Gleim's CPA Test Prep software for the Financial section of the CPA exam.

Total Questions: 100 QUESTION: 1 of 100 SOURCE: CPA Nov 94 F-58 STUDY UNIT: 15 The following information pertains to Eagle Co.'s 1995 sales: Cash sales Gross Returns and allowances Credit sales Gross Discounts $ 80,000 4,000 120,000 6,000

On January 1, 1995, customers owed Eagle $40,000. On December 31, 1995, customers owed Eagle $30,000. Eagle uses the direct write-off method for bad debts. No bad debts were recorded in 1995. Under the cash basis of accounting, what amount of net revenue should Eagle report for 1995? A- $76,000 B- $170,000 C- $190,000 D- $200,000 QUESTION: 2 of 100 SOURCE: CPA May 92 I-39 STUDY UNIT: 15 Zeta Co. reported sales revenue of $2,300,000 in its income statement for the year ended December 31, 1995. Additional information was as follows: 12/31/94 -------$500,000 (30,000) 12/31/95 -------$650,000 (55,000)

Accounts receivable Allowance for uncollectible accounts

Uncollectible accounts totaling $10,000 were written off during 1995. Under the cash basis of accounting, Zeta would have reported 1995 sales of A- $2,140,000 B- $2,150,000 C- $2,175,000 D- $2,450,000 QUESTION: 3 of 100 SOURCE: CPA Nov 91 I-40 STUDY UNIT: 15 State Co. recognizes construction revenue and expenses using the percentageof-completion method. During 1994, a single long-term project was begun, which continued through 1995. Information on the project follows: 1994 -------Accounts receivable from construction contract Construction expenses Construction in progress Partial billings on contract $100,000 105,000 122,000 100,000 1995 -------$300,000 192,000 364,000 420,000

Profit recognized from the long-term construction contract in 1995 should be A- $50,000 B- $108,000 C- $120,000

D- $228,000 ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 1

QUESTION: 4 of 100 SOURCE: CPA May 93 I-38 STUDY UNIT: 15 Pell Co.'s construction jobs, (described below) commenced during 1995. Project 1 --------$420,000 240,000 120,000 150,000 90,000 Project 2 --------$300,000 280,000 40,000 270,000 250,000

Contract price Costs incurred during 1995 Estimated costs to complete Billed to customers during 1995 Received from customers during 1995

If Pell used the completed-contract method, what amount of gross profit (loss) would Pell report in its 1995 income statement? A- $(20,000) B- $0 C- $340,000 D- $420,000 QUESTION: 5 of 100 SOURCE: CPA May 88 T-23 STUDY UNIT: 15 A company uses the completed-contract method to account for a long-term construction contract. Revenue is recognized when progress billings are Recorded -------No Yes Yes No Collected --------Yes Yes No No

ABCD-

QUESTION: 6 of 100 SOURCE: CPA May 94 F-41 STUDY UNIT: 15 Wren Co. sells equipment on installment contracts. Which of the following statements best justifies Wren's use of the cost recovery method of revenue recognition to account for these installment sales? A- The sales contract provides that title to the equipment only passes to the purchaser when all payments have been made. B- No cash payments are due until one year from the date of sale. C- Sales are subject to a high rate of return. D- There is no reasonable basis for estimating collectibility. QUESTION: 7 of 100 SOURCE: CPA Nov 92 I-43 STUDY UNIT: 15 Several of Fox, Inc.'s customers are having cash flow problems. Information pertaining to these customers for the years ended March 31, 1994 and 1995 follows: 3/31/94 ------$10,000 8,000 7,000 3/31/95 ------$15,000 9,000 3,000

Sales Cost of sales Cash collections on 1994 sales

on 1995 sales

--

12,000

If the cost-recovery method is used, what amount would Fox report as gross profit from sales to these customers for the year ended March 31, 1995? A- $2,000 B- $3,000 C- $5,000 D- $15,000 ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 2

QUESTION: 8 of 100 SOURCE: CPA Nov 91 I-41 STUDY UNIT: 15 On January 1, 1994, Mega Corp. acquired 10% of the outstanding voting stock of Penny, Inc. On January 2, 1995, Mega gained the ability to exercise significant influence over financial and operating control of Penny by acquiring an additional 20% of Penny's outstanding stock. The two purchases were made at prices proportionate to the value assigned to Penny's net assets, which equaled their carrying amounts. For the years ended December 31, 1994 and 1995, Penny reported the following: 1994 -------$200,000 600,000 1995 -------$300,000 650,000

Dividends paid Net income

In 1995, what amounts should Mega report as current year investment income and as an adjustment, before income taxes, to 1994 investment income? 1995 Investment Income ---------$195,000 $195,000 $195,000 $105,000 Adjustment to 1994 Investment Income --------------$160,000 $120,000 $40,000 $40,000

ABCD-

QUESTION: 9 of 100 SOURCE: CPA Nov 89 I-38 STUDY UNIT: 15 On January 1, 1995, Jaffe Co. leased a machine to Pender Co. for 10 years, with $10,000 payments due at the beginning of each year effective at the inception of the lease. The machine cost Jaffe $55,000. The lease is appropriately accounted for as a sales-type lease by Jaffe. The present value of the 10 rent payments over the lease term discounted appropriately at 10% was $67,600. The estimated salvage value of the machine at the end of 10 years is equal to the disposal costs. How much interest revenue should Jaffe record from the lease for the year ended December 31, 1995? A- $5,500 B- $5,760 C- $6,760 D- $12,600 QUESTION: 10 of 100 SOURCE: CPA Nov 90 I-35 STUDY UNIT: 15 On January 1, 1994, Mill Co. exchanged equipment for a $200,000, noninterest-bearing note due on January 1, 1997. The prevailing rate of

interest for a note of this type at January 1, 1994 was 10%. The present value of $1 at 10% for three periods is 0.75. What amount of interest revenue should be included in Mill's 1995 income statement? A- $0 B- $15,000 C- $16,500 D- $20,000 QUESTION: 11 of 100 SOURCE: CPA Nov 92 I-44 STUDY UNIT: 15 Information pertaining to dividends from Wray Corp.'s common stock investments for the year ended December 31, 1995 follows: On September 8, 1995, Wray received a $50,000 cash dividend from Seco, Inc. in which Wray owns a 30% interest. A majority of Wray's ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 3

directors are also directors of Seco. On October 15, 1995, Wray received a $6,000 liquidating dividend from King Co. Wray owns a 5% interest in King Co. Wray owns a 2% interest in Bow Corp., which declared a $200,000 cash dividend on November 27, 1995 to stockholders of record on December 15, 1995, payable on January 5, 1996. What amount should Wray report as dividend income in its income statement for the year ended December 31, 1995? A- $60,000 B- $56,000 C- $10,000 D- $4,000 QUESTION: 12 of 100 SOURCE: CPA Nov 90 I-37 STUDY UNIT: 15 On January 1, 1995, Wren Company leased a building to Brill under an operating lease for 10 years at $50,000 per year, payable the first day of each lease year. Wren paid $15,000 to a real estate broker as a finder's fee. The annual depreciation on the building is $12,000. For 1995, Wren incurred insurance and property tax expenses totaling $9,000. Wren's net rental income for 1995 should be A- $27,500 B- $29,000 C- $35,000 D- $36,500 QUESTION: 13 of 100 SOURCE: CPA May 92 T-39 STUDY UNIT: 15 A foreign subsidiary's functional currency is its local currency, which has not experienced significant inflation. The weighted-average exchange rate for the current year is the appropriate exchange rate for translating Wages Expense ------------Yes Yes No No Sales to Customers --------No Yes Yes No SOURCE: CPA Nov 93 T-35 STUDY UNIT: 15

ABCD-

QUESTION: 14 of 100

On October 1, 1995, Mild Co., a U.S. company, purchased machinery from Grund, a German company, with payment due on April 1, 1996. If Mild's 1995 operating income included no foreign exchange transaction gain or loss, the transaction could have A- Resulted in an extraordinary gain. B- Been denominated in U.S. dollars. C- Caused a foreign currency gain to be reported as a contra account against machinery. D- Caused a foreign currency translation gain to be reported as a separate component of stockholders' equity. QUESTION: 15 of 100 SOURCE: CPA Nov 88 T-25 STUDY UNIT: 15 A December 15, 1994 purchase of goods was denominated in a currency other than the entity's functional currency. The transaction resulted in a payable that was fixed in terms of the amount of foreign currency, and was paid on the settlement date, January 20, 1995. The exchange rates between the functional currency and the currency in which the transaction was denominated changed between the transaction date and December 31, 1994, and again between December 31, 1994, and January 20, 1995. Both exchange rate changes resulted in gains. The amount of the gain that should be included ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 4

in ABCD-

the 1995 The gain The gain The gain Zero.

financial statements is from December 31, 1994, to January 20, 1995. from December 15, 1994, to January 20, 1995. from December 15, 1994, to December 31, 1994.

QUESTION: 16 of 100 SOURCE: CPA Nov 92 I-50 STUDY UNIT: 15 This questions is based on Information Block number 1 on page 25. Imp entered into the third forward contract for speculation. At December 31, 1995, what amount of foreign currency transaction gain should Imp include in income from this forward contract? A- $0 B- $3,000 C- $5,000 D- $10,000 QUESTION: 17 of 100 SOURCE: CPA Nov 89 I-34 STUDY UNIT: 15 Peg Co. leased equipment from Howe Corp. on July 1, 1995 for an 8-year period expiring June 30, 2003. Equal payments under the lease are $600,000 and are due on July 1 of each year. The first payment was made on July 1, 1995. The rate of interest contemplated by Peg and Howe is 10%. The cash selling price of the equipment is $3,520,000, and the cost of the equipment on Howe's accounting records is $2,800,000. The lease is appropriately recorded as a sales-type lease. What is the amount of profit on the sale and the interest revenue that Howe should record for the year ended December 31, 1995? Profit on Sale -------------$720,000 $720,000 $ 45,000 $ 45,000 Interest Revenue ---------------$176,000 $146,000 $176,000 $146,000

ABCD-

QUESTION: 18 of 100 SOURCE: CPA May 90 T-20 STUDY UNIT: 15 A fixed asset with a 5-year estimated useful life and no residual value is sold at the end of the second year of its useful life. How would using the sum-of-the-years'-digits method of depreciation instead of the doubledeclining-balance method of depreciation affect a gain or loss on the sale of the fixed asset? Gain -------Decrease Decrease Increase Increase Loss -------Decrease Increase Decrease Increase

ABCD-

QUESTION: 19 of 100 SOURCE: CPA Nov 90 T-37 STUDY UNIT: 15 Gown, Inc. sold a warehouse and used the proceeds to acquire a new warehouse. The excess of the proceeds over the carrying amount of the warehouse sold should be reported as a(n) A- Extraordinary gain, net of income taxes. B- Part of continuing operations. C- Gain from discontinued operations, net of income taxes. D- Reduction of the cost of the new warehouse. QUESTION: 20 of 100 SOURCE: CPA May 89 I-51 STUDY UNIT: 15 On January 2, 1995, Rex Enterprises, Inc. authorized Adam Company to operate as a franchisee over a 20-year period for an initial franchise fee of ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 5

$60,000 received on signing the agreement. Adam started operations on June 30, 1995, by which date Rex had performed all of the required initial services. In its income statement for the 6 months ended June 30, 1995, what amount should Rex report as revenue from franchise fees in connection with Adam's franchise? A- $0 B- $1,500 C- $30,000 D- $60,000 QUESTION: 21 of 100 SOURCE: CPA Nov 88 I-34 STUDY UNIT: 15 Lewis Company's usual sales terms are net 60 days, FOB shipping point. Sales, net of returns and allowances, totaled $2,300,000 for the year ended December 31, 1995, before year-end adjustments. Additional data are as follows: On December 27, 1995, Lewis authorized a customer to return, for full credit, goods shipped and billed at $50,000 on December 15, 1995. The returned goods were received by Lewis on January 4, 1996, and a $50,000 credit memo was issued and recorded on the same date. Goods with an invoice amount of $80,000 were billed and recorded on January 3, 1996. The goods were shipped on December 30, 1995. Goods with an invoice amount of $100,000 were billed and recorded on December 30, 1995. The goods were shipped on January 3, 1996. Lewis' adjusted net sales for 1995 should be A- $2,330,000 B- $2,280,000

C- $2,250,000 D- $2,230,000 QUESTION: 22 of 100 SOURCE: CPA May 92 I-37 STUDY UNIT: 15 On October 1, 1995, Acme Fuel Co. sold 100,000 gallons of heating oil to Karn Co. at $3 per gallon. Fifty thousand gallons were delivered on December 15, 1995, and the remaining 50,000 gallons were delivered on January 15, 1996. Payment terms were: 50% due on October 1, 1995, 25% due on first delivery, and the remaining 25% due on second delivery. What amount of revenue should Acme recognize from this sale during 1995? A- $75,000 B- $150,000 C- $225,000 D- $300,000 QUESTION: 23 of 100 SOURCE: CPA May 91 T-22 STUDY UNIT: 15 For available-for-sale securities included in noncurrent assets, which of the following amounts should be included in the period's net income? I. Unrealized holding losses during the period II. Realized gains during the period III. Changes in fair value during the period ABCDIII only. II only. I and II. I, II, and III.

QUESTION: 24 of 100 SOURCE: CPA Nov 93 T-40 STUDY UNIT: 15 Compared with its 1992 cash-basis net income, Potoma Co.'s 1992 accrualbasis net income increased when it A- Declared a cash dividend in 1991 that it paid in 1992. ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 6

B- Wrote off more accounts receivable balances than it reported as uncollectible accounts expense in 1992. C- Had lower accrued expenses on December 31, 1992 than on January 1, 1992. D- Sold used equipment for cash at a gain in 1992. QUESTION: 25 of 100 SOURCE: CPA Nov 93 I-43 STUDY UNIT: 15 On April 1, 1993, Ivy began operating a service proprietorship with an initial cash investment of $1,000. The proprietorship provided $3,200 of services in April and received full payment in May. The proprietorship incurred expenses of $1,500 in April that were paid in June. During May, Ivy drew $500 against her capital account. What was the proprietorship's income for the two months ended May 31, 1993 under the following methods of accounting? Cash-Basis ---------$1,200 $1,700 $2,700 $3,200 Accrual-Basis ------------$1,200 $1,700 $1,200 $1,700 SOURCE: CPA Nov 92 I-41 STUDY UNIT: 15

ABCD-

QUESTION: 26 of 100

Reid Partners, Ltd., which began operations on January 1, 1990, has elected to use cash-basis accounting for tax purposes and accrual-basis accounting for its financial statements. Reid reported sales of $175,000 and $80,000 in its tax returns for the years ended December 31, 1991 and 1990, respectively. Reid reported accounts receivable of $30,000 and $50,000 in its balance sheets as of December 31, 1991 and 1990, respectively. What amount should Reid report as sales in its income statement for the year ended December 31, 1991? A- $145,000 B- $155,000 C- $195,000 D- $205,000 QUESTION: 27 of 100 SOURCE: CPA May 90 II-41 STUDY UNIT: 15 During 1994, Mitchell Corp. started a construction job with a total contract price of $600,000. The job was completed on December 15, 1995. Additional data are as follows: 1994 -------$225,000 225,000 240,000 200,000 1995 -------$255,000 -360,000 400,000

Actual costs incurred Estimated remaining costs Billed to customer Received from customer

Under the completed-contract method, what amount should Mitchell recognize as gross profit for 1995? A- $45,000 B- $75,000 C- $105,000 D- $120,000 QUESTION: 28 of 100 SOURCE: CPA Nov 91 T-5 STUDY UNIT: 15 During 1990, Tidal Co. began construction on a project scheduled for completion in 1992. At December 31, 1990, an overall loss was anticipated at contract completion. What would be the effect of the project on 1990 operating income under the percentage-of-completion method and the completed-contract method? ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 7

ABCD-

Percentage-ofCompletion -------------No effect No effect Decrease Decrease

Completed-Contract -----------------No effect Decrease No effect Decrease

QUESTION: 29 of 100 SOURCE: CPA May 93 I-39 STUDY UNIT: 15 The following data pertains to Pell Co.'s construction jobs, which commenced during 1992: Project 1 --------$420,000 Project 2 --------$300,000

Contract price

Costs incurred during 1992 Estimated costs to complete Billed to customers during 1992 Received from customers during 1992

240,000 120,000 150,000 90,000

280,000 40,000 270,000 250,000

If Pell used the percentage-of-completion method, what amount of gross profit (loss) would Pell report in its 1992 income statement? A- $(20,000) B- $20,000 C- $22,500 D- $40,000 QUESTION: 30 of 100 SOURCE: CPA Nov 89 I-37 STUDY UNIT: 15 On January 1, 1995, Dyer Co. acquired as a long-term investment a 20% common stock interest in Eason Co. Dyer paid $700,000 for this investment when the fair value of Eason's net assets was $3,500,000. Dyer can exercise significant influence over Eason's operating and financial policies. For the year ended December 31, 1995, Eason reported net income of $400,000 and declared and paid cash dividends of $160,000. How much revenue from this investment should Dyer report for 1995? A- $32,000 B- $48,000 C- $80,000 D- $112,000 QUESTION: 31 of 100 SOURCE: CPA Nov 90 T-26 STUDY UNIT: 15 In a lease that is recorded as a sales-type lease by the lessor, interest revenue A- Should be recognized in full as revenue at the lease's inception. B- Should be recognized over the period of the lease using the straight-line method. C- Should be recognized over the period of the lease using the effective interest method. D- Does not arise. QUESTION: 32 of 100 SOURCE: CPA Nov 91 T-10 STUDY UNIT: 15 An investor uses the cost method to account for an investment in common stock. A portion of the dividends received this year were in excess of the investor's share of investee's earnings subsequent to the date of investment. The amount of dividend revenue that should be reported in the investor's income statement for this year is A- Zero. ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 8

B- The total amount of dividends received this year. C- The portion of the dividends received this year that were the investor's share of investee's earnings subsequent to investment. D- The portion of the dividends received this year that were of the investor's share of investee's earnings subsequent investment.

in excess of the date of not in excess to the date of

QUESTION: 33 of 100 SOURCE: CPA Nov 90 I-36 STUDY UNIT: 15 Day Co. received dividends from its common stock investments during the year

ended December 31, 1995 as follows: A stock dividend of 400 shares from Parr Corp. on July 25, 1995 when the market price of Parr's shares was $20 per share. Day owns less than 1% of Parr's stock. A cash dividend of $15,000 from Lark Corp. in which Day owns a 25% interest. A majority of Lark's directors are also directos of Day. What amount of dividend revenue should Day report in its 1995 income statement? A- $23,000 B- $15,000 C- $8,000 D- $0 QUESTION: 34 of 100 SOURCE: CPA May 92 I-44 STUDY UNIT: 15 On January 1, 1991, Denver Corp. entered into a 4-year licensing agreement with Akins Co. allowing Akins to use Denver's cartoon characters on all the lunch boxes that Akins manufactures. Akins is required to pay Denver royalties equal to 10% of annual lunch box sales. Akins guaranteed Denver a $120,000 minimum royalty over the life of the agreement and paid Denver the minimum amount on January 1, 1991. For the year ended December 31, 1991, Akins' lunch box sales totaled $500,000. What amount of royalty income should Denver report in 1991? A- $30,000 B- $50,000 C- $80,000 D- $120,000 QUESTION: 35 of 100 SOURCE: CPA Nov 88 I-40 STUDY UNIT: 15 On January 2, 1994, Shaw Company sold the copyright to a book to Poe Publishers, Inc. for royalties of 20% of future sales. On the same date, Poe paid Shaw a royalty advance of $100,000 to be applied against royalties for 1995 sales. On September 30, 1994, Poe made a $42,000 royalty remittance to Shaw for sales in the 6-month period ended June 30, 1994. In January 1995, before issuance of its 1994 financial statements, Shaw learned that Poe's sales of the book totaled $250,000 for the last half of 1994. How much royalty revenue should Shaw report in its 1994 income statement? A- $92,000 B- $142,000 C- $150,000 D- $192,000 QUESTION: 36 of 100 SOURCE: CPA Nov 93 T-14 STUDY UNIT: 15 Which of the following should be reported as a stockholders' equity contra account? A- Discount on convertible bonds that are common stock equivalents. B- Premium on convertible bonds that are common stock equivalents. C- Cumulative foreign exchange translation loss. D- Organization costs. ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 9

QUESTION: 37 of 100 SOURCE: CPA May 90 II-44 STUDY UNIT: 15 Certain balance sheet accounts of a foreign subsidiary of Rowan, Inc., at December 31, 1995, have been translated into U.S. dollars as follows:

Translated at ----------------------Current Historical Rates Rates ----------------Note receivable, long-term $240,000 $200,000 Prepaid rent 85,000 80,000 Patent 150,000 170,000 ----------------$475,000 $450,000 The subsidiary's functional currency is the currency of the country in which it is located. What total amount should be included in Rowan's December 31, 1995 consolidated balance sheet for the above accounts? A- $450,000 B- $455,000 C- $475,000 D- $495,000 QUESTION: 38 of 100 SOURCE: CPA Nov 93 I-49 STUDY UNIT: 15 Hunt Co. purchased merchandise for 300,000 from a vendor in London on November 30, 1992. Payment in British pounds was due on January 30, 1993. The exchange rates to purchase one pound were as follows: November 30, 1992 -----------$1.65 1.64 1.63 December 31, 1992 -----------$1.62 1.59 1.56

Spot-rate 30-day rate 60-day rate

In its December 31, 1992 income statement, what amount should Hunt report as foreign exchange gain? A- $12,000 B- $9,000 C- $6,000 D- $0 QUESTION: 39 of 100 SOURCE: CPA May 85 T-32 STUDY UNIT: 15 The calculation of the income recognized in the second year of a 4-year construction contract accounted for using the percentage-of-completion method is based on the A- Cumulative actual costs incurred only. B- Incremental cost for the second year only. C- Latest available estimated costs. D- Estimated costs at the inception of the contract. QUESTION: 40 of 100 SOURCE: CPA Nov 90 I-43 STUDY UNIT: 15 Ball Corp. had the following foreign currency transactions during 1995: Merchandise was purchased from a foreign supplier on January 20, 1995 for the U.S. dollar equivalent of $90,000. The invoice was paid on March 20, 1995 at the U.S. dollar equivalent of $96,000. On July 1, 1995, Ball borrowed the U.S. dollar equivalent of ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 10

$500,000 evidenced by a note that was payable in the lender's local currency on July 1, 1997. On December 31, 1995, the U.S. dollar equivalents of the principal amount and accrued interest were $520,000 and $26,000, respectively. Interest on the note is 10% per annum. In Ball's 1995 income statement, what amount should be included as foreign exchange loss? A- $0 B- $6,000 C- $21,000 D- $27,000 QUESTION: 41 of 100 SOURCE: CPA May 95 F-31 STUDY UNIT: 15 Park Co.'s wholly owned subsidiary, Schnell Corp., maintains its accounting records in German marks. Because all of Schnell's branch offices are in Switzerland, its functional currency is the Swiss franc. Remeasurement of Schnell's 1994 financial statements resulted in a $7,600 gain, and translation of its financial statements resulted in an $8,100 gain. What amount should Park report as a foreign exchange gain in its income statement for the year ended December 31, 1994? A- $0 B- $7,600 C- $8,100 D- $15,700 QUESTION: 42 of 100 SOURCE: CPA Nov 95 F-24 STUDY UNIT: 15 On February 1, 1995, Tory began a service proprietorship with an initial cash investment of $2,000. The proprietorship provided $5,000 of services in February and received full payment in March. The proprietorship incurred expenses of $3,000 in February, which were paid in April. During March, Tory drew $1,000 against the capital account. In the proprietorship's financial statements for the two months ended March 31, 1995, prepared under the cash-basis method of accounting, what amount should be reported as capital? A- $1,000 B- $3,000 C- $6,000 D- $7,000 QUESTION: 43 of 100 SOURCE: CPA Nov 95 F-34 STUDY UNIT: 15 When should a lessor recognize in income a nonrefundable lease bonus paid by a lessee on signing an operating lease? A- When received. B- At the inception of the lease. C- At the expiration of the lease. D- Over the life of the lease. QUESTION: 44 of 100 SOURCE: CPA May 94 F-9 STUDY UNIT: 16 This questions is based on Information Block number 2 on page 25. Vane's income tax rate is 30%. In Vane's 1995 multiple-step income statement, what amount should Vane report as the cost of goods manufactured? A- $200,000 B- $215,000 C- $280,000 D- $295,000 QUESTION: 45 of 100 SOURCE: CPA May 90 I-49 STUDY UNIT: 16

The following information was taken from Cody Company's accounting records: ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 11

Increase in raw materials inventory Decrease in finished goods inventory Raw materials purchased Direct-labor payroll Factory overhead Freight-out

$ 15,000 35,000 430,000 200,000 300,000 45,000

There was no work-in-process inventory at the beginning or end of the year. Cody's cost of goods sold is A- $950,000 B- $965,000 C- $975,000 D- $995,000 QUESTION: 46 of 100 SOURCE: CPA Nov 93 T-33 STUDY UNIT: 16 Which of the following is reported as interest expense? A- Pension cost interest. B- Postretirement healthcare benefits interest. C- Imputed interest on a noninterest-bearing note. D- Interest incurred to finance construction of machinery for an enterprise's own use. QUESTION: 47 of 100 SOURCE: CPA Nov 91 I-54 STUDY UNIT: 16 Loeb Corp. frequently borrows from the bank in order to maintain sufficient operating cash. The following loans were at a 12% interest rate, with interest payable at maturity Loeb repaid each loan on its scheduled maturity date. Date of Loan ------11/1/94 2/1/95 5/1/95 Amount ------$ 5,000 15,000 8,000 Maturity Date -------10/31/95 7/31/95 1/31/96 Term of Loan -------1 year 6 months 9 months

Loeb records interest expense when the loans are repaid. As a result, interest expense of $1,500 was recorded in 1995. If no correction is made, by what amount would 1995 interest expense be understated? A- $540 B- $620 C- $640 D- $720 QUESTION: 48 of 100 SOURCE: CPA Nov 93 I-55 STUDY UNIT: 16 On January 1, 1995, Nori Mining Co. (lessee) entered into a 5-year lease for drilling equipment. Nori accounted for the acquisition as a capital lease for $120,000, which includes a $5,000 bargain purchase option. At the end of the lease, Nori expects to exercise the bargain purchase option. Nori estimates that the equipment's fair value will be $10,000 at the end of its 8-year life. Nori regularly uses straight-line depreciation on similar equipment. For the year ended December 31, 1995, what amount should Nori recognize as depreciation expense on the leased asset?

ABCD-

$13,750 $15,000 $23,000 $24,000

QUESTION: 49 of 100 SOURCE: CPA Nov 89 I-13 STUDY UNIT: 16 Mark Co. bought a franchise from Fred Co. on January 1, 1995 for $204,000. An independent consultant retained by Mark estimated that the remaining ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 12

useful life of the franchise was 50 years. Its unamortized cost on Fred's books at January 1, 1995 was $68,000. Mark has decided to amortize the franchise over the maximum period allowed. What amount should be amortized for the year ended December 31, 1995? A- $5,100 B- $4,080 C- $1,700 D- $1,360 QUESTION: 50 of 100 SOURCE: CPA Nov 94 F-44 STUDY UNIT: 16 During 1995, Orr Co. incurred the following costs: Research and development services performed by Key Corp. for Orr Design, construction, and testing of preproduction prototypes and models Testing in search for new products of process alternatives $150,000 200,000 175,000

In its 1995 income statement, what should Orr report as research and development expense? A- $150,000 B- $200,000 C- $350,000 D- $525,000 QUESTION: 51 of 100 SOURCE: CPA May 92 I-51 STUDY UNIT: 16 West, Inc. made the following expenditures relating to Product Y: Legal costs to file a patent on Product Y -- $10,000. Production of the finished product would not have been undertaken without the patent. Special equipment to be used solely for development of Product Y -- $60,000. The equipment has no other use and has an estimated useful life of 4 years. Labor and material costs incurred in producing a prototype model -- $200,000 Cost of testing the prototype -- $80,000 What is the total amount of costs that will be expensed when incurred? A- $280,000 B- $295,000 C- $340,000 D- $350,000 QUESTION: 52 of 100 SOURCE: CPA May 93 I-47 STUDY UNIT: 16

Hall Co.'s allowance for uncollectible accounts had a credit balance of $24,000 at December 31, 1994. During 1995, Hall wrote off uncollectible accounts of $96,000. The aging of accounts receivable indicated that a $100,000 allowance for doubtful accounts was required at December 31, 1995. What amount of uncollectible accounts expense should Hall report for 1995? A- $172,000 B- $120,000 C- $100,000 D- $96,000 QUESTION: 53 of 100 SOURCE: CPA May 93 I-51 STUDY UNIT: 16 Ward Co. estimates its uncollectible accounts expense to be 2% of credit sales. Ward's credit sales for 1995 were $1,000,000. During 1995, Ward wrote off $18,000 of uncollectible accounts. Ward's allowance for ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 13

uncollectible accounts had a $15,000 balance on January 1, 1995. In its December 31, 1995 income statement, what amount should Ward report as uncollectible accounts expense? A- $23,000 B- $20,000 C- $18,000 D- $17,000 QUESTION: 54 of 100 SOURCE: CPA May 91 I-56 STUDY UNIT: 16 Based on 1995 sales of compact discs recorded by an artist under a contract with Bain Co., the artist earned $100,000 after an adjustment of $8,000 for anticipated returns. In addition, Bain paid the artist $75,000 in 1995 as a reasonable estimate of the amount recoverable from future royalties to be earned by the artist. What amount should Bain report in its 1995 income statement for royalty expense? A- $100,000 B- $108,000 C- $175,000 D- $183,000 QUESTION: 55 of 100 SOURCE: CPA May 90 II-49 STUDY UNIT: 16 On January 1, 1994, Layton Co. acquired the copyright to a book owned by Garner in exchange for royalties of 15% of future book sales. Royalties are payable on September 30 for sales in January through June of the same year, and on March 31 for sales in July through December of the preceding year. During 1994 and 1995, Layton remitted royalty checks to Garner as follows: March 31 ---------$ -22,000 September 30 -----------$25,000 40,000

1994 1995

Layton's sales of the Garner book totaled $300,000 for the last half of 1995. In its 1995 income statement, Layton should report royalty expense of A- $85,000 B- $67,000 C- $62,000 D- $45,000 QUESTION: 56 of 100 SOURCE: CPA May 90 I-57 STUDY UNIT: 16

During 1994, Wall Co. purchased 2,000 shares of Hemp Corp. common stock for $31,500 that are classified as trading securities. The fair value of this investment was $29,500 at December 31, 1994. Wall sold all of the Hemp common stock for $14 per share on December 15, 1995, incurring $1,400 in brokerage commissions and taxes. On the sale, Wall should report a realized loss of A- $4,900 B- $3,500 C- $2,900 D- $1,500 QUESTION: 57 of 100 SOURCE: CPA May 93 T-35 STUDY UNIT: 16 In 1995, hail damaged several of Toncan Co.'s vans. Hailstorms had frequently inflicted similar damage to Toncan's vans. Over the years, Toncan had saved money by not buying hail insurance and either paying for repairs, or selling damaged vans and then replacing them. In 1995, the damaged vans were sold for less than their carrying amount. How should the hail damage cost be reported in Toncan's 1995 financial statements? A- The actual 1995 hail damage loss as an extraordinary loss, net of income taxes. ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 14

B- The actual 1995 hail damage loss in continuing operations, with no separate disclosure. C- The expected average hail damage loss in continuing operations, with no separate disclosure. D- The expected average hail damage loss in continuing operations, with separate disclosure. QUESTION: 58 of 100 SOURCE: CPA Nov 89 I-45 STUDY UNIT: 16 The following data were available from Mith Co.'s records on December 31, 1995: Finished goods inventory, 1/1/95 Finished goods inventory, 12/31/95 Cost of goods manufactured Loss on sale of plant equipment The cost of goods sold for 1995 was A- $510,000 B- $520,000 C- $530,000 D- $580,000 QUESTION: 59 of 100 SOURCE: CPA May 92 I-48 STUDY UNIT: 16 Pak Co.'s professional fees expense account had a balance of $82,000 at December 31, 1991, before considering year-end adjustments relating to the following: Consultants were hired for a special project at a total fee not to exceed $65,000. Pak has recorded $55,000 of this fee based on billings for work performed in 1991. The attorney's letter requested by the auditors dated January 28, 1992 indicated that legal fees of $6,000 were billed on January 15, 1992 for work performed in November 1991, and unbilled fees for December 1991 were $7,000. $120,000 110,000 520,000 50,000

What amount should Pak report for professional fees expense for the year ended December 31, 1991? A- $105,000 B- $95,000 C- $88,000 D- $82,000 QUESTION: 60 of 100 SOURCE: CPA Nov 92 I-52 STUDY UNIT: 16 Kent Co.'s advertising expense account had a balance of $292,500 at December 31, 1991, before any year-end adjustment relating to the following: Included in the $292,500 is the $30,000 cost of printing catalogs for a sales promotional campaign in January 1992. Radio advertising spots broadcast during December 1991 were billed to Kent on January 2, 1992. Kent paid the $17,500 invoice on January 11, 1992. What amount should Kent report as advertising expense in its income statement for the year ended December 31, 1991? A- $310,000 B- $280,000 C- $262,500 D- $245,000 QUESTION: 61 of 100 SOURCE: CPA May 93 I-49 STUDY UNIT: 16 ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 15

Zach Corp. pays commissions to its sales staff at the rate of 3% of net sales. Sales staff are not paid salaries but are given monthly advances of $15,000. Advances are charged to commission expense, and reconciliations against commissions are prepared quarterly. Net sales for the year ended March 31, 1992 were $15,000,000. The unadjusted balance in the commissions expense account on March 31, 1992 was $400,000. March advances were paid on April 3, 1992. In its income statement for the year ended March 31, 1992, what amount should Zach report as commission expense? A- $465,000 B- $450,000 C- $415,000 D- $400,000 QUESTION: 62 of 100 SOURCE: CPA May 92 T-22 STUDY UNIT: 16 A bond issued on June 1, 1991 has interest payment dates of April 1 and October 1. Bond interest expense for the year ended December 31, 1991 is for a period of A- 7 months. B- 6 months. C- 4 months. D- 3 months. QUESTION: 63 of 100 SOURCE: CPA Nov 90 I-41 STUDY UNIT: 16 On January 1, 1990, Korn Co. sold to Kay Corp. $400,000 of its 10% bonds for $354,118 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Korn report as interest expense for the 6 months ended June 30, 1990? A- $17,706

B- $20,000 C- $21,247 D- $24,000 QUESTION: 64 of 100 SOURCE: CPA May 90 T-21 STUDY UNIT: 16 Net income is understated if, in the first year, estimated salvage value is excluded from the depreciation computation when using the Straight-Line Method ------------Yes Yes No No Production or Use Method ------------No Yes No Yes

ABCD-

QUESTION: 65 of 100 SOURCE: CPA May 89 T-17 STUDY UNIT: 16 A machine with a 4-year estimated useful life and an estimated 10% salvage value was acquired on January 1, 1993. The depreciation expense for 1995 using the double-declining-balance (DDB) method is original cost multiplied by A- 90% x 50% x 50% x 50%. B- 50% x 50% x 50%. C- 90% x 50% x 50%. D- 50% x 50%. QUESTION: 66 of 100 SOURCE: CPA May 75 I-1 STUDY UNIT: 16 This questions is based on Information Block number 3 on page 25. If sales and production conform to expectations, what is Miller's depletion expense on this mine for financial accounting purposes for the calendar year 1995? A- $105,000 ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 16

B- $210,000 C- $215,400 D- $420,000 QUESTION: 67 of 100 SOURCE: CPA May 75 I-2 STUDY UNIT: 16 This questions is based on Information Block number 3 on page 25. If sales and production conform to expectations, what is Miller's depreciation expense on the new equipment for financial accounting purposes for the calendar year 1995? A- $4,500 B- $5,400 C- $9,000 D- $10,800 QUESTION: 68 of 100 SOURCE: CPA Nov 90 I-45 STUDY UNIT: 16 Orr Co. prepared an aging of its accounts receivable at December 31, 1995 and determined that the net realizable value of the receivables was $250,000. Additional information is available as follows: Allowance for uncollectible accounts at 1/1/95 -- credit balance Accounts written off as uncollectible $ 28,000

during 1995 Accounts receivable at 12/31/95 Uncollectible accounts recovery during 1995

23,000 270,000 5,000

For the year ended December 31, 1995, Orr's uncollectible accounts expense would be A- $23,000 B- $20,000 C- $15,000 D- $10,000 QUESTION: 69 of 100 SOURCE: CPA May 95 F-34 STUDY UNIT: 16 Which of the following should be included in general and administrative expenses? Interest -------Yes Yes No No Advertising ----------Yes No Yes No

ABCD-

QUESTION: 70 of 100 SOURCE: CPA Nov 93 T-18 STUDY UNIT: 17 On November 1, 1995, Smith Co. contracted to dispose of an industry segment on February 28, 1996. Throughout 1995 the segment had operating losses. These losses were expected to continue until the segment's disposition. If a loss is anticipated on final disposition, how much of the operating losses should be included in the loss on disposal reported in Smith's 1995 income statements? I. Operating losses for the period January 1 to October 31, 1995 II. Operating losses for the period November 1 to December 31, 1995 III. Estimated operating losses for the period January 1 to February 28, 1996 A- II only. B- II and III only. C- I and III only. ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 17

D- I and II only. QUESTION: 71 of 100 SOURCE: CPA May 93 I-57 STUDY UNIT: 17 This questions is based on Information Block number 4 on page 25. In its 1995 income statement, what amount should Maxx report as loss from discontinued operations? A- $980,000 B- $1,330,000 C- $1,400,000 D- $1,900,000 QUESTION: 72 of 100 SOURCE: CPA May 93 I-58 STUDY UNIT: 17 This questions is based on Information Block number 4 on page 25. In its 1995 income statement, what amount should Maxx report as loss on disposal of discontinued operations? A- $210,000

B- $300,000 C- $560,000 D- $800,000 QUESTION: 73 of 100 SOURCE: CPA May 91 T-25 STUDY UNIT: 17 A transaction that is unusual, but not infrequent, should be reported separately as a(n) A- Extraordinary item, net of applicable income taxes. B- Extraordinary item, but not net of applicable income taxes. C- Component of income from continuing operations, net of applicable income taxes. D- Component of income from continuing operations, but not net of applicable income taxes. QUESTION: 74 of 100 SOURCE: CPA Nov 91 T-23 STUDY UNIT: 17 In 1995, Teller Co. incurred losses arising from its guilty plea in its first antitrust action, and from a substantial increase in production costs caused when a major supplier's workers went on strike. Which of these losses should be reported as an extraordinary item? Antitrust Action ---------------No No Yes Yes Production Costs ---------------No Yes No Yes

ABCD-

QUESTION: 75 of 100 SOURCE: CPA May 93 I-59 STUDY UNIT: 17 Midway Co. had the following transactions during 1995: $1,200,000 pretax loss on foreign currency exchange caused by a major unexpected devaluation by the foreign government $500,000 pretax loss from discontinued operations of a division $800,000 pretax loss on equipment damaged by a hurricane. This was the first hurricane ever to strike in Midway's area. Midway also received $1,000,000 from its insurance company to replace a building, with a carrying value of $300,000, that had been destroyed by the hurricane. What amount should Midway report in its 1995 income statement as extraordinary loss before income taxes? A- $100,000 B- $1,300,000 C- $1,800,000 ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 18

D- $2,500,000 QUESTION: 76 of 100 SOURCE: CPA Nov 94 F-54 STUDY UNIT: 17 How should the effect of a change in accounting estimate be accounted for? A- By restating amounts reported in financial statements of prior periods. B- By reporting pro forma amounts for prior periods. C- As a prior period adjustment to beginning retained earnings. D- In the period of change and future periods if the change affects both. QUESTION: 77 of 100 SOURCE: CPA Nov 90 I-51 STUDY UNIT: 17

On January 1, 1992, Flax Co. purchased a machine for $528,000 and depreciated it by the straight-line method using an estimated useful life of 8 years with no salvage value. On January 1, 1995, Flax determined that the machine had a useful life of 6 years from the date of acquisition and will have a salvage value of $48,000. An accounting change was made in 1995 to reflect the additional data. The accumulated depreciation for this machine should have a balance at December 31, 1995 of A- $292,000 B- $308,000 C- $320,000 D- $352,000 QUESTION: 78 of 100 SOURCE: CPA May 93 T-20 STUDY UNIT: 17 On August 31, 1995, Harvey Co. decided to change from the FIFO periodic inventory system to the weighted-average periodic inventory system. Harvey is on a calendar-year basis. The cumulative effect of the change is determined A- As of January 1, 1995. B- As of August 31, 1995. C- During the 8 months ending August 31, 1995 by a weighted average of the purchases. D- During 1995 by a weighted average of the purchases. QUESTION: 79 of 100 SOURCE: CPA Nov 93 I-4 STUDY UNIT: 17 On January 2, 1995, to better reflect the variable use of its only machine, Holly, Inc. elected to change its method of depreciation from the straightline method to the units-of-production method. The original cost of the machine on January 2, 1993 was $50,000, and its estimated life was 10 years. Holly estimates that the machine's total life is 50,000 machine hours. Machine hours usage was 8,500 during 1994 and 3,500 during 1993. Holly's income tax rate is 30%. Holly should report the accounting change in its 1995 financial statements as a(n) A- Cumulative effect of a change in accounting principle of $2,000 in its income statement. B- Adjustment to beginning retained earnings of $2,000. C- Cumulative effect of a change in accounting principle of $1,400 in its income statement. D- Adjustment to beginning retained earnings of $1,400. QUESTION: 80 of 100 SOURCE: CPA May 94 F-39 STUDY UNIT: 17 Which of the following statements is correct regarding 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 changes involve consolidated methods of accounting for subsidiaries. C- No restatements or adjustments are required if the changes involve the cost or equity methods of accounting for investments. D- The financial statements of all prior periods presented should be ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 19

restated. QUESTION: 81 of 100 SOURCE: CPA May 92 I-60 STUDY UNIT: 17 On June 30, 1994, Lomond, Inc. issued twenty $10,000, 7% bonds at par. Each

bond was convertible into 200 shares of common stock. On January 1, 1995, 10,000 shares of common stock were outstanding. The bondholders converted all the bonds on July 1, 1995. On the bonds' issuance date, the average Aa corporate bond yield was 12%. During 1995, the average Aa corporate bond yield was 9%. The following amounts were reported in Lomond's income statement for the year ended December 31, 1995: Revenues Operating expenses Interest on bonds Income before income tax Income tax at 30% Net income $977,000 920,000 7,000 -------50,000 15,000 -------$ 35,000

What amount should Lomond report as its 1995 primary earnings per share? A- $2.50 B- $2.85 C- $3.00 D- $3.50 QUESTION: 82 of 100 SOURCE: CPA Nov 90 I-52 STUDY UNIT: 17 Poe Co. had 300,000 shares of common stock issued and outstanding at December 31, 1994. No common stock was issued during 1995. On January 1, 1995, Poe issued 200,000 shares of nonconvertible preferred stock. During 1995, Poe declared and paid $75,000 of cash dividends on the common stock and $60,000 on the preferred stock. Net income for the year ended December 31, 1995 was $330,000. What should be Poe's 1995 earnings per common share? A- $1.10 B- $0.90 C- $0.85 D- $0.65 QUESTION: 83 of 100 SOURCE: CPA May 89 T-25 STUDY UNIT: 17 Antidilutive stock options are ordinarily used in the calculation of Primary Earnings per Share -----------------Yes Yes No No Fully Diluted Earnings per Share -----------------Yes No No Yes

ABCD-

QUESTION: 84 of 100 SOURCE: CPA Nov 89 I-54 STUDY UNIT: 17 Jones Corp.'s capital structure was as follows: December 31 ----------1995 1994 ---------- ---------Outstanding shares of stock: Common 110,000 110,000 Convertible preferred 10,000 10,000 ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 20

8% convertible bonds

$1,000,000

$1,000,000

During 1995, Jones paid dividends of $3.00 per share on its preferred stock. The preferred shares are convertible into 20,000 shares of common stock and are considered common stock equivalents. The 8% bonds are convertible into 30,000 shares of common stock but are not considered common stock equivalents. Net income for 1995 was $850,000. Assume that the income tax rate is 30%. The fully diluted earnings per share for 1995 is A- $5.48 B- $5.66 C- $5.81 D- $6.26 QUESTION: 85 of 100 SOURCE: CPA May 90 T-26 STUDY UNIT: 17 On September 30, 1995, a commitment was made to dispose of a business segment in early 1996. The segment operating loss for the period October 1 to December 31, 1995 should be included in the 1995 income statement as part of A- Loss on disposal of the discontinued segment. B- Operating loss of the discontinued segment. C- Income or loss from continuing operations. D- Extraordinary gains or losses. QUESTION: 86 of 100 SOURCE: CPA Nov 90 T-38 STUDY UNIT: Whetstone Co. took advantage of market conditions to refund refunding operation was the fourth carried out by Whetstone 3 years. The excess of the carrying amount of the old debt paid to extinguish it should be reported as a(n) A- Extraordinary gain, net of income taxes. B- Extraordinary loss, net of income taxes. C- Part of continuing operations. D- Deferred credit to be amortized over the life of the new 17 debt. This within the last over the amount

debt.

QUESTION: 87 of 100 SOURCE: CPA May 90 I-58 STUDY UNIT: 17 Witt Co. incurred the following infrequent losses during 1995: $175,000 from a major strike by employees. $150,000 from an early extinguishment of debt. $125,000 from the abandonment of equipment used in the business. In Witt's 1995 income statement, the total amount of infrequent losses not considered extraordinary A- $275,000 B- $300,000 C- $325,000 D- $450,000 QUESTION: 88 of 100 SOURCE: CPA Nov 91 I-50 STUDY UNIT: 17 This questions is based on Information Block number 5 on page 25. Before income taxes, what amount of gain (loss) should be reported separately as a component of income from continuing operations in 1990? A- $260,000 B- $5,000 C- $(255,000) D- $(350,000) QUESTION: 89 of 100 SOURCE: CPA Nov 91 I-51 STUDY UNIT: 17 This questions is based on Information Block number 5 on page 25. Before income taxes, what amount should be disclosed as the gain (loss) from

extraordinary items in 1990? A- $260,000 ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 21

B- $5,000 C- $(90,000) D- $(350,000) QUESTION: 90 of 100 SOURCE: CPA Nov 89 I-50 STUDY UNIT: 17 Lowe Corp. had the following gains, net of applicable taxes, during 1995: Foreign currency transaction gain resulting from major devaluation Gain from early extinguishment of Lowe's debt $175,000 250,000

What amount should Lowe report as extraordinary gains in its 1995 income statement? A- $425,000 B- $250,000 C- $175,000 D- $0 QUESTION: 91 of 100 SOURCE: CPA Nov 92 I-59 STUDY UNIT: 17 On October 15, 1991, Kam Corp. informed Finn Co. that Kam would be unable to repay its $100,000 note due on October 31 to Finn. Finn agreed to accept title to Kam's computer equipment in full settlement of the note. The equipment's carrying value was $80,000 and its fair value was $75,000. Kam's tax rate is 30%. What amounts should Kam report as ordinary gain (loss) and extraordinary gain for the year ended September 30, 1992? Ordinary Gain (Loss) -------------------$(5,000) $0 $0 $20,000 Extraordinary Gain -----------------$17,500 $20,000 $14,000 $0 STUDY UNIT: 17 cost because additional by restating the financial in the period of change and

ABCD-

QUESTION: 92 of 100 SOURCE: CPA May 89 T-29 A change in the periods benefited by a deferred information has been obtained is A- A correction of an error. B- An accounting change that should be reported statements of all prior periods presented. C- An accounting change that should be reported future periods if the change affects both. D- Not an accounting change.

QUESTION: 93 of 100 SOURCE: CPA Nov 93 T-26 STUDY UNIT: 17 The cumulative effect of changing to a new accounting principle should be recorded separately as a component of income after continuing operations for a change from the A- Cash basis of accounting for vacation pay to the accrual basis. B- Straight-line method of depreciation for previously recorded assets to the double-declining-balance method. C- Presentation of statements of individual companies to their inclusion in

consolidated statements. D- Completed-contract method of accounting for long-term construction-type contracts to the percentage-of-completion method. QUESTION: 94 of 100 SOURCE: CPA May 93 I-53 STUDY UNIT: 17 This questions is based on Information Block number 6 on page 26. In its 1992 income statement, what amount should Warren report as the cumulative effect of this change? ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 22

ABCD-

$120,000 $84,000 $36,000 $0

QUESTION: 95 of 100 SOURCE: CPA May 93 I-54 STUDY UNIT: 17 This questions is based on Information Block number 6 on page 26. On January 1, 1992, what amount should Warren report as deferred income tax liability as a result of the change? A- $120,000 B- $72,000 C- $36,000 D- $0 QUESTION: 96 of 100 SOURCE: CPA May 89 I-52 STUDY UNIT: 17 On January 1, 1995, Roem Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in a $500,000 increase in the January 1, 1995 inventory. Assume that the income tax rate for all years is 30%. The cumulative effect of the accounting change should be reported by Roem in its 1995 A- Retained earnings statement as a $350,000 addition to the beginning balance. B- Income statement as a $350,000 cumulative effect of an accounting change. C- Retained earnings statement as a $500,000 addition to the beginning balance. D- Income statement as a $500,000 cumulative effect of an accounting change. QUESTION: 97 of 100 SOURCE: CPA Nov 87 I-41 STUDY UNIT: 17 On October 1, 1995, Poe Corporation's operating plant, located in Kansas, was destroyed by an earthquake. The portion of the resulting loss not covered by insurance was $1,400,000. Poe's income tax rate for 1995 is 40%. In Poe's income statement for the year ended December 31, 1995, this event should be reported as an extraordinary loss of A- $0. B- $560,000. C- $840,000. D- $1,400,000. QUESTION: 98 of 100 SOURCE: CPA May 86 I-51 STUDY UNIT: 17 On December 31, 1994, Case, Inc. had 300,000 shares of common stock issued and outstanding. Case issued a 10% stock dividend on July 1, 1995. On October 1, 1995, Case purchased 24,000 shares of its common stock for its treasury, and recorded the purchase by the cost method. What number of shares should be used in computing earnings per share for the year ended December 31, 1995? A- 306,000

B- 309,000 C- 324,000 D- 330,000 QUESTION: 99 of 100 SOURCE: CPA May 95 F-44 STUDY UNIT: 17 On October 1, 1994, Host Co. approved a plan to dispose of a segment of its business. Host expected that the sale would occur on April 1, 1995, at an estimated gain of $350,000. The segment had actual and estimated operating losses as follows: 1/1/94 to 9/30/94 10/1/94 to 12/31/94 1/1/95 to 3/31/95 $(300,000) (200,000) (400,000)

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In of ABCD-

its 1994 income statement, what should Host report as a loss on disposal the segment before income taxes? $200,000 $250,000 $500,000 $600,000

QUESTION: 100 of 100 SOURCE: CPA Nov 95 F-45 STUDY UNIT: 17 Ute Co. had the following capital structure during 1993 and 1994: Preferred stock, $10 par, 4% cumulative, 25,000 shares issued and outstanding Common stock, $5 par, 200,000 shares issued and outstanding

$ 250,000 1,000,000

Preferred stock is not considered a common stock equivalent. Ute reported net income of $500,000 for the year ended December 31, 1994. Ute paid no preferred dividends during 1993 and paid $16,000 in preferred dividends during 1994. In its December 31, 1994, income statement, what amount should Ute report as earnings per share? A- $2.42 B- $2.45 C- $2.48 D- $2.50

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Information Block number 1 On December 12, 1995, Imp Co. entered into three forward exchange contracts, each to purchase 100,000 francs in 90 days. The relevant exchange rates are as follows: Forward Rate Spot Rate (for 3/12/96) ---------- ------------$.88 $.90 .98 .93

December 12, 1995 December 31, 1995

Information Block number 2 Vane Co.'s trial balance of income statement accounts for the year ended December 31, 1995, included the following: Debit -------Sales Cost of Sales Administrative expenses Loss on sale of equipment Sales Commissions Interest Revenue Freight-out Loss on early retirement of long-term debt Uncollectible accounts expense $240,000 70,000 10,000 50,000 25,000 15,000 20,000 15,000 -------$420,000 -------$600,000 Credit -------$575,000

Other Information

----------------Finished Goods Inventory January 1, 1995 December 31, 1995

$400,000 360,000

Information Block number 3 Miller Mining, a calendar-year corporation, purchased the rights to a copper mine on July 1, 1995. Of the total purchase price, $2,800,000 was appropriately allocable to the copper. Estimated reserves were 800,000 tons of copper. Miller expects to extract and sell 10,000 tons of copper per month. Production began immediately. The selling price is $25 per ton. Miller uses percentage depletion (15%) for tax purposes. To aid production, Miller also purchased some new equipment on July 1, 1988. The equipment cost $76,000 and had an estimated useful life of 8 years. After all the copper is removed from this mine, however, the equipment will be of no use to Miller and will be sold for an estimated $4,000. Information Block number 4 On December 31, 1995, the board of directors of Maxx Manufacturing, Inc. committed to a plan to discontinue the operations of its Alpha division in 1996. Maxx estimated that Alpha's 1996 operating loss would be $500,000 and that Alpha's facilities would be sold for $300,000 less than their carrying amounts. Alpha's 1995 operating loss was $1,400,000. Maxx's effective tax rate is 30%. ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 25

Information Block number 5 Fuqua Steel Co. had the following unusual financial events occur during 1990: Bonds payable were retired 5 years before their scheduled maturity, resulting in a $260,000 gain. Fuqua has frequently retired bonds early when interest rates declined significantly. A steel forming segment suffered $255,000 in losses from hurricane damage. This was the fourth similar loss sustained in a 5-year period at that location. A segment of Fuqua's operations, steel transportation, was sold at a net loss of $350,000. This was Fuqua's first divestiture of one of its operating segments. Information Block number 6 On January 1, 1990, Warren Co. purchased a $600,000 machine, with a 5-year useful life and no salvage value. The machine was depreciated by an accelerated method for book and tax purposes. The machine's carrying amount was $240,000 on December 31, 1991. On January 1, 1992, Warren changed retroactively to the straight-line method for financial statement purposes. Warren can justify the change. Warren's income tax rate is 30%.

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A N S W E R S H E E T Gleim's CPA Test Prep software for the Financial section of the CPA exam. Total Questions: 100 Question Correct Number Answer Source Section ========================================================================= 1 D CPA Nov 94 F-58 Revenues and Gains ------------------------------------------------------------------------2 A CPA May 92 I-39 Revenues and Gains ------------------------------------------------------------------------3 A CPA Nov 91 I-40 Revenues and Gains ------------------------------------------------------------------------4 A CPA May 93 I-38 Revenues and Gains ------------------------------------------------------------------------5 D CPA May 88 T-23 Revenues and Gains ------------------------------------------------------------------------6 D CPA May 94 F-41 Revenues and Gains ------------------------------------------------------------------------7 C CPA Nov 92 I-43 Revenues and Gains -------------------------------------------------------------------------

8 C CPA Nov 91 I-41 Revenues and Gains ------------------------------------------------------------------------9 B CPA Nov 89 I-38 Revenues and Gains ------------------------------------------------------------------------10 C CPA Nov 90 I-35 Revenues and Gains ------------------------------------------------------------------------11 D CPA Nov 92 I-44 Revenues and Gains ------------------------------------------------------------------------12 A CPA Nov 90 I-37 Revenues and Gains ------------------------------------------------------------------------13 B CPA May 92 T-39 Revenues and Gains ------------------------------------------------------------------------14 B CPA Nov 93 T-35 Revenues and Gains ------------------------------------------------------------------------15 A CPA Nov 88 T-25 Revenues and Gains ------------------------------------------------------------------------16 B CPA Nov 92 I-50 Revenues and Gains ------------------------------------------------------------------------17 B CPA Nov 89 I-34 Revenues and Gains ------------------------------------------------------------------------18 B CPA May 90 T-20 Revenues and Gains ------------------------------------------------------------------------19 B CPA Nov 90 T-37 Revenues and Gains ------------------------------------------------------------------------20 D CPA May 89 I-51 Revenues and Gains ------------------------------------------------------------------------21 D CPA Nov 88 I-34 Revenues and Gains ------------------------------------------------------------------------22 B CPA May 92 I-37 Revenues and Gains ------------------------------------------------------------------------23 B CPA May 91 T-22 Revenues and Gains ------------------------------------------------------------------------24 C CPA Nov 93 T-40 Revenues and Gains ------------------------------------------------------------------------25 D CPA Nov 93 I-43 Revenues and Gains ------------------------------------------------------------------------26 B CPA Nov 92 I-41 Revenues and Gains ------------------------------------------------------------------------------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 27

27 D CPA May 90 II-41 Revenues and Gains ------------------------------------------------------------------------28 D CPA Nov 91 T-5 Revenues and Gains ------------------------------------------------------------------------29 B CPA May 93 I-39 Revenues and Gains ------------------------------------------------------------------------30 C CPA Nov 89 I-37 Revenues and Gains ------------------------------------------------------------------------31 C CPA Nov 90 T-26 Revenues and Gains ------------------------------------------------------------------------32 D CPA Nov 91 T-10 Revenues and Gains ------------------------------------------------------------------------33 D CPA Nov 90 I-36 Revenues and Gains ------------------------------------------------------------------------34 B CPA May 92 I-44 Revenues and Gains -------------------------------------------------------------------------

35 A CPA Nov 88 I-40 Revenues and Gains ------------------------------------------------------------------------36 C CPA Nov 93 T-14 Revenues and Gains ------------------------------------------------------------------------37 C CPA May 90 II-44 Revenues and Gains ------------------------------------------------------------------------38 B CPA Nov 93 I-49 Revenues and Gains ------------------------------------------------------------------------39 C CPA May 85 T-32 Revenues and Gains ------------------------------------------------------------------------40 D CPA Nov 90 I-43 Revenues and Gains ------------------------------------------------------------------------41 B CPA May 95 F-31 Revenues and Gains ------------------------------------------------------------------------42 C CPA Nov 95 F-24 Revenues and Gains ------------------------------------------------------------------------43 D CPA Nov 95 F-34 Revenues and Gains ------------------------------------------------------------------------44 A CPA May 94 F-9 Expenses and Losses ------------------------------------------------------------------------45 A CPA May 90 I-49 Expenses and Losses ------------------------------------------------------------------------46 C CPA Nov 93 T-33 Expenses and Losses ------------------------------------------------------------------------47 A CPA Nov 91 I-54 Expenses and Losses ------------------------------------------------------------------------48 A CPA Nov 93 I-55 Expenses and Losses ------------------------------------------------------------------------49 A CPA Nov 89 I-13 Expenses and Losses ------------------------------------------------------------------------50 D CPA Nov 94 F-44 Expenses and Losses ------------------------------------------------------------------------51 C CPA May 92 I-51 Expenses and Losses ------------------------------------------------------------------------52 A CPA May 93 I-47 Expenses and Losses ------------------------------------------------------------------------53 B CPA May 93 I-51 Expenses and Losses ------------------------------------------------------------------------54 A CPA May 91 I-56 Expenses and Losses ------------------------------------------------------------------------55 A CPA May 90 II-49 Expenses and Losses ------------------------------------------------------------------------56 C CPA May 90 I-57 Expenses and Losses ------------------------------------------------------------------------------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 28

57 B CPA May 93 T-35 Expenses and Losses ------------------------------------------------------------------------58 C CPA Nov 89 I-45 Expenses and Losses ------------------------------------------------------------------------59 B CPA May 92 I-48 Expenses and Losses ------------------------------------------------------------------------60 B CPA Nov 92 I-52 Expenses and Losses ------------------------------------------------------------------------61 B CPA May 93 I-49 Expenses and Losses -------------------------------------------------------------------------

62 A CPA May 92 T-22 Expenses and Losses ------------------------------------------------------------------------63 C CPA Nov 90 I-41 Expenses and Losses ------------------------------------------------------------------------64 B CPA May 90 T-21 Expenses and Losses ------------------------------------------------------------------------65 B CPA May 89 T-17 Expenses and Losses ------------------------------------------------------------------------66 B CPA May 75 I-1 Expenses and Losses ------------------------------------------------------------------------67 B CPA May 75 I-2 Expenses and Losses ------------------------------------------------------------------------68 D CPA Nov 90 I-45 Expenses and Losses ------------------------------------------------------------------------69 D CPA May 95 F-34 Expenses and Losses ------------------------------------------------------------------------70 B CPA Nov 93 T-18 Other Income Statement Items ------------------------------------------------------------------------71 A CPA May 93 I-57 Other Income Statement Items ------------------------------------------------------------------------72 C CPA May 93 I-58 Other Income Statement Items ------------------------------------------------------------------------73 D CPA May 91 T-25 Other Income Statement Items ------------------------------------------------------------------------74 C CPA Nov 91 T-23 Other Income Statement Items ------------------------------------------------------------------------75 A CPA May 93 I-59 Other Income Statement Items ------------------------------------------------------------------------76 D CPA Nov 94 F-54 Other Income Statement Items ------------------------------------------------------------------------77 A CPA Nov 90 I-51 Other Income Statement Items ------------------------------------------------------------------------78 A CPA May 93 T-20 Other Income Statement Items ------------------------------------------------------------------------79 C CPA Nov 93 I-4 Other Income Statement Items ------------------------------------------------------------------------80 D CPA May 94 F-39 Other Income Statement Items ------------------------------------------------------------------------81 B CPA May 92 I-60 Other Income Statement Items ------------------------------------------------------------------------82 B CPA Nov 90 I-52 Other Income Statement Items ------------------------------------------------------------------------83 C CPA May 89 T-25 Other Income Statement Items ------------------------------------------------------------------------84 B CPA Nov 89 I-54 Other Income Statement Items ------------------------------------------------------------------------85 A CPA May 90 T-26 Other Income Statement Items ------------------------------------------------------------------------86 A CPA Nov 90 T-38 Other Income Statement Items ------------------------------------------------------------------------------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 29

87 B CPA May 90 I-58 Other Income Statement Items ------------------------------------------------------------------------88 C CPA Nov 91 I-50 Other Income Statement Items -------------------------------------------------------------------------

89 A CPA Nov 91 I-51 Other Income Statement Items ------------------------------------------------------------------------90 B CPA Nov 89 I-50 Other Income Statement Items ------------------------------------------------------------------------91 A CPA Nov 92 I-59 Other Income Statement Items ------------------------------------------------------------------------92 C CPA May 89 T-29 Other Income Statement Items ------------------------------------------------------------------------93 B CPA Nov 93 T-26 Other Income Statement Items ------------------------------------------------------------------------94 B CPA May 93 I-53 Other Income Statement Items ------------------------------------------------------------------------95 C CPA May 93 I-54 Other Income Statement Items ------------------------------------------------------------------------96 A CPA May 89 I-52 Other Income Statement Items ------------------------------------------------------------------------97 C CPA Nov 87 I-41 Other Income Statement Items ------------------------------------------------------------------------98 C CPA May 86 I-51 Other Income Statement Items ------------------------------------------------------------------------99 B CPA May 95 F-44 Other Income Statement Items ------------------------------------------------------------------------100 B CPA Nov 95 F-45 Other Income Statement Items -------------------------------------------------------------------------

------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). CPA exam questions are copyright (c) by the AICPA and are reproduced/adapted with permission. Page 30