Practice set
- 1. Let’s do some practice Every question that you work makes you a better student and gets you ever closer to those 75 points you need to pass the CPA Exam. FAR On January 1, Year One, the Hogan Company issues a four year $100,000 term bond that pays an annual 6 percent cash interest. Interest is paid every 12/31 with the face value to be paid four years from the issuance date. The bond is issued to earn an actual annual rate of 10 percent. The present value of an ordinary annuity of $1 for four time periods at a 10 percent rate is 3.16. The present value of a single amount of $1 in four time periods at a 10 percent rate is .68. What interest expense should Hogan report on its Year Two income statement? a. $6,000 b. $6,800 c. $7,070 d. $10,000 Auditing The CPA firm of Hay and Worth is auditing the financial statements of LaBrend Corporation. LaBrend has used a special purpose financial reporting framework. Which of the following statements is true? a. The cash basis qualifies as a special purpose financial reporting framework but the tax basis does not. b. The report should have an emphasis-of-a-matter paragraph to indicate that the basis being used was not consistent with US GAAP. c. The tax basis qualifies as a special purpose financial reporting framework but the cash basis does not. d. A balance sheet and income statement must be included in the financial statements. Regulation The Hyldina Corporation has an account receivable for $10,000 from Prosgko Corporation that is outstanding at the end of Year One. The debt was incurred as a result of normal business tranactions. Prosgko is a relatively new customer from a neighboring town. Hyldina believes that there is an 8 percent chance of collecting this receivable. Hyldina is an accrual basis taxpayer. What can be deducted by Hyldina on the company’s Year One income tax return? a. Zero b. $800 c. $4,000 d. $10,000
- 2. BEC At the end of Year One, the Glacken Company has accounts receivable of $435,000. During that year, the company made credit sales of $2.6 million. At the end of the year, what is the average age of the reported accounts receivable balance? (rounded) a. 46 days b. 53 days c. 59 days d. 61 days