The company financed the equipment purchase with a bank loan. Interest of $3,000 was
paid on the loan during 2013.
A construction company purchased a piece of equipment with a price of $100,000 on
March 1, 2013. The amounts are related to the equipment purchase. Match the items
and explain how each item should be accounted for. (Choices may be used more than
once.)
All of the following are external events except
a. a grocery store recognizes losses from spoilage.
b. a grocery store runs ads in a local newspaper.
c. a grocery store purchases produce from a local farmer.
d. a grocery store sells groceries to customers on credit.
Any voting stock not held by the parent in situations where consolidation is required
because the investor acquires between 50% and 100% of the investee’s stock
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
The stockholders’ equity section of a balance sheet at December 31, 2015, is as follows:
A) What was the average issue price of the preferred stock?
B) What was the average issue price of the common stock?
C) What will be the retained earnings account balance immediately following a 2-for-1
stock split?
D) If the company’s board of directors declares a cash dividend consisting of the annual
stated dividend rate for preferred stockholders plus $1 per share for common
stockholders, what is the total amount of dividends to be paid and what would be the
remaining balance in the retained earnings account immediately following the
declaration of this cash dividend?
Which one of the following correctly represents one of the basic financial statement
models?
a. Assets – Liabilities = Net Income
b. Assets + Liabilities = Total Assets
c. Revenues + Expenses = Net Income
d. Beginning Retained Earnings + Net Income – Dividends = Ending Retained Earnings
A company’s balance sheet showed the following amounts for liabilities and
stockholders’ equity accounts: Current Liabilities, $50,000; Bonds Payable, $600,000;
Capital Lease Obligations, $120,000; and Deferred Income Tax Liability, $20,000. Total
stockholders’ equity was $520,000. What is the debt-to-equity ratio?
a. 0.66
b. 0.70
c. 1.42
d. 1.52
Equity or debt investments that management intends to sell in the near term, typically
within a single month
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 order to determine inventory for its balance sheet, a company must count the
inventory at the end of its accounting period according to
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.
Use the following selected financial information to compare these three companies and
answer the questions that follow.
A) Calculate the accounts receivable turnover ratio for each company for 2015.
B) Which company appears to be in the best position regarding asset efficiency based
solely on the accounts receivable turnover?
C) Calculate the inventory turnover ratio for each company for 2015.
D) Which company appears to be in the best position regarding asset efficiency based
solely on the inventory turnover?
E) Calculate and interpret each company’s operating cycle.
If a financial analyst wants to measure the relationship between profitability and the
investment made by stockholders, the analyst should use the
a. return on equity ratio.
b. earnings per share.
c. net profit margin percentage.
d. operating margin percentage.
Contributed capital is the residual interest that remains after deducting liabilities from
stockholders’ equity.
The following information is available at January 1, 2015:
During 2015, the following transactions occurred:
Record journal entries for each of these 2015 transactions.
The stock repurchase payout ratio is calculated by adding the dividend payout ratio to
the total payout ratio.
Cash ________________ are items readily convertible into a known amount of cash
which have an original maturity to the investor of 3 months or less.
A ____________________ results when cash is paid before the related amount is
reported on the income statement.
Costs incurred related to plant assets that are already in use are called revenue
expenditures if the cost increases the useful life or the asset’s productivity.
The company’s annual report includes an audit report, notes to the financial statements,
but not management’s discussion and analysis.