McBoard - 2nd Year (191) and 3rd

Year (181)
Financial Accounting and Reporting (Board Exam Subject)

1.The following changes in Patriot Corporation's account balances occurred

during 2004: Increase Assets .................................................. $267,000
Liabilities ............................................. 81,000 Capital Stock ...........................................
198,000 Patriot paid dividends of $39,000 during the year. There were no changes
in Retained Earnings for 2004 except dividends and net income. What was
Patriot's net income for 2004?Required to answer. Single choice.

(2 Points)
$12,000
$27,000
$39,000
$51,000
2.Hogi-Yogi Co. has total debt of $252,000 and stockholders' equity of $420,000.
Hogi-Yogi is seeking capital to fund an expansion. Hogi-Yogi is planning to issue
an additional $180,000 in common stock, and is negotiating with a bank to
borrow additional funds. The bank requires a maximum debt ratio of .75. What is
the maximum additional amount Hogi-Yogi will be able to borrow after the
common stock is issued?Required to answer. Single choice.
(2 Points)
$639,000
$852,000
$1,236,000
$1,548,000
3.In a statement of cash flows, if equipment is sold at a gain, the amount shown
as a cash inflow from investing activities equals the carrying amount of the
equipmentRequired to answer. Single choice.
(1 Point)
with no addition or subtraction.
plus the gain and less the amount of tax attributable to the gain.
 plus both the gain and the amount of tax attributable to the gain.
plus the gain only.
4.Cotton Corp. reported net income of $420,000 for 2005. Changes occurred in
several balance sheet accounts as follows: Equipment ................................. $35,000
increase Accumulated depreciation .................. 56,000 increase Note
payable .............................. 42,000 increase Additional information: • During 2005,
Cotton sold equipment costing $35,000, with accumulated depreciation of
$16,800, for a gain of $7,000. • In December 2005, Cotton purchased equipment
costing $70,000 with $28,000 cash and a 12% note payable of $42,000. •
Depreciation expense for the year was $72,800. In Cotton's 2005 statement of
cash flows, net cash used in investing activities should beRequired to answer.
Single choice.
(2 Points)
$2,800.
$16,800.
$30,800.
$49,000.
5.Rose Corporation reported net income of $420,000 for 2005. Changes occurred
in several balance sheet accounts as follows: Equipment ................................. $35,000
increase Accumulated depreciation .................. 56,000 increase Note
payable .............................. 42,000 increase Additional information: • During 2005,
Rose sold equipment costing $35,000, with accumulated depreciation of $16,800,
for a gain of $7,000. • In December 2005, Rose purchased equipment costing
$70,000 with $28,000 cash and a 12% note payable of $42,000. • Depreciation
expense for the year was $72,800. In Rose's 2005 statement of cash flows, net
cash provided by operating activities should beRequired to answer. Single choice.
(2 Points)
$476,000.
$485,800.
$492,800.
$499,800.
6.Lobo Co. was incorporated on July 1, 2004, with $200,000 from the issuance of
stock and borrowed funds of $30,000. During the first year of operations, net
income was $10,000. On December 15, Lobo paid an $800 cash dividend. No
additional activities affected owners' equity in 2004. At December 31, 2004,
Lobo's liabilities had increased to $37,600. In Lobo's December 31, 2004, balance
sheet, total assets should be reported atRequired to answer. Single choice.
(2 Points)
$239,200.
$240,000.
$246,800.
$276,800.
7.In preparing a statement of cash flows (indirect method), cash flows from
operating activitiesRequired to answer. Single choice.
(1 Point)
is calculated as the difference between revenues and expenses plus the beginning cash balance.
is always equal to the sum of cash flows from investing activities and cash flows from financing
activities.
can be calculated by appropriately adding to or deducting from net income those items in the
income statement that affect cash and accruals for current assets and current liabilities.
can be calculated by appropriately adding to or deducting from net income those items in the
income statement that do not affect cash.
8.The December 31, 2004, balance sheet of Madden Inc., reported total assets of
$1,050,000 and total liabilities of $680,000. The following information relates to
the year 2005: • Madden Inc. issued an additional 5,000 shares of common stock
at $25 per share on July 1, 2005. • Madden Inc. paid dividends totaling $80,000. •
Net income for 2005 was $110,000. • No other changes occurred in stockholders'
equity during 2005. The stockholders' equity section of the December 31, 2005,
balance sheet would report a balance ofRequired to answer. Single choice.
(2 Points)
$400,000.
$525,000.
$685,000.
$835,000.
9.On January 1, 2005, Wintz Corporation acquired machinery at a cost of
$600,000. Wintz adopted the straight-line method of depreciation for this
machine and had been recording depreciation over an estimated life of ten years,
with no residual value. At the beginning of 2008, a decision was made to change
to the double-declining balance method of depreciation for this machine. The
amount that Wintz should record as depreciation expense for 2008 isRequired to
answer. Single choice.
(3 Points)
a. $60,000.
b. $84,000.
c. $120,000.
d. none of the above.
10.On January 1, 2005, Dent Co. purchased a machine for $792,000 and
depreciated it by the straight-line method using an estimated useful life of eight
years with no salvage value. On January 1, 2008, Dent determined that the
machine had a useful life of six years from the date of acquisition and will have a
salvage value of $72,000. An accounting change was made in 2008 to reflect
these additional data. The accumulated depreciation for this machine should
have a balance at December 31, 2008 ofRequired to answer. Single choice.
(3 Points)
a. $438,000.
b. $462,000.
c. $480,000.
d. $528,000.
11.A loss on the sale of machinery in the ordinary course of business should be
presented in a statement of cash flows (indirect method) asRequired to answer.
Single choice.
(1 Point)
a deduction from net income.
an addition to net income.
an inflow and outflow of cash.
an outflow of cash.
12.In its accrual basis income statement for the year ended December 31, 2005,
Nelson Company reported revenue of $3,500,000. Additional information is as
follows: Accounts receivable--December 31, 2004 ............... $ 750,000 Net income
for 2005 .................................. 140,000 Accounts receivable--December 31,
2005 ............... 1,010,000 Nelson should report cash collected from customers in its
2005 statement of cash flows (direct method) in the amount ofRequired to
answer. Single choice.
(2 Points)
 $3,240,000.
$3,100,000.
$3,380,000.
$3,760,000.
13.SectionRequired to answer. Single line text.

14.On January 1, 2008, Bosco Corp. changed its inventory method to FIFO from
LIFO for both financial and income tax reporting purposes. The change resulted
in an $800,000 increase in the January 1, 2008 inventory. Assume that the income
tax rate for all years is 30%. The cumulative effect of the accounting change
should be reported by Bosco in its 2008Required to answer. Single choice.
(2 Points)
a. retained earnings statement as a $560,000 addition to the beginning balance.
b. income statement as a $560,000 cumulative effect of accounting change.
c. retained earnings statement as an $800,000 addition to the beginning balance.
d. income statement as an $800,000 cumulative effect of accounting change.
15.On January 1, 2007, Gregg Corp. acquired a machine at a cost of $500,000. It is
to be depreciated on the straight-line method over a five-year period with no
residual value. Because of a bookkeeping error, no depreciation was recognized
in Gregg's 2007 financial statements. The oversight was discovered during the
preparation of Gregg's 2008 financial statements. Depreciation expense on this
machine for 2008 should beRequired to answer. Single choice.
(3 Points)
a. $0.
b. $100,000.
c. $125,000.
d. $200,000.
16.Which of the following would not be reported for capital stock in the
contributed capital section of a classified balance sheet?Required to answer.
Single choice.
(1 Point)
Dividends per share
Shares authorized
Shares issued
 Shares outstanding
17.Which of the following statements regarding assets is not true?Required to
answer. Single choice.
(1 Point)
An asset represents a probable future economic benefit.
Assets are obtained or controlled as a result of past or probable future transactions or events.
Assets reported on the balance sheet include both monetary and nonmonetary resources.
Assets include costs that have not yet been matched with revenues.
18.On January 1, 2005, Foley Corporation acquired machinery at a cost of
$250,000. Foley adopted the double-declining balance method of depreciation
for this machinery and had been recording depreciation over an estimated useful
life of ten years, with no residual value. At the beginning of 2008, a decision was
made to change to the straight-line method of depreciation for the machinery.
The depreciation expense to be recorded for the machinery in 2008 is (round to
the nearest dollar)Required to answer. Single choice.
(3 Points)
a. $25,600.
b. $18,286.
c. $22,857.
d. $25,000.
19.Blues Corporation's trial balance included the following account balances at
December 31, 2004: Accounts Payable ........................................ $45,000 Bonds
Payable, due 2005 ................................. 75,000 Discount on Bonds Payable, due
2005 ..................... 9,000 Dividends Payable January 31, 2005 ...................... 24,000
Notes Payable, due January 31, 2008 ..................... 60,000 What amount should be
included in the current liability section of Blues' December 31, 2004, balance
sheet?Required to answer. Single choice.
(2 Points)
$135,000
$153,000
$195,000
$234,000
20.On December 31, 2008 Kean Company changed its method of accounting for
inventory from weighted average cost method to the FIFO method. This change
caused the 2008 beginning inventory to increase by $420,000. The cumulative
effect of this accounting change to be reported for the year ended 12/31/08,
assuming a 40% tax rate, isRequired to answer. Single choice.
(3 Points)
a. $420,000.
b. $252,000.
c. $168,000.
d. $0.
21.In a statement of cash flows, payments to acquire debt instruments of other
entities would typically be classified as cash outflows forRequired to answer.
Single choice.
(1 Point)
financing activities.
investing activities.
operating activities.
equity activities.
22.Eagle Co. prepared a draft of its 2004 balance sheet. The draft statement
reported current liabilities totaling $200,000. However, none of the following
items were included in this preliminary total at December 31, 2004: Accounts
payable ........................................ $30,000 Bonds payable, due 2005 .................................
50,000 Discount on bonds payable, due 2005 ..................... 6,000 Dividends payable
on January 31, 2005 ................... 16,000 Notes payable, due 2006 .................................
40,000 At which amount should Eagle's current liabilities be correctly reported in
the December 31, 2004, balance sheet?Required to answer. Single choice.
(2 Points)
$230,000
$290,000
$296,000
$302,000
23.Accrued revenues would normally appear on the balance sheet asRequired to
answer. Single choice.
(1 Point)
plant assets.
current liabilities.
 long-term liabilities.
current assets.
24.Which of the following would not be considered an element of working
capital?Required to answer. Single choice.
(1 Point)
Investment securities (current)
Organization costs
Accrued interest on notes payable
Work in process inventories
25.The accounts and balances shown below were gathered from Paynter
Corporation's trial balance on December 31, 2004. All adjusting entries have been
made. Wages Payable ........................................... $ 25,600
Cash .................................................... 17,700 Mortgage Payable ........................................
151,600 Dividends Payable ....................................... 14,000 Prepaid
Rent ............................................ 13,600 Inventory ............................................... 81,800
Sinking Fund Assets ..................................... 52,400 Short-Term
Investments .................................. 15,200 Premium on Bonds Payable ................................
4,600 Stock Investment in Subsidiary .......................... 102,400 Taxes
Payable ........................................... 22,800 Accounts Payable ........................................
24,800 Accounts Receivable ..................................... 36,600 The amount that should be
reported as current assets on Paynter Corporation's balance sheet isRequired to
answer. Single choice.
(2 Points)
$151,300.
$164,900.
$217,300.
$267,300.
26.Pending litigation would generally be considered a(n)Required to answer.
Single choice.
(1 Point)
nonmonetary liability.
contingent liability.
estimated liability.
current liability.
27.In a statement of cash flows, proceeds from issuing equity instruments should
be classified as cash inflows fromRequired to answer. Single choice.
(1 Point)
brokerage activities.
financing activities.
investing activities.
operating activities.
28.When preparing a statement of cash flows using the indirect method, the
amortization of trademarks should be reported as a(n)Required to answer. Single
choice.
(1 Point)
increase in cash flows from investing activities.
reduction in cash flows from investing activities.
increase in cash flows from operating activities.
reduction in cash flows from operating activities.
29.Which of the following characteristics may result in the classification of a
liability as current?Required to answer. Single choice.
(1 Point)
Short-term obligations expected to be refinanced with long-term debt.
Debts to be liquidated from funds that have been accumulated and are reported as noncurrent
assets.
Violation of provisions of a debt agreement.
Obligations for advance collections that involve long-term deferment of the delivery of goods or
services.
30.On January 1, 2005, Baden Co., purchased a machine (its only depreciable
asset) for $300,000. The machine has a five-year life, and no salvage value. Sum-
of-the-years'- digits depreciation has been used for financial statement reporting
and the elective straight-line method for income tax reporting. Effective January
1, 2008, for financial statement reporting, Baden decided to change to the
straight-line method for depreciation of the machine. Assume that Baden can
justify the change. Baden's income before depreciation, before income taxes, and
before the cumulative effect of the accounting change (if any), for the year ended
December 31, 2008, is $250,000. The income tax rate for 2008, as well as for the
years 2005-2007, is 30%. What amount should Baden report as net income for
the year ended December 31, 2008?Required to answer. Single choice.
(3 Points)
a. $60,000
b. $91,000
c. $154,000
d. $175,000
31.When preparing a statement of cash flows using the direct method,
amortization of goodwill isRequired to answer. Single choice.
(1 Point)
shown as an increase in cash flows from operating activities.
shown as a reduction in cash flows from operating activities.
included with supplemental disclosures of noncash transactions.
not reported in the statement of cash flows or related disclosures.
32.Equipment was purchased at the beginning of 2005 for $204,000. At the time
of its purchase, the equipment was estimated to have a useful life of six years and
a salvage value of $24,000. The equipment was depreciated using the straight-
line method of depreciation through 2008. At the beginning of 2008, the
estimate of useful life was revised to a total life of eight years and the expected
salvage value was changed to $15,000. The amount to be recorded for
depreciation for 2008, reflecting these changes in estimates, isRequired to
answer. Single choice.
(3 Points)
a. $12,375.
b. $19,800.
c. $22,800.
d. $23,625.
33.A gain on the sale of a plant asset in the ordinary course of business should be
presented in a statement of cash flows prepared using the indirect method
asRequired to answer. Single choice.
(1 Point)
a cash inflow from investing activities.
a cash inflow from financing activities.
an addition to net income.
a deduction from net income.
34.Which of the following would not be classified as a current asset on a
classified balance sheet?Required to answer. Single choice.
(1 Point)
Investment securities (trading).
Short-term investments.
Prepaid expenses.
Intangible assets.
35.On January 1, 2005, Lynn Corporation acquired equipment at a cost of
$600,000. Lynn adopted the double-declining balance method of depreciation for
this equipment and had been recording depreciation over an estimated life of
eight years, with no residual value. At the beginning of 2008, a decision was
made to change to the straight-line method of depreciation for this equipment.
Assuming a 30% tax rate, the cumulative effect of this accounting change on
beginning retained earnings, net of tax, isRequired to answer. Single choice.
(3 Points)
$121,875.
$0.
$78,750.
$77,109.
36.Which of the following would not be classified as a current liability on a
classified balance sheet?Required to answer. Single choice.
(1 Point)
Unearned revenue.
Deferred income tax liability.
The currently maturing portion of long-term debt.
Accrued salaries payable to management.
37.Balance sheet analysis is useful in assessing a firm's liquidity, which is the
ability toRequired to answer. Single choice.
(1 Point)
satisfy short-term obligations.
main profitable operations.
maintain past levels of preferred and common dividends.
survive a major economic downturn.
38.For a liability to exist,Required to answer. Single choice.
(1 Point)
there must be a past transaction or event.
the exact amount must be known.
the identity of the party to whom the liability is owed must be known.
there must be an obligation to pay cash in the future.
39.Dicksen Company's income statement for the year ended December 31, 2005,
reported net income of $360,000. The financial statements also disclosed the
following information: Amortization ......................................... $ 20,000
Depreciation ......................................... 60,000 Increase in accounts
receivable ...................... 140,000 Increase in inventory ................................ 48,000
Decrease in accounts payable ......................... 76,000 Increase in salaries
payable ......................... 28,000 Dividends paid ....................................... 120,000 Purchase
of equipment ................................ 150,000 Increase in long-term note
payable ................... 300,000 Net cash provided by operating activities for 2005
should be reported asRequired to answer. Single choice.
(2 Points)
$84,000.
$204,000.
$234,000.
$324,000.
40.The following information was taken from the 2005 financial statements of
Winchester Corporation: Accounts receivable, January 1, 2005 ................. $ 108,000
Accounts receivable, December 31, 2005 ............... 152,000 Sales on account and
cash sales ...................... 2,190,000 Uncollectible accounts ............................... 5,000 No
accounts receivable were written off or recovered during the year. If Winchester
prepares a statement of cash flows using the direct method, what amount should
be reported as collected from customers in 2005?Required to answer. Single
choice.
(2 Points)
a. $2,239,000
b. $2,234,000
c. $2,146,000
d. $2,141,000
41.On January 1, 2005, Wintz Corporation acquired machinery at a cost of
$600,000. Wintz adopted the straight-line method of depreciation for this
machine and had been recording depreciation over an estimated life of ten years,
with no residual value. At the beginning of 2008, a decision was made to change
to the double-declining balance method of depreciation for this machine.
Assuming a 30% tax rate, the cumulative effect of this accounting change on
beginning retained earnings, isRequired to answer. Single choice.
(3 Points)
a. $67,200.
b. $0.
c. $78,960.
d. $112,800.
42.In a statement of cash flows using the direct method, which of the following
would increase reported cash flows from operating activities?Required to answer.
Single choice.
(1 Point)
Dividends received from investments
Gain on sale of equipment
Gain on sale of a business segment
Sale of treasury stock
43.The accounts and balances shown below were gathered from Paynter
Corporation's trial balance on December 31, 2004. All adjusting entries have been
made. Wages Payable ........................................... $ 25,600
Cash .................................................... 17,700 Mortgage Payable ........................................
151,600 Dividends Payable ....................................... 14,000 Prepaid
Rent ............................................ 13,600 Inventory ............................................... 81,800
Sinking Fund Assets ..................................... 52,400 Short-Term
Investments .................................. 15,200 Premium on Bonds Payable ................................
4,600 Stock Investment in Subsidiary .......................... 102,400 Taxes
Payable ........................................... 22,800 Accounts Payable ........................................
24,800 Accounts Receivable ..................................... 36,600 The amount that should be
reported as current liabilities on Paynter Corporation's balance sheet isRequired
to answer. Single choice.
(2 Points)
$87,200.
$91,800.
$73,200.
 $238,800.
44.Name (Last Name, First name Middle Initial)Required to answer. Single line
text.

45.QuestionIn a statement of cash flows prepared using the direct method, if

wages payable increased during the year, the cash paid for wages would
beRequired to answer. Single choice.
(1 Point)
the same as salary expense.
salary expense plus wages payable at the beginning of the year.
salary expense plus the increase in wages payable from the beginning to the end of the year.
salary expense less the increase in wages payable from the beginning to the end of the year.