Each account has a normal balance. For the following list of accounts, indicate whether
the normal balance of each is a debit or a credit.
a. Debit
b. Credit
Dividends
Assets may be used to satisfy business obligations and to carry on business operations.
a. True
b. False
Garner, Inc. determined that it had incorrectly estimated both the estimated life and the
estimated residual value of equipment that it purchased two years ago. When Garner
accounts for the change in accounting estimates, it must depreciate the remaining book
value of the asset over the current and future accounting periods.
a. True
b. False
Which one of the following is not a procedure in the approval of a specific invoice for
payment?
a. The purchase requisition, purchase order, receiving report, and invoice are compared.
b. The extensions and footings on the invoice are verified.
c. An employee verifies that all of the approval activities have been completed before a
check is prepared.
d. The purchasing department prepares a voucher to request payment.
Cost of goods sold is the difference between costs available for sale and beginning
inventory.
a. True
b. False
Assets classified as property, plant, and equipment are reported at
a. each asset’s estimated market value at the balance sheet date.
b. each asset’s estimated salvage value at the balance sheet date.
c. the estimated depreciable cost at the balance sheet date.
d. each asset’s original cost less depreciation since acquisition.
Stock dividends involve the issuance of additional shares of stock.
a. True
b. False
Expense accounts are debited in the closing process.
a. True
b. False
Each of the following transactions would be classified as either an investing or a
financing activity except
a. investments in stock are purchased.
b. a bank loan is obtained.
c. stock is issued to acquire land.
d. dividends are paid.
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. The total
amount of interest compounded quarterly on a $1,500 note payable for 1 year at 12% is
a. $180.00
b. $187.50
c. $189.00
d. $ 45.00
Latahmer Corporation is reconciling its May bank account. For each item listed, state
how it would be handled on the bank reconciliation.
a. Addition to bank balance
b. Subtraction from bank balance
c. Addition to book balance
d. Subtraction from book balance
e. Would not appear on the May reconciliation
Controls that are focused more on efficient operation than with correct reporting of
information.
How would customer’s NSF checks be dealt with in a bank reconciliation?
a. added to company’s book balance
b. deducted from company’s book balance
c. added to bank statement balance
d. deducted from bank statement balance
A contingent liability is recorded if it is probable and can be reasonably estimated.
a. True
b. False
Fulsom Co. began construction of a new factory at the beginning of 2015. At the end of
the year, construction was completed, and construction costs totaled $200,000. Fulsom
borrowed $180,000 at the beginning of 2015 to finance the construction and repaid the
loan at the end of 2015. The interest rate on the loan was 9%. Determine the following
amounts. A. The actual interest incurred on the construction loan during 2015. B. The
interest to be capitalized for 2015. C. The total cost of the factory reported on the
balance sheet. D. What impact does capitalizing interest have on net income for 2015?
Explain.
Powder Corporation began operations on January 2, 2013, with a total investment of
$150,000 by its stockholders. Net income for its first year of business was $90,000.
During 2014 and 2015, net income increased to $188,000 and to $217,000, respectively.
Powder paid $85,000 in dividends to its shareholders in each of the three years. A) In
good form, prepare a statement of retained earnings for the year ended December 31,
2014. B) How much is total retained earnings on December 31, 2015? C) Explain the
link between the statement of retained earnings and the balance sheet.
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.
Commissions earned by sales people
a. A liability resulting from the signing of a promissory note.
b. A measure of how long it takes to collect receivables.
c. A written promise to repay a definite sum of money on demand or at a fixed or
determinable date in the future.
d. The length of time a note is outstanding, that is, the period of time between the date it
is issued and the date it matures.
e. The party that will receive the money from a promissory note at some future date.
f. The process of selling a promissory note.
g. The date the promissory note is due.
h. The amount of cash the maker is to pay the payee on the maturity date of the note.
i. The difference between the principal amount of the note and its maturity value.
j. An asset resulting from the acceptance of a promissory note from another company.
k. Securities issued by corporations and governmental bodies as a form of borrowing.
l. Securities issued by corporations as a form of ownership in the business.
m. The party that agrees to repay the money for a promissory note at some future date.
n. The amount of cash received, or the fair value of the products or services received,
by the maker when a promissory note is issued.
Note receivable
The use of equipment in a company is an external event.
a. True
b. False
Where would you tell someone to find the information needed to compute the cash flow
adequacy ratio?
a. the balance sheet only
b. the statement of cash flows and the notes to the statements
c. the statement of cash flows only
d. the income statement only
Payment is received from customers who were billed earlier for services provided for
them. For this transaction, identify the effect on the accounting equation.
a. Assets increase and liabilities increase.
b. Assets increase and stockholders’ equity increases.
c. Liabilities increase and stockholders’ equity decreases.
d. There is no effect on the accounting equation as one asset account increases while
another asset account decreases.
Canyon Corporation
The accountant for the Canyon Corporation prepared the following list from the
company’s accounting records for the year ended December 31, 2014:
Read the information for Canyon Corporation. Using good form, prepare a Balance
Sheet for the Canyon Corporation.
The objective of the indirect method is to reconcile net income to net cash flow from
_______________________________.
What financial statement items are investors and creditors most interested in and why?
The following list of accounts was taken from the general ledger of Bassett Corporation
on December 31, 2015. The bookkeeper thought it would be helpful if the accounts
were arranged in alphabetical order. Each account contains the balance that is normal
for that type of account; for example, Cash normally has a debit balance. Prepare a trial
balance as of this date with the accounts arranged in the following order: (1) assets, (2)
liabilities, (3) stockholders’ equity, (4) revenues, (5) expenses, and (6) dividends.
Use the current asset section of the balance sheets of the Breeze Company as of June
30, 2016 and 2015 presented below to prepare a horizontal analysis.
REQUIRED:
1> In the spaces provided below, complete a horizontal analysis of the current asset
section of Breeze Company’s balance sheets for 2016 and 2015. Your answers should be
rounded to the nearest percentage. Show decreases in parentheses.
2> Identify the three items on the current asset section that experienced the largest
change from one year to the next. For each of these items, explain where you would
look to find additional information about the change.% Change