Accounting Exam 2: 7-14

Century Corporation issued 400,000 shares of $4 par value common stock at the time of its incorporation. The stock was issued for cash at a price of $16 per share. During the first year of operations, the company sustained a net loss of $100,000. The year-end balance sheet would show the balance of the Common Stock account to be:

$1,600,000.

On January 2, Year 1, a motorcycle dealer sells a motorcycle with an extended warranty for two years beyond the manufacturer's two-year warranty and an agreement to service the vehicle for the first three years. The total transaction amount is $8,300. The extended warranty is estimated at 5 percent of the total price, less the amount of the service agreement, which is estimated to be $100 per year. How much revenue is recognized during the year ending December 31, Year 2?

$100 Explanation Motorcycle delivery$ 7,600Extended warranty [($8,300 − $300) × 5%]400Service ($100 × 3 years)300Total transaction amount$ 8,300 Revenue is the amount of $7,600 that is recognized immediately upon delivery of the vehicle to the customer (that is, during Year 1). The extended warranty revenue of $400 is deferred and recognized over the two-year warranty period beyond the manufacturer's two-year warranty (that is, Years 3 and 4). Revenue from the service agreement is $300 and is deferred and recognized over the two years the service is expected to be performed (that is, Years 1 and 2). Revenue earned during Year 2 = $100 (which is the annual service agreement amount).

On April 2, Year 1, Victor, Incorporated acquired a new piece of filtering equipment. The cost of the equipment was $160,000 with a residual value of $20,000 at the end of its estimated useful lifetime of 4 years. Victor uses a calendar year-end for financial reporting. If Victor uses straight-line depreciation with the half-year convention, the book value of the equipment at December 31, Year 2 will be:

$107,500.

Castle TV, Incorporated purchased 2,300 monitors on January 5 at a per-unit cost of $189, and another 2,300 units on January 31 at a per-unit cost of $282. In the period from February 1 through year-end, the company sold 4,200 units of this product. At year-end, 400 units remained in inventory. Assume that Castle TV, Incorporated uses the FIFO flow assumption. The cost of the 400 units in inventory at year-end is:

$112,800.

If a retail store has a current ratio of 2.5 and current assets of $195,000, the amount of working capital is:

$117,000

Cardinal Company's bank statement showed a balance at May 31 of $180,974. The only reconciling items consisted of a large number of outstanding checks totaling $51,847. At May 31, what balance should Cardinal's Cash account show?

$129,127.

At the end of last year, Games-2-Use had merchandise costing $230,000 in inventory. During January of the current year, the company purchased merchandise costing $133,000, and sold merchandise that it had purchased at a total cost of $120,000. Games-2-Use uses a perpetual inventory system. The total amount debited to the Inventory account during January was:

$133,000.

As of December 31, Year 1, Chippewa Company has $26,440 cash in its checking account, as well as several other items listed below: Bank credit card slips signed by customers$ 3,600Money market fund balance$ 25,000Investment in U.S. Treasury bills, mature within 90 days$ 80,000Checks received from customers, but not yet deposited in the bank$ 4,600Investment in 4,500 shares of Coca-Cola capital stock$ 70,000 What amount should be shown in Chippewa's December 31, Year 1, balance sheet as "Cash and cash equivalents"?

$139,640

Castle TV, Incorporated purchased 2,600 monitors on January 5 at a per-unit cost of $210, and another 2,600 units on January 31 at a per-unit cost of $294. In the period from February 1 through year-end, the company sold 4,500 units of this product. At year-end, 700 units remained in inventory. Assume that Castle TV, Incorporated uses the LIFO flow assumption. The cost of the 700 units in the year-end inventory is:

$147,000.

During Year 2, the cash flows related to Global Data, Incorporated's lending and borrowing activities are summarized as follows: Cash lent to borrowers$ 135,600Payment to retire bonds payable$ 373,500Proceeds from borrowing at bank (note payable)$ 223,500Interest received from borrowers$ 34,500Interest payments made on bonds payable$ 45,000 On the basis of the above information alone, what is Global Data's net cash flow from financing activities?

$150,000 net cash used for financing activities Explanation $373,500 − $223,500 = $150,000

During Year 2, the cash flows related to Global Data, Incorporated's lending and borrowing activities are summarized as follows: Cash lent to borrowers$ 136,100Payment to retire bonds payable$ 374,500Proceeds from borrowing at bank (note payable)$ 224,000Interest received from borrowers$ 35,000Interest payments made on bonds payable$ 45,500 On the basis of the above information alone, what is Global Data's net cash flow from financing activities?

$150,500 net cash used for financing activities

On April 2, Year 1, Victor, Incorporated acquired a new piece of filtering equipment. The cost of the equipment was $300,000 with a residual value of $20,000 at the end of its estimated useful lifetime of 8 years. Victor uses a calendar year-end for financial reporting. Assume that in its financial statements, Victor uses straight-line depreciation and the half-year convention. Depreciation recognized on this equipment in Year 1 and Year 2 will be:

$17,500 in Year 1 and $35,000 in Year 2.

Castle TV, Incorporated purchased 2,500 monitors on January 5 at a per-unit cost of $203, and another 2,500 units on January 31 at a per-unit cost of $290. In the period from February 1 through year-end, the company sold 4,400 units of this product. At year-end, 600 units remained in inventory. Assume that Castle TV, Incorporated uses the FIFO flow assumption. The cost of the 600 units in inventory at year-end is:

$174,000.

Shown below is selected information from the statement of financial position (balance sheet) of Comoros, a small electronics store (dollar amounts are in thousands): Cash$ 65Accounts receivable$ 125Inventory$ 195Total assets$ 850Current liabilities$ 200Noncurrent liabilities$ 325 What is the amount of working capital?

$180

Thurman Corporation issued 360,000 shares of $0.50 par value capital stock at its date of incorporation for cash at a price of $2.5 per share. During the first year of operations, the company earned $140,000 and declared a dividend of $38,000. At the end of this first year of operations, the balance of the Common Stock account is:

$180,000. Explanation 360,000 shares × $0.50 = $180,000.

Shown below is information relating to the stockholders' equity of Brookdale Corporation at December 31, Year 1: 11% cumulative preferred stock, $130 par value; authorized, 100,000 shares; issued and outstanding, 10,000 shares$ 1,300,000Common stock, $1.25 par value; authorized, 1,000,000 shares; issued, 600,000 shares (of which 6,000 are held in treasury)750,000Additional paid-in capital: Preferred stock500,000Common stock900,000Treasury stock transactions6,000Treasury stock (at cost: 6,000 common shares)(192,000)Retained earnings1,350,000 What was the average issue price per share of common stock?

$2.75 per share

Harding Systems, Incorporated uses a periodic inventory system. The purchases of a particular product during the year are shown below: January 1Beginning inventory1,100units @ $ 7.25$ 7,975February 7Purchase1,450units @ $ 7.5010,875July 10Purchase1,600units @ $ 8.0012,800November 25Purchase1,000units @ $ 8.508,500 Total5,150 $ 40,150 At December 31 the ending inventory consisted of 1,500 units. Compute the cost of goods sold for the current year based on the FIFO method of inventory valuation.

$27,650 Explanation $40,150 − $12,500 = $27,650

Land is purchased for $256,000. Additional costs include a $15,300 fee to a broker, a survey fee of $2,400, $1,750 to construct a fence, and a legal fee of $8,500. What is the cost of the land?

$282,200

Land and a warehouse were acquired for $840,000. What amounts should be recorded in the accounting records for the land and for the warehouse if an appraisal showed the estimated values to be $560,000 for the land and $830,000 for the warehouse?

$338,520 for land; $501,480 for warehouse

On April 2, Year 1, Victor, Incorporated acquired a new piece of filtering equipment. The cost of the equipment was $460,000 with a residual value of $30,000 at the end of its estimated useful lifetime of 10 years. Victor uses a calendar year-end for financial reporting. If Victor uses straight-line depreciation with the half-year convention, the book value of the equipment at December 31, Year 2 will be:

$395,500.

The Cash account in the records of Hensley, Incorporated showed a balance of $4,750 at June 30. The bank statement, however, showed a balance of $7,750 at the same date. The only reconciling items consisted of a $900 deposit in transit, a bank service charge of $14, and a large number of outstanding checks. What is the "adjusted cash balance" at June 30?

$4,736.

On March 2, Year 1, Glen Industries purchased a fleet of automobiles at a cost of $640,000. The cars are to be depreciated by the straight-line method over five years with no salvage value. Glen uses the half-year convention to compute depreciation for fractional periods. The book value of the fleet of automobiles at December 31, Year 2, will be:

$448,000.

Shown below is selected information from the statement of financial position (balance sheet) of Bill's Auto Parts, a retail store (dollar amounts are in thousands): Cash$ 130Accounts receivable$ 370Inventory$ 400Total assets$ 1,260Current liabilities$ 340Noncurrent liabilities$ 280 Working capital equals:

$560,000.

On January 2, Year 1, a motorcycle dealer sells a motorcycle with an extended warranty for two years beyond the manufacturer's two-year warranty and an agreement to service the vehicle for the first three years. The total transaction amount is $8,300. The extended warranty is estimated at 5 percent of the total price, less the amount of the service agreement, which is estimated to be $100 per year. How much revenue is recognized during the year ending December 31, Year 1?

$7,700 Explanation Motorcycle delivery$ 7,600Extended warranty [($8,300 − $300) × 5%]400Service ($100 × 3 years)300Total transaction amount$ 8,300 Revenue in the amount of $7,600 is recognized immediately upon delivery of the vehicle to the customer (that is, during Year 1). The extended warranty revenue of $400 is deferred and recognized over the two-year warranty period beyond the manufacturer's two-year warranty (that is, Years 3 and 4). Revenue from the service agreement is $300 and is deferred and recognized over the three years the service is expected to be performed (that is, Years 1, 2, and 3). Revenue earned during Year 1 = $7,600 + $100 = $7,700

As of December 31, Year 1, Valley Company has $15,220 cash in its checking account, as well as several other items listed below: Bank credit card slips signed by customers$ 1,050 Money market fund balance$ 13,000 Investment in U.S. Treasury bills, mature within 90 days$ 40,000 Checks received from customers, but not yet deposited in the bank$ 1,440 Investment in 4,500 shares of Coca-Cola capital stock$ 42,000 What amount should be shown in Valley's December 31, Year 1, balance sheet as "Cash and cash equivalents"?

$70,710.

Zigma Corporation is authorized to issue 2,000,000 shares of $4 par value capital stock. The corporation issued half the stock for cash at $8 per share, earned $336,000 during the first three months of operation, and declared a cash dividend of $60,000. The total paid-in capital of Zigma Corporation after three months of operation is:

$8,000,000.

Given below are comparative statements of financial position (balance sheets) and an income statement for Claret Corporation. Claret CorporationBalance SheetsYear 2 December 31January 1Cash$ 14,900$ 14,900Accounts receivable45,89036,300Inventory31,80035,700Equipment (net)56,50065,600Total$ 149,090$ 152,500Accounts payable25,30027,900Dividends payable7,1003,200Long-term note payable13,60013,600Capital stock, $5 par72,10072,100Retained earnings30,99035,700Total$ 149,090$ 152,500 Claret CorporationIncome StatementFor the year ended Year 2Sales$ 228,100Cost of goods sold137,470Gross profit on sales$ 90,630Operating expenses75,798Operating income$ 14,832Interest expense and income taxes8,750Net income$ 6,082 All sales were made on account. Cash dividends declared during the year totaled $10,792. Claret Corporation's earnings per share for Year 2, rounded to the nearest cent, is:

0.42.

Shown below is selected information from the statement of financial position (balance sheet) of Comoros, a small electronics store (dollar amounts are in thousands): Cash$ 82Accounts receivable$ 142Inventory$ 275Total assets$ 935Current liabilities$ 370Noncurrent liabilities$ 410 What is the quick ratio?

0.61 to 1

Shown below is selected information from the statement of financial position (balance sheet) of Comoros, a small electronics store (dollar amounts are in thousands): Cash$ 75Accounts receivable$ 135Inventory$ 240Total assets$ 900Current liabilities$ 300Noncurrent liabilities$ 375 What is the quick ratio?

0.7 to 1

Shown below is selected information from the statement of financial position (balance sheet) of Comoros, a small electronics store (dollar amounts are in thousands): Cash$ 69Accounts receivable$ 129Inventory$ 210Total assets$ 870Current liabilities$ 240Noncurrent liabilities$ 345 What is the current ratio?

1.7 to 1

Shown below is selected information from the statement of financial position (balance sheet) of Comoros, a small electronics store (dollar amounts are in thousands): Cash$ 69Accounts receivable$ 129Inventory$ 210Total assets$ 870Current liabilities$ 240Noncurrent liabilities$ 345 What is the current ratio?

1.7 to 1 Explanation ($69 + $129 + $210) ÷ $240 = 1.7 to 1

During the current year, Carl Equipment Stores had net sales of $600 million, a cost of goods sold of $500 million, average accounts receivable of $75 million, and average inventory of $50 million. Carl Equipment's inventory turnover rate is:

10 times.

Shown below is information relating to the stockholders' equity of Grant Corporation at December 31, Year 1: 6% cumulative preferred stock, $100 par value; authorized, 10,000 shares; issued and outstanding, 6,000 shares$ 600,000Common stock, $3 par value; authorized, 500,000 shares; issued and outstanding, 300,000 shares$ 900,000Additional paid-in capital: preferred stock$ 60,000Additional paid-in capital: common stock$ 1,900,000Retained earnings$ 1,090,000 Dividends have been declared and paid for Year 1. The average issue price per share of Grant's preferred stock was:

110

Shown below is selected information from the financial statements of Noble Computers. (Dollar amounts are in millions, except for the per share data.) Income statement information: Net sales$ 3,500Cost of goods sold$ 1,890Operating expenses$ 675Net income$ 115Balance sheet information: Average total equity$ 540Average total assets$ 4,400 Noble reported earnings per share for the year of $6 and paid cash dividends of $2.00 per share. At year-end, the Wall Street Journal listed Noble's capital stock as trading at $81 per share. Noble's price-earnings ratio at year end was:

13.5

The Piazza Company has working capital of $550,000 and current assets of $860,000. The current ratio is:

2.77 Explanation $860,000 − Current liabilities = $550,000Current liabilities = $860,000 − $550,000 = $310,000Current ratio = $860,000 ÷ $310,000 = 2.77

The legal life of most patents is:

20 years

Shown below is selected information from the financial statements of Noble Computers. (Dollar amounts are in millions, except for the per share data.) Income statement information: Net sales$ 3,500Cost of goods sold$ 1,890Operating expenses$ 675Net income$ 115Balance sheet information: Average total equity$ 540Average total assets$ 4,400 Noble reported earnings per share for the year of $6 and paid cash dividends of $2.00 per share. At year-end, the Wall Street Journal listed Noble's capital stock as trading at $81 per share. Noble's return on equity was:

21%.

The Cash account in the records of Hensley, Incorporated showed a balance of $3,100 at June 30. The bank statement, however, showed a balance of $3,900 at the same date. The only reconciling items consisted of a $700 deposit in transit, a bank service charge of $7, and a large number of outstanding checks. What is the "adjusted cash balance" at June 30?

3093

Castle TV, Incorporated purchased 1,000 monitors on January 5 at a per-unit cost of $185, and another 1,000 units on January 31 at a per-unit cost of $230. In the period from February 1 through year-end, the company sold 1,800 units of this product. At year-end, 200 units remained in inventory. Assume that Castle TV, Incorporated uses the LIFO flow assumption. The cost of the 200 units in the year-end inventory is:

37,000

Given below are comparative statements of financial position (balance sheets) and an income statement for Claret Corporation. Claret CorporationBalance SheetsYear 2 December 31January 1Cash$ 16,000$ 16,000Accounts receivable47,32038,500Inventory32,90036,800Equipment (net)57,60066,700Total$ 153,820$ 158,000Accounts payable26,40029,000Dividends payable8,2004,300Long-term note payable14,70014,700Capital stock, $5 par73,20073,200Retained earnings31,32036,800Total$ 153,820$ 158,000 Claret CorporationIncome StatementFor the year ended Year 2Sales$ 229,200Cost of goods sold137,580Gross profit on sales$ 91,620Operating expenses75,908Operating income $ 15,712Interest expense and income taxes9,300Net income$ 6,412 All sales were made on account. Cash dividends declared during the year totaled $11,892. Claret Corporation's gross profit rate for Year 2 is:

39.97%.

Given below are comparative statements of financial position (balance sheets) and an income statement for Claret Corporation. Claret CorporationBalance SheetsYear 2 December 31January 1Cash$ 14,600$ 14,600Accounts receivable45,50035,700Inventory31,50035,400Equipment (net)56,20065,300Total$ 147,800$ 151,000Accounts payable25,00027,600Dividends payable6,8002,900Long-term note payable13,30013,300Capital stock, $5 par71,80071,800Retained earnings30,90035,400Total$ 147,800$ 151,000 Claret CorporationIncome StatementFor the year ended Year 2Sales$ 227,800Cost of goods sold137,440Gross profit on sales$ 90,360Operating expenses75,768Operating income $ 14,592Interest expense and income taxes8,600Net income$ 5,992 All sales were made on account. Cash dividends declared during the year totaled $10,492. Claret Corporation's inventory turnover for Year 2 is:

4.11 times.

Given below are comparative statements of financial position (balance sheets) and an income statement for Claret Corporation. Claret CorporationBalance SheetsYear 2 December 31January 1Cash$ 15,100$ 15,100Accounts receivable46,15036,700Inventory32,00035,900Equipment (net)56,70065,800Total$ 149,950$ 153,500Accounts payable25,50028,100Dividends payable7,3003,400Long-term note payable13,80013,800Capital stock, $5 par72,30072,300Retained earnings31,05035,900Total$ 149,950$ 153,500 Claret CorporationIncome StatementFor the year ended Year 2Sales$ 228,300Cost of goods sold137,490Gross profit on sales$ 90,810Operating expenses75,818Operating income $ 14,992Interest expense and income taxes8,850Net income$ 6,142 All sales were made on account. Cash dividends declared during the year totaled $10,992. Claret Corporation's accounts receivable turnover for Year 2 is:

5.51 times.

Shown below is selected information from the financial statements of Supreme Company Dollar amounts are in millions (except for the per share data). Income statement information: Net sales$ 1,090Cost of goods sold$ 485Operating expenses$ 405Net income$ 320Balance sheet information: Average total equity$ 1,700Average total assets$ 3,300 Supreme reported earnings per share for the year of $3 and paid cash dividends of $3 per share. At year-end, the Wall Street Journal listed Supreme's capital stock as trading at $81 per share. Supreme's gross profit rate was:

55.50%. Explanation $1,090 − $485 = $605; $605 ÷ $1,090 = 55.50%

Shown below is selected information from the financial statements of Supreme Company Dollar amounts are in millions (except for the per share data). Income statement information: Net sales$ 1,230Cost of goods sold$ 520Operating expenses$ 440Net income$ 390Balance sheet information: Average total equity$ 2,400Average total assets$ 4,000 Supreme reported earnings per share for the year of $4 and paid cash dividends of $1 per share. At year-end, the Wall Street Journal listed Supreme's capital stock as trading at $88 per share. Supreme's gross profit rate was:

57.7%.

Shown below is selected information from the statement of financial position (balance sheet) of Comoros, a small electronics store (dollar amounts are in thousands): Cash$ 66 Accounts receivable$ 126 Inventory$ 195Total assets$ 855 Current liabilities$ 210 Noncurrent liabilities$ 330 What is the debt ratio?

63.16%. Explanation $540 ÷ $855 = 63.16%

Shown below is selected information from the statement of financial position (balance sheet) of Comoros, a small electronics store (dollar amounts are in thousands): Cash$ 79Accounts receivable$ 139Inventory$ 260Total assets$ 920Current liabilities$ 340Noncurrent liabilities$ 395 What is the debt ratio?

79.89%.

Given below are comparative statements of financial position (balance sheets) and an income statement for Claret Corporation. Claret CorporationBalance SheetsYear 2 December 31January 1Cash$ 15,500$ 15,500Accounts receivable46,67037,500Inventory32,40036,300Equipment (net)57,10066,200Total$ 151,670$ 155,500Accounts payable25,90028,500Dividends payable7,7003,800Long-term note payable14,20014,200Capital stock, $5 par72,70072,700Retained earnings31,17036,300Total$ 151,670$ 155,500 Claret CorporationIncome StatementFor the year ended Year 2Sales$ 228,700Cost of goods sold137,530Gross profit on sales$ 91,170Operating expenses75,858Operating income$ 15,312Interest expense and income taxes9,050Net income$ 6,262 All sales were made on account. Cash dividends declared during the year totaled $11,392. Claret Corporation's return on assets for Year 2 rounded to the nearest tenth of a percent is:

9.97%.

During Year 2, the cash flows related to Global Data, Incorporated's lending and borrowing activities are summarized as follows: Cash lent to borrowers$ 132,600Payment to retire bonds payable$ 367,500Proceeds from borrowing at bank (note payable)$ 220,500Interest received from borrowers$ 31,500Interest payments made on bonds payable$ 42,000 On the basis of the above information alone, what is Global Data's net cash flow from financing activities? A. $147,000 net cash used for financing activities B. $145,500 net cash used for financing activities C. $206,100 net cash used for financing activities D. $500,100 net cash used for financing activities

A. $147,000 net cash used for financing activities

Which of the following items would not reduce retained earnings? A. A cash payment of a previously declared dividend B. A preferred stock dividend C. A common stock dividend D. A cash dividend

A. A cash payment of a previously declared dividend

An asset that costs $14,400 and has accumulated depreciation of $8,000 is sold for $5,600. What amount of gain or loss will be recognized when the asset is sold? A. A loss of $800. B. A loss of $2,400. C. A gain of $800. D. A gain of $2,400.

A. A loss of $800. Explanation Loss on sale = $5,600 − ($14,400 − $8,000) = ($800)

The cost of a new windshield wiper on a delivery vehicle would be classified as: A. A revenue expenditure. B. An unusual and infrequent expense. C. A capital expenditure. D. Part of the cost of goods sold.

A. A revenue expenditure.

While preparing the bank reconciliation, an accountant discovered that a $426 check returned with the bank statement had been recorded erroneously in the depositor's accounting records as $462. In preparing the bank reconciliation the appropriate action to correct this error would be to: A. Add $36 to the balance per the depositor's records. B. Add $36 to the balance per the bank statement. C. Deduct $36 from the balance per the bank statement. D. Deduct $36 from the balance per the depositor's records.

A. Add $36 to the balance per the depositor's records.

The bookkeeper prepared a check for $68 but accidentally recorded it as $86. When preparing the bank reconciliation, this should be corrected by: A. Adding $18 to the book balance. B. Subtracting $18 from the bank balance. C. Subtracting $18 from the book balance. D. Adding $18 to the bank balance.

A. Adding $18 to the book balance.

Which of the following is not a capital expenditure? A. Advertising expenditures to introduce a new product line B. Sales tax paid in conjunction with the purchase of new machinery C. Installation of elevators to replace escalators D. An amount paid to acquire a patent with a remaining life of only three years

A. Advertising expenditures to introduce a new product line

Treasury stock appears as: A. An equity account. B. A liability account. C. An expense account. D. An asset account.

A. An equity account.

The principle factor(s) affecting the quality of working capital is (are): A. Both the nature of the current assets and the length of time to convert current assets into cash. B. The nature of the current assets. C. The length of time to convert current assets into cash. D. Neither the nature of the current assets nor the length of time to convert current assets into cash.

A. Both the nature of the current assets and the length of time to convert current assets into cash.

The quick ratio: A. Cannot be higher than the current ratio. B. Is computed by dividing current assets by current liabilities. C. May be higher or lower than the current ratio. D. Is always higher than the current ratio.

A. Cannot be higher than the current ratio.

Quick assets include which of the following? A. Cash, marketable securities, and receivables. B. Cash, marketable securities, and inventories. C. Cash, prepaid rent, and receivables. D. Market securities, receivables, and inventories.

A. Cash, marketable securities, and receivables.

Responsibility for selection of the depreciation methods used in financial reporting rests with: A. Company management. B. The FASB. C. The IRS. D. The CPA firm that audits the company's financial statements.

A. Company management.

Of the items listed, which would appear closest to the bottom of the income statement? A. Discontinued operations B. Income from continuing operations C. Unusual and infrequent non-recurring items D. Prior period adjustment

A. Discontinued operations

Which of the following would not be presented in the cash flows from operating activities section of the statement of cash flows when the direct method is used? A. Dividends paid. B. Dividends received. C. Neither dividends paid nor dividends received would be shown. D. Both dividends paid and dividends received would be shown.

A. Dividends paid.

A cash dividend paid to shareholders is reported on the: A. Financing activities section of the statement of cash flows. B. Operating activities section of the statement of cash flows. C. Balance sheet. D. Income statement.

A. Financing activities section of the statement of cash flows.

Which of the following is not considered an acceptable inventory cost method according to GAAP? A. First-in, last-out B. Average cost C. Last-in, first-out D. First-in, first-out

A. First-in, last-out

Earnings per share figures are shown in the income statement: A. For income from continuing operations, discontinued operations, and net income. B. For common stock as well as for preferred stock. C. For all publicly owned, as well as for all privately held, corporations. D. As an optional disclosure for all corporations, and may be omitted completely or disclosed in a footnote at the option of the issuing corporation.

A. For income from continuing operations, discontinued operations, and net income.

Gross profit rate is equal to: A. Gross profit divided by net sales. B. Gross sales divided by gross profit. C. Gross profit divided by gross sales. D. Net sales divided by gross profit.

A. Gross profit divided by net sales.

In a multiple-step income statement, income taxes are not classified as operating expenses because: A. Income taxes do not contribute to the production of revenue. B. Income taxes stem from the manner in which assets are financed, not the manner in which they are used in business operations. C. Not all forms of business organization are subject to income taxes. D. The statement is incorrect; income taxes are classified as operating expenses.

A. Income taxes do not contribute to the production of revenue.

Which of the following best describes retained earnings? A. Income that has been reinvested in the business rather than distributed as dividends to stockholders. B. Cash available for dividends. C. The amount initially invested in the business by stockholders. D. Cash available for expansion and growth.

A. Income that has been reinvested in the business rather than distributed as dividends to stockholders.

Each of these categories of assets is normally shown in the balance sheet at current value, except: A. Inventories. B. Accounts receivable. C. Short-term investments in marketable securities. D. Cash.

A. Inventories.

Which of the following is not classified among the investing activities in a statement of cash flows? A. Investment of cash made in the business by the owners. B. Purchase of marketable securities for cash. C. Purchase of plant assets for cash. D. Collection of the principal amount of cash loans made to others.

A. Investment of cash made in the business by the owners.

Intangible assets: A. Lack physical properties. B. Have been depreciated below their estimated salvage values. C. Cannot be sold. D. Cannot be specifically identified.

A. Lack physical properties.

All of the following are financing activities except: A. Lending money. B. Paying dividends. C. Selling capital stock. D. Borrowing money.

A. Lending money.

The price-earnings ratio is measured by dividing: A. Market value by earnings per share. B. Book value by earnings per share. C. Market value by total net income. D. Par value by earnings per share.

A. Market value by earnings per share.

All of the following are considered cash equivalents except: A. Marketable securities. B. Treasury bills. C. Money market funds. D. Commercial paper.

A. Marketable securities.

Which of the following best describes the book value of a share of stock? A. Net assets divided by the number of shares outstanding. B. The amount at which the stock would sell on the market if sold by a willing and informed seller to a willing and informed buyer. C. Total assets of the company, as reported in the accounting records, divided by the number of shares of stock outstanding. D. Total stockholders' equity divided by the number of shares authorized.

A. Net assets divided by the number of shares outstanding.

In a periodic inventory system, recording a sale on account involves debiting which of the following accounts? A. Only Accounts Receivable. B. Accounts Receivable and Cost of Goods Sold. C. Accounts Receivable, Cost of Goods Sold, and Inventory. D. Accounts Receivable and Inventory.

A. Only Accounts Receivable.

In a statement of cash flows, collections of accounts receivable are classified as: A. Operating activities. B. Investing activities. C. Financing activities. D. Revenues and Gains.

A. Operating activities.

Which of the following is not classified among the financing activities in a statement of cash flows? A. Payment of interest to creditors. B. Long-term borrowing. C. Short-term borrowing. D. Payment of dividends to stockholders.

A. Payment of interest to creditors.

Which of the following is not classified among the operating activities in a statement of cash flows? A. Payment of the principal amount owed on a bank loan. B. Payment of interest on a bank loan. C. Payment of income taxes. D. Payment of an account payable to a merchandise supplier.

A. Payment of the principal amount owed on a bank loan.

Joe Costello handles cash receipts from customers and also has responsibility for issuing credit memoranda, writing off uncollectible accounts, and maintaining the accounts receivable records. When customers pay their accounts, Costello occasionally issues a credit memorandum and steals the cash received from the customer. This fraud should come to light if an employee other than Costello: A. Reconciles credit memoranda for sales returns to returned merchandise accepted by the receiving department. B. Reconciles the accounts receivable subsidiary ledger to the accounts receivable controlling account. C. Reconciles the bank statement to the accounting records. D. Investigates weekly all accounts written off as uncollectible.

A. Reconciles credit memoranda for sales returns to returned merchandise accepted by the receiving department.

The choice of inventory valuation method can help achieve each of the following independent goals, except: A. Reduce cost of merchandise acquired from suppliers. B. Increase reported net income. C. Increase the inventory turnover rate. D. Reduce the amount of income taxes owed.

A. Reduce cost of merchandise acquired from suppliers.

In a corporation's organization chart, who has/have the highest position? A. Stockholders. B. President. C. Board of directors. D. CEO.

A. Stockholders.

If a corporation has only common stock outstanding, which of the following constitutes legal capital at a particular date? A. The amount in the Common Stock account. B. The sum of the Common Stock account and any additional paid-in capital. C. The total amount of stockholders' equity. D. The sum of the Common Stock account and retained earnings.

A. The amount in the Common Stock account.

The primary advantage of a just-in-time inventory system is: A. The amount of money tied up in inventory is minimized. B. Customers are afforded a wider selection of merchandise available for immediate delivery. C. The company is able to use the specific identification method of inventory pricing. D. The risks of losing sales opportunities or of having to shut down manufacturing operations because of inventory shortages are minimized.

A. The amount of money tied up in inventory is minimized.

For depreciable property other than real estate, MACRS is based upon: A. The declining-balance method. B. The depreciation method and recovery period used by the company in its financial statements. C. The straight-line method. D. A 10-year recovery period.

A. The declining-balance method.

The Allowance for Doubtful Accounts represents: A. The difference between the face value of accounts receivable and the net realizable value of accounts receivable. B. The difference between total credit sales and collections on credit sales. C. The amount of uncollectible accounts written off to date. D. Cash set aside to make up for bad debt losses.

A. The difference between the face value of accounts receivable and the net realizable value of accounts receivable.

Which of the following would usually be the greatest amount? A. The number of shares authorized B. The number of shares issued C. The number of shares outstanding D. The number of shares of Treasury Stock

A. The number of shares authorized

The term "accumulated depreciation" as used in accounting is best defined as: A. The portion of a plant asset recognized as expense since the asset was acquired. B. Earnings retained in the business that will be used to purchase another asset when the present asset is depreciated. C. Funds (or cash) set aside to replace the asset being depreciated. D. An expense of doing business.

A. The portion of a plant asset recognized as expense since the asset was acquired.

The book value of an asset in the plant and equipment category is: A. The undepreciated cost of the asset. B. The current replacement cost of the asset. C. The accumulated depreciation on the asset to date. D. The original cost of the asset.

A. The undepreciated cost of the asset.

Which of the following apply to closely held corporations? A. There is no organized market for buying and selling the company's shares. B. The company must have its financial statements audited by an independent firm of CPAs. C. The company must prepare and issue its financial statements in conformity with generally accepted accounting principles. D. The company's financial information must be submitted to the Securities and Exchange Commission.

A. There is no organized market for buying and selling the company's shares.

Which of the following is not a right of stockholders? A. To select the chief executive officer. B. To vote for directors and on key issues. C. To participate in dividends declared. D. To share in the distribution of assets if the corporation is liquidated.

A. To select the chief executive officer.

Stock that had been issued by a corporation, and later reacquired, is classified as: A. Treasury stock. B. Restricted stock. C. Issued shares. D. Non-participating preferred stock.

A. Treasury stock.

The excess of current assets over current liabilities is called: A. Working capital. B. Quick ratio. C. Debt ratio. D. Current ratio.

A. Working capital.

For the financial statements of publicly traded companies, MACRS: A. is not considered to be in conformity with GAAP. B. is recommended. C. is optional. D. is required.

A. is not considered to be in conformity with GAAP.

Land and a warehouse were acquired for $890,000. What amounts should be recorded in the accounting records for the land and for the warehouse if an appraisal showed the estimated values to be $400,000 for the land and $700,000 for the warehouse? A. $400,000 for land; $490,000 for warehouse B. $323,960 for land; $566,040 for warehouse C. $400,000 for land; $700,000 for warehouse D. $190,000 for land; $700,000 for warehouse

B. $323,960 for land; $566,040 for warehouse

An asset that costs $28,800 and has accumulated depreciation of $6,000 is sold for $21,600. What amount of gain or loss will be recognized when the asset is sold? A. A gain of $1,200. B. A loss of $1,200. C. A loss of $7,200. D. A gain of $7,200.

B. A loss of $1,200.

Which of the following is not considered a cash equivalent? A. U.S. Treasury bills B. Accounts receivable C. High-grade commercial paper D. Money market funds

B. Accounts receivable

The purpose of the fair value adjustment for marketable equity securities is to: A. Compute the amount of taxes payable on unrealized gains and losses. B. Adjust the valuation of a company's investment in those securities to current market value. C. Adjust a corporation's capital stock account to reflect the current market value of the outstanding capital stock. D. Recognize the proper amount of gain or loss on fluctuations in the market value of these securities in the current period income statement.

B. Adjust the valuation of a company's investment in those securities to current market value.

Which of the following statements regarding the direct and indirect methods of reporting cash flow from operating activities is false? A. The direct method shows the specific cash inflows and outflows constituting the operating activities of the business. B. Although both methods result in the same net increase or decrease in cash for the year, net cash flow from operating activities will be different under the two methods. C. Under the indirect method, the computation of net cash flow from operating activities begins with net income as shown in the income statement. D. The FASB permits both the direct and the indirect methods, but has expressed a preference for the direct method.

B. Although both methods result in the same net increase or decrease in cash for the year, net cash flow from operating activities will be different under the two methods.

Capital expenditures are recorded as: A. An expense. B. An asset. C. A liability. D. Income.

B. An asset.

With a line of credit, a liability arises: A. As soon as the line is created. B. As soon as any money is borrowed. C. At the maturity date. D. Upon repayment of the debt.

B. As soon as any money is borrowed.

With a line of credit, a liability arises: A. As soon as the line is created. B. As soon as any money is borrowed. C. Upon repayment of the debt. D. At the maturity date.

B. As soon as any money is borrowed.

In a statement of cash flows, the term "cash" includes: A. Only money on deposit in bank accounts. B. Bank accounts, cash on hand, and cash equivalents. C. Only bank accounts and cash on hand. D. Bank accounts, cash on hand, cash equivalents, and marketable securities classified as current assets.

B. Bank accounts, cash on hand, and cash equivalents.

All things being equal, if investors expect earnings to increase substantially from current levels, the price to earnings ratio will: A. Be quite low. B. Be quite high. C. Not change. D. Not be affected by income expectations.

B. Be quite high.

The debt ratio is used primarily as a measure of: A. Return on Investment. B. Creditors' long-term risk. C. Short-term liquidity. D. Profitability.

B. Creditors' long-term risk.

All of the following are measures of liquidity except: A. Quick ratio. B. Debt ratio. C. Current ratio. D. Working capital.

B. Debt ratio.

Which of the following would have no effect on Retained Earnings? A. A prior period adjustment B. Declaration of a stock split C. Declaration of a cash dividend D. Declaration of a stock dividend

B. Declaration of a stock split

The book value of equipment: A. Remains the same with the passage of time. B. Decreases with the passage of time. C. Increases with the passage of time. D. May increase or decrease depending upon the economy.

B. Decreases with the passage of time.

All the following are steps included in the preparation of the bank reconciliation except: A. Comparing deposits listed on the bank statement with the deposits shown in the accounting records. B. Deducting any debit memoranda from the balance on the bank statement. C. Comparing checks listed on the bank statement with corresponding entries in the accounting records. D. Preparing journal entries for any adjustments to the depositor's records.

B. Deducting any debit memoranda from the balance on the bank statement.

In a period of rising prices, a company is most likely to use the specific identification method of pricing inventory if: A. Management wants the company's income statement to indicate the highest possible amounts of gross profit and net income. B. Each item in the inventory is unique. C. Management wants the same unit cost assigned to items sold and items remaining in inventory. D. Management's primary objective is to minimize income taxes.

B. Each item in the inventory is unique.

The valuation principle of "fair value accounting" applied to investments classified as marketable equity securities: A. Affects the current period income statement, but not the balance sheet. B. Enhances usefulness of the balance sheet in evaluating the financial position of a business. C. Applies to marketable securities and inventories. D. Requires a corporation to adjust its capital stock account to reflect current market value of its outstanding capital stock.

B. Enhances usefulness of the balance sheet in evaluating the financial position of a business.

The principle of consistency states that: A. Every company in the same industry must use the same accounting principle. B. If changes in accounting principles are made, the reasons for the change and the effects on the company's net income must be disclosed. C. There must be a consistent blend to the accounting principles. D. Companies are prohibited from ever changing their accounting methods.

B. If changes in accounting principles are made, the reasons for the change and the effects on the company's net income must be disclosed.

Execucomp Corporation's financial statements in the current year show a loss from discontinued operations, a prior period adjustment, and an unusual and infrequent gain. If Execucomp's income statement is prepared according to generally accepted accounting principles (as illustrated in your text), which of the following four items would appear second in sequence in the income statement? A. Prior period adjustment B. Income from continuing operations C. Loss from discontinued operations D. Unusual and infrequent gain

B. Income from continuing operations

Accelerated depreciation methods are used primarily in: A. The financial statements of publicly owned corporations. B. Income tax returns. C. The financial statements of small businesses. D. Companies with computer-based accounting systems.

B. Income tax returns.

The operating cycle of a company: A. Is the time it takes to acquire a loan, pay the interest, and retire the loan by paying the creditor in full. B. Is the time it takes to purchase inventory, sell inventory, and collect cash from the sale. C. Is usually greater than one year. D. Must be less than one year.

B. Is the time it takes to purchase inventory, sell inventory, and collect cash from the sale.

Which of the following statements regarding a contract is not true? A. It may be written or implied. B. It creates unenforceable rights and obligation for both parties. C. It is an agreement between two or more parties. D. It dictates the earning and subsequent recognition of revenue for both parties.

B. It creates unenforceable rights and obligation for both parties.

During periods of inflation, which method will yield the smallest ending inventory and the largest cost of goods sold? A. Specific identification B. LIFO C. FIFO D. Average cost

B. LIFO

Which of the following inventory approaches is not in accord with the physical flow of merchandise in most businesses? A. Specific identification B. LIFO C. FIFO D. Average cost

B. LIFO

Public corporations are required by law or regulation to perform all of the following except: A. Submit much of their financial information to the SEC for review. B. Make regularly scheduled dividend payments to all stockholders. C. Have their annual financial statements audited by an independent CPA. D. Disclose their financial information to the public.

B. Make regularly scheduled dividend payments to all stockholders.

Which of the following practices best illustrates efficient management of cash? A. The accountant records all cash receipts and payments when reconciling the bank account at the end of each month. B. Management arranges for a loan to cover projected cash shortages during the production phase of the business cycle each year. C. Cash budgets (forecasts) are prepared only one month in advance in order to avoid the need for constant revision. D. All cash resources are held in the checking account to maximize liquidity.

B. Management arranges for a loan to cover projected cash shortages during the production phase of the business cycle each year.

On common size income statements, each component in the income statement is represented as a percentage of: A. Net income. B. Net sales. C. Total assets. D. Profit.

B. Net sales.

A 2-for-1 stock split will: A. Increase total stockholders' equity. B. Not change the total par value of the stock and increase the number of shares outstanding. C. Decrease the total par value of the stock and increase the number of shares outstanding. D. Increase the total par value of the stock and increase the number of shares outstanding.

B. Not change the total par value of the stock and increase the number of shares outstanding.

Dividends become a liability of a corporation: A. On the date payment is to be made. B. On the date the board of directors declares the dividend. C. On the date of record. D. When cumulative preferred stock dividends are in arrears.

B. On the date the board of directors declares the dividend.

In a periodic inventory system, recording a sale on account involves crediting which of the following accounts? A. Sales, Inventory, and Cost of Goods Sold. B. Only Sales. C. Sales and Cost of Goods Sold. D. Sales and Inventory.

B. Only Sales.

Which of the following does not create a difference between net income and the net cash flow from operations? A. Depreciation expense B. Payment of a cash dividend C. Non-operating gains and losses D. Timing differences between credit sales and collections from customers

B. Payment of a cash dividend

Which of the following is a financing activity? A. Payment of interest. B. Payment of dividends. C. Making sales on account. D. Paying off accounts payable.

B. Payment of dividends.

Which of the following is an investing activity? A. Issuing common stock. B. Purchase of equipment. C. Payment of interest. D. Issuing long-term debt.

B. Purchase of equipment.

Harris Corporation's inventory of a particular product includes 200 units purchased at a per-unit cost of $50, and another 100 units purchased at a unit cost of $60. If Harris sells 10 units of this product, the cost of goods sold will be: A. $550. B. The answer will depend upon the inventory cost flow assumption in use. C. $660. D. $500.

B. The answer will depend upon the inventory cost flow assumption in use.

The gain on the disposal of equipment is recognized when: A. The book value of the equipment is greater than the value received. B. The book value of the equipment is less than the value received. C. A salvage value exists. D. A gain should not be recognized on the disposal of an asset.

B. The book value of the equipment is less than the value received.

Which of the following does not decrease the cash flow from operating activities? A. The prepayment of an expense. B. The purchase of operating equipment. C. The payment of interest. D. The prepayment of an expense, the purchase of operating equipment, and the payment of interest all decrease cash from operating activities.

B. The purchase of operating equipment.

Which statement is true about a stock split? A. Total shareholders' equity decreases. B. Total shareholders' equity remains the same. C. Total shareholders' equity increases. D. A change in total stockholders' equity depends upon whether it is a 2-for-1 split or a 3-for-1 split.

B. Total shareholders' equity remains the same.

The term paid-in capital means: A. All assets other than retained earnings. B. Total stockholders' equity minus retained earnings. C. Legal capital minus retained earnings. D. Legal capital plus retained earnings.

B. Total stockholders' equity minus retained earnings.

The changes in financial statement items from a base year to following years are sometimes expressed as: A. Component percentages. B. Trend percentages. C. Money changes. D. Ratios.

B. Trend percentages.

The current ratio will be _______________ the quick ratio. A. less than B. greater than or equal to C. the same as D. always different than

B. greater than or equal to

The advantages of corporations going public include all of the following except: A. Professional management. B. Transferability of ownership. C. Ability to remove assets. D. Limited shareholder liability.

C. Ability to remove assets.

All of the following may be considered intangible assets except: A. Goodwill. B. Copyrights. C. Accounts receivable. D. Franchises.

C. Accounts receivable.

Which of the following is considered a quick asset? A. Prepaid expenses. B. Inventory. C. Accounts receivable. D. Automobiles.

C. Accounts receivable.

The primary reason a physical inventory is taken is to: A. Ensure the periodic inventory record is valued correctly. B. Ensure the perpetual inventory record is being stored in a secure manner. C. Adjust the perpetual inventory record for unrecorded shrinkage losses. D. Both ensure the periodic inventory record is being stored securely and that it is valued correctly.

C. Adjust the perpetual inventory record for unrecorded shrinkage losses.

The Allowance for Doubtful Accounts will appear on the: A. Income statement. B. Cash flow statement. C. Balance sheet D. Statement of retained earnings.

C. Balance sheet

Which method will yield higher cash flows from operating activities? A. The indirect method. B. The direct method. C. Both direct and indirect methods will yield the same amount. D. Depends upon the situation.

C. Both direct and indirect methods will yield the same amount.

The measurement of the relative size of each item included in a total is called: A. Trend percentages. B. Ratios. C. Component percentages. D. Money changes.

C. Component percentages.

The ratio that measures total liabilities as a percentage of total assets is called the: A. Working capital. B. Quick ratio. C. Debt ratio. D. Current ratio.

C. Debt ratio.

Treasury stock: A. Does not change total stockholders' equity. B. Increases total stockholders' equity. C. Decreases total stockholders' equity. D. Is an asset.

C. Decreases total stockholders' equity.

Enclosed with the bank statement received by Sydney Company at October 31 was an NSF check for $300. No entry has yet been made by the company to reflect the bank's action in charging back the NSF check. During preparation of the bank reconciliation, the NSF check should be: A. Added to the balance per the depositor's records. B. Deducted from the balance per the bank statement. C. Deducted from the balance per the depositor's records. D. Added to the balance per the bank statement.

C. Deducted from the balance per the depositor's records.

To receive the next cash dividend, an investor must purchase the stock before the: A. Payment date announced by the board of directors. B. Date of record. C. Ex-dividend date. D. Dividend declaration date.

C. Ex-dividend date.

Which of the following results in the inventory being stated at the most current acquisition costs? A. Specific identification B. LIFO C. FIFO D. Average cost

C. FIFO

In a statement of cash flows, payments of dividends are classified as: A. Costs and Expenses. B. Operating activities. C. Financing activities. D. Investing activities.

C. Financing activities.

Which of the following would not be amortized? A. Patent. B. Copyright. C. Goodwill. D. Franchise fee.

C. Goodwill.

After preparing a bank reconciliation, a journal entry would be required for which of the following: A. A deposit in transit. B. A check for $48 given to a supplier but not yet recorded by the company's bank. C. Interest earned on the company's checking account. D. A deposit made by a company with a similar name and credited to your account.

C. Interest earned on the company's checking account.

Financial assets include all of the following except: A. Marketable securities. B. Cash. C. Inventories. D. Accounts receivable.

C. Inventories.

Short-term creditors are most likely to use the quick ratio instead of the current ratio in evaluating the solvency of a company with large, slow-moving: A. Plant and equipment. B. Receivables. C. Inventories. D. Employees.

C. Inventories.

Which of the following statements is not a characteristic of the LIFO method of pricing inventory? A. During a period of rising prices, LIFO tends to minimize the amount of income taxes owed. B. The cost of goods sold is measured in relatively current costs. C. Inventory is valued at relatively current costs. D. During a period of falling prices, LIFO tends to maximize the amount of income taxes owed.

C. Inventory is valued at relatively current costs.

Which of the following assets is not subject to depreciation and does not decline in usefulness over time? A. Patents B. Copyrights C. Land D. Coal mine

C. Land

In a statement of cash flows, cash transactions are classified into three major categories. Which of the following is not one of these three categories? A. Investing activities. B. Operating activities. C. Managing activities. D. Financing activities.

C. Managing activities.

The price-earnings ratio is the: A. Par value of a share of common stock divided by EPS. B. Book value of a share of common stock divided by EPS. C. Market price of a share of common stock divided by EPS. D. Market price divided by book value of a share of stock.

C. Market price of a share of common stock divided by EPS.

When shares of stock are sold from one investor to another, they will trade at: A. Book value. B. Stated Value. C. Market value. D. Par value.

C. Market value.

The statement of stockholders' equity: A. Is a required financial statement. B. Is a statement sent to each stockholder showing that person's overall return on equity. C. May be issued as a substitute for the statement of retained earnings. D. Shows the changes during the year in all stockholders' equity accounts except retained earnings.

C. May be issued as a substitute for the statement of retained earnings.

When a stock dividend is declared, total stockholders' equity will: A. Decrease. B. Increase. C. Not change. D. Increase or decrease, depending upon whether it's a small or large stock dividend.

C. Not change.

In the statement of cash flows, the purchase of supplies is classified as: A. Managing activities. B. Investing activities. C. Operating activities. D. Financing activities.

C. Operating activities.

A good system of internal control will include all of the following except: A. Reconciling bank statements with accounting records. B. Making all major payments by check. C. Preparing a pro-forma financial statement on a monthly basis. D. Separating the handling of cash from the maintenance of accounting records.

C. Preparing a pro-forma financial statement on a monthly basis.

One number expressed as a percentage of another is called: A. Component percentages. B. Money changes. C. Ratios. D. Trend percentages.

C. Ratios.

In a manufacturing company, the "just-in-time" concept of inventory management is best illustrated by: A. An automated factory that reduces production time below that of other companies in the industry. B. Completing the manufacturing process just before the deadline established by the customer. C. Receiving deliveries of materials from suppliers just before the materials are used in the production process. D. Selling finished products before they go out of style.

C. Receiving deliveries of materials from suppliers just before the materials are used in the production process.

An accelerated depreciation method: A. Results in reporting higher earnings every year. B. Depreciates an asset over a shorter life than does the straight-line method. C. Recognizes more depreciation expense in the early years of an asset's useful life and less in the later years. D. Is required for assets that become technologically obsolete before they physically wear out.

C. Recognizes more depreciation expense in the early years of an asset's useful life and less in the later years.

Armstrong Company recently acquired a new computer system. Which of the following costs associated with the computer should not be debited to the Equipment account? A. Insurance coverage purchased by Armstrong to cover the computer during shipment from the manufacturer B. Wages paid to system programmers hired to prepare the new computer for use C. Replacement of several circuit boards damaged during installation D. Installation of new electrical power supplies required for the computer

C. Replacement of several circuit boards damaged during installation

Which of the following is not an addition to total paid-in-capital? A. Common stock B. Preferred stock and treasury stock C. Retained earnings and treasury stock D. Preferred stock

C. Retained earnings and treasury stock

An example of a non-cash investing or financing activity that is disclosed in a supplementary schedule accompanying the statement of cash flows is: A. Recording depreciation expense for the current year. B. Declaring, but not paying, dividends on common stock. C. Selling land in exchange for a note receivable. D. Transferring cash from a checking account into a money market fund.

C. Selling land in exchange for a note receivable.

A 2-for-1 stock split: A. Is accounted for in the same way as a 100% stock dividend. B. Is recorded by transferring the par value of additional shares from retained earnings to the common stock account. C. Should logically cause the market price per share to drop by approximately 50%. D. Increases the number of outstanding shares of common stock, but par value per share remains the same as before the split.

C. Should logically cause the market price per share to drop by approximately 50%.

Which of the following is not a characteristic of the corporate form of organization? A. The owners of a corporation cannot lose more than the amount of their investment. B. Shares of stock in a corporation are more readily transferable than is an interest in a partnership. C. Stockholders have authority to decide by majority vote the amount of dividends to be paid. D. The corporation is a very efficient vehicle for obtaining large amounts of capital required for large-scale production.

C. Stockholders have authority to decide by majority vote the amount of dividends to be paid.

Which depreciation method is most commonly used among publicly owned corporations? A. All of the various depreciation methods are used equally B. Units-of-output C. Straight-line D. Double-declining balance

C. Straight-line

Effective internal control over accounts receivable ensures: A. There is an accurate accounting for cash receipts, cash disbursements, and cash balances. B. The availability of adequate cash for conducting business operations. C. That credit is only extended to customers that meet the company's credit standards. D. That an approved factor is used when the company sells its accounts receivable.

C. That credit is only extended to customers that meet the company's credit standards.

Goods in transit between the buyer and the seller belong to: A. The freight company. B. The buyer. C. The answer depends upon whether the goods were shipped F.O.B. shipping point or F.O.B. destination. D. The seller.

C. The answer depends upon whether the goods were shipped F.O.B. shipping point or F.O.B. destination.

A bank reconciliation explains the differences between: A. The balance per bank statement and cash expected to be on hand according to the cash forecast. B. Cash receipts and cash disbursements for the period. C. The balance per bank statement and the cash balance per the accounting records of the depositor. D. The balance of cash in the bank and the budgeted expenditures for the upcoming accounting period.

C. The balance per bank statement and the cash balance per the accounting records of the depositor.

The measurement that best reflects investors' expectations about future earnings is: A. Earnings per share. B. Return on assets. C. The price-earnings ratio. D. Return on equity.

C. The price-earnings ratio.

Tomasa Company paid $450,000 to acquire a piece of real estate consisting of land and an office building with a parking lot. In this situation: A. Allocation of the entire $450,000 to Land results in an understatement of net income in the current and future accounting periods. B. The entire purchase price should be debited to the Land account only. C. The purchase price should be apportioned among the Land, Land Improvement, and Building accounts. D. Land, Land Improvement, and Building accounts should each be credited for the respective appraisal value of each item.

C. The purchase price should be apportioned among the Land, Land Improvement, and Building accounts.

On January 1, Year 1, Juniper Corporation issued 60,000 shares of its total 200,000 authorized shares of $4 par value common stock for $8 per share. On December 31, Year 1, Juniper Corporation's common stock is trading at $12 per share. Assuming Juniper Corporation did not issue any more common stock in Year 1, how does the increase in value of its outstanding stock affect Juniper? A. Juniper should recognize additional net income for Year 1 of $4 per share, or $240,000. B. Paid-in capital at December 31, Year 1, is $720,000 (i.e., 60,000 shares times $12 per share). C. This increase in market value of outstanding stock is not recorded in the financial statements of Juniper Corporation. D. Each shareholder must pay an additional $4 per share to Juniper.

C. This increase in market value of outstanding stock is not recorded in the financial statements of Juniper Corporation.

The debt ratio indicates the percentage of: A. Revenue consumed by interest expense. B. Total assets financed by long-term mortgages. C. Total assets financed by creditors. D. Total liabilities classified as current.

C. Total assets financed by creditors.

The net assets of a corporation are equal to: A. Total assets − retained earnings. B. Total assets + total liabilities. C. Total assets − total liabilities. D. Total assets + retained earnings.

C. Total assets − total liabilities.

The term cash equivalent refers to: A. An account receivable from a reliable customer who has always paid bills within the discount period. B. An item such as a money order, travelers' check, or check from a customer. C. Very liquid short-term investments such as U.S. Treasury Bills and commercial paper. D. A guaranteed line of credit at the company's bank.

C. Very liquid short-term investments such as U.S. Treasury Bills and commercial paper.

The accountant for Foster Institute, Incorporated, determined the cash flow for several transactions to be as follows: Payment to pay off notes payable$ 195,000Proceeds from issuance of bonds payable$ 635,000Payment to purchase equipment$ 275,000Payment of wages$ 115,000Payment of dividends$ 155,000 On the basis of the above transactions alone, determine the net cash flow from financing activities. A. $275,000 net cash used for financing activities. B. $440,000 net cash provided by financing activities. C. Zero: cash inflows equal cash outflows from financing activities. D. $285,000 net cash provided by financing activities.

D. $285,000 net cash provided by financing activities.

With respect to depreciation policies, the principle of consistency means: A. A company should use the same depreciation method in computing depreciation expense on all its assets. B. A company should use the same depreciation methods in its financial statements that it uses in its income tax returns. C. A company should use the same depreciation methods as other companies in the same industry. D. A company should use the same depreciation method from year to year for a given plant asset.

D. A company should use the same depreciation method from year to year for a given plant asset.

An asset that costs $97,600 and has accumulated depreciation of $82,000 is sold for $18,000. What amount of gain or loss will be recognized when the asset is sold? A. A gain of $15,600. B. A loss of $15,600. C. A loss of $2,400. D. A gain of $2,400.

D. A gain of $2,400.

A high quality of earnings is indicated by: A. Earnings derived largely from newly introduced products. B. Declaration of both cash and stock dividends. C. Use of the FIFO method of inventory during sustained inflation. D. A history of increasing earnings and conservative accounting methods.

D. A history of increasing earnings and conservative accounting methods.

The purpose of establishing a petty cash fund is to: A. Keep track of expenditures paid out of cash receipts from customers prior to deposit. B. Keep enough cash on hand in the office to cover all normal operating expenses of the business for a period of time. C. Ensure that the amount of cash in the bank does not become excessive. D. Achieve internal control over small cash disbursements not made by check.

D. Achieve internal control over small cash disbursements not made by check.

The term net identifiable assets means: A. All assets except goodwill, plus all liabilities. B. All fixed assets less liabilities. C. All assets except intangibles, minus all liabilities. D. All assets except goodwill, minus all liabilities.

D. All assets except goodwill, minus all liabilities.

Stock splits: A. Give stockholders more shares. B. Cause no change in total assets, liabilities, or stockholders' equity. C. Allow management to conserve cash. D. Allow management to conserve cash, give stockholders more shares, and cause no change in total assets, liabilities, or stockholders' equity.

D. Allow management to conserve cash, give stockholders more shares, and cause no change in total assets, liabilities, or stockholders' equity.

Marketable securities are: A. Listed immediately after Inventory on the balance sheet. B. Listed immediately after Inventory on the balance sheet. C. Sold for a gain when cash received is less than the cost basis. D. Almost as liquid as cash.

D. Almost as liquid as cash.

Revenue expenditures are recorded as: A. An asset. B. A liability. C. Income. D. An expense.

D. An expense.

Which of the following statistics is generally computed for both common and preferred stock? A. Earnings per share B. Retained earnings per share C. Price-earnings ratio (P/E ratio) D. Annual dividend per share

D. Annual dividend per share

The gross profit method of valuing inventory: A. Is a satisfactory substitute for taking a physical inventory for annual financial statements. B. Is not an acceptable method under GAAP. C. Is the most accurate of the commonly used methods. D. Assumes that the gross profit rate will remain the same for the current year as it has in the past year or so.

D. Assumes that the gross profit rate will remain the same for the current year as it has in the past year or so.

International standards require that goodwill: A. Be capitalized and amortized over 20 years or less. B. Be capitalized and amortized over 40 years or less. C. Be expensed immediately. D. Be capitalized and reviewed annually and its value should be adjusted if subject to impairment.

D. Be capitalized and reviewed annually and its value should be adjusted if subject to impairment.

Unusual and infrequent non-recurring items are found on the income statement: A. After discontinued operations. B. After prior period adjustments. C. After income from continuing operations. D. Before discontinued operations.

D. Before discontinued operations.

Cash flows from investing activities include all of the following except: A. Cash proceeds from selling investments. B. Cash proceeds from collections on loans. C. Cash advanced to borrowers. D. Cash proceeds from borrowing.

D. Cash proceeds from borrowing.

Net income differs from net cash flows from operations because of all the following except: A. Non-cash expenses such as depreciation. B. Timing differences between recognizing revenue and expenses and their cash flows. C. Gains and losses included in net income but classified as investing or financings activities. D. Cash received in exchange for goods sold in the normal course of operations.

D. Cash received in exchange for goods sold in the normal course of operations.

Which of the following is not an example of internal control over cash? A. Preparation of bank reconciliation B. Daily deposits of cash receipts at the bank C. Preparation of a cash budget D. Combining the functions of signing checks with the approval of expenditures

D. Combining the functions of signing checks with the approval of expenditures

Kent Company has used the same inventory method for many years. This is an example of which principle? A. Matching B. Realization C. Cost D. Consistency

D. Consistency

A primary disadvantage of the corporate form of organization is: A. Corporations may continue its operations without disruption despite the death of an individual stockholder. B. Unlimited personal liability for business debts. C. Ownership is difficult to transfer. D. Corporate earnings are subject to double taxation.

D. Corporate earnings are subject to double taxation.

Treasury stock should most often be recorded at A. Fair market value at year-end. B. Par value. C. Face value. D. Cost.

D. Cost.

When preparing a bank reconciliation, outstanding checks will: A. Increase the balance per depositor's records. B. Decrease the balance per depositor's records. C. Increase the balance per the bank statement. D. Decrease the balance per the bank statement.

D. Decrease the balance per the bank statement.

If the preferred stock of a corporation is cumulative: A. Dividends on preferred stock are guaranteed. B. Dividends cannot be declared in an amount less than that stated on the stock certificate. C. Preferred stockholders participate in dividends paid in excess of a stated amount on the common shares. D. Dividends in arrears must be paid on preferred stock before any dividend can be paid on common stock.

D. Dividends in arrears must be paid on preferred stock before any dividend can be paid on common stock.

Execucomp Corporation's financial statements in the current year show a loss from discontinued operations, a prior period adjustment, and an unusual and infrequent gain. If Execucomp's income statement is prepared according to generally accepted accounting principles (as illustrated in your text), which of the following four items would appear second in sequence in the income statement? A. Prior period adjustment B. Unusual and infrequent gain C. Loss from discontinued operations D. Income from continuing operations

D. Income from continuing operations

Which of the following is generally not true about inventory? A. Inventory is a non-financial asset. B. Inventory consists of all goods owned and held for sale to customers. C. Inventory is usually shown on the balance sheet at cost. D. Inventory must be managed on a unit-by-unit (i.e., specific identification) method.

D. Inventory must be managed on a unit-by-unit (i.e., specific identification) method.

The current ratio: A. Remains unchanged throughout the operating cycle. B. Is computed by subtracting current liabilities from current assets. C. Is a measure of short-term profitability. D. Is computed by dividing current assets by current liabilities.

D. Is computed by dividing current assets by current liabilities.

Many companies state in their annual reports that inventory is shown at the lower of its cost or market value. This means that the inventory: A. Has been written down to a carrying value below cost. B. Is shown at the lesser of cost or sales value. C. Is obsolete. D. Is valued at current replacement cost or historical cost, whichever is less.

D. Is valued at current replacement cost or historical cost, whichever is less.

When revenue is included in a company's income statement: A. It means that company has promised to do everything required in its agreement with a customer. B. It has been collected. C. It means the earnings process is almost complete. D. It is said to have been "recognized."

D. It is said to have been "recognized."

An advocate of the just-in-time inventory system would advocate: A. Leaving extra time in order to make inventory deadlines. B. Maintaining a large inventory selection for customers. C. LIFO over FIFO. D. Maintaining a small inventory supply.

D. Maintaining a small inventory supply.

When the account Allowance for Doubtful Accounts is used, writing off an uncollectible accounts receivable will: A. Reduce income. B. Reduce an expense. C. Increase total assets. D. Not change income or total assets.

D. Not change income or total assets.

Shares that have been sold and are in the hands of stockholders are called: A. Issued. B. Treasury. C. Underwritten. D. Outstanding.

D. Outstanding.

Cash flows from operating activities include all of the following except: A. Collections from customers for sales of goods. B. Payments of interest. C. Interest and dividends received. D. Payments of dividends.

D. Payments of dividends.

Which of the following is a measure of short-term liquidity? A. Dividend yield B. Debt ratio C. Return on assets D. Quick ratio

D. Quick ratio

A prior period adjustment is a correction made to: A. Only to last years' financial statements. B. Net income of the current year. C. Retained earnings at the end of the period. D. Retained earnings of the beginning of the period.

D. Retained earnings of the beginning of the period.

Working capital is calculated by: A. Subtracting current liabilities from total assets. B. Dividing current assets by total assets. C. Dividing current assets by total liabilities. D. Subtracting current liabilities from current assets.

D. Subtracting current liabilities from current assets.

When a corporation issues capital stock at a price higher than the par value: A. The amount received over par value increases retained earnings. B. The entire issue price is credited to the Capital Stock account. C. The amount received in excess of par value constitutes profit to the issuing corporation. D. The amount received in excess of par value becomes part of paid-in capital.

D. The amount received in excess of par value becomes part of paid-in capital.

The "bottom line" in a statement of cash flows shows: A. Net income, computed by the cash basis of accounting. B. Net increase or decrease in cash during the period. C. Net cash flow from operating activities. D. The cash (including cash equivalents) on the balance sheet at the end of the period.

D. The cash (including cash equivalents) on the balance sheet at the end of the period.

Which of the following would not be considered as part of the cost of equipment recently purchased? A. Sales tax B. Installation and setup charges C. Transportation charges D. The cost to repair damage incurred after dropping the equipment

D. The cost to repair damage incurred after dropping the equipment

Dividends are first recorded and retained earnings are reduced on: A. The ex-dividend date. B. The date of record. C. The date of payment. D. The date of declaration.

D. The date of declaration.

When comparing the units-of-output method of depreciation with straight-line depreciation: A. The depreciation expense in the first year will always be greater under units-of-output method. B. The depreciation expense in the first year will always be less under the units-of-output method. C. The depreciation expense in the first year will always be the same under both the methods. D. The depreciation expense in the first year may be greater than, equal to, or less under the units-of-output method.

D. The depreciation expense in the first year may be greater than, equal to, or less under the units-of-output method.

When a bank reconciliation has been satisfactorily completed, the only related entries to be made in the depositor's records are: A. To correct errors made by the bank in recording the dollar amounts of cash transactions during the period. B. To reconcile items that explain the difference between the balance per the books and the balance per the bank statement. C. To record outstanding checks and bank service charges. D. To record items that explain the difference between the balance per the accounting records and the adjusted cash balance.

D. To record items that explain the difference between the balance per the accounting records and the adjusted cash balance.

The ownership of common stock in a corporation usually carries all of the following rights except: A. To share in a distribution of assets if the corporation is to be liquidated. B. To participate in dividends. C. To vote for directors. D. To set corporate policies.

D. To set corporate policies.

The rights of a common stockholder do not include the right: A. To vote for directors. B. To share in profits when the board of directors declares a dividend. C. To receive a proportionate share of corporate assets upon liquidation, after creditors have been paid. D. To withdraw a share of corporate net assets proportionate to the person's stockholdings.

D. To withdraw a share of corporate net assets proportionate to the person's stockholdings.

The board of directors' primary functions include all of the following except: A. Hiring corporate officers. B. Setting officers' salaries. C. Declaring dividends. D. Transacting corporate business.

D. Transacting corporate business.

Most preferred stocks have one or more of the following characteristics, except: A. To receive dividends on a preferred basis. B. Callable at the option of the corporation. C. Cumulative dividends. D. Voting rights.

D. Voting rights.

T OR F: Companies that show profits on the income statement will always show positive cash flows from operating activities.

False

A store that sells expensive custom-made jewelry is most likely to determine its cost of goods sold using:

Specific identification

Which of the four inventory approaches is best suited to inventories of high-priced, low-volume items?

Specific identification

On January 2, Year 1, a motorcycle dealer sells a motorcycle with an extended warranty for two years beyond the manufacturer's two-year warranty and an agreement to service the vehicle for the first three years. The total transaction amount is $8,300. The extended warranty is estimated at 5 percent of the total price, less the amount of the service agreement, which is estimated to be $100 per year. How many performance obligations are included in this contract?

Three Explanation In this contract with a customer that purchases both the extended warranty and the service agreement, the motorcycle dealer has three performance obligations: to deliver the motorcycle, to complete any warranty work required by the extended warranty agreement, and to service the motorcycle for the designated period.

T or F: In a statement of cash flows, the term "cash" includes both cash and cash equivalents.

True