1) The present value is the value today of a single amount to be paid or received at a
specific date in the future.
2) Both U.S. GAAP and international financial reporting standards (IFRS) require the
use
of the lower-of-cost-or-market rule to value inventories.
3) Some cash equivalents appear in the long term investment section of a balance sheet.
4) A high P/E ratio always indicates that a stock is overpriced by the market.
5) Acquisition cost should not include expenditures unrelated to the acquisition, like
repair costs for damages incurred during installation, or costs incurred after the asset
was installed and use begun.
6) The basic accounting equation can be restated in terms of cash by the following
equation: Cash = current liabilities + long-term liabilities + capital stock – retained
earnings – noncash current assets + long-term assets.
7) IFRS is now mandatory in all member states of the economic and political
organization known as the European Union.
8) In a sound internal control system, all cash receipts should be deposited daily intact.
9) The equity method of accounting is used if the investor owns at least 20% of the
investee and the investor is able to secure influence over the investee.
10) Under IFRS, if inventory is written down to a new lower market value, this cannot
be reversed in later periods.
11) In an operating lease, the lessee has acquired sufficient rights of ownership and
control of the property to be considered its owner.
12) A six-month certificate of deposit would be considered to be a cash equivalent.
13) Warranty expenses are the result of the selling companys estimate of the number of
units sold during the current year that may become defective and need repair or
replacement during the warranty period.
14) The U.S. accounting standards are more principle-based than IFRS.
15) Sunset, Inc. purchased merchandise from Rumble Music Company on June 5, 2014.
The goods were shipped the same day. The merchandise’s selling price was $15,000.
The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Sunset
received the merchandise on June 10, 2014. Sunset paid the amount due on June 13,
2014.
Sunset uses a perpetual inventory system. When will the cost of merchandise sold be
recorded as an expense?
A.The date the merchandise was purchased
B.The date the merchandise is sold
C.The end of the accounting period
D.Cannot be determined without further information
16) Which of the following statements is generally considered desirable?
A.A large decrease in accounts receivable turnover ratio
B.A decrease in the number of days’ sales in receivables
C.An increase in sales along with a larger decrease in the gross profit ratio
D.A decrease in the cash flow from operations to current liabilities ratio
17) Which of the following is an example of a debit memorandum?
A.Service charge notice
B.Interest earned on the account balance
C.Outstanding check
D.Company error in recording a $500 deposit as $600
18) Davis Corp. has three employees. Each earns $600 per week for a five day work
week ending on Friday. This month the last day of the month falls on a Wednesday. The
company should make which of the following adjustments?
A.Decrease Wage Expense for $360 and Increase Wages Payable for $360
B.Increase Wage Expense for $1,080 and Increase Wages Payable for $1,080
C.Decrease Wage Expense for $1,080 and Decrease Wages Payable for $1,080
D.Increase Wage Expense for $360 and Increase Wages Payable for $360
19) Why is depreciation added to net income in the Operating Activities category of the
statement of cash flows when the indirect method is used?
A.Depreciation expense is a negative amount in the Investing Activities section and
therefore is a positive amount in the Operating Activities section
B.Depreciation provides cash and therefore must be added to net income
C.Depreciation was deducted in arriving at net income on the accrual basis of
accounting; however, it did not require the use of cash
D.Depreciation reduced the book value of plant assets and, therefore, must be reported
as an investing activity
20) Executive, Inc. has a weekly payroll of $10,000 for a 5-day workweek, Monday
through Friday. If December 31, the last day of the accounting year, falls on Thursday,
Executive would make an adjustment that would
A.increase Wages Expense $8,000
B.decrease Wages Payable $2,000
C.decrease Cash $8,000
D.increase Wages Payable $2,000
21) Planet & Co. reported net income for the current year. Which of the following
business transactions would cause cash from operating activities to be higher than the
amount of net income?
A.Cash dividends were paid to stockholders during the year
B.Depreciation expense was recorded for the year
C.A bank loan was repaid during the year
D.Equipment was purchased for cash during the year
22) Each of the following documents is used in the control of cash receipts except:
A.Cash register tapes
B.Check lists or prelists
C.Canceled checks from customers
D.Bank deposit slips
23) Avery Corporation began the year with total assets of $800,000 and total liabilities
of $620,000. Use the accounting equation to answer the following questions. Assume
no additional investment by owners when answering these questions.
24) Income statement accounts are also known as which of the following?
A.Nominal accounts
B.Real accounts
C.Closing accounts
D.Both a and c
25) Crouse Company applies the consistency convention. What does this mean?
A.Crouse Co. uses the same names for all its expenses as its competitors
B.Crouse Co. has selected certain accounting principles that can never be changed
C.Crouse Co. applies the same accounting principles each accounting period
D.Crouse Co. applies the same accounting principles as it competitors
26) You want to know whether selling and administrative expenses were reasonable for
the past year, based on the level of sales. The best analysis for obtaining this
information is:
A.trend analysis
B.vertical analysis
C.horizontal analysis
D.liquidity analysis
27) Which of the following is a total dollar measure of liquidity?
A.accounts receivable turnover ratio
B.cash to cash operating cycle
C.number of days sales in inventory
D.working capital
28) A company fails to record one storeroom full of inventory in its year-end inventory
records. As a result, this will cause:
A.an overstatement of inventory on the year-end balance sheet
B.an understatement of gross profit in the following year
C.an overstatement of retained earnings at the end of the year
D.an overstatement of cost of goods sold for the current year
29) Judge Inc. issues numerous discount coupons throughout the year. A balance in the
Estimated Liability for Coupon Redemption
A.indicates an error had been made in posting
B.should equal the same amount of coupons redeemed
C.is the amount of outstanding coupons it expects to be redeemed
D.indicates that more coupons were redeemed than estimated
30) Assuming a company uses the allowance method, the entry to recognize the
write-off of the specific uncollectible accounts will act to:
A.Increase total assets and total equity
B.Increase total assets and decrease total equity
C.Decrease total assets and total equity
D.Not affect total assets or total equity
31) Assume that Milo Companys Stockholders Equity category of the balance sheet
appears as follows as of January 1, 2012:
Common stock, $15 par, 7,000 shares issued and outstanding $105,000
Additional paid-in capitalCommon 70,000
Retained earnings 30,000
Total stockholders equity $205,000
Assume that Milos common stock is selling at $35 per share on that date.
REQUIRED:
What is the affect on the Stockholders Equity section of Milos balance sheet if the
company issues a 3-for-1 stock split on January 2, 2012?
32) Racer Company acquired patent rights on January 1, 2013 for $1,080,000. The
patent has a useful life equal to its legal life of 15 years. On January 2, 2016, Racer
successfully defended the patent in a lawsuit at a cost of $78,000.
Required:
33) Typically the classification known as readily available refers to investments that are
converted into cash in _______________ months or less.
34) What is the purpose of an income statement?
35) Contrast the two parts of stockholders’ equity.
36) With respect to operating assets, the two different transactions that would appear in
the investing activities category of the statement of cash flows are
__________________________________ and
__________________________________
37) ____________________ is the quality of accounting information that makes it
comprehensible to those willing to spend the necessary time
38) In the numerator of the debt service coverage ratio, ________________ is a good
substitute for cash flow from operations before interest and tax payments, especially
where changes in these accounts are insignificant.