Deck 16: Basic Accounting Concepts, Techniques, and Conventions

Question 1

Old equipment having a book value of $12,000 was sold for $10,000 cash. New equipment was purchased for $25,000 cash. Additional equipment was acquired in exchange for a $17,000 long- term note payable. The cash flow from investing activities was:

A) $(13,000)
B) $(32,000)
C) $(30,000)
D) $(15,000)

Answer 1

D

Question 2

Table 16- 1
$\begin{array}{lll}&12 / 31 / 20 \times 6&12 / 31 / 20 \times 5\\\text { Currentassets: }\\\text { Cash } & \$ 24,800 & \$ 17,600 \\\text { Accounts receivable } & 57,600 & 44,800\end{array}$ Table 16.2
$\begin{array}{ll}\text { Sales }&&\$916,800\\\text { Less: Cost of goods sold }&&(391,200)\\\text { Gross profit }&&\$525,600\\\text { Less operating expenses: Wage }\\\text { expense }&\$239,200\\\text { Supply expense } & 20,000 \\\text { Insurance expense } & 19,200 \\\text { Depreciation expense } & 57,600 \\\text { Amortization expense } & 12,000 \\\text { Rent expense } & \underline{33,600} \\&&(381,600)\\\text { Operatingincome } && \$ 144,000 \\\text { Interest expense } && (24,000)\end{array}$

-Referring to Tables 16- 1 and 16- 2, the cash paid for interest by Silver Company in 20X6 was:

A) $16,000
B) $22,400
C) $25,600
D) $6,400

Answer 2

$25,600

Question 3

A company had the following information: $\begin{array}{lll}\text { Cash } & \$ 6,000& \text { Sales } & \$ 142,000 \\\text { Depreciation expens e } & 4,000 &\text { Dividends paid } & 3,000 \\\text { Prep aid rent } & 1,400 &\text { Rent expense } & 3,600 \\\text { Cost of goods sold } & 68,000 &\text { Wage expense } & 41,000\end{array}$ The net income for the period is:

A) $26,800
B) $22,400
C) $25,400
D) $23,800

Answer 3

$25,400

Question 4

Given below is a list of events: 1. payment of employee wages
2) cash collections from customers
3) sale of capital stock
4) sale of land, at cost
5) payment of a cash dividend
6) borrow cash from creditors
7) purchase of equipment
8) cash sale of inventory
9) purchase inventory on account
Which of the above events are outflows in the operating section of the statement of cash flows?

A) 1, 5, and 9
B) 1 and 9
C) 2 and 8
D) only 1

Question 5

A gain on the sale of a fixed asset is reported on the statement of cash flows:

A) as an adjustment to operating activities under the direct method
B) as an adjustment to operating activities under the indirect method
C) as an adjustment to operating activities, regardless of the method used
D) None of these answers is correct.

Question 6

Referring to Tables 16- 1 and 16- 2, the cash paid to suppliers by Silver Company in 20X6 was:

A) $384,800
B) $406,400
C) $397,600
D) $391,200

Question 7

is the major operating activity that decreases cash.

A) Purchases of inventory on account
B) Equipment purchases
C) Advance payments for rent
D) Payments for inventory purchases

Question 8

Georgia Company's beginning and ending inventory amounts were $150,000 and $140,000, respectively. Cost of goods sold was $670,000. Georgia Company purchased of inventory.

A) $660,000
B) $680,000
C) $670,000
D) an indeterminable amount

Question 9

The cash paid to purchase equipment is included in the section of a statement of cash flows.

A) investing
B) operating
C) net cash
D) financing

Question 10

is not considered in the determination of the operating cycle.

A) Accounts Receivable
B) Cash
C) Merchandise Inventory
D) None of these answers is correct.

Question 11

A company had the following information: $\begin{array}{ll}\text { Beginning retained earnings } & \$ 45,000 \\\text { Sales } & \$ 194,000 \\\text { Depreciation expense } & 7,000 \\\text { C ash } & 11,000\\\text { Cost of goods sold } & 102,000 \\\text { Dividends } & 15,000 \\\text { Paid-in capital } & 26,000 \\\text { W age expense } & 40,000 \\\text { Rent expens e } & 12,000 \\\text { Prep aid rent } & 2,000\end{array}$ The ending balance in the Retained Earnings account is:

A) $65,000
B) $74,000
C) $61,000
D) $63,000

Question 12

Convertibility allows a bondholder to exchange:

A) bonds for common stock
B) subordinated debentures for unsubordinated debentures
C) debentures for secured debt
D) All of these answers are correct.

Question 13

Which one of the following statements is false?

A) The statement of cash flows reports the cash receipts and cash payments of an entity over a period of time.
B) Transactions affecting the sale and the purchase or production of goods and services are reported in the operating activities section of the statement of cash flows.
C) Both the statement of cash flows and the income statement determine the net income for a company.
D) Investing activities in the statement of cash flows include acquiring and selling long- term assets.

Question 14

Wild Bill Company recently issued 10,000 shares of $1 per value common stock for $35,500. This transaction will affect Wild Bill Company by:

A) increasing the Retained Earnings account by $25,500
B) increasing the Common Stock account by $35,500
C) increasing the Common Stock account by $10,000
D) increasing the Capital in Excess of Par account by $35,500

Question 15

The liabilities of Pocahontas Company are listed below: $\begin{array}{ll}\text { Accounts payable } & \$ 20,000 \\\text { First Mortgage bonds payable } & \$ 100,000 \\\text { Debentures payable } & \$ \$ 0,000\end{array}$ Pocahontas Company liquidated its assets, receiving $150,000 cash. The debenture holders will receive if the debentures are subordinated.

A) $40,000
B) $50,000
C) $30,000
D) $10,000

Question 16

The difference between a single and multiple- step income statement is that:

A) a single- step income statement calculates net income using one method, whereas a multiple- step income statement calculates net income under two or more methods
B) a single- step income statement calculates gross profit and operating income, whereas a multiple- step income statement does not
C) a single- step income statement groups all revenues together and all expenses together, whereas a multiple- step income statement separates certain revenues and expenses from each other and presents subtotals
D) a single- step income statement shows only one year's net income, whereas a multiple- step income statement shows multiple years' net income

Question 17

Nonoperating items on the income statement:

A) appear on the income statement immediately after gross profit
B) appear only on corporate income statements
C) reflect the effects of financial management decisions
D) are revenues and expenses arising from adjusting entries

Question 18

When reconciling net income to net cash provided by operating activities, a(n) is a deduction from net income.

A) decrease in accounts payable
B) increase in unearned revenues
C) decrease in prepaid rent
D) decrease in inventories

Question 19

Which one of the following statements regarding the effect of depreciation when reconciling net income to net cash provided by operating activities is correct?

A) Depreciation expense is added in the cash flow from operations section.
B) Ignoring income tax effects, increasing depreciation expense will increase cash flows from operations.
C) Depreciation expense is a source of cash.
D) Depreciation expense is a cash outflow.

Question 20

Willoughby Company purchased inventory on account for $735,000. Throughout the year inventory valued at $610,000 was sold for $762,500. Beginning and ending accounts payable balances were $90,000 and $60,000, respectively. Willoughby Company paid _ to its suppliers.

A) $640,000
B) $765,000
C) $705,000
D) $580,000

Question 21

When reconciling net income to net cash provided by operating activities, all of the following would be an appropriate procedure except:

A) adding depreciation expense
B) adding a decrease in inventories
C) subtracting a decrease in prepaid expenses
D) subtracting a decrease in accounts payable

Question 22

The cash paid for taxes is included in the section of the statement of cash flows.

A) operating
B) financing
C) net cash
D) expense

Question 23

A _ _ is not considered a cash equivalent.

A) bank account
B) treasury bill
C) money market fund
D) None of these answers is correct.

Question 24

Referring to Tables 16- 1 and 16- 2, the cash collected from the issuance of stock by Silver Company in 20X6 was:

A) $62,400
B) $0
C) $8,000
D) indeterminable

Question 25

The Beehive Company acquired merchandise inventory costing $10,000 on September 1. The company will not pay for the inventory until October 1. This transaction will affect the Beehive Company by:

A) increasing the Merchandise Inventory account by $10,000 and decreasing the Capital account by $10,000
B) increasing the Merchandise Inventory account by $10,000 and decreasing the Accounts Payable account by $10,000
C) increasing the Merchandise Inventory account by $10,000 and increasing the Capital account by $10,000
D) increasing the Merchandise Inventory account by $10,000 and increasing the Accounts Payable account by $10,000

Question 26

Which of the following would be considered an intangible asset? 1. leasehold improvements
2) goodwill
3) land
4) mineral deposits
5) patent

A) 2, 3, 4, and 5
B) 1, 3, and 4
C) 2 and 4
D) 2 and 5

Question 27

Referring to Tables 16- 1 and 16- 2, the cash paid for supplies by Silver Company in 20X6 was:

A) $20,800
B) $24,000
C) $19,200
D) $20,000

Question 28

Given below is a list of events: 1. payment of employee wages
2) cash collections from customers
3) sale of capital stock
4) sale of land, at cost
5) payment of a cash dividend
6) borrow cash from creditors
7) purchase of equipment
8) cash sale of inventory
9) purchase inventory on account
Which of the above events are inflows in the operating section of the statement of cash flows?

A) 1, 4, and 6
B) 2 and 8
C) only 1
D) 3 and 6

Question 29

The balances in selected accounts of Rerun Company increased (decreased) as follows: $\begin{array}{ll}\text { Accounts payable } & \$ 10,000 \\\text { Bonds payable } & (12,000) \\\text { Common stock } & 4,000\end{array}$ Rerun Company declared and paid dividends of $8,800. The cash flow from financing for Rerun Company was:

A) $(16,800)
B) $(6,800)
C) $6,800
D) $16,800

Question 30

The statement of cash flows is used for all of the following except:

A) evaluating the creditworthiness of the organization
B) determining a company's ability to pay its debts when they are due
C) showing the relationship of net income to changes in cash
D) revealing commitments that may restrict future courses of action

Question 31

Given below is a list of events: 1. payment of employee wages
2) cash collections from customers
3) sale of capital stock
4) sale of land, at cost
5) payment of a cash dividend
6) borrow cash from creditors
7) purchase of equipment
8) cash sale of inventory
9) purchase inventory on account
Which of the above events are inflows in the financing section of the statement of cash flows?

A) 4 and 6
B) 3 and 6
C) 3, 5, and 6
D) only 3

Question 32

The liabilities of Clare Company are listed below: $\begin{array}{ll}\text { Accounts payable } & \$ 20,000 \\\text { First Mortgage bonds payable } & \$ 100,000 \\\text { Debentures payable } & \$ 80,000\end{array}$ Clare Company liquidated its assets, receiving $150,000 cash. The debenture holders will receive if the debentures are unsubordinated.

A) $50,000
B) $10,000
C) $40,000
D) $30,000

Question 33

With respect to the relationship between depreciation and cash, which one of the following statements is incorrect?

A) Accumulated depreciation is the total amount of the original cost of an asset already written off to expense in prior periods.
B) Depreciation does not generate cash.
C) Depreciation is an allocation of the original cost of an asset to the periods in which the asset is used.
D) Charging depreciation expense provides a means of setting aside cash for the replacement of an asset.

Question 34

Referring to Tables 16- 1 and 16- 2, the cash paid out for dividends by Silver Company in 20X6 was:

A) $17,600
B) $54,400
C) $0
D) indeterminable

Question 35

Beginning retained earnings was $34,400. Ending retained earnings was $61,600 and net income was $36,000. Cash paid as dividends was:

A) $36,000
B) $8,800
C) $1,200
D) $30,000

Question 36

Listed below are increases (decreases) in selected accounts of Leonardo Company. $\begin{array}{ll}\text { Accounts receivable } & \$ 20,000 \\\text { Inventory } & (40,000) \\\text { Accounts p ay able } & 68,000 \\\text { Wages p ayable } & (21,000)\end{array}$ Net income for Leonardo Company was $42,000. The net cash provided by operating activities was:

A) $69,000
B) $109,000
C) $(67,000)
D) $15,000

Question 37

Stone Cold Company reported cost of goods sold of $870,000, an increase in inventory of $100,000, and a decrease in accounts payable of $40,000. was paid to Stone Cold Company's suppliers.

A) $1,010,000
B) $930,000
C) $730,000
D) $810,000

Question 38

Given below is a list of events: 1. payment of employee wages
2) cash collections from customers
3) sale of capital stock
4) sale of land, at cost
5) payment of a cash dividend
6) borrow cash from creditors
7) purchase of equipment
8) cash sale of inventory
9) purchase inventory on account
Which of the above events are outflows in the investing section of the statement of cash flows?

A) only 4
B) 4, 7, and 9
C) 4 and 9
D) only 7

Question 39

Depreciation is used to:

A) accumulate funds to replace an asset
B) establish the current market value of an asset
C) allocate the original cost of an asset to particular periods or products
D) All of these answers are correct.

Question 40

Referring to Tables 16- 1 and 16- 2, the cash paid for patents by Silver Company in 20X6 was:

A) $12,000
B) $0
C) $2,400
D) indeterminable

Question 41

is the major operating activity that increases cash.

A) Sales on account
B) Advances from customers
C) Collections from sales to customers
D) Proceeds received from issuing stock

Question 42

All of the following are charges against income which do not require cash except:

A) sales discounts
B) amortization of leaseholds
C) depletion
D) depreciation

Question 43

is not a current asset.

A) Accounts Receivable
B) Prepaid Expenses
C) Goodwill
D) None of these answers is correct.

Question 44

Debentures are:

A) debt secured by a general claim against total assets
B) short- term liabilities arising from income transactions
C) debt secured by a claim against specific assets
D) unearned revenues

Question 45

When reconciling net income to net cash provided by operating activities, a(n) _ is an addition to net income.

A) increase in wages payable
B) increase in accounts receivable
C) increase in inventories
D) All of these answers are correct.

Question 46

Which of the following would be considered a tangible asset? 1. leasehold improvements
2) goodwill
3) land
4) mineral deposits
5) patent

A) 1, 3, and 4
B) 2 and 4
C) 2, 3, 4, and 5
D) 2 and 5

Question 47

Hollander Company gave a long- term note payable in the amount of $285,000 to acquire a new piece of equipment. This transaction will be reported on the statement of cash flows as a:

A) $285,000 investing inflow and $285,000 financing outflow
B) $285,000 operating outflow and $285,000 financing inflow
C) noncash transaction reported in a separate schedule
D) $285,000 investing outflow and $285,000 financing inflow

Question 48

The cash paid to long- term creditors is included in the section of the statement of cash flows.

A) net cash
B) operating
C) investing
D) financing

Question 49

is the best definition of goodwill.

A) The excess of the cost of an acquired company over the sum of the fair market value of its identifiable individual assets less the liabilities
B) The charitable contributions, in both time and money, which a corporation contributes to society as a whole
C) The value of a company's reputation for such things as service, quality, and product reliability
D) Actions taken by companies that are for the best interest of society but have a detrimental effect on the company's short- run financial results

Question 50

Crosby Company reported sales on account of $250,000, an increase in inventory of $70,000, and a decrease in accounts receivable of $20,000. _ was received from Crosby Company's customers.

A) $230,000
B) $320,000
C) $270,000
D) $180,000

Question 51

Given below is a list of events: 1. payment of employee wages
2) cash collections from customers
3) sale of capital stock
4) sale of land, at cost
5) payment of a cash dividend
6) borrow cash from creditors
7) purchase of equipment
8) cash sale of inventory
9) purchase inventory on account
Which of the above events are outflows in the financing section of the statement of cash flows?

A) 3 and 6
B) 5 and 7
C) only 5
D) 3 and 5

Question 52

Selected items from the financial statements from Nellie Company are listed below: $\begin{array}{ll}\text { Retained Earnings } & \$ 100,000 \\\text { Net Income } & \$ 50,000 \\\text { Dividends } & \$ 75,000\end{array}$ Nellie Company has 5,000 shares of common stock outstanding. Nellie's earnings per share are:

A) $15.00
B) $20.00
C) $25.00
D) $10.00

Question 53

At the beginning of the current year Duke Company had the following balances in their stockholders' equity accounts as of December 31, 20X5: Paid- in capital $43,000
Retained earnings 27,000
During the year ended December 31, 20X6, Duke Company generated $35,400 in net income, and declared and paid $12,000 in dividends. The ending balance in the Retained Earnings account at December 31, 20X6 is:

A) $27,000
B) $66,400
C) $23,400
D) $50,400

Question 54

Kidman Company's income statement showed rent expense of $16,000. The beginning and ending balances in the Prepaid Rent account were $5,000 and $3,000, respectively. Cash paid for rent was:

A) $16,000
B) $24,000
C) $19,000
D) $14,000

Question 55

Munster Company requires clients to pay in advance for legal services. One such client made a $4,000 payment on May 1, and Munster Company recorded this transaction in the appropriate liability account. As of May 20, the legal services which the client requested had been completed. The May 20 accounting entry will:

A) decrease assets and decrease liabilities
B) increase revenues and increase liabilities
C) decrease liabilities and increase revenues
D) decrease assets and increase revenues

Question 56

Treasury stock is:

A) unissued shares of a corporation's own stock
B) shares of a corporation's stock which have been issued and subsequently repurchased by the corporation
C) shares of a corporation's stock held by the board of directors
D) ownership rights in other companies held by the corporation for investment purposes

Question 57

Which of the following does not correctly state the nature or purpose of par value?

A) The term "stated value" is conceptually equivalent to par value.
B) Some states permit common stock to be issued without either a par or stated value.
C) Par value is a valuable tool used by both the shareholders and the corporation.
D) Par value is the minimum level of investment by owners required by law in some states.

Question 58

The wages expense of Alias Corporation was $45,000. Beginning wages payable was $5,000. Ending wages payable was $3,000. Cash paid to employees was:

A) $45,000
B) $50,000
C) $47,000
D) $43,000

Question 59

would result in an increase in income under the cash basis but not an increase in income under the accrual basis.

A) The return of defective inventory purchased on account to a supplier where a full credit was given
B) The cash sale of inventory at a sales price in excess of the inventory's cost
C) The cash collection from a credit customer
D) The credit sale of inventory at a sales price in excess of the inventory's cost

Question 60

Bing Company reported sales of $180,000, an increase in accounts receivable of $15,000, and a decrease in cash of $20,000. was received from Bing Company's customers.

A) $200,000
B) $165,000
C) $195,000
D) $160,000

Question 61

A company receives cash before delivering the related goods or services

Question 62

Physical items that a person can see and touch, such as property, plant, and equipment

Question 63

A corporation's own stock that has been issued and subsequently repurchased by the company and is being held for a specific purpose

Question 64

An inventory method that assumes a company sells or consumes the goods acquired earliest before any else

Question 65

Which of the following would normally be considered a current liability? 1. accounts payable
2) debentures payable
3) unearned revenue
4) accrued liabilities

A) 1 and 4
B) 1, 2, and 4
C) 1, 3, and 4
D) 2 and 3

Question 66

Amounts owed for wages, salaries, and interest

Question 67

Current assets less current liabilities

Question 68

Short- term debts backed by formal promissory notes held by a bank or business creditors

Question 69

Creditors cannot seek payment from shareholders as individuals if the corporation itself cannot pay its debt

Question 70

Alabama Company's beginning and ending inventory amounts were $80,000 and $120,000, respectively. Cost of goods sold was $520,000. Alabama Company purchased of inventory.

A) $560,000
B) $480,000
C) $600,000
D) $520,000

Question 71

Limited liability means that:

A) the creditors of a corporation can receive only up to, and no more than, the amount due to them
B) corporations can have liabilities up to only a certain amount due to limits on the company's borrowing capability
C) the company is required to pay only current liabilities in the current year and has no obligation to pay long- term liabilities in the current year
D) the creditors of the corporation have claims on only the assets of the corporation and not the assets of the owners of the corporation

Question 72

Navidad Company's income statement included income tax expense of $18,000. Income tax payable at the beginning of the current year was $1,000. Income tax payable at the end of the current year was $4,000. Cash paid for taxes was:

A) $17,000
B) $22,000
C) $15,000
D) $21,000

Question 73

Which of the following could be used as account titles to refer to the owners paying more than the par value for a company's common stock? 1. paid- in capital
2) additional paid- in capital
3) capital in excess of par value of stock
4) capital surplus

A) 1, 2, 3, and 4
B) 1, 2, and 3
C) only 2
D) 2 and 3

Question 74

The sum of all depreciation taken to date on a fixed asset

Question 75

Which of the following events do not affect cash flows from operating activities? 1. cash sale
2) cash dividend paid
3) cash purchase of equipment
4) paid cash for inventory purchased in the previous period
5) paid cash for employees' wages

A) 2 and 3
B) only 2
C) 2, 3, and 4
D) 2 and 4

Question 76

On the books of a corporation, the total amount owed to the company by its customers

Question 77

High Chaparral Company's capital stock is currently trading for $22 per share. The High Chaparral Company has the following accounts included within the owners' equity section of the balance sheet: $\begin{array} { l } \text { Capital stock, \( \$ 5.00 \) par value, 10,000 shares issued }& \$50,000\\ \text {Capital in excess of par value }&110,000 \\\end{array}$
Assuming that the only transaction affecting these accounts was the issue of the company's capital stock, the High Chaparral Company originally sold its capital stock for:

A) $16.00 per share
B) $5.00 per share
C) $22.00 per share
D) $11.00 per share

Question 78

Short- term investments that a company can easily convert into cash with little delay

Question 79

Consisting of merchandise, finished products of manufacturers, goods in the process of being manufactured, and raw materials

Question 80

Rock Company reported cost of goods sold of $700,000, a decrease in inventory of $60,000, and an increase in accounts payable of $35,000. was paid to Rock Company's suppliers.

A) $725,000
B) $675,000
C) $605,000
D) $795,000