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1. Under which of the following conditions would material flood damage be considered an extraordinary item for financial reporting purposes?

1. Under which of the following conditions would material flood damage be considered an extraordinary item for financial reporting purposes? A
a. Only if floods in the geographical area are unusual in nature and occur infrequently.
b. Only if the flood damage is material in amount and could have been reduced by prudent management.
c. Under any circumstances as an extraordinary item.
d. Flood damage should never be classified as an extraordinary item.

2. Which of the following items would be reported at its gross amount on the face of the income statement?
a. Extraordinary loss
b. Prior period adjustment
c. Cumulative effect of a change in an accounting principle
d. Unusual gain

3. A correction of an error in prior periods’ income will be reported
In the income statement Net of tax
a. Yes Yes
b. No No
c. Yes No
d. No Yes

4. For Mortenson Company, the following information is available:
Cost of goods sold $60,000
Dividend revenue 2,500
Income tax expense 6.000
Operating expenses 23,000
Sales 100,000
In Mortenson’s multiple-step income statement, gross profit
a. Should not be reported
b. Should be reported at $13,500
c. Should be reported at $40,000
d. Should be reported at $42,500

5. If plant assets of a manufacturing company are sold at a gain of $820,000 less related taxes of $250,000, and the gain is not considered unusual of infrequent, the income statement for the period would disclose these effects as
a. A gain of $820,000 and an increase in income tax expense of $250,000.
b. Operating income net of applicable taxes, $570,000.
c. A prior period adjustment net of applicable taxes, $570,000.
d. An extraordinary item net of applicable taxes, $570,000.



6. Manning Company has the following items: write-down of inventories, $120,000; loss on disposal of Sports Division, $185,000; and loss due to strike, $113,000. Ignoring income taxes, what total amount should Manning Company report as extraordinary losses?
a. $-0-
b. $185,000
c. $233,000
d. $298,000
7. Dole Company, with an applicable income tax rate of 30%, reported net income of $210,000. Included in income for the period was an extraordinary loss from flood damage of $30,000 before deducting the related tax effect. The company’s income before income taxes and extraordinary items was
a. $240,000
b. $300,000
c. $330,000
d. $231,000
8. A review of the December 31, 2010, financial statements of Somer Corporation revealed that under the caption “extraordinary losses.” Somer reported a total of $515,000. Further analysis revealed that the $515,000 in losses was comprised of the following items:
(1) Somer recorded a loss of $150,000 incurred in the abandonment of equipment formerly used in the business.
(2) In an unusual and infrequent occurrence, a loss of $250,000 was sustained as a result of hurricane damage to a warehouse.
(3) During 2010, several factories were shut down during a major strike by employees, resulting in a loss of $85,000.
(4) Uncollectible accounts receivable of $30,000 were written off as uncollectible.
Ignoring income taxes, what amount of loss should Somer report as extraordinary on its 2010 income statement?
a. $150,000
b. $250,000
c. $400,000
d. $515,000

9. Arreaga Corp. has a tax rate of 40 percent and income before non-operating items of $232,000. It also the following items (gross amounts).
Unusual loss $37,000
Extraordinary loss 101,000
Gain on disposal of equipment 8,000
Change in accounting principle
Increasing prior year’s income 53,000
What is the amount of income tax expense Arreaga would report on its income statement?
a. $92,800
b. $81,200
c. $99,200
d. $62,000
10. Lantos Company had a 40 percent tax rate. Given the following pre-tax amounts, what would be the income tax expense reported on the face of the income statement?
Sales $ 100,000
Cost of goods sold 60,000
Salary expense 8,000
Depreciation expense 11,000
Dividend revenue 9,000
Utilities expense 1,000
Extraordinary loss 10,000
Interest expense 2,000
a. $10,800
b. $ 6,800
c. $ 7,200
d. $ 3,200

11. Which of the following should not be considered as a current asset in the balance sheet?
a. Installment notes receivable due over 18 months in accordance with normal trade practice.
b. Prepaid taxes which cover assessments of the following operating cycle of the business.
c. Equity or debt securities purchased with cash available for current operations.
d. The cash surrender value of a life insurance policy carried by a corporation, the beneficiary, on its president.

12. Equity or debt securities held to finance future construction of additional plants should be classified on a balance sheet as
a. Current assets.
b. Property, plant, and equipment.
c. Intangible assets.
d. Long-term investments.

13. Which of the following is not an acceptable major asset classification?
a. Current assets
b. Long-term investments
c. Property, plant, and equipment
d. Deferred charges

14. Fulton Company owns the following investments:
Trading securities (fair value) $60,000
Available-for-sale securities (fair value) 35,000
Held-to-maturity securities (amortized cost) 47,000
Fulton will report investments in its current assets section of
a. $0.
b. Exactly $60,000
c. $60,000 or an amount greater than $60,000, depending on the circumstances.
d. Exactly $95,000
15. For Grimmett Company, the following information is available:
Capitalized leases $200,000
Trademarks 65,000
Long-term receivables 75,000
a. $65,000
b. $75,000
c. $265,000
d. $275,000
16. Houghton Company has the following items: common stock, $720,000; treasury stock, $85,000; deferred taxes, $100,000, and retained earnings, $313,000. What total amount should Houghton Company report as stockholders’ equity?
a. $848,000
b. $948,000
c. $1,048,000
d. $1,118,000

17. Kohler Company owns the following investments:
Trading securities (fair value) $60,000
Available-for-sale securities (fair value) 35,000
Held-to-maturity securities (amortized cost) 47,000
Kohler will report securities in its long-term investments section of
a. Exactly $95,000
b. Exactly $107,000
c. Exactly $142,000
d. $82,000 or an amount less than $82,000, depending on the circumstances.

18. Olmsted Company has the following items: common stock, $720,000; treasury stock, $85,000; deferred taxes, $100,000, and retained earnings, $363,000. What total amount should Olmsted Company report as stockholders’ equity?
a. $898,000
b. $998,000
c. $1,098,000
d. $1,198,000

19. Keisler Corporation reports:
Cash provided by operating activities $200,000
Cash used by investing activities 110,000
Cash provided by financing activities 140,000
Beginning cash balance 70,000
What is Keisler’s ending cash balance?
a. $230,000
b. $300,000
c. $450,000
d. $520,000

20. During 2010 the DLD Company had a net income of $50,000. In addition, selected accounts showed the following changes:
Accounts Receivable $3,000 increase
Accounts Payable 1,000 increase
Building 4,000 decrease
Depreciation Expense 1,500 increase
Bonds Payable 8,000 increase
What was the amount of cash provided by operating activities?
a. $49,500
b. $50,000
c. $51,500
d. $59,500

21. Mordica Company will receive $100,000 in 7 years. Of the appropriate interest rate is 10%, the present value of the $100,000 receipt is
a. $51,000
b. $51,316
c. $151,000
d. $194,872

22. Dunston Company will receive $100,000 in a future year. If the future receipt is discounted at an interest rate of 10%, its present value is $51,316. In how many years is the $100,000 received?
a. 5 years
b. 6 years
c. 7 years
d. 8 years

23. Milner Company will invest $200,000 today. The investment will earn 6% for 5 years, with no funds withdrawn. In 5 years, the amount in the investment fund is
a. $200,000
b. $260,000
c. $267,646
d. $268,058

24. Barber Company will receive $500,000 in 7 years. If the appropriate interest rate is 10% the present value of the $500,000 receipt is
a. $255,000
b. $256,580
c. $755,000
d. $974,360



25. John Jones won a lottery that will pay him $1,000,000 after twenty years. Assuming an appropriate interest rate is 5% compounded annually, what is the present value of this amount?
a. $1,000,000
b. $2,653,300
c. $12,462,210
d. $376,890

26. Angie invested $50,000 she received from her grandmother today in a fund that is expected to earn 10% per annum. To what amount should the investment grow in five years if interest is compounded semi-annually?
a. $77,567
b. $80,525
c. $81,445
d. $88,578

27. Bella requires $80,000 in four years to purchase a new home. What amount must be invested today in an investment that earns 6% interest, compounded annually?
a. $63,367
b. $65,816
c. $96,891
d. $100,998

28. What interest rate (the nearest percent) must Charile earn on a $75,000 investment today so that he will have $190,000 after 12 years?
a. 6%
b. 7%
c. 8%
d. 9%

29. Ethan has $20,000 to invest today at an annual interest rate of 4%. Approximately how many years will it take before the investment grows to $40,500?
a. 18 years
b. 20 years
c. 16 years
d. 11 years

30. Jane wants to set aside funds to take an around the world cruise in four years. Assuming that Jane has $5,000 to invest today in an account expected to earn 6% per annum, how much will she have to spend on her vacation?
a. $3,960
b. $6,312
c. $21,873
d. $6,691

31. Kennison Company has cash in bank of $10,000, restricted cash in a separate account of $3,000, and a bank overdraft in an account at another bank of $1,000. Kennison should report cash of
a. $9,000
b. $10,000
c. $12,000
d. $13,000

32. Kaniper Company has the following items at year-end:
Cash in bank $20,000
Petty cash 300
Short-term paper with maturity of 2 months 5,500
Postdated checks 1,400
Keniper should report cash and cash equivalents of
a. $20,000
b. $20,300
c. $25,800
d. $27,200

33. Wellington Corp. has outstanding accounts receivable totaling $6.5 million as of December 31 and sales on credit during the year of $24 million. There is also a credit balance of $12,000 in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the amount of bad debt expense recognized for the year?
a. $ 532,000
b. $ 520,000
c. $1,920,000
d. $ 508,000
34. Wellington Corp. has outstanding accounts receivable totaling $3 million as of December 31 and sales on credit during the year of $15 million. There is also a debit balance of $12,000 in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense?
a. $1,200,000
b. $ 228,000
c. $ 240,000
d. $ 252,000

35. Before year-end adjusting entries, Dunn Company’s account balances at December 31, 2010, for accounts receivable and the related allowance for uncollectible accounts were $600,000 and $45,000, respectively. An aging of accounts receivable indicated that $62,500 of the December 31 receivables are expected to be uncollectible. The net realizable value of accounts receivable after adjustment is
a. $582,500
b. $537,500
c. $492,500
d. $555,000
Use the following information for questions 36 and 37.
36. A trial balance before adjustments included the following:
Debit Credit
Sales $425,000
Sales returns and allowance $14,000
Accounts receivable 43,000
Allowance for doubtful accounts 760
If the estimate of uncollectibles is made by taking 2% of net sales, the amount of the adjustment is
a. $6,700
b. $8,220
c. $8,500
d. $9,740
37. If the estimate of uncollectibles is made by taking 10% of gross account receivables, the amount of the adjustment is
a. $3,540
b. $4,300
c. $4,224
d. $5,060
38. Assuming the market interest rate is 10% per annum, how much would Green Co. record as a note payable if the terms of the loan with a bank are that if would have to make one $60,000 payment in two years?
a. $60,000
b. $54,422
c. $54,545
d. $49,587
39. Sun Inc assigns $2,000,000 of its accounts receivables as collateral for a $1 million 8% loan with a bank. Sun Inc. also pays a finance fee of 1% on the transaction upfront. What would be recorded as a gain (loss) on the transfer of receivables?
a. Loss of $20,000
b. Loss of $160,000
c. Loss of $180,000
d. $0

40. Moon Inc assigns $1,500,000 of its accounts receivables as collateral for a $1 million loan with a bank. The bank assesses a 3% finance fee and charges interest on the note at 6%. What would be the journal entry to record this transaction?
a. Debit Cash for $970,000, debit Finance Charge for $30,000, and credit Notes payable for $1,000,000
b. Debit Cash for $970,000, debit Finance Charge for $30,000, and credit Account Receivable for $1,000,000
c. Debit Cash for $970,000, debit Finance Charge for $30,000, debit Due from Bank for $500,000, and credit Accounts Receivable for $1,500,000
d. Debit Cash for $910,000, debit Finance Charge for $90,000, and credit Notes Payable for $1,000,000

1. Under which of the following conditions would material flood damage be considered an extraordinary item for financial reporting purposes? a. Only if floods in the geographical area are unusual in nature and occur infrequently. b. Only if the flood damage is material in amount and could have been reduced by prudent management. c. Under any circumstances as an extraordinary item. d. Flood damage should never be classified as an extraordinary item. 2. Which of the following items would be reported at its gross amount on the face of the income statement? a. Extraordinary loss b. Prior period adjustment c. Cumulative effect of a change in an accounting principle d. Unusual gain 3. A correction of an error in prior periods’ income will be reported In the income statement Net of tax a. Yes Yes b. No No c. Yes No d. No Yes 4. For Mortenson Company, the following information is available: Cost of goods sold $60,000 Dividend revenue 2,500 Income tax expense 6.000 Operating expenses 23,000 Sales 100,000 In Mortenson’s multiple-step income statement, gross profit a. Should not be reported b. Should be reported at $13,500 c. Should be reported at $40,000 d. Should be reported at $42,500 5. If plant assets of a manufacturing company are sold at a gain of $820,000 less related taxes of $250,000, and the gain is not considered unusual of infrequent, the income statement for the period would disclose these effects as a. A gain of $820,000 and an increase in income tax expense of $250,000. b. Operating income net of applicable taxes, $570,000. c. A prior period adjustment net of applicable taxes, $570,000. d. An extraordinary item net of applicable taxes, $570,000. 6. Manning Company has the following items: write-down of inventories, $120,000; loss on disposal of Sports Division, $185,000; and loss due to strike, $113,000. Ignoring income taxes, what total amount should Manning Company report as extraordinary losses? a. $-0- b. $185,000 c. $233,000 d. $298,000 7. Dole Company, with an applicable income tax rate of 30%, reported net income of $210,000. Included in income for the period was an extraordinary loss from flood damage of $30,000 before deducting the related tax effect. The company’s income before income taxes and extraordinary items was
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a. $240,000 b. $300,000 c. $330,000 d. $231,000 8. A review of the December 31, 2010, financial statements of Somer Corporation revealed that under the caption “extraordinary losses.” Somer reported a total of $515,000. Further analysis revealed that the $515,000 in losses was comprised of the following items: (1) Somer recorded a loss of $150,000 incurred in the abandonment of equipment formerly used in the business. (2) In an unusual and infrequent occurrence, a loss of $250,000 was sustained as a result of hurricane damage to a warehouse. (3) During 2010, several factories were shut down during a major strike by employees, resulting in a loss of $85,000. (4) Uncollectible accounts receivable of $30,000 were written off as uncollectible. Ignoring income taxes, what amount of loss should Somer report as extraordinary on its 2010 income statement? a. $150,000 b. $250,000 c. $400,000 d. $515,000 9. Arreaga Corp. has a tax rate of 40 percent and income before non-operating items of $232,000. It also the following items (gross amounts). Unusual loss $37,000 Extraordinary loss 101,000 Gain on disposal of equipment 8,000 Change in accounting principle Increasing prior year’s income 53,000 What is the amount of income tax expense Arreaga would report on its income statement? a. $92,800 b. $81,200 c. $99,200 d. $62,000 10. Lantos Company had a 40 percent tax rate. Given the following pre-tax amounts, what would be the income tax expense reported on the face of the income statement? Sales $ 100,000 Cost of goods sold 60,000 Salary expense 8,000 Depreciation expense 11,000 Dividend revenue 9,000 Utilities expense 1,000 Extraordinary loss 10,000 Interest expense 2,000 a. $10,800 b. $ 6,800 c. $ 7,200 d. $ 3,200 11. Which of the following should not be considered as a current asset in the balance sheet? a. Installment notes receivable due over 18 months in accordance with normal trade practice. b. Prepaid taxes which cover assessments of the following operating cycle of the business. c. Equity or debt securities purchased with cash available for current operations. d. The cash surrender value of a life insurance policy carried by a corporation, the beneficiary, on its president.
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