1) Accounts receivable are shown on the balance sheet at their net realizable amount.
2) Materiality deals with the size of an error in accounting information.
3) Stock dividends affect the par value per share of the stock.
4) Dividends paid appears on both the income statement and the statement of retained
earnings.
5) Under IFRS, an item such as a convertible bond must be separated into two parts,
showing one part in the Liability category and the other part in the Stockholders Equity
category.
6) Discount on Bonds Payable is classified as a current liability.
7) The use of the allowance method is an attempt by accountants to match bad debts as
an expense with the revenue of the period in which a sale on credit takes place.
8) If a company’s bonds are callable,
A.the investor or buyer of the bonds has the right to retire the bonds
B.the issuing company is likely to retire the bonds before maturity if the bonds are
paying 9% interest while the market rate of interest is 6%
C.the bonds are never allowed to remain outstanding until the maturity date
D.the investor never knows what the redemption price will be until the bonds are
actually called
9) Hui Corporation
The data below is for Hui Corporation for 2014.
Refer to the data for Hui Corporation.
What is the balance of Accounts Receivable at December 31, 2014?
A.$209,000
B.$225,000
C.$447,000
D.$459,000
10) The asset account, Supplies, has a balance of $700 on January 1. During January,
the company purchased $16,000 of supplies on account and the liability was
appropriately recorded. A count of supplies at the end of January indicates a balance of
$900. Which one of the following is a correct amount to be reported on the company’s
financial statements for the month ending January 31?
A.Supplies Expense – $15,800
B.Supplies on Hand – $700
C.Accounts Payable – $15,800
D.Supplies Expense – $16,700
11) When inventories are written down due to the application of the lower of cost or
market (LCM) rule, the account that is usually increased is
A.Cost of Goods Sold
B.Inventories
C.Loss on Decline in Inventory Value
D.Accumulated Depreciation – Inventory
12) Vegan Company reported the following:
Common stock, $5 par, 200,000 shares authorized, 50,000 shares issued and
outstanding
What is the effect of issuing 2,000 shares of common stock in exchange for land with
valued by a realtor at $36,000 if the common stock sells for $12 per share and is
regularly traded?
A.The Land account increases by $24,000
B.Retained Earnings decreases by $10,000
C.Common Stock increases by $36,000
D.Additional Paid-in Capital – Common increases by $24,000
13) Turnover ratios differ from the current and quick ratios in that they
A.are based on working capital instead of cash.
B.are based on a point of time instead of a period of time.
C.are activity ratios
D.measure the profitability of a company instead of its liquidity.
14) [APPENDIX] Which of the following is true concerning a sole proprietorship?
A.It is a separate legal entity
B.It may have more than one class of stock outstanding
C.It is owned by one or more persons
D.The separate entity concept applies
15) Oreo Company has current assets of $20,000, current liabilities of $8,000, and
long-term liabilities of $3,000. Oreo wants to buy new equipment. How much of its
existing cash can Oreo use to acquire equipment without allowing its current ratio to
decline below 2.0 to 1?
A.$ 4,000
B.$ 8,000
C.$ 10,000
D.$ 12,000
16) Which one of the following statements is false?
A.The inventory account is updated after every sale and after every merchandise
purchase under the perpetual inventory system
B.The inventory account is updated only at the end of the accounting period under the
periodic inventory system
C.A cost of goods sold account is updated after each sale of merchandise under the
periodic inventory system
D.A purchases account is used only under the periodic inventory system
17) Which of the following presents the proper ordering of assets, liabilties and equities
on the statement of financial position used by some countries that is different from the
U.S.?
A.current assets, long-term assets, current liabilities
B.inventories, trade-receivables, cash
C.assets, liabilities, equities
D.current liabilities, long-term liabilities, equities
18) What happens to the accounting equation when the adjustment for depreciation
expense for the accounting period is recorded?
A.Assets decrease and stockholders equity decreases
B.Assets increase and stockholders equity increases
C.Assets decrease and liabilities decrease
D.Liabilities increase and stockholders equity decreases
19) Explain the meaning or significance of the following ratios:
20) Blenham, Inc. sells merchandise on credit. If a customer pays its balance due after
the discount period has passed, what is the effect of the payment on Blenhams
accounting equation?
A.Assets and stockholders equity decrease
B.Assets and stockholders equity increase
C.Assets decrease and liabilities increase
D.No net effect
21) Which one of the following is an economic obligation for a business entity?
A.Salaries paid to employees for services rendered
B.Amounts owed to creditors
C.Materials used in manufacturing products
D.Payment of rent for the next year
22) Which of the following situations does not require an adjustment at the end of May?
A.At the end of May, Bolton Industries pays the custodian for May office cleaning
services
B.On May 1, Bolton Industries paid rent for six months on its office building
C.On May 1, Bolton Industries began delivery service to a client who will pay at the
end of a three-month period
D.On May 1, Bolton Industries purchased delivery equipment with an estimated useful
life of six years
23) Current accounting standards indicate that the costs of intangible assets with an
indefinite life, such as goodwill, should
A.not be amortized
B.be reported on the statement of retained earnings in the year in which acquired
C.be amortized over a reasonable period of time not to exceed 40 years
D.increase an expense account entirely in the year in which acquired
24) The following items were reported on the balance sheets and income statement for
Oxford Inc., a service company:
What amount would be reported in the operating activities section of the statement of
cash flows for payments for operating expenses under the direct method?
A.$186,000
B.$154,000
C.$180,000
D.$170,000
25) Most companies
A.are not concerned with the management of working capital because cash flows are
good.
B.strive for a balance between current assets and current liabilities.
C.try to maintain protection from the creditors by keeping only a small amount of cash
available.
D.agree that working capital of $3,000,000 is sufficient for business operations.
26) Which of the following is not an investing activity?
A.Purchase of investments for cash
B.Purchase of equipment for cash
C.Sale of merchandise for cash
D.Sale of land for cash
27) Which of the following would not appear on an income statement?
A.Sales revenue
B.Cost of goods sold
C.Accounts receivable
D.Insurance expense
28) The following accounts are listed in a companys general ledger:
REQUIRED:
1> Which items are cash equivalents?
2> Explain where items that are not cash equivalents should be classified on the balance
sheet.
3> What are the amount and the direction of change in cash and cash equivalents for
2014? Is the company as liquid at the end of 2014 as it was at the end of 2013? Explain
your answer.
29) Raponi, Inc.
The following balance sheet items from Raponi, Inc. are listed for December 31, 2014:
Read the information about Raponi, Inc.
Required:
Prepare the Stockholders Equity section of the classified balance sheet, including the
total stockholders equity amount.
30) Explain the two primary legal systems used around the world and what these
differences have to do with accounting standards.
31) Baucus, Inc.
Baucus, Inc. reported the following information for 2014 and 2013:
Refer to the information for Baucus, Inc.
How much of every dollar is gross profit for 2014?
32) What is meant by the term “current maturities of long-term debt” in the current
liabilities section of the balance sheet?
33) On the statement of cash flows, the ______________________________ section
involves the purchase and sale of products and services.
34) Explain the distinction between a note receivable and an account receivable.