1.During 2011 Truck Company sold a parcel of land used as a plant site. The amount that Truck received was $200,000 in excess of the lands carrying amount. Trucks income tax rate for 2011 was 30%. In its 2011 income statement, Truck should report a gain on sale of land of

a.$0

b.$60,000

c.$140,000

d.$200,000

2.On February 2, Railing Companys board of directors voted to discontinue operation of its aluminum railings division and to sell the divisions assets on the open market as soon as possible. The division reported net operating losses of $20,000 in January and $30,000 in February. On February 27, sale of the divisions assets resulted in a gain of $90,000. What amount of gain from disposal of a business component should Railing recognize in its income statement for the three months ended March 31?

a.$0

b.$40,000

c.$60,000

d.$90,000

3. On November 1, 13, Sam Inc. committed itself to a formal plan to sell its Club divisions assets. Sam estimated that the loss from the disposal of assets in Feb. 14 would be 25,000. Sam also estimated that Club would incur operating losses of $100,000 for the period of January 1 through December 31, 13 and $50,000 for the period January 1, 14 through February 28, 14. These estimates were materially correct. Disregarding income taxes, what should Sam report as loss from discontinued operations in its comparative 13 and 14 income statements?

13 14

a. $175,000 $0

b. $125,000 $50,000

c. $100,000 $75,000

d. $0 $175,000

4. On October 1, 12, Big Co. approved a plan to dispose of a segment of its business. Big expected that the sale would occur on April 1, 13, at an estimated gain of $350,000. The segment had actual and estimated operating losses as follows:

1/1/12 9/30/12 (300,000)

10/1/12- 12/31/12 (200,000)

1/1/13- 3/31/13 (400,000)

In its December 31, 12 income statement, what should Big report as a loss on disposal of the segment before income taxes?

a. $200,000

b. $250,000

c $500,000

d. $600,000

6. When a company changes from the straight-line method of depreciation to the double-declining balance method, which of the following should be reported?

Cumulative effect of changes Pro forma effects

in accounting principle of retroactive application

a. No No

b. No Yes c. Yes Yes

d. Yes No

7. When a company changes the expected service life of an asset because additional information has been obtained, which of the following should be reported?

Cumulative effect of changes Pro forma effects

in accounting principle of retroactive application

a. Yes Yes

b. No Yes c. Yes No d. No No

8. On January 5, 08 to better reflect the variable use of its only machine, Fluffy Inc. elected to change its method of depreciation from the straight-line method to the units of production method. Fluffy should report the accounting change in its 08 financial statements as a (an)

a. change in accounting principle

b. change in estimate

c. correction of error

d. adjustment to beginning retained earnings

9. On January 1, 05 Pillow Co. purchased a machine for 700,000 having an estimated useful life of 10 years and no salvage. The machine was depreciated using double declining balance for both financial statements and income tax reporting. On Janurary 1, '08 Pillow changed to the straight line method of depreciation for both financial and income tax reporting. Accumulated depreciation at December 31, '07 was $341,600. If the straight line method had been used, the accumulated depreciation would have been $210,000. The amount shown at December 31, 08 was for accumulated depreciation was

a. $413,080

b. $392,800

c. $210,000

d. $140,000

10. Grant co. began operations on January 1, '08. On January 1, '09 Grant changed its inventory method from LIFO to FIFO for both financial and income tax reporting. If FIFO had been used in prior years, Grant's inventories would have been higher by $60,000 and $40,000 at December 31, '10 and '09 respectively. Grant had a 30% income tax rate. What amount of cumulative effect of this accounting change in its income statement for the year ended December 31, '10?

a. $0

b. $14,000

c. $28,000

d. $42,000

Use the following information to answer the next two questions.

11. During '08 Slide co. decided to change from the FIFO method of inventory valuation to the weighted-average method. Inventory balances under each method were as follows:

FIFO Weighted-average

January 1, '08 71,000 77,000

December 31, '08 79,000 83,000

Slide's income tax rate is 30%.

In its '08 financial statements, what amount should Slide report as the cumulative effect on the statement of retained earnings?

a. $2,800

b. $4,000

c. $4,200

d. $6,000

12. Slide should report the cumulative effect of this accounting change as a (an)

a. prior period adjustment

b. component of income from continuing operations

c. extraordinary item

d. component of income after extraordinary items

13. Which of the following statements is correct regarding the accounting changes that result in financial statements that are, in effect, the statements of a different reporting entity?

a. Cumulative effect adjustments should be reported as separate items on the financial statements pertaining to the year of change

b. No restatements or adjustments are required if the change is changes involve consolidated methods of accounting for subsidiaries

c. No restatements or adjustments are required if the changes involve the cost or equity

method of accounting for investments.

d. The financial statements of all prior periods should be adjusted.