1) Bondholders are internal users of companys accounting information.
2) Three months before year-end, Skyway Company signed a $100,000, 10%, 8-month
note. Principal and interest will be paid at maturity. No interest should be accrued at
year-end because the company has no obligation to pay the interest until the note
matures.
3) The sum of the carrying value and the redemption price at the time bonds are
redeemed results in the gain or loss on redemption.
4) Income taxes payable is a current liability.
5) Under LIFO, the units in the ending inventory represent the most recent purchase(s).
6) One of the problems with the use of the allowance method to account for bad debts is
that it often violates the matching principle.
7) Pinecrest Company
Use the selected data from Pinecrest Companys financial statements to answer the
following question.
Refer to the data for Pinecrest Company.
Which of the following statements is true?
A.Net income must be at least $36,000 for 2014
B.Net income must be less than $36,000 for 2014
C.Cash flows from operating activities is twice as large as net income for 2014
D.The amount of net income for 2014 cannot be determined based on the data provided
8) Which of the following measures can be used to evaluate a company’s ability to meet
future debt obligations after paying income taxes and interest and making capital
expenditures?
A.Earnings per share
B.Net income
C.Cash flow adequacy ratio
D.Net increase or decrease in cash and cash equivalents
9) Glidewell Company purchased a car for a salesman for $23,500 at the beginning of
2012. The car had an estimated life of 5 years, and an estimated residual value of
$3,500. Glidewell used the straight-line depreciation method. At the beginning of 2013,
Glidewell incurred $2,500 to replace the car’s transmission. This resulted in a 2-year
extension of the car’s useful life, but no change in the residual value.
A. What type of cost is the $2,500? Explain.
B. Calculate the book value of the car at the end of 2012.
C. Find the depreciation expense on the car for 2013..
10) The payment of employee salaries has what effect on the accounting equation?
A.Assets decrease and stockholders equity decreases
B.Liabilities decrease and stockholders equity decreases
C.Assets decrease and liabilities increase
D.Assets increase and liabilities decrease
11) At the end of 2014, the unadjusted accounting records for Bacon Corporation
contain the following selected accounts and balances.
12) Roehr Corporation issues 20,000 shares of $0.50 par common stock for $6 per
share; the Additional Paid-in Capital–Common account will increase by
A.$10,000
B.$110,000
C.$120,000
D.$130,000
13) Which of the following should be classified as an investing activity on the statement
of cash flows?
A.interest on notes payable
B.payment to suppliers for inventory
C.payment of dividends
D.None of these
14) Clayton City Consultants started business on January 1, 2014, and immediately
purchased $1,000 of supplies to use in the business. At the end of the month, 25 percent
of the supplies remains unpaid and 20% are still on hand. What amounts should appear
on the financial statements for January, 2014?
Income Statement Statement of Cash Flows
A.$ 1,000 $ 1,000
B.$ 1,000 $ 750
C.$ 800 $ 250
D.$ 800 $ 750
15) Comfort Shoes had the following items included in its accounting records. In the
space provided, indicate whether each of the items listed is included in an account in
the stockholders’ equity section of the balance sheet.
Item Included in a Stockholders’Equity account? (yes or no)
a. Preferred stock issued by Sterling Shoes.
b. Cash dividend unpaid that was declared last year.
c. Earnings accumulated but not distributed by Comfort Shoes.
d. Amount received in excess of cost when treasury stock is reissued by Comfort Shoes.
e. Treasury stock purchased.
f. Dividends in arrears on Comfort Shoes preferred stock.
g. Amount received in excess of par value when common stock was issued by Sterling
Shoes.
h. Stock dividend declared but not yet distributed by Comfort Shoes.
16) What effect does recognizing revenue at the end of the accounting period for rent
previously received in advance have on the accounting equation for an insurance
company?
A.Stockholders equity increases and liabilities increase
B.Assets increase and stockholders equity increases
C.Assets decrease and liabilities decrease
D.Liabilities decrease and stockholders equity increases
17) Explain by what processes the costs of operating assets are allocated to expense.
18) An effective system of internal control is critical to protecting a companys
investment in three of its major assets: cash, accounts receivable, and inventory. For
each asset, describe how a company might protect that asset.
19) Ginger Company claims its financial information is useful. What two qualities must
be present in order to have “useful” accounting information? Explain these two
qualities.
20) ______________, or an increase in the level of prices, is another important
consideration in analyzing financial statements.
21) Loren Corporation
Listed below is information from the financial records of Loren Corporation at
December 31, 2014:
Read the information about Loren Corporation.
Required:
Calculate Manus current ratio at December 31, 2014. What does this ratio tell you about
the “composition” of the current assets?
22) The process of identifying, measuring, and communicating economic information to
various users is called ____________________.
23) How does the definition of a current liability relate to that of a current asset?
24) Please answer the following questions regarding depreciation:
_________________________ is the GAAP depreciation method used most
frequently?