1) The accounts receivable turnover ratio is computed by dividing net income by
average accounts receivable.
2) Flexibility in valuation of property, plant, and equipment under IFRS may cause
problems with comparability of one company with another.
3) Discontinued operations and extraordinary items are two components of the income
statement that are reported after income from operations or are reported separately
because of their unique nature.
4) The buyer must include goods purchased FOB shipping point in its inventory
account if the goods are still in transit.
5) [APPENDIX] A balance sheet of a sole proprietorship includes only the business
assets and liabilities, not the personal assets of the owner.
6) If ending inventory is overstated, then net income is overstated as well.
7) A LIFO liquidation occurs when a company sells fewer units than it buys during the
period.
8) Vegas Finance Company reported the following:
Common stock, $10 par, 100,000 shares authorized, 80,000 shares issued and
outstanding
What is the effect of issuing 1,000 shares of common stock at $15 per share?
A.Cash increases $10,000
B.Common Stock increases $15,000
C.Additional Paid-in Capital increases $5,000
D.Retained Earnings increases $5,000
9) Which of the following statements is false?
A.Checks and deposit slips are the main source of documents backing up the bank
statement
B.Retailers use cash register tapes to recognize sales
C.Stock certificates are evidence of being a creditor of the company
D.Time cards are used as the source of information to record wages
10) Horizontal analysis is analysis
A.of dollar changes and percentage changes over two or more years.
B.in which all items are presented as a percentage of one selected item on a financial
statement.
C.in which a statistic is calculated for the relationship between two items on a single
financial statement or for two items on different financial statements
D.of all ratios that increased or decreased over past accounting periods.
11) Eversoll Inc. uses the periodic inventory system.
If Eversoll uses the LIFO inventory method, the cost of goods sold for June would be
A.$1,354.00
B.$2,200.00
C.$2,272.50
D.$2,296.08
12) Which one of the following adjustments will increase assets?
A.Interest incurred on money borrowed during the period but not yet paid to the bank is
accrued
B.Rent revenue is recorded for amounts owed by a tenant but not yet paid
C.The use of supplies is recorded
D.Depreciation for the period is recorded
13) Area Company purchased a delivery van at a cost of $30,000 cash on January 1,
2013. The van has an estimated useful life of 6 years and a $6,000 estimated residual
value.
14) If the balance on the bank statement does not equal the balance in the cash account,
then it can be assumed that:
A.The company has no errors in its records concerning the cash account
B.The bank has made errors in preparing the statement
C.The company has made errors in is records concerning the cash account
D.There will be items reconciling the difference
15) Interest payable on a loan becomes a liability:
A.When the borrowed money is received
B.When the note payable is issued
C.At the maturity date
D.As it accrues
16) Which one of the following statements is true if a company’s collection period for
accounts receivable is unacceptably long?
A.The company may need to borrow to acquire operating cash
B.The company may offer trade discounts to lengthen the collection period
C.Cash flows from operations may be higher than expected for the company’s sales
D.The company should expand operations with its excess cash
17) For what reason would a company buy 10% of the common stock of a second
company?
A.The company has idle cash and wishes to have a higher return than that available
from temporary money market investments
B.The company wishes to insure a steady source of goods from the second company
C.The company wishes to prepare consolidated financial statements
D.More than one of the above is correct
18) Lewis Corporation reported the following information for the year ended December
31, 2014:
What was the balance of Lewis retained earnings at January 1, 2014?
A.$21,000
B.$29,000
C.$31,000
D.$35,000
19) Which of the following accounts is increased by a credit entry?
A.Sales Revenue
B.Salary Expense
C.Accounts Receivable
D.Dividends
20) If a company purchases treasury stock for $6,000 and then reissues it for $5,000,
the difference of $1,000 is
A.treated as a gain on the sale
B.treated as a loss on the sale
C.an increase in stockholders’ equity
D.a decrease in stockholders’ equity
21) Failure to record depreciation expense for the period results in which of the
following?
A.Net income being overstated
B.No effect on total assets
C.Stockholders equity being overstated
D.Both a and c above
22) What is the name of the branch of accounting concerned with providing managers
and administrators with information to facilitate the planning and control of business
operations?
A.Management accounting
B.Auditing
C.Financial accounting
D.Bookkeeping
23) Which one of the following sections is least likely to be found in a corporate annual
report?
A.Notes to the Financial Statements
B.Forecasts of Cash Flows and Earnings
C.Report of the Independent Accountants
D.Managements Discussion and Analysis
24) On February 1, 2014, Shine Corp. pays $50,000 for shares of Cloud common stock
and
another $1,000 in commissions. Assume that Shine sells the Cloud stock on May 20,
2014, for $53,000. In this case, Shine recognizes
A.An increase in assets and stockholders’ equity for $2,000
B.An decrease in assets and an increase in stockholders’ equity for $2,000
C.An increase and decrease in assets by the same amount
D.An increase in assets and stockholders’ equity for $3,000
25) The inventory account a manufacturer uses to record the cost of products completed
and available for sale is called
A.Raw materials inventory
B.Work in process inventory
C.Finished goods inventory
D.Merchandise inventory
26) ____________________ is the allocation of the cost of a tangible, long-term asset
over its useful life.
27) In the following information from the 2014 annual reports of Technic Industries all
figures have been rounded to millions of dollars.
REQUIRED:
(1) Explain what the amount “adjustment to LIFO” represents. What effects has this
“adjustment” had on Technic Industries net earnings in 2013 and 2014?
(2) What method of determining cash flows from operating activities has Technic
Industries used in preparing its statement of cash flows? Explain your answer.
(3) From 2013 to 2014, what change in the inventory balance (increase or decrease)
occurred in each year as a result of operating activities? What was the effect on the
company’s cash flow each year as a result of the inventory change?
28) Presented below are condensed data from the financial statements of Gallo Factory
for 2014 and 2013. The figures are expressed in thousands. Use this information to
answer the questions that follow.
REQUIRED:
29) A _____________________ allows preferred stockholders to share on a percentage
basis in the distribution of an abnormally large dividend.
30) Ware Company has a return on assets of 15% and a return on common stockholders
equity of 10%. John Ware, the president of the company, has asked you to explain the
reason for this difference. What causes the difference? How is the concept of financial
leverage involved?