Assignment
Part 1
1. Which of the following statements concerning users of accounting information is incorrect?
Management is considered an internal user.
Present and prospective creditors are considered external users.
Regulatory authorities such as the SEC are considered internal users.
Taxing authorities are considered external users.
2. Issuing shares of stock in exchange for cash is an example of a(n)
delivering activity.
investing activity.
financing activity.
operating activity.
3. The statement of cash flows would disclose the payment of a dividend
nowhere on the statement.
in the operating activities section.
in the investing activities section.
in the financing activities section.
4. The cost of assets consumed or services used is also known as
a revenue.
an expense.
a liability.
an asset.
5. Finley Company recorded the following cash transactions for the year:
Paid $90,000 for salaries.
Paid $40,000 to purchase office equipment.
Paid $10,000 for utilities.
Paid $4,000 in dividends.
Collected $150,000 from customers.
What was Finley's net cash provided by operating activities?
$50,000
$10,000
$60,000
$46,000
6. A current asset is
the last asset purchased by a business.
an asset which is currently being used to produce a product or service.
usually found as a separate classification in the income statement.
expected to be converted to cash or used in the business within a relatively short period of time.
7. Which of the following is not considered an asset?
Equipment
Dividends
Accounts receivable
Inventory
8. These are selected account balances on December 31, 2007.
-Land (location of the corporation's office building) $200,000
-Land (held for future use) 300,000
-Corporate Office Building 1,200,000
-Inventory 400,000
-Equipment 900,000
-Office Furniture 200,000
-Accumulated Depreciation 600,000
What is the total NET amount of property, plant, and equipment that will appear on the balance sheet?
$1,900,000
$2,600,000
$2,200,000
$3,200,000
9. For 2007 Landford Corporation reported net income of $30,000; net sales $400,000; and average share outstanding 6,000. There were no preferred stock dividends. What was the 2007 earnings per share?
$4.66
$0.20
$66.67
$5.00
10. Liondale Corporation had beginning retained earnings of $2,292,000 and ending retained earnings of $2,499,000. During the year, they issued common stock totaling $141,000. There were no dividends issued. What was their net income for the year?
$207,000
$ 66,000
$348,000
$273,000
11. Is the purchase of equipment treated as an expense at the time of purchase? Why or why not?
No, GAAP requires that 10% of the cost be expensed each year. This minimizes attempts to mislead financial statement users.
Yes, the matching principle requires that the cost be expensed in the period of purchase.
No, the cost needs to be allocated to the years of expected use.
Yes, the actual life of the asset is not known, thus there is no acceptable way to allocate the cost.
12. Which one of the following is not a part of an account?
Credit side
Trial balance
Debit side
Title
13. The classification and normal balance of the dividend account is
a revenue, with a credit balance.
an expense, with a debit balance.
a liability, with a credit balance.
under stockholders' equity, with a debit balance.
14. A debit is not the normal balance for which account listed below?
Dividends
Cash
Accounts Receivable
Service Revenue
15. Which of the following accounts follows the rules of debit and credit in relation to increases and decreases in the opposite manner?
Prepaid insurance and dividends
Dividends and medical fees earned
Interest payable and common stock
Advertising expense and land
Part 2
1. One of the accounting concepts upon which adjustments for prepayments and accruals are based is
matching.
cost.
monetary unit.
economic entity.
2. In a merchandising business, revenue may be considered earned when
cash is received from the customers
a product is delivered to a customer.
an order is received from a customer
a customer shows interest in a product
3. Why do generally accepted accounting principles require the application of the revenue recognition principle?
Failure to apply the revenue recognition principle could lead to an overstatement of revenue.
It is easy to apply the revenue recognition principle because revenue issues are always easy to identify and resolve.
Recording revenue when cash is received is an objective application of the revenue recognition principle.
Accounting software has made the revenue recognition easy to apply.
5. The general term employed to indicate an expense that has not been paid or revenue that has not been received and has not yet been recognized in the accounts is
contra asset.
prepayment.
asset.
accrual.
6. A merchandiser that sells directly to consumers is a
retailer.
wholesaler.
broker.
service enterprise.
7. Detailed records of movements in merchandise (each purchase and sale) are not maintained in the inventory account in a
perpetual inventory system.
periodic inventory system.
double entry accounting system.
business that sells expensive merchandise.
8. Hunter Company purchased merchandise inventory with an invoice price of $12,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Hunter Company pays within the discount period?
$11,040
$10,800
$11,760
$12,000
9. Zach's Market recorded the following events involving a recent purchase of merchandise:
• Received goods for $50,000, terms 2/10, n/30.
• Returned $1,000 of the shipment for credit.
• Paid $250 freight on the shipment.
• Paid the invoice within the discount period.
As a result of these events, the company's merchandise inventory
increased by $48,020.
increased by $49,250.
increased by $48,265.
increased by $48,270.
10. The factor which determines whether or not goods should be included in a physical count of inventory is
physical possession.
legal title.
management's judgment.
whether or not the purchase price has been paid.
11. Which statement is false?
Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand.
No matter whether a periodic or perpetual inventory system is used, all companies need to determine inventory quantities at the end of each accounting period.
An inventory count is generally more accurate when goods are not being sold or received during the counting.
Companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance sheet date and to determine cost of goods sold for the accounting period.
12. Which of the following items will increase inventoriable costs for the buyer of goods?
Purchase returns and allowances granted by the seller
Purchase discounts taken by the purchaser
Freight charges paid by the seller
Freight charges paid by the purchaser
13. Which of the following statements is true regarding inventory cost flow assumptions?
A company may use more than one cost-flow assumptions concurrently for different product lines.
A company must comply with the method specified by industry standards.
A company must use the same method for domestic and foreign operations.
A company may never change its inventory costing method once it has chosen a method.
14. In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory?
Average cost method
LIFO method
FIFO method
Need more information to answer
15. Which of the following is a true statement about inventory systems?
Periodic inventory systems require more detailed inventory records.
Perpetual inventory systems require more detailed inventory records.
A periodic system requires cost of goods sold be determined after each sale.
A perpetual system determines cost of goods sold only at the end of the accounting period.
Part 3
1. The adjusted trial balance of Gertz Company included the following selected accounts:
Debit Credit
Sales $575,000
Sales Returns and Allowances $ 50,000
Sales Discounts 9,500
Cost of Goods Sold 347,000
Freight-out 2,000
Advertising Expense 15,000
Interest Expense 19,000
Store Salaries Expense 74,000
Utilities Expense 18,000
Depreciation Expense 3,500
Interest Revenue 25,000
Instructions
(1). Use the above information to prepare a multiple-step income statement for the year ended December 31, 2007.
(2). Calculate the profit margin ratio and gross profit rate. To qualify for full credit, you must state the formula you are using, show your computations, and explain your findings.
Sales Revenues 575,000
Less: Sales returns and allowances (50,000)
Less: Sales discounts (9,500)
Net sales 515,500
Cost of Goods Sold (347,000)
Gross Profit 168,500
Operating Expenses
Freight-out (2,000)
Advertising expense (15,000)
Interest expense (19,000)
Store salaries expense (74,000)
Utilities expense (18,000)
Depreciation expense (3,500)
Total operating expenses (131,500)
Other revenues and gains
Interest revenue 25,000
Net income 62,000
Gross Profit Margin = Net Income / Net Sales = 62,000 / 515,500 = 12.03%
The gross profit margin is a ratio of the net income and the net sales. The higher this ratio, the greater the net income the company is making off its sales.
Gross Profit Rate = Gross Profit / Net Sales = 168,500 / 515,500 = 32.69%
The gross profit rate is a ratio of the gross profit and the net sales. The higher this ratio, the greater the gross profit the company is achieving compared to its sales. The gross profit rate is widely considered to be more informative than the gross profit amount because it demonstrates a more useful relationship between gross profit and net sales.a