For each ratio listed, select whether an increase or decrease in the ratio is generally
considered to be better.
a.increase
b.decrease
Asset turnover ratio
Most experts now agree that there has been a tendency to rely far too heavily on net
income and its companion, earnings per share, and in many cases to ignore a company’s
cash flows.
a.True
b.False
From the list of accounts below, determine whether the account would be a nominal
account or a real account.
a.nominal account
b.real account
Depreciation Expense
Given below are three ratios calculated for Hall, Link, and Dollar Companies for 2016
and 2015 .
A)Which company has the greatest percentage of inventory and prepaids? How can you
tell?
B)Which company appears to be heading in the wrong direction concerning its ability
to pay its bills in a very short-run situation? Explain.
C)Which company appears to be the most liquid? Explain.
Use the following codes to indicate how the cash flow effect, if any, of each transaction
or event would be reported on a statement of cash flows if the operating activities
section is prepared using the indirect method.
a.Operating activity-add to net income
b.Operating activity-deduct from net income
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Recorded depreciation expenses for the year.
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.
How much would have to be deposited in a savings account earning 6%, so that equal
annual withdrawals of $200 can be made at the end of each of 10 years? The balance at
the end of the last year would be zero.
a.$528
b.$2,000
c.$1,472
d.$2,636
Match the terms with the descriptions related to merchandise sales and purchases.
a.Transportation-in
b.Perpetual inventory system
c.Net purchases
d.FOB Destination
e.Cost of goods available for sale
f.Periodic inventory system
g.FOB Shipping point
h.Delivery expense
The seller is responsible for the cost of delivering the merchandise to the buyer
Use the following codes to indicate how the cash flow effect, if any, of each transaction
would be reported on a statement of cash flows if the operating activities section is
prepared using the direct method.
a.Inflow from operating activity
b.Outflow from operating activity
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Issued preferred stock.
Closing entries serve two important purposes: (1) to return the balances in all temporary
or nominal accounts to zero to start the next accounting period and (2) to transfer the
net income (or net loss) and the dividends of the period to the Retained Earnings
account.
a.True
b.False
There is a standard threshold for materiality set by the Financial Accounting Standards
Board for all companies.
a.True
b.False
Select the term below most properly satisfies each statement.
a.Total assets
b.Horizontal analysis
c.Vertical analysis
d.Net sales
A comparison of financial statement items over a period of time
Latahmer Corporation is reconciling its May bank account. For each item listed, state
how it would be handled on the bank reconciliation.
a.Addition to bank balance
b.Subtraction from bank balance
c.Addition to book balance
d.Subtraction from book balance
e.Would not appear on the May reconciliation
Customer’s NSF check is returned with the bank statement
Identify where each of the following accounts would be reported on CocaCola’s
financial statements
a.Balance Sheet – Property, Plant, and Equipment
b.Balance Sheet – Intangible Assets
c.Balance Sheet – Current Assets
d.Balance Sheet – Other Assets
e.Income Statement – Operating Section
f.Income Statement – Other Revenue and Expense Section
g.Statement of Cash Flows
Accumulated depreciation
Which of the following statements is true of liabilities?
a.Classification of current liabilities is important because of the liquidity concept.
b.The accounting principles followed in the U.S. differ from those of other countries;
this is especially true for current liabilities.
c.Current liabilities are listed in order of decreasing amounts in the current liability
section of the balance sheet.
d.Accounts payable are listed in the current liabilities section in alphabetical order by
vendor.
All of the following describe a revenue except:
a.a revenue can result in the inflow of assets.
b.a revenue can result in the settlement of liabilities from the delivery or distribution of
goods.
c.a revenue can result in the settlement of liabilities from rendering services.
d.a revenue must involve an inflow of assets.
Becca Corp. purchased supplies at a cost of $5,200 during 2014. At January 1, 2015,
supplies on hand were $1,600.
During the year, the company used $4,000 of supplies. Becca’s accounting year ends on
December 31.
A)What is the effect on the accounting equation of the adjusting entry that is prepared
at December 31, 2015?
B)Under the accrual basis of accounting, how much is Supplies Expense for 2015?
C)How much should be reported on the December 31, 2015, balance sheet for
Supplies?
D)What type of adjustment was made in part A?
Use the following Assets section of Hu Corporation’s balance sheets for the years ended
December 31, 2015 and
2014 to answer the questions that follow.
Refer to the information for Hu Corporation.
(1) Determine the book value of Hu’s property, plant and equipment at December 31,
2015 and 2014.
(2) What types of transaction(s) could have caused the change in book value of
property, plant, and equipment during 2015?
When a company using LIFO experiences a partial or complete liquidation of its older,
lower-priced inventory, its gross margin will be(higher, lower, or unchanged) for the
period.
In the following information from the 2015 annual reports of Focal Point Industries all
figures have been rounded to millions of dollars.
Changes in assets and liabilities:
(1)Explain what the amount “adjustment to LIFO” represents. What effects has this
“adjustment” had on Focal
Point Industries’ net earnings in 2014 and 2015?
(2)What method of determining cash flows from operating activities has Focal Point
Industries used in preparing its statement of cash flows? Explain your answer.
(3)From 2014 to 2015, what change in the inventory balance (increase or decrease)
occurred in each year as a result of operating activities? What was the effect on the
company’s cash flow each year as a result of the inventory change?
Under themethod, an increase in inventory is shown as an adjustment to net income in
the operating activities category of the cash flow statement.
Carson City Saloon purchased a $25,000 truck for catering from its restaurant. It made
a down payment of one- fourth of the price. What combination of amounts would affect
the income statement and statement of cash flows for the purchase of the truck?
Accountants use theto overcome the deficiencies of the direct write-off method for bad
debts.
Utah Corp.
Use the following selected data and additional information from the records of Utah
Corp. to answer the questions that follow.
Additional information:
(1)Equipment with a cost of $15,000 and a book value of $3,000 was sold for $5,000
during 2016.
(2)Common stock was issued to retire bonds payable during 2016.
(3)The only items affecting retained earnings in 2016 were net income and dividends
declared and paid.
Review the data for Utah Corp.
REQUIRED:
Prepare the operating activities section of statement of cash flows for Utah Corp. for
2016 if the direct method is used to determine net cash flow from operating activities.
Stream Media Inc. and Techtronics are competitors in the same industry.
The following information was summarized from a recent annual report of Stream
Media Inc.:
The following information was summarized from a recent annual report of Techtronics:
1>Calculate the accounts receivable turnover ratios for Stream Media and Techtronics
for the most recent year.
2>Calculate the average collection period, in days, for both companies for the most
recent year. Comment on the reasonableness of the collection periods for these
companies considering the nature of their business.
3>Which company appears to be performing better? What other information should you
consider in determining how these companies are performing?
Houston Corp. prepares monthly bank reconciliations of its checking account balance.
The bank statement for July 2014 indicated the following: