1) during the year, income tax expense amounted to $25,000 and income taxes payable
increased by $3,000; therefore, the cash paid for income taxes was $22,000.
2) declining profitability and liquidity ratios are indications that a company may not
survive.
3) financing activities include the purchase or sale of long-lived assets or the purchase
or sale of investment securities.
4) the monetary unit assumption has led to an increase in the notes to financial
statements.
5) the operating cycle involves the purchase and sale of merchandise inventory as well
as the subsequent collection of cash from credit sales.
6) one example of a periodic independent verification is the bank reconciliation.
7) the income statement for a merchandising company presents only two amounts not
shown on a service company income statement.
8) the account titles used in journalizing transactions need not be identical to the
account titles in the ledger.
9) the allowance for doubtful accounts is similar to accumulated depreciation in that it
shows the total of all accounts written off over the years.
10) claims of creditors and owners on the assets of a business are called liabilities.
11) posting is the process of proving the equality of debits and credits in the trial
balance.
12) consigned goods are held for sale by one party although ownership of the goods is
retained by another party.
13) the classification of a liability as current or noncurrent is important because it may
affect the evaluation of a companys liquidity.
14) dan lovett invests $21,310.08 now for a series of $3,000 annual returns beginning
one year from now. dan will earn 10% on the initial investment. how many annual
payments will dan receive?
a.10
b.12
c.13
d.15
15) garza company owns 40% interest in the stock of kenney corporation. during the
year, kenny pays $30,000 in dividends to garza, and reports $150,000 in net income.
garza companys investment in kenney will increase garza net income by
a.$30,000
b.$60,000
c.$48,000
d.$12,000
16) financial information is presented below:
the profit margin ratio would be
a..454
b..119
c..238
d..135
17) radical radials company has the following inventory data:
a physical count of merchandise inventory on july 30 reveals that there are 40 units on
hand. using the lifo inventory method, the amount allocated to ending inventory for july
is
a.$780
b.$813
c.$800
d.$760
18) all of the following requirements about internal controls were enacted under the
sarbanes oxley act of 2002 except:
a.independent outside auditors must attest to the level of internal control
b.companies must develop sound internal controls over financial reporting
c.companies must continually assess the functionality of internal controls
d.independent outside auditors must eliminate redundant internal control
19) which of the following is not a suggested procedure to establish internal control
over cash disbursements?
a.anyone can sign the checks
b.different individuals approve and make the payments
c.blank checks are stored with limited access
d.the bank statement is reconciled monthly
20) which of the following is not a necessary internal control procedure for the
replenishment of the petty cash fund?
a.segregation of duties
b.documentation procedures
c.independent internal verification
d.employee background check
21) a retailer that collects sales taxes is acting as an agent for the
a.wholesaler
b.customer
c.taxing authority
d.chamber of commerce
22) two classifications appearing in the paid-in capital section of the balance sheet are
a.preferred stock and common stock
b.paid-in capital and retained earnings
c.capital stock and additional paid-in capital
d.capital stock and treasury stock
23) ron jones has been a trusted employee for over 10 years. he is responsible for
ordering merchandise inventory, receiving the inventory items, and authorizing the
payment for these items. which internal control principle, if any, is being violated?
a.none, ron has proven to be trustworthy and has enough experience to do a good job
b.documentation procedures
c.establishment of responsibilities
d.segregation of duties
24) management should select the depreciation method that
a.is easiest to apply
b.best measures the plant asset’s market value over its useful life
c.best measures the plant asset’s contribution to revenue over its useful life
d.has been used most often in the past by the company
25) a write off of a specific accounts receivable under the allowance method
a.increases bad debt expense for the accounting period
b.should occur on the last day of the accounting period
c.decreases the cash realizable value of accounts receivable
d.should be formally approved by an authorized employee
26) which of the following would not result in unearned revenue?
a.rent collected in advance from tenants
b.services performed on account
c.sale of season tickets to football games
d.sale of two-year magazine subscriptions
27) sparks company received proceeds of $211,500 on 10-year, 8% bonds issued on
january 1, 2011. the bonds had a face value of $200,000, pay interest annually on
december 31st, and have a call price of 102. sparks uses the straight-line method of
amortization. sparks company decided to redeem the bonds on january 1, 2013. what
amount of gain or loss would sparks report on their 2011 income statement?
a.$9,200 gain
b.$5,200 gain
c.$5,200 loss
d.$9,200 loss
28) generally, the revenue account for a merchandising enterprise is called
a.sales revenue or sales
b.investment income
c.gross profit
d.net sales
29) the purchase of a company that is in the same industry and involved in the same
activity is called a
a.controlling acquisition
b.horizontal acquisition
c.parent acquisition
d.vertical acquisition
30) if an item meets one (but not both) of the criteria for an extraordinary item, it
a.only needs to be disclosed in the footnotes of the financial statements
b.may be treated as sales revenue (if it is a gain) and as an operating expense (if it is a
loss)
c.is reported as an “other revenue or gain” or “other expense and loss,” net of tax
d.is reported at its gross amount as an “other revenue or gain” or “other expense or
loss.”
31) different companies using the same accounting principles is an application of
a.consistency
b.materiality
c.full disclosure
d.comparability
32) with an interest-bearing note, a borrower must pay the ________________ of the
note plus _________________ at maturity.
33) match the items below by entering the appropriate code letter in the space provided.
1>segregation of duties.
2>cash that is not available for general use, but instead is restricted for a particular
purpose.
3>two or more employees circumventing prescribed procedures.
4>prevent a transaction from being recorded more than once.
5>checks which have been returned by the maker’s bank for lack of funds.
6>checks which have been paid by the depositor’s bank.
7>a projection of anticipated cash flows.
8>anything that a bank will accept for deposit.
9>physical control devices.
10>a basic principle of cash management.
11>insurance protection against misappropriation of assets.
12>document indicating the purpose of a petty cash expenditure.
13>issued checks that have not been paid by the bank.
14>highly liquid investments.
34) under the lcm basis, market is defined as current ______________ cost.
35) the claims of owners on the assets of a corporation are known as
________________.
36) under the direct method, the two largest classes of items in the operating activities
section for a merchandising company are cash ________________________ and cash
_________________________.
37) these items are taken from the financial statements of donovan co. at december
31, 2012
building$95,800
accounts receivable7,600
prepaid insurance4,680
cash18,840
equipment79,400
land61,200
insurance expense780
depreciation expense7,300
interest expense2,600
common stock57,000
retained earnings (january 1, 2012)40,000
accumulated depreciationbuilding45,600
accounts payable7,500
mortgage payable88,600
accumulated depreciationequipment18,720
interest payable3,600
bowling revenues17,180
instructions
prepare a classified balance sheet. assume that $13,600 of the mortgage payable will be
paid in 2013
