Refer to Lakeshore Industries. What is the effect of a 2-for-1 stock split if the market
value of the common stock is $20 per share at the time the stock split is declared?
a. A stock split has no impact on any of the stockholders’ equity account balances.
b. Total stockholders’ equity increases $750,000.
c. Cash increases $750,000.
d. $1,500,000 of retained earnings is transferred to the capital stock accounts.
Cash flows from acquiring and disposing of long-term assets are classified as
a. operating activities.
b. investing activities.
c. financing activities.
d. purchasing activities.
Refer to Lakeshore Industries. What is the effect of a 10% stock dividend if the market
price of the common stock is $30 per share when the stock dividend is declared?
a. A stock dividend has no impact on any of the stockholders’ equity accounts.
b. Total stockholders’ equity increases $75,000.
c. Cash increases $300,000.
d. $225,000 of retained earnings is transferred to the capital stock accounts.
A manufacturing company’s weekly payroll is $80,000 for a 5-day work week
beginning each Monday and ending each Friday. The last time salaries and wages were
recorded was Friday, December 26. What adjustment is needed on December 31, the
last day of the company’s fiscal period?
a. Increase wages expense by $48,000.
b. Decrease wages payable by $48,000.
c. Decrease cash by $48,000.
d. No adjustment is necessary since the next payday will not occur until the following
year.
The statement of cash flows
a. along with the balance sheet and income statement is prepared on the accrual basis.
b. along with the balance sheet and statement of retained earnings is dated as of a
specific year end date.
c. along with the balance sheet is used to analyze liquidity.
d. ties the balance sheet to the statement of retained earnings.
Which of the following ratios is least useful in evaluating a company’s ability to pay its
current obligations when they come due?
a. current ratio
b. quick ratio
c. cash ratio
d. return on assets ratio
Which of the following adjusting entries involves the cash account?
a. Deferred Revenues
b. Accrued Expenses
c. Deferred Liabilities
d. None of these.
The following information comes from a balance sheet at December 31, 2015:
Common Stock, $1 par, 1,000,000 shares authorized $ 160,000
Paid-in Capital in Excess of Par–Common Stock 120,000
Total Capital Stock 280,000
Retained Earnings 80,000
Less: Treasury Stock (4,000 common shares at cost) <40,000>
Total Stockholders’ Equity $320,000
Answer the following questions:
A) How many shares of common stock are issued?
B) How many shares of common stock are outstanding?
C) Assuming that all shares were sold at the same price, what was the original
selling price per share?
D) If the company declares a 2-for-1 stock split on December 31, 2015, describe
the resulting change, if any, in the balances in capital stock accounts and the par value
of the common stock.
On January 01, 2013, Kale Farms purchased a tractor for $20,000. The company signed
a 6% installment note to pay off the debt with 48 monthly payments over four years.
Each payment is $469.70. How much interest must be paid over the life of the loan?
a. $4,800.00
b. $2,545.60
c. $1,200.00
d. $0 since all of the interest was paid at the time the loan was recorded.
A local medical clinic operates five days per week with a daily payroll of $100,000.
Employees are paid every Tuesday for the prior week’s work (Monday through Friday).
The last day of the month is Tuesday, April 30. What effect does the accrual at April 30
have on the clinic’s net income?
a. Increase by $200,000
b. Decrease by $300,000
c. Decrease by $200,000
d. Increase by $300,000
Refer to Fernbank Farms. When calculating depreciation for 2013, the company’s
accountant should
a. add the $30,000 to the book value at December 31, 2012, and then allocate the
revised depreciation basis over the remaining adjusted useful life of 5 years.
b. report the effect of the change in life as an expense on the income statement in 2011.
c. ignore the change in life on the original cost of $100,000 and depreciate the
additional $30,000 cost separately over its useful life.
d. expense the $30,000 and depreciate the original cost of $100,000 over its revised
estimated total live of 7 years.
Which of the following procedures is notpart of the preparation of a bank reconciliation
for a checking account?
a. Comparing deposits listed on the bank statement to the cash account to identify
deposits in transit
b. Comparing canceled checks returned with the bank statement to the cash account to
identify outstanding checks
c. Looking for bank services charges and other items on the bank statement that have
not yet been included in the cash account.
d. Reversing all the transactions recorded on the company’s records that do not yet
appear on the bank statement.
The purchase of office equipment on credit has what effect on the accounting equation?
a. assets and stockholders’ equity decrease
b. liabilities increase and stockholders’ equity decreases
c. assets and liabilities increase
d. assets and liabilities decrease
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 Statement Statement of Cash Flows
a. $250,000 $150,000
b. $250,000 $250,000
c. $150,000 $150,000
d. $150,000 $250,000
Determine the following amounts for Backus Tractor Sales:
A) The total revenues for 2013.
B) The total expenses for 2013.
C) What is the purpose of the Income Statement?
D) Is this company profitable? Explain your answer.
E) Is this the first year of operations for this company? Explain your answer.
Refer to the Ace Computing Company. The amount of bad debts expense recognized in
the 2013 income statement will be:
a. $1,652
b. $ 652
c. $ 142
d. $1,450
The quick ratio differs from the current ratio in that it
a. represents the amount of cash on hand instead of the total current assets.
b. excludes inventories and accounts receivable from the numerator of the fraction
because of obsolescence and possible collection problems.
c. is a stricter measure of a company’s ability to pay its current obligations.
d. signals the need to liquidate short-term investments when it drops below 2.0.
Which of the following would appear only in the footnotes accompanying the financial
statements?
a. A probable loss in the amount of $4 million from a pending lawsuit.
b. A loss that is likely to occur in the amount of $4 million related to a pending lawsuit.
c. A probable loss from a pending lawsuit, the amount of which is not yet determinable.
d. A liability resulting from a recent lawsuit settlement.
Heart & Hands Clinic began business as a corporation in 2013. Several transactions
which occurred early in 2013 are described below. Record each transaction in proper
journal form, excluding written explanations.
A) Jan. 23, 2013 Stockholders invested $70,000 in the business and received
shares of common stock as evidence of ownership.
B) Fe
b. 1, 2013 Rent of $1,600 was paid for the month of February.
C) Fe
b. 7, 2013 Equipment with a cost of $3,000 was purchased on credit;
payment is due in 30 days.
D) Fe
b. 14, 2013 Fees totaling $5,400 were billed to patients; $2,900 was
collected immediately and the balance of $2,500 is due within 30 days.
E) Fe
b. 18, 2013 Full payment was made for the equipment purchased on Fe
b. 7th.
F) Fe
b. 22, 2013 $1,900 was collected from patients with balances due from Fe
b. 14th.
G) Fe
b. 28, 2013 Employee salaries of $3,300 were paid.
Metz Vets
The company’s accountant prepared this reminder for his intern:
Cash = CL + LTL + CS + RE -NCCA -LTA
where: CL = Current liabilities
LTL = Long-term liabilities
CS = Common stock
RE = Retained earnings
NCCA = Noncash current assets
LTA = Long-term assets
Refer to Metz Vets. Which of the following activities results in a cash outflow?
a. Decreases in noncash current assets (NCCA)
b. Decreases in long-term assets (LTA)
c. Increases in long-term liabilities (LTL)
d. Decreases in retained earnings (RE)
Refer to Rio Imports. Which of the following statements is true concerning the
company’s debt management activities?
a. The company has a smaller percentage of capital from stockholders at the end of
2015 than at the end of 2014.
b. The company relied more on creditors for financing during 2015 than in 2014.
c. The company improved its debt-to-equity ratio.
d. Relative to 2014, the company is in a weaker position at the end of 2015 to finance
capital expenditures from cash flow generated by operating activities.
Which one of the following equations represents the Statement of Retained Earnings
activity?
a. Beginning retained earnings + net income + dividends = ending retained earnings
b. Beginning retained earnings + cash inflows – cash outflows = ending retained
earnings
c. Beginning retained earnings + dividends – net income = ending retained earnings
d. Beginning retained earnings + net income – dividends = ending retained earnings
Suppose a company reports the following information at December 31, 2013:
What is the company’s Gross Profit?
a. $ 6,100,000
b. $ 5,500,000
c. $ 6,500,000
d. $12,000,000
Refer to Rio Imports. The dividend payout ratio for 2015 is
a. 16.7%.
b. 18.5%.
c. 25.0%.
d. 27.8%.
In the following information from the 2013 balance sheet of Kayla Enterprises, all
amounts have been rounded to millions of dollars.
May 31, 2013 May 31, 2012
Raw materials $25.8 $52.1
Work-in-process 44.8 34.7
Finished goods 1,132.70 1,303.8
Inventories at FIFO 1,203.30 1,390.6
Adjustment to LIFO 5.6 21.9
Answer the following questions:
A) Describe what costs are included in each of the three types of inventories listed
for Kayla Enterprises.
B) Even though a footnote describing the inventory costing method(s) used by the
company is not provided here, what can you conclude about the inventory costing
methods(s) used by the company?
C) Explain what the amount “Adjustment to LIFO” represents. What effect does
this adjustment have on the company’s net earnings in 2012 and 2013?
What will be the increase in the Paid-in capital in excess of par account if a corporation
issues 20,000 shares of $1.00 par common stock for $6 per share?
a. $140,000
b. $120,000
c. $100,000
d. $20,000
Which of the following statements about bond accounting under the effective interest
method is correct?
a. The cash interest paid is calculated as the bond face value the yield rate.
b. The interest expense is calculated as the carrying value the yield rate.
c. The difference between the cash interest paid and the interest expense is added to the
carrying value of bonds sold at a premium.
d. The difference between the interest expense and the interest paid is deducted from the
carrying value of bonds sold at a discount.
The following amounts were taken from the accounting records at December 31, 2013:
A) Calculate Total Assets.
B) Calculate Net Income for 2013.
C) Calculate Total Stockholders’ Equity at the end of 2013.
D) Calculate Total Stockholders’ Equity at the beginning of 2013 assuming there were
no stock transactions during the year.
Georgia’s Salon
The salon sells $50,000 of gift cards in May 2013. These gift cards may be used
anytime before their expiration on May 31, 2014.
Refer to Georgia’s Salon. Which of the following is the correct journal entry to record
the sale of the gift cards?
a. Cash 50,000
Accounts Payable 50,000
b. Cash 50,000
Unearned Sales Revenue 50,000
c. Cash 50,000
Sales Revenue 50,000
d. Cash 50,000
Prepaid Sales Revenue 50,000
If a company has current assets of $2,100,000 and current liabilities of $500,000,
calculate its working capital.
a. $2,100,000
b. $2,600,000
c. $1,600,000
d. $ 500,000
The accounting life of intangible assets is determined by
a. their legal lives.
b. their useful lives.
c. their legal lives or useful lives, whichever is shorter.
d. the tax life mandated by the IRS.
Lasik Vision, Inc. began business on June 1, 2014. The corporate charter authorized
issuance of 1,000 shares of no-par common stock and 4,000 shares of $6 par, 6%
cumulative preferred stock. As of the beginning of 2015, 200 shares of common stock
had been issued and none of the preferred stock had been issued. If the company issues
400 shares of common stock on March 1, 2015 for $10 per share, the journal entry
would include a
a. $4,000 credit to paid-in capital in excess par–common stock.
b. $4,000 credit to common stock.
c. $2,400 credit to paid-in capital in excess of par–common stock.
d. $2,400 credit to common stock.
Failure to record amounts earned for services provided to customers but notyet paid
results in which of the following?
a. Net income being overstated.
b. No effect on total assets.
c. Stockholders’ equity being overstated.
d. Total assets being understated.
A(n) ____________________ revenue results when cash is received before it is earned
and reported on the income statement.
Because the four financial statements are interrelated (i.e., there is a natural progression
from one financial statement to another), the balance sheet should be prepared first.
The ____________________ is a list of all the accounts used by an entity.
The ____________________ principle says that assets of a company are initially
recorded at their original cost.
Comparing two companies in the same industry should cause no problem since both
companies are required to use the same accounting principles.
Obligations that extend beyond one year are referred to as ____________________.
If a company performed services for credit, then the debit side of the journal entry
would be to Accounts Payable and the credit would be to Service Revenue.
Deeter Company, which sells auto parts, uses a perpetual inventory system. Identify the
effects on the accounting equation. (Choices may be used more than once.)
a. Increase in assets and liabilities
b. Decrease in assets and liabilities
c. Increase in assets and stockholders’ equity
d. Decrease in assets and stockholders’ equity
e. Increase in liabilities and decrease in stockholders’ equity
f. Decrease in liabilities and increase in stockholders’ equity
11. Sold merchandise on credit to customers.
12. Recorded cash sales for the day.
13. Gave a customer a cash refund.
14. Collected cash from a customer for payment within the discount period.
15. Granted a customer a credit on its balance due for goods that were returned.
16. Purchased merchandise on credit.
17. Paid for merchandise outside of the discount period.
____________________ analysis compares a single corporation across time.
The Statement of Cash Flows, like the Income Statement, reports only operating
activities and other activities of a company.
When the yield rate of interest is greater than the stated rate, then the bond will be
issued at a discount.
Credits are always on the ____________________ side of a T-account.
The accountant must make journal entries for all items in the bank section of the bank
reconciliation.
Refer to Fabulous Creations. Determine the book value of the company’s property, plant
and equipment at December 31, 2013 and 2012.
What types of transaction(s) could have caused the change in book value of property,
plant, and equipment during 2013?
Refer to Goldberg Financials. Should the company record a liability in 2012 for this
litigation? Why or why not?
A bond issue price is the present value of the cash flows that the bond will produce.
Gibraltar, Inc.
A partial balance sheet for the company is provided below. Assume that all of the
account balances on the balance sheet are normal balances.
Gibraltar, Inc.
Partial Balance Sheet (in millions)
Assets (in order of liquidity): Dec. 31, 2013 Dec. 31, 2012
Cash $1,780 $1,649
Marketable securities 1,000 750
Accounts receivable 2,644 2,700
Inventories 3,010 2,950
Prepaid rent 500 500
Supplies 494 76
Total Current Assets 9,428 8,625
Liabilities (in order of magnitude):
Long-term debt 14,465 15,001
Other non-current liabilities 4,421 3,148
Long-term income taxes payable 3,504 3,543
Accounts payable 2,556 2,468
Other current liabilities 2,066 1,738
Accrued compensation and benefits 1,538 1,082
Short-term borrowing 1,200 1,126
Estimated warranty liability 793 928
Income taxes payable 658 1,142
1. Refer to the partial balance sheet presented above for Gibraltar, Inc. Compute the
total current liabilities for December 31, 2013, and December 31, 2012.
Refer to the partial balance sheet presented above for Gibraltar, Inc. Compute the total
current liabilities for December 31, 2013, and December 31, 2012.
Inventory is more liquid than accounts receivable because receivables must be collected
and some customers may not be willing to pay, while inventory need only be sold in a
retail store.