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4. At the beginning of 2006, Findlay Company received a three-year zero-interest-bearing $1,000 trade note. The market rate for equivalent notes was 8% at that time. Findlay reported this note as a $1,000 trade note receivable on its 2006 year-end statement of financial position and $1,000 as sales revenue for 2006. What effect did this accounting for the note have on Finney's net earnings for 2006, 2007, 2008, and its retained earnings at the end of 2008, respectively?
a. Overstate, overstate, understate, zero
b. Overstate, understate, understate, understate
c. Overstate, overstate, overstate, overstate
d. None of these

Titan, Inc.'s checkbook balance on December 31, 2007 was $21,200. In addition, Titan held the following items in its safe on December 31.
(1) A check for $450 from Peters, Inc. received December 30, 2007, which was not included in the checkbook balance.
(2) An NSF check from Garner Company in the amount of $900 that had been deposited at the bank, but was returned for lack of sufficient funds on December 29. The check was to be redeposited on January 3, 2008. The original deposit has been included in the December 31 checkbook balance.
(3) Coin and currency on hand amounted to $1,450.
The proper amount to be reported on Titan's balance sheet for cash at December 31, 2007 is
a. $21,300.
b. $22,200
c. $20,400.
d. $21,750.

32. On January 2, 2007, Spencer Co. bought a trademark from Stype, Inc. for $500,000. An independent research company estimated that the remaining useful life of the trademark was 10 years. Its unamortized cost on Stype's books was $400,000. In Spencer's 2007 income statement, what amount should be reported as amortization expense?
a. $20,000.
b. $25,000.
c. $40,000.
d. $50,000

17. In no case can "market" in the lower-of-cost-or-market rule be more than
a. estimated selling price in the ordinary course of business.
b. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal, an allowance for an approximately normal profit margin, and an adequate reserve for possible future losses.
c. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal and an allowance for an approximately normal profit margin.
d. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal

35. Select the correct statement from the following?
a. A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis.
b. A company may exclude a short-term obligation from current liabilities if the firm can demonstrate an ability to consummate a refinancing.
c. A company may exclude a short-term obligation from current liabilities if it is paid off after the balance sheet date and subsequently replaced by long-term debt before the balance sheet is issued.
d. None of these

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4. At the beginning of 2006, Findlay Company received a three-year zero-interest-bearing $1,000 trade note. The market rate for equivalent notes was 8% at that time. Findlay reported this note as a $1,000 trade note receivable on its 2006 year-end statement of financial position and $1,000 as sales revenue for 2006. What effect did this accounting for the note have on Finney's net earnings for 2006, 2007, 2008, and its retained earnings at the end of 2008, respectively?
a. Overstate, overstate, understate, zero
b. Overstate, understate, understate, understate
c. Overstate, overstate, overstate, overstate
***d. None of these

The note should have been recorded at the discounted price and interest income recognized over the life of the note. In 2006 all income is recognized and so the income is overstated, it is under stated in 2007 and 2008 when the interest income should recognized.
The retained earnings are correct at the end of 2008 as the life of the note is over.
The correct alternative would be ...

Solution Summary

The solution explains some multiple choice questions relating to net earnings, reporting on balance sheet, amortization expenses and more

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