1) Both U.S. GAAP and IFRS apply the lower-of-cost-or market rule in a similar
manner to inventory.
2) Most investors would prefer to see equity rather than debt on the balance sheet.
3) If cost of goods sold does not equal the cost of merchandise purchased during the
period, an adjustment must be made to correct the error.
4) The ledgers are an example of an accounting book of original entry.
5) In general, the international accounting standards provide lease criteria that are
similar to the U.S. standards.
6) The lower of cost or market (LCM) rule violates the historical cost principle.
7) The terms referring to contingencies differ between U.S. GAAP and IFRS.
8) The issue price of a bond is always present valued using the market rate of interest.
9) When a company discounts a promissory note at the bank, it receives cash at the
same time it would if it held the note to maturity.
10) Stock dividends involve the issuance of additional shares of stock.
11) Both stock and bond investments have maturity dates.
12) If a company becomes less creditworthy, the market price of its bonds will decline.
13) Dividends declared and paid reduce a companys retained earnings balance.
14) The purchase of inventory for cash will cause the current ratio to decrease.
15) Which of the following items need not be reported separately at the bottom of the
income statement?
A.Profitability ratios
B.Discontinued operations
C.Extraordinary gains and losses
D.Cumulative effect of a change in accounting principle
16) Las Palmas Company reported the following items on its financial statements for
the year ending December 31, 2014:
The income statement for Las Palmas will report net income for the current year in the
amount of
A.$ 45,000
B.$ 65,000
C.$ 85,000
D.$ 465,000
17) At December 31, 2014, the accounting records of Whole Foods Corporation contain
the following:
If capital stock is $260,000, what is the December 31, 2014 cash balance?
A.$46,000
B.$506,000
C.$94,000
D.$86,000
18) If the sum of the debits and credits in a trial balance is not equal, then
A.there is no concern because the two amounts are not meant to be equal
B.the chart of accounts also does not balance
C.it is safe to proceed with the preparation of financial statements
D.most likely an error was made in posting journal entries to the general ledger or in
preparing the trial balance
19) The Dinho Corporation identified the following data when preparing their April
bank reconciliation:
In addition, Dinho incorrectly recorded a deposit in its books in the amount of $1,000.
The correct amount was recorded by the bank as $1,200.
What is the net amount of the adjustment to Dinhos cash balance as a result of the bank
reconciliation?
A.$1,675 increase
B.$1,700 increase
C.$1,675 decrease
D.$1,475 decrease
20) The inflow of assets resulting from the sale of products and services is called a(n)
A.asset
B.liability
C.revenue
D.expense
21) Which of the following would be classified as external users of financial
statements?
A.Stockholders and management of the company
B.The controller of the company and a company’s stockholders
C.The company’s marketing managers
D.The creditors and stockholders of the company
22) The statement of stockholders’ equity
A.is one of the required financial statements for the annual report, when changes have
occurred in the stockholders’ equity accounts
B.shows the changes in retained earnings for the period, which includes the increase or
decrease as a result of net income or loss for the period, and dividends for the period
C.includes accounts, such as the retained earnings and common stock accounts, but not
changes to the retained earnings account, since those items are reported on the
statement of retained earnings
D.is used only if a corporation frequently issues common stock
23) Presented below are selected data from the financial statements of Medtech
Company for 2012, 2011, and 2010.
24) When comparing U.S. GAAP and IFRS, regarding the level of details in the
standards and the level of disclosure required, which of the following is correct?
U.S. GAAP IFRS
A.Detail: More Detail: Less
Disclosure: More Disclosure: Less
B.Detail: More Detail: Less
Disclosure: Less Disclosure: More
C.Detail: Less Detail: More
Disclosure: Less Disclosure: More
D.Detail: Less Detail: More
25) A company issued 4,000 shares of $5 par common stock for $30 per share. The
company purchased 1,200 shares as treasury stock at $32 per share. Later, the company
reissued 400 shares of the treasury stock at $34 per share. Which of the following is
true?
A.The Treasury Stock account should have a balance of $24,800
B.The company has a gain of $800 that should appear on the income statement
C.The Treasury Stock account should have a balance of $25,600
D.The company has a gain of $1,600 that should appear on the income statement
26) Which pair of accounts has the same set of rules for debit and credit entries?
A.Common Stock (Capital Stock) and Accounts Payable
B.Salaries Expense and Retained Earnings
C.Cash and Notes Payable
D.Sales Revenue and Accounts Receivable
27) Yu Corporation
Use the following Assets section of Yu Corporations balance sheets for the years ended
December 31, 2013 and 2012 to answer the questions that follow.
Yu Corporation recorded depreciation expense of $344 million for 2012.
Refer to the information for Yu Corporation.
Required:
Calculate the following ratios for Yu for 2013.
A. Average life of property, plant, and equipment
B. Average age of property, plant, and equipment
C. What information do these ratios provide to investors and creditors?
28) Unfortunately, the bookkeeper notices that two transactions for Patio Publications
were not reflected in the balances of the trial balance: one to record $800 of accrued
wages and salaries to be paid in the next period, and the other was the use of $560 of
office supplies from the supplies on hand. If the Trial Balance column totals are
$15,380 prior to discovering these mistakes, what are the totals of the Trial Balance
columns after the corrections are made?
A.$15,860
B.$15,140
C.$16,740
D.$16,180
29) All of the following are characteristics of current liabilities except:
A.They may be replaced with a new short-term liability rather than being paid in cash
B.They may involve estimated amounts
C.They are due within one year or within the operating cycle, whichever is longer
D.All three of the above are characteristic of current liabilities
30) Dividends to preferred stockholders are deducted from net income when calculating
the return on common stockholders’ equity ratio because
A.dividends are not an expense on the income statement.
B.the ratio is an indicator of the return on “common” stockholders’ equity, not the return
on preferred stock.
C.dividends are only available for distribution to common stockholders.
D.conservatism indicates that shareholders prefer a smaller numerator.
31) Which one of the following is an operating activity of a business?
A.Paying for purchases of inventory
B.Issuing stock for cash
C.Borrowing money from a bank
D.Purchasing a manufacturing plant
32) Please answer the following questions regarding depreciation:
If a company has a concern about reporting to its stockholders, the depreciation method
_________________________ would be used?
33) Given below are several transactions for Vision Inc. In the space provided, indicate
the impact on each of the stockholders’ equity accounts given, by placing the dollar
amount and either a plus sign (+) or a minus sign (-) in the box provided. For each
account in which there is no effect, place an X in the box.
34) The amount of cash provided from operating activities is
______________________ under both the direct and indirect methods.
35) A(n) _________________________ is a written promise to repay a definite sum of
money either upon demand, or at a fixed or determinable date in the future.
36) In 2014, you invested $12,000 along with 5 other investors in a new theatre,
Rock-On, that offers Broadway play productions. Because you live out of state, you
have not been actively involved in the daily affairs of the theatre. On January 10, 2015,
you are excited because you received $12,000 as a dividend after the end of the 1st year
of the theatres existence. Included with your $12,000 check are financial statements and
some supplemental information regarding the accounting. The supplemental
information explains:
(1) During the last three months of 2014, an aggressive advertising campaign resulted
in the sale of 600 season tickets for the 2015 productions. Each season ticket cost $120
and the resulting $72,000 was included in 2014 income.
(2) Along with the advertising campaign, the general manager was able to secure
pledges of $7,500 for advertising by local merchants in the playbills for the first two
productions for 2015. This amount is included as advertising revenue in the 2014
financial statements.
REQUIRED:
Are there any problems related to the supplementary disclosures? If so, explain and
indicate what effects (over- or understatements) these items will have on the financial
statements.
37) Loren Corporation
Listed below is information from the financial records of Loren Corporation at
December 31, 2014:
Read the information about Loren Corporation.
Required:
Prepare the current liabilities section of the balance sheet for Loren Corp. at December
31, 2014. You may omit the heading. If the amount of current liabilities were larger,
what effect would this have on the current ratio?