Retailers accept bank cards such as VISA and Master Card in order to get cash
immediately rather than waiting for the customers to pay in due course.
Under the direct method, depreciation is ignored when calculating cash flows from
operations.
Before a liquidating company can distribute any assets to common stockholders, it must
pay the full liquidating value of the preferred stock to all preferred stockholders.
Bank service charges not recorded on the books should be added to the balance per
books when preparing a bank reconciliation.
When deciding whether to report an investment among current or long-term assets,
companies base their decision on their purpose or intent when holding the investment.
Regardless of the type of corporation, companies generally account for assets and
liabilities similarly.
Double-declining-balance depreciation may be referred to as accelerated depreciation.
Each element on a common-size balance sheet is compared to total liabilities.
Sinking fund bonds require the issuer to make annual payments into a sinking fund.
The credit terms 2/10, n/30 means that the customers may take a 2% cash discount if
they pay within 10 days.
The specific identification method is frequently used for items with common
characteristics, such as tons of coal.
The U.S. tax law provides incentives for companies to make payments into a pension
fund that is separate from the company’s assets and controlled by a trustee.
When prices are rising, LIFO generally results in the lowest taxable income, and
therefore helps reduce taxes paid.
The purchase of inventory on credit will increase liabilities and equity.
Issuing equity securities is an operating activity on the statement of cash flows.
If the criteria to use the percentage of completion method are not met, a company must
A) use the completed contract method to recognize revenue.
B) use the completion revenue principle to recognize revenue.
C) confer with their client about cash collection expectations.
D) refer to IFRS and choose between one of the five available revenue recognition
principles.
E) determine whether they are permitted to conduct business with a client.
Useful lives for depreciable assets for tax purposes are frequently shorter than the
useful lives used for financial reporting purposes. Because of this, taxable net income
would be
A) lower and lower income taxes payable in the early years of an asset’s life than the
straight-line method.
B) lower and higher income taxes payable in the early years of an asset’s life than the
straight-line method.
C) higher and lower income taxes payable in the early years of an asset’s life than the
straight-line method.
D) higher and higher income taxes payable in the early years of an asset’s life than the
straight-line method.
E) undeterminable from the information given.
Which of the following statements regarding stock options is false?
A) Options are valuable because the executives can gain the benefits of stock price
increases without bearing the risks of price declines.
B) Options are generally given to corporate officers as a form of incentive
compensation.
C) Stock options are rights granted to executives to purchase a specific number of
shares of a corporation’s capital stock at a specific price for a specific time period.
D) Measurement of the value of stock options is simply the market value of the options
at the balance sheet date.
E) Footnotes in the financial statements must reveal the number and type of options
outstanding and an assessment of their value.
Generally accepted accounting principles
A) are advisory guidelines for management.
B) are only applicable to balance sheets.
C) are to be followed in the preparation of financial statements.
D) can never be deviated from.
E) are uniform world-wide.
Parmlee Inc. has several assets and liabilities on its balance sheet. For each of the items
below, decide whether it is a current asset (CA), current liability (CL), long-term asset
(LTA), long-term liability(LTL), or contra-liability (COL).
CA/CL/LTA/LTL/COL
a. 15 year lease obligation a. ________
b. Discount on bonds payable b. ________
c. Amounts owed to the utility company c. ________
d. A leased asset d. ________
e. Current portion of long-term debt e. ________
f. An asset with a lease term of 75% of the f. ________
estimated economic life of the property
Assume the periodic inventory system is used. Karton Company sold inventory to
Rabell Company for $3,400 with agreement from Rabell that payment will be made at
the end of the month. Which of the following is the journal entry to be made by Karton
Company?
Which of the following statements is TRUE?
A) The depreciable value of a tangible asset is the total acquisition cost of the asset.
B) The residual value of a tangible asset is the estimated amount to be received for an
asset upon its disposal at the end of its useful life.
C) The useful life of a tangible asset is the time period over which the company
believes it will own the asset.
D) The estimation of useful lives is almost always based upon when the tangible asset
will physically wear out.
E) Depreciation attempts to measure the deteriorating market value of an asset.
The operating cycle begins with
A) the acquisition of goods.
B) the receipt of cash from customers.
C) the payment for goods.
D) the initial investment by owners.
E) the sales to customers.
Yellow Company has the following data available:
What is the quick ratio for Yellow Company in 2X13? Has the quick ratio improved or
not improved since 2X12?
A) 2.11, not improved
B) 55, not improved
C) 1.39, improved
D) 1.39, not improved
E) 55, improved
Which of the following statements is false in regards to the consolidation of financial
statements?
A) GAAP and IFRS have different consolidation requirements.
B) Under GAAP, completion of consolidated financial statements occurs when a parent
company has control over another company.
C) Under GAAP, a parent company may own less than 50% of the voting shares of
another company yet still qualify to consolidate financial statements.
D) Under GAAP, consolidation is generally restricted to situations where a parent
company has control of over 20% of the voting shares of another company.
E) Under GAAP, there are circumstances when a parent company owns a majority of
the voting stock of another company but does not prepare consolidated financial
statements.
Montreal Electronics has the following data available:
What is the quick ratio for Montreal Electronics in 2013? Has the quick ratio improved
or not improved since 2012?
A) 2.0, not improved
B) 1.2, not improved
C) 1.3, improved
D) 1.1, improved
If ending inventory is understated by $7,000 in 20X3, and assuming a constant 30% tax
rate, then what will be the effect on gross profit in 20X3?
A) 20X3 gross profit will be understated by $2,100.
B) 20X3 gross profit will be understated by $4,900.
C) 20X3 gross profit will be overstated by $4,900.
D) 20X3 gross profit will be understated by $7,000.
E) 20X3 gross profit will be overstated by $7,000.
Ganley Rental Cars recently acquired several new cars for their fleet. The cars have an
estimated life of 4 years and should be driven 80,000 miles. What is the most
appropriate method of depreciation to properly match revenues and expenses?
A) Double-declining balance
B) Straight line
C) Units-of-production
D) Revenue recognition
E) Expense deferral
Compatibility Services acquired an $80,000 machine on January 1, 20X3. The machine
is estimated to have a useful life of 8 years, and a residual value of $4,000. For
units-of-production depreciation purposes, the machine is expected to produce 400,000
units. If Compatibility Services uses straight-line depreciation, what is the balance in
the accumulated depreciation account on January 1, 20X5?
A) $19,000
B) $20,000
C) $28,500
D) $21,600
E) $30,000
The entry to journalize the impairment loss on equipment would include
A) debit Accumulated Depreciation, Equipment.
B) credit Accumulated Depreciation, Equipment.
C) credit impairment loss.
D) debit Equipment.
E) credit Equipment.