Cornerstones of Financial Accounting (Cornerstones Series) 3rd Edition

Social security and medicare taxes owed. Match each of the following current liabilities with its meaning. a. Account payable b. Note payable c. Wages payable d. Interest payable e. Sales taxes payable f. FICA taxes payable g. Unemployment taxes payable h. Unearned sales revenues i. Estimated warranty liability Answer: F Answer: F Answer: F Freight costs incurred by the seller to ship goods

According to the ____________________ principle, bad debt expense must be recorded in the period in which the sale was made. Answer: matching Answer: matching Answer: matching Any transaction or set of transactions that brings together two or more previously separate entities to form a single accounting entity is called a business combination. Answer: T Answer: T Answer: T Held-to-maturity

Exists when another entity owes the security holder some combination of interest and principal Match the following terms to their correct definition: a. equity security j. held-to-maturity securities b. debt security k. amortized cost method c. passive l. fair value method d. significant influence m. unrealized gains and losses e. control n. equity method f. parent o.

Issued a twenty-year mortgage note for cash. Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more

The number of issued shares actually in the hands of stockholders rather than held as treasury stock. Match the terms to the definitions. Answer: C Answer: C Answer: C Companies that sell to other retailers. Match the terms with the descriptions provided. a. Manufacturers d. Wholesalers b. Merchandisers e. Service companies c. Retailers Answer: D Answer: D Answer: D Which of

Which of the following is a measure of liquidity? a. operating cash flows ratio b. earnings per share c. accounts receivable turnover ratio d. return on common equity Answer: A Answer: A Answer: A Which of the following statements regarding accounts payable is false? a. Accounting for accounts payable is really just the flip side of accounts receivable. b.

Tom is saving for an engagement ring. If he deposits $500 payments into an account (one at the end of each year) that earns 6% interest compounded annually, how much will he have saved by the end of the 10thyear? a. $895.42 b. $13,435.18 c. $6,590.39 d. $6,554.39 Answer: CFuture Value = Investment

Knox Jewelers issued $1,000,000 of 8% interest bearing debt at the beginning of the year. The company reported net income before interest and taxes of $2,000,000 for the current year. Assuming a 40% tax rate, what is the company's net income for the year? Answer: Answer: Answer: A sale and its

Represents the cash flow that a company is able to generate after considering the maintenance or expansion of its assets and the payment of dividends. Match these terms with their correct definition. a. Cash flow adequacy ratio b. Cash flows from financing activities c. Cash flows from investing activities d. Cash flow from operating

The collection of environmental factors that influence the effectiveness of control procedures Match the following terms with their correct definitions. a. Accounting system e. Internal control system b. Business process risks f. Safeguarding c. Control activities g. Segregation of duties d. Control environment h. Strategic risks Answer: D Answer: D Answer: D Refer to Rio Imports. The operating margin

Many stockholders choose to invest in preferred stock because a. preferred stock can always be converted into common stock at the stockholder's option. b. the preferred dividend distributions are generally increased each year. c. dividends are distributed to preferred stockholders before common stockholders. d. preferred stock includes the right to participate in management decisions

Which pair of accounts has the same set of rules for debit and credit entries? a. common stock and accounts payable b. salary expense and retained earnings c. cash and notes payable d. sales revenue and accounts receivable Answer: A Answer: A Answer: A Cost of two-year lease Match the most probable matching method to the costs listed.

What types of accounts are Treasury Stock and Paid-in Capital from Treasury Stock Transactions? Treasury StockPaid-in Capital from Treasury Stock Transactions a. contra equity stockholders' equity b. contra equity contra equity c. stockholders' equity stockholders' equity d. retained earnings retained earnings Answer: A Answer: A Answer: A A transaction that represents both an investing and financing activity

The buyer must pay the shipping costs. Match the terms with the descriptions related to merchandise sales and purchases. a. Transportation-in e. Cost of goods available for sale b. Perpetual inventory system f. Periodic inventory system c. Net purchases g. FOB shipping point d. FOB destination h. Delivery expense Answer: G Answer: G Answer: G If a corporation repurchases

The receiving department compares the quantity of merchandise received with the quantity ordered. The following set of items describes activities completed by a company in purchasing and paying for merchandise and in collecting cash for merchandise sales. For each activity, identify whether or not the activity adheres to or violates

Error corrections which involve restatement of prior period income must be reported a. in a separate account within the equity section of the balance sheet. b. within "unrestricted retained earnings" on the balance sheet, with footnote disclosure to describe the appropriation. c. as a prior period adjustment on the statement of changes in

Which of the following would appear on the balance sheet as a current liability? a. A loss that could be expected upon the occurrence of a strike by employees. b. Potential damages from the risk of explosions in a fireworks factory. c. Payments that are likely to occur for pension benefits to employees. d.

The prospects for future dividend payments. Provided is a list of important users of accounting information. Also provided are descriptions of a major need for accounting information that may be experienced by the various users. Identify the one user group that is most likely to have the need described. (Choices may be used

A customer returned damaged goods for credit. Under a perpetual system, which of the seller's accounts decreases? a. purchase returns b. accounts receivable c. sales returns d. sales revenue Answer: B Answer: B Answer: B Flossil Fossils Company purchased a tract of land containing coal in 2013 for $20,000,000 and then spent $30,000,000 to get a mine

The quick ratio differs from the current ratio in that it a. represents the amount of cash on hand instead of the total current assets. b. excludes inventories and accounts receivable from the numerator of the fraction because of obsolescence and possible collection problems. c. is a stricter measure of a company's ability

Refer to Art Shoes. How much interest revenue will the company recognize for the year ended December 31, 2013? Art Shoes This company received a promissory note from a customer on July 1, 2013. The face amount of the note is $45,000; the terms are 12 months and 10% annual interest. a. $

Refer to A&B Foods. If the company uses the aging of accounts receivable method to estimate its bad debts, what amount will be reported as bad debt expense for 2013? A&B Foods Data for the year ended December 31, 2013, are presented below. a. $50,000 b. $75,000 c. $78,000 d. $53,000 Answer: A$75,000 (Estimated amount of

In periods of inflation, debt financing is preferable to equity financing because the company is able to repay the lender in dollars that have declined in purchasing power. Answer: T Answer: T Answer: T If new equipment purchased in 2013 is reported on the balance sheet at December 31, 2013 as a long-term asset,

The financial statements are prepared after a. business transactions are recorded. b. adjustments are recorded. c. the accounts are closed. d. the adjusted trial balance is prepared. Answer: D Answer: D Answer: D The Discount on Bonds Payable account is shown on the balance sheet as a. an asset. b. an expense. c. a long-term liability. d. a contra-liability account that

Average stockholders' equity Select the ratio that would include each amount or account in its calculation. (Choices may be used more than once.) a. Times interest earned ratio b. Operating cash flow ratio c. Debt-to-equity ratio d. Return on equity Answer: D Answer: D Answer: D Length of time required to collect the receivable from a credit sale.Match these

Kauffman Tire Repair leased a machine that will enable it to repair tires found on monster vehicles. The annual payments are $9,000 and the life of the lease is 7 years. It is estimated that the useful life of the machine is 8 years. How would the company record the

The accounting life of intangible assets is determined by a. their legal lives. b. their useful lives. c. their legal lives or useful lives, whichever is shorter. d. the tax life mandated by the IRS. Answer: C Answer: C Answer: C Manatee Manufacturing sells a piece of equipment to make room for new machinery. Manatee will receive

Which of the following statements regarding bonds payable is true? a. Generally, bonds are issued in denominations of $100. b. When an issuing company's bonds are traded in the 'secondary" market, the company will receive part of the proceeds when the bonds are sold from the first purchaser to the second purchaser. c.

Depreciation expense Identify where each of the following accounts would be reported on the financial statements. (Choices may be used more than once.) a. Balance Sheet-Property, Plant, and Equipment b. Balance Sheet-Intangible Assets c. Balance Sheet-Current Assets d. Balance Sheet-Other Assets e. Income Statement-Operating Section f. Income Statement-Other Revenue and Expense Section Answer: E Answer: E Answer: E When bonds

The profitability of the company based upon the Internal Revenue Code. Provided is a list of important users of accounting information. Also provided are descriptions of a major need for accounting information that may be experienced by the various users. Identify the one user group that is most likely to have the

This method is used in situations where technological advances are rapid. Given the following list of methods of depreciation, select the method that is best for the situation or purpose given. (Choices may be used more than once.) a. Straight-line b. Units-of-production c. Double-declining-balance d. MACRS Answer: C Answer: C Answer: C What are the effects

A convertible bond is one where a. the issuer can convert from a fixed interest rate to a floating rate. b. the issuer can convert the bond from long-term to short-term. c. the issuer can retire the bond before its specified maturity date. d. the bondholder can convert the bond into common stock at

Select the correct statement from the following: a. Consolidation worksheet adjustments are not entered on the accounting records of either Parent or Sub. b. Consolidation worksheet adjustments are entered on the accounting records of the Parent but not the Sub. c. Consolidation worksheet adjustments are entered on the accounting records of the

A way to estimate bad debts. Match each statement to the item listed below a. Accounts receivable e. Notes receivable b. Aging method f. Realized c. Allowance for Doubtful Accounts g. Securitization d. Earned Answer: B Answer: B Answer: B Mathematical extensions and footings on purchase invoices are verified before the invoices are paid. The following set of items

Information that is material means that an error in recording the dollar amount of a transaction would a. likely affect the judgment of someone relying on the financial statements. b. not affect the decisions of financial statement users. c. not impact a business decision of a creditor. d. result in the overstatement of assets

The _______________ method most closely approximates replacement cost of inventory on the balance sheet. Answer: FIFO Answer: FIFO Answer: FIFO If the balance of wages payable increases during the year, then the ____________________ for the period will be greater than the actual cash wages paid in the period. Answer: wages expense Answer: wages expense Answer: wages expense The

Current accounting standards indicate that the costs of intangible assets with an indefinite life, such as goodwill, should a. not be amortized, but should be reviewed annually for impairment. b. be reported on the statement of retained earnings in the year in which acquired. c. be amortized over a reasonable period of time

A probable loss from a lawsuit that can be reasonably estimated should not be reported on the balance sheet as a current liability. Answer: F Answer: F Answer: F Income from operations includes interest revenue and interest expense because these items are considered to be operating in nature. Answer: FAnswer: Answer: FAnswer: Answer: F Answer: When

Interest earned on the checking account for May The accountant for a local manufacturing company is reconciling the company's bank account for May. For each item listed, state how it would be handled on a bank reconciliation. (Choices may be used more than once.) a. Addition to bank balance b. Subtraction from

The company financed the equipment purchase with a bank loan. Interest of $3,000 was paid on the loan during 2013. A construction company purchased a piece of equipment with a price of $100,000 on March 1, 2013. The amounts are related to the equipment purchase. Match the items and explain how each

Patents Several items from the financial statements of Fireside Tires are listed. Use the following choices to identify the type of account for each item listed. (Choices may be used more than once.) a. Assets b. Liabilities c. Revenues d. Expenses e. Stockholders' Equity Answer: A Answer: A Answer: A An account used to record any discrepancies between the cash

Dividend payout ratio Indicate the type of each ratio listed. (Choices may be used more than once.) a. Liquidity ratio b. Debt management ratio c. Asset efficiency ratio d. Profitability ratio e. Stockholder ratio Answer: E Answer: E Answer: E Keystone Corporation's balance sheet showed the following liability and stockholders' equity amounts: Current Liabilities, $100,000; Bonds Payable, $150,000; Capital

Refer to Kalahari Limited. The semiannual cash payment on the bonds is Kalahari Limited On January 2, 2013, this company issued 1,000,000, 10-year bonds for $1,150,000. The bonds pay interest on June 30 and December 31. The stated rate is 10% and the market rate is 8%. The company plans to use the

Under the ____________________ method of preparing a statement of cash flows, the net cash flow from operating activities is computed by adjusting net income to remove the effect of all deferrals of past operating cash receipts and payments, and all accruals of future operating cash receipts or payments. Answer: indirect Answer: indirect Answer:

Which of the following statements is false regarding how the cash flow effects of the changes in the equipment and accumulated depreciation accounts would be reported on a statement of cash flows if the indirect method is used to prepare the operating activities section? a. Cash proceeds from the sale of

Gain on disposal of plant asset Identify where each of the following accounts would be reported on the financial statements. (Choices may be used more than once.) a. Balance Sheet-Property, Plant, and Equipment b. Balance Sheet-Intangible Assets c. Balance Sheet-Current Assets d. Balance Sheet-Other Assets e. Income Statement-Operating Section f. Income Statement-Other Revenue and Expense Section Answer:

A common stock provision that provides for the maintenance of stockholders' ownership percentage upon the issuance of new stock. Match the terms to the definitions. Answer: F Answer: F Answer: F Any transaction or set of transactions that brings together two or more previously separate entities to form a single accounting entity Match the following

When using the indirect method to determine operating cash flows, how is the receipt of cash from the sale of long-term investments treated on the statement of cash flows? a. operating activity b. investing activity c. financing activity d. noncash investing or financing activity e. not reported on the statement of cash flows Answer: B Answer: B Answer:

Grand Strand Power & Light provides utilities to a gulf coast community. On November 30, 2012, the utility billed 1,500 residential customers a total of $118,500 for electricity. In addition, the company is required to collect state taxes of 1.5% and Federal excise taxes of 0.95%. Both of these taxes are

A company has cash of $800, current liabilities of $500, and long-term liabilities of $600. If the cash ratio is 2.5, then marketable securities must be a. $ 700. b. $ 800. c. $ 450. d. $2,000. Answer: C500 current liabilities x 2.5 = 1,2501,250 - 800 = 450 Answer: C500 current liabilities x 2.5

Because the allowance method results in better matching, accounting standards require its use rather than the direct write-off method, unless bad debts are immaterial. Answer: T Answer: T Answer: T Explain what costs are included in the acquisition cost of operating assets. Answer:Acquisition costs should include all of the costs that are normal and necessary

A list of all active accounts and each account's debit or credit balance. Match the following terms with their correct definition. a. Account f. Debit b. Accounting cycle g. Event c. Chart of accounts h. General ledger d. Cost vs. benefit i. Journal e. Credit j. Trial balance Answer: J Answer: J Answer: J Refer to Rags to Riches. Which

On October 1, 2013, a company borrowed $200,000 on a two-year, 12% note, with interest and principal to be paid at maturity. How much interest expense will be reported on the income statement for the year ending December 31, 2013? a. $ 6,000 b. $18,000 c. $24,000 d. $12,000 Answer: A$200,000 (Principal) x 12%

The three financial statements in which net income can be found are the ____________________, ____________________ and ____________________. Answer:Income Statement, Statement of Retained Earnings, Statement of Cash Flows using the Indirect MethodStatement of Retained Earnings, Statement of Cash Flows using the Indirect Method, Income StatementStatement of Cash Flows using the Indirect Method,

Refer to Rio Imports. Which of the following statements is true concerning the company's debt management activities? Rio Imports Information from the financial statements are provided below: a. The company has a smaller percentage of capital from stockholders at the end of 2015 than at the end of 2014. b. The company relied more

____________________ have claims to an entity's economic resources. Answer:Creditors LendersInvestorsStockholders Answer:Creditors LendersInvestorsStockholders Answer:Creditors Lenders Investors Stockholders What is the difference between comparability and consistency? Answer:Comparability allows comparisons to be made between or among companies. Even though a certain amount of freedom exists in selectingaccounting principles, when this information is disclosed in the financial statements, users can still

Refer to Kalahari Limited. What is the carrying value of the bonds at the end of ten years before the final maturity payment is made? Kalahari Limited On January 2, 2013, this company issued 1,000,000, 10-year bonds for $1,150,000. The bonds pay interest on June 30 and December 31. The stated rate is

Refer to Rapid Sign Corporation. What is the dividend payout ratio for 2015? Rapid Sign Corporation Selected data from the financial statements are presented below: a. 30.0% b. 30.9% c. 36.3% d. 38.2% Answer: D$42,000 common dividends paid / 110,000 net income = 0.3818 Answer: D$42,000 common dividends paid / 110,000 net income = 0.3818 Answer: D $42,000 common

Refer to Abundant Returns. Assume that the company estimates bad debts using the aging method. The aging schedule indicates that $11,500 of the end of the year Accounts Receivable will be uncollected. Abundant Returns This company sells its merchandise only on credit. The following data are available at December 31, 2013. Answer: Answer:

Refer to Rio Imports. The debt-to-equity ratio for 2015 is Rio Imports Information from the financial statements are provided below: a. an indicator that the company's ability to meet current interest payments to creditors is increasing. b. increasing slightly from 2014 to 2015. c. an indicator that for every $1 of capital that has been

On January 1, 2013, Alliance Company had the following balances for accounts receivable and allowance for doubtful accounts: During 2013 the company made $3,200,000 in credit sales, collected $3,000,000 of accounts receivable and wrote off $20,000 of accounts receivable as uncollected. Required: A) What is the company's preadjustment balance in accounts

What will be the increase in the Paid-in capital in excess of par account if a corporation issues 20,000 shares of $1.00 par common stock for $6 per share? a. $140,000 b. $120,000 c. $100,000 d. $20,000 Answer: C20,000 shares x ($6 - $1 par) = $100,000. Answer: C20,000 shares x ($6 - $1 par)

A customer's check for $25 that had been deposited into the company's checking account the previous month was returned stamped "NSF" by the bank. Which of the following journal entries is required? a. Cash 25 Accounts Receivable 25 b. Cash 25 Accounts Payable 25 c. Account Receivable 25 Petty Cash 25 d. Accounts Receivable

Several transactions are listed below, with an expanded accounting equation stated to the right side of each. Use the following identification codes to indicate the effects of each transaction on the accounting equation: I = Increase; D = Decrease; NE = No Effect. Write your answers in the space provided

A company forgot to record four adjustments during 2013. Which one of the following omissions of adjustments will understate assets? a. Unearned revenue is not reduced for the portion that has been earned b. Interest on monies loaned out has not yet been recorded c. Prepaid insurance is not reduced for the portion

The result of using the effective interest method of amortization for bond discounts is that the a. interest expense for each amortization period is constant. b. effective interest rate for each amortization period is constant. c. amount of interest expense decreases each period. d. cash interest payment is greater than the interest expense. Answer:

Eric is considering buying a car. He can either purchase the car outright or make 5 annual payments of $10,000 at the end of each year. If the interest rate is 7%, how much is the outright purchase price? a. $14,025.50 b. $7,129.90 c. $41,002.00 d. $57,863.70 Answer: CPresent Value = Investment x (PV

Treasure Distributors, Inc. had no investments in short-term marketable securities prior to 2012. During 2012, the company engaged in the following investment transactions: At the end of 2012, the Toledo Company stock had a market value of $18 per share. A) Prepare journal entries for the three transactions assuming the stock

Good Time Carts offers a one-year warranty on all its golf carts. Estimates suggest that two percent of carts sold will require warranty service and that the average warranty claim will cost $215. During 2013, the company sold 450 golf carts. Answer: Answer: Answer: Checks on recorded amounts Choose the proper category

Which of the following statements is false regarding the use of source documents? a. Checks and deposit slips are the main source documents backing up the bank statement. b. Retailers may use cash register tapes to recognize sales transactions. c. Stock certificates provide evidence of being a creditor of the company. d. Time cards

The cash ratio is calculated by dividing cash flows from operating activities by current liabilities. Answer: F Answer: F Answer: F Preferred stockholders typically do not have the right to vote at stockholders meetings. Answer: T Answer: T Answer: T Why are unearned revenues considered current liabilities? Answer:Unearned revenues represent amounts collected from customers in advance. This creates a

Refer to Fantasy Cruise Lines. What is the depreciation expense for the year ended December 31, 2013? Fantasy Cruise Lines On January 1, 2013, the company purchased a ship for $1,000,000. It has a 10-year useful life and a residual value of $100,000. The company uses the double-declining-balance method. a. $

Debt-to-equity ratio Indicate the type of each ratio listed. (Choices may be used more than once.) a. Liquidity ratio b. Debt management ratio c. Asset efficiency ratio d. Profitability ratio e. Stockholder ratio Answer: B Answer: B Answer: B Which of the following underlying assumptions for the conceptual framework is the reason the dollar is used in the preparation

The worksheet facilitates preparation of all of the following financial statements except: a. Cash Flow Statement c. Retained Earnings Statement b. Balance Sheet d. Income Statement Answer: A Answer: A Answer: A When using the direct method to determine operating cash flows, how is the purchase of equipment for cash shown on the Statement of

Situation where the investor owns less than 20% of the common stock of another company and therefore is not attempting to exert influence over the operating and financial policies of the investee Match the following terms to their correct definition: a. equity security j. held-to-maturity securities b. debt security k. amortized cost method c.

Resold treasury stock for cash. Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.) a.

Refer to Lanthier's Heating & Air. What is the maximum amount that can be reported on the balance sheet for common stock and preferred stock, respectively, if all of the stock is issued? Lanthier's Heating & Air This company began business on June 1, 2014. The articles of incorporation authorize issuance of

Received payments from accounts receivable. Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.) a. Inflow from

On June 3, 2013, Alpine Corporation sold merchandise with a gross price of $45,000 with terms of 2/10, n/30. Prepare the journal entries to: A) Record the sale using the gross method. B) Assume the payment is received on June 10, 2013. C) Assume payment is not received until June 21, 2013.

The excess of an inventory's value stated on a FIFO basis over its value stated on a LIFO basis is called a(n) ____________________. Answer: LIFO reserve Answer: LIFO reserve Answer: LIFO reserve Many companies assist the users of the financial statements by providing information about the company's accounting policy choices in the first note

Unlike the income statement, no financial ratios are reported on the statement of cash flows. Answer: T Answer: T Answer: T Gospel Ministries purchased on account two pianos on April 3, 2012 for $6,600. The company agreed to pay an extra $100 to have the seller deliver the pianos. Unfortunately, one of the pianos

A decrease in the par value of a class of stock brought about by the exchange of original shares for a greater number of new shares. Match the terms to the definitions. Answer: H Answer: H Answer: H If a corporation repurchases 500 shares of its previously-issued common stock then retires these shares, which

Double-declining-balance depreciation is most commonly used by businesses for financial reporting purposes. Answer: F Answer: F Answer: F Every adjustment involves at least one income statement and one balance sheet account. Answer: T Answer: T Answer: T An accumulated ________ account is used when writing off natural resources. Answer: depletion Answer: depletion Answer: depletion "You Decide" Essay You are financial news reporter

A company reported the following information: How much cash was paid for insurance during 2014? a. $22,700 b. $27,700 c. $39,200 d. $36,700 Answer: BInsurance expense $25,200 - increase in prepaid insurance $2,500 = $27,700 Answer: BInsurance expense $25,200 - increase in prepaid insurance $2,500 = $27,700 Answer: B Insurance expense $25,200 - increase in prepaid insurance $2,500

A local tennis club sells season memberships for $1,000 each. During January 2013, 50 season memberships were sold. As of March 31, 2013, only $25,000 of season membership fees had been collected from customers. The tennis season runs for 6 months starting April 01, 201 Which one of the following

In a common size balance sheet to be used in vertical analysis, the 100% amount is a. current assets. b. working capital. c. total assets. d. total stockholders' equity. Answer: C Answer: C Answer: C A debit memo appeared on the May bank statement. How should this amount be treated on the May bank reconciliation? a. Add it to

On June 1, a board of directors declared a $3 per share cash dividend, payable on June 30 to all common stockholders of record on June 15. The company has 10,000 shares of common stock authorized, 1,000 shares issued, and 200 shares in the treasury. The entry to record the dividend declaration

Which of the following is not included in Cash and Cash Equivalents on a company's balance sheet? a. a savings account at the bank b. a checking account at the bank c. a bank certificate of deposit for one year d. petty cash Answer: C Answer: C Answer: C A schedule that facilitates preparation of the financial

Lasik Vision, Inc. began business on June 1, 2014. The corporate charter authorized issuance of 1,000 shares of no-par common stock and 4,000 shares of $6 par, 6% cumulative preferred stock. As of the beginning of 2015, 200 shares of common stock had been issued and none of the preferred

If the parent owns 90% of the subsidiary's stock, then 90% of the subsidiary's assets and liabilities are included in the consolidated balance sheet. Answer: F Answer: F Answer: F During periods of stable purchase prices, FIFO produces the highest ending inventory relative to the other inventory costing methods. Answer: F Answer: F Answer: F The excess of acquisition

If a company hires honest employees and its top management acts with integrity, no internal control procedures will be necessary. Answer: F Answer: F Answer: F If the investor holds 50% or more of the common stock of the investee, then the two corporations are no longer separate accounting entities and therefore must prepare

The relationship between dividends and the market price of a company's stock. Select the ratio that each definition most properly satisfies. a. Dividend yield ratio b. Operating cash flow ratio c. Debt-to-total assets ratio d. Return on common equity ratio e. Times interest earned ratio f. Asset turnover ratio g. Debt-to-equity ratio h. Dividend payout ratio Answer: A Answer: A Answer:

All of the following are true for a company that uses the allowance method of accounting for bad debts, EXCEPT: a. It uses a contra-asset account called the allowance for doubtful accounts. b. It records bad debt expense each time an account is determined to be uncollectible. c. It reduces its accounts receivable

Provides several pieces of information needed to prepare the cash flow statement. Match these terms with their correct definition. a. Cash flow adequacy ratio b. Cash flows from financing activities c. Cash flows from investing activities d. Cash flow from operating activities e. Direct method f. Free cash flow g. Income statement h. Indirect method i. Noncash investing & financing

In anticipation of preparing the July bank reconciliation, the accountant gathered the following information: What is the company's adjusted cash balance at July 31st? a. $4,300 b. $4,050 c. $4,140 d. $4,500 Answer: D$4,300 unadjusted bank balance + $500 deposit in transit - $300 outstanding checks = $4,500 Answer: D$4,300 unadjusted bank balance + $500

What is the purpose of an aging schedule for accounts receivable? Answer:An aging schedule categorizes the various account receivable amounts by age based on how long an account is past due or outstanding. A company uses this for estimating how much of its accounts receivable are expected to default. It is

Refer to Happy Heights Country Club. On which date did the country club collect golf lessons revenue in advance? Happy Heights Country Club Selected accounts at July 31 are provided below: a. July 2nd b. July 3rd c. July 5th d. July 7th Answer: B Answer: B Answer: B The preferred stock feature which provides the right to dividend

Refer to A Better Mousetrap. What amount should the company recognize as interest revenue on the maturity date of the note? A Better Mousetrap The company sold merchandise to a customer on December 1, 2013, for $100,000. The customer paid with a promissory note that has a term of 6 months and

Which of the following statements is false regarding the reason that inventory costs are recorded as expenses when sold rather than when incurred? a. It gives the user's of the company's financial statements a clearer picture of profitability. b. It helps the company achieve a better matching of expenses with related revenues. c.

The practice of adjusting the market value of securities that are accounted for using the fair value method is referred to as a. consolidation. b. marking-to-market. c. passive investing. d. segregation of investments. Answer: B Answer: B Answer: B Storage facility used for storing inventory goods Match the most probable matching method to the costs listed. (Choices may

Goodwill Identify where each of the following accounts would be reported on the financial statements. (Choices may be used more than once.) a. Balance Sheet-Property, Plant, and Equipment b. Balance Sheet-Intangible Assets c. Balance Sheet-Current Assets d. Balance Sheet-Other Assets e. Income Statement-Operating Section f. Income Statement-Other Revenue and Expense Section Answer: B Answer: B Answer: B

Refer to Gainesville Truck Center. Which of the following statements is true regarding the FICA taxes that must be recorded? Gainesville Truck Center This company has a weekly payroll of $10,000 for its employees who work Monday through Friday. Federal and state income taxes are withheld in the amounts of $1,700

Strategic risk assessment is primarily concerned with a. possible external threats to the company's success in accomplishing its objectives. b. allocation of the company's resources to accomplish its internal processes. c. safeguarding of the company's computerized assets and records. d. achieving operating efficiencies in the areas of production and human resources. Answer: A Answer: A Answer:

Which of the following statements regarding contingent liabilities is true? a. If they are probable and estimable, then they must be recorded even before the outcome of the future event. b. If they are probable and estimable, then they should be disclosed in the notes to the financial statements. c. The accounting principle

Rent paid in advance Match the most probable matching method to the costs listed. (Choices may be used more than once.) a. Directly match a specific revenue b. Indirectly match with the period during which it will provide revenue c. Not recognized in this period Answer: B Answer: B Answer: B The journal entry

A company purchased inventory on credit. The effect of this transaction is that the a. earnings per share decreased. b. earnings per share increased. c. working capital increased. d. debt-to-equity ratio increased. Answer: D Answer: D Answer: D Refer to Rags to Riches. Which of the following would result from a horizontal analysis of the company's income statement? Rags

Refer to Labor Finders, Inc. The company's 2015 earnings per share is reported as Labor Finders, Inc. Selected data from the company's financial statements are presented below: a. $1.08 b. $1.20 c. $1.30 d. $1.43 Answer: C($150,000 net income - 15,000 preferred dividends) / 104,000 average common shares outstanding = $1.2981 Answer: C($150,000 net income - 15,000

Refer to Mary Kay Cosmetics. What amount was declared and paid for dividends during 2014? Mary Kay Cosmetics Selected data and additional information from the company's records are presented below: Additional information: Answer:$20,000 $40,000 (Retained earnings-2013) - $56,000 (Net income-2014) - $76,000 (Retained earnings-2014) = $20,000 Answer:$20,000 $40,000 (Retained earnings-2013) - $56,000 (Net income-2014) -

On January 2, Alfredo Corporation sold merchandise with a gross price of $100,000 to a customer with terms of 2/10, n/30. How much Sales Discounts would be recorded if payment was received from the customer on January 8? Assume the company uses the Gross Method of recording receivables. a. $0 b. $2,000 c.

Tail Winds Corporation acquired the following equity securities during 2013: The company's investment in these two companies is passive and classified as available-for-sale. During 2013, TICO paid a dividend of $1.10 per share and Thankful paid a dividend of $1.75 per share. At December 31, 2013, the market value of these

Cash flows related to obtaining capital for the company Match each statement to the item listed below. a. Cash flows from financing activities b. Cash flows from investing activities c. Cash flows from operating activities Answer: A Answer: A Answer: A When using the indirect method to determine operating cash flows, how is the purchase of equipment for

Why is the cash basis of accounting too limited for proper financial reporting? Answer:The limitations of cash basis accounting are very clear. Using this approach, too few financial transactions that impact a company's financialhealth are shown for the reader, thus its limitations. The cash basis does not accurately match revenue with

The Cash account is never part of an adjusting entry. Answer: T Answer: T Answer: T Beach Catering sold its business for $75,000 under an asset purchase agreement. Under the agreement, the buyer made an initial payment of $35,000 which Beach Catering invested at 6% compounded semiannually. At the beginning of the fourth year,

The stated value is the price at which employees can exercise stock options. Answer: F Answer: F Answer: F A purchased company must be recorded at the value of the cash and other consideration given by the acquiring company. Answer: T Answer: T Answer: T Below are several accounts and balances from the 2013 financial statements for Fripp, Inc.

A marine company pays its sales personnel 6% commission of the selling price of each yacht. During November 2013, yacht sales totaled $20,400,000. During December 2013, sales totaled $25,100,000. Because its policy is to pay commissions only in the month after the sales, the company paid commissions during December for

Prices are declining; income taxes are higher with this method. Identify which inventory costing method achieves the effect listed in the following items. (Choices may be used more than once.) a. FIFO method c. Average cost method b. LIFO method d. Specific identification method Answer: B Answer: B Answer: B A company's unadjusted bank balance is $3,000. Outstanding

A mailroom employee opens the mail, counts the money received, and updates the accounting records for the amount received. The following set of items describes activities completed by a company in purchasing and paying for merchandise and in collecting cash for merchandise sales. For each activity, identify whether or not

Refer to Kalahari Limited. At the maturity date, besides an interest payment, the company would repay the bondholders Kalahari Limited On January 2, 2013, this company issued 1,000,000, 10-year bonds for $1,150,000. The bonds pay interest on June 30 and December 31. The stated rate is 10% and the market rate is 8%.

Which one of the following items appears on a balance sheet? a. service revenue b. unearned revenue c. dividends d. cash flow from operations Answer: B Answer: B Answer: B Which of the following is not a requirement of a company's top managers under the Sarbanes-Oxley Act? a. They must give an opinion about the effectiveness of the

Balance sheet accounts are also known as which of the following? a. nominal accounts b. permanent accounts c. temporary accounts d. closing accounts Answer: B Answer: B Answer: B Invoice price paid for resale goods. Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. (Choices may be used

Prices are rising; profits are higher under this method. Identify which inventory costing method achieves the effect listed in the following items. (Choices may be used more than once.) a. FIFO method c. Average cost method b. LIFO method d. Specific identification method Answer: A Answer: A Answer: A Refer to Lakeshore Industries. What is the effect of

Issuing common stock to investors Several transactions are listed. Use the choices to identify the effect on the accounting equation for each transaction listed. (Choices may be used more than once.) a. Assets and liabilities increase b. Assets and contributed capital increase c. Assets and retained earnings increase d. Two asset accounts are impacted, but

Refer to A2Z Events. What are the effects on the accounting equation when the company writes off a bad debt under the allowance method? A2Z Events The following data are from the company's records for 2013: a. Assets decrease and stockholders' equity increase b. Assets and stockholders' equity decrease c. Assets increase and stockholders' equity

A company had beginning accounts receivable of $175,000. All sales were on account and totaled $550,000. Cash collected from customers totaled $650,000. Calculate the ending accounts receivable balance. a. $725,000 b. $275,000 c. $ 75,000 d. $175,000 Answer: C$175,000 (Beginning Accounts Receivable) + $550,000 (Net Credit Sales) - $650,000 (Cash Collected) = $75,000 Answer:

Generally accepted accounting principles (GAAP) require that research and development costs to develop a new product be a. capitalized in the patents account. b. expensed in the period incurred. c. capitalized in the research and development costs account. d. amortized over the expected economic life of the new product. Answer: B Answer: B Answer: B Refer to