1) The accounting equation must balance after each transaction.
2) In terms of the statement of cash flows, cash includes actual cash items plus certain
cash equivalents such as commercial paper, money market funds, and Treasury bills.
3) Stock investors view equity as a claim against the company that must be satisfied
before they get a return on their money.
4) The concept of leveragerefers to the practice of using borrowed funds and amounts
received from preferred stockholders in an attempt to earn an overall return that is
higher than the cost of these funds.
5) The operating cycle for all businesses is one year.
6) Information must be timely to be relevant.
7) The alternate term for a credit card draft is an invoice.
8) Several accounts from the financial statements of Robot Technologies are listed
below. In the two columns provided for answers, indicate the type of account and the
normal account balance. Use the following identification codes for your answers:
Type of Account NormalBalance
A) Prepaid Expenses _______ _______
B) Cable Television Equipment _______ _______
C) Subscriptions Received in Advance _______ _______
D) Common Stock _______ _______
E) Accounts Payable _______ _______
F) Income Taxes Expense _______ _______
G) Interest Income _______ _______
H) Cable Television Franchises _______ _______
I) Long-Term Debt _______ _______
9) Beatrice Equipment
Beatrice Equipment sells merchandise only on credit. For the year ended December 31,
2014, the following data is available:
Refer to the data for Beatrice Equipment.
Assume that Beatrice Equipment estimates bad debts at 1% of net credit sales.
10) Wang Apartments purchased an apartment building to rent to university students on
November 18, 2013. The following costs were incurred during 2013, before the tenants
moved in:
How much will Wang Apartments record as an asset?
A.$320,000
B.$345,000
C.$351,000
D.$355,000
11) Which one of the following statements is true?
A.When a company uses a subsidiary ledger, the balance in the control account,
Accounts Receivable, shows only the amount the company expects to collect from the
accounts receivable, net of any expected uncollectible accounts
B.An accounts receivable subsidiary ledger represents amounts due to vendors and
suppliers
C.The balance in the control account, Accounts Receivable, should be equal to the sum
of the balances in the subsidiary ledger for accounts receivable.
D.A subsidiary ledger takes the place of the control account for some companies.
12) Speed Wear Bicycle Gear accepts VISA credit cards from its customers. Speed
Wear is closed on Sundays and on that day records the weekly sales and remits the
credit card drafts to VISA. For the week ending on Sunday, April 12, cash sales totaled
$3,650 and credit card sales amounted to $3,900. On April 15, Speed Wear received
$3,794.70 from VISA as payment for the credit card drafts. Identify and analyze the
effect of the April 12 and April 15 transactions. As a percentage, what collection fee is
VISA charging Speed Wear?
13) Computech Industries
Below is financial data for Computech Industries current year.
Refer to the data for Computech Industries.
Based on this information, what is Computechs number of days sales in inventory
(assuming a 360 day year)?
A.132 days
B.216 days
C.1,091 days
D.120 days
14) Givens Corp.
Givens Corp. is a merchandising company that uses the periodic inventory system.
Selected account balances are listed below:
Refer to the information for Givens Corp.
Calculate the gross profit.
A.$241,000
B.$275,000
C.$289,000
D.$425,000
15) A mortgage incurred in exchange for an office building would be reported in the
statement of cash flows in
A.the cash flows from financing activities section
B.the cash flows from investing activities section
C.a separate schedule
D.the cash flows from operating activities section
16) Gommert Co. purchased land and a building for $425,000. The appraised values of
the land and the building were $150,000 and $450,000, respectively. In addition, the
attorney was paid $10,000 for handling the closing on the property.
17) All of the following statements are true except:
A.Both U.S. GAAP and international financial reporting standards (IFRS) require the
use of the lower-of-cost-or-market rule to value inventories
B.U.S. GAAP defines market value as replacement cost
C.IFRS uses net realizable value with no upper or lower limits imposed
D.Write-downs of inventory can be reversed in later periods under U.S. GAAP
18) In preparing the financial statements for December 31, 2014, an accountant
improperly classified the payment of prepaid rent as rent expense. Which of the
following amounts would not be affected by this improper classification?
A.Retained earnings, January 1, 2014
B.Retained earnings, December 31, 2014
C.Net income
D.Total assets
19) Information taken from the accounting records of Airways, Inc., for the year ended
December 31, 2012, appears in the table below. In the space provided, indicate in which
section of the statement of cash flows (investing or financing) each item would be
reported, and whether the item is a cash inflow or outflow. If an item is neither an
investing activity or financing activity, place an X in the box.
Transaction Cash FlowSection Inflow orOutflow
a. Proceeds from sale of investment, $65,000
b. Proceeds from borrowing from the bank, $32,000
c. Dividends declared, $68,000
d. Repayments of long-term debt, $21,000
e. Preferred shares issued, $140,000
f. Preferred shares converted into common stock; the market value at time of exchange,
$35,000
g. Dividends paid to shareholders, $43,000
h. Treasury stock purchases, $15,000
20) In a vertical analysis of the income statement, the 100% amount is
A.Net income
B.Gross profit
C.Operating income
D.Net sales
21) Payment for the acquisition of inventories is shown on the statement of cash flows
as
A.An operating activity
B.An investing activity
C.A financing activity
D.Either an operating activity or a financing activity
22) Which one of the following groups is considered an internal user of financial
statements?
A.A bank reviewing a loan application from a corporation
B.The labor union representing employees of a company that is involved in labor
negotiations
C.The financial analysts for a brokerage firm who are preparing recommendations for
the firms brokers on companies in a certain industry
D.Factory managers that supervise production line workers
23) Blecker Corp. made cash sales to customers. What effect does this transaction have
on the accounting equation?
A.Liabilities increase and stockholders equity increases
B.There is no effect on the accounting equation as one asset account increases while
another asset account decreases
C.Assets increase and liabilities increase
D.Assets increase and stockholders equity increases
24) Discuss the common reporting characteristics of discontinued operations and
extraordinary items in the financial statements.
25) Use the comparative financial statements of Penny Company for the year ended
December 31, 2012 to answer the following question.
Penny Company
Statement of Stockholders Equity
for the Year Ended December 31, 2012
REQUIRED:
Prepare a statement of retained earnings for the year ended December 31, 2012.
26) Which category of cash flows – operating, investing, or financing activities – do you
think is most likely to have a net cash outflow over a number of years? Explain.
27) The difference between accrual-based revenue and accrual-based expenses is called
_________________________.
28) You have just taken a job as the accountant for a stucco repair firm whose
accounting year ends on December 31. As part of the management team, you receive a
year-end bonus directly related to the firms earnings for the year. One of your duties is
to review the journal entries recorded by the bookkeepers. A new bookkeeper prepared
the following journal entry:
Dec. 12 Cash 20,000
Service Revenue 20,000
To record deposit from client.
You notice that the explanation for the journal entry refers to the amount as a deposit,
and the bookkeeper explains to you that the firm plans to provide the services to the
client in March of the following year.
Required
1> Did the bookkeeper prepare the correct journal entry to account for the clients
deposit? Explain your answer.
2> What is your responsibility in this situation as the new accountant for the firm?
Explain your answer.