Exeter Corporation purchased a piece of equipment with a price of $80,000 on March 1,
2015. The amounts below are related to the equipment purchase. Match the items below
and explain why each revenue expenditure is not capitalized.
a.This item should be included as part of the cost of the equipment.
b.This item should be considered a revenue expenditure.
The company financed the equipment purchase with a bank loan. Interest of $3,000 was
paid on the loan during 2015.
Given below are several ratios. Select the accounts or amounts that would be used in
order to calculate the ratio. You will have more than one response to each ratio. Some
accounts or amounts may not be used at all. (Select all that apply.)
Asset turnover ratio
a.Market price per share
b.Net sales
c.Gross profit
d.Average total assets
e.Interest expense, net of tax
f.Net income
g.Total liabilities
h.Total assets
For each of the following items, indicate whether it would appear on a statement of
cash flows prepared using the Direct method (a) or the Indirect method (b).
a.Direct
b.Indirect
Decrease in accounts payable
The solution to this problem requires time value of money calculations. Reference to
Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
The total amount of interest compounded quarterly on a $1,500 note payable for 1 year
at 12% is
a. $180.00
b. $187.50
c. $ 45.00
d. $189.00
Which one of the following best explains the distinction between inventory and an
operating asset?
a.ownership
b.intent
c.cost
d.purchase price
Select the financial statement on which the user would most likely find the answer to
the question given.
a.Income statement
b.Balance sheet
c.Statement of cash flows
d.Statement of retained earnings
Acquisition cost is also known as historical cost with respect to property plant and
equipment.
a.True
b.False
From the following choices, select the answer that describes the effect on working
capital as a result of the transaction.
a.Working capital will increase
b.Working capital will decrease
c.Working capital will not change
Purchased land for cash
Assuming the indirect method for preparing the statement of cash flows is used,
indicate whether these items should be added to net income (A), deducted from net
income (D), or not be reported in the operating section of the statement under the
indirect method (NR).
a.Added (A)
b.Deducted (D)
c.Not reported (NR)
Depreciation expense
In 2015, Morton Co. sold 100 hot air balloons at $4,000 each. The balloons carry a
5-year warranty for defects.
Morton estimates that repair costs will average 4% of the total selling price. The
estimated warranty liability at the beginning of the year was $42,000. $11,000 in claims
was actually incurred during the year to honor their warranty. What was the balance in
the ending estimated warranty liability at the end of the year?
a. $42,000
b. $37,000
c. $47,000
d. $ 5,000
Use the following codes to indicate how the cash flow effect, if any, of each transaction
would be reported on a statement of cash flows if the operating activities section is
prepared using the direct method.
a.Inflow from operating activity
b.Outflow from operating activity
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Purchased computer equipment for cash.
Match the following bond and long-term liability related terms to the appropriate
definition.
a.Long-term liability
b.Face value
c.Debenture bonds
d.Serial bonds
e.Callable bonds
f.Face rate of interest
g.Market rate of interest
h.Bond issue price
i.Premium
j.Discount
k.Effective interest method of amortization
l.Carrying value
m.Gain or loss on redemption
The interest rate stated on the bond certificate. It is also called the nominal or coupon
rate.
Which of the following best describes a trial balance?
a.It is a required financial statement.
b.It is a financial statement that can be used in place of the income statement.
c.It is a numerical list of all accounts used by a company.
d.It is a tool used to prove the equality of debits and credits in the general ledger.
For each ratio listed, select whether an increase or decrease in the ratio is generally
considered to be better.
a.increase
b.decrease
Number of days’ sales in receivables
Refer to the transactions for Krenshaw Rentals.
Based on the October 15 transaction, Krenshaw will record which of the following in its
accounting records?
a.A credit in Accounts Payable for $150.
b.A credit in Accounts Receivable for $150.
c.A debit in Accounts Payable for $150.
d.A debit in Accounts Receivable for $150.
Match the following terms with the best definitions for questions 212 through 219.
a.Purchase requisition.
b.Receiving Report.
c.Vendor Invoice.
d.Check.
e.Control procedures.
f.Inventory count.
g.Segregation of duties.
h.Source document control.
An example of design and use of business documents control.
Boston Trombley Company is a defendant in a lawsuit alleging damages of $3 billion. It
is probable that Boston Trombley will lose the suit. The litigation is anticipated to
continue for several years, but no reasonable estimate can be made at this time
regarding ultimate financial responsibility. This situation is an example of:
a.an estimated liability that must appear in Boston Trombley Company’s balance sheet.
b.a loss contingency that should be disclosed in the notes to Boston’s financial
statements.
c.an $3 billion expense to be recorded in the income statement during the year of the
suit.
d.none of these. No accrual or disclosure is required in Boston’s financial statements.
The solution to this problem requires time value of money calculations. Reference to
Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
Cory and Ginger want to buy an airplane. They find one that will cost $200,000. They
must pay 10% down, and can get the balance financed with a 10 year loan at 7%
interest and annual payments. What is their annual payment?
a. $26,826
b. $24,457
c. $25,626
d. $19,260
Given below are several ratios. Select the accounts or amounts that would be used in
order to calculate the ratio. You will have more than one response to each ratio. Some
accounts or amounts may not be used at all. (Select all that apply.)
Cash flow from operations to capital expenditures ratio
a.Interest expense
b.Income tax expense
c.Cash flow from operations before interest and tax payments
d.Cash paid for acquisitions
e.Cash flow from operations
f.Total dividends paid
g.Interest payments
h.Principal payments on debt
Shipping terms ofmean that the buyer pays shipping costs.
For each of the following sentences 133-140, select the word or group of words that
best completes the statement.
The basis of accounting that fails to take into consideration amounts earned that are not
collected and expenses incurred but are not paid is the _________________________.
On January 1, 2014, Hart Company purchased an asset for $137,500. For financial
accounting purposes, the asset will be depreciated on a straight-line basis over five
years with no residual value at the end of that time. For tax purposes, the asset will be
depreciated as follows: 2014, $45,000; 2015, $35,000; 2016, $25,000; 2017, $20,000;
and 2018, $12,500. Assume that the company is subject to a 35% tax rate.
REQUIRED:
1)What is the amount of deferred tax at December 31, 2014?
2)Does the deferred tax represent an asset or a liability?
3)What is the amount of deferred tax at December 31, 2018?
Credits are always on theside of the T account.
Use the selected data from the balance sheet and cash flow statements for Valance &
Company to answer the questions that follow.
Valance & Company
Statements of Cash Flow
(Selected Information)
(in millions)
Refer to the data for Valance & Company.
(1)Give a possible explanation for each change in the liabilities listed in the cash flow
statement. Do you think these changes are beneficial for Valance? Why or why not?
(2)If there were a balance in the dividends payable account at the end of the year, would
this appear in the operating activities category of the cash flow statement? Why or why
not?
Below are several accounts and balances from the 2015 financial statements for Torrent,
Inc. Prepare the intangible asset section of the company’s balance sheet, as well as a
partial income statement in the space provided below using the accounts provided.