Debt security investments include short-term obligations of banks and short-term notes
payable issued by large corporations with top credit ratings.
Liabilities are known as contra assets.
If land was acquired many years ago, and inflation has occurred over time, the value of
the land on the financial statements should be increased to reflect some of the change in
the land’s valuation. However, the land will still be valued at a relatively conservative
amount. The company does not follow IFRS.
Cash equivalents are highly liquid long-term investments that can easily be converted
into cash.
The consistency convention requires a company to use LIFO from year to year.
Companies with exceptional growth (growth stocks) tend to pay a higher percentage of
their earnings in dividends.
A sales return occurs when a buyer returns merchandise to the seller, and a sales
allowance is when the seller allows a lower price to be charged to the customer.
When companies have potentially dilutive securities outstanding, the diluted earnings
per share exceed the basic earnings per share.
Held-to-maturity securities are carried on the balance sheet at amortized cost.
Since auditors provide an opinion as to the fairness of the financial statements, auditors
have the primary responsibility for the preparation of the company’s financial
statements.
There are three sets of books after a consolidation: the parent’s books, the subsidiary’s
books, and the consolidated entity’s books.
Privately held corporations can be owned by family members, but they still sell stock
publicly.
The receipt of loan repayments is an investing activity on the statement of cash flows.
Which statement is FALSE?
A) Administrative controls consider the organization plan.
B) Accounting controls include procedures that facilitate management’s planning and
control of operations.
C) Accounting controls include the methods and procedures for authorizing transactions
and safeguarding assets.
D) Accounting controls are present to ensure the accuracy of the financial records.
E) Accounting controls minimize waste, errors, and fraud within an organization.
For each of the following categories, give two examples of financial statement ratios
that fit within that category.
a. Short-term liquidity ratios
b. Long-term solvency ratios
c. Profitability ratios
d. Market price and dividend ratios
Fulton Company has the following information available:
What is the percentage increase or (decrease) in gross profit from 2012 to 2013 for
Fulton Company?
A) (19.4)%
B) (12.5)%
C) 6.8%
D) 12.5%
E) 19.4%
The removal of an old building to make land suitable for its intended use is charged to
A) repairs expense.
B) land.
C) buildings.
D) land improvements.
E) None of the above
In items a-f, define whether the bond was issued at a premium (PR), discount, (DI), or
par (PAR) when the face value of the bond was $1,000 with a 10% coupon rate.
PR/DI/PAR
a) The market rate of the bond was 11% when sold ________
b) The issuing company received $1,050.00 ________
c) The market rate of the bond was 9% when sold ________
d) The issuing company received $1,000.00 ________
e) The issuing company received $983.00 ________
f) The market rate of the bond was 10% ________
It is now 2X09 and Jump N’ Fun is restructuring operations by closing and selling its
retail stores in 2X09. All employees that work in these stores will be terminated.
A) The restructuring loss will be included in the income statement in 2X09.
B) The restructuring loss will be included in the income statement in 2X10.
C) Jump N’ Fun can take the loss over time so as to manage earnings.
D) The restructuring loss must be reported in the income statement over a five year
period.
E) This type of event will have no effect unless there is a gain on the sale of the retail
stores.
Wayne Company just purchased merchandise costing $700, which has payment terms
of 2/10, n/45. Wayne Company is uncertain whether to take advantage of the discount.
What is the annual interest rate implicit in the cash discount, assuming a 365-day year?
A) 2.0%
B) 3.0%
C) 16.2%
D) 20.9%
E) 21.3%
Which of the following statements is incorrect, regarding the effect of depreciation
expense on a statement of cash flows using the indirect method?
A) Depreciation expense is not an outflow of cash.
B) Depreciation expense represents an inflow of cash.
C) Depreciation expense is added in the operating activities section of the statement of
cash flows.
D) Depreciation expense is not a source of cash.
E) Depreciation expense will reduce the net income used in determining net cash flow
from operations.
What effect does the purchase of store equipment on account have on the balance sheet
equation?
A) Assets increase and liabilities decrease
B) Assets increase and liabilities increase
C) Assets decrease and liabilities decrease
D) Assets decrease and liabilities increase
E) There is no effect on the accounting equation.
Heintz Corporation wishes to borrow $83,000 at 11% interest from the local bank.
However, the bank requires a compensating balance of 10%. The effective interest rate
that Heintz Corporation will pay on the loan is which of the following?
A) 10.1%
B) 12.2%
C) 13.2%
D) 16.4%
E) 14.1%
Which of the following tasks is not commonly performed by an external auditor?
A) External auditors examine transactions, but the number examined is dependent on
the strength or weakness of the internal control system.
B) External auditors evaluate the system of internal controls.
C) External auditors test whether the internal control system is being followed.
D) External auditors assume responsibility for the total accuracy of the financial
statements.
E) External auditors inspect a sample of the transactions that are entered into the
records of a company.
Failure to record the expiration of a prepaid asset account will
A) overstate assets.
B) understate assets.
C) overstate liabilities.
D) understate liabilities.
E) understate net income.
Hilac Plumbing records revenue as cash is received. Which method of income
measurement is Hilac Plumbing using?
A) The accrual basis
B) The cash basis
C) The recognition basis
D) The revenue basis
E) The realization basis
Trade discounts
A) apply one or more reductions to the gross selling price for a particular class of
customers in accordance with a company’s policies.
B) are offered in order to be competitive.
C) are offered to encourage certain customer behavior (to encourage early orders).
D) are not reported on the income statement
E) All of the above statements are true regarding trade discounts.
Determine the missing values.
Revenues $250
Expenses 200
Dividends Declared 20
Additional investments by owners A
Net income B
Retained Earnings, Beginning C
Retained Earnings, Ending 110
Paid-in Capital, Beginning 60
Paid-in Capital, Ending 60
Total Assets, Beginning D
Total Assets, Ending 250
Total Liabilities, Beginning 95
Total Liabilities, Ending E
Glass Manufacturing has an income tax rate of 40% and income from continuing
operations before income taxes of $100. The following additional activity occurred during
the year, 2X10:
1) Glass Manufacturing disposed of a plant asset by selling it to Paper Company. The sale
resulted in a $7 loss.
2) Glass Manufacturing had a gain of $4 on the extinguishment of long-term debt that was
a current liability.
3) Glass Manufacturing incurred a loss of $28 due to a flood in a place that has floods once
in 100 years.
Prepare the following:
a. Beginning with income from continuing operations before income taxes of $100,
complete the remainder of Glass Manufacturing’s income statement.
b. Prepare the necessary earnings per share disclosure, assuming that Glass Manufacturing
has no convertible securities or common stock equivalents and has 25 common shares
outstanding throughout the year. There are no preferred dividends.
Describe the differences between financial accounting and management accounting.
Prepare a revised gross profit statement for Holton Automotive for the month ended
January 31, 20X3 under U.S. GAAP regulations.
Queen Mattresses, Inc. had the following transactions occur during May 20X3. Assume
there is no beginning inventory.
May 2 Inventory was purchased on account for $5,000, terms 2/10, n/30.
May 3 Inventory costing $1,000 was returned.
May 9 Paid for the inventory.
May 15 Inventory costing $2,200 was sold on account for $3,800, terms 3/10, n/45.
May 31 Closing entries are prepared for the month-end financial statements.
If Queen Mattresses, Inc. were using the perpetual inventory system, what is the journal
entry for
May 2?
Gabby Company operates under a perpetual inventory system. It began operations on
March 1, 20X9, and had the following transactions affecting inventory during March,
20X9.
Determine the cost of goods sold for the month of March, 20X9 and the ending
inventory balance at March 31, 20X9. Assume the company uses the first-in-first-out
(FIFO) cost flow assumption.
Dynamic Enterprises had the following information during November 20X9:
Inventory purchases on account $ 6,800. Inventory purchases for cash $2,800.
Sales on account $15,000. Cash sales $3,500.
Required:
Prepare an income statement for Dynamic Enterprises for the month of November,
20X9, under
the accrual basis.
Sharpington, Inc. manufactures and sells phone cases. The company sold a shipment of
cases costing $5,000 to a customer for $8,000. The customer paid cash. Which of the
following is the journal entry that Sharpington would make to record the sale of the
shipment of cases?