1) When the market rate of interest is less than the face rate, then the bond issue will be
sold at a discount.
2) A lease is accounted for as a capital lease if the lease term is 75% or more of the
property’s economic life.
3) When a bank pays interest or collects an amount owed to a company by one of the
bank’s customers, the bank issues a credit memorandum.
4) The balance sheet is a statement that summarizes revenues and expenses for a period.
5) Owners’ equity is the residual interest that remains after deducting liabilities from
stockholders’ equity.
6) The current ratio
A.is generally smaller than the quick ratio.
B.decreases when a company becomes more liquid.
C.increases when a company allows more customers to charge on account instead of
collecting cash.
D.is larger when a company is more liquid.
7) Morton & Associates
Use the following five transactions for Morton & Associates, Inc. to answer the
question(s).
See the transactions to Morton & Associates.
The journal entry to record the May 1 transaction will include a debit of $800 to
A.Sales Revenue
B.Accounts Receivable
C.Cash
D.Retained Earnings
8) Interest is capitalized when incurred in connection with the construction of plant
assets because
A.interest is considered a part of the acquisition cost of the related plant asset
B.the decision to purchase a plant asset is a business decision separate from the
financing decision
C.many plant assets last longer than 20 years
D.interest is considered an expense of the period
9) Which one of the following equations represents retained earnings activity?
A.Beginning balance + net income + dividends = profits for the year
B.Beginning balance + cash inflows – cash outflows = ending balance
C.Beginning balance + dividends – net income = ending balance
D.Beginning balance + net income – dividends = ending balance
10) Lalli Corp. sold merchandise to a customer on credit. The invoice amount was
$1,000; the invoice date was June 10; credit terms were 1/10, n/30. Which one of the
following statements is true?
A.The customer can take a $10 discount if the invoice is paid on June 30
B.The customer should pay $1,000 if the invoice is paid on July 9
C.The customer must pay a $10 penalty if payment is made after July 9
D.The customer must pay $1,010 if payment is made after June 20
11) One way analysts measure the ability of a company to meet its obligations is to
calculate the times interest earned ratio for any outstanding debt the company may
have. For Tempo Solutions Corporation, $10,000 of bonds paying 6.5% annually are
outstanding. Income before interest and taxes is $7,000. How would Tempo Solutions
Corporation calculate the times interest earned ratio?
A.Income before interest and taxes divided by the interest expense
B.Income before interest and taxes divided by carrying value of the bonds outstanding
C.Income before interest and taxes divided by the face rate on bonds
D.Face amount of bonds divided by income before interest and taxes
12) In considering equity and debt financing, which of the following statements is true?
A.Compared to equity financing, debt is a more expensive source of funding.
B.Interest and dividends payments are required to be made by the issuing corporation.
C.In general, the higher the proportion of total debt-to-equity ratio, the greater the
likelihood the firm will have difficulty in meeting its obligations in some future period.
D.Most firms prefer to have no debt and rely on equity financing.
13) How are cash equivalents reported or disclosed in the financial statements?
A.They appear only on the statement of cash flows
B.They are included with short-term investments under current assets on the balance
sheet.
C.They are included with cash under current assets on the balance sheet.
D.They are disclosed only in a footnote to the balance sheet.
14) The current portion of long-term debt is a balance sheet item for Generic Products
Company. How would it most likely be classified on the balance sheet?
A.Current liability
B.Long-term liability
C.Current asset
D.Long-term liability
15) Described below are several transactions which an organization like the Rogers
Symphony Orchestra might record. Several accounts from the organizations financial
statements also are listed below. Using these account titles, record each transaction in
proper journal entry format in the general journal provided. A written explanation for
each journal entry is not required.
A) Customers are mailed bills for tickets, $225,000.
B) Customers pay for tickets in advance, $130,000.
C) Administrative employees are paid their monthly salaries, $14,000.
D) An invoice is received for new musical instruments, $15,200; payment is due in 30
days.
E) Payments received from customers for amounts billed in a previous transaction
amount to $135,000.
F) Payment is made for the instruments invoice received in a previous transaction.
16) Kiwi Charters reported the following information at December 31, 2012:
The average recorded value per share of common stock at December 31, 2012 is
A.$1.00
B.$1.75
C.$1.25
D.$2.50
17) Kiwi Charters reported the following information at December 31, 2012:
The number of shares of common stock issued is
A.10,000
B.100,000
C.500,000
D.550,000
18) A bank loaned Atlas Company $10,000 on a 1-year, 6% note, but deducted the
interest in advance. Atlas would show which of the following when recording the
receipt of the cash?
A.an increase in Cash for $9,400
B.an increase in Cash for $600
C.a decrease in Notes Payable for $10,600
D.a decrease in Notes Payable for $9,400
19) Satin Corporation
The data presented below is for Satin Corporation for the year ended December 31,
2014.
Refer to the data for Satin Corporation
If Satin estimates its bad debts at 2% of net credit sales, what amount will be reported
as bad debt expense for 2014?
A.$25,800
B.$27,000
C.$28,800
D.$30,000
20) Land is not a depreciable asset, but the amount allocated to the building is subject
to ______________.
21) Assume that you want to accumulate $20,000 as a down payment on a home. You
believe that you can save $2,000 per semiannual period, and your bank will pay interest
of 6% per year, or 3% per semiannual period. How long will it take you to accumulate
the desired amount?
22) The payee of a note recognizes ____________________ on its income statement.
23) A(n) ____________________ is a chronological record of all transactions entered
into by a business.
24) How does the application of the lower-of-cost-or-market rule differ between U.S.
GAAP and IFRS?
25) ____________________ controls primarily concern safeguarding of assets and
ensuring the reliability of the financial statements.