Each of the following transactions would be classified as an investing activity except:
a. Acquiring an investment in the stock of another company.
b. Lending money to a supplier.
c. Receiving dividends on an investment in the stock of another company.
d. Disposing of land
Use the following selected financial data from the balance sheet at the end of 2015 and
2014:
June 30, 2015 June 30, 2014
Total current liabilities $ 495,000 $ 320,000
Bonds payable 600,000 500,000
Common stock, $5 par 800,000 800,000
Retained earnings 200,000 100,000
Total stockholders’ equity 1,000,000 900,000
Total liabilities and stockholders’ equity 2,095,000 1,720,000
Net income for 2015 and 2014 was $120,000 and $460,000, respectively. No stock was
issued during either year, but dividends of $20,000 and $16,000 were paid in 2015 and
2014, respectively.
A) What is return on common equity ratio for 2015?
B) What is the dividend payout ratio for 2015?
C) What is the earnings per share measure for 2015?
D) What other stockholder ratios would be helpful in assessing information of interest
to stockholders?
During a period of increasing purchase prices, which inventory costing method will
yield the lowest cost of goods sold?
a. any method in which the company uses a periodic system
b. FIFO
c. LIFO
d. weighted average cost
The following information is taken from the Balance Sheet at December 31, 2013:
Refer to Georgia’s Salon. During May 2013, $10,000 of the gift cards were redeemed
for salon services. Which of the following is the correct journal entry to record the
redemption of the gift cards?
a. Unearned Sales Revenue 10,000
Accounts Payable 10,000
b. Unearned Sales Revenue 10,000
Cash 10,000
c. Prepaid Sales Revenue 10,000
Sales Revenue 10,000
d. Unearned Sales Revenue 10,000
Sales Revenue 10,000
Total stockholders’ equity includes $50,000 of common stock with a stated value of
$0.50, and 5,000 shares of treasury stock with a total cost of $25,000. How many total
shares are outstanding?
a. 95,000
b. 100,000
c. 105,000
d. 150,000
The financial statements are prepared after
a. business transactions are recorded.
b. adjustments are recorded.
c. the accounts are closed.
d. the adjusted trial balance is prepared.
Medstar Ambulance Service
Information from the company’s financial records is presented below:
Notes payable, December 31, 2013 $1,000,000
Notes payable, December 31, 2014 1,200,000
Loss on Note retirement–2014 45,000
Interest expense on bonds–2014 75,000
At the end of 2014, the company issued notes at par value for $1,200,000 cash. The
proceeds were used to retire the $1,000,000 note issue outstanding at the end of 2013
(before their maturity date). All interest expense was paid in cash during 2014.
Refer to Medstar Ambulance Service. How much was paid to retire the $1,000,000 note
issue during 2014?
a. $ 800,000
b. $1,200,000
c. $1,045,000
d. $1,075,000
Keystone Corporation’s balance sheet showed the following liability and stockholders’
equity amounts: Current Liabilities, $100,000; Bonds Payable, $150,000; Capital Lease
Obligations, $20,000; Deferred Income Tax Liability, $5,000; and total stockholders’
equity, $500,000. The debt-to-equity ratio is
a. 0.20.
b. 0.35.
c. 1.22.
d. 0.55.
Refer to the information provided for Jocque Fabrics. If the Average Cost method is
used, determine the following amounts:
A) Ending inventory on February 28th?
B) Cost of Goods sold for the month of February?
C) Gross Margin for February?
Which one of the following is an internal user of financial information?
a. company management
b. governments
c. creditors
d. investors
Which of the following accounts would notappear on the balance sheet of a lessee
company recording a capital lease?
a. accumulated depreciation on the leased asset
b. capital lease liability in the current liability section
c. capital leases liability in the long-term liability section
d. rent expense on the income statement
Beard Marine
The company reported the following information for the year ended December 31,
2013:
Refer to Beard Marine. What was the balance of Retained Earnings at January 1, 2013?
a. $ 21,000
b. $ 26,000
c. $106,000
d. $214,000
Which of the following statements best describes the term “outstanding check” from a
company’s point of view?
a. A check written by the company and presented to the bank for payment.
b. A check written by the company but not yet presented to the bank for payment.
c. A check written by a customer to the company, and the check has been presented to
the bank for payment.
d. A check written by a customer to the company, but it has not yet been presented to
the bank for payment.
Refer to Falling Leaves Lawn Care. The company wants to use the depreciation method
that will result in the highest depreciation expense for 2013. Which method should be
used?
a. straight-line
b. units-of-production
c. double-declining-balance
d. All methods create the same income in 2013.
Midtown Diner, Inc., purchased $10,000 of paper napkins for its restaurants. At the end
of the period, three-fourths of the bill for the napkins is unpaid while an inventory
revealed that 40% of the napkins were still on hand. What combination of amounts
would affect the income statement and statement of cash flows?
Statement of Cash Flow Income Statement
a. $6,000 $6,000
b. $7,500 $4,000
c. $2,500 $6,000
d. $6,000 $2,500
For Heaven Scapes purchased a trademark at the beginning of 2013 for $200,000. The
trademark’s legal life is 10 years. How much total amortization expense would have
been recorded by January 2014?
a. $0
b. $20,000
c. $40,000
d. $60,000
The stockholders’ equity section of a balance sheet at December 31, 2015 is provided
below:
Common stock, $0.50 par value $10,000
Paid-in capital in excess of par–common stock 40,000
Total capital stock 50,000
Retained earnings 25,000
Less: Treasury stock (at cost, $20 per share) < 2,000>
Total Stockholders’ Equity $73,000
How many shares of stock are issued?
a. 18,000
b. 19,800
c. 20,000
d. 20,200
If a company erroneously records a $500 deposit as $50 in its records, which of the
following must occur when reconciling its bank statement?
a. The company must increase the balance per its records by $500.
b. The company must increase the balance per its records by $450.
c. The company must decrease the balance per its records by $500.
d. The company must decrease the balance per its records by $450.
After reporting a profit of $20,000 for the year, a certain company reported the
following items on its balance sheet at December 31, 2013:
A) Calculate the current ratio and determine the amount of working capital.
B) Beyond the information provided in your answers to “A,” what does the composition
of the current assets tell you about the company’s liquidity?
C) What other information would one need to fully access liquidity?
Which internal control activity is followed when inventory storage areas are secured
with limited access?
a. segregation of duties
b. safeguarding of assets and records
c. checks on recorded amounts
d. clearly defined authority and responsibility
In 2013, Fisher Apartments purchased an apartment building to rent to university
students. It cost the company $250 to repair damage done by a tenant to one of its units.
How should this cost be recorded?
a. It should be recorded as part of the asset account.
b. It should be recorded as repair and maintenance expense.
c. It should not be recorded as the tenants will be charged for the damage.
d. It should not be recorded since this is an immaterial amount to the landlord.
Use the following selected financial data from the balance sheet at the end of 2015 and
2014:
2015 2014
Net income $110,000 $123,000
Cash dividends paid on preferred stock $ 12,000 $ 15,000
Cash dividends paid on common stock $ 42,000 $ 38,000
Common stock repurchases $ 10,000 $ 14,000
Weighted average number of common shares outstanding 105,000 95,000
Year-end market price per share of common stock $ 16.00 $ 13.00
Using the information provided, address the following questions for both 2015 and
2014:
A) What is the dividend yield ratio?
B) What is the earnings per share measure?
C) What is the dividend payout ratio?
D) What is the total payout ratio?
E) What is the stock repurchase payout ratio?
F) Comment on the change in the stockholders ratios from 2014 to 2015.
Manatee Manufacturing sells a piece of equipment to make room for new machinery.
Manatee will receive the sales price of $50,000 at the end of 4 years. Assuming interest
at a rate of 6% per year, the Present Value of this future cash flow is how much?
a. $39,604.50
b. $39,515.50
c. $63,124.00
d. $173,255.50
Refer to the information provided for Satoor, Inc. Who is responsible for payment of
the transportation costs on the merchandise sold?
a. seller
b. buyer
c. split equally between the two companies
d. Cannot be determined from the information provided.
Refer to the information for Accent Flooring. At the maturity date, the customer pays
the amount due for the note and interest. What entry is required on the books of Accent
Flooring on the maturity date assuming that none of the interest had already been
recognized?
a. Increase Cash and decrease Notes Receivable by $20,000
b. Increase Cash by $20,450, increase Interest Revenue by $450, and decrease Notes
Receivable by $20,000
c. Increase Cash by $20,450, increase Notes Receivable by $20,000, and increase
Interest Revenue by $450
d. No entry is required; the customer pays the amount due to Accent Flooring.
A company reported the following information:
Interest receivable, December 31, 2014 $ 8,000
Interest receivable, December 31, 2013 11,500
Interest revenue for 2014 16,000
How much cash was received for interest during 2014?
a. $12,500
b. $19,500
c. $ 8,000
d. $ 3,500
When a corporation pays a previously declared cash dividend, which of the following is
true?
a. cash increases
b. liabilities decrease
c. stockholders’ equity decreases
d. no entry is necessary
Refer to Rio Imports. The debt-to-equity ratio for 2015 is
a. an indicator that the company’s ability to meet current interest payments to creditors
is increasing.
b. increasing slightly from 2014 to 2015.
c. an indicator that for every $1 of capital that has been provided by stockholders,
creditors provided $0.83.
d. an indicator that the company’s reliance on stockholders for funding increased from
2014 to 2015.
Which of the following concepts is important to accrual accounting?
a. Time period, because accrual accounting divides earnings into time periods.
b. Market basis, because inflation is a big factor in the environment.
c. Cash basis, because if cash is not received, revenue is not accrued.
d. Entity concept, because personal transactions must be separated from business
transactions.
Certified Electronics operates five days per week with a daily payroll of $40,000.
Employees are paid every Saturday for the work week just completed (Monday through
Friday). The last day of the month is Wednesday, May 31. The correct adjusting entry at
May 31 is
a. Wages Expense 40,000 Wages Payable 40,000
b. Wages Payable 40,000 Cash 40,000
c. Wages Expense 120,000 Cash 120,000
d. Wages Expense 120,000 Wages Payable 120,000
Dietz, Inc. sells merchandise on credit. If a customer pays its balance due within the
discount period, what is the effect of the payment on Dietz’s accounting equation?
a. Assets and stockholders’ equity decrease.
b. Assets and stockholders’ equity increase.
c. Assets decrease and liabilities increase.
d. Stockholders’ equity decreases and liabilities increase.
Assets become expenses when?
a. Purchased for cash or on credit.
b. Asset is delivered.
c. They are paid for in cash.
d. Their economic benefits expire.
Why do many companies use MACRS (Modified Accelerated Cost Recovery System)
depreciation for tax purposes?
If a company uses MACRS for depreciation for tax purposes, can it use a different
method for financial reporting? Explain why or why not.
The reason some major intangible assets are notin the financial statements is because
they cannot be measured.
Differentiate between the record keeping required for sales and cost of goods sold under
a perpetual versus a periodic inventory system.
The following stockholders’ equity information was available at January 1, 2014:
Common Stock, $10 par, 1,000,000 shares authorized, 50,000 shares issued $500,000
Treasury Stock, 1,000 common shares at cost 80,000
Record the purchase of the treasury stock on November 30, 2013 and the January 10,
2014 sale of 500 shares of treasury stock for $70 per share.
A research consortium has a large portion of its plant assets concentrated in an area
where technology is rapidly changing. The organization wants to minimize taxable
income and maximize net income reported to shareholders. Recommend a course of
action for accomplishing this objective and provide support for your recommendation.
You are Chief Financial Officer for Five Star Resorts, Inc. You are reviewing the
following transactions:
1. Adding a new patio deck to the resort’s upscale restaurant, $180,000
2. Painting the ocean side beach houses, $75,000
3. Purchasing additional golf carts, $25,000
4. Rebuilding the engine in the resort’s airport shuttle bus, $10,000
5. Replacing the old air conditioning unit in the golf shop with a more efficient one,
$20,000
Your accountant has capitalized all of these items and intends to depreciate them over
the appropriate asset’s remaining useful life as originally estimated.
Indicate whether you agree or disagree with your accountant’s treatment of each item.
In those cases where you disagree, state the proper treatment of that expenditure. Use
the following table:
Expenditure Agree or Disagree?
Proper Treatment, if Disagree
1. Adding a new patio deck to the resort’s ocean side bar, $180,000
2. Painting 10 ocean front beach houses, $75,000
3. Purchasing additional golf carts for the club house, $25,000
4. Rebuilding the engine in the resort’s airport shuttle bus, $10,000
5. Replacing the pro shop’s old air conditioning unit with a more efficient one,
$20,000
Baker’s Pride Bakery
Condensed data from the company’s 2013 and 2012 financial statements are presented
below. The figures are expressed in thousands.
In a(n) ____________________-step income statement, all expenses and losses are
added together, then deducted from the sum of all revenues and gains.
List the four financial statements. Explain the connection between these four
statements.
Glass Doctor
Selected information from the firm’s consolidated balance sheet is provided below.
Assume that all of the account balances on the balance sheet are normal balances.
Glass Doctor
Selected Information from the Consolidated Balance Sheet (in millions)
Assets (in alphabetical order): Dec. 31, 2014 Dec. 31,
2013
Accounts receivable $214.2 $124.9
Cash and cash equivalents 100.0 99.5
Inventories 72.1 75.6
Marketable securities 44.7 40.3
Other current assets 10.8 12.0
Property, plant and equipment 5,006.6 5,001.2
Liabilities (in alphabetical order):
Accounts payable and accrued expenses 14.4 15.4
Current portion of long-term debt 44.6 31.5
Income taxes payable 30.8 35.3
Long-term debt 350.0 246.8
Long-term income taxes payable 29.9 31.7
Notes payable due in 8 months 101.0 105.4
Other long-term liabilities 12.5 16.9
Refer to the partial balance sheet presented above for Glass Doctor. Compute the total
current liabilities for December 31, 2014, and December 31, 2013.
An effective system of internal control is critical to protecting a company’s investment
in cash. Identify the five control activities and provide one example that relates to each
control as it would be applied to cash.
A debit memo may be issued in the monthly bank statement in order for the bank to
notify a company that a service charge has been assessed on the company’s account.
Whenever feasible, cash handling activities and cash record-keeping activities should
be assigned to different employees, according to the internal control activity called
____________________.
Refer to California Condos. On January 1, the balance of Unearned Rent Revenue was
$0. The company collected cash from tenants of its apartment building totaling
$600,000 during 2013. How much should be reported as unearned rent revenue as of
December 31, 2013?