On June 30, 2010, Microsoft Corporation was holding $4.8 billion of cash that it had collected from customers in advance for future software licenses and the future delivery of other products and services. In its financial statements, Microsoft classified and recorded this amount as:

• part of revenue on its income statement.
• the asset Accounts Receivable on its balance sheet.
• the liability Unearned Revenue on its balance sheet.
• an expense on its income statement.

1) A customer is currently suing a company. A reasonable estimate can be made of the costs that would result from a ruling unfavorable to the company, and the amount involved is material. The company's managers, lawyers, and auditors agree that there is only a remote likelihood of an unfavorable ruling. This contingency:

• Should be disclosed in a footnote.
• Should be disclosed as a parenthetical comment in the balance sheet.
• Need not to be disclosed.
• Shouldbedisclosedbyanappropriationofretainedearnings

2) On June 30, 2011, Cole Inc., exchanged 3,000 shares of Stone Corp. $30 par value common stock for a patent owned by Gore Co. The Stone stock was acquired in 2009 at a cost of $80,000. At the exchange date, Stone common stock had a fair value of $45 per share, and the patent had a net carrying value of $160,000 on Gore's books. Cole should record the patent at:

• $80,000
• $90,000
• $135,000
• $160,000

3) On January 1, 2013, Dana Corporation purchased equipment for $450,000. Installation costs were an additional $50,000. The equipment's useful life was estimated at 5 years, with a salvage value of $25,000. The company planned to depreciate the equipment over five years using the straight-line method for reporting purposes and the double declining balance method for tax purposes.

Dana Corporation's accumulated depreciation at December 31, 2014 for reporting purposes and for tax purposes, respectively, will be:

• $190,000 and $304,000
• $180,000 and $320,000
• $190,000 and $320,000
• $200,000and$304,000

4) Which of the following situations willnotcause a deferred income tax amount to be recorded?

• An expense that is recognized in 2015 for income tax purposes and in 2016 for financial statement purposes.
• Interest income from municipal bonds that is recognized in 2015 for financial statement purposes but is tax exempt for income tax purposes.
• A revenue is recognized in 2015 for income tax purposes and in 2016 for financial statement purposes.
• Noneoftheabovesituationswouldcauseadeferredincometaxamount.

5)In periods with rising prices and increasing quantities of inventories, which of the following relationships among inventory valuation methods is generally correct:

• FIFO has a higher inventory balance and a lower net income than LIFO.
• FIFO has a higher inventory balance and a higher net income than LIFO.
• LIFO has a higher inventory balance and a higher net income than FIFO.
• LIFO has a higher inventory balance and a lower net income than FIFO.

6)

ABC signed a 5-year operating lease agreement whereby WXY Rentals will provide a truck which cost WXY $20,000. The lease payments are $2,500, payable at the end of each year. The truck will revert to WXY at the end of five years. The truck has a 10-year useful life. At the inception of the lease, ABC should:

• make no journal entry
• record rental expense of $2,500 for the first year's rental
• record the lease asset and a corresponding liability, at its current market value
• recordtheleaseassetandacorrespondingliability,atthepresentvalueofthefiveequalannualleasepayments.

7)

Merry Co. purchased a machine costing $125,000 for its manufacturing operations and paid shipping costs of $20,000. Merry spent an additional $10,000 testing and preparing the machine for use. What amount should Merry record as the cost of the machine?

• $155,000
• $145,000
• $135,000
• $125,000

8)

Ignoring any related tax implications, what is the effect on a company's balance sheet when depreciation expense is recognized?

• This transaction affects only the income statement, so no change on the balance sheet will occur.
• Total assets and total stockholder's equity will decrease by the same amount.
• There will be no change in the total assets, liabilities and stockholders equity accounts.
• Totalliabilitieswillincreaseandtotalstockholder'sequitywilldecreasebythesameamount.

9)

The Hastco Company had the following balances in their stockholders' equity accounts as of December 31, 2010:

Paid-in Capital: $53,000

Retained Earnings: $31,000

During the year ended December 31, 2010, The Hastco Company generated $36,000 in net income, and declared and paid $16,000 in Dividends. The ending balance in the retained earnings account atDecember 31, 2009was:

• $11,000
• $37,000
• $5,000
• $61,000

10)

All of the following would qualify a lease as a capital lease except:

• The lease term is 80% of the asset's estimated useful life.
• The lease agreement contains a bargain purchase option.
• The present value of the lease payments equals 70% of the fair market value of the leased asset.
• Titletotheleasedassettransferstothelesseeattheendoftheleaseterm.

11)

Which of the following is/are criteria for recognizing revenue from a sale?

• Title and risks of ownership have been exchanged.
• The company is reasonably assured of collecting the receivable.
• The customer has, in turn, sold the product to its own customer.
• Bothtitleandrisksofownershiphavebeenexchangedandthecompanyisreasonablyassuredofcollectingthereceivable.

12)

Use the following information to answer the next two questions.

Downey Company bought a delivery truck for $62,000 on January 1, 2015. They installed a rear hydraulic lift for $8,000 and paid sales tax of $3,000. In addition, Downey paid $2,400 for a one-year insurance policy. They estimate the useful life of the truck to be 10 years and its residual value to be $8,000.

If Downey uses the straight-line method of depreciation, what is the depreciation expense for 2016 and book value at the end of2016?

• $7,300 and $58,400
• $6,500 and $60,000
• $6,790 and $62,320
• $6,500and$66,500

13)

Downey Company bought a delivery truck for $62,000 on January 1, 2015. They installed a rear hydraulic lift for $8,000 and paid sales tax of $3,000. In addition, Downey paid $2,400 for a one-year insurance policy. They estimate the useful life of the truck to be 10 years and its residual value to be $8,000.

If Downey uses the double declining-balance method, how much is the truck's depreciation expense for2016?

• $11,680
• $12,144
• $10,400
• $11,760

14)

For accounting purposes, goodwill

• is recorded whenever a company achieves a level of net income that exceeds the industry average.
• is recorded when a company purchases another business.
• is expensed in the period it is recorded because benefits from goodwill are difficult to identify.
• isneverrecorded.

15)

Goodwill should

• be written off as soon as possible against retained earnings.
• absent impairment, not be written off because it has an indefinite life.
• written off as soon as possible as an expense.
• amortizedoveramaximumoffortyyears.

16)

Freeman, Inc., reported net income of $40,000 for 2015. However, the company's income tax return excluded a revenue item of $3,000 (reported on the income statement) because under the tax laws the $3,000 would not be reported for tax purposes until 2016. Assuming a 30% income tax rate, this situation would cause a 2015 deferred tax amount of

• $3,000 asset.
• $3,000 liability
• $ 900 asset.
• $900liability.

17)

The major accounting difference between interest incurred during a period and cash dividends declared during the same period is:

• Interest decreases retained earnings while dividend declared increases retained earnings
• Interest reduces net income while dividends declared do not affect net income
• Interest does not affect net income while dividends reduce net income
• Thereisnomajordifference.Botharetreatedidenticallyforaccountingpurposes.

• 18)

In December, a Global Grocer customer pays in time and receives a 2% discounts for prompt payment. The customer had purchased goods worth $500. Which of the possible answers below correctly states the journal entries to record the payment and the discount taken. Previously, Global Grocer had established an allowance for prompt payment discounts.

• Debit Accounts receivable ($500); Credit Cash ($490); credit allowance for discounts ($10).
• Debit Cash ($500); Credit Accounts receivable ($500).
• Debit Cash ($490); Debit Allowance for sales discounts ($10); Credit Accounts receivable ($500)
• None of the above

19)On June 30, 2010, Microsoft Corporation was holding $4.8 billion of cash that it had collected from customers in advance for future software licenses and the future delivery of other products and services. In its financial statements, Microsoft classified and recorded this amount as:

• part of revenue on its income statement.
• the asset Accounts Receivable on its balance sheet.
• the liability Unearned Revenue on its balance sheet.
• an expense on its income statement.

• 20)

Which statement is false?

• An unrealized gain or loss on hold-to-maturity marketable securities is recognized in income.
• An unrealized gain or loss on trading securities is recognized in income.
• An unrealized gain or loss on a company's common stock held by the owners' of the company is not recognized by the company.
• Anunrealizedgainorlossonavailable-for-salemarketablesecuritiesisnotrecognizedinincome

22)

Which statement is false?

• An unrealized gain or loss on hold-to-maturity marketable securities is recognized in income.
• An unrealized gain or loss on trading securities is recognized in income.
• An unrealized gain or loss on a company's common stock held by the owners' of the company is not recognized by the company.
• An unrealized gain or loss on available-for-sale marketable securities is not recognized in income