Indicate whether each of the following statements is true or false.
_____ a) Financial statement ratios permit comparisons over time and among different
companies.
_____ b) Knowledge of financial statement analysis techniques is useful to stockholders
and creditors but not to the managers of a business.
_____ c) The primary objective of accounting is to provide information that is stable
over time.
_____ d) Current accounting principles indicate that financial statements should be
prepared to meet information needs of those who have a reasonably informed
knowledge of business.
_____ e) Financial statements are aimed at the information needs of stockholders only.
San Jose Company issued five-year 8% bonds with a face value of $100,000, for
$107,023.58 on January 1, 2016 when the market (effective) rate of interest was 7%.
The bonds pay annual interest each December 31. San Jose uses the effective interest
method for amortization of premium or discount on bonds payable. (Round your
answers to two decimal places.)
Required:
a) What is the annual amount of cash that San Jose will pay to bondholders for interest?
b) What amount of interest expense and premium amortization should San Jose
recognize for 2016? What is the carrying amount of the liability on December 31,
2016?
c) What amount of interest expense and premium amortization should San Jose
recognize for 2017? What is the carrying amount of the liability on December 31,
2017?
d) What is the total amount of interest that San Jose will record in interest expense over
the life of the bond?
Mayberry Company paid $30,000 cash to purchase land. As a result of this business
event,
A.Total equity was not affected.
B.The net cash flow from investing activities decreased.
C.Total assets were not affected.
D.Total assets and total equity were not affected, and net cash flow from investing
activities decreased.
Which of the following cash flows would be included in the operating activities section
of the statement of cash flows? Assume use of the direct method.
A.Cash received from a bond issue.
B.Cash paid to purchase equipment.
C.Cash receipts from dividends.
D.Cash gains and losses from the sale of operational assets.
The inventory records for Radford Co. reflected the following
Determine the weighted average cost per unit (rounded) for May.
A.$4.45
B.$4.50
C.$5.12
D.$6.34
On January 1, 2016, Mayer Corporation signed a contract to perform $25,000 worth of
services for the Phibbs Company over the next three years. Which of the following
indicates the effects of this event on the income statement and statement of cash flows
of Mayer Corporation?
A.
B.
C.
D.
On January 1, 2016 Missouri Co. purchased a truck that cost $57,000. The truck had an
expected useful life of 10 years and a $6,000 salvage value. The amount of depreciation
expense recognized in 2017 assuming that Missouri uses the double declining-balance
method is:
A.$9,120.
B.$11,400.
C.$10,200.
D.$8,160.
Which of the following accounts appear in the liabilities section of the balance sheet?
A.Accounts payable, notes payable, allowance for doubtful accounts.
B.Warranties payable, discount on notes payable, accounts payable.
C.Notes payable, discount on notes payable, credit card receivables.
D.Accounts payable, allowance for doubtful accounts, warranties payable.
Use the following account numbers and corresponding account titles to answer the next
three questions.
Which accounts would affect gross margin?
A.Account numbers 2 and 9.
B.Account numbers 3 and 9.
C.Account numbers 3, 4, 7, and 9.
D.Account numbers 3, 7, 8 and 9.
Wythe Company received proceeds of $141,000 from discounting a $150,000, one year,
discount note at Centennial Bank.
a) What discount rate did the bank use?
b) Prepare the journal entry to record the proceeds of the loan.
Wichita, Inc. had the following amounts on its 12/31/16 financial statements.
The return on equity ratio for Wichita is:
A.5%.
B.10%.
C.20%.
D.50%.
At the end of the current accounting period, Ringgold Co. recorded depreciation of
$15,000 on its equipment. The effect of this entry on the company’s balance sheet is to:
A.decrease assets and increase liabilities.
B.decrease owners’ equity and decrease assets.
C.decrease assets and increase owners’ equity.
D.decrease owners’ equity and increase liabilities.
Indicate whether each of the following statements is true or false.
_____ a) The entry to record the purchase of supplies involves a debit to Supplies
Expense and a credit to Cash.
_____ b) The entry to record the amount of supplies used involves a debit to Supplies
Expense and a credit to Supplies.
_____ c) An asset use transaction may involve a debit to an asset and a credit to a
liability.
_____ d) An asset exchange transaction may involve a debit to an asset and a credit to a
liability.
_____ e) A claims exchange transaction may involve a debit to a liability and a credit to
revenue.
Stanton Company issued five-year 7% bonds with a face value of $100,000, for
$96,567.94 on January 1, 2016 when the market (effective) rate of interest was 7.5%.
The bonds pay annual interest each December 31. Stanton uses the effective interest
method for amortization of premium or discount on bonds payable. Round your
answers to two decimal places.
Required:
a) What is the annual amount of cash that Stanton will pay to bondholders for interest?
b) What amount of interest expense and discount amortization should Stanton recognize
for 2016? What is the carrying amount of the liability on December 31, 2016?
c) What amount of interest expense and premium amortization should Stanton
recognize for 2017? What is the carrying amount of the liability on December 31,
2017?
d) What is the total amount of interest that Stanton will record in interest expense over
the life of the bond?
Buttercup Florist uses the allowance method to account for uncollectible accounts.
Unable to collect a $150 account from a customer, Buttercup determined it was
uncollectible. How would the write-off of this account affect the company’s financial
statements?
A.
B.
C.
D.
The following balance sheet is provided for Saslaw Company:
The company’s debt to equity ratio is closest to:
A.33.4%
B.21.6%
C.54.4%
D.183.8%
The Belvedere Corporation had a balance in its Equipment account on January 1, 2016
of $320,000. During the year, equipment originally costing $85,000 and having
Accumulated Depreciation of $20,000 was sold for $67,000. The ending balance of the
Equipment Account was $275,000. How much did the company spend to purchase
additional equipment during 2016?
A.$40,000
B.$25,000
C.$90,000
D.$92,000
Llewelyn Company paid the amount due on a purchase of merchandise on account.
Llewelyn uses the perpetual inventory system. Which of the following answers reflects
the effect of the payment on the financial statements?
A.
B.
C.
D.
Indicate whether each of the following statements about bonds payable is true or false.
_____ a) A convertible bond may be converted into stock of the issuing company at the
option of the bondholder.
_____ b) Businesses issue bonds to banks to borrow large amounts of cash.
_____ c) A debenture is an unsecured bond.
_____ d) Callable bonds may be turned in for early retirement at the option of the
bondholder.
_____ e) The issuer of a bond receives cash when the bond is issued.
On January 1, 2016, Friedman Company purchased a truck that cost $48,000. The truck
had an expected useful life of 8 years and an $8,000 salvage value. The book value of
the truck at the end of 2016, assuming that Friedman uses the double declining balance
method, is:
A.$43,000.
B.$38,000.
C.$40,000.
D.$36,000.
If the financial statements cannot be relied upon because they contain one or more
material departures from GAAP, the auditor will issue the following type of audit
opinion:
A.Qualified opinion.
B.Disclaimer.
C.Adverse opinion.
D.Unqualified opinion.
Under a periodic inventory system, the buyer does not use which of the following
accounts in recording purchases and related transactions?
A.Merchandise Inventory
B.Purchase Returns and Allowances
C.Purchase Discounts
D.Purchases
Richmond Company collected $400 on account. What impact will this transaction have
on the firm’s current ratio?
A.Increase it
B.Decrease it
C.No impact
D.Not enough information is provided to answer the question.
Which of the following businesses is most likely to use a specific identification cost
flow method?
A.Car dealership
B.Grocery store
C.Hardware store
D.Roofing company
What effect will the declaration and distribution of a stock dividend have on net income
and cash flows?
A.
B.
C.
D.
Burton Supply uses the perpetual inventory method. At the end of the year Burton
Supply had the following items in inventory.
Required:
a) Determine the amount of inventory Burton Supply is showing on its books before
any adjustment.
b) Determine the amount of ending inventory using lower of cost or market applied to
each individual item.
c) Prepare the journal entry necessary to adjust inventory.
d) Determine the amount of ending inventory using lower of cost or market applied to
total inventory in aggregate.
e) Which method (individual items or aggregate) produces the smallest amount of total
assets?
Select the incorrect statement regarding the analysis of absolute amounts of various
accounts reported on the financial statements.
A.To fully appreciate an absolute amount, the analyst must consider the size of other
accounts of the business.
B.Using absolute amounts eliminates the problem of varying materiality levels.
C.Economic statistics such as the gross national product are built upon totals of
absolute amounts reported by businesses.
D.Financial statement users with expertise in particular industries can look at absolute
amounts and assess a company’s performance in a certain area.
Melbourne Company uses the perpetual inventory method. Melbourne purchased 500
units of inventory that cost $4.00 each. At a later date the company purchased an
additional 600 units of inventory that cost $5.00 each. If Melboune uses a LIFO cost
flow method, and sells 800 units of inventory, the amount of ending inventory
appearing on the balance sheet will be:
A.$3,800.
B.$1.350.
C.$1,500.
D.$1,200.
Owen Company’s unadjusted book balance at June 30, 2016 is $9,700. The company’s
bank statement reveals bank service charges of $45. Two credit memos are included in
the bank statement: one for $900, which represents a collection that the bank made for
Owen, and one for $50, which represents the amount of interest that Owen had earned
on its interest-bearing account in June. Based on this information, Owen’s true cash
balance is:
A.$9,700.
B.$10,695.
C.$10,550.
D.$10,605.
Which of the following items is an example of revenue?
A.Cash received from a bank loan
B.Cash received from investors from the sale of common stock
C.Cash received from customers at the time services were provided
D.Cash received from the sale of land for its original selling price
Which of the following is not classified as property, plant and equipment?
A.Computers
B.Buildings
C.Land
D.Office furniture
The Baker Company purchased $1,000 of supplies on account. After this transaction
has been recorded in T-accounts, the $1,000 would appear
A.on the right side of the Supplies account.
B.on the left side of the Supplies account.
C.on the left side of the Accounts Payable account.
D.on the right side of the Cash account.
Sanderling Corporation issued $400,000 of five-year 6% bonds at face value on August
1, 2016. Interest is paid annually on July 31.
a) Prepare Sanderling’s journal entry to record the issuance of the bonds.
b) Prepare Sanderling’s adjusting entry required on 12/31/16.
c) Prepare Sanderling’s entry to record the first interest payment on 7/31/17.
Indicate how each of the following transactions affect assets by entering + for increase,
– for decrease, or NA if total assets are not affected. Enter only one item for each
answer.
_______ 1) Issued stock to investors.
_______ 2) Borrowed cash from the bank.
_______ 3) Provided services for cash.
_______ 4) Paid operating expenses.
_______ 5) Purchased land for cash.
_______ 6) Paid cash dividend to the stockholders.
_______ 7) Repaid the bank loan.
Explain some of the accounting similarities and differences between not-for-profit
organizations and for-profit businesses.
Ian Brown and Gayle Hubbard both perform work for Max Manufacturing. Ian is
considered to be an employee, and Gayle is considered to be an independent contractor.
How is this possible? How does is affect payroll taxes?
How is the accounts receivable turnover computed? What information does this ratio
provide?
Flagler Corporation uses the direct write-off method of accounting for uncollectible
accounts. On February 2, 2016, after making numerous efforts to collect $9,600 from a
customer, the company wrote off the account. On April 1, 2016, the customer paid
$8,000 to Flagler. Make the appropriate entries to 1) write off the account; 2) reestablish
the account receivable; and 3) to record the collection.
Why are financial analysts interested in the statement of cash flows?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts.
Stan’s Surf Shack purchased 5 surfboards for $200 each. Later it purchased 2 more
surfboards for $250 each. Stan’s uses the perpetual inventory system. Assume that 6
surfboards were sold during the period for $350 cash each.
Assume that Stan’s Surf Shack made the second purchase for cash. How would that
purchase affect the financial statements?
Which method of depreciation generally allocates the largest amount of depreciation to
the first year of the asset’s life?
Give an example of an intangible asset with an identifiable useful life.
Which types of accounts are closed out to retained earnings at the end of an accounting
period?
Which financial statements are affected by the entry to record the payment of bond
interest and the related amortization of a discount? Describe how each statement is
affected.
On March 27, 2016, Larner Corp. signed an agreement for a line of credit with the
Wilmington Bank. Under the agreement, Larner can borrow up to $75,000 at any time
during the following year. Larner will make any borrowings or paybacks on the first
day of a month and make interest payments on the last day of any month when a
balance exists. The annual interest rate will be the bank’s prime rate plus 2% and will be
applied to the outstanding monthly balance. The following table gives the appropriate
information for April, May, and June of 2016.
Record all necessary journal entries on the dates indicated below. Round figures to the
nearest dollar.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. Enter only one
letter for each element. You do not need to enter amounts.
Furst Co. uses the allowance method to account for uncollectible accounts expense. On
June 20, 2016, Furst wrote-off an uncollectible account in the amount of $2,000. On
September 1, 2016, the account was collected. How would the appropriate entries on
September 1 affect the financial statements?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts. Enter only one letter for each element.
On December 31, 2016, Bates Co. paid $60,000 to the Municipal Bank to pay off the
face value of a discount note that Bates had issued a year before. Show the effects of the
payment and recognition of 2016 interest on the note.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts. Assume that Frank Company uses a perpetual inventory system.
Whetzel Co. sold merchandise to a customer for $1,400 cash. The merchandise had
originally cost Whetzel $850.
Rodgers Equipment Company sold a ten-year, 6% bond issue at 102 . Rodgers received
proceeds of $256,250 from the sale of these bonds. Calculate the face amount of these
bonds.
Determine whether each of the following events are asset source (AS), asset use (AU),
asset exchange (AE), or claims exchange (CE) transactions.
_____1) Borrowed $6,000 from creditors
_____2) Issued common stock to investors for $8,000 cash
_____3) Paid one year’s rent in advance
_____4) Provided services to customers and received $35,000 cash
_____5) Paid creditors $10,000
_____6) Received $3,000 of revenue in advance
_____7) Provided services to customers on account, $12,000
_____8) Collected $2,000 from accounts receivable
_____9) Recognized accrued salary expense of $2,000
_____10) Adjusted the records for supplies used of $800
What is the effect on the accounting equation of writing off an uncollectible account
receivable when the direct write-off method is used?