Which is the first financial statement that should prepared after the adjusted trial
balance has been prepared?
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Statement of Retained Earnings
Choose the appropriate letter to match the term and the definition. (There are more
definitions than terms.)
TERM
1)_____ Investors
2) _____ Audit
3)_____ Balance Sheet
4) _____ Operating Activities
5)_____ Unit of Measure Assumption
6) _____ Retained Earnings
7)_____ Investing Activities
8)_____ Income Statement
DEFINITION
A. An example of an internal user of financial statements.
B. A financial statement showing a company’s assets, liabilities and stockholders’
equity.
C. When a company acquires money from investors.
D. A financial statement that summarizes a company’s past and current cash situation.
E. An example of external users of financial statements.
F. The idea that the financial statements of a company include the results of only that
company’s business activities.
G. Activities directly related to running the business to earn profit.
H. A financial statement that shows a company’s revenues and expenses.
I. Borrowing money from lenders.
J. The total amount of profits that are kept by the company.
K. The idea that a company should report its financial data in the relevant currency.
L. A procedure by which independent evaluators assess the accounting procedures and
financial reports of a company.
M. Transactions with lenders (borrowing and repaying cash) and stockholders (selling
company stock and paying dividends).
Public corporations are businesses:
A) owned by two or more people, each of whom is personally liable for the debts of the
business.
B) whose stock is bought and sold on a stock exchange.
C) whose stock is bought and sold privately.
D) where stock is not used as evidence of ownership.
Generally, freight costs incurred when a long-lived asset is purchased should be:
A) expensed in the period incurred.
B) deducted from the Accumulated Depreciation account.
C) added to the cost of the asset.
D) not recorded in the accounts.
Use the information above to answer the following question. What is the total amount
of interest expense that will be recorded over the life of these bonds?
A) $300,000
B) $285,000
C) $315,000
D) $330,000
Which of the following was passed by Congress in response to financial statement
frauds that occurred in the early 2000s?
A) Federal Accounting Standards Board Act
B) Securities and Exchange Act
C) Sarbanes-Oxley Act
D) Clayton Act
A 6-month note is issued on November 1. If no previous accruals have been made, how
many months of interest should be accrued at December 31?
A) Six
B) Two
C) Four
D) None
The unadjusted trial balance of Sketch Star Makers Inc., prepared as of December 31,
2015, includes the following account balances. All of the accounts listed have normal
balances.
The following information is also available:
A) A count of supplies revealed $400 worth on hand at December 31, 2015.
B) An insurance policy, purchased on January 1, 2014, covers four years.
C) The equipment depreciates at a rate of $1,000 per year; no depreciation has been
recorded for 2015.
D) Three-fifths (or 60%) of the amount recorded as Unearned Revenue remains
unearned as of December 31, 2015
E) The accrued amount of salaries and wages at December 31, 2015 are $2,000.
Required:
Prepare the required adjustments for the company as of December 31, 2015.
Use the above information to answer the following question. What is the amount of
income before income taxes?
A) $9,500
B) $32,700
C) $13,000
D) $17,500
The Grass is Greener Company borrows money from a bank. Part of the loan agreement
requires Grass is Greener to maintain stockholders’ equity of at least 40% of assets or
otherwise to pay a higher interest rate. This requirement is referred to as a:
A) loan covenant.
B) credit rating.
C) bond rating.
D) call feature.
The income statements for Urban Outfits, Inc. are presented below:
Required:
Part a. Prepare a horizontal analysis of the income statement above. Round to the
nearest whole percent.
Part b. Interpret your analysis. Comment on significant changes.
An example of an account that could be included in an accrual adjustment for expense
is:
A) Accounts Receivable.
B) Interest Payable.
C) Prepaid Insurance.
D) Accumulated Depreciation.
Which of the following statements about the calculation of cash flows from operating
activities under the direct method is correct?
A) When the direct method is used, each revenue and expense account on the income
statement is individually examined to calculate the cash flows from operating activities.
B) Noncash revenues and expenses must be included in cash flows from operating
activities when preparing a statement of cash flows using the direct method.
C) Depreciation is reported as a cash inflow in the cash flows from operating activities
when the direct method is used.
D) A loss on the sale of a long-term asset is subtracted in the cash flows from operating
activities when the direct method is used.
Your company sells $40,000 of one-year, 10% bonds for an issue price of $39,000. The
journal entry to record this transaction will include a credit to Bonds Payable in the
amount of:
A) $39,000.
B) $40,000.
C) $43,000.
D) $44,000.
Which of the following would be classified as a financing activity on the statement of
cash flows?
A) Cash receipts from accounts receivable collections
B) Cash receipts from sale of equipment
C) Cash paid to purchase treasury stock
D) Cash paid for interest on notes payable
A stock dividend transfers:
A) contributed capital to Retained Earnings.
B) Retained Earnings to assets.
C) contributed capital to assets.
D) Retained Earnings to contributed capital.
When a company has a contingent liability that is remote in likelihood, the company
should:
A) include a description in the notes to the financial statements.
B) record the amount of the liability times the probability of its occurrence.
C) record the amount of the liability as a long-term liability on the balance sheet.
D) exclude the information about the contingent liability from its financial statements
and notes.