T/F (7-19) 7. When using a perpetual inventory system, cost of goods sold (COGS) is calculated and
recorded at the end of each fiscal period. 8. Intangible assets with limited life need to be tested for impairment.
9. A company raised cash by issuing common stock. This cash flow should be classified as
operating cash flow. 10. The present value of an ordinary annuity table is used when payments are made at the
beginning of each period. 11. If the compounding period is less than one year, the annual interest rate must be converted to the compounding period interest rate by dividing the annual rate by the
number of compounding periods per year.
12. The primary advantage of the single-step format lies in the simplicity of presentation
and the absence of any implication that one type of revenue or expense item has priority
over another.
13. Discontinued operations are reported net of tax in the income statement.
14. The double declining balance method of depreciation is an accelerated depreciation
method.
15. Gross profit is reported on both the multiple-step and the single-step income statement.
16. Revenues and gains increase both net income and owners’ equity.
17. In a balance sheet, long-term assets are usually listed before current assets.
18. Making of a loan is reported as an investing activity in the statement of cash flows.
19. A company needs to report per share amounts for discontinued operations (if any) and
net income. 20. The current assets section of the balance sheet should include
a. machine
ry.
b. patents.
c. goodwill.
d.
inventory.
21. Which of the following is true about an income statement?
a. It can be used to evaluate the past
performance of the enterprise.
b. It is used to measure the liquidity of a company.
c. Income measurement does not involve
judgment.
d. It is used to measure the solvency of a
compan
22. Presented below is information related
to Tolbert Company.
$ Cash
4,000
Short-term investments
75,000
Accounts receivable
61,000
Inventories
110,000
Prepaid expenses
30,000
Accounts payable
100,000 What is the total current assets?
280,0
00
180,0
00
350,0
00
380,0
00 23. Which of the following would represent the least likely use of an income statement
prepared for a business enterprise?
a. Use by customers to determine a company’s ability to provide needed
goods and services.
b. Use by labor unions to examine earnings closely as a basis for salary
discussions.
. c. Use by government agencies to formulate tax and economic policy.
d. Use by investors interested in the financial position of the entity. 24. The statement of cash flows provides answers to all of the following questions except
where did the cash come from during the period?
what was the cash used for during the period?
what is the impact of inflation on the cash balance at the
end of the year?
what was the change in the cash balance during the
period? 25. Which of the following is an example of managing earnings down?
Changing estimated bad debts from 3 percent to 2.5
percent of sales.
Revising the estimated life of equipment from 10
years to 8 years.
Not writing off obsolete inventory.
Reducing research and development expenditures. 26. The income statement reveals
resources and equities of a firm at a point in
time.
resources and equities of a firm for a period
of time.
net earnings (net income) of a firm at a
point in time.
net earnings (net income) of a firm for a
period of time. 27. A plant costing $110 million was purchased on April 1, 2010. The salvage
value was estimated
to be $10 million. The expected production was 150 million units. The plant
was used to produce
22.5 million units till the year ended December 31, 2010. The depreciation
on the plant for
the year ended December 31, 2011 is
$15
million $11
million
$10
million
$14
million
28. Sandstrom Corporation has a loss from discontinued operation of
$200,000, an unusual gain of $140,000, and a tax rate of 40%. At what
amount should Sandstrom report each item?
Discontinued operation
$(200,000)
$140,000 Unusual gain (200,000)
84,000
(120,000)
140,000
(120,000)
84,000
29. Which table would you use to determine how much you would need to have deposited
three years ago at 10% compounded annually in order to have $1,000 today?
Future value of 1 or present
value of 1
Future value of an annuity due
of 1
Future value of an ordinary
annuity of 1
Present value of an ordinary
annuity of 1 30. Inventories are valued based on their ________.
fair value
estimated amount
collectible
lower-of-cost-or-market value
historical cost 31. Korte Company reported the following information for 2014:
Sales revenue
Cost of goods sold
Operating expenses
Cash dividends received on the securities $1,500,000
1,050,000
165,000
6,000 For 2014, Korte would report gross profit of
$291,0
00.
$285,0
00.
$241,0
00.
$450,0
00. 32. Current assets are presented in the balance sheet in
ascending order of their
balances.
descending order of their
balances.
order of their liquidity.
reverse order of their
liquidity. 33. repare the cash flows from operating activities section of cash flow statement by direct
method using the following information:
December 31
Accounts Receivable
Prepaid Rent
Prepaid Insurance
Inventory
Accounts Payable
Salaries Payable
Interest Payable
Income Tax Payable 2011
$34,130
20,000
6,800
23,030
14,590
8,310
700
2,340 Year Ended December 31
Net Sales
Salaries Expense
Rent Expense
Insurance Expense 2011
64,970
8,610
5,000
3,200 2010
$28,410
25,000
6,000
15,450
31,300
5,120
360
0 What is the amount of cash paid as salaries?
8,610
11,800
5,420
not enough
information 34. Olmsted Company has the following items: common stock, $750,000; treasury stock,
$105,000; deferred income taxes, $125,000 and retained earnings, $454,000. What total
amount should Olmsted Company report as stockholders’ equity?
$974,00
0.
$1,099,0
00.
$1,224,0
00.
$1,349,0
00. 35. Which table would show the smallest factor for an interest rate of 10% for five periods?
Future value of an ordinary
annuity of 1
Present value of an ordinary
annuity of 1
Future value of an annuity due
of 1
Present value of an annuity due
of 1 36. ABC Company purchases a machine for $100,000. It has an estimated salvage value of
$10,000 and a useful life of five years. What is the first year depreciation expense for this
machine if the company uses the sum-of-the-years’-digits method?
20,0
00 30,0
00
18,0
00
36,0
00 37. Keisler Corporation reports:
Cash provided by operating activities
Cash used by investing activities
Cash provided by financing activities
Beginning cash balance $280,000
110,000
140,000
70,000 What is Keisler’s ending cash balance?
$310,0
00.
$380,0
00.
$530,0
00.
$600,0
00. 38. Briefly explain the allowance method for dealing with bad debt.
39. Briefly explain the difference between the direct method and the indirect method of cash
flow statement.
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