1) Notes receivable typically arise from sales to customers.
2) Airlines do not record revenue when a ticket is sold, but wait to record revenue until
the actual flight occurs.
3) The Sarbanes-Oxley Act is also known as Generally Accepted Accounting Principles.
4) The statement of stockholders equity is a financial statement that summarizes the
changes in stockholders equity over an interval of time.
5) The two components of stockholders equity are Debits and Credits.
6) A discontinued operation is the sale or disposal of any long-term asset.
7) Profit margin measures the income earned on each dollar of sales, and is calculated
by dividing net income by net sales.
8) If a firm successfully defends an intangible right, it should expense the litigation
costs as incurred.
9) We add a decrease in income tax payable to income tax expense to calculate cash
paid for income taxes.
10) Revenue accounts increase with a debit and decrease with a credit.
11) What is the difference between permanent accounts and temporary accounts and
why does an accounting system have both types of accounts?
12) A company overstated its ending inventory balance by $9,000 in 2015 . What
impact will this error have on total assets and retained earnings in 2015 and 2016
(ignoring tax effects)?
13) At the beginning of the year, a company had an Allowance for Uncollectible
Accounts of $22,000. By the end of the year, actual bad debts total $24,000. What is the
balance of the Allowance for Uncollectible Accounts after the write-offs (before any
year-end adjustment)?
14) Hillsdale is considering two options for comparable computer software. Option A
will cost $25,000 plus annual license renewals of $1,000 for three years, which includes
technical support. Option B will cost $20,000 with technical support being an add-on
charge. The estimated cost of technical support is $4,000 the first year, $3,000 the
second year, and $2,000 the third year. Assume the software is purchased and paid for at
the beginning of year one, but that technical support is paid for at the end of each year.
The discount rate is 8%. Ignore income taxes. Determine which option should be
chosen based on present value considerations.
15) Retailers like McDonalds, American Eagle, and Apple Computer sell a large
number of gift cards. Explain how these companies account for the sale of gift cards.
16) During 2015, a company sells 300 units of inventory for $85 each. The company
has the following inventory purchase transactions for 2015:
Calculate ending inventory and cost of goods sold for 2015 assuming the company uses
FIFO with a periodic inventory system.
17) What does the balance of cost of goods sold in the income statement represent?
What does the balance of inventory in the balance sheet represent?
18) At the beginning of the year, Big Time Tires acquired 100% of the common stock of
Discount Tires. The purchase price allocation included the following items: $800,000,
patent; $300,000, trademark considered to have an indefinite useful life; and $2 million,
goodwill. Big Time Tires policy is to amortize intangible assets with finite useful lives
using the straight-line method, no residual value, and a five-year service life. What is
the total amount of amortization expense that would appear in Big Time Tires income
statement for the first year related to these items?
19) Discuss the events leading up to the passage of the Sarbanes-Oxley Act and its
major provisions.
20) A company pays $12,000 to purchase a one-year insurance policy. Record the
transaction.