1) The following set of items describes activities completed by a company in collecting
cash for merchandise sales. For each activity, identify whether or not the activity
adheres to or violates sound internal control procedures.
An employee in the accounting department records cash receipts from customers and
prepares a bank deposit slip.
A.Adheres to sound internal control procedures
B.Violates sound internal control procedures
C.Neither strengthens nor violates internal control
2) Given that Curtain Corp.’s current ratio is 3 to 2, what is the effect of obtaining a
patent from the inventor in exchange for shares of stock in Curtain Corp.?
A.The current ratio would increase
B.The current ratio would decrease
C.The current ratio would remain the same
D.Unable to determine
3) The solution to this problem requires time value of money calculations. Reference to
Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
If interest is compounded annually, the total amount of interest on an $18,000 note
payable for 4 years at 10% is
A.$5,706
B.$7,200
C.$8,352
D.$8,500
4) [APPENDIX] The deferred income taxes for a corporation represent
A.the dollar amount of deductions that a corporation may claim for the year
B.an additional assessment made by the IRS for underpaid taxes
C.the estimated amount of next year’s taxes
D.the dollar amount that arises due to the difference between accounting for financial
statements and accounting for tax purposes
5) Taryn Corporation
The accountant for Taryn Corporation prepared the following list of account balances
from the companys records for the year ended December 31, 2014:
Read the information for Taryn Corporation. Determine the following amounts for
Taryn Corp.
A) Total assets at the end of 2014
B) Total liabilities at the end of 2014
C) What parties have a claim on Taryn Corporations assets? Explain you answer in the
terms of the accounting equation.
6) Surplus Mining Company has leased a machine from Craft Machinery Company.
The annual payments are $6,000 and the life of the lease is 8 years. It is estimated that
the useful life of the machine is 9 years. How would Surplus Mining record the
acquisition of the machine?
A.The machine would be recorded as an asset with a cost of $48,000
B.The company would not record the machine as an asset but would record rent
expense of $6,000 per year
C.The machine would be recorded as an asset, at the present value of the annual cash
payments, $6,000 for 8 years
D.The machine would be recorded as an asset, at the present value of the annual cash
payments, $6,000 for 9 years
7) Which one of the approaches for the allowance method of accounting for bad debts
emphasizes matching bad debts expense with revenue on the income statement?
A.The percentage of accounts receivable approach
B.The percentage of net credit sales approach
C.The direct write-off method
D.The uncollectible approach
8) Which internal control procedure is followed when storage areas are secured with
limited access?
A.Segregation duties
B.Safeguarding assets and records
C.Independent verifications
D.Proper authorizations
9) On January 2, 2012, Dock Master Construction, Inc. issued $500,000, 10-year bonds
for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8%
and the market rate is 6%. What is the carrying value of the bonds after the first interest
payment is made on June 30, 2012?
A.$574,540
B.$571,776
C.$568,920
D.$500,000
10) [APPENDIX] One example of a temporary difference between financial and tax
reporting results from
A.rent expense
B.tax-exempt interest from municipal bonds
C.life insurance proceeds resulting from the death of an executive
D.depreciation of long-term assets
11) The following information is summarized from the balance sheets of Gear Mart
Corporation and Function Junction, Inc. at December 31, 2012:
1) Using the information provided above, compute the following for each company at
December 31, 2012:
A. Working capital
B. Current ratio
C. Acid-test ratio
2) Comment briefly on the liquidity of each of these two companies. Which company
appears to be the most liquid?
12) When would LIFO liquidation occur?
A.As a result of selling more units than are purchased during the period
B.As a result of selling less units than are purchased during the period
C.As a result of selling the same number of units that are purchased during the period
D.Not enough information
13) Hedron Corp. invested cash in a 6-month certificate of deposit (CD) on November
1, 2014. If Hedron Corp. has an accounting period that ends on December 31, 2014,
when should Hedron recognize interest revenue from the CD?
A.On December 31, 2014 only
B.On May 1, 2013 only
C.Both December 31, 2014 and May 31, 2013
D.On the date when its income tax return is filed
14) Classify the following items according to the financial statement on which each
belongs, either the income statement (IS) or the balance sheet (BS). Also indicate
whether each is a revenue (R), expense (E), asset (A), liability (L), or owners’ equity
(OE) item.
15) Almost all current liabilities affect the operating category of the statement of cash
flows, but one that does not affect cash provided by operating activities is
A.accounts payable
B.interest payable
C.notes payable
D.taxes payable
16) Whispering Pines Company reported the following on its balance sheet at
December 31, 2014:
A) How much is the net realizable value of Whispering Pines receivables?
B) What is the balance of the accounts receivable account?
C) Are you able to determine whether Whispering Pines uses the allowance method or
the direct write off method for uncollectibles? Why or why not?
17) The return on assets ratio
A.considers the investment made by all creditors and stockholders.
B.is a measure of the liquidity of a company.
C.is based on average stockholders’ equity as compared to net income for the period.
D.reflects investments made only by the creditors of a company.
18) When a company discards machinery that is fully depreciated, this transaction
would be have an effect on accounting equation as follows:
A.decrease Accumulated Depreciation; decrease Machinery
B.increase Machinery; increase Accumulated Depreciation
C.increase Cash; increase Accumulated Depreciation
D.increase Depreciation Expense; increase Accumulated Depreciation
19) Which one of the following is considered one of the six most important categories
of internal control procedures?
A.Computerized accounting systems
B.The board of directors
C.Proper authorizations
D.Verification by government agencies
20) Terry Company
Transactions
Refer to the transactions for Terry Company.
Use the transactions incurred by the Terry Corporation to set up T accounts and post
each transaction to the T accounts.
21) Riley Corporation manufactures and sells weedeaters. Riley provides all customers
with a three-year warranty guaranteeing to repair, free of charge, any defects reported
during this time period. During the year, it sold 85,000 weedeaters for $225 each.
Analysis of past warranty records indicates that 8% of all sales will be returned for
repair within the warranty period. Riley expects to incur expenditures of $15 to repair
each weedeater. The account Estimated Liability for Warranties had a balance of
$115,000 on January 1. Riley incurred $90,000 in actual expenditures during the year.
REQUIRED:
Identify and analyze the effects of the warranty transactions during the year. Determine
the adjusted ending balance in the Estimated Liability for Warranties account.
22) The audit committee of the board of directors provides direct contact between the
______________________________ and the
________________________________________.
23) What is meant by the balance in the retained earnings account?
24) The concept that assumes that an entity is not in the process of liquidation is
_________________________.
25) If the balance of prepaid insurance was the same on January 1, 2012, and December
31, 2012, then the insurance expense would ____________________ the cash
payments made for insurance during the year.