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The concept of conservatism is the capacity of information to make a difference in a
decision.
a. True
b. False
Which of the following statements is correct?
a. Bonds are issued at a price that reflects the stated rate of interest on the day the bond
is purchased.
b. If the face rate of interest on a bond is not equal to the market rate of interest, then
the company desiring to issue the bonds must reprint its bond certificates.
c. The actual issue price of a bond represents the present value of all future cash flows
related to the bond.
d. The market rate of interest has no bearing on the selling price of the bonds.
The Retained Earnings account balance for a large corporation is $10,000,000. This
amount represents
a. earnings that have not been distributed to shareholders.
b. cash in the bank.
c. the amount of cash available for dividends.
d. revenues for all past years of operations.
Several accounts from the financial statements of Robot Technologies are listed below.
In the two columns provided for answers, indicate the type of account and the normal
account balance. Use the following identification codes for your answers:
Which method might allow a company to make significant inventory purchases at year
end for the purpose of manipulating income?
a. FIFO
b. LIFO
c. Specific Identification
d. Weighted Average Cost
The inventory method that assigns the most recent costs to ending inventory is LIFO.
a. True
b. False
Essentially, the entire statement of financial position is inverted compared to what is
commonly seen in the United States.
a. True
b. False
Which of the following statements with regard to large stock dividends is true?
a. As a result of the stock dividend, retained earnings is reduced by the par value of the
stock issued.
b. Retained earnings is reduced by the market value of the stock issued in the stock
dividend.
c. If the market price of the stock before a 50% stock dividend is $30, after the stock
dividend it will be $45.
d. As the result of a 50% stock dividend, a stockholder who had previously held 20
shares will then hold 40 shares.
Selected data for Sorenta, Inc. and New World Corp., two companies in the same
industry, are presented below:
Based on this data, which statement below is true? a. Sorenta, Inc. has a lower gross
profit ratio than New World Corp.
b. New World Corp has a higher net income than Sorenta, Inc.
c. New World Corp sells its inventory faster than Sorenta, Inc.
d. Sorenta, Inc. has lower storage costs and a lower investment in inventory than New
World Corp.
Baggs buys $100,000 of Vista Company bonds on January 1, 2014 at face value. The
bonds pay 10% interest semiannually on June 30 and December 31. If Baggs sells the
bonds at 99 on July 1, 2014, there will be a loss reported on the income statement.
a. True
b. False
When a company wishes to purchase and retire its own stock, the company must
a. decrease the stock account balances by the original issue price.
b. record a gain or loss depending on the difference between original selling price and
repurchase cost.
c. get the approval of the state to do so.
d. issue a different class of stock to the former stockholders.
Which of the following is not classified as a noncurrent liability?
a. Bonds payable
b. Capital lease obligations
c. Current portion of long-term debt
d. Mortgage payable
Significant differences exist in terms on financial statements around the world. For
example, another name for what we know as Capital Stock in the U.S. is:
a. Share Capital
b. Capital Reserves
c. Provisions for other Risks
d. Deferred Income
Name two different examples of items that can be received (in addition to cash) in
exchange for issuing stock. Describe how the value of each item affects additional
paid-in capital.
are a distribution of net income for the period, not a determinant of net income as are
expenses.
What is the difference between comparability and consistency?
In its first year of business, Mariman Company has net income of $290,000, exclusive
of any adjustment for bad debts expense. The president of the company has asked you
to calculate net income under each of two alternatives of accounting for bad debts: the
direct write-off method and the allowance method. The president would like to use the
method that will result in the higher net income. So far, no adjustments have been made
to write off uncollectible accounts or to estimate bad debts. The relevant data are as
follows:
2> Does Mariman have a choice as to which method to use? If so, should it base its
choice on which method will result in the higher net income? (Ignore income taxes.)
Explain.
is the quality of accounting information that makes it comprehensible to those willing to
spend the necessary time.
Credit sales could decline because of economic conditions.
