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1. Which of the following statements is true when comparing
the accounting for leasing transactions under U.S. GAAP with IFRS?
2. A lessor with a sales-type lease involving an
unguaranteed residual value available to the lessor at the end of the lease
term will report sales revenue in the period of inception of the lease at which
of the following amounts?
3. Which of the following is an advantage of leasing?
4. Which of the following is a correct statement of one of
the capitalization criteria?
5. Hull Co. leased equipment to Riggs Company on May 1,
2013. At that time the collectibility of the minimum lease payments was not reasonably
predictable. The lease expires on May 1, 2014. Riggs could have bought the
equipment from Hull for $4,000,000 instead of leasing it. Hull's accounting
records showed a book value for the equipment on May 1, 2010, of $3,500,000.
Hull's depreciation on the equipment in 2013 was $450,000. During 2013, Riggs
paid $900,000 in rentals to Hull for the 8-month period. Hull incurred
maintenance and other related costs under the terms of the lease of $80,000 in
2013. After the lease with Riggs expires, Hull will lease the equipment to
another company for two years.
Ignoring income taxes, the amount of expense incurred by Riggs from this lease for the year ended December 31, 2013, should be
Ignoring income taxes, the amount of expense incurred by Riggs from this lease for the year ended December 31, 2013, should be
6. Metro Company, a dealer in machinery and equipment,
leased equipment to Sands, Inc., on July 1, 2013. The lease is appropriately
accounted for as a sale by Metro and as a purchase by Sands. The lease is for a
10-year period (the useful life of the asset) expiring June 30, 2023. The first
of 10 equal annual payments of $828,000 was made on July 1, 2013. Metro had
purchased the equipment for $5,200,000 on January 1, 2013, and established a
list selling price of $7,200,000 on the equipment. Assume that the present
value at July 1, 2013, of the rent payments over the lease term discounted at
8% (the appropriate interest rate) was $6,000,000.
What is the amount of profit on the sale and the amount of interest income that Metro should record for the year ended December 31, 2013?
What is the amount of profit on the sale and the amount of interest income that Metro should record for the year ended December 31, 2013?
7. Haystack, Inc. owns 30% of the outstanding stock of
Hallmark, Inc. and accordingly uses the equity method to account for its
investment. The stock was purchased on January 1, 2013 for $780,000. During the
year ended December 31, 2013, Hallmark, Inc. reported the following:
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Dividends declared and paid
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$ 400,000
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Net income
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2,400,000
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Haystack, Inc. uses the FIFO method for costing its inventories,
while Hallmark, Inc. uses the LIFO method to conform with other companies in
its industry. Haystack, Inc. determines that if Hallmark, Inc. had used the
FIFO method, its income would have been $350,000 higher during 2013. What is
the balance in the Investment in Hallmark, Inc. that will be reported on
Haystack, Inc.'s balance sheet at December 31, 2013 assuming Haystack, Inc.
follows U.S. GAAP for its external financial reporting?
8. Link Co. purchased machinery that cost $1,350,000 on
January 4, 2011. The entire cost was recorded as an expense. The machinery has
a nine-year life and a $90,000 residual value. The error was discovered on
December 20, 2013. Ignore income tax considerations.
Link's income statement for the year ended December 31, 2013, should show the cumulative effect of this error in the amount of
Link's income statement for the year ended December 31, 2013, should show the cumulative effect of this error in the amount of
9. Link Co. purchased machinery that cost $1,350,000 on
January 4, 2011. The entire cost was recorded as an expense. The machinery has
a nine-year life and a $90,000 residual value. The error was discovered on
December 20, 2013. Ignore income tax considerations.
Before the correction was made, and before the books were closed on December 31, 2013, retained earnings was understated by
Before the correction was made, and before the books were closed on December 31, 2013, retained earnings was understated by
10. Which type of accounting change should always be
accounted for in current and future periods?
11.
Langley Company's December 31 year-end financial statements
contained the following errors:
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Dec. 31, 2012
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Dec. 31, 2013
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Ending inventory
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$15,000 understated
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$22,000 overstated
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Depreciation expense
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4,000 understated
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An insurance premium of $36,000 was prepaid in 2012 covering the
years 2012, 2013, and 2014. The prepayment was recorded with a debit to
insurance expense. In addition, on December 31, 2013, fully depreciated
machinery was sold for $19,000 cash, but the sale was not recorded until 2014.
There were no other errors during 2013 or 2014 and no corrections have been
made for any of the errors. Ignore income tax considerations.
What is the total net effect of the errors on the amount of
Langley's working capital at December 31, 2013?
12. Which of the following disclosures is required for a
change from LIFO to FIFO?
13.
The net income for the year ended December 31, 2013, for Oliva
Company was $1,500,000. Additional information is as follows:
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Depreciation on plant assets
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$600,000
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Amortization of leasehold improvements
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340,000
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Provision for doubtful accounts on short-term receivables
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120,000
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Provision for doubtful accounts on long-term receivables
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100,000
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Interest paid on short-term borrowings
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80,000
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Interest paid on long-term borrowings
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60,000
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Based solely on the information given above, what should be the
net cash provided by operating activities in the statement of cash flows for
the year ended December 31, 2013?
14. The balance in retained earnings at December 31, 2012
was $720,000 and at December 31, 2013 was $582,000. Net income for 2013 was
$500,000. A stock dividend was declared and distributed which increased common
stock $250,000 and paid-in capital $110,000. A cash dividend was declared and
paid.
The amount of the cash dividend was
15. The primary purpose of the statement of cash flows is
to provide information
16. In reporting extraordinary transactions on a statement
of cash flows (indirect method), the
17. The amortization of bond premium on long-term debt
should be presented in a statement of cash flows (using the indirect method for
operating activities) as a(n)
18. Surf Company follows IFRS for its external financial
reporting. The following amounts were available at December 31, 2013:
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Interest paid
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$22,000
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Dividends paid
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16,000
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Taxes paid
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37,000
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Under IFRS, what is the maximum amount that could be reported
for cash used by operating activities for Surf Company for the year ended
December 31, 2013?
19. Information for Ramirez Corp. is given below:
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Ramirez Corp.
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Balance Sheet
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December 31, 2013
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Assets
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Equities
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Cash
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$100,000
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Accounts payable
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$210,000
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Accounts receivable (net)
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650,000
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Federal income tax payable
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63,000
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Inventories
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813,000
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Miscellaneous accrued payables
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75,000
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Plant and equipment,
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Bonds payable (10%, due 2015)
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625,000
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net of depreciation
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661,000
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Preferred stock ($100 par, 6%
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Patents
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87,000
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cumulative nonparticipating)
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250,000
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Other intangible assets
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25,000
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Common stock (no par, 20,000
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Total Assets
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$2,336,000
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shares authorized, issued
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and outstanding)
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375,000
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Retained earnings
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813,000
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Treasury stock-500 shares
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of preferred
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(75,000)
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Total Equities
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$2,336,000
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Ramirez Corp.
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Income Statement
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Year Ended December 31,
2013
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|||||||||
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Net sales
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$3,000,000
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Cost of goods sold
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2,000,000
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Gross profit
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1,000,000
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Operating expenses (including bond interest expense)
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500,000
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Income before income taxes
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500,000
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Income tax
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150,000
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Net income
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$350,000
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Additional information:
There are no preferred dividends in arrears, the balances in the Accounts Receivable and Inventory accounts are unchanged from January 1, 2013, and there were no changes in the Bonds Payable, Preferred Stock, or Common Stock accounts during 2013. Assume that preferred dividends for the current year have not been declared.
There are no preferred dividends in arrears, the balances in the Accounts Receivable and Inventory accounts are unchanged from January 1, 2013, and there were no changes in the Bonds Payable, Preferred Stock, or Common Stock accounts during 2013. Assume that preferred dividends for the current year have not been declared.
The rate of return for 2013 based on the year-end common
stockholders' equity was
20. An example of an inventory accounting policy that
should be disclosed in a Summary of Significant Accounting Policies is the
21. During 2013, Quirk, Incorporated purchased $3,400,000
of inventory. The cost of goods sold for 2013 was $3,600,000 and the ending
inventory at December 31, 2013, was $400,000. What was the inventory turnover
for 2013?
22. If the financial statements examined by an auditor lead
the auditor to issue an opinion that contains an exception that is not of
sufficient magnitude to invalidate the statement as a whole, the opinion is
said to be
23. The rate of return on common stock equity is calculated
by dividing
24. Companies should disclose all of the following in
interim reports except
25.
IFRS requires which of the following disclosures regarding
related parties?
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I.
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The name of the related party.
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II.
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The amount and terms of the outstanding balance.
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III.
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Doubtful amounts related to the outstanding balance.
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