Baker Corp. sold merchandise to a customer on credit. The invoice amount was $1,000;
the invoice date was June 10; credit terms were 1/10, n/30. Which one of the following
statements is true?
a. The customer can take a $10 discount if the invoice is paid on June 30.
b. The customer should pay $1,000 if the invoice is paid on July 9.
c. The customer must pay a $10 penalty if payment is made after July 9.
d. The customer must pay $1,010 if payment is made after June 20.
The International Accounting Standards Committee was established in 1973 to develop
worldwide standards. Which group replaced it in 2001?
a. FASB
b. IFRS
c. IASB
d. IIA
The statement of cash flows, like the income statement, reports only operating activities
of a company.
a. True
b. False
On February 1, 2015, Vermont Corp. pays $50,000 for shares of Stream, Inc. common
stock and another $1,000 in commissions. Assume that Vermont sells the Stream stock
on May 20, 2015, for $53,000. In this case, Vermont recognizes
a. An increase in assets and stockholders’ equity for $2,000.
b. An decrease in assets and an increase in stockholders’ equity for $2,000.
c. An increase and decrease in assets by the same amount.
d. An increase in assets and stockholders’ equity for $3,000.
Assume that you have received copies of the financial statements for PepsiCo for the
years ending December 31, 2014 and 2013. Answer the following questions: A) If you
were a banker, why would you need information from PepsiCo’s financial statements?
B) If you were a potential investor in PepsiCo stock, what information would you want
from their financial statements? C) If you were a labor negotiator for a union that
represents a group of PepsiCo’s employees, which financial statement would provide
you with the most useful information?
Which concept is the reason the dollar is used in the preparation of financial
statements?
a. Going concern
b. Legal entity
c. Monetary unit
d. Time Period
The following set of items describes activities completed by a company in collecting
cash for merchandise sales. For each activity, identify whether or not the activity
adheres to or violates sound internal control procedures. A single employee in the
mailroom opens the mail, counts the money received, and prepares a control list of the
amount received.
a. Adheres to sound internal control procedures
b. Violates sound internal control procedures
c. Neither strengthens nor violates internal control
Utah Co. sold merchandise to Big Sky Corp. on December 1, 2014, for $9,000, and
accepted a promissory note for payment in the same amount. The note has a term of 90
days and a stated interest rate of 8%. Utah’s accounting period ends on December 31.
What amount should Utah recognize as interest revenue on the maturity date of the
note?
a. $ -0-
b. $ 60
c. $120
d. $180
If a company uses the allowance method of accounting for bad debts, which one of the
following statements is true?
a. It violates the matching principle.
b. It will record bad debts only when an account is determined to be uncollectible.
c. It will reduce the accounts receivable at the end of the accounting period for
estimated uncollectible accounts.
d. It will report accounts receivable in the balance sheet at their net realizable value.
If a company is concerned about minimizing its income tax burden, it would use the
straight-line depreciation method to accomplish this objective.
a. True
b. False
Churchill Company planned to raise $100,000 by issuing bonds. The bond certificates
were printed bearing an interest rate of 8%, which was equal to the market rate of
interest. However, before the bonds could be issued, economic conditions forced the
market rate up to 9%. If the life of the bonds is 6 years and interest is paid annually on
December 31, how much will Churchill receive from the sale of the bonds?
a. Exactly $100,000 because Churchill Company would still pay interest at the face rate
of 8%.
b. Less than $100,000 because the market rate of interest at 9% was more than the face
rate.
c. Greater than $100,000 because the face rate of interest at 8% was less than the
market rate.
d. The bonds would not be sold at all; Churchill Company would have the certificates
reprinted bearing the market rate of 9%.
A LIFO reserve represents the amount by which cost of goods sold on a FIFO basis
exceeds the cost of goods sold on a LIFO basis for the current year.
a. True
b. False
A statement of cash flows reports property, plant, and equipment transactions. A. What
are the effects of acquisitions of plant assets on the statement of cash flows? B. In
which section of the statement of cash flows are cash flows from sales of plant assets
reported? C. How is depreciation reported on the statement of cash flows? Why?
The accounting equation must balance after each transaction.
a. True
b. False
Provided below is a list of important users of accounting information.Below the list are
descriptions of a major need of each of the various users. Fill in the blank with the one
user group that is most likely to have the need described to the right of the blank. Some
user groups may be used more than once or not at all.
a. Capital stock
b. Asset
c. Owners’ equity
d. Time period
e. Dividends
f. Economic entity concept
g. Expense
h. Retained earnings
i. Cost principle
j. Creditor
k. Liability
l. Revenue
m. Going concern
n. Monetary unit
o. Corporation
The owners’ claims on the assets of an entity.
The calculations for some profitability ratios are the same as the calculations for
common-size analysis of the income statement. Which of the following profitability
ratios would also be determined through a common-size analysis of the income
statement?
a. gross profit ratio
b. debt-to-equity ratio
c. acid-test ratio
d. earnings per share