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

Total Questions: 100 QUESTION: 1 of 100 SOURCE: CPA May 94 F-12 STUDY UNIT: 03 The following information pertains to Grey Co. at December 31, 1995: Checkbook balance Bank statement balance Check drawn on Grey's account, payable to a vendor, dated and recorded 12/31/95 but not mailed until 1/10/96 $12,000 16,000 1,800

On Grey's December 31, 1995 balance sheet, what amount should be reported as cash? A- $12,000 B- $13,800 C- $14,200 D- $16,000 QUESTION: 2 of 100 SOURCE: CPA May 94 F-13 STUDY UNIT: 03 At December 31, 1995, Kale Co. had the following balances in the accounts it maintains at First State Bank: Checking account #101 Checking account #201 Money market account 90-day certificate of deposit due 2/28/96 180-day certificate of deposit due 3/15/96 $175,000 (10,000) 25,000 50,000 80,000

Kale classifies investments with original maturities of three months or less as cash equivalents. In its December 31, 1995 balance sheet, what amount should Kale report as cash and cash equivalents? A- $190,000 B- $200,000 C- $240,000 D- $320,000 QUESTION: 3 of 100 SOURCE: CPA Nov 88 I-1 STUDY UNIT: 03 Burr Company had the following account balances at December 31, 1995: Cash Cash Cash to in in banks $2,250,000 on hand 125,000 legally restricted for additions plant (expected to be disbursed 1996) 1,600,000

Cash in banks includes $600,000 of compensating balances against short-term borrowing arrangements. The compensating balances are not legally restricted as to withdrawal by Burr. In the current assets section of Burr's December 31, 1995 balance sheet, total cash should be reported at A- $1,775,000 B- $2,250,000 C- $2,375,000 D- $3,975,000 QUESTION: 4 of 100 SOURCE: CPA Nov 91 I-8 STUDY UNIT: 03 On December 31, 1995, Ott Co. had investments in trading securities as

follows: ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 1

Man Co. Kemo, Inc. Fenn Corp.

Cost ------$10,000 9,000 11,000 ------$30,000

Fair Value ------$ 8,000 11,000 9,000 ------$28,000

Ott's December 31, 1995 balance sheet should report the trading securities as A- $26,000 B- $28,000 C- $29,000 D- $30,000 QUESTION: 5 of 100 SOURCE: CPA Nov 89 I-3 STUDY UNIT: 03 Jay Company acquired a wholly-owned foreign subsidiary on January 1, 1995. The shareholders' equity section of the December 31, 1995 consolidated balance sheet follows: Common stock Additional paid-in capital Retained earnings Minus: Contra accounts Total shareholders' equity $ 500,000 200,000 900,000 ---------$1,600,000 600,000 ---------$1,000,000

The contra account balance appropriately represents adjustments in translating the foreign subsidiary's financial statements into U.S. dollars. The consolidated income statement for 1995 included the excess of cost of investments in certain debt and equity securities over their fair values, which is considered temporary, as follows: Available-for-sale securities Trading securities $200,000 $100,000

The correct amounts for retained earnings and the contra accounts in the consolidated statement of shareholders' equity for the year ended December 31, 1995 are Retained Earnings ----------------$ 900,000 $1,000,000 $1,100,000 $1,200,000 Contra Accounts --------------$600,000 $700,000 $800,000 $900,000

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QUESTION: 6 of 100 SOURCE: CPA May 94 F-43 STUDY UNIT: 03 Jent Corp. purchased bonds at a discount of $10,000. Subsequently, Jent sold these bonds at a premium of $14,000. During the period that Jent held this investment, amortization of the discount amounted to $2,000. What amount should Jent report as gain on the sale of bonds? A- $12,000 B- $22,000 ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 2

C- $24,000 D- $26,000 QUESTION: 7 of 100 SOURCE: CPA Nov 93 I-14 STUDY UNIT: 03 Pare, Inc. purchased 10% of Tot Co.'s 100,000 outstanding shares of common stock on January 2, 1995 for $50,000. On December 31, 1995, Pare purchased an additional 20,000 shares of Tot for $150,000. There was no goodwill as a result of either acquisition, and Tot had not issued any additional stock during 1995. Tot reported earnings of $300,000 for 1995 What amount should Pare report in its December 31, 1995 balance sheet as investment in Tot? A- $170,000 B- $200,000 C- $230,000 D- $290,000 QUESTION: 8 of 100 SOURCE: CPA Nov 93 T-9 STUDY UNIT: 03 Peel Co. received a cash dividend from a common stock investment. Should Peel report an increase in the investment account if it uses the cost method or the equity method of accounting? Cost ---No Yes Yes No Equity -----No Yes No Yes

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QUESTION: 9 of 100 SOURCE: CPA Nov 91 T-36 STUDY UNIT: 03 An issuer of bonds uses a sinking fund for the retirement of the bonds. Cash was transferred to the sinking fund and subsequently used to purchase investments. The sinking fund I. Increases by revenue earned on the investments II. Is not affected by revenue earned on the investments III. Decreases when the investments are purchased A- I only. B- I and III. C- II and III. D- III only. QUESTION: 10 of 100 SOURCE: CPA May 93 I-16 STUDY UNIT: 03 The following information relates to noncurrent investments that Fall Corp. placed in trust as required by the underwriter of its bonds: Bond sinking-fund balance, 12/31/94 1995 additional investment $ 450,000 90,000

Dividends on investments Interest revenue Administration costs Carrying amount of bonds payable

15,000 30,000 5,000 1,025,000

What amount should Fall report in its December 31, 1995 balance sheet related to its noncurrent investment for bond sinking-fund requirements? A- $585,000 B- $580,000 C- $575,000 D- $540,000 QUESTION: 11 of 100 SOURCE: CPA Nov 88 I-14 STUDY UNIT: 03 On January 15, 1994, Carr Corp. adopted a plan to accumulate funds for ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 3

environmental improvements beginning July 1, 1998 at an estimated cost of $2,000,000. Carr plans to make four equal annual deposits in a fund that will earn interest at 10% compounded annually. The first deposit was made on July 1, 1994. Future value factors are as follows: Future value Future value at 10% for Future value at 10% for of 1 at 10% for five periods of ordinary annuity of 1 four periods of annuity in advance of 1 four periods 1.61 4.64 5.11

Carr should make four annual deposits (rounded) of A- $320,000 B- $391,400 C- $431,000 D- $500,000 QUESTION: 12 of 100 SOURCE: CPA Nov 94 F-46 STUDY UNIT: 03 An increase in the cash surrender value of a life insurance policy owned by a company would be recorded by A- Decreasing annual insurance expense. B- Increasing investment income. C- Recording a memorandum entry only. D- Decreasing a deferred charge. QUESTION: 13 of 100 SOURCE: CPA Nov 90 I-3 STUDY UNIT: 03 On January 2, 1992, Beal, Inc. acquired a $70,000 whole-life insurance policy on its president. The annual premium is $2,000. The company is the owner and beneficiary. Beal charged officer's life insurance expense as follows: 1992 1993 1994 1995 ----Total $2,000 1,800 1,500 1,100 -----$6,400

In Beal's December 31, 1995 balance sheet, the investment in cash surrender

value should be A- $0 B- $1,600 C- $6,400 D- $8,000 QUESTION: 14 of 100 SOURCE: CPA Nov 90 I-1 STUDY UNIT: 03 In preparing its August 31, 1990 bank reconciliation, Apex Corp. has available the following information: Balance per bank statement, 8/31/90 Deposit in transit, 8/31/90 Return of customer's check for insufficient funds, 8/31/90 Outstanding checks, 8/31/90 Bank service charges for August $18,050 3,250 600 2,750 100

At August 31, 1990, Apex's correct cash balance is A- $18,550 B- $17,950 ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 4

C- $17,850 D- $17,550 QUESTION: 15 of 100 SOURCE: CPA May 93 T-22 STUDY UNIT: 03 When the fair value of an investment in debt securities exceeds its carrying amount, how should each of the following assets be reported at the end of the year? Held-to-Maturity Securities ---------------Fair value Carrying amount Carrying amount Fair value Available-for-Sale Securities -----------------Carrying amount Fair value Carrying amount Fair value

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QUESTION: 16 of 100 SOURCE: CPA Nov 90 T-6 STUDY UNIT: 03 On December 29, 1995, BJ Co. sold an equity security, not accounted for under the equity method, that had been purchased on January 4, 1994. BJ owned no other security. An unrealized loss was reported in the 1994 income statement. A realized gain was reported in the 1995 income statement. Was the security classified as an available-for-sale security and did its 1994 fair value decline exceed its 1995 fair value recovery? 1994 Fair Value Decline Exceeded 1995 Fair Value Recovery --------------------Yes No Yes Indeterminate SOURCE: CPA Nov 90 I-29 STUDY UNIT: 03

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Available-for-Sale -----------------Yes Yes No No

QUESTION: 17 of 100

At December 31, 1994, Hull Corp. had the following equity securities that were purchased during 1994, its first year of operations: Cost -------In Current Assets: Security A Security B Totals In Noncurrent Assets: Security Y Security Z Totals $ 90,000 15,000 -------$105,000 $ 70,000 90,000 -------$160,000 Fair Value -------$60,000 20,000 -------$80,000 $ 80,000 45,000 -------$125,000 Unrealized gain (loss) ---------$(30,000) 5,000 -------$(25,000) $ 10,000 (45,000) -------$(35,000)

All changes in fair value are considered temporary. Security A is a trading security, and the other securities are available-for-sale securities. What amounts should be charged to income and shareholders' equity at December 31, 1994? ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 5

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Income ------$60,000 $30,000 $25,000 $25,000

Shareholders' Equity ------------$0 $30,000 $30,000 $0

QUESTION: 18 of 100 SOURCE: CPA May 92 I-13 STUDY UNIT: 03 Reed, Inc. began operations on January 1, 1994. The following information pertains to Reed's December 31, 1994 securities: Trading -------$360,000 320,000 304,000 Availablefor-Sale --------$550,000 450,000 420,000

Cost Fair value Lower of cost or fair value applied to each security

If the declines are judged to be temporary, what amounts should Reed report for its trading and available-for-sale securities in the assets section of its December 31, 1994 balance sheet? Trading -------A- $360,000 B- $360,000 Available-for-Sale -----------------$550,000 $450,000

C- $320,000 D- $304,000

$450,000 $420,000

QUESTION: 19 of 100 SOURCE: CPA May 93 I-4 STUDY UNIT: 03 This questions is based on Information Block number 1 on page 26. What amount should Sun report as net unrealized loss on available-for-sale securities in its 1995 statement of shareholders' equity? A- $40,000 B- $45,000 C- $85,000 D- $160,000 QUESTION: 20 of 100 SOURCE: CPA May 86 I-47 STUDY UNIT: 03 On January 1, 1990, Ball, Inc. purchased a $1,000,000 ordinary life insurance policy on its president. The policy year and Ball's accounting year coincide. Additional data are available for the year ended December 31, 1995: Cash surrender value, 1/1/95 Cash surrender value, 12/31/95 Annual advance premium paid 1/1/95 Dividend received 7/1/95 $43,500 54,000 20,000 3,000

Ball, Inc. is the beneficiary under the life insurance policy. How much should Ball report as life insurance expense for 1995? A- $6,500 B- $9,500 C- $17,000 D- $20,000 QUESTION: 21 of 100 SOURCE: CPA Nov 95 F-27 STUDY UNIT: 03 This questions is based on Information Block number 2 on page 26. ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 6

In Grant's December 31, 1993, balance sheet, what should be the carrying amount of this investment? A- $200,000 B- $209,000 C- $224,000 D- $230,000 QUESTION: 22 of 100 SOURCE: CPA Nov 95 F-35 STUDY UNIT: 03 Upon the death of an officer, Jung Co. received the proceeds of a life insurance policy held by Jung on the officer. The proceeds were not taxable. The policy's cash surrender value had been recorded on Jung's books at the time of payment. What amount of revenue should Jung report in its statements? A- Proceeds received. B- Proceeds received less cash surrender value. C- Proceeds received plus cash surrender value. D- None. QUESTION: 23 of 100 SOURCE: CPA May 93 T-24 STUDY UNIT: 04 On Merf's April 30, 1995 balance sheet, a note receivable was reported as a noncurrent asset, and its accrued interest for 8 months was reported as a current asset. Which of the following terms would fit Merf's note

receivable? A- Both principal and interest amounts are payable on August 31, 1995 and August 31, 1996. B- Principal and interest are due December 31, 1995. C- Both principal and interest amounts are payable on December 31, 1995 and December 31, 1996. D- Principal is due August 31, 1996, and interest is due August 31, 1995 and August 31, 1996. QUESTION: 24 of 100 SOURCE: CPA May 93 I-12 STUDY UNIT: 04 The following information relates to Jay Co.'s accounts receivable for 1995: Accounts receivable, 1/1/95 Credit sales for 1995 Sales returns for 1995 Accounts written off during 1995 Collections from customers during 1995 Estimated future sales returns at 12/31/95 Estimated uncollectible accounts at 12/31/95 $ 650,000 2,700,000 75,000 40,000 2,150,000 50,000 110,000

What amount should Jay report for accounts receivable, before allowances for sales returns and uncollectible accounts, at December 31, 1995? A- $1,200,000 B- $1,125,000 C- $1,085,000 D- $925,000 QUESTION: 25 of 100 SOURCE: CPA Nov 94 F-12 STUDY UNIT: 04 When the allowance method of recognizing uncollectible accounts is used, the entry to record the write-off of a specific account A- Decreases both accounts receivable and the allowance for uncollectible accounts. B- Decreases accounts receivable and increases the allowance for uncollectible accounts. C- Increases the allowance for uncollectible accounts and decreases net income. D- Decreases both accounts receivable and net income. ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 7

QUESTION: 26 of 100 SOURCE: CPA Nov 94 F-45 STUDY UNIT: 04 Inge Co. determined that the net value of its accounts receivable at December 31, 1995, based on an aging of the receivables, was $325,000. Additional information is as follows: Allowance for uncollectible accounts -- 1/1/95 Uncollectible accounts written off during 1995 Uncollectible accounts recovered during 1995 Accounts receivable at 12/31/95 $ 30,000 18,000 2,000 350,000

For 1995, what would be Inge's uncollectible accounts expense? A- $5,000 B- $11,000

C- $15,000 D- $21,000 QUESTION: 27 of 100 SOURCE: PUBLISHER STUDY UNIT: 04 This questions is based on Information Block number 3 on page 26. Under the gross method and the net method, net sales in the March income statement should appear as which of the following amounts? Gross Method -----------$48,500 $48,500 $49,400 $49,400 Net Method ---------$48,500 $49,400 $48,500 $49,400

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QUESTION: 28 of 100 SOURCE: PUBLISHER STUDY UNIT: 04 When a transfer of receivables with recourse qualifies for recognition as a sale, the difference between the sales price (adjusted for the accrual for probable adjustments) and the net receivables should be recognized as which of the following? A- A liability. B- Gain or loss on the sale of receivables. C- Gain or loss on the straight-line basis as the receivables are collected. D- Gain or loss in accordance with the interest method as the receivables are collected. QUESTION: 29 of 100 SOURCE: CPA Nov 93 I-46 STUDY UNIT: 04 This questions is based on Information Block number 4 on page 26. In Emme's 1995 income statement, what amount should be reported as interest income? A- $15,000 B- $45,000 C- $48,000 D- $60,000 QUESTION: 30 of 100 SOURCE: CPA Nov 93 I-47 STUDY UNIT: 04 This questions is based on Information Block number 4 on page 26. In Emme's 1995 income statement, what amount should be reported as gain (loss) on sale of machinery? A- $(30,000) B- $30,000 C- $120,000 D- $150,000 ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 8

QUESTION: 31 of 100 SOURCE: CPA Nov 92 T-4 STUDY UNIT: 04 After being held for 30 days, a 90-day, 15% interest-bearing note receivable was discounted at a bank at 18%. The proceeds received from the bank upon discounting would be the A- Maturity value minus the discount at 18%. B- Maturity value plus the discount at 18%. C- Face value minus the discount at 18%. D- Face value plus the discount at 18%. QUESTION: 32 of 100 SOURCE: CPA Nov 93 I-15 STUDY UNIT: 04

Roth, Inc. received from a customer a 1-year, $500,000 note bearing annual interest of 8%. After holding the note for 6 months, Roth discounted the note at Regional Bank at an effective interest rate of 10%. What amount of cash did Roth receive from the bank? A- $540,000 B- $528,400 C- $513,000 D- $486,000 QUESTION: 33 of 100 SOURCE: CPA Nov 90 II-1 STUDY UNIT: 04 On July 1, 1994, Kay Corp. sold equipment to Mando Co. for $100,000. Kay accepted a 10% note receivable for the entire sales price. This note is payable in two equal installments of $50,000 plus accrued interest on December 31, 1994 and December 31, 1995. On July 1, 1995, Kay discounted the note at a bank at an interest rate of 12%. Kay's proceeds from the discounted note were A- $48,400 B- $52,640 C- $52,250 D- $51,700 QUESTION: 34 of 100 SOURCE: CPA May 89 T-3 STUDY UNIT: 04 A note receivable bearing a reasonable interest rate is sold to a bank with recourse. At the date of the discounting transaction, the notes receivable discounted account may be A- Decreased by the proceeds from the discounting transaction. B- Increased by the proceeds from the discounting transaction. C- Increased by the face amount of the note. D- Decreased by the face amount of the note. QUESTION: 35 of 100 SOURCE: CPA May 88 T-7 STUDY UNIT: 04 A note receivable bearing a reasonable interest rate was discounted at a bank with recourse in a transaction that qualifies as a sale. The notes receivable discounted account was appropriately credited. The notes receivable discounted account should be reported as a A- Contra-asset account for the proceeds from the discounting transaction. B- Contra-asset account for the face amount of the note. C- Liability account for the proceeds from the discounting transaction. D- Liability account for the face amount of the note. QUESTION: 36 of 100 SOURCE: CPA Nov 91 I-10 STUDY UNIT: 04 Mr. and Mrs. Dart own a majority of the outstanding capital stock of Wall Corp., Black Co., and West, Inc. During 1995, Wall advanced cash to Black and West in the amount of $50,000 and $80,000, respectively. West advanced $70,000 in cash to Black. At December 31, 1995, none of the advances was repaid. In the combined December 31, 1995 balance sheet of these companies, what amount would be reported as receivables from affiliates? A- $200,000 B- $130,000 C- $60,000 ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 9

D- $0 QUESTION: 37 of 100 SOURCE: CPA Nov 89 II-5 STUDY UNIT: 04 Lia Co.'s December 31, 1994 balance sheet reported the following current

assets: Cash Accounts receivable Inventories Total $ 35,000 60,000 30,000 -------$125,000

An analysis of the accounts disclosed that accounts receivable included the following: Trade accounts Allowance for uncollectible accounts Selling price of Lia's unsold goods sent to Jax Co. on consignment at 130% of cost and not included in Lia's ending inventory Total At ABCD$48,000 (1,000)

13,000 ------$60,000

December 31, 1994, the correct total of Lia's current assets is $112,000 $115,000 $122,000 $135,000

QUESTION: 38 of 100 SOURCE: CPA Nov 89 II-7 STUDY UNIT: 04 The following information pertains to Oro Corp.: Credit sales for the year ended December 31, 1994 $450,000 Credit balance in allowance for uncollectible accounts at January 1, 1994 10,800 Bad debts written off during 1994 18,000 According to past experience, 3% of Oro's credit sales have been uncollectible. After provision is made for bad debt expense for the year ended December 31, 1994, the allowance for uncollectible accounts balance would be A- $6,300 B- $13,500 C- $24,300 D- $31,500 QUESTION: 39 of 100 SOURCE: CPA May 90 I-9 STUDY UNIT: 04 The following accounts were abstracted from Roxy Co.'s unadjusted trial balance at December 31, 1994: Debit ---------$1,000,000 8,000 Credit ---------$3,000,000

Accounts receivable Allowance for uncollectible accounts Net credit sales

Roxy estimates that 3% of the gross accounts receivable will become ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 10

uncollectible. After adjustment at December 31, 1994, the allowance for uncollectible accounts should have a credit balance of A- $90,000 B- $82,000 C- $38,000 D- $30,000 QUESTION: 40 of 100 SOURCE: CPA Nov 89 T-6 STUDY UNIT: 04 On July 1, 1994, a company obtained a 2-year 8% note receivable for services rendered. At that time, the market rate of interest was 10%. The face amount of the note and the entire amount of the interest are due on June 30, 1996. Interest receivable at December 31, 1994, was A- 5% of the face value of the note. B- 4% of the face value of the note. C- 5% of the July 1, 1994 present value of the amount due June 30, 1996. D- 4% of the July 1, 1994 present value of the amount due June 30, 1996. QUESTION: 41 of 100 SOURCE: CPA Nov 85 II-17 STUDY UNIT: 04 Platt Co. has been forced into bankruptcy and liquidated. Unsecured claims will be paid at the rate of $.50 on the dollar. Maga Co. holds a noninterest-bearing note receivable from Platt in the amount of $50,000, collateralized by machinery with a liquidation value of $10,000. The total amount to be realized by Maga on this note receivable is A- $35,000 B- $30,000 C- $25,000 D- $10,000 QUESTION: 42 of 100 SOURCE: CPA May 95 F-35 STUDY UNIT: 04 Which method of recording uncollectible accounts expense is consistent with accrual accounting? Allowance --------Yes Yes No No Direct Write-Off ---------------Yes No Yes No

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QUESTION: 43 of 100 SOURCE: CPA Nov 88 T-26 STUDY UNIT: 05 In a periodic inventory system that uses the weighted-average cost flow method, the beginning inventory is the A- Net purchases minus the ending inventory. B- Net purchases minus the cost of goods sold. C- Total goods available for sale minus the net purchases. D- Total goods available for sale minus the cost of goods sold. QUESTION: 44 of 100 SOURCE: CPA Nov 94 F-13 STUDY UNIT: 05 Herc Co.'s inventory at December 31, 1995 was $1,500,000 based on a physical count priced at cost and before any necessary adjustment for the following: Merchandise costing $90,000, shipped FOB shipping point from a vendor on December 30, 1995, was received and recorded on January 5, 1996. Goods in the shipping area were excluded from inventory although shipment was not made until January 4, 1996. The goods, billed to the customer FOB shipping point on December 30, 1995, had a cost of $120,000.

What amount should Herc report as inventory in its December 31, 1995 balance ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 11

sheet? A- $1,500,000 B- $1,590,000 C- $1,620,000 D- $1,710,000 QUESTION: 45 of 100 SOURCE: CPA May 92 T-23 STUDY UNIT: 05 Southgate Co. paid the in-transit insurance premium for consignment goods shipped to Hendon Co., the consignee. In addition, Southgate advanced part of the commissions that will be due when Hendon sells the goods. Should Southgate include the in-transit insurance premium and the advanced commissions in inventory costs? Insurance Premium --------Yes No Yes No Advanced Commissions ----------Yes No No Yes

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QUESTION: 46 of 100 SOURCE: CPA May 93 I-29 STUDY UNIT: 05 On December 1, 1995, Alt Department Store received 505 sweaters on consignment from Todd. Todd's cost for the sweaters was $80 each, and they were priced to sell at $100. Alt's commission on consigned goods is 10%. At December 31, 1995, 5 sweaters remained. In its December 31, 1995 balance sheet, what amount should Alt report as payable for consigned goods? A- $49,000 B- $45,400 C- $45,000 D- $40,400 QUESTION: 47 of 100 SOURCE: CPA May 93 I-19 STUDY UNIT: 05 This questions is based on Information Block number 5 on page 26. Under the LIFO method, what amount should Metro report as inventory at January 31, 1994? A- $3,225 B- $1,300 C- $2,700 D- $3,900 QUESTION: 48 of 100 SOURCE: CPA Nov 91 I-13 STUDY UNIT: 05 In 1994, Cobb adopted the dollar-value LIFO inventory method. At that time, Cobb's ending inventory had a base-year cost and an end-of-year cost of $300,000. In 1995, the ending inventory had a $400,000 base-year cost and a $440,000 end-of-year cost. What dollar-value LIFO inventory cost would be reported in Cobb's December 31, 1995 balance sheet? A- $440,000 B- $430,000 C- $410,000 D- $400,000

QUESTION: 49 of 100 SOURCE: CPA May 88 I-22 STUDY UNIT: 05 On January 1, 1994, Poe Company adopted the dollar-value LIFO inventory method. Poe's entire inventory constitutes a single pool. Inventory data for 1994 and 1995 are as follows: Inventory Inventory Relevant at Currentat BasePrice Date Year Cost Year Cost Index ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 12

-------01/01/94 12/31/94 12/31/95

----------$150,000 220,000 276,000

--------$150,000 200,000 230,000

-------1.00 1.10 1.20

Poe's LIFO inventory value at December 31, 1995 is A- $230,000 B- $241,000 C- $246,000 D- $276,000 QUESTION: 50 of 100 SOURCE: CPA Nov 94 F-14 STUDY UNIT: 05 Which of the following statements are correct when a company applying the lower-of-cost-or-market method reports its inventory at replacement cost? I. The original cost is less than replacement cost. II. The net realizable value is equal to or greater than replacement cost. A- I only. B- II only. C- Both I and II. D- Neither I nor II. QUESTION: 51 of 100 SOURCE: CPA Nov 93 I-21 STUDY UNIT: 05 Based on a physical inventory taken on December 31, 1995, Chewy Co. determined its chocolate inventory on a FIFO basis at $26,000 with a replacement cost of $20,000. Chewy estimated that, after further processing costs of $12,000, the chocolate could be sold as finished candy bars for $40,000. Chewy's normal profit margin is 10% of sales. Under the lower-ofcost-or-market rule, what amount should Chewy report as chocolate inventory in its December 31, 1995 balance sheet? A- $28,000 B- $26,000 C- $24,000 D- $20,000 QUESTION: 52 of 100 SOURCE: CPA Nov 93 T-4 STUDY UNIT: 05 The lower-of-cost-or-market rule for inventories may be applied to total inventory, to groups of similar items, or to each item. Which application usually results in the lowest inventory amount? A- All applications result in the same amount. B- Total inventory. C- Groups of similar items. D- Separately to each item. QUESTION: 53 of 100 SOURCE: CPA May 79 T-3 STUDY UNIT: 05

Which of the following methods of inventory valuation is allowable at interim dates but not at year-end? A- Weighted average. B- Estimated gross profit. C- Retail method. D- Specific identification. QUESTION: 54 of 100 SOURCE: CPA Nov 80 II-11 STUDY UNIT: 05 The following information is available for the Silver Company for the 3 months ended March 31 of this year: Merchandise inventory, January 1 of this year $ 900,000 Purchases 3,400,000 ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 13

Freight-in Sales

200,000 4,800,000

The gross margin recorded was 25% of sales. What should be the merchandise inventory at March 31? A- $700,000 B- $900,000 C- $1,125,000 D- $1,200,000 QUESTION: 55 of 100 SOURCE: CPA May 89 I-22 STUDY UNIT: 05 At December 31, 1995, the following information was available from Huff Co.'s accounting records: Cost -------$147,000 833,000 -------$980,000 Retail ---------$ 203,000 1,155,000 42,000 ---------$1,400,000

Inventory, 1/1/95 Purchases Additional markups Available for sale

Sales for the year totaled $1,106,000. Markdowns amounted to $14,000. Under the approximate lower-of-average-cost-or-market retail method, Huff's inventory at December 31, 1995 was A- $280,000 B- $197,160 C- $196,000 D- $194,854 QUESTION: 56 of 100 SOURCE: CMA Jun 85 3-26 STUDY UNIT: 05 Net losses on firm purchase commitments for goods for inventory result from a contract price that exceeds the current market price. If a firm expects that losses will occur when the purchase is effected, expected losses, if material, A- Should be recognized in the accounts and separately disclosed as losses on the income statement of the period during which the decline in price takes place. B- Should be recognized in the accounts and separately disclosed as net

unrealized losses on the balance sheet at the end of the period during which the decline in price takes place. C- Should be recognized in the accounts and separately disclosed as net unrealized losses on the balance sheet at the end of the period during which the contract is executed. D- Should not be recognized in the accounts until the contract is executed and need not be separately disclosed in the financial statements. QUESTION: 57 of 100 SOURCE: PUBLISHER STUDY UNIT: 05 Zuber Corp. produced 1,000 units of Product X. It now sells these units for cash to Lewis Corp. and, in a related transaction, agrees to buy back the 1,000 units at a specified price at a future date. The price specified in the agreement is not subject to change based on future market fluctuations except for fluctuations resulting from finance and holding costs incurred by Lewis. In accounting for this situation, Zuber should A- Record the sale in an ordinary manner and remove the inventory from the balance sheet. B- Record the sale, remove the inventory from the balance sheet, and disclose the purchase commitment in the notes to the financial statements. ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 14

C- Continue to carry the inventory on the books and record a valuation account to be reported as a reduction to the inventory account on the balance sheet, rather than record a sale. D- Record a liability and continue to carry the inventory on the books rather than record a sale. QUESTION: 58 of 100 SOURCE: CPA May 93 I-20 STUDY UNIT: 05 The following items were included in Opal Co.'s inventory account at December 31, 1992: Merchandise out on consignment, at sales price, including 40% markup on selling price Goods purchased, in transit, shipped FOB shipping point Goods held on consignment by Opal

$40,000 36,000 27,000

By what amount should Opal's inventory account at December 31, 1992 be reduced? A- $103,000 B- $67,000 C- $51,000 D- $43,000 QUESTION: 59 of 100 SOURCE: CPA May 88 I-21 STUDY UNIT: 05 Ward Distribution Company has determined its December 31, 1994 inventory on a FIFO basis at $200,000. Information pertaining to that inventory follows: Estimated selling price Estimated cost of disposal Normal profit margin Current replacement cost $204,000 10,000 30,000 180,000

Ward records losses that result from applying the lower of cost or market

rule. At December 31, 1994, the loss that Ward should recognize is A- $0 B- $6,000 C- $14,000 D- $20,000 QUESTION: 60 of 100 SOURCE: CPA Nov 95 F-9 STUDY UNIT: 05 A company decided to change its inventory valuation method from FIFO to LIFO in a period of rising prices. What was the result of the change on ending inventory and net income in the year of the change? Ending Inventory ---------------Increase Increase Decrease Decrease Net Income ---------Increase Decrease Decrease Increase

ABCD-

QUESTION: 61 of 100 SOURCE: CPA May 92 T-12 STUDY UNIT: 06 Land was purchased to be used as the site for the construction of a plant. A building on the property was sold and removed by the buyer so that construction on the plant could begin. The proceeds from the sale of the building should be A- Classified as other income. B- Deducted from the cost of the land. C- Netted against the costs to clear the land and expensed as incurred. ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 15

D- Netted against the costs to clear the land and amortized over the life of the plant. QUESTION: 62 of 100 SOURCE: CPA May 91 I-24 STUDY UNIT: 06 During 1995, Burr Co. had the following transactions pertaining to its new office building: Purchase price of land $ 60,000 Legal fees for contracts to purchase land 2,000 Architects' fees 8,000 Demolition of the old building on site 5,000 Sale of scrap from old building 3,000 Construction cost of new building (fully completed) 350,000 In Burr's December 31, 1995, balance sheet, what amounts should be reported as the cost of land and cost of building? Land ------$60,000 $62,000 $64,000 $65,000 Building -------$360,000 $360,000 $358,000 $362,000

ABCD-

QUESTION: 63 of 100 SOURCE: CPA Nov 93 I-22 STUDY UNIT: 06 Merry Co. purchased a machine costing $125,000 for its manufacturing operations and paid shipping costs of $20,000. Merry spent an additional

$10,000 testing and preparing the machine for use. What amount should Merry record as the cost of the machine? A- $155,000 B- $145,000 C- $135,000 D- $125,000 QUESTION: 64 of 100 SOURCE: CPA May 89 T-5 STUDY UNIT: 06 A lessee incurred costs to construct office space in a leased warehouse. The estimated useful life of the office is 10 years. The remaining term of the nonrenewable lease is 15 years. The costs should be A- Capitalized as leasehold improvements and amortized over 15 years. B- Capitalized as leasehold improvements and amortized over 10 years. C- Capitalized as leasehold improvements and expensed in the year in which the lease expires. D- Expensed as incurred. QUESTION: 65 of 100 SOURCE: CPA May 94 F-17 STUDY UNIT: 06 Cole Co. began constructing a building for its own use in January 1995. During 1995, Cole incurred interest of $50,000 on specific construction debt, and $20,000 on other borrowings. Interest computed on the weightedaverage amount of accumulated expenditures for the building during 1995 was $40,000. What amount of interest cost should Cole capitalize? A- $20,000 B- $40,000 C- $50,000 D- $70,000 QUESTION: 66 of 100 SOURCE: CPA May 90 I-16 STUDY UNIT: 06 On June 18, 1995, Dell Printing Co. incurred the following costs for one of its printing presses: ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 16

Purchase of collating and stapling attachment Installation of attachment Replacement parts for overhaul of press Labor and overhead in connection with overhaul

$84,000 36,000 26,000 14,000

The overhaul resulted in a significant increase in production. Neither the attachment nor the overhaul increased the estimated useful life of the press. What amount of the above costs should be capitalized? A- $0 B- $84,000 C- $120,000 D- $160,000 QUESTION: 67 of 100 SOURCE: CPA Nov 92 T-24 STUDY UNIT: 06 Vik Auto and King Clothier exchanged goods, held for resale, with equal fair values. Each will use the other's goods to promote its own products. The retail price of the car that Vik gave up is less than the retail price of the clothes received. What gain should Vik recognize on the nonmonetary exchange? A- A gain is not recognized.

B- A gain equal received and C- A gain equal the car. D- A gain equal car.

to the difference between the retail prices of the clothes the car. to the difference between the retail price and the cost of to the difference between the fair value and the cost of the

QUESTION: 68 of 100 SOURCE: CPA May 93 II-9 STUDY UNIT: 06 Beam Co. paid $1,000 cash and traded inventory, which had a carrying amount of $20,000 and a fair value of $21,000, for other inventory in the same line of business with a fair value of $22,000. What amount of gain (loss) should Beam record related to the inventory exchange? A- $2,000 B- $1,000 C- $0 D- $(1,000) QUESTION: 69 of 100 SOURCE: CPA May 93 T-27 STUDY UNIT: 06 On January 1, 1991, Crater, Inc. purchased equipment having an estimated salvage value equal to 20% of its original cost at the end of a 10-year life. The equipment was sold December 31, 1995 for 50% of its original cost. If the equipment's disposition resulted in a reported loss, which of the following depreciation methods did Crater use? A- Double-declining balance. B- Sum-of-the-years'-digits. C- Straight-line. D- Composite. QUESTION: 70 of 100 SOURCE: CPA May 94 F-18 STUDY UNIT: 06 Turtle Co. purchased equipment on January 2, 1993 for $50,000. The equipment had an estimated 5-year service life. Turtle's policy for 5-year assets is to use the 200% double-declining-balance depreciation method for the first 2 years of the asset's life, and then switch to the straight-line depreciation method. In its December 31, 1995 balance sheet, what amount should Turtle report as accumulated depreciation for equipment? A- $30,000 B- $38,000 C- $39,200 ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 17

D- $42,000 QUESTION: 71 of 100 SOURCE: CPA Nov 93 T-34 STUDY UNIT: 06 In which of the following situations is the units-of-production method of depreciation most appropriate? A- An asset's service potential declines with use. B- An asset's service potential declines with the passage of time. C- An asset is subject to rapid obsolescence. D- An asset incurs increasing repairs and maintenance with use. QUESTION: 72 of 100 SOURCE: CPA May 89 T-4 STUDY UNIT: 06 A depreciable asset has an estimated 15% salvage value. At the end of its estimated useful life, the accumulated depreciation will equal the original cost of the asset under which of the following depreciation methods? Straight-Line Productive-Output

------------ABCDYes Yes No No

----------------No Yes Yes No

QUESTION: 73 of 100 SOURCE: CPA May 88 T-9 STUDY UNIT: 06 A company using the composite depreciation method for its fleet of trucks, cars, and campers retired one of its trucks and received cash from a salvage company. The net carrying amount of these composite asset accounts was decreased by the A- Cash proceeds received and original cost of the truck. B- Cash proceeds received. C- Original cost of the truck minus the cash proceeds. D- Original cost of the truck. QUESTION: 74 of 100 SOURCE: CPA Nov 85 I-40 STUDY UNIT: 06 In January 1993, Huff Mining Corporation purchased a mineral mine for $3,600,000 with removable ore estimated by geological surveys at 2,160,000 tons. The property has an estimated value of $360,000 after the ore has been extracted. Huff incurred $1,080,000 of development costs preparing the property for the extraction of ore. During 1995, 270,000 tons were removed and 240,000 tons were sold. For the year ended December 31, 1995, Huff should include what amount of depletion in its cost of goods sold? A- $360,000 B- $405,000 C- $480,000 D- $540,000 QUESTION: 75 of 100 SOURCE: CMA Dec 86 4-11 STUDY UNIT: 06 WD Mining Company purchased a section of land for $600,000 in 1979 to develop a zinc mine. The mine began operations in 1987. At that time, management estimated that the mine would produce 200,000 tons of quality ore. A total of 100,000 tons of ore were mined and processed from 1987 through December 31, 1994. During January 1995, a very promising vein was discovered. The revised estimate of ore still to be mined was 250,000 tons. Estimated salvage value for the mine land was $100,000 in both 1987 and 1995. Assuming that 10,000 tons of ore were mined in 1995, the computation WD Mining Company should use to determine the amount of depletion to record in 1995 would be A$600,000 - $100,000 ------------------- X 10,000 tons 450,000 tons ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 18

BCD-

$600,000 - $100,000 ------------------- X 10,000 tons 350,000 Tons ($600,000 - $100,000) - $250,000 -------------------------------- X 10,000 tons 350,000 tons ($600,000 - $100,000) - $250,000 -------------------------------- X 10,000 tons 250,000 tons

QUESTION: 76 of 100 SOURCE: CPA May 89 I-23 STUDY UNIT: 06 On January 2, 1995, Ashe Company entered into a 10-year, noncancelable lease requiring year-end payments of $100,000. Ashe's incremental borrowing rate is 12%, while the lessor's implicit interest rate, known to Ashe, is 10%. Present value factors for an ordinary annuity for 10 periods are 6.145 at 10%, and 5.650 at 12%. Ownership of the property remains with the lessor at expiration of the lease. There is no bargain purchase option. The leased property has an estimated economic life of 12 years. What amount should Ashe capitalize for this leased property on January 2, 1995? A- $1,000,000 B- $614,500 C- $565,000 D- $0 QUESTION: 77 of 100 SOURCE: CPA Nov 91 I-16 STUDY UNIT: 06 On January 1, 1989, Bay Co. acquired a land lease for a 21-year period with no option to renew. The lease required Bay to construct a building in lieu of rent. The building, completed on January 1, 1990 at a cost of $840,000, will be depreciated using the straight-line method. At the end of the lease, the building's estimated fair value will be $420,000. What is the building's carrying amount in Bay's December 31, 1990 balance sheet? A- $798,000 B- $800,000 C- $819,000 D- $820,000 QUESTION: 78 of 100 SOURCE: CPA Nov 90 II-2 STUDY UNIT: 06 On January 2, 1994, Ral Co. leased land and a building from an unrelated lessor for a 10-year term. The lease has a renewal option for an additional 10 years, but Ral has not reached a decision with regard to the renewal option. In early January of 1994, Ral completed the following improvements to the property: Description -----------Sales office Warehouse Parking lot Estimated Life --------10 years 25 years 15 years Cost ------$47,000 75,000 18,000

Amortization of leasehold improvements for 1995 should be A- $7,000 B- $8,900 C- $12,200 D- $14,000 QUESTION: 79 of 100 SOURCE: CPA May 90 I-19 STUDY UNIT: 06 On December 31, 1994, a building owned by Pine Corp. was totally destroyed by fire. The building had fire insurance coverage up to $500,000. Other pertinent information as of December 31, 1994 follows: ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 19

Building, carrying amount Building, fair value Removal and clean-up cost

$520,000 550,000 10,000

During January 1995, before the 1994 financial statements were issued, Pine received insurance proceeds of $500,000. On what amount should Pine base the determination of its loss on involuntary conversion? A- $520,000 B- $530,000 C- $550,000 D- $560,000 QUESTION: 80 of 100 SOURCE: CPA Nov 92 I-46 STUDY UNIT: 06 Dahl Co. traded a delivery van and $5,000 cash for a newer van owned by West Corp. The following information relates to the values of the vans on the exchange date: Carrying Value -------------$30,000 40,000 Fair Value ---------$45,000 50,000

Old van New van

Dahl's income tax rate is 30%. What amounts should Dahl report as gain on exchange of the vans? A- $15,000 B- $1,000 C- $700 D- $0 QUESTION: 81 of 100 SOURCE: CPA May 92 II-11 STUDY UNIT: 06 Yola Co. and Zaro Co. are fuel oil distributors. To facilitate the delivery of oil to their customers, Yola and Zaro exchanged ownership of 1,200 barrels of oil without physically moving the oil. Yola paid Zaro $30,000 to compensate for a difference in the grade of oil. On the date of the exchange, cost and market values of the oil were as follows: Yola Co. -------$100,000 120,000 Zaro Co. -------$126,000 150,000

Cost Market values

In Zaro's income statement, what amount of gain should be reported from the exchange of the oil? A- $0 B- $4,800 C- $24,000 D- $30,000 QUESTION: 82 of 100 SOURCE: CPA May 81 II-24 STUDY UNIT: 06 Flex Company owns a machine that was bought on January 2, 1992 for $94,000. The machine was estimated to have a useful life of 5 years and a salvage value of $6,000. Flex uses the sum-of-the-years'-digits method of depreciation. At the beginning of 1995, Flex determined that the useful life of the machine should have been 4 years and the salvage value $8,800. For the year 1995, Flex should record depreciation expense on this machine of A- $11,100 B- $14,800 C- $17,600 ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 20

D- $21,300 QUESTION: 83 of 100 SOURCE: CPA May 95 F-36 STUDY UNIT: 06 In January 1994, Vorst Co. purchased a mineral mine for $2,640,000 with removable ore estimated at 1,200,000 tons. After it has extracted all the ore, Vorst will be required by law to restore the land to its original condition at an estimated cost of $180,000. Vorst believes it will be able to sell the property afterwards for $300,000. During 1994, Vorst incurred $360,000 of development costs preparing the mine for production and removed and sold 60,000 tons of ore. In its 1994 income statement, what amount should Vorst report as depletion? A- $135,000 B- $144,000 C- $150,000 D- $159,000 QUESTION: 84 of 100 SOURCE: CPA May 95 F-37 STUDY UNIT: 06 Rye Co. purchased a machine with a four-year estimated useful life and an estimated 10% salvage value for $80,000 on January 1, 1992. In its income statement, what would Rye report as the depreciation expense for 1994 using the double-declining-balance (DDB) method? A- $9,000 B- $10,000 C- $18,000 D- $20,000 QUESTION: 85 of 100 SOURCE: CPA May 90 II-58 STUDY UNIT: 07 On June 30, 1995, Finn, Inc. exchanged 2,000 shares of Edlow Corp. $30 par value common stock for a patent owned by Bisk Co. The Edlow stock was acquired in 1993 at a cost of $50,000. At the exchange date, Edlow common stock had a fair value of $40 per share, and the patent had a net carrying amount of $100,000 on Bisk's books. Finn should record the patent at A- $50,000 B- $60,000 C- $80,000 D- $100,000 QUESTION: 86 of 100 SOURCE: CPA May 90 I-20 STUDY UNIT: 07 On January 1, 1992, Taft Co. purchased a patent for $714,000. The patent is being amortized over its remaining legal life of 15 years expiring on January 1, 2007. During 1995, Taft determined that the economic benefits of the patent would not last longer than 10 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 1995? A- $428,400 B- $489,600 C- $514,080 D- $523,600 QUESTION: 87 of 100 SOURCE: CPA May 93 I-23 STUDY UNIT: 07 During 1995, Lyle Co. incurred $204,000 of research and development costs in its laboratory to develop a patent that was granted on July 1, 1995. Legal fees and other costs associated with registration of the patent totaled $41,000. The estimated economic life of the patent is 10 years. What amount should Lyle capitalize for the patent on July 1, 1995? A- $0 B- $41,000 C- $204,000

D- $245,000 ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 21

QUESTION: 88 of 100 SOURCE: CPA Nov 93 I-25 STUDY UNIT: 07 Jud Co. bought a trademark from Krug Corp. on January 1, 1995 for $224,000. Jud retained an independent consultant who estimated the trademark's remaining useful life to be 50 years. Its unamortized cost on Krug's accounting records was $112,000. Jud decided to amortize the trademark over the maximum period allowed. In Jud's December 31, 1995 balance sheet, what amount should be reported as accumulated amortization? A- $5,600 B- $4,480 C- $2,800 D- $2,240 QUESTION: 89 of 100 SOURCE: CPA May 93 I-27 STUDY UNIT: 07 An analysis of Thrift Corp.'s unadjusted prepaid expense account at December 31, 1995 revealed the following: An opening balance at $1,500 for Thrift's comprehensive insurance policy. Thrift had paid an annual premium of $3,000 on July 1, 1994. A $3,200 annual insurance premium payment made July 1, 1995. A $2,000 advance rental payment for a warehouse Thrift leased for 1 year beginning January 1, 1996. In its December 31, 1995 balance sheet, what amount should Thrift report as prepaid expenses? A- $5,200 B- $3,600 C- $2,000 D- $1,600 QUESTION: 90 of 100 SOURCE: CPA May 90 T-39 STUDY UNIT: 07 ABC Co. was organized on July 15, 1993, and earned no significant revenues until the first quarter of 1996. During the period 1993-1995, ABC acquired plant and equipment, raised capital, obtained financing, trained employees, and developed markets. In its financial statements as of December 31, 1995, ABC should defer all costs incurred during 1993-1995, A- Net of revenues earned, that are recoverable in future periods. B- Net of revenues earned. C- That are recoverable in future periods. D- Without regard to net revenues earned or recoverability in future periods. QUESTION: 91 of 100 SOURCE: CPA May 91 I-21 STUDY UNIT: 07 During 1995, Pitt Corp. incurred costs to develop and produce a routine, low-risk computer software product, as follows: Completion of detail program design Costs incurred for coding and testing to establish technological feasibility Other coding costs after establishment of technological feasibility Other testing costs after establishment of technological feasibility $13,000 10,000 24,000 20,000

Costs of producing product masters for training materials Duplication of computer software and training materials from product masters (1,000 units) Packaging product (500 units)

15,000 25,000 9,000

In Pitt's December 31, 1995 balance sheet, what amount should be reported in ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 22

inventory? A- $25,000 B- $34,000 C- $40,000 D- $49,000 QUESTION: 92 of 100 SOURCE: CPA Nov 90 I-58 STUDY UNIT: 07 Lex Corp. was a development stage enterprise from October 10, 1993 (inception) through December 31, 1994. The year ended December 31, 1995 was the first year in which Lex qualified as an established operating enterprise. The following are among the costs incurred by Lex: For the Period For the 10/10/93- Year Ended 12/31/94 12/31/95 ---------- ----------Leasehold improvements, equipment, and furniture $1,000,000 $ 300,000 Security deposits 60,000 30,000 Research and development 750,000 900,000 Laboratory operations 175,000 550,000 General and administrative 225,000 685,000 Depreciation 25,000 115,000 ---------- ---------$2,235,000 $2,580,000 From its inception through the period ended December 31, 1995, what is the total amount of costs incurred by Lex that should be charged to operations? A- $3,425,000 B- $2,250,000 C- $1,775,000 D- $1,350,000 QUESTION: 93 of 100 SOURCE: CPA Nov 92 T-44 STUDY UNIT: 07 A statement of cash flows for a development stage enterprise A- Is the same as that of an established operating enterprise and, in addition, shows cumulative amounts from the enterprise's inception. B- Shows only cumulative amounts from the enterprise's inception. C- Is the same as that of an established operating enterprise, but does not show cumulative amounts from the enterprise's inception. D- Is not presented. QUESTION: 94 of 100 SOURCE: CPA Nov 89 T-11 STUDY UNIT: 07 Which of the following costs associated with an internally developed patent

should be capitalized? Research and Development -----------No No Yes Yes Patent Registration -----------Yes No No Yes

ABCD-

QUESTION: 95 of 100 SOURCE: PUBLISHER STUDY UNIT: 07 When a broadcaster enters into a license agreement for program material, the broadcaster should report A- An asset and a liability for the rights acquired and obligations incurred ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 23

when the agreement is reached. B- An asset and a liability when the cost of each program is known or determinable, the program material has been accepted, and the program is available for viewing or telecast. C- The related assets and liability as current if the license period expires within 1 year and as noncurrent if the license period expires in more than 1 year. D- An asset and a liability but only for the present value of future payments in accordance with the procedures set forth in APB 21. QUESTION: 96 of 100 SOURCE: CPA Nov 91 I-20 STUDY UNIT: 07 On January 1, 1995, Neal Co. issued 100,000 shares of its $10 par value common stock in exchange for all of Frey Inc.'s outstanding stock. This business combination was accounted for as a pooling of interests. The fair value of Neal's common stock on December 31, 1994 was $19 per share. The carrying amounts and fair values of Frey's assets and liabilities on December 31, 1994 were as follows: Carrying Amount ----------$ 240,000 270,000 435,000 1,305,000 (525,000) ---------$1,725,000 Fair Value ---------$ 240,000 270,000 405,000 1,440,000 (525,000) ---------$1,830,000

Cash Receivables Inventory Property, plant and equipment Liabilities Net assets

What is the amount of goodwill resulting from the business combination? A- $175,000 B- $105,000 C- $70,000 D- $0 QUESTION: 97 of 100 SOURCE: CPA May 91 I-29 STUDY UNIT: 07 On July 1, 1990, Roxy Co. obtained fire insurance for a 3-year period at an annual premium of $72,000 payable on July 1 of each year. The first premium

payment was made July 1, 1990. On October 1, 1990, Roxy paid $24,000 for real estate taxes to cover the period ending September 30, 1991. The prepayment was made to obtain a discount. In its December 31, 1990 balance sheet, Roxy should report prepaid expenses of A- $60,000 B- $54,000 C- $48,000 D- $36,000 QUESTION: 98 of 100 SOURCE: CPA Nov 87 I-10 STUDY UNIT: 07 Wall Company bought a trademark from Black Corporation on January 1, 1995 for $112,000. An independent consultant retained by Wall estimated that the remaining useful life is 50 years. Its unamortized cost on Black's accounting records was $56,000. Wall decided to write off the trademark over the maximum period allowed. How much should be amortized for the year ended December 31, 1995? A- $1,120 B- $1,400 C- $2,240 D- $2,800 ------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 24

QUESTION: 99 of 100 SOURCE: CPA Nov 83 T-12 STUDY UNIT: 07 A purchased patent has a remaining legal life of 15 years. It should be A- Expensed in the year of acquisition. B- Amortized over 15 years regardless of its useful life. C- Amortized over its useful life if less than 15 years. D- Amortized over 40 years. QUESTION: 100 of 100 SOURCE: CPA Nov 95 F-33 STUDY UNIT: 07 Gray Co. was granted a patent on January 2, 1991, and appropriately capitalized $45,000 of related costs. Gray was amortizing the patent over its estimated useful life of fifteen years. During 1994, Gray paid $15,000 in legal costs in successfully defending an attempted infringement of the patent. After the legal action was completed, Gray sold the patent to the plaintiff for $75,000. Gray's policy is to take no amortization in the year of disposal. In its 1994 income statement, what amount should Gray report as gain from sale of patent? A- $15,000 B- $24,000 C- $27,000 D- $39,000

------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 25

Information Block number 1 Sun Corp. had investments in trading securities costing $650,000. On June 30, 1995, Sun decided to hold the investments indefinitely and accordingly reclassified them as available-for-sale on that date. The investments' fair value was $575,000 at December 31, 1994, $530,000 at June 30, 1995, and $490,000 at December 31, 1995. Information Block number 2 Grant, Inc. acquired 30% of South Co.'s voting stock for $200,000 on January 2, 1993. Grant's 30% interest in South gave Grant the ability to exercise significant influence over South's operating and financial policies. During 1993, South earned $80,000 and paid dividends of $50,000. South reported earnings of $100,000 for the six months ended June 30, 1994, and $200,000 for the year ended December 31, 1994. On July 1, 1994, Grant sold half of its stock in South for $150,000 cash. South paid dividends of $60,000 on October 1, 1994. Information Block number 3 EGC Company recorded two sales on March 1 of $20,000 and $30,000 under credit terms of 3/10, n/30. Payment for the $20,000 sale was received March 10. Payment for the $30,000 sale was received on March 25. Information Block number 4 On January 2, 1995, Emme Co. sold equipment with a carrying amount of $480,000 in exchange for a $600,000 noninterest-bearing note due January 2, 1998. There was no established exchange price for the equipment. The prevailing rate of interest for a note of this type at January 2, 1995 was 10%. The present value of 1 at 10% for three periods is 0.75.

Information Block number 5 During January 1994, Metro Co., which maintains a perpetual inventory system, recorded the following information pertaining to its inventory: Unit Cost ---$1 3 5 Total Cost -----$1,000 1,800 2,000 Units On Hand ----1,000 1,600 700 1,100

Units ----Balance on 1/1/94 1,000 Purchased on 1/7/94 600 Sold on 1/20/94 900 Purchased on 1/25/94 400

------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 26

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 B CPA May 94 F-12 Cash and Investments ------------------------------------------------------------------------2 C CPA May 94 F-13 Cash and Investments ------------------------------------------------------------------------3 C CPA Nov 88 I-1 Cash and Investments ------------------------------------------------------------------------4 B CPA Nov 91 I-8 Cash and Investments ------------------------------------------------------------------------5 C CPA Nov 89 I-3 Cash and Investments ------------------------------------------------------------------------6 B CPA May 94 F-43 Cash and Investments ------------------------------------------------------------------------7 C CPA Nov 93 I-14 Cash and Investments -------------------------------------------------------------------------

8 A CPA Nov 93 T-9 Cash and Investments ------------------------------------------------------------------------9 A CPA Nov 91 T-36 Cash and Investments ------------------------------------------------------------------------10 B CPA May 93 I-16 Cash and Investments ------------------------------------------------------------------------11 B CPA Nov 88 I-14 Cash and Investments ------------------------------------------------------------------------12 A CPA Nov 94 F-46 Cash and Investments ------------------------------------------------------------------------13 B CPA Nov 90 I-3 Cash and Investments ------------------------------------------------------------------------14 A CPA Nov 90 I-1 Cash and Investments ------------------------------------------------------------------------15 B CPA May 93 T-22 Cash and Investments ------------------------------------------------------------------------16 D CPA Nov 90 T-6 Cash and Investments ------------------------------------------------------------------------17 B CPA Nov 90 I-29 Cash and Investments ------------------------------------------------------------------------18 C CPA May 92 I-13 Cash and Investments ------------------------------------------------------------------------19 A CPA May 93 I-4 Cash and Investments ------------------------------------------------------------------------20 A CPA May 86 I-47 Cash and Investments ------------------------------------------------------------------------21 B CPA Nov 95 F-27 Cash and Investments ------------------------------------------------------------------------22 B CPA Nov 95 F-35 Cash and Investments ------------------------------------------------------------------------23 D CPA May 93 T-24 Receivables and Accruals ------------------------------------------------------------------------24 C CPA May 93 I-12 Receivables and Accruals ------------------------------------------------------------------------25 A CPA Nov 94 F-12 Receivables and Accruals ------------------------------------------------------------------------26 B CPA Nov 94 F-45 Receivables and Accruals ------------------------------------------------------------------------------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 27

27 C PUBLISHER Receivables and Accruals ------------------------------------------------------------------------28 B PUBLISHER Receivables and Accruals ------------------------------------------------------------------------29 B CPA Nov 93 I-46 Receivables and Accruals ------------------------------------------------------------------------30 A CPA Nov 93 I-47 Receivables and Accruals ------------------------------------------------------------------------31 A CPA Nov 92 T-4 Receivables and Accruals ------------------------------------------------------------------------32 C CPA Nov 93 I-15 Receivables and Accruals ------------------------------------------------------------------------33 D CPA Nov 90 II-1 Receivables and Accruals ------------------------------------------------------------------------34 C CPA May 89 T-3 Receivables and Accruals -------------------------------------------------------------------------

35 B CPA May 88 T-7 Receivables and Accruals ------------------------------------------------------------------------36 D CPA Nov 91 I-10 Receivables and Accruals ------------------------------------------------------------------------37 C CPA Nov 89 II-5 Receivables and Accruals ------------------------------------------------------------------------38 A CPA Nov 89 II-7 Receivables and Accruals ------------------------------------------------------------------------39 D CPA May 90 I-9 Receivables and Accruals ------------------------------------------------------------------------40 B CPA Nov 89 T-6 Receivables and Accruals ------------------------------------------------------------------------41 B CPA Nov 85 II-17 Receivables and Accruals ------------------------------------------------------------------------42 B CPA May 95 F-35 Receivables and Accruals ------------------------------------------------------------------------43 C CPA Nov 88 T-26 Inventories ------------------------------------------------------------------------44 D CPA Nov 94 F-13 Inventories ------------------------------------------------------------------------45 C CPA May 92 T-23 Inventories ------------------------------------------------------------------------46 C CPA May 93 I-29 Inventories ------------------------------------------------------------------------47 C CPA May 93 I-19 Inventories ------------------------------------------------------------------------48 C CPA Nov 91 I-13 Inventories ------------------------------------------------------------------------49 B CPA May 88 I-22 Inventories ------------------------------------------------------------------------50 B CPA Nov 94 F-14 Inventories ------------------------------------------------------------------------51 C CPA Nov 93 I-21 Inventories ------------------------------------------------------------------------52 D CPA Nov 93 T-4 Inventories ------------------------------------------------------------------------53 B CPA May 79 T-3 Inventories ------------------------------------------------------------------------54 B CPA Nov 80 II-11 Inventories ------------------------------------------------------------------------55 C CPA May 89 I-22 Inventories ------------------------------------------------------------------------56 A CMA Jun 85 3-26 Inventories ------------------------------------------------------------------------------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 28

57 D PUBLISHER Inventories ------------------------------------------------------------------------58 D CPA May 93 I-20 Inventories ------------------------------------------------------------------------59 D CPA May 88 I-21 Inventories ------------------------------------------------------------------------60 C CPA Nov 95 F-9 Inventories ------------------------------------------------------------------------61 B CPA May 92 T-12 Property, Plant, and Equipment -------------------------------------------------------------------------

62 C CPA May 91 I-24 Property, Plant, and Equipment ------------------------------------------------------------------------63 A CPA Nov 93 I-22 Property, Plant, and Equipment ------------------------------------------------------------------------64 B CPA May 89 T-5 Property, Plant, and Equipment ------------------------------------------------------------------------65 B CPA May 94 F-17 Property, Plant, and Equipment ------------------------------------------------------------------------66 D CPA May 90 I-16 Property, Plant, and Equipment ------------------------------------------------------------------------67 D CPA Nov 92 T-24 Property, Plant, and Equipment ------------------------------------------------------------------------68 C CPA May 93 II-9 Property, Plant, and Equipment ------------------------------------------------------------------------69 C CPA May 93 T-27 Property, Plant, and Equipment ------------------------------------------------------------------------70 B CPA May 94 F-18 Property, Plant, and Equipment ------------------------------------------------------------------------71 A CPA Nov 93 T-34 Property, Plant, and Equipment ------------------------------------------------------------------------72 D CPA May 89 T-4 Property, Plant, and Equipment ------------------------------------------------------------------------73 B CPA May 88 T-9 Property, Plant, and Equipment ------------------------------------------------------------------------74 C CPA Nov 85 I-40 Property, Plant, and Equipment ------------------------------------------------------------------------75 D CMA Dec 86 4-11 Property, Plant, and Equipment ------------------------------------------------------------------------76 B CPA May 89 I-23 Property, Plant, and Equipment ------------------------------------------------------------------------77 A CPA Nov 91 I-16 Property, Plant, and Equipment ------------------------------------------------------------------------78 D CPA Nov 90 II-2 Property, Plant, and Equipment ------------------------------------------------------------------------79 B CPA May 90 I-19 Property, Plant, and Equipment ------------------------------------------------------------------------80 D CPA Nov 92 I-46 Property, Plant, and Equipment ------------------------------------------------------------------------81 B CPA May 92 II-11 Property, Plant, and Equipment ------------------------------------------------------------------------82 B CPA May 81 II-24 Property, Plant, and Equipment ------------------------------------------------------------------------83 B CPA May 95 F-36 Property, Plant, and Equipment ------------------------------------------------------------------------84 B CPA May 95 F-37 Property, Plant, and Equipment ------------------------------------------------------------------------85 C CPA May 90 II-58 Intangibles and Other Assets ------------------------------------------------------------------------86 B CPA May 90 I-20 Intangibles and Other Assets ------------------------------------------------------------------------------------------------------------------------------------------------Printed from Gleim's CPA Test Prep software (Copyright 1995). Page 29

87 B CPA May 93 I-23 Intangibles and Other Assets ------------------------------------------------------------------------88 A CPA Nov 93 I-25 Intangibles and Other Assets -------------------------------------------------------------------------

89 B CPA May 93 I-27 Intangibles and Other Assets ------------------------------------------------------------------------90 C CPA May 90 T-39 Intangibles and Other Assets ------------------------------------------------------------------------91 B CPA May 91 I-21 Intangibles and Other Assets ------------------------------------------------------------------------92 A CPA Nov 90 I-58 Intangibles and Other Assets ------------------------------------------------------------------------93 A CPA Nov 92 T-44 Intangibles and Other Assets ------------------------------------------------------------------------94 A CPA Nov 89 T-11 Intangibles and Other Assets ------------------------------------------------------------------------95 B PUBLISHER Intangibles and Other Assets ------------------------------------------------------------------------96 D CPA Nov 91 I-20 Intangibles and Other Assets ------------------------------------------------------------------------97 B CPA May 91 I-29 Intangibles and Other Assets ------------------------------------------------------------------------98 D CPA Nov 87 I-10 Intangibles and Other Assets ------------------------------------------------------------------------99 C CPA Nov 83 T-12 Intangibles and Other Assets ------------------------------------------------------------------------100 B CPA Nov 95 F-33 Intangibles and Other Assets -------------------------------------------------------------------------

------------------------------------------------------------------------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