1) the par value of common stock must always be equal to its market value on the date
the stock is issued.
2) income from operations appears on both the single-step and multiple-step forms of
an income statement.
3) in the vertical analysis of an income statement, each item is generally stated as a
percentage of net income.
4) regardless of whether the straight-line method or the effective-interest method is
used, the carrying value of a bond issued at a discount will decrease continually over
the bonds life.
5) total interest cost for a bond issued at a premium equals the total of the periodic
interest payments added to the premium.
6) the allowance method of accounting for bad debts violates the matching principle.
7) the terms 2/10, net/30 mean that a 2 percent discount is allowed on payments made
within the 10 days discount period.
8) the statement of cash flows discloses significant events related to the operating,
investing, and financing activities of a business.
9) a company may use more than one inventory cost flow method at the same time.
10) intangible assets are rights, privileges, and competitive advantages that result from
ownership of long-lived assets without physical substance.
11) free cash flow is cash from operations less dividends.
12) if amanda massoth invests $14,962.50 now, she will receive $50,000 at the end of
14 years. what annual rate of return will amanda earn on her investment?
ans:
use present value of 1 table data.
13) indicate in the space provided by each item whether it would appear on the income
statement (is), balance sheet (bs), or retained earnings statement (re):
a. service revenue g. accounts receivable
b. utilities expense h. common stock
c. cash i. equipment
d. accounts payable j. advertising expense
e. supplies k. dividends
f. salaries and wages expense l. notes payable
14) which principle dictates that efforts (expenses) be recorded with accomplishments
(revenues)?
a.cost principle
b.periodicity principle
c.revenue recognition principle
d.expense recognition principle
15) a company purchased factory equipment for $250,000. it is estimated that the
equipment will have a $25,000 salvage value at the end of its estimated 5-year useful
life. if the company uses the double-declining-balance method of depreciation, the
amount of annual depreciation recorded for the second year after purchase would be
a.$100,000
b.$60,000
c.$90,000
d.$54,000
16) generally accepted accounting principles
a.are accounting rules formulated by the internal revenue service
b.are sound in theory but rarely used in real life
c.are accounting rules that are recognized as a general guide for financial reporting
d.have eliminated all errors in accounting
17) why are financial statement users interested in the statement of cash flows?
a.it is the easiest financial statement to evaluate
b.it provides information about an important company resource
c.it is the first statement that is presented to users
d.it helps users decide whether assets such as office equipment should be replaced
18) mccoy company receives net proceeds of $75,000 on the sale of stock investments
that cost $79,000. this transaction will result in reporting in the income statement a
a.loss of $4,000 under other expenses and losses.
b.loss of $4,000 under operating expenses.
c.gain of $4,000 under other revenues and gains.
d.gain of $4,000 under operating revenues.
19) harden corporation engaged in the following transaction. assume that the harden
corporation uses the indirect method to depict cash flows. indicate where, if at all,
accounts receivable collected would be classified on the statement of cash flows.
a.operating activities section
b.investing activities section
c.financing activities section
d.does not represent a cash flow
20) the following totals for the month of april were taken from the payroll register of
metz company.
the entry to record the accrual of federal unemployment tax would include a
a.credit to federal unemployment taxes payable for $160
b.credit to federal unemployment taxes expense for $160
c.credit to payroll tax expense for $160
d.debit to federal unemployment taxes payable for $160
21) outstanding stock of the west corporation included 20,000 shares of $5 par common
stock and 5,000 shares of 6%, $10 par non-cumulative preferred stock. in 2011, west
declared and paid dividends of $2,000. in 2012, west declared and paid dividends of
$6,000. how much of the 2012 dividend was distributed to preferred shareholders?
a.$4,000
b.$7,000
c.$3,000
d.none of the above
22) placing a restriction on retained earnings will
a.assure that a company has sufficient cash for a specific purpose
b.increase total stockholders equity
c.communicate to readers a portion of retained earnings is unavailable for dividends
d.decrease total stockholders equity
23) which of the following would not be reported on the balance sheet as a cash
equivalent?
a.money market fund
b.commercial paper
c.treasury bill
d.restricted cash
24) an error in the physical count of goods on hand at the end of a period resulted in a
$10,000 overstatement of the ending inventory. the effect of this error in the current
period is
25) which of the following would not be considered a merchandising operation?
a.retailer
b.wholesaler
c.service firm
d.merchandising company
26) kingery corporation has current assets of $1,500,000 and current liabilities of
$750,000. if they issue $100,000 of new stock what will their new current ratio be?
(rounded)
a.2.1:1
b.1.8:1
c.1.9:1
d.2.0:1
27) herman corporation had net income of $160,000 and paid dividends of $40,000 to
common stockholders and $20,000 to preferred stockholders in 2012. herman
corporations common stockholders equity at the beginning and end of 2012 was
$450,000 and $550,000, respectively. herman corporations return on common
stockholders equity is
a.32%
b.28%
c.24%
d.20%
28) the effective-interest method of amortization of bond premiums and discounts is
considered superior to the straight-line method because it results in a(n)
a.interest rate that is close to the market interest rate
b.uniform rate of interest
c.more variable interest rate
d.interest rate that increases or decreases slightly over time
29) accumulated depreciation is a(n):
a.expense account
b.stockholders equity account
c.liability account
d.contra asset account
30) identify the effect, if any, that each of the following transactions would have upon
cash and retained earnings. show the dollar amount and the effect (+, , n).
31)
32) in computing cash payments for operating expenses, a decrease in prepaid expenses
is ______________ and an increase in accrued expenses payable is ______________ to
(from) operating expenses, exclusive of depreciation.
33) holt corporation had net income of $3,000,000 in 2011. using 2011 as the base year,
net income decreased by 40% in 2012 and increased by 110% in 2013.
instructions
compute the net income reported by holt corporation for 2012 and 2013.
34)
on october 1, 2012, finley company establishes a petty cash fund by issuing a check for
$200 to sara mead, the custodian of the petty cash fund. on october 31, 2012, sara mead
submitted the following paid petty cash vouchers for replenishment of the petty cash
fund when there is $2 cash in the fund:
instructions
prepare the journal entries required to establish the petty cash fund on october 1 and the
replenishment of the fund on october 31.
35) presented here is basic financial information (in millions) from the annual reports of
nike and adidas.
instructions
calculate the receivables turnover ratio and average collection period for both
companies. comment on the difference in their collection experiences.
36) on january 1, 2012, mather corporation had retained earnings of $525,000. during
the year, latter had the following selected transactions:
1>declared stock dividends of $40,000
2>declared cash dividends of $50,000
3>a 2 for 1 stock split involving the issue of 200,000 shares of $5 par value common
stock for 100,000 shares of $10 par value common stock
4>suffered a net loss of $60,000
instructions
prepare a retained earnings statement for the year.
