Archives

1) A counterbalancing inventory error is one where the error on the balance sheet is offset by the same amount of error on the income statement. 2) In an operating lease, the lessee is not required to record the right […]

1) [APPENDIX] A sole proprietorship is a separate entity for legal purposes. 2) The base, or benchmark, on which all items on the income statement are compared is net sales. Answer: TRUE 3) The balance in the account, Rent Collected […]

1) Iowa Industries Inc. Selected data from the financial statements of Iowa Industries Inc. for the years ended December 31, 2014 and 2013, are presented below. Also, certain assumptions are presented. Use these data and assumptions to answer the questions […]

1) The term used to refer to an assets original cost is historical cost. 2) The current ratio is irrelevant in liquidity analysis for service companies because they do not have inventories among their current assets Answer: FALSE 3) According […]

1) A ten-year lease obligation appears on the balance sheet of Generic Products Company. How would it most likely be classified on the balance sheet? A.Current asset B.Long-term liability C.Long-term asset D.Contra-liability 2) Quan uses a periodic inventory system. At […]

1) A bond issue price is the present value of the cash flows that the bond will produce. 2) Issuance of stock results in cash inflows that appear in the financing section of the statement of cash flows. Answer: TRUE […]

1) Land is purchased on credit. For this transaction, identify the effect on the accounting equation. A.Assets increase and liabilities increase B.Assets increase and owners equity increases C.Liabilities increase and owners equity decreases D.Liabilities decrease and assets decrease 2) Excursion […]

1) The effective interest rate method of amortization amortizes the discount or premium in a manner that produces a constant amount of interest expense from period to period. 2) International accounting standards require companies to revalue their property, plant, and […]

1) Read the information about Webb Company. What is Webbs net income? A.$ 1,600 B.$ 2,000 C.$ 2,200 D.$ 2,800 2) All of the following events (transactions) would be identified from standard source documents except for A.freight charges for merchandise […]

1) Ending inventory valued under the FIFO method will be the same regardless of whether the periodic system or the perpetual system is used. 2) Matching can occur directly (like cost of goods sold), indirectly (like plant assets), or immediately […]

1) On a bank reconciliation, outstanding checks are added to the cash balance per the bank statement. 2) The number of days’ sales in inventory is the same as a companys accounting cycle. Answer: FALSE 3) An expense is an […]

1) Every accounting transaction affects both the balance sheet and the income statement. 2) Whether LIFO costing is applied at the time each sale is made or only at the end of the period, both the periodic and perpetual systems […]

1) The payee of a note recognizes a note payable on the balance sheet and interest expense on its income statement. 2) When plant assets are reported, the current period’s depreciation expense is subtracted from the original cost on the […]

1) The cash flow from operations to capital expenditures ratio measures a company’s ability to A.use operations to finance its acquisitions of productive assets. B.use cash flows from capital expenditure transactions to maintain working capital. C.increase its capital expenditures as […]

1) Accrued wages is not a current liability. 2) Only events that can be measured will be reflected in the journal entries. Answer: TRUE 3) Income taxes payable are recognized as an expense once they are paid to the respective […]

1) Checks presented for payment and paid by the bank are known as A.Canceled checks B.Certified checks C.NSF checks D.Outstanding checks 2) Effective cash management and control includes all of the following except A.The use of a petty cash fund […]

1) Comparing one company with another in the same industry should cause no problems since companies in the same industry are required to use the same GAAP. 2) A company using the periodic inventory system must total the selling prices […]

1) Match the terms to the definitions by selecting the letter of the term. Each term may be used more than once or not at all. 1>The holders of this stock have the right to dividends in arrears before the […]

1) The three distinct types of cost to a manufacturer are direct materials, direct labor, and manufacturing overhead. 2) All issued stock is outstanding. Answer: FALSE 3) Under FIFO, the units in the ending inventory represent the oldest purchase(s). Answer: […]

1) Stanfield Equipment sells new tractors and pays each salesperson a commission of $1,000 for each tractor sold. During the month of August, a salesperson, Jason, sold 3 new tractors. Stanfield pays Jason on the 10th day of the month […]

1) Grout, Inc. offers terms of 2/10, n/30 to credit customers. Tile Mart Corp. purchased 100 tile cutters with a list price of $20 each on March 5, 2014, on account. Tile Mart Corp. paid the invoice on March 31, […]

1) The following data is available for one of the products sold by Wild Optics Company, which uses the periodic inventory system: At the end of December, Wild Optics had 25 units on hand. The 75 units sold created revenue […]

1) Bondholders are internal users of companys accounting information. 2) Three months before year-end, Skyway Company signed a $100,000, 10%, 8-month note. Principal and interest will be paid at maturity. No interest should be accrued at year-end because the company […]

1) Which of the following concepts is important to accrual accounting? A.Time period, because accrual accounting divides earnings into time periods B.Monetary unit, because inflation is a big factor in the environment C.Cash basis, because if cash is not received, […]

1) The following set of items describes activities completed by a company in collecting cash for merchandise sales. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. An employee in the accounting […]

1) The record used to accumulate monetary information for each individual asset, liability, stockholders equity, revenue, and expense item is a(an) A.Account B.General Journal C.General Ledger D.Chart of Accounts 2) The following information is available from the balance sheets at […]

1) Cash equivalents are reported in the Operating Activities section of the statement of cash flows. 2) The key to the classification of an amount as cash is that it be available to pay debts within a three-month period of […]

1) IFRS typically uses a more rule-based approach than U.S. GAAP. 2) One measure of a company’s overall long-term financial health is the debt-to-equity ratio. Answer: TRUE 3) Some analysts properly refer to a companys profit margin as its return […]

1) Carpenter Transport Company purchased a truck at a cost of $60,000 on January 1, 2010. The truck has an estimated useful life of 9 years and a $15,000 residual value. A. How much depreciation expense should be reported for […]

1) Cost of goods sold represents an outflow of an asset, inventory, from the sale of products. 2) Dividends are a determinant of net income. Answer: FALSE 3) A note discounted with recourse means that if the original customer fails […]

1) In countries, like Japan and much of Europe, fewer differences between the amount of income reported to stockholders and that reported to the taxing authorities exist than in the U.S. 2) The Treasury Stock account should be considered an […]

1) Electric Company borrowed on a one-year, 10%, $150,000 note on May 1, 2014 with interest and principal to be paid at maturity. How much interest should Electric Company report on its income statement for the year ending December 31, […]

1) Three measures of liquidity are: working capital, the acid-test ratio, and the debt-to-equity ratio. 2) All line items in common-size comparative income statements are stated as a percentage of net income. Answer: FALSE 3) Every business transaction is recorded […]

1) Presented below is a partially completed income statement of Deep Sea, Inc. for 2014. Using the partially completed income statement for Deep Sea, Inc., determine each of the following for 2014. A) Net Sales B) Beginning Inventory C) Ending […]

1) The statement of cash flows emphasizes explanations for the change in net income. 2) All changes in all stockholders’ equity accounts must be shown in the Stockholders’ Equity section of the balance sheet. Answer: FALSE 3) Many companies report […]

1) The present value is the value today of a single amount to be paid or received at a specific date in the future. 2) Both U.S. GAAP and international financial reporting standards (IFRS) require the use of the lower-of-cost-or-market […]

1) If a bank discounts a note, then the borrower needs to only pay the cash received and not the face value of the note. 2) When an entity’s revenues exceed its expenses for a period of time, the entity […]

1) Bad Debts Expense is increased and Accounts Receivable is decreased at the end of the period to recognize bad debts under the allowance method. 2) Book value is a measure of the market value of the stock. Answer: FALSE […]

1) A 12% change in sales will result in a 12% change in net income. 2) Every transaction affects equal numbers of ledger accounts and is recorded by equal dollar amounts of debits and credits. Answer: FALSE 3) Someone to […]

1) Focus, Inc. determined that it had incorrectly estimated both the estimated life and the estimated residual value of equipment that it purchased two years ago. When Focus accounts for the change in accounting estimates, it must depreciate the remaining […]

1) When merchandise is sold FOB shipping point, the buyer is responsible for the shipping costs. 2) In the statement of cash flows, a decrease in accounts payable would be shown as an increase in the Operating Activities category. Answer: […]

1) Owners of Thibeau Industries, Carl and Stefanie, are sent a dividend check from the company. For this transaction, what is the effect on the accounting equation for Thibeau Industries? A.Assets decrease and stockholders equity decreases B.Assets increase and stockholders […]

1) Which one of the following items would be subtracted from the balance per bank statement in a bank reconciliation? A.Outstanding checks B.Deposit in transit C.Service charges D.Interest on customer note 2) Which one of the following is not a […]

1) International accounting standards use the term provision for those contingent items that must be recorded on the balance sheet. 2) While most companies make adjustments and prepare statements monthly, many companies complete the accounting cycle only once per year. […]

1) Assume that you have received copies of the financial statements for PepsiCo for the years ending December 31, 2014 and 2013. Answer the following questions: A) If you were a banker, why would you need information from PepsiCos financial […]

1) Ratios that focus on cash are more useful than those that focus on income in the evaluation of the liquidity of a company. 2) The state of economic development can affect accounting standards. Answer: TRUE 3) Asset turnover is […]

1) Aloha Company reports the following information at December 31, 2014: What is Aloha Companys net income? A.$ 15,000 B.$ 45,000 C.$ 55,000 D.$ 65,000 2) Maryland Vacations has a $2,200 account receivable from the Miami Kiwanis. On March 11, […]

1) When determining the amount of interest to be paid on a bond, which of the following information is not necessary? A.The face amount of the bonds B.The selling price of the bonds C.The face rate of interest on the […]

1) All of the following statements are true about a 3-for-1 split, except: A.Total contributed capital increases B.The market price will probably decrease C.Par value per share is reduced to one-third of what it was before the split D.A stockholder […]

1) Port, Inc. paid a cash dividend on January 2 that had been declared prior to the end of its fiscal year. The entry to pay the dividend will A.increase Cash and increase Cash Dividend Payable B.decrease Cash Dividend Payable […]

1) Which of the following categories on a statement of cash flows is used to report the cash flow effects of transactions involving a company’s stock? A.Operating Activities B.Investing Activities C.Financing Activities D.Profit Activities 2) If a company purchases $3,000 […]

1) If the annual interest is 12%, but the compounding is done quarterly, then the interest rate is 4% per period. 2) An accounting transaction is not recorded when a corporation declares and executes a stock split. Answer: TRUE 3) […]

1) The origins of single-entry accounting were documented in a book written by Pacioli over 500 years ago. It includes the concepts of bookkeeping that are still applied today. 2) For the statement of cash flows, companies are required to […]

1) When the market rate of interest is less than the face rate, then the bond issue will be sold at a discount. 2) A lease is accounted for as a capital lease if the lease term is 75% or […]

1) A solvency measure that focuses specifically on the extent to which a company relies on outsiders for funds is: A.cash flow from operations to capital expenditures ratio B.debt service coverage ratio C.times interest earned ratio D.debt-to-equity ratio 2) Fashion […]

1) Under the direct method, depreciation expense is treated as an outflow in the Investing Activities section of the statement of cash flows. 2) Under the perpetual inventory system, each time goods are purchased, the inventory account is transferred to […]

1) Because the cash received from the sale of long-term assets is reported in the investing activities section of the statement of cash flows, any gain or loss is ignored when reporting the cash flow from operating activities under the […]

1) Stitt Homes, Inc. pays its sales personnel 6% commission of the selling price of each home. During November of 2014, sales people sold $18,400,000 of homes. During December, 2014, sales people sold $20,050,000 of homes. Because its policy is […]

1) The accounts receivable turnover ratio is computed by dividing net income by average accounts receivable. 2) Flexibility in valuation of property, plant, and equipment under IFRS may cause problems with comparability of one company with another. Answer: TRUE 3) […]

1) Morton & Associates Use the following five transactions for Morton & Associates, Inc. to answer the question(s). See the transactions to Morton & Associates. The journal entry to record the May 9 transaction will include a credit of $1,220 […]

1) On November 2, 2014, Quaint General Store concluded that a customers $400 account receivable was uncollectible and that the account should be written off. What effect will this write-off have on Quaints 2014 net income and balance sheet totals […]

1) Every adjustment involves at least one income statement and one balance sheet account. 2) The purpose of financial reporting is to provide economic information to external decision makers only. Answer: FALSE 3) U.S. standards do not require a classified […]

1) Accounts receivable are shown on the balance sheet at their net realizable amount. 2) Materiality deals with the size of an error in accounting information. Answer: TRUE 3) Stock dividends affect the par value per share of the stock. […]

1) Irrigation Corp. purchased supplies at a cost of $5,200 during 2014. At January 1, 2014, supplies on hand were $1,600. During the year, the company used $4,000 of supplies. Irrigations accounting year ends on December 31. 2) Which of […]

1) Cash dividends become a liability to a corporation on the date of record. 2) As part of good internal control, disbursements can be made either by check or cash. Answer: FALSE 3) External users of accounting information include present […]

1) The recognition of revenue may result from the settlement of a liability rather than from the acquisition of an asset. 2) The statement of cash flows summarizes the operating, investing, and financing activities of a business for a period […]

1) Dimension Inc. had net income for 2014 of $24,000. It declared and paid a $13,000 cash dividend in 2014. If the companys retained earnings for the end of the year was $39,600, what was the companys retained earnings balance […]

1) The current and quick ratios have two limitations. These ratios A.emphasize the ineffectiveness of analysts’ calculations, and focus on liquid assets at a point in time instead of a period of time. B.focus on cash instead of working capital, […]

1) Callable bonds may be retired by the issuer before their specified due date. 2) If a company prepares a statement of stockholders’ equity, net income is added to retained earnings on this statement. Answer: TRUE 3) When reconciling a […]

1) Recognition is the process of formally recording or incorporating an item into the financial statements 2) If the lease term is 75% or more of the propertys economic life, the lease agreement should be accounted for as an operating […]

1) Starlight Associates, Inc. recorded salary expense of $100,000 in 2014. However, additional salaries of $5,000 had been earned, but not paid or recorded at December 31, 2014. After the adjustments are recorded and posted at December 31, 2014, the […]

1) The record in which transactions are initially recorded in chronological order as they occur is a(an) A.Account B.General Journal C.General Ledger D.Chart of Accounts 2) Which of the following terms best describes a distribution of the net income of […]

1) The amount of working capital is more meaningful to users than the current ratio because it provides information on the composition of the current accounts. 2) Plant assets, current assets, property, plant and equipment, and fixed assets are all […]

1) The primary objective of external auditors is to provide assurance to stockholders and other users that the statements are fairly presented. 2) Estimated liability for product warranties to be paid in the future is a current liability. Answer: TRUE […]

1) The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. Barton Company has just purchased a machine with a cost of $100,000, and […]

1) Changing inventory methods to take advantage of the tax breaks offered by LIFO is not a valid reason for a change in methods. 2) When reconciling a bank account, the company does not have to prepare an adjusting entry […]

1) Utah Corp. Use the following selected data and additional information from the records of Utah Corp. to answer the questions that follow. Additional information: Review the data for Utah Corp. REQUIRED: (A) What amount of cash was collected from […]

1) The accrual-based income statement is considered to be a good indicator of current cash inflows and outflows. 2) The use of customer statements as a control device will be effective only if the employees responsible for the custody of […]

1) A company gives a two-year warranty for its product. The estimated liability for product warranties is a current liability. 2) The time period assumption assumes a company prepares financial statements every month. Answer: FALSE 3) The issuance of common […]

1) Crimson Company declared and paid $1,000,000 in dividends to the common stockholders. The effect of this transaction is that the A.earnings per share decreased B.current ratio increased C.debt-to-equity ratio increased D.earnings per share increased 2) Stein Corp. reported the […]

1) Cerrato Company has assets of $350,000, liabilities of $130,000, and retained earnings of $180,000. How much is total owners equity? A.$ 40,000 B.$ 170,000 C.$ 220,000 D.$ 350,000 2) Which one of the following is correct? A.Inventory losses can […]

1) Adjusting entries are recorded at the end of each accounting period so that net income is accurately reflected in the financial statements for the period 2) A high accounts receivable turnover ratio could mean that the companys credit policies […]

1) Comfort Shoes received a promissory note from a customer on April 1, 2014. The face amount of the note is $2,000; the terms are 12 months and 8% annual interest. At the maturity date, the customer pays for the […]

1) The Financial Accounting Standards Board (FASB) has expressed a strong preference for the indirect method, but allows companies to use the direct method in calculating the cash flow from operating activities. 2) The three forms or states in the […]

1) Both U.S. GAAP and IFRS apply the lower-of-cost-or market rule in a similar manner to inventory. 2) Most investors would prefer to see equity rather than debt on the balance sheet. Answer: TRUE 3) If cost of goods sold […]

1) Francis Real Estate purchased a building for $600,000 in 200 At the end of 2013, when it had a book value of $450,000, it was appraised for $1,000,000. A potential buyer offered $900,000. Francis rejected the offer. What amount […]

1) Under the allowance method of accounting for bad debts, the company estimates the amount of bad debts before those debts actually occur. 2) The gross profit ratio is computed by dividing net sales by gross profit. Answer: FALSE 3) […]

1) A cost can be an asset or expense depending on whether the future economic benefits have expired or not. 2) When borrowing money to be repaid in regular future payments, the payment is based on the present value of […]

1) When a company wishes to purchase and retire its own stock, the company must A.decrease the stock account balances by the original issue price B.record a gain or loss depending on the difference between original selling price and repurchase […]

1) At the end of the first year of operations, the balance sheet of West Palm Beach Industries had the following balances: Accounts Receivable, $5,000; Accounts Payable, $6,000; Inventory, $3,000; and Unexpired Insurance, $2,000. The corporation reported net income of […]

1) Independent auditors (CPAs) render an opinion that the financial statements do or do not fairly present a company’s financial position, operating results, and cash flows. 2) An example of horizontal analysis is the increase in cost of goods sold […]

1) The Loss on Sale of Asset indicates the amount by which the assets sales price is less than its book value. 2) In the statement of cash flows, an increase in a current liability will appear as an increase […]

1) The accounting equation must balance after each transaction. 2) In terms of the statement of cash flows, cash includes actual cash items plus certain cash equivalents such as commercial paper, money market funds, and Treasury bills. Answer: TRUE 3) […]

1) How would outstanding checks be dealt with in a bank reconciliation? A.added to companys book balance B.deducted from companys book balance C.added to bank statement balance D.deducted from bank statement balance 2) Arizona Inc. reported the following information for […]