1) Total liabilities plus shareholders equity shows the sources of all
the firms financing, and the assets show how the firm holds or has
invested those funds.
Answer:
2) The closing process involves reducing to zero the balance in each
income statement account by debiting the revenue accounts and
crediting the expense accounts, and transferring to Retained
Earnings the differences between total revenues and total expenses.
Answer:
3) If a firm issues common stock in return for services other than
from employees, the firm records the transaction at the fair value
of the services received if it can more reliably measure this
amount. Otherwise, the firm records the transaction at the fair
value of the shares issued.
Answer:
4) As a new employee in the accounting department of The Education
Company, you noticed that the company’s financial software
generates common-size financial statements. However, your
supervisor stated that the common-size statements are not of
importance. The statements are in fact trashed and never reviewed
by upper management. Write a memo to your supervisor describing
common-size financial statements (balance sheet and income
statement) and explain how these statements might be utilized.
Answer:
5) Depreciation and amortization is a measure of the decline in
economic value of a long-lived asset.
Answer:
6) Describe a typical balance sheet.
Answer:
7) Expenses provide future benefits, and assets measure the
consumption of those benefits.
Answer:
8) Firms report many financial liabilities as the present value of the
amount payable, except
that firms can ignore discounting for liabilities due within one
year.
Answer:
9) Under U.S. GAAP, assets and liabilities in the balance sheet appear
in order of increasing closeness-to-cash.
Answer:
10) Long-lived financial assets include investments in securities.
Answer:
11) Discuss how stock warrants are used.
Answer:
12) If the firm expects to collect or pay more than one year after the
balance sheet date, the balance sheet classifies these as
noncurrent assets and noncurrent liabilities, respectively.
Answer:
13) Balance sheet relations. Colonial Group, an investment management
company, reported the following data for four recent years. Compute
the missing balance sheet amounts for each of the four years. (In
answering this question, assume that Colonial Group uses U.S.
GAAP.)
2015 2014 2013 2012
Current Assets $10,999.20 ? ? 6,882.60
Noncurrent Assets _____ ? 18,717.40
11,289.10 9,713.90
Total Assets ? 28,224.70 ?
?
Current Liabilities ? $4,351.30 1,494.20 1,755.20
Noncurrent Liabilities 5,721.70 ? ? 3,540.70
Shareholders Equity 21,537.30 16,666.90
9,002.00 __ ?
Total Liabilities and
Shareholders
Equity 30,178.90 28,224.70 18,491.30
16,596.
(Colonial Group; balance sheet relations.)
Answer:
14) Discuss the accounting for debt securities held to maturity and
arguments against this approach.
Answer:
15) The income statement, also called the statement of financial
position, provides information, at
a point in time, on the firms productive resources and the
financing used to pay for those
resources.
Answer:
16) Revenues measure the inflow of net assets from operating
activities.
Answer:
17) The amounts that firms report as received from owners are equal to
the amounts the firm received when it originally issued the shares
of stock.
Answer:
18) Capital leases are economically similar to purchasing assets with
funds obtained from issuing long-term bonds and result in similar
accounting.
Answer:
19) Explain the accounting for retirement benefits.
Answer:
20) A minority, active investment is generally
A.an investment in another company’s stock of less than 15%
B.an investment in another company’s stock of between 15% and
60%
C.an investment in another company’s stock of between 20% and
50%
D.dependent upon management’s intent
E.dependent upon the expected holding period
Answer:
21) During Year 6, Delta Company had a net $4,000 increase in customer
advances. The T-account work sheet for preparing the statement of
cash flows
A.subtracts this excess from net income in deriving cash flow from
operating activities
B.adds this excess to net income in deriving cash flow from
financing activities
C.adds this excess to net income in deriving cash flow from
operating activities
D.subtracts this excess from net income in deriving cash flow from
financing activities
E.subtracts this excess from retained earnings in deriving cash
flow from operating activities
Answer:
22) Brussels Products began its Belgian operations on January 1.The
following is the journal entry for the issuance, to producing
departments of raw materials costing 20,000:
A.Work-in-Process Inventory. . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . 20,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .. . . . . . . . . 20,000
B.Work-in-Process Inventory. . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . 20,000
Finished Goods Inventory . . . . . . .. . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 20,000
C.Finished Goods Inventory. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . 20,000
Raw Materials Inventory . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 20,000
D.Work-in-Process Inventory. . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . 20,000
Raw Materials Inventory . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 20,000
E. Raw Materials Inventory. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . 20,000
Work-in-Process Inventory . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 20,000
Answer:
23) Firms treat expenditures to develop intangibles internally as
assets under U.S. GAAP when _____ the point of technological
feasibility; and under IFRS when _____ the point of technological
feasibility.
A.software development costs are incurred after; development costs
are incurred generally after
B.software development costs are incurred after; development costs
are incurred generally before
C.software development costs are incurred before; development costs
are incurred generally before
D.software development costs are incurred before; development costs
are incurred generally after
E.none of the above
Answer:
24) Given the following inventory and inventory related accounts, solve
for the unknown amounts.
Case A Case B
Beginning raw materials (a) $50
Raw materials purchases $100 (f)
Ending raw materials 20 30
Raw materials transfers 80 90
Beginning work-in-process (b) 40
Direct labor 30 (g)
Direct material (c) 90
Manufacturing overhead 40 20
Ending work-in-process 50 40
Work-in-process transfers 160 130
Beginning finished goods 40 (h)
Transfers in (d) (i)
Ending finished goods 30 20
Cost of goods sold (e) 120
Answer:
25) Bonds Payable on the balance sheet of Michael LLC includes one
series of bonds initially issued at a premium. The entry made in
the accounting records for interest expense during the period was
as follows:
Interest Expense . . . . . . . . . . . . . . . . .4,500
Premium on Bonds Payable . . . . . . . . . . 500
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,000
The firm spent $5,000 of cash even though it subtracted only $4,500
of interest expense in computing net income. In preparing the
statement of cash flows using the T-account work sheet
A.subtract an additional $5,000 from net income to derive cash flow
from operations
B.subtract an additional $4,500 from net income to derive cash flow
from operations
C.subtract an additional $500 from net income to derive cash flow
from operations
D.add an additional $500 from net income to derive cash flow from
operations
E.add an additional $4,500 from net income to derive cash flow from
operations
Answer:
26) Corporate laws within many jurisdictions require that, within
_____, firms distinguish between amounts received from owners and
amounts generated by operations which the firm has not distributed
to owners.
A.cash
B.shareholders equity
C.retained earnings
D.paid-in-capital
E.par value
Answer:
27) _____ of a note or bond at any date subsequent to the initial
borrowing equals the present value of the future, or remaining,
cash flows discounted at an appropriate interest rate.
A.The amount borrowed initially
B.The market value
C.The liquidation value
D.The net realizable value less selling costs
E.choices a and b
Answer:
28) Accountants sometimes refer to the equity method as a(n)
A.one-line consolidation
B.pooling-of-interests
C.unity-of-interests
D.purchase
E.tricky combination
Answer:
29) Most publicly traded firms operate as corporations. Which of the
following is/are not true?
A.The corporate form facilitates the transfer of ownership
interests because owners can sell their shares without affecting
the ongoing operations of the firm
B.The transfer of ownership interests is a transaction between
shareholders and does not involve the firm whose shares change
hands
C.Investors make capital contributions under a contract between
themselves and the corporation
D.The corporation has legal status separate from its owners
E.none of the above
Answer:
30) Which of the following is not a period expense?
A.salaries and commissions of the sales staff
B.costs to produce catalogs
C.marketing costs, such as advertising
D.costs to produce sales literature
E.direct labor
Answer:
31) Revenue recognition is among the most complex issues in financial
reporting. The quantity and complexity of the authoritative
guidance for recognizing revenues result(s) from
A.misreporting of revenues
B.reporting revenues before the firm earns them
C.reporting nonexistent revenues
D.firms bundling products and services and selling them in
multiple-element arrangements
E.all of the above
Answer:
32) Which of the following is/are not 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.Firms need not disclose a list of their long-term debt
obligations in notes to the financial statements
Answer:
33) Bad Debt Expense is also called the Provision for Bad Debts and the
Provision for Uncollectible Accounts. Provision in this context
refers to
A.a liability in U.S. GAAP, not an expense; that provision in IFRS
refers to an expense whose timing or amount, or both, are
uncertain
B.an expense in U.S. GAAP, not a liability; that provision in IFRS
refers to an expense whose timing or amount, or both, are
uncertain
C.an liability in U.S. GAAP, not an expense; that provision in IFRS
refers to a liability whose timing or amount, or both, are
uncertain
D.an expense in U.S. GAAP, not a liability; that provision in IFRS
refers to a liability whose timing or amount, or both, are
uncertain
E.none of the above
Answer:
34) The accounts payable turnover ratio uses purchases on account in
its computation. Although firms do not disclose their purchases,
the analyst can calculate the purchase amount as follows:
A.Purchases = Cost of Goods Sold + Ending Inventory + Beginning
Inventory
B.Purchases = Cost of Goods Sold + Ending Inventory – Beginning
Inventory
C.Purchases = Cost of Goods Sold – Ending Inventory + Beginning
Inventory
D.Purchases = Cost of Goods Sold – Ending Inventory – Beginning
Inventory
E.Purchases = Cost of Goods Sold x Ending Inventory – Beginning
Inventory
Answer:
35) Journal entries
A.show all the accounts affected by a single event or
transaction
B.provide a record of transactions
C.have the characteristics presented in choices a and b
D.summarize the effects of transactions on specific accounts
E.none of the above
Answer:
36) Many firms provide similar types of airline services with similar
types of assets. They each received unqualified opinions from their
independent auditors. Yet, Flash Airlines appears to apply its
accounting principles more aggressively in income-enhancing ways
relative to its competitors. The choices for Flash Airlines in
applying generally accepted accounting principles under the accrual
basis of accounting include:
A.depreciable lives for buildings and equipment
B.estimated uncollectibles for accounts receivable
C.estimated warranty costs
D.all of the above
E.none of the above
Answer:
37) Selected data from Carson Corporation’s financial statements for
the year ended December 31, Year 2 are as follows.
| Current ratio | 1.4 |
| Quick ratio | 0.86 |
| Current liabilities | $450,000 |
| Accounts receivable turnover | 6.0 |
| Merchandise inventory turnover | 4.0 |
| Rate of return on assets | 6.5% |
Selected Account Balances at December 31, Year 1:
| Accounts receivable | $355,000 |
| Merchandise inventory | 190,000 |
Year 2 Operations
| Sales | $1,241,000 |
| Cost of goods sold | 800,000 |
Assuming that prepaid expenses are immaterial, ending
merchandise inventory at December 31, Year 2 is
A.$180,000
B.$210,000
C.$220,000
D.$240,000
E.$260,000
Answer:
38) The result of closing entries is that balances in all temporary
accounts
A.are adjusted to historical cost
B.include monthly depreciation
C.are adjusted to zero
D.are adjusted to budgeted accounts
E.are adjusted to current values
Answer:
39) Bonds whose indentures contain a provision which requires the
issuing firm to make a provision for partial early retirement of
the bond issue include serial bonds and _____ bonds.
A.callable
B.refunded
C.sinking fund
D.convertible
E.zero coupon
Answer:
40) In the preparation of a statement of cash flows, adjustments to net
income to reconcile net income to cash from operating activities
include
A.dividends received
B.the difference between the purchase price and the resale price of
treasury stock (assuming the cost method of accounting for treasury
stock)
C.amortization of organization cost
D.redemption premium on preferred stock redeemed during the
period
E.All of these answer choices are correct
Answer:
41) The statement of cash flows classifies cash used for interest
expense as
A.an operating activity
B.an investing activity
C.a financing activity
D.an exchange activity
E.a funds usage activity
Answer:
42) What criteria must sales transactions meet in order for the seller
to recognize revenues before collecting cash?
A.The revenues must be earned (the firm must have achieved
substantial performance)
B.The amount to be received must qualify as an asset (there must be
a future economic benefit and the amount must be measured with
sufficient reliability)
C.The firm must have a reasonable expectation that it will collect
the amount owed from the customer
D.all of the above
E.none of the above
Answer:
43) Which of the following is/are not true?
A.U.S. GAAP and IFRS do not permit the employer to prepare
consolidated financial statements with the retirement trust
B.The employer must report the net funded status of each defined
benefit retirement plan (that is, the fair value of retirement
trust assets minus the retirement trust obligation) as a retained
earnings reserve on its balance sheet
C.The employer must report the net funded status of each defined
benefit retirement plan and credit (for an overfunded plan) or
debit (for an underfunded plan) is to Other Comprehensive
Income
D.Notes to the financial statements provide information about
investments made by the retirement trust and how trust assets and
liabilities changed during a period
E.all of the above
Answer:
44) U.S. GAAP authoritative guidance requires that financial statements
report depreciation charges based on _____ estimates; in practice,
the _____ method is the most common.
A.aggressive; straight-line (time)
B.reasonable; straight-line (time)
C.aggressive; straight-line (use)
D.reasonable; straight-line (use)
E.reasonable; accelerated
Answer:
45) Which of the following is a product cost?
A.customer service
B.supervisory factory labor
C.depreciation on sales showroom
D.marketing vice president’s salary
E.advertising costs
Answer:
46) The terms salvage value and residual value refer to the estimated
proceeds on the disposition of an
A.asset, only
B.asset less all removal costs, only
C.asset less all removal and selling costs
D.asset plus all removal and selling costs, only
E.estimated proceeds on the disposition of an asset plus all
selling costs, only
Answer:
47) Which of the following is/are not examples of a period expense?
A. the presidents salary
B. accounting and information systems costs
C. accounting and information systems costs
D.support activity costs such as legal services, employee training,
and corporate planning.
E.the factory foremans salary
Answer:
48) Firms must designate each derivative as a hedging instrument, or
else accounting views the derivative as a nonhedging instrument.
Furthermore, firms must designate each hedging instrument as either
a fair value hedge or a cash flow hedge. The accounting for fair
value hedges
A.remeasures both the hedged item and the derivative to fair value
each period and recognize any unrealized gains and losses in net
income
B.remeasures the derivative to fair value each period and include
the unrealized gain or loss in other comprehensive income to the
extent that the derivative instrument is effective in neutralizing
risk. When the firm settles the hedged item, transfer the
previously unrealized gain or loss from other comprehensive income
to net income
C.remeasures the derivative to fair value each period and include
the unrealized gain or loss in net income
D.all of the above
E.none of the above
Answer:
49) The fair value of long-term debt
A.is the amount the firm would have to pay to repurchase the debt
on the market in an orderly transaction on the measurement date
B.is the market price of the bonds on that date, if the bonds trade
in an active market
C.is the present value of the contractual cash payments discounted
at the interest rate a lender would require on the measurement
date, if the fair value of bonds are not actively traded
D.all of the above
E.none of the above
Answer: