Cash equivalents are investments that are readily convertible to a known amount of
cash, where readily means six months or less.
a.True
b.False
Not all recognizable events are supported by a standard source document.
a.True
b.False
The data presented below is for Mellon Corporation for the year ended December 31,
2015:
Allowance for Doubtful Accounts [Credit Balance]
(Before adjustment at December 31, 2015) 3,000
Estimated amount of uncollectible accounts based on an aging analysis 31,000
Refer to the information for Mellon Corporation.
If Mellon uses the aging of accounts receivable approach to estimate its bad debts, what
will be the net realizable value of its accounts receivable after the adjustment for bad
debt expense?
a. $216,000
b. $219,000
c. $222,000
d. $250,000
Match the most probable matching method to the costs listed below
a.Directly match a specific revenue
b.Indirectly match with the period during which it will provide revenue
c.Immediately recognize because no future benefits are expected.
Warehouse used for storing inventory goods
From the following list, select the proper section from the statement of cash flows in
which it would be classified.
a.Operating Activities
b.Investing Activities
c.Financing Activities
Paid suppliers cash for inventory purchased
For each item listed below, identify how it will be reported on the Statement of Cash
Flows under the indirect method.
a.Operating activity
b.Investing activity
c.Financing activity
d.Not reported separately on the cash flow statement
Increase in short-term notes receivable
Select the correct revenue recognition principle for each of the following.
a.Recognize revenue over the passage of time.
b.Recognize revenue when the customer takes possession of the product.
c.Recognize revenue when cash is collected.
d.Recognize revenue when service is performed.
Rent
The following items were reported on the balance sheets and income statement for
Bezos Corp.:
How would the change in accounts payable be reported in the operating activities
section of the statement of cash flows under the indirect method?
a.As an addition to operating expenses
b.As a deduction from operating expenses
c.As an addition to net income
d.As a deduction from net income
The Diva Design Group was organized on July 1, 2014 when the two principal owners
each contributed $50,000 and received shares of stock in exchange. Their year-end is
December 31. The following events occurred during Diva Design Group’s first year of
operations.
1>On July 1, acquired a building by paying $50,000 in cash and borrowing $250,000
from the Flores Bank.
Information regarding the building: The building has a useful life of 30 years and no
salvage value. Diva Design uses straight line depreciation.
Information regarding the note payable: The note payable will be due in full in five
years. Interest is payable annually. The interest rate on the note is 5%.
2>On July 1, paid cash in the amount of $1,200 for a one-year property insurance
policy.
3>On August 1, purchased two computers for $4,000 cash each. The computers have a
useful life of 5 years and a $100 salvage value. The computers will be depreciated using
the straight line method.
4>On October 1, receives $120,000 in cash for services to be provided evenly during
the next six months.
I.(A)Determine the effect of each of the transactions on the accounting equation.
I.(B)Determine the effect on the accounting equation of the necessary adjustments at
December 31 for each of the following:
1)Depreciation on the building
2)Interest on the promissory note
3)Recognition of the expired portion of the insurance
4)Depreciation on the computers
5)Cash received in advance of services provided
II.For each of the adjusting entries, indicate which of the following type of entry was
recorded:
a.Accrued liability
b.Accrued asset
c.Deferred expense
d.Deferred revenue
III.Prepare an income statement at December 31, 2014. Diva Design has a tax rate of
30%.
For each transaction select the letter of the type of adjustment that would be required.
a.Deferred expense
b.Deferred revenue
c.Accrued liability
d.Accrued asset
Amounts earned, not received from customers are recorded
Culinary Delights Company
Use the financial statements for Culinary Delights Company to answer the questions
that follow.
Refer to the financial statements from Culinary Delights Company.
REQUIRED:
(A)Calculate the company’s current and acid-test ratios for 2016. Would you lend this
company $4,000,000 at 10% over a one-year period? Explain. (Note: The statements
provided are in “thousands.”)
(B)Suppose the company has credit terms of 20 days and all sales are on credit. During
2016, what credit management problems does this company have, if any? Explain
The definition of a conglomerate is a company that operates in one industry and uses
different inventory valuation techniques.
a.True
b.False
The lack of a common depreciation method makes it impossible to compare the
performance companies using different methods.
a.True
b.False
For each of the following items, indicate whether each would be treated as a
a.capital expenditure
b.revenue expenditure
Costs incurred prior to using the asset, such as costs to prepare the asset for use,
installation costs.
Match the terms with the descriptions related to merchandise sales and purchases.
a.Transportation-in
b.Perpetual inventory system
c.Net purchases
d.FOB Destination
e.Cost of goods available for sale
f.Periodic inventory system
g.FOB Shipping point
h.Delivery expense
Shipping costs paid to acquire merchandise.
Each account has a normal balance. For the following list of accounts, indicate whether
the normal balance of each is a debit or a credit.
a.Debit
b.Credit
Office Supplies
Assume the current ratio is 3 to 4. Purchases of inventory on account would cause the
current ratio to
a.increase.
b.be unchanged since the effects offset each other.
c.be unchanged since it has no effects on any current accounts.
d.decrease.
Moss Company has provided the following information from its accounting records for
the current year:
Read the information for Moss Company. What are Moss’ current liabilities?
a. $50,000
b. $125,000
c. $200,000
d. $230,000
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.
For a given single sum invested at 8% for 4 years, how will the future value be affected
if the compounding period is changed from annual to quarterly?
a.The future value will decrease.
b.The future value will stay the same.
c.There is not enough information to determine the impact.
d.The future value will increase.
Tiva Solutions’ accounting records reflect the following account balances at December
31, 2014:
During 2015, the following transactions occurred:
1)On March 1, purchased a one-year insurance policy for $1,200 cash.
2)On April 1, borrowed $10,000 cash from Rock City Bank. The interest rate on the
note payable is 6%.
Principal and interest is due in cash in one year.
3)Employee salaries in the amount of $20,000 were paid in cash.
4)At the end of the year, $400 of the supplies remained on hand.
5)Earned $45,000 in tax consulting revenue during 2015 in cash.
6)At December 31, $5,000 in employee salaries were accrued.
7)On December 31, received $2,000 in cash representing advance payment for services
to be provided in February of 2016.
8)The building has a useful life of 25 years and no salvage value.
Listed below is information from the financial records of Cargo Corporation at
December 31, 2015:
Read the information about Cargo Corporation.
Prepare the current liabilities section of the balance sheet for Cargo Corp. at December
31, 2015. You may omit the heading. If the amount of current liabilities were larger,
what effect would this have on the current ratio?
Carlton, Inc. reported the following information for 2015 and 2014:
Refer to the information for Carlton, Inc.
How much is the cost of net purchases for 2015?
Estimated Uncollectible Accounts
Refer to the data for Slammer Sports.
If the aging approach is used to estimate bad debts, how much bad debts expense will
Slammer Sports report for 2014?
The cost of Garmin Corp.’s inventory at the end of the year was $85,000¾ however, due
to obsolescence, the cost to replace the inventory was only $65,000. Identify the effects
of this transaction on the accounting equation and income statement accounts at the end
of the year.
Under thebasis of accounting, revenues are recognized when earned and expenses when
incurred.
The following balance sheet items from Fasoli, Inc. are listed for December 31, 2015:
Read the information about Fasoli, Inc.
REQUIRE:
Compute Fasoli’s current ratio. On the basis of your answer, does Fasoli appear to be
liquid? What other
information do you need to fully answer that question?
Camp Consulting Services started business on January 1, 2015. Camp performed
services for customers totaling
$100,000 of which 40% remain uncollected at the end of December. Under the accrual
basis, what amounts would appear on Camp Consulting’s financial statements for 2015?
Backkus Metal Company
Use the liabilities section of Backkus Metal Company’s balance sheet to answer the
questions that follow.
Review the consolidated balance sheets of Backkus Metal Company.
REQUIRED:
(1)What are the total long-term liabilities for the two years presented?
(2)What is the percent increase/decrease of long-term liabilities from 2014 to 2015?
Which liability appears to have caused the greatest change?
