On December 1, 2014, Xeon Company bought land and an accompanying warehouse
from Yen Company for $800,000. The fair market values of the land and the building at
the time of purchase were $700,000 and $300,000, respectively. How much of the
purchase price should Xeon Company allocate to the land and how much should be
allocated to the building? a. $457,143 and $342,857, respectively.
b. $700,000 and $300,000, respectively.
c. $560,000 and $240,000, respectively.
d. $500,000 and $300,000, respectively
A trial balance that balances provides proof that all transactions were correctly
journalized and posted to the ledger.
a. True
b. False
Two methods are available to prepare the operating activities section of a statement of
cash flows. Which of the following statements regarding these two methods is false?
a. If a company uses the indirect method, it must separately disclose the cash payments
made for interest and income taxes.
b. If a company uses the direct method, it must present a separate schedule which
reconciles net income to net cash from operating activities.
c. Advocates of the direct method believe that the indirect method reveals too much by
telling readers gross amounts of cash receipts and cash payments from operations.
d. The FASB prefers the direct method, while most companies use the indirect method
in practice.
An increase in accounts receivable is reported on the statement of cash flows under the
indirect method as an addition.
a. True
b. False
A company prepares adjusting entries for debit memorandums but not for credit
memorandums.
a. True
b. False
Which account is always carried over from the unadjusted trial balance columns of a
work sheet to the balance sheet columns of the work sheet without any adjustment?
a. Accumulated depreciation
b. Depreciation expense
c. Cash
d. All of these are adjusted.
For each of the following accounts, indicate whether it is a balance sheet account or an
income statement account.
a. Balance sheet account
b. Income statement account
Prepaid Insurance
Which one of the following documents is used in the control of cash receipts?
a. Purchase requisitions
b. Receiving reports
c. Canceled checks from customers
d. Bank deposit slips
From the following list, identify each item as operating (O), investing (I), financing (F),
or not separately reported on the statement of cash flows (N).
a. Operating-O
b. Investing-I
c. Financing-F
d. Not separately reported-N
Conversion of preferred stock into common stock
Select the ratio that each statement below most properly satisfies.
a. Dividend yield ratio
b. Cash flow from operations to capital expenditures ratio
c. Debt service coverage ratio
d. Return on common stockholders’ equity ratio
e. Times interest earned ratio
f. Asset turnover ratio
g. Debt-to-equity ratio
h. Dividend payout ratio
i. Price/earnings ratio
The relationship between dividends and the market price of a company’s stock
Utah Corp. Use the following selected data and additional information from the records
of Utah Corp. to answer the questions that follow. Balance Sheet Data
2016 2015
Additional information:
(1) Equipment with a cost of $15,000 and a book value of $3,000 was sold for $5,000
during 2016.
(2) Common stock was issued to retire bonds payable during 2016.
(3) The only items affecting retained earnings in 2016 were net income and dividends
declared and paid. Review the data for Utah Corp. REQUIRED:
(A) What amount was paid to acquire equipment during 2016?
(B) What amount was recorded as depreciation expense during 2016?
(C) What amount was declared and paid for dividends during 2016?
Owners of Tri-States Industries, Ralph and Maureen, are sent a dividend check from the
company. For this transaction, what is the effect on the accounting equation for
Tri-States Industries?
a. Assets decrease and stockholders’ equity decreases.
b. Assets increase and stockholders’ equity increases.
c. Liabilities increase and stockholders’ equity decreases.
d. Liabilities increase and stockholders’ equity decreases.
Select the account that would be increased to show each of the following costs.
a. Land
b. Land Improvements
c. Buildings
d. Machinery and Equipment
e. An Expense Account
The annual painting costs of an office building
Which one of the following statements regarding the application of the lower of cost or
market method is true?
a. Generally, market value is greater than replacement cost.
b. When the lower of cost or market method is used, inventories are valued at selling
price.
c. The lower of cost or market method is most commonly applied on a total inventory
basis because it is a more conservative approach.
d. The lower of cost or market method is an exception to the historical cost principle.
Which of the following items is treated as a cash equivalent?
a. Commercial paper with a 6-month maturity when purchased and 4 months until
maturity at the balance sheet date.
b. Investment in corporate stocks which management intends to sell within 3 months
after the balance sheet date.
c. Money market funds which can be obtained overnight from a bank or brokerage firm.
d. Investments in corporate bonds which have 5 years until maturity when they are
purchased.
After all of the account balances have been extended to the Balance Sheet columns of
the work sheet, the totals of the debit and credit columns are $37,875 and $32,735,
respectively. What is the amount of net income or net loss for the period?
a. $5,140 net income
b. $37,875 net loss
c. $5,140 net loss
d. $32,735 net income
Carrington & Co. rented office space to a tenant on January 31 and received a total of
$9,000 for the first three months of rent. The amount was recorded as Rent Collected in
Advance when received. Adjustments are recorded only at the end of every quarter.
What effect does the adjustment at March 31 have on Carrington’s net income for the
quarter ending March 31?
a. Increase by $9,000
b. Decrease by $6,000
c. Decrease by $3,000
d. Increase by $6,000
Which of the following is a current asset?
a. Land
b. Buildings
c. Store fixtures
d. Prepaid insurance
On January 1, 2014, Humansville Company purchased a piece of equipment with a list
price of $80,000. The following amounts were related to the equipment purchase: –
Terms of the purchase were 2/10, net 30. Humansville paid for the purchase on January
8.
– Freight costs of $1,250 were incurred.
– A state agency required that a pollution control device be installed on the equipment at
a cost of $3,300.
– During installation, the equipment was damaged and repair costs of $4,200 were
incurred.
– Architect’s fees of $6,100 were paid to redesign the work space to accommodate the
new equipment.
– Humansville purchased liability insurance to cover possible damage to the asset. The
threeÂyear policy cost $8,700.
– Humansville financed the purchase with a bank loan. Interest of $4,600 was paid on
the loan during 2014. REQUIRED:
Determine the acquisition cost of the equipment.
Racer Company acquired patent rights on January 1, 2013 for $1,080,000. The patent
has a useful life equal to its legal life of 15 years. On January 2, 2016, Racer
successfully defended the patent in a lawsuit at a cost of $78,000.
On October 1, 2014, Winter Corp. buys a computer system for $270,000 in cash.
Assume that the computer is expected to have a five-year life and an estimated salvage
value of $30,000 at the end of that time. REQUIRED:
1> Prepare the journal entry to record the purchase of the computer on October 1, 2014.
2> Compute the depreciable cost of the computer.
3> Using the straight-line method, compute the monthly depreciation.
4> Prepare the adjusting entry to record depreciation at the end of October 2014.
5> Compute the computer’s carrying value that will be shown on Winter’s balance sheet
prepared on December 31, 2014
Which category of cash flows-operating, investing, or financing activities-do you think
is most likely to have a net cash outflow over a number of years? Explain.
Dividends are not a(n)but a direct reduction of retained earnings.
The cost of goods purchased is equal to net purchases plus.