Which of the following defenses is likely to be successful in a suit alleging negligence by a CPA?
- Due care.
- Ignorance of the law.
- Lack of intent.
- Lack of mental capacity.
If a CPA recklessly departs from the standards of due care when conducting an audit, the CPA will be liable to third parties who are unknown to the CPA under the law of
- Strict liability.
- Breach of contract.
- Negligence.
- Gross negligence.
Bailey Co. changed the accounting for insurance expense from the cash basis to the accrual basis in the current year. In January of the prior year, Bailey recorded insurance expense of $240,000 for the cash purchase of a four-year insurance policy. How should Bailey report the insurance transaction in the current year’s financial statements?
- As a $180,000 debit to prepaid insurance.
- As a $60,000 debit to insurance expense.
- As a $60,000 debit to insurance expense, a $120,000 debit to prepaid asset, and $180,000 credit to retained earnings.
- As a $180,000 debit to insurance expense, a $120,000 credit to prepaid asset, and $60,000 credit to retained earnings.
Toft Co. had 120,000 shares of common stock outstanding at January 1. On April 1, it issued 40,000 additional shares of common stock. Outstanding all year were 10,000 shares of nonconvertible preferred stock on which a dividend of $5 per share was declared during the year. Net income for the year was $480,000. What should Toft report as earnings per share for the year?
- $2.69
- $2.87
- $3.00
- $3.20
Box, a nongovernmental not-for-profit organization, had the following transactions during the year:
Proceeds from sale of investments $80,000
Purchase of property, plant and equipment $10,000
Proceeds from long-term debt $100,000
Loss on sale of investment $5,000
What amount should be reported as net cash provided by financing activities in Box’s statement of cash flows?
- $70,000
- $75,000
- $80,000
- $100,000
Zokro, a nongovernmental not-for-profit organization, uses the indirect method to prepare its statement of cash flows. In determining its net cash provided (used) by operating activities, Sokro must add back which of the following to the change in net assets?
- Purchase of equipment.
- Payment on long-term debt.
- Depreciation.
- Decrease in accounts payable
The primary purpose of a not-for-profit organization’s statement of activities is to provide relevant information to its
- Resource providers.
- Managers.
- Beneficiaries.
- State regulatory body
Strut Co. has a payable to its parent, Plane Co. In which of the following balance sheets should this payable be reported separately?
Strut’s Plane’s consolidated
balance sheet balance sheet
- Yes Yes
- Yes No
- No Yes
- No No
Ace Co. issued 1,000 shares of its $10 par value common stock for $15 per share in cash. How should this transaction be reported in Ace’s statement of cash flows for the year of issuance?
- $15,000 cash inflow from financing activities.
- $10,000 cash inflow from financing activities and $5,000 adjustment to arrive at cash flows from operating activities.
- $15,000 cash flow from investing activities.
- $10,000 cash flow from investing activities and $5,000 adjustment to arrive at cash flows from operating activities.
…
During the year, Verity Co. purchased $200,000 of Otra Co. bonds at par and $50,000 of U.S. Treasury bills. Verity classified the Otra bonds as available-for-sale securities and the Treasury bills as cash equivalents. In Verity’s statement of cash flows, what amount should it report as net cash used in investing activities?
- $0
- $150,000
- $200,000
- $250,000
During the current year, Cooley Co. had an unrealized gain of $100,000 on a debt investment classified as available-for-sale. Cooley’s corporate tax rate is 25%. What amount of the gain should be included in Cooley’s net income and other comprehensive income at the end of the current year?
Net income Other comprehensive income
- $100,000 $0
- $75,000 $25,000
- $25,000 $75,000
- $0 $75,000