Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page
break, so be sure that you have seen the entire question and all the answers before choosing an answer.
1. The accuracy of the statement of cash flows can be verified by computing the change in the balance of
A. asset and liability accounts.
B. revenue accounts.
C. cash and cash equivalent accounts.
D. equity account.
2. For vertical analysis purposes, the base item on the income statement is
A. net income.
B. net sales.
C. gross profit.
D. total expenses.
3. Cost of goods sold for the year was $850,000. Inventory was $60,000 at the beginning of the year and $90,000 at the end of the year. There were no changes in the amount in accounts payable for the year.
Cash payment for merchandise to be reported under the direct method is
4. Patty’s Baker has cost of goods sold for the years 2011, 2010, and 2009, respectively, of $28,600, $26,900, and $25,600. If 2009 is the base year, the trend percentage for 2011 is
5. The Amanda Corporation Stockholders’ Equity section includes the following information:
Preferred Stock $12,000
Paid-in Capital in Excess of Parâ€” Preferred 2,700
Common Stock 15,000
Paid-in Capital in Excess of Parâ€” Common 4,100
Retained Earnings 8,200
6. Rick Company’s net sales decreased from $90,000 in year 1 to $45,000 in year 2, and its cost of goods sold decreased from $30,000 in year 1 to $20,000 in year 2. Vertical analysis based on sales would show which decreases in cost of goods sold for the two periods (rounded to the nearest tenth of a percent)?
A. 33.3% and 44.4%
B. 225% and 300%
C. 300% and 225%
D. 44.4% and 33.3%
7. Birch issued 200 shares of $12 par common stock in exchange for a piece of equipment with a current
market value of $3,000. Which of the following is not part of the journal entry for this transaction?
A. Crediting Paid-in Capital in Excess of Parâ€”Common for $600
B. Debiting Equipment for $3,000
C. Crediting Common Stock for $3,000
D. Crediting Common Stock for $2,400
8. The records of Ashley Boutique showed a net loss of $30,000; depreciation expense of $25,000; and an increase in supplies on hand of $5,000. The amount of net cash flow from operating activities using theindirect method is
9. Rick Company has declared a $40,000 cash dividend to shareholders. The company has 5,000 shares of $20 par, 6% preferred stock, and 10,000 shares of $15 par common stock. The preferred stock is noncumulative. How much will be distributed to the preferred and common stockholders on the date of payment?
A. $0 preferred; $40,000 common
B. $34,000 preferred; $6,000 common
C. $6,000 preferred; $34,000 common
D. $40,000 preferred; $0 common
10. Operating expensesâ€”other than depreciationâ€”for the year were $335,000. Prepaid expenses decreased by $7,000. Cash payments for operating expenses to be reported on the cash flow statementusing the direct method would be
11. Tammy Corporation has 350,000 shares of $3 par common stock outstanding. It has declared a 5% stock dividend. The current market price of the common stock is $7.50/share. The amount that will be credited to common stock on the date of declaration is
12. If you own 500 shares (2% of a corporation’s stock) and the corporation issues 15,000 new shares, how many of the new shares can you purchase under preemptive right?
13. Casey Company has an accounts receivable turnover of 36 days, an inventory turnover of 77 days, and an accounts payable turnover of 40 days. Casey’s cash conversion cycle is _______ day(s).
14. The Isaiah Corporation Stockholders’ Equity section includes the following information:
Total par value of the preferred and common stock is
Preferred Stock $22,000
Paid-in Capital in Excess of Parâ€”Preferred 2,980
Common Stock 48,000
Paid-in Capital in Excess of Parâ€”Common 3,400
Retained Earnings 7,350
Total par value of the preferred and common stock is (Verify this)
15. Casey Company reported net income of $35,000; depreciation expenses of $20,000; an increase in accounts payable of $2,000; and an increase in current notes receivable of $3,000. Net cash flows from operating activities under the indirect method is operating activities under the indirect method is
16. Brandon Company had extraordinary losses of $150,000. If its corporate tax rate is 30%, at which amount will the losses be shown on the income statement?
C. Not enough information is given to answer the question.
17. What is Jane’s rate of return on total assets if average total assets are $100,000; net income is $2,000; interest expense if $1,600; and income tax is $2,000?
18. If Rick’s net sales increased from $40,000 to $80,000 and its operating expenses increased from $30,000 to $50,000, then vertical analysis based on net sales would show which of the following for operating expenses for the two periods (to the nearest tenth of a percent)?
A. 62.5% and 75.0%
B. 75.0% and 62.5%
C. 133.3% and 160.0%
D. 160.0% and 133.3%
19. If current assets were $100,000 in 2009 and $88,000 in 2010, what was the amount of increase or decrease in percentage terms from 2009 to 2010? (Round to the nearest percent.)
A. Decrease of 14%
B. Decrease of 12%
C. Increase of 12%
D. Increase of 14%
20. To determine why net income and cash on the balance sheet don’t equal, an accountant can prepare
A. income statement.
B. statement of cash flows.
C. statement of retained earnings.
D. balance sheet.