Net cash provided by operating activities is always equal to net income.
Dividends received from a subsidiary would be classified as an investing activity on a
statement of cash flows.
A T-account is an analysis of an account.
Accountants generally use future values rather than present values to record long-term
liabilities.
Additional Paid-in Capital is also known as Capital in Excess of Par Value.
Relevance means that the information can be counted on to represent faithfully the
condition of the company, given the rules in use.
Cash flows from financing activities include the payment of interest on a note payable.
Depletion follows a units-of-production approach.
On January 1, 2X13, Ingrad Company acquired 100% of the outstanding shares of
Elltol Company for $50 in cash. During 2X13, Elltol Company had net income of $10,
and Ingrad Company had net income of $25. All net income for both companies is in
the form of additional cash.
Prepare the following:
a. The journal entry necessary for Ingrad Company on January 1, 2X13.
b. The journal entry necessary for Elltol Company on January 1, 2X13.
c. The consolidated balance sheet immediately after the acquisition.
d. The one elimination entry necessary on December 31, 2X13, assuming none of the
income for either company resulted from intercompany sales.
e. The consolidated balance sheet at December 31, 2X13.
A lease that should be accounted for by the lessee as ordinary rent expense is
A) a financing lease.
B) a capital lease.
C) an operating lease.
D) an accounting lease.
E) a sale-leaseback.
Frank Company has the following income statements available:
What is the percentage increase or (decrease) in operating income and income before
taxes from 2X12 to 2X13 for Frank Company?
Operating Income Income Before Taxes
A) 24.40% 23.10%
B) 19.40% 24.40%
C) 18.80% 19.60%
D) 19.60% 18.80%
E) 24.40% 18.80%
Fortune Company had sales during July 20X3 of $29,000. During the month, the
company had purchases of $17,000. At July 1, 20X3, the company had inventory of
$4,500. Assuming the company has a gross profit percentage of 40%, what is the
estimated ending inventory for Fortune Company at July 31, 20X3?
A) $ 4,100
B) $ 4,900
C) $ 7,300
D) $ 7,500
E) $ 9,900
An auditor’s opinion is not
A) a report describing the auditor’s examination of transactions and financial
statements.
B) included in the financial statements in the annual report issued by the corporation.
C) another name for independent opinion.
D) certified by the Securities Exchange Commission.
E) a third party review.
Queen Mattresses, Inc. had the following transactions occur during May 20X3. Assume
there is no beginning inventory.
If Queen Mattresses Inc. were using the periodic inventory system, what is the journal
entry for May 2?
Bond interest payments are typically made
A) annually.
B) semiannually.
C) monthly.
D) quarterly.
E) weekly.
Two companies have the following balance sheets as of December 31, 2012:
In 2012, each company had sales of $225,000 and expenses (excluding interest) of
$200,000. Ignore income taxes. Assume Reef’s 10% Note Payable is outstanding the
entire year.
Required:
a. Calculate net income for both Reef and Score.
b. Calculate operating income for both Reef and Score.
Which of the following circumstances would result in a decrease in income under the
accrual basis but would not result in a decrease in income under the cash basis?
A) Purchase of inventory on account
B) Payment of 2 months’ rent in advance
C) The expiration of prepaid rent
D) The return of defective inventory purchased on account, where full credit was given
E) The payment of the current period’s utility bill
An example of an explicit transaction is
A) depreciation expense.
B) expiration of prepaid rent.
C) accrual of interest payable.
D) accrual of wages payable.
E) purchasing inventory on account.
Which statement is FALSE?
A) An example of a leasehold improvement would be the installation of new paneling,
walls, and a window air conditioner.
B) The lessee must select the shorter of either the useful life of the leasehold
improvement or the remaining life of the lease to amortize the leasehold improvement.
C) Although they are technically intangible assets, leaseholds are frequently classified
with plant assets on the balance sheet.
D) A leasehold is a right to use a fixed asset for a specified period of time beyond one
year.
E) Leasehold improvements are subject to depletion.
Which of the following accounts is increased with a debit?
A) Accounts Payable
B) Notes Payable
C) Merchandise Inventory
D) Capital
E) Sales Revenue
Relevance is defined as
A) choosing accounting policies without attempting to achieve purposes other than
measuring economic impact.
B) the capability of information to make a difference to the decision maker.
C) the quality of information that allows users to depend on it to represent the
conditions or events that it purports to represent.
D) a correspondence between the accounting numbers and the resources or events those
numbers purport to represent.
E) a quality of information such that there would be a high extent of consensus among
independent measurers of an item.
The entry to record the cash payment of salaries that had previously been accrued has
what effect on the basic accounting equation?
A) Decrease liabilities, decrease assets
B) Decrease liabilities, decrease stockholders’ equity
C) Decrease assets, decrease stockholders’ equity
D) Decrease assets, increase stockholders’ equity
E) Decrease assets, increase liabilities
If bonds are purchased at less than face value, then the amortization of the discount
________ the interest revenue of the investors.
A) increases
B) decreases
C) does not change
D) increases or decreases depending on the current market rate
E) Cannot be determined without more information
Ramirez Company has a weighted-average after-tax cost of capital of 12%; $320,000 in
long term assets; $80,000 in current assets; and $400,000 in capital. In order to create
Economic Value Added, net operating profit after taxes must exceed
A) $26,400.
B) $38,400.
C) $ 7,200.
D) $16,800.
E) $48,000.
Referring to Exhibit 5-1, what were the dividends paid by Cartell Paper Products in
2012?
A) $11,900
B) $0
C) $22,600
D) $4,000
E) $9,300
Stepp Entertainment has the following selected balance sheet and income statement
information:
Determine the following items for Stepp Entertainment for the year ended December
31, 2012:
a. Cash received from customers
b. Cash paid to suppliers
c. Cash paid for wages
d. Cash paid for income taxes
Assuming inflation, if a company wanted to maximize net income, it would select
which of the following inventory valuation methods?
A) FIFO
B) LIFO
C) Weighted-average
D) The selection of an inventory valuation method does not affect the net income.
E) Specific identification
Early extinguishment of debt
A) is not allowed by the FASB during the first 2 years bonds are outstanding
B) will never have related gains or losses recorded on the books.
C) occurs when the issuer redeems its own bonds by purchases on the open market or
by exercising their rights to redeem callable bonds.
D) is not permitted.
E) is permitted only in the banking industry.
Assume the periodic inventory system is used. Krinkle Company sold inventory on
account for $500 on May 8, 20X3, with terms of 2/10, n/30. On May 16, 20X3 the
appropriate payment was received from the customer. Which of the following is the
journal entry to record the May 16 transaction on Krinkle’s books?
Describe the advantages of the accrual basis of accounting and the cash basis of
accounting.
Describe several advantages and several disadvantages to investor access to the
Internet.