Patents
Several items from the financial statements of Fireside Tires are listed. Use the
following choices to identify the type of account for each item listed. (Choices may be
used more than once.)
a. Assets
b. Liabilities
c. Revenues
d. Expenses
e. Stockholders’ Equity
An account used to record any discrepancies between the cash records and the actual
amount of cash received
Match the following terms with their correct definition.
a. Cash equivalents c. Operating cycle
b. Cash over and short d. Petty cash
During 2013, Great Adventures sold 150 dune buggies for $4,000 each. The dune
buggies carry a 5-year warranty for defects. Estimates suggest that repair costs will
average 4% of the total selling price. The estimated warranty liability at the beginning
of the year was $14,000, and $20,000 in claims was actually incurred during 2013 to
honor the warranty. What was the warranty expense for 2013?
a. $10,000
b. $18,000
c. $20,000
d. $24,000
Bonds are a popular source of financing because
a. the relative cost of issuing debt is often lower than the cost of issuing equity.
b. financial analysts tend to downgrade a company that has raised large amounts of cash
by frequent issues of stock.
c. a company having cash flow problems can postpone payment of interest to
bondholders.
d. the bondholders can always convert their bonds into stock if they choose.
Name given to an investor who owns over 50% of the outstanding common stock 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
A graphics design company issued bonds in the amount of $1,000,000 with a stated
interest rate of 8%. If the interest is paid semiannually and the bonds are due in 10
years, what would be the total amount of interest paid over the life of the bonds?
a. $1,000,000
b. $400,000
c. $800,000
d. $80,000
On the issuance date, the Bonds Payable account has a balance of $55,000,000 and
Premium on Bonds Payable has a balance of $5,000,000. These bonds issued at
a. $50,000,000.
b. $55,000,000.
c. $60,000,000.
d. a price that cannot be determined without knowing the stated and market interest
rates.
(Cash + Marketable Securities + Accounts Receivable) / Current Liabilities
Match each of the ratios named with the proper formula for computation.
a. Current Ratio
b. Quick Ratio
c. Cash Ratio
d. Operating Cash Flow Ratio
Inventory turned over seven times during the year at Rockdale Electronics. Similar
electronics retailers have an inventory turnover equal to twelve times per year. Which of
the following best explains the state of Rockdale’s inventory management?
a. The company sold too much inventory during the year.
b. The company needs to increase sales and decrease the amount of inventory on hand.
c. The company is performing much better than its competitors.
d. The company should increase the amount of goods on hand to accommodate the
growth in inventory demand.
Resources that provide a benefit over a number of years but which lack physical
substance
Match each statement to the item listed below.
a. Current assets e. Intangible assets
b. Current liabilities f. Long-term investments
c. Gross margin g. Long-term liabilities
d. Income from operations h. Net profit margin
Selected financial data for Rescue Rooter are presented below:
The company’s debt-to-equity ratio for 2015 is
a. increasing, which may be a cause of concern for the company.
b. increasing, which is always a good sign from the viewpoint of investors.
c. decreasing, which may be a cause of concern for the company.
d. decreasing, which is always a good sign from the viewpoint of investors.
The transportation charges related to the acquisition costs of a new piece of machinery.
Select the account to which each of the following costs would be debited. (Choices may
be used more than once.)
a. Land
b. Land Improvements
c. Buildings
d. Machinery and Equipment
e. An Expense Account
Purchasing insurance for 1 year
Several transactions are listed. Use the choices to identify the effect on the accounting
equation for each transaction listed. (Choices may be used more than once.)
a. Assets and liabilities increase
b. Assets and contributed capital increase
c. Assets and retained earnings increase
d. Two asset accounts are impacted, but there is no net effect on total assets
e. Assets and liabilities decrease
f. Assets and retained earnings decrease
g. Liabilities increase and retained earnings decrease
h. Liabilities decrease and retained earnings increase
Under a perpetual inventory system, each time goods are purchased, the inventory
account is transferred to sales revenue.
Show the effect of each of the transactions below on total assets and the current ratio by
using one of the symbols in each box to complete the table. If the numerator and
denominator of a ratio both increase or both decrease by the same amount, the effect of
the event on the ratio is “O” or no effect.
If the parent owns 90% of the subsidiary’s stock, then 90% of the subsidiary’s assets and
liabilities are included in the consolidated balance sheet.
Shares outstanding may be less than shares issued.
When computing the total payout ratio, common stock dividends plus common stock
repurchases are included in the numerator.
The analysis of common size financial statements may be included in a horizontal or
vertical analysis.
When an investor is able to exert significant influence over another company, the
____________________ method of accounting is used for the investment.
The acid test ratio is a stricter measure than the current ratio regarding a company’s
ability to pay its current obligations as they are due.
The excess of acquisition cost over the current value of the investee’s identifiable net
assets, referred to as goodwill, may not be recorded by the investor under current
generally accepted accounting principles.
The current ratio is found by dividing current assets by ____________________.