1) The origins of single-entry accounting were documented in a book written by Pacioli
over 500 years ago. It includes the concepts of bookkeeping that are still applied today.
2) For the statement of cash flows, companies are required to classify their cash
activities into three categories: operating, investing, and borrowing.
3) When a company uses coupon or premium offers in conjunction with the sale of its
products, there is no need to record any contingent liability.
4) An accounting system must be computerized in order to ensure the company has
proper internal control.
5) A note payable that is due in six months is a current liability.
6) For users of financial statements, the current liability classification in the balance
sheet is important because it is most closely tied to the concept of profitability.
7) Which of the following is considered a profitability ratio?
A.Earnings per share
B.Debt-to-equity ratio
C.Acid-test ratio
D.Inventory turnover ratio
8) On January 1, 2012, Breaker, Inc. issued $400,000, 10-year, 10% bonds for
$354,200. The bonds pay interest on June 30 and December 31. The market rate is 12%.
What is the carryingvalue of the bonds at the end of the ten years?
A.$400,000
B.$480,000
C.$380,000
D.$354,200
9) Which one of the following statements regarding changing inventory methods is
true?
A.A change in inventory methods can be justified if the change is made to better match
profits with revenue
B.Changing inventory methods affects consistency
C.One place that the reader of an annual report would be able to identify that a
company changed inventory methods is the statement of stockholders’ equity
D.Tax advantages are valid justification for changing inventory methods
10) Carin Smith operates a small retail establishment. The following unadjusted
amounts were taken from Smiths accounting records at December 31, 2014:
Determine the effect on the accounting equation of the adjusting entries at December
31, 2014, for each of the transactions that follow:
11) Tampa Corporation’s balance sheet showed the following amounts for their
liabilities and stockholders equity accounts: Current Liabilities, $20,000; Bonds
Payable, $60,000; Lease Obligations, $12,000; and Deferred Income Taxes, $2,000.
Total stockholders’ equity was $42,000. The debt-to-equity ratio is
A.0.45
B.0.58
C.1.76
D.2.24
12) An adjusting entry could not consist of:
A.A decrease to a liability and an increase to revenue
B.An increase to an expense and an increase to a liability
C.An increase to an expense and a decrease to an asset
D.An increase to an expense and an increase to a revenue
13) Island Breeze Cafe began business on January 1, 2012. The corporate charter
authorized issuance of 1,000 shares of no-par value common stock, of which 200 shares
were issued, and 4,000 shares of $8 par value, 6% cumulative preferred stock, of which
none were issued. Island Breeze sold 400 shares of common stock at $8 per share on
May 1. The entry to record the issuance of the shares on May 1 will:
A.Increase Cash, $1,000; Increase Additional Paid-in Capital–Common, $320; Increase
Common Stock, $680
B.Increase Cash, $3,200; Increase Additional Paid-in Capital–Common, $2,800;
Increase Common Stock, $400
C.Increase Cash, $4,800; Increase Common Stock, $4,800
D.Increase Cash, $3,200; Increase Common Stock, $3,200
14) Paint Company
Following are selected data from Paint Companys financial statements.
Refer to the Paint Company data.
Paints debt-to-equity ratio for 2012 is:
A.an indicator that Paint Company’s ability to meet current interest payments to
creditors is increasing
B.increasing slightly from 2011 to 2012
C.an indicator that for every $1 of capital that stockholders provided, creditors provided
$0.83
D.an indicator that Paint Company has relied on stockholders for funds more in 2011
than in 2012
15) Which one of the following could never be considered to be cash equivalents?
A.Common stock issued by a corporation
B.Money market funds
C.Corporate commercial paper
D.U. S. Treasury bills
16) The acid-test ratio differs from the current ratio in that it
A.represents the amount of cash on hand instead of the amount of working capital.
B.excludes inventories and accounts receivable from the numerator of the fraction
because of obsolescence and possible nonpayment.
C.is a stricter test of a company’s ability to pay its current debts as they are due
D.signals the need to liquidate marketable securities when it drops below 5 to 1
17) Wind Chime and Fire Hut Companies purchased identical equipment having an
estimated useful life of ten years. Wind Chime uses the straight-line depreciation
method and Fire Hut uses the double-declining-balance method of depreciation.
Assuming the two entities are similar in all other respects, which of the following
statements is correct?
A.Wind Chimes depreciation expense will be greater in the second year than Fire Huts
depreciation expense
B.Fire Huts book value will be greater than Wind Chimes book value at the end of year
one
C.Wind Chimes net income will be greater than Fire Huts net income in year nine
D.Fire Huts book value will be less than Wind Chimes book value at the end of year
two
18) Utah Corp.
Use the following selected data and additional information from the records of Utah
Corp. to answer the questions that follow.
Additional information:
Review the data for Utah Corp.
REQUIRED:
(A) What amount was paid to acquire equipment during 2014?
(B) What amount was recorded as depreciation expense during 2014?
(C) What amount was declared and paid for dividends during 2014?
19) Income statements for Maltese Corp. for the past two years are as follows:
(amounts in thousands of dollars)
2014 2013
Sales revenue $70,000 $60,000
Cost of goods sold 42,000 30,000
Gross profit $28,000 $30,000
Selling and administrative expense 20,000 14,000
Operating income $8,000 $16,000
Interest expense 2,000 2,000
Income before tax $ 6,000 $14,000
Income tax expense 2,000 3,000
Net income $ 4,000 $ 11,000
REQUIRED:
1> Prepare common-size comparative income statements for the two years for Maltese
Corp.
2> What observations can you make about the common-size statements? List at least
four observations.
3> Prepare comparative income statements for Maltese Corp., including columns for
the dollars and for the percentage increase or decrease in each item on the statement.
4> Assume that you are interested in identifying reasons for the changes in selling and
administrative expenses and income tax expense. Explain where you would look to find
additional information about the change.
20) Net income that has been earned by the corporation but not paid out as dividends
are ______________________________.
21) The Starch Company experiences a 20% increase in sales over the previous year.
However, gross profit actually decreased by 10% from the previous year. What are
some of the possible causes for an increase in sales but a decline in gross profit?
22) The issue price of a bond is based on the _____________________ of the cash
flows that the bond will produce.
23) _______________________ are a distribution of net income for the period, not a
determinant of net income as are expenses.
24) Assume that Space Company purchased an asset on January 1, 2012, for $62,400.
The asset had an estimated life of eight years and an estimated residual value of $8,000.
The company used the straight-line method to depreciate the asset. Assume that Space
Company sold the asset on July 1, 2014, and received $21,000 cash and a note for an
additional $15,000.
REQUIRED:
1> Identify and analyze the effect of the transaction needed to record depreciation for
2014. Be sure to Include all transactions necessary for the sale of the asset.
2> How should the gain or loss on the sale of the asset be presented on the income
statement?
25) Assume that Deane Company purchased factory equipment on January 1, 2012, for
$75,000. The equipment has an estimated life of five years and an estimated residual
value of $6,000. Deanes accountant is considering whether to use the straight-line or the
units-of-production method to depreciate the asset. Because the company is beginning a
new production process, the equipment will be used to produce 5,000 units in 2012, but
production subsequent to 2012 will increase by 5,000 units each year.
REQUIRED:
Calculate the depreciation expense, accumulated depreciation, and book value of the
equipment under both methods for each of the five years of its life. Would the units-of
production method yield reasonable results in this situation? Explain.
26) ___________________________________ is a measure of a company’s ability to
meet its future debt obligations after paying income taxes and interest costs and making
capital expenditures
27) ______________________________ are the crucial link between economic
transactions entered into by an entity and the accounting for these events.
28) If the present and future values are known along with the number of periods, then
the _________________________ can be determined.