Accounting Final
The general ledger account that is supported by a subsidiary ledger.
Control account
A change in estimate of an asset's residual value involves restating the income statements of past periods for the estimate change. True False
False
Research and development costs should be presented as intangible assets. True False
False
The accounts receivable turnover ratio is computed by dividing net income by average accounts receivable. True False
False
The reason the allowance method of recognizing bad debts is used is primarily because it recognizes the maximum amount of write-off in each period. True False
False
The detail for a number of individual items that collectively make up a single general ledger account.
Subsidiary ledger
A subsidiary is a separate legal entity that is owned or controlled by another entity. True False
True
Washington Corp. reported the following information for 2017 and 2018: 20172018Accounts receivable$101,000$93,000Prepaid expenses5,0006,000Accounts payable71,00076,000Salaries payable5,0004,000Net income 80,000Depreciation expense 9,000Gain on sale of equipment 5,000If Washington uses the indirect method to prepare the Operating Activities section of the statement of cash flows, what amount will be reported as net cash inflow from operating activities for 2018? a.$95,000 b.$73,000 c.$83,000 d.$105,000
a.$95,000
If a company borrows money from its bank and the bank deducts the interest in advance, the company would record the amount of the interest deduction as a.a discount. b.an expense. c.prepaid interest. d.a loss.
a.a discount.
Depreciation is a.the difference between the original cost and salvage value of an asset. b.an effort to achieve proper matching of the cost of operating assets. c.the cash allocated each period to maintain a plant asset. d.an accumulation of funds to replace the related plant asset.
b.an effort to achieve proper matching of the cost of operating assets.
Select the financial statement on which the user would most likely find the answer to the question given. (Select all that apply.)How much depreciation expense did the company report during the year? a.Income statement b.Statement of retained earnings c.Balance sheet d.Statement of cash flows
A and D
Both stock and bond investments have maturity dates. True False
False
If a company accepts a major credit card such as VISA from a customer, then the company is responsible for the amount of the sale in case of nonpayment from a cardholder. True False
False
Interest is never a part of the cost of property, plant, and equipment or intangible assets. True False
False
Lewisburg Corp. had sales during the year of $15,000,000 and an average accounts receivable of $5,000,000. Its accounts receivable turnover ratio is 0.33 times. True False
False
One of the problems with the use of the allowance method to account for bad debts is that it often violates the matching principle. True False
False
Matching: Operating activity Not reported separately on the cash flow statement Write-off of a customer's account receivable under the allowance method Decrease in accounts receivable Increase in short-term notes receivable
Operating activity: Decrease in accounts receivable, Increase in short-term notes receivable Not reported separately on the cash flow statement: Write-off of a customer's account receivable under the allowance method
When land and building are acquired for a lump sum, the purchase amount should be allocated on the basis of the market values of the two assets. True False
True
Darrin Brown bought a pub. The purchase price was $695,000. An appraiser provided the following appraisal values: land, $320,000; building, $370,000; and equipment, $60,000. What cost should be allocated to the building? a.$342,867 b.$370,000 c.$695,000 d.$399,281
a.$342,867
Gaulle Company began the year with a balance of $6,000 in Accounts Receivable and ended the year with $9,000 in the account. Revenues for the period amounted to $38,000. Under the direct method, Gaulle will report cash collected from customers of a.$35,000. b.$41,000. c.$47,000. d.$44,000.
a.$35,000.
On January 1, 2017, Sharpsburg, Inc. issued $400,000, ten-year, 10% bonds for $354,200. The bonds pay interest on June 30 and December 31. The market rate is 12%. What is the carrying value of the bonds at the end of the ten years? a.$400,000 b.$380,000 c.$480,000 d.$354,200
a.$400,000
If a company issues $5 par value common stock, a.$5 per share is presented in the Common Stock account on the balance sheet. b.liabilities are increased as a result of the transaction. c.the shareholders will receive $5 in dividends. d.the minimum selling price is $5.
a.$5 per share is presented in the Common Stock account on the balance sheet.
On January 15, 2017, the accounts receivable balance was $7,000 and the balance in Allowance for Doubtful Accounts was $700. On January 16, 2017, a $200 uncollectible account was written off. The net realizable value of accounts receivable on January 16 immediately after the write-off is a.$6,300. b.$6,800. c.$6,500. d.$7,900.
a.$6,300.
endes Charters reported the following information at December 31, 2017:Preferred stock, $100 par, 500 shares authorized, and outstanding; cumulative; nonparticipating; callable at par value$ 50,000Common stock, $12 par, 50,000 shares authorized and outstanding600,000Additional paid-in capital—common25,000Retained earnings 825,000Mendes' total contributed capital is a.$675,000. b.$1,500,000. c.$625,000. d.$650,000.
a.$675,000.
A company has $200 in cash, $500 in accounts receivable, and $700 in inventory. If current liabilities are $400, then the quick ratio would be a.1.75 to 1. b.2.25 to 1. c.3.50 to 1. d.3.00 to 1.
a.1.75 to 1.
If you must calculate the present value of an amount at 12% compounded quarterly for two years, then the interest factor used in the calculation is a.3% for eight periods. b.12% for eight periods. c.the interest factor for 12% for two periods divided by 4. d.None of these choices are correct
a.3% for eight periods
Use the equation presented below to answer the question that follows:Cash = CL + LTL + CS + RE - NCCA - LTAwhere:CL = Current liabilities LTL = Long-term liabilities CS = Common stock RE = Retained earnings NCCA = Noncash current assets LTA = Long-term assetsWhich of the following activities results in a cash inflow? a.Increases in common stock (CS) b.Decreases in current liabilities (CL) c.Decreases in retained earnings (RE) d.Increases in noncash current assets (NCCA)
a.Increases in common stock (CS)
Which statement is true concerning operating assets? a.Operating assets are used over two or more periods to generate revenues. b.Operating assets have no physical properties. c.A company's operating assets are important to its short-term liquidity. d.All operating assets are reported on the balance sheet.
a.Operating assets are used over two or more periods to generate revenues.
Which of the following is reported as a financing activity on the statement of cash flows? a.Payment of cash dividends b.Stock split c.Declaration of cash dividends d.Stock dividend
a.Payment of cash dividends
Which of the following statements about bonds is correct? a.The cash interest paid is calculated as the bond face value × the face rate of interest. b.The cash interest paid is calculated as the bond face value × the effective rate of interest. c.The difference between the cash interest paid and the interest expense is added to the carrying value of the bonds if bonds were sold at a premium. d.The difference between the interest expense and the interest paid is deducted from the carrying value of the bonds if bonds were sold at a discount.
a.The cash interest paid is calculated as the bond face value × the face rate of interest.
Which one of the following statements is true if a company's collection period for accounts receivable is unacceptably long? a.The company may need to borrow to acquire operating cash. b.The company should expand operations with its excess cash. c.The company may offer trade discounts to lengthen the collection period. d.Cash flows from operations may be higher than expected for the company's sales.
a.The company may need to borrow to acquire operating cash.
Presented below is the Operating Activities section of the statement of cash flows for Feline Friends Corp. for 2017:Operating activities: Cash collected from customers$165,000 Cash payments for merchandise(83,000) Cash payments for operating expenses (58,000) Net cash inflow from operating activities$ 24,000 Which method of preparing the Operating Activities section has Feline used? a.The direct method b.The indirect method c.Either method d.Cannot be determined without further information
a.The direct method
You are interested in accumulating $10,000 so that you can take a cruise in three years. If you try to solve for the amount that you need to invest each year, earning 6% interest compounded annually, the $10,000 represents a.a future value. b.an annuity. c.a present value. d.the amount to invest.
a.a future value.
Arco Corporation declared a cash dividend on June 2 of $6 per common share. The company has 2,000 shares of common stock authorized, 1,000 shares issued, and 200 in the treasury. The entry to record the declaration of the cash dividend increases a(n) a.liability. b.expense. c.stockholders' equity account. d.asset.
a.liability.
If a company's bonds are callable, a.the issuing company is likely to retire the bonds before maturity if, for example, the bonds are paying 9% interest while the market rate of interest is 6%. b.the investor or buyer of the bonds has the right to retire the bonds. 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.
a.the issuing company is likely to retire the bonds before maturity if, for example, the bonds are paying 9% interest while the market rate of interest is 6%.
A receivable arising from the sale of goods or services with a verbal promise to pay.
accounts receivable
Carson City Saloon purchased a $25,000 truck for catering from its restaurant. It made a down payment of one-fourth of the price. What combination of amounts would affect the income statement and statement of cash flows for the purchase of the truck?Income StatementCash Flow Statement a.$0 $(25,000) b.$0 $(6,250) c.$25,000 $(6,250) d.$25,000 $0
b.$0 $(6,250)
Lynx Corp.The data presented below for Lynx Corp. are for the year ended December 31, 2017:Sales (100% on credit)$1,000,000Sales returns30,000Accounts receivable (December 31, 2017)170,000Allowance for doubtful accounts (credit balance) (before adjustment at December 31, 2017)1,300Estimated amount of uncollectible accounts based on aging analysis14,000See the data for Lynx Corp.If Lynx Corp. uses the aging of accounts receivable approach to estimate its bad debts, what amount will be reported as bad debts expense for 2017? a.$13,700 b.$12,700 c.$15,300 d.$14,000
b.$12,700
The Stockholders' Equity section of Deer Lakes Manor's balance sheet on January 1, 2017, appeared as follows:Common stock, $30 par, 20,000 shares issued and outstanding$ 600,000Additional paid-in capital—common240,000Retained earnings 700,000Total stockholders' equity$1,540,000On March 1, 2017, Deer Lakes reacquired 4,000 shares of common stock at $50 per share. All common shares were originally sold for $42 each. How much should be reported in the Treasury Stock account on the March 31, 2017, balance sheet? a.$32,000 b.$200,000 c.$168,000 d.$128,000
b.$200,000
If Rope Inc. receives $23,825 from credit card collections and has an average rate of 4.7% charged by the credit card company, its credit card sales during the period were a.$22,705. b.$25,000. c.$111,978. d.$50,691.
b.$25,000.
Cory and Ginger want to buy an airplane. They find one that will cost $200,000. They must pay 10% down and can get the balance financed with a ten year loan at 7% interest and annual payments. What is their annual payment? a.$24,457 b.$25,626 c.$26,826 d.$19,260
b.$25,626
Greer Company purchased land 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? a.$256,000 b.$282,200 c.$284,600 d.$281,000
b.$282,200
A company's weekly payroll amounts to $50,000 and payday for the week is every Friday. Employees work five days per week, Monday through Friday. The appropriate journal entry was recorded at the end of the accounting period, Monday, March 31, 2017. What amount is wages expense in April for the payday, Friday, April, 4, 2017? a.$0 b.$40,000 c.$50,000 d.$10,000
b.$40,000
Mayflower Company had a machine with a cost of $123,000 and accumulated depreciation of $87,000 that was sold at for a gain of $5,000. What amount of cash was received from the sale? a.$128,000 b.$41,000 c.$36,000 d.$30,000
b.$41,000
A company has $8,000 in cash, $9,250 in accounts receivable, and $19,500 in inventory. If current liabilities are $14,350, then the quick ratio would be a.5.0 to 1. b.1.2 to 1. c.2.0 to 1. d.2.6 to 1.
b.1.2 to 1.
Chambersburg Corp. The following information is for Chambersburg Corp. for 2018 and 2017. Chambersburg uses the straight-line depreciation method. 20182017Property, plant, and equipment$ 250,000$190,000Accumulated depreciation100,00085,000Depreciation expense62,50047,500Net sales1,000,000900,000Average total assets625,000475,000Refer to the information for Chambersburg Corp.Using the 2018 data, what is the average age of Chambersburg's property, plant, and equipment (rounded to two decimal places)? a.10.00 years b.1.60 years c.4.00 years d.2.50 years
b.1.60 years
Frank Crawford Corporation's balance sheet showed the following amounts: Current Liabilities, $15,000; Bonds Payable, $8,000; Lease Obligations, $9,000; and Notes Payable, $5,600. Total stockholders' equity was $17,000. The debt-to-equity ratio is a.0.88. b.2.21. c.0.71. d.1.18.
b.2.21.
Which of the following items is not a cash equivalent? a.A three-year Treasury note purchased two months before its maturity b.A corporate bond investment that has five years until maturity when it is purchased c.Money market funds d.Commercial paper
b.A corporate bond investment that has five years until maturity when it is purchased
When using the indirect method, how would the retirement of bonds payable at their maturity date be shown on the statement of cash flows? a.As an operating activity b.As a financing activity c.As a noncash investing and financing activity d.As an investing activity
b.As a financing activity
Wexford Co.Wexford Co. purchased a new delivery truck at the beginning of 2017. The truck has a cost of $37,000, an estimated life of five years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in 2017. The truck was driven 20,000 miles during 2017 and 24,000 miles during 2018. The number of expected miles over five years is 100,000.Refer to the information about Wexford Co.Wexford Co. wants to use the depreciation method that will result in the highest depreciation expense for 2017. Which method should be used? a.Straight-line b.Double-declining-balance c.Units-of-production d.All methods create the same income in 2017.
b.Double-declining-balance
When are consolidated financial statements prepared? a.At the option of an investee company b.If one company owns more than 50% of another company c.At the option of an investor company d.Only if one company owns 100% of another company
b.If one company owns more than 50% of another company
Deferred income taxes is a balance sheet item for Iowa Products Company. How would it most likely be classified on the balance sheet? a.Owners' equity b.Liability c.Expense d.Contra liability
b.Liability
Yellow Dog Transit sold an old truck on December 31, 2017, for $18,400 cash. The following data were available when the truck sold:Acquisition cost$75,000Estimated residual value at time of acquisition8,000Accumulated depreciation on December 31, 2017, after adjustment53,600When this transaction is recorded, it should include a(n) a.Gain on Disposal account for $3,000. b.Loss on Disposal account for $3,000. c.decrease of $21,400 to the Truck account. d.Gain on Disposal account for $5,000.
b.Loss on Disposal account for $3,000.
Which of the following accounts is not classified as a current liability? a.Salaries payable b.Note payable, due in three years c.Accounts payable d.Taxes payable
b.Note payable, due in three years
Which of the following would appear on the balance sheet as a current liability? a.Potential damages from possible explosions in a fireworks factory b.Premium offers in cereal boxes c.The possible loss from a lawsuit d.A loss from an anticipated strike by employees
b.Premium offers in cereal boxes
When using the allowance method, what are the effects on the accounting equation when a company writes off a bad debt? a.Assets and stockholders' equity decrease. b.There is no effect on overall assets or equity. c.Assets and stockholders' equity increase. d.Assets increase and stockholders' equity decreases.
b.There is no effect on overall assets or equity.
During 2017, the accounts payable balance of Andreas Corp. decreased. Which of the following statements is true? a.This decrease is added to net income in the Operating Activities section of a statement of cash flows prepared under the indirect method. b.This decrease is deducted from net income in the Operating Activities section of a statement of cash flows prepared under the indirect method. c.This decrease is considered only when the Operating Activities section of a statement of cash flows is prepared under the direct method. d.This decrease indicates that Andreas paid less during the period than it recognized as expenses on the income statement.
b.This decrease is deducted from net income in the Operating Activities section of a statement of cash flows prepared under the indirect method.
The Premium on Bonds Payable account is shown on the balance sheet as a(n) a.subtraction from a long-term liability. b.addition to a long-term liability. c.contra asset. d.reduction of an expense.
b.addition to a long-term liability.
Comprehensive income is a.reporting all items that are not under management's control on the statement of retained earnings. b.an all-inclusive approach to income that includes transactions that affect stockholders' equity with the exception of those transactions that affect owners. c.considered an appropriation of retained earnings when reported in the Stockholders' Equity section of the balance sheet. d.the result of all events and transactions that affect income during the accounting period that are reported on the income statement.
b.an all-inclusive approach to income that includes transactions that affect stockholders' equity with the exception of those transactions that affect owners.
The book value per share for a corporation is a.the amount stockholders would receive if they sold their shares back to the corporation. b.based on the excess of total assets over total liabilities. c.the cost of investments in stock of other corporations. d.the market price of the stock.
b.based on the excess of total assets over total liabilities.
If bonds were initially issued at a premium, the carrying value of the bonds on the issuer's books will a.remain constant throughout the bonds' life. b.decrease as the bonds approach their maturity date. c.increase as the bonds approach their maturity date. d.fluctuate throughout the bonds' life.
b.decrease as the bonds approach their maturity date.
Amortization of a bond discount results in a(n) a.decrease in the bonds payable account. b.decrease in stockholders' equity. c.decrease in the Cash account. d.increase in stockholders' equity.
b.decrease in stockholders' equity.
There are some liabilities, such as income tax payable, for which the amounts must be estimated. Failure to estimate these amounts and record them would be a violation of the a.practice of consistency. b.matching principle. c.convention of conservation. d.concept of historical cost.
b.matching principle.
The primary purpose of the statement of cash flows is to provide information about a.the profitability of the company. b.the cash inflows and outflows of the company. c.the investing and financing activities of the company. d.the financial position of the company.
b.the cash inflows and outflows of the company.
Depreciation is a process by which a.replacement funds are accumulated for plant and equipment. b.the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset. c.the decline in market value of plant and equipment is determined and recorded. d.the difference between current market value and historical cost of plant and equipment is determined.
b.the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset.
Using different depreciation methods for book purposes versus tax purposes for the same asset is a.not allowed since the amount can only be calculated one way or the other, not both. b.the direct result of the differing goals of financial and tax accounting. c.against the Internal Revenue Code, and as such, against the law. d.contrary to GAAP.
b.the direct result of the differing goals of financial and tax accounting.
Utah Co. sold merchandise to Big Sky Corp. on December 1, 2017, for $9,000 and accepted a promissory note for payment in the same amount. The note has a term of 90 days and a stated interest rate of 8%. Utah's accounting period ends on December 31. What amount should Utah recognize as interest revenue on the maturity date of the note? a.$0 b.$180 c.$120 d.$60
c.$120
Benton CorporationThe data below are for Benton Corporation for 2017:Accounts Receivable—January 1, 2017$334,000Credit sales during 2017850,000Collections from credit customers during 2017725,000Customer accounts written off as uncollectible during 201712,000Allowance for doubtful accounts (credit balance) (after write-off of uncollectible accounts)1,700Estimated uncollectible accounts based on an aging analysis13,200Refer to the data for Benton Corporation.If the aging approach is used to estimate bad debts, what should the balance in Allowance for Doubtful Accounts be after the bad debts adjustment? a.$11,500 b.$14,900 c.$13,200 d.$26,900
c.$13,200
Pilot Company reported the following information for 2017 and 2018:Prepaid insurance, December 31, 2017$ 2,400Prepaid insurance, December 31, 20181,500Insurance expense—201814,200How much cash was paid for insurance during 2018? a.$15,700 b.$15,100 c.$13,300 d.$14,200
c.$13,300
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 eight years, or 12,500 hours of operation. The crane was purchased on January 1, 2017, and was used 2,700 hours in 2017 and 2,600 hours in 2018.Refer to the information for Norwood, Inc.If Norwood uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2018? a.$14,063 b.$18,750 c.$15,000 d.$20,000
c.$15,000
Use the information below for Flora Inc. for 2017 and 2018 to answer the following question:Equipment, December 31, 2017$65,000Equipment, December 31, 201872,000Accumulated depreciation, December 31, 201739,000Accumulated depreciation, December 31, 201830,000During 2018, Flora Inc. sold equipment with a cost of $30,000 and accumulated depreciation of $25,000. A gain of $3,000 was recognized on the sale of the equipment. This was the only equipment sale during the year.What was depreciation expense for 2018? a.$21,000 b.$30,000 c.$16,000 d.$9,000
c.$16,000
Sweetson Enterprises' comparative balance sheets included accounts receivable of $220,300 at December 31, 2017, and $200,900 at December 31, 2018. Sales reported on Sweetson's 2018 income statement amounted to $2,350,000. What is the amount of cash collections that Sweetson will report in the Operating Activities category of its 2018 statement of cash flows assuming that the direct method is used? a.$2,771,200 b.$2,330,600 c.$2,369,400 d.$2,350,000
c.$2,369,400
Below are several transactions for Louisville Company:Proceeds from issuance of bonds payable$635,000Payment to purchase equipment275,000Payment of wages115,000Payment of dividends155,000Payment to pay off notes payable195,000Based on these transactions, what is 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.$285,000 net cash provided by financing activities d.$0, because cash inflows equal cash outflows from financing activities
c.$285,000 net cash provided by financing activities
Grove City Corp.On January 1, 2017, Grove City Corp. purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method.What was the depreciation expense for Grove City Corp. for the year ended December 31, 2017? a.$390,000 b.$195,000 c.$400,000 d.$0
c.$400,000
The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.Kingston inherited $140,000 from an aunt. If Kingston decides not to spend his inheritance but to leave the money in his savings account until he retires in 15 years, how much money will he have assuming an annual interest rate of 8%, compounded semiannually? a.$444,104 b.$3,801,295 c.$454,076 d.$2,420,884
c.$454,076
Anole Company was incorporated as a new business on January 1, 2017. The company is authorized to issue 20,000 shares of $5 par value common stock and 10,000 shares of 6%, $10 par value, cumulative, participating preferred stock. On January 1, 2017, the company issued 8,000 shares of common stock for $15 per share and 2,000 shares of preferred stock for $30 per share. Net income for the year ended December 31, 2017, was $375,000.Refer to the information about Anole Company.Anole's total stockholders' equity reported on the balance sheet at December 31, 2017, is a.$180,000. b.$60,000. c.$555,000. d.$120,000.
c.$555,000.
Royal Company purchased a dump truck at the beginning of 2015 at a cost of $60,000. The truck had an estimated life of six years and an estimated residual value of $24,000. On January 1, 2016, the company made major repairs of $20,000 to the truck that extended the life one year. Thus, starting with 2017, the truck has a remaining life of five years and a new salvage value of $8,000. Royal uses the straight-line depreciation method. What is the book value of the truck to be reported on the balance sheet at December 31, 2017? a.$44,000 b.$62,000 Royal Company purchased a dump truck at the beginning of 2015 at a cost of $60,000. The truck had an estimated life of six years and an estimated residual value of $24,000. On January 1, 2016, the company made major repairs of $20,000 to the truck that extended the life one year. Thus, starting with 2017, the truck has a remaining life of five years and a new salvage value of $8,000. Royal uses the straight-line depreciation method. What is the book value of the truck to be reported on the balance sheet at December 31, 2017? a.$44,000 b.$62,000 c.$56,000 d.$50,000
c.$56,000
Bonds in the amount of $100,000 with a life of ten years were issued by Focus Company. If the face rate is 6% and interest is paid semiannually, what would be the total amount of interest paid over the life of the bonds? a.$30,000 b.$6,000 c.$60,000 d.$120,000
c.$60,000
Pocono Co. purchased a patent at the beginning of 2017 for $490,000. Economic benefits were expected for seven years, but the patent's legal life was 20 years. Also, during 2017, the company incurred research and development costs of $150,000. Patent amortization expense for 2017 is a.$150,000. b.$72,143. c.$70,000. d.$24,500.
c.$70,000.
Marsh Corporation borrowed $90,000 by issuing a 12%, six-month note payable, all due at the maturity date. After one month, the company's total liability for this loan amounts to a.$91,800. b.$90,000. c.$90,900. d.$90,450.
c.$90,900.
A new company issues 2,000 shares of $5 par common stock in exchange for the services of a lawyer during its first month of business. The lawyer's normal fee is $15,000 for similar work. Which of the following would be the impact on the accounting equation if the stock is not currently trading? a.A decrease to Common Stock for $10,000 b.A decrease to Additional Paid-In Capital—Common Stock of $5,000 c.An increase to Additional Paid-In Capital—Common Stock of $5,000 d.An increase to Common Stock for $15,000
c.An increase to Additional Paid-In Capital—Common Stock of $5,000
When using the direct method, how is the sale of long-term investments for cash reported on the statement of cash flows? a.As an operating activity b.As a financing activity c.As an investing activity d.As a noncash investing and financing activity
c.As an investing activity
Which of the following is not an operating activity? a.Cash collections from credit customers b.Cash payments for operating expenses c.Cash payments for dividends to stockholders d.Cash receipts for interest earned
c.Cash payments for dividends to stockholders
How should intangible assets be disclosed on the balance sheet? a.As a reduction of stockholders' equity b.At cost in the Current Assets section c.Net of the costs already amortized d.At the estimated market value at the balance sheet date
c.Net of the costs already amortized
Cash interest is computed annually when a bond is issued for other than its face value. For a bond issued at a premium, how will this component change under the effective interest method as the bond approaches maturity? a.Increase b.Decrease c.Remain constant d.Not enough information given to decide
c.Remain constant
When a company declares a stock dividend, which of the following occurs? a.Stockholders' equity is decreased. b.The Financing section of the statement of cash flows is decreased. c.Retained earnings is reduced. d.A liability is created.
c.Retained earnings is reduced.
For a given single sum invested at 8% for four years, how will the future value be affected if the compounding period is changed from quarterly to annually? a.The future value will stay the same. b.The future value will increase. c.The future value will decrease. d.There is not enough information to determine the impact.
c.The future value will decrease.
A decreasing long-term liability account is presented on the statement of cash flows as a.an increase in cash in the Operating Activities category. b.a decrease in cash in the Investing Activities category. c.a decrease in cash in the Financing Activities category. d.an increase in cash in the Financing Activities category.
c.a decrease in cash in the Financing Activities category.
A mortgage incurred in exchange for an office building would be reported in the statement of cash flows in a.the cash flows from Financing Activities section. b.the cash flows from Investing Activities section. c.a separate schedule. d.the cash flows from Operating Activities section.
c.a separate schedule.
One example of a temporary difference between financial and tax reporting results from a.rent expense. b.life insurance proceeds resulting from the death of an executive. c.depreciation of long-term assets. d.tax-exempt interest from municipal bonds.
c.depreciation of long-term assets.
With regard to preferred stock, a.no dividends are expected by the stockholders. b.there is a legal requirement for a corporation to declare a dividend on preferred stock. c.its stockholders may have the right to participate, along with common stockholders, if an extra dividend is declared. d.its issuance provides no flexibility to the issuing company because its terms always require mandatory dividend payments.
c.its stockholders may have the right to participate, along with common stockholders, if an extra dividend is declared.
The equity method of accounting for an investment is used when a company purchases a.more than 20% of the debt securities of a second company. b.100% of the debt securities of a second company. c.more than 20% of the equity securities of a second company. d.15% of the equity securities of a second company.
c.more than 20% of the equity securities of a second company.
The accounting life of intangible assets is determined by a.their useful lives. b.the tax life mandated by the IRS. c.their legal lives or useful lives, whichever is shorter. d.their legal lives.
c.their legal lives or useful lives, whichever is shorter.
Dali Company has 15,000 shares of stock authorized at January 1. Dali issues 4,500 shares to the stockholders during the year and then the company repurchases 1,500 shares as treasury stock. Based on this information, how many shares are outstanding at December 31? a.4,500 b.3,000 c.15,000 d.18,000
d.18,000
When using the direct method, how is the purchase of equipment for cash shown on the statement of cash flows? a.As a noncash investing and financing activity b.As a financing activity c.As an operating activity d.As an investing activity
d.As an investing activity
Where can the amounts needed to compute the accounts receivable turnover ratio be found? a.The balance sheet b.The income statement c.The statement of cash flows d.Both the income statement and balance sheet
d.Both the income statement and balance sheet
Which of the following statements regarding contingencies is true? a.Contingent assets, if probable and estimable, are treated in much the same way as contingent liabilities. b.Contingencies that are not estimable should not be disclosed even if probable. c.The accounting principle that determines whether a contingent asset is recorded is that of materiality. d.Contingencies that are probable and estimable must be recorded before the outcome of future events.
d.Contingencies that are probable and estimable must be recorded before the outcome of future events.
Rent owed to the landlord is a balance sheet item for Generic Products Company. How would it most likely be classified on the balance sheet? a.Long-term liability b.Current asset c.Owners' equity d.Current liability
d.Current liability
Which of the following statements is true? a.If a company reports net income on its income statement, it should report an increase in cash on its statement of cash flows. b.If a company reports a net loss on its income statement, it should report a decrease in cash on its statement of cash flows. c.If a company uses the accrual basis of accounting, it will improve its cash position if it reports net income for the same period. d.If a company uses the accrual basis of accounting, its cash balance can increase even if it reports a net loss.
d.If a company uses the accrual basis of accounting, its cash balance can increase even if it reports a net loss.
The comparative balance sheets of Midnite Corp. for 2018 and 2017 indicate that short-term trade notes receivable increased from $5,000 in 2016 to $75,000 in 2018. How will this change be reported on Midnite's statement of cash flows, if Midnite uses the indirect method? a.It will be included in the amount of cash and cash equivalents at the end of 2018. b.It will be added to net income in the Operating Activities section. c.It will be reported as a cash outflow in the Investing Activities section. d.It will be reported as a deduction from net income in the Operating Activities section.
d.It will be reported as a deduction from net income in the Operating Activities section.
Shuttle Master Airlines has leased an aircraft from Streamline Aircraft Company. The annual payments are $1,000,000, and the life of the lease is 18 years. It is estimated that the useful life of the aircraft is 20 years. How would Shuttle Master Airlines record the acquisition of the aircraft? The effective rate of interest is 9%. a.The company would not record the aircraft as an asset but would record rent expense of $900,000 per year for 20 years. b.The aircraft would be recorded as an asset with a cost of $9,129,000. c.The company would not record the aircraft as an asset but would record rent expense of $1,000,000 per year for 18 years. d.The aircraft would be recorded as an asset with a cost of $8,756,000.
d.The aircraft would be recorded as an asset with a cost of $8,756,000.
Which of the following is an example of a contingent liability? a.A corporate long-term employment contract with the chief executive officer b.A liability for notes payable with interest included in the face amount c.A lawsuit being threatened but not yet filed against a restaurant chain for improper preparation of food d.The liability for future warranty repairs on computers sold during the current period
d.The liability for future warranty repairs on computers sold during the current period
How will the payee of the promissory note record the note on its books? a.The promissory note will be recorded as revenue. b.The promissory note will be recorded as a liability. c.The promissory note will be recorded as an expense. d.The promissory note will be recorded as an asset.
d.The promissory note will be recorded as an asset.
Weather Corp. issued ten-year, 8%, $100,000 bonds paying interest on an annual basis, at a $5,200 premium. Which one of the following statements is true? a.Weather's annual interest expense on the bonds will be greater than the amount of interest payments to bondholders each year. b.Weather will receive $94,800 as the issue price. c.The cash paid to bondholders will be $520 each interest period. d.Weather's annual interest expense on the bonds will be less than the amount of interest payments to bondholders each year.
d.Weather's annual interest expense on the bonds will be less than the amount of interest payments to bondholders each year.
If bonds are issued at 101.25, this means that a.a $1,000 bond sold for $101.25. b.the bonds sold at a discount. c.the bond rate of interest is 10.13% of the market rate of interest. d.a $1,000 bond sold for $1,012.50.
d.a $1,000 bond sold for $1,012.50.
Capitalizing an expenditure rather than recording it as a revenue expenditure a.affects the amount of net income reported during an accounting period, but has no effect on the total book value of plant assets on the balance sheet. b.has no effect on the book value of plant assets on the balance sheet or the amount of income reported on the income statement. c.affects the total book value of plant assets on the balance sheet, but has no effect on the amount of net income reported during an accounting period. d.affects the total book value of plant assets reported on the balance sheet and the amount of net income reported during a period.
d.affects the total book value of plant assets reported on the balance sheet and the amount of net income reported during a period.
Comfort Shoes received a promissory note from a customer on April 1, 2017. The face amount of the note is $2,000; the terms are 12 months and 8% annual interest. At the maturity date, the customer pays for the note and interest. Comfort Shoes made the proper adjustment at the end of December for interest. The effect of recognizing the transaction on the maturity date is a(n) a.increase to Discount on Notes Receivable. b.increase to Notes Receivable. c.decrease to Cash. d.decrease to Notes Receivable.
d.decrease to Notes Receivable.
When the owner of a sole proprietorship withdraws assets from the business for personal use, a.it is illegal because the assets belong to the separate entity, the proprietorship. b.it is treated like a noncash dividend. c.it would be recorded as a loss by the proprietorship. d.it is recorded as a reduction of owner's equity.
d.it is recorded as a reduction of owner's equity.
Assuming a company uses the allowance method, the entry to recognize the write-off of the specific uncollectible accounts will a.increase total assets and total equity. b.decrease total assets and total equity. c.increase total assets and decrease total equity. d.not affect total assets or total equity
d.not affect total assets or total equity
All of the following statements are true except a.the lease criteria under IFRS are to be used as guidelines rather than rules. b.the criteria to determine whether a lease contract should be considered a capital lease are applied in a more rigid way under U.S. GAAP than IFRS. c.IFRS require more accounting judgment than U.S. GAAP in the determination of whether a lease is classified as an operating lease or a capital lease. d.the criteria to determine whether a lease contract should be considered a capital lease are applied in a more rigid way under IFRS than U.S. GAAP.
d.the criteria to determine whether a lease contract should be considered a capital lease are applied in a more rigid way under IFRS than U.S. GAAP.
When a company declares a 2-for-1 stock split, a.a shareholder who previously held 100 shares will have 300 shares after the split. b.stockholders' equity is doubled. c.the price of each share will be one-third of what it was before the stock split. d.there is no effect on total stockholders' equity.
d.there is no effect on total stockholders' equity.
All of the following are reasons for a company to repurchase its previously issued stock, except a.to resell to employees. b.for bonuses to employees. c.to support the market price of the stock. d.to increase the shares outstanding.
d.to increase the shares outstanding.
The recognition of bad debts expense at the point an account is written off as uncollectible.
direct write-off method