1) A quasi-reorganization is an accounting procedure equivalent to an accounting fresh
start.
2) Contingent liabilities are recorded as a liability only if the loss is considered
substantial and the amount is reasonably determinable.
3) Working capital is considered to be more indicative of the short-term, debt-paying
ability than is the current ratio.
4) The receivables of a company with installment receivables would normally be
considered to be of higher quality than the receivables of a company that did not have
installment receivables.
5) Typically, the largest expense to a manufacturing firm is cost of goods sold.
6) The cash basis recognizes revenue when cash is received and expenses when cash is
paid.
7) Within an individual account, there may be an explanation of both a source and a use
of cash.
8) A summary annual report generally has more nonfinancial pages than financial
pages.
9) Beaver did a study that indicated that failed firms have less cash but more inventory
one year before failure than do similar firms that do not fail.
10) The purpose of a balance sheet is to show the financial condition of an accounting
entity for a period of time.
11) IFRS require a standard format for the balance sheet.
12) The completed-contract method recognizes all income when the contract is
completed, while the percentage-of-completion method recognizes income as work
progresses on the contract. The completed-contract method is the conservative method.
13) The report of income and dividends is the same as a balance sheet for a bank.
14) Liquidity problems with receivables and/or inventory means that the current ratio
needs to be much higher than when there are no such liquidity problems.
15) Increases of profits by cutting the cost of sales would increase the times interest
earned.
16) Equity earnings are usually lower than the cash generated from the investment as
dividends.
17) A review has substantially less scope than an examination in accordance with
generally accepted auditing standards.
18) Which of the following would not be a source of information for personal financial
statements?
a. Broker’s statements
b. Income tax returns
c. Safe deposit box
d. Checkbook
e. All of the answers would be a source of information
19) Which of these statements is false?
a. A ratio can be computed from any pair of numbers
b. Given the large quantity of variables included in financial statements, a very long list
of meaningful ratios can be derived
c. Comparing ratios computed from income statement and balance sheet numbers can
create difficulties due to the timing of the financial statements
d. Financial ratios are usually expressed in percent or times
e. In vertical analysis, a figure from this year’s statement is compared with a base
selected from the prior statement
20) A manufacturing firm will most likely have the heaviest investment in which type
of assets?
a. Cash
b. Inventory
c. Accounts receivable
d. Investments
e. Plant, property, and equipment
21) The Accounting Principles Board issued Opinions between:
a. 1959-1973
b. 1939-1959
c. 1973-present
d. 1966-1976
e. None of the answers are correct
22) The following is the summary quarterly financial data for Communico, Inc.
(unaudited). Communico ends its year on March 31 .
Required:
23) The organization that has by federal law the responsibility to adopt auditing
standards is the:
a. New York Stock Exchange
b. Public Company Accounting Oversight Board
c. Accounting Principles Board
d. Financial Accounting Standards Board
e.
24) Columbia Inc. reported the following financial data in its December 31, 2012,
report to shareholders.
In 2013, the firm reported the following (presented in partial form).
On December 31, 2013, the common stock was split 2 for 1 . The common stock
dividends were declared and paid as follows for the year ended December 31, 2013 .
The year-end market price for 2013 was $18.00.
Required:
For 2013, compute:
a. earnings per share
b. dividends per share based on ending shares
c. the degree of financial leverage
d. percentage of earnings retained
e. dividend payout
f. dividend yield
g. Price/earnings ratio
h. Book value per share
25) Szabo Company computed the following data for 2012 .
The estimated operating cycle for 2012 is:
a. 97.4 days
b. 107.2 days
c. 93.8 days
d. 108.0 days
e. 90.7
26) The Beaver Study indicated the following ratio (ratios) to be the best for forecasting
financial failure:
a. cash flow/total debt
b. net income/total assets
c. total debt/total assets
d. cash flow/total debt and net income/total assets
e. all of the answers are correct
27) Assume that Eugene Motor Corp. uses the following headings on its balance sheet:
a. Current Assets
b. Investments
c. Property, Plant, and Equipment
d. Intangible Assets
e. Current Liabilities
f. Long-Term Liabilities
g. Stockholders’ Equity
Required:
Indicate how each of the following should be best classified. If an item would not
appear on the balance sheet but would appear in a note to the financial statements, use
the letter “N” to indicate this. If an item is neither reported on the balance sheet nor
disclosed as a note, use the letter “X” to indicate this. If the account balance is normally
opposite that of a typical account in that classification, indicate this by placing the letter
in parentheses.
28) Indicate whether each of the following would be under Operating, Investing,
Financing, or whether the item would not appear on the statement of cash flows.
a. Operating
b. Investing
c. Financing
d. Item would not appear
1>Purchase of treasury stock
2>Cash paid to suppliers
3>Net loss
4>Issuance of bonds payable for cash
5>Proceeds from sale of equipment
6>Sale of inventory for cash
7>Issuance of long-term debt for cash
8>Exercise of stock options by officers
9>Payment of cash dividend
10>Collection of accounts receivable
29) Which of the following does not bear on the quality of receivables?
a. Shortening the credit terms
b. Lengthening the credit terms
c. Right of return privilege
d. Lengthening the outstanding period
e. All of the answers bear on the quality of receivables
30) Joseph and John, Inc., had the following balance sheet results for 2012:
Compute the debt-equity ratio.
a. 112.1%
b. 87.6%
c. 67.6%
d. 46.7%
e. none of the answers are correct
31) Suppose you are comparing two firms in the steel industry. One firm is large and
the other is small. Which type of numbers would be most meaningful for statement
analysis?
a. Absolute numbers would be most meaningful for both the large and small firm
b. Absolute numbers would be most meaningful in the large firm; relative numbers
would be most meaningful in the small firm
c. Relative numbers would be most meaningful for the large firm; absolute numbers
would be most meaningful for the small firm
d. Relative numbers would be most meaningful for both the large and small firm,
especially for interfirm comparisons
e. It is not meaningful to compare a large firm with a small firm
32) Valuing assets at their liquidation values is not consistent with:
a. conservatism
b. materiality
c. going concern
d. time period
e. None of the answers are correct
33) Which of these statements is not true?
a. Transactions must be recorded in a journal
b. All transactions could be recorded in the general journal
c. Companies use a number of special journals to record most transactions
d. Special journals are designed to improve record- keeping efficiency
e. The form of the journals are the same from industry to industry
34) Return on assets cannot fall under which of the following circumstances?
a. I
b. II
c. III
d. IV
e. The ratio could fall under all of the answers
35) Required:
36) Which of the following would not likely be a reason for preparing personal
financial statements?
a. Obtaining personal credit
b. Determining the tax basis of marketable securities
c. Income tax planning
d. Retirement planning
e. Estate planning
37) Which of the following statements is not true?
a. A review of financial statements, including the notes, will indicate how conservative
the statements are in regard to accounting policies
b. Accounting policies that result in the slowest reporting of income are the most
conservative
c. When a firm has conservative accounting policies, it is said that its earnings are of
high quality
d. Under inflationary conditions, the least conservative inventory method is fifo
e. Conservative accounting policies always result in the lowest reported income for any
given period of time
38) Which of the following does not represent a problem with financial analysis?
a. Financial statement analysis is an art; it requires judgment decisions on the part of the
analyst
b. Financial analysis can be used to detect apparent liquidity problems
c. There are as many ratios for financial analysis as there are pairs of figures
d. Some industry ratio formulas vary from source to source
e. Adequate detailed disclosure of how the industry ratios are computed is often lacking
39) The following data are presented for Zero Company.
Z score formula:
Z = .012X1 + .014X2 + .033X3 + .006X4 + .010X5
X1 = Working Capital/Total Assets
X2 = Retained Earnings (balance sheet)/Total Assets
X3 = Earnings Before Interest and Taxes/Total Assets
X4 = Market Value of Equity/Book Value of Total Debt
X5 = Sales/Total Assets
Required:
40) Required:
41) Which of the following ratios is rated to be a primary measure of liquidity and the
highest significance rating of the liquidity ratios according to commercial loan
departments?
a. Debt/Equity
b. Current Ratio
c. Degree of Financial Leverage
d. Inventory Turnover in Days
e. Accounts Receivable Turnover in Days
42) Users of financial reports rely on those reports to aid them in making decisions.
Required:
Determine the financial statement where the specified user would most likely find the
answer to the question. Select between the income statement, balance sheet, and
statement of stockholders’ equity.
a. User: Management
Question: How did selling expense compare to that of last year?
b. User: Supplier of inventory
Question: How much does the company currently owe in accounts payable?
c. User: Banker
Question: How much debt does the company have on its books?
d. User: Stockholder
Question: How much did the company pay in dividends this past year?
43) Which of the following is not an objective of the SEC’s integrated disclosure
system?
a. To coordinate the Form 10-K requirements with those of the annual report
b. To lessen the impact of the FASB
c. To expand the management discussion of liquidity, capital resources, and results of
operations
d. To improve the quality of disclosure
e. To standardize information requirements
44) Total deposits times capital is:
a. a type of interest coverage ratio
b. a profit measure
c. a type of debt to equity ratio
d. similar to net working capital
e. a type of asset to liability ratio
45) A fixed charge coverage:
a. is a balance sheet indication of debt carrying ability
b. is an income statement indication of debt carrying ability
c. is a liquidity ratio
d. frequently includes research and development
e. computation is standard from firm to firm
46) The following financial information is excerpted from the 2012 annual report of
Retail Products, Inc.
Required:
a. For each year compute:
1> Times interest earned
2> Debt ratio
3> Debt/equity ratio
4> Debt to tangible net worth ratio
b. Comment on the results.
c. Does a times interest earned ratio of less than 1 to 1 mean that the firm cannot pay its
interest expense?
47) Required:
State the accounting principle or assumption that is most applicable.
a. The company uses the same accounting principle from period to period.
b. Financial statements are prepared periodically.
c. Subscriptions paid in advance are recorded as unearned subscription income.
d. All significant financial transactions are reported.
e. Personal transactions of the stockholders are not recorded on the company’s financial
statements.
f. Land is recorded at $10,000, which was the amount paid. Current value of the land is
$25,000.
g. The accountants determine that the company is in danger of going bankrupt and
therefore refuse to certify the statements as prepared according to generally accepted
accounting principles.
h. The company loses a major customer and does not record a loss.
48) Danner Company reported the following amounts in its 2012 annual report.
Required:
Solve for dividends declared and paid in 2010 and prepare a statement of retained
earnings for Danner Company for the year ended December 31, 2010 . (Include the
proper heading.)
49) Required:
Using the information given below, prepare a classified balance sheet in good form for
Babic Company at December 31, 2012 .
50) The following data are presented for Hillsdale Company.
Required:
Compute the approximate income for 2012 if inventory had been valued at approximate
current cost.
51) Listed below is information related to several adjusting entry situations. Assume
that the accounting year ends on December 31 .
Required:
Record the original entries and the adjusting entries using T-accounts.
52) An item of equipment acquired on January 1, at a cost of $100,000, has an
estimated use of 50,000 hours. During the first three years, the equipment was used
11,000, 8,000, and 7,000 hours, respectively. The equipment has an estimated life of
five years and an estimated salvage of $10,000.
Required:
Determine the depreciation for each of the three years, using the straight-line method,
the double declining-balance method, the sum-of-the-years’-digits method, and the
units-of-production method.
53) Listed below are several accounts or statement categories.
Required:
In the space provided, indicate the financial statement as balance sheet (BS), income
statement (IS), or statement of cash flows (SCF).
54) Required:
Indicate in days, the Form 10-K deadline for each category of filers.
Case 1: Large accelerated filer ($700 million or more market value)
Case 2: Accelerated filer ($75 million or more and less than $700 million market value)
Case 3: Non-accelerated filer (less than $75 million market value)
55) The following is a partial listing of accounts for Euisara, Inc., for the year ended
December 31, 2012 .
Required:
Prepare a balance sheet in good format for December 31, 2012 .
56) Consider the rules for increasing and decreasing the various types of accounts, as
listed below.
Required:
Indicate increase or decrease following the debit and credit rules for the type of
account.
57) The following data relate to Chaney Company for the current year; year end being
December 31 .
20,000 shares of common stock outstanding at the beginning of the year
July 1issued 5,000 shares of common stock
October 1declared 2-for-1 stock split
$4,000 in preferred dividends paid during the past year
$80,000 net income
Average market price on common stock during the
past year, $18
Year-end market price on common stock, $20
Required:
Compute the basic earnings per share.
