1.The Information Provided by Financial Reporting Pertains To

國立彰化師範大學九十三學年度碩士班招生考試試題

系所：會計學系 科目：會計學

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PART I

1. Multiple choice. 50 points.

1.The information provided by financial reporting pertains to

a.individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.

b.business industries, rather than to individual enterprises or an economy as a whole or to members of society as consumers.

c.individual business enterprises, industries, and an economy as a whole, rather than to members of society as consumers.

d.an economy as a whole and to members of society as consumers, rather than to individual enterprises or industries.

2.Decision makers vary widely in the types of decisions they make, the methods of decision making they employ, the information they already possess or can obtain from other sources, and their ability to process information. Consequently, for information to be useful there must be a linkage between these users and the decisions they make. This link is

a.relevance.

b.reliability.

c.understandability.

d.materiality.

3.Application of the full disclosure principle

a.is theoretically desirable but not practical because the costs of complete disclosure exceed the benefits.

b.is violated when important financial information is buried in the notes to the financial statements.

c.is demonstrated by the use of supplementary information presenting the effects of changing prices.

d.requires that the financial statements be consistent and comparable.

4.When converting from cash basis to accrual basis accounting, which of the following adjustments should be made to cash receipts from customers to determine accrual basis service revenue?

a.Subtract ending accounts receivable.

b.Subtract beginning unearned service revenue.

c.Add ending accounts receivable.

d.Add cash sales.

5.Baker Corp.'s liability account balances at June 30, 2002 included a 10% note payable in the amount of $1,500,000. The note is dated October 1, 2000 and is payable in three equal annual payments of $500,000 plus interest. The first interest and principal payment was made on October 1, 2001. In Baker's June 30, 2002 balance sheet, what amount should be reported as accrued interest payable for this note?

a.$112,500.

b.$75,000.

c.$37,500.

1. $25,000.

6.The occurrence which most likely would have no effect on 2001 net income (assuming that all amounts involved are material) is the

a.sale in 2001 of an office building contributed by a stockholder in 1978.

b.collection in 2001 of a receivable from a customer whose account was written off in 2000 by a charge to the allowance account.

c.settlement based on litigation in 2001 of previously unrecognized damages from a serious accident which occurred in 1999.

d.worthlessness determined in 2001 of stock purchased on a speculative basis in 1997.

7.Ross, Inc. incurred the following infrequent losses during 2001:

A $90,000 write-down of equipment leased to others.

A $40,000 adjustment of accruals on long-term contracts.

A $60,000 write-off of obsolete inventory.

In its 2001 income statement, what amount should Ross report as total infrequent losses that are not considered extraordinary?

a.$190,000.

b.$150,000.

c.$130,000.

d.$100,000.

8.On January 1, 2001, Ehr Co. leased a building to Dent Corp. for a ten-year term at an annual rental of $60,000. At inception of the lease, Ehr received $240,000 covering the first two years' rent of $120,000 and a security deposit of $120,000. This deposit will not be returned to Dent upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $240,000 should be shown as a current and long-term liability in Ehr's December 31, 2001 balance sheet?

Current LiabilityLong-term Liability

a.$0$240,000

b.$60,000$120,000

c.$120,000$120,000

d.$120,000$60,000

9.On July 1, 2001, Ed Yates signed an agreement to operate as a franchisee of Kwik Foods, Inc., for an initial franchise fee of $60,000. Of this amount, $20,000 was paid when the agreement was signed and the balance is payable in four equal annual payments of $10,000 beginning July 1, 2002. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. Yates' credit rating indicates that he can borrow money at 14% for a loan of this type. Information on present and future value factors is as follows:

Present value of 1 at 14% for 4 periods0.59

Future value of 1 at 14% for 4 periods1.69

Present value of an ordinary annuity of 1 at 14% for 4 periods2.91

Yates should record the acquisition cost of the franchise on July 1, 2001 at

a.$43,600.

b.$49,100.

c.$60,000.

1. $67,600.

10.At the beginning of 2000, Finney Company received a three-year zero-interest-bearing $1,000 trade note. The market rate for equivalent notes was 8% at that time. Finney reported this note as a $1,000 trade note receivable on its 2000 year-end statement of financial position and $1,000 as sales revenue for 2000. What effect did this accounting for the note have on Finney's net earnings for 2000, 2001, 2002, and its retained earnings at the end of 2002, respectively?

a.Overstate, overstate, understate, zero

b.Overstate, understate, understate, understate

c.Overstate, overstate, overstate, overstate

1. None of these

11.For the year ended December 31, 2001, Colt Co. estimated its allowance for uncollectible accounts using the year-end aging of accounts receivable. The following data are available:

Allowance for uncollectible accounts, 1/1/01$51,000

Provision for uncollectible accounts during 2001

(2% on credit sales of $2,000,000)40,000

Uncollectible accounts written off, 11/30/0146,000

Estimated uncollectible accounts per aging, 12/31/0169,000

After year-end adjustment, the uncollectible accounts expense for 2001 should be

a.$46,000.

b.$57,000.

c.$69,000.

d.$64,000.

12.Which of the following statements is not valid as it applies to inventory costing methods?

a.If inventory quantities are to be maintained, part of the earnings must be invested (plowed back) in inventories when FIFO is used during a period of rising prices.

b.LIFO tends to smooth out the net income pattern by matching current cost of goods sold with current revenue, when inventories remain at constant quantities.

c.When a firm using the LIFO method fails to maintain its usual inventory position (reduces stock on hand below customary levels), there may be a matching of old costs with current revenue.

d.The use of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO.

13.The balance in Judd Co.'s accounts payable account at December 31, 2001 was $600,000 before any necessary year-end adjustments relating to the following:

• Goods were in transit to Judd from a vendor on December 31, 2001. The invoice cost was $50,000. The goods were shipped f.o.b. shipping point on December 29, 2001 and were received on January 4, 2002.
• Goods shipped f.o.b. destination on December 21, 2001 from a vendor to Judd were received on January 6, 2002. The invoice cost was $25,000.
• On December 27, 2001, Judd wrote and recorded checks to creditors totaling $30,000 that were mailed on January 10, 2002.

In Judd's December 31, 2001 balance sheet, the accounts payable should be

a.$630,000

b.$650,000.

c.$675,000.

d.$680,000.

14.On December 31, 2001, Karney Co. adopted the dollar-value LIFO retail inventory method. Inventory data for 2002 are as follows:

LIFO Cost Retail

Inventory, 12/31/01$310,000$440,000

Inventory, 12/31/02?550,000

Increase in price level for 200210%

Cost to retail ratio for 200270%

Under the LIFO retail method, Karney’s inventory at December 31, 2002, should be

a.$356,200

b.$385,000.

c.$387,000.

d$394,700.

15. During 2001, Allen Corporation constructed assets costing $500,000. The weighted-average accumulated expenditure on these assets during 2001 was $300,000. To help pay for construction, $220,000 was borrowed at 10% on January 1, 2001, and funds not needed for construction were temporarily invested in short-term securities, yielding $4,500 in interest revenue. Other than the construction funds borrowed, the only other debt outstanding during the year was a $250,000, 10-year, 9% note payable dated January 1, 1995. What is the amount of interest that should be capitalized by Allen during 2001?

a. $30,000.

b. $15,000.

c. $29,200.

d. $47,200.

16. Irvin Co. takes a full year's depreciation expense in the year of an asset's acquisition and no depreciation expense in the year of disposition. Data relating to one of Irvin's depreciable assets at December 31, 2001 are as follows:

Acquisition year1999

Cost$280,000

Residual value40,000

Accumulated depreciation192,000

Estimated useful life5 years

Using the same depreciation method as used in 1999, 2000, and 2001, how much depreciation expense should Irvin record in 2002 for this asset?

a. $32,000

b.$48,000

c.$56,000

d.$64,000

17. The intangible asset goodwill may be

a.capitalized only when purchased.

b.capitalized either when purchased or created internally.

c.capitalized only when created internally.

d.written off directly to retained earnings.

18.On January 3, 2001, Belle Corp. owned a machine that had cost $100,000. The accumulated depreciation was $60,000, estimated salvage value was $6,000, and fair market value was $160,000. On January 4, 2001, this machine was irreparably damaged by Snow Corp. and became worthless. In October 2001, a court awarded damages of $160,000 against Snow in favor of Belle. At December 31, 2001, the final outcome of this case was awaiting appeal and was, therefore, uncertain. However, in the opinion of Belle’s attorney, Snow’s appeal will be denied. At December 31, 2001, what amount should Belle accrue for this gain contingency?

a.$160,000.

b.$130,000.

c.$100,000.

1. $0.

19.The December 31, 2001, balance sheet of Ellis Corporation includes the following items:

9% bonds payable due December 31, 2010$700,000

Unamortized premium on bonds payable18,900

The bonds were issued on December 31, 2000, at 103, with interest payable on July 1 and December 31 of each year. Ellis uses straight-line amortization.

On March 1, 2002, Ellis retired $280,000 of these bonds at 98 plus accrued interest. What should Ellis record as an extraordinary gain on retirement of these bonds? Ignore taxes.

a.$13,160.

b.$7,560.

c.$13,020.

d.$14,000.

20.The par value method of accounting for treasury stock differs from the cost method in that

a.any gain is recognized upon repurchase of stock but a loss is treated as an adjustment to retained earnings.

b.no gains or losses are recognized on the issuance of treasury stock using the par value method.

c.it reverses the original entry to issue the common stock with any difference between carrying value and purchase price adjusted through paid-in capital and/or retained earnings and treats a subsequent reissuance like a new issuance of common stock.

1. it reverses the original entry to issue the common stock with any difference between carrying value and purchase price being shown as an ordinary gain or loss and does not recognize any gain or loss on a subsequent resale of the stock.

21.Presented below is information related to Milson, Inc.:

December31,

2001 2000

Common stock$ 75,000$ 60,000

6% Preferred stock350,000350,000

Retained earnings (includes net income for current year)90,00075,000

Net income for year60,00032,000

What is Milson’s rate of return on common stock equity for 2001?

a.48.8%

b.26%

c.25%

d.22.4%

22.If Doleman Company acquired a 30% interest in Barnes Company on December 31, 2001 for $67,500 and during 2002 Barnes Company had net income of $25,000 and paid a cash dividend of $10,000, applying the equity method would give a debit balance in the Investment in Barnes Company Stock account at the end of 2002 of

a.$67,500.

b.$72,000.

c.$75,000.

d.$72,500.

23.Under the cost recovery method of revenue recognition,

a.income is recognized on a proportionate basis as the cash is received on the sale of the product.

b.income is recognized when the cash received from the sale of the product is greater than the cost of the product.

c.income is recognized immediately.

1. none of these.

24.On January 1, 2001, Cole Corp. purchased 40% of the voting common stock of Slay, Inc. and appropriately accounts for its investment by the equity method. During 2001, Slay reported earnings of $450,000 and paid dividends of $150,000. Cole assumes that all of Slay's undistributed earnings will be distributed as dividends in future periods when the enacted tax rate will be 30%. Ignore the dividend-received deduction. Cole's current enacted income tax rate is 25%. The increase in Cole's deferred income tax liability for this temporary difference is

a.$90,000.

b.$75,000.

c.$54,000.

1. $36,000.

25.On January 1, 2001, O’Rear Corp. adopted a defined benefit pension plan. The plan's service cost of $250,000 was fully funded at the end of 2001. Prior service cost was funded by a contribution of $100,000 in 2001. Amortization of prior service cost was $40,000 for 2001. What is the amount of O'Rear’s prepaid pension cost at December 31, 2001?

a.$60,000.

b.$100,000.

c.$140,000.

d.$150,000.

B. Problem. 20 points.

The net changes in the balance sheet accounts of Younger Corporation for the year 2001 are shown below.

Account Debit Credit

Cash$ 92,000

Short-term investments$121,000

Accounts receivable73,200

Allowance for doubtful accounts13,300

Inventory74,200

Prepaid expenses22,800

Investment in subsidiary (equity method)20,000

Plant and equipment210,000

Accumulated depreciation 130,000

Accounts payable80,700

Accrued liabilities16,500

Deferred tax liability15,500

8% serial bonds 80,000

Common stock, $10 par90,000

Additional paid-in capital150,000

Retained earnings—Appropriation for bonded indebtedness60,000

Retained earnings—Unappropriated 38,000

$643,600 $643,600

An analysis of the Retained Earnings—Unappropriated account follows:

Retained earnings unappropriated, December 31, 2000 $1,300,000

Add:Net income287,000

Transfer from appropriation for bonded indebtedness 60,000

Total$1,647,000

Deduct:Cash dividends$145,000

Stock dividend 240,000 385,000

Retained earnings unappropriated, December 31, 2001 $1,262,000

1.On January 2, 2001 short-term investments (classified as available-for-sale) costing $121,000 were sold for $150,000.

2.The company paid a cash dividend on February 1, 2001.

3.Accounts receivable of $16,200 and $19,400 were considered uncollectible and written off in 2001 and 2000, respectively.

4.Major repairs of $25,000 to the equipment were debited to the Accumulated Depreciation account during the year. No assets were retired during 2001.

5.The wholly owned subsidiary reported a net loss for the year of $20,000. The loss was recorded by the parent.

6.At January 1, 2001, the cash balance was $136,000.

Instructions

Prepare a statement of cash flows (indirect method) for the year ended December 31, 2001. Younger Corporation has no securities which are classified as cash equivalents.

Part II -- Advanced Accounting: Multiple-Choice Question (30%)

Items 1 and 2 are based on the following:

On June 30, 2003, Poe Corporation exchanged 75,000 shares of its $20 par value common stock for all of Saxe Corporation’s common stock. At that date, the fair value of Poe’s common stock issued was equal to the book value of Saxe’s net assets. Both corporations continued to operate as separate businesses, maintaining accounting records with years ending December 31. Information from separate company operations follows:

Poe Saxe

Retained earnings—12/31/02 $1,600,000 $462,500

Net income—six months ended 6/30/03 400,000 137,500

Dividends paid—3/25/03 375,000 --

1. If the business combination is accounted for as a polling of interest, what amount of retained earnings would Poe report in its June 30, 2003 consolidated balance sheet?

(A)$2,600,000 (B)$2,225,000 (C)$1,662,500 (D)$1,625,000

1. If the business combination is accounted for as a purchase, what amount of retained earnings would Poe report in its June 30, 2003 consolidated balance sheet?

(A)$2,600,000 (B) $2,225,000 (C)$1,662,500 (D)$1,625,000

Items 3 and 4 are based on the following:

On January 1, 2004, Pard Corporation and Spin Corporation had condensed balance sheets as follows:

Pard Spin

Current assets $140,000 $40,000

Noncurrent assets 180,000 80,000

Total assets $320,000 $120,000

Current liabilities $ 60,000 $20,000

Long-term debt 100,000 --

Stockholders’ equity 160,000 100,000

Total liabilities and stockholders’ equity $320,000 $120,000

On January 2, 2004, Pard borrowed $120,000 and used the proceeds to purchase 90% of the outstanding common shares of Spin. This debt is payable in ten equal annual principal payments, plus interest, beginning December 30, 2004. The excess cost of the investment over Spin’s book value of acquired net assets should be allocated 70% to inventory and 30% to goodwill.

On Pard’s January 2, 2004 consolidated balance sheet,

1. Noncurrent liabilities including minority interests should be:

(A)$230,000 (B)$218,000 (C)$208,000 (D)$110,000

1. Stockholders’ equity should be:

(A)$160,000 (B)$170,000 (C)$180,000 (D)$260,000

5.Strass Corporation is an 80%-owned subsidiary of Post Corporation. During 2002, Strass sold merchandise that cost $240,000 to Post for $320,000. Post’s ending inventory on December 31, 2002 contained unrealized profit of $16,000 from the intercompany sales.

During 2003, Strass sold merchandise that cost $280,000 to Post for $380,000. One-half of this merchandise remained unsold by Post on December 31, 2003. For 2003, Post’s separate income (investment income not included) was $500,000 and Strass’ reported net income was $380,000. Consolidated net income for 2003 will be:

(A)$770,000 (B)$776,800 (C)$831,200 (D)$838,000

6.Posy Corporation acquired a 90% interest (36,000 shares) in Seda Corporation at $1,080,000, 90% of Seda’s book value on December 31, 2002. Seda’s stockholders’ equity is $1,400,000 on December 31, 2003. On January 1, 2004, Seda sold 10,000 new shares of its $10 par value common stock for $60 per share. If Seda sold the additional shares to the general public, Posy’s “Investment in Seda” account after the sale would be:

(A)$1,008,000 (B)$1,260,000 (C)$1,440,000 (D)$1,600,000

7.Peters Corporation owns an 80% interest in Arp Corporation and Arp owns a 60% interest in Blue Corporation. Both interests were acquired at book value equal to fair value. During 2003, Arp sells land to Blue at a profit of $24,000. Blue still holds the land on December 31, 2003. Profits and (losses) of Peters, Arp, and Blue for 2003 are $360,000, $144,000, and ($60,000) respectively. Consolidated net income (loss) and minority interest income (loss), respectively, for 2003 are:

(A)$422,400 and ($2,400) (B)$422,400 and ($7,200) (C)$427,200 and ($2,400)

(D)$427,200 and ($7,200)

8.Patton Corporation’s wholly owned subsidiary, Sun Corporation, maintains its accounting records in German marks. Because all of Sun’s branch officers are in Switzerland, its functional currency is the Swiss Franc. Remeasurement of Sun’s 2003 financial statements resulted in a $51,000 gain, and translation of its financial statements resulted in a $15,000 gain. What amount should Patton report as a foreign exchange gain in its consolidated income statement for the year ended December 31,2003? (Patton is a U.S. firm and there is no foreign exchange gain or loss included in Patton’s separate net income)

(A)$0 (B)$15,000 (C)$51,000 (D)$66,000

9.On December 5, 2003, West Corporation, a U.S. firm, bought inventory items from Pop Corporation of Norway for 2,000,000 Norwegian krone when the spot rate for krone was $0.168. On December 31,2003, West’s year-end, the spot rate was $0.167. On January 4, 2004, West purchased 2,000,000 krone for $335,000 and paid the invoice. How much foreign exchange gain or (loss) should West report in its 2003 and 2004, respectively, income statements?

(A)($2,000) and $1,000 (B)$0 and ($1,000) (C)$0 and $1,000 (D)$2,000 and ($1,000)

10.Seed Corporation, Nome Corporation’s wholly owned French subsidiary, maintains its accounting records in franc. On December 31, 2004, the following assets of Seed have been converted into US dollars at the following exchange rates:

Current Rates Historical Rates

If the functional currency of Seed is the US dollar, what amount of Seed’s assets should be reported in Nome Corporation’s December 31, 2004 consolidated balance sheet?

(A)$1,162,500 (B)$1,175,000 (C)$1,187,500 (D)$1,325,000

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