Prairie Charters reported the following information at December 31, 2015:
The average recorded value per share of common stock at December 31, 2015 is a.
$1.00
b. $1.75
c. $1.25
d. $2.50
In the statement of cash flows, a decrease in accounts payable would be shown as an
increase in the Operating Activities category.
a. True
b. False
For each of the following items, indicate whether each would be treated as a
a. capital expenditure
b. revenue expenditure
Costs incurred after putting the asset into service which keep the asset in normal
operating condition
Gallery Manufacturing purchased, for cash, three large pieces of equipment. Based on
recent sales of similar equipment, the fair market values are as follows:
Piece 1 $250,000
Piece 2 $350,000
Piece 3 $450,000
Required
1> What value is assigned to each piece of equipment if the equipment was purchased
for (a) $510,000, (b) $710,000, and (c) $810,000?
2> How does the purchase of the equipment affect total assets?
A purchase order is not the basis for recording a purchase and a liability.
a. True
b. False
All of the following statements are true about a 3-for-1 split, except:
a. Total contributed capital increases.
b. The market price will probably decrease.
c. Par value per share is reduced to one-third of what it was before the split.
d. A stockholder with twenty shares before the split owns sixty shares after the split.
The inventory turnover ratio is a measure of how many times during a period a
company sells off its inventory.
a. True
b. False
Which of the following statements about bond accounting under the effective interest
method is correct?
a. The cash interest paid is calculated as the bond face value x the effective rate.
b. The interest expense is calculated as the carrying value x the effective rate.
c. The difference between the cash interest paid and the interest expense is added to the
carrying value of the bonds if bonds were sold at a premium.
d. The difference between the interest expense and the interest paid is deducted from the
carrying value of the bonds if bonds were sold at a discount.
Which one of the following is not a generally recognized internal control procedure?
a. Internal review by the audit committee of the board of directors
b. Independent verification of the work of one employee by another employee
c. Independent review and appraisal by internal auditors
d. Segregation of duties
Because net income is on an after-tax basis, interest in the return on assets ratio must be
placed on a before-tax basis.
a. True
b. False
The reliability of the information in a company’s financial statements is the
responsibility of which of the following?
a. The Securities and Exchange Commission (SEC)
b. The Certified Public Accountant in charge of the audit of the company’s financial
statements
c. The company’s management
d. The stockholders of the company
The payee of a note recognizes a note payable on the balance sheet and interest expense
on its income statement.
a. True
b. False
The unit of measure in Japan is the U.S. dollar.
a. True
b. False
a. A liability resulting from the signing of a promissory note.
b. A measure of how long it takes to collect receivables.
c. A written promise to repay a definite sum of money on demand or at a fixed or
determinable date in the future.
d. The length of time a note is outstanding, that is, the period of time between the date it
is issued and the date it matures.
e. The party that will receive the money from a promissory note at some future date.
f. The process of selling a promissory note.
g. The date the promissory note is due.
h. The amount of cash the maker is to pay the payee on the maturity date of the note.
i. The difference between the principal amount of the note and its maturity value.
j. An asset resulting from the acceptance of a promissory note from another company.
k. Securities issued by corporations and governmental bodies as a form of borrowing.
l. Securities issued by corporations as a form of ownership in the business.
m. The party that agrees to repay the money for a promissory note at some future date.
n. The amount of cash received, or the fair value of the products or services received,
by the maker when a promissory note is issued.
Cash flows from purchases, sales, and maturities of investments are usually classified
as operating activities.
a. True
b. False
Book value is a measure of the market value of the stock.
a. True
b. False
Income from operations does not include interest revenue and interest expense because
these items are considered to be non-operating in nature.
a. True
b. False
Frank Corporation purchased supplies at a cost of $15,000 during 2015. At January 1,
2015, supplies on hand were $2,000. At December 31, 2015, supplies on hand are
$2,500. Calculate supplies expense for 2015.
a. $ 15,500
b. $ 14,500
c. $ 15,000
d. $ 17,000
Match the following bond and long-term liability related terms to the appropriate
definition.
a. Long-term liability
b. Face value
c. Debenture bonds
d. Serial bonds
e. Callable bonds
f. Face rate of interest
g. Market rate of interest
h. Bond issue price
i. Premium
j. Discount
k. Effective interest method of amortization
l. Carrying value
m. Gain or loss on redemption
The difference between the carrying value and the redemption price at the time bonds
are redeemed. This amount is presented as an income statement account.
The weighted average cost is calculated by adding up the units’ costs from each
purchase and then dividing by the number of purchases.
a. True
b. False
depreciation is the GAAP depreciation method considered to be ‘œaccelerated’ in
nature.
Explain what the chart of accounts is and how its numbering system works.
Refer to the data for Slammer Sports. Determine the effect on Slammer Sports’
accounting equation of the yearÂend adjustment of bad debts using the aging approach.
Jack’s Jungle Fun, Inc. is a manufacturer of children’s outdoor play equipment. The
factory foreman determines when orders for materials are necessary. The orders are sent
to the purchasing department that places orders with the vendors recommended by the
factory foreman. When the materials are received, they are delivered directly to a
central storeroom without counting what has been received. When invoices are received
for the materials purchased, they are sent to the accounting department for payment.
The accounting department compares the invoices with purchase orders. If the two
documents are in agreement, the invoice is approved for payment. The accounting
department prepares the checks that are signed by the company treasurer. Recommend
improvements in the company’s procedures for purchasing and paying for purchases of
materials that will provide better internal control over purchases and payment for those
purchases.
Therate of interest is the rate that bondholders could obtain by investing in other bonds
that are similar to the issuing firm’s bonds.
Refer to the data for Slammer Sports.
Assume that the net realizable value is $170,000 after the adjustment for bad debts in
2014. How much is the net realizable value of accounts receivable after a customer’s
account of $2,500 is written off? Explain why.
Assuming the use of a work sheet, are the formal adjusting entries recorded and posted
to the accounts before or after the financial statements are prepared? Explain your
answer. Would your answer change if a work sheet was not prepared? Explain.