1) Accrued wages is not a current liability.
2) Only events that can be measured will be reflected in the journal entries.
3) Income taxes payable are recognized as an expense once they are paid to the
respective government or taxing authority.
4) The income statement is sometimes called the statement of financial position.
5) When revenue is earned before the receipt of cash, an adjustment that increases a
receivable and decreases a liability account is recorded.
6) Purchase discounts decrease the total cost of merchandise acquired.
7) Baggs buys $100,000 of Vista Company bonds on January 1, 2014 at face value. The
bonds pay 10% interest semiannually on June 30 and December 31. If Baggs sells the
bonds at 99 on July 1, 2014, there will be a loss reported on the income statement.
8) Depreciation has no effect on income taxes, since it only reduces a plant asset’s book
value.
9) If a change in accounts payable was added back to net income on the statement of
cash flows prepared using the indirect method, then the amount owed to suppliers
during the period had decreased.
10) When stock is issued for cash, only the par value of the stock should be reported in
the stock account.
11) A contingent liability is recorded if it is probable and can be reasonably estimated.
12) Spring Market has an inventory turnover ratio of 15 times. Fall Market has a
turnover of 14 times. Fall is more effective in managing inventory.
13) The Diva Design Group was organized on July 1, 2014 when the two principal
owners each contributed $50,000 and received shares of stock in exchange. Their
year-end is December 31. The following events occurred during Diva Design Groups
first year of operations.
Required:
II. For each of the adjusting entries, indicate which of the following type of entry was
recorded:
a. Accrued liability
b. Accrued asset
c. Deferred expense
d. Deferred revenue
14) Which of the following statements is true?
A.The return on assets ratio indicates whether the company can pay its current debt
when it becomes due.
B.The causes for an increase or decrease in the return on assets ratio can be examined
by calculating its two components: return on sales and asset turnover.
C.If a company successfully applies leverage, its return on assets ratio will be greater
than its return on common stockholders’ equity ratio.
D.If a company’s return on assets ratio increases, the increase can be the result of
decreased liquidity.
15) Use the information below for Main Street Corp. for 2013 and 2014 to answer the
following question.
Assume that there were no retained earnings transactions other than those dealing with
dividends and net income. How much dividends did Main Street declare during 2014?
A.$ 95,000
B.$105,000
C.$140,000
D.$150,000
16) Coglin, Inc. incurred a net loss of $20,000 for 2014. The balance sheet at December
31, 2014, for Coglin, Inc., includes the following items:
A) Determine Coglins current ratio and working capital.
B) Beyond the information provided in your answers to A, what does the composition
of Coglins current assets tell you about its liquidity.
C) What other information would one need to fully access Coglins liquidity?
17) In 2013, Daytona Company purchased equipment for $363,000 and also sold some
special purpose machinery with a book value of $155,000 for $182,000. In its statement
of cash flows for 2013, Daytona should report the following with respect to the above
transactions:
A.$363,000 cash used by operating activities; $182,000 cash provided by financing
activities
B.$181,000 net cash used by investing activities
C.$181,000 net cash used by investing activities; $27,000 net cash provided by
operating activities
D.$363,000 net cash used by investing activities
18) Moonbeam Gift Shops inventory turned over six times during the year. Similar gift
shops have an inventory turnover equal to twelve times per year. What explains
Moonbeams state of inventory management?
A.Moonbeam sold too much inventory during the year.
B.Moonbeam needs to increase sales and decrease the amount of inventory on hand.
C.Moonbeam is performing twice as well as its competitors.
D.Moonbeam should increase the amount of goods on hand to accommodate the
additional inventory demand.
19) Several amounts from Duggard Company at December 31, 2014 are listed below.
Answer the questions.
A) Calculate net income for 2014.
B) How much is Duggard Companys retained earnings at the end of 2014?
C) What primary asset account is missing?
20) Shuttle Master Airlines has leased an aircraft from Streamline Aircraft Company.
The annual payments are $1,000,000 and the life of the lease is 18 years. It is estimated
that the useful life of the aircraft is 20 years. How would Shuttle Master Airlines record
the acquisition of the aircraft? The effective rate of interest is 9%.
A.The company would not record the aircraft as an asset but would record rent expense
of $1,000,000 per year for 18 years
B.The company would not record the aircraft as an asset but would record rent expense
of $900,000 per year for 20 years
C.The aircraft would be recorded as an asset with a cost of $8,756,000
D.The aircraft would be recorded as an asset with a cost of $9,129,000
21) Flagg Company issued $500,000 of bonds for $498,351, Interest is paid
semiannually. The bond markets and the financial press are likely to state the bond issue
price as
A.498.35
B.100.00
C.99.67
D.49.84
22) How is the balance sheet linked to the other financial statements?
A.The amount of retained earnings reported on the balance sheet is equal to net income
B.Retained earnings is added to total assets and reported on the balance sheet
C.Net income increases retained earnings on the statement of retained earnings, which
ultimately increases retained earnings on the balance sheet
D.There is no link between the balance sheet and other statements, as each contains
different accounts and provides different information
23) Credit entries are used to
A.increase asset accounts
B.increase liability accounts
C.decrease revenue accounts
D.decrease liability accounts
24) Paint Company
Following are selected data from Paint Companys financial statements.
Refer to the Paint Company data.
The company’s debt-to-equity ratio was 0.83 to 1 in 2012 and 0.89 to 1 in 2011. Which
of the following statements is true concerning Paint?
A.The company has a smaller percentage of capital from owners at the end of 2012 than
at the end of 2011
B.The company relied more on creditors for financing during 2012 than in 2011
C.The company is improving its debt-to-equity ratio.
D.The company appears to be in a weaker position at the end of 2012 to finance capital
expenditures from cash flow generated by operating activities.
25) In a periodic inventory system, the cost of purchases is recognized as
A.An integral part of the calculation of cost of goods sold
B.The only part of the calculation of cost of goods sold
C.An increase in the inventory account
D.An increase in an asset account
26) 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.
David, a high school math teacher, wants to set up an IRA account into which he will
deposit $2,000 per year. He plans to teach for 20 more years and then retire. If the
interest on his account is 7% compounded annually, how much will be in his account
when he retires?
A.$4,800
B.$21,118
C.$74,458
D.$81,990
27) Computech Industries
Below is financial data for Computech Industries current year.
Refer to the data for Computech Industries.
Based on this information, what is Computechs inventory turnover ratio for the current
period?
A.1.67 times
B.2.73 times
C.0.33 times
D.3.00 times
28) Which one of the following steps in the accounting cycle is completed only at the
end of an accounting period?
A.Business transactions are recorded
B.Adjustments are recorded
C.Transactions are journalized
D.Journal entries are posted to the ledger
29) The operating cycle of a manufacturer is the length of time between the
A.purchase of raw materials and the sale of the goods.
B.sale of the goods and the collection of any outstanding receivables from the sale of
the product
C.purchase of raw materials and collection of any outstanding receivables from the sale
of the product.
D.purchase of raw materials and the production of goods.
30) Securities issued by corporations as a form of ownership in the business, such as
common or preferred stock, are called _________________________.
31) A company generated $1,830,000 from its operating activities and spent $1,200,000
on additions to its plant and equipment during the year. The total amount of debt that
matures in the next five years is $900,000. Compute the companys cash flow adequacy
ratio for the year.
32) Lagoon Industries
Lagoon Industries received authorization on December 31, 2012, to issue $7,000,000
face value of 6%, 10-year bonds. The interest payment dates are June 30 and December
31. All the bonds were issued at par, plus accrued interest, April 1, 2013. The bonds are
callable by Echo Industries at any time at 102.
Review the information about Lagoon Industries.
REQUIRED:
1> What is the amount of bond interest expense that appears in Lagoons 2013 income
statement relating to these bonds?
2> What is the amount of accrued bond interest expense that appears in Lagoons
balance sheet at December 31, 2013, with respect to these bonds?
33) The party that receives the payment due from a note is called the
____________________.
34) When a bank deducts the interest on a note in advance, the note has been
____________________.
35) _________________ is the body created by the Sarbanes-Oxley Act that was given
the authority to set auditing standards in the United States.
36) The understatement of ending inventories in one period leads to a(n)
____________________ of cost of goods sold expense in the same period.
37) On its most recent statement of cash flows, a company reported net cash provided
by operating activities of $16,000,000. Its capital expenditures for the same year were
$6,000,000. A note to the financial statements indicated that the total amount of debt
that would mature over the next five years was $24,000,000.
REQUIRED:
1> Compute the companys cash flow adequacy ratio.
2> If you were a banker considering loaning money to this company, why would you be
interested in knowing its cash flow adequacy ratio? Would you feel comfortable making
a loan based on the ratio you computed in (1)? Explain your answer.
38) Loren Corporation
Listed below is information from the financial records of Loren Corporation at
December 31, 2014:
Read the information below about Loren Corporation.
Required:
Calculate the amount of working capital at December 31, 2014 for Loren Corp. What
can you learn from the current ratio that you cannot learn from the amount of working
capital?