1) The recognition of revenue may result from the settlement of a liability rather than
from the acquisition of an asset.
2) The statement of cash flows summarizes the operating, investing, and financing
activities of a business for a period of time.
3) Stock dividends reduce the par value of the stock.
4) Under the indirect method, a decrease in inventory is added to net income to
determine cash flow from operating activities.
5) Under the indirect method, instead of reporting cash receipts and payments, net
income is reconciled with net cash from operating activities.
6) The initial step in the recording process is posting.
7) Net income was $ 61,000 for the year. The accumulated depreciation balance
increased by $14,000 over the year. There were no sales of fixed assets or changes in
noncash current assets or liabilities. Under the indirect method, the cash flow from
operations is $47,000.
8) The most obvious risk to bond investors is that a company will fail and be unable to
pay its debts.
9) Eau Company began operations on March 1, 2012. The corporate charter authorized
issuance of 3,000 shares of $2 par value common stock. Eau sold all of the stock on
March 1. On May 1, Eau repurchased 2,000 of the outstanding shares. On May 14, Eau
sold 1,200 of the treasury shares. On June 1, Eau declared a 2-for-1 stock split. As a
result of the split, what occurred?
A.Assets declined
B.Stockholders’ equity increased
C.Stockholders’ equity decreased
D.Total stockholders equity stayed the same
10) The statement of stockholders’ equity for Jutras Corporation shows an increase in
the Common Stock account of $8,000, an increase in Additional Paid-in
Capital–Common in the amount of $22,000, and an increase in Retained Earnings of
$50,000. If the stock has a par value of $3 and dividends of $10,000 were declared and
paid during the year, what is the amount of net income for the year?
A.$40,000
B.$50,000
C.$60,000
D.$90,000
11) Almed Company reported the following information for 2013 and 2014.
How much cash was paid for insurance during 2014?
A.$13,300
B.$14,200
C.$15,100
D.$15,700
12) Which of the following statements is true?
A.An entry in a general ledger account can be traced to the trial balance by referring to
the page listed in the posting reference column of that ledger account
B.The posting of an amount recorded in the general journal can be verified by referring
to the account number listed in the posting reference column on that line in the general
journal
C.Business transactions are recorded first in the general ledger; then that information is
transferred to the general journal
D.No explanation is needed for each entry in the general journal
13) Which of the following is reported as a financing activity?
A.Declaration of dividends
B.Sale of preferred stock
C.Conversion of preferred stock to common stock
D.Stock split
14) Premium on Bonds Payable is a balance sheet item for Generic Products Company.
How would it most likely be classified on the balance sheet?
A.An increase to a long-term liability
B.Revenue
C.Long-term asset
D.Contra liability
15) The following set of items describes activities completed by a company in
collecting cash for merchandise sales. For each activity, identify whether or not the
activity adheres to or violates sound internal control procedures.
A single employee in the mailroom opens the mail, counts the money received, and
prepares a control list of the amount received.
A.Adheres to sound internal control procedures
B.Violates sound internal control procedures
C.Neither strengthens nor violates internal control
16) The following information was presented in the balance sheet of Gloria Company
as of December 31, 2014:
Which one of the following statements is true?
A.Gloria expects that $1,700,000 of accounts receivable will be collected after year end
B.The balance in the Accounts Receivable account in Glorias general ledger is
$1,600,000
C.The net realizable value of Glorias accounts receivable is $1,600,000
D.Gloria expects to collect only $1,500,000 from its customers
17) The comparative balance sheets for Spring Co. for 2014 and 2013 indicate that
accounts receivable decreased during 2014. Spring uses the indirect method of
preparing the operating activities section of its statement of cash flows. How will the
decrease in accounts receivable be reported on the statement of cash flows?
A.It will be included in the amount of cash and cash equivalents at the end of 2014
B.It will be deducted from net income in the operating activities section
C.It will be added to net income in the operating activities section
D.It will be reported as a cash outflow in the investing activities section
18) The natural progression in items from one statement to another and preparation of
financial statements is best represented by the following order:
A.Balance sheet and statement of cash flows > statement of retained earnings > income
statement
B.Balance sheet and statement of cash flows > income statement > statement of
retained earnings
C.Statement of retained earnings > income statement > balance sheet and statement of
cash flows
D.Income statement > statement of retained earnings > balance sheet and statement of
cash flows
19) Fellsmere Corporation
Presented below are the condensed balance sheets of Fellsmere Corporation at
December 31, 2014 and 2013. Net income for the years ending December 31, 2014 and
2013 is $346,000 and $109,000, respectively.
Read the information about Fellsmere Corporation.
Required:
(A) Explain the change in Fellsmeres working capital from 2013 to 2014. Why do users
believe the current ratio provides more information than the dollar amount of working
capital? Explain.
(B) Fellsmere Corporation’s creditors need to know whether its working capital position
improved during the year. How would you evaluate this?
20) On January 2, 2012, Dock Master Construction, Inc. issued $500,000, 10-year
bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate
is 8% and the market rate is 6%. The interest expense on the bonds at June 30, 2012 is
A.$ 2,764
B.$17,236
C.$20,000
D.$22,764
21) Grove Corp. purchased equipment at a cost of $260,000 in January, 2010. As of
January 1, 2014, depreciation of $88,000 had been recorded on this asset. Depreciation
expense for 2014 is $22,000. After the adjustments are recorded and posted at
December 31, 2014, what are the balances for the Depreciation Expense and
Accumulated Depreciation?
Depreciation Expense Accumulated Depreciation
A.$ 22,000 $ 110,000
B.$ 22,000 $ 88,000
C.$ 110,000 $ 110,000
D.$ 110,000 $ 88,000
22) When using the direct method, how is the sale of long-term investments for cash
reported on the statement of cash flows?
A.Operating activity
B.Investing activity
C.Financing activity
D.Noncash investing and financing activity
23) Debit entries are used to
A.increase asset accounts
B.decrease expense accounts
C.increase liability accounts
D.increase revenue accounts
24) Which one of the following is not a procedure in the approval of a specific invoice
for payment?
A.The purchase requisition, purchase order, receiving report, and invoice are compared
B.The extensions and footings on the invoice are verified
C.An employee verifies that all of the approval activities have been completed before a
check is prepared
D.The purchasing department prepares a voucher to request payment
25) Employees earn $5,000 per day, work five days per week, Monday through Friday,
and get paid every Friday. If the previous payday was January 26 and the accounting
period ends on January 31, what amount is the ending balance in the wages payable
account?
A.$ 9,000
B.$10,000
C.$15,000
D.$25,000
26) If the landlord has rent _________, then the tenant has rent _________.
A.revenue; revenue
B.revenue; expense
C.expense; revenue
D.expense; expense
27) Wet Paint Company signed a ten-year lease agreement on January 1, 2012. The
lease requires payments of $65,000 per year every December 31. Wet Paint estimates
that the leased property has a life of 11 years. The interest rate that applies to the lease
is 12%.
REQUIRED:
1> Should Wet Paint Company treat the lease as an operating lease or a capital lease?
2> If a balance sheet is presented on January 1, 2012, what amounts related to the lease
will appear on the balance sheet?
3> Assume that the leased asset is depreciated using the straight-line method and the
lease is amortized using the effective interest method. Identify and analyze the effects
of the transaction for Wet Paint on December 31, 2012
28) Select the ratio that each statement below most properly satisfies.
29) At Forrest Industries, all sales are on account. Sienna Marcos is responsible for
mailing invoices to customers, recording the amount billed, opening mail, recording the
payment, and making deposits to the bank. Sienna is very devoted to the family
business and never takes off more than one or two days for a long weekend. The
customers know Sienna and sometimes send personal notes with their payments.
Another clerk handles all aspects of accounts payable. Siennas brother, who is president
of Forrest Industries, has hired an accountant to help with expansion.
REQUIRED:
1> List some problems with the current accounts receivable system.
2> What suggestions would you make to improve internal control?
3> How would you explain to Sienna that she personally is not the problem?
30) A current ratio of ____________________ or better is usually considered a
comfortable margin.
31) [APPENDIX] Tony Venato opened Tonys Best Brand Shop as a sole proprietorship
by investing $10,000 on January 1, 2012. During the first year, the business earned
revenues of $520,000 and incurred expenses of $360,000. Tony withdrew $50,000 for
personal use. Prepare Tonys statement of owners equity for the year ended December
31, 2012.
32) Emergency Warehouse purchased a forklift on January 1, 2012, for $12,000. The
forklift is expected to last for five years and have a residual value of $1,200. Emergency
Warehouse uses the double-declining-balance method for depreciation.
REQUIRED:
1> Calculate the depreciation expense, accumulated depreciation, and book value for
each year of the forklifts life.
2> Identify and analyze the effects of the transaction to record depreciation expense for
2012.
3> What factors may have influenced Emergency Warehouse to use the
double-declining-balance method?
33) [APPENDIX] Body Sports is a surf shop owned by Chris, Nicole, and Dan in
partnership. On January 1, 2012, their capital balances were as follows:
Chris, Capital $30,000
Nicole, Capital 60,000
Dan, Capital 40,000
During 2012, Chris withdrew $10,000; Nicole, $20,000; and Dan, $15,000. Income for
the partnership for 2012 was $75,000.
Required
If the partners agreed to allocate income equally, what was the ending balance in each
of
their capital accounts on December 31, 2012?