Questions and Answers of Financial Accounting 13th Edition

A measure of the company’s ability to pay its current liabilities is:A. Current ratio B. Acid-test ratio C. Both of the above D. None of the above
In vertical analysis, the base amount for comparison on each income statement item is:A. Net sales B. Sales C. Gross profit D. Net income
What is Berry Company’s times interest earned ratio?A. 93.8 B. 18.8 C. 5.6 D. 6.625
What is Berry Company’s debt/equity ratio?A. 1.0 B. 2.33 C. 7.0 D. None of the above
Using the information in question 95, what would be the average collection period?A. 60.8 days B. 73 days C. 50 days D. None of the above
The Berry Company reported the following data:What is the accounts receivable turnover for 2010?A. .167 times B. 6 times C. 5 times D. None of the above Average accounts receivable Net credit sales
The most extreme measure of liquidity is:A. Current ratio B. Accounts receivable turnover C. Working capital D. Acid-test ratio
Which of the following is a solvency ratio?A. Total liabilities to total stockholders’ equity B. Price/earnings ratio C. Inventory turnover D. Accounts receivable turnover
Which of the following would not be reported on the statement of cash flows?A. Dividends paid in cash B. A two-for-one stock split C. A sale of bonds at a discount D. Increase in taxes payable
Which of the following transactions would increase the net cash flow from operating activities?A. The collection of a short-term notes payable from a customer B. The issuance of a bond at a premium
(True or false?) The amount of net cash flow under operating activities will be the same under both the direct method and the indirect method.
How much net cash came from financing activities?A. $63,200 B. $50,000 C. $64,000 D. $14,000
How much net cash came from investing activities?A. $64,000 B. $50,000 C. $(50,000)D. $(40,000) Purchase of insurance Cash proceeds from loan $10,000 14,000 Cash paid on interest 800 Cash collected
How much net cash came from operating activities?A. $33,800 B. $33,000 C. $(7,000)D. $53,000 Purchase of insurance Cash proceeds from loan $10,000 14,000 Cash paid on interest 800 Cash collected from
(True or false?) Payment of dividends is classified as a financing activity.
In defining cash and cash equivalents, which of the following is not considered a cash equivalent?A. A NIKE bond B. Treasury bills C. Money market fund D. Commercial paper
The two major components of shareholders’ equity are:A. Contributed capital and additional paid-in capital.B. Preferred stock and common stock.C. Contributed capital and retained earnings.D. Common
A company issued shares it owned in a subsidiary as a regular property dividend. Which of the following is not true?A. Retained Earnings would be decreased by the fair value of the asset.B. Property
(True or false?) Subscribed stock means that a stock has been sold with a down payment, is unissued, and the remainder is due to be paid later.
A company issued 20,000 shares of preferred stock with a par value of$100 for $105. Which of the following entries would not be made?A. Credit Preferred Stock for $2,000,000.B. Credit Additional
A company declared a three-for-two stock split. Which of the follow is correct?A. Common Stock would be credited for the number of shares issued times the market price at the date of payment.B.
A company that held 10,000 shares of treasury stock that cost $12 per share reissued the shares for $15 each. Which of the following is incorrect?A. Debit Cash for $150,000.B. Credit to Treasury
Which of the following is not a major advantage of a corporation?A. Subject to governmental regulations B. Indefinite life C. Ownership is easily transferred D. Separate legal existence from the
(True or false?) A feature of common stock is the right to participate in the management of the corporation.
Assume that on January 1, 2010 a company issues $20,000 of bonds due in five years with a stated rate of interest of 7 percent when the market(effective) rate of interest is 6 percent. Also assume
A liability is current if it is due within one year or the company’s operating cycle, whichever is:A. Longer B. Shorter C. Comes due first D. Probable
Employers do not make deductions from employees’ paychecks for:A. Social security taxes B. Federal income taxes C. Employees’ union dues D. Federal unemployment taxes
On January 1, 2010, the XYZ Company issued bonds maturing in 10 years with a face value of $100,000 and a stated rate of 10 percent. XYZ received $96,000 in cash proceeds from the sale. How much cash
The carrying value of a bond under the effective interest method is:A. Face value minus any interest paid B. Face value minus actual interest expense C. Face value D. Face value less any discount or
A two-year, $5,000 note is signed in return for the purchase of a piece of equipment. The interest rate on the note is 5 percent, but the market rate of interest is 6 percent. How much interest will
A bond will sell at a premium when the:A. Stated rate is higher than the effective (market) rate B. Effective (market) rate is higher than the stated rate C. Stated rate is higher than the nominal
A debenture bond is a(n):A. Term bond B. Convertible bond C. Unsecured bond D. Callable bond
Which of the following is not a trait of plant, property, and equipment?A. They are to be used in the company operations.B. They are tangible in nature.C. They are assumed to be subject to
Capitalized land costs would include all of the following except:A. Local assessment for paving B. Legal costs in closing C. Any assumption of liens and mortgages D. All of the above
XYZ Company traded in (exchanged) an old lathe for a new one. The old lathe cost $30,000 and had accumulated depreciation of $25,000. The old machine had a fair value of $10,000, because of its
XYZ Company incurred $300,000 in research and development costs to develop a patent on a new product. XYZ was immediately sued for patent infringement. One month later the case was settled in XYZ’s
XYZ Company purchased a computer system and paid the following costs:What should be recorded as the cost of the computer system?A. $45,100 B. $35,100 C. $32,100 D. None of the above Purchase price
Refer to the facts in question 61. Assume that the company uses the sumof-the-years’ digits depreciation method. What would be the second year’s depreciation expense?A. $17,273 B. $16,364 C.
Refer to the facts in question number 61. Assume that the machine will produce 300,000 units of output over its useful life. Assume further that the machine produced 28,000 units during the first
A machine used in production was acquired for $100,000, plus $5,000 to set up the machine to get it operational and $3,000 to train personnel to operate it. The asset has a useful life of 10 years
Using the lower-of-cost-or-market rule, the lower limit (floor) price for inventory valuation is the selling price less:A. The replacement cost B. A normal profit margin C. Estimated costs of
Using the LIFO perpetual inventory system, what is the ending inventory on January 21?A. $36,000 B. $24,000 C. $23,000 D. None of the above
Using the FIFO method, what is the cost of goods sold for the entire period?A. $89,000 B. $81,000 C. $81,900 D. None of the above
Using the FIFO periodic method, what is the value of the inventory at the end of the period?A. $36,000 B. $28,000 C. $35,100 D. None of the above
Using the lower-of-cost-or-market item-by-item method, what would be the inventory adjustment?A. $600 B. $0 C. $2,000 D. $2,400
Using the lower-of cost-or-market aggregate method, what would be the inventory adjustment?A. $600 B. $0 C. $2,000 D. $1,400
Assume the following accounts receivable aging schedule and the estimated uncollectible percentages of accounts receivable.Further assume that the Allowance for Doubtful Accounts has a credit balance
Refer to question 52. What would be the total cash received at the end of 90 days?A. $5,050 B. $5,075 C. $5,025 D. None of the above
A company takes a 6 percent, 90-day promissory note for the sale of product worth $5,000 on December 1, 2xxx. At the end of the accounting period on December 31, what would be the interest income
(True or false?) A company that has a warranty on the products it sells should charge the warrant expense at the time the product is returned for repair.
XYZ, Inc. uses the direct write-off method to handle uncollectible accounts.If the amount of uncollectible accounts is material, which accounting principle is XYZ violating?A. Realization B. Period
LEB Industries uses the percentage-of-sales method for determining uncollectible accounts expense. During 2009, the company had $100,000 in total sales, 80 percent of which were on account. The
XYZ Company purchased $100,000 of 10-year, 6 percent bonds at 105 with the intent of earning interest until the bonds matured. What would be the journal entry at the time of purchase?A. Debit
Which of the following is a not correct statement?A. Held-to-maturity securities are valued at amortized cost plus accrued interest.B. Trading securities are valued at fair value.C.
Suppose a company owned the following trading securities at the end of the accounting period:What journal entry would be required at the end of the period?A. A debit to Trading Securities for $30,000
Which of the following is a major step in managing cash?A. Establishing cash internal controls B. Preparing a cash budget C. Establishing procedures to maximize cash flow D. All of the above
In the process of replenishing the petty cash fund, which of the following journal entries would most likely be made (more than one answer may be correct)?A. A credit to Petty Cash Fund B. A debit to
In preparing the bank reconciliation, how should interest earned on the cash in the company’s bank account, per the bank statement, be handled?A. Added to the book cash balance B. Deducted from the
In preparing the balance sheet at the end of the period, which of the following would not be included in the Cash and Cash Equivalents balance?A. Traveler’s checks from customers B. Money orders C.
On January 1 the company paid for two years of insurance in advance for$2,000. Assuming that proper entries were made at that time, what is the adjusting entry at the end of the year?A. Debit Prepaid
The last step in the accounting process is:A. Making closing entries.B. Making adjusting entries.C. Journalizing the closing entries.D. Preparation of the post-closing trial balance.
Employees of a company were paid on December 20, and there were seven more workdays left in the month. The accountant computed the amount owing the employees for this period as being $22,000. What
A rental company had a valid rental contract with a renter; however, it had not received $1,000 rent at the end of the period. What would the accountant do?A. Initiate legal proceedings against the
Which of the following is not a step in the accounting cycle?A. Analyze each transaction.B. Make adjusting entries.C. Prepare a pre-adjusted trial balance.D. Provide interpretation of the financial
If the accountant fails to make a required adjusting entry for depreciation expense, the:A. Assets will be overstated and income will be overstated.B. Assets will be overstated and income
The reason that both expenses and dividends have a normal debit balance is that:A. They both are shown as assets on the balance sheet.B. Both expenses and dividend accounts have offsetting current
If expenses exceed revenues for the full accounting period, the income summary account:A. Will have a debit balance before it is closed to Retained Earnings B. Will have a credit balance before it is
Assume the 12/31 trial balance for machinery was $10,000. The machinery was acquired on January 1 of the same year, had a useful life of 10 years, and had an expected life salvage value of $1,000 at
A company paid its electricity expense. Which accounts would be debited, and which would be credited?A. Debit Electricity Expense, and credit Retained Earnings.B. Debit Electricity Expense, and
For each account below, check in the appropriate column whether it has a normal debit or credit balance: Debit Credit A. Accumulated Depreciation B. Prepaid Insurance C. Dividends D. Retained
Which of the following statements is true?A. Bonds Payable would be listed first in the liability section of the chart of accounts.B. A contra-asset account would be credited to decrease the
Which of the following statements is false?A. A dividend account is a permanent account.B. To post means to enter a transaction from the journal into an account.C. Each expense account is debited to
The accumulated depreciation account is called a(n):A. Asset account B. Expense account C. Asset-offset account D. Liability account
The normal balance for an asset account is a:A. Credit balance B. Debit balance C. Debit or credit balance D. None of the above
Expenses paid in cash and recorded as a current asset before they are used are called:A. Prepaid expenses B. Deferred expenses C. Unearned expenses D. None of the above
A sale of bonds and receiving cash would require a journal entry of:A. A debit to Bonds Payable and a credit to Cash B. A debit to Cash and a credit to Bonds Payable C. A debit to cash and a credit
In a manufacturing company, which of the following inventory accounts would be found on the balance sheet?A. Work in Process B. Raw Materials C. Finished Goods D. All of the above E. None of the above
Classify the following accounts in the space provided with the following symbols: CL for current liabilities, LTL for long-term liabilities, and SE for stockholders’ equity:A. _____ Capital stock
Which of the following is not a current liability?A. Accounts payable B. Accrued interest payable C. Accrued taxes payable D. Bonds payable
Which of the following is most true concerning a current asset?A. The inventory was purchased during the current year.B. The value of the accounts is stated at Current Market Value.C. The cash on
The income statement reports revenues less expense:A. For the end of the period B. For some time in the future C. For a specified period of time D. At the beginning of the fiscal year
(More than one of the following answers may be correct.) The balance sheet account representing investments by owners in the company is:A. Common Stock B. Preferred Stock C. Retained Earnings D.
(True or false?) Sales less cost of goods sold is called “gross margin.”
A retail merchandising company will likely have which inventory accounts on the balance sheet?A. Raw Materials B. Merchandising Inventory C. Work in Process D. Merchandising Inventory and Work in
The matching principle is best described as:A. Expenses are recognized in the same period as the related revenue based on the assumption that there is a cause-and-effect relationship.B. Expenses are
Using the accounting equation, enter the missing amount in the following: ASSETS LIABILITIES STOCKHOLDERS' EQUITY 9. $20,000 $6,000 b. $80,000 $70,000 C. $10,000 $12,000
(True or false?) Similar to the dual entry concept, double-entry bookkeeping systems require at least two entries to be made in the accounts.
A construction company has a long-term contract that lasts for several years to build a bridge. According to the accrual method of accounting, the company accountant should:A. Accrue the amount of
Which of the following statements is true concerning an accounting accrual?A. Adjusting entries are usually made at the end of the period to record accruals.B. An accrual occurs when the revenue is
The owner of a local furniture store tells the bookkeeper to write a check from the business’s checking account for the repair of her home air conditioner.Which accounting assumption is she
(True or false?) The time period assumption means that business must report to users of financial statements periodically, usually at the end of a quarter or year.
An accountant receives a $5,000 retainer from a client to provide advice on financial matters. Assuming the client uses accrual accounting, which of the following is true?A. The accountant should
(True or false?) The concept of neutrality means that accounting information is free from bias that is intended to attain a predetermined result or induce a particular mode of behavior.
(True or false?) An interested party who needs information on investing activities would most likely consult the statement of changes in stockholders’ equity.
The Certified Management Accountant is “certified” by:A. The Institute of Management Accountants B. The American Institute of Certified Public Accountants C. The Institute of Internal Auditors D.
The two primary qualities that make accounting information useful are:A. Verifiability and benefit achieved B. Cost effectiveness and feedback value C. Predictive value and the matching concept D.
Which of the following statements is most correct?A. The principal role of the management accountant is to prepare the tax returns for submission to the IRS.B. The principal meaning of the concept of
Which statement would a decision maker review to answer the question,“How did my business perform this year?”A. The balance sheet B. The Statement of Changes in Financial Position C. The income
Which of the underlying concepts would support the immediate recognition of a loss?A. Verifiability B. Consistency C. Understandability D. Conservatism
The two major components of stockholders’ equity in the balance sheet are:A. Assets and liabilities B. Revenues and expenses C. Income and common stock D. Contributed capital and retained earnings

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