Reference no: EM131773833
1. On January 1 of the current year, Tire Company enters into a five-year lease agreement for production equipment. The lease requires Tire Co to pay $12,500 per year in lease payments. At the end of the five-year lease term, Tire Co can purchase the equipment for $30,000. The fair value of the equipment $75,000. The estimated useful life of the equipment is 10 years. The present value of the lease payments is $50,000. The present value of the purchase option is $20,000. Tire's controller believes the purchase option price is sufficiently below the expected fair value of the equipment at the date the option becomes exercisable to reasonably assure its exercise. Tire Co would normally depreciate equipment of this type using the straight-line method. What amount is the carrying value of the asset related to this lease at December 31, of the current year?
A. $40,000
B. $45,000
C. $56,000
D. $63,000
2. A company leases trucks and properly classifies the leases into capital leases. The leases have a ten-year term and the lease calculations were done three years ago when interest rates were lower. Which of the following is the appropriate accounting treatment, if any, for the application of the fair value option to lease transactions?
A. Leases are not eligible for the fair value option.
B. Recognize the change to fair value accounting with a cumulative adjustment to beginning retained earnings.
C. Recognize the change to fair value accounting with an unrealized loss in the income statement.
D. Recognize the change to fair value accounting with an unrealized loss in accumulated other comprehensive income.
3. An asset group is being evaluated for an impairment loss. The following financial information is available for the asset group:
Carrying Value: $100,000,000
Sum of the undiscounted cash flows 95,000,000
Fair value 80,000,000
A. $0
B. $5,000,000
C. $15,000,000
D. $20,000,000
4. A company has an operating lease for its office space. The lease term is 120 months and requires monthly rent of $15,000. As an incentive for the company to enter into the lease, the lessor granted the first eight months' rent at no cost. What amount of monthly rent/lease expense should be recognized over the life of the lease?
A. $14,000
B. $14,062
C. $15,000
D. $16,000
5. Sean's trial balance has the following selected items:
Cash (includes $10,000 in a bond sinking fund
for long-term bond payables) $50,000
Accounts receivable 20,000
Allowance for doubtful accounts 5,000
Deposits received from customers 3,000
Merchandise inventory 7,000
Unearned rent 1,000
Investment in Trading Securities 2,000
What amount should Sean report as total current assets in its balance sheet?
A. $64,000
B. $67,000
C. $72,000
D. $74,000
6. A note payable was issued in payment for services received. The services had a fair value less than the face amount of the note payable. The note payable has no stated interest rate. How should the note payable ne presented in the balance sheet?
A. At the face amount.
B. At the face amount with a separate deferred asset for the discount calculated at the imputed interest rate.
C. At the face amount with a separate deferred credit for the discount calculated at the imputed interest rate.
D. At the face amount minus a discount calculated at the imputed interest rate.
7. Based on the stock transactions below, what is the weighted average number of shares outstanding as of December 21, Year 1, that should be used in the calculation of basic earnings per share in the financial statements issued on March 1, Year 2?
Date Transactions
January 1, Year 1 Beginning Balance 100,000
April 1, Year 1 Issued 30,000 shares for cash
June 1, Year 1 50% stock dividend
February 15, Year 2 2-for-1 stock split
March 15, Year 2 Issued 40,000 shares for cash
A. 147,500
B. 183,750
C. 295,000
D. 367,500
8. On January 1, 2016, a company's new president was awarded a $200,000 bonus that would be paid out in two $100,000 installments in 2018 (year 3) and 2019 (year 4) of employment, contingent on employment through the year ending December 31, 2017. How much should the company expense for this bonus in 2017 and 2018?
A. $0 for 2017; $100,000 for 2018
B. $100,000 for 2017 and $0 for 2018
C. $100,000 for 2017 and $100,000 for 2018
D. $200,000 for 2017 and $0 for 2018
9. A company, upon initial recognition of an asset retirement obligation, should not take which of the following actions?
A. Allocate asset retirement cost to expense over the useful life of the related asset.
B. Measure the asset retirement cost at fair value.
C. Capitalize the asset retirement cost by increasing the carrying amount of the related asset.
D. Capitalize the asset retirement cost at its undiscounted cash flow value
10. On January 1, 2016, Olson Inc. issued stock options for 200,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 6% in three years. Olson initially estimates that it is probable the goal will be achieved. Ignoring taxes, what is reduction in earnings in 2016?
A. $0
B. $200,000
C. $400,000
D. $1,200,000
11. On December 31, 2015, the Meisenhelder Company had 250,000 shares of common stock issued and outstanding. On March 31, 2016, the company sold 50,000 additional shares for cash. Meisenhelder'snet income for the year ended December 31, 2016 was $700,000. During 2016, Meisenhelder declared and paid $80,000 in cash dividends on its nonconvertible preferred stock. What is the 2016 basic earnings per share (rounded)?
A. $2.16.
B. $3.50.
C. $3.10.
D. $2.80.
12. The following information pertains to Hurce Company's outstanding stock for 2016:
Common Stock, $1 Par
Shares Outstanding , 1/1/2016 10,000
2 for 1 stock split, 4/1/2016 10,000
Shares Issued, 7/1/2016 5,000
Preferred Stock, $100 par, 7% cumulative
Shares outstanding, 1/1/2016 4,000
What is the number of shares Hurce should use to calculate 2016 basic earnings per share?
A. 20,000.
B. 22,500.
C. 25,000.
D. 27,000.
13. Velasco Co. changed from straight-line to DDB depreciation. The journal entry to record the change includes:
A. A credit to accumulated depreciation.
B. A debit to accumulated depreciation.
C. A debit to a depreciable asset.
D. The change does not require a journal entry.
14. During 2016, Hutton Co. decides to use FIFO to account for its inventory transactions. Previously, it had used LIFO.
A. Hutton is not required to make any accounting adjustments.
B. Hutton has made a change in accounting principle requiring retrospective adjustment.
C. Hutton has made a change in accounting principle requiring prospective application.
D. Hutton needs to correct an accounting error.
15. Hepburn Company bought a copyright for $90,000 on January 1, 2012, at which time the copyright had an estimated useful life of 15 years. On January 5, 2015, the company determined that the copyright would expire at the end of 2018. How much should Hepburn record as amortization expense for this copyright for 2015?
A. $14,400.
B. $7,200.
C. $18,000.
D. $12,000.
16. Cooper Inc. took physical inventory at the end of 2015. Purchases that were acquired FOB destination were in transit, so they were not included in the physical count.
A. Cooper needs to correct an accounting error.
B. Cooper has made a change in accounting principle, requiring retrospective adjustment.
C. Cooper is required to adjust a change in accounting estimate prospectively.
D. Cooper is not required to make any accounting adjustments.
17. HeuerCompany's prepaid insurance was $8,000 at December 31, 2015, and $10,000 at December 31, 2016. Heuerreported insurance expense of $15,000 on the 2016 income statement. What amount would be reported in the statement of cash flows as insurance paid using the direct method?
A. $13,000.
B. $17,000.
C. $15,000.
D. $23,000.
18. Which of the following circumstances creates a future taxable amount?
A. Service fees collected in advance from customers: taxable when received, recognized for financial reporting when earned.
B. Accrued compensation costs for future payments.
C. Straight-line depreciation for financial reporting and accelerated depreciation for tax reporting.
D. Investment expenses incurred to obtain tax-exempt income (not tax deductible).
19. During the current year, Stern Company had pretax accounting income of $45 million. Stern's only temporary difference for the year was rent received for the following year in the amount of $15 million. Stern's taxable income for the year would be:
A. $30 million.
B. $60 million.
C. $50 million.
D. $45 million.
20. GottingCompany bought a copyright for $90,000 on January 1, 2012, at which time the copyright had an estimated useful life of 15 years. On January 5, 2015, the company determined that the copyright would expire at the end of 2016. How much should Gotting record retrospectively as the effect of change?
A. $0.
B. $12,000.
C. $8,000.
D. $14,400.