1) interest on a 6-month, 10 percent, $10,000 note is calculated by multiplying $10,000
0.10 6/12.
2) as an adjustment to operating expenses per the income statement, an increase in
accrued liabilities would be deducted from operating expenses to determine cash
payments for operating expenses.
3) a current ratio of 1.2 to 1 indicates that a company’s current assets exceed its current
liabilities.
4) the lifo inventory method tends to smooth out the peaks and valleys of a business
cycle.
5) the formula for the present value of a single amount is fv / (1 + i)n.
6) net income is another term for revenue.
7) both accounts receivable and notes receivable represent claims that are expected to
be collected in cash.
8) the market adjustment account can only have a credit balance or a zero balance.
9) material gains or losses on bond redemption are reported as an extraordinary item on
the income statement.
10) the multiple-step income statement is considered more useful than the single-step
income statement because it highlights the components of net income.
11) operating activities are the types of activities the company performs to generate
profits.
12) a new accountant working for metcalf company records $800 depreciation expense
on store equipment as follows:
the effect of this entry is to:
a.adjust the accounts to their proper amounts on december 31
b.understate total assets on the balance sheet as of december 31
c.overstate the book value of the depreciable assets at december 31
d.understate the book value of the depreciable assets as of december 31
13) using the following information, which company appears to be least solvent?
a.xu company
b.lin company
c.ng company
d.chen company
14) cab inc. has 1,000 shares of 4%, $100 par value, cumulative preferred stock and
50,000 shares of $1 par value common stock outstanding at december 31, 2012. what is
the annual dividend on the preferred stock?
a.$40 per share
b.$4,000 in total
c.$400 in total
d.$0.40 per share
15) if the cost of an available-for-sale security exceeds its fair value by $40,000, the
entry to recognize the loss
a.is not required since the share prices will likely rebound in the long run
b.will show a debit to an expense account
c.will show a credit to a valuation allowance account that appears in the stockholders
equity section of the balance sheet
d.will show a debit to an unrealized loss account that is deducted in the stockholders’
equity section of the balance sheet
16) when the straight-line method of amortization is used for a bond discount, the
amount of interest expense for an interest period is calculated by
a.adding the amount of discount amortized for that period to the amount of cash paid
for interest during the period
b.subtracting the amount of discount amortized for that period from the amount of cash
paid for interest during the period
c.multiplying the face value of the bonds by the stated interest rate
d.multiplying the face value of the bonds by the market interest rate
17) a companys past experience indicates that 60% of its credit sales are collected in the
month of sale, 30% in the next month, and 5% in the second month after the sale; the
remainder is never collected. budgeted credit sales were:
the cash inflow in the month of september is expected to be
a.$203,400
b.$153,900
c.$162,000
d.$194,400
18) an aging of a company’s accounts receivable indicates that $4,000 are estimated to
be uncollectible. if allowance for doubtful accounts has a $1,200 credit balance, the
adjustment to record bad debts for the period will require a
a.debit to bad debts expense for $4,000
b.debit to allowance for doubtful accounts for $2,800
c.debit to bad debts expense for $2,800
d.credit to allowance for doubtful accounts for $4,000
19) under gaap, income statement items are generally described as
a.administration, distribution, manufacturing, etc
b.salaries, depreciation, utilities, etc
c.administration, depreciation, manufacturing, etc
d.salaries, distribution, utilities, etc
20) at may 1, 2012, heineken company had beginning inventory consisting of 100 units
with a unit cost of $7. during may, the company purchased inventory as follows:
200 units at $7
300 units at $8
the company sold 500 units during the month for $12 per unit. heineken uses the average
cost method. heineken’s gross profit for the month of may is
a.$2,250
b.$3,750
c.$4,500
d.$6,000
21) fisher company is about to issue $300,000 of 5-year bonds, with a contract rate of
interest of 10%, payable semiannually. the discount rate for such securities is 8%. how
much can fisher expect to receive from the sale of these bonds?
a.$276,834
b.$300,000
c.$324,332
d.none of the above
22) stockholders equity can be described as claims of
a.creditors on total assets
b.owners on total assets
c.customers on total assets
d.debtors on total assets
23) milton company reported net income of $80,000 for the year. during the year,
accounts receivable increased by $14,000, accounts payable decreased by $6,000 and
depreciation expense of $10,000 was recorded. net cash provided by operating activities
for the year is
a.$60,000
b.$90,000
c.$78,000
d.$70,000
24) all of the following are reported on the income statement net of tax except
a.irregular items
b.other comprehensive income items
c.income from operations
d.extraordinary items
25) which of the following is not an advantage of issuing bonds instead of common
stock?
a.stockholder control is not affected
b.earnings per share on common stock may be lower
c.tax savings result
d.each of the above is an advantage
26) the accountant at landry company is figuring out the difference in income taxes the
company will pay depending on the choice of either fifo or lifo as an inventory costing
method. the tax rate is 30% and the fifo method will result in income before taxes of
$8,740. the lifo method will result in income before taxes of $7,900. what is the
difference in tax that would be paid between the two methods?
a.$840
b.$588
c.$252
d.cannot be determined from the information provided
27) if a company incurs legal costs in successfully defending its patent, these costs are
recorded by debiting
a.legal expense
b.the intangible loss account
c.the patent account
d.a revenue expenditure account
28) when a change in depreciation method occurs:
a.prior years’ financial statements should be changed to reflect the newly adopted
method
b.the change should be reported in current and future years
c.the cumulative effect of the change should be reflected on the income statement as of
the beginning of the next year
d.the cumulative effect of the change in accounting principle should be classified as an
extraordinary item on the income statement
29) tonys market recorded the following events involving a recent purchase of
inventory:
received goods for $30,000, terms 2/10, n/30.
returned $600 of the shipment for credit.
paid $150 freight on the shipment.
paid the invoice within the discount period.
as a result of these events, the companys inventory
a.increased by $28,812
b.increased by $29,550
c.increased by $28,959
d.increased by $28,962
30) on january 1, 2012, $1,000,000, 5-year, 10% bonds, were issued for $1,060,000.
interest is paid annually on january 1. if the issuing corporation uses the straight-line
method to amortize premium on bonds payable, the monthly amortization amount is
a.$8,833
b.$12,000
c.$1,200
d.$1,000
31)
instructions
state the missing items identified by ?.
32) petersen book store entered into the transactions listed below. in the journal
provided, prepare petersens necessary entries, assuming use of the perpetual inventory
system.
33) hamilton corporation sells 200 shares of common stock being held as an
investment. the shares were acquired six months ago at a cost of $40 a share. hamilton
sold the shares for $45 a share. the entry to record the sale is
34) comment on the validity of the following statements: as an asset loses its ability to
provide services, cash needs to be set aside to replace it. depreciation accomplishes this
goal.
35) in a service company, revenue is earned when the service is _______________.
36) harvey company borrowed $80,000 on january 2, 2010. this amount plus accrued
interest of 5% compounded annually will be repaid at the end of 3 years. what amount
will harvey repay at the end of the third year?
37) the following trial balance was obtained from gentry company’s computer system.
1)what features make this trial balance difficult to read?
2)prepare an improved trial balance.
38) identify the effect the declaration of a stock dividend has on the par value per share
and book value per share.
39) an inexperienced accountant made the following entries. in each case, the
explanation to the entry is correct.
prepare the correcting entries.
