Received payments from accounts receivable.
Use the following codes to indicate how the cash flow effect, if any, of each transaction
would be reported on a statement of cash flows if the operating activities section is
prepared using the direct method. (Choices may be used more than once.)
a. Inflow from operating activity
b. Outflow from operating activity
c. Inflow from investing activity
d. Outflow from investing activity
e. Inflow from financing activity
f. Outflow from financing activity
g. Noncash investing and financing activity
h. Not reported on statement of cash flows
An income statement measure of the ability of a company to make its interest payments.
Select the ratio that each definition most properly satisfies.
a. Dividend yield ratio
b. Operating cash flow ratio
c. Debt-to-total assets ratio
d. Return on common equity ratio
e. Times interest earned ratio
f. Asset turnover ratio
g. Debt-to-equity ratio
h. Dividend payout ratio
Which of the following terms does not describe the interest rate printed on the bond
certificate?
a. coupon rate
b. yield rate
c. contract rate
d. stated rate
High Point Furniture Company manufactures furniture. The company has applied for a
sizeable loan to expand its operations. Based on the company’s annual report, the loan
officer concludes that High Point is very profitable and appears to have a strong
financial position. However, watching the nightly news on television that evening, the
banker discovers that High Point is a defendant in a class action lawsuit related to
defective products. Serious injuries were allegedly caused by the company’s infant high
chairs overturning. The television news report is an example of financial information
that is
a. predictable.
b. conservative.
c. relevant.
d. comparable.
All of the following are examples of questions that a financial analyst would ask about
a company’s use of estimates in the recording of expenses except:
a. Do warranty provisions cover actual expenditures?
b. What expected lives and residual values are used for depreciation computations?
c. Are sales taxes included in revenues?
d. Is the allowance for uncollectible accounts sufficient to cover bad debts?
Dividends in arrears are required to be reported in
a. a liability account.
b. a contra-equity account.
c. a stockholders’ equity account.
d. the footnotes accompanying the financial statements.
Which one of the following steps in the accounting cycle is completed only at the end
of an accounting period?
a. business transactions are recorded
b. adjustments are recorded
c. transactions are journalized
d. journal entries are posted to the ledger
Refer to Hesson Properties. What journal entry is required to record the collections on
account from customers?
Hesson Properties, Inc.
The following transactions occurred during June:
a. Cash 500 Accounts Receivable 500
b. Accounts Receivable 500 Service Revenue 500
c. Accounts Payable 500 Cash 500
d. Service Revenue 500 Cash 500
Carlock Systems received a 6-month, 12% note for $50,000 from a customer on
November 1, 2013. The note is due on April 30, 2014. Assuming the company’s
accounting period ends on December 31, how much interest revenue should be
recognized during 2013 and 2014? 20132014
a. $2,000 $1,000
b. $1,000 $2,000
c. $0 $6,000
d. $1,000 $5,000
On August 3, 2012, Grace Electric Supply agreed to manufacture and supply 650
electrical control units for a particular customer who deposited $136,500 toward the
purchase price upon signing the one-year purchase agreement, which set the selling
price of each control unit at $1,050. In December 2012, 125 units were delivered to the
customer and the remaining units were delivered in January 2013. The customer pays in
cash upon delivery for any units not covered by the deposit. A) Record the journal entry
to record the receipt of the customer deposit during 2012.
B) Record the journal entry for the delivery of 125 units to the customer in 2012. How
would the customer’s deposit be reported in the financial statements at the end of 2012?
C) Record the entry for the delivery of the remaining units to the customer in 2013.
Something that happens to the business that may or may not require a journal entry.
Match the following terms with their correct definition.
a. Account f. Debit
b. Accounting cycle g. Event
c. Chart of accounts h. General ledger
d. Cost vs. benefit i. Journal
e. Credit j. Trial balance
The cost of supplies used during the year is recorded
For each transaction select the type of adjustment that would be required. (Choices
may be used more than once.)
a. Deferred (prepaid) expense
b. Deferred (unearned) revenue
c. Accrued expense
d. Accrued revenue
Which of the following statements is most likely to be right?
a. The method of preparing the operating activities section of a statement of cash flows
which adjusts net income to remove the effects of deferrals and accruals for revenues
and expenses is the direct method.
b. The method of preparing the operating activities section of a statement of cash flows
which reports major classes of gross cash receipts and cash payments for revenues and
expenses is the indirect method.
c. The FASB prefers the indirect method of preparing the operating activities section of
the statement of cash flows.
d. Most companies use the indirect method of preparing the operating activities section
of the statement of cash flows.
Described below are several transactions which might be recorded by a music supply
company. Several accounts from the company’s chart of accounts are also listed below.
Using these account titles, record each transaction in proper journal entry format. A
written explanation for each journal entry is not required.
A) Bills are mailed for musical instruments sold to customers, $225,000
B) Customers pay for musical instruments in advance, $130,000
C) Administrative employees are paid their monthly salaries, $14,000
D) An invoice is received for $15,200 of new musical instruments purchased for sale to
customers; payment is due in 30 days
E) Payments are received from customers for amounts billed in a previous transaction,
$135,000
F) Full payment is made for the musical instruments invoice received in a previous
transaction
A company is required to estimate a liability for repairs for products sold with a
warranty. In the year following the sale, the firm’s accountants find that the estimated
amount for repairs has been overstated. The correct accounting procedure in the year
following the sale is to
a. make an adjusting entry to reduce the amount of the estimate.
b. make a correcting entry because the overstatement is an error.
c. show the amount of overstatement on the income statement as a loss.
d. do nothing because the misstatement related to the prior year.
While reconciling the checking account, the accountant noticed that an error had been
made in recording a check received by the company. The bookkeeper had recorded the
receipt as $729 but the correct amount of the check was $279. Which of the following
reconciling adjustments is necessary?
a. Add $450 to the company’s records.
b. Deduct $450 from the company’s records.
c. Add $450 to the bank statement balance.
d. Deduct $450 from the bank statement balance.
A non-cancelable agreement that is in substance a purchase of the leased asset. 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 company had sales of $40,000, sales discounts of $800, sales returns of $1,600 and
commissions owed to sales people of $600. Compute net sales.
a. $37,600
b. $37,000
c. $38,400
d. $39,000
Accounts payable represent amounts owed to outside suppliers of goods and services;
whereas ____________________ reflect amounts owed in which a formal agreement or
contract has been signed.
Refer to King Cotton Company. What percent of the total liabilities for 2013 and 2012
are long-term liabilities? What implication does this have?
King Cotton Company
The liabilities section of the company’s most recent consolidated balance sheets is
provided below:
Finicky Freight purchased a truck at the beginning of 2012 for $80,000. The company
decided to depreciate the truck over a 5-year period using the double-declining-balance
method. The company estimated the equipment’s salvage value at $8,000. Show how
the costs should be presented on the financial statements at December 31, 2013. Label
the statements properly.
A corporation had several transactions affecting its stockholders’ equity accounts during
the year. The transactions are presented in chronological order. In the space provided,
indicate the impact on the equity accounts shown by placing the respective dollar
amounts along with a plus sign (+) for an increase in the account balance, minus sign (-)
for a decrease, or N/A if there is no impact on the account balance.
The Statement of Cash Flows is considered to be a good indicator of current cash
inflows and outflows.
The intangible asset called ____________________ can only exist if one company
purchases another business and the cost exceeds the fair market values of the
identifiable net assets at the time acquired.
The concept that assumes that an entity is not in the process of bankruptcy is called the
___________ concept.
Refer to Merry Maids Company. What method is used to calculate the net cash
provided by operating activities?
Merry Maids Company
Merry Maids Company began 2013 with a cash and cash equivalents balance of $7,670.
Consolidated statements of cash flows for the years ended December 31, 2014 and
2013, are presented below:
