4

Question 1

Which of the following is a limitation of the balance sheet?

Choose one answer.

a. Many items that are of financial value are omitted.
b. Judgments and estimates are used.
c. Current fair value is not reported.
d. All of these.

Question 2

Which of the following is not a current asset?

Choose one answer.

a. Prepaid property taxes that relate to the next operating period.
b. The cash surrender value of a life insurance policy carried by a corporation on its president.
c. Marketable securities purchased as a temporary investment of cash.
d. Installment notes receivable due over 15 months in accordance with normal trade practices.

Question 3

If $1,240 cash and a $4,760 note are given in exchange for a delivery truck to be used in a business,

Choose one answer.

a. assets and liabilities will change by the same amount.
b. owners' equity will be increased.
c. assets will increase and liabilities decrease.
d. assets and liabilities will increase but by different amounts.

Question 4

Equity or debt securities held to finance future construction of additional plants should be classified on a balance sheet as

Choose one answer.

a. current assets
b. property, plant, and equipment
c. intangible assets.
d. long-term investments.

Question 5

Which of the following is a contra account?

Choose one answer.

a. Premium on bonds payable
b. Unearned revenue
c. Patents
d. Accumulated depreciation

Question 6

A general description of the depreciation methods applicable to major classes of depreciable assets

Choose one answer.

a. is not a current practice in financial reporting.
b. is not essential to a fair presentation of financial position.
c. is needed in financial reporting when company policy differs from income tax policy.
d. should be included in corporate financial statements or notes thereto.

Question 7

For Mitchell Company, the following information is available:
Capitalized leases $280,000
Trademarks $90,000
Long-term receivables $105,000
In Mitchell's balance sheet, intangible assets should be reported at

Choose one answer.

a. $90,000
b. $105,000
c. $370,000
d. $385,000

Question 8

Limitations of the income statement include all of the following except

Choose one answer.

a. items that cannot be measured reliably are not reported.
b. only actual amounts are reported in determining net income.
c. income measurement involves judgment.
d. income numbers are affected by the accounting methods employed.

Question 9

Which of the following is not a selling expense?

Choose one answer.

a. Advertising expense
b. Office salaries expense
c. Freight-out
d. Store supplies consumed

Question 10

Which of the following should not be reported on the income statement as an extraordinary item?

Choose one answer.

a. The write-off of major assets as a result of new environmental laws prohibiting their use
b. The write-off of a large receivable resulting from a customer's bankruptcy proceedings
c. A large loss as a result of an earthquake
d. Expropriation of assets by a foreign government

Question 11

The occurrence that most likely would have no effect on 2008 net income (assuming that all amounts involved are material) is the

Choose one answer.

a. sale in 2008 of an office building contributed by a stockholder in 1983.
b. collection in 2008 of a receivable from a customer whose account was written off in 2007 by a charge to the allowance account.
c. settlement based on litigation in 2008 of previously unrecognized damages from a serious accident which occurred in 2006.
d. worthlessness determined in 2008 of stock purchased on a speculative basis in 2004.

Question 12

Comprehensive income includes all of the following except

Choose one answer.

a. dividend revenue.
b. losses on disposal of assets.
c. investments by owners.
d. unrealized holding gains.

Question 13

The approach most companies use to provide information related to the components of other comprehensive income is a

Choose one answer.

a. second separate income statement.
b. combined income statement of comprehensive income.
c. separate column in the statement of changes in stockholders' equity.
d. footnote disclosure.

Question 14

Earnings per share is computed by dividing net income

Choose one answer.

a. by the weighted-average common shares outstanding.
b. minus total dividends by the weighted-average common shares outstanding.
c. minus preferred dividends by the ending common shares outstanding.
d. minus preferred dividends by the weighted-average common shares outstanding.

Question 15

Of the following questions, which one would not be answered by the statement of cash flows?

Choose one answer.

a. Where did the cash come from during the period?
b. What was the cash used for during the period?
c. Were all the cash expenditures of benefit to the company during the period?
d. What was the change in the cash balance during the period?

Question 16

In a statement of cash flows, the cash flows from investing activities section should report

Choose one answer.

a. the issuance of common stock in exchange for a factory building.
b. stock dividends received.
c. a major repair to machinery charged to accumulated depreciation.
d. the assignment of accounts receivable.

Question 17

Xanthe Corporation had the following transactions occur in the current year:

Cash sale of merchandise inventory.

Sale of delivery truck at book value.

Sale of Xanthe common stock for cash.

Issuance of a note payable to a bank for cash.

Sale of a security held as an available-for-sale investment.

Collection of loan receivable.

How many of the above items will appear as a cash inflow from investing activities on a statement of cash flows for the current year?

Choose one answer.

a. Five items
b. Four items
c. Three items
d. Two items

Question 18

Which of the following would be classified as a financing activity on a statement of cash flows?

Choose one answer.

a. Declaration and distribution of a stock dividend
b. Deposit to a bond sinking fund
c. Sale of a loan receivable
d. Payment of interest to a creditor

Question 19

The amortization of bond premium on long-term debt should be presented in a statement of cash flows as a

Choose one answer.

a. addition to net income.
b. deduction from net income.
c. investing activity.
d. financing activity.

Question 20

A measure of a company's liquidity is the

Choose one answer.

a. cash debt coverage ratio.
b. current cash debt coverage ratio.
c. free cash flow.
d. cash debt coverage ratio and free cash flow.

Question 21

The following accounts appeared on the trial balance of Elbert Company at December 31, 2008. All accounts have normal balances.

Notes Payable / $64,000 / Accounts Receivable / $172,800
Accumulated Depreciation - Bldg. / $261,000 / Prepaid Expenses / $18,750
Supplies on Hand / $12,600 / Customers' Deposits / $1,250
Accrued Salaries and Wages / $11,400 / Common Stock*** / $375,000
*Investments in Debt Securities / $93,800
Cash / $56,750 / Inventories (average cost) / $526.750
Bonds Payable Due 1/1/12 / $400,000 / Land at Cost / $155,000
Allowance for Doubtful Accts. / $2,600 / Trading Securities**** / $24,400
Franchise / $64,300 / Accrued Interest on Notes Payable / $650
Notes Receivable / $46,000 / Buildings at Cost / $642,000
Income Taxes Payable / $52,000 / Accounts Payable / $136,650
Preferred Stock** / $250,000 / Additional Paid-in Capital / $54,600
Appropriated Retained Earnings / $98,000
Unappropriated Retained Earnings / $106,000

*The company intends to hold the securities until maturity, which is in ten years.
**8% cumulative; $10 par value; 25,000 shares authorized and outstanding.
***$1 par value; 400,000 shares authorized; 375,000 shares issued and outstanding.
****The company intends to sell the trading securities in the next year.
Directions(20 Points): Prepare a classified balance sheet for Elbert Company on December 31, 2008 on a separate Excel spreadsheet as directed on the Problem Set 1 directions.

Answer:

Question 22

Presented below is financial information of the Mickey Corporation for 2008

Beginning Retained Earnings, 1/1/08 / $950,000
Gain on the Sale of Investments (normal recurring) / $110,000
Sales for the Year / $30,000,000
Loss Due to Flood Damage (unusual & infrequent) / $125,000*
Cost of Goods Sold / $21,000,000
Loss on Disposal of Retail Division / $450,000
Interest Revenue / $70,000
Loss on Operations of Retail Division / $460,000
Selling and Administrative Expenses / 5,500,000
Dividends Declared on Common Stock / $230,000
Write-Off of Goodwill / $520,000
Dividends Declared on Preferred Stock / $80,000
Federal Income Tax on Operations for 2008 / 1,600,000


*net of tax
Mickey Corporation decided to discontinue its retail operations and to retain its manufacturing operations. On August 15, Mickey sold the retail operations to Schoen Company. During 2008, there were 250,000 shares of common stock outstanding all year.
Directions(20 Points): Prepare a multiple-step income statement for the year 2008 on a separate Excel spreadsheet as directed in the Problem Set 1 directions.

Answer:

Question 23

December 31
2009 / 2008
Cash / $90,000 / $27,000
Accounts Receivable / $92,000 / $80,000
Allowance for Doubtful Accounts / ($4,500) / ($3,100)
Inventory / $155,000 / $175,000
Prepaid Expenses / $7,500 / $6,800
Land / $90,000 / $60,000
Buildings / $287,000 / $244,000
Accumulated Depreciation / ($32,000) / ($13,000)
Patents / $20,000 / $35,000
$705,000 / $611,700
Accounts Payable / $90,000 / $84,000
Accrued Liabilities / $54,000 / $63,000
Bonds Payable / $125,000 / $60,000
Common Stock / $100,000 / $100,000
Retained Earnings - Appropriated / $80,000 / $10,000
Retained Earnings - Unappropriated / $271,000 / $302,700
Treasury Stock, At Cost / ($15,000) / ($8,000)
$705,000 / $611,700


For 2009 Year

Net Income / $58,300
Depreciation Expense / $19,000
Amortization of Patents / $5,000
Cash Dividends Declared and Paid / $20,000
Gain Or Loss On Sale of Patents / None


Directions (20 Points):
Given the above information, prepare a statement of cash flows for Reyser Corporation for the year 2009 on a separate Excel spreadsheet as directed on the Problem Set 1 directions.

Answer: