1) International accounting standards use the term provision for those contingent items
that must be recorded on the balance sheet.
2) While most companies make adjustments and prepare statements monthly, many
companies complete the accounting cycle only once per year.
3) Profits from operating activities distributed to business owners are called dividends.
4) The interest rate used to calculate interest expense in the effective interest method of
amortization is equal to the market rate of interest at the time the bonds are issued.
5) A debit entry increases assets, decreases liabilities, or decreases stockholders equity.
6) Which one of the following is an example of an accrued liability?
A.Wages have been earned by employees, but have not been paid at the end of the
period
B.Equipment that will benefit several periods has been purchased
C.An insurance policy that expires in a future period has been acquired
D.Supplies are purchased and used over several months
7) What are the two subtotals that distinguish the multi-step income statement from the
single-step income statement?
A.Income before taxes and income taxes
B.Total operating revenues and total operating expenses
C.Income from operations and income before taxes
D.Total revenues and total expenses
8) Which one of the following statements is true?
A.The flow of inventory costs should match the physical flow of the merchandise
B.Accounting standards require that merchandise costs be specifically traced to units
left in inventory and to units that have been sold
C.Accountants have developed methods which make assumptions concerning how costs
should be assigned to inventory and cost of goods sold
D.Alternative inventory cost flow assumptions have the same effect on the amount of
net income reported
9) Which of the following statements best describes the effects of recognizing revenue
earned by a business entity?
A.Assets increase only when cash sales are made
B.Stockholders equity increases only when credit sales are made
C.Assets and stockholders equity increase when either cash or credit sales are made
D.Assets increase, but stockholders equity decreases, when either cash or credit sales
are made
10) How would customer’s NSF checks be dealt with in a bank reconciliation?
A.added to companys book balance
B.deducted from companys book balance
C.added to bank statement balance
D.deducted from bank statement balance
11) A company is referred to as a parent if it owns
A.33% of the debt securities of a second company
B.100% of the debt securities of a second company
C.15% of the equity securities of a second company
D.More than 50% of the equity securities of a second company
12) Sharp purchased equipment at the beginning of 2013 for $11,000. Sharp decided to
depreciate the equipment over a 5-year period using the straight-line method. Sharp
estimated the equipment’s residual value at $1,000. The estimated fair market value at
the end of 2013 was $10,000. Which of the following statements is correct concerning
Sharps financial statements at December 31, 2013?
A.The book value of the equipment is $7,200
B.The book value of the equipment is $9,000
C.The total accumulated depreciation is $2,200
D.The equipment will be reported on the balance sheet at it fair market value of
$10,000
13) Depreciation is
A.an effort to achieve proper matching of the cost of operating assets
B.an accumulation of funds to replace the related plant asset
C.the difference between the original cost and salvage value of an asset
D.the cash allocated each period to maintain a plant asset
14) Which of the following is another term for the invoice approval form?
A.a receiving report
B.an invoice
C.a voucher
D.a remittance advice
15) Which of the following lease conditions would result in a capital lease to the lessee?
A.The lessee will return the property to the lessor at the end of the lease term
B.The lessee can purchase the property for $1 at the end of the lease term
C.The fair market value of the property at the inception of the lease is $18,000; the
present value of the minimum lease payments is $15,977
D.The lease term is 70% of the property’s economic life
16) Beatrice Equipment
Beatrice Equipment sells merchandise only on credit. For the year ended December 31,
2014, the following data is available:
Refer to Beatrice Equipment.
Assume that Beatrice Equipment estimates bad debts on an aging analysis, and the
aging schedule indicates that $28,000 of the December 31, 2014 accounts receivable
will be uncollectible.
17) Grover, Inc.
Grover, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual
value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation. The
crane was purchased on January 1, 2013 and was used 2,700 hours in 2013 and 2,600
hours in 2014.
Refer to the information about Grover, Inc.
If Grover uses the double-declining-balance depreciation method, what amount is the
depreciation expense for 2014?
A.$14,063
B.$15,000
C.$18,750
D.$20,000
18) Use the incomplete stockholders’ equity section of Tokin Companys balance sheet
as of December 31, 2012, to answer the following question.
How many shares of common stock are outstanding?
A.100,000
B.98,000
C.78,000
D.68,000
19) Show the effect of each of the transactions below on total liabilities and the
debt-to-equity ratio by using one of the following 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 “insufficient data.”
20) Use the information provided in the time value of money tables (Tables 9-1 through
9-4 on pages 454-457) in the text to answer the question that follows.
Cosmic Company issued $1,000,000, 8%, 7 year bonds, interest payable semiannually.
The market rate of interest was 6%. The issuance price of the bonds is
A.$1,111,560
B.$1,000,000
C.$1,151,480
D.$1,112,840
21) Brompton Book Club Company received advance payments from customers during
2014 of $5,000. At December 31, 2014, $1,200 of the advance payments still had not
been earned. After the adjustments are recorded and posted at December 31, 2014, what
will the balances be in the Unearned Book Revenue and Book Revenue accounts?
Unearned Book Revenue Book Revenue
A.$ 1,200 $ 5,000
B.$ 1,200 $ 3,800
C.$ 5,000 $ 1,200
D.$ 1,200 $ 6,200
22) Which of the following statements is true?
A.Profits distributed to the creditors are called dividends
B.The balance sheet shows the assets, liabilities, and profits of a company
C.Dividends are an expense, and are reported on the income statement as a deduction
from net income
D.The income statement reports the revenues and expenses of a company
23) The Stockholders Equity section of the balance sheet for Grant Corp. at the end of
2012 appears as follows:
7%, $100 par, cumulative preferred stock, 200,000 shares
authorized, 55,000 shares issued and outstanding $ 5,500,000
Additional paid-in capital on preferred 2,500,000
Common stock, $5 par, 500,000 shares authorized,
420,000 shares issued and outstanding 2,100,000
Additional paid-in capital on common 18,000,000
Retained earnings 32,500,000
Total stockholders equity $60,600,000
Net income for the year was $1,250,000. Dividends were declared and paid on the
preferred shares during the year, and a quarterly dividend of $0.30 per share was
declared and paid each quarter on the common shares. The closing market price for the
common shares on December 31, 2012, was $24.72 per share.
REQUIRED:
1> Compute the following ratios for the common stock:
a. Earnings per share
b. Price/earnings ratio
c. Dividend payout ratio
d. Dividend yield ratio
2> Assume that you are an investment adviser. What other information would you want
to have before advising a client regarding the purchase of Grant stock?
24) Which of the following statements is true regarding vertical analysis?
A.Common-size financial statements can be used to compare businesses of different
sizes.
B.Vertical analysis can only be used with balance sheet accounts.
C.Vertical analysis can only be used with income statement accounts.
D.Vertical analysis can only be used with retained earnings accounts.
25) Use the selected information from the statement of cash flows for three actual
companies for the last three years to answer the questions that follow.
REQUIRED:
Ignoring the differences in magnitude, comment on the similarities and differences in
the cash flows of the three companies.
26) A bond payable is dated January 1, 2012, and is issued on that date. The face value
of the bond is $120,000, and the face rate of interest is 6%. The bond pays interest
semiannually. The bond will mature in five years.
REQUIRED:
1> What will be the issue price of the bond if the market rate of interest is 6% at the
time of issuance?
2> What will be the issue price of the bond if the market rate of interest is 10% at the
time of issuance?
27) Page Company
Use the deferred tax account that appears in the financial statements of Page Company
to answer the related questions.
[Appendix] Review the information for Page Company.
REQUIRED:
(1) Where will the Deferred Income Taxes account most likely appear on a classified
balance sheet?
(2) What percent is deferred income taxes of long-term liabilities for the two years?
2012 __________ 2011 ___________
(3) What percent is deferred income taxes of total liabilities for the two years?
2012 __________ 2011 ___________
28) What is meant by a company’s “long-term financial health”? Which side of the
balance sheet is more informative for this issue? Explain.
29) From an accounting perspective, explain how an external event differs from an
internal event and give an example of each.
30) The IFRS definition of cash equivalents is very similar to that used by
_________________.
31) What are two reasons for why a company’s accounts receivable turnover may
decrease?