1) The record in which transactions are initially recorded in chronological order as they
occur is a(an)
A.Account
B.General Journal
C.General Ledger
D.Chart of Accounts
2) Which of the following terms best describes a distribution of the net income of a
business to its owners?
A.Revenue
B.Dividends
C.Earnings
D.Monetary unit
3) The solution to this problem requires time value of money calculations. Reference to
Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
If Garrett has $5,000 per year to invest for 10 years and wants to accumulate $87,745 at
the end of that time, he must find an investment that is earning at a rate of
A.15%
B.12%
C.11%
D.6%
4) In calculating deferred income taxes, ___________________________________
occur when an item is included in the tax calculation and is never included for financial
accounting purposes, or vice versa.
5) Grover, Inc.
Grover, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual
value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation. The
crane was purchased on January 1, 2013 and was used 2,700 hours in 2013 and 2,600
hours in 2014.
Refer to the information about Grover, Inc.
If Grover uses the straight-line method, what is the book value at December 31, 2015?
A.$46,875
B.$51,875
C.$62,500
D.$67,500
6) Garrison Industries
Garrison Industries began operations on January 2, 2014, with an investment of $50,000
by each of its two stockholders. Net income for its first year of business was $240,000.
Garrison Industries paid a total of $100,000 in dividends to its stockholders during the
year.
Read the information about Garrison Industries. If the companys revenues were
$500,000 for the year ended December 31, 2014, how much were total expenses?
A.$160,000
B.$260,000
C.$640,000
D.$740,000
7) Which of the following is true regarding the relationship of the current ratio to the
quick ratio?
A.The current ratio is based on a more conservative measure of liquidity.
B.Both focus on the relationship between part or all of the firm’s current assets and all
of its current liabilities.
C.Both focus on the relationship between all of the firm’s current assets and part or all
of its current liabilities.
D.For a company in the service industry, the current ratio and quick ratio will be
significantly different.
8) All of the following statements are true except:
A.The threshold for recording items as liabilities is a lower under IFRS than under U.S.
GAAP
B.The threshold for recording items as liabilities is a lower under U.S. GAAP than
under IFRS
C.IFRS requires a liability to be recorded as a present value amount
D.Under U.S. GAAP, a contingent item should be recorded as a liability if the loss or
outflow is probable and can be reasonably estimated
9) Information that is material means that an error or alternative method of handling a
transaction
A.Would possibly affect the judgment of someone relying on the financial statements
B.Would not affect the decisions of users
C.Might cause a company to understate its earnings for the accounting period
D.Could increase the profitability of a company
10) At the year end inventory count, if goods in transit are shipped FOB shipping point,
they should be included in the inventory count of
A.The seller
B.The buyer
C.Both the seller and the buyer
D.Neither the seller no the buyer
11) Sawaddee Enterprises began the year with total assets of $450,000 and total
liabilities of $230,000. If Sawaddees total assets increased by $80,000 and its total
liabilities increased by $57,000 during the year, what is the amount of Sawaddees
owners equity at the end of the year?
A.$197,000
B.$543,000
C.$243,000
D.$220,000
12) Your bookkeeper is off for the day and you are trying to figure out what her last
entry in the journal could be for. Unfortunately, she only recorded the debit side of the
transaction as $4,400 to Accounts Payable. It is possible that this debit could correspond
to:
A.A purchase of equipment costing $4,400 on credit
B.A payment of $4,400 to a supplier to settle a balance due
C.A $4,400 sale to a customer
D.A $4,400 issuance of the companys capital stock
13) Which of the following is considered a liquidity analysis tool?
A.gross profit ratio
B.acid-test ratio
C.dividend yield ratio
D.return on assets ratio
14) When one company purchases less than 50% of equity securities in a second
company, which of the following statements is true?
A.The purchaser is referred to as the parent
B.The purchaser is referred to as the subsidiary
C.The company whose securities are purchased is the subsidiary
D.The company whose securities are purchased is the investee
15) The Premium on Bonds Payable account is shown on the balance sheet as
A.a contra asset
B.a reduction of an expense
C.an addition to a long-term liability
D.a subtraction from a long-term liability
16) The following unadjusted amounts were taken from Ruben Gifts’ accounting
records at December 31, 2014:
17) Which one of the following is not a recognized method of recognizing assets as
expenses in a particular accounting period?
A.Customers account balances in accounts receivable are assigned to expense in the
period in which each customer pays
B.Prepaid insurance is assigned to expense as the insurance expires
C.A building is depreciated and its cost is assigned to the current and future accounting
periods in which the building is expected to be used
D.Merchandise inventory is assigned to cost of goods sold in the period the goods are
sold
18) Which of the following organizations is responsible for setting auditing standards
followed by public accounting firms in conducting independent audits of financial
statements?
A.Financial Accounting Standards Board (FASB)
B.Securities and Exchange Commission (SEC)
C.Public Company Accounting Oversight Board (PCAOB)
D.International Accounting Standards Board (IASB)
19) A company has $8,000 in cash, $9,250 in accounts receivable, and $19,500 in
inventory. If current liabilities are $14,350, then the quick ratio would be
A.5.0 to 1
B.2.6 to 1
C.2.0 to 1
D.1.2 to 1
20) Presented below are selected data from the financial statements of Ripple Company
for 2012, 2011, and 2010.
21) What information is provided in an annual report in addition to the financial
statements?
22) When using the indirect cash flow method, a decrease in accounts receivable or
notes
receivable must be _________ to net income to arrive at the increase or decrease in
cash flows.
23) The Stockholders’ Equity section of the balance sheet for High Five Design
Company appeared as follows before its recent stock dividend:
High Five declared a 10% stock dividend when the market price per share was $7. In
the space provided, write in the amounts of each of the components of the stockholders’
equity section, after the stock dividend was distributed.
24) Share, Inc.
The following data is available for one of the products sold by Share, Inc., which uses a
perpetual inventory system.
Refer to the data for Share, Inc.
Required:
1> If the FIFO method is used, how much is ending inventory on May 30?
2> How does this differ from the amount calculated using a periodic system and FIFO?
25) The 2014 annual report of Shimmer Products, Inc. reported the following amounts
(in millions of dollars):
Net sales, for the year ended May 31, 2014 $15,111.2
Receivables, May 31, 2014 989.4
Receivables, May 31, 2013 1,011.6
REQUIRED:
1> Compute Shimmers accounts receivable turnover ratio for the year ended May 31,
2014. (Assume that all sales are on credit.)
2> What is the average collection period in days for an account receivable? Explain
your answer.
3> Shimmers main products are inexpensive bubble-packed lipsticks and lip glosses.
Give some examples of the types of customers you would expect Shimmer to have. Do
you think the average collection period for sales to these customers is reasonable? What
other information do you need to fully answer that question?
26) Why does the accrual basis of accounting require adjustments, while the cash basis
does not?
27) The bookkeeper for B. Sebastian & Company, Inc. prepared the following journal
entries and posted the entries to the general ledger as indicated in the T accounts
presented. Assume that the dollar amounts and the descriptions of the entries are
correct.
Journal entries:
See the journal entries and T accounts for B. Sebastian & Company.
REQUIRED: If you assume that all journal entries have been posted correctly, use the
above information to answer these questions:
(1) Identify the transactions that the bookkeeper recorded incorrectly in the general
journal.
(2) Prepare the journal entry that the bookkeeper should have made for each transaction
that you have identified as being made incorrectly.
(3) For each journal entry recorded incorrectly, indicate the impact of the error on the
accounting equation. For your answer, indicate whether each element of the accounting
equation, Assets, Liabilities, and Stockholders Equity, has been “Understated” or
“Overstated” or there has been “No Effect.”
28) ____________________ is the practice of using the least optimistic estimate when
two estimates of amounts are about equally likely
29) Mountainside Kafe Corporation
The following is the consolidated statements of income for Mountainside Kafe
Corporation for the years ending December 31, 2013 and 2014
Refer to the consolidated statements of income for Mountainside Kafe Corporation.
Required:
(1) Notice that Mountainside Kafe reported Provision for income taxes. What type of
account is this? What adjustment would have been made if this accrual were necessary
at December 31, 2014?
(2) Mountainside Kafe reported $3.1 million and $2.8 million of accrued interest in the
liability section of its balance sheet at December 31, 2014 and 2013, respectively. How
much cash did it pay during 2014 for interest?
(3) Is Mountainside Kafe income statement an “interim statement”? Explain.