1) The primary objective of external auditors is to provide assurance to stockholders
and other users that the statements are fairly presented.
2) Estimated liability for product warranties to be paid in the future is a current liability.
3) A decrease in retained earnings indicates that a cash dividend has been paid.
4) The statement of stockholders’ equity is useful in evaluating a company’s liquidity.
5) If accounts receivable turnover is faster, this means that fewer days are required to
collect receivables.
6) A balance sheet provides information at one specific point in time, while the other
basic financial statements provide information on activities that occur over a period of
time.
7) Most merchandisers receive checks and currency from customers in two ways: (1)
cash
received over the counter from cash sales and (2) cash received in the mail from credit
sales.
8) The payee of a note recognizes a note receivable on the balance sheet and interest
revenue on its income statement.
9) No single explanation can be given for the divergence of accounting standards.
10) Because the allowance method results in better matching, accounting standards
require its use rather than the direct write-off method, unless bad debts are immaterial.
11) A company with a capital structure that shifts more toward debt financing will
appear to be in a stronger position to pay interest and any principal amount that may be
maturing by using its cash flows generated by operating activities.
12) The balance of the $0.50 par value Common Stock account for Murdock Company
was $60,000 before its recent 3-for-1 stock split. The market price of the stock was $30
per share before the stock split. What occurred as a result of the stock split?
A.The balance in the Retained Earnings account decreased
B.The balance in the Common Stock account declined to $20,000
C.The market price of the stock was not affected
D.The market price of the stock dropped to approximately $10 per share
13) Krenshaw Rentals
Use the five transactions for Krenshaw Rentals described below to answer the
question(s) that follow(s).
Refer to the transactions for Krenshaw Rentals.
Based on the above transactions, how much is still owed to Krenshaw on October 31
from its customers?
A.$ -0-
B.$ 250
C.$ 500
D.$ 750
14) With the effective interest method of amortization, the amortization of bond
discount results in a(n)
A.increase in stockholders equity
B.decrease of stockholders equity
C.increase in interest expense
D.decrease in interest expense
15) Garden Company began business on January 1, 2012. The corporate charter
authorized issuance of 5,000 shares of $1 par value common stock, and 4,000 shares of
$8 par value, 6% cumulative preferred stock. None of the preferred shares were issued.
On July 1, Garden issued 1,000 shares of common stock in exchange for two years rent
on a retail location. The cash rental price is $2,400 per month and the rental period
begins on July 1. The correct entry to record the July 1 transaction will
A.Increase Cash, $57,600; Decrease Prepaid Rent, $57,600
B.Increase Prepaid Rent, $57,600; Increase Common Stock, $57,600
C.Increase Prepaid Rent, $57,600; Increase Common Stock, $1,000; Increase
Additional Paid-in Capital–Common, $56,600
D.Increase Prepaid Rent, $57,600; Increase Common Stock, $5,000; Increase
Additional Paid-in Capital–Common, $52,600
16) A company has $200 in cash, $500 in accounts receivable, and $700 in inventory. If
current liabilities are $400, then the current ratio would be
A.1.75 to 1
B.2.25 to 1
C.3.00 to 1
D.3.50 to 1
17) Measurement of the economic effects on an entity involves each of the following
except
A.Quantification of effects
B.Identification of the attribute to be measured
C.Selection of an appropriate unit of measure
D.Recording the economic effects in the financial statements
18) Which of the following would be a case where an event as a transaction is not
supported by a source document?
A.a purchase of inventory on credit
B.a cash sale
C.the financial consequences of a fire loss
D.recording payroll
19) Complete the December 31, 2014 (first year of operation) Balance sheet for
Weglein Company using the following information:
(a) Retained earnings at December 31, 2014 was $51,000.
(b) Total stockholders equity at January 1, 2014 was $139,000.
(c) On December 30, 2014, additional capital stock was sold for cash, $55,000
(d) The land and building were purchased on December 30, 2014 for $150,000.
20) Morton & Associates
Use the following five transactions for Morton & Associates, Inc. to answer the
question(s).
See the transactions to Morton & Associates.
The journal entry to record the May 31 transaction will include a credit to
A.Salaries Expense
B.Salaries Payable
C.Prepaid Salaries
D.Cash
21) All of the following are external events (transactions) except for
A.a department store recognizing losses from shoplifting
B.a department store running ads in a local newspaper
C.a department store purchasing merchandise from a clothing manufacturer
D.a department store selling clothing to customers on credit
22) Sunset Band, Inc. purchased merchandise from Rumble Music Company on June 5,
2014. The goods were shipped the same day. The merchandise’s selling price was
$15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping
point. Sunset received the merchandise on June 10, 2014. Sunset paid the amount due
on June 13, 2014.
Who is responsible for payment of the transportation costs on the merchandise sold by
Rumble Music to Sunset?
A.Rumble Music Company
B.Sunset, Inc
C.Split equally between the two companies
D.Cannot be determined from the information provided
23) Which profitability ratio requires the use of earnings per share and the current
market price?
A.Return on common stockholders equity
B.Dividend payout ratio
C.Dividend yield ratio
D.Price/earnings ratio
24) Kim Chen Corporation is a wholesaler of scuba gear. During 2012, Chen expanded
its retail business by adding over 50 dive shops. The following information is obtained
from the comparative financial statements included in the company’s 2012 annual report
(all amounts are in thousands of dollars):
25) Pinecrest Company
Use the selected data from Pinecrest Companys financial statements to answer the
following question.
Refer to the data for Pinecrest Company.
Competitors in Pinecrest Companys industry have an average accounts receivable
turnover of 7.8 times. Pinecrest reported accounts receivable at December 31, 2012 of
$57,200. Pinecrests accounts receivable turnover for 2014 is:
A.an indicators that the company needs to tighten its credit policies.
B.of no value to bankers and other creditors.
C.less efficient in 2014 than in 2013
D.significantly below the standards required by the U.S. government.
26) Which one of the following ratios is a common analytical tool used by merchandise
corporations, but not by service corporations?
A.Gross profit ratio
B.Earnings per share
C.Current ratio
D.Profit margin
27) Agee Corp.
The data presented below for Agee Corp. is for the year ended December 31, 2014
See the data for Agee Corp.
If Agee Corp.uses the aging of accounts receivable approach to estimate its bad debts,
what will be the net realizable value of its accounts receivable after the adjustment for
bad debt expense?
A.$140,000
B.$156,000
C.$167,000
D.$184,000
28) Learning Tree, Inc.
The following data is available for one of the products sold by Learning Tree, Inc.,
which uses the perpetual inventory system:
Refer to the data for Learning Tree, Inc.
If the moving average method is used, what is the amount assigned to the ending
inventory on May 30?
29) Statements prepared monthly, quarterly, or at other intervals less than a year in
duration are called _____________________.
30) Another name for profits or earnings of a business is
_________________________.
31) What impact does materiality have on the determination of how a cost related to a
plant asset is reported on the financial statements?
32) Wellcott Company sells on credit with terms of n/30. For the $800,000 of accounts
at the end of the year 2014 that are not overdue, there is a 92% probability of collection.
For the $300,000 of accounts that are less than a month past due, Wellcott estimates the
likelihood of collection going down to 75%. The probability of collecting the $150,000
of accounts more than a month past due is estimated to be 30%.
REQUIRED:
1> Prepare an aging schedule to estimate the amount of uncollectible accounts.
2> On the basis of the schedule in (1), identify and analyze the adjustment needed to
estimate bad debts as of December 31, 2014. Assume that the balance in Allowance for
Doubtful Accounts is $30,000.
33) The _________________________ is the file or book that contains all of a
company’s accounts.