Which of the following factors does not affect the initial market price of a stock?
a. The company’s anticipated future earnings
b. The par value of the stock
c. The current state of the economy
d. The expected dividend rate per share
Answer:
Kennedy Company reported the following balances at December 31, 2014: common
stock $500,000; paid-in capital in excess of par value $200,000; retained earnings
$450,000. During 2015, the following transactions affected stockholders’ equity.
1> Issued preferred stock with a par value of $250,000 for $290,000.
2> Purchased treasury stock (common) for $80,000.
3> Earned net income of $220,000.
4> Declared and paid cash dividends of $86,000 ($16,000 preferred).
Instructions
(a) Prepare the stockholders’ equity section of Kennedy Company’s December 31, 2015,
balance sheet.
(b) Compute Kennedy’s 2015 return on common stockholders’ equity.
Answer:
Dart Company issued $600,000 of 8%, 5-year bonds at 105, with interest paid annually.
Assuming straight-line amortization, what is the carrying value of the bonds after one
year?
a. $630,000
b. $627,000
c. $624,000
d. $633,000
Answer:
Marke Inc. had cash sales of $400,000 and credit sales of $1,150,000. The accounts
receivable balance increased $30,000 during the year. How much cash did Marke
receive from its customers during the year?
a. $1,520,000
b. $1,120,000
c. $1,550,000
d. $780,000
Answer:
Presented below are various receivable transactions entered into by Beran Tool
Company. Indicate whether the receivables are reported as accounts receivable, notes
receivable, or other receivables on the balance sheet.
a. Loaned a company officer $5,000.
b. Accepted a $3,000 promissory note from a customer as payment on account.
c. Determined that a $10,000 income tax refund is due from the IRS.
d. Sold goods to a customer on account for $4,000.
e. Recorded $500 accrued interest on a note receivable due next year.
f. Advanced $1,400 to a trusted employee.
Answer:
A petty cash fund should be replenished
a. every day.
b. at the end of every accounting period.
c. once a year.
d. as soon as an expense is paid from the fund.
Answer:
Receivables might be sold to
a. lengthen the cash-to-cash operating cycle.
b. take advantage of deep discounts on the cash realizable value of receivables.
c. generate cash quickly.
d. finance companies at an amount greater than cash realizable value.
Answer:
A trial balance would only help in detecting which one of the following errors?
a. A transaction that is not journalized
b. A journal entry that is posted twice
c. Offsetting errors are made in recording the transaction
d. A transposition error when transferring the debit side of journal entry to the ledger
Answer:
At May 1, 2015, Kibbee Company had beginning inventory consisting of 200 units with
a unit cost of $7. During May, the company purchased inventory as follows:
800 units at $7
600 units at $8
The company sold 1,000 units during the month for $12 per unit. Kibbee uses the
average cost method. The value of Kibbee’s inventory at May 31, 2015 is
a. $3,000.
b. $4,425.
c. $4,500.
d. $7,500.
Answer:
Rebekah Grace has worked for Specoly Inc., for 20 years without taking a vacation. An
internal control feature that would address this situation would be
a. other controls.
b. establishment of responsibility.
c. physical controls.
d. documentation procedures.
Answer:
Instructions
Designate the terminology that best represents the definition or statement given below
by placing the identifying letter(s) in the space provided. No letter should be used more
than once.
___ 1> The periodic write-off of an intangible asset.
___ 2> The total amount subject to depreciation.
___ 3> The principle that efforts be matched with accomplishments.
___ 4> An expenditure charged against revenues as an expense when incurred.
___ 5> The inventory costing method that assumes that the costs of the earliest goods
purchased are the first to be recognized as cost of goods sold.
___ 6> Measures the percentage of total assets provided by creditors.
___ 7> An inventory costing method that assumes that the latest units purchased are the
first to be allocated to cost of goods sold.
___ 8> An assumption that economic events can be identified with a particular unit of
accountability.
___ 9> A quality of information that indicates the information makes a difference in a
decision.
___ 10> An assumption that the economic life of a business can be divided into
artificial time periods.
___ 11> This method of accounting for uncollectible accounts is required when bad
debts are significant in size.
___ 12. An accounting method in which cash dividends received are credited to
Dividend Revenue.
___ 13> Used by a bank when a previously deposited customer’s check ‘bounces’
because of insufficient funds.
___ 14> The assumption that the enterprise will continue in operation long enough to
carry out its existing objectives and commitments.
___ 15> A system in which detailed records are not maintained and cost of goods sold
is determined only at the end of an accounting period.
___ 16> The ability to pay maturing obligations and meet unexpected needs for cash.
___ 17> The methods and measures adopted within a business to safeguard its assets
and enhance the accuracy and reliability of its accounting records.
___ 18> Revenue, expense, and dividends accounts whose balances are transferred to
retained earnings at the end of an accounting period.
___ 19> A technique for evaluating financial statements that expresses the relationship
among selected financial statement data.
___ 20> A depreciation method that applies a constant rate to the declining balance
book value of the asset and produces a decreasing annual depreciation expense over the
useful life of the asset.
___ 21> A pro rata distribution of a corporation’s own stock to its stockholders.
___ 22> Events and transactions that are unusual in nature and infrequent in
occurrence.
___ 23> The disposal of a significant component of a business.
___ 24> The net income earned by each share of outstanding common stock.
Answer:
Which one of the following is not an ownership right of a stockholder in a corporation?
a. To vote in the election of directors
b. To declare dividends on the common stock
c. To share in assets upon liquidation
d. To share in corporate earnings
Answer:
Prepaid expenses are
a. paid and recorded in an asset account before they are used or consumed.
b. paid and recorded in an asset account after they are used or consumed.
c. incurred but not yet paid or recorded.
d. incurred and already paid or recorded.
Answer:
Which of the following would not be classified as a short-term investment?
a. Short-term commercial paper
b. Idle cash in a bank checking account
c. Marketable stock securities
d. Marketable debt securities
Answer:
A plant asset cost $90,000 when it was purchased on January 1, 2008. It was
depreciated by the straight-line method based on a 9-year life with no salvage value. On
June 30, 2015, the asset was discarded with no cash proceeds. What gain or loss should
be recognized on the retirement?
a. No gain or loss.
b. $20,000 loss.
c. $15,000 loss.
d. $10,000 gain.
Answer:
Entries in the cash payments journal are made from
a. sales invoices.
b. purchase invoices.
c. prenumbered checks.
d. canceled checks.
Answer:
A company exchanges its old office equipment and $80,000 for new office equipment.
The old office equipment has a book value of $56,000 and a fair value of $40,000 on
the date of the exchange. The cost of the new office equipment would be recorded at
a. $136,000.
b. $120,000.
c. $96,000.
d. cannot be determined.
Answer:
An awareness of the normal balances of accounts would help you spot which of the
following as an error in recording?
a. A debit balance in the dividends account
b. A credit balance in an expense account
c. A credit balance in a liabilities account
d. A credit balance in a revenue account
Answer:
Failure to prepare an adjusting entry at the end of a period to record an accrued revenue
would cause
a. net income to be overstated.
b. an understatement of assets and an understatement of revenues.
c. an understatement of revenues and an understatement of liabilities.
d. an understatement of revenues and an overstatement of liabilities.
Answer:
Which of the following will not cause a change in the stockholders’ equity of a
business?
a. An increase in prepaid expenses.
b. An increase in retained earnings.
c. The sale of common stock.
d. The declaration and payment of dividends.
Answer:
The Income statement is
a. required under GAAP but not under IFRS.
b. required under IFRS in the same format as under GAAP.
c. required under IFRS but not under GAAP.
d. required under IFRS with some differences as compared to GAAP.
Answer:
When authorizing bonds to be issued, the board of directors does not specify the
a. total number of bonds authorized to be sold.
b. contractual interest rate.
c. selling price.
d. total face value of the bonds.
Answer:
Companies cannot use the
a. periodic inventory system under GAAP.
b. periodic inventory system under IFRS.
c. perpetual system under IFRS.
d. both periodic and perpetual can be used under GAAP and IFRS.
Answer:
Riodan Company sold old equipment for $105,000. The equipment had a cost of
$210,000 and accumulated depreciation of $126,000. The entry to record the sale of the
equipment would include a
a. loss on disposal of $105,000.
b. gain on disposal of $105,000.
c. loss on disposal of $21,000.
d. gain on disposal of $21,000.
Answer:
If a petty cash fund is established in the amount of $200, and contains $119 in cash and
$84 in receipts for disbursements when it is replenished, the journal entry to record
replenishment should include credits to the following accounts
a. Petty Cash, $84.
b. Petty Cash, $81.
c. Cash, $81; Cash Over and Short, $3.
d. Cash, $84.
Answer:
Any item that appears on the income statement would be considered as either a cash
inflow or cash outflow from operating activities.
Answer:
Two limitations of systems of internal control are the concept of ______________ and
the ______________.
Answer:
During 2015 Lopez Corporation reported net sales of $3,200,000 and net income of
$1,200,000. Its balance sheet reported average total assets of $1,600,000.
Instructions
Calculate the asset turnover.
Answer:
Mandy How plans to buy an automobile and can deposit $3,000 toward the purchase
today. If the annual interest rate is 8%, how much can Mandy expect to have as a down
payment in 3 years?
Answer:
From a creditor’s point of view, the higher the total debt to total assets ratio, the lower
the risk that the company may be unable to pay its obligations.
Answer: