1) The record used to accumulate monetary information for each individual asset,
liability, stockholders equity, revenue, and expense item is a(an)
A.Account
B.General Journal
C.General Ledger
D.Chart of Accounts
2) The following information is available from the balance sheets at the end of 2012
and 2011 for Kitchen Equipment Company.
Net income for 2012 and 2011 was $120,000 and $460,000, respectively. No stock was
issued during either year. Answer the following:
A) How many shares of stock are outstanding at the end of 2012?
B) If a company has preferred stock, why are preferred dividends subtracted when
computing earnings per share?
C) What is the amount of earnings per share for the year ended December 31, 2012?
D) Explain what information is provided with earnings per share.
3) Several transactions occurred for Shadow Dreams Corporation during 2012. Indicate
the effect each item has directly on retained earnings by writing the amount in the space
provided. Place a + (plus sign) in front of the amount if the item increases retained
earnings, or ( ) parentheses around the amount if the item decreases retained earnings.
Place an X in the blank for items that have no direct effect on retained earnings. (Items
that affect the income statement do not directly affect retained earnings.)
A) ____ A tornado completely destroyed the company’s warehouse on March 1. The
original cost was $300,000, and the book value was $160,000 on that date. The
company had no insurance on the warehouse.
B) ____ Shadow Dreams earned net income in the amount of $450,000 for the year
ending December 31, 2012.
C) ____ Shadow Dreams declared and paid $320,000 of cash dividends to common and
preferred stockholders during 2012.
4) To review the current market price of the stock, one should review the
A.balance sheet.
B.income statement.
C.statement of cash flows.
D.none of these; it is not on the financial statements.
5) Waxman Company purchased a patent for $170,000 at the beginning of 2013, and
estimated that its expected useful life was 10 years. The patent has a legal life of 17
years. What amount should be recorded as amortization expense for the patent in 2013?
A.$ -0-
B.$ 7,000
C.$10,000
D.$17,000
6) At the end of 2013, Mirror Productions determined that one of its copyrights was
worthless. The copyright had a cost of $320,000. The copyright had been amortized for
8 years of its estimated 25-year legal life. Which of the following statements is the
justification for removing the remaining cost of the copyright from the accounting
records?
A.The copyright no longer represents a future benefit to the company
B.The federal government does not allow copyrights to be recorded as assets once they
are deemed worthless
C.The cost of the copyright represents an obligation to return capital contributions to
the stockholders
D.The cost of the copyright has usefulness that will impact the net income of future
accounting periods
7) Weather Corp. issued 10-year, 8%, $100,000 bonds paying interest on an annual
basis, at a $5,200 premium. Which one of the following statements is true?
A.Weathers annual interest expense on the bonds will be greater than the amount of
interest payments to bondholders each year
B.Weathers annual interest expense on the bonds will be less than the amount of interest
payments to bondholders each year
C.Weather will receive $94,800 as the issue price
D.The cash paid to bondholders will be $520 each interest period
8) Where can the amounts needed to compute the accounts receivable turnover ratio be
found?
A.The income statement
B.The balance sheet
C.The statement of cash flows
D.Both (a) and (b)
9) Cranston Enterprises purchased land for $2,000,000 in 1999. In 2014, an
independent appraiser assessed the value at $4,400,000. What amount should appear on
the financial statements in 2014 with respect to the land?
A.$2,000,000
B.$2,400,000
C.$4,400,000
D.Whatever amount the company believes is the best indicator of the true value of the
land
10) St. Petersburg Corporation
Use the information obtained from the comparative financial statements included in the
St. Petersburg Corporation’s 2012 annual report that is presented below to answer the
questions that follow. All amounts are in thousands of dollars.
Refer to the financial information for St. Petersburg Corporation.
REQUIRED:
(A) Calculate the return on assets ratio for St. Petersburg for 2012. What is the reason
for the adjustment of interest?
(B) Calculate the return on common stockholders’ equity ratio for 2012 for St.
Petersburg. What is the reason for the adjustment of preferred dividends?
11) Which of the following best describes the term assets?
A.The amount of total profits earned by a business since it began operations
B.The amount of interest or claim that the owners have in the business
C.The economic resources of a business entity
D.The cumulative profits earned by a business less any dividends distributed
12) Administrative controls
A.Are concerned with efficient operations and adherence to managerial policies
B.Are concerned with the reliability of the financial statements
C.Are the responsibility of the company’s auditors
D.Are concerned primarily with safeguarding assets
13) Eagles Nest sold equipment for $4,000 cash. This resulted in a $1,500 loss. What is
the impact of this sale on the working capital?
A.Reduces working capital
B.Increases working capital
C.Has no effect on working capital
D.The increases offsets the decrease.
14) Which of the following best describes the term expenses?
A.The amount of total profits earned by a business since it began operations
B.The amount of interest or claim that the owners have in the business
C.The future economic resources of a business entity
D.The outflow of assets resulting from the sale of goods and services
15) Mitchell Company prepares monthly financial statements and will record.a prepaid
account for each of the following except:
A.Mitchell paid for three months of window washing services in advance
B.Mitchell purchases a four-year casualty insurance policy
C.A tenant that pays Mitchell for six months of rent in advance
D.Mitchell purchases office supplies to last for several months
16) The following information is provided by the Ferrara Corporation:
Calculate Ferrara Corporations expenses.
A.$20,000
B.$30,000
C.$40,000
D.Cannot tell from the information provided.
17) Winslet Corp. prepares monthly bank reconciliations of its checking account
balance. The bank statement for May, 2014, indicated the following:
An analysis of canceled checks and deposits and the records of Winslet Corp. revealed
the following items:
The correct amount of check #4456 is $760. It was recorded as a cash disbursement of
$670 by mistake. The check was issued to pay for merchandise purchases. The check
appeared on the bank statement correctly.
18) What are some of the limitations on a companys effective system of internal
control?
19) ______________________________________ is a line item on the income
statement to reflect any gain or loss from an event that is both unusual in nature and
infrequent in occurrence.
20) Slammer Sports
The following information is for Slammer Sports at the end of 2014:
Refer to the data for Slammer Sports.
If bad debts are estimated at 1% of net sales, how much will Slammer Sports report as
bad debts expense for 2014?
21) Canyon Corporation
The accountant for the Canyon Corporation prepared the following list from the
companys accounting records for the year ended December 31, 2014:
22) McDonald’s Corporation is the largest food service organization in the world. The
proper handling of cash and food is important to the profitability of McDonald’s. Based
on your personal knowledge of McDonald’s and the internal control concepts and
procedures described in the textbook, answer the following questions.
REQUIRED:
Describe procedures that you believe McDonald’s may use to control the purchase and
payment of food products.
23) Under the accrual basis of accounting, at what point in time should a fast food
restaurant recognize revenue?
24) The following account balances are taken from the records of the Odessa Industries:
December 31
2012 2011 2010
Accounts receivable $180,000 $120,000 $90,000
Net credit sales $900,000 $840,000
Odessa extends credit terms requiring full payment in 45 days, with no discount for
early payment.
REQUIRED:
1> Compute Odessas accounts receivable turnover ratio for 2012 and 2011.
2> Compute the number of days sales in receivables for 2012 and 2011. Assume 360
days in a year.
3> Comment on the efficiency of Odessas collection efforts over the two-year period.
25) Discuss at least four reasons that accounting standards currently differ between
countries.
26) A(n) ____________________ categorizes the various accounts receivable amounts
by the length of time outstanding.