1) The records of Marshall Company include the following:
The return on assets is closest to:
A.14.9%.
B.18.3%.
C.15.3%.
D.14.7%.
2) Which of the following is false?
A.The major difference between the quick and current ratios is inventory.
B.Current liabilities are the denominator in the cash, quick, and current ratios.
C.Companies that sell expensive merchandise tend to have high inventory turnover
ratios.
D.Some analysts do not use the cash ratio because it is very sensitive to individual
events.
3) When a company receives cash before providing any products or services are
provided the following results:
A.Assets and stockholders’ equity increase.
B.Assets and revenue increase.
C.Liabilities and revenues increase.
D.Liabilities and assets increase.
4) Schager Company purchased a computer system on January 1, 2014, at a cash cost of
$25,000. The estimated useful life is 10 years, and the estimated residual value is
$3,000. The company will use the double declining-balance depreciation method. How
much is the 2015 depreciation expense?
A.$5,000.
B.$4,120.
C.$4,000.
D.$3,520.
5) Carrie Company sold merchandise with an invoice price of $1,000 to Underwood,
Inc., with terms of 2/10, n/30. Which of the following is the correct entry to record the
payment by Underwood Inc., within the 10 days if the company uses the periodic
inventory system and the gross method to record purchases?
A.Option A
B.Option B
C.Option C
D.Option D
6) Which of the following statements is correct?
A.Companies will change the method of depreciating assets from one year to the next to
reflect usage of an asset.
B.Companies can affect the book value at the end of an asset’s life by choosing one
method of depreciation over another.
C.Companies can use one method of depreciation for some of their long-lived
productive assets but then use a different method for another group or type of long-lived
productive assets.
D.Companies can minimize an asset’s book value in the first year of use by selecting the
straight-line depreciation method rather than the double-declining-balance method.
7) For each of the following accounts, indicate whether the account is an asset (A),
liability (L), or stockholders’ equity (SE) and whether the account has a normal debit
(Dr) or normal credit (Cr) balance.
1. Retained Earnings
2. Supplies
3. Additional paid-in capital
4. Accounts payable
5. Accounts receivable
6. Property and equipment
7. Wages payable
8. Prepaid expenses
8) Which of the following statements is false when a company sells inventory costing
$700 for $1,200?
A.Cost of goods sold is $700.
B.Gross profit is $500.
C.Stockholders’ equity does not change.
D.Net sales increases $500.
9) Which of the following journal entries is created to adjust for an accrual?
A.Option A
B.Option B
C.Option C
D.Option D
10) Which of the following statements correctly describes either the dividend yield or
earnings per share?
A.The dividend yield decreases when net income increases.
B.Earnings per share are per share of both common and preferred stock.
C.The dividend yield increases when the market price per share decreases.
D.Earnings per share decreases when dividends per share decrease.
11) McGinn Company purchased 10% of RJ Company’s common stock during 2014 for
$100,000. The 10% investment in RJ had a $90,000 fair value at the end of 2014 and a
$105,000 fair value at the end of 2015. Which of the following statements is correct if
McGinn classified the investment as an available-for-sale security and sold it at the
beginning of 2016 for $102,000?
A.The 2016 realized loss reported on the income statement is $3,000.
B.The 2016 realized gain reported on the income statement is $2,000.
C.The 2016 unrealized gain reported on the income statement is $2,000.
D.The 2016 unrealized loss reported on the income statement is $3,000.
The 2016 realized gain is $2,000 and is included within McGinn’s 2016 income
statement. The gain is the difference between the selling price of $102,000 and the
original cost of $100,000 when the investment is classified as available-for-sale.
12) Kryton Corp. has provided the following information:
Gross profit was $620,000;
Cost of goods sold was $380,000;
Net income was $400,000.
What was Kryton’s gross profit percentage?
A.40%
B.61.3%
C.62%
D.155%
13) Which of the following would not be reported in the operating activities section of
the statement of cash flows, which has been prepared using the indirect method?
A.Sales on account which have not yet been collected.
B.Net income.
C.Cash paid for income taxes.
D.Depreciation expense.
14) The following data were taken from the records of Lilo Corporation for the year
ended December 31, 2014 before any adjustment for bad debt expense:
The following items have not been included in above amounts:
Estimated bad debt expense is 1% of credit sales.
The income tax rate is 35%.
10,000 of shares of common stock are outstanding.
A Calculate the bad debt expense.
B Prepare a multiple-step income statement (including gross profit, income before
income taxes, and earnings per share).
15) The financial statements of Franklin Company contained the following errors:
A Was net income for 2013 understated or overstated? Briefly explain your answer.
B 1. Considering the effect of the errors of both years at December 31, 2014, is retained
earnings overstated or understated, and by what amount?
2. Briefly explain your answer to part B(1).
16) The results or a balance on one financial statement may affect the results or a
balance on another financial statement.
Prepare a response to the following items.
A Describe how the income statement is related to the statement of stockholders’ equity.
B Describe how the statement of stockholders’ equity is related to the balance sheet.
C Describe how the statement of cash flows is related to the balance sheet.
17) The following income statement is complete except for a few missing titles (bold
lines on the left), and amounts (dotted lines on the right).
Prepare a complete income statement using the format and amounts provided. Fill in all
items that are missing titles and amounts (ignore income taxes).
18) During 2014, Winterset Company performed services for which customers paid or
promised to pay $587,000. Of this amount, $552,000 had been collected by year-end.
Winterset paid $340,000 in cash for employee wages and owed the employees $15,000
at the end of the year for work that had been done but had not paid for. Winterset paid
interest expense of $3,000 and $195,000 for other service expenses. The income tax rate
was 35%, and income taxes had not yet been paid at the end of the year. Winterset
declared and paid dividends of $20,000. There were no other transactions that affected
cash.
Requirements:
1. What was the amount of the increase or decrease in cash during the year?
2. Prepare an income statement for Winterset for the year.3. At the beginning of 2014,
Winterset’s retained earnings were $90,000. Prepare a statement of stockholders’ equity
with only a column for retained earnings.
19) Tractor Corporation was just formed. The following accounts with code letters are
given below.
Indicate the appropriate journal entry for each transaction by entering the code letters
and the correct amounts (do not use dollar signs). The transactions, including the
example, are not interrelated unless otherwise stated.
