Part A: Answer each of the following questions. Be sure to show all of your work and calculations.

1)
Equipment
that cost $300,000 and had a book value of $156,000 was sold for $180,000. Data
from the comparative balance sheets are:

Equipment
purchased during 2011 was

• $510,000
• 
  $210,000
• 
  $90,000
• 
  $300,000

2)
Which
of the following ratios should be used in evaluating the effectiveness with
which the company uses its assets?

• 
  D
• 
  A
• 
  B
• C

3)
On
December 31, 2011, Lang Corporation leased a ship from Fort Company for an
eight-year period expiring December 30, 2019. Equal annual payments of $200,000
are due on December 31 of each year, beginning with December 31, 2011. The
lease is properly classified as a capital lease on Lang’s books. The present
value at December 31, 2011 of the eight lease payments over the lease term
discounted at 10% is $1,173,685. Assuming all payments are made on time, the
amount that should be reported by Lang Corporation as the total obligation
under capital leases on its December 31, 2012 balance sheet is

• 
  $1,000,159
• 
  $871,054
• 
  $1,091,054
• 
  $1,200,000

4)
iGAAP
requires which of the following disclosures regarding related parties?

1. 
   The
   name of the related party.
2. 
   The
   amount and terms of the outstanding balance.
3. 
   Doubtful
   amounts related to the outstanding balance.

• 
  I
  and III
• 
  II and III
• 
  I,
  II, and III
• 
  I
  and II

5)
Presenting
consolidated financial statements this year when statements of individual
companies were presented last year is

• 
  An
  accounting change that should be reported prospectively.
• An accounting change that should be reported by restating
  the financial statements of all prior periods presented.
• 
  Not
  an accounting change.
• 
  A
  correction of an error.

6)
The
following data are provided:

Additional
information: Depreciation included in cost of goods sold and operating expenses
is $305,000. On May 1, 2011, 15,000 shares of common stock were issued. The
preferred stock is cumulative. The preferred dividends were not declared during
2011.

The
rate of return on common stock equity for 2011 is

• 
  375
  ÷ 1,800
• 
  375
  ÷ 2,000
• 
  325
  ÷ 2,000
• 325 ÷ 1,800

7)
Alt
Corporation enters into an agreement with Yates Rentals Co. on January 1, 2011
for the purpose of leasing a machine to be used in its manufacturing operations.
The following data pertain to the agreement:

1. 
   The
   term of the noncancelable lease is 3 years with no renewal option. Payments of
   $155,213 are due on December 31 of each year.
2. 
   The
   fair value of the machine on January 1, 2011, is $400,000. The machine has a
   remaining economic life of 10 years, with no salvage value. The machine reverts
   to the lessor upon the termination of the lease.
3. 
   Alt
   depreciates all machinery it owns on a straight-line basis.
4. 
   Alt’s
   incremental borrowing rate is 10% per year. Alt does not have knowledge of the
   8% implicit rate used by Yates.
5. 
   Immediately
   after signing the lease, Yates finds out that Alt Corp. is the defendant in a
   suit which is sufficiently material to make collectability of future lease
   payments doubtful.

Which of the following
lease-related revenue and expense items would be recorded by Yates if the lease
is accounted for as an operating lease?

• 
  Deprectiation
  expense
• Rental revenue and deprectiation expense
• 
  Rental
  revenue
• 
  Interest
  income

8)
Nicole,
Inc. uses iGAAP for its external financial reporting. During 2009, an employee
of the company was injured in the factory. Discussions with corporate attorneys
resulted in a determination that the company would be required to pay between
$1,000,000 and $2,000,000 to settle the injury claim. Nicole, Inc. accrued a
contingent liability on December 31, 2009 for $1,000,000. On February 4, 2011,
Nicole, Inc. settled the lawsuit for $2,200,000. What amount of loss should be
reported on the income statement for the year ended December 31, 2010 for
Nicole, Inc. related to this lawsuit?

• $1,200,000
• 
  No
  extra loss will be recorded in 2010, the remaining loss will be recorded in
  2011.
• 
  $2,200,000
• 
  $1,000,000

9)
Gage
Co. purchases land and constructs a service station and car wash for a total of
$360,000. At January 2, 2010, when construction is completed, the facility and
land on which it was constructed are sold to a major oil company for $400,000
and immediately leased from the oil company by Gage. Fair value of the land at
time of the sale was $40,000. The lease is a 10-year, noncancelable lease. Gage
uses straight-line depreciation for its other various business holdings. The
economic life of the facility is 15 years with zero salvage value. Title to the
facility and land will pass to Gage at termination of the lease. A partial
amortization schedule for this lease is as follows:

What is the amount of the lessee’s liability to the
lessor after the December 31, 2012 payment?

• 
  $400,000
• 
  $347,294
• 
  $374,902
• $316,925

10)
Lanier
Company began operations on January 1, 2010, and uses the FIFO method in
costing its raw material inventory. Management is contemplating a change to the
LIFO method and is interested in determining what effect such a change will
have on net income. Accordingly, the following information has been developed:

Based upon the above information, a change to the
LIFO method in 2011 would result in net income for 2011 of

• $540,000
• 
  $600,000
• 
  $620,000
• 
  $660,000

11)
Which
of the following subsequent events (post-balance-sheet events) would require
adjustment of the accounts before issuance of the financial statements?

• 
  Changes
  in the quoted market prices of securities held as an investment.
• 
  Loss
  of plant as a result of fire.
• 
  Loss on a lawsuit, the outcome of which
  was deemed uncertain at year end.
• 
  Loss
  on an uncollectible account receivable resulting from a customers major flood
  loss.

19)
The
full disclosure principle, as adopted by the accounting profession, is best
described by which of the following?

• 
  All
  information related to an entity’s business and operating objectives is
  required to be disclosed in the financial statements.
• Disclosure of any financial facts significant enough to
  influence the judgement of an informed reader.
• 
  Information
  about each account balance appearing in the financial statements is to be
  included in the notes to the financial statements.
• 
  Enough
  information should be disclosed in the financial statements so a person wishing
  to invest in the stock of the company can make a profitable decision.

20)
Crabbe
Company reported $80,000 of selling and administrative expenses on its income
statement for the past year. The company had depreciation expense and an
increase in prepaid expenses associated with the selling and administrative
expenses for the year. Assuming use of the direct method, how would these items
be handled in converting the accrual based selling and administrative expenses
to the cash basis?

• 
  Added
  to                                                                      added
  to
• 
  Deducted
  from                                                                        deducted
  from
• 
  Added
  to                                                                      deducted
  from
• Deducted from                                                                        added
  to

21)
Minimum
lease payments may include a

• 
  Penalty
  for failure to renew
• 
  Bargain
  purchase option
• 
  Guaranteed
  residual value
• 
  Any of these

22)
Fina
Corp. had the following transactions during the quarter ended March 31, 2011:

Loss from
hurricane damage                                                   $350,000

Payment of fire
insurance premium for calendar year 2011       500,000

            What amount should be included in
Fina’s income statement for the quarter ended March 31, 2011?

• B
• 
  C
• 
  D
• 
  A

23)
When
preparing a statement of cash flows, an increase in accounts payable during a
period would require which of the following adjustments in determining cash
flows from operating activities?

Indirect
method     direct method

• 
  Decrease          decrease
• Increase           decrease
• 
  Decrease          increase
• 
  Increase           increase

24)
Challenges
to convergence of iGAAP with U.S. GAAP include all of the following except

• 
  Cultural
  differences exist between countries
• Political issues result in politicians setting the final
  accounting standards
• 
  The
  litigious environment in the U.S. is best suited to very detailed standards
• 
  Legal
  barriers to change include the difficulty associated with changing loan
  convenants.

28)
Due
to the broader range of options under U.S. GAAP compared to iGAAP, note
disclosures are generally more expansive under U.S. GAAP than under iGAAP.

• 
  True
• 
  False

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