Under the direct method, dividends from investments are included when calculating
cash flows from operations.
Failure to adjust for accrued revenue will understate stockholders’ equity.
Historically, periodic inventory systems have been used for low value, high volume
items, whereas the perpetual inventory system has been used for high value, low
volume items.
The issuance of long-term debt results in a cash outflow as reported in the financing
section.
As the market value of available-for-sale securities changes, companies report the gains
from increases in market value and losses from decreases in market value on the
income statement.
Trading securities include both debt and equity securities.
Generally bonds are called at an amount above par, referred to as a call discount.
The spreading of the discount over the life of the bonds as interest expense is called
discount amortization.
The U.S. tax law provides incentives for companies to make payments into a
postretirement benefit fund that is separate from the company’s assets and controlled by
a trustee.
For a magazine company, subscription revenues are recognized when cash is received
from the customer before delivery of the magazine.
Receipt of loan repayments is a financing activity.
Under the equity method, the investor recognizes revenue based upon an appropriate
share of the investee’s net income.
Which financial ratio is required to be reported on the face of the income statement of
publicly-held corporations?
A) Earnings per share
B) Price-earnings ratio
C) Dividend-yield ratio
D) Dividend payout ratio
E) Inventory turnover ratio
Under the effective-interest method of amortization, the amount of discount amortized
each interest period is equal to
A) the amount of interest expense plus the cash paid for interest.
B) the amount of interest expense less the cash paid for interest.
C) the total discount divided by the number of interest payments to be made.
D) the total amount of interest expense divided by the number of interest payments to
be made.
E) the amount of the decrease from the cash payment.
Consider each event concerning intangible assets independently:
a. Moonlit Corporation purchased a patent for $476,000 on January 1, 20X3. The
company paid cash. The patent has a remaining legal life of 14 years. Due to anticipated
technological change, it is expected that the patent will be useless in 5 years.
b. In 20X3, Beaumont Company spent $3,500,000 cash in research and development
costs. However, the research did not result in a patent. Beaumont Company acquired a
patent from another company for $1,000,000 on January 1, 20X3. The company paid
cash. The acquired patent is expected to last 8 years.
Prepare all journal entries necessitated by events in a. and b. above during the year
20X3.
Eleston Printing acquired the following short-term equity securities on January 1,
2X12:
The quarter-end prices per share were as follows:
Eleston Printing considers Color, Inc. stock to be a trading security and Black, Inc. and
White, Inc. to be available-for-sale securities.
What will be the net gain or loss reported on the income statement of Eleston Printing
for the 3 month period ending September 30, 2X12?
A) $(400)
B) $250
C) $-0-
D) $(250)
E) $400
Useful Organizing began operations on January 1, 20X3, when the owners invested
$80,000 cash in the company. Also on January 1, the company paid for a $30,000
machine. The machine has a useful life of 4 years and a $2,000 residual value. During
its first year of operations, the company had sales of $96,000 and operating expenses
except depreciation of $67,000. All sales were cash sales and all non-depreciation
operating expenses were paid in cash. Useful Organizing has a 30% tax rate and pays
all taxes on December 31. What is the net cash provided by operating activities after
taxes for 20X3, if Useful Organizing uses straight-line depreciation?
A) $ 6,600
B) $15,050
C) $15,400
D) $22,400
E) $22,550
The entry to close expense accounts involves
A) a credit to Income Summary and debits to all the revenue accounts.
B) debits to all the revenue accounts and a credit to Income Summary.
C) credits to all the expense accounts and a debit to Income Summary.
D) a debit to Retained Earnings and a credit to Income Summary.
E) a debit to Income Summary and a credit to Retained Earnings.
The estimation of bad debts expense, using the allowance method, has what effect on
the balance sheet?
A) It has no effect on assets and decreases stockholders’ equity.
B) It decreases assets and decreases stockholders’ equity.
C) It increases assets and increases stockholders’ equity.
D) It decreases assets and increases stockholders’ equity.
E) It increases assets and decreases stockholders’ equity.
Accounting for postretirement benefits requires
A) no liability on the balance sheet.
B) no journal entries because the benefits are to be paid in the future.
C) the recognition of a liability equal to the present value of the expected payments for
other postretirement benefits.
D) the recognition of a liability equal to the future value of the expected payments for
other postretirement benefits.
E) none of the above
If the book value of net assets of a subsidiary are less than the fair market value of net
assets of the subsidiary at the time the subsidiary is acquired, which of the following
procedures is incorrect with respect to the subsidiary, parent, and consolidated
accounts?
A) Only on consolidation are the book values of the subsidiary accounts written up to
their revised fair
market values.
B) The parent records the difference between the subsidiary’s book value of net assets
and its fair market
value of net assets as a separate asset on the parent’s balance sheet.
C) The subsidiary continues as a going concern with its accounts valued at the lower
book value
amounts.
D) The parent records the acquisition of the subsidiary at its acquisition cost.
E) Any part of the acquisition price that cannot be attributed to the revised fair market
value of the
subsidiary’s assets and liabilities will be considered goodwill on the consolidated
balance sheet.
Which of the following is not an example of a source document?
A) Check stubs
B) Sales receipts
C) Purchase orders
D) Minutes of the board of directors
E) The Wall Street Journal
All of the following would be included in a company’s operating activities except
A) dividend payments.
B) collections from customers.
C) cash payments to suppliers.
D) income tax payments.
E) interest and dividends collected.
All of the following would be included in a company’s investing activities except
A) taking out a loan from the bank.
B) purchase of equipment.
C) sale of another company’s stock.
D) making loans to another company.
E) sale of a building.
Which of the following is the correct order in the recording process?
A) Journalize and post adjustments, unadjusted trial balance, adjusted trial balance,
ledger, financial statements
B) Ledger, journalize and post adjustments, unadjusted trial balance, adjusted trial
balance, financial statements
C) Ledger, unadjusted trial balance, journalize and post adjustments, adjusted trial
balance, and financial statements
D) Unadjusted trial balance, journalize and post adjustments, ledger, adjusted trial
balance, financial statements
E) Journalize and post adjustments, adjusted trial balance, ledger, unadjusted trial
balance, financial statements
The adjustment for revenue received in advance that has now been earned involves a
debit to
A) Cash and a credit to Prepaid Revenue.
B) Unearned Revenue and a credit to Revenue.
C) Prepaid Revenue and a credit to Unearned Revenue.
D) Revenue and a credit to Unearned Revenue.
E) Prepaid Revenue and a credit to Cash.
The Computing Company’s balance sheet on September 30, 2012 follows:
Total Assets $75,000
Total liabilities $20,000
Paid-in-Capital $25,000
Retained Earnings $30,000
During the month of October, the Computing Company recognized revenues of
$52,000, cost of goods sold of $39,000, depreciation expense of $3,000, the payment of
November and December’s rent totaling $2,000, and salary expense of $6,000. The
retained earnings balance at October 31, 2012, will be
A) $33,000.
B) $54,000.
C) $32,000.
D) $56,000.
E) $36,000.
If the level of ownership changes such that the investor must change the accounting
method to report the investment, the investor should
A) continue to use the same method to abide by the consistency principle
B) continue to use the same method, but change the book value of the investment going
forward
C) discontinue the old method and sell the investment
D) discontinue the old method and adopt the new method going forward
E) none of the above