Provided below is a list of important users of accounting information.Below the list are
descriptions of a major need of each of the various users. Fill in the blank with the one
user group that is most likely to have the need described to the right of the blank. Some
user groups may be used more than once or not at all.
a. Capital stock
b. Asset
c. Owners’ equity
d. Time period
e. Dividends
f. Economic entity concept
g. Expense
h. Retained earnings
i. Cost principle
j. Creditor
k. Liability
l. Revenue
m. Going concern
n. Monetary unit
o. Corporation
The portion of owner’s equity that represents the net income less any dividends paid
over the life of the entity.
A change in estimate of an asset’s residual value involves restating the income
statements of past periods for the estimate change.
a. True
b. False
Which of the following statements regarding inflation and accounting is false ?
a. The SEC requires U.S. companies to present supplemental financial information
adjusted for the effects of inflation.
b. Instability of the measuring unit that is the currency occurs in countries with rampant
inflation.
c. In some in Latin American and South American countries, companies have been
required to adjust their financial statements to take into account the effects of inflation.
d. The FASB developed rules for companies in the United States to use to adjust for
inflation.
What is the correct method for calculating working capital?
a. Total Assets minus Total Liabilities
b. Current Assets minus Total Liabilities
c. Current Assets minus Current Liabilities
d. Current Assets plus Current Liabilities
Checks returned by a bank because customers did not have sufficient funds in their
account are called
a. Canceled checks
b. Certified checks
c. NSF checks
d. Outstanding checks
Which financial statement reports information helpful in assessing working capital?
a. Income statement
b. Balance sheet
c. Statement of retained earnings
d. Statement of cash flows
Happy Corporation leased a building from Sensor Company. The 10-year lease is
recorded as a capital lease. The annual payments are $10,000 and the recorded cost of
the asset is $67,100. The straight-line method is used to calculate depreciation. Which
of the following statements is true?
a. Depreciation expense of $6,710 will be recorded each year.
b. Depreciation expense of $10,000 will be recorded each year.
c. No depreciation expense will be recorded by Happy Corporation.
d. No interest expense will be recorded by Happy Corporation.
Match the selected items from a classified balance sheet and multiple-step income state
ment to the section in which they would appear on the classified balance sheetor the inc
ome statement.
a. Current Assets (balance sheet)
b. Property, Plant, & Equipment (balance sheet)
c. Current Liabilities (balance sheet)
d. Long-term Liabilities (balance sheet)
e. Stockholders’ Equity (balance sheet)
f. Operating Revenue (income statement)
g. Operating Expenses (income statement)
h. Other Revenue & Expenses (income statement)
i. Income Taxes (income statement)
Capital stock
Choose from the following list of account titles the one that most accurately fits the des
cription of that account or is an example of that account.An account title may be used m
ore than once or not at all.
a. Debit
b. Credit
Cash
Which one of the following is not an accurate statement regarding the direct write-off
method of accounting for bad debts?
a. The direct write-off method has some deficiencies when accounting for bad debts.
b. The direct write-off method ignores the possibility that partial collection of a
company’s outstanding accounts receivable may occur.
c. Under the direct write-off method, an expense is increased.
d. The allowance method for bad debts violates the matching principle, but the direct
write-off method does not.
Whether investments are reported as current assets or noncurrent assets depends on the
company’s intent.
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
Paid the cash dividends declared above.
If a company has internal auditors, it does not need to have external auditors.
a. True
b. False
Match the following terms with the best definitions for questions 212 through 219. a.
Purchase requisition.
b. Receiving Report.
c. Vendor Invoice.
d. Check.
e. Control procedures.
f. Inventory count.
g. Segregation of duties.
h. Source document control.
Actions that company personnel take to make sure that policies set forth by
management are followed.
If a company overstates its ending inventory balance for 2015 by $10,000, and
overstates its ending inventory balance for 2014 by $5,000 what are the effects on its
net income for 2015 and 2014?
The interest earned on the principal amount only is referred to as.
What is the difference between book value and market value of stock?
is a line item on the income statement to reflect the net income or loss of a discontinued
business segment as well as any gain or loss incurred from its disposal.
Use the selected information from the statement of cash flows for three actual
companies for the last three years to answer the questions that follow.
REQUIRED:
What is meant by the term “cash flow adequacy”? What other financial information
would be necessary in order to make a determination of the cash flow adequacy for
these three companies?
The statement ofexplains changes in the components of owners’ equity during the
period.
What is the minimum number of years for which publicly traded companies must
include the following statements in their annual report filed with the SEC?
Service-oriented companies have different needs than product-oriented companies when
analyzing financial statements. REQUIRED: Why is this true? Give an example of a
financial ratio that is meaningless to a service business.
Many firms operate at a dividend payout ratio of less than 50%. Why don’t firms pay a
larger percentage of income as dividends?