CMA Canada
Accelerated Program
Financial Accounting 2
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question. If for any question, you feel
strongly that the answer should be “none of the above” and that choice is not available fill in “y” on the answer sheet. If
you feel strongly that the answer should be “all of the above” and that choice is not available fill in “z” on the answer sheet.
1. Which of the following is not considered cash for financial
reporting purposes?
a. Money orders, certified cheques, and personal cheques
b. Postdated cheques and I.O.U.'s
c. Coin, currency, and available funds
d. Petty cash funds and change funds
e. Both b and d
2. Which of the following is not a financial asset?
a. Cash
b. Land held for resale
c. An investment in the shares of another company
d. A contractual right to receive cash or another financial asset
from another party
e. Both b and c
3. Assuming that the ideal measure of short-term receivables in the
balance sheet is the discounted value of the cash to be received in
the future, failure to follow this practice usually does not make
the balance sheet misleading because
a. most receivables can be sold to a bank or factor.
b. the amount of the discount is not material.
c. the allowance for uncollectible accounts includes a discount
element.
d. most short-term receivables are not interest-bearing.
e. the short term interest rate is changing constantly.
4. During 2008, Ann's Boutique sold 5,000 gift
certificates for $50 each. At year end, there were 1,000 gift certificates
outstanding, that had been sold to customers during 2008 for $50
each. Ann's operates on a gross margin of 60% of its sales. What
amount of revenue pertaining to the 1,000 outstanding gift
certificates should be deferred at December 31, 2008?
a. $30,000
b. $50,000
c. $0
d. $20,000
e. $250,000
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question. If for any question, you feel
strongly that the answer should be “none of the above” and that choice is not available fill in “y” on the answer sheet. If
you feel strongly that the answer should be “all of the above” and that choice is not available fill in “z” on the answer sheet.
5. Keffer Construction Corporation contracted to construct a building
for $1,500,000. Construction began in 2007 and was completed in
2008. Data relating to the contract are summarized below:
Year ended
December 31,
——————————————————————
2007
2008
————————
————————
Costs incurred
$600,000
$460,000
Estimated costs to complete
400,000
———
Keffer uses the percentage-of-completion method as the basis for
income recognition. For the years ended December 31, 2007 and 2008,
respectively, Keffer should report gross profit of
a. $270,000 and $170,000.
b. $300,000 and $140,000.
c. $900,000 and $600,000.
d. $0 and $440,000.
e. $223,333 and $216,667.
-----------------------------In 2008, Raymond Corporation began construction work under a threeyear contract. The contract price is $3,000,000. Raymond uses the
percentage-of-completion method for financial accounting purposes.
The income to be recognized each year is based on the proportion of
costs incurred to total estimated costs for completing the contract.
The financial statement presentations relating to this contract at
December 31, 2008, follow:
Balance Sheet
—————————————
Accounts receivable——construction
contract billings
$100,000
Construction in progress
$375,000
Less contract billings
300,000
————————
Costs and recognized profit in excess
of billings
75,000
Income Statement
————————————————
Income (before tax) on the contract
recognized in 2008
$ 75,000
6. How much cash was collected in 2008 on this contract?
a. $100,000
b. $ 25,000
c. $200,000
d. $300,000
e. $400,000.
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question. If for any question, you feel
strongly that the answer should be “none of the above” and that choice is not available fill in “y” on the answer sheet. If
you feel strongly that the answer should be “all of the above” and that choice is not available fill in “z” on the answer sheet.
-----------------------------Barnsley Ltd. began work in 2007 on a contract for $2,100,000. Other
data are:
2007
2008
————————
——————————
Costs incurred to date
$900,000
$1,400,000
Estimated costs to complete
600,000
——
Billings to date
700,000
2,100,000
Collections to date
500,000
1,800,000
7. If Barnsley uses the percentage-of-completion method, the gross
profit to be recognized in 2008 is
a. $540,000.
b. $400,000.
c. $600,000.
d. $360,000.
e. $340,000.
8. Tomkins Inc. charges an initial franchise fee of $230,000, with
$50,000 paid when the agreement is signed and the balance in five
annual payments. The present value of the future payments,
discounted at 10%, is $136,468. The franchisee has the option to
purchase equipment with a fair value of $30,000 for $24,000. Tomkins has substantially
provided all initial services required and collectibility of the
payments is reasonably assured. The amount of revenue from franchise
fees is
a. $230,000.
b. $186,468.
c. $50,000.
d. $180,468.
e. $0
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question. If for any question, you feel
strongly that the answer should be “none of the above” and that choice is not available fill in “y” on the answer sheet. If
you feel strongly that the answer should be “all of the above” and that choice is not available fill in “z” on the answer sheet.
9. Squam Construction Co. has consistently used the percentage-ofcompletion method of recognizing revenue. During 2007, Squam entered
into a fixed-price contract to construct an office building for
$6,000,000. Information relating to the contract is as follows:
At December 31
————————————————————————
2007
2008
—————————— ——————————
Percentage of completion
15%
45%
Estimated total cost at completion
$4,500,000
$4,800,000
Gross profit recognized (cumulative)
225,000
540,000
Contract costs incurred during 2008 were
a. $2,160,000.
b. $1,575,000.
c. $1,440,000.
d. $1,485,000.
e. $ 300,000.
10. During the year, Jantz Company made an entry to write off a $4,000
uncollectible account. Before this entry was made, the balance in
accounts receivable was $60,000 and the balance in the allowance
account was $4,500. The net realizable value of accounts receivable
after the write-off entry was
a. $60,000.
b. $55,500.
c. $59,500.
d. $51,500.
e. $68,500.
11. The following information is available for Terry Company:
Allowance for doubtful accounts at
December 31, 2007
Credit sales during 2008
Accounts receivable deemed worthless and
written off during 2008
$ 8,000
400,000
9,000
As a result of a review and aging of accounts receivable in early
January 2009, however, it has been determined that an allowance for
doubtful accounts of $7,500 is needed at December 31, 2008.
What amount should Terry record as bad debt expense for the year
ended December 31, 2008?
a. $6,500
b. $15,500
c. $7,500
d. $8,500
e. $16,500
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question. If for any question, you feel
strongly that the answer should be “none of the above” and that choice is not available fill in “y” on the answer sheet. If
you feel strongly that the answer should be “all of the above” and that choice is not available fill in “z” on the answer sheet.
-----------------------------A trial balance before adjustments included the following:
Debit
———————
Sales
Sales returns and allowance
$14,000
Accounts receivable
43,000
Allowance for doubtful accounts
Credit
————————
$425,000
760
12. If the estimate of uncollectibles is made by taking 2% of net sales,
the amount of the adjustment is
a. $6,700.
b. $9,740.
c. $8,220.
d. $8,500.
e. $7,460
13. Refer to question 12. If the estimate of uncollectibles is made by taking 10% of gross
account receivables the amount of the adjustment is
a. $4,300.
b. $3,540.
c. $5,060.
d. $4,224.
e. $3,464
14. If a petty cash fund is established in the amount of $250, and contains $200 in cash and $45 in receipts for disbursements when it is
replenished, the journal entry to record replenishment should
include credits to the following accounts:
a. Petty Cash, $45.
b. Cash, $50.
c. Petty Cash, $50.
d. Cash, $45; Cash Over and Short, $5.
e. $Cash, $250.
15. If the month-end bank statement shows a balance of $31,000, outstanding cheques are $12,000, a deposit of $4,000 was in transit at
month end, and a cheque for $500 was erroneously charged by the bank
against the account, the correct balance in the bank account at
month end is
a. $22,500.
b. $38,500.
c. $23,500.
d. $15,500.
e. $31,000.
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question. If for any question, you feel
strongly that the answer should be “none of the above” and that choice is not available fill in “y” on the answer sheet. If
you feel strongly that the answer should be “all of the above” and that choice is not available fill in “z” on the answer sheet.
16. In preparing its bank reconciliation for the month of April 2008,
Gregg, Inc. has available the following information.
Balance per bank statement, 4/30/08
NSF cheque returned with 4/30/08 bank statement
Deposits in transit, 4/30/08
Outstanding cheques, 4/30/08
Bank service charges for April
$35,140
450
4,000
5,200
20
What should be the correct balance of cash at April 30, 2008?
a. $34,370
b. $33,490
c. $33,470
d. $33,940
e. $35,140
17. May Co. prepared an aging of its accounts receivable at
December 31, 2008 and determined that the net realizable value of
the receivables was $290,000. Additional information is available
as follows:
Allowance for uncollectible accounts at 1/1/08——
credit balance
Accounts written off as uncollectible during 2008
Accounts receivable at 12/31/08
Uncollectible accounts recovered during 2008
$ 34,000
23,000
320,000
5,000
For the year ended December 31, 2008, May's bad debt expense would
be
a. $20,000.
b. $16,000.
c. $14,000.
d. $23,000.
e. $16,500
18. Which of the following is correct?
a. Selling costs are product costs.
b. Interest costs for routine inventories are product costs.
c. Manufacturing overhead costs are product costs.
d. Depreciation on manufacturing equipment is a period cost
e. Both c and d.
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question. If for any question, you feel
strongly that the answer should be “none of the above” and that choice is not available fill in “y” on the answer sheet. If
you feel strongly that the answer should be “all of the above” and that choice is not available fill in “z” on the answer sheet.
19. The following information is available for Kerr Company for 2008:
Freight in
Purchase returns
Selling expenses
Ending inventory
$ 30,000
75,000
150,000
260,000
The cost of goods sold is equal to 300% of selling expenses. What
is the cost of goods available for sale?
a. $450,000
b. $665,000
c. $710,000
d. $740,000
e. I don’t Kerr for this question.
20. For the year 2008, the gross profit of Roadwise Company was
$320,000; the cost of goods manufactured was $850,000; the beginning
inventories of goods in process and finished goods were $76,000 and
$95,000, respectively; and the ending inventories of goods in
process and finished goods were $92,000 and $135,000, respectively.
The sales of Roadwise Company for 2008 must have been
a. $ 810,000.
b. $1,154,000.
c. $1,114,000.
d. $1,130,000.
e. $ 945,000.
-----------------------------Pye Co. records purchases at net amounts. On May 5 Pye purchased
merchandise on account, $8,000, terms 2/10, n/30. Pye returned $500
of the May 5 purchase, and received credit on account. At May 31 the
balance had not been paid.
21. The amount to be recorded as a purchase return is
a. $450.
b. $500.
c. $490.
d. $510.
e. $520.
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question. If for any question, you feel
strongly that the answer should be “none of the above” and that choice is not available fill in “y” on the answer sheet. If
you feel strongly that the answer should be “all of the above” and that choice is not available fill in “z” on the answer sheet.
------------------------------
Balance at January 1
Purchases:
—————————
January 6
January 26
Units
—————
3,000
2,000
2,700
Unit Cost
—————————
$9.77
10.30
10.71
Sales:
—————
January 7
January 31
(2,500)
(4,200)
—————
Balance at January 31
1,000
22. Assuming that Lear maintains perpetual inventory records, what
should be the inventory at January 31, using the moving-average
inventory method, rounded to the nearest dollar?
a. $10,505
b. $10,260
c. $10,360
d. $10,237
e. $10,380
Total Cost
——————————
$29,310
20,600
28,917
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question. If for any question, you feel
strongly that the answer should be “none of the above” and that choice is not available fill in “y” on the answer sheet. If
you feel strongly that the answer should be “all of the above” and that choice is not available fill in “z” on the answer sheet.
-----------------------------Iron Co. has the following data related to an item of inventory:
Inventory, March 1
100 units @ $4.20
Purchase, March 7
350 units @ $4.40
Purchase, March 16
70 units @ $4.50
Inventory, March 31
150 units
23. The value assigned to cost of goods sold if Iron uses FIFO is
a. $667.
b. $1,635.
c. $1,608.
d. $640.
e. $850
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question. If for any question, you feel
strongly that the answer should be “none of the above” and that choice is not available fill in “y” on the answer sheet. If
you feel strongly that the answer should be “all of the above” and that choice is not available fill in “z” on the answer sheet.
24. The following information applied to Greer, Inc. for 2008:
Merchandise purchased for resale
Freight in
Freight out
Purchase returns
$200,000
8,000
5,000
2,000
Greer's 2008 inventoriable cost was
a. $206,000.
b. $200,000.
c. $203,000.
d. $211,000.
e. $215,000
25. Utley Retailers purchased merchandise with a list price of $30,000,
subject to trade discounts of 20% and 10%, with no cash discounts
allowable. Utley should record the cost of this merchandise as
a. $23,400.
b. $21,000.
c. $21,600.
d. $30,000.
e. $24,000
This information pertains to the following questions.
Selected data from RCL Inc.’s financial statements are presented below (in thousands):
December 31
Year 10
Year 9
Cash
$ 87
$ 111
Marketable securities
40
50
Accounts receivable (net)
180
190
Merchandise inventory
432
366
Tangible fixed assets (net)
640
800
Total assets
1,379
1,517
Current liabilities
455
517
Total liabilities
695
837
Common shares
500
500
Retained earnings
184
180
Net sales (100% on account)
$1,800
$1,900
Cost of goods sold
1,080
1,045
Operating expenses excluding amortization
468
412
Amortization
160
200
Interest expense
19
26
Income tax
29
87
Net income
44
130
Common dividends declared and paid
40
60
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question. If for any question, you feel
strongly that the answer should be “none of the above” and that choice is not available fill in “y” on the answer sheet. If
you feel strongly that the answer should be “all of the above” and that choice is not available fill in “z” on the answer sheet.
26. What is the quick ratio for Year 10?
a) 3.03
b) 0.44
c) 1.62
d) 1.98
e) 0.67
27. What is the merchandise inventory turnover in days (using 365 days in a year) for RCL Inc. Corporation in
Year 10?
a) 74 days
b) 135 days
c) 81 days
d) 124 days
e) 202 days
28. What is the times interest earned for Year 10?
a) 4.8 times
b) 37.9 times
c) 2.3 times
d) 16.8 times
e) 3.3 times
27. What is the total debt-to-equity ratio for Year 10?
a) 1.39
b) 1.02
c) 0.35
d) 0.50
e) 3.78
-------------------------------
Comment [GLBMC1]:
Comment [GLBMC2]:
Comment [GLBMC3]:
Comment [GLBMC4]:
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question. If for any question, you feel
strongly that the answer should be “none of the above” and that choice is not available fill in “y” on the answer sheet. If
you feel strongly that the answer should be “all of the above” and that choice is not available fill in “z” on the answer sheet.
28. Which of the following is a current liability?
a. A cash dividend payable to preferred shareholders
b. A dividend payable in the form of additional common shares
c. Preferred dividends in arrears
d. All of a, b and c
e. Only a and b.
29. Which of the following statements is false?
a. A company may exclude a short-term obligation from current
liabilities if the firm intends to refinance the obligation on a
long-term basis and demonstrates an ability to complete the
refinancing.
b. Federal income taxes withheld from employees' payroll cheques
should never be recorded as a liability since the employer will
eventually remit the amounts withheld to the appropriate taxing
authority.
c. Under the cash basis method, warranty costs are charged to
expense as they are paid.
d. Cash dividends should be recorded as a liability when they are
declared by the board of directors.
e. none of the above.
30. A contingent liability
a. definitely exists as a liability but its amount and due date are
indeterminable.
b. is the result of a loss contingency.
c. is not disclosed in the financial statements.
d. is accrued when reasonably estimated.
e. none of the above.
31. The effective interest on a 12-month, zero-interest-bearing note
payable of $300,000, discounted at the bank at 12% is
a. 13.04%.
b. 13.64%.
c. 8.93%.
d. 12%.
e. none of the above.
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question. If for any question, you feel
strongly that the answer should be “none of the above” and that choice is not available fill in “y” on the answer sheet. If
you feel strongly that the answer should be “all of the above” and that choice is not available fill in “z” on the answer sheet.
32. Denny Company estimates its annual warranty expense as 2% of annual
net sales. The following data relate to the calendar year 2008:
Net sales
Warranty liability account
Balance, Dec. 31, 2008
Balance, Dec. 31, 2008
$1,500,000
$ 5,000 debit before adjustment
25,000 credit after adjustment
Which one of the following entries was made to record the 2008
estimated warranty expense?
a. Warranty Expense ............................
30,000
Retained Earnings (prior-period adjustment)
5,000
Warranty Liability ........................
25,000
b. Warranty Expense ............................
25,000
Retained Earnings (prior-period adjustment) . 5,000
Warranty Liability ........................
30,000
c. Warranty Expense ............................
Warranty Liability ........................
20,000
20,000
d. Warranty Expense ............................
Warranty Liability ........................
30,000
e. Warranty Expense ............................
Warranty Liability ........................
25,000
30,000
25,000
33. Heather Products Corp. provides an incentive compensation plan under
which its president receives a bonus equal to 20% of the corporation's income in excess of $500,000 before income tax but after the
bonus. If income before tax and bonus is $2,000,000 and the
effective tax rate is 30%, the amount of the bonus would be
a. $250,000.
b. $400,000.
c. $300,000.
d. $210,000.
e. none of the above.
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question. If for any question, you feel
strongly that the answer should be “none of the above” and that choice is not available fill in “y” on the answer sheet. If
you feel strongly that the answer should be “all of the above” and that choice is not available fill in “z” on the answer sheet.
34. Snow Co. reports under IFRS. It has a likely loss that 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 loss accrual should be
a. the maximum of the range.
b. the minimum of the range.
c. the mean of the range.
d. zero.
e. none of the above.
-----------------------------On January 1, 2008, Schweb Co. issued eight-year bonds with a face
value of $500,000 and a stated interest rate of 6%, payable
semiannually on June 30 and December 31. The bonds were sold to
yield 8%.
35. The present value of the principal is
a. $270,000.
b. $313,500.
c. $311,500.
d. $267,000.
e. none of the above.
36. The present value of the interest is
a. $174,780.
b. $188,415.
c. $186,300.
d. $172,410.
e. none of the above.
37. The issue price of the bonds is
a. $442,410.
b. $499,800.
c. $444,780.
d. $441,780.
e. none of the above.
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question. If for any question, you feel
strongly that the answer should be “none of the above” and that choice is not available fill in “y” on the answer sheet. If
you feel strongly that the answer should be “all of the above” and that choice is not available fill in “z” on the answer sheet.
38. On January 1, 2008, Port Co. sold 12% bonds with a face value of
$500,000. The bonds mature in five years, and interest is paid
semiannually on June 30 and December 31. The bonds were sold for
$538,500 to yield 10%. Using the effective interest method of
amortization, interest expense for 2008 is
a. $53,696.
b. $60,000.
c. $53,850.
d. $50,000.
e. none of the above.
39. On January 1, 2008, Ann Pelletier loaned $15,026 to Joe Grant. A
zero- interest-bearing note (face amount, $20,000) was exchanged
solely for cash; no other rights or privileges were exchanged. The
note is to be repaid on December 31, 2010. The prevailing rate of
interest for a loan of this type is 10%. The present value of
$20,000 at 10% for three years is $15,026. What amount of interest
income should Ms. Pelletier recognize in 2008?
a. $2,000
b. $4,508
c. $6,000
d. $1,503
e. none of the above.
40. On June 30, 2008, Kelan Co. had outstanding 8%, $1,000,000 face
amount, 15-year bonds maturing on June 30, 2018. Interest is payable
on June 30 and December 31. The unamortized balances in the bond
discount and deferred bond issue costs accounts on June 30, 2008
were $35,000 and $10,000, respectively. On June 30, 2008, Kelan
acquired all of these bonds at 94 and retired them. What net
carrying amount should be used in calculating gain or loss on this
early extinguishment of debt?
a. $940,000
b. $955,000
c. $990,000
d. $965,000
e. none of the above.