1) On a bank reconciliation, outstanding checks are added to the cash balance per the
bank statement.
2) The number of days’ sales in inventory is the same as a companys accounting cycle.
3) An expense is an inflow of assets resulting from the sale of goods and services.
4) In an operating lease, the lessee acquires the right to use an asset for only a limited
period of time.
5) When cash is paid before an expense is incurred, an accrual is necessary.
6) If a company purchases equipment by issuing a note payable, its total assets will not
change.
7) All of the following are among the most important reasons why accounting standards
differ around the world except:
A.differences in the state of economic development
B.differences in taxation
C.differences in inflation
D.differences in code law in all countries around the world
8) Rafter.com received a 10%, 90-day promissory note with a face amount of $12,000
from Joyce Company, for the sale of merchandise on November 1, 2014.
A) Identify the maturity date of the note. _______________________
B) How much interest income (to the nearest whole month) will Rafter.com earn over
the term of the note?
C) How much interest income will Rafter.com recognize during 2014?
9) Which of the following transactions is a significant noncash investing and financing
activity?
A.Land is purchased for cash
B.Bonds are issued for cash
C.Cash equivalents are purchased
D.Equipment is acquired by issuing a long-term note
10) Simple Solutions Company reported net earnings of $60,000, declared and paid
cash dividends on its common stock in the amount of $40,000 during the year, and sold
3,000 shares of $2 par value common stock for $15 per share during the year. What
effects would these transactions have on the stockholders’ equity accounts shown
below?
Retained Earnings Common Stock
A.increase increase
B.increase decrease
C.decrease increase
D.decrease decrease
11) The reliability of the information in a companys financial statements is the
responsibility of which of the following?
A.The Securities and Exchange Commission (SEC)
B.The Certified Public Accountant in charge of the audit of the companys financial
statements
C.The companys management
D.The stockholders of the company
12) Significant differences exist in terms on financial statements around the world. For
example, another name for what we know as Capital Stock in the U.S. is:
A.Share Capital
B.Capital Reserves
C.Provisions for other Risks
D.Deferred Income
13) The following transactions occurred during March, the first month of operations for
Canyon Products, Inc.:
1> Issued 50,000 shares of capital stock in exchange for $600,000 cash
2> Purchased land for $400,000, using a $150,000 cash down payment and signing a
note payable for the balance.
3> Made a $60,000 cash payment on the note payable from the purchase of land.
4> Purchased equipment on credit from Burton, Inc. for $63,000.
What is the balance in the Cash account at the end of March?
A.$810,000
B.$210,000
C.$600,000
D.$390,000
14) Roman Industries’ plant operates five days per week with a daily payroll of $6,000.
Employees are paid every Saturday for the workweek just completed (Monday through
Friday). The last day of the month is Wednesday, March 31. What is the amount of
Wages Expense recorded on the next payday, Saturday, April 3?
A.$ -0-
B.$ 30,000
C.$ 12,000
D.$ 18,000
15) Miguel Foods, Inc. purchased a patent at the beginning of 2013 for $350,000.
Economic benefits were expected for 7 years, but the patent’s legal life was 20 years.
Also during 2013, the company incurred research and development costs of $270,000.
Patent amortization expense for 2013 is
A.$11,000
B.$17,500
C.$31,000
D.$50,000
16) Lewis Corporation reported the following information for the year ended December
31, 2014:
What was the economic effect of the payment of Lewis dividends?
A.The dividend reduced net income for 2014
B.The dividend should be equal to net income if the companys accounting equation is
in balance
C.The dividends reduce total retained earnings for the year
D.The dividends must be paid whenever Raymond Corp. reports net income
17) Return ratios are measures of the relationship between the
A.income earned and the investment made in the company by the various groups
B.revenue earned and the total equity of a company.
C.total equity of a company and its cash flows for the period.
D.profitability and liquidity aspects of a company.
18) A company issued 10-year bonds with a par value of $20,000,000 and an 8% annual
face on January 2, 2012. The issue price of the bond issue was $19,866,397 which
reflected an 8.1% effective interest rate.
Required:
a) Determine the effect on the accounting equation upon recording the issuance of the
bonds.
b) Determine the effect on the accounting equation upon recording the recognition of
interest expense at December 31, 2012. Any premium or discount should be amortized
using the effective interest rate method.
c) Determine the effect on the accounting equation upon recording the interest paid to
the bondholders on January 2, 2013.
d) Determine the effect on the accounting equation upon recognizing the interest
expense at December 31, 2013. Any premium or discount should be amortized using the
effective interest rate method.
19) Which of the following items is added to net income to determine cash flows from
operating activities when the indirect method is used to prepare the Operating Activities
category of the statement of cash flows?
A.Accumulated depreciation
B.Cash from note payable related to truck acquired
C.Cost of plant assets acquired during the year
D.Depreciation expense
20) Manatee Company
Manatee Company was incorporated as a new business on January 1, 2012. The
company is authorized to issue 20,000 shares of $5 par value common stock and 10,000
shares of 6%, $10 par value, cumulative, participating preferred stock. On January 1,
2012, the company issued 8,000 shares of common stock for $15 per share and 2,000
shares of preferred stock for $30 per share. Net income for the year ended December
31, 2012, was $375,000.
Refer to the information about Manatee Company.
Manatees total stockholders’ equity reported on the balance sheet at December 31,
2012, is
A.$60,000
B.$120,000
C.$180,000
D.$555,000
21) Claxton Corp. purchased equipment at a cost of $320,000 in January, 2010. As of
January 1, 2014, depreciation of $160,000 had been recorded on this asset. Depreciation
expense for 2014 is $40,000. After the adjustments are recorded and posted at
December 31, 2014, what are the balances for the Equipment and Accumulated
Depreciation?
Equipment Accumulated Depreciation
A.$ 320,000 $ 200,000
B.$ 320,000 $ -0-
C.$ 160,000 $ 40,000
D.$ 120,000 $ 200,000
22) Texas Inc. sold merchandise to Flange Corp. on December 28, 2013, with shipping
terms of FOB destination. Flange Corp. received the merchandise on January 3, 2014.
Which one of the following statements is true?
A.Texas should record sales revenue on December 28, 2013
B.Flange Corp. should pay the transportation costs
C.Flange Corp. should include the merchandise in its inventory at December 31, 2013
D.Flange Corp. should record a liability for the purchase on January 3, 2014
23) Services are provided for customers who are sent bills for the amount they owe. For
this transaction, identify the effect on the accounting equation
A.Assets increase and liabilities increase
B.Assets increase and stockholders equity increases
C.Liabilities increase and stockholders equity decreases
D.Liabilities decrease and assets decrease
24) 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.
The future value of equal semi-annual payments of $500 at 8% compounded
semiannually for 4 years is
A.$ 868
B.$2,000
C.$4,607
D.$9,320
25) 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.
The future value of $6,000 at 12% compounded quarterly for 5 years is
A.$ 6,954
B.$ 9,600
C.$10,572
D.$10,836
26) Gemini Company has the following accounts in the Stockholders Equity category
of the balance sheet:
Common Stock, $10 no par, 10,000 shares authorized, 9,000 issued, 8,000 outstanding
Preferred Stock, $100 par, 8%, cumulative, participating, 1,000 shares authorized,
issued, and outstanding
Required:
1> Explain how the issuance of stock affects the financial statements when the stock
has no par value.
2> Why would preferred stockholders want to have a cumulative feature in preferred
stock?
3> When a participating feature is present in preferred stock, how does it affect the
amount of dividends that preferred stockholders can expect to receive?
27) Baucus, Inc.
Baucus, Inc. reported the following information for 2014 and 2013:
Refer to the information for Baucus, Inc.
How much is the cost of purchases for 2014?
28) A departure from the cost basis of accounting may be necessary when the
_________________________ of the inventory is less than its cost to the company.
29) On October 1, 2014, Winter Corp. buys a computer system for $270,000 in cash.
Assume that the computer is expected to have a five-year life and an estimated salvage
value of $30,000 at the end of that time.
REQUIRED:
1> Analyze and identify the effect of the transaction for the purchase of the computer
on October 1, 2014
2> Compute the depreciable cost of the computer.
3> Using the straight-line method, compute the monthly depreciation.
4> Identify and analyze the effect of the adjustment for depreciation at the end of
October 2014
5> Compute the computers carrying value that will be shown on Winters balance sheet
prepared on December 31, 2014
30) ____________________ is the capacity of information to make a difference in a
decision
31) The amount recognized on the Income Statement as the cost of inventory will be
recognized as a(n) _________________________.
cost of goods soldor
32) Florence, Inc. purchased equipment at the beginning of 2014 for $140,000. The
company decided to depreciate the equipment over a 10-year period using the
double-declining-balance method. The company estimated the equipment’s salvage
value at $12,000. Show how the costs should be presented on Florence’s financial
statements at December 31, 2015. Label the statements properly.
33) What do profitability ratios measure? Explain.
34) Chad Darrow, CFO of your company is considering constructing a deal with
Extreme Industries, whereby stock is issued in exchange for an asset (custom extrusion
equipment valued at $400,000 by an outside appraiser). The stock to be exchanged is a
new class of preferred stock that has not yet been traded in the open market. He has
asked that you draft a memo to Marc Lyon, CEO about the valuation of the asset to be
used in the exchange. In your memo address the reporting amount for the asset and how
fair market value could be determined.