1) most public companies use the indirect method to prepare their statement of cash
flows because the fasb prefers this method.
2) a 3-for-1 stock split of a $3 par value share will result in three shares of $1 par value.
3) days’ sales in receivables measures the return on average receivables using credit
sales.
4) a debit always means a decrease and a credit means increase.
5) under the last-in, first-out method, the amount of cost of goods sold calculated using
the perpetual inventory system will differ from the amount calculated using the periodic
inventory system.
6) the disposal of a financial segment would be reported as discontinued operations.
7) a stock split decreases par value per share, whereas stock dividends do not affect par
value per share.
8) the issue price of a bondwhether it is sold at par, premium, or discounthas a
considerable effect on the required principal repayment at maturity.
9) orleans inc. was incorporated on january 1, 2012. orleans issued 4,000 shares of
common stock and 500 shares of preferred stock on that date. the preferred stock is
cumulative, $100 par, with an 8% dividend rate. orleans has not paid any dividends yet.
in 2015, orleans had its first profitable year, and on november 1, 2015, orleans declared
a total dividend of $28,000. what is the total amount that will be paid out to preferred
shareholders?
a) $4,000
b) $16,000
c) $3,200
d) $28,000
10) which of the following will be shown under the investing activities section of the
statement of cash flows?
a) purchased treasury stock for cash
b) issued notes payable to purchase equipment
c) paid cash dividends to stockholders
d) loaned money to a third party
11) which of the following will appear in the operating section of the statement of cash
flows prepared using the indirect method?
a) collections from customers
b) payments to suppliers
c) interest received
d) increase/decrease in current liabilities
12) a company ships goods to a customer, and pays transportation costs. to the seller,
the transportation costs so paid are known as:
a) freight out
b) freight in
c) sales commission
d) brokerage
13) a bond is issued at premium ________.
a) when a bond’s stated interest rate is equal to the market interest rate
b) when a bond’s stated interest rate is less than the effective interest rate
c) when a bond’s stated interest rate is less than the market interest rate
d) when a bond’s stated interest rate is higher than the market interest rate
14) a company that uses the periodic inventory method provided the following
information:
1.beginning inventory $4,000
2.purchases $120,000
3.purchase discounts $2,400
4.purchase returns and allowances $800
at the end of the period, the company does an inventory count and finds $18,000 worth
of inventory on hand.
what is the amount of cost of goods sold?
a) $102,800
b) $104,200
c) $138,800
d) $128,800
15) a business renders services to a customer for $26,000 on account. which of the
following accounts will be debited?
a) cash
b) accounts receivable
c) service revenue
d) bank
16) which will be included in the financing activities section of a direct method
statement of cash flow?
a) changes in accounts payable
b) changes in accounts receivable
c) changes in inventory
d) changes in long-term notes payable
17) adjusting journal entries are prepared ________.
a) after preparing the adjusted trial balance
b) after preparing the unadjusted trial balance
c) after posting the closing entries
d) after preparing the financial statements
18) caterpillars inc., a manufacturing company, acquired equipment on january 1, 2012
for $500,000. estimated useful life of the equipment was 7 years and the estimated
residual value was $10,000. on january 1, 2015, after using the equipment for 3 years,
the total estimated useful life has been revised to 9 years. residual value remains
unchanged. the company uses the straight-line method of depreciation. calculate
depreciation expense for the year 2015.
a) $48,333
b) $46,667
c) $26,666
d) $33,333
19) dolby inc. issued a $5,000 face value, 10%, 5-year bond at 98. what will be the
journal entries at the maturity of the bond? the bonds have semiannual interest and the
company uses the straight-line method of discount amortization.
20) an adjusted trial balance of a merchandiser is given below.
give journal entry to close the expense accounts and contra revenue accounts with a
debit balance.
21) black n white corp. purchased equipment for $45,000. the corporation recorded total
depreciation of $36,000 on the equipment. on january 1, 2015, black n white traded in
the equipment for new equipment, paying $65,000 cash. the fair market value of the
new equipment is $65,000. journalize the corporation’s exchange of equipment. assume
the exchange had commercial substance.
22) clear cleaning services pays out wages every week on friday. payroll expense totals
$4,000 per week, based on a 5-day week. the month of june ended on a thursday. on
thursday, june 30, clear made the following accrual adjustment:
at the same time, they prepared the following reversing entry to be booked on july 1:
on friday afternoon, when wages were paid out, what journal entry was made?
23) sunrays inc. had completely written off the account of one of its old customers,
brad, in 2014 for $500. on january 21, 2015, brad unexpectedly repaid his debt in full.
the company uses the direct write-off method to account for uncollectible receivables.
journalize the entries required for sunrays inc. on january 21, 2015.
