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test bank intermediate accounting 16th edition by kieso weygandt warfield

Test Bank Intermediate Accounting, 16th Edition Kieso Weygandt
Warfield

CHAPTER 24
FULL DISCLOSURE IN FINANCIAL REPORTING
IFRS questions are available at the end of this chapter.

TRUE-FALSE—Conceptual
Answer No. Description
F
T
T
F
F
T
F
T
F
T
F
T

F
T
F
T
F
T
T
F

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.

Items affected by FASB standards.
SEC reporting requirements.
Definition of accounting policies.
Related party transactions disclosure.
Post-balance-sheet disclosures.
GAAP requirements
Allocation of joint or common costs.
Disclosure of major customers.
Reporting under the integral approach.
Accounting principles in interim reports.


Reporting income taxes in interim reports.
Computing taxes in an interim period.
Opinions issued by auditor.
Definition of qualified opinion.
Management’s discussion and analysis section.
Information provided by MD&A section.
Definition of financial projection.
Financial forecast vs. financial projection.
Fraudulent financial reporting.
Internal environment influences.

MULTIPLE CHOICE—Conceptual
Answer No. Description
d

21.

Disclosure of significant accounting policies.


3-2

Test Bank for Intermediate Accounting, Sixteenth Edition
c
c
d
b
b
c
d
d
b
d
b
c
d
a
d

22.
23.
S
24.
S
25.
S
26.
P
27.
28.
29.
30.
31.
32.
33.
34.
S
35.
S
36.

Disclosure of inventory accounting policy.
Definition of errors and irregularities.
Full disclosure principle description.
APB Opinion No. 22 disclosure.
Related party transactions.
Post-balance-sheet events.
Subsequent events disclosure.
Recognition of subsequent events.
Revenue of a segment.
Segment revenue test.
Segment revenue test.
Disclosure of operating segment information.
Bases of reporting disaggregated information.
Items reconciled in segment reporting.
Accounting principles used in interim reports.


The Accounting Information System

MULTIPLE CHOICE—Conceptual (cont.)
Answer N/o. Description
a
d
d
b
a
c
c
b
c
c
a
a
b
b
d
c
c
c
a

P

37.
38.
39.
40.
41.
42.
43.
S
44.
P
45.
S
46.
47.
*48.
*49.
*50.
*51.
*52.
*53.
*54.
*55.

Planned volume variance in interim period.
Interim financial reporting.
Application of accounting principles on interim reporting.
Methods of inventory valuation—year end vs. interim.
Partial LIFO liquidation reported in interim statements.
Disclosing information in interim statements.
Advertising costs in interim reports.
Issuing qualified opinion.
Items covered in MD&A section.
Difference between financial forecast and financial projection.
Meaning of financial forecasts.
Acid-test ratio and current ratio.
Accounts receivable turnover.
Return on common stockholders’ equity.
Payout ratio.
Measure of long-term solvency.
Number of times interest earned.
Using average amounts.
Limitations of ratio analysis.

P

These questions also appear in the Problem-Solving Survival Guide.
These questions also appear in the Study Guide.
* This topic is dealt with in an Appendix to the chapter.
S

MULTIPLE CHOICE—Computational
Answer No. Description
b
c
a
c
d
c
d
c
c
d
b
c
a
a
c
c
c

56.
57.
58.
59.
*60.
*61.
*62.
*63.
*64.
*65.
*66.
*67.
*68.
*69.
*70.
*71.
*72.

Determine reportable operating segments.
Bonus expense in first quarter interim income statement.
Property taxes and plant repairs recognized in interim period.
Inventory loss reflected in interim statements.
Calculate the current ratio.
Calculate the times interest earned.
Calculate book value per share of common stock.
Calculate return on common stockholders’ equity.
Calculate accounts receivable turnover.
Calculate inventory turnover.
Calculate the profit margin on sales.
Calculate the return on common stockholders’ equity.
Determine book value per share.
Calculate the acid-test ratio.
Calculate the acid-test ratio.
Accounts receivable turnover.
Calculate inventory turnover.

3-3


3-4

Test Bank for Intermediate Accounting, Sixteenth Edition

MULTIPLE CHOICE—CPA Adapted
Answer No. Description
c
c
b
b
b
c
b
c
c
d
c

73.
74.
75.
76.
77.
78.
79.
80.
*81.
*82.
*83.

Significant accounting policies disclosed for plant assets.
Criteria for reporting disaggregated information.
Identification of reportable segments.
Identification of a reportable segment.
Advertising costs—year end vs. interim reporting.
Total expense to be reported in interim statements.
Insurance expense reported in interim statements.
Major repair reported in interim statements.
Acid-test ratio and inventory turnover.
Acid-test ratio and debt to assets ratio.
Accounts receivable turnover and payout ratio.

BRIEF EXERCISES
Item
BE24-84
BE24-85

Description

Notes to financial statements.
Segment reporting.

EXERCISES
E24-86
E24-87
E24-88
E24-89
*E24-90
*E24-91
*E24-92

Segment reporting.
Interim reports.
Inventory and cost of goods sold at interim dates.
Forecasts.
Financial statement analysis.
Selected financial ratios.
Computation of selected ratios.

PROBLEMS
Item
P24-93
P24-94

Segment Reporting.
Interim Reports.

Description


The Accounting Information System

3-5

CHAPTER LEARNING OBJECTIVES
1. Review the full disclosure principle and describe how it is implemented.
2. Discuss the disclosure requirements for related-party transactions, post-balance-sheet
events, major business segments, and interim reporting.
3. Identify the major disclosures in the auditor's report and understand management’s
responsibilities for the financial statements.
4. Identify reporting issues related to financial forecasts and fraudulent financial reporting.
*5. Understand the approach to financial statement analysis.
*6. Identify major analytic ratios and describe their calculation.
*7. Explain the limitations of ratio analysis.
*8. Describe techniques of comparative analysis.
*9. Describe techniques of percentage analysis.
10. Compare the disclosure requirements under GAAP and IFRS.


3-6

Test Bank for Intermediate Accounting, Sixteenth Edition

SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY
Item

LO

BT

Item

LO

BT

Item

LO

BT

Item

LO

BT

3
3
3
3

K
K
K
K

6
6
6
6
6
6
6
6
6
6
6
6
6

AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AN
AP

6

AP

Item

LO

BT

17.
18.
19.
20.

4
4
4
4

K
K
K
C

73.
74.
75.
76.
77.
78.
79.
80.
81.
82.
83.

1
2
2
2
2
2
2
2
6
6
6

K
C
AN
AP
C
AP
AP
K
K
K
K

TRUE-FALSE STATEMENTS
1.
2.
3.
4.

1
1
1
2

K
K
K
K

5.
6.
7.
8.

2
2
2
2

C
K
K
K

9.
10.
11.
12.

2
2
2
2

K
K
K
K

13.
14.
15.
16.

MULTIPLE CHOICE QUESTIONS
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.

1
1
1
1
1
2
2
2
2
2
2
2
2

K
C
K
K
K
K
C
C
C
K
K
K
K

34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.

2
2
2
2
2
2
2
2
2
2
3
3
4

K
K
K
C
K
K
K
C
K
K
C
K
C

47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.

4
6
6
6
6
6
6
6
7
2
2
2
2

K
K
K
K
K
K
K
K
K
C
AP
AP
AP

60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.

BRIEF EXERCISES
84.

1

K

85.

2

K

EXERCISES
86.
87.

2
2

AP
C

88.
89.

2
4

C
C

90.
91.

6
6

AP
AP

PROBLEMS
93.

2

K

94.

2

C

92.


The Accounting Information System

3-7

TRUE-FALSE—Conceptual
1.

FASB standards directly affect financial statements, notes to the financial statements, and
management’s discussion and analysis.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
FSA, IFRS: None

2.

The SEC requires that companies report to it certain substantive information that is not
found in their annual reports.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None

3.

Accounting policies are the specific accounting principles and methods a company uses
and considers most appropriate to present fairly its financial statements.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None

4.

In order to make adequate disclosure of related party transactions, companies should
report the legal form, rather than the economic substance, of these transactions.

Ans: F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None

5.

If the loss on an account receivable results from a customer’s bankruptcy after the
balance sheet date, but before issuance of the financial statements the company only
discloses this information in the notes to the financial statements.

Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting, IFRS: None

6.

GAAP requires that general purpose financial statements include selected information on
a single basis of segmentation.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None

7.

The FASB requires allocations of joint, common, or company-wide costs for external
reporting purposes.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None

8.

If 10 percent or more of company revenue is derived from a single customer, the company
must disclose the total amount of revenue from each such customer by segment.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None

9.

Companies should report accounting transactions as they occur, and expense recognition
should not change with the period of time covered under the integral approach.

Ans: F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None

10.

Companies should generally use the same accounting principles for interim reports and
for annual reports.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None

11.

Companies report income taxes in interim reports by prorating them over the four
quarters.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None


3-8
12.

Test Bank for Intermediate Accounting, Sixteenth Edition
To compute the year-to-date tax, companies apply the estimated annual effective tax rate
to the year-to-date ordinary income at the end of each interim period.

Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Reporting, IFRS: None

13.

In most situations, an auditor issues a qualified opinion or disclaims an opinion.

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None

14.

A qualified opinion is issued when the exception to the standard opinion is not of sufficient
magnitude to invalidate the statements as a whole.

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None

15.

The management discussion and analysis (MD&A) section presents aspects of an
enterprise’s business-liquidity, profitability, and solvency.

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None

16.

The MD&A section must provide information about the effects of inflation and changing
prices, if they are material to the financial statements.

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None

17.

A financial projection is a set of prospective financial statements that present a company’s
expected financial position and results of operations.

Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA,
IFRS: None

18.

The difference between a financial forecast and a financial projection is that a forecast
provides information on what is expected to happen, while a projection provides
information on what might take place.

Ans: T, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA, IFRS: None

19.

Fraudulent financial reporting is intentional or reckless conduct, whether by act or
omission, that results in materially misleading financial statements.

Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA,
IFRS: None

20.

Influences in a company’s internal environment may relate to industry conditions, poor
internal control systems, or legal and regulatory considerations.

Ans: F, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA,
IFRS: None

True-False Answers—Conceptual
Item
1.
2.
3.
4.
5.

Ans.
F
T
T
F
F

Item
6.
7.
8.
9.
10.

Ans.
T
F
T
F
T

Item
11.
12.
13.
14.
15.

Ans.
F
T
F
T
F

Item
16.
17.
18.
19.
20.

Ans.
T
F
T
T
F


The Accounting Information System

3-9

MULTIPLE CHOICE—Conceptual
21.

Which of the following should be disclosed in a Summary of Significant Accounting
Policies?
a. Types of executory contracts
b. Amount for cumulative effect of change in accounting principle
c. Claims of equity holders
d. Depreciation method followed

Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None

22.

An example of an inventory accounting policy that should be disclosed in a Summary of
Significant Accounting Policies is the
a. amount of income resulting from the involuntary liquidation of LIFO.
b. major backlogs of inventory orders.
c. method used for pricing inventory.
d. separation of inventory into raw materials, work-in-process, and finished goods.

Ans: C, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting, IFRS: None

23.

Which of the following is true regarding whether errors and irregularities are distortions of
facts?
a.
b.
c.
d.

Errors
Yes
Yes
No
No

Irregularities
Yes
No
Yes
No

Ans: C, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Reporting, IFRS: None
S

24.

The full disclosure principle, as adopted by the accounting profession, is best described
by which of the following?
a. All information related to an entity's business and operating objectives is required to
be disclosed in the financial statements.
b. Information about each account balance appearing in the financial statements is to be
included in the notes to the financial statements.
c. Enough information should be disclosed in the financial statements so a person
wishing to invest in the stock of the company can make a profitable decision.
d. Disclosure of any financial facts significant enough to influence the judgment of an
informed reader.

Ans: D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Reflective, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None
S

25.

The focus of APB Opinion No. 22 is on the disclosure of accounting policies. This
information is important to financial statement readers in determining
a. net income for the year.
b. whether accounting policies are consistently applied from year to year.
c. the value of obsolete items included in ending inventory.
d. whether the working capital position is adequate for future operations.

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,
IFRS: None


3 - 10
S

26.

Test Bank for Intermediate Accounting, Sixteenth Edition
If a business entity entered into certain related party transactions, it would be required to
disclose all of the following information except the
a. nature of the relationship between the parties to the transactions.
b. nature of any future transactions planned between the parties and the terms involved.
c. dollar amount of the transactions for each of the periods for which an income statement is presented.
d. amounts due from or to related parties as of the date of each balance sheet presented.

Ans: B, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None
P

27.

Events that occur after the December 31, 2018 balance sheet date, but before the
balance sheet is issued, and provide additional evidence about conditions that existed at
the balance sheet date and affect the realizability of accounts receivable should be
a. discussed only in the MD&A (Management's Discussion and Analysis) section of the
annual report.
b. disclosed only in the Notes to the Financial Statements.
c. used to record an adjustment to Bad Debt Expense for the year ending December 31,
2018
d. used to record an adjustment directly to the Retained Earnings account

Ans: C, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting, IFRS: None

28.

Which of the following post-balance-sheet events would generally require disclosure, but
no adjustment of the financial statements?
a. Retirement of the company president
b. Settlement of litigation that existed prior to the balance sheet date.
c. Employee strikes
d. Issue of a large amount of capital stock

Ans: D, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting, IFRS: None

29.

Which of the following post-balance-sheet events would require adjustment of the
accounts before issuance of the financial statements?
a. Loss of plant as a result of fire
b. Changes in the quoted market prices of securities held as an investment
c. Loss on an uncollectible account receivable resulting from a customer’s major flood
loss
d. Loss on a lawsuit, the outcome of which was deemed uncertain at year end.

Ans: D, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting, IFRS: None

30.

Revenue of a segment includes
a. only sales to unaffiliated customers.
b. sales to unaffiliated customers and intersegment sales.
c. sales to unaffiliated customers and interest revenue.
d. sales to unaffiliated customers and other revenue and gains.

Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None


The Accounting Information System
31.

3 - 11

An operating segment is a reportable segment if
a. its operating profit is 10% or more of the combined operating profit of profitable
segments.
b. its operating loss is 10% or more of the combined operating losses of segments that
incurred an operating loss.
c. the absolute amount of its operating profit or loss is 10% or more of the company's
combined operating profit or loss.
d. None of these answers are correct.

Ans: D, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication,
IMA: Reporting, IFRS: None

32.

A segment of a business enterprise is to be reported separately when the revenues of the
segment exceed 10 percent of the
a. total combined revenues of all segments reporting profits.
b. total revenues of all the enterprise's industry segments.
c. total export and foreign sales.
d. combined net income of all segments reporting profits.

Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None

33.

All of the following information about each operating segment must be reported except
a. unusual items.
b. interest revenue.
c. cost of goods sold.
d. depreciation and amortization expense.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None

34.

The accounting profession requires disaggregated information in all of the following ways
except:
a. products or services.
b. geographic areas.
c. major customers.
d. All of these answers are correct.

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None
S

35.

In presenting segment information, which of the following items must be reconciled to the
entity's consolidated financial statements?

a.
b.
c.
d.

Revenues
Yes
No
Yes
Yes

Operating
Profit (Loss)
Yes
Yes
No
Yes

Identifiable
Assets
Yes
Yes
Yes
No

Ans: A, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting, IFRS: None


3 - 12
S

36.

Test Bank for Intermediate Accounting, Sixteenth Edition
APB Opinion No. 28 indicates that
a. all companies that issue an annual report should issue interim financial reports.
b. the discrete view is the most appropriate approach to take in preparing interim
financial reports.
c. the three basic financial statements should be presented each time an interim period
is reported upon.
d. the same accounting principles used for the annual report should be employed for
interim reports.

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None
P

37.

Rondelli Manufacturing Company employs a standard cost system. A planned volume
variance in the first quarter of 2018, which is expected to be absorbed by the end of the
fiscal year, ordinarily should
a. be deferred at the end of the first quarter, regardless of whether it is favorable or
unfavorable.
b. never be deferred beyond the quarter in which it occurs.
c. be deferred at the end of the first quarter if it is favorable; unfavorable variances are to
be recognized in the period incurred.
d. be deferred at the end of the first quarter if it is unfavorable; favorable variances are to
be recognized in the period incurred.

Ans: A, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Reporting, IFRS: None

38.

How does the accounting profession view interim financial reports?
a. As a "special" type of reporting that need not follow generally accepted accounting
principles.
b. As useful only if activity is evenly spread throughout the year so that estimates are
unnecessary.
c. As reporting for a discrete accounting period.
d. As reporting for an integral part of an annual period.

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Communication, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving,
IMA: Reporting, IFRS: None

39.

Accounting principles are modified for the following at interim dates.
a.
b.
c.
d.

Revenue
Yes
Yes
No
No

Losses
Yes
No
Yes
No

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Reporting, IFRS: None

40.

The following methods of estimating inventory can be used at interim dates for inventory
pricing. Which of these methods can also be used at year end?
a.
b.
c.
d.

Gross Profit Method
No
No
Yes
Yes

Retail Inventory Method
No
Yes
No
Yes

Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Reporting, IFRS: None


The Accounting Information System
41.

3 - 13

A company that uses the last-in, first-out (LIFO) method of inventory pricing finds at an
interim reporting date that there has been a partial liquidation of the base period inventory
layer. The decline is considered temporary and the partial liquidation is expected to be
recovered prior to year end. The amount shown as inventory at the interim reporting date
should
a. be shown at the actual level, and cost of sales for the interim reporting period should
include the expected cost of replacement of the liquidated LIFO base.
b. be shown at the actual level, and cost of sales for the interim reporting period should
reflect the historical cost of the liquidated LIFO base.
c. not give effect to the LIFO liquidation, and cost of sales for the interim reporting period
should reflect the historical cost of the liquidated LIFO base.
d. be shown at the actual level, and the decrease in inventory level should not be
reflected in the cost of sales for the interim reporting period.

Ans: A, LO: 2, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Reporting, IFRS: None

42.

Companies should disclose all of the following in interim reports except
a. basic and diluted earnings per share.
b. changes in accounting principles.
c. post-balance-sheet events.
d. seasonal revenue, cost, or expenses.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA:
Reporting, IFRS: None

43.

The general approach for handling advertising costs which benefit future quarters in
interim reports is to
a. prorate them over all four quarters.
b. charge the expenses in the quarter incurred.
c. prorate them over the current and remaining quarters.
d. disclose them only in the notes.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,
IFRS: None
S

44.

If the financial statements examined by an auditor lead the auditor to issue an opinion that
contains an exception that is not of sufficient magnitude to invalidate the statement as a
whole, the opinion is said to be
a. unqualified.
b. qualified.
c. adverse.
d. exceptional.

Ans: B, LO: 3, Bloom: C, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,
IFRS: None
P

45.

The MD&A section of a company's annual report is to cover the following three items:
a. income statement, balance sheet, and statement of owners' equity.
b. income statement, balance sheet, and statement of cash flows.
c. liquidity, capital resources, and results of operations.
d. changes in the stock price, mergers, and acquisitions.

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 2, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,
IFRS: None


3 - 14
S

46.

Test Bank for Intermediate Accounting, Sixteenth Edition
Which of the following best characterizes the difference between a financial forecast and a
financial projection?
a. Forecasts include a complete set of financial statements, while projections include
only summary financial data.
b. A forecast is normally for a full year or more and a projection presents data for less
than a year.
c. A forecast attempts to provide information on what is expected to happen, whereas a
projection may provide information on hypothetical assumptions.
d. A forecast includes data which can be verified about future expectations, while the
data in a projection is not susceptible to verification.

Ans: C, LO: 4, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA, IFRS: None

47.

A financial forecast presents to the best of the responsible party's knowledge and belief,
a. an entity's expected financial position, results of operations, and cash flows.
b. an assessment of the company's ability to be successful in the future.
c. given one or more hypothetical assumptions, an entity's expected financial position,
results of operations, and cash flows.
d. a subjective assessment of the company's ability to be successful in the future under a
number of different assumptions.

Ans: A, LO: 4, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA,
IFRS: None

*48.

Cash, short-term investments, and net receivables are the numerator for
Acid-Test Ratio
Current Ratio
a.
Yes
No
b.
Yes
Yes
c.
No
No
d
No
Yes

Ans: A, LO: 6, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA, IFRS: None

*49.

The numerator of the accounts receivable turnover should include
a. net sales.
b. net credit sales.
c. total sales.
d. total credit sales.

Ans: B, LO: 6, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA, IFRS: None

*50.

The return on common stockholders’ equity is calculated by dividing
a. net income by average common stockholders’ equity.
b. net income less preferred dividends by average common stockholders’ equity.
c. net income by ending common stockholders’ equity.
d. net income less preferred dividends by ending common stockholders’ equity.

Ans: B, LO: 6, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA, IFRS: None


3 - 15

The Accounting Information System
*51.

The payout ratio is calculated by dividing
a. dividends per share by earnings per share.
b. cash dividends by net income plus preferred dividends.
c. cash dividends by market price per share.
d. cash dividends by net income less preferred dividends.

Ans: D, LO: 6, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA, IFRS: None

*52.

Which of the following ratios measures long-term solvency?
a. Acid-test ratio
b. Accounts receivable turnover
c. Debt to assets
d. Current ratio

Ans: C, LO: 6, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA,
IFRS: None

*53.

The calculation of the times interest earned involves dividing
a. net income by annual interest expense.
b. net income plus income taxes by annual interest expense.
c. net income plus income taxes and interest expense by annual interest expense.
d. None of these answers are correct.

Ans: C, LO: 6, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA, IFRS Ans:: None

*54.

When should an average amount be used for the numerator or denominator?
a. When the numerator is a balance sheet item or items
b. When the denominator is a balance sheet item or items
c. When a ratio consists of an income statement item and a balance sheet item
d. When the numerator is an income statement item or items

Ans: C, LO: 6, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA, IFRS: None

*55.

Which of the following is a basic limitation associated with ratio analysis
a. The lack of comparability among firms in a given industry.
b. The use of future-oriented data items in accounting.
c. The use of fair value accounting costs.
d. The usefulness of a single ratio by itself.

Ans: A, LO: 7, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA,
IFRS: None

Multiple Choice Answers—Conceptual
Item

21.
22.
23.
24.
25.

Ans.

d
c
c
d
b

Item

26.
27.
28.
29.
30.

Ans.

b
c
d
d
b

Item

31.
32.
33.
34.
35.

Ans.

d
b
c
d
a

Item

36.
37.
38.
39.
40.

Ans.

d
a
d
d
b

Item

41.
42.
43.
44.
45.

Ans.

Item

Ans.

Item

Ans.

a
c
c
b
c

46.
47.
*48.
*49.
*50.

c
a
a
b
b

*51.
*52.
*53.
*54
*55.

d
c
c
c
a

Solutions to those multiple choice questions for which the answer is “none of these answers are
correct.”


3 - 16
31.

Test Bank for Intermediate Accounting, Sixteenth Edition

The absolute amount of its profit or loss is 10% or more of the greater, in absolute amount,
of (a) the combined profit of all operating segments that did not incur a loss, or (b) the
combined loss of all operating segments that did incur a loss.

MULTIPLE CHOICE—Computational
56.

Presented below are four segments that have been identified by Haley Productions:
Segments
A
B
C
D

Total Revenue
$255,000
600,000
225,000
90,000

Operating
Profit (Loss)
$30,000
(55,000)
6,000
4,000

Identifiable Assets
$900,000
800,000
450,000
225,000

For which of the segments would information have to be disclosed in accordance with
professional pronouncements?
a. Segments A, B, C, and D
b. Segments A, B, and C
c. Segments A and B
d. Segments A and D
Ans: B, LO: 2, Bloom: C, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting, IFRS: None

57.

In January 2018, Post, Inc. estimated that its year-end bonus to executives would be
$960,000 for 2018. The actual amount paid for the year-end bonus for 2017 was
$880,000. The estimate for 2018 is subject to year-end adjustment. What amount, if any,
of expense should be reflected in Post's quarterly income statement for the three months
ended March 31, 2018?
a. $ -0-.
b. $220,000.
c. $240,000.
d. $960,000.

Ans: C, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting, IFRS: None

58.

On January 15, 2018, Vancey Company paid property taxes on its factory building for the
calendar year 2018 in the amount of $1,080,000. In the first week of April 2018, Vancey
made unanticipated major repairs to its plant equipment at a cost of $2,700,000. These
repairs will benefit operations for the remainder of the calendar year. How should these
expenses be reflected in Vancey's quarterly income statements?
Three Months Ended
3/31/18
6/30/18
9/30/18
12/31/18
a.
$270,000
$1,170,000
$1,170,000
$1,170,000
b.
$270,000
$2,640,000
$270,000
$270,000
c.
$1,080,000
$1,800,000
$ -0$ -0d.
$945,000
$945,000
$945,000
$945,000

Ans: A, LO: 2, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting, IFRS: None


The Accounting Information System
59.

3 - 17

An inventory loss from market decline of $1,800,000 occurred in May 2018, after its March 31,
2018 quarterly report was issued. None of this loss was recovered by the end of the year.
How should this loss be reflected in the company's quarterly income statements?
Three Months Ended
3/31/18
6/30/18
9/30/18
12/31/18
a. $ -0$ -0$ -0$1,800,000
b. $ -0$600,000
$600,000
$600,000
c. $ -0$1,800,000
$ -0$ -0d. $450,000
$450,000
$450,000
$450,000

Ans: C, LO: 2, Bloom: Ans: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting, IFRS: None

Information for Ramirez Corp. is given below:
Ramirez Corp.
Balance Sheet
December 31, 2018
Assets
Cash
Accounts receivable (net)
Inventories
Plant and equipment,
net of depreciation
Patents
Other intangible assets
Total Assets

$ 300,000
1,950,000
2,439,000
1,983,000
261,000
75,000
$7,008,000

Equities
Accounts payable
$ 630,000
Income taxes payable
189,000
Miscellaneous accrued payables
225,000
Bonds payable (8%, due 2020)
1,875,000
Preferred stock ($100 par, 6%
cumulative nonparticipating)
750,000
Common stock (no par, 60,000
shares authorized, issued
and outstanding)
1,125,000
Retained earnings
2,439,000
Treasury stock—1,500 shares
of preferred
(225,000)
Total Equities
$7,008,000

Ramirez Corp.
Income Statement
Year Ended December 31, 2018
Net sales
Cost of goods sold
Gross profit
Operating expenses (including bond interest expense)
Income before income taxes
Income tax
Net income

$9,000,000
6,000,000
3,000,000
1,500,000
1,500,000
450,000
$ 1,050,000

Additional information:
There are no preferred dividends in arrears, the balances in the Accounts Receivable and
Inventory accounts are unchanged from January 1, 2018, and there were no changes in the
Bonds Payable, Preferred Stock, or Common Stock accounts during 2018. Assume that preferred
dividends for the current year have not been declared.


3 - 18

Test Bank for Intermediate Accounting, Sixteenth Edition

Information for Ramirez Corp. is given below:
Ramirez Corp.
Balance Sheet
December 31, 2018
Assets
Cash
Accounts receivable (net)
Inventories
Plant and equipment,
net of depreciation
Patents
Other intangible assets
Total Assets

$ 300,000
1,950,000
2,439,000
1,983,000
261,000
75,000
$7,008,000

Equities
Accounts payable
$ 630,000
Income taxes payable
189,000
Miscellaneous accrued payables
225,000
Bonds payable (8%, due 2020)
1,875,000
Preferred stock ($100 par, 6%
cumulative nonparticipating)
750,000
Common stock (no par, 60,000
shares authorized, issued
and outstanding)
1,125,000
Retained earnings
2,439,000
Treasury stock—1,500 shares
of preferred
(225,000)
Total Equities
$7,008,000

Ramirez Corp.
Income Statement
Year Ended December 31, 2018
Net sales
Cost of goods sold
Gross profit
Operating expenses (including bond interest expense)
Income before income taxes
Income tax
Net income

$9,000,000
6,000,000
3,000,000
1,500,000
1,500,000
450,000
$ 1,050,000

Additional information:
There are no preferred dividends in arrears, the balances in the Accounts Receivable and
Inventory accounts are unchanged from January 1, 2018, and there were no changes in the
Bonds Payable, Preferred Stock, or Common Stock accounts during 2018. Assume that preferred
dividends for the current year have not been declared.

*60.

At December 31, 2018, the current ratio was
a. 2,250 ÷ 630.
b. 6,675 ÷ 819.
c. 4,689 ÷ 819.
d. 4,689 ÷ 1,044.

Ans: D, LO: 6, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA, IFRS: None


The Accounting Information System

3 - 19

Information for Ramirez Corp. is given below:
Ramirez Corp.
Balance Sheet
December 31, 2018
Assets
Cash
Accounts receivable (net)
Inventories
Plant and equipment,
net of depreciation
Patents
Other intangible assets
Total Assets

$ 300,000
1,950,000
2,439,000
1,983,000
261,000
75,000
$7,008,000

Equities
Accounts payable
$ 630,000
Income taxes payable
189,000
Miscellaneous accrued payables
225,000
Bonds payable (8%, due 2020)
1,875,000
Preferred stock ($100 par, 6%
cumulative nonparticipating)
750,000
Common stock (no par, 60,000
shares authorized, issued
and outstanding)
1,125,000
Retained earnings
2,439,000
Treasury stock—1,500 shares
of preferred
(225,000)
Total Equities
$7,008,000

Ramirez Corp.
Income Statement
Year Ended December 31, 2018
Net sales
Cost of goods sold
Gross profit
Operating expenses (including bond interest expense)
Income before income taxes
Income tax
Net income

$9,000,000
6,000,000
3,000,000
1,500,000
1,500,000
450,000
$ 1,050,000

Additional information:
There are no preferred dividends in arrears, the balances in the Accounts Receivable and
Inventory accounts are unchanged from January 1, 2018, and there were no changes in the
Bonds Payable, Preferred Stock, or Common Stock accounts during 2018. Assume that preferred
dividends for the current year have not been declared.
*61.

The number of times interest was earned during 2018 was
a. 1,050 ÷ 150.
b. 1,500 ÷ 150.
c. 1,650 ÷ 150.
d. 1,350 ÷ 150.

Ans: C, LO: 6, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA, IFRS: None


3 - 20

Test Bank for Intermediate Accounting, Sixteenth Edition

Information for Ramirez Corp. is given below:
Ramirez Corp.
Balance Sheet
December 31, 2018
Assets
Cash
Accounts receivable (net)
Inventories
Plant and equipment,
net of depreciation
Patents
Other intangible assets
Total Assets

$ 300,000
1,950,000
2,439,000
1,983,000
261,000
75,000
$7,008,000

Equities
Accounts payable
$ 630,000
Income taxes payable
189,000
Miscellaneous accrued payables
225,000
Bonds payable (8%, due 2020)
1,875,000
Preferred stock ($100 par, 6%
cumulative nonparticipating)
750,000
Common stock (no par, 60,000
shares authorized, issued
and outstanding)
1,125,000
Retained earnings
2,439,000
Treasury stock—1,500 shares
of preferred
(225,000)
Total Equities
$7,008,000

Ramirez Corp.
Income Statement
Year Ended December 31, 2018
Net sales
Cost of goods sold
Gross profit
Operating expenses (including bond interest expense)
Income before income taxes
Income tax
Net income

$9,000,000
6,000,000
3,000,000
1,500,000
1,500,000
450,000
$ 1,050,000

Additional information:
There are no preferred dividends in arrears, the balances in the Accounts Receivable and
Inventory accounts are unchanged from January 1, 2018, and there were no changes in the
Bonds Payable, Preferred Stock, or Common Stock accounts during 2018. Assume that preferred
dividends for the current year have not been declared.
*62.

At December 31, 2018, the book value per share of common stock was
a. $55.66.
b. $58.16.
c. $59.40.
d. $58.65.

Ans: D, LO: 6, Bloom: AP, Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS:
None


The Accounting Information System

3 - 21

Information for Ramirez Corp. is given below:
Ramirez Corp.
Balance Sheet
December 31, 2018
Assets
Cash
Accounts receivable (net)
Inventories
Plant and equipment,
net of depreciation
Patents
Other intangible assets
Total Assets

$ 300,000
1,950,000
2,439,000
1,983,000
261,000
75,000
$7,008,000

Equities
Accounts payable
$ 630,000
Income taxes payable
189,000
Miscellaneous accrued payables
225,000
Bonds payable (8%, due 2020)
1,875,000
Preferred stock ($100 par, 6%
cumulative nonparticipating)
750,000
Common stock (no par, 60,000
shares authorized, issued
and outstanding)
1,125,000
Retained earnings
2,439,000
Treasury stock—1,500 shares
of preferred
(225,000)
Total Equities
$7,008,000

Ramirez Corp.
Income Statement
Year Ended December 31, 2018
Net sales
Cost of goods sold
Gross profit
Operating expenses (including bond interest expense)
Income before income taxes
Income tax
Net income

$9,000,000
6,000,000
3,000,000
1,500,000
1,500,000
450,000
$ 1,050,000

Additional information:
There are no preferred dividends in arrears, the balances in the Accounts Receivable and
Inventory accounts are unchanged from January 1, 2018, and there were no changes in the
Bonds Payable, Preferred Stock, or Common Stock accounts during 2018. Assume that preferred
dividends for the current year have not been declared.
*63.

The rate of return for 2018 based on the year-end common stockholders' equity was
a. 1,050 ÷ 3,519.
b. 1,050 ÷ 3,564.
c. 1,005 ÷ 3,519.
d. 1,005 ÷ 3,564.

Ans: C, LO: 6, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA, IFRS: None


3 - 22

Test Bank for Intermediate Accounting, Sixteenth Edition

The following data are provided:
December 31
2018
2017
$ 1,500,000
$ 1,000,000
1,600,000
1,200,000
2,600,000
2,200,000
7,000,000
6,500,000
1,100,000
800,000
200,000
100,000
1,400,000
1,400,000
2,000,000
2,000,000
2,400,000
1,800,000
1,600,000
1,300,000
4,000,000
3,500,000
12,800,000
8,400,000
2,900,000
1,500,000

Cash
Accounts receivable (net)
Inventories
Plant assets (net)
Accounts payable
Income taxes payable
Bonds payable
10% Preferred stock, $50 par
Common stock, $10 par
Paid-in capital in excess of par
Retained earnings
Net credit sales
Cost of goods sold
Operating expenses
Net income
Additional information:
Depreciation included in cost of goods sold and operating expenses is $1,220,000. On May 1,
2018, 60,000 shares of common stock were issued. The preferred stock is cumulative. The
preferred dividends were not declared during 2018.
*64.

The accounts receivable turnover for 2018 is
a. 12,800 ÷ 1,600.
b. 8,400 ÷ 1,600.
c. 12,800 ÷ 1,400.
d. 8,400 ÷ 1,400.

Ans: C, LO: 6, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA, IFRS: None

The following data are provided:

Cash
Accounts receivable (net)
Inventories
Plant assets (net)
Accounts payable
Income taxes payable
Bonds payable
10% Preferred stock, $50 par
Common stock, $10 par
Paid-in capital in excess of par
Retained earnings
Net credit sales
Cost of goods sold
Operating expenses
Net income

December 31
2018
2017
$ 1,500,000
$ 1,000,000
1,600,000
1,200,000
2,600,000
2,200,000
7,000,000
6,500,000
1,100,000
800,000
200,000
100,000
1,400,000
1,400,000
2,000,000
2,000,000
2,400,000
1,800,000
1,600,000
1,300,000
4,000,000
3,500,000
12,800,000
8,400,000
2,900,000
1,500,000


The Accounting Information System

3 - 23

Additional information:
Depreciation included in cost of goods sold and operating expenses is $1,220,000. On May 1,
2018, 60,000 shares of common stock were issued. The preferred stock is cumulative. The
preferred dividends were not declared during 2018.
*65.

The inventory turnover for 2018 is
a. 12,800 ÷ 2,600.
b. 8,400 ÷ 2,600.
c. 12,800 ÷ 2,400.
d. 8,400 ÷ 2,400.

Ans: D, LO: 6, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA, IFRS: None

The following data are provided:

Cash
Accounts receivable (net)
Inventories
Plant assets (net)
Accounts payable
Income taxes payable
Bonds payable
10% Preferred stock, $50 par
Common stock, $10 par
Paid-in capital in excess of par
Retained earnings
Net credit sales
Cost of goods sold
Operating expenses
Net income

December 31
2018
2017
$ 1,500,000
$ 1,000,000
1,600,000
1,200,000
2,600,000
2,200,000
7,000,000
6,500,000
1,100,000
800,000
200,000
100,000
1,400,000
1,400,000
2,000,000
2,000,000
2,400,000
1,800,000
1,600,000
1,300,000
4,000,000
3,500,000
12,800,000
8,400,000
2,900,000
1,500,000

Additional information:
Depreciation included in cost of goods sold and operating expenses is $1,220,000. On May 1,
2018, 60,000 shares of common stock were issued. The preferred stock is cumulative. The
preferred dividends were not declared during 2018.
*66.

The profit margin on sales for 2018 is
a. 4,400 ÷ 12,800.
b. 1,500 ÷ 12,800.
c. 4,400 ÷ 8,400.
d. 1,500 ÷ 8,400.

Ans: B, LO: 6, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA, IFRS: None


3 - 24

Test Bank for Intermediate Accounting, Sixteenth Edition

The following data are provided:

Cash
Accounts receivable (net)
Inventories
Plant assets (net)
Accounts payable
Income taxes payable
Bonds payable
10% Preferred stock, $50 par
Common stock, $10 par
Paid-in capital in excess of par
Retained earnings
Net credit sales
Cost of goods sold
Operating expenses
Net income

December 31
2018
2017
$ 1,500,000
$ 1,000,000
1,600,000
1,200,000
2,600,000
2,200,000
7,000,000
6,500,000
1,100,000
800,000
200,000
100,000
1,400,000
1,400,000
2,000,000
2,000,000
2,400,000
1,800,000
1,600,000
1,300,000
4,000,000
3,500,000
12,800,000
8,400,000
2,900,000
1,500,000

Additional information:
Depreciation included in cost of goods sold and operating expenses is $1,220,000. On May 1,
2018, 60,000 shares of common stock were issued. The preferred stock is cumulative. The
preferred dividends were not declared during 2018.
*67.

The return on common stock holders’ equity for 2018 is
a. 1,500 ÷ 7,200.
b. 1,500 ÷ 8,000.
c. 1,300 ÷ 7,200.
d. 1,300 ÷ 8,000.

Ans: C, LO: 6, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA, IFRS: None

The following data are provided:

Cash
Accounts receivable (net)
Inventories
Plant assets (net)
Accounts payable
Income taxes payable
Bonds payable
10% Preferred stock, $50 par
Common stock, $10 par
Paid-in capital in excess of par
Retained earnings
Net credit sales
Cost of goods sold
Operating expenses
Net income

December 31
2018
2017
$ 1,500,000
$ 1,000,000
1,600,000
1,200,000
2,600,000
2,200,000
7,000,000
6,500,000
1,100,000
800,000
200,000
100,000
1,400,000
1,400,000
2,000,000
2,000,000
2,400,000
1,800,000
1,600,000
1,300,000
4,000,000
3,500,000
12,800,000
8,400,000
2,900,000
1,500,000


The Accounting Information System

3 - 25

Additional information:
Depreciation included in cost of goods sold and operating expenses is $1,220,000. On May 1,
2018, 60,000 shares of common stock were issued. The preferred stock is cumulative. The
preferred dividends were not declared during 2018.
*68.

The book value per share of common stock at 12/31/18 is
a. 7,800 ÷ 240.
b. 7,760 ÷ 240.
c. 7,800 ÷ 220.
d. 8,000 ÷ 220.

Ans: A, LO: 6, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA, IFRS: None

The following data are provided:

Cash
Accounts receivable (net)
Inventories
Plant assets (net)
Accounts payable
Income taxes payable
Bonds payable
10% Preferred stock, $50 par
Common stock, $10 par
Paid-in capital in excess of par
Retained earnings
Net credit sales
Cost of goods sold
Operating expenses
Net income

December 31
2018
2017
$ 1,500,000
$ 1,000,000
1,600,000
1,200,000
2,600,000
2,200,000
7,000,000
6,500,000
1,100,000
800,000
200,000
100,000
1,400,000
1,400,000
2,000,000
2,000,000
2,400,000
1,800,000
1,600,000
1,300,000
4,000,000
3,500,000
12,800,000
8,400,000
2,900,000
1,500,000

Additional information:
Depreciation included in cost of goods sold and operating expenses is $1,220,000. On May 1,
2018, 60,000 shares of common stock were issued. The preferred stock is cumulative. The
preferred dividends were not declared during 2018.
*69.

At December 31, 2018, the acid-test ratio was
a. 3,100 ÷ 1,300.
b. 3,100 ÷ 2,160.
c. 4,200 ÷ 1,600.
d. 5,700 ÷ 1,300.

Ans: A, LO: 6, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA, IFRS: None


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