Issuing common stock to investors
Several transactions are listed. Use the choices to identify the effect on the accounting
equation for each transaction listed. (Choices may be used more than once.)
a. Assets and liabilities increase
b. Assets and contributed capital increase
c. Assets and retained earnings increase
d. Two asset accounts are impacted, but there is no net effect on total assets
e. Assets and liabilities decrease
f. Assets and retained earnings decrease
g. Liabilities increase and retained earnings decrease
h. Liabilities decrease and retained earnings increase
On January 15, 2014, a corporation paid a cash dividend that had been declared prior to
the end of its previous fiscal year. The entry to pay the dividends includes a debit to
a. cash and a credit to dividends payable.
b. dividends payable and a credit to cash
c. retained earnings and a credit to dividends payable.
d. dividends payable and a credit to retained earnings.
Use the selected financial information provided below to answer the following
questions.
A) Calculate the company’s accounts receivable turnover ratio for 2015 and 2014.
B) Determine the number of days it would take to turn over accounts receivable at
December 31, 2015 and 2014.
C) What could have caused the change?
Upon reviewing Mack’s Truck Stop’s Statement of Cash Flows, the following was
noted:
From this information, the most likely explanation is that this company is
a. using cash from operations and selling long-term assets to pay back debt.
b. using cash from operations and borrowing to purchase long-term assets.
c. using its profits to expand growth.
d. using cash from investors to provide for operations
A device used to record increases and decreases in each of the basic elements of the
financial statements.
Match the following terms with their correct definition.
a. Account f. Debit
b. Accounting cycle g. Event
c. Chart of accounts h. General ledger
d. Cost vs. benefit i. Journal
e. Credit j. Trial balance
An intangible asset arising from attributes that are not separable from the business-such
as customer satisfaction, product quality, skilled employees, and business location
Match the following terms to their correct definition:
a. equity security j. held-to-maturity securities
b. debt security k. amortized cost method
c. passive l. fair value method
d. significant influence m. unrealized gains and losses
e. control n. equity method
f. parent o. consolidation worksheet
g. subsidiary p. minority interest
h. trading securities q. business combination
i. available-for-sale securities r. Goodwill
On January 1, 2013, a company reported assets of $1,000,000 and liabilities of
$600,000. During 2013, assets decreased by $100,000 and Stockholders’ Equity
decreased $200,000. What is the amount of liabilities at December 31, 2013?
a. $200,000
b. $500,000
c. $600,000
d. $700,000
Fields of Green, a turf farm, purchased equipment at the beginning of 2012 for
$175,000. In addition, the company paid $6,000 for delivery of the equipment and
$4,000 for set up charges. The equipment has an estimated residual value of $5,000 and
an estimated life of 10 years or 50,000 hours of operation. The equipment was operated
for 5,200 hours in 2012 and 5,000 hours in 2013. A) Compute the depreciation expense
for 2012 using the: – straight line method; – units-of-production method; –
double-declining-balance method
B) Compute the book value of the equipment on December 31, 2013, assuming the use
of: – straight line method; – units-of-production method; and – double-declining-balance
method
C) Which method of depreciation produces the greatest total amount of depreciation?
D) Which method of depreciation is considered accelerated?
E) What are the advantages of using an accelerated depreciation method as compared to
the straight-line method?
This principle requires that an expense be recorded and reported in the same period as
the revenue it helped generate.
Match the following principles with their correct definition.
Match the following principles with their correct definition.
a. Comparability g. Historical cost
b. Conservatism h. Matching
c. Double-entry accounting i. Monetary unit
d. Economic entity j. Revenue recognition
e. Going concern k. Time period
f. Full disclosure
When using the indirect method to determine operating cash flows, how is depreciation
expense recorded on the Statement of Cash Flows?
a. operating activity
b. investing activity
c. financing activity
d. noncash investing and financing activity
e. not reported on the statement of cash flows
When using the direct method to determine operating cash flows, how is depreciation
expense recorded on the Statement of Cash Flows?
a. operating activity
b. investing activity
c. financing activity
d. noncash Investing and Financing activity
e. not reported on the statement of cash flows
Which one of the following is not one of the three business activities?
a. financing
b. operating
c. investing
d. measuring
Which of the following is not a form of a business entity?
a. sole proprietorship
b. partnership
c. cooperative
d. corporation
Refer to Bargain Spot Fabrics. What amount should the company report on its Balance
Sheet for Total Assets?
Bargain Spot Fabrics
This company’s end-of-year balance sheet consisted of the following amounts:
a. $550,000
b. $775,000
c. $850,000
d. $950,000
Floors 4 U uses straight-line depreciation for its equipment. The company purchased
equipment for $250,000 and estimated its useful life at 8 years. The bookkeeper failed
to consider the residual value of $25,000. What is the impact on earnings per share and
operating income of failing to consider the residual value?
a. Earnings per share will be overstated and operating income will be understated.
b. Earnings per share will be understated and operating income will be overstated.
c. Both earnings per share and operating income will be overstated.
d. Both earnings per share and operating income will be understated.
Refer to Art Shoes. At the maturity date, the customer pays for the note and interest.
The company made the proper adjustment at the end of December for interest. The
effect of recognizing the transaction on the maturity date is
Art Shoes
This company received a promissory note from a customer on July 1, 2013. The face
amount of the note is $45,000; the terms are 12 months and 10% annual interest. a. a
decrease to Cash.
b. an increase to Notes Receivable.
c. an increase to Discount on Notes Receivable.
d. a decrease to Notes Receivable.
The rate found in the debt contract that determines the amount of the interest payment.
Match these terms with their definitions.
a. Bond i. Lessor
b. Contract, coupon, stated rate j. Leverage
c. Discount k. Long-term debt
d. Effective interest rate method l. Market rate, yield
e. Face value, par value, principal m. Maturity
f. Interest amortization n. Premium
g. Lease o. Straight-line method
h. Lessee
What effects on a retail store’s accounting equation occur when it records merchandise
purchased for cash, assuming the use of a perpetual inventory system?
a. Assets and stockholders’ equity increase.
b. Assets and stockholders’ equity decrease.
c. Assets and liabilities increase.
d. No net effect.
Refer to Georgia’s Salon. Which of the following is the correct journal entry to record
the sale of the gift cards?
Georgia’s Salon The salon sells $50,000 of gift cards in May 2013. These gift cards
may be used anytime before their expiration on May 31, 2014. a. Cash 50,000 Accounts
Payable 50,000
b. Cash 50,000 Unearned Sales Revenue 50,000
c. Cash 50,000 Sales Revenue 50,000
d. Cash 50,000 Prepaid Sales Revenue 50,000
decomposes the return on equity ratio into margin, turnover, and leverage components.
Match these terms to their correct definition
____________________ is the quality of accounting information that allows a user to
analyze two or more companies and look for similarities and differences.
Refer to Abundant Returns. Determine the balance of Accounts Receivable at
December 31, 2013.
Abundant Returns
This company sells its merchandise only on credit. The following data are available at
December 31, 2013.
Refer to H&R Clock Company. Set up T-accounts and post each transaction to the
T-accounts.
“You Decide” EssayYou are the Chief Financial Officer of Kyoto Mining Company.
Your company issued $10,000,000 in bonds payable at the beginning of the year at a
sizable discount. You are getting ready to make your December 31 adjusting entries.
The owners, who are worried about their tax bill for the year, have asked you to select
whichever method of amortizing bond discounts that maximizes interest
expense.Respond to the owners.
“You Decide” Essay You are the owner and operator of a catering business. In addition
to catering a wide variety of functions such as business meetings, weddings, birthday
parties, etc., you sell decorated cakes in your store. A particular business customer has
signed a $12,000 contract with you to provide refreshments for its monthly business
meetings with the total contract amount due at the contract signing. Describe the rules
you will follow in booking (i.e., recording) the cake sales revenues and catering
contracts such as the one described here.