1) in computing net cash flow from operating activities using the direct method, each
item in the income statement is adjusted from the accrual basis to the cash basis.
2) if a company has a significant concentration of credit risk, it is not required to
discuss that in its notes to its financial statements as that could increase the related risk.
3) the return on assets ratio will be greater than the rate of return on common
stockholders’ equity if the company has been successful in trading on the equity at a
gain.
4) the face value is the amount of principal and interest due at the maturity date.
5) transactions are entered in the ledger first and then they are analyzed in terms of their
effect on the accounts.
6) explanatory notes and supporting schedules are an optional part of an annual report.
7) under the perpetual inventory system, purchases of merchandise for sale are recorded
in the inventory account.
8) a decrease in a liability is recorded by a debit.
9) a good system of internal control will safeguard its assets and enhance the accuracy
and reliability of its accounting records.
10) a common application of the materiality constraint is weighing the factual nature of
cost figures versus the relevance of fair value.
11) if year 1 equals $800, year 2 equals $840, and year 3 equals $920, the percentage to
be assigned for year 3 in a trend analysis, assuming that year 1 is the base year, is
a.115%
b.105%
c.87%
d.100%
12) the cost of an intangible asset with an indefinite life should
a.be amortized over 20 years
b.be amortized over the life of the creator plus 70 years
c.not be amortized
d.none of the above
13) dorman company had the following items to report on its balance sheet:
based on this information, what amount should appear in the “other receivables”
category?
a.$15,300
b.$ 8,650
c.$10,030
d.$12,250
14) during 2012 wheeler inc. had sales on account of $396,000, cash sales of $162,000,
and collections on account of $252,000. in addition, they collected $4,350 which had
been written off as uncollectible in 2011. as a result of these transactions the change in
the accounts receivable indicates a
a.$301,650 increase
b.$144,000 increase
c.$139,650 increase
d.$306,000 increase
15) two of the major characteristics that make accounting information useful are
a.relevance and faithful representation
b.verifiability and timeliness
c.comparability and flexibility
d.understandability and consistency
16) given the data below for a firm in its first year of operation, determine net income
under the accrual basis of accounting.
a.$18,000
b.$27,000
c.$20,000
d.$11,000
17) bettys fabrics sold merchandise for $76,000 cash during the month of july. returns
that month totaled $1,600. if the companys gross profit rate is 40%, betty will report
monthly net sales revenue and cost of goods sold of:
a.$76,000 and $45,600
b.$74,400 and $29,760
c.$74,400 and $44,640
d.$76,000 and $44,640
18) all of the following statements are false regarding depreciation except
a.depreciation is an asset valuation process
b.depreciation does not apply to land improvements
c.recognizing depreciation results in the accumulation of cash for asset replacement
d.depreciation does not apply to land
19) the only acceptable cost flow assumptions under ifrs are
a.fifo and lifo
b.fifo and average
c.lifo and average
d.fifo, lifo and average
20) on january 1, 2011, michelin company, a calendar-year company, is issued
6,000,000 of mortgage notes payable, of which 2,000,000 is due on january 1 for each
of the next three years. the proper statement of financial position presentation on
december 31, 2011, is
a.current liabilities, 6,000,000
b.long-term debt, 6,000,000
c.current liabilities, 3,000,000; long-term debt, 3,000,000
d.current liabilities, 2,000,000; long-term debt, 4,000,000
21) the book value of a plant asset is the difference between the
a.replacement cost of the asset and its historical cost
b.cost of the asset and the amount of depreciation expense for the year
c.cost of the asset and the accumulated depreciation to date
d.proceeds received from the sale of the asset and its original cost
22) mary richardo, cpa, has billed her clients for services performed. she subsequently
receives payments from her clients. what entry will she make upon receipt of the
payments?
a.debit unearned revenue and credit service revenue
b.debit cash and credit accounts receivable
c.debit accounts receivable and credit service revenue
d.debit cash and credit service revenue
23) cross company owns 30% interest in the stock of goebel corporation. during the
year, goebel pays $60,000 in dividends to cross, and reports $300,000 in net income.
cross companys investment in goebel will increase cross net income by
a.$90,000
b.$72,000
c.$60,000
d.$18,000
24) if the amount of uncollectible account expense is overstated at year end
a.net income will be overstated
b.stockholders equity will be overstated
c.allowance for doubtful accounts will be understated
d.net accounts receivable will be understated
25) moon company issued $300,000, 10%, 5-year bonds on january 1, 2012, at 106.
interest is payable annually on january moon uses the effective-interest method of
amortization and has a calendar year end and the bonds were issued for an effective
interest rate of 8%.
instructions
prepare all journal entries made in 2012 related to the bond issue.
26) condensed income statements for swift corporation are shown below for two years.
compute the corrected net income for 2011 and 2012 assuming that the inventory as of
the end of 2011 was mistakenly understated by $9,000.
27) discount on bonds payable is ________________ (deducted from or added to)
bonds payable on the balance sheet. premium on bonds payable is ________________
(deducted from or added to) bonds payable on the balance sheet.
28) an adjusting entry would be made to the revenue account only when cash is
received.
29) compute the cost to be assigned to ending inventory for each of the methods
indicated given the following information about purchases and sales during the year.
30) the expense recognition principle requires that efforts be matched with
accomplishments.
31) during 2012 kenton corporation had the following transactions and events:
1>issued par value preferred stock for cash at par value
2>issued par value common stock for cash at an amount greater than par value
3>completed a 2 for 1 stock split in which the $10 par value common stock was
changed to $5 par value stock
4>declared a small stock dividend when the market value was higher than the par value
5>declared a cash dividend
6>issued the shares of common stock required by the stock dividend declaration in 4.
above
7>issued par value common stock for cash at par value
8>paid the cash dividend
instructions
indicate the effect(s) of each of the foregoing items on the subdivisions of stockholders
equity. present your answers in tabular form with the following columns. use (i) for
increase, (d) for decrease, and (ne) for no effect.
32) if beginning inventory is understated by $10,000, the effect of this error in the
current period is
33) mary baroni is a friend of yours from high school. she decided to become a
beautician after leaving high school, rather than to attend college. she recently opened
her own shop, and has contracted her services to a local hospital. she is paid a monthly
fee for her services, and receives a small gratuity from each of the patients.
she has just received her first set of financial statements from her accountant. she is
quite upset. the statements show a cash balance of $3,600 at the end of the month, but a
net income of only $500. she has written you a letter, asking you whether such a
situation is possible, or whether she should find another accountant.