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The SEC issues accounting standards in the form of: (Points : 6)
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[removed] accounting research bulletins.
[removed] financial reporting releases.
[removed] financial accounting standards.
[removed] financial technical bulletins.
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Question 2.2. (TCO 1) The International Accounting Standards Board: (Points : 6)
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[removed] was the predecessor to the IASC.
[removed] can overrule the FASB when their policies disagree.
[removed] promotes the use of high-quality, understandable global accounting standards.
[removed] has its headquarters in Geneva.
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Question 3.3. (TCO 2) SFAC No.5 focuses on: (Points : 6)
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[removed] objectives of financial reporting.
[removed] qualitative characteristics of accounting information.
[removed] recognition and measurement concepts in accounting.
[removed] elements of financial statements.
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Question 4.4. (TCO 2) Enhancing qualitative characteristics of accounting information include each of the following, except: (Points : 6)
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[removed] timeliness.
[removed] materiality.
[removed] comparability.
[removed] verifiability.
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Question 5.5. (TCO 3) Incurring an expense for advertising on an account would be recorded by: (Points : 6)
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[removed] debiting liabilities.
[removed] crediting assets.
[removed] debiting an expense.
[removed] debiting assets.
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Question 6.6. (TCO 3) Prepayments occur when: (Points : 6)
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[removed] cash flow precedes expense recognition.
[removed] sales are delayed pending credit approval.
[removed] customers are unable to pay the full amount due when goods are delivered.
[removed] manufactured goods await quality control inspections.
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Question 7.7. (TCO 4) An asset that is not expected to be converted to cash or consumed within one year or the operating cycle is: (Points : 6)
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[removed] goodwill.
[removed] accounts receivable.
[removed] inventory.
[removed] supplies.
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Question 8.8. (TCO 4) Which of the following is never a current liability account? (Points : 6)
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[removed] Accrued payroll
[removed] Dividends payable
[removed] Prepaid rent
[removed] Subscriptions collected in advance
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Question 9.9. (TCO 5) The Claxton Company manufactures children’s toys and also has a division that makes automobile parts. Due to a change in its strategic focus, the company sold the automobile parts division. The division qualifies as a component of the entity according to GAAP regarding disposal of long-lived assets. How should Claxton report the sale in its 2011 income statement? (Points : 6)
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[removed] As an extraordinary item.
[removed] As a discontinued operation, reported below income from continuing operations.
[removed] Report the income or loss from operations of the division in discontinued operations below continuing operations, and the gain or loss from disposal in continuing operations.
[removed] None of the above
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Question 10.10. (TCO 5) On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2011. The following additional facts pertain to the transaction:
The Footwear Division qualifies as a component of the entity according to GAAP regarding discontinued operations.
The book value of Footwear’s assets totaled $48 million on the date of the sale.
Footwear’s operating income was a pre-tax loss of $10 million in 2011.
Foxtrot’s income tax rate is 40%.
In the 2011 income statement for Foxtrot Co., it would report:
(Points : 6)
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[removed] income (loss) on its total operations for the year without separation.
[removed] income (loss) on its continuing operation only.
[removed] income (loss) from its continuing and discontinued operations separately.
[removed] income and gains separately from losses.
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Question 11.11. (TCO 5) In comparing the direct method with the indirect method of preparing the statement of cash flows: (Points : 6)
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[removed] only operating activities are presented differently.
[removed] only investing activities are presented differently.
[removed] only financing activities are presented differently.
[removed] all activities are presented differently.
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Question 12.12. (TCO 5) The FASB’s stated preference for reporting operating cash flows is the: (Points : 6)
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[removed] indirect method.
[removed] direct method.
[removed] working capital method.
[removed] all financial resources method.
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Question 13.13. (TCO 5) Under the realization principle, revenue should not be recognized until the earnings process is deemed virtually complete and: (Points : 6)
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[removed] revenue is realized.
[removed] any receivable is collected.
[removed] collection is reasonably certain.
[removed] collection is absolutely assured.
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Question 14.14. (TCO 5) Todd Sweeney is an artist who sells his work under consignment (He displays his work in local barbershops, and customers buy the work there.). Sweeney recently transferred a painting to a local barbershop. After Sweeney has transferred a painting to a barbershop, the painting: (Points : 6)
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[removed] should be counted in Sweeney’s inventory until the barbershop sells it.
[removed] should be counted in the barbershop’s inventory, as they now possess it.
[removed] should be counted in either Sweeney’s or the barbershop’s inventory, depending on which incurred the cost of preparing the painting for display.
[removed] None of the above
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Question 15.15. (TCO 6) LeAnn wishes to know how much she should set aside now at 7% interest in order to accumulate a sum of $5,000 in four years. She should use a table for the: (Points : 6)
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[removed] present value of 1.
[removed] future value of 1.
[removed] present value of an ordinary annuity of 1.
[removed] future value of an annuity due of 1.
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Question 16.16. (TCO 6) Yamaha Inc. hires a new chief financial officer and promises to pay him a lump-sum bonus four years after he joins the company. The new CFO insists that the company invest an amount of money at the beginning of each year in a 7% fixed rate investment fund to insure the bonus will be available. To determine the amount that must be invested each year, a computation must be made using the formula for: (Points : 6)
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[removed] the future value of a deferred annuity.
[removed] the future value of an ordinary annuity.
[removed] the future value of an annuity due.
[removed] None of the above
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Question 17.17. (TCO 7) Compensating balances represent: (Points : 6)
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[removed] funds in a bank account that cannot be spent.
[removed] balances in a payroll checking account.
[removed] accounts that are subject to bank service charges.
[removed] accounts on which banks pay interest, such as NOW accounts.
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Question 18.18. (TCO 7) Oswego Clay Pipe Company sold $46,000 of pipe to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. Oswego uses the gross method of accounting for cash discounts. What entry would Oswego make on June 10, assuming the customer made the correct payment on that date?
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(Points : 6)
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[removed] Option a
[removed] Option b
[removed] Option c
[removed] Option d
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Question 19.19. (TCO 8) In a periodic inventory system, the cost of purchases is debited to: (Points : 6)
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[removed] purchases.
[removed] cost of goods sold.
[removed] inventory.
[removed] accounts payable.
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Question 20.20. (TCO 8) During periods when costs are rising and inventory quantities are stable, cost of goods sold will be: (Points : 6)
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[removed] higher under FIFO than LIFO.
[removed] higher under FIFO than average cost.
[removed] lower under average cost than LIFO.
[removed] lower under LIFO than FIFO.
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Question 21.21. (TCO 8) An argument against the use of LCM is its lack of: (Points : 6)
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[removed] relevance.
[removed] reliability.
[removed] consistency.
[removed] objectivity.
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Question 22.22. (TCO 8) In calculating the cost-to-retail percentage for the retail method, the retail column will not include: (Points : 6)
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[removed] purchases.
[removed] purchase returns.
[removed] abnormal shortages.
[removed] freight-in.
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Shown below is the activity for one of the products of Random Creations:
January 1 balance, 80 units @ $50 Each, Total $4,000
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Required: Compute the ending inventory and cost of goods sold assuming Random Creations uses LIFO and a periodic inventory system.
(Points : 22)
24. (TCO 5) Describe what is meant by prepaid expenses, and give two examples. (Points : 28)
25. (TCO 7) Although the net method is theoretically more sound, most companies use the gross method of accounting for cash discounts related to sales on account. Explain this statement. (Points : 25)
On October 18, 2011, Flying Chicken sold 2,000 pounds of chicken to Healthier Grocery for $3,400, subject to terms 2/10, n30. Flying Chicken uses the gross method of accounting for sales discounts.
Required:
1. Prepare the journal entry to record the sale.
2. Prepare the journal entry to record receipt of the payment, assuming the correct amount was received on October 26, 2011.
3. Prepare the journal entry to record receipt of the payment, assuming the correct amount was received on November 15, 2011.
(Points : 21)
27. (TCO 4) List the circumstances under which land would be classified under the following balance sheet classifications:
1. Current assets.
2. Investments (non-current).
3. Property, plant, and equipment.
4. Other non-current assets. (Points : 25)
