Question 1

Given below are several items that will be reported on a company's financial statements.Select the letter of the proper financial statement reporting section listed as a through f.You may use each letter more than once or not at all.
-Manufacturing circuits were determined obsolete and had to be written down to a nominal scrap value due to an improved manufacturing process

Accepted Answer

A)  Income from continuing operations section of the income statement 
B)  Discontinued operations section of the income statement 
C)  Extraordinary items section of the income statement 
D)  Cumulative effect of a change in accounting principle section of the income statement 
E)  A separate comprehensive income item
F) Not reported on the income statement or comprehensive income statement

Question 2

For each item listed in, place the letter (a through e) of the accounting effect in the space provided.You may use each letter more than once or not at all.
-During a period of increasing inventory and increasing prices, a company uses the LIFO method, which creates the largest cost of goods sold.

Accepted Answer

A)  Assets and net income increase 
B)  Assets and net income decrease 
C)  Assets decrease and net income increases 
D)  Assets increase and net income decreases 
E)  Assets and net income are not affected

Question 3

For each item numbered below, identify the letter of the best description by selecting from items a through e below.You may use each letter more than once or not at all.
-Current liabilities

Accepted Answer

A)  Intention is to convert into cash within one year 
B)  Current assets/current liabilities 
C)  Current assets - current liabilities 
D)  Must pay within one year 
E)  (Cash + marketable securities + accounts receivable) divided by current liabilities

Question 4

For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct.
-Paid accounts payable.

Accepted Answer

A)  Decrease current liabilities 
B)  Increase current liabilities 
C)  No effect on recorded current liabilities 
D)  Accrued contingent liability 
E)  Contingent liability disclosed in the notes only

Question 5

For each transaction provided in items , select the proper section of the statement of cash flows in which it should be reported using the indirect method from the reporting categories provided in a through h below.If the item is not required to be reported on the statement of cash flows, place an 'X' in the space provided.
-Declared cash dividends

Accepted Answer

A)  Cash flows from operating activities-will be added to net income 
B)  Cash flows from operating activities-will be subtracted from net income 
C)  Cash flows from investing activities-increase as a result of cash inflows 
D)  Cash flows from investing activities-decrease as a result of cash outflows 
E)  Cash flows from financing activities-increase as a result of cash inflows
F) Cash flows from financing activities-decrease as a result of cash outflows
G) Disclosed as a non-cash transaction in the notes
H) Appears in operating activities only under the direct method

Question 6

Page Inc., a computer manufacturer located in Texas, lost an uninsured building due to the infrequent and unusual occurrence of a hurricane.The building has a balance sheet value of $30,000 and will cost $165,000 to rebuild.Page's income tax rate is 40%.Calculate the amount of any extraordinary loss that should be reported on Page's income statement.Prepare a partial income statement that shows how the item will be presented.

Accepted Answer

The answer of Page Inc., a computer manufacturer located in...

Question 7

For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct.
-Collected sales tax on behalf of the state government.

Accepted Answer

A)  Decrease current liabilities 
B)  Increase current liabilities 
C)  No effect on recorded current liabilities 
D)  Accrued contingent liability 
E)  Contingent liability disclosed in the notes only

Question 8

Given below are several items that will be reported on a company's financial statements.Select the letter of the proper financial statement reporting section listed as a through f.You may use each letter more than once or not at all.
-A loss incurred by Maranda Corporation due to a strike by employees of the company

Accepted Answer

A)  Income from continuing operations section of the income statement 
B)  Discontinued operations section of the income statement 
C)  Extraordinary items section of the income statement 
D)  Cumulative effect of a change in accounting principle section of the income statement 
E)  A separate comprehensive income item
F) Not reported on the income statement or comprehensive income statement

Question 9

One of Villager Corp's employees invented a revolutionary coffee lid that cools coffee as you drink it in order to prevent burns.Two children ordered coffee and burned their mouths after failing to properly secure the lids.The children's parents sued.Villager Corp's.lawyers believe that it is highly probable that judgment will be rendered against Villager Corp and it is likely a payment in excess of $2 million will be incurred.The proper accounting treatment of the lawsuit will

Accepted Answer

A)  decrease total liabilities. 
B)  increase total liabilities. 
C)  increase the current ratio. 
D)  require accountants to wait until the suit is settled to account for the event.

Question 10

Given below are several items that will be reported on a company's financial statements.Select the letter of the proper financial statement reporting section listed as a through f.You may use each letter more than once or not at all.
-Losses due to hurricane damage

Accepted Answer

A)  Income from continuing operations section of the income statement 
B)  Discontinued operations section of the income statement 
C)  Extraordinary items section of the income statement 
D)  Cumulative effect of a change in accounting principle section of the income statement 
E)  A separate comprehensive income item
F) Not reported on the income statement or comprehensive income statement

Question 11

At the beginning of 2010, Kacie Corp.'s allowance for doubtful accounts is $9,000.During 2010, $7,000 was written off as uncollectible.At December 31, the company used an aging schedule of accounts receivable and determined that $8,000 of the accounts receivable would probably be uncollectible.Calculate bad debts expense to be reported on Kacie's 2010 income statement.

Accepted Answer

The answer of At the beginning of 2010, Kacie Corp.'s...

Question 12

For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct.
-Accrued a bonus amounting to 5% on reported income to the CEO.

Accepted Answer

A)  Decrease current liabilities 
B)  Increase current liabilities 
C)  No effect on recorded current liabilities 
D)  Accrued contingent liability 
E)  Contingent liability disclosed in the notes only

Question 13

For each transaction provided in items , select the proper section of the statement of cash flows in which it should be reported using the indirect method from the reporting categories provided in a through h below.If the item is not required to be reported on the statement of cash flows, place an 'X' in the space provided.
-Retired long-term debt before its maturity date

Accepted Answer

A)  Cash flows from operating activities-will be added to net income 
B)  Cash flows from operating activities-will be subtracted from net income 
C)  Cash flows from investing activities-increase as a result of cash inflows 
D)  Cash flows from investing activities-decrease as a result of cash outflows 
E)  Cash flows from financing activities-increase as a result of cash inflows
F) Cash flows from financing activities-decrease as a result of cash outflows
G) Disclosed as a non-cash transaction in the notes
H) Appears in operating activities only under the direct method

Question 14

Preston Bank has $50 million of loans outstanding on December 31 of the current year, in which it recorded net income of $770,000.Preston did not provide for any uncollectible loans because all of its loans are collateralized by real estate.That is, if the loans were to default, Preston would obtain the title to the real estate for which the loans were made.However, during the audit of Preston's financial statements, the auditing company determined that $5 million of the outstanding loans would probably be dishonored (uncollectible).Because during the last three years real estate values have deteriorated, they also investigated the real estate that backed these collateralized loans.The market value of that real estate is negligible.
Recalculate Preston's loans receivable on December 31 and current net income to an amount that would be acceptable to the auditors.

Accepted Answer

The answer of Preston Bank has $50 million of loans...

Question 15

For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct.
-Accrued payroll taxes that the firm has to pay to the federal government within three months.

Accepted Answer

A)  Decrease current liabilities 
B)  Increase current liabilities 
C)  No effect on recorded current liabilities 
D)  Accrued contingent liability 
E)  Contingent liability disclosed in the notes only

Question 16

For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct.
-Received money from customers prior to delivery of the product to the customer.

Accepted Answer

A)  Decrease current liabilities 
B)  Increase current liabilities 
C)  No effect on recorded current liabilities 
D)  Accrued contingent liability 
E)  Contingent liability disclosed in the notes only

Question 17

Patrick Incorporated owns a chain of retail stores.During December of 2009, a customer slipped in a doorway of its Nebraska store and broke his ribs.He is suing Patrick for $200,000 for negligence.Patrick's legal counsel believes that it is remote that Patrick will lose its defense of the lawsuit because the doorway recently was rebuilt with all weather traction stripping and a sign on the door warned customers that the doorway was slippery when icy.On December 30, 2009, before considering the effects of this lawsuit, Patrick's current assets, total assets, current liabilities, and total liabilities were $420,000, $840,000, $100,000, and $300,000, respectively.After this event is properly accounted for, calculate Patrick's debt/equity ratio on December 31, 2009.

Accepted Answer

The answer of Patrick Incorporated owns a chain of retail...

Question 18

For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct.
-Issued a $1,000 short-term note payable for $970.

Accepted Answer

A)  Decrease current liabilities 
B)  Increase current liabilities 
C)  No effect on recorded current liabilities 
D)  Accrued contingent liability 
E)  Contingent liability disclosed in the notes only

Question 19

For each transaction provided in items , select the proper section of the statement of cash flows in which it should be reported using the indirect method from the reporting categories provided in a through h below.If the item is not required to be reported on the statement of cash flows, place an 'X' in the space provided.
-Amortization of patent

Accepted Answer

A)  Cash flows from operating activities-will be added to net income 
B)  Cash flows from operating activities-will be subtracted from net income 
C)  Cash flows from investing activities-increase as a result of cash inflows 
D)  Cash flows from investing activities-decrease as a result of cash outflows 
E)  Cash flows from financing activities-increase as a result of cash inflows
F) Cash flows from financing activities-decrease as a result of cash outflows
G) Disclosed as a non-cash transaction in the notes
H) Appears in operating activities only under the direct method

Question 20

For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct.
-Delivered products to a customer who previously paid for that product.

Accepted Answer

A)  Decrease current liabilities 
B)  Increase current liabilities 
C)  No effect on recorded current liabilities 
D)  Accrued contingent liability 
E)  Contingent liability disclosed in the notes only

Exam 6: Operating Transactions Revenues, Expenses, and Working Capital

For each item listed in, place the letter (a through e) of the accounting effect in the space provided.You may use each letter more than once or not at all. -During a period of increasing inventory and increasing prices, a company uses the LIFO method, which creates the largest cost of goods sold.

For each item numbered below, identify the letter of the best description by selecting from items a through e below.You may use each letter more than once or not at all. -Current liabilities

For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct. -Paid accounts payable.

For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct. -Collected sales tax on behalf of the state government.

Given below are several items that will be reported on a company's financial statements.Select the letter of the proper financial statement reporting section listed as a through f.You may use each letter more than once or not at all. -Losses due to hurricane damage

For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct. -Accrued a bonus amounting to 5% on reported income to the CEO.

For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct. -Issued a $1,000 short-term note payable for $970.

For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct. -Delivered products to a customer who previously paid for that product.