111年會考中會題庫

Multiple Choice
1. A conceptual framework
a. is mandated by all international standard-setters.
b. has no role in accounting, since standards have the highest authority.
c. is a coherent system of concepts that flow from an objective.
d. likely does not increase financial statement users’ understanding of and confidence in financial
reporting.
Ans: C –A conceptual framework establishes the concepts that underlie financial reporting. A
conceptual framework is a coherent system of concepts that flow from an objective, LO: 1, Bloom: K,
Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: Governance, AICPA PC: None, IMA:
Reporting
2. A conceptual framework is necessary for which of the following reasons?

a. It allows the profession to quickly solve new and emerging issues.
b. It enables standard setters to issue more useful and consistent pronouncements over time.
c. It increases financial statement users’ understanding of and confidence in financial reporting.
d. All of these answer choices are correct.
Ans: D –The conceptual framework allows the profession to quickly solve new and emerging issues and
to issue more useful consistent standards. It also increases financial statement users’ understanding of
and confidence in financial reporting., LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AICPA FC:
Reporting, AICPA BC: Governance, AICPA PC: None, IMA: Reporting
3. The conceptual framework for financial reporting consists of how many levels?
a. 1
b. 2
c. 3
d. 4
Ans: C –There are 3 levels: 1) the Objective; 2) the “Why”, or Bridge between levels 1 & 3, and 3), the
“How”., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: Governance,
AICPA PC: None, IMA: Reporting
4. Which of the following statements is true regarding the conceptual framework convergence project by
the FASB and IASB?
a. The Boards continue to work together to arrive at a converged framework.
b. The existing conceptual frameworks underlying U.S. GAAP and IFRS are quite dissimilar, but once
they are converged there will be unanimity.
c. The Boards have converged on two subjects.
d. The FASB framework has no discussion of fair value.
Ans: C – The IASB and the FASB originally planned to develop a common conceptual framework. The
Boards converged on two subjects: Objectives of Financial Reporting and Qualitative Characteristics of
Accounting Information., LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AICPA FC: Reporting, AICPA
BC: Governance, AICPA PC: None, IMA: Reporting
5. The underlying theme of the conceptual framework is
a. decision usefulness.
b. understandability.
c. reliability.
d. comparability.
Ans: A – Decision usefulness is the underlying theme of the conceptual framework., LO: 1, Bloom: K,
Reporting
6. Which of the following is not among the ingredients of the fundamental quality of faithful
representation?
a. freedom from error
b. neutrality
c. materiality
d. completeness
Ans: C –The ingredients of faithful representation include completeness, neutrality, and freedom from
error., LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: Governance,
7. Enhancing qualities of accounting information include

a. comparability and verifiability.
b. relevance and consistency.
c. comparability and materiality.
d. relevance and faithful representation.
Ans: A – The enhancing qualities of accounting information include comparability, verifiability,

timeliness, and understandability., LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting,
AICPA BC: Governance, AICPA PC: None, IMA: Reporting
8. Enhancing qualities of accounting information include all of the following except

a. comparability.
b. understandability.
c. neutrality.
d. timeliness.
Ans: C – The enhancing qualities of accounting information include comparability, verifiability,

timeliness, and understandability., LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting,
9. In order to be relevant, financial information must have
a. freedom from error.
b. neutrality.
c. comparability.
d. confirmatory or predictive value.
Ans: D – Relevant information has predictive value or confirmatory value (or both), and is material.,
LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, Measurement, AICPA BC: None,
10. Companies and their auditors have adopted a general rule of thumb that anything under _____ of net
income is considered not material.
a. 10%
b. 15%
c. 5%
d. 2%
Ans: C – Anything under 5% of net income is generally considered not material., LO: 2, Bloom: K,
Difficulty: Easy, Min: 1, AICPA FC: Reporting, Measurement, AICPA BC: Governance, AICPA PC:
None, IMA: Reporting
11. The residual interest in the assets of the entity after deducting all its liabilities are called
a. assets.
b. a revenue.
c. expenses.
d. equity.
Ans: D – Equity is defined as the residual interest in the assets of the entity after deducting all its
liabilities., LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None,
12. Which of the following elements of financial statements describes the amount of resources less the
amount of claims to resources at a moment in time?
a. Expenses
b. Revenues
c. Equity
d. Cash flow
Ans: C – The elements that describe resources and claims to resources at a moment in time include
assets, liabilities, and equity. The other elements (income and expenses) describe transactions, events
and circumstances that affect a company during a period of time., LO: 2, Bloom: K, Difficulty: Easy,
Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None, IMA: Reporting
13. Under current IFRS, inflation is ignored in accounting due to
a. materiality.
b. the going concern assumption.
c. the monetary unit assumption.
d. consistency.
Ans: C – Inflation is ignored under the monetary unit assumption., LO: 3, Bloom: C, Difficulty: Easy,
Min: 1, AICPA FC: Reporting, AICPA BC: Governance, AICPA PC: None, IMA: Reporting
14. Depreciation and amortization policies are justifiable and appropriate because of the
a. economic entity assumption.
b. going concern assumption.
c. monetary unit assumption.
d. periodicity assumption.
Ans: B – The going concern assumption is the justification for depreciation and amortization., LO: 3,
Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None, IMA:
Reporting
15. Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an

example of the
a. economic entity assumption.
b. relevance characteristic.
c. comparability characteristic.
d. neutrality characteristic.
Ans: A – The economic entity assumption implies that the economic activities of an enterprise can be
identified with a particular unit of accountability., LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AICPA
FC: Reporting, AICPA BC: None, AICPA PC: None, IMA: Reporting
16. Generally, revenues are recognized when the

a. cash is received.
b. performance obligation is satisfied.
c. product is produced.
Ans: B – When a company satisfies the performance obligation to perform services or sell a product,
revenue is recognized., LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Measurement, AICPA
BC: None, AICPA PC: None, IMA: Reporting
17. Which of the following statements about the fair value principle is true?
a. Fair value is a market-based measure.
b. Fair value is generally less relevant than historical cost.
c. Measurements based on fair value increase the objectivity in financial reporting.
d. IFRS requires the use of fair value for financial assets and financial liabilities.
Ans: A – Fair value is more relevant, more subjective, and IFRS gives companies the option of using
fair value for financial assets and financial liabilities., LO: 4, Bloom: AP, Difficulty: Medium, Min: 2,
AICPA FC: Reporting, Measurement, AICPA BC: None, AICPA PC: None, IMA: Reporting
18. In 2010, the FASB and IASB completed the first phase of jointly created conceptual framework and in
this phase they agreed on
a. the elements of financial statements.
b. the objective of financial reporting.
c. the constraints of financial reporting.
Ans: B – In 2010, the FASB and IASB completed the first phase of a jointly created conceptual
framework and in this phase they agreed on the objective of financial reporting and a common set of
desired qualitative characteristics., LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AICPA FC: Reporting,
19. Under IFRS

a. companies may apply fair value to natural resources.
b. the monetary unit assumption is used, however since every country has its own currency the unit of
measure will vary depending on the country in which the company is incorporated.
c. the existing conceptual framework is very similar to the conceptual framework under GAAP.
Ans: D – Under IFRS companies may apply fair value to natural resources and the monetary unit
assumption is still used (although the unit of measure will vary depending on the currency used in the
country in which the company is incorporated). The existing conceptual frameworks under IFRS and
GAAP are very similar., LO: 4 Bloom: C, Difficulty: Easy, Min: 2, AICPA FC: Reporting, AICPA BC:
Governance, AICPA PC: None, IMA: Reporting
20. The income statement can be used to assess

a. liquidity.
b. solvency.
c. creditworthiness.
Ans: C – The business and investment community uses the income statement to determine profitability,
investment value, and creditworthiness., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC:
Reporting, AICPA BC: None, AICPA PC: None, IMA: Reporting
21. ________ approach focuses on the income-related activities that have occurred during the period.
a. transaction
b. capital maintenance
c. earnings quality
d. classification
Ans: A – The transaction approach focuses on the income-related activities that have occurred during
the period. These activities include revenue and expense transactions, and gain and loss transactions.,
LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA PC:
22. Which of the following occur from peripheral or incidental transactions?

a. Sales revenue
b. Cost of goods sold
c. Gain on the sale of equipment
d. Operating expenses
Ans: C – Gains and losses result from peripheral or incidental transactions., LO: 3, Bloom: C, Difficulty:
Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None, IMA: Reporting
23. Jackson, Inc. has the following information is available:

Cost of goods sold $148,500
Dividend revenue 3,750
Income tax expense 3,000
Operating expenses 79,500
Sales 255,000
In Jackson’s multiple-step income statement, gross profit

a. will not be reported.
b. will be reported at $24,000.
c. will be reported at $27,000.
d. will be reported at $106,500.
Ans: D – Gross profit = sales – cost of goods sold. $255,000 − $248,500 = $106,500, LO: 3, Bloom: AP,
Difficulty: Medium, Min: 2, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None, IMA:
Reporting
24. How should gains and losses be reported in the financial statements?
a. Shown as a separate item after income from operations before income taxes, if material, and
supplemented by a footnote if deemed appropriate.
b. Shown in operating revenues or expenses if material with disclosure.
c. Shown net of income tax after ordinary net earnings, but before discontinued operations.
d. Shown net of income tax after discontinued operations but before net earnings.
Ans: B – Most companies report these items as part of operations and disclose them in great detail if
material in amount., LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Reporting, AICPA
25. Which of the following is not considered a gain or loss on the income statement?
a. Income tax expense
b. Write-down of inventories
c. Litigation settlements
d. Effects on income of condemnation of property
Ans: A – Income tax expense is a regular item on the income statement., LO: 3, Bloom: C, Difficulty:
26. Noncontrolling interest is

a. not shown on the face of the income statement.
b. reported as a separate item below net income or loss.
c. shown in a separate section of the income statement after continuing operations but before discontinued
operations, net of tax.
d. shown in a separate section of the income statement after discontinued operations, net of tax.
Ans: B – Noncontrolling interest is reported as a separate item below net income or loss as an allocation
of the net income or loss (that is, it is not an item of income or expense)., LO: 3, Bloom: C, Difficulty:
27. Companies are required to highlight certain items in the financial statements so that users can better
determine the long-run earning power of the company. Which of the following is not one of those
items?
a. Unusual gains and losses
b. Noncontrolling interest
c. Changes in accounting principle
d. Discontinued operations
Ans: C – A change in accounting principle is recognized by making a retrospective adjustment to the

financial statements. The items companies are required to highlight include unusual and infrequent gains
and losses, discontinued operations, and noncontrolling interest., LO: 4, Bloom: AP, Difficulty:
Medium, Min: 2, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None, IMA: Reporting
28. Barger Enterprises has an unusual loss of $300,000, an infrequent gain of $700,000, and a tax rate of
30%. At what amount should Barger report each item?
Unusual Loss Unusual Gain
1. $(300,000) $700,000
2. (300,000) 490,000
3. (210,000) 700,000
4. (210,000) 490,000
a. 1
b. 2
c. 3
d. 4
Ans: A – Both the gain and the loss should be reported in income before income taxes, at their gross
amounts., LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Reporting, AICPA BC: None,
29. The occurrence which most likely would have no effect on 2022 net income (assuming that all amounts
involved are material) is the
a. sale in 2022 of an office building contributed by a shareholder in 2016.
b. collection in 2022 of a receivable from a customer whose account was written off in 2021 by a charge to
the allowance account.
c. settlement based on litigation in 2022 of previously unrecognized damages from a serious accident
which occurred in 2021.
d. worthlessness determined in 2022 of shares purchased on a speculative basis in 2022.
Ans: B – The collection of a written off account would not affect net income., LO: 3, Bloom: AP,
Reporting
30. Clair, Inc. reports net income of $700,000. It declares and pays dividends of $100,000 for the year, one-
half of which relate to the preferred shares. The weighted average number of ordinary shares outstanding
during the year is 200,000 shares, and the weighted average number of preferred shares outstanding
during the year is 10,000 shares. Rounded to the nearest cent, earnings per share for Clair, Inc. is
a. $3.18.
b. $3.25.
c. $3.00.
d. $2.95.
Ans: B – Net income minus preferred dividends is divided by the weighted average of ordinary shares
outstanding to compute earnings per share., LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
31. Earnings per share is computed as net income

a. divided by the weighted average of ordinary shares outstanding.
b. minus preferred dividends divided by the weighted average of ordinary shares outstanding.
c. divided by the ending ordinary shares outstanding.
d. minus preferred dividends divided by the ending ordinary shares outstanding.
Ans: B – Net income minus preferred dividends is divided by the weighted average of ordinary shares
outstanding to compute earnings per share., LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
32. A change in the method of inventory pricing from FIFO to weighted average will be accounted for as a
(an)
a. part of discontinued operations.
b. part of gross profit.
c. change in accounting principle.
d. change in estimate.
Ans: C – Changes in accounting principle include a change in the method of inventory costing., LO: 4,
Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None,
IMA: Reporting
33. Sawyer, Inc. consistently estimated its bad debt expense at 1 percent of accounts receivable. In 2022,
however, Sawyer determines that it must revise upward the estimate of bad debts for the current year’s
receivables to 2 percent or double the prior years’ percentage. Sawyer uses the revised estimate of 2%
and calculates bad debt expense of $500,000 at December 31, 2022. How is the change in the estimated
bad debt expense reported in Sawyer’s 2022 financial statements?
a. $250,000 of expense in the income statement as an operating item, $250,000 of unusual expense (net of
tax)
b. $250,000 of expense in the income statement as an operating item, $250,000 of expense reported as an
adjustment to the beginning balance of retained earnings (net of tax)
c. $500,000 of expense reported as a change in accounting principle and accounted for under the
retrospective approach
d. $500,000 of expense in the income statement as an operating item
Ans: D –Sawyer accounts for this change in estimate in the period of change by reporting the newly
calculated amount of bad debt expense as an operating item of income. Changes in estimate are not
considered an unusual and infrequent item, an error correction, or a change in accounting principle., LO:
4, Bloom: AP, Difficulty: Medium, Min: 3, AICPA FC: Reporting, AICPA BC: None, AICPA PC:
34. Prior period adjustments are reported as an

a. unusual item in the income statement.
b. addition to (or deduction from) net income in the income statement.
c. addition to (or a deduction from) the beginning balance of retained earnings.
d. addition to (or deduction from) the ending balance of retained earnings.
Ans: C – Prior period adjustments are added to (or deducted from) the beginning retained earnings
balance., LO: 4, Bloom: C, Difficulty: Easy, Min: 2, AICPA FC: Reporting, AICPA BC: None, AICPA
PC: None, IMA: Reporting
35. The statement of changes in equity

a. need not be presented if a company is reporting comprehensive income using the two statement
approach.
b. is dated using “As of December 31, 2022”.
c. reports the change in each shareholders’ equity account and in total equity for the period.
Ans: C – Companies present a statement of changes in equity regardless of the format used to report
comprehensive income and the statement is dated “For the period ending December 31, 2022”. The
statement of changes in equity reports the change in each equity account and in total equity for the
period., LO: 5, Bloom: C, Difficulty: Easy, Min: 2, AICPA FC: Reporting, AICPA BC: None, AICPA
36. When a company transfers an amount of restricted retained earnings into a different account, that
account is titled
a. Appropriated Retained Earnings.
b. Unappropriated Retained Earnings.
c. Noncontrolling Retained Earnings.
d. Comprehensive Retained Earnings.
Ans: A – When a company transfers an amount of restricted retained earnings into a different account,
that account is titled Appropriated Retained Earnings., LO: 5, Bloom: K, Difficulty: Easy, Min: 1,
AICPA FC: Reporting, AICPA BC: None, AICPA PC: None, IMA: Reporting
37. Gains and losses that bypass net income, but affect shareholders' equity are referred to as
a. comprehensive income.
b. other comprehensive income.
c. prior period income.
d. unusual gains and losses.
Ans: B – Other comprehensive income includes gains and losses that bypass net income., LO: 5, Bloom:
K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None, IMA:
Reporting
38. Josie Corporation reported the following information for 2022.

Sales revenue $1,000,000
Cost of goods sold 700,000
Operating expenses 110,000
Unrealized holding gain on available-for-sale securities 40,000
Cash dividends received on the securities 4,000
For 2022, Josie would report comprehensive income of

a. $234,000.
b. $230,000.
c. $194,000.
d. $40,000.
Ans: A –$1,000,000 less $700,000 less $110,000 plus $40,000 plus $4,000 equals $234,000., LO: 5,
IMA: Reporting
39. Which of the following statement is incorrect?

a. Extraordinary items are prohibited under U.S. GAAP.
b. U.S. GAAP identifies certain minimum items that should be presented on the income statement. IFRS
has no minimum information requirements.
c. Compared to U.S. GAAP, the application of IFRS results in more transactions affecting equity but not
net income.
d. Both GAAP and IFRS require companies to report the amount of net income attributable to
noncontrolling interest.
Ans: B – IFRS identifies certain minimum items that should be presented on the income statement., LO:
40. Which of the following has an impact on the dollar amount of the interest related to any financing
transaction?
a. Principal
b. Interest rate
c. Time
Ans: D – Principal, interest rate, and time impact interest., LO: 1, Bloom: K, Difficulty: Easy, Min: 1,
AICPA FC: Measurement, AICPA BC: None, AICPA PC: None, IMA: Business Operations
41. Accounting topics where present value-based accounting measurements are relevant include
a. taxes.
b. inventory.
c. environmental liabilities.
Ans: C –Present value concepts are applied to a wide variety of accounting measurements including
environmental liabilities. However, taxes and inventory do not require the use of present value concepts.,
LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Measurement, AICPA BC: None, AICPA PC:
None, IMA: Business Operations
42. Willy Thiel invests €50,000 at 10% annual interest. How much money has accumulated after five years,
assuming simple interest?
a. €25,000
b. €55,000
c. €75,000
d. €80,526
Ans: C –Simple interest is [€50,000 + (€50,000 × 0.10 × 5)] = €75,000., LO: 1, Bloom: AP, Difficulty:
Medium, Min: 2, AICPA FC: Measurement, AICPA BC: None, AICPA PC: None, IMA: Business
Operations
43. Which table would you use to determine how much you will have five years from now if you deposit
$10,000 today at 8% compounded annually?
a. Future value of 1 or present value of 1
b. Future value of an annuity due of 1
c. Future value of an ordinary annuity of 1
d. Present value of an ordinary annuity of 1
Ans: A – Use the future value of 1 or present value of 1., LO: 1, 2, Bloom: AP, Difficulty: Medium, Min:
2, AICPA FC: Measurement, AICPA BC: None, AICPA PC: None, IMA: Business Operations
44. For an investment that earns 1% compounded monthly for two years, how many compounding periods
are there?
1. 2
2. 8
3. 12
4. 24
Ans: D – The total number of compounding periods is equal to the number of compounding periods per
year times the number of years (12 × 2 = 24)., LO: 1, Bloom: AP, Difficulty: Medium, Min: 1, AICPA
FC: Measurement, AICPA BC: None, AICPA PC: None, IMA: Business Operations
45. Which of the following is not a variable that is a part of all compound interest problems?
1. Future value
2. Interest rate
3. Present value
4. Past value
Ans: D –Past value is not a variable that is part of every compound interest problem., LO: 1, Bloom: K,
Difficulty: Easy, Min: 1, AICPA FC: Measurement, AICPA BC: None, AICPA PC: None, IMA:
Business Operations
46. Zach’s uncle has promised him $20,000 when he graduates college 4 years from now. What is the
equivalent amount stated in today’s dollars? Given below are the present value factors for 1 at 8% for
one to three periods with interest compounded annually.
Periods Present Value of 1 at 8%

1 0.92593
2 0.85734
3 0.79383
a. $20,000 × 0.92593 × 0.79383

b. $20,000 × 0.1.080 × 0.79383
c. $20,000 ÷ 0.79383 ÷ 1.08
d. $20,000 × 0.79383 × 1.08
Ans: A – Multiply the 3-year factor by the 1-year factor by the future value: 0.92593 × 0,79383 ×
$20,000 to determine the present value for 4 years of $14,701., LO: 2, Bloom: AP, Difficulty: Medium,
Min: 3, AICPA FC: Measurement, AICPA BC: None, AICPA PC: None, IMA: Business Operations
47. The process of accumulation involves determining

a. future value.
b. present value.
c. future value or present value.
d. the number of time periods.
Ans: A - Accumulation involves determining the future value of amounts., LO: 2, Bloom: K, Difficulty:
Easy, Min: 1, AICPA FC: Measurement, AICPA BC: None, AICPA PC: None, IMA: Business
Operations
48. Future value is
a. the value now of a future amount.
b. the amount that must be invested now to produce a known future value.
c. always greater than the present value.
Ans: C - The future value is always greater than the present value due to the interest that accumulates
over time. The value now of a future amount is referred to as the present value; and, the amount that
must be invested now to produce a known future value also refers to the present value., LO: 2, Bloom: C,
Business Operations
49. Marshall wants to invest a certain sum of money at the end of each year for six years. The investment
will earn 6% compounded annually. At the end of six years, he will need a total of €500,000
accumulated. How should he compute the required annual investment?
a. €500,000 times the future value of a 6-year, 6% ordinary annuity of 1 factor
b. €500,000 divided by the future value of a 6-year, 6% ordinary annuity of 1 factor
c. €500,000 times the present value of a 6-year, 6% ordinary annuity of 1 factor
d. €500,000 divided by the present value of a 6-year, 6% ordinary annuity of 1 factor
Ans: B - Marshall would divide €500,000 by the future value of a 6-year, 6% ordinary annuity of 1
factor., LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Measurement, AICPA BC: None,
AICPA PC: None, IMA: Business Operations
50. Which of the following is true?

a. Rents occur at the beginning of each period in an ordinary annuity.
b. Rents occur at the end of each period in an annuity due.
c. Rents occur at the beginning of each period in annuity due.
d. Rents occur in the middle of each period in an ordinary annuity.
Ans: C - Rents occur at the beginning of each period in an annuity due., LO: 3, Bloom: C, Difficulty:
Easy, Min: 2, AICPA FC: Measurement, AICPA BC: None, AICPA PC: None, IMA: Business
Operations
51. The future value of an ordinary annuity will always be

a. equal to the future value of an annuity due.
b. greater than the future value of annuity due.
c. greater than or equal to the future value of an annuity due.
d. less than the future value of annuity due.
Ans: D - The future value of an annuity due is always greater than the future value of an ordinary annuity
because one extra period if interest is added., LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC:
Measurement, AICPA BC: None, AICPA PC: None, IMA: Business Operations
52. Which of the following statements related to an annuity is correct?
a. The periodic payments must always be the same amount.
b. The interval between payments need not be the same.
c. The interest must be compounded annually.
d. An annuity can be classified as an ordinary annuity or an unordinary annuity.
Ans: A - An annuity must have equal periodic payments and equal intervals between payments. An
annuity can be classified as an ordinary annuity or an annuity due. Compounding can be annually or for
periods less than a year., LO: 3, Bloom: C, Difficulty: Easy, Min: 2, AICPA FC: Measurement, AICPA
BC: None, AICPA PC: None, IMA: Business Operations
53. Amy has saved €250,000 for her retirement. It is invested in an annuity that pays 12%. Amy wishes to
make equal semi-annual withdrawals over the next 10 years, beginning 6 months from now. How much
can she withdraw each period?
Time Periods Factor

PV Annuity due 12% 10 6.32825
PV Annuity due 6% 20 12.15812
PV Ordinary annuity 12% 10 5.65022
PV Ordinary annuity 6% 20 11.46992
a. €39,505
b. €20,562
c. €44,246
d. €21,796
Ans: D – Divide the retirement amount saved by the present value of an ordinary annuity factor of 6%
for 20 periods (10 years, 2 compounding periods per year): €250,000 ÷ 11.46992 = €21,796., LO: 4,
Bloom: AP, Difficulty: Medium, Min: 2 AICPA FC: Measurement, AICPA BC: None, AICPA PC:
None, IMA: Business Operations
54. Drake plc makes an investment today (January 1, 2022). Drake will receive £40,000 every December 31
for the next six years (2022 through 2027). If Drake wants to earn 12% on the investment, what is the
most Drake should invest on January 1, 2022?
Time Periods Factor

PV Annuity due 5 4.03735
PV Annuity due 6 4.60478
PV Ordinary annuity 5 3.60478
PV Ordinary annuity 6 4.11141
a. £164,456
b. £144,191
c. £184,191
d. £161,494
Ans: A – Multiply the present value of an ordinary annuity factor for 6 periods by the annual £40,000
receipt: 4.11141 × £40,000 = £164,456., LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
Measurement, AICPA BC: None, AICPA PC: None, IMA: Business Operations
55. On January 1, 2022, Fielder Company sold to Flay Corporation $400,000 of its 10% bonds for $354,118
to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Fielder
report as interest expense for the six months ended December 31, 2022? (The effective-interest method
of amortization is being used).
a. $21,322
b. $17,768
c. $21,247
d. $24,000
Ans: A - The interest expense for the first 6-month period is $354,118 × 12% × (6/12) equals $21,247.
Discount amortization for the first period is $1,247 which is added to $354,118 to equal the new book
value of $355,365, which is multiplied by 12% × (6/12)., LO: 5, Bloom: AP, Difficulty: Medium, Min:
3, AICPA FC: Measurement, AICPA BC: None, AICPA PC: None, IMA: Business Operations
56. Which of the following is false?

a. The future value of a deferred annuity is computed using 1 more compounding period than the future
value of an annuity not deferred.
b. A deferred annuity is an annuity in which the rents begin after a specified number of periods.
c. To compute the present value of a deferred annuity, we compute the present value of an ordinary annuity
of 1 for the entire period and subtract the present value of the rents which were not received during the
deferral period.
d. If the first rent is received at the end of the sixth period, it means the ordinary annuity is deferred for five
periods.
Ans: A - The false statement is “The future value of a deferred annuity is computed using 1 more
compounding period than the future value of an annuity not deferred.”, LO: 5, Bloom: AN, Difficulty:
Medium, Min: 2, AICPA FC: Measurement, AICPA BC: None, AICPA PC: None, IMA: Business
Operations
57. Which of the following statements regarding a deferred annuity is correct?

a. A deferred annuity does not begin to produce rents until three or more periods have expired.
b. A deferred annuity can only be an ordinary annuity.
c. The future value of a deferred annuity includes interest accumulated during the deferral period.
d. The future value of a deferred annuity is the same as the future value of an annuity not deferred.
Ans: D - Because there is no accumulation or investment on which interest may accrue, the future value
of a deferred annuity is the same as the future value of an annuity not deferred., LO: 5, Bloom: AP,
Difficulty: Medium, Min: 2, AICPA FC: Measurement, AICPA BC: None, AICPA PC: None, IMA:
Business Operations
58. When using the expected cash flow approach, which of the following interest rates is used to discount
the cash flows?
a. The pure rate of interest
b. The expected inflation rate of interest
c. The credit risk rate of interest
d. The risk-free rate of return
Ans: D - IFRS takes the position that after computing the expected cash flows, a company should
discount those cash flows by the risk-free rate of return., LO: 5, Bloom: K, Difficulty: Easy, Min: 1,
59. Jamie wants to set aside enough money now to go on vacation in two years. She has developed the
following estimates:
Estimated Cash Outflows Possibility Assessment

€2,700 30%
€3,300 50%
€4,500 20%
Time Periods Factor

PV of 1 2 0.90703
PV Annuity of 1 2 1.85941
FV of 1 2 1.10250
FV Ordinary Annuity 2 2.05000
How much should she deposit today in an account earning 5%, compounded annually, to have
sufficient cash on hand to pay for the vacation?
a. €3,048
b. €3,704
c. €3,360
d. €6,248
Ans: A - Expected cash outflow is [(€2,700 x 30%) + (€3,300 x 50%) + (€4,500 x 20%)] = €3,360, The
present value of €3,360 is €3,360 × 0.90703 = €3,048., LO: 5, Bloom: AP, Difficulty: Medium, Min: 3,
Multiple Choice
60. Cash consists of all of the following except
a. personal checks.
b. certified checks.
c. money orders.
d. short-term paper with a maturity of 6 months.
Ans: D - Cash consists of coin, currency, and available funds on deposit at the bank. All of the options
are considered cash except short-term paper with a maturity of 6 months which is classified as a
temporary investment., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC:
None, AICPA PC: Measurement, IMA: Reporting
61. All of the following are properly classified as temporary investments except
a. money market funds (no checking privileges).
b. money market certificates.
c. money orders.
d. certificates of deposit (CDs).
Ans: C – Items appropriately classified as temporary investments include money market funds, money
market savings certificates, and certificates of deposit (CDs). Negotiable instruments such as money
orders are viewed as cash., LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA
62. Short-term paper with maturities of less than 3 months should be classified as
a. cash equivalents.
b. investments.
c. temporary investments.
d. receivables.
Ans: A - Short-term paper with maturities of less than 3 months should be classified as cash equivalents.
Cash equivalents are short-term, highly liquid investments that are both (a) readily convertible to known
amounts of cash and (b) subject to an insignificant risk of changes in value, LO: 1, Bloom: C, Difficulty:
63. If the IASB eliminates the cash equivalent classification, a treasury bill will be classified as
a. cash.
b. an investment.
c. a receivable.
d. a short-term investment.
Ans: D - Treasury bills are highly liquid government issued obligations, and are classified as short-term
investments., LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None,
64. Non-trade receivables include all of the following except

a. claims against defendants under suit.
b. dividends receivable.
c. deposits paid to cover potential losses.
d. oral promises of the purchaser to pay for goods and services sold.
Ans: D - Accounts receivable (oral promises of the purchaser to pay for goods and services sold) is a
trade receivable., LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None,
65. If a company purchases merchandise on terms of 1/10, n/30, the cash discount available is equivalent to
what effective annual rate of interest (assuming a 360-day year)?
a. 1%
b. 12%
c. 18%
d. 30%
Ans: C - [360 days ÷ (30 days – 10 days)] x 1% = 18% effective annual rate of interest., LO: 2, Bloom:
AP, Difficulty: Medium, Min: 2, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None, IMA:
Reporting
66. Which of the following methods of determining annual bad debt expense violates the expense
recognition concept?
a. Estimated based on aging analysis
b. Percentage of ending accounts receivable
c. Percentage of average accounts receivable
d. Direct write-off
Ans: D -The direct write-off method usually fails to record expenses in the same period as the associated
revenue and therefore violates the expense recognition concept. Percentage of receivables estimates bad
debt expense and reports accounts receivable at their cash realizable value., LO: 2, Bloom: C, Difficulty:
67. The required balance in Wheeler’s allowance for doubtful accounts is €36,750, based on an aging of its
accounts receivable. The allowance for doubtful accounts currently has a debit balance of €4,200.
Wheeler’s bad debt expense for the period is
a. €4,200.
b. €36,750.
c. €40,950.
d. €32,550.
Ans: C - The existing balance in allowance for doubt accounts is considered under the percentage-of-
receivables method. Therefore, bad debt expense is €40,950 (€36,750 + €4,200)., LO: 3, Bloom: AP,
Reporting
68. The required balance in Bentley plc’s allowance for doubtful accounts is £36,750, based on an aging of
its accounts receivable. The allowance for doubtful accounts currently has a credit balance of £4,200.
Wheeler’s bad debt expense for the period is
a. £4,200.
b. £36,750.
c. £40,950.
d. £32,550.
Ans: D - The existing balance in allowance for doubt accounts is considered under the percentage-of-
receivables method. Therefore, bad debt expense is €32,550 (€36,750 - €4,200)., LO: 3, Bloom: AP,
Reporting
69. The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of
transaction. What should be the amount of the notes receivable net of the unamortized discount on
December 31, 2022 rounded to the nearest dollar? (The present value of an ordinary annuity of 1 at 9%
for 2 years is 1.75911).
a. $105,547
b. $135,547
c. $120,000
d. $211,092
Ans: A - The present value of the annuity is ($60,000 × 1.75911) or $105,547., LO: 4, Bloom: AP,
Difficulty: Medium, Min: 2, AICPA FC: Reporting, AICPA BC: None, AICPA PC: Measurement, IMA:
Reporting
70. The interest rate that equates the cash paid with the amount received in the future on a zero-interest-
bearing note is the
a. implicit rate.
b. flat rate.
c. nominal rate.
d. stated rate.
Ans: A - The implicit rate can be computed based on the present value and the future values involved.,
LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None,
IMA: Reporting
71. Finance companies that buy receivables from businesses are called
a. receivers.
b. principles.
c. factors.
d. recoursers.
Ans: C - Factors buy other companies’ receivables for a fee., LO: 5, Bloom: K, Difficulty: Easy, Min: 1,
72. In a transfer of receivables accounted for as a secured borrowing,

a. a gain or loss is recorded.
b. receivables are reduced.
c. a finance charge is recorded.
d. a recourse liability is recognized.
Ans: C - In a transfer of receivables accounted for as a borrowing, the receivables remain on the books of
the borrower and a finance charge is recorded., LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AICPA
73. On March 1, 2022, Parker Pasta Company assigns $1,400,000 of its accounts receivable to First Bank as
collateral for a $1,000,000 note. First Bank assesses a finance charge of 1 percent of the accounts
receivable and interest on the note of 12 percent. Which of the following is correct regarding this
transaction?
a. First Bank has purchased Parker Pasta’s receivables.
b. On March 1, 2022, First Bank will credit interest revenue for $14,000.
c. On March 1, 2022, First Bank will credit gain on purchase of receivables for $34,000.
d. On March 1, 2022, First Bank will credit due from factor for $20,000.
Ans: B - On March 1, 2022, First Bank will debit notes receivable for $1,000,000, credit interest revenue
for $14,000, and credit cash for $986,000. The bank has provided a loan, and the receivables are
collateral for the loan., LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Reporting, AICPA
74. The accounts receivable turnover ratio measures the
a. Number of times the average balance of accounts receivable is collected during the period.
b. Percentage of accounts receivable turned over to a collection agency during the period.
c. Percentage of accounts receivable arising during certain seasons.
d. Number of times the average balance of inventory is sold during the period.
Ans: A - The accounts receivable turnover ratio measures the number of times the average balance of
accounts receivable is collected during the period., LO: 5, Bloom: C, Difficulty: Easy, Min: 2, AICPA
75. Alma Company’s average collection period is 45 days and its net sales are $2,430,000. What are Alma
Company’s average receivables for the period?
a. $299,630
b. $54,000
c. $196,830
d. $202,500
Ans: A - Dividing net sales by average receivables (net) produces the accounts receivable turnover ratio.
The average collection period is computed as 365 days ÷ the accounts receivable turnover ratio. In this
case, 365 ÷ x = 45 days. So, the accounts receivable turnover ratio is 8.11. $2,430,000 ÷ Average A/R =
8.11. So, average A/R is $299,630., LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AICPA FC:
76. In preparing its August 31, 2022 bank reconciliation, York AG has available the following information:
Balance per bank statement, August 31, 2022 € 21,650
Deposit in transit, August 31, 2022 3,900
Return of customer’s check for insufficient funds, August 30, 2022 600
Outstanding checks, August 31, 2022 2,750
Bank service charges for August 100
At August 31, 2022, York’s correct cash balance is

a. €22,800.
b. €22,200.
c. €22,100.
d. €20,500.
Ans: A - €21,650 + €3,900 - €2,750 = €22,800., LO: 6, Bloom: AP, Difficulty: Medium, Min: 2, AICPA
77. Which of the following helps reduce the size of a company’s float?
a. Lockbox accounts
b. Impress accounts
c. Petty cash accounts
d. Bank reconciliation procedures
Ans: A - Multiple collection centers generally reduce the size of a company’s float. The greatest
advantage of a lockbox is that it accelerates the availability of collected cash., LO: 6, Bloom: K,
Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None, IMA: Reporting
78. Under U.S. GAAP, bank overdrafts are

a. reported as a deduction from the current assets section.
b. reported as a deduction from shareholder’s equity.
c. netted against cash and a net cash amount reported.
d. reported as a current liability.
Ans: D - Under U.S. GAAP, bank overdrafts are reported as current liabilities., LO: 7, Bloom: C,
79. The IFRS approach to derecognizing a receivable focuses on which of the following?
a. Rewards
b. Risks
c. Loss of control
d. All of these choices are correct.
Ans: D - When derecognizing a receivable, IFRS considers an approach focused on risks, rewards, and loss
of control., LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA
Multiple Choice
80. Mantz Manufacturing Company has the following account balances at year end.
Office supplies $ 6,000

Raw materials 21,000
Work in process 44,000
Finished goods 52,000
Prepaid insurance 8,000
What amount should Mantz report as inventories in its balance sheet?

a. $52,000
b. $96,000
c. $117,000
d. $123,000
Ans: C - $21,000 + $44,000 + $52,000 = $117,000., LO: 1, Bloom: AP, Difficulty: Medium, Min: 2,
81. Which of the following would not be included in a manufacturing company's balance sheet?
a. Finished goods inventory
b. Merchandise inventory
c. Raw materials inventory
d. Work in process inventory
Ans: B - All of the options would be included in a manufacturer's balance sheet except merchandise
inventory., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None,
82. Which of the following inventories carried by a manufacturer is similar to the merchandise inventory of
a retailer?
a. Raw materials
b. Work-in-process
c. Finished goods
d. Supplies
Ans: C - Finished goods are ready for sale, similar to merchandise inventory., LO: 1, Bloom: K,
83. Where should raw materials be classified on the statement of financial position?
a. Prepaid expenses
b. Inventory
c. Equipment
d. Not on the statement of financial position
Ans: B - Raw materials are an element of manufacturing inventory., LO: 1, Bloom: C, Difficulty: Easy,
84. Which of the following accounts is not reported in inventory?
a. Raw materials
b. Equipment
c. Finished goods
d. Supplies
Ans: B - Equipment is reported as part of long-lived assets (property, plant, and equipment)., LO: 1,
Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None, IMA:
Reporting
85. Computers for You is a retailer specializing in selling computers and related equipment. Which of the
following would not be reported in the merchandise inventory account reported on the statement of
financial position for Computers for You at December 31, 2022?
a. Computer purchased for resale during November 2022
b. Shelving materials purchased during December 2022
c. Freight costs related to the computers purchased in November
d. All of the choices are included in the merchandise inventory account at December 31, 2022
Ans: B - Shelving materials are reported as part of property, plant, and equipment., LO: 1, Bloom: C,
86. Under a periodic inventory system,

a. inventory over and short is reported.
b. purchases of inventory are recorded in an inventory account.
c. cost of goods sold is determined with every sale.
d. cost of goods sold is a residual amount.
Ans: D - Under a periodic inventory system, the cost of goods sold is a residual amount that depends on
a physical count of ending inventory., LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
87. Which of the following accounts does not exist in a perpetual inventory system?
a. Inventory
b. Cost of Goods Sold
c. Sales Returns and Allowances
d. Purchases
Ans: D - The Purchases account exists in a periodic inventory system, not a perpetual inventory system.,
88. Fallon Inc. is a calendar-year corporation. Its financial statements for the years 2022 and 2021
contained errors as follows
2022 2021
Ending inventory $9,000 overstated $18,000 overstated
Depreciation expense 6,000 understated 13,500 overstated
Assume that the proper correcting entries were made at December 31, 2021. By how much will 2022
income before taxes be overstated or understated?
a. $3,000 understated
b. $16,500 overstated
c. $10,500 overstated
d. $15,000 overstated
Ans: D - Overstating ending inventory by $9,000 plus the understatement of depreciation expense by
$6,000 overstates net income by $15,000 during 2022. The 2021 depreciation expense was absorbed in
retained earnings in 2021. The 2021 inventory error results in an overstatement of income in 2021 and
an understatement in 2021 of net income. The net effect as of the end of 2022 is a $15,000
overstatement in 2022. LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AICPA FC: Reporting, AICPA
89. If the beginning inventory is overstated at the end of 2022,

a. the current ratio will be overstated in 2022.
b. cost of goods sold will be understated in 2022.
c. retained earnings will be understated in 2022.
d. working capital will be understated in 2022.
Ans: C - If beginning inventory is overstated, cost of goods sold is overstated and net income and
retained earnings are understated., LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
90. Companies must allocate the cost of all the goods available for sale (or use) between the
a. cost goods on hand at the beginning of the period as reported on the statement of financial position and
the cost of goods acquired or produced during the period.
b. cost of goods on hand at the end of the period as reported on the statement of financial position and the
cost of goods acquired or produced during the period.
c. income statement and the statement of financial position.
d. units purchased and the units available for sale.
Ans: C - Costs are allocated between ending inventory (statement of financial position) and Cost of
Goods Sold (income statement)., LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
91. Under a perpetual inventory system, which accounts are debited each time a sale on account is made?
a. Accounts Payable and Purchases
b. Accounts Receivable and Cost of Goods Sold
c. Inventory and Cost of Goods Sold
d. Accounts Receivable and Purchases
Ans: B - When a sale on account is made under a perpetual inventory system, Accounts Receivable is
debited for the selling price of the goods and Cost of Goods Sold is debited for the cost of the goods.,
LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Reporting, AICPA BC: None, AICPA PC:
92. Which of the following items should be included in a company's inventory at the balance sheet date?
a. Goods in transit which were purchased f.o.b. shipping point
b. Goods received from another company for sale on consignment
c. Goods sold to a customer that is being held for the customer to call for at his or her convenience
d. Goods sold to a customer that was shipped f.o.b. shipping point
Ans: A - Goods in transit which were purchased f.o.b. shipping point should be included in the
company’s inventory. Goods in transit sold to a customer f.o.b. destination are owned by the buyer
while in transit., LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Reporting, AICPA BC:
None, AICPA PC: None, IMA: Reporting
93. Where should goods in transit that were recently purchased f.o.b. destination be included on the
statement of financial position?
a. Accounts payable
b. Inventory
c. Not reported
d. On the income statement
Ans: C - Goods will be recognized when received at destination. They are still owned by seller until they
arrive at the destination., LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC:
94. FBS Corporation uses the perpetual inventory method and the gross method for recording purchases on
account. On May 11, it purchased $44,000 of inventory, terms 2/10, n/30. On May 13, FBS returned
goods that cost $4,000. On May 19, FBS paid the supplier. On May 19, the company should credit
a. Purchase Discounts for $880.
b. Inventory for $880.
c. Purchase Discounts for $800.
d. Inventory for $800.
Ans: D - ($44,000 − $4,000) × 2% = $800., LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
95. IFRS exclude which of the following from the cost of inventory?
a. Most storage costs
b. General administrative costs
c. Selling costs
d. All of these answer choices are excluded by IFRS.
Ans: D - Most storage costs, general administrative costs, and selling costs are excluded from the cost of
inventory under IFRS., LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC:
96. In a period of rising prices, the inventory method that produces the highest ending inventory is
a. the average-cost method.
b. FIFO.
c. LIFO.
d. the method that results in the highest cost of goods sold.
Ans: B - In a period of rising prices, the FIFO method always produces the highest ending inventory,
because older, lower priced items are sold first., LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AICPA
97. Which cost flow assumption would be most appropriate when a relatively small number of costly,
easily distinguishable items are sold?
a. Specific identification
b. FIFO perpetual
c. FIFO periodic
d. Average
Ans: A - Specific identification is the most appropriate cost flow assumption to use in such
circumstances., LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None,
98. The acquisition cost of a certain raw material changes frequently. The carrying value of the inventory of
this material at year end will be the same if perpetual records are kept as it would be under a periodic
inventory method only if the carrying value is computed under the
a. weighted-average method.
b. moving average method.
c. FIFO method.
d. None of these are correct.
Ans: C - FIFO results in the same ending inventory under periodic or perpetual inventory systems., LO:
99. Which of the following is a reason why the specific identification method may be considered ideal for
assigning costs to inventory and cost of goods sold?
a. The potential for manipulation of net income is reduced.
b. There is no arbitrary allocation of costs.
c. The cost flow matches the physical flow.
d. Able to use on all types of inventory.
Ans: C - Specific identification matches physical flow so it will be most accurate as to items sold., LO:
Multiple Choice
100. Property, plant, and equipment includes

a. deposits on machinery not yet received.
b. idle equipment awaiting sale.
c. land held for possible use as a future plant site.
d. None of these answer choices are classified as property, plant, and equipment.
Ans: D - None of these items is properly classified as a plant asset. Historical cost measures the cash or
cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its
intended use., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None,
101. Cayo Casta Cabins Corporation recently purchased Ship Island Resort and Casino and the land on
which it is located with the plan to tear down the resort and build a new luxury hotel on the site. Cayo
Casta Cabin Corporation salvaged fixtures and wood flooring from Ship Island prior to demolishing the
building. The proceeds from the sale of the salvaged materials should be
a. recognized as revenue in the period of the sale.
b. recognized as a gain in the year the hotel is torn down.
c. recorded as a reduction of the cost of the land.
d. recorded as a reduction of the cost of the new hotel.
Ans: C - Proceeds from the sale of the salvaged materials should reduce the cost of the land because it
reduces the cost of getting the land ready for its intended use., LO: 1, Bloom: C, Difficulty: Easy, Min:
1, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None, IMA: Reporting
102. The cost of equipment includes all of the following except
a. a purchase price reduced by any discount taken.
b. freight costs.
c. installation costs.
d. required maintenance costs during the first year of operations.
Ans: D - The cost of training the equipment operator would not be capitalized as part of the cost of the
equipment., LO: 1, Bloom: AP, Difficulty: Medium, Min: 1, AICPA FC: Reporting, AICPA BC: None,
103. Watauga Company purchased equipment on July 1, 2022 for $70,000. Sales tax on the purchase was $700.
Other costs incurred were freight charges of $800, insurance during shipping of $150, repairs of $1,300
for damage during installation, and installation costs of $1,050. What is the cost of the equipment?
a. $70,000
b. $71,500
c. $72,700
d. $74,000
Ans: C - The cost is $70,000 + $700 + $800 + $150 + $1,050 = $72,700. Repair costs are not capitalized
because they are not part of the cost of obtaining or bringing the asset to the condition intended for use.,
LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Reporting, AICPA BC: None, AICPA PC:
104. The cost of property acquired by the issuance of securities which are actively traded on an organized
exchange is equal to the
a. original cost of the securities.
b. market price of the securities.
c. par value of the securities.
d. book value of the property acquired.
Ans: B - Property acquired by issuing securities is recorded at the market price of the shares issued is a
fair indication of the cost of the property acquired. The shares are a good measure of the current cash
equivalent price, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Measurement, AICPA BC:
105. During self-construction of an asset by Gambino Company, the following were among the costs
incurred.
Fixed overhead for the year $1,210,000

Portion of $1,210,000 fixed overhead that would be
allocated to the asset if it were normal production 35,000
Variable overhead attributable to self-construction 25,000
What amount of overhead should Gambino include in the cost of the self-constructed asset?
a. $ -0-
b. $25,000
c. $35,000
d. $60,000
Ans: D - The amount is $35,000 + $25,000, or $60,000., LO: 1, Bloom: AP, Difficulty: Medium, Min:
106. Overhead costs related to self-constructed assets are accounted for by
a. allocating overhead on the basis of lost production.
b. assigning a portion of all overhead to the asset, even if the total cost exceeds the normal purchase.
c. assigning no fixed overhead to the asset.
d. assigning a pro rata portion of fixed overhead to the asset.
Ans: D - A pro rata portion of fixed overhead should be assigned to the self-constructed asset because a
better matching of costs and revenues results., LO: 1, Bloom: C, Difficulty: Easy, Min: 2, AICPA FC:
107. The interest rate(s) used in computing the capitalized borrowing cost is(are) the
a. rate incurred on specific borrowings.
b. weighted-average rate incurred on all other outstanding debt.
c. lower of the rate incurred on specific borrowings or the capitalization rate.
d. rate incurred on specific borrowings for the average carrying amount of the expenditures equal to the
specific borrowings and the capitalization rate of other borrowings for the excess expenditures.
Ans: D - The interest rates used in computing the capitalized borrowing cost are the rate on specific
borrowings and the capitalization rate., LO: 2, Bloom: C, Difficulty: Easy, Min: 2, AICPA FC:
108. Which of the following statements is true regarding capitalization of interest?

a. Interest cost capitalized in connection with the purchase of land to be used as a building site should be
debited to the land account and not to the building account.
b. The amount of interest cost capitalized during the period should not exceed the actual interest cost
incurred.
c. When excess borrowed funds not immediately needed for construction are temporarily invested, any
interest earned should not be offset against interest cost incurred when determining the amount of
interest cost to be capitalized.
d. The minimum amount of interest to be capitalized is determined by multiplying the capitalization rate by
the amount of total expenditures on qualifying assets during the period.
Ans: B - Capitalizing the lesser of actual interest cost for the period or the amount of interest cost
computed by multiplying the average carrying amount by the capitalization rate is the approach
recommended under IFRS., LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Reporting,
AICPA BC: None, AICPA PC: None, IMA: Reporting
109.The accounting for interest costs incurred during construction recommended under IFRS is to
a. capitalize no interest charges during construction.
b. charge construction with all costs of funds employed, whether identifiable or not.
c. capitalize the lesser of actual interest cost for the period or the amount of interest cost computed by
multiplying the average carrying amount by the capitalization rate.
d. capitalize a pro rata portion of all costs of funds employed.
Ans: C - The amount of interest cost capitalized during the period should not exceed the actual interest
cost incurred., LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Reporting, AICPA BC:
110. Property received through a government grant is recognized at its fair value and offset with a credit entry
to the
a. Miscellaneous Gain account.
b. Accumulated Depreciation account.
c. Deferred Grant Revenue account.
d. Share Capital account.
Ans: C - IFRS requires that such grants be recognized by recording the grant as deferred grant revenue,
which is recognized as income on a systematic basis over the useful life of the asset, or by deducting the
grant from the carrying amount of the assets received from the grant, in which case the grant is
recognized in income as a reduction of depreciation expense., LO: 3, Bloom: C, Difficulty: Easy, Min:
111. Fielder Company purchased land and a building for a lump sum cost of $420,000. The land has a fair
value of $160,000 and the building has a fair value of $320,000. The cost assigned to the land is
a. $0.
b. $140,000.
c. $160,000.
d. $210,000.
Ans: B - The lump sum price incurred to acquire more than one asset is allocated among them based on
their relative fair values: ($160,000 ÷ $480,000) × $420,000 = $140,000., LO: 3, Bloom: AP, Difficulty:
Medium, Min: 2, AICPA FC: Measurement, AICPA BC: None, AICPA PC: None, IMA: Reporting
112. Delta River Company sold manufacturing equipment with a cost of $44,000 and accumulated
depreciation of $32,000 for $9,000. The journal entry to record this transaction will include a
a. credit to the Equipment account for $12,000.
b. credit to a gain account for $8,000.
c. debit to a loss account for $3,000.
d. credit to Accumulated Depreciation – Equipment for $32,000.
Ans: C - The journal entry to record the sale would include debits to Cash ($9,000), Accumulated
Depreciation – Equipment ($32,000) and a loss account ($3,000). Equipment would be credited for
$44,000., LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Reporting, AICPA BC: None,
113. Rhett Company exchanged equipment that cost $66,000 and has accumulated depreciation of $30,000
for equipment with a fair value of $48,000 and received $12,000 cash. The exchange lacked commercial
substance. The gain to be recognized from the exchange is
a. $0.
b. $6,000 gain.
c. $18,000 gain.
d. $24,000 gain.
Ans: D - The formula is {($48,000 + $12,000) – ($66,000 - $30,000)}, or $24,000. The economic
position of Rhett did not change significantly as a result of this exchange as it lacks commercial
substance. The gain is deferred by reducing the basis of the newly acquired equipment., LO: 3, Bloom:
Reporting
114. In an exchange of nonmonetary assets that has commercial substance, when no cash is involved, the new
asset is valued at
a. the fair value of the new asset plus the gain deferred.
b. the book value of the old asset.
c. the book value of the old asset plus the gain deferred.
d. the fair value of the new asset.
Ans: D - In an exchange of nonmonetary assets that has commercial substance, the economic position
changes, and any gain or loss is recognized. When no cash is exchanged, the new asset will be valued at
the fair value of either the old asset or the new asset, as they will be equal., LO: 3, Bloom: AP,
Reporting
115. A plant site donated by a manufacturer to a township that plans to build a new public marina should be
recorded on the manufacturer's books
a. at a gain equal to the site’s book value.
b. as a donation expense at the site’s fair value.
c. as a revenue at the site’s fair value.
d. at the site’s book value as a loss.
Ans: B - The donated asset should be recorded at its fair value as a donation expense., LO: 3, Bloom:
Reporting
116. On September 1, 2022, Alpha Graphics Printing Co. incurred the following costs for one of its printing
presses.
Purchase of attachment $35,000

Installation of attachment 3,000
Replacement parts for renovation of press 12,000
Labor and overhead in connection with renovation of press 1,000
The renovation resulted in increased future service potential of the press. What amount of the costs
should be capitalized?
a. $0
b. $38,000
c. $47,000
d. $51,000
Ans: D -. Since the renovation increased the future service potential of the press, all $51,000 should be
capitalized, LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Measurement, AICPA BC:
117. Expenditures that increase the future service potential and are a substitution of a better asset for the
original asset are accounted for
a. as a replacement of a similar asset and expensed as incurred.
b. as a rearrangement of assets and is debited as an expense.
c. by adding the cost of the new asset and removing the cost of the old asset and related depreciation, and
recognize a loss, if any.
d. by debiting Accumulated Depreciation for the cost of the new asset.
Ans: C - Expenditures that increase the future service potential and are a substitution of a better asset for
the original asset are accounted for by adding the cost of the new asset and removing the cost of the old
asset and related depreciation, and recognize a loss, if any., LO: 4, Bloom: AP, Difficulty: Medium,
118. Silver Oak Company purchased machinery for A$320,000 on January 1, 2018. Straight-line depreciation
has been recorded based on a A$20,000 salvage value and a 5-year useful life. The machinery was sold
on May 1, 2022 at a gain of A$6,000. How much cash did Silver Oak receive from the sale of the
machinery?
a. A$46,000
b. A$54,000
c. A$66,000
d. A$86,000
Ans: C – At the time of sale, accumulated depreciation is (A$320,000 − A$20,000) × 52/60, or
A$260,000, resulting in a book value of A$320,000 − $260,000, or A$60,000. Adding the $6,000 gain
indicates sale price was $66,000., LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
119. Timber Ridge Company sold equipment with a cost of $75,000 and accumulated depreciation of
$40,000 for $37,000. The journal entry to record this transaction will include a
a. credit to the Equipment account for $35,000.
b. credit to a gain account for $38,000.
c. debit to a loss account for $2,000.
d. debit to Accumulated Depreciation – Equipment for $40,000.
Ans: D - When plant assets are sold for an amount greater than their book value, a gain is recorded. The
journal entry would include debits to Cash ($37,000) and Accumulated Depreciation ($40,000), and
credits to Equipment ($75,000) and a gain account ($2,000)., LO: 5, Bloom: AP, Difficulty: Medium,
Multiple Choice
123. Which of the following principles best describes the conceptual rationale for the methods of matching
depreciation expense with revenues?
a. Associating cause and effect
b. Systematic and rational allocation
c. Immediate recognition
d. Partial recognition
Ans: B - Depreciation is a systematic and rational allocation of costs to periods of benefit., LO: 1,
Reporting
124. Which of the following is not true of depreciation accounting?

a. Depreciation lowers the book value of the asset as it ages and its fair value declines.
b. Depreciation matches expenses against revenues over the periods which benefit from the asset’s use.
c. Depreciation is a process of cost allocation.
d. Tangible assets with limited lives are depreciated.
Ans: A - Depreciation is not a matter of valuation., LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AICPA
125. The major difference between the service life of an asset and its physical life is that
a. service life refers to the time an asset will be used by a company and physical life refers to how long the
asset will last.
b. physical life is the life of an asset without consideration of salvage value and service life requires the use
of salvage value.
c. physical life is always longer than service life.
d. service life refers to the length of time an asset is of use to its original owner, while physical life refers
to how long the asset will be used by all owners.
Ans: A - Service life refers to the time an asset will be used by a company and physical life refers to
how long the asset will last., LO: 1, Bloom: C, Difficulty: Easy, Min: 2, AICPA FC: Reporting, AICPA
126. A principal objection to the straight-line method of depreciation is that it

a. provides for the declining productivity of an aging asset.
b. ignores variations in the rate of asset use.
c. tends to result in a constant rate of return on a diminishing investment base.
d. gives smaller periodic write-offs than decreasing charge methods.
Ans: B - A principal objection to the straight-line method of depreciation is that it ignores variations in
the rate of asset use., LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC:
127. Dixon Company purchased a depreciable asset for ₤32,000. The estimated salvage value is ₤4,000, and
the estimated useful life is 4 years. The double-declining balance method will be used for depreciation.
What is the depreciation expense for the second year on this asset?
a. ₤6,400
b. ₤7,000
c. ₤8,000
d. ₤16,000
Ans: C - The first year’s depreciation is (50% of ₤32,000) ₤16,000. The second year’s depreciation is
[50% of (₤32,000 − ₤16,000)] or ₤8,000., LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
128. Chattanooga Company purchased a depreciable asset for ¥80,000 on January 1, 2020. The estimated
salvage value is ¥20,000, and the estimated useful life is 5 years. The straight-line method is used for
depreciation. On January 1, 2022, the company made a capital expenditure of ¥16,000 for an addition to
the asset. What is depreciation expense for 2022?
a. ¥12,000
b. ¥14,400
c. ¥24,000
d. ¥17,333
Ans: D - (¥80,000 − ¥20,000) ÷ 5 years equals depreciation expense of ¥12,000 per year for 2020 and
2021. To compute the revised depreciation, calculate the new book value: ¥80,000 − ¥24,000 + ¥16,000
= ¥72,000, subtract salvage value of ¥20,000 and divide by the remaining useful life of 3 years to get
depreciation expense of ¥17,333., LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
129. Lundy Company purchased a depreciable asset for $99,000. The estimated salvage value is $18,000, and
the estimated useful life is 9 years. The double-declining balance method will be used for depreciation.
What is the depreciation expense for the second year on this asset? Round the depreciation rate to
nearest whole percentage.
a. $11,000
b. $13,900
c. $16,988
d. $17,820
Ans: C – The rate is 2 × 1/9 = 22%.The first year’s depreciation is (22% of $99,000) $21,780. The
second year’s depreciation is [22% of ($99,000 − $21,780)] or $16,988., LO: 1, Bloom: AP, Difficulty:
130. Cambodian Import Company purchased a depreciable asset for €160,000 on April 1, 2019. The
estimated salvage value is €40,000, and the estimated useful life is 5 years. The straight-line method is
used for depreciation. What is the balance in accumulated depreciation on March 1, 2022 when the asset
is sold?
a. €66,000
b. €70,000
c. €72,000
d. €186,667
Ans: B - (€160,000 − €40,000) ÷ 60 months results in a monthly depreciation of €2,000. For 35 months
the accumulated depreciation is €70,000., LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
131. Antigua Company purchased a depreciable asset for $45,000 on October 1, 2020. The estimated salvage
value is $9,000, and the estimated useful life is 6 years. The straight-line method is used for
depreciation. What is the book value on July 1, 2022 when the asset is sold?
a. $10,500
b. $15,750
c. $25,500
d. $34,500
Ans: D - ($45,000 − $9,000) ÷ 72 months results in a monthly depreciation of $500. After 21 months,
the balance in accumulated depreciation is $10,500 and the book value of the asset is $34,500., LO: 2,
Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Measurement, Reporting, AICPA BC: None,
132. All of the following are true with regard to impairment testing of long-lived assets except
a. if impairment indicators are present, the company must conduct an impairment test.
b. the impairment test compares the asset’s carrying value with the lower of its fair value less cost to sell and
its value-in-use.
c. if the recoverable amount is lower than the carrying value, an impairment loss will be reported on the
period’s income statement.
d. if either the fair value less cost to sell or the value-in-use is higher than the carrying amount, no impairment
loss will be recorded.
Ans: B - The impairment test compares the asset’s carrying value with the lower of its fair value less
cost to sell and its value-in-use., LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
Measurement, Reporting, AICPA BC: None, AICPA PC: None, IMA: Reporting
133. An impairment of property, plant, or equipment has occurred if the

a. estimated salvage value is less than the actual proceeds received on disposal.
b. recoverable amount is less than the asset’s carrying value.
c. revised estimated useful life is less than the original estimated useful life.
d. expected future cash outflows exceeds the asset’s carrying value.
Ans: B - An asset impairment occurs when the recoverable amount is less than the asset’s carrying
value., LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Measurement, Reporting, AICPA BC:
134. Erie Corporation owns machinery with a book value of $2,200,000. It is estimated that the machinery
will generate future cash flows of $1,995,000. The machinery has a fair value (recoverable amount) of
$1,915,000. The journal entry to record the impairment loss will
a. record a discontinued operations loss of $80,000.
b. increase the asset’s Accumulated Depreciation account by $285,000.
c. reduce income from continuing operations by $205,000.
d. include a $285,000 credit to the asset account.
Ans: B - The impairment loss of $285,000 (book value of $2,200,000 less the recoverable amount of
$1,915,000) is recorded with a debit to an ordinary loss account and a credit to Accumulated
Depreciation., LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Measurement, Reporting,
135. Lebanon Corporation owns equipment with a cost of ₤320,000 and accumulated depreciation at
December 31, 2022 of ₤120,000. It is estimated that the machinery will generate future cash flows of
₤175,000. The machinery has a recoverable amount of ₤155,000. Lebanon should recognize a loss on
impairment of
a. ₤0.
b. ₤25,000.
c. ₤35,000.
d. ₤45,000.
Ans: D - The impairment loss would be the ₤45,000 difference between the asset’s book value of
₤200,000 and its recoverable amount of ₤155,000., LO: 3, Bloom: AP, Difficulty: Medium, Min: 2,
AICPA FC: Measurement, Reporting, AICPA BC: None, AICPA PC: None, IMA: Reporting
136. Flannery Corporation owns machinery with a book value of €520,000. It is estimated that the machinery
will generate future cash flows of €465,000. The machinery has a recoverable amount of €415,000.
Florence should recognize a loss on impairment of
a. € -0-.
b. €50,000.
c. €55,000.
d. €105,000.
Ans: D - The recoverable amount (€415,000) is less than the book value €520,000), resulting in a loss of
€105,000 to be recognized., LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Measurement,
137. Mains Corporation owns equipment with a cost of €290,000 and accumulated depreciation at December
31, 2022 of €150,000. It is estimated that the machinery will generate future cash flows of €165,000.
The machinery has a recoverable amount of €145,000. Mains should recognize a loss on impairment of
a. €0.
b. €15,000.
c. €25,000.
d. €35,000.
Ans: A - No impairment loss is recognized because the recoverable amount (€145,000) exceeds the
€140,000 book value of the asset., LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
Measurement, Reporting, AICPA BC: None, AICPA PC: None, IMA: Reporting
138. The total cost of natural resources includes all of the following except
a. exploration costs.
b. intangible development costs.
c. restoration costs.
d. All of the options are included in the total cost.
Ans: D - The total cost of natural resources includes all of the options., LO: 4, Bloom: K, Difficulty:
139. Depletion expense

a. is usually part of cost of goods sold.
b. includes tangible equipment costs in the depletion base.
c. excludes intangible development costs from the depletion base.
d. excludes restoration costs from the depletion base.
Ans: A - Depletion expense is usually part of cost of goods sold., LO: 4, Bloom: K, Difficulty: Easy,
140. The most common method of recording depletion for accounting purposes is the
a. percentage depletion method.
b. diminishing-charge method.
c. straight-line method.
d. units-of-production method.
Ans: D - The most common method of recording depletion for accounting purposes is the units-of-
production method, as it corresponds to the units extracted., LO: 4, Bloom: K, Difficulty: Easy, Min: 1,
141. Under IFRS, how is the account revaluation surplus reported?

a. As “other revenues and expenses” on the income statement.
b. As part of other comprehensive income which can be reported presented in separate statement, combined
with income statement, or in changes in equity statement.
c. It is included with Reserves in the equity section of the Statement of Financial Position.
d. The account is not reported in the financial statements.
Ans: B - Revaluation Surplus is reported a part of other comprehensive income which can be presented
in a separate statement, combined with the income statement, or in changes in stockholders’ equity
statement., LO: 5, Bloom: C, Difficulty: Easy, Min: 2, AICPA FC: Reporting, AICPA BC: None,
142. For 2022, Lassiter Company reports beginning of the year total assets of €900,000, end of the year total
assets of €1,100,000, net sales of €1,250,000, and net income of €250,000. Lassiter’s 2022 asset
turnover ratio is
a. 0.23 times.
b. 0.25 times.
c. 1.14 times.
d. 1.25 times.
Ans: D - €1,250,000 ÷ [(€900,000 + €1,100,000) ÷ 2] is 1.25 times, indicating the Lassiter generates
€1.25 of sales for every € of assets., LO: 6, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
Multiple Choice
143. Which of the following is not a characteristic of intangible assets?
a. They lack physical existence.

b. They are not financial instruments.
c. They are long-term in nature.
d. They are all subject to amortization.
Ans: D - All of the options are characteristics except not all intangibles are subject to amortization., LO:
1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None,
IMA: Reporting
144. Expensing all R&D costs associated with internally created intangible assets could result in
a. overstating assets and overstating expenses.
b. overstating assets and understating expenses.
c. understating assets and overstating expenses.
d. understating assets and understating expenses.
Ans: C - Expensing all R&D costs associated with internally created intangible assets could result in
understating assets and overstating expenses., LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AICPA FC:
145. A purchased limited-life intangible asset _______ amortized and is impairment tested using ________.
a. is; the recoverable amount test.
b. is not; the fair value test only.
c. is not; the recoverable amount test.
d. is; the fair value only.
Ans: A - A purchased limited-life intangible asset is amortized and is impairment tested using the
recoverable amount test., LO: 1,4, Bloom: K, Difficulty: Easy, Min: 2, AICPA FC: Reporting, AICPA
146. Which of the following is a factor to be considered in determining a limited-life intangible asset’s useful
life?
a. Any legal provisions that may limit the useful life
b. The expected useful life of any related asset
c. The effects of obsolescence
d. All of the answer choices are correct
Ans: D - All of the options are factors affecting useful life., LO: 1, Bloom: K, Difficulty: Easy, Min: 1,
147. Which of the following is not one of the major categories of intangibles?
a. Contract-related
b. Financing-related
c. Artistic-related
d. Marketing-related
Ans: B - There is no category of financing-related intangibles., LO: 2, Bloom: K, Difficulty: Easy, Min:
148. The difference between the price paid to acquire another company and the fair market value of that
company’s net assets can be referred to as
a. a master valuation account.
b. goodwill.
c. a gap filler.
Ans: D - Goodwill is the difference between the purchase price and the fair market value of the
company’s net assets. Since it is measured as a residual amount, it is sometimes called a master
valuation account or a gap filler., LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Measurement,
149. On January 1, 2022, Springsteen AG acquires a customer list for €400,000. Springsteen estimates that
this customer list will generate value for at least 5 years. At the end of 3 years, Springsteen plans to sell
the customer list to another company for €62,500. On Springsteen’s income statement for the year ended
December 31, 2022, how much amortization expense would it report?
a. €67,500
b. €133,333
c. €80,000
d. €112,500
Ans: D - Customer lists should be amortized over their useful life: (€400,000 – €62,500)/ 3 years =
€112,500 annual amortization expense., LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
Measurement, AICPA BC: None, AICPA PC: None, IMA: Reporting
150. Eisenhower Corporation purchased a patent for $1,850,000 on November 30, 2020. It has a remaining
legal life of 18 years. Eisenhower estimates that the remaining useful life of the patent is 15 years. What
balance will be reported on the December 31, 2022 balance sheet for the patent (if necessary, round your
answer to the nearest dollar)?
a. $1,850,000.
b. $1,583,678.
c. $1,593,056.
d. $1,485,606.
Ans: C - Total amortization expense charged between November 30, 2020 and December 31, 2022:
$1,850,000 ÷ 180 months × 25 months = $256,944. The balance in the Patent account would be:
$1,850,000 − $256,944 = $1,593,056, LO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AICPA FC:
151. Kern plc began operating as a business in 2022. During January 2022, the company paid £300,000 in
design costs to develop its trademark and £250,000 in legal and registration fees to secure the trademark.
During October 2022, the company successfully defended its trademark, paying an additional £150,000
in legal fees during the process. At what amount should Kern plc report its trademark on the acquisition
date prior to amortization?
a. £150,000
b. £400,000
c. £550,000
d. £700,000
Ans: C - When a company develops a trademark, it capitalizes the costs related to securing it including
legal fees, registration fees, and design costs. In this case, £300,000 + £250,000 = £550,000. Legal costs
are expensed regardless if successful or not, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
152. Zak Ltd. and Clark Group were combined in a purchase transaction. Zak Ltd. was able to acquire Clark
at a bargain price. The fair market value of Clark’s net assets exceed the price paid by Zak to acquire the
company. Proper accounting treatment by Zak is to report the excess of fair value over purchase price as
a. a gain.
b. a loss.
c. a liability.
d. paid-in capital.
Ans: A - Proper accounting treatment by Zak is to report the amount as a gain., LO: 3, Bloom: AP,
Reporting
153. Capitalizing goodwill only when it is purchased in an arm’s-length transaction, and not capitalizing any
goodwill generated internally, is an example of
a. accrual accounting prevailing over cash-basis accounting.
b. IFRS prevailing over GAAP.
c. faithful representation prevailing over relevance.
d. Comparability prevailing over consistency.
Ans: C - Capitalizing goodwill only when it is purchased in an arm’s-length transaction, and not
capitalizing any goodwill generated internally, is an example of faithful representation winning out over
relevance., LO: 3, Bloom: C, Difficulty: Easy, Min: 2, AICPA FC: Reporting, AICPA BC: None,
154. Truffle SA acquired a patent on January 1, 2019 for €7,800,000. It was expected to have a 10-year life
and no residual value. Truffle uses straight-line amortization for its patents. On December 31, 2019, the
expected future cash flows from the patent are €518,000 per year for the next six years. The present
value of these cash flows, discounted at Truffle’s market interest rate, is €2,120,000. What amount, if
any, of impairment loss will be reported on Truffle’s 2022 income statement?
a. €1,340,000
b. €2,120,000
c. €2,560,000
d. €4,680,000
Ans: C - Amortization charged to date is €7,800,000 ÷ 10 years × 4 years = €3,120,000. The carrying
value of the patent at December 31, 2022 is €4,680,000 (€7,800,000 − €3,120,000). The impairment loss
is the difference between the carrying value and the discounted expected future net cash flows:
€4,680,000 − €2,120,000 = €2,560,000, LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
155. Kust Company acquired a patent on a manufacturing process on January 1, 2017 for $5,100,000. It was
expected to have a 12-year life and no residual value. Kust uses straight-line amortization for patents.
On December 31, 2022, the expected future cash flows from the patent are $387,500 per year for the
next ten years. The present value of these cash flows, discounted at Kust’s market interest rate, is
$3,050,000. At what amount should the patent be carried on the December 31, 2022 balance sheet?
a. $5,100,000
b. $4,250,000
c. $3,875,000
d. $3,050,000
Ans: D - The book value of the patent at December 31, 2022 is $4,250,000 (cost of $5,100,000 less 2
years amortization at $425,000 per year). The patent should be carried on the balance sheet at the present
value of $387,500 expected annual cash flows for the next 10 years, $3,050,000. LO: 4, Bloom: AP,
Reporting
156. Felhofer AG purchased McKinley Marine on June 1, 2018 for €25,000,000 and recorded goodwill of
€3,100,000 in connection with the purchase. At December 31, 2022, the McKinley Marine Division had
a fair value of €25,400,000. The net identifiable assets of McKinley (including goodwill) had a fair
value of €24,900,000 at that time. What amount of loss on impairment of goodwill should Felhofer
record in 2022?
a. €0
b. €500,000
c. €600,000
d. €2,600,000
Ans: A - The fair value (recoverable amount) of McKinley is greater than its carrying amount so no
impairment has occurred.,
LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Measurement, AICPA BC: None, AICPA
157. The impairment rule for goodwill involves how many steps?
a. 1
b. 2
c. 3
d. 4
Ans: A - There is one step. On an annual basis, compare the carrying value of the cash generating unit to
its recoverable amount. If the recoverable amount is less, record an impairment loss., LO: 4, Bloom: K,
Reporting
158. Which of the following principles best describes the current method of accounting for research costs?
a. Associating cause and effect
b. Systematic and rational allocation
c. Income tax minimization
d. Immediate recognition as an expense
Ans: D - Research costs should be immediately recognized as an expense., LO: 5, Bloom: C, Difficulty:
Easy, Min: 1, AICPA FN: None, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None, IMA:
Reporting
159. Which of the following is considered a research activity?

a. Construction of a prototype
b. Operation of a pilot plant
c. Critical investigation aimed at discovery of new knowledge
d. All of these answer choices are correct
Ans: C - Critical investigation aimed at discovery of new knowledge is considered a research activity.,
LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Measurement, AICPA BC: None, AICPA PC:
160. Which of the following costs should be excluded from research and development expense?
a. Modification of the design of a product
b. Acquisition of R&D equipment for use on a current project only
c. Cost of marketing research for a new product
d. Engineering activity required to advance the design of a product to the manufacturing stage
Ans: C - The cost of marketing research for a new product should be excluded from research and
development expenses., LO: 5, Bloom: C, Difficulty: Easy, Min: 2, AICPA FC: Measurement, AICPA
161. The presentation of intangible assets in the financial statements

a. includes reporting R&D costs as an expense in the income statement
b. involves crediting amortization directly to the intangible asset account
c. includes the disclosure of the amortization expense for each of the next 5 years
Ans: D - The presentation of intangibles in the financial statement includes reporting R&D expense in
the income statement, crediting amortization directly to the intangible asset account, and disclosing
amortization expense for the next 5 years., LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC:
162. Which of the following development costs may be capitalized?

a. Contract services
b. Personnel
c. Indirect costs
d. Development costs incurred after a project achieves economic viability
Ans: D - Development costs incurred after achieving economic viability are capitalized and amortized
over the useful life of related intangibles., LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC:
Multiple Choice
163. Which of the following statements is false?

a. A company may exclude a short-term obligation from current liabilities if the firm intends to refinance
the obligation on a long-term basis and has the unconditional right to complete the refinancing.
b. Cash dividends should be recorded as a liability when they are declared by the board of directors.
c. Unearned revenues represent advance payments for goods or services from customers.
d. Stock dividends declared but not yet distributed are reported as a liability until the stock is issued.
Ans: D - Common stock dividends distributable is reported as a component of equity, not as a liability.,
LO: 1, Bloom: C, Difficulty: Easy, Min: 2, AICPA FC: Reporting, AICPA BC: None, AICPA PC:
164. Lyric Company issued a 90-day zero-interest-bearing note with a face amount of ¥€3,000. The present
value of the note is €2,855. The journal entry to record the issuance of the note will include
a. a debit to Notes Payable for €2,855.
b. a debit to Interest Expense for €145.
c. a debit to Cash for €2,855.
d. None of these answers are correct.
Ans: C - The borrower receives the present value of the note because the interest has already been
deducted so the Cash account is debited for that amount. The Notes Payable accounts is credited for the
same amount, LO: 1, Bloom: AP, Difficulty: Medium, Min: 1, AICPA FC: Measurement, Reporting,
165. Liabilities are

a. accounts having credit balances after closing entries are made.
b. deferred credits that are recognized and measured in conformity with IFRS.
c. obligations to transfer ownership shares to other entities in the future.
d. obligations arising from past transactions and payable in assets or services in the future.
Ans: D - Liabilities are obligations arising from past transactions and payable in assets or services in the
future., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA
166. Which of the following is not an example of a current liability?

a. Dividends Payable
b. Preferred dividends in arrears
c. Unearned Service Revenue
d. Salaries Payable
Ans: B - Preferred dividends in arrears are not a liability until declared by the Board of Directors., LO:
1, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None,
IMA: Reporting
167.Short-term obligations expected to be refinanced are not classified as current liabilities if

a. they will be paid using restricted cash.
b. the obligations will be satisfied after the financial statements are issued.
c. their satisfaction will not require the use of assets classified as current as of the statement of financial
position date.
d. None of these answers are correct.
Ans: C - Because these obligations will not require the use of working capital during the next year (or
operating cycle), they are not classified as current liabilities., LO: 1, Bloom: K, Difficulty: Easy, Min: 2,
168. Which of the following statements is correct?
a. A company may exclude a short-term obligation from current liabilities if it intends to refinance the
obligation on a long-term basis.
b. A company may exclude a short-term obligation from current liabilities if it has an unconditional right to
defer settlement of the liability for at least 12 months.
c. A company may exclude a short-term obligation from current liabilities if it is paid off after the statement
of financial position date and subsequently replaced by long-term debt before the statement of financial
position is issued.
d. None of these answer choices are correct.
Ans: D - None of the statements is correct. A company may exclude a short-term obligation from current
liabilities if the company intends to refinance and has the unconditional right to complete the refinancing
as of the statement of financial position date., LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AICPA
169. Which of the following statements is false?

a. When rights are vested, an employer has an obligation to make payment to an employee.
b. Social security taxes and income taxes withheld are expenses of the employer.
c. Profit-Sharing Bonus Payable is usually reported as a long-term liability.
d. The liability for compensated absences should be recognized in the year earned.
Ans: C - Profit-Sharing Bonus Payable is usually reported as a current liability., LO: 1, Bloom: C,
170. Taxes withheld by the employer on behalf of the employee are recorded as
a. current liabilities.
b. expenses.
c. unearned revenues.
d. receivables.
Ans: A - The taxes are reported as liabilities because the employer is acting as the collection agent for
the government, and must be remitted to the taxing authority on a timely basis., LO: 1, Bloom: K,
171. Employer-related liabilities include all the following except

a. vacation pay.
b. income withholding taxes.
c. social security taxes.
d. sick pay.
Ans: B – Employer- related liabilities include all options except income withholding taxes., LO: 1,
Reporting
172. Contingent assets should not be disclosed in the financial statements or the notes thereto if they are
considered
a. virtually certain.
b. probable.
c. likely.
d. possible but not probable.
Ans: D - Contingent assets need not be disclosed in the financial statements or the notes thereto if they
are possible but not probable, and disclosed in a note if probable, LO: 3, Bloom: C, Difficulty: Easy,
173. Black Water Inc. is being sued by former employees as a result of negligence on the company's part.
Black Water's lawyers state that it is probable that the company will lose the suit and be found liable for
a judgment costing the company anywhere from ¥100,000,000 to ¥200,000,000. However, the lawyer
states that the most probable cost is ¥125,000,000. As a result of the above facts, Black Water should
accrue
a. a loss provision of ¥100,000,000 and disclose an additional contingency of up to ¥100,000,000.
b. a loss provision of ¥125,000,000 and disclose an additional contingency of up to ¥75,000,000.
c. a loss provision of ¥125,000,000 but not disclose any additional contingency.
d. no loss provision but disclose a contingency of ¥100,000,000 to ¥200,000,000.
Ans: B - Because a loss of ¥125,000,000 is more likely than any other amount in the range, Black Water
should accrue ¥125,000,000 and disclose the potential additional loss of $75,000,000., LO: 3, Bloom:
Reporting
173. A loss related to general or unspecified business risks is

a. always accrued.
b. not accrued.
c. sometimes accrued.
d. usually accrued.
Ans: B - A loss related to general or unspecified business risks is not accrued., LO: 2, Bloom: C,
174. Ultra-Energy Company offers a cash rebate of ₤2 on each ₤9 package of protein powder sold during
2022. Historically, 20% of customers mail in the rebate form. During 2022, 3,000,000 packages are
sold, and 250,000 ₤2 rebates are mailed to customers. What is the rebate expense and liability,
respectively, shown on the company’s 2022 financial statements?
a. ₤500,000; ₤700,000
b. ₤1,200,000; ₤700,000
c. ₤1,200,000; ₤500,000
d. ₤500,000; ₤1,200,000
Ans: B - The expense is (3,000,000 packages × 20% × ₤2/ package) = ₤1,200,000. Since 250,000 $2
rebates were mailed in during 2022, the liability balance is ₤1,200,000 − ₤500,000, or ₤700,000., LO: 2,
IMA: Reporting
175. Fancy Fish Company offers a cash rebate of $0.25 on each $12 package of fish food sold during 2022.
Historically, 10% of customers mail in the rebate form. During 2022, 5,000,000 packages are sold, and
150,000 $0.25 rebates are mailed to customers. What is the rebate expense and liability, respectively,
reported in the company’s 2022 financial statements?
a. $125,000; $37,500
b. $37,500; $87,500
c. $125,000; $125,000
d. $125,000; $87,500
Ans: D - The expense is 5,000,000 packages × 10% × $0.25 per package or $125,000. Since 150,000
$0.25 rebates were mailed in during 2022, the liability balance is $125,000 − $37,500, or $87,500., LO:
176. In 2021, General Dynamics Corporation began selling a new line of products that carries a two-year
warranty against defects. Based upon past experience with other products, the estimated warranty costs
related to dollar sales are as follows:
First year of warranty 2%

Second year of warranty 5%
Sales and actual warranty expenditures for 2021 and 2022 are presented below:
2021 2022
Sales €600,000 €800,000
Actual warranty expenditures 20,000 40,000
What is the estimated warranty liability at the end of 2022?

a. $38,000
b. $58,000
c. $98,000
d. $16,000
Ans: A - {[€600,000 × (2% + 5%)] + [€800,000 × (2% + 5%)]} – (€20,000 + €40,000) = €38,000., LO:
2, Bloom: AP, Difficulty: Medium, Min:3, AICPA FC: Reporting, AICPA BC: None, AICPA PC:
178. A contingent liability

a. always exists as a liability but its amount and due date are indeterminable.
b. is accrued even though not probable.
c. is recorded for possible self-insurance losses if a reasonable estimate is determinable.
d. is not reported as a liability if not probable.
Ans: D - A contingent liability is not reported as a liability if not probable or virtually certain., LO: 3,
Reporting
179. Accrued liabilities are disclosed in the financial statements by
a. a footnote to the statements.
b. showing the amount among the liabilities but not extending it to the liability total.
c. an appropriation of retained earnings.
d. appropriately classifying them as regular liabilities in the statement of financial position.
Ans: D - Accrued liabilities are disclosed in the financial statements by appropriately classifying them as
regular liabilities in the statement of financial position., LO: 4, Bloom: C, Difficulty: Easy, Min: 1,
180. The current ratio measures

a. profitability.
b. solvency.
c. liquidity.
d. All of these options are correct.
Ans: C - The current ratio is a measure of a firm’s ability to meet its currently maturing debt., LO: 4,
Reporting
181. Each of the following are included in both the current ratio and the acid-test ratio except
a. cash.
b. short-term investments.
c. net receivables.
d. inventory.
Ans: D - Inventory is included in the current ratio but excluded in the acid-test ratio., LO: 4, Bloom: K,
182. Which of the following is not acceptable treatment for the presentation of current liabilities?
a. Listing current liabilities in order of maturity.
b. Listing current liabilities according to amount.
c. Offsetting current liabilities against assets that are to be applied to their liquidation.
d. Showing currently maturing long-term debt as part of current liabilities.
Ans: C - Offsetting current liabilities against assets that are to be applied to their liquidation is not
proper presentation of current liabilities., LO: 4, Bloom: C, Difficulty: Easy, Min: 2, AICPA FC:
Multiple Choice
183. The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth
in the
a. bond indenture.
b. bond debenture.
c. registered bond.
d. bond coupon.
Ans: A - The covenants and other terms of the agreement between the issuer of bonds and the lender are
set forth in the bond indenture., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting,
184. A bond for which the issuer has the right to request from the bondholder and retire the bonds prior to
maturity is a
a. convertible bond.
b. callable bond.
c. retirable bond.
d. debenture bond.
Ans: B - Callable bonds give the issuer the right to call and retire the bonds prior to maturity., LO: 1,
Reporting
185. A bond that matures in installments is called a

a. term bond.
b. serial bond.
c. callable bond.
d. bearer bond.
Ans: B - Bonds that mature in installments are referred to as serial bonds., LO: 1, Bloom: K, Difficulty:
186. On July 1, 2022, Eckert Company issues €10,000,000, 6%, 5-year bonds dated July 1, 2022. The bonds
pay interest semiannually on December 31 and June 30. The bonds are issued to yield 5%. What are the
proceeds from the bond issue?
2.5% 3.0% 5.0% 6.0%
Present value of a single sum for 5 periods 0.88385 0.86261 0.78353 0.74726
Present value of a single sum for 10
periods 0.78120 0.74409 0.61391 0.55839
Present value of an annuity for 5 periods 4.64583 4.57971 4.32948 4.21236
Present value of an annuity for 10 periods 8.75206 8.53020 7.72173 7.36009
a. €10,000,000
b. €10,432,988
c. €10,437,618
d. €10,434,616
Ans: C – Interest payments are €10,000,000 × 6% × 6/12, or €300,000. The present value of the face
amount of the bonds, €10,000,000 × 0.78120, plus the face amount of the interest payments, €300,000 ×
8.75206 totals to €10,437,618., LO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AICPA FC: Reporting,
187. The printing costs and legal fees associated with the issuance of bonds should
a. be expensed when incurred.
b. be reported as a deduction from the face amount of bonds payable and amortized into expense over the
life of the bonds.
c. be accumulated in a deferred charge account and not affect effective interest amortization.
d. capitalized and then reported as an expense when the bonds mature or are retired.
Ans: B - The printing costs and legal fees associated with the issuance of bonds should be recorded as
part of the carrying value of the bonds amortized over the life of the bonds., LO: 1, Bloom: K,
188. The selling price of a bond is the sum of the present values of the principal and the periodic interest
payments. The present values are determined by discounting using the
a. stated rate.
b. nominal rate.
c. coupon rate.
d. market rate.
Ans: D - The market rate, also called the effective yield, is used to discount the cash flows in
determining the selling price (proceeds) of a bond., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA
189. On January 1, Gasperson, Inc. issued $100,000,000, 7% bonds at 102. The journal entry to record the
issuance of the bonds will include
a. a credit to Bonds Payable for $102,000,000.
b. a credit to Premium on Bonds Payable for $2,000,000.
c. a debit to Cash for $100,000,000.
d. a credit to Interest Expense for $2,000,000.
Ans: A - The entry will credit Bonds Payable for $102,000,000., LO: 1, Bloom: AP, Difficulty:
190. If a bond sold at 97, the market rate was

a. equal to the stated rate.
b. less than the stated rate.
c. greater than the stated rate.
d. equal to the coupon rate.
Ans: C - If a bond was sold at 97, it sold at a discount (97% of face value), which occurs when the
market rate is greater than the stated rate., LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
191. When a bond sells at a premium, interest expense will be

a. equal to the bond interest payment.
b. greater than the bond interest payment.
c. less than the bond interest payment.
d. None of these answer choices are correct.
Ans: C - Selling a bond at a premium results in interest expense being less than the interest payment
because of the amortized premium., LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
192. Under the effective interest method, interest expense
a. always increases each period the bonds are outstanding.
b. always decreases each period the bonds are outstanding.
c. is the same annual amount as cash interest paid.
d. is accrued using the market rate of interest.
Ans: D - Interest expense is based upon the carrying value of the bonds and the effective interest rate.
Since the carrying value changes as amortization occurs, interest expense will change., LO: 1, Bloom:
Reporting
193. If bonds are initially sold at a discount and the effective-interest method of amortization is used, interest
expense will
a. be the same amount for each period.
b. be to a constant percentage of the carrying value of the bonds.
c. be the same amount whether the bonds are issued at a discount or premium.
d. be less than interest payment.
Ans: B - If bonds are initially sold at a discount and the effective interest method of amortization is used,
interest expense will be constant percentage of the carrying value of the bonds., LO: 1, Bloom: AP,
Reporting
194. Ferrone Company issues €10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2022. Interest is
paid on June 30 and December 31. The proceeds from the bonds are €9,802,072. Ferrone uses effective-
interest amortization. What amount of interest expense will Ferrone record for the June 30 payment?
a. €390,000
b. €392,083
c. €400,000
d. €784,164
Ans: B - Interest expense for the first six months is (€9,802,072 × 0.04) = €392,083., LO: 1, Bloom: AP,
Reporting
195. Pontchartrain Company issues ₤20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2022.
Interest is paid on June 30 and December 31. The proceeds from the bonds are ₤19,604,145. The
company uses effective-interest amortization. Interest expense reported on the 2023 income statement
will total
a. ₤1,529,115
b. ₤1,560,000
c. ₤1,568,498
d. ₤1,600,000
Ans: C - Interest expense for the first 6 month period is (₤19,604,145 × 0.04) = ₤784,166. The new
carrying value for the bonds is [₤19,604,145 + (₤784,166 − ₤780,000)] = ₤19,608,311. Interest expense
for the second six months is (₤19,608,311 × 0.04) = ₤784,332. Total interest expense for 2023 is
(₤784,166 + ₤784,332) = ₤1,568,498., LO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AICPA FC:
196. On January 1, 2022, Kimbrough Inc. issued ₨5,000,000, 9% bonds for ₨4,695,000. The market rate of
interest for these bonds is 10%. Interest is payable annually on December 31. Kimbrough uses the
effective-interest method of amortizing bond discount. At December 31, 2022, Kimbrough should have
unamortized bond discount in the amount of
a. ₨274,500.
b. ₨285,500.
c. ₨258,050.
d. ₨255,000.
Ans: B - The discount on bonds payable is recorded at (Rs5,000,000 − Rs4,695,000) = Rs305,000 at

issuance. The amortization of discount in 2022 is [Rs450,000 – (Rs4,695,000 × 0.10)] = Rs19,500
leaving a balance of Rs305,000 − Rs19,500 = Rs285,500., LO: 1, Bloom: AP, Difficulty: Medium, Min:
197. On June 30, 2022, Baker Co. had outstanding 8%, A$6,000,000 face amount, 15-year bonds maturing on
June 30, 2029. Interest is payable on June 30 and December 31. The unamortized balances in the bond
discount account on June 30, 2022 was A$210,000. On June 30, 2022, Baker acquired all of these bonds
at 94 and retired them. What net carrying amount should be used in computing gain or loss on this early
extinguishment of debt?
a. A$5,940,000
b. A$5,790,000
c. A$5,730,000
d. A$5,640,000
Ans: B - The bonds’ net carrying amount used to calculate the gain or loss on extinguishment is
(A$6,000,000 − A$210,000) = A$5,790,000., LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AICPA
198. On June 30, 2022, Prouty Co. had outstanding 9%, $5,000,000 face amount, 10-year bonds that pay
interest semi-annually on June 30 and December 31. The unamortized balances in the bond discount
account on June 30, 2022 was $200,000. On June 30, 2022, Prouty acquired all of these bonds at 101
and retired them. What amount of gain or loss would Prouty record on this early extinguishment of debt?
a. $505,000 gain
b. $300,000 loss
c. $200,000 gain
d. $250,000 loss
Ans: D - The bonds’ net carrying amount is ($5,000,000 − $200,000) = $4,800,000. The loss on
extinguishment is ($5,000,000 × 1.01) − $4,800,000 = $250,000., LO: 3, Bloom: AP, Difficulty:
199. On January 1, 2022, Trinity Company loaned €901,560 to Litton Industries in exchange for a 3-year,
zero-interest-bearing note with a face amount, €1,200,000. The prevailing rate of interest for a loan of
this type is 10%. The adjusting journal entry made by Litton at December 31, 2022 with regard to the
note will include a
a. credit to Notes Payable for €90,156.
b. debit to Interest Expense for €120,000.
c. credit to Notes Payable for €120,000.
d. debit to Interest Expense for €29,844.
Ans: A - The adjusting entry made at December 31, 2022 debits Interest Expense and credits Notes
Payable for (€901,560 × 0.10) = €90,156., LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AICPA FC:
200. All of the following statements are true regarding IFRS treatment of reporting and recognition of long
term liabilities except
a. IFRS allows use of straight-line amortization of discounts and premiums.
b. liabilities are classified as current and non-current.
c. the use of effective interest amortization.
d. bond issue costs are netted against the carrying amount of the bonds.
Ans: A - IFRS requires the use of effective interest amortization. Straight-line amortization is not
allowed., LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Reporting, AICPA BC: None,
201. Which of the following is not an example of "off-balance-sheet financing"?

a. Non-consolidated subsidiary
b. Special purpose entity
c. Leases with maturities of 1 year or less
d. Long-term leases
Ans: C - Long-term obligations are typically the types of items that companies attempt to keep off their
statement of financial position. Leases with maturities of 1 year or less are current obligations., LO: 4,
IMA: Reporting
202. Note disclosures for long-term debt generally include all of the following except
a. assets pledged as security.
b. call provisions and conversion privileges.
c. restrictions imposed by the creditor.
d. names of specific creditors.
Ans: D - Note disclosures for long-term debt generally do not include the names of specific creditors.,
203. The residual interest in a corporation belongs to
a. the ordinary shareholders.
b. the preference shareholders.
c. the Board of Directors.
d. Management.
Ans: A - The residual interest in a corporation belongs to the ordinary shareholders., LO: 1, Bloom: K,
Reporting
204. Presented below is information related to Schoenthaler Corporation.
Share Capital−Ordinary, $5 par $1,100,000

Share Premium−Ordinary 400,000
Share Capital–Preference 5½ % Stock, $100 par 1,500,000
Share Premium–Preference 500,000
Retained Earnings 2,000,000
Share Premium−Treasury 150,000
The total equity of Schoenthaler Corporation is

a. $3,650,000.
b. $5,350,000.
c. $5,650,000.
d. $5,500,000.
Ans: C - Total equity is ($1,100,000 + $400,000 + $1,500,000 + $500,000 + $2,000,000 + $150,000) =

$5,650,000., LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Reporting, AICPA BC: None,
205. Presented below is information related to Kaenzig Corporation.
Share Capital−Ordinary, ¥1 par ¥2,100,000

Share Premium−Ordinary 550,000
Share Capital–Preference 8½ % Stock, ¥50 par 1,700,000
Share Premium–Preference 950,000
Treasury Shares (at cost) 250,000
The total equity of Kaenzig Corporation is

a. ¥2,300,000.
b. ¥5,300,000.
c. ¥7,400,000.
d. ¥7,900,000.
Ans: C - Total equity is (¥2,100,000 + ¥550,000 + ¥1,700,000 + ¥950,000 + ¥2,350,000 − ¥250,000) =

¥7,400,000. Treasury stock is a contract equity account so it is subtracted., LO: 1, Bloom: AP,
Reporting
206. Duszynski Company issues 20,000 shares of its ₤0.50 par value ordinary shares having a market value
of ₤25 per share and 6,000 shares of its ₤25 par value preference shares having a market value of ₤50
per share for a lump sum of ₤750,000. The proceeds allocated to the ordinary shares is
a. ₤450,000
b. ₤468,750
c. ₤500,000
d. ₤705,000
Ans: B – The total fair value is (20,000 × ₤25) + (6,000 × ₤50), or ₤800,000. The portion allocated to
ordinary shares is (₤500,000 ÷ ₤800,000) × ₤750,000, or ₤468,750., LO: 1, Bloom: AP, Difficulty:
207. Share premium is not affected by the issuance of

a. stated value stock.
b. par value stock.
c. no-par stock.
d. preference shares.
Ans: C - The issuance of no-par shares has no effect on share premium., LO: 1, Bloom: C, Difficulty:
208. Gulfport Corporation was organized in January 2022 with authorized capital of €0.0001 par value of
ordinary shares. On February 1, 2022, shares were issued at par for cash. On March 1, 2022, the
corporation's attorney accepted 5,000 shares of ordinary shares in settlement for legal services with a fair
value of €25,250. Share Premium – Ordinary would increase on
February 1, 2022 March 1, 2022

1. Yes No
2. Yes Yes
3. No No
4. No Yes
a. 1
b. 2
c. 3
d. 4
Ans: D -The first issuance of shares is sold at par so no additional share premium is recorded. The
attorney accepted the shares at (€25,250 ÷ 5,000 shares) = €5.05 per share, a value greater than par in
which share premium is recorded for the excess of proceeds over par value., LO: 1, Bloom: AP,
Reporting
209. Presented below is information related to Polaris Corporation’s account balances:
Ordinary shares, $1 par $10,350,000

Share Premium—Ordinary 6,520,000
Non-controlling interest 400,000
Dividends payable 695,000
The total contributed capital of Polaris Corporation is

a. $17,270,000.
b. $16,870,000.
c. $26,813,000.
d. $26,413,000.
Ans: B - $10,350,000 + $6,520,000 = $16,870,000. Contributed capital excludes retained earnings as it

is earned capital., LO: 1, Bloom: AP, Difficulty: Medium, Min: 1, AICPA FC: Reporting, AICPA BC:
210. On September 14, 2022, Gayot Company reacquired 12,000 shares of its A$1 par value ordinary shares
for A$40 per share. Gayot uses the cost method to account for treasury shares. The journal entry to
record the reacquisition of the shares should debit
a. Treasury Shares for A$480,000.
b. Share Capital−Ordinary for A$480,000.
c. Share Capital−Ordinary for A$24,000 and Share Capital−Premium for A$456,000.
d. Treasury Shares for A$24,000.
Ans: A - Treasury Shares is debited for the cost of the shares: 12,000 × A$40 = A$480,000., LO: 2,
IMA: Reporting
211. Which of the following best describes a possible result of treasury share transactions by a corporation?
a. May increase but not decrease retained earnings
b. May increase net income if the cost method is used
c. May decrease but not increase retained earnings
d. May decrease but not increase net income
Ans: C - Treasury share transactions by a corporation may decrease but not increase retained earnings.,
212. Hise Inc., has 4,000 shares of 9%, €100 par value, cumulative preference shares and 200,000 shares of
€1 par value ordinary shares outstanding at December 31, 2022, and December 31, 2021. The board of
directors declared and paid a €25,000 dividend in 2021. In 2022, €74,000 of dividends are declared and
paid. How much are the dividends received by the preference shareholders in 2022?
a. $11,000
b. $36,000
c. $47,000
d. $74,000
Ans: C - The annual preference dividend is (€9 × 4,000) = €36,000; dividends in arrears at December
31, 2021 would be €11,000. 2022 preferred dividends would be €11,000 + €36,000 = €47,000., LO: 3, 5,
IMA: Reporting
213. Which of the following features of preference shares makes the security more like debt than an equity
instrument?
a. Participating
b. Voting
c. Redeemable
d. Noncumulative
Ans: C - Redeemable preference shares are more like debt than the other choices, as they have a
mandatory redemption period the issuer cannot control., LO: 3, Bloom: C, Difficulty: Easy, Min: 1,
214. Which of the following dividends do not reduce total equity when declared?
a. Liquidating dividends
b. Cash dividends
c. Share dividends
d. All of these answer choices reduce total stockholders' equity.
Ans: C - All of these answer choices reduce total equity except share dividends., LO: 3, Bloom: AP,
Reporting
215. Cash dividends are paid on the basis of the number of shares
a. authorized.
b. issue.
c. outstanding.
d. outstanding less the number of treasury shares.
Ans: C - Dividends are paid on issued shares less treasury shares (or outstanding shares)., LO: 3, Bloom:
K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None, IMA:
Reporting
216. McCaffrey Corporation owned 14,000 shares of Harper Corporation’s ₨5 par value ordinary shares.
These shares were purchased in 2016 for ₨326,000. On May 4, 2022, McCaffrey declared a property
dividend of one share of Harper for every twenty shares of McCaffrey shares held by a stockholder. On
that date, when the market price of Harper was ₨34 per share, there were 280,000 shares of McCaffrey
outstanding. What net reduction in retained earnings would result from this property dividend?
a. $150,000
b. $176,000
c. $326,000
d. $476,000
Ans: C - The fair value of the shares distributed is: 280,000 McCaffrey shares ÷ 20 = 14,000 shares of
Harper issued, times Rs$34 current market price equals Rs$476,000. The Unrealized Holding Gain or
Loss−Income account is increased by the unrealized gain of Rs$150,000 (Rs$476,000 − Rs$326,000) to
restate the investment to fair value. Retained earnings is decreased by the fair value of the shares to be
distributed for a net reduction of Rs$326,000, and Property Dividends Payable is increased with a debit
for the same amount. LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AICPA FC: Reporting, AICPA
217. On October 31, 2022, Lexington Corp. declared and issued a 12% ordinary shares dividend. Prior to this
dividend, Lexington had 302,000 shares of $0.001 par value ordinary shares issued and outstanding. The
fair value of Lexington's ordinary shares was $16.75 per share on October 31, 2022. As a result of this
share dividend, the company's total equity
a. increased by $36,240.
b. decreased by $5,058,198.
c. decreased by $5,058,500.
d. did not change.
Ans: D - As a result of this share dividend, Lexington's total equity did not change. It increased and
decreased by the same amount as retained earnings was transferred to contributed capital., LO: 3,
IMA: Reporting
218. At the date of declaration of a share dividend, the entry should include
a. a credit to Dividends Payable.
b. a credit to Share Premium−Ordinary.
c. a debit to Retained Earnings.
d. a credit to Cash.
Ans: C - At the date of declaration of a share dividend, the entry should include a debit to Retained
Earnings., LO: 3, Bloom: AP, Difficulty: Medium, Min: 1, AICPA FC: Reporting, AICPA BC: None,
219. On January 1, 2022, Vancleave Corporation had 110,000 shares of its ₤1 par value ordinary shares
outstanding. On November 27, when the market price of a share was ₤8, the corporation declared a 10%
share dividend to be issued to shareholders of record on December 28, 2022. What was the impact of the
10% share dividend on the balance of the retained earnings account?
a. ₤11,000 decrease
b. ₤77,000 decrease
c. ₤88,000 decrease
d. No effect
Ans: A - The amount transferred from retained earnings in a share dividend is based on the par value of
the stock: (110,000 × 0.10) = 11,000 shares × ₤1 = $11,000., LO: 3, Bloom: AP, Difficulty: Medium,
220. Durango Inc. had net income for 2022 of HUF2,120,000 and earnings per share on ordinary shares of
HUF5. Included in the net income was HUF300,000 of bond interest expense related to its long-term
debt. The income tax rate for 2022 was 30%. Dividends on preference shares were HUF400,000. The
payout ratio on ordinary shares was 25%. What were the dividends on ordinary shares in 2022?
a. HUF430,000
b. HUF530,000
c. HUF482,500
d. HUF645,000
Ans: A - (HUF2,120,000 net income − HUF400,000 preference dividends) × 25% equals HUF430,000
in ordinary share dividends., LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Reporting,
221. Blowing Rock Inc. has 5,000 shares of 5%, $100 par value, cumulative preference shares and 30,000
shares of $1 par value ordinary shares outstanding at December 31, 2020, 2021 and 2022. There were no
dividends declared in 2020. The board of directors declares and pays a $45,000 dividend in 2021 and in
2022. What is the amount of dividends received by the ordinary shareholders in 2022?
a. $15,000
b. $25,000
c. $45,000
d. $0
Ans: A - The annual preferred dividend is ($5 × 5,000) = $25,000. The $45,000 dividend payment in
2021 would leave $5,000 in arrears. In 2022, the preference shareholders would get $30,000 and the
common shareholders would get $15,000., LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AICPA FC:
222. Terpsichore Inc., has 1,000 shares of 5%, €100 par value, cumulative preference shares and 200,000
shares of €1 par value ordinary shares outstanding at December 31, 2022, and December 31, 2021. No
dividends were paid in 2021. In 2022, €75,000 of dividends are declared and paid. If the preference
shares is nonparticipating, what are the dividends received by the preference shareholders in 2022?
a. €5,000
b. €10,000
c. €42,500
d. €65,000
Ans: B - The annual preference dividend is (€5 × 1,000) = €5,000; dividends in arrears at December 31,
2021 would be €5,000. 2022 preference dividends would be €5,000 + €5,000 = €10,000., LO: 5, Bloom:
Reporting
223. Convertible bonds

a. allow a company to issue debt financing at cheaper rates.
b. are separated into the bond component and the expense component.
c. are separated into their components based on relative fair values.
Ans: A - Convertible bonds allow a company to issue debt financing at cheaper rates., LO: 1, Bloom: K,
224. Convertible bonds are usually converted into

a. preference shares.
b. ordinary shares.
c. other bonds at a lower interest rate.
d. share warrants.
Ans: B - Convertible bonds are usually convertible into a specified number of ordinary shares., LO: 1,
Reporting
225. Mae Jong Corp issues €1,000,000 of 10% bonds payable which may be converted into 10,000 shares of
€2 par value ordinary shares. The market rate of interest on similar bonds is 12%. Interest is payable
annually on December 31, and the bonds were issued for total proceeds of €1,000,000. In accounting for
these bonds, Mae Jong Corp. will
a. first assign a value to the equity component, then determine the liability component.
b. assign no value to the equity component since the conversion privilege is not separable from the bond.
c. use the “with-and-without” method to value the compound instrument.
d. first assign a value to the liability component based on the face amount of the bond.
Ans: C - The “with-and-without” method is used to record the compound instrument., LO: 1, Bloom:
Reporting
226. In 2022, Chartres Inc. issued for $105 per share, 60,000 shares of $100 par value convertible preference
shares. One preference share can be converted into three shares of Chartre's $25 par value ordinary
shares at the option of the preference shareholder. In April 2022, all of the preference shares were
converted into ordinary shares. The market value of the ordinary shares at the date of the conversion was
$30 per share. What total amount should be credited to Share Premium–Ordinary Shares as a result of
the conversion of the preference shares into ordinary shares?
a. $6,000,000
b. $6,300,000
c. $1,800,000
d. $4,500,000
Ans: C – The entry to record the issuance of the preference shares is an increase to Share
Capital−Preference for $100 par × 60,000 shares, or $6,000,000, and an increase to Share
Premium−Conversion Equity for $5 × 60,000 shares, or $300,000. When the shares are converted to
ordinary shares, the Share Premium−Conversion Equity and the Share Capital−Preference accounts are
debited for their balances, Share Capital−Ordinary is credited for $25 × 3 shares × 60,000, or
$4,500,000, and the Share Premium−Ordinary account is credited for $1,830,000. LO: 1, Bloom: AP,
Reporting
227. In 2022, Newton Inc. issued for ₤105 per share, 100,000 shares of ₤100 par value convertible preference
shares. One preference share can be converted into three shares of Newton's $30 par value ordinary
shares at the option of the preference shareholder. In August 2022, all of the preference shares was
converted into ordinary shares. The market value of the ordinary shares at the date of the conversion was
$32 per share. What total amount should be credited to Share Premium–Ordinary shares as a result of
the conversion of the preference shares into ordinary shares?
a. ₤375,000
b. ₤780,000
c. ₤1,250,000
d. ₤1,500,000
Ans: D -The preference shares have a value of ($105 × 100,000 shares) $10,500,000. The ordinary
shares have a par value of ($30 × 300,000 shares) $9,000,000. The difference, $1,500,000, represents
share premium - ordinary shares., LO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AICPA FC:
228. The issuance of warrants arises under all of the following situations except to
a. make different types of securities more attractive to new investors.
b. give existing shareholders a preemptive right to purchase shares.
c. provide compensation to executives.
d. give bondholders the preemptive right to purchase additional shares.
Ans: D - All of the answer choices are correct except to give bondholders the preemptive right to
purchase shares., LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Reporting, AICPA BC:
229. Lake Norman Corporation offered bonds with detachable 5-year warrants which allowed the holder to
buy one ordinary share (par value A$5) at A$20 (at a time when the shares was selling for A$32). The
price paid for 200, A$1,000 bonds with the warrants attached was A$205,000. The market price of the
Lake Norman bonds without the warrants was A$180,000, and the market price of the warrants without
the bonds was A$20,000. What amount should be allocated to the warrants?
a. A$20,000
b. A$20,500
c. A$24,000
d. A$25,000
Ans: D - The amount allocated to the warrants is: $205,000 − $180,000 = $25,000., LO: 2, Bloom: AP,
Reporting
230. The conversion of preference shares should be recorded by the

a. incremental method.
b. book value method.
c. fair value method.
d. par value method.
Ans: B - The conversion of preference shares may be recorded by the book value method., LO: 1,
Reporting
231. Compensation expense resulting from a share-based compensation plan under the fair value method is
generally
a. recognized in the period of exercise.
b. recognized in the period of the grant.
c. allocated to the periods benefited by the employee's required service.
d. allocated over the periods of the employee's service life to retirement.
Ans: C - Compensation expense resulting from a compensatory shares option plan is generally allocated
to the periods benefited by the employee's required service., LO: 3, Bloom: K, Difficulty: Easy, Min: 1,
232. On January 1, 2022, Western Carolina Company granted Andy Eggers, an employee, an option to buy
2,000 shares of Western Carolina Co. shares for ¥25 per share, the option exercisable for 5 years from
date of grant. Using a fair value option pricing model, total compensation expense is determined to be
¥21,000. Eggers exercised his option on September 1, 2022, and sold his 2,000 shares on December 1,
2022. Quoted market prices of Western Carolina Co. shares during 2022 were
January 1 ¥25 per share
September 1 ¥30 per share
December 1 ¥34 per share
The service period is for three years beginning January 1, 2022. As a result of the option granted to
Eggers, using the fair value method, Western Carolina should recognize compensation expense for 2022
on its books in the amount of
a. ¥15,000.
b. ¥21,000.
c. ¥7,000.
d. ¥4,200.
Ans: C - The compensation expense of $21,000 over the three year service period results in an annual
expense of $7,000., LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AICPA FC: Reporting, AICPA BC:
233. When the cash proceeds from bonds issued with detachable share warrants exceed the fair value of the
bonds without the warrants, the excess should be credited to
a. Share Premium−Ordinary.
b. Share Premium−Share Warrants.
c. a share liability account.
d. Retained Earnings.
Ans: B - The excess should be credited to Share Premium−Share Warrants., LO: 2, Bloom: AP,
Reporting
234. Under the fair-value method of recording shares options, companies will report
a. a lower compensation cost relative to the intrinsic- value method.
b. the same compensation cost relative to the intrinsic-value method.
c. no increase in compensation expense.
d. a higher compensation cost relative to the intrinsic-value method.
Ans: D - The fair-value method results in greater compensation costs relative to the intrinsic-value
method., LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA
235. Which of the following is not one of the commonly used shares compensation plans?
a. Share option plans
b. Share appreciation rights plans
c. Restricted-share plans
d. Share conversion plans
Ans: D - Share option plans, share appreciation rights plans, and restricted-share plans are all commonly
used shares compensations plans., LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting,
236. At December 31, 2022, Twin Rivers Company had 450,000 ordinary shares issued and outstanding,
350,000 of which had been issued and outstanding throughout the year and 100,000 of which were
issued on September 1, 2022. Net income for the year ended December 31, 2022, was €1,160,000. What
should be Twin Rivers' 2022 earnings per ordinary share, rounded to the nearest penny?
a. €2.58
b. €2.73
c. €3.03
d. €3.32
Ans: C - $1,160,000 ÷ [350,000 × 8/12) + (450,000 × 4/12) ] = $3.03., LO: 4, Bloom: AP, Difficulty:
237. Pesca Company had 820,000 ordinary shares outstanding on January 1, issued 360,000 shares on April 1
and purchased 24,000 shares of treasury shares on December 1. The weighted- average shares
outstanding for the year is
a. 888,000.
b. 1,088,000.
c. 1,156,000.
d. 1,178,000.
Ans: B - The weighted-average shares outstanding for the year is: (820,000 × 3/12) + (1,180,000 × 8/12)
+ (24,000 × 1/12) = 1,088,000., LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC: Reporting,
238. In computing earnings per share for a simple capital structure, if the preference shares are cumulative,
the amount that should be deducted as an adjustment to the numerator (earnings) is the
a. preference dividends in arrears.
b. preference dividends in arrears times (one minus the income tax rate).
c. annual preference dividend times (one minus the income tax rate).
d. none of these answer choices is correct.
Ans: D - In a simple capital structure, an amount equal to the dividend that should have been declared
for the current year only is subtracted from net income., LO: 4, Bloom: AP, Difficulty: Medium, Min: 2,
239. What effect will the acquisition of treasury shares have on equity and earnings per share, respectively?
a. Decrease and no effect
b. Increase and no effect
c. Decrease and increase
d. Increase and decrease
Ans: C - The acquisition of treasury shares will decrease shareholders' equity and increase earnings per
share., LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA
240. Olive Branch Inc. had 400,000 shares of ordinary shares issued and outstanding at December 31, 2021.
On July 1, 2022 an additional 200,000 shares were issued for cash. Olive Branch also had share options
outstanding at the beginning and end of 2022 which allow the holders to purchase 60,000 shares of
ordinary shares at $28 per share. The average market price of Olive Branch’s ordinary shares was $35
during 2022. The number of shares to be used in computing diluted earnings per share for 2022 is
a. 288,000.
b. 512,000.
c. 612,000.
d. 660,000.
Ans: B - The weighted-average number of shares outstanding is: (400,000 × 6/12) + (600,000 × 6/12) +
[((35 – 28) ÷ 35) × 60,000] = 512,000., LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
241. In the diluted earnings per share computation, the treasury shares method is used for options and
warrants to reflect assumed reacquisition of ordinary shares at the average market price during the
period. If the exercise price of the options or warrants exceeds the average market price, the computation
would
a. fairly present diluted earnings per share on a prospective basis.
b. fairly present the maximum potential dilution of diluted earnings per share on a prospective basis.
c. reflect the excess of the number of shares assumed issued over the number of shares assumed reacquired
as the potential dilution of earnings per share.
d. be antidilutive.
Ans: D - If the exercise price of the options or warrants exceeds the average market price, the
computation would be antidilutive., LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AICPA FC:
242. The diluted EPS computation considers all of the following except the impact of
a. convertible securities.
b. share options.
c. share warrants.
d. antidilutive securities.
Ans: D - Antidilutive securities are never considered in any EPS computation., LO: 5, Bloom: K,
Multiple Choice
243. The new standard, Revenue from Contracts with Customers,

a. adopts an asset-liability approach for revenue recognition.
b. adopts a revenue-gain approach for revenue recognition.
c. adopts “risks and rewards” criteria.
d. adopts criteria that deemphasize the importance of contracts with customers.
Ans: A - The new standard, Revenue from Contracts with Customers, adopts an asset-liability approach
for revenue recognition., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC:
244. The seller of a good or service should recognize revenue when

a. it identifies the contract with customers.
b. it identifies the separate performance obligations in the contract.
c. it determines the transaction price.
d. each performance obligation is satisfied.
Ans: D - The seller of a good or service should recognize revenue when each performance obligation is
satisfied., LO: 1, 2, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None,
245. One criteria that indicates the company should disregard revenue guidance to contracts is
a. the contract has commercial substance.
b. each party can unilaterally terminate the contract without compensation.
c. each party’s rights regarding the goods or services to be transferred can be identified.
d. the payment terms for the goods and services to be transferred has been received by the party receiving
the goods or services.
Ans: B - The company should disregard revenue guidance to contracts if the contract is wholly
unperformed, or if each party can unilaterally terminate the contract without compensation., LO: 1,
Reporting
246. Sufjan Company has a contract to sell 200 units to a customer for $14,000. After 140 units have been
delivered, Sufjan modifies the contact by promising to deliver 30 more units for an additional $60 per
unit (the standalone selling price at the time of the contract modification). What is the total revenue after
the modification?
a. $1,800
b. $5,400
c. $6,000
d. $6,300
Ans: C - Total revenue after the modification is $6,000 [(60 × $70) + (30 × $60)]., LO: 1, Bloom: AP,
Difficulty: Moderate, Min: 2, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None, IMA:
Reporting
247. Which type of revenue or gain is generally recognized as time passes?

a. Revenue from sales.
b. Revenue from fees or services.
c. Revenue from interest, rents, and royalties.
d. ain or loss from disposition.
Ans: C - Revenue from interest, rent, and royalties is generally recognized as time passes., LO: 1, 2,
Reporting
248. In determining the transaction price, the company must consider

a. variable consideration, but not noncash consideration.
b. noncash consideration, but not the time value of money.
c. the time value of money, but not consideration payable.
d. variable consideration, noncash consideration, time value of money, and consideration payable.
Ans: D - Variable consideration, noncash consideration, time value of money, and consideration payable
must all be considered in determining the transaction price., LO: 2, Bloom: K, Difficulty: Easy, Min: 1,
249. Sherman Company enters into a contract with a customer to build a warehouse for €400,000, with a
performance bonus of €100,000 that will be paid based on the timing of completion. The amount of the
performance bonus decreases by 20% per week for every week beyond the agreed-upon completion date.
The contract requirements are similar to contracts that Sherman has performed previously, and
management believes that such experience is predictive for this contract. Management estimates that there
is a 50% probability that the contract will be completed by the agreed-upon completion date, a 30%
probability that it will be completed 1 week late, and a 20% probability that it will be completed 2 weeks
late. What is the total transaction price for this revenue arrangement?
a. €460,000
b. €480,000
c. €486,000
d. €500,000
Ans: C - Total transaction price is €486,000 [(€500,000 × 50%) + (€480,000 × 30%) + (€460,000 ×
20%)]., LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AICPA FC: Reporting, AICPA BC: None,
250. On January 1, 2022, Fulbright Company sold goods to Blue Dirt Company for ₱400,000 in exchange for
a 4-year, zero-interest-bearing note with a face amount of ₱629,406 (imputed rate of 12%). The goods
have an inventory cost on Fulbright’s books of ₱240,000. What amount of sales revenue should
Fulbright recognize in 2022?
a. ₱229,406
b. ₱240,000
c. ₱400,000
d. ₱629,406
Ans: C - Fulbright should record revenue of ₱400,000 on January 1, 2022, which is the fair value of the
inventory., LO: 1, Bloom: AP, Difficulty: Moderate, Min: 1, AICPA FC: Reporting, AICPA BC: None,
251. On January 1, 2022, Fulbright Company sold goods to Blue Dirt Company for ₱400,000 in exchange for
a 4-year, zero-interest-bearing note with a face amount of ₱629,406 (imputed rate of 12%). The goods
have an inventory cost on Fulbright’s books of ₱240,000. What amount of Interest revenue should
Fulbright recognize in 2022?
a. ₱48,000
b. ₱57,352
c. ₱75,529
d. ₱229,406
Ans: A - Fulbright should record interest revenue of ₱48,000 in 2022 (₱400,000 × 12%)., LO: 2, Bloom:
AP, Difficulty: Moderate, Min: 2, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None, IMA:
Reporting
252. Which method of measuring the fair value of a performance obligation is dependent on the standalone
selling prices of other goods or services promised in the contract?
a. Adjusted market assessment
b. Residual value
c. Expected cost plus a margin
d. Standalone selling price
Ans: B - The residual value method of measuring the fair value of a performance obligation is dependent
on the standalone selling prices of other goods or services promised in the contract., LO: 2, Bloom: K,
253. Mocha purchases equipment, installation, and training from Lynne for a price of ₤1,000,000 and chooses
Lynne to do the installation. Lynne charges the same price for the equipment irrespective of whether it
does the installation or not. (Some companies do the installation themselves because they either prefer
their own employees to do the work or because of relationships with other customers.) The price of the
installation service is estimated to have a fair value of ₤20,000.
• The fair value of the training sessions is estimated at ₤40,000. Other companies can also provide
these training services.
• Mocha is obligated to pay Lynne the ₤1,000,000 upon the delivery and installation of the
equipment.
• Lynne delivers the equipment on May 1, 2022, and completes the installation of the equipment on
July 1, 2022. Training related to the equipment starts once the installation is completed and lasts for
1 year. The equipment has a useful life of 8 years.
What amount is recorded by Lynne as Unearned Service Revenue at July 1, 2022?
a. ₤0
b. ₤18,868
c. ₤20,000
d. ₤37,736
Ans: D - Lynne should record Unearned Service Revenue of ₤37,736 at July 1, 2022 [(₤40,000 ÷
₤1,060,000) × ₤1,000,000] related to the training., LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3-4,
254. An indication that the customer has not taken control of the good or service is the
a. selling company has right to payment for the good or service.
b. customer has physical possession of the asset.
c. customer has no significant risks or rewards of ownership.
d. selling company has transferred legal title to the asset.
Ans: C - When the customer has significant risks or rewards of ownership, it is an indicator that the
customer has obtained control, so when the customer has no significant risks or rewards of ownership, it
is an indication that the customer has not taken control of the good or service., LO: 1, Bloom: K,
255. Stossel Company sells 300 units for $200 each to Liberty Inc. for cash. Stossel allows Liberty to return
any unused product within 30 days and receive a full refund. The cost of each product is $120. Stossel
estimates that ten units will be returned, the costs of recovering the units will be immaterial, and the
returned units are expected to be resold at a profit. What amount of sales returns and allowances should
Stossel recognize in the year of the sale?
a. $2,000
b. $0
c. $800
d. $1,200
Ans: A - Stossel should recognize sales returns and allowances of $2,000 (10 × $200) as a deduction
from sales revenue on its income statement., LO: 3, Bloom: AP, Difficulty: Moderate, Min: 2, AICPA
256. Hendrix Inc., an equipment dealer, sells equipment on January 1, 2022, to Jimi Company for ¥200,000.
It agrees to repurchase this equipment from Jimi Company on December 31, 2023, for a price of
¥33,280. At January 1, 2022, Hendrix should record
a. sales revenue of ¥200,000.
b. sales revenue of ¥200,000 and a liability of ¥33,280.
c. sales revenue of ¥200,000 and interest expense of ¥33,280.
d. a liability of ¥200,000.
Ans: D - At January 1, 2022, Hendrix should record a liability of ¥200,000 because this agreement is a
financing transaction and not a sale., LO: 3, Bloom: AP, Difficulty: Moderate, Min: 2, AICPA FC:
257. In a bill-and-hold arrangement, which of the following is not one of the criteria which must be met for the
customer to have obtained control of the product?
a. The reason for the bill-and-hold arrangement must be substantive.
b. The product must be physically located in the seller’s warehouse.
c. The product currently must be ready for physical transfer to the customer.
d. The seller cannot have the ability to use the product or to direct it to another customer.
Ans: B - For the customer to have obtained control of a product in a bill-and-hold arrangement, all of the
following criteria should be met: (a) The reason for the bill-and-hold arrangement must be substantive, (b)
The product must be identified separately as belonging to the customer, (c) The product currently must be
ready for physical transfer to the customer, and (d) the seller cannot have the ability to use the product or
to direct it to another customer., LO: 3, Bloom: K, Difficulty: Easy, Min: 2, AICPA FC: Reporting, AICPA
258. In a consignment sale, the consignee

a. makes a journal entry when the consigned merchandise is received.
b. records advertising paid for the consignment as an expense.
c. records a payable when consigned merchandise is sold.
d. recognizes both commission revenue and sales revenue.
Ans: C - The consignee records a payable to the consignor, not sales revenue, when consigned
merchandise is sold. The consignee will later record commission revenue., LO: 3, Bloom: AP,
Reporting
259. Bret Company sold 3,000 Holsks at the end of December 2022 at a total price of $12,000,000, with a
warranty guarantee that the product was free of any defects. The cost of Holsks sold is $7,200,000. The
term of the assurance warranty is two years, with an estimated cost of $80,000. In addition, Bret sold
extended warranties related to 1,100 Holsks for 3 years beyond the 2-year period for $110,000. Bret
should recognize unearned warranty revenue at December 31, 2023 of
a. $110,000.
b. $150,000.
c. $80,000.
d. $190,000.
Ans: B - Bret should record a Warranty Liability of $40,000 ($80,000 ÷ 2) on the assurance warranty,
and Unearned Warranty Revenue of $110,000 on the extended warranties., LO: 3, Bloom: AP,
Reporting
260. On January 1, 2022, Purdy Company enters into a contract to transfer Blue and Rain to Georgia Co. for
A$300,000. The contract specifies that payment for Blue will not occur until Rain is also delivered. In
other words, payment will not occur until both Blue and Rain are transferred to Georgia. Purdy determines
that standalone prices are A$110,000 for Blue and A$190,000 for Rain. Purdy delivers Blue to Georgia
on February 10, 2022. On March 15, 2022, Purdy delivers Rain to Georgia. Purdy should record
a. accounts receivable of A$300,000 on January 1.
b. accounts receivable of A$110,000 on February 10.
c. a contract asset of A$110,000 on February 10.
d. a contract asset of A$110,000 on January 1.
Ans: C - Conditional rights to receive consideration are reported as contract assets rather than as
receivables., LO: 4, Bloom: AP, Difficulty: Moderate, Min: 2, AICPA FC: Reporting, AICPA BC:
261. When using the percentage-of-completion method, the company

a. recognizes revenues and gross profit only when the contract is completed.
b. recognizes revenues and gross profit each period during the contract.
c. accumulates construction costs only in an inventory account.
d. accumulates progress billings in an inventory account.
Ans: B - When using the percentage-of-completion method, the company recognizes revenues and gross
profit each period based on the progress of the construction., LO: 5, Bloom: K, Difficulty: Easy, Min: 1,
262. A loss in the current period on a contract expected to be profitable upon completion in a later year is
a. recognized only under the zero-profit method.
b. not recognized under either the zero-profit method or the percentage-of-completion method.
c. recognized under both the zero-profit method and the percentage-of-completion method.
d. recognized only under the percentage-of-completion method.
Ans: D - The loss is recognized under the percentage-of-completion method, but is not recognized under
the zero-profit method., LO: 7, Bloom: K, Difficulty: Easy, Min: 2, AICPA FC: Reporting, AICPA BC:
Multiple Choice
263. Income tax expense is based on

a. taxable income.
b. pretax financial income.
c. operating income.
d. income from continuing operations.
Ans: B - Income tax expense is based on pretax financial income., LO: 1, Bloom: K, Difficulty: Easy,
264. Vasquez Corp.'s 2022 income statement showed pretax accounting income of ₤2,040,000. To compute
the federal income tax liability, the following 2022 data are provided.
Income from tax-exempt bonds ₤110,000

Depreciation deducted for tax purposes in excess
of depreciation deducted for financial statement purposes 144,000
Estimated federal income tax payments made 330,000
Enacted corporate income tax rate 30%
What amount of current federal income tax payable should be included in Vasquez's December 31, 2022
a. ₤205,800
b. ₤282,000
c. ₤249,000
d. ₤271,800
Ans: A - [(₤2,040,000 − ₤110,000 − ₤144,000) × 30%] minus ₤330,000 equals ₤205,800., LO: 1, 2,
Bloom: AP, Difficulty: Moderate, Min: 3, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None,
IMA: Reporting
265. Weatherly Company reported the following results for the year ended December 31, 2022, its first year
of operations:
Income (per books before income taxes) $3,300,000

Taxable income 4,450,000
The disparity between book income and taxable income is attributable to a temporary difference which
will reverse in 2022. What should Weatherly report as a net deferred tax asset or liability for the year
ended December 31, 2022, assuming that the enacted tax rates in effect are 35% in 2022 and 30% in
2023?
a. $402,500 deferred tax liability
b. $345,000 deferred tax asset
c. $402,500 deferred tax asset
d. $345,000 deferred tax liability
Ans: B - ($4,450,000 less $3,300,000) × 30% results in $345,000 deferred tax asset., LO: 1, 2. Bloom:
Reporting
266. Which of the following results in deferred tax expense?
a. Increase in a deferred tax liability
b. Decrease in income tax expense
c. Decrease in a deferred tax liability
d. Increase in a deferred tax asset
Ans: A – An increase in the deferred tax liability results in deferred tax expense., LO: 1, Bloom: C,
267. On December 31, 2022, Winston Inc. has determined that it will not likely realize future income to
offset $240,000 of a $600,000 deferred tax asset. The journal entry to record this reduction in asset value
will include a
a. debit to Income Tax Expense for $360,000.
b. credit to Deferred Tax Asset of $240,000.
c. debit to Income Tax Payable of $240,000.
d. credit to Income Tax Expense for $360,000.
Ans: B - A company reduces a deferred tax asset when a company determines it will not realize some
portion or all of the deferred asset., LO: 1, Bloom: AP, Difficulty: Moderate, Min: 2, AICPA FC:
268. Schnusenberg AG incurred a net operating loss of €600,000 in 2022. The tax rate for all years is 30%.
Schnusenberg has evidence that it is probable that the company will return to profitability in 2023. The
company’s journal entry at the end of 2022 to record the benefits of the loss carryforward will include a
a. debit to Deferred Tax Liability for €180,000.
b. credit a Deferred Tax Asset for €180,000.
c. credit to Income Tax Expense for €180,000.
d. debit to Income Tax Payable for €180,000.
Ans: C - A company increases a deferred tax asset with a debit and credits Income Tax Expense for an
operating loss carryforward if it expects to realize the deferred asset., LO: 3, Bloom: AP, Difficulty:
Moderate, Min: 2, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None, IMA: Reporting
269. A company has a deferred tax asset account at December 31, 2022 in the amount of $165,000 pertaining
to warranty expenses, and a deferred tax liability related to a book and tax basis difference in carrying
value of plant assets in the amount of $140,000. How are these amounts reported on the December 31,
2022 statement of financial position?
a. As a net deferred tax asset of $25,000 as a non-current asset
b. As a deferred tax liability of $140,000 as a non-current liability, and a deferred tax asset as a non-current
asset
c. As a deferred tax liability of $140,000 as a non-current liability, and a deferred tax asset as a current
asset
d. As a net deferred tax asset of $25,000 as a current asset
Ans: A – Deferred tax assets and liabilities are netted together and the net amount is reported as non-
current. A net deferred tax asset of $25,000 is reported after combining the deferred tax liability of
$140,000 and the deferred tax asset of $165,000., LO: 4, Bloom: AP, Difficulty: Moderate, Min: 2,
270. Howe Corporation has income before income taxes of €1,064,000 in 2022, the company’s first year of
operations. The current provision for income taxes is €210,000. The year-end journal entry to record
income taxes contained a debit to a deferred tax asset in the amount of €165,000. There were no deferred
tax liabilities. Howe’s net income for 2022 is
a. €899,000.
b. €1,019,000.
c. €689,000.
d. €854,000.
Ans: C – (€1,064,000 – (€210,000 + €165,000)) × 35%, or €689,000. Both the current year provision
and the deferred tax asset representing the deferred expense portion are components of income tax
expense., LO: 1, Bloom: AP, Difficulty: Moderate, Min: 2, AICPA FC: Reporting, AICPA BC: None,
271. Parker Corporation prepared the following reconciliation for 2022, its first year of operations:
Pretax financial income for 2022 $ 2,060,000

Tax exempt interest (350,000)
Originating temporary difference (690,000)
Taxable income $1,020,000
The temporary difference will reverse evenly over the next two years at an enacted tax rate of 35%. The
enacted tax rate for 2022 is 30%. What amount should Parker report in its 2022 income statement as the
deferred portion of the provision for income taxes and what its effect on net income?
a. $64,500 increase
b. $241,500 decrease
c. $207,000 decrease
d. $364,000 decrease
Ans: B - $690,000 × 35%, or $241,500. Because this is an increase in a deferred tax liability, it increases
total income tax expense causing net income to decrease., LO: 1, 2, Bloom: AP, Difficulty: Moderate,
272. Hopkins Corp.'s 2022 income statement showed pretax accounting income of $1,035,000. To compute
the federal income tax liability, the following 2022 data are provided:
Income from exempt municipal bonds $ 41,000

Depreciation deducted for tax purposes in excess of
depreciation deducted for financial statement purposes 97,000
Estimated federal income tax payments made 159,500
Enacted corporate income tax rate 27.5%
What amount of current federal income tax liability should be included in Hopkins' December 31, 2022
a. $87,175
b. $132,578
c. $246,675
d. $163,075
Ans: A – Income taxes payable = ($1,035,000 – $41,000 – $97,000) × 27.5% = $246,675; Remaining
Income Taxes Payable = $246,675 – $159,500 = $87,175., LO: 1, Bloom: AP, Difficulty: Moderate,
273. Zhang Qui has pre-tax accounting income of ¥1,800,000 and a tax rate of 35% in 2022, its first year of
operations. During 2022, the company had the following transactions.
Received rent paid in advance from Barrett Co. for 2023 ¥ 64,000
Municipal bond income 80,000
Depreciation for tax purposes in excess of book depreciation 40,000
Installment sales profit to be taxed in 2023 108,000
For 2022, what is the amount of income taxes payable for Zhang Qui?
a. ¥648,200
b. ¥603,400
c. ¥628,600
d. ¥572,600
Ans: D – Taxable income = ¥1,800,000 + ¥64,000 – ¥80,000 – ¥40,000 – ¥108,000 = ¥1,636,000;

Income taxes payable = ¥1,636,000 × 0.35 = ¥572,600., LO: 1, Bloom: AP, Difficulty: Moderate, Min:
274. Gulfport Corporation's taxable income differed from its accounting income computed for this past year.
An item that would create a permanent difference in accounting and taxable incomes for Gulfport would
be
a. a balance in the Unearned Rent account at year-end.
b. using accelerated depreciation for tax purposes and straight-line depreciation for book purposes.
c. a fine resulting from violations of employee safety regulations.
d. making installment sales during the year.
Ans: C - An item that would create a permanent difference in accounting and taxable incomes is a fine
resulting from violations of employee safety regulations., LO: 1, Bloom: AP, Difficulty: Moderate, Min:
275. Which of the following is an example of a temporary difference that is normally classified as an expense
or loss and is deductible after being recognized in financial income?
a. Advance rental receipts
b. Product warranty liabilities
c. Depreciable property
d. Fines and expenses resulting from a violation of law
Ans: B - Product warranty liabilities are temporary differences normally classified as an expense or loss
that are deductible after they are recognized in financial income., LO: 1, 2, Bloom: C, Difficulty: Easy,
276. Pringle AG reported €200,000 in revenues in its 2022 financial statements, of which €88,000 will not be
included in the tax return until 2022. The enacted tax rate is 40% for 2022 and 35% for 2023. What
amount should Pringle report for deferred income tax liability in its statement of financial position at
December 31, 2022?
a. €30,800
b. €35,200
c. €39,200
d. €44,800
Ans: A - €88,000 × 0.35 = €30,800., LO: 1, 2, Bloom: AP, Difficulty: Moderate, Min: 2, AICPA FC:
277. Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the
statement of financial position if
a. it is probable that a future tax rate change will occur.
b. it appears likely that a future tax rate will be greater than the current tax rate.
c. it appears likely that a future tax rate will be less than the current tax rate.
d. the future tax rates have been substantially enacted into law.
Ans: D -Tax rates other than the current tax rate may be used to calculate the deferred income tax
amount on the statement of financial position if the future rates have been substantially enacted into
law., LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA PC:
278. White Inc. reports a taxable and financial loss of ₨650,000 for 2022. Its pretax financial income for the
last three years was as follows:
2019 ₨150,000
2020 300,000
2021 100,000
The amount that White Inc. reports as a net loss for financial reporting purposes in 2022, assuming that
it uses the carryback provisions, and that the tax rate is 30% for all periods affected, is
a. a ₨550,000 loss.
b. zero.
c. a ₨485,000 loss.
d. a ₨530,000 loss.
Ans: D – The carryback loss is allowed for two years, 2020 and 2021. ₨650,000 loss less the tax
benefit of ([₨300,000 * 30%] plus [₨100,000 * 30%]) results in a net loss of ₨455,000., LO: 6,
IMA: Reporting
279. Which of the following statements related to loss carrybacks and carryforwards is correct?
a. The benefit due to a loss carryback can be reported in both the loss year and future years.
b. The benefit due to a loss carryforward is reported only in the loss year.
c. The benefit due to a loss carryforward can be reported in both the loss year and future years.
d. The benefit due to a loss carryback is reported only in the second year preceding the loss year.
Ans: C - The benefit due to a loss carryforward is reported in both the loss year and future years., LO: 3.
IMA: Reporting
280. The deferred tax expense is the

a. increase in balance of deferred tax asset minus the increase in balance of deferred tax liability.
b. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.
c. increase in balance of deferred tax asset plus the increase in balance of deferred tax liability.
d. decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability.
Ans: B - Deferred tax expense is the increase in the balance of deferred tax liability minus the increase
in balance of deferred tax asset., LO: 1, Bloom: AP, Difficulty: Moderate, Min: 2, AICPA FC:
281. The IASB believes that the most consistent method for accounting for income taxes is the
a. temporary-permanent method.
b. carryback-carryforward method.
c. asset-liability method.
d. benefit-obligation method.
Ans: C - The IASB believes the asset-liability model to be the most consistent method for accounting for
income taxes., LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None,
282. When accounting for income taxes, the differences between IFRS and U.S. GAAP involve
a. a few exceptions to the asset-liability approach.
b. some minor differences in the recognition, measurement, and disclosure criteria.
c. differences in implementation guidance.
Ans: D - Differences between IFRS and U.S. GAAP involve a few exceptions to the asset-liability
approach, some minor differences in the recognition, measurement, and disclosure criteria, and
differences in implementation guidance., LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC:
Multiple Choice
283. In a defined benefit plan, the contributions to the plan are made by
a. an independent third party.
b. the employee.
c. the employer.
d. both employee and employer.
Ans: C - In a defined benefit plan, the employer is the only party making contributions to the plan., LO:
IMA: Reporting
284. Companies generally design pension plans that are
a. contributory.
b. noncontributory.
c. insured.
d. qualified.
Ans: D - Companies generally design qualified pension plans to take advantage of corporate income tax
benefits., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA
285.In a defined-benefit plan, the process of funding refers to

a. determining the defined benefit obligation.
b. determining the accumulated benefit obligation.
c. making the periodic contributions to a funding agency to ensure that funds are available to meet retirees'
claims.
d. determining the amount that might be reported for pension expense.
Ans: C - In a defined-benefit plan, the process of funding refers to making the periodic contributions to a
funding agency to ensure that funds are available to meet retirees' claims., LO: 1, Bloom: K, Difficulty:
286. In a defined-contribution plan, a formula is used that

a. defines the benefits that the employee will receive at the time of retirement.
b. ensures that pension expense and the cash funding amount will be equal each year.
c. determines the annual funding that an employer is required to contribute.
d. ensures that employers are solvent enough to contribute enough funds to be available at retirement to
retirees.
Ans: C - In a defined-contribution plan, a formula is used that requires an employer to contribute a

certain sum each period based on the formula., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC:
287. The accumulated benefit obligation measures

a. the pension obligation on the basis of the plan formula applied to years of service to date and based on
existing salary levels.
b. the pension obligation on the basis of the plan formula applied to years of service to date and based on
future salary levels.
c. an estimated total benefit at retirement and then computes the cost level that will be sufficient, together
with interest expected to accumulate at the assumed rate, to provide the total benefits at retirement.
d. the shortest possible period for funding to maximize the tax deduction.
Ans: A - The accumulated benefit obligation measures the pension obligation on the basis of the plan
formula applied to years of service to date and based on existing salary levels., LO: 1, Bloom: K,
288. The defined benefit obligation is the measure of pension obligation that
a. is required to be used for reporting the service cost component of pension expense.
b. requires pension expense to be determined on the basis of the plan formula applied to years of service to
date and based on existing salary levels.
c. requires the longest possible period for funding to maximize the tax deduction.
d. is equal to the expected plan assets less the benefits to be paid to retirees.
Ans: A - The defined benefit obligation is required to be used for reporting the service cost component
of pension expense., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC:
289. Presented below is pension information related to Woods, Inc. for the year 2022.
Service cost $72,000
Interest on defined benefit obligation 54,000
Interest on vested benefits 24,000
Expected return on plan assets 18,000
The amount of pension expense to be reported for 2022 is

a. $120,000.
b. $144,000.
c. $162,000.
d. $108,000.
Ans: D – Pension expense is the sum of service cost and net interest, or $72,000 + $54,000 – $18,000 =
$108,000., LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AICPA FC: Reporting, AICPA BC: None,
290. Which of the following does the IASB argue indicates a more realistic measure of the employer’s
obligation under the pension plan on a going-concern basis and should be used as the basis for
determining service cost?
a. Vested benefit obligation
b. Defined benefit obligation
c. Accumulated benefit obligation
d. None of these answers are correct
Ans: B - The IASB indicates that the defined benefit obligation provides a more realistic measure of the
employer’s obligation under the plan on a going-concern basis and, therefore, companies should use it as
the basis for determining service cost., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC:
291. All of the following increase pension expense except

a. service cost.
b. interest on the liability.
c. past service cost.
d. benefits paid to retirees.
Ans: D – Benefits paid to retirees reduce the defined benefit obligation and the plan assets. Service costs
and net interest cause changes in pension expense., LO: 2, 3, Bloom: K, Difficulty: Easy, Min: 1,
292. Which one of the following is not a component of pension expense?
a. Expected return on plan assets
b. Past service cost
c. Interest on the defined benefit obligation
d. Liability gains or losses
Ans: D - Service costs and net interest cause changes in pension expense. Liability gains and losses
result from changes in the defined benefit obligation and impact Other Comprehensive Income and the
defined benefit obligation., LO: 2. 4, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting,
293. The interest on the defined benefit obligation component of pension expense
a. reflects the incremental borrowing rate of the employer.
b. reflects the rates at which pension benefits could be effectively settled.
c. is used to determine the actual return on plan assets.
d. may be stated implicitly or explicitly when reported.
Ans: B - The interest on the defined benefit obligation component of pension expense reflects the rates
at which pension benefits could be effectively settled., LO: 1, Bloom: K, Difficulty: Easy, Min: 1,
294.At the end of the current period, Oxford Ltd. has a defined benefit obligation of £195,000 and pension
plan assets with a fair value of £110,000. The amount of the vested benefits for the plan is £105,000.
What amount related to its pension plan will be reported on the company’s statement of financial
position?
a. £5,000
b. £90,000
c. £85,000
d. £20,000
Ans: C – The difference between the defined benefit obligation and the fair value of the plan assets is
the pension asset/liability, which is shown in the statement of financial position. £195,000 – £110,000 =
£85,000., LO: 2, 4, Bloom: AP, Difficulty: Moderate, Min: 2, AICPA FC: Reporting, AICPA BC: None,
295. The balance of the Pension Asset/Liability column in the pension worksheet should equal the
13. balance of the Defined Benefit Obligation.
14. balance of the Accumulated Pension Obligation.
15. the funded status of the plan.
16. balance of the Plan Assets.
Ans: C - The balance of the Pension Asset/Liability should equal the funded status of the plan., LO: 2,
Reporting
296. When a company adopts a pension plan, past service costs should be charged to
a. other comprehensive income (PSC).
b. operations of prior periods.
c. operations of the current period.
d. retained earnings.
Ans: C - Past service cost is charged against operations in the year created. It results from the change in
the present value of the defined benefit obligation resulting from a plan amendment or a curtailment,
297. The unexpected gains or losses that result from changes in the defined benefit obligation are called
Asset Gains and Losses Liability Gains and Losses

a. Yes Yes
b. No No
c. Yes No
d. No Yes
Ans: D - The unexpected gains or losses that result from changes in the defined benefit obligation are
called Liability Gains and Losses., LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting,
298. The funded status of the pension plan is the difference between the
a. accumulated benefit obligation and the market-related asset value.
b. accumulated benefit obligation and the fair value of plan assets.
c. defined benefit obligation and the market-related asset value.
d. defined benefit obligation and the fair value of plan assets.
Ans: D - The difference between the defined benefit obligation and the fair value of plan assets is the
funded status., LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None,
299. Asset or liability gains or losses

a. are ignored in the accounting for a pension plan.
b. are recognized immediately in pension expense.
c. do not affect the funded status of the pension plan.
d. are recorded in comprehensive income.
Ans: D - Gains and losses are recorded in OCI. Asset gains and losses also impact the amount of plan
assets, and liability gains and losses impact the defined benefit obligation., LO: 3, Bloom: K, Difficulty:
300. At January 1, 2022, Pimlico Company had plan assets of £215,000 and a defined benefit obligation of
the same amount. During 2022, service cost was £27,500 and the discount rate was 10%. The actual
return on plan assets was £28,000, contributions were £22,000, and benefits paid were £18,500. What is
the amount of plan assets on December 31, 2022?
a. A credit balance of £265,000
b. A debit balance of £5,500
c. A debit balance of £246,500
d. A credit balance of £283,500
Ans: C - £215,000 + £28,000 + £22,000 – £18,500 = £246,500., LO: 2, 3, 4, Bloom: AP, Difficulty:
301. Which of the following disclosures of pension plan information is normally required by IAS 19?
a. The major components of pension expense
b. The salaries and wages paid to employees covered by the pension plan
c. The funded status of the plan and the amounts recognized in the financial statements
d. The rates used in measuring the benefit amounts
Ans: C - IAS 19 does not normally address the salaries and wages paid to employees covered by the
pension plan., LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None,
302. Differences between pensions and postretirement benefits include all of the following except
a. Postretirement healthcare benefits are generally uncapped while pensions are generally well-defined.
b. Postretirement healthcare benefits are generally paid as needed and used, whereas pension benefits are
generally paid monthly.
c. Postretirement healthcare benefits are generally paid only to the retiree while, pensions are generally
paid to the retiree, the spouse, and other dependents.
d. Postretirement healthcare benefits are generally not funded while pensions are generally funded.
Ans: C - Postretirement healthcare benefits are paid to both the retiree, as well as the spouse, and other
dependents., LO: 6, Bloom: K, Difficulty: Easy, Min: 2, AICPA FC: Reporting, AICPA BC: None,
Multiple Choice
303. All the following are advantages of leasing except

a. leasing may permit more rapid changes in equipment.
b. interest rates for leasing are always lower.
c. leasing permits the write-off of the full cost of the assets.
d. leasing may have favorable tax advantages.
Ans: B - A disadvantage of lease is that interest rates often are higher and a profit factor may be
included in addition., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC:
304. Major reasons why a company may become involved in leasing to other companies is (are)
a. interest revenue.
b. high residual values.
c. tax incentives.
d. All of these answers are correct.
Ans: D - All of these answer choices are reasons why a company may become involved in leasing to
other companies., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None,
305. Lease 1 does not contain a bargain purchase option, the lease term is equal to 70% of the estimated
economic life of the leased property, the lease does not transfer ownership of the property to the lessee
by the end of the lease term, and the present value of the lease payments is 90% of the fair value of the
leased property.
Lease 2 does not contain a bargain purchase option, the lease term is equal to 70% of the
estimated economic life of the leased property, the lease does not transfer ownership of the property to
the lessee by the end of the lease term, and the present value of the lease payments is 75% of the fair
value of the leased property. The underlying asset is not of a specialized nature. How should the lessee
classify these leases?
Lease 1 Lease 2
1. Operating lease Financing lease
2. Operating lease Operating lease
3. Financing lease Financing lease
4. Financing lease Operating lease
a. 1
b. 2
c. 3
d. 4
Ans: D – Lease 1 is a financing lease because the present value of the lease payments is 90% of the fair
value of the leased property. Lease 2 does not meet any of the criteria making it an operating lease., LO:
3, Bloom: AP, Difficulty: Moderate, Min: 2, AICPA FC: Reporting, AICPA BC: None, AICPA PC:
306. The lessee capitalizes leased property at the
a. present value of lease payments.
b. asset’s fair value.
c. asset’s historical cost.
d. asset’s liquidation value.
Ans: A - Fair value is the maximum amount that can be capitalized, though the present value of the lease
payment is often less than fair value., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting,
307. Grenoble Corporation is a lessee with a financing lease. The asset is recorded at $900,000 and has an
economic life of 8 years. The lease term is 5 years. The asset is expected to have a residual value of
$300,000 at the end of 5 years, and a fair value of $100,000 at the end of 8 years. The lease agreement
provides for the transfer of title of the asset to the lessee at the end of the lease term. What amount of
depreciation expense would the lessee record for the first year of the lease?
a. $180,000
b. $160,000
c. $120,000
d. $100,000
Ans: D – Because the lessee is expected to hold the asset until the end of its useful life, it depreciates the
asset over the 8-year life. ($900,000 – $100,000) ÷ 8 = $100,000., LO: 1, Bloom: AP, Difficulty:
308. The total charges to operations over the lease term for a 2-year lease accounting for by the lessee include
a. interest expense and lease principal payments.
b. interest expense and depreciation expense on the leased asset.
c. principal and interest payments.
d. principal payments and depreciation expense on the leased asset.
Ans: B - Total charges to operations over the lease term include depreciation expense on the leased asset
and interest expense on the lease obligation. Lease principal payments reduce the lease obligation, and
are not an expense charged to operations., LO: 2, Bloom: AP, Difficulty: Moderate, Min: 1, AICPA FC:
309. A lease that involves a manufacturer's or dealer's profit is a (an)

a. low-value lease.
b. manufacturer’s lease.
c. operating lease.
d. sales-type lease.
Ans: D - A sales-type lease includes a manufacturer's or dealer's profit., LO: 3, Bloom: K, Difficulty:
310. Any lease that does not qualify as a financing lease is classified and accounted for by the lessor as a(n)
a. sale-leaseback.
b. residual lease.
c. low-value lease.
d. operating lease.
Ans: D - If a lease is not a financing lease, then it is an operating lease., LO: 3, Bloom: K, Difficulty:
311. When a depreciable asset is leased under an operating lease, the lessor
a. records depreciation over the leased asset’s estimated useful life.
b. defers depreciation until the lease expires.
c. depreciates the leased asset over the lease term.
d. never recognizes depreciation as ownership has been transferred.
Ans: A - Depreciation is recognized over the asset’s economic life and matched against the rental
revenue., LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA
312. Elba Company leased machinery to Conecuh Company on January 1, 2022, for a ten-year period
expiring December 31, 2031. Equal annual payments under the lease are €300,000 and are due on
January 1 of each year. The first payment was made on January 1, 2022. The rate of interest used by
Elba and Conecuh is 9%. The cash selling price of the machinery is €2,100,000 and the cost of the
machinery on Elba's accounting records was €1,860,000. Assuming that the lease is appropriately
recorded as a sale for accounting purposes by Elba, what amount of interest revenue would Elba record
for the year ended December 31, 2022?
a. €189,000
b. €81,000
c. €162,000
d. €0
Ans: C - (€2,100,000 – €300,000) × 0.09 = €162,000., LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3,
313. Lofton Company leased machinery to Cooney Company on July 1, 2022, for a ten-year period. Equal
annual payments under the lease are ¥150,000 and are due on July 1 of each year. The first payment was
made on July 1, 2022. The rate of interest used by Lofton and known to Cooney is 9%. The cash selling
price of the machinery is ¥1,050,000 and the cost of the machinery on Lofton’s accounting records was
¥930,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Lofton,
what amount of interest expense would Cooney record for the year ended December 31, 2022?
a. ¥94,500
b. ¥81,000
c. ¥40,500
d. ¥0
Ans: C - (¥1,050,000 – ¥150,000) × 0.09 × 6/12 = ¥40,500., LO: 2, Bloom: AP, Difficulty: Moderate,
314. Which of the following is included in determining the amount to debit to the Right-of-Use Asset
account?
a. Maintenance costs
b. Unguaranteed residual value
c. General administrative costs
d. Bargain purchase option
Ans: D - The bargain purchase option is part of the lease payment and its present value is included as a
debit to the Right-of-Use Asset., LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting,
315. Athena Company has a machine with a cost of $760,000 which also is its fair market value on the date
the machine is leased to Nobu Company. The lease is for 6 years and the machine is estimated to have
an unguaranteed residual value of $76,000. If the lessor's interest rate implicit is 12% and the lessee is
not aware of the rate, the beginning-of-the-year lease payments as determined by the lessor will be
a. $175,486.
b. $156,684.
c. $148,542.
d. $126,668.
Ans: B - [$760,000 – ($76,000 × 0.50663)] ÷ 4.60478 = $156,684. The present value of the
unguaranteed residual value is subtracted from the fair value of the leased asset to determine the amount
on which the annual payments will be made, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AICPA
316. Spruce Pine Co. leased real estate to Little Switzerland Co. Assume the lease payments were made on
the basis that the residual value was guaranteed. At the end of the lease term, before the lessee transfers
the asset to the lessor, the leased asset and obligation accounts have the following balances.
Right-of-use asset ₤112,000
Interest payable ₤ 10,640

Lease liability 101,360
₤112,000
If, at the end of the lease, the fair market value of the leased asset is ₤61,600, what amount of gain or
loss should Little Switzerland record?
a. ₤45,360 gain
b. ₤49,840 loss
c. ₤50,400 loss
d. ₤61,600 gain
Ans: C - ₤61,600 – ₤112,000 = (₤50,400)., LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AICPA
317. Portas Co. leased equipment to Ingalls Co. Assume the lease payments were made on the basis that the
residual value was unguaranteed. At the end of the lease term, before the lessee transfers the asset to the
lessor, the leased asset and obligation accounts have the following balances.
Right-of-use asset ₱56,000
Interest payable ₱ 5,320

Lease liability 50,680
₱56,000
If, at the end of the lease, the fair market value of the residual value is ₱30,800, what gain or loss should
Ingalls record?
a. ₱0
b. ₱24,920 loss
c. ₱25,200 loss
d. ₱30,800 gain
Ans: A – Because the residual value is not guaranteed, the lessee is not obligated to return the leased
asset at the value estimated in the lease agreement., LO: 2 Bloom: AP, Difficulty: Moderate, Min: 3,
318. If the residual value of a leased asset is guaranteed by a third party,

a. it is treated by the lessee as no residual value.
b. the third party is also liable for any lease payments not paid by the lessee.
c. the net investment to be recovered by the lessor is reduced.
d. it is treated by the lessee as an additional payment and by the lessor as realized at the end of the lease
term.
Ans: A - If the residual value of a leased asset is guaranteed by a third party, it is treated as no lease
payment by the lessee (the lessor always includes the residual value in the lease receivable)., LO: 2,
IMA: Reporting
319. Which of the following statements is not correct?
a. Initial direct costs are added to the cost of the right-of-use asset by the lessee.
b. Initial direct costs are expensed in the year of incurrence by the lessee.
c. For operating leases, a lessor defers initial direct costs and allocates over the lease term.
d. For finance leases, initial direct costs are expensed when incurred by the lessor.
Ans: B - In a financing lease, initial direct costs are added to the right-of-use asset by the lessee. The
lessor expenses initial direct costs in the year of incurrence for finance leases, and defers and allocates
the costs over the lease term for an operating lease., LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AICPA
320. How should the lease liability be disclosed?

a. As a single amount in current liabilities
b. The amount due within one year as a current liability, and the balance as a non-current liability
c. As a single amount in non-current liabilities
d. As a deduction from the related right-of-use asset in the property, plant, and equipment section
Ans: B - The lease liability should be disclosed with the current portion in current liabilities and the
remainder in non-current liabilities., LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting,
321. All of the following are disclosures required of the lessor except
a. the components of the net investment in operating and financing leases as of each statement of financial
position date.
b. future minimum lease payments to be received for each of the five succeeding years.
c. total contingent rentals included in income for each period for which an income statement is presented.
d. All of these answers are required disclosures.
Ans: D - The IASB requires that lessors disclose all of these items in their financial statements or notes.,
322. All of the following statements about lease accounting under IFRS are true except
a. Alternative measurement bases for the right-of-use asset are allowed.
b. IFRS is very similar to U.S. GAAP for lessor accounting.
c. Lessees have the option to record payments on short-term and low value leases as expenses when paid.
d. IFRS requires payments on short-term and low-value leases be recorded as expenses when paid.
Ans: D - Lessees are not required to record payments on short-term and low-value leases as expenses
when paid; it is an option., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA
Multiple Choice
323. Accounting changes are often made and the monetary impact is reflected in the financial statements of a
company even though, in theory, this may be a violation of the accounting concept of
a. materiality.
b. consistency.
c. faithful representation.
d. objectivity.
Ans: B - In theory, this may be a violation of the accounting concept of consistency as the accounting
method and approach may differ from one period to the next., LO: 1, Bloom: K, Difficulty: Easy, Min:
324. Which of the following is not one of the three types of accounting changes?
a. Change from average-cost to FIFO
b. Change from an estimate of uncollectible accounts from 3% to 2%
c. Change in the estimated useful life of an asset
d. Correction of understated depreciation expense in a prior period
Ans: D - Errors in financial statements are not considered accounting changes, even though they
necessitate changes in accounting., LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting,
325. What approach does the IASB require when accounting for changes in accounting policy?
a. Cumulative
b. Retrospective
c. Prospective
d. Allowance
Ans: B - The IASB requires the use of the retrospective approach for accounting policy changes., LO: 1,
Reporting
326. All of the following are examples of a change in accounting policy except a change from
a. average-cost to FIFO inventory pricing.
b. FIFO to average-cost.
c. the cost-recovery method to percentage-of-completion method of accounting for construction contracts.
d. the declining-balance method to the straight-line method of depreciation.
Ans: D - All of the options are examples of a change in accounting policy except a change from the
double-declining balance method to the straight-line method of depreciation. Depreciation changes are
changes in accounting estimates, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting,
327. On January 1, 2022, Columbia Corp. changed its inventory method to FIFO from average-cost for both
financial and income tax reporting purposes. The change resulted in a ₤2,320,000 increase in the January
1, 2022 inventory. The income tax rate for all years is 25%. The cumulative effect of the accounting
change should be reported by Columbia in its 2022
a. retained earnings statement as a ₤1,740,000 addition to the beginning balance.
b. income statement as a ₤2,320,000 cumulative effect of accounting change.
c. retained earnings statement as a ₤2,320,000 addition to the beginning balance.
d. income statement as a ₤1,740,000 cumulative effect of accounting change.
Ans: A - ₤2,320,000 × (100% – 25%) = ₤1,740,000., LO: 1, Bloom: AP, Difficulty: Moderate, Min: 2,
328. On December 31, 2022, Paiva, Inc. appropriately changed its inventory costing method to average-cost
from FIFO for financial statement and income tax purposes. The change will result in a $1,480,000
increase in the beginning inventory at January 1, 2022. The company’s income tax rate is 35%. The
cumulative effect of this accounting change on beginning retained earnings is
a. $0.
b. $518,000.
c. $962,000.
d. $1,480,000.
Ans: C - $1,480,000 × (100% – 35%) = $962,000., LO: 1, Bloom: AP, Difficulty: Moderate, Min: 2,
329. On December 31, 2022, Dodd, Inc. appropriately changed the company’s method of accounting for
long-term construction contracts from the percentage-of-completion method to the cost recovery method
for financial statement and income tax purposes. The change will result in a €2,300,000 decrease in the
beginning Construction in Process at January 1, 2022. Assume a 30% income tax rate. The cumulative
effect of this accounting change on the Deferred Tax Liability account is
a. a decrease of €690,000.
b. an increase of €690,000.
c. a decrease of €1,610,000.
d. an increase of €2,300,000.
Ans: A - €2,300,000 × 30% = €690,000., LO: 1, Bloom: AP, Difficulty: Moderate, Min: 2, AICPA FC:
330. A change to FIFO inventory valuation from any other acceptable inventory valuation method
a. requires restatement of all prior years’ income statements presented.
b. requires retrospective error correction.
c. requires prospective reporting.
d. is accounted for as an adjustment to beginning retained earnings.
Ans: A - Restatement is required for all prior years’ income statements presented., LO: 1, Bloom: AP,
Reporting
331. Which type of accounting change should always be accounted for in current and future periods?
a. Change in accounting policy
b. Change in reporting entity
c. Change in accounting estimate
d. Correction of an error
Ans: C - A change in an accounting estimate should always be accounted for in current and future
periods., LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None, AICPA
332. When a company changes from an accelerated method to the straight-line method of depreciation, this
change should be handled as a
a. change in accounting policy.
b. change in accounting estimate.
c. prior period adjustment.
d. correction of an error.
Ans: B - When a company changes from an accelerated balance method to the straight-line method of
depreciation, this change should be handled as a change in accounting estimate., LO: 2, Bloom: C,
333. Whenever it is impossible to determine whether a change in policy or a change in estimate has occurred,
the change should be considered a
a. change in policy.
b. correction of an error.
c. change in estimate.
d. counterbalancing error.
Ans: C - Whenever it is impossible to determine the type of change that has occurred, it is to be
considered a change in estimate., LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting,
334. An indirect effect of a change in accounting policy is

a. reported in a deferred income tax account.
b. a change to current or future cash flows that results from making a change in accounting policy.
c. reported as a correction of an error.
d. a change in an amount to be accrued during a period.
Ans: B – An indirect effect relates to a change in accounting policy and is a change to current or future
cash flows that results from making a change in accounting policy applied retrospectively. IFRS is silent
on the accounting treatment., LO: 1, Bloom: AP, Difficulty: Moderate, Min: 1, AICPA FC: Reporting,
335. In 2021, PWT Company failed to record depreciation expense on some of its assets. When the error is
discovered in 2022, it will be accounted for
a. retrospectively.
b. prospectively.
c. as a prior period adjustment.
d. as a policy change.
Ans: C – An error correction is recorded as a prior period adjustment., LO: 3, Bloom: C, Difficulty:
336. Koppernaes Inc. is a calendar-year corporation. Its financial statements for the years ended December
31, 2021 and 2022 contained the following errors.
2021 2022
Ending inventory ¥23,000 overstatement ¥52,000 understatement
Depreciation expense 19,000 understatement 42,000 overstatement
Assume that the 2021 errors were not corrected and that no errors occurred in 2020. By what amount
will 2022 income before income taxes be overstated or understated?
a. ¥3,000 understatement
b. ¥29,000 overstatement
c. ¥52,000 understatement
d. ¥6,000 understatement
Ans: A - ¥23,000 − ¥42,000 + ¥22,000 = ¥3,000 understatement., LO: 3. 4, Bloom: AP, Difficulty:
337. Chalet Inc. is a calendar-year corporation. Its financial statements for the years ended December 31,
2021 and 2022 contained the following errors.
2021 2022
Ending inventory $11,000 understatement $14,000 overstatement
Advertising expense 9,500 overstatement 11,500 understatement
Assume that the 2021 errors were not corrected and that no errors occurred in 2020. By what amount
will the December 31, 2022 retained earnings balance be overstated or understated?
a. $20,500 understatement
b. $27,000 overstatement
c. $7,000 overstatement
d. $16,000 overstatement
Ans: A - $14,000 + $11,500 − $9,500 = $16,000 overstatement., LO: 3, 4, Bloom: AP, Difficulty:
338. On July 1, 2021, Elbert Corp. acquired equipment at a cost of $1,020,000. It is to be depreciated on the
straight-line method over a four-year period with no residual value. Because of a bookkeeping error, no
depreciation was recognized in Elbert’s 2021 financial statements. The oversight was discovered during
the preparation of Elbert’s 2022 financial statements. Which of the following accounts will not be
affected by correcting the error that occurred in 2021, assuming comparative financial statements are not
prepared?
a. Depreciation Expense
b. Accumulated Depreciation
c. Retained Earnings
d. All of these accounts will be affected.
Ans: A - Only depreciation expense will be unaffected by the correction. The entry to correct the error is
a debit to Retained Earnings and a credit to Accumulated Depreciation−Equipment for the amount that
should have been recorded as depreciation: ($1,020,000 ÷ 4) = $255,000., LO: 3, Bloom: AP, Difficulty:
Moderate, Min: 3, 4, AICPA FC: Reporting, AICPA BC: None, AICPA PC: None, IMA: Reporting
339. Which of the following is a reason why companies prefer certain accounting methods?
a. Bonus payments
b. Asset structure
c. Comparability
d. Asset allocation
Ans: A - Companies prefer certain accounting methods for bonus payments among other issues., LO: 3,
Reporting
340. Which of the following is a non-counterbalancing error?

a. Failure to record accrued wages
b. Failure to record depreciation
c. Failure to record prepaid expenses
d. Understatement of unearned revenue
Ans: B - Errors that are not offset in the next accounting period are non-counterbalancing errors., LO: 4,
Reporting
341. All of the following involve counterbalancing errors except the

a. failure to record prepaid expenses.
b. failure to adjust for bad debts.
c. understatement of inventory.
d. overstatement of purchases.
Ans: B - Failure to adjust for bad debts is a non-counterbalancing error., LO: 4, Bloom: C, Difficulty:
342. All of the following involve counterbalancing errors except the

a. failure to record prepaid expenses.
b. failure to record patent amortization.
c. overstatement of ending inventory.
d. understatement of purchases.
Ans: B - All of the options involve counterbalancing errors except the failure to record depreciation.,
Multiple Choice
343. The primary purpose of the statement of cash flows is to provide

a. cash-basis information concerning the operating, investing, and financing activities of an entity during a
period.
b. information that is useful in assessing cash flow prospects.
c. Information about the cash receipts and cash payments of an entity during a period.
d. Information about the entity's ability to meet its obligations, its ability to pay dividends, and its needs for
external financing.
Ans: C - The primary purpose of the statement of cash flows is to provide information about the cash
receipts and cash payments of an entity during a period., LO: 1, Bloom: K, Difficulty: Easy, Min: 1,
344. Which of the following is never classified as a financing cash flow?
a. Purchases of treasury shares
b. Proceeds from the sale of an equity investment
c. Interest paid on long-term debt
d. Dividends paid on preferred shares
Ans: B – Proceeds from the sale of an equity investment is an investing activity. Interest paid on long-
term debt can be classified as either an operating or financing cash flow., LO: 1, 6, Bloom: C, Difficulty:
345. Activities involving the cash effects of transactions that enter into the determination of net income are
a. financing activities.
b. investing activities.
c. noncash investing and financing activities.
d. operating activities.
Ans: D - Operating activities involve the cash effects of transactions that enter into the determination of
net income., LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None,
346. All of the following must be classified as investing activities except

a. the purchase of equipment for cash.
b. the sale of land for cash.
c. a purchase of 25% interest in the shares of a supplier.
d. the receipt of cash dividends from investments.
Ans: D - The receipt of dividends from investments can be classified as an investing or an operating
activity., LO: 1, 6, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None,
347. Net cash flow from operating activities is determined by eliminating

a. earned revenues from net income.
b. incurred expenses from net income.
c. cash expenses and cash revenues from net income.
d. noncash expenses and noncash revenues from net income.
Ans: D - Eliminating noncash expenses and noncash revenues from net income produces net cash flow
from operating activities., LO: 2, Bloom: AP, Difficulty: Moderate, Min: 1, AICPA FC: Reporting,
348. To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on
a cash basis. This is done by
a. listing all income statement transactions that directly affect cash in a worksheet.
b. subtracting all increases in current liability accounts and adding all decreases in current asset accounts
from net income.
c. eliminating the effects of income statement transactions that did not result in a corresponding increase or
decrease in cash.
d. listing all transactions that increase sales revenue, and separately list all those transactions that increase
expense accounts.
Ans: C - This is done by eliminating the effects of income statement transactions that did not result in a
corresponding increase or decrease in cash., LO: 2, Bloom: AP, Difficulty: Moderate, Min: 2, AICPA
349. The method of calculating net cash flow from operating activities that results in the presentation of a
condensed cash receipts and cash disbursements statement is the
a. reconciliation method.
b. indirect method.
c. direct method.
d. cash flow method.
Ans: C - The direct method results in presenting condensed cash receipts and cash disbursements
statement., LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None,
350. Which method adjusts net income for items that affected reported net income but did not affect cash?
a. Direct
b. Adjustment
c. Accrual
d. Indirect
Ans: D - The indirect method starts with net income and then adjusts it for noncash items that affected
net income., LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC: None,
351. Spruce Pine Co. provided the following information on selected transactions during 2022.
Repayment of bond principal ¥450,000

Proceeds from issuing ordinary shares 760,000
Purchases of inventory 940,000
Proceeds from the sale of treasury shares 120,000
Purchase of 10% interest in shares of Hindi Corp. 220,000
Dividends paid to ordinary & preference shareholders 80,000
Proceeds from issuing preference shares 150,000
Proceeds from sale of land 380,000
The net cash provided (used) by investing activities during 2022 is

a. ¥140,000.
b. ¥160,000.
c. ¥280,000.
d. ¥(780,000).
Ans: B - ¥(220,000) + ¥380,000 = ¥160,000., LO: 1, 2, Bloom: AP, Difficulty: Moderate, Min: 2,
352. Mazzeo Co. provided the following information on selected transactions during 2022.
Purchase of land by issuing bonds $650,000

Proceeds from issuing ordinary shares 520,000
Purchases of inventory 950,000
Purchases of treasury shares 350,000
Loans made to affiliated corporations 175,000
Dividends paid to preference shares 100,000
The net cash provided (used) by investing activities during 2022 is

a. $150,000.
b. $(500,000).
c. $(325,000).
d. $(900,000).
Ans: A - $325,000 – $175,000 = $150,000., LO: 1, 2, Bloom: AP, Difficulty: Moderate, Min: 2, AICPA
353. Ando Company sold some of its plant assets during 2022. The original cost of the plant assets was
€500,000 and the accumulated depreciation at date of sale was €325,000. The proceeds from the sale of
the plant assets were €150,000. The information concerning the sale of the plant assets should be shown
on Caraway's statement of cash flows (indirect method) for the year ended December 31, 2022, as
a. a subtraction from net income of €150,000 and a €175,000 increase in cash flows from financing
activities.
b. an addition to net income of €25,000 and a €175,000 increase in cash flows from investing activities.
c. an addition to net income of €25,000 and a €150,000 increase in cash flows from investing activities.
d. an addition of €150,000 to net income.
Ans: C – A loss of €25,000 is added to net income in the operating activities section (€150,000 –
(€500,000 – €325,000), and the proceeds of €150,000 is reported as an investing activity., LO: 1, 2, 4,
IMA: Reporting
354. Acquiring land and a building by issuing ordinary shares are reported as
a. an investing activity.
b. a financing activity.
c. both an investing activity and a financing activity.
d. a noncash investing and financing activity.
Ans: D - Acquiring assets by issuing equity securities would be reported as a noncash investing and
financing activity., LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AICPA FC: Reporting, AICPA BC:
355. Anna Maria Island Co. provided the following information on selected transactions during 2022.
Purchase of land by issuing bonds A$1,550,000

Proceeds from issuing bonds 1,900,000
Purchases of inventory 2, 975,000
Purchases of treasury shares 190,000
Loans made to affiliated corporations 525,000
Dividends paid to preference shareholders 120,000
Proceeds from sale of equipment 650,000
The net cash provided by financing activities during 2022 is

a. A$1,725,000.
b. A$1,915,000.
c. A$2,040,000.
d. A$2,465,000.
Ans: B - A$1,900,000 – A$190,000 – A$120,000 + A$325,000 = A$1,915,000., LO: 1, 2, Bloom: AP,

Reporting
356. All of the following adjustments are deducted in determining net cash flow from operating activities
except
a. amortization of bond premium.
b. decrease in deferred income tax liability.
c. gain on sale of plant assets.
d. increase in accrued liabilities.
Ans: D - All of the options are deducted in determining net cash flow from operating activities except an
increase in accrued liabilities., LO: 3, 4, Bloom: AP, Difficulty: Moderate, Min: 2, AICPA FC:
357. Mott Company sold some of its plant assets during 2022. The original cost of the plant assets was
₤1,500,000 and the accumulated depreciation at date of sale was ₤1,300,000. The proceeds from the sale
of the plant assets were ₤310,000. The information concerning the sale of the plant assets should be
shown on Mott's statement of cash flows prepared using the indirect method for the year ended
December 31, 2022, as
a. a subtraction from net income of ₤110,000 and a ₤200,000 increase in cash flows from financing
activities.
b. an addition to net income of ₤110,000 and a ₤310,000 increase in cash flows from investing activities.
c. a subtraction from net income of ₤110,000 and a ₤310,000 increase in cash flows from investing
activities.
d. an addition of ₤310,000 to net income.
Ans: C – A gain of ₤110,000 is subtracted from net income in the operating activities section (₤310,000
– (₤1,500,000 – ₤1,300,000), and the proceeds of ₤310,000 is shown in the investing activities section.,
LO: 1, 2, 4, Bloom: AP, Difficulty: Moderate, Min: 3, AICPA FC: Reporting, AICPA BC: None,
358. An analysis of the machinery accounts of Newport Company for 2022 is as follows.
Machinery, net
Accumulated of Accumulated
Machinery Depreciation Depreciation
Balance at January 1, 2022 $1,600,000 $850,000 $750,000
Purchases of new machinery in 2022
for cash 450,000 450,000
Depreciation in 2022 250,000 (250,000)
Balance at December 31, 2022 $2,050,000 $1,100,000 $950,000
The information concerning Newport's machinery accounts should be shown in Newport's statement of
cash flows (indirect method) for the year ended December 31, 2022, as
a. a subtraction from net income of $450,000 and a $250,000 decrease in cash flows from investing
activities.
b. an addition to net income of $250,000 and a $450,000 decrease in cash flows from investing activities.
c. a $450,000 increase in cash flows from investing activities.
d. a $200,000 increase in cash flows from investing activities.
Ans: B - The information should be shown as an addition to net income of $250,000 for depreciation, a
non-cash amount, and a $450,000 decrease in cash flows from investing activities for the cost of
purchasing the machinery., LO: 1, 3,. 4, Bloom: AP, Difficulty: Moderate, Min: 3, AICPA FC:
359. The sources of information used to prepare the statement of cash flows includes all of the following
except
a. comparative statements of financial position.
b. the prior and current year’s income statement.
c. the current year’s retained earnings statement.
d. other selected transaction data.
Ans: B - The sources of information include all of the options except the prior year’s income statement.,
360. Which of the following statements related to a worksheet used for the preparation of a statement of cash
flows is not correct?
a. Accounts with debit balances are listed separately from those with credit balances in the statement of
financial position accounts section.
b. Inflows of cash are entered as debits and outflows as credits in the reconciling columns.
c. The reconciling items shown in the worksheet are entered in a journal and posted to the appropriate
accounts.
d. The bottom portion of the worksheet consists of the operating, investing, and financing activities
sections.
Ans: C - The reconciling items shown in the worksheet are not journalized or posted., LO: 5, Bloom:
Reporting
361. A statement of cash flows typically would not disclose the effects of
a. ordinary shares issued at an amount greater than par value.
b. share dividends declared.
c. cash dividends paid.
d. a purchase and immediate retirement of treasury shares.
Ans: B - A statement of cash flows typically would not disclose the effects of share dividends declared.,
362. Which of the following statements related to a worksheet used for preparation of the statement of cash
flows is correct?
a. Accounts in the statement of financial position accounts section are listed in the same order as presented
in the statement of financial position.
b. Inflows of cash are entered as debits and outflows of cash are entered as credits in the reconciling
columns.
c. The reconciling items shown in the work sheet are entered in a journal and posted to appropriate
accounts.
d. Non-cash amounts are omitted from the worksheet.
Ans: B - Reconciling items are not entered in any journal or posted to any account. These items do not
represent either adjustments or corrections of the statement of financial position accounts. They are used
only to facilitate the preparation of the statement of cash flows., LO: 5, Bloom: AP, Difficulty:

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Multiple Choice

2. A conceptual framework is necessary for which of the following reasons?

7. Enhancing qualities of accounting information include

Ans: A – The enhancing qualities of accounting information include comparability, verifiability,

8. Enhancing qualities of accounting information include all of the following except

Ans: C – The enhancing qualities of accounting information include comparability, verifiability,

15. Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an

16. Generally, revenues are recognized when the

19. Under IFRS

20. The income statement can be used to assess

22. Which of the following occur from peripheral or incidental transactions?

23. Jackson, Inc. has the following information is available:

In Jackson’s multiple-step income statement, gross profit

26. Noncontrolling interest is

Ans: C – A change in accounting principle is recognized by making a retrospective adjustment to the

31. Earnings per share is computed as net income

34. Prior period adjustments are reported as an

35. The statement of changes in equity

38. Josie Corporation reported the following information for 2022.

For 2022, Josie would report comprehensive income of

39. Which of the following statement is incorrect?

Periods Present Value of 1 at 8%

a. $20,000 × 0.92593 × 0.79383

47. The process of accumulation involves determining

50. Which of the following is true?

51. The future value of an ordinary annuity will always be

Time Periods Factor

Time Periods Factor

56. Which of the following is false?

57. Which of the following statements regarding a deferred annuity is correct?

Estimated Cash Outflows Possibility Assessment

Time Periods Factor

64. Non-trade receivables include all of the following except

72. In a transfer of receivables accounted for as a secured borrowing,

At August 31, 2022, York’s correct cash balance is

78. Under U.S. GAAP, bank overdrafts are

Office supplies $ 6,000

What amount should Mantz report as inventories in its balance sheet?

86. Under a periodic inventory system,

89. If the beginning inventory is overstated at the end of 2022,

100. Property, plant, and equipment includes

Fixed overhead for the year $1,210,000

108. Which of the following statements is true regarding capitalization of interest?

Purchase of attachment $35,000

124. Which of the following is not true of depreciation accounting?

126. A principal objection to the straight-line method of depreciation is that it

133. An impairment of property, plant, or equipment has occurred if the

139. Depletion expense

141. Under IFRS, how is the account revaluation surplus reported?

143. Which of the following is not a characteristic of intangible assets?

a. They lack physical existence.

159. Which of the following is considered a research activity?

161. The presentation of intangible assets in the financial statements

162. Which of the following development costs may be capitalized?

163. Which of the following statements is false?

165. Liabilities are

166. Which of the following is not an example of a current liability?

167.Short-term obligations expected to be refinanced are not classified as current liabilities if

169. Which of the following statements is false?

171. Employer-related liabilities include all the following except

173. A loss related to general or unspecified business risks is

First year of warranty 2%

111年會考中會題庫

111年會考中會題庫