1) Assume that you have received copies of the financial statements for PepsiCo for the
years ending December 31, 2014 and 2013. Answer the following questions:
A) If you were a banker, why would you need information from PepsiCos financial
statements?
B) If you were a potential investor in PepsiCo stock, what information would you want
from their financial statements?
C) If you were a labor negotiator for a union that represents a group of PepsiCos
employees, which financial statement would provide you with the most useful
information?
2) Wolfe Inc.
Wolfe Inc. reports these account balances at January 1, 2014:
See the account balances for Wolfe Inc.
On January 31, Wolfe collected $12,000 of its accounts receivable and paid $11,000 on
its note payable. On January 31, 2014, the total liabilities are:
A.$0
B.$56,000
C.$41,000
D.$30,000
3) Sunset, Inc. purchased merchandise from Rumble Music Company on June 5, 2014.
The goods were shipped the same day. The merchandise’s selling price was $15,000.
The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Sunset
received the merchandise on June 10, 2014. Sunset paid the amount due on June 13,
2014.
Sunset uses the periodic inventory system. What effect does recording the purchase of
merchandise on June 5, 2014 have on Sunset’s accounting equation?
A.Assets and liabilities increase
B.Liabilities increase and stockholders equity decreases
C.Assets and stockholders equity increase
D.Liabilities and stockholders equity decrease
4) Presented below are selected data from the balance sheet of Farmer Company for
2014. The figures are expressed in millions.
5) A pool cleaning service signs a contract with a new customer on May 1. The pool is
vacuumed and shocked for the customer on June 1, and the bill for the services is paid
on July 1. Under the accrual basis, the business should recognize revenue on:
A.December 31
B.July 1
C.June 1
D.May 1
6) Manatee Company
Manatee Company was incorporated as a new business on January 1, 2012. The
company is authorized to issue 20,000 shares of $5 par value common stock and 10,000
shares of 6%, $10 par value, cumulative, participating preferred stock. On January 1,
2012, the company issued 8,000 shares of common stock for $15 per share and 2,000
shares of preferred stock for $30 per share. Net income for the year ended December
31, 2012, was $375,000.
Refer to the information about Manatee Company.
The number of Manatees unissued shares of common stock at December 31, 2012, is
A.6,000
B.8,000
C.10,000
D.12,000
7) Which one of the following statements is true?
A.Good cash management practices dictate that a company should maintain as large a
balance as possible in its cash account
B.Sound internal control practice dictates that disbursements should be made by check
C.The person handling the cash should also prepare the bank reconciliation
D.Petty cash can be substituted for a checking account to expedite the payment of all
disbursements
8) Which of the following is not an objective of financial reporting?
A.To reflect prospective cash receipts to investors and creditors
B.To reflect prospective cash flows to an enterprise
C.To reflect resources and claim to resources
D.To reflect current stock prices and information concerning stock markets
9) Museum Corporation acquired a new manufacturing building by issuing 10,000
shares of its $50 par value preferred stock with a $75 per share market price. Similar
buildings have recently cost $780,000. What are the effects of this transaction on the
accounting equation for Museum?
A.Building and Preferred Stock increase $780,000
B.Building and Preferred Stock increase $500,000
C.Building increases $780,000; Preferred Stock increases $500,000; Additional Paid-in
Capital–Preferred increases $280,000
D.Building increases $750,000; Preferred Stock increases $500,000; Additional Paid-in
Capital–Preferred increases $250,000
10) Pennys Cafe began operations on March 1, 2012. The corporate charter authorized
the issuance of 3,000 shares of $2 par value common stock and 1,000 shares of $3 par
value, 8% cumulative preferred stock. The company’s fiscal year ends on February 28.
Pennys sold 500 shares of common stock at $6 per share on April 1. What impact does
the entry to record the April 1 transaction have on total stockholders’ equity?
A.No effect
B.Increase by $1,000
C.Increase by $3,000
D.Increase by $6,000
11) Which of the following statements is true with respect to long-term liabilities?
A.They are obligations that will be satisfied within one year
B.An account payable is a good example of a long-term liability because it is
interest-bearing
C.Long-term liabilities include bonds, other long-term liabilities and deferred income
taxes
D.Accrued expenses are considered to be long-term liabilities
12) Wood Company
Wood Company has provided the following information from its accounting records for
the current year:
Read the information for Wood Corporation. What are Woods current assets?
A.$ 90,000
B.$ 150,000
C.$ 195,000
D.$ 225,000
13)
[APPENDIX] Describe briefly how each of the following long-term liabilities arises;
i.e., what kind of transaction produces the resulting long-term liability? You may want
to include the appropriate accounts to increase or decrease (ignore amounts) in your
description.
a) Long-Term Debt
b) Deferred Income Taxes
14) Sandy Shores, Inc. reported the following amounts in its financial statements:
From 2013 to 2014, the company’s management of inventory is
A.declining, because the number of days’ sales in inventory is getting larger.
B.increasing, because the number of days’ sales in inventory is getting larger.
C.declining, because the number of days’ sales in inventory is getting smaller
D.increasing, because the number of days’ sales in inventory is getting smaller
15) If a company uses the direct write-off method of accounting for bad debts,
A.It is applying the matching principle
B.It will record bad debt expense only when an account is determined to be
uncollectible
C.It will reduce the accounts receivable account at the end of the accounting period for
estimated uncollectible accounts
D.It will report accounts receivable in the balance sheet at their net realizable value
16) The Stockholders’ Equity section of Sea Scape, Inc.’s balance sheet on January 1,
2012, appeared as follows:
17) [APPENDIX] A permanent difference with respect to taxes is a difference that
affects
the tax records but not the accounting records, or vice versa.
18) The comparative financial statements for the years ended December 31, 2014 and
2013 for Sophia Company reported the following information.
Answer these questions concerning Sophia Company’s receivables:
19) At the year end inventory count, if goods in transit are shipped FOB destination,
they should be included in the inventory count of
A.The seller
B.The buyer
C.Neither the buyer nor the seller
20) On January 1, 2014, A-Best Company’s balance in retained earnings was $70,000.
At the end of the year, December 31, 2014, the balance in retained earnings was
$94,000. During 2014, the company earned net income of $40,000. How much were
dividends?
A.$16,000
B.$24,000
C.$40,000
D.$64,000
21) When an investor is able to secure significant influence over an investee, the
____________________ method of accounting is used.
22) Exclusive Builders owns property in Camden County. Exclusives 2012 property
taxes amounted to $85,000. Camden County will send out the 2013 property tax bills to
property owners during April 2014. Taxes must be paid by June 1, 2014. Assume that
Exclusive prepares adjusting entries only once a year, on December 31 for the entire
years taxes, and that property taxes for 2013 are expected to increase by 9% over those
for 2012.
REQUIRED:
1> Identify and analyze the effect of the adjustment required for the 2013 property taxes
payable on December 31, 2013
2> Identify and analyze the effect of the transaction for the payment of the 2013
property taxes on June 1, 2014
23) Briefly explain what accountants mean when they refer to the double-entry system
of
accounting.
24) On September 1, 2012, Ensign Inc. borrowed $21,000 from Emerald City National
Bank by issuing a 12-month note. The bank discounted the note at 7.5%.
REQUIRED:
1> Identify and analyze the effect of the transaction to record the issuance of the note.
2> Identify and analyze the effect of the transaction needed at December 31, 2012, to
accrue interest.
3> Identify and analyze the effect of the transaction to record the payment of the note
on September 1, 2013.
4> What effective rate of interest did Ensign pay?
25) On January 1, 2014, Aaron Simpson bought a farm store of a small competitor for
$620,000. An appraiser, hired to assess the acquired assets value, determined that the
land, building, and equipment had market values of $300,000, $215,000, and $270,000,
respectively.
REQUIRED:
1> What is the acquisition cost of each asset? Identify and analyze the effects of the
transaction to record the acquisition.
2> Simpson plans to depreciate the building on a straight-line basis for 30 years and the
equipment over 16 years . Determine the amount of depreciation expense for 2014 on
these newly acquired assets. You can assume zero residual value for all assets.
3> How would the assets appear on the balance sheet as of December 31, 2014?
26) Prepare the journal entry to record each of the following independent transactions.
(Use
the number of the transaction in place of a date for identification purposes.)
1> Services provided for cash of $7,050.
2> Purchase of equipment for cash of $2,240.
3> Services provided on account of $530.
4> Purchases of supplies on account for $365.
27) In place of _____________, a worksheet is a useful device to help in the
preparation of a statement of cash flows.
28) For each of the following sentences 3-10, select the word or group of words that
best completes the statement.
A(n) _________________________ results when cash is received before the related
amount is reported on the income statement.
29) Your supervisor asks you to compare the companys results for the year, as measured
by various ratios, with one of the published surveys that arranges information by
industry classification. What difficulties might you encounter when making
comparisons using industry standards?