Chino Company reported net income of $20,000 for the current year. During the year,
Inventory decreased by $7,000, Accounts Payable decreased by $8,000, Depreciation
Expense was $10,000, and Accounts Receivable increased by $6,500. If the indirect
method is used, what is the net cash provided by operating activities?
A) $10,500
B) $22,500
C) $38,500
D) $51,500
During April, the Grass is Greener Company buys and pays for a six-month supply of
fertilizer in order to receive a bulk discount. The company uses accrual basis
accounting. The cost of fertilizer recorded:
A) immediately as an expense.
B) as a liability, which will later be reduced as the fertilizer used.
C) partially as an expense and partially as a liability.
D) as an asset, which will later be reduced as the fertilizer is used.
On February 16, a company declares a 68¢ dividend to be paid on April 5. There are
950,000 shares of common stock issued and outstanding. The entry recorded by the
company on April 5 includes a debit to:
A) A debit to Dividends Payable and a credit to Cash for $680,000.
B) A debit to Dividends and a credit to Dividends Payable for $646,000.
C) A debit to Dividends Payable and a credit to Cash for $646,000.
D) A debit to Dividends and a credit to Dividends Payable for $680,000.
If certain assets are partially used up during the accounting period, then:
A) nothing is recorded on the financial statements until they are completely used up.
B) a liability account is decreased and an expense is recorded.
C) an asset account is decreased and an expense is recorded.
D) nothing is recorded on the financial statements until they are replaced or
replenished.
After net income has been determined, it is then transferred to the:
A) balance sheet.
B) income statement.
C) statement of cash flows.
D) statement of retained earnings.
Which of the following would be included in cash flows from financing activities?
A) Cash proceeds from sales
B) Cash received from a sale of land
C) Cash dividends paid
D) Cash used to purchases of equipment
Which of the following would not be reported on the income statement?
A) Utilities expense in the amount of a bill received for utilities used during the current
period but unpaid as of the end of the period.
B) Rent expense in the amount of rent paid during the period for use of a storage
facility in the current period.
C) Revenue in the amount of services provided to customers who promise to pay in the
next period.
D) Cost of land purchased with cash for future use.
Use the information above to answer the following question. Income from operations
would be:
A) $6,000.
B) $10,000.
C) $11,000.
D) $12,000.
Countryside Corporation is owed $11,890 from a customer for landscaping. The
account is overdue and the customer is having difficulty paying. Countryside might ask
the customer to sign a note for the unpaid amount to:
A) decrease its net income for tax reporting purposes.
B) strengthen Countryside Corporation’s legal right to be repaid with interest.
C) reduce its tax liability.
D) eliminate any doubts of collection of the amount due.
Which of the following statements about the debit/credit framework is correct?
A) All asset accounts have a normal debit balance with the exception of cash which has
a normal credit balance.
B) The Common Stock account is increased by debits.
C) When payment is made on a liability such as accounts payable, the liability account
is decreased with a debit.
D) The total amount of asset accounts must equal the total amount of liability accounts
minus the total amount of stockholders’ equity accounts.
Lansing Company has a gross profit percentage of 61%, while Arbor Company has a
gross profit percentage of 37%. Which of the following statements is correct?
A) Lansing Company will report a higher net income than Arbor Company.
B) Arbor Company must have a greater sales volume than Lansing Company.
C) Lansing Company is more efficient at controlling selling, general, and administrative
expenses than Arbor Company.
D) Lansing Company and Arbor Company both earn enough on each sale to make a
contribution to their operating costs.
Assume a company uses the indirect method to prepare its statement of cash flows. If
the Supplies account increases and Salaries and Wages Payable decreases during an
accounting period, what does the company do with the changes in these accounts to
calculate cash flows from operating activities?
A) Both are added to net income.
B) The change in Salaries and Wages Payable is added to net income; the change in
Supplies is subtracted from net income.
C) Both are subtracted from net income.
D) The change in Supplies is added to net income; the change in Salaries and Wages
Payable is subtracted from net income.
Use the information above to answer the following question. If the cash balance at the
beginning of the current year was $0, what is the amount of cash at the end of the year?
A) $112,500
B) $425,000
C) $737,500
D) $311,500
Which of the following statements about issued and outstanding stock is correct?
A) Outstanding stock includes all stock issued by a corporation.
B) Issued stock equals the sum of outstanding stock and treasury stock.
C) Issued stock is equal to authorized stock.
D) Outstanding stock includes stock in the hands of investors, as well as treasury stock
in the hands of the corporation.
Each of the following independent companies is missing numerical data.
Required:
Use your knowledge of the financial statement equations and their interrelationships to
fill in the missing amounts.
Which of the following statements is correct?
A) Amortization of intangible assets is always recorded in a contra asset account.
B) Items in a company’s inventory that are not expected to be sold in the next year are
considered long-lived assets.
C) All long-lived intangible assets must be amortized over a period of 40 years or less.
D) Intangible assets with unlimited or indefinite lives are not amortized.