1) The accrual-based income statement is considered to be a good indicator of current
cash inflows and outflows.
2) The use of customer statements as a control device will be effective only if
the employees responsible for the custody of cash received through the mail, for record
keeping, and for authorization of adjustments to customers accounts are not allowed to
prepare and mail statements to customers.
3) When the board of director’s declares a cash or stock dividend, this action decreases
Retained Earnings.
4) Bonds are typically issued in denominations of $10,000.
5) GAAP stands for Generally Accepted Auditing Procedures.
6) If an investor has the right to retire the bonds, they are referred to as callable.
7) In the stockholders’ equity section of a classified balance sheet, a distinction is made
between amounts invested by owners and amounts accumulated from business earnings.
8) When plant assets are purchased in a group, each asset increases the respective plant
asset account for its fair market value at the time of acquisition.
9) When constructing assets, capitalized interest is based on
A.the amount allowed by the companys auditors
B.the expenditures at the end of the of the period
C.the expenditures at the beginning of the period
D.the average accumulated expenditures
10) Esquire Industrial plant operates five days per week with a daily payroll of $4,000.
Employees are paid every Saturday for the workweek just completed (Monday through
Friday). The last day of the month is Wednesday, March 31. What is the effect of the
correct adjustment at March 31?
A.Increases stockholders equity and Wages Payable by $8,000
B.Increases Wages Payable and decreases Cash by $12,000
C.Decreases stockholders equity and increases Wages Payable by $12,000
D.Increases Wages Payable and increases Wages Expense by $8,000
11) Which one of the following statements regarding internal control is true?
A.Companies can design a system of internal control that is foolproof
B.A well-designed internal control system is a luxury that few companies can afford
C.It is easier to implement an effective internal control system in a small company
because of the limited number of employees
D.Large companies are able to devote a substantial amount of resources to internal
control systems because these companies have the assets to justify the cost
12) Parachute Country Club
Use the selected accounts for Parachute Country Club presented below to answer the
following question(s).
Read the information on Parachute Country Club.
On which date did the country club collect an advance deposit?
A.August 2
B.August 3
C.August 5
D.August 7
13) Transactions are recorded in the general journal in:
A.Alphabetical order
B.Account number order
C.Chronological order
D.Financial statement order
14) Pierce Corp. identified the following data in preparing a bank reconciliation on
October 31, 2014.
How much is Pierces adjusted cash balance on October 31, 2014?
A.$28,700
B.$29,100
C.$28,300
D.$29,600
15) Windstar Corp. purchased supplies at a cost of $6,000 during the year. At December
31, supplies on hand are $1,400. Supplies expense for the year was $5,200. How much
were supplies on hand at January 1?
A.$ 2,200
B.$ 11,200
C.$ 1,400
D.$ 600
16) A company issued 5-year bonds with a par value of $35,000,000 and a 7% annual
face on January 2, 2011. The issue price of the bond issue was $35,216,127 which
reflected a 6.85% effective interest rate.
Required:
a) Determine the effect on the accounting equation upon recording the issuance of the
bonds.
b) Determine the effect on the accounting equation upon recording the recognition of
interest expense at December 31, 2011. Any premium or discount should be amortized
using the effective interest rate method.
c) Determine the effect on the accounting equation upon recording the interest paid to
the bondholders on January 2, 2012
d) Determine the effect on the accounting equation upon recognizing the interest
expense at December 31, 2012. Any premium or discount should be amortized using the
effective interest rate method.
17) Masters Company borrowed on a one-year, 10%, $150,000 note on May 1, with
interest and principal to be paid at maturity. How much interest payable will be reported
on Masters balance sheet as of November 30 of the same year?
A.$ 7,500
B.$ 8,750
C.$ 15,000
D.$ 30,000
18) Which one of the following is not an external user of financial information?
A.Company management
B.Internal Revenue Service
C.Creditors
D.Stockholders
19) The ending inventory balance represents
A.Expired costs and is reported on the balance sheet as an asset
B.The cost of goods sold during the current period and is reported on the balance sheet
as an asset
C.Expired costs and is reported on the income statement as an expense
D.Unexpired costs and is reported on the balance sheet as an asset
20) Assume that you know the total dollar amount of a loan and the amount of the
monthly payments. How can you determine the interest rate as a percentage of the loan?
21) Stella Gregson received a windfall from one of her investments. She would like to
invest $100,000 of the money in Shoreline Industries, which is offering common stock,
preferred stock, and bonds on the open market. The common stock has paid $8 per
share in dividends for the past three years, and the company expects to be able to
perform as well in the current year. The current market price of the common stock is
$100 per share. The preferred stock has an 8% dividend rate, cumulative and
nonparticipating. The bonds are selling at par with an 8% stated rate.
Required:
1> What are the advantages and disadvantages of each type of investment?
2> Recommend one type of investment over the others to Stella and justify your reason.
22) You have received an email from a new accounting client, Jamal Parker, who has
just started a new business. Jamal would like you to explain whether it is really that
beneficial for him to take advantage of a 2/10, net 30 discount offered by one of his
suppliers, given his limited cash flow. In a memo, explain to him why this is or is not a
sound financial move for his new company. Most firms attempt to pay their accounts
payable within the discount period to take advantage of the discount. Why is that
normally a sound financial move?
23) Various transactions may change the amount and composition of the assets and
liabilities, but the ____________________________ must balance after each
transaction.
24) Although operating leases are not recorded on the balance sheet by the lessee, they
are disclosed in the ____________________________________.
25) Interest included as part of the acquisition cost of the asset is referred to
as___________ of interest.
26) For each of the following sentences 3-10, select the word or group of words that
best completes the statement.
____________________ is the association of the costs incurred with the associated
revenue of a period.
27) Why does the discounting of a note receivable with recourse result in a contingent
liability? Should the liability be reported on the balance sheet? Explain.