Mellon Corporation The data presented below is for Mellon Corporation for the year
ended December 31, 2015:
Refer to information for Mellon Corporation. If Mellon uses 2% of net credit sales to
estimate its bad debts, what will be the balance in the Allowance for Doubtful Accounts
account after the adjustment for bad debts?
a. $33,000
b. $31,800
c. $27,000
d. $25,800
All changes in all stockholders’ equity accounts must be shown in the Stockholders’
Equity section of the balance sheet.
a. True
b. False
The Financial Accounting Standards Board (FASB) has expressed a strong preference
for the indirect method, but allows companies to use the direct method in calculating
the cash flow from operating activities.
a. True
b. False
If a company’s bonds are callable,
a. the investor or buyer of the bonds has the right to retire the bonds.
b. the issuing company is likely to retire the bonds before maturity if the bonds are
paying 9% interest while the market rate of interest is 6%.
c. the bonds are never allowed to remain outstanding until the maturity date.
d. the investor never knows what the redemption price will be until the bonds are
actually called.
Norwood, Inc. Norwood, Inc. purchased a crane at a cost of $80,000. The crane has an
estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of
operation. The crane was purchased on January 1, 2015 and was used 2,700 hours in
2015 and 2,600 hours in 2016. Refer to the information for Norwood, Inc. Based on this
information, what method of depreciation will produce the maximum depreciation
expense in 2015?
a. Straight-line
b. Double-declining-balance
c. Units-of-production
d. All methods produce the same expense in 2015.
Every transaction affects equal numbers of ledger accounts and is recorded by equal
dollar amounts of debits and credits.
a. True
b. False
The sum of the carrying value and the redemption price at the time bonds are redeemed
results in the gain or loss on redemption.
a. True
b. False
Conceptually, anytime a cost is incurred, an asset is acquired.
a. True
b. False
Most companies
a. are not concerned with the management of working capital because cash flows are
good.
b. strive for a balance between current assets and current liabilities.
c. try to maintain protection from the creditors by keeping only a small amount of cash
available.
d. agree that working capital of $3,000,000 is sufficient for business operations.
The value assigned to an asset such as inventory on the balance sheet determines the
amount eventually recognized as an expense on the income statement.
a. True
b. False
Deacon Company purchased equipment last year for $30,000. The equipment has an
estimated useful life of five years. What amount will appear on the income statement
for depreciation expense for the month of March 2014?
a. $0
b. $500
c. $6,000
d. $30,000
Using the straight-line depreciation method will cause a company to incurtax expense
in the early years of an asset’s life than they would experience using an accelerated
method of depreciation.
a. more
b. less
c. equal
d. This cannot be determined from the information given.
Match the terms to the definitions by selecting the letter of the term. Each term may be
used more than once or not at all.
a. cumulative feature
b. stock dividend
c. retired stock
d. retained earnings
e. callable feature
f. convertible feature
g. outstanding shares
h. treasury stock
i. participating feature
j. additional paid-in capital
The amount received for the issuance of stock in excess of par value.
During its fifth year of operations, Bright Creations Company reports a beginning cash
balance of $132,000, cash inflows from investing activities of $210,000, cash outflows
for financing activities of $79,000, and cash outflows for operating activities of
$13,000. What was Bright Creations’ cash balance at the end of the fifth year?
a. $ 250,000
b. $ 434,000
c. $ 276,000
d. $ 132,000
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
Check written on the company’s account and paid by the bank is returned with the bank
statement
On the income statement of a merchandising company, cost of goods is added to net
sales to arrive at gross margin or gross profit.
a. True
b. False
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
Other accrued liabilities
There are three elements to the accounting equation: assets, liabilities, and stockholders’
equity. Below are five possible types of transactions. For each of these five types, write
descriptions of a example that would illustrate this type of transaction.
Motor Repair Shop uses the accrual basis of accounting, and had the following account
balances on its financial statements at December 31, 2014:
On January 1, there was a $0 balance in the salaries payable account. How much cash
did Motor Repair pay for salaries during the year?
Select the best answer from the list below to complete statements 131-141 that follow.
Distribution of additional shares of stock and reduction of the par value of the stock is
______________________________.
A company begins construction of an asset on January 1, 2014, and completes
construction on December 1, 2014. The company pays the following amounts related to
construction: January 1: $1,000,000
July 1: $2,000,000
October 1: $1,000,000 Calculate the average accumulated expenditures for the purpose
of capitalizing interest.
You have received an email from a new accounting client, Jamal Parker, who has just
started a new business. Jamal would like you to explain whether it is really that
beneficial for him to take advantage of a 2/10, net 30 discount offered by one of his
suppliers, given his limited cash flow. In a memo, explain to him why this is or is not a
sound financial move for his new company. Most firms attempt to pay their accounts
payable within the discount period to take advantage of the discount. Why is that
normally a sound financial move?
Morgan Realty reported the following accounts on its income statement:
REQUIRED:
1> Prepare the necessary entries to close the temporary accounts.
2> Explain why the closing entries are necessary and when they should be recorded.
Tiva Solutions’ accounting records reflect the following account balances at December
31, 2014:
During 2015, the following transactions occurred:1) On March 1, purchased a one-year
insurance policy for $1,200 cash.
2) On April 1, borrowed $10,000 cash from Rock City Bank. The interest rate on the
note payable is 6%. Principal and interest is due in cash in one year.
3) Employee salaries in the amount of $20,000 were paid in cash.
4) At the end of the year, $400 of the supplies remained on hand.
5) Earned $45,000 in tax consulting revenue during 2015 in cash.
6) At December 31, $5,000 in employee salaries were accrued.
7) On December 31, received $2,000 in cash representing advance payment for services
to be provided in February of 2016.
8) The building has a useful life of 25 years and no salvage value.
On September 20, Mendes Inc. presents credit card drafts to its bank in the amount of
$10,000; the collection charge is 4%. Required: Prepare the journal entry on Mendes’
books on September 20, the date of deposit.
