1) Most companies report their cash flow from operating activities using the direct
method.
2) Companies assigned a Moody’s “Aaa” credit rating have a 2-4% default rate.
3) Reported accrual accounting net income for a period always provides an accurate
picture of underlying economic performance.
4) Costs incurred by the franchisor to provide initial and continuing services (for
example, counseling by a registered dietician or advertising) are expensed in the same
periods as the franchise revenue in accordance with the matching principle.
5) The installment sales method is considered more conservative than the cost recovery
method because when using the installment sales method, a portion of gross profit is
recognized on each dollar collected.
6) IFRS requires companies to use the direct method of reporting cash flow from
operating activities because the direct method provides information not available under
the indirect method.
7) Because GAAP specifies what must be contained in financial reports, management is
precluded from disclosing financial and nonfinancial operating details that GAAP does
not require€thus promoting comparability among companies’ financial reports.
8) To measure earnings under accrual accounting, revenue is recognized only when
received.
9) A typical franchise agreement calls for only the payment of an initial franchise fee
which is recorded as revenue in the period it is received.
10) Condensed financial data are presented below for the Phoenix Corporation:
In a common size balance sheet for 2014, accounts receivable is expressed as:
A.86%.
B.116.3%.
C.32.4%.
D.16.3%.
11) Which one of the following entries would be made in Year 2 to record the customer
billing using the percentage-of-completion method of revenue recognition?
A.
B.
C.
D.
12) Condensed financial data are presented below for the Phoenix Corporation:
The current ratio for 2014 is (rounded):
A.1.4 to 1
B.2.0 to 1
C.2.7 to 1
D.3.4 to 1
13) Under Bart Company’s accounting system, all insurance premiums paid are debited
to prepaid insurance. For interim reports, Bart makes monthly estimated charges to
insurance expense with credits to prepaid insurance. Additional information for the year
ended December 31, 2014 is as follows:
Required:
What was the total amount of insurance premiums paid by Bart during 2014?
14) On January 1, 2015, Ramsey Company purchased 35% of the outstanding common
shares of the Vapor Company for $70,000 when the net assets were $200,000. During
2015, Vapor Company earned $80,000 and declared a dividend of $40,000. Ramsey
accounted for the investment using the equity method.
What is the balance in the investment account as of December 31, 2015?
A.$70,000
B.$98,000
C.$56,000
D.$84,000
15) Manero Company included the following information in its annual report:
In a common size income statement for 2014, the operating expenses are expressed as
A.28.0%
B.30.3%
C.43.8%
D.100.0%
16) The Shill Company uses the dollar-value LIFO method for valuing inventory. The
following inventory information is available at the end of the year:
The inventory at the end of Year 2 under dollar-value LIFO is
A.$238,095.
B.$240,000.
C.$250,000.
D.$262,500.
17) Condensed financial data are presented below for the Phoenix Corporation:
The interest coverage for 2014 is:
A.12.8 times.
B.13.8 times.
C.20.5 times.
D.21.5 times.
18) When transitory earnings are present, which of the following correctly depicts the
order used on the income statement?
A.Income from continuing operations, income tax expense, extraordinary loss,
discontinued operations, net income.
B.Income from continuing operations, extraordinary loss, discontinued operations,
income tax expense, net income.
C.Income from continuing operations, income tax expense, discontinued operations,
extraordinary loss, net income.
D.Income tax expense, income from continuing operations, discontinued operations,
extraordinary loss, net income.
19) Konan, Inc. uses the lower of cost or market method to determine inventory value.
The following information pertains to the ending inventory:
The lower of cost or market for item M-23 is
A.$40.
B.$42.
C.$46.
D.$52.
20) Condensed financial data are presented below for the Phoenix Corporation:
The days receivable outstanding for 2014 is (rounded):
A.51 days.
B.55 days.
C.60 days.
D.183 days.
21) The Canon Corporation sells ten copiers to the Title Company on October 15 for
$40,000. Canon delivers the copiers to Title on October 20; Title pays $16,000, and
agrees to pay the balance on November 10
Using the accrual basis, which one of the following entries would properly record
Canon’s revenue recognition for October?
A.
B.
C.
D.
22) When financial statements are used to evaluate the performance of a company’s top
executives it is referred to as the _____________ function of financial reports.
A.proxy
B.fundamental
C.technical
D.stewardship
23) Condensed financial data are presented below for the Phoenix Corporation:
In a common size income statement for 2014, cost of goods sold is expressed as:
A.92.0%
B.60.0%
C.119%
D.167%
24) In its accrual-basis income statement for the year ended December 31, 2014, Ralph
Company reported revenue of $2,565,000. Additional information was as follows:
Required:
Under the cash basis of net income determination, how much should Ralph report as
revenue for 2014?
25) On August 1, 2014, Alpha Co. approved a plan to dispose of an unprofitable
segment of its business. Alpha expected that the sale would occur on April 30, 2015, at
an estimated gain of $250,000. The segment had actual and estimated operating profits
(losses) as follows:
Assume Alpha’s tax rate is 30%.
Required:
In its 2014 income statement, what should Alpha report as profit or loss from
discontinued operations (net of tax effects)?
27) For the month of December 2014 the records of Seal Corporation show the
following information:
Required:
Determine the net sales for the month of December 2014.
28) The following Income Statement and Operating Cash Flow information pertain to
Receivership Inc.’s operations for the year ended December 31, 2014.
Required:
1) Prepare the net cash flow from operating activities section of the cash flow statement
using the direct method.
29) Lazer Industries, Inc. manufactures medical equipment parts and accessories.
Assume all amounts are pre-tax and a 30% tax rate for 2014.
Required:
Provide a condensed income statement for Lazer Industries, Inc. based on the available
information. Include all subtotals needed (appropriately labeled) to present your income
statement in good form.