ilovepdf_merged.pdf

QUESTION 1 Tech Co. bought a trademark on January 2, two years ago. The carrying value at the beginning of the year was $38,000. It was determined that the cash flow will be generated indefinitely at the current level for the trademark. What amount should Tech report as amortization expense for the...

QUESTION 1 Tech Co. bought a trademark on January 2, two years ago. The carrying value at the beginning of the year was $38,000. It was determined that the cash flow will be generated indefinitely at the current level for the trademark. What amount should Tech report as amortization expense for the current year? A. $1,000 B. $38,000 C. $922 D. $0 QUESTION 2 Wind Co. incurred organization costs of $6,000 at the beginning of its first year of operations. How should Wind treat the organization costs in its financial statements? A. Amortized over 60 months. B. Amortized over 40 years. C. Expensed immediately. D. Never amortized. QUESTION 3 Under U.S. GAAP, which of the following would be recorded with a debit to an asset account? A. Costs related to an unsuccessful defense of a patent. B. Research and development costs. C. Purchase of a trademark. D. Internally generated goodwill. QUESTION 4 Which of the following statements is correct concerning start-up costs? A. Costs of start-up activities, including organization costs, should be expensed as incurred. B. Costs of start-up activities should be capitalized and amortized on a straight- line basis over the lesser of the estimated economic life of the company, or 60 months, while organization cost should be expensed as incurred. C. Costs of start-up activities, including organization costs, should be capitalized and amortized on a straight-line basis over the lesser of the estimated economic life of the company, or 60 months. D. Costs of start-up activities, including organization costs, should be capitalized and expensed only if an impairment exists. QUESTION 5 Grayson Co. incurred significant costs in defending its patent rights. Which of the following is the appropriate treatment of the related litigation costs? A. Litigation costs would be capitalized regardless of the outcome of the litigation. B. Litigation costs would be expensed regardless of the outcome of the litigation. C. Litigation costs would be capitalized if the patent right is successfully defended. D. Litigation costs would be capitalized only if the patent was purchased rather than internally developed. QUESTION 6 In Year 3, a company incurred $500,000 of legal costs defending several patents. Included in that amount was $400,000 of legal costs associated with successful outcomes and $100,000 of legal costs associated with unsuccessful outcomes. What amount of legal costs, if any, should the company expense for Year 3? A. $100,000 B. $0 C. $400,000 D. $500,000 QUESTION 7 Bay Co. incurred legal fees in defending its patent rights. These legal fees should be capitalized when the outcome of the litigation is: Successful Unsuccessful A. Yes Yes B. No No C. No Yes D. Yes No QUESTION 8 Which of the following statements concerning patents is correct under U.S. GAAP? A. Legal costs incurred to successfully defend an internally developed patent should be capitalized and amortized over the patent's remaining economic life. B. Legal fees and other direct costs incurred in registering a patent should be capitalized and amortized on a straight-line basis over a five-year period. C. Research and development contract services purchased from others and used to develop a patented manufacturing process should be capitalized and amortized over the patent's economic life. D. Research and development costs incurred to develop a patented item should be capitalized and amortized on a straight-line basis over 17 years. QUESTION 9 Which of the following expenditures qualifies for asset capitalization under U.S. GAAP? A. Legal costs associated with obtaining a patent on a new product. B. Salaries of engineering staff developing a new product. C. Costs of testing a prototype and modifying its design. D. Cost of materials used in prototype testing. QUESTION 10 During Year 1, Lyle Co. incurred $400,000 of research and development costs in its laboratory to develop a product for which a patent was granted on July 1, Year 1. Legal fees and other costs associated with the patent totaled $82,000. The estimated economic life of the patent is 10 years. What amount should Lyle capitalize for the patent on July 1, Year 1 under U.S. GAAP? A. $400,000 B. $82,000 C. $0 D. $482,000 QUESTION 11 On December 31, an entity analyzed a patent with a net carrying value of $500,000 for impairment. The entity determined the following: Fair value $ 495,000 Undiscounted future cash flows 515,000 What is the impairment loss that will be reported on the December 31 income statement? A. $20,000 B. $15,000 C. $5,000 D. $0 QUESTION 12 Dale Corp. successfully patented a medical diagnostic machine. Five years after receiving the patent, Dale was legally challenged by Bisk Corp., which had a similar machine. Dale spent $600,000 to successfully defend the patent. How should Dale treat the $600,000? A. Record it as a research and development expense. B. Debit the patent account and amortize it. C. Create a separate intangible account and amortize it. D. Reduce the stockholders' equity by a prior period adjustment. QUESTION 13 Tag Inc. was organized and commenced operations July 1, Year 1. Tag incurred $4,000 in organization costs and $6,000 in start-up costs. How much of these total costs are capitalized as an asset in the December 31, Year 1, balance sheet under U.S. GAAP? A. $0 B. $1,000 C. $900 D. $10,000 QUESTION 14 Gray Co. was granted a patent on January 2, Year 1, and appropriately capitalized $45,000 of related costs. Gray was amortizing the patent over its estimated useful life of 15 years. During Year 4, Gray paid $15,000 in legal costs in successfully defending an attempted infringement of the patent. After the legal action was completed, Gray sold the patent to the plaintiff for $75,000. Gray's policy is to take no amortization in the year of disposal. In its Year 4 income statement, what amount should Gray report as a gain from the sale of the patent? A. $24,000 B. $15,000 C. $27,000 D. $39,000 QUESTION 15 Which of the following types of assets would typically be reported on a company's balance sheet as an intangible asset? A. Cost of research and development. B. Derivative securities. C. Cost of patent registrations. D. Leasehold improvements. QUESTION 16 After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis. Which of the following statements about subsequent reversal of a previously recognized impairment loss is correct under U.S. GAAP? A. It is required when the reversal is considered permanent. B. It is encouraged, but not required. C. It is prohibited. D. It must be disclosed in the notes to the financial statements. QUESTION 17 On January 2, Judd Co. bought a trademark from Krug Co. for $500,000. Judd retained an independent consultant, who estimated the trademark's remaining life to be 50 years. Its unamortized cost on Krug's accounting records was $380,000. In Judd's December 31 balance sheet, what amount should be reported as accumulated amortization? A. $12,500 B. $7,600 C. $9,500 D. $10,000 QUESTION 18 If the pattern in which the economic benefits of an intangible asset are consumed or otherwise used up cannot be readily determined, which of the following methods should be used to amortize intangible assets? A. Productive-use B. Double-declining balance C. Sum-of-the-years' digits D. Straight-line QUESTION 19 On January 2 of the current year, Rafa Co. purchased a franchise with a useful life of 10 years for $50,000. An additional franchise fee of 3 percent of franchise operation revenues must be paid each year to the franchisor. Revenues from franchise operations amounted to $400,000 during the year. In its December 31 balance sheet, what amount should Rafa report as an intangible asset franchise? A. $45,000 B. $33,000 C. $50,000 D. $43,800 QUESTION 20 A company has a long-lived asset with a carrying amount of $5,000. The future nondiscounted cash flow from the use of the long-lived asset is estimated to be $6,000. The discounted cash flow from the use of the long-lived asset is estimated to be $2,000. What amount should the company recognize as an impairment loss? A. $4,000 B. $1,000 C. $3,000 D. $0 QUESTION 21 Bluebell, Inc. incurred $85,000 of research and development costs which led to the grant of a patent. Also, Bluebell incurred $12,000 of legal and other costs to register the patent. Additionally, Bluebell incurred $18,000 of legal fees to successfully defend the patent. Under U.S. GAAP, Bluebell's patent should be capitalized at: A. $115,000 B. $12,000 C. $30,000 D. $97,000 QUESTION 22 Corbet Co. purchased a copyright near the beginning of the current year from an author for $20,000. The legal life of the copyright is equivalent to the life of the author plus 50 years. Corbet expects to sell the book for five years. What amount should Corbet report as amortization expense related to the copyright at the end of the current year? A. $4,000 B. $500 C. $400 D. $0 QUESTION 23 A company recently acquired a copyright that now has a remaining legal life of 30 years. The copyright initially had a 38-year useful life assigned to it. An analysis of market trends and consumer habits indicated that the copyrighted material will generate positive cash flows for approximately 25 years. What is the remaining useful life, if any, over which the company can amortize the copyright for accounting purposes? A. 30 years. B. 25 years. C. 38 years. D. 0 years. QUESTION 24 Northstar Co. acquired a registered trademark for $600,000. The trademark has a remaining legal life of five years, but can be renewed every 10 years for a nominal fee. Northstar expects to renew the trademark indefinitely. What amount of amortization expense should Northstar record for the trademark in the current year? A. $15,000 B. $120,000 C. $40,000 D. $0 QUESTION 25 Alta Co. spent $400,000 during the current year developing a new idea for a product that was patented during the year. The legal cost of applying for a patent license was $40,000. Also, $50,000 was spent to successfully defend the rights of the patent against a competitor. The patent has a life of 20 years. What amount should Alta capitalize related to the patent? A. $490,000 B. $90,000 C. $50,000 D. $40,000 QUESTION 26 West Co. paid $50,000 for an intangible asset other than goodwill. Fair value of the asset is $55,000. West signed a contract to sell the asset for $10,000 in 10 years. What amount of amortization expense should West record each year? A. $4,500 B. $5,000 C. $5,500 D. $4,000 QUESTION 27 Which of the following is an intangible asset that is subject to the recoverability test when testing for impairment? A. A patent. B. Goodwill. C. R&D costs for a patent. D. A trademark with indefinite useful life. QUESTION 28 On January 2, Year 1, Lava, Inc. purchased a patent for a new consumer product for $90,000. At the time of purchase, the patent was valid for 15 years; however, the patent's useful life was estimated to be only 10 years due to the competitive nature of the product. On December 31, Year 4, the product was permanently withdrawn from sale under governmental order because of a potential health hazard in the product. What amount should Lava charge against income during Year 4, assuming amortization is recorded at the end of each year? A. $72,000 B. $54,000 C. $63,000 D. $9,000 QUESTION 29 New Entertainment Tech Inc., a video game manufacturer, incurred the following costs during the current year. Copyrights purchased from Jackson Inc. $ 25,000 Game development expenses paid to employees 16,000 Design costs of trademarks for internally developed games 11,000 Expenses to retain and improve relationships with distributors 17,000 What is the amount that should be shown as intangible assets for the year? A. $36,000 B. $69,000 C. $52,000 D. $25,000 QUESTION 30 On December 31, Year 2, Anchor Products has a patent shown on its balance sheet for $96,000 that has a remaining legal life of 8 years. It is expected that the patent will have no economic value after 6 years. At the beginning of Year 3, the company incurs costs of $50,000 which will extend the economic value of the patent for another 5 years. What is the amount of the patent amortization expense for Anchor Products during Year 3? A. $18,250 B. $16,000 C. $22,000 D. $13,273 QUESTION 1 On a statement of cash flows, cash flows from financing activities would be reduced by which of the following? A. Purchase of inventory. B. Conversion of bonds payable to common stock. C. Purchase of machinery. D. Repayment of long-term debt. QUESTION 2 Which of the following transactions should be classified as investing activities on an entity's statement of cash flows? A. Issuance of common stock to the shareholders. B. Increase in accounts receivable. C. Sale of property, plant and equipment. D. Payment of cash dividend to the shareholders. QUESTION 3 On a statement of cash flows, cash flows from investing activities would be decreased by which of the following? A. Issuance of common stock. B. Issuance of bonds payable. C. Purchase of long-term investments. D. Payment of dividends. QUESTION 4 Which of the following should not be disclosed in an enterprise's statement of cash flows prepared using the indirect method? A. Dividends paid on preferred stock. B. Income taxes paid. C. Cash flow per share. D. Interest paid, net of amounts capitalized. QUESTION 5 Which of the following transactions is included in the operating activities section of a cash flow statement prepared using the indirect method? A. Issuance of common stock to the shareholders. B. Sale of property, plant and equipment. C. Gain on sale of plant asset. D. Payment of cash dividend to the shareholders. QUESTION 6 Ace Co. issued 1,000 shares of its $10 par value common stock for $15 per share in cash. How should this transaction be reported in Ace's statement of cash flows for the year of issuance? A. $10,000 cash inflow from financing activities and $5,000 adjustment to arrive at cash flows from operating activities. B. $15,000 cash flow from investing activities. C. $15,000 cash inflow from financing activities. D. $10,000 cash flow from investing activities and $5,000 adjustment to arrive at cash flows from operating activities. QUESTION 7 Marble Co. prepared its statement of cash flows using the following amounts: Net decrease in fixed assets $(3,750) Depreciation expense 13,000 Gain on sale of equipment, (net book value, $3,250) 1,250 Capital expenditures 12,500 Marble reported a net income of $20,000 at year-end. What amount should Marble report as net cash provided by operating activities? A. $19,500 B. $31,750 C. $29,250 D. $33,000 QUESTION 8 During the year, Verity Co. purchased $200,000 of Otra Co. bonds at par and $50,000 of U.S. Treasury bills. Verity classified the Otra bonds as available-for-sale securities and the Treasury bills as cash equivalents. In Verity's statement of cash flows, what amount should it report as net cash used in investing activities? A. $150,000 B. $0 C. $250,000 D. $200,000 QUESTION 9 New England Co. had net cash provided by operating activities of $351,000; net cash used by investing activities of $420,000; and cash provided by financing activities of $250,000. New England's cash balance was $27,000 on January 1. During the year, there was a sale of land that resulted in a gain of $25,000 and proceeds of $40,000 were received from the sale. What was New England's cash balance at the end of the year? A. $248,000 B. $208,000 C. $40,000 D. $27,000 QUESTION 10 How should a gain from the sale of used equipment for cash be reported in a statement of cash flows using the indirect method? A. In investment activities as a cash outflow. B. In investment activities as a reduction of the cash inflow from the sale. C. In operating activities as an addition to income. D. In operating activities as a deduction from income. QUESTION 11 During Year 2, Xan, Inc. had the following activities related to its financial operations: Payment for the early retirement of long-term bonds payable (carrying $375,000 amount $370,000) Distribution in Year 2 of cash dividend declared in Year 1 to preferred 31,000 shareholders Carrying amount of convertible preferred stock in Xan, converted into 60,000 common shares Proceeds from sale of treasury stock (carrying amount at cost, $43,000) 50,000 Xan uses U.S. GAAP. In Xan's Year 2 statement of cash flows, net cash used in financing operations should be: A. $296,000 B. $265,000 C. $356,000 D. $358,000 QUESTION 12 During the year, Granite Co. sold a building for $100,000 resulting in a gain of $20,000. The building has a net book value of $80,000 at the time of the sale. Granite uses the indirect method when preparing its statement of cash flows. What is the amount that would be included in Granite's financing activities section because of the building sale? A. $100,000 B. $80,000 C. $20,000 D. $0 QUESTION 13 A company reports the following information for year 1: Sale of equipment $ 20,000 Issuance of the company's bonds 10,000 Dividends paid 5,000 Purchase of stock of another company 2,000 Purchase of U.S. Treasury note 2,000 Income taxes paid 2,000 Interest income received 500 What is the company's net cash flow from financing activities? A. ($9,000) B. $15,000 C. $5,000 D. $5,500 QUESTION 14 In preparing its cash flow statement for the year ended December 31, Reve Co. collected the following data: Gain on sale of equipment $ (6,000) Proceeds from sale of equipment 10,000 Purchase of A.S., Inc. bonds (par value $200,000) (180,000) Amortization of bond discount 2,000 Dividends declared (45,000) Dividends paid (38,000) Proceeds from sale of treasury stock (carrying amount $65,000) 75,000 In its December 31, statement of cash flows, what amount should Reve report as net cash provided by financing activities? A. $30,000 B. $27,000 C. $20,000 D. $37,000 QUESTION 15 The primary purpose of a statement of cash flows is to provide relevant information about: A. An enterprise's ability to meet cash operating needs. B. An enterprise's ability to generate future positive net cash flows. C. Differences between net income and associated cash receipts and disbursements. D. The cash receipts and cash disbursements of an enterprise during a period. QUESTION 16 Tam Co. reported the following items in its year-end financial statements: Capital expenditures $1,000,000 Capital lease payments 125,000 Income taxes paid 325,000 Dividends paid 200,000 Net interest payments 220,000 What amount should Tam report as supplemental disclosures in its statement of cash flows prepared using the indirect method? A. $1,870,000 B. $1,125,000 C. $745,000 D. $545,000 QUESTION 17 Paper Co. had net income of $70,000 during the year. Dividend payment was $10,000. The following information is available: Mortgage repayment $20,000 Available-for-sale securities purchased 10,000 increase Bonds payable - issued 50,000 increase Inventory 40,000 increase Accounts payable 30,000 decrease What amount should Paper report as net cash provided by operating activities in its statement of cash flows for the year under U.S. GAAP? A. $30,000 B. $0 C. $10,000 D. $20,000 QUESTION 18 A company is preparing its year-end cash flow statement using the indirect method. During the year, the following transactions occurred: Dividends paid $ 300 Proceeds from the issuance of common stock 250 Borrowings under a line of credit 200 Proceeds from the issuance of convertible bonds 100 Proceeds from the sale of a building 150 What is the company's increase in cash flows provided by financing activities for the year? A. $550 B. $250 C. $150 D. $50 QUESTION 19 Bear Co. prepares its statement of cash flows using the indirect method. Bear sold equipment with a carrying value of $500,000 for cash of $400,000. How should Bear report the transaction in the operating and investing activities sections of its statement of cash flows? Operating activities Investing activities A. $100,000 subtraction from net income $500,000 cash inflow B. $100,000 subtraction from net income $400,000 cash inflow C. $100,000 addition to net income $400,000 cash inflow D. $100,000 addition to net income $500,000 cash inflow QUESTION 20 Kringle Co.'s statement of cash flow contains the following: Description Amount Increased accounts receivables $4,000 Purchase of fixed assets 14,000 Sale of equipment 25,000 Payment of dividends 8,000 Increased accounts payable 12,000 Proceeds from borrowing 3,000 What amount is the net increase or decrease in cash? A. ($8,000) B. $14,000 C. $22,000 D. ($2,000) QUESTION 21 Rogue Scholars Inc. acquired a new office building by giving 50,000 shares of common stock along with cash to the former owner. Additional details are: Fair value of stock $19 per share Par value of stock $10 per share Cash given up $750,000 Fair value of building $1,800,000 On Rogue’s statement of cash flows, this transaction would be reported A. In the investing section in the amount of $750,000. B. In the financing section in the amount of $750,000. C. In the financing section in the amount of $950,000. D. In the investing section in the amount of $1,800,000. QUESTION 22 A company had the following transactions during the year: Principal payments on notes payable $48,000 Interest payments on notes payable 8,000 Cash payment to purchase 100 shares of another company's common stock 25,000 What amount is classified as cash outflow for financing activities in the company's statement of cash flows? A. $48,000 B. $56,000 C. $73,000 D. $81,000 QUESTION 23 Reed Co.'s statement of cash flows reported cash provided from operating activities of $400,000. Depreciation of equipment was $190,000, impairment of goodwill was $5,000, and dividends paid on common stock were $100,000. In Reed's statement of cash flows, what amount was reported as net income? A. $105,000 B. $205,000 C. $305,000 D. $595,000 QUESTION 24 In preparing its cash flow statement for the year ended December 31, Reve Co. collected the following data: Gain on sale of equipment $ (6,000) Proceeds from sale of equipment 10,000 Purchase of A.S., Inc. bonds (par value $200,000) (180,000) Amortization of bond discount 2,000 Dividends declared (45,000) Dividends paid (38,000) Proceeds from sale of Treasury stock (carrying amount $65,000) 75,000 In its December 31, statement of cash flows, what amount should Reve report as net cash used in investing activities? A. $170,000 B. $176,000 C. $188,000 D. $194,000 QUESTION 25 Baker Co. began its operations during the current year. The following is Baker's balance sheet at December 31: Baker Co. Balance Sheet Assets Cash $192,000 Accounts receivable 82,000 Total assets $274,000 Liabilities and stockholders' equity Accounts payable $24,000 Common stock 200,000 Retained earnings 50,000 Total liabilities and stockholders' equity $274,000 Baker's net income for the current year was $78,000 and dividends of $28,000 were declared and paid. Common stock was issued for $200,000. What amount should Baker report as cash provided by operating activities in its statement of cash flows for the current year under U.S. GAAP? A. $50,000 B. $20,000 C. $250,000 D. $192,000 QUESTION 26 During the current year, Ace Co. amortized a bond discount. Ace prepares its statement of cash flows using the indirect method. In which section of the statement should Ace report the amortization of the bond discount? A. Supplemental disclosures. B. Investing activities. C. Operating activities. D. Financing activities. QUESTION 27 How should the amortization of bond discount on long-term debt be reported in a statement of cash flows prepared using the indirect method? A. In operating activities as a deduction from income. B. As a financing activities inflow. C. In operating activities as an addition to income. D. As a financing activities outflow. QUESTION 28 For the year ended December 31, Ion Corp. had cash inflows of $25,000 from the purchases, sales, and maturities of held-to-maturity securities and $40,000 from the purchases, sales, and maturities of available-for-sale securities. What amount of net cash from investing activities should Ion report in its cash flow statement? A. $0 B. $65,000 C. $25,000 D. $40,000 QUESTION 29 The following information pertains to Ash Co., which prepares its statement of cash flows using the indirect method: Interest payable at beginning of year $ 15,000 Interest expense during the year 20,000 Interest payable at end of year 5,000 What amount of interest should Ash report as a supplemental disclosure of cash flow information? A. $30,000 B. $10,000 C. $20,000 D. $35,000 QUESTION 30 Martin Co. had net income of $70,000 during the year. Depreciation expense was $10,000. The following information is available: Accounts receivable increase $20,000 Equipment gain on sale increase 10,000 Nontrade notes payable increase 50,000 Prepaid insurance increase 40,000 Accounts payable increase 30,000 What amount should Martin report as net cash provided by operating activities in its statement of cash flows for the year? A. $100,000 B. $50,000 C. $40,000 D. $0 QUESTION 31 Lino Co.'s worksheet for the preparation of its Year 2 statement of cash flows included the following: December 31 January 1 Accounts receivable $ 29,000 $ 23,000 Allowance for uncollectible accounts 1,000 800 Prepaid rent expense 8,200 12,400 Accounts payable 22,400 19,400 Lino's Year 2 net income is $150,000. What amount should Lino include as net cash provided by operating activities in the statement of cash flows? A. $151,400 B. $151,000 C. $148,600 D. $145,400 QUESTION 32 Fara Co. reported bonds payable of $47,000 at December 31, Year 1, and $50,000 at December 31, Year 2. During Year 2, Fara issued $20,000 of bonds payable in exchange for equipment. There was no amortization of bond premium or discount during the year. What amount should Fara report in its Year 2 statement of cash flows for redemption of bonds payable? A. $3,000 B. $23,000 C. $20,000 D. $17,000 QUESTION 33 Karr, Inc. reported net income of $300,000 for Year 2. Changes occurred in several balance sheet accounts as follows: Equipment $ 25,000 increase Accumulated depreciation 40,000 increase Note payable 30,000 increase Additional information: During Year 2, Karr sold equipment costing $25,000, with accumulated depreciation of $12,000, for a gain of $5,000. In December, Year 2, Karr purchased equipment costing $50,000 with $20,000 cash and a 12% note payable of $30,000. Depreciation expense for the year was $52,000. In Karr's Year 2 statement of cash flows, net cash provided by operating activities should be: A. $357,000 B. $352,000 C. $347,000 D. $340,000 QUESTION 34 On July 1 of the current year, Dewey Co. signed a 20-year building lease that it reported as a capital lease. Dewey paid the monthly lease payments when due. How should Dewey report the effect of the lease payments in the financing activities section of its statement of cash flows? A. An inflow equal to the present value of future lease payments at July 1, less current year principal and interest payments. B. An outflow equal to the current year principal and interest payments on the lease. C. An outflow equal to the current year principal payments only. D. The lease payments should not be reported in the financing activities section. QUESTION 35 Glass Co. had net income of $70,000 during the year. Depreciation expense was $10,000. The following information is available: Accounts receivable increase $20,000 Equipment gain on sale (sale price $100,000) 10,000 increase Nontrade notes payable increase 50,000 Equipment purchases 40,000 increase Accounts payable increase 30,000 What amount should Glass report as net cash provided by investing activities in its statement of cash flows for the year? A. $60,000 B. $50,000 C. $10,000 D. $(40,000) QUESTION 36 Which of the following items is included in the financing activities section of the statement of cash flows? A. Cash effects of transactions involving making and collecting loans. B. Cash effects of acquiring and disposing of investments and property, plant, and equipment. C. Cash effects of transactions obtaining resources from owners and providing them with a return on their investment. D. Cash effects of transactions that enter into the determination of net income. QUESTION 37 Karr, Inc. reported net income of $300,000 during the current year. Changes occurred in several balance sheet accounts as follows: Equipment $25,000 increase Accumulated depreciation 40,000 increase Note payable 30,000 increase Additional information: During the year, Karr sold equipment costing $25,000, with accumulated depreciation of $12,000, for a gain of $5,000. In December, Karr purchased equipment costing $50,000 with $20,000 cash and a 12% note payable of $30,000. Depreciation expense for the year was $52,000. In Karr's statement of cash flows, net cash used in investing activities should be: A. $12,000 B. $2,000 C. $22,000 D. $35,000 QUESTION 38 Indigo Corporation is preparing its Statement of Cash Flows for the current year ended December 31 using the indirect method and has developed the following data: Increase in deferred tax liabilities 23,000 Decrease in accounts payable (58,000) Increase in accrued interest payable 43,000 Interest paid 31,000 Proceeds from issuance of long-term debt 600,000 Increase in capital lease payable 67,000 Payments on long-term debt (49,000) Purchase of bonds payable 90,000 Based on the information developed above, Indigo would report net cash provided from financing activities of: A. 618,000 B. 677,000 C. 551,000 D. 587,000 QUESTION 39 In a statement of cash flows, if used equipment is sold at a gain, the amount shown as a cash inflow from investing activities equals the carrying amount of the equipment: A. Plus the gain. B. Plus both the gain and the amount of tax attributable to the gain. C. With no addition or subtraction. D. Plus the gain and less the amount of tax attributable to the gain. QUESTION 40 Which of the following would be reported as an investing activity in a company's statement of cash flows? A. Collection of a tax refund from the government. B. Collection of proceeds from a note payable. C. Collection of a note receivable from a related party. D. Collection of an overdue account receivable from a customer. QUESTION 41 Payne Co. prepares its statement of cash flows using the indirect method. Payne's unamortized bond discount account decreased by $25,000 during the year. How should Payne report the change in unamortized bond discount in its statement of cash flows? A. As a financing cash outflow. B. As a financing cash inflow. C. As a subtraction from net income in the operating activities section. D. As an addition to net income in the operating activities section. QUESTION 42 The following information is from Mabel Co.'s year-end financial statements for the current and previous years: Current Year Previous Year Prepaid expenses $10,000 $20,000 Accounts payable 50,000 30,000 Land 250,000 600,000 Land was sold during the current fiscal year for cash resulting in a loss of $40,000. What is Mabel's net adjustment to net income to determine net cash from operating activities? A. $70,000 B. $30,000 C. $0 D. ($70,000) QUESTION 43 Which of the following information should be disclosed as supplemental information in the statement of cash flows? Cash flow Conversion of per share debt to equity A. No No B. No Yes C. Yes Yes D. Yes No QUESTION 44 On December 31, Year 1, the Exeter Corporation had property and equipment of $1,450,000 and accumulated depreciation of $500,000. During Year 2, the company acquired an asset for $250,000 in a transaction properly classified as a capital lease. The new asset was used to replace a similar piece of equipment with a historical cost of $200,000 that had been sold for $20,000, resulting in a gain of $10,000. The net book value of all of Exeter's equipment at December 31, Year 2 was $850,000. What was the amount of depreciation expense used in Exeter's Statement of Cash Flows, prepared using the indirect method, to reconcile net income to cash flows from operations? A. $150,000 B. $160,000 C. $340,000 D. $350,000 QUESTION 45 Twin House Inc. reported net income of $753,000 for the current year-ended December 31. Twin House's financial statements reflected the following information: Depreciation expense $ 150,000 Gain on sale of trading securities 6,000 Goodwill impairment 75,000 Decrease in accounts receivable 48,000 Increase in inventory 33,000 Decrease in trading securities 50,000 Increase in available-for-sale securities 62,000 Increase in accounts payable 70,000 Decrease in taxes payable 15,000 Dividend paid 200,000 Dividend received 27,000 What should Twin House report as net cash provided by operating activities on the statement of cash flows, assuming that Twin House classifies the proceeds from the sale of the trading securities as an operating cash inflow? A. $1,098,000 B. $1,036,000 C. $898,000 D. $1,125,000 QUESTION 46 Polk Co. acquires a forklift from Quest Co. for $30,000. The terms require Polk to pay $3,000 down and finance the remaining $27,000. On March 1, Year 1, Polk pays the $3,000 down and accepted delivery of the forklift. Polk signed a note that requires Polk to pay principal payments of $1,000 per month for 27 months beginning July 1, Year 1. What amount should Polk report as an investing activity in the statement of cash flows for the year ended December 31, Year 1? A. $30,000 B. $12,000 C. $9,000 D. $3,000 QUESTION 47 On September 1, Canary Co. sold used equipment for a cash amount equaling its carrying amount for both book and tax purposes. On September 15, Canary replaced the equipment by paying cash and signing a note payable for new equipment. The cash paid for the new equipment exceeded the cash received for the old equipment. How should these equipment transactions be reported in Canary's statement of cash flows? A. Cash inflow equal to the cash received and a cash outflow equal to the cash paid and noted payable. B. Cash inflow equal to the cash received and a cash outflow equal to the cash paid. C. Cash outflow equal to the cash paid and note payable less the cash received. D. Cash outflow equal to the cash paid less the cash received. QUESTION 48 Mend Co. purchased a three-month U.S. Treasury bill. Mend's policy is to treat as cash equivalents all highly liquid investments with an original maturity of three months or less when purchased. How should this purchase be reported in Mend's statement of cash flows? A. As an outflow from operating activities. B. As an outflow from financing activities. C. Not reported. D. As an outflow from investing activities. QUESTION 49 Green Co. had the following equity transactions at December 31: Cash proceeds from sale of investment in Blue Co. (carrying value - $60,000) $75,000 Dividends received on Grey Co. stock 10,500 Common stock purchased from Brown Co. 38,000 What amount should Green recognize as net cash from investing activities in its statement of cash flows at December 31 under U.S. GAAP? A. $85,500 B. $37,000 C. $75,000 D. $47,500 QUESTION 50 Rogue Scholars Inc. acquired a new office building by giving 50,000 shares of common stock along with cash to the former owner. Additional details are: Fair value of stock $19 per share Par value of stock $10 per share Cash given up $750,000 Fair value of building $1,700,000 In the supplementary information to Rogue’s statement of cash flows, this transaction would be reported as an investing and financing activity in the amount of: A. $1,700,000 B. $750,000 C. $1,800,000 D. $950,000 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.