ACC 132

1) Current accounting practice takes the viewpoint of shareholders by
reporting the amount of net income available to shareholders after
subtracting from revenues all expenses incurred in generating the
revenue by claimants (for example, employees, lenders, governments)
other than shareholders.

Answer:

2) Some analysts focus attention on cash flow from operations,
thinking it as important as, or more important than, net income as
a performance measure.

Answer:

3) Under U.S. GAAP, the statement of cash flows classifies cash
expenditures for interest on debt as an operating activity but
classifies cash expenditures for dividends to shareholders as a
financing activity.

Answer:

4) What is off-balance-sheet financing? How are they structured? How
are they treated under U.S. GAAP and IFRS.

Answer:

5) Briefly explain the difference between a sales allowance and a
sales discount.

Answer:

6) U.S. GAAP and IFRS provide guidance for deciding whether a given
financing arrangement appears as a liability on the balance sheet
or is disclosed in the notes.

Answer:

7) Discuss shareholders equity, how it is measured and disclosed.

Answer:

8) U.S. international companies always have an effective tax rate
equal to the 35% statutory tax rate.

Answer:

9) Describe the closing entries process at the end of the accounting
period..

Answer:

10) A derivative is a financial instrument whose value changes in
response to changes in an underlying observable variable, such as a
stock price, an interest rate, a currency exchange rate, or a
commodity price.

Answer:

11) Common terminology, but not definitions in U.S. GAAP and IFRS,
often refers to the difference between sales and cost of sales as
gross margin, gross profit, or gross income.

Answer:

12) What are common-size income statements?

Answer:

13) The provisions of U.S. GAAP require firms to classify marketable
securities into the following categories except
A.debt securities held to maturity for which a firm has both the
intent and the ability to hold to maturityshown on the balance
sheet at an amount based on acquisition cost, but subject to
impairment
B.debt and equity securities held as trading securities shown on
the balance sheet at fair value, with changes in fair value of
securities held at the end of the accounting period reported each
period in net income
C.debt and equity securities held as securities available-for-sale
shown on the balance sheet at fair value, with unrealized changes
in fair value of securities held at the end of the accounting
period included in other comprehensive income, and realized changes
in fair value included in net income when a firm sells the
securities
D.debt and equity securities held as securities available-for-sale
shown on the balance sheet at fair value, with changes in fair
value of securities held at the end of the accounting period
reported each period in net income.
E.none of the above

Answer:

14) The cost recovery method
A.matches the costs of generating revenue with cash receipts until
the seller recovers all its costs
B.is a method by which the seller sets expenses equal to revenue in
each period until it recovers all its costs
C.is a method by which the seller does not recognize gross margin
in income until it has recovered all of the costs of the sale
D.is a method by which the seller reports revenue without any
matching expenses in its income statement after cumulative cash
receipts equal total costs
E.all of the above

Answer:

15) Marley Corporation has a machine which costs $10,000, has an
estimated salvage value of $400, and has an expected service life
of five years. The straight-line (time) method annual depreciation
is
A.$960
B.$1,400
C.$1,500
D.$1,920
E.$2,000

Answer:

16) Tangible long-lived assets include
A.land
B.buildings
C.equipment
D.factories
E.all of the above

Answer:

17) _____ reflect the decrease in shareholders equity resulting from
the decrease in the net assets consumed during the generation of
income.
A.Revenues
B.Expenses
C.Dividends
D.Liabilities
E.Common stock

Answer:

18) When assets and income from operations that a firm has decided to
discontinue (and dispose of or abandon), separating the two income
components allows users to form better predictions of
A.past earnings
B.current earnings
C.future earnings
D.all of the above
E.none of the above

Answer:

19) Financial leverage
A.may increase the return to the common shareholders
B.uses lower cost borrowed funds and earns a higher rate of return
on those funds than their cost
C.requires the common shareholders to take on more risk in their
investment
D.all of the above
E.none of the above

Answer:

20) The stockholders’ equity of a firm can be defined as
A.net current assets
B.a residual interest
C.total assets plus total liabilities
D.the owners’ claim to the assets and liabilities
E.None of these answer choices is correct

Answer:

21) Depreciation of factory buildings and equipment used in
manufacturing operations become(s)
A.part of the cost of work-in-process inventories
B.part of the cost of finished goods inventories
C.product costs
D.all of the above
E.none of the above

Answer:

22) Barry Corporation holds equity securities earning $250 through
dividend declarations and debt securities earning $300 from
interest earned and that it has not yet received these amounts in
cash. The entry is as follows:
A.Dividend
Revenue……………………………………..250
Interest
Revenue………………………………………..300
Dividends and Interest
Receivable…………………………550
B.Dividend
Revenue……………………………………..250
Interest
Revenue………………………………………..300
Dividends and Interest
Payable……………………………..550
C.Dividends and Interest Receivable……………… 550
Dividend
Revenue………………………………………………..250

Interest
Revenue…………………………………………………..300

D.Dividends and Interest Payable……………………550
Dividend
Revenue………………………………………………..250

Interest
Revenue…………………………………………………..300

E.Dividends and Interest Payable……………………550
Dividends and Interest Receivable………………………….550

Answer:

23) Genesis acquires a machine for $177,600. It expects the machine to
last six years and to operate for 30,000 hours during that time.
Estimated salvage value is $9,600 at the end of the machines useful
life. Calculate the depreciation charge for each of the first three
years using each of the following methods:
a. The straight-line (time) method.
b. The straight-line (use) method, with the following operating
times: first year, 4,500 hours; second year, 5,000 hours; third
year, 5,500 hours.

Answer:

24) Assume that Trader Petes, an organic food retailer in the United
States, recently purchased a new refrigeration system for its
Washington, DC, store. Trader Petes paid $1.3 million for the
refrigeration unit and paid an additional $120,000 to modify the
unit to meet its specific needs. Trader Petes paid $55,000 for the
transportation and installation of the unit, plus $48,000 for an
annual insurance premium for the first year, which begins next
month. Finally, assume that Trader Petes hired a refrigeration
technician, who is charged with the maintenance of the unit; that
technicians annual salary is $80,000. How much should Trader Petes
record as the acquisition cost of the refrigeration unit?
A.$1,300,000
B.$1,420,000
C.$1,475,000
D.$1,523,000
E.$1,603,000

Answer:

25) For each of the following transactions, determine what adjustment
is necessary to prepare the statement of cash flows using the
indirect method.


a. Firm A sells equipment with a cost of $1,000 and accumulated
depreciation of $800 for $400 cash.
b. Firm A uses the equity method to record its investment in Firm
B. In the current year, A records $1,000 as equity in earnings of
affiliate. No dividends are paid by B.
c. Firm A acquires a building through a capital lease transaction.
The building and lease were recorded at $100,000. Firm A chooses to
report this transaction in the statement of cash flows.
.

Answer:

26) The accounting for employee stock options involves the firm
debiting _____ and crediting _____ for the amortized amount of the
fair value of the stock options on the date of the grant over the
requisite service period.
A.Compensation Expense; Additional Paid-In Capital (Stock
Options)
B.Stock Option Expense; Additional Paid-In Capital (Stock
Options)
C.Stock Option Expense; Retained Earnings
D.Compensation Expense; Retained Earnings
E.Compensation Expense; Common Stock

Answer:

27) The measurement of the assets and liabilities on the balance sheet
also determines the measurement of ______________.
A.additional paid-in-capital
B.common stock
C.retained earnings
D.total shareholders equity
E.par value

Answer:

28) The amount of cash a department store received from customers
during a period equals the sales for the period, reduced by the
_____ during this period or increased by the _____ during the
period.
A.decrease in accounts payable; increase in accounts payable
B.increase in accounts payable; decrease in accounts payable
C.decrease in accounts receivable; increase in accounts
receivable
D.increase in accounts receivable; decrease in accounts
receivable
E.none of the above

Answer:

29) The capital structure leverage ratio
A.indicates the portion of total assets, or total financing,
provided by common shareholders contrasted with the financing
provided by creditors and preferred shareholders
B.is larger when there is more financial leverage
C.is smaller when there is less financial leverage
D.all of the above
E.none of the above

Answer:

30) On the statement of cash flows, cash purchase of land is treated as
a/an
A.investing activity
B.financing activity
C.outflow of cash from operations
D.expenditure not requiring the use of cash
E.none of the above

Answer:

31) Under both U.S. GAAP and IFRS, the firm must immediately expense
all expenditures on _____.
A.research
B.development
C.nonfinancial assets
D.financial assets
E.intangible assets

Answer:

32) Fix-It Hardware

Fix-It Hardware began the month of November with 150 large brass
switchplates on hand at a cost of $4.00 each. These switchplates
sell for $7.00 each. The following schedule presents the sales and
purchases of this item during the month of November.

(CMA adapted, Dec 92 #28) Refer to the Fix-It Hardware example. If
Fix-It uses (periodic) LIFO inventory pricing, the cost of goods
sold for November would be
A.$2,416
B.$2,474
C.$2,508
D.$2,584
E.$2,684

Answer:

33) Firms that are temporarily short of cash and unable to borrow from
usual sources can convert accounts receivable into cash by selling
accounts receivable to a bank or financing company. This is
called
A.assigning accounts receivable
B.pledging accounts receivable
C.factoring accounts receivable
D.transferring accounts receivable
E.none of the above

Answer:

34) Which of the following could affect(s) the fixed asset turnover
ratio?
A.Firms often invest in fixed assets several periods before these
assets generate sales from products manufactured in their plants or
sold in their stores
B.A low or decreasing rate of fixed asset turnover may indicate
expanding firms preparing for future growth
C.Firms anticipating a decline in product sales could cut back
expenditures on fixed assets and increase the fixed asset turnover
ratio
D.All of the above
E.None of the above

Answer:

35) The _____ are linked (that is, they articulate) through the
shareholders equity account, Retained Earnings.
A.balance sheet and the income statement
B.balance sheet and the statement of cash flows
C.statement of cash flows and the income statement
D.all of the above
E.none of the above

Answer:

36) What method starts with the components of income, the individual
revenues and expenses, but not gains and losses, then adds or
subtracts the same balance sheet changes involving the same
operating accounts? Take an income statement line, then list next
to it, horizontally, additions and subtractions.
A.direct method for calculating the cash flows from investing
B.indirect method for calculating the cash flows from investing
C.indirect method for calculating the cash flows from financing
D.direct method for calculating the cash flows from operations
E.indirect method for calculating the cash flows from operations

Answer:

37) In a statement of cash flows, proceeds from the issuance of common
stock should be classified as cash inflows for
A.operating activities
B.financing activities
C.investing activities
D.lending activities
E.exchange transactions

Answer:

38) Accountants classify various items on the balance sheet or the
income statement in one of the following ways:

Using the abbreviations above, indicate the classification
of each of the following items:


a. __________ Factory
b. __________ Note payable, due in 7 years
c. __________ Interest revenue
d. __________ Common stock issued by the corporation
e. __________ Trucks used for deliveries
f. __________ Cash on hand
g. __________ Unsettled damage suit against the corporation,
probability and amount of settlement uncertain
h. __________ Commissions earned by the sales staff
i. __________ Employee taxes payable

Answer:

39) Directors usually declare dividends less than the legal maximum and
thereby allow retained earnings to increase as a matter of
corporate financial policy. Which of the following is not a valid
reason for this practice?
A.Available cash did not increase by as much as the amount of
earnings, so paying the maximum legally permitted dividends would
require raising more cash
B.Restricting dividends in prosperous years may permit continued
level or steadily growing dividend payments in poor years
C.The firm may need funds for expansion of working capital or for
plant and equipment
D.The firm can distribute the funds to shareholders with lower tax
burdens for them by using the cash to repurchase shares
E.The firm can distribute steadily growing dividend payments to
shareholders thereby increasing the market value of the firms
common stock and increasing the earnings multiple that investors
apply

Answer:

40) T-accounts
A.summarize the effects of transactions on specific accounts
B.show all the accounts affected by a single event or
transaction
C.provide a record of transactions
D.all of the above
E.none of the above

Answer:

41) Firms use long-term financing for
A.assets they expect to convert to cash in the short run
B.assets to be used over long periods
C.liabilities they expect to convert to cash in the short run
D.liabilities to be used over long periods
E.shareholders equity they expect to convert to cash in the short
run

Answer:

42) Excellent Paper, a United States-based company, processes wood pulp
into paper products in fixed-asset intensive facilities. It has a
large ratio of property, plant, and equipment to total assets and a
high debt-equity ratios. Which of the following is/are not
true?
A.Excellent Paper carries a higher levels of risk than an
electrical utility
B.Excellent Paper does not have the regulated, monopoly status of
an electrical utility
C.Sales of Excellent Paper are more sensitive to changes in the
level of business activity than those of an electric utility
D.The higher risk of Excellent Paper, relative to an electric
utility, raises its borrowing costs and decreases its reliance on
debt financing
E.Excellent Paper, relative to an electric utility, has more assets
to serve as collateral for borrowing

Answer:

43) Which of the following is issued to shareholders by a corporation
as evidence of the ownership of rights to acquire its unissued or
treasury stock?
A.Stock options
B.Stock rights
C.Stock dividends
D.Stock subscriptions
E.None of these choices is correct

Answer:

44) The Flavor Company owns 25 percent of the shares of Mac, and
accounts for its investment using the equity method. During the
year Mac earned income of $1,500 million and declared dividends.
Flavors share of the dividends were $150.0 million.

Required:

Answer:

45) InvestCo purchases 30% of NewCo’s stock on January 1, Year 1, for
$100,000. In Year 1, NewCo paid total dividends of $30,000 and had
a net income of $70,000. In Year 2, NewCo suffered a loss of
$20,000 and paid no dividends. On January 1, Year 3, InvestCo sells
its investment in NewCo for $105,000. How is the sale recorded?
A.Cash105,000
Loss on Sale 1,000
Investment in NewCo106,000
B.Cash105,000
Loss on Sale 4,000
Investment in NewCo109,000
C.Cash105,000
Loss on Sale 10,000
Investment in NewCo 115,000
D.Cash105,000
Gain on Sale 14,000
Investment in NewCo 91,000
E.Cash105,000
Treasury Stock 14,000
Investment in NewCo 91,000

Answer:

46) A firm purchased an office machine for $4,600, estimated that it
will use the machine for 15 years, and estimated a salvage value of
$100. On December 31 of the sixth year, before closing the books
for the year, the firm analyzed its estimates of useful life and
salvage value. In light of new information, the firm estimated that
the machine will have a total useful life of only 10 years, and the
salvage estimate of $100 remains reasonable.

The new estimate of the remaining life is five years (the year just
ended plus the next four). The depreciation entry on December 31 of
the sixth year and each year thereafter is:
A.Depreciation Expense. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 300
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . .300
B.Depreciation Expense. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 600
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . .600
C.Accumulated Depreciation . . . . . . . . . . . . . . . . . . . .
. . . . . . . .300
Depreciation Expense. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . 300
D.Accumulated Depreciation . . . . . . . . . . . . . . . . . . . .
. . . . . . . .600
Depreciation Expense. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . 600
E.none of the above

Answer:

47) Retained Earnings measures the cumulative excess of _____ for the
life of a firm
A.dividends over net income
B.net income over dividends
C.assets over liabilities
D.liabilities over shareholders equity
E.shareholders equity over liabilities

Answer:

48) Which of the following is/are true?
A.A bond indenture refers to the financial contract underlying
bonds
B.Bonds appear on the balance sheet under the title Bonds
Payable
C.Bonds typically carry maturity dates longer than approximately
ten years
D.Bonds typically involve many lenders instead of a single
lender
E.all of the above

Answer:

49) Compute the missing amounts affecting the change in cash for Year 1
in each of the 5 independent cases that follow. Amounts are in
thousands.

Answer:

50) Solve for the missing piece of information for each of the
following independent situations:

Answer:

51) Breaker Co.’s accounts receivable show the following balances by
age:

The credit balance in the allowance for uncollectible
accounts is $2,500. Breaker Co. uses the following percentages to
compute the estimated amounts of receivables that will eventually
prove uncollectible: 0-30 days, 0.7%; 31-60 days, 1.2%; 61-120
days, 11%; and more than 120 days, 65%.

Required:

Prepare the adjusting journal entry.

Answer:

52) Solve for the unknown item for each of the following independent
situations.

Answer:

53) Solve for the unknown item for each of the following independent
situations.

Answer:

54) Assume that P uses the equity method of accounting for its
investment in S. Solve for the unknown in each of the following
independent cases:

Answer:

55) On January 1, 2013, the records of the Camrole Corporation showed
these balances:

During 2013 and 2014, these transactions
occurred:

Provide the entries to record the declaration and payment
of the stock dividends during 2013 and 2014 .

Answer: