Information taken from the accounting records of Airways, Inc., for the year ended
December 31, 2015, 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 Flow Section Inflow or Outflow
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
Which of the following statements is true?
a. The method of preparing the operating activities section of a statement of cash flows
which adjusts net income to remove the effects of deferrals and accruals for revenues
and expenses is the direct method.
b. The method of preparing the operating activities section of a statement of cash flows
which reports major classes of gross cash receipts and cash payments for revenues and
expenses is the indirect method.
c. The FASB prefers the indirect method of preparing the operating activities section of
the statement of cash flows.
d. Most companies use the indirect method of preparing the operating activities section
of the statement of cash flows.
For each of the following accounts, indicate whether it is a balance sheet account or an i
ncome statement account.
a. Balance sheet account
b. Income statement account
Furniture and Fixtures
Which of the following statements regarding bonds payable is true?
a. Generally, bonds are issued in denominations of $100.
b. When an issuing company’s bonds are traded in the ‘secondary” market, the company
will receive part of the proceeds when the bonds are sold from the first purchaser to the
second purchaser.
c. A debenture bond is backed by specific assets of the issuing company.
d. Most bonds are term bonds, meaning that the entire principal amount will mature on
a single date.
Select the ratio that each statement below most properly satisfies.
a. Dividend yield ratio
b. Cash flow from operations to capital expenditures ratio
c. Debt service coverage ratio
d. Return on common stockholders’ equity ratio
e. Times interest earned ratio
f. Asset turnover ratio
g. Debt-to-equity ratio
h. Dividend payout ratio
i. Price/earnings ratio
A measure of the ability of a company to finance long-term asset acquisitions from cash
from operations
Which of the following statements is true concerning assets?
a. Assets represent future economic sacrifices.
b. Assets are expired costs.
c. Assets become expenses at the time they are paid in cash.
d. Assets become expenses when their economic benefits expire.
The ledgers are an example of an accounting book of original entry.
a. True
b. False
Which of the following concepts is important to accrual accounting?
a. Time period, because accrual accounting divides earnings into time periods
b. Monetary unit, because inflation is a big factor in the environment
c. Cash basis, because if cash is not received, revenue is not accrued
d. Entity concept, because personal transactions must be separated from business
transactions
Significant noncash transactions are not reported on the statement of cash flows, but
either in a separate schedule or in a note to the financial statements.
a. True
b. False
Cash flows from purchases of merchandise are classified as investing activities.
a. True
b. False
Which of the following should be classified as an investing activity on the statement of
cash flows?
a. interest on notes payable
b. payment to suppliers for inventory
c. payment of dividends
d. None of these
Eversoll Inc. uses the periodic inventory system.
If Eversoll uses the LIFO inventory method, the cost of goods sold for June would be
a. $1,354.00
b. $2,200.00
c. $2,272.50
d. $2,296.08
For each of the following accounts, indicate whether it is a balance sheet account or an i
ncome statement account.
a. Balance sheet account
b. Income statement account
Common Stock
Which of the following is not a characteristic of extraordinary items reported on the
income statement?
a. appear near the end of the income statement
b. reported separately from continuing operations
c. shown net of tax effects
d. is shown as a combined amount with discontinued operations
Barton Resort incurred the following costs to acquire and prepare land during 2015 for
a new parking lot: purchase price for land, $800,000; cost to clear the land, $30,000;
cost of paving, $40,000; and lighting for the parking lot, $20,000. How much should
Barton record in the Land Improvements account?
a. $30,000
b. $40,000
c. $60,000
d. $90,000
Caron Industries received authorization on December 31, 2014, to issue $7,000,000
face value of 6%, 10-year bonds interest payment dates are June 30 and December 31.
All the bonds were issued at par, plus accrued interest, April 2015. The bonds are
callable by Caron at any time at 102. REQUIRED:
Caron exercises the call provision and retires one-half of the bond issue on July, 1,
2017. Prepare the journal entry t record this transaction on July 1, 2017.
Riley Corporation manufactures and sells weedeaters. Riley provides all customers with
a three-year warranty guaranteeing to repair, free of charge, any defects reported during
this time period. During the year, it sold 85,000 weedeaters for $225 each. Analysis of
past warranty records indicates that 8% of all sales will be returned for repair within the
warranty period. Riley expects to incur expenditures of $15 to repair each weedeater.
The account Estimated Liability for Warranties had a balance of $115,000 on January 1.
Riley incurred $90,000 in actual expenditures during the year. REQUIRED: Prepare all
journal entries necessary to record the events related to the warranty transactions during
the year. Determine the adjusted ending balance in the Estimated Liability for
Warranties account.
Fairleigh Industries invested its excess cash in the following instruments during
December 2015:
Determine the amount of cash equivalents that should be combined with cash on the
company’s balance sheet at December 31, 2015, and for purposes of preparing a
statement of cash flows for the year ended December 31, 2015.
McDonald’s Corporation is the largest food service organization in the world. The
proper handling of cash and food is important to the profitability of McDonald’s. Based
on your personal knowledge of McDonald’s and the internal control concepts and
procedures described in the textbook, answer the following questions. REQUIRED:
Describe procedures that you believe McDonald’s may use to control cash receipts.
Themethod results in the best approximation of replacement cost of goods sold on the
income statement during periods of rising prices.
The Stockholders’ Equity section of Gretchen’s Bistro’s balance sheet on January 1,
2015, appeared as follows:
On March 1, 2015, Gretchen’s Bistro reacquired 800 shares of common stock at $12 per
share. On April 6, Gretchen’s Bistro resold 600 shares of treasury stock at $20 per share.
How many shares of stock are outstanding at March 31, and April 30, respectively?
Items that are included on a bank statement and decrease the bank account balance are
called
_________________________.
An importantactivity for many companies is acquiring property.