Reference no: EM1357077

1. Which of the following statements is NOT an objective of financial reporting?

a. Provide information that is useful in investment and credit decisions.
b. Provide information about enterprise resources, claims to those resources, and changes to them.
c. Provide information on the liquidation value of an enterprise.
d. Provide information that is useful in assessing cash flow prospects.

2. Allowing firms to estimate rather than physically count inventory at
interim (quarterly) periods is an example of a trade-off between

a. verifiability and reliability.
b. relevance and comparability.
c. timeliness and verifiability.
d. neutrality and consistency.

3. A trial balance may prove that debits and credits are equal, but

a. an amount could be entered in the wrong account.
b. a transaction could have been entered twice.
c. a transaction could have been omitted.
d. all of these.

4. The major elements of the income statement are

a. revenue, cost of goods sold, selling expenses, and general
expense.
b. operating section, nonoperating section, discontinued operations,
extraordinary items, and cumulative effect.
c. revenues, expenses, gains, and losses.
d. all of these.

5. Which of the following is a current asset?

a. Cash surrender value of a life insurance policy of which the
company is the beneficiary.
b. Investment in equity securities for the purpose of controlling
the issuing company.
c. Cash designated for the purchase of tangible fixed assets.
d. Trade installment receivables normally collectible in 18 months.

6. 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?

a. Future value of 1 or present value of 1
b. Future value of an annuity due of 1
c. Future value of an ordinary annuity of 1
d. Present value of an ordinary annuity of 1

7. The FASB concluded that if a company sells its product but gives the
buyer the right to return the product, revenue from the sales trans-
action shall be recognized at the time of sale only if ALL of six
conditions have been met. Which of the following is NOT one of these
six conditions?

a. The amount of future returns can be reasonably estimated.
b. The seller's price is substantially fixed or determinable at time
of sale.
c. The buyer's obligation to the seller would not be changed in the
event of theft or damage of the product.
d. The buyer is obligated to pay the seller upon resale of the
product.

8. An increase in inventory balance would be reported in a statement of
cash flows using the indirect method (reconciliation method) as a(n)

a. addition to net income in arriving at net cash flow from
operating activities.
b. deduction from net income in arriving at net cash flow from
operating activities.
c. cash outflow from investing activities.
d. cash outflow from financing activities.

9. A segment of a business enterprise is to be reported separately when
the revenues of the segment exceed 10 percent of the

a. total combined revenues of all segments reporting profits.
b. total revenues of all the enterprise's operating segments.
c. total export and foreign sales.
d. combined net income of all segments reporting profits.
?
11. If $10,000 is deposited annually starting on January 1, 2004 and it
earns 9%, how much will accumulate by December 31, 2013?

12. Howard Construction Co. contracted to build a bridge for $3,000,000.
Construction began in 2004 and was completed in 2005. Data relating
to the construction are:
2004 2005
Costs incurred $990,000 $825,000
Estimated costs to complete 810,000 ??

Howard uses the percentage-of-completion method.

INSTRUCTIONS
(a) How much revenue should be reported for 2004? Show your
computation.

(b) Make the entry to record progress billings of $1,000,000 during
2004.

(c) Make the entry to record the revenue and gross profit for 2004.

(d) How much gross profit should be reported for 2005? Show your
computation.

13. The following information pertains to Tyson Company:

Cash $ 40,000
Accounts receivable 105,000
Merchandise inventory 75,000
Plant assets (net) 380,000
????????
Total assets $600,000

Accounts payable $ 55,000
Accrued taxes and expenses payable 25,000
Long-term debt 140,000
Common stock ($10 par) 160,000
Paid-in capital in excess of par 40,000
Retained earnings 180,000
????????
Total equities $600,000

Net sales (all on credit) $800,000
Cost of goods sold 600,000
Net income 81,000

INSTRUCTIONS
Compute the following: (It is not necessary to use averages for
any balance sheet figures involved.)

(a) Current ratio

(b) Inventory turnover

(c) Receivables turnover

(d) Book value per share

(e) Earnings per share

(f) Debt to total assets

(g) Profit margin on sales

(h) Return on common stock equity

14. The following trial balance was taken from the books of Fisk
Corporation on December 31, 2004.

Account Debit Credit
??????? ????? ??????
Cash $ 12,000
Accounts Receivable 40,000
Note Receivable 7,000
Allowance for Doubtful Accounts $ 1,800
Merchandise Inventory 54,000
Unexpired Insurance 4,800
Furniture and Equipment 125,000
Accumulated Depreciation of F. & E. 15,000
Accounts Payable 10,800
Common Stock 44,000
Retained Earnings 55,000
Sales 310,000
Cost of Goods Sold 131,000
Salaries Expense 50,000
Rent Expense 12,800
???????? ????????
Totals $436,600 $436,600

At year end, the following items have not yet been recorded.

a. Insurance expired during the year, $2,000.
b. Estimated bad debts, 1% of gross sales.
c. Depreciation on furniture and equipment, 12% per year.
d. Interest at 8% is receivable on the note for one full year.
e. Rent paid in advance at December 31, $5,400 (originally charged
to expense).
f. Accrued salaries at December 31, $5,800.

INSTRUCTIONS
(a) Prepare the necessary adjusting entries.
(b) Prepare the necessary closing entries.

15. Olson Corporation's capital structure consists of 40,000 shares of
common stock. At December 31, 2004, an analysis of the accounts and
discussions with company officials revealed the following
information:

Sales $1,400,000
Purchase discounts 18,000
Purchases 820,000
Earthquake loss (net of tax) (extraordinary item) 42,000
Selling expenses 128,000
Cash 60,000
Accounts receivable 90,000
Common stock 200,000
Accumulated depreciation 180,000
Dividend revenue 8,000
Inventory, January 1, 2004 152,000
Inventory, December 31, 2004 125,000
Unearned service revenue 4,400
Accrued interest payable 1,000
Land 370,000
Patents 100,000
Retained earnings, January 1, 2004 270,000
Interest expense 17,000
Cumulative effect of change from straight-line to
accelerated depreciation (net of tax) 28,000
General and administrative expenses 210,000
Dividends declared 29,000
Allowance for doubtful accounts 5,000
Notes payable (maturity 7/1/07) 200,000
Machinery and equipment 450,000
Materials and supplies 40,000
Accounts payable 60,000

The amount of income taxes applicable to ordinary income was
$67,200, excluding the tax effect of the earthquake loss which
amounted to $18,000 and the tax effect of the change of accounting
principle which was $12,000.

INSTRUCTIONS
(a) Prepare a multiple-step income statement.
(b) Prepare a retained earnings statement.

16. Part (a) Compute the amount that a $30,000 investment today would
accumulate at 10% (compound interest) by the end of 6
years.

Part (b) Tom wants to retire at the end of this year (2004). His
life expectancy is 20 years from his retirement. Tom has
come to you, his CPA, to learn how much he should deposit
on December 31, 2004 to be able to withdraw $50,000 at the
end of each year for the next 20 years, assuming the amount
on deposit will earn 8% interest annually.

Part (c) Nancy Houser has a $1,500 overdue debt for medical books
and supplies at Ken's Bookstore. She has only $500 in her
checking account and doesn't want her parents to know about
this debt. Ken's tells her that she may settle the account
in one of two ways since she can't pay it all now:

1. Pay $500 now and $1,200 when she completes her
residency, two years from today.
2. Pay $2,000 one year after completion of residency, three
years from today.

Assuming that the cost of money is the only factor in
Nancy's decision and that the cost of money to her is 8%,
which alternative should she choose? Your answer must be
supported with calculations.

18. Edwards, Inc. has prepared the following comparative balance sheets
for 2003 and 2004:
2004 2003
?????????? ????????
Cash $ 198,000 $102,000
Receivables 106,000 78,000
Inventory 100,000 120,000
Prepaid expenses 12,000 18,000
Plant assets 840,000 700,000
Accumulated depreciation (300,000) (250,000)
Patent 102,000 116,000
?????????? ????????
$1,058,000 $884,000

Accounts payable $ 102,000 $112,000
Accrued liabilities 40,000 28,000
Mortgage payable ??? 300,000
Preferred stock 350,000 ???
Additional paid-in capital??preferred 80,000 ???
Common stock 400,000 400,000
Retained earnings 86,000 44,000
?????????? ????????
$1,058,000 $884,000

1. The Accumulated Depreciation account has been credited only for
the depreciation expense for the period.

2. The Retained Earnings account has been charged for dividends of
$92,000 and credited for the net income for the year.

The income statement for 2004 is as follows:

Sales $1,320,000
Cost of sales 726,000
??????????
Gross profit 594,000
Operating expenses 460,000
??????????
Net income $ 134,000

INSTRUCTIONS
(a) From the information above, prepare a statement of cash flows
(indirect method) for Edwards, Inc. for the year ended
December 31, 2004.

(b) From the information above, prepare a schedule of cash provided
by operating activities using the direct method.

19. A central issue in reporting on operating segments of a business
enterprise is the determination of which segments are reportable.

INSTRUCTIONS
1. What are the tests to determine whether or not an operating
segment is reportable?

2. What is the test to determine if enough operating segments have
been separately reported upon, and what is the guideline on the
maximum number of operating segments to be shown?

20. Presented below is the income statement of Gregg, Inc.:

Sales $380,000
Cost of goods sold 225,000
????????
Gross profit $155,000
Operating expenses 95,000
????????
Income before income taxes 60,000
Income taxes 24,000
????????
Net income $ 36,000

In addition, the following information related to net CHANGES in
working capital is presented:
Debit Credit
???????? ???????
Cash $ 12,000
Trade accounts receivable (net) 10,000
Inventories $19,400
Salaries payable (operating expenses) 8,000
Trade accounts payable 9,000
Income tax payable 3,000

The company also indicates that depreciation expense for the year
was $13,700 and that the deferred tax liability account increased
$2,600.

INSTRUCTIONS
Prepare a schedule computing the net cash flow from operating
activities that would be shown on a statement of cash flows:

(a) using the indirect method.
(b) using the direct method.