1) When a firm is expensing an item faster on the tax return than on the financial
statements, a deferred tax liability is the result.
2) Accounting standards codification TM reorganizes the accounting pronouncements
into approximately 90 accounting topics.
3) Sometimes financial statements are presented without an accompanying accountant’s
report.
4) Times interest earned indicates a firm’s long-term, debt-paying ability from the
balance sheet view.
5) Only cash flow transactions are presented in the statement of cash flows, including
supporting schedules.
6) In order to determine the meaning of a ratio, some kind of comparison, such as an
industry average or trend analysis, is helpful.
7) Assets are probable future economic benefits obtained or controlled by an entity as a
result of past transactions or events.
8) Corporations do not use a standard title for owners’ equity.
9) There are many practical and theoretical issues related to the computation of
financial ratios.
10) The principal financial statements are the balance sheet, income statement, and
statement of cash flows.
11) Private companies are required to report under Sarbanes-Oxley.
12) Monitoring cash flow can be particularly important when following an oil or gas
company.
13) Segment data contain information about geographic markets, including foreign
countries.
14) An interim period is a fiscal period less than one year.
15) Financial statement analysis is a judgmental process.
16) Preferred stock usually has voting rights.
17) A disadvantage of interest expense over dividends is its tax deductibility.
18) An entity usually cannot reasonably account for the profits related to inventory until
that inventory is sold in the normal course of business.
19) There are two types of subsequent events under GAAP; those that require
retroactive recognition, and those that do not require retroactive recognition but require
disclosure in the notes to the financial statements.
20) If financial leverage is used, a rise in EBIT will cause a lessor rise in net income.
21) Required:
22) Which of the following is a temporary account?
a. Advertising expense
b. Land
c. Building
d. Accounts payable
e. Bonds payable
23) Income tax expense in interim reporting should:
a. be based on the quarterly income only
b. contain a judgment estimation of the annual effective tax rate
c. be based on the income year-to-date
d. exclude extraordinary items in earlier quarters of the year
e. disregard year-end adjustments
24) Charging off equipment that cost less than $20 would be an example of the
application of:
a. going concern
b. cost
c. matching
d. materiality
e. realization
25) Company A owns shares of Company B and Company C. The statements of
Company B are consolidated with those of Company A. The statements of Company C
are not consolidated. Company A reports “Noncontrolling Interest” on its balance sheet.
This account represents:
a. A’s noncontrolling share of the stock of B
b. A’s noncontrolling share of the stock of C
c. the noncontrolling share by outside owners of the stock of A
d. the noncontrolling share by outside owners of the stock of B
e. the noncontrolling share by outside owners of the stock of C
26) For Larry and Carl, the assets and liabilities and the effective income tax rates are
as follows at December 31, 2012 .
Required:
27) The current asset section of the balance sheet should include:
a. land
b. trademarks
c. investment in C Company (for purposes of control)
d. dividends payable
e. work in process inventory
28) Which of the following accounts will not be considered when computing cash flow
from operations?
a. Accounts receivable
b. Inventories
c. Equipment
d. Accounts payable
e. Taxes payable
29) In the analysis of profitability, if equity earnings are substantial, it is advisable to:
a. consider them as extraordinary
b. consider them as nonrecurring
c. investigate the earning power of the parent outside of the related investing activities
d. recompute the debt ratio and times interest earned to remove the impact of equity
earnings
e. use the DuPont method to lessen the impact of equity earnings
30) Company A uses LIFO and Company B uses FIFO for inventory valuation.
Otherwise, the firms are of similar size and have the same revenue and expense.
Assume inflation. In analyzing liquidity and profitability of the two firms, which of the
following will hold true?
a. It is impossible to compare two firms with different inventory methods
b. Company B will have relatively higher profit and higher inventory turnover
c. Company B will have relatively higher profit and lower inventory turnover
d. Company A will have a higher current ratio and acid test ratio, with the same profit
e. Company B will have relatively higher profit and a higher current ratio
31) Included in the Employee Retirement Income Security Act are the following:
a. provisions requiring minimum funding of pension plans
b. minimum rights to employees upon termination of their employment
c. creation of the Pension Benefit Guaranty Corporation
d. provisions requiring minimum funding of pension plans and minimum rights to
employees upon termination of their employment
e. provisions requiring minimum funding of pension plans, minimum rights to
employees upon termination of their employment, and creation of the Pension Benefit
Guaranty Corporation
32) A times interest earned ratio indicates that:
a. preferred stock has no maturity date
b. the debt will never become due
c. the firm will be able to repay the principal when due
d. the principal can be refinanced
e. none of the answers are correct
33) The earnings per share is computed for:
a. common stock
b. non-redeemable preferred
c. redeemable preferred
d. common stock and non-redeemable preferred stock
e. common stock and fully diluted preferred stock
34) Listed below are ten phrases with the appropriate abbreviation.
Required:
Match the letter of each phrase with the appropriate definition.
a. Generally Accepted Accounting Principles (GAAP)
b. Securities and Exchange Commission (SEC)
c. American Institute of Certified Public Accountants (
d. Accounting Principles Board (APB)
e. Financial Accounting Standards Board (FASB)
f. Statements of Financial Standards (SFAS)
g. Discussion Memorandum (DM)
h. Statements of Position (SOP)
i. Emerging Issues Task Force (EITF)
j. Financial Reporting Releases (FRRs)
k. The Public Company Accounting Oversight Board (PCAOB)
1>Issued by the SEC and give the SEC’s official position on matters relating to
financial reports.
2>Accounting principles that have substantial authoritative support.
3>A task force of representatives from the accounting profession created by the FASB
to deal with emerging issues of financial reporting.
4>Created by the Securities Exchange Act of 1934 .
5>Issued by the Accounting Standards Division of the
6>A professional accounting organization whose members are certified public
accountants (CPAs).
7>Issued official opinion on accounting standards between 1959-1973.
8>This board issues four types of pronouncements: (1) Statements of Financial
Accounting Standards (SFAS), (2) Interpretations, (3) Technical Bulletins, and (4)
Statements of Financial Accounting Concepts (SFAC).
9>Presents all known facts and points of view on a topic; issued by the FASB.
10>Issued by the Financial Accounting Standards Board (FASB) and establish GAAP
for specific accounting issues.
11>Responsible for adopting auditing standards.
35) The following data relate to Gorr Company for the year ended December 31, 2012.
Gorr Company uses the accrual basis.
Which of the following represents income for Gorr Company for the year ended
December 31, 2010?
a. $180,000
b. $185,000
c. $190,000
d. $200,000
e. None of the answers are correct
36) Which of the following have a balance sheet similar in format to a manufacturing
firm?
a. Transportation
b. Banks
c. Utilities
d. Transportation and utilities
e. Transportation and banks
37) The following statistics are presented for 2012 and 2011 for National Community
Bank.
Required:
38) Jones Clothing Store presented the following statement of cash flows for the year
ended December 31, 2012 .
Required:
39) The operating ratio for a railroad is a measure of:
a. cost control
b. liquidity
c. earnings to investors
d. borrowing ability
e. liquidity
40) Below is a list of auditor’s reports as well as a list of phrases describing the reports.
Required:
Match each auditor’s report with the phrase that correctly describes it.
a. adverse
b. unqualified
c. qualified
d. reviewed
e. disclaimer
f. compiled
1>Presentation of financial information as presented by management
2>This opinion states that except for the effects of the matter(s) to which the
qualification relates, the financial statements present fairly, in all material respects, the
financial position, results of operations, and cash flows of entity in conformity with
generally accepted accounting principles.
3>This opinion states that the financial statements do not present fairly the financial
position, results of operations, and cash flows of the entity in conformity with generally
accepted accounting principles.
4>Consists principally of inquiries made to company personnel and analytical
procedures applied to financial data.
5>The auditor does not express an opinion on the financial statements.
6>This opinion states that the financial statements present fairly, in all material
respects, the financial position, results of operations, and cash flows of the entity in
conformity with generally accepted accounting principles.
41) If Investor Company owns 20% of the stock of Investee Company and Investee
Company reports profits of $100,000, then Investor Company reports equity income of:
a. $80,000
b. $20,000
c. $40,000
d. $60,000
e. None of the answers are correct
42) The retirement of debt by the issuance of common stock should be presented in a
statement of cash flows in which of the following sections?
a. Supplemental schedule of noncash investing and financing activities
b. Cash flows from operating activities
c. Cash flows from investing activities
d. Cash flows from financing activities
e. Supplemental schedule to reconcile net income to net cash provided by operations
43) Which of the following statements is not true relating to a capitalized (capital)
lease?
a. A capital lease is handled as if the lessee bought the asset
b. The leased asset is in the fixed assets and the related obligation is included in
liabilities
c. On the balance sheet, the capitalized asset amount will not usually agree with the
capitalized liability amount because the liability is reduced by payments, and the asset
is reduced by depreciation taken
d. Usually, a company depreciates capitalized leases faster than payments are made
e. On the balance sheet, the capitalized asset amount will usually be higher than the
capitalized liability amount
44) Interest margin to average total assets measures:
a. the balance between earning and nonearning assets
b. management’s ability to control the spread between interest income and interest
expense
c. the ability to borrow successfully
d. the proportion of debt to equity
e. the return on owner’s investment
45) Which of the following will cause operating revenues for a transportation firm to
vary?
a. Difference in rates
b. Classification of traffic
c. Volume of traffic carried
d. Distance traffic is transported
e. All of the answers are correct
46) Ingram Dog Kennels had the following financial statistics for 2012:
What is the times interest earned for 2012?
a. 11.4 times
b. 3.3 times
c. 3.1 times
d. 3.7 times
e. None of the answers are correct
47) All cash receipts and disbursements, of governmental agencies, not required to be
accounted for in another fund are accounted for in which of the following funds?
a. Fiduciary fund
b. Proprietary fund
c. General fund
d. Debt service fund
e. Special assessment fund
48) Information for Scandinavian Products at the end of Year 4 follows.
Required:
49) Smith Company has had 10,000 shares of 8%, $100 par-value preferred stock, and
15,000 shares of $10 par-value common stock outstanding for the last two years.
During the most recent year, dividends paid totaled $100,000; in the prior year,
dividends paid totaled $60,000.
Required:
Compute the amount of dividends that must have been paid to preferred stockholders
and common stockholders in each of the years, given the following independent
assumptions:
50) The following financial statement data are taken from Xeron Company’s 2012
annual report:
Compute the debt to tangible net worth ratio.
a. 146.8%
b. 135.6%
c. 53.0%
d. 45.7%
e. none of the answers are correct
51) Gross profit is the difference between:
a. net income and operating income
b. revenues and expenses
c. sales and cost of goods sold
d. income from continuing operations and discontinued operations
e. gross sales and sales discounts
52) Required:
Indicate the section of a multiple-step income statement in which each of the following
items would usually appear for a manufacturing company.
a. fire loss, net of tax
b. depreciation on office equipment
c. interest income
d. sales commissions
e. cost of goods manufactured
f. dividend income
g. advertising expense
h. interest expense
i. factory workers’ salaries