Name: 
 

1st exam review


Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

 1. 
According to the FASB conceptual framework, the process of reporting an item in the financial statements of an entity is
a.
Allocation
b.
Matching
c.
Realization
d.
Recognition
 
 
Information relating to the capital structure of Parke Corporation is as follows:
  
December  31
  
20X3
 
20X4
Outstanding shares of:    
Common stock 
90,000
 
90,000
Preferred stock, convertible into 30,000 shares of common
 
30,000
 
30,000
10% convertible bonds, convertible into 20,000 shares of common 
$1,000,000
 
$1,000,000

During 20X4 Parke paid $45,000 dividends on the preferred stock.   Parke's net income for20X4 was $980,000 and the income tax rate was 40%.
 

 2. 
For the year ended December 31, 20X4, the basic earnings per share is
a.
$10.89
b.
$10.39
c.
$ 8.17
d.
$ 7.79
 

 3. 
For the year ended December 31, 20X4, the diluted earnings per share is
a.
$9.82
b.
$8.29
c.
$7.71
d.
$7.43
 

 4. 
During 20X7, Moore Corp. had the following two classes of stock issued and outstanding for the entire year:

* 100,000 shares of common stock, $1 par.
* 1,000 shares of 4% preferred stock, $100 par, convertible share for share into common stock.

Moore's 20X7 net income ws $900,000, and its income tax rate for the year was 30%.  In the computation of diluted earnings per share for 20X7, the amount to be used in the numerator is

a.
$896,000
b.
$898,800
c.
$900,000
d.
$901,200
 

 5. 
On October 1, 20X5, Mann Company approved a formal plan to sell Mill Division, considered a segment of the business. The sale will occur on March 31, 20X6.  The division had operating income of $500,000 for the year ended December 31, 20X5, but expects to incur an operating loss of $100,000 for the first quarter of 20X6.  Mann also estimates that it will incur a loss of $750,000 on the sale of the division's assets.  Mann's tax rate for 20X5 is 40%.  In its income statement for the year ended December 31, 20X5, how much gain or loss should Mann report on disposal of Mill Division?
a.
$150,000 loss.
b.
$300,000 gain.
c.
$210,000 loss.
d.
$250,000 loss.
 

 6. 
Bolte Corp. had the following infrequent gains during 20X9:

--   $2l0,000 on reacquisition and retirement of bonds

--   $75,000 on repayment at maturity of a long-term note denominated in a foreign currency

--   $240,000 on sale of a plant facility (Bolte continues similar operations at another location.)

In its 20X9 income statement, what amount should Bolte report as total infrequent gains which are not considered extraordinary?
a.
$450,000
b.
$3l5,000
c.
$525,000
d.
$240,000
 

 7. 
Milton Co. began operations on January 1, 1989.  On January 1, 1991, Milton changed its inventory method from LIFO to FIFO for both financial and income tax reporting.  If FIFO had been used in prior years, Milton's inventories would have been higher by $60,000 and $40,000 at December 1, 1991 and 1990, respectively. Milton has a 30% income tax rate.  What amount should Milton report as the cumulative effect of this accounting change in its income statement for the year ended December 31, 1991?
a.
$0
b.
$14,000
c.
$28,000
d.
$42,000
 

 8. 
Martin Company had the following account balances for the year ended December 31, 20X3:

Interest expense
$120,000
Loss on disposal of noncurrent investment
80,000
Writedown of plant and equipment to estimated realizable value
60,000

In its income statement for 20X3, how much should Martin report as total extraordinary items?
a.
$0
b.
$140,000
c.
$180,000
d.
$200,000
 

 9. 
Under  the prior hierarchy of generally accepted accounting principles, APB Opinions had the same authority as AICPA
a.
Statements of Position.
b.
Industry Audit and Accounting Guides.
c.
Issues Papers.
d.
Accounting Research Bulletins.
 

 10. 
One of the elements of a financial statement is comprehensive income.  Comprehensive income excludes changes in equity resulting from which of the following?
a.
Loss from discontinued operations.
b.
Prior period error correction.
c.
 Dividends paid to stockholders.
d.
Unrealized loss on investments in noncurrent marketable equity securities.
 

 11. 
Under Statements of Financial Accounting Concepts, which of the following relates to both relevance and reliability?
a.
Timeliness
b.
Neutrality.
c.
Feedback value.
d.
Consistency.
 

 12. 
According to the FASB conceptual framework, comprehensive income includes which of the following?

Gross          Operating
margin           income                   
a.
No              No
b.
No               Yes
c.
Yes              Yes
d.
Yes              No
 

 13. 
When a segment of a business has been discontinued during the year, the loss on disposal should
a.
Include operating losses of the discontinued segment for the current period .
b.
Include any operating losses of the discontinued segment expected in the following period.
c.
Be an extraordinary item.
d.
Be an operating item.
 

 14. 
Reporting inventory at the lower of cost or market is a departure from the accounting principle of
a.
Historical cost.
b.
Consistency.
c.
Conservatism.
d.
Full disclosure.
 

 15. 
Cory Company acquired some machinery on January 2, 1992. Cory was using straight-line depreciation with an estimated life of fifteen years with no salvage value for this machinery. On January 2, 1997, Cory estimated that the remained life of this machinery was six years with no salvage value. How should this change be accounted for by Cory?
a.
Making a prior period adjustment and changing to an accelerated depreciation method that will compensate for under-depreciation in prior years.
b.
Estimating the effects of the change on each year's net earnings, but maintaining the method of depreciation as originally determined.
c.
Revising future depreciation per year to equal the book value on January 2, 1997, divided by six.
d.
Revising future depreciation per year to equal the original cost divided by six.
 



 
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