Blanton Company bought equipment on January 1, 2010 with a cost of $160,000, an
estimated residual value of $40,000, and an estimated life of 15 years was depreciated
by the straight-line method for 4 years. Due to obsolescence, it was determined at the
beginning of 2014 that the useful life should be shortened by 3 years and the residual
value changed to zero. What is the accumulated depreciation at the end of 2013?
a. $42,667
b. $32,000
c. $40,000
d. $8,000
Indicate whether each should be (a) included or (b) excluded from the line item titled
Cash and cash equivalents on the balance sheet.
a. Included
b. Excluded
Petty cash
The analysis of common-size statements is called horizontal analysis.
a. True
b. False
The amount of working capital is more meaningful to users than the current ratio
because it provides information on the composition of the current accounts.
a. True
b. False
If the annual interest is 12%, but the compounding is done quarterly, then the interest
rate is 4% per period.
a. True
b. False
Given the following list of methods of depreciation, select the method that is best for
the situation or purpose given. Some answers may be used more than once, while others
may not be used at all.
a. Straight-line
b. Units-of-production
c. Double-declining-balance
d. MACRS
This method is the easiest to use.
While most companies make adjustments and prepare statements monthly, many
companies complete the accounting cycle only once per year.
a. True
b. False
According to the accounting profession, the purpose of financial reporting is to provide
information about a company that investors, lenders, and other creditors can use when
deciding whether to provide resources to the entity.
a. True
b. False
The following events occurred at Cute Canines Company during its first year of
business: a. To establish the company, the two owners contributed a total of $60,000 in
exchange for common stock.
b. Grooming service revenue for the first year amounted to $175,000, of which $50,000
was on account.
c. Customers owe $15,000 at the end of the year from the services provided on account.
d. At the beginning of the year, a storage building was rented. The company was
required to sign a three-year lease for $15,000 per year and make a $3,000 refundable
security deposit. The first year’s lease payment and the security deposit were paid at the
beginning of the year.
e. At the beginning of the year, the company purchased a patent at a cost of $120,000
for a revolutionary system for dog grooming. The patent is expected to be useful for ten
years. The company paid 20% down in cash and signed a four-year note at the bank for
the remainder.
f. Operating expenses, including amortization of the patent and rent on the storage
building, totaled $90,000 for the year. No expenses were accrued or unpaid at the end of
the year.
g. The company declared and paid a $25,000 cash dividend at the end of the first year.
REQUIRED:
1> Prepare an income statement for the first year.
2> Prepare a statement of cash flows for the first year using the direct method in the
Operating Activities section.
3> Did the company generate more or less cash flow from operations than it earned in
net income? Explain why there is a difference.
4> Prepare a balance sheet as of the end of the first year.
Carson City Saloon purchased a $25,000 truck for catering from its restaurant. It made
a down payment of one- fourth of the price. What combination of amounts would affect
the income statement and statement of cash flows for the purchase of the truck?
Iowa Industries Inc. Selected data from the financial statements of Iowa Industries Inc.
for the years ended December 31, 2016 and 2015, are presented below. Also, certain
assumptions are presented. Use these data and assumptions to answer the questions that
follow.
Assumptions:
(1) Cash additions to property, plant, and equipment during 2016 were $550.0. An
additional $86.2 of plant assets were acquired through debt in a noncash transaction.
Depreciation expense for 2016 was $343.3. Gains on disposals of property, plant and
equipment during 2016 were $27.7. (2) The cash proceeds from the sale of investments
in 2016 were $82.7. There was a $17.8 gain on the sale of the investments. (3) Proceeds
from long-term debt issued during 2016 were $167.7. (4) The issuance of common
stock totaled $28.6 in 2016. (5) During 2016, $389.4 in cash was used to purchase and
retire common stock. A total of $365.4 of the cost was recorded as an increase to
Reinvested Income. (6) Net income, dividends declared/paid, and the $365.4 amount in
(5) were the only items that affected reinvested income during 2016.
Review the data and assumptions for Iowa Industries Inc. REQUIRED:
(A) What was the cost of the investments purchased during 2016?
(B) What was the amount paid to retire long-term debt during 2016?
If accounts receivable turnover is faster, this means that fewer days are required to
collect receivables.
a. True
b. False
Several amounts from Duggard Company at December 31, 2014 are listed below.
Answer the questions.
A) Calculate net income for 2014.
B) How much is Duggard Company’s retained earnings at the end of 2014?
C) What primary asset account is missing?
If collection of accounts receivable is assured, then accounts receivable are considered
to be cash equivalents.
a. True
b. False
Which of the following is not considered a business (source) document?
a. Time card
b. Purchase order
c. Sales invoice
d. Schedule listing all the insurance policies in force
Assuming the indirect method for preparing the statement of cash flows is used,
indicate whether these items should be added to net income (A), deducted from net
income (D), or not be reported in the operating section of the statement under the
indirect method (NR).
a. Added (A)
b. Deducted (D)
c. Not reported (NR)
Increase in accounts receivable
Which statement summarizes the income earned and the dividends paid?
a. Statement of cash flows
b. Statement of retained earnings
c. Balance sheet
d. Income statement
Three organizations important to accounting are listed below. Select the organization th
at most closely achieves the role described.
a. American Institute of Certified Public Accountants (AICPA)
b. Financial Accounting Standards Board (FASB)
c. Securities and Exchange Commission (SEC) An agency of the federal government.
A(n)is a chronological record of all transactions entered into by a business.
Camp Consulting Services started business on January 1, 2015. Camp performed
services for customers totaling $100,000 of which 40% remain uncollected at the end of
December. Under the accrual basis, what amounts would appear on Camp Consulting’s
financial statements for 2015?
Reconstruct the adjusting and closing entries from the following T-Accounts.
A change in estimate should be recorded.
Cargo Corporation Listed below is information from the financial records of Cargo
Corporation at December 31, 2015:
Read the information below about Cargo Corporation. Required:
Calculate the amount of working capital at December 31, 2015 for Cargo Corp. What
can you learn from the current ratio that you cannot learn from the amount of working
capital?
Terry CompanyTransactions
Refer to the transactions for Terry Company.Use the transactions incurred by the Terry
Corporation to set up T accounts and post each transaction to the T accounts.
What role do accounting records play in the adjustment process?