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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
Midway Co. had the following transactions during 2010:• $1,200,000 pretax loss on foreign currency exchange due to a major unexpected devaluation by the foreign government.• $500,000 pretax loss from discontinued operations of a division.• $800,000 pretax loss on equipment damaged by a
Kent Co. incurred the following infrequent losses during 2010:• A $300,000 loss was incurred on disposal of one of four dissimilar factories.• A major currency devaluation caused a $120,000 exchange loss on an amount remitted by a foreign customer.• Inventory valued at $190,000 was made
Witt Co. incurred the following infrequent losses during 2010:• $175,000 from a major strike by employees.• $150,000 from an earthquake (unusual).• $125,000 from the abandonment of equipment used in the business.In Witt’s 2010 income statement, the total amount of infrequent losses not
During 2010 both Raim Co. and Cane Co. suffered losses due to the flooding of the Mississippi River. Raim is located two miles from the river and sustains flood losses every two to three years. Cane, which has been located fifty miles from the river for the past twenty years, has never before had
In Yew Co.’s 2010 annual report, Yew described its social awareness expenditures during the year as follows:The Company contributed $250,000 in cash to youth and educational programs. The Company also gave $140,000 to health and human service organizations, of which $80,000 was contributed by
Which of the following should be included in general and administrative expenses?Interest Advertisinga. Yes Yesb. Yes Noc. No Yesd. No No
The following costs were incurred by Griff Co., a manufacturer, during 2010:Accounting and legal fees $ 25,000 Freight-in 175,000 Freight-out 160,000 Officers salaries 150,000 Insurance 85,000 Sales representatives salaries 215,000 What amount of these costs should be reported as general and
Brock Corp. reports operating expenses in two categories:(1) selling, and (2) general and administrative. The adjusted trial balance at December 31, 2010, included the following expense and loss accounts:Accounting and legal fees $120,000 Advertising 150,000 Freight-out 80,000 Interest 70,000 Loss
What amount should Vane report as income after income taxes from continuing operations?a. $126,000b. $129,500c. $140,000d. $147,000 Items are based on the following:Vane Co.’s trial balance of income statement accounts for the year ended December 31, 2011, included the following:Debit Credit
What amount should Vane report as the cost of goods manufactured?a. $200,000b. $215,000c. $280,000d. $295,000 Items are based on the following:Vane Co.’s trial balance of income statement accounts for the year ended December 31, 2011, included the following:Debit Credit Sales $575,000 Cost of
In Baer Food Co.’s 2010 single-step income statement, the section titled “Revenues” consisted of the following:Net sales revenue $187,000 Results from discontinued operations:Loss from discontinued component Z including loss on disposal of$1,200$ 16,400 Less tax benefit 4,000 (12,400)Interest
Under IFRS, a voluntary change in accounting method may only be made by a company ifa. A new standard mandates the change in method.b. Management prefers the new method.c. The new method provides reliable and more relevant information.d. There is no prohibition of the method in the standards.
Under IFRS, changes in accounting policies area. Permitted if the change will result in a more reliable and more relevant presentation of the financial statements.b. Permitted if the entity encounters new transactions, events, or conditions that are substantively different from existing or previous
IFRS requires changes in accounting principles to be reporteda. On a prospective basis.b. On a retrospective basis.c. By restating the financial statements.d. By a cumulative adjustment on the income statement.
Which of the following statements is correct regarding accounting changes that result in financial statements that are, in effect, the statements of a different reporting entity?a. Cumulative-effect adjustments should be reported as separate items on the financial statements pertaining to the year
A company has included in its consolidated financial statements this year a subsidiary acquired several years ago that was appropriately excluded from consolidation last year.This should be reported asa. An accounting change that should be reported prospectively.b. An accounting change that should
For 2009, Pac Co. estimated its two-year equipment warranty costs based on $100 per unit sold in 2009. Experience during 2010 indicated that the estimate should have been based on $110 per unit. The effect of this $10 difference from the estimate is reporteda. In 2010 income from continuing
Oak Co. offers a three-year warranty on its products.Oak previously estimated warranty costs to be 2% of sales.Due to a technological advance in production at the beginning of 2010, Oak now believes 1% of sales to be a better estimate of warranty costs. Warranty costs of $80,000 and$96,000 were
During 2010, Krey Co. increased the estimated quantity of copper recoverable from its mine. Krey uses the units of production depletion method. As a result of the change, which of the following should be reported in Krey’s 2010 financial statements?Cumulative effect of a change in accounting
How should the effect of a change in accounting estimate be accounted for?a. By restating amounts reported in financial statements of prior periods.b. By reporting pro forma amounts for prior periods.c. As a prior period adjustment to beginning retained earnings.d. In the period of change and
On January 1, 2007, Flax Co. purchased a machine for$528,000 and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value. On January 1, 2010, Flax determined that the machine had a useful life of six years from the date of acquisition and will
On January 1, 2007, Taft Co. purchased a patent for$714,000. The patent is being amortized over its remaining legal life of fifteen years expiring on January 1, 2019. During 2010, Taft determined that the economic benefits of the patent would not last longer than ten years from the date of
If the cumulative effect of applying an accounting change can be determined but the period-specific effects on all periods cannot be determined, the cumulative effect of the change should be applied toa. The end balance of retained earnings of the earliest period presented.b. Net income of the
If it is impracticable to determine the cumulative effect of an accounting change to any of the prior periods, the accounting change should be accounted fora. As a prior period adjustment.b. On a prospective basis.c. As a cumulative effect change on the income statement.d. As an adjustment to
Indirect effects from a change in accounting principle should be reporteda. Retrospectively to the earliest period presented.b. As a cumulative change in accounting principle in the current period.c. In the period in which the accounting change occurs.d. As a prior period adjustment.
Which of the following is considered a direct effect of a change in accounting principle?a. Deferred taxes.b. Profit sharing.c. Royalty payments.d. None of the above.
The effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate should be reporteda. By restating the financial statements of all prior periods presented.b. As a correction of an error.c. As a component of income from continuing operations, in
On January 1, 2011, Poe Construction, Inc. changed to the percentage-of-completion method of income recognition for financial statement reporting but not for income tax reporting.Poe can justify this change in accounting principle.As of December 31, 2010, Poe compiled data showing that income under
In 2011, Brighton Co. changed from the individual item approach to the aggregate approach in applying the lower of FIFO cost or market to inventories. The change should be reported in Brighton’s financial statements as aa. Change in estimate on a prospective basis.b. Cumulative effect of change
On August 31, 2011, Harvey Co. decided to change from the FIFO periodic inventory system to the weightedaverage periodic inventory system. Harvey is on a calendar year basis. The cumulative effect of the change is determineda. As of January 1, 2011.b. As of August 31, 2011.c. During the eight
Which of the following would receive treatment as a cumulative effect on an accounting change on the income statement?LIFO to weighted-average FIFO to weighted-averagea. Yes Yesb. Yes Noc. No Nod. No Yes
On January 1, 2011, Roem Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in a $500,000 increase in the January 1, 2011 inventory, which is the only change that could be calculated from the accounting records.Assume that
In accordance with the Codification, Orca should report the effect of this accounting change as a(n)a. Prior period adjustment.b. Component of income from continuing operations.c. Retrospective application to previous year’s financial statements.d. Component of income after extraordinary items.
In its 2011 financial statements, what amount should Orca report as the gain or loss on the cumulative effect of this accounting change?a. $2,800b. $4,000c. $4,200d. $0
When a company changes from the straight-line method of depreciation for previously recorded assets to the doubledeclining balance method, which of the following should be used?Cumulative effects of change in accounting principle Retrospective applicationa. No Nob. No Yesc. Yes Yesd. Yes No Items 7
The effects of a change in accounting principle should be recorded on a prospective basis when the change is from thea. Cash basis of accounting for vacation pay to the accrual basis.b. Straight-line method of depreciation for previously recorded assets to the double-declining balance method.c.
On January 2, 2011, to better reflect the variable use of its only machine, Holly, Inc. elected to change its method of depreciation from the straight-line method to the units of production method. The original cost of the machine on January 2, 2009, was $50,000, and its estimated life was ten
On January 1, 2011, what amount should Warren report as deferred income tax liability as a result of the change?a. $120,000b. $ 72,000c. $ 36,000d. $0
In its 2011 income statement, what amount should Warren report as the cumulative effect of this change?a. $120,000b. $ 84,000c. $ 36,000d. $0
On January 1, 2009, Bray Company purchased for$240,000 a machine with a useful life of ten years and no salvage value. The machine was depreciated by the doubledeclining balance method and the carrying amount of the machine was $153,600 on December 31, 2010. Bray changed to the straight-line method
Jackson Company uses IFRS to report its financial results. During the current year, the company discovered it had overstated sales in the prior year. How should the company handle this issue?a. Adjust sales for the current period.b. Spread the adjustment over the current and future periods.c.
During 2012, Kelly Corporation discovered that ending inventory reported in its 2011 financial statements was understated by $10,000. How should Kelly account for this understatement?a. Adjust the beginning inventory balance in 2012 by$10,000.b. Restate the financial statements with corrected
Justin Corporation discovered an error in their 2011 financial statements after the statements were issued. This requires thata. The cumulative effect of the error is reported on the 2012 income statement as a cumulative effect of change in accounting principle.b. The cumulative effect of the error
Galaxy Corporation had the following financial statement information:2011 2010 Revenue $135,000 $100,000 Expenses 98,000 65,000 Net income 37,000 35,000 12/31/11 12/31/10 Total assets $157,000 $105,000 Total liabilities 50,000 35,000 Total owners’ equity 107,000 70,000 Galaxy failed to record
Which of the following errors could result in an overstatement of both current assets and stockholders’ equity?a. An understatement of accrued sales expenses.b. Noncurrent note receivable principal is misclassified as a current asset.c. Annual depreciation on manufacturing machinery is
On December 31, 2011, special insurance costs were incurred and unpaid, but were not recorded. If these insurance costs were related to a particular job order in work in process that was not completed during the period, what is the effect of the omission on accrued liabilities and retained earnings
At the end of 2010, Ritzcar Co. failed to accrue sales commissions earned during 2010 but paid in 2011. The error was not repeated in 2011. What was the effect of this error on 2010 ending working capital and on the 2011 ending retained earnings balance?2010 ending working capital 2011 ending
Net income is understated if, in the first year, estimated salvage value is excluded from the depreciation computation when using the Straight-line method Production or use methoda. Yes Nob. Yes Yesc. No Nod. No Yes
On January 2, 2011, Air, Inc. agreed to pay its former president $300,000 under a deferred compensation arrangement.Air should have recorded this expense in 2010 but did not do so. Air’s reported income tax expense would have been $70,000 lower in 2010 had it properly accrued this deferred
Bren Co.’s beginning inventory at January 1, 2011, was understated by $26,000, and its ending inventory was overstated by $52,000. As a result, Bren’s cost of goods sold for 2011 wasa. Understated by $26,000.b. Overstated by $26,000.c. Understated by $78,000.d. Overstated by $78,000.
Lore Co. changed from the cash basis of accounting to the accrual basis of accounting during 2011. The cumulative effect of this change should be reported in Lore’s 2011 financial statements as aa. Prior period adjustment resulting from the correction of an error.b. Prior period adjustment
Conn Co. reported a retained earnings balance of$400,000 at December 31, 2010. In August 2011, Conn determined that insurance premiums of $60,000 for the three-year period beginning January 1, 2010, had been paid and fully expensed in 2010. Conn has a 30% income tax rate. What amount should Conn
Tack, Inc. reported a retained earnings balance of$150,000 at December 31, 2010. In June 2011, Tack discovered that merchandise costing $40,000 had not been included in inventory in its 2010 financial statements. Tack has a 30% tax rate. What amount should Tack report as adjusted beginning retained
During 2011, Paul Company discovered that the ending inventories reported on its financial statements were incorrect by the following amounts:2009 $60,000 understated 2010 75,000 overstated Paul uses the periodic inventory system to ascertain year-end quantities that are converted to dollar amounts
Loeb Corp. frequently borrows from the bank in order to maintain sufficient operating cash. The following loans were at a 12% interest rate, with interest payable maturity.Loeb repaid each loan on its scheduled maturity date.Date of loan Amount Maturity date Term of loan 11/1/10 $ 5,000 10/31/11 1
How should a first-time adopter of IFRS recognize the adjustments required to present its opening IFRS statement of financial position?a. All of the adjustments should be recognized in profit or loss.b. Adjustments that are capital in nature should be recognized in retained earnings and adjustments
On July 1, year 2, a company decided to adopt IFRS.The company’s first IFRS reporting period is as of and for the year ended December 31, year 2.The company will present one year of comparative information. What is the company’s date of transition to IFRS?a. January 1, year 1.b. January 1, year
Under IFRS, which of the following is the first step within the hierarchy of guidance to which management refers, and whose applicability it considers, when selecting accounting policies?a. Consider the most recent pronouncements of other standard-setting bodies to the extent they do not conflict
Upon first-time adoption of IFRS, an entity may elect to use fair value as deemed cost fora. Biological assets related to agricultural activity for which there is no active market.b. Intangible assets for which there is no active market.c. Any individual item of property, plant, and equipment.d.
Which of the following is not one of the criteria for revenue recognition for sales of goods under IFRS?a. The significant risks and rewards of ownership of goods are transferred.b. Payment has been received.c. The entity does not retain either a continuing managerial involvement or control over
If the outcome of rendering services cannot be estimated reliably, IFRS® requires the use of which revenue recognition method?a. Percentage-of-completion method.b. Completed contract method.c. Cost recovery method.d. Installment method.
According to the IASB Framework, the two criteria required for incorporating items into the income statement or statement of financial position are thata. It meets the definition of relevance and faithful representation.b. It meets the definition of an element and can be measured reliably.c. It
According to the IASB Framework, the financial statement element that is defined as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions
According to the IASB Framework for the Preparation and Presentation of Financial Statements, the fundamental qualitative characteristic of relevance includesa. Predictive value and feedback value.b. Verifiability, neutrality, and representational faithfulness.c. Predictive value and confirmatory
Which of the following organizations is responsible for setting International Financial Reporting Standards?a. Financial Accounting Standards Board.b. International Accounting Standards Committee.c. Financial Accounting Committee.d. International Accounting Standards Board.
The milestone method of revenue recognition provides that if a substantive milestone is achieved, what amount of revenue is recognized?a. Revenue is recognized up to the amount of cash collected.b. A provisions rata share of revenue based upon the percentage delivered to date.c. Contingent revenue
The milestone method of accounting may be used to recognize revenue fora. Multiple-deliverable products or services.b. Research and development arrangements.c. Long-term construction contracts.d. Franchise arrangements.
Which of the following is one of the conditions that must exist for a company to recognize revenue on separate units under a multiple-deliverables arrangement?a. The delivered item has value on a stand-alone basis and can be sold separately.b. The delivered item is not returnable.c. Collection has
Esker Inc. specializes in real estate transactions other than retail land sales. On January 1, 2011, Esker consummated a sale of property to Kame Ltd. The amount of profit on the sale is determinable and Esker is not obligated to perform any additional activities to earn the profit. Kame’s
In which of the following examples of real estate transactions would the seller not transfer the usual risks and rewards of ownership?I. The buyer can compel the seller to repurchase the property.II. The seller guarantees the return of the buyer’s investment.III. The seller is required to support
Each of Potter Pie Co.’s twenty-one new franchisees contracted to pay an initial franchise fee of $30,000. By December 31, 2010, each franchisee had paid a nonrefundable$10,000 fee and signed a note to pay $10,000 principal plus the market rate of interest on December 31, 2011, and December 31,
On December 31, 2010, Rice, Inc. authorized Graf to operate as a franchisee for an initial franchise fee of$150,000. Of this amount, $60,000 was received upon signing the agreement and the balance, represented by a note, is due in three annual payments of $30,000 each beginning December 31, 2011.
According to the cost recovery method of accounting, gross profit on an installment sale is recognized in incomea. After cash collections equal to the cost of sales have been received.b. In proportion to the cash collections.c. On the date the final cash collection is received.d. On the date of
Wren Co. sells equipment on installment contracts.Which of the following statements best justifies Wren’s use of the cost recovery method of revenue recognition to account for these installment sales?a. The sales contract provides that title to the equipment only passes to the purchaser when all
The following information pertains to a sale of real estate by Ryan Co. to Sud Co. on December 31, 2010:Carrying amount $2,000,000 Sales price:Cash $ 300,000 Purchase money mortgage 2,700,000 3,000,000 The mortgage is payable in nine annual installments of$300,000 beginning December 31, 2011, plus
It is proper to recognize revenue prior to the sale of merchandise when I. The revenue will be reported as an installment sale.II. The revenue will be reported under the cost recovery method.a. I only.b. II only.c. Both I and II.d. Neither I nor II.
Income recognized using the installment method of accounting generally equals cash collected multiplied by thea. Net operating profit percentage.b. Net operating profit percentage adjusted for expected uncollectible accounts.c. Gross profit percentage.d. Gross profit percentage adjusted for
According to the installment method of accounting, gross profit on an installment sale is recognized in incomea. On the date of sale.b. On the date the final cash collection is received.c. In proportion to the cash collection.d. After cash collections equal to the cost of sales have been received.
For financial statement purposes, the installment method of accounting may be used if thea. Collection period extends over more than twelve months.b. Installments are due in different years.c. Ultimate amount collectible is indeterminate.d. Percentage-of-completion method is inappropriate.
On January 2, 2010, Blake Co. sold a used machine to Cooper, Inc. for $900,000, resulting in a gain of $270,000.On that date, Cooper paid $150,000 cash and signed a$750,000 note bearing interest at 10%. The note was payable in three annual installments of $250,000 beginning January 2, 2011. Blake
On December 31, 2010, Mill Co. sold construction equipment to Drew, Inc. for $1,800,000. The equipment had a carrying amount of $1,200,000. Drew paid $300,000 cash on December 31, 2010, and signed a $1,500,000 note bearing interest at 10%, payable in five annual installments of$300,000. Mill
Dolce Co., which began operations on January 1, 2010, appropriately uses the installment method of accounting to record revenues. The following information is available for the years ended December 31, 2010 and 2011:2010 2011 Sales $1,000,000 $2,000,000 Gross profit realized on sales made in:2010
Luge Co., which began operations on January 2, 2010, appropriately uses the installment sales method of accounting.The following information is available for 2011:Installment accounts receivable, December 31, 2011 $800,000 Deferred gross profit, December 31, 2011(before recognition of realized
Since there is no reasonable basis for estimating the degree of collectibility, Astor Co. uses the installment method of revenue recognition for the following sales:2010 2009 Sales $900,000 $600,000 Collections from:2009 sales 2010 sales 100,000 300,000 200,000--Accounts written off:2009 sales 2010
Gant Co., which began operations on January 1, 2010, appropriately uses the installment method of accounting.The following information pertains to Gant’s operations for the year 2010:Installment sales $500,000 Regular sales 300,000 Cost of installment sales 250,000 Cost of regular sales 150,000
Before 2010, Droit Co. used the cash basis of accounting.As of December 31, 2010, Droit changed to the accrual basis. Droit cannot determine the beginning balance of supplies inventory. What is the effect of Droit’s inability to determine beginning supplies inventory on its 2010 accrualbasis net
White Co. wants to convert its 2010 financial statements from the accrual basis of accounting to the cash basis.Both supplies inventory and office salaries payable increased between January 1, 2010, and December 31, 2010.To obtain 2010 cash basis net income, how should these increases be added to
Compared to the accrual basis of accounting, the cash basis of accounting understates income by the net decrease during the accounting period of Accounts receivable Accrued expensesa. Yes Yesb. Yes Noc. No Nod. No Yes
On February 1, 2011, Tory began a service proprietorship with an initial cash investment of $2,000. The proprietorship provided $5,000 of services in February and received full payment in March. The proprietorship incurred expenses of $3,000 in February, which were paid in April.During March, Tory
Class Corp. maintains its accounting records on the cash basis but restates its financial statements to the accrual method of accounting. Class had $60,000 in cash-basis pretax income for 2010. The following information pertains to Class’s operations for the years ended December 31, 2010 and
The following balances were reported by Mall Co. at December 31, 2010 and 2009:12/31/10 12/31/09 Inventory $260,000 $290,000 Accounts payable 75,000 50,000 Mall paid suppliers $490,000 during the year ended December 31, 2010. What amount should Mall report for cost of goods sold in 2010?a.
The following information pertains to Eagle Co.’s 2010 sales:Cash sales Gross $ 80,000 Returns and allowances 4,000 Credit sales Gross 120,000 Discounts 6,000 On January 1, 2010 customers owed Eagle $40,000. On December 31, 2010, customers owed Eagle $30,000. Eagle uses the direct writeoff method
Marr Corp. reported rental revenue of $2,210,000 in its cash basis federal income tax return for the year ended November 30, 2010. Additional information is as follows:Rents receivable—November 30, 2010 $1,060,000 Rents receivable—November 30, 2009 800,000 Uncollectible rents written off during
Zeta Co. reported sales revenue of $4,600,000 in its income statement for the year ended December 31, 2010.Additional information is as follows:12/31/09 12/31/10 Accounts receivable $1,000,000 $1,300,000 Allowance for uncollectible accounts(60,000) (110,000)Zeta wrote off uncollectible accounts
Ward, a consultant, keeps her accounting records on a cash basis. During 2010, Ward collected $200,000 in fees from clients. At December 31, 2009, Ward had accounts receivable of $40,000. At December 31, 2010, Ward had accounts receivable of $60,000, and unearned fees of$5,000. On an accrual basis,
Jersey, Inc. is a retailer of home appliances and offers a service contract on each appliance sold. Jersey sells appliances on installment contracts, but all service contracts must be paid in full at the time of sale. Collections received for service contracts should be recorded as an increase in
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. No
On January 1, 2010, Sip Co. signed a five-year contract enabling it to use a patented manufacturing process beginning in 2010. A royalty is payable for each product produced, subject to a minimum annual fee. Any royalties in excess of the minimum will be paid annually. On the contract date, Sip
The premium on a three-year insurance policy expiring on December 31, 2012, was paid in total on January 1, 2010.The original payment was initially debited to a prepaid asset account. The appropriate journal entry has been recorded on December 31, 2010. The balance in the prepaid asset account on
Cooke Company acquires patent rights from other enterprises and pays advance royalties in some cases, and in others, royalties are paid within ninety days after year-end.The following data are included in Cooke’s December 31 balance sheets:2009 2010 Prepaid royalties $55,000 $45,000 Royalties
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