1.

A statement of financial position provides a basis for all

of the following except

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a. determining profitability and assessing past
performance for a specific period.
b. computing rates of return.
c. evaluating capital structure.
d. assessing liquidity and financial flexibility.

2. Blue Fox Industries had the following account balances

at year end.
Sales
Cash
Accounts payable
¥
$452,000
23,400
14,300
23, you
¥ 9,4W
Rent expense 3,700
Accounts receivable 9,400
Cost of goods sold 214,000

"¥- t i n
Land 104,000
Contract liability 6,800
Gain on sale 17,500
Equipment 28,800
Inventories 2,200

B
Notes payable 67,000
-
What is the amount of total current assets reported on the
balance sheet?
a. $39,900.
ob. $35,000.
c. $63,800.
d. $59,300.

a
3. A company reported first quarter revenues of

i
$10,000,000, gross profit margin of 25%, and operating
e -
income of 15%. To reduce overhead expenses, a
consultant recommends that the company outsource
some of its operating activities beginning with the

e -
second quarter. This recommendation is anticipated to
reduce operating expenses by 20% without affecting

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sales volume. The company has an income tax rate of
35%. Assuming cost of sales remains at 75%, what is

A0
the impact on the quarterly income statement if the
company implements the recommendation?
a. Operating income will increase by $200,000.

4. A company received an invoice in January for the

electricity used by its warehouse in December, and it
recorded the expense in January. The company uses
the accrual basis of accounting. What is the impact to

Ao
the company’s December financial statements?
a. Current liabilities were understated and retained
earnings were overstated.
b. Cash and cash equivalents were overstated and
retained earnings were understated.
c. Operating expenses were overstated and retained
earnings were overstated.
d. Accrued expenses were overstated and retained
earnings were understated.

12M
5. A company’s net income totaled $12,000,000. The
company had an unusual loss of $250,000, an
unrealized after-tax gain of $25,000 on available-for-
sale debt securities, and a $900,000 distribution of cash
dividends. The company’s comprehensive income was
a. $11,775,000.
b. $11,750,000.
c. $12,025,000.
d. $10,875,000.
FERRER
6. On January 4, Year 1, XYZ Inc. started operations
manufacturing bathroom accessories. By the end of
Year 5, it had operations in nine countries. At the end of

%:b
the year, the company reported the following
information:
Net income $323,000
Foreign currency translation adjustment (loss) 33,000
Owners' contributions 32,000
Foreign currency remeasurement gain 22,000

(55k)
 😐
Deferred net periodic
- pension cost ¥
Unrealized losses on available-for-sale debt
securities
Dividends paid to owners
557000

215,000
125,000

C
Deferred gain on a cash flow hedge 57,000

What is XYZ's Comprehensive Income (Loss) for Year

5?
a. $99,000.
b. $6,000.

÷
c. $77,000.
d. $(246,000).

7. Comprehensive income is best defined as:

a. The change in net assets for the period including
contributions by owners and distributions to owners.
b. Net income excluding income from discontinued

c o - O -
operations.
c. The change in net assets for the period excluding
owner transactions.
d. Total revenues minus total expenses.

•
8. The statement of changes in stockholders’ equity shows
a

A×
a. reconciliation of the beginning and ending balances
in the individual stockholders’ equity accounts.
b. listing of all stockholders’ equity accounts and their
corresponding dollar amounts.
c. reconciliation of the beginning and ending balances

K O in the Retained Earnings account.

d. computation of the number of shares outstanding
used for earnings per share calculations.
9. Which of the following is the best definition of the going
concern concept?

G
a. The entity will not incur losses in the next three
years.
b. The entity will continue in operational existence for
the foreseeable future.
c. The entity will continue to make profits for the

•
foreseeable future.
d. The entity will continue in existence forever.
 10. A statement of cash flows would have cash activities
-
listed in which of the following orders?
× a. Operating, financing, investing.

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b. Investing, financing, operating.
c. Operating, investing, financing.
d. Financing, investing, operating.

11. All of the following should be classified as investing

activities in the statement of cash flows except
a. cash outflows to purchase manufacturing
equipment.

BO b. cash outflows to creditors for interest.

c. cash inflows from the sale of a manufacturing plant.
d. cash inflows from the sale of a manufacturing plant.
cash inflows from the sale of bonds of other
entities.

12. A financial statement includes all of the following

items: net income, depreciation, operating activities, and

AO
financing activities. What financial statement is this?
a. Statement of cash flows.
b. Statement of changes in stockholders’ equity.
c. Income statement.
d. Balance sheet.

• →
13. The sale of available-for-sale debt securities should be
accounted for on the statement of cash flows as a(n)
a. operating activity.
BO b. investing activity.
c. noncash investing and financing activity.
d. financing activity

14. In preparing a statement of cash flows using the

•indirect method of determining cash flows from
operating activities, what adjustment is needed to net
income because of (1) an increase during the period in
prepaid expenses and (2) the periodic amortization of
premium on bonds payable?

Min P E
e. (1) Add (2) Add
f. (1) Deduct (2) Add
g. (1) Add (2) Deduct
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h. (1) Deduct (2) Deduct

15. Selected financial information for Kristina Company for

the year just ended is shown below.

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Net income $2,000,000
Increase in accounts receivable 300,000
Decrease in inventory 100,000
Increase in accounts payable 200,000
Depreciation expense 400,000
Gain on the sale of available-for-sale debt securities 700,000
Cash received from the issue of common stock
Cash paid for dividends
800,000
80,000 ¥
÷
Cash paid for the acquisition of land 1,500,000
Cash received from the sale of available-for-sale debt
securities 2,800,000

Assuming the indirect method is used, Kristina’s cash flow

from operating activities for the year is

i n
a. $3,100,000
b. $1,700,000
c. $2 000,000
d. $9 400,000

16. Selected financial information for Kristina Company for

the year just ended is shown below.
Net income $2,000,000
Increase in accounts receivable 300,000
Decrease in inventory 100,000
Increase in accounts payable 200,000
Depreciation expense 400,000
Gain on the sale of available-for-sale debt securities 700,000
Cash received from the issue of common stock 800,000
Cash paid for dividends 80,000
°
Cash paid for the acquisition of land
= f
Cash received from the sale of available-for-sale debt
securities
1,500,000

2,800,000
I
b. $1,220,000.
c. $1,300,000.
d. $(1,500,000).
e. $2,800,000.
Inves 1.3 M

17. Kelli Company acquired land by assuming a mortgage

for the full acquisition cost. This transaction should be
⑧
disclosed on Kelli’s statement of cash flows as a(n)
Ae. Noncash financing and investing activity
f. Financing activity.
g. Operating activity.
h. Investing activity.

18. Three years ago, James Company purchased stock in

Zebra Inc. at a cost of- $100,000. The stock was sold for
$150,000 during the current fiscal year. The result of this
transaction should be shown in the investing activities

i n fo
section of James’s statement of cash flows as:

CE 'Yan
a. Zero
b. $100,000
c. $150,000
d. $50,000

19. Integrated reporting is defined as

e. Reporting on the social capital an organization uses
in producing and providing products and services.
f. Reporting on the organization’s use of externalities to create value.
g. Reporting on management’s decisions with respect
to corporate citizenship.
h. A process that results in a periodic integrated report
by an organization about value creation over time.

20. Greener Grocers, Inc., publishes an integrated report

in which the company reports on its non-financial
activities. In the section of its report where it discusses
its activities that benefit and improve the lives of the
people in the communities where it is located, such as
donating to food pantries, it is reporting on which type of
capital?
e. Natural capital.
f. Social and relationship capital.
g. Financial capital.
h. Human capital.

21. Keys Co., a manufacturer of keyboards, incorporates

non-financial information into its analysis, reporting, and
decision-making. Keys Co. is practicing
 e. Compliance with international standards.
f. Global citizenship.
g. Shareholder wealth growth.
h. Integrated thinking.
22. On the Statement of Financial Position, accounts
receivable is valued at the
e. Original cost when the asset was acquired.

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f. Amount payable when due.
g. Current market value.
h. Estimated net realizable value.

23. Madison Corporation uses the current expected credit

loss (CECL) model to value its accounts receivable and
is making the annual adjustments at fiscal year end,
November 30. Credit losses are estimated based on all
available relevant information, including past
experience, current conditions, reasonable forecasts,
qualitative factors, and quantitative factors. Total sales
for the year were $1,800,000, all of which were credit
transactions.
Madison has determined that the Norris Corporation
accounts receivable balance of $10,000 is a loss and
will write off this account before year-end adjustments
are made. Listed below are Madison's account balances
at November 30 prior to any adjustments and the
$10,000 write-off.
Sales $1,800,000
Sales 1.8M
Accounts receivable
Sales discounts
750,000
-125,000 → D 125K

-staff
Allowance for credit losses -16,500
Sales returns and
allowances -175,000
Credit loss expense 0

Madison's evaluation indicates that 1.5% of net credit

sales will be credit losses.
As a result of the November 30 adjusting entry to provide
for credit losses, the credit balance in the allowance for

XI
credit losses account will
A ° a. Increase by $22,500.
b. Increase by $25,125. I.5 M %

.
c. Decrease by $22,500.

22,5N
d. Increase by $27,000.

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 24. The operations of the firm may be viewed as a
continual series of transactions or as a series of
separate ventures. The inventory valuation method that

C
views the firm as a series of separate ventures is

Tides
e. First-in, first-out.
f. Weighted average.
0g. Specific identification.
h. Last-in, first-out.

25. On December 1, a company had 1,000 units in

inventory valued at $787,500. On December 12, the
company purchased 2,000 units for $1,562,400. Sales
of 2,400 units were made on December 23, and on
December 30, the company purchased another 2,000
units for $1,537,200. If the company uses a periodic
system and the weighted-average inventory valuation
method, the company’s December 31 balance sheet
would report inventory of
a. $2,025,660.
Are cost
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b. $2,014,740.
c. $2,007,180.
d. $2,021,292.

26. All sales and purchases for the year at Ross

Corporation are credit transactions. Ross shipped goods
via FOB shipping point. In error, the goods were not
recorded as a sale and were included in ending
inventory. Which one of the following statements is

A
correct?
0 a. Accounts receivable was understated, inventory
was overstated,
-
=
sales were understated, and cost
of goods sold was understated.
b. Accounts receivable was not affected, inventory
was overstated, sales were understated, and cost
of goods sold was understated.
c. Accounts receivable was understated, inventory
was overstated, sales were understated, and cost
of goods sold was overstated.
d. Accounts receivable was understated, inventory
was not affected, sales were understated, and cost
of goods sold was understated.
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 27. According to the FASB conceptual framework, which
of the following attributes would not be used to measure
inventory?

p a. Present value of future cash flows

b. Historical cost
c. Replacement cost
d. Net realizable value

28. The following inventory valuation errors have been

discovered for Knox Corporation.
• The year 1 year-end inventory was overstated by
$23,000.
• The year 2 year-end inventory was understated by
$61,000.
• The year 3 year-end inventory was understated by
$17,000.
The reported income before taxes for Knox was
Year 1 - $138,000
Year 2 - $254,000
Year 3 - $168,000
Reported income before taxes for year 1, year 2, and
year 3, respectively, should have been

a. $115,000, $338,000, and $212,000

b. $161,000, $338,000, and $90,000
c. $115,000, $338,000, and $124,000

B O
-O-
29. A decline in the fair value below amortized cost of an
available-for-sale investment in a debt security should
a. not be realized until the security is sold.
b. be evaluated for impairment and for determination
of whether the unrealized loss is a credit loss,
which is recognized in net income, or whether it is
caused by other factors, which is recognized in
equity.

X c. be treated as an unrealized loss and included in the

equity section of the balance sheet as a separate

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item.
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 d. be accumulated in a valuation allowance resulting
from the passage of time.

30. Calvin Ltd. has several investments in marketable

debt securities. The following are the details as of
December 31, year 13 after the year-end close.
Market Value Market Value Market Value

PIL
Initial

¥
Classification Cost Dec 31, Year 11 Dec 31, Year 12 Dec 31, Year 13
Trading $225,000 $238,000 $245,000 $249,000
Held-to-maturity 146,000 149,000 155,000 156,000
Available-for-sale 312,000
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335,000
I N
350,000 356,000

6 k
What was the impact of the fair value changes on the
balance of accumulated other comprehensive income
0
•
for the years ended December 31, Year 12 and
December 31, Year 13, respectively?

A
a. $15,000 increase and $6,000 increase.
b. $4,000 increase and $7,000 increase.
c. $7,000 increase and $4,000 increase.
d. $6,000 increase and $1,000 increase.

31. A company should apply the equity method of

accounting for an investment whenever it can exercise
significant influence over the investee. Usually, the
minimum level of ownership at which an investor can
exercise significant influence is
a. 25% ownership.
b. 50% ownership.
c. 10% ownership.
d. 20% ownership.

32. On January 1, Boggs, Inc. paid $700,000 for 100,000

shares of Mattly Corporation representing 30% of
Mattly's outstanding common stock. The following
computation was made by Boggs.

Purchase price: $700,000

30% equity in fair value of Mattly's net assets: $500,000
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Excess cost over fair value: $200,000

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The excess cost over fair value was attributed to
e. goodwill. Mattly reported net income for the year ended
December 31 of $300,000. Mattly Corporation had paid
@
cash dividends of $100,000 on July 1.
I N XZA.io
If Boggs, Inc. exercised significant influence over Mattly
Corporation and properly accounted for the long-term
investment under the equity method, the amount of net
• investment revenue Boggs should report from its
investment in Mattly would be:
a. $80,000
ob. $90,000 o r ×
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c. $60,000
d. $30,000
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=
90,
33. When the equity method is used to account for an
investment
- in an associate, the recording of the receipt
of a cash distribution from the investee will result in

Co
I
a. An increase in a liability account.
b. The recognition of investment income.
c. A reduction in the investment balance.
d. An increase in a special equity account.
ni

34. When preparing consolidated financial statements, the

entity being accounted for is the
a. Parent.
b. Legal entity.

:
c. Economic entity.
d. Noncontrolling interest.

35. In the process of preparing consolidated financial

statements, which one of the following items
does not need to be eliminated?
a. Profit on inventory sold to a nonaffiliate.
b. Dividends receivable from a subsidiary.
c. Profit on sale of a fixed asset to a subsidiary.

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d. Profit in beginning inventory acquired from a
parent.
 36. In a business combination, the identifiable assets of
the acquired company and the liabilities assumed are to
be recorded on the books of the acquiring company at

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a. Fair values
b. Book values -Inirefer
c. Replacement cost
d. Original cost minus accumulated depreciation

+
I _ -
37. Which of the following is not a correct statement
regarding the historical cost of fixed assets?
a. The purchase price, freight costs, and installation
costs of a productive asset should be included in
the asset's cost.

T
b. The costs of improvements to equipment incurred

-
after its acquisition should be added to the asset's
cost if they provide future service potential.
c. Special assessments imposed by a local

←
government for sewage and drainage systems are
recorded by the owner of the land in the land
account.
d. Proceeds obtained in the process of readying land
for its intended purpose, such as from the sale of
cleared timber, should be recognized immediately
in income.

38. The value of property, plant, and equipment that is

included in total assets on the statement of financial
position is
a. Acquisition cost.
b. Appraisal or market value.
Oc. Cost minus accumulated depreciation.
d. Replacement cost.

39. The factors primarily relied upon to determine the

economic life of an asset are

B T
a. Tax regulations and asset usage.
b. Passage of time, asset usage, and obsolescence.
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 c. Tax regulations and SEC (Security Exchange
Commission) guidelines.
d. SEC (Security Exchange Commission) guidelines
and asset usage.

40. A newly acquired plant asset is to be depreciated over

its useful life. The best rationale for this process is the

DE
-
a. Revenue recognition principle.
b. Materiality requirement.
c. Monetary unit assumption.
d. Matching principle.
41. Nella Corporation computes depreciation to the
nearest whole month. A new piece of equipment was
placed in operation on July 1, 20X1. It was expected to
produce 400,000 units of product during its estimated

"÷--
useful life of eight years. Total cost was $300,000;
salvage value was estimated to be $30,000. Nella
employs a calendar year for financial reporting
purposes. Actual production for the period of July 1
through December 31, 20X1 was 34,000 units.
If Nella had used the units-of-production method of
depreciation, the amount of depreciation computed for

depreiabkamtxofTEO-
this equipment for book purposes in 20X1 would have
8.51 been
a. $12,750

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b. $25,500

C0270.MX c. $22,950
d. $11,475
= 22,9ft

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42. Blake Ltd. has determined that an impairment exists
on one of its machines, but the company expects to
continue using the asset for another three full years as
no active market exists for the machine. Selected
information on the impaired asset (on the date that
impairment was determined to exist) is provided below.

Cu> R AT
Original cost of machine £22,000
Book (carrying) value of the machine 20,000
Value in use (present value of future cash

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flows)
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15,000

toktok
Net selling price (fair value if sold less costs to
sell) 12,000

①
According to IFRS, what is the amount of the
😉 🙂

÷
impairment loss to be recorded by Blake?
a. £3,000.
b. £8,000.
c. £5,000.
d. £7,000.

43. All of the following are specifically identifiable

intangible assets except
a. Copyrights.
b. Patents and trademarks.
c. Goodwill.
d. Leaseholds.

44. Pie Baker, Ltd. purchased a secret fruit pie recipe for

Gk-
$75,000. An additional_$10,000 was spent in securing
the secret recipe and safeguarding its contents. Pie
Baker expects to keep the recipe a secret indefinitely.
Because of taste changes, the industry has found that
recipes have been used for an average of 8 years.
Based on this information, Pie Baker should
a. Capitalize the $85,000 cost and amortize it over 8•
A
years.
b. Capitalize the $85,000 cost and then amortize it
e
over 40 years.
c. Capitalize the $85,000 cost and then amortize it
over the period the recipe is to remain a secret.
d. Expense the $85,000 cost because the secret
formula cost should not be capitalized.

45. A company has $100 million of debt that is due in

March Year 3. In December Year 2, the company
entered into a non-cancelable agreement with its lender
to refinance the debt with the same interest rate, and
the full principal is due in December Year 5. How should
the debt be classified on the December Year 2 balance
sheet of the company?

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a. Classified as a current liability.
b. Classified as a contingent liability.
c. Considered as an off-balance sheet liability.
d. Classified as a long-term liability.
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46. Suppose that a company pays one of its liabilities
twice during the year, in error. What are the effects of
this mistake?
a. Assets, liabilities, and owners' equity will be
understated.
M
b. Assets and liabilities will be understated.
c. Assets, net income, and owners' equity will be
unaffected.
(Zor)
(a)
-

d. Assets and net income and owners' equity will be

understated, and liabilities are overstated.

47. A manufacturer produced 80,000 units and sold them

- _
for $1,200 each. The company estimates that 4% of the
units will have a defect which will cost an estimated $95
each to repair. During this year, the company honored
•
$159,000 in actual assurance-type warranty costs.
Using the assurance warranty approach, what would be
the balance of the warranty liability account at the end of
its first year of operations?80.441=3,2495
% 304.000
a. $304,000.
b. $159,000. =
c. $145,000.
d. $463,000. (15am)
H E I
48. Paxton Company started offering a 3-year assurance-
type warranty on its products sold after June 1, 20X0.
Paxton's actual sales for the year ended May 31, 20X1
were -$2,695,000. The total cost of the warranty is
expected to be 3% of sales. The actual 20X1 warranty
expenditures were $31,500 in labor and $9,100 in parts.
The amount of warranty expense that should appear on
Paxton's income statement for the year ended May 31,

31
20X1 is:

A 2695i m
a. $80,850
b. $40,250

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c. $40,600
d. $31,500 =
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49. A tax rate other than the current tax rate may be used
to calculate the deferred income tax amount on the
statement of financial position if a(n)
a. net operating loss carryback exists.
b. future tax rate change is considered more likely
than not to occur.
c. future tax rate has been enacted into law.
d. election has been made to apply past tax rates.

50. Which of the following leases would be classified as a

finance lease by the lessee?
Lease A Lease B Lease C Lease D

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The lease grants the lessee an option to
purchase the underlying asset that the lessee Yes No No No
is reasonably certain to exercise
The lease term is for the major part of the
No No Yes No
remaining economic life of the underlying asset

e
The present value of the sum of the lease
payments and any residual value guaranteed
No No Yes Yes
by the lessee amounts to at least substantially
all of the fair value of the underlying asset

B a. Lease A only.
ob. Leases A, C, and D.
c. Lease B only
d. Leases C and D only

51. Which of the following is not a criterion for classifying

and accounting for a lease agreement as a finance
lease?

o:
a. The lease grants the lessee an option to purchase
the underlying asset and the lessee is reasonably
certain to exercise the option.
b. The lease transfers ownership of the underlying
asset to the lessee by the end of the lease term.
c. The underlying asset is expected to have an
alternative use to the lessor at the end of the lease
term.
d. The present value of the sum of the lease
payments and any residual value guaranteed by the

at
lessee equals or is greater than substantially all of

with
the fair value of the underlying asset.

now 52. Which of the following statements is not true of a long-

%
 term operating lease?

¥
a. The lease arrangement represents a form of
financing for the lessee.
b. The lessee records amortization of the right-of-use
asset.
c. The lessee recognizes a right-of-use asset.

n
d. The lease represents off-balance sheet financing
for the lessee.
-

53. Hessler received cash in the amount of $180,000 on

March 11 for 10,000 shares of common stock sold.
Hessler's common stock has $5 per share par value.
The amount recorded as a credit to common stock for
this transaction would have been
°
A
a. $50,000
b. $130,000
c. $180,000 10.MX5

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d. $80,000

①
& 54. Which one of the following transactions would affect
retained earnings but not additional paid-in capital?

⑤ A × -
a. Decrease in the value of an available-for-sale
investment.

Ex
b. Declaration of a small stock dividend.
c. Impairment of a long-term asset.
d. Purchase of treasury stock using the cost method. ⑨
X
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55. Excerpts from the statement of financial position for
Landau Corporation as of September 30 of the current SDP ×
year are presented as follows.
Cash $950,000
Accounts receivable y

(net) 1,675,000
Inventories 2,806,000
Total current assets $5,431,000
Accounts payable $1,004,000
Accrued liabilities 785,000
Total current liabilities $1,789,000

The board of directors of Landau Corporation met on

October 4 of the current year and declared the regular
quarterly cash dividend amounting to $750,000 ($0.60
 per share). The dividend is payable on October 25 of
the current year to all shareholders of record as of
October 12 of the current year.
REO R Assume that the only transactions to affect Landau
Corporation during October of the current year are the
SDP
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dividend transactions and that the closing entries have
been made.
Landau Corporation's total equity was RE
t o
a. Decreased by the dividend declaration and

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increased by the dividend payment.
b. Decreased by the dividend declaration and
unchanged= by the dividend payment.
c. Unchanged by the dividend declaration and
Cs decreased by the dividend payment.
d. Unchanged by either the dividend declaration or

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the dividend payment.

56. On May 28, a company announced that its directors

had met on May 26 and declared a dividend of 25 cents
per share, payable to shareholders of record on June
20, with payment to be made on July 5. The date on
which the declared dividend becomes a liability of the
company is
a. June 20.
b. May 28.
c. May 26.
d. July 5.

57. Which one of the following is true regarding small

stock dividends? -
a. The amount of equity capital available for future
dividends is increased.

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b. Each common shareholder's percentage of
ownership in the corporation increases.
c. An amount equal to the current fair value of shares
issued is transferred from retained earnings to
contributed capital.
d. Retained earnings equal to the par value of shares
issued is converted to contributed capital.

58. The equity section of Smith Corporation's statement of

financial position is presented below.
Preferred stock, $100 par
Common stock, $5 par
Paid-in capital in excess
$12,000,000
10,000,000
i i i .
of par 18,000,000
Retained earnings 9,000,000
Net worth $49,000,000

The common shareholders of Smith Corporation have

preemptive rights. If Smith Corporation issues 400,000
additional shares of common stock at $6 per share, a
current holder of 20,000 shares of Smith Corporation's
common stock must be given the option to buy
4oo.my
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a. 3,774 additional shares.
b. 1,000 additional shares.
c. 4,000 additional shares.
d. 3,333 additional shares.
= 4, R
59. Reese Corporation declared a property dividend on
-
January 31 of 1,000 shares of its investment in Alpha
Corporation stock, payable February 15. The stock had
a carrying value (cost) of $75 per share and a market
value of $100 per share on the date of declaration. The
amount charged to retained earnings as a result of this

Bo
dividend declaration would be:
a. $25,000 R Epp TV
b. $100,000
c. $175,000
d. $75,000 × i n
= M'
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60. Preferred and common stock differ in that:
a. Preferred stock dividends are deductible as an
expense for tax purposes, while common stock
dividends are not.
b. Common stock dividends are a fixed amount, while
preferred stock dividends are not.
c. Preferred stock has a higher priority than common
stock with regard to earnings and assets in the
event of bankruptcy.
d. Failure to pay dividends on common stock will not
force the firm into bankruptcy, while failure to pay
dividends on preferred stock will force the firm into
bankruptcy.
61. Which of the following is usually not a feature of
cumulative preferred stock?
a. Cumulative preferred stock has priority over
common stock with regard to assets.
O
µ b. Cumulative preferred stock has voting rights.
c. Cumulative preferred stock has priority over
common stock with regard to earnings.
d. Cumulative preferred stock has the right to receive

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dividends in arrears before common stock
dividends can be paid.

62. The maximum number of shares that a corporation

t.am/unial
may issue is the definition of the number of its

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a. outstanding shares.
b. issued shares.
c. unissued shares.
d. authorized shares.
W, n
63. Treasury stock is
a. shareholder stock certificates held in the Treasury

BO
Department.
b. reacquired stock that is being held for reissue.
c. an asset of the company.
d. retired stock.

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64. Brand Corporation has 3,000,000 shares of $10 par
value stock authorized, of which 2,000,000 shares are
issued and outstanding. The Board of Directors of Brand

cafe
plans to declare a 2-for-1 stock split on November 30 to
be issued on December 30. The stock is currently
selling for $30 per share. Will the company be required
to amend its articles of incorporation before declaring
the stock split?
a. No, because the number of authorized shares will
automatically be doubled by the declaration of the
2-for-1 stock split.
b. No, because the number of new shares to be issue
issued in the stock split will not exceed the number
of authorized but unissued shares.
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c. Yes, because the par value of each share will be

reduced by half by the stock split.
O d. Yes, because- a 2-for-1 stock split will result in more
shares outstanding than are currently authorized.

65. Fox Company has 4,000,000 shares of common stock

authorized, of which 900,000 shares are held by
shareholders and 100,000 are held as treasury shares.
On November 1, the Board of Directors declared a cash
°
dividend of $0.10 per share to be paid on January 2. At

9am •
the same time, the Board declared a 5% stock dividend
to be issued on December 31. On the date of the
declaration, the stock was selling for $10 a share, and
no fractional shares were to be issued. The total amount
of these declarations to be shown as current liabilities

Ch ka
on Fox's statement of financial position as of December
31 is
a. $90,000. b

b. $540,000.
c. $100,000.
d. $600,000. state D i v → RE

66. On October 1, Year 1, Company A sold 100,000

gallons of Product X to company B at $3 per gallon. Fifty
thousand gallons were delivered to Company B on
December 21, Year 1, and the remaining quantity was
delivered to Company B on January 8, Year 2. Payment
terms are 50% due on October 1, Year 1, 25% due on
first delivery, and 25% on second delivery. What amount
should Company A recognize as revenue related to this
transaction on December 31, Year 1?
a. $150,000.

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b. $300,000.
c. $225,000.
d. $75,000.

67. An airline should recognize revenue from an airline

ticket in the period in which

¥ a. Passenger reservations are booked.

b. Passenger reservations are confirmed.
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c. The related flight takes place.
d. The ticket is issued.

68. A conditional contract asset is

a. revenue recognized when the right of return exists.
b. cash consideration received by the seller before
any performance obligations in the contract have
been satisfied.

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c. a receivable that management believes may be a
credit loss.
d. a right to receive consideration because the
company has partially satisfied the performance
obligations in the contract but it must satisfy
another performance obligation or obligations
before it can invoice the customer.

69. When the right of return exists, the contract

consideration is
a. reported as a contract liability.

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b. variable consideration and the contract price
excludes the consideration for products expected to
be returned or amounts expected to be refunded.
c. the amount the seller expects to be entitled to
receive.
d. provisional and revenue cannot be recognized until
the return privilege period has expired.

70. DEF is the consignee for 1,000 units of product X for

ABC Company. ABC should recognize the revenue from
these 1,000 units when

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a. The agreement between DEF and ABC is signed.
b. ABC ships the goods to DEF.
c. DEF receives the goods from ABC.
d. DEF sells the goods and informs ABC of the sale.

71. AAA Construction Company was hired by the

California state government on January 1, Year One to
build a section of a new highway. The contract price was
$100 million and AAA estimated that the work would
cost $92 million. During Year One, $18 million was spent
on the work and the company's engineers believed that
 work costing $72 million remained to complete the work
and satisfy the performance obligation. During Year
Two, another $39 million was spent and $38 million of
work was estimated to remain. The contract contained a
clause indicating that the state owned the work-in-
process as the highway was being constructed.
Using the cost-to-cost input method to calculate
progress toward satisfaction of the performance
obligation, what amount of profit or loss should AAA
recognize on the contract in Year Two?
a. $1,000,000 profit.
b. $2,000,000 profit.
c. $4,300,000 profit.
d. $3,360,000 profit.

72. Stander Construction Company signed a contract with

the state of Ohio to build a short stretch of highway for
$42 million. During 20X1, $8 million was spent and
company officials anticipated that another $24 million
would be needed to complete the work. During 20X2,
another $13 million was spent and current information
indicated that another $14 million would be required to
finish the project. The contract contained a clause
indicating that the state of Ohio owns the work-in-
process as the highway is being constructed.
Using the cost-to-cost input method to calculate
Stander's progress toward satisfaction of the
performance obligation, what amount of profit should the
company recognize in 20X2?
a. $4,200,000.
b. Zero.
c. $2,600,000.
d. $1,700,000.

73. According to ASC 606, under what circumstances

should a long-term contract be accounted for over time?
a. The production process can be readily divided into
definite stages.
b. The company's performance creates an asset with

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an alternative use to the company.
c. Cash has been received from the customer.
d. The company's performance creates or enhances
an asset that the customer controls as the work is
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74. In accounting for long-term construction contracts, the

difference between recognizing the revenue at a point in
time versus recognizing the revenue over time is that
a. It is only when the revenue is recognized over time
that progress billings are accumulated in a contract
liability account, billings on construction in process.
b. It is only when revenue is recognized at a point in
time that accumulated construction costs are
included in a construction in process contract asset
account.
c. It is only when revenue is recognized over time that
gross profit earned to date is accumulated in the
construction in process contract asset account.
d. When revenue is recognized over time, all
revenues and gross profit on the contract are
recognized only when the performance obligations
in the contract are completely satisfied.
-end-
2