Answers to the multiple choice questions must be recorded on the scantron form.

1. At the beginning of 2009, Angel Corporation began offering a 2-year warranty on its
products. The warranty program was epected to cost Angel !" of net sales. #et sales
made under warranty in 2009 were $1%0 million. &ifteen percent of the units sold were
returned in 2009 and repaired or replaced at a cost of $'.( million. The amount of
warranty epense on Angel)s 2009 income statement is*
a. $'.( million.
b. $+.2 million.
c. $1.9 million.
d. #one of the abo,e.
2. Cooper -nc. too. a physical in,entory count at the end of 200%. /urchases that were
ac0uired &12 destination were in transit, so they were not included in the physical
count.
a. Cooper needs to correct an accounting error.
b. Cooper has made a change in accounting principle, re0uiring retrospecti,e
ad3ustment.
c. Cooper is re0uired to ad3ust a change in accounting estimate prospecti,ely.
d. Cooper is not re0uired to ma.e any accounting ad3ustments.
(. The percentage-of-completion method ,iolates the general rule on re,enue recognition
that*
a. Collectibility is reasonably assured.
b. Costs are .nown or reasonably estimated.
c. The earnings process is complete or ,irtually complete.
d. Collections ha,e been recei,ed.
1
!. 4ou are re,iewing the 5ecember (1, 2009 financial statements of 6ewis -nc which is
considering an initial public offering of their shares. The following items come to your
attention*
6ewis has 7.8. Treasury bonds that mature in 9arch (1, 2010. The bonds were
purchased #o,ember 20, 2009.
6ewis has a parcel of land that cost $!0,000. 2ecause of rising land prices, the ,alue
of the land has been written up to $:0,000. The company has an independent appraisal
that attests to this amount.
;ow should these items be reported in the balance sheet<
a. The treasury bonds should be classified as short-term in,estments in the current
assets section of the balance sheet. The land should be reported in the property,
plant, and e0uipment category =non-current assets> at $:0,000.
b. The treasury bonds should be classified as cash e0ui,alents in the current assets
section of the balance sheet. The land should be reported as a long-term
in,estment =non-current assets> at $!0,000.
c. The treasury bonds should be classified as short-term in,estments in the current
assets section of the balance sheet. The land should be reported in the property,
plant, and e0uipment category =non-current assets> at $!0,000.
d. The treasure bonds should be classified as cash e0ui,alents in the current assets
section of the balance sheet. The land should be reported in the property, plant, and
e0uipment category =non-current assets> at $!0,000.
'. /owell Company had the following errors o,er the last two years*
200+* ?nding in,entory was o,erstated by $(0,000 while depreciation epense was
o,erstated by $2!,000.
200%* ?nding in,entory was understated by $',000 while depreciation epense was
understated by $!,000.
/owell uses a periodic in,entory system and has a 5ecember (1 fiscal year-end. -f the
errors are caught in 2009, what will be the ad3ustment to correct retained earnings<
a. -ncrease retained earnings by $1',000.
b. 5ecrease retained earnings by $2',000.
c. 5ecrease retained earnings by $:,000.
d. -ncrease retained earnings by $2',000.
2
:. C Co. reported a retained earnings balance of $200,000 at 5ecember (1, 200%. -n
8eptember 2009, C determined that insurance premiums of $(0,000 for the three-year
period beginning @anuary 1, 200%, had been paid and fully epensed in 200%. Ahat
amount should C report as ad3usted beginning retained earnings in its 2009 statement of
retained earnings< -gnore the income ta effects.
a. $210,000.
b. $1%0,000.
c. $220,000.
d. $221,000.
+. 1n April 1, 200(, 6ane, -nc. ac0uired e0uipment for $100,000. 6ane estimated a ten year
useful life and $10,000 sal,age ,alue for the e0uipment. 6ane used the double-declining
balance method to depreciate the e0uipment. 1n @anuary 1, 200:, 6ane switched to the
straight-line method of depreciation and also determined that the e0uipment would ha,e a
remaining useful life of four years. -n 6aneBs 5ecember (1, 200:, balance sheet, what was
the boo. ,alue of the e0uipment after depreciation is ta.en for 200:<
a. $11,100.
b. $!(,(00.
c. $!0,900.
d. #one of the abo,e.
%. Ahich of the following is not true of depreciation accounting<
a. -t is a method of asset ,aluation.
b. -t is part of the matching of epenses and re,enues.
c. -t must be systematic and rational.
d. #one of the abo,e.
(
9. Ahich of the following changes should be accounted for using the retrospecti,e
approach<
a. A change in the estimated life of a depreciable asset.
b. A change from straight-line to declining balance depreciation.
c. A change in the estimated sal,age ,alue of a depreciable asset.
d. A change from the completed-contract method of accounting for long-term construction
contracts.
10. -n 200%, Antle -nc. ac0uired 5ems.i Co. and recorded goodwill of $2!' million as a
result. The net assets =including goodwill> from Antle)s ac0uisition of 5ems.i Co. had a
2009 year-end boo. ,alue of $'%0 million. Antle assessed the fair ,alue of 5ems.i at this
date to be $+00 million, while the fair ,alue of all of 5ems.i)s identifiable tangible and
intangible assets =ecluding goodwill> was $''0 million. The amount of the impairment
loss that Antle would record for goodwill at the end of 2009 is*
a. $0.
b. $9' million
c. $1'0 million.
d. #one of the abo,e.
11. Cain contingencies usually are recogniDed in a company)s income statement when*
a. The amount of the gain can be reasonably estimated.
b. The gain is reasonably possible and the amount can be reasonably estimated.
c. The gain is probable and the amount can be reasonably estimated.
d. #one of the abo,e.
12. All but one of the following represent collections for third parties. Ahich one of the
following is not a collection for a third party<
a. 8ales taes.
b. Customer deposits.
c. ?mployee insurance deductions.
d. 8ocial security taes deductions.
!
1(. ;awthorne Company purchased three machines for a lump-sum price of $%0,000. The
mar.et ,alues of 9achine A, 2, and C were $1',000, $:0,000, and $!',000, respecti,ely.
5etermine the amounts &ullerton should capitaliDe for 9achines A and 2.
A. $10,000 for AE $!0,000 for 2.
2. $1',000 for AE $:0,000 for 2.
C. $12,000 for AE $!%,000 for 2.
5. #one of the abo,e.
1!. 2loomington -nc. echanged land for e0uipment and $(,000 in cash. The boo. ,alue and
the fair ,alue of the land gi,en up were $10!,000 and $90,000, respecti,ely. The
e0uipment recei,ed from ;arold -nc. had a boo. ,alue of $110,000 and a fair ,alue of
$%+,000. Assuming the echange had commercial substance, 2loomington would record
the e0uipment at FFFFFFFand would record a gainG=loss> of FFFFFF*
?0uipment Cain =loss>
A. $%+,000 $(,000.
2. $10!,000 $',000.
C. $%+,000 $=1!,000>.
5. #one of the abo,e.
1'. ;oliday 6aboratories purchased a high speed industrial centrifuge for $!20,000. 8hipping
costs totaled $1',000. &oundation wor. to house the centrifuge cost $%,000. An additional
water line had to be run to the e0uipment at a cost of $(,000. 6abor and testing costs
totaled $:,000. 9aterials used up in testing cost $(,000. Houtine maintenance costs during
the first year of use totaled $%,000. The capitaliDed cost is*
a. $!'',000.
b. $!!:,000.
c. $!:(,000.
d. #one of the abo,e.
'
1:. -n a recent annual report, Ailey Computer reported the following in one of its disclosure
notes* IAarranty ?pense* The Company recogniDes the estimated cost for product
warranties at the time the related re,enue is recogniDed.I This note eemplifies AileyBs
use of the*
a. Coing concern assumption.
b. 9atching principle.
c. HealiDation principle.
d. ?conomic entity assumption.
1+. 1n @anuary 1, 200:, 6ewis -nc. purchased a machine for $120,000. They estimated that
the machine would ha,e an eight year useful life. They depreciate the e0uipment using the
sum-of-the-yearBs digits method. They record depreciation epense of $1%,000 for the
fiscal year ending on 5ecember (1, 200%. Ahat was the estimated sal,age ,alue on the
e0uipment<
a. $2',000.
b. $10,000.
c. $1',000.
d. #one of the abo,e.
1%. 8hort Corporation purchased ;athaway, -nc. for $'2,000,000. The fair ,alue of all
;athaway)s net assets was $!%,000,000. 8hort will amortiDe any goodwill o,er the
maimum number of years allowed. Ahat is the annual amortiDation of goodwill for this
ac0uisition<
a. $0.
b. $100,000.
c. $200,000.
d. $!00,000.
19. An in,entory pricing procedure in which the oldest costs incurred rarely ha,e an effect on
the ending in,entory ,aluation is*
a. &-&1.
b. 6-&1.
c. Aeighted-a,erage.
d. All of the abo,e.
:
20. 6aurenBs 5esign -nc. purchased e0uipment on 9arch 1, 200:. The e0uipment had a useful
life of 20 years and a sal,age ,alue of $20,000. 6aurenBs 5esign depreciates the
e0uipment using the 1'0" declining balance method. -f 6auren recorded $11,%+' of
depreciation epense for the year ended 5ecember (1, 200:, what was the original cost of
the e0uipment<
a. $1'%,(((.
b. $210,000.
c. $190,000.
d. #one of the abo,e.
21. 1n 9arch (1, 2009, 9. 2elotti purchased the right to remo,e gra,el from an old roc.
0uarry. The gra,el is to be sold as roadbed for highway construction. The cost of the
0uarry rights was $1:!,000, with estimated salable roc. of 20,000 tons. 5uring 2009,
2elotti remo,ed !,000 tons of gra,el and sold 2,000 tons. Ahat was the total depletion of
the roc. 0uarry in 2009<
a. $!1,000.
b. $(2,%00.
c. $1:,!00.
d. #one of the abo,e.
22. 2efore year-end ad3usting entries, 2ass Company)s account balances at 5ecember (1,
200!, for accounts recei,able and the related allowance for uncollectible accounts were
$+00,000 and $!',000, respecti,ely. An aging of accounts recei,able indicated that
$:2,'00 of the 5ecember (1 recei,ables are epected to be uncollectible. Ahat is the net
realiDable ,alue of accounts recei,able on 5ecember (1, 200! after the ad3usting entry has
been recorded<
a. $:%2,'00.
b. $:(+,'00.
c. $'92,'00.
d. $:'',000.
2(. Ahen a deposit on returnable containers is forfeited, the firm holding the deposit will
eperience*
a. A decrease in cost of goods sold.
b. An increase in re,enue.
c. An increase in current liabilities.
d. An increase in accounts recei,able.
+
2!. -n,entory records for ;erb)s Chemicals re,ealed the following*
9arch 1, 2011, in,entory* 1,000 gallons J $+.20 K $+,200

?nding in,entory assuming 6-&1 in a periodic in,entory system would be*
a. $',0!0.
b. $',0''.
c. $',0+'.
d. $',1('.
2'. -n 2009, due to a change in mar.eting forecasts, 2arney Corporation reduced the pro3ected
life of its patent for producing round dice. The cumulati,e patent amortiDation prior to
2009 would ha,e been $10 million higher had the new life been used. 2arney should do a
prior period ad3ustment to retained earnings to*
a. -ncrease by $+ million.
b. 5ecrease $10 million.
c. -ncrease $10 million.
d. #o ad3ustment is necessary.
2:. An accounting change that is reported by the prospecti,e approach is reflected in the
financial statements of*
a. /rior years only.
b. /rior years plus the current year.
c. The current year only.
d. Current and future years.
%
7se the following information to answer 0uestions 2+ and 2%*
An audit of a company has re,ealed the following four errors that ha,e occurred but not yet
been corrected*
-n,entory at 5ecember (1, 200+* $!0,000 understated.
-n,entory at 5ecember (1, 200%* $1',000 o,erstated.
5epreciation for 200+* $+,000 understated.
Accrued epenses at 5ecember (1, 200%* $10,000 understated.
The company uses a periodic in,entory system and has a 5ecember (1 fiscal year-end.
2+. The errors cause reported net income for the year ending 5ecember (1, 200% to be*
a. 1,erstated by $+2,000.
b. 1,erstated by $:',000.
c. 7nderstated by $2%,000.
d. 7nderstated by $!',000.
2%. The errors cause reported retained earnings at 5ecember (1, 200% to be*
a. 1,erstated by $:',000.
b. 1,erstated by $(2,000.
c. 1,erstated by $2',000.
d. 7nderstated by $1%,000.
29. -n performing an audit, you encounter an ad3usting 3ournal entry recorded at year-end that
contains a debit to rental re,enue and a credit to unearned rental re,enue. The purpose of
this 3ournal entry is to record*
a. An accrued re,enue.
b. An ad,ance payment from a customer.
c. A deferred re,enue.
d. #one of the abo,e.
(0. &actors considered in determining an intangible asset)s useful life include all of the
following ecept*
a. the epected use of the asset.
b. any legal or contractual pro,isions that may limit the useful life.
c. any pro,isions for renewal or etension of the asset)s legal life.
d. the amortiDation method used.
9
7se the following information to answer 0uestions (1 and (2*
6arson -nc. maintains its records on a cash basis. At the end of each year the company)s
accountant obtains the necessary information to prepare accrual basis financial statements.
The following cash flows occurred during the year ended 5ecember (1, 200%*
Cash receipts*
&rom customers $:(',000
-ssuance of stoc. 90,000
2orrowing from ban. 210,000
Cash disbursements*
/ayment of salaries 1:',000
/urchase of in,entory 1%%,000
Annual rent payment (0,000
Annual insurance payment 2,000
/ayment of di,idends :,000
All sales are on credit. 8elected balance sheet information is below*
12G(1G0+ 12G(1G0%
Accounts recei,able $%%,000 $+0,000
/repaid insurance :,000 (,000
/repaid rent 1+,000 2!,000
-n,entory (0,000 '',000
8alaries payable !0,000 1%,000
-nterest payable 0 2,000
(1. Ahat is HaintreeBs salaries epense =on an accrual basis> for 200%<
a. $1:',000.
b. $1!(,000.
c. $1%+,000.
d. #one of the abo,e.
(2. Ahat is HaintreeBs insurance epense =on an accrual basis> for 200%<
a. $'000.
b. $2000.
c. $0.
d. #one of the abo,e.
10
((. Ahich of the following sets of conditions would gi,e rise to the accrual of a contingency
under current generally accepted accounting principles<
a. Amount of loss is reasonably estimable and e,ent occurs infre0uently.
b. Amount of loss is reasonably estimable and occurrence of e,ent is either probable or
reasonably possible.
c. ?,ent is unusual in nature and occurrence of e,ent is probable.
d. Amount of loss is reasonably estimable and occurrence of e,ent is probable.
(!. 2rowns,ille Company completes repair ser,ices and bills the customer for its ser,ices. #o
cash has yet been collected. Ahat is the effect of this transaction on the financial
statements<
Assets 6iabilities ?0uity #et -ncome
a. 5ecrease 5ecrease 5ecrease 5ecrease
b. -ncrease #o ?ffect -ncrease -ncrease
c. #o ?ffect #o ?ffect #o ?ffect #o ?ffect
d. -ncrease #o ?ffect 5ecrease -ncrease
('. 7nder which of the following depreciation methods is it possible for depreciation epense
to be higher in the later years of the assetBs useful life<
a. 8um-of-the-yearsB-digits method.
b. 7nits of production method.
c. 1+'" decling balance method.
d. #one of the abo,e.
11
(:. 1n 5ecember (1, 200%, 8also CorpBs balance sheet accounts increased by the following
amounts compared withthose at the end of the prior year*
Assets $1+%,000
6iabilities '!,000
Capital stoc. 1(2,000
5i,idends paid during 200% were $2:,000. ;ow much was net income for 200%<
a. $(!,000.
b. $2:,000.
c. $%,000.
d. #one of the abo,e.
(+. 1range Co. can estimate the amount of loss that will occur if a foreign go,ernment
epropriates some of the company)s asset in that country. -f epropriation is reasonably
possible, a loss contingency should be*
a. 5isclosed but not accrued as a liability.
b. 5isclosed and accrued as a liability
c. Accrued as liability but not disclosed.
d. #either accrued as a liability nor disclosed.

(%. 1range Co. can estimate Captain Coo. Cereal includes one coupon in each pac.age of
Cranola that it sells and offers a puDDle in echange for $2.00 and ( coupons. The puDDles
cost Captain Coo. $(.'0 each. ?perience indicates that 20" of the coupons e,entually
will be redeemed. 5uring the last month of 2009, the first month of the offer, Captain
Coo. sold : million boes of Cranola and 900,000 of the coupons were redeemed. Ahat
amount should Captain Coo. report as a liability for coupons on its 5ecember (1, 2009,
balance sheet<
a. $ 0.
b. $1'0,000.
c. $(00,000.
d. $!'0,000.
12
(9. 1n @anuary 1, 200%, Lalley Company traded e0uipment =which was purchased on @anuary
1, 200: for $'0,000 and depreciated on a straight-line basis assuming an epected useful
life of ' years and Dero sal,age ,alue> for similar producti,e e0uipment. At the time of the
echange, the e0uipment that Lalley ga,e up had a fair ,alue of $!',000. The e0uipment
recei,ed had a boo. ,alue of $!0,000E Lalley does not .now the fair ,alue of that
e0uipment. The echange does not ha,e commercial substance. At what ,alue should
Lalley record the new e0uipment<
a. $(0,000.
b. $!',000.
c. $!0,000.
d. #one of the abo,e.
!0. Corporation purchased all of the outstanding stoc. of Caldwell -nc., paying $2,+00,000
cash. @uliana assumed all of the liabilities of Caldwell. 2oo. ,alues and fair ,alues of
ac0uired assets and liabilities were*

@uliana would record goodwill of*
a. $1,1%0,000.
b. $:00,000.
c. $%%0,000.
d. #one of the abo,e.
!1. Ahen selling operational assets for cash*
a. The seller recogniDes a gain or loss for the difference between the cash recei,ed and
the fair ,alue of the asset sold.
b. The seller recogniDes a gain or loss for the difference between the cash recei,ed and
the boo. ,alue of the asset sold.
c. The seller recogniDes losses, but not gains.
d. #one of these.
!2. Theoretically, which of the following costs incurred in connection with a machine
purchased for use in a company)s manufacturing operations would be capitaliDed<
1(
Insurance on
machine while
in transit
Testing and
preparation of
machine for
use
A. 4es 4es
2. 4es #o
C. #o 4es
5. #o #o

!(. 5eal Company traded a deli,ery ,an and $10,000 cash for a newer deli,ery ,an owned by
?ast Corporation. The following information relates to the ,alues of the ,ans on the
echange date*
2oo. ,alue &air ,alue
1ld ,an $:0,000 $90,000
#ew ,an %0,000 100,000
Ahat amount should 5eal report as a gain or loss on the echange of ,ans, assuming the
echange has commercial substance<
A. $(0,000 gain.
2. $20,000 gain.
C. $10,000 loss.
5. #one of the abo,e.
1!