Financial Accounting Income Statements Multiple Choice Questions Homework Help
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1) Simson Company has 35 employees who work 8-hour days and are paid hourly. On January 1, 2006 the company began a program of granting its employees 10 days of paid vacation each year. Vacation days earned in 2006 may first be taken on January 1, 2007. Information relative to these employees is as follows
Year Hourly Wages Vacation Days Earned by Each Employee Vacation Days Used by Each Employee
2006 $25.80 10 0
2007 27.00 10 8
2008 $28.50 10 10
What is the amount of expense relative to compensated absences that should be reported on Simson s income statement for 2006?
2) A company offers a cash rebate of $1 on each $4 package of batteries sold during 2007. Historically, 10% of customers mail in the rebate form. During 2007, 6,000,000 packages of batteries are sold, and 210,000 $1 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2007 financial statements dated December 31?
A. $600,000; $600,000
B. $390,000; $390,000
C. $600,000; $390,000
D. $210,000; $390,000
3) Wellman Company self insures its property for fire and storm damage. If the company were to obtain insurance on the property, it would cost them $1,000,000 per year. The company estimates that on average it will incur losses of $800,000 per year. During 2007, $350,000 worth of losses were sustained. How much total expense and/or loss should be recognized by Wellman Company for 2007?
A. $350,000 in losses and no insurance expense
B. $350,000 in losses and $450,000 in insurance expense
C. $0 in losses and $1,000,000 in insurance expense
D. $0 in losses and $800,000 in insurance expense
4) Mark Ward is a farmer who owns land which borders on the right-of-way of the Northern Railroad. On August 10, 2007, due to the admitted negligence of the Railroad, hay on the farm was set on fire and burned. Ward had had a dispute with the Railroad for several years concerning the ownership of a small parcel of land. The representative of the Railroad has offered to assign any rights which the Railroad may have in the land to Ward in exchange for a release of his right to reimbursement for the loss he has sustained from the fire. Ward appears inclined to accept the Railroad’s offer. The Railroad’s 2007 financial statements should include the following related to the incident:
A. recognition of a loss and creation of a liability for the value of the land.
B. recognition of a loss only.
C. disclosure in note form only.
D. creation of a liability only.
5) Which of the following contingencies need NOT be disclosed in the financial statements or the notes thereto?
A. Probable losses NOT reasonably estimable
B. Environmental liabilities that cannot be reasonably estimated
C. All of these must be disclosed.
D. Guarantees of indebtedness of others
6) Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles?
A. Amount of loss is reasonably estimable and event occurs infrequently.
B. Amount of loss is reasonably estimable and occurrence of event is probable.
C. Event is unusual in nature and event occurs infrequently.
D. Event is unusual in nature and occurrence of event is probable.
7) Bonds for which the owners’ names are NOT registered with the issuing corporation are called
A. bearer bonds.
B. term bonds.
C. secured bonds.
D. debenture bonds.
8) An example of an item which is NOT a liability is
A. dividends payable in stock.
B. advances from customers on contracts.
C. the portion of long-term debt due within one year.
D. accrued estimated warranty costs.
9) If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be
A. greater than if the straight-line method were used.
B. greater than the amount of the interest payments.
C. less than if the straight-line method were used.
D. the same as if the straight-line method were used.
10) What impact does a bargain purchase option have on the present value of the minimum lease payments computed by the lessee?
A. No impact as the option does NOT enter into the transaction until the end of the lease term.
B. The minimum lease payments would be increased by the present value of the option price if, at the time of the lease agreement, it appeared certain that the lessee would exercise the option at the end of the lease and purchase the asset at the option price.
C. The lessee must decrease the present value of the minimum lease payments by the present value of the option price.
D. The lessee must increase the present value of the minimum lease payments by the present value of the option price.
11) Minimum lease payments may include a
A. penalty for failure to renew.
B. any of these.
C. guaranteed residual value.
D. bargain purchase option.
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12) Which of the following best describes current practice in accounting for leases?
A. Leases are NOT capitalized.
B. All leases are capitalized.
C. All long-term leases are capitalized.
D. Leases similar to installment purchases are capitalized.
13) In order to properly record a direct-financing lease, the lessor needs to know how to calculate the lease receivable. The lease receivable in a direct-financing lease is best defined as
A. the amount of funds the lessor has tied up in the asset which is the subject of the direct-financing lease.
B. the total book value of the asset less any accumulated depreciation recorded by the lessor prior to the lease agreement.
C. the present value of minimum lease payments.
D. the difference between the lease payments receivable and the fair market value of the leased property.
14) In the earlier years of a lease, from the lessee’s perspective, the use of the
A. capital method will enable the lessee to report higher income, compared to the operating method.
B. operating method will cause debt to increase, compared to the capital method.
C. operating method will cause income to decrease, compared to the capital method.
D. capital method will cause debt to increase, compared to the operating method.
15) In a lease that is appropriately recorded as a direct-financing lease by the lessor, unearned income
A. should be amortized over the period of the lease using the interest method.
B. should be recognized at the lease’s expiration.
C. does NOT arise.
D. should be amortized over the period of the lease using the straight-line method.
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