A company should choose a depreciation method that
a. best allocates the original cost of the asset to the periods benefited by the use of the
asset.
b. saves the most taxes.
c. minimizes net income
d. shows the highest amount of net income.
Which of the following is the most serious limitation to financial statement analysis of
publicly traded companies?
a. Some companies do not use GAAP.
b. Inflation can distort comparisons between years.
c. Some companies report nonoperating items such as extraordinary gains and losses,
while others do not.
d. Different industries use different account names.
In 2015, Suez Company issued $200,000 of bonds for $189,640. If the face rate of
interest was 6.73% and the effective rate of interest was 8%, how would Suez calculate
the interest expense for the first year on the bonds using the effective interest method?
a. $189,640 x 6.73%
b. $189,640 x 8%
c. $10,000 x 6.73%
d. $10,000 x 8%
Which of the following activities is most likely to have a cash flow effect?
a. Investing in money market funds
b. Declaring cash dividends
c. Reissuing treasury stock
d. Issuing stock to acquire a patent
The solution to this problem requires time value of money calculations. Reference to
Tables 9-1 through 9-4 in the text is necessary to complete the calculations. The future
value of equal semi-annual payments of $500 at 8% compounded semiannually for 4
years is
a. $ 868
b. $2,000
c. $4,607
d. $9,320
Clarion Inc. issues numerous discount coupons throughout the year. A balance in the
Estimated Liability for Coupon Redemption
a. indicates an error had been made in posting.
b. should equal the same amount of coupons redeemed.
c. is the amount of outstanding coupons it expects to be redeemed.
d. indicates that more coupons were redeemed than estimated.
Utah Co. sold merchandise to Big Sky Corp. on December 1, 2014, for $9,000, and
accepted a promissory note for payment in the same amount. The note has a term of 90
days and a stated interest rate of 8%. Utah’s accounting period ends on December 31.
What amount should Utah recognize as interest revenue on December 31, 2014 (if a
360 day year is assumed)?
a. $ -0-
b. $ 60
c. $120
d. $180
The Stockholders’ Equity section of Stallion Tack Shack balance sheet on January 1,
2015, appeared as follows:
On March 1, 2015, Stallion reacquired 3,000 shares of common stock at $8 per share.
Answer the following questions: A) What amount would be reported on the March 31,
2015, balance sheet for treasury stock?
B) What is the number of outstanding shares at March 31, 2015?
C) How much is total stockholders’ equity to be reported on the March 31, 2015 balance
sheet?
The record in which transactions are initially recorded in chronological order as they
occur is a(an)
a. Account
b. General Journal
c. General Ledger
d. Chart of Accounts
Borden Company incurred the following costs to acquire and prepare land for a new
parking lot: purchase price for land, cost to clear the land, cost of paving, lighting for
the parking lot, and landscaping for the parking lot. How should the company determine
which costs should be recorded as Land Improvements and which cost should be
recorded as Land?
a. The costs with an unlimited life will increase Land, and the costs with a limited
useful life will increase Land Improvements.
b. The costs with a limited life will increase Land, and the costs with an unlimited
useful life will increase Land Improvements.
c. The costs to be depreciated will increase Land, and the costs that will not be
depreciated will increase Land Improvements
d. Costs that are depreciable will increase Land Improvements, while other costs are
expensed immediately because of a lack of definite life.
The amount of earnings distributed to stockholders can be found in the income
statement.
a. True
b. False
Which of the following presents the proper ordering of assets, liabilities and equities on
the statement of financial position used by some countries that is different from the
U.S.?
a. current assets, long-term assets, current liabilities
b. inventories, trade-receivables, cash
c. assets, liabilities, equities
d. current liabilities, long-term liabilities, equities
Treetop Company paid off a $100,000 two-year note payable. The effect of this
transaction is that the
a. earnings per share increased
b. current ratio decreased
c. debt-to-equity ratio increased
d. debt-to-equity ratio decreased
All of the following statements are true regarding international legal systems except :
a. The common law system has its roots in the United Kingdom.
b. In common law countries, there are generally fewer statutes written into the laws.
c. In code law countries, there is more reliance on interpretations by the courts than in
common law countries.
d. Divergence in accounting standards is linked to differences in legal systems around
the world.
Tarkington Beers, Inc. purchased the most popular and well-known pub in a college
town. Its purchase price was $1,200,000. The appraisers determined that the land should
be valued at $400,000, the building at $500,000 and the equipment at $200,000. Which
of the following statements is correct?
a. Tarkington Beers, Inc. should record only the appraised value of the assets.
b. Tarkington Beers, Inc. needs to adjust the value of the assets in proportion to their
appraised value so that the total of the assets equals the purchase price.
c. Tarkington Beers, Inc. paid too much for the business and needs to record a loss.
d. Tarkington Beers, Inc. needs to record goodwill of $100,000.
Stock investors view equity as a claim against the company that must be satisfied
before they get a return on their money.
a. True
b. False
Sara’s Designs purchased equipment at the beginning of 2015 for $11,000. Sara decided
to depreciate the equipment over a 5-year period using the straight-line method. Sara
estimated the equipment’s residual value at $1,000. The estimated fair market value at
the end of 2015 was $10,000. Which of the following statements is correct concerning
Sara’s financial statements at December 31, 2015?
a. The book value of the equipment is $7,200.
b. The book value of the equipment is $9,000.
c. The total accumulated depreciation is $2,200.
d. The equipment will be reported on the balance sheet at it fair market value of
$10,000.