Accounting for changes in residual value must be prospective and retrospective.
A comparison of a company’s financial ratios with its own historical ratios is referred to
as a cross-sectional comparison.
Net sales is always equal to total sales revenue less sales returns and allowances.
Simple interest is more frequently used than compounded interest in U.S. financial
practice.
The balance sheet provides a snapshot of an entity’s financial position at an instant of
time, while the income statement provides a moving picture of events over a span of
time.
With verifiability, knowledgeable and independent observers would agree that the
information presented has been appropriately measured.
Losses and gains on the disposal of assets are essentially nonoperating items that are
adjustments to net income under the direct method.
Notes and bonds are common financial contracts that businesses use to raise money.
Cash for services performed in 20X8 is received in 20X9. Using the accrual basis of
accounting, the revenue would appear on the 20X9 income statement.
Increases in liabilities, owners’ equity, and noncash assets increase cash.
A physical inventory count is required under both the perpetual and periodic inventory
systems.
Internal accounting controls include administrative, financial statement, and accounting
controls.
The dividend-yield ratio is computed as the current market price of the stock divided by
the current dividend per share.
LIFO liquidation refers to the relatively higher profits generated under LIFO when
reductions in inventory levels occur because older, lower inventory costs are used in
calculating cost of goods sold.
When a corporation retires shares of issued common stock, the common stock account
is credited for the par value of the stock.
Which one of the following adjustments will increase revenues?
A) Fees were not billed for services already performed.
B) Depreciation is recorded.
C) Supplies were used, but not recorded.
D) Interest is incurred on borrowed money, but not yet paid to the bank.
E) Wages have accrued, but will not be paid until next month.
Based on the information for the following three companies, a) compute the accounts
receivable turnover ratio for each company for 2X13 and b) determine which company
is in the best liquidity position based on the calculation in part a.
Which of the following statements regarding temporary differences is false?
A) Temporary differences can result in deferred liabilities and deferred assets.
B) Deferred tax liabilities are found on the balance sheets of nearly every company.
C) For most companies, the primary source of deferred taxes is timing differences
related to depreciation.
D) The deferred tax liability equals the temporary difference times the tax rate.
E) Temporary differences result in the cancellation of taxes.
What effect does the earning of revenue previously collected have on the basic
accounting equation? Assume Unearned Revenue had been increased when the cash
was collected in advance.
A) Increase in assets, decrease in liabilities
B) Decrease in assets, decrease in liabilities
C) Decrease in liabilities, increase in stockholders’ equity
D) Decrease in assets, decrease in stockholders’ equity
E) Increase in assets, increase in stockholders’ equity
Which balance sheet accounts are most affected by investing activities?
A) Current assets
B) Current liabilities
C) Long term assets
D) Long term liabilities
E) Stockholders’ equity
A spin-off is when
A) a company buys a security for a very short period of time and then sells it.
B) a bond is retired through the issuance of another bond.
C) part of a company which is usually a distinct business unit is separated from the
parent company and shares of the divested company are distributed to the parent’s
stockholders.
D) a company acquires another company in a different industry.
E) a company acquires another company in the same industry.
Mexland Company, acquired land costing $25,000. Mexland Company paid $10,000 in
cash and issued a short-term note for the balance. The effect of this transaction on
Mexland Company, would be to
A) increase the land account by $25,000, decrease the cash account by $10,000, and
decrease the balance in the notes payable account by $15,000.
B) increase the land account by $25,000, decrease the cash account by $10,000, and
decrease the balance in the notes receivable account by $15,000.
C) increase the land account by $25,000, decrease the cash account by $10,000, and
increase the balance in the notes receivable account by $15,000.
D) increase the land account by $10,000 and decrease the cash account by $10,000.
E) increase the land account by $25,000, decrease the cash account by $10,000, and
increase the balance in the notes payable account by $15,000.
Hybud Recreation Center acquired all the stock of Cloverleaf Floors by purchasing the
shares from their current owners for $400,000 paid in cash. Cloverleaf Floors has assets
with a fair value of $400,000. How would Hybud Recreation Center account for the
acquisition?
A) Hybud would increase Paid-in Capital by $400,000 and decrease Cash by $400,000.
B) Hybud would increase Property, Plant, and Equipment by $400,000 and decrease
Cash by $400,000.
C) Hybud would increase Investment in Cloverleaf Floors by $400,000 and decrease
Cash by $400,000.
D) Hybud would decrease Property, Plant, and Equipment by $400,000 and decrease
Cash by $400,000.
E) Hybud would not need to make a journal entry.
A management discussion and analysis (MD&A) of financial results, as well as
footnotes to the financial statements, are part of a company’s annual report.
The accuracy and truthfulness of the financial statements is the responsibility of the
A) external auditors.
B) stockholders.
C) management.
D) staff accountants.
E) external auditors and the staff accountants.
Michael Hudson owns 400 shares of Surefoot Enterprises. The capital stock of Surefoot
Enterprises has a par value of $8 per share. Michael Hudson sells his 400 shares of
Surefoot Enterprises stock to Brian Haas for $15 per share. The effect of this transaction
on Surefoot Enterprises, would be to
A) increase the cash account by $6,000 and increase the capital stock account by
$6,000.
B) increase the cash account by $6,000 and decrease the capital stock account by
$6,000.
C) increase the cash account by $6,000, increase the capital stock account by $3,200,
and increase the paid-in capital in excess of par account by $2,800.
D) Surefoot Enterprises would not record this transaction but would note the change in
ownership.
E) Surefoot Enterprises records this transaction but would not note the change in
ownership.
Product Line Inc. has the following data:
What is the interest coverage for Product Line Inc. in 2X13? Has the interest coverage
improved or not improved since 2X12?
A) 12.5, not improved
B) 6.4, not improved
C) 11.5, improved
D) 12.5, improved
E) 6.4, improved
Machiel Manufacturing acquired a $60,000 machine on January 1, 2009. The machine
is estimated to have a useful life of 4 years, and a residual value of $10,000. For
units-of-production depreciation purposes, the machine is expected to produce 500,000
units. What is the balance in the accumulated depreciation account on December 31,
2010, if Machiel Manufacturing uses double-declining-balance depreciation?
A) $25,000
B) $30,000
C) $40,000
D) $45,000
E) $50,000
A company reports revenue on its income statement using
A) gross sales less sales returns and allowances.
B) net sales less sales returns and allowances.
C) gross sales plus trade discounts.
D) net sales plus trade discounts.
E) gross sales less trade discounts plus sales returns and allowances.