1) Every adjustment involves at least one income statement and one balance sheet
account.
2) The purpose of financial reporting is to provide economic information to external
decision makers only.
3) U.S. standards do not require a classified balance sheet, but International accounting
standards require companies to present classified balance sheets with liabilities
classified as either current or long term.
4) Every company prepares only four adjustments–one for each of the four types of
adjustments.
5) Acquisition costs are also known as replacement costs.
6) A change in estimate of an assets residual value involves restating the income
statements of past periods for the estimate change.
7) International accounting standards require companies to present classified balance
sheets with liabilities classified as either current or long term.
8) If a company hires honest employees, no internal control procedures are necessary.
9) While U.S. GAAP requires a complete set of financial statements, including a
balance sheet, statement of stockholders equity, income statement, and statement of
cash flows, IFRS does not.
10) Which method of inventory costing is not acceptable for financial accounting
purposes?
A.Specific Identification
B.FIFO
C.LIFO
D.Replacement Cost
11) A major advantage of the weighted average method of inventory costing is that
A.Cost flows correspond with the physical flow of merchandise
B.It is relatively easy to apply
C.It matches current costs with revenues
D.Recent costs are assigned to the ending inventory balance
12) Border Companys cash account had a balance of $962 on August 31. This included
a bank deposit of $87 that was in transit on the 31st. The August 31 bank statement
contained the following information:
Border also had checks outstanding of $169. What is Borders adjusted cash balance at
August 31?
A.$ 920
B.$ 940
C.$1,007
D.$1,089
13) Claims to economic resources are known as
A.Assets and liabilities
B.Liabilities and stockholders equity
C.Owners equity and stockholders equity
D.Retained earnings and revenues
14) Which of the following is not an operating activity?
A.Cash collections from credit customers
B.Cash payments for operating expenses
C.Cash receipts for interest earned
D.Cash payments for dividends to stockholders
15) Tropical Co. declared a cash dividend of $30,000. The entry includes a(n)
A.decrease to Cash of $30,000
B.increase to Retained Earnings of $30,000
C.decrease to Retained Earnings of $30,000
D.decrease to Cash Dividend Payable of $30,000
16) Given below are three ratios calculated for Hall, Link, and Dollar Companies for
2012 and 2011.
A) Which company has the greatest percentage of inventory and prepaids? How can
you tell?
B) Which company appears to be heading in the wrong direction concerning its ability
to pay its bills in a very short-run situation? Explain.
C) Which company appears to be the most liquid? Explain.
17) Significant influence of one company over another has been defined by the
accounting profession as the ownership of what minimum percent of the second
company’s stock?
A.30%
B.50%
C.100%
D.20%
18) Bennington Corp. issued a $40,000, 10-year bond at the face rate of 8%, paid
semiannually. How much cash will the bond investors receive at the end of the first
interest period?
A.$800
B.$1,600
C.$3,200
D.$4,000
19) All of the following are examples of manufacturers except:
A.Whirlpool
B.Boeing
C.Amazon.com
D.Ford
20) Match the inventory-related accounts to costs that may be included in inventories
for retailers and manufacturers.
1>Costs of direct materials, overhead, and direct labor used in unfinished goods. A.
Raw Materials
2>Costs of direct materials, overhead, and direct labor used in goods that have been
sold. B. Finished Goods
3>Cost of materials which are not yet entered into the production process. C.
Merchandise Inventory
4>Costs to purchase goods ready to sell. D. Work in Process
5>Cost of completed, but unsold items. E. Cost of Goods Sold
21) Which of the following is an example of a contingent liability?
A.A liability for notes payable with interest included in the face amount
B.The liability for future warranty repairs on computers sold during the current period
C.A lawsuit pending against a restaurant chain for improper preparation of food
D.A corporate long-term employment contract with the chief executive officer
22) Wens Export Co.
Wens Export Co. purchased a new delivery truck at the beginning of 2013. The truck
has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of
$7,000. A full year’s depreciation expense is to be recorded in 2013. The truck was
driven 20,000 miles during 2013 and 24,000 miles during 2014. The number of
expected miles over five years is 100,000.
Refer to information about Wens Export Co.
Wens Export Co. wants to use the depreciation method that will result in the highest
depreciation expense for 2013. Which method should be used?
A.straight-line
B.units-of-production
C.double-declining-balance
D.all methods create the same income in 2013
23) Selected data for Sorenta, Inc. and New World Corp., two companies in the same
industry, are presented below:
Based on this data, which statement below is true?
A.Sorenta, Inc. has a lower gross profit ratio than New World Corp
B.New World Corp has a higher net income than Sorenta, Inc
C.New World Corp sells its inventory faster than Sorenta, Inc
D.Sorenta, Inc. has lower storage costs and a lower investment in inventory than New
World Corp
24) Which of the following statements is true regarding common law?
A.In common law countries, there are generally more statutes written into the laws
B.In common law countries, there is less reliance on interpretation by the courts
C.Because more details are written into U.S. law, FASB has shorter and more general
accounting standards than most countries
D.The common law system has its roots in the United Kingdom
25) Which concept is the reason the dollar is used in the preparation of financial
statements?
A.Going concern
B.Legal entity
C.Monetary unit
D.Time Period
26) a. Explain what the dividend payout ratio is and which firms typically have a high
ratio and which firms may have the lowest.
b. Many firms operate at a dividend payout ratio of less than 50%. Why do many firms
not pay a larger percentage of income as dividends?
27) An internal control system consists of all the following policies and procedures
necessary to ensure except:
A.Those necessary to ensure the safeguarding of an entitys assets
B.Those necessary to ensure that cash on hand and on deposit in checking accounts is
beyond the minimal amount for ongoing operations
C.Those necessary to ensure the reliability of its accounting records
D.Those necessary to ensure the accomplishment of its overall objectives
28) As a result of a stock split,
A.an entry must be made showing the effect on stockholders’ equity
B.the market price of the outstanding stock will increase because a split is evidence of a
profitable company
C.the par value of the stock is changed in the reverse proportion as the stock split
D.the stockholders have a higher proportionate ownership of the company
29) [APPENDIX] On January 1, 2010, Roxie Company purchased an asset for
$137,500. For financial accounting purposes, the asset will be depreciated on a
straight-line basis over five years with no residual value at the end of that time. For tax
purposes, the asset will be depreciated as follows: 2010, $45,000; 2011, $35,000; 2012,
$25,000; 2013, $20,000; and 2014, $12,500. Assume that the company is subject to a
35% tax rate.
REQUIRED:
1> What is the amount of deferred tax at December 31, 2010?
2> Does the deferred tax represent an asset or a liability?
3> What is the amount of deferred tax at December 31, 2014?
30) Marvins Shrimp Restaurant incorporated as a new business on January 1, 2012. The
company is authorized to issue 40,000 shares of $1 par value common stock, and
10,000 shares of 4%, $5 par value, cumulative, participating preferred stock. On
January 1, 2012 the company issued 15,000 shares of common stock for $8 per share.
Net income for the year ended December 31, 2012, was $115,000. Cash dividends in
the amount of $30,000 were declared, but only $25,000 were paid as of year-end.
Prepare the stockholders’ equity section of the balance sheet for Marvins Shrimp
Restaurant at December 31, 2012.
31) Prepare the journal entry to record each of the following independent transactions.
(Use
the number of the transaction in place of a date for identification purposes.)
1> Sale of capital stock in exchange for a parcel of land; the land is appraised at
$75,000
2> Payment of $3,400 in salaries and wages
3> Payment of open account in the amount of $850
4> Issuance of a promissory note for $2,750
5> Collections on account for $689
32) a. Accumulated amortization is used with
______________________________________.
b. Accumulated depreciation is used with
______________________________________.
33) Assume the following independent situations:
1> Company A has total stockholders equity at year-end of $600,000 and has 10,000
shares of stock.
2> Company B has total stockholders equity at year-end of $600,000 and has 10,000
shares of stock. The company also has 60,000 shares of preferred stock, which has a $1
par value and a liquidation value of $3 per share.
Required:
Calculate the book value per share for Company A and Company B.
34) \Use the selected information from the statement of cash flows for three actual
companies for the last three years to answer the questions that follow.
REQUIRED:
What is meant by the term “cash flow adequacy”? What other financial information
would be necessary in order to make a determination of the cash flow adequacy for
these three companies?
35) Earls Company reported its accounts receivable turnover ratio at 10 times. Its credit
terms are 2/10, n/20. What does this ratio tell you about Earls Company?
36) Learning Tree, Inc.
The following data is available for one of the products sold by Learning Tree, Inc.,
which uses the perpetual inventory system:
Refer to the data for Learning Tree, Inc.
If the moving average method is used, what is the amount assigned to cost of goods
sold for the 2,500 units sold on May 10?