Question 1 of 37
Kelly Petroleum Products owns furniture that was purchased for $19,600. Accumulated depreciation is $17,300. The furniture was sold for $3,800. Which of the following is the correct entry to record the transaction?
Furniture 19,600
Cash 2,700
Gain on sale of furniture 5,000
Accumulated depreciation 17,300
Furniture 19,600
Gain on sale of furniture 3,800
Cash 2,700
Accumulated depreciation 17,300
Accumulated depreciation 17,300
Cash 3,800
Furniture 31,100
Accumulated depreciation 17,300
Cash 3,800
Gain on sale of furniture 1,500
Furniture 19,600
Question 2 of 37
Contributed capital is also known as:
retained earnings.
total stockholders’ equity.
paid-in capital.
common stockholders’ equity.
Question 3 of 37
Shareholders’ equity is divided into:
retained earnings and common stock.
preferred stock and common stock.
retained earnings and contributed capital.
paid-in capital and common stock.
Question 4 of 37
If a corporation issues only one class of stock, it must be:
common.
contributed.
either common or preferred.
preferred.
Question 5 of 37
Treasury stock is a(n):
asset account.
liability account.
contra-equity account.
contra-asset account.
Question 6 of 37
Cole Company issued 10,000 shares of common stock. Cole purchased 1,000 shares and later reissued 500 shares. How many shares are issued and outstanding?
10,000 issued and 9,500 outstanding
10,000 issued and 10,000 outstanding
9,500 issued and 9,000 outstanding
9,000 issued and 9,000 outstanding
Question 7 of 37
Stock dividends:
are distributions of cash to the stockholders.
have no effect on total stockholders’ equity.
increase the total liabilities of the corporation and decrease the total stockholders’ equity.
reduce the total assets of the corporation.
Question 8 of 37
Which of the following statements regarding stock splits is incorrect?
A stock split decreases the market price of the stock.
A stock split involves a reduction in the stock’s par value.
A stock split is an increase in the number of authorized, issued, and outstanding shares of stock.
A stock split increases total owners’ equity.
Question 9 of 37
A company may declare a stock split to:
reduce total equity.
decrease the market value of the stock.
avoid playing a cash dividend.
reduce retained earnings.
Question 10 of 37
The B. Spaniel Company has Common Stock with a $5 par value. 100,000 shares were authorized and 25,000 shares were issued. Common stock is currently selling at $13 per share. The number of shares of common stock authorized and issued after the distribution of a 15% common stock dividend is:
100,000 and 25,000.
100,000 and 28,750.
115,000 and 28,750.
115,000 and 25,000.
Question 11 of 37
The following information is available for Louisville Limestone Corporation for the current year:
Net Income $160,000
Preferred dividends 30,000
Interest expense 18,000
Beginning of year:
Total assets 900,000
Total liabilities 300,000
Total common stockholders’ equity 375,000
End of year:
Total assets 950,000
Total liabilities 350,000
Total common stockholders’ equity 400,000
The return on assets for Louisville Limestone Corporation is:
18.70%.
19.80%.
19.20%.
17.30%.
Question 12 of 37
Proceeds from the issuance of stock appear in which, if any, section of the statement of cash flows?
They do not appear in the statement of cash flows.
Both operating and financing activities sections
Financing activities section
Operating activities section
Question 13 of 37
Stock dividends distributed appear in which, if any, section of the statements of cash flows?
They do not appear anywhere in the statement of cash flows.
Operating activities section
Operating and investing activities section
Financing and investing activities section
Question 14 of 37
Which of the following are included in the cost of land?
The cost of paving
The cost of fencing
The cost of clearing the land
The cost of outdoor lighting
Question 15 of 37
Which of the following is a characteristic of a plant asset?
a) The asset is used in the production of income for the business.
b) The asset is available for resale to customers in the ordinary course of business.
c) The asset lacks physical form.
d) Both A and B are characteristics of a plant asset.
Question 16 of 37
Which of the following depreciation methods allocates an equal amount of depreciation to each year?
Straight-line
Declining-balance
Units-of-production
All of the above
Question 17 of 37
Which of the following properly describes accumulated depreciation?
Accumulated depreciation is an expense account.
Accumulated depreciation is a contra-liability account.
Accumulated depreciation is a contra-equity account.
Accumulated depreciation is a contra-asset account.
Question 18 of 37
Which of the following is the purpose of accumulated depreciation?
Accumulated depreciation’s purpose is to provide details about the cost expiration of natural assets.
Accumulated depreciation’s purpose is to provide details about the cost expiration of plant assets.
Accumulated depreciation is an expense.
Accumulated depreciation’s purpose is to provide details about the cost expiration of intangible assets.
Question 19 of 37
Which of the following depreciation methods is used by MOST companies for their financial statements?
Declining-balance
Units-of-production
Straight-line
All of the above methods are used about equally.
Question 20 of 37
Which of the following items is included in the journal entry if a company sells equipment at a price less than its book value?
A debit to equipment for its book value
A credit to gain on sale of equipment
A credit to accumulated depreciation
A debit to loss on sale of equipment
Question 21 of 37
Which of the following items should be depleted?
Natural resources
Land
Intangible property
Tangible property, plant, and equipment other than land
Question 22 of 37
Which of the following is the expense resulting from a decline in the utility of natural resource?
Depreciation
Amortization
Depletion
Obsolescence
Question 23 of 37
Which of the following accounting methods is the method used to compute depletion?
Units-of-production
Declining-balance
Straight-line
None of the above
Question 24 of 37
Which of the following items should be amortized?
Intangible property
Natural resources
Land
Tangible property, plant, and equipment other than land
Question 25 of 37
Which of the following is generally the base amount when performing vertical analysis of an income statement?
Gross profit is generally the base amount when performing vertical analysis of an income statement.
Net sales is generally the base amount when performing vertical analysis of an income statement.
Total expenses is generally the base amount when performing vertical analysis of an income statement.
Gross sales is generally the base amount when performing vertical analysis of an income statement.
Question 26 of 37
Which of the following types of analysis include common-size financial statements?
Common-size financial statements are a type of ratio analysis.
Common-size financial statements are a type of trend analysis.
Common-size financial statements are a type of vertical analysis.
Common-size financial statements are a type of horizontal analysis.
Question 27 of 37
Which of the following balance sheets displays only percentages?
A common-size balance sheet displays only percentages.
A report form balance sheet displays only percentages.
A comparative balance sheet displays only percentages.
An account form balance sheet displays only percentages.
Question 28 of 37
Which of the following ratios is a measure of a company’s ability to sell inventory?
The inventory turnover ratio is a measure of a company’s ability to sell inventory.
The current ratio is a measure of a company’s ability to sell inventory.
The day’s sales in receivables is a measure of a company’s ability to sell inventory.
The acid-test ratio is a measure of a company’s ability to sell inventory.
Question 29 of 37
Which of the following is the formula to compute inventory turnover?
The formula is net credit sales / average inventory.
The formula is net credit sales / average net accounts receivable.
The formula is cost of goods sold / average inventory.
The formula is average net accounts receivable / one day’s sales.
Question 30 of 37
Which of the following is the formula to compute the rate of return on total assets?
The formula is (net income preferred dividends) / average common stockholders’ equity.
The formula is net income / net sales.
The formula is (net income + interest expense) / average total assets.
The formula is (net income preferred dividends) / number of shares of common stock outstanding.
Question 31 of 37
Case 17.5
Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.
2007 2006
Net sales revenue (all credit) $950,000
Cost of goods sold 630,000
Gross profit 320,000
Selling and general expenses 230,000
Interest expense 20,000
Net income $70,000
Current assets $60,000 $55,000
Long-term assets 465,000 445,000
Total assets – 12/31 $525,000 $500,000
Current liabilities $25,000 $20,000
Long-term liabilities 105,000 205,000
Common stockholders equity – 12/31 395,000 275,000
Total liabilities and stockholders’ equity $525,000 $500,000
Inventory and prepaid expenses account for $20,000 of the 2007 current assets.
Average inventory for 2007 is $15,000.
Average net accounts receivable for 2007 is $30,000.
Average one-day sales are $3,150.
There are 7,000 shares of common stock outstanding.
Total dividends paid during 2007 were $140,000.
The market price per share of common stock is $21.
Refer to Case 17.5. What is the company’s dividend yield?
$ .95
$20.00
$ 2.00
$ 1.05
Question 32 of 37
The declaration of dividends by the board of directors would be reported on a statement of cash flows as:
a cash inflow under the financing activities.
a cash outflow under the investing activities.
a cash outflow under the financing activities.
nothing-this activity would not be reported on a statement of cash flows.
Question 33 of 37
When preparing a statement of cash flows, the sum of operating and investing and financing activities equals the:
cash inflow for the period.
change in cash for the period.
net income, as reported on the income statement.
ending cash balance.
Question 34 of 37
Which method of preparing the statement of cash flows reconciles net income to cash flows from operating activities?
Indirect method
Reconciliation method
Direct method
Equilibrium method
Question 35 of 37
McAfee Construction acquired the following plant assets on January 1, 2009. The delivery equipment was driven for 12,000 miles of its useful estimated life of 100,000 miles. Compute depreciation for the delivery equipment and select the correct answer from the choices below.
Assets Cost Residual Value Useful Life Depreciation Method
Office Equipment $150,000 $ 5,000 5 years Straight-line
Building $240,000 $20,000 20 years Double-declining balance
Delivery equipment $125,000 $25,000 10 years Units-of-production
$24,000
$12,000
$29,000
Question 36 of 37
Perform a horizontal analysis of current liabilities on the following company’s balance sheet. Which of the following is the correct answer if both the amount and the percentage of change are calculated.
Change
Account 2007 2006 Amount Percent
Current assets $121,000 $100,000
Accounts receivable 117,000 125,000
Merchandise inventory 70,000 85,000
Current liabilities 63,500 50,000
Long-term liabilities 100,000 100,000
Common stock 50,000 50,000
Retained earnings 94,500 110,000
$-15,500 and -14.1%
$13,500 and 27.0%
$-13,500 and -27.0%
$21,000 and 21.0%
Question 37 of 37
The following data is provided for last year: Net income was $210,000. Current receivables and prepaid expenses increased by $10,000 and $2,000, respectively. Current payables decreased by $8,000. Under the indirect method, the cash flows from operating activities would be:
$190,000.
$206,000.
$214,000.
$230,000.