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ACC 304 Final Exam Part 1 (3 Sets)
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ACC 304 Final Exam Part 1 (3 Sets) 1
1) Swing High Inc. offers its 100 employees to participate in an
employee share-purchase plan. Under the terms of plan, employees
are entitled to purchase 10 shares at 10% discount. The par values of
shares were $10. Overall, 60 employees accepted the offer and each
employee purchased six shares. The market price on purchase date
was $100.
What is the compensation expense recorded by Swing High Inc.?
2) The interest rate written in the terms of the bond indenture is
known as the
3) Which of the following methods of amortization is normally
used for intangible assets?
4) If bonds are initially sold at a discount and the straight-line
method of amortization is used, interest expense in the earlier years
will
5) The distribution of stock rights to existing common
stockholders will increase paid-in capital at the

6) Treasury shares are shares
7) Which of the following is a contract-related intangible assets?
8) Which of the following taxes does not represent a common
employee payroll deduction?
9) On January 1, 2014, Ellison Co. issued eight-year bonds with a
face value of $4,000,000 and a stated interest rate of 6%, payable
semiannually on June 30 and December 31. The bonds were sold to
yield 8%. Table values are:
Present value of 1 for 8 periods at 6% .627
Present value of annuity for 8 periods at 6%
6.210
5.747
12.561
11.652
The present value of the interest is
10) Which of the following would be considered research and
development costs?
11) On January 1, 2015, Evans Company granted Tim Telfer, an
employee, an option to buy 3,000 shares of Evans Co. stock for $25
per share, the option exercisable for 5 years from date of grant. Using
a fair value option pricing model, total compensation expense is
determined to be $22,500. Telfer exercised his option on September 1,
2015, and sold his 1,000 shares on December 1, 2015. Quoted market
prices of Evans Co. stock during 2015 were

January 1 $25 per share
September 1 $30 per share
December 1 $34 per share
The service period is for three years beginning January 1, 2015. As a
result of the option granted to Telfer, using the fair value method,
Evans should recognize compensation expense for 2015 on its books
in the amount of
12) Presented below is information related to Hale Corporation:
Common Stock, $1 par $4,500,000
Paid-in Capital in Excess of Par―Common Stock 550,000
Preferred 8 1/2% Stock, $50 par 2,000,000
Paid-in Capital in Excess of Par―Preferred Stock 400,000
Retained Earnings 1,500,000
Treasury Common Stock (at cost) 150,000
The total paid-in capital (cash collected) related to the common stock
is
13) On October 1, 2014 Macklin Corporation issued 5%, 10-year
bonds with a face value of $4,000,000 at 104. Interest is paid on
October 1 and April 1, with any premiums or discounts amortized on
a straight-line basis.
Bond interest expense reported on the December 31, 2014 income
statement of Macklin Corporation would be
14) Gannon Company acquired 10,000 shares of its own common
stock at $20 per share on February 5, 2014, and sold 5,000 of these
shares at $27 per share on August 9, 2015. The fair value of Gannon's
common stock was $24 per share at December 31, 2014, and $25 per
share at December 31, 2015. The cost method is used to record
treasury stock transactions. What account(s) should Gannon credit in
2015 to record the sale of 5,000 shares?

15) When computing diluted earnings per share, convertible bonds
are
16) Jeff Corporation purchased a limited-life intangible asset for
$225,000 on May 1, 2013. It has a useful life of 10 years. What total
amount of amortization expense should have been recorded on the
intangible asset by December 31, 2015?
17) A corporation called an outstanding bond obligation four years
before maturity. At that time there was an unamortized discount of
$750,000. To extinguish this debt, the company had to pay a call
premium of $250,000. Ignoring income tax considerations, how
should these amounts be treated for accounting purposes?
18) Slack Inc. borrowed $320,000 on April 1. The note requires
interest at 12% and principal to be paid in one year. How much
interest is recognized for the period from April 1 to December 31?
19) Venible newspapers sold 6,000 of annual subscriptions at $125
each on June 1. How much unearned revenue will exist as of
December 31?
20) Hanson Co. had 200,000 shares of common stock, 20,000 shares
of convertible preferred stock, and $1,000,000 of 5% convertible
bonds outstanding during 2015. The preferred stock is convertible
into 40,000 shares of common stock. During 2015, Hanson paid
dividends of $.60 per share on the common stock and $2 per share on
the preferred stock. Each $1,000 bond is convertible into 45 shares of
common stock. The net income for 2015 was $400,000 and the
income tax rate was 30%.
Basic earnings per share for 2015 is (rounded to the nearest penny)

21) Sealy Corporation had the following information in its financial
statements for the years ended 2014 and 2015:
Cash dividends for the year 2015 $5,000
Net income for the year ended 2015 87,000
Market price of stock, 12/31/14 10
Common stockholders' equity, 12/31/14 1,000,000
Outstanding shares, 12/31/15 100,000
Preferred dividends for the year ended 2015 10,000
What is the payout ratio for Sealy Corporation for the year ended
2015?
22) Jenks Corporation acquired Linebrink Products on January 1,
2015 for $8,000,000, and recorded goodwill of $1,500,000 as a result
of that purchase. At December 31, 2015, Linebrink Products had a
fair value of $6,800,000. The net identifiable assets of the Linebrink
(excluding goodwill) had a fair value of $5,800,000 at that time. What
amount of loss on impairment of goodwill should Jenks record in
2015?
23) On December 31, 2014, the stockholders' equity section of Arndt,
Inc., was as follows:
Common stock, par value $10; authorized 30,000 shares;
issued and outstanding 9,000 shares $90,000
Additional paid-in capital 116,000
Retained earnings 184,000
Total stockholders' equity $390,000
On March 31, 2015, Arndt declared a 10% stock dividend, and
accordingly 900 additional shares were issued, when the fair value of
the stock was $18 per share. For the three months ended March 31,

2015, Arndt sustained a net loss of $32,000. The balance of Arndt’s
retained earnings as of March 31, 2015, should be
24) On September 1, 2014, Halley Co. issued a note payable to
Fidelity Bank in the amount of $1,800,000, bearing interest at 10%,
and payable in three equal annual principal payments of $600,000. On
this date, the bank's prime rate was 11%. The first payment for
interest and principal was made on September 1, 2015. At December
31, 2015, Halley should record accrued interest payable of
1) We have also attached download of Chapter 12, 13, 14, 15, 16
(download it from my account section)
Please use those as well for your finals and please either use the
question number or some data from question to search as they usually
change the company keeping the data same
2) Convertible bonds
3) Litke Corporation issued at a premium of $5,000 a $100,000
bond issue convertible into 2,000 shares of common stock (par value
$20). At the time of the conversion, the unamortized premium is
$2,000, the market value of the bonds is $110,000, and the stock is
quoted on the market at $60 per share. If the bonds are converted into
common, what is the amount of paid-in capital in excess of par to be
recorded on the conversion of the bonds?
4) Didde Co. had 300,000 shares of common stock issued and
outstanding at December 31, 2014. No common stock was issued
during 2015. On January 1, 2015, Didde issued 200,000 shares of
nonconvertible preferred stock. During 2015, Didde declared and paid
$75,000 cash dividends on the common stock and $60,000 on the
preferred stock. Net income for the year ended December 31, 2015

was $465,000. What should be Didde's 2015 earnings per common
share?
5) Weiser Corp. on January 1, 2012, granted stock options for
40,000 shares of its $10 par value common stock to its key
employees. The market price of the common stock on that date was
$23 per share and the option price was $20. The Black-Scholes option
pricing model determines total compensation expense to be $420,000.
The options are exercisable beginning January 1, 2015, provided
those key employees are still in Weiser’s employ at the time the
options are exercised. The options expire on January 1, 2016.
On January 1, 2015, when the market price of the stock was $29 per
share, all 40,000 options were exercised. The amount of
compensation expense Weiser should record for 2015 under the fair
value method is
6) Carr Corporation retires its $300,000 face value bonds at 105 on
January 1, following the payment of interest. The carrying value of
the bonds at the redemption date is $311,235. The entry to record the
redemption will include a
The entry to record the issuance of the bonds would include a credit
of
8) Farmer Company issues $25,000,000 of 10-year, 9% bonds on
March 1, 2014 at 97 plus accrued interest. The bonds are dated
January 1, 2014, and pay interest on June 30 and December 31. What
is the total cash received on the issue date?

9) On its December 31, 2014 balance sheet, Emig Corp. reported
bonds payable of $3,000,000 and related unamortized bond issue
costs of $160,000. The bonds had been issued at par. On January 2,
2015, Emig retired $1,500,000 of the outstanding bonds at par plus a
call premium of $35,000. What amount should Emig report in its
2015 income statement as loss on extinguishment of debt (ignore
taxes)?
10) Feller Company issues $15,000,000 of 10-year, 9% bonds on
March 1, 2014 at 97 plus accrued interest. The bonds are dated
January 1, 2014, and pay interest on June 30 and December 31. What
is the total cash received on the issue date?
11) Where is debt callable by the creditor reported on the debtor's
financial statements?
12) Sawyer Company self-insures its property for fire and storm
damage. If the company were to obtain insurance on the property, it
would cost them $1,500,000 per year. The company estimates that on
average it will incur losses of $1,200,000 per year. During 2014,
$525,000 worth of losses were sustained. How much total expense
and/or loss should be recognized by Sawyer Company for 2014?
13) A liability for compensated absences such as vacations, for which
it is expected that employees will be paid, should
14) On September 1, Horton purchased $13,300 of inventory items
on credit with the terms 1/15, net 30, FOB destination. Freight
charges were $280. Payment for the purchase was made on September
18. Assuming Horton uses the perpetual inventory system and the net
method of accounting for purchase discounts, what amount is
recorded as inventory from this purchase?

15) What is a discount as it relates to zero-interest-bearing notes
payable?
16) Which of the following legal fees should be capitalized?
17) Which of the following costs of goodwill should be amortized
over their estimated useful lives?
18) MaBelle Corporation incurred the following costs in 2015:
Acquisition of R&D equipment with a useful life of 4 years in R&D
projects $800,000
Start-up costs incurred when opening a new plant 140,000
Advertising expense to introduce a new product 700,000
Engineering costs incurred to advance a product to full production
stage 500,000
What amount should MaBelle record as research & development
expense in 2015?
19) Jenks Corporation acquired Linebrink Products on January 1,
2015 for $8,000,000, and recorded goodwill of $1,500,000 as a result
of that purchase. At December 31, 2015, Linebrink Products had a
fair value of $6,800,000. The net identifiable assets of the Linebrink
(excluding goodwill) had a fair value of $5,800,000 at that time. What
amount of loss on impairment of goodwill should Jenks record in
2015?
20) The general ledger of Vance Corporation as of December 31,
2015, includes the following accounts:
Copyrights $30,000
Deposits with advertising agency (will be used to promote goodwill)
27,000
Discount on bonds payable 70,000
Excess of cost over fair value of identifiable net assets of Acquired
subsidiary 480,000
Trademarks 90,000
In the preparation of Vance's balance sheet as of December 31, 2015,
what should be reported as total intangible assets?

21) Sealy Corporation had the following information in its financial
What is the rate of return on common stock equity for Sealy
Corporation for the year ended 2015?
22) An entry is not made on the
23) The issuer of a 5% common stock dividend to common
stockholders should transfer from retained earnings to paid-in capital
an amount equal to the
24) Layne Corporation had the following information in its financial
What is the book value per share for Layne Corporation for the year
ended 2015?
25) The pre-emptive right of a common stockholder is the right to

was $100.
2) Didde Co. had 300,000 shares of common stock issued and
outstanding at December 31, 2014. No common stock was issued
during 2015. On January 1, 2015, Didde issued 200,000 shares of
nonconvertible preferred stock. During 2015, Didde declared and paid
$75,000 cash dividends on the common stock and $60,000 on the
preferred stock. Net income for the year ended December 31, 2015
was $465,000. What should be Didde's 2015 earnings per common
share?
3) When convertible debt is retired by the issuer, any material
difference between the cash acquisition price and the carrying amount
of the debt should be
4) On July 1, 2014, an interest payment date, $90,000 of Parks Co.
bonds were converted into 1,800 shares of Parks Co. common stock
each having a par value of $45 and a market value of $54. There is
$3,600 unamortized discount on the bonds. Using the book value
method, Parks would record
5) Convertible bonds
6) Paige Co. took advantage of market conditions to refund debt.
This was the fourth refunding operation carried out by Paige within

the last three years. The excess of the carrying amount of the old debt
over the amount paid to extinguish it should be reported as a
7) Under the effective-interest method of bond discount or
premium amortization, the periodic interest expense is equal to
8) When a business enterprise enters into what is referred to as off-
balance-sheet financing, the company
9) When the interest payment dates of a bond are May 1 and
November 1, and a bond issue is sold on June 1, the amount of cash
received by the issuer will be
11) Which of the following taxes does not represent a common
employee payroll deduction?
12) Which of the following is an example of a contingent liability?
13) Sawyer Company self-insures its property for fire and storm
damage. If the company were to obtain insurance on the property, it
would cost them $1,500,000 per year. The company estimates that on
average it will incur losses of $1,200,000 per year. During 2014,
$525,000 worth of losses were sustained. How much total expense
and/or loss should be recognized by Sawyer Company for 2014?
14) Greeson Corp. signed a three-month, zero-interest-bearing note
on November 1, 2014 for the purchase of $250,000 of inventory. The
face value of the note was $253,900. Greeson used a "Discount on
Note Payable" account to initially record the note. Assuming that the
discount will be amortized equally over the 3-month period and that
there was no adjusting entry made for November, the adjusting entry
made at December 31, 2012 will include a

15) Presented below is information available for Marley Company.
Current Assets
Cash $ 4,000
Short-term investments 65,000
Accounts receivable 61,000
Inventories 110,000
Prepaid expenses 30,000
Total current assets $ 270,000
16) In accounting for internally generated intangible assets, U.S.
GAAP requires that
17) One factor that is not considered in determining the useful life of
an intangible asset is
18) In 2015, Edwards Corporation incurred research and
development costs as follows:
Materials and equipment $110,000
Personnel 130,000
Indirect costs 150,000
$390,000
These costs relate to a product that will be marketed in 2016. It is
estimated that these costs will be recouped by December 31, 2018.
The equipment has no alternative future use. What is the amount of
research and development costs that should be expensed in 2015?
19) The carrying value of an intangible is
20) Under current accounting practice, intangible assets are classified
as
21) The statement of changes in equity has columns for each of the
following except:

22) The pre-emptive right of a common stockholder is the right to
23) Total stockholders' equity represents
24) The issuer of a 5% common stock dividend to common
stockholders should transfer from retained earnings to paid-in capital
an amount equal to the
25) Which of the following features of preferred stock makes it more
like a debt than an equity instrument?
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1) On January 1, 2015, Piper Co. issued ten-year bonds with a face
value of $3,000,000 and a stated interest rate of 10%, payable
Present value of annuity for 10 periods at 10% 6.145

2) Without prejudice to your solution in part (a), assume that the
issue price was $2,652,000. Prepare the amortization table for 2015,
assuming that amortization is recorded on interest payment dates
using the effective-interest method.
3) The following information pertains to Parsons Co.:
Preferred stock, cumulative:
Par value per share $100
Dividend rate 8%
Shares outstanding 9,000
Dividends in arrears none
Common stock:
Shares issued 100,000
Dividends paid per share $2.00
Market price per share $47
Additional paid-in capital $480,000
Unappropriated retained earnings (after closing) $250,000
Retained earnings appropriated for contingencies $280,000
Common treasury stock:
Number of shares 9,000
Total cost $240,000
Net income $610,000
Compute (assume no changes in balances during the past year):
(Round per share and ratios to 2 decimal places, e.g. $15.75 or
15.75%.)
(a) Total amount of stockholders' equity in the balance
sheet $
(b) Earnings per share of common stock $
per share
(c) Book value per share of common stock $
per share
(d) Payout ratio of common stock
%
(e) Return on common stock equity

%
4) Sisco Co. purchased a patent from Thornton Co. for $620,000
on July 1, 2012. Expenditures of $119,000 for successful litigation in
defense of the patent were paid on July 1, 2015. Sisco estimates that
the useful life of the patent will be 20 years from the date of
acquisition.
Prepare a computation of the carrying value of the patent at
December 31, 2015.
5) On August 31, Latty Co. partially refunded $401,000 of its
outstanding 10% note payable made one year ago to Dugan State
Bank by paying $401,000 plus $40,100 interest, having obtained the
$441,100 by using $126,240 cash and signing a new one-year
$346,000 note discounted at 9% by the bank.
6) Make the entry to record the partial refunding. Assume Latty
Co. makes reversing entries when appropriate. (Credit account titles
are automatically indented when the amount is entered. Do not indent
manually.)
6)
7) Prepare the adjusting entry at December 31, assuming straight-
line amortization of the discount. (Credit account titles are
automatically indented when the amount is entered. Do not indent
manually.)
1) The following information pertains to Parsons Co.:
Preferred stock, cumulative:
Dividend rate 8%
Shares outstanding 9,000

Dividends in arrears none
Common stock:
Shares issued 100,000
Dividends paid per share $2.00
Market price per share $47
Additional paid-in capital $480,000
Unappropriated retained earnings (after closing) $250,000
Retained earnings appropriated for contingencies $280,000
Common treasury stock:
Number of shares 9,000
Total cost $240,000
Net income $610,000
Compute (assume no changes in balances during the past year):
(Round per share and ratios to 2 decimal places, e.g. $15.75 or
15.75%.)
(a) Total amount of stockholders' equity in the balance
sheet $
(b) Earnings per share of common stock $
per share
(c) Book value per share of common stock $
per share
(d) Payout ratio of common stock
%
(e) Return on common stock equity
%
2) On January 1, 2015, Piper Co. issued ten-year bonds with a face
value of $3,000,000 and a stated interest rate of 10%, payable

3) Calculate the issue price of the bonds.
Issue price of bond
4) Without prejudice to your solution in part (a), assume that the
issue price was $2,652,000. Prepare the amortization table for 2015,
assuming that amortization is recorded on interest payment dates
using the effective-interest method.
5) Sisco Co. purchased a patent from Thornton Co. for $620,000
on July 1, 2012. Expenditures of $119,000 for successful litigation in
defense of the patent were paid on July 1, 2015. Sisco estimates that
the useful life of the patent will be 20 years from the date of
acquisition.
Prepare a computation of the carrying value of the patent at December
31, 2015.
6) On August 31, Latty Co. partially refunded $443,000 of its
outstanding 10% note payable made one year ago to Dugan State
Bank by paying $443,000 plus $44,300 interest, having obtained the
$487,300 by using $134,220 cash and signing a new one-year
$388,000 note discounted at 9% by the bank.
7) Make the entry to record the partial refunding. Assume Latty
Co. makes reversing entries when appropriate. (Credit account titles
are automatically indented when the amount is entered. Do not indent
manually.)
8) Prepare the adjusting entry at December 31, assuming straight-
line amortization of the discount. (Credit account titles are
automatically indented when the amount is entered. Do not indent
manually.)

Date Account Titles and Explanation Debit Credit
**************************************
ACC 304 Week 1 Chapter 8 Homework
1) Matlock Company uses a perpetual inventory system. Its
beginning inventory consists 50 units that cost $34 each. During June
, (1) the company purchased units at $34 each, (2) returned 6 units for
credit ,and (3) sold 125 unit at $50 each. Journalize the June
transactions.
2) Amsterdam Company uses a periodic inventory system. For
April, When the company sold 600 units, The following information
is available. calculate weighted average cost per unit.
3) Arna, Inc. uses the dollar value LIFO method of computing its
inventory. Data for the past 3 year follow. Compute the value of the
2014 and 2015 inventories using the dollar-value LIFE method.
4) Craig Company asks you to review its December 31, 2014,
inventory values and prepare the necessary adjustments to the book.
The following information is given to u. determine the proper
inventory balance for Craig Company at December 31, 2014.
5) Prepare any correcting entries to adjust inventory to its proper
amount at December 31, 2014. Assume the books have not been
closed.
6) The net income per books of Linda Patrick Company was
determined without knowledge of the errors indicated below. Prepare
work sheet to show the adjusted net income figure for each of the 6
years after taking into account the inventory errors.

7) Presented below the information related to Dino Radja
Company. Compute the ending inventory for Dino Radja Company
for 2011 throw 2016 using the Dollar value LIFO method.
8) Under IFRS, an entity should initially recognize inventory when
9) With respect to accounting of inventories, which of the
following is a difference that exists for IFRS, as opposed to U.S
GAAP?
10) Some of the transactions of Torres Company during August are
listed below. Torres uses the periodic inventory method.
11) Assuming that purchases are recorded at gross amounts and that
discounts are to be recorded when taken: prepare general journal
entries to record the transactions
12) Assuming that purchases are recorded at net amounts and that
discounts lost are treated as financial expenses: prepare general
journal entries to record the transactions
13) Assuming that purchases are recorded at net amounts and that
discounts lost are treated as financial expenses: prepare the adjusting
entry necessary on August 31 if financial statements are to be
prepared at that time.
14) Under IFRS, which of the following would be included in the
cost of inventories?
15) Under IFRS, inventories are classified as
16) Which of the following best describes the IFRS requirement for
applying the same cost formula to all inventories?
**************************************
ACC 304 Week 2 Chapter 8 Quiz (All Possible
Questions)
ACC 304 Week 2 Quiz – Strayer NEW

CHAPTER 8
VALUATION OF INVENTORIES:A COST-BASIS APPROACH
IFRS questions are available at the end of this chapter.
TRUE FALSE—Conceptual
1. A manufacturing concern would report the cost of units only
partially processed as inventory in the balance sheet.
2. Both merchandising and manufacturing companies normally
have multiple inventory accounts.
3. When using a perpetual inventory system, freight charges on
goods purchased are debited to Freight-In.
4. If a supplier ships goods f.o.b. destination, title passes to the
buyer when the supplier delivers the goods to the common carrier.
5. If ending inventory is understated, then net income is
understated.
6. If both purchases and ending inventory are overstated by the
same amount, net income is not affected.
7. Freight charges on goods purchased are considered a period
cost and therefore are not part of the cost of the inventory.

8. Purchase Discounts Lost is a financial expense and is reported
in the ―other expenses and losses‖ section of the income statement.
9. The cost flow assumption adopted must be consistent with the
physical movement of the goods.
10. In all cases when FIFO is used, the cost of goods sold would
be the same whether a perpetual or periodic system is used.
11. The change in the LIFO Reserve from one period to the next is
recorded as an adjustment to Cost of Goods Sold.
12. Many companies use LIFO for both tax and internal reporting
purposes.
13. LIFO liquidation often distorts net income, but usually leads
to substantial tax savings.
14. LIFO liquidations can occur frequently when using a specific-
goods approach.
15. Dollar-value LIFO techniques help protect LIFO layers from
erosion.
16. The dollar-value LIFO method measures any increases and
decreases in a pool in terms of total dollar value and physical quantity
of the goods.

17. A disadvantage of LIFO is that it does not match more recent
costs against current revenues as well as FIFO.
18. The LIFO conformity rule requires that if a company uses
LIFO for tax purposes, it must also use LIFO for financial accounting
purposes.
19. Use of LIFO provides a tax benefit in an industry where unit
costs tend to decrease as production increases.
20. LIFO is inappropriate where unit costs tend to decrease as
production increases.
True False Answers—Conceptual
MULTIPLE CHOICE—Conceptual
21. Which of the following inventories carried by a manufacturer
is similar to the merchandise inventory of a retailer?
a. Raw materials.
b. Work-in-process.
c. Finished goods.
d. Supplies.
22. Where should raw materials be classified on the balance
sheet?

a. Prepaid expenses.
b. Inventory.
c. Equipment.
d. Not on the balance sheet.
23. Which of the following accounts is not reported in inventory?
a. Raw materials.
b. Equipment.
c. Finished goods.
d. Supplies.
24. Why are inventories included in the computation of net
income?
a. To determine cost of goods sold.
b. To determine sales revenue.
c. To determine merchandise returns.
d. Inventories are not included in the computation of net income.
25. Which of the following is a characteristic of a perpetual
inventory system?
a. Inventory purchases are debited to a Purchases account.

b. Inventory records are not kept for every item.
c. Cost of goods sold is recorded with each sale.
d. Cost of goods sold is determined as the amount of purchases less
the change in inventory.
26. How is a significant amount of consignment inventory
reported in the balance sheet?
a. The inventory is reported separately on the consignor's balance
sheet.
b. The inventory is combined with other inventory on the consignor's
balance sheet.
c. The inventory is reported separately on the consignee's balance
sheet.
d. The inventory is combined with other inventory on the consignee's
balance sheet.
27. Where should goods in transit that were recently purchased
f.o.b. destination be included on the balance sheet?
a. Accounts payable.
b. Inventory.
c. Equipment.
d. Not on the balance sheet.

28. If a company uses the periodic inventory system, what is the
impact on net income of including goods in transit f.o.b. shipping
point in purchases, but not ending inventory?
a. Overstate net income.
b. Understate net income.
c. No effect on net income.
d. Not sufficient information to determine effect on net income.
29. If a company uses the periodic inventory system, what is the
impact on the current ratio of including goods in transit f.o.b. shipping
point in purchases, but not ending inventory?
a. Overstate the current ratio.
b. Understate the current ratio.
c. No effect on the current ratio.
d. Not sufficient information to determine effect on the current ratio.
30. What is consigned inventory?
a. Goods that are shipped, but title transfers to the receiver.
b. Goods that are sold, but payment is not required until the goods
are sold.
c. Goods that are shipped, but title remains with the shipper.
d. Goods that have been segregated for shipment to a customer.

31. When using a perpetual inventory system,
a. no Purchases account is used.
b. a Cost of Goods Sold account is used.
c. two entries are required to record a sale.
d. all of these.
32. Goods in transit which are shipped f.o.b. shipping point should
be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping company.
d. none of these.
33. Goods in transit which are shipped f.o.b. destination should be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping company.
d. none of these.

34. Which of the following items should be included in a
company's inventory at the balance sheet date?
a. Goods in transit which were purchased f.o.b. destination.
b. Goods received from another company for sale on consignment.
c. Goods sold to a customer which are being held for the customer to
call for at his or her convenience.
d. None of these.
Use the following information for questions 35 and 36.
During 2012 Carne Corporation transferred inventory to Nolan
Corporation and agreed to repurchase the merchandise early in 2013.
Nolan then used the inventory as collateral to borrow from Norwalk
Bank, remitting the proceeds to Carne. In 2013 when Carne
repurchased the inventory, Nolan used the proceeds to repay its bank
loan.
35. This transaction is known as a(n)
a. consignment.
b. installment sale.
c. assignment for the benefit of creditors.
d. product financing arrangement.
36. On whose books should the cost of the inventory appear at the
December 31, 2012 balance sheet date?

a. Carne Corporation
b. Nolan Corporation
c. Norwalk Bank
d. Nolan Corporation, with Carne making appropriate note
disclosure of the transaction
37. Goods on consignment are
a. included in the consignee's inventory.
b. recorded in a Consignment Out account which is an inventory
account.
c. recorded in a Consignment In account which is an inventory
account.
d. all of these
S38. Valuation of inventories requires the determination of all of
the following except
a. the costs to be included in inventory.
b. the physical goods to be included in inventory.
c. the cost of goods held on consign-ment from other companies.
d. the cost flow assumption to be adopted.
P39. The accountant for the Pryor Sales Company is preparing the
income statement for 2012 and the balance sheet at December 31,

2012. Pryor uses the periodic inventory system. The January 1, 2012
merchandise inventory balance will appear
a. only as an asset on the balance sheet.
b. only in the cost of goods sold section of the income statement.
c. as a deduction in the cost of goods sold section of the income
statement and as a current asset on the balance sheet.
d. as an addition in the cost of goods sold section of the income
statement and as a current asset on the balance sheet.
P40. If the beginning inventory for 2012 is overstated, the effects of
this error on cost of goods sold for 2012, net income for 2012, and
assets at December 31, 2013, respectively, are
a. overstatement, understatement, overstatement.
b. overstatement, understatement, no effect.
c. understatement, overstatement, overstatement.
d. understatement, overstatement, no effect.
S41. The failure to record a purchase of mer-chandise on account
even though the goods are properly included in the physical
inven-tory results in
a. an overstatement of assets and net income.
b. an understatement of assets and net income.

c. an understatement of cost of goods sold and liabilities and an
overstatement of assets.
d. an understatement of liabilities and an overstatement of owners'
equity.
42. Dolan Co. received merchandise on consignment. As of
March 31, Dolan had recorded the transaction as a purchase and
included the goods in inventory. The effect of this on its financial
statements for March 31 would be
a. no effect.
b. net income was correct and current assets and current liabilities
were overstated.
c. net income, current assets, and current liabilities were overstated.
d. net income and current liabilities were overstated.
43. Green Co. received merchandise on consignment. As of
January 31, Green included the goods in inventory, but did not record
the transaction. The effect of this on its financial statements for
January 31 would be
a. net income, current assets, and retained earnings were overstated.
b. net income was correct and current assets were understated.
c. net income and current assets were overstated and current
liabilities were understated.
d. net income, current assets, and retained earnings were understated.

44. Feine Co. accepted delivery of merchandise which it
purchased on account. As of December 31, Feine had recorded the
transaction, but did not include the merchandise in its inventory. The
effect of this on its financial statements for December 31 would be
a. net income, current assets, and retained earnings were understated.
b. net income was correct and current assets were understated.
c. net income was understated and current liabilities were overstated.
d. net income was overstated and current assets were understated.
45. On June 15, 2012, Wynne Corporation accepted delivery of
merchandise which it pur-chased on account. As of June 30, Wynne
had not recorded the transaction or included the merchandise in its
inventory. The effect of this on its balance sheet for June 30, 2012
would be
a. assets and stockholders' equity were overstated but liabilities were
not affected.
b. stockholders' equity was the only item affected by the omission.
c. assets, liabilities, and stockholders' equity were understated.
d. none of these.
46. What is the effect of a $50,000 overstatement of last year's
inventory on current years ending retained earning balance?
a. Understated by $50,000.
b. No effect.

c. Overstated by $50,000.
d. Need more information to determine.
47. Which of the following is a product cost as it relates to
inventory?
a. Selling costs.
b. Interest costs.
c. Raw materials.
d. Abnormal spoilage.
48. Which of the following is a period cost?
a. Labor costs.
b. Freight in.
c. Production costs.
d. Selling costs.
49. Which method may be used to record cash discounts a
company receives for paying suppliers promptly?
a. Net method.
b. Gross method.
c. Average method.

d. a and b.
50. Which of the following is included in inventory costs?
a. Product costs.
b. Period costs.
c. Product and period costs.
d. Neither product or period costs.
51. Which of the following is correct?
a. Selling costs are product costs.
b. Manufacturing overhead costs are product costs.
c. Interest costs for routine inventories are product costs.
d. All of these.
52. All of the following costs should be charged against revenue
in the period in which costs are incurred except for
a. manufacturing overhead costs for a product manufactured and
sold in the same accounting period.
b. costs which will not benefit any future period.
c. costs from idle manufacturing capacity resulting from an
unexpected plant shutdown.

d. costs of normal shrinkage and scrap incurred for the manufacture
of a product in ending inventory.
53. Which of the following types of interest cost incurred in
connection with the purchase or manufacture of inventory should be
capitalized as a product cost?
a. Purchase discounts lost
b. Interest incurred during the production of discrete projects such as
ships or real estate projects
c. Interest incurred on notes payable to vendors for routine purchases
made on a repetitive basis
d. All of these should be capitalized.
54. The use of a Discounts Lost account implies that the recorded
cost of a purchased inventory item is its
a. invoice price.
b. invoice price plus the purchase discount lost.
c. invoice price less the purchase discount taken.
d. invoice price less the purchase discount allowable whether taken
or not.
55. The use of a Purchase Discounts account implies that the
recorded cost of a purchased inventory item is its
a. invoice price.

b. invoice price plus any purchase discount lost.
c. invoice price less the purchase discount taken.
d. invoice price less the purchase discount allowable whether taken
or not.
Use the following information for questions 56 and 57.
During 2012, which was the first year of operations, Oswald
Company had merchandise purchases of $985,000 before cash
discounts. All purchases were made on terms of 2/10, n/30. Three-
fourths of the items purchased were paid for within 10 days of
purchase. All of the goods available had been sold at year end.
56. Which of the following recording procedures would result in
the highest cost of goods sold for 2012?
1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts
not taken shown under "other expenses" in the income statement
a. 1
b. 2
c. Either 1 or 2 will result in the same cost of goods sold.
d. Cannot be determined from the information provided.
57. Which of the following recording procedures would result in
the highest net income for 2012?

1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts
not taken shown under "other expenses" in the income statement
a. 1
b. 2
c. Either 1 or 2 will result in the same net income.
d. Cannot be determined from the information provided.
58. When using the periodic inventory system, which of the
following generally would not be separately accounted for in the
computation of cost of goods sold?
a. Trade discounts applicable to purchases during the period
b. Cash (purchase) discounts taken during the period
c. Purchase returns and allowances of merchandise during the period
d. Cost of transportation-in for merchandise purchased during the
period
S59. Costs which are inventoriable include all of the following
except
a. costs that are directly connected with the bringing of goods to the
place of business of the buyer.

b. costs that are directly connected with the converting of goods to a
salable condition.
c. buying costs of a purchasing department.
d. selling costs of a sales department.
P60. Which inventory costing method most closely approximates
current cost for each of the following:
Ending Inventory Cost of Goods Sold
a. FIFO FIFO
b. FIFO LIFO
c. LIFO FIFO
d. LIFO LIFO for:
**************************************
1) Floyd Corporation has the following four items in its ending
inventory. Determine the final lower-of-cost-or-market inventory
value for each item.
2) Bell, Inc. buys 1,000 computer game CDs from a distributor
who is disconnecting those games. The purchase price for the lot is

$8,000.Bell will group the CDs into three price categories for resale,
as indicated bellow. Determine the cost per CD for each group, using
the relative sales value method.
3) Boyne Inc. had beginning inventory of $12,000 at cost and
$20,000 t retail. Net purchase were $12,000 at cost and $17,000 at
retail. Net markups were $10,000; net markdowns were $7,000; and
sales revenue was $147,000.compute ending inventory at cost using
the conventional retail method.
4) Marvin Gaye Company has been having difficulty obtaining key
raw materials for its manufacturing process. The Company therefore
signed a long-term non cancelable purchase commitment with its
largest supplier of this raw material on November 30, 2014,at an
agreed price of $400,0000. At December 31, 2014, the raw material
had declined in price to $365,000. What entry would you make on
December 31, 2014, to recognize these facts?
5) Tim Legler requires an estimate of the cost of goods loat by fire
on March 9. Merchandise on hand on January 1 was $38,000.
Purchases since January 1 were $72,000; freight-in $3,400; purchases
returns and allowances, $2,400. Sales are made at 33 1/3% above cost
and totaled $100,000 to March 9. Goods coasting $10,900 were left
undamaged by the fire; remaining goods were destroyed. (a).
compute the cost goods destroyed. (b). compute the cost goods
destroyed, assuming that the gross profit 33 1/3% of sales.
6) Presented below is information related to Ricky Henderson
Company. Compute the inventory by the conventional retail
inventory method.
7) The inventory section of Maddox’s balance sheet as of
November 30,2014, including required foot notes, is presented below
are the inventory section supporting calculations.
8) All of the following are key similarities between GAAP and
IFRS with respect to accounting for inventories except:
9) Starfish Company (a Company using Gap and LIFO inventory
method) is considering changing to IFRS and the FIFO inventory
method. How would a comparison of these methods affect Starfish’s
financials?
10) Assume that Darcy industry had the following inventory values.
1. Inventory cost (on December 31,2014)$1,500

2. Inventory sales value (on December 31,2014)$1,350
3. Inventory net realizable value (on December 31,2014)$1,320
Under IFRS, what is the inventory carrying value on December 31,
2014 ?
11) Under IFRS, agricultural activity results in which of the
following types of assets?
1. Agricultural produce
2. Biological assets
**************************************
Questions)
1. A company should abandon the historical cost principle when the
future utility of the inventory item falls below its original cost.
2. The lower-of-cost-or-market method is used for inventory
despite being less conservative than valuing inventory at market
value.
3. The purpose of the ―floor‖ in lower-of-cost-or-market
considerations is to avoid overstating inventory.
4. Application of the lower-of-cost-or-market rule results in
inconsistency because a company may value inventory at cost in one
year and at market in the next year.
5. GAAP requires reporting inventory at net realizable value,
even if above cost, whenever there is a controlled market with a
quoted price applicable to all quantities.

6. A reason for valuing inventory at net realizable value is that
sometimes it is too difficult to obtain the cost figures.
7. In a basket purchase, the cost of the individual assets acquired
is determined on the basis of their relative sales value.
8. A basket purchase occurs when a company agrees to buy
inventory weeks or months in advance.
9. Most purchase commitments must be recorded as a liability.
10. If the contract price on a noncancelable purchase commitment
exceeds the market price, the buyer should record any expected losses
on the commitment in the period in which the market decline takes
place.
11. When a buyer enters into a formal, noncancelable purchase
contract, an asset and a liability are recorded at the inception of the
contract.
12. The gross profit method can be used to approximate the dollar
amount of inventory on hand.
13. In most situations, the gross profit percentage is stated as a
percentage of cost.
14. A disadvantage of the gross profit method is that it uses past
percentages in determining the markup.
15. When the conventional retail method includes both net
markups and net markdowns in the cost-to-retail ratio, it approximates
a lower-of-cost-or-market valuation.
16. In the retail inventory method, the term markup means a
markup on the original cost of an inventory item.

17. In the retail inventory method, abnormal shortages are
deducted from both the cost and retail amounts and reported as a loss.
18. The inventory turnover ratio is computed by dividing the cost
of goods sold by the ending inventory on hand.
19. The average days to sell inventory represents the average
number of days’ sales for which a company has inventory on hand.
*20. The LIFO retail method assumes that markups and
markdowns apply only to the goods purchased during the period.
21. Which of the following is true about lower-of-cost-or-market?
a. It is inconsistent because losses are recognized but not gains.
b. It usually understates assets.
c. It can increase future income.
d. All of these.
22. The primary basis of accounting for inventories is cost. A
departure from the cost basis of pricing the inventory is required
where there is evidence that when the goods are sold in the ordinary
course of business their
a. selling price will be less than their replacement cost.
b. replacement cost will be more than their net realizable value.

c. cost will be less than their replacement cost.
d. future utility will be less than their cost.
23. When valuing raw materials inventory at lower-of-cost-or-
market, what is the meaning of the term "market"?
a. Net realizable value
b. Net realizable value less a normal profit margin
c. Current replacement cost
d. Discounted present value
24. In no case can "market" in the lower-of-cost-or-market rule be
more than
a. estimated selling price in the ordinary course of business.
b. estimated selling price in the ordinary course of business less
reasonably predictable costs of completion and disposal.
c. estimated selling price in the ordinary course of business less
reasonably predictable costs of completion and disposal and an
allowance for an approximately normal profit margin.
d. estimated selling price in the ordinary course of business less
reasonably predictable costs of completion and disposal, an allowance
for an approximately normal profit margin, and an adequate reserve
for possible future losses.
25. Designated market value

a. is always the middle value of replacement cost, net realizable
value, and net realizable value less a normal profit margin.
b. should always be equal to net realizable value.
c. may sometimes exceed net realizable value.
d. should always be equal to net realizable value less a normal profit
margin.
26. Lower-of-cost-or-market
a. is most conservative if applied to the total inventory.
b. is most conservative if applied to major categories of inventory.
c. is most conservative if applied to individual items of inventory.
d. must be applied to major categories for taxes.
27. An item of inventory purchased this period for $15.00 has
been incorrectly written down to its current replacement cost of
$10.00. It sells during the following period for $30.00, its normal
selling price, with disposal costs of $3.00 and normal profit of $12.00.
Which of the following statements is not true?
a. The cost of sales of the following year will be understated.
b. The current year's income is understated.
c. The closing inventory of the current year is understated.
d. Income of the following year will be understated.

S28. When the cost-of-goods-sold method is used to record
inventory at market
a. there is a direct reduction in the selling price of the product that
results in a loss being recorded on the income statement prior to the
sale.
b. a loss is recorded directly in the inventory account by crediting
inventory and debiting loss on inventory decline.
c. only the portion of the loss attributable to inventory sold during
the period is recorded in the financial statements.
d. the market value figure for ending inventory is substituted for cost
and the loss is buried in cost of goods sold.
29. Lower-of-cost-or-market as it applies to inventory is best
described as the
a. drop of future utility below its original cost.
b. method of determining cost of goods sold.
c. assumption to determine inventory flow.
d. change in inventory value to market value.
30. The floor to be used in applying the lower-of-cost-or-market
method to inventory is determined as the
a. net realizable value.
b. net realizable value less normal profit margin.
c. replacement cost.

d. selling price less costs of completion and disposal.
31. What is the rationale behind the ceiling when applying the
lower-of-cost-or-market method to inventory?
a. Prevents understatement of the inventory value.
b. Allows for a normal profit to be earned.
c. Allows for items to be valued at replacement cost.
d. Prevents overstatement of the value of obsolete or damaged
inventories.
32. Why are inventories stated at lower-of-cost-or-market?
a. To report a loss when there is a decrease in the future utility.
b. To be conservative.
c. To report a loss when there is a decrease in the future utility below
the original cost.
d. To permit future profits to be recognized.
33. Which of the following is not an acceptable approach in
applying the lower-of-cost-or-market method to inventory?
a. Inventory location.
b. Categories of inventory items.
c. Individual item.

d. Total of the inventory.
34. Which method(s) may be used to record a loss due to a price
decline in the value of inventory?
a. Cost-of-goods-sold.
b. Sales method.
c. Loss method
d. Both a and c.
35. Why might inventory be reported at sales prices (net realizable
value or market price) rather than cost?
a. When there is a controlled market with a quoted price applicable
to all quantities and when there are no significant costs of disposal.
b. When there are no significant costs of disposal.
c. When a non-cancellable contract exists to sell the inventory.
d. When there is a controlled market with a quoted price applicable
to all quantities.
S36. Recording inventory at net realizable value is permitted, even
if it is above cost, when there are no significant costs of disposal
involved and
a. the ending inventory is determined by a physical inventory count.
b. a normal profit is not anticipated.

c. there is a controlled market with a quoted price applicable to all
quantities.
d. the internal revenue service is assured that the practice is not used
only to distort reported net income.
37. When inventory declines in value below original (historical)
cost, and this decline is considered other than temporary, what is the
maximum amount that the inventory can be valued at?
a. Sales price
b. Net realizable value
c. Historical cost
d. Net realizable value reduced by a normal profit margin
38. Net realizable value is
a. acquisition cost plus costs to complete and sell.
b. selling price.
c. selling price plus costs to complete and sell.
d. selling price less costs to complete and sell.
39. If a unit of inventory has declined in value below original cost,
but the market value exceeds net realizable value, the amount to be
used for purposes of inventory valuation is
a. net realizable value.

b. original cost.
c. market value.
d. net realizable value less a normal profit margin.
40. Inventory may be recorded at net realizable value if
a. there is a controlled market with a quoted price.
b. there are no significant costs of disposal.
c. the inventory consists of precious metals or agricultural products.
d. all of these.
41. If a material amount of inventory has been ordered through a
formal purchase contract at the balance sheet date for future delivery
at firm prices,
a. this fact must be disclosed.
b. disclosure is required only if prices have declined since the date of
the order.
c. disclosure is required only if prices have since risen substantially.
d. an appropriation of retained earnings is necessary.
42. The credit balance that arises when a net loss on a purchase
commitment is recognized should be
a. presented as a current liability.

b. subtracted from ending inventory.
c. presented as an appropriation of retained earnings.
d. presented in the income statement.
P43. In 2012, Orear Manufacturing signed a contract with a
supplier to purchase raw materials in 2013 for $700,000. Before the
December 31, 2012 balance sheet date, the market price for these
materials dropped to $510,000. The journal entry to record this
situation at December 31, 2012 will result in a credit that should be
reported
a. as a valuation account to Inventory on the balance sheet.
b. as a current liability.
c. as an appropriation of retained earnings.
d. on the income statement.
44. At the end of the fiscal year, Apha Airlines has an outstanding
non-cancellable purchase commitment for the purchase of 1 million
gallons of jet fuel at a price of $4.10 per gallon for delivery during the
coming summer. The company prices its inventory at the lower of
cost or market. If the market price for jet fuel at the end of the year is
$4.50, how would this situation be reflected in the annual financial
statements?
a. Record unrealized gains of $400,000 and disclose the existence of
the purchase commitment.
b. No impact.

c. Record unrealized losses of $400,000 and disclose the existence of
d. Disclose the existence of the purchase commitment.
45. At the end of the fiscal year, Apha Airlines has an outstanding
purchase commitment for the purchase of 1 million gallons of jet fuel
at a price of $4.60 per gallon for delivery during the coming summer.
The company prices its inventory at the lower of cost or market. If the
market price for jet fuel at the end of the year is $4.25, how would
this situation be reflected in the annual financial statements?
a. Record unrealized gains of $350,000 and disclose the existence of
b. No impact.
c. Record unrealized losses of $350,000 and disclose the existence of
d. Disclose the existence of the purchase commitment.
46. How is the gross profit method used as it relates to inventory
valuation?
a. Verify the accuracy of the perpetual inventory records.
b. Verity the accuracy of the physical inventory.
c. To estimate cost of goods sold.
d. To provide an inventory value of LIFO inventories.
S47. Which of the following is not a basic assumption of the gross
profit method?

a. The beginning inventory plus the purchases equal total goods to
be accounted for.
b. Goods not sold must be on hand.
c. If the sales, reduced to the cost basis, are deducted from the sum
of the opening inventory plus purchases, the result is the amount of
inventory on hand.
d. The total amount of purchases and the total amount of sales
remain relatively unchanged from the comparable previous period.
48. The gross profit method of inventory valuation is invalid when
a. a portion of the inventory is destroyed.
b. there is a substantial increase in inventory during the year.
c. there is no beginning inventory because it is the first year of
operation.
d. none of these.
49. Which statement is not true about the gross profit method of
inventory valuation?
a. It may be used to estimate inventories for interim statements.
b. It may be used to estimate inventories for annual statements.
c. It may be used by auditors.
d. None of these.
50. A major advantage of the retail inventory method is that it

a. provides reliable results in cases where the distribution of items in
the inventory is different from that of items sold during the period.
b. hides costs from competitors and customers.
c. gives a more accurate statement of inventory costs than other
methods.
d. provides a method for inventory control and facilitates
determination of the periodic inventory for certain types of
companies.
51. An inventory method which is designed to approximate
inventory valuation at the lower of cost or market is
a. last-in, first-out.
b. first-in, first-out.
c. conventional retail method.
d. specific identification.
52. The retail inventory method is based on the assumption that
the
a. final inventory and the total of goods available for sale contain the
same proportion of high-cost and low-cost ratio goods.
b. ratio of gross margin to sales is approximately the same each
period.
c. ratio of cost to retail changes at a constant rate.
d. proportions of markups and markdowns to selling price are the
same.

53. Which statement is true about the retail inventory method?
a. It may not be used to estimate inventories for interim statements.
b. It may not be used to estimate inventories for annual statements.
c. It may not be used by auditors.
d. None of these.
54. When the conventional retail inventory method is used,
markdowns are commonly ignored in the computation of the cost to
retail ratio because
a. there may be no markdowns in a given year.
b. this tends to give a better approximation of the lower of cost or
market.
c. markups are also ignored.
d. this tends to result in the showing of a normal profit margin in a
period when no markdown goods have been sold.
55. To produce an inventory valuation which approximates the
lower of cost or market using the conventional retail inventory
method, the computation of the ratio of cost to retail should
a. include markups but not markdowns.
b. include markups and markdowns.
c. ignore both markups and markdowns.
d. include markdowns but not markups.

*56. When calculating the cost ratio for the retail inventory
method,
a. if it is the conventional method, the beginning inventory is
included and markdowns are deducted.
b. if it is the LIFO method, the beginning inventory is excluded and
markdowns are deducted.
c. if it is the LIFO method, the beginning inventory is included and
markdowns are not deducted.
d. if it is the conventional method, the beginning inventory is
excluded and markdowns are not deducted.
S57. Which of the following is not required when using the retail
inventory method?
a. All inventory items must be categorized according to the retail
markup percentage which reflects the item's selling price.
b. A record of the total cost and retail value of goods purchased.
c. A record of the total cost and retail value of the goods available
for sale.
d. Total sales for the period.
S58. Which of the following is not a reason the retail inventory
method is used widely?
a. As a control measure in determining inventory shortages
b. For insurance information
c. To permit the computation of net income without a physical count
of inventory

d. To defer income tax liability
59. What condition is not necessary in order to use the retail
method to provide inventory results?
a. Retailer keeps a record of the total costs of products sold for the
period.
b. Retailer keeps a record of the total costs and retail value of goods
purchased.
c. Retailer keeps a record of the total costs and retail value of goods
available for sale.
d. Retailer keeps a record of sales for the period.
60. What method yields results that are essentially the same as
those of the conventional retail method?
a. FIFO.
b. Lower-of-average-cost-or-market.
c. Average cost.
d. LIFO.
**************************************

ACC 304 Week 3 Homework (Chapter 10)
1) Hanson Company is constructing a building. Construction
begins on February 1 and was completed on December 31.
Expenditure were $1,800,000 on march 1, $1,200,000 on June 1, and
$3,000,000 on December 31. Compute Hanson’s weighted-average
accumulated expenditure for interest capitalization purposes.
2) Mehta Company traded a used welding machine (cost $9,000,
accumulated depreciation $3,000) for office equipment with an
estimated fair value of $5,000. Mehta also paid $3,000 cash in the
transaction. Prepare the journal entry to record the exchange.
3) Ottawa Corporation owns machinery that cost $20,000 when
purchased on July 1, 2011. Depreciation has been recorded at a rate of
$2,400 per year, resulting in a balance is accumulated depreciation of
$8,400 at December 31, 2014. The machinery is sold on September 1,
2015, for $10,500. Prepare journal entries to (a) update depreciation
for 2015 and (b) record the sale.
4) Martin Buber co. purchased land as a factory site for $400,000.
The process of tearing down two old buildings on the site and
constructing the factory required 6 months. The company paid
$42,000 to raze the old buildings and salvaged lumber and brick for
$6,300. Legal fees of $1,850 were paid for title investigation and
drawing the purchase contract. Martin Buber paid $2,200 to an
engineering firm for a land survey, and $68,000 for drawing the
factory plans. The land survey had to be made before definitive plans
could be drawn. Title insurance on the property cost $1,500, and a
liability insurance premium paid during construction was $900. The
contractor’s charge for construction was $2,740,000. The company
paid the contractor in two installments:$1,200,000 at the end of 3
months and $1,540,000 upon completion. Interest costs of $170,000
were incurred to finance the construction. Determine the cost of the
land and the cost of the building as they should be recorded on the
books of Martin Buberk Co. assumes that the land survey was for the
building.

5) Ben Sisko Supply Company, a newly formed corporation,
incurred the following expenditure related to land, to Buildings, and
to machinery and equipment. Determine the amounts that should be
debited to land, to buildings, and to machinery and equipment.
Assume the benefits of capitalizing interest during construction
exceed the cost of implementation.
6) On December 31, 2013, Main Inc. borrowed $3,000,000 at 12%
payable annually to finance the construction of a new building. In
2014, the company made the following expenditures related to this
building: March 1, $360,000; June 1, $600,000;$1,500,000;
December 1, $1,500,000. The building was completed in February
2015. Additional information is provided as follows.
7) Determine the amount of interest to be capitalized in 2014 in
relation to the construction of the building.
8) Prepare the journal entry to record the capitalization of interest
and the recognition of interest expense, if any, at December 31, 2014.
9) Busytown Corporation, which manufactures shoes, hired a
recent college graduate to work in accounting department. On the first
day of work, the accountant was assigned to total a batch of invoices
with the use of an adding machine. Before long, the accountant, who
had never before seen such a machine, managed to break the machine.
Busy town Corporation gave the machine plus $340 to Disk Business
machine Company (dealer) in exchange for a new machine. Assume
the following information about the machines. For each company,
prepare the necessary journal entry to record the exchange.
10) Under IFRS, Sampson company, who has a non-current asset
which has been classified as held-for-sale, should
11) Miller Company, a company who uses IFRS reporting standards,
sells a non-current asset classified as held-for-sale. Which of the
following statements is true regarding the treatment of a gain on a
subsequent increase in the fair value less cost?
12) Damson Company, a company who uses IFRS reporting
standards, has a non-current asset that has been classified as held-for-
sale. When the asset no longer meets this definition, Danson should
13) Elton Industries, a company who uses IFRS reporting standards,
has asset and liabilities of a disposal group classified as held-for-sale

shown on its statement of financial position. Which of the following
presents the best treatment for these?
14) Woodson Company, a company who uses IFRS reporting
standards, has identified a group of plant assets for disposal. On
January 1, 2014, the carrying value of these assets was $14.5 million.
The assets were revalued to $13.5 million on January 5, 2014, when
they were identified as property for the disposal group. In addition,
Woodson thinks that it will cost $1.5 million to sell these assets. What
carrying amount should these assets reflect for year-end financial
statements to be prepared on January 10, 2014?
**************************************
Questions)
Week 4 Quiz 3: Chapter 10
ACQUISITION AND DISPOSITION OF PROPERTY, PLANT,
AND EQUIPMENT
TRUE-FALSE—Conceptual
1. Assets classified as Property, Plant, and Equipment can be
either acquired for use in operations, or acquired for resale.

2. Assets classified as Property, Plant, and Equipment must be
both long-term in nature and possess physical substance.
3. When land with an old building is purchased as a future
building site, the cost of removing the old building is part of the cost
of the new building.
4. Insurance on equipment purchased, while the equipment is in
transit, is part of the cost of the equipment.
5. Special assessments for local improvements such as street
lights and sewers should be accounted for as land improvements.
6. Variable overhead costs incurred to self-construct an asset
should be included in the cost of the asset.
7. Companies should assign no portion of fixed overhead to self-
constructed assets.
8. When capitalizing interest during construction of an asset, an
imputed interest cost on stock financing must be included.
9. Assets under construction for a company’s own use do not
qualify for interest cost capitalization.
10. Avoidable interest is the amount of interest cost that a
company could theoretically avoid if it had not made expenditures for
the asset.
11. When a company purchases land with the intention of
developing it for a particular use, interest costs associated with those
expenditures qualify for interest capitalization.
12. Assets purchased on long-term credit contracts should be
recorded at the present value of the consideration exchanged.

13. Companies account for the exchange of nonmonetary assets
on the basis of the fair value of the asset given up or the fair value of
the asset received.
14. If a nonmonetary exchange lacks commercial substance, and
cash is received, a partial gain or loss is recognized.
15. When a company exchanges nonmonetary assets and a loss
results, the company recognizes the loss only if the exchange has
commercial substance.
16. Costs incurred subsequent to the acquisition of an asset are
capitalized if they provide future benefits.
17. Improvements are often referred to as betterments and involve
the substitution of a better asset for the one currently used.
18. When an ordinary repair occurs, several periods will usually
benefit.
19. Companies always treat gains or losses from an involuntary
conversion as extraordinary items.
20. If a company scraps an asset without any cash recovery, it
recognizes a loss equal to the asset’s book value.
21. Plant assets may properly include
a. deposits on machinery not yet received.
b. idle equipment awaiting sale.

c. land held for possible use as a future plant site.
d. none of these.
22. Which of the following is not a major characteristic of a plant
asset?
a. Possesses physical substance
b. Acquired for resale
c. Acquired for use
d. Yields services over a number of years
23. Which of these is not a major characteristic of a plant asset?
a. Possesses physical substance
b. Acquired for use in operations
c. Yields services over a number of years
d. All of these are major characteristics of a plant asset.
24. Cotton Hotel Corporation recently purchased Emporia Hotel
and the land on which it is located with the plan to tear down the
Emporia Hotel and build a new luxury hotel on the site. The cost of
the Emporia Hotel should be
a. depreciated over the period from acquisition to the date the hotel
is scheduled to be torn down.
b. written off as an extraordinary loss in the year the hotel is torn
down.

c. capitalized as part of the cost of the land.
d. capitalized as part of the cost of the new hotel.
25. The cost of land does not include
a. costs of grading, filling, draining, and clearing.
b. costs of removing old buildings.
c. costs of improvements with limited lives.
d. special assessments.
26. The cost of land typically includes the purchase price and all
of the following costs except
a. grading, filling, draining, and clearing costs.
b. street lights, sewers, and drainage systems cost.
c. private driveways and parking lots.
d. assumption of any liens or mortgages on the property.
27. If a corporation purchases a lot and building and subsequently
tears down the building and uses the property as a parking lot, the
proper accounting treatment of the cost of the building would depend
on
a. the significance of the cost allocated to the building in relation to
the combined cost of the lot and building.
b. the length of time for which the building was held prior to its
demolition.
c. the contemplated future use of the parking lot.

d. the intention of management for the property when the building
was acquired.
28. The debit for a sales tax properly levied and paid on the
purchase of machinery preferably would be a charge to
a. the machinery account.
b. a separate deferred charge account.
c. miscellaneous tax expense (which includes all taxes other than
those on income).
d. accumulated depreciation--machinery.
29. Fences and parking lots are reported on the balance sheet as
a. current assets.
b. land improvements.
c. land.
d. property and equipment.
S30. Historical cost is the basis advocated for recording the
acquisition of property, plant, and equipment for all of the following
reasons except
a. at the date of acquisition, cost reflects fair market value.
b. property, plant, and equipment items are always acquired at their
original historical cost.

c. historical cost involves actual trans-actions and, as such, is the
most reliable basis.
d. gains and losses should not be anticipated but should be
recognized when the asset is sold.
S31. To be consistent with the historical cost principle, overhead
costs incurred by an enterprise constructing its own building should
be
a. allocated on the basis of lost production.
b. eliminated completely from the cost of the asset.
c. allocated on an opportunity cost basis.
d. allocated on a pro rata basis between the asset and normal
operations.
32. Which of the following costs are capitalized for self-
constructed assets?
a. Materials and labor only
b. Labor and overhead only
c. Materials and overhead only
d. Materials, labor, and overhead
33. Which of the following assets do not qualify for capitalization
of interest costs incurred during construction of the assets?
a. Assets under construction for an enterprise's own use.
b. Assets intended for sale or lease that are produced as discrete
projects.

c. Assets financed through the issuance of long-term debt.
d. Assets not currently undergoing the activities necessary to prepare
them for their intended use.
34. Assets that qualify for interest cost capitalization include
a. assets under construction for a company's own use.
b. assets that are ready for their intended use in the earnings of the
company.
c. assets that are not currently being used because of excess capacity.
d. All of these assets qualify for interest cost capitalization.
35. When computing the amount of interest cost to be capitalized,
the concept of "avoidable interest" refers to
a. the total interest cost actually incurred.
b. a cost of capital charge for stockholders' equity.
c. that portion of total interest cost which would not have been
incurred if expenditures for asset construction had not been made.
d. that portion of average accumulated expenditures on which no
interest cost was incurred.
36. The period of time during which interest must be capitalized
ends when
a. the asset is substantially complete and ready for its intended use.
b. no further interest cost is being incurred.

c. the asset is abandoned, sold, or fully depreciated.
d. the activities that are necessary to get the asset ready for its
intended use have begun.
37. Which of the following statements is true regarding
capitalization of interest?
a. Interest cost capitalized in connection with the purchase of land to
be used as a building site should be debited to the land account and
not to the building account.
b. The amount of interest cost capitalized during the period should
not exceed the actual interest cost incurred.
c. When excess borrowed funds not immediately needed for
construction are temporarily invested, any interest earned should be
offset against interest cost incurred when determining the amount of
interest cost to be capitalized.
d. The minimum amount of interest to be capitalized is determined
by multiplying a weighted average interest rate by the amount of
average accumulated expenditures on qualifying assets during the
period.
38. Construction of a qualifying asset is started on April 1 and
finished on December 1. The fraction used to multiply an expenditure
made on April 1 to find weighted-average accumulated expenditures
is
a. 8/8.
b. 8/12.
c. 9/12.
d. 11/12.

39. When funds are borrowed to pay for construction of assets that
qualify for capitalization of interest, the excess funds not needed to
pay for construction may be temporarily invested in interest-bearing
securities. Interest earned on these temporary investments should be
a. offset against interest cost incurred during construction.
b. used to reduce the cost of assets being constructed.
c. multiplied by an appropriate interest rate to determine the amount
of interest to be capitalized.
d. recognized as revenue of the period.
40. Interest cost that is capitalized should
a. be written off over the remaining term of the debt.
b. be accumulated in a separate deferred charge account and written
off equally over a 40-year period.
c. not be written off until the related asset is fully depreciated or
disposed of.
d. none of these.
S41. Which of the following is not a condition that must be
satisfied before interest capitalization can begin on a qualifying asset?
a. Interest cost is being incurred.
b. Expenditures for the assets have been made.
c. The interest rate is equal to or greater than the company's cost of
capital.

d. Activities that are necessary to get the asset ready for its intended
use are in progress.
S42. Which of the following is the recommended approach to
handling interest incurred in financing the construction of property,
plant and equipment?
a. Capitalize only the actual interest costs incurred during
construction.
b. Charge construction with all costs of funds employed, whether
identifiable or not.
c. Capitalize no interest during construction.
d. Capitalize interest costs equal to the prime interest rate times the
estimated cost of the asset being constructed.
S43. Which of the following nonmonetary exchange transactions
represents a culmination of the earning process?
a. Exchange of assets with no difference in future cash flows.
b. Exchange of products by companies in the same line of business
with no difference in future cash flows.
c. Exchange of assets with a difference in future cash flows.
d. Exchange of an equivalent interest in similar productive assets
that causes the companies involved to remain in essentially the same
economic position.
S44. When boot is involved in an exchange having commercial
substance.
a. gains or losses are recognized in their entirely.

b. a gain or loss is computed by comparing the fair value of the asset
received with the fair value of the asset given up.
c. only gains should be recognized.
d. only losses should be recognized.
S45. The cost of a nonmonetary asset acquired in exchange for
another nonmonetary asset and the exchange has commercial
substance is usually recorded at
a. the fair value of the asset given up, and a gain or loss is
recognized.
b. the fair value of the asset given up, and a gain but not a loss may
be recognized.
c. the fair value of the asset received if it is equally reliable as the
fair value of the asset given up.
d. either the fair value of the asset given up or the asset received,
whichever one results in the largest gain (smallest loss) to the
company.
P46. Ringler Corporation exchanges one plant asset for a similar
plant asset and gives cash in the exchange. The exchange is not
expected to cause a material change in the future cash flows for either
entity. If a gain on the disposal of the old asset is indicated, the gain
will
a. be reported in the Other Revenues and Gains section of the
income statement.
b. effectively reduce the amount to be recorded as the cost of the
new asset.

c. effectively increase the amount to be recorded as the cost of the
new asset.
d. be credited directly to the owner's capital account.
47. Plant assets purchased on long-term credit contracts should be
accounted for at
a. the total value of the future payments.
b. the future amount of the future payments.
c. the present value of the future payments.
d. none of these.
48. When a plant asset is acquired by issuance of common stock,
the cost of the plant asset is properly measured by the
a. par value of the stock.
b. stated value of the stock.
c. book value of the stock.
d. fair value of the stock.
49. When a closely held corporation issues preferred stock for
land, the land should be recorded at the
a. total par value of the stock issued.
b. total book value of the stock issued.
c. total liquidating value of the stock issued.
d. fair value of the land.

50. Accounting recognition should be given to some or all of the
gain realized on a nonmonetary exchange of plant assets except when
the exchange has
a. no commercial substance and additional cash is paid.
b. no commercial substance and additional cash is received.
c. commercial substance and additional cash is paid.
d. commercial substance and additional cash is received.
51. For a nonmonetary exchange of plant assets, accounting
recognition should not be given to
a. a loss when the exchange has no commercial substance.
b. a gain when the exchange has commercial substance.
c. part of a gain when the exchange has no commercial substance
and cash is paid (cash paid/received is less than 25% of the fair value
of the exchange).
d. part of a gain when the exchange has no commercial substance
and cash is received (cash paid or received is less than 25% of the fair
value of the exchange).
52. When an enterprise is the recipient of a donated asset, the
account credited may be a
a. paid-in capital account.
b. revenue account.
c. deferred revenue account.

d. all of these.
53. A plant site donated by a township to a manufacturer that
plans to open a new factory should be recorded on the manufacturer's
books at
a. the nominal cost of taking title to it.
b. its fair value.
c. one dollar (since the site cost nothing but should be included in
the balance sheet).
d. the value assigned to it by the company's directors.
54. In order for a cost to be capitalized (capital expenditure), the
following must be present:
a. The useful life of an asset must be increased.
b. The quantity of assets must be increased.
c. The quality of assets must be increased.
d. Any one of these.
55. An improvement made to a machine increased its fair value
and its production capacity by 25% without extending the machine's
useful life. The cost of the improvement should be
a. expensed.
b. debited to accumulated depreciation.
c. capitalized in the machine account.

d. allocated between accumulated depreciation and the machine
account.
56. Which of the following is a capital expenditure?
a. Payment of an account payable
b. Retirement of bonds payable
c. Payment of Federal income taxes
d. None of these
57. Which of the following is not a capital expenditure?
a. Repairs that maintain an asset in operating condition
b. An addition
c. A betterment
d. A replacement
P58. In accounting for plant assets, which of the following outlays
made subsequent to acquisition should be fully expensed in the period
the expenditure is made?
a. Expenditure made to increase the efficiency or effectiveness of an
existing asset
b. Expenditure made to extend the useful life of an existing asset
beyond the time frame originally anticipated
c. Expenditure made to maintain an existing asset so that it can
function in the manner intended

d. Expenditure made to add new asset services
S59. An expenditure made in connection with a machine being
used by an enterprise should be
a. expensed immediately if it merely extends the useful life but does
not improve the quality.
b. expensed immediately if it merely improves the quality but does
not extend the useful life.
c. capitalized if it maintains the machine in normal operating
condition.
d. capitalized if it increases the quantity of units produced by the
machine.
S60. When a plant asset is disposed of, a gain or loss may result.
The gain or loss would be classified as an extraordinary item on the
income statement if it resulted from
a. an involuntary conversion and the conditions of the disposition are
unusual and infrequent in nature.
b. a sale prior to the completion of the estimated useful life of the
asset.
c. the sale of a fully depreciated asset.
d. an abandonment of the asset.
**************************************

1) Lockard Company purchased machinery on January 1, 2014, for
$102,960. The machinery is estimated to have a salvage value of
$10,296 after a useful life of 8 years.
2) Compute 2014 depreciation expense using the double-declining-
balance method.
3) Compute 2014 depreciation expense using the double-declining-
balance method, assuming the machinery was purchased on October
1, 2014.
4) Everly Corporation acquires a coal mine at a cost of $452,000.
Intangible development costs total $113,000. After extraction has
occurred, Everly must restore the property (estimated fair value of the
obligation is $90,400), after which it can be sold for $180,800. Everly
estimates that 4,520 tons of coal can be extracted.
5) In its 2011 annual report, Campbell Soup Company reports
beginning-of-the-year total assets of $6,276 million, end-of-the-year
total assets of $6,862 million, total sales of $7,719 million, and net
income of $805 million.
6) Compute Campbell’s asset turnover ratio. (Round answer to 3
decimal places, e.g. 4.871.)
Asset turnover ratio
7) Compute Campbell’s profit margin on sales. (Round answer to
2 decimal places, e.g. 4.87 or 4.87%.)
8) Compute Campbell’s return on assets using (1) asset turnover
and profit margin and (2) net income. (Round answers to 2 decimal
places, e.g. 4.87 or 4.87%.)Return on assets

9) Rembrandt Company acquired a plant asset at the beginning of
Year 1. The asset has an estimated service life of 5 years. An
employee has prepared depreciation schedules for this asset using
three different methods to compare the results of using one method
with the results of using other methods. You are to assume that the
following schedules have been correctly prepared for this asset using
(1) the straight-line method, (2) the sum-of-the-years'-digits method,
and (3) the double-declining-balance method.
Year Straight-Line Sum-of-the-
Years'-Digits Double-Declining-
Balance
1 $11,970 $19,950
$26,600
2 11,970 15,960
15,960
3 11,970 11,970
9,576
4 11,970 7,980
5,746
5 11,970 3,990
1,968
Total $59,850
$59,850 $59,850
10) What is the cost of the asset being depreciated? (Round answer to
0 decimal places, e.g. 45,892.)
Cost of asset $
11) If there is any salvage value and the amount is unknown (as is the
case here), the cost would have to be determined by looking at the
data for the double-declining balance method.
12) What amount, if any, was used in the depreciation calculations
for the salvage value for this asset? (Round answer to 0 decimal
places, e.g. 45,892.)

13) Which method will produce the highest charge to income in Year
1?
The method that produces the highest charge to income in Year 1 is
14) Which method will produce the highest charge to income in Year
4?
The method that produces the highest charge to income in Year 4 is
15) Which method will produce the highest book value for the asset
at the end of Year 3?
The method that produces the highest book value for the asset at the
end of Year 3 is
16) Prepare the journal entry (if any) to record the impairment of the
asset at December 31, 2014. (If no entry is required, select "No entry"
for the account titles and enter 0 for the amounts. Credit account titles
are automatically indented when amount is entered. Do not indent
manually.)
17) If the asset is sold at the end of Year 3, which method would
yield the highest gain (or lowest loss) on disposal of the asset?
The method that will yield the highest gain (or lowest loss) on
disposal of the asset if the asset is sold at the end of Year 3 is
18) Muggsy Bogues Company purchased equipment for $224,700 on
October 1, 2014. It is estimated that the equipment will have a useful
life of 8 years and a salvage value of $24,720. Estimated production is
39,600 units and estimated working hours are 20,200. During 2014,
Bogues uses the equipment for 590 hours and the equipment produces
1,100 units.
Compute depreciation expense under each of the following methods.
Bogues is on a calendar-year basis ending December 31.
19) Presented below is information related to equipment owned by
Suarez Company at December 31, 2014.
Cost $ 20,232,000

Accumulated depreciation to date 2,248,000
Expected future net cash flows 15,736,000
Fair value 10,790,400
Suarez intends to dispose of the equipment in the coming year. It is
expected that the cost of disposal will be $ 44,960 . As of December
31, 2014, the equipment has a remaining useful life of 4 years.
20) The following data relate to the Machinery account of Eshkol,
Inc. at December 31, 2014.
Machinery
A B C D
Original cost $108,560 $120,360
$188,800 $188,800
Year purchased 2009 2010 2011
2013
Useful life 10 years 15,000 hours 15
years 10 years
Salvage value $7,316 $7,080 $11,800
$11,800
Depreciation method Sum-of-the-years'-digits
Activity Straight-line Double-declining
balance
Accum. depr through 2014* $73,632 $83,072
$35,400 $37,760
*In the year an asset is purchased, Eshkol, Inc. does not record any
depreciation expense on the asset.
In the year an asset is retired or traded in, Eshkol, Inc. takes a full
year’s depreciation on the asset.
21) Mandall Company constructed a warehouse for $280,000 on
January 2, 2014. Mandall estimates that the warehouse has a useful
life of 20 years and no residual value. Construction records indicate
that $40,000 of the cost of the warehouse relates to its heating,
ventilation, and air conditioning (HVAC) system, which has an

estimated useful life of only 10 years. What is the first year of
depreciation expense using straight-line component depreciation
under IFRS?
22) Francisco Corporation is constructing a new building at a total
initial cost of $10,000,000. The building is expected to have a useful
life of 50 years with no residual value. The building’s finished
surfaces (e.g., roof cover and floor cover) are 5% of this cost and have
a useful life of 20 years. Building services systems (e.g., electric,
heating, and plumbing) are 20% of the cost and have a useful life of
25 years. The depreciation in the first year using component
depreciation, assuming straight-line depreciation with no residual
value, is:
23) Which of the following statements is correct?
Both IFRS and GAAP permit revaluation of property, plant, and
equipment.
IFRS permits revaluation of property, plant, and equipment but not
GAAP.
Both IFRS and GAAP do not permit revaluation of property, plant,
and equipment.
GAAP permits revaluation of property, plant, and equipment but not
IFRS.
24) Hilo Company has land that cost $350,000 but now has a fair
value of $500,000. Hilo Company decides to use the revaluation
method specified in IFRS to account for the land. Which of the
following statements is correct?
25) Under IFRS, value-in-use is defined as:
**************************************
ACC 304 Week 5 Midterm Part 1 (Set 1)

The book value of a plant asset is
The asset turnover ratio is computed by dividing
On September 19, 2014, Markham Co. purchased machinery for
$285,000. Salvage value was estimated to be $15,000. The machinery
will be depreciated over eight years using the sum-of-the-years'-digits
method. If depreciation is computed on the basis of the nearest full
month, Markham should record depreciation expense for 2015 on this
machinery of
In 2014, Bargain shop reported net income of $5.7 billion, net sales of
$175 billion, and average total assets of $70 billion. What is Bargain
shop's asset turnover ratio?
In 2006, Jarrett Company purchased a tract of land as a possible
future plant site. In January, 2014, valuable sulphur deposits were
discovered on adjoining property and Jarrett Company immediately
began explorations on its property. In December, 2014, after incurring
$800,000 in exploration costs, which were accumulated in an expense
account, Jarrett discovered sulphur deposits appraised at $4,500,000
more than the value of the land. To record the discovery of the
deposits, Jarrett should
The primary IFRS related to property, plant and equipment is found in
Ryan Distribution Co. has determined its December 31, 2014
inventory on a FIFO basis at $490,000. Information pertaining to that
inventory follows:

LF Corporation, a manufacturer of Mexican foods, contracted in 2014
to purchase 1,500 pounds of a spice mixture at $5.00 per pound,
delivery to be made in spring of 2015. By 12/31/14, the price per
pound of the spice mixture had dropped to $4.70 per pound. In 2014,
LF should recognize
Plank Co. uses the retail inventory method. The following information
is available for the current year.
Cost
Retail
Beginning inventory
$234,000
$366,000
Purchases
885,000
1,245,000
Freight-in
15,000
—
Employee discounts
—
6,000
Net markups
—

45,000
Net markdowns
—
60,000
Sales revenue
—
1,170,000
10.
Which of the following is true of normal shortages?
Under the lower-of-cost-or-market method, the replacement cost of an
inventory item would be used as the designated market value
Which of the following is not a common disclosure for inventories?
The use of a Purchase Discounts account implies that the recorded
cost of a purchased inventory item is its
Hay Company had January 1 inventory of $180,000 when it adopted
dollar-value LIFO. During the year, purchases were $1,080,000 and
sales were $1,800,000. December 31 inventory at year-end prices was
$227,700, and the price index was 110.
What is Hay Company’s gross profit
16. In the double-extension method, the value of the units in
inventory is extended at:
17. Web World began using dollar-value LIFO for costing its
inventory last year. The base year layer consists of $400,000.
Assuming the current inventory at end of year prices equals $552,000
and the index for the current year is 1.10, what is the ending inventory
using dollar-value LIFO?
18.
RF Company had January 1 inventory of $200,000 when it adopted
dollar-value LIFO. During the year, purchases were $1,200,000 and

sales were $2,000,000. December 31 inventory at year-end prices was
$286,720, and the price index was 112.
What is RF Company’s gross profit?
19. Cotton Hotel Corporation recently purchased Emporia Hotel and
the land on which it is located with the plan to tear down the Emporia
Hotel and build a new luxury hotel on the site. The cost of the
Emporia Hotel should be
20. Ecker Company purchased a new machine on May 1, 2006 for
$352,000. At the time of acquisition, the machine was estimated to
have a useful life of ten years and an estimated salvage value of
$16,000. The company has recorded monthly depreciation using the
straight-line method. On March 1, 2015, the machine was sold for
$48,000. What should be the loss recognized from the sale of the
machine?
21. Under IFRS, Sampson Company, who has a non-current asset
which has been classified as held-for-sale, should
22. The cost of land does not include
23. Which of the following is not a condition that must be satisfied
before interest capitalization can begin on a qualifying asset?
24. Which of the following is not a major characteristic of a plant
asset?
25. Ringler Corporation exchanges one plant asset for a similar plant
asset and gives cash in the exchange. The exchange is not expected to
cause a material change in the future cash flows for either entity. If a
gain on the disposal of the old asset is indicated, the gain will
**************************************

Multiple Choice Question 90
If Labor, Inc. uses the composite method and its composite rate is
7.5% per year, what entry should it make when plant assets that
originally cost $80,000 and have been used for 10 years are sold for
$24,000?
Porter Resources Company acquired a tract of land containing an
extractable natural resource. Porter is required by its purchase
contract to restore the land to a condition suitable for recreational use
after it has extracted the natural resource. Geological surveys estimate
that the recoverable reserves will be 2,000,000 tons, and that the land
will have a value of $1,000,000 after restoration. Relevant cost
information follows:
In 2014, shop reported net income of $5.7 billion, net sales of $175
billion, and average total assets of $70 billion. What is Bargain shop's
return on total assets?
In 2006, Jarrett Company purchased a tract of land as a possible
future plant site. In January, 2014, valuable sulphur deposits were
discovered on adjoining property and Jarrett Company immediately
began explorations on its property. In December, 2014, after incurring
$800,000 in exploration costs, which were accumulated in an expense
account, Jarrett discovered sulphur deposits appraised at $4,500,000
more than the value of the land. To record the discovery of the
deposits, Jarrett should
Grover Corporation purchased a truck at the beginning of 2014 for
$93,600. The truck is estimated to have a salvage value of $3,600 and
a useful life of 120,000 miles. It was driven 21,000 miles in 2014 and
29,000 miles in 2015. What is the depreciation expense for 2015?
Halltown Company purchased a depreciable asset for $450,000. The
estimated salvage value is $30,000, and the estimated useful life is 8
years. The double-declining balance method will be used for
depreciation. What is the depreciation expense for the second year on
this asset?

Robust Inc. has the following information related to an item in its
ending inventory. Product 66 has a cost of $812, a replacement cost of
$775, a net realizable value of $800, and a normal profit margin of
$50. What is the final lower-of-cost-or-market inventory value for
product 66?
Ryan Distribution Co. has determined its December 31, 2014
inventory on a FIFO basis at $490,000. Information pertaining to that
inventory follows:
A major advantage of the retail inventory method is that it
provides a method for inventory control and facilitates determination
of the periodic inventory for certain types of companies.
The following data concerning the retail inventory method are taken
from the financial records of
If the foregoing figures are verified and a count of the ending
inventory reveals that merchandise actually on hand amounts to
$108,000 at retail, the business has
Given the historical cost of product Dominoe is $22, the selling price
of product Dominoe is $30, costs to sell product Dominoe are $5, the
replacement cost for product Dominoe is $20, and the normal profit
margin is 20% of sales price, what is the cost amount that should be
used in the lower-of-cost-or-market comparison?
IFRS Multiple Choice Question 06
Which of the following statements is true regarding IFRS and
inventories?
With respect to inventories, IFRS defines market as net realizable
value.
In a period of falling prices, which inventory method generally
provides the greatest amount of net income?
When using a perpetual inventory system,
all of these answer choices are correct.

Niles Co. has the following data related to an item of inventory:
Inventory, March 1 200 units @ $2.10
Purchase, March 7 700 units @ $2.20
Purchase, March 16 140 units @ $2.25
Inventory, March 31 260 units
The value assigned to ending inventory if Niles uses LIFO is
Which of the following is a reason why the specific identification
method may be considered ideal for assigning costs to inventory and
cost of goods sold?
The cost flow matches the physical flow.
Where should goods in transit that were recently purchased f.o.b.
destination be included on the balance sheet?
Not on the balance sheet
The following information applied to Howe, Inc. for 2014:
Tram Industries, a company who uses IFRS reporting standards, is
installing a new plant. The company has incurred the following costs
Glen Inc. and Armstrong Co. have an exchange with no commercial
substance. The asset given up by Glen Inc. has a book value of
$36,000 and a fair value of $45,000. The asset given up by Armstrong
Co. has a book value of $60,000 and a fair value of $57,000. Boot of
$12,000 is received by Armstrong Co.
What amount should Armstrong Co. record for the asset received?
A plant site donated by a township to a manufacturer that plans to
open a new factory should be recorded on the manufacturer's books at
All of the following are true regarding the revaluation model allowed
under IFRS except
when an asset is revalued, any increase in carrying amount is reported
as miscellaneous revenue.

Peterson Company purchased machinery for $800,000 on January 1,
2011. Straight-line depreciation has been recorded based on a $50,000
salvage value and a 5-year useful life. The machinery was sold on
May 1, 2015 at a gain of $15,000. How much cash did Peterson
receive from the sale of the machinery?
On January 2, 2014, Indian River Groves began construction of a new
citrus processing plant. The automated plant was finished and ready
for use on September 30, 2015. Expenditures for the
Indian River Groves borrowed $2,200,000 on a construction loan at
12% interest on January 2, 2014. This loan was outstanding during the
construction period. The company also had $8,000,000 in 9% bonds
outstanding in 2014 and 2015.
What were the weighted-average accumulated expenditures for 2014?
$800,000
Accounting recognition should be given to some or all of the gain
realized on a nonmonetary exchange of plant assets except when the
exchange has
no commercial substance and additional cash is paid.
**************************************
1) Tongas Company applies revaluation accounting to plant assets
with a carrying value of $1,600,000, a useful life of 4 years, and no

salvage value. Depreciation is calculated on the straight-line basis. At
the end of year 1, independent appraisers determine that the asset has
a fair value of $1,500,000.
The journal entry to adjust the plant assets to fair value and record
revaluation surplus in year one will include a
The journal entry to adjust the plant assets to fair value and record
revaluation surplus in year one will include a
3) A major objective of MACRS for tax depreciation is to
4) Sifton Company reported the following data:
2014 2015
Sales $3,000,000 $3,900,000
Net Income 300,000 400,000
Assets at year end 1,800,000 2,500,000
Liabilities at year end 1,100,000 1,500,000
What is Sifton’s asset turnover for 2015?
5) Which of the following principles best describes the conceptual
rationale for the methods of matching depreciation expense with
revenues?
6) Slotkin Products purchased a machine for $39,000 on July 1,
2014. The company intends to depreciate it over 8 years using the
double-declining balance method. Salvage value is $3,000.
Depreciation for 2014 is

The financial statements for year one will include the following
information
9) Which of the following is not an acceptable approach in
applying the lower-of-cost-or-market method to inventory?
10) The following data concerning the retail inventory method are
taken from the financial records of Welch Company.
Cost Retail
Beginning inventory $ 147,000 $ 210,000
Purchases 672,000 960,000
Freight-in 18,000 —
Net markups — 60,000
Net markdowns — 42,000
Sales — 1,008,000
If the foregoing figures are verified and a count of the ending
inventory reveals that merchandise actually on hand amounts to
$108,000 at retail, the business has
11) Muckenthaler Company sells product 2005WSC for $40 per
unit. The cost of one unit of 2005WSC is $36, and the replacement
cost is $35. The estimated cost to dispose of a unit is $8, and the

normal profit is 40%. At what amount per unit should product
2005WSC be reported, applying lower-of-cost-or-market?
12) Muckenthaler Company sells product 2005WSC for $40 per
unit. The cost of one unit of 2005WSC is $36, and the replacement
cost is $35. The estimated cost to dispose of a unit is $8, and the
normal profit is 40%. At what amount per unit should product
2005WSC be reported, applying lower-of-cost-or-market?
13) Barker Pet supply uses the conventional retail method to
determine its ending inventory at cost. Assume the beginning
inventory at cost (retail) were $531,200 ($653,800), purchases during
the current year at cost (retail) were $2,137,200 ($2,772,200), freight-
in on these purchases totaled $127,800, sales during the current year
totaled $2,704,000, and net markups (markdowns) were $4,000
($192,600). What is the ending inventory value at cost?
14) Barker Pet supply uses the conventional retail method to
determine its ending inventory at cost. Assume the beginning
inventory at cost (retail) were $531,200 ($653,800), purchases during
the current year at cost (retail) were $2,137,200 ($2,772,200), freight-
in on these purchases totaled $127,800, sales during the current year
totaled $2,704,000, and net markups (markdowns) were $4,000
($192,600). What is the ending inventory value at cost?
15) Under the lower-of-cost-or-market method, the replacement cost
of an inventory item would be used as the designated market value
16) Under the lower-of-cost-or-market method, the replacement cost
of an inventory item would be used as the designated market value
17) During 2014, Larue Co., a manufacturer of chocolate candies,
contracted to purchase 200,000 pounds of cocoa beans at $4.00 per
pound, delivery to be made in the spring of 2015. Because a record
harvest is predicted for 2015, the price per pound for cocoa beans had
fallen to $3.30 by December 31, 2014.

Of the following journal entries, the one which would properly reflect
in 2014 the effect of the commitment of Larue Co. to purchase
the 200,000 pounds of cocoa is
18) During 2014, Larue Co., a manufacturer of chocolate candies,
contracted to purchase 200,000 pounds of cocoa beans at $4.00 per
pound, delivery to be made in the spring of 2015. Because a record
harvest is predicted for 2015, the price per pound for cocoa beans had
fallen to $3.30 by December 31, 2014.
19) Which method of inventory pricing best approximates specific
identification of the actual flow of costs and units in most
manufacturing situations?
20) Checkers uses the periodic inventory system. For the current
month, the beginning inventory consisted of 4,800 units that cost $12
each. During the month, the company made two purchases: 2,000
units at $13 each and 8,000 units at $13.50 each. Checkers also sold
8,600 units during the month. Using the FIFO method, what is the
ending inventory?
21) Groh Co. recorded the following data pertaining to raw material
X during January 2014:
Units
Date Received Cost
Issued On Hand
1/1/14 Inventory $6.00
3,200
1/11/14 Issue
1,600 1,600
1/22/14 Purchase 4,000 $7.05
5,600
The moving-average unit cost of X inventory at January 31, 2014 is

22) Gross Corporation adopted the dollar-value LIFO method of
inventory valuation on December 31, 2013. Its inventory at that date
was $550,000 and the relevant price index was 100. Information
regarding inventory for subsequent years is as follows:
Date Inventory at
Current Prices Current
Price Index
December 31, 2014 $642,000
107
December 31, 2015 725,000 125
December 31, 2016 812,500 130
What is the cost of the ending inventory at December 31, 2014
under dollar-value LIFO?
23) Gross Corporation adopted the dollar-value LIFO method of
inventory valuation on December 31, 2013. Its inventory at that date
was $550,000 and the relevant price index was 100. Information
regarding inventory for subsequent years is as follows:
Date Inventory at
Current Prices Current
Price Index
December 31, 2014 $642,000
107
December 31, 2015 725,000 125
December 31, 2016 812,500 130
What is the cost of the ending inventory at December 31, 2014 under
dollar-value LIFO?
24)Goods in transit which are shipped f.o.b. destination should be
24) Milford Company had 400 units of ―Tank‖ in its inventory at a
cost of $6 each. It purchased 600 more units of ―Tank‖ at a cost of $9

each. Milford then sold 700 units at a selling price of $15 each. The
LIFO liquidation overstated normal gross profit by
26) Milford Company had 400 units of ―Tank‖ in its inventory at a
cost of $6 each. It purchased 600 more units of ―Tank‖ at a cost of $9
each. Milford then sold 700 units at a selling price of $15 each. The
LIFO liquidation overstated normal gross profit by
27)Huff Co. exchanged nonmonetary assets with Sayler Co. No cash
was exchanged and the exchange had no commercial substance. The
carrying amount of the asset surrendered by Huff exceeded both the
fair value of the asset received and Sayler's carrying amount of that
asset. Huff should recognize the difference between the carrying
amount of the asset it surrendered and
28) A machine cost $600,000, has annual depreciation of $100,000,
and has accumulated depreciation of $450,000 on December 31,
2014. On April 1, 2015, when the machine has a fair value of
$137,500, it is exchanged for a machine with a fair value of $675,000
and the proper amount of cash is paid. The exchange had commercial
substance.
The gain to be recorded on the exchange is
29) Glen Inc. and Armstrong Co. have an exchange with no
commercial substance. The asset given up by Glen Inc. has a book
value of $36,000 and a fair value of $45,000. The asset given up by
Armstrong Co. has a book value of $60,000 and a fair value of
$57,000. Boot of $12,000 is received by Armstrong Co.
What amount should Glen Inc. record for the asset received?
30) Glen Inc. and Armstrong Co. have an exchange with no
commercial substance. The asset given up by Glen Inc. has a book
value of $36,000 and a fair value of $45,000. The asset given up by

Armstrong Co. has a book value of $60,000 and a fair value of
$57,000. Boot of $12,000 is received by Armstrong Co.
What amount should Glen Inc. record for the asset received?
31) Arlington Company is constructing a building. Construction
began on January 1 and was completed on December 31.
Expenditures were $4,800,000 on March 1, $3,960,000 on June 1, and
$6,000,000 on December 31. Arlington Company borrowed
$2,400,000 on January 1 on a 5-year, 12% note to help finance
construction of the building. In addition, the company had outstanding
all year a 10%, 3-year, $4,800,000 note payable and an 11%, 4-year,
$9,000,000 note payable.
What is the weighted-average interest rate used for interest
capitalization purposes?
What is the weighted-average interest rate used for interest
capitalization purposes?
33) Assets that qualify for interest cost capitalization include

What are the weighted-average accumulated expenditures?
35) Which of the following is a capital expenditure?
**************************************
ACC 304 Week 5 Midterm Part 2
ACC 304 Week 5 Midterm Part 2
1) 1) A machine which cost $300,000 is acquired on October1,
2014. Its estimated salvage value is $30,000 and its expected life is
eight years.
a) Calculate depreciation expense for 2014 and 2015 by double-
declining balance
b) Calculate depreciation expense for 2014 and 2015 by sum-of-
the-years-digits
c) At the end of 2015, which method results in the larger
accumulated depreciation amount?
2) Assume in each case that the selling expenses are $8 per unit
and that the normal profit is $5 per unit. Calculate the limits for each
case. Then enter the amount that should be used for lower of cost or
market

3) Purchased merchandise costing $2,500 with terms 2/10, n/30.
a) Inventory = ???
b) Payment was made thirty days after the purchase
4) A machine cost $221,400, has annual depreciation expense of
$44,280, and has accumulated depreciation of $110,700 on December
31, 2014. On April 1, 2015, when the machine has a fair value of
$87,070, it is exchanged for a similar machine with a fair value of
$281,600 and the proper amount of cash is paid. The exchange lacked
commercial substance.
Prepare all entries that are necessary at April 1, 2015. (Credit account
titles are automatically indented when the amount is entered. Do not
indent manually.)
**************************************
1) Waters Corporation purchased Johnson Company 3 years ago
and at that time recorded goodwill of $400,000. The Johnson
Division’s net assets, including the good well, have a carrying amount
of $800,000. The fair value of the division is estimated to be
$1,000,000.prepare Water’s journal entry to record impairment of the
goodwill.
2) Treasure Land Corporation incurred the following costs in 2014.
Prepare the necessary 2014 journal entry or entries for Treasure Land.
3) Sinise Industries acquired two copyrights during 2014. One
copy right related to a text book that was developed internally at a

cost of $9,900. This textbook is estimated to have a useful life of 3
years from September 1, 2014, the date it was published. The second
copy right (a history research textbook) was purchased from
University press on December 1, 2014, for $24,000. This textbook has
an indefinite useful life. How should these two copyrights be reported
on Sinise’s balance sheet as of December 31, 2014?
4) Alatorre purchased a patent from Vaina Co. for $1,000,000 on
January 1, 2012. The patent is being amortized over its remaining
legal life of 10 years, expiring on January 1, 2022. During 2014,
alatorre determined that the economic benefits of the patent would not
last longer than 6 years from the date of acquisition. What amount
should be reported in the balance sheet for the patent, net of
accumulated amortization, at December 31, 2014?
5) Alatorre bought a franchise from Alexandar Co. on January 1,
2013, for $400,000. The carrying amount of the franchise on
Alexandar’s books on January 1, 2013, was $500,000. The franchise
agreement had an estimated useful life of 30 years. Because Alatorre
must enter a competitive bidding at the end of 2015, it is unlikely that
franchise will be retained beyond 2022.what amount should be
amortized for the year ended December 31, 2014?
6) On January 1, 2014, alatorre incurred organization costs of
$275,000. What amount of organization expense should be reported in
2014?
7) Alatorre purchased the license for distribution of a popular
consumer product on January 1, 2014, for $150,000. It is expected
that this product will generate cash flows for an indefinite period of
time. The license has an initial term of 5 years but by paying a
nominal fee, alatorre can renew the license indefinitely for successive
5-year terms. What amount should be amortized for the year ended
December 31, 2014?
8) Tones Industries has the following patents on its December 31,
2013, balance sheet. The following events occurred during the year
ended December 31, 2014. The proper discount rate to be used for
these flow is 8%. ( assume that the cash flow occur at the end of the
year.) Compute the total carrying amount of tones’ patents on its
December 31, 2013, balance sheet.

9) Compute the total carrying amount of tones’ patents on its
December 31, 2014, balance sheet.
10) Presented below is information related to copyrights owned by
Walter de la Mare Company at December 31, 2014. Assume that
Walter de la Mare Company will continue to use this copyright in the
future. As of December 31, 2014, the copyright is estimated to have a
remaining useul life of 10 years.
11) Prepare the journal entry ( if any ) to record the impairment of the
asset at December 31, 2014. The company does not use accumulated
amortization accounts.
12) Prepare the journal entry to record amortization expense for 2015
related to the copyrights.
13) The fair value of the copyright at December 31, 2015, is $3,
20,000. Prepare journal entry ( if any) necessary to record the increase
in fair value.
14) During 2012, Robin Wright Tool Company purchased a building
site for its proposed research and development laboratory at a cost of
$60,000. Construction of the building was started in 2012. The
building was completed on December 31, 2013, at a cost of $320,000
and was placed in service on January 2, 2014. The estimated useful
life of the building for depreciation purposes was 20 years. The
straight-line method of depreciation was to be employed, and there
was no estimated residual value. Management estimates that about
50% of the projects of the research and development group will result
in long-term benefits ( i.e., at least 10 years ) to the corporation. The
remaining projects and the direct costs incurred in conjunction with
the research and development activities for 2014 appears below. Upon
recommendation of the research and development group, Robin
Wright Tool Company acquired a patent for manufacturing rights at a
cost of $88,000. The patent was acquired on April 1, 2013, and has an
economic life 10 years. If generally accepted accounting principles
were followed, how would the item above relating to research and
development activities be reported on the following financial
statements?
15) All of the following are key similarities between GAAP and
IFRS with respect to accounting for intangible assets except:
16) Research and development costs are:

17) Which of the following statements is correct?
18) A loss on impairment of an intangible asset under IFRS is the
asset’s?
19) Recovery of impairment is recognized for all the following
except:
**************************************
Questions)
INTANGIBLE ASSETS
1. Intangible assets derive their value from the right (claim) to
receive cash in the future.
2. Internally created intangibles are recorded at cost.
3. Internally generated intangible assets are initially recorded at
fair value.
4. Amortization of limited-life intangible assets should not be
impacted by expected residual values.

5. Some intangible assets are not required to be amortized every
year.
6. Limited-life intangibles are amortized by systematic charges
to expense over their useful life.
7. The cost of acquiring a customer list from another company is
recorded as an intangible asset.
8. The cost of purchased patents should be amortized over the
remaining legal life of the patent.
9. If a new patent is acquired through modification of an existing
patent, the remaining book value of the original patent may be
amortized over the life of the new patent.
10. In a business combination, a company assigns the cost, where
possible, to the identifiable tangible and intangible assets, with the
remainder recorded as goodwill.
11. Internally generated goodwill should not be capitalized in the
accounts.
12. Internally generated goodwill associated with a business may
be recorded as an asset when a firm offer to purchase that business
unit has been received.
13. All intangibles are subject to periodic consideration of
impairment with corresponding potential write-downs.
14. If the fair value of an unlimited life intangible other than
goodwill is less than its book value, an impairment loss must be
recognized.

15. If market value of an impaired asset recovers after an
impairment has been recognized, the impairment may be reversed in a
subsequent period.
16. The same recoverability test that is used for impairments of
property, plant, and equipment is used for impairments of indefinite-
life intangibles.
17. Periodic alterations to existing products are an example of
research and development costs.
18. Research and development costs that result in patents may be
capitalized to the extent of the fair value of the patent.
19. Research and development costs are recorded as an intangible
asset if it is felt they will provide economic benefits in future years.
20. Contra accounts must be reported for intangible assets in a
manner similar to accumu-lated depreciation and property, plant, and
equipment.
21. Which of the following does not describe intangible assets?
a. They lack physical existence.
b. They are financial instruments.
c. They provide long-term benefits.
d. They are classified as long-term assets.

22. Which of the following characteristics do intangible assets
possess?
a. Physical existence.
b. Claim to a specific amount of cash in the future.
c. Long-lived.
d. Held for resale.
23. Which characteristic is not possessed by intangible assets?
a. Physical existence.
b. Short-lived.
c. Result in future benefits.
d. Expensed over current and/or future years.
24. Costs incurred internally to create intangibles are
a. capitalized.
b. capitalized if they have an indefinite life.
c. expensed as incurred.
d. expensed only if they have a limited life.
25. Which of the following costs incurred internally to create an
intangible asset is generally expensed?
a. Research and development costs.

b. Filing costs.
c. Legal costs.
d. All of the above.
26. Which of the following methods of amortization is normally
used for intangible assets?
a. Sum-of-the-years'-digits
b. Straight-line
c. Units of production
d. Double-declining-balance
27. The cost of an intangible asset includes all of the following
except
a. purchase price.
b. legal fees.
c. other incidental expenses.
d. all of these are included.
28. Factors considered in determining an intangible asset’s useful
life include all of the following except
a. the expected use of the asset.
b. any legal or contractual provisions that may limit the useful life.
c. any provisions for renewal or extension of the asset’s legal life.

d. the amortization method used.
29. Under current accounting practice, intangible assets are
classified as
a. amortizable or unamortizable.
b. limited-life or indefinite-life.
c. specifically identifiable or goodwill-type.
d. legally restricted or goodwill-type.
30. Companies should test indefinite life intangible assets at least
annually for:
a. recoverability.
b. amortization.
c. impairment.
d. estimated useful life.
S31. One factor that is not considered in determining the useful life
of an intangible asset is
a. salvage value.
b. provisions for renewal or extension.
c. legal life.
d. expected actions of competitors.

32. Which intangible assets are amortized?
Limited-Life Indefinite-Life
a. Yes Yes
b. Yes No
c. No Yes
d. No No
33. The cost of purchasing patent rights for a product that might
otherwise have seriously competed with one of the purchaser's
patented products should be
a. charged off in the current period.
b. amortized over the legal life of the purchased patent.
c. added to factory overhead and allocated to production of the
purchaser's product.
d. amortized over the remaining estimated life of the original patent
covering the product whose market would have been impaired by
competition from the newly patented product.
34. Broadway Corporation was granted a patent on a product on
January 1, 2001. To protect its patent, the corporation purchased on
January 1, 2012 a patent on a competing product which was originally
issued on January 10, 2008. Because of its unique plant, Broadway
Corporation does not feel the competing patent can be used in
producing a product. The cost of the competing patent should be

a. amortized over a maximum period of 20 years.
b. amortized over a maximum period of 16 years.
c. amortized over a maximum period of 9 years.
d. expensed in 2012.
35. Wriglee, Inc. went to court this year and successfully defended
its patent from infringe-ment by a competitor. The cost of this
defense should be charged to
a. patents and amortized over the legal life of the patent.
b. legal fees and amortized over 5 years or less.
c. expenses of the period.
d. patents and amortized over the remaining useful life of the patent.
36. Which of the following is not an intangible asset?
a. Trade name
b. Research and development costs
c. Franchise
d. Copyrights
37. Which of the following intangible assets should not be
amortized?
a. Copyrights

b. Customer lists
c. Perpetual franchises
d. All of these intangible assets should be amortized.
38. When a patent is amortized, the credit is usually made to
a. the Patent account.
b. an Accumulated Amortization account.
c. a Deferred Credit account.
d. an expense account.
39. When a company develops a trademark the costs directly
related to securing it should generally be capitalized. Which of the
following costs associated with a trademark would not be allowed to
be capitalized?
a. Attorney fees.
b. Consulting fees.
c. Research and development fees.
d. Design costs.
40. In a business combination, companies record identifiable
intangible assets that they can reliably measure. All other intangible
assets, too difficult to identify or measure, are recorded as:
a. other assets.

b. indirect costs.
c. goodwill.
d. direct costs.
41. Goodwill may be recorded when:
a. it is identified within a company.
b. one company acquires another in a business combination.
c. the fair value of a company’s assets exceeds their cost.
d. a company has exceptional customer relations.
42. When a new company is acquired, which of these intangible
assets, unrecorded on the acquired company’s books, might be
recorded in addition to goodwill?
a. A brand name.
b. A patent.
c. A customer list.
43. Which of the following intangible assets could not be sold by
a business to raise needed cash for a capital project?
a. Patent.
b. Copyright.

c. Goodwill.
d. Brand Name.
44. The reason goodwill is sometimes referred to as a master
valuation account is because
a. it represents the purchase price of a business that is about to be
sold.
b. it is the difference between the fair value of the net tangible and
identifiable intangible assets as compared with the purchase price of
the acquired business.
c. the value of a business is computed without consideration of
goodwill and then goodwill is added to arrive at a master valuation.
d. it is the only account in the financial statements that is based on
value, all other accounts are recorded at an amount other than their
value.
45. Easton Company and Lofton Company were combined in a
purchase transaction. Easton was able to acquire Lofton at a bargain
price. The sum of the fair values of identifiable assets acquired less
the fair value of liabilities assumed exceeded the cost to Easton.
Proper accounting treatment by Easton is to report the excess amount
as
a. a gain.
b. part of current income in the year of combination.
c. a deferred credit and amortize it.

d. paid-in capital.
46. Purchased goodwill should
a. be written off as soon as possible against retained earnings.
b. be written off as soon as possible as an extraordinary item.
c. be written off by systematic charges as a regular operating
expense over the period benefited.
d. not be amortized.
47. The intangible asset goodwill may be
a. capitalized only when purchased.
b. capitalized either when purchased or created internally.
c. capitalized only when created internally.
d. written off directly to retained earnings.
48. A loss on impairment of an intangible asset is the difference
between the asset’s
a. carrying amount and the expected future net cash flows.
b. carrying amount and its fair value.
c. fair value and the expected future net cash flows.
d. book value and its fair value.

49. The recoverability test is used to determine any impairment
loss on which of the following types of intangible assets?
a. Indefinite life intangibles other than goodwill.
b. Indefinite life intangibles.
c. Goodwill.
d. Limited life intangibles.
50. Buerhle Company needs to determine if its indefinite-life
intangibles other than goodwill have been impaired and should be
reduced or written off on its balance sheet. The impairment test(s) to
be used is (are)
Recoverability Test Fair Value Test
a. Yes Yes
b. Yes No
c No Yes
d. No No
51. The carrying amount of an intangible is
a. the fair value of the asset at a balance sheet date.
b. the asset's acquisition cost less the total related amortization
recorded to date.

c. equal to the balance of the related accumulated amortization
account.
d. the assessed value of the asset for intangible tax purposes.
52. Which of the following research and development related
costs should be capitalized and depreciated over current and future
periods?
a. Research and development general laboratory building which can
be put to alternative uses in the future
b. Inventory used for a specific research project
c. Administrative salaries allocated to research and development
d. Research findings purchased from another company to aid a
particular research project currently in process
53. Which of the following principles best describes the current
method of accounting for research and development costs?
a. Associating cause and effect
b. Systematic and rational allocation
c. Income tax minimization
d. Immediate recognition as an expense
54. How should research and development costs be accounted for,
according to a Financial Accounting Standards Board Statement?

a. Must be capitalized when incurred and then amortized over their
estimated useful lives.
b. Must be expensed in the period incurred.
c. May be either capitalized or expensed when incurred, depending
upon the materiality of the amounts involved.
d. Must be expensed in the period incurred unless it can be clearly
demonstrated that the expenditure will have alternative future uses or
unless contractually reimbursable.
55. Which of the following would be considered research and
development?
a. Routine efforts to refine an existing product.
b. Periodic alterations to existing production lines.
c. Marketing research to promote a new product.
d. Construction of prototypes.
56. Which of the following costs should be capitalized in the year
incurred?
a. Research and development costs.
b. Costs to internally generate goodwill.
c. Organizational costs.
d. Costs to successfully defend a patent.
57. Research and development costs

a. are intangible assets.
b. may result in the development of a patent.
c. are easily identified with specific projects.
d. all of the above.
58. Which of the following is considered research and
development costs?
a. Planned search or critical investigation aimed at discovery of new
knowledge.
b. Translation of research findings or other knowledge into a plan or
design for a new product or process.
c. Translation of research findings or other knowledge into a
significant improvement of an existing product.
d. all of the above.
59. Which of the following is considered research and
development costs?
a. Planned search or critical investigation aimed at discovery of new
knowledge.
b. Translation of research findings or other knowledge into a plan or
design for a new product or process.
c. Neither a nor b.
d. Both a and b.

60. Which of the following costs should be excluded from
research and development expense?
a. Modification of the design of a product
b. Acquisition of R & D equipment for use on a current project only
c. Cost of marketing research for a new product
d. Engineering activity required to advance the design of a product
to the manufacturing stage
**************************************
1) Takemoto Corporation borrowed $64,850 on November 1,
2014, by signing a $68,450, 3-month, zero-interest-bearing note.
Prepare Takemoto’s November 1, 2014, entry; the December 31,
2014, annual adjusting entry; and the February 1, 2015, entry. (If no
entry is required, select "No Entry" for the account titles and enter 0
for the amounts. Credit account titles are automatically indented when
amount is entered. Do not indent manually.)
2) Kasten Inc. provides paid vacations to its employees. At
December 31, 2014, 36 employees have each earned 2 weeks of
vacation time. The employees’ average salary is $513 per week.
Prepare Kasten’s December 31, 2014, adjusting entry. (If no entry is
required, select "No Entry" for the account titles and enter 0 for the

amounts. Credit account titles are automatically indented when
3) Buchanan Company recently was sued by a competitor for
patent infringement. Attorneys have determined that it is probable that
Buchanan will lose the case and that a reasonable estimate of damages
to be paid by Buchanan is $317,310. In light of this case, Buchanan is
considering establishing a $115,690 self-insurance allowance.
4) Buchanan should record a litigation accrual on the patent case,
since the amount is both estimable and probable. This entry will
reduce income by $317,310 and Buchanan will report a litigation
liability of $317,310. The $115,690 self-insurance allowance has no
impact on income or liabilities.
5) Green Day Hardware Company’s payroll for November 2014 is
summarized below.
Amount Subject to Payroll Taxes
Unemployment Tax
Payroll Wages Due Federal
State
Factory $212,000 $43,000
$43,000
Sales 36,400 5,300 5,300
Administrative 41,200
Total $289,600 $48,300
$48,300
At this point in the year, some employees have already received
wages in excess of those to which payroll taxes apply. Assume that
the state unemployment tax is 2.5%. The FICA rate is 7.65% on an
employee’s wages to $114,600 and 1.45% in excess of $114,600. Of
the $289,600 wages subject to FICA tax, $22,000 of the sales wages
is in excess of $114,600. Federal unemployment tax rate is 0.8% after
credits. Income tax withheld amounts to $16,570 for factory, $6,110
for sales, and $5,010 for administrative.

6) No Doubt Company includes 1 coupon in each box of soap
powder that it packs, and 10 coupons are redeemable for a premium (a
kitchen utensil). In 2014, No Doubt Company purchased 8,840
premiums at 70 cents each and sold 122,500 boxes of soap powder at
$3.40 per box; 50,000 coupons were presented for redemption in
2014. It is estimated that 60% of the coupons will eventually be
presented for redemption.
Prepare all the entries that would be made relative to sales of soap
powder and to the premium plan in 2014. (Round answers to 0
decimal places, e.g. 5,275. If no entry is required, select "No Entry"
for the account titles and enter 0 for the amounts. Credit account titles
manually.)
Account Titles and Explanation Debit Credit
Make all the journal entries necessary to record the transactions above
using appropriate dates. (If no entry is required, select "No Entry" for
the account titles and enter 0 for the amounts. Credit account titles are
automatically indented when amount is entered. Do not indent
manually.)
7) Edwardson Corporation’s year-end is December 31. Assuming
that no adjusting entries relative to the transactions above have been
recorded, prepare any adjusting journal entries concerning interest
that are necessary to present fair financial statements at December 31.
Assume straight-line amortization of discounts. (If no entry is
amount is entered. Do not indent manually. Record journal entries in
the order presented in the problem.)
8) The presentation of current and non-current liabilities in the
statement of financial position (balance sheet):

9) In accounting for short-term debt expected to be refinanced to
long-term debt:
10) Under IFRS, a provision is the same as:
11) A typical provision is:
12) In determining the amount of a provision, a company using IFRS
should generally measure:
**************************************
ACC 304 Week 8 Assignment 1 Delta Airlines
Property, Plant, And Equipment
ACC 304 WEEK 8 ASSIGNMENT 1 DELTA AIRLINES
PROPERTY, PLANT, AND EQUIPMENT
Assignment 1: Delta Airlines Property, Plant, and Equipment
Due Week 8 and worth 200 points
According to the textbook, U.S. companies and foreign companies are
affected by deprecation rules. When companies write off the cost of
long-lived assets over a period of time, the term used is depreciation.
In order to complete this assignment, review Delta Airlines’ annual
reports for the years 2012 and 2013, located
athttp://ir.delta.com/stock-and-financial/sec-filings/.
Write a five to six (5-6) page paper in which you:

Briefly outline Delta Airlines company’s history, products, and
services, and identify the costs reported in the balance sheet for
property, plant, and equipment. Prepare a horizontal analysis of
Delta’s property, plant, and equipment for 2012 and 2013. Next,
calculate the asset turnover ratio, return on asset ratio, and the debt to
total assets ratio. Based on your calculations, indicate the conclusions
that you can draw, based on the changes in property, plant, and
equipment.
Determine the method or methods of depreciation that Delta Airlines
uses to depreciate its property, plant, and equipment. Suggest three (3)
alternative methods that Delta Airlines could use in order to
depreciate assets. Based on your suggestions, propose the method that
Delta Airlines could use in order to improve the reporting of its
property, plant and equipment. Provide a rationale for your response.
Analyze the information disclosed in Delta Airlines’ notes to their
financial statements on property, plant, and equipment. Recommend
additional data that Delta Airlines could include that would be useful
to potential investors and creditors.
Use at least three (3) quality academic resources in this assignment.
Note: Wikipedia and other Websites do not qualify as academic
resources.
Your assignment must follow these formatting requirements:
Be typed, double spaced, using Times New Roman font (size 12),
with one-inch margins on all sides; citations and references must
follow APA or school-specific format. Check with your professor for
any additional instructions.
Include a cover page containing the title of the assignment, the
student’s name, the professor’s name, the course title, and the date.
The cover page and the reference page are not included in the
required assignment page length.
The specific course learning outcomes associated with this
assignment are:
Demonstrate, analyze, and explain the proper accounting for
acquisition and valuation of property, plant, and equipment;

valuation; costs subsequent to acquisition; and disposition of plant
assets.
Demonstrate, analyze, and explain the proper accounting for
depreciation, impairments, and depletion.
Use technology and information resources to research issues in
intermediate accounting.
Write clearly and concisely about intermediate accounting using
proper writing mechanics.
**************************************
1) Teton Corporation issued $704,000 of 9% bonds on November
1, 2014, for $745,018. The bonds were dated November 1, 2014, and
mature in 8 years, with interest payable each May 1 and November 1.
Teton uses the effective-interest method with an effective rate of 8%.
Prepare Teton’s December 31, 2014, adjusting entry. (Round answers
to 0 decimal places, e.g. 38,548. If no entry is required, select "No
Entry" for the account titles and enter 0 for the amounts. Credit
account titles are automatically indented when amount is entered. Do
not indent manually.)
2) On January 1, 2014, Henderson Corporation redeemed
$572,100 of bonds at 97. At the time of redemption, the unamortized
premium was $17,163 and unamortized bond issue costs were $5,721.
Prepare the corporation’s journal entry to record the reacquisition of
the bonds. (If no entry is required, select "No Entry" for the account

titles and enter 0 for the amounts. Credit account titles are
manually.)
3) Shlee Corporation issued a 5-year, $70,300, zero-interest-
bearing note to Garcia Company on January 1, 2014, and received
cash of $70,300. In addition, Shlee agreed to sell merchandise to
Garcia at an amount less than regular selling price over the 5-year
period. The market rate of interest for similar notes is 12%.
Prepare Shlee Corporation’s January 1 journal entry. (Round answers
to 0 decimal places, e.g. 38,548. If no entry is required, select "No
Entry" for the account titles and enter 0 for the amounts. Credit
not indent manually.)
4) The following items are found in the financial statements.
Indicate how each of these items should be classified in the financial
statements.
Classification
(a) Discount on bonds payable
(b) Interest expense (credit balance)
(c) Unamortized bond issue costs
(d) Gain on repurchase of debt
(e) Mortgage payable (payable in equal amounts over next
3 years)
(f) Debenture bonds payable (maturing in 5 years)
(g) Notes payable (due in 4 years)
(h) Premium on bonds payable

(i) Bonds payable (due in 3 years)
5) On June 30, 2014, Mischa Auer Company issued $4,166,000
face value of 13%, 20-year bonds at $4,479,407, a yield of 12%. Auer
uses the effective-interest method to amortize bond premium or
discount. The bonds pay semiannual interest on June 30 and
December 31.
(a) Prepare the journal entries to record the following transactions.
(Round answers to 0 decimal places, e.g. 38,548. If no entry is
(b) Show the proper balance sheet presentation for the liability for
bonds payable on the December 31, 2015, balance sheet. (Round
answers to 0 decimal places, e.g. 38,548.)
(c) Provide the answers to the following questions.
6) Fallen Company commonly issues long-term notes payable to
its various lenders. Fallen has had a pretty good credit rating such that
its effective borrowing rate is quite low (less than 8% on an annual
basis). Fallen has elected to use the fair value option for the long-term
notes issued to Barclay’s Bank and has the following data related to
the carrying and fair value for these notes.
Carrying Value Fair Value
December 31, 2014 $56,930 $56,930
December 31, 2015 46,660 45,060
December 31, 2016 38,850 40,980
(a) Prepare the journal entry at December 31 (Fallen’s year-end) for
2014, 2015, and 2016, to record the fair value option for these notes.
(If no entry is required, select "No Entry" for the account titles and
enter 0 for the amounts.Credit account titles are automatically
indented when amount is entered. Do not indent manually.)

(b) At what amount will the note be reported on Fallen’s 2015 balance
sheet?
Note to be reported on Fallen’s 2015 balance sheet $
(c) What is the effect of recording the fair value option on these notes
on Fallen’s 2016 income?
The effect of recording the fair value option would result in
unrealized holding
7) Holiday Company issued its 7%, 25-year mortgage bonds in the
principal amount of $3,019,000 on January 2, 2000, at a discount of
$158,000, which it proceeded to amortize by charges to expense over
the life of the issue on a straight-line basis. The indenture securing the
issue provided that the bonds could be called for redemption in total
but not in part at any time before maturity at 104% of the principal
amount, but it did not provide for any sinking fund.
On December 18, 2014, the company issued its 11%, 20-year
debenture bonds in the principal amount of $4,277,000 at 101, and the
proceeds were used to redeem the 7%, 25-year mortgage bonds on
January 2, 2015. The indenture securing the new issue did not provide
for any sinking fund or for redemption before maturity.
(a) Prepare journal entries to record the issuance of (1) the 11% bonds
and (2) the redemption of the 7% bonds. (If no entry is required,
select "No Entry" for the account titles and enter 0 for the amounts.
Credit account titles are automatically indented when amount is
entered. Do not indent manually.)
8) Under IFRS, bond issuance costs, including the printing costs
and legal fees associated with the issuance, should be:
expensed in the period when the debt is issued.
recorded as a reduction in the carrying value of bonds payable.

accumulated in a deferred charge account and amortized over
the life of the bonds.
reported as an expense in the period the bonds mature or are
retired.
9) Which of the following is stated correctly?
Current liabilities follow non-current liabilities on the
statement of financial position under GAAP but non-current liabilities
follow current liabilities under IFRS.
IFRS does not treat debt modifications as extinguishments of
debt.
Under GAAP, bonds payable is recorded at the face amount
and any premium or discount is recorded in a separate account. Under
IFRS, bonds payable is recorded at the carrying value so no separate
premium or discount accounts are used.
Bond issuance costs are recorded as a reduction of the
carrying value of the debt under GAAP but are recorded as an asset
and amortized to expense over the term of the debt under IFRS.
10) On January 1, Patterson Inc. issued $5,000,000, 9% bonds for
$4,695,000. The market rate of interest for these bonds is 10%.
Interest is payable annually on December 31. Patterson uses the
effectiveinterest method of amortizing bond discount. At the end of
the first year, Patterson should report bonds payable of:
11) On January 1, Martinez Inc. issued $3,000,000, 11% bonds for
$3,195,000. The market rate of interest for these bonds is 10%.
Interest is payable annually on December 31. Martinez uses the
effectiveinterest method of amortizing bond premium. At the end of
the first year, Martinez should report bonds payable of:
**************************************
ACC 304 Week 9 Chapter 13 and Chapter 14
Quiz (All Possible Questions)

Week 9 Quiz 5: Chapter 13, Quiz 6: Chapter 14
CURRENT LIABILITIES AND CONTINGENCIES
1. A zero-interest-bearing note payable that is issued at a discount
will not result in any interest expense being recognized.
2. Dividends in arrears on cumulative preferred stock should be
recorded as a current liability.
3. Magazine subscriptions and airline ticket sales both result in
unearned revenues.
4. Discount on Notes Payable is a contra account to Notes Payable
on the balance sheet.
5. All long-term debt maturing within the next year must be
classified as a current liability on the balance sheet.
6. A short-term obligation can be excluded from current liabilities
if the company intends to refinance it on a long-term basis.

7. Many companies do not segregate the sales tax collected and the
amount of the sale at the time of the sale.
8. A company must accrue a liability for sick pay that accumulates
but does not vest.
9. Companies report the amount of social security taxes withheld
from employees as well as the companies’ matching portion as
current liabilities until they are remitted.
10. Accumulated rights exist when an employer has an obligation to
make payment to an employee even after terminating his
employment.
11. Companies should recognize the expense and related liability for
compensated absences in the year earned by employees.
12. Companies should accrue an estimated loss from a loss
contingency if information available prior to the issuance of financial
statements indicates that it is probable that a liability has been
incurred.
13. A company discloses gain contingencies in the notes only when
a high probability exists for realizing them.
14. The expected profit from a sales type warranty that covers
several years should all be recognized in the period the warranty is
sold.
15. The fair value of an asset retirement obligation is recorded as
both an increase to the related asset and a liability.
16. The cause for litigation must have occurred on or before the date
of the financial statements to report a liability in the financial
statements.

17. Under the expense warranty approach, companies charge
warranty costs only to the period in which they comply with the
warranty.
18. Prepaid insurance should be included in the numerator when
computing the acid-test (quick) ratio.
19. Paying a current liability with cash will always reduce the
current ratio.
20. Current liabilities are usually recorded and reported in financial
statements at their full maturity value.
21. Liabilities are
a. any accounts having credit balances after closing entries are made.
b. deferred credits that are recognized and measured in conformity
with generally accepted accounting principles.
c. obligations to transfer ownership shares to other entities in the
future.
d. obligations arising from past transactions and payable in assets or
services in the future.

22. Which of the following is a current liability?
a. A long-term debt maturing currently, which is to be paid with cash
in a sinking fund
b. A long-term debt maturing currently, which is to be retired with
proceeds from a new debt issue
c. A long-term debt maturing currently, which is to be converted into
common stock
d. None of these
23. Which of the following is true about accounts payable?
1. Accounts payable should not be reported at their present value.
2. When accounts payable are recorded at the net amount, a Purchase
Discounts account will be used.
3. When accounts payable are recorded at the gross amount, a
Purchase Discounts Lost account will be used.
a. 1
b. 2
c. 3
d. Both 2 and 3 are true.
24. Among the short-term obligations of Lance Company as of
December 31, the balance sheet date, are notes payable totaling
$250,000 with the Madison National Bank. These are 90-day notes,
renewable for another 90-day period. These notes should be
classified on the balance sheet of Lance Company as

a. current liabilities.
b. deferred charges.
c. long-term liabilities.
d. intermediate debt.
25. Which of the following is not true about the discount on short-
term notes payable?
a. The Discount on Notes Payable account has a debit balance.
b. The Discount on Notes Payable account should be reported as an
asset on the balance sheet.
c. When there is a discount on a note payable, the effective interest
rate is higher than the stated discount rate.
d. All of these are true.
26. Which of the following may be a current liability?
a. Withheld Income Taxes
b. Deposits Received from Customers
c. Deferred Revenue
d. All of these
27. Which of the following items is a current liability?
a. Bonds (for which there is an adequate sinking fund properly
classified as a long-term investment) due in three months.
b. Bonds due in three years.

c. Bonds (for which there is an adequate appropriation of retained
earnings) due in eleven months.
d. Bonds to be refunded when due in eight months, there being no
doubt about the marketability of the refunding issue.
28. Which of the following should not be included in the current
liabilities section of the balance sheet?
a. Trade notes payable
b. Short-term zero-interest-bearing notes payable
c. The discount on short-term notes payable
d. All of these are included
29. Which of the following is a current liability?
a. Preferred dividends in arrears
b. A dividend payable in the form of additional shares of stock
c. A cash dividend payable to preferred stockholders
d. All of these
30. Stock dividends distributable should be classified on the
a. income statement as an expense.
b. balance sheet as an asset.

c. balance sheet as a liability.
d. balance sheet as an item of stockholders' equity.
31. Of the following items, the only one which should not be
classified as a current liability is
a. current maturities of long-term debt.
b. sales taxes payable.
c. short-term obligations expected to be refinanced.
d. unearned revenues.
32. An account which would be classified as a current liability is
a. dividends payable in the company's stock.
b. accounts payable—debit balances.
c. losses expected to be incurred within the next twelve months in
excess of the company's insurance coverage.
d. none of these.
33. Which of the following is a characteristic of a current liability
but not a long-term liability?
a. Unavoidable obligation.
b. Present obligation that entails settlement by probable future
transfer or use of cash, goods, or services.
c. Liquidation is reasonably expected to require use of existing
resources classified as current assets or create other current liabilities.

d. Transaction or other event creating the liability has already
occurred.
34. Which of the following is not considered a part of the
definition of a liability?
a. Unavoidable obligation.
b. Transaction or other event creating the liability has already
occurred.
c. Present obligation that entails settlement by probable future
transfer or use of cash, goods, or services.
d. Liquidation is reasonably expected to require use of existing
resources classified as current assets or create other current liabilities.
35. Why is the liability section of the balance sheet of primary
importance to bankers?
a. To evaluate the entity's credit quality.
b. To assist in understanding the entity's liquidity.
c. To better understand sources of repayment.
d. To evaluate operating efficiency.
36. What is the relationship between current liabilities and a
company's operating cycle?
a. Liquidation of current liabilities is reasonably expected within the
company's operating cycle (or one year if less).
b. Current liabilities are the result of operating transactions.

c. Current liabilities can't exceed the amount incurred in one
operating cycle.
d. There is no relationship between the two.
37. What is the relationship between present value and the concept
of a liability?
a. Present values are used to measure certain liabilities.
b. Present values are not used to measure liabilities.
c. Present values are used to measure all liabilities.
d. Present values are only used to measure long-term liabilities.
38. What is a discount as it relates to zero-interest-bearing notes
payable?
a. The discount represents the lender's costs to underwrite the note.
b. The discount represents the credit quality of the borrower.
c. The discount represents the cost of borrowing.
d. The discount represents the allowance for uncollectible amounts.
39. Where is debt callable by the creditor reported on the debtor's
financial statements?
a. Long-term liability.
b. Current liability if the creditor intends to call the debt within the
year, otherwise a long-term liability.

c. Current liability if it is probable that creditor will call the debt
within the year, otherwise a long-term liability.
d. Current liability
40. Which of the following is not a condition necessary to exclude
a short-term obligation from current liabilities?
a. Intend to refinance the obligation on a long-term basis.
b. Obligation must be due with one year.
c. Demonstrate the ability to complete the refinancing.
d. Subsequently refinance the obligation on a long-term basis.
41. Which of the following does not demonstrate evidence
regarding the ability to consummate a refinancing of short-term debt?
a. Management indicated that they are going to refinance the
obligation.
b. Actually refinance the obligation.
c. Have capacity under existing financing agreements that can be
used to refinance the obligation.
d. Enter into a financing agreement that clearly permits the entity to
refinance the obligation.
42. A company has not declared a dividend on its cumulative
preferred stock for the past three years. What is the required
accounting treatment or disclosure in this situation?

a. Record a liability for cumulative amount of preferred stock
dividends not declared.
b. Disclose the amount of the dividends in arrears.
c. Record a liability for the current year's dividends only.
d. No disclosure or recognition is required.
43. Which of the following situations may give rise to unearned
revenue?
a. Providing trade credit to customers.
b. Selling inventory.
c. Selling magazine subscriptions.
d. Providing manufacturer warranties.
44. Which of the following statements is correct?
a. A company may exclude a short-term obligation from current
liabilities if the firm intends to refinance the obligation on a long-term
basis.
b. A company may exclude a short-term obligation from current
liabilities if the firm can demonstrate an ability to consummate a
refinancing.
c. A company may exclude a short-term obligation from current
liabilities if it is paid off after the balance sheet date and subsequently
replaced by long-term debt before the balance sheet is issued.
d. None of these.

45. The ability to consummate the refinancing of a short-term
obligation may be demonstrated by
a. actually refinancing the obligation by issuing a long-term
obligation after the date of the balance sheet but before it is issued.
b. entering into a financing agreement that permits the enterprise to
refinance the debt on a long-term basis.
c. actually refinancing the obligation by issuing equity securities
after the date of the balance sheet but before it is issued.
d. all of these.
46. Which of the following statements is false?
a. A company may exclude a short-term obligation from current
liabilities if the firm intends to refinance the obligation on a long-term
basis and demonstrates an ability to complete the refinancing.
b. Cash dividends should be recorded as a liability when they are
declared by the board of directors.
c. Under the cash basis method, warranty costs are charged to
expense as they are paid.
d. FICA taxes withheld from employees' payroll checks should never
be recorded as a liability since the employer will eventually remit the
amounts withheld to the appropriate taxing authority.
47. Which of the following is not a correct statement about sales
taxes?
a. Sales taxes are an expense of the seller.
b. Many companies record sales taxes in the sales account.

c. If sales taxes are included in the sales account, the first step to find
the amount of sales taxes is to divide sales by 1 plus the sales tax rate.
d. All of these are true.
S48. If a short-term obligation is excluded from current liabilities
because of refinancing, the footnote to the financial statements
describing this event should include all of the following information
except
a. a general description of the financing arrangement.
b. the terms of the new obligation incurred or to be incurred.
c. the terms of any equity security issued or to be issued.
d. the number of financing institutions that refused to refinance the
debt, if any.
S49. In accounting for compensated absences, the difference
between vested rights and accumulated rights is
a. vested rights are normally for a longer period of employment than
are accumu-lated rights.
b. vested rights are not contingent upon an employee's future service.
c. vested rights are a legal and binding obligation on the company,
whereas accumulated rights expire at the end of the accounting period
in which they arose.
d. vested rights carry a stipulated dollar amount that is owed to the
employee; accumulated rights do not represent monetary
compensation.

P50. An employee's net (or take-home) pay is determined by gross
earnings minus amounts for income tax withholdings and the
employee's
a. portion of FICA taxes and unemployment taxes.
b. and employer's portion of FICA taxes, and unemployment taxes.
c. portion of FICA taxes, unemployment taxes, and any voluntary
deductions.
d. portion of FICA taxes and any voluntary deductions.
51. Which of these is not included in an employer's payroll tax
expense?
a. F.I.C.A. (social security) taxes
b. Federal unemployment taxes
c. State unemployment taxes
d. Federal income taxes
52. Which of the following is a condition for accruing a liability
for the cost of compensation for future absences?
a. The obligation relates to the rights that vest or accumulate.
b. Payment of the compensation is probable.
c. The obligation is attributable to employee services already
performed.
d. All of these are conditions for the accrual.

53. A liability for compensated absences such as vacations, for
which it is expected that employees will be paid, should
a. be accrued during the period when the compensated time is
expected to be used by employees.
b. be accrued during the period following vesting.
c. be accrued during the period when earned.
d. not be accrued unless a written contractual obligation exists.
54. The amount of the liability for compensated absences should
be based on
1. the current rates of pay in effect when employees earn the right to
compensated absences.
2. the future rates of pay expected to be paid when employees use
compensated time.
3. the present value of the amount expected to be paid in future
periods.
a. 1.
b. 2.
c. 3.
d. Either 1 or 2 is acceptable.
55. What are compensated absences?
a. Unpaid time off.

b. A form of healthcare.
c. Payroll deductions.
d. Paid time off.
56. Which gives rise to the requirement to accrue a liability for the
cost of compensated absences?
a. Payment is probable.
b. Employee rights vest or accumulate.
c. Amount can be reasonably estimated.
57. Under what conditions is an employer required to accrue a
liability for sick pay?
a. Sick pay benefits can be reasonably estimated.
b. Sick pay benefits vest.
c. Sick pay benefits equal 100% of the pay.
d. Sick pay benefits accumulate.
58. Which of the following taxes does not represent a common
payroll deduction?
a. Federal income taxes.
b. FICA taxes.
c. State unemployment taxes.

d. State income taxes.
59. What is a contingency?
a. An existing situation where certainty exists as to a gain or loss that
will be resolved when one or more future events occur or fail to
occur.
b. An existing situation where uncertainty exists as to possible loss
that will be resolved when one or more future events occur.
c. An existing situation where uncertainty exists as to possible gain
or loss that will not be resolved in the foreseeable future.
d. An existing situation where uncertainty exists as to possible gain
or loss that will be resolved when one or more future events occur or
fail to occur.
60. When is a contingent liability recorded?
a. When the amount can be reasonably estimated.
b. When the future events are probable to occur and the amount can
be reasonably estimated.
c. When the future events are probable to occur.
d. When the future events will possibly occur and the amount can be
reasonably estimated.
**************************************

1) Ravonette Corporation issued 375 shares of $14 par value
common stock and 128 shares of $51 par value preferred stock for a
lump sum of $17,118. The common stock has a market price of $20
per share, and the preferred stock has a market price of $90 per share.
Prepare the journal entry to record the issuance. (Round answers to 0
decimal places, e.g., 1520. Credit account titles are automatically
indented when amount is entered. Do not indent manually. If no entry
is required, select "No Entry" for the account titles and enter 0 for the
amounts.)
2) nArantxa Corporation has outstanding 20,110 shares of $5 par
value common stock. On August 1, 2014, Arantxa reacquired 370
shares at $86 per share. On November 1, Arantxa reissued the 370
shares at $78 per share. Arantxa had no previous treasury stock
transactions.
Prepare Arantxa’s journal entries to record these transactions using
the cost method. (Credit account titles are automatically indented
when amount is entered. Do not indent manually. If no entry is
amounts.)
3) Cole Inc. owns shares of Marlin Corporation stock classified as
an available-for-sale investment. At December 31, 2014, the
available-for-sale securities were carried in Cole’s accounting records
at their cost of $886,600, which equals their fair value. On September
21, 2015, when the fair value of the securities was $1,250,300, Cole
declared a property dividend whereby the Marlin securities are to be

distributed on October 23, 2015 to stockholders of record on October
8, 2015.
Prepare all journal entries necessary on those three dates. (Credit
not indent manually. If no entry is required, select "No Entry" for the
account titles and enter 0 for the amounts.)
4) Faith Evans Corporation is a regional company which is an SEC
registrant. The corporation’s securities are thinly traded on NASDAQ.
Faith Evans Corp. has issued 11,770 units. Each unit consists of a
$589 par, 12% subordinated debenture and 12 shares of $6 par
common stock. The investment banker has retained 471 units as the
underwriting fee. The other 11,299 units were sold to outside
investors for cash at $1,036 per unit. Prior to this sale, the 2-week ask
price of common stock was $47 per share. Twelve percent is a
reasonable market yield for the debentures, and therefore the par
value of the bonds is equal to the fair value.
Prepare the journal entry to record Evans’ transaction, under the
following conditions. (Round answers to 0 decimal places, e.g.
$38,487. Credit account titles are automatically indented when
amount is entered. Do not indent manually. If no entry is required,
select "No Entry" for the account titles and enter 0 for the amounts.)
(1) Employing the incremental method.
(2) Employing the proportional method, assuming the
recent price quote on the common stock reflects fair value.
4) Lotoya Davis Corporation has 11.01 million shares of common
stock issued and outstanding. On June 1, the board of directors voted
an 64 cents per share cash dividend to stockholders of record as of
June 14, payable June 30.
(a) Prepare the journal entry for each of the dates above assuming the
dividend represents a distribution of earnings. (Credit account titles
manually. If no entry is required, select "No Entry" for the account
titles and enter 0 for the amounts.)

(b) How would the entry differ if the dividend were a liquidating
dividend? (Credit account titles are automatically indented when
amount is entered. Do not indent manually. If no entry is required,
select "No Entry" for the account titles and enter 0 for the amounts.)
5) Shown below is the liabilities and stockholders’ equity section
of the balance sheet for Jana Kingston Company and Mary Ann
Benson Company. Each has assets totaling $4,517,200.
Jana Kingston Co. Mary Ann Benson Co.
Current liabilities $315,000 Current
liabilities $815,000
Long-term debt, 8% 1,306,000 Common stock
($20 par) 2,990,000
Common stock ($20 par) 2,184,000 Retained
earnings (Cash dividends, $327,900) 712,200
Retained earnings (Cash dividends, $226,100) 712,200
$4,517,200 $4,517,200
For the year, each company has earned the same income before
interest and taxes.
Jana Kingston Co. Mary Ann Benson Co.
Income before interest and taxes $1,213,000
$1,213,000
Interest expense 104,480 0
1,108,520 1,213,000
Income taxes (45%) 498,834 545,850
Net income $609,686 $667,150
At year end, the market price of Kingston’s stock was $101 per share,
and Benson’s was $63.50. Assume balance sheet amounts are
representative for the entire year.
6) Hatch Company has two classes of capital stock outstanding:
8%, $20 par preferred and $5 par common. At December 31, 2014,
the following accounts were included in stockholders’ equity.
Preferred Stock, 156,500 shares $ 3,130,000

Common Stock, 2,083,000 shares 10,415,000
Paid-in Capital in Excess of Par—Preferred Stock 201,400
Paid-in Capital in Excess of Par—Common Stock
27,460,000
Retained Earnings 4,599,000
7) The accounting for treasury stock retirements under IFRS
requires
8) The Revaluation Surplus of IFRS is
9) Under IFRS compliance requirements the Revaluation Surplus
is
10) The equity section of the statement of financial position begins
with:
**************************************
ACC 304 Week 10 Chapter 15 Quiz (All
Possible Questions)
STOCKHOLDERS’ EQUITY

1. A corporation is incorporated in only one state regardless of
the number of states in which it operates.
2. The preemptive right allows stockholders the right to vote for
directors of the company.
3. Common stock is the residual corporate interest that bears the
ultimate risks of loss.
4. Earned capital consists of additional paid-in capital and
retained earnings.
5. True no-par stock should be carried in the accounts at issue
price without any additional paid-in capital reported.
6. Companies allocate the proceeds received from a lump-sum
sale of securities based on the securities’ par values.
7. Companies should record stock issued for services or noncash
property at either the fair value of the stock issued or the fair value of
the consideration received.
8. Treasury stock is a company’s own stock that has been
reacquired and retired
9. The cost method records all transactions in treasury shares at
their cost and reports the treasury stock as a deduction from capital
stock.
10. When a corporation sells treasury stock below its cost, it
usually debits the difference between cost and selling price to Paid-in
Capital from Treasury Stock.

11. Participating preferred stock requires that if a company fails to
pay a dividend in any year, it must make it up in a later year before
paying any common dividends.
12. Callable preferred stock permits the corporation at its option to
redeem the outstanding preferred shares at stipulated prices.
13. The laws of some states require that corporations restrict their
legal capital from distribution to stockholders.
14. The SEC requires companies to disclose their dividend policy
in their annual report.
15. All dividends, except for liquidating dividends, reduce the
total stockholders’ equity of a corporation
16. Dividends payable in assets of the corporation other than cash
are called property dividends or dividends in kind.
17. When a stock dividend is less than 20-25 percent of the
common stock outstanding, a company is required to transfer the fair
value of the stock issued from retained earnings.
18. Stock splits and large stock dividends have the same effect on
a company’s retained earnings and total stockholders’ equity.
19. The rate of return on common stock equity is computed by
dividing net income by the average common stockholders’ equity.
20. The payout ratio is determined by dividing cash dividends
paid to common stockholders by net income available to common
stockholders.
True-False Answers—Conceptual

21. The residual interest in a corporation belongs to the
a. management.
b. creditors.
c. common stockholders.
d. preferred stockholders.
22. The pre-emptive right of a common stockholder is the right to
a. share proportionately in corporate assets upon liquidation.
b. share proportionately in any new issues of stock of the same class.
c. receive cash dividends before they are distributed to preferred
stockholders.
d. exclude preferred stockholders from voting rights.
23. The pre-emptive right enables a stockholder to
a. share proportionately in any new issues of stock of the same class.
b. receive cash dividends before other classes of stock without the
pre-emptive right.
c. sell capital stock back to the corporation at the option of the
stockholder.

d. receive the same amount of dividends on a percentage basis as the
preferred stockholders.
S24. In a corporate form of business organization, legal capital is
best defined as
a. the amount of capital the state of incorporation allows the
company to accumulate over its existence.
b. the par value of all capital stock issued.
c. the amount of capital the federal government allows a corporation
to generate.
d. the total capital raised by a corporation within the limits set by the
Securities and Exchange Commission.
S25. Stockholders of a business enterprise are said to be the
residual owners. The term residual owner means that shareholders
a. are entitled to a dividend every year in which the business earns a
profit.
b. have the rights to specific assets of the business.
c. bear the ultimate risks and uncertainties and receive the benefits of
enterprise ownership.
d. can negotiate individual contracts on behalf of the enterprise.
26. Total stockholders' equity represents
a. a claim to specific assets contributed by the owners.
b. the maximum amount that can be borrowed by the enterprise.

c. a claim against a portion of the total assets of an enterprise.
d. only the amount of earnings that have been retained in the
business.
27. A primary source of stockholders' equity is
a. income retained by the corporation.
b. appropriated retained earnings.
c. contributions by stockholders.
d. both income retained by the corporation and contributions by
stockholders.
28. Stockholders' equity is generally classified into two major
categories:
a. contributed capital and appropriated capital.
b. appropriated capital and retained earnings.
c. retained earnings and unappropriated capital.
d. earned capital and contributed capital.
29. The accounting problem in a lump sum issuance is the
allocation of proceeds between the classes of securities. An
acceptable method of allocation is the
a. pro forma method.
b. proportional method.
c. incremental method.

d. either the proportional method or the incremental method.
30. When a corporation issues its capital stock in payment for
services, the least appropriate basis for recording the transaction is the
a. market value of the services received.
b. par value of the shares issued.
c. market value of the shares issued.
d. Any of these provides an appropriate basis for recording the
transaction.
31. Direct costs incurred to sell stock such as underwriting costs
should be accounted for as
1. a reduction of additional paid-in capital.
2. an expense of the period in which the stock is issued.
3. an intangible asset.
a. 1
b. 2
c. 3
d. 1 or 3
32. A "secret reserve" will be created if
a. inadequate depreciation is charged to income.
b. a capital expenditure is charged to expense.

c. liabilities are understated.
d. stockholders' equity is overstated.
P33. Which of the following represents the total number of shares
that a corporation may issue under the terms of its charter?
a. authorized shares
b. issued shares
c. unissued shares
d. outstanding shares
S34. Stock that has a fixed per-share amount printed on each stock
certificate is called
a. stated value stock.
b. fixed value stock.
c. uniform value stock.
d. par value stock.
S35. Which of the following is not a legal restriction related to
profit distributions by a corporation?
a. The amount distributed to owners must be in compliance with the
state laws governing corporations.
b. The amount distributed in any one year can never exceed the net
income reported for that year.

c. Profit distributions must be formally approved by the board of
directors.
d. Dividends must be in full agreement with the capital stock
contracts as to preferences and participation.
S36. In January 2012, Finley Corporation, a newly formed
company, issued 10,000 shares of its $10 par common stock for $15
per share. On July 1, 2012, Finley Corporation reacquired 1,000
shares of its outstanding stock for $12 per share. The acquisition of
these treasury shares
a. decreased total stockholders' equity.
b. increased total stockholders' equity.
c. did not change total stockholders' equity.
d. decreased the number of issued shares.
P37. Treasury shares are
a. shares held as an investment by the treasurer of the corporation.
b. shares held as an investment of the corporation.
c. issued and outstanding shares.
d. issued but not outstanding shares.
38. When treasury stock is purchased for more than the par value
of the stock and the cost method is used to account for treasury stock,
what account(s) should be debited?
a. Treasury stock for the par value and paid-in capital in excess of
par for the excess of the purchase price over the par value.

b. Paid-in capital in excess of par for the purchase price.
c. Treasury stock for the purchase price.
d. Treasury stock for the par value and retained earnings for the
excess of the purchase price over the par value.
39. ―Gains" on sales of treasury stock (using the cost method)
should be credited to
a. paid-in capital from treasury stock.
b. capital stock.
c. retained earnings.
d. other income.
40. Porter Corp. purchased its own par value stock on January 1,
2012 for $20,000 and debited the treasury stock account for the
purchase price. The stock was subsequently sold for $12,000. The
$8,000 difference between the cost and sales price should be recorded
as a deduction from
a. additional paid-in capital to the extent that previous net "gains"
from sales of the same class of stock are included therein; otherwise,
from retained earnings.
b. additional paid-in capital without regard as to whether or not there
have been previous net "gains" from sales of the same class of stock
included therein.
c. retained earnings.
d. net income.

41. How should a "gain" from the sale of treasury stock be
reflected when using the cost method of recording treasury stock
transactions?
a. As ordinary earnings shown on the income statement.
b. As paid-in capital from treasury stock transactions.
c. As an increase in the amount shown for common stock.
d. As an extraordinary item shown on the income statement.
42. Which of the following best describes a possible result of
treasury stock transactions by a corporation?
a. May increase but not decrease retained earnings.
b. May increase net income if the cost method is used.
c. May decrease but not increase retained earnings.
d. May decrease but not increase net income.
43. Which of the following features of preferred stock makes the
security more like debt than an equity instrument?
a. Participating
b. Voting
c. Redeemable
d. Noncumulative

44. The cumulative feature of preferred stock
a. limits the amount of cumulative dividends to the par value of the
preferred stock.
b. requires that dividends not paid in any year must be made up in a
later year before dividends are distributed to common shareholders.
c. means that the shareholder can accumulate preferred stock until it
is equal to the par value of common stock at which time it can be
converted into common stock.
d. enables a preferred stockholder to accumulate dividends until they
equal the par value of the stock and receive the stock in place of the
cash dividends.
P45. According to the FASB, redeemable preferred stock should be
a. included with common stock.
b. included as a liability.
c. excluded from the stockholders’ equity heading.
d. included as a contra item in stockholders' equity.
S46. Cumulative preferred dividends in arrears should be shown in
a corporation's balance sheet as
a. an increase in current liabilities.
b. an increase in stockholders' equity.
c. a footnote.

d. an increase in current liabilities for the current portion and long-
term liabilities for the long-term portion.
47. At the date of the financial statements, common stock shares
issued would exceed common stock shares outstanding as a result of
the
a. declaration of a stock split.
b. declaration of a stock dividend.
c. purchase of treasury stock.
d. payment in full of subscribed stock.
48. An entry is not made on the
a. date of declaration.
b. date of record.
c. date of payment.
d. An entry is made on all of these dates.
49. Cash dividends are paid on the basis of the number of shares
a. authorized.
b. issued.
c. outstanding.
d. outstanding less the number of treasury shares.

50. Which of the following statements about property dividends is
not true?
a. A property dividend is usually in the form of securities of other
companies.
b. A property dividend is also called a dividend in kind.
c. The accounting for a property dividend should be based on the
carrying value (book value) of the nonmonetary assets transferred.
d. All of these statements are true.
51. Houser Corporation owns 4,000,000 shares of stock in Baha
Corporation. On December 31, 2012, Houser distributed these shares
of stock as a dividend to its stockholders. This is an example of a
a. property dividend.
b. stock dividend.
c. liquidating dividend.
d. cash dividend.
52. A dividend which is a return to stockholders of a portion of
their original investments is a
a. liquidating dividend.
b. property dividend.
c. liability dividend.

d. participating dividend.
53. A mining company declared a liquidating dividend. The
journal entry to record the declaration must include a debit to
a. Retained Earnings.
b. a paid-in capital account.
c. Accumulated Depletion.
d. Accumulated Depreciation.
54. If management wishes to "capitalize" part of the earnings, it
may issue a
a. cash dividend.
b. stock dividend.
c. property dividend.
d. liquidating dividend.
55. Which dividends do not reduce stockholders' equity?
a. Cash dividends
b. Stock dividends
c. Property dividends
d. Liquidating dividends

56. The declaration and issuance of a stock dividend larger than
25% of the shares previously outstanding
a. increases common stock outstanding and increases total
stockholders' equity.
b. decreases retained earnings but does not change total stockholders'
equity.
c. may increase or decrease paid-in capital in excess of par but does
not change total stockholders' equity.
d. increases retained earnings and increases total stockholders'
equity.
57. Quirk Corporation issued a 100% stock dividend of its
common stock which had a par value of $10 before and after the
dividend. At what amount should retained earnings be capitalized for
the additional shares issued?
a. There should be no capitalization of retained earnings.
b. Par value
c. Fair value on the declaration date
d. Fair value on the payment date
58. The issuer of a 5% common stock dividend to common
stockholders preferably should transfer from retained earnings to
contributed capital an amount equal to the
a. fair value of the shares issued.

b. book value of the shares issued.
c. minimum legal requirements.
d. par or stated value of the shares issued.
59. At the date of declaration of a small common stock dividend,
the entry should not include
a. a credit to Common Stock Dividend Payable.
b. a credit to Paid-in Capital in Excess of Par.
c. a debit to Retained Earnings.
d. All of these are acceptable.
60. The balance in Common Stock Dividend Distributable should
be reported as a(n)
a. deduction from common stock issued.
b. addition to capital stock.
c. current liability.
d. contra current asset.
**************************************

1) Archer Inc. issued $4,461,300 par value, 7% convertible bonds
at 99 for cash. If the bonds had not included the conversion feature,
they would have sold for 95.
Prepare the journal entry to record the issuance of the bonds. (Credit
2) On January 1, 2014, Barwood Corporation granted 5,360
options to executives. Each option entitles the holder to purchase one
share of Barwood’s $5 par value common stock at $50 per share at
any time during the next 5 years. The market price of the stock is $73
per share on the date of grant. The fair value of the options at the
grant date is $150,800. The period of benefit is 2 years.
Prepare Barwood’s journal entries for January 1, 2014, and December
31, 2014 and 2015. (Credit account titles are automatically indented
amounts.)
3) Tomba Corporation had 546,600 shares of common stock
outstanding on January 1, 2014. On May 1, Tomba issued 51,000
shares.
4) For each of the unrelated transactions described below, present
the entries required to record each transaction.
(Credit account titles are automatically indented when amount is
entered. Do not indent manually. If no entry is required, select "No
Entry" for the account titles and enter 0 for the amounts.)

5) Illiad Inc. has decided to raise additional capital by issuing
$176,300 face value of bonds with a coupon rate of 11%. In
discussions with investment bankers, it was determined that to help
the sale of the bonds, detachable stock warrants should be issued at
the rate of one warrant for each $100 bond sold. The value of the
bonds without the warrants is considered to be $139,570, and the
value of the warrants in the market is $24,630. The bonds sold in the
market at issuance for $156,000.
(a) What entry should be made at the time of the issuance of the
bonds and warrants? (Credit account titles are automatically indented
amounts.)
(b) Prepare the entry if the warrants were nondetachable. (Credit
6) Tweedie Company issues 10,500 shares of restricted stock to its
CFO, Mary Tokar, on January 1, 2014. The stock has a fair value of
$525,000 on this date. The service period related to this restricted
stock is 5 years. Vesting occurs if Tokar stays with the company until
December 31, 2018. The par value of the stock is $10. At December
31, 2014, the fair value of the stock is $481,300.
(a) Prepare the journal entries to record the restricted stock on January
1, 2014 (the date of grant), and December 31, 2015. (Credit account
titles are automatically indented when amount is entered. Do not
indent manually. If no entry is required, select "No Entry" for the
(b) On July 25, 2018, Tokar leaves the company. Prepare the journal
entry to account for this forfeiture. (Credit account titles are

manually. If no entry is required, select "No Entry" for the account
titles and enter 0 for the amounts.)
7) On January 1, 2015, Wilke Corp. had 501,000 shares of
common stock outstanding. During 2015, it had the following
transactions that affected the Common Stock account.
February 1 Issued 142,000 shares
March 1 Issued a 10% stock dividend
May 1 Acquired 115,000 shares of treasury stock
June 1 Issued a 3-for-1 stock split
October 1 Reissued 67,800 shares of treasury stock
a.)Determine the weighted-average number of shares outstanding as
of December 31, 2015.
b.)Assume that Wilke Corp. earned net income of $3,315,000 during
2015. In addition, it had 117,000 shares of 9%, $102 par
nonconvertible, noncumulative preferred stock outstanding for the
entire year. Because of liquidity considerations, however, the
company did not declare and pay a preferred dividend in 2015.
Compute earnings per share for 2015, using the weighted-average
number of shares determined in part (a
c.)Assume the same facts as in part (b), except that the preferred stock
was cumulative. Compute earnings per share for 2015. (Round answer
to 2 decimal places, e.g. $2.55.)
d.)Assume the same facts as in part (b), except that net income
included an extraordinary gain of $941,000 and a loss from
discontinued operations of $489,000. Both items are net of applicable
income taxes. Compute earnings per share for 2015. (Round answer
to 2 decimal places, e.g. $2.55.)
8) Amy Dyken, controller at Fitzgerald Pharmaceutical Industries,
a public company, is currently preparing the calculation for basic and
diluted earnings per share and the related disclosure for Fitzgerald’s

financial statements. Below is selected financial information for the
fiscal year ended June 30, 2014.
9) Under IFRS, how are convertible debt recorded?
10) Under IFRS, what is recorded as compensation expense for all
employee share-purchase plans?
11) Which of the following differs in GAAP and IFRS?
12) Florence Inc. issued 8,000, 5-year convertible bonds of $2,000
each for $4,000,000 at the beginning of 2012. The bonds have a stated
rate of interest of 9% and interest is payable annually. Each bond can
be convertible into 100 shares with a par value of $10. The market
rate of similar nonconvertible debt is 10%.
Determine the fair value of equity component using the ―with-and-
without‖ method.
was $100.
Swing High Inc. will credit Share Premium―Ordinary for:
**************************************

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