Kauffman Tire Repair leased a machine that will enable it to repair tires found on
monster vehicles. The annual payments are $9,000 and the life of the lease is 7 years. It
is estimated that the useful life of the machine is 8 years. How would the company
record the acquisition of the machine?
a. The machine would be recorded as an asset with a cost of $63,000.
b. The company would not record the machine as an asset but would record rent
expense of $6,000 per year.
c. The machine would be recorded as an asset, at the present value of the annual cash
payments, $9,000 for 7 years.
d. The machine would be recorded as an asset, at the present value of the annual cash
payments, $6,000 for 8 years.
Interest is earned but not yet collected
Match the following types of adjusting entries to the listed situation. (Choices may be
used more than once.)
a. a deferred (prepaid) expense
b. a deferred (unearned) revenue
c. an accrued expense
d. an accrued revenue
Which of the following statements is false?
a. The method of preparing the operating activities section of a statement of cash flows
which adjusts net income to remove the effects of deferrals and accruals for revenues
and expenses is the indirect method.
b. The method of preparing the operating activities section of a statement of cash flows
which reports major classes of gross cash receipts and cash payments for revenues and
expenses is the direct method.
c. The FASB prefers the direct method of preparing the operating activities section of
the statement of cash flows.
d. Most companies use the direct method of preparing the operating activities section of
the statement of cash flows.
Measure of a company’s success in earning a return for the common stockholders.
For each of the following sentences, select the phrase or group of words that best
completes the statement.
a. Debt-to-equity ratio
b. Dividend payout ratio
c. Dividend yield ratio
d. Earnings per share
e. Leverage
f. Return on assets ratio
g. Return on common equity ratio
h. Stock repurchase payout
If a company uses the allowance method to account for doubtful accounts, when will
the company’s Stockholders’ equity decrease?
a. At the date a customer’s account is written off
b. At the end of the accounting period when an adjusting entry for bad debts is recorded
c. At the date a customer’s account is determined to be uncollected
d. When the accounts receivable amount becomes past due
General term that refers to debt that provides collateral (e.g., some asset) for the lender.
Match these terms with their definitions.
a. Callable bonds f. Mortgage bonds
b. Capital lease g. Notes payable
c. Convertible bonds h. Operating lease
d. Debenture bonds i. Secured bonds
e. Junk bonds
The Allowance to Adjust Trading Securities to Market account is
a. an asset account.
b. a contra asset account.
c. a liability account.
d. an unrealized gain or loss account.
States that revenues should be recorded in the period in which it is earned
Match each statement to the item listed below
a. Accrual basis accounting f. Depreciation
b. Adjusted trial balance g. Matching principle
c. Adjusting entries h. Revenue recognition principle
d. Cash basis accounting i. Time period assumption
e. Contra accounts j. Worksheet
A corporation began operations on October 1, 2014, with 3,000 shares of $2 par
common stock authorized. The company issued common stock on several occasions
during 2014 and 2015. On December 31, 2015, the company repurchased 1,000 shares
of its outstanding shares and then reissued 500 of these shares on March 1, 2016. On
June 1, 2016, the company’s board of directors declared a 2-for-1 stock split. As a result
of this stock split, which of the following is true?
a. Assets decreased.
b. The number of shares issued decreased.
c. Total liabilities decreased.
d. Total stockholders’ equity remained the same.
An entry made to the right side of an account is always a(n)
a. debit.
b. credit.
c. increase.
d. decrease.
Refer to Lanier Tech. What is the number of the company’s unissued shares of common
stock at December 31, 2015?
Lanier Tech
This company was incorporated as a new business on January 1, 2015. The company is
authorized to issue 50,000 shares of $5 par common stock and 10,000 shares of 6%,
$10 par, cumulative, participating preferred stock. On January 1, 2015, the company
issued 8,000 shares of the common stock for $15 per share and 2,000 share of the
preferred stock for $30 per share. Net income for the year ended December 31, 2015
was $375,000. a. 6,000
b. 8,000
c. 40,000
d. 42,000
Prices are declining; ending inventory with this method falls between the amounts for
the other two methods.
Identify which inventory costing method achieves the effect listed in the following items.
(Choices may be used more than once.)
a. FIFO method c. Average cost method
b. LIFO method d. Specific identification method
RentSelect the correct revenue recognition principle for each of the following. (Choices
may be used more than once.)
a. Recognize revenue over the passage of time.
b. Recognize revenue when the customer takes possession of the product.
c. Recognize revenue when cash is collected.
d. Recognize revenue when service is performed.
“You Decide’ Essay You are the accounting manager for a mid-sized electronics
retailer. Your accounting intern is having trouble understanding how your company
accounts for its investments in the stock of other companies. You just spent the better
part of the morning reviewing in detail all of the recording and reporting requirements
but the intern is still fuzzy. Complete the following table to compare and contrast for
your intern the requirements for the different types of stock investments that your
company might make. Be sure to use the legend provided. Investments in Equity
Securities
Legend:
Accounting Method: Equity method, Equity method + Consolidation, or Fair value
method
Impact of Dividend Recei
Reporting of unrealized gains/losses: Balance sheet, Income statement, or Not
recognized
____________________ is the allocation of the cost of a tangible, long-term asset over
its useful life to expense.
Would a banker be more interested in the liquidity or profitability of a company?
Explain.
The ratio of a company’s cost of goods sold to its average inventory is called its
__________.
The amount of interest accrued is added to the note payable account and reported in the
liabilities section of the balance sheet.
The general ledger is an example of a book of original entry.
Minority (or noncontrolling) interest is disclosed when the parent owns more than 50%,
but less than 100% of the outstanding common stock.
Cost of goods sold is equal to beginning inventory plus the net cost of purchases minus
_____.
The company’s annual report is contained within the company’s 10-K filing with the
Securities Exchange Commission.