The justification for the accrual basis of accounting lies in the needs of financial
statement users for periodic information on the financial position and the profitability of
the entity.
a. True
b. False
The solution to this problem requires time value of money calculations. Reference to
Tables 9-1 through 9-4 in the text is necessary to complete the calculations. If Garrett
has $5,000 per year to invest for 10 years and wants to accumulate $87,745 at the end
of that time, he must find an investment that is earning at a rate of
a. 15%
b. 12%
c. 11%
d. 6%
Which one of the following is an example of an accrued liability?
a. Wages have been earned by employees, but have not been paid at the end of the
period.
b. Equipment that will benefit several periods has been purchased.
c. An insurance policy that expires in a future period has been acquired.
d. Supplies are purchased and used over several months.
How are the cash flow effects from the purchase and sale of intangible assets reported
on a statement of cash flows?
a. As operating activities
b. As investing activities
c. As financing activities
d. They are not reported on a statement of cash flows.
No single explanation can be given for the divergence of accounting standards.
a. True
b. False
Which of the following best describes the term “assets”?
a. The amount of total profits earned by a business since it began operations.
b. The amount of interest or claim that the owners have in the business.
c. The economic resources of a business entity.
d. The cumulative profits earned by a business less any dividends distributed.
Common-size financial statements exclude the dollar amount as a relevant variable in
the analysis, which makes comparison of one period with the next more meaningful.
a. True
b. False
Houston Corp. prepares monthly bank reconciliations of its checking account balance.
The bank statement for July 2014 indicated the following:
An analysis of canceled checks and deposits and the records of Houston revealed the
following items:
The correct amount of check #205 is $540, but it was recorded as a cash disbursement
of $450. The check was issued to pay for merchandise purchases. The check appeared
on the bank statement correctly. A) Prepare a bank reconciliation schedule at July 31,
2014, in proper form. B) What amount would Houston report on its balance sheet at
July 31, 2014, for cash?
In calculating deferred income taxes,occur when an item is included in the tax
calculation and is never included for financial accounting purposes, or vice versa.
Basic Solutions Company reported net earnings of $60,000, declared and paid cash
dividends on its common stock in the amount of $40,000 during the year, and sold
3,000 shares of $2 par value common stock for $15 per share during the year. What
effects would these transactions have on the stockholders’ equity accounts shown
below? Retained Earnings Common Stock
a. increase increase
b. increase decrease
c. decrease increase
d. decrease decrease
Identify which of the following would be recorded as external events, recorded as
internal events, or not recorded.
a. Internal event
b. External event
c. Not recordedThe company hires a new marketing firm for their new product
The credit side of an account is the right side while the debit side is the left side.
a. True
b. False
Carrying value is computed annually when a bond is issued for other than its face value.
For a bond issued at a discount, how will this component change as the bond
approaches maturity?
a. decrease
b. increase
c. remain constant
d. not enough information given to decide
Paint Company Following are selected data from Paint Company’s financial statements.
Refer to the Paint Company data. The cash flow from operations to capital expenditures
ratio for 2016 is an indicator that Paint Company
a. has been effectively able to use operations to finance its acquisitions of productive
assets.
b. has increased profits by $13,000.
c. has decreased cash, but is offset by the increase in net income.
d. has net income that is more than it would have been had dividends of $30,000 been
paid.
Paint Company Following are selected data from Paint Company’s financial statements.
Refer to the Paint Company data. The company’s debt-to-equity ratio was 0.83 to 1 in
2016 and 0.89 to 1 in 2015. Which of the following statements is true concerning Paint?
a. The company has a smaller percentage of capital from owners at the end of 2016 than
at the end of 2015.
b. The company relied more on creditors for financing during 2016 than in 2015.
c. The company is improving its debt-to-equity ratio.
d. The company appears to be in a weaker position at the end of 2016 to finance capital
expenditures from cash flow generated by operating activities.
Which of the following accounts would not be reported in the Property, Plant, and
Equipment section of a balance sheet?
a. Accumulated Depreciation-Buildings
b. Buildings
c. Depreciation Expense-Buildings
d. Land
Which of the following represents one of the purposes of the notes to financial
statements?
a. To provide a place for management to justify questionable items in the statements
b. To provide comparative ratios for the company’s financial data
c. To provide the CPA’s opinion of the fairness of the financial statements
d. To satisfy the need for full disclosure of all the facts relevant to a company’s results
and financial position
Improv Corporation issued $95,000 face value bonds at a discount of $5,000. The bonds
contain a call price of 102. Improv decides to redeem the bonds early when the
unamortized discount is $2,750. REQUIRED: 1>Calculate Improv Corporation’s gain
or loss on the early redemption of the bonds.
2> Describe how the gain or loss would be reported on the income statement and in the
notes to the financial statements.
Lower Enterprises invested its excess cash in the following instruments during
December 2014:
Determine the amount of cash equivalents that should be combined with cash on the
company’s balance sheet at December 31, 2014, and for purposes of preparing a
statement of cash flows for the year ended December 31, 2014.
Hammar Corporation has been very profitable on the basis of its very high profit margin
of 51.2%. Before making an investment, however, you would want to consider how this
ratio compares with that of prior years and with that of other companies in the same line
of business.
Peterson Corporation’s partial income statement is as follows:
Determine the profit margin. Would you invest in Peterson Corporation? Explain your
answer.
controls within a company are more concerned with efficient operations and the
adherence to management policies than with the accurate reporting of financial
information.
The success of accounting as a form of communication depends on two concepts,and
____________________.
Bagel Inc. reported net income of $105,000 for the year ended December 31, 2014. The
following items were included on Bagel’s balance sheets at December 31, 2014 and
2013:
Bagel uses the indirect method to prepare its statement of cash flows. Bagel does not
have any other current assets or current liabilities and did not enter into any investing or
financing activities during 2014. REQUIRED:
1> Prepare Bagel’s 2014 statement of cash flows.
2> Draft a brief memo to the owner to explain why cash decreased during a profitable
year.
The issue price of a bond is based on theof the cash flows that the bond will produce.
If the present and future values are known along with the number of periods, then the
_________________________ can be determined.
The party that receives the payment due from a note is called the.