1) Ending inventory valued under the FIFO method will be the same regardless of
whether the periodic system or the perpetual system is used.
2) Matching can occur directly (like cost of goods sold), indirectly (like plant assets), or
immediately when no future benefits from the cost are expected.
3) On a bank reconciliation, interest earned for the month is added to the cash balance
per the books.
4) A liability is a future economic benefit to a business.
5) The Internal Revenue Service (IRS) is an external user that has the authority of the
law to obtain certain accounting information.
6) When initially recording the cost of land purchased, most companies use the current
value.
7) A write down of inventory to its market value results in a loss on the income
statement.
8) Net income on a cash basis is arrived at by adding depreciation and amortization
back to accrual net income.
9) Typically, the lower the accounts receivable turnover ratio, the better.
10) A revenue expenditure is deducted from the cost of the asset.
11) Funds raised from financing activities should be invested in assets that can be used
to carry on business operations.
12) Balance sheet accounts are called real accounts.
13) Place Corp. purchased supplies at a cost of $12,000 during the year. At January 1,
supplies on hand were $2,000. At December 31, supplies on hand are $1,000.
Determine the amount of supplies expense for the year.
A.$ 10,000
B.$ 12,000
C.$ 13,000
D.$ 14,000
14) Because of its relationship to dividends and market price, which ratio is important
to investors?
A.current ratio
B.debt-to-equity ratio
C.price/earnings ratio
D.asset turnover ratio
15) Given below are costs incurred by Oleander Company during 2012 and 2013.
Oleander follows the policy of decreasing the intangible asset account directly as
amortized.
Research was conducted to discover a new product and costs of $200,000 in 2012 and
$80,000 in 2013 were incurred. After several months, a product was created and a
patent secured for a cost of $150,000, effective as of July 1, 2013. The company expects
to have increased revenues of $500,000 over the next several years. The patent is
expected to be useful for the next 10 years.
16) Agee Corp.
The data presented below for Agee Corp. is for the year ended December 31, 2014
See the data for Agee Corp.
If Agee Corp. estimates its bad debts at 1% of net credit sales, what amount will be
reported as bad debt expense for 2014?
A.$12,400
B.$13,700
C.$14,000
D.$14,300
17) One effect on the accounting equation when a firm lends money is
A.stockholders equity decreases
B.liabilities decrease
C.liabilities increase
D.total assets remain the same
18) The following information was obtained from the comparative financial statements
included in Arco Inc.s 2012 annual report. (All amounts are in millions of dollars.)
December 31, 2012 December 31, 2011
REQUIRED:
1> Using the information provided, compute the following for 2012 and 2011:
a. Debt-to-equity ratio (at each year-end)
b. Times interest earned ratio
c. Debt service coverage ratio
d. Cash flow from operations to capital expenditures ratio
2> Comment briefly on the companys solvency.
19) An outstanding check is a check that:
A.Has been presented to the bank for payment but has not been reported on the bank
statement
B.Has been written by the account holder but has not been presented to the bank for
payment
C.Is guaranteed for payment by the bank
D.Has been written for an amount that is greater than the balance in the account holder’s
bank account
20) Speed Company has current assets of $150,000 and current liabilities of $60,000.
How much inventory could it purchase on account and achieve its minimum desired
current ratio of 2 to 1?
A.$10,000
B.$20,000
C.$30,000
D.$40,000
21) Pinecrest Company
Use the selected data from Pinecrest Companys financial statements to answer the
following question.
Refer to the data for Pinecrest Company.
The current ratio for 2014 is
A.0.60 to 1
B.0.99 to 1
C.1.34 to 1
D.1.68 to 1
22) Which of the following transactions affects the liabilities for Gravette, Inc.?
A.Supplies are purchased for cash by Gravette
B.Gravette places an order for merchandise with a supplier; the merchandise will be
shipped to Ernest White in 60 days
C.The owners of Gravette invest $100,000 in the company
D.Payment is made on a bank loan which Gravette had obtained 6 months ago
23) Failure to record the supplies used during the year would result in which of the
following?
A.Net income being understated
B.An overstatement of liabilities
C.Stockholders equity being overstated
D.Total assets being understated
24) Assume the current ratio for Horizon Surf Supplies is 2 to 1. If the company
purchased supplies on credit, the effect of this transaction is to:
A.increase the current ratio
B.decrease the current ratio
C.have no effect on the current ratio
D.decrease cash
25) Which of the following profitability ratios is most useful in indicating the “quality”
of a company’s earnings?
A.Price/earnings ratio
B.Gross profit ratio
C.Dividend payout ratio
D.Dividend yield ratio
26) Which of the following will not cause a trial balance to be out of balance?
A.The balance for an account is incorrectly computed
B.A debit entry is posted as a credit
C.A credit entry is posted to the wrong account as a credit
D.An account is accidentally omitted from the trial balance
27) Potential stockholders and lenders are interested in a company’s financial
statements. Several financial statement items appear below. Answer the questions that
follow.
28) Halifax Resort incurred the following costs to acquire and prepare land during 2013
for a new parking lot: purchase price for land, $800,000; cost to clear the land, $30,000;
cost of paving, $40,000; and lighting for the parking lot, $20,000. How much should
Halifax record in the Land Improvements account?
A.$30,000
B.$40,000
C.$60,000
D.$90,000
29) Router Inc. lends $70,000 on a 120-day, 9% promissory note. The total interest that
Router will receive at maturity is
A.$6,300
B.$2,100
C.$525
D.$1,890
30) Many companies use MACRS (Modified Accelerated Cost Recovery System)
depreciation for
A.financial reporting purposes and a different method for tax purposes
B.financial reporting purposes because depreciation is not allowed for tax purposes
C.tax purposes because it results in a larger net income in the early years of a plant
asset’s life
D.tax purposes because of a desire to report higher expenses in early years in order to
pay lower taxes
31) A credit memorandum appeared on Central Companys bank statement. How will
Central treat this amount on its bank reconciliation?
A.Add it to the bank balance
B.Add it to the book balance
C.Deduct from the bank balance
D.Deduct from the book balance
32) Although businesses engage in a wide variety of activities, all of these activities can
be categorized into three types. Which of the following choices best reflects these three
types of business activities?
A.Operating, financing, reporting
B.Investing, reporting, financing
C.Operating, financing, investing
D.Investing, reporting, operating
33) If the market value that you paid for a car is known and the annual payment and
number of payments is known, the table factor to help find the interest rate can be
calculated by dividing ______________________.
34) The Stockholders’ Equity section of Gretchens Bistro’s balance sheet on January 1,
2012, appeared as follows:
On March 1, 2012, Gretchens Bistro reacquired 800 shares of common stock at $12 per
share. On April 6, Gretchens Bistro resold 600 shares of treasury stock at $20 per share.
How many shares of stock are outstanding at March 31, and April 30, respectively?
35) Why is liquidity important for businesses?
36) Note Disclosure of Legal Matters
Use the Note Disclosure Of Legal Matters below to answer the questions that follow.
Note 13 – Legal Matters
On December 14, 2011, the Company was served with a class action complaint filed in
federal court in Burlington, Vermont. The complaint, captioned John Doe vs. The
Company was filed by a Companys shareholder on behalf of himself and purportedly
on behalf of all other Companys shareholders who purchased the common stock of the
Company during the period from March 25, 2010 through December 19, 2010. Plaintiff
alleges that the Company violated the federal securities laws by making, in 2010, untrue
statements of material facts and omitting to state material facts primarily concerning the
Company’s construction and start-up of its new manufacturing facility. Also named as
defendants in the Complaint are certain present and former officers and directors of the
Company. Plaintiff is seeking an unspecified amount of monetary damages.
While this action is in its preliminary stages, management believes, based on an initial
review, the allegations made in the lawsuit are without merit and the Company intends
to defend the lawsuit vigorously.
Review the Note Disclosure of Legal Matters.
REQUIRED:
(1) If you were to make an entry for the lawsuit against Company, what monetary
amount should be recorded? On what did you base your decision with regard to the
amount?
(2) Does the disclosure imply that the Company is involved in only this litigation at this
time?
(3) Why did this lawsuit arise? Do you believe it to be a reasonable one or do you think
that the plaintiff, has little grounds for this lawsuit?
37) The annual dividend amount divided by the annual net income is
________________________.