Interest expense that is not explicitly recognized in a loan agreement is referred to as
coupon or nominal interest.
Financial management is concerned with where a company gets cash and how it uses
that cash to its benefit.
The journal entry to reclassify a noncurrent liability as a current liability includes a
debit to the current portion of long-term obligations.
To determine cash collections from customers, we take sales and add the increase in
Accounts Receivable.
There are no contra accounts on the income statement.
A transaction in which long-term debt of $50,000 is converted to common stock would
be reported in the financing section of the cash flow statement.
The effective-interest method of amortization keeps interest expense at the same
percentage of the bond’s carrying value for every interest payment over the bond’s life.
The market or effective rate of interest is used to calculate the actual amount of interest
bondholders will receive from a company issuing bonds.
If an improvement increases operating efficiency, then the depreciation schedule is
revised.
Analysts will compare a company’s financial ratios from the current year with those of
past years in order to make judgments about a company’s financial status, but
comparison to other companies’ ratios is usually not performed.
Management accounting serves internal decision makers, such as top executives and
department heads.
The additional owners’ equity generated by net income or net profits is used to increase
retained earnings.
A promissory note is an agreement with a bank to provide automatically short-term
loans up to some pre-established maximum amount.
An attribute associated with inventory valuation methods is that the lower the cost of
goods sold the higher the ending inventory.
Financial analysts and managers use the gross profit percentage as a measure of
profitability and inventory turnover as a measure of efficient asset use.
Which of the following statements is NOT true regarding common and preferred stock?
A) Common stock is the most basic and common type of stock.
B) All corporations issue common stock.
C) Preferred stock owners do not usually have voting rights.
D) Preferred stockholders have priority over common stockholders regarding dividends
and the distribution of assets upon liquidation.
E) With preferred shares, the amount of the dividend is generally specified and
increases every year.
Which of the following statements best describes how management selects an inventory
valuation method?
A) If a company generally sells its oldest inventory first, it must use the FIFO inventory
valuation method.
B) If a company generally sells its oldest inventory first, it must use the LIFO inventory
valuation method.
C) If a company generally sells its newest inventory first, it must use the FIFO
inventory valuation method.
D) If a company sometimes sells its newest inventory and sometimes sells its oldest
inventory, then it must use the weighted average inventory valuation method.
E) A company may choose any inventory valuation method even if it is contradictory to
the physical flow of inventory.
On September 12, 2012, Infinity Enterprises declared a $7,000 cash dividend payable
on October 1, 2012. The effect of the October 1, 2012, transaction on Infinity
Enterprises would be to
A) increase the balance in the cash account and decrease the balance in the prepaid
dividend account by $7,000.
B) decrease the balance in the cash account and decrease the balance in the dividend
payable account by $7,000.
C) decrease the balance in the cash account and increase the balance in the dividend
expense account by $7,000.
D) decrease the balance in the cash account and increase the balance in the prepaid
dividend account by $7,000.
E) decrease the balance in the cash account and decrease the balance in the retained
earnings account by $7,000.
Assets amount to $35,000 at the beginning of the period and $40,000 at the end of the
period. Liabilities amount to $10,000 at the beginning of the period and $20,000 at the
end of the period. What is the amount of the change and the direction of the change in
owners’ equity for the period?
A) Increase of $15,000
B) Decrease of $10,000
C) Increase of $5,000
D) Increase of $10,000
E) Decrease of $5,000
Tulsa Company has the following data available:
What is the gross profit rate for Tulsa Company in 2X13? Has the gross profit rate
improved or not improved since 2X12?
A) 23.3%, improved
B) 34.4%, improved
C) 34.4%, not improved
D) 52.4%, improved
E) 52.4%, not improved
Which of the following accounts are expected to have a debit normal balance?
1. Merchandise Inventory
2. Rent Expense
3. Paid-in Capital
4. Accumulated Depreciation
5. Sales
6. Prepaid Rent
7. Accounts Payable
A) Merchandise Inventory, Rent Expense, Prepaid Rent
B) Merchandise Inventory, Paid-in Capital, Sales, Prepaid Rent
C) Paid-in Capital, Accumulated Depreciation, Sales, Accounts Payable
D) Rent Expense, Accumulated Depreciation, Accounts Payable
E) Merchandise Inventory, Paid-in Capital, Accumulated Depreciation, Accounts
Payable
A pro forma statement is
A) a comparative financial statement of the current year’s results versus the prior year’s
results.
B) a statement by management, commenting on the results of the current operating
period.
C) a projected financial statement based on predicted results.
D) an agreement between a company and its lenders, describing details concerning the
loan payback.
E) a statement by the Internal Revenue Service, accepting a company’s tax returns.
Big Apple Cabins has net income of $725,000. Throughout the year, the company had
150,000 shares of common stock outstanding. Also, the company has 25,000 shares of
preferred stock that pay a dividend of $5.00 per share that is convertible into 5 shares of
common stock for each share of preferred. The preferred stock is considered to be
dilutive. The tax rate for Big Apple Cabins is 40%. What are the diluted earnings per
share for Big Apple Cabins?
A) $2.00
B) $2.25
C) $2.50
D) $2.64
E) $4.00
Define the following terms:
a. Neutrality
b. Relevance
c. Consistency
d. Verifiability
Dugger Excavating bought a machine for $24,000 on January 1, 20X3, with a useful
life of 5 years and a salvage value of $4,000. At the beginning of 20X4, Dugger finds
the residual value will be zero.
Assuming Dugger employs double-declining-balance depreciation, what will be the
depreciation expense in 20X4?
A) $5,250
B) $8,000
C) $4,160
D) $9,600
E) $5,760
When the market interest rate is 7% and the coupon rate is 10%, a bond sells at
A) a discount.
B) a premium.
C) par.
D) liquidation value.
E) Cannot be determined without more information
A subsidiary is a corporation owned or controlled by a parent company through the
ownership of
A) more than 10% of the voting stock.
B) more than 20% of the voting stock.
C) more than 25% of the voting stock.
D) more than 50% of the voting stock.
E) 100% of the voting stock.
Activities or transactions that affect the income statement are primarily included in
which section of the statement of cash flows?
A) Operating
B) Investing
C) Financing
D) Managing
E) Net income
On January 1, 20X3, Nets n’ Hoops issued $5,000,000 of 9%, 10-year bonds dated
January 1, 20X3, with annual interest payments on December 31. The bonds were
issued for $4,692,570 yielding an effective interest rate of 10%. Nets n’ Hoops uses the
effective-interest method of amortization.
a. Prepare the necessary journal entries to record the issuance of the bonds and the first
interest
payment.
b. Determine the ending net liability of the bonds on December 31, 20X3.
Expenses that are naturally linked to revenues are product costs. Examples of product
costs include ________ and ________.
A) Advertising Expense; Utilities Expense
B) Rent Expense; Depreciation Expense
C) Interest Revenue; Interest Expense
D) Cost of Goods Sold; Sales Commissions Expense
E) Administrative Expense; Selling Expense
Which statement about preferred stock is incorrect?
A) Callable preferred stock gives the issuing company the right to purchase the
preferred stock back from the shareholder.
B) The call price on callable preferred stock is set below the par or issue price of the
stock to compensate for the call feature.
C) Convertible preferred stock gives the owners of the stock the right to exchange their
preferred stock for common stock.
D) Convertible preferred stock can be expected to have a lower dividend percentage
than a similar nonconvertible preferred stock.
E) Participating preferred stock can receive a larger dividend than the prespecified
dividend when a company has an especially good year.
The entry to collect cash on account involves a
A) debit to Cash and a credit to Accounts Payable.
B) debit to Accounts Receivable and a credit to Cash.
C) debit to Cash and a credit to Accounts Receivable.
D) debit to Accounts Receivable and a credit to Accounts Payable.
E) debit to Cash and a credit to Sales Revenue.
Fulton Company has the following data available:
If a common size income statement were prepared, what percentage would be
attributable to the 2013 sales of Fulton Company?
A) 2.2%
B) 19.4%
C) 28.3%
D) 52.2%
E) 100%
Iacofano Pizza Place acquired equipment costing $11,000 on account. The effect of this
transaction on Iacofano Pizza Place would be to
A) increase equipment by $11,000 and decrease capital by $11,000.
B) increase equipment by $11,000 and increase capital by $11,000.
C) increase equipment by $11,000 and increase accounts payable by $11,000.
D) increase equipment by $11,000 and decrease accounts payable by $11,000.
E) No transaction is recorded since no cash has been paid.
Describe reasons and benefits to corporate mergers.
Name four internal controls specific to the cash account.
Oleke Manufacturing paid $1,800 for 4 months’ rent in advance on January 1. Assuming
only asset accounts were used in the January 1 journal entry, what adjusting entry is
necessary on January 31?
Klowdek Company purchased a $25,000 truck on January 1, 20X3. The company paid
$5,000 and will pay the remaining $20,000 with a 4-year note. The note requires that
the company make four equal annual payments starting on December 31, 20X3. The
note charges 10% interest. Given this information and using present value tables,
complete the following chart.
Define a “restructuring,” give two examples, and explain the liabilities that may result
from such an activity.
Trading securities and available-for-sale securities are reported on the balance sheet as: