MOdule_11_Final_Exam-1.-Holiday Laboratories purchased a high speed industrial centrifuge…

Final Exam
Instructions

Solve the following 25 problems. Write all your
solutions on this sheet. In addition, write your calculations or rationale for
your answer on this sheet. In other words, it’s not enough to give the correct
answer. You must also show why your answer is correct through your calculations
or rationale. The spaces expand as you write. Each problem is worth 4 points.

Problems
1. Holiday
Laboratories purchased a high speed industrial centrifuge at a cost of
$420,000. Shipping costs totaled $15,000. Foundation work to house the
centrifuge cost $8,000. An additional water line had to be run to the equipment
at a cost of $3,000. Labor and testing costs totaled $6,000. Materials used up
in testing cost $3,000.

The capitalized cost is:

A. $455,000.
B. $446,000.
C. $437,000.
D. $435,000.

Calculations:

Correct Answer:

2. Vijay
Inc. purchased a 3-acre tract of land for a building site for $320,000. On the
land was a building with an appraised value of $120,000. The company demolished
the old building at a cost of $12,000, but was able to sell scrap from the
building for $1,500. The cost of title insurance was $900 and attorney fees for
reviewing the contract was $500. Property taxes paid were $3,000, of which $250
covered the period subsequent to the purchase date.

The
capitalized cost of the land is:

A. $336,400.
B. $336,150.
C. $334,650.
D. $201,150.

Calculations:

Correct Answer:

3. Simpson
and Homer Corporation acquired an office building on three acres of land for a
lump-sum price of $2,400,000. The building was completely furnished. According
to independent appraisals, the fair values were $1,300,000, $780,000, and
$520,000 for the building, land, and furniture and fixtures, respectively.

The initial values of the building, land, and
furniture and fixtures would be:

A. $1,300,000, $780,000, $520,000.
B. $1,200,000, $720,000, $480,000.
C. $720,000, $1,200,000, $480,000.
D. These figures are not accurate – see my calculations for details.

Calculations:

Correct Answer:

4. When
bonds are sold at a discount, if the annual straight-line amortization amount
is compared to the annual effective interest amortization amount over the life
of the bond issue, the annual amount of the straight-line amortization of
discount is:
A.
Higher than the effective interest amount
every year.
B.
Higher than the effective interest amount in
the early years and less than the effective interest amount in the later years.
C.
Less than the effective interest amount in
the early years and more than the effective interest amount in the later years.
D.
Less than the effective interest amount every
year.

Correct Answer:

Rationale for Your Answer:

5. On
January 1, 2009, Zebra Corporation issued 1,000 of its 8%, $1,000 bonds at 98.
Interest is payable semiannually on January 1 and July 1. The bonds mature on
January 1, 2019. Zebra paid $50,000 in bond issue costs. Zebra uses the
straight-line amortization method. What is the bond carrying value reported in
the December 31, 2009, balance sheet?

A. $1,045,000.
B. $1,040,000.
C. $987,000.
D. $982,000.

Calculations:

Correct Answer:

6. When
bonds include detachable warrants, what is the appropriate accounting for the
cash proceeds from the bond issue?

A. The
proceeds from the bond issue are allocated between the bonds and the warrants
on the basis of their relative market values.
B. The
proceeds from the bond issue are allocated between the bonds and the warrants
on the basis of their relative face values.
C. A
nominal amount is allocated to the warrants.
D. All
of the proceeds are allocated to the bonds.

Correct Answer:

Rationale for Your Answer:

7. On
January 2, 2009, Tobias Company began using straight-line depreciation for a
certain class of assets. In the past, the company had used
double-declining-balance depreciation for these assets. As of January 2, 2009,
the amount of the change in accumulated depreciation is $40,000. The
appropriate tax rate is 40%. The separately reported change in 2009 earnings
is:

A. An increase of $40,000.
B. A decrease of $40,000.
C. An increase of $24,000.
D. None of these are correct. See calculations and correct answer below.

Calculations:

Correct Answer:

8. B
Company switched from the sum-of-the-years-digits depreciation method to
straight-line depreciation in 2009. The change affects machinery purchased at
the beginning of 2007 at a cost of $72,000. The machinery has an estimated life
of five years and an estimated residual value of $3,600. What is B’s 2009
depreciation expense?

A. $ 8,400
B. $13,680
C. $15,840
D. $ 9,120

Calculations and Rationale:

Correct Answer:

9. Retrospective
restatement usually is appropriate for a change in which one of the following? Choose
A, B, C, or D.
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Correct Answer:

Rationale for Your Answer:

10.In
2009, internal auditors discovered that Fay, Inc. had debited an expense
account for the $700,000 cost of a machine purchased on January 1, 2006. The machine’s
useful life was expected to be 5 years with no residual value. Straight-line
depreciation is used by Fay. The journal entry to correct the error will
include a credit to accumulated depreciation of:

A. $140,000.
B. $280,000.
C. $420,000.
D. $700,000.

Calculations:

Correct Answer:

11.During
2009, P Company discovered that the ending inventories reported on its
financial statements were incorrect by the following amounts:

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P Company uses the periodic inventory system to ascertain year-end quantities
that are converted to dollar amounts using the FIFO cost method. Prior to any
adjustments for these errors and ignoring income taxes, P’s retained earnings
at January 1, 2009 would be

A. Correct as stated.
B. $ 30,000 overstated.
C. $150,000 overstated.
D. $270,000 overstated.

Calculations:

Correct Answer:

12.A
change that uses the prospective approach is accounted for by:

A. Implementing it in the current year.
B. Reporting pro forma data.
C. Retrospective restatement of all prior financial statements in a
comparative annual report.
D. Giving current recognition of the past effect of the change.

Correct Answer:

Rationale for Your Answer:

13.Which
of the following accounting changes should not be accounted for
prospectively?

A. The correction of an error.
B. A change from declining balance to straight-line depreciation.
C. A change from straight-line to declining balance depreciation.
D. A change in the expected salvage value of a depreciable asset.

Correct Answer:

Rationale for Your Answer:

14.Issued
stock refers to the number of shares:

A. Outstanding plus treasury shares.
B. Shares issued for cash.
C. In the hand of shareholders.
D. That may be issued under state law.

Correct Answer:

Rationale for Your Answer:

15.The
common stock account on a company’s balance sheet is measured as:

A. The
number of common shares outstanding multiplied by the stock’s par value per
share.
B. The
number of common shares outstanding multiplied by the stock’s current market
value per share.
C. The
number of common shares issued multiplied by the stock’s par value per share.
D. None
of these is correct. The correct answer and rationale for your answer are shown
below:

Correct Answer:

Rationale for Your Answer:

16.Roberto
Corporation was organized on January 1, 2009. The firm was authorized to issue
100,000 shares of $5 par common stock. During 2009, Roberto had the following
transactions relating to shareholders’ equity:

·
Issued 10,000 shares of
common stock at $7 per share.
·
Issued 20,000 shares of
common stock at $8 per share.
·
Reported a net income of
$100,000.
·
Paid dividends of $50,000.Purchased
3,000 shares of treasury stock at $10 (part of the 20,000 shares issued at $8).
What is total
shareholders’ equity at the end of 2009?

A. $270,000.
B. $300,000.
C. $250,000.
D. $200,000.

Calculations:

Correct Answer:

17.The
par value of shares issued is normally recorded in the:
A. Paid-in capital in excess of par account.
B. Common stock account.
C. Retained earnings account.
D. Appropriated retained earnings account.

Correct Answer:

Rationale for Your Answer:

18.The
owners of a corporation are its shareholders. If a corporation has only one
class of shares, they typically are labeled common shares. Each of the
following are ownership rights held by common shareholders, unless specifically
withheld by agreement except:
A.
The right to vote on policy issues.
B.
The right to share in profits when dividends
are declared (in proportion to the percentage of shares owned by the
shareholder).
C.
The right to dividends equal to a stated rate
time par value (if dividends are paid).
D.
The right to share in the distribution of any
assets remaining at liquidation after other claims are satisfied.

Correct Answer:

Rationale for Your Answer:

19.If
a futures contract is used to hedge a debt sale, and interest rates go down
causing debt security prices to rise, the potential benefit of being able to
issue debt at that lower interest rate (higher price) will be offset by a loss
on the futures position.
This
statement is: True False

Correct Answer:

Rationale for Your Answer:

20.Hedging
is used to deal with exposure to:
A. Fair value risk.
B. Cash flow risk.
C. Foreign exchange risk.
D. All of these are correct.

Correct Answer:

Rationale for Your Answer:

21.Disclosure
notes would not include:

A. Depreciation methods used and estimated useful life.
B. Definition of cash equivalents.
C. Details of pension plans.
D. Data to adjust the financial statements so that they are not
misleading.

Correct Answer:

Rationale for Your Answer:

22.The
Management Discussion and Analysis section of the annual report can best be
described as:

A. Frank but objective.
B. Independent but precise.
C. Legalistic and lengthy.
D. Biased but informative.

Correct Answer:

Rationale for Your Answer:

23.The
quick ratio is:

A. The liquidity ratio divided by the equity ratio.
B. Current assets minus inventory divided by current liabilities minus
accounts payable.
C. Current assets minus inventory and prepaid items divided by current
liabilities.
D. Cash divided by accounts payable.

Correct Answer:

Rationale for Your Answer:

24.Recent
financial statement data for Harmony Health Foods (HHF) Inc. is shown below.

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HHF’s
debt-to-equity ratio is:
A. 0.75.
B. 1.13.
C. 0.53.
D. 1.80.

Calculations:

Correct Answer:

25.Which
of the following is not a required segment reporting disclosure according to
International Accounting Standards?

A. Segment profit or loss.
B. Segment assets.
C. Segment liabilities.
D. All are required disclosures.

Calculations:

Correct Answer: