Situation where the investor owns less than 20% of the common stock of another
company and therefore is not attempting to exert influence over the operating and
financial policies of the investee
Match the following terms to their correct definition:
a. equity security j. held-to-maturity securities
b. debt security k. amortized cost method
c. passive l. fair value method
d. significant influence m. unrealized gains and losses
e. control n. equity method
f. parent o. consolidation worksheet
g. subsidiary p. minority interest
h. trading securities q. business combination
i. available-for-sale securities r. Goodwill
The costs paid to clear land.
Select the account to which each of the following costs would be debited. (Choices may
be used more than once.)
a. Land
b. Land Improvements
c. Buildings
d. Machinery and Equipment
e. An Expense Account
Select the account to which each of the following costs would be debited. (Choices may
be used more than once.)
a. Land
b. Land Improvements
c. Buildings
d. Machinery and Equipment
e. An Expense Account
A growing corporation had $180,000 of its $30 par common stock issued before its
recent 3-for-1 stock split. The market price of the stock was $120 per share before the
split. Which of the following is true as a result of the split?
a. There were 24,000 shares (6,000 + 18,000) of common stock issued after the split.
b. The balance in the common stock account increased to $540,000.
c. The market price of the stock tripled.
d. The par value of the stock decreased to $10 per share.
Jack and Jill are saving for a house. How much will they have saved if they make 8
deposits of $5,000 each (one at the end of each year) into an account that earns 4%
interest compounded annually?
a. $51,169.86
b. $63,732.74
c. $46,071.15
d. $49,506.11
A permanent decline in the future benefit or service potential of an asset Match these
terms with their correct definition.
a. Book value e. Depreciation
b. Cost f. Impairment
c. Depletion g. Involuntary disposal
d. Depreciable cost h. Residual value
Hypnosis Institute received payments from customers who had been billed earlier for
services provided. What effect does this transaction have on the accounting equation?
a. Assets and liabilities increase.
b. Assets and stockholders’ equity increase.
c. Assets and liabilities decrease.
d. There is no effect on the accounting equation, as one asset account increases while
another asset account decreases.
Refer to Rent-a-Center. Which of the following is true regarding the debt management
ratios between 2014 and 2015?
Rent-a-Center
Selected data from the financial statements are provided below:
a. The debt-to-equity and debt-to-total assets ratios both increased.
b. The debt-to-equity and total debt-to-total assets ratios both decreased.
c. The debt-to-equity and long-term debt-to-equity ratios both decreased.
d. The debt-to-equity ratio decreased and the debt-to-total assets ratios increased.
Camper City started business on January 1, 2013. Stanton performed services for
customers totaling $250,000 of which 40% remain uncollected at the end of December.
Under the accrual basis, what amounts would appear on the company’s financial
statements for 2013? Income StatementStatement of Cash Flows
a. $250,000 $150,000
b. $250,000 $250,000
c. $150,000 $150,000
d. $150,000 $250,000
A company uses the direct write-off method to account for bad debts. What are the
effects on the accounting equation of the entry to record the write-off of a customer’s
account balance?
a. Assets and liabilities decrease
b. Assets and Stockholders’ equity decrease
c. Stockholders’ equity and liabilities decrease
d. Assets increase and Stockholders’ equity decrease
Give the lender the option to convert the debt into other securities-typically shares of
common stock. Match these terms with their definitions.
a. Callable bonds f. Mortgage bonds
b. Capital lease g. Notes payable
c. Convertible bonds h. Operating lease
d. Debenture bonds i. Secured bonds
e. Junk bonds
A state agency required that a pollution-control device be installed on the equipment at
a cost of $5,000. A construction company purchased a piece of equipment with a price
of $100,000 on March 1, 2013. The amounts are related to the equipment purchase.
Match the items and explain how each item should be accounted for. (Choices may be
used more than once.)
Refer to the information provided for Delco Construction. What is the company’s
adjusted cash balance at March 31st?
Delco Construction The following items relate to the company’s March bank
reconciliation:
a. $28,700
b. $29,100
c. $28,300
d. $29,600
The College Store accepts MasterCard for payments of purchases made by students.
The credit card drafts are deposited directly in a bank account. MasterCard charges a
1.55% collection fee. Credit card drafts totaling $10,000 are deposited during August.
Recording the sales and deposits will result in an increase in
a. Cash for $10,000
b. Sales for $ 9,854
c. Accounts Receivable for $9,854
d. Service Charge Expense for $155
When using the indirect method to determine operating cash flows, 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
e. not reported on the statement of cash flows
Refer to A&B Foods. If the company uses the aging of accounts receivable method to
estimate its bad debts, what will be the net realizable value of its accounts receivable
after the adjustment for bad debt expense?
A&B Foods
Data for the year ended December 31, 2013, are presented below.
a. $343,000
b. $345,000
c. $420,000
d. $395,000
Under the effective interest method of amortization, the interest expense for each period
is the carrying value times the ____________________.
Investing is the business activity that measures the company’s ability to generate cash
from its revenue and expense activities.
When trying to predict future profits, analysts often take a top-down approach which
starts with gathering economic and industry data to supplement what they are able to
find out about the specific corporations they follow.
A corporation may extend a tender offer when it desires to acquire treasury stock.
The _______________ treats the present value as a liability that will be paid through a
series of equal payments.
For the statement of cash flows, companies are required to classify their cash activities
into three categories: operating, investing, and financing.
The following information is provided for a company that manufactures bicycles. The
factory foreman determines when orders for materials are necessary. The orders are sent
to the purchasing department that places orders with the vendors recommended by the
factory foreman. When the materials are received, they are immediately delivered to a
central storeroom. When invoices are received for the items purchased, they are sent to
the accounting department for payment. The accounting department compares the
invoices with purchase orders. If the two documents are in agreement, the invoice is
approved for payment. The accounting department prepares checks that are signed by
the company treasurer. Recommend three or four improvements in the company’s
procedures for purchasing and paying for purchases of materials that will provide better
internal control.
Refer to McCullow Investment Group. Ignoring the differences in magnitude, comment
on the similarities and differences in the cash flows of the three companies. McCullow
Investment Group
One of the firm’s financial analysts is assessing the performance of three particular
companies whose cash flow statements for the last three years are presented below:
