The following list contains several items that appear on an income statement.
Select the choice that lists the items in the order they would appear on a multi-step
income statement.
a. 6, 1, 7, 4, 2, 3, 5
b. 7, 6, 1, 4, 2, 3, 5
c. 6, 4, 7, 1, 2, 3, 5
d. 6, 7, 4, 1, 2, 3, 5
Davis Corp. invested cash in a 9-month certificate of deposit (CD) on October 1, 2015.
If Davis has an accounting period which ends on December 31, 2015, when would it
most likely recognize interest revenue from the CD?
a. On December 31, 2015 only
b. On July 1, 2016 only
c. Both Dec. 31, 2015 and July 1, 2016
d. On October 1, 2015
On October 1, Lawrence Company borrowed $60,000 from Fourth National Bank on a
1-year, 7% note. If the company’s fiscal year ends as of December 31, Lawrence should
make an entry to increase
a. interest expense, $4,200.
b. notes payable, $1,050.
c. interest payable, $1,050.
d. prepaid interest, $3,150.
Caruso, Inc. has an inventory turnover rate of 8 times. If its cost of goods sold is
$150,000, then
a. The company will report sales of $1,200,000.
b. The gross margin will be $1,200,000.
c. The company’s average inventory is $18,750.
d. It sells its inventory 1,200 times per year.
Which one of the following statements is true concerning assets?
a. They are recorded at market value and then adjusted for inflation.
b. They are recorded at market value for financial reporting purposes as historical cost
may be arbitrary.
c. Accountants use the term historical cost to refer to the original cost of an asset.
d. Assets are measured using the time-period approach.
The quality of accounting information that allows a user to analyze two or more
companies and look for similarities and differences is known as understandability.
a. True
b. False
Masters Company borrowed on a one-year, 10%, $150,000 note on May 1, with interest
and principal to be paid at maturity. How much interest payable will be reported on
Masters’ balance sheet as of November 30 of the same year?
a. $ 7,500
b. $ 8,750
c. $ 15,000
d. $ 30,000
Which of the following are generally supplementary information required by GAAP
concerning the accounting treatments used by a company?
a. A Year-End Worksheet
b. Management’s Discussion and Analysis
c. The Report of Independent Accountants
d. Notes to the Consolidated Financial Statements
Select the account that would be increased to show each of the following costs.
a. Land
b. Land Improvements
c. Buildings
d. Machinery and Equipment
e. An Expense Account
The costs to pave a parking lot
The ending inventory balance represents
a. Expired costs and is reported on the balance sheet as an asset.
b. The cost of goods sold during the current period and is reported on the balance sheet
as an asset.
c. Expired costs and is reported on the income statement as an expense
d. Unexpired costs and is reported on the balance sheet as an asset.
Select the financial statement on which the user would most likely find the answer to
the question given. (Select all that apply.) Did the company sell any property, plant, and
equipment during the year at a gain or loss? a. Income statement
b. Balance sheet
c. Statement of cash flows
d. Statement of retained earnings
The solution to this problem requires time value of money calculations. Reference to
Tables 9-1 through 9-4 in the text is necessary to complete the calculations. Josh and
Sara want to buy a house in 4 years. If the house will cost $180,000, how much must
they deposit at the end of every year for the next 4 years at 5% compounded annually in
order to buy the house?
a. $32,040
b. $36,990
c. $41,763
d. $45,000
The following set of items describes activities completed by a company in purchasing
and paying for merchandise. For each activity, identify whether or not the activity
adheres to or violates sound internal control procedures. The clerk in the accounting
department records both purchases and payments of invoices.
a. Adheres to sound internal control procedures
b. Violates sound internal control procedures
c. Neither strengthens nor violates internal control
Which of the following is the best description of the purpose of financial reporting?
a. To allow users to access to the daily detailed records of a business.
b. To help the users reach their decisions in an informed manner.
c. To provide users with an assessment of how long the company will continue as a
going concern.
d. To allow users access to a list of all the individuals who owe the company money.
Sandy Shores, Inc. reported the following amounts in its financial statements:
From 2015 to 2016, the company’s management of inventory is
a. declining, because the number of days’ sales in inventory is getting larger.
b. increasing, because the number of days’ sales in inventory is getting larger.
c. declining, because the number of days’ sales in inventory is getting smaller.
d. increasing, because the number of days’ sales in inventory is getting smaller.
Which of the following is reported as a financing activity?
a. Payment of cash dividends
b. Declaration of cash dividends
c. Stock dividend
d. Stock split
Sunnyland Charters reported the following information at December 31, 2015:
The number of shares of common stock issued is
a. 10,000.
b. 100,000.
c. 500,000.
d. 550,000.
Creighton, Inc. determined that it had incorrectly estimated both the useful life and the
estimated residual value of equipment which it purchased 2 years ago. When
accounting for the change in its accounting estimates, Creighton must
a. correct the financial statements of prior years affected by the errors in the estimates.
b. determine the book value at the point of change and depreciate that amount over the
remaining useful life.
c. add the amount of the error to the amount of the current year’s depreciation expense.
d. determine the effect of the error and report it as a loss on the income statement in
Other Revenues and Expenses.
Because of its relationship to dividends and market price, which ratio is important to
investors?
a. current ratio
b. debt-to-equity ratio
c. price/earnings ratio
d. asset turnover ratio
An invoice received from a supplier for $8,000 on January 1 with terms 1/15, n/30
means that the company should pay
a. $7,920 before the end of January.
b. either $7,920 before January 16 or $8,000 before the end of the month.
c. $8,000 between January 2 and January 16.
d. $6,800 before January 16.