Manson World reported the following: Common stock, $1 par, 200,000 shares
authorized, 100,000 shares issued and outstanding What is the effect of a 2-for-1 stock
split if the market value of the common stock is $20 per share when the stock split is
declared?
a. Retained earnings in the amount of $400,000 is transferred to the contributed capital
accounts.
b. Cash decreases $400,000.
c. Additional Paid-in Capital increases $400,000.
d. A stock split has no effect on total stockholders’ equity.
When a company discounts an interest-bearing note at a bank with recourse:
a. The company is assured payment at maturity.
b. The company will receive the full amount of the note plus interest.
c. The company has a contingent liability from the time the note is discounted until its
maturity date.
d. The bank assumes the credit risk on non-payment at the maturity date.
Using the concept of comprehensive income, which of the following items is included
as part of comprehensive income but not as part of net income?
a. Extraordinary items
b. Accounting changes
c. Unrealized holding gains or losses
d. Loss on sale of investments
Which profitability ratio requires the use of earnings per share and the current market
price?
a. Return on common stockholders’ equity
b. Dividend payout ratio
c. Dividend yield ratio
d. Price/earnings ratio
On January 1, 2015, the long-term liability section of Quick Silver Co. balance sheet
showed a balance of $800,000 in the bonds payable account. On December 31, 2015,
the balance in that same account was $765,000. This change would appear on the
statement of cash flows as
a. an outflow of cash of $35,000 in the financing activities category.
b. an inflow of cash of $35,000 in the financing activities category.
c. an outflow of cash of $35,000 in the investing activities category.
d. an inflow of cash of $35,000 in the investing activities category.
Which of the following best describes a trial balance?
a. It is a required financial statement.
b. It is a financial statement that can be used in place of the income statement.
c. It is a numerical list of all accounts used by a company.
d. It is a tool used to prove the equality of debits and credits in the general ledger.
At the year end inventory count, if goods in transit are shipped FOB destination, they
should be included in the inventory count of
a. The seller
b. The buyer
c. Neither the buyer nor the seller
Given below are costs incurred by Bunker Company during 2014 and 2015. Bunker
follows the policy of decreasing the intangible asset account directly as amortized.
Research was conducted to discover a new product and costs of $200,000 in 2014 and
$80,000 in 2015 were incurred. After several months, a product was created and a
patent secured for a cost of $150,000, effective as of July 1, 2015. The company expects
to have increased revenues of $500,000 over the next several years. The patent is
expected to be useful for the next 10 years. A. Prepare a partial income statement for
the year ended December 31, 2015. B. How should the $80,000 cost incurred in 2015
be reported on the financial statements?
For each of the following, explain a transaction that will have the following stated
effects on the accounting equation elements. A) Increase one asset, decrease one asset,
and increase a liability. B) Increase an asset and increase stockholders’ equity. C)
Decrease an asset and decrease a liability. D) Increase an asset and increase a liability.
E) Increase one asset and decrease another asset.
The following information is summarized from the balance sheets of Gear Mart
Corporation and Function Junction, Inc. at December 31, 2016:
1) Using the information provided above, compute the following for each company at
December 31, 2016: A. Working capital
B. Current ratio
C. Acid-test ratio 2) Comment briefly on the liquidity of each of these two companies.
Which company appears to be the most liquid?
On January 2, 2013, Hannah Company sold a machine for $1,000 that it had used for
several years. The machine cost $12,000, and had accumulated depreciation of $9,000
at the time of sale. What gain or loss will be reported on the income statement for the
sale of the machine?
a. Gain of $2,000
b. Loss of $11,000
c. Loss of $2,000
d. Gain of $3,000
Describe briefly how each of the following long-term liabilities arises; i.e., what kind of
transaction produces the resulting long-term liability? You may want to include the
appropriate accounts to increase or decrease (ignore amounts) in your description. a)
Long-Term Debt b) Deferred Income Taxes
Which of the following items need not be reported separately at the bottom of the
income statement?
a. Profitability ratios
b. Discontinued operations
c. Extraordinary gains and losses
d. Cumulative effect of a change in accounting principle
FIFO results in the least amount of income before taxes, assuming a period of rising
prices.
a. True
b. False
What is the distinguishing characteristic between accounts receivable and notes
receivable?
a. Accounts receivable are usually current assets while notes receivable are usually
long-term assets.
b. Accounts receivable require payment of interest if not paid within the usual credit
terms.
c. Notes receivable result from credit sale transactions for merchandising companies,
while accounts receivable result from credit sale transactions for service companies.
d. Notes receivable result from a written promise to pay within a specified amount of
time.
Eagle Corporation Presented below are all of the items from Eagle Corporation’s
income statement for the years ending December 31, 2014 and 2013.
Read the information about Eagle Corporation.
is a report required by section 404 of the Sarbanes-Oxley Act.
Bonds issued by corporations or governmental bodies as a form of borrowing are called
____________________.
Ginger Company claims its financial information is useful. What two qualities must be
present in order to have “useful” accounting information? Explain these two qualities.
For what purpose is horizontal analysis used by management? Is this information
provided to stockholders? If so, in what form? If not, why?
The three types of business activities in which all corporations engage are,
______________________, and _____________________.
Cost of goods sold is equal to beginning inventory plus the net cost of purchases minus
_________________________.
Assume that Cosmo Company’s Stockholders’ Equity category of the balance sheet
appears as follows as of
December 31, 2015:
On May 1, 2016, Cosmo declared and issued a 15% stock dividend, when the stock was
selling for $20 per share. Then on November 1, it declared and issued a 2-for-1 stock
split. REQUIRED: 1> How many shares of stock are outstanding at year-end?
2> What is the par value per share of these shares?
3> Develop the Stockholders’ Equity category of Cosmo’s balance sheet as of December
31, 2016.
