1) Recognition is the process of formally recording or incorporating an item into the
financial statements
2) If the lease term is 75% or more of the propertys economic life, the lease agreement
should be accounted for as an operating lease.
3) The amount of cash that could be received by selling an asset currently is called
historical cost.
4) The return on sales ratio is a variation of the profit margin ratio.
5) A trial balance is the listing of each account and its balance at a specific point in
time.
6) Inventories and prepaid assets are excluded from the numerator used to compute the
quick ratio.
7) The issuance of stock is reported as a financing activity.
8) It important that the proper amount be assigned to inventory because the amount
assigned to inventory will affect the amount eventually recorded as net sales.
9) Book value indicates the rights that stockholders have, based on recorded values, to
the net assets in the event of liquidation.
10) The concept of conservatism is the capacity of information to make a difference in a
decision.
11) The participating feature of stock allows stockholders to sell stock back to the
company.
12) The acid-test ratio is a stricter test of a company’s ability to pay its current debts as
they are due than the current ratio is.
13) The Discount on Bonds Payable account is shown on the balance sheet as
A.an asset.
B.an expense
C.a long-term liability
D.a contra long-term liability
14) Dali Company has 15,000 shares of stock authorized at January 1. Dali issues 4,500
shares to the stockholders during the year and then the company repurchases 1,500
shares as treasury stock. Based on this information, how many shares are outstanding at
December 31?
A.15,000
B.18,000
C.4,500
D.3,000
15) Gentech Corp. prepared a bank reconciliation as of June 30, 2014. The following
items were identified:
Gentechs adjusted cash balance at June 30, 2014 is
A.$13,800
B.$14,100
C.$14,000
D.$14,300
16) Which of the following costs related to the purchase of production equipment
incurred by Lincoln Company during 2011 would be considered a revenue expenditure?
A.Installation costs for equipment
B.Purchase price of the equipment less the cash discount
C.Repair and maintenance costs during the equipments first year of service
D.Transportation charges to deliver the equipment to Lincoln Company
17) On July 1, 2014, Falcon Company received a $20,000 promissory note for services
from Jordyn Company. The annual interest rate is 5%. Principal and interest are paid in
cash at the maturity date of June 30, 2013.
The effect on Falcons financial statements on July 1, 2014 is as follows
A.Assets increase; owners equity increases
B.Assets decrease and owners equity decreases
C.Assets decrease
D.No net change in assets
18) St. Petersburg Corporation
Use the information obtained from the comparative financial statements included in the
St. Petersburg Corporation’s 2012 annual report that is presented below to answer the
questions that follow. All amounts are in thousands of dollars.
Refer to the financial information for St. Petersburg Corporation.
REQUIRED:
(A) Identify the two components of the return on assets ratio for St. Petersburg. Explain
the change in the return on assets ratio during 2012 as it relates to these components.
(B) During 2012, how much is St. Petersburgs average cost of borrowed capital as
compared to the cost of the money provided by the preferred stockholders? Which is the
more profitable? Explain.
19) An abbreviated version of an account which is useful for analyzing the effects of
business transactions is the
A.chart of accounts
B.double entry system
C.T account
D.trial balance
20) On January 1, 2012, the long-term liability section of Eden Company’s balance
sheet showed a balance of $35,000 in the bonds payable account. On December 31,
2012, the balance in that same account was $20,000. This change would appear on the
statement of cash flows as
A.an outflow of cash of $15,000 in the financing activities category
B.an inflow of cash of $15,000 in the financing activities category
C.an outflow of cash of $15,000 in the investing activities category
D.an inflow of cash of $15,000 in the investing activities category
21) Greeley, Inc. purchased slot machines at the beginning of 2012 for $20,000. The
machines have an estimated residual value of $2,000 and an estimated life of 5 years or
20,000 hours of operation. Greeley is looking at alternative depreciation methods for
the equipment. Calculate the following:
A. Accumulated depreciation at December 31, 2013, using the straight-line depreciation
method.
B. Depreciation expense for 2012 using the units-of-production depreciation method.
Assume that the machines are operated for 5,000 hours in 2012 and 2,000 hours in
2013.
C. Book value of the equipment at December 31, 2012, using the
double-declining-balance depreciation method.
D. What are the advantages of using straight-line depreciation for financial reporting
purposes?
22) Which of the following is an addition to net income when the indirect method is
used?
A.an increase in inventory
B.a loss on sale of equipment
C.a decrease in accounts payable
D.an increase in accounts receivable
23) A company has $200 in cash, $500 in accounts receivable, and $700 in inventory. If
current liabilities are $400, then the quick ratio would be
A.1.75 to 1
B.2.25 to 1
C.3.00 to 1
D.3.50 to 1
24) If a company has both common and preferred shares outstanding and wishes to
calculate book value per share,
A.net assets must be divided by the total number of both classes of stock
B.net assets, less the redemption value of the preferred stock, must be divided by the
number of shares of common stock outstanding
C.stockholders’ equity must be divided by the total number of both classes of stock
D.stockholders’ equity, less the cost of treasury shares held, must be divided by the
number of common shares outstanding
25) The set of items below was identified in preparing a bank reconciliation for Heath
Corp. as of August 31, 2014.
Heath Corp.s balance per books before the reconciliation is
A.$16,410
B.$16,900
C.$17,190
D.$17,310
26) The following set of items describes activities completed by a company in
purchasing and paying for merchandise. For each activity, identify whether or not the
activity adheres to or violates sound internal control procedures.
All documents attached to an invoice approval form are canceled before a check is
signed.
A.Adheres to sound internal control procedures
B.Violates sound internal control procedures
C.Neither strengthens nor violates internal control
27) 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%. What is the carryingvalue of the bonds at the end of
ten years before the final maturity payment is made?
A.$574,540
B.$525,000
C.$500,000
D.$425,460
28) What is substance over form and how does this concept relate to the presentation of
preferred stock?
29) Dickinson Inc. has the following debt outstanding on December 31, 2012:
10% bonds payable, due 12/31/16 $600,000
Discount on bonds payable (70,000) $530,000
On this date, Dickinson retired the entire bond issue by paying cash of $610,000.
REQUIRED:
1> Identify and analyze the effects of the transaction related to the bond retirement.
2> Describe how the bond retirement would be reported on the statement of cash flows
assuming that Dickinson uses the indirect method.
30) What is the difference between book value and market value of stock?
31) Your uncle has just started a business and comes to you with a question. Im
confused. I have a memo included with my bank statement indicating a $45 service
charge for printing new checks. Since youre an accounting major, maybe you can
explain to me why they call it a debit memorandum, even though they are deducting
this amount from my account. When I took Accounting in school, I could have sworn
that a decrease in the Cash account would be a credit and not a debit.
REQUIRED:
In a short paragraph, explain this issue to your uncle.
32) For each of the following sentences 11-14, select the word or group of words that
best completes the statement.
____________________________________ is (are) the expenditure(s) incurred in the
discovery of new knowledge and the translation of research into a design or plan for a
new product.
