1.

A statement of financial position provides a basis for all of the following except

a. determining profitability and assessing past performance for a specific period.

b. computing rates of return.
c. evaluating capital structure.
d. assessing liquidity and financial flexibility.

2. Blue Fox Industries had the following account balances at year end.
Sales $452,000
Cash 23,400
Accounts payable 14,300
Rent expense 3,700
Accounts receivable 9,400
Cost of goods sold 214,000
Land 104,000
Contract liability 6,800
Gain on sale 17,500
Equipment 28,800
Inventories 2,200
Notes payable 67,000

What is the amount of total current assets reported on the balance sheet?

a. $39,900.
b. $35,000.
c. $63,800.
d. $59,300.

3. A company reported first quarter revenues of $10,000,000, gross profit margin of

25%, and operating income of 15%. To reduce overhead expenses, a consultant
recommends that the company outsource some of its operating activities beginning
with the second quarter. This recommendation is anticipated to reduce operating

1
 expenses by 20% without affecting sales volume. The company has an income tax
rate of 35%. Assuming cost of sales remains at 75%, what is the impact on the
quarterly income statement if the company implements the recommendation?

a. Operating income will increase by $200,000.

a. Operating expenses will be reduced by $300,000.
b. Operating income will increase by 8.7%.
c. Gross profit will increase by 8.0%.

4. A company received an invoice in January for the electricity used by its warehouse
in December, and it recorded the expense in January. The company uses the
accrual basis of accounting. What is the impact to the company’s December
financial statements?

a. Current liabilities were understated and retained earnings were overstated.

b. Cash and cash equivalents were overstated and retained earnings were
understated.
c. Operating expenses were overstated and retained earnings were overstated.
d. Accrued expenses were overstated and retained earnings were understated.

5. A company’s net income totaled $12,000,000. The company had an unusual loss of
$250,000, an unrealized after-tax gain of $25,000 on available-for-sale debt
securities, and a $900,000 distribution of cash dividends. The company’s
comprehensive income was

a. $11,775,000.
b. $11,750,000.
c. $12,025,000.
d. $10,875,000.

2
6. On January 4, Year 1, XYZ Inc. started operations manufacturing bathroom
accessories. By the end of Year 5, it had operations in nine countries. At the end of
the year, the company reported the following information:

Net income $323,000

Foreign currency translation adjustment (loss) 33,000
Owners' contributions 32,000
Foreign currency remeasurement gain 22,000
Deferred net periodic pension cost 557000
Unrealized losses on available-for-sale debt securities 215,000
Dividends paid to owners 125,000
Deferred gain on a cash flow hedge 57,000

What is XYZ's Comprehensive Income (Loss) for Year 5?

a. $99,000.
b. $6,000.
c. $77,000.
d. $(246,000).

7. Comprehensive income is best defined as:

a. The change in net assets for the period including contributions by owners and
distributions to owners.
b. Net income excluding income from discontinued operations.
c. The change in net assets for the period excluding owner transactions.
d. Total revenues minus total expenses.

8. The statement of changes in stockholders’ equity shows a

a. reconciliation of the beginning and ending balances in the individual

stockholders’ equity accounts.

3
 b. listing of all stockholders’ equity accounts and their corresponding dollar
amounts.
c. reconciliation of the beginning and ending balances in the Retained Earnings
account.
d. computation of the number of shares outstanding used for earnings per share
calculations.

9. Which of the following is the best definition of the going concern concept?

a. The entity will not incur losses in the next three years.
b. The entity will continue in operational existence for the foreseeable future.
c. The entity will continue to make profits for the foreseeable future.
d. The entity will continue in existence forever.

10. A statement of cash flows would have cash activities listed in which of the following
orders?

a. Operating, financing, investing.

b. Investing, financing, operating.
c. Operating, investing, financing.
d. Financing, investing, operating.

11. All of the following should be classified as investing activities in the statement of
cash flows except

a. cash outflows to purchase manufacturing equipment.

b. cash outflows to creditors for interest.
c. cash inflows from the sale of a manufacturing plant.
d. cash inflows from the sale of a manufacturing plant. cash inflows from the
sale of bonds of other entities.

4
12. A financial statement includes all of the following items: net income, depreciation,
operating activities, and financing activities. What financial statement is this?

a. Statement of cash flows.

b. Statement of changes in stockholders’ equity.
c. Income statement.
d. Balance sheet.

13. The sale of available-for-sale debt securities should be accounted for on the
statement of cash flows as a(n)

a. operating activity.
b. investing activity.
c. noncash investing and financing activity.
d. financing activity

14. In preparing a statement of cash flows using the indirect method of determining
cash flows from operating activities, what adjustment is needed to net income
because of (1) an increase during the period in prepaid expenses and (2) the
periodic amortization of premium on bonds payable?

a. (1) Add (2) Add

b. (1) Deduct (2) Add
c. (1) Add (2) Deduct
d. (1) Deduct (2) Deduct

15. Selected financial information for Kristina Company for the year just ended is shown
below.
Net income $2,000,000

5
 Increase in accounts receivable 300,000
Decrease in inventory 100,000
Increase in accounts payable 200,000
Depreciation expense 400,000
Gain on the sale of available-for-sale debt securities 700,000
Cash received from the issue of common stock 800,000
Cash paid for dividends 80,000
Cash paid for the acquisition of land 1,500,000
Cash received from the sale of available-for-sale debt securities 2,800,000

Assuming the indirect method is used, Kristina’s cash flow from operating activities
for the year is
a. $3,100,000
b. $1,700,000
c. $2 000,000
d. $9 400,000

16. Selected financial information for Kristina Company for the year just ended is shown
below.
Net income $2,000,000
Increase in accounts receivable 300,000
Decrease in inventory 100,000
Increase in accounts payable 200,000
Depreciation expense 400,000
Gain on the sale of available-for-sale debt securities 700,000
Cash received from the issue of common stock 800,000
Cash paid for dividends 80,000
Cash paid for the acquisition of land 1,500,000
Cash received from the sale of available-for-sale debt securities 2,800,000

a. $1,220,000.
b. $1,300,000.
c. $(1,500,000).
d. $2,800,000.

6
17. Kelli Company acquired land by assuming a mortgage for the full acquisition cost.
This transaction should be disclosed on Kelli’s statement of cash flows as a(n)

a. Noncash financing and investing activity

b. Financing activity.
c. Operating activity.
d. Investing activity.

18. Three years ago, James Company purchased stock in Zebra Inc. at a cost of
$100,000. The stock was sold for $150,000 during the current fiscal year. The result
of this transaction should be shown in the investing activities section of James’s
statement of cash flows as:

a. Zero
b. $100,000
c. $150,000
d. $50,000

19. Integrated reporting is defined as

a. Reporting on the social capital an organization uses in producing and

providing products and services.
b. Reporting on the organization’s use of externalities to create value.
c. Reporting on management’s decisions with respect to corporate citizenship.
d. A process that results in a periodic integrated report by an organization about
value creation over time.

20. Greener Grocers, Inc., publishes an integrated report in which the company reports
on its non-financial activities. In the section of its report where it discusses its

7
 activities that benefit and improve the lives of the people in the communities where it
is located, such as donating to food pantries, it is reporting on which type of capital?

a. Natural capital.
b. Social and relationship capital.
c. Financial capital.
d. Human capital.

21. Keys Co., a manufacturer of keyboards, incorporates non-financial information into

its analysis, reporting, and decision-making. Keys Co. is practicing

a. Compliance with international standards.

b. Global citizenship.
c. Shareholder wealth growth.
d. Integrated thinking.

22. On the Statement of Financial Position, accounts receivable is valued at the

a. Original cost when the asset was acquired.

b. Amount payable when due.
c. Current market value.
d. Estimated net realizable value.

23. Madison Corporation uses the current expected credit loss (CECL) model to value
its accounts receivable and is making the annual adjustments at fiscal year end,
November 30. Credit losses are estimated based on all available relevant
information, including past experience, current conditions, reasonable forecasts,
qualitative factors, and quantitative factors. Total sales for the year were $1,800,000,
all of which were credit transactions.

8
 Madison has determined that the Norris Corporation accounts receivable balance of
$10,000 is a loss and will write off this account before year-end adjustments are
made. Listed below are Madison's account balances at November 30 prior to any
adjustments and the $10,000 write-off.

Sales $1,800,000
Accounts receivable 750,000
Sales discounts -125,000
Allowance for credit losses -16,500
Sales returns and allowances -175,000
Credit loss expense 0

Madison's evaluation indicates that 1.5% of net credit sales will be credit losses.
As a result of the November 30 adjusting entry to provide for credit losses, the credit
balance in the allowance for credit losses account will

a. Increase by $22,500.
b. Increase by $25,125.
c. Decrease by $22,500.
d. Increase by $27,000.

24. The operations of the firm may be viewed as a continual series of transactions or as
a series of separate ventures. The inventory valuation method that views the firm as
a series of separate ventures is

a. First-in, first-out.
b. Weighted average.
c. Specific identification.
d. Last-in, first-out.

9
25. On December 1, a company had 1,000 units in inventory valued at $787,500. On
December 12, the company purchased 2,000 units for $1,562,400. Sales of 2,400
units were made on December 23, and on December 30, the company purchased
another 2,000 units for $1,537,200. If the company uses a periodic system and the
weighted-average inventory valuation method, the company’s December 31 balance
sheet would report inventory of

a. $2,025,660.
b. $2,014,740.
c. $2,007,180.
d. $2,021,292.

26. All sales and purchases for the year at Ross Corporation are credit transactions.
Ross shipped goods via FOB shipping point. In error, the goods were not recorded
as a sale and were included in ending inventory. Which one of the following
statements is correct?

a. Accounts receivable was understated, inventory was overstated, sales were

understated, and cost of goods sold was understated.
b. Accounts receivable was not affected, inventory was overstated, sales were
understated, and cost of goods sold was understated.
c. Accounts receivable was understated, inventory was overstated, sales were
understated, and cost of goods sold was overstated.
d. Accounts receivable was understated, inventory was not affected, sales were
understated, and cost of goods sold was understated.

27. According to the FASB conceptual framework, which of the following attributes
would not be used to measure inventory?

a. Present value of future cash flows

10
 b. Historical cost
c. Replacement cost
d. Net realizable value

28. The following inventory valuation errors have been discovered for Knox
Corporation.

 The year 1 year-end inventory was overstated by $23,000.

 The year 2 year-end inventory was understated by $61,000.
 The year 3 year-end inventory was understated by $17,000.

The reported income before taxes for Knox was

Year 1 - $138,000
Year 2 - $254,000
Year 3 - $168,000

Reported income before taxes for year 1, year 2, and year 3, respectively, should
have been

a. $115,000, $338,000, and $212,000

b. $161,000, $338,000, and $90,000
c. $115,000, $338,000, and $124,000
d. $161,000, $170,000, and $212,000

29. A decline in the fair value below amortized cost of an available-for-sale investment
in a debt security should

a. not be realized until the security is sold.

b. be evaluated for impairment and for determination of whether the unrealized
loss is a credit loss, which is recognized in net income, or whether it is caused
by other factors, which is recognized in equity.

11
 c. be treated as an unrealized loss and included in the equity section of the
balance sheet as a separate item.
d. be accumulated in a valuation allowance resulting from the passage of time.

30. Calvin Ltd. has several investments in marketable debt securities. The following are
the details as of December 31, year 13 after the year-end close.
Market Value Market Value Market Value
Initial Dec 31, Year
Classification Cost Dec 31, Year 11 12 Dec 31, Year 13
Trading $225,000 $238,000 $245,000 $249,000
Held-to-maturity 146,000 149,000 155,000 156,000
Available-for-sale 312,000 335,000 350,000 356,000

What was the impact of the fair value changes on the balance of accumulated other
comprehensive income for the years ended December 31, Year 12 and December
31, Year 13, respectively?

a. $15,000 increase and $6,000 increase.

b. $4,000 increase and $7,000 increase.
c. $7,000 increase and $4,000 increase.
d. $6,000 increase and $1,000 increase.

31. A company should apply the equity method of accounting for an investment
whenever it can exercise significant influence over the investee. Usually, the
minimum level of ownership at which an investor can exercise significant influence is

a. 25% ownership.
b. 50% ownership.
c. 10% ownership.
d. 20% ownership.

12
32. On January 1, Boggs, Inc. paid $700,000 for 100,000 shares of Mattly Corporation
representing 30% of Mattly's outstanding common stock. The following computation
was made by Boggs.

Purchase price: $700,000

30% equity in fair value of Mattly's net assets: $500,000
Excess cost over fair value: $200,000

The excess cost over fair value was attributed to goodwill. Mattly reported net
income for the year ended December 31 of $300,000. Mattly Corporation had paid
cash dividends of $100,000 on July 1.

If Boggs, Inc. exercised significant influence over Mattly Corporation and properly
accounted for the long-term investment under the equity method, the amount of net
investment revenue Boggs should report from its investment in Mattly would be:

a. $80,000
b. $90,000
c. $60,000
d. $30,000

33. When the equity method is used to account for an investment in an associate, the
recording of the receipt of a cash distribution from the investee will result in

a. An increase in a liability account.

b. The recognition of investment income.
c. A reduction in the investment balance.
d. An increase in a special equity account.

13
34. When preparing consolidated financial statements, the entity being accounted for is
the

a. Parent.
b. Legal entity.
c. Economic entity.
d. Noncontrolling interest.

35. In the process of preparing consolidated financial statements, which one of the
following items does not need to be eliminated?

a. Profit on inventory sold to a nonaffiliate.

b. Dividends receivable from a subsidiary.
c. Profit on sale of a fixed asset to a subsidiary.
d. Profit in beginning inventory acquired from a parent.
36. In a business combination, the identifiable assets of the acquired company and the
liabilities assumed are to be recorded on the books of the acquiring company at

a. Fair values
b. Book values
c. Replacement cost
d. Original cost minus accumulated depreciation

37. Which of the following is not a correct statement regarding the historical cost of fixed
assets?

a. The purchase price, freight costs, and installation costs of a productive asset
should be included in the asset's cost.
b. The costs of improvements to equipment incurred after its acquisition should
be added to the asset's cost if they provide future service potential.

14
 c. Special assessments imposed by a local government for sewage and
drainage systems are recorded by the owner of the land in the land account.
d. Proceeds obtained in the process of readying land for its intended purpose,
such as from the sale of cleared timber, should be recognized immediately in
income.

38. The value of property, plant, and equipment that is included in total assets on the
statement of financial position is

a. Acquisition cost.
b. Appraisal or market value.
c. Cost minus accumulated depreciation.
d. Replacement cost.

39. The factors primarily relied upon to determine the economic life of an asset are

a. Tax regulations and asset usage.

b. Passage of time, asset usage, and obsolescence.
c. Tax regulations and SEC (Security Exchange Commission) guidelines.
d. SEC (Security Exchange Commission) guidelines and asset usage.

40. A newly acquired plant asset is to be depreciated over its useful life. The best
rationale for this process is the

a. Revenue recognition principle.

b. Materiality requirement.
c. Monetary unit assumption.
d. Matching principle.

15
41. Nella Corporation computes depreciation to the nearest whole month. A new piece
of equipment was placed in operation on July 1, 20X1. It was expected to produce
400,000 units of product during its estimated useful life of eight years. Total cost was
$300,000; salvage value was estimated to be $30,000. Nella employs a calendar
year for financial reporting purposes. Actual production for the period of July 1
through December 31, 20X1 was 34,000 units.

If Nella had used the units-of-production method of depreciation, the amount of

depreciation computed for this equipment for book purposes in 20X1 would have
been

a. $12,750
b. $25,500
c. $22,950
d. $11,475

42. Blake Ltd. has determined that an impairment exists on one of its machines, but the
company expects to continue using the asset for another three full years as no
active market exists for the machine. Selected information on the impaired asset (on
the date that impairment was determined to exist) is provided below.

Original cost of machine £22,000

Book (carrying) value of the machine 20,000
Value in use (present value of future cash flows) 15,000
Net selling price (fair value if sold less costs to sell) 12,000

According to IFRS, what is the amount of the impairment loss to be recorded by

Blake?

a. £3,000.
b. £8,000.

16
 c. £5,000.
d. £7,000.

43. All of the following are specifically identifiable intangible assets except

a. Copyrights.
b. Patents and trademarks.
c. Goodwill.
d. Leaseholds.

44. Pie Baker, Ltd. purchased a secret fruit pie recipe for $75,000. An additional
$10,000 was spent in securing the secret recipe and safeguarding its contents. Pie
Baker expects to keep the recipe a secret indefinitely. Because of taste changes, the
industry has found that recipes have been used for an average of 8 years. Based on
this information, Pie Baker should

a. Capitalize the $85,000 cost and amortize it over 8 years.

b. Capitalize the $85,000 cost and then amortize it over 40 years.
c. Capitalize the $85,000 cost and then amortize it over the period the recipe is
to remain a secret.
d. Expense the $85,000 cost because the secret formula cost should not be
capitalized.

45. A company has $100 million of debt that is due in March Year 3. In December Year
2, the company entered into a non-cancelable agreement with its lender to refinance
the debt with the same interest rate, and the full principal is due in December Year 5.
How should the debt be classified on the December Year 2 balance sheet of the
company?

17
 a. Classified as a current liability.
b. Classified as a contingent liability.
c. Considered as an off-balance sheet liability.
d. Classified as a long-term liability.

46. Suppose that a company pays one of its liabilities twice during the year, in error.
What are the effects of this mistake?

a. Assets, liabilities, and owners' equity will be understated.

b. Assets and liabilities will be understated.
c. Assets, net income, and owners' equity will be unaffected.
d. Assets and net income and owners' equity will be understated, and liabilities
are overstated.

47. A manufacturer produced 80,000 units and sold them for $1,200 each. The
company estimates that 4% of the units will have a defect which will cost an
estimated $95 each to repair. During this year, the company honored $159,000 in
actual assurance-type warranty costs. Using the assurance warranty approach, what
would be the balance of the warranty liability account at the end of its first year of
operations?
a. $304,000.
b. $159,000.
c. $145,000.
d. $463,000.

48. Paxton Company started offering a 3-year assurance-type warranty on its products
sold after June 1, 20X0. Paxton's actual sales for the year ended May 31, 20X1 were
$2,695,000. The total cost of the warranty is expected to be 3% of sales. The actual
20X1 warranty expenditures were $31,500 in labor and $9,100 in parts. The amount

18
 of warranty expense that should appear on Paxton's income statement for the year
ended May 31, 20X1 is:

a. $80,850
b. $40,250
c. $40,600
d. $31,500

49. A tax rate other than the current tax rate may be used to calculate the deferred
income tax amount on the statement of financial position if a(n)

a. net operating loss carryback exists.

b. future tax rate change is considered more likely than not to occur.
c. future tax rate has been enacted into law.
d. election has been made to apply past tax rates.

50. Which of the following leases would be classified as a finance lease by the lessee?
Lease
Lease A Lease B Lease D
C
The lease grants the lessee an option to
purchase the underlying asset that the lessee Yes No No No
is reasonably certain to exercise
The lease term is for the major part of the
remaining economic life of the underlying No No Yes No
asset
The present value of the sum of the lease
payments and any residual value guaranteed
by the lessee amounts to at least No No Yes Yes
substantially all of the fair value of the
underlying asset

a. Lease A only.
b. Leases A, C, and D.
c. Lease B only

19
 d. Leases C and D only

51. Which of the following is not a criterion for classifying and accounting for a lease
agreement as a finance lease?

a. The lease grants the lessee an option to purchase the underlying asset and
the lessee is reasonably certain to exercise the option.
b. The lease transfers ownership of the underlying asset to the lessee by the
end of the lease term.
c. The underlying asset is expected to have an alternative use to the lessor at
the end of the lease term.
d. The present value of the sum of the lease payments and any residual value
guaranteed by the lessee equals or is greater than substantially all of the fair
value of the underlying asset.

52. Which of the following statements is not true of a long-term operating lease?

a. The lease arrangement represents a form of financing for the lessee.

b. The lessee records amortization of the right-of-use asset.
c. The lessee recognizes a right-of-use asset.
d. The lease represents off-balance sheet financing for the lessee.

53. Hessler received cash in the amount of $180,000 on March 11 for 10,000 shares of
common stock sold. Hessler's common stock has $5 per share par value. The
amount recorded as a credit to common stock for this transaction would have been

a. $50,000
b. $130,000
c. $180,000
d. $80,000

20
54. Which one of the following transactions would affect retained earnings but not
additional paid-in capital?

a. Decrease in the value of an available-for-sale investment.

b. Declaration of a small stock dividend.
c. Impairment of a long-term asset.
d. Purchase of treasury stock using the cost method.

55. Excerpts from the statement of financial position for Landau Corporation as of
September 30 of the current year are presented as follows.

Cash $950,000
Accounts receivable (net) 1,675,000
Inventories 2,806,000
Total current assets $5,431,000
Accounts payable $1,004,000
Accrued liabilities 785,000
Total current liabilities $1,789,000

The board of directors of Landau Corporation met on October 4 of the current year
and declared the regular quarterly cash dividend amounting to $750,000 ($0.60 per
share). The dividend is payable on October 25 of the current year to all shareholders
of record as of October 12 of the current year.

Assume that the only transactions to affect Landau Corporation during October of
the current year are the dividend transactions and that the closing entries have been
made.

Landau Corporation's total equity was

21
 a. Decreased by the dividend declaration and increased by the dividend
payment.
b. Decreased by the dividend declaration and unchanged by the dividend
payment.
c. Unchanged by the dividend declaration and decreased by the dividend
payment.
d. Unchanged by either the dividend declaration or the dividend payment.

56. On May 28, a company announced that its directors had met on May 26 and
declared a dividend of 25 cents per share, payable to shareholders of record on
June 20, with payment to be made on July 5. The date on which the declared
dividend becomes a liability of the company is

a. June 20.
b. May 28.
c. May 26.
d. July 5.

57. Which one of the following is true regarding small stock dividends?

a. The amount of equity capital available for future dividends is increased.

b. Each common shareholder's percentage of ownership in the corporation
increases.
c. An amount equal to the current fair value of shares issued is transferred from
retained earnings to contributed capital.
d. Retained earnings equal to the par value of shares issued is converted to
contributed capital.

58. The equity section of Smith Corporation's statement of financial position is

presented below.

22
 Preferred stock, $100 par $12,000,000
Common stock, $5 par 10,000,000
Paid-in capital in excess of par 18,000,000
Retained earnings 9,000,000
Net worth $49,000,000

The common shareholders of Smith Corporation have preemptive rights. If Smith

Corporation issues 400,000 additional shares of common stock at $6 per share, a
current holder of 20,000 shares of Smith Corporation's common stock must be given the
option to buy

a. 3,774 additional shares.

b. 1,000 additional shares.
c. 4,000 additional shares.
d. 3,333 additional shares.

59. Reese Corporation declared a property dividend on January 31 of 1,000 shares of

its investment in Alpha Corporation stock, payable February 15. The stock had a
carrying value (cost) of $75 per share and a market value of $100 per share on the
date of declaration. The amount charged to retained earnings as a result of this
dividend declaration would be:

a. $25,000
b. $100,000
c. $175,000
d. $75,000

60. Preferred and common stock differ in that:

a. Preferred stock dividends are deductible as an expense for tax purposes,

while common stock dividends are not.

23
 b. Common stock dividends are a fixed amount, while preferred stock dividends
are not.
c. Preferred stock has a higher priority than common stock with regard to
earnings and assets in the event of bankruptcy.
d. Failure to pay dividends on common stock will not force the firm into
bankruptcy, while failure to pay dividends on preferred stock will force the firm
into bankruptcy.

61. Which of the following is usually not a feature of cumulative preferred stock?

a. Cumulative preferred stock has priority over common stock with regard to
assets.
b. Cumulative preferred stock has voting rights.
c. Cumulative preferred stock has priority over common stock with regard to
earnings.
d. Cumulative preferred stock has the right to receive dividends in arrears before
common stock dividends can be paid.

62. The maximum number of shares that a corporation may issue is the definition of the
number of its

a. outstanding shares.
b. issued shares.
c. unissued shares.
d. authorized shares.

63. Treasury stock is

a. shareholder stock certificates held in the Treasury Department.

24
 b. reacquired stock that is being held for reissue.
c. an asset of the company.
d. retired stock.

64. Brand Corporation has 3,000,000 shares of $10 par value stock authorized, of
which 2,000,000 shares are issued and outstanding. The Board of Directors of
Brand plans to declare a 2-for-1 stock split on November 30 to be issued on
December 30. The stock is currently selling for $30 per share. Will the company be
required to amend its articles of incorporation before declaring the stock split?

a. No, because the number of authorized shares will automatically be doubled

by the declaration of the 2-for-1 stock split.
b. No, because the number of new shares to be issued in the stock split will not
exceed the number of authorized but unissued shares.
c. Yes, because the par value of each share will be reduced by half by the stock
split.
d. Yes, because a 2-for-1 stock split will result in more shares outstanding than
are currently authorized.

65. Fox Company has 4,000,000 shares of common stock authorized, of which 900,000
shares are held by shareholders and 100,000 are held as treasury shares. On
November 1, the Board of Directors declared a cash dividend of $0.10 per share to
be paid on January 2. At the same time, the Board declared a 5% stock dividend to
be issued on December 31. On the date of the declaration, the stock was selling for
$10 a share, and no fractional shares were to be issued. The total amount of these
declarations to be shown as current liabilities on Fox's statement of financial position
as of December 31 is

a. $90,000.
b. $540,000.

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 c. $100,000.
d. $600,000.

66. On October 1, Year 1, Company A sold 100,000 gallons of Product X to company B

at $3 per gallon. Fifty thousand gallons were delivered to Company B on December
21, Year 1, and the remaining quantity was delivered to Company B on January 8,
Year 2. Payment terms are 50% due on October 1, Year 1, 25% due on first
delivery, and 25% on second delivery. What amount should Company A recognize
as revenue related to this transaction on December 31, Year 1?

a. $150,000.
b. $300,000.
c. $225,000.
d. $75,000.

67. An airline should recognize revenue from an airline ticket in the period in which

a. Passenger reservations are booked.

b. Passenger reservations are confirmed.
c. The related flight takes place.
d. The ticket is issued.

68. A conditional contract asset is

a. revenue recognized when the right of return exists.

b. cash consideration received by the seller before any performance obligations
in the contract have been satisfied.
c. a receivable that management believes may be a credit loss.
d. a right to receive consideration because the company has partially satisfied
the performance obligations in the contract but it must satisfy another

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 performance obligation or obligations before it can invoice the customer.

69. When the right of return exists, the contract consideration is

a. reported as a contract liability.

b. variable consideration and the contract price excludes the consideration for
products expected to be returned or amounts expected to be refunded.
c. the amount the seller expects to be entitled to receive.
d. provisional and revenue cannot be recognized until the return privilege period
has expired.

70. DEF is the consignee for 1,000 units of product X for ABC Company. ABC should
recognize the revenue from these 1,000 units when

a. The agreement between DEF and ABC is signed.

b. ABC ships the goods to DEF.
c. DEF receives the goods from ABC.
d. DEF sells the goods and informs ABC of the sale.

71. AAA Construction Company was hired by the California state government on
January 1, Year One to build a section of a new highway. The contract price was
$100 million and AAA estimated that the work would cost $92 million. During Year
One, $18 million was spent on the work and the company's engineers believed that
work costing $72 million remained to complete the work and satisfy the performance
obligation. During Year Two, another $39 million was spent and $38 million of work
was estimated to remain. The contract contained a clause indicating that the state
owned the work-in-process as the highway was being constructed.
Using the cost-to-cost input method to calculate progress toward satisfaction of the
performance obligation, what amount of profit or loss should AAA recognize on the
contract in Year Two?

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 a. $1,000,000 profit.
b. $2,000,000 profit.
c. $4,300,000 profit.
d. $3,360,000 profit.

72. Stander Construction Company signed a contract with the state of Ohio to build a
short stretch of highway for $42 million. During 20X1, $8 million was spent and
company officials anticipated that another $24 million would be needed to complete
the work. During 20X2, another $13 million was spent and current information
indicated that another $14 million would be required to finish the project. The
contract contained a clause indicating that the state of Ohio owns the work-in-
process as the highway is being constructed.
Using the cost-to-cost input method to calculate Stander's progress toward
satisfaction of the performance obligation, what amount of profit should the company
recognize in 20X2?

a. $4,200,000.
b. Zero.
c. $2,600,000.
d. $1,700,000.

73. According to ASC 606, under what circumstances should a long-term contract be
accounted for over time?

a. The production process can be readily divided into definite stages.

b. The company's performance creates an asset with an alternative use to the
company.
c. Cash has been received from the customer.

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 d. The company's performance creates or enhances an asset that the customer
controls as the work is being done.

74. In accounting for long-term construction contracts, the difference between

recognizing the revenue at a point in time versus recognizing the revenue over time
is that

a. It is only when the revenue is recognized over time that progress billings are
accumulated in a contract liability account, billings on construction in process.
b. It is only when revenue is recognized at a point in time that accumulated
construction costs are included in a construction in process contract asset
account.
c. It is only when revenue is recognized over time that gross profit earned to
date is accumulated in the construction in process contract asset account.
d. When revenue is recognized over time, all revenues and gross profit on the
contract are recognized only when the performance obligations in the contract
are completely satisfied.

-end-

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