Dividends in arrears on cumulative preferred stock
a. are shown in stockholders’ equity of the balance sheet.
b. must be paid before common stockholders can receive a dividend.
c. should be recorded as a current liability until they are paid.
d. enable the preferred stockholders to share equally in corporate earnings with the
common stockholders.
Answer:
Which of the following statements concerning financial statement presentation is not a
true statement?
a. Intangibles are reported separately under Intangible Assets.
b. The balances of major classes of assets may be disclosed in the footnotes.
c. The balances of the accumulated depreciation of major classes of assets may be
disclosed in the footnotes.
d. The balances of all individual assets, as they appear in the subsidiary plant ledger,
should be disclosed in the footnotes.
Answer:
The following information pertains to Ortiz Company. Assume that all balance sheet
amounts represent both average and ending balance figures. Assume that all sales were
on credit.
What is the inventory turnover for Ortiz?
a. 3,2 times
b. 5.5 times
c. 11 times
d. 0.18 times
Answer:
The primary accounting standard-setting body in the United States is the
a. Financial Accounting Standards Board.
b. International Accounting Standards Board.
c. Internal Revenue Service.
d. Securities and Exchange Commission.
Answer:
Which of the following events cannot be quantified into dollars and cents and recorded
as an accounting transaction?
a. The appointment of a new CPA firm to perform an audit.
b. The purchase of a new computer.
c. The sale of store equipment.
d. Payment of income taxes.
Answer:
On January 1, Greene Inc. issued $5,000,000, 9% bonds for $4,685,000. The market
rate of interest for these bonds is 10%. Interest is payable annually on December 31.
Greene uses the effective-interest method of amortizing bond discount. At the end of the
first year, Greene should report unamortized bond discount of
a. $283,500.
b. $296,500.
c. $286,650.
d. $255,650.
Answer:
The “Other Accounts” column in a cash receipts journal is also referred to as the
a. miscellaneous column.
b. excess column.
c. sundry accounts column.
d. compound-entry column.
Answer:
Which of the following is not necessary to know in computing the future value of an
annuity?
a. Amount of the periodic payments
b. Interest rate
c. Number of compounding periods
d. Year the payments begin
Answer:
With regard to accounting for a merchandising company versus a service company,
which of the following is false?
a. Additional accounts and entries are typically required for a merchandising company.
b. Both retail and wholesale enterprises generally use accounting techniques of a
merchandising company.
c. The process of measuring net income is conceptually different.
d. There are just as many steps in the accounting cycle for both types of companies.
Answer:
Instructions: Complete the requirements specified for each of the following
independent situations.
A. Riley Company purchased land and an office building on March 1 for a combined
cash price of $1,600,000. The land had a cost of $940,000 and the building had a book
value of $200,000 on the seller’s books. The land and building had fair values of
$1,040,000 and $560,000, respectively on March 1. Riley made the following entry at
acquisition:
Prepare the correct entry for the acquisition.
B. Horton Company bought machinery on January 1, 2013 at a cost of $600,000. The
machinery had an estimated life of ten years and salvage value of $50,000. On January
1, 2015, Horton estimates that the machinery will have a life of only five more years
and a $60,000 salvage value. Horton uses straight-line depreciation. Compute the
revised annual depreciation.
C. Carter Company bought equipment on July 1, 2014 at a total cost of $600,000. The
equipment has an estimated useful life of 5 years and salvage value of $100,000. Carter
uses the double-declining-balance method of depreciation. Compute depreciation for
2014 and 2015.
Answer:
The specific identification method of inventory costing
a. always maximizes a company’s net income.
b. always minimizes a company’s net income.
c. has no effect on a company’s net income.
d. may enable management to manipulate net income.
Answer:
Rosco Company purchased 35,000 shares of common stock of Paxton Corporation as a
long-term investment for $900,000. During the year, Paxton Corporation reported net
income of $300,000 and paid dividends of $100,000.
Instructions
(a) Assuming that the 35,000 shares represent a 10% interest in Paxton Corporation:
1> Prepare the journal entry to record the investment in Paxton stock.
2> Prepare any entries that Rosco Company should make in accounting for its
investment in Paxton stock during the year.
3> What is the balance of the Stock Investments account on Rosco Company’s books at
the end of the year?
(b) Repeat requirement (a) above except assume that the 35,000 shares represent a 20%
interest in Paxton Corporation.
Answer:
If an investor owns less than 20% of the common stock of another corporation as a
long-term investment,
a. the equity method of accounting for the investment should be employed.
b. no dividends can be expected.
c. it is presumed that the investor has relatively little influence on the investee.
d. it is presumed that the investor has significant influence on the investee.
Answer:
If 10% of the common stock of an investee company is purchased as a long-term
investment, the appropriate method of accounting for the investment is
a. the cost method.
b. the equity method.
c. the preparation of consolidated financial statements.
d. determined by agreement with whomever owns the remaining 90% of the stock.
Answer:
Which one of the following is not a tool in financial statement analysis?
a. Horizontal analysis
b. Circular analysis
c. Vertical analysis
d. Ratio analysis
Answer:
Blaine Company had these transactions pertaining to stock investments:
The entry to record the sale of the stock would include a
a. debit to Cash for $30,600.
b. credit to Gain on Sale of Stock Investments for $1,200.
c. debit to Stock Investments for $30,600.
d. credit to Gain on Sale of Stock Investments for $1,800.
Answer:
If the equity method is being used, the Revenue from Stock Investments account is
a. just another name for a Dividend Revenue account.
b. credited when dividends are declared by the investee.
c. credited when net income is reported by the investee.
d. debited when dividends are declared by the investee.
Answer:
The paid absence that is most commonly accrued is
a. voting leave.
b. vacation time.
c. maternity leave.
d. disability leave.
Answer:
In order to be relevant, accounting information must
a. be neutral.
b. be verifiable.
c. have predictive value.
d. be a faithful representation.
Answer:
Evidence that the monthly posting of the sales journal total has been accomplished is
indicated by
a. a signature of the accountant doing the posting.
b. a date under the double-line total.
c. the general ledger account numbers under the double-lined total.
d. inspecting the postings in the accounts payable subsidiary ledger.
Answer:
Lack of agreement between the cash balance per bank and the cash balance per books is
due to
a. errors and poor internal control.
b. errors and bank memoranda.
c. time lags and poor internal control.
d. time lags and errors.
Answer:
Additional paid-in capital includes all of the following except the amounts paid in
a. over par value.
b. over stated value.
c. from treasury stock.
d. for the par value of common stock.
Answer:
The par value of a stock
a. is legally significant.
b. reflects the most recent market price.
c. is selected by the SEC.
d. is indicative of the worth of the stock.
Answer:
Correcting entries
a. always affect at least one balance sheet account and one income statement account.
b. affect income statement accounts only.
c. affect balance sheet accounts only.
d. may involve any combination of accounts in need of correction.
Answer:
Each of the following is reported for common stock except the
a. par value.
b. shares issued.
c. shares outstanding.
d. liquidation value.
Answer:
The following ratios have been computed for Mason Company for 2016.
Mason Company’s 2016 financial statements with missing information follow:
Instructions
Use the above ratios and information from the Mason Company financial statements to
fill in the missing information on the financial statements. Follow the sequence
indicated. Show computations that support your answers.
Answer:
The number of common shares outstanding can never be greater than the number of
shares issued.
Answer:
Jarrett Company issued 900 shares of no-par common stock for $13,200. Which of the
following journal entries would be made if the stock has no stated value?
Answer:
When credit sales are made, _________________ Expense is considered a normal and
necessary risk of doing business on a credit basis.
Answer:
You are visiting with a friend, Jim Borke, who wants to start a new business. During
discussions on forming the business, Jim makes this statement:
Our business will have accounts receivable and accounts payable. It will also acquire a
substantial amount of computers and equipment. Will it be acceptable to use the cash
basis of accounting?
Prepare a response for Jim.
Answer:
Distinguishing normal levels of income from irregular items is of interest for the
IFRS:
Answer:
A corporation’s own stock that has been reacquired by the corporation but not canceled
is called ___________________ and is deducted from total
_______________________ on the balance sheet.
Answer:
_______________ securities are bought and held primarily for sale in the near future.
Answer: