1). Research and development costs incurred in developing materials, equipment and facilities that do not have alternative future uses:

should be carried as inventory

should be measured at fair value

should be charged to expense when incurred.

usually are small in dollar amount.

2). All of the following are lease capitalization tests except for

transfer of ownership

bargain purchase option

residual value test

the alternative use test

3). Purchase of inventory would be classified as a (n):

operating activity.

investing activity.

financing activity.

significant noncash transaction.

4). A valuation allowance can be applied to

The deferred tax asset account only

The deferred tax liability account only

Both deferred tax asset and deferred tax liability

Deferred tax asset or deferred tax liability, depends on whether there is an operating loss carryback or carryforward.

5). Use the following information for questions 4 and 5.

Operating income and tax rates for C.J. Company's first three years of operations were as

follows:

Income_Enacted tax rate

2014$300,00040%

2015($750,000)40%

2016$1,260,00040%

Assuming that more likely than not all of the deferred tax asset will be realized, what is the amount of deferred tax asset or liability that C.J. Company would report on its December 31, 2015 balance sheet (assuming that the beginning balance of deferred tax asset is zero)?

$204,000

$504,000

$369,000

$300,000

6). Use the following information for questions 4 and 5.

Operating income and tax rates for C.J. Company's first three years of operations were as

follows:

Income_Enacted tax rate

2014$300,00040%

2015($750,000)40%

2016$1,260,00040%

Assuming that more likely than not half of the deferred tax asset will not be realized, what is the amount of net income/loss that should be reported in 2015?

$(750,000)

$(300,000)

$(600,000)

$(450,000)

7). Which of the following is NOT a correct statement of one of the lease classification test for the lessee?

If the lease transfers ownership of the property to the lessee, it will be classified as a finance lease.

If the lease contains a bargain purchase option, it will be classified as a finance lease.

If the lease term is equal to or more than 75% of the estimated economic life of the leased property, it will be classified as a finance lease.

If, at the end of the lease term, the leased property has an alternative use to the lessor, this lease is classified as a finance lease.

8). In the 90% test, which of the following needs to be capitalized when comparing with the 90% fair value of the leased property?

guaranteed residual value

guaranteed residual value in excess of expected residual value

Bargain purchase option

B and C

9). Which of the following is correct about the difference between a finance lease and an operating lease for the lessee?

A finance lease requires capitalization of the lease payments whereas an operating lease does not require so.

Under a finance lease, the lessee amortizes the right-of-use asset in a straight-line fashion while under an operating lease, the lessee records lower(higher) amortization in the earlier (later) years of the lease term.

The total expense is higher for a finance lease than for an operating lease.

A finance lease requires the lessee to amortize the right-of-use asset whereas an operating lease does not require so.

10). Which of the following is treated as a change in accounting principle?

A change from cash-basis of accounting to accrual-basis of accounting

A change from direct write-off method to allowance method

A change to a different method of depreciation for plant assets

A change in estimated residual value

11). On January 1, 2010, Neal Co., purchased a machine (its only depreciable asset) for $900,000. The machine has a five-year life, and no salvage value. Sum-of-the-years'-digits depreciation has been used for financial statement reporting and the elective straight-line method for income tax reporting. Effective January 1, 2013, for financial statement reporting, Piper decided to change to the straight-line method for depreciation of the machine without changing the estimated useful life. Assume that Neal can justify the change.

What amount should Neal report as depreciation expense for the year ended December 31, 2013?

$90,000

$180,000

$120,000

$150,000

12). Staples Inc., was accounting for its inventory using the LIFO method prior to 2014. In 2014, it changed to FIFO. The company decided to use the same method (LIFO) for income tax purposes. The tax rate enacted is 30%.

Income before taxes under both the methods for the past three years appears below.

20132014

LIFO$300,000$200,000

FIFO500,000250,000

What amount will be debited to inventory account, to record the change at beginning of 2014?

$250,000

$200,000

$150,000

$50,000

13). Link Co. purchased machinery that cost $270,000 on January 1, 2011. The entire cost was recorded as an expense. The machinery has a nine-year life and a $18,000 residual value; the machine will be consumed evenly during its useful life. The error was discovered on December 20, 2013. Ignore income tax considerations. Before the correction was made, and before the books were closed on December 31, 2013, retained earnings was understated by

$270,000.

$242,000.

$214,000.

$186,000.