Test Bank For Intermediate Accounting 15th Edition Kieso, Weygandt, Warfield
Test Bank For Intermediate Accounting 15th Edition Kieso, Weygandt, Warfield
Test Bank For Intermediate Accounting 15th Edition Kieso, Weygandt, Warfield
_____ 1. How does failure to record accrued revenue distort the financial reports?
a. It understates revenue, net income, and current assets.
b. It understates net income, stockholders’ equity, and current liabilities.
c. It overstates revenue, stockholders’ equity, and current liabilities.
d. It understates current assets and overstates stockholders’ equity.
_____ 4. On June 15, 2014 Stine Corporation accepted delivery of merchandise which
it purchased on account. As of June 30 Stine had not recorded the
transaction or included the merchandise in its inventory. The effect of this
error on its balance sheet for June 30, 2014 would be
a. assets and stockholders’ equity were overstated but liabilities were not
affected.
b. stockholders’ equity was the only item affected by the omission.
c. assets and liabilities were understated but stockholders’ equity was not
affected.
d. assets and stockholders’ equity were understated but liabilities were not
affected.
_____ 5. Reversing entries are most commonly used in relation to year-end adjusting
entries that
a. allocate the expired portion of a depreciable asset to expense.
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b. amortize intangible assets.
c. provide for bad debt expense.
d. accrue interest revenue on notes receivable.
_____ 6. Of the following adjusting entries, which one would cause an increase in
assets at the end of the period?
a. The entry to record the earned portion of rent received in advance.
b. The entry to accrue unrecorded interest expense.
c. The entry to accrue unrecorded interest revenue.
d. The entry to record expiration of prepaid insurance.
_____ 10. The current assets section of a balance sheet should never include
a. a receivable from a customer not collectible for over one year.
b. the premium paid on short-term bond investment.
c. goodwill arising from the purchase of a going business.
d. customers' accounts with credit balances.
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Problem A-II — Adjusting and Reversing Entries.
The following list of accounts and their balances represents the unadjusted trial balance
of Alt Company at December 31, 2014:
Cash $ 27,290
Equity Investments (trading) 60,000
Accounts Receivable 69,000
Allowance for Doubtful Accounts $ 500
Inventory 54,720
Prepaid Rent 36,000
Plant Assets 160,000
Accumulated Depreciation-Plant Assets 14,740
Accounts Payable 11,370
Bonds Payable 90,000
Common Stock 170,000
Retained Earnings 97,180
Sales Revenue 214,800
Cost of Goods Sold 154,400
Freight-Out 11,000
Salaries and Wages Expense 32,000
Interest Expense 2,040
Rent Revenue 21,600
Miscellaneous Expense 890
Insurance Expense 12,850
$620,190 $620,190
Additional Data:
2. On September 30, 2014, Alt received $21,600 rent from its lessee for an eighteen
month lease beginning on that date.
3. The regular rate of depreciation is 10% per year. Acquisitions and retirements during
a year are depreciated at half this rate. There were no purchases during the year. On
December 31, 2013, the balance of the Plant and Equipment account was $220,000.
4. On December 28, 2014, the bookkeeper incorrectly credited Sales Revenue for a
receipt on account in the amount of $20,000.
5. At December 31, 2014, salaries and wages accrued but unpaid were $4,200.
Instructions
(a) Record the necessary correcting and adjusting entries.
(b) Indicate which of the adjusting entries may be reversed at the beginning of the next
accounting period.
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______ 4. The quality which helps users make predictions about present, past, and
future events.
______ 5. Recording a transaction when goods or services are exchanged for cash or
claims to cash.
______ 7. Information must make a difference or a company need not disclose it.
______ 11. Reporting those items which are significant enough to affect decisions. Select
two.
______ 12. Additivity of financial statement figures relating to different time periods.
______ 13. Ignoring the phenomenon of price-level changes (do not use "historical cost").
______ 14. Not reporting assets at liquidation prices (do not use "historical cost").
______ 15. Characterized by completeness, neutrality, and being free from error.
______ 17. Use of estimating procedures for amortization policies. Select two (do not use
"periodicity") (17 and 18).
Tanner Corporation
Balance Sheet
For the year ended December 31, 2014
Assets
Current Assets:
Cash $ 18,000
Equity investmentstrading (fair value, $32,000) 27,000
Accounts receivable 75,000
Inventory 60,000
Supplies inventory 3,000
Investment in subsidiary company 60,000 $243,000
Investments:
Treasury stock 78,000
Tangible Fixed Assets:
Buildings and land 213,000
Less: Reserve for depreciation 60,000 153,000
Deferred Charges:
Discount on bonds payable 3,000
Other Assets:
Cash surrender value of life insurance 54,000
$531,000
Current Liabilities:
Accounts payable $ 45,000
Reserve for income taxes 42,000
Customer's accounts with credit balances 3 $ 87,003
Long-Term Liabilities:
Bonds payable 120,000
Total Liabilities 207,003
Capital Stock:
Capital stock 225,000
Earned surplus 74,997
Cash dividends declared 24,000 323,997
$531,000
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Problem A-V — Balance Sheet and Income Statement Classifications.
Specify, to the left of each account, the letter of the financial statement classification the
account would appear in. Use only the classifications shown.
Account balances taken from the ledger of Morin Company on December 31, 2014
follow:
______ 2. Loss on Disposal of Equipment ______ 17. Salaries and Wages Expense
______ 13. Retained Earnings Dec. 31, ______ 28. Accounts Payable
2013
______ 29. Error made in computing 2012
______ 14. Cash depreciation expense
On January 1, 2008, Gray Company sold $900,000 of 10% bonds, due January 1, 2018.
Interest on these bonds is paid on July 1 and January 1 each year. According to the
terms of the bond contract, Gray must establish a sinking fund for the retirement of the
bond principal starting no later than January 1, 2016. Since Gray was in a tight cash
position during the years 2008 through 2013, the first contribution into the fund was
made on January 1, 2014.
Case 1: Assume that, starting with the January 1, 2014 contribution, Gray desires to
make a total of four equal annual contributions into this fund. Compute the
amount of each of these contributions assuming the interest rate is 8%
compounded annually.
Case 2: Assume, instead, that starting with the January 1, 2016 contribution, Gray
desires to make a total of five equal semiannual contributions into this fund.
Compute the amount of each of these contributions assuming the annual
interest rate is 12%, compounded semiannually.
Case 3: On January 2, 2014, Nelson Company loaned $100,000 to Holt Company. The
terms of this loan agreement stipulate that Holt is to make 5 equal annual
payments to Nelson at 10% interest compounded annually. Assume the
payments are to begin on December 31, 2014. Compute the amount of each of
these payments.
Case 4: Jim Marsh, a lawyer contemplating retirement on his 65th birthday, decides to
create a fund on an 8% basis which will enable him to withdraw $60,000 per
year beginning June 30, 2017, and ending June 30, 2021. To provide this fund,
he intends to make equal contributions on June 30 of each of the years 2012
through 2016.
(a) How much must the balance of the fund equal after the last contribution on
June 30, 2016 in order for him to satisfy his objective?
Table 2
Present Value of 1
Periods 6% 8% 9% 10% 12%
1 0.94340 0.92593 0.91743 0.90909 0.8928
2 0.89000 0.85734 0.84168 0.82645 0.7971
3 0.83962 0.79383 0.77218 0.75132 0.7117
4 0.79209 0.73503 0.70843 0.68301 0.6355
5 0.74726 0.68058 0.64993 0.62092 0.5674
Table 3
Future Value of an Ordinary Annuity of 1
Periods 6% 8% 9% 10% 12%
1 1.00000 1.00000 1.00000 1.00000 1.0000
2 2.06000 2.08000 2.09000 2.10000 2.1200
3 3.18360 3.24640 3.27810 3.31000 3.3744
4 4.37462 4.50611 4.57313 4.64100 4.7793
5 5.63709 5.86660 5.98471 6.10510 6.3528
Table 4
Present Value of an Ordinary Annuity of 1
Periods 6% 8% 9% 10% 12%
1 0.94340 0.92593 0.91743 0.90909 0.8928
2 1.83339 1.78326 1.75911 1.73554 1.6900
3 2.67301 2.57710 2.53130 2.48685 2.4018
4 3.46511 3.31213 3.23972 3.16986 3.0373
5 4.21236 3.99271 3.88965 3.79079 3.6047
Table 5
Present Value of an Annuity Due of 1
Periods 6% 8% 9% 10% 12%
1 1.00000 1.00000 1.00000 1.00000 1.0000
2 1.94340 1.92593 1.91743 1.90909 1.8928
3 2.83339 2.78326 2.75911 2.73554 2.6900
4 3.67301 3.57710 3.53130 3.48685 3.4018
5 4.46511 4.31213 4.23972 4.16986 4.0373
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(b) 1, 2, 5, and 7. Items No. 1 and No. 2 represent prepaid items that were initially
recorded in nominal accounts. Items No. 5 and No. 7 represent accrued items.
Problem A-III — Solution.
1. h 6. f 11. l 16. j
2. l 7. g 12. c 17. d
3. e 8. a 13. c 18. j
4. b 9. i 14. d
5. k 10. j or k 15. m
4. The inventory costing method (cost, lower of cost or market) and the basis for
pricing the inventory (LIFO, FIFO, etc.) should be disclosed.
9. Discount on Bonds Payable should be classified with and deducted from Bonds
Payable.
10. Cash Surrender Value of Life Insurance should be classified among Investments.
11. "Reserve" for Income Taxes should be titled Income Taxes Payable.
12. The small balance of $3 for customer's accounts with credit balances, while not
erroneously classified, might be offset against and buried in the Accounts
Receivable account because it is so small in amount.
13. The maturity date and the interest rate should be disclosed for the Bonds
Payable.
14. "Capital Stock" listed as a title should be "Stockholders' Equity;" "Capital stock"
listed as an account should be “Common stock.”
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15. More information relative to the capital stock, such as par value and the number
of shares authorized, issued, and outstanding should be disclosed.
16. "Earned surplus" should not be used; Retained Earnings is the preferred title.
17. Cash dividends declared is actually Dividends Payable and should be classified
as a current liability.
Case 1. $900,000 is the amount of an 8% annuity due for 4 periods. Use the table
factor for the future value of an 8% ordinary annuity for 4 periods, and multiply
by (1.08):
4.50611 × (1.08) = 4.86660.
Periodic payments = $900,000 ÷ 4.86660 = $184,934
Case 2. Since interest is compounded semiannually, divide the 12% annual interest rate
by 2, and use the table factor for the future value of a 6% ordinary annuity for 5
periods.
Periodic payments = $900,000 ÷ 5.63709 = $159,657
Case 3. $100,000 is the present value of a 10% ordinary annuity for 5 periods.
Periodic payments = $100,000 ÷ 3.79079 = $26,380
Case 4. (a) At June 30, 2016, the balance in the fund is the present value of an 8%
ordinary annuity of $60,000 for 5 periods.
Balance in the fund = $60,000 × 3.99271 = $239,563
(b) At June 30, 2016, $239,563 is the future value of an 8% ordinary annuity
for five periods.
Periodic payments = $239,563 ÷ 5.8666 = $40,835