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Chapter 3
d.
All of these
81. The liabilities that are due to be paid usually within a year or less are called:
a.
long-term liabilities.
b.
deferred liabilities.
c.
current liabilities.
d.
contingent liabilities.
82. A company's stockholders' equity is bifurcated into:
a.
current assets and long-term assets.
b.
common stock and long-term assets.
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c.
retained earnings and long-term assets.
d.
common stock and retained earnings.
83. Which of the following is not reported as revenue on the income statement?
a.
Unearned revenue
b.
Fees revenue
c.
Commissions revenue
d.
Rent revenue
84. On the statement of cash flows, the cash flows from operating activities section would include:
a.
receipts from the issuance of common stock.
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b.
receipts from the sale of investments.
c.
payments for the acquisition of investments.
d.
cash receipts from sales activities.
85. Expenses not related to the primary operations of the business are sometimes reported as:
a.
administrative expense.
b.
operating expense.
c.
other expense.
d.
all of these.
86. _____ represent rights of a long-term nature, such as patent rights, copyrights, and goodwill.
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a.
Accrued revenues
b.
Intangible assets
c.
Retained earnings
d.
Long-term liabilities
87. The following assets are included in Fortible Auto Parts, Inc.'s December 31, 2016, balance sheet.
Accounts Receivable
(net of Allowance for Uncollectible Accounts)
$ 65,000
Accumulated Depreciation, Building
32,000
Building
150,000
Cash
80,000
Land
160,000
Merchandise Inventory
90,000
Trademark
125,500
The total dollar amount of assets classified as property, plant, and equipment on Fortible Auto Part's December 31, 2016,
classified balance sheet is:
a.
$250,000.
b.
$310,000.
c.
$278,000.
d.
$375,000.
Chapter 3
88. Cash and other assets that are expected to be converted to cash or sold or used up within one year or less through the
normal operations of the business are called:
a.
current assets.
b.
intangible assets.
c.
fixed assets.
d.
notes receivable.
89. Which transaction would be recorded in a cash basis system of accounting?
a.
Purchase of equipment by signing a note
b.
Purchase of supplies on credit
c.
Sale of goods against a note
d.
Sale of goods for cash
Chapter 3
90. ASE Company sold goods, receiving $35,000 in cash and $15,000 on credit. How much revenue should it record
under the accrual basis of accounting?
a.
$35,000
b.
$15,000
c.
$50,000
d.
$50,000
91. _____ is the process that begins with analyzing transactions and ends with preparing financial statements.
a.
Liquidity reporting
b.
The accounting cycle
c.
Amortization of accounts
d.
Cost reporting
Chapter 3
92. The accrual basis of accounting recognizes:
a.
revenues when cash is received and expenses when cash is paid.
b.
revenues when earned and expenses when cash is paid.
c.
revenues when cash is received and expenses when incurred.
d.
revenues when earned and expenses when incurred.
93. The quick ratio is computed as _____.
a.
quick assets divided by current liabilities
b.
quick assets divided by current assets
c.
current assets divided by stockholders' equity
d.
current liabilities divided by current assets
Chapter 3
94. Which of the following is true about quick ratio?
a.
It is computed as quick assets multiplied by current liabilities.
b.
It includes cash, inventory, and short-term investments.
c.
If it is less than 1.0, it raises liquidity concerns for creditors.
d.
It is a suitable measure to derive the profitability of the company.
95. From the following data for David ProElecticals, calculate the quick ratio.
Cash
$ 68,500
Accounts receivable
130,000
Inventories
213,000
Prepaid expenses
25,000
Total current assets
$436,500
Less current liabilities
275,000
Working capital
$161,500
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a.
1.6
b.
0.7
c.
0.3
d.
1.5
96. Which of the following should be deducted from net income in calculating net cash flow from operating activities
using the indirect method?
a.
A decrease in inventory
b.
A decrease in accounts payable
c.
Preferred dividends declared and paid
d.
A decrease in accounts receivable
Chapter 3
97. Which of the following should be shown on a statement of cash flows under the financing activity section?
a.
The purchase of a long-term investment in the common stock of another company
b.
The payment of cash to retire a long-term note
c.
The proceeds from the sale of a building
d.
The issuance of a long-term note to acquire land
98. Cash receipts from interest and dividends are classified as:
a.
investing activities.
b.
operating activities.
c.
either financing or investing activities.
d.
financing activities.
Chapter 3
99. Depreciation on factory equipment would be reported in the statement of cash flows prepared by the indirect method
in:
a.
the cash flows from financing activities section.
b.
the cash flows from investing activities section.
c.
a separate schedule.
d.
the cash flows from operating activities section.
100. Which of the following should be added to net income in calculating net cash flow from operating activities using the
indirect method?
a.
An increase in inventory
b.
A decrease in accounts payable
c.
Preferred dividends declared and paid
d.
A decrease in accounts receivable
Chapter 3
101. Which one of the following should be added to net income in calculating net cash flow from operating activities
using the indirect method?
a.
A gain on the sale of land
b.
A decrease in accounts payable
c.
An increase in accrued liabilities
d.
Dividends paid on common stock
102. On the statement of cash flows prepared by the indirect method, a $50,000 gain on the sale of investments would be:
a.
deducted from net income in converting the net income reported on the income statement to cash flows from
operating activities.
b.
added to net income in converting the net income reported on the income statement to cash flows from
operating activities.
c.
added to cash received from the sale to determine cash flows from investing activities.
d.
deducted from cash received from the sale to determine cash flows from investing activities.
Chapter 3
103. Accounts receivable arising from trade transactions amounted to $62,000 and $78,000 at the beginning and end of
the year, respectively. Net income reported on the income statement for the year was $125,000. Exclusive of the effect of
other adjustments, the cash flows from operating activities to be reported on the statement of cash flows prepared by the
indirect method are:
a.
$109,000.
b.
$141,000.
c.
$125,000.
d.
$140,000.
104. The net income reported on the income statement for the current year was $310,000. Depreciation recorded on fixed
assets and amortization of patents for the year were $40,000 and $9,000, respectively. Balances of current asset and
current liability accounts at the end and at the beginning of the year are as follows:
End
Beginning
Cash
$ 50,000
$ 60,000
Accounts receivable
112,000
108,000
Inventories
105,000
93,000
Prepaid expenses
4,500
6,500
Accounts payable (merchandise creditors)
75,000
89,000
What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the
indirect method?
a.
$233,000
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b.
$289,000
c.
$387,000
d.
$331,000
105. Describe deferrals and accruals.
106. Describe the end-of-the-period adjustment process. Why is it necessary?
