1) Because the cash received from the sale of long-term assets is reported in the
investing activities section of the statement of cash flows, any gain or loss is ignored
when reporting the cash flow from operating activities under the direct method.
2) The IASB is a branch of the FASB.
3) Companies can use two different methods to report the amount of cash flow from
their investing and financing activities.
4) Financial statements should be prepared before any adjustments are made.
5) Operating activities involve the acquiring and selling of goods and services for cash
or on account.
6) FIFO results in the least amount of income before taxes, assuming a period of rising
prices.
7) Credit terms of n/30 mean that the net amount of the invoice, less any returns or
allowances, is due within 30 days of the date of the invoice.
8) Purchases and sales of cash equivalents are reported as investing activities on a
statement of cash flows.
9) The payment of dividends is a financing activity.
10) The equality of debits and credits in a trial balance means that all entries were
correctly posted to the accounts.
11) A balance sheet shows cash, $75,000; marketable securities, $115,000; accounts
receivable, $150,000 and $222,500 of inventories. Current liabilities are $225,000. The
current ratio is 2.5 to 1.
12) Lenders are interested in the value of operating assets as collateral when making
lending decisions.
13) Meadow Produce sells fresh vegetables and fruits in Polk County. The following
unadjusted amounts were taken from the company’s accounting records at December
31, 2014:
Note Payable, 12%, 4-month, dated December 1, 2014, for $20,000
Note Receivable, 10%, 6-month, dated October 1, 2014, for $12,000
14) The notification accompanying a check that indicates the specific invoice being
paid is called a
A.remittance advice
B.voucher
C.debit memo
D.credit memo
15) Fenwich Company planned to raise $100,000 by issuing bonds. The bond
certificates were printed bearing an interest rate of 8%, which was equal to the market
rate of interest. However, before the bonds could be issued, economic conditions forced
the market rate up to 9%. If the life of the bonds is 6 years and interest is paid annually
on December 31, how much will Fenwich receive from the sale of the bonds?
A.Exactly $100,000 because Fenwich Company would still pay interest at the face rate
of 8%
B.Less than $100,000 because the market rate of interest at 9% was more than the face
rate
C.Greater than $100,000 because the face rate of interest at 8% was less than the market
rate
D.The bonds would not be sold at all; Fenwich Company would have the certificates
reprinted bearing the market rate of 9%
16) Arco Corporation declared a cash dividend on June 2 of $6 per common share. The
company has 2,000 shares of common stock authorized, 1,000 shares issued, and 200 in
the treasury. The entry to record the declaration of the cash dividend increases
A.a liability
B.an asset
C.an expense
D.a stockholders equity account
17) The correct term for an entry made to the left side of an account is
A.Double-entry system
B.Debit
C.Credit
D.Journalizing
18) Which one of the following business decisions will least likely require financial
information?
A.The National Bank is reviewing the loan application from Petras Restaurant
B.Petras Restaurant is attempting to sell its stock to the public
C.The labor union representing Winns Fitness Spa employees is negotiating a pay raise
as part of a new labor agreement
D.Petras Restaurant management is deciding whether to wash its catering vans today or
tomorrow
19) The following set of items describes activities completed by a company in
purchasing and paying for merchandise. For each activity, identify whether or not the
activity adheres to or violates sound internal control procedures.
The clerk in the accounting department records both purchases and payments of
invoices.
A.Adheres to sound internal control procedures
B.Violates sound internal control procedures
C.Neither strengthens nor violates internal control
20) When using the indirect method, how would the retirement of bonds payable at
their maturity date be shown on the statement of cash flows?
A.Operating activity
B.Investing activity
C.Financing activity
D.Noncash investing and financing activity
21) Cripple Creek Inc.
Use the information presented below for Cripple Creek, Inc. for 2013 and 2012 to
answer the questions that follow. Cripple Creek uses the straight-line depreciation
method.
Refer to the information for Cripple Creek, Inc.
Between 2012 and 2013, Cripple Creek sold some equipment that had an original cost
of $57,500. Which statement is most likely true concerning transactions that must have
occurred during the period?
A.Cripple Creek also purchased additional equipment during the year
B.The selling price of the equipment sold was reported with net sales
C.The equipment that was sold had a book value of $12,500
D.The equipment sold had not been reported with Cripple Creeks property, plant and
equipment
22) Which of the following is true?
A.Companies usually disclose cash flow per share on their financial statements
B.Companies usually disclose the sales price of each individual stock transaction on
their financial statements
C.The issuance of a stock dividend is an investing activity
D.Financing activities can be inflows or outflows of cash
23) Canyon Corporation
The accountant for the Canyon Corporation prepared the following list from the
companys accounting records for the year ended December 31, 2014:
Read the information for Canyon Corporation. Determine the following amounts for
Canyon Corporation:
A) Total revenues for 2014.
B) Total expenses for 2014.
C) Net income for 2014.
24) On January 1, 2014, the Accounts Receivable and the Allowance for Uncollectible
Accounts for Darius Company carried balances of $20,000 and $550 respectively.
During the year, the company reported $70,000 of credit sales. There were $400 of
receivables written off as uncollectible in 2014. Cash collections of receivables
amounted to $74,700. The company estimates that it will be unable to collect 5% of the
year-end accounts receivable balance.
The amount of bad debts expense recognized in the 2014 income statement will be:
A.$545
B.$595
C.$745
D.$795
25) Darrin Brown bought a pub. The purchase price was $695,000. An appraiser
provided the following appraisal values: land $320,000: building $370,000 and
equipment $60,000. What cost should be allocated to the building?
A.$370,000
B.$695,000
C.$342,867
D.$399,281
26) Good quality information should be both _____________ and present a
__________________.
27) Explain what the chart of accounts is and how its numbering system works.
28) ____________________ is the name given to revenue, expense, and dividend
accounts because they are closed at the end of the period.
Nominalor
29) If the balance of wages payable increases during the year, then the
_________________________ for the period will be greater than the actual cash wages
paid in the period.
30) Explain the purpose of a trial balance and the limitation of the trial balance.
31) Raponi, Inc.
The following balance sheet items from Raponi, Inc. are listed for December 31, 2014:
Read the information about Raponi, Inc.
Required:
Present the Current Assets section (including the total) of a classified balance sheet.
32) ____________________ are those investments that are readily convertible into
known amounts of cash and that have an original maturity to the investor of three
months or less.
33) Assume that Wei Companys Stockholders Equity category of the balance sheet
appears as follows as of January 1, 2012:
Common stock, $15 par, 7,000 shares issued and outstanding $105,000
Additional paid-in capitalCommon 70,000
Retained earnings 300,000
Total stockholders equity $475,000
Assume that Weis common stock is selling at $35 per share on that date.
REQUIRED:
1> Assume that on January 2, 2012, Wei declares a 10% stock dividend to common
stockholders to be distributed on April 1, 2012. Identify and record the effects of the
transaction for Wei.
2> Instead of (1) above, assume that on January 2, 2012, Wei declares a 100% stock
dividend to be distributed on April 1, 2012. Identify and record the effects of the
transaction for Wei.
3> Identify and record the effects of the transaction when the stock in (2) above, is
actually distributed.
34) Valance & Company
Use the selected data from the balance sheet and cash flow statements for Valance &
Company to answer the questions that follow.
Valance & Company
Balance Sheet
(Selected Information)
(in millions)
Valance & Company
Statements of Cash Flow
(Selected Information)
(in millions)
Refer to the data for Valance & Company.
REQUIRED:
(1) What current liabilities appearing on the balance sheet do not appear in the
operating activities section of the statement of cash flows? Why?
(2) What current liabilities appear in the operating activities category of Valances
statement of cash flows? How does the change for each year affect the cash flows from
operating activities for that year?
35)
b. To record accrued interest on note payable.
e. To record interest in advance as interest expense.
f. To record gift certificates redeemed.
3> Sales tax payable $ 7,000.00
Notes payable, due November 1 51,375.00
Notes payable, due June 1 $14,000.00
Less: Discount on notes payable* 520.83 13,479.17
Unearned sales revenue** 6,300.00
Interest payable 3,082.50
Total current liabilities $81,236.67
*$1,250 $729.17 = $520.83