A company has positive cash flow from investing and financing activities, but negative
cash flow from operating activities. The likely result is:
A) investors may not buy the company’s stock because the receipt of dividends is
unlikely.
B) investors will continue to buy stock since the company’s growth prospects are good.
C) Creditors will continue to lend money to the company.
D) Creditors will demand immediate repayment of all outstanding debt.
The MegaHit Film Studio owns a production lot and related equipment. How would
MegaHit Company categorize these assets?
A) Tangible assets
B) Natural resources
C) Intangible assets
D) Goodwill
A company loaned $1,000,000 with interest at 7% to another company. The interest
revenue from this loan would be reported on the statement of cash flows as a:
A) cash inflow from operating activities.
B) cash inflow from investing activities.
C) cash inflow from financing activities.
D) noncash investing and/or financing activity.
The Extra Surplus Company’s Balance Sheet for December 31, 2015 and the Income
Statement for 2016 are shown below.
Additional data:
Sales were $13,000; $8,000 in cash was received from customers.
Bought new land for cash, $10,000.
Sold other land for its book value of $5,000.
Paid $1,000 principal on the long-term note payable and $1,000 in interest.
Issued new shares of stock for $10,000 cash.
Cash dividends of $1,000 were declared and paid to stockholders.
Paid $5,500 on accounts payable.
No inventory purchases were made; other expenses were incurred on account.
All wages were paid in cash.
Other expenses were on account.
Required:
Part a. Prepare a balance sheet at December 31, 2016.
Part b. Prepare the statement of cash flows using the direct method.
Purrfect Pets, Inc. makes a $10,000 payment on account. This would result in a:
A) $10,000 credit to Cash and a $10,000 credit to Accounts Payable.
B) $10,000 debit to Cash and a $10,000 debit to Accounts Payable.
C) $10,000 debit to Accounts Payable and a $10,000 credit to Cash.
D) $10,000 debit to Cash and a $10,000 credit to Accounts Payable.
Which of the following statements about the debit/credit framework is correct?
A) Stockholders’ Equity = Assets + Liabilities.
B) The total value of credits in all accounts must always equal the total value of debits
in all accounts.
C) The normal balance for an account is the side on which it decreases.
D) A decrease in Common Stock would be recorded with a credit.
Which of the following statements about bond premiums or discounts is correct?
A) A discount on a bond reduces the amount that the issuer has to repay to the lenders.
B) A premium on a bond increases the interest expense of the loan to the issuer.
C) A premium on a bond increases the amount that the issuer has to repay to the
lenders.
D) A discount on a bond increases the interest expense of the loan to the issuer.
In part, a transaction affects the accounting equation by decreasing an asset. There is no
effect on liabilities. Which of the following statements is correct with regards to this
transaction?
A) If other assets are unchanged, stockholders’ equity must be increasing.
B) If other assets are unchanged, stockholders’ equity must be decreasing.
C) If stockholders’ equity is unchanged, another asset must be decreasing.
D) If stockholders’ equity is unchanged, other assets must be unchanged.
Use the information above to answer the following question. Assume the company
decides to sell the computer system on July 1, 2017 for $1,000,000. Which of the
following statements about the journal entry (or entries) required on July 1 is not
correct?
A) The depreciation expense must be recorded for 6 months, January 1 to July 1.
B) The Equipment asset account must be credited for $1,600,000 to record the sale.
C) Accumulated Depreciation is debited for $612,500 in the entry to record the sale.
D) The loss on the sale is $12,500.
Use the information above to answer the following question. Net sales would be:
A) $30,000.
B) $124,000.
C) $130,000.
D) $160,000.
Your company owned equipment with a book value of $120,000 that was sold during
this accounting period for $30,500 in cash, and purchased new equipment for cash of
$148,000. Your company would record a debit of:
A) $148,000 and a credit of $30,500 to the cash account for a net cash inflow of
$117,500.
B) $148,000 and a credit of $89,500 to the cash account for a net cash inflow of
$58,500.
C) $30,500 and a credit of $148,000 to the cash account for a net cash outflow of
$117,500.
D) $89,500 and a credit of $148,000 to the cash account for a net cash outflow of
$58,500.
Which of the following statements about liabilities is not correct?
A) Liabilities are amounts owed by a business.
B) Liability accounts have a normal credit balances.
C) Financing activities may affect the amount of liabilities.
D) Examples of liabilities include Notes Payable, Common Stock, and Income Tax
Payable.
Angle Inc. announces that its gross profit rose 5% but its income before income taxes
fell. Which of the following statements is correct?
A) This is not possible given that net income is determined by gross profit.
B) This must mean that selling, general, and administrative expenses increased by more
than 5%.
C) This must mean that sales revenue rose more than expenses.
D) This must mean that cost of goods sold fell.
Use the information above to answer the following question. If Bailey Company uses
the LIFO costing method, what is the cost of its ending inventory?
A) $1,365
B) $1,494
C) $1,620
D) $2,835
Which of the following statements correctly describes an imprest system?
A) An imprest system is an internal control procedure relating to cash receipts.
B) There is no difference between a petty cash fund and an imprest bank account.
C) If the transfers from the payroll account to the employees’ checking accounts occur
without error, the imprest payroll bank account will equal zero after all employees have
been paid.
D) The use of an imprest system eliminates the need for bank reconciliations.
How will a company’s current ratio be affected when the company receives $20,000
from owners and issues common stock to them?
A) The current ratio will increase because current assets increase.
B) The current ratio will increase because current liabilities decrease.
C) There will be no change in the company’s current ratio.
D) The current ratio will decrease because current liabilities increase.
The company has $10,000 in its checking account, $20,000 in its savings account,
$1,000 in petty cash, $25,000 in one-year Treasury bills, and $15,000 in a money
market fund. What amount should be reported as cash and cash equivalents on the
balance sheet?
A) $30,000
B) $31,000
C) $46,000
D) $71,000