The solution to this problem requires time value of money calculations. Reference to
Tables 9-1 through 9-4 in the text is necessary to complete the calculations. Cory and
Ginger want to buy an airplane. They find one that will cost $200,000. They must pay
10% down, and can get the balance financed with a 10 year loan at 7% interest and
annual payments. What is their annual payment?
a. $26,826
b. $25,626
c. $24,457
d. $19,260
Which of the following statements best describes the term “revenues”?
a. Revenues represent an outflow of assets resulting from the sale of goods or services.
b. Revenues represent assets received from the sale of products or services.
c. Revenues represent assets used or consumed in the sale of products or services.
d. Revenues represent the dollar amount of bonds sold to the public.
From the following list, identify whether the change in the account balance during the
year would be reported as an operating (O), an investing (I), or a financing (F) activity
or not separately reported on the statement of cash flows (N). Assume that the indirect
method is used to determine the cash flows from operating activities.
a. O – Operating
b. I – Investing
c. F – Financing
d. N – Not separately reported on the Statement of Cash Flows
Taxes payable
Match the most probable matching method to the costs listed below.
a. Directly match a specific revenue.
b. Indirectly match with the period during which it will provide revenue.
c. Immediately recognize because no future benefits are expected.
Taxes owed on income earned during the current period
The party to a promissory note that agrees to repay money on the maturity date of the
note is called the
a. Lender
b. Maker of the note
c. Payee of the note
d. Recipient of the note
In the independent auditors’ report included with the annual report, management
discusses the financial statements and provides the shareholders with explanations for
certain amounts reported in the statements.
a. True
b. False
If a company has both common and preferred shares outstanding and wishes to
calculate book value per share,
a. net assets must be divided by the total number of both classes of stock.
b. net assets, less the redemption value of the preferred stock, must be divided by the
number of shares of common stock outstanding.
c. stockholders’ equity must be divided by the total number of both classes of stock.
d. stockholders’ equity, less the cost of treasury shares held, must be divided by the
number of common shares outstanding.
Button Transportation purchases many pieces of office furniture with an individual cost
below $200 each. Button chooses to account for these expenditures as expenses when
acquired rather than reporting them as property, plant, and equipment on its balance
sheet. The company’s accountant and independent CPA agree that no accounting
principle has been violated. What accounting justification allows Button to expense the
furniture?
a. Conservatism
b. Matching
c. Materiality
d. Verifiability
Which one of the following items is correct concerning the time element of financial
statements?
a. The balance sheet covers a period of time.
b. The statement of retained earnings explains changes during a particular period.
c. An income statement lists amounts at a specific point in time.
d. Both the income statement and the balance sheet cover a period of time.
Inventory is more liquid than accounts receivable because receivables must be collected
and some customers may not be willing to pay, while inventory need only be sold in a
retail store.
a. True
b. False
Reddy Parts reported the following information at December 31, 2015:
Answer the following questions for Reddy Parts by placing the correct response in the
space provided. ___________ A) How many shares of common stock are issued?
___________ B) How many shares of preferred stock are issued? ___________ C)
How many common shares are outstanding? ___________ D) How many preferred
shares are outstanding? ___________ E) How many of the common shares will receive
dividends if and when they are paid? ___________ F) How many of the preferred shares
will receive dividends if and when they are paid?
a. A receivable arising from the sale of goods or services with a verbal promise to pay.
b. A form used to categorize the various individual accounts receivable according to the
length of time each has been outstanding.
c. A method of estimating bad debts on the basis of either the net credit sales of the
period or the accounts receivable at the end of the period.
d. A measure of the number of times receivables are collected in a period.
e. The general ledger account that is supported by a subsidiary ledger.
f. A contra-asset account used to reduce accounts receivable to its net realizable value.
g. The detail for a number of individual items that collectively make up a single general
ledger account.
h. The recognition of bad debts expense at the point an account is written off as
uncollectible. Subsidiary ledger
When analyzing foreign statements, all of the following are accurate positions of
non-current liabilities listings except:
a. After current liabilities
b. Before current liabilities
c. After share capital
d. After total equity
Which one of the following is an economic obligation for a business entity?
a. Salaries paid to employees for services rendered
b. Amounts owed to creditors
c. Materials used in manufacturing products
d. Payment of rent for the next year
Since almost all debts require payment with quick assets, the quick ratio is more useful
than the cash flow from operations to current liabilities ratio.
a. True
b. False
The state of economic development can affect accounting standards.
a. True
b. False
Transactions are recorded in the general journal in:
a. Alphabetical order.
b. Account number order.
c. Chronological order.
d. Financial statement order.
Paulson Transport Company On January 1, 2015, Paulson Transport Company
purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of
$50,000. The company uses the double-declining-balance method.
What was the depreciation expense for Paulson Transport for the year ended December
31, 2016? a. $ -0-
b. $160,000
c. $320,000
d. $400,000
The Dinho Corporation identified the following data when preparing their April bank
reconciliation:
In addition, Dinho incorrectly recorded a deposit in its books in the amount of $1,000.
The correct amount was recorded by the bank as $1,200. What is the net amount of the
adjustment to Dinho’s cash balance as a result of the bank reconciliation?
a. $1,675 increase
b. $1,700 increase
c. $1,675 decrease
d. $1,475 decrease
At the end of 2013, Mirror Productions determined that one of its copyrights was
worthless. The copyright had a cost of $320,000. The copyright had been amortized for
8 years of its estimated 25-year legal life. Which of the following statements is the
justification for removing the remaining cost of the copyright from the accounting
records?
a. The copyright no longer represents a future benefit to the company.
b. The federal government does not allow copyrights to be recorded as assets once they
are deemed worthless.
c. The cost of the copyright represents an obligation to return capital contributions to
the stockholders.
d. The cost of the copyright has usefulness that will impact the net income of future
accounting periods.
Select the best answer from the list below to complete statements 131-141 that follow.
An arbitrary amount that is stated on the face of the stock certificate is.
Chad Jones established Jones’ Cleaning Services, a sole proprietorship, by investing
$1,000 on January 1, 2015. During the first year of operations, the business generated
net income of $42,000. The owner withdrew cash for personal use. The ending balance
of the capital account was $20,000. Prepare Jones’ statement of owner’s equity for the
year ended December 31, 2015.
Learning Tree, Inc. The following data is available for one of the products sold by
Learning Tree, Inc., which uses the perpetual inventory system:
Refer to the data for Learning Tree, Inc. Explain why the amounts for ending inventory
are different under the two average cost methods-weighted average (periodic) and
moving average (perpetual).
What numerators are used in the computation of the following ratios?
Using the indirect method, an increase in accounts payable would be shown as a(n)in
the
Activities section of the statement of cash flows.
On its most recent statement of cash flows, a company reported net cash provided by
operating activities of $12,000,000. Its capital expenditures for the same year were
$2,000,000. A note to the financial statements indicated that the total amount of debt
that would mature over the next five years was $20,000,000. REQUIRED:
1>Compute the company’s cash flow adequacy ratio.
2> If you were a banker considering loaning money to this company, why would you be
interested in knowing its cash flow adequacy ratio? Would you feel comfortable making
a loan based on the ratio you computed in part (1)? Explain your answer.
The classification of current liabilities is closely tied to the concept of.
When a bond is retired early and the redemption price is greater than the bond’s
carrying value, there will be a(n)
______________________ on redemption.
is the quality of accounting information that allows a user to analyze two or more
companies and look for similarities and differences.