Assuming the indirect method for preparing the statement of cash flows is used,
indicate whether these items should be added to net income (A), deducted from net
income (D), or not be reported in the operating section of the statement under the
indirect method (NR).
a. Added (A)
b. Deducted (D)
c. Not reported (NR)
Depreciation expense
In 2015, Morton Co.sold 150 hot air balloons at $4,000 each. The balloons carry a
5-year warranty for defects. Morton estimates that repair costs will average 4% of the
total selling price. The estimated warranty liability at the beginning of the year was
$14,000. $20,000 in claims was actually incurred during the year to honor their
warranty. What was the warranty expense for 2015?
a. $10,000
b. $18,000
c. $20,000
d. $24,000
Because the allowance method results in better matching, accounting standards require
its use rather than the direct write-off method, unless bad debts are immaterial.
a. True
b. False
The debt-to-equity ratio is defined as total long-term liabilities divided by total
stockholders’ equity.
a. True
b. False
Paint Company Following are selected data from Paint Company’s financial statements.
Refer to the Paint Company data. Paint’s debtÂtoÂequity ratio for 2016 is:
a. an indicator that Paint Company’s ability to meet current interest payments to
creditors is increasing.
b. increasing slightly from 2015 to 2016.
c. an indicator that for every $1 of capital that stockholders provided, creditors provided
$0.83.
d. an indicator that Paint Company has relied on stockholders for funds more in 2015
than in 2016.
Parachute Country Club Use the selected accounts for Parachute Country Club
presented below to answer the following question(s).
Read the information about Parachute Country Club. Assuming that there are no other
transactions, how much was owed to the club by the membership on August 8th?
a. $1,800
b. $1,300
c. $ 900
d. $ 500
The U.S. accounting standards are more principle-based than IFRS.
a. True
b. False
Which one of the following would not be found as an asset on the balance sheet of a
manufacturer?
a. raw materials
b. work in process
c. finished goods
d. merchandise inventory
What is the effect on the accounting equation when a company recognizes rent as
earned that had previously been received in advance from customers?
a. Expenses increase
b. Revenues decrease
c. Liabilities increase
d. Net income increases
A company forgot to record four adjustments during 2013. Which one of the following
omissions of adjustments will overstate assets?
a. Sales made during the last week of the period are not recorded.
b. Interest on monies borrowed has not yet been recorded.
c. Prepaid insurance is not reduced for the portion of the policy that has expired during
the period.
d. Income taxes owed but not yet paid are ignored.
All of the following are external events (transactions) except for
a. a department store recognizing losses from shoplifting.
b. a department store running ads in a local newspaper.
c. a department store purchasing merchandise from a clothing manufacturer.
d. a department store selling clothing to customers on credit.
The liability for a premium offer estimated to be redeemed is not a current liability.
a. True
b. False