1) The Loss on Sale of Asset indicates the amount by which the assets sales price is less
than its book value.
2) In the statement of cash flows, an increase in a current liability will appear as an
increase in the Financing category.
3) If collection of accounts receivable is assured, then accounts receivable are
considered to be cash equivalents.
4) The credit side of an account is the right side while the debit side is the left side.
5) With few exceptions, the balance of all accounts should be on the side of the T
account that causes the increase.
6) The denominator of a return ratio will be some measure of the companys income for
the period.
7) The cash flow adequacy ratio is defined as:
8) The FASB standards do not have a specific rule that requires residual value and asset
life to be reviewed annually for property, plant, and equipment.
9) Stockholders equity is owners equity in a corporation.
10) A company invests excess cash in a certificate of deposit. At the end of an
accounting period before the CD matures, the company will recognize interest expense.
11) The independent auditor’s report conveys whether or not the business is a good
investment.
12) An aging schedule typically categorizes the various accounts by the length of time
each invoice is outstanding.
13) An independent auditor’s (CPA’s) report is a guarantee that the financial statements
are free from fraud or material error
14) On the balance sheet, a company reports plant assets by subtracting residual value
from the original cost of the plant asset.
15) An advantage of a strong system of internal control is that less testing of the
accounting system is done by the outside auditors.
16) Trailways Busline is an example of a
A.producer
B.supplier
C.retailer
D.service provider
17) Expenses originate from
A.Using an asset or recognizing liabilities
B.Incurring liabilities or providing services to customers
C.Collecting cash from customers
D.Paying off liabilities
18) Deposits made by a company but not yet reflected in a bank statement are called
A.Debit memoranda
B.Deposits in transit
C.Credit memoranda
D.None of the above
19) Culinary Delights Company
Refer to the financial statements of Culinary Delights Company.
REQUIRED:
(A) Culinary Delights’ cash flow from operations for 2012 is $323,847 (in thousands).
Evaluate Culinary Delights short-term cash flow position during 2012. Is the company
in danger of problems? Explain.
(B) Evaluate Culinary Delights inventory management during 2012.
20) Which of the following items is treated as a cash equivalent?
A.Commercial paper with a 6-month maturity when purchased and 4 months until
maturity at the balance sheet date
B.Investment in corporate stocks which management intends to sell within 3 months
after the balance sheet date
C.Money market funds which can be obtained overnight from a bank or brokerage firm
D.Investments in corporate bonds which have 5 years until maturity when they are
purchased
21) A gain is recognized on the disposal of plant assets when:
A.The sales price is greater than the book value and less than the residual value
B.The sales price is greater than the book value and greater than the residual value
C.The sales price is less than both the book value and the residual value
D.The sales price is greater than the residual value but less than the book value
22) Use the information below for Oakland Inc. for 2013 and 2014 to answer the
following question.
During 2014, Oakland Inc. sold equipment with a cost of $30,000 and accumulated
depreciation of $25,000. A gain of $3,000 was recognized on the sale of the equipment
This was the only equipment sale during the year.
Assume that all purchases of equipment were paid with cash. How much cash was paid
by Oakland for the purchase of equipment during 2014?
A.$ 7,000
B.$30,000
C.$37,000
D.$72,000
23) The following items were reported on the balance sheets and income statement for
Power Wash Company:
How would the change in accounts receivable be reported in the operating activities
section of the statement of cash flows under the indirect method?
A.As an addition to sales
B.As a deduction from sales
C.As an addition to net income
D.As a deduction from net income
24) Sunshine Farm Supply
Following are selected data from the financial statements of Sunshine Farm Supply:
Refer to the data for Sunshine Farm Supply.
Which of the following would result from a horizontal analysis of its balance sheet?
A.Accounts receivable increased $22,000 or 57.9% during 2012
B.Accounts receivable is five times larger than Merchandise inventory in 2012
C.Accounts receivable is 13.3% of total assets for 2012
D.Merchandise inventory is 2.7% of total assets for 2012
25) Dinos Italian Grille purchased $6,000 of napkins for its business. One-fourth of the
bill is unpaid. Upon review of the napkins still on hand, 20% were still available. What
combination of amounts would affect the income statement and statement of cash
flows?
Statement of Cash Flow Income Statement
A.($6,000) ($6,000)
B.($4,500) ($6,000)
C.($4,500) ($4,800)
D.($6,000) ($4,800)
26) A discussion of the financial statements with explanations of certain amounts in the
statements is most likely found in which of the following sections of a corporate annual
report?
A.Report of the Independent Accountants
B.Notes to the Financial Statements
C.Managements Discussion and Analysis
D.Balance Sheet
27) When a company declares a 3-for-1 stock split, the number of outstanding shares
A.is tripled compared to the number of shares that were outstanding prior to the split
B.stays the same, but, the number of issued shares triples
C.is tripled, while the number of issued shares is reduced to one-third of the original
issued shares
D.is reduced, and the number of issued shares is tripled
28) Use the selected data from the consolidated statements of cash flows for College
Corporation for the years ended December 31, 2014 and 2013, to answer the questions
that follow.
REQUIRED:
(A) What is the significance of the positive amounts shown above, for both years, for
accounts payable and accrued liabilities?
(B) At the end of each year, Colleges cash balance was approximately $5 to $7 million.
What does this indicate about Colleges cash management techniques?
29) You are interested in accumulating $10,000 so that you can take a cruise in 3 years.
If you trying to solve for the amount that you need to invest each year, earning 6%
interest compounded annually, the $10,000 represents:
A.The amount to invest
B.An annuity
C.A present value
D.A future value
30) Which statement is trueconcerning gains and losses?
A.Gains and losses are reported on the balance sheet in the Assets and Liabilities
sections, respectively
B.Gains and losses are special types of revenues and expenses that are reported on the
income statement
C.The amounts of gains and losses are included in the calculation of the current ratio, in
the numerator and denominator, respectively
D.Gains and losses are reported only on a multi-step income statement
31) The following set of items describes activities completed by a company in
purchasing and paying for merchandise. For each activity, identify whether or not the
activity adheres to or violates sound internal control procedures.
Extensions and footings on purchase invoices are verified before the invoices are
approved for payment
A.Adheres to sound internal control procedures
B.Violates sound internal control procedures
C.Neither strengthens nor violates internal control
32) Which of the following statements is correct?
A.Bonds are issued at a price that reflects the stated rate of interest on the day the bond
is purchased
B.If the face rate of interest on a bond is not equal to the market rate of interest, then the
company desiring to issue the bonds must reprint its bond certificates
C.The actual issue price of a bond represents the present value of all future cash
flows related to the bond
D.The market rate of interest has no bearing on the selling price of the bonds
33) The calculations for some profitability ratios are the same as the calculations for
common-size analysis of the income statement. Which of the following profitability
ratios would also be determined through a common-size analysis of the income
statement?
A.gross profit ratio
B.debt-to-equity ratio
C.acid-test ratio
D.earnings per share
34) Which method of preparing the operating activities section of a statement of cash
flows reports major classes of gross cash receipts and cash payments for revenues and
expenses?
A.The direct method
B.The indirect method
C.Both the direct method and the indirect method
D.Neither the direct method nor the indirect method
35) Burger Barn Company issued $150,000 face value bonds at a premium of $6,000.
The bonds contain a call provision of 102. Burger Barn decides to redeem the bonds
due to a significant decline in interest rates. On that date, Burger Barn had amortized
only $1,500 of the premium.
REQUIRED:
1> Calculate the gain or loss on early redemption of the bonds.
2> Identify and analyze the effects of the transaction recorded at the time of bond
redemption.
3> Where should the gain or loss should be presented on the financial statements?
4> Why is the call price is normally higher than 100?
36) The acquisition of a computer for $1,200, with a downpayment of $200 cash and
the signing of a $1,000 note payable for the balance increases both assets and
____________________.
37) Dividends are not a(n) __________________ but a direct reduction of retained
earnings.
38) Slammer Sports
The following information is for Slammer Sports at the end of 2014:
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?
39) What role do accounting records play in the adjustment process?
40) Is it logical that interest paid is classified as a cash outflow in the Operating
Activities section of the statement of cash flows but that dividends paid are included in
the Financing Activities section? Explain.
41) Grenada Corporation
Use the note on Disclosure of Leases for the Grenada Corporation to answer the
questions that follow.
The Corporation leases office, warehouse and showroom space, retail stores and office
equipment under operating leases, which expire no later than 2025. The Corporation
normalizes fixed escalations in rental expense under its operating leases. Minimum
annual rentals under non-cancelable operating leases, excluding operating cost
escalations and contingent rental amounts based upon retail sales, are payable as
follows:
Fiscal year ending March 31,
Rent expense was $12,551,000; $8,911,000; and $5,768,000 for the years ended March
31, 2010, 2009,and 2008 respectively.
Review the information for Grenada Corporation.
REQUIRED:
The note disclosure mentions contingent rent payments. What do you think this means
with regard to Grenada Corporation?
42) Burke Company
The following income statement items are taken from the records of Burke Company
for the year ended December 31, 2014:
Read the information about Burke Company
Required:
Prepare a single-step income statement for the year ended December 31, 2014.
