1) Under the allowance method of accounting for bad debts, the company estimates the
amount of bad debts before those debts actually occur.
2) The gross profit ratio is computed by dividing net sales by gross profit.
3) Cash flow per share is computed by dividing cash on the balance sheet by the
number of shares outstanding.
4) If a company has internal auditors, it does not need to have external auditors.
5) When treasury stock is resold for an amount less than its cost, the difference between
the sales price and the cost is deducted from the Additional Paid-In CapitalTreasury
Stock account or the Retained Earnings account (if the Additional Paid-In
CapitalTreasury Stock account does not exist).
6) A company using the periodic inventory system has the following account balances:
Merchandise Inventory at the beginning of the year, $3,600; Freight-In, $650;
Purchases, $10,700; Purchases Returns and Allowances, $1,950; Purchases Discounts,
$330. The cost of merchandise purchased is equal to
A.$12,670
B.$9,070
C.$8,420
D.$17,230
7) [APPENDIX] Marshland Company uses the straight-line depreciation for financial
reporting purposes and an accelerated depreciation method for tax purposes. As a result,
Marshland will record:
A.a deferred tax asset
B.a deferred tax liability
C.a permanent difference
D.tax-exempt depreciation
8) The following account balances are taken from the records of Morgantown Corp. for
the past two years. (Credit balances are shown in parentheses.)
Other information available for 2014 is as follows:
a. Net income for the year was $240,000.
b. Depreciation expense on plant and equipment was $60,000.
c. Plant and equipment with an original cost of $210,000 were sold for $84,000. (You
will need to determine the book value of the assets sold.)
d. Amortization expense on patents was $11,000.
e. Both new plant and equipment and patents were purchased for cash during the year.
REQUIRED:
Indicate, with amounts, how all items related to these long-term assets would be
reported in the 2012 statement of cash flows, including any adjustments in the
Operating Activities section of the statement. Assume that Morgantown uses the
indirect method.
9) When analyzing foreign statements, all of the following are accurate positions of
non-current liabilities listings except:
A.After current liabilities
B.Before current liabilities
C.After share capital
D.After total equity
10) When a company declares a stock dividend, which of the following occurs?
A.A liability is created
B.Retained earnings is reduced
C.Stockholders’ equity is decreased
D.The financing section of the statement of cash flows is decreased
11) Computech Industries
Below is financial data for Computech Industries current year.
Refer to the data for Computech Industries.
Based on this information, what is the accounts receivable turnover for the current
period?
A.10.0 times
B.12.5 times
C.11.1 times
D.14.3 times
12) Hindsville Company reported revenues of $165,000 and net income of $20,000 for
2014. Cash generated by operations was $40,000. In addition, Hindsville Company
borrowed $24,000 from a bank. During 2014, Hindsville purchased new equipment for
$30,000 cash and paid cash dividends of $15,000 to stockholders. Hindsvilles cash
balance at the beginning of 2014 was $22,000.
13) The following unadjusted amount was reported on Rental Entertainment
Corporation’s accounting records at December 31, 2014:
14) Neville Company issued $100,000 of 6%, 10 year bonds when the market rate of
interest was 5%. The proceeds from this bond issue were $107,732. Using the effective
interest method of amortization, which of the following statements is true? Assume
interest is paid annually.
A.Interest payments to bondholders each period will be $6,464
B.Interest payments to bondholders each period will be $5,000
C.Amortization of the premium for the first interest period will be $1,226
D.Amortization of the premium for the first interest period will be $613
15) Tracy, Inc.
Tracy, Inc. adjusts its books each month but closes its books at the end of the year. The
trial balance at July 31 before adjustments is as follows:
Refer to the trial balance for Tracy, Inc.
According to contracts, $4,810 of Unearned Service Revenue has been earned in July.
Which of the following is the correct amount of Service Revenue to be reported in the
July income statement?
A.$20,410
B.$11,700
C.$21,320
D.$16,510
16) Accumulated Depreciation
A.increases assets
B.decreases assets
C.increases liabilities
D.decreases liabilities
17) Which of the following is not a requirement of Sarbanes-Oxley?
A.Annual report must include an internal control report
B.External auditors can no longer provide human resource services
C.External auditors can no longer provide brokerage services
D.Must establish an internal control system that guarantees financial accuracy
18) Which one of the following accounts most likely would appear on the income
statement of a merchandise company, but not on the income statement of a service
company?
A.Cost of Goods Sold
B.Selling Expenses
C.Administrative Expenses
D.Income Tax Expense
19) How are purchase discounts and purchase returns recorded by a company using the
periodic inventory system?
A.As a direct reduction to the Purchases account
B.In contra accounts to the Purchases account
C.As operating expenses
D.As miscellaneous expenses
20) Which of the following statements about bond accounting under the effective
interest method is correct?
A.The cash interest paid is calculated as the bond face value the effective rate
B.The interest expense is calculated as the carrying value the effective rate
C.The difference between the cash interest paid and the interest expense is added to the
carrying value of the bonds if bonds were sold at a premium
D.The difference between the interest expense and the interest paid is deducted from the
carrying value of the bonds if bonds were sold at a discount
21) Squid Lips, Inc. wants to measure the relationship between profitability and the
investment made by stockholders. Squid Lips should use the
A.return on stockholders’ equity ratio.
B.earnings per share.
C.profit margin.
D.statement of retained earnings.
22) With regard to a corporation’s stock, par value is
A.the current market price of the stock
B.an arbitrary amount that exists to fulfill legal requirements
C.the amount at which the stock has been repurchased
D.the amount at which treasury stock can be sold
23) How is income from operations determined?
A.By subtracting the cost of goods sold from sales
B.By subtracting the total operating expenses from sales
C.By subtracting the total operating expenses from gross profit
D.By subtracting selling expenses from operating revenues
24) The beginning balance of retained earnings was $630,000, and the ending balance
was $650,000. The company declared and paid dividends of $60,000.
A) Determine the amount of net income for the year.
B) What information would one find on the income statement in addition to net
income?
25) What are three specific ratios that are especially useful for creditors and lenders?
26) A company begins construction of an asset on January 1, 2014, and completes
construction
on December 1, 2014. The company pays the following amounts related to
construction:
January 1: $1,000,000
July 1: $2,000,000
October 1: $1,000,000
Calculate the average accumulated expenditures for the purpose of capitalizing interest.
27) The characteristic where each partner is personally liable for the debts of the
partnership is known as _____________________.
28) The totals of each side of a T account are called ____________________.
29) The three types of analysis that involve ratios are ____________________,
____________________, and ____________________.
liquidity, solvency, profitabilityor
liquidity, profitability, solvencyor
solvency, liquidity, profitabilityor
solvency, profitability, liquidityor
profitability, liquidity, solvencyor
30) Select the best answer from the list below to complete statements 1-11 that follow.
The number of shares sold or distributed to stockholder are
____________________________.
31) In 2002, Congress passed the ________________ Act to bring reform to corporate
accountability and stewardship in the wake of a number of major corporate scandals.
32) Rogers Corporation starts the year with a Retained Earnings balance of $55,000.
Net income for the year is $27,000. The ending balance in Retained Earnings is
$70,000. What was the amount of dividends declared and paid for the year?
33) Mobile Designs, Inc.
Use the selected data from the comparative financial statements for Mobile Designs,
Inc. to answer the questions that follow.
Mobile Designs, Inc.
Balance Sheet Accounts
(all accounts have normal balances)
(in millions)
Refer to the account information for Mobile Designs, Inc.
REQUIRED:
Calculate the current and quick ratios for 2013 and 2012. Comment on the direction and
significance of the change in the ratios.