1) Independent auditors (CPAs) render an opinion that the financial statements do or do
not fairly present a company’s financial position, operating results, and cash flows.
2) An example of horizontal analysis is the increase in cost of goods sold by 29% from
2011 to 2012.
3) The change in the Deferred Taxes account is reflected in the Operating Activities
category of the statement of cash flows.
4) Costs incurred to keep assets in normal operating condition are called revenue
expenditures.
5) [APPENDIX] The Deferred Tax account should reflect permanent differences but not
items that are temporary differences between book accounting and tax reporting.
6) [APPENDIX] Temporary differences occur when an item affects both book and tax
calculations but not in the same time period.
7) Accumulated depreciation is increased when depreciation is recognized.
8) Adjustments are recorded for all transactions involving outside entities.
9) A company may prepare a statement of retained earnings instead of a statement of
stockholders’ equity if the only changes in the stockholders’ equity accounts that
occurred during the year are earnings and dividends.
10) When a company recognizes the portion of supplies used during a year, the effect is
to decrease net income.
11) According to the IRS’s LIFO conformity rule, a company that chooses LIFO to
report net income to its shareholders may not use LIFO in preparing its income tax
return.
12) Promissory notes are non-negotiable.
13) Three common categories of long-term assets are: 1) property, plant, and
equipment, 2) investments, and 3) intangibles.
14) Grover, Inc.
Grover, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual
value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation. The
crane was purchased on January 1, 2013 and was used 2,700 hours in 2013 and 2,600
hours in 2014.
Refer to the information for Grover, Inc,
Based on this information, what method of depreciation will produce the maximum
depreciation expense in 2014?
A.Straight-line
B.Double-declining-balance
C.Units-of-production
D.All methods produce the same expense in 2014
15) Which one of the following is not a major category for long-term assets?
A.Intangibles
B.Property, plant, and equipment
C.Receivables
D.Goodwill
16) Marcos Inc. had net income for 2014 of $40,000. It declared and paid a $3,500 cash
dividend in 2014. If the companys retained earnings for the end of the year was
$38,200, what was the companys retained earnings balance at the beginning of 2014?
A.$81,700
B.$74,700
C.$5,300
D.$1,700
17) Kleins Shoe Company uses a perpetual inventory system. The beginning balance in
its inventory account is $1,500 and the ending balance is $1,000. Cost of goods sold is
$6,500. What was the amount of inventory purchased during the year?
A.$ 500
B.$6,000
C.$7,000
D.$7,500
18) Most annual reports now include a report of management to the stockholders. In
this report, which group has the primary responsibility for the preparation and integrity
of the financial statements
A.Management
B.The companys CPAs
C.The companys internal audit staff
D.The audit committee of the companys board of directors
19) Taryn Corporation
The accountant for Taryn Corporation prepared the following list of account balances
from the companys records for the year ended December 31, 2014:
Read the information for Taryn Corporation. Determine the following amounts for
Taryn Corporation.
A) The balance of retained earnings at the end of 2014.
B) The total stockholders equity at the end of 2014.
C) Name the two events that might cause stockholders equity to increase.
20) In 2012, Taggert Company had a beginning balance in its Cash Dividend Payable
account of $5,000 and an ending balance of $4,000. During 2012, the only dividends
Taggert declared were $46,000 in cash to the common stockholders. How much cash
was paid to the common stockholders?
A.$45,000
B.$47,000
C.$46,000
D.$ 1,000
21) During what year did the IASB and FASB reaffirm their commitment to achieving
convergence of accounting standards in the U.S.?
A.2007
B.2009
C.2002
D.2008
22) Utah Corp.
Use the following selected data and additional information from the records of Utah
Corp. to answer the questions that follow.
Additional information:
Review the data for Utah Corp.
REQUIRED:
(A) Prepare the investing activities section of a statement of cash flows for 2014 for
Utah Corp.
(B) Prepare the financing activities section of a statement of cash flows for 2014 for
Utah Corp.
23) What is the correct method for calculating working capital?
A.Total Assets minus Total Liabilities
B.Current Assets minus Total Liabilities
C.Current Assets minus Current Liabilities
D.Current Assets plus Current Liabilities
24) The Retained Earnings account balance for a large corporation is $10,000,000. This
amount represents
A.earnings that have not been distributed to shareholders
B.cash in the bank
C.the amount of cash available for dividends
D.revenues for all past years of operations
25) Payment is made for land purchased earlier on credit. For this transaction, identify
the effect on the accounting equation.
A.Assets increase and liabilities increase
B.Assets increase and stockholders equity increases
C.Liabilities increase and stockholders equity decrease
D.Liabilities decrease and assets decrease
26) [APPENDIX] Wave Corporation is determining its income tax liability. It has one
machine that cost $30,000 with a 4-year life and no salvage value. Wave is using an
accelerated depreciation method for tax purposes. For accounting purposes, Wave has
decided to use the straight-line method. Which of the following statements is true?
A.There will be a temporary difference between accounting income and income for tax
purposes
B.There will be a permanent difference between accounting income and income for tax
purposes
C.Waves accounting income and income for tax purposes will be equal
D.Accounting income will be lower than income for tax purposes, especially in the
early years of the asset’s life
27) Which of the following statements is trueregarding a credit memorandum?
A.A credit memorandum is subtracted from the balance per the companys books
B.A credit memorandum could be issued for bank service charges
C.A credit memorandum is issued when a customer gives the company an NSF check
D.A credit memorandum is added to the balance per the companys books
28) How is a classified balance sheet useful to decision makers?
29) A(n) ______________________ lease is recorded on the lessee’s balance sheet as
an asset and related liability.
30) The financial statement that primarily reflects events related to the operating
activities of a business, or the selling of products or providing services is the
_________________________.
31) A purchase of raw materials from a supplier is a(n) ____________________ event.
32) During the current period, Audix Corp. sold products to customers for a total of
$76,000. Due to defective products, customers were given $2,800 in refunds for
products that were returned and another $3,500 in reductions to their account balances.
Discounts in the amount of $5,500 were given for early payment of account balances.
REQUIRED:
Prepare the Net Sales section of Audixs income statement.
33) The ____________________________ of a single sum represents the value today
of a single amount to be received or paid at a future time.
34) _____________ ratio is capable of telling the user everything there is to know
about a particular company.
35) If an accounting firm provides services on account, both ____________________
and stockholders equity increase.
36) Bagel Inc. reported net income of $105,000 for the year ended December 31, 2014.
The following items were included on Bagels balance sheets at December 31, 2014 and
2013:
12/31/14 12/31/13
Cash $106,000 $113,000
Accounts receivable 213,000 93,000
Notes receivable 95,000 103,000
Bagel uses the indirect method to prepare its statement of cash flows. Bagel does not
have any other current assets or current liabilities and did not enter into any investing or
financing activities during 2014.
REQUIRED:
1> Prepare Bagels 2014 statement of cash flows.
2> Draft a brief memo to the owner to explain why cash decreased during a profitable
year.
37) Heidi Corporations partial income statement is as follows:
Required
Determine the profit margin. Would you invest in Heidi Corporation? Explain your
answer.