1) When determining the amount of interest to be paid on a bond, which of the
following information is not necessary?
A.The face amount of the bonds
B.The selling price of the bonds
C.The face rate of interest on the bonds
D.The length of the interest period, annually or semiannually
2) Which of the following statements is true concerning assets?
A.Assets represent future economic sacrifices
B.Assets are expired costs
C.Assets become expenses at the time they are paid in cash
D.Assets become expenses when their economic benefits expire
3) Which of the following accounts are normally reported as current liabilities on a
classified balance sheet?
A.Accounts payable and bonds payable
B.Interest payable and mortgage payable
C.Income taxes payable and salaries payable
D.Capital stock and accounts payable
4) Knife Corp.
Use the selected data presented below from the financial statements of Knife Corp. for
2012 and 2011 to answer the questions that follow.
Refer to the data for Knife Corp.
REQUIRED:
(A) Calculate earnings per share for 2012 for Knife. Why is this considered one of the
most quoted ratios for public companies? Which investors, common or preferred or
both, desire this information?
(B) Calculate the price/earnings ratio for 2012 for Knife. Why is this ratio important to
investors? Explain.
5) OBryan Company began the year with a balance of $18,000 in Salaries and Wages
Payable and ended the year with $11,000 in the account. Salaries and Wages Expense
for the period amounted to $91,000. Under the direct method, OBryan will report cash
payments for salaries and wages of:
A.$84,000
B.$102,000
C.$109,000
D.$98,000
6) Discounting a note receivable
A.Requires using an account called discount on notes receivable
B.Is the process of lending money
C.Slows the collection process
D.Is the process of selling a promissory note
7) During May, Aniston, Inc. purchased office supplies for cash. The supplies will be
used in June. What effect does this purchase transaction have on the accounting
equation?
A.Assets increase and stockholders equity decreases
B.Assets increase and liabilities increase
C.Assets decrease and liabilities decrease
D.There is no effect on the accounting equation as one asset account increases while
another asset account decreases
8) Market Club Center sells season memberships for $200 each. During January of
2014, 60 season memberships were sold. As of March 31, 2014, only $3,000 of season
membership fees had been collected from customers. The season runs for 4 months
starting May 15, 2014. Which one of the following is an amount reported on the
financial statements for the period ending March 31, 2014?
A.Unearned membership revenue of $3,000
B.Unearned membership revenue of $9,000
C.Accounts receivable of $3,000
D.Membership revenue of $9,000
9) Why is the time period assumption required?
A.Inflation exists
B.External users of financial statements want statements that accurately reflect net
income or earnings for a specific time period
C.The dollar is the monetary unit in the United States
D.The federal government requires it
10) One effect on the accounting equation when a firm borrows money is
A.Stockholders equity decreases
B.Assets increase
C.Liabilities decrease
D.Assets decrease
11) What five-member body created by the Sarbanes-Oxley Act was given authority to
set U.S. auditing standards?
A.FASB
B.SEC
C.IAS
D.PCAOB
12) 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.
Cory and Ginger want to buy an airplane. They find one that will cost $200,000. They
must pay 10% down, and can get the balance financed with a 10 year loan at 7%
interest and annual payments. What is their annual payment?
A.$26,826
B.$25,626
C.$24,457
D.$19,260
13) Which one of the following adjustments increases net income for the period?
A.Recognition of the amount of supplies used
B.Recognition of interest on a note receivable
C.Recognition of wages earned, but not paid to employees
D.Recognition of rent costs that had been paid to the landlord in advance
14) The correct term for the process of transferring amounts from a book of original
entry to specific assets, liabilities, revenues, expenses, and stockholders equity items is
A.Double-entry system
B.Posting
C.Credit
D.Journalizing
15) The following items appear on the balance sheet of The Piano Company at the end
of 2012 and 2011:
Between 2011 and 2012
A.The Piano Company’s debt-to-equity ratio and current ratio both increased.
B.The Piano Company’s debt-to-equity ratio and current ratio both decreased.
C.The Piano Company’s debt-to-equity ratio increased and its debt-to-total assets ratio
decreased
D.The Piano Company’s debt-to-equity ratio decreased and its debt-to-total assets ratio
increased
16) Which of the following ratios is least useful in evaluating a company’s ability to pay
its current debts as they become due?
A.current ratio
B.debt-to-equity ratio
C.debt service coverage ratio
D.acid-test ratio
17) When a note receivable has been discounted by a company
A.An account called discount on notes receivable is used
B.It will be shown as an asset of the company
C.It slows the collection process
D.It may be shown as a contingent liability in the footnotes
18) The statement of retained earnings accomplishes which of the following?
A.It summarizes income earned and dividends paid over a single period of the business
B.It accumulates all revenues for the year
C.It summarizes the balance sheet accounts
D.It summarizes the capital stock accounts over the life of the business
19) What is the purpose of a statement of stockholders’ equity? How does it differ from
the statement of retained earnings? Which statement is required?
20) __________________ is a report required by section 404 of the Sarbanes-Oxley
Act.
21) For each of the following sentences 11-14, select the word or group of words that
best completes the statement.
______________________________ is (are) the right to produce or sell a published
work.
22) What is the relationship between the book value of a plant asset, the market value of
the plant asset, and the salvage value of a plant asset? Explain.
23) An arbitrary amount that is stated on the face of the stock certificate is
____________________.
24) McDonald’s Corporation is the largest food service organization in the world. The
proper handling of cash and food is important to the profitability of McDonald’s. Based
on your personal knowledge of McDonald’s and the internal control concepts and
procedures described in the textbook, answer the following questions.
REQUIRED:
Most corporations, including McDonald’s, include a Report of Management in their
annual report. Describe, in general, the main elements that should be included in a
Report of Management and give the purpose of this report.
25) You friend, Edwin Slotkin, has started a new business, but has recently encountered
a slight cash flow problem. He obtains a $1,000 loan at 10% per year from a local bank,
but would like to ask you about the terms. The bank has deducted the interest in
advance and he wants to know if 10% is his effective interest rate. How would you
respond in an email?
26) Carrington, Inc. began the year with $130,000 in merchandise inventory and ended
the year
with $190,000. Sales and cost of goods sold for the year were $900,000 and $640,000,
respectively.
Required:
1> Compute Carrington’s inventory turnover ratio.
2> Compute the number of days sales in inventory.
27) Grenada Corporation
Use the note on Disclosure of Leases for the Grenada Corporation to answer the
questions that follow.
The Corporation leases office, warehouse and showroom space, retail stores and office
equipment under operating leases, which expire no later than 2025. The Corporation
normalizes fixed escalations in rental expense under its operating leases. Minimum
annual rentals under non-cancelable operating leases, excluding operating cost
escalations and contingent rental amounts based upon retail sales, are payable as
follows:
Fiscal year ending March 31,
Rent expense was $12,551,000; $8,911,000; and $5,768,000 for the years ended March
31, 2010, 2009,and 2008 respectively.
Review the information for Grenada Corporation.
REQUIRED:
(1) What are the two types of leases that a company can have? Describe each briefly.
(2) Does the note disclosure show evidence of the two types of leases?
28) A(n) ________________________ is a list of each account and its balance at a
specific point in time.