You are a potential creditor and are concerned that a particular company you are ready
to give a loan to might have too much debt. Which financial statement would provide
you information needed in order to evaluate your concern?
a. Balance Sheet
b. Income Statement
c. Statement of Retained Earnings
d. Statement of Public Accounting
The control activity “segregation of duties” is most effective in
a. increasing cost of sales.
b. preventing collusion.
c. assisting employees in performing risk assessment procedures.
d. increasing the likelihood of embezzlement.
A landlord records the collection of a tenant’s security deposit as a(n)
a. prepaid expense.
b. liability.
c. contingent liability.
d. contra liability.
Refer to Randstad, Inc. The dividend payout ratio for 2015 is
a. 10%.
b. 28%.
c. 32%.
d. 38%.
The following amounts were taken from a company’s unadjusted trial balance at
December 31, 2012:
Prepare any adjusting entries necessary at December 31, 2012, for each of the
transactions that follow.
Which inventory cost flow method assigns the same cost to all units whether sold or left
in ending inventory?
a. specific identification
b. weighted average cost
c. FIFO
d. LIFO
Another term for Short Term Investments is
a. inventories.
b. accounts receivable.
c. contributed capital.
d. marketable securities.
Refer to Metalcrafts, Inc. What was depreciation expense for 2014?
a. $30,000
b. $10,000
c. $40,000
d. $50,000
Which one of the following statements is true?
a. Sound internal control practice dictates that disbursements should be made by check.
b. Good cash management practice dictates that large cash balances should be
maintained.
c. The person handling cash should also prepare the bank reconciliation.
d. Petty cash can be substituted for a checking account to expedite the payment of all
disbursements.
Accrued expenses originate from
a. paying off liabilities.
b. paying for items such as insurance in advance.
c. collecting cash from customers.
d. incurring expenses without yet having paid cash for them.
Use the following selected financial information to compare these two companies at
December 31, 2015, and to answer the questions that follow.
Robin’s Co. Ruth’s Co.
Cash $ 1,100 $ 300
Short-term investments 100 900
Accounts and notes receivable 11,700 12,400
Inventories 1,200 1,000
Prepaid expenses 1,400 600
Total current assets 15,500 15,200
Total current liabilities 5,000 4,000
Long-term liabilities 2,300 12,000
Stockholders’ equity 5,300 7,300
A) Compute the current ratios for the two companies.
B) Compute the quick ratios for the two companies.
C) Which company appears to be more liquid?
D) What other ratios would help to more fully assess the liquidity of these two
companies?
When the present value of an annuity is calculated, which of the following is
notrequired?
a. The number of cash flows.
b. The interest of discount rate per period.
c. The future value of the cash flows.
d. The amount of each repeating cash flow.
On June 30, a company had $1,924 in its cash account according to its general ledger.
This included a deposit of $174 that was in transit on June 30th. The June 30th bank
statement contained the following information:
Bank statement balance $2,178
Bank service charge 14
Collection of notes receivable 136
NSF check 32
Assuming outstanding checks of $338, what is the company’s adjusted cash balance at
June 30th?
a. $1,840
b. $1,880
c. $2,014
d. $2,178
A local tennis club sells season memberships for $1,000 each. During January 2013, 50
season memberships were sold. As of March 31, 2013, only $25,000 of season
membership fees had been collected from customers. The tennis season runs for 6
months starting April 01, 2013. Which one of the following is an amount reported on
the Balance Sheet dated March 31, 2013?
a. Unearned tennis membership revenue of $25,000.
b. Unearned tennis membership revenue of $50,000.
c. Accounts Receivable $50,000.
d. Tennis membership revenue of $25,000.
Futronics purchased a truck at the beginning of 2012 for $41,500 and decided to
depreciate it over a 6-year period using the straight-line method. The estimated residual
value was $5,500. At the beginning of 2013, the company determined that a 4-year life
should have been used to depreciate the truck. The estimated residual value was not
affected by the revision in the asset’s life.
A) Determine the amounts to be recorded as depreciation expense for 2012 and 2013.
B) What factors may have influenced the change in useful life?
Flossil Fossils Company purchased a tract of land containing coal in 2013 for
$20,000,000 and then spent $30,000,000 to get a mine ready for operation. The
company estimates that there will be 10,000,000 tons of coal available over the next 10
years. The land has a residual value of $500,000. During 2013, 1,000,000 tons of coal
were mined.
A) Compute the cost of the natural resource and the depletion rate.
B) Record the journal entry for the 2013 depletion.
La Paz Restaurants
Selected data from the company’s financial statements are presented below:
2015 2014
Net income $110,000 $123,000
Cash dividends paid on common stock $21,000 $38,000
Year-end market price per share of common stock $12.00 $13.00
Shares of common stock outstanding 140,000 140,000
Refer to the information presented above for La Paz Restaurants. The 2015 dividend
yield ratio is reported as
a. 1.25%.
b. 1.59%.
c. 0.057%.
d. 2.09%.
A credit memo appeared on the September bank statement. How should this amount be
treated on the September bank reconciliation?
a. Add it to the company’s balance.
b. Add it to the bank balance.
c. Deduct it from the company’s balance.
d. Deduct it from the bank balance.
The following information was taken from the financial records of Mr. Transmission:
Accounts payable, December 31, 2014 $ 88,000
Accounts payable, December 31, 2013 99,000
Operating expenses for 2014 999,000
How would the change in accounts payable be reported in the operating activities
section of the statement of cash flows under the indirect method?
a. As an addition to operating expenses.
b. As a deduction from operating expenses.
c. As an addition to net income.
d. As a deduction from net income.
Refer to Art Shoes. At the maturity date, the customer pays for the note and interest.
The company made the proper adjustment at the end of December for interest. The
effect of recognizing the transaction on the maturity date is
a. a decrease to Cash.
b. an increase to Notes Receivable.
c. an increase to Discount on Notes Receivable.
d. a decrease to Notes Receivable.
Which of the following documents is used in the control of cash receipts?
a. canceled checks
b. outstanding checks
c. bank deposit slips
d. bank debit memos
Treasury shares represent the
a. number of previously issued shares that have been repurchased by the corporation.
b. number of shares that the corporation has sold.
c. number of shares that are currently held by stockholders.
d. maximum number of shares that can be sold by the corporation.
The following information was reported by a catering company:
Accrued liabilities, December 31, 2014 $ 92,000
Accrued liabilities, December 31, 2013 55,000
Operating expenses for 2014 200,000
What amount would be reported in the operating activities section of the statement of
cash flows for Payments for Operating Expenses under the direct method?
a. $237,000
b. $163,000
c. $200,000
d. $292,000
Which of the following ratios is most useful in indicating a company’s profitability?
a. operating cash flow ratio
b. operating margin percentage
c. dividend payout ratio
d. dividend yield ratio
Refer to A&B Foods. If the company uses the aging of accounts receivable method to
estimate its bad debts, what will be the net realizable value of its accounts receivable
after the adjustment for bad debt expense?
a. $343,000
b. $345,000
c. $420,000
d. $395,000
Which of the following would appear on an income statement?
a. unearned revenue
b. cost of sales
c. retained earnings
d. dividends
When using the indirect method to determine operating cash flows, how is the issuing
of stock for cash shown on the Statement of Cash Flows?
a. operating activity
b. investing activity
c. financing activity
d. non cash investing and financing activity
e. not reported on the statement of cash flows
Suppose a corporation issues 5,000 shares of $1 par common stock for $30 per share. In
addition to the increase in cash, what effect does this transaction have on the accounting
equation?
a. Retained earnings increases $150,000.
b. Paid-in capital in excess of par increases $145,000.
c. Common stock increases $150,000.
d. Gain on stock issuance increases $145,000.
Refer to Absolute Appliances. What amount should the company recognize as interest
revenue in 2013?
a. $ -0-
b. $1,000
c. $2,000
d. $3,000
A corporation reported net income of $60,000, declared and paid cash dividends of
$80,000, and issued 3,000 shares of $2 par common stock at $15 per share during the
year. What total effects would these transactions have on the following stockholders’
equity accounts?
Retained Earnings Common Stock
a. increase increase
b. increase decrease
c. decrease decrease
d. decrease increase
Advanced Technology reported the following on its balance sheet at December 31,
2013:
Accounts receivable, less Allowance for Doubtful Accounts of $20,500 $580,200
A) What is the net realizable value of the company’s accounts receivable?
B) What is the balance of the accounts receivable account?
C) Are you able to determine whether the company uses the allowance method or the
direct write off method for bad debts? Why or why not?
A company reported the following information:
Salaries payable, December 31, 2014 $20,000
Salaries payable, December 31, 2013 15,000
Salaries expense for 2014 80,000
How much cash was paid for salaries during 2014?
a. $60,000
b. $65,000
c. $75,000
d. $85,000
AT&U Company
Data for the year ended December 31, 2013, are presented below:
Sales (credit) $2,500,000
Sales returns and allowances 50,000
Accounts Receivable (December 31, 2013) 640,000
Allowance for Doubtful Accounts
(Before adjustment at December 31, 2013) 20,000
Estimated amount of uncollected accounts based on aging analysis 45,000
Refer to AT&U Company. If the company estimates its bad debts at 1% of net credit
sales, what amount will be reported as bad debt expense for 2013?
a. $44,500
b. $25,000
c. $24,500
d. $4,500
A corporation reported the following information in the stockholders’ equity section of
its balance sheet before its recent stock dividend:
Common Stock, $3 par, 100,000 shares issued and outstanding $300,000
Paid-in Capital in Excess of Par–Common Stock 150,000
Total Capital Stock 450,000
Retained Earnings 425,000
Total Stockholders’ Equity $875,000
A) Record a 10% stock dividend assuming that the market price of its stock was $7 per
share on the declaration date.
B) Following distribution of the stock dividend, what are the updated balances in the
common stock and retained earnings accounts?
A _________________ is the right to produce or sell a published work.
____________________ are receivables that generally specify an interest rate and a
maturity date at which any interest and principal must be repaid.
Operating activities involve the acquiring and selling of goods and services for cash or
on account.
A corporation had several transactions affecting its stockholders’ equity accounts during
the year. In the space provided, show the impact on the accounting equation by placing
a plus sign (+) for an increase, a minus sign (-) for a decrease, or N/A for no impact or
no total net impact.
Stockholders’
Transactions: Assets = Liabilities
+ Equity
Received authorization to issue 10,000 shares of $5 par common
stock
Issued 5,000 shares of common stock for $15 per share
Declared and paid a 5% stock dividend when the market price of the common stock was
$18 per share
Declared a cash dividend of $1 per share
Issued additional shares in a 2-for-1 stock split
What are some weaknesses of performing time series analysis alone?
Touchton Company reported the following financial results for 2012 and 2013:
2013 2012
Sales $500,000 $600,000
Sales returns & allowances 10,000 D
Net sales 490,000 580,000
Cost of goods sold:
Beginning inventory 30,000 E
Net purchases A 340,000
Cost of goods available for sale 250,000 380,000
Ending inventory 40,000 30,000
Cost of goods sold B F
Gross profit C G
Provide the answer for each missing letter above.
Issuing stock increases the company’s cash flows from investing activities.
____________________ is the capacity of information to make a difference in a
decision by helping make timely predictions or provide timely feedback.
External users and outside decision makers use ____________________ accounting.
A(n) ____________________ occurs when the cash received from selling an item of
property, plant, and equipment is greater than the book value of the asset sold. It is also
shown in the operating activities section of the statement of cash flows prepared using
the indirect method.
Shipping terms of FOB Destination means that the shipping costs are paid by the
______.
The accountant for a local manufacturing company is reconciling the company’s bank
account for May. For each item listed, state how it would be handled on a bank
reconciliation. (Choices may be used more than once.)
a. Addition to bank balance
b. Subtraction from bank balance
c. Addition to company balance
d. Subtraction from company balance
e. Not included on the reconciliation
1/ Check written on the company’s account in May and paid by the bank is returned
with the bank statement
2/ Check written on the company’s account in May that does not appear on the bank
statement
3/ Bank service charge on the bank statement for new checks
4/ Interest earned on the checking account for May
5/ Customer’s NSF check returned with the bank statement
6/ Customer’s check was deposited on May 31 but is not included on the bank statement
What is the revenue recognition principle?
Under the allowance method of accounting for bad debts, the company estimates the
amount of bad debts before those debts actually occur.
Money market accounts with original maturities of less than 90 days are cash
equivalents.
The fundamental accounting equation is ____________________ =
____________________ + ____________________.