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: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Easy
Learning 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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Easy
Learning Objective: C4 Explain generally accepted accounting principles and define and apply several accounting principles
Wild - Chapter 01 #65
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: Hard
Learning Objective: C4 Explain generally accepted accounting principles and define and apply several accounting principles
Wild - Chapter 01 #95
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Hard
Learning Objective: C4 Explain generally accepted accounting principles and define and apply several accounting principles
Wild - Chapter 01 #96
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Easy
Learning Objective: A1 Define and interpret the accounting equation and each of its components.
Wild - Chapter 01 #109
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Easy
Learning Objective: A1 Define and interpret the accounting equation and each of its components.
Wild - Chapter 01 #113
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Medium
Learning Objective: A1 Define and interpret the accounting equation and each of its components.
Wild - Chapter 01 #116
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Medium
Learning Objective: A1 Define and interpret the accounting equation and each of its components.
Wild - Chapter 01 #121
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Medium
Learning Objective: A1 Define and interpret the accounting equation and each of its components.
Wild - Chapter 01 #123
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning Objective: A2 Compute and interpret return on assets.
Wild - Chapter 01 #133
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 Equity
Change in Assets = $75,000 + (-$30,000) = + $45,000
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Hard
Learning Objective: A2 Compute and interpret return on assets.
Wild - Chapter 01 #136
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Hard
Learning Objective: A3 Appendix 1A-Explain the relation between return and risk.
Wild - Chapter 01 #144
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: 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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Medium
Learning Objective: P1 Analyze business transactions using the accounting equation
Wild - Chapter 01 #154
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: Hard
Learning Objective: P1 Analyze business transactions using the accounting equation
Wild - Chapter 01 #169
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning Objective: P1 Analyze business transactions using the accounting equation
Wild - Chapter 01 #177
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning Objective: P1 Analyze business transactions using the accounting equation
Wild - Chapter 01 #184
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning Objective: P1 Analyze business transactions using the accounting equation
Wild - Chapter 01 #185
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning Objective: P1 Analyze business transactions using the accounting equation
Wild - Chapter 01 #186
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning Objective: P1 Analyze business transactions using the accounting equation
Wild - Chapter 01 #191
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Easy
Learning Objective: C1 Explain the steps in processing transactions and the role of source documents.
Wild - Chapter 02 #60
22.
Source documents include all of the following except:
A. Sales tickets
B. Ledgers
C. Checks
D. Purchase orders
E. Bank statements
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Medium
Learning Objective: C2 Describe an account and its use in recording transactions.
Wild - Chapter 02 #63
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: Medium
Learning Objective: C2 Describe an account and its use in recording transactions.
Wild - Chapter 02 #70
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Medium
Learning Objective: C2 Describe an account and its use in recording transactions.
Wild - Chapter 02 #72
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Medium
Learning Objective: C2 Describe an account and its use in recording transactions.
Wild - Chapter 02 #74
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Hard
Learning Objective: C3 Describe a ledger and a chart of accounts.
Wild - Chapter 02 #78
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: Medium
Learning Objective: C4 Define debits and credits and explain double-entry accounting.
Wild - Chapter 02 #82
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Medium
Learning Objective: C4 Define debits and credits and explain double-entry accounting.
Wild - Chapter 02 #88
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: Medium
Learning Objective: A1 Analyze the impact of transactions on accounts and financial statements.
Wild - Chapter 02 #95
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: Hard
Learning Objective: A1 Analyze the impact of transactions on accounts and financial statements.
Wild - Chapter 02 #96
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Hard
Learning Objective: A1 Analyze the impact of transactions on accounts and financial statements.
Wild - Chapter 02 #98
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Hard
Learning Objective: A1 Analyze the impact of transactions on accounts and financial statements.
Wild - Chapter 02 #99
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: Hard
Learning Objective: A1 Analyze the impact of transactions on accounts and financial statements.
Wild - Chapter 02 #101
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 Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: 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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Medium
Learning Objective: A2 Compute the debt ratio and describe its use in analyzing financial condition.
Wild - Chapter 02 #108
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning Objective: A2 Compute the debt ratio and describe its use in analyzing financial condition.
Wild - Chapter 02 #110
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Hard
Learning Objective: P3 Prepare financial statements from business transactions
Wild - 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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Hard
Learning Objective: P1 Record transactions in a journal and post entries to a ledger.
Wild - Chapter 02 #138
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Hard
Learning Objective: P1 Record transactions in a journal and post entries to a ledger.
Wild - Chapter 02 #143
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Hard
Learning Objective: A1 Analyze the impact of transactions on accounts and financial statements.
Wild - Chapter 02 #146
41.
The cash basis of accounting requires that revenues be recognized when cash payments from
customers are received.
TRUE
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
AICPA FN: Research
Blooms: Understand
Difficulty: Medium
Learning Objective: C2 Explain accrual accounting and how it improves financial statements.
Wild - Chapter 03 #14
42.
The accrual basis of accounting is an accounting system in which revenues are reported as
earned when cash is received.
FALSE
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
AICPA FN: Research
Blooms: Understand
Difficulty: Medium
Learning Objective: C2 Explain accrual accounting and how it improves financial statements.
Wild - Chapter 03 #15
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
AICPA FN: Research
Blooms: Analyze
Difficulty: Hard
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
AICPA FN: Research
Blooms: Understand
Difficulty: Hard
Learning Objective: C2 Explain accrual accounting and how it improves financial statements.
Wild - Chapter 03 #20
45.
Before an adjusting entry is made to accrue employee salaries, Salaries Expense and Salaries
Payable are both understated.
TRUE
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
AICPA FN: Research
Blooms: Analyze
Difficulty: 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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
AICPA FN: Research
Blooms: Remember
Difficulty: Easy
Learning Objective: A3 Compute the current ratio and describe what it reveals about a companys financial condition.
Wild - Chapter 03 #35
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
AICPA FN: Research
Blooms: Apply
Difficulty: 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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
AICPA FN: Research
Blooms: Remember
Difficulty: Medium
Learning Objective: P1 Prepare and explain adjusting entries.
Wild - Chapter 03 #101
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
AICPA FN: Research
Blooms: Analyze
Difficulty: Medium
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
AICPA FN: Research
Blooms: Analyze
Difficulty: Medium
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
AICPA FN: Research
Blooms: Remember
Difficulty: Easy
Learning Objective: P2 Explain and prepare an adjusted trial balance.
Wild - Chapter 03 #127
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:
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
AICPA FN: Research
Blooms: Analyze
Difficulty: Hard
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
AICPA FN: Research
Blooms: Analyze
Difficulty: Medium
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Medium
Learning Objective: C3 Identify steps in the accounting cycle.
Wild - Chapter 03 #181
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: Communications
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Decision Making
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Medium
Learning Objective: P4 Describe and prepare closing entries.
Wild - Chapter 03 #191
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
AACSB: Communications
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Decision Making
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Medium
Learning Objective: P5 Explain and prepare a post-closing trial balance.
Wild - Chapter 03 #192
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: Medium
Learning Objective: P1 Prepare and explain adjusting entries.
Wild - Chapter 03 #214
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning Objective: P1 Prepare and explain adjusting entries.
Wild - Chapter 03 #220
59.
Accrual accounting and the adjusting process rely on two principles: the ___________________
principle and the ________________________ principle.
Revenue recognition; matching
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Medium
Learning Objective: C2 Explain accrual accounting and how it improves financial statements.
Wild - Chapter 03 #252
60.
__________________ expenses are those costs that are incurred in a period but are both
unpaid and unrecorded.
Accrued
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Easy
Learning Objective: P1 Prepare and explain adjusting entries.
Wild - Chapter 03 #263
61.
Gross profit is the same as gross margin.
TRUE
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Easy
Learning Objective: C1 Describe merchandising activities and identify income components for a merchandising company.
Wild - Chapter 04 #3
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: Medium
Learning Objective: A1 Compute the acid-test ratio and explain its use to assess liquidity.
Wild - Chapter 04 #22
63.
The gross margin ratio is defined as gross margin divided by net sales.
TRUE
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Easy
Learning Objective: A2 Compute the gross margin ratio and explain its use to assess profitability.
Wild - Chapter 04 #25
64.
Cost of goods sold is reported on both the income statement and the balance sheet.
FALSE
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning Objective: A1 Compute the acid-test ratio and explain its use to assess liquidity.
Wild - Chapter 04 #77
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Medium
Learning Objective: P2 Analyze and record transactions for merchandise sales using a perpetual system.
Wild - Chapter 04 #97
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Medium
Learning Objective: A1 Compute the acid-test ratio and explain its use to assess liquidity.
Wild - Chapter 04 #125
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Hard
Learning Objective: A2 Compute the gross margin ratio and explain its use to assess profitability.
Wild - Chapter 04 #151
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Easy
Learning Objective: P2 Analyze and record transactions for merchandise sales using a perpetual system.
Wild - Chapter 04 #189
70.
When a company has no reportable non-operating activities, its income from operations is
reported as ___________________.
Net income
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Medium
Learning Objective: P4 Define and prepare multiple-step and single-step income statements.
Wild - Chapter 04 #198
71.
Neither GAAP nor IFRS allow inventory to be adjusted upward beyond the original cost.
TRUE
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Global
AICPA BB: Industry
AICPA FN: Decision Making
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Hard
Learning Objective: A2 Analyze the effects of inventory errors on current and future financial statements.
Wild - Chapter 05 #29
72.
The reliability of the gross profit method depends on a good estimate of the gross profit ratio.
TRUE
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Decision Making
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Easy
Learning Objective: P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory.
Wild - Chapter 05 #63
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Decision Making
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning Objective: P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average.
Wild - Chapter 05 #97
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Decision Making
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Hard
Learning Objective: P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average.
Wild - Chapter 05 #111
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Decision Making
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
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 $4.50
Part B: 75 units with a cost of $6 and replacement cost of $6.50
Part C: 160 units with a cost of $3 and replacement cost of $2.50
Under 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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Decision Making
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Hard
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Decision Making
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
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: Communications
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Decision Making
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Hard
Learning Objective: A1 Analyze the effects of inventory methods for both financial and tax reporting.
Wild - Chapter 05 #143
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning 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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Create
Difficulty: Medium
Learning 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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Resource Management
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Easy
Learning Objective: C2 Define cash and cash equivalents and explain how to report them.
Wild - Chapter 06 #18
82.
Money orders, cashier's checks and certified checks are examples of cash equivalents.
FALSE
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Medium
Learning Objective: C2 Define cash and cash equivalents and explain how to report them.
Wild - Chapter 06 #21
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Resource Management
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Easy
Learning Objective: P1 Apply internal control to cash receipts and disbursements.
Wild - Chapter 06 #98
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Resource Management
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: 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
3. Currency, coins and amounts on deposit in
bank checking and many savings accounts
Cash 3
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
Outstanding
8. The buyer or purchaser of goods or services
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
Check 5
terms of sale
10. The seller of goods or services
Vendor 10
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Resource Management
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Medium
Learning 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.
Wild - Chapter 06 #145
86.
If a customer owes interest on accounts receivable, the Interest Revenue account is debited
and Accounts Receivable is credited.
FALSE
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: Medium
Learning Objective: C1 Describe accounts receivable and how they occur and are recorded.
Wild - Chapter 07 #4
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Medium
Learning Objective: C2 Describe a note receivable; the computation of its maturity date; and the recording of its existence.
Wild - Chapter 07 #11
88.
The person that borrows money and signs a promissory note is referred to as the payee.
FALSE
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Medium
Learning Objective: C2 Describe a note receivable; the computation of its maturity date; and the recording of its existence.
Wild - Chapter 07 #12
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Hard
Learning Objective: A1 Compute accounts receivable turnover and use it to help assess financial condition.
Wild - Chapter 07 #24
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: Medium
Learning Objective: P1 Apply the direct write-off method to account for accounts receivable.
Wild - Chapter 07 #36
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: Communications
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Medium
Learning Objective: P2 Apply the allowance method and estimate uncollectibles based on sales and accounts receivable.
Wild - Chapter 07 #43
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 Expense
Net amount + $27,000 - $945 = $26,055
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Create
Difficulty: Medium
Learning Objective: C1 Describe accounts receivable and how they occur and are recorded.
Wild - Chapter 07 #127
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Global
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Create
Difficulty: 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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Easy
Learning Objective: C2 Describe a note receivable; the computation of its maturity date; and the recording of its existence.
Wild - Chapter 07 #162
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Medium
Learning Objective: P1 Apply the direct write-off method to account for accounts receivable.
Wild - Chapter 07 #165
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Hard
Learning Objective: P2 Account for asset disposal through discarding or selling an asset.
Wild - Chapter 08 #28
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Easy
Learning Objective: C2 Explain depreciation for partial years and changes in estimates.
Wild - Chapter 08 #80
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-decliningbalance method is used?
1. [($40,000 - $2,200)/6] x 3/12 = $1,575
2. (100%/6) x 2 = 33.33%
$40,000 x 33.33% x 3/12 = $3,333.33
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning Objective: C3 Distinguish between revenue and capital expenditures; and account for them.
Wild - Chapter 08 #130
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning Objective: C1 Explain the cost principle for computing the cost of plant assets.
Wild - Chapter 08 #154
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
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 tradein allowance, a $12,500 trade-in allowance was received and the balance of $27,500 was paid
in cash.
1.
2.
Calculation:
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Create
Difficulty: Medium
Learning Objective: P5 Appendix 8A-Account for asset exchanges.
Wild - Chapter 08 #188
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Medium
Learning Objective: C1 Explain the cost principle for computing the cost of plant assets.
Wild - Chapter 08 #190
104.
The formula for calculating total asset turnover is
_______________________________________.
Net sales divided by average total assets
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Medium
Learning Objective: A1 Compute total asset turnover and apply it to analyze a companys use of assets.
Wild - Chapter 08 #198
105.
______________________ are costs that increase the usefulness of land, but have limited
useful lives and are thus depreciated.
Land improvements
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Easy
Learning Objective: C1 Explain the cost principle for computing the cost of plant assets.
Wild - Chapter 08 #199
106.
A contingent liability is a potential obligation that depends on a future event arising from a
future transaction or event.
FALSE
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Easy
Learning Objective: C3 Explain how to account for contingent liabilities.
Wild - Chapter 09 #13
107.
When the times interest earned ratio declines, the likelihood of default on liabilities increases.
TRUE
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
AICPA FN: Risk Analysis
Blooms: Understand
Difficulty: 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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Easy
Learning Objective: C1 Describe current and long-term liabilities and their characteristics.
Wild - Chapter 09 #57
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
AACSB: Communications
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
AICPA FN: Risk Analysis
Blooms: Evaluate
Difficulty: Hard
Learning Objective: A1 Compute the times interest earned ratio and use it to analyze liabilities.
Wild - Chapter 09 #72
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Medium
Learning Objective: P2 Compute and record employee payroll deductions and liabilities.
Wild - Chapter 09 #83
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Medium
Learning Objective: P5 Appendix 9A-Identify and describe the details of payroll reports; records; and procedures.
Wild - Chapter 09 #101
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Reporting
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: Hard
Learning Objective: A1 Compute the times interest earned ratio and use it to analyze liabilities.
Wild - Chapter 09 #122
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Hard
Learning Objective: P5 Appendix 9A-Identify and describe the details of payroll reports; records; and procedures.
Wild - Chapter 09 #138
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning Objective: P1 Prepare entries to account for short-term notes payable.
Wild - Chapter 09 #150
115.
The difference between the amount borrowed and the amount repaid is referred to as
_______________.
Interest
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Easy
Learning Objective: P1 Prepare entries to account for short-term notes payable.
Wild - Chapter 09 #179
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Hard
Learning Objective: C1 Explain the types and payment patterns of notes.
Wild - Chapter 10 #5
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Easy
Learning Objective: C2 Appendix 10A-Explain and compute the present value of an amount(s) to be paid at a future date(s).
Wild - Chapter 10 #7
118.
A bond's par value is not necessarily the same as its market value.
TRUE
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Hard
Learning Objective: A2 Assess debt features and their implications.
Wild - Chapter 10 #23
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Medium
Learning Objective: P3 Compute and record amortization of bond premium.
Wild - Chapter 10 #30
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Medium
Learning Objective: A2 Assess debt features and their implications.
Wild - Chapter 10 #54
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Easy
Learning Objective: P2 Compute and record amortization of bond discount.
Wild - Chapter 10 #63
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning Objective: P5 Prepare entries to account for notes.
Wild - Chapter 10 #91
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Create
Difficulty: Medium
Learning Objective: P1 Prepare entries to record bond issuance and interest expense.
Wild - Chapter 10 #132
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 = $22,500
Discount amortized: ($500,000 - $484,087)/20 semiannual periods = $795.65
Interest expense: $22,500 + $795.65 = $23,295.65
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Create
Difficulty: Medium
Learning Objective: P2 Compute and record amortization of bond discount.
Wild - Chapter 10 #137
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Hard
Learning 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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Easy
Learning Objective: A1 Compute earnings per share and describe its use.
Wild - Chapter 11 #8
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Resource Management
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Medium
Learning Objective: C2 Explain characteristics of; and distribute dividends between; common and preferred stock.
Wild - Chapter 11 #23
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA BB: Resource Management
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Hard
Learning Objective: C2 Explain characteristics of; and distribute dividends between; common and preferred stock.
Wild - Chapter 11 #89
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: Medium
Learning Objective: C2 Explain characteristics of; and distribute dividends between; common and preferred stock.
Wild - Chapter 11 #118
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Easy
Learning Objective: A1 Compute earnings per share and describe its use.
Wild - Chapter 11 #138
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Easy
Learning Objective: A2 Compute price earnings ratio and describe its use in analysis.
Wild - Chapter 11 #142
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning Objective: A2 Compute price earnings ratio and describe its use in analysis.
Wild - Chapter 11 #143
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Create
Difficulty: Medium
Learning Objective: C2 Explain characteristics of; and distribute dividends between; common and preferred stock.
Wild - Chapter 11 #165
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Hard
Learning Objective: C2 Explain characteristics of; and distribute dividends between; common and preferred stock.
Wild - Chapter 11 #167
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Medium
Learning 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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Easy
Learning Objective: C1 Distinguish between operating; investing; and financing activities; and describe how noncash investing and financing activities
are disclosed.
Wild - Chapter 12 #17
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Medium
Learning Objective: C1 Distinguish between operating; investing; and financing activities; and describe how noncash investing and financing activities
are disclosed.
Wild - Chapter 12 #57
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: Hard
Learning Objective: C1 Distinguish between operating; investing; and financing activities; and describe how noncash investing and financing activities
are disclosed.
Wild - Chapter 12 #65
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: Medium
Learning Objective: P1 Prepare a statement of cash flows.
Wild - Chapter 12 #84
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 = $2,600
Increase in Accounts Payable: $59,800 - $54,400 = $5,400
Cash paid for merchandise: $226,000 + $2,600 - $5,400 = $223,200
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Hard
Learning Objective: P2 Compute cash flows from operating activities using the indirect method.
Wild - Chapter 12 #90
142.
Accounting standards require that the statement of cash flows be included in a complete set of
financial statements.
TRUE
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Easy
Learning Objective: C1 Distinguish between operating; investing; and financing activities; and describe how noncash investing and financing activities
are disclosed.
Wild - Chapter 12 #17
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Understand
Difficulty: Hard
Learning Objective: A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio.
Wild - Chapter 12 #22
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: Medium
Learning Objective: P2 Compute cash flows from operating activities using the indirect method.
Wild - Chapter 12 #40
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Hard
Learning Objective: P3 Determine cash flows from both investing and financing activities.
Wild - Chapter 12 #47
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning Objective: A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio.
Wild - Chapter 12 #74
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Hard
Learning Objective: A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio.
Wild - Chapter 12 #78
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Apply
Difficulty: Medium
Learning Objective: P1 Prepare a statement of cash flows.
Wild - Chapter 12 #84
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 = $4,200
Cash paid for salaries: $168,000 - $4,200 = $163,800
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
Learning Objective: P2 Compute cash flows from operating activities using the indirect method.
Wild - Chapter 12 #86
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Difficulty: Medium
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
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Remember
Difficulty: Easy
Learning Objective: C1 Distinguish between operating; investing; and financing activities; and describe how noncash investing and financing activities
are disclosed.
Wild - Chapter 12 #168