1) Match the terms to the definitions by selecting the letter of the term. Each term may
be used more than once or not at all.
1>The holders of this stock have the right to dividends in arrears before the current year
dividend is distributed. A. additional paid-in capital
2>Allows preferred stock to be returned to the corporation in exchange for common
stock. B. cumulative feature
3>The amount received for the issuance of stock in excess of par value. C. convertible
feature
4>Shares of stock that are repurchased and then discontinued by removing them from
the accounting records. D. participating feature
5>Allows the holders of this stock to share in the distribution of dividends above the
predetermined per share amount. E. retired stock
2) Culinary Delights Company
Refer to the financial statements from Culinary Delights Company.
REQUIRED:
(A) Calculate the company’s current and acid-test ratios for 2012. Would you lend this
company $4,000,000 at 10% over a one-year period? Explain. (Note: The statements
provided are in “thousands.”)
(B) Suppose the company has credit terms of 20 days and all sales are on credit. During
2012, what credit management problems does this company have, if any? Explain
3) Which one of the following is an assumption made in the preparation of financial
statements?
A.Financial statements are prepared for a specific entity that is distinct from the entity
owners
B.Financial statements are prepared assuming that inflation has a distinct effect on the
monetary unit
C.Preparation of financial statements for a specific time period assumes that the balance
sheet covers a period of time
D.Market values are always assumed to be irrelevant when preparing financial
statements
4) When a company discounts an interest-bearing note at a bank with recourse,
A.The company is assured payment at maturity
B.The company will receive the full amount of the note plus interest
C.The company has a contingent liability from the time the note is discounted until its
maturity date
D.The bank assumes the credit risk on non-payment at the maturity date
5) Match the terms with the descriptions related to merchandise sales and purchases.
1>The buyer must pay the shipping costs. A. Perpetual inventory system
2>The seller is responsible for the cost of delivering the merchandise to the buyer B.
Transportation-in
3>Relies on a count of inventory on the last day of the year to determine amount on
hand C. FOB Destination
4>Shipping costs paid to acquire merchandise. D. Periodic inventory system
5>Requires updating of the inventory account at the time of each purchase and each
sale. E. FOB Shipping point
6) 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. uses the aging of accounts receivable approach to estimate its bad debts,
what amount will be reported as bad debt expense for 2014?
A.$12,700
B.$13,700
C.$14,000
D.$15,300
7) Posey Corporation began operations on January 2, 2012, with a total investment of
$150,000 by its stockholders. Net income for its first year of business was $90,000.
During 2013 and 2014, net income increased to $188,000 and to $217,000, respectively.
Posey paid $85,000 in dividends to its shareholders in each of the three years.
A) In good form, prepare a statement of retained earnings for the year ended December
31, 2013.
B) How much is total retained earnings on December 31, 2014?
C) Explain the link between the statement of retained earnings and the balance sheet.
8) The treasurer for Rahm Corp. was preparing a bank reconciliation as of September
30, 2014. The following items were identified:
Rahm Corp.’s adjusted cash balance at September 30, 2014 is
A.$34,600
B.$34,900
C.$32,500
D.$32,800
9) What numerators are used in the computation of the following ratios?
Inventory turnover ratio Accounts receivable turnover ratio
A.Cost of Goods Sold Cost of Goods Sold
B.Net Credit Sales Net Credit Sales
C.Net Credit Sales Cost of Goods Sold
D.Cost of Goods Sold Net Credit Sales
10) What is the name of the formalized commitment of the IASB and the FASB to
converge U.S. and international accounting standards?
A.The Sarbanes-Oxley Act
B.The Norwalk Agreement
C.The IFRS Foundation
D.The Conceptual Framework
11) Meta Inc. pays $18,000 to buy stock in another company and an additional $350 in
commissions. Three months later, Meta sells the stock for $19,000. At the time of sale,
Meta will recognize a:
A.A $650 loss
B.A $1,000 gain
C.A $350 loss
D.A $650 gain
12) Which of the following represents the correct sequence of the three business
activities on the Statement of Cash Flows?
A.Financing – Operating – Investing
B.Investing – Operating – Financing
C.Operating – Investing – Financing
D.Financing – Investing – Operating
13) The current balance sheet of Handyman Inc. reports total assets of $20 million, total
liabilities of $2 million, and owners’ equity of $18 million. Handyman Inc. is
considering several financing possibilities in order to expand operations.
If Handyman Inc.s owner invests an additional $2 million to finance the expansion, the
debt to equity ratio will
A.stay the same
B.decrease
C.increase
D.cannot be determined from this information
14) Below are two transactions for Navaho Co.
1> On June 1, Navaho Co. issued 2,000 shares of $5 par common stock for $16 per
share.
2> On June 15, Navaho Co. issued 1,200 shares of $5 par preferred stock to acquire a
building. The stock is not widely traded, and the current market value of the stock is not
evident. The building has recently been appraised by an independent firm as having a
market value of $15,000.
REQUIRED: Identify and analyze the effects of each of these transactions for Navaho
Company.
15) For each of the following sentences, select the phrase or group of words that best
completes the statement.
16) Assume that on December 31, 2014, Potaw Company has outstanding 8,000 shares
of $15par, 6%cumulative, preferred stock and 40,000 shares of $5 par common stock.
Potaw was unable to declare a dividend in 2012 or 2013 but wants to declare a $75,000
dividend for 2014.
REQUIRED:
1> How much cash is distributed to preferred stockholders?
2> How much cash is distributed to common stockholders?
3> What is the dividend per share to preferred stock?
4> What is the dividend per share to common stock?
17) Sales returns and allowances is a contra ____________________ account.
18) [APPENDIX] Derek and Kent are partners. At the beginning of the current year,
Dereks capital account is $30,000, while Kents is $50,000. The partners decided to
allocate income with 10% interest on capital balances at the beginning of the period and
divide the balance equally. Net income for the current year, 2012, is $80,000. Each
partner withdrew $15,000 for personal use during the year. Determine the amount of
income that each partner will be allocated.
19) If an entity overstates its ending inventory for the current year, what are the effects
on assets, cost of goods sold, income before taxes, and retained earnings for the current
year?
20) There are very important differences between U.S. and international standards
regarding contingencies. Even the terms used to refer to situations with unknown
outcomes differ. Explain these differences.
21) The ___________________ is a subset of the board of directors that acts as a direct
contact between the stockholders and the independent accounting firm.
22) Share, Inc.
The following data is available for one of the products sold by Share, Inc., which uses a
perpetual inventory system.
Refer to the data for Share, Inc.
If the moving average method is used, how much is cost of goods sold for May?