T/F (7-19)

7. When using a perpetual inventory system, cost of goods sold (COGS) is calculated and recorded at the end of each fiscal period.

8. Intangible assets with limited life need to be tested for impairment.

9. A company raised cash by issuing common stock. This cash flow should be classified as operating cash flow.

10. The present value of an ordinary annuity table is used when payments are made at the beginning of each period.

11. If the compounding period is less than one year, the annual interest rate must be converted to the compounding period interest rate by dividing the annual rate by the number of compounding periods per year.

12. The primary advantage of the single-step format lies in the simplicity of presentation and the absence of any implication that one type of revenue or expense item has priority over another.

13. Discontinued operations are reported net of tax in the income statement.

14. The double declining balance method of depreciation is an accelerated depreciation method.

15. Gross profit is reported on both the multiple-step and the single-step income statement.

16. Revenues and gains increase both net income and owners equity.

17. In a balance sheet, long-term assets are usually listed before current assets.

18. Making of a loan is reported as an investing activity in the statement of cash flows.

19. A company needs to report per share amounts for discontinued operations (if any) and net income.

20. The current assets section of the balance sheet should include

		machinery.
		patents.
		goodwill.
		d. inventory.

21. Which of the following is true about an income statement?

It can be used to evaluate the past performance of the enterprise.

It is used to measure the liquidity of a company.

Income measurement does not involve judgment.

It is used to measure the solvency of a compan

22. Presented below is information related to Tolbert Company. Cash $ 4,000 Short-term investments 75,000 Accounts receivable 61,000 Inventories 110,000 Prepaid expenses 30,000

Accounts payable 100,000

What is the total current assets?

		280,000
		180,000
		350,000
		380,000

23. Which of the following would represent the least likely use of an income statement prepared for a business enterprise?

		a. Use by customers to determine a company's ability to provide needed goods and services.
		b. Use by labor unions to examine earnings closely as a basis for salary discussions.
.		c. Use by government agencies to formulate tax and economic policy.
		d. Use by investors interested in the financial position of the entity.

24. The statement of cash flows provides answers to all of the following questions except

		where did the cash come from during the period?
		what was the cash used for during the period?
		what is the impact of inflation on the cash balance at the end of the year?
		what was the change in the cash balance during the period?

25. Which of the following is an example of managing earnings down?

		Changing estimated bad debts from 3 percent to 2.5 percent of sales.
		Revising the estimated life of equipment from 10 years to 8 years.
		Not writing off obsolete inventory.
		Reducing research and development expenditures.

26. The income statement reveals

		resources and equities of a firm at a point in time.
		resources and equities of a firm for a period of time.
		net earnings (net income) of a firm at a point in time.
		net earnings (net income) of a firm for a period of time.

27. A plant costing $110 million was purchased on April 1, 2010. The salvage value was estimated to be $10 million. The expected production was 150 million units. The plant was used to produce 22.5 million units till the year ended December 31, 2010. The depreciation on the plant for the year ended December 31, 2011 is

		$15 million
		$11 million
		$10 million
		$14 million

28. Sandstrom Corporation has a loss from discontinued operation of $200,000, an unusual gain of $140,000, and a tax rate of 40%. At what amount should Sandstrom report each item? Discontinued operation Unusual gain

		$(200,000) $140,000
		(200,000) 84,000
		(120,000) 140,000
		(120,000) 84,000

29. Which table would you use to determine how much you would need to have deposited three years ago at 10% compounded annually in order to have $1,000 today?

		Future value of 1 or present value of 1
		Future value of an annuity due of 1
		Future value of an ordinary annuity of 1
		Present value of an ordinary annuity of 1

30. Inventories are valued based on their ________.

		fair value
		estimated amount collectible
		lower-of-cost-or-market value
		historical cost

31. Korte Company reported the following information for 2014: Sales revenue $1,500,000 Cost of goods sold 1,050,000 Operating expenses 165,000 Cash dividends received on the securities 6,000 For 2014, Korte would report gross profit of

		$291,000.
		$285,000.
		$241,000.
		$450,000.

32. Current assets are presented in the balance sheet in

		ascending order of their balances.
		descending order of their balances.
		order of their liquidity.
		reverse order of their liquidity.

December 31	2011	2010
Accounts Receivable	$34,130	$28,410
Prepaid Rent	20,000	25,000
Prepaid Insurance	6,800	6,000
Inventory	23,030	15,450
Accounts Payable	14,590	31,300
Salaries Payable	8,310	5,120
Interest Payable	700	360
Income Tax Payable	2,340	0
Year Ended December 31	2011
Net Sales	64,970
Salaries Expense	8,610
Rent Expense	5,000
Insurance Expense	3,200

33. repare the cash flows from operating activities section of cash flow statement by direct method using the following information:

What is the amount of cash paid as salaries?

		8,610
		11,800
		5,420
		not enough information

34. Olmsted Company has the following items: common stock, $750,000; treasury stock, $105,000; deferred income taxes, $125,000 and retained earnings, $454,000. What total amount should Olmsted Company report as stockholders equity?

		$974,000.
		$1,099,000.
		$1,224,000.
		$1,349,000.

35. Which table would show the smallest factor for an interest rate of 10% for five periods?

		Future value of an ordinary annuity of 1
		Present value of an ordinary annuity of 1
		Future value of an annuity due of 1
		Present value of an annuity due of 1

36. ABC Company purchases a machine for $100,000. It has an estimated salvage value of $10,000 and a useful life of five years. What is the first year depreciation expense for this machine if the company uses the sum-of-the-years-digits method?

		20,000
		30,000
		18,000
		36,000

37. Keisler Corporation reports:

Cash provided by operating activities	$280,000
Cash used by investing activities	110,000
Cash provided by financing activities	140,000
Beginning cash balance	70,000

What is Keislers ending cash balance?

		$310,000.
		$380,000.
		$530,000.
		$600,000.

38. Briefly explain the allowance method for dealing with bad debt.

39. Briefly explain the difference between the direct method and the indirect method of cash flow statement.