1) On the date that one company acquires 100% of the voting stock of another
company, the book value of the acquired assets and liabilities will be consolidated with
book values of the assets and liabilities of the acquiring company.
2) Preparers of the statement of cash flow must choose the direct or indirect method for
each activity section of the statement.
3) The equipment cost initially reported on the balance sheet includes the
equipment-related installation and transportation costs.
4) The journal entry to record bad debt expense is made during the year that it is
determined that a particular receivable is uncollectible, regardless of the year of sale.
5) The essence of nonrecurring items on an income statement is that they are not useful
in predicting the future income of the reporting company.
6) The revenue realization principle recognizes revenue when the goods or services are
provided, regardless of the timing of the cash collection from customers.
7) When there is a $3,000,000 decrease in inventory and a $2,000,000 decrease in
accounts payable, cash flow from operating activities increases by $1,000,000.
8) Accounts payable and accrued liabilities are interchangeable account titles.
9) Wages expense is an example of an accrued liability account.
10) An employee has an obligation to pay his payroll taxes to the employer.
11) When a company borrows money from a bank, the statement of cash flows will
report a cash increase from an investing activity.
12) Earnings per share are calculated by dividing net income by the average number of
shares of common stock outstanding.
13) Cash received from customers may result in a current liability.
14) Under the stable monetary unit assumption, accounting information should be
measured and reported in terms of the national monetary unit, with an adjustment for
changes in purchasing power.
15) The declaration by a corporation’s board of directors of a cash dividend on common
stock creates a liability on the declaration date.
16) On January 1, 2014, Calas Company acquired 40% of the outstanding voting
common stock of Nick Company as a long-term investment. During 2014, Nick
reported net income of $10,000 and declared and paid dividends of $4,000. During
2014, Calas Company should report equity in affiliate earnings of
A.$5,600.
B.$4,000.
C.$2,400.
D.$10,000.
Equity in affiliate earnings = $4,000 = Affiliate net income $10,000 40% ownership
percentage.
17) The Tanner Company has provided the following information after year-end
adjustments:
♦ Allowance for doubtful accounts increased $19,000.
♦ Accounts receivable increased $390,000 during the year.
♦ Accounts written off as uncollectible totaled $20,000.
♦ Sales totaled $2,500,000.
♦ Sales discounts were $100,000.
How much were Tanner’s net sales?
A.$1,990,000.
B.$2,380,000.
C.$2,400,000.
D.$2,420,000.
18) Which of the following statements is false?
A.The common stock account has a credit balance.
B.The additional paid-in capital account has a credit balance.
C.Common stock may be issued for more than par value.
D.The par value of common stock represents the stock’s market value.
19) A company has 10 million common shares authorized and 2.5 million shares issued.
The par value is $1 per share and the market price is $30 when the company declares a
4-for-1 stock split. Which of the following is correct?
A.There will be a transfer of $2.5 million from retained earnings to contributed capital.
B.For every one share of stock owned, a shareholder will receive four shares and will
now own 5 shares of stock.
C.The shares issued and outstanding will all quadruple while the par value will be
reduced to $.25 per share.
D.The company will be unable to declare a 4-for-1 split because it does not have
enough authorized shares to issue.
20) Which of the following journal entries is correct when a company owns its office
building for many years and now sells the building?
A.Option A
B.Option B
C.Option C
D.Option D
21) A company acquired some land (independently appraised at $12,000) and paid for it
by issuing 1,000 shares of its common stock (par $10 per share; no market price was
quoted). How should this be reported on the statement of cash flows?
A.Report $12,000 as inflow and outflow of cash.
B.Report $12,000 as an inflow of cash.
C.The transaction should not be reported on the statement of cash flows.
D.Report in a schedule of significant noncash investing and financing activities.
22) Mayberry, Inc., issued $100,000 of 10 year, 12% bonds dated April 1, 2013, for
$102,360 on April 1, 2013. The bonds pay interest annually on April 1. Straight-line
amortization is used by the company. What entry is required at April 1, 2014 for the
first interest payment?
A.Option A
B.Option B
C.Option C
D.Option D
23) CBA Company reported total stockholders’ equity of $85,000 on its balance sheet
dated December 31, 2014. During the year ended December 31, 2015, CBA reported
net income of $10,000, declared and paid a cash dividend of $2,000, and issued
additional common stock for $20,000. What is total stockholders’ equity as of
December 31, 2015?
A.$117,000.
B.$113,000.
C.$109,000.
D.$115,000.
25) Which of the following journal entries is created as the result of an accrual?
A.Option A
B.Option B
C.Option C
D.Option D
26) The Willie Company has provided the following information:
Operating expenses were $345,000;
Income from operations was $215,000;
Net sales were $1,100,000;
Interest expense was $71,000;
Discontinued operations loss was $87,000;
Income tax expense was $58,000.
What was Willie’s income before taxes?
A.$144,000.
B.$57,000.
C.$215,000.
D.$812,000.
27) Which of the following describes the effect of recording depreciation expense at
year-end?
A.Net income decreases and total assets decrease.
B.Total assets decrease and stockholders’ equity is not affected.
C.Net income decreases and total assets increase.
D.Stockholders’ equity is not affected and net income decreases.
30) The following income statement was reported for Bauer Inc. for the first year of
operations ending December 31, 2014 reported (in thousands of dollars):
31) Bennett Corporation sold a piece of equipment on June 30, 2016, for $50,000 cash.
The equipment had been purchased on January 1, 2012, for $150,000. The equipment
had an estimated useful life of 6 years and a $30,000 residual value. Bennett Corp. has
been using the straight-line method of depreciation and has a year-end of December
31st.
32) On January 1, 2014, Alden Company acquired 15,000 shares of the nonvoting
common stock of Maxim Corporation as a long-term investment. Maxim reported a
2014 net income of $35,000. On January 2, 2015, Maxim declared and paid a $10,000
cash dividend. The fair value of the Maxim stock held by Alden on December 31, 2014,
was $224,000. Alden Company has recorded only the following journal entries:
33) During 2014, the following items were reported on The Mickey Company’s
statement of cash flows in millions of dollars.
34) State the three cash flow classifications that are reported within a statement of cash
flows and describe the primary activities included in each.
35) On November 1, 2014, Bug Busters collected $6,000 in advance for three months of
service to be provided beginning on that date. Bug credited unearned rent revenue for
$6,000. The books are adjusted only at year-end.
Prepare the adjusting entry required on December 31, 2014.