1. Which of the following is not a condition necessary to exclude a short-term obligation from current liabilities?
a. Intend to refinance the obligation on a long-term basis.
b. Obligation must be due with one year.
c. Demonstrate the ability to complete the refinancing.
d. Subsequently refinance the obligation on a long-term basis.

2. The amount of the liability for compensated absences should be based on
1. the current rates of pay in effect when employees earn the right to compensated absences.
2. the future rates of pay expected to be paid when employees use compensated time.
3. the present value of the amount expected to be paid in future periods.
a. 1.
b. 2.
c. 3.
d. Either 1 or 2 is acceptable.

3. Which of the following is an example of a contingent liability?
a. Obligations related to product warranties.
b. Possible receipt from a litigation settlement.
c. Pending court case with a probable favorable outcome.
d. Tax loss carryforwards.

4. To record an asset retirement obligation (ARO), the cost associated with the ARO is
a. expensed.
b. included in the carrying amount of the related long-lived asset.
c. included in a separate account.
d. capitalized over the asset's useful life.

5. Martinez Co. has a loss contingency to accrue. The loss amount can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The amount of loss accrual should be
a. zero.
b. the minimum of the range.
c. the mean of the range.
d. the maximum of the range.

6. Greeson Corp. signed a three-month, zero-interest-bearing note on December 1, 2014 for the purchase of $250,000 of inventory. The face value of the note was $253,900. Assuming Greeson used a “Discount on Note Payable” account to initially record the note and that the discount will be amortized equally over the 3-month period, the adjusting entry made at December 31, 2014 will include a
a. debit to Discount on Note Payable for $1,300.
b. debit to Interest Expense for $2,600.
c. credit to Discount on Note Payable for $1,300.
d. credit to Interest Expense for $2,600.

7. What is a discount as it relates to zero-interest-bearing notes payable?
a. The discount represents the lender's costs to underwrite the note.
b. The discount represents the credit quality of the borrower.
c. The discount represents the cost of borrowing.
d. The discount represents the allowance for uncollectible amounts.

8. Venible newspapers sold 6,000 of annual subscriptions at $125 each on May 1. How much unearned revenue will exist as of December 31?
a. $0.
b. $312,500.
c. $275,000.
d. $250,000.

Use the following information for questions 9 and 10.
Posner Co. is a retail store operating in a state with a 7% retail sales tax. The retailer may keep 2% of the sales tax collected. Posner Co. records the sales tax in the Sales Revenue account. The amount recorded in the Sales Revenue account during May was $256,800.

9. The amount of sales taxes (to the nearest dollar) for May is
a. $10,762.
b. $16,450.
c. $12,631.
d. $16,800.

10. The amount of sales taxes payable (to the nearest dollar) to the state for the month of May is
a. $12,573.
b. $16,121.
c. $10,762.
d. $16,464.

11. Roxy Co., which has a taxable payroll of $600,000, is subject to FUTA tax of 6.2% and a state contribution rate of 5.4%. However, because of stable employment experience, the company’s state rate has been reduced to 3%. What is the total amount of federal and state unemployment tax for Roxy Co.?
a. $60,200
b. $49,200
c. $22,800
d. $16,800

12. A company gives each of its 50 employees (assume they were all employed continuously through 2014 and 2015) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2014, they made $24.50 per hour and in 2015 they made $28 per hour. During 2015, they took an average of 8 days of vacation each. The company’s policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2014 and 2015 balance sheets, respectively?
a. $117,600; $179,200
b. $134,400; $168,000
c. $117,600; $168,000
d. $134,400; $179,200

13. A company offers a cash rebate of $1 on each $4 package of light bulbs sold during 2014. Historically, 10% of customers mail in the rebate form. During 2014, 3,000,000 packages of light bulbs are sold, and 140,000 $1 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2014 financial statements dated December 31?
a. $300,000; $300,000
b. $300,000; $140,000
c. $300,000; $160,000
d. $140,000; $160,000

14. Presented below is information available for Marley Company.
Current Assets
Cash $ 4,000
Short-term investments 55,000
Accounts receivable 51,000
Inventory 110,000
Prepaid expenses 30,000
Total current assets $250,000
Total current liabilities are $100,000. The acid-test ratio for Marley is:
a. 2.20 to 1
b. 2.50 to 1
c. 1.30 to 1
d. 1.10 to 1

15. A company buys an oil rig for $1,500,000 on January 1, 2014. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $400,000 (present value at 10% is $154,220). 10% is an appropriate interest rate for this company. What expense should be recorded for 2014 as a result of these events?
a. Depreciation expense of $190,000
b. Depreciation expense of $165,422 and interest expense of $15,422
c. Depreciation expense of $150,000 and interest expense of $40,000
d. Depreciation expense of $215,422 and interest expense of $15,422

16. Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Palmer Frosted Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2014, the company sold 675,000 boxes of Frosted Flakes and customers redeemed 330,000 boxtops receiving 110,000 bowls. If the bowls cost Palmer Company $4 each, how much liability for outstanding premiums should be recorded at the end of 2014?
a. $270,000
b. $50,000
c. $75,000
d. $138,000

17. An example of an item which is not a liability is
a. dividends payable in stock.
b. advances from customers on contracts.
c. accrued estimated warranty costs.
d. the portion of long-term debt due within one year.
18. On January 3, 2014, Benton Corp. owned a machine that had cost $300,000. The accumulated depreciation was $180,000, estimated salvage value was $18,000, and fair value was $380,000. On January 4, 2014, this machine was irreparably damaged by Pogo Corp. and became worthless. In October 2014, a court awarded damages of $380,000 against Pogo in favor of Benton. At December 31, 2014, the final outcome of this case was awaiting appeal and was, therefore, uncertain. However, in the opinion of Benton’s attorney, Pogo’s appeal will be denied. At December 31, 2014, what amount should Benton accrue for this gain contingency?
a. $380,000.
b. $260,000.
c. $300,000.
d. $0.

19. 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 the same as if the straight-line method were used.
d. less than if the straight-line method were used.

20. Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that
a. the effective yield or market rate of interest exceeded the stated (nominal) rate.
b. the nominal rate of interest exceeded the market rate.
c. the market and nominal rates coincided.
d. no necessary relationship exists between the two rates.

21. If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a
a. debit to Interest Payable.
b. credit to Interest Receivable.
c. credit to Interest Expense.
d. credit to Unearned Interest.

22. If a company chooses the fair value option, a decrease in the fair value of the liability is recorded by crediting
a. Bonds Payable.
b. Gain on Restructuring of Debt.
c. Unrealized Holding Gain/Loss-Income.
d. None of these answers are correct.
23. The printing costs and legal fees associated with the issuance of bonds should
a. be expensed when incurred.
b. be reported as a deduction from the face amount of bonds payable.
c. be accumulated in a deferred charge account and amortized over the life of the bonds.
d. not be reported as an expense until the period the bonds mature or are retired.

24. The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as
a. an adjustment to the cost basis of the asset obtained by the debt issue.
b. an amount that should be considered a cash adjustment to the cost of any other debt issued over the remaining life of the old debt instrument.
c. an amount received or paid to obtain a new debt instrument and, as such, should be amortized over the life of the new debt.
d. a difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption.

25. Long-term debt that matures within one year and is to be converted into stock should be reported
a. as a current liability.
b. in a special section between liabilities and stockholders’ equity.
c. as noncurrent.
d. as noncurrent and accompanied with a note explaining the method to be used in its liquidation.

Use the following information for questions 26 through 28:
On January 1, 2014, Ellison Co. issued eight-year bonds with a face value of $3,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:
Present value of 1 for 8 periods at 6% .627
Present value of 1 for 8 periods at 8% .540
Present value of 1 for 16 periods at 3% .623
Present value of 1 for 16 periods at 4% .534
Present value of annuity for 8 periods at 6% 6.210
Present value of annuity for 8 periods at 8% 5.747
Present value of annuity for 16 periods at 3% 12.561
Present value of annuity for 16 periods at 4% 11.652
26. The present value of the principal is
a. $2,136,000.
b. $1,602,000.
c. $2,492,000.
d. $1,508,000.

27. The present value of the interest is
a. $1,048,680.
b. $1,398,240.
c. $1,390,400.
d. $1,307,320.

28. The issue price of the bonds is
a. $3,534,240.
b. $2,650,680.
c. $3,558,240.
d. $2,998,400.

29. A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2013. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2016?
a. $9,845,115
b. $9,870,311
c. $9,841,658
d. $9,831,761

30. A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. What is interest expense for 2016, using straight-line amortization?
a. $1,579,792
b. $780,000
c. $770,104
d. $789,896

31. On January 1, Patterson Inc. issued $4,000,000, 9% bonds for $3,756,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the second year, Patterson should report unamortized bond discount of
a. $118,400.
b. $228,400.
c. $211,240.
d. $204,000.

32. The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2014, contained the following accounts.
5-year Bonds Payable 8% $2,500,000
Interest Payable 50,000
Premium on Bonds Payable 100,000
Notes Payable (3 months.) 40,000
Notes Payable (5 yr.) 165,000
Mortgage Payable ($5,000 due currently) 200,000
Salaries and wages Payable 18,000
Income Taxes Payable (due 3/15 of 2015) 25,000

The total long-term liabilities reported on the balance sheet are
a. $2,860,000.
b. $2,850,000.
c. $2,960,000.
d. $2,950,000.

33. Putnam Company’s 2014 financial statements contain the following selected data:
Income taxes $40,000
Interest expense 25,000
Net income 60,000
Putnam’s times interest earned for 2014 is
a. 4.0 times
b. 5.0 times.
c. 6.7 times.
d. 7.7 times.

Use the following information for questions *34 through *35:

On December 31, 2012, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $1,800,000 note with $180,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $930,000, an original cost of $1,440,000, and accumulated depreciation of $690,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2015, reduces the face amount of the note to $750,000, and reduces the interest rate to 6%, with interest payable at the end of each year.

34. Nolte should recognize a gain or loss on the transfer of the equipment of
a. $0.
b. $120,000 gain.
c. $180,000 gain.
d. $570,000 loss.

35. Nolte should recognize a gain on the partial settlement and restructure of the debt of
a. $0.
b. $45,000.
c. $165,000.
d. $225,000.

1. Which of the following is not a condition necessary to exclude a...