Depreciation is added back to net income in a statement of cash flows prepared using
the indirect method because it:
A) reduces net income but not cash.
B) is a cash inflow.
C) is a revenue.
D) is a valuation concept.
The comparative financial statements of B. Darin include the following data:
Use the information above to answer the following question. Which of the following
would be shown on B. Darin’s horizontal analysis when calculating percentage changes
from the prior year to the current year?
A) An increase in sales revenue of 23%
B) An increase in gross profit of 41.5%
C) An increase in interest expense of 100%
D) An increase in net income of 57%
Pixie Products reported net sales revenue of $18.8 billion and cost of goods sold of $5.6
billion, while Stardust Inc. reported net sales revenue of $22.3 billion and cost of goods
sold of $9.3 billion. Which of the following statements is correct?
A) While Stardust Inc. generated more revenue than Pixie Inc., Stardust Inc. generated
a lower gross profit percentage.
B) Pixie Inc. generated a lower gross profit percentage because its sales revenue was
lower.
C) Stardust Inc. did a better job of controlling product costs as a percentage of sales
than did Pixie Inc.
D) The selling price of the products sold by Pixie Inc. must have been higher than the
price of products sold by Stardust Inc.
A company would most likely choose the double-declining balance depreciation
method for which of the following long-lived tangible assets?
A) Vehicles
B) Office buildings
C) Warehouses
D) Land improvements
GE buys back 300,000 shares of its stock from investors at $45 a share. Two years later
it reissues this stock for $65 a share. The stock reissue would be recorded with a debit
to Cash for:
A) $19.5 million and a credit to Treasury Stock for $19.5 million.
B) $13.5 million, a debit to Additional Paid-in Capital for $6 million, a credit to
Treasury Stock for $13.5 million, and a credit to Stockholders’ Equity for $6 million.
C) $19.5 million, a credit to Treasury Stock for $13.5 million, and a credit to Additional
Paid-in Capital for $6 million.
D) $19.5 million, a credit to Treasury Stock for $13.5 million, and a credit to Gain on
Sale of Treasury Stock for $6 million.
Alphabet Company, which uses the periodic inventory method, purchases different
letters for resale. Alphabet had no beginning inventory. It purchased A thru G in January
at $4 per letter. In February, it purchased H thru L at $6 per letter. It purchased M thru R
in March at $7 per letter. It sold A, D, E, H, J and N in October. There were no
additional purchases or sales during the remainder of the year.
Use the information above to answer the following question. If Alphabet Company uses
the specific identification method, what is the cost of its ending inventory?
A) $31
B) $69
C) $76
D) $100
Which of the following statements about when cash dividends can be paid is not
correct?
A) The Retained Earnings account must have an accumulated balance sufficient to
cover the amount of the dividends to be paid.
B) The Cash account must have a balance sufficient to pay the dividends.
C) The board of directors must have declared the dividend before it can be paid.
D) Loan covenants cannot restrict the payment of dividends.
Purrfect Pets, Inc. makes a $10,000 payment on account. This would result in a:
A) $10,000 credit to Cash and a $10,000 credit to Accounts Payable.
B) $10,000 debit to Cash and a $10,000 debit to Accounts Payable.
C) $10,000 debit to Accounts Payable and a $10,000 credit to Cash.
D) $10,000 debit to Cash and a $10,000 credit to Accounts Payable.
Which of the following statements about the statement of retained earnings is correct?
A) Dividends increase net income and are added to calculate the ending balance of
Retained Earnings.
B) Dividends are subtracted to calculate the ending balance of Retained Earnings.
C) Dividends are not used to calculate the ending balance of Retained Earnings.
D) Dividends are not reported on the statement of retained earnings.
Explain whether the following items should be included in the inventory of Simpson
Company.
Item a. Goods sold FOB shipping point by Simpson are in transit to its customer.
Item b. Goods sold FOB destination by Simpson are in transit to its customer.