1) Cash equivalents are reported in the Operating Activities section of the statement of
cash flows.
2) The key to the classification of an amount as cash is that it be available to pay debts
within a three-month period of time.
3) When an expense is incurred prior to the payment of cash for that expense, an
adjustment that increases an expense account and decreases an asset is prepared.
4) Twin Cities Corp. had sales during the year of $15,000,000 and an average accounts
receivable of $5,000,000. Its accounts receivable turnover ratio is 0.33 times.
5) Advance ticket sales for a concert next month are a current liability.
6) The Financial Accounting Standards Board created the objectives of financial
reporting.
7) Common-size financial statements exclude the dollar amount as a relevant variable
in the analysis, which makes comparison of one period with the next more meaningful.
8) Sales Returns and Allowances is a contra-asset account.
9) The normal balance of the Dividends account is a credit.
10) Most businesses have an operating cycle of less than one year.
11) Simple interest on a loan can be calculated by multiplying the principal by the
annual interest rate expressed as a percentage of the time in years or a fraction of the
time in years.
12) An asset is always involved when revenue is recognized.
13) Because discontinued segments of a business will not be part of the companys
future operations, discontinued operations are disclosed separately on the income
statement.
14) One concern of the internal auditor is the efficiency with which the organization is
run.
15) Appleton Industries had the following transactions during the year:
a. Appleton purchased inventory on account from a supplier for $12,000. Assume that
Appleton uses a periodic inventory system.
b. On May 1, land was purchased for $68,500. A 25% down payment was made, and an
18-month, 9% note was signed for the remainder.
c. Appleton returned $545 worth of inventory purchased in (a), which was found broken
when the inventory was received.
d. Appleton paid the balance due on the purchase of inventory.
e. On June 1, Appleton signed a one-year, $14,000 note to Middle State Bank and
received $12,750.
f. Appleton sold 350 gift certificates for $30 each for cash. Sales of gift certificates are
recorded as a liability. At year-end, 40% of the gift certificates had been redeemed.
g. Sales for the year were $100,000, of which 85% were for cash. State sales tax of 7%
applied to all sales must be remitted to the state by January 31
REQUIRED:
1> Identify and analyze the effects relating to these transactions.
2> Assume that Appletons accounting year ends on December 31. Identify and analyze
the effects of the adjustment needed.
3> What is the total of the current liabilities at the end of the year?
16) Using different depreciation methods for book purposes versus tax purposes for the
same asset is
A.not allowed since the amount can only be calculated one way or the other, not both
B.the direct result of the differing goals of financial and tax accounting
C.contrary to GAAP
D.against the Internal Revenue Code, and as such, against the law
17) During a period of increasing cost prices, which inventory costing method will
yield the lowest cost of goods sold?
A.Any method in which the company uses a periodic inventory system
B.FIFO
C.LIFO
D.Weighted Average Cost
18) Which one of the following is an example of a deferred revenue?
A.Sales are made to customers on credit
B.Interest has been earned by a bank deposit, but it has not been recorded
C.Cash is received prior to providing the services to customers
D.Cash sales are made to customers
19) Fitch Company reported an increase of $370,000 in its accounts receivable during
the year 2013. The company’s statement of cash flows for 2013 reported $1 million of
cash received from customers. What amount of net sales must Fitch have recorded in
2013?
A.$370,000
B.$1,000,000
C.$1,370,000
D.$630,000
20) Below are several independent items listed for which the outcome of events is
unknown at year-end, December 31, 2012
a. Margo Company had a barge that leaked oil into the waters surrounding Alaska. The
companys legal counsel believes that the outcome may be unfavorable but has not been
able to estimate the costs of the possible loss.
b. It is alleged by Margo Company that ABC Company has infringed on its trademark,
during a recent advertising campaign. Margo is suing ABC and its legal experts believe
that the suit will result in an award of $750,000 in Margos favor.
c. Margo offers 2-year warranties on the equipment it sells and believes that 5% of its
equipment will require warranty repairs.
d. A $35 coupon, good for one year is offered by Margo during December. At December
31, approximately 10% of the coupons have been redeemed and it is estimated that
there will be a total redemption rate of 45%.
e. Margo Company has been sued by the federal government for EPA violations. The
companys legal counsel believes that there will be an unfavorable verdict and has made
an estimate of the probable loss.
REQUIRED:
1> Identify which of the items (a) through (e) should be recorded at year-end.
2> Identify which of the items (a) through (e) should not be recorded but should be
disclosed in the year-end financial statements.
21) Which financial statement reports information helpful in assessing working capital?
A.Income statement
B.Balance sheet
C.Statement of retained earnings
D.Statement of cash flows
22) A debit memorandum appeared on Cinco Inc.s May bank statement. How will
Cinco treat this amount on its May bank reconciliation?
A.Add it to the bank balance
B.Add it the book balance
C.Deduct from the bank balance
D.Deduct from the book balance
23) Which inventory costing method results in the lowest income tax expense during a
period of decreasing prices?
A.FIFO
B.LIFO
C.Specific Identification
D.Weighted Average Cost
24) Failure to record accrued interest expense would result in which of the following?
A.Assets being overstated
B.Assets being understated
C.Liabilities being overstated
D.Liabilities being understated
25) Which of the following is not a financing activity?
A.Issuing bonds for cash
B.Selling an investment in IBM stock for cash
C.Purchasing a company’s own stock (treasury stock) for cash
D.Making a cash payment to repay a bank loan
26) In 2013, Minter Co.sold 150 hot air balloons at $4,000 each. The balloons carry a
5-year warranty for defects. Minter estimates that repair costs will average 4% of the
total selling price. The estimated warranty liability at the beginning of the year was
$14,000. $20,000 in claims was actually incurred during the year to honor their
warranty. What was the warranty expense for 2013?
A.$10,000
B.$18,000
C.$20,000
D.$24,000
27) On January 15, 2014, the accounts receivable balance was $7,000 and the balance
in the allowance for doubtful accounts was $700. That morning a $200 uncollectible
account was written-off. The net realizable value of accounts receivable immediately
after the write-off is:
A.$6,300
B.$6,800
C.$7,200
D.$7,900
28) All of the following refer to the face rate of interest on a bond except:
A.stated rate
B.effective rate
C.nominal rate
D.coupon rate
29) Guinther & Sons, Inc.
Guinther & Sons, Inc. a retailer of mens clothing, earned a net profit of $77,000 for
2014. The balance sheet for Guinther & Sons includes the following items:
Read the information for Guinther & Sons, Inc. The average current ratio for stores
such as Guinther & Sons is 2.4 to 1. What does this comparison tell you about its
liquidity?
A.It is more liquid than its competitors
B.It has more long-term assets than its competitors
C.Since a rule of thumb for current ratios is 2 to 1, neither Nadia & Sisters nor its
competitors is liquid.
30) Stockholders prefer to invest in preferred stock because
A.preferred stock confers preferred voting rights
B.preferred stock can always be converted to common stock if they desire
C.the dividends are generally increased each year
D.the dividends are paid on preferred stock before they are paid on common stock
31) ______________________ consists of all activities necessary to provide the
members
of an economic system with goods and services.
32) What is the significance of the timing in which cash is paid or received as it relates
to the adjusting process?
33) The maker of a note recognizes ____________________ on its income statement.
34) What is meant by the concept of “activity” as it relates to turnover ratios? Explain.
35) What two choices must be made in the measurement process for a company that
acquires a piece of equipment and needs to record it in the accounting records? Explain.