Which of the following is an example of a credit memo?
a. notice of a bank service charge
b. notice of interest earned on a checking account
c. outstanding checks
d. a company’s transposition error in the recording of a customer’s check
Calculate total sales for a company that reported a net loss of $1,500,000 and total
expenses of $2,900,000.
a. $4,400,000
b. $1,400,000
c. $2,400,000
d. $1,600,000
Which balance sheet accounts are most affected by investing activities?
a. Current assets and current liabilities.
b. Long-term assets.
c. Long-term liabilities.
d. Stockholders’ equity.
Which statement is true concerning operating assets?
a. Operating assets have no physical properties.
b. A company’s operating assets are important to its short-term liquidity.
c. Operating assets are used over two or more periods to generate revenues.
d. All operating assets are reported on the income statement
A regional chain of medical clinics had the following information pertaining to its
stockholders’ equity accounts at December 1, 2015:
Common Stock, $5 par, 100,000 shares authorized, 30,000 shares issued and
outstanding $15,000,000
Paid-in Capital in Excess of Par–Common Stock 12,000,000
Retained Earnings 30,000,000
No dividends were paid during 2015. On December 15, 2015, the clinic repurchased
3,000 shares of its common stock for $80 per share. On December 31, the bookkeeper
closed the books, reporting net income of $2,500,000.
A) What amount will be reported on the balance sheet for Treasury Stock at December
31, 2015.
B) How many shares of stock are outstanding at December 31, 2015?
C) Prepare the stockholders’ equity section of the balance sheet at December 31, 2015.
Refer to A Better Mousetrap. What amount should the company recognize as interest
revenue on the maturity date of the note?
a. $ -0-
b. $4,500
c. $3,750
d. $9,000
Refer to Fireworks City. Using the data for 2013, determine the average age of the
company’s property, plant, and equipment.
a. 1.60 years
b. 2.50 years
c. 4.00 years
d. 10.00 years
Operating assets with no physical properties are called
a. current assets.
b. intangible assets.
c. plant assets.
d. property, plant, and equipment.
Refer to Rainsoft Company. What is the operating cash flow ratio for 2015?
a. 4.0625
b. 0.246
c. 0.147
d. 0.072
Refer to Academy Grill Supply. The effect on the company’s financial statements on
December 31, 2013is as follows
a. assets and Stockholders’ equity increase.
b. assets and Stockholders’ equity decrease.
c. assets and liabilities increase.
d. no net change in assets.
A company rented office space to a tenant on January 1 and received a total of $90,000
for the first nine months of rent. The amount was recorded as Rent Collected in
Advancewhen received. Adjustments are recorded only at the end of every quarter.
What effect does the adjustment at March 31 have on the company’s net income for the
quarter ending March 31?
a. Increase by $90,000
b. Decrease by $60,000
c. Decrease by $30,000
d. Increase by $30,000
The Discount on Bonds Payable account is shown on the balance sheet as
a. an asset.
b. an expense.
c. a long-term liability.
d. a contra-liability account that reduces the bond to market value at the issue date.
Betty has received an inheritance from her uncle. She would like to invest some of the
inheritance to pay for her son’s college. To pay for college she will need to withdraw
$25,000 per year for 4 years beginning 1 year from today. How much must she invest if
she can earn 5%?
a. $77,397.37
b. $20,567.50
c. $31,913.55
d. $88,648.75
Refer to Accelerated Solutions. If the aging approach is used to estimate bad debts, find
the balance in the Allowance for Doubtful Accounts after the bad debt expense
adjustment.
a. $ 5,000
b. $15,000
c. $25,000
d. $50,000
The Dividend account is known as which of the following?
a. temporary account
b. closing account
c. real account
d. Both b and c.
Refer to Absolute Appliances. What amount should the company recognize as interest
revenue on December 31, 2013?
a. $ -0-
b. $ 1,000
c. $12,000
d. $11,000
Each of the situations in A through C below applies to one of the assumptions or
principles included in the conceptual framework of accounting. Identify which
assumption or principles applies and explain why that assumption or principle applies.
A) High Collectibles is a U.S. company that has divisions in several countries around
the world. Each country has a currency different that the U.S. dollar. The company must
include the financial data of its worldwide divisions in its financial statements.
B) Howell Trucking operate as a partnership. The partners are considering a change to
the corporate form of business organization.
C) Holly Company is a local company. The owners have decided to expand into nearby
cities. Expansion will require more capital, but management does not expect it will stay
in business for more than one year or so regardless of its expansion plans.
Refer to Rio Imports. The times interest earned ratio for 2015
a. increased, which indicates that the company’s creditors will be pleased.
b. decreased, which indicates that the company has less cash to pay interest on its debt.
c. indicates a decline in the company’s ability to pay its liabilities when they come due.
d. indicates that the company cannot meet its current year interest payments out of
current year earnings.
Refer to Rapid Sign Corporation. What is the total payout ratio for 2015?
a. 102%
b. 88%
c. 66%
d. 30%
Mark is planning on making an investment in a new computer system. He wants to
know how much he must invest to have $9,000 in 4 years if the interest rate is 5% per
year?
a. $10,939.59
b. $2,479.41
c. $7,826.83
d. $7,404.30
The equity section of a balance sheet at December 31, 2014, is presented below:
Common Stock, $10 par, 10,000 shares issued and outstanding $100,000
Paid-in Capital in Excess of Par–Common Stock 50,000
Retained Earnings 100,000
Total Stockholders’ Equity $250,000
On May 15, 2015, the company reacquired 1,000 shares of its common stock at $15 per
share. Then on July 1, 2015, 500 shares of treasury stock were sold for $20 per share.
A) What journal entries will be required to record the May 15 and July 1
transactions?
B) How many shares of the company’s stock are outstanding on July 1, 2015,
immediately following the sale of the treasury stock?
When bonds are issued by a company, the accounting entry shows an
a. increase in liabilities and a decrease in stockholders’ equity.
b. increase in liabilities and an increase in stockholders’ equity.
c. increase in assets and an increase in liabilities.
d. increase in assets and an increase in stockholders’ equity.
Upon reviewing Myert Company’s Statement of Cash Flows, the following was noted:
Cash flows from operating activities $ 60,000
Cash flows from investing activities (125,000)
Cash flows from financing activities 115,000
From this information, the most likely explanation is that this company is
a. using cash from operations and selling long-term assets to pay back debt.
b. using cash from operations and borrowing to purchase long-term assets.
c. using its profits to expand growth.
d. using cash from investors to provide for operations.
Which of the following best describes “cost of goods available for sale”?
a. Cost of goods available for sale is an expense account.
b. Cost of goods available for sale is added to beginning inventory to determine cost of
purchases during the period.
c. Cost of goods available for sale is subtracted from net sales to arrive at the gross
margin.
d. Cost of goods available for sale is allocated into cost of ending inventory and cost of
goods sold.
Failure to record dividends paid would result in which of the following?
a. Net income being understated.
b. An increase in total liabilities.
c. Stockholders’ equity being overstated.
d. Net income being overstated.
An abbreviated version of an account, which is useful for analyzing the effects of
business events, is the
a. Chart of Accounts.
b. T-account.
c. Journal.
d. Double-entry system.
Use the following selected financial information to compare these three companies and
answer the questions that follow.
Rabbit Co. Reptile Co. Rhino Co.
Accounts Receivable December 31, 2015 $ 22,000 $
33,000 $ 41,500
December 31, 2014 12,800
30,000 42,600
Inventory December 31, 2015 12,600
22,600 54,200
December 31, 2014 32,800
23,900 44,000
Net Credit Sales 2015 320,000
620,000 510,000
2014 310,000
610,000 760,000
Cost of Goods Sold 2015 406,000
211,000 311,000
2014 200,000
156,000 310,000
A) Calculate the accounts receivable turnover ratio for each company for 2015.
B) Which company appears to be in the best position regarding asset efficiency based
solely on the accounts receivable turnover?
C) Calculate the inventory turnover ratio for each company for 2015.
D) Which company appears to be in the best position regarding asset efficiency based
solely on the inventory turnover?
E) Calculate and interpret each company’s operating cycle.
During January, a travel company sold forty cruise vacation packages for $147,960.
Customers are required to pay in advance, but the package price is refundable until the
date the cruise departs. The cruises begin in February.
A) Record the entry on January 31 to book the amounts collected from customers.
B) What entry is needed to record each time one of its customers departs on the cruise
vacation?
Which of the following is nota generally recognized internal control activity?
a. establishment of clear lines of authority to carry out specific tasks
b. preparation of bank reconciliations on a monthly basis
c. reducing the cost of hiring seasonal employees
d. limiting access to computerized accounting records
Which of the following organizations is primarily responsible for establishing GAAP in
the United States?
a. Securities Exchange Commission (SEC)
b. Financial Accounting Standards Board (FASB)
c. International Accounting Standards Board (IASB)
d. Internal Revenue Service (IRS)
A growing corporation had $180,000 of its $30 par common stock issued before its
recent 3-for-1 stock split. The market price of the stock was $120 per share before the
split. Which of the following is true as a result of the split?
a. There were 24,000 shares (6,000 + 18,000) of common stock issued after the split.
b. The balance in the common stock account increased to $540,000.
c. The market price of the stock tripled.
d. The par value of the stock decreased to $10 per share.
An impairment is a temporary decline in the future benefit or service potential of an
asset.
Refer to Baloon-E-Tunes. Calculate the current ratio at December 31, 2013. What does
this ratio tell you about the “composition” of the current assets?
The operating cash flow ratio is calculated by dividing the cash flows from operating
activities by current liabilities.
Adjustments are recorded for all transactions involving outside entities.
No special internal control procedures are necessary with a petty cash fund because the
amount is so small.
The ____________________ order is necessary for the buyer to be obligated to accept
and pay for the ordered goods.
Match these terms with their correct definition.
a. Book value e. Depreciation
b. Cost f. Impairment
c. Depletion g. Involuntary disposal
d. Depreciable cost h. Residual value
33/ Any expenditure necessary to acquire an asset and to prepare it for use
34/ The amount of cash or trade-in consideration that is expected when an asset is
retired from service
35/ The process of allocating the cost of a tangible fixed asset to expense over the
asset’s useful life
36/ Cost less accumulated depreciation
37/ A permanent decline in the future benefit or service potential of an asset
38/ The process of allocating the cost of a natural resource to each period in which
the resource is used
39/ Situation where an asset is lost or destroyed through theft, acts of nature, or by
accident
40/ Cost less residual value
Double-declining-balance depreciation is most commonly used by businesses for
financial reporting purposes.
The ____________________ principle determines when revenue is recorded and
reported.
Yancey Company
The following information is available for Yancey Company, a retail store, for the year
2013. The company uses a periodic inventory system.
Beginning inventory was $32,000. During the year, Yancey Company purchased goods
totaling $634,000 on account with terms of 2/10, n/30, FOB shipping point. Yancey
Company paid $1,000 in total freight charges directly to the freight company. At the end
of the year, inventory on hand totaled $45,000. Net sales reported on the income
statement for the year totaled $1,300,000.
Refer to the information provided for Yancey Company. How much would Yancey
Company pay its supplier if it paid for one-half of the goods acquired within the
discount period, and the other half after the expiration of the discount period?
On a bank reconciliation, interest earned for the month is added to the cash balance per
the company records.
____________________ assets generally include cash, accounts receivable, and
short-term investments.
Since stock dividends are paid with shares of stock instead of cash, no reduction in
Retained Earnings is recorded.
Dividend-related dates follow this chronological order: declaration date, record date,
and payment date.
The ____________________ is the private sector group with authority to set
accounting standards in the United States.
Preferred stockholders typically do not have the right to vote at stockholders meetings.