1) A counterbalancing inventory error is one where the error on the balance sheet is
offset by the same amount of error on the income statement.
2) In an operating lease, the lessee is not required to record the right to use the property
as an asset or to record the obligation for payments as a liability.
3) Under the indirect method, the first line in the operating activities section of the
statement of cash flows is the net income or loss for the period.
4) Obligations related to operating activities that will be paid within the company’s
operating cycle must be reported as current liabilities on a classified balance sheet.
5) Whether investments are reported as current assets or noncurrent assets depends on
the companys intent.
6) A 2-for-1 stock split increases the par value per share.
7) U.S. GAAP requires companies to present a balance sheet with classifications for
current and long-term liabilities, while IFRS does not.
8) Some companies use a work sheet approach, which functions like the T account
approach, as a tool to aid in preparing the statement of cash flows.
9) A company purchased machinery by issuing 2,000 shares of $3 par value common
stock. Since the company is new, there is no established market price for its stock. How
would the company record the transaction?
A.In terms of the par value of the stock issued
B.At the fair market value of the machine
C.At the cost recorded by the previous owner of the machine
D.Recording the transaction would be postponed until a market price for the stock
could be determined
10) Skyline, Inc.
The balance sheet of Skyline Inc. includes the following items:
Read the information about Skyline, Inc. What is Skylines working capital?
A.$58,440
B.$89,740
C.$84,040
D.$9,740
11) At December 31, 2014, the accounting records of Whole Foods Corporation contain
the following:
If Cash is $26,000, what is the December 31, 2014 capital stock balance?
A.$272,000
B.$240,000
C.$220,000
D.$400,000
12) Which of the following statements is true when using the indirect method of
preparing the operating activities section of the statement of cash flows?
A.Inventory decreases are subtracted from net income
B.Inventory increases are subtracted from net income
C.Inventory increases are added to net income
D.None of the above
13) Chens Department Store
Chens Department Store is a merchandising company that uses the periodic inventory
system. Selected account balances are listed below:
Refer to the account information for Chens Department Store.
Calculate Chens net sales.
A.$162,000
B.$167,000
C.$170,000
D.$175,000
14) Which one of the following statements is true concerning assets?
A.They are recorded at market value and then adjusted for inflation
B.They are recorded at market value for financial reporting purposes as historical cost
may be arbitrary
C.Accountants use the term historical cost to refer to the original cost of an asset
D.Assets are measured using the time-period approach
15) The following set of items describes activities completed by a company in
purchasing and paying for merchandise. For each activity, identify whether or not the
activity adheres to or violates sound internal control procedures.
Although the department supervisor can indicate a preferred supplier or vendor on
purchase requisitions, the purchasing department has the responsibility for making the
final decision on a vendor.
A.Adheres to sound internal control procedures
B.Violates sound internal control procedures
C.Neither strengthens nor violates internal control
16) Dinos Pizza employs 10 workers in its plant. Each employee is paid $8 per hour and
works 8 hours per day, Monday through Friday. Employees are paid every Wednesday
for the previous Monday through Friday workweek. The last payday was Wednesday,
May 28.
17) Which of the following statements is true?
A.If a company reports net income on its income statement, it should report an increase
in cash on its statement of cash flows
B.If a company reports a net loss on its income statement, it should report a decrease in
cash on its statement of cash flows
C.If a company uses the accrual basis of accounting, it will improve its cash position if
it reports net income for the same period
D.If a company uses the accrual basis of accounting, its cash balance can increase even
if it reports a net loss
18) Seashell Company is considered “very liquid” for the year ended December 31,
2012. This means that Seashell
A.has a small quick ratio.
B.must decrease its liquidity in order to appear favorable to stockholders.
C.should sell plant assets in order to remain in business.
D.is able to pay its current debts using its current assets.
19) You are a potential stockholder and are concerned that a particular company you are
ready to invest in might have too much debt. Which financial statement would provide
you information needed in order to evaluate your concern?
A.Balance sheet
B.Income statement
C.Statement of retained earnings
D.Statement of public accounting
20) 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 the interest factor used to calculate the future value of $1 at 6% for 5 periods is 1.338,
then the present value of $1 at 6% for 5 periods is
A.1.338 1.338
B.1/1.338
C.1/(1.338 x 1.338)
D.0.338
21) Garrison Industries
Garrison Industries began operations on January 2, 2014, with an investment of $50,000
by each of its two stockholders. Net income for its first year of business was $240,000.
Garrison Industries paid a total of $100,000 in dividends to its stockholders during the
year.
Read the information about Garrison Industries. What is the companys retained
earnings balance at December 31, 2014?
A.$140,000
B.$190,000
C.$240,000
D.$340,000
22) An accountant is uncertain about the best estimate of an amount for a business
transaction. If two amounts are about equally likely, the amount least likely to overstate
assets and income is selected. Which of the following qualities is characterized by this
action?
A.Comparability
B.Conservatism
C.Materiality
D.Neutrality
23) Among the assets listed below, which one is considered the most liquid?
A.Cash
B.Accounts receivable
C.Merchandise inventory
D.Prepaid expenses
24) Americana Corporation
The data below is for Americana Corporation for 2014.
Refer to the data for Americana Corporation
If the aging approach is used to estimate bad debts, what is the balance in the
Allowance for Doubtful Accounts after the bad debt expense adjustment.
A.$8,000
B.$8,100
C.$8,900
D.$9,600
25) Explain some of the differences in accounting for operating assets that exist
between U.S. GAAP and IFRS.
26) The following information is available from the records of Focus Seascapes, Inc. at
the end of the 2014 calendar year:
Required:
1> What is the total amount of Focus assets at December 31, 2014?
2> What is the total amount of Owners Equity at December 31, 2014?
3> What is the capital stock balance at December 31, 2014?
27) Digital Marvels
Selected data from the financial statements for Digital Marvels is presented below.
Refer to the financial statement information for Digital Marvels.
Determine the dollar amount of cost of goods purchased for Digital Marvels for 2014.
28) [APPENDIX] Fowler Company opened business as a sole proprietorship on
January 1, 2012. The owner contributed $525,000 cash on that date. During the year,
the company had a net income of $20,000. The company purchased equipment of
$120,000 during the year. The owner also withdrew $75,000 to pay for personal
expenses during 2012.
REQUIRED:
Determine the companys owners equity at December 31, 2012.
29) A decrease in retained earnings represents dividends that were
___________________ during the period, not necessarily those that were paid.
30) Presented below are condensed data from the financial statements of Gallo Factory
for 2014 and 2013. The figures are expressed in thousands. Use this information to
answer the questions that follow.
Required: How much of Gallo Factory is financed by owners at the end of December
of 2014?
31) An internal or external event must be ____________________ to be recognized.
32) Why do many companies use one method to calculate depreciation for the income
statement developed for stockholders and another method for income tax purposes?
33) What are examples of accounts that might be classified as accrued liabilities in the
current liabilities section of the balance sheet?