1) Cost of goods sold represents an outflow of an asset, inventory, from the sale of
products.
2) Dividends are a determinant of net income.
3) A note discounted with recourse means that if the original customer fails to pay the
bank the total amount due on the maturity date of the note, the company that transferred
the note to the bank is liable for the full amount.
4) The terms of a lease can only be structured in one way to meet the lessor and lessee
and satisfy accounting standards.
5) The bank informs a customer that a service charge has been assessed on their account
by including a credit memorandum in the monthly bank statement
6) A note payable due in two years is a current liability.
7) Assets may be used to satisfy business obligations and to carry on business
operations.
8) When a real estate company sells equipment for a gain, the Gain on Sale of Asset is
treated as revenue.
9) An entity’s assets come from three primary sources: creditors, investors, and profits
retained in the business.
10) Discount on Notes Payable is treated as a reduction of notes payable on the balance
sheet.
11) With the periodic inventory system, the inventory account is updated after each sale
or purchase.
12) Vertical analysis is a comparison of financial statement items for a single company
over a period of time.
13) [APPENDIX] A partnership can be owned by one or more entities or individuals.
14) Sales revenue is an inflow of assets.
15) If a customer returns merchandise which has already been paid for, the retailer may
give either a cash refund or a credit on account.
16) If the current ratio is 3 to 1 and the working capital is $100,000, then the current
assets are
A.$150,000
B.$200,000
C.$300,000
D.$450,000
17) Which method assigns the cost of the most recent items purchased to cost of goods
sold?
A.Specific identification
B.Weighted average cost
C.FIFO
D.LIFO
18) Under current accounting principles, how is net income on the income statement
measured?
A.Net change in owners equity during the period
B.Excess of revenues over expenses during the period
C.Net change in the cash balance during the period
D.Excess of revenues over expenses less any dividends paid during the period
19) Which of the following sets of factors is needed to calculate depreciation on plant
and equipment?
A.The asset’s acquisition cost, replacement cost, and its estimated residual value
B.The estimated residual value of the asset, its replacement cost, and its market value
C.The asset’s replacement cost, its estimated life, and its estimated residual value
D.The estimated life of the asset, its acquisition cost, and its estimated residual value
20) Presented below are selected data from the financial statements of Parade Corp.
The price/earnings ratio for 2012 is
A..80 to 1
B.1.43 to 1
C.8.39 to 1
D.12.50 to 1
21) Which one of the following financial statements reports an entitys financial position
at a specific date?
A.Balance sheet
B.Statement of retained earnings
C.Income statement
D.Both the income statement and the balance sheet
22) What is the primary objective of financial reporting?
A.To help investors make credit decisions
B.To help management assess cash flows
C.To protect users from fraudulent financial information
D.To provide useful information for decision making
23) Which one of the following types of inventory accounts would be used by a
wholesaler or retailer?
A.Raw materials inventory
B.Work in process inventory
C.Finished goods inventory
D.Merchandise inventory
24) Sawaddee Enterprises began the year with total assets of $450,000 and total
liabilities of $230,000. If Sawaddee total liabilities increased by $31,000 and its owners
equity decreased by $53,000 during the year, what was the amount of its total assets at
the end of the year?
A.$472,000
B.$242,000
C.$198,000
D.$428,000
25) Beasley Mason Company is a defendant in a lawsuit alleging damages of $3 billion.
The litigation is anticipated to continue for several years, but no reasonable estimate
can be made at this time regarding ultimate financial responsibility. This situation is an
example of:
A.An $3 billion expense to be recorded in the income statement during the year of the
suit
B.A loss contingency that should be disclosed in the notes to Beasleys financial
statements
C.An estimated liability that must appear in Beasley Mason Company’s balance sheet
D.None of these. No accrual or disclosure is required in Beasleys financial statements
26) If a company has $152,000 of revenues, declares and pays $55,000 in dividends,
and has net income of $89,000, how much were expenses for the year?
A.$ 8,000
B.$ 63,000
C.$144,000
D.Unable to determine the amount due to incomplete information.
27) Which of the following operating activities results in a cash outflow?
A.Paying creditors for merchandise
B.Collecting accounts receivable
C.Making cash sales
D.Receiving deposits recorded as unearned revenue
28) What is the matching principle? How does it relate to the revenue recognition
process?
29) A ________________ allows the firm to eliminate a class of stock by paying the
stockholders a specified amount.
30) On January 1, 2014, Humansville Company purchased a piece of equipment with a
list price of $80,000. The following amounts were related to the equipment purchase:
Terms of the purchase were 2/10, net 30. Humansville paid for the purchase on January
8.
Freight costs of $1,250 were incurred.
A state agency required that a pollution control device be installed on the equipment at
a cost of $3,300.
During installation, the equipment was damaged and repair costs of $4,200 were
incurred.
Architects fees of $6,100 were paid to redesign the work space to accommodate the
new equipment.
Humansville purchased liability insurance to cover possible damage to the asset. The
three-year policy cost $8,700.
Humansville financed the purchase with a bank loan. Interest of $4,600 was paid on the
loan during 2014.
REQUIRED:
Determine the acquisition cost of the equipment.
31) For each statement provided, choose the letter of the appropriate term from the list
that each statement best describes. Some terms may be used more than once, while
others are not used at all.
32) ____________________ is the quality of accounting information that makes it
dependable in representing the events that it purports to represent
33) Giant-Mart purchased a large shipment of shoes from Primus, Inc. on credit near the
end of its accounting period. Primus shipped the shoes in January and Giant-Mart
received the shoes in February. Assume that Giant-Mart’s accounting period ends on
January 31, while Giants accounting period ends on May 31. Answer each independent
question in the set that follows.
REQUIRED: Under what shipping terms would Giant-Mart include the shoes as part
of inventory on its January 31 balance sheet?
34) Why is the cash basis of accounting too limited for proper financial reporting?
35) Learning Tree, Inc.
The following data is available for one of the products sold by Learning Tree, Inc.,
which uses the perpetual inventory system:
Refer to the data for Learning Tree, Inc.
Explain why the amounts for ending inventory are different under the two average cost
methods–weighted average(periodic) and moving average(perpetual).
36) The federal government agency with the ultimate authority to determine the rules in
preparing statements for companies whose stock is sold to the public is the
__________________________________________________.