Which of the following statements is false?
a. A balance sheet reports a company’s cash balance at a specific date.
b. An income statement reports the amounts of revenue and expense on an accrual
basis, not the amount of cash received from revenues or paid for expenses.
c. A statement of retained earnings reports the amount of cash received from operating
activities and the amount of cash paid for dividends.
d. A statement of cash flows explains the changes in cash from operating, investing, and
financing activities.
The following is from Goldman Inc.’s 2015 income statement.
How much will Goldman report as its cost of goods sold in its 2015 income statement?
a. $179,900
b. $182,300
c. $186,900
d. $190,700
Provided below is a list of important users of accounting information.Below the list are
descriptions of a major need of each of the various users. Fill in the blank with the one
user group that is most likely to have the need described to the right of the blank. Some
user groups may be used more than once or not at all.
a. Capital stock
b. Asset
c. Owners’ equity
d. Time period
e. Dividends
f. Economic entity concept
g. Expense
h. Retained earnings
i. Cost principle
j. Creditor
k. Liability
l. Revenue
m. Going concern
n. Monetary unit
o. Corporation
The cost of doing business that results from the process of generating revenues.
U.S. GAAP requires companies to present a balance sheet with classifications for
current and long-term liabilities, while IFRS does not .
a. True
b. False
The total amount of interest calculated annually on a $7,000 promissory note payable
for 3 years at 12% that is not compounded is
a. $ 280
b. $ 840
c. $ 2,520
d. $ 8,260
The gross profit ratio is computed by dividing net sales by gross profit.
a. True
b. False
Exeter Corporation purchased a piece of equipment with a price of $80,000 on March 1,
2015. The amounts below are related to the equipment purchase. Match the items below
and explain why each revenue expenditure is not capitalized.
a. This item should be included as part of the cost of the equipment.
b. This item should be considered a revenue expenditure.
The company purchased a three-year liability insurance policy to cover possible
damage caused by the new equipment at a cost of $6,000.
Provided below is a list of important users of accounting information.Below the list are
descriptions of a major need of each of the various users. Fill in the blank with the one
user group that is most likely to have the need described to the right of the blank. Some
user groups may be used more than once or not at all.
a. Stockholder
b. Company management
c. Supplier
d. Banker
e. Internal Revenue Service
f. Securities and Exchange Commission
g. Labor union The profitability of each division of the company.
Because the cash received from the sale of long-term assets is reported in the investing
activities section of the statement of cash flows, any gain or loss is built into the cash
received under the direct method.
a. True
b. False
Each account has a normal balance. For the following list of accounts, indicate whether
the normal balance of each is a debit or a credit.
a. Debit
b. Credit
Advertising Fees Earned
The inventory turnover ratio is defined as cost of goods sold divided by average
inventory.
a. True
b. False
One way analysts measure the ability of a company to meet its obligations is to
calculate the times interest earned ratio for any outstanding debt the company may
have. For Tempo Solutions Corporation, $10,000 of bonds paying 6.5% annually are
outstanding. Income before interest and taxes is $7,000. How would Tempo Solutions
Corporation calculate the times interest earned ratio?
a. Income before interest and taxes divided by the interest expense.
b. Income before interest and taxes divided by carrying value of the bonds outstanding.
c. Income before interest and taxes divided by the face rate on bonds.
d. Face amount of bonds divided by income before interest and taxes.
Solvency is concerned with the ability of a company to pay next year’s debts as they
come due.
a. True
b. False
Longitude Company borrowed on a two-year, 10%, $150,000 note on May 1, with
interest and principal to be paid at maturity. How much interest will Longitude report
on its income statement for the year ending December 31?
a. $ 10,000
b. $ 15,000
c. $ 30,000
d. $ 5,000
Under the indirect method, instead of reporting cash receipts and payments, net income
is reconciled with net cash from operating activities.
a. True
b. False
For each item listed, select the section of the balance sheet in which the item would be r
eported.
a. Current Assets
b. Property, Plant, and Equipment
c. Current Liabilities
d. Long-term Liabilities
e. Stockholders’ Equity
Cash
Capital stock indicates the owners’ contributions to a partnership.
a. True
b. False
The total amount of simple interest calculated annually on a $6,000 note payable for 3
years at 11% is
a. $1,980
b. $2,205
c. $6,600
d. $7,980
You just purchased an automobile for $19,450 and must decide how to pay for it. Your
local bank has granted you a five-year loan. Annual payments on the loan will be made
at the end of each year and the amount of the loan payments, which include principal
and interest, is $5,000 per year. What is the interest rate that is being charged on the
loan?
What are examples of accounts that might be classified as accrued liabilities in the
current liabilities section of the balance sheet?
The amount of money received, or the fair value of the products or services received by
the maker when a promissory note is issued is called the.
Some ratios are more useful for management, whereas others are better suited to the
needs of outsiders, such as stockholders and bankers. What is an example of a ratio that
is primarily suited to management use and why? What ratio is more suited to use by
outsiders and why?
consists of all activities necessary to provide the members of an economic system with
goods and services.
What is the relationship between the depreciation method chosen and income taxes paid
in the early years? Explain.
The company that makes or gives a promissory note to another company has a liability,
called a(n)
____________________.
Frannie’s Dance Studio accounting records reflect the following account balances at
January 1, 2015.
During 2015, the following transactions occurred: 1) On February 1, rented a small
studio for a one year period of time. Paid $6,000 cash.
2) On November 1, received $1,200 cash for dance lessons to be provided evenly over
November, December, and January.
3) By December 31, used $3,000 of the supplies
4) At December 31, accrued $3,000 in wages and salaries.
5) During the year, paid cash for $20,000 in wages and salaries
6) During the year, earned $40,000 cash in dance lesson revenue.