Accounting 167 | Course Paper

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The components of an internal control system include control environment, risk

assessment, control activities, information and communication, and rationalization.

Under the indirect method, changes in current assets are used in determining cash flows

from operating activities and changes in current liabilities are used in determining cash

flows from financing activities.

Bonds allow a company to borrow large sums of money from many different investors.

In the United States, generally accepted accounting principles (GAAP) are established

by the PCAOB (Public Company Accounting Oversight Board).

All other things being equal, the higher the return on equity ratio, the better the

financial performance of the company.

GAAP does not allow cash basis accounting to be used in external financial reports.

If revenues are not growing faster than expenses, then net income will decrease.

An overstatement of ending inventory will cause an overstatement of assets and an

understatement of stockholders ‘ equity on the balance sheet.

A piece of equipment with a cost of $130,000 and accumulated depreciation of $85,000

is sold for $50,000 cash. The amount that should be reported as a cash inflow from

investing activities is:

A) $50,000.

B) $5,000.

C) $45,000.

D) $0; this transaction is a financing activity.

Which of the following statements is correct?

A) Stock splits and stock dividends both reduce the market price of a share, but only

stock splits reduce the par value of a share.

B) Stock splits and stock dividends both reduce the market price of a share and the par

value of a share.

C) Stock splits and stock dividends both reduce the market price of a share, but only

stock dividends reduce the par value of a share.

D) Stock splits and stock dividends both reduce the market price of a share and reduce

Retained Earnings.

Eaton Electronics uses a periodic inventory system. On March 31, Eaton has two

plasma TVs on hand at a cost of $1,500 each (serial numbers 11534892 and 11534894).

In April, the company purchases four more identical TVs from Toshiba for $1,450 each

(serial numbers 11542631 through 11542634). In May, the company purchases five

more identical TVs for $1,600 each (serial numbers 11550964 through 11550968). In

June, Eaton sells two of these TVs (serial numbers 11534894 and 11542631). There

were no additional purchases or sales during the remainder of the year.

Use the information above to answer the following question. Eaton Electronics uses the

weighted average method. What is the company ‘s weighted average cost per unit?

(Round the per unit cost to the nearest dollar.)

A) $1,500

B) $1,517

C) $1,527

D) $1,600

The ratio that measures how many times a company replenishes its inventory in a year

is the:

A) days to sell ratio.

B) receivables turnover ratio.

C) inventory turnover ratio.

D) days to collect ratio.

A company has long-lived tangible assets with a cost of $3.5 million; its Accumulated

Depreciation account has a balance of $1.1 million. Which of the following statements

is correct?

A) The book value of long-lived assets is $2.4 million.

B) The market value of long-lived assets is $3.5 million.

C) The carrying value of long-lived assets is $3.5 million.

D) The resale value of long-lived assets is $2.4 million.

Accumulated Depreciation is classified as a(n):

A) expense account.

B) contra-asset account.

C) liability account.

D) stockholders’ equity account.

All other things being equal, a company is better off when its receivable turnover ratio:

A) and its days-to-collect measure are both low.

B) is high and its days-to-collect measure is low.

C) and its days-to-collect measure are both high.

D) is low and its days-to-collect measure is high.

Which of the following would eventually cause Retained Earnings to decrease?

A) Receiving contributions from investors

B) Earning unearned revenue

C) Billing customers for services provided

D) Using up supplies

A company reported the following data:

Required:

Part a. Calculate the company’s inventory turnover for each of the three years. (Round

your answers to two decimal points.)

Part b. Calculate the days to sell for each of the three years. (Round your answers to

one decimal point.)

Part c. Comment on the company’s inventory turnover ratio by describing what it

measures, how the changes over the past three years can be interpreted, and what may

have caused those changes.

Part d. Comment on the company’s days to sell by describing what it measures and how

the changes over the past three years can be interpreted.

The Sweet Smell of Success Fragrance Company borrowed $60,000 from the bank to

be paid back in five years and used all of the money to purchase land for a new store.

Sweet Smell’s balance sheet would show this as:

A) $60,000 under Land and $60,000 under Notes Payable (long-term).

B) $60,000 under Depreciation Expense and $60,000 under Notes Payable (long-term).

C) $60,000 under Land and $60,000 under Notes Receivable (long-term).

D) $60,000 under Other Assets and $60,000 under Other Liabilities.

Choose the appropriate letter to match the description with the purpose and accounting

effect of the type of stock transaction. Some letters will appear in more than one column

and not all letters will necessarily be used. Some blanks will require more than one

letter.

A. To obtain shares to reissue to employees as part of employee stock purchase plans.

B. To increase the number of shares outstanding and decrease the per-share market

price while managing a company that you expect will struggle financially in the future.

C. To reduce the number of outstanding shares to increase per-share measures of

earnings.

D. To increase the number of shares outstanding and decrease the per-share market

price while signaling to financial statement users that the company expects significant

future earnings.

E. To obtain shares that can be reissued as payment for purchases of other companies.

F. To send a signal to investors that the company itself believes its own stock is worth

acquiring.

G. Reduces stockholders’ equity.

H. Changes par value per share.

I. Changes Additional Paid-in Capital account balance.

J. Reduces Retained Earnings.

K. Does not affect any of the account balances that comprise stockholders equity.

Which of the following statements most appropriately describes the purpose of

depreciating a long-lived tangible asset?

A) To indicate how the asset has physically deteriorated

B) To show that the asset will eventually and gradually become obsolete

C) To record that the asset’s market value declines over time

D) To match the cost of the asset to the period in which it generates revenue

A company issues $20 million in new stock. The company later uses this money to

acquire a building. What is the effect of these two transactions on the company ‘s

accounts?

A) Buildings increases and Common Stock increases.

B) Buildings increases and Common Stock decreases.

C) Cash increases, Buildings increases, and Common Stock increases.

D) Cash decreases, Buildings increases, and Common Stock decreases.

A company has outstanding 10 million shares of $2 par common stock and 1 million

shares of $4 par preferred stock. The preferred stock has an 8% dividend rate. The

board of directors declares $300,000 in total dividends for the year. Which of the

following is correct if the preferred stockholders have a cumulative dividend

preference?

A) Preferred stockholders will receive the entire $300,000 and they must also be paid

$20,000 before the end of the current accounting period; common stockholders will

receive nothing.

B) Preferred stockholders will receive $24,000 (or 8% of the total dividends); common

stockholders will receive the remaining $276,000 (or $300,000 – $24,000).

C) Preferred stockholders will receive the entire $300,000 and they must also be paid

the remaining $20,000 sometime in the future before common stockholders will receive

any dividends.

D) Preferred stockholders will receive the entire $300,000, but will receive nothing

more in the future relating to this dividend declaration; common stockholders will

receive nothing.

Which of the following statements about the lower of cost or market rule is not correct?

A) The lower of cost or market rule sometimes causes the book value of inventory to be

written down below cost, but will never cause the book value of inventory to be

increased above cost.

B) The amount of inventory write-down is an expense which most companies report as

cost of goods sold.

C) Lower of cost or market is an inventory cost method used to determine cost of goods

sold and ending inventory.

D) The lower of cost or market (LCM) rule results in reporting inventory

conservatively, at an amount that does not exceed its actual value.

Sinton Inc. uses a periodic inventory system. During the current year, its beginning

inventory was $5,200 and net purchases amounted to $24,600. At the end of the year,

after counting its inventory, the company determined that the dollar valuation of its

ending inventory was $4,100.

Required:

Prepare the two journal entries that will be recorded on Stinton’s books on the last day

of the year. Include explanations.

Match each account name with the category that it would be included under in

classified balance sheet.

ACCOUNT

______ (1) Equipment

______ (2) Common Stock

______ (3) Supplies

______ (4) Retained Earnings

______ (5) Accounts Receivable

______ (6) Accounts Payable