The sale of bonds above face value
a. is a rare occurrence.
b. will cause the total cost of borrowing to be less than the bond interest paid.
c. will cause the total cost of borrowing to be more than the bond interest paid.
d. will have no net effect on Interest Expense by the time the bonds mature.
Answer:
An employer’s estimated cost for postretirement benefits for its employees should be
a. recognized as an expense when paid.
b. recognized as an expense during the employees’ work years.
c. recognized as an expense during the employees’ retirement years.
d. charged to the goodwill account because providing employees with benefits
generates employee goodwill.
Answer:
Sophia Company is considering two alternatives to finance its purchase of a new $4,000,000
office building.
(a) Issue 400,000 shares of common stock at $10 per share.
(b) Issue 7%, 10-year bonds at par ($4,000,000).
Income before interest and taxes is expected to be $3,500,000. The company
has a 30% tax rate and has 600,000 shares of common stock outstanding prior
to the new financing.
Instructions
Calculate each of the following for each alternative:
(1) Net income.
(2) Earnings per share.
Answer:
The balance sheet is frequently referred to as
a. an operating statement.
b. the statement of financial position.
c. the statement of cash flows.
d. the statement of retained earnings.
Answer:
Angie’s Cookie Shop reported equipment at $240,000 and $48,000 accumulated
depreciation on its December 31, 2014, balance sheet. During 2015, the shop purchased
equipment costing $40,000 and sold equipment costing $10,000 (book value $7,200)
for $2,000. On December 31, 2015, net equipment was $174,800. Using the indirect
method, Angie’s would report depreciation expense on its statement of cash flows for
2015 of
a. $95,200.
b. $54,400.
c. $47,200.
d. $50,000.
Answer:
A successful grocery store would probably have
a. a low inventory turnover.
b. a high inventory turnover.
c. zero profit margin.
d. low volume.
Answer:
Quasar Corporation had net income of $210,000 and paid dividends to common
stockholders of $63,000 in 2015. The weighted average number of shares outstanding in
2015 was 50,000 shares. Quasar Corporation’s common stock is selling for $30 per
share on the New York Stock Exchange.
Quasar Corporation’s payout ratio for 2015 is
a. 24%.
b. 30%.
c. 26%.
d. $3.33 per share.
Answer:
Which of the following transactions would not be classified as a financing activity?
a. Purchase of treasury stock
b. Payment of dividends
c. Issuance of bonds at a discount
d. Purchase of a long-term investment in bonds
Answer:
Tomko Company purchased machinery with a list price of $96,000. They were given a
10% discount by the manufacturer. They paid $600 for shipping and sales tax of $4,500.
Tomko estimates that the machinery will have a useful life of 10 years and a residual
value of $30,000. If Tomko uses straight-line depreciation, annual depreciation will be
a. $6,150.
b. $6,108.
c. $9,150.
d. $5,640.
Answer:
IFRS requires that companies present
a. a complete set of financial statement, including comparative information, annually.
b. only a statement of financial position, including comparative information, annually.
c. only an income statement, including comparative information, annually.
d. only a statement of changes in cash flows, including comparative information,
annually.
Answer:
The income statement for the year 2015 of Fugazi Co. contains the following
information:
After all closing entries have been posted, the Income Summary account will have a
balance of
a. $0.
b. $7,500 debit.
c. $7,500 credit.
d. $77,500 credit.
Answer:
A company spends $15 million dollars for an office building. Over what period should
the cost be written off?
a. When the $15 million is expended in cash.
b. All in the first year.
c. Over the useful life of the building.
d. After $15 million in revenue is recognized.
Answer:
Characteristics associated with relevant accounting information are
a. comparability and timeliness.
b. predictive value and confirmatory value.
c. neutral and verifiable.
d. consistency and understandability.
Answer:
The cost of goods sold during the year was $183,000. Merchandise inventory decreased
by $8,000 during the year and accounts payable decreased by $4,000 during the year.
Using the direct method of reporting cash flows from operating activities, cash
payments for merchandise total
a. $187,000.
b. $179,000.
c. $171,000.
d. $195,000.
Answer:
GAAP, compared to IFRS, tends to be more
a. simple in accounting requirements.
b. rules-based.
c. principles-based.
d. simple in disclosures requirements.
Answer:
A new accountant working for Spirit Walker Company records $900 Depreciation
Expense on store equipment as follows:
The effect of this entry is to
a. adjust the accounts to their proper amounts on December 31.
b. understate total assets on the balance sheet as of December 31.
c. overstate the book value of the depreciable assets at December 31.
d. understate the book value of the depreciable assets as of December 31.
Answer:
Stengel company sells a snowboard, WhiteOut, that is popular with snowboard
enthusiasts. Presented below is information relating to Stengel Company’s purchases of
WhiteOut snowboards during September. During the same month, 124 WhiteOut
snowboards were sold at $160 each. Stengel company uses a periodic inventory system.
Instructions
(a) Compute the ending inventory at September 30 and cost of goods sold using the
FIFO and LIFO method. Prove the amount allocated to cost of goods sold under each
method.
(b) For both FIFO and LIFO, calculate the sum of inventory and cost of goods sold.
What do you notice about the answer you found for each method?
(c) What is gross profit under each method?
(d) Which method results in a larger amount reported for assets on the balance sheet?
Which results in a larger amount reported for stockholders’ equity on the balance sheet?
Answer:
On January 1, 2014, Grgante Corporation purchased 25% of the common stock
outstanding of Long Corporation for $270,000. During 2014, Long Corporation
reported net income of $80,000 and paid cash dividends of $40,000. The balance of the
Stock Investments’”Long account on the books of Grgante Corporation at December 31,
2014 is
a. $270,000.
b. $310,000.
c. $350,000.
d. $280,000.
Answer:
Each of the following is added to net income in computing net cash provided by
operating activities except
a. amortization expense.
b. an increase in accrued expenses payable.
c. a gain on sale of equipment.
d. a decrease in inventory.
Answer:
A contingency that is remote
a. should be disclosed in the financial statements.
b. must be accrued as a loss.
c. does not need to be disclosed.
d. is recorded as a contingent liability.
Answer:
Mott Company uses the units-of-activity method in computing depreciation. A new
plant asset is purchased for $48,000 that will produce an estimated 100,000 units over
its useful life. Estimated salvage value at the end of its useful life is $4,000. What is the
depreciation cost per unit?
a. $4.40
b. $4.80
c. $.44
d. $.48
Answer:
The operating cycle of a company is the average time that is required to go from cash to
a. sales in producing revenues.
b. cash in producing revenues.
c. inventory in producing revenues.
d. accounts receivable in producing revenues.
Answer:
Indrisano’s Used Cars uses the specific identification method of costing inventory.
During March, Indrisano purchased three cars for $12,000, $14,400, and $19,200,
respectively. During March, two cars are sold for a total of $34,600. Indrisano
determines that at March 31, the $14,400 car is still on hand. What is Indrisano’s gross
profit for March?
a. $1,000.
b. $3,400.
c. $4,200.
d. $8,200.
Answer:
The freight cost incurred by a seller to deliver goods sold to a customer is called
________________.
Answer:
Terra Cotta Company has the following data at December 31, 2014 for its securities:
Instructions
Journalize the December 31 adjusting entries.
Answer:
On January 1, Sanchez Corporation purchased a 35% equity in Lawton Company for $380,000.
At December 31, Lawton declared and paid a $40,000 cash dividend and reported net income
of $98,000. Prepare the necessary journal entries for Sanchez Corporation.
Answer:
In a period of rising prices, the inventory reported in Crawford Company’s balance
sheet is close to the current cost of the inventory. Breland Company’s inventory is
considerably below its current cost. Identify the inventory cost flow method being used
by each company. Which company has probably been reporting the higher gross profit?
Answer:
During a period, cost of goods sold + an increase in inventory + an increase in accounts
payable = cash paid to suppliers.
Answer:
Presented below is a balance sheet for Jim Henson Yard Service at December 31, 2015.
The following additional data are available for the year which began on January 1: All
expenses (excluding supplies expense) total $6,000. Supplies on January 1, were
$11,000 and $7,000 of supplies were purchased during the year. Net income for the year
was $8,000 and dividends paid were $9,000.
Instructions
Determine the following: (Show all computations.)
1> Supplies used during the year.
2> Total expenses for the year.
3> Service revenues for the year.
4> Stockholders’ equity on January 1
Answer:
Under the direct method, the two largest classes of items in the operating activities
section for a merchandising company are cash ________________________ and cash
_________________________.
Answer:
A note payable must always be paid before an account payable.
Answer:
Match the items below by entering the appropriate code letter in the space provided.
1> Process of allocating the cost of an intangible asset to expense over its useful life.
2> Is only recorded when an exchange has commercial substance.
3> Examples are franchises and licenses.
4> The allocation of the cost of a natural resource to expense over its useful life.
5> Can be identified only with a business as a whole.
6> A symbol that identifies a particular enterprise or product.
7> When book value of asset is greater than the proceeds received from its sale.
8> Must be expensed when incurred.
9> Indicates how efficiently a company is able to generate sales with its assets.
10> An estimate of the expected productive life of an asset.
Answer: