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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?
Furniture19,600
Cash2,700
Gain on sale of furniture5,000
Accumulated depreciation17,300
Furniture19,600
Gain on sale of furniture3,800
Cash2,700
Accumulated depreciation17,300 Accumulated depreciation17,300
Cash3,800
Furniture31,100
Accumulated depreciation17,300Cash3,800
Gain on sale of furniture1,500
Furniture19,600
Question 2 of 37
If a corporation issues only one class of stock, it must be:
common.
contributed.
either common or
preferred.
preferred.
Question 3 of 37
The price that the stockholder pays to acquire stock from the corporation is the:
stated price.
issue price.
authorized price.
par price.
Question 4 of 37
Treasury stock is a(n):
asset account.
liability account.
contra-equity account.
contra-asset account.
Question 5 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 6 of 37
The stockholders’ equity section of the balance sheet for Minturn Mine Corporation is shown below:
Paid-in capital
Preferred stock, 7%, $50 par value, 10,000 shares authorized, 7,000 shares issued, redemption value $56 per share$350,000
Paid-in capital in excess of par value-preferred50,000
Common stock, $10 par value, 50,000 shares authorized, 18,000 shares issued180,000
Paid-in capital in excess of par value-common20,000
Total Paid-in capital$600,000
Retained earnings300,000
Total stockholders’ equity$900,000
Assume there are 2 years’ dividends in arrears on the preferred stock, including the current year. The book value per share for preferred stock is:
$66.50.
$57.
$60.50.
$63.
Question 7 of 37
An investor who wishes to know whether a company is successful in using its assets to earn income for the individuals who finance the business should review the:
earnings per share.
return on assets.
times-interest ratio earned.
return on equity.
Question 8 of 37
Return on equity is a ratio that:
a) cannot be calculated if the company has preferred stock in addition to common stock.
b) is calculated by dividing net income plus preferred dividends by average common stockholders’ equity.
c) shows the relationship between net income available for common stockholders and average common stockholders’ equity.
d) Both A and B are correct.
Question 9 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 10 of 37
Which of the following is included in the cost of a plant asset?
Amounts paid to ready the asset for its intended use
The purchase price of the plant asset
The taxes paid
All of the above
Question 11 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 12 of 37
Which of the following depreciation methods allocates a fixed amount of depreciation to each ± miles driven, copies made, or some other number of components?
Straight-line Declining-balance Units-of-production All of the above
Question 13 of 37
Which of the following depreciation methods writes off more depreciation near the start of an asset’s life than in later years?
Units-of-production Straight-line Declining-balance All of the above
Question 14 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 15 of 37
Table 10.1
On January 1, 2011, Zane Manufacturing Company purchased a machine for $40,000. The company expects to use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4,000. The company used the machine 8,000 hours in 2011 and 12,000 in 2012.
Refer to Table 10.1. What is depreciation expense for 2011, if the company uses double-declining balance depreciation?
$6,667
$6,000
$12,000
$13,333
Question 16 of 37
Table 10.1 On January 1, 2011, Zane Manufacturing Company purchased a machine for $40,000. The company expects to use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4,000. The company used the machine 8,000 hours in 2011 and 12,000 in 2012.
Refer to Table 10.1. What is depreciation expense for 2012, if the company uses double-declining balance depreciation?
$8,889
$6,000
$13,333
$10,000
Question 17 of 37
A company purchased a computer on July 1, 2009. The computer has an estimated useful life of 5 years and will have no salvage value. It is estimated that the computer can be used for 5,000 hours. The computer was used for 450 hours during 2009. If the goal is to reduce taxable income to the lowest amount, which method should be elected and how much depreciation can be deducted in 2009?
Double declining-balance, $2,000
Straight-line, $1,000
Units-of-production, $900
None of the above
Question 18 of 37
Which of the following items is included in the journal entry if a company sells equipment at a price greater than its book value?
A credit to accumulated depreciation
A debit to equipment for its book value
A credit to gain on sale of equipment
A debit to loss on sale of equipment
Question 19 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 20 of 37
Which of the following items should be depleted?
Natural resources
Land
Intangible property
Tangible property, plant, and equipment other than land
Question 21 of 37
Which of the following is the proper accounting treatment for a purchased patent?
A purchased patent must be capitalized and amortized over 70 years or less.
A purchased patent must be capitalized and amortized over 20 years or less.
A purchased patent must be expensed.
A purchased patent must be capitalized and expensed each year to the extent that the value has declined.
Question 22 of 37
Case 17.4
The following is a summary of information presented on the income statements of Haley Publications and Johnston Publications for December 31, 2007.
Haley PublicationsJohnston Publications
Account2007%2007%
Net sales revenue$487,000100.00%$500,000100.00%
Cost of goods sold400,00082.14%395,00079.00%
Gross profit87,00017.86%105,00021.00%
Selling and general expenses30,0006.16%50,00010.00%
Income from operations57,00011.70%55,00011.00%
Income tax expense17,1003.51%16,5003.30%
Net income$39,9008.19%$38,5007.70%
Refer to Case 17.4. Which company has the better relationship between gross profit and net sales revenue?
The companies have the same relationship between gross profit and net sales revenue.
Haley Company has the better relationship between gross profit and net sales revenue.
Johnston Company has the better relationship between gross profit and net sales revenue.
It is impossible to determine which company has the better relationship between gross profit and net sales revenue using the information presented.
Question 23 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 24 of 37
Which of the following is the formula to compute day’s sales in receivable?
The formula is net credit sales / average inventory.
The formula is net credit sales / average net accounts receivable.
The formula is average net accounts receivable / one day’s sales.
The formula is cost of goods sold / average inventory.
Question 25 of 37
Which of the following is the formula to compute the price/earnings ratio?
The formula is (total stockholders’ equity − preferred equity) / number of shares of common stock outstanding.
The formula is (net income − preferred dividends) / number of shares of common stock outstanding.
The formula is market price per share of common stock / earnings per share.
The formula is annual dividend per share of common stock / market price per share of common stock.
Question 26 of 37
Case 17.5
Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.
20072006
Net sales revenue (all credit)$950,000
Cost of goods sold630,000
Gross profit320,000
Selling and general expenses230,000
Interest expense20,000
Net income$70,000
Current assets$60,000$55,000
Long-term assets465,000445,000
Total assets – 12/31$525,000$500,000
Current liabilities$25,000$20,000
Long-term liabilities105,000205,000
Common stockholders equity – 12/31395,000275,000
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 debt ratio for 2007?
.55
.25
.29
.71
Question 27 of 37
Case 17.5 Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007. 20072006Net sales revenue (all credit)$950,000 Cost of goods sold630,000Gross profit320,000Selling and general expenses230,000Interest expense20,000Net income$70,000 Current assets$60,000$55,000Long-term assets465,000445,000Total assets – 12/31$525,000$500,000Current liabilities$25,000$20,000Long-term liabilities105,000205,000Common stockholders equity – 12/31395,000275,000Total liabilities and stockholders’ equity$525,000$500,000Inventory 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 times-interest-earned ratio?
31.5 times
47.5 times
4.5 times
16.0 times
Question 28 of 37
Case 17.5 Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007. 20072006Net sales revenue (all credit)$950,000 Cost of goods sold630,000Gross profit320,000Selling and general expenses230,000Interest expense20,000Net income$70,000 Current assets$60,000$55,000Long-term assets465,000445,000Total assets – 12/31$525,000$500,000Current liabilities$25,000$20,000Long-term liabilities105,000205,000Common stockholders equity – 12/31395,000275,000Total liabilities and stockholders’ equity$525,000$500,000Inventory 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 rate of return on net sales?
.063
.111
.219
.074
Question 29 of 37
Case 17.5 Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007. 20072006Net sales revenue (all credit)$950,000 Cost of goods sold630,000Gross profit320,000Selling and general expenses230,000Interest expense20,000Net income$70,000 Current assets$60,000$55,000Long-term assets465,000445,000Total assets – 12/31$525,000$500,000Current liabilities$25,000$20,000Long-term liabilities105,000205,000Common stockholders equity – 12/31395,000275,000Total liabilities and stockholders’ equity$525,000$500,000Inventory 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 rate of return on common stockholders’ equity?
.171
.209
.133
.269
Question 30 of 37
Case 17.5 Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007. 20072006Net sales revenue (all credit)$950,000 Cost of goods sold630,000Gross profit320,000Selling and general expenses230,000Interest expense20,000Net income$70,000 Current assets$60,000$55,000Long-term assets465,000445,000Total assets – 12/31$525,000$500,000Current liabilities$25,000$20,000Long-term liabilities105,000205,000Common stockholders equity – 12/31395,000275,000Total liabilities and stockholders’ equity$525,000$500,000Inventory 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 earnings per share?
$12.88
$45.71
$42.86
$10.00
Question 31 of 37
The statement of cash flows is designed to fulfill all of the following purposes, except to:
evaluate management decisions.
show the relationship of net income to changes in the company’s cash.
assess the collectability of accounts receivable.
help predict future cash flows.
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
Which of the following would be reported on a statement of cash flows as a financing activity?
Interest paid on bonds payable
Purchase of treasury stock
Distribution of stock dividend
All of the above
Question 34 of 37
Under the indirect method of preparing a statement of cash flows, cash disbursed for the acquisition of a plant asset is:
added in the investing activities section.
subtracted in the investing activities section.
added in the financing activities section.
subtracted in the operating activities section.
Question 35 of 37
Porter Business Products acquired equipment on January 1, 2008 for $470,000. The equipment has an estimated useful life of 5 years and an estimated residual value of $30,000. The equipment is expected to produce 150,000 units. During 2008, the equipment produced 24,000 units and during 2009, the equipment produced 60,000 units. Calculate depreciation expense for 2008 and 2009 using the straight-line method.
Depreciation Method20082009
Straight-line Double-decllining balance Units-of-production
$88,000; $88,000
$188,000; $112,800
$70,320; $175,800
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
Account20072006 Amount Percent
Current assets$121,000$100,000
Accounts receivable117,000125,000
Merchandise inventory70,00085,000
Current liabilities63,50050,000
Long-term liabilities100,000100,000
Common stock50,00050,000
Retained earnings94,500110,000
$-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.
