1) if net sales are $750,000 and cost of goods sold is $600,000, the gross profit rate is
20%.
2) earnings per share measures the net income earned on each share of common stock.
3) the complete effect of a transaction on the accounts is disclosed in the journal.
4) the cash debt coverage ratio indicates a companys ability to repay its liabilities from
cash generated from operations.
5) the balance sheet reports assets and claims to those assets at a specific point in time.
6) only large companies need to be concerned with a system of internal control.
7) preferred stockholders generally do not have the right to vote for the board of
directors.
8) for efficiency of operations and better control over cash, a company should maintain
only one bank account.
9) consolidated financial statements are appropriate when an investor controls an
investee by ownership of more than 50% of the investee’s common stock.
10) a merchandising companys net income is determined by subtracting operating
expenses from gross profit.
11) common size analysis expresses each item in a financial statement as a percent of a
base amount.
12) operating expenses are subtracted from revenue for a service enterprise and from
gross profit for a merchandising enterprise.
13) when no-par common stock with a stated value is issued for cash, the common
stock account is credited for an amount equal to the cash proceeds.
14) when estimating the useful life of an asset, accountants do not consider
a.the cost to replace the asset at the end of its useful life
b.vulnerability to obsolescence
c.expected repairs and maintenance
d.the intended use of the asset
15) financial information is presented here for two companies.
instructions
(a)compute the missing amounts.
(b)calculate the profit margin ratio and the gross profit rate for each company.
16) if bonds are issued at a discount, it means that the
a.financial strength of the issuer is suspect
b.market interest rate is higher than the contractual interest rate
c.market interest rate is lower than the contractual interest rate
d.bondholder will receive effectively less interest than the contractual rate of interest
17) the following credit sales are budgeted by milford company:
the companys past experience indicates that 70% of the accounts receivable are
collected in the month of sale, 20% in the month following the sale, and 8% in the
second month following the sale. the anticipated cash inflow for the month of august is
a.$432,040
b.$392,000
c.$420,000
d.$411,600
18) lifo can be used
a.under neither gaap nor ifrs
b.under ifrs but not gaap
c.under gaap but not ifrs
d.under both gaap and ifrs
19) donaldson company is considering an investment, which will return a lump sum of
$450,000 four years from now. below is some of the time value of money information
that donaldson has compiled that might help in planning compounded interest
decisions.
to the closest dollar, what amount should donaldson company pay for this investment to
earn a 10% return?
a.$270,000
b.$180,000
c.$307,355
d.$356,609
20) fleet services company purchased equipment for $8,000 on january 1, 2011. the
company expects to use the equipment for 5 years. it has no salvage value. what balance
would be reported on the december 31, 2011 balance sheet for accumulated
depreciation?
a.$0 because accumulated depreciation is reported on the income statement
b.$1,600
c.$6,400
d.$8,000
21) given equal circumstances, which inventory method would probably be the most
time consuming?
a.fifo
b.lifo
c.average cost
d.specific identification
22) hart company reports a $20,000 increase in inventory and a $5,000 decrease in
accounts payable during the year. cost of goods sold for the year was $150,000. using
the direct method of reporting cash flows from operating activities, cash payments
made to suppliers were
a.$150,000
b.$165,000
c.$175,000
d.$135,000
23) dobson inc. earns $900,000 and pays cash dividends for $300,000 during 2012.
cornwell corporation owns 70,000 of the 210,000 outstanding shares of dobson. what
amount should cornwell show in the investment account at december 31, 2012 if the
beginning of the year balance in the account was $80,000?
a.$280,000
b.$200,000
c.$300,000
d.$400,000
24) hiller corporation manufactures electronic components for use in many consumer
products. their raw materials are purchased literally from all over the world. depending
on the country involved, purchase terms vary widely. some suppliers, for example,
require full prepayment, while others are content to receive payment within six months
of receipt of the goods.
because of this situation, hiller never closes its books until at least ten days after month
end. in this way, it can sort out ownership of goods in transit, and document which
goods were received by month end, and which were not.
donna gordon, a new accountant, was asked to record about $50,000 in inventory as
having been received before month end. she argued that the shipping documents clearly
showed that the goods were actually received on the 8th of the current month. her boss,
busy with month-end reports, curtly tells donna to check the shipping terms. she did so,
and found the notation “fob (free on board) shipper’s dock” on the document. she hadn’t
seen that particular notation before, but she reasoned that if the selling company
considered it shipped when it reached their dock, hiller should consider it received
when it reached hiller’s dock. she did not record the sale until after month end.
25) wilhite company is considering investing in an annuity contract that will return
$25,000 annually at the end of each year for 20 years. what amount should wilhite
company pay for this investment if it earns a 6% return?
26)
the following additional data were provided:
1>dividends declared and paid were $16,000.
2>during the year equipment was sold for $12,000 cash. this equipment cost $28,000
originally and had a book value of $12,000 at the time of sale.
3>all depreciation expense is in the selling expense category.
4>all sales and purchases are on account.
5>accounts payable pertain to merchandise suppliers.
6>all operating expenses except for depreciation were paid in cash.
instructions
prepare a statement of cash flows for ferguson company using the direct method.
27) on april 30, the bank reconciliation of baxter company shows three outstanding
checks: no. 354, $650, no. 355, $720, and no. 357, $615. the may bank statement and
the may cash payments journal show the following.
instructions
using step 2 in the reconciliation procedure, list the outstanding checks at may 31.
28) if the inventory turnover ratio is 7.3 times, and the average inventory was $600,000,
the cost of goods sold during the year was $______________ and the average days to
sell the inventory was ______________ days.
29) the two inventory costing systems used are the ______________ and
______________.
30) barber company lends monroe company $20,000 on april 1, accepting a four-month,
6% interest note. barber company prepares financial statements on april 30. what
adjusting entry should be made before the financial statements can be prepared?