1) Ratios that focus on cash are more useful than those that focus on income in the
evaluation of the liquidity of a company.
2) The state of economic development can affect accounting standards.
3) Asset turnover is calculated as Net income divided by Average Total Assets.
4) Because market values are subjective, many assets are carried on the balance sheet at
their acquisition cost.
5) According to the Sarbanes-Oxley Act of 2002, only external auditors can provide
bookkeeping services for the clients they audit.
6) The repurchase of a companys own stock should be reported on the statement of cash
flows as an investing activity.
7) Most long-term liabilities are related to a firms investing activities.
8) The income number used in the rate of return on assets is income after interest
expense is added back.
9) A single set of accounting standards could help a U.S. company save time and money
in the acquisition of a German company.
10) Grand Stores, Inc. is concerned about its profitability for the current year, since its
profit margin has dropped 10% since last year. Which of the following is the least
useful comparison in evaluating the drop in Grand Stores profit margin?
A.Comparison with the industry average for the current year
B.Comparison with its current ratio for the current year
C.Comparison with the profit margins for its major competitors for the current year
D.Comparison with its profit margins for the past five years
11) Hui Corporation
The data below is for Hui Corporation for 2014.
Refer to the data for Hui Corporation.
If the aging approach is used to estimate bad debts, what should the balance in the
Allowance for Doubtful Accounts be after the bad debts adjustment?
A.$26,900
B.$14,900
C.$13,200
D.$11,500
12) Treetop Company paid off a $100,000 two-year note payable. The effect of this
transaction is that the
A.earnings per share increased
B.current ratio decreased
C.debt-to-equity ratio increased
D.debt-to-equity ratio decreased
13) Glitch Company incurred the following costs during 2014 and 2015:
a. Research and development costing $40,000 was conducted on a new product to sell
in future years. A product was successfully developed, and a patent for it was granted
during 2014. Glitch is unsure of the period benefited by the research, but believes the
product will result in increased sales over the next five years.
b. Legal costs and application fees of $25,000 for the 20-year patent were incurred on
January 1, 2014.
c. A patent infringement suit was successfully defended at a cost of $24,000. Assume
that all costs were incurred on January 1, 2015
REQUIRED:
Determine how the costs in (a) and (b) should be presented on Glitchs financial
statements as of December 31, 2014. Also determine the amount of amortization of
intangible assets that Glitch should record in 2014 and 2015
14) Sunshine Farm Supply
Following are selected data from the financial statements of Sunshine Farm Supply:
Refer to the data for Sunshine Farm Supply.
Which of the following would result from a vertical analysis of its income statement?
A.Accounts receivable increased $22,000 or 57.9% during 2012
B.Gross profit is 57.9% of net sales for 2012
C.Cost of goods sold increased $50,000 or 23.8% during 2012
D.Net sales increased $110,000 or 28.9% during 2012
15) The group within an organization that is responsible for monitoring and evaluating
the internal control system is called:
A.the audit committee
B.the internal audit staff
C.the board of directors
D.the accounting staff
16) The solution to this problem requires time value of money calculations. Reference
to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
For a given single sum invested at 8% for 4 years, how will the future value be affected
if the compounding period is changed from annual to quarterly?
A.The future value will decrease
B.The future value will increase
C.The future value will stay the same
D.There is not enough information to determine the impact
17) The accountant for Casa Corp. was preparing a bank reconciliation as of February
28, 2014. The following items were identified:
There was an error in recording a customers check as the check was recorded by Casa
as $110, but the correct amount of $101 was recorded by the bank.
Casas adjusted cash balance at February 28, 2014 is
A.$23,591
B.$35,641
C.$35,659
D.$47,691
18) If technology changes rapidly, a firm should
A.expense plant asset immediately because of the uncertainty of future benefits
B.depreciate plant assets over long periods of time
C.consider an accelerated rate of depreciation
D.use the straight-line method of depreciation as it is the easiest
19) On July 1, 2014, Tipper Corp. purchased $100,000 of 8% bonds at face value.
Interest is paid annually on June 30. If the accounting year for Tipper ends at December
31, 2014, what will be reported with respect to the bonds on that date?
A.The carrying value of the bonds will be $108,000
B.The cash received in interest will be $8,000
C.Interest income in the amount of $4,000 will be accrued
D.A loss on the bonds will be reported in the Other Income and Expense section of the
2014 income statement until the entire amount of interest is paid on June 30, 2015
20) A check drawn by a company for $360 in payment of a liability was recorded in the
journal as $630. Identify and analyze the effect of this transaction to correct the
companys records.
A.Decrease Accounts Payable; decrease Cash
B.Increase Cash; decrease Accounts Receivable
C.Increase Cash; increase Accounts Payable
D.Increase Accounts Receivable; decrease Cash
21) The statement of cash flows
A.along with the balance sheet and income statement is prepared on the accrual basis
B.along with the balance sheet and statement of retained earnings is dated as of a
specific year end date
C.along with the balance sheet is used to analyze liquidity
D.ties the balance sheet to the statement of retained earnings
22) Under the effective interest method, the cash paid on each interest payment date
will
A.decrease if bonds are issued at a premium
B.increase if bonds are issued at a premium
C.remain constant regardless of the issuance price
D.increase if bonds are issued at a discount
23) Why is the use of the U.S. dollar as a unit of measure for financial statement data in
the U.S. widely accepted?
A.U.S. dollar remains stable over a long period of time
B.U.S. dollar is universally recognized as a reliable financial measure
C.U.S. dollar is the medium of monetary exchange in the U.S
D.U.S. dollar is required for financial statement presentation by the FASB and SEC
24) Asago Co. sold merchandise to Health Co. on account, $18,000, terms 2/15, net 45.
The cost of the merchandise sold is $15,500. Asago Co. issued a credit memo for
$1,750 for merchandise returned that originally cost $1,400. The Health Co. paid the
invoice within the discount period. What is amount of net sales from the above
transactions?
A.$16,250
B.$14,100
C.$15,925
D.$13,818
25) The following information is reported in the operating activities section of
Gateway’s statement of cash flows for 2014:
Which one of the following conclusions can be assumed from the information
provided?
A.Gateway used the direct method to determine cash flows from operating activities
B.Gateway purchased more merchandise than it sold in 2014
C.Cash payments for merchandise purchases were less than the amount of merchandise
purchased on credit during 2014
D.Cash payments for merchandise exceeded cost of goods sold by $200,000
26) Borden Company incurred the following costs to acquire and prepare land for a new
parking lot: purchase price for land, cost to clear the land, cost of paving, lighting for
the parking lot, and landscaping for the parking lot. How should the company determine
which costs should be recorded as Land Improvements and which cost should be
recorded as Land?
A.The costs with an unlimited life will increase Land, and the costs with a limited
useful life will increase Land Improvements
B.The costs with a limited life will increase Land, and the costs with an unlimited
useful life will increase Land Improvements
C.The costs to be depreciated will increase Land, and the costs that will not be
depreciated will increase Land Improvements
D.Costs that are depreciable will increase Land Improvements, while other costs are
expensed immediately because of a lack of definite life
27) Cash flows from acquiring and disposing of long-term assets are classified as
A.operating activities
B.investing activities
C.financing activities
D.purchasing activities
28) Expenses can be matched against revenue
A.If the earnings process is not complete
B.When cash is collected from the sale of products
C.Through allocation to the accounting periods in which the benefits are recognized
D.When payment is made for costs related to revenue
29) Duggard Transport Company
On January 1, 2013, Duggard Transport Company purchased a ship for $2,000,000. It
has a ten-year useful life and a residual value of $50,000. The company uses the
double-declining-balance method.
What was the depreciation expense for Duggard Transport for the year ended December
31, 2013?
A.$ -0-
B.$195,000
C.$390,000
D.$400,000
30) Under the accrual basis of accounting, at what point in time should a publisher of
magazines record revenue?
31) The Lobster Pot had the following account balances at December 31, 2013:
Prepare the stockholders’ equity section of the balance sheet for The Lobster Pot at
December 31, 2013.
32) What is the typical composition of a board of directors of a publicly held
corporation?
33) Assets and expenses are ____________________ by credits.
34) Name two different examples of items that can be received (in addition to cash) in
exchange for issuing stock. Describe how the value of each item affects additional
paid-in capital.
35) Measurement in accounting requires choosing an attribute and a unit of measure.
_________________________ is the attribute used for many of the assets included in
the financial statements.
36) List three different groups of users of accounting information. Indicate the type of
decisions each group typically makes from accounting information.
37) Herbert and Evita are planning to open a quick copy center near the local college.
They will make both cash and credit sales. They will hire college students to make
copies and to operate the cash register. Either Herbert or Evita will act as manager
during most hours that the business will be open. One student will be designated as
assistant manager when they cannot be present.
Describe procedures that Herbert and Evita might use to provide adequate internal
control over cash and credit sales and bank deposits.