Which of the following items would not be identified if a contingent liability were
disclosed in a financial statement note?
a. The nature of the item
b. The expected outcome of the future event
c. A numerical probability of the expected loss
d. The amount of the contingency, if known
Answer:
The following information is available for Oakland Company:
The inventory turnover ratio for 2015 is
a. 6.7 times.
b. 5.0 times.
c. 5.4 times.
d. 4.6 times.
Answer:
The right side of an account
a. is the correct side.
b. reflects all transactions for the accounting period.
c. shows all the balances of the accounts in the system.
d. is the credit side.
Answer:
An example of poor internal control is
a. The accountant should not have physical custody of the asset nor access to it.
b. The custodian of an asset should not maintain or have access to the accounting
records.
c. One person should be responsible for handling related transactions.
d. A salesperson makes the sale, and a different person ships the goods.
Answer:
The expense recognition principle states that expenses should be matched with
revenues. Another way of stating the principle is to say that
a. assets should be matched with liabilities.
b. efforts should be matched with accomplishments.
c. owner withdrawals should be matched with owner contributions.
d. cash payments should be matched with cash receipts.
Answer:
Cost of goods available for sale is computed by adding
a. freight-in to net purchases.
b. beginning inventory to net purchases.
c. beginning inventory to purchases and freight-in.
d. beginning inventory to cost of goods purchased.
Answer:
During the year, Slick’s Pet Shop’s inventory decreased by $25,000. If the company’s
cost of goods sold for the year was $500,000, purchases must have been
a. $475,000.
b. $500,000.
c. $525,000.
d. Unable to determine.
Answer:
Which receivables accounting and reporting issue is not essentially the
same for IFRS and GAAP?
a. The use of allowance accounts and the allowance method.
b. How to record discounts.
c. How to record factoring.
d. All of these are essentially the same for IFRS and GAAP.
Answer:
In Lynne Company, there was an increase in the land account during the year of
$43,000. Analysis reveals that the change resulted from a cash sale of land at cost
$115,000, and a cash purchase of land for $158,000. In the statement of cash flows, the
change in the land account should be reported in the investment section:
a. as a net purchase of land, $43,000.
b. only as a purchase of land $158,000.
c. as a purchase of land $158,000 and a sale of land $115,000.
d. only as a sale of land $115,000.
Answer:
Identify which of the following items would be reported as additions (A) or deductions
(D) in a Retained Earnings Statement.
1> Net Income
2> Net Loss
3> Cash Dividends
4> Stock Dividends
5> Prior period adjustments to correct for overstatement of prior years’ net income
6> Prior period adjustments to correct for understatement of prior years’ net income
Answer:
When preparing a consolidated income statement,
a. only the revenues and expenses of the parent company are presented.
b. the income from partially owned subsidiaries is excluded.
c. all revenue and expense transactions between the parent and subsidiaries must be
eliminated.
d. intercompany transactions between affiliated companies do not have to be
eliminated.
Answer:
Cleese Company sells merchandise on account for $5,000 to Langston Company with
credit terms of 2/10, n/30. Langston Company returns $1,000 of merchandise that was
damaged, along with a check to settle the account within the discount period. What is
the amount of the check?
a. $3,920
b. $4,000
c. $4,900
d. $4,920
Answer:
On a bank reconciliation, deposits in transit are
a. added to the bank balance.
b. deducted from the bank balance.
c. added to the book balance.
d. deducted from the book balance.
Answer:
Jack Kingman the new controller of Henderson Company, has reviewed the expected
useful lives and salvage values of selected depreciable assets at the beginning of 2015.
His findings are as follows.
All assets are depreciated by the straight-line method. Henderson Company uses a
calendar year in preparing annual financial statement. After discussion, management
has agreed to accept Jack’s proposed changes.
Instructions
(a) Compute the revised annual depreciation on each asset in 2015. (Show
computation.)
(b) Prepare the entry (or entries) to record depreciation on the building in 2015
(c) Show how the building is reported in the 12/31/15 balance sheet.
Answer:
Goldblum Company has the following account balances:
The cost of goods purchased for the period is
a. $80,800.
b. $88,000.
c. $94,000.
d. $104,000.
Answer:
The book value of an asset will equal its fair market value at the date of sale if
a. a gain on disposal is recorded.
b. no gain or loss on disposal is recorded.
c. the plant asset is fully depreciated.
d. a loss on disposal is recorded.
Answer:
Which of the following items will increase inventoriable costs for the buyer of goods?
a. Purchase returns and allowances granted by the seller
b. Purchase discounts taken by the purchaser
c. Freight charges paid by the seller
d. Freight charges paid by the purchaser
Answer:
After transaction information has been recorded in the journal, it is transferred to the
a. trial balance.
b. income statement.
c. book of original entry.
d. ledger.
Answer:
The effect of a stock dividend is to
a. decrease total assets and stockholders’ equity.
b. change the composition of stockholders’ equity.
c. decrease total assets and total liabilities.
d. increase the book value per share of common stock.
Answer:
The present value of a bond is a function of two variables: (1) the payment amounts and
(2) the interest (discount) rate.
Answer:
Discontinued operations refers to the disposal of a significant component
of the business such as the stopping of an entire activity or eliminating a
major class of customers. It is important to report discontinued operations
separately from continuing operations because the discontinued component
will not affect future income statements.
A trusted employee of Outback Tours was caught in the act of embezzling
funds. He confessed to earlier embezzlements, but retracted the confession
on the advice of his attorney. Over the course of the most recent quarter, it
has been determined that $20,000 was embezzled.
Outback Tours has suffered adverse publicity in the recent past because of
serious injury to five tourists that occurred during a two week “Winter
Wilds Adventure” tour. The company has therefore decided to avoid
publicity and has agreed to drop all charges against the embezzling
employee. In return, the employee has agreed to a notation of
“Terminated’”Not to be Rehired” to be appended to his personnel file.
1> Who are the stakeholders in the decision not to prosecute?
2> Was it ethical for the company to decide not to prosecute? Explain.
Answer:
Accounting is an information system that identifies, _____________, and
_____________ the economic events of an organization.
Answer:
Selected information from the comparative financial statements of Fava Company for
the year ended December 31, appears below:
Instructions
Answer the following questions relating to the year ended December 31, 2016. Show
computations.
1> Inventory turnover for 2016 is __________.
2> Times interest earned in 2016 is __________.
3> The debt to assets ratio for 2016 is __________.
4> Accounts receivable turnover for 2016 is __________.
5> Return on assets for 2016 is __________.
Answer:
Match the items below by entering the appropriate code letter in the space provided.
Answer:
Treasury stock purchased for $25 per share that is reissued at $20 per share, results in a
Loss on Sale of Treasury Stock being recognized on the income statement.
Answer:
Match each item/event pair below with the indicated change in the item. An individual
classification may be used more than once, or not at all. For each dividend, assume that
both declaration and payment or distribution has occurred.
Classifications
A> Item increases
B> Item decreases
C> Item is unchanged
D> Direction of change cannot be determined
Answer: