The net assets of a company are equal to
a. current assets less current liabilities.
b. total assets less current assets.
c. long-term assets less accumulated depreciation.
d. the stockholders’ equity.
Identify whether the following investor questions are associated with (a) primary or sec
ondary financial reporting objectives.
a. primary financial reporting objective
b. secondary financial reporting objective Based on the financial information, should I
buy shares of Apple?
Which of the following terms best describes a distribution of the net income of a
business to its owners?
a. Revenue
b. Dividends
c. Earnings
d. Monetary unit
If the direct method is used to prepare the Operating Activities category of the
statement of cash flows, the amount of cash paid to suppliers of inventory is shown as
an addition in this section of the statement.
a. True
b. False
Interest is capitalized when incurred in connection with the construction of plant assets
because
a. interest is considered a part of the acquisition cost of the related plant asset.
b. the decision to purchase a plant asset is a business decision separate from the
financing decision.
c. many plant assets last longer than 20 years.
d. interest is considered an expense of the period.
The recognition of revenue may result from the settlement of a liability rather than from
the acquisition of an asset.
a. True
b. False
Lightning Delivery, Inc. purchased a truck on January 1, 2013, for $30,000. The truck
had an estimated life of 5 years and an estimated residual value of $5,000. Lightning
Delivery used the straight-line method to depreciate the asset. On July 1, 2015, the
truck was sold for $17,000 cash. The journal entry to record the sale of the truck in
2015
a. decreases stockholder’s equity
b. increases total assets
c. decreases total expenses
d. increases net income
Provided below is a list of important users of accounting information.Below the list are
descriptions of a major need of each of the various users. Fill in the blank with the one
user group that is most likely to have the need described to the right of the blank. Some
user groups may be used more than once or not at all.
a. Capital stock
b. Asset
c. Owners’ equity
d. Time period
e. Dividends
f. Economic entity concept
g. Expense
h. Retained earnings
i. Cost principle
j. Creditor
k. Liability
l. Revenue
m. Going concern
n. Monetary unit
o. Corporation
A future benefit.
The initial step in the recording process is posting.
a. True
b. False
On August 31, Farrell Corporation signed a one-year contract to provide services to
Harris Company for $30,000. Harris will pay for the services on September 1. Using the
accrual basis of accounting, when should Farrell Corporation recognize revenue?
a. September 1 of the current year when the cash is received from Harris
b. On August 31 of the next year when all services have been provided
c. Throughout the year as the revenue is earned
d. At December 31 of the current year, and August 31 of the next year
Calvin Corp. was organized on January 1 to operate a taxi service. For each of the
following business activities, please indicate whether it is a financing (F), investing (I)
or operating (O) activity. A. Issued shares of stock to each of the five owners.
B. Purchased five automobiles to use as taxis.
C. Paid the first month’s rent for a garage.
D. Obtained a loan from the bank.
E. Received cash from a customer for a 10-mile taxi ride.
F. Paid the drivers wages for the first week.
G. Purchased a fueling station to install at the garage (includes a 500 gallon tank).
H. Declared and paid cash dividends to the owners after the first month’s operations.
I. Paid cash to repair the brakes on one of the taxis.
J. Bought land for a future taxi office.
Each account has a normal balance. For the following list of accounts, indicate whether
the normal balance of each is a debit or a credit.
a. Debit
b. Credit
Retained Earnings
Select the term from the list below that matches each of the following six descriptions.
a. Interest
b. Maturity value
c. Principal
d. Payee
e. Discounting
f. Term
g. Recourse
h. Implicit
i. Maker
The most common type of receivables is accounts receivable.
a. True
b. False
From the following list, identify whether the change in the account balance during the
year would be reported as an operating (O), an investing (I), or a financing (F) activity
or not separately reported on the statement of cash flows (N). Assume that the indirect
method is used to determine the cash flows from operating activities.
a. O – Operating
b. I – Investing
c. F – Financing
d. N – Not separately reported on the Statement of Cash Flows
Accounts payable
How does the application of the lower-of-cost-or-market rule differ between U.S.
GAAP and IFRS?
Lockhart Corp.’s December 31, 2014, balance sheet reported current assets of $120,000
and current liabilities of $100,000. The current ratio increased by 25% one year later, on
December 31, 2015. Current liabilities on this date were $140,000. Determine current
assets on December 31, 2015.
Learning Tree, Inc. The following data is available for one of the products sold by
Learning Tree, Inc., which uses the perpetual inventory system:
Refer to the data for Learning Tree, Inc.
If the LIFO method is used, what is the amount assigned to the ending inventory on
May 30?
On May 1, 2014, Meehan Inc. lends $125,000 to Solar Power Inc. The loan will be
repaid in 90 days with interest at 12%. REQUIRED:
1> Prepare the journal entry on Meehan’s books on May 1, 2014.
2> Assume that Meehan prepares quarterly statements on May 30, 2014. Prepare the
adjusting entry on Meehan’s books on May 30, 2014 regarding the loan.
3> Prepare the entry on Meehan’s books on July 29, 2014, when Solar Power repays the
principal and interest.
The balance sheet of Evanston Inc. includes the following items:
(1) Determine the current ratio and working capital.
(2) What does the composition of the current assets tell you about Evanston’s liquidity?
(3) What other information do you need to fully assess Evanston’s liquidity?
How are research and development costs reported in the financial statements? Why is
this treatment required?
Liabilities and stockholders’ equity areby debits.
Assume that Alabama Company purchased factory equipment on January 1, 2015, for
$75,000. The equipment has an estimated life of five years and an estimated residual
value of $6,000. Alabama’s accountant is considering whether to use the straight-line or
the units-of-production method to depreciate the asset. Because the company is
beginning a new production process, the equipment will be used to produce 5,000 units
in 2015, but production subsequent to 2015 will increase by 5,000 units each year.
REQUIRED:
Calculate the depreciation expense, accumulated depreciation, and book value of the
equipment under both methods for each of the five years of its life. Would the units-of
production method yield reasonable results in this situation? Explain.
