INT 3 EXAM 1

Unrealized holding gains or losses which are recognized in income are from debt securities classified as

When an investor's accounting period ends on a date that does not coincide with an interest receipt date for bonds held as an investment, the investor must

Debt securities that are accounted for at amortized cost, not fair value, are

Debt securities acquired by a corporation which are accounted for by recognizing
unrealized holding gains or losses that are included as other comprehensive income and
as a separate component of stockholders' equity are

Use of the effective-interest method in amortizing bond premiums and discounts results
in

Watt Company purchased $300,000 of bonds for $315,000. If Watt intends to hold the
securities to maturity, the entry to record the investment includes

Which of the following is not correct in regard to trading securities?

In accounting for investments in debt securities,

Investments in debt securities are generally recorded at

Jordan Company purchased ten-year, 10% bonds that pay interest semiannually. The
bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to
multiply the principal by the table value for

Investments in debt securities should be recorded on the date of acquisition at

An available-for-sale debt security is purchased at a discount. The entry to record the
amortization of the discount includes a

GAAP specifies that, regarding the amortization of a premium or discount on a debt
security, the

Koehn Corporation accounts for its investment in the common stock of Sells Company
under the equity method. Koehn Corporation should ordinarily record a cash dividend
received from Sells as

Under the equity method of accounting for investments, an investor recognizes its share
of the earnings in the period in which the

Judd, Inc., owns 35% of Cosby Corporation. During the calendar year 2021, 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?

A debt security is transferred from one category to another. Generally acceptable accounting principles require that for this particular reclassification (1) the security be transferred at fair value at the date of transfer, and (2) the unrealized gain or loss at the date of transfer currently carried as a separate component of stockholders' equity be amortized over the remaining life of the security. What type of transfer is being described?

Transfers between categories

On August 1, 2021, Dambro Company acquired 1,200, $1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1, 2018, and mature on April 30, 2027, with interest paid each October 31 and April 30. The bonds will be added to Dambro’s available-for-sale portfolio. The preferred entry to record the purchase of the bonds on August 1, 2021 is

On August 1, 2021, Fowler Company acquired $500,000 face value 10% bonds of Kasnic Corporation at 104 plus accrued interest. The bonds were dated May 1, 2021, and mature on April 30, 2026, with interest payable each October 31 and April 30. The bonds will be held to maturity. What entry should Fowler make to record the purchase of the bonds on August 1, 2021?

A contract

Richman Company purchased $1,200,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2021, with interest payable on July 1 and January 1. The bonds sold for $1,249,896 at an effective interest rate of 7%. Using the effective interest method, Richman Company decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2021 and December 31, 2021 by the amortized premiums of $4,248 and $4,392, respectively.

At December 31, 2021, the fair value of the Carlin, Inc. bonds was $1,272,000. What should Richman Company report as other comprehensive income and as a separate component of stockholders’ equity?

Kramer Company's equity securities portfolio which is appropriately included in current assets is as follows:

Ignoring income taxes, what amount should be reported as a charge against income in Kramer's 2021 income statement if 2021 is Kramer's first year of operation?

Richman Company purchased $1,200,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2021, with interest payable on July 1 and January 1. The bonds sold for $1,249,896 at an effective interest rate of 7%. Using the effective interest method, Richman Company decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2021 and December 31, 2021 by the amortized premiums of $4,248 and $4,392, respectively.

At February 1, 2022, Richman Company sold the Carlin bonds for $1,236,000. After accruing for interest, the carrying value of the Carlin bonds on February 1, 2022 was $1,240,500. Assuming Richman Company has a portfolio of available-for-sale debt investments, what should Richman Company report as a gain (or loss) on the bonds?

Ignoring income taxes, what amount should be reported as a charge against income in Kramer's 2021 income statement if 2021 is Kramer's first year of operation?

On its December 31, 2020, balance sheet, Trump Company reported its investment in
equity securities, which had cost $600,000, at fair value of $560,000. At December 31, 2021, the fair value of the securities was $585,000. What should Trump report on its 2021 income statement as a result of the increase in fair value of the investments in 2021?

During 2020, Woods Company purchased 80,000 shares of Holmes Corporation common stock for $1,260,000 as an equity investment. The fair value of these shares was $1,200,000 at December 31, 2020. Woods sold all of the Holmes stock for $17 per share on December 3, 2021, incurring $56,000 in brokerage commissions. Woods Company should report a realized gain on the sale of stock in 2021 of

On its December 31, 2020 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Fair Value Adjustment account. There was no change during 2021 in the composition of Calhoun’s portfolio of debt investments held as available-for-sale debt securities. The following information pertains to that portfolio: What amount of unrealized loss on these debt securities should be included in Calhoun's stockholders' equity section of the balance sheet at December 31, 2021?

On its December 31, 2020 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Fair Value Adjustment account. There was no change during 2021 in the composition of Calhoun’s portfolio of debt investments held as available-for-sale debt securities. The following information pertains to that portfolio: The amount of unrealized loss to appear as a component of comprehensive income for the year ending December 31, 2021 is

Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $600,000 on January 2, 2021. During 2021, Darby Company declared dividends of $100,000 and reported earnings for the year of $400,000. If Blanco Company used the fair value method of accounting for its investment in Darby Company, its Equity Investments (Darby) account on December 31, 2021 should be

Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $600,000 on January 2, 2021. During 2021, Darby Company declared dividends of $100,000 and reported earnings for the year of $400,000. If Blanco Company uses the equity method of accounting for its investment in Darby Company, its Equity Investments (Darby) account at December 31, 2021 should be

On January 1, 2021, Reston Company purchased 25% of Ace Corporation's common
stock; no goodwill resulted from the purchase. Reston appropriately carries this
investment at equity and the balance in Reston’s investment account was $1,170,000 at December 31, 2021. Ace reported net income of $700,000 for the year ended December 31, 2021, and paid cash dividends on common stock totaling $280,000 during 2021. How much did Reston pay for its 25% interest in Ace?

On December 31, 2021, Patel transferred its investment in security C from trading to
available-for-sale because Patel intends to retain security C as a long-term investment. What total amount of gain or loss on its securities should be included in Patel's income statement for the year ended December 31, 2021?

Revenue from a contract with a customer

A contract between Boeing and Delta in which Boeing supplies planes to Delta

On January 15, 2021, Bella Vista Company enters into a contract to build custom
equipment for ABC Carpet Company. The contract specified a delivery date of March 1.
The equipment was not delivered until March 31. The contract required full payment of
$75,000 30 days after delivery. The revenue for this contract should be

New Age Computers manufactures and sells pagers and radio paging systems which
include a 180 day warranty on product defects. It also sells an extended warranty which
provides an additional two years of protection. On May 10, it sold a paging system for
$4,500 and an extended warranty for another $1,400. The journal entry to record this
transaction would include

Seadrill Engineering licensed software to oil-drilling firms for 5 years. In addition to
providing the software, the company also provides consulting services and support to
ensure smooth operation of the software. The total transaction price is $420,000. Based on standalone values, the company estimates the consulting services and support have a value of $120,000 and the software license has a value of $300,000. Assuming the performance obligations are not interdependent, the journal entry to record the transaction includes

The transaction price

Companies can use the expected value to estimate variable consideration when

If a contract involves a significant financing component,

Noncash consideration should be

Consideration paid or payable to customers

When sales are made with a right of return, the company

The use of the net method of recognizing revenue by an agent

Consignments are a specialized marketing method whereby the

Consigned goods are recognized as revenues by the

Entertainment Tonight, Inc. manufactures and sells stereo systems that include an
assurance-type warranty for the first 90 days. Entertainment Tonight also offers an
optional extended coverage plan under which it will repair or replace any defective part
for 2 years beyond the expiration of the assurance-type warranty. The total transaction
price for the sale of the stereo system and the extended warranty is $3,000. The standalone price of each is $2,100 and $900, respectively. The estimated cost of the assurance-warranty is $350. The accounting for warranty will include a

On July 31, O’Malley Company contracted to have two products built by Taylor
Manufacturing for a total of $370,000. The contract specifies that payment will only occur after both products have been transferred to O’Malley Company. Taylor determines that the standalone prices are $200,000 for Product 1 and $170,000 for Product 2. On August 1, when Product 1 has been transferred, Taylor’s journal entry to record this event includes a

In accounting for a long-term construction-type contract using the percentage-of-
completion method, the gross profit recognized during the first year would be the
estimated total gross profit from the contract, multiplied by the percentage of the costs
incurred during the year to the

The Billings on Construction in Progress account is a(n)

The principal advantage of the completed-contract method is that

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

Marle Construction enters into a contract with a customer to build a warehouse for
$950,000 on March 30, 2021 with a performance bonus of $50,000 if the building is
completed by July 31, 2021. The bonus is reduced by $10,000 each week that completion is delayed. Marle commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: The transaction price for this transaction is

On June 1, 2021, Johnson & Sons sold equipment to James Landscaping Service in
exchange for a zero-interest bearing note with a face value of $110,000, with payment due in 12 months. The fair value of the equipment on the date of sale was $100,000. The
amount of revenue to be recognized on this transaction in 2021 is

Roche Pharmaceuticals entered into a licensing agreement with Zenith Lab for a new
drug under development. Roche will receive $8,100,000 if the new drug receives FDA approval. Based on prior approval, Roche determines that it is 85% likely that the drug will gain approval. The transaction price of this arrangement should be

Meyer & Smith is a full-service technology company. They provide equipment,
installation services as well as training. Customers can purchase any product or service
separately or as a bundled package. Container Corporation purchased computer
equipment, installation and training for a total cost of $144,000 on March 15, 2021. Estimated standalone fair values of the equipment, installation, and training are $90,000,
$60,000, and $30,000 respectively. The transaction price allocated to equipment,
installation and training is

Meyer & Smith is a full-service technology company. They provide equipment,
installation services as well as training. Customers can purchase any product or service
separately or as a bundled package. Container Corporation purchased computer
equipment, installation and training for a total cost of $144,000 on March 15, 2021. Estimated standalone fair values of the equipment, installation and training are $90,000,
$60,000 and $30,000 respectively. The journal entry to record the transaction on March
15, 2021 will include a

Botanic Choice sells natural supplements to customers with an unconditional sales return
if they are not satisfied. The sales returns extends 60 days. On February 10, 2021, a
customer purchases $4,000 of products (cost $2,000). Assuming that based on prior
experience, estimated returns are 20%. The journal entry to record the expected sales
return and cost of goods sold includes a

Arizona Communications contracted to set up a call center for the City of Phoenix. Under
the terms of the contract, Arizona Communications will design and set-up a call center
with the following costs:
In addition, Arizona Communications will maintain and service the equipment and
software to ensure smooth operations of the call center for an annual fee of $180,000. Ownership of equipment installed remains with the City of Phoenix. The contract costs that should be capitalized is

Seasons Construction is constructing an office building under contract for Cannon
Company and uses the percentage-of-completion method. The contract calls for progress
billings and payments of $1,550,000 each quarter. The total contract price is $18,600,000
and Seasons estimates total costs of $17,750,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2021. At December 31, 2021, 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 2021 and what is the balance in the Accounts Receivable account assuming Cannon Company has not yet made its last quarterly payment?

Seasons Construction is constructing an office building under contract for Cannon
Company and uses the percentage-of-completion method. The contract calls for progress
billings and payments of $1,550,000 each quarter. The total contract price is $18,600,000
and Seasons estimates total costs of $17,750,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2021. At December 31, 2022, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $18,000,000 due
to unanticipated price increases. What is reported in the balance sheet at December 31,
2022 for Seasons as the difference between the Construction in Process and the Billings
on Construction in Process accounts, and is it a debit or a credit?

Cooper Construction Company had a contract starting April 2021, to construct a
$24,000,000 building that is expected to be completed in September 2023, at an estimated cost of $22,000,000. At the end of 2021, the costs to date were $10,120,000 and the estimated total costs to complete had not changed. The progress billings during 2021 were $4,800,000 and the cash collected during 2021 was 3,200,000. Cooper uses the
percentage-of-completion method.
At December 31, 2021 Cooper would report Construction in Process in the amount of:

Hayes Construction Corporation contracted to construct a building for $7,500,000. Construction began in 2021 and was completed in 2022. Data relating to the contract are summarized below: Hayes uses the percentage-of-completion method as the basis for income recognition. For the years ended December 31, 2021, and 2022, respectively, Hayes should report gross profit of

Gomez, Inc. began work in 2021 on contract #3814, which provided for a contract price
of $19,200,000. Other details follow: Assume that Gomez uses the completed-contract method of accounting. The portion of the total gross profit to be recognized as income in 2022 is

Kiner, Inc. began work in 2021 on a contract for $21,000,000. Other data are as follows: If Kiner uses the completed-contract method, the gross profit to be recognized in 2022 is

Taxable income of a corporation

Taxable income of a corporation differs from pretax financial income because of

The deferred tax expense is the

Machinery was acquired at the beginning of the year. Depreciation recorded during the
life of the machinery could result in

A major distinction between temporary and permanent differences is

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?

Which of the following is a temporary difference classified as a revenue or gain that is
taxable after it is recognized in financial income?

Recognizing a valuation allowance for a deferred tax asset requires that a company

Which of the following temporary differences results in a deferred tax asset in the year
the temporary difference originates?
I. Accrual for product warranty liability.
II. Subscriptions received in advance.
III. Prepaid insurance expense.

Which of the following is not considered a permanent difference?

When a change in the tax rate is enacted into law, its effect on existing deferred income
tax accounts should be

Tax rates other than the current tax rate may be used to calculate the deferred income tax
amount on the balance sheet if

Recognition of tax benefits in the loss year due to a loss carryforward requires

At the beginning of 2021, Pitman Co. purchased an asset for $1,800,000 with an estimated useful life of 5 years and an estimated salvage value of $150,000. 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
20% for 2021 and all future years.
At the end of 2021, what are the book basis and the tax basis of the asset?

At the beginning of 2021, Pitman Co. purchased an asset for $1,800,000 with an estimated useful life of 5 years and an estimated salvage value of $150,000. 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
20% for 2021 and all future years.
At the end of 2021, which of the following deferred tax accounts and balances is reported
on Pitman’s balance sheet?

Hopkins Co. at the end of 2020, its first year of operations, prepared a reconciliation
between pretax financial income and taxable income as follows:
The estimated litigation expense of $4,000,000 will be deductible in 2021 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $2,000,000 in each of the next three years. The income tax rate is 20% for all years.
The deferred tax asset to be recognized is

Mitchell Corporation prepared the following reconciliation for its first year of operations:
The temporary difference will reverse evenly over the next two years at an enacted tax
rate of 30%. The enacted tax rate for 2021 is 25%.
What amount should be reported in its 2021 income statement as the deferred portion of
income tax expense?

A reconciliation of Gentry Company's pretax accounting income with its taxable income
for 2021, its first year of operations, is as follows:
The excess tax depreciation will result in equal net taxable amounts in each of the next
three years. Enacted tax rates are 30% in 2021, 25% in 2022 and 2023, and 20% in 2024.
The total deferred tax liability to be reported on Gentry's balance sheet at December 31,
2021, is

Khan, Inc. reports a taxable and financial loss of $2,250,000 for 2022. Its pretax financial income for the last two years was as follows: The amount that Khan, Inc. reports as a net loss for financial reporting purposes in 2022, assuming that it uses the carryback provisions, and that the tax rate is 20% for all periods affected, is

Wilcox Corporation reported the following results for its first three years of operation:
There were no permanent or temporary differences during these three years. Assume a
corporate tax rate of 20% for 2020 and 2021, and 30% for 2022.
Assuming that Wilcox elects to use the carryback provision, what income (loss) is
reported in 2021? (Assume that any deferred tax asset recognized is more likely than not
to be realized.)

Operating income and tax rates for C.J. Company’s first three years of operations were as
follows:

Munoz Corp.'s books showed pretax financial income of $3,600,000 for the year ended December 31, 2021. In the computation of federal income taxes, the following data were considered: What amount should Munoz report as its current federal income tax liability on its December 31, 2021 balance sheet?

Didde Corp. prepared the following reconciliation of income per books with income per
tax return for the year ended December 31, 2021:
Didde's effective income tax rate is 25% for 2021. What amount should Didde report in
its 2021 income statement as the current provision for income taxes?

In its 2021 income statement, Cohen Corp. reported depreciation of $3,700,000 and interest revenue on municipal obligations of $700,000. Cohen reported depreciation of $5,500,000 on its 2021 income tax return. The difference in depreciation is the only temporary difference, and it will reverse equally over the next three years. Cohen's enacted income tax rates are 25% for 2021, 20% for 2022, and 15% for 2023 and 2024. What amount should be included in the deferred income tax liability in Hertz's December 31, 2021 balance sheet?

For calendar year 2021, Kane Corp. reported depreciation of $1,600,000 in its income statement. On its 2021 income tax return, Kane reported depreciation of $2,400,000.
Kane's income statement also included $300,000 accrued warranty expense that will be deducted for tax purposes when paid. Kane's enacted tax rates are 20% for 2021 and 2022, and 15% for 2023 and 2024. The depreciation difference and warranty expense will reverse over the next three years as follows: These were Kane's only temporary differences. In Kane's 2021 income statement, the deferred portion of its provision for income taxes should be

Wright Co., organized on January 2, 2021, had pretax accounting income of $960,000 and taxable income of $3,120,000 for the year ended December 31, 2021. The only
temporary difference is accrued product warranty costs which are expected to be paid as
follows:
The enacted income tax rates are 25% for 2021, 20% for 2022 through 2024, and 15% for
2025. If Wright expects taxable income in future years, the deferred tax asset in Wright's
December 31, 2021 balance sheet should be

In determining the present value of the prospective benefits (often referred to as the
projected benefit obligation), which of the following are not considered by the actuary?

In a defined-benefit plan, the process of funding refers to

In all pension plans, the accounting problems include all the following except

In a defined-contribution plan, a formula is used that

In a defined-benefit plan, a formula is used that

Which of the following is not a characteristic of a defined-contribution pension plan?

Alternative methods exist for the measurement of the pension obligation (liability).
Which measure requires the use of future salaries in its computation?

The accumulated benefit obligation measures

The projected benefit obligation is the measure of pension obligation that

Differing measures of the pension obligation can be based on

Vested benefits

The relationship between the amount funded and the amount reported for pension
expense is as follows:

The computation of pension expense includes all the following except

In computing the service cost component of pension expense, the FASB concluded that

The interest on the projected benefit obligation component of pension expense

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

The actual return on plan assets

In accounting for a pension plan, any difference between the pension cost charged to
expense and the payments into the fund should be reported as

Which of the following items should be included in pension expense calculated by an
employer who sponsors a defined-benefit pension plan for its employees?

A corporation has a defined-benefit plan. A pension liability will result at the end of the year if the

When a company adopts a pension plan, prior service costs should be charged to

When a company amends a pension plan, for accounting purposes, prior service costs should be

Prior service cost is amortized on a

Whenever a defined-benefit plan is amended and credit is given to employees for years of service provided before the date of amendment

The actuarial gains or losses that result from changes in the projected benefit obligation are called

Gains and losses that relate to the computation of pension expense should be

The fair value of pension plan assets is used to determine the corridor and to calculate the expected return on plan assets

A pension fund gain or loss that is caused by a plant closing should be

A pension liability is reported when

A pension asset is reported when

Which of the following is true of pension termination?

According to the FASB, recognition of a liability is required when the projected benefit obligation exceeds the fair value of plan assets. Conversely, when the fair value of plan assets exceeds the projected benefit obligation, the Board

Which of the following disclosures of pension plan information would not normally be required?

Which of the following statements is true about postretirement health care benefits?

Presented below is pension information related to Woods, Inc. for the year 2021:
The amount of pension expense to be reported for 2021 is

Kraft, Inc. sponsors a defined-benefit pension plan. The following data relates to the
operation of the plan for the year 2021
The expected return on plan assets and the settlement rate were both 10%. The amount of pension expense reported for 2021 is

Presented below is information related to Jensen Inc. pension plan for 2021.
What amount should be reported for pension expense in 2021?

Barton, Inc. received the following information from its pension plan trustee concerning the operation of the company's defined-benefit pension plan for the year ended December 31, 2021
The service cost component of pension expense for 2021 is $600,000 and the amortization of prior service cost due to an increase in benefits is $80,000. The settlement
rate is 10% and the expected rate of return is 9%. What is the amount of pension expense
for 2021?

Hubbard, Inc. received the following information from its pension plan trustee
concerning the operation of the company's defined-benefit pension plan for the year
ended December 31, 2021
The service cost component of pension expense for 2021 is $1,040,000 and the amortization of prior service cost due to an increase in benefits is $210,000. The
settlement rate is 10% and the expected rate of return is 8%. What is the amount of
pension expense for 2021?

The following data are for the pension plan for the employees of Lockett Company.
Lockett’s contribution was $840,000 in 2021 and benefits paid were $750,000. Lockett estimates that the average remaining service life is 15 years
The actual return on plan assets in 2021 was

The following data are for the pension plan for the employees of Lockett Company.
Lockett’s contribution was $840,000 in 2021 and benefits paid were $750,000. Lockett estimates that the average remaining service life is 15 years
Assume that the actual return on plan assets in 2021 was $530,000. The unexpected gain on plan assets in 2021 was

On January 1, 2021, Newlin Co. has the following balances:
The fair value of plan assets at December 31, 2021 is

The following information relates to the pension plan for the employees of Turner Co.:
Turner estimates that the average remaining service life is 16 years. Turner's contribution was $1,323,000 in 2021 and benefits paid were $987,000.
The corridor for 2021 is

The following information pertains to Hopson Co.'s pension plan:
If no change in actuarial estimates occurred during 2021, Hopson's projected benefit
obligation at December 31, 2021 was

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

Logan Corp., a company whose stock is publicly traded, provides a noncontributory
defined-benefit pension plan for its employees. The company's actuary has provided the following information for the year ended December 31, 2021
The market-related asset value equals the fair value of plan assets. No contributions have been made for 2021 pension cost. In its December 31, 2021 balance sheet, Logan should report a pension asset / liability of

While only certain leases are currently accounted for as a sale or purchase, there is
theoretical justification for considering all leases to be sales or purchases. The principal reason that supports this idea is that

The classifications of a lease by the lessee are

Which of the following is a correct statement of one of the classification tests?

Lease payments include:
I. fixed payments
II. variable payments based on an index
III a bargain purchase option
IV. a guaranteed residual value

In computing the present value of the lease payments, the lessee should

Which of the following describes the lease term test?

The lease receivable amount includes the present value of

In an operating lease, the lessee records

In a finance lease, the lessee records

For a sales-type lease,

The right-of-use asset is increased by

If the lease in a sale-leaseback transaction meets one of the five lease tests and is
therefore accounted for as a finance lease, who records the asset on its books and which party records interest expense during the lease period?

Emporia Corporation is a lessee with a finance lease. The asset is recorded at $900,000 and has an economic life of 8 years. The lease term is 5 years. The asset is expected to have a fair value of $300,000 at the end of 5 years, and a fair value of $100,000 at the end of 8 years. The lease agreement provides for the transfer of title of the asset to the lessee at the end of the lease term. What amount of amortization expense would the lessee record for the first year of the lease?

Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal
annual payments of $344,152, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. If Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%, what is the amount recorded for the leased asset at the lease inception?

Gage Co. purchases land and constructs a service station and car wash for a total of
$540,000. At January 2, 2021, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $600,000 and immediately
leased from the oil company by Gage. Fair value of the land at time of the sale was
$60,000. The lease is a 10-year, noncancelable lease. Gage uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Gage at termination of the lease. A partial amortization schedule for this lease is as follows: From the viewpoint of the lessor, what type of lease is involved above?

Gage Co. purchases land and constructs a service station and car wash for a total of
$540,000. At January 2, 2021, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $600,000 and immediately
leased from the oil company by Gage. Fair value of the land at time of the sale was
$60,000. The lease is a 10-year, noncancelable lease. Gage uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Gage at termination of the lease. A partial amortization schedule for this lease is as follows: What is the discount rate implicit in the amortization schedule presented above?

Lease A does not contain a bargain purchase option, but the lease term is equal to 90
percent of the estimated economic life of the leased property. Lease B does not transfer
ownership of the property to the lessee by the end of the lease term, but the lease term is
equal to 75 percent of the estimated economic life of the leased property. How should the
lessee classify these leases?

On December 31, 2021, Burton, Inc. leased machinery with a fair value of $1,575,000 from Cey Rentals Co. The agreement is a six-year noncancelable lease requiring annual payments of $300,000 beginning December 31, 2021. The lease is appropriately
accounted for by Burton as a finance lease. Burton’s incremental borrowing rate is 11%.
Burton knows the interest rate implicit in the lease payments is 10%
In its December 31, 2021 balance sheet, Burton should report a lease liability of

Which of the following is not a retrospective-type accounting change?

Which of the following is accounted for as a change in accounting principle?

A company changes from the straight-line method to an accelerated method of
calculating depreciation, which will be similar to the method used for tax purposes. The
entry to record this change will include a

A company changes from percentage-of-completion to completed-contract method,
which is used for tax purposes. The entry to record this change should include a

Which of the following is (are) the proper time period(s) to record the effects of a change
in accounting estimate?

When a company decides to switch from the double-declining balance method to the
straight-line method, this change should be handled as a

The estimated life of a building that has been depreciated for 30 years of an originally
estimated life of 50 years has been revised to a remaining life of 10 years. Based on this
information, the accountant should

Presenting consolidated financial statements this year when statements of individual
companies were presented last year is

Counterbalancing errors do not include

If, at the end of a period, a company using perpetual inventory erroneously excluded
some goods from its ending inventory and also erroneously did not record the purchase of
these goods in its accounting records, these errors would cause

In the process of conversion from the equity method to the fair value method, the
earnings or losses that the investor previously recognized under the equity method
should:

On January 1, 2019, Knapp Corporation acquired machinery at a cost of $1,250,000. Knapp adopted the double-declining balance method of depreciation for this machinery and had been recording depreciation over an estimated useful life of ten years, with no residual value. At the beginning of 2022, a decision was made to change to the straight- line method of depreciation for the machinery. The depreciation expense for 2022 would be

During 2021, a construction company that began operations in 2019 changed from the
completed-contract method to the percentage-of-completion method for accounting
purposes but not for tax purposes. Gross profit figures under both methods for the past
three years appear below:
Assuming an income tax rate of 20% for all years, the effect of this accounting change on
prior periods should be reported by a credit of

On January 1, 2019, Nobel Corporation acquired machinery at a cost of $1,600,000. Nobel adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated life of ten years, with no residual value. At the beginning of 2022, a decision was made to change to the double-declining balance method of depreciation for this machine. Assuming a 20% tax rate, the cumulative effect of this accounting change on beginning retained earnings, is

Armstrong Inc. is a calendar-year corporation. Its financial statements for the years ended
12/31/20 and 12/31/21 contained the following errors:
Assume that the 2020 errors were not corrected and that no errors occurred in 2019. By
what amount will 2020 income before income taxes be overstated or understated?

Link Co. purchased machinery that cost $3,000,000 on January 4, 2019. The entire cost was recorded as an expense. The machinery has a nine-year life and a $200,000 residual
value. The error was discovered on December 20, 2021. Ignore income tax
considerations.
Link's income statement for the year ended December 31, 2021, should show the
cumulative effect of this error in the amount of

Which of the following should be reported as a prior period adjustment?

On December 31, 2021, Grantham, Inc. appropriately changed its inventory valuation
method to FIFO cost from weighted-average cost for financial statement and income tax
purposes. The change will result in a $3,500,000 increase in the beginning inventory at January 1, 2021. Assume a 20% income tax rate. The cumulative effect of this accounting change on beginning retained earnings is

A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows (indirect method), this event would be reflected as a(n)

Crabbe Company reported $80,000 of selling and administrative expenses on its income statement for the past year. The company had depreciation expense and an increase in prepaid expenses associated with the selling and administrative expenses for the year. Assuming use of the direct method, how would these items be handled in converting the accrual based selling and administrative expenses to the cash basis?

When preparing a statement of cash flows, a decrease in accounts receivable during a
period would cause which one of the following adjustments in determining cash flow
from operating activities?

In determining net cash flow from operating activities, a decrease in accounts payable
during a period

When using the indirect method to prepare the operating section of a statement of cash
flows, which of the following is deducted from net income to compute cash provided
bysed by operating activities?

Which of the following is true concerning the statement of cash flows?

An increase in inventory balance would be reported in a statement of cash flows using the
indirect method (reconciliation method) as a(n)

Which of the following is shown on a statement of cash flows?

How should significant noncash transactions be reported in the statement of cash flows
according to FASB Statement No. 95?

Equipment which cost $426,000 and had accumulated depreciation of $228,000 was sold
for $222,000. This transaction should be shown on the statement of cash flows (indirect method) as a(n)

An example of an inventory accounting policy that should be disclosed in a Summary of
Significant Accounting Policies is the

Which of the following is true regarding whether errors and irregularities are distortions
of facts?

The full disclosure principle, as adopted by the accounting profession, is best described
by which of the following?

Events that occur after the December 31, 2021 balance sheet date, but before the balance sheet
is issued, and provide additional evidence about conditions that existed at the balance
sheet date and affect the realizability of accounts receivable should be

Which of the following post-balance-sheet events would require adjustment of the
accounts before issuance of the financial statements?

Revenue of a segment includes

An operating segment is a reportable segment if

GAAP indicates that

Rondelli Manufacturing Company employs a standard cost system. A planned volume
variance in the first quarter of 2021, which is expected to be absorbed by the end of the
fiscal year, ordinarily should

How does the accounting profession view interim financial reports?

The general approach for handling advertising costs which benefit future quarters in
interim reports is to

If the financial statements examined by an auditor lead the auditor to issue an opinion
that contains an exception that is not of sufficient magnitude to invalidate the statement
as a whole, the opinion is said to be

The MD&A section of a company's annual report is to cover the following three items:

Which of the following best characterizes the difference between a financial forecast and
a financial projection?

Which of the following ratios measures long-term solvency?

The calculation of the times interest earned involves dividing