Deck 11: Reporting and Analyzing Stockholders Equity

Question 1

Allowance for Doubtful Accounts is reported in the:

A) balance sheet as a contra asset.
B) balance sheet as a contra liability account.
C) income statement under other expenses and losses.
D) income statement under other revenues and gains.

Answer 1

A

Question 2

Gordan Company sold old equipment for $40,000. The equipment had a cost of $100,000 and accumulated depreciation of $50,000. The entry to record the sale of the equipment would include a:

A) loss on disposal of $40,000.
B) gain on disposal of $40,000.
C) loss on disposal of $10,000.
D) gain on disposal of $10,000.

Answer 2

C

Question 3

The cost of intangible assets should be:

A) amortized over the assets' estimated useful life, or its legal life, whichever is shorter.
B) amortized over a period not exceeding 5 years.
C) amortized over the assets' estimated useful life.
D) charged to an expense account at acquisition.

Answer 3

A

Question 4

In a period of rising prices, the inventory method that results in the lowest income tax payment is:

A) LIFO.
B) FIFO.
C) average cost.
D) specific identification.

Question 5

Which of the following errors will cause a trial balance to be out of balance? The entry to record a payment on account was:

A) not posted at all.
B) posted as a debit to Cash and a credit to Accounts Payable.
C) posted as a debit to Cash and a debit to Accounts Payable.
D) posted as a debit to Accounts Receivable and a credit to Cash.

Question 6

Helix Company has a $280,000 balance in Accounts Receivable and a $2,000 debit balance in Allowance for Doubtful Accounts. Credit sales for the period totaled $1,800,000. What is the amount of the bad debt adjusting entry if Helix uses a percentage-of-receivables basis (at 10%)?

A) $30,000.
B) $28,000.
C) $32,000.
D) $30,400.

Question 7

Land should be recorded on Poin's books at:

A) $330,000.
B) $386,000.
C) $372,000.
D) $430,000.

Question 8

All of the following are intangible assets except:

A) patents.
B) land improvements.
C) goodwill.
D) franchises.

Question 9

Shipping terms of FOB destination mean that the:

A) purchaser is responsible for the shipping charges.
B) shipping charges are debited to Freight-Out.
C) items should be in the purchaser's inventory account at year-end if the items are in transit.
D) Both (a) and (c) above.

Question 10

When the allowance method is used for bad debts, the entry to write off an individual account known to be uncollectible involves a:

A) debit to an expense account.
B) credit to an expense account.
C) credit to the Allowance account.
D) debit to the Allowance account.

Question 11

The building should be recorded on Poin's books at:

A) $1,344,000.
B) $1,519,000.
C) $1,130,000.
D) $1,464,000.

Question 12

A daily cash count of register receipts made by a cashier department supervisor demonstrates an application of which of the following internal control principles?

A) Documentation procedures.
B) Segregation of duties.
C) Establishment of responsibility.
D) Independent internal verification.

Question 13

The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the:

A) economic entity assumption.
B) going concern assumption.
C) monetary unit assumption.
D) periodicity assumption.

Question 14

If merchandise is sold for $2,000 subject to credit terms of 2/10, n/30, the entry to record collection in full within the discount period would include a:

A) debit to Sales Discounts for $40.
B) credit to Cash for $1,960.
C) credit to Accounts Receivable for $40.
D) None of the above.

Question 15

The constraint of conservatism is best expressed as:

A) the cost of applying an accounting principle should not exceed its benefit.
B) only material items should be recorded and reported.
C) when in doubt, choose the method that will least likely overstate assets and net income.
D) the lower-of-cost-or-market method should be used for inventories.

Question 16

One of the two constraints in accounting is:

A) comparability.
B) materiality.
C) faithful representation.
D) relevance.

Question 17

Benson Supply bought equipment at a cost of $72,000 on January 2, 2008. It originally had an estimated life of ten years and a salvage value of $12,000. Benson uses the straight-line depreciation method. On December 31, 2012, Benson decided the useful life likely would end on December 31, 2013, with a salvage value of $6,000. The depreciation expense recorded on December 31, 2012, should be:

A) $6,000.
B) $21,000.
C) $12,000.
D) $10,500.

Question 18

In order to be relevant, accounting information must:

A) be neutral.
B) be verifiable.
C) help predict future events.
D) be a faithful representation.

Question 19

The preparation of closing entries:

A) is an optional step in the accounting cycle.
B) results in zero balances in all accounts at the end of the period so that they are ready for the following period's transactions.
C) is necessary before financial statements can be prepared.
D) results in transferring the balances in all temporary accounts to Retained Earnings.

Question 20

On November 30, Thatcher Company issued a $12,000, 6%, 6-month note to the National Bank. The entry on Thatcher's books to record the payment of the note at maturity will include a credit to Cash for:

A) $12,000.
B) $12,720.
C) $12,180.
D) $12,360.

Question 21

Bison Corp. purchased 25,000 shares of its $2 par common stock at a cost of $12 per share on April 30, 2012. The stock was originally issued at $10 per share. The entry to record the purchase of the stock should include a debit to:

A) Common Stock for $50,000.
B) Treasury Stock for $50,000.
C) Common Stock for $300,000.
D) Treasury Stock for $300,000.

Question 22

Starting with net income and adjusting it for items that affected reported net income but which did not affect cash is called the:

A) direct method.
B) indirect method.
C) working capital method.
D) cost-benefit method.

Question 23

Which of the following pairs of terms in the area of financial statement analysis are synonymous?

A) Ratio - Trend
B) Horizontal - Trend
C) Vertical - Ratio
D) Horizontal - Ratio

Question 24

Which of the following would not be included in the operating activities section of a statement of cash flows?

A) Cash inflows from returns on loans (i.e., interest).
B) Cash inflows from returns on equity securities (i.e., dividends).
C) Cash outflows to governments for taxes.
D) Cash outflows to reacquire treasury stock.

Question 25

Which of the following statements is true?

A) Trading securities are debt securities that the investor has the intent to hold to maturity.
B) Trading securities are securities bought and held primarily for sale in the near term.
C) Trading securities are securities that may be sold in the future.
D) Trading securities are reported at cost in the balance sheet.

Question 26

The Discount on Bonds Payable account:

A) is a contra account to Bonds Payable.
B) will cause interest expense to be less than cash interest payable.
C) is increased over the life of the bond until it equals the bond's face value.
D) is an adjunct account to Bonds Payable.

Question 27

If the market rate of interest is lower than the stated rate, bonds will sell at an amount:

A) equal to face value.
B) not determinable from the given information.
C) lower than face value.
D) higher than face value.

Question 28

The statement of cash flows is a(n):

A) required supplemental financial statement.
B) required basic financial statement.
C) optional basic financial statement.
D) optional supplementary statement.

Question 29

Carne Manufacturing declared a 10% stock dividend when it had 200,000 shares of $5 par value common stock outstanding. The market price per common share was $15 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to:

A) Stock Dividends of $300,000.
B) Paid-in Capital in Excess of Par for $200,000.
C) Common Stock for $300,000.
D) Stock Dividends for $100,000.

Question 30

Which of the following should be classified as an extraordinary item?

A) Effects of major casualties not infrequent in the area.
B) Write-off of a significant amount of receivables.
C) Loss from the expropriation of facilities by a foreign government.
D) Losses due to a bitter, lengthy labor strike.

Question 31

The primary accounting standard-setting body in the United States is the:

A) Securities and Exchange Commission.
B) Accounting Principles Board.
C) Financial Accounting Standards Board.
D) Internal Revenue Service.