1) The statement of cash flows emphasizes explanations for the change in net income.
2) All changes in all stockholders’ equity accounts must be shown in the Stockholders’
Equity section of the balance sheet.
3) Many companies report cash flow per common share on the statement of cash flows.
4) The inventory turnover ratio is defined as cost of goods sold divided by average
inventory.
5) Determining the cash flows from operating activities generally requires analyzing
each item on the income statement as well as the current asset (except cash) and current
liability accounts.
6) Sawaddee Enterprises began the year with total assets of $450,000 and total
liabilities of $230,000. If Sawaddees total assets doubled to $900,000 and its owners
equity remained the same during the year, what was the amount of its total liabilities at
the end of the year?
A.$670,000
B.$680,000
C.$440,000
D.$900,000
7) Fairchild Company acquired a building valued at $210,000 for property tax purposes
in exchange for 6,000 shares of its $10 par common stock. The stock is widely traded
and selling for $31 per share. At what amount should the building be recorded by
Fairchild Company?
A.$210,000
B.$60,000
C.$186,000
D.$150,000
8) Which of the following ratios is used to analyze a company’s liquidity?
A.Return on assets ratio
B.Inventory turnover ratio
C.Earnings per share
D.Asset turnover ratio
9) Wendt, Inc. counted its ending inventory as $178,000 at year-end, January 31, 2014.
Upon review of the records, it was noted that the following items were in transit during
the count:
A) $2,000 of goods shipped by a supplier to Wendt sent FOB destination on January 31
were received February 5, and were not counted by Wendt.
B) $5,000 of goods shipped by a supplier to Wendt sent FOB shipping point on January
30 were received February 2, and were not counted by Wendt.
C) $6,000 of goods shipped by Wendt to a customer FOB shipping point on January 31
were received by the customer February 3, and were counted by Wendt.
Determine the correct inventory balance at January 31.
A.$178,000
B.$177,000
C.$174,000
D.$172,000
10) The data presented below is for Tallon, Inc. for 2014.
What is the effect on liquidity when Tallon records its estimate for bad debt expense
using the allowance method?
A.Liquidity decreases
B.Liquidity increases
C.Liquidity stays the same
D.Liquidity both increases and decreases
11) What is the distinguishing characteristic between accounts receivable and notes
receivable?
A.Accounts receivable are usually current assets while notes receivable are usually
long-term assets
B.Accounts receivable require payment of interest if not paid within the usual credit
terms
C.Notes receivable result from credit sale transactions for merchandising companies,
while accounts receivable result from credit sale transactions for service companies
D.Notes receivable result from a written promise to pay within a specified amount of
time
12) While reconciling the checking account, an accountant with Sonic Corporation
noticed that an error had been made in recording a check received by the company.
Sonic recorded the receipt as $729 and the correct amount of the check was $279. What
reconciling adjustment is required?
A.Add $450 to the companys book balance
B.Deduct $450 from the companys book balance
C.Add $450 to the bank statement balance
D.Deduct $450 from the bank statement balance
13) At the end of 2013, Clock Products, Inc. determined that one of its patents was
worthless. The patent had a cost of $300,000. The patent had been amortized for 5 years
of its estimated 15-year legal life. Which of the following statements is correct?
A.Clock Products must continue to amortize the patent over its remaining 10 years of
life
B.The patent must be reduced to 5/15, or 33.3% of its original cost and amortized over
the remaining 10 years
C.The remaining unamortized cost must be removed from the accounting records and
treated as a loss on the income statement
D.Clock Products must correct its financial statements for the past five years, so that the
entire cost is allocated to that fie year period
14) Scrubber, Inc. presented the following information in a note to its financial
statements for the year ending December 31, 2012:
The company has a loan agreement with Mountain State Bank that states:
1. The current ratio should remain at least 2.0 to 1 at all times.
2. The debt-to-equity ratio should not exceed .7 to 1 at any time.
3. The company must maintain $75,000 cash at all times.
The ratios at year-end are: current ratio, 2.3 to 1 and debt-to-equity ratio, .2 to 1. The
amount of cash on the bank statement is $75,400, but the cash account after the
adjustments from the bank reconciliation has a balance of $74,900. Has Scrubber
violated its loan agreement?
A.No
B.Yes, the cash balance is less than $75,000
C.Yes, the current ratio is .3 or 30% larger than the agreement indicates.
D.Yes, the cash balance is less than $75,000, and the debt-to-equity ratio is overstated.
15) On December 1, 2014, Hazel Corporation paid $8,000 rent in advance. The rent per
month is $1,000. If Hazels accounting period ends on December 31, 2014, what will be
reported on the financial statements?
A.Prepaid Rent of $7,000 on its balance sheet at December 31, 2014
B.Prepaid Rent of $8,000 on its balance sheet at December 31, 2014
C.Rent Expense of $8,000 on its 2014 income statement
D.Rent Revenue of $7,000 on its 2014 income statement
16) What effect does recognizing an accrued liability for utilities at the end of the
accounting period have on the accounting equation?
A.Assets decrease and stockholders equity decreases
B.Liabilities increase and stockholders equity increases
C.Assets decrease and liabilities decrease
D.Liabilities increase and stockholders equity decreases
17) Which of the following adjusting entries involves the cash account?
A.Deferred Revenue
B.Accrued Asset
C.Deferred Liability
D.None of the Above
18) The garden club is planning a raffle. The president overheard you talking about
internal controls to another member and asked you to set up some guidelines to make
sure that all money collected for the upcoming raffle is accounted for by the club.
Required
1> In general, describe some guidelines that the club should follow to achieve an
acceptable level of internal control.
2> Regarding the presidents request, is it really possible to make sure that all money is
collected and recorded?
19) _________________________ describes a form used by the accountant to reconcile
the balance shown on the bank statement for a particular account with the balance
shown in the accounting records.
20) Canyon Corporation
The accountant for the Canyon Corporation prepared the following list from the
companys accounting records for the year ended December 31, 2014:
Read the information for Canyon Corporation. Using good form, prepare a Balance
Sheet for the Canyon Corporation.
21) What are at least four important internal control procedures?
22) The difference between notes payable and accounts payable is
___________________________________.
23) The company that makes or gives a promissory note to another company has a
liability, called a(n) ____________________.
24) The Stockholders Equity section of the balance sheet for Calhoun Industries at the
end of 2014 is as follows:
The lower portion of the 2014 income statement indicates the following:
Assume that the number of shares outstanding did not change during the year.
Required:
1> Compute earnings per share before extraordinary items.
2> Compute earnings per share after the extraordinary loss.
3> Which of the two EPS ratios is more useful to management? Explain your answer.
Would your answer be different if the ratios were to be used by an outsider, like a
potential stockholder? Why or why not?
25) What is the purpose of a statement of cash flows? Give an example of one of each
of the three activities.
26) Lagoon Industries
Lagoon Industries received authorization on December 31, 2012, to issue $7,000,000
face value of 6%, 10-year bonds. The interest payment dates are June 30 and December
31. All the bonds were issued at par, plus accrued interest, April 1, 2013. The bonds are
callable by Echo Industries at any time at 102.
Review the information about Lagoon Industries.
REQUIRED:
Identify and analyze the effects of the transaction to record the first semiannual interest
payment on the bonds at June 30, 2013.
