Trend analysis involves comparing data on one financial statement with other data on
the same financial statement.
Franchises and licenses are legal contracts that grant the buyer the right to sell a product
or service.
Accountants generally do not use the specific write-off method because it violates the
matching principle.
Examples of adjusting for asset expirations include the write-offs to expense of such
assets as Office Supplies and Prepaid Insurance.
There is no difference in the value of ending inventory if a company uses perpetual
FIFO as opposed to periodic FIFO.
Since financial statements report on past results, they are not particularly useful to
investors and creditors, who want to predict future returns and their risks.
Valdo Vinyls has the following data available:
What is the return on sales for Valdo Vinyls in 2X13? Has the return on sales improved
or not improved since 2X12?
A) 17.6%, not improved
B) 14.8%, not improved
C) 14.8%, improved
D) 10.0%, improved
E) 9.0%, improved
Dugger Excavating bought a machine for $24,000 on January 1, 20X3, with a useful
life of 5 years and a salvage value of $4,000. At the beginning of 20X4, Dugger finds
the residual value will be zero.
Assuming Dugger employs straight-line depreciation, what will be the depreciation
expense in 20X4?
A) $4,000
B) $5,000
C) $6,000
D) $4,750
E) $8,500
The indirect method of preparing the statement of cash flows
A) is seldom used by companies because of the extra effort required to gather cash flow
information.
B) calculates only the cash effect of each operating activity.
C) is the method preferred by the FASB.
D) begins with net income, adds back non cash expenses, and adjusts for changes in the
current asset and current liability accounts.
E) can be used to determine cash flows from operating, investing, and financing
activities.
Restricted stock has the benefit of
A) increasing in value when stock prices fall.
B) decreasing in value when stock prices fall.
C) retaining some value even if stock prices fall.
D) being retained for three additional years past the original purchase date.
E) being used as treasury stock.
Randy Stall invests $25,000 in cash in the company to start his own company. Randy
Stall should:
A) debit Retained Earnings and credit Cash for $25,000.
B) debit Cash and credit Retained Earnings for $25,000.
C) debit Paid-in Capital and credit Retained Earnings for $25,000.
D) debit Paid-in Capital and debit Retained Earnings for $25,000.
E) debit Cash and credit Paid-in Capital for $25,000.
Appott Technologies recently sold some equipment for $6,800 cash. The equipment
cost $23,000 and had accumulated depreciation through the date of sale totaling
$17,250. The journal entry to record the sale of the equipment will include a
A) credit to accumulated depreciation of $17,250.
B) credit to equipment for $5,750.
C) debit to gain on sale of equipment for $1,050.
D) credit to gain on sale of equipment for $1,050.
E) debit to depreciation expense for $17,250.
State whether the following ratios are classified as
a. ratios that measure long-term solvency,
b. ratios that measure profitability,
c. ratios used to analyze the company’s stock as an investment, or
d. ratios that measure short-term liquidity.
1. ________ Return on sales
2. ________ Earnings per share
3. ________ Dividend-yield
4. ________ Average collection period in days
5. ________ Total-debt-to-total assets ratio
6. ________ Price-earnings ratio
7. ________ Quick ratio
8. ________ Total-debt-to-total-equity
ROE
A) stands for return on earnings.
B) focuses on the company’s profitability based on the book value of the common and
preferred equity.
C) remains relatively stable among different companies and different industries.
D) is calculated by dividing net income minus preferred dividends by average common
equity.
E) evaluates how effectively the company uses resources provided by the bondholders
An accountant records a transaction when cash is paid or received under which basis of
accounting?
A) Cash
B) Accrual
C) Deferral
D) Prepaid
E) Cost recovery
Activities that involve (1) providing and collecting cash as a lender and (2) acquiring
and disposing of fixed assets are included in which section of the statement of cash
flows?
A) Operating
B) Investing
C) Financing
D) Managing
E) Fixed assets
Which of the following circumstances would result in a decrease in income under both
the accrual and cash basis?
A) The payment of last period’s rent
B) The payment of this period’s rent
C) The payment of next period’s rent
D) The cash purchase of land
E) The purchase of equipment on account
Given the following balances, what would the total credits in the trial balance equal?
A) $103,000
B) $129,000
C) $ 97,000
D) $78,000
E) $83,000
The excess of a bond’s issue price over its face value is known as the
A) discount.
B) effective interest amount.
C) coupon interest amount.
D) premium.
E) contingent liability.
When an increase in cash occurs, it ensues from
A) increases in assets.
B) increases in liabilities.
C) increases in paid-in-capital.
D) both A and B
E) both B and C
Steve Harvey Company has the following data:
What is the return on common stockholders’ equity for Steve Harvey Company in
2X13? Has the return on common stockholders’ equity improved or not improved since
2X12?
A) 25.6%, improved
B) 25.6%, not improved
C) 54.5%, improved
D) 54.5%, not improved
E) 128.0%, improved
Hartman Inc., is liquidating. The company owes $3,800 to creditors of which $2,300 is
unsubordinated debentures and $1,500 is subordinated debentures, preferred
stockholders with a liquidating value of $1,800, and common stockholders. If Hartman,
Inc., has cash proceeds of $6,000, how much of the proceeds do the common
stockholders receive?
A) $2,700
B) $3,700
C) $ 400
D) $2,200
E) $ 0
Which of the following would be classified as an operating activity on a statement of
cash flows?
A) Purchase of a building
B) Sale of another company’s stock
C) Borrowing money through a promissory note
D) Payment of dividends
E) Purchase of inventory for cash
Montreal Electronics has the following data available:
What is the dividend-yield for Montreal Electronics in 2013? Has the dividend-yield
increased or decreased since 2012?
A) 10.0%, decreased
B) 3.3%, decreased
C) 4.4%, increased
D) 4.4%, decreased
E) 3.3%, increased
Queen Mattresses, Inc. had the following transactions occur during May 20X3. Assume
there is no beginning inventory.
If Queen Mattresses, Inc. were using the periodic inventory system, what is the journal
entry for May 9?
Oleke Manufacturing received $800 in advance on January 1 from Zinger Company for
services to be performed over the next 3 months. If the $800 received from Zinger
Company was placed into the Unearned Revenue account, and Oleke had completed
30% of the work as of the end of the month, what adjusting entry would Oleke
Manufacturing make on January 31?
At the year-end, the perpetual inventory system of Horran Company indicated an
ending inventory level of 190 units at a cost of $5 each. A physical count performed at
year-end resulted in 184 units being on hand at a cost of $5 each. What journal entry, if
any, is necessary at year-end?
Highland Cutlery acquired as a long-term investment some of the common stock of
LTS Company on December 31, 2X12. During 2X13, LTS Company had net income of
$300,000 and declared and paid cash dividends of $90,000. What journal entry would
Highland Cutlery make for 2X13 to recognize the net income of LTS Company,
assuming that Highland Cutlery acquired 40% of the outstanding common stock of LTS
Company?
Why doesn’t the cash basis of accounting require adjusting accounts with accruals?
Presented below are the balance sheets of Blanco, Inc. and Stalle Company at January
1, 2X13:
On January 1, 2X13, Stalle Company acquired 70% of the outstanding common stock
of Blanco, Inc., for $119 in cash. Assume the book value of Blanco’s assets and
liabilities equals the market value.
What elimination journal entry will be necessary in order to prepare a consolidated
balance sheet immediately after the acquisition?
Casper Company sold inventory of $5,000 and accepted payment with a credit card.
The credit card charges Casper Company a 2% fee on credit card sales. Casper uses the
periodic inventory system. Which of the following journal entries reflects the sale made
by Casper Company?
Describe how the matching concept is necessary to produce an income statement.