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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
Gar Co. factored its receivables. Control was surrendered in the transaction which was on a without recourse basis with Ross Bank. Gar received cash as a result of this transaction, which is best described as aa. Loan from Ross collateralized by Gar’s accounts receivable.b. Loan from Ross to be
Which of the following is a method to generate cash from accounts receivables?Assignment Factoringa. Yes Nob. Yes Yesc. No Yesd. No No
A company uses the allowance method to recognize uncollectible accounts expense. What is the effect at the time of the collection of an account previously written off on each of the following accounts?Allowance for uncollectible accounts Uncollectible accounts expensea. No effect Decreaseb.
When the allowance method of recognizing uncollectible accounts is used, the entry to record the write-off of a specific accounta. Decreases both accounts receivable and the allowance for uncollectible accounts.b. Decreases accounts receivable and increases the allowance for uncollectible
Which method of recording uncollectible accounts expense is consistent with accrual accounting?Allowance Direct write-offa. Yes Yesb. Yes Noc. No Yesd. No No
A method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement is the allowance method based ona. Aging the receivables.b. Direct write-off.c. Gross sales.d. Credit sales less returns and allowances.
The following information pertains to Tara Co.’s accounts receivable at December 31, 2011:Days outstanding Amount Estimated %uncollectible 0 – 60 $120,000 1%61 – 120 90,000 2%Over 120 100,000 6%$310,000 During 2011, Tara wrote off $7,000 in receivables and recovered$4,000 that had been
Inge Co. determined that the net value of its accounts receivable at December 31, 2011, based on an aging of the receivables, was $325,000. Additional information is as follows:Allowance for uncollectible accounts—1/1/11 $ 30,000 Uncollectible accounts written off during 2011 18,000 Uncollectible
In its December 31 balance sheet, Butler Co. reported trade accounts receivable of $250,000 and related allowance for uncollectible accounts of $20,000. What is the total amount of risk of accounting loss related to Butler’s trade accounts receivable, and what amount of that risk is
The following accounts were abstracted from Roxy Co.’s unadjusted trial balance at December 31, 2011:Debit Credit Accounts receivable $1,000,000 Allowance for uncollectible accounts 8,000 Net credit sales $3,000,000 Roxy estimates that 3% of the gross accounts receivable will become
At January 1, 2011, Jamin Co. had a credit balance of$260,000 in its allowance for uncollectible accounts. Based on past experience, 2% of Jamin’s credit sales have been uncollectible. During 2011 Jamin wrote off $325,000 of uncollectible accounts. Credit sales for 2011 were$9,000,000. In its
Fenn Stores, Inc. had sales of $1,000,000 during December, 2011. Experience has shown that merchandise equaling 7% of sales will be returned within thirty days and an additional 3% will be returned within ninety days. Returned merchandise is readily resalable. In addition, merchandise equaling 15%
Delta, Inc. sells to wholesalers on terms of 2/15, net 30.Delta has no cash sales but 50% of Delta’s customers take advantage of the discount. Delta uses the gross method of recording sales and trade receivables. An analysis of Delta’s trade receivables balances at December 31, 2011, revealed
On August 15, 2011, Benet Co. sold goods for which it received a note bearing the market rate of interest on that date. The four-month note was dated July 15, 2011. Note principal, together with all interest, is due November 15, 2011. Assume Benet did not elect the fair value option for reporting
On Merf’s April 30, 2011 balance sheet a note receivable was reported as a noncurrent asset and its accrued interest for eight months was reported as a current asset.Which of the following terms would fit Merf’s note receivable?a. Both principal and interest amounts are payable on August 31,
On December 1, 2011, Tigg Mortgage Co. gave Pod Corp. a $200,000, 12% loan. Pod received proceeds of$194,000 after the deduction of a $6,000 nonrefundable loan origination fee. Principal and interest are due in sixty monthly installments of $4,450, beginning January 1, 2012.The repayments yield an
Frame Co. has an 8% note receivable dated June 30, 2009, in the original amount of $150,000. Payments of$50,000 in principal plus accrued interest are due annually on July 1, 2010, 2011, and 2012. In its June 30, 2011 balance sheet, what amount should Frame report as a current asset for interest on
The following information relates to Jay Co.’s accounts receivable for 2011:Accounts receivable, 1/1/11 $ 650,000 Credit sales for 2011 2,700,000 Sales returns for 2011 75,000 Accounts written off during 2011 40,000 Collections from customers during 2011 2,150,000 Estimated future sales returns
On the December 31, 2011 balance sheet of Mann Co., the current receivables consisted of the following:Trade accounts receivable $ 93,000 Allowance for uncollectible accounts (2,000)Claim against shipper for goods lost in transit (November 2011) 3,000 Selling price of unsold goods sent by Mann on
Poe, Inc. had the following bank reconciliation at March 31, 2011:Balance per bank statement, 3/31/11 $46,500 Add deposit in transit 10,300 56,800 Less outstanding checks 12,600 Balance per books, 3/31/11 $44,200 Data per bank for the month of April 2011 follow:Deposits $58,400 Disbursements 49,700
In preparing its August 31, 2011 bank reconciliation, Apex Corp. has available the following information:Balance per bank statement, 8/31/11 $18,050 Deposit in transit, 8/31/11 3,250 Return of customer’s check for insufficient funds, 8/31/11 600 Outstanding checks, 8/31/11 2,750 Bank service
On October 31, 2011, Dingo, Inc. had cash accounts at three different banks. One account balance is segregated solely for a November 15, 2011 payment into a bond sinking fund. A second account, used for branch operations, is overdrawn. The third account, used for regular corporate operations, has a
Trans Co. had the following balances at December 31, 2011:Cash in checking account $ 35,000 Cash in money market account 75,000 US Treasury bill, purchased 11/1/2011, maturing 1/31/2012 350,000 US Treasury bill, purchased 12/1/2011, maturing 3/31/2012 400,000 Trans’s policy is to treat as cash
Ral Corp.’s checkbook balance on December 31, 2011, was $5,000. In addition, Ral held the following items in its safe on that date:Check payable to Ral Corp., dated January 2, 2012, in payment of a sale made in December 2011, not included in December 31 checkbook balance $2,000 Check payable to
Burr Company had the following account balances at December 31, 2011:Cash in banks $2,250,000 Cash on hand 125,000 Cash legally restricted for additions to plant (expected to be disbursed in 2012) 1,600,000 Cash in banks includes $600,000 of compensating balances against short-term borrowing
Which of the following is true about biological assets under IFRS?a. Biological assets are only found in Biotech companies.b. Biological assets are living animals or plants and must be disclosed as a separate item on the balance sheet.c. Biological assets must be valued at cost.d. Biological assets
Under IFRS, an intangible asset is considered to be impaired if its carrying value is greater than its recoverable amount. The recoverable amount isa. Its historical cost.b. Its net selling price.c. The greater of its net selling price or its value in use.d. Its replacement cost.
Under IFRS, intangible assets with indefinite lives are tested for impairmenta. Quarterly at the quarterly reporting date.b. Annually at the annual reporting date.c. Biannually at the reporting date.d. There are no guidelines defining when intangible assets are tested for impairment.
Taylor Company uses IFRS for financial reporting purposes. Which of the following is true about accounting for the development costs of the company?a. Development costs must be expensed.b. Development costs are always deferred and expensed against future revenues.c. Development costs may be
On January 1, year 1, an entity acquires for $100,000 a new piece of machinery with an estimated useful life of 10 years. The machine has a drum that must be replaced every five years and costs $20,000 to replace. Continued operation of the machine requires an inspection every four years after
Under IFRS, when an entity chooses the revaluation model as its accounting policy for measuring property, plant, and equipment, which of the following statements is correct?a. When an asset is revalued, the entire class of property, plant, and equipment to which that asset belongs must be
An entity purchases a trademark and incurs the following costs in connection with the trademark:One-time trademark purchase price $100,000 Nonrefundable VAT taxes 5,000 Training sales personnel on the use of the new trademark 7,000 Research expenditures associated with the purchase of the new
Under IFRS, which of the following is a criterion that must be met in order for an item to be recognized as an intangible asset other than goodwill?a. The item’s fair value can be measured reliably.b. The item is part of the entity’s activities aimed at gaining new scientific or technical
Under IFRS, an entity that acquires an intangible asset may use the revaluation model for subsequent measurement only ifa. The useful life of the intangible asset can be reliably determined.b. An active market exists for the intangible asset.c. The cost of the intangible asset can be measured
Wilson Company maintains its records under IFRS.During the current year Wilson sold a piece of equipment used in production. The equipment had been accounted for using the revaluation method and details of the accounts and sale are presented below.Sales price $100,000 Equipment book value (net)
Under the IFRS revaluation model for accounting for plant, property, and equipmenta. Assets must be revaluated quarterly.b. Assets must be revaluated annually.c. Assets must be revaluated biannually.d. There are no rules regarding the frequency of revaluation.
Under IFRS when accounting for plant, property, and equipment, a companya. Must use the cost model for presenting the assets.b. May elect to use the cost model or the revaluation model on any individual asset.c. May elect to use the cost model or the revaluation model on any asset class.d. Must use
Pinkerton Corp. uses the cost model for intangible assets.On April 10, 2009, Pinkerton acquired assets for$100,000. On December 31, 2009, it was determined that the recoverable amount for these intangible assets was $80,000.On December 31, 2010, it was determined that the intangible assets had a
Under IFRS, what valuation methods are used for intangible assets?a. The cost model or the fair value model.b. The cost model or the revaluation model.c. The cost model or the fair value through profit or loss model.d. The revaluation model or the fair value model.
Linden Corporation has investment property that is held to earn rental income. Linden prepares its financial statements in accordance with IFRS. Linden uses the fair value model for reporting the investment property. Which of the following is true?a. Changes in fair value are reported as profit or
When the revaluation model is used for reporting plant, property, and equipment, the gain or loss should be included ina. Income for the period.b. Gain from revaluation on the income statement.c. A revaluation surplus account is other comprehensive income.d. An extraordinary gain or loss on the
Which is true about the revaluation model for valuing plant, property, and equipment?a. Revaluation of assets must be made on the last day of the fiscal year.b. Revaluation of assets must be made on the same date each year.c. There is no rule for the frequency or date of revaluation.d. Revaluation
For companies that prepare financial statements in accordance with IFRS, plant, property, and equipment should be valued using which models?a. The cost model or the revaluation model.b. The cost model or the fair value model.c. The cost model or the fair value through profit or loss model.d. The
A development stage enterprisea. Issues an income statement that shows only cumulative amounts from the enterprise’s inception.b. Issues an income statement that is the same as an established operating enterprise, but does not show cumulative amounts from the enterprise’s inception as
Financial reporting by a development stage enterprise differs from financial reporting for an established operating enterprise in regard to footnote disclosuresa. Only.b. And expense recognition principles only.c. And revenue recognition principles only.d. And revenue and expense recognition
What is the proper accounting treatment for the following stages of internal-use software costs?Preliminary stage costs Postimplementation costsa. Capitalized as incurred Capitalized as incurredb. Expensed as incurred Capitalized as incurredc. Capitalized as incurred Expensed as incurredd. Expensed
Which of the following statements is(are) correct regarding the proper accounting treatment for internal-use software costs?I. Preliminary costs should be capitalized as incurred.II. Application and development costs should be capitalized as incurred.a. I only.b. II only.c. Both I and II.d. Neither
Which of the following statements is incorrect regarding internal-use software?a. The application and development costs of internaluse software should be amortized on a straight-line basis unless another systematic and rational basis is more representative of its costs.b. Internal-use software is
On December 31, 2009, Bit Co. had capitalized costs for a new computer software product with an economic life of five years. Sales for 2010 were 30% of expected total sales of the software. At December 31, 2010, the software had a net realizable value equal to 90% of the capitalized cost.What
In Pitt’s December 31, 2010 balance sheet, what amount should be capitalized as software cost, subject to amortization?a. $54,000b. $57,000c. $59,000d. $69,000
In Pitt’s December 31, 2010 balance sheet, what amount should be reported in inventory?a. $25,000b. $34,000c. $40,000d. $49,000
On January 1, 2010, Jambon purchased equipment for use in developing a new product. Jambon uses the straightline depreciation method. The equipment could provide benefits over a ten-year period. However, the new product development is expected to take five years, and the equipment can be used only
Brill Co. made the following expenditures during 2010:Costs to develop computer software for internal use in Brill’s general management information system $100,000 Costs of market research activities 75,000 What amount of these expenditures should Brill report in its 2010 income statement as
West, Inc. made the following expenditures relating to Product Y:• Legal costs to file a patent on Product Y—$10,000.Production of the finished product would not have been undertaken without the patent.• Special equipment to be used solely for development of Product Y—$60,000. The equipment
In 2010, Ball Labs incurred the following costs:Direct costs of doing contract research and development work for the government to be reimbursed by governmental unit $400,000 Research and development costs not included above were Depreciation $300,000 Salaries 700,000 Indirect costs appropriately
Cody Corp. incurred the following costs during 2010:Design of tools, jigs, molds, and dies involving new technology $125,000 Modification of the formulation of a process 160,000 Troubleshooting in connection with breakdowns during commercial production 100,000 Adaptation of an existing capability
Which of the following statements is(are) correct regarding the treatment of start-up activities related to the opening of a new facility?I. Costs of raising capital should be expensed as incurred.II. Costs of acquiring or constructing long-lived assets and getting them ready for their intended use
On January 1, 2010, Kew Corp. incurred organization costs of $24,000. What portion of the organization costs will Kew defer to years subsequent to 2010?a. $23,400b. $19,200c. $ 4,800d. $0
Brunson Corp., a major US winery, begins construction of a new facility in Italy. Following are some of the costs incurred in conjunction with the start-up activities of the new facility:Production equipment $815,000 Travel costs of salaried employees 40,000 License fees 14,000 Training of local
Wilson Corporation is performing the test of impairment of its Technology reporting unit at 9/30/10. In the first step of the process, Wilson has valued the unit using a multiple of earnings approach at $2,000,000. The carrying value of the net assets of the Technology unit is $2,100,000. What
Sloan Corporation is performing its annual test of the impairment of goodwill for its Financing reporting unit. It has determined that the fair value of the unit exceeds it carrying value. Which of the following is correct concerning this test of impairment?a. Impairment is not indicated and no
On July 12, 2010, Carver, Inc. acquired Jones Company in a business combination. As a result of the combination, the following amounts of goodwill were recorded for each of the three reporting units of the acquired company.Retailing $30,000 Service $20,000 Financing $40,000 Near the end of 2010 a
Under ASC Topic 350, goodwill should be tested periodically for impairmenta. For the entity as a whole.b. At the subsidiary level.c. At the industry segment level.d. At the operating segment level or one level below.
Which of the following statements concerning patents is correct?a. Legal costs incurred to successfully defend an internally developed patent should be capitalized and amortized over the patent’s remaining economic life.b. Legal fees and other direct costs incurred in registering a patent should
What does ASC Topic 350 require with respect to accounting for goodwill?a. Goodwill should be amortized over a five-year period.b. Goodwill should be amortized over its expected useful life.c. Goodwill should be recorded and never adjusted.d. Goodwill should be recorded and periodically evaluated
On January 2, 2007, Lava, Inc. purchased a patent for a new consumer product for $90,000. At the time of purchase, the patent was valid for fifteen years; however, the patent’s useful life was estimated to be only ten years due to the competitive nature of the product. On December 31, 2010, the
Northern Airline purchased airline gate rights at Newark International Airport for $2,000,000 with a legal life of five years. However, Northern has the ability and right to extend the rights every ten years for an indefinite period of time.Over what period of time should Northern amortize the gate
On January 2, 2010, Paye Co. purchased Shef Co. at a cost that resulted in recognition of goodwill of $200,000.During the first quarter of 2010, Paye spent an additional$80,000 on expenditures designed to maintain goodwill. In its December 31, 2010 balance sheet, what amount should Paye report as
On January 2, 2010, Judd Co. bought a trademark from Krug Co. for $500,000. Judd retained an independent consultant, who estimated the trademark’s remaining life to be fifty years. Its unamortized cost on Krug’s accounting records was $380,000. In Judd’s December 31, 2010 balance sheet, what
On December 31, 2009, Byte Co. had capitalized software costs of $600,000 with an economic life of four years.Sales for 2010 were 10% of expected total sales of the software.At December 31, 2010, the software had a net realizable value of $480,000. In its December 31, 2010 balance sheet, what
In January 2010, Vorst Co. purchased a mineral mine for$2,640,000 with removable ore estimated at 1,200,000 tons.After it has extracted all the ore, Vorst will be required by law to restore the land to its original condition at an estimated cost of $220,000. The present value of the estimated
Miller Company acquired a machine for $420,000 on June 30, 2008. The machine has a seven-year life, no salvage value, and was depreciated using the straight-line method. On August 31, 2010, a test for recoverability reveals that the expected net future undiscounted cash inflows related to the
During December 2010, Toni Corp. determined that there had been a significant decrease in the market value of its equipment used in its roofing business. At December 31, 2010, Toni compiled the information below.Original cost of equipment $800,000 Accumulated depreciation 450,000 Expected net
In accordance with ASC Topic 360, long-lived assets are required to be reviewed for impairmenta. At the balance sheet date, every three years.b. When the asset is fully depreciated.c. When circumstances indicate that the carrying amount of an asset might not be recoverable.d. At the balance sheet
According to ASC Topic 360, if a long-lived asset is determined to be impaired, how is the loss calculated?a. Future discounted cash flows less asset’s carrying(book) value.b. Future undiscounted cash flows less asset’s carrying(book) value.c. Fair value less asset’s carrying (book) value.d.
Which of the following statements is(are) correct about the carrying amount of a long-lived asset after an impairment loss has been recognized? Assume the long-lived asset is being held for use in the business and that the asset is depreciable.I. The reduced carrying amount of the asset may be
Marjorie, Inc. acquired a machine for $320,000 on August 31, 2007. The machine has a five-year life, a $50,000 salvage value, and was depreciated using the straight-line method. On May 31, 2010, a test for recoverability reveals that the expected net future undiscounted cash inflows related to the
During December 2010, Bubba Inc. determined that there had been a significant decrease in the market value of its equipment used in its manufacturing process. At December 31, 2010, Bubba compiled the information below.Original cost of the equipment $500,000 Accumulated depreciation 300,000 Expected
Under the reporting requirements for impaired assets, impairment losses for assets to be held and used shall be reporteda. As an extraordinary item.b. As a component of discontinued operations.c. As a component of income from continuing operations.d. As a change in accounting estimate.
Dahle Corporation has equipment with a carrying value of $450,000 on December 31, 2010. The following information was available on December 31, 2010:Expected net cash flows (undiscounted) $420,000 Expected net cash flows discounted at 7% $400,000 Fair value, using the assets with other assets
Conner Corporation has equipment with a carrying value of $160,000 on December 31, 2010, after recording depreciation expense for 2010. The following information was available on December 31, 2010:Value of similar equipment for sale in market$140,000 Present value of estimated future cash flows
Linx Corporation acquired equipment on January 1, 2009, for $100,000. The equipment had a ten-year useful life and no salvage value. On December 31, 2010, the following information was obtained regarding the equipment:Expected value of undiscounted cash flows $72,000 Fair value estimated with
Scarbrough Company had purchased equipment for$280,000 on January 1, 2007. The equipment had an eightyear useful life and a salvage value of $40,000. Scarbrough depreciated the equipment using the straight-line method. In August 2010, Scarbrough questioned the recoverability of the carrying amount
With regard to impaired assets, the FASB standards provide for Recognition of loss upon impairment Restoration of previously recognized impairment lossesa. Yes Yesb. Yes Noc. No Yesd. No No
Synthia, Inc., a clothing manufacturer, purchased a sewing machine for $10,000 on July 1, 2008. The machine had a ten-year life, a $500 salvage value, and was depreciated using the straight-line method. On December 31, 2010, a test for impairment indicates that the undiscounted cash flows from the
Assets intended to be held and used for productive purposes may suffer from impairment in each of the following circumstances excepta. A change in the way the assets are used or physical change in the assets.b. Asset costs incurred exceed the original amounts planned.c. Discounted expected future
Cranston Inc. reported an impairment loss of $150,000 on its income statement for the year ended December 31, 2009. This loss was related to long-lived assets which Cranston intended to use in its operations. On the company’s December 31, 2009 balance sheet, Cranston reported these long-lived
Taft Inc. recognized a loss in 2009 related to long-lived assets that it intended to sell. These assets were not sold during 2010, and the company estimated, at December 31, 2010, that the loss recognized in 2009 had been more than recovered. On the December 31, 2010 balance sheet, Taft should
At December 31, 2010, Matson Inc. was holding longlived assets that it intended to sell. The assets do not constitute a separate component of the company. The company appropriately recognized a loss in 2010 related to these assets.On Matson’s income statement for the year ended December 31, 2010,
During 2010, the management of West Inc. decided to dispose of some of its older equipment and machinery. By year-end, December 31, 2010, these assets had not been sold, although the company was negotiating their sale to another company. On the December 31, 2010 balance sheet of West Inc., this
A company using the composite depreciation method for its fleet of trucks, cars, and campers retired one of its trucks and received cash from a salvage company. The net carrying amount of these composite asset accounts would be decreased by thea. Cash proceeds received and original cost of the
Which of the following uses the straight-line depreciation method?Group depreciation Composite depreciationa. No Nob. Yes Noc. Yes Yesd. No Yes
The following graph depicts three depreciation expense patterns over time.Which depreciation expense pattern corresponds to the sumof-the-years’ digits method and which corresponds to the double-declining balance method?Sum-of-the-years’ digits Double-declining balancea. III IIb. II Ic. I IIId.
Spiro Corp. uses the sum-of-the-years’ digits method to depreciate equipment purchased in January 2008 for $20,000.The estimated salvage value of the equipment is $2,000 and the estimated useful life is four years. What should Spiro report as the asset’s carrying amount as of December 31,
A machine with a five-year estimated useful life and an estimated 10% salvage value was acquired on January 1, 2007. On December 31, 2010, accumulated depreciation, using the sum-of-the-years’ digits method, would bea. (Original cost less salvage value) multiplied by 1/15.b. (Original cost less
In which of the following situations is the units-ofproduction method of depreciation most appropriate?a. An asset’s service potential declines with use.b. An asset’s service potential declines with the passage of time.c. An asset is subject to rapid obsolescence.d. An asset incurs increasing
A depreciable asset has an estimated 15% salvage value.At the end of its estimated useful life, the accumulated depreciation would equal the original cost of the asset under which of the following depreciation methods?Straight-line Productive outputa. Yes Nob. Yes Yesc. No Yesd. No No
On January 1, 2006, Crater, Inc. purchased equipment having an estimated salvage value equal to 20% of its original cost at the end of a ten-year life. The equipment was sold December 31, 2010, for 50% of its original cost. If the equipment’s disposition resulted in a reported loss, which of the
Weir Co. uses straight-line depreciation for its property, plant, and equipment, which, stated at cost, consisted of the following:12/31/10 12/31/09 Land $ 25,000 $ 25,000 Buildings 195,000 195,000 Machinery and equipment 695,000 650,000 915,000 870,000 Less accumulated depreciation 400,000
On January 2, 2007, Union Co. purchased a machine for$264,000 and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value.On January 2, 2010, Union determined that the machine had a useful life of six years from the date of acquisition and will
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