1) Stitt Homes, Inc. pays its sales personnel 6% commission of the selling price of each
home. During November of 2014, sales people sold $18,400,000 of homes. During
December, 2014, sales people sold $20,050,000 of homes. Because its policy is to pay
commissions only in the month after the sales, Stitt paid commissions during December
for November, 2014. During January of 2013, Stitt paid its sales people commissions
for December, 2014.
2) The income statement of Hope Market, Inc. reported a gain from the sale of land.
How are the cash flow effects of this transaction reported on the statement of cash flows
if the direct method is used to prepare the Operating Activities category?
A.The entire proceeds from the sale of the land are reported as an investing activity
B.The gain on the sale of land is reported in the Investing Activities category as a cash
flow from the sale of land
C.The entire proceeds from the sale of the land are reported as an operating activity
D.The cash received from the sale of land is reported in the financing activity category
as a cash flow from the sale of land
3) A question asked by stockholders is, “How much profit did the company make?”
What should the stockholder examine to get the most information that will help
evaluate the answer to this question?
A.The balance sheet, because retained earnings represents current profits
B.The statement of cash flows, as cash inflows and outflows represents current profits
C.The income statement, since it shows the revenues and expenses for the period
D.The economic resources of the company
4) Sarbanes-Oxley requires that the audit committee be composed of
A.At least 50% of key officers who are on the board of directors
B.A majority of all of the members of the board of directors
C.The outside members of the board of directors and the external auditor
D.Entirely of outside members of the board of directors
5) The following information was taken from the operating activity section of the 2014
statement of cash flows for Limited Corp:
Based on the information provided, which one of the following conclusions is correct?
A.Accounts payable decreased $2,000 in 2014
B.Inventories increased $8,000 in 2014
C.The direct method was used to prepare the operating section of the cash flow
statement
D.Cash payments of merchandise exceeded cost of goods sold by $2,000
6) Wolfe Inc.
Wolfe Inc. reports these account balances at January 1, 2014:
See the account balances for Wolfe Inc.
On January 31, Wolfe collected $12,000 of its accounts receivable and paid $11,000 on
its note payable. In Wolfes trial balance prepared on January 1, 2014, the total of the
credit column is:
A.$182,000
B.$286,000
C.$196,000
D.$166,000
7) Watson Company has 5,000 shares of $5 par, 3% preferred stock outstanding, and
25,000 shares of $2 par common stock outstanding. The preferred stock is cumulative
and no dividends have been paid for the past two years. If the company wishes to
distribute $2 per share to the common stockholders, what is the total amount of
dividends that must be paid in the current year?
A.$ 2,250
B.$50,000
C.$50,750
D.$52,250
8) Which one of the following items appears on a balance sheet?
A.Accounts payable
B.Sales revenue
C.Utilities expense
D.Cost of goods sold
9) Transportation-in is
A.an operating expense
B.part of purchases
C.added to transportation-out as part of the calculation of cost of goods sold
D.part of cost of goods purchased
10) Which one of the following statements is false?
A.Differences in cash flows between LIFO and FIFO inventory methods are a direct
result of the differences in the purchases
B.Differences in cash flows between LIFO and FIFO inventory methods are caused by
differences in taxes
C.The amount of cash to acquire inventory is the same for companies that use LIFO as
for those companies that use FIFO
D.The primary determinant in selecting an inventory costing method should be the
ability of the method to accurately reflect the net income of the period
11) 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 receiving department compares the quantity received with the quantity printed on
the receiving report when the purchase order was prepared.
A.Adheres to sound internal control procedures
B.Violates sound internal control procedures
C.Neither strengthens nor violates internal control
12) A company should choose a depreciation method that
A.best allocates the original cost of the asset to the periods benefited by the use of the
asset
B.saves the most taxes
C.minimizes net income
D.shows the highest amount of net income
13) Darling Enterprises comparative balance sheets included accounts receivable of
$220,300
at December 31, 2013, and $200,900 at December 31, 2014. Sales reported on Darlings
2014 income statement amounted to $2,350,000. What is the amount of cash collections
that Darling will report in the Operating Activities category of its 2014 statement of
cash flows assuming that the direct method is used?
A.$2,369,400
B.$2,350,000
C.$2,771,200
D.$2,330,600
14) Tracy, Inc.
Tracy, Inc. adjusts its books each month but closes its books at the end of the year. The
trial balance at July 31 before adjustments is as follows:
Refer to the trial balance of Tracy, Inc.
If the equipment had an estimated useful life of five years, what is its book value at July
31, after the proper July adjustment is recorded?
A.$10,400
B.$25,567
C.$15,167
D.$10,833
15) Clip Joint Company is ready to sell its bonds. Which one of the following financial
questions is most relevant to the issue of the bonds and that investors will most likely
want answered before they purchase the bonds?
A.How many product lines did Clip Joint Company have last year?
B.What will be Clip Joint Companys cost to start operations in another city?
C.How much debt does Clip Joint Company already have?
D.Will Clip Joint Company pay dividends?
16) ______________________ is either the bond’s face value minus any unamortized
discount or plus any unamortized premium.
17) If a company reports a net loss for the year, is it still possible that cash could
actually increase during the year? Explain your answer.
18) Donita Company had the following accounts and balances on December 31, 2012:
REQUIRED:
1>Compute Donitas working capital.
2> Compute Donitas current ratio. What does this ratio indicate about Donitas
condition?
19) Gregory Company purchased a dump truck at a cost of $48,000 on January 1, 2013.
The truck has an estimated useful life of 6 years and a $6,000 estimated residual value.
Show how the truck and any related amounts would appear on the December 31, 2014,
balance sheet immediately after the adjustments are recorded and posted.
20) Bradenton Corp. reported accounts receivable of $38,000 on its December 31,
2013, balance sheet. On December 31, 2014, accounts receivable had decreased to
$29,000. Sales for the year amounted to $57,000. What is the amount of cash
collections that Bradenton will report in the Operating Activities section of its 2014
statement of cash flows assuming that the direct method is used?
21) French Corp. began the year with $18,000 in cash and another $6,500 in cash
equivalents.
During the year, operations generated $132,000 in cash. Net cash used in investing
activities during the year was $213,000, and the company raised a net amount of
$168,000 from financing activities.
REQUIRED:
Determine the year-end balance in cash and cash equivalents.
22) Hart Concerts Inc. was organized on May 1, 2014, by two students majoring in
education. The two entrepreneurs provided entertainment for childrens birthday parties
to supplement their college career. The following transactions occurred during the first
month of operations:
May 1: Received contribution of $6,000 from each of the two principal owners of
the new business in exchange for shares of stock.
May 1: Purchased lighting equipment for $300 on an open account. The company has
30 days to pay for the equipment.
May 5: Registered as a vendor with the city and paid the $25 monthly fee.
May 9: Purchased an event tent to set up at parties for $2,400 cash.
May 10: Purchased $100 in miscellaneous supplies on account. The company has
30 days to pay for the supplies.
May 15: Paid a $75 bill from local printer for advertisement signs.
May 17: Customers paid for services with cash of $1,500.
May 24: Billed the local park district $800 entertainment provided to a summer camp.
The park district is to pay one-half of the bill within
five working days and the rest within 30 days.
May 29: Received 50% of the amount billed to the park district.
May 30: Customers paid cash for parties of $2,000.
May 30: Paid wages of $300 to a friend who helped over the weekend.
May 31: Paid the balance due on the supplies.
Required
1> Prepare a table to summarize the preceding transactions as they affect the accounting
equation. Use the following format. Identify each transaction with the date.
2> Prepare an income statement for the month ended May 31, 2014.
3> Prepare a classified balance sheet at May 31, 2014.
4> Why do you think the two students decided to incorporate their business rather than
operate it as a partnership?
23) Sliders Company
Sliders Company sells its merchandise only on credit. The following data is available at
December 31, 2014:
Refer to data for Sliders Company.
Determine the balance of Accounts Receivable at December 31, 2014.
24) The various methods, rules, practices, and other procedures that have evolved over
time in response to the need to regulate the preparation of financial statements are
called __________________________________________________.