M1 Balance Sheet, Income Statement, and Comprehensive Income Questions - PDF

QUESTION 1 During January Year 3, Doe Corp. agreed to sell the assets and product line of its Hart division. The decision represents a major strategic shift for Doe and will have a significant effect on its operations and financial results. The sale was completed on January 15, Year 4, and resulted...

QUESTION 1 During January Year 3, Doe Corp. agreed to sell the assets and product line of its Hart division. The decision represents a major strategic shift for Doe and will have a significant effect on its operations and financial results. The sale was completed on January 15, Year 4, and resulted in a gain on disposal of $900,000. Hart's operating losses were $600,000 for Year 3 and $50,000 for the period January 1 through January 15, Year 4. Disregarding income taxes, what amount of net gain (loss) should be reported in Doe's comparative Year 4 and Year 3 income statements? Year 3 Year 4 A. $0 $250,000 B. $(600,000) $850,000 C. $250,000 $0 D. $(650,000) $900,000 QUESTION 2 Which of the following items should be shown as a component of comprehensive income? A. Deferred revenue. B. Foreign-currency translation adjustment. C. Additional capital contribution. D. Dividend paid to a shareholder. QUESTION 3 A company's year-end comparative statement of financial position reflects the following changes from the prior year: cash increased by $40,000, total liabilities increased by $32,000, and all other assets decreased by $65,000. Which of the following statements is correct regarding the current-year change in the company's stockholders' equity? A. It increased by $25,000. B. It decreased by $57,000. C. It decreased by $32,000. D. It increased by $105,000. QUESTION 4 The following costs were incurred by Griff Co., a manufacturer: Accounting and legal fees $25,000 Freight-in 175,000 Freight-out 160,000 Officers salaries 150,000 Insurance 85,000 Sales representatives salaries 215,000 What amount of these costs should be reported as general and administrative expenses? A. $550,000 B. $260,000 C. $635,000 D. $810,000 QUESTION 5 Envoy Co. manufactures and sells household products. Envoy experienced losses associated with its small appliance group. Operations and cash flows for this group can be clearly distinguished from the rest of Envoy's operations. Envoy plans to sell the small appliance group with its operations. What is the earliest point at which Envoy should report the small appliance group as a discontinued operation? A. When Envoy receives an offer for the segment. B. When Envoy classifies it as held for sale. C. When Envoy first sells any of the assets of the segment. D. When Envoy sells the majority of the assets of the segment. QUESTION 6 Reclassification adjustments must be shown in the financial statement that discloses comprehensive income: A. To avoid including transactions with shareholders in items of comprehensive income. B. To show what portion of comprehensive income is from the realization of current assets. C. To avoid double counting in comprehensive income items, which are currently displayed in net income. D. To show the tax effect of items of comprehensive income. QUESTION 7 Which of the following is not used in the calculation of comprehensive income? A. Unrealized gain on available-for-sale debt securities held at year-end. B. Realized losses on trading debt securities sold during the year. C. Gain on reissuance of treasury stock under the cost method. D. Losses from foreign currency translations. QUESTION 8 Under U.S. GAAP, the effect of a material transaction that is infrequent in occurrence but not unusual in nature should be presented separately as a component of income from continuing operations when the transaction results in a: Gain Loss A. Yes No B. Yes Yes C. No No D. No Yes QUESTION 9 Which of the following items would not be found in comprehensive income? A. Nonmonetary exchanges of common stock for productive assets. B. Recognition of prior service cost due to pension plan amendment. C. Unrealized losses from changes in the value of available-for-sale debt securities. D. Income from continuing operations. QUESTION 10 Which of the following items is not classified as "other comprehensive income?" A. Minimum pension liability equity adjustment for a defined-benefit pension plan. B. Gains from extinguishment of debt. C. Unrealized gains for the year on available-for-sale debt securities. D. Foreign currency translation adjustments. QUESTION 11 On October 1, 20X4, Host Co. approved a plan to dispose of one of the company's operating segments. The decision represents a major strategic shift for Host and will have a significant effect on its operations and financial results. Host expected that the sale would occur on April 1, 20X5 at an estimated gain of $350,000. The segment had actual and estimated operating losses as follows: 1/1/X4 to 9/30/X4 $(300,000) 10/1/X4 to 12/31/X4 (200,000) 1/1/X5 to 3/31/X5 (400,000) In its 20X4 income statement, what should Host report as a loss from discontinued operations before income taxes? A. $900,000 B. $550,000 C. $500,000 D. $200,000 QUESTION 12 On November 1, Year 1, Smith Co. contracted to dispose of an industry segment. Throughout Year 1 the segment had operating losses. These losses were expected to continue until the segment's disposition. If a loss is projected on final disposition, how much of the operating losses should be included in the loss from discontinued operations reported in Smith's Year 1 income statement? I. Operating losses for the period January 1 to October 31, Year 1. II. Operating losses for the period November 1 to December 31, Year 1. III. Estimated operating losses for the period January 1 to February 28, Year 2. A. I and II only. B. I and III only. C. II and III only. D. II only. QUESTION 13 For the fiscal year ended June 30, Year 1, Safety Toys Company reported after-tax income from continuing operations of $87,500,000 and income from discontinued operations of $5,650,000 (net of tax). There were no other items impacting the company's net earnings. Additionally, the company had a foreign currency translation gain of $1,100,000 (net of tax) and an $800,000 loss (net of tax) from a current amendment impacting Safety's prior service cost associated with its pension plan's funded status. Given the above and assuming that a $55,000 loss from a fair value hedge was included in reported income from continuing operations, what is the company's comprehensive income for the fiscal year ended June 30, Year 1? A. $91,300,000 B. $87,800,000 C. $93,450,000 D. $94,195,000 QUESTION 14 Which of the following statements is correct regarding the reporting of comprehensive income? A. All companies must present a statement of comprehensive income. B. The statement of comprehensive income can be shown as part of the footnotes only or as a separate financial statement. C. Comprehensive income may be presented in a single financial statement that presents both net income and comprehensive income. D. Other comprehensive income per share is presented in a statement of comprehensive income. QUESTION 15 What is the purpose of reporting comprehensive income? A. To summarize all changes in equity from nonowner sources. B. To reconcile the difference between net income and cash flows provided from operating activities. C. To provide a consolidation of the income of the firm's segments. D. To provide information for each segment of the business. QUESTION 15 A European company has made a purchase, which it intends to pay for in Japanese yen. Which of the following exchange rate movements will give rise to a loss for the company? I. The euro depreciating versus the yen II. The yen appreciating versus the euro III. When more euros are needed to purchase one yen IV. When more yen are needed to purchase one euro A. III only. B. I, II, and III. C. IV only. D. I, II, and IV QUESTION 16 A company reports the following information as of December 31: Sales revenue $800,000 Cost of goods sold 600,000 Operating expenses 90,000 Unrealized holding gain on available-for-sale debt securities, net of tax 30,000 What amount should the company report as comprehensive income as of December 31? A. $200,000 B. $30,000 C. $110,000 D. $140,000 QUESTION 17 The balance in the accumulated other comprehensive income account at the end of the current year is a debit balance. Where in the financial statements should the balance be properly shown? A. In the balance sheet as a reduction of equity. B. In the balance sheet as an asset. C. As an expense net of tax between discontinued operations and net income. D. As an expense on the statement of comprehensive income. QUESTION 18 Coffey Corp.'s trial balance of Income Statement Accounts for the year ended December 31 as follows: Debit Credit Net sales $ 1,600,000 Cost of goods sold $ 960,000 Selling expenses 235,000 Administrative expenses 150,000 Interest expense 25,000 Gain on debt extinguishment 10,000 Totals $ 1,370,000 $ 1,610,000 Coffey uses U.S. GAAP and has an income tax rate of 30%. The gain on debt extinguishment is considered a usual and recurring part of Coffey's operations. Coffey prepares a multiple-step income statement. Income from continuing operations before income tax is: A. $240,000 B. $190,000 C. $200,000 D. $230,000 QUESTION 19 Which of the following statements regarding the reporting options for other comprehensive income is true? A. When companies choose to report their comprehensive income as part of the statement of changes in stockholder's equity, this is shown under the retained earnings column. B. If the two statement method for reporting comprehensive income is used, companies have the choice of reporting each line net of tax or before related taxes, with one amount shown for the aggregate income tax expense or benefit related to the total of all comprehensive income items. C. If the single statement method of reporting comprehensive income is used, the comprehensive income items cannot be reported net of tax, and instead the tax related to all comprehensive items must be included on one line. D. Companies that report net income and comprehensive income on a single statement must ensure that the earnings per share calculation includes both net income and other comprehensive income. QUESTION 20 On December 2, Year 1, Flint Corp.'s board of directors voted to discontinue operations of its frozen food division and to sell the division's assets on the open market as soon as possible. This decision represents a major strategic shift for Flint and will have a significant effect on operations and financial results. The division reported net operating losses of $20,000 in December and $30,000 in January. On February 26, Year 2, sale of the division's assets resulted in a gain of $90,000. Assuming that the frozen foods division qualifies as a component of the business and ignoring income taxes, what amount of gain/loss from discontinued operations should Flint recognize in its income statement for Year 2? A. $0 B. $90,000 C. $60,000 D. $40,000 QUESTION 21 The Jones Corp., a U.S. company with a calendar year-end, enters into a transaction to purchase goods from a Japanese company for 800,000 yen. The transaction occurred April 20 and was settled May 20. The exchange rate on April 20 was 80 yen per 1 U.S. dollar, but the exchange rate changed to 82 yen per 1 U.S. dollar on May 20. The May journal entries on Jones' books will show a: A. Credit to foreign exchange gain of $240. B. Debit to foreign exchange loss of $240. C. Debit to accounts payable of $9,760. D. Credit to cash of $10,000. QUESTION 22 For the eight months ended August 31, Year 5, the carpet division of a flooring company, which is considered a major line of business, had an operating loss of $115,000 from operations. On September 1, Year 5, the board of directors voted to discontinue the division's operations. On December 31, Year 5, the division was sold for a pretax loss of $135,000. The division's operating loss for Year 5 was $240,000. The company's income tax rate is 30 percent. What amount of loss should the company report as discontinued operations in the December 31, Year 5, income statement? A. $168,000 B. $260,000 C. $182,000 D. $262,500 QUESTION 23 In preparing the two-statement approach for displaying comprehensive income, an accountant will most likely include: A. Foreign currency remeasurement items, gross (before tax). B. Unrealized holding losses on available-for-sale debt securities, net of tax. C. Earnings before interest and taxes. D. Totals for revenues and expenses. QUESTION 24 According to the FASB conceptual framework, comprehensive income includes which of the following? Loss on discontinued Investments operations by owners A. No No B. No Yes C. Yes Yes D. Yes No QUESTION 25 A partial listing of a company's accounts is presented below: Revenues $ 80,000 Operating expenses 50,000 Foreign currency translation adjustment gain, net of tax 4,000 Income tax expense 10,000 What amount should the company report as net income? A. $34,000 B. $30,000 C. $20,000 D. $24,000 QUESTION 26 Lift Inc. has the following four holdings in its portfolio of marketable securities: Bond W, classified as an available-for-sale security. Bond X, classified as a held-to-maturity security. Bond Y, classified as a trading security. Stock Z, classified as a trading security. Which of the following events will impact Lift's other comprehensive income balance? A. Bond X is sold prior to maturity for a loss. B. Bond W has an unrealized gain. C. Bond Y has an unrealized loss for the year. D. Stock Z is sold for a realized gain in the current year. QUESTION 27 Which of the following statements is true regarding the calculation of comprehensive income? A. It will exclude cash dividends paid and include stock dividends paid to shareholders. B. It will include cash dividends paid and exclude stock dividends paid to shareholders. C. It will include losses on discontinued operations. D. It will exclude losses on discontinued operations. QUESTION 28 Candy Co., a U.S. company, imported goods for 790,000 yen on November 15, Year 1. Candy Co. paid for the goods on December 15 of the same year. The following exchange rates were applicable: Date Exchange Rate Nov. 15, Yr. 1 $0.013 Dec. 15, Yr. 1 $0.020 On November 15, Year 1, Candy Co. will book a: A. Credit to foreign exchange transaction loss of $5,530. B. Credit to foreign exchange transaction gain of $5,530. C. Debit to accounts payable of $10,270. D. Debit to purchases of $10,270. QUESTION 29 When translating a foreign financial statement, where would the gains and losses from remeasurement and translation be reported? Remeasurement Translation A. Other comprehensive income Other comprehensive income B. Net income Other comprehensive income C. Other comprehensive income Net income D. Net income Net income QUESTION 30 The following items were among those that were reported on Lee Co.'s income statement for the year ended December 31: Legal and audit fees $ 170,000 Rent for office space 240,000 Interest on inventory floorplan 210,000 Loss on abandoned data processing equipment used in operations 35,000 The office space is used equally by Lee's sales and accounting departments. What amount of the above-listed items should be classified as general and administrative expenses in Lee's multiple-step income statement? A. $290,000 B. $500,000 C. $410,000 D. $325,000 QUESTION 31 On June 19, Don Co., a U.S. company, sold and delivered merchandise on a 30-day account to Cologne GmbH, a German corporation, for 200,000 euros. On July 19, Cologne paid Don in full. Relevant currency exchange rates were: June 19 July 19 Spot rate $.988 $.995 30-day forward rate.990 1.000 What amount should Don record on June 19 as an account receivable for its sale to Cologne? A. $198,000 B. $199,000 C. $200,000 D. $197,600 QUESTION 32 A company decided to sell an unprofitable division of its business. The company can sell the entire operation for $800,000, and the buyer will assume all assets and liabilities of the operations. The tax rate is 30%. The assets and liabilities of the discontinued operation are as follows: Buildings $5,000,000 Accumulated depreciation 3,000,000 Mortgage on buildings 1,100,000 Inventory 500,000 Accounts payable 600,000 Accounts receivable 200,000 What is the after-tax net loss on the disposal of the division? A. $2,200,000 B. $1,540,000 C. $200,000 D. $140,000 QUESTION 33 On October 31, Year 1, a U.S. auto parts company purchased brake pads on credit from a Canadian auto parts wholesale supplier for C$250,000. The Canadian supplier will be paid (settled) on January 31, Year 2. The following (US$/C$) exchange rates are in effect: October 31, Y1 US$0.90 December 31, Y1 US$0.85 January 31, Y2 US$0.93 What is the journal entry (if any) made December 31, Year 1, by the U.S auto parts company assuming the initial journal entry was made October 31, Year 1? A. No journal entry B. Debit (Dr) Credit (Cr) Accounts payable $ 11,250 Foreign exchange transaction gain $ 11,250 C. Debit (Dr) Credit (Cr) Foreign exchange transaction loss $ 12,500 Accounts payable $ 12,500 D. Debit (Dr) Credit (Cr) Accounts payable $ $12,500 Foreign exchange transaction gain $ $12,500 QUESTION 34 Noshima, a Japanese company, exports goods to Jacobs, a U.S. company. If the transaction is to be settled in yen, which of the following statements is correct? A. Jacobs will book a gain if the U.S. dollar appreciates versus the Japanese yen. B. Jacobs will book a gain if the Japanese yen appreciates versus the U.S. dollar. C. Noshima will book a gain if the Japanese yen depreciates versus the U.S. dollar. D. Noshima will book a gain if the U.S. dollar appreciates versus the Japanese yen QUESTION 35 A company has the following items on its year-end trial balance: Net sales $ 500,000 Common stock 100,000 Insurance expense 75,000 Wages 50,000 Cost of goods sold 100,000 Cash 40,000 Accounts payable 25,000 Interest payable 20,000 What is the company's gross profit? A. $500,000 B. $275,000 C. $230,000 D. $400,000 QUESTION 36 For the fiscal year ended September 30, Year 1, Safe Instruments Company (SIC) reported net sales, gross profit, and operating income of $375,000,000, $180,000,000, and $135,000,000, respectively. The company also reported net interest expense of $45,000,000 and had a tax rate of 40%. Other pertinent income statement items included a discontinued operations loss of $20,000,000, net of tax. If SIC had other comprehensive income totaling $3,500,000 during the fiscal year, what is the company's reported comprehensive income for September 30, Year 1? A. $56,500,000 B. $37,500,000 C. $45,100,000 D. $83,500,000 QUESTION 37 A company's balance in accumulated other comprehensive income from one period to the next will be: A. Decreased by pension gains resulting from actual returns exceeding expected returns. B. Increased by the amortization of prior period pension service costs. C. Increased by a gain from a discontinued division. D. Decreased by a loss from an earthquake. QUESTION 38 Scott Corporation sold a fixed asset used for operations for greater than its carrying amount. Scott should report the transaction in the income statement using the: A. Net concept, showing the total gain as part of discontinued operations, net of income taxes. B. Net concept, showing the total amount as a component of other comprehensive income, net of income taxes. C. Net concept, showing the total gain as part of continuing operations, not net of income taxes. D. Gross concept, showing the proceeds as part of revenues and the carrying amount as part of expenses in the continuing operations section. QUESTION 39 On September 22, Year 4, Yumi Corp. purchased merchandise from an unaffiliated foreign company for 10,000 units of the foreign company's local currency. On that date, the spot rate was $0.55. Yumi paid the bill in full on March 20, Year 5, when the spot rate was $0.65. The spot rate was $0.70 on December 31, Year 4. What amount should Yumi report as a foreign currency transaction loss in its income statement for the year ended December 31, Year 4? A. $1,000 B. $1,500 C. $0 D. $500 QUESTION 40 Which of the following assets or transactions is an element of comprehensive income? A. Sales revenue. B. Investments by owners. C. Distributions to owners. D. Deferred revenue. QUESTION 41 Stuff Inc., a U.S. company, imported goods for 50,000 euro on Dec. 10, Year 1 and paid for them on Jan. 10, Year 2. The following exchange rates were applicable in Years 1 and 2: Date Exchange Rate Dec. 10, Yr. 1 0.79 € Dec. 31, Yr. 1 0.82 € Jan. 10, Yr. 2 0.75 € What approximate gain or loss will Stuff book on Jan. 10, Year 2? A. A loss of $5,500. B. A gain of $3,000. C. A loss of $3,000. D. A gain of $5,500. QUESTION 42 On October 1 of the current year, a U.S. company sold merchandise on account to a British company for 2,000 pounds (exchange rate, 1 pound = $1.43). At the company's December 31 fiscal year end, the exchange rate was 1 pound = $1.45. The exchange rate was 1 pound = $1.50 on collection in January of the subsequent year. What amount would the company recognize as a gain(loss) from foreign currency transactions when the receivable is collected? A. $0 B. $100 C. $140 D. ($140) QUESTION 43 Will & Hart Inc., a U.S. company, had the following transactions with foreign companies during Year 1: 1. Purchase of a vehicle directly from a foreign manufacturer for $5,000 less than fair value. 2. Sale of merchandise on credit for 100,000 euros when the spot rate was $1.01. The spot rate at the end of the year is $0.98. The payment for this sale will be made in Year 2. What amount should Will & Hart show as gain (loss) from foreign currency transactions for Year 1? A. $2,000 B. $3,000 C. $8,000 D. ($3,000) QUESTION 44 On October 13, Year 2, Gallant Enterprises purchased goods on credit for 10,000 Swiss francs when the spot rate was $0.18 per franc. On January 13, Year 3, Gallant paid the account off in full, when the spot rate was $0.22 per franc. At December 31, Year 2, the spot rate was $0.23 per franc. Which of the below entries would be found in the books of Gallant Enterprises as a result of this entry? A. Debit (Dr) Credit (Cr) Purchases $ 1,800 Accounts payable $ 1,800 B. Debit (Dr) Credit (Cr) Accounts payable $ 500 Foreign exchange loss $ 500 C. Debit (Dr) Credit (Cr) Purchases $ 2,200 Accounts payable $ 2,200 D. Debit (Dr) Credit (Cr) Accounts payable $ 500 Foreign exchange gain $ 500 QUESTION 45 A segment of Ace Inc. was discontinued during Year 1. Ace's loss from discontinued operations should not : A. Include operating losses of the current period up to the date the decision to dispose of the segment was made. B. Include employee relocation costs associated with the decision to dispose. C. Exclude operating losses from the date the decision to dispose of the segment was made until the end of Year 1. D. Include additional pension costs associated with the decision to dispose. QUESTION 46 The balance in accumulated other comprehensive income from one period to the next will change as a result of changes in: A. Net income only. B. Retained earnings. C. Other comprehensive income only. D. Net income and other comprehensive income. QUESTION 47 On October 1, Year 1, Mild Co., a U.S. company, purchased machinery from Grund, a German company, with payment due on April 1, Year 2. If Mild's Year 1 operating income included no foreign exchange transaction gain or loss, then the transaction could have: A. Caused a foreign currency transaction gain to be reported as a component of other comprehensive income in stockholders' equity. B. Caused a foreign currency gain to be reported as a contra account against machinery. C. Caused a foreign currency translation gain to be reported as a component of other comprehensive income in stockholders' equity. D. Been denominated in U.S. dollars. QUESTION 48 One of the elements of a financial statement is comprehensive income. Comprehensive income excludes changes in equity resulting from which of the following? A. Unrealized loss on investments in non-current marketable equity securities. B. Prior period error correction. C. Dividends paid to stockholders. D. Loss from discontinued operations. QUESTION 49 In Baer Food Co.'s single-step income statement, the section titled "Revenues" consisted of the following: Net sales revenue $187,000 Results from discontinued operations: Loss from operations of component (2,400) (net of $1,200 tax effect) Gain on disposal of component 14,400 12,000 (net of $7,200 tax effect) Interest revenue 10,200 Gain on sale of equipment 4,700 Total revenues $213,900 In the revenues section of its income statement, Baer Food should have reported total revenues of: A. $216,300 B. $215,400 C. $203,700 D. $201,900 QUESTION 51 Brock Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative. The adjusted trial balance at December 31 included the following expense and loss accounts: Accounting and legal fees $ 120,000 Advertising 150,000 Freight out 80,000 Interest 70,000 Loss on sale of long-term investment 30,000 Officers' salaries 225,000 Rent for office space 220,000 Sales salaries and commissions 140,000 One-half of the rented premises is occupied by the sales department. Brock's total selling expenses are: A. $360,000 B. $400,000 C. $480,000 D. $370,000 QUESTION 52 According to the FASB conceptual framework, which of the following would cause earnings to differ from comprehensive income? A. Realized gain from sale of held-to-maturity debt security. B. Unrealized holding loss from available-for-sale debt securities. C. Dividends declared but not paid. D. Unrealized holding gain from trading debt securities. QUESTION 53 Toigo Co. purchased merchandise from a vendor in England on November 20 for 500,000 British pounds. Payment was due in British pounds on January 20. The spot rates to purchase one pound were as follows: November 20 $ 1.25 December 31 1.20 January 20 1.17 How should the foreign currency transaction gain be reported on Toigo's financial statements at December 31? A. A gain of $25,000 as a separate component of stockholders' equity. B. A gain of $40,000 as a separate component of stockholders' equity. C. A gain of $40,000 in the income statement. D. A gain of $25,000 in the income statement. QUESTION 54 Which of the following statements regarding comprehensive income is correct? A. The relationship between net income and retained earnings is analogous to the relationship between other comprehensive income and accumulated other comprehensive income. B. Comprehensive income must always equal or exceed net income. C. Discontinued operations are the last items recorded in comprehensive income. D. Other comprehensive income is a permanent account, which never gets closed, thus it carries its balance over from one year to the next. QUESTION 55 Which of the following statements is correct regarding reporting comprehensive income? A. Comprehensive income is reported in the year-end statements but not in the interim statements. B. Comprehensive income must include all changes in stockholders' equity for the period. C. A separate statement of comprehensive income is required. D. Accumulated other comprehensive income is reported in the stockholders' equity section of the balance sheet. QUESTION 56 On March 10, the East Company (U.S.) settled a transaction for the purchase of goods originally valued at 80,000 British pounds. The purchase was initiated on January 10, when the exchange rate was $1.60 per 1 pound. One month later, the exchange rate was $1.55 per pound. If East booked a credit to cash of $120,000 upon settlement, it also must have booked a: A. Gain of $8,000. B. Loss of $8,000. C. Loss of $4,000. D. Gain of $4,000. QUESTION 57 For a company to obtain a retail business license in a particular state, the company is required to pay the state the equivalent of three months of sales taxes on its projected retail sales. This amount is fully refundable after five years, provided the company has filed all required sales tax returns and paid all sales taxes due. Initially the company should report the payment related to this licensing requirement as: A. A noncurrent asset. B. A noncurrent liability. C. A current asset. D. An expense. QUESTION 58 Ignoring taxes, which of the following situations will cause comprehensive income to decrease? A. A dividend payout to company shareholders. B. The amortization of an actuarial pension loss. C. An unrealized gain on an available-for-sale security. D. An unrealized loss on a trading security. QUESTION 59 George Inc. prepares its financial statements using U.S. GAAP and has the following balances at December 31: Unrecognized prior service cost of pensions $ 75,000 Unrealized gains on available-for-sale debt securities 100,000 Unrealized losses on trading securities 140,000 Net income 260,000 What amount should George report as comprehensive income for the year ended December 31? A. $285,000 B. $360,000 C. $45,000 D. $145,000 QUESTION 60 Which of the following is an accurate statement regarding tax reporting issues pertaining to other comprehensive income items? A. The income tax expense or benefit for each other comprehensive income component must be disclosed on the face of the financial statements that these components appear. B. The individual components of other comprehensive income may be either reported on a before tax basis with an aggregate tax amount reported after these items or individually on a net of tax basis. C. The income tax expense or benefit for each other comprehensive income component must be disclosed in the footnotes to the financial statements. D. The individual components of other comprehensive income must be reported on a net of tax basis. QUESTION 61 Gown, Inc. sold a warehouse and used the proceeds to acquire a new warehouse. The excess of the proceeds over the carrying amount of the warehouse sold should be reported as a(an): A. Reduction of the cumulative depreciation expense on the old warehouse. B. Part of continuing operations. C. Gain from discontinued operations, net of income taxes. D. Reduction of the cost of the new warehouse. QUESTION 62 Kline Inc. purchases goods for 5,000 pounds on October 31, Year 1. The company pays for the goods three months later. The exchange rates are as follows: Date Exchange Rate Oct. 31, Yr. 1 $0.63 Dec. 31, Yr. 1 $0.75 Jan. 31, Yr. 2 $0.63 As a result of the movements in the exchange rates shown above, Kline will book: A. A loss on January 31, Year 2. B. No gain or loss on December 31, Year 1. C. A gain on January 31, Year 2. D. No gain or loss on January 31, Year 2. QUESTION 63 On November 25, Year 1, Smith Inc., a U.S. company, sold merchandise on account to a European company for 5,000 euros. At that time, one U.S dollar could purchase 0.75 euros. On December 31, Year 1, one euro could purchase $1.43 U.S. dollars. On January 25, Year 2, when the payment was made, one U.S. dollar could purchase 0.80 euros. What amount would the company recognize as a gain (loss) from foreign currency transactions on the December 31, Year 1, income statement? A. $900 gain B. $400 loss C. $0 D. $500 gain QUESTION 64 Under U.S. GAAP, a gain that is both unusual and infrequent should be reported as which of the following? A. Comprehensive income. B. Income from continuing operations. C. Income from continuing operations, net of tax. D. Net of tax, following discontinued operations. QUESTION 65 Jones Company purchased 1,000 shares of ABC common stock for $190,000 on January 1, Year 1. At quarter end, the value of the investment had declined to $182,000. Jones should reflect the stock's decline in value by: A. Recognizing an unrealized loss as part of other comprehensive income in its first quarter income statement. B. Recognizing an unrealized loss of $8,000 as part of income from continuing operations in its first quarter income statement. C. Recognizing a realized loss of $8,000 as part of income from continuing operations in its first quarter income statement. D. Recognizing a realized loss as part of other comprehensive income in its first quarter income statement. QUESTION 66 On January 1, Year 1, Brecon Co. installed cabinets to display its merchandise in customers' stores. Brecon expects to use these cabinets for five years. Brecon's Year 1 multi-step income statement should include: A. One-fifth of the cabinet costs in selling, general, and administrative expenses. B. One-fifth of the cabinet costs in cost of goods sold. C. All of the cabinet costs in cost of goods sold. D. All of the cabinet costs in selling, general, and administrative expenses. QUESTION 67 A U.S. company purchased inventory on account at a cost of 1,000 foreign currency units (FCU) from a non-U.S. company on November 15, to be paid on December 15. The FCU is valued at $0.85 on November 15 and at $0.90 on December 15. The journal entry to record payment on December 15 should include which of the following? A. Debit accounts payable and credit exchange gains and losses for $50. B. Debit exchange gains and losses and credit accounts payable for $50. C. Debit accounts payable and credit cash for $850. D. Debit inventory and credit cash for $850. QUESTION 68 Dingo Dog Food is a component of Conglomeration, Inc. and has been losing $50,000 per month. On April 1, Year 1, Conglomeration's management committed to a plan for the immediate sale of Dingo and fully expected to find a buyer for the component by March of Year 2. The book value of the component's assets is $800,000, while the fair market value of the assets is $650,000. Conglomeration sold Dingo on February 28, Year 2 for $550,000. Conglomeration's loss from discontinued operations before consideration of taxes for the year ended December 31, Year 1, would be: A. 850,000 B. 950,000 C. 750,000 D. 600,000 QUESTION 69 Sag, Inc. has the following information relating to its defined benefit plan as of December 31: Projected benefit obligation $ 5,000,000 Unrecognized prior service cost 600,000 Current-year amortization of pension gains 250,000 Unrecognized pension gains 1,400,000 Current-year return on plan assets 450,000 Ignoring taxes, what amount would Sag report as accumulated other comprehensive income on its December 31 balance sheet under U.S. GAAP? A. $1,500,000 B. $(350,000) C. $2,000,000 D. $800,000 QUESTION 70 All of the following are accurate required disclosures when reporting accumulated other comprehensive income and other comprehensive income (under all formats), except : A. The tax impact of each component included in the current year's other comprehensive income must be reported. B. Report total accumulated other comprehensive income on the balance sheet as an item of equity. C. Reclassification adjustments, and their effect on both net income and other comprehensive income, are reported in the footnotes. D. For each component of other comprehensive income, report the changes in the accumulated balances. QUESTION 71 Fay Corp. had a realized foreign exchange loss of $15,000 for the year ended December 31, Year 1, and must also determine whether the following items will require year-end adjustment: Fay had an $8,000 loss resulting from the translation of the accounts of its wholly owned foreign subsidiary for the year ended December 31, Year 1. Fay had an account payable to an unrelated foreign supplier payable in the supplier's local currency. The U.S. dollar equivalent of the payable was $64,000 on the October 31, Year 1 invoice date, and it was $60,000 on December 31, Year 1. The invoice is payable on January 30, Year 2. In Fay's Year 1 consolidated income statement, what amount should be included as foreign exchange loss? A. $19,000 B. $23,000 C. $11,000 D. $15,000 QUESTION 72 Which of the following is true regarding the presentation of comprehensive income. Must be shown on Related tax effects the face of the for components income statement must be disclosed A. No Yes B. Yes Yes C. No No D. Yes No QUESTION 73 On December 31, Year 1, the Board of Directors of Maxy Manufacturing, Inc. committed to a plan to discontinue the operations of its Alpha division. The decision represents a major strategic shift and will have a significant effect on its operations and financial results. Maxy estimated that Alpha's Year 2 operating loss would be $500,000 and that the fair value of Alpha's facilities was $300,000 less than their carrying amounts. The estimate for Year 2 turned out to be correct. Alpha's Year 1 operating loss was $1,400,000, and the division was actually sold for $400,000 less than its carrying amount. Maxy's effective tax rate is 30%. In its Year 2 income statement, what amount should Maxy report as loss from discontinued operations? A. $600,000 B. $420,000 C. $500,000 D. $350,000 QUESTION 74 On September 1, Year 1, Cano & Co., a U.S. corporation, sold merchandise to a foreign firm for 250,000 pesos. Terms of the sale require payment in pesos on February 1, Year 2. On September 1, Year 1, the spot exchange rate was $.20 per peso. At December 31, Year 1, Cano's year end, the spot rate was $.19, but the rate increased to $.22 by February 1, Year 2, when payment was received. How much should Cano report as foreign exchange gain or loss in its Year 2 income statement? A. $5,000 gain. B. $0 C. $7,500 gain. D. $2,500 loss. QUESTION 75 On December 1, Year 2, Cruise Corp. purchased supplies from Anchor, Ltd., an unaffiliated foreign company, for 5,000 euros. On that date, the spot rate was $0.90. Cruise paid the invoice in full on February 1, Year 3, when the spot rate was $0.95. On December 31, Year 2, the spot rate was $1.02. What amount of foreign currency transaction gain (loss) is reported on Cruise's income statement for the year ended December 31, Year 3? A. $350 B. $0 C. ($250) D. ($350) QUESTION 76 A company reported the following information for Year 1: Net income $34,000 Owner contribution 9,000 Deferred gain on a cash-flow hedge 8,000 Foreign currency translation gain 2,000 Prior service cost not recognized in net periodic pension cost 5,000 What is the amount of other comprehensive income for Year 1? A. $5,000 B. $15,000 C. $14,000 D. $43,000 QUESTION 77 Mentor Co., a U.S. corporation, owned 100 percent of a Swiss corporation. The Swiss franc is the functional currency. The remeasurement of Mentor's financial statements resulted in a $25,000 gain at year-end. The translation of the financial statements resulted in a $40,000 gain at year-end. What amount should Mentor recognize as foreign currency gain in its income statement? A. $0 B. $25,000 C. $40,000 D. $65,000 QUESTION 78 Badel Co., a U.S. company, enters into a contract in which a company in Japan agrees to buy electronics products from Badel, payable in yen after year-end. If the yen depreciates versus the U.S. dollar, Badel will: A. Book a gain on its income statement at year-end. B. Book a loss on its income statement at year-end. C. Not book a gain or a loss until the transaction settles. D. Not book a gain or a loss at year-end or when the transaction settles. QUESTION 79 On October 1, Velec Co., a U.S. company, contracted to purchase foreign goods requiring payment in euros one month after their receipt at Velec's factory. Title to the goods passed on December 15. The goods were still in transit on December 31. Exchange rates were one dollar to 22 euros, 20 euros, and 21 euros on October 1, December 15, and December 31, respectively. Velec should account for the exchange rate fluctuation as: A. A loss included in net income before discontinued operations. B. A gain included in net income before discontinued operations. C. A gain reported net of tax after discontinued operations. D. A loss reported net of tax after discontinued operations. QUESTION 80 Bell Products Inc. has the following amounts on its unadjusted year-end trial balance at the end of Year 2: Debit Credit Change from FIFO to weighted average method of inventory $ 10,000 valuation Prior service cost—pensions $ 35,000 Gain from sale of available-for-sale securities $ 27,500 Loss from infrequent item $ 18,000 Gain on foreign currency translations $ 11,500 What is the amount to be shown in Bell's accumulated other comprehensive income at the end of Year 2? A. $24,000 debit B. $4,000 credit C. $23,500 debit D. $33,500 debit QUESTION 81 Company X in Great Britain enters into a forward exchange contract with Company Y in Greece, to be settled in six months. While the agreed upon forward rate (based on today's spot rate) is 1 euro per 0.75 pounds, if in six months the actual spot rate is 1 euro per 0.77 pounds, this move will favor Company: A. Y because the pound appreciated versus the euro. B. Y because the euro appreciated versus the pound. C. X because the euro appreciated versus the pound. D. X because the pound appreciated versus the euro. QUESTION 82 Clear Co.’s trial balance has the following selected accounts: Cash (includes $10,000 in bond sinking fund for long-term bond payable) $50,000 Accounts receivable 20,000 Allowance for doubtful accounts 5,000 Deposits received from customers 3,000 Merchandise inventory 7,000 Unearned rent 1,000 Investment in trading securities 2,000 What amount should Clear report as total current assets in its balance sheet? A. $64,000 B. $74,000 C. $72,000 D. $67,000 QUESTION 83 In Year 10, hail damaged several of Toncan Co.'s vans. Hailstorms had frequently caused similar damage to Toncan's vans. Over the years, Toncan had saved money by not buying hail insurance and either paying for repairs, or selling damaged vans and then replacing them. In Year 10, the damaged vans were sold for less than their carrying amount. How should the hail damage cost be reported in Toncan's Year 10 financial statements under U.S. GAAP? A. The actual Year 10 hail damage loss in continuing operations, with no separate disclosure. B. The actual Year 10 hail damage loss in continuing operations, with separate disclosure. C. The expected average hail damage loss in continuing operations, with separate disclosure. D. The expected average hail damage loss in continuing operations, with no separate disclosure. QUESTION 84 Ball Corp. had the following foreign currency transactions during Year 1: Merchandise was purchased from a foreign supplier on January 20, Year 1, for the U.S. dollar equivalent of $90,000. The invoice was paid on March 20, Year 1, at the U.S. dollar equivalent of $96,000. On July 1, Year 1, Ball borrowed the U.S. dollar equivalent of $500,000 evidenced by a note that was payable in the lender's local currency on July 1, Year 3. On December 31, Year 1, the U.S. dollar equivalents of the principal amount and accrued interest were $520,000 and $26,000, respectively. Interest on the note is 10% per annum. In Ball's Year 1 income statement, what amount should be included as foreign exchange loss? A. $27,000 B. $6,000 C. $0 D. $21,000 QUESTION 85 Ocean Corp.'s comprehensive insurance policy allows its assets to be replaced at current value. The policy has a $50,000 deductible clause. One of Ocean's waterfront warehouses was destroyed in a winter storm. Such storms occur approximately every four years. Ocean incurred $20,000 of costs in dismantling the warehouse and plans to replace it. The tax rate is 30%. The following data relate to the warehouse: Current carrying amount $ 300,000 Replacement cost 1,100,000 Under U.S. GAAP, what amount of gain should Ocean report as a separate component of income from continuing operations? A. $780,000 B. $0 C. $1,030,000 D. $730,000 QUESTION 86 Which of the following items is included in accumulated other comprehensive income or loss? A. Prior service costs not previously recognized as a component of net periodic pension costs. B. Unrealized gains and losses from a derivative properly designated as a fair value hedge. C. A reduction of shareholders' equity related to employee stock ownership plans. D. Unrealized holding gains or losses on securities classified as trading securities. QUESTION 87 The premium on a three-year insurance policy expiring on December 31, Year 3 was paid in total on January 2, Year 1. If the company has a six-month operating cycle, then on December 31, Year 1, the prepaid insurance reported as a current asset would be for: A. 12 months. B. 24 months. C. 18 months. D. 6 months. QUESTION 88 A company reported the following for the current year: Retained earnings appropriated for plant expansion $32,500 Correction of understated depreciation expense from prior periods 9,300 Unrealized loss on available-for-sale debt securities 8,100 Unrealized gain on foreign currency translation 3,400 The company's current year net income was $86,500, and the company has a 30 percent effective income tax rate. What amount of comprehensive income should be reported for the current year? A. $83,210 B. $81,800 C. $76,700 D. $40,000 QUESTION 89 At October 31, Dingo, Inc. had cash accounts at three different banks. One account balance is segregated solely for a November 15 payment into a bond sinking fund. A second account, used for branch operations, is overdrawn. The third account, used for regular corporate operations, has a positive balance. How should these accounts be reported in Dingo's October 31 classified balance sheet? A. The segregated account should be reported as a noncurrent asset, and the regular account should be reported as a current asset net of the overdraft. B. The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability. C. The segregated and regular accounts should be reported as current assets, and the overdraft should be reported as a current liability. D. The segregated and regular accounts should be reported as current assets net of the overdraft. QUESTION 90 The current exchange rate is 1.59 U.S. dollars per British pound. If a retailer in Great Britain were to quote the exchange rate using the direct method, he would say: A. 1 U.S. dollar is equal to 1.59 British pounds. B. 1 British pound is equal to 1.59 U.S. dollars. C. 0.63 U.S. dollars are equal to 1 British pound D. 0.63 British pounds are equal to 1 U.S. dollar. QUESTION 91 Acela Co. reports $340,000 in accumulated other comprehensive income in Year 1. In Year 2, the company recorded the following: Foreign currency translation loss: $ 30,000 Unrealized gain on available-for-sale debt security: 10,000 Unrealized loss on available-for-sale equity security: 10,000 Amortization of actuarial pension loss: 15,000 Actual return on pension plan assets: 65,000 Acela Co.'s Year 2 balance in accumulated other comprehensive income will be: A. $320,000 B. $325,000 C. $335,000 D. $400,000 QUESTION 92 How should the gains and losses from changes in the fair value of the following types of foreign currency transaction hedges be reported in the financial statements? Fair value Net investment A. Current income Current income B. Current income Other comprehensive income C. Other comprehensive income Current income D. Other comprehensive income Other comprehensive income QUESTION 93 In Dart Co.'s Year 2 single-step income statement, as prepared by Dart's controller, the section titled "Revenues" consisted of the following: Sales $ 250,000 Purchase discounts 3,000 Recovery of accounts written off 10,000 Total revenues $ 263,000 In its Year 2 single-step income statement, what amount should Dart report as total revenues? A. $263,000 B. $250,000 C. $260,000 D. $253,000 QUESTION 94 Shore Co. records its transactions in U.S. dollars. A sale of goods resulted in a receivable denominated in Japanese yen, and a purchase of goods resulted in a payable denominated in euros. Shore recorded a foreign exchange gain on collection of the receivable and an exchange loss on settlement of the payable. The exchange rates are expressed as so many units of foreign currency to one dollar. Did the number of foreign currency units exchangeable for a dollar increase or decrease between the contract and settlement dates? Yen Euros exchangeable exchangeable for $1 for $1 A. Increase Increase B. Decrease Decrease C. Decrease Increase D. Increase Decrease QUESTION 95 Gar Inc.'s trial balance reflected the following liability account balances at December 31, Year 1: Accounts payable $19,000 Bonds payable, due Year 2 34,000 Deferred income tax payable 4,000 Discount on bonds payable 2,000 Dividends payable on 2/15/Year 2 5,000 Income tax payable 9,000 Notes payable, due 1/19/Year 3 6,000 The deferred income tax payable is based on temporary differences that will reverse in Year 3 and Year 4. In Gar's December 31, Year 1, balance sheet, the current liabilities total was: A. $71,000 B. $69,000 C. $67,000 D. $65,000 QUESTION 96 The following trial balance of Trey Co. at December 31 has been adjusted except for income tax expense. Dr. Cr. Cash $ 550,000 Accounts receivable, net 1,650,000 Prepaid taxes 300,000 Accounts Payable $ 120,000 Common stock 500,000 Additional paid-in capital 680,000 Retained earnings 630,000 Foreign currency translation adjustment 430,000 Revenues 3,600,000 Expenses 2,600,000 $ 5,530,000 $ 5,530,000 Additional information During the year, estimated tax payments of $300,000 were charged to prepaid taxes. Trey has not yet recorded income tax expense. There were no differences between financial statement and income tax income, and Trey's tax rate is 30%. Included in accounts receivable is $500,000 due from a customer. Special terms granted to this customer require payment in equal semiannual installments of $125,000 every April 1 and October 1. In Trey's December 31 balance sheet, what amount should be reported as total current assets? A. $1,950,000 B. $2,250,000 C. $2,200,000 D. $2,500,000 QUESTION 97 A company's activities for Year 2 included the following: Gross sales $ 3,600,000 Cost of goods sold 1,200,000 Selling and administrative expense 500,000 Adjustment for a prior-year understatement of amortization expense 59,000 Sales returns 34,000 Gain on sale of available-for-sale securities 8,000 Gain on disposal of a discontinued business segment 4,000 Unrealized gain on available-for-sale debt securities 2,000 The company has a 30 percent effective income tax rate. What is the company's net income for Year 2? A. $1,316,000 B. $1,314,600 C. $1,267,700 D. $1,273,300 QUESTION 98 Stuff Inc., a U.S. company, imported goods for 50,000 euro on Dec. 10, Year 1, and paid for them on Jan. 10, Year 2. The following exchange rates were applicable in Years 1 and 2: Date Exchange Rate Dec. 10, Yr. 1 0.79 € Dec. 31, Yr. 1 0.82 € Jan. 10, Yr. 2 0.75 € What approximate gain or loss will Stuff book at year-end? A. A loss of $1,500. B. A gain of $1,500. C. A gain of $2,500. D. A loss of $2,500.