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Goods placed in inventory are initially recorded at:
A) market value.
B) the amount paid to acquire the asset.
C) the amount paid to prepare the asset for sale to customers.
D) the amount paid to acquire the asset and prepare it for sale.
Which of the following statements concerning financial reporting is not correct?
A) Accounting rules in the U.S. are called GAAP.
B) Accounting rules developed by the IASB are called IFRS.
C) Both GAAP and IFRS share the same goal, which is to ensure useful information to
users of financial statements.
D) There are no differences between the accounting rules developed by FASB and those
developed by IASB.
The Gulp convenience store chain buys new soda machines for $450,000 and pays
$50,000 for installation costs. One-half of the total cost or $250,000 is paid in cash; a
note in the amount of $250,000 is signed. How should the company record this
transaction?
A) Debit Cash for $250,000, debit Notes Payable for $250,000, and credit Equipment
for $500,000
B) Debit Equipment for $500,000, credit Cash for $250,000, and credit Notes Payable
for $250,000
C) Debit cash for $250,000, debit Notes Payable for $250,000, credit Equipment for
$450,000, and credit Operating Expenses for $50,000
D) Debit Equipment for $450,000, debit Operating Expenses for $50,000, credit cash
for $250,000, and credit Notes Payable for $250,000
Choose the appropriate letter to match the term and the definition. Not all definitions
will be used.
Term
1) _____ Operating Activities
2) _____ Indirect Method
3) _____ Working Capital
4) _____ Cash Equivalents
5) _____ Investing Activities
6) _____ Supplemental Disclosures
7) _____ Direct Method
8) _____ Financing Activities
Definition
A. Cash inflows and outflows related to components of net income.
B. Include assets that are very liquid and are purchased by the entity within three
months of maturity.
C. These activities include only purchases made with borrowed funds.
D. Reports the components of cash flows from operating activities as gross receipts and
gross payments.
E. This ratio uses net income instead of operating cash flow to analyze a company's
ability to finance the cost of its debt.
F. Measures the ability of a company to finance its interest payments with its operating
cash flow before taxes and interest.
G. A measure of the amount by which current assets exceed current liabilities.
H. These activities include money lent by a company as well as money borrowed by a
company.
I. Must include cash paid for interest and income tax in a separate schedule.
J. Cash inflows and outflows related to the sale or purchase of investments and
long-lived assets.
K. Cash inflows and outflows related to financing sources external to the company
(owners and lenders).
L. Presents the operating activities section of the cash flow statement by adjusting net
income to compute cash flows from operating activities.
Assuming two companies use the same accounting methods, other things being equal,
the company with a higher fixed asset turnover ratio:
A) has a greater amount invested in fixed assets than a company with a lower fixed
asset turnover ratio.
B) has less invested in fixed assets than a company with a lower fixed asset turnover
ratio.
C) generates less sales revenue than a company with a lower fixed asset turnover ratio.
D) makes better use of its fixed assets to generate revenues than a company with a
lower fixed asset turnover ratio.
In Year 2, the Denim Company bought an acre of land that cost $15,000. In Year 5,
another company purchased a nearby acre of land for $28,000 and a different company
purchased another nearby acre of land for $26,000. As a result, an appraiser estimated
hat the acre owned by Denim had increased in value to $27,000. If Denim prepares a
balance sheet at the end of Year 5, the acre of land that it owns should be reported at:
A) $15,000.
B) $28,000.
C) $18,000.
D) the average of all of the amounts.
A company sells a piece of equipment half-way through the accounting period. The
straight-line rate of depreciation on the equipment is $40,000 per year. Before preparing
the entry to record the sale of the equipment, the company should first debit:
A) Depreciation Expense for $40,000 and credit Accumulated Depreciation for
$40,000.
B) Accumulated Depreciation for $40,000 and credit Cash for $40,000.
C) Depreciation Expense for $20,000 and credit Accumulated Depreciation for $20,000.
D) Cash for $20,000 and credit Depreciation Expense for $20,000.
Your company rents computers to local businesses and schools. You have 1,000
computers with a book value of $160,000. As a result of changing technology, your
computers are more difficult to rent so you must drastically reduce your rental price,
which causes a decrease in estimated future cash flows. The fair value of the computers
is estimated to be $125,000 because of their outdated technology. Your company should
report an asset impairment loss of:
A) $160,000.
B) $125,000.
C) $35,000.
D) $0.
A machine had an estimated useful life of 5 years, but after 3 years, it was decided that
the original estimate of useful life should have been 10 years. At that point, the
remaining cost to be depreciated should be allocated over the remaining:
A) 2 years.
B) 5 years.
C) 7 years.
D) 10 years.
Blossom Inc. has an unadjusted debit balance of $3,500 in its Allowance for Doubtful
Accounts. The company has experienced bad debt losses of 2% of credit sales in prior
periods. Blossom reported net credit sales of $1,500,000 for the current period. The
required journal entry to record Bad Debt Expense should include a debit to:
A) Allowance for Doubtful Accounts for $30,000.
B) Allowance for Doubtful Accounts for $33,500.
C) Bad Debt Expense for $33,500.
D) Bad Debt Expense for $30,000.
The market price of a share of common stock at the time of issuance was $19.50, while
the market price of a preferred share of stock at the time of issuance was $32. The
company paid $12.50 per share for its treasury stock.
Required:
Determine the missing amount in the stockholders' equity section of the balance sheet
set forth below.
STOCKHOLDERS' EQUITY
Contributed Capital:
Preferred Stock, $2.00 par value, authorized 1,000,000 shares;
issued 300,000 shares $ (a)
Additional Paid-in Capital (b)
Common Stock, $3.00 par value, authorized 40,000,000 shares;
issued 25,600,000 shares (c)
Additional Paid-in Capital (d)
Total Contributed Capital (e)
Retained Earnings 305,683,000
Treasury Stock (10,000 shares, at cost) (f)
Total Stockholders' Equity $ (g)
(a) ________
(b) ________
(c) ________
(d) ________
(e) ________
(f) ________
(g) ________
A company's cash receipts procedures include the following. Cashiers collect cash and
issue a receipt at the point of sale. Supervisors take custody of the cash at the end of
each cashier's shift and deposit it in the bank. Accounting staff then ensure the receipts
from cash sales are properly recorded in the accounting system. Which internal control
principle is most evident with these procedures?
A) Restrict access
B) Segregate duties
C) Document procedures
D) Independently verify
Match the term and its definition. There are more definitions than terms.
Terms
____ 1) Promissory Note
____ 2) Net Accounts Receivable
____ 3) Bad Debt Expense
____ 4) Maturity Date
____ 5) Days to Collect
____ 6) Accounts Receivable
____ 7) Allowance For Doubtful Accounts
____ 8) Receivables Turnover
Definitions
A. The time at which a loan must be repaid.
B. A financial statement that shows the calculation of Bad Debt Expense for a company.
C. Total money owed the company for sales made on credit.
D. Net credit sales revenue divided by the net income.
E. An agreement by a borrower to repay the lending company with interest during a
specified time period.
F. The time at which a borrower must make annual interest payments.
G. A contra-asset account.
H. The days of the year divided by the receivables turnover ratio.
I. The portion of Accounts Receivable that the company expects to collect.
J. An account that is debited for the amount of credit sales estimated as uncollectible.
K. Net credit sales revenue divided by the average net receivables.
L. The days of the year divided by the net sales revenue.
Which of the following errors cause net income to be understated?
A) Employee wages that have not been paid are not recorded.
B) Depreciation Expense is not recorded.
C) Collection of an accounts receivable is not recorded.
D) Revenue that has been earned but not yet collected has not been recorded.
Use the information above to answer the following question. What is the amount of
total assets to be reported on the balance sheet at the end of the year?
A) $112,000.
B) $102,000.
C) $119,000.
D) $155,000.
Which of the following statements concerning a petty cash fund is not correct?
A) A petty cash fund acts as a control by establishing a limited amount of cash to use
for specific types of expenses.
B) A petty cash fund is similar to an imprest payroll account.
C) The company's petty cash custodian is responsible for operating the petty cash fund.
D) To avoid the administrative costs of the use of purchasing cards, or Pcards, many
organizations have started using petty cash funds.
The Don't Bite Me Pest Control Company has 10,000 gallons of insecticide supplies on
hand that cost $300,000; a bill from the vendor for $100,000 of these supplies has not
yet been paid. The company expects to earn $800,000 for its services when it uses the
insecticide supplies. The company's balance sheet would include an asset, Supplies, in
the amount of:
A) $10,000.
B) $200,000.
C) $300,000.
D) $800,000.
Use the information above to answer the following question. What is the missing
amount for Total Liabilities?
A) $3,347,700.
B) $1,439,200.
C) $1,470,700.
D) $1,877,000.
Relevance is an objective of external financial reporting that means:
A) the financial reports of a business are assumed to include the results of only that
business's activities.
B) financial information can be compared across businesses because similar accounting
methods have been applied.
C) the financial information possesses a feature that allows it to influence a decision.
D) the financial information depicts the economic substance of business activities.
