ACC
545 Final Exam 100% Correct Answer
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ACC 545 Final Exam 100% Correct
Answer
1) A company changes from
percentage-of-completion to completed-contract, which is the method used for
tax purposes. The entry to record this change should include a
A. debit to Retained
Earnings in the amount of the difference on prior years, net of tax.
B. debit to Loss on
Long-Term Contracts in the amount of the difference on prior years, net of tax.
C. credit to Deferred Tax
Liability.
D. debit to Construction
in Process.
2) Which of the following is
accounted for as a change in accounting principle?
A. A change from
expensing immaterial expenditures to deferring and amortizing them as they
become material
B. A change from the cash
basis of accounting to the accrual basis of accounting
C. A change in inventory
valuation from average cost to FIFO
D. A change in the
estimated useful life of plant assets
3) A company changes from
straight-line to an accelerated method of calculating depreciation, which will
be similar to the method used for tax purposes. The entry to record this change
should include a
A. debit to Deferred Tax
Asset.
B. debit to Retained
Earnings in the amount of the difference on prior years.
C. credit to Deferred Tax
Liability.
D. credit to Accumulated
Depreciation.
4) Presenting consolidated
financial statements this year when statements of individual companies were
presented last year is
A. an accounting change
that should be reported by restating the financial statements of all prior
periods presented.
B. an accounting change
that should be reported prospectively.
C. NOT an accounting
change.
D. a correction of an
error.
5) During 2008, a construction
company changed from the completed-contract method to the
percentage-of-completion method for accounting purposes but not for tax
purposes. The following lists include gross profit figures under both methods
for the past 3 years:
Completed-Contract
Percentage-of-Completion
2006
$ 475,000
$ 800,000
2007
625,000
950,000
2008
700,000
1,050,000
$1,800,000
$2,800,000
Assuming an income tax rate of 40% for all years, the affect of this accounting change on prior periods should be reported by a credit of what?
A. $390,000 on the 2008
income statement
B. $600,000 on the 2008
income statement
C. $390,000 on the 2008 retained
earnings statement
D. $600,000 on the 2008
retained earnings statement
6) On January 1, 2005, Baden
Co. purchased a machine, which was its only depreciable asset, for $300,000.
The machine has a 5-year life, and no salvage value. Sum-of-the-years’-digits
depreciation has been used for financial statement reporting and the elective
straight-line method for income tax reporting. Effective January 1, 2008, for
financial statement reporting, Baden decided to change to the straight-line
method for depreciation of the machine. Assume that Baden can justify the
change.
Baden’s income before depreciation,
before income taxes, and before the cumulative effect of the accounting change,
if any, for the year ended December 31, 2008, is $250,000. The income tax rate
for 2008, and for 2005 through 2007, is 30%. What amount should Baden report as
net income for the year ended December 31, 2008?
A. $91,000
B. $60,000
C. $175,000
D. $154,000
7) The deferred tax expense is
the
A. increase in balance of
deferred tax liability minus the increase in balance of deferred tax asset.
B. increase in balance of
deferred tax asset minus the increase in balance of deferred tax liability.
C. decrease in balance of
deferred tax asset minus the increase in balance of deferred tax liability.
D. increase in balance of
deferred tax asset plus the increase in balance of deferred tax liability.
8) A company records an
unrealized loss on short-term securities. This might result in what type of
difference and in what type of deferred income tax?
Type of Difference
Deferred Tax
Option 1
Temporary
Liability
Option 2
Temporary
Asset
Option 3
Permanent
Liability
Option 4
Permanent
Asset
A. Option 2
B. Option 1
C. Option 4
D. Option 3
9) A company uses the equity
method to account for an investment. This would result in what type of
difference and in what type of deferred income tax?
Type of Difference
Deferred Tax
Option 1
Permanent
Asset
Option 2
Permanent
Liability
Option 3
Temporary
Asset
Option 4
Temporary
Liability
A. Option 2
B. Option 1
C. Option 4
D. Option 3
10) Nottingham Corporation had
accounts receivable of $100,000 on January 1st The only transactions affecting
accounts receivable were sales of $900,000 and cash collections of $850,000.
What is the accounts receivable turnover?
A. 6.6
B. 6.0
C. 9.0
D. 7.2
11) If a petty cash fund is
established in the amount of $250, and contains $150 in cash and $95 in
receipts for disbursements when it is replenished, the journal entry to record
replenishment should include credits to which of the following accounts?
A. Petty Cash, $100
B. Petty Cash, $75
C. Cash, $100
D. Cash, $95; Cash Over
and Short, $5
12) If the month-end bank
statement shows a balance of $36,000, outstanding checks are $12,000, a deposit
of $4,000 was in transit at month end, and a check for $500 was erroneously
charged by the bank against the account, what is the correct balance in the
bank account at month end?
A. $28,500
B. $27,500
C. $43,500
D. $20,500
13) If a short-term obligation
is excluded from current liabilities because of refinancing, the footnote to
the financial statements describing this event should include all of the
following information EXCEPT:
A. the terms of the new
obligation incurred or to be incurred.
B. the number of
financing institutions that refused to refinance the debt, if any.
C. the terms of any
equity security issued or to be issued.
D. a general description
of the financing arrangement.
14) Stock dividends
distributable should be classified on the
A. balance sheet as an
asset.
B. balance sheet as an
item of stockholders’ equity.
C. balance sheet as a
liability.
D. income statement as an
expense.
15) Which of the following
items is a current liability?
A. Bonds due in 3 years
B. Bonds to be refunded
when due in 8 months, there being no doubt about the marketability of the
refunding issue
C. Bonds, for which there
is an adequate appropriation of retained earnings, due in 11 months
D. Bonds for which there
is an adequate sinking fund properly classified as a long-term investment, due
in 3 months
16) A company borrows $10,000
and signs a 90-day nontrade note payable. In preparing a statement of cash
flows (indirect method), this event would be reflected as
A. a cash outflow from
investing activities.
B. a cash inflow from
financing activities.
C. a cash inflow from
investing activities.
D. an addition adjustment
to net income in the cash flows from operating activities section.
17) An increase in inventory
balance would be reported in a statement of cash flows using the indirect
method (reconciliation method) as
A. a deduction from net
income in arriving at net cash flow from operating activities.
B. a cash outflow from
financing activities.
C. a cash outflow from
investing activities.
D. an addition to net
income in arriving at net cash flow from operating activities.
18) The primary purpose of the
statement of cash flows is to provide information
A. that is useful in
assessing cash flow prospects.
B. about the entity’s
ability to meet its obligations, its ability to pay dividends, and its needs
for external financing.
C. about the cash
receipts and cash payments of an entity during a period.
D. about the operating,
investing, and financing activities of an entity during a period.
19) Eller Co. received
merchandise on consignment. As of January 31, Eller included the goods in
inventory, but did not record the transaction. What would be the effect of this
on its financial statements for January 31?
A. Net income was correct
and current assets were understated.
B. Net income, current
assets, and retained earnings were understated.
C. Net income and current
assets were overstated and current liabilities were understated.
D. Net income, current
assets, and retained earnings were overstated.
20) Cross Co. accepted delivery
of merchandise that it purchased on account. As of December 31, Cross had
recorded the transaction, but did not include the merchandise in its inventory.
What would be the effect of this on its financial statements for December 31?
A. Net income was correct
and current assets were understated.
B. Net income was
overstated and current assets were understated.
C. Net income was
understated and current liabilities were overstated.
D. Net income, current
assets, and retained earnings were understated.
21) The failure to record a
purchase of merchandise on account even though the goods are properly included
in the physical inventory results in
A. an understatement of
assets and net income.
B. an understatement of
cost of goods sold and liabilities and an overstatement of assets.
C. an overstatement of
assets and net income.
D. an understatement of
liabilities and an overstatement of owners’ equity.
22) Fences and parking lots are
reported on the balance sheet as
A. land improvements.
B. land.
C. current assets.
D. property and
equipment.
23) Which of these is not a
major characteristic of a plant asset?
A. Acquired for use in
operations
B. Yields services over a
number of years
C. Possesses physical
substance
D. All of these are major
characteristics of a plant asset.
24) The debit for a sales tax
properly levied and paid on the purchase of machinery preferably would be a
charge to
A. a separate deferred
charge account.
B. miscellaneous tax
expense, which includes all taxes other than those on income.
C. the machinery account.
D. accumulated
depreciation—machinery.
25) On November 1, 2007, Little
Company purchased 600 of the $1,000 face value, 9% bonds of Player,
Incorporated, for $632,000, which includes accrued interest of $9,000. The
bonds, which mature on January 1, 2012, pay interest semiannually on March 1
and September 1. Assuming that Little uses the straight-line method of
amortization and that the bonds are appropriately classified as
available-for-sale, what would the net carrying value of the bonds be shown as
on Little’s December 31, 2007, balance sheet?
A. $623,000
B. $622,080
C. $600,000
D. $632,000
26) On October 1, 2007, Lyman
Co. purchased to hold to maturity, 200 of the $1,000 face value, 9% bonds for
$208,000. An additional $6,000 was paid for accrued interest. Interest is paid
semiannually on December 1 and June 1 and the bonds mature on December 1, 2011.
Lyman uses straight-line amortization. Ignoring income taxes, what was the
amount reported in Lyman’s 2007 income statement from this investment?
A. $4,020
B. $4,980
C. $4,500
D. $5,460
27) On October 1, 2007, Porter
Co. purchased to hold to maturity 1,000 of the $1,000 face value, 9% bonds for
$990,000 which includes $15,000 accrued interest. The bonds, which mature on
February 1, 2016, pay interest semiannually on February 1 and August 1. Porter
uses the straight-line method of amortization. The bonds should be reported in
the December 31, 2007 balance sheet at a carrying what value?
A. $975,750
B. $990,000
C. $975,000
D. $990,250
28) Although only certain
leases are currently accounted for as a sale or purchase, there is theoretic
justification for considering all leases to be sales or purchases. The
principal reason that supports this idea is that
A. at the end of the
lease the property usually can be purchased by the lessee.
B. a lease reflects the
purchase or sale of a quantifiable right to the use of property.
C. all leases are
generally for the economic life of the property and the residual value of the
property at the end of the lease is minimal.
D. during the life of the
lease the lessee can effectively treat the property as if it were owned by the
lessee.
29) An essential element of a
lease conveyance is that the
A. lessee provides a
sinking fund equal to one year’s lease payments.
B. property that is the
subject of the lease agreement must be held for sale by the lessor prior to the
drafting of the lease agreement.
C. lessor conveys less
than his or her total interest in the property.
D. term of the lease is
substantially equal to the economic life of the leased property.
30) Which of the following is a
correct statement of one of the capitalization criteria?
A. The lease contains a
purchase option.
B. The lease transfers
ownership of the property to the lessor.
C. The lease term is
equal to or more than 75% of the estimated economic life of the leased
property.
D. The minimum lease
payments, excluding executory costs, equal or exceed 90% of the fair value of
the leased property.
31) Discount on notes payable
is charged to interest expense
A. only in the year the
note is issued.
B. equally over the life
of the note.
C. using the
effective-interest method.
D. only in the year the
note matures.
32) The generally accepted
method of accounting for gains or losses from the early extinguishment of debt
treats any gain or loss as
A. an amount that should
be considered a cash adjustment to the cost of any other debt issued over the
remaining life of the old debt instrument.
B. an adjustment to the cost
basis of the asset obtained by the debt issue.
C. an amount received or
paid to obtain a new debt instrument and, as such, should be amortized over the
life of the new debt.
D. a difference between
the reacquisition price and the net carrying amount of the debt which should be
recognized in the period of redemption.
33) A corporation borrowed
money from a bank to build a building. The long-term note signed by the
corporation is secured by a mortgage that pledges title to the building as
security for the loan. The corporation is to pay the bank $80,000 each year for
10 years to repay the loan. Which of the following relationships can you expect
to apply to the situation?
A. The balance of
mortgage payable will remain a constant amount over the 10-year period.
B. The balance of
mortgage payable at a given balance sheet date will be reported as a long-term
liability.
C. The amount of interest
expense will decrease each period the loan is outstanding, while the portion of
the annual payment applied to the loan principal will increase each period.
D. The amount of interest
expense will remain constant over the 10-year period.
34) Benton Company issues
$10,000,000 of 10-year, 9% bonds on March 1, 2007, at 97 plus accrued interest.
The bonds are dated January 1, 2007, and pay interest on June 30 and December
31. What is the total cash received on the issue date?
A. $10,225,000
B. $9,700,000
C. $9,850,000
D. $9,550,000
35) Limeway Company issues
$5,000,000, 6%, 5-year bonds dated January 1, 2007, on January 1, 2007. The
bonds pay interest semiannually on June 30 and December 31. The bonds are
issued to yield 5%. What are the proceeds from the bond issue?
2.5%
3.0%
5.0%
6.0%
Present value of a single sum for 5
periods
.88385
.88261
.78353
.74726
Present value of a single sum for 10
periods
.78120
.74409
.61391
.55839
Present value of an annuity for 5
periods
4.64583
4.57971
4.32948
4.21236
Present value of an annuity for 10
periods
8.75206
8.53020
7.72173
7.36009
A. $5,216,494
B. $5,000,000
C. $5,218,809
D. $5,217,308
36) A company issues
$20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2007. Interest is
paid on June 30 and December 31. The proceeds from the bonds are $19,604,145.
Using effective-interest amortization, how much interest expense will be
recognized in 2007?
A. $1,560,000
B. $780,000
C. $1,568,498
D. $1,568,332
37) Which of the following is
not a characteristic of a defined-contribution pension plan?
A. The benefits to be
received by employees are defined by the terms of the plan.
B. The employer’s
contribution each period is based on a formula.
C. The accounting for a
defined-contribution plan is straightforward and uncomplicated.
D. The benefit of gain or
the risk of loss from the assets contributed to the pension fund are borne by
the employee.
38) In accounting for a
defined-benefit pension plan
A. the employer’s
responsibility is simply to make a contribution each year based on the formula
established in the plan.
B. an appropriate funding
pattern must be established to ensure that enough monies will be available at
retirement to meet the benefits promised.
C. the expense recognized
each period is equal to the cash contribution.
D. the liability is
determined based upon known variables that reflect future salary levels
promised to employees.
39) The interest on the
projected benefit obligation component of pension expense
A. reflects the rates at
which pension benefits could be effectively settled.
B. reflects the
incremental borrowing rate of the employer.
C. is the same as the
expected return on plan assets.
D. may be stated
implicitly or explicitly when reported.
40) Windsor Company has
outstanding both common stock and nonparticipating, noncumulative preferred
stock. The liquidation value of the preferred is equal to its par value. The
book value per share of the common stock is unaffected by
A. the declaration of a
stock dividend on common stock payable in common stock when the market price of
the common is equal to its par value.
B. a 2-for-1 split of the
common stock.
C. the declaration of a
stock dividend on preferred payable in preferred stock when the market price of
the preferred is equal to its par value.
D. the payment of a
previously declared cash dividend on the common stock.
41) Dividends are not paid on
A. nonparticipating
preferred stock.
B. Dividends are paid on
all of these.
C. noncumulative
preferred stock.
D. treasury common stock.
42) Assume common stock is the
only class of stock outstanding in the B-Bar-B Corporation. Total stockholders’
equity divided by the number of common stock shares outstanding is called
A. par value per share.
B. market value per
share.
C. book value per share.
D. stated value per
share.
43) Preparation of consolidated
financial statements when a parent-subsidiary relationship exists is an example
of the
A. relevance
characteristic.
B. neutrality
characteristic.
C. economic entity
assumption.
D. comparability
characteristic.
44) In presenting segment
information, which of the following items must be reconciled to the entity’s
consolidated financial statements?
Operating Revenue
Identifiable Profit (Loss)
Assets
Option 1
Yes
Yes
Yes
Option 2
No
Yes
Yes
Option 3
Yes
No
Yes
Option 4
Yes
Yes
No
A. Option 2
B. Option 4
C. Option 1
D. Option 3
45) Presenting consolidated
financial statements this year when statements of individual companies were
presented last year is
A. an accounting change
that should be reported prospectively.
B. NOT an accounting
change.
C. a correction of an
error.
D. an accounting change
that should be reported by restating the financial statements of all prior
periods presented.