Refer to Abundant Returns. Assume that the company estimates bad debts using the
aging method. The aging schedule indicates that $11,500 of the end of the year
Accounts Receivable will be uncollected.
Abundant Returns
This company sells its merchandise only on credit. The following data are available at
December 31, 2013.
Just a special form of factoring.
Match each statement to the item listed below
a. Bank credit card c. Sears card
b. Debit card d. American Express
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.
The seller is responsible for the cost of delivering the merchandise to the buyer.
Match the terms with the descriptions related to merchandise sales and purchases.
a. Transportation-in e. Cost of goods available for sale
b. Perpetual inventory system f. Periodic inventory system
c. Net purchases g. FOB shipping point
d. FOB destination h. Delivery expense
Which of the following statements regarding a company’s operating activities is true?
a. Revenues decrease stockholders’ equity.
b. Expenses increase stockholders’ equity.
c. Expenses decrease stockholders’ equity.
d. Dividends decrease assets.
Kiss Greetings planned to raise $500,000 by issuing bonds. The bond certificates were
printed bearing a stated interest rate of 6%, which was equal to the yield rate of interest.
However, before the bonds could be issued, economic conditions forced the yield rate
up to 7%. If the life of the bonds is 10 years and interest is paid annually on December
31, how much will the company receive from the sale of the bonds?
a. Exactly $500,000 because the company would still pay interest at the stated rate.
b. Less than $500,000 because the 7% yield rate of interest was higher than the stated
rate.
c. More than $500,000 because the 6% stated rate of interest was less than the yield
rate.
d. The 6% bonds will not be sold at all. The company will be required to have the
certificates reprinted bearing the new yield rate of 7%.
A bond issuing at 101.25 means that the bond
a. sold for $101.25.
b. sold at a discount.
c. sold for $1,012.50.
d. stated rate is lower than the market rate of interest.
Which of the following concepts is important to accrual accounting?
a. Time period, because accrual accounting divides earnings into time periods.
b. Market basis, because inflation is a big factor in the environment.
c. Cash basis, because if cash is not received, revenue is not accrued.
d. Entity concept, because personal transactions must be separated from business
transactions.
Purchased merchandise on credit.
Deeter Company, which sells auto parts, uses a perpetual inventory system. Identify the
effects on the accounting equation. (Choices may be used more than once.)
a. Increase in assets and liabilities
b. Decrease in assets and liabilities
c. Increase in assets and stockholders’ equity
d. Decrease in assets and stockholders’ equity
e. Increase in liabilities and decrease in stockholders’ equity
f. Decrease in liabilities and increase in stockholders’ equity
Outstanding shares represent the
a. number of previously issued shares that have been repurchased by the corporation.
b. number of shares that the corporation has sold.
c. number of shares that are currently held by stockholders.
d. maximum number of shares that can be sold by the corporation.
This assumption states that in the absence of information to the contrary, it should be
assumed that a company will continue to operate indefinitely.
Match the following principles with their correct definition.
Match the following principles with their correct definition.
a. Comparability g. Historical cost
b. Conservatism h. Matching
c. Double-entry accounting i. Monetary unit
d. Economic entity j. Revenue recognition
e. Going concern k. Time period
f. Full disclosure
Paying dividends to investors
Several transactions are listed. Use the choices to identify the effect on the accounting
equation for each transaction listed. (Choices may be used more than once.)
a. Assets and liabilities increase
b. Assets and contributed capital increase
c. Assets and retained earnings increase
d. Two asset accounts are impacted, but there is no net effect on total assets
e. Assets and liabilities decrease
f. Assets and retained earnings decrease
g. Liabilities increase and retained earnings decrease
h. Liabilities decrease and retained earnings increase
____________________ are cash and other assets that are reasonably expected to be
realized in cash during the normal operating cycle, whichever is longer.
The stockholders’ equity section of the balance sheet shows all changes in stockholders’
equity for the period.
If a bondholder has the right to retire the bonds, they are referred to as callable.
Convertible bonds normally allow bondholders to convert the bond into another
security.
“You Decide’ Essay You are the owner of a company that produces an energy drink
that has unique properties. Its primary ingredient, a berry found only in the South
American rain forest, causes a significant prolonged increase in the drinker’s
metabolism rate. You have found only a single supplier of this berry, Tropical Supplies,
Inc., a publicly traded company. What are some things you can do to assure your
company of access to this important raw material?
A contra account called ____________________ is used to depreciate property, plant,
and equipment.
If a new business does not have access to the major capital markets, it may depend
upon venture capital for its initial equity capital.