Financial Accounting - Final Exam

When a company sold its equipment, it recorded a $10,000 debit to Cash and $40,000 debit to Accumulated Depreciation and a $48,000 credit to Equipment and $2,000 credit to Gain on Disposal. What will be the amount reported in the investing activities section of the statement of cash flows?

$10,000 Reason: The investing activities section will report the cash received from the sale, which is a $10,000 inflow. The Gain on Disposal will be a subtracted from net income in the operating activities section if the indirect method is used.

Management estimates that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. After the adjusting entry is recorded, Bad Debt Expense on the income statement will be ______ the Allowance for Doubtful Accounts on the balance sheet.

$100 less than

The list price of a computer was $100,000. The sales tax on the computer was 5%. The delivery cost was $1,000. The cost to assemble the computer was $500. The Equipment account should be debited for a total of ______.

$106500

Six years ago, on January 1, Ace Electronics purchased a $310,000 machine with an estimated useful life of 10 years and a residual value of $10,000. Ace used the machine for 6 years and recorded straight-line depreciation each year. At the end of the 6th year, after depreciation expense had been recorded for the year, Ace found that the machine no longer had any future economic value because the product it makes is obsolete. Ace still owns the machine, but should make a journal entry that includes a ______. (Check all that apply.)

$130,000 debit to Loss on Impairment $130,000 credit to Machinery

On January 1, Whittle, Inc. purchased timber rights for $2,000,000, which are expected to produce a total of 2,000,000 cords of wood over 4 years, after which it will be sold for $500,000. The cords of wood cut were 200,000 in the 1st year and 280,000 in the 2nd year. Depletion for the 1st year equals ______.

$150,000 Reason: Depletion equals $150,000 or (($2,000,000-500,000) x 200,000 cords/2,000,000 cords).

XYZ Co. sold equipment that originally cost $14,000 with accumulated depreciation of $11,000 for $4,000 cash, resulting in a gain of $1,000. Which of the statements below are correct regarding the treatment of this transaction on the statement of cash flows for the current period? (Check all that apply.)

$4,000 is a cash inflow in investing activities. $1,000 is deducted from operating activities.

Shenandoah Skies built a new lodge for its ski resort. Which of the following costs should be capitalized? (Check all that apply.)

$4,200 paid in sales tax on the lumber to build the lodge $7,000 in architect fees $70,000 cost of lumber to build the lodge

Dew Drop Inn sold 10 beds that had originally cost $500 each for a total of $1,200 cash. The depreciation recorded on the beds at the time of sale equals $4,000. The entry to record the sale includes a ______. (Check all that apply.)

$5,000 credit to Furniture $200 credit to Gain on Disposal $4,000 debit to Accumulated Depreciation $1,200 debit to Cash Reason: The cash received, $1,200, is $200 greater than the $1,000 net book value of the furniture ($5,000 cost minus $4,000 accumulated depreciation). The entry includes a $1,200 debit to Cash (+A), a $4,000 debit to Accumulated Depreciation (-xA,+A), a $5,000 credit to Furniture (-A) and a $200 credit to Gain on Disposal (+SE).

Daffy Duct, Inc. issued 10,000 shares of $1 par value common stock at $5 per share. The effect of this transaction on the accounting equation includes a ______. (Check all that apply.)

$50,000 increase in total assets. $50,000 increase in total stockholders' equity.

On January 1, X-it Company bought a new delivery truck for $30,000. X-it plans to use the truck for 4 years, after which it will be sold for $6,000. Depreciation Expense for the 2nd year using double-declining-balance equals ______.

$7500 Reason: You've calculated straight-line depreciation, not double-declining-balance. The expense equals $7,500 or ($30,000 - 15,000) x 2/4. The formula is the book value (or cost minus Accumulated Depreciation) times 2 divided by the life. Year 1's $15,000 Accumulated Depreciation equals $30,000 x 2/4.

In its first year of business, ABC, Inc. had Accounts Receivable of $8,000 and Credit sales of $38,000. Management estimates 2% of the total credit sales will be uncollectible. Bad Debt Expense equals ______.

$760

The Three Little Pigs purchased three houses for a total cost of $160,000. Appraisal values for the three completed houses were: straw house, $40,000; wood house $60,000; and brick house $100,000. Using the basket purchase allocation, the recorded value of the brick house should be ______.

$80000 Reason: The recorded value of the brick house equals $80,000 or ($100,000/($40,000 + 60,000 + 100,000)) x $160,000.

On January 1, Busy Beaver bought a new industrial lathe for $210,000. It expects to use the lathe for 10,000 hours over the next 5 years and then sell it for $10,000. Busy Beaver used the lathe for 2,000 hours in its 1st year and 2,500 hours in its 2nd year. Accumulated Depreciation at December 31 of the 2nd year, using units-of-production, equals ______.

$90,000 Reason: Depreciation Expense for year 1 equals $40,000 (=($210,000-10,000) x 2,000/10,000). For year 2, Depreciation Expense equals $50,000 (= ($210,000 - 10,000) x 2,500 hours/10,000 hours). The Accumulated Depreciation is $40,000 + 50,000 or $90,000.

Assuming straight-line is used, which of the following is the formula for calculating revised annual depreciation?

(Book value-new residual value) x (1/remaining Useful life)

The formula for calculating straight-line depreciation is ______.

(cost - residual value) x (1/useful life)

During the year, a $1,000,000 lawsuit was filed against a US company for unsafe working conditions. Management and the attorneys feel that it is not likely that the company will lose the case. The plaintiff who filed the lawsuit has offered to settle for $600,000. Management estimates that lawsuits for unsafe working conditions are generally settled for $300,000. What amount of contingent liability would be recorded for this lawsuit on the current balance sheet?

0 Reason: No liability should be recorded because the loss is "not likely" to occur (and, therefore, is not probable).

Place the events in proper sequence putting the first step on top for a 2-year note established in November that pays interest annually.

1. Debit Notes Receivable and Credit Cash 2. Debit interest receivable and credit interest revenue 3. Debit Cash and Credit Interest Receivable 4. Debit Cash and Credit Notes Receivable , Interest Revenue, Interest Receivable

X Circle Company purchased a computer system Black Box, Inc. with a list price of $100,000 plus 5% sales tax. The cost to deliver and install the computer was $10,000. The debit to Equipment equals

115000

During the year, Squid Roe Inc.'s revenues were $200,000 and its net income was $60,000. It had not preferred shares, and its stockholders' equity and total assets were $380,000 and $780,000 at the beginning of the year and $420,000 and $900,000 at year-end, respectively. ROE (rounded to the nearest tenth of a percent) equals ______.

15.0% Reason: $60,000/(($380,000+420,000)/2)

During the year, Lox, Stock and Bagel Inc.'s net income was $60,000. Its average stockholders' equity was $240,000, and it had 120,000 shares outstanding the entire year. Its stock was selling for $10 per share. Its P/E ratio equals ______. The company has no preferred stock.

20 Reason: $10/($60,000/120,000 shares)

Which of the following are long-term liabilities? (Check all that apply.)

20-year Mortgage Payable Note Payable due in 3 years

Dew Drop Inn had net revenue of $117,000 in 2020 and $100,000 in 2021. Its fixed assets were $400,000 at the end of 2019, $380,000 at the end of 2020, and $360,000 at the end of 2021. In which year was the fixed asset turnover ratio better?

2020, because the ratio was higher. Reason: 2020 ratio is 0.30 times (= $117,000/((400,000 + 380,000)/2)) which is better than the 2021 ratio of 0.27 times (=$100,000/((380,000 + 360,000)/2)). Higher is better because it means the company was able to generate more revenues from its assets.

On June 1, Ace Electronics bought a new cash register for $2,500. Ace plans to use the cash register for 4 years and then sell it for $100. If Ace uses straight-line depreciation, what is depreciation expense for the year ended December 31 that year?

350 Reason: The cash register, purchased on June 1, was used for 7 months, not 6.

The days to collect ratio is computed as ______

365 divided by the Receivable Turnover Ratio

On October 1, X-it Company bought a new delivery truck for $30,000. X-it plans to use the truck for 4 years, after which it will be sold for $6,000. What is depreciation expense for the year ended December 31 that year using double-declining-balance?

3750 Reason: The truck was used for only 3 months of the year. Thus the 3 months of depreciation equals $3,750 (=$30,000 x 2/4 x 3/12).

X-it Company bought a new delivery truck. The manufacturer says that the truck should last for ten years and 120,000 miles. X-it plans to use the truck for 4 years, during which it will be driven 50,000 miles. What is the useful life of the truck for depreciation purposes? (Check all that apply.)

50,000 miles 4 years

Acme Enterprises began the new year owing its suppliers $3,000 for merchandise purchased last year. Acme then sold half of this merchandise for $5,000 on account. Two weeks later, Acme paid its suppliers $1,000 and bought another $4,000 of merchandise on account. Acme now has an Accounts Payable balance of ______.

6000

Which of the following may lead to a revision of an estimate of a company's depreciation expense? (Check all that apply.)

A change in the estimated useful life Extraordinary repairs that significantly extend the asset's usefulness A change in the estimated residual value

When using the T-account approach to prepare the indirect method of the statement of cash flows, which of the following would be associated with amounts entered on the credit side of the Cash T-account?

Accounts receivable

Which of the following is the best measure of a company's profitability?

Accrual-based net income

The entry to record annual straight-line depreciation will increase a company's ______ and ______.

Accumulated Depreciation Total Expenses

Which of the following accounts is used to record a small stock dividend on common stock but is not used to record a large stock dividend on common stock?

Additional Paid-in Capital

Canton, Inc. issued 10,000 shares of $1 par value common stock at $10 per share. Mr. Smart, the bookkeeper, recorded this transaction with a $100,000 debit to Cash and a $100,000 credit to Common stock. As a result of this entry ______. (Select all that apply.)

Additional paid-In capital will be understated Common stock will be overstated

If a cost is capitalized, it is recorded as a(n)_______, not an expense. (Enter only one word per blank.)

Asset

If management was to unethically capitalize costs that should not have been, which of the following would be misstated? (Select all that apply.)

Assets would be overstated. Stockholders' equity would be overstated.

Delectable, Inc.'s unadjusted trial balance includes Accounts Receivable of $10,000; Allowance for Doubtful Accounts of $50 credit balance; and Sales Revenue of $100,000 (all on credit). Management estimates that 2% of credit sales will be uncollectible. Delectable's financial statements will show ______. (Check all that apply.)

Bad Debt Expense of $2,000 Allowance for Doubtful Accounts of $2,050 credit balance

Why is Additional Paid-in Capital recorded for a small stock dividend?

Because small stock dividends are recorded at market value. Reason: Because a small stock dividend is recorded at market value, Additional Paid-in Capital is used to report the amount by which the market value of the stock exceeds its par value.

___________ shares equals the number of shares __________ minus the number of shares repurchased by the company. (Enter only one word per blank.)

Blank 1: Outstanding Blank 2: issued

Dividends Payable is a(n) ________ account with a normal _______ balance and is initially recorded on the _______ date.

Blank 1: liability or liabilities Blank 2: credit or cr Blank 3: declaration or declared dividend

_________ are financial instruments, traded on established exchanges, that specify future payments a company promises to make in exchange for receiving a sum of money now. (Enter one word per blank.)

Bonds

Sunny Skys, Inc. bought a derelict hunting lodge, which it tore down at a cost of $45,000 and replaced with a new lodge. The demolition cost should be ______.

Capitalized

Which of the following cash flows are classified as operating activities? (Check all that apply.)

Cash flow causing decrease in current liabilities Cash from revenue earned in daily transactions

The entry to record the issuance of 100,000 shares of $0.10 par value common stock for $10 per share is debit ______.

Cash for $1,000,000 and credit Common Stock for $10,000 and Additional Paid-in Capital for $990,000

Barclay, Inc. sold equipment that originally cost $30,000 four years ago for $8,000 cash. The equipment had accumulated depreciation totaling $24,000. How will this transaction be listed in the investing activities section of Barclay's statement of cash flows?

Cash inflow of $8,000 Reason: The cash portion of the entry for the current year is listed. Since the asset was sold for $8,000, this is the amount that will be listed.

Straight-line depreciation matches

Choice, Does the best job of matching the expense with the related revenue when an asset is used evenly over its useful life

Declining-balance depreciation matches

Choice, Is the best method to use when an asset is productive in its earliest years but quickly loses its usefulness

Units-of-production depreciation matches

Choice, Is the best method to use when the amount of an asset's use varies significantly from one accounting period to another

Given each of the following start-up companies are identical except for the depreciation methods and estimates used, which company would report the higher net income in the first year?

Company B used straight-line and estimated useful lives of 5 years and $1,000 residual values.

Depreciation Expense of a long-lived asset calculated using the straight-line depreciation method will be a ______ amount each year.

Constant

Once the construction of a new building is completed it is moved out of the ______ and into the ______ account.

Construction in Progress; Building

_________ Liabilities are potential liabilities that arise as a result of past transactions or events and are reported on the balance sheet if the loss will probably occur and can be reasonably estimated. (Enter one word per blank.)

Contingent

___________ capital, also called paid-in capital, reports the amount of capital the company received from investors. (Enter only one word per blank.)

Contributed

Which depreciation method does not use an asset's residual value to calculate depreciation expense?

Declining-balance

Which method will report a lower net income in the first year of an asset's life?

Declining-balance

When operating cash flows are calculated using the indirect method, which of the following is the correct adjustment to convert net income into net cash from operating activities?

Deduct from net income increases in current assets

Which account is debited in an adjusting entry to record depreciation on machinery?

Depreciation Expense

Which of the following statements best describes the reason depreciation expense is added to net income when preparing the statement of cash flows?

Depreciation Expense originally reduced net income, but the expense does not involve paying cash.

What effect will the units-of-production depreciation method have when the actual production is higher than in other periods?

Depreciation Expense will be higher.

The adjusting entry to record depreciation debits _______ _______ and credits_______ _______

Depreciation Expense, Accumulated depreciation

Why is the straight-line method of depreciation called "straight-line"?

Depreciation expense is a constant amount each year, so a graph of depreciation expense over time is a straight line.

Which of the following statements is correct?

Depreciation is not intended to report an asset at its current value.

Which of the following statements are true? (Check all that apply.)

Depreciation of a truck equals the decline in the estimated usefulness of the truck. Impairment loss on an asset arises from a precipitous decline in the current value of the asset.

Which of the following describes the acceptable methods that may be used to prepare the statement of cash flows? (Check all that apply.)

Direct method Indirect method

Which of the following line item amounts would be under the Retained Earnings column of a statement of stockholders' equity? (Select all that apply.)

Dividends: Preferred Dividends: Common Net Income

A liability is first recorded at the amount of cash a creditor would accept to immediately settle the liability, which ______ interest.

Excludes

True or false: When a corporation declares a dividend its Net Income on the income statement is reduced.

False Reason: All transactions between a company and its stockholders do not affect the income statement. Dividends do not affect Net Income.

Cedar Fair purchased land; which of the following should be debited to the Land account? (Check all that apply.)

Fees for surveying of the land Commissions paid to brokers when purchasing the land Legal fees for the land's title search

If the proceeds from selling an asset is greater than the asset's book value, then a ______.

Gain on Disposal will be credited

Which of the following costs associated with long-lived assets are expensed, not capitalized? (Check all that apply.)

Immaterial repairs and maintenance Ordinary repairs and maintenance

When using the T-account approach to prepare the indirect method of the statement of cash flows, which of the following would be associated with amounts entered on the credit side of the Cash T-account?

Increase in Accounts Receivable Increase in Prepaid Expenses Increase in Inventory

What is the effect of an impairment loss on the accounting equation? (Check all that apply.)

It decreases total assets. It decreases total stockholders' equity.

What is the effect of an impairment loss on the accounting equation? (Check all that apply.)

It decreases total stockholders' equity. It decreases total assets.

What is the purpose of the Statement of Cash Flows?

It is intended to provide a cash-based view of a company.

How is the change in cash classified on the statement of cash flows?

It is the sum of the operating, investing, and financing activities sections.

Why is the accrual-based income statement superior to a cash-based income statements in measuring profitability? (Select all that apply.)

It reflects well the operating activities of the business and the best measure of a company's profitability during the period. It reports the expenses incurred in generating the revenues regardless of when the cash was paid. It reports the revenues generated regardless of when the cash was collected.

What effect will issuing more bonds have on the times interest earned ratio over time?

It will decrease.

On January 11, Ace Electronics bought a new cash register for $2,500. In calculating depreciation expense for the year ended December 31, Ace's accountant will assume that the cash register was purchased on ______.

January 1 Reason: Accountants typically assume the assets were purchased at the beginning of the month nearest to the actual purchase which is January 1.

The owners of a(n) _______are not personally responsible for the debts of the business. (Enter only one word per blank.)

LLC, corporation

Paving the parking lot and landscaping are recorded with a debit to ______.

Land Improvements, an asset

A company bought land and a building for $128,000. The building has a useful life of 20 years. Why should the company split the $128,000 cost between the land and the building?

Land is not depreciated, while the building will be depreciated over its 20-year useful life.

Which of the following is a long-lived asset?

Land on which to build a new store

A major advantage of the corporate form of ownership is _______ legal liability. (Enter one word per blank.)

Limited

Vango, Inc. sold its van for $6,000 cash. The van's original cost was $40,000, and its accumulated depreciation was $32,000. When recording the sale, Vango should record a ______.

Loss on Disposal of $2,000

Which of these are long-lived productive assets? (Check all that apply.)

Machinery Delivery equipment

Earnings per share (EPS) equals ______ divided by the average shares of common stock outstanding. (Assume no preferred stock has been issued.)

Net Income

When using the indirect method to prepare the operating activities section of the statement of cash flows, the first amount listed is

Net Income

Executives at WorldCom committed an $11 billion fraud by capitalizing costs that should have been expensed. What was the effect of this fraud on WorldCom's income statement? (Check all that apply.)

Net income was too high. Expenses were too low.

Net sales revenue is $730,000. Beginning and ending net accounts receivable are $62,000 and $58,000, respectively. Calculate the days to collect.

Net sales REvenue/ Avg. net accounts 730000/60000=12.17 365/12.17= 29.9 = 30 days

An adjusting entry to accrue for interest earned is often needed when a company has ______.

Notes Receivable

When does a corporation record an increase in Dividends Payable?

On the declaration date

Select those statements below that are true about cash dividends. (Check all that apply.)

On the declaration date, liabilities are increased. On the payment date, current assets are decreased.

Sunny Sky paid $30,000 cash for piece of land to be used for a new corporate headquarters building. What is the effect of this transaction on the accounting equation?

One asset increases, while another asset decreases.

Which type of contingent liability would most likely be found on a balance sheet prepared under US GAAP?

Probable contingent liability that can be estimated

Which of the following reports net income relative to average common stockholders' equity?

ROE

The expenditure incurred for changing the oil in the company's fleet of trucks is debited to ______.

Repairs and Maintenance Expense

Computit bought a new copier machine. Which of these costs should be expensed? (Check all that apply.)

Replacement of the toner for the copy machine Annual maintenance cost

The estimated amount a long-lived asset is expected to be sold for at the end of its useful life is the

Residual Value

Daffy Duct Inc. declared a small stock dividend and issued 1,000 shares of $1 par value common stock when the price of the stock was $4 each. Identify all appropriate account titles that may be used to record this issuance of stock. (Check all that apply.)

Retained Earnings Common Stock Additional Paid-in Capital

The formula for the fixed asset turnover ratio equals net _________ divided by average net fixed assets. (Enter only one word per blank.)

Revenue

Morris Lest, Inc. sold its delivery truck for $4,000 cash. The truck's book value was $3,000. Which financial statements will be affected by this sale? (Check all that apply.)

Statement of cash flows Balance sheet Income statement Statement of retained earnings

Morris Lest, Inc. sold its delivery truck for $4,000 cash. The truck's book value was $3,000. Which financial statements will be affected by this sale? (Check all that apply.)

Statement of cash flows Statement of retained earnings Income statement Balance sheet

Which of the following would be found on a statement of stockholders' equity? (Select all that apply.)

Stock Issuances Dividends Net Income Additional Paid-in Capital Treasury Stock

The statement of ______ _______ reports the changes in retained earnings as well as paid-in capital. (Enter one word per blank.)

Stockholders equity

Miss Hap, the company bookkeeper, recorded the annual repair costs on the company's machinery as an increase to the machinery account. As a result, which of the following is true? (Check all that apply.)

Stockholders' equity will be overstated. Assets will be overstated.

Which of the following is recorded with a debit to Interest Receivable and a credit to Interest Revenue?

The adjusting entry to record interest earned but not yet received

Which of the following entries result in a decrease in total assets and stockholders' equity?

The adjusting entry to record the depreciation of long-live assets

Which of the following line items will differ if an asset is depreciated using straight-line versus declining-balance method? (Select all that apply.)

The book value on the balance sheet Depreciation Expense on the income statement

Why should a company divide up the cost of a "basket purchase" among the different assets purchased?

The different assets might be depreciated over different useful lives.

Which of the following is recorded with a debit to Notes Receivable and a credit to Cash?

The establishment of a note

Which of the following is recorded with a debit to Cash and a credit to Interest Receivable?

The receipt of an interest payment for interest previously recorded

The estimated amount of credit sales that customers will likely fail to pay is recorded as bad debt expense in which period?

The same period as credit sales.

When using the direct method, why is a decrease in Accounts Receivable added to Sales Revenue when computing cash collected from customers?

There were more collections of accounts receivable than there were sales on account during the year.

Ice Queen bought a new refrigerated delivery truck. The engine has a useful life of 3 years, the refrigeration unit has a useful life of 2 years, and the body of the truck has a useful life of 10 years. Under IFRS, how many assets should Ice Queen record?

Three Reason: IFRS require the cost of individual assets to be separated into significant components which are then depreciated separately over each component's useful life. There are 3 components: the engine, the refrigeration unit, and the body of the truck.

The entry to record annual straight-line depreciation will decrease a company's ______.

Total Assets Net Income asset book value

Busy Beaver, Inc. signed a $315,000, 5-year note payable to buy a new $315,000 industrial veneer cutter. Busy Beaver paid $5,000 cash for transportation of the machine and $750 cash for installation costs. What is the overall effect of this transaction on the accounting equation? (Check all that apply.)

Total assets increase $315,000. Machinery, an asset, increases $320,750. Total liabilities increase $315,000.

Which of the following financial statement totals are reduced by the adjusting entry to record amortization? (Check all that apply.)

Total stockholders' equity on the balance sheet Total assets on the balance sheet Net income on the income statement

True or false: Depreciation is not intended to report an asset at its current value.

True Reason: Depreciation matches a systematically, allocated portion of the cost of an asset with the revenues that it generates. Depreciation does not represent the reduction in the fair value of the asset.

(Cost-residual value) x (actual production this period/estimated total production) is the formula for calculating ______ depreciation.

Units-of-production

Which depreciation method results in higher depreciation expense when the asset is used more?

Units-of-production

Which method should be used to calculate depletion for a natural resource company?

Units-of-production

Acme, Inc., bought land and a building for $150,000. Acme plans to use the building for 20 years and then sell it. What is the useful life of the land?

Unlimited

The debt-to-assets ratio best answers which financial question?

What is the percentage of assets financed by debt?

When does impairment occur?

When circumstances interfere with the ability to recover the value of the asset through future operations

If a company writes off a specific customer's account with a debit to Bad Debt Expense and credit to Accounts Receivable, it must be using the ______ method.

a Direct write-off

A decrease in Prepaid Insurance is added to net income because ______.

a decrease in Prepaid Insurance causes an increase in Insurance Expense and a decrease in net income, but it does not involve cash

The effect on the accounting equation of declaring a cash dividend includes ______. (Check all that apply.)

a decrease in stockholders' equity an increase in liabilities

The debt-to-asset ratio indicates _____. (Check all that apply.)

a higher ratio means greater financing risk the percentage of assets financed by debt

An accumulated deficit means a company has ______.

accumulated more net losses than net income

Depreciation Expense is ______ net income in a statement of cash flows prepared using the indirect method because it ______.

added back to; is a noncash expense

When operating cash flows are calculated using the indirect method, if Accounts Receivable balance decreased, then the change is ______ during the period.

added to net income because more cash was collected than revenues generated

When a company lends money to employees at a rate of 4%, the company will record ______.

an asset called Notes Receivable

The declaration of a dividend results in ______. (Select all that apply.)

an increase in liabilities a decrease in Retained Earnings after temporary accounts are closed an increase in Dividends

The cost of a new building that is currently under construction, not for sale but for a company's own use, is reported on the balance sheet ______.

as an asset, Construction in Progress

Construction in progress is reported as a(n) ______.

asset on the balance sheet

Recording an asset impairment requires netting the ______.

asset with its Accumulated Depreciation and then reducing the asset's carrying value to its lower fair market value

On-a-Roll, Inc. amortizes its copyright of $20,000 over 20 years. Miss Hap, the bookkeeper, forgot to record the amortization in the current year. The effect of this mistake causes ______. (Check all that apply.)

assets to be overstated net income to be overstated

Miss Hap, the bookkeeper, forgot to record the depreciation for the year. This error will cause ______. (Check all that apply.)

assets to be overstated stockholders' equity to be overstated

The effect of capitalizing a cost that should have been expensed causes ______.

assets to be overstated on the balance sheet and expenses to be understated on the income statement

Which statement are true? (Select all that apply.) Multiple select question. a. The inventory method used must correspond with the actual physical flow of goods. b.The inventory costing methods determine the amount of the debit to Cost of Goods Sold and credit to Inventory. c. Specific identification, weighted average cost, LIFO and FIFO are generally accepted costing methods. d. The inventory methods apply to both perpetual and periodic inventory systems.

b. The inventory costing methods determine the amount of the debit to Cost of Goods Sold and credit to Inventory. c. Specific identification, weighted average cost, LIFO and FIFO are generally accepted costing methods. d. The inventory methods apply to both perpetual and periodic inventory systems.

Transactions between a company and its stockholders affect the company's _____ accounts only.

balance sheet

Accumulated Depreciation is reported on the ______.

balance sheet netted against the related long-lived asset

Under US GAAP, a contingent liability should ______. (Enter one word per blank.)

be reported on the balance sheet if the loss will probably occur and can be reasonably estimated not be reported if the loss is remote and unable to be estimated be in the notes to the financial statements if the loss may possibly occur and can be reasonably estimated

The difference between the Equipment account and its Accumulated Depreciation is called the

booking value

An asset's useful life ______. (Check all that apply.)

can be expressed in either years or units is the asset's expected economic life to its owner

All costs to get an asset in place and ready for its intended use should be ______.

capitalized

If there are more debits to Accounts Receivable than credits during the year, then Cash ______.

collected from customers on the statement of cash flows will be less than Revenues on the income statement

An asset's book value or carrying value is its ______.

cost minus accumulated depreciation

Depreciable cost equals an asset's _______.

cost minus its residual (or salvage) value

The Mane Event, Inc. sold its barber chair for $500. The chair's original cost was $1,200, and its accumulated depreciation was $800. When recording the sale, Mane Event should ______. (Check all that apply.)

credit Furniture for $1,200 debit Accumulated Depreciation for $800 credit Gain on Disposal for $100

When a company issues of shares of $0.10 par value common stock for $10 per share, it will record a ______.

credit to Additional Paid-in Capital for the difference between the $10 price and the $0.10 par value

The receipt of an interest payment

debit Cash and credit Interest Receivable

The receipt of the principal payment

debit Cash and credit Notes Receivable

The adjusting entry to record interest owed

debit Interest Receivable and credit Interest Revenue

The issuance of a note

debit Notes Receivable and credit Cash

The entry to record the payment of previous purchases made on account includes a ______. (Select all that apply.)

debit to Accounts Payable credit to Cash

The journal entry for the direct write-off method includes a ______. (Check all that apply.)

debit to Bad Debt Expense credit to Accounts Receivable

ABC purchased $500 of merchandise on account. ABC's journal entry to record this transaction includes a ______. (Check all that apply.)

debit to Inventory of $500 credit to Accounts Payable of $500

Sunny Sky paid $30,000 cash for a piece of land to be used for a new corporate headquarters building. The journal entry to record this transaction will include a $30,000 ______. (Check all that apply.)

debit to Land

A company's debt-to-assets ratio is 0.7 or 70%. If the company issues common stock for cash, then the debt-to-assets ratio will ______.

decrease Reason: The increase in cash will increase the denominator, causing the ratio to decrease. The increase in common stock, a stockholders' equity account, will not affect the ratio.

The declaration and payment of a cash dividend ultimately causes a(n) ______. (Check all that apply.)

decrease in stockholders' equity decrease in Retained Earnings decrease in Cash

On-a-Roll, Inc. amortizes its patent of $20,000 over 20 years. The adjusting entry to record amortization results in a(n) ______. (Check all that apply.)

decrease to assets on the balance sheet decrease to net income on the income statement

Morris Lest, Inc. sold its truck and received less cash than the truck's book value. The net effect of this sale on the accounting equation is a(n) ______. (Check all that apply.)

decrease to stockholders' equity decrease to assets

The accountant recorded the adjusting entry for the depreciation of its long-lived assets with a debit to Depreciation Expense and a credit to Accumulated Depreciation. As a result of this entry, assets and stockholders' equity will be ______.

decreased

When using the indirect method, adding a decrease in Prepaid Insurance to net income eliminates the effect of recording Insurance Expense that ______.

decreased net income, but did not impact cash

If total assets increase but total liabilities remain the same, what is the impact on the debt-to-assets ratio?

decreases

When operating cash flows are calculated using the indirect method, if Accounts Receivable balance increased, then the change is ______.

deducted from net income because less cash was collected than revenues earned during the period

When operating cash flows are calculated using the indirect method, if Prepaid Rent balance increased, then the change is ______ during the period.

deducted from net income because more cash was paid than expensed

Matching part of the cost of a long-lived asset with the revenues generated by the asset is ______.

depreciation

Straight-line, units-of-production, and declining-balance are commonly used

depreciation or amortization methods

If a company writes off a specific customer's account with a debit to Bad Debt Expense and credit to Accounts Receivable, it must be using the ______ method.

direct write-off

Which of the following describes the acceptable methods that may be used to prepare the statement of cash flows? (Check all that apply.)

direct, indirect

A stock dividend ______. (Check all that apply.)

distributes additional shares of stock to existing stockholders on a pro rata basis. causes retained earnings to decrease.

Investors acquire common stock because they expect a return on their investment from ______. (Select all that apply.)

distributions of dividends increases in stock prices

Similar to a stock split, a stock _____ also distributes additional shares of stock to existing stockholders on a pro rata basis at no cost to the stockholders.

dividend

When Diva, Inc., declared a $10,000 cash dividend, it recorded a debit to _______ and a credit to Dividends _______

dividends payable

IFRS

divides the cost of an asset among its significant component parts and depreciates the components separately over their useful lives

The P/E ratio is calculated by ______.

dividing the stock price by EPS

Advantages of equity financing over debt financing include that ______. (Check all that apply.)

equity financing does not require repayment dividends are optional

Ordinary repairs and maintenance costs should be ______.

expensed as incurred

Notes receivable are used for ______. (Check all that apply.)

extending payment periods lending money to individuals or businesses selling large dollar-value items

True or false: When presenting the operating activities section of the statement of cash flows, the direct method starts with net income and adjusts it by eliminating the effects of transactions that do not involve cash. The indirect method reports the total cash inflow or cash outflow from each main type of transaction.

false

True or false: When a corporation declares a dividend its Net Income on the income statement is reduced.

false Reason: All transactions between a company and its stockholders do not affect the income statement. Dividends do not affect Net Income.

Issuing bonds payable is an example of a(n) ______ activity. (Enter one word per blank.)

financing

Notes Receivable differ from Accounts Receivable in that Notes Receivable ______.

generally charge the borrowers interest from the day they are signed to the day they are collected

Preferred stock generally ______ preference as to dividends.

has

Preferred stock is advantageous in that it ______. (Check all that apply.)

has priority over common stock at liquidation has priority over common stock when dividends are declared

The units-of-production depreciation method will result in ____ Depreciation Expense when the actual production is higher.

higher

Depreciation and impairment are different in that only ______.

impairment represents the decline in the current value of the related asset

Earnings per share (EPS) appears on the ______.

income statement

The changes in the non-cash balance sheet accounts explain the differences between the ______.

income statement and the statement of cash flows

Depreciation Expense is reported on the ______.

income statement as an operating expense

For long-lived assets that have been in use for more than one accounting period, Depreciation Expense on the ______ Accumulated Depreciation on the ______.

income statement will be less than; balance sheet

Morris Lest, Inc. sold its delivery truck for $500 more than its book value. The sale will result in a(n) ______.

increase in Net Income on the income statement

Anudu, Inc. sold equipment and received more cash than the equipment's book value. The effect of this sale on the accounting equation includes a(n ______. (Check all that apply.)

increase to stockholders' equity increase to assets

When preparing the operating activities section of the statement of cash flows using the indirect method, adding a decrease in Accounts Receivable to net income allows the inclusion of transactions that ______.

increased cash, but did not affect net income

Accumulated Deficit ______. (Check all that apply.)

indicates accumulated net losses is shown in parentheses on the balance sheet means that Retained earnings has a debit balance

The starting point for preparing the operating activities section using the ______ method is Net Income. (Enter one word per blank.)

indirect

The sale of property, plant, and equipment results in a cash inflowBlank 1Blank 1 inflow , _______ (inflow/outflow) to the ______ activities section of the statement of cash flows. (Enter one word per blank.)

inflow, investing

For an investor, bonds are attractive investments because ______.

interest is higher than bank savings accounts they can be traded on established bond exchanges

Which of these assets are not depreciated? (Select all that apply.)

inventory land cash

Preferred stock ______. (Check all that apply.)

is useful for raising capital without reducing common stockholders' control has preference as to dividends

The number of shares outstanding equals the number of shares ______.

issued minus the number of shares in treasury Reason: The number of shares outstanding equals the number of shares issued minus the number of shares bought back by the company. The number of shares authorized is the maximum number of shares the company is allowed to sell.

Accrual-basis accounting is superior to cash-basis accounting in that ______.

it provides a better measure of profitability

Which of these assets are not depreciated? (Select all that apply.)

land inventory cash

Acme, Inc. bought land and a factory building for $80,000. The land was appraised at $25,000 and the building at $75,000. Using the basket purchase allocation, Acme would record the ______.

land at $20,000 and the building at $60,000

Assuming straight-line depreciation is used, a higher estimated useful life will result in a(n) ________ depreciation expense per year and a(n) _______ net income. (Enter one word per blank.)

lower, higher

An asset's useful life ______.

may be expressed in terms of time or units of capacity

The book (or carrying) value of equipment equals Equipment ______.

minus Accumulated Depreciation

A decrease in Prepaid Expenses indicates that ______ was expensed than paid. Thus the decrease will be ______ net income on the statement of cash flows prepared using the indirect method.

more; added to

A healthy expanding company would most likely show a ______ cash flow from investing activities.

negative

The starting point for preparing the operating activities section using the indirect method is ______.

net income

The write-down of equipment due to impairment will cause ______. (Check all that apply.)

net income to decrease total assets to decrease Reason: Impairment loss is recorded with a debit to Loss on Impairment (-SE) and a credit to the impaired Equipment (-A).

ROE relates ______.

net income to the average common stockholders' equity

Depreciation Expense is added back to net income when preparing the cash flow from operating activities section because depreciation represents a(n) ______ reduction to net income.

noncash Reason: Depreciation Expense decreases net income on the income statement but does not decrease cash from operating activities on the statement of cash flows (no check is written for depreciation expense). Depreciation Expense is a non-cash expense and thus is added back to net income when calculating cash from operating activities.

When the times interest earned ratio is less than 1.0, a company is ______.

not generating enough income to cover its interest expense

The cash flow statement should be evaluated by examining the cash flow pattern ______.

of the subtotals for the three sections of the statement

Loss on Impairment is a(n) ______.

operating expense that appears on the income statement

The classifications used to categorize cash inflows and outflows on the statement of cash flows includes _______ activities, ______ activities, and ______ activities. (Enter one word per blank.)

operating, financing, investing

Net cash flows provided by ______ activities will be ______ when using the direct method compared to the indirect method.

operating; the same

Accounts (or trade) Payable is debited when ______ and credited when ______.

paid; purchases are made on credit

A failing, shrinking company would most likely show a ______ cash flow from investing activities.

positive

Retained Earnings represents cumulative ______ by the business. (Check all that apply.)

profits retained net income kept

Preferred stockholders ______.

receives dividends before common stockholders

When accounting for accounts receivable and bad debts, the objectives are to ______.

report accounts receivable at the net realizable value which equals accounts receivable less the amount the company does not expect to collect. match the cost of bad debts to the accounting period in which the related credit sales are made

Another term for residual value is

salvage value

A gain on the disposal of an asset occurs when the ______.

selling price is greater than the asset's book value

Land improvements reported on a company's balance sheet might include ______. (Check all that apply.)

sidewalks outside the corporate headquarters trees planted to provide shade for the customer parking lot the fence around a factory parking lot

In the case of a basket purchase, the cost of the land and building is ______.

split among the assets purchased in proportion to the market value of the assets as a whole

Contributed capital of $1,000,000 is found in the ______ section of the ______.

stockholders' equity; balance sheet

Contributed capital of $1,000,000 represents ______.

the amount stockholders have invested in exchange for stock

To properly evaluate the statement of cash flows, it is important to evaluate ______.

the pattern of the three sections, not just the change in cash during the period

Net cash flows provided by operating activities will be ______ when using the direct method compared to the indirect method.

the same

Land improvements reported on a company's balance sheet might include ______. (Check all that apply.)

trees planted to provide shade for the customer parking lot sidewalks outside the corporate headquarters the fence around a factory parking lot

Long-lived assets are ______. (Check all that apply.)

used by the business assets acquired for use over 1 or more years

Ending inventory errors in 2019 ______.

will affect the 2020 goods available for sale but will not affect the 2020 ending inventory