Questions -
Q1. On September 1, 2005, Bertz, Inc. exchanged a delivery truck for a parcel of land. Bertz bought this truck in 2003 for $10,000. At September 1, 2005, the truck had a book value of $6,500 and a fair market value of $5,000. Bertz gave $6,000 in cash in addition to the truck as part of this transaction. It is expected that the cash flows from the assets will be significantly different. The previous owner of the land had listed the land for sale at $12,000. At what amount should Bertz record the land?
A. $11,000
B. $11,500
C $12,000
D. $12,500
Q2. Caravan Corporation owned a warehouse located in the path of a proposed highway. Caravan bought the land in 1962 for $10,000. That same year, it built the warehouse at a cost of $50,000. In 2005, after prolonged litigation, the state exercised its right of eminent domain and condemned the property, awarding Caravan $200,000. Depreciation accumulated to the date of the award was $45,000. On its 2005 federal income tax return, Caravan elected not to recognize the gain since replacement property was bought for $225,000. For income statement purposes, Caravan should recognize a gain in 2005 of
A. 0
B. $160,000
C. $185,000
D. $200,000
Q3. In October 2005 Ewing Company exchanged an old packaging machine, which cost $120,000 and was 50% depreciated, for a dissimilar used machine and paid a cash difference of $16,000. The market value of the old packaging machine was determined to be $70,000. The two machines are expected to have significantly different cash flows. For the year ended December 31, 2005, what amount of gain or loss should Ewing recognize on this exchange?
A. 0
B. $6,000 loss
C. $10,000 loss
D. $10,000 gain
Q4. On December 29, 2005, BJ Co. sold a marketable equity security that had been purchased on January 4, 2004. BJ owned no other marketable equity security. An unrealized loss was reported as components of "Other comprehensive income" and "Accumulated other comprehensive income" in the 2004 balance sheet. A realized gain was reported in the 2005 income statement. Was the marketable equity security classified as a trading security and did its 2004 market price decline exceed its 2005 market price recovery?
Trading 2004 market price decline exceeded 2005 market price recovery
A. Yes Yes
B. Yes No
C. No Yes
D. No No
Q5. In 2005, Wallace Corporation purchased marketable securities, and at 12/31/05, had the following marketable equity securities:
In trading portfolio:
Cost Market UnrealizdGL
Security X $80,000 $50,000 $(30,000)
Y 15,000 20,000 5,000
Totals $95,000 $70,000 $(25,000)
In available-for-sale portfolio:
Security Q $60,000 $70,000 $10,000
R 90,000 45,000 (45,000)
Totals $150,000 $115,000 $(35,000)
At December 31, 2005, what amounts should be charged to
Net income Other comprehensive income
A. $0 $60,000
B. $25,000 $0
C. $25,000 $35,000
D. $60,000 $0
Q6. Dey Corp. began operations in 2005. An analysis of Dey's marketable securities portfolio acquired in 2005 shows the following totals at December 31, 2005, for available-for-sale and held-to-maturity securities:
Available-for-sale securities Held-to-maturity
Aggregate cost $45,000 $65,000
Aggregate market value 39,000 57,000
What amount of unrealized loss should Dey report in its December 31, 2005 balance sheet?
A. $14,000
B. $9,000
C. $7,000
D. $6,000
Q7. Lin Co. sells its merchandise at a gross profit of 30%. The following figures are among those pertaining to Lin's operations for the 6 months ended June 30, 2005:
Sales $200,000
Beginning inventory 50,000
Purchases 130,000
On June 30, 2005, all of Lin's inventory was destroyed by fire. The estimated cost of this destroyed inventory was
A. $120,000
B. $70,000
C. $40,000
D. $20,000
Q8. In preparing its bank reconciliation for the month of March 2006, Derby Company has available the following information:
Balance per bank statement, 3/31/06 $36,050
Deposit in transit, 3/31/06 6,250
Outstanding checks, 3/31/06 5,750
Credit erroneously recorded by bank in Derby's account, 3/12/06 250
Bank service charges for March 50
What should be the correct balance of cash at March 31, 2006?
A. $35,250
B. $36,250
C. $36,300
D. $36,550
Q9. On July 8, a fire destroyed the entire merchandise inventory on hand of Larrenaga Wholesale Corporation. The following information is available:
Sales, Jan 1 - July 8 $700,000
Inventory, Jan 1 130,000
Purchases, Jan 1 - July 8 640,000
Gross profit ratio 30%
What is the estimated inventory on July 8 immediately prior to the fire?
A. $192,000
B. $490,000
C. $510,000
D. $280,000
Q10. Which of the following does not pertain to accounting for asset retirement obligations?
A. They accrete (increase over time) at the company's credit-adjusted risk-free rate.
B. They must be recognized according to GAAP.
C. Statement of Financial Accounting Concepts No. 7 is applied when adjusting cash flow obligations for uncertainty.
D. All of the above pertain to accounting for asset retirement obligations.
Q11. Below are data relative to an exchange of similar assets by Grand Forks Corp. Assume the exchange has commercial substance.
Old Equipment
Book Value Fair Value Cash Paid
Case A $50,000 $60,000 $15,000
Case B $40,000 $35,000 $8,000
In Case A, Grand Forks would record the new equipment at:
A. $65,000.
B. $75,000.
C. $50,000.
D. $60,000.
Q12. In the current year, Hanna Company reported warranty expense of $190,000 and the warranty liability account increased by $20,000. What were warranty expenditures during the year?
A. $190,000.
B. $170,000.
C. $210,000.
D. $0.
13. Mars Inc. has a defined benefit pension plan. On December 31 (the end of the fiscal year), the company received the PBO report from the actuary. The following information was included in the report: ending PBO, $110,000; benefits paid to retirees, $10,000; interest cost, $7,200. The discount rate applied by the actuary was 8%. What was the beginning PBO?
A. $90,000.
B. $100,000.
C. $107,200.
D. $112,000.