Questions and Answers of Financial And Managerial Accounting

Waldo Corporation had the following transactions pertaining to debt investments. Jan. 1 Purchased 30, $1,000 Hillary Co. 10% bonds for $30,000, plus brokerage fees of $900. Interest is payable
Some of Powderhorn Corporation’s investment securities are classified as trading securities and some are classified as non-trading. The cost and fair value of each category at December 31, 2014,
Identify where each of the following items would be reported in the financial statements.1. Interest earned on investments in bonds.2. Fair value adjustment—non-trading.3. Unrealized loss on
In its first year of operations, DeMarco Company had the following selected transactions in stock investments that are considered trading securities.Instructions (a) Journalize the transactions.(b)
Which of the following is not a primary reason why corporations invest in debt and equity securities?(a) They wish to gain control of a competitor.(b) They have excess cash.(c) They wish to move into
Debt investments are initially recorded at:(a) cost.(b) cost plus accrued interest.(c) fair value.(d) None of the above.
Hanes Company sells debt investments costing $26,000 for $28,000, plus accrued interest that has been recorded. In journalizing the sale, credits are to:(a) Debt Investments and Loss on Sale of Debt
Pryor Company receives net proceeds of $42,000 on the sale of stock investments that cost $39,500. This transaction will result in reporting in the income statement a:(a) loss of $2,500 under
Assume that Horicon Corp acquired 25% of the common stock of Sheboygan Corp. on January 1, 2014, for $300,000. During 2014 Sheboygan Corp. reported net income of $160,000 and paid total dividends of
Using the information in Self-Test Question 6, what entry would Horicon make to record the receipt of the dividend from Sheboygan?Data from Self-Test Question 6Assume that Horicon Corp acquired 25%
You have a controlling interest if:(a) you own more than 20% of a company’s stock.(b) you are the president of the company.(c) you use the equity method.(d) you own more than 50% of a company’s
Which of the following statements is not true? Consolidated financial statements are useful to:(a) determine the profitability of specific subsidiaries.(b) determine the total profitability of
At the end of the first year of operations, the total cost of the trading securities portfolio is $120,000. Total fair value is $115,000. The financial statements should show:(a) a reduction of an
At December 31, 2014, the fair value of non-trading securities is $41,300 and the cost is $39,800. At January 1, 2014, there was a credit balance of $900 in the Fair Value Adjustment—Non-Trading
Short-term debt investments must be readily marketable and expected to be sold within:(a) 3 months from the date of purchase.(b) the next year or operating cycle, whichever is shorter.(c) the next
Pate Company pays $175,000 for 100% of Sinko’s common stock when Sinko’s stockholders’ equity consists of Common Stock $100,000 and Retained Earnings $60,000. In the worksheet for the
Which of the following statements about intercompany eliminations is true?(a) They are not journalized or posted by any of the subsidiaries.(b) They do not affect the ledger accounts of any of the
Which one of the following statements about consolidated income statements is false?(a) A worksheet facilitates the preparation of the statement.(b) The consolidated income statement shows the
Under IFRS, at the end of the first year of operations, the total cost of the trading investments portfolio is $120,000. Total fair value is $115,000. The financial statement should show:(a) a
Under IFRS, unrealized gains on non-trading stock investments should:(a) be reported as other revenues and gains in the income statement as part of net income.(b) be reported as other gains on the
During its first week, Duffy & Stevenson Company had these transactions.1. Issued 100,000 shares of $5 par value common stock for $800,000 cash.2. Borrowed $200,000 from Castle Bank, signing a 5-year
Josh’s PhotoPlus reported net income of $73,000 for 2014. Included in the income statement were depreciation expense of $7,000 and a gain on disposal of plant assets of $2,500.Josh’s comparative
Use the information below and on the next page to prepare a statement of cash flows using the indirect method.Additional information:1. Operating expenses include depreciation expense of $33,000.2.
Chicago Corporation issued the following statement of cash flows for 2014.(a) Compute free cash flow for Chicago Corporation. (b) Explain why free cash flow often provides better information than
The income statement for the year ended December 31, 2014, for Kosinski Company contains the following condensed information.Instructions Prepare the statement of cash flows using the indirect
The income statement for Kosinski Company contains the following condensed information.Instructions Prepare the statement of cash flows using the direct method. Kosinski Company Income Statement For
Which of the following is incorrect about the statement of cash flows?(a) It is a fourth basic financial statement.(b) It provides information about cash receipts and cash payments of an entity
Which of the following will not be reported in the statement of cash flows?(a) The net change in plant assets during the year.(b) Cash payments for plant assets purchased during the year.(c) Cash
The statement of cash flows classifies cash receipts and cash payments by these activities:(a) operating and nonoperating.(b) investing, financing, and operating.(c) financing, operating, and
Which is an example of a cash flow from an operating activity?(a) Payment of cash to lenders for interest.(b) Receipt of cash from the sale of capital stock.(c) Payment of cash dividends to the
Which is an example of a cash flow from an investing activity?(a) Receipt of cash from the issuance of bonds payable.(b) Payment of cash to repurchase outstanding capital stock.(c) Receipt of cash
Cash dividends paid to stockholders are classified on the statement of cash flows as:(a) operating activities.(b) investing activities.(c) a combination of (a) and (b).(d) financing activities.
Which is an example of a cash flow from a financing activity?(a) Receipt of cash from sale of land.(b) Issuance of debt for cash.(c) Purchase of equipment for cash.(d) None of the above.
Which of the following is incorrect about the statement of cash flows?(a) The direct method may be used to report cash provided by operations.(b) The statement shows the cash provided (used) for
Net income is $132,000, accounts payable increased $10,000 during the year, inventory decreased $6,000 during the year, and accounts receivable increased $12,000 during the year. Under the indirect
Items that are added back to net income in determining cash provided by operating activities under the indirect method do not include:(a) depreciation expense.(b) an increase in inventory.(c)
The following data are available for Allen Clapp Corporation.Net cash provided by operating activities is:(a) $160,000. (b) $220,000.(c) $240,000.(d) $280,000. Net income Depreciation expense
The following data are available for Orange Peels Corporation.Net cash provided by investing activities is:(a) $120,000.(b) $130,000. (c) $150,000.(d) $190,000. Sale of land Sale of equipment
The following data are available for Something Strange!Net cash provided by financing activities is:(a) $90,000.(b) $130,000.(c) $160,000.(d) $170,000. Increase in accounts payable Increase in bonds
The statement of cash flows should not be used to evaluate 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) generate net income.(b) generate cash to pay dividends.(c) generate cash to invest in new capital expenditures.(d) Both (b) and
In a worksheet for the statement of cash flows, a decrease in accounts receivable is entered in the reconciling columns as a credit to Accounts Receivable and a debit in the:(a) investing activities
In a worksheet for the statement of cash flows, a worksheet entry that includes a credit to accumulated depreciation will also include a:(a) credit in the operating section and a debit in another
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 customers?(a) $127,000. (b) $129,000.
Which of the following items is reported on a statement of cash flows prepared by the direct method?(a) Loss on sale of building.(b) Increase in accounts receivable.(c) Depreciation expense.(d) Cash
Under IFRS, interest paid can be reported as:(a) only a financing element.(b) a financing element or an investing element.(c) a financing element or an operating element.(d) only an operating element.
In the future, it appears likely that:(a) the income statement and balance sheet will have headings of operating, investing, and financing, much like the statement of cash flows.(b) cash and cash
Under IFRS:(a) taxes are always treated as an operating item.(b) the income statement uses the headings operating, investing, and financing.(c) dividends received can be either an operating or
Which of the following is correct?(a) Under IFRS, the statement of cash flows is optional.(b) IFRS requires use of the direct approach in preparing the statement of cash flows.(c) The majority of
Summary financial information for Rosepatch Company is as follows.Compute the amount and percentage changes in 2014 using horizontal analysis, assuming 2013 is the base year. Current assets Plant
The condensed financial statements of John Cully Company, for the years ended June 30, 2014 and 2013, are presented below.Compute the following ratios for 2014 and 2013.(a) Current ratio.(b)
Match each of the following terms with the phrase that best describes it.1. _______ Measures the ability of the company to survive over a long period of time.2. _______ Usually excludes items that a
The events and transactions of Dever Corporation for the year ending December 31, 2014, resulted in the following data.Analysis reveals that:1. All items are before the applicable income tax rate of
Comparisons of data within a company are an example of the following comparative basis:(a) Industry averages.(b) Intracompany.(c) Intercompany.(d) Both (b) and (c).
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.
In vertical analysis, the base amount for depreciation expense is generally:(a) net sales.(b) depreciation expense in a previous year.(c) gross profit.(d) fixed assets.
The following schedule is a display of what type of analysis?(a) Horizontal analysis.(b) Differential analysis.(c) Vertical analysis.(d) Ratio analysis. Current assets Property, plant, and equipment
Sammy Corporation reported net sales of $300,000, $330,000, and $360,000 in the years, 2012, 2013, and 2014, respectively. If 2012 is the base year, what is the trend percentage for 2014?(a) 77%.(b)
Which of the following measures is an evaluation of a firm’s ability to pay current liabilities?(a) Acid-test ratio.(b) Current ratio.(c) Both (a) and (b).(d) None of the above.
A measure useful in evaluating the efficiency in managing inventories is:(a) inventory turnover.(b) average days to sell inventory.(c) Both (a) and (b).(d) None of the above.
Compute the days in inventory for 2014.(a) 64.4 days.(b) 60.8 days.(c) 6 days.(d) 24 days. Inventory Current assets Total assets. Current liabilities Total liabilities Preferred stock 40,000 Common
Compute the current ratio for 2014.(a) 1.26:1.(b) 3.0:1.(c) .80:1.(d) 3.75:1. Inventory Current assets Total assets. Current liabilities Total liabilities Preferred stock 40,000 Common stockholders'
Compute the profit margin ratio for 2014.(a) 17.1%.(b) 18.1%.(c) 37.9%.(d) 5.9%. Inventory Current assets Total assets. Current liabilities Total liabilities Preferred stock 40,000 Common
Compute the return on common stockholders’ equity for 2014.(a) 47.9%.(b) 51.7%.(c) 61.2%.(d) 59.4%. Inventory Current assets Total assets. Current liabilities Total liabilities Preferred stock
Compute the times interest earned for 2014.(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 Preferred stock
In reporting discontinued operations, the income statement should show in a special section:(a) gains and losses on the disposal of the discontinued segment.(b) gains and losses from operations of
Scout Corporation has income before taxes of $400,000 and an extraordinary loss of $100,000. If the income tax rate is 25% on all items, the income statement should show income before extraordinary
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 earned.(c) Maintenance costs are
Ridette Inc. accumulated the following standard cost data concerning product Cty31.Direct materials per unit: 1.5 pounds at $4 per pound Direct labor per unit: 0.25 hours at $13 per hour.
The standard cost of Wonder Walkers includes two units of direct materials at $8.00 per unit. During July, the company buys 22,000 units of direct materials at $7.50 and uses those materials to
Manlow Company makes a cologne called Allure. The standard cost for one bottle of Allure is as follows.During the month, the following transactions occurred in manufacturing 10,000 bottles of
The standard cost of Product YY includes 3 hours of direct labor at $12.00 per hour. The predetermined overhead rate is $20.00 per direct labor hour. During July, the company incurred 3,500 hours of
Which of the following is not an example of a capital budgeting decision?(a) Decision to build a new plant.(b) Decision to renovate an existing facility.(c) Decision to buy a piece of machinery.(d)
Watertown Paper Corporation is considering adding another machine for the manufacture of corrugated cardboard. The machine would cost $900,000. It would have an estimated life of 6 years and no
What is the order of involvement of the following parties in the capital budgeting authorization process?(a) Plant managers, officers, capital budget committee, board of directors.(b) Board of
Watertown Paper Corporation is considering adding another machine for the manufacture of corrugated cardboard. The machine would cost $900,000. It would have an estimated life of 6 years and no
What is a weakness of the cash payback approach?(a) It uses accrual-based accounting numbers.(b) It ignores the time value of money.(c) It ignores the useful life of alternative projects.(d) Both (b)
Watertown Paper Corporation is considering adding another machine for the manufacture of corrugated cardboard. The machine would cost $900,000. It would have an estimated life of 6 years and no
Siegel Industries is considering two capital budgeting projects. Project A requires an initial investment of $48,000. It is expected to produce net annual cash flows of $7,000. Project B requires an
Watertown Paper Corporation is considering adding another machine for the manufacture of corrugated cardboard. The machine would cost $900,000. It would have an estimated life of 6 years and no
Which is a true statement regarding using a higher discount rate to calculate the net present value of a project?(a) It will make it less likely that the project will be accepted.(b) It will make it
Cornfield Company is considering a long-term capital investment project in laser equipment.This will require an investment of $280,000, and it will have a useful life of 5 years.Annual net income is
A positive net present value means that the:(a) project’s rate of return is less than the cutoff rate.(b) project’s rate of return exceeds the required rate of return.(c) project’s rate of
Which of the following is not an alternative name for the discount rate?(a) Hurdle rate.(b) Required rate of return.(c) Cutoff rate.(d) All of these are alternative names for the discount rate.
If a project has intangible benefits whose value is hard to estimate, the best thing to do is:(a) ignore these benefits, since any estimate of their value will most likely be wrong.(b) include a
An example of an intangible benefit provided by a capital budgeting project is:(a) the salvage value of the capital investment.(b) a positive net present value.(c) a decrease in customer complaints
The following information is available for a potential capital investment.The potential investment’s profitability index (rounded to two decimals) is:(a) 5.40.(b) 1.19.(c) 1.23.(d) 1.40. Initial
A post-audit of an investment project should be performed:(a) on all significant capital expenditure projects.(b) on all projects that management feels might be financial failures.(c) on randomly
A project should be accepted if its internal rate of return exceeds:(a) zero.(b) the rate of return on a government bond.(c) the company’s required rate of return.(d) the rate the company pays on
The following information is available for a potential capital investment.The potential investment’s internal rate of return is approximately:(a) 5%.(b) 10%.(c) 4%.(d) 9%. Initial investment Net
Which of the following is incorrect about the annual rate of return technique?(a) The calculation is simple.(b) The accounting terms used are familiar to management.(c) The timing of the cash inflows
The following information is available for a potential capital investment.The potential investment’s annual rate of return is approximately:(a) 21%.(b) 15%.(c) 30%.(d) 39%. Initial investment
As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2014. 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 above.
Tinker Bell Company has the following:If Tinker Bell has 9,000 units 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.
Using the data in Question 4 above, the cost of the ending inventory under LIFO is:Data from Question 4Tinker Bell Company has the following:If Tinker Bell has 9,000 units on hand at December 31, the
Davidson Electronics has the following:If Davidson has 7,000 units on hand at December 31, the cost of ending inventory under the average-cost method is:(a) $84,000. (c) $56,000.(b) $70,000. (d)
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.
Factors 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 system.
Rickety Company purchased 1,000 widgets and has 200 widgets in its ending inventory at a cost of $91 each and a current replacement cost of $80 each. The ending inventory under

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