Accountants are the main reason financial statements are prepared.
a. True
b. False
Each account has a normal balance. For the following list of accounts, indicate whether
the normal balance of each is a debit or a credit.
a. Debit
b. Credit
Investments
Xu Corp. started business at the beginning of 2015. Xu selected the FIFO method for its
inventory. In order to maximize its profits for 2015 under this method, prices must be
a. Increasing
b. Decreasing
c. Stable
d. Fluctuating up and down at the same amount consistently over the year
Under the direct method, depreciation expense is treated as an outflow in the Investing
Activities section of the statement of cash flows.
a. True
b. False
Presented below is the operating activities section of the statement of cash flows for
Feline Friends Corp. for 2016:Operating activities:
Which method of preparing the operating activities section has Feline used?
a. The direct method
b. The indirect method
c. Either method
d. Cannot be determined without further information
South Corporation has been in the business of delivering small packages for local
companies within the city of Atlanta, Georgia, since 1960. The following information
concerning financial activities during 2015 is available at December 31, 2015:
A. Prepare an income statement for the year ended December 31, 2015.
B. If you were a bank loan officer and South Corporation wanted to borrow
$100,000 from your bank, would you lend the money? Explain.
C. Calculate retained earnings at December 31, 2015.
The cash-to-cash operating cycle is the number of days’ sales in
a. receivables and working capital.
b. receivables and plant assets.
c. inventory and receivables.
d. inventory and plant assets.
As a result of a stock split,
a. an entry must be made showing the effect on stockholders’ equity.
b. the market price of the outstanding stock will increase because a split is
evidence of a profitable company.
c. the par value of the stock is changed in the reverse proportion as the stock split.
d. the stockholders have a higher proportionate ownership of the company.
A company gives a two-year warranty for its product. The estimated liability for
product warranties is a current liability.
a. True
b. False
Fashion Company reported the following: Common stock, $3 par, 10,000 shares
authorized, 5,000 shares issued and outstanding What is the effect of a 10% stock
dividend if the market price of the common stock is $30 per share when the dividend is
declared?
a. Retained earnings in the amount of $15,000 is transferred to the contributed capital
accounts.
b. Cash decreases $30,000.
c. Additional Paid-in Capital decreases $30,000.
d. A stock dividend has no effect on any stockholders’ equity accounts.
Albion Company reported the following amounts on its balance sheet at January 1,
2015:
The following transactions occurred during 2015: 1> Declared a 20% stock dividend on
preferred stock on May 21, when the stock was selling at $15 per share. The stock
dividend will be distributed on June 30, 2015. 2> Distributed the preferred stock
dividend on June 30. Show the effects of the transactions on the accounting equation
and prepare the stockholders’ equity section of Albion’s balance sheet at December 31,
2015.
Star Corp. sold merchandise for $8,000 to MegaStore on May 15, 2015, with payment
due in 30 days. Subsequent to this, MegaStore experienced cash flow problems and was
unable to pay its debt. On August 10, 2015, Star stopped trying to collect the
outstanding receivable from MegaStore and wrote off the account as uncollectible. On
December 1, 2015, MegaStore sent Star a check for $2,000 and offered to sign a
two-month, 12%, $6,000 promissory note to satisfy the remaining obligation.
MegaStore paid the entire amount due Star, with interest, on January 31, 2016. Star
ends its accounting year on December 31 each year and uses the allowance method to
account for bad debts. REQUIRED:
1> Prepare all of the necessary journal entries on the books of Star Corp. from May 15,
2015 to January 31, 2016
2> Why would MegaStore bother to send Star a check for $2,000 on December 1 and
agree to sign a note for the balance, given that such a long period of time had passed
since the original purchase?
Although operating leases are not recorded on the balance sheet by the lessee, they are
disclosed in the
____________________________________.
What is the purpose of a statement of cash flows? Give an example of one of each of
the three activities.
Harrison Company calculated the following amounts concerning its financial
information for the years ending December 31, 2015 and 2014:
Required:
Suppose Harrison Company had a decrease in its cash account from 2014 to 2015.
Would the other current asset amounts have increased or decreased? Explain.