Wholesale companies sell goods primarily to other businesses.
The indirect method for preparing the operating activities section of the statement of
cash flows begins with the amount of sales revenue reported on the income statement.
Cash receipts from interest on a note receivable would be classified on the statement of
cash flows in the:
A.operating activity section.
B.investing activity section.
C.financing activity section.
D.noncash financing and investing section.
The year-end adjusting entry to recognize uncollectible accounts expense will
A.decrease assets and decrease equity.
B.increase assets and decrease equity.
C.increase liabilities and increase equity.
D.decrease liabilities and increase equity.
Which of the following correctly describes an installment note?
A.An installment note requires equal interest payments with the entire principal balance
paid at maturity.
B.An installment note requires equal payments of interest and principal in which the
amount of interest decreases over the life of the note.
C.An installment note requires equal payments of interest and principal in which the
amount of interest increases over the life of the note.
D.The installment note requires decreasing payments of interest and principal in which
the amount of interest remains constant over the life of the note.
Manhattan Company paid $450 in interest on a loan. $300 of the interest had been
accrued in a prior accounting period. Which of the following journal entries correctly
records this transaction?
A.
B.
C.
D.
For which of the following would net income on the accrual basis be different (either
higher or lower) from “cash provided by operating activities” on the statement of cash
flows?
A.Recognized depreciation expense on equipment.
B.Incurred operating expenses on account.
C.Paid interest that was accrued in a prior year.
D.All of these answer choices would affect the income statement in a different period
from the statement of cash flows.
Indicate whether each of the following statements is true or false.
_____ a) It is possible for a growing business to have substantial earnings, but yet be
short of cash.
_____ b) It is possible for a well-established business to report large operating losses,
but have positive cash flow from operating activities.
_____ c) A merchandising firm adding new stores must report the additional inventory
purchases as investing activities.
_____ d) When equipment is bought to replace old equipment, the transaction is
reported as an operating activity.
_____ e) FASB requires companies to disclose significant investing and financing
activities even if these transactions do not affect cash.
Which type of accounting information is intended to satisfy the needs of external users
of accounting information?
A.Cost accounting
B.Managerial accounting
C.Tax accounting
D.Financial accounting
The following is a trial balance of Barnhart Company as December 31, 2016:
Based on the trial balance, the total amount of assets appearing on the balance sheet
would be:
A.$21,350.
B.$12,500.
C.$15,750.
D.$23,200.
The Lazarus Company recorded the following adjustment in general journal form:
Which of the following choices accurately reflects how this event would affect the
company’s financial statements?
A.
B.
C.
D.
When the Common Stock account is disclosed on the balance sheet, it is reported at:
A.current market value
B.average issue price
C.par or stated value
D.lower of cost or market
Vargas Company purchased a computer for $3,000 on January 1, 2016. The computer is
estimated to have a 5-year useful life and a $500 salvage value. What adjusting entry
would Vargas record on December 31, 2016 to recognize expense related to use of the
computer?
A.
B.
C.
D.
In January 2016, Rainey Co. purchased a machine that cost $150,000. The equipment is
estimated to have a 5-year life and a salvage value of $30,000.
Required: a) Compute the amount of depreciation expense for 2016 and 2017 using the
double declining balance method.
b) Compute the amount of MACRS depreciation for the above equipment for 2016
assuming the property is 5 year property and the MACRS percentage is 20%.
The Wagner Company issued common stock for $500,000 cash. Which of the following
shows the proper entry using T-accounts?
A.
B.
C.
D.
Indicate whether each of the following statements is true or false. If a company made
the following journal entry,
this entry would cause:
_____ a) net income to decrease.
_____ b) total assets to decrease.
_____ c) liabilities to stay the same.
_____ d) cash flows from investing activities to decrease.
_____ e) owners’ equity to decrease.
An analysis procedure that uses percentages to compare each of the parts of an
individual statement to a key dollar amount from the financial statements is:
A.Ratio analysis.
B.Contribution analysis.
C.Horizontal analysis.
D.Vertical analysis.
Select the incorrect statement regarding net margin.
A.Net margin refers to the average amount of each sales dollar remaining after all
expenses are subtracted.
B.Net margin may be calculated in several ways.
C.The smaller the net margin the better.
D.The amount of net margin is affected by a company’s choices of accounting
principles.
Packard Company engaged in the following transactions during 2015, its first year in
operations: (Assume all transactions are cash transactions.)
1) Acquired $950 cash from the issue of common stock.
2) Borrowed $420 from a bank.
3) Earned $650 of revenues.
4) Paid expenses of $250.
5) Paid a $50 dividend.
During 2016, Packard engaged in the following transactions: (Assume all transactions
are cash transactions.)
1) Issued an additional $325 of common stock.
2) Repaid $220 of its debt to the bank.
3) Earned revenues of $750.
4) Incurred expenses of $360.
5) Paid dividends of $100.
The net cash inflow from operating activities on Packard’s 2015 statement of cash flows
is
A.$400.
B.$650.
C.$350.
D.$820.
With respect to the current ratio, the declaration of a cash dividend will:
A.have no effect on the current ratio.
B.have an effect that depends on the market price of the stock at the time the dividend is
declared.
C.decrease the current ratio.
D.increase the current ratio.
The LaPage Corporation reported a beginning balance of $2,200 in its Prepaid
Insurance account for 2016. During the year, a total of $17,000 was recognized as
Insurance Expense and the Prepaid Insurance account had an ending balance of $1,800.
How much cash did LaPage pay for insurance during 2016?
A.$16,600
B.$17,400
C.$17,000
D.$18,800
Each of the following requirements is independent of the others.
a) Valdez Corporation has liabilities of $95,000 and equity of $115,000. What is the
amount of Valdez’s assets?
_________________________________________________
b) Global Company has assets of $320,000 and liabilities of $95,000. What is the
amount of Global’s equity?
______________________________________________________
c) Brown Company has assets of $90,000 and liabilities of $25,000. What is the amount
of Brown’s claims?
_____________________________________________________________
The following information is taken from the balance sheet of Menendez Company on
January 1, 2016:
On January 2, 2016, the company recorded the following transaction:
Recording this transaction will:
A.decrease the current ratio to 1:1
B.increase the current ratio to 3:1
C.increase the current ratio to 5:1
D. have no effect on the current ratio
Indicate whether each of the following statements is true or false
_____ a) The general ledger is often called the book of original entry.
_____ b) Transactions are first recorded in the journal and then transferred to the ledger.
_____ c) The process of making entries into a journal is called posting.
_____ d) The ledger is an example of a source document.
_____ e) The list of a business’s account titles and account numbers is called a chart of
accounts.
The following information is for Poole Company for 2016:
Required: a) Assuming that Poole uses the LIFO cost flow method, determine how
much product cost would be allocated to Cost of Goods Sold, and how much to
Merchandise Inventory at the end of the year.
b) Based on your results from part a, calculate inventory turnover and average number
of days to sell inventory.
c) Assuming that Poole uses the FIFO cost flow method, determine how much product
cost would be allocated to Cost of Goods sold, and how much to Merchandise
Inventory at the end of the year.
d) Based on your results from part c, calculate inventory turnover and average number
of days to sell inventory.
e) Compare your results from parts b and d. Do LIFO and FIFO give the same results
for inventory turnover? Which is higher, and why?
Benitez Co. had sales of $800,000 in 2016. The company expects to incur warranty
expenses amounting to 3% of sales. There were $13,000 of warranty obligations paid in
cash during 2016. Based on this information:
A.Warranty expenses would decrease net earnings by $24,000 in 2016.
B.Cash would decrease by $13,000 as a result of the accounting events associated with
warranties in 2016.
C.The warranties payable account would increase by $11,000 in 2016.
D.All of these answer choices are correct.
Indicate whether each of the following items is true or false.
_____ a) Many successful corporations do not pay dividends to their stockholders.
_____ b) Careful study of the financial statements will give investors the ability to
predict future movements in the market price of a corporation’s stock.
_____ c) The price-earnings (P/E) ratio is computed by dividing the earnings per share
by the market price per share.
_____ d) As a general rule, the higher the P/E ratio, the greater is the optimism for
future growth of the corporation.
_____ e) The number of shares to purchase in order to attain “significant influence” of a
corporation can readily be determined from the financial statements.
On May 1, 2016, Campbell Company established a petty cash fund in the amount of
$400.
a) Is the establishment of the fund an asset source, asset use, or asset exchange
transaction?
b) Record the establishment of the petty cash fund in the horizontal financial statements
model, below. Show dollar amounts of increases and decreases; for accounts that are
not affected, indicate NA. If the event affects cash flow, classify the cash flow as
operating, investing, or financing.
On December 31, 2015, the Loudoun Corporation estimated that 3% of its credit sales
of $112,500 would be uncollectible. Loudoun uses the allowance method of accounting
for uncollectible accounts. In February 2016, one of Loudoun’s customers failed to pay
his $1,050 account and the account was written off. On April 4, 2016, this customer
paid Loudoun the $1,050.
Which of the following answers correctly states the effect of recording the collection of
the reestablished receivable on April 4, 2016?
A.
B.
C.
D.
A reason often given for a corporate stock split is:
A.to reduce the market price of the stock.
B.to protect the interest of creditors.
C.to increase the par value of the stock.
D.to absorb the treasury stock.
Fisher Company has been named as the defendant in a class action lawsuit. Indicate
whether each of the following statements regarding the lawsuit is true or false.
_____ a) If the outcome is likely, a liability should be recognized on the balance sheet
for the full amount of the suit, even if the company’s attorneys estimate the outcome to
be much lower.
_____ b) If the outcome is likely, but cannot be reasonably estimated, the contingency
should be disclosed in the notes to the financial statements.
_____ c) If the outcome is reasonably possible, the contingency should be disclosed in
the notes to the financial statements.
_____ d) Every lawsuit, regardless how frivolous, should be disclosed in the notes to
the financial statements.
_____ e) If an active hurricane season has been predicted for the Florida gulf coast,
businesses in that region should not disclose contingencies for catastrophic loss in the
notes to their financial statements.
Tandem Company borrowed $32,000 of cash from a local bank. Which of the following
choices accurately reflects how this event affects the company’s financial statements?
A.
B.
C.
D.
On January 1, 2016, the Vanguard Company purchased a copyright for $12,000.
Vanguard estimated the remaining useful life of the copyright to be 6 years.
Which of the following correctly shows the effect of Vanguard’s purchase of the
copyright on the financial statements?
A.
B.
C.
D.
The Anchorage Company provided the following information from its financial records:
What is the amount of the company’s earnings per share?
A.$1.33
B.$1.44
C.$1.60
D.$25.00
The average number of days to collect accounts receivable is computed by dividing:
A.Accounts Receivable by net income.
B.365 by the accounts receivable turnover ratio.
C.Accounts Receivable by 365.
D.Sales divided by Accounts Receivable.
The following information is from the financial records of Newton Company for 2015:
Required: Calculate the number of times interest is earned for Newton in 2015.
In a world with inflation, but no income tax, how does the choice between LIFO and
FIFO affect a company’s cash flows? Would the presence of an income tax system
cause a difference in the amount of cash outflow when using FIFO versus LIFO?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts.
Nguyen Co. borrowed $50,000 cash from Metropolitan Bank.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. Use only one letter
for each element. You do not need to enter amounts.
On January 1, 2016, Torrance Co. issued $100,000 of bonds at the face value. Interest is
paid in cash on December 31 of each year. Indicate the effects of the payment of
interest on 12/31/2016.
What effect does providing services on account have on the statement of cash flows?
The balance sheet?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts. Enter only one letter for each element.
In preparing the bank reconciliation for Heath Company, a company employee found
that the bank statement included an NFS check that the company had received from a
customer paying its account at Heath Company.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. Use only one letter
for each element. You do not need to enter amounts.
Fort Worth Co. declared a cash dividend but has not yet paid the money to the
shareholders.
Discuss the purpose of a sinking fund.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts. Enter only one letter for each element.
In preparing the bank reconciliation for Heath Company, an employee discovered that
the bank had collected one of the company’s notes receivable in the amount of $20,000
and had deposited this amount in the company’s account at the bank. This amount does
not include interest.
Describe the effect on the accounting equation of the issuance of $500,000, 8% ten-year
bonds at 103 .Use numerical amounts in your answer.
Kincaid Camera Shop applies the lower-of-cost-or-market rule to individual items of
inventory. In 2016, some of Kincaid’s inventory lost value due to obsolescence. Other
items increased in market value. In total, the market value of Kincaid’s inventory was
higher at the end of 2016 than the cost of the inventory. Would Kincaid have an
adjustment to make at the end of 2016 due to the lower-of-cost-or-market rule? Would
the answer be any different if Kincaid applied the rule in aggregate rather than to
individual items?
Indicate how each event affects the income statement and the statement of cash flows.
Record the amount of the effect in the box shown below each element. Use the letter “I”
to indicate increase, the letter “D” to indicate decrease, and the letter “N” to indicate no
effect. Use only one letter for each element.
Howard Co. purchased $4,000 of supplies, paying $1,500 in cash and charging the
remainder on account. $1,600 of the supplies were used during the accounting period.
Show the combined effects of the events.
When the stated interest rate of a bond is lower than the market interest rate, will the
bond sell at a premium or at a discount?
Define the term “accounting period.” How does this term relate to the “matching
concept” as it pertains to the income statement?
How does providing services for cash affect the accounting equation? Is it considered
an asset source, asset use, or asset exchange transaction?
What is financial leverage? What financial ratio can be increased by using financial
leverage?