How should intangible assets be disclosed on the balance sheet?
a. as a reduction of stockholders’ equity
b. at cost in the current assets section
c. at the estimated market value at the balance sheet date
d. net of the costs already amortized
If a corporation repurchases 500 shares of its previously-issued common stock then
retires these shares, which of the following is true?
a. A new class of stock must be issued in place of the 500 retired shares.
b. Approval from the state is required for this type of transaction.
c. A gain or loss must be recorded, depending on the difference between the repurchase
cost and the original issue price.
d. The common stock and paid-in capital accounts must be decreased by the amount of
the original issue price.
A credit means
a. the event had a favorable impact on the entity’s financial statements.
b. the event had an unfavorable impact on the entity’s financial statements.
c. the event had an effect on the right side of the T-account.
d. the event had the effect of increasing the account balance.
A company reported the following information:
Accounts payable, December 31, 2013 $ 60,000
Accounts payable, December 31, 2014 80,000
Inventory, December 31, 2013 45,000
Inventory, December 31, 2014 60,000
Cost of goods sold–2014 1,000,000
Assuming all merchandise purchases were on account, how much cash was paid to
suppliers for merchandise purchases during 2014?
a. $1,005,000
b. $1,050,000
c. $ 995,000
d. $1,020,000
Explain the meaning or significance of the following ratios:
A) Fixed asset turnover ratio
B) Average age of property, plant, and equipment
Cozy Corporation purchased supplies at a cost of $15,000 during 2013. At January 1,
2013, supplies on hand were $5,000. At December 31, 2013, supplies on hand are
$2,000. Calculate supplies expense for 2013.
a. $18,000
b. $15,000
c. $13,000
d. $2,000
During December, Camp David, Inc. purchased $5,000 of supplies for use in its
business. At the end of December, 20% of the supplies were still on hand, but only 70%
had been paid. What amounts will appear on the company’s balance sheet on December
31?
Supplies on Hand Accounts Payable
a. $5,000 $3,500
b. $1,000 $1,500
c. $4,000 $1,500
d. $1,000 $5,000
Each of the four statements that comprise a full set of financial statements has an
underlying equation or formula. List the statements in the order they are prepared and
the underlying equation of each.
Which of the following is falseregarding stock warrants?
a. They are frequently considered “equity kickers.”
b. They are typically a means of providing existing stockholders a means of maintaining
their relative level of ownership.
c. They provide an option to purchase shares of stock at a stated price and within a
stated period of time.
d. They are typically provided as a form of compensation for services performed.
The stockholders’ equity section of the balance sheet immediately before a recent stock
dividend is provided below:
Common Stock, $5 par, 100,000 shares issued and outstanding $ 500,000
Paid-in Capital in Excess of Par–Common Stock 100,000
Retained Earnings 725,000
Total Stockholders’ Equity $1,325,000
A 10% stock dividend was declared and paid when the market price per share was $12.
Immediately after the stock dividend, the components of stockholders’ equity section
were:
Common Stock Paid-in Capital Retained Earnings
a. $620,000 $100,000 $605,000
b. $550,000 $170,000 $725,000
c. $620,000 $100,000 $725,000
d. $550,000 $170,000 $605,000
Robey Company
The following data are available for one of the products sold by Robey Company,
which uses a perpetual inventory system.
February 1 On hand, 10 units at $2 each
8 Sold, 6 units for $10 each
14 Purchased, 30 units at $3 each
25 Sold, 24 units for $10 each
Refer to the information provided for Robey Company. If the company uses the FIFO
method, determine the following amounts:
A) Ending inventory on February 28th?
B) Cost of Goods sold for the month of February?
When calculating the return on common equity ratio, dividends to preferred
stockholders are deductedfrom net income because
a. the ratio is an indicator of the return on common stockholders equity rather than the
return on total equity.
b. dividends are not expenses on the current period income statement.
c. conservatism indicates that stockholders prefer a smaller numerator.
d. dividends are only available for distribution to common stockholders after the
preferred stockholders have received their dividends.
Cambridge Cleaners started business on January 1, 2013, and immediately purchased
$5,000 of supplies to use in the business. At the end of the month, 30 percent of the
supplies remains unpaid and 20% are still on hand. What amounts should appear as an
expense on the financial statements for January, 2013?
Income Statement Statement of Cash Flows
a. $5,000 $5,000
b. $5,000 $3,500
c. $4,000 $1,500
d. $4,000 $3,500
Refer to Baker’s Pride Bakery.
Which inventory costing method might allow a company to manipulate income by
making significant inventory purchases at year end?
a. FIFO
b. LIFO
c. specific identification
d. weighted average cost
Refer to General Lighting. The $150 price of each battery includes a $3 federal excise
tax. Which of the following statements is true regarding the proper accounting
treatment for the taxes related to this transaction?
a. They are recorded as additions to revenue.
b. They are recorded as unearned revenues on the company’s balance sheet.
c. They are recorded as a current liability owed to the taxing authority.
d. They are recorded as expenses in the same period as the corresponding sales revenue.
A petty cash fund for $300 was established on May 1. By the end of the month, the
petty cash custodian requested reimbursement of $222 for the following expenditures
from the fund:
Office supplies $68
Deliveries 30
Fuel 56
Postage 68
Record the entries to a) establish the petty cash fund; b) replenish the fund as of the end
of May and c) increase the fund balance to $500.
Bass Tours
The following balances were taken from the company’s records:
Refer to Bass Tours. Calculate the total current assets.
a. $ 842,000
b. $1,022,000
c. $ 732,000
d. $ 842,000
Which of the following is an internal event for a business entity?
a. An attorney provides services for clients.
b. An attorney purchases computer equipment.
c. An attorney uses computer equipment to maintain business records and prepare legal
documents.
d. An attorney receives cash payments from clients who were billed for legal services.
Refer to Randstad, Inc. The dividend yield ratio for 2015 is
a. 1.6%.
b. 1.8%.
c. 2.6%.
d. 3.0%.
A manufacturing company purchased equipment on January 1, 2004 for $450,000. As
of January 1, 2013, depreciation of $202,500 had been recorded on this asset.
Depreciation expense for 2013 is $22,500. After the adjustments are recorded and
posted at December 31, 2013, what are the balances for the Equipment and
Accumulated Depreciation?
Equipment Accumulated Depreciation
a. $450,000 $0
b. $450,000 $225,000
c. $225,000 $22,500
d. $225,000 $225,000
Refer to A-One Construction. If the aging approach is used to estimate bad debts, what
amount should be recorded as bad debt expense for 2013?
a. $ 2,100
b. $27,100
c. $29,200
d. $31,300
A company borrowed $100,000 from Better Bank on November 1, 2013. The terms of
the loan (note) is 6% interest due in 4 months.
The total amount of interest that will be paid on a 5-year, $90,000 note payable at 11%
simple annual interest is?
a. $1,980
b. $9,900
c. $49,500
d. $139,500
Parlato Corp. has an inventory turnover rate of 8 times. Calculate the company’s
average days to sell inventory.
a. 1,200
b. 150
c. 120
d. 45.625
Karuna Consulting leased a building on January 2, 2013. The lease qualifies as an
operating lease. The annual payments are $25,000 at the beginning of each year, and the
life of the lease is 10 years. What entry would the company make on January 2, 2013?
a. Machine 250,000
Lease Obligation 250,000
b. Prepaid Rent 250,000
Lease Obligation 250,000
c. Prepaid Rent 25,000
Lease Obligation 25,000
d. No entry is necessary.
On January 1, 2013, Kaiser Permanente issued $2,000,000 of 8% bonds at par. These
bonds are due in 10 years with interest payable semi-annually on June 30 and
December 31. What is the amount of the interest expense in 2013 assuming the use of
the effective interest amortization method?
a. $16,000
b. $160,000
c. $1,600,000
d. $2,000,000
Bargain Spot Fabrics
This company’s end-of-year balance sheet consisted of the following amounts:
Refer to Bargain Spot Fabrics. What amount should the company report on its Balance
Sheet for Total Assets?
a. $550,000
b. $775,000
c. $850,000
d. $950,000
When using the direct method to determine operating cash flows, how is depreciation
expense recorded on the Statement of Cash Flows?
a. operating activity
b. investing activity
c. financing activity
d. noncash Investing and Financing activity
e. not reported on the statement of cash flows
A current liability includes obligations which must be repaid
a. within one year.
b. within one year or within the operating cycle, whichever is shorter.
c. within one year or within the operating cycle, whichever is longer.
d. by the end of the operating cycle.
Refer to Been There Used Furniture. The dividends for the year
a. increase the amount of capital stock reported by the company.
b. are part of the company’s operating expense.
c. are reported on the Statement of Retained Earnings.
d. are reported on the Income Statement.
Prepare an Income Statement for Backus Tractor Sales in good form.
____________________ represents the cash flow that a company is able to generate
after considering the maintenance or expansion of its assets (capital expenditures) and
payment of dividends.
The accounting equation must balance before and after every accounting transaction.
If no reasonable estimate of the loss can be made, then a contingent liability should be
recognized in the ____________________.
Net sales is total sales less sales discounts and ________________.
If the December 31, 2014, balance of accounts receivable is lower than the January 1,
2014, balance, then the amount of cash collections will be more than the sales on
account for the year.
An expenditure that does not increase the future economic benefits of the asset is
referred to as a capital expenditure.
A ____________________ is a cost that improves an operating asset and is therefore
added to the asset account.
If preferred stock is convertible, then the preferred shareholders have the option to trade
voting privileges for the dividend payment preference.
A revenue account has a normal ___________ balance.
The difference between the principal amount of a note and its maturity value is called
____________________.
Property, plant and equipment is classified as ____________________ assets on the
balance sheet.
Yu Company
Several sales transactions and purchasing activities for Yu Company are described
below. Yu Company uses a perpetual inventory system.
A) Yu Company purchased merchandise from Mia Company on credit.
B) Yu Company returned to Mia Company defective merchandise before payment is
made.
C) Yu Company pays for the merchandise purchased from Mia Company.
D) Yu Company sells merchandise to its customers for cash and on credit.
E) Credit customers returned merchandise to Yu Company for a refund.
F) Credit customers pay their account balances to Yu Company.
Refer to the information provided for Yu Company. For each of the items above,
describe its economic effects on the company’s accounting equation.
Explain the differences between the cash and accrual basis of accounting and how the
adjusting process fits in.
Can We Help?, a local walk-in medical practice, had the following account balances at
December 31, 2012:
Building $480,000 Accumulated Depreciation–Bldg $12,000
Cash $20,000 Common Stock $300,000
Supplies $2,000 Retained Earnings $190,000
During 2013, the following transactions occurred:
1. On March 1, purchased a one-year mal-practice insurance policy for $12,000 cash.
2. On July 1, borrowed $50,000 cash from First American Bank. The interest rate on
the note payable is 8%. Principal and interest is due in cash in one year.
3. Employee salaries in the amount of $23,000 were paid in cash.
4. At the end of the year, $1,000 of the supplies remained on hand.
5. Provided $100,000 in consulting services for cash during 2013 in cash.
6. At December 31, $6,000 in employee salaries were accrued.
7. On December 31, received $10,000 in cash representing advance payment for
services to be provided in February 2014.
8. Annual depreciation on the building is based on a useful life of 20 years and no
salvage value.
Required:
A) Determine the effect on the accounting equation of the preceding transactions
including any related year-end adjusting entries that may be required. Hint: It may be
helpful to create a table to reflect the increases and decreases in accounts.
B) Prepare an income statement for 2013 ignoring income taxes.
C) Prepare a statement of retained earnings for 2013 assuming no dividends were
paid.
D) Prepare a classified balance sheet at December 31, 2013.
Fuzziwig’s Candles has two intangible assets. Information concerning each is provided
in the following table:
Goodwill Trademark
Date of purchase June 30, 2013 January 1, 2013
Cost $500,000 $250,000
Legal life None 10 years
Useful life 40 years 5 years
Calculate the amount of amortization expense that should be reported for 2013.
The difference between accrual-based revenue and accrual-based expenses in the period
the activity occurred is called ____________________.