If ending inventory is overstated by $3,000 in 20X3, retained earnings at the end of
20X4 will be correctly stated.
Long-lived assets include accounts receivable and inventory.
Common-size statements aid in comparing companies of different sizes.
Revenues that are collected before services or goods are delivered are called unearned
revenue under accrual accounting.
Underwriters are a group of investment bankers who buy an entire bond or stock issue
from a corporation and then sell the issue to the general investing public.
The right side of a T-account always increases an account balance and the left side of a
T-account always decreases an account balance.
Like the income statement, the statement of cash flows covers a period of time.
When a company owns 20% to 50% of the voting stock in another company, the market
method generally will not reflect the economic relationship between the investor and
the investee.
When ownership of another company is at least 20% and up to and including 50%,
consolidation is required.
Cost of goods sold plus the increase in inventory equals cash paid for inventory.
Assets, expenses, and revenues have normal balances on the debit side of a T-account.
Scone Industries acquired a gold mine for $8,000,000. It is estimated that 40,000
ounces of gold can be extracted from the mine. In the first year of operations, 15,000
ounces of gold were extracted. Scone Industries would recognize
A) an increase in net income of $3,000,000.
B) depreciation expense of $3,000,000.
C) cost of goods sold of $3,000,000.
D) amortization expense of $3,000,000.
E) depletion expense of $3,000,000.
________ are current investments in equity or debt securities held for short-term profit.
A) Short-term equity securities
B) Trading securities
C) Held-to-maturity securities
D) Available-for-sale securities
E) Cash equivalents
On January 1, 20X9, Maffitt Company acquired 70% of the outstanding shares of
common stock of Kenter Company for $42 in cash. Assume the book value of Kenter’s
assets and liabilities equals the market value. During 20X9, Kenter Company had net
income of $10, and Maffitt Company had net income of $30. None of the net income
for either company was the result of intercompany sales. All net income for both
companies is in the form of additional cash.
Prepare the following:
a. The journal entry necessary for Maffitt Company on January 1, 20X9.
b. The journal entry necessary for Kenter Company on January 1, 20X9.
c. The consolidated balance sheet immediately after the acquisition.
d. The elimination entry necessary on December 31, 20X9 assuming no other
intercompany transactions during the year.
Goodwill is recognized when
A) assets exceed liabilities
B) liabilities exceed stockholders equity
C) the purchase price for a company exceeds the difference between the fair value of
assets and the fair value of liabilities of the company acquired
D) the purchase price for a company exceeds the difference between the fair value of
assets and the fair value of stockholders equity of the company acquired
E) the purchase price for a company exceeds the difference between the fair value of
the liabilities and the fair value of stockholders’ equity of the company acquired
State the appropriate accounting term for each of the definitions given below.
a) A written authority granted by individual shareholders to others to cast the
shareholders’ votes.
b) The right to acquire a proportional amount of any new issues of common stock.
c) The aggregate number of shares that can be issued.
d) A characteristic of preferred stock that requires that the undeclared dividends
accumulate and must be paid in the future before common dividends are paid.
e) A measure of the preference to receive assets in the event of corporate liquidation.
f) A characteristic of preferred stock that gives the issuer the right to buy the preferred
stock from the owner at a fixed price.
g) A characteristic of bonds or preferred stock that gives the holder the right to
exchange the security for common stock.
Companies with divisions outside the United States
A) prepare their Statement of Cash Flows with consolidated equipment purchases, but
retain individual financial statements otherwise.
B) confirm account balances on their Statement of Cash Flows using the throughput
method.
C) show the effect of exchange rate differences on their Statement of Cash Flows.
D) indicate variances on material purchases on a separate coinciding schedule.
E) label their Statement of Cash Flows by preceding the label with the term
“International Operations.”
When inventory prices are rising, the FIFO method will generally yield a gross profit
that is
A) less than the LIFO method.
B) equal to the gross profit of the LIFO method.
C) FIFO does not generally cause a gross profit that is different from that of any other
costing method.
D) higher than the LIFO method.
E) All of the above are correct.
The adjusting entry to record the accrual of interest expense has what effect on the basic
accounting equation?
A) Increase assets, increase liabilities
B) Decrease assets, decrease liabilities
C) Increase assets, decrease liabilities
D) Increase liabilities, decrease stockholders’ equity
E) Decrease liabilities, increase stockholders’ equity
Typically, the more credit sales a company has
A) the lower the days to collect accounts receivable
B) the higher the days to collect accounts receivable
C) the lower the accounts receivable turnover rate
D) the higher the accounts receivable yield
E) none of the above
Which statement is correct?
A) Current U. S. generally accepted accounting principles (GAAP) allow for the
amortization of goodwill
to be up to 40 years.
B) Goodwill shall be reduced if impairment is in evidence.
C) Although goodwill amortization amounts can be large in absolute terms, often they
are relatively
small as compared to net income.
D) Current U. S. GAAP do not allow an immediate write-off of goodwill.
E) Goodwill impairments are included as an extraordinary item on the income
statement.
The form of organization that has limited liability for the owners is a(n)
A) corporation.
B) partnership.
C) proprietorship.
D) cartel.
E) Sarbanes group.
Spearhead Specialties issued a 2-year, $150,000, 14% debenture on January 1, 20X3
dated as of that date. The bond will pay interest every June 30 and December 31, with
the principal to be paid on December 31, 20X4. The effective interest rate on the bond
is 10%, and the company uses effective-interest amortization.
Given this information and using the present value tables
a. determine the selling price for the bond.
b. provide the journal entry on January 1, 20X3.
Common stockholders
A) upon dissolution are paid the same amount as all creditors.
B) must purchase all shares directly from the issuing organization.
C) purchase stock certificates at par value.
D) have a claim on whatever is left over after all other claimants have been paid upon
liquidation.
E) are also members of the New York Stock Exchange after the purchase of the stock.
Stone, Inc. had 2012 earnings of $1,500,000. Cash dividends per share were $0.50. The
company had an average of 1,225,000 shares of common stock outstanding. The market
price of the stock at the end of the year was $6.00 per share. What was the earnings per
share for 2012?
A) $0.60
B) $0.75
C) $1.22
D) $1.25
E) $5.50
Which of the following transactions increase cash?
1. Convert debt to common stock
2. Credit sales
3. Increase long-term debt
4. Issue common stock
A) 1 and 3
B) 2 and 4
C) 3 and 4
D) 1, 2, and 4
E) 1, 2, 3, and 4
Small Business Bank loaned $9,000 to Weidenhammer Company on May 1, 2012,
accepting a 2-year, 8% note. The bank recorded the transaction properly on May 1. No
other journal entry pertaining to the note has been made since May 1. As of year-end on
December 31, 2012, what adjusting entry will the bank make with respect to this note?
Axle Motors Inc. has a December 31 year-end. On November 28, 20X2, the company
sold inventory for $600 on account with the terms 2/10, n/30. On February 28, 20X3,
the company recognized the account as uncollectible. What is the journal entry for Axle
Motors, Inc. on February 28, 20X3, if the company uses the specific write-off method?
On January 1, 2X13, Soothing Massage Company acquired, as a long-term investment,
20 bonds with a face value of $1,000 each. The bonds have a 10-year life, a 10%
coupon rate, and pay interest semi-annually every June 30 and December 31. What is
the journal entry to be made by Soothing Massage Company on January 1, 2X13, if the
bonds were purchased at a price to yield 8%?
Molecule Labs, Inc. had sales of $450,000, all received in cash. Total operating
expenses were $350,000. All expenses except depreciation were paid in cash.
Depreciation of $60,000 was included in the operating expenses. Ignore income taxes.
Calculate net income and net cash provided by operating activities using the direct
method.
Comparative balance sheets are available for Floatlin Group:
Prepare a common-size balance sheet for Floatlin Group at December 31, 2X13.
Talk Unlimited began business on January 1, 2003. The company manufactures and
sells cell phones cases. The company provides a warranty on its units, whereby the
company will replace any defective case for two years after the sale, at no additional
cost to the customer. During 2003, Talk Unlimited had sales of $850,000. The company
estimates that the cost of the warranties will be 2% of sales. No warranty claims were
made in 2003. During 2004, warranty claims of $15,700 were made. All warranty
claims were satisfied and paid for. What journal entry, if any, is necessary for 2004 by
Talk Unlimited?