A question asked by stockholders is, “How much profit did the company make?” What
should the stockholder examine to get the most information that will help evaluate the
answer to this question?
a. The balance sheet, because retained earnings represents current profits
b. The statement of cash flows, as cash inflows and outflows represents current profits
c. The income statement, since it shows the revenues and expenses for the period
d. The economic resources of the company
To be classified as a cash equivalent, an item must be readily convertible to a known
amount of cash and have an original maturity to the investor of three months or more.
a. True
b. False
Santana Company issued additional shares of common stock. The effect of the
transaction is
a. the earnings per share increased
b. the debt-to-equity ratio increased
c. the earnings per share decreased
d. the asset turnover ratio decreased
A decrease in retained earnings indicates that a cash dividend has been paid.
a. True
b. False
From the following list, select the proper section from the statement of cashflows in whi
ch it would beclassified.
a. Working capital will increase
b. Working capital will decrease
c. Working capital will not change
Borrowed cash using a long-term note
Flake Company accepted a check from Ramos Company as payment for services
rendered by Flake Company. Later Flake’s bank statement revealed that Ramos’ check
was an NSF check. Recognizing the NSF check on Flake’s books would act to:
a. Decrease total assets
b. Decrease total owners’ equity
c. Both a. and b.
d. Have no effect on Total Assets
Cash equivalents are reported in the Operating Activities section of the statement of
cash flows.
a. True
b. False
Match the following terms with the best definitions for questions 212 through 219. a.
Purchase requisition.
b. Receiving Report.
c. Vendor Invoice.
d. Check.
e. Control procedures.
f. Inventory count.
g. Segregation of duties.
h. Source document control.
The practice of not combining physical custody of assets with the function of
accounting for those assets.
a. A receivable arising from the sale of goods or services with a verbal promise to pay.
b. A form used to categorize the various individual accounts receivable according to the
length of time each has been outstanding.
c. A method of estimating bad debts on the basis of either the net credit sales of the
period or the accounts receivable at the end of the period.
d. A measure of the number of times receivables are collected in a period.
e. The general ledger account that is supported by a subsidiary ledger.
f. A contra-asset account used to reduce accounts receivable to its net realizable value.
g. The detail for a number of individual items that collectively make up a single general
ledger account.
h. The recognition of bad debts expense at the point an account is written off as
uncollectible. Accounts Receivable turnover
Nathan Company’s plant operates five days per week with a daily payroll of $50,000.
Employees are paid every Tuesday for the prior week’s work (Monday through Friday).
The last day of the month is Tuesday, April 30. What effect does the accrual at April 30
have on Nathan’s net income?
a. Increase by $250,000
b. Decrease by $150,000
c. Decrease by $100,000
d. Increase by $150,000
Capitalizing an expenditure rather than recording it as a revenue expenditure
a. affects the total book value of plant assets reported on the balance sheet and the
amount of net income reported during a period.
b. affects the total book value of plant assets on the balance sheet, but has no effect on
the amount of net income reported during an accounting period.
c. affects the amount of net income reported during an accounting period, but has no
effect on the total book value of plant assets on the balance sheet.
d. has no effect on the book value of plant assets on the balance sheet or the amount of
income reported on the income statement.
Gym Corporation reported the following information at December 31, 2014:
A) Calculate Gym Corporation’s total assets. B) Calculate Gym Corporations’ net
income for 2014. C) Calculate Gym Corporation’s total stockholders’ equity at the end
of 2014.
When a company discards machinery that is fully depreciated, this transaction would be
recorded with the following entry:
a. debit Accumulated Depreciation; credit Machinery
b. debit Machinery; credit Accumulated Depreciation
c. debit Cash; credit Accumulated Depreciation
d. debit Depreciation Expense; credit Accumulated Depreciation
Indicate whether each should be (a) included or (b) excluded from the line item titled
Cash and cash equivalents on the balance sheet.
a. Included
b. Excluded
Corporate bonds maturing in 30 days
Givens Corp.
Givens Corp. is a merchandising company that uses the periodic inventory system.
Selected account balances are listed below:
Refer to information for Givens Corp. Calculate the cost of goods sold for Givens Corp.
a. $275,000
b. $259,000
c. $241,000
d. $211,000
The entry required to recognize the bad debts expense for 2014 will act to:
a. Increase total assets and retained earnings
b. Decrease total assets and retained earnings
c. Decrease total assets and increase net income
d. Increase total assets and decrease net income
Presented below are selected data from the financial statements of Medtech Company
for 2016, 2015, and 2014.
A) Calculate Medtech’s accounts receivable turnover ratio for 2016 and 2015. B) What
could have caused the change? Explain.
How is a classified balance sheet useful to decision makers?
Under the, the net cash flow from operating activities is computed by adjusting net
income to remove the effect of all deferrals of past operating cash receipts and
payments, and all accruals of future operating cash receipts or payments.
Why do accounting standards require a company to separately disclose income taxes
paid and interest paid if it uses the indirect method?
A bond with a face value of $10,000 is issued at a discount of $800 on January 1, 2014.
The face rate of interest on the bond is 7%. REQUIRED: 1> Was the market rate at the
time of issuance greater than 7% or less than 7%?
2> If a balance sheet is presented on January 1, 2014, how will the bonds appear on the
balance sheet?
3> If a balance sheet is presented on December 31, 2014, will the amount for the bonds
be higher or lower than on January 1, 2014?
Wet Paint Company signed a ten-year lease agreement on January 1, 2015. The lease
requires payments of $65,000 per year every December 31. Wet Paint estimates that the
leased property has a life of 11 years. The interest rate that applies to the lease is 12%.
REQUIRED: 1> Should Wet Paint Company treat the lease as an operating lease or a
capital lease?
2> If a balance sheet is presented on January 1, 2015, what amounts related to the lease
will appear on the balance sheet?
3> Assume that the leased asset is depreciated using the straight-line method and the
lease is amortized using the effective interest method. What journal entries should Wet
Paint make on December 31, 2015?
is the quality of accounting information that allows a user to compare two or more
accounting periods for a single company.
If a company understates its ending inventory balance for 2015 by $15,500, what are
the effects on its net income for 2015 and 2014?