Professional Documents
Culture Documents
financial statements.
C. Unofficial interpretations and
practices regarding securities laws
disclosure requirements.
D. Guidelines for voluntary financial
projections.
[27] Source: CMA 1286 3-21
An external auditor's involvement with
Form 10-Q that is being prepared for filing
with the SEC most likely will consist of
A. An audit of the financial statements
included in Form 10-Q.
B. A compilation report on the financial
statements included in Form 10-Q.
C. A comfort letter that covers
stub-period financial data.
D. A review of the interim financial
statements included in Form 10-Q.
[28] Source: CMA 1286 3-20
Form 10-K is filed with the SEC to update
the information a company supplied when
filing a registration statement under the
Securities Exchange Act of 1934. Form
10-K is a report that is filed
A. Annually within 90 days of the end
of a company's fiscal year.
B. Semiannually within 30 days of the
end of a company's second and fourth
fiscal quarters.
C. Quarterly within 45 days of the end
of each quarter.
D. Monthly within 2 weeks of the end of
each month.
[29] Source: CMA 1286 3-22
SEC Form S-3 is an optional, short-form
registration statement that relies on the
incorporation by reference of periodic
reports required by the Securities Exchange
Act of 1934. Form S-3 offers substantial
savings in filing costs over other forms
since minimal disclosures are required in
the prospectus. The SEC permits the use of
Form S-3 only by those firms that have filed
periodic reports with the SEC for at least 3
presented.
D. The effect on the cash flow statement
for each period a cash flow statement is
presented.
[38] Source: CMA 1291 2-4
SFAS 47, Disclosure of Long-Term
Obligations, resulted in identifying
disclosure requirements for long-term
obligations as a group. The Financial
Accounting Standards Board believed that a
particular group of long-term obligations
frequently was not disclosed adequately.
Thus, this statement was specifically
addressed to
A. Loss contingencies.
B. Noncancelable purchase obligations.
C. Severance pay.
D. Pension plans.
[39] Source: CIA 0593 IV-26
Which of the following should be disclosed
in the summary of significant accounting
policies?
A. Valuation method used for
work-in-process inventory.
B. Interest capitalized for the period.
C. Adequacy of pension plan assets in
relation to vested benefits.
D. Depreciation charges for the period.
[40] Source: CMA 0693 2-27
Publicly traded companies must report all of
the following interim financial data except
A. Basic and diluted earnings per share
for each period presented.
B. Summarized information on sales,
income taxes, extraordinary items,
effect of change in accounting
principles, net income, and
comprehensive income.
C. A condensed balance sheet, income
statement, and statement of cash flows
for each interim period presented.
$4,000,000
400,000
2,000,000
500,000
1,200,000
B. Permanent accounts.
C. Temporary holding accounts.
D. Capital accounts.
[100] Source: Publisher
The income statement presents data for
primary and fully diluted EPS for which of
the following?
Discontinued
Operations
------------
Cumulative Effect
of Accounting
Changes
-----------------
Extraordinary
Items
-------------
A.
Yes
Yes
No
No
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
B.
C.
D.
A. Income statement.
B. Statement of retained earnings.
C. Statement of cash flows.
D. Balance sheet.
[130] Source: CMA 1295 2-5
A statement of cash flows is intended to
help users of financial statements
A. Evaluate a firm's liquidity, solvency,
and financial flexibility.
B. Evaluate a firm's economic
resources and obligations.
C. Determine a firm's components of
income from operations.
D. Determine whether insiders have
sold or purchased the firm's stock.
[131] Source: CMA 1288 4-19
Which of the following items is specifically
included in the body of a statement of cash
flows?
A. Operating and nonoperating cash
flow information.
B. Conversion of debt to equity.
C. Acquiring an asset through a capital
lease.
D. Purchasing a building by giving a
mortgage to the seller.
[132] Source: CIA 0592 IV-35
A financial statement includes all of the
following items: net income, depreciation,
operating activities, and financing activities.
What financial statement is this?
A. Balance sheet.
B. Income statement.
C. Statement of cash flows.
D. Statement of changes in equity.
[133] Source: CIA 1193 IV-33
Select the combination below that explains
(2)
Reflected on
Statement of
Cash Flows as a(n)
------------------
A.
Decrease
Financing outflow
Decrease
Operating outflow
No effect
Financing outflow
No effect
Operating outflow
B.
C.
D.
List B
------
Operating
Source
Financing
Use
A.
B.
C.
Investing
Use
Investing
Source
D.
Indirect
--------
A.
No
No
No
Yes
Yes
Yes
Yes
No
B.
C.
D.
(2)
Amortization of Premium
on Bonds Payable
-----------------------
A.
Add
Add
Add
Deduct
Deduct
Add
Deduct
Deduct
B.
C.
D.
$38,000
31,000
27,000
48,000
12,000
A. $29,000
B. $41,000
C. $79,000
D. $217,000
[149] Source: CIA 1188 IV-33
The following data were extracted from the
financial statements of a company for the
year ended December 31:
Net income
$70,000
Depreciation expense
14,000
Amortization of intangibles
1,000
Decrease in accounts receivable
2,000
Increase in inventories
9,000
Increase in accounts payable
4,000
Increase in plant assets
47,000
Increase in contributed capital
31,000
Decrease in short-term notes payable
55,000
There were no disposals of plant assets
during the year. Based on the above, a
statement of cash flows will report a net
increase in cash of
A. $11,000
B. $17,000
C. $54,000
D. $69,000
[150] Source: CMA 1294 2-20
The net income for Cypress Inc. was
$3,000,000 for the year ended December
31. Additional information is as follows:
D. $(150,000).
[159] Source: CMA 1285 3-7
The net amount of pretax gain (loss) related
to its equity securities that would have been
reported on Tilson Corporation's income
statement for December 31, Year 3 is
A. $25,000.
B. $(37,500).
C. $(60,000).
D. $125,000.
[160] Source: CMA 0690 4-23
The cost of goods sold for May under the
weighted average periodic method is
A. $29.25.
B. $47.40.
C. $48.75.
D. $49.00.
[161] Source: CMA 0690 4-24
The cost of goods sold for May under the
last-in, first-out (LIFO) perpetual method is
A. $46.00.
B. $48.75.
C. $49.00.
D. $51.00.
[162] Source: CMA 0690 4-25
The gross profit for May under first-in,
first-out (FIFO) periodic method is
A. $189.00.
B. $191.00.
C. $191.25.
D. $194.00.
[163] Source: CMA 0690 4-26
The gross profit for May under the moving
average perpetual inventory method is
A. $191.00.
B. $191.25.
C. $192.60.
D. $208.00.
[164] Source: CIA 1191 IV-34
A company offers its customers credit terms
of a 2% discount if paid within 10 days, or
the full balance is due within 30 days (2/10,
n/30). If some customers take advantage of
the cash discount and others do not, which
of the following accounts will appear on the
income statement if the net method of
recording receivables is employed?
Sales
Sales Discounts Sales Discounts
Discounts
Forfeited
Deferred
--------- --------------- --------------A.
Yes
No
Yes
No
No
No
No
Yes
No
Yes
Yes
No
B.
C.
D.
D. 212,500
[169] Source: CMA 1296 2-21
All of the following should be classified
under the operating section in a statement of
cash flows except a
A. Decrease in inventory.
B. Depreciation expense.
C. Decrease in prepaid insurance.
D. Purchase of land and building in
exchange for a long-term note.
[170] Source: CMA 1296 2-22
Which one of the following transactions
should be classified as a financing activity
in a statement of cash flows?
A. Purchase of equipment.
B. Purchase of treasury stock.
C. Sale of trademarks.
D. Payment of interest on a mortgage
note.
[171] Source: CMA 1296 2-23
All of the following should be classified as
investing activities except
A. Cash outflows to purchase
manufacturing equipment.
B. Cash inflows from the sale of bonds
of other entities.
C. Cash outflows to creditors for
interest.
D. Cash inflows from the sale of a
manufacturing plant.
[172] Source: CMA 1296 2-24
When using the indirect method to prepare a
statement of cash flows, which one of the
following should be deducted from net
income when determining net cash flows
from operating activities?
A. An increase in accrued liabilities.
B. Amortization of premiums on bonds
payable.
C. A loss on the sale of plant assets.
D. Depreciation expense.
[173] Source: CMA 0697 2-2
When preparing the statement of cash flows,
companies are required to report separately
as operating cash flows all of the following
except
A. Interest received on investments in
bonds.
B. Interest paid on the company's bonds.
C. Cash collected from customers.
D. Cash dividends paid on the
company's stock.
[174] Source: Publisher
The cost of goods manufactured (CGM) for
the year ended September 30, year 2 is
A. $484,000
B. $494,000
C. $504,000
D. $518,000
[175] Source: Publisher
The cost of goods sold (CGS) for the year
ended September 30, year 2 is
A. $500,000
B. $504,000
C. $508,000
D. $496,000
[176] Source: Publisher
The total value of inventory to be reported
on the balance sheet at September 30, year 2
is
A. $44,000
B. $70,000
C. $24,000
D. $138,000
[177] Source: Publisher
SFAS 128, Earnings per Share, requires
which of the following policies regarding
presentation of extraordinary items?
A. Earnings-per-share amounts should
be presented in a separate schedule.
B. Extraordinary items should be
presented as an aggregate amount.
C. Income taxes applicable to
extraordinary items should be presented
in a separate schedule.
D. Earnings-per-share amounts should
be presented on the face of the income
statement or in the notes.
[178] Source: Publisher
Karen's Crafts, Inc. has the following
accounts included in its December 31 trial
balance:
Accounts payable
$250,000
Discount on bonds payable
34,000
Wages payable
29,000
Interest payable
14,000
Bonds payable
(Issued 1/1/96; due 1/1/06) 500,000
Income taxes payable
26,000
What amount of current liabilities will be
reported on Karen's December 31 statement
of financial position?
A. $285,000
B. $319,000
C. $353,000
D. $819,000
[179] Source: Publisher
Perry Mansfield Corporation has the
following accounts included in its
December 31 trial balance:
Accounts receivable
Inventories
Patents
Prepaid insurance
Accounts payable
Cash
$110,000
250,000
90,000
19,500
72,000
28,000
B. $293,500
C. $310,000
D. $348,500
[189] Source: Publisher
Northern Exposure's net cash provided by
investing activities is
A. $185,000
B. $225,000
C. $285,000
D. $351,000
[190] Source: Publisher
Northern Exposure's net cash provided
(used) by financing activities is
A. $66,000
B. ($24,000)
C. ($84,000)
D. ($184,000)
[191] Source: CMA Samp Q2-7
Appalachian Outfitters Inc., a mail order
supplier of camping gear, is putting together
its current year statement of cash flow. A
comparison of the company's year-end
balance sheet with the prior year's balance
sheet shows the following changes from a
year ago.
Assets
-----Cash & Marketable Securities $ (600)
Accounts Receivable
200
Inventories
(100)
Gross Fixed Assets
4,600
Accumulated Depreciation
(500)
-----Total
$3,600
======
Liabilities & Net Worth
----------------------Accounts Payable
$ 250
Accruals
50
Long-term Note
(300)
Long-term Debt
1,400
Common Stock
0
Retained Earnings
Total
2,200
-----$3,600
======
$5,500 increase
2,100 decrease
1,400 decrease
1,800 increase
C. $549,000
D. $615,000
[197] Source: Publisher
Nelson Corporation has the following
accounts included in its December 31 trial
balance:
Trading securities
$ 22,000
Goodwill
152,000
Prepaid insurance
14,000
Patents
222,000
Franchises
130,000
Trademarks
20,000
What amount of intangible assets will be
reported on Nelson's December 31
statement of financial position?
A. $394,000
B. $524,000
C. $526,000
D. $538,000
[198] Source: Publisher
Waltco Manufacturing Corporation had net
sales of $1,980,000 and investment revenue
of $105,000 for the year. Its current
expenses were:
Costs of goods sold
$1,290,000
Selling expenses
290,000
Administrative expenses
221,000
Interest expense
96,000
Income tax expense
50,000
Waltco's income before taxes for the current
year is
A. $138,000
B. $179,000
C. $188,000
D. $284,000
[199] Source: Publisher
What is the amount of the operating cash
flow for a firm with $100,000 profit before
tax, $20,000 depreciation expense, and a
35% marginal tax rate?
A. $65,000
B. $85,000
C. $92,000
D. $98,000
[200] Source: CMA 1292 2-3
SFAC 5, Recognition and Measurement in
Financial Statements of Business
Enterprises, indicates that for an event to be
recognized in financial statements it must be
A. Relevant, reliable, and measurable.
B. Relevant, reliable, and useful.
C. Relevant, reliable, and timely.
D. Reliable, useful, and measurable.
[201] Source: Publisher
According to SFAC 2, Qualitative
Characteristics of Accounting Information,
an ancillary aspect of the primary
decision-specific quality of relevance is
A. Verifiability.
B. Timeliness.
C. Neutrality.
D. Comparability.
[202] Source: Publisher
According to SFAC 2, Qualitative
Characteristics of Accounting Information, a
secondary and interactive quality is
A. Materiality.
B. Understandability.
C. Comparability.
D. Conservatism.
[203] Source: Publisher
According to SFAC 2, Qualitative
Characteristics of Accounting Information,
what is "a prudent reaction to uncertainty to
try to ensure that uncertainty and risks
inherent in business situations are
adequately considered"?
A. Conservatism.
B. Comparability.
C. Consistency.
D. Neutrality.
[204] Source: Publisher
According to SFAC 6, Elements of
Financial Statements, which element is
found only in the financial statements of a
business enterprise?
A. Liabilities.
B. Assets.
C. Revenues.
D. Equity.
[205] Source: Publisher
What is included in comprehensive income
but excluded from net income?
A. Cumulative effects of a change in
accounting principle.
B. Extraordinary gains and losses.
C. Unrealized holding gains and losses
on available-for-sale securities.
D. Results of discontinued operations.
[206] Source: Publisher
Which element of financial statements is
defined as enhancements of assets or
settlements of liabilities related to an
entity's ongoing major or central operations?
A. Expenses.
B. Revenues.
C. Gains.
D. Losses.
[207] Source: Publisher
Which attribute is used to measure trade
payables?
A. Net settlement value.
B. Present value.
B. Luncheon is served.
C. Billing is mailed.
D. Customer's payment is received.
[216] Source: CIA 1193 IV-32
Which of the following describes the proper
treatment of a loss that is material, unusual
in nature, and infrequent in occurrence?
A. Report as part of continuing
operations.
B. Report as part of discontinued
operations.
C. Report as an extraordinary item.
D. Report as a prior-period item.
[217] Source: CIA 1190 IV-27
An objective of financial reporting is to
A. Provide information useful for
investor decisions.
B. Assess the adequacy of internal
control.
C. Evaluate management results
compared with standards.
D. Provide information on compliance
with established procedures.
[218] Source: CMA 1286 4-24
A publicly held corporation is required to
have its financial statements audited by an
independent external auditor. The three
purposes of these financial statements are to
provide useful information (1) for credit and
investment decisions, (2) about the firm's
resources, and (3) for
A. Determining the impact of inflation.
B. Long-lived asset replacements.
C. Assessing market values of assets.
D. Evaluating prospective cash flows.
[219] Source: Publisher
According to SFAC 1, Objectives of
A. $0
B. $100,000
C. $110,000
D. $120,000
[229] Source: CIA 1192 IV-27
A company provides fertilization, insect
control, and disease control services for a
variety of trees, plants, and shrubs on a
contract basis. For $50 per month, the
company will visit the subscriber's premises
and apply appropriate mixtures. If the
subscriber has any problems between the
regularly scheduled application dates, the
company's personnel will promptly make
additional service calls to correct the
situation. Some subscribers elect to pay for
an entire year because the company offers an
annual price of $540 if paid in advance. For
a subscriber who pays the annual fee in
advance, the company should recognize the
related revenue
A. When the cash is collected.
B. Evenly over the year as the services
are performed.
C. At the end of the contract year after
all of the services have been performed.
D. At the end of the fiscal year.
[230] Source: CMA 1292 2-1
One of the ingredients of the primary quality
of relevance is
A. Verifiability.
B. Predictive value.
C. Neutrality.
D. Due process.
[231] Source: CMA 1292 2-17
Although a transfer of ownership has not
occurred, the percentage-of-completion
method is acceptable under the revenue
recognition principle because
A. The assets are readily convertible
into cash.
Current
Cost
-------
Net
Realizable
Value
----------
No
No
No
No
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
A.
B.
C.
D.
C. Accrued revenue.
D. Prepaid expense.
[242] Source: CMA 1294 2-4
Limitations of the statement of financial
position include all of the following except
A. The use of historical cost for valuing
assets and liabilities.
B. Inclusion of information on capital
maintenance.
C. Exclusion of some economic
resources and obligations.
D. The use of estimates in the
determination of certain items.
[243] Source: CMA 0691 2-11
A Midwestern public utility reports
noncurrent assets as the first item on its
statement of financial position. This practice
is an example of the
A. Going-concern assumption.
B. Conservatism.
C. Economic-entity assumption.
D. Industry practice constraint.
[244] Source: CMA 1290 2-15
Accounting information that is capable of
making a difference in a decision by helping
users to confirm or correct expectations best
defines
A. Neutrality.
B. Timeliness.
C. Reliability.
D. Relevance.
[245] Source: CMA 1290 2-16
One of the ingredients of the primary quality
of reliability is
A. Verifiability.
B. Feedback value.
C. Comparability.
D. Consistency.
[246] Source: CMA 1290 2-18
Recognition is the process of formally
incorporating an item into the financial
statements of an entity as an asset, liability,
revenue, or expense. Recognition criteria
include all of the following except
A. Measurability with sufficient
reliability.
B. Meeting a definition of an element of
financial statements.
C. Decision usefulness.
D. Relevance.
[247] Source: CMA 0691 2-15
The percentage-of-completion method of
accounting for long-term construction
contracts is an exception to the
A. Matching principle.
B. Going concern assumption.
C. Historical cost principle.
D. Revenue recognition principle.
[248] Source: CMA 0692 2-1
Accounting information is relevant to the
extent that it has the capacity to make a
difference in a decision by a user.
According to SFAC 2, Qualitative
Characteristics of Accounting Information,
relevant information must provide
A. Representational faithfulness.
B. Neutrality.
C. Verifiability.
D. Feedback value.
[249] Source: CMA 0684 4-4
Depending upon the circumstances, revenue
can be recognized at different times for
accounting purposes. Generally accepted
revenue recognition methods do not include
A. End of production.
B. During production.
C. Receipt of cash.
D. Present value of a contract to sell
merchandise.
[250] Source: CMA 0685 3-26
Net losses on firm purchase commitments
for goods for inventory result from a
contract price in excess of the current
market price. If a firm expects that losses
will occur when the purchase is effected,
expected losses, if material, should
A. Be recognized in the accounts and
separately disclosed as a loss on the
income statement of the period during
which the decline in price takes place.
B. Be recognized in the accounts and
separately disclosed as a loss on the
income statement of the period during
which the contract is executed.
C. Be recognized in the accounts and
separately disclosed as a net unrealized
loss on the balance sheet at the end of
the period during which the decline in
price takes place.
D. Be recognized in the accounts and
separately disclosed as a net unrealized
loss on the balance sheet at the end of
the period during which the contract is
executed.
[251] Source: CMA 1284 4-6
A consulting firm started and completed a
project for a client in December Year 1. The
project has not been recorded on the
consulting firm's books and the firm will not
receive payment from the client until
February Year 2. The adjusting entry that
should be made on the books of the
consulting firm on December 31, Year 1, the
last day of the firm's fiscal year, would be to
A. Debit cash in transit and credit
consulting revenue.
B. Debit consulting revenue receivable
and credit consulting revenue.
C. Debit consulting revenue and credit
B. $500,000
C. $750,000
D. $1,000,000
[256] Source: CMA 0691 2-14
The current assets reported on Beach
Construction Company's May 31, Year 3
statement of financial position as a result of
this contract would be
A. Accounts receivable of $500,000,
and inventory of $6,750,000.
B. Accounts receivable of $6,000,000,
and inventory of $1,500,000.
C. Accounts receivable of $6,000,000,
and inventory of $6,750,000.
D. Accounts receivable of $500,000,
and inventory of $1,500,000.
[257] Source: CPA 0592 I-21
Dolce Co., which began operations on
January 1, 1999, appropriately uses the
installment method of accounting to record
revenues. The following information is
available for the years ended December 31,
1999 and 2000:
1999
2000
---------- ---------$1,000,000 $2,000,000
Sales
Gross profit realized on
sales made in
1999
150,000
2000
-Gross profit percentages
30%
What amount of installment accounts
receivable should Dolce report in its
December 31, 2000 balance sheet?
90,000
200,000
40%
A. $1,100,000
B. $1,300,000
C. $1,700,000
D. $1,900,000
[258] Source: CPA 0FIN R98-8
Leon Co., which began operations on
January 2, 2000, appropriately uses the
installment sales method of accounting. The
following information is available for 2000:
Installment sales
$1,800,000
Realized gross profit
on installment sales
240,000
Gross profit percentage
on sales
40%
What amounts should Leon report as
accounts receivable and deferred gross
profit for the year ended December 31,
2000?
Accounts
Deferred
Receivable Gross Profit
---------- -----------A.
$600,000
$480,000
$600,000
$360,000
B.
C.
$1,200,000 $480,000
D.
$1,200,000 $720,000
[259] Source: CPA 1192 I-43
Several of Fox, Inc.'s customers are having
cash flow problems. Information pertaining
to these customers for the years ended
March 31, 1999 and 2000 follows:
3/31/99
------$10,000
8,000
3/31/00
------$15,000
9,000
Sales
Cost of sales
Cash collections
on 1999 sales
7,000
3,000
on 2000 sales
-12,000
If the cost-recovery method is used, what
amount would Fox report as gross profit
from sales to these customers for the year
ended March 31, 2000?
A. $2,000
B. $3,000
C. $5,000
D. $15,000
[260] Source: Publisher
The revenue recognized by Dogg Company
on May 28 is
A. $100,000
B. $400,000
C. $500,000
D. $0
[261] Source: Publisher
The gross profit or loss recognized by Dogg
Company on its financial statements dated
and issued June 15 is
A. $500,000
B. $100,000
C. $(150,000)
D. $250,000
[262] Source: Publisher
The effect of the purchase on Katt
Corporation's financial reporting on May 28
is a(n)
A. Increase in fixed assets of $500,000,
a decrease in cash of $250,000, and an
increase in shareholders' equity of
$250,000.
B. Increase in fixed assets of $500,000,
a decrease in cash of $250,000, and an
increase in liabilities of $250,000.
C. Increase in fixed assets of $250,000
and an increase in liabilities of
$250,000.
D. Decrease in fixed assets of
$500,000, a decrease in cash of
$250,000, and an increase in liabilities
of $250,000.
[263] Source: CPA 0595 F-33
During 2000, Kam Co. began offering its
goods to selected retailers on a consignment
basis. The following information was
derived from Kam's 2000 accounting
records:
Beginning inventory
$122,000
Purchases
540,000
Freight-in
10,000
Transportation to consignees
5,000
Freight-out
35,000
Ending inventory -- held by Kam 145,000
held by consignees
20,000
B. Monetary-unit assumption.
C. Materiality assumption.
D. Going-concern assumption.
[280] Source: CIA 1192 IV-37
Because of inexact estimates of the service
life and the residual value of a plant asset, a
fully depreciated asset was sold at a
material gain. This gain should be reported
A. In the other revenues and gains
section of the income statement.
B. As part of sales revenue on the
income statement.
C. In the extraordinary item section of
the income statement.
D. As an adjustment to prior periods'
depreciation on the statement of
retained earnings.
[281] Source: CIA 0595 IV-29
Assume that employees confessed to a
$500,000 inventory theft but are not able to
make restitution. How should this material
fraud be shown in the company's financial
statements?
A. Classified as a loss and shown as a
separate line item in the income
statement.
B. Initially classified as an accounts
receivable because the employees are
responsible for the goods. Since they
cannot pay, the loss would be
recognized as a write-off of accounts
receivables.
C. Included in cost of goods sold
because the goods are not on hand,
losses on inventory shrinkage are
ordinary, and it would cause the least
amount of attention.
D. Recorded directly to retained
earnings since it is not an
income-producing item.
[282] Source: CIA 0592 IV-29
A company with total assets of
$100,000,000 and net income of $9,000,000
(1)
Market Rate to Use to Compute Interest
to Compute Interest Expense for 2001
--------------------------------------
(2)
Impact of Change in
Prevailing Interest
Rates in Future
Periods on Rate Used
to Account for This Note
------------------------
A.
Rate prevailing at January 2, 2001
B.
C.
D.
Rate prevailing at December 31, 2001
[285] Source: CIA 1196 IV-19
How will net income be affected by the
amortization of a premium on bonds
payable?
A. Interest expense is decreased, so net
income is increased.
B. Interest expense is increased, so net
income is decreased.
C. Interest revenue is increased, so net
income is increased.
D. Interest revenue is decreased, so net
income is decreased.
[286] Source: CIA 0596 IV-24
The effective-interest method and the
straight-line method of amortizing a bond
discount differ in that the effective-interest
method results in
A. Higher total interest expense over
the term of the bonds.
B. Escalating annual interest expense
over the term of the bonds.
C. Shrinking annual interest expense
over the term of the bonds.
D. Constant annual interest expense
over the term of the bonds.
[287] Source: CIA 1195 IV-16
An organization has a long-term construction
contract in process. During the current
period, the estimated total contract cost has
increased sufficiently so that there is a
current-period loss, even though the contract
is still estimated to be profitable overall.
Under these circumstances, the [List A]
method of revenue recognition would
require a [List B] period adjustment of
expected gross profit recognized on the
contract.
List A
------------------------
List B
-------
Percentage-of-completion
Prior
A.
B.
Percentage-of-completion
Current
Completed-contract
Prior
Completed-contract
Current
C.
D.
A. $3,000
B. $4,000
C. $11,000
D. $12,000
[291] Source: CIA 1193 IV-37
ABC Manufacturing Company ships
merchandise costing $40,000 on
consignment to XYZ Stores. ABC pays
$3,000 of freight costs to a transport
company, and XYZ pays $2,000 for local
advertising costs that are reimbursable from
ABC. By the end of the period, three fourths
of the consigned merchandise has been sold
for $50,000 cash. XYZ notifies ABC of the
sales, retains a 10% commission and the
paid advertising costs, and remits the cash
due ABC. Select the journal entry that
appropriately records the notification of
sale and the receipt of cash by ABC.
A.
Cash
Advertising expense
Commission expense
Freight expense
Revenue from
consignment sales
$40,000
2,000
5,000
3,000
Cash
Advertising expense
Commission expense
Revenue from
consignment sales
$43,000
2,000
5,000
Cash
Revenue from
consignment sales
$50,000
Cash
Commission expense
Revenue from
consignment sales
$45,000
5,000
$50,000
B.
$50,000
C.
$50,000
D.
$50,000
A. Sales.
B. Sales and cost of sales.
C. Sales and cost of sales and selling
expenses.
D. Sales and cost of sales and
administrative expenses.
[293] Source: CIA 0596 IV-1
The company has a rate of gross profit on
year 2 installment sales of
A. 20%
B. 40%
C. 50%
D. 80%
[294] Source: CIA 0596 IV-2
The amount of gross profit the company will
recognize in year 1 on year 1 installment
sales is
A. $800
B. $2,000
C. $3,200
D. $4,000
[295] Source: CIA 0596 IV-3
The company's gross profit amount from
year 2 sales to be deferred to future years
would be
A. $2,000
B. $3,000
C. $8,000
D. $10,000
[296] Source: CIA 0595 IV-12
A company sells inventory for $80,000 that
had an inventory cost of $40,000. The terms
of the sale involve payments receivable of
$10,000 in the first year, $45,000 in the
second year, and $25,000 in the third year.
The buyer of the inventory is a new firm
with no credit history. If the cost recovery
B. $200,000
C. $0
D. $500,000
[301] Source: CMA 0696 2-21
The effect of the purchase on Markal
Company's financial reporting on May 28 is
a(n)
A. Increase in fixed assets of $500,000
and a decrease in cash of $500,000.
B. Increase in fixed assets of
$1,000,000, a decrease in cash of
$500,000, and an increase in liabilities
of $500,000.
C. Increase in fixed assets of $500,000
and an increase in liabilities of
$500,000.
D. Decrease in fixed assets of
$1,000,000, a decrease in cash of
$500,000, and an increase in liabilities
of $500,000.
[302] Source: CMA 1296 2-6
In order for an event to be recognized in the
financial statements, it must be
A. Relevant, reliable, and measurable.
B. Relevant, reliable, and useful.
C. Relevant, reliable, and timely.
D. Reliable, useful, and measurable.
[303] Source: CMA 1296 2-7
Long-term payables are measured using
A. Historical cost.
B. Current market value.
C. Net realizable value.
D. Present value of future cash flows.
[304] Source: CMA 1296 2-8
Damaged inventory is measured using
A. Historical cost.
B. Current cost.
C. Net realizable value.
D. Present value of future cash flows.
[305] Source: CMA 1296 2-9
Land currently used in the business is
measured at
A. Historical cost.
B. Current cost.
C. Current market value.
D. Net realizable value.
[306] Source: CMA 1296 2-10
The percentage-of-completion method of
accounting for long-term construction
contracts is an exception to the
A. Matching principle.
B. Going-concern assumption.
C. Economic-entity assumption.
D. Revenue recognition principle.
[307] Source: CMA 1296 2-11
Revenues of an entity are generally
measured by the exchange values of the
assets or liabilities involved. Recognition of
revenue does not occur until the
A. Revenue is realized and collected.
B. Revenue is realized and earned.
C. Entity has signed a binding contract.
D. Entity has substantially
accomplished what it agreed to do.
[308] Source: CMA 1296 2-12
In accounting for inventories, generally
accepted accounting principles require
departure from the historical cost principle
when the utility of inventory has fallen
below cost. This rule is known as the
"lower of cost or market" rule. "Market" as
defined here means
Fresh-Start
Purposes
-----------
A.
No
No
Yes
Yes
Yes
No
No
Yes
B.
C.
D.
A. $90,000.
B. $72,000.
C. $67,500.
D. $18,000.
[327] Source: CPA 0592 I-39
Zeta Co. reported sales revenue of $2.3
million in its income statement for the year
ended December 31, 2001. Additional
information was as follows:
12/31/00
-------$500,000
(30,000)
Accounts receivable
Allowance for uncollectible accounts
Uncollectible accounts totaling $10,000
were written off during 2001. Under the
cash basis of accounting, Zeta would have
reported 2001 sales of
A. $2,140,000
B. $2,150,000
C. $2,175,000
D. $2,450,000
12/31/01
-------$650,000
(55,000)
D. $525,000
[332] Source: CPA 0592 I-51
West, Inc. made the following expenditures
relating to Product Y:
- Legal costs to file a patent on Product Y -- $10,000. Production
of the finished product would not have been undertaken without the
patent.
- Special equipment to be used solely for development of Product Y
-- $60,000. The equipment has no other use and has an estimated
useful life of 4 years.
- Labor and material costs incurred in producing a prototype model
-- $200,000
- Cost of testing the prototype -- $80,000
What is the total amount of costs that will be
expensed when incurred?
A. $280,000
B. $295,000
C. $340,000
D. $350,000
[333] Source: CMA 0689 3-1
The limits to the market value (i.e., the
ceiling and the floor) that should be used in
the lower of cost or market comparison of
cameras are
A. $217 and $198.
B. $217 and $185.
C. $198 and $166.
D. $185 and $166.
[334] Source: CMA 0689 3-2
The amount that should be used to value the
lenses on the basis of lower of cost or
market is
A. $105.
B. $106.
C. $108.
D. $137.
[335] Source: CMA 0689 3-3
The amount that should be used to value the
Inventory, 12/31/99
Inventory, 12/31/00
Increase in price level for 2000
Cost-retail ratio for 2000
Under the dollar-value LIFO retail method,
Jason's inventory at December 31, 2000
should be
A. $437,000
Retail
-------$500,000
660,000
10%
70%
B. $462,000
C. $472,000
D. $483,200
[339] Source: CMA Samp Q2-5
Pearl Corporation acquired manufacturing
machinery on January 1 for $9,000. During
the year, the machine produced 1,000 units,
of which 600 were sold. There was no
work-in-process inventory at the beginning
or at the end of the year. Installation charges
of $300 and delivery charges of $200 were
also incurred. The machine is expected to
have a useful life of five years with an
estimated salvage value of $1,500. Pearl
uses the straight-line depreciation method.
The original cost of the machinery to be
recorded in Pearl's books is
A. $9,500
B. $9,300
C. $9,200
D. $9,000
[340] Source: CMA 1289 4-21
If Brighton Corporation continues to
determine its bad debt expense by using the
historical percentage of credit sales, the bad
debt expense for the 2000-01 fiscal year
would be
A. $82,875
B. $86,275
C. $66,950
D. $70,350
[341] Source: CMA 1289 4-22
If Brighton Corporation determines its bad
debt expense by using the aging schedule of
its accounts receivable, the bad debt
expense for the 2000-01 fiscal year would
be
A. $82,875
B. $66,950
C. $70,350
D. $79,475
[342] Source: CMA 1289 4-23
The book value of the net accounts
receivable written off by Brighton
Corporation during the 2000-01 fiscal year
is
A. $76,500
B. $79,900
C. $73,100
D. $79,475
[343] Source: CPA 1193 I-21
Based on a physical inventory taken on
December 31, 2000, Chewy Co. determined
its chocolate inventory on a FIFO basis at
$26,000 with a replacement cost of
$20,000. Chewy estimated that, after further
processing costs of $12,000, the chocolate
could be sold as finished candy bars for
$40,000. Chewy's normal profit margin is
10% of sales. Under the
lower-of-cost-or-market rule, what amount
should Chewy report as chocolate inventory
in its December 31, 2000 balance sheet?
A. $28,000
B. $26,000
C. $24,000
D. $20,000
[344] Source: CPA 1180 II-11
The following information is available for
the Silver Company for the 3 months ended
March 31 of this year:
Merchandise inventory,
January 1 of this year
$ 900,000
Purchases
3,400,000
Freight-in
200,000
Sales
4,800,000
The gross margin recorded was 25% of
sales. What should be the merchandise
inventory at March 31?
A. $700,000
B. $900,000
C. $1,125,000
D. $1,200,000
[345] Source: CMA 0690 3-4
FCL Corporation has the following
inventory information available for the year
ended December 31.
Cost
------$35,000
55,000
Retail
-------$100,000
110,000
15,000
25,000
150,000
1291 2-29
ending inventory as of
2 computed by the
method was
B. $250,000
C. $251,000
D. $275,000
[351] Source: CMA
Wright Hardware's
December 31, Year
dollar-value LIFO
1291 2-30
ending inventory as of
3, computed by the
method would be
A. $240,000
B. $250,000
C. $251,000
D. $300,000
[352] Source: CMA 0692 2-3
The primary reporting objective of
accounting for inventory is
A. To provide management with
information about the fair value of the
inventory.
B. The proper valuation of inventory to
more closely match its replacement
cost.
C. To provide investors and creditors
with an inventory value that closely
represents the liquidation value of
inventory.
D. The matching of the appropriate
expense against revenue to obtain a
proper determination of income.
[353] Source: CMA 1292 2-4
Bad debt expense must be estimated to
satisfy the matching principle when
expenses are recorded in the same periods
as the related revenues. In estimating the
provision for doubtful accounts for a period,
companies accrue
A. A percentage of total sales.
B. A percentage of accounts receivable
transactions for the period.
C. Either an amount based on a
percentage of credit sales or an amount
based on a percentage of accounts
receivable after adjusting for any
C. $1,046.
D. $1,104.
[359] Source: CMA 1292 2-27
If Addison uses weighted-average inventory
pricing, the gross profit for November will
be
A. $1,482
B. $1,516
C. $1,528
D. $1,574
[360] Source: CMA 1292 2-28
If Addison uses periodic LIFO inventory
pricing, the cost of goods sold for
November will be
A. $2,416.
B. $2,442.
C. $2,474.
D. $2,584.
[361] Source: CMA 1292 2-29
If Addison uses perpetual LIFO inventory
pricing, the value of the inventory at
November 30 will be
A. $936.
B. $1,012.
C. $1,046.
D. $1,076.
[362] Source: CPA 1193 I-18
On March 31, 2000, Vale Co. had an
unadjusted credit balance of $1,000 in its
allowance for uncollectible accounts. An
analysis of Vale's trade accounts receivable
at that date revealed the following:
Age
-----------0 - 30 days
31 - 60 days
Over 60 days
Estimated
Amount Uncollectible
-------- ------------$60,000
5%
4,000
10%
2,000
$1,400
amortization.
D. Cost less expired or used portion.
[369] Source: CMA 1293 2-6
Using the straight-line depreciation method,
Ames' Year 4 depreciation expense is
A. $36,464
B. $40,600
C. $40,848
D. $45,000
[370] Source: CMA 1293 2-7
Using the double-declining-balance method,
Ames' Year 4 depreciation expense is
A. $36,464
B. $40,334
C. $40,848
D. $45,000
[371] Source: CMA 1293 2-8
Using the sum-of-the-years'-digits method,
Ames' Year 4 depreciation expense
(rounded to the nearest dollar) is
A. $36,464
B. $40,334
C. $40,600
D. $40,848
[372] Source: CMA 1293 2-9
Nichols Corporation renewed an insurance
policy for three years beginning September
1, Year 1, and recorded the $81,000
premium in the Prepaid Insurance account.
The $81,000 premium represents an
increase of $23,400 from the $57,600
premium charged three years ago. Assuming
Nichols only records its insurance
adjustments at the end of the calendar year,
the adjusting entry required to reflect the
proper balances in the insurance accounts at
December 31, Year 1, Nichols' year end,
would be to
Percentage of
Accounts Receivable
-------------------
A.
$51,000
$45,000
$51,000
$29,000
$35,000
$45,000
$35,000
$29,000
B.
C.
D.
A. $0
B. $4,000
C. $16,000
D. $25,000
[391] Source: CMA 0689 3-10
If Austin exchanges its used machine for
Harper's machine and $15,000 cash, the gain
(loss) that Austin should recognize from this
transaction for financial reporting purposes
would be
A. $0
B. $(2,526)
C. $(15,000)
D. $15,000
[392] Source: CMA 0690 4-28
The depreciation on Pyne's delivery truck
for year two using the
double-declining-balance (DDB) method
would be
A. $4,320
B. $4,800
C. $6,000
D. $7,200
[393] Source: CMA 0690 4-29
The depreciation on Pyne's used delivery
car for year three using the
sum-of-the-years'-digits (SYD) method
would be
A. $700
B. $800
C. $1,400
D. $1,600
[394] Source: CMA 0691 2-1
If Sawyer uses a first-in, first-out perpetual
inventory system, the total cost of the
inventory for Part Number C-588 at May 31
is
A. $3,230
B. $3,510
C. $3,575
D. $3,770
[395] Source: CMA 0691 2-2
If Sawyer uses a last-in, first-out periodic
inventory system, the total cost of the
inventory for Part Number C-588 at May 31
is
A. $3,185
B. $3,230
C. $3,510
D. $3,575
[396] Source: CMA 0691 2-3
If Sawyer uses a last-in, first-out perpetual
inventory system, the total cost of the
inventory for Part Number C-588 at May 31
is
A. $3,185
B. $3,230
C. $3,521
D. $3,575
[397] Source: CMA 1291 2-2
According to SFAS 34, Capitalization of
Interest Cost, interest should be capitalized
for assets that are
A. In use or ready for their intended use
in the earning activities of the
enterprise.
B. Being constructed or otherwise being
produced as discrete projects for an
enterprise's own use.
C. Not being used in the earning
activities of the enterprise and that are
not undergoing the activities necessary
to get them ready for use.
D. Routinely produced but require an
extended period of time and are used in
C. $950,000
D. $1,010,000
[403] Source: CIA 0594 IV-3
Which is the correct order of the following
four steps in the accounting cycle?
1
2
3
4
$100,000
$100,000
B.
Interest expense
Cash
$50,000
$50,000
C.
Interest payable
Interest expense
$100,000
Interest expense
Interest payable
$50,000
$100,000
D.
$50,000
$140,000
$140,000
Retained earnings
Income summary
$280,000
Income summary
Retained earnings
$240,000
Retained earnings
Income summary
$240,000
$280,000
C.
$240,000
D.
$240,000
B. Net sales.
C. Net income.
D. Retained earnings.
[409] Source: CPA 0593 II-9
Beam Co. paid $1,000 cash and traded
inventory, which had a carrying amount of
$20,000 and a fair value of $21,000, for
other inventory in the same line of business
with a fair value of $22,000. What amount
of gain (loss) should Beam record related to
the inventory exchange?
A. $2,000
B. $1,000
C. $0
D. $(1,000)
[410] Source: CIA 0591 IV-32
On December 1, Year 1, a company sold
services to a customer and accepted a note
in exchange with a $120,000 face value and
an interest rate of 10%. The note requires
that both the principal and interest be paid at
the maturity date, December 1, Year 2. The
company's accounting period is the calendar
year. What adjusting entry (related to this
note) would be required at December 31,
Year 1 on the company's books?
A.
Deferred interest income
Interest receivable
$1,000
Interest income
Interest receivable
$1,000
Interest receivable
Deferred interest income
$1,000
Interest receivable
Interest income
$1,000
$1,000
B.
$1,000
C.
$1,000
D.
$1,000
A. ($108,000 - $18,000)(25% x 2)
B. ($108,000 - $18,000)(25% x )
C. ($108,000)(25% x 2)
D. ($108,000)(25% x )
[419] Source: CIA 0592 IV-37
An oil company using the successful-efforts
method drilled two wells. The first, a dry
hole, cost $50,000. The second cost
$100,000 and had estimated recoverable
reserves of 25,000 barrels, of which 10,000
were sold this year. What will be the total
expense for the year related to the
exploration and production from these two
wells?
A. $40,000
B. $60,000
C. $90,000
D. $150,000
[420] Source: CMA 0694 2-21
To comply with SFAS 2, Accounting for
Research and Development Costs,
expenditures for research and development
A. Must be capitalized in the period
incurred and amortized over the
estimated life of the asset.
B. May be expensed in the period
incurred or capitalized if the
probability of future benefits can
readily be determined.
C. Must be expensed in the period
incurred, unless the costs are for testing
a prototype.
D. Must be expensed in the period
incurred, unless the work performed is
for others as part of a contractual
agreement.
[421] Source: CMA 0694 2-22
The limits to the market value (i.e., the
ceiling and the floor) that should be used in
the lower of cost or market comparison of
skis are
$2,000
500
300
was
was
was
for
overstated by $23,000.
understated by $61,000.
understated by $17,000.
Knox
Year
Income Before Taxes
---------------------Year 1
$138,000
Year 2
254,000
Year 3
168,000
Reported income before taxes for year 1,
year 2, and year 3, respectively, should have
been
A. $161,000, $170,000, and $212,000
B. $115,000, $338,000, and $124,000
C. $161,000, $338,000, and $90,000
D. $115,000, $338,000, and $212,000
[435] Source: CMA 1287 3-25
One of the conditions necessary to recognize
a transfer of receivables with recourse as a
sale is that the
A. Transferee surrenders control of the
receivables but retains a beneficial
interest.
B. Transferor has derecognized all
assets sold.
C. The transferor is not both entitled
and obligated to repurchase the
receivables.
D. Transferred assets are isolated from
the transferee.
[436] Source: CMA 1287 3-26
If a transfer of receivables with recourse
qualifies to be recognized as a sale, the
proceeds from the sale are
A. Accounted for as a secured
borrowing.
Account
-------Arcadia
Dawson
Gracelon
Prentiss
Strauss
Total
Total
Balance
--------$ 50,000
128,000
327,000
25,000
210,000
-------$740,000
========
Greater
Less than
61-90
91-120
than
60 days
days
days 120 days
--------- -------- --------- -------$ 50,000
90,000 $ 38,000
250,000
77,000
$25,000
$210,000
-------- -------- -------- ------$390,000 $115,000 $210,000 $25,000
======== ======== ======== =======
% uncollectible
1%
5%
The final entry to the related accounts is
A. Debit allowance for doubtful
accounts for $22,150 and credit bad
debt expense for $22,150.
15%
Publisher
financial assets should be
sale if certain conditions are
the following is one of the
40%
0697 2-19
uses the first-in, first-out
of its inventory at
would be
A. $4,400
B. $4,480
C. $4,560
D. $4,960
[444] Source: CMA
If Devereaux Inc.
method, the value
November 30, 1997
0697 2-20
uses the last-in, first-out
of its inventory at
would be
A. $4,400
B. $4,480
C. $4,560
D. $4,785
[445] Source: CMA 0687 3-11
If Boggs, Inc. exercised significant influence
over Mattly Corporation and properly
accounted for the long-term investment
under the equity method, the amount of net
Loss
----------
Increase
Increase
Increase
Decrease
Decrease
Increase
Decrease
Decrease
A.
B.
C.
D.
A. $504,000
B. $478,800
C. $466,200
D. $474,600
[460] Source: CIA 0594 IV-7
An imprest bank account is:
A. A difference between the amount on
deposit according to the company's
records and the amount of collected
cash according to the bank record.
B. The principal bank account through
which most companies' cash
transactions are cycled.
C. An account used to make a specific
amount of cash available for a limited
purpose.
D. A local post office box from which a
local bank is authorized to pick up and
deposit remittances.
[461] Source: CIA 0594 IV-8
Who is responsible, at all times, for the
amount of the petty cash fund?
A. The president of the company.
B. The general office manager.
C. The general cashier.
D. The petty cash custodian.
[462] Source: CIA 0594 IV-9
Which of the following is not an appropriate
procedure for controlling the petty cash
fund?
A. The petty cash custodian files
receipts by category of expenditure
after their presentation to the general
cashier, so that variations in different
types of expenditures can be monitored.
B. Surprise counts of the fund are made
from time to time by a superior of the
petty cash custodian to determine that
the fund is being accounted for
satisfactorily.
$173
112
42
$173
112
42
$173
112
42
10
$173
112
42
$327
B.
$327
C.
$337
D.
$317
10
Sales Discounts
Forfeited
---------------
Yes
Yes
Yes
No
No
No
No
Yes
A.
B.
C.
D.
$140,000
Tax receivable
Tax revenue
$140,000
Tax revenue
Allowance for
uncollectible taxes
Tax receivable
$126,000
$140,000
B.
$140,000
C.
$14,000
$140,000
D.
Tax receivable
$140,000
Tax revenue
Allowance for
uncollectible taxes
[472] Source: CIA 0595 IV-28
Which is not a correct description of the
$126,000
$14,000
a prototype.
D. Must be expensed in the period
incurred unless the work performed is
for others as part of a contractual
agreement.
[475] Source: CMA 0696 2-5
All sales and purchases for the year at Ross
Corporation are credit transactions. Ross
uses a perpetual inventory system and
shipped goods that were correctly excluded
from ending inventory. However, in error,
the sale was not recorded. Which one of the
following statements is correct?
A. Accounts receivable was not
affected, inventory was not affected,
sales were understated, and cost of
goods sold was understated.
B. Accounts receivable was
understated, inventory was not affected,
sales were understated, and cost of
goods sold was understated.
C. Accounts receivable was
understated, inventory was overstated,
sales were understated, and cost of
goods sold was overstated.
D. Accounts receivable was
understated, inventory was not affected,
sales were understated, and cost of
goods sold was not affected.
[476] Source: CMA 0696 2-3
An item of inventory purchased in year 1 for
$25.00 has been incorrectly written down to
a current replacement cost of $17.50. The
item is currently selling in year 2 for
$50.00, its normal selling price. Which one
of the following statements is correct?
A. The income for year 1 is overstated.
B. The cost of sales for year 2 will be
overstated.
C. The income for year 2 will be
overstated.
D. The closing inventory of year 1 is
overstated.
[477] Source: CMA 0696 2-4
All sales and purchases for the year at Ross
D. $23,571
[491] Source: CMA 0697 2-11
Assuming that the securities are properly
classified as available-for-sale securities
under SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities,
the unrealized holding gain or loss as of
May 31, year 3 would be
A. Recognized as an $8,005 unrealized
holding gain on the income statement.
B. Recognized in other comprehensive
income by a year-end credit of $8,005.
C. Recognized in other comprehensive
income by a year-end debit of $8,005.
D. Not recognized.
[492] Source: CMA 0697 2-12
Assuming that the securities are properly
classified as held-to-maturity securities
under SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities,
the unrealized holding gain or loss as of
May 31, year 2 would be
A. Recognized as an $8,005 unrealized
holding gain on the income statement.
B. Recognized in other comprehensive
income by a year-end credit of $8,005.
C. Recognized in other comprehensive
income by a year-end debit of $8,005.
D. Not recognized.
[493] Source: CMA 0697 2-27
SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, applies to all of
the following except
A. Financial instruments.
B. Goodwill.
C. Minicomputers used to run a
production process.
D. Patents on a production process.
C. $5,000
D. $6,000
[501] Source: Publisher
The 1999 depreciation expense for the truck
using the sum-of-the-years'-digits (SYD)
method was
A. $12,000
B. $16,000
C. $20,000
D. $26,667
[502] Source: Publisher
Assuming the company uses the
double-declining-balance (DDB) method,
the fiscal 1998 year-end accumulated
depreciation was
A. $16,000
B. $24,000
C. $32,000
D. $64,000
[503] Source: Publisher
Using the units-of-production method, what
is the 2001 depreciation expense?
A. $8,000
B. $9,600
C. $10,000
D. $12,000
[504] Source: Publisher
If the company uses the half-year convention
in recording depreciation, how much
depreciation was recorded in 1997 under
the sum-of-the-years'-digits (SYD) method?
A. $13,333
B. $16,667
C. $26,667
D. $33,333
[505] Source: Publisher
If the company uses the half-year convention
in recording depreciation, how much
depreciation was recorded in 1998 under
the sum-of-the-years'-digits (SYD) method?
A. $8,000
B. $10,667
C. $21,333
D. $24,000
[506] Source: Publisher
Assuming the half-year convention was not
used, the fiscal 2000 depreciation expense
under the double-declining-balance (DDB)
method was
A. $1,600
B. $6,912
C. $8,640
D. $14,400
[507] Source: Publisher
Oxford Company sold $300,000 of its
accounts receivables without recourse to a
factoring agency. The purchaser assessed a
finance charge of 5%. It also retained 5% to
cover adjustments (sales returns, discounts,
etc.). Oxford should record
A. A debit to cash of $300,000.
B. A credit to accounts receivable of
$300,000.
C. A credit to liability on transferred
accounts receivable of $300,000.
D. Interest expense of $15,000.
[508] Source: Publisher
If Farmers' uses a first-in, first-out (FIFO)
perpetual inventory system, the total cost of
the inventory for mower blades at May 31 is
A. $392,230
B. $394,975
C. $402,600
D. $536,800
[509] Source: Publisher
If Farmers' uses a first-in, first-out (FIFO)
periodic inventory system, the total cost of
the inventory for mower blades at May 31 is
A. $392,230
B. $394,975
C. $402,600
D. $536,800
[510] Source: Publisher
If Farmers' uses a last-in, first-out (LIFO)
periodic inventory system, the total cost of
the inventory for mower blades at May 31 is
A. $392,230
B. $394,975
C. $402,600
D. $536,800
[511] Source: Publisher
If Farmers' uses a last-in, first out (LIFO)
perpetual inventory system, the total cost of
the inventory for mower blades at May 31 is
A. $392,230
B. $392,400
C. $394,975
D. $402,600
[512] Source: Publisher
At May 31, if Farmers' uses a
weighted-average periodic inventory
system, the total cost of the inventory for
mower blades (assuming all calculations are
rounded to two decimal places) is
A. $393,633
B. $396,622
C. $396,744
D. $398,467
[513] Source: Publisher
At May 31, if Farmers' uses a
moving-average perpetual inventory system,
the total cost of the inventory for mower
blades (assuming all calculations are
rounded to two decimal places) is
A. $393,633
B. $396,622
C. $396,744
D. $398,452
[514] Source: Publisher
Price's Food Market's ending inventory as of
December 31, year 2, computed by the
dollar-value LIFO method, was
A. $480,000
B. $500,000
C. $502,000
D. $550,000
[515] Source: Publisher
Price's Food Market's ending inventory as of
December 31, year 3, computed by the
dollar-value LIFO method, is
A. $480,000
B. $500,000
C. $502,000
D. $600,000
[516] Source: CMA 0697 2-19
If Jensen Company uses the first-in, first-out
(FIFO) method of inventory valuation, the
May 31 inventory would be
A. $1,400
B. $1,460
C. $1,493
D. $1,680
Beginning inventory at
Net purchases
Net markups
Net markdowns
Net sales
The December 31 ending
using the conventional
cost or market) retail
equals
1/1
Cost
------$35,000
55,000
inventory at cost
(lower of average
inventory method
A. $17,500
B. $20,000
C. $27,500
D. $50,000
[519] Source: CIA 1196 IV-21
A company started in 1997 with 200 scented
candles on hand at a cost of $3.50 each.
These candles sell for $7.00 each. The
following schedule represents the purchases
and sales of candles during 1997:
Transaction Quantity
Unit
Quantity
Number
Purchased
Cost
Sold
---------- --------- -------- -------1
--150
2
250
$3.30
-3
--100
4
200
$3.10
-5
--200
6
350
$3.00
-7
--300
If the company uses perpetual LIFO
Retail
-------$100,000
110,000
15,000
25,000
150,000
manufacturing stage.
D. Engineering follow-through in an
early phase of commercial production.
[523] Source: CMA 0692 2-17
When a company sells its products and
gives the buyer the right to return the
product, revenue from the sale should be
recognized at the time of sale only if certain
criteria are met. According to SFAS 48,
Revenue Recognition When Right of Return
Exists, which one of the following is not a
criterion?
A. The seller does not have significant
obligations for future performance to
directly bring about the resale of the
product by the buyer.
B. The buyer acquiring the product for
resale has economic substance apart
from that provided by the seller.
C. The amount of future returns can be
reasonably estimated.
D. The seller's price to the buyer is
contingent upon the ultimate selling
price received when the product is
resold.
[524] Source: CMA 1292 2-23
APB 18, The Equity Method of Accounting
for Investments in Common Stock, provided
guidance that a company should apply the
equity method whenever it could exercise
significant influence over the investee.
Significant influence is defined as
A. 25% ownership.
B. 10% ownership.
C. 20% ownership.
D. 50% ownership.
[525] Source: CPA 0593 II-10
Amble, Inc., exchanged a truck with a
carrying amount of $12,000 and a fair value
of $20,000 for a truck with a carrying
amount of $12,000 and $5,000 cash. The
fair value of the truck received was
$15,000. At what amount should Amble
record the truck received in the exchange?
A. $7,000
B. $9,000
C. $12,000
D. $15,000
[526] Source: CMA 1292 2-13
Roth Company is a distributor of perishable
foods whose prices fluctuate seasonally and
with agricultural growing conditions. Roth's
customers have the right to return unsold
goods within a specified period of time, and
payment is contingent upon resale. As a
result, Roth must
A. Use the cost recovery method of
revenue recognition.
B. Record sales when the return
privilege has expired.
C. Record sales that have been reduced
by an estimate of future returns.
D. Use the installment method of
revenue recognition.
[527] Source: CMA 0691 2-21
If Baron, Inc. exchanges its computer for
Perlin Co.'s computer and also receives
$600 cash, the gain that Baron should
recognize from this transaction in its
financial statements would be
A. $0
B. $61.22
C. $68.18
D. $350.00
[528] Source: CMA 0691 2-22
If Baron, Inc. exchanges its computer and
$200 cash for Shaw, Inc.'s computer, the
gain that Baron should recognize from this
transaction in its financial statements would
be
A. $0
B. $16
C. $18
D. $500
[529] Source: CMA 0691 2-23
If Baron, Inc. pays $5,350 cash for Foran
Company's computer, the gain that Baron
should recognize from this transaction in its
financial statements would be
A. $0
B. $100
C. $240
D. $350
[530] Source: CMA 0691 2-24
Baron, Inc. donated one of its computers to a
local grammar school. The gain (loss) that
Baron should recognize from this transaction
in its financial statements is
A. $0
B. $500 gain.
C. $500 loss.
D. $4,400 loss.
[531] Source: CMA 0691 2-25
During the demonstration of one of Baron,
Inc.'s computers, the customer asked if a
carrying case were available. When the
salesman went to check the stock, the
customer walked out of the store with the
computer. The computer, which originally
cost $4,400, was not recovered, and Baron
received $4,675 from its insurance
company. The computer was replaced at a
cost of $4,730. The gain (loss) that Baron
should recognize from this transaction in its
financial statements is
A. $0
B. $55 loss.
C. $225 loss.
D. $275 gain.
[532] Source: CPA 1188 I-1
Burr Company had the following account
balances at December 31, 2000:
Cash in banks
Cash on hand
Cash legally restricted for additions to plant
(expected to be disbursed in 2001)
Cash in banks includes $600,000 of
compensating balances against short-term
borrowing arrangements. The compensating
balances are not legally restricted as to
withdrawal by Burr. In the current assets
section of Burr's December 31, 2000
balance sheet, total cash should be reported
at
$2,250,000
125,000
1,600,000
A. $1,775,000
B. $2,250,000
C. $2,375,000
D. $3,975,000
[533] Source: CPA 1194 F-45
Inge Co. determined that the net value of its
accounts receivable at December 31, 2000,
based on an aging of the receivables, was
$325,000. Additional information is as
follows:
Allowance for uncollectible accounts -- 1/1/00
Uncollectible accounts written off during 2000
Uncollectible accounts recovered during 2000
Accounts receivable at 12/31/00
For 2000, what would be Inge's
uncollectible accounts expense?
A. $5,000
B. $11,000
C. $15,000
D. $21,000
[534] Source: Publisher
Seller Co. transfers loans to Buyer Co. in a
transaction appropriately accounted for as a
sale. The loans have a fair value of $1,650
and a carrying amount of $1,500. Seller also
receives an option to call (purchase) the
same or similar loans from Buyer and
undertakes to repurchase delinquent loans.
Furthermore, the loans have a fixed rate, but
Seller agrees to provide Buyer a return at a
variable rate. Thus, the transaction
effectively includes an interest rate swap.
The following are the relevant fair values:
Cash received
$1,575
$ 30,000
18,000
2,000
350,000
Retail
-------$ 30,000
110,000
10,000
20,000
90,000
Beginning inventory
Purchases
Net additional markups
Net markdowns
Sales revenue
If the lower-of-cost-or-market rule is
disregarded, what would be the estimated
cost of the ending inventory?
A. $24,000
B. $20,000
C. $19,200
D. $18,000
Inventory, 1/1/00
Purchases
Additional markups
Available for sale
Cost
Retail
----------------$147,000
$ 203,000
833,000
1,155,000
-42,000
----------------$980,000
$1,400,000
========
==========
totaled $1,106,000.
to $14,000. Under the
$400,000
$300,000
700,000
200,000
180,000
employees equally.
D. The time permitted to exercise a
purchase right is limited to a reasonable
period.
[553] Source: CMA 0689 4-16
Trade accounts payable are valued on the
statement of financial position at the
A. Historical cost.
B. Current cost.
C. Current market value.
D. Net settlement value.
[554] Source: CMA 1289 3-1
When applying SFAS 87, Employers'
Accounting for Pensions, the accumulated
benefit obligation (ABO) is best described
as the
A. Present value of benefits accrued to
date based on future salary levels.
B. Present value of benefits accrued to
date based on current salary levels.
C. Increase in retroactive benefits at the
date of the amendment of the plan.
D. Amount of the adjustment necessary
to reflect the difference between actual
and estimated actuarial returns.
[555] Source: CMA 1289 3-2
On January 1, 1989, the first day of its fiscal
year, Lucretia Corporation adopted the
requirements of SFAS 87, Employers'
Accounting for Pensions. On the date of
adoption, the following information was
available:
Accumulated benefit obligation (ABO)
$500,000
Projected benefit obligation (PBO)
650,000
Pension plan assets (fair value)
420,000
Average remaining service life of
current employees
20 years
The transition amount component of
Lucretia's net periodic pension cost (NPPC)
for the fiscal year ended December 31, 2001
is
A. $4,000
B. $11,500
C. $80,000
D. $230,000
[556] Source: CMA 1290 2-11
If the discount is amortized by the
straight-line method, Marquette, Inc.'s
interest expense for the fiscal year ended
November 30, Year 2 related to its
$6,000,000 bond issue will be
A. $623,372
B. $720,000
C. $881,046
D. $960,000
[557] Source: CMA 1290 2-12
If the discount is amortized by the effective
interest method, Marquette, Inc.'s interest
expense for the fiscal year ended November
30, Year 2 related to its $6,000,000 bond
issue will be
A. $720,000
B. $831,163
C. $835,610
D. $881,046
[558] Source: CPA 1192 I-24
Case Cereal Co. frequently distributes
coupons to promote new products. On
October 1, Case mailed 1 million coupons
for $.45 off each box of cereal purchased.
Case expects 120,000 of these coupons to
be redeemed before the December 31
expiration date. It takes 30 days from the
redemption date for Case to receive the
coupons from the retailers. Case reimburses
the retailers an additional $.05 for each
coupon redeemed. As of December 31, Case
had paid retailers $25,000 related to these
coupons, and had 50,000 coupons on hand
that had not been processed for payment.
What amount should Case report as a
liability for coupons in its December 31
balance sheet?
A. $35,000
B. $29,000
C. $25,000
D. $22,500
[559] Source: CMA 1290 2-21
According to SFAS 87, Employers'
Accounting for Pensions, the projected
benefit obligation is best described as the
A. Present value of benefits accrued to
date based on future salary levels.
B. Present value of benefits accrued to
date based on current salary levels.
C. Increase in retroactive benefits at the
date of the amendment of the plan.
D. Amount of the adjustment necessary
to reflect the difference between actual
and estimated actuarial returns.
[560] Source: CMA 1290 2-22
Kronski Corporation's net minimum pension
liability at October 31, Year 1 is
A. $59,875.
B. $517,500.
C. $523,750.
D. $592,500.
[561] Source: CMA 1290 2-23
The balance of the intangible asset, deferred
pension cost, on Kronski Corporation's
statement of financial position at October
31, Year 1 should be
A. $172,375.
B. $190,000.
C. $411,250.
D. $480,000.
[562] Source: CMA 1290 2-25
According to SFAS 84, Induced
Conversions of Convertible Debt, an issuer
of a convertible security may attempt to
induce prompt conversion of its convertible
debt to equity securities by offering
additional securities
as a "sweetener." The
consideration used to
should be reported as
or other consideration
additional
induce conversion
a(n)
as of
a debit to
and a credit
for $48,000.
D. $52,800
[567] Source: CMA 0692 2-20
According to SFAS 5, Accounting for
Contingencies, a loss contingency should be
accrued on a company's records only if it is
A. Reasonably possible that a liability
has been incurred and the amount of the
loss is known.
B. Probable that a liability has been
incurred and the amount of the loss is
unknown.
C. Probable that a liability has been
incurred and the amount of the loss can
be reasonably estimated.
D. Remotely probable that a liability
has been incurred but the amount of the
loss can be reasonably estimated.
[568] Source: CMA 0692 2-21
According to SFAS 5, Accounting for
Contingencies, a gain from contingencies is
A. Recorded when condemnation
awards are probable or can be
reasonably estimated.
B. Recorded when condemnation
awards are probable and can be
reasonably estimated.
C. Recorded when disclosure in the
notes to financial statements only could
be misleading.
D. Not recorded under any
circumstances.
[569] Source: CMA 1292 2-22
SFAS 87, Employers' Accounting for
Pensions, requires companies to recognize
the actuarial present value of the increase in
pension benefits payable to employees
because of their services rendered during
the current period as a component of
periodic pension expense. This cost is the
A. Amortization of prior service costs.
B. Accumulated benefit obligation
(ABO).
C. Projected benefit obligation (PBO).
D. Service cost.
[570] Source: Publisher
The Elam Company has reasonably
estimated the following probable costs for
the compensated absences of its employees:
Vacation pay (vested)
$5,000
Vacation pay (accumulated but not vested) 3,000
Sick pay (vested)
4,000
Sick pay (accumulated but not vested)
2,000
The costs are attributable to services that
have already been rendered. In accordance
with SFAS 43, Accounting for Compensated
Absences, the minimum amount that Elam
must accrue as its liability for compensated
absences is
A. $5,000
B. $8,000
C. $12,000
D. $14,000
[571] Source: Publisher
Pine Company began operations on January
1, Year 1. Pine employs 10 individuals who
work 8-hour days and are paid hourly. Each
employee earns 10 paid vacation days
annually. Vacation days may be taken after
January 1 of the year following the year in
which they are earned. Additional
information is as follows:
Actual Hourly
Vacation Days Used
Wage Rate
By Each Employee
-------------- -----------------Year 1 Year 2
Year 1 Year 2
-------------- -----------------$8.00 $8.00
0
8
The amounts of compensated absences
liability that should have appeared on Pine's
balance sheet at December 31, Year 1 and
Year 2 were
A. $0 and $6,400.
B. $6,400 and $7,680.
C. $0 and $1,280.
D. $6,400 and $1,280
[572] Source: CMA 1293 2-12
condemnation awards.
D. Be recorded for probable damages
to be awarded in a patent infringement
case.
[578] Source: CMA 1286 4-20
Using the effective interest method of
premium amortization, the amount of interest
expense (rounded to the nearest dollar)
reported by Straf Company in Year 1 is
A. $1,488
B. $6,512
C. $8,000
D. $8,682
[579] Source: CMA 1286 4-21
Using the straight-line method of premium
amortization, the carrying amount of the
bonds (rounded to the nearest dollar) at
December 31, Year 1 is
A. $100,000
B. $106,824
C. $108,530
D. $107,042
[580] Source: CPA 1190 I-30
During Year 1, Rex Co. introduced a new
product carrying a two-year warranty
against defects. The estimated warranty
costs related to dollar sales are 2% within
12 months following sale, and 4% in the
second 12 months following sale. Sales and
actual warranty expenditures for the years
ended December 31, Year 1 and Year 2 are
as follows:
Actual Warranty
Sales
Expenditures
---------- --------------Year 1 $ 600,000
$ 9,000
Year 2
1,000,000
30,000
---------------$1,600,000
$39,000
==========
=======
At December 31, Year 2, Rex should report
an estimated warranty liability of
A. $0
B. $39,000
C. $57,000
D. $96,000
[581] Source: CMA 1291 2-28
Beginning January 1, Year 1, Center
Company offered a 3-year warranty from
date of sale on any of its products sold after
January 1, Year 1. The warranty offer was
part of a program to increase sales. Meeting
the terms of the warranty was expected to
cost Center 4% of sales. Sales made under
warranty in Year 1 totaled $9,000,000, and
one-fifth of the units sold were returned.
These units were repaired or replaced at a
cost of $65,000. The amount of warranty
expense that should appear on Center's Year
1 income statement is
A. $360,000
B. $137,000
C. $71,000
D. $65,000
[582] Source: CIA 0594 IV-15
Suppose that the company has paid one of its
liabilities twice during the year, in error.
The effects of this mistake would be
A. Assets, liabilities, and owners'
equity are understated.
B. Assets, net income, and owners'
equity are unaffected.
C. Assets and liabilities are
understated.
D. Assets and net income and owners'
equity are understated, and liabilities
are overstated.
[583] Source: Publisher
A company issues $100,000 of 8% bonds at
par. Each $1,000 bond carries five
detachable warrants, each of which allows
the holder to acquire one share of $5 par
value common stock for $30 a share. After
issuance, the bonds were quoted at 98
ex-rights, and the warrants were quoted at
$6 each. The value assigned to the bonds at
issuance should be
A. $97,000
B. $97,029.70
C. $98,000
D. $100,000
[584] Source: CIA 0593 IV-42
A plot of land is acquired in exchange for
$250,000 cash and a non-interest-bearing
note with a face amount of $1,000,000 on
January 1, Year 1. The $1,000,000 is
payable in installments of $250,000 each,
with the first installment due December 31,
Year 1. With regard to imputing interest on
this note, (1) what market rate should be
used to account for interest for Year 1 and
(2) what should be done in future years
when there is a change in prevailing interest
rates?
(1)
Market Rate to Use
to Compute Interest
Expense for Year 1
--------------------
(2)
Impact of Change in
Prevailing Interest
Rates in Future
Periods on Rate Used
to Account for this Note
------------------------
A.
Rate prevailing at
January 2, Year 1
Rate prevailing at
January 2, Year 1
B.
C.
Rate prevailing at
Ignore change in rate
December 31, Year 1
D.
Rate prevailing at
Use new market rate
December 31, Year 1
[585] Source: CIA 0593 IV-37
A company issues bonds payable at a
premium. You are analyzing the effects of
using the effective interest (constant yield)
method in accounting for the bonds over
their ten-year life. Which of the following
trends related to the reported amounts for
(1) interest expense and (2) carrying amount
of the bonds would you expect to find?
Interest Expense
-----------------
Carrying Amount
-----------------
Increasing amount
Decreasing amount
Decreasing amount
Decreasing amount
Decreasing amount
Constant amount
Increasing amount
Constant amount
A.
B.
C.
D.
$1,010
Accounts payable
Freight-in
Cash
$980
30
$1,010
B.
$1,010
C.
Purchases
Freight-in
Accounts payable
D.
$1,000
30
$1,030
Accounts payable
Cash
$980
$980
$90,000
Sales
Estimated liability
for premiums
$90,000
Premium expense
Estimated liability
for premiums
$1,800,000
Sales
Estimated liability
for premiums
$1,800,000
$90,000
B.
$90,000
C.
$1,800,000
D.
$1,800,000
A. $500,000
B. $800,000
C. $1,300,000
D. $2,600,000
[596] Source: CIA 1189 IV-44
An employee's right to obtain pension
benefits regardless of whether (s)he remains
employed is known as his/her
A. Prior service cost.
B. Defined benefit plan.
C. Vested interest.
D. Minimum liability.
[597] Source: CMA 0694 2-19
When applying SFAS 87, Employer's
Accounting for Pension Plans, the
accumulated benefit obligation (ABO) is
best described as the
A. Present value of benefits accrued to
date based on future salary levels.
B. Present value of benefits accrued to
date based on current salary levels.
C. Increase in retroactive benefits at the
date of the amendment of the plan.
D. Amount of the adjustment necessary
to reflect the difference between actual
and estimated actuarial returns.
[598] Source: CMA 1294 2-12
As proceeds from this bond issuance,
Garrett Corporation should record
A. $365,700.
B. $420,360.
C. $461,440.
D. $478,580.
[599] Source: CMA 1294 2-13
The interest expense that Garrett
Corporation will incur on these bonds at
1993
---------$4,000,000
Interest Payable
------------------Current liability
Long-term liability
Current liability
Long-term liability
B. Classification B.
C. Classification C.
D. Classification D.
[625] Source: CIA 0596 IV-23
On January 1, a company issued a 10-year
$500,000 bond at 96% of face value. The
bond bears interest at 12%, payable on
January 1 and July 1. The entry to record the
issuance of the bond on January 1 would be
A.
Cash
$480,000
Bonds payable
$480,000
B.
Cash
$500,000
Bonds payable
$500,000
C.
Cash
Discount on bonds
payable
Bonds payable
$480,000
Cash
$500,000
$ 20,000
$500,000
D.
Premium on bonds
payable
$ 20,000
Bonds payable
$480,000
List B
------------
List C
--------
Equal to
Equal to
Premium
Greater than
Greater than
Premium
Greater than
Less than
Discount
Less than
Greater than
Discount
A.
B.
C.
D.
110,000
Liability
Receivables
Gain
100,000
Liability
Receivables
Gain
110,000
Liability
Receivables
Gain
100,000
99,000
11,000
B.
99,000
1,000
C.
90,000
20,000
D.
90,000
10,000
List B
---------
Tangible
Capital
Intangible
Capital
Tangible
Operating
Intangible
Operating
A.
B.
C.
D.
70%
80%
90%
60%
70%
80%
90%
Accumulated benefit
obligation (ABO)
$180,000
Projected benefit
obligation (PBO)
200,000
Fair value of plan
assets
162,000
Unrecognized prior
service cost
68,000
Prepaid pension cost
30,000
Accrued pension cost
-In accordance with the requirements of
SFAS 87, Employer's Accounting for
Pension Plans, Deerfield's minimum
liability at May 31, 2000 and 2001,
respectively, was
A. $38,000 and $140,000.
B. $98,000 and $0.
C. $48,000 and $12,000.
D. $18,000 and $100,000.
[658] Source: CMA 0696 2-7
What is the deferred tax liability at
December 31, 2001 (rounded to the nearest
whole dollar)?
A. $7,000
B. $33,330
C. $11,666
D. $4,666
$280,000
320,000
180,000
52,000
-88,000
C. $63,769
D. $31,884
[662] Source: CMA 0696 2-23
The bonds were issued on January 1 at
A. A premium.
B. An amortized value.
C. Book value
D. A discount.
[663] Source: CMA 1296 2-25
According to SFAS 87, Employer's
Accounting for Pension Plans, the projected
benefit obligation (PBO) is best described
as the
A. Present value of benefits accrued to
date based on future salary levels.
B. Present value of benefits accrued to
date based on current salary levels.
C. Increase in retroactive benefits at the
date of the amendment of the plan.
D. Amount of the adjustment necessary
to reflect the difference between actual
and estimated actuarial returns.
[664] Source: CMA 1296 2-26
Baldwin Corporation's minimum pension
liability at November 30 is
A. $190,000
B. $405,000
C. $517,500
D. $523,850
[665] Source: CMA 1296 2-27
Using the straight-line method of
amortization, the amount of prior service
cost charged to expense during the year
ended November 30 is
A. $9,500
B. $19,000
C. $30,250
D. $190,000
[666] Source: CMA 1296 2-29
For the past 3 months, Kenton Inc. has been
negotiating a labor contract with potentially
significant wage increases. Before
completing the year-end financial statements
on November 30, Kenton determined that the
contract was likely to be signed in the near
future. Kenton has estimated that the effect
of the new contract will cost the company
either $100,000, $200,000, or $300,000.
Also, Kenton believes that each estimate has
an equal chance of occurring and that the
likelihood of the new contract being
retroactive to the fiscal year ended
November 30 is probable. According to
SFAS 5, Kenton should
A. Do nothing because no loss will
occur if the contract is never signed.
B. Disclose each loss contingency
amount in the notes to the November 30
financial statements.
C. Accrue $100,000 in the income
statement, and disclose the nature of the
contingency and the additional loss
exposure.
D. Follow conservatism and accrue
$300,000 in the income statement, and
disclose the nature of the contingency.
[667] Source: CMA 0688 3-26
The accrual of a contingent liability and the
related loss should be recorded when the
A. Loss resulting from a future event
may be material in relation to income.
B. Future event that gives rise to the
liability is unusual in nature and
nonrecurring.
C. Amount of the loss resulting from the
event is reasonably estimated and the
occurrence of the loss is probable.
D. Event that gives rise to the liability
is unusual and its occurrence is
probable.
[668] Source: CMA 0697 2-22
for $135,000.
B. Debit unearned revenue for
$135,000 and credit subscription
revenue for $135,000.
C. Debit subscription revenue for
$45,000 and credit unearned revenue
for $45,000.
D. Debit unearned revenue for $45,000
and credit subscription revenue for
$45,000.
[671] Source: Publisher
Hopkins Corporation, a manufacturer of
industrial fans, accounts for warranty costs
under the accrual method. During November
2001, the company sold 500 units at $6,000
each. Each unit had a 1-year warranty.
Based on past experience, the company
expects future warranty costs to be $150 per
unit. As of December 31, 2001, no journal
entries involving warranty costs related to
these units had been made, and no warranty
costs were incurred during November or
December. The year-end adjusting entry
required at December 31, 2001 to account
for estimated future warranty costs is to
A. Make no entry until costs are
incurred.
B. Debit sales for $75,000 and credit
unearned warranty revenue for $75,000.
C. Debit warranty expenses for $62,500
and credit estimated liability under
warranties for $62,500.
D. Debit warranty expenses for $75,000
and credit estimated liability under
warranties for $75,000.
[672] Source: Publisher
Tonya Corporation's financial statements at
December 31, 2001 should
A. Include a contingent liability of $1
million.
B. Disclose the purchase commitment.
C. Include a liability of $1,150,000.
D. Include a deferred liability of $1
million.
D. $2,112,969
[677] Source: Publisher
The bonds were issued on January 1, 2001
at
A. A premium.
B. An amortized value.
C. Book value.
D. A discount.
[678] Source: Publisher
What is the deferred tax liability at
December 31, 2001 (rounded to the nearest
whole dollar)?
A. $14,000
B. $66,660
C. $23,331
D. $9,331
[679] Source: Publisher
Assuming no other transactions involving
depreciable assets, what is the balance of
the deferred tax liability at December 31,
2002 (rounded to the nearest whole dollar)?
A. $17,115
B. $26,446
C. $ 7,784
D. $ 9,331
[680] Source: Publisher
Assume that new corporate income tax rates
will go into effect as follows:
2002-2004
40%
2005
45%
What is the amount of the deferred tax
liability at December 31, 2001 (rounded to
the nearest whole dollar)?
A. $11,997
B. $10,664
C. $14,000
D. $12,664
[681] Source: Publisher
Beginning January 1, 2001, Stone Company
offered a 3-year warranty from date of sale
on any of its products sold after January 1,
2001. The warranty offer was part of a
program to increase sales. Meeting the terms
of the warranty was expected to cost 4% of
sales. Sales made under warranty in 2001
totaled $18 million, and 20% of the units
sold were returned. These units were
repaired or replaced at a cost of $130,000.
The warranty expense reported on Stone's
2001 income statement is
A. $720,000
B. $202,000
C. $240,000
D. $130,000
[682] Source: Publisher
Based on its current operating levels,
Glucose Corporation estimates that its
annual level of taxable income in the
foreseeable future will be $200,000
annually. Enacted tax rates for the tax
jurisdiction in which Glucose operates are
15% for the first $50,000 of taxable income,
25% for the next $50,000 of taxable income,
and 35% for taxable income in excess of
$100,000. Which tax rate should Glucose
use to measure a deferred tax liability or
asset in accordance with SFAS 109?
A. 15%
B. 25%
C. 27.5%
D. 35%
[683] Source: Publisher
In preparing its December 31 financial
statements, Irene Corp. must determine the
proper accounting treatment of a $180,000
loss carryforward available to offset future
taxable income. There are no temporary
differences. The applicable current and
future income tax rate is 30%. Available
evidence is not conclusive as to the future
existence of sufficient taxable income to
$0
$30,000
$0
$54,000
$24,000
$54,000
$30,000
B.
C.
D.
$400,000
$475,000
$125,000
$450,000
$400,000
$200,000
$650,000
B.
C.
D.
C. $1,200
D. $2,320
[691] Source: CPA 0593 II-18
On December 30, 20X0, Hale Corp. paid
$400,000 cash and issued 80,000 shares of
its $1 par value common stock to its
unsecured creditors on a pro rata basis
pursuant to a reorganization plan under
Chapter 11 of the bankruptcy statutes. Hale
owed these unsecured creditors a total of
$1.2 million. Hale's common stock was
trading at $1.25 per share on December 30,
20X0. As a result of this transaction, Hale's
total shareholder's equity had a net increase
of
A. $1,200,000
B. $800,000
C. $100,000
D. $80,000
[692] Source: CPA 1192 I-57
On January 1, 20X0, Harrow Co. as lessee
signed a five-year noncancellable equipment
lease with annual payments of $100,000
beginning December 31, 20X0. Harrow
treated this transaction as a capital lease.
The five lease payments have a present
value of $379,000 at January 1, 20X0,
based on interest of 10%. What amount
should Harrow report as interest for the year
ended December 31, 20X0?
A. $37,900
B. $27,900
C. $24,200
D. $0
[693] Source: CPA 0591 I-42
On January 1, 20X0, Babson, Inc. leased
two automobiles for executive use. The
lease requires Babson to make five annual
payments of $13,000 beginning January 1,
20X0. At the end of the lease term,
December 31, 20X4, Babson guarantees the
residual value of the automobiles will total
$10,000. The lease qualifies as a capital
lease. The interest rate implicit in the lease
is 9%. Present value factors for the 9% rate
A. $60,000
B. $66,000
C. $126,000
D. $200,000
[696] Source: CPA 0591 I-44
On January 1, 20X0, Hooks Oil Co. sold
equipment with a carrying amount of
$100,000 and a remaining useful life of 10
years to Maco Drilling for $150,000. Hooks
immediately leased the equipment back
under a 10-year capital lease with a present
value of $150,000. It will depreciate the
equipment using the straight-line method.
Hooks made the first annual lease payment
of $24,412 in December 20X0. In Hooks's
December 31, 20X0 balance sheet, the
unearned gain on the equipment sale should
be
A. $50,000
B. $45,000
C. $25,588
D. $0
[697] Source: Publisher
The Rice Company sponsors a defined
benefit pension plan for its employees. At
the beginning of Year 1, Rice had prepaid
pension cost of $15,000, pension plan assets
with a fair value of $50,000, and a
projected benefit obligation (PBO) of
$35,000. The accumulated benefit obligation
(ABO) equals the PBO. The service cost for
Year 1 was $45,000, and the amount funded
was $40,000. The discount rate and the
expected rate of return on plan assets were
10%. No amortization of prior service cost,
previously unrecognized gains or losses, or
transition amount is required to determine
the minimum net periodic pension cost
(NPPC). Thus, for Year 1, Rice reported
A. Interest cost of $5,000.
B. Prepaid pension cost of $15,000.
C. NPPC of $43,500.
D. Accrued pension cost of $16,500.
$350,000
525,000
110,000
85,000
A. $9,000
B. $10,800
C. $45,000
D. $54,000
[706] Source: CPA 1191 I-38
Mill, which began operations on January 1,
20X0, recognizes income from long-term
construction contracts under the
percentage-of-completion method in its
financial statements and under the
completed-contract method for income tax
reporting. Income under each method
follows:
CompletedPercentageYear
Contract
of-Completion
---- ---------- ------------20X0
$
-$300,000
20X1
400,000
600,000
20X2
700,000
850,000
There are no other temporary differences. If
the applicable tax rate is 25%, Mill should
report in its balance sheet at December 31,
20X2 a deferred income tax liability of
A. $37,500
B. $105,000
C. $162,500
D. $195,000
[707] Source: Publisher
For which fiscal year, ended May 31, would
the depreciation expense be the lowest?
(Use the units-of-output method for all
years.)
A. 1994
B. 1995
C. 1996
D. 1997
[708] Source: Publisher
Assuming the double-declining-balance
method of depreciation is used for all years,
the depreciation expense for the fiscal year
ended May 31 would be greatest in
A. 1994
B. 1995
C. 1996
D. 1997
[709] Source: CMA 0690 3-1
For a direct financing lease, the gross
investment, lease payments receivable,
recorded by the lessor is equal to the
A. Present value of the minimum lease
payments minus the unguaranteed
residual value accruing to the lessor at
the end of the lease term.
B. Lower of 90% of the present value
of the minimum lease payments or the
fair value of the leased asset.
C. Difference between the fair value of
the leased asset and the unearned
interest revenue.
D. Minimum lease payments plus the
unguaranteed residual value accruing to
the lessor at the end of the lease term.
[710] Source: CPA 0595 F-17
At December 31, 2000, Bren Co. had the
following deferred income tax items:
A deferred income tax liability of $15,000 related to a
noncurrent asset
A deferred income tax asset of $3,000 related to a noncurrent
liability
A deferred income tax asset of $8,000 related to a current
liability
Which of the following should Bren report
in the noncurrent section of its December
31, 2000 balance sheet?
A. A noncurrent asset of $3,000 and a
noncurrent liability of $15,000.
B. A noncurrent liability of $12,000.
C. A noncurrent asset of $11,000 and a
noncurrent liability of $15,000.
D. A noncurrent liability of $4,000.
[711] Source: CMA 0691 2-19
Garber Corporation is the lessee in a lease
arrangement with Janos, Inc. to lease land
C. A charitable contribution of
appreciated property.
D. Sales commission earned in the
current year but paid in the following
year.
[726] Source: Publisher
The deferral or nonrecognition of gains is
not allowed for tax purposes when the
transaction is a(n)
A. Reorganization that is a change in the
form of investment.
B. Exchange of property that is used in
a business for like-kind property.
C. Reorganization that is considered a
disposition of assets.
D. Involuntary conversion of property
into qualified replacement property.
[727] Source: Publisher
At the beginning of Year 1, the Wright
Company's actuary estimated the company's
total unrecognized prior service cost to be
$180,000. Wright expected the following
numbers of years of future service from its
seven employees: A-2; B-2; C-6; D-8; E-10;
F-5; G-3. Under the years-of-future-service
method, the amount of amortization of
unrecognized prior service cost to be
included in pension expense in Year 3 is
A. $35,000
B. $25,000
C. $25,714
D. $36,000
[728] Source: Publisher
SFAS 114, Accounting by Creditors for
Impairment of a Loan, requires recognition
of an impairment when it is probable that a
creditor will be unable to collect
Contractual
Principal Payments
------------------
Contractual
Interest Payments
-----------------
A.
Yes
No
B.
Yes
Yes
No
Yes
No
No
C.
D.
C. $47,900
D. $47,800
[731] Source: CPA 0591 I-34
Kew Co.'s accounts payable balance at
December 31, Year 1 was $2.2 million
before considering the following data:
Goods shipped to Kew FOB shipping point on December 22, Year 1
were lost in transit. The invoice cost of $40,000 was not
recorded by Kew. On January 7, Year 2, Kew filed a $40,000
claim against the common carrier.
On December 27, Year 1, a vendor authorized Kew to return, for
full credit, goods shipped and billed at $70,000 on December 3,
Year 1. The returned goods were shipped by Kew on December 28,
Year 1. A $70,000 credit memo was received and recorded by Kew
on January 5, Year 2.
Goods shipped to Kew FOB destination on December 20, Year 1 were
received on January 6, Year 2. The invoice cost was $50,000.
What amount should Kew report as accounts
payable in its December 31, Year 1 balance
sheet?
A. $2,170,000
B. $2,180,000
C. $2,230,000
D. $2,290,000
[732] Source: CPA 0591 I-37
Kemp Co. must determine the December 31,
Year 2 accruals for advertising and rent
expenses. A $500 advertising bill was
received January 7, Year 3. It related to
costs of $375 for advertisements in
December Year 2 issues and $125 for
advertisements in January Year 3 issues of
the newspaper. A store lease, effective
December 16, Year 1, calls for fixed rent of
$1,200 per month, payable one month from
the effective date and monthly thereafter. In
addition, rent equal to 5% of net sales over
$300,000 per calendar year is payable on
January 31 of the following year. Net sales
for Year 2 were $550,000. In its December
31, Year 2 balance sheet, Kemp should
report accrued liabilities of
A. $12,500
B. $12,875
C. $13,100
D. $13,475
[733] Source: CPA 1193 I-28
Ross Co. pays all salaried employees on a
Monday for the five-day workweek ended
the previous Friday. The last payroll
recorded for the year ended December 31,
Year 2 was for the week ended December
25, Year 2. The payroll for the week ended,
Friday, January 1, Year 3 included regular
weekly salaries of $80,000 and vacation
pay of $25,000 for vacation time earned in
Year 2 but not taken by December 31, Year
2. Ross had accrued a liability of $20,000
for vacation pay at December 31, Year 1. In
its December 31, Year 2 balance sheet,
what amount should Ross report as accrued
salary and vacation pay?
A. $64,000
B. $69,000
C. $84,000
D. $89,000
[734] Source: CPA 1194 F-18
In its current year financial statements, Cris
Co. reported interest expense of $85,000 in
its income statement and cash paid for
interest of $68,000 in its cash flow
statement. There was no prepaid interest or
interest capitalization at either the beginning
or the end of the year. Accrued interest last
year was $15,000. What amount should Cris
report as accrued interest payable in its end
of the year balance sheet?
A. $2,000
B. $15,000
C. $17,000
D. $32,000
[735] Source: CPA 1193 I-31
On September 1, Year 1, Brok Co. issued a
note payable to Federal Bank in the amount
of $900,000, bearing interest at 12% and
payable in three equal annual principal
payments of $300,000. The first interest and
principal payment was made on September
1, Year 2. At December 31, Year 2, Brok
should record accrued interest payable of
A. $36,000
B. $33,000
C. $24,000
D. $22,000
[736] Source: CPA 1190 I-12
Bloy Corp.'s payroll for the pay period is
summarized as follows:
Federal
Amount of Wages
Income
Subject to Payroll Taxes
Department
Total
Tax
------------------------Payroll
Wages
Withheld
FICA
Unemployment
---------- -------- --------------- -----------Factory
$ 60,000
$ 7,000
$56,000
$18,000
Sales
22,000
3,000
16,000
2,000
Office
18,000
2,000
8,000
-------------------------$100,000
$12,000
$80,000
$20,000
========
=======
=======
=======
Assume the following payroll tax rates:
FICA for employer and employee
7% each
Unemployment
3%
What amount should Bloy accrue as its share
of payroll taxes in its balance sheet?
A. $18,200
B. $12,600
C. $11,800
D. $6,200
[737] Source: CPA 1195 F-13
Lime Co.'s payroll for the month is
summarized as follows:
Total wages
$10,000
Federal income tax withheld
1,200
All wages paid were subject to FICA. FICA
tax rates were 7% each for employee and
employer. Lime remits payroll taxes on the
15th of the following month. In its financial
statements for the month, what amounts
should Lime report as total payroll tax
liability and as payroll tax expense?
Liability
---------
Expense
-------
$1,200
$1,400
A.
B.
$1,900
$1,400
$1,900
$700
$2,600
$700
C.
D.
Sales Taxes
-----------
Occupancy Taxes
---------------
$39,000
$6,000
$39,000
$8,200
$54,000
$6,000
$54,000
$8,200
A.
B.
C.
D.
Subcontractor
--------------------------
None
None
None
None
A.
B.
C.
D.
Noncurrent
------------
$125,000
$0
$100,000
$25,000
$100,000
$0
$25,000
$100,000
$150,000
10,000,000
11,000,000
A.
B.
C.
D.
$4,000,000
2,750,000
$800,000
10 years
6%
Annually on July 1
9%
At 6%
At 9%
--------Present value of 1 for 10 periods
0.558
0.422
Future value of 1 for 10 periods
1.791
2.367
Present value of ordinary annuity
of 1 for 10 periods
7.360
6.418
What should the issue price be for each
$1,000 bond?
A. $1,000
B. $943
C. $864
D. $807
[750] Source: CPA 1190 I-24
On June 30, 2001, Huff Corp. issued 1,000
of its 8%, $1,000 bonds at 99. The bonds
were issued through an underwriter to whom
Huff paid bond issue costs of $35,000. On
June 30, 2001, Huff should report the bond
liability at
A. $955,000
B. $990,000
C. $1,000,000
D. $1,025,000
[751] Source: CPA 1193 I-29
On January 31, 2001, Beau Corp. issued
$300,000 maturity value, 12% bonds for
$300,000 cash. The bonds are dated
December 31, 2000 and mature in ten years.
Interest will be paid semiannually on June
30 and December 31. What amount of
accrued interest payable should Beau report
in its September 30, 2001 balance sheet?
A. $27,000
B. $24,000
C. $18,000
D. $9,000
[752] Source: CPA 1194 F-24
On January 2, 2000, West Co. issued 9%
bonds in the amount of $500,000. They
mature in ten years. The bonds were issued
for $469,500 to yield 10%. Interest is
payable annually on December 31. West
uses the interest method of amortizing bond
discount. In its June 30, 2000 balance sheet,
what amount should West report as bonds
payable?
A. $469,500
B. $470,475
C. $471,025
D. $500,000
[753] Source: CPA 1193 I-36
Webb Co. has outstanding a 7%, 10-year
bond with a $100,000 face value. The bond
was originally sold to yield 6% annual
interest. Webb uses the effective-interest
method to amortize bond premium. On June
30, 2000, the carrying amount of the
outstanding bond was $105,000. What
amount of unamortized premium on the bond
should Webb report in its June 30, 2001
balance sheet?
A. $1,050
B. $3,950
C. $4,300
D. $4,500
[754] Source: CPA 0590 I-37
During 2000, Eddy Corp. incurred the
following costs in connection with the
issuance of bonds:
Printing and engraving
$ 30,000
Legal fees
160,000
Fees paid to independent accountants
for registration information
20,000
Commissions paid to underwriter
300,000
What amount should be recorded as a
deferred charge to be amortized over the
term of the bonds?
A. $510,000
B. $480,000
C. $300,000
D. $210,000
[755] Source: CPA 1193 I-34
On January 2, 2000, Gill Co. issued $2
million of 10-year, 8% bonds at par. The
bonds, dated January 1, 2000, pay interest
semiannually on January 1 and July 1. Bond
issue costs were $250,000. What amount of
bond issue costs are unamortized at June 30,
2001?
A. $237,500
B. $225,000
C. $220,800
D. $212,500
[756] Source: CPA 1192 I-39
Blue Corp.'s December 31, 2000 balance
sheet contained the following items in the
long-term liabilities section:
9.25% registered debentures, callable in 11 years,
due in 16 years
9.25% collateral trust bonds, convertible into common
stock beginning in 2009, due in 19 years
10% subordinated debentures ($30,000 maturing annually
beginning in 2006)
What is the total amount of Blue's term
$700,000
600,000
300,000
bonds?
A. $600,000
B. $700,000
C. $1,000,000
D. $1,300,000
[757] Source: CPA 0593 I-2
On December 31, 2000, Largo, Inc. had a
$750,000 note payable outstanding due July
31, 2001. Largo borrowed the money to
finance construction of a new plant. Largo
planned to refinance the note by issuing
long-term bonds. Because Largo temporarily
had excess cash, it prepaid $250,000 of the
note on January 12, 2001. In February 2001,
Largo completed a $1.5 million bond
offering. Largo will use the bond offering
proceeds to repay the note payable at its
maturity and to pay construction costs during
2001. On March 3, 2001, Largo issued its
2000 financial statements. What amount of
the note payable should Largo include in the
current liabilities section of its December
31, 2000 balance sheet?
A. $750,000
B. $500,000
C. $250,000
D. $0
[758] Source: CPA 1194 F-22
House Publishers offered a contest in which
the winner would receive $1 million,
payable over 20 years. On December 31,
2000, House announced the winner of the
contest and signed a note payable to the
winner for $1 million, payable in $50,000
installments every January 2. Also on
December 31, 2000, House purchased an
annuity for $418,250 to provide the
$950,000 prize monies remaining after the
first $50,000 installment, which was paid on
January 2, 2001. In its December 31, 2000
balance sheet, at what amount should House
measure the note payable, net of current
portion?
A. $368,250
B. $418,250
C. $900,000
D. $950,000
[759] Source: CPA 1193 I-27
On December 31, 2000, Roth Co. issued a
$10,000 face value note payable to Wake
Co. in exchange for services rendered to
Roth. The transaction was not in the normal
course of business. The note, made at usual
trade terms, is due in nine months and bears
interest, payable at maturity, at the annual
rate of 3%, a rate that is unreasonable in the
circumstances. The market interest rate is
8%, the prevailing rate for similar
instruments of issuers with similar credit
ratings. The compound interest factor of $1
due in nine months at 8% is .944. At what
amount should the note payable be credited
in Roth's December 31, 2000 balance sheet?
A. $10,300
B. $10,000
C. $9,652
D. $9,440
[760] Source: CPA 0FIN R99-14
Casey Corp. entered into a troubled debt
restructuring agreement with First State
Bank. First State agreed to accept land with
a carrying amount of $85,000 and a fair
value of $120,000 in exchange for a note
with a carrying amount of $185,000.
Disregarding income taxes, what amount
should Casey report as extraordinary gain in
its income statement?
A. $0
B. $35,000
C. $65,000
D. $100,000
[761] Source: CPA 1193 I-39
Neal Corp. entered into a nine-year capital
lease on a warehouse on December 31,
2000. The land and building are capitalized
as a single unit. Lease payments of $52,000,
which include real estate taxes of $2,000,
are due annually, beginning on December
31, 2001 and every December 31 thereafter.
Neal does not know the interest rate implicit
portion?
A. $66,000
B. $73,500
C. $73,636
D. $74,250
[764] Source: CPA 1193 I-55
On January 1, 2000, Nori Mining Co.
(lessee) entered into a five-year lease for
drilling equipment. Nori accounted for the
acquisition as a capital lease for $120,000,
which includes a $5,000 bargain purchase
option. At the end of the lease, Nori expects
to exercise the bargain purchase option.
Nori estimates that the equipment's fair
value will be $10,000 at the end of its
eight-year life. Nori regularly uses
straight-line depreciation on similar
equipment. For the year ended December
31, 2000, what amount should Nori
recognize as depreciation expense on the
leased asset?
A. $13,750
B. $15,000
C. $23,000
D. $24,000
[765] Source: CPA 1195 F-29
Glade Co. leases computer equipment to
customers under direct-financing leases. The
equipment has no residual value at the end
of the lease, and the leases do not contain
bargain purchase options. Glade wishes to
earn 8% interest on a five-year lease of
equipment with a fair value of $323,400.
The present value of an annuity due of $1 at
8% for five years is 4.312. What is the total
amount of interest revenue that Glade will
earn over the life of the lease?
A. $51,600
B. $75,000
C. $129,360
D. $139,450
[766] Source: CPA 0595 F-28
A. $0
B. $9,200
C. $60,800
D. $70,000
[769] Source: CPA 0590 I-31
On December 31, 2000, Bain Corp. sold a
machine to Ryan and simultaneously leased
it back for one year. Pertinent information at
this date follows:
Sales price
Carrying amount
Present value of reasonable lease rentals
($3,000 for 12 months at 12%)
Estimated remaining useful life
In Bain's December 31, 2000 balance sheet,
the deferred revenue from the sale of this
machine should be
$360,000
330,000
34,100
12 years
A. $34,100
B. $30,000
C. $4,100
D. $0
[770] Source: CPA 0593 I-31
On December 31, 2000, Dirk Corp. sold
Smith Co. two airplanes and simultaneously
leased them back. Additional information
pertaining to the sale-leasebacks follows:
Plane #1
-------Sales price
$600,000
Carrying amount, 12/31/00
$100,000
Remaining useful life, 12/31/00
10 years
Lease term
8 years
Annual lease payments
$100,000
In its December 31, 2000 balance sheet,
what amount should Dirk report as deferred
gain on these transactions?
A. $950,000
B. $500,000
C. $450,000
D. $0
Plane #2
---------$1,000,000
$550,000
35 years
3 years
$200,000
C. $20,000
D. $25,000
[774] Source: CPA 0595 F-18
The following information pertains to Kane
Co.'s defined benefit pension plan:
Prepaid pension cost, January 1, 2000
Service cost
Interest cost
Actual return on plan assets
Amortization of unrecognized prior service cost
Employer contributions
The fair value of plan assets exceeds the
accumulated benefit obligation (ABO). In its
December 31, 2000 balance sheet, what
amount should Kane report as unfunded
accrued pension cost?
A. $45,000
B. $49,000
C. $67,000
D. $87,000
[775] Source: CPA 1195 F-14
At December 31, 2000, what amount should
Hall record as additional pension liability?
A. $5,000
B. $13,000
C. $17,000
D. $25,000
[776] Source: CPA 1195 F-15
In its December 31, 2000 statement of
shareholders' equity, what amount should
Hall report as excess of additional pension
liability over unrecognized prior service
cost?
A. $5,000
B. $13,000
C. $17,000
D. $25,000
$ 2,000
19,000
38,000
22,000
52,000
40,000
$10,000
5,000
C. $6,000
D. $8,000
[783] Source: CPA 1194 F-6
Thorn Co. applies SFAS 109. At the end of
2000, the tax effects of temporary
differences were as follows:
Deferred
Tax Assets
(Liabilities)
------------($75,000)
25,000
------($50,000)
A valuation allowance was not considered
necessary. Thorn anticipates that $10,000 of
the deferred tax liability will reverse in
2001. In Thorn's December 31, 2000
balance sheet, what amount should Thorn
report as noncurrent deferred tax liability?
A. $40,000
B. $50,000
C. $65,000
D. $75,000
[784] Source: CMA 1287 4-10
Assuming the cost method of accounting for
treasury stock was used to record the
transaction, the entry would
A. Increase paid-in capital in excess of
par and increase retained earnings.
B. Increase paid-in capital in excess of
par and decrease retained earnings.
C. Decrease paid-in capital in excess of
par and decrease retained earnings.
D. Have no effect on either paid-in
capital in excess of par or retained
earnings.
[785] Source: CMA 1287 4-11
Assuming the par value method of
accounting for treasury stock was used to
record the transaction, the entry would
Related Asset
Classification
---------------Noncurrent asset
Current asset
A. 7.5 years.
B. 12.5 years.
C. 9.0 years.
D. 15.0 years.
[798] Source: CMA 1284 4-28
Paragon's book value per share of common
stock as of November 30, 2001 is
A. $4.00.
B. $1.61.
C. $1.00.
D. $2.41.
[799] Source: CMA 1284 4-30
If Paragon has a payout ratio of 80% and
declared and paid $4,000,000 of cash
dividends during the current fiscal year
ended November 30, 2001, the retained
earnings balance on the preceding
December 1, 2000 was
A. $20,000,000.
B. $17,000,000.
C. $15,000,000.
D. $11,000,000.
[800] Source: CMA 0686 3-4
Hessler received cash in the amount of
$180,000 on March 11 for the 10,000 shares
of common stock. The amount recorded as a
credit to common stock for this transaction
would have been
A. $50,000.
B. $80,000.
C. $130,000.
D. $180,000.
[801] Source: CMA 0686 3-5
Hessler received property in exchange for
the 10,000 shares of common stock. The
property had a fair market value of
$175,000 on June 11, the date of the
Par Value
Per Share
---------
Retained
Earnings
---------
Total
Equity
----------
No effect
Decrease
No effect
Decrease
Decrease
No effect
Decrease
No effect
No effect
No effect
Decrease
Decrease
A.
B.
C.
D.
B. 6.75 times.
C. 7.75 times.
D. 9.5 times.
[808] Source: CIA 0594 IV-13
At year-end, the company has a book value
per share, to the nearest cent, of
A. $15.00
B. $21.63
C. $23.25
D. $25.00
[809] Source: CIA 0593 IV-34
An organization had the following account
balances at December 31, Year 1:
Common stock, $10 par, 100,000 shares
authorized, 80,000 shares issued and
outstanding
$800,000
Additional paid-in capital (in excess
of par value)
400,000
Retained earnings
500,000
All shares outstanding were issued in a
prior period for $15 per share. On January
5, Year 2, 1,000 shares were purchased for
the treasury for $17 per share. These
treasury shares were sold on February 6,
Year 2 for $18 per share. The effect of the
purchase and sale of the 1,000 shares of
treasury stock was to
A. Increase equity by $1,000.
B. Increase equity by $2,000.
C. Increase equity by $3,000.
D. Increase equity by $8,000.
[810] Source: CMA 1294 2-17
Stock options and warrants are
A. Always considered common stock
equivalents, but are only included in
fully diluted earnings per share.
B. Not always common stock
equivalents, and therefore may be
excluded from earnings per share
calculations.
$ 950,000
1,675,000
2,806,000
---------$5,431,000
==========
$1,004,000
785,000
---------$1,789,000
==========
called
A. Transient preferreds.
B. Short-term preferreds.
C. Preferred stock obligations.
D. Temporary preferreds.
[816] Source: CIA 0592 IV-39
The following excerpt was taken from a
company's financial statements:
". . . 10% convertible participating . . .
$10,000,000." What is most likely being
referred to?
A. Bonds.
B. Common stock.
C. Stock options.
D. Preferred stock.
[817] Source: CIA 0591 IV-37
At December 31, 2000, a company had the
following equity accounts:
Common stock, $10 par, 100,000 shares
authorized, 40,000 shares issued
and outstanding
Additional paid-in capital from
issuance of common stock
Retained earnings
Total equity
$ 400,000
640,000
1,000,000
---------$2,040,000
==========
List B
-------------------
Ordinary income
B.
C.
Ordinary income
Ordinary income
Ordinary income
D.
$500,000
Preferred stock
Paid-in capital in excess
of par: preferred
Loss on redemption of
preferred stock
Cash
$500,000
Preferred stock
Loss on redemption of
preferred stock
Retained earnings
Cash
Paid-in capital in excess
of par: preferred
$500,000
20,000
30,000
$550,000
B.
20,000
30,000
$550,000
C.
50,000
300,000
$550,000
300,000
D.
Preferred stock
Paid-in capital in excess
of par: preferred
Retained earnings
Cash
$500,000
20,000
30,000
$550,000
List B
----------------------------------------------
Cash
Cash
Stock
Stock
A.
B.
C.
D.
below.
Preferred stock, $100 par
Common stock, $5 par
Paid-in capital in excess of par
Retained earnings
Net worth
$12,000,000
10,000,000
18,000,000
9,000,000
----------$49,000,000
===========
List B
---------------------------------
Higher
Higher
Lower
Lower
B.
C.
D.
earnings.
[846] Source: CMA 0695 1-14
Residco Inc. expects net income of
$800,000 for the next fiscal year. Its
targeted and current capital structure is 40%
debt and 60% common equity. The director
of capital budgeting has determined that the
optimal capital spending for next year is
$1.2 million. If Residco follows a strict
residual dividend policy, what is the
expected dividend payout ratio for next
year?
A. 90.0%
B. 66.7%
C. 40.0%
D. 10.0%
[847] Source: CIA 0590 IV-48
The date when the right to a dividend
expires is called the
A. Declaration date.
B. Ex-dividend date.
C. Holder-of-record date.
D. Payment date.
[848] Source: CIA 0593 IV-46
The policy decision that by itself is least
likely to affect the value of the firm is the
A. Investment in a project with a large
net present value.
B. Sale of a risky division that will now
increase the credit rating of the entire
company.
C. Distribution of stock dividends to
shareholders.
D. Use of a more highly leveraged
capital structure that resulted in a lower
cost of capital.
[849] Source: CIA 0595 IV-30
Which of the following types of dividends
do not reduce equity in the corporation?
A. Cash dividends.
B. Property dividends.
C. Liquidating dividends.
D. Stock dividends and split-ups in the
form of a dividend.
[850] Source: CIA 1194 IV-50
The stock split proposal will <List A>
earnings per share by <List B> than will the
proposal for a split-up effected in the form
of a dividend.
List A
-------A.
List B
------
Increase
More
Increase
Less
Decrease
More
Decrease
Less
B.
C.
D.
List B
--------
Increase
Stock split
Increase
Decrease
Stock split
Decrease
A.
B.
C.
D.
D. Trustee voting.
[857] Source: Publisher
The most accurate statement about
managerial control of traditional
corporations is that shareholders
A. Are similar to general partners in
that they have direct managerial
authority.
B. Have no legal power to exercise
effective control over management of
large corporations.
C. Can exert control over the
corporation only by choosing directors.
D. Have little operational control of a
corporation.
[858] Source: Publisher
Shareholders representing a majority of the
voting shares of Nadier, Inc. have
transferred their shares to Thomasina Trusty
to hold and vote irrevocably for 10 years.
Trusty has issued certificates to the
shareholders and pays them the dividends
received. The agreement
A. Is an illegal voting trust because it is
against public policy.
B. Is valid if entered into pursuant to a
written voting trust agreement.
C. Need not be filed with the
corporation.
D. May be revoked because it is in
essence a proxy.
[859] Source: Publisher
Shareholder voting
A. Is required to be cumulative in all
states.
B. May usually be accomplished by
oral or written proxy.
C. May usually be by proxy, but the
agency thus created is ordinarily limited
to a specific issue.
D. May be by proxy, but a proxy may be
Preferred
Stock
---------
Additional
Paid-in
Capital
----------
$150,000
$30,000
$45,000
$150,000
$75,000
$0
$10,000
$75,000
$140,000
$10,000
$30,000
$185,000
A.
B.
C.
D.
C. $30,000
D. $3,750
[866] Source: CMA 0694 2-3
Markham's total equity would be
A. Increased by the dividend
declaration and unchanged by the
dividend payment.
B. Unchanged by the dividend
declaration and decreased by the
dividend payment.
C. Unchanged by either the dividend
declaration or the dividend payment.
D. Decreased by the dividend
declaration and unchanged by the
dividend payment.
[867] Source: CMA 0694 2-4
If the dividend declared by Markham had
been a 10% stock dividend instead of a cash
dividend, Markham's current liabilities
would have been
A. Decreased by the dividend
declaration and increased by the
dividend distribution.
B. Unchanged by the dividend
declaration and increased by the
dividend distribution.
C. Unchanged by the dividend
declaration and decreased by the
dividend distribution.
D. Unchanged by either the dividend
declaration or the dividend distribution.
[868] Source: CMA 1289 4-17
If the dividend declared by Markham
Corporation had been a 10% stock dividend
instead of a cash dividend, Markham's total
equity would have been
A. Decreased by the dividend
declaration and increased by the
dividend distribution.
B. Unchanged by the dividend
declaration and increased by the
dividend distribution.
Additional
Paid-in Capital
---------------
Retained
Earnings
---------
A.
$25,000
$7,500
$(10,000)
$25,000
--
$ (2,500)
B.
C.
$25,000
$(2,500)
--
D.
$22,500
--
--
C. $40,000
D. $60,000
[875] Source: CPA 1194 F-31
Natural Co. had 100,000 shares of common
stock issued and outstanding at January 1,
20X0. During 20X0, Natural took the
following actions:
March 15
B. $21,000
C. $22,000
D. $23,000
[878] Source: Publisher
Under the par-value method of accounting
for treasury stock, what amount should Plant
report as additional paid-in capital on its
December 31, 20X1 balance sheet?
A. $15,000
B. $20,500
C. $21,000
D. $23,000
[879] Source: CPA 0591 II-4
The following accounts were among those
reported on Kyser Corp.'s balance sheet at
December 31, Year 1:
Securities (fair value $150,000)
$ 80,000
Preferred stock, $20 par value
20,000 shares issued and outstanding 400,000
Additional paid-in capital on
preferred stock
30,000
Retained earnings
900,000
On January 20, Year 2, Kyser exchanged all
of the securities for 5,000 shares of Kyser's
preferred stock. Fair values at the date of
the exchange were $150,000 for the
securities and $30 per share for the
preferred stock. The 5,000 shares of
preferred stock were retired immediately
after the exchange. Which of the following
journal entries should Kyser record in
connection with this transaction?
Debit
Credit
-------- ------A.
Preferred stock
Additional paid-in capital
on preferred stock
Retained earnings
Securities
Gain on exchange of
securities
$100,000
Preferred stock
Additional paid-in capital
100,000
7,500
42,500
$80,000
70,000
B.
on preferred stock
Securities
Additional paid-in capital
from retirement of
preferred stock
30,000
80,000
50,000
C.
Preferred stock
150,000
Securities
80,000
Additional paid-in capital
on preferred stock
70,000
D.
Preferred stock
Securities
Gain on exchange of
securities
150,000
80,000
70,000
$ 80,000
400,000
30,000
900,000
Credit
-------
A.
Preferred stock
$100,000
Additional paid-in capital
on preferred stock
7,500
Retained earnings
42,500
Securities
Gain on exchange of securities
$80,000
70,000
B.
Preferred stock
100,000
Additional paid-in capital on
preferred stock
30,000
Securities
Additional paid-in capital from
retirement of preferred stock
80,000
Preferred stock
Securities
Additional paid-in capital
on preferred stock
80,000
50,000
C.
150,000
70,000
D.
Preferred stock
150,000
Securities
Gain on exchange of securities
[882] Source: CPA 0592 II-4
On December 1, Hawk Corp. declared a
property dividend to be distributed on
December 31 to shareholders of record on
December 15. On December 1, the property
to be transferred had a carrying amount of
$60,000 and a fair value of $78,000. What
is the effect of this property dividend on
Hawk's retained earnings, after all nominal
accounts are closed?
A. $0
B. $18,000 increase.
C. $60,000 decrease.
D. $78,000 decrease.
[883] Source: CPA 0594 F-32
On January 2, 2001, Simpson Co.'s board of
directors declared a cash dividend of
$400,000 to shareholders of record on
January 18, 20X1, payable on February 10,
2001. The dividend is permissible under
80,000
70,000
Total liabilities
Common stock
Additional paid-in capital
Retained earnings (deficit)
$ 550,000
1,350,000
200,000
---------$2,100,000
==========
$ 600,000
1,600,000
300,000
(400,000)
---------$2,100,000
==========
Payments
-------Interest
Preferred dividends
Common dividends
How much tax should it have paid if the tax
rate is 35%?
A. $63,000
B. $74,200
C. $82,600
D. $102,200
[886] Source: CMA 0688 4-19
Which one of the following items would
likely increase earnings per share (EPS) of
a corporation?
A. Purchase of treasury stock.
B. Declaration of a stock split.
C. Declaration of a stock dividend.
D. An increase in the common stock
shares authorized to be issued.
[887] Source: CMA 1289 3-7
When computing earnings per share (EPS),
the treasury stock method will increase the
number of shares assumed to be outstanding
whenever the exercise price of an option or
warrant is
A. Below the market price of the
common stock.
B. Equal to the par value of the common
stock.
$224,000
32,000
40,000
40,000
-------$336,000
========
$44,000
35,000
45,000
C. 2,100,000.
D. 3,700,000.
[891] Source: CMA 1291 2-21
The weighted-average number of common
shares to be used on computing earnings per
common share for Year 3 on the Year 4
comparative income statement is
A. 1,850,000.
B. 2,100,000.
C. 3,700,000.
D. 4,200,000.
[892] Source: CMA 1291 2-22
The weighted-average number of common
shares to be used in computing earnings per
common share for Year 4 on the Year 4
comparative income statement is
A. 2,100,000.
B. 3,150,000.
C. 3,675,000.
D. 4,200,000.
[893] Source: CMA 0692 2-18
According to SFAS 4, Reporting Gains and
Losses from Extinguishment of Debt, as
amended, all of the following gains or
losses from extinguishment of debt should
be classified in the income statement as
extraordinary items except those arising
from
A. The extinguishment of debt at less
than the net carrying amount.
B. The extinguishment of debt to satisfy
sinking-fund requirements to be met
within 1 year.
C. The extinguishment of debt by
exchanging common shares of stock.
D. The extinguishment of debt at more
than the net carrying amount.
[894] Source: CMA 0692 2-24
A. A write-down of inventories.
B. A loss from the effects of a strike
against a major supplier.
C. A gain or loss on the disposal of a
portion of the business.
D. A gain or loss from the
extinguishment of debt.
operations.
B. Report as an extraordinary item.
C. Report as a prior period item.
D. Report as an ordinary item.
[904] Source: CIA 0592 IV-39
The following excerpt was taken from a
company's financial statements:
". . . 10% convertible participating . . . $10,000,000."
What is most likely being referred to?
A. Bonds.
B. Common stock.
C. Stock options.
D. Preferred stock.
[905] Source: CIA 0592 IV-25
A company issues financial statements in
which conversion of warrants and options
into common stock is assumed. Moreover,
repayment of debt relating to the assumed
conversion is assumed. This scenario is
most closely associated with which of the
following?
A. Computation of diluted earnings per
share.
B. Extraordinary items and
cumulative-effect changes.
C. Retroactive-effect changes and
common stock equivalents.
D. Application of the if-converted
method.
[906] Source: CIA 0594 IV-31
A company has net income for the current
year of $120,000 and pays $5,000 in
dividends to its preferred shareholders and
$20,000 in dividends to its common
shareholders. The weighted average number
of common shares outstanding for the year is
1,500, and the weighted average number of
preferred shares outstanding for the year is
2,500. Earnings per share for this company
for the current year, to the nearest cent, is
A. $40.00
B. $60.00
C. $66.67
D. $76.67
[907] Source: CMA 0694 2-15
At the beginning of the fiscal year, June 1,
Year 1, Boyd Corporation had 80,000
shares of common stock outstanding. Also
outstanding was $200,000 of 8%
convertible bonds that had been issued at
$1,000 par. The bonds were convertible
into 20,000 shares of common stock;
however, no bonds were converted during
the year. The company's tax rate is 34%, and
the Aa bond interest rate has been 10%.
Boyd's net income for the year was
$107,000. The fully diluted earnings per
share (rounded to the nearest cent) of Boyd
common stock for the fiscal year ended May
31, Year 2 was
A. $1.07
B. $1.12
C. $1.18
D. $1.20
[908] Source: CMA 1295 2-9
In a troubled debt restructuring, if the
pre-restructure carrying amount of the debt
(including any accrued interest) exceeds the
total future cash flows after the modification
of the debt terms,
A. The debtor records a gain on the
restructured debt.
B. The debtor records a loss on the
restructured debt.
C. The creditor need not treat the loan
as impaired.
D. The debt is swapped.
[909] Source: CMA 0687 3-5
When reporting the discontinuance of a
business segment, APB 30, Reporting the
Results of Operations, specifies that
A. The results of the segment operations
during the phase-out period are
Credit
------------------
Stores Inventory
Purchases
Stores Inventory
Stores Inventory
Purchases
A.
B.
C.
D.
is recognized by
cumulative effect of the
net income of the period
all but a few specific
C. $265,625
D. $275,000
[940] Source: CMA 1291 2-5
SFAS 52 states that transaction gains and
losses have direct cash flow effects when
foreign-denominated monetary assets are
settled in amounts greater or less than the
functional currency equivalent of the
original transactions. These transaction
gains and losses should be reflected in
income
A. At the date the transaction
originated.
B. On a retroactive basis.
C. In the period the exchange rate
changes.
D. Only at the year-end balance sheet
date.
[941] Source: CMA 1288 3-28
SFAS 52, Foreign Currency Translation,
requires that, in a highly inflationary
economy, the financial statements of a
foreign entity be remeasured as if the
functional currency were the reporting
currency. For this requirement, a highly
inflationary economy is one that has
A. An inflation rate of at least 33% in
the most recent past year.
B. An inflation rate of at least 50% in
the most recent past year.
C. An inflation rate of at least 100% in
the most recent past year.
D. A cumulative inflation rate of at least
100% over a 3-year period.
[942] Source: CMA 1291 2-6
Prior to SFAS 52, there was significant
disagreement among informed observers
regarding the basic nature, information
content, and meaning of results produced by
various methods of translating amounts from
foreign currencies into the reporting
currency. SFAS 52 directs that organizations
A. Change the accounting model to
until maturity.
B. A plant asset and the associated
accumulated depreciation.
C. A patent and the associated
accumulated amortization.
D. The revenue from a long-term
construction contract.
[945] Source: CMA 0693 2-21
When restating financial statements
originally recorded in a foreign currency,
A. Income taxes are ignored in
calculating and disclosing the results of
foreign currency translations.
B. A component of annual net income,
"Adjustment from Foreign Currency
Translation, should be presented in the
notes to the financial statements or in a
separate schedule.
C. The aggregate transaction gain or
loss included in net income should be
disclosed in the financial statements or
in the notes to the financial statements.
D. The financial statements should be
adjusted for a rate change that occurs
after the financial statement date but
prior to statement issuance.
[946] Source: CIA 0593 IV-41
The financial statements of a foreign
subsidiary are to be measured by use of the
subsidiary's functional currency. The
functional currency of an entity is defined as
the currency of the
A. Parent company.
B. United States.
C. Primary economic environment in
which the entity operates.
D. Geographic location in which the
entity's headquarters are located.
[947] Source: CIA 0591 IV-41
On December 9, Year 1, domestic Company
X acquired inventory from a British supplier
for 100,000, with payment due in pounds
on January 8, Year 2. Direct exchange rates
A. A write-down of inventories.
B. A loss due to the effects of a strike
against a major supplier.
C. A gain or loss on the disposal of a
portion of the business.
D. A gain or loss from the
extinguishment of debt.
[949] Source: CIA 1191 IV-42
A gain is both unusual and infrequent, and
occurs in the second fiscal quarter. How
should the gain be accounted for?
A. Recognized in full in the second
quarter.
B. Recognized equally over the second,
third, and fourth quarters.
C. Recognized only in the annual
financial statements.
D. Recognized equally in each quarter,
by restating the first quarter.
[950] Source: CIA 1195 IV-23
In the prior accounting period, an
organization incorrectly expensed a newly
purchased piece of equipment rather than
establishing an asset balance and beginning
Working Capital
---------------
Cash
----
A.
No
No
Yes
No
Yes
No
B.
C.
Yes
No
No
Yes
Yes
No
D.
List B
-------------
Current
Not at all
Current
Prospectively
Prior
Retroactively
Prior
Not at all
A.
B.
C.
D.
A. Extraordinary items.
B. Adjustments to the beginning balance
of retained earnings.
C. A component of equity.
D. A component of income from
continuing operations.
[973] Source: CMA 1288 3-30
According to SFAS 52, foreign currency
transaction gains and losses should usually
be included in income
A. For the period in which the exchange
rate changes.
B. For the period in which the
transaction originated.
C. For foreign currency transactions that
are designated as economic hedges of a
net investment in a foreign entity.
D. For intercompany foreign currency
transactions that are of a long-term
investment nature.
[974] Source: CMA 0688 4-20
Which foreign currency items are reported
exclusively in the equity section of a
consolidated balance sheet?
A. Foreign currency transaction gains
and losses.
B. Amounts resulting from translating
foreign currency financial statements to
U.S. dollars.
C. Hedging gains and losses.
D. Only items not accounted for in
accordance with GAAP.
[975] Source: CMA 0697 2-23
In a review of the May 31, 2001 financial
statements during the normal year-end
closing process, it was discovered that the
interest income accrual on Simpson
Company's notes receivable was omitted.
The amounts omitted were calculated as
follows:
May 31, 2000
$ 91,800
A. 444,000
B. 438,000
C. 372,000
D. 344,000
[989] Source: Publisher
The effect of assumed conversions on the
numerator of the DEPS fraction is
A. $31,000
B. $25,000
C. $23,500
D. $17,500
[990] Source: Publisher
The difference between BEPS and DEPS for
the extraordinary item is
A. $2.89
B. $2.10
C. $.79
D. $.60
[991] Source: Publisher
The DEPS amount for the net income or loss
available to common shareholders after the
extraordinary item is
A. $2.29
B. $(0.41)
C. $(0.53)
D. $(2.70)
[992] Source: CIA 1196 IV-2
If ending inventory is underestimated due to
an error in the physical count of items on
hand, the cost of goods sold for the period
will be <List A>, and net earnings will be
<List B>.
List A
-------------A.
List B
--------------
Underestimated
Underestimated
Underestimated
Overestimated
Overestimated
Underestimated
Overestimated
Overestimated
B.
C.
D.
financial statements.
B. Monetary/nonmonetary method
should be used to translate the foreign
affiliate's financial statements.
C. Temporal method should be used to
remeasure the foreign affiliate's
financial statements.
D. Current exchange rate method should
be used to translate the foreign
affiliate's financial statements.
[996] Source: CMA 1288 3-29
The premium or discount on a forward
exchange contract is calculated using the
difference between the
A. Spot rate at the balance sheet date
and the spot rate at the date of inception
of the forward contract.
B. Spot
and the
gain or
earlier
1999
----------
$0
$250,000
$250,000
$0
$850,000
$(600,000)
$900,000
$(650,000)
A.
B.
C.
D.
A. $2,800
B. $4,000
C. $4,200
D. $6,000
[1006] Source: CPA 1192 I-60
Milton Co. began operations on January 1,
1998. On January 1, 2000, Milton changed
its inventory method from LIFO to FIFO for
both financial and income tax reporting. If
FIFO had been used in prior years, Milton's
inventories would have been higher by
$60,000 and $40,000 at December 31, 2000
and 1999, respectively. Milton has a 30%
income tax rate. What amount should Milton
report as the cumulative effect of this
accounting change in its income statement
for the year ended December 31, 2000?
A. $0
B. $14,000
C. $28,000
D. $42,000
[1007] Source: CPA 0FIN R99-12
At December 31, 2000, Off-Line Co.
changed its method of accounting for demo
costs from writing off the costs over two
years to expensing the costs immediately.
Off-Line made the change in recognition of
an increasing number of demos placed with
customers that did not result in sales.
Off-Line had deferred demo costs of
$500,000 at December 31, 1999, $300,000
of which were to be written off in 2000 and
the remainder in 2001. Off-Line's income
tax rate is 30%. In its 2000 income
statement, what amount should Off-Line
report as cumulative effect of a change in
accounting principle?
A. $140,000
B. $200,000
C. $350,000
D. $500,000
[1008] Source: CPA 0592 II-2
Net Income
----------
1999
2000
B.
-$(50,000)
$150,000
180,000
1999
2000
C.
$(50,000)
--
$150,000
180,000
1999
2000
D.
$(25,000)
--
$125,000
180,000
1999
2000
---
$125,000
180,000
1999
---------
$122,500
$(87,500)
$122,500
$0
$(157,500)
$(87,500)
$(157,500)
$0
A.
B.
C.
D.
1999
----------
$50,000
$(300,000)
$0
$50,000
A.
B.
C.
$350,000
$(300,000)
$(150,000)
$200,000
D.
D. $183,200
[1023] Source: CIA 0591 IV-39
In a business combination, the purchasing
company's acquisitions on January 1, Year 1
included $100,000 of debenture bonds
paying 8% annual interest and maturing
December 31, Year 3. If the current interest
rate at January 1, Year 1 is 12%, the
formula to compute the recorded basis of the
bonds is
A. ($100,000 x the present value of $1
at 8% for 3 periods) + ($8,000 x the
present value of an ordinary annuity at
8% for 3 periods).
B. ($100,000 x the present value of $1
at 8% for 3 periods) + ($8,000 x the
present value of an ordinary annuity at
12% for 3 periods).
C. ($100,000 x the present value of $1
at 12% for 3 periods) + ($8,000 x the
present value of an ordinary annuity at
12% for 3 periods).
D. ($100,000 x the present value of $1
at 12% for 3 periods) + ($8,000 x the
present value of an ordinary annuity at
8% for 3 periods).
[1024] Source: CIA 0591 IV-34
When the equity method is used to account
for the investment in common stock of
another corporation, the recording of the
receipt of a cash dividend from the investee
will result in
A. The recognition of investment
income.
B. A reduction in the investment
account.
C. An increase in a liability account.
D. An increase in a special owners'
equity account.
[1025] Source: CMA 1291 2-7
APB 16 contains conditions that must be met
for the pooling-of-interests method of
accounting to be used. Which one of the
following is not a condition that must be met
to use the pooling-of-interests method to
record a business combination?
B. Parent company.
C. Minority interest.
D. Economic entity.
[1045] Source: CMA 0688 4-23
In the preparation of consolidated financial
statements, the investment in subsidiary
account should not be eliminated against the
A. Retained earnings of the subsidiary.
B. Par value of capital stock of the
subsidiary.
C. Paid-in capital above par value of
the subsidiary.
D. Intercompany accounts receivable.
[1046] Source: CMA 0688 4-24
In the process of preparing consolidated
financial statements, which one of the
following items does not need to be
eliminated?
A. Intercompany profit in beginning
inventory.
B. Intercompany profit on intercompany
sale of a fixed asset.
C. Intercompany dividends
receivable/payable.
D. Intercompany profit on inventory
sold to a nonaffiliated company.
[1047] Source: CMA 0688 4-25
If a parent company purchases a 90%
interest in a subsidiary accounted for by the
"entity theory," and if the investment cost
exceeds book value of the subsidiary's net
assets, the minority interest will
A. Be the same amount as if the parent
company used the proprietary theory in
preparing consolidated financial
statements.
B. Be less in amount than if the parent
company used the proprietary theory in
preparing consolidated financial
statements.
assets.
D. Consolidation.
[1054] Source: Publisher
When firm B merges with firm C to create
firm BC, what has occurred?
A. A tender offer.
B. An acquisition of assets.
C. An acquisition of stock.
D. A consolidation.
[1055] Source: Publisher
All of the following are true of mergers
except
A. Mergers are legally straightforward.
B. Approval by shareholder vote of
each firm involved in the merger is
required.
C. The acquiring firm maintains its
name and identity in a merger.
D. A merger may never result from a
public offer to the shareholders of the
target firm to buy its shares directly.
[1056] Source: Publisher
Which of the following is a combination
involving the absorption of one firm by
another?
A. Merger.
B. Consolidation.
C. Proxy fight.
D. Acquisition.
[1057] Source: Publisher
The merger of General Motors and Ford
would be categorized as a
A. Diversifying merger.
B. Horizontal merger.
C. Conglomerate merger.
D. Vertical merger.
[1058] Source: Publisher
When choosing a merger over an acquisition
of stock to accomplish a business
combination, which of the following is
irrelevant to the decision?
A. Dealing directly with shareholders
in an acquisition of stock.
B. Absence of tender by some minority
shareholders in a tender offer.
C. Resistance to an acquisition by the
target's management usually causing an
increase in the stock price.
D. Whether the companies are in the
same industry.
[1059] Source: Publisher
The merger of an oil refinery by a chain of
gasoline stations is an example of a
A. Conglomerate merger.
B. White knight.
C. Vertical merger.
D. Horizontal merger.
[1060] Source: Publisher
All of the following statements about
acquisition of stock through tender offers is
true except
A. Shareholder meetings do not need to
be held.
B. A vote is not required.
C. The acquiring firm directly deals
with the target firm's shareholders.
D. All of the outstanding stock of the
target firm must be tendered.
[1061] Source: CMA 1295 1-25
The acquisition of a retail shoe store by a
shoe manufacturer is an example of
A. Vertical integration.
B. A conglomerate.
C. Market extension.
D. Horizontal integration.
[1062] Source: Publisher
Business combinations are accomplished
either through a direct acquisition of assets
and liabilities by a surviving corporation or
by stock investments in one or more
companies. A parent-subsidiary relationship
always arises from a
A. Tax-free reorganization.
B. Vertical combination.
C. Horizontal combination.
D. Greater than 50% stock investment
in another company.
[1063] Source: Publisher
What form of accounting is used when the
assets of the acquired firm are added to the
assets of the acquiring firm at book value
after business combination?
A. Consolidation.
B. Aggregation.
C. Purchase.
D. Pooling.
[1064] Source: Publisher
Which form of accounting for a business
combination must result in recognition of
goodwill when the amount paid exceeds the
fair value of the identifiable net assets?
A. Consolidation.
B. Aggregation.
C. Purchase.
D. Pooling.
[1065] Source: Publisher
Which of the following is a true statement
about the accounting treatment of business
combinations?
A. The excess amount paid over the
major customers?
A. Federal governmental agencies, 6%;
state governmental agencies, 4%.
B. French governmental agencies, 6%;
German governmental agencies, 4%.
C. Parent company, 6%; subsidiary of
parent company, 4%.
D. Federal governmental agencies, 6%;
foreign governmental agencies, 4%.
[1072] Source: CPA 0590 II-56
Correy Corp. and its divisions are engaged
solely in manufacturing operations. The
following data (consistent with prior years'
data) pertain to the industries in which
operations were conducted for the year
ended December 31:
Operating
Segment
--------A
B
C
D
E
F
Total
Revenue
Profit
-------------------$10,000,000
$1,750,000
8,000,000
1,400,000
6,000,000
1,200,000
3,000,000
550,000
4,250,000
675,000
1,500,000
225,000
-------------------$32,750,000
$5,800,000
===========
==========
In its segment information for the year, how
many reportable operating segments does
Correy have?
A. Three.
Assets
at 12/31
----------$20,000,000
17,500,000
12,500,000
7,500,000
7,000,000
3,000,000
----------$67,500,000
===========
B. Four.
C. Five.
D. Six.
[1073] Source: CPA 0590 II-54
Hyde Corp. has three manufacturing
divisions, each of which has been
determined to be a reportable operating
segment. In the year just ended, Clay
division had sales of $3,000,000, which
was 25% of Hyde's total sales, and had
traceable operating costs of $1,900,000.
Hyde incurred operating costs of $500,000
that were not directly traceable to any of the
divisions. In addition, Hyde incurred
interest expense of $300,000. The
Cash-flow
Hedge
---------
Yes
No
No
Yes
Yes
Yes
No
No
A.
B.
C.
D.
Yes
No
No
Yes
No
No
Yes
B.
C.
D.
02/15/02
--------
$10,000
$40,000
$19,600
$30,000
$19,600
$10,400
$20,000
$30,000
A.
B.
C.
D.
Value of
Value of
FC500,000
FC500,000
Based on
Based on
Forward Rates
Spot Rates for 03/31/02
---------- ------------10/01/01
$570,000
$500,000
12/31/01
$540,000
$490,000
03/31/02
$475,000
$475,000
At what amounts should Weeks record the
forward contract on December 31, 2002 and
March 31, 2001?
12/31/01
--------
03/31/02
--------
$9,800
$25,000
$10,000
$25,000
$540,000
$475,000
$490,000
$475,000
A.
B.
C.
D.
$130,000
$100,000
$140,000
$130,000
$130,000
$130,000
$140,000
B.
C.
D.
C. $1,450,000
D. $2,900,000
[1091] Source: CPA 1189 I-11
Assume that the merger qualifies for
treatment as a pooling of interests. In the
December 31, 2000 consolidated balance
sheet, additional paid-in capital should be
reported at
A. $950,000
B. $1,300,000
C. $1,450,000
D. $2,900,000
[1092] Source: CPA 1194 F-56
Sun, Inc. is a wholly owned subsidiary of
Patton, Inc. On June 1, 2000, Patton
declared and paid a $1 per share cash
dividend to shareholders of record on May
15, 2000. On May 1, 2000, Sun bought
10,000 shares of Patton's common stock for
$700,000 on the open market, when the book
value per share was $30. What amount of
gain should Patton report from this
transaction in its consolidated income
statement for the year ended December 31,
2000?
A. $0
B. $390,000
C. $400,000
D. $410,000
[1093] Source: CPA 0595 F-50
What was the amount of intercompany sales
from Pare to Shel during 2000?
A. $6,000
B. $12,000
C. $58,000
D. $64,000
[1094] Source: CPA 0595 F-51
At December 31, 2000, what was the
Segment
-------
Sales to
External Intersegment
Total
Customers
Sales
Revenues
--------- ------------ --------
Lion
Monk
Nevi
------Combined
Elimination
------Consolidated
$ 70,000
$30,000
$100,000
22,000
4,000
26,000
8,000
16,000
24,000
--------- ------------ -------$100,000
$50,000
$150,000
(50,000)
(50,000)
--------- ------------ -------$100,000
$ $100,000
========= ============ ========
Which operating segment(s) is (are) deemed
to be (a) reportable segment(s)?
A. None.
B. Lion only.
C. Lion and Monk only.
D. Lion, Monk, and Nevi.
[1098] Source: Publisher
A common argument against corporate
involvement in socially responsible
behavior is that
A. It encourages government intrusion
in decision making.
B. As a legal person, a corporation is
accountable for its conduct.
C. It creates goodwill.
D. In a competitive market, such
behavior incurs costs that place the
company at a disadvantage.
[1099] Source: CPA 0591 II-13
On August 31, 2000, Wood Corp. issued
100,000 shares of its $20 par value common
stock for the net assets of Pine, Inc., in a
business combination accounted for by the
purchase method. The market value of
Wood's common stock on August 31 was
$36 per share. Wood paid a fee of $160,000
to the consultant who arranged this
acquisition. Costs of registering and issuing
the equity securities amounted to $80,000.
No goodwill was involved in the purchase.
What amount should Wood capitalize as the
cost of acquiring Pine's net assets?
A. $3,600,000
B. $3,680,000
C. $3,760,000
D. $3,840,000
[1100] Source: CPA 0596 F-3
Mega, Inc. was organized to consolidate the
resources of Lone Co. and Small Co. in a
business combination accounted for by the
pooling-of-interests method. Mega issued
31,000 shares of its $10 par voting stock in
exchange for all the outstanding capital
stock of Lone and Small. The equity
accounts of Lone and Small on the date of
the exchange were
Lone
Small
-------- -------Common stock
$100,000 $200,000
Additional paid-in capital
12,500
17,500
Retained earnings
60,000
105,000
-------- -------$172,500 $322,500
======== ========
What is the balance in Mega's additional
paid-in capital account immediately after the
business combination?
Total
-------$300,000
30,000
165,000
-------$495,000
========
A. $0
B. $20,000
C. $30,000
D. $195,000
[1101] Source: CPA 0593 I-14
Wright Corp. has several subsidiaries that
are included in its consolidated financial
statement. In its December 31, 2000 trial
balance, Wright had the following
intercompany balances before eliminations:
Debit
-------$ 32,000
114,000
6,000
Credit
--------
$ 15,000
101,000
companies
of their voting
2 years of
or between
consummation
2002
-------
$30,000
$25,000
$0
$55,000
$55,000
$0
$0
$0
A.
B.
C.
D.
fourth quarter.
Answer (D) is incorrect because no
monthly reports are required.
[29] Source: CMA 1286 3-22
Answer (A) is incorrect because the
language of the requirement is that a
company may use Form S-3 if
nonaffiliates hold "at least
$50,000,000" of the company's stock
(not "less than $150,000,000").
Answer (B) is correct. Form S-1 is
used for a first registration. Form S-2 is
used by companies that have filed
timely reports for 3 years. Incorporation
by reference from the annual
shareholders' report of Basic
Information Package disclosures is
allowed in Form S-2. If a company
meets the requirements for use of Form
S-2 and at least $50,000,000 in value of
its stock is held by nonaffiliates (or at
least $100,000,000 is outstanding and
annual trading volume is at least
3,000,000 shares), Form S-3 may be
used. It allows most information to be
incorporated by reference to other SEC
filings.
Answer (C) is incorrect because it is
not a requirement for use of Form S-3.
Answer (D) is incorrect because it is
not a requirement for use of Form S-3.
[30] Source: CMA 1288 3-20
Answer (A) is correct. Form S-4 is a
simplified form for business
combinations, such as mergers. It is part
of the integrated disclosure system
established to simplify reporting
requirements under the Securities Act of
1933 and the Securities Exchange Act
of 1934. Thus, Form S-4 may
incorporate much information by
reference to other reports already filed
with the SEC. The integrated disclosure
system permits many companies to use
the required annual report to
shareholders (if prepared in conformity
with Regulations S-X and S-K) as the
basis for the annual report to the SEC
on Form 10-K. Some may even use this
report as the basis for registration
statements.
Answer (B) is incorrect because Form
S-1 may be used by any registrant.
Answer (C) is incorrect because the
filing of Form 8-K to report certain
material events has no effect on the
subsequent filing of the S forms.
Answer (D) is incorrect because Form
S-11 is used by REITs and real estate
companies.
[31] Source: CMA 1289 3-28
Answer (A) is incorrect because Form
S-1 is a long form than includes all
possible required information. It can be
used by any company. Forms S-2 and
S-3 may be used as a substitute by
companies that have been timely
reporting to the SEC for 3 years.
Answer (B) is correct. SEC Form S-8
is used when securities are to be
offered to employees under any stock
option or other employee benefit plan. It
has become more commonly used in
recent years because of the adoption of
employee stock ownership plans
(ESOPs).
Answer (C) is incorrect because Form
S-11 is used by REITs and real estate
companies.
Answer (D) is incorrect because the
filing of Form 8-K to report certain
material events has no effect on the
subsequent filing of the S forms.
[32] Source: CMA 0694 2-17
Answer (A) is incorrect because a
major acquisition, the resignation of
several directors, and a change in the
registrant's certifying accountant are
events that must be reported on Form
8-K.
Answer (B) is incorrect because a
major acquisition, the resignation of
several directors, and a change in the
registrant's certifying accountant are
events that must be reported on Form
8-K.
include
1. Sales or gross revenues, provision for taxes, extraordinary items,
cumulative effect of accounting changes, and net income.
2. Primary and fully diluted EPS.
3. Seasonal revenues and costs.
4. Significant changes in estimates or provisions for income taxes.
5. Disposal of a segment and extraordinary, unusual, or infrequent
items.
6. Contingent items.
7. Changes in accounting principles or estimates.
8. Significant cash flows.
[49] Source: CMA 1286 3-15
Answer (A) is incorrect because the
specific accounting policies and
methods considered appropriate by
management and used for reporting
purposes should be disclosed in a
separate summary of significant
accounting policies preceding the notes
to the financial statements or in the
initial note to the financial statements.
Answer (B) is correct. APB 22 requires
that all significant accounting policies
of a reporting entity be disclosed as an
integral part of its financial statements.
The APB expresses a preference for a
statement of accounting policies in a
separate section preceding the footnotes
or as the initial note. This requirement
is based upon the obvious difficulty of
making economic decisions about the
reporting entity without an
understanding of the accounting policies
used in preparing the financial
statements. Disclosure should
encompass those principles and
methods which involve a selection from
existing acceptable alternatives, those
methods peculiar to the industry in
which the entity operates, and any
unusual or innovative applications of
GAAP.
Answer (C) is incorrect because the
specific accounting policies and
methods considered appropriate by
management and used for reporting
purposes should be disclosed in a
separate summary of significant
accounting policies preceding the notes
to the financial statements or in the
initial note to the financial statements.
Answer (D) is incorrect because the
specific accounting policies and
Operating income
Other income
Other expense
Income before tax
Income tax
Income before extraordinary items
Earthquake loss, net of $4,420 tax
Net income
Answer (D) is incorrect because
$47,000 is the income before tax and
$154,000
(90,000)
-----64,000
$5,000
6,000
----(11,000)
-----53,000
8,000
-----61,000
(14,000)
-----47,000
(15,980)
-----31,020
(8,580)
-------$ 22,440
========
extraordinary items.
[86] Source: Publisher
Answer (A) is correct. Extraordinary
items are material items that are both
unusual in nature and infrequent in the
environment in which the entity
operates. They should be reported, net
of tax, on the face of the income
statement after income from continuing
operations. However, if the item is
either unusual in nature or infrequent in
the environment in which the entity
operates, but not both, then it should be
reported as a separate component of
income from continuing operations (not
net of tax). If earthquakes occur
frequently in the area where Superclean
Inc. is located, then the loss caused by
an earthquake is not an extraordinary
item. In this case, Superclean Inc.'s net
income would be the same as if the
event were considered an extraordinary
item. The only difference is in how the
loss is classified on the income
statement.
Answer (B) is incorrect because
$25,357 is the net income if the
earthquake loss is reported (net of tax)
as a separate component of income from
continuing operations. In this case, the
earthquake loss is taxed twice.
Answer (C) is incorrect because
$31,020 is the net income without
regard to the earthquake loss.
Answer (D) is incorrect because
$22,440 is the net income whether the
earthquake loss is extraordinary or not.
[87] Source: Publisher
Answer (A) is correct. Under APB 30,
Reporting the Results of Operations, the
income or loss from operations of a
discontinued segment up to the
measurement date and the gain or loss
on disposal should both be shown net of
tax. The gain or loss on disposal
includes estimated operating income or
loss of the segment from the
measurement date to the disposal date,
any direct disposal costs incurred
during the phase-out period, and the
estimated gain or loss on the actual
is incorrect because
determined by subtracting
decline in accounts
from the $100,000 sales
amounts shown.
[109] Source: CMA 0684 3-13
Answer (A) is incorrect because the
entity concept limits accounting
information to that related to a specific
entity (possibly not the same as the
legal entity).
Answer (B) is incorrect because fund
theory stresses that assets equal
obligations (equity and liabilities are
sources of assets).
Answer (C) is correct. The equation is
based on the proprietary theory. Equity
in an enterprise is what remains after
the economic obligations of the
enterprise are deducted from its
economic resources.
Answer (D) is incorrect because the
enterprise concept stresses ownership
of the assets; that is, the emphasis is on
the credit side of the balance sheet.
[110] Source: CMA 0693 2-10
Answer (A) is incorrect because
current assets are measured using
different attributes, for example, lower
of cost or market for inventory and net
realizable value for accounts
receivable.
Answer (B) is incorrect because
prepayments may qualify as current
assets. They often will be consumed
during the operating cycle.
Answer (C) is incorrect because the
classification criterion is based on the
normal operating cycle regardless of the
seasonality of the business.
Answer (D) is correct. Under ARB 43,
current assets are cash and other assets
or resources expected to be realized in
cash, sold, or consumed during the
longer of 1 year or the normal operating
cycle of the business.
[111] Source: CMA 1295 2-8
Answer (A) is incorrect because the
company intends to refinance the debt
on a long-term basis.
Answer (B) is correct. SFAS 6 states
that short-term obligations expected to
be refinanced should be reported as
current liabilities unless the firm both
plans to refinance and has the ability to
refinance the debt on a long-term basis.
The ability to refinance on a long-term
basis is evidenced by a
post-balance-sheet date issuance of
long-term debt or a financing
arrangement that will clearly permit
long-term refinancing.
Answer (C) is incorrect because the
debt has not been retired.
Answer (D) is incorrect because the
debt is on the balance sheet.
[112] Source: CMA 1287 3-30
Answer (A) is incorrect because the
amount excluded cannot exceed the
amount available for refinancing.
Answer (B) is correct. If an enterprise
intends to refinance short-term
obligations on a long-term basis and
demonstrates an ability to consummate
the refinancing, the obligations should
be excluded from current liabilities and
classified as noncurrent (SFAS 6,
Classification of Short-Term
Obligations Expected to Be
Refinanced). The ability to consummate
the refinancing may be demonstrated by
a post-balance-sheet-date issuance of a
long-term obligation or equity
securities, or by entering into a
financing agreement that meets certain
criteria. These criteria are that the
agreement does not expire within 1
year, it is noncancellable by the lender,
no violation of the agreement exists at
the balance sheet date, and the lender is
financially capable of honoring the
agreement.
Answer (C) is incorrect because SFAS
6 has no provision for adjustments or
reductions.
Answer (D) is incorrect because the
refinancing need not have occurred if
the firm intends and demonstrates an
ability to consummate such refinancing.
an investing activity.
Answer (C) is correct. Investing
activities include the lending of money
and the collecting of those loans; the
acquisition, sale, or other disposal of
debt or equity instruments; and the
acquisition, sale, or other disposition of
assets (excluding inventory) that are
held for or used in the production of
goods or services. Investing activities
do not include acquiring and disposing
of certain loans or other debt or equity
instruments that are acquired
specifically for resale. Cash outflows to
lenders for interest are cash from an
operating, not an investing, activity.
Answer (D) is incorrect because the
sale of a plant is an investing activity.
[135] Source: CIA 1195 IV-34
Answer (A) is incorrect because
payment of cash dividends is a use of
cash for a financing activity.
Answer (B) is correct. Financing
activities include, among other things,
obtaining resources from owners and
providing them with a return on, and a
return of, their investment.
Consequently, the payment of cash
dividends to providers of common
equity financing is a use of cash that
appears in the financing section of the
statement of cash flows.
Answer (C) is incorrect because
payment of cash dividends is a use of
cash for a financing activity.
Answer (D) is incorrect because
payment of cash dividends is a use of
cash for a financing activity.
[136] Source: Publisher
Answer (A) is correct. In general, cash
inflows and cash outflows from
operating, investing, and financing
activities should be reported separately
at gross amounts in a statement of cash
flows. In certain instances, however,
the net amount of related cash receipts
and cash payments may provide
sufficient information about particular
classes of cash flows. For example,
$240
$ 36
42
----$ 78
(32)
-----
(46)
====
$194
item.
Answer (C) is incorrect because a
decrease in prepaid insurance is an
operating item.
Answer (D) is correct. Operating
activities include all transactions and
other events not classified as investing
and financing activities. Operating
activities include producing and
delivering goods and providing
services. Cash flows from such
activities are usually included in the
determination of net income. However,
the purchase of land and a building in
exchange for a long-term note is an
investing activity. Because this
transaction does not affect cash, it is
reported in related disclosures of
noncash investing and financing
activities.
[170] Source: CMA 1296 2-22
Answer (A) is incorrect because the
purchase of equipment is an investing
activity.
Answer (B) is correct. Under SFAS 95,
financing activities are defined to
include the issuance of stock, the
payment of dividends, the receipt of
donor-restricted resources to be used
for long-term purposes, treasury stock
transactions (purchases or sales), the
issuance of debt, the repayment of
amounts borrowed, and obtaining and
paying for other resources obtained
from creditors on long-term credit.
Answer (C) is incorrect because the
sale of trademarks, like the sale of any
long-lived asset, is an investing
activity.
Answer (D) is incorrect because the
payment of interest on a mortgage note
is an operating activity.
[171] Source: CMA 1296 2-23
Answer (A) is incorrect because the
purchase or sale of long-lived
equipment or intangibles is an investing
activity. Cash flows from the purchase,
sale, or maturities of available-for-sale
and held-to-maturity of securities are
$14,000 + $26,000).
Answer (C) is incorrect because
$353,000 includes discount on bonds
payable.
Answer (D) is incorrect because
$819,000 includes bonds payable.
[179] Source: Publisher
Answer (A) is incorrect because
deducting accounts payable from the
current assets results in the amount of
working capital, rather than the total of
current assets.
Answer (B) is incorrect because it fails
to include prepaid insurance in the total.
Answer (C) is correct. Current assets
consist of cash, certain marketable
securities, receivables, inventories, and
prepaid expenses. Adding these
elements together produces a total of
$407,500 ($28,000 cash + $110,000
receivables + $250,000 inventories +
$19,500 prepaid insurance).
Answer (D) is incorrect because it
erroneously includes accounts payable.
[180] Source: Publisher
Answer (A) is incorrect because
retained earnings should be included in
shareholders' equity.
Answer (B) is correct. Shareholders'
equity consists of paid-in capital,
retained earnings, and comprehensive
income. Shareholders' equity accounts
may therefore include retained earnings,
preferred stock, common stock, and
additional paid-in capital. Moreover,
treasury stock is a contra account in the
shareholders' equity section of the
balance sheet. The total would be
$514,000 ($141,000 + $175,000 +
$50,000 + $196,000 - $48,000 of
treasury stock).
Answer (C) is incorrect because
$562,000 results from a failure to
deduct treasury stock.
Answer (D) is incorrect because
treasury stock should be deducted from,
$ 529,000
2,496,000
---------$3,025,000
(800,000)
---------$2,225,000
==========
Net income
Depreciation expense
Increase in receivables
Increase in payables
Decrease in inventories
$161,000
40,000
(14,000)
10,500
8,000
-------$205,500
========
$ 280,000
(137,000)
(153,000)
--------$(10,000)
=========
$ 247,000
(140,000)
(185,000)
(200,000)
--------$(278,000)
=========
$290,000
20,000
(22,000)
(5,500)
(11,000)
--------$271,500
=========
Answer (B) is incorrect because
$293,500 is the result of adding the
inventory increase rather than deducting
it.
Answer (C) is incorrect because
$310,000 occurs by failing to adjust for
the changes in current assets.
Answer (D) is incorrect because
$348,500 is the result of reversing the
treatment of all of the current asset
changes.
[189] Source: Publisher
Answer (A) is incorrect because
$185,000 results from deducting the
retirement of bonds, which is a
financing activity.
Answer (B) is incorrect because
$225,0000 results from deducting the
purchase of common stock, which is a
financing activity.
Answer (C) is correct. Investing
activities include buying and selling
investments and property, plant, and
equipment. However, entering into a
capital lease is a noncash investing
activity. The calculation is
Sale of land and building
Purchase of land
Purchase of equipment
$450,000
(45,000)
(120,000)
--------$ 285,000
=========
$ 66,000
(60,000)
(90,000)
(100,000)
-------($184,000)
========
netted.
Answer (B) is incorrect because an
outflow of $42,000 assumes netting and
a $5,000 inflow.
Answer (C) is incorrect because the
cash inflow was $15,000. Beck
received the $10,000 carrying value
and a $5,000 gain.
Answer (D) is correct. Investing
activities include making and collecting
loans and acquiring and disposing of
debt or equity instruments and property,
plant, and equipment and other
productive assets, that is, assets held
for or used in the production of goods
or services (other than the materials
held in inventory). Thus, the cash
effects of purchases and sales of
equipment should be reported in the
investing cash flows section of the
statement of cash flows. Moreover,
cash inflows and outflows ordinarily
are not netted. They should be reported
separately at gross amounts.
Accordingly, Beck should report a cash
inflow of $15,000 ($10,000 carrying
value + $5,000 gain) for the sale of
equipment and a $47,000 outflow for
the purchase. In adjusting accrual-based
net income to net operating cash flow,
the $5,000 gain on the sale of equipment
should be subtracted to prevent double
counting.
[194] Source: Publisher
Answer (A) is incorrect because a
liability should be recorded for the 24
unplayed games.
Answer (B) is incorrect because $8
million is the revenue that would be
reported for the 16 games already
played.
Answer (C) is correct. Each $1,000
season ticket represents the revenue for
40 games, or $25 per game. Since 16
games have been played, revenue
would amount to $400 per season
ticket, or $8 million for all 20,000
tickets. The team still owes the ticket
holders 24 games' worth of
entertainment, which amounts to $600
per season ticket (24 x $25), or $12
million in total.
$ 62,000
39,000
44,000
37,000
-------$182,000
========
(SFAC 2).
[234] Source: CMA 1294 2-2
Answer (A) is correct. The qualitative
characteristics of accounting
information include reliability. Reliable
information is reasonably free from
error and bias and faithfully represents
what it purports to represent. According
to SFAC 2, the three elements of
reliability are verifiability, neutrality,
and representational faithfulness.
Verifiability means that the information
can be verified by independent
measurers using the same methods.
Historical cost is a fixed amount arising
from a past transaction and therefore is
an objective measure. Neutrality means
that information should be neutral; it
cannot favor one statement user over
another. Historical cost is neutral
because it was determined by two
individuals--a buyer and a seller--in an
arm's-length transaction.
Representational faithfulness means that
financial statements accurately
represent the events reported. Using
historical cost results in an accurate
depiction of the transaction that
occurred.
Answer (B) is incorrect because some
would argue that historical costs are not
always relevant.
Answer (C) is incorrect because
historical costs may not possess
decision usefulness.
Answer (D) is incorrect because some
would argue that historical costs are not
always relevant.
[235] Source: CMA 1294 2-3
Answer (A) is incorrect because
revenue is recognized when the item
meets the definition of revenue, the item
is measurable, the information is
relevant and reliable, and the item is
realized or realizable.
Answer (B) is incorrect because
revenue is recognized when the item
meets the definition of revenue, the item
is measurable, the information is
relevant and reliable, and the item is
realized or realizable.
Answer (C) is correct. Recognition
means incorporating transactions into
the accounting system so as to report
them in the financial statements as
assets, liabilities, revenues, expenses,
gains, or losses. When items meet the
criteria for recognition, disclosure by
other means is not a substitute for
recognition in the financial statements.
The four fundamental recognition
criteria are (1) the item meets the
definition of an element of financial
statements, (2) the item has an attribute
measurable with sufficient reliability,
(3) the information is relevant, and (4)
the information is reliable (SFAC 5). In
addition, revenue should be recognized
when it is realized or realizable and
earned. Materiality is not a recognition
criterion. An immaterial item that meets
the criteria for recognition may be
recognized.
Answer (D) is incorrect because
revenue is recognized when the item
meets the definition of revenue, the item
is measurable, the information is
relevant and reliable, and the item is
realized or realizable.
[236] Source: CMA 1294 2-5
Answer (A) is incorrect because
present value, current cost, and net
realizable value are measurement
attributes that may be used in
appropriate circumstances.
Answer (B) is incorrect because
present value, current cost, and net
realizable value are measurement
attributes that may be used in
appropriate circumstances.
Answer (C) is incorrect because
present value, current cost, and net
realizable value are measurement
attributes that may be used in
appropriate circumstances.
Answer (D) is correct. According to
SFAC 5, items appearing in financial
statements may, under certain
circumstances, be measured by different
attributes. The attributes used in current
practice are historical cost (historical
proceeds), current cost, current market
of disposal.
Answer (D) is incorrect because
current cost is appropriate only when
the going-concern assumption is
applicable and the effects of changing
prices are to be measured and reported
in the financial statements.
[284] Source: CIA 0593 IV-42
Answer (A) is correct. Determination
of the imputed interest rate is made at
the time the debt instrument is issued,
assumed, or acquired. Any subsequent
changes in prevailing interest rates are
ignored (APB 21).
Answer (B) is incorrect because any
subsequent changes in prevailing
interest rates are ignored.
Answer (C) is incorrect because
determination of the imputed interest
rate is made at the time the debt
instrument is issued.
Answer (D) is incorrect because
determination of the imputed interest
rate is made at the time the debt
instrument is issued, and any subsequent
changes in prevailing interest rates are
ignored.
[285] Source: CIA 1196 IV-19
Answer (A) is correct. The entry is to
debit interest expense, debit bond
premium, and credit cash paid. Thus,
the amortization of a premium on bonds
payable reduces the interest expense,
thereby increasing net income.
Answer (B) is incorrect because the
amortization of a premium on bonds
payable reduces interest expense.
Answer (C) is incorrect because
interest revenue is not affected by the
amortization of a premium on bonds
payable.
Answer (D) is incorrect because
interest revenue is not affected by the
amortization of a premium on bonds
payable.
$10,000] x $2,000}.
Answer (B) is incorrect because $2,000
is the amount of cash receipts during
year 1 on year 1 installment sales.
Answer (C) is incorrect because $3,200
is the amount of the total gross profit on
year 1 installment sales that is deferred
to future periods.
Answer (D) is incorrect because
$4,000 is the total gross profit on year 1
installment sales.
[295] Source: CIA 0596 IV-3
Answer (A) is incorrect because
$2,000 is the realized gross profit on
year 3 sales.
Answer (B) is incorrect because $3,000
equals total receipts for year 2 and year
3 on year 2 sales.
Answer (C) is correct. The total gross
profit on year 3 sales is $10,000
($20,000 sales - $10,000 cost), and the
amount realized is $2,000 {[($20,000 $10,000) $20,000] x $4,000 of year 3
cash receipts}. Accordingly, the amount
deferred is $8,000 ($10,000 - $2,000).
Answer (D) is incorrect because
$10,000 is the total gross profit on year
3 sales.
[296] Source: CIA 0595 IV-12
Answer (A) is incorrect because, under
the cost recovery method, profit is
recognized in the second year when
cash payments by the buyer exceed the
seller's cost of merchandise.
Answer (B) is incorrect because $5,000
is the profit to be recognized without
consideration of the payment received
in the first year.
Answer (C) is correct. The profit
recognized in the second year equals the
cumulative payments received minus the
seller's cost, or $15,000 [($10,000 +
$45,000) - $40,000].
Answer (D) is incorrect because
$45,000 is the payment received in the
second year.
[297] Source: CMA 0696 2-1
Answer (A) is correct. By the end of
year 1, the company had incurred costs
of $900,000 and expected to incur
additional costs of $2,700,000.
Therefore, the total cost of completing
the job was estimated to be the total of
the two amounts, or $3,600,000. The
$900,000 incurred in year 1 represents
25% of the total costs expected to be
incurred. If 25% of the work has been
completed, then the company should
recognize 25% of the expected revenue.
Because the total contract price is
$5,000,000, the revenue associated
with the 25% point is $1,250,000.
Subtracting the $900,000 of costs
incurred from the $1,250,000 of
revenue produces a gross profit for year
1 of $350,000.
Answer (B) is incorrect because the
$700,000 represents the cash collected
for the year, which is irrelevant to the
gross profit to be recognized.
Answer (C) is incorrect because the
$1,400,000 is the amount of gross profit
that is expected over the life of the
project.
Answer (D) is incorrect because
$766,667 is based on a percentage of
completion greater than 25%.
[298] Source: CMA 0696 2-2
Answer (A) is incorrect because
$1,400,000 was the estimated profit
based on the costs incurred in year 1;
ultimately those expectations proved
erroneous since actual costs in year 2
were less than those estimated to
complete the project at the end of year
1.
Answer (B) is correct. Under the
completed-contract method, no income
is recognized until the year the project
is completed. In this case, the costs
incurred over 2 years ($900,000 +
$2,350,000), or $3,250,000, are
subtracted from the total contract price
of $5,000,000 to arrive at income of
$1,750,000. There would have been
activities.
Answer (C) is incorrect because the
primary purpose of a statement of cash
flows is to provide information about
the cash receipts and payments of an
entity during a period. A secondary
purpose is to provide information about
investing and financing activities. The
statement should help users to assess
the entity's ability to generate positive
future net cash flows, the ability to meet
its obligations and pay dividends, the
need for external financing, the reasons
for differences between income and
associated cash receipts and payments,
and the cash and noncash aspects of the
entity's investing and financing
activities.
Answer (D) is correct. The statement of
cash flows is not designed to provide
information with respect to the efficient
and profitable use of the firm's
resources. Financial reporting provides
information about an enterprise's
performance during a period when it
was under the direction of a particular
management but does not directly
provide information about that
management's performance. Financial
reporting does not try to separate the
impact of a particular management's
performance from the effects of prior
management actions, general economic
conditions, the supply and demand for
an enterprise's inputs and outputs, price
changes, and other events.
[310] Source: CMA 0697 2-4
Answer (A) is incorrect because
providing information to help assess the
amount, timing, and uncertainty of cash
flows is an objective of the statement of
cash flows.
Answer (B) is correct. The statement of
financial position, or balance sheet,
provides information about an entity's
resource structure (assets) and financing
structure (liabilities and equity) at a
moment in time. The statement of
financial position does not purport to
show the value of a business, but it
enables investors, creditors, and other
users to make their own estimates of
value. It helps users to assess liquidity,
financial flexibility, profitability, and
1.
Answer (B) is correct. By the end of
year 2, the company had incurred costs
of $1.8 million in year 1 and $4.7
million in year 2. Consequently, the
total cost of completing the job was
$6.5 million. Given a total contract
price of $10 million, the total gross
profit over the life of the contract is
$3.5 million. The gross profit
recognized in year 1 was $700,000
{[$1,800,000 year 1 costs
($1,800,000 + $5,400,000 estimated
costs to complete)] x [$10,000,000
contract price - ($1,800,000 +
$5,400,000)]}. The gross profit
recognized in year 2 is therefore
$2,800,000 ($3,500,000 total $700,000 recognized in year 1).
Answer (C) is incorrect because
$3,500,000 is the total gross profit over
2 years.
Answer (D) is incorrect because
$3,900,000 is the difference between
collections and costs in year 2.
[315] Source: Publisher
Answer (A) is incorrect because
$2,800,000 was the estimated gross
profit at the end of year 1.
Answer (B) is correct. Under the
completed-contract method, no income
is recognized until the project is
completed. In this case, the costs
incurred over 2 years ($1,800,000 +
$4,700,000), or $6.5 million, are
subtracted from the total contract price
of $10 million to arrive at income of
$3.5 million. No income would have
been reported in year 1 because the
contract had not been completed by the
end of that year.
Answer (C) is incorrect because
$5,300,000 does not consider the
$1,800,000 of costs incurred during
year 1.
Answer (D) is incorrect because
$1,400,000 was the cash collected
during year 1.
[316] Source: Publisher
should be credited.
Answer (B) is correct. The purchase of
the machine would have involved a
debit to fixed assets of $500,000, a
credit to cash of $250,000, and a credit
to a current liability of $250,000.
Answer (C) is incorrect because the
machine is valued at $500,000, and that
amount should be debited to a fixed
asset account.
Answer (D) is incorrect because the
transaction increased fixed assets.
[319] Source: Publisher
Answer (A) is incorrect because the
objective of present value in both
initial-recognition and fresh-start
measurements is to estimate fair value.
Answer (B) is correct. SFAC 7 states
that the objective of present value in
initial-recognition or fresh-start
measurements is to estimate fair value.
"Present value should attempt to capture
the elements that taken together would
comprise a market price if one existed,
that is, fair value." A present value
measurement includes five elements:
estimates of cash flows, expectations
about their variability, the time value of
money (the risk-free interest rate), the
price of uncertainty inherent in an asset
or liability, and other factors (e.g.,
illiquidity or market imperfections).
Fair value encompasses all these
elements using the estimates and
expectations of participants in the
market.
Answer (C) is incorrect because the
objective of present value in both
initial-recognition and fresh-start
measurements is to estimate fair value.
Answer (D) is incorrect because the
objective of present value in both
initial-recognition and fresh-start
measurements is to estimate fair value.
[320] Source: Publisher
Answer (A) is incorrect because the
traditional present value measurement
approach uses a single set of estimated
==========
The change in the allowance account
has no effect on receivables until there
is a write-off.
Answer (B) is incorrect because
$2,150,000 excludes the write-offs of
uncollectible accounts from the
calculation.
Answer (C) is incorrect because
$2,175,000 equals sales revenue minus
the increase in net accounts receivable.
Answer (D) is incorrect because
$2,450,000 equals sales revenue plus
the increase in gross accounts
receivable.
[328] Source: CPA 0590 I-45
Answer (A) is correct. Under the
installment method, interest income
must be accounted for separately from
the gross profit to be recognized. The
gross profit margin on the sale is equal
to 331/3%. This rate is determined by
dividing the $600,000 gross profit
($1,800,000 selling price - $1,200,000
cost) by the $1,800,000 selling price.
Based on collection of $300,000 of
principal on December 31, 2000, Mill
should recognize $100,000 ($300,000 x
331/3% gross profit margin) of realized
gross profit from the construction
equipment sale. In addition, Mill should
recognize $150,000 ($1,500,000 note x
10% interest) as interest income from
the financing. Thus, the total revenue for
2000 from this transaction is $250,000
($100,000 + $150,000).
Answer (B) is incorrect because
$150,000 excludes the realized gross
profit.
Answer (C) is incorrect because
$120,000 is 10% of the seller's carrying
amount.
Answer (D) is incorrect because
$100,000 excludes the interest income.
[329] Source: Publisher
Answer (A) is incorrect because the
percentage of completion at year end in
1995 is 28% ($700,000 $2,500,000),
incorrect because
not include design,
and testing of
prototypes or testing in
products.
Layers
at Cost
-------$360,000
77,000
--------
Ending inventory
Answer (B) is incorrect because
$462,000 equals 70% of inventory on
12/31/00.
Answer (C) is incorrect because
$472,000 assumes the 2000 layer is
$160,000 and that no price-index
adjustment is made.
Answer (D) is incorrect because
$483,200 assumes the 2000 layer is
$160,000.
[339] Source: CMA Samp Q2-5
Answer (A) is correct. The costs of
fixed assets (plant and equipment) are
all costs necessary to acquire these
assets and to bring them to the condition
and location required for their intended
use. These costs include shipping,
installation, pre-use testing, sales taxes,
interest capitalization, etc. Thus, the
original cost of the machinery to be
recorded in the books is the sum of the
purchase price, installation, and
delivery charges, or $9,500 ($9,000 +
$300 + $200).
Answer (B) is incorrect because $9,300
does not include the delivery charges.
Answer (C) is incorrect because $9,200
omits the installation charges.
Answer (D) is incorrect because
$9,000 does not include the delivery
and installation charges.
[340] Source: CMA 1289 4-21
Answer (A) is correct. Credit sales
were $5,525,000 (85% x $6,500,000
total sales). Thus, the charge to expense
is $82,875 (1.5% x $5,525,000). The
percentage-of-credit-sales method is an
income statement-oriented or matching
approach. Thus, the current balance in
the allowance account is ignored when
making the entry to record bad debt
expense.
Answer (B) is incorrect because the
$3,400 debit balance in the allowance
for uncollectible accounts is not added
$437,000
========
$ 900,000
3,400,000
200,000
---------Goods available for sale
$4,500,000
CGS (1 - .25) x ($4,800,000) (3,600,000)
---------Ending inventory
$ 900,000
==========
Answer (C) is incorrect because
$1,125,000 is 25% of goods available
for sale.
Purchases
Markups
Markdowns
Cost
------$55,000
------$55,000
=======
Retail
-------$110,000
15,000
(25,000)
-------$100,000
========
Balance 1/1
Purchase 1/7
Moving-Average
Cost/Unit
-------------$1.00
3.00
----$1.75
Units
----1,000
600
----1,600
Total Cost
---------$1,000
1,800
-----$2,800
150 x $4.00
200 x $4.20
200 x $4.40
250 x $4.80
--Total available
800
===
The weighted-average unit cost is $4.40
($3,520 800 units available). The
cost of goods sold and total sales are
therefore $2,508 ($4.40 x 570 units
sold) and $3,990 ($7 x 570 units),
= $ 600.00
=
840.00
=
880.00
= 1,200.00
--------$3,520.00
=========
150 x $4.00
200 x $4.20
200 x $4.40
250 x $4.80
--Total available
800
===
The ending inventory consists of 230
units. Under periodic LIFO, these are
costed at the prices paid for the earliest
230 units purchased, or 150 units at
$4.00 and 80 units at $4.20, a total of
$936. Hence, cost of goods sold is
$2,584 ($3,520 goods available - $936
EI).
[361] Source: CMA 1292 2-29
Answer (A) is incorrect because $936
is based on periodic LIFO.
Answer (B) is incorrect because $1,012
is based on the weighted-average
method.
Answer (C) is correct. Under perpetual
LIFO, the inventory valuation is
recalculated as follows after every
purchase and sale. The 230 units in
ending inventory consist of 150 units at
= $ 600.00
=
840.00
=
880.00
= 1,200.00
--------$3,520.00
=========
Receipts
Sales
---11-1
11-5
11-7
11-9
11-11
11-17
Ending
Inventory
--------$ 600.00
200.00
1,040.00
410.00
1,290.00
326.00
1,526.00
1,046.00
Asset
----Forge
Grind
Lathe
Cost
-------$120,000
45,000
60,000
Salvage
------$10,000
5,000
7,000
C - S
-------$110,000
40,000
53,000
Life
---5
5
5
Total
Answer (C) is incorrect because
$40,848 is based on the
double-declining-balance method.
Answer (D) is incorrect because
$45,000 fails to consider the deduction
for salvage value.
[370] Source: CMA 1293 2-7
Answer (A) is incorrect because
$36,464 is based on the
double-declining-balance method but
with salvage value deducted from the
initial depreciable base.
Answer (B) is incorrect because
$40,334 is based on the
sum-of-the-years'-digits method.
Answer (C) is correct. The DDB
method allocates a series of decreasing
depreciation charges over an asset's
life. A percentage that is double the
straight-line rate is multiplied each year
times an asset's remaining book value at
the beginning of the year. Given that
each asset has a 5-year life, the
straight-line rate is 20%. The DDB rate
is therefore 40%. The forge was
purchased in Year 1 at a total cost of
$120,000. The depreciation for each
year is calculated as follows:
Year
Book Value
%
Expense
----------------------Year 1
$120,000
40%
$48,000
Year 2
72,000
40%
28,800
Year 3
43,200
40%
17,280
Year 4
25,920
40%
10,368
For the grinding machine, the calculations are:
Year
Book Value
%
Expense
----------------------Year 2
$45,000
40%
$18,000
Year 3
27,000
40%
10,800
Year 4
16,200
40%
6,480
The Year 4 calculation for the new
lathe requires multiplying the $60,000
cost times 40% to yield a $24,000
expense. Adding the Year 4 expense for
Expense
------$22,000
8,000
10,600
------$40,600
=======
Cost
-------$120,000
45,000
60,000
Salvage
------$10,000
5,000
7,000
C - S Fraction
-------- -------$110,000
2/15
40,000
3/15
53,000
5/15
Total
Answer (C) is incorrect because
$40,600 is based on the straight-line
method.
Answer (D) is incorrect because
$40,848 is based on the
double-declining balance method.
[372] Source: CMA 1293 2-9
Answer (A) is incorrect because
$9,000 is the expense for only 4 months.
Answer (B) is incorrect because, if the
initial payment is debited to a real
account, the adjustment requires a debit
to a nominal account and a credit to the
Expense
------$14,667
8,000
17,667
------$40,334
=======
real account.
Answer (C) is incorrect because
$72,000 is the ending balance in
prepaid insurance.
Answer (D) is correct. The $57,600
premium paid 3 years ago would have
been at the rate of $1,600 per month
($57,600 36 months). On January 1,
Year 1, the prepaid insurance account
would have had a balance of $12,800
($1,600 x 8 months). On September 1,
the prepaid insurance account would
have been debited for an additional
$81,000 covering the next 36 months at
a monthly rate of $2,250 ($81,000 36
months). The expense for Year 1 is
therefore $21,800 [$12,800 + (4 x
$2,250)]. The adjusting entry is to debit
insurance expense and credit prepaid
insurance for $21,800.
[373] Source: CPA 0595 F-9
Answer (A) is correct. The beginning
balance in the allowance account is
$260,000, write-offs equal $325,000,
and bad debt expense is $180,000
($9,000,000 x .02). Thus, the ending
balance in the allowance account is
$115,000.
Allowance
----------------------------------------------Write-offs $325,000 |$260,000 1/1/00
| 180,000 Bad debt expense
----------------------------------------------|$115,000 12/31/00
========
Answer (B) is incorrect because
$180,000 equals the bad debt expense
($9,000,000 x .02).
Answer (C) is incorrect because
$245,000 results from debiting
$180,000 instead of crediting the
allowance account for that amount.
Answer (D) is incorrect because
$440,000 ignores the write-offs.
[374] Source: CPA 0593 I-51
Answer (A) is incorrect because
$23,000 assumes that $20,000 is the
required ending balance in the
(50 x $2) +
(50 x $2.10)
(50 x $2) +
(30 x $2.10)
BI
Sale
Purchase
Sale
Purchase
150 x $2.00 =
(100) x 2.00 =
-------------50 x $2.00 =
200 x 2.10 =
-------------250 x $2.08
($520 250 units
(150) x 2.08 =
-------------100 x $2.08 =
200 x 2.20 =
-------------300 x $2.16 =
$300
(200)
----100
420
----520
= $2.08)
(312)
----208
440
----$648
=====
($648 300 units = $2.16)
$730,000
40,000
18,000
72,000
x
x
x
x
1%
6%
9%
25%
=
=
=
=
$ 7,300
2,400
1,620
18,000
------$29,320
=======
inventory is $3,770.
Answer (D) is correct. Under FIFO, the
ending inventory will be the same
whether a perpetual or periodic system
is used. Thus, in either case, the number
of units in ending inventory is costed at
the price of the most recently acquired
inventory. If 4,700 units were available
during the period (1,400 + 1,800 +
1,500) and 3,400 units (2,000 + 1,400)
were sold, ending inventory included
1,300 units. The most recent acquisition
consisted of 1,500 units purchased on
May 20 at $2.90 each. Consequently,
total inventory is $3,770 (1,300 x
$2.90).
[395] Source: CMA 0691 2-2
Answer (A) is correct. The ending
inventory contains 1,300 units (1,400
units beginning inventory + 3,300 units
purchased - 3,400 units sold). Under a
periodic LIFO system, the ending
inventory is valued at the cost of the
earliest purchases without regard to any
temporary liquidation of LIFO layers
during the period. The earliest units
purchased were included in the
beginning inventory of 1,400 units at
$2.45 each. The total inventory value is
therefore $3,185 (1,300 units x $2.45).
Answer (B) is incorrect because total
inventory value is $3,185.
Answer (C) is incorrect because total
inventory value is $3,185.
Answer (D) is incorrect because total
inventory value is $3,185.
[396] Source: CMA 0691 2-3
Answer (A) is incorrect because ending
inventory is $3,230.
Answer (B) is correct. Perpetual LIFO
normally provides a result different
from periodic LIFO because it gives
effect to LIFO liquidations during the
period. The May 16 sale of 2,000 units
consisted of the most recent (May 7)
purchase of 1,800 units, plus 200 of
those from the beginning inventory.
Thus, the May 7 layer was wholly
liquidated and beginning inventory was
$50,000
$50,000
$5,000
300
(500)
-----$4,800
======
Rate
---1%
5%
15%
40%
200
160
180
140
100
x
x
x
x
x
$20
$20
$20
$24
$24
= $4,000
= 3,200 equals an inventory of
= 3,600 equals an inventory of
= 3,360 equals an inventory of
= 2,400 equals an inventory of
$7,200
$3,600
$6,960
$4,560
percentage of 16-2/3%.
Answer (B) is incorrect because
$25,000 subtracted residual value from
initial cost.
Answer (C) is correct. Under the DDB
method, the depreciation percentage
used is double the straight-line rate. For
the airplane, the DDB rate is 33-1/3%
[2 x (100% 6 years)]. In the first year,
the DDB rate is applied to the initial
cost of the asset (residual value is
ignored). Thus, depreciation is $41,250
(33-1/3% x $123,750). This amount is
subtracted from the initial cost to
determine the new depreciable base.
Accordingly, depreciation for the
second year is $27,500 [33-1/3% x
($123,750 - $41,250)].
Answer (D) is incorrect because
$41,250 is the depreciation expense for
the first year.
[490] Source: CMA 0697 2-9
Answer (A) is incorrect because
$17,679 is based on the fourth-year rate
and ignores residual value.
Answer (B) is incorrect because
$18,750 is based on the straight-line
method.
Answer (C) is correct. Under the SYD
method, the depreciable base is
$112,500 ($123,750 cost - $11,250
residual value). The annual
depreciation rate equals the years
remaining divided by the sum of the
digits in the years of the asset's life. For
a 6-year life, the denominator is 21 (1 +
2 + 3 + 4 + 5 + 6). Thus, third-year
depreciation is $21,429 [$112,500 x (4
21)].
Answer (D) is incorrect because
$23,571 ignores residual value.
[491] Source: CMA 0697 2-11
Answer (A) is incorrect because
unrealized gains and losses on
available-for-sale securities do not
appear on the income statement.
Answer (B) is correct.
+
+
+
-
200
160
180
140
100
x
x
x
x
x
$20 =
$20 =
$20 =
$24 =
$21.75 =
+
-----$4,000
3,200
----3,600
Inventory
--------$4,000
7,200
3,600
6,960
4,785
3,360
2,175
Average
Cost
------$20.00
20.00
20.00
21.75
21.75
Beginning inventory
Purchases
Markups
Total goods available
Sales
Markdowns
Cost
------$35,000
55,000
------$90,000
-------
Retail
--------$ 100,000
110,000
15,000
--------$ 225,000
(150,000)
(25,000)
--------$ 50,000
=========
x
x
x
x
Unit Cost
--------$3.50 = $ 525
3.30 =
330
3.10 =
620
3.00 =
900
-----$2,375
======
Cost
$60,000
Retail
$110,000
10,000
(20,000)
------$60,000
12,000
------$72,000
=======
Adjusted purchases
Beg. inv. 1/1
Goods available
Sales
(90,000)
-------$ 40,000
x
.6
-------$ 24,000
========
Cost
$147,000
833,000
-------$100,000
30,000
-------$130,000
Retail
$ 203,000
1,155,000
Markups, net
Goods available
Sales
Markdowns, net
-------$980,000
========
Ending inventory-retail
Cost-retail ratio ($980 $1,400)
Ending inventory at cost
42,000
---------$1,400,000
(1,106,000)
(14,000)
---------$ 280,000
x
70%
---------$ 196,000
==========
compensation levels.
Answer (C) is incorrect because the
PBO is the actuarial present value of all
future benefits attributed to past
employee service at a moment in time.
It is based on assumptions as to future
compensation if the plan formula is
based on future compensation.
Answer (D) is correct. SFAS 87
defines service cost as the present value
of the future benefits earned in the
current period (as calculated according
to the plan's benefit formula). This
amount is usually calculated by the
plan's actuary. Service cost is a
component of net periodic pension cost.
It is also a portion of the PBO.
[570] Source: Publisher
Answer (A) is incorrect because
accumulated vacation pay and vested
sick pay should be accrued.
Answer (B) is incorrect because SFAS
43 also requires accrual of vested sick
pay.
Answer (C) is correct. Vacation pay
and vested sick pay should be accrued
as liabilities. Thus, the minimum
accrual is $12,000 ($5,000 + $3,000 +
$4,000).
Answer (D) is incorrect because SFAS
43 does not require accrual of
nonvested sick pay.
[571] Source: Publisher
Answer (A) is incorrect because
accumulated vacation pay should be
accrued for Year 1.
Answer (B) is correct. Each employee
earns 10 vacation days a year at $64
per day (8 hours x $8). Thus, for each
employee, the annual expense is $640.
The total for 10 workers is $6,400.
Since no vacation days were used
during Year 1, the entire balance of
$6,400 will be a liability at December
31. The workers will earn an additional
10 days of vacation during Year 2,
while using up eight days.
Consequently, the liability will increase
long-term refinancing.
Answer (C) is incorrect because the
debt has not been retired.
Answer (D) is incorrect because the
debt is on the balance sheet.
[603] Source: CIA 1193 IV-39
Answer (A) is incorrect because the
cash basis calls for recognizing
warranty expense as labor and
materials are expended to satisfy the
warranty.
Answer (B) is correct. If the warranty
is an integral part of the sale and the
expense is regarded as a loss
contingency, the accrual method should
be used in accordance with SFAS 5.
Under the accrual method, the estimated
costs of servicing the warranty are
charged to income in the same period
the revenue from the sale of the product
is recognized if it is probable that
customers will make claims under
warranty relating to goods that have
been sold and a reasonable estimate of
the costs involved can be made.
Answer (C) is incorrect because the
sales warranty method is appropriate
for situations when a warranty is sold
separately from the product.
Answer (D) is incorrect because the
method of accounting for warranties for
tax purposes is the cash basis. The cash
basis is unacceptable for accounting
purposes because it violates the
matching principle.
[604] Source: CIA 1191 IV-41
Answer (A) is incorrect because
disability benefits should be accrued to
match revenues.
Answer (B) is correct. SFAS 43,
Accounting for Compensated Absences,
requires an accrual when four criteria
are met: (1) the payment of
compensation is probable, (2) the
amount can be reasonably estimated, (3)
the benefits either vest or accumulate,
and (4) the compensation relates to
employees' services that have already
because the
be classified as
is due within a
31, 2001
asset.
Answer (C) is incorrect because the
Cutter lease meets the criteria of a
capital lease.
Answer (D) is correct. A capital lease
is one in which many of the rights of
ownership are transferred to the lessee.
For accounting purposes, the lessee
treats a capital lease as similar to the
purchase of an asset. SFAS 13 specifies
that if the present value of the minimum
lease payments (excluding executory
costs) is 90% or more of the asset's fair
value, the lease should be accounted for
as a capital lease. Given that the
executory costs associated with the
lease are to be paid by the lessor, a
portion of the lease rental price is for
those costs, not for the asset. Executory
costs include insurance, maintenance,
and similar expenses. Consequently, the
annual minimum lease payment equals
the annual payment minus the executory
costs, or $3,500 ($4,000 yearly rental $500). The present value of the
minimum lease payments is therefore
$9,590 (2.74 x $3,500), which is
greater than 90% of the fair value of the
asset. Thus, the lease should be
capitalized. The appropriate amount of
the initial asset value is the present
value of the minimum lease payments
calculated above.
[653] Source: Publisher
Answer (A) is incorrect because, in a
business combination accounted for as a
purchase, unrecognized net gains and
losses are eliminated by the assignment
of part of the purchase price to a
liability (excess of PBO over plan
assets) or an asset (excess of plan
assets over the PBO).
Answer (B) is incorrect because, in a
business combination accounted for as a
purchase, prior service cost, is
eliminated by the assignment of part of
the purchase price to a liability (excess
of PBO over plan assets) or an asset
(excess of plan assets over the PBO).
Answer (C) is correct. In a business
combination structured as a purchase,
the acquiring company should recognize
a pension liability if the PBO of the
labor.
Answer (B) is incorrect because
$40,250 is the liability accrued at
year-end.
Answer (C) is incorrect because
$40,600 is the cash outlay for the
current year.
Answer (D) is correct. If warranty
expense is expected to be 3% of sales,
that amount should be recorded as an
expense for the year. Consequently, the
expense is $80,850 (3% x $2,695,000).
The amount of cash expended during the
year is irrelevant because the expense
is expected to be paid over 3 years. A
liability is credited for any portion of
the expense not paid during 2001.
[669] Source: Publisher
Answer (A) is incorrect because
debiting revenue and crediting unearned
revenue assumes the initial entry was to
a revenue account.
Answer (B) is incorrect because
$45,000, not $135,000, is the
adjustment needed at year-end.
Answer (C) is incorrect because
debiting revenue and crediting unearned
revenue assumes the initial entry was to
a revenue account.
Answer (D) is correct. The initial entry
was to debit cash and credit unearned
revenue, a liability account, for
$180,000. The subscriptions were for 3
years, or 36 months, beginning April 1,
2001. Of this period, 25% (9 months
36 months) had elapsed as of December
31, 2001. Because the earning process
for subscriptions revenue is completed
in proportion to the delivery of the
subscribed materials over the term of
the agreement, Felicity should recognize
25% of the amounts received for
subscriptions as revenue at December
31, 2001. The adjusting entry is to debit
unearned revenue and credit
subscription revenue for $45,000 (25%
x $180,000). This entry reduces the
liability balance to $135,000,
representing the remaining 27 months of
subscriptions.
Year
---2002
2003
2004
2005
Taxable
(Deductible)
Amount
-----------$(48,900)
10,380
25,180
40,000
x
x
x
x
Enacted
Tax Rate
-------40%
40%
40%
45%
=
=
=
=
Annual Tax
Expense (Benefit)
---------------$(19,560)
4,152
10,072
18,000
--------$ 12,664
=========
$ 7,500
12,500
35,000
------$55,000
=======
20X0.
[703] Source: CPA 0595 F-42
Answer (A) is incorrect because
$12,000 results from offsetting the
deferred tax liability and the deferred
tax asset.
Answer (B) is incorrect because
$21,000 is the deferred tax liability.
Answer (C) is correct. Deferred tax
expense or benefit is the net change in
an entity's deferred tax liabilities and
assets during the year. Quinn had a net
deferred tax asset of $9,000 at the
beginning of 20X1, and a net deferred
tax liability of $21,000 ($70,000 x
30%) at the end of 20X1. The net
change (a deferred tax expense in this
case) is $30,000 ($9,000 reduction in
the deferred tax asset + $21,000
increase in deferred tax liabilities).
Answer (D) is incorrect because
$60,000 is the income tax expense for
the year ($200,000 x .30).
[704] Source: CPA 0595 F-16
Answer (A) is incorrect because the
deferred income tax effect is a liability.
The temporary difference results in
taxable, not deductible, amounts.
Answer (B) is incorrect because the
deferred income tax effect is a liability.
The temporary difference results in
taxable, not deductible, amounts.
Answer (C) is incorrect because
$75,000 is based on the 20X0 tax rate.
Answer (D) is correct. The temporary
difference arises because the excess of
the reported amount of the depreciable
asset over its tax basis will result in
taxable amounts in future years when
the reported amount is recovered. A
taxable temporary difference results in
a deferred tax liability. Because the
enacted tax rate for future years is 40%,
the deferred income tax liability is
$100,000 ($250,000 x 40%).
[705] Source: CPA 0593 I-35
$50,000
(12,000)
(9,000)
(1,500)
------$27,500
=======
$700).
Answer (D) is incorrect because
$4,500 assumes straight-line
amortization and a 6/30/00 issue date.
[754] Source: CPA 0590 I-37
Answer (A) is correct. APB 21 states
that issue costs should be reported in
the balance sheet as deferred charges to
be amortized over the life of the bonds.
They should not be commingled with
bond premium or discount. Issue costs
are incurred to bring a bond to market.
They include lawyers', accountants', and
underwriters' fees; engraving and
printing costs; registration costs; and
promotion costs. In this case, they
include the $30,000 of printing and
engraving costs, the $160,000 of legal
fees, the $20,000 of accountants' fees,
and the $300,000 of underwriter's
commissions. Hence, the amount that
should be recorded as a deferred charge
to be amortized over the term of the
bonds is equal to $510,000.
Answer (B) is incorrect because
$480,000 does not include the printing
and engraving costs.
Answer (C) is incorrect because
$300,000 includes only the
commissions.
Answer (D) is incorrect because
$210,000 excludes the commissions.
[755] Source: CPA 1193 I-34
Answer (A) is incorrect because an
additional full year of amortization
should have been claimed.
Answer (B) is incorrect because six
more months of issue costs should have
been amortized for the time between
1/1/01 through 6/30/01.
Answer (C) is incorrect because
$220,800 results from amortization
using the interest method.
Answer (D) is correct. Bond issue costs
are customarily amortized using the
straight-line method for the term of the
bond. The amortization is $25,000 per
is incorrect because
based on the interest factor
of an ordinary annuity of $1
10 years.
$220,000
(150,000)
-------Profit
$ 70,000
Minus PV of lease payments
(60,800)
-------Profit recognized
$ 9,200
========
The $60,800 remaining gain on the
sale-leaseback should be amortized in
proportion to the gross rentals expensed
over the lease term, because the
leaseback is classified as an operating
lease (none of the criteria for a capital
lease is met). At 12/31/00, the date of
the inception of the lease, the entire
$60,800 should be reported in the
balance sheet as deferred revenue from
the sale of the equipment.
Answer (D) is incorrect because
$70,000 is the total profit.
[769] Source: CPA 0590 I-31
Answer (A) is incorrect because
$34,100 is the present value of
reasonable lease rentals.
Answer (B) is incorrect because
$30,000 is the profit recognized.
Answer (C) is incorrect because $4,100
is the excess of the present value of
reasonable lease rentals over the profit
recognized.
Answer (D) is correct. The general rule
is that profit or loss on the sale in a
sale-leaseback transaction is deferred
and amortized over the life of the lease.
However, SFAS 28 provides for
certain exceptions. One exception
applies when the seller-lessee
relinquishes the right to substantially all
of the remaining use of the property
sold and retains only a minor portion of
rate.
Beginning PBO balance
Service cost
Interest cost (10% x $72,000)
Benefits paid
Ending PBO balance
$72,000
18,000
7,200
(15,000)
------$82,200
=======
$ 180,000
(400,000)
--------$(220,000)
x
.75
--------$(165,000)
=========
($100,000 x 30%)
($50,000 x 30%)
($50,000 x 30%)
($100,000 x 35%)
$30,000
15,000
15,000
35,000
------Total deferred tax asset $95,000
=======
The issue of whether to record a
valuation allowance (a credit) need not
be addressed because the question asks
solely for the amount of the deferred tax
asset (a debit).
[780] Source: CPA 1195 F-36
Answer (A) is incorrect because
$8,000 ignores the balance in the
valuation account.
Answer (B) is incorrect because $8,500
assumes the balance in the valuation
account equals 10% of the 2001
increase in the deferred tax asset.
Answer (C) is correct. The deferred tax
expense or benefit recognized is the
sum of the net changes in the deferred
tax assets and deferred tax liabilities. It
is aggregated with the current tax
expense or benefit to determine the
income tax expense for the year. The
amount of income taxes payable
(current tax expense) is given as
$13,000. The deferred tax asset
increased by $5,000, but $2,000 (10% x
$20,000) was determined to be an
appropriate credit to an allowance
account. Thus, income tax expense for
2001 is $10,000 [$13,000 current tax
expense - ($5,000 increase in the
deferred tax asset - $2,000 credit to an
allowance account)].
Answer (D) is incorrect because
$13,000 is the amount of current income
taxes payable.
[781] Source: CPA 1195 F-37
Answer (A) is incorrect because
$33,000
Treasury stock
$27,000
Additional paid-in capital
6,000
working capital.
Answer (B) is incorrect because the
subsequent payment of a previously
declared dividend has no effect on
working capital.
Answer (C) is incorrect because the
declaration of a cash dividend reduces
working capital.
Answer (D) is correct. Working capital
is the excess of current assets over
current liabilities. The declaration of a
dividend requires a debit to retained
earnings and a credit to dividends
payable (a current liability). Thus,
working capital is decreased by the
amount of the increased current
liability. The subsequent payment of the
dividend has no effect on working
capital because current assets (cash)
and current liabilities (dividends
payable) are both decreased by the
same amount.
[789] Source: CMA 1289 4-14
Answer (A) is correct. The dividend
declaration decreased retained earnings
and increased current liabilities by
$750,000. The subsequent payment
decreased both current assets and
current liabilities by $750,000. Before
the dividend declaration, the current
ratio was 3.03 (5,431,000
$1,789,000). The declaration increased
current liabilities to $2,539,000, and
the new current ratio was 2.14
($5,431,000 $2,539,000). The
payment reduced current assets to
$4,681,000 and current liabilities to
$1,789,000. Thus, after the payment, the
current ratio was 2.61 ($4,681,000
$1,789,000).
Answer (B) is incorrect because a
dividend declaration reduces the
current ratio.
Answer (C) is incorrect because
payment of the dividend increased the
ratio. Reducing the numerator and
denominator by equal amounts always
increases a ratio that is greater than 1.0.
Answer (D) is incorrect because a
dividend declaration reduces the
current ratio.
was $15,000,000.
[800] Source: CMA 0686 3-4
Answer (A) is correct. Since the
common stock account is always
credited for the par value of the shares
issued, the correct answer is $50,000
(10,000 shares x $5 per share). The
difference between the cash debited and
the common stock credited at par value
is a credit to paid-in capital. Thus,
paid-in capital would be credited for
$130,000 ($180,000 cash - $50,000
common stock).
Answer (B) is incorrect because the
credit to common stock is $50,000
(10,000 shares x $5.00 par value).
Paid-in capital would be credited for
$130,000.
Answer (C) is incorrect because
$130,000 would be credited to paid-in
capital. $50,000 would be credited to
common stock.
Answer (D) is incorrect because
$50,000 would be credited to common
stock (10,000 x $5.00 par value).
$130,000 would be credited to paid-in
capital.
[801] Source: CMA 0686 3-5
Answer (A) is incorrect because
$50,000 would be credited to common
stock.
Answer (B) is correct. The common
stock account would be credited for the
par value of $50,000. The additional
amount of $125,000 would be credited
to paid-in capital in excess of par.
Answer (C) is incorrect because
$50,000 would be credited to common
stock (10,000 x $5.00 par value). The
remaining $125,000 would be credited
to paid-in capital.
Answer (D) is incorrect because
$50,000 would be credited to common
stock (10,000 x $5.00 par value). The
remaining $125,000 would be credited
to paid-in capital.
= 7.75 times
Answer (D) is incorrect because 9.5
times results from failing to deduct the
administrative expenses from the
numerator.
because mature
earnings to
thus, they tend to
of earnings as
person or by proxy.
[861] Source: Publisher
Answer (A) is incorrect because most
states allow shareholders to act without
a meeting if unanimous written consent
is given.
Answer (B) is incorrect because
attendance at the meeting is also an
effective waiver.
Answer (C) is correct. If a quorum is
present (50% of the outstanding shares),
resolutions ordinarily may be adopted
by a simple majority of the voting
shares. To protect minority
shareholders, however, the bylaws,
articles, or a statute may require more
than a simple majority (supermajority)
with regard to extraordinary matters.
Answer (D) is incorrect because only
those owning stock at the record date
may vote. The record date is a date
prior to the meeting used to determine
those eligible to vote.
[862] Source: CMA 0688 4-19
Answer (A) is correct. A purchase of
treasury stock would increase earnings
per share because fewer shares would
be outstanding. The numerator of the
EPS fraction (income available to
common shareholders) would remain
unchanged, but the denominator
(weighted-average number of shares
outstanding) would decrease.
Answer (B) is incorrect because a stock
split reduces EPS. More shares are
outstanding after the split.
Answer (C) is incorrect because a stock
dividend increases the shares
outstanding and thus decreases EPS.
Answer (D) is incorrect because a
change in cash dividends paid to
common shareholders has no effect on
EPS. Dividends on common shares are
declared out of income available to
common shareholders.
[863] Source: CPA 0593 I-6
$224,000
Interest income
30% of dividends
32,000
24,000
-------$280,000
Less interest expense
44,000
-------Taxable income
$236,000
========
Tax is 35% of $236,000, which is
$82,600.
Answer (D) is incorrect because
$102,200 does not take the
dividends-received deduction of 70%.
[886] Source: CMA 0688 4-19
Answer (A) is correct. A purchase of
treasury stock would increase earnings
per share because fewer shares would
be outstanding. The numerator of the
EPS fraction (net income) would
remain unchanged, but the denominator
(number of shares outstanding) would
decrease.
Answer (B) is incorrect because a stock
split reduces EPS since more shares are
outstanding after the split.
Answer (C) is incorrect because a stock
dividend increases the shares
outstanding and thus decreases EPS.
Answer (D) is incorrect because EPS is
based on issued shares.
[887] Source: CMA 1289 3-7
Answer (A) is correct. Under APB 15,
Earnings per Share, the EPS
computation assumes that the
hypothetical proceeds from the exercise
of all dilutive options and warrants are
used for the purchase of treasury stock.
As long as the exercise price is equal to
or greater than the market price, no
dilution of stock occurs because
treasury stock can theoretically be
purchased to offset the additional shares
assumed to be issued pursuant to the
rights agreement. However, if the
exercise price is less than the market
price, funds from the hypothetical sale
of new stock will be insufficient to
acquire an equal amount of treasury
stock. The new shares issued will
exceed those assumed to be purchased
$640,000
60,000
47,500
incorrect because
items are to be disclosed
the income statement net
income taxes.
Answer (C) is
extraordinary
separately in
of applicable
incorrect because
items are to be disclosed
the income statement net
income taxes.
Answer (D) is
extraordinary
separately in
of applicable
incorrect because
items are to be disclosed
the income statement net
income taxes.
understated.
[918] Source: CMA 0685 4-9
Answer (A) is incorrect because net
income and shareholders' equity would
be overstated (not understated).
Answer (B) is incorrect because total
liabilities are not affected.
Answer (C) is incorrect because assets
are overstated.
Answer (D) is correct. When an asset is
acquired, the expenses of maintaining
the asset are expenses of the period in
which the ordinary repairs are
rendered. To charge such ordinary
repairs to the machinery and equipment
asset account would thus overstate total
assets, the current year's net income,
and stockholders' equity. Liabilities,
however, would not be affected.
[919] Source: CMA 1288 4-11
Answer (A) is incorrect because
$508,500 does not include the $2,400
decrease for the salary error.
Answer (B) is incorrect because
$529,100 includes a $120,000 increase
and an $11,500 increase.
Answer (C) is incorrect because
$546,400 includes a $2,400 decrease.
Answer (D) is correct. Failing to
capitalize $120,000 of equipment
resulted in an expense of $120,000 in
Year 1 and $0 in Year 2. The equipment
should have been capitalized and
depreciated over 10 years. With an
estimated salvage value of $5,000,
annual depreciation should have been
$11,500 ($115,000 cost minus salvage
10 years). Thus, this error overstated
expenses for Year 1 by $108,500
($120,000 - $11,500). Moreover,
expenses for Year 2 were understated
by $11,500 (depreciation not recorded).
The failure to record the $2,400 in
accrued salaries at the end of Year 1
meant that the Year 1 expenses were
understated by $2,400, and Year 2
expenses were overstated by $2,400.
Not accruing salaries at the end of Year
Income
Year 1
Year 2
Year 1
Year 2
originally reported
increase for first error
decrease for first error
decrease for second error
decrease for second error
Year 1
-------$400,000
108,500
(11,500)
(2,400)
-------$506,100
========
Year 2
--------$563,000
(2,700)
-------$548,800
========
Effect on Current
Year Expense
-------------------
Effect on Current
Year Net Income
-----------------
Understate $50,000
Overstate $50,000
Understate $80,000
Overstate $80,000
Understate $100,000
Overstate $100,000
Overstate $60,000
------------------Understate $170,000
===================
Understate $60,000
-----------------Overstate $170,000
==================
underestimated.
Answer (C) is correct. Cost of goods
sold equals beginning inventory, plus
purchases, minus ending inventory. If
the ending inventory is underestimated,
the cost of goods sold will be
overestimated. If cost of goods sold is
overestimated, net earnings will be
underestimated.
Answer (D) is incorrect because net
earnings will be underestimated.
[993] Source: Publisher
Answer (A) is incorrect because EPS
for income from continuing operations
must be disclosed on the face of the
income statement.
Answer (B) is correct. According to
SFAS 95, the presentation of per share
amounts for cash flows is not permitted.
Cash flow is not a substitute for net
income.
Answer (C) is incorrect because EPS
amounts for an extraordinary item must
be reported on the face of the income
statement or in the notes.
Answer (D) is incorrect because EPS
amounts for the cumulative effect of a
change in accounting principle must be
reported on the face of the income
statement or in the notes.
[994] Source: CIA 1191 IV-39
Answer (A) is incorrect because the
excess of the reacquisition price over
the net carrying amount of the old bonds
is recognized in full as a loss from
extinguishment of debt in the period of
refunding.
Answer (B) is incorrect because the
excess of the reacquisition price over
the net carrying amount of the old bonds
is recognized in full as a loss from
extinguishment of debt in the period of
refunding.
Answer (C) is
on redemption
including any
reacquisition
books.
Answer (C) is incorrect because the
purchase price of $4,000,000 exceeds
the seller's $3,000,000 carrying value
by $1,000,000.
Answer (D) is incorrect because
$3,000,000 is the carrying value.
[1033] Source: CIA 1192 IV-35
Answer (A) is incorrect because
$120,000 equals $200,000 of goodwill
minus $80,000 of additional
expenditures to maintain goodwill.
Answer (B) is incorrect because
goodwill is recorded only when an
entire business is purchased. The
$200,000 is to be capitalized as
goodwill, but the full $80,000 should be
expensed.
Answer (C) is correct. APB 16,
Business Combinations, requires that
the cost of goodwill from a business
combination accounted for as a
purchase be capitalized and amortized
over its estimated useful life. In
contrast, the cost of developing,
maintaining, or restoring intangible
assets that are inherent in a continuing
business and related to an enterprise as
a whole should be expensed as
incurred. Hence, the purchased
goodwill ($200,000) is capitalized, but
the $80,000 spent to maintain goodwill
should be expensed in the current year.
Answer (D) is incorrect because
$280,000 incorrectly reflects the
capitalization of the internally generated
goodwill of $80,000. That $80,000
should be expensed in the current year.
[1034] Source: CMA 1286 4-22
Answer (A) is incorrect because the
costs to register and issue stock reduce
its fair value.
Answer (B) is correct. In applying the
purchase method of accounting for a
business combination, the cost to the
purchasing entity of acquiring another
entity is the amount of cash or the fair
value of other assets given up in the
company.
[1064] Source: Publisher
Answer (A) is incorrect because a
consolidation may be accounted for as a
pooling, a method that records only
book values.
Answer (B) is incorrect because
aggregation is a nonsense term in this
context.
Answer (C) is correct. The purchase
method treats the combination as an
acquisition of one company by another.
The acquirer records the identifiable
assets obtained and liabilities assumed
at their fair values. Goodwill is the
excess of the purchase price of the
assets or an investee over the sum of the
assigned costs (fair values) of the net
identifiable assets (sum of the
identifiable tangible and identifiable
intangible assets, minus liabilities
assumed).
Answer (D) is incorrect because, in a
pooling, assets and liabilities are
recorded at book value, so goodwill is
not recognized.
[1065] Source: Publisher
Answer (A) is incorrect because a
pooling involves an issuance solely of
common stock, and retained earnings is
ordinarily unaffected.
Answer (B) is incorrect because certain
tax-free reorganizations are accounted
for using the purchase method.
Answer (C) is incorrect because, when
a stock investment includes more than
50% but less than 100% of the
outstanding stock of a company, a
minority interest exists in the
consolidated balance sheet.
Answer (D) is correct. In a pooling,
assets are recorded at their existing
book values. In a purchase, assets are
recorded at fair value. The purchase
method will write up the assets if fair
value is greater than book value.
However, if book value exceeds fair
value, the pooling method records the
Reported Profit
--------------$ 90,000
0
910,000
0
---------$1,000,000
==========
Reported Loss
------------$
0
100,000
0
420,000
-------$520,000
========
$ 3,000,000
(1,900,000)
(125,000)
----------$ 975,000
===========
Dean.
Answer (C) is correct. When a parent
buys inventory from a subsidiary (an
upstream transaction), the inventory on
the consolidated balance sheet must be
adjusted to the price paid by the
subsidiary until the inventory is sold to
an outside party. Hence, the gross profit
made by Kent, which was included in
the $60,000 of inventory held by Clark,
must be reduced by the pro rata share of
profit made on the sale by Kent,
reducing the inventory to Kent's original
cost. The reduction is $12,000
[($60,000 EI $240,000 purchases) x
$48,000 gross profit]. Thus, current
assets equal $308,000 ($320,000 $12,000). Because Kent is wholly
owned, no allocation of the reduction in
gross profit to a minority interest is
necessary. The transaction with Dean
requires no elimination. Dean is not
consolidated.
Answer (D) is incorrect because
$302,000 treats the sales to Dean as
occurring between a parent and a
consolidated subsidiary.
[1097] Source: CPA 1195 F-8
Answer (A) is incorrect because Lion,
Monk, and Nevi all qualify as
reportable operating segments.
Answer (B) is incorrect because Lion,
Monk, and Nevi all qualify as
reportable operating segments.
Answer (C) is incorrect because Lion,
Monk, and Nevi all qualify as
reportable operating segments.
Answer (D) is correct. For the purpose
of identifying reportable operating
segments, SFAS 131 defines revenue to
include sales to external customers and
intersegment sales or transfers. In
accordance with the revenue test, a
reportable operating segment has
revenue equal to 10% or more of the
total combined revenue, internal and
external, of all of the enterprise's
operating segments. Given combined
revenues of $150,000, Lion, Monk, and
Nevi all qualify because their revenues
are at least $15,000 (10% x $150,000).
incurred.
An asset acquired by issuing stock is
recorded at the fair value of the asset.
However, the fair value of securities is
normally more clearly evident than the
fair value of an acquired company.
Hence, the quoted price of the equity
securities issued to effect the
combination may be used to
approximate the fair value of the
acquired company. The investment
should be debited for $3,760,000
[(100,000 shares x $36) + $160,000
consultant's fee], and additional paid-in
capital should be debited for $80,000
(the registration and issuance costs).
The credits are to common stock for
$2,000,000 ($20 x 100,000 shares),
additional paid-in capital for
$1,600,000 [($36 - $20 par) x 100,000
shares], and cash for $240,000
($160,000 + $80,000).
Answer (D) is incorrect because
$3,840,000 results from treating the
registration and issuance costs as an
addition to the investment instead of as
a reduction of paid-in capital.
[1100] Source: CPA 0596 F-3
Answer (A) is incorrect because
Mega's contributed capital exceeds
Lone and Small's par value of common
stock, resulting in Mega's having
additional paid-in capital.
Answer (B) is correct. In a pooling of
interests, the contributed capital of the
surviving company must equal the
contributed capital of the combining
entities. Lone's contributed capital is
$112,500 ($100,000 common stock +
$12,500 additional paid-in capital).
Small's contributed capital is $217,500
($200,000 common stock + $17,500
additional paid-in capital). Therefore,
total contributed capital is $330,000
($112,500 + $217,500). Mega issued
31,000 shares of $10 par voting stock,
resulting in common stock of $310,000
(31,000 x $10). Thus, additional
paid-in capital is $20,000 ($330,000
contributed capital - $310,000 common
stock).
Answer (C) is incorrect because
$30,000 equals the additional paid-in