1) In order for information to be relevant, the information needs to be complete, neutral,
and free from error.
2) Corporate governance refers to the procedures designed to ensure that the company
is managed in the interest of the board of directors who oversee management.
3) A higher quality of income ratio implies that operations tend to be financed internally
without having to rely on external financing sources.
4) Goods available for sale are allocated to both ending inventory and cost of goods
sold.
5) For an investment accounted for under the equity method, the investment account
along with an investment income account would be increased for an amount equal to
the investor’s proportionate share of the affiliate’s reported net income.
6) According to the revenue realization principle, revenue is recognized at the time that
cash is collected from a customer for services to be provided in the future.
7) The T-account is an actual account in the general ledger of the accounting records.
8) Comparative financial statements are those of a company in one industry presented
with another company in the same industry.
9) A liability that is estimated because the final settlement amount is unknown cannot
be reported on the balance sheet.
10) In order to calculate the cost of a long-term asset that is financed with long-term
debt, present values concepts would be used.
11) A company owning an investment for which it uses the equity method of accounting
would record a reduction in the investment account for the proportionate share of the
affiliate’s reported net loss.
12) If a second-hand machine is purchased for productive use in a business, all
renovation and repair costs on the used machine incurred by the purchaser prior to its
productive use should be reported as part of the asset’s cost on the balance sheet.
13) When a company acquires treasury stock, assets and stockholders’ equity both
decrease.
14) The cash-equivalent price of an asset received is measured as the fair value of the
consideration given including cash, or the fair value of the asset received, whichever is
more determinable.
15) Reliance Corporation has provided the following information for the year ended
December 31, 2014:
♦ The equipment account balance increased $200,000.
♦ The equipment accumulated depreciation account increased $35,000.
♦ Equipment costing $50,000 was sold during the year resulting in a $10,000 gain.
♦ Depreciation expense recorded on the equipment during the year was $65,000.
Which of the following statements is correct with respect to determining cash flow from
operating activities?
A.Using the indirect method, net income is increased by the $35,000 increase in
accumulated depreciation.
B.Using the indirect method, net income is decreased by the $30,000 sales price of the
equipment.
C.Using the indirect method, net income is increased by the $65,000 depreciation
expense.
D.Using the indirect method, net income is increased by the $10,000 gain on the sale of
the equipment.
16) Where are shares of the reporting company’s common stock issued in exchange for
cash reported on a statement of cash flows?
A.Operating activities.
B.Financing activities.
C.Investing activities.
D.Stockholder activities.
17) Cyclone Inc. reported the following figures from its financial statements for the
years 2013 through 2015:
A Calculate the accounts receivable turnover for 2015 and 2014.
B Calculate the average collection period for 2015 and 2014.
18) Which of the following accounts would be reported as assets on the balance sheet?
A.Cash, accounts payable, and notes payable.
B.Cash, retained earnings, and accounts receivable.
C.Cash, accounts receivable, and inventories.
D.Inventories, property and equipment, and common stock.
19) Which of the following journal entries correctly records the collection of an account
receivable for which a 1% sales discount was recorded at the time of collection?
A.Option A
B.Option B
C.Option C
D.Option D
20) When preparing a bank reconciliation, which of the following would be deducted
from the company’s cash balance?
A.Interest income paid by the bank.
B.The dollar amount of deposits in transit.
C.The dollar amount of outstanding checks.
D.The bank service charges included on the bank statement.
The bank service charges are recorded on the bank statement and need to be deducted
from the book balance.
21) Which of the following results in a decrease in working capital?
A.Supplies purchases with cash.
B.Purchase of a truck in exchange for factory machinery.
C.Acquisition of land in exchange for stock.
D.Purchase of equipment with cash.
22) When a company needs funds to finance the expansion of its operations, which of
the following is not an advantage of issuing bonds rather than issuing stock?
A.Stockholders remain in control as bondholders cannot vote or share in the company’s
earnings.
B.Interest expense is tax deductible but dividends are not.
C.Bonds can usually be issued at a low interest rate and the proceeds can be invested to
earn a higher rate.
D.The dates for the interest and maturity payments are fixed.
23) Brimmel Corp. has provided the following information:
Sales were $780,000;
Cost of goods sold was $429,000;
Net income was $195,000.
What was Brimmel’s gross profit percentage?
A.55%
B.45%
C.62%
D.222%
24) One of Trent Company’s customers returned products that had been sold on account
for $800. Which of the following correctly describes the effect on the financial
statements of the return?
A.A contra-revenue account decreases $800.
B.Accounts receivable decrease $800.
C.Sales returns and allowances decrease $800.
D.Net sales increase $800.
25) Which of the following best describes the expense matching principle?
A.It requires expenses to be recorded when they are paid for.
B.It requires expenses to be recorded when incurred to generate revenues.
C.It requires expenses to be recorded consistent with the cash basis of accounting.
D.It does not allow expenses to be recorded if they are incurred prior to being paid.
The matching principle requires that expenses be recorded when incurred in earning
revenue.
26) Which of the following is not a formal requirement to become a licensed certified
public accountant (CPA)?
A.A college education.
B.Professional experience.
C.Membership in the American Institute of Certified Public Accountants (
D.A professional examination.
27) On January 1, 2014, Palmer, Inc. bought 40% of the outstanding shares of Arnold
Corporation at a cost of $137,000. Palmer uses the equity method of accounting for this
investment is used. During 2014, Arnold Corporation reported $30,000 of net income
and paid a total of $10,000 in cash dividends. At the end of 2014, the shares had a fair
value of $150,000. What is the amount of Equity in Affiliate Earnings for 2014?
A.$4,000.
B.$12,000.
C.$13,000.
D.$21,000.
Equity in Affiliate Earnings = $12,000 = Affiliate net income $30,000 40% ownership
percentage.
28) The following information is available for Italiano Ices for the years 2015 and 2014:
Requirements:
A. Calculate the dividend yield for both 2015 and 2014.
B. Does the dividend yield appear to be low, moderate, or high? What does your choice
indicate about the company’s strategy with regard to paying dividends?
C. What caused the change in the dividend yield ratio from 2014 to 2015?
29) On March 1, Wright Company purchased new equipment for $50,000 by paying
cash. Other costs associated with the equipment were: transportation costs, $1,000;
sales tax paid $4,000; and installation cost, $2,500. At what amount will the equipment
be recorded on a balance sheet?
A.$57,500.
B.$54,000.
C.$51,000.
D.$53,500.
30) Which of the following statements is false?
A.Both stock splits and stock dividends increase the number of common shares issued.
B.Both stock splits and stock dividends increase the number of common shares
outstanding.
C.Stock splits reallocate amounts between retained earnings and contributed capital
accounts.
D.Both stock splits and stock dividends have the impact of reducing the market price of
the stock.
31) Carolina Company computed the following ratios for a two-year period:
A Comment on the trend of each of the ratios from 2013 to 2014. State concerns or
possible implications brought to light by each ratio.
B State an overall opinion of the company’s near future with suggestions for
improvement.
32) Chicago Company has hired you to reconcile its bank statement and cash account.
At June 30, 2014, the Cash account on the books showed the following:
There were neither outstanding checks nor deposits in transit at May 31, 2014.
A Prepare the bank reconciliation at June 30, 2014.
B Prepare the adjusting journal entries needed as a result of preparing the bank
reconciliation.
33) Noncurrent assets.
2. Stockholders’ equity.
3. Current Liabilities.
4. Noncurrent assets.
5. Current assets.
6. Current assets.
7. Stockholders’ equity.
8. Noncurrent liabilities.
9. Current liabilities.
10. Current assets.
34) Walkers World Company gathered the following information for 2014:
Calculate each of the following ratios. Round all dollar amounts to whole dollars and all
other calculations to two decimal places.
A Receivable turnover ratio
B Average age of receivables
C Inventory turnover ratio
D Average number of days’ supply in inventory
35) National Shops, Inc. reported the following amounts on its balance sheet as of
December 31, 2014:
Requirements:
1. What is the amount of National’s total assets as of December 31, 2014?
2. Identify the items listed above that are liabilities.
3. What is the amount of National’s retained earnings as of December 31, 2014?
4. Prepare a balance sheet for National as of December 31, 2014.
5. National wishes to purchase merchandise from your company on account. The
amount of the purchases would probably be about $10,000 per month, and the terms
would require National to make payment in full within 30 days. Would you recommend
that your company grant credit to National under these terms?
Explain the reasoning for your response.
36) During 2014, the following items were reported on ShoeCo’s statement of cash
flows in millions of dollars.