Problem 1: Certain U.S. accounting standards have been, and will be, amended to aid in the international convergence process. The process of changing these standards usually involves:
- a short deliberation followed by a vote of the U.S. Congress
- acceptance of the change by the Internal Revenue Service
- rejecting all existing standards and developing an entirely new concept
- selecting the best standard between existing U.S. and international standards
Problem 2: When reconciling its accounts, Ajax Company found the accounts receivable general ledger account had a balance of $30,000, and the accounts receivable subsidiary ledger account balances totaled $28,000. The most likely reason for this difference was
- a sale to a customer was recorded twice in the subsidiary ledger
- cash received from a customer was posted twice to the subsidiary ledger
- a sale to a customer was not posted to the general ledger
- cash received from a customer was recorded twice in the general ledger
Problem 3: Which statement is true?
- All purchases should be recorded in a purchases journal.
- Closing and reversing entries will be found in the sales journal.
- Returned merchandise from a customer should be entered in the sales journal.
- All cash sales should be recorded in the cash receipts journal.
Problem 4: Which statement is not true?
- The general journal is still a necessity, even when special journals are used.
- If a cash payments journal is in use, postings are usually made only at the end of the month.
- All transactions involving the receipt of cash are recorded in the cash receipts journal.
- A purchase of a desk calculator for the office should not be recorded in the purchases journal.
Problem 5: The Clipper, Inc., uses the accrual basis of accounting. Clipper's rent expense account had a $14,000 balance at the end of the year. The prepaid rent account had a $5,000 balance at the beginning of the year and a $7,000 balance at the end of the year. How much cash was paid for rent during the year?
- $7,000
- $9,000
- $12,000
- $16,000
Problem 6: The Waller Company uses the accrual basis of accounting. Waller Company's wages expense account had a $510,000 balance at the end of the year. The wages payable account had a $23,000 balance at the beginning of the year and a $45,000 balance at the end of the year. How much cash was paid for wages during the year?
- $488,000
- $510,000
- $532,000
- $555,000
Problem 7: The Slaughter Company uses the cash basis of accounting. Slaughter Company collected $850,000 from its customers during 2010. Customers owed Slaughter $50,000 of accounts receivable at the beginning of 2010, and $90,000 of accounts receivable at the end of 2010. What is Slaughter’s sales revenue for 2010 under the accrual basis of accounting?
- $810,000
- $850,000
- $890,000
- $940,000
Problem 8: All of the following are examples of subsequent events that would be disclosed in the footnotes to the financial statements except
- fire or flood loss
- a litigation settlement
- a bond issuance after the balance sheet date
- the inability to collect a major customer's accounts receivable
Problem 9: According to APB Opinion No. 22, the initial note to the financial statements should describe
- the calculation of comprehensive income
- the significant concentrations of credit risk
- the significant accounting policies
- the objectives of holding derivatives and the strategies for achieving them
Problem 10: A reader might find information about gain contingencies in an annual report by examining
- a contingent account receivable
- an accrued revenue
- a deferred revenue
- footnote disclosures
Problem 11: GAAP requires that all derivative financial instruments be reported at their
- historical cost
- fair value
- present value
- par value
Problem 12: Activities between affiliated entities such as subsidiaries must be disclosed in the financial statements of a corporation as
- segment analysis
- significant relationships
- related-party transactions
- contingent activities
Problem 13: Under international accounting standards, liabilities and owners' equity on the balance sheet usually appear in which order?
- capital, noncurrent liabilities, and current liabilities
- current liabilities, noncurrent liabilities, and capital
- capital, current liabilities, and noncurrent liabilities
- noncurrent liabilities, current liabilities, and capital
Problem 14: The integrated disclosures required by the SEC for all regulated companies include all of the following except
- dividends on common stock
- management's discussion
- common stock market prices
- book value of common shares
Problem 15: A company is required to report earnings per share on
Net Income Comprehensive Income
- Yes Yes
- No No
- Yes No
- No Yes
Problem 16: Characteristics of risk as they relate to the uncertainty or unpredictability of the future results of a company include
- the greater the risk, the higher the rate of return expected by investors
- risk increases as the range and timeframe within which future results are likely to fall increases
- risk increases as the range and timeframe within which future results are likely to fall decreases
- the greater the risk, the higher the rate of return expected by creditors
Problem 17: In 2007, the CFA Institute Centre for Financial Market Integrity proposed a new financial model to replace the traditional earnings number. Which of the following characteristics does the proposed statement of changes in net assets available to stockholders exclude?
- It recognizes all transactions and events that change net assets.
- Line items would be reported by the nature of the item.
- Line items would be reported by the function for which the resource is consumed.
- It includes the effects of all investing and financing activities.
The following information relates to the Smith Company:
2010 cash dividends declared $400
Unadjusted (reported) retained ?
earnings , january 1, 2010
2010 net income 480
Error in 2009-understatement of 150
ending inventory; error found
in 2010
Unadjusted (reported) retained 1,400
earnings , December 31, 2010
Problem 18: What is the unadjusted January 1, 2010, balance in retained earnings?
- $1,170
- $1,320
- $1,470
- $1,630
Problem 19: IFRS reporting requires all of the following items except
- earnings per share disclosure
- comprehensive income disclosure in a statement of stockholders’ equity
- disclosure of the results of discontinued operations
- operating expenses disclosure
Problem 20: Differences that currently exist between IFRS and U.S. GAAP with regard to the presentation of information on the income statement include all of the following except
- different acceptable terminology relating to revenue items
- depreciation measures differ when equipment has been revalued
- different performance measures such as EBITDA are permitted under IFRS
- differences resulting because IFRS does not require the use of accrual accounting under the historical cost framework
The Philip Company had the following information available for the fiscal year ended December 31, 2010:
Net Sales $1,600,000
Cost of goods sold 1,200,000
Merchandise inventory:
January 1, 2010 200,000
December 31, 2010 400,000
Problem 21: Philip's inventory turnover for 2010 was;
- 3 times
- 4 times
- 5.33 times
- 6 times
The following information was obtained from the records of Trophy Company for 2010:
Net Sales $2,600,000
Interest expense 80,000
Income tax expense 40,000
Net income 100,000
Problem 22: How many times was interest earned in 2010?
- 1.25 times
- 1.75 times
- 2.75 times
- 32.5 times
Monroe Company reported the following information for the year ended December 31, 2010:
Net income $600,000
Preferred dividends declared and paid 60,000
Common dividends declared and paid 80,000
Average common shares outstanding 90,000
Ending market price per share 40
Net Sales 4,100,000
Problem 23: Monroe's earnings per share for 2010 was:
Morgan Company reported the following information for the year ended December 31, 2010:
Net income Net income $800,000
Preferred dividends declared and paid 100,000
Common dividends declared and paid 160,000
Average common shares outstanding 140,000
Ending market price per share 40
Net Sales 7,400,000
Problem 24: Morgan's 2010 price/earnings ratio was:
- 0.17 times
- 5.25 times
- 6.00 times
- 4.67 times
Problem 25: On September 1, 2010, the Baker Company received $44,940 from 4-Most Finance Company. To pay off this loan, the Baker Company will have to pay 4-Most $10,000 each year for 10 years. The first payment is due September 1, 2011. Which interest rate compounded annually is Baker paying on this loan?
Problem 26: Paul’s Painting Co. acquired a new $800,000 press on April 1, 2010. Paul’s will make six equal payments based upon 8% compound interest, starting on March 31, 2011. How much will each payment be?
- $504,136
- $173,056
- $160,234
- $109,052