Blake Company loaned Jiminez Corporation $18,000 on October 1, 2016. The 8-month
note carried a 6% rate of interest.
Required: a) How will Blake report the note and interest on its 2016 income statement,
balance sheet, and statement of cash flows?
b) How will Blake report the note and interest on its 2017 income statement and
statement of cash flows?
Wichita, Inc. had the following amounts on its 12/31/16 financial statements.
The return on assets ratio for Wichita is:
A.5%.
B.10%.
C.20%.
D.50%.
Indicate whether each of the following statements is true or false. (Assume a perpetual
inventory system.)
_____ a) The freight terms FOB shipping point increase the cost of inventory to the
buyer.
_____ b) The term FOB means that goods are shipped free of charge to buyer and
seller.
_____ c) FOB shipping point means that purchaser’s responsibility ends at shipping
point.
_____ d) FOB destination means that seller’s responsibility ends at destination.
_____ e) When the seller of merchandise records freight under the terms FOB shipping
point, the seller records an expense.
On January 6, 2016, the Mount Jackson Corporation purchased a tract of land for a
factory site for $1,500,000. An existing building on the site was demolished and the
new factory was completed on October 11, 2016. Additional cost data are shown below:
Which of the following correctly states the capitalized cost of the (a) land and (b) the
new building?
A.$1,637,600/$1,898,000
B.$1,515,400/$2,020,200
C.$1,648,600/$1,887,000
D.$1,500,000/$2,035,600
Which of the following entries would be required to establish a $500 petty cash fund?
A.
B.
C.
D.
The corporate charter of Pinkston Corporation authorizes the issuance of 25,000 shares
of 5% cumulative, preferred stock, $20 par, and 200,000 shares of $10 par common
stock. At the end of the current year, the titles and balances of stockholders’ equity
accounts are as follows:
Pinkston declared dividends of $120,000 for the current year.
Required: a) What is the amount of the annual dividend per share for preferred stock?
b) If there are two years of preferred dividends in arrears at the beginning of the current
year, what total amount of dividends will be paid to the preferred shareholder?
c) What total amount will be paid to the common shareholder if there are two years of
preferred dividends in arrears at the beginning of the year?
d) Prepare the entry to record the declaration of the dividend.
Indicate whether each of the following is true or false. Perez Company borrowed
money from its bank in July 2016. The accrual of interest on the loan at the end of
2016:
_____ a) reduces cash flows.
_____ b) involves recognition of interest expense.
_____ c) does not affect income for 2016.
_____ d) involves recognition of a liability.
_____ e) records a cash payment for interest.
Gates, Inc. and Markham, Inc. each had the same financial position on January 1, 2016.
The following is a summary of each of their balance sheets as of January 1, 2016:
Gates is about to raise $200,000 in cash by issuing bonds. Markham is going to raise
$200,000 on the same day by issuing common stock. Immediately after these
transactions, which of the following statements will be correct?
A.Gates’s current ratio will be higher than Markham’s.
B.Gates’s current ratio will be lower than Markham’s.
C.Gates’s debt to asset ratio will be higher than Markham’s.
D.Gates’s debt to asset ratio will be lower than Markham’s.
Warren Corporation’s balance sheet reports equipment that originally cost $65,000. The
accumulated depreciation for the equipment is $25,000. Warren sells the equipment for
$37,000. What would the effect be on its income statement and statement of cash
flows?
A.
B.
C.
D.
Glasgow Enterprises started the period with 80 units in beginning inventory that cost
$7.50 each. During the period, the company purchased inventory items as follows
Glasgow sold 220 units after purchase 3 for $17.00 each.
Glasgow’s ending inventory under weighted average would be approximately:
A.$2,361.
B.$2,340.
C.$1,980.
D.$1,998.
Which of the following is a factor involved in communicating useful information?
A.Attributes of the users
B.Purpose for which the information will be used
C.Process by which the information is analyzed
D.All of these answer choices are correct.
On April 1, Snell Company made a $50,000 sale giving the customer terms of 3/10/n30.
The receivable was collected from the customer on April 8. Considering the collection
of cash from the receivable, what effect will the transaction have on the company’s
statements?
A.
B.
C.
D.
Which of the following could represent the effects of an asset source transaction on a
company’s financial statements?
A.
B.
C.
D.
The Gordon Corporation issued $70,000 of 6%, 5-year bonds on January 1, 2016 at 98.
The interest payments are due on December 31 each year. Gordon uses the straight-line
method of amortization.
Which of the following answers shows the effect of the bond issuance on the financial
statements?
A.
B.
C.
D.
Expenses are shown on the
A.income statement.
B.balance sheet.
C.statement of changes in stockholders’ equity.
D.the income statement and the statement of changes in stockholders’ equity.
Purchasing prepaid rent is classified as a(n):
A.asset source transaction.
B.asset use transaction.
C.asset exchange transaction
D.claims exchange transaction.
The Herald Company provided the following information from its financial records:
What is the company’s book value per share?
A.$3.33
B.$10.67
C.$13.33
D.$10.83
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.
Packard Company’s net cash flow from financing activities for 2016 is
A.$220 outflow
B.$320 outflow
C.$5 inflow
D.$225 inflow
Barton Corporation uses the percent of receivables method of accounting for
uncollectible accounts. As of December 31, 2016, prior to estimating uncollectible
accounts expense, Barton’s balance of accounts receivable was $68,900, the balance of
allowance for doubtful accounts was $2,500, and total sales for 2016 were $875,000.
On December 31, Barton aged its receivables and determined the following:
Indicate whether each of the following statements is true or false.
_____ a) Barton will report Net Realizable Value of Accounts Receivable equal to
$63,170 on its December 31, 2016 balance sheet.
_____ b) Barton will report Uncollectible Accounts Expense of $5,730 on its 2016
income statement.
_____ c) The December 31 adjusting entry related to uncollectible accounts will
increase liabilities and decrease equity by $3,230.
_____ d) The method Barton uses to account for uncollectible accounts is known as the
balance sheet approach.
_____ e) Write-offs of uncollectible accounts in 2017 will reduce Barton’s net realizable
value of receivables.
Which method of reporting cash flows from operating activities is used by most
businesses in preparing the statement of cash flows?
A.Accrual method
B.Direct method
C.Indirect method
D.Computational method
Chisholm Associates uses the indirect method for preparing the statement of cash flows.
The following accounts and balances were drawn from the company’s accounting
records:
Net income for the period was $80,000. The net cash flows from operating activities
would be:
A.$70,400.
B.$65,600.
C.$76,000.
D.$94,400.
In December 2016, Lucas Corporation sold merchandise for $10,000 cash. Lucas
estimated that $700 of warranty claims might be filed in regard to these sales. On
February 12, 2017, warranty work amounting to $550 was performed for one of the
customers ($430 labor paid in cash and $120 from the materials inventory).
Which of the following answers correctly shows the effect of the recognition of the
warranty obligation at the end of 2016 on the financial statements of Lucas?
A.
B.
C.
D.
Grant Hylton started a consulting business, Grant Consulting, on January 1, 2016, and
the business engaged in the following transactions during the year:
1) Issued $40,000 of common stock for cash
2) Provided services on account, $46,500
3) Incurred $37,500 of operating expense, but only paid $32,000 of this amount
4) Collected $39,000 of the revenue that was previously recorded on account
5) Paid a cash dividend of $4,000 to the stockholders
Required:
a) Show the effects of the above transactions on the accounting equation. Precede the
amount with a minus sign if the transaction reduces that section of the equation. Enter 0
for items not affected.
b) Prepare an income statement and statement of cash flows for 2016.Precede a cash
outflow amount with a minus sign.
Singh Company sold 75 units @ $350 each on October 31, 2016. The following
information is also available:
Required:
a) Determine the amount of cost of goods sold using:
FIFO
LIFO
Weighted Average
b) Determine the amount of ending inventory using:
FIFO
LIFO
Weighted Average
What account is used to record the amount of cash shortages or overages relative to a
petty cash system?
A.Petty Cash Payable
B.Gain or Loss on Petty Cash
C.Petty Cash Expense
D.Cash Short and Over
Northern Corporation invested $800 cash in South Company stock.
As a result of this transaction,
A.The balance in the Cash account on Northern’s books would decrease, while the
balance in the Cash account on South Company’s books would increase.
B.South Company would have a cash inflow from investing activities.
C.Northern Corporation would have a cash outflow from financing activities.
D.All of these statements are true.
Bledsoe Company received $17,000 cash from the issue of stock on January 1, 2016.
During 2016 Bledsoe earned $8,500 of revenue on account. The company collected
$6,000 cash from accounts receivable and paid $5,400 cash for operating expenses.
Based on this information alone, during 2016,
A.Total assets increased by $20,100.
B.Total assets increased by $600.
C.Total assets increased by $26,100.
D.Total assets did not change.
The Glover Corporation purchased $80,000 of equipment on July 1, 2016. The
equipment is expected to be used in the business for five years and has an estimated
salvage value of $11,000. Partial MACRS tables are listed below:
Required: a) Compute the amount of depreciation that is deductible under MACRS for
2016 and 2017 assuming that the equipment is classified as 5-year property.
b) Compute the amount of depreciation that is deductible under MACRS for 2016 and
2017 assuming that the equipment is classified as 7-year property.
The statement of cash flows would not disclose the effects of:
A.cash dividends declared and paid.
B.issuance of preferred stock.
C.a purchase and retirement of treasury stock.
D.a 2-for-1 stock split.
The accounting principle that guides accountants, when faced with a recognition
dilemma, to choose the alternative that produces the lowest net income is referred to as
A.the matching concept.
B.internal control.
C.conservatism.
D.materiality.
The adjusting entry to record expense related to the use of a delivery van would involve
which of the following?
A.A debit to Accumulated Depreciation
B.A credit to Delivery Van
C.A debit to Depreciation Expense
D.A debit to Retained Earnings
When is warranty expense usually recognized?
Griggs Company began 2016 with a $64,000 debit balance in its Accounts Receivable
account. During the accounting period, Griggs earned revenue on account amounting to
$336,000. At the end of the accounting period, the Accounts Receivable account had a
balance of $44,000.
Using the above information, determine the amount of cash collected from accounts
receivable during the accounting period.
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.
A transaction recorded as a debit to Accounts Receivable and a credit to a revenue
account.
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.
The Craig Corporation began operations on January 1, 2016 by issuing 5,000 shares of
$6 par-value stock at $12. Indicate the effects of this transaction on the financial
statements.
What is the major advantage of using the direct method of preparing the operating
activities section of the statement of cash flows?
Explain the special feature that makes callable bonds attractive to an issuing
corporation.
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. Enter only one
letter for each element. You do not need to enter amounts.
On December 31, 2016, Sparkes Co. estimated it had $12,000 of uncollectible accounts
related to credit sales it made during the year. Sparkes, which uses the allowance
method, made the proper adjusting entry on this date. Indicate the effects of the
adjusting entry.
Discuss the limitations that affect financial statement analysis.
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 December 31, 2016, Tiller Co. paid cash for interest on bonds it had issued on
January 1, 2016 at 98, and amortized part of the discount on bonds. Crown Co. uses the
effective interest method of amortizing bond discounts. Indicate the effects of the
amortization of the discount only.
Does United States tax law encourage debt financing or equity financing of a
corporation? Why?
Show the effect of a stock dividend on the accounting equation.
The temporary accounts are closed prior to the start of the next accounting cycle. In this
closing process, the amounts in each of these accounts are transferred to what other
account(s)?
What are the primary roles of the independent auditor? What professional license is
required of an independent auditor?
Describe what is meant by the term “goodwill.”
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.
Venture Company paid $50 of accrued interest expense.
Lucas Company has the following account balances at the end of 2016:
Required: Compute the net realizable value of the above accounts receivable.
What financial statement ratios facilitate the measurement of a company’s effectiveness
in collecting cash from customers?