Increases in the market value of available-for-sale securities increase total stockholders’
equity, but increases in the market value of trading securities do not increase total
stockholders’ equity.
The auditor’s opinion is included with the annual report issued by the corporation.
The U.S. Congress has charged the SEC with ultimate responsibility for specifying
GAAP for publicly traded companies.
Investing activities involve obtaining resources as a borrower and repaying creditors.
If 10,000 shares have been issued, and 500 are held as treasury stock, the number of
shares outstanding is 9,500.
Debenture bonds may be subordinated, which means that their interest rates may vary
depending on the prime rate.
Accounting for changes in useful life is prospective in nature.
On an after-tax basis, the choice of using accelerated or straight-line depreciation
affects income but does not affect cash.
Assets and owners’ equity are presented on the right side of the balance sheet.
On the day of issuance of bonds, the proceeds to the issuer may be above par or below
par, depending on market conditions. If the proceeds are above par, the bonds have been
sold at a discount.
The owners of a business have a residual interest in the assets of the company after both
current and long-term liabilities have been satisfied.
The disclosure practices that have evolved in the United States have the specific and
only purpose of providing information to tax authorities.
Segment reporting can disclose information on all except which of the following?
A) Each top executive’s area of responsibility
B) Segments by product line
C) Sales revenue and net profits of each segment
D) Geographic segments
E) Total assets of each segment
Boling, Inc., just made the interest payment on its $4,000,000 of outstanding bonds.
The bonds are callable at 101 5/8 and the unamortized premium is currently $167,400.
The entry to retire half of the bonds would include a
A) debit to premium on bonds payable for $167,400.
B) credit to cash for $2,000,000.
C) credit to gain on early extinguishment of debt for $51,200.
D) debit to loss on early extinguishment of debt for $52,500.
E) debit to loss on early extinguishments of debt for $167,400.
Stone, Inc. had 2012 earnings of $1,500,000. Cash dividends per share were $0.50. The
company had an average of 1,225,000 shares of common stock outstanding. The market
price of the stock at the end of the year was $6.00 per share. What was the
price-earnings ratio for Stone, Inc.?
A) 6.5
B) 4.92
C) 3.00
D) 12
E) 5.20
Equipment is acquired for $100,000. Freight costs are $1,800, sales tax amounted to
$1,000. Maintenance during the first year of use cost $6,000. What is the cost of the
equipment?
A) $102,800
B) $100,000
C) $108,800
D) $101,000
E) $101,800
Which of the following statements is true?
A) Trade discounts and sales returns and allowances are listed on the income statement
as deductions from gross sales.
B) Reports to shareholders often omit the details of revenue and show only net revenue.
C) Cash Discounts on Sales are listed on the income statement as an expense of doing
business.
D) “Turnover” is commonly used in the United States to refer to net sales revenue.
E) Cash discounts must appear on cash flow statements.
The lower-of-cost-or-market practice is based on the
A) consistency principle.
B) entity concept.
C) reliability principle.
D) conservatism principle.
E) historical cost concept.
Montreal Electronics has the following data available:
What is the dividend-payout for Montreal Electronics in 2013? Has the dividend-payout
increased or decreased since 2012?
A) 100%, increased
B) 89%, decreased
C) 89%, increased
D) 50%, increased
E) 50%, decreased
An increase in the replacement cost of the inventory held during the current period is
called a
A) holding gain.
B) holding loss.
C) unusual gain.
D) operating gain.
E) operating loss.
Market Research Syndicate acquired 100 shares of Catskill Tools for $450,000 on
January 1, 2X13. During 2X13, Catskill Tools declared and paid a total of $8,000 in
dividends and reported net income of $50,000. Market Research Syndicate plans on
holding the investment for a long time.
1. Assuming Market Research Syndicate owns 40% of Catskill Tools, prepare journal
entries for Market Research Syndicate for the following events:
a) acquisition
b) recognition of net income
c) dividends
2. Assuming Market Research Syndicate owns 10% of Catskill Tools, prepare journal
entries for Market Research Syndicate for the following events:
a) acquisition
b) recognition of net income
c) dividends
Direct Rentals has many accounts receivable. Direct Rentals’ balance sheet as of
December 31, 20X2, showed Accounts Receivable of $36,000 and an Allowance for
Uncollectible Accounts of $3,400 credit. In early 20X3, write-offs of customer accounts
of $2,800 were made. In late 20X3, a customer named Jeremy, whose $1,000 debt had
been written off earlier, won a $1 million promotion cash prize. He immediately
remitted $1,000 to Direct Rentals.
Prepare the journal entries for the
a. $2,800 write-off in early 20X3.
b. receipt from Jeremy in late 20X3.
In order for revenue to be recognized,
A) goods or services must be delivered to the customer only.
B) cash or an asset virtually assured of being converted into cash must be received from
the customer only.
C) goods or services must be delivered to the customer and cash or an asset virtually
assured of being converted into cash must be received.
D) cash must be received from the customer only.
E) goods or services must be delivered to the customer and cash must be received from
the customer.
A major expenditure made to equipment that extends its useful life beyond the original
estimate is journalized by
A) debiting repairs expense.
B) debiting depreciation expense.
C) debiting equipment.
D) crediting depreciation expense.
E) crediting accumulated depreciation.
Under accrual basis accounting, the recognition of salaries earned and the immediate
payment of salaries to employees would
A) increase assets.
B) increase owners’ equity.
C) increase net income.
D) decrease net income.
E) increase revenue.
On January 1, 2X13, Soothing Massage Company acquired, as a long-term investment,
20 bonds with a face value of $1,000 each. The bonds have a 10-year life, a 10%
coupon rate, and pay interest semi-annually every June 30 and December 31. If the
bonds were purchased by Soothing Massage Company to yield 8% and were acquired
for $22,718.30, what is the interest revenue to be recognized by Soothing Massage
Company with respect to interest on December 31, 2X13?
A) $1,817.46
B) $905.08
C) $908.73
D) $1,000.00
E) $800.00
Using LIFO to value inventory one year and using FIFO the next is a violation of which
accounting principle?
A) Conservatism
B) Recognition
C) Neutrality
D) Matching
E) Consistency
Novak Industries had a check returned to it labeled “NSF.” What journal entry should
Novak Industries make to recognize the $200 NSF check?
Talk Unlimited began business on January 1, 2003. The company manufactures and
sells cell phones cases. The company provides a warranty on its units, whereby the
company will replace any defective case for two years after the sale, at no additional
cost to the customer. During 2003, Talk Unlimited had sales of $850,000. The company
estimates that the cost of the warranties will be 2% of sales. No warranty claims were
made in 2003. During 2004, warranty claims of $15,700 were made. All warranty
claims were satisfied and paid for. What journal entry, if any, is necessary for 2003 by
Talk Unlimited?
Describe spin-offs including the benefits to spinning off a segment.
On January 1, 2X13, Soothing Massage Company acquired, as a long-term investment,
20 bonds with a face value of $1,000 each. The bonds have a 10-year life, a 10%
coupon rate, and pay interest semi-annually every June 30 and December 31. If the
bonds were purchased by Soothing Massage Company to yield 8%, and were acquired
for $22,718.30, what is the journal entry to be made by Soothing Massage Company
with respect to interest on June 30, 2X13?
On February 1, 2X09, Bodner, Inc. acquired a 100% interest in Bolenski Company by
paying $34 million for 100% of the outstanding stock of Bolenski Company. The book
value of the net assets amounted to $25 million, but an independent appraiser valued the
printing press at $1.5 million over its book value. The book value and fair value of the
remaining assets and liabilities were equal.
Required:
1. On February 1, 2X09, prepare the eliminating entry by Bodner, Inc. after the
acquisition.
2. What will occur if the goodwill decreases in value after the acquisition?
Analyze the following transactions in the accounting equation using the following
worksheet.
1. Sales of inventory for $20,000 on account; merchandise cost is $13,000.
2. Rent payment made in advance for $1,500.
3. Acquire additional inventory for $8,000; paid $2,000 cash with remainder on credit.
4. Received payment of $4,000 from customer who purchased goods on credit last
month.
5. Returned defective inventory in the amount of $500. The inventory was purchased on
account.
Accounts Prepaid Accounts Retained
Cash Receivable Inventory Rent Payable Earnings