If a parent company acquires wholly owned subsidiary at an amount greater than the
book value, the excess should be
a. allocated to expense on the date of acquisition.
b. allocated to identifiable assets to the extent of their fair values, with any remainder
allocated to goodwill.
c. allocated to goodwill, with any remainder allocated to the identifiable assets.
d. set up as a liability to the controlling interest.
Answer:
In a period of inflation, the cost flow method that results in the lowest income taxes is
the
a. FIFO method.
b. LIFO method.
c. average-cost method.
d. gross profit method.
Answer:
Which of the following are also called trade receivables?
a. Accounts receivable
b. Other receivables
c. Advances to employees
d. Income taxes refundable
Answer:
In periods of rising prices, the inventory method which results in the inventory value on
the balance sheet that is closest to current cost is the
a. FIFO method.
b. LIFO method.
c. average-cost method.
d. tax method.
Answer:
When the allowance method of recognizing bad debts expense is used, the entry to
recognize that expense
a. increases net income.
b. decreases current assets.
c. has no effect on current assets.
d. has no effect on net income.
Answer:
Kanet Company issued common stock for proceeds of $386,000 during 2014. The
company paid dividends of $80,000 and issued a long-term note payable for $95,000 in
exchange for equipment during the year. The company also purchased treasury stock
that had a cost of $15,000. The financing section of the statement of cash flows will
report net cash inflows of
a. $291,000.
b. $481,000.
c. $306,000.
d. $371,000.
Answer:
Each of the following is correct regarding treasury stock except that it has been
a. issued.
b. fully paid for.
c. reacquired.
d. retired.
Answer:
If employees are bonded
a. it means that they are not allowed to handle cash.
b. they have worked for the company for at least 10 years.
c. they have been insured against misappropriation of assets.
d. it is impossible for them to steal from the company.
Answer:
Instructions: Present the solutions, with appropriate supporting calculations, for each
of the following independent problems.
A. Given the following information, compute 2015 net income for Orson Company.
B. Indicate the impact on the accounting equation of each of the following transactions.
Item 0 is given as an example.
Answer:
The declaration and distribution of a stock dividend will
a. increase total stockholders’ equity.
b. increase total assets.
c. decrease total assets.
d. have no effect on total assets.
Answer:
Hardy Company has current assets of $95,000, current liabilities of $100,000, long-term
assets of $180,000 and long-term liabilities of $80,000. Hardy Company’s working
capital and its current ratio are:
a. $85,000 and .95:1.
b. -$5,000 and 1.95:1.
c. $5,000 and .95:1.
d. -$5,000 and .95:1.
Answer:
Which of the following statements is true?
a. Debits increase assets and increase liabilities.
b. Credits decrease assets and decrease liabilities.
c. Credits decrease assets and increase liabilities.
d. Debits decrease liabilities and decrease assets.
Answer:
Stine Company has the following potential transaction involving current assets and
current liabilities.
1> Accounts receivable of $20,000 are collected.
2> Equipment is purchased for $35,000 cash.
3> Equipment is purchased by signing a 1-year, 35,000 note.
4> Paid $6,000 for a 3-year insurance policy.
5> Paid $16,000 of accounts payable.
6> Cash dividends of $10,000 are declared.
7> Borrowed $40,000 by signing a short-term note payable.
8> Paid a $50,000 short-term note payable.
As of the beginning of the month, current assets were $210,000, and current liabilities
were $120,000. Current assets included $45,000 of inventory and $5,000 of prepaid
expenses.
Instructions
(a) Compute the current ratio and acid-test ratio as of the beginning of the month.
(b) Compute the current ratio and acid-test ratio after each transaction. Treat each
transaction independently (assume each occurs on the first day of the month, and no
other transaction have affected the beginning-of -month balances.
Answer:
A petty cash fund of $100 is replenished when the fund contains $4 in cash and receipts
for $93. The entry to replenish the fund would
a. credit Cash Over and Short for $3.
b. credit Miscellaneous Revenue for $3.
c. debit Cash Over and Short for $3.
d. debit Miscellaneous Expense for $3.
Answer:
Which one of the following transactions is recorded with the same entry in a perpetual
and a periodic inventory system?
a. Cash received on account with a discount
b. Payment of freight costs on a purchase
c. Return of merchandise sold
d. Sale of merchandise on credit
Answer:
The cost of successfully defending a patent in an infringement suit should be
a. charged to Legal Expenses.
b. deducted from the book value of the patent.
c. added to the cost of the patent.
d. recognized as a loss in the current period.
Answer:
If total assets equal $345,000 and total stockholders’ equity equal $140,000, then total
liabilities must equal
a. $485,000.
b. $205,000.
c. $140,000.
d. There is not enough information given to determine this.
Answer:
The consolidated worksheet shows Excess of Cost Over Book Value of Subsidiary of
$210,000. Management of the parent company determines that the market values for
subsidiary company plant assets are $90,000 higher than book values. In the
consolidated balance sheet, goodwill will be reported at
a. $210,000.
b. $120,000.
c. $90,000.
d. $0.
Answer:
The ability of a corporation to obtain capital is
a. enhanced because of limited liability and ease of share transferability.
b. less than a partnership.
c. restricted because of the limited life of the corporation.
d. about the same as a partnership.
Answer:
Ezra Company has sales revenue of $60,000, cost of goods sold of $36,000 and
operating expenses of $14,000 for the year ended December 31. Ezra’s gross profit is
a. $0.
b. $10,000.
c. $24,000.
d. $46,000.
Answer:
The left side of an account is
a. blank.
b. a description of the account.
c. the debit side.
d. the balance of the account.
Answer:
With regard to accounting for a merchandising company versus a service company,
which of the following is false?
a. Additional accounts and entries are typically required for a merchandising company.
b. Both retail and wholesale enterprises generally use accounting techniques of a
merchandising company.
c. The process of measuring net income is conceptually different.
d. There are just as many steps as in the accounting cycle for a merchandising company.
Answer:
Sales Returns and Allowances is increased when
a. an employee does a good job.
b. goods are sold on credit.
c. goods that were sold on credit are returned.
d. customers refuse to pay their accounts.
Answer:
Which of the following are the same under both GAAP and IFRS?
a. The journal.
b. The ledger.
c. The chart of accounts.
d. All of these answers are correct.
Answer:
Many companies calculate the future value of the cash flows involved in an investment
in evaluating long-term capital investments.
Answer:
The cost of a depreciable asset less accumulated depreciation reflects the book value of
the asset.
Answer:
Repair costs incurred in honoring warranty contracts should be debited to Warranty
Liability.
Answer:
If fully depreciated equipment that cost $10,000 with no salvage value is retired, the
entry to record the retirement requires a debit to the ___________________________
account and a credit to the _____________________ account.
Answer:
Expressing each item within a financial statement as a percentage of a base amount is
called ______________ analysis.
Answer:
Dolan Company uses the allowance method to account for uncollectible accounts.
Prepare the appropriate journal entries to record the following transactions during 2015.
You may omit journal entry explanations.
June 20 The account of Sam Nolan for $1,000 was deemed to be uncollectible and is
written off as a bad debt.
Oct. 14 Received a check for $1,000 from Sam Nolan, whose account had previously
been written off as uncollectible.
Dec. 31 Use the following information for year-end adjusting entries:
The balance of Accounts Receivable and Allowance for Doubtful Accounts at year-end
are a debit balance of $126,000 and a credit balance $2,900, respectively. It is estimated
that bad debts will be 5% of accounts receivable.
Answer:
