Marshland Company uses the straight-line depreciation for financial reporting purposes
and an accelerated depreciation method for tax purposes. As a result, Marshland will
record:
a. a deferred tax asset.
b. a deferred tax liability.
c. a permanent difference.
d. tax-exempt depreciation.
Crouch Apartments purchased an apartment building to rent to university students on
December 15, 2012. The tenants moved in on January 1, 2013. On Super Bowl Sunday,
a student punched a hole in the wall when his favorite team fumbled the ball. It cost the
landlord $400 to repair the hole. How should this cost be recorded?
a. It should be recorded as part of the asset account.
b. It should be recorded as repair and maintenance expense.
c. It should not be recorded as the tenants will be charged for the damage.
d. It should not be recorded since this is an immaterial amount to the landlord.
If ending inventory is understated, then cost of goods sold is overstated.
a. True
b. False
Pinecrest Company
Use the selected data from Pinecrest Company’s financial statements to answer the
following question.
Refer to the data for Pinecrest Company. Which of the following statements is true?
a. The current ratio increased from 2015 to 2016.
b. The acid-test ratio decreased from 2015 to 2016.
c. The amount of working capital decreased from 2015 to 2016.
d. Assuming extreme conditions do not exist, the company appears to be in a worse
position to pay its current debts at the end of 2016 compared to 2015.
Which of the following items is not a cash equivalent?
a. Commercial paper
b. A three-year Treasury note purchased two months before its maturity
c. Money market funds
d. A corporate bond investment which has 5 years until maturity when they are
purchased
Treasury notes with a maturity of three months or less that are issued by the Federal
Government are cash equivalents.
a. True
b. False
The lower the inventory turnover ratio, the less time inventory resides in storage.
a. True
b. False
Use the following codes to indicate how the cash flow effect, if any, of each transaction
or event would be reported on a statement of cash flows if the operating activities
section is prepared using the indirect method.
a. Operating activity-add to net income
b. Operating activity-deduct from net income
c. Inflow from investing activity
d. Outflow from investing activity
e. Inflow from financing activity
f. Outflow from financing activity
g. Noncash investing and financing activity
h. Not reported on statement of cash flows
Issued stock to retire bonds.
Which one of the following situations reflects a weak internal control system?
a. All employees are well supervised.
b. A single employee is responsible for comparing a receiving report to an invoice.
c. All employees must take their vacations.
d. A single employee is responsible for collecting and recording of cash.
If cost of goods sold under FIFO was $8,000 and was $10,000 under LIFO, assuming a
tax rate of 40%, how much tax savings resulted from using LIFO?
a. There would be no tax savings.
b. $ 800
c. $ 1,200
d. $ 2,000
For each of the following sentences, select the phrase or group of words that best
completes the statement.
a. Earnings per share
b. Dividend yield ratio
c. Dividend payout ratio
d. Leverage
e. Return on assets ratio
f. Return on common stockholders’ equity ratio
g. Debt-to-equity ratio
h. Price/earnings ratio
A company’s bottom line stated on a per-share basis.
Turtle Island Music Store reported net income of $200,000. Cash from operations
a. will be more than $200,000.
b. will be less than $200,000.
c. will be equal to $200,000.
d. cannot be determined without more information.
Match each of the following terms pertaining to liabilities to their definitions.
a. Current liability
b. Accounts payable
c. Notes payable
d. Discount on notes payable
e. Current maturities of long-term liabilities
f. Accrued liabilities
g. Contingent liability
h. Estimated liability
Amounts owed for the purchase of inventory, goods, or services acquired in the normal
course of business.
Income summary does not appear on the income statement.
a. True
b. False
Expenses can be matched against revenue
a. if the earnings process is not complete.
b. when cash is collected from the sale of products.
c. through allocation to the accounting periods in which the benefits are recognized.
d. when payment is made for costs related to revenue.
A high accounts receivable turnover ratio could mean that the company’s credit policies
may be too stringent.
a. True
b. False
A cereal company includes one premium coupon in every cereal box. Upon returning
10 such coupons to the company, a customer will be sent a free cereal bowl. In a recent
year, the company sold 200,000 boxes of cereal for $1 a box. It is estimated that 20% of
the coupons will be returned. If the cereal bowls cost the company $3 each, what
amount of liability for premium redemptions must be recorded by the company?
a. $ 6,000
b. $ 12,000
c. $ 24,000
d. $200,000