Fluent Essays

Question 1 (2 points) Which of the following is not treated as a change in accounting principle? A) A change from LIFO to FIFO for inventory valuation B) A change to a different method of depreciation for plant assets C) A change from full-cost to successful efforts in the extractive industry D) A change from completed-contract to percentage-of-completion SaveQuestion 2 (2 points) 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) credit to Accumulated Depreciation. B) debit to Retained Earnings in the amount of the difference on prior years. C) debit to Deferred Tax Asset. D) credit to Deferred Tax Liability. SaveQuestion 3 (2 points) Revenue of a segment includes A) only sales to unaffiliated customers. B) sales to unaffiliated customers and intersegment sales. C) sales to unaffiliated customers and interest revenue. D) sales to unaffiliated customers and other revenue and gains. SaveQuestion 4 (2 points) Errors and irregularities are defined as intentional distortions of facts.Yes No Yes No SaveQuestion 5 (2 points) Link Co. purchased machinery that cost $810,000 on January 4, 2009. The entire cost was recorded as an expense. The machinery has a nine-year life and a $54,000 residual value. The error was discovered on December 20, 2011. Ignore income tax considerations.Links income statement for the year ended December 31, 2011, should show the cumulative effect of this error in the amount of A) $726,000. B) $642,000. C) $558,000. D) $0. SaveQuestion 6 (2 points) Which of the following is an advantage of leasing? A) Off-balance-sheet financing B) Less costly financing C) 100\% financing at fixed rates D) All of these SaveQuestion 7 (2 points) In considering interim financial reporting, how does the profession conclude that such reporting should be viewed? A) As a special type of reporting that need not follow generally accepted accounting principles. B) As useful only if activity is evenly spread throughout the year so that estimates are unnecessary. C) As reporting for a basic accounting period. D) As reporting for an integral part of an annual period. SaveQuestion 8 (2 points) Langley Companys December 31 year-end financial statements contained the following errors:$11,000 overstated2,000 understatedAn insurance premium of $18,000 was prepaid in 2010 covering the years 2010, 2011, and 2012. The prepayment was recorded with a debit to insurance expense. In addition, on December 31, 2011, fully depreciated machinery was sold for $9,500 cash, but the sale was not recorded until 2012. There were no other errors during 2011 or 2012 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 Langleys 2011 net income? A) Net income understated by $14,500. B) Net income overstated by $7,500. C) Net income overstated by $13,000. D) Net income overstated by $15,000. SaveQuestion 9 (2 points) Which of the following best describes current practice in accounting for leases? A) Leases are not capitalized. B) Leases similar to installment purchases are capitalized. C) All long-term leases are capitalized. D) All leases are capitalized. SaveQuestion 10 (2 points) On January 15, 2011, Vancey Company paid property taxes on its factory building for the calendar year 2011 in the amount of $560,000. In the first week of April 2011, Vancey made unanticipated major repairs to its plant equipment at a cost of $1,400,000. These repairs will benefit operations for the remainder of the calendar year. How should these expenses be reflected in Vanceys quarterly income statements?Three Months Ended$606,667 $140,000 -0- $490,000 SaveQuestion 11 (2 points) Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of $86,038, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. If Pisa, Inc.’s incremental borrowing rate is 10\% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8\%, what is the amount recorded for the leased asset at the lease inception?PV Ordinary Annuity3.312133.16986 A) $307,767 B) $272,728 C) $284,969 D) $300,000 SaveQuestion 12 (2 points) An example of an inventory accounting policy that should be disclosed in a Summary of Significant Accounting Policies is the A) amount of income resulting from the involuntary liquidation of LIFO. B) major backlogs of inventory orders. C) method used for pricing inventory. D) composition of inventory into raw materials, work-in-process, and finished goods. SaveQuestion 13 (2 points) Accounting principles are modified for the following at interim dates.Yes No Yes No SaveQuestion 14 (2 points) On January 1, 2011, Sauder Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Sauder to make annual payments of $50,000 at the beginning of each year for five years with title to pass to Sauder at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Sauder uses the straight-line method of depreciation for all of its fixed assets. Sauder accordingly accounts for this lease transaction as a capital lease. The minimum lease payments were determined to have a present value of $208,493 at an effective interest rate of 10\%.In 2011, Sauder should record interest expense of A) $15,849. B) $29,151. C) $20,849. D) $34,151. SaveQuestion 15 (2 points) An operating segment is a reportable segment if A) its operating profit is 10\% or more of the combined operating profit of profitable segments. B) its operating loss is 10\% or more of the combined operating losses of segments that incurred an operating loss. C) the absolute amount of its operating profit or loss is 10\% or more of the companys combined operating profit or loss. D) none of these. SaveQuestion 16 (2 points) On January 1, 2011, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.(a) The agreement requires equal rental payments at the end of each year.(b) The fair value of the building on January 1, 2011 is $3,000,000; however, the book value to Holt is $2,500,000.(c) The building has an estimated economic life of 10 years, with no residual value. Yancey depreciates similar buildings on the straight-line method.(d) At the termination of the lease, the title to the building will be transferred to the lessee.(e) Yanceys incremental borrowing rate is 11\% per year. Holt Warehouse Co. set the annual rental to insure a 10\% rate of return. The implicit rate of the lessor is known by Yancey, Inc.(f) The yearly rental payment includes $10,000 of executory costs related to taxes on the property.What is the amount of the minimum annual lease payment? (Rounded to the nearest dollar.) A) $188,237 B) $478,236 C) $488,236 D) $498,236 SaveQuestion 17 (2 points) Emporia Corporation is a lessee with a capital lease. The asset is recorded at $450,000 and has an economic life of 8 years. The lease term is 5 years. The asset is expected to have a market value of $150,000 at the end of 5 years, and a market value of $50,000 at the end of 8 years. The lease agreement provides for the transfer of title of the asset to the lessee at the end of the lease term. What amount of depreciation expense would the lessee record for the first year of the lease? A) $90,000 B) $80,000 C) $60,000 D) $50,000 SaveQuestion 18 (2 points) The profession requires disaggregated information in the following ways: A) products or services. B) geographic areas. C) major customers. D) all of these. SaveQuestion 19 (2 points) On December 1, 2011, Goetz Corporation leased office space for 10 years at a monthly rental of $90,000. On that date Perez paid the landlord the following amounts:90,00090,00090,000495,000$765,000The entire amount of $765,000 was charged to rent expense in 2011. What amount should Goetz have charged to expense for the year ended December 31, 2011? A) $90,000 B) $94,125 C) $184,125 D) $495,000 SaveQuestion 20 (2 points) On January 1, 2008, Knapp Corporation acquired machinery at a cost of $250,000. Knapp adopted the double-declining balance method of depreciation for this machinery and had been recording depreciation over an estimated useful life of ten years, with no residual value. At the beginning of 2011, a decision was made to change to the straight-line method of depreciation for the machinery. The depreciation expense for 2011 would be A) $12,800. B) $18,286. C) $25,000. D) $35,714. SaveQuestion 21 (2 points) Which of the following should be disclosed in a Summary of Significant Accounting Policies? A) Types of executory contracts B) Amount for cumulative effect of change in accounting principle C) Claims of equity holders D) Depreciation method followed SaveQuestion 22 (2 points) Presented below are four segments that have been identified by Haley Productions:Identifiable Assets$900,000800,000450,000225,000For which of the segments would information have to be disclosed in accordance with professional pronouncements? A) Segments A, B, C, and D B) Segments A, B, and C C) Segments A and B D) Segments A and D SaveQuestion 23 (2 points) In January 2011, Post, Inc. estimated that its year-end bonus to executives would be $720,000 for 2011. The actual amount paid for the year-end bonus for 2010 was $660,000. The estimate for 2011 is subject to year-end adjustment. What amount, if any, of expense should be reflected in Posts quarterly income statement for the three months ended March 31, 2011? A) $ -0-. B) $165,000. C) $180,000. D) $720,000. SaveQuestion 24 (2 points) On January 1, 2011, Ogleby Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Ogleby to make annual payments of $60,000 at the end of each year for five years with title to pass to Ogleby at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Ogleby uses the straight-line method of depreciation for all of its fixed assets. Ogleby accordingly accounts for this lease transaction as a capital lease. The minimum lease payments were determined to have a present value of $227,448 at an effective interest rate of 10\%.With respect to this capitalized lease, for 2011 Ogleby should record A) rent expense of $60,000. B) interest expense of $22,745 and depreciation expense of $45,489. C) interest expense of $22,745 and depreciation expense of $32,493. D) interest expense of $30,000 and depreciation expense of $45,489. SaveQuestion 25 (2 points) Which of the following is accounted for as a change in accounting principle? A) A change in the estimated useful life of plant assets. B) A change from the cash basis of accounting to the accrual basis of accounting. C) A change from expensing immaterial expenditures to deferring and amortizing them as they become material. D) A change in inventory valuation from average cost to FIFO. SaveQuestion 26 (2 points) Companies should disclose all of the following in interim reports except A) basic and diluted earnings per share. B) changes in accounting principles. C) post-balance-sheet events. D) seasonal revenue, cost, or expenses. SaveQuestion 27 (2 points) Which of the following is (are) the proper time period(s) to record the effects of a change in accounting estimate? A) Current period and prospectively B) Current period and retrospectively C) Retrospectively only D) Current period only SaveQuestion 28 (2 points) The following methods of estimating inventory can be used at interim dates for inventory pricing. May they also be used at year end?No Yes No Yes SaveQuestion 29 (2 points) Heinz Company began operations on January 1, 2010, and uses the FIFO method in costing its raw material inventory. Management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed:712,000636,000Net Income1,080,000Based on the above information, a change to the LIFO method in 2011 would result in net income for 2011 of A) $1,120,000. B) $1,080,000. C) $1,004,000. D) $1,000,000. SaveQuestion 30 (2 points) Which of the following statements is correct? A) In a direct-financing lease, initial direct costs are added to the net investment in the lease. B) In a sales-type lease, initial direct costs are expensed in the year of incurrence. C) For operating leases, initial direct costs are deferred and allocated over the lease term. D) All of these. SaveQuestion 31 (2 points) On January 1, 2008, Neal Corporation acquired equipment at a cost of $540,000. Neal adopted the sum-of-the-years’-digits method of depreciation for this equipment and had been recording depreciation over an estimated life of eight years, with no residual value. At the beginning of 2011, a decision was made to change to the straight-line method of depreciation for this equipment. The depreciation expense for 2011 would be A) $28,125. B) $45,000. C) $67,500. D) $108,000. SaveQuestion 32 (2 points) On January 1, 2011, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.(a) The agreement requires equal rental payments at the end of each year.(b) The fair value of the building on January 1, 2011 is $3,000,000; however, the book value to Holt is $2,500,000.(c) The building has an estimated economic life of 10 years, with no residual value. Yancey depreciates similar buildings on the straight-line method.(d) At the termination of the lease, the title to the building will be transferred to the lessee.(e) Yanceys incremental borrowing rate is 11\% per year. Holt Warehouse Co. set the annual rental to insure a 10\% rate of return. The implicit rate of the lessor is known by Yancey, Inc.(f) The yearly rental payment includes $10,000 of executory costs related to taxes on the property.If the lease were nonrenewable, there was no purchase option, title to the building does not pass to the lessee at termination of the lease and the lease were only for eight years, what type of lease would this be for the lessee? A) Sales-type lease B) Direct-financing lease C) Operating lease D) Capital lease SaveQuestion 33 (2 points) On January 1, 2011, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.(a) The agreement requires equal rental payments at the end of each year.(b) The fair value of the building on January 1, 2011 is $3,000,000; however, the book value to Holt is $2,500,000.(c) The building has an estimated economic life of 10 years, with no residual value. Yancey depreciates similar buildings on the straight-line method.(d) At the termination of the lease, the title to the building will be transferred to the lessee.(e) Yanceys incremental borrowing rate is 11\% per year. Holt Warehouse Co. set the annual rental to insure a 10\% rate of return. The implicit rate of the lessor is known by Yancey, Inc.(f) The yearly rental payment includes $10,000 of executory costs related to taxes on the property.From the lessees viewpoint, what type of lease exists in this case? A) Sales-type lease B) Sale-leaseback C) Capital lease D) Operating lease SaveQuestion 34 (2 points) Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of $86,038, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4 year useful life and no salvage value. Pisa, Inc.’s incremental borrowing rate is 10\% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8\%. Assuming that this lease is properly classified as a capital lease, what is the amount of principal reduction recorded when the second lease payment is made in Year 2?PV Ordinary Annuity3.312133.16986 A) $86,038 B) $61,417 C) $63,240 D) $68,300 SaveQuestion 35 (2 points) Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of $86,038, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. Pisa, Inc.’s incremental borrowing rate is 10\% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8\%. Pisa, Inc. uses the straight-line method to depreciate similar assets. What is the amount of depreciation expense recorded by Pisa, Inc. in the first year of the asset’s life?PV Ordinary Annuity3.312133.16986 A) $0 because the asset is depreciated by Tower Company. B) $71,242 C) $76,942 D) $75,000 SaveQuestion 36 (2 points) All of the following information about each operating segment must be reported except A) unusual items. B) interest revenue. C) cost of goods sold. D) depreciation and amortization expense. SaveQuestion 37 (2 points) The methods of accounting for a lease by the lessee are A) operating and capital lease methods. B) operating, sales, and capital lease methods. C) operating and leveraged lease methods. D) none of these. SaveQuestion 38 (2 points) On January 1, 2011, Sauder Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Sauder to make annual payments of $50,000 at the beginning of each year for five years with title to pass to Sauder at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Sauder uses the straight-line method of depreciation for all of its fixed assets. Sauder accordingly accounts for this lease transaction as a capital lease. The minimum lease payments were determined to have a present value of $208,493 at an effective interest rate of 10\%.In 2012, Sauder should record interest expense of A) $10,849. B) $12,434. C) $15,849. D) $17,434.