What will be the increase in the Paid-in capital in excess of par account if a corporation
issues 20,000 shares of $1.00 par common stock for $6 per share?
a. $140,000
b. $120,000
c. $100,000
d. $20,000
Hunsinger Enterprises purchases many small pieces of office furniture, such as trash
cans, that cost less than $100 each. The company accounts for these items as expenses
when acquired rather than reporting them as property, plant, and equipment on its
balance sheet. The company’s accountant states that no accounting principle has been
violated. Justification for expensing these furniture items is based on cost vs. benefit
considerations as well as the accounting constraint of
a. conservatism.
b. materiality.
c. neutrality.
d. verifiability.
Equity or debt investments that management intends to sell in the near term, typically
within a single month
Match the following terms to their correct definition:
a. equity security j. held-to-maturity securities
b. debt security k. amortized cost method
c. passive l. fair value method
d. significant influence m. unrealized gains and losses
e. control n. equity method
f. parent o. consolidation worksheet
g. subsidiary p. minority interest
h. trading securities q. business combination
i. available-for-sale securities r. Goodwill
Net income
Select the ratio that would include each amount or account in its calculation. (Choices
may be used more than once.)
a. Times interest earned ratio
b. Operating cash flow ratio
c. Debt-to-equity ratio
d. Return on equity
What is the interest rate of a single $20,000 cash flow in 3 years if the present value is
$15,443.60?
a. 7%
b. 8%
c. 9%
d. 10%
Depreciation Expense
From the list of accounts, determine whether the account is a temporary or permanent
account. (Choices may be used more than once.)
An investor’s available-for-sale securities had increased in market value from $50,000
to $55,000 as of the balance sheet date. Which of the following journal entries would be
required?
a. Realized gain on investments 5,000 Allowance to adjust investments to market 5,000
b. Allowance to adjust investments to market 5,000 Realized gain on investments 5,000
c. Unrealized gain on investments 5,000 Allowance to adjust investments to market
5,000
d. Allowance to adjust investments to market 5,000 Unrealized gain on investments
5,000
Which of the following costs related to the purchase of production equipment would be
considered a revenue expenditure?
a. installation costs for equipment
b. purchase price of the equipment less the cash discount
c. repair and maintenance costs during the equipment’s first year of service
d. transportation charges for getting the equipment delivered to the business
Situation where the investor owns over 50% of the outstanding common stock and is
therefore deemed to own the investee
Match the following terms to their correct definition:
a. equity security j. held-to-maturity securities
b. debt security k. amortized cost method
c. passive l. fair value method
d. significant influence m. unrealized gains and losses
e. control n. equity method
f. parent o. consolidation worksheet
g. subsidiary p. minority interest
h. trading securities q. business combination
i. available-for-sale securities r. Goodwill
Refer to Absolute Appliances. What is the maturity date of the note?
Absolute Appliances
The company sold merchandise to a customer on December 1, 2013, for $120,000. The
company accepted a promissory note as payment. The note has a term of three months
and an annual interest rate of 10%. The company’s accounting period ends on
December 31. a. December 31, 2013
b. January 31, 2014
c. February 28, 2014
d. March 1, 2014
Failure to record dividends paid would result in which of the following?
a. Net income being understated.
b. An increase in total liabilities.
c. Stockholders’ equity being overstated.
d. Net income being overstated.
Refer to Dance Town Academy. Determine the company’s cash balance before
adjustment.
Dance Town Academy The items listed below were identified while preparing a bank
reconciliation for the company’s checking account as of March 31, 2013.
a. $16,410
b. $16,900
c. $17,190
d. $17,310
Refer to Rio Imports. The times interest earned ratio for 2015
Rio Imports
Information from the financial statements are provided below:
a. increased, which indicates that the company’s creditors will be pleased.
b. decreased, which indicates that the company has less cash to pay interest on its debt.
c. indicates a decline in the company’s ability to pay its liabilities when they come due.
d. indicates that the company cannot meet its current year interest payments out of
current year earnings.
When using the indirect method to determine operating cash flows, where is the gain
from selling a long-term investment recognized? (The proceeds from selling the
investment are considered separately.)
a. operating activity
b. investing activity
c. financing activity
d. noncash investing or financing activity
e. not reported on the statement of cash flows
An employee from the accounting department compares the cash register tapes with the
bank deposits. The following set of items describes activities completed by a company
in purchasing and paying for merchandise and in collecting cash for merchandise
sales. For each activity, identify whether or not the activity adheres to or violates sound
internal control procedures. (Choices may be used more than once.)
a. Adheres to sound internal controls
b. Violates sound internal controls
c. Neither strengthens nor violates internal control
Guarantees the repair or replacement of defective goods during a specified period
following the sale Match the following terms with the appropriate definition.
a. Accrued liabilities f. Payroll taxes
b. Contingent liabilities g. Sales taxes
c. Current liabilities h. Warranty
d. Interest rate i. Withholdings
e. Liabilities
A company reported the following information:
An analysis of records indicated that there were no cash flow effects resulting from the
changes in the two accounts presented above. How should the changes in these
accounts be reported on a statement of cash flows?
a. The company should report $250,000 for the sale of land as an investing activity and
$250,000 for the issuance of stock as a financing activity.
b. The company should report $250,000 as a noncash investing and financing activity
for the acquisition of land by issuing common stock.
c. The company should report the issuance of common stock to acquire land in the
financing activity section with a net cash flow effect of zero.
d. The company should report the acquisition of land by issuing common stock in the
investing activity section with a net cash flow effect of zero
The initial amount of money borrowed or loaned is also known as the future value of
cash flows.
Under the double-entry system of accounting, every transaction is entered in at least
two accounts on opposite sides of a T-account.
Items that are included on a bank statement and decrease the bank account balance are
called ____________________.
A company in the process of liquidation is considered to be under the going concern
assumption.
If an analysis of the balance sheet shows that Accounts Payable increased during the
period, then the increase would have to be _______________ to net income to convert
net income to cash.
Net Sales = Total credit sales – Sales Discounts – Sales Returns and Allowances
When revenue is earned after the earlier receipt of cash, an adjustment that increases a
revenue account and decreases a liability account is recorded.
The ____________________ is the file or book that contains all of the company’s
accounts.
Refer to Kids R Kids Company. The Interest coverage (cash basis) ratio at December
31, 2013, is:
Kids R Kids Company
Selected data from the comparative financial statements are provided below:
