pay!ent )as !ade on /ece!ber (1,2011. The fie lease pay!ents are discounted at 10% oer the lease ter!. The presentalue of !ini!u! lease pay!ents at the inception of the lease and before the first

annual pay!ent )as $2,&02,000. The lease is appropriately accounted for as a capitallease by 4arris. "n its /ece!ber (1, 2011 balance sheet, 4arris should report a leaseliability ofa. $1,902,000.b. $1,+2,000.c. $1,11,+00.d. $1,*92,200.

*. lessee had a ten-year capital lease re;uirin e;ual annual pay!ents. The reduction ofthe lease liability in year 2 should e;uala. the current liability sho)n for the lease at the end of year 1.b. the current liability sho)n for the lease at the end of year 2.

c. the reduction of the lease liability in year 1.d. one-tenth of the oriinal lease liability.

?se the follo)in infor!ation for ;uestions & and '.

On January 2, 2011, 4ernande, "nc. sined a ten-year noncancelable lease for a heay dutydrill press. The lease stipulated annual pay!ents of $1&0,000 startin at the end of the firstyear, )ith title passin to 4ernande at the e5piration of the lease. 4ernande treated thistransaction as a capital lease. The drill press has an esti!ated useful life of 1& years, )ith nosalae alue. 4ernande uses straiht-line depreciation for all of its plant assets. reatelease pay!ents )ere deter!ined to hae a present alue of $900,000, based on i!plicit interestof 10%.

&. "n its 2011 inco!e state!ent, )hat a!ount of interest e5pense should 4ernande reportfro! this lease transactiona. $0b. $&',2&0c. $&,000d. $90,000

'. "n its 2011 inco!e state!ent, )hat a!ount of depreciation e5pense should 4ernandereport fro! this lease transactiona. $1&0,000b. $100,000

c. $90,000d. $'0,000

. "n a lease that is recorded as a sales-type lease by the lessor, interest reenuea. should be reconied in full as reenue at the leases inception.b. should be reconied oer the period of the lease usin the straiht-line !ethod.c. should be reconied oer the period of the lease usin the effectie interest

!ethod.d. does notarise.


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+. Torrey Co. !anufactures e;uip!ent that is sold or leased. On /ece!ber (1, 2011,Torrey leased e;uip!ent to /alton for a fie-year period endin /ece!ber (1, 201', at)hich date o)nership of the leased asset )ill be transferred to /alton. 8;ual pay!entsunder the lease are $220,000 6includin $20,000 e5ecutory costs7 and are due on/ece!ber (1 of each year. The first pay!ent )as !ade on /ece!ber (1, 2011.Collectibility of the re!ainin lease pay!ents is reasonably assured, and Torrey has no

!aterial cost uncertainties. The nor!al sales price of the e;uip!ent is $0,000, andcost is $'00,000. Ior the year ended /ece!ber (1, 2011, )hat a!ount of inco!eshould Torrey realie fro! the lease transactiona. $10,000b. $220,000c. $2(0,000d. $((0,000

>9. Ja!ar Co. sold its head;uarters buildin at a ain, and si!ultaneously leased bac= thebuildin. The lease )as reported as a capital lease. t the ti!e of the sale, the ainshould be reported asa. operatin inco!e.

b. an e5traordinary ite!, net of inco!e ta5.c. a separate co!ponent of stoc=holders e;uity.d. a deferred ain.

>10. On /ece!ber (1, 2011, 4aden Corp. sold a !achine to @yan and si!ultaneouslyleased it bac= for one year. 9. d

2. a *. a '. d +. a >10 d


1. c Conceptual.2. a 6$1'0,000 A *.90+7 E $1'0,000 D $'0',&2+.

(. a $2,&02,000 E $'(0,000 B $(0,000 D $1,902,000 620107.


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$1,902,000 E F$'00,000 E 6$1,902,000 A .107G D $1,*92,200 620117.

*. a Conceptual.

&. d $900,000 A .10 D $90,000.

'. d $900,000 Q 1& D $'0,000.

. c Conceptual.

+. a $0,000 E $'00,000 D $10,000.

>9. d Conceptual.

>10. d000,900$

000,85$D 9.**%, U 10% of IR of asset it is a !inor leasebac=.

Chapter A!!onting Changes and Error Anal,sis

1. #hich of the follo)in should be reported as a prior period adust!ent

Chane in Chane fro!8sti!ated Pies ?naccepted


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*. On January 1, 200+, Pa=e Co. purchased a !achine for $92,000 and depreciated it bythe straiht-line !ethod usin an esti!ated useful life of eiht years )ith no salaealue. On January 1, 2011, Pa=e deter!ined that the !achine had a useful life of si5years fro! the date of ac;uisition and )ill hae a salae alue of $2,000. naccountin chane )as !ade in 2011 to reflect these additional data. The accu!ulateddepreciation for this !achine should hae a balance at /ece!ber (1, 2011 of

a. $*(+,000.b. $*'2,000.c. $*+0,000.d. $&2+,000.

&. On January 1, 200+, 4ess Co. purchased a patent for $&9&,000. The patent is beina!ortied oer its re!ainin leal life of 1& years e5pirin on January 1, 202(. /urin2011, 4ess deter!ined that the econo!ic benefits of the patent )ould not last lonerthan ten years fro! the date of ac;uisition. #hat a!ount should be reported in thebalance sheet for the patent, net of accu!ulated a!ortiation, at /ece!ber (1, 2011a. $(&,000b. $*0+,000

c. $*20,000d. $*(',(&

'. /urin 2010, a te5tboo= )ritten by ercer Co. personnel )as sold to @oar=


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ccrued Piabilities @etained 8arninsa. 3o effect 3o effectb. 3o effect Oerstatedc. ?nderstated 3o effectd. ?nderstated Oerstated

9. :lac=, "nc. is a calendar-year corporation )hose financial state!ents for 2010 and 2011included errors as follo)sH

Kear 8ndin "nentory /epreciation 85pense2010 $1'2,000 oerstated $1(&,000 oerstated2011 &*,000 understated *&,000 understated

ssu!e that purchases )ere recorded correctly and that no correctin entries )ere!ade at /ece!ber (1, 2010, or at /ece!ber (1, 2011. "norin inco!e ta5es, by ho)!uch should :lac=s retained earnins be retroactiely adusted at January 1, 2012a. $1**,000 increaseb. $(',000 increasec. $1+,000 decrease

d. $9,000 increase


Item Ans# Item Ans# Item Ans# Item Ans# Item Ans#

1. b (. a &. b . b 9. a2. c *. a '. d +. c


1. b Conceptual.

2. c $1,&00,000 A 61 E .(7 D $1,0&0,000.

(. a $+00,000 A 61 E .(7 D $&'0,000.

*. a $92,000 A (+ D $29,000$29,000 B F6$92,000 E $29,000 E $2,0007 A 1(G D $*(+,000.

&. b $&9&,000 A (1& D $119,000$&9&,000 E $119,000 E F6$&9&,000 E $119,0007 A 1G D $*0+,000.

'. d 6$120,000 E $10+,0007 B $1&',000 B 6$1,'20,000 A .107 D $((0,000.

. b $&00,000 Q & D $100,000.

+. c Conceptual.

9. a $&*,000 6u7 B $1(&,000 6u7 E $*&,000 6o7 D $1**,000 6u7.


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Chapter 8 (tatement o6 Cash 9lo"s

?se the follo)in infor!ation for ;uestions 1 and 2.

co!pany ac;uired a buildin, payin a portion of the purchase price in cash and issuin a!ortae note payable to the seller for the balance.

1. "n a state!ent of cash flo)s, )hat a!ount is included in inestin actiities for the aboetransactiona. Cash pay!entb. c;uisition pricec. Merod. ortae a!ount

2. "n a state!ent of cash flo)s, )hat a!ount is included in financin actiities for the aboetransactiona. Cash pay!entb. c;uisition pricec. Merod. ortae a!ount

?se the follo)in infor!ation for ;uestions ( and *.

S!iley Corp.s transactions for the year ended /ece!ber (1, 2011 included the follo)inH


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?se the follo)in infor!ation for ;uestions & and '.


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Cash diidends of $'00,000 )ere declared and paid in 2011. 8;uip!ent costin $1,000,000 and hain a carryin a!ount of $(20,000 )as sold in 2011

for $('0,000. lon-ter! inest!ent )as sold in 2011 for $(20,000. There )ere no other transactions

affectin lon-ter! inest!ents in 2011.

20,000 shares of co!!on stoc= )ere issued in 2011 for $2& a share. Short-ter! inest!ents consist of treasury bills !aturin on '(012.

. 3et cash proided by Ja!isons 2011 operatin actiities )asa. $1,&00,000.b. $2,120,000.c. $2,0+0,000.d. $2,1'0,000.

+. 3et cash used in Ja!isons 2011 inestin actiities )asa. $2,(20,000.b. $1,+20,000.

c. $1,'+0,000.d. $1,20,000.

9. 3et cash proided by Ja!isons 2011 financin actiities )asa. $*+0,000.b. $&20,000.c. $1,0+0,000.d. $1,'+0,000.

10. Io55 Corp.s co!paratie balance sheet at /ece!ber (1, 2011 and 2010 reportedaccu!ulated depreciation balances of $+00,000 and $'00,000, respectiely.


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2. c *. b '. b +. a 10. c


1. a Conceptual.

2. c Conceptual.

(. c 6$&&0,0007 B $&00,000 E $12&,000 D 6$1&,0007.

*. b $&&0,000 E $'00,000 B $2&0,000 E $*&0,000 D 6$2&0,0007.

&. b 6$1+0,0007 E $220,000 B $9',000 D $(9',000.

'. b $1+0,000 B $(92,000 E $120,000 B $++,000 D $&*0,000.

. c $1,&00,000 E $1+0,000 B 6$900,000 E $900,000 B $'+0,0007 - 6$('0,000 E

$(20,0007 B $20,000 B $220,000 E 6$(20,000 E $200,0007 D $2,0+0,000.

+. a $(20,000 B $('0,000 E 6$(,*00,000 B $1,000,000 E $2,000,0007 E $'00,000 D$2,(20,000.

9. a 20,000 A $2& D $&00,000$&00,000 B $&+0,000 E $'00,000 D $*+0,000.

10. c $+00,000 E $'00,000 B 6$&0,000 E $(+,0007 D $212,000.

11. b $90,000 B $(',000 E $*&,000 D $+1,000.

Chapter 4 9ll %is!losre in 9inan!ial 3eporting

1. #hich of the follo)in facts concernin plant assets should be included in the su!!aryof sinificant accountin policies

/epreciation ethod Co!positiona. 3o Kesb. Kes Kesc. Kes 3od. 3o 3o

2. Iarr, "nc. is a !ultidiisional corporation )hich has both interse!ent sales and sales to

unaffiliated custo!ers. Iarr should report se!ent financial infor!ation for each diision!eetin )hich of the follo)in criteriaa. Se!ent profit or loss is 10% or !ore of consolidated profit or loss.b. Se!ent profit or loss is 10% or !ore of co!bined profit or loss of all co!pany

se!ents.c. Se!ent reenue is 10% or !ore of co!bined reenue of all the co!pany

se!ents.d. Se!ent reenue is 10% or !ore of consolidated reenue.


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(. ?nruh Corp. and its diisions are enaed solely in !anufacturin operations. Thefollo)in data 6consistent )ith prior years data7 pertain to the industries in )hichoperations )ere conducted for the year ended /ece!ber (1, 2011.

ssets"ndustry @eenue


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. Iina Corp. had the follo)in transactions durin the ;uarter ended arch (1, 2011H

Poss fro! hurricane da!ae $(&0,00010. #hich of the follo)in ratios is6are7 useful in assessin a co!panys ability to !eetcurrent !aturin or short-ter! obliations

cid-Test @atio /ebt to Total ssets @atioa. 3o 3ob. 3o Kesc. Kes Kesd. Kes 3o

>11. #hich of the follo)in ratios should be used in ealuatin the effectieness )ith )hichthe co!pany uses its assets

@eceiables Turnoer


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1. c Conceptual.

2. c Conceptual.

(. b @eenue testH $2',200,000 A 10% D $2,'20,000

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