1) Bad Debts Expense is increased and Accounts Receivable is decreased at the end of
the period to recognize bad debts under the allowance method.
2) Book value is a measure of the market value of the stock.
3) On the income statement of a merchandising company, cost of goods is added to net
sales to arrive at gross margin or gross profit.
4) The asset leased under an operating lease requires the lessee to record depreciation
expense.
5) The current maturity of long-term debt is a current liability.
6) The amortization of bond discount increases the effective interest expense incurred
each period for the issuer while amortization of bond premium decreases it.
7) Income from operations does not include interest revenue and interest expense
because these items are considered to be non-operating in nature.
8) The primary responsibility for the preparation and integrity of the financial
statements in an annual report belongs to the company’s independent accountants
(CPAs).
9) A companys internal control system is designed by its external auditors.
10) A good system of internal control is important to make a company’s accounting
records completely foolproof.
11) Specific identification relies on matching unit costs with the actual units sold.
12) The FASB requires a separate note in the financial statements to show the effects of
inflation so that investors are able to compare statements more accurately.
13) Cash flows from operating activities usually relate to an increase or decrease in
either a current asset or a current liability.
14) The Stockholders’ Equity section of Clydesdale Tack Shack balance sheet on
January 1, 2012, appeared as follows:
On March 1, 2012, Clydesdale reacquired 3,000 shares of common stock at $8 per
share. Answer the following questions:
A) What amount would be reported on the March 31, 2012, balance sheet for treasury
stock?
B) What is the number of outstanding shares at March 31, 2012?
C) How much is total stockholders’ equity to be reported on the March 31, 2012 balance
sheet?
15) In order to determine inventory for its balance sheet, it is best for a company to
count the inventory at the end of its accounting period for
A.The periodic inventory system
B.The perpetual inventory system
C.Both the periodic and perpetual inventory systems
D.Neither the periodic nor perpetual inventory systems
16) Which one of the following statements is true?
A.The audit committee provides contact between the board of directors and the key
officers of the company
B.The audit committee has become less involved in the financial accounting system as
a result of the Foreign Corrupt Practices Act
C.The audit committee is a board of directors subset that acts as a direct contact
between the stockholders and the independent accounting firm
D.The board of directors consists of the company’s external auditors
17) Use the incomplete stockholders’ equity section of Tokin Companys balance sheet
as of December 31, 2012, to answer the following question.
What is the amount of Tokins retained earnings?
A.$130,000
B.$ 98,000
C.$860,000
D.$114,000
18) Gym Corporation reported the following information at December 31, 2014:
A) Calculate Gym Corporations total assets.
B) Calculate Gym Corporations net income for 2014.
C) Calculate Gym Corporations total stockholders equity at the end of 2014.
19) Malco Tile Shop purchased insurance coverage for two years on July 1, 2013, for its
retail shop for $3,600. Malco recorded the prepayment as an asset. Malco prepares its
adjusting entries at year end December 31
20) Gear Shop purchased supplies at a cost of $1,000 during the year. At January 1, the
beginning balance in the supplies account was $300. At December 31, supplies on hand
are $100. Determine supplies expense for the year.
A.$ 1,300
B.$ 1,200
C.$ 1,100
D.$ 1,400
21) Match the following characteristics with the statements about each qualitative
characteristics importance.
1>Accounting information should use the least optimistic estimate. A.
Understandability
2>This quality allows users to analyze two or more companies and look for similarities
and differences. B. Relevance
3>The accounting information must be information that could affect a decision. C.
Conservatism
4>Users must be able to compare accounting information of a firm with its prior year
information. D. Comparability
5>Those willing to spend the time should be provided with comprehensible accounting
information. E. Consistency
6>This quality refers to an amount large enough to affect a decision. F. Reliability
7>Accounting information must be verifiable and faithfully represent actual
transactions. G. Materiality
22) FASB’s concept of comprehensive income
A.excludes transactions that involve the payment of dividends
B.requires that all transactions must be shown on the income statement
C.has a primary drawback because it allows management to manipulate the income
figure to a certain extent
D.allows items that are not necessarily under management’s control, such as natural
disasters, to be shown as an adjustment of retained earnings
23) In order for accounting information to be useful in making informed decisions, it
must be
A.relevant
B.reliable
C.both relevant and reliable
D.nether relevant nor reliable
24) Eversoll Inc. uses the periodic inventory system.
If Eversoll uses the FIFO inventory method, the amount assigned to the June 30
inventory would be
A.$1,354.00
B.$1,366.50
C.$1,590.42
D.$1,594.00
25) If bonds were initially issued at a premium, the carrying value of the bonds on the
issuer’s books will
A.decrease as the bonds approach their maturity date
B.increase as the bonds approach their maturity date
C.remain constant throughout the bonds life
D.fluctuate throughout the bonds life
26) Ramirez Stores purchased a trademark at the beginning of 2013 for $340,000.
Economic benefits were expected for 10 years, but the trademark’s legal life was 20
years. Also, during 2013, Ramirez incurred research and development costs of
$200,000. The book value of the trademarks at December 31, 2013, is
A.$506,000
B.$306,000
C.$323,000
D.$486,000
27) Which of the following solvency ratios is the best measure to determine the degree
to which a company relies on outsiders for funds?
A.Debt-to-equity ratio
B.Times interest earned ratio
C.Debt service coverage ratio
D.Cash flow from operations to capital expenditures ratio
28) Which of the following is false regarding the issue of stock versus the issue of
bonds to raise capital?
A.The payment of dividends is at the discretion of the board of directors
B.The payment of interest on bonds payable is required by law
C.Interest accrues, whereas dividends do not accrue
D.The declaration of dividends reduces the amount of income taxes the corporation
must pay
29) Longitude Company borrowed on a two-year, 10%, $150,000 note on May 1, with
interest and principal to be paid at maturity. How much interest will Longitude report
on its income statement for the year ending December 31?
A.$ 10,000
B.$ 15,000
C.$ 30,000
D.$ 5,000
30) Which of the following terms does not describe an interest rate used to calculate the
interest expense on the income statement?
A.Nominal rate
B.Market rate
C.Effective rate
D.Yield rate
31) Which one of the following categories on a statement of cash flows is used to report
the cash flow effects of buying and selling property, plant, and equipment?
A.Operating Activities
B.Investing Activities
C.Financing Activities
D.Profit Activities
32) Carnival Bakery borrowed $500,000 from Front Street Bank. Carnival then hired a
contractor to build a new cookie distribution outlet. In which section of Carnivals
statement of cash flows would you find information that indicated that Carnival
acquired the new cookie distribution outlet?
A.Operating Activities
B.Investing Activities
C.Financing Activities
D.Profit Activities
33) ___________________ statements recast all items on the statement as a percentage
of a
selected item on the statement.
34) You just won the lottery. You can take your $2 million in a lump sum today, or you
can receive $220,000 per year over the next 12 years. Assuming a 6% interest rate,
which would you prefer, ignoring tax considerations?
35) Some ratios are more useful for management, whereas others are better suited to the
needs of outsiders, such as stockholders and bankers. What is an example of a ratio that
is primarily suited to management use and why? What ratio is more suited to use by
outsiders and why?
36) Lagoon Industries
Lagoon Industries received authorization on December 31, 2012, to issue $7,000,000
face value of 6%, 10-year bonds. The interest payment dates are June 30 and December
31. All the bonds were issued at par, plus accrued interest, April 1, 2013. The bonds are
callable by Echo Industries at any time at 102.
Review the information about Lagoon Industries.
REQUIRED:
Lagoon exercises the call provision and retires one-half of the bond issue on July, 1,
2015. Identify and analyze the effects of the transaction to record this transaction on
July 1, 2015.
37) ____________________ bonds may be retired by the issuing company before their
specified due date.
38) [APPENDIX] Chad Jones established Jones Cleaning Services, a sole
proprietorship, by investing $1,000 on January 1, 2012. During the first year of
operations, the business generated net income of $42,000. The owner withdrew cash for
personal use. The ending balance of the capital account was $20,000. Prepare Jones
statement of owners equity for the year ended December 31, 2012.