Subject: Global Financial Statement Analysis

Multiple-choice questions. Complete all questions presented.

1. An adjusting entry:

a. affects two balance sheet accounts.

b. affects two income statement accounts.

c. affects a balance sheet account and an income statement account.

d. is always a compound entry.

2. Under U.S. GAAP, the correct order in which to present current assets is:

a. cash, accounts receivable, prepaid items, inventories.

b. cash, inventories, prepaid items, accounts receivable.

c. cash, accounts receivable, inventories, prepaid items.

d. cash, inventories, prepaid items, accounts receivable.

3. Which of the following correctly identifies normal balances of accounts?

a. Assets Debit

Liabilities Credit

Common Stock Credit

Revenues Debit

Expenses Credit

b. Assets Debit

Liabilities Credit

Common Stock Credit

Revenues Credit

Expenses Credit

c. Assets Credit

Liabilities Debit

Common Stock Debit

Revenues Credit

Expenses Debit

d. Assets Debit

Liabilities Credit

Common Stock Credit

Revenues Credit

Expenses Debit

4. Merger Co, Ltd. purchased a machine costing $125,000 for its manufacturing operations and paid shipping costs of $20,000. Merger spent an additional $10,000 testing and preparing the machine for use.What amount should Merger record as the cost of the machine?

a. $155,000.

b. $145,000.

c. $135,000.

d. $125,000.

5. A dress shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The dress shop follows GAAP and applies the revenue recognition principle. When is the $1,000 considered to be earned?

a.December 5

b.December 10

c.November 30

d. December 1

6. Failure to prepare an adjusting entry at the end of the period to record an accrued revenue would cause:

a. net income to be overstated.

b. an understatement of assets and an understatement of revenues.

c. an understatement of revenues and an understatement of liabilities.

d. an understatement of revenues and an overstatements of liabilities.

7. A company purchased factory equipment on June 1, 2019, for $96,000. It is estimated that the equipment will have a $6,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2014, is

a. $9,000. c. $4,500.

b. $5,250. d.$3,750.

8. Weiser, Inc. had the following account balances at December 31:

Accounts receivable: $900,000

Allowance for uncollectible accounts (before provision for

the year's uncollectible account expense) 16,000

Credit sales for the year 1,750,000

Weiser is considering the following methods of estimating uncollectible account expense for the year:

• Based on credit sales at 2%
• Based on accounts receivable at 5%

What amount should Weiser charge to uncollectible accounts expense under each method?

% of Credit Sales % of Accounts Receivable

a. $51,000 $45,000

b. $51,000 $29,000

c. $35,000 $45,000

d. $35,000 $29,000

9. On December 31, Year 4, Denny Co. failed to accrue the December Year 4 sales salaries that were payable on January 6, Year 5. As a result,

a. working capital is overstated.

b. retained earnings is understated.

c. liabilities are overstated.

d. assets are understated.

10. On January 15, Year 5, Remo Corporation declared its annual cash dividend on common stock for the year ended January 31, Year 5. The dividend was paid on February 9, Year 5, to shareholders of record as of January 28, Year 5. On what date should Remo decrease retained earnings by the amount of the dividend?

a. January 15, Year 5.

b. January 31, Year 5.

c. January 28, Year 5.

d. February 9, Year 5.

11. In which of the following situations should a company report a restatement?

a. A change in the estimated useful lives of fixed assets purchased in prior years.

b. The correction of a mathematical error in the calculation of prior year's depreciation.

c. A switch from the straight-line to double-declining-balance method of depreciation.

d. The scrapping of an asset prior to the end of its expected useful life.

12. The calculation of the income recognized in the third year of a five-year construction contract accounted for using the percentage-of-completion method includes the ratio of:

a. Costs incurred in Year 3 to total billings.

b. Costs incurred in Year 3 to total estimated costs.

c. Total costs incurred to date to total billings.

d. Total costs incurred to date to total estimated costs.

13. Trans Co. uses a periodic inventory system. The following are inventory transactions for the month of January:

1/1 Beginning inventory 10,000 units at $3

1/5 Purchase 5,000 units at $4

1/15 Purchase 5,000 units at $5

1/20Sales at $10 per unit 10,000 units

Trans uses the weighted average pricing method to determine the value of its inventory. What amount should Trans report as cost of goods sold on its income statement for the month of January?

a. $30,000

b. $37,500

c. $40,000

d. $100,000

14. The following information was obtained from Smith Co.:

Sales $275,000

Beginning inventory 30,000

Ending inventory 18,000

Smith's gross margin is 20%. What amount represents Smith's purchases?

a. $202,000

b. $208,000

c. $220,000

d. $232,000

15. When the fair value of an investment in debt securities exceeds its amortized cost, how should each of the following debt securities be reported at the end of the year, given no election of the fair value option?

Debt Securities Classified As

Held-to-Maturity Available for Sale

a. Amortized Cost Amortized Cost

b. Amortized Cost Fair Value

c. Fair Value Fair Value

d. Fair Value Amortized Cost