1) A corporation has limited liability and attracting outside investment is easier relative
to sole-proprietorships and partnerships.
2) The inventory turnover ratio equals cost of goods sold divided by average inventory.
3) Commonly, current liabilities are payable within one year, and long-term liabilities
are payable more than one year from now.
4) From a balance sheet perspective, the percentage-of-receivables method is typically
preferable because assets (net accounts receivable) are reported closer to their net
realizable value.
5) Small stock dividends are recorded by debiting Retained Earnings for the par value
per share.
6) An example of separation of duties would be not allowing an employee who receives
cash to also be responsible for depositing that cash in the bank account.
7) A company expects 5% of its newer accounts receivable to be uncollectible and 20%
of its older accounts to be uncollectible. If the company has $40,000 of newer accounts
and $5,000 of older accounts, the total estimate of uncollectible accounts is $2,000.
8) The Sales Returns account is an expense account.
9) When using a companys current earnings to estimate future earnings performance,
investors normally should exclude discontinued operations and extraordinary items.
10) The statement of comprehensive income is a statement in which we report all
changes in stockholders equity other than investment by stockholders and payment of
dividends.
11) A lower receivables turnover ratio generally indicates more favorable management
of accounts receivable by company managers.
12) We can find most financing activities by examining changes in long-term liabilities
and stockholders equity accounts.
13) If the likelihood of loss is remote, disclosure usually is not required.
14) Opening mail and making a list of checks received once per week is considered a
good internal control over cash receipts.
15) The difference between revenues and expenses is referred to as net income or net
loss.
16) On December 31, 2015, employees who earn $500 per day have worked eight days
and will be paid on January 6, 2016 . The adjusting entry on December 31, 2015,
includes a debit to Salaries Expense for $4,000.
17) Par value is the legal capital per share of stock thats assigned when the corporation
is first established.
18) A company uses a periodic system to record inventory transactions. The company
purchases inventory on account on February 9, 2015, for $50,000 and then sells this
inventory on account on March 7, 2015, for $70,000. Record the transactions for the
purchase and sale of the inventory.
19) Classify each of the following items as an operating, investing, or financing activity.
1> Dividends paid
2> Sale of goods or services for cash
3> Sale of equipment
4> Purchase of inventory
5> Repayment of notes payable
20) The following income statement and balance sheets for Laser World are provided:
Assuming that all sales were on account, calculate the following risk ratios for 2015:
21) Allied Construction and Axis Construction reported the following information in
their annual financial statements ($ in millions):
Required:
1> Calculate Allied Constructions return on assets, profit margin, and asset turnover
ratio for 2015 .
2> Calculate Axis Constructions return on assets, profit margin, and asset turnover ratio
for 2015.
3> Which company has the better profit margin and which company has the better asset
turnover?
22) Stealth Fitness Center issues 7%, 10-year bonds with a face amount of $200,000.
The market interest rate for bonds of similar risk and maturity is 8%. Interest is paid
semiannually. At what price will the bonds be issued?
23) For each transaction, indicate whether a company would classify the related account
as an asset, liability, stockholders equity, dividend, revenue, or expense.
24) On January 1, 2015, Water Wonderland issues $20 million of 8% bonds, due in ten
years, with interest payable semiannually on June 30 and December 31 each year.
1> If the market rate is 7%, will the bonds issue at face amount, a discount, or a
premium? Calculate the issue price.
2> If the market rate is 8%, will the bonds issue at face amount, a discount, or a
premium? Calculate the issue price.
3> If the market rate is 9%, will the bonds issue at face amount, a discount, or a
premium? Calculate the issue price.
25) A company receives $6,500 cash in advance from customers for services to be
provided next year. Record the transaction.
26) Discuss the meaning of consolidated financial statements. When is it appropriate to
consolidate financial statements of two companies?
27) A company provides services to customers on account, $3,500. Record the
transaction.