Provided below is a list of important users of accounting information.Below the list are
descriptions of a major need of each of the various users. Fill in the blank with the one
user group that is most likely to have the need described to the right of the blank. Some
user groups may be used more than once or not at all.
a. Stockholder
b. Company management
c. Supplier
d. Banker
e. Internal Revenue Service
f. Securities and Exchange Commission
g. Labor union The profitability of the company based upon the Internal Revenue Code.
Which of the following is true?
a. The sale of stock to stockholders is an investing activity.
b. The repurchase of stock from stockholders is an investing activity.
c. The declaration of stock dividends is a financing activity.
d. The payment of cash dividends is a financing activity.
Moving average is the name given to the use of an average cost method used with a
periodic inventory system.
a. True
b. False
Japan has a greater number of differences than the U.S. between the amount of income
reported to stockholders and that reported to the taxing authorities.
a. True
b. False
Which of the following categories on a statement of cash flows is used to report the
cash flow effects of transactions involving a company’s stock?
a. Operating Activities
b. Investing Activities
c. Financing Activities
d. Profit Activities
Boston Trombley Company is a defendant in a lawsuit alleging damages of $3 billion.
The litigation is anticipated to continue for several years, but no reasonable estimate
can be made at this time regarding ultimate financial responsibility. This situation is an
example of:
a. An $3 billion expense to be recorded in the income statement during the year of the
suit.
b. A loss contingency that should be disclosed in the notes to Boston’s financial
statements.
c. An estimated liability that must appear in Boston Trombley Company’s balance sheet.
d. None of these. No accrual or disclosure is required in Boston’s financial statements.
When merchandise is sold FOB shipping point, the buyer is responsible for the shipping
costs.
a. True
b. False
Kim Chen Corporation is a wholesaler of scuba gear. During 2016, Chen expanded its
retail business by adding over 50 dive shops. The following information is obtained
from the comparative financial statements included in the company’s 2016 annual report
(all amounts are in thousands of dollars):
1) Using the information provided above, compute the following for 2016 and 2015:
A. Debt-to-equity ratio (at each year-end)
B. Times interest earned ratio 2) Comment briefly on the company’s solvency.
3) What other ratios will help you assess the solvency? What information will they
provide that you do not already have concerning the company’s solvency?
Which method of preparing the operating activities section of a statement of cash flows
adjusts net income to remove the effects of deferrals and accruals for revenues and
expenses?
a. The direct method
b. The indirect method
c. Both the direct and indirect methods
d. Neither the direct method nor the indirect method
Asago Co. sold merchandise to Health Co. on account, $18,000, terms 2/15, net 45. The
cost of the merchandise sold is $15,500. Asago Co. issued a credit memo for $1,750 for
merchandise returned that originally cost $1,400. The Health Co. paid the invoice
within the discount period. What is amount of net sales from the above transactions?
a. $16,250
b. $14,100
c. $15,925
d. $13,818
Use the following codes to indicate how the cash flow effect, if any, of each transaction
would be reported on a statement of cash flows if the operating activities section is
prepared using the direct method.
a. Inflow from operating activity
b. Outflow from operating activity
c. Inflow from investing activity
d. Outflow from investing activity
e. Inflow from financing activity
f. Outflow from financing activity
g. Noncash investing and financing activity
h. Not reported on statement of cash flows
Recorded depreciation for the year.
Comfort Shoes had the following items included in its accounting records. In the space
provided, indicate whether each of the items listed is included in an account in the
stockholders’ equity section of the balance sheet.
Item Included in a Stockholders’ Equity account? (yes or no)
a. Preferred stock issued by Comfort Shoes.b. Cash dividend unpaid that was declared
last year.c. Earnings accumulated but not distributed by Comfort Shoes.d. Amount
received in excess of cost when treasury stock is reissued by Comfort Shoes.e. Treasury
stock purchased.f. Dividends in arrears on Comfort Shoes preferred stock.g. Amount
received in excess of par value when common stock was issued by Comfort Shoes.h.
Stock dividend declared but not yet distributed by Comfort Shoes.
Morton & Associates Use the following five transactions for Morton & Associates, Inc.
to answer the question(s).
See the transactions to Morton & Associates. The journal entry to record the May 9
transaction will include a credit of $1,220 to
a. Furniture and Supplies
b. Cash
c. Accounts Payable
d. Administrative Expenses
The process of identifying, measuring, and communicating economic information to
various users is called
____________________.
Is it logical that interest paid is classified as a cash outflow in the Operating Activities
section of the statement of cash flows but that dividends paid are included in the
Financing Activities section? Explain.
Describe the benefit(s) of using the accrual process as compared to the cash basis.
If a company has a choice of acceptable methods to estimate bad debts, what factors
should be considered in the selection?
Select the best answer from the list below to complete statements 131-141 that follow.
The selling price of the stock as indicated by the most recent stock transaction is
___________________________________.
When a weighted average cost assumption is applied with a perpetual system, it is
sometimes called a
__________________.
Assume that Rocket Company purchased an asset on January 1, 2014, for $62,400. The
asset had an estimated life of eight years and an estimated residual value of $8,000. The
company used the straight-line method to depreciate the asset. On July 1, 2016, the
asset was sold for $52,000. REQUIRED:
1> Make the journal entry to record depreciation for 2016. Record all transactions
necessary for the sale of the asset.
2> How should the gain or loss on the sale of the asset be presented on the income
statement?
