1) Separation of duties refers to auditors not being allowed to perform both audit and
nonaudit services for the same client.
2) Accrued revenues involve the receipt of cash after the revenue has been earned and
an asset has been recorded.
3) A loss on the sale of long-term assets is added to net income to arrive at net cash
flows from operating activities under the indirect method.
4) Under the indirect method, a decrease in accounts receivable is added to net income
to arrive at net cash flows from operating activities.
5) The closing entry for expense accounts includes a debit to Retained Earnings and a
credit to all expense accounts.
6) The adjusting entry for an unearned revenue has the effects of reducing liabilities and
increasing net income.
7) Horizontal analysis analyzes trends in financial statement data for a single company
over time.
8) We use vertical analysis for income statement accounts, but not balance sheet
accounts.
9) Quick assets include only cash, short-term investments, and accounts receivable.
10) Notes receivable are assets and are reported in the balance sheet.
11) Liability accounts increase with a debit and decrease with a credit.
12) Borrowing cash from the bank is recorded with a debit to cash.
13) Future value is how much an amount today will grow to be in the future.
14) The gross profit ratio measures the amount by which the sale price of inventory
exceeds its cost per dollar of sales.
15) A company provides services to customers on account for $2,400. Indicate the
amount of increases and decreases in the accounting equation.
16) Portions of the financial statements for Horizon Telecom are provided below.
Prepare the operating activities section of the statement of cash flows for Horizon
Telecom using the direct method.
17) A company purchases new equipment for $24,000 cash on August 1, 2015 . At the
time of purchase, the equipment is expected to be used in operations for four years (48
months) and have no resale or scrap value at the end. The company depreciates the
equipment evenly over the 48 months ($500/month). Record the adjusting entry for
depreciation on December 31, 2015 .
18) The adjusted trial balance for China Tea Company at December 31, 2015, is
presented below:
Prepare a classified balance sheet for China Tea Company as of December 31, 2015:
19) Mountainview Resorts purchased equipment for $40,000. Residual value at the end
of an estimated four-year service life is expected to be $8,000. The machine operated
for 2,200 hours in the first year and the company expects the machine to operate for a
total of 10,000 hours over its four year life. Calculate depreciation expense for the first
year using each of the following depreciation methods: (1) straight-line, (2)
double-declining-balance, and (3) activity-based.
20) What does it mean that FIFO has a balance sheet focus and LIFO has an income
statement focus?