Intermediate Accounting Multiple choice questions

Multiple Choice, Question 65

Seasons Construction is constructing an office building under contract for Cannon Cafe. The contract calls for progress billings and payments of $620,000 each quarter. The total contract price is $7,440,000 and Seasons estimates total costs of $7,100,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2010.

At December 31, 2010, Seasons estimates that it is 30% complete with the construction, based on costs incurred. What is the total amount of Revenue from Long-Term Contracts recognized for 2010 and what is the balance in the Accounts Receivable account assuming Cannon Cafe has not yet made its last quarterly payment?

Revenue

Accounts Receivable

$2,130,000 $2,480,000

$2,232,000 $ 620,000

$2,480,000 $2,480,000

$2,130,000 $ 620,000

Multiple Choice, Question 95

Huggins Company has the following information at December 31, 2011 related to its pension plan:
Projected benefit obligation $4,000,000
Accumulated benefit obligation 3,200,000
Plan assets (fair value) 4,200,000
Accumulated OCI (PSC) 300,000

The amount of pension asset / liability Huggins Company would recognize at December 31, 2011 is

Pension liability of $300,000.

Pension asset of $1,000,000.

Pension liability of $800,000.

Pension asset of $200,000.

Multiple Choice, Question 50

Judd, Inc., owns 35% of Cosby Corporation. During the calendar year 2010, Cosby had net earnings of $300,000 and paid dividends of $30,000. Judd mistakenly recorded these transactions using the fair value method rather than the equity method of accounting. What effect would this have on the investment account, net income, and retained earnings, respectively?

Overstate, understate, understate

Understate, understate, understate

Understate, overstate, overstate

Overstate, overstate, overstate

Multiple Choice, Question 52

At the beginning of 2010, Pitman Co. purchased an asset for $600,000 with an estimated useful life of 5 years and an estimated salvage value of $50,000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-declining-balance method is being used. Pitman Co.'s tax rate is 40% for 2010 and all future years.

At the end of 2010, what is the book basis and the tax basis of the asset?

Book basis

Tax basis

$440,000

$360,000

$440,000

$310,000

$490,000

$310,000

$490,000

$360,000

Multiple Choice, Question 62

Which of the following statements about the recognition of a prior service cost related to a postretirement obligation is correct?

The prior service amount is recognized in the income statement in the current period.

The prior service cost is recognized in the income statement net of tax.

Restatement of previously issued annual financial statements is required.

The prior service cost amount affects comprehensive income in the current period.

Multiple Choice, Question 112

Valet Corp. began operations in 2010. An analysis of Valet's equity securities portfolio acquired in 2010 shows the following totals at December 31, 2010 for trading and available-for-sale securities:

Trading
Securities Available-for-Sale
Securities
Aggregate cost $90,000 $110,000
Aggregate fair value 65,000 95,000

What amount should Valet report in its 2010 income statement for unrealized holding loss?

$10,000.

$25,000.

$40,000.

$15,000.

Multiple Choice, Question 55

Winser, Inc. is engaged in extensive exploration for water in Utah. If, upon discovery of water, Winser does not recognize any revenue from water sales until the sales exceed the costs of exploration, the basis of revenue recognition being employed is the

cost recovery basis.

production basis.

sales (or accrual) basis.

cash (or collection) basis.

Multiple Choice, Question 23

The deferred tax expense is the

increase in balance of deferred tax asset plus the increase in balance of deferred tax liability.

decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability.

increase in balance of deferred tax asset minus the increase in balance of deferred tax liability.

increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.

Multiple Choice, Question 78

On November 1, 2010, Howell Company purchased 600 of the $1,000 face value, 9% bonds of Ramsey, Incorporated, for $632,000, which includes accrued interest of $9,000. The bonds, which mature on January 1, 2015, pay interest semiannually on March 1 and September 1. Assuming that Howell uses the straight-line method of amortization and that the bonds are appropriately classified as available-for-sale, the net carrying value of the bonds should be shown on Howell's December 31, 2010, balance sheet at

$622,080.

$632,000.

$600,000.

$623,000.

Multiple Choice, Question 29

Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income?

Fines and expenses resulting from a violation of law.

Depreciable property.

Advance rental receipts.

Product warranty liabilities.

Multiple Choice, Question 29

The accumulated benefit obligation measures

the shortest possible period for funding to maximize the tax deduction.

the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels.

an estimated total benefit at retirement and then computes the level cost that will be sufficient, together with interest expected to accumulate at the assumed rate, to provide the total benefits at retirement.

the pension obligation on the basis of the plan formula applied to years of service to date and based on future salary levels.

Multiple Choice, Question 45

An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as

Fair Value Method Equity Method

Income A reduction of the investment

A reduction of the investment Income

Income Income

A reduction of the investment A reduction of the investment

Multiple Choice, Question 78

On January 1, 2011, Newlin Co. has the following balances:
Projected benefit obligation $2,100,000
Fair value of plan assets 1,800,000

The settlement rate is 10%. Other data related to the pension plan for 2011 are:
Service cost $180,000
Amortization of prior service costs due to increase in benefits 60,000
Contributions 300,000
Benefits paid 105,000
Actual return on plan assets 237,000
Amortization of net gain 18,000

The fair value of plan assets at December 31, 2011 is

$2,430,000.

$2,250,000.

$2,232,000.

$2,214,000.

Multiple Choice, Question 31

Held-to-maturity securities are reported at

acquisition cost plus amortization of a discount.

acquisition cost.

fair value.

acquisition cost plus amortization of a premium

Multiple Choice, Question 88

Khan, Inc. reports a taxable and financial loss of $650,000 for 2011. Its pretax financial income for the last two years was as follows:
2009 $300,000
2010 400,000

The amount that Khan, Inc. reports as a net loss for financial reporting purposes in 2011, assuming that it uses the carryback provisions, and that the tax rate is 30% for all periods affected, is

$650,000 loss.

$195,000 loss.

$ -0-.

$455,000 loss.

Multiple Choice, Question 111

Green Construction Co. has consistently used the percentage-of-completion method of recognizing revenue. During 2010, Green entered into a fixed-price contract to construct an office building for $12,000,000. Information relating to the contract is as follows:

At December 31
2010 2011
Percentage of completion 15% 45%
Estimated total cost at completion $9,000,000 $9,600,000
Gross profit recognized (cumulative) 600,000 1,440,000

Contract costs incurred during 2011 were

$4,320,000.

$2,880,000.

$3,150,000.

$2,970,000.

Multiple Choice, Question 101

Interest cost included in pension expense recognized for a period by an employer sponsoring a defined-benefit pension plan represents the

shortage between the expected and actual returns on plan assets.

increase in the projected benefit obligation due to the passage of time.

increase in the fair value of plan assets due to the passage of time.

amortization of the discount on accumulated OCI (PSC).

Multiple Choice, Question 76

At the beginning of 2010; Elephant, Inc. had a deferred tax asset of $4,000 and a deferred tax liability of $6,000. Pre-tax accounting income for 2010 was $300,000 and the enacted tax rate is 40%. The following items are included in Elephant's pre-tax income:

Interest income from municipal bonds $24,000
Accrued warranty costs, estimated to be paid in 2011 $52,000
Operating loss carryforward $38,000
Installment sales revenue, will be collected in 2011 $26,000
Prepaid rent expense, will be used in 2011 $12,000

What is Elephant, Inc.'s taxable income for 2010?

$252,000

$348,000

$452,000

$300,000

Multiple Choice, Question 54

A reclassification adjustment is reported in the

income statement as an Other Revenue or Expense.

statement of comprehensive income as other comprehensive income.

statement of stockholders' equity.

stockholders' equity section of the balance sheet.

Multiple Choice, Question 41

Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire contract. In this case, the entire expected loss should be

deferred and recognized when the contract is completed, regardless of whether the percentage-of-completion or completed-contract method is employed.

recognized in the current period under the percentage-of-completion method, but the completed-contract method should defer recognition of the loss to the time when the contract is completed.

recognized in the current period under the completed-contract method, but the percentage-of-completion method should defer the loss until the contract is completed.

recognized in the current period, regardless of whether the percentage-of-completion or completed-contract method is employed.

Multiple Choice, Question 43

Uncertain tax positions

1. Are positions for which the tax authorities may disallow a deduction in whole or in part.
2. Include instances in which the tax law is clear and in which the company believes an audit is likely.
3. Give rise to tax expense by increasing payables or increasing a deferred tax liability.

I only.

I and III only.

II only.

I, II, and III.

Multiple Choice, Question 29

A sale should not be recognized as revenue by the seller at the time of sale if

payment was made by check.

the selling price is less than the normal selling price.

the buyer has a right to return the product and the amount of future returns cannot be reasonably estimated.

none of these.

Multiple Choice, Question 37

One component of pension expense is expected return on plan assets. Plan assets include

contributions made by the employer and contributions made by the employee when a contributory plan of some type is involved.

plan assets still under the control of the company.

only assets reported on the balance sheet of the employer as prepaid pension cost.

none of these.

Multiple Choice, Question 49

Tanner, Inc. incurred a financial and taxable loss for 2010. Tanner therefore decided to use the carryback provisions as it had been profitable up to this year. How should the amounts related to the carryback be reported in the 2010 financial statements?

The refund claimed should be reported as revenue in the current year.

The refund claimed should be shown as a reduction of the loss in 2010.

The refund claimed should be reported as a deferred charge and amortized over five years.

The reduction of the loss should be reported as a prior period adjustment.

Multiple Choice, Question 96

During 2010, Vaughn Corporation sold merchandise costing $1,500,000 on an installment basis for $2,000,000. The cash receipts related to these sales were collected as follows: 2010, $800,000; 2011, $700,000; 2012, $500,000.
What is the rate of gross profit on the installment sales made by Vaughn Corporation during 2010?

75%

60%

25%

40%