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500 Questions Financial Accounting And Reporting For The CPA Exam 1st Edition Frimette Kass Shraibman, Vijay Sampath, Denise Stefano, Darrel Surett - Solutions
How much is the implied value of B Corporation based on purchase price?(A) $350,000(B) $400,000(C) $500,000(D) $625,000
On February 14, Year 11, Heart Corporation acquired 25% of Flower Corporation’s common stock. On October 1, Year 13, Heart acquires 65% of Flower’s outstanding common stock. Flower Inc. continues in existence as Heart’s subsidiary. How much of Flower’s Year 13 net income should be reported
In a business combination accounted for properly as an acquisition, which of the following costs should be expensed in the period incurred by the combined corporation?I. registration and issuance costs II. consulting fees(A) I only(B) II only(C) both I and II(D) neither I nor II
When a subsidiary is acquired with an acquisition cost that is less than the fair value of the underlying assets, which of the following is correct?I. The balance sheet is adjusted to fair value.II. Negative goodwill is recorded.(A) I only(B) II only(C) both I and II(D) neither I nor II
On December 30, Year 4, Policastro Inc. paid $960,000 for all of the issued and outstanding common stock of Salva Corp. On that date, the book value of Salva’s assets and liabilities were $900,000 and$280,000 respectively. The fair values of Salva’s assets and liabilities were $940,000 and
On June 1, Year 13, the Barnes Corporation factored $100,000 of its accounts receivable without recourse to the Rohn Corporation. Rohn Corporation retained 15% of the accounts receivable as an allowance for sales returns and charged a 5% commission on the gross amount of factored receivables. How
Which of the following is treated as a sale of receivables?I. factoring without recourse in exchange for cash II. pledging receivables in exchange for a loan(A) I only(B) II only(C) both I and II(D) neither I nor II
Total current liabilities is used as the denominator in which of the following ratios?I. current ratio II. quick ratio(A) I only(B) II only(C) both I and II(D) neither I nor II
The quick ratio includes which of the following in the numerator?I. net receivables II. short-term marketable securities III. inventory IV. prepaid rent(A) I, II, and III(B) I, II, III, and IV(C) I and II(D) I, II, and IV
Cone Corp is a calendar year corporation. Within the category of cash and cash equivalents is a postdated check received from one of Cone’s customers dated 7 days after the balance sheet date. Cone has possession of the check as of December 31 and should classify the check as I. cash II. cash
Which of the following is included within the category known as cash and cash equivalents?I. cash in checking accounts II. petty cash III. cash in bond sinking fund(A) I, II, and III(B) I and III(C) I and II(D) I only
Simone Corp reported the following liabilities at December 31, Year 4:The $800,000 bank loan was refinanced with a 10-year loan on January 9, Year 5, with the first principal payment due in the amount of $100,000 on January 2, Year 6. Simone Corp’s Year 4 audited financial statements were issued
In December of Year 13, Carpenter Inc. had a note payable scheduled to mature on February 23, Year 14. On December 30, Year 13, Carpenter Inc. signed a binding agreement with Summit Bank to refinance the existing note, and the refinancing commenced on January 2, Year 13. The financial statements
The following facts apply to Kaput Corporation in Year 13. If the allowance for doubtful accounts had a beginning balance of $55,000 and an ending balance of $45,000 and during the year, $15,000 of accounts receivable were written off as worthless, what amount should be recorded as bad debt expense
At year end, the previous balance in the allowance account is ignored for purposes of determining bad debt expense when using the I. income statement (percent of sales) approach II. balance sheet approach (percent of receivables) approach(A) I only(B) II only(C) both I and II(D) neither I nor II
The Lubrano Corporation uses the income statement approach to estimating bad debt expense. In Year 13, sales on credit amounted to$2,000,000. Sales returns and allowances were $200,000. Lubrano Corporation estimates that 2% of net credit sales will be uncollectible.The allowance for doubtful
Miller Corporation adjusted its allowance for doubtful accounts at December 31, Year 11. The general ledger balances for accounts receivable and the related allowance account were $2,000,000 and$75,000 respectively. In addition, sales on credit for Year 11 were$3,000,000. Miller uses a balance
At year end, when using the balance sheet approach to estimating bad debt expense, the previous balance in the allowance account is ignored for purposes of determining I. bad debt expense II. the ending balance in the allowance account(A) I only(B) II only(C) both I and II(D) neither I nor II
Assuming the allowance account had a previous balance prior to adjustment of $500 debit balance rather than $700 credit, how much should Hackett Corp record for bad debt expense in Year 5?(A) $4,100(B) $4,600(C) $5,100(D) -0-
Assuming the allowance account had a previous balance prior to adjustment of $500 debit balance rather than $700 credit, how much should Hackett Corp record for the ending allowance account balance at December 31, Year 5?(A) $4,100(B) $4,600(C) $5,100(D) -0-
How much should Hackett Corp record for bad debt expense in Year 5?(A) $4,600(B) $3,900(C) $5,300(D) $700
What amount should Hackett Corp report as the ending balance in the allowance account at December 31, Year 5?(A) $4,600 credit(B) $4,600 debit(C) $3,900 credit(D) $5,300 credit
How much cash did Hondo receive from the bank?(A) $440,000(B) $402,800(C) $371,400(D) $411,400
How much is the maturity value of the note?(A) $440,000(B) $452,000(C) $497,200(D) $400,000
In Year 13 when Costas Corp recovers 40% of the receivable from the bankruptcy trustee, this results in I. an increase in net income II. an increase in the allowance for doubtful accounts(A) I only(B) II only(C) both I and II(D) neither I nor II
The entry in Year 12 to record the write-off of the $15,000 considered worthless I. increases the allowance for uncollectible accounts II. decreases net income III. decreases accounts receivable(A) I, II, and III(B) I and III(C) III only(D) II and II
At January 1, Year 6, Edgar Co. had a credit balance of $250,000 in its allowance for uncollectible accounts. Based on past experience, 2% of Edgar’s credit sales have been uncollectible. During Year 6, Edgar wrote off $315,000 of uncollectible accounts. Credit sales for Year 6 were $8,000,000.
A receives cash of $250,000 as a result of factoring its receivables“without recourse” to B. Which of the following best describes the transaction?I. The risk of uncollectible receivables remains with A.II. A has, in effect, obtained a loan from B for $250,000.(A) I only(B) II only(C) both I
The Early Corporation had a cash balance in the ledger at December 31, Year 13, of $15,000. Included in the $15,000 balance were the following two items:I. A check in the amount of $1,800 that was written to Snell Corporation. The check was dated December 31, Year 13, but was not mailed out to
Turner has two items in the safe on December 31, Year 13. Which of these items should be included in Turner Corporation’s cash or cash equivalents on December 31, Year 13?I. a check payable to Turner Corp in the amount of $600 dated January 2, Year 14, that Turner has on hand December 31 waiting
Which of the following could NOT be reported as cash or cash equivalents?(A) money market accounts(B) demand deposits(C) US treasury bills with an original maturity of 60 days from date purchased(D) legally restricted deposits held as compensating balances against borrowing arrangements with a
Besides cash, demand deposits, and money market accounts, highly liquid investments that are readily convertible into cash can be shown on the balance sheet as cash or cash equivalent if the investments have a maturity of 90 days or less I. from the date the investment is acquired II. from the
If a current liability is expected to be refinanced on a long-term basis, the liability may be reclassified as long term on the balance sheet under which of the following standards?I. US GAAP II. IFRS(A) I only(B) II only(C) both I and II(D) neither I nor II
Current assets are assets that are reasonably expected to convert into cash, be sold, or consumed(A) within 1 year(B) within 1 year or one operating cycle, whichever is shorter(C) within one operating cycle(D) within 1 year or one operating cycle, whichever is longer
Working capital can be defined as(A) current assets divided by current liabilities(B) cash plus net receivables plus marketable securities divided by current liabilities(C) current assets minus current liabilities(D) all of the above
For financial statement reporting purposes, which of the following methods of recognizing bad debts is consistent with US GAAP since it provides for matching of revenues with expenses incurred to generate those revenues in the same accounting period?I. direct write-off method II. allowance
If the buyer paid after the 10-day discount period, which of the following is correct?(A) Sales discounts not taken would be credited for $980.(B) Sales discounts not taken would be debited for $980.(C) Accounts receivable would be credited for $49,000.(D) Cash would be debited for $48,020.
If all of the preceding terms apply, and assuming the buyer pays within the discount period, the journal entry to record the collection would include a(A) credit to accounts receivable for $48,020(B) credit to sales discounts taken for $980(C) debit to sales discounts taken for $980(D) debit to
If all the preceding terms apply and Romanoff uses the gross method, which of the following is correct regarding the entry made on 4/1?(A) Sales will be credited for $70,000.(B) Accounts receivable will be debited for $49,000.(C) Trade discounts will be debited for $21,000.(D) Cash discounts taken
What amount should Livingston report as a pretax extraordinary gain(loss) on restructuring of payables under US GAAP?(A) $25,000(B) -0-(C) $60,000(D) $85,000
What amount should Livingston report as ordinary gain (loss) on transfer of land?(A) ($60,000)(B) -0-(C) ($85,000)(D) $60,000
With regard to troubled debt restructuring, creditors typically make which of the following concessions to minimize the risk of bad debt write-off?I. extension of maturity dates II. reduction of accrued interest(A) I only(B) II only(C) both I and II(D) neither I nor II
Which of the following is correct regarding troubled debt restructuring?I. For the creditor, the objective is to minimize the recovery of the investment.II. Concessions made by the creditor normally include reduced interest rates.(A) I only(B) II only(C) both I and II(D) neither I nor II
Which of the following is correct regarding a bond sinking fund?I. Sinking fund accounts that are considered to offset current bond liabilities can be included within current assets.II. A bond sinking fund is an example of an appropriation of retained earnings.(A) I only(B) II only(C) both I and
On March 1, Year 1, Marco Corp issued $500,000 worth of 10%nonconvertible bonds at 102, due on February 28, Year 21. Each $1,000 bond was issued with 20 detachable stock warrants, each of which entitled the holder to purchase, for $60, one share of Marco’s$10 par common stock. On March 1, Year 1,
The Thunder Corporation issues bonds and warrants simultaneously for $1,000,000 at par. Thunder Corporation would be required to account for the value of the warrants separately on the date the bonds are originally issued if the warrants are I. nondetachable II. detachable(A) I only(B) II only(C)
All costs associated with the issuance of a bond are(A) expensed in the period incurred(B) capitalized but NOT amortized(C) capitalized and amortized over the outstanding term of the bonds(D) capitalized and amortized over 5 years
Which of the following is correct regarding convertible bonds at issuance?I. Under US generally accepted accounting principles (GAAP), no value is assigned to the conversion feature.II. Under the International Financial Reporting Standards (IFRS), both a liability and an equity component should be
The amortization of the bond premium each period would impact the financial statements in which of the following ways?(A) interest expense being greater than the amount of cash paid for interest(B) cash paid for interest being greater than interest expense(C) interest expense and cash paid being
The entry the Holden Corporation uses to record the original issue should include which of the following?(A) credit to bond premium for $2,000(B) credit to bonds payable for $1,020,000(C) debit to cash for $1,000,000(D) credit to bond premium for $20,000
In its income statement for the current year ended December 31, Year 13, what amount of total interest expense should Tucker Corp report?(A) $4,667(B) $23,333(C) $9,333(D) $32,667
How much accrued interest should be recorded at December 31, Year 13?(A) -0-(B) $4,667(C) $9,333(D) none of the above
How much accrued interest should be recorded on August 1, Year 13?(A) -0-(B) $4,667(C) $9,333(D) none of the above
Which of the following describes unsecured bonds issued by a corporation that mature on different dates?I. term bonds II. serial bonds III. debentures(A) I and II(B) I, II, and III(C) I and III(D) II and III
Reynolds Corp issued $200,000 worth of 11% bonds for par on January 31, Year 5. The bonds are dated December 31, Year 1, and pay interest semiannually on June 30 and December 31. What amount of accrued interest payable should Reynolds Corp report in its September 30, Year 5, balance sheet?(A)
A bond is issued on May 1 of the current year and has interest payment dates of March 1 and September 1. The accrual for bond interest expense at December 31 would be for a period of(A) 8 months(B) 10 months(C) 4 months(D) 6 months
How much is the carrying value of the bonds on December 31, Year 1?(A) $471,925(B) $468,500(C) $500,000(D) $475,350
How much interest expense should Truncale Corp record on December 31, Year 1?(A) $46,850(B) $40,000(C) $20,000(D) $23,425
If Brunner uses the effective interest method to amortize the discount, the amount of interest expense for the first interest payment date of June 30, Year 1, would be determined by(A) subtracting the bond discount amortization for the period from the amount of cash interest paid(B) multiplying the
If Brunner uses the straight line method to amortize the discount, the amount of interest expense for the first interest payment date of June 30 Year 1 would be determined by(A) subtracting the bond discount amortization for the period from the amount of cash interest paid(B) adding the bond
On August 1, Year 4, Blue Corp purchased 500 of Karl Corp’s 10%$1,000 bonds at 98 plus accrued interest. The bonds are dated May 1 and mature on May 1, Year 14.Interest is payable semiannually on May 1 and November 1. What amount did Karl Corp receive on the bond issuance?(A) $502,500(B)
With regard to a 5-year $1,000 bond issued at 102 on January 1 Year 10 that pays interest semiannually on June 30 and December 31, the stated interest rate of 8% is used to calculate the(A) amount of interest payment(B) market price of the bond(C) selling price of the bond(D) actual amount of
Anna Inc. issues bonds with a stated rate of 5%. These bonds will sell at a premium if I. the market rate of interest was above 5%II. the bonds pay interest semiannually rather than annually(A) I only(B) II only(C) both I and II(D) neither I nor II
Zaran Corp issues bonds with a stated rate of 5%. If the market rate for comparable bonds is 6%, which of the following is correct?(A) Zaran Corp will collect a premium.(B) Zaran Corp will have to sell the bonds at a discount.(C) Zaran Corp will sell the bonds at face value.(D) The amount of
Under which of the following standards are nonmonetary exchanges characterized as exchanges of similar assets and exchanges of dissimilar assets?I. IFRS II. US GAAP(A) I only(B) II only(C) both I and II(D) neither I nor II
After the exchange, how much is the basis of the warehouse to Durant Corp under US GAAP?(A) $480,000(B) $380,000(C) $385,000(D) $400,000
How much gain or loss should be reported by Durant Corp?(A) -0-(B) $5,000 loss(C) $20,000 gain(D) $20,000 loss
Under US GAAP, nonmonetary exchanges that lack commercial substance could possibly result in which of the following NOT being recognized immediately?I. losses II. gains(A) I only(B) II only(C) both I and II(D) neither I nor II
Under US GAAP, losses in connection with nonmonetary exchanges are deferred when the exchange is said to I. lack commercial substance II. have commercial substance(A) I only(B) II only(C) both I and II(D) neither I nor II
On January 1, Year 9, Hayley Corp traded delivery trucks with Dylan Corp and paid $5,000 cash to Dylan Corp. Hayley Corp’s truck had a fair value of $95,000 and accumulated depreciation of $75,000 on the date of exchange. Hayley Corp’s asset had an original cost of$130,000. Hayley estimated
The Drexel Corporation exchanged equipment with an appraised value of $60,000 and an original cost of $52,000, and received from Dartmouth Corp equipment with a fair value of $64,000. Under US GAAP, how much is the gain on the exchange for Drexel Corporation, assuming that the transaction has
Under US GAAP, a nonmonetary exchange is recognized at fair value of the assets exchanged unless(A) exchange has commercial substance(B) fair value is not determinable(C) the assets are similar in nature(D) the assets are dissimilar in nature
Which of the following methods of measuring prices and the effects of price changes involve adjustments for both purchasing power and appreciation of assets?(A) historical cost/constant dollar(B) historical cost/nominal dollar(C) current cost/nominal dollar(D) current cost/constant dollar
Under US GAAP, certain large publicly held companies may disclose information concerning the effect of changing prices. Which of the following methods of measuring prices and price changes ignores asset appreciation but adjusts for changes in the purchasing power of the dollar?(A) historical
Which of the following would result in a purchasing power decline?(A) holding monetary assets in a period of deflation(B) holding monetary assets in a period of inflation(C) holding monetary liabilities in a period of inflation(D) none of the above
Which of the following is considered nonmonetary rather than monetary?I. equipment II. accumulated depreciation-equipment(A) I only(B) II only(C) both I and II(D) neither I nor II
Which of the following is considered monetary rather than nonmonetary?I. accounts receivable II. allowance for doubtful accounts(A) I only(B) II only(C) both I and II(D) neither I nor II
On October 5, Year 13, Griffin Corp purchased merchandise from an unaffiliated company in Taiwan for 20,000 Taiwan dollars when the spot rate was $0.65. Griffin Corp paid the bill in full in February of Year 14 when the spot rate was $0.74. The spot rate was $0.80 on December 31, Year 13. What
Salazar is a subsidiary of Padre Corp. If Salazar’s functional currency is its local currency, Salazar’s financial statements are I. translated to the reporting currency II. remeasured into the functional currency, the result of which is a gain or loss reported in the consolidated income
Su Industries has international subsidiaries in Asia. These subsidiaries enter into contracts in both the US dollar and local currencies. In Year 13, Su Industries experienced a remeasurement loss of $55,000 and a translation gain of $36,000. As a result of these conversions, Su Industries would
Quirk Company’s wholly owned subsidiary Larue Corp maintains its currency in euros. Because all of Larue’s branch offices are in France, its functional currency is the euro. Translation of its financial statements resulted in a $3,300 gain. Remeasurement of Larue’s Year 13 financial
With regard to foreign currency accounting, which of the following are included in the determination of net income for the period?I. remeasurement adjustments II. translation adjustments(A) I only(B) II only(C) both I and II(D) neither I nor II
A contract that conveys to a second entity a right to future collections on accounts receivable from a first entity is a I. financial instrument II. derivative instrument(A) I only(B) II only(C) both I and II(D) neither I nor II
Which of the following cash flow hedge transactions are reported on the income statement?I. gains, to the extent they are effective II. losses(A) I only(B) II only(C) both I and II(D) neither I nor II
Which of the following fair value hedge transactions are reported on the income statement?I. losses II. gains(A) I only(B) II only(C) both I and II(D) neither I nor II
Which of the following is correct regarding fair value hedges?(A) Fair value hedge gains are recorded on the statement of comprehensive income.(B) Fair value hedge losses are NOT recorded on the income statement.(C) Fair value hedge gains are NOT recorded in the financial statements.(D) Fair value
Which of the following is correct regarding a concentration of credit risk?I. risk that a counterparty will partially or completely fail to perform per the terms of the contract II. exists if a number of counterparties are engaged in similar activities and if the industry they are in experiences
The risk of a significant number of unsecured accounts receivable with companies in the same industry is referred to as I. concentration of market risk II. concentration of credit risk(A) I only(B) II only(C) both I and II(D) neither I nor II
The risk that the other party to a financial instrument will NOT perform I. need NOT be disclosed unless the risk is considered above average II. is known as market risk(A) I only(B) II only(C) both I and II(D) neither I nor II
In a perfect hedge, which of the following would have NO possibility of occurrence?I. gain on the derivative instrument II. loss on the item being hedged(A) I only(B) II only(C) both I and II(D) neither I nor II
Which of the following is among the criteria that need to be met for a derivative to be designated a fair value hedge?I. The hedge must be expected to be highly effective in offsetting changes in the fair value of the hedged item, and the effectiveness is assessed at least every 3 months.II. The
Which of the following is among the criteria that need to be met for a derivative to be designated a fair value hedge?I. There is formal documentation of the hedging relationship between the derivative and the hedged item.II. The hedged item is specifically identified.(A) I only(B) II only(C) both
Triano Corp settled litigation on February 22, Year 5, for an event that occurred during Year 4. An estimated liability was determined as of December 31, Year 4. This estimate was significantly less than the final settlement. The transaction is considered to be material. The financial statements
Electric Motorcycles Inc. is currently involved in two lawsuits. One is a class-action suit in which consumers claim that one of Electric’s best-selling bikes caused severe burn injuries. It is reasonably possible that Electric will lose the suit and have to pay $16 million in damages.Electric
A potential gain contingency in the amount of $350,000 as of December 31, Year 2, is settled out of court on March 12, Year 3, for$275,000. The financial statements for Year 2 were issued on March 1, Year 3. Which of the following is correct regarding the gain contingency and its recognition and
Under US GAAP, a gain contingency I. should be disclosed in the notes unless the likelihood of the gain being realized is remote II. can be recorded as revenue but only if the likelihood of realization is probable(A) I only(B) II only(C) both I and II(D) neither I nor II
On February 19, Year 3, a Dunn Corp truck was in an accident with an auto driven by Aaron. On January 16, Year 4, Dunn received notice of a lawsuit seeking $500,000 in damages for personal injuries suffered by Aaron. Dunn Corp’s counsel believes it is reasonably possible that Aaron will be
Under US GAAP, an example of a loss contingency that would be recorded if probable would include I. a note discounted “with recourse”II. tax disputes with a state taxing agency(A) I only(B) II only(C) both I and II(D) neither I nor II
Stabler Corp is discounting a note receivable at the First Alameda Bank. The contingent liability for this note receivable being discounted must be disclosed in the notes to the financial statements at its face amount if sold to the bank I. with recourse II. without recourse(A) I only(B) II only(C)
During Year 4, Denny Corp became involved in a tax dispute with the Internal Revenue Service (IRS). At December 31, Year 4, Denny’s tax advisor believed that an unfavorable outcome was probable. A reasonable estimate of additional taxes was $400,000, but could be as much as $500,000. After the
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