Under the periodic inventory system, freight-in is an additional part of cost of goods
sold.
Under the market method, the investor recognizes revenue when dividends are received.
The purchase of an intangible asset such as a trademark would be a financing activity
on the statement of cash flows.
Noncontrolling interests do not affect the balance sheet of the consolidated financial
statements.
Most companies use accelerated depreciation for financial reporting purposes and
straight-line depreciation for income tax purposes.
Even though assets must always equal the sum of liabilities and owners’ equity, the net
cash flow from operations does not have to equal the sum of the net cash flow from
investing activities and the net cash flow from financing activities.
Amortization expense is computed in the same manner as straight-line depreciation.
The annual report is a document prepared by the board of directors and distributed to
current and potential investors.
A corporate proxy is a written authority granted by individual shareholders to others to
cast the shareholders’ votes.
The owners of a corporation have limited liability.
A pro forma statement is a carefully formulated expression of predicted results
conveyed in a statement.
A balance sheet that groups the accounts into subcategories to help users gain a
perspective on the company’s financial position is referred to as a single-step balance
sheet.
Double-declining-balance depreciation computes annual depreciation by multiplying
the asset’s book value at the beginning of the year by two times the straight-line rate.
Which of the following forms of business organizations protect the personal assets of
the owners from creditors of the business?
A) Partnerships
B) Corporations
C) Proprietorships
D) Partnerships and corporations
E) Partnerships and proprietorships
Which of the following will not affect cash in the financing section of the Statement of
Cash Flows?
A) increasing long or short term debt
B) selling common or preferred shares of stock
C) converting debt to common stock
D) repurchasing common shares of stock
E) paying dividends
The following table describes certain financial results for three companies during 2X11,
2X12 and 2X13:
Each company has total assets of $250,000 in each year. Standard, Inc., has no debt,
Platinum, Inc., has $100,000 of debt at an interest rate of 10%, and Gold, Inc., has
$150,000 of debt at a 14% interest rate. Platinum and Gold have no other debt or
liabilities. Assume no taxes.
a. For each company, and for each year, determine
1. the rate of return on total assets, and
2. the rate of return on common stockholders’ equity.
b. For each company, and for each year, state whether the company’s use of debt
leverage is favorable, unfavorable, or not applicable.
An operating loss occurs when
A) revenues exceed expenses.
B) expenses exceed revenues.
C) assets exceed liabilities.
D) liabilities exceed assets.
E) liabilities exceed owners equity.
Rural Bell Company issued 9-year, 8%, $750,000 bonds on January 1, 20X9. The bonds
pay interest every June 30 and December 31, with the principal to be paid in 9 years.
The effective interest rate on the bonds is 10%, and the company uses the
effective-interest method of amortization.
a. Compute the initial selling price of the bonds on January 1, 20X9.
b. Prepare the entry needed on June 30, 20X9.
On March 1, 20X9, Schmor Incorporated paid 6 months’ insurance in advance, covering
the period of March 1 to August 31, 20X9. The total payment was $4,200. At the time
of the payment, the entire amount was used to increase the balance in the Prepaid
Insurance account. What will be the balance in the Prepaid Insurance account as of
March 31, 20X9?
A) $-0-
B) $700
C) $2,800
D) $3,500
E) $4,200
If an accountant erroneously records an $8,000 credit to Accounts Payable instead of an
$8,000 debit to the Cash account, the Accounts Payable account will be
A) understated by $8,000.
B) overstated by $8,000.
C) understated by $16,000.
D) overstated by $16,000.
E) correct since the erroneous entry caused the trial balance to equal.
A transaction
A) affects the financial position of an entity.
B) maintains the equality of the balance sheet equation.
C) affects the cash position of an entity.
D) will always change values on the income statement.
E) both A and B
Big Apple Cabins has net income of $725,000. Throughout the year, the company had
150,000 shares of common stock outstanding. Also, the company has 25,000 shares of
preferred stock that pay a dividend of $5.00 per share that is convertible into 5 shares of
common stock for each share of preferred. The preferred stock is considered to be
dilutive. The tax rate for Big Apple Cabins is 40%. What are the basic earnings per
share for Big Apple Cabins?
A) $2.50
B) $2.71
C) $2.86
D) $3.64
E) $4.00
________ is the capability of information to make a difference to the decision maker.
A) Verifiability
B) Reliability
C) Relevance
D) Validity
E) Neutrality
The two main qualities that make accounting information useful for decision making
are ________ and ________.
A) relevance and reliability
B) relevance and faithful representation
C) understandability and verifiability
D) comparability and consistency
E) timeliness and reliability
Referring to Exhibit 5-1, what was the cash paid from the purchase of fixed assets by
Cartell Paper Products in 2012? Assume no fixed assets were sold in 2012.
A) $(13,000)
B) $(9,100)
C) $(16,900)
D) $9,100
E) Cannot be determined from the information given
Northstar Enterprises had the following balances as of December 31, 2011:
During 2012, the following activity occurred:
1. $73,100 was paid by customers in advance for work to be performed by the
company. The balance in the unearned revenue account as of December 31, 2012, was
$7,700.
2. Credit sales were $497,100. As of December 31, 2012, the accounts receivable
balance was $32,900.
3. Accounts payable is solely attributable to the acquisition of merchandise inventory on
account. Credit purchases of merchandise inventory during 2012 were $291,000. The
balance in accounts payable as of December 31, 2012, was $13,100.
Required:
a. What was the amount of cash received from credit customers in 2012?
b. How much cash was paid by the company for the credit purchase of merchandise
inventory related to its accounts payable in 2012?
c. How much sales revenue was recognized by the company in 2012, related to the
work performed for customers who paid in advance?
The reason that companies use historical costs to value long-term assets is the
A) entity concept.
B) materiality convention.
C) going concern convention.
D) periodicity convention.
E) neutrality principle.
Consolidated financial statements
A) are used to offset gains and losses on the parent company’s income statement.
B) combine the financial records of two or more separate legal entities.
C) make clear distinctions between principal and secondary long-term asset owners.
D) provide a depiction of process costs.
E) must provide predetermined overhead costs with earnings per share in the annual
report.
Master Printers, Inc. has a temporary shortfall of cash, but needs to pay its employees
tomorrow. What will Master Printers, Inc., most likely do to obtain the cash?
A) Go to a bank and sign a promissory note for the funds needed
B) Issue commercial paper in hopes that creditors will loan the company the needed
funds
C) Offer a 1-day incentive to salespersons in order to increase sales and cash
D) Ask employees to wait until the company has the funds to pay them
E) Borrow money from their line of credit
Additional paid-in capital is the difference between the
A) cash received from stockholders and par value of the stock.
B) cash received from stockholders and dividends of the stock.
C) dividends paid to stockholders and treasury stock purchased.
D) dividends paid to stockholders and total number of shares authorized.
E) total number of shares authorized and total number of shares outstanding.
Which of the following inventory methods physically links the particular items sold
with the actual cost of goods sold for the items sold?
A) FIFO
B) LIFO
C) Weighted-average
D) Specific identification
E) FIFO and LIFO
The Income Summary account
A) can be found on the Income Statement since it is an expense account.
B) can be found on the Income Statement since it is a revenue account.
C) can be found on the Balance Sheet since it is an asset account.
D) can be found on the Balance Sheet since it is a liability account.
E) cannot be found on any of the financial statements.
On March 31, Getze Family Automotive performed a month-end inventory and counted
office supplies valued at $2,100. On March 1, the balance in the Supplies account was
$1,200. Assume that $2,900 of purchases for the month was posted to the Supplies
account, what adjusting entry would Getze Family Automotive make on March 31?
Kimberly Conrad owns 150 shares of Dalor Organization. On January 13, 2X13, Dalor
Organization declared and issued a 3% stock dividend. The market price per share of
Dalor Organization’s stock is $35, and the par value is $1.00 per share. What is the
journal entry to be made by Dalor Organization with respect to the stock dividend
distribution to Kimberly Conrad?
What is the relation between the market interest rate and the bond issue price? Include
descriptions of bond discount and premium in your explanation.
On March 1, 20X3, Environmental Impacts acquired inventory on account. The cost of
the inventory was $85,000. The terms of the purchase were 2/10, n/30. Upon inspection
of the inventory on March 2, $4,800 worth of inventory was returned. Environmental
Impacts paid for the inventory on March 8. The company uses a periodic inventory
system. What journal entry will Environmental Impacts make on March 1, 20X3?