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Wiley CPA Examination Review Outlines And Study Guides Volume 1 - 2012-2013 39th Edition Patrick R. Delaney, O. Ray Whittington - Solutions
In Emme’s 2010 income statement, what amount should be reported as gain (loss) on sale of machinery?a. $(30,000) loss.b. $ 30,000 gain.c. $120,000 gain.d. $270,000 gain.Items are based on the following:On January 2, 2010, Emme Co. sold equipment with a carrying amount of $480,000 in exchange for
In Emme’s 2010 income statement, what amount should be reported as interest income?a. $ 9,000b. $45,000c. $50,000d. $60,000 Items are based on the following:On January 2, 2010, Emme Co. sold equipment with a carrying amount of $480,000 in exchange for a $600,000 noninterest-bearing note due
On December 30, 2010, Chang Co. sold a machine to Door Co. in exchange for a noninterest-bearing note requiring ten annual payments of $10,000. Door made the first payment on December 30, 2010. The market interest rate for similar notes at date of issuance was 8%. Information on present value
Jole Co. lent $10,000 to a major supplier in exchange for a noninterest-bearing note due in three years and a contract to purchase a fixed amount of merchandise from the supplier at a 10% discount from prevailing market prices over the next three years. The market rate for a note of this type is
For which of the following transactions would the use of the present value of an annuity due concept be appropriate in calculating the present value of the asset obtained or liability owed at the date of incurrence?a. A capital lease is entered into with the initial lease payment due one month
On November 1, 2010, a company purchased a new machine that it does not have to pay for until November 1, 2012. The total payment on November 1, 2012, will include both principal and interest. Assuming interest at a 10% rate, the cost of the machine would be the total payment multiplied by what
On July 1, 2010, James Rago signed an agreement to operate as a franchisee of Fast Foods, Inc. for an initial franchise fee of $60,000. Of this amount, $20,000 was paid when the agreement was signed and the balance is payable in four equal annual payments of $10,000 beginning July 1, 2011. The
On March 15, 2010, Ashe Corp. adopted a plan to accumulate$1,000,000 by September 1, 2014. Ashe plans to make four equal annual deposits to a fund that will earn interest at 10% compounded annually. Ashe made the first deposit on September 1, 2010. Future value and future amount factors are as
Under IFRS, a contingency is described asa. An estimated liability.b. An event which is not recognized because it is not probable that an outflow will be required or the amount cannot be reasonably estimated.c. The same as it is described by US generally accepted accounting principles.d. A
Under IFRS, which of the following accounts would not be considered a “provision”?a. Warranty liabilities.b. Bad debts.c. Taxes payable.d. Note payable.
Under IFRS, if a long-term debt becomes callable due to the violation of a loan covenanta. The debt may continue to be classified as longterm if the company believes the covenant can be renegotiated.b. The debt must be reclassified as current.c. Cash must be reserved to pay the debt.d. Retained
Roland Corp. signed an agreement with Linx, which requires that if Linx does not meet certain contractual obligations, Linx must forfeit land worth $40,000 to Roland.Roland’s accountants believe that Linx will not meet its contractual obligations, and it is probable Roland will receive the land
On March 22, 2010, Cole Corporation received notification of legal action against the firm. Cole’s attorneys determine that it is probable the company will lose the suit, and the loss is estimated at $2,000,000. Cole’s accountants believe this amount is material and should be disclosed.Cole
On December 31, 2011, Northpark Co. collected a receivable due from a major customer. Which of the following ratios would be increased by this transaction?a. Inventory turnover ratio.b. Receivable turnover ratio.c. Current ratio.d. Quick ratio.H. International Financial Reporting Standards(IFRS)
The following computations were made from Clay Co.’s 2011 books:Number of days’ sales in inventory 61 Number of days’ sales in accounts receivable 33 What was the number of days in Clay’s 2011 operating cycle?a. 33b. 47c. 61d. 94
Tod Corp. wrote off $100,000 of obsolete inventory at December 31, 2011. The effect of this write-off was to decreasea. Both the current and acid-test ratios.b. Only the current ratio.c. Only the acid-test ratio.d. Neither the current nor the acid-test ratios.
On December 30, 2011, Vida Co. had cash of$200,000, a current ratio of 1.5:1 and a quick ratio of .5:1.On December 31, 2011, all cash was used to reduce accounts payable. How did these cash payments affect the ratios?Current ratio Quick ratioa. Increased Decreasedb. Increased No effectc. Decreased
North Bank is analyzing Belle Corp.’s financial statements for a possible extension of credit. Belle’s quick ratio is significantly better than the industry average. Which of the following factors should North consider as a possible limitation of using this ratio when evaluating Belle’s
Which of the following ratios is(are) useful in assessing a company’s ability to meet currently maturing or shortterm obligations?Acid-test ratio Debt to equity ratioa. No Nob. No Yesc. Yes Yesd. Yes No
For 2011, Rey’s accounts receivable turnover wasa. 1.13b. 1.50c. 6.67d. 7.06 Items are based on the following:Rey, Inc.SELECTED FINANCIAL DATA December 31, 2011 2010 Cash $ 170,000 $ 90,000 Accounts receivable (net) 450,000 400,000 Merchandise inventory 540,000 420,000 Short-term marketable
At December 31, 2011, Rey’s quick (acid-test) ratio wasa. 1.50 to 1.b. 1.75 to 1.c. 2.06 to 1.d. 3.10 to 1.Items are based on the following:Rey, Inc.SELECTED FINANCIAL DATA December 31, 2011 2010 Cash $ 170,000 $ 90,000 Accounts receivable (net) 450,000 400,000 Merchandise inventory 540,000
Mill Co.’s trial balance included the following account balances at December 31, 2011:Accounts payable $15,000 Bonds payable, due 2012 25,000 Discount on bonds payable, due 2012 3,000 Dividends payable 1/31/12 8,000 Notes payable, due 2013 20,000 What amount should be included in the current
The following is Gold Corp.’s June 30, 2011 trial balance:Cash overdraft $ 10,000 Accounts receivable, net $ 35,000 Inventory 58,000 Prepaid expenses 12,000 Land held for resale 100,000 Property, plant, and equipment, net 95,000 Accounts payable and accrued expenses 32,000 Common stock 25,000
In Trey’s December 31, 2011 balance sheet, what amount should be reported as total retained earnings?a. $1,029,000b. $1,200,000c. $1,330,000d. $1,630,000 Items are based on the following:The following trial balance of Trey Co. at December 31, 2011, has been adjusted except for income tax
In Trey’s December 31, 2011 balance sheet, what amount should be reported as total current assets?a. $1,950,000b. $2,200,000c. $2,250,000d. $2,500,000 Items are based on the following:The following trial balance of Trey Co. at December 31, 2011, has been adjusted except for income tax
Chemrite Inc. reported a total asset retirement obligation of $350,000 in last year’s balance sheet. This year, Chemrite acquired a new chemical manufacturing facility subject to unconditional retirement obligations. Two measures of the obligation are the discounted cash flow estimate of $82,000
Dunn Trading Stamp Co. records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Dunn’s past experience indicates that only 80% of the stamps sold to licensees will be redeemed.Dunn’s liability for stamp redemptions was $6,000,000 at
Case Cereal Co. frequently distributes coupons to promote new products. On October 1, 2011, Case mailed 1,000,000 coupons for $.45 off each box of cereal purchased.Case expects 120,000 of these coupons to be redeemed before the December 31, 2011, expiration date. It takes thirty days from the
Lute Corporation sells furnaces that include a three-year warranty. Lute can contract with a third party to provide these warranty services. Lute elects the fair value option for reporting financial liabilities. At what amount should Lute record the warranty liability on the balance sheet?a. The
Vadis Co. sells appliances that include a three-year warranty.Service calls under the warranty are performed by an independent mechanic under a contract with Vadis. Based on experience, warranty costs are estimated at $30 for each machine sold. When should Vadis recognize these warranty costs?a.
During 2010, Gum Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 2% within twelve months following the sale and 4% in the second twelve months following the sale. Sales and actual warranty expenditures for the years
If the payment of employees’ compensation for future absences is probable, the amount can be reasonably estimated, and the obligation relates to rights that accumulate, the compensation should bea. Accrued if attributable to employees’ services not already rendered.b. Accrued if attributable to
At December 31, 2011, Taos Co. estimates that its employees have earned vacation pay of $100,000. Employees will receive their vacation pay in 2012. Should Taos accrue a liability at December 31, 2011, if the rights to this compensation accumulated over time or if the rights are vested?Accumulated
Gavin Co. grants all employees two weeks of paid vacation for each full year of employment. Unused vacation time can be accumulated and carried forward to succeeding years and will be paid at the salaries in effect when vacations are taken or when employment is terminated. There was no employee
Ross Co. pays all salaried employees on a Monday for the five-day workweek ended the previous Friday. The last payroll recorded for the year ended December 31, 2011, was for the week ended December 25, 2011. The payroll for the week ended January 1, 2012, included regular weekly salaries of $80,000
North Corp. has an employee benefit plan for compensated absences that gives employees 10 paid vacation days and 10 paid sick days. Both vacation and sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick
Eagle Co. has cosigned the mortgage note on the home of its president, guaranteeing the indebtedness in the event that the president should default. Eagle considers the likelihood of default to be remote. How should the guarantee be treated in Eagle’s financial statements?a. Disclosed only.b.
In 2011, a contract dispute between Dollis Co. and Brooks Co. was submitted to binding arbitration. In 2011, each party’s attorney indicated privately that the probable award in Dollis’ favor could be reasonably estimated. In 2012, the arbitrator decided in favor of Dollis. When should Dollis
During 2011, Smith Co. filed suit against West, Inc.seeking damages for patent infringement. At December 31, 2011, Smith’s legal counsel believed that it was probable that Smith would be successful against West for an estimated amount in the range of $75,000 to $150,000, with all amounts in the
In May 2007 Caso Co. filed suit against Wayne, Inc.seeking $1,900,000 damages for patent infringement. A court verdict in November 2011 awarded Caso $1,500,000 in damages, but Wayne’s appeal is not expected to be decided before 2013. Caso’s counsel believes it is probable that Caso will be
During January 2011, Haze Corp. won a litigation award for $15,000 that was tripled to $45,000 to include punitive damages. The defendant, who is financially stable, has appealed only the $30,000 punitive damages. Haze was awarded $50,000 in an unrelated suit it filed, which is being appealed by
In 2010, a personal injury lawsuit was brought against Halsey Co. Based on counsel’s estimate, Halsey reported a$50,000 liability in its December 31, 2010 balance sheet. In November 2011, Halsey received a favorable judgment, requiring the plaintiff to reimburse Halsey for expenses of$30,000. The
Invern, Inc. has a self-insurance plan. Each year, retained earnings is appropriated for contingencies in an amount equal to insurance premiums saved less recognized losses from lawsuits and other claims. As a result of a 2011 accident, Invern is a defendant in a lawsuit in which it will probably
Management can estimate the amount of loss that will occur if a foreign government expropriates some company assets. If expropriation is reasonably possible, a loss contingency should bea. Disclosed but not accrued as a liability.b. Disclosed and accrued as a liability.c. Accrued as a liability but
During 2011, Haft Co. became involved in a tax dispute with the IRS. At December 31, 2011, Haft’s tax advisor believed that an unfavorable outcome was probable. A reasonable estimate of additional taxes was $200,000 but could be as much as $300,000. After the 2011 financial statements were
On November 5, 2011, a Dunn Corp. truck was in an accident with an auto driven by Bell. Dunn received notice on January 12, 2012, of a lawsuit for $700,000 damages for personal injuries suffered by Bell. Dunn Corp.’s counsel believes it is probable that Bell will be awarded an estimated amount in
On February 5, 2012, an employee filed a $2,000,000 lawsuit against Steel Co. for damages suffered when one of Steel’s plants exploded on December 29, 2011. Steel’s legal counsel expects the company will lose the lawsuit and estimates the loss to be between $500,000 and $1,000,000. The employee
Brite Corp. had the following liabilities at December 31, 2011:Accounts payable $55,000 Unsecured notes, 8%, due 7/1/12 400,000 Accrued expenses 35,000 Contingent liability 450,000 Deferred income tax liability 25,000 Senior bonds, 7%, due 3/31/12 1,000,000 The contingent liability is an accrual
On January 17, 2011, an explosion occurred at a Sims Co. plant causing extensive property damage to area buildings.Although no claims had yet been asserted against Sims by March 10, 2011, Sims’ management and counsel concluded that it is likely that claims will be asserted and that it is
Brad Corp. has unconditional purchase obligations associated with product financing arrangements. These obligations are reported as liabilities on Brad’s balance sheet, with the related assets also recognized. In the notes to Brad’s financial statements, the aggregate amount of payments for
Delect Co. provides repair services for the AZ195 TV set. Customers prepay the fee on the standard one-year service contract. The 2010 and 2011 contracts were identical, and the number of contracts outstanding was substantially the same at the end of each year. However, Delect’s December 31, 2011
In June 2011, Northan Retailers sold refundable merchandise coupons. Northan received $10 for each coupon redeemable from July 1 to December 31, 2011, for merchandise with a retail price of $11. At June 30, 2011, how should Northan report these coupon transactions?a. Unearned revenues at the
On March 31, 2011, Dallas Co. received an advance payment of 60% of the sales price for special-order goods to be manufactured and delivered within five months. At the same time, Dallas subcontracted for production of the special-order goods at a price equal to 40% of the main contract price. What
A retail store received cash and issued gift certificates that are redeemable in merchandise. The gift certificates lapse one year after they are issued. How would the deferred revenue account be affected by each of the following transactions?Redemption of certificates Lapse of certificatesa.
Toddler Care Co. offers three payment plans on its twelve-month contracts. Information on the three plans and the number of children enrolled in each plan for the September 1, 2011 through August 31, 2012 contract year follows:Plan Initial payment per child Monthly fees per child Number of
Cobb Company sells appliance service contracts agreeing to repair appliances for a two-year period. Cobb’s past experience is that, of the total dollars spent for repairs on service contracts, 40% is incurred evenly during the first contract year and 60% evenly during the second contract year.
Kent Co., a division of National Realty, Inc., maintains escrow accounts and pays real estate taxes for National’s mortgage customers. Escrow funds are kept in interestbearing accounts. Interest, less a 10% service fee, is credited to the mortgagee’s account and used to reduce future escrow
Marr Co. sells its products in reusable containers. The customer is charged a deposit for each container delivered and receives a refund for each container returned within two years after the year of delivery. Marr accounts for the containers not returned within the time limit as being retired by
Black Co. requires advance payments with special orders for machinery constructed to customer specifications.These advances are nonrefundable. Information for 2011 is as follows:Customer advances—balance 12/31/10 $118,000 Advances received with orders in 2011 184,000 Advances applied to orders
On May 1, 2011, Marno County issued property tax assessments for the fiscal year ended June 30, 2012. The first of two equal installments was due on November 1, 2011. On September 1, 2011, Dyur Co. purchased a fouryear-old factory in Marno subject to an allowance for accrued taxes. Dyur did not
Kemp Co. must determine the December 31, 2011 yearend accruals for advertising and rent expenses. A $500 advertising bill was received January 7, 2012, comprising costs of $375 for advertisements in December 2011 issues, and$125 for advertisements in January 2012 issues of the newspaper.A store
On July 1, 2011, Ran County issued realty tax assessments for its fiscal year ended June 30, 2012. On September 1, 2011, Day Co. purchased a warehouse in Ran County.The purchase price was reduced by a credit for accrued realty taxes. Day did not record the entire year’s real estate tax
Hudson Hotel collects 15% in city sales taxes on room rentals, in addition to a $2 per room, per night, occupancy tax. Sales taxes for each month are due at the end of the following month, and occupancy taxes are due fifteen days after the end of each calendar quarter. On January 3, 2012, Hudson
Ivy Co. operates a retail store. All items are sold subject to a 6% state sales tax, which Ivy collects and records as sales revenue. Ivy files quarterly sales tax returns when due, by the twentieth day following the end of the sales quarter.However, in accordance with state requirements, Ivy
Able Co. provides an incentive compensation plan under which its president receives a bonus equal to 10% of the corporation’s income before income tax but after deduction of the bonus. If the tax rate is 40% and net income after bonus and income tax was $360,000, what was the amount of the
Pine Corp. is required to contribute, to an employee stock ownership plan (ESOP), 10% of its income after deduction for this contribution but before income tax. Pine’s income before charges for the contribution and income tax was $75,000. The income tax rate is 30%. What amount should be accrued
Under state law, Acme may pay 3% of eligible gross wages or it may reimburse the state directly for actual unemployment claims. Acme believes that actual unemployment claims will be 2% of eligible gross wages and has chosen to reimburse the state. Eligible gross wages are defined as the first
Lime Co.’s payroll for the month ended January 31, 2011, is summarized as follows:Total wages $10,000 Federal income tax withheld 1,200 All wages paid were subject to FICA. FICA tax rates were 7% each for employee and employer. Lime remits payroll taxes on the 15th of the following month. In its
Fay Corp. pays its outside salespersons fixed monthly salaries and commissions on net sales. Sales commissions are computed and paid on a monthly basis (in the month following the month of sale), and the fixed salaries are treated as advances against commissions. However, if the fixed salaries for
Rice Co. salaried employees are paid biweekly. Advances made to employees are paid back by payroll deductions.Information relating to salaries follows:12/31/10 12/31/11 Employee advances $24,000 $ 36,000 Accrued salaries payable 40,000 ?Salaries expense during the year 420,000 Salaries paid during
On December 31, 2011, Largo, Inc. had a $750,000 note payable outstanding, due July 31, 2012. Largo borrowed the money to finance construction of a new plant.Largo planned to refinance the note by issuing long-term bonds. Because Largo temporarily had excess cash, it prepaid$250,000 of the note on
Cali, Inc. had a $4,000,000 note payable due on March 15, 2012. On January 28, 2012, before the issuance of its 2011 financial statements, Cali issued long-term bonds in the amount of $4,500,000. Proceeds from the bonds were used to repay the note when it came due. How should Cali classify the note
A company issued a short-term note payable with a stated 12% rate of interest to a bank. The bank charged a.5% loan origination fee and remitted the balance to the company. The effective interest rate paid by the company in this transaction would bea. Equal to 12.5%.b. More than 12.5%.c. Less than
Ames, Inc. has $500,000 of notes payable due June 15, 2012. Ames signed an agreement on December 1, 2011, to borrow up to $500,000 to refinance the notes payable on a long-term basis with no payments due until 2013. The financing agreement stipulated that borrowings may not exceed 80% of the value
In its 2011 financial statements, Cris Co. reported interest expense of $85,000 in its income statement and cash paid for interest of $68,000 in its cash flow statement. There was no prepaid interest or interest capitalization either at the beginning or end of 2011. Accrued interest at December 31,
On September 1, 2010, Brak Co. borrowed on a$1,350,000 note payable from Federal Bank. The note bears interest at 12% and is payable in three equal annual principal payments of $450,000. On this date, the bank’s prime rate was 11%. The first annual payment for interest and principal was made on
On March 1, 2010, Fine Co. borrowed $10,000 and signed a two-year note bearing interest at 12% per annum compounded annually. Interest is payable in full at maturity on February 28, 2012. What amount should Fine report as a liability for accrued interest at December 31, 2011?a. $0b. $1,000c.
Rabb Co. records its purchases at gross amounts but wishes to change to recording purchases net of purchase discounts. Discounts available on purchases recorded from October 1, 2010, to September 30, 2011, totaled $2,000. Of this amount, $200 is still available in the accounts payable balance. The
Lyle, Inc. is preparing its financial statements for the year ended December 31, 2011. Accounts payable amounted to $360,000 before any necessary year-end adjustment related to the following:• At December 31, 2011, Lyle has a $50,000 debit balance in its accounts payable to Ross, a supplier,
Taft Inc. borrowed $1,000,000 from Wilson Company on July 2, 2010. As part of the loan agreement, Taft granted Wilson a security interest in land that originally cost$750,000 when it was acquired by Taft in 2003. The land had a fair value of $900,000 on July 2, 2010. In June 2011, Taft defaulted on
In accordance with accounting for transfers and servicing, all of the following would be disclosed excepta. Policy for requiring collateral or other security due to repurchase agreements or securities lending transactions.b. Cash flows between the securitization specialpurpose entity (SPE) and the
In accordance with accounting for transfers and servicing, financial assets subject to prepayment should be measureda. Like investments in debt securities classified as held-to-maturity.b. At cost.c. Like investments in debt securities classified as available-for-sale or trading.d. At fair value.
Assume for this problem that ABC Company agreed to service the loans without explicitly stating the compensation.The fair value of the service is $50. What are the net proceeds received and the gain (loss) on the sale?Net proceeds received Gain (loss)a. $2,200 $ 200b. $2,250 $ 250c. $2,150 $ 150d.
The journal entry to record the transfer for ABC Company includesa. A debit to call option.b. A credit to interest rate swap.c. A debit to loans.d. A credit to cash.
What is the gain (loss) on the sale?a. $ 320b. $ 200c. $(100)d. $ 120
Which of the following is true?a. A debtor may not grant a security interest in certain assets to a lender to serve as collateral with recourse.b. A debtor may not grant a security interest in certain assets to a lender to serve as collateral without recourse.c. The arrangement of having collateral
Binsar Corporation transfers a financial asset but continues to hold an interest in the servicing asset. How should the interest in the servicing asset that continues to be held be measured at the date of the transfer?a. At the present value of future cash flows.b. At fair value.c. At the
According to ASC Topic 860, which of the following statements is true regarding servicing assets and servicing liabilities?I. Either the amortization method or the fair value method can be used.II. Once the fair value method is elected, the election cannot be reversed.III. Changes in fair value are
Fusion Corporation uses the amortization method to account for its servicing assets. Which of the following statements is true?a. Increases in fair value are reported in other comprehensive income.b. Increases in fair value are reported in earnings of the period.c. The assets are measured at fair
Which of the following is false?a. A servicing asset shall be assessed for impairment based on its fair value.b. A servicing liability shall be assessed for increased obligation based on its fair value.c. An obligation to service financial assets may result in the recognition of a servicing asset
Which of the following is not an objective for each entity accounting for transfers of financial assets?a. To derecognize assets when control is gained.b. To derecognize liabilities when extinguished.c. To recognize liabilities when incurred.d. To derecognize assets when control is given up.
All but one of the following are required before a transfer of receivables can be recorded as a sale.a. The transferred receivables are beyond the reach of the transferor and its creditors.b. The transferor has not kept effective control over the transferred receivables through a repurchase
If financial assets are exchanged for cash or other consideration, but the transfer does not meet the criteria for a sale, the transferor and the transferee should account for the transaction as a Secured borrowing Pledge of collaterala. No Yesb. Yes Yesc. Yes Nod. No No
Bannon Corp. transferred financial assets to Chapman, Inc. The transfer meets the conditions to be accounted for as a sale. As the transferor, Bannon should do each of the following, excepta. Remove all assets sold from the balance sheet.b. Record all assets received and liabilities incurred as
Synthia Corp. factored $750,000 of accounts receivable to Thomas Company on December 3, 2011. Control was surrendered by Synthia. Thomas accepted the receivables subject to recourse for nonpayment. Thomas assessed a fee of 2% and retains a holdback equal to 4% of the accounts receivable. In
Scarbrough Corp. factored $600,000 of accounts receivable to Duff Corp. on October 1, 2011. Control was surrendered by Scarbrough. Duff accepted the receivables subject to recourse for nonpayment. Duff assessed a fee of 3% and retains a holdback equal to 5% of the accounts receivable.In addition,
Which of the following is used to account for probable sales discounts, sales returns, and sales allowances?Due from factor Recourse liabilitya. Yes Nob. Yes Yesc. No Yesd. No No
Assuming all receivables are collected, Taylored’s cost of factoring the receivables would bea. $ 8,000b. $34,740c. $42,740d. $14,740
Which of the following statements is correct?a. Rich should record an asset of $8,000 for the recourse obligation.b. Taylored should record a liability and corresponding loss of $12,000 related to the recourse obligation.c. Taylored should record a liability of $12,000, but no loss, related to the
Taylored will receive and record cash ofa. $385,260b. $357,260c. $365,260d. $377,260 Items are based on the following:Taylored Corp. factored $400,000 of accounts receivable to Rich Corp. on July 1, 2011. Control was surrendered by Taylored. Rich accepted the receivables subject to recourse for
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