The list below contains several items that appear on a multiple-step income statement.
Select the choice that lists the items in the order they would appear on a multiple-step
income statement.
a. 6, 5, 4, 7, 1, 2, 3
b. 7, 6, 1, 4, 2, 3, 5
c. 6, 5, 4, 1, 7, 2, 3
d. 6, 7, 4, 1, 2, 3, 5
Floors 4 U uses straight-line depreciation for its equipment. The company purchased
equipment for $250,000 and estimated its useful life at 8 years. The bookkeeper failed
to consider the residual value of $25,000. What is the impact on earnings per share and
operating income of failing to consider the residual value?
a. Earnings per share will be overstated and operating income will be understated.
b. Earnings per share will be understated and operating income will be overstated.
c. Both earnings per share and operating income will be overstated.
d. Both earnings per share and operating income will be understated.
Refer to Kalahari Limited. The interest expense on the bonds at June 30, 2013 is
a. $50,000
b. $46,000
c. $40,000
d. $42,400
Tedder Co.
Tedder uses a periodic inventory system. At the end of January, 20 units were on hand.
The following additional information is available for the month of January:
Jan. 1 Beginning inventory: 10 units at $2 each $ 20
20 Purchased 90 units for $3 each 270
Cost of goods available for sale $290
Refer to the information provided for Tedder Co. Which of the following entries
correctly records the purchase assuming the units were acquired on credit under terms
of 2/10, n/30?
a. Inventory 270.00
Cash 270.00
b. Inventory 270.00
Accounts payable 270.00
c. Purchases 264.60
Purchase discounts 5.40
Accounts payable 270.00
d. Purchases 270.00
Accounts payable 270.00
A company reported the following information:
2014 2013
Land $350,000 $100,000
Common stock 450,000 200,000
An analysis of records indicated that there were no cash flow effects resulting from the
changes in the two accounts presented above. How should the changes in these
accounts be reported on a statement of cash flows?
a. The company should report $250,000 for the sale of land as an investing activity and
$250,000 for the issuance of stock as a financing activity.
b. The company should report $250,000 as a noncash investing and financing activity
for the acquisition of land by issuing common stock.
c. The company should report the issuance of common stock to acquire land in the
financing activity section with a net cash flow effect of zero.
d. The company should report the acquisition of land by issuing common stock in the
investing activity section with a net cash flow effect of zero
The principal amount of a note receivable plus the interest due is referred to as the
note’s
a. face valve.
b. promissory value.
c. expected value.
d. maturity value.
Which of the following places the steps in preparing a worksheet in the correct order:
1 – Adjusted trial balance 4 – Income statement
2 – Adjustments 5 – Retained earnings
3 – Balance sheet 6 – Unadjusted trial balance
a. 6 – 2 – 1 – 3 – 4 – 5 c. 6 – 2 – 1 – 4 – 5 – 3
b. 6 – 1 – 2 – 5 – 4 – 3 d. 6 – 2 – 1 – 4 – 3 – 1
Which of the following invests funds into a business and is considered an owner?
a. stockholders
b. creditors
c. bankers
d. lenders
The only essential element of internal control from the following is
a. Computerized accounting systems
b. An outsourced internal audit function
c. Procedures for proper authorization of transactions
d. Verification by government agencies
Which of the following statements is falseregarding a credit memo and its relationship
to a company’s bank reconciliation procedures?
a. It must be recorded as a credit to the balance per the customer’s records.
b. It is issued to notify a company of interest earned which needs to be recorded on the
company’s records.
c. It is issued when the bank collects a note on behalf of the company.
d. It must be recorded as a debit to the balance per the company’s records.
All of the following are examples of questions that a financial analyst would ask about
a company’s use of estimates in the recording of expenses except:
a. Do warranty provisions cover actual expenditures?
b. What expected lives and residual values are used for depreciation computations?
c. Are sales taxes included in revenues?
d. Is the allowance for uncollectible accounts sufficient to cover bad debts?
Dinah Corp. prepares monthly bank reconciliations of its checking account balance.
The bank statement for June 2013 indicated the following:
Balance, June 30, 2013 $63,400
Bank service charges for June 160
Interest earned during June 100
NSF Check from a customer which had been previously deposited by Dinah 1,150
Collection of note ($3,000) and the related interest ($80) from Dinah’s
customer 3,080
An analysis of canceled checks and deposits and the records of Dinah revealed the
following items:
Checking account balance per Dinah’s accounting records $58,770
Outstanding checks as of June 30 4,630
Deposits in transit on June 30 1,780
Error in recording check # 3549 issued by Dinah 90
The correct amount of check # 3549 is $760, but it was recorded as a cash disbursement
of $670. The check was issued to pay for merchandise purchased. The check was
written correctly and appeared on the bank statement correctly.
A) Prepare a bank reconciliation in proper form for June 30, 2013.
B) What amount should be reported as the cash balance on the June 30, 2013
balance sheet?
B&B Painting reported the following information for the year ended December 31,
2013.
How much was paid out in dividends in 2013?
a. $500,000
b. $150,000
c. $350,000
d. $250,000
If the balance on the bank statement does notequal the balance per the company’s
records, then it can be assumed that
a. the company has no errors in its records concerning the cash account.
b. the bank has made errors in preparing the bank statement.
c. the company has made errors in its records concerning the cash account.
d. there will be items reconciling the difference.
Irwin Company counted its ending inventory as $178,000 at year-end, January 31,
2013. Upon review of the records, it was noted that the following items were in transit
during the count:
– Goods totaling $2,000 shipped by the supplier FOB destination on January 31 were
received February 5th and were not counted by Irwin Company.
– Goods totaling $5,000 shipped by the supplier FOB shipping point on January 30 were
received February 2nd and were not counted by Irwin Company.
– Goods totaling $6,000 shipped by Irwin Company to a customer FOB shipping point
on January 31 were received by the customer on February 3rd and were counted by
Irwin Company.
What is Irwin Company’s correct inventory balance on January 31, 2013?
a. $172,000
b. $174,000
c. $177,000
d. $178,000
Using different depreciation methods for book purposes versus tax purposes for the
same asset is
a. not allowed since the amount can only be calculated one way or the other, not both
b. the direct result of the differing goals of financial and tax accounting.
c. contrary to GAAP.
d. against the Internal Revenue Code, and as such, against the law.
Which of the following is notclassified as a current liability account?
a. accounts payable
b. note payable, due in 2 years
c. salaries and wages payable
d. income taxes payable
For each of the following sentences, select the phrase or group of words that best
completes the statement.
a. Debt-to-equity ratio
b. Dividend payout ratio
c. Dividend yield ratio
d. Earnings per share
e. Leverage
f. Return on assets ratio
g. Return on common equity ratio
h. Stock repurchase payout
1/ Percentage of earnings paid out as dividends.
2/ Measure of a company’s success in earning a return for all providers of capital.
3/ Relationship between dividends and the market price of a company’s stock.
4/ Measure of a company’s success in earning a return for the common stockholders.
5/ A company’s bottom line stated on a per share basis.
6/ Relationship between total liabilities and stockholders’ equity.
7/ Using debt to help the company earn a higher return.
8/ Difference between total payout and dividend payout.
Goodwill can be recorded as an asset when a(n)
a. business has above normal profitability compared to other businesses in its industry.
b. business can determine that it has created customer goodwill and name recognition.
c. offer is received to purchase the business at a price in excess of the value of the
assets.
d. business is purchased and payment is made in excess of the value of the net assets.
Chattahoochee Excursions, a calendar year company, purchased supplies at a cost of
$12,215 during 2013. At January 1, 2013, supplies on hand were $10,312. During the
year, the company used $14,000 of supplies.
A) What adjusting entry is prepared at December 31, 2013?
B) Under the accrual basis of accounting, how much is Supplies Expense for 2013?
C) How much should be reported on the December 31, 2013, balance sheet for
Supplies?
D) What type of adjustment was made in part A?
On a multiple-step income statement, operating income results from subtracting total
operating expenses from which of the following amounts?
a. gross margin
b. cost of goods sold
c. income before taxes
d. net sales
Zellenger uses a periodic inventory system and had the following data for inventory
during the most recent year:
Date Units per unit Extension
January 1 Beginning inventory 400 $7.00
January 22 Purchase 1,200 7.15
March 14 Purchase 1,100 7.20
May 24 Purchase 1,000 7.30
October 2 Purchase 1,800 7.35
– various – Sales 4,300
December 31 Ending inventory 1,200
Calculate the company’s ending inventory and cost of goods sold under the following
inventory cost flow methods:
A) FIFO
B) LIFO
C) Average Cost
Which of the following entries properly closes a temporary account?
a. Service Revenues 20,000 Income Summary 20,000
b. Unearned Revenue 10,200 Retained Earnings 10,200
c. Accumulated Depreciation 1,600 Income Summary 1,600
d. Dividends 400 Retained Earnings 400
Ready Mix USA
Three recent income statements are presented below:
2015 2014 2013
Net sales $861,400 $762,200 $680,000
Cost of goods sold 430,200 410,400 400,000
Gross profit 431,200 351,800 280,000
Selling, general, and administrative expenses 316,600 280,000 240,000
Other income, net 2,800 1,600 0
Income from operations 117,400 73,400 40,000
Interest expense 8,400 7,800 6,200
Income before taxes 109,000 65,600 33,800
Income taxes 40,200 22,200 12,000
Net income $ 68,800 $ 43,400 $ 21,800
Refer to Ready Mix USA. Complete a common size horizontal analysis of the
company’s income statements. Your answers should be expressed as percentages and
rounded to one decimal place. Provide a short explanation of this analysis.
Refer to the Ace Computing Company. The entry required to recognize the bad debts
expense for 2013 will act to
a. increase total assets and retained earnings.
b. decrease total assets and retained earnings.
c. decrease total assets and increase net income.
d. increase total assets and decrease net income.
Refer to the information provided for Pham Enterprises. What is the company’s
inventory turnover ratio for 2013?
a. 6.188
b. 6.030
c. 6.108
d. 16.372
Which of the following best describes the term “current assets”?
a. The amount of total profits earned by a business since it began operations plus all
other resources.
b. The amount of claim that the owners have in the business in the current year.
c. Assets expected to be converted into cash within one year or one operating cycle,
whichever is longer.
d. The cumulative profits earned by a business less any dividends distributed in the
current period.
Which of the following measures can be used to evaluate a company’s ability to meet
future debt obligations after paying operating expenses, dividends and making capital
expenditures?
a. earnings per share
b. net income
c. cash flow adequacy ratio
d. net increase or decrease in cash and cash equivalents
The gross profit percentage decreased from 36.5% in 2014 to 24.8% in 2015. What is
the trend in this change?
a. This increase represents an upward, or favorable, trend.
b. This increase represents a downward, or negative, trend.
c. The answer depends upon whether net sales increased or decreased during the period.
d. The trend cannot be determined unless the dollar amount of the change is also know.
The principle of conservatism is concerned with
a. the avoidance of overstating assets or income in the preparation of financial
statements.
b. the minimization of costs associated with providing financial information.
c. the company’s ability to carry out its existing commitments.
d. the company’s procedures for recording activities at their initial exchange price.
The Kaplan Group sold $200,000 of 10-year bonds for $190,000. The face rate on the
bonds was 8% and interest is paid annually on December 31. What entry would be
made on December 31 when the interest is paid? (Numbers are omitted.)
a. Interest Expense
Cash
b. Interest Expense
Discount on Bonds Payable
Cash
c. Interest Expense
Discount on Bonds Payable
Cash
d. Interest Expense
Bonds Payable
Cash
Which one of the following is not a major category for long-term assets?
a. intangibles
b. property, plant, and equipment
c. inventory
d. patents
A Premium on Bonds Payable account would appear on the balance sheet as
a. an increase to a long-term liability.
b. revenue.
c. long-term asset.
d. contra liability.
Because it tends to provide the most reliable measure of activity, all assets are reported
on the balance sheet at their fair market values.
The primary objective of internal auditors who are employees of the company is to
provide assurance to the company’s stockholders that the financial statements are fairly
presented.
The accounting records for Dutch Island Company shows a cash balance of $4,133 on
January 31, 2013. On the evening of January 31, company receipts of $1,250 were
placed in the bank’s night deposit drop box; this deposit was processed by the bank on
February 1. The January 31 bank statement shows balance of $8,876, including
collection of a $5,000 note receivable plus $55 of interest earned, a service charge of
$40, and a $550 debit memo for the payment of the company’s utility bill. All of the
checks that the company had written during January were listed on the bank statement
except for check #731 in the amount of $1,528.
Prepare a bank reconciliation to calculate the company’s adjusted cash balance at
January 31, 2013.
A sale and its associated receivable are recorded only when the order, shipping, and
billing documents are all present.
Given the following list of methods of depreciation, select the method that is best for the
situation or purpose given. (Choices may be used more than once.)
a. Straight-line
b. Units-of-production
c. Double-declining-balance
d. MACRS
28/ This method maximizes net income.
29/ This method is the easiest to use.
30/ This method is the best for management bonus plans.
31/ This method minimizes taxable income
32/ This method is used in situations where technological advances are rapid.
Why is liquidity important for businesses?
If the bank credits a customer’s account, then that customer’s cash account balance
increases.
What makes the analysis of a service company different than analysis of a
manufacturing company?
Income statement accounts have normal credit balances.
The following amounts were taken from the income statement of Beauty World for the
year ending December 31, 2013:
How much is net income for the year ended December 31, 2013? Would the net income
amount have been different if the company had used a single-step income statement
rather than the multiple-step statement? Explain.
Refer to King Cotton Company. What percent of the total liabilities for 2013 and 2012
are long-term liabilities? What implication does this have?
In present value problems, the interest rate is also called the __________________.
____________________ are commitments that represent probable future sacrifices of
economic benefits.
Under the ____________________ basis of accounting, revenues are recognized when
earned and expenses when incurred.
Under the double-entry system of accounting, every transaction is entered in at least
two accounts on opposite sides of a T-account.