Pierce Corp. identified the following data in preparing a bank reconciliation on October
31, 2014. Bank statement balance $29,600
Pierce’s book balance (before adjustments) ?
Outstanding checks 3,100
NSF checks 300
Service charges 200
Deposits in transit 2,200
Interest earned on checking account 100
How much is Pierce’s adjusted cash balance on October 31, 2014? a. $28,700b.
$29,100c. $28,300d. $29,600
From the following list, identify whether the change in the account balance during the
year would be reported as operating (O) cash flow, investing (I) cash flow, financing (F)
cash flow or not separately (N) reported on the statement of cash flows. Assume that the
indirect method is used to prepare the operating activities section. Use the following
response choices a-d.
a. operating (O) cash flow
b. investing (I) cash flow
c. financing (F) cash flow
d. not separately (N) reported on the statement of cash flows
Notes payable
The accountant for Casa Corp. was preparing a bank reconciliation as of February 28,
2014. The following items were identified:
There was an error in recording a customer’s check as the check was recorded by Casa
as $110, but the correct amount of $101 was recorded by the bank. Casa’s adjusted cash
balance at February 28, 2014 is
a. $23,591
b. $35,64
c. $35,659
d. $47,691
Interest payable on a loan becomes a liability:
a. When the borrowed money is received.
b. When the note payable is issued.
c. At the maturity date.
d. As it accrues.
For each of the following items, indicate whether each would be treated as a
a. capital expenditure
b. revenue expenditure
Costs incurred prior to using the asset, such as costs to prepare the asset for use,
installation costs
Identify the classifications of the following accounts as either current or long-term
liabilities for the December 31, 2014 balance sheet.
a. Current liability
b. Long-term liability
An amount of money owed for years 2016 to 2020 to a creditor as annual installment
payments on a ten-year note, due June 30, 2020.
Carpenter Transport Company purchased a truck at a cost of $60,000 on January 1,
2011. The truck has an estimated useful life of 9 years and a $15,000 residual value. A.
How much depreciation expense should be reported for the year 2015? B. What is the
total amount of accumulated depreciation at December 31, 2015? C. Show how the
truck and the related accumulated depreciation would appear on Carpenter’s December
31, 2015, balance sheet immediately after the adjustments are recorded and posted. D.
Is the amount on the balance sheet what the truck could probably be sold for on
December 31, 2015? What principle governs? E. How much depreciation expense
should be reported for the year 2016?
If ending inventory is overstated, then net income is overstated as well.
a. True
b. False
Bartlett Industries Bartlett Industries began operations on January 2, 2015, with an
investment of $50,000 by each of its two stockholders. Net income for its first year of
business was $240,000. Bartlett Industries paid a total of $100,000 in dividends to its
stockholders during the year.
Read the information about Bartlett Industries. What is the company’s retained earnings
balance at December 31, 2015?
a. $140,000
b. $190,000
c. $240,000
d. $340,000
Match each of the following terms pertaining to liabilities to their definitions.
a. Current liability
b. Accounts payable
c. Notes payable
d. Discount on notes payable
e. Current maturities of long-term liabilities
f. Accrued liabilities
g. Contingent liability
h. Estimated liability
Amounts owed that are represented by a formal contractual agreement. These amounts
usually require the payment of interest.
The data presented below is for Craft, Inc. for 2015.
What is the effect on liquidity when Craft records its estimate for bad debt expense
using the allowance method?
a. Liquidity decreases
b. Liquidity increases
c. Liquidity stays the same
d. Liquidity both increases and decreases
With the periodic inventory system, the inventory account is updated after each sale or
purchase.
a. True
b. False
Many companies use MACRS (Modified Accelerated Cost Recovery System)
depreciation for
a. financial reporting purposes and a different method for tax purposes.
b. financial reporting purposes because depreciation is not allowed for tax purposes.
c. tax purposes because it results in a larger net income in the early years of a plant
asset’s life
d. tax purposes because of a desire to report higher expenses in early years in order to
pay lower taxes.
Match the selected items from a classified balance sheet and multiple-step income state
ment to the section in which they would appear on the classified balance sheetor the inc
ome statement.
a. Current Assets (balance sheet)
b. Property, Plant, & Equipment (balance sheet)
c. Current Liabilities (balance sheet)
d. Long-term Liabilities (balance sheet)
e. Stockholders’ Equity (balance sheet)
f. Operating Revenue (income statement)
g. Operating Expenses (income statement)
h. Other Revenue & Expenses (income statement)
i. Income Taxes (income statement)
Income taxes payable
All of the following statements are true except :
a. IFRS requires that estimates of residual value and the life of the asset be reviewed at
least annually and revised if necessary.
b. The FASB standards do not have a specific rule that requires residual value and asset
life to be reviewed annually.
c. IFRS does not have a specific rule that requires residual value and asset life to be
reviewed annually.
d. The FASB generally requires operating assets to be recorded at acquisition cost, less
depreciation, and the assets’ values are not changed to reflect their fair market values or
selling prices.
The bond issue price equals theof the cash flows that the bond will produce.
Starlight Cruises reported net income of $2,880 million for the year ended December
31, 2016. Total stockholders’ equity for the year ended December 31, 2016 was $20,100
million and on December 31, 2015, it was $20,900 million. No preferred stock was
outstanding in either year. REQUIRED:
1> Compute Starlight’s return on common stockholders’ equity for the year ended
December 31, 2016.
2> What other ratio would you want to compute to decide whether Starlight is
successfully employing leverage? Explain your answer.
Why do many companies use MACRS (Modified Accelerated Cost Recovery System)
depreciation for tax purposes? If a company uses MACRS for depreciation for tax
purposes, can it use a different method for financial reporting? Explain why or why not.
What is the matching principle? How does it relate to the revenue recognition process?
Owners of corporations are called ____________________.
Joseph is the president of Sunshine Enterprises. Sunshine Enterprises began business on
January 1, 2014. The company’s controller is out of the country on business. Joseph
needs a copy of the company’s balance sheet for a meeting tomorrow and asks his
assistant to obtain the required information from the company’s records. She presents
Joseph with the following balance sheet. He asks you to review it for accuracy.
Required
1> Prepare a corrected balance sheet.
2> Draft a memo explaining the major differences between the balance sheet Joseph’s
assistant prepared and the one you prepared.
The acquisition of a computer for $1,200, with a downpayment of $200 cash and the
signing of a $1,000 note payable for the balance increases both assets and.
Assets and expenses are ____________________ by credits.
On its most recent statement of cash flows, a company reported net cash provided by
operating activities of $16,000,000. Its capital expenditures for the same year were
$6,000,000. A note to the financial statements indicated that the total amount of debt
that would mature over the next five years was $24,000,000. REQUIRED:
1> Compute the company’s cash flow adequacy ratio.
2> If you were a banker considering loaning money to this company, why would you be
interested in knowing its cash flow adequacy ratio? Would you feel comfortable making
a loan based on the ratio you computed in (1)? Explain your answer.
Discuss the four steps in the ethical decision model used by accountants. Expand the
discussion to include questions that you would ask to analyze the key elements in the
situation.