1) A bond issue price is the present value of the cash flows that the bond will produce.
2) Issuance of stock results in cash inflows that appear in the financing section of the
statement of cash flows.
3) Petty cash typically is composed of coins and currency kept on hand in a business to
make minor disbursements.
4) The balance sheet is linked to the retained earnings statement by the ending retained
earnings balance.
5) There is a standard format in various countries for the statement of financial position.
6) According to the text, in economies like those that made up the former Soviet Union,
accounting standards are relatively less complex due to the fact that they are just
beginning to be developed.
7) The LIFO conformity rule requires that if a company uses LIFO in reporting income
to stockholders, it also must use LIFO on its tax return.
8) The Property, Plant, and Equipment category includes long-term investments.
9) The inventory turnover ratio is a measure of how many times during a period a
company sells off its inventory.
10) An auto repair company is an example of a manufacturer.
11) A purchase order is not the basis for recording a purchase and a liability.
12) The maker of a note recognizes a note payable on the balance sheet and interest
expense on its income statement.
13) When a bond is issued at a discount, the interest expense each year is less than the
cash payment for interest.
14) An objective of financial reporting is to reflect economic information concerning a
company’s cash flows.
15) The costs of doing business through the sale of goods and services are called
A.Net income
B.Expenses
C.Revenues
D.Dividends
16) Parachute Country Club
Use the selected accounts for Parachute Country Club presented below to answer the
following question(s).
Read the information on Parachute Country Club.
On which date did the company make cash sales for daily golf and swimming fees?
A.August 2
B.August 3
C.August 5
D.August 7
17) 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.
Checks are signed by designated officers in the finance department.
A.Adheres to sound internal control procedures
B.Violates sound internal control procedures
C.Neither strengthens nor violates internal control
18) Zebra Company overstated its December 31, 2014 inventory by $5,200. Which
statement is true concerning Zebras financial statement amounts for 2014?
A.Working capital is understated
B.The current ratio is overstated
C.Cost of goods sold is overstated
D.Net income is understated
19) Where would you tell someone to find the information needed to compute the cash
flow adequacy ratio?
A.the balance sheet only
B.the statement of cash flows and the notes to the statements
C.the statement of cash flows only
D.the income statement only
20) Operating, investing, and financing activities affect certain balance sheet accounts.
Which of the following statements is true?
A.Operating activities primarily involve transactions which affect noncurrent assets
B.Investing activities primarily involve U.S. government securities and long-term
productive assets
C.Financing activities primarily involve transactions which affect current liabilities
D.Different balance sheet accounts are affected depending on whether the direct or
indirect method is used
21) Bonds in the amount of $100,000 and a life of 10 years were issued by the
Gordman Company. If the face rate is 6% and interest is paid semiannually, what would
be the total amount of interest paid over the life of the bonds?
A.$ 60,000
B.$120,000
C.$ 30,000
D.$ 6,000
22) Which of the following is a commonly cited disadvantage of having a new unified
set of accounting standards?
A.Acquiring foreign companies would become a more confusing proposition
B.Corporations may find themselves more susceptible to lawsuits due to the
principles-based system
C.Time and money would not be saved in accessing capital markets abroad
D.The SEC would be dissolved if international accounting standards were adopted
23) If a company understates its ending inventory balance for 2012 by $15,500, what
are the effects on its net income for 2012 and 2011?
Effect on 2012 Net Income Effect on 2011 Net Income
A.Overstated by $15,500 Understated by $15,500
B.Understated by $15,500 Overstated by $15,500
C.Understated by $15,500 No effect
D.Overstated by $15,500 No effect
24) Canyon Corporation
The accountant for the Canyon Corporation prepared the following list from the
companys accounting records for the year ended December 31, 2014:
Read the information for Canyon Corporation. Determine the following amounts for
Canyon Corporation.
A) Total assets at the end of 2014.
B) Total liabilities at the end of 2014.
C) Total equity at the end of 2014.
25) Which one of the following procedures is incorrect for setting up and maintaining a
petty cash fund?
A.A check is prepared for a fixed amount; when the check is cashed, the money is
entrusted to a petty cash custodian
B.An entry is recorded to establish the fund and obtain the cash
C.When appropriate documentation is presented, cash payments are made from the
fund; the petty cash custodian retains the documentation
D.When the petty cash fund is replenished, an entry is recorded to recognize an increase
in the petty cash account
26) Depreciation is a process by which
A.replacement funds are accumulated for plant and equipment
B.the decline in market value of plant and equipment is determined and recorded
C.the cost of plant and equipment is allocated to expense over the time periods which
benefit from the use of the asset
D.the difference between current market value and historical cost of plant and
equipment
27) Tracy, Inc.
Tracy, Inc. adjusts its books each month but closes its books at the end of the year. The
trial balance at July 31 before adjustments is as follows:
Refer to the trial balance for Tracy, Inc.
On July 31, the amount of supplies on hand is $520. What amount is reported in the
July income statement for supplies expense?
A.$520
B.$1,300
C.$0
D.$780
28) The stockholders’ equity section of Augusta, Inc. is as follows:
The market price of the stock on December 31, 2012, was $8 per share. Answer the
following independent questions:
29) Below are selected data from the financial statements of Moriarty Company.
The debt-to-equity ratio for 2012 is
A.increasing, which should be a major cause of concern for Moriarty Company.
B.increasing, which should be a good sign in investors’ eyes.
C.decreasing, which should be a major cause of concern for Moriarty Company.
D.decreasing, which should be a good sign in investors’ eyes.
30) Cost of goods sold is equal to
A.the total amount of merchandise purchased during the year.
B.the cost of merchandise purchased plus transportation-in costs less ending inventory
C.the cost of merchandise purchased plus transportation-in costs plus beginning
inventory minus purchase returns and allowances and purchase discounts minus ending
inventory
D.the cost of merchandise purchased plus transportation-in costs plus beginning
inventory minus purchase returns and allowances and purchase discounts
31) Which of the following factors is not related to the decline in the usefulness of plant
and equipment assets, and therefore does not need to be considered in selecting an
appropriate depreciation method?
A.Physical deterioration
B.Obsolescence
C.Repair and maintenance policies
D.Current replacement cost
32) Wagners Bookstore acquires a 6% $12,000 certificate of deposit on September 1.
The term of the CD is six months. At that time, all principal and accrued interest will be
paid in cash. Indicate the effect on the financial statements at December 31.
A.Interest Receivable increases $240, Interest Revenue increases $240
B.Interest Receivable increases $360, Interest Revenue increases $360
C.Interest Receivable increases $480, Interest Revenue increases $480
D.Interest Receivable increases $720, Interest Revenue increases $720
33) Which one of the following items is reported as a current asset on a classified
balance sheet?
A.Inventory
B.Accounts payable
C.Land
D.Common stock
34) To which of the following entities must a company report if it sells its stock on the
organized stock market?
35) Halston Metal Company
Use the liabilities section of Halston Metal Companys balance sheet to answer the
questions that follow.
Halston Metal Company
Consolidated Balance Sheets
(in millions)
Review the consolidated balance sheets of Halston Metal Company.
REQUIRED:
(1) What are the total long-term liabilities for the two years presented?
(2) What is the percent increase/decrease of long-term liabilities from 2013 to 2014?
Which liability appears to have caused the greatest change?
36) Fairleigh Industries invested its excess cash in the following instruments during
December 2012:
Certificate of deposit, due January 31, 2013 $ 45,000
Certificate of deposit, due June 30, 2013 95,000
Investment in City of Cleveland bonds, due May 1, 2014 15,000
Investment in Techno Data stock 66,000
Money market fund 125,000
90-day Treasury bills 95,000
Treasury note, due December 1, 2013 200,000
Determine the amount of cash equivalents that should be combined with cash on the
companys balance sheet at December 31, 2012, and for purposes of preparing a
statement of cash flows for the year ended December 31, 2012
37) Acquisition cost is also referred to as: ________________.
38) In its first year of business, Mariman Company has net income of $290,000,
exclusive of any adjustment for bad debts expense. The president of the company has
asked you to calculate net income under each of two alternatives of accounting for bad
debts: the direct write-off method and the allowance method. The president would like
to use the method that will result in the higher net income. So far, no adjustments have
been made to write off uncollectible accounts or to estimate bad debts. The relevant
data are as follows:
REQUIRED:
1> Compute net income under each of the two alternatives.
2> Does Mariman have a choice as to which method to use? If so, should it base its
choice on which method will result in the higher net income? (Ignore income taxes.)
Explain.
39) A change in estimate should be recorded_________________.
40) Discuss the four steps in the ethical decision model used by accountants. Expand
the discussion to include questions that you would ask to analyze the key elements in
the situation.
41) The two items that must be estimated with respect to a plant asset in order to
properly allocate cost to the affected accounting periods are
______________________________ and ______________________________.
42) The concept that assumes that assets are recorded at the amount to acquire them is
called the _________________________.
43) The length of time a note is outstanding (that is, the period of time between the date
it is issued and the date it matures) is called the ____________________.
termor