Final Test Financial Accounting

FINAL TEST Key

1. The primary objective of financial accounting is:

A. To serve the decision-making needs of internal users

B. To provide financial statements to help external users analyze and interpret an organization's activities

C. To monitor and control company activities

D. To provide information on both the costs and benefits of managing products and services

E. To know what, when and how much to produce

AACSB: Analytic

AACSB: CommunicationsAICPA BB: Critical Thinking

AICPA BB: IndustryAICPA FN: Measurement

AICPA FN: ReportingBlooms: Understand

Difficulty: EasyLearning Objective: C2 Identify users and uses of; and opportunities in; accounting.

Wild - Chapter 01 #59

2. Which of the following accounting principles dictates when expenses are recognized?

A. Revenue recognition principle

B. Monetary unit principle

C. Business entity principle

D. Matching principle

E. Full disclosure principle

AACSB: Analytic


AICPA BB: Industry

AICPA FN: MeasurementAICPA FN: ReportingBlooms: Understand

Difficulty: EasyLearning Objective: C4 Explain generally accepted accounting principles and define and apply several accounting principles


3. The amounts reported in the accounts for assets used in operations are based on their costs. This practice is best justified by the:

A. Cost principle

B. Going-concern principle

C. Objectivity principle

D. Business entity principle

E. Revenue recognition principle

AACSB: Analytic



AICPA FN: ReportingBlooms: Apply

Difficulty: HardLearning Objective: C4 Explain generally accepted accounting principles and define and apply several accounting principles


4. Which of the following accounting principles would prescribe that all goods and services purchased is recorded at cost?

A. Going-concern principle

B. Continuing-concern principle

C. Cost principle

D. Business entity principle

E. Consideration principle

AACSB: Analytic


AICPA BB: Industry


Difficulty: HardLearning Objective: C4 Explain generally accepted accounting principles and define and apply several accounting principles


5. The difference between a company's assets and its liabilities or its net assets is:

A. Net income

B. Expense

C. Equity

D. Revenue

E. Net loss

AACSB: Analytic




Difficulty: EasyLearning Objective: A1 Define and interpret the accounting equation and each of its components.


6. Assets = Liabilities + Equity is known as the:

A. Income statement equation

B. Cost principle

C. Objectivity principle

D. Accounting equation

E. Transaction principle

AACSB: Analytic




Difficulty: EasyLearning Objective: A1 Define and interpret the accounting equation and each of its components.


7. Revenues are:

A. The same as net income

B. The excess of expenses over assets

C. Resources owned or controlled by a company

D. Increases in retained earnings from a company's earning activities

E. The costs of assets or services used

AACSB: Analytic




Difficulty: MediumLearning Objective: A1 Define and interpret the accounting equation and each of its components.


8. Which of the following statements is not true about assets?

A. They are economic resources owned or controlled by the business

B. They are expected to provide future benefits to the business

C. They appear on the balance sheet

D. They appear on the statement of retained earnings

E. Claims on them are shared between creditors and owners

AACSB: Analytic






9. Distributions of assets by a business to its stockholders are called:

A. Dividends

B. Expenses

C. Assets

D. Retained earnings

E. Net Income

AACSB: Analytic






10. How would the accounting equation of Boston Company be affected by the billing of a client for $10,000 of consulting work completed?

A. + $10,000 accounts receivable, -$10,000 accounts payable

B. + $10,000 accounts receivable, + $10,000 accounts payable

C. + $10,000 accounts receivable, + $10,000 cash

D. + $10,000 accounts receivable, + $10,000 consulting revenue

E. + $10,000 accounts receivable, -$10,000 consulting revenue

AACSB: Analytic



AICPA FN: ReportingBlooms: Analyze

Difficulty: MediumLearning Objective: A2 Compute and interpret return on assets.


11. If the liabilities of a business increased $75,000 during a period of time and the equity in the business decreased $30,000 during the same period, the assets of the business must have:

A. Decreased $105,000

B. Decreased $45,000

C. Increased $30,000

D. Increased $45,000

E. Increased $105,000

Change in Assets = Change in Liabilities + Change in EquityChange in Assets = $75,000 + (-$30,000) = + $45,000

AACSB: Analytic




Difficulty: HardLearning Objective: A2 Compute and interpret return on assets.


12. Fast-Forward has net income of $18,955 and assets at the beginning of the year of $200,000. Its assets at the end of the year total $246,000. Compute its return on assets.

A. 7.7%

B. 8.5%

C. 9.5%

D. 11.8%

E. 13.0%

$18,955/[($200,000 + $246,000)/2] = $18,955/$223,000 = 8.5%

AACSB: Analytic




Difficulty: HardLearning Objective: A3 Appendix 1A-Explain the relation between return and risk.


13. Risk is:

A. Net income divided by average total assets

B. The reward for investment

C. The uncertainty about the expected return that will be earned from an investment

D. Unrelated to expected return

E. Derived from the idea of getting something back from an investment

AACSB: Analytic



AICPA FN: Reporting

Blooms: UnderstandDifficulty: Medium

Learning Objective: A3 Appendix 1A-Explain the relation between return and risk.Wild - Chapter 01 #147

14. A balance sheet lists:

A. The types and amounts of the revenues and expenses of a business

B. Only the information about what happened to retained earnings during a time period

C. The types and amounts of assets, liabilities and equity of a business as of a specific date

D. The cash inflows and outflows during the period

E. The assets and liabilities of a company, but not the equity

AACSB: Analytic




Difficulty: MediumLearning Objective: P1 Analyze business transactions using the accounting equation


15. Rent expense that is paid with cash appears on which of the following statements?

A. Balance sheet

B. Income statement

C. Statement of retained earnings

D. Schedule of Accounts Receivable

E. Statement of Cash Received

AACSB: Analytic




Difficulty: HardLearning Objective: P1 Analyze business transactions using the accounting equation


16. Beginning Assets were $437,600, Beginning Liabilities were $262,560, Common Stock sold during the year totaled $45,000, Revenue for the year was $414,250, Expenses for the year were $280,000, Dividends declared was $22,700, and Ending Liabilities is $350,000. What was the Beginning Equity for the year?

A. $700,160

B. $787,600

C. $187,600

D. $612,560

E. $175,040

437,600-262,560 = 175,040

AACSB: Analytic






17. Beginning Assets were $700,000, Beginning Equity was $225,000, Revenue for the year was $523,000, Common Stock sold during the year totaled $320,000, Expenses for the year were $392,000, Ending Equity is $751,000, and Ending Assets are $963,000. What are the Ending Liabilities for the year?

A. $738,000

B. $998,000

C. $212,000

D. $203,000

E. $475,000

963,000 - 751,000 = 212,000

AACSB: Analytic






18. Ending Liabilities are 67,000, Beginning Equity was $87,000, Common Stock sold during year totaled $31,000, Expenses for the year were $22,000, Dividends declared totaled $13,000, Ending Equity for the year is $181,000 and Beginning Assets for the year were $222,000.What are the Ending Assets for the year?

A. $154,000

B. $134,000

C. $212,000

D. $248,000

E. $155,000

67,000 + 181,000 = 248,000

AACSB: Analytic






19. Ending Liabilities are 67,000, Beginning Equity was $87,000, Common Stock sold during year totaled $31,000, Expenses for the year were $22,000, Dividends declared totaled $13,000, Ending Equity for the year is $181,000 and Beginning Assets for the year were $222,000.What was Beginning Liabilities for the year?

A. $154,000

B. $155,000

C. $212,000

D. $248,000

E. $135,000

222,000 - 87,000 = 135,000

AACSB: Analytic






20. Below is accounting information for Cascade Company for 2010:

What were the Total Assets for the year?

A. $320,000

B. $296,000

C. $316,000

D. $457,000

E. $116,000

120,000 + 35,000 + 62,000 + 240,000 = 457,000

AACSB: Analytic






21. The accounting process begins with:

A. Analysis of business transactions and events

B. Preparation of financial statements and other reports

C. Summarizing the recorded effects of business transactions

D. Presentation of financial information to decision-makers

E. Preparation of the trial balance

AACSB: Analytic




Difficulty: EasyLearning Objective: C1 Explain the steps in processing transactions and the role of source documents.


22. Source documents include all of the following except:

A. Sales tickets

B. Ledgers

C. Checks

D. Purchase orders

E. Bank statements

AACSB: Analytic




Difficulty: MediumLearning Objective: C2 Describe an account and its use in recording transactions.


23. Which of the following statements is correct?

A. When a future expense is paid in advance, the payment is normally recorded in a liability account called Prepaid Expense

B. Promises of future payment are called accounts payable

C. Increases and decreases in cash are always recorded in the retained earnings account

D. An account called Land is commonly used to record increases and decreases in both the land and buildings owned by a business

E. Accrued liabilities include accounts receivable

AACSB: Analytic






24. Prepaid expenses are:

A. Payments made for products and services that do not ever expire

B. Classified as liabilities on the balance sheet

C. Decreases in retained earnings

D. Assets that represent prepayments of future expenses

E. Promises of payments by customers

AACSB: Analytic






25. A collection of all accounts (with account balances) used by a business is called a:

A. Journal

B. Book of original entry

C. General Journal

D. Balance column journal

E. Ledger

AACSB: Analytic



AICPA FN: ReportingBlooms: Remember



26. The general ledger of a business

A. Is a collection of all accounts used in a company's information system

B. Must be kept in a computer file

C. A and B

D. Is a set standard not affected by a company's size and diversity

E. A, B and D

AACSB: Analytic




Difficulty: HardLearning Objective: C3 Describe a ledger and a chart of accounts.


27. A credit is used to record:

A. An increase in an expense account

B. An increase in an asset account

C. An increase in an unearned revenue account

D. An increase in a revenue account

E. A decrease to retained earnings

AACSB: Analytic




Difficulty: MediumLearning Objective: C4 Define debits and credits and explain double-entry accounting.


28. A credit entry:

A. Increases asset and expense accounts and decreases liability, common stock and revenue accounts

B. Is always a decrease in an account

C. Decreases asset and expense accounts and increases liability, common stock and revenue accounts

D. Is recorded on the left side of a T-account

E. Is always an increase in an account

AACSB: Analytic




Difficulty: MediumLearning Objective: C4 Define debits and credits and explain double-entry accounting.


29. Robert Haddon contributed $70,000 in cash and some land worth $130,000 to open a new business, RH Consulting. Which of the following general journal entries will RH Consulting make to record this transaction?

A.

B.

C.

D.

E.

AACSB: Analytic




Difficulty: MediumLearning Objective: A1 Analyze the impact of transactions on accounts and financial statements.


30. A liability created by the receipt of cash from customers in payment for products or services that have not yet been delivered to the customers is:

A. Recorded as a debit to an unearned revenue account

B. Recorded as a debit to a prepaid expense account

C. Recorded as a credit to an unearned revenue account

D. Recorded as a credit to a prepaid expense account

E. Not recorded in the accounting records until the earnings process is complete

AACSB: Analytic




Difficulty: HardLearning Objective: A1 Analyze the impact of transactions on accounts and financial statements.


31. On October 31, a company's Cash account had a normal balance of $7,000. During October, the account was debited for a total of $4,250 and credited for a total of $5,340. What was the balance in the Cash account at the beginning of October?

A. $0 balance

B. $1,090 debit balance

C. $2,590 credit balance

D. $8,090 debit balance

E. $9,590 credit balance

Normal balance = debit

AACSB: Analytic






32. On April 30, Holden Company had an Accounts Receivable balance of $18,000. During the month of May, total credits to Accounts Receivable were $52,000 from customer payments. The May 31 Accounts Receivable balance was $13,000. What was the amount of credit sales during May?

A. $5,000

B. $47,000

C. $52,000

D. $57,000

E. $32,000

Normal balance = debit

AACSB: Analytic






33. The Fireside Country Inn is a very popular destination for tourists. The Inn requires guests to make reservations at least two months in advance of their stay. A twenty percent down payment is required at the time the reservation is made. When should this inn recognize room rental revenue?

A. On the date the reservation is received

B. On the date the money for the reservation is received

C. On the date the guests stay in the inn

D. On the date the guests pay the remaining eighty percent due

E. Once all cash has been received

AACSB: Analytic






34. During March, a company had cash receipts of $2,300 and cash disbursements of $6,600. The March 31 cash balance was $2,780. What was the March 1 beginning cash balance?

A. $1,520

B. $7,080

C. $4,300

D. $8,900

E. $11,680

X + $2,300 - $6,600 = $2,780

AACSB: Analytic

AACSB: Communications

AICPA BB: Critical ThinkingAICPA BB: Industry

AICPA FN: MeasurementAICPA FN: Reporting

Blooms: AnalyzeDifficulty: Hard

Learning Objective: A1 Analyze the impact of transactions on accounts and financial statements.Wild - Chapter 02 #103

35. Which of the following formulas can be used to calculate the debt ratio?

A. Total Equity/Total Liabilities

B. Total Liabilities/Total Equity

C. Total Liabilities/Total Assets

D. Total Assets/Total Liabilities

E. Total Equity/Total Assets

AACSB: Analytic




Difficulty: MediumLearning Objective: A2 Compute the debt ratio and describe its use in analyzing financial condition.


36. Stride Rite has total assets of $425 million. Its total liabilities are $110 million. Its equity is $315 million. Calculate the debt ratio.

A. 38.6%

B. 13.4%

C. 34.9%

D. 25.9%

E. 14.9%

$110/$425 = 25.9%

AACSB: Analytic




Difficulty: MediumLearning Objective: A2 Compute the debt ratio and describe its use in analyzing financial condition.


37. Which of the following is a TRUE statement concerning a company's financial statements?

A. Balance Sheet and Income Statement data combined contain the complete financial picture of a given company

B. A Trial Balance is another name for a Balance Sheet

C. Another name for the Income Statement is the Earnings Statement

D. Dividends paid to a company's shareholders are shown on the Income Statement

E. The Balance Sheet shows the financial position of a company for a period of time

AACSB: Analytic



AICPA FN: Reporting

Blooms: UnderstandDifficulty: Hard

Learning Objective: P3 Prepare financial statements from business transactionsWild - Chapter 02 #136

38. Which of the following is the appropriate journal entry if a company performs a service and is paid immediately?

A. Debit to Cash, Debit to Revenue

B. Debit to Cash, Credit to Revenue

C. Debit to Accounts Receivable, Credit to Cash

D. Debit to Revenue, Credit to Accounts Receivable

E. Debit to Accounts Receivable, Credit to Revenue

AACSB: Analytic




Difficulty: HardLearning Objective: P1 Record transactions in a journal and post entries to a ledger.


39. What would be the account balance in the revenue ledger account after the following transactions?

A. $17,400

B. $10,900

C. $14,400

D. $9,000

E. $15,900

AACSB: Analytic




Difficulty: HardLearning Objective: P1 Record transactions in a journal and post entries to a ledger.


40. What is ending retained earnings for Shiver Ice House?

A. $19,578

B. $29,578

C. $23,728

D. $49,578

E. $45,000

AACSB: Analytic






41. The cash basis of accounting requires that revenues be recognized when cash payments from customers are received. TRUE



AICPA FN: MeasurementAICPA FN: ReportingAICPA FN: ResearchBlooms: Understand

Difficulty: MediumLearning Objective: C2 Explain accrual accounting and how it improves financial statements.


42. The accrual basis of accounting is an accounting system in which revenues are reported as earned when cash is received. FALSE






43. On October 15, a company received $15,000 cash as a down payment on a consulting contract. The amount was credited to Unearned Consulting Revenue. By October 31, 10% of the services required by the contract were completed. The company will record consulting revenue of $1,500 from this contract for October. TRUE

Revenue = $15,000 x 10% = $1,500



AICPA FN: MeasurementAICPA FN: ReportingAICPA FN: Research


Learning Objective: C2 Explain accrual accounting and how it improves financial statements.Wild - Chapter 03 #19

44. The accrual basis of accounting is a system of accounting in which the adjustments are needed to assign revenues to periods in which they are earned and to match expenses with revenues. TRUE




Difficulty: HardLearning Objective: C2 Explain accrual accounting and how it improves financial statements.


45. Before an adjusting entry is made to accrue employee salaries, Salaries Expense and Salaries Payable are both understated. TRUE




Blooms: AnalyzeDifficulty: Medium

Learning Objective: A1 Explain how accounting adjustments link to financial statements.Wild - Chapter 03 #30

46. The current ratio is computed by dividing current liabilities by current assets. FALSE



AICPA FN: MeasurementAICPA FN: ReportingAICPA FN: ResearchBlooms: Remember

Difficulty: EasyLearning Objective: A3 Compute the current ratio and describe what it reveals about a companys financial condition.


47. Which of the following statements is incorrect?

A. Prepaid expenses, depreciation and unearned revenues involve previously recorded assets and liabilities

B. Accrued expenses and accrued revenues involve assets and liabilities that were not previously been recorded

C. Adjusting entries can be used to record both accrued expenses and accrued revenues

D. Prepaid expenses, depreciation and unearned revenues often require adjusting entries to record the effects of the passage of time

E. Adjusting entries affect the cash account




Blooms: ApplyDifficulty: Hard

Learning Objective: C2 Explain accrual accounting and how it improves financial statements.Wild - Chapter 03 #75

48. The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used, representing the expense of using the assets is called:

A. Accumulated depreciation

B. A contra account

C. The matching principle

D. Depreciation

E. An accrued account




Difficulty: MediumLearning Objective: P1 Prepare and explain adjusting entries.


49. A company had no office supplies available at the beginning of the year. During the year, the company purchased $250 worth of office supplies. On December 31, $75 worth of office supplies remained. How much should the company report as office supplies expense for the year?

A. $75

B. $125

C. $175

D. $250

E. $325

$250 - $75 = $175


AICPA BB: Critical Thinking


AICPA FN: ReportingAICPA FN: Research


Learning Objective: P1 Prepare and explain adjusting entries.Wild - Chapter 03 #105

50. On April 30, 2009, a three-year insurance policy was purchased for $18,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the year ended December 31, 2009?

A. $0500

B. $4,000

C. $6,000

D. $14,000

E. $18,000

$18,000 x 8/36 = $4,000





Learning Objective: P1 Prepare and explain adjusting entries.Wild - Chapter 03 #110

51. Which of the following statements is incorrect?

A. An income statement reports revenues earned less expenses incurred

B. An unadjusted trial balance shows the account balances after they have been revised to reflect the effects of end-of-period adjustments

C. Interim financial reports can be based on one-month or three-month accounting periods

D. The fiscal year is any 12 consecutive months (or 52 weeks) used by a business as its annual accounting period

E. Property, plant and equipment are referred to as plant assets




Difficulty: EasyLearning Objective: P2 Explain and prepare an adjusted trial balance.


52. Shown below are a company's ledger accounts and their end-of-period balances before closing entries are posted. What amount will be posted to Retained Earnings in the process of closing the Income Summary account? (Assume all accounts have normal balances.)

A. $16,780 debit

B. $15,460 credit

C. $48,660 credit

D. $34,660 credit

E. $17,960 credit

Items closed to Income Summary:





Learning Objective: P4 Describe and prepare closing entries.Wild - Chapter 03 #142

53. The Unadjusted Trial Balance columns of a work sheet total $84,000. The Adjustments columns contain entries for the following:Office supplies used during the period, $1,200.Expiration of prepaid rent, $700.Accrued salaries expense, $500.Depreciation expense, $800.Accrued service fees receivable, $400.The Adjusted Trial Balance columns total is:

A. $80,400

B. $84,000

C. $85,700

D. $85,900

E. $87,600





Learning Objective: P7 Appendix 3B-Prepare a work sheet and explain its usefulness.Wild - Chapter 03 #161

54. List the steps in the accounting cycle.

The accounting cycle consists of ten steps: (1) analyze transactions, (2) journalize entries, (3) post information to the ledgers, (4) prepare an unadjusted trial balance, (5) prepare adjusting entries, (6) prepare an adjusted trial balance, (7) prepare financial statement, (8) close the temporary accounts, (9) prepare a post-closing trial balance and (10) prepare reversing entries (optional).

AACSB: Analytic




Difficulty: MediumLearning Objective: C3 Identify steps in the accounting cycle.


55. What is the purpose of closing entries? Describe the closing process.

The purpose of closing entries is to transfer the end of period balances in the temporary accounts to the equity account(s). The closing process has four steps: (1) Close credit balances in revenue accounts to income summary, (2) close debit balances in expense accounts to income summary, (3) close dividends to the retained earnings, (4) close income summary to retained earnings.

AACSB: Analytic

AACSB: CommunicationsAACSB: Reflective ThinkingAICPA BB: Critical Thinking

AICPA BB: IndustryAICPA FN: Decision Making


Difficulty: MediumLearning Objective: P4 Describe and prepare closing entries.


56. What is the purpose of a post-closing trial balance?

A post-closing trial balance is a list of permanent accounts and their balances after all the closing entries are journalized and posted. It is used to verify the equality of debits and credits of the permanent account balances. It also verifies that the temporary accounts have zero balances.

AACSB: Analytic




Difficulty: MediumLearning Objective: P5 Explain and prepare a post-closing trial balance.


57. June 30, 2010, the end of the quarter is on a Wednesday. Employees get paid each Friday for the week worked. Abel Co. has five employees who earn $100 per day each. Assuming the proper adjusting journal entry was made on June 30, prepare the journal entry to record the payment of wages on July 2.

Feedback: 5 * $100 * 3 days = 1500 (Wages Payable) 5*$100*2 days (Wages Expense)

AACSB: Analytic






58. Topflight Company had $1,500 of store supplies at the beginning of the current year. During this year, Topflight purchased $8,250 worth of store supplies. On December 31, $1,125 worth of store supplies remained. Calculate the amount of Topflight Company's store supplies expense for the current year.

$1,500 + $8,250 - $1,125 = $8,625

AACSB: Analytic






59. Accrual accounting and the adjusting process rely on two principles: the ___________________ principle and the ________________________ principle. Revenue recognition; matching

AACSB: Analytic






60. __________________ expenses are those costs that are incurred in a period but are both unpaid and unrecorded. Accrued

AACSB: Analytic




Difficulty: EasyLearning Objective: P1 Prepare and explain adjusting entries.


61. Gross profit is the same as gross margin. TRUE

AACSB: Analytic




Difficulty: EasyLearning Objective: C1 Describe merchandising activities and identify income components for a merchandising company.


62. Successful use of a just-in-time inventory system can narrow the gap between the acid-test and the current ratio. TRUE

AACSB: Analytic




Difficulty: MediumLearning Objective: A1 Compute the acid-test ratio and explain its use to assess liquidity.


63. The gross margin ratio is defined as gross margin divided by net sales. TRUE

AACSB: Analytic




Difficulty: EasyLearning Objective: A2 Compute the gross margin ratio and explain its use to assess profitability.


64. Cost of goods sold is reported on both the income statement and the balance sheet. FALSE

AACSB: Analytic




Difficulty: Easy

Learning Objective: P1 Analyze and record transactions for merchandise purchases using a perpetual system.Wild - Chapter 04 #31

65. ABC Corporation had total quick assets $5,888,000, current assets $11,700,000 and current liabilities $8,000,000. Its acid-test ratio equals:

A. 0.50

B. 0.68

C. 0.74

D. 1.50

E. 2.20

$5,888,000/$8,000,000 = 0.74

AACSB: Analytic






66. Sales less sales discounts less sales returns and allowances equals:

A. Net purchases

B. Cost of goods sold

C. Net sales

D. Gross profit

E. Net income

AACSB: Analytic




Difficulty: MediumLearning Objective: P2 Analyze and record transactions for merchandise sales using a perpetual system.


67. A company has the following accounts. What is the acid test ratio?

A. 3.58%

B. 3.16%

C. 1.80%

D. 4.00%

E. 2.68%

(6,750+13733)/6463=3.160%

AACSB: Analytic






68. A company has net sales of $1,909,000, sales commissions in the amount of $250,000, net income was $866,400, and the gross profit ratio is 60%, what is the amount of cost of goods sold?

$763,600

Feedback: 1,909,000*(1-.60) = 763,600

AACSB: Analytic




Difficulty: HardLearning Objective: A2 Compute the gross margin ratio and explain its use to assess profitability.


69. ___________________ refer to reductions in the selling price of merchandise sold to customers, often involving damaged or defective merchandise that a customer is willing to purchase with a decrease in the selling price. Sales allowances

AACSB: Analytic




Difficulty: EasyLearning Objective: P2 Analyze and record transactions for merchandise sales using a perpetual system.


70. When a company has no reportable non-operating activities, its income from operations is reported as ___________________. Net income

AACSB: Analytic




Difficulty: MediumLearning Objective: P4 Define and prepare multiple-step and single-step income statements.


71. Neither GAAP nor IFRS allow inventory to be adjusted upward beyond the original cost. TRUE

AACSB: Analytic


AICPA BB: GlobalAICPA BB: Industry

AICPA FN: Decision MakingAICPA FN: Measurement


Difficulty: HardLearning Objective: A2 Analyze the effects of inventory errors on current and future financial statements.


72. The reliability of the gross profit method depends on a good estimate of the gross profit ratio. TRUE

AACSB: Analytic




Difficulty: EasyLearning Objective: P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory.


73. Acme-Jones Corporation uses a FIFO perpetual inventory system. August 2, 25 units were purchased at $12 per unit.August 5, 10 units were purchased at $13 per unit.August 15, 12 units were sold at $25 per unit.August 18, 15 units were purchased at $14 per unit.What was the amount of the ending inventory for the month of August?

A. $496.00

B. $486.00

C. $492.57

D. $300.00

E. $510.00

AACSB: Analytic





Learning Objective: P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average.


74. Given the following information, determine the cost of goods sold for December 31 using the FIFO perpetual inventory method.December 2: 5 units were purchased at $7 per unit.December 9: 10 units were purchased at $9.40 per unit.December 11: 12 units were sold at $35 per unit.December 15: 20 units were purchased at $10.15 per unit.December 22: 18 units were sold at $35 per unit.

A. $282.15

B. $332.10

C. $281.25

D. $290.70

E. $210.30

AACSB: Analytic





Learning Objective: P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average.


75. A company normally sells its product for $40 per unit. However, the selling price has fallen to $30 per unit. This company's current inventory consists of 200 units purchased at $32 per unit. Replacement cost has now fallen to $26 per unit. Calculate the value of this company's inventory at the lower of cost or market.

A. $5,200

B. $6,400

C. $6,000

D. $8,000

E. $7,000

200 units @ $26 per unit = $5,200

AACSB: Analytic





Learning Objective: P2 Compute the lower of cost or market amount of inventory.Wild - Chapter 05 #118

76. A company has the following per unit original costs and replacement costs for its inventory:Part A: 50 units with a cost of $5 and replacement cost of $4.50Part B: 75 units with a cost of $6 and replacement cost of $6.50Part C: 160 units with a cost of $3 and replacement cost of $2.50Under the lower of cost or market method, the total value of this company's ending inventory is:

A. $1,180.00

B. $1,075.00

C. $1,112.50 or $1075.00, depending upon whether LCM is applied to individual items or the inventory as a whole

D. $1,112.50

E. $1180.00 or $1075.00, depending upon whether LCM is applied to individual items or to the inventory as a whole

AACSB: Analytic





Learning Objective: P2 Compute the lower of cost or market amount of inventory.Wild - Chapter 05 #119

77. A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, they purchased 20 units at $12 each. 12 units are sold on June 5. Using the FIFO periodic inventory method, what is the cost of the 12 units that were sold?

A. $120

B. $124

C. $128

D. $130

E. $140

(10 units x $10) + ($2 x $12) = $124

AACSB: Analytic





Learning Objective: P3 Appendix 5A-Compute inventory in a periodic system using the methods of specific identification; FIFO; LIFO; and weighted average.Wild - Chapter 05 #121

78. Explain the effects of inventory valuation methods on the cost of ending inventory, income and income taxes.

The specific identification method identifies the exact costs of the inventory items sold. The weighted average method evens out changes in costs by "averaging" inventory costs. However, LIFO and FIFO provide different amounts in periods of rising or falling costs. For example, in periods of rising costs, LIFO provides a lower income and thus lower taxes. In periods of falling costs, LIFO provides a higher income and thus higher taxes. FIFO calculations provide both higher income and taxes in periods of rising costs and lower income and taxes in periods of declining costs.

AACSB: Analytic

AACSB: CommunicationsAACSB: Reflective Thinking


AICPA FN: Decision MakingAICPA FN: Measurement


Difficulty: HardLearning Objective: A1 Analyze the effects of inventory methods for both financial and tax reporting.


79. During January, a company that uses a perpetual inventory system had beginning inventory, purchases and sales as follows. What was the FIFO cost of the company's January 31 inventory?

AACSB: Analytic




Difficulty: MediumLearning Objective: P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and

weighted average.Wild - Chapter 05 #161

80. A company that uses a perpetual inventory system made the following cash purchases and sales. There was no beginning inventory.

Prepare the general journal entries to record the March 16 sale using the LIFO inventory valuation method.

AACSB: Analytic



AICPA FN: ReportingBlooms: Create

Difficulty: MediumLearning Objective: P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and

weighted average.Wild - Chapter 05 #165

81. Cash includes currency, coins and the deposits in most checking accounts. TRUE

AACSB: Analytic


AICPA BB: IndustryAICPA BB: Resource Management

AICPA FN: MeasurementAICPA FN: ReportingBlooms: Remember

Difficulty: EasyLearning Objective: C2 Define cash and cash equivalents and explain how to report them.


82. Money orders, cashier's checks and certified checks are examples of cash equivalents. FALSE

AACSB: Analytic




Difficulty: MediumLearning Objective: C2 Define cash and cash equivalents and explain how to report them.


83. A set of procedures and approvals that is designed to control cash disbursements and the acceptance of obligations is referred to as a(n):

A. Internal cash system

B. Petty cash system

C. Cash disbursement system

D. Voucher system

E. Cash control system

AACSB: Analytic




Difficulty: EasyLearning Objective: P1 Apply internal control to cash receipts and disbursements.


84. The entry necessary to establish a petty cash fund should include:

A. A debit to Cash and a credit to Petty Cash

B. A debit to Cash and a credit to Cash Over and Short

C. A debit to Petty Cash and a credit to Cash

D. A debit to Petty Cash and a credit to Accounts Receivable

E. A debit to Cash and a credit to Petty Cash Over and Short

AACSB: Analytic




Blooms: ApplyDifficulty: Easy

Learning Objective: P2 Explain and record petty cash fund transactions.Wild - Chapter 06 #104

85. Match the following terms with the appropriate definition.

1. An asset such as cash that can be readily used to settle short-term obligations

Liquid asset 1

2. All the policies and procedures managers use to protect assets, ensure reliable accounting, promote efficient operations and urge adherence to company policies Cash 3 3. Currency, coins and amounts on deposit in bank checking and many savings accounts

Purchase requisition 7

4. Short-term, highly liquid investments that are readily convertible to known cash amount and are sufficiently close to their maturity date so that the market value is not sensitive to interest rate change

Cash equivalent 4

5. A document signed by the depositor instructing the bank to pay a specified amount to a designated recipient Invoice 9 6. Checks written by the depositor, deducted on the depositor's records, sent to the payees but not yet received by the bank for payment

Internal control

system 2 7. An internal document listing the goods needed by a department and requesting that it be purchased Vendee 8 8. The buyer or purchaser of goods or services

Outstanding checks 6

9. An itemized statement of goods prepared by the vendor that lists the customer's name, the items sold, the sales price of each item and the terms of sale Check 5

10. The seller of goods or services Vendor 10

AACSB: Analytic



AICPA FN: Measurement


Difficulty: MediumLearning Objective: C1 Define internal control and identify its purpose and principles.

Learning Objective: C2 Define cash and cash equivalents and explain how to report them.Learning Objective: P4 Appendix 6A-Describe the use of documentation and verification to control cash disbursements.


86. If a customer owes interest on accounts receivable, the Interest Revenue account is debited and Accounts Receivable is credited. FALSE

AACSB: Analytic




Difficulty: MediumLearning Objective: C1 Describe accounts receivable and how they occur and are recorded.


87. The formula for computing interest on a note is principal of the note times the annual interest rate times time expressed in years. TRUE

AACSB: Analytic




Difficulty: MediumLearning Objective: C2 Describe a note receivable; the computation of its maturity date; and the recording of its existence.


88. The person that borrows money and signs a promissory note is referred to as the payee. FALSE



AICPA BB: LegalAICPA FN: Measurement


Difficulty: MediumLearning Objective: C2 Describe a note receivable; the computation of its maturity date; and the recording of its existence.


89. During a given year, a company had net sales of $500,000 and average accounts receivable of $80,000. Its accounts receivable turnover is equal to 6.25. TRUE

$500,000/$80,000 = 6.25

AACSB: Analytic




Difficulty: HardLearning Objective: A1 Compute accounts receivable turnover and use it to help assess financial condition.


90. When using the allowance method of accounting for uncollectible accounts, the entry to write off Harold's uncollectible account is a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable - Harold. TRUE

AACSB: Analytic




Difficulty: MediumLearning Objective: P1 Apply the direct write-off method to account for accounts receivable.


91. The aging method of determining bad debts expense is based on the knowledge that the longer a receivable is past due, the lower the likelihood of collection. TRUE


AACSB: Reflective ThinkingAICPA BB: Critical Thinking



Difficulty: MediumLearning Objective: P2 Apply the allowance method and estimate uncollectibles based on sales and accounts receivable.


92. Outdoors Unlimited accepts the Explorer credit card from its customers. Explorer charges a 3.5% service fee and pays Outdoors Unlimited the amount net of Explorer charges once a month. During February, Outdoors Unlimited sold $27,000 worth of merchandise to customers using the Explorer charge card. On February 28, Outdoor Unlimited sent the $27,000 worth of credit card receipts to Explorer. On March 4, Outdoors Unlimited received cash proceeds from Explorer for the February credit sales less the service charge. Prepare the general journal entries to record February sales and the March 4 cash receipt.

$27,000 x .035 = $945 Credit Card ExpenseNet amount + $27,000 - $945 = $26,055

AACSB: Analytic




Difficulty: MediumLearning Objective: C1 Describe accounts receivable and how they occur and are recorded.


93. At December 31 of the current year, a company reported the following:Total sales for the current year: $780,000, includes $160,000 in cash sales.Accounts receivable balance at Dec. 31, current year: $190,000.Bad debts written off during the current year: $6,800.Balance of Allowance for Doubtful Accounts at January 1, current year: $8,300 credit.Prepare the necessary adjusting entries to record bad debts expense assuming this company's bad debts are estimated to equal:(a) 1.5% of credit sales.(b) 5% of accounts receivable.

(a)

(b)

AACSB: Analytic


AICPA BB: GlobalAICPA BB: Industry


Blooms: CreateDifficulty: Medium

Learning Objective: P2 Apply the allowance method and estimate uncollectibles based on sales and accounts receivable.Wild - Chapter 07 #141

94. The ____________________ of a note is the day the principle plus interest of a note must be repaid. Maturity date

AACSB: Analytic


AICPA BB: IndustryAICPA BB: Legal


Difficulty: EasyLearning Objective: C2 Describe a note receivable; the computation of its maturity date; and the recording of its existence.


95. The ________________ method of accounting for bad debts records the loss from an uncollectible account receivable at the time it is determined to be uncollectible (and not before). Direct write-off

AACSB: Analytic




Difficulty: MediumLearning Objective: P1 Apply the direct write-off method to account for accounts receivable.


96. The historical cost principle requires that an asset be recorded at the cash or cash equivalent amount that was given in exchange for it. TRUE

AACSB: Analytic




Difficulty: HardLearning Objective: P2 Account for asset disposal through discarding or selling an asset.


97. Land improvements are:

A. Assets that increase the usefulness of land and like land, are not depreciated

B. Assets that increase the usefulness of land, but that have a limited useful life and are subject to depreciation

C. Included in the cost of the land account

D. Expensed in the period incurred

E. Also called basket purchases

AACSB: Analytic




Difficulty: Easy

Learning Objective: C1 Explain the cost principle for computing the cost of plant assets.Wild - Chapter 08 #63

98. Another name for a capital expenditure is:

A. Revenue expenditure

B. Asset expenditure

C. Long-term expenditure

D. Contributed capital expenditure

E. Balance sheet expenditure

AACSB: Analytic




Difficulty: EasyLearning Objective: C2 Explain depreciation for partial years and changes in estimates.


99. A company purchased a truck on October 1 of the current year at a cost of $40,000. The truck is expected to last six years and have a salvage value of $2,200. The company's annual accounting period ends on December 31.1. What is the depreciation expense for the current year, assuming the straight-line method is used?2. What is the depreciation expense for the current year, assuming the double-declining-balance method is used?

1. [($40,000 - $2,200)/6] x 3/12 = $1,5752. (100%/6) x 2 = 33.33%$40,000 x 33.33% x 3/12 = $3,333.33

AACSB: Analytic




Difficulty: MediumLearning Objective: C3 Distinguish between revenue and capital expenditures; and account for them.


100. A company paid $770,000 plus $5,000 in closing costs for property that included land appraised at $384,000; land improvements appraised at $128,000; and a building appraised at $288,000. The plan is to use the building as a manufacturing plant. Determine the amounts that should be recorded as:(a) Land............................ $___________________(b) Land Improvements.... $___________________(c) Building...................... $___________________

AACSB: Analytic




Difficulty: MediumLearning Objective: C1 Explain the cost principle for computing the cost of plant assets.


101. A company purchased equipment on July 3 of the current year and placed it in service on August 1. The following costs were incurred in acquiring the equipment:

Determine the amount to be recorded as cost for the equipment.

AACSB: Analytic




Difficulty: Medium

Learning Objective: C1 Explain the cost principle for computing the cost of plant assets.Wild - Chapter 08 #156

102. On April 1 of the current year, a company traded an old machine that originally cost $32,000 and that had accumulated depreciation of $24,000 for a similar new machine that had a cash price of $40,000.1. Give the entry to record the exchange under the assumption that a $5,000 trade-in allowance was received and the balance of $35,000 was paid in cash.2. Give the entry to record the exchange under the assumption that instead of a $5,000 trade-in allowance, a $12,500 trade-in allowance was received and the balance of $27,500 was paid in cash.

1.

2.

Calculation:

AACSB: Analytic




Difficulty: MediumLearning Objective: P5 Appendix 8A-Account for asset exchanges.


103. The four main accounting issues for plant assets are: (1) _________________________, (2) _____________________________, (3) _________________________, (4) _____________________________. Computing of the costs of plant assets, Allocating the costs of plant assets against revenues for the periods they benefit, Accounting for repairs and expenditures, Recording the disposal of plant assets

AACSB: Analytic


AICPA BB: Industry


Difficulty: MediumLearning Objective: C1 Explain the cost principle for computing the cost of plant assets.


104. The formula for calculating total asset turnover is _______________________________________. Net sales divided by average total assets

AACSB: Analytic




Difficulty: MediumLearning Objective: A1 Compute total asset turnover and apply it to analyze a companys use of assets.


105. ______________________ are costs that increase the usefulness of land, but have limited useful lives and are thus depreciated. Land improvements

AACSB: Analytic




Difficulty: EasyLearning Objective: C1 Explain the cost principle for computing the cost of plant assets.


106. A contingent liability is a potential obligation that depends on a future event arising from a future transaction or event. FALSE

AACSB: Analytic




Difficulty: EasyLearning Objective: C3 Explain how to account for contingent liabilities.


107. When the times interest earned ratio declines, the likelihood of default on liabilities increases. TRUE

AACSB: Analytic



AICPA FN: ReportingAICPA FN: Risk Analysis

Blooms: UnderstandDifficulty: Hard

Learning Objective: A1 Compute the times interest earned ratio and use it to analyze liabilities.Wild - Chapter 09 #25

108. Obligations due to be paid within one year or within the company's operating cycle, whichever is longer, are:

A. Current assets

B. Current liabilities

C. Earned revenues

D. Operating cycle liabilities

E. Bills

AACSB: Analytic




Difficulty: EasyLearning Objective: C1 Describe current and long-term liabilities and their characteristics.


109. If the times interest ratio:

A. Increases, then risk increases

B. Increases, then risk decreases

C. Is greater than 1.5, then the company is in default

D. Is less than 1.5, the company is carrying too little debt

E. Is greater than 1.5, the company is likely carrying too much debt

AACSB: Analytic



AICPA FN: ReportingAICPA FN: Risk Analysis

Blooms: EvaluateDifficulty: Hard


110. The amount of federal income taxes withheld from an employee's paycheck is determined by:

A. The employee's annual earnings rate and number of withholding allowances

B. The employer's merit rating

C. The amount of social security taxes

D. Multiplying the gross pay by 6.2%

E. The employee's credit rating

AACSB: Analytic




Difficulty: MediumLearning Objective: P2 Compute and record employee payroll deductions and liabilities.


111. The Wage and Tax Statement is:

A. Form 940

B. Form 941

C. Form 1040

D. Form W-2

E. Form W-4

AACSB: Analytic




Difficulty: MediumLearning Objective: P5 Appendix 9A-Identify and describe the details of payroll reports; records; and procedures.


112. If a company had net income of $2,379,600, interest expense of 234,000, a tax rate of 40%, and operating income of 4,200,000, what would the times interest earned ratio be for the company?

A. 10.17

B. 17.95

C. 7.78

D. 7.18

E. 4.07

4,200,000/234,000 = 17.95

AACSB: Analytic


AICPA BB: IndustryAICPA BB: Reporting


Blooms: ApplyDifficulty: Hard


113. Identify and discuss the factors involved in computing federal income taxes for employees.

The amount of federal income tax withheld for each employee depends on (1) an employee's earnings level and (2) the number of withholding allowances claimed by the employee. This amount can be determined by using a wage bracket withholding table.

AACSB: Analytic




Difficulty: HardLearning Objective: P5 Appendix 9A-Identify and describe the details of payroll reports; records; and procedures.


114. A company borrowed $60,000 on a 60-day, 10% note payable from its bank. Compute the total cash payment at the note's maturity.

At maturity: $60,000 + $(60,000 x .1 x 60/360) = $61,000

AACSB: Analytic




Difficulty: MediumLearning Objective: P1 Prepare entries to account for short-term notes payable.


115. The difference between the amount borrowed and the amount repaid is referred to as _______________. Interest

AACSB: Analytic




Difficulty: EasyLearning Objective: P1 Prepare entries to account for short-term notes payable.


116. The carrying value of a long-term note is computed as the present value of all remaining future payments, discounted using the market rate at the time of issuance. TRUE

AACSB: Analytic




Difficulty: HardLearning Objective: C1 Explain the types and payment patterns of notes.


117. A basic present value concept is that cash received in the future is worth more value than the same amount of cash received today. FALSE

AACSB: Analytic




Difficulty: EasyLearning Objective: C2 Appendix 10A-Explain and compute the present value of an amount(s) to be paid at a future date(s).


118. A bond's par value is not necessarily the same as its market value. TRUE

AACSB: Analytic




Difficulty: HardLearning Objective: A2 Assess debt features and their implications.


119. The effective interest method yields increasing amounts of bond interest expense and decreasing amount of premium amortization over the life of the bond. FALSE

AACSB: Analytic




Difficulty: MediumLearning Objective: P3 Compute and record amortization of bond premium.


120. The contract between the bond issuer and the bondholders, which identifies the rights and obligations of the parties is called a(n):

A. Debenture

B. Bond indenture

C. Mortgage

D. Installment note

E. Mortgage contract

AACSB: Analytic




Difficulty: MediumLearning Objective: A2 Assess debt features and their implications.


121. Amortizing a bond discount:

A. Allocates a part of the total discount to each interest period

B. Increases the market value of the Bonds Payable

C. Decreases the Bonds Payable account

D. Decreases interest expense each period

E. Increases cash flows from the bond

AACSB: Analytic




Difficulty: EasyLearning Objective: P2 Compute and record amortization of bond discount.


122. On January 1, 2010, Merrill Company borrowed $100,000 on a 10-year, 7% installment note payable. The terms of the note require Merrill to pay 10 equal payments of $14,238 each December 31 for 10 years. The required general journal entry to record the first payment on the note on December 31, 2010 is:

A.

B.

C.

D.

E.

AACSB: Analytic




Difficulty: MediumLearning Objective: P5 Prepare entries to account for notes.


123. On June 1, a company issued $200,000 of 12% bonds at their par value plus accrued interest. The interest on these bonds is payable semiannually on January 1 and July 1. Prepare the issuer's journal entry to record the bond issuance of June 1.

Interest payable: $200,000 x 12% x 5/12 year = $10,000

AACSB: Analytic




Difficulty: MediumLearning Objective: P1 Prepare entries to record bond issuance and interest expense.


124. A company issued 10-year, 9% bonds with a par value of $500,000 when the market rate was 9.5%. The company received $484,087 in cash proceeds. Using the straight-line method, prepare the issuer's journal entry to record the first semiannual interest payment and the amortization of any bond discount or premium.

Cash payment: $500,000 x 9% x ½ year = $22,500Discount amortized: ($500,000 - $484,087)/20 semiannual periods = $795.65Interest expense: $22,500 + $795.65 = $23,295.65

AACSB: Analytic




Difficulty: MediumLearning Objective: P2 Compute and record amortization of bond discount.


125. On January 1, 2010, Silver issues $300,000 of 12%, 20-year bonds at a price of 96½. What is the total bond interest expense that will be recognized over the life of the bond?

730,500

Feedback: Cash Interest Payments: 300,000*.12*20 = 720,000 plus discount 10,500 = $730,500

AACSB: Analytic




Difficulty: HardLearning Objective: P1 Prepare entries to record bond issuance and interest expense.

Learning Objective: P2 Compute and record amortization of bond discount.Wild - Chapter 10 #160

126. A stock option is also called a stock dividend. FALSE

AACSB: Analytic




Difficulty: EasyLearning Objective: A1 Compute earnings per share and describe its use.


127. The total amount of cash and other assets received by a corporation from its stockholders in exchange for common stock is:

A. Always equal to its par value

B. Always equal to its stated value

C. Referred to as contributed capital

D. Referred to as retained earnings

E. Always below its stated value

AACSB: Analytic




Difficulty: MediumLearning Objective: C2 Explain characteristics of; and distribute dividends between; common and preferred stock.


128. A corporation's minimum legal capital is often defined to be the total par value of the shares:

A. Issued

B. Authorized

C. Subscribed

D. Outstanding

E. In treasury

AACSB: Analytic



AICPA BB: Resource ManagementAICPA FN: Measurement


Difficulty: Hard

Learning Objective: C2 Explain characteristics of; and distribute dividends between; common and preferred stock.Wild - Chapter 11 #27

129. A company has 200,000 shares of $1 par value common stock and 20,000 shares of 7%, $100 par, cumulative preferred stock outstanding. The balance in Retained Earnings account at the beginning of the year was $1,500,000 and one year's dividends were in arrears. Net income for the current year was $2,000,000. If the company paid a dividend of $3 per share on its common stock, what is the balance in Retained Earnings account at the end of the year?

A. $3,500,000

B. $2,900,000

C. $2,760,000

D. $2,620,000

E. $620,000

AACSB: Analytic




Difficulty: HardLearning Objective: C2 Explain characteristics of; and distribute dividends between; common and preferred stock.


130. What is an extraordinary gain or loss? How is it presented on a complete income statement? Be sure to include examples of extraordinary items.

An extraordinary gain or loss is one that is both unusual and infrequent. It is presented on a complete income statement in a separate category after income from continuing operations. Some examples of extraordinary items are: expropriation of property by a foreign government, condemning of property by a domestic government body, prohibition against using an asset by a newly enacted law and losses and gains from an unusual and infrequent calamity ("act of God").

AACSB: Analytic






131. During the current year, Quark Company earned $90,000 in income and paid cash dividends of $10,000 to preferred shareholders. Quark had 12,500 weighted-average shares of common stock outstanding for the year. Calculate the company's earnings per share.

($90,000 - $10,000)/12,500 shares = $6.40

AACSB: Analytic




Difficulty: EasyLearning Objective: A1 Compute earnings per share and describe its use.


132. A company reported net income of $850,000 for the current year. The year-end market price per common share was $12 and there were 425,000 weighted-average shares of common stock outstanding. Calculate the company's price-earnings ratio.

$12/($850,000/425,000 shares) = 6

AACSB: Analytic




Difficulty: EasyLearning Objective: A2 Compute price earnings ratio and describe its use in analysis.


133. A company reported $990,000 in net income for the current year. Total weighted-average number of common shares outstanding is equal to 150,000 shares and the year-end market price is $79.20 per common share. Calculate the company's price earnings ratio.

$79.20/($990,000/150,000 shares) = 12.0

AACSB: Analytic




Difficulty: MediumLearning Objective: A2 Compute price earnings ratio and describe its use in analysis.


134. A corporation had stockholders' equity on January 1 as follows: Common Stock, $5 par value, 1,000,000 shares authorized, 500,000 shares issued; Contributed Capital in Excess of Par Value, Common Stock, $1,000,000; Retained Earnings, $3,000,000. Prepare journal entries to record the following transactions:

AACSB: Analytic






135. A company had the following stockholders' equity on January 1:

On January 10, the company declared a 40% stock dividend to holders of record on January 25, to be distributed January 31. The market value of the stock on January 10 prior to the dividend was $20 per share. What is the book value per common share on February 1?

Total stockholders' equity does not change; however, the number of shares outstanding is now 400,000 shares + (400,000 shares x .40) = 560,000 shares.Book value per share = $1,064,000/560,000 shares = $1.90 per common share

AACSB: Analytic




Difficulty: HardLearning Objective: C2 Explain characteristics of; and distribute dividends between; common and preferred stock.


136. To be classified as a cash equivalent, an investment must be readily convertible to an unknown amount of cash, because the market value may be affected by interest rate changes. FALSE

AACSB: Analytic




Difficulty: MediumLearning Objective: C1 Distinguish between operating; investing; and financing activities; and describe how noncash investing and

financing activities are disclosed.Wild - Chapter 12 #3

137. Accounting standards require that the statement of cash flows be included in a complete set of financial statements. TRUE

AACSB: Analytic




Difficulty: EasyLearning Objective: C1 Distinguish between operating; investing; and financing activities; and describe how noncash investing and


138. An investment that is readily convertible to a known amount of cash and that is sufficiently close to its maturity date so that its market value is relatively insensitive to interest rate changes is a(n):

A. Short-term marketable equity security

B. Operating activity

C. Common stock

D. Cash equivalent

E. Financing activity

AACSB: Analytic




Difficulty: MediumLearning Objective: C1 Distinguish between operating; investing; and financing activities; and describe how noncash investing and


139. Cash flows from selling trading securities are reported in the statement of cash flows as part of:

A. Operating activities

B. Financing activities

C. Investing activities

D. Noncash activities

E. None of these as this is not reported in the statement of cash flows

AACSB: Analytic




Difficulty: HardLearning Objective: C1 Distinguish between operating; investing; and financing activities; and describe how noncash investing and


140. If a company borrows money from a bank, the interest paid on this loan should be reported on the statement of cash flows as a(n):

A. Operating activity.

B. Investing activity.

C. Financing activity.

D. Noncash investing and financing activity.

E. None of these. This is not reported in the statement of cash flows.

AACSB: Analytic




Difficulty: MediumLearning Objective: P1 Prepare a statement of cash flows.


141. Assume the following information was available for the current year's operations of Jungle Jim's International Market. Use these data to calculate the cash paid for merchandise.

A. $218,000

B. $223,200

C. $220,000

D. $228,800

E. $234,000

Increase in inventory: $57,400 - $54,800 = $2,600Increase in Accounts Payable: $59,800 - $54,400 = $5,400Cash paid for merchandise: $226,000 + $2,600 - $5,400 = $223,200

AACSB: Analytic




Difficulty: HardLearning Objective: P2 Compute cash flows from operating activities using the indirect method.


142. Accounting standards require that the statement of cash flows be included in a complete set of financial statements. TRUE

AACSB: Analytic






143. A cash based measure that is used to help business decision makers estimate the amount and timing of cash flows is the cash flow on total assets ratio. TRUE

AACSB: Analytic




Difficulty: HardLearning Objective: A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio.


144. When preparing the operating section of the statement of cash flows using the indirect method, non-operating gains are added back to net income. FALSE

AACSB: Analytic




Difficulty: MediumLearning Objective: P2 Compute cash flows from operating activities using the indirect method.


145. Equipment costing $100,000 with accumulated depreciation of $40,000 is sold at a loss of $10,000. This implies that $40,000 cash was received from the sale. FALSE

AACSB: Analytic




Difficulty: HardLearning Objective: P3 Determine cash flows from both investing and financing activities.


146. A company had total assets of $1,760,000, total cash flows of $1,320,000 and cash flows from operations of $205,000. The cash flow on total assets ratio is equal to:

A. 1.33%

B. 8.58%

C. 11.65%

D. 15.5%

E. 75%

$205,000/$1,760,000 = 11.65%

AACSB: Analytic




Difficulty: MediumLearning Objective: A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio.


147. A company's cash flow on total assets ratio equals 16%. If average total assets equal $2,937,500 and total cash flows equal $600,000, what is the amount of cash flows from operations?

A. $18,359,375

B. $600,000

C. $470,000

D. $96,000

E. $566,000

$2,937,500 x .16 = $470,000

AACSB: Analytic




Difficulty: HardLearning Objective: A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio.


148. If a company borrows money from a bank, the interest paid on this loan should be reported on the statement of cash flows as a(n):

A. Operating activity.

B. Investing activity.

C. Financing activity.

D. Noncash investing and financing activity.

E. None of these. This is not reported in the statement of cash flows.

AACSB: Analytic




Difficulty: MediumLearning Objective: P1 Prepare a statement of cash flows.


149. Use the following information to calculate cash paid for wages and salaries:

A. $157,400

B. $163,800

C. $168,000

D. $172,200

E. $174,400

Increase in Salaries Payable: $10,600 - $6,400 = $4,200Cash paid for salaries: $168,000 - $4,200 = $163,800

AACSB: Analytic




Difficulty: MediumLearning Objective: P2 Compute cash flows from operating activities using the indirect method.


150. Kodak reported assets of $13,362 million at January 1 and $13,369 million as of December 31 of the current year. Kodak's net cash flows from operations was $2,204 million. Calculate Kodak's cash flow on total assets ratio.

$2,204/[($13,362 + $13,369)/2] = 16.5%

AACSB: Analytic



AICPA FN: Reporting


Learning Objective: A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio.Wild - Chapter 12 #140

151. _____________ activities include the cash effects of transactions and events that determine net income. Operating

AACSB: Analytic






Final Test Financial Accounting

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