1) The cash flow from operations to capital expenditures ratio measures a company’s
ability to
A.use operations to finance its acquisitions of productive assets.
B.use cash flows from capital expenditure transactions to maintain working capital.
C.increase its capital expenditures as a result of profitable operations.
D.pay its current bills from profits made using productive assets.
2) 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.
How much would have to be deposited in a savings account earning 6%, so that equal
annual withdrawals of $200 can be made at the end of each of 10 years? The balance at
the end of the last year would be zero.
A.$ 528
B.$1,472
C.$2,000
D.$2,636
3) Which of the following solvency ratios is the best measure of a company’s ability to
pay interest and maturing principal amounts on its long-term debt?
A.Debt-to-equity ratio
B.Times interest earned ratio
C.Debt service coverage ratio
D.Earnings per share
4) Native Daves Consultants had the following balance sheet amounts at the beginning
of the year:
During the year, total assets increased by $100,000 and total liabilities increased by
$40,000. The company also paid $30,000 in dividends. No other transactions occurred
except revenues and expenses. How much is net income for the year?
A.$30,000
B.$60,000
C.$70,000
D.$90,000
5) All of the following accounts have normal debit balances except
A.Accounts Receivable
B.Dividends
C.Office Supplies Expense
D.Sales
6) Long-term assets are $5,000, current liabilities are $700, and long-term liabilities are
$3,000. If the current ratio is 3 to 1, then current assets are
A.$9,000
B.$6,900
C.$4,300
D.$2,100
7) Tradewinds Corporation was organized on January 1, 2014, with the investment of
$500,000 in cash by its stockholders. Tradewinds signed a ten-year, $300,000
promissory note at a local bank during 2014 and received cash in the same amount. The
company immediately purchased an office building for $800,000, paying in cash.
During its first year, Tradewinds generated $35,000 in cash from operations and paid
$30,000 in cash dividends.
A) In good form, prepare a statement of cash flows for the year ended December 31,
2014.
B) What does this statement tell you that an income statement does not?
8) In the space provided, indicate the effect of the dividend transactions on each
account listed by writing the amount and whether the account would be increased or
decreased. The company has 10,000 shares of $1 par value, common stock authorized,
and 8,000 shares issued. In instances where there is no effect on that account, place an
X in the box.
Item CommonStock CommonStockDividendDistributable AdditionalPaid-inCapital–
Common RetainedEarnings
a. May 1, declared cash dividend totaling $2,000.
b. May 15, paid the cash dividend declared on May 1.
c. May 25, declared a 10% stock dividend when the market price of the stock was $8.
d. May 30, distributed the stock dividend.
e. June 15, declared a 2-for-1 stock split.
9) Presented below are selected data from the financial statements of Wizard Corp.
Earnings per share is reported on the 2012 income statement as
A.$1.08
B.$1.20
C.$1.29
D.$1.43
10) Which of the following is a true statement about the terms used on the balance
sheet?
A.U.S. GAAP requires a standard set of terms on the balance sheet
B.IFRS requires a standard set of terms on the balance sheet
C.Terminology is consistent across all countries
D.Neither IFRS nor U.S. GAAP requires a standard set of terms on the balance sheet
11) Sacramento Corp. constructed equipment to manufacture a new line of home
products during 2013. The average balance of accumulated expenditures on the
equipment during September through December 2013 was $500,000. Construction
started on September 1, 2013 and was still in progress at the end of 2013. If Sacramento
borrowed $500,000 for one year on September 1, 2013, to finance the construction, and
the interest rate on the construction loan was 6%, how much interest can Sacramento
capitalize as part of the equipment cost for 2013?
A.$ -0-
B.$10,000
C.$20,000
D.$30,000
12) Wentworth Company received advance payments from customers during 2014 of
$10,000. At December 31, 2014, $1,000 of the advance payments still had not been
earned. After the adjustments are recorded and posted at December 31, 2014, the
balances in the Unearned Service Revenue and Service Revenue accounts will be
Unearned Service Revenue Service Revenue
A.$ 1,000 $ 9,000
B.$ 1,000 $ 10,000
C.$ 11,000 $ 1,000
D.$ 9,000 $ 10,000
13) Failure to record dividends paid would result in which of the following?
A.Net income being understated
B.An increase in total liabilities
C.Stockholders equity being overstated
D.Total assets being understated
14) The following set of items describes activities completed by a company in
collecting cash for merchandise sales. For each activity, identify whether or not the
activity adheres to or violates sound internal control procedures.
Cash register tapes are picked up daily by an employee from the accounting
department.
A.Adheres to sound internal control procedures
B.Violates sound internal control procedures
C.Neither strengthens nor violates internal control
15) How would deposits in transit be dealt with in a bank reconciliation?
A.added to companys book balance
B.deducted from companys book balance
C.added to bank statement balance
D.deducted from bank statement balance
16) The process of assigning a note due in the future to a bank before its maturity date
is called ____________________.
17) Most financial reports contain the following list of basic elements. For each element
identify the person(s) who prepared the element and describe the information a user
would expect to find in each element.
18) The term cash on the statement of cash flows includes
________________________.
19) A check that is returned or “bounces” because of insufficient funds is called a(n)
____________________.
20) A ____________ is a certificate that represents a corporations promise to repay a
certain amount of money and interest in the future.
21) The effective interest method amortizes premium or discount in a manner that
produces a(n) ______________________ rate of interest from period to period.