1) Cash dividends become a liability to a corporation on the date of record.
2) As part of good internal control, disbursements can be made either by check or cash.
3) External users of accounting information include present and potential stockholders,
bankers and other creditors, and management.
4) The establishment of a petty cash fund has no effect on the company’s total cash
balance.
5) The amount of earnings distributed to stockholders can be found in the income
statement.
6) When stock is issued for a noncash asset, the par value of the stock is the best
indicator of the value of the asset.
7) Interest is capitalized on all purchased assets.
8) All liabilities that are not classified as current liabilities are classified as long-term.
9) Securities issued by corporations as a form of ownership in the business, such as
common and preferred stock, are called equity securities.
10) Only one copy of the prelist should be prepared when an employee opens mail with
customer payments to avoid complexity in the accounting system and maintain control.
11) Harbor City Corporations end-of-year balance sheet consisted of the following
amounts:
What is Harbor Citys retained earnings balance at the end of the current year?
A.$10,000
B.$110,000
C.$160,000
D.$170,000
12) All of the following statements regarding the gross profit ratio are true except:
A.The gross profit ratio alone is sufficient to determine a companys profitability
B.Managers, investors, and creditors use the gross profit ratio to measure one aspect of
profitability
C.The gross profit ratio explains how many cents on every dollar are available to cover
expenses other than cost of goods sold and to earn a profit
D.If a companys net sales were $200,000 and cost of goods sold were $120,000, its
gross profit ratio would be 40%
13) In 2013, Minter Co. sold 100 hot air balloons at $4,000 each. The balloons carry a
5-year warranty for defects. Minter estimates that repair costs will average 4% of the
total selling price. The estimated warranty liability at the beginning of the year was
$42,000. $11,000 in claims was actually incurred during the year to honor their
warranty. What was the balance in the ending estimated warranty liability at the end of
the year?
A.$47,000
B.$42,000
C.$37,000
D.$ 5,000
14) Which of the following is a noncurrent asset?
A.Inventories
B.Office supplies
C.Land
D.Accounts receivable
15) The solution to this problem requires time value of money calculations. Reference
to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
Ashley inherited $140,000 from an aunt. If Ashley decides not to spend her inheritance
but to leave the money in her savings account until she retires in 15 years, how much
money will she have assuming an annual interest rate of 8%, compounded
semiannually?
A.$308,000
B.$509,880
C.$454,020
D.$7,851,900
16) On January 2, 2012, Dock Master Construction, Inc. issued $500,000, 10-year
bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate
is 8% and the market rate is 6%. The annual cash payment (paid in semiannual
payments) on the bonds is
A.$40,000
B.$30,000
C.$20,000
D.$15,000
17) The following information is provided by the Ferrara Corporation:
What is the net income for Ferrara Corp.?
A.$10,000
B.$20,000
C.$30,000
D.Unable to tell from the information provided.
18) With regard to preferred stock,
A.its issuance provides no flexibility to the issuing company because its terms always
require mandatory dividend payments
B.no dividends are expected by the stockholders
C.its stockholders may have the right to participate, along with common stockholders, if
an extra dividend is declared
D.there is a legal requirement for a corporation to declare a dividend on preferred stock
19) [APPENDIX] Debbie and Alex formed a new partnership. The partnership
agreement specified that income should be allocated in a 2-to-1 ratio, with Debbie
receiving the larger portion. If revenue for the first year was $90,000 and expenses were
$60,000, how much would be allocated to each partner?
A.Debbie – $45,000; Alex – $45,000
B.Debbie – $20,000; Alex – $10,000
C.Debbie – $60,000; Alex – $30,000
D.Debbie – $40,000; Alex – $20,000
20) Sunshine Farm Supply
Following are selected data from the financial statements of Sunshine Farm Supply:
Refer to the data for Sunshine Farm Supply.
Which of the following would not result from a vertical analysis of its balance sheet?
A.Accounts receivable increased $22,000 or 36.7% during 2012
B.Accounts receivable is five times larger than Merchandise inventory in 2012
C.Accounts receivable is 13.3% of total assets for 2012
D.Merchandise inventory is 2.7% of total assets for 2012
21) The three types of business activities in which all corporations engage are
_______________________, ______________________, and
_____________________.
22) Shipping terms of ___________________________________ mean that the buyer
pays shipping costs.
23) ____________________ have claims to an entitys economic resources
Creditorsor
Lendersor
Investorsor
24) Terry Company
Transactions
Refer to the Terry Company transactions.
Required: Indicate the economic effects of each transaction above on the accounting
equation. Use the following format for your answers. Show the dollar amounts in the
appropriate columns and use a “+” (plus) sign to indicate an increase and a “-” (minus)
sign to indicate a decrease.
25) Under the ____________________ basis of accounting, revenues are recognized
when earned and expenses when incurred.
26) A drawing account is sometimes referred to as a ______________________.
27) Marathon Street Bank sent Flank Industries their end of month bank statement for
October. The end of month balance by the bank is $11,229. From the statement, it can
be determined that a deposit for $4,250 is in transit at the end of the statement period.
Also the statement reveals that checks for $86, $106, and $95 are outstanding.
Marathon Street collected a 90 day, 12% interest $4,000 note receivable charging $20
for the service. No interest has been accrued on the note. The bank charges a monthly
account fee of $35. The end of month balance per company books is $11,127.
REQUIRED:
Complete a bank/account reconciliation and identify and analyze the effects of any
transactions required to update the companys records.
28) Giant-Mart purchased a large shipment of shoes from Primus, Inc. on credit near the
end of its accounting period. Primus shipped the shoes in January and Giant-Mart
received the shoes in February. Assume that Giant-Mart’s accounting period ends on
January 31, while Primus accounting period ends on May 31. Answer each independent
question in the set that follows.
REQUIRED: If the shoes are shipped FOB destination, when should Giant-Mart
record the purchase? If the shoes are shipped FOB shipping point, when should
Giant-Mart record the purchase?