A convertible bond is one where
a. the issuer can convert from a fixed interest rate to a floating rate.
b. the issuer can convert the bond from long-term to short-term.
c. the issuer can retire the bond before its specified maturity date.
d. the bondholder can convert the bond into common stock at a future time.
Carolina Truck Lines purchased a truck at a cost of $22,000 in 2008. As of January 1,
2013, depreciation of $18,000 had been recorded on this asset. Depreciation expense for
2013 is $2,000. Before the adjustments are recorded and posted at December 31, 2013,
what is the truck’s book value?
a. $22,000
b. $18,000
c. $4,000
d. $2,000
Long-term assets are $5,000, current liabilities are $700, and long-term liabilities are
$3,000 and the operating cash flow ratio is 1.1, then the company’s cash flows from
operating activities will be
a. $ 700.
b. $ 770.
c. $3,300.
d. $5,500.
Shares of stock that are repurchased with the intention of no longer being traded.
Refer to Georgia’s Salon. On May 31, 2013, all but $1,500 of the gift cards had been
redeemed for salon services. What is the impact on the accounting equation of
recording the expired gift cards?
Georgia’s Salon The salon sells $50,000 of gift cards in May 2013. These gift cards
may be used anytime before their expiration on May 31, 2014. a. Assets and liabilities
increase.
b. Assets and liabilities decrease.
c. Liabilities increase and stockholders’ equity decreases.
d. Liabilities decrease and stockholders’ equity increases.
Situation where the investor owns 20% to 50% of the outstanding common stock of the
investee and is therefore assumed to possess significant influence over the operating
and financial policies of the investee
Match the following terms to their correct definition:
a. equity security j. held-to-maturity securities
b. debt security k. amortized cost method
c. passive l. fair value method
d. significant influence m. unrealized gains and losses
e. control n. equity method
f. parent o. consolidation worksheet
g. subsidiary p. minority interest
h. trading securities q. business combination
i. available-for-sale securities r. Goodwill
In considering equity and debt financing, which of the following statements is generally
true?
a. The lower the measure of the long-term debt-to-equity ratio, the greater the
likelihood the company will have difficulty in meeting its obligation in some future
period.
b. Interest and dividend payments are required to be made by the issuing company.
c. The higher the measure of the debt-to-equity ratio, the greater the likelihood the
company will have difficulty in meeting its obligation in some future period.
d. Most companies prefer to have no debt and rely exclusively on equity financing.
Fitness Depot purchased a building on a tract of land and allocated the entire cost of the
purchase to building. Normally the company depreciates buildings over 40 years using
the straight-line method with zero residual value and does not depreciate land. Because
of the improper accounting treatment of the purchase, the company’s income for the
next 20 years will be
a. overstated.
b. understated.
c. unaffected.
d. cannot be determined from the information provided.
Which statement summarizes the results of the company’s operations?
a. Statement of Cash Flows
b. Statement of Retained Earnings
c. Balance Sheet
d. Income Statement
Which of the following operating activities results in a cash outflow?
a. paying creditors for merchandise
b. collecting accounts receivable
c. making cash sales
d. receiving deposits recorded as unearned revenue
Refer to Fernbank Farms. When calculating depreciation for 2013, the company’s
accountant should
Fernbank Farms This company purchased a semi truck at the beginning of 2011 at a
cost of $100,000. The truck had an estimated life of 5 years, an estimated residual value
of $20,000, and will be depreciated using the straight-line method. On January 1, 2013,
the company made major repairs of $30,000 to the truck that extended the life 3 years.
Thus, starting with 2013, the truck has a remaining life of 5 years and a new salvage
value of $8,000. a. add the $30,000 to the book value at December 31, 2012, and then
allocate the revised depreciation basis over the remaining adjusted useful life of 5 years.
b. report the effect of the change in life as an expense on the income statement in 2011.
c. ignore the change in life on the original cost of $100,000 and depreciate the
additional $30,000 cost separately over its useful life.
d. expense the $30,000 and depreciate the original cost of $100,000 over its revised
estimated total live of 7 years.
When a financial analyst determines the percentage change in operating income for the
five-year period from 2011 to 2015, she is performing a
a. time series analysis.
b. vertical analysis.
c. profitability analysis.
d. cross-sectional analysis.
Costs to purchase goods ready to sell.
Match the inventory-related accounts to costs that may be included in inventories for
retailers and manufacturers.
a. merchandise inventory d. finished goods
b. raw materials e. cost of goods sold
c. work-in-process
Assume that a company’s current ratio is 2.0. If the company purchases inventory on
credit, which of the following is true?
a. The current ratio will increase.
b. The current ratio will decrease.
c. There will be no net impact on the current ratio.
d. The current ratio will change, but there will be no effect on the quick ratio.
Can We Help?, a local walk-in medical practice, had the following account balances at
December 31, 2012:
During 2013, the following transactions occurred:
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.
Golden Sound sells premium car stereo systems and various equipment for home sound
systems as well. Sales and expected warranty claims for 2012 are as follows:
Prepare the journal entry to record warranty expense for 2012.
Minority (or noncontrolling) interest is disclosed when the parent owns more than 50%,
but less than 100% of the outstanding common stock.
An overstatement error in the inventory account in the current period will result in an
understatement of ____________________ in the subsequent period.
The proceeds from advance ticket sales for a concert to be held next month should be
recorded as a current liability.
____________________ refers to the ability of a company to meet its short-term
obligations.
Ratios that focus on cash are more useful than those that focus on income in the
evaluation of a company’s liquidity.
Refer to the partial balance sheet presented above for Gibraltar, Inc. Compute the
following liquidity ratios for 2013 and 2012: Gibraltar, Inc. A partial balance sheet for
the company is provided below. Assume that all of the account balances on the balance
sheet are normal balances.
Comment on the direction and significance of the change in the ratios from 2012 to
2013.