1) [APPENDIX] A sole proprietorship is a separate entity for legal purposes.
2) The base, or benchmark, on which all items on the income statement are compared is
net sales.
3) The balance in the account, Rent Collected in Advance, is reported as an asset on the
balance sheet of the landlord.
4) Depreciation does not describe the increase or decrease in the market value of the
asset.
5) A company that forgets to recognize depreciation for the year overstates its income
and assets.
6) If a company must pay more for the amounts provided by creditors and preferred
stockholders than it can earn overall, as indicated by the return on assets, there will be
favorable leverage.
7) One effect of recognizing depreciation is to decrease net income.
8) Selling on credit protects a company from the risk that some of its receivables will
never be collected.
9) Accountants are the main reason financial statements are prepared.
10) An entry that includes the Cash account is probably an adjustment.
11) Several years ago, Fair Play Company purchased a patent and has since been
amortizing it on a straight-line basis over its estimated useful life. The company’s
comparative balance sheets contain the following items:
A. How much amortization expense was recorded during 2013?
B. How is the amortization expense reported on the company’s statement of cash flows?
C. How much was the original cost of the patent?
D. How many years has the patent been amortized?
12) If a company erroneously records a $500 deposit as $400 in its books, which of the
following must occur when reconciling the bank statement?
A.The company will have to increase the balance per the bank statement by $100
B.The company will have to increase the balance per the books by $100
C.The company will have to decrease the balance per bank statement by $100
D.None of the above
13) In order to evaluate a companys gross profit ratio,
A.the ratio should be compared with forecasted financial statements
B.the ratio should be compared with those of prior years
C.the ratio should be compared with other companies in the same industry
D.the ratio should be compared with those of both prior years and competitors
14) If a company’s asset turnover ratio decreased from 2012 to 2013, which of the
following conclusions can be made?
A.The company was more efficient during 2013 in using its assets to produce profits
B.The company produced less sales in 2013 for each dollar invested in assets
C.The company was less profitable in 2012
D.The company over invested in assets in 2013
15) 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.
Ralph wants to save some money so that he can make a down payment of $3,000 on a
car when he graduates from college 4 years from now. If he opens a savings account
and earns 3% on his money, compounded annually, how much will he have to invest
now?
A.$2,520
B.$2,664
C.$2,910
D.$3,000
16) Presented below are selected data from the financial statements of Hospital Supply
Company for 2012, 2011, and 2010.
17) Use the information below for Fargo Corp. for 2013 and 2014 to answer the
following question.
At the end of 2014, Fargo issued bonds at par value for $800,000 cash. The proceeds
from these bonds were used to retire the $500,000 bond issue outstanding at the end of
2013 (before their maturity date). All interest expense was paid in cash during 2014.
How much did Fargo pay to retire the $500,000 bond issue during 2014?
A.$485,000
B.$500,000
C.$515,000
D.$560,000
18) Which balance sheet accounts are most affected by investing activities?
A.Current assets and current liabilities
B.Long-term assets
C.Long-term liabilities
D.Stockholders equity
19) Use the equation presented below to answer the question that follows:
Cash = CL + LTL + CS + RE – NCCA – LTA
Which of the following activities results in a cash inflow?
A.Increases in noncash current assets (NCCA)
B.Decreases in current liabilities (CL)
C.Increases in common stock (CS)
D.Decreases in retained earnings (RE)
20) Feinstein Company buys designer clothing to sell in its retail stores. Since much of
the merchandise comes from Dallas and Europe. Feinstein Company must pay freight
charges to get the merchandise shipped in. Which statement is true?
A.Transportation-in, paid by Feinstein Company, is added to the inventory account
under the periodic system
B.Transportation-in, paid by Feinstein Company, is subtracted from purchases under the
periodic system
C.Freight charges are only paid by a buyer in a periodic system
D.Transportation-in is added to net purchases to determine cost of goods purchased in a
periodic system
21) Corrine Auto sold merchandise to a customer for $3,000 on credit on July 10. The
customer paid Corrine Auto the amount due on July 31. Under the accrual basis of
accounting, which of the following statements is true?
A.Corrine Auto will recognize the revenue on July 31
B.The July 10th transaction increases revenue, but has no effect on assets because cash
has not been received
C.Revenue is recognized after the cost of the merchandise sold has been paid by
Corrine Auto
D.The July 31st transaction has no effect on total assets under the accrual basis
22) Which of the following terms does not describe the interest rate printed on the bond
certificate?
A.Coupon rate
B.Effective rate
C.Face rate
D.Stated rate
23) Allowance for Doubtful Accounts represents:
A.Cash set aside to make up for bad debt losses
B.The amount of uncollectible accounts written off to date
C.The difference between total sales made on credit and the amount collected from
those credit sales
D.The difference between the gross amount of accounts receivable and the net
realizable value of accounts receivable
24) Below are the transactions for Jacksonville Company:
Based on these transactions, what is the net cash flow from financing activities?
A.$285,000 net cash provided by financing activities
B.$275,000 net cash used for financing activities
C.$0, because cash inflows equal cash outflows from financing activities
D.$440,000 net cash provided by financing activities
25) The bond issue price is determined by calculating the
A.present value of the stream of interest payments and the future value of the maturity
amount
B.future value of the stream of interest payments and the future value of the maturity
amount
C.future value of the stream of interest payments and the present value of the maturity
amount
D.present value of the stream of interest payments and the present value of the maturity
amount
26) Relevant information can be quantitative or qualitative. In deciding whether to go to
college part-time or full-time, which of the following is a qualitative factor for a
student?
A.The cost of tuition
B.The opportunity to make friends
C.The price of football tickets
D.Good Student discounts on auto insurance rates
27) An amount recorded as an increase in the company’s cash account at month-end, but
which has not yet been reflected on the bank statement is called a(n)
_________________________.
28) 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: Based on the information provided, is Gallo Factory considered a business
or non-business entity? How do you know by examining the financial statements?
29) On March 1, 2012, Application Co. issued at a price of 100 $20 million of 8%,
25-year bonds payable. Interest is payable semiannually each March 1 and September
1.
REQUIRED:
Identify and analyze the adjustment necessary at December 31, 2012, regarding this
bond issue.
30) A(n) ____________________ is a form sent by the purchasing department to the
supplier.
31) Raponi, Inc.
The following balance sheet items from Raponi, Inc. are listed for December 31, 2014:
Read the information about Raponi, Inc.
Required:
Present the current liabilities section (including the total) of a classified balance sheet.
32) The amount of cash the maker is to pay the payee on the maturity date of the note is
called the ____________________.
33) For each of the following sentences 3-10, select the word or group of words that
best completes the statement.
A(n) ____________________ creates an increase in income for the period.
34) Share, Inc.
The following data is available for one of the products sold by Share, Inc., which uses a
perpetual inventory system.
Refer to the data for Share, Inc.
If the moving average method is used, how much is ending inventory on May 30?
35) What is the revenue recognition principle? Are there any exceptions to this rule? If
so, what are they? If not, explain why
36) 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: Was Gallo Factory profitable both years? What are the amounts of the total
revenues and total expenses, respectively, for 2014? Which financial statement provides
this information to you?