Questions and Answers of Financial Accounting 13th Edition

An investor interested in stock price growth and dividends would probably look at which of the following:A. Price/earnings ratio B. Dividend yield ratio C. Total earnings D. All of the above
Vertical analysis is also called:A. Ratio analysis B. Trend analysis C. Common-sized analysis D. Horizontal analysis
A ratio that measures the company’s ability to pay interest on its long-term obligations is:A. Debt-to-equity ratio B. Acid-test ratio C. Dividend yield ratio D. Times interest earned ratio
Using the data in question 11, what is the price/earnings ratio?A. 9.0 B. 8.1 C. 8.2 D. None of the above
A company has $500,000 in net income, $5,000 in preferred dividends, $6,000 in common dividends, 100,000 shares of stock outstanding (weighted), and a market price of stock $40. What are the earnings
A ratio that measures whether the company has excessive debt is:A. Times interest earned B. Return on equity C. Debt to equity D. Return on investment
An overall measure of profitability of a company is:A. Dividend yield B. Gross margin C. Asset turnover D. Return on total assets
Using the information in question 7, what would be the collection period?A. 60.8 days B. 73 days C. 50 days D. None of the above
The XYZ 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 2010 2009 Average accounts receivable Net credit
Using the data in question 5, what is the current ratio for 2009?A. 55 B. 1.8 C. $80,000 D. ($80,000)
The XYZ Company reported the following for the period 2008 through 2010: 2010 2009 2008 Current Assets $150,000 $100,000 $80,000 Current Liabilities $300,000 $180,000 $200,000 Assuming the base year
(True or false?) Solvency ratios measure the ability of a business to pay its longterm obligations.
Which of the following is an indicator of a company’s ability to pay its current liabilities?A. Current ratio B. Acid-test ratio C. Amount of working capital D. All of the above E. None of the above
In vertical analysis, the base amount for cost of goods sold would be:A. Gross margin B. Cost of goods sold C. Net sales D. Gross assets
In horizontal analysis a comparison is made by expressing each item as a percentage of the:A. Stockholders’ equity amount B. Current assets amount C. Net income amount D. Base year
The Financial Accounting Standards Board recommends that cash be defined as:A. Cash B. Short-term investments readily convertible to cash C. Highly liquid investments D. Maturity date of 90 days or
A company sold a computer system for $5,000 cash that had a cost of $15,000 and accumulated depreciation of $12,000. The sale would be reported in the statement of cash flows in the:A. Operating
Cash from the sale of treasury stock:A. Would be included in investing activities section B. Would be included in financing activities section C. Would be included in operating activities section D.
(True or false?) While the indirect method provides more information, most companies use the direct method for preparing the statement of cash flows.
A company had net cash inflows from financing activities of $20,000, net cash inflows of $30,000 from investing activities, and a net increase in cash of $25,000 for the year. How much was the cash
A company had net income of $200,000 for the year, depreciation expense of$20,000 for the year, sale of equipment for $30,000, and an increase in prepaid expenses of $10,000 for the year. What would
(True or false?) The indirect method for preparing the statement of cash flows starts with net income reported on the income statement and adjusts this figure for items that did not affect cash.
A company purchased equipment for $50,000; issued stock for $60,000 in cash;declared dividends of $20,000; charged $25,000 to depreciation expense; and sold investments for $10,000 in cash. What
The last items to be included in the statement of cash flows are:A. Each current asset account’s beginning balance B. The beginning and ending balances in the Cash account at the bottom of the
A company declared $50,000 in stock dividends. How would this affect the cash flow statement?A. It would show an increase in Cash in the financing section.B. It would show an increase in Cash in the
For each of the following events indicate whether it will increase or decrease net income from operating activities to arrive at net cash flows from operations:A. Amortization of a copyright B.
A company purchased a building for $300,000 cash. This transaction would be reported on the statement of cash flows as:A. A decrease in net income B. As a use of cash in the financing activity
Issuing common stock for cash would be reported as:A. A decrease in net income B. An investing activity C. A financing activity D. Both an investing and financing activity
In computing net cash flows, all of the following adjustments are added to net income from operating activities except:A. An increase in Prepaid Insurance.B. A decrease in Accounts Receivable.C.
Classify each of the following cash transactions as a cash flow from: (O) operating activities, (I) investing activities, or (F) financing activities.A. Payment for purchase of new equipment B.
The balance of the Retained Earnings account is affected by which of the following?A. Losses from operations since the inception of the company B. Profit from the inception of the company C.
(True or false?) Convertible preferred stock means that the preferred-stock holders can convert preferred shares to common stock shares at a ratio stipulated in the stock contract.
Which of the following is not a characteristic of preferred stock?A. It is preferred as to dividends.B. It is preferred when liquidating assets.C. It receives a dividend based on its par value.D. It
Common Stock Dividends Payable would be reported on the balance sheet as:A. A current liability B. A reduction of total stockholders’ equity C. An offset to common stock D. An addition to
Which of the following preferred-stock holders would usually receive the largest amount of cash dividends?A. Cumulative and fully participating B. Noncumulative and fully participating C. Cumulative
A company declares a property dividend. How much should Retained Earnings be reduced?A. Cost of the property B. Cost of the property less accumulated depreciation C. Fair value of the property D.
A company sold 10,000 shares of its $1 par value common stock subscriptions at $10 per share to someone who paid 20 percent down on the sale and the balance was to be paid later. Which of the
A company declared a two-for-one stock split when it had 100,000 shares outstanding. The stock has a par value of $1 and a market value of $10. Which of the following is correct?A. Common Stock is
Which of the following dividends do not decrease stockholders’ equity?A. Liquidating dividends B. Stock dividends C. Property dividends D. None of the above
When treasury stock is reissued for more than the company paid for it, the difference is:A. Credited to an Additional Paid-in Capital account B. Given to the stockholders in a dividend C. Included as
A company issued a 10 percent stock dividend when it had 500,000, $1 par value, shares of stock outstanding. The current market price of the stock is $50 on the date the dividend is declared and
A company issued 5,000 shares of $10 par value common stock at $30. Which of the following entries would not be made?A. Debit cash for $150,000.B. Credit Common Stock for $50,000.C. Credit Subscribed
Stockholders’ equity includes all of the following, except:A. Common stock B. Stock owned in a subsidiary C. Additional paid-in capital D. Retained earnings
Which of the following is not a right of a stockholder?A. To share proportionately in company assets in the event of liquidation B. To share proportionately in any new issue of common stock C. To
Treasury stock is:A. A company’s stock that is issued but not outstanding B. A company’s stock that is purchased and added to its investment account and used for trading C. An increase to assets
Refer to question-11. What is the carrying value of the bonds payable at December 31, 2010?A. $9,935 B. $10,389 C. $10,365 D. None of the above
Refer to question-11. How much of the bond premium is amortized on July 1, 2010?A. $50.00 B. $21.30 C. $37.00 D. None of the above
Refer to question-11. What is the interest expense on July 1, 2010?A. $313 B. $300 C. $350 D. None of the above
Refer to question-11. What is the premium on the sale of the bonds?A. $350 B. $426 C. $300 D. None of the above
Assume that on January 1, 2010, a company issues $10,000 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
Refer to question-9. How much principal reduction would occur at the end of year 1?A. $300 B. $1,871 C. $150 D. $1,571
Assume that a company signs a note for a computer system costing $5,000 to be repaid in full in three years at an annual rate of 6 percent with interest payable each year. Assume that the terms of
A $10,000 bond was issued by XYZ Company with a stated rate of 5 percent when the market rate was 6 percent. How much interest payment will the bondholders receive each year?A. $600 B. $500 C. $100
Refer to question-6. What would be the total bond interest expense on July 1, 2xxx, assuming the bond discount is amortized using the straight-line method?A. $6,200 B. $6,000 C. $5,800 D. None of the
XYZ Company issued 10-year 6 percent bonds with a face value of $200,000 for 98 on January 1, 2xxx. Which of the following would not be recorded on the date of issuance?A. Debit Interest Expense for
XYZ Company hired an administrative assistant for a salary of $3,000 per month.Assume that income tax is withheld at 20 percent of the salary; FICA is withheld at 6.2 percent of the salary; Medicare
On January 1, 2010, the XYZ Company issued bonds maturing in 10 years with a face value of $800,000 and a stated rate of 10 percent. XYZ received $708,240 in cash proceeds from the sale. How much
Employer payroll taxes include all of the following except:A. State income taxes B. Federal unemployment taxes C. State unemployment taxes D. FICA (social security) taxes
Bonds issued with a stated interest rate that is higher than the prevailing market rate are issued at:A. Par B. Premium C. Discount D. None of the above
All of the following are current liabilities, except:A. Taxes payable B. Accounts payable C. Bonds payable D. Unearned income
(True or false?) Sum-of-the-years’-digits method and double declining method are examples of accelerated depreciation methods.
(True or false?) Research and development costs of developing a process are capitalized as a patent and expensed over 20 years.
Refer to question-12. Which of the following would not be part of the journal entry to record the disposal?A. Debit to Cash for $25,000 B. Debit to Accumulated Depreciation for $130,000 C. Credit to
Assume that XYZ Company sold a machine for $50,000 cash that cost $200,000 and had $130,000 accumulated depreciation. What is the gain or loss on the sale?A. Loss of $20,000 B. Loss of $70,000 C.
Which of the following is not an intangible asset?A. Purchase of an Internet domain for cash B. Leasehold improvement C. A franchise D. Customer lists E. All of the above are intangible assets.
When a piece of equipment is being disposed, the journal entry recording the disposal would always include:A. Recognition of a loss B. A credit to the Asset account for the book value of the asset C.
(True or false?) A company may use different depreciation methods for reporting purposes than it uses for filing its tax returns.
A company expends $100,000 to defend a copyright. Which account would be debited for this amount?A. Legal Expenses B. Accumulated Amortization C. Copyrights D. None of the above
Each of the following would be classified as plant, property, and equipment in a manufacturing company, except:A. Machinery B. Raw materials inventory C. Patents on products owned D. Land on which
Refer to the facts in question 4.Assume that the company uses the sum-ofthe-years’-digits depreciation method. What would be the second year’s depreciation expense?A. $3,273 B. $3,109 C. $3,436
Refer to the facts in question 4.Assume that the machine will produce 200,000 units of output over its useful life. Assume further that the machine produced 18,000 units during the first year of use.
A machine used in production was acquired for $20,000, plus $1,000 to set up the machine to get it operational. The asset has a useful life of 10 years and a salvage value of $1,000. Using
Gains that result from trade-ins are:A. Recognized as a gain in the period in which it occurred B. Never recognized C. Recognized to the extent that the gain is recorded as a reduction of the cost
Which of the following is not a distinguishing feature of plant, property, and equipment?A. They are long-term assets and are subject to depreciation.B. They are tangible assets.C. They are acquired
A company purchased another company for $10 million cash, but the assets were appraised for $8 million. The company would record the purchase as:A. A debit to Goodwill for $2,000,000.B. A debit to
The inventory cost flow method that would most likely result in manipulation of income is:A. LIFO B. FIFO C. Weighted average method D. Specific identification method
Using the weighted average method and the perpetual inventory system, what would Ending Inventory be after January 21?A. $22,000 B. $21,000 C. $21,500 D. None of the above Date No. of Units Purchased
Using FIFO and the periodic inventory system, what is the Cost of Goods Sold at the end of the period?A. $78,000 B. $79,000 C. $80,000 D. None of the above Date No. of Units Purchased Unit Cost Total
Using LIFO and the perpetual inventory system, what is the value of the ending inventory on January 21?A. $22,000 B. $21,000 C. $21,500 D. None of the above Date No. of Units Purchased Unit Cost
A business that sells high-priced jewelry would most likely use which of the following cost flow methods?A. FIFO B. LIFO C. Gross profit method D. Specific identification method Unit Total Lower of
Using the lower-of-cost-or-market item-by-item method, what would be the Inventory adjustment?A. $1,000 B. $0 C. $400 D. None of the above Unit Total Lower of Inventory Replacement Replacement Cost
Using the lower-of-cost-or-market aggregate method, what would be the Inventory adjustment?A. $1,000 B. $0 C. $400 D. None of the above Unit Total Lower of Inventory Replacement Replacement Cost or
Using the gross profit method, what is the ending inventory?A. $36,000 B. $20,000 C. $40,000 D. $24,000 Partial Income Statement Net Sales Less: Cost of goods sold $100,000 Beginning inventory
Using the gross profit method, what is the cost of goods sold?A. $36,000 B. $24,000 C. $20,000 D. $40,000 Partial Income Statement Net Sales Less: Cost of goods sold $100,000 Beginning inventory
According to GAAP, the term “market” in “lower-of-cost-or-market,” means:A. Replacement cost B. Net realizable value C. Ceiling price D. Floor price
During a period of rising inflation, which cost flow method produces the highest net income?A. Weighted average method B. Gross profit method C. LIFO D. FIFO
A company had $10,000 in beginning inventory, $50,000 in purchases, $11,000 in the ending inventory (before any sales), and sales at a cost of $10,000. Assuming the periodic inventory system and the
Which of the following inventories would most likely not be found in a manufacturing company?A. Merchandise Inventory B. Finished Goods C. Work in Process D. Raw Materials
(True or false?) When the terms of sale for goods are FOB destination, ownership of the goods changes at the point of shipment.
The replacement cost of an inventory item is $10, the actual cost of that item is$9.50, the net realizable value is $11, and the floor value is $10.50. Using the lower-of-cost-or-market rule, what is
Johns Company partially recovered an accounts receivable that had been previously written off in the amount of $2,000. The amount recovered was $800.If Johns Company uses the accounts receivable
(True or false?) The net realizable value of Accounts Receivable on the balance sheet on June 30 would be: Accounts Receivable $50,000 Less: Allowance for Uncollectible Accounts 2,240 $47,760
Further assume that the Allowance for Doubtful Accounts has a balance of$1,000 at June 30, the end of the accounting period. Using the accounts receivable aging method, what would be the journal
If at the end of July 31 the note is paid off, which of the following statements would not be true?A. Notes receivable would be credited for $20,000.B. Interest revenue of $100 would be recognized in
Assume Peterson’s accounting period ends on June 30.What would be the amount of interest recognized as interest revenue on that date?A. $200 B. $300 C. $400 D. $100
The entry at the date of sale would be A. A debit to Notes Receivable for $20,000, and a credit to Sales for $20,000 B. A debit to Accounts Receivable for $20,000, and a credit to Sales for $20,000
(True or false?) If a written-off account is subsequently recovered, the correct journal entry is always to debit Accounts Receivable for the full amount written off and credit Allowance for Doubtful
(True or false?) The use of the percentage of the accounts receivable method in estimating the allowance for doubtful accounts emphasizes the balance sheet in valuing accounts receivable.
Jones Company sold $50,000 of merchandise on credit using credit cards on a given date. The servicing bank charges a service fee of 5 percent on all credit card sales processed. Which of the
Suppose a customer’s account of $500 is declared uncollectible. The correct journal entry would be A. A debit to Allowance for Uncollectible Accounts for $500, and a credit to Accounts Receivable

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