1) Which of the following concepts is important to accrual accounting?
A.Time period, because accrual accounting divides earnings into time periods
B.Monetary unit, because inflation is a big factor in the environment
C.Cash basis, because if cash is not received, revenue is not accrued
D.Entity concept, because personal transactions must be separated from business
transactions
2) A non-business entity would be particularly concerned about its
A.earnings per share
B.price/earnings ratio
C.liquidity
D.income tax rate
3) Target, Inc., started the year with total assets of $400,000 and total liabilities of
$240,000. Net income for the year is $120,000 and dividends declared and paid during
the year are $90,000.
A) What is the amount of Targets total stockholders equity at the end of the year?
B) Could Target have paid additional dividends during the year? Explain your answer.
4) Select the term from the list below that matches each of the following six
descriptions.
1>The party that receives payment due from a note A. Discounting
2>The length of time a note is outstanding — the period of time between the date it is
issued and the date it matures B. Term
3>The sale of a note C. Payee
4>The amount of cash the maker is to pay the payee on the maturity date of the note D.
Recourse
5>Transfer a note with a contingent liability E. Interest
6>The difference between the principal amount of the note and its maturity value F.
Maturity value
5) Turtle Island Music Store reported net income of $200,000. Cash from operations
A.will be more than $200,000
B.will be less than $200,000
C.will be equal to $200,000
D.cannot be determined without more information
6) Several events are listed below. Indicate whether each event is an external event that
should be recorded as a transaction, an internal event which should be recorded as a
transaction, or an event which should not be recorded. Use the following identification
codes for your answers:
E – External event to be recorded as a transaction
I – Internal event to be recorded as a transaction
NR – An event which should NOT be recorded
_____ A) An order is placed with a supplier for merchandise.
_____ B) Common stock is issued to investors.
_____ C) Cash sales are made.
_____ D) Raw materials are entered into production.
_____ E) Federal income tax returns are prepared by the company’s accountant.
_____ F) Bills are received for utility expenses.
_____ G) Payment is received from customers to whom merchandise had been sold on
credit.
_____ H) Money collected from cash and credit customers is deposited in the
company’s checking account at a local bank.
7) The stockholders’ equity section of the balance sheet for Front Page News
Corporation appeared as follows before its recent stock dividend:
Front Page declared a 10% stock dividend when the market price per share was $8.
After the stock dividend was distributed, the components of the stockholders’ equity
section were:
Common Stock Add’l. Paid-in Capital Retained Earnings
A.$580,000 $100,000 $645,000
B.$550,000 $100,000 $675,000
C.$550,000 $130,000 $645,000
D.There would be no change in the components of stockholders equity.
8) All of the following are included in the acquisition cost of property, plant, and
equipment except:
A.transportation costs
B.taxes on the purchase
C.installation costs
D.maintenance costs
9) Royal Company purchased a dump truck at the beginning of 2012 at a cost of
$50,000. The truck had an estimated life of 5 years and an estimated residual value of
$20,000. On January 1, 2014, the company made major repairs of $30,000 to the truck
that extended the life 3 years. Thus, starting with 2014, the truck has a remaining life of
5 years and a new salvage value of $8,000. Royal uses the straight-line depreciation
method
What amount should be recorded as depreciation expense each year starting in 2014?
A.$6,000
B.$12,000
C.$13,600
D.$14,400
10) On October 1, Lawrence Company borrowed $60,000 from Fourth National Bank
on a 1-year, 7% note. If the company’s fiscal year ends as of December 31, which of the
following increasing effects would Lawrence show?
A.interest expense, $4,200
B.notes payable, $1,050
C.interest payable, $1,050
D.prepaid interest, $3,150
11) The following information is given for Wagner Company:
What are the companys current assets?
A.$220,000
B.$155,000
C.$130,000
D.$ 95,000
12) If less cash is in the petty cash fund than should be there, according to the receipts,
the amount of the discrepancy should be reported as
A.an expense on the income statement
B.income on the income statement
C.an asset on the balance sheet
D.a liability on the balance sheet
13) Tiva Solutions accounting records reflect the following account balances at
December 31, 2013:
During 2014, the following transactions occurred:
Required:
14) Eversoll Inc. uses the periodic inventory system.
How many units did Eversoll, Inc. sell during June?
A.50
B.90
C.100
D.150
15) The classification of current liabilities is closely tied to the concept of
_____________________.
16) Explain what amount is recorded in the Additional Paid-in Capital account when
stock is issued.
17) What is the purpose of an aging schedule?
18) Total stockholders’ equity divided by the number of shares of common stock
outstanding is ________________________________________.
19) Credits are always on the _____________________ side of the T account.
20) Story Corp. sold merchandise for $8,000 to Bargain on May 15, 2014, with
payment due in 30 days. Subsequent to this, Bargain experienced cash flow problems
and was unable to pay its debt. On August 10, 2014, Story stopped trying to collect the
outstanding receivable from Bargain and wrote off the account as uncollectible. On
December 1, 2014, Bargain sent Story a check for $2,000 and offered to sign a
two-month, 12%, $6,000 promissory note to satisfy the remaining obligation. Bargain
paid the entire amount due Story, with interest, on January 31, 2015. Story ends its
accounting year on December 31 each year and uses the allowance method to account
for bad debts.
REQUIRED:
1> Identify and analyze the effects of the transactions needed by Story Corp. from May
15, 2014 to January 31, 2015
2> Why would Bargain bother to send Story a check for $2,000 on December 1 and
agree to sign a note for the balance, given that such a long period of time had passed
since the original purchase?
21) The bond issue price equals the _________________________ of the cash flows
that the bond will produce.