1) If a bank discounts a note, then the borrower needs to only pay the cash received and
not the face value of the note.
2) When an entity’s revenues exceed its expenses for a period of time, the entity will
report a net loss.
3) An advantage of the current ratio is that it considers the makeup of the current assets.
4) A check written by a company but not yet presented to the bank for payment is called
a check in transit.
5) A decrease in accounts receivable represents an increase in a company’s cash flow
from operating activities.
6) Solvency is the company’s ability to pay its current debts when they become due.
7) Ultimately, it will be the responsibility of the FASB in the U.S. to decide if the
advantages of IFRSs outweigh the disadvantages.
8) Under the double-entry system of accounting, every transaction is entered in at least
two accounts on opposite sides of T accounts.
9) Significant noncash transactions are not reported on the statement of cash flows, but
either in a separate schedule or in a note to the financial statements.
10) Accountants often prepare work sheets at the end of an accounting period in place
of financial statements.
11) If Apple Company had sales during the year of $10,000,000, an average accounts
receivable
of $2,000,000, and net income of $500,000, its accounts receivable turnover ratio would
be 0.25.
12) The statement of cash flows, like the income statement, reports only operating
activities of a company.
13) A good system of internal controls requires that the physical custody of assets be
separated from the accounting for those assets. This concept is known as safeguarding
assets and records.
14) Checks received from customers are considered to be cash in the companys books.
15) A department store is an example of a wholesaler.
16) The solution to this problem requires time value of money calculations. Reference
to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
Denise wants to help pay for her niece’s college tuition. Her niece will begin college in
one year. How much would Denise need to put into a savings account today at 6% so
that her niece can withdraw $10,000 per year for 4 years, and reduce the account
balance to zero at the end of the 4 years?
A.$31,680
B.$34,650
C.$37,600
D.$37,720
17) When using the indirect method, how would the declaration and payment of cash
dividends be shown on the statement of cash flows?
A.Operating activities
B.Investing activities
C.Financing activities
D.Noncash investing and financing activity
18) Use the information below for Main Street Corp. for 2013 and 2014 to answer the
following question.
How much cash did Main Street pay for dividends during 2014?
A.$ 95,000
B.$105,000
C.$115,000
D.$140,000
19) Utah Co. sold merchandise to Big Sky Corp. on December 1, 2014, for $9,000, and
accepted a promissory note for payment in the same amount. The note has a term of 90
days and a stated interest rate of 8%. Utahs accounting period ends on December 31.
What amount should Utah recognize as interest revenue on December 31, 2014 (if a
360 day year is assumed)?
A.$ -0-
B.$ 60
C.$120
D.$180
20) Quan uses a periodic inventory system. At the end of April, Quan had 20 units on
hand.
If Quan, Inc. uses FIFO inventory costing, how much is cost of goods sold for April?
A.$230
B.$232
C.$240
D.$250
21) Central National Bank recently acquired a new computer system. Which of the
following costs associated with the computer would not increase the Equipment
account?
A.Installation of a backup power source required for the computer
B.Replacement of several circuit boards damaged during installation
C.System programmer wages for personnel hired to prepare the system for use
D.Insurance coverage covering the transport period from the manufacturer
22) Which one of the following is not considered to be a cash equivalent?
A.Corporate commercial paper due in 90 days after purchase
B.U.S. Treasury bills with an original maturity of six months
C.A money market account with a stock brokerage firm
D.A certificate of deposit with a term of 75 days when acquired
23) Blanton Company bought equipment with a cost of $160,000, an estimated residual
value of $40,000, and an estimated life of 15 years was depreciated by the straight-line
method for 4 years. Due to obsolescence, it was determined at the beginning of 2014
that the useful life should be shortened by 3 years and the residual value changed to
zero. The depreciation expense for 2014 is
A.$11,636
B.$16,000
C.$11,000
D.$8,000
24) Which of the following is not a generally recognized internal control procedure?
A.Establishing of clear lines of authority to carry out specific tasks
B.Physically counting inventory in a perpetual inventory system
C.Reducing the cost of hiring seasonal employees
D.Limiting access to computerized accounting records
25) Austin Corp. reported the following information for 2013 and 2014.
How much cash was received for interest during 2014?
A.$2,900
B.$3,200
C.$3,500
D.$3,800
26) The documentation with the bank statement shows a debit memo for bank service
charges. Based on this, what would be the effect of this transaction on the accounting
equation?
A.Increase Miscellaneous Administrative Expense; decrease Cash
B.Increase Cash; increase Other Income
C.Increase Cash; increase Accounts Payable
D.Decrease Accounts Payable; decrease Cash
27) Hawk Store counted some of its inventory twice. As a result, its operating expenses
will be
A.Correct only if Hawk Store calculates it cost of goods sold correctly
B.Correct since operating expenses are not affected by inventory costs
C.Overstated
D.Understated
28) Which balance sheet accounts are most affected by operating activities?
A.Current assets and current liabilities
B.Long-term assets
C.Long-term liabilities
D.Stockholders’ equity
29) Which of the following statements regarding contingencies is true?
A.Contingencies that are probable and estimable must be recorded before the outcome
of future events
B.Contingent assets, if probable and estimable, are treated in much the same way as
contingent liabilities
C.The accounting principle that determines whether a contingent asset is recorded is
that of materiality
D.Contingencies that are not estimable should not be disclosed even if probable
30) Use the equation presented below to answer the question that follows:
Cash = CL + LTL + CS + RE – NCCA – LTA
Which of the following activities results in a cash outflow?
A.Decreases in noncash current assets (NCCA)
B.Decreases in long-term assets (LTA)
C.Increases in long-term liabilities (LTL)
D.Decreases in retained earnings (RE)
31) McDonald’s Corporation is the largest food service organization in the world. The
proper handling of cash and food is important to the profitability of McDonald’s. Based
on your personal knowledge of McDonald’s and the internal control concepts and
procedures described in the textbook, answer the following questions.
REQUIRED:
Describe procedures that you believe McDonald’s may use to control cash receipts.
32) A check written by a company but not yet presented to the bank for payment is
called a(n) _________________________.
33) Halston Metal Company
Use the liabilities section of Halston Metal Companys balance sheet to answer the
questions that follow.
Halston Metal Company
Consolidated Balance Sheets
(in millions)
Review the consolidated balance sheets of Halston Metal Company.
REQUIRED:
Which one of the liabilities shown in the balance sheets is used in the calculation of the
debt-to-equity ratio?
If we can assume that the stockholders’ equity total remained relatively constant for the
two years, how would the ratio change (increase/decrease) from 2013 to 2014? What
would this say about the companys financial position?
34) Accountants define the market value of inventory as its
______________________________.
35) The selling price of the stock as indicated by the most recent stock transaction is
___________________________________.
36) A(n) ____________________ is a form that a department uses to initiate a request
to order merchandise.
37) Explain the purpose of a work sheet.
38) The ratio of a company’s cost of goods sold to its average inventory is called its
________________________________________.