Questions and Answers of Financial Accounting 11th

The statement of cash flows should not be used toevaluate an entity’s ability to:(a) earn net income.(b) generate future cash flows.(c) pay dividends.(d) meet obligations.
Free cash flow provides an indication of a company’s ability to:(a) manage inventory.(b) generate cash to pay dividends.(c) generate cash to invest in new capital expenditures.(d) Both (b) and
The beginning balance in accounts receivable is $44,000, the ending balance is $42,000, and sales during the period are $129,000. What are cash receipts from
Which of the following items is reported on a statementof cash flows prepared by the direct method?(a) Loss on sale of building.(b) Increase in accounts receivable.(c) Depreciation expense.(d) Cash
In a worksheet for the statement of cash flows, adecrease in accounts receivable is entered in the reconcilingcolumns as a credit to Accounts Receivableand a debit in the:(a) investing activities
In a worksheet for the statement of cash flows, aworksheet entry that includes a credit to accumulateddepreciation will also include a:(a) credit in the operating activities section and adebit in
During 2019, Doubleday Company converted $1,700,000 of its total $2,000,000 of bonds payable into common stock. Indicate how the transaction would be reported on a statement of cash flows, if at all.
Assume that during 2019, Cypress Semiconductor Corporation reported net cash provided by operating activities of $155,793,000, net cash used in investing activities of $207,826,000 (including cash
Apply the concepts of sustainable income and quality of earnings.
Apply horizontal analysis and vertical analysis.
Evaluate a company comprehensively using ratio analysis.
In reporting discontinued operations, the income statement should show in a special section:(a) gains on the disposal of the discontinued component.(b) losses on the disposal of the discontinued
Which of the following would be considered an“Other comprehensive income” item?(a) Gain on disposal of discontinued operations.(b) Unrealized loss on available-for-sale securities.(c) Loss
Which situation below might indicate a company has a low quality of earnings?(a) The same accounting principles are used each year.(b) Revenue is recognized when the performance obligation is satisfi
In horizontal analysis, each item is expressed as a percentage of the:(a) net income amount.(b) stockholders’ equity amount.(c) total assets amount.(d) base-year amount.
Adams Corporation reported net sales of $300,000,$330,000, and $360,000 in the years 2017, 2018, and 2019, respectively. If 2017 is the base year, what percentage do 2019 sales represent of the
The following schedule is a display of what type of analysis?(a) Horizontal analysis. (c) Vertical analysis.(b) Differential analysis. (d) Ratio analysis. Current assets Property, plant, and
In vertical analysis, the base amount for depreciation expense is generally:(a) net sales.(b) depreciation expense in a previous year.(c) gross profi t.(d) fi xed assets.
Which measure is an evaluation of a company’s ability to pay current liabilities?(a) Accounts receivable turnover.(b) Current ratio.(c) Both (a) and (b).(d) None of the above.
Which measure is useful in evaluating the effi ciency in managing inventories?(a) Inventory turnover.(b) Days in inventory.(c) Both (a) and (b).(d) None of the above.
Which of these is not a liquidity ratio?(a) Current ratio.(b) Asset turnover.(c) Inventory turnover.(d) Accounts receivable turnover.
Plano Corporation reported net income $24,000, net sales $400,000, and average assets $600,000 for 2019.What is the 2019 profit margin?(a) 6%.(b) 12%.(c) 40%.(d) 200%.
Compute the days in inventory for 2019.(a) 64.4 days.(b) 60.8 days.(c) 6 days.(d) 24 days. Inventory Current assets Total assets Current liabilities Total liabilities Common stockholders' equity Net
Compute the current ratio for 2019.(a) 1.26:1.(b) 3.0:1.(c) 0.80:1.(d) 3.75:1. Inventory Current assets Total assets Current liabilities Total liabilities Common stockholders' equity Net sales Cost
Compute the profit margin for 2019.(a) 17.1%.(b) 18.1%.(c) 37.9%.(d) 5.9%. Inventory Current assets Total assets Current liabilities Total liabilities Common stockholders' equity Net sales Cost of
Compute the return on common stockholders’ equity for 2019.(a) 54.2%.(b) 52.5%.(c) 61.2%.(d) 59.4%. Inventory Current assets Total assets Current liabilities Total liabilities Common stockholders'
Compute the times interest earned for 2019.(a) 11.2 times.(b) 65.3 times.(c) 14.0 times.(d) 13.0 times. Inventory Current assets Total assets Current liabilities Total liabilities Common
The basic tools of financial analysis are the same under both GAAP and IFRS except that:(a) horizontal analysis cannot be done because the format of the statements is sometimes different.(b) analysis
In preparing its income statement for 2019, Parmalane assembles the following information.Ignoring income taxes, what is Parmalane’s income from continuing operations for 2019 under IFRS?(a)
Depreciation is a process of:(a) valuation.(b) cost allocation.(c) cash accumulation.(d) appraisal.
Micah Bartlett Company purchased equipment onJanuary 1, 2018, at a total invoice cost of $400,000.The equipment has an estimated salvage value of$10,000 and an estimated useful life of 5 years.
Ann Torbert purchased a truck for $11,000 on January1, 2018. The truck will have an estimated salvage value of $1,000 at the end of 5 years. Using theunits-of-activity method, the balance in
Jefferson Company purchased a piece of equipmenton January 1, 2019. The equipment cost $60,000 andhas an estimated life of 8 years and a salvage value of$8,000. What was the depreciation expense for
Able Towing Company purchased a tow truck for$60,000 on January 1, 2017. It was originally depreciatedon a straight-line basis over 10 years with anassumed salvage value of $12,000. On December
Bennie Razor Company has decided to sell one of itsold manufacturing machines on June 30, 2019. Themachine was purchased for $80,000 on January 1,2015, and was depreciated on a straight-line basis
Maggie Sharrer Company expects to extract 20 milliontons of coal from a mine that cost $12 million. If nosalvage value is expected and 2 million tons are minedin the fi rst year, the entry to record
Martha Beyerlein Company incurred $150,000 ofresearch and development costs in its laboratory todevelop a patent granted on January 2, 2019. OnJuly 31, 2019, Beyerlein paid $35,000 for legal fees in
Lake Coffee Company reported net sales of $180,000,net income of $54,000, beginning total assets of$200,000, and ending total assets of $300,000. Whatwas the company’s asset turnover?(a) 0.90.(b)
Schopenhauer Company exchanged an old machine,with a book value of $39,000 and a fair value of$35,000, and paid $10,000 cash for a similar newmachine. The transaction has commercial substance.At what
Data for Bethke Company are presented in BE6-3. Compute the cost of the ending inventory under the average-cost method, assuming there are 360 units on hand. (Round average cost per unit to nearest
Matilda Company reported the following amounts (in euros) in 2019: Net income, €150,000;Unrealized gain related to revaluation of buildings, €10,000; and Unrealized loss on non-trading
When is a physical inventory usually taken?(a) When the company has its greatest amount of inventory.(b) When a limited number of goods are being sold or received.(c) At the end of the company’s
Which of the following should not be included in the physical inventory of a company?(a) Goods held on consignment from another company.(b) Goods shipped on consignment to another company.(c) Goods
As a result of a thorough physical inventory, Railway Company determined that it had inventory worth$180,000 at December 31, 2019. This count did not take into consideration the following facts:
Cost of goods available for sale consists of two elements:beginning inventory and:(a) ending inventory.(b) cost of goods purchased.(c) cost of goods sold.(d) All of the answer choices are correct.
Poppins Company has the following:If 9,000 units are on hand at December 31, the cost of the ending inventory under FIFO is:(a) $99,000.(b) $108,000.(c) $113,000.(d) $117,000. Inventory, Jan. 1
Using the data in Question 5, the cost of the ending inventory under LIFO is:(a) $113,000.(b) $108,000.(c) $99,000.(d) $100,000.
Hansel Electronics has the following:If Hansel has 7,000 units on hand at December 31, the cost of ending inventory under the average-cost method
In periods of rising prices, LIFO will produce:(a) higher net income than FIFO.(b) the same net income as FIFO.(c) lower net income than FIFO.(d) higher net income than average-cost.
Considerations that affect the selection of an inventory costing method do not include:(a) tax effects.(b) balance sheet effects.(c) income statement effects.(d) perpetual vs. periodic inventory
Falk Company’s ending inventory is understated $4,000. The effects of this error on the current year’s cost of goods sold and net income, respectively, are:(a) understated, overstated.(b)
Pauline Company overstated its inventory by $15,000 at December 31, 2018. It did not correct the error in 2018 or 2019. As a result, Pauline’s stockholders’equity was:(a) overstated at December
The lower-of-cost-or-net realizable value rule for inventory is an example of the application of:(a) the conservatism convention.(b) the historical cost principle.(c) the materiality concept.(d) the
Norton Company purchased 1,000 widgets and has 200 widgets in its ending inventory at a cost of $91 each and a net realizable value of $80 each. The ending inventory under lower-of-cost-or-net
Santana Company had beginning inventory of$80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales of $475,000. Santana’s days in inventory is:(a) 73 days.(b) 121.7 days.(c)
Which of these would cause the inventory turnover to increase the most?(a) Increasing the amount of inventory on hand.(b) Keeping the amount of inventory on hand constant but increasing sales.(c)
In a perpetual inventory system:(a) LIFO cost of goods sold will be the same as in a periodic inventory system.(b) average costs are a simple average of unit costs incurred.(c) a new average is
King Company has sales of $150,000 and cost of goods available for sale of $135,000. If the gross profit rate is 30%, the estimated cost of the ending inventory under the gross profit method
Katz Hat Shop received a shipment of hats for which it paid the wholesaler $2,970. The price of the hats was $3,000, but Katz was given a $30 cash discount and required to pay freight charges of $50.
Kuzu Company discovers in 2019 that its ending inventory at December 31, 2018, was $7,000 understated.What effect will this error have on (a) 2018 net income, (b) 2019 net income, and (c) the
Central Appliance Center accumulates the following cost and net realizable value data at December 31.Compute the lower-of-cost-or-net realizable value for the company’s total inventory. Inventory
At December 31, 2019, the following information was available for A. Kamble Company: ending inventory $40,000, beginning inventory $60,000, cost of goods sold$270,000, and sales revenue $380,000.
Austin Limited is trying to determine the value of its ending inventory as of February 28, 2019, the company’s year-end. The following transactions occurred, and the accountant asked your help in
The management of Felipe Inc. is reevaluating the appropriateness of using its present inventory cost fl ow method, which is average-cost. The company requests your help in determining the results of
Which of the following should not be included in the inventory of a company using IFRS?(a) Goods held on consignment from another company.(b) Goods shipped on consignment to another company.(c) Goods
Which of the following is not an element of the fraud triangle?(a) Rationalization.(b) Financial pressure.(c) Segregation of duties.(d) Opportunity.
An organization uses internal control to enhance the accuracy and reliability of accounting records and to:(a) safeguard assets.(b) prevent fraud.(c) produce correct financial statements.(d) deter
Which of the following was not a result of the Sarbanes-Oxley Act?(a) Companies must fi le financial statements with the Internal Revenue Service.(b) All publicly traded companies must maintain
The principles of internal control do not include:(a) establishment of responsibility.(b) documentation procedures.(c) management responsibility.(d) independent internal verification.
Physical controls do not include:(a) safes and vaults to store cash.(b) independent bank reconciliations.(c) locked warehouses for inventories.(d) bank safety deposit boxes for important papers.
Which of the following control activities is not relevant when a company uses a computerized (rather than manual) accounting system?(a) Establishment of responsibility.(b) Segregation of duties.(c)
Permitting only designated personnel to handle cash receipts is an application of the principle of:(a) segregation of duties.(b) establishment of responsibility.(c) independent internal
The use of prenumbered checks in disbursing cash is an application of the principle of:(a) establishment of responsibility.(b) segregation of duties.(c) physical controls.(d) documentation procedures.
A company writes a check to replenish a $100 petty cash fund when the fund contains receipts of $94 and $4 in cash. In recording the check, the company should:(a) debit Cash Over and Short for $2.(b)
The control features of a bank account do not include:(a) having bank auditors verify the correctness of the bank balance per books.(b) minimizing the amount of cash that must be kept on hand.(c)
In a bank reconciliation, deposits in transit are:(a) deducted from the book balance.(b) added to the book balance.(c) added to the bank balance.(d) deducted from the bank balance.
The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is:(a) outstanding checks.(b) deposit in transit.(c) a bank error.(d) bank service charges.
Which of the following items in a cash drawer at November 30 is not cash?(a) Money orders.(b) Coins and currency.(c) An NSF check.(d) A customer check dated November 28.
Which of the following statements correctly describes the reporting of cash?(a) Cash cannot be combined with cash equivalents.(b) Restricted cash funds may be combined with cash.(c) Cash is listed fi
As the company accountant, the management of Nickle Company asks you to explain (a) the concept of reasonable assurance in internal control and (b) the importance of the human factor in internal
Presented below are selected accounts for B. Midler Company as reported in the worksheet at the end of May 2019. Ending inventory is $75,000.Instructions Complete the worksheet by extending amounts
Receivables are frequently classified as:(a) accounts receivable, company receivables, and other receivables.(b) accounts receivable, notes receivable, and employee receivables.(c) accounts
Buehler Company on June 15 sells merchandise on account to Chaz Co. for $1,000, terms 2/10, n/30. On June 20, Chaz Co. returns merchandise worth $300 to Buehler Company. On June 24, payment is
Accounts and notes receivable are reported in the current assets section of the balance sheet at:(a) cash (net) realizable value.(b) net book value.(c) lower-of-cost-or-market value.(d) invoice cost.
Hughes Company has a credit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on review and aging of its accounts receivable at
Net credit sales for the month are $800,000. The accounts receivable balance is $160,000. The allowance is calculated as 7.5% of the receivables balance using the percentage-of-receivables basis. If
Borke Company has a credit balance of $3,000 in Allowance for Doubtful Accounts before adjustment. The total estimated uncollectibles under the percentage-of-receivables basis is $5,800. Prepare the
In 2019, Patterson Wholesale Company had net credit sales of $750,000. On January 1, 2019, Allowance for Doubtful Accounts had a credit balance of $18,000.During 2019, $30,000 of uncollectible
Which of the following statements about Visa credit card sales is incorrect?(a) The credit card issuer makes the credit investigation of the customer.(b) The retailer is not involved in the
A receivable that is evidenced by a formal instrument and that normally requires the payment of interest is a(n):(a) account receivable.(b) trade receivable.(c) note receivable.(d) classifi ed
An analysis and aging of the accounts receivable of Prince Company at December 31 reveals the following data.Accounts receivable $800,000 Allowance for doubtful accounts per books before adjustment
Blinka Retailers accepted $50,000 of Citibank Visa credit card charges for merchandise sold on July 1.Citibank charges 4% for its credit card use. The entry to record this transaction by Blinka
One of the following statements about promissory notes is incorrect. The incorrect statement is:(a) The party making the promise to pay is called the maker.(b) The party to whom payment is to be made
Foti Co. accepts a $1,000, 3-month, 6% promissory note in settlement of an account with Bartelt Co. The entry to record this transaction is as follows. (a) Notes Receivable Accounts Receivable (b)
Ginter Co. holds Kolar Inc.’s $10,000, 120-day, 9% note. The entry made by Ginter Co. when the note is collected, assuming no interest has been previously accrued, is: (a) Cash Notes Receivable (b)
Prall Corporation sells its goods on terms of 2/10, n/30. It has an accounts receivable turnover of 7.What is its average college period (days)?(a) 2,555.(b) 30.(c) 52.(d) 210.
Oliveras Company had net credit sales during the year of $800,000 and cost of goods sold of $500,000.The balance in accounts receivable at the beginning of the year was $100,000, and the end of the
The revenue recognition principle states that:(a) revenue should be recognized in the accountingperiod in which a performance obligation issatisfied.(b) expenses should be matched with revenues.(c)
The time period assumption states that:(a) companies must wait until the calendar year is completed to prepare financial statements.(b) companies use the fiscal year to report financial
Which of the following statements about the accrualbasis of accounting is false?(a) Events that change a company’s financial statements are recorded in the periods in which the events occur.(b)

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