Accounting principles and financial statement analysis problems

¶ … SEC that is responsible for the policing the accounting and ethics of publicly held companies is:

Public Company Accounting Oversight Board.

The financial statement that summarizes the assets, liabilities, and stockholders' equity of an entity at a specific point in time is the:

Balance Sheet

At December 31, 2002, Robinson's Home Improvement has $100,000 of assets, $40,000 of liabilities, and $60,000 of stockholders' equity. On January 15, 2003, Robinson's purchased $30,000 of assets by incurring a liability. Robinson's total assets, liabilities, and stockholder's equity at January 15, 2003 (after the purchase) are, respectively, ____, ____, and,

$130,000; $70,000; and, $60,000

4. Gadsden Lawn and Mowing Service began operations on January 1, 2002. At the company's inception, Bob Morgan contributed $100,000 of cash and equipment. During the year, Gadsden earned $200,000 of revenue, incurred $100,000 of expenses, and incurred no liabilities. Total owner's equity at December 31, 2002 is:

a. $200,000

5. Which of the following is not a correct expression of the accounting equation?

A) Assets = Liabilities -- Owners' Equity

6. Which of the following statements about property, plant, and equipment and depreciation is true?

a. Accounting requires that the cost of a depreciable asset be recorded as an expense over time periods benefited by that asset.

7. On April 1, 2002, the Pacific Landscaping Company purchased a new lawnmower for $25,000. The lawnmower has an estimated life of four years and a $5,000 salvage value. Pacific Landscaping uses the straight-line method of depreciation. Total depreciation expense for the year ended December 31, 2002, is:

a. $5,000

8. On January 1, 2002, Strauss Department Store purchased five sweaters from Charter Manufacturers for $20 each. On April 1, 2002, Ms. Landers purchased those sweaters from Strauss for $35 each. Strauss should recognize a:

a. $100 increase in revenue for the sale of the sweaters to Ms. Landers.

9. The requirement for publicly owned companies to issue quarterly and annual financial statements was mandated by the:

a. Financial Accounting Standards Board

10. The belief that an entity will continue to operate, unless there is evidence to the contrary, is the:

a. Going concern assumption

11. Quick Co. showed an account payable to Lars Co. For $15,000. Quick's accountant misread the amount owed and wrote a check to Lars for $18,000. If Quick immediately prepares a balance sheet, Quick will show an:

a. Debit-balanced Account Payable to Lars Co.

12. The effect of an adjustment on the financial statements is usually to:

a. $30,000

16. On October 1, 2002, the Golden Triangle Gazette received $1,400 for newspaper subscriptions spanning October 1, 2002 through April 30, 2003. Throughout 2002 and 2003, the Gazette delivered daily newspapers to individual subscribers. How much revenue should the Gazette recognize in 2002 relative to these subscriptions?

a. 600

17. Joyner Distributing is estimating its allowance for uncollectible accounts at January 31, 2002, based on the following information:

Accounts Receivable, January 1

$1,375,000

Total Accounts Receivable write-offs during January

$200,000

Allowance for Uncollectible Accounts, January 1

$175,000

Total sales for January

$10,000,000

Sixty percent Joyner's total sales for January 2002 are credit sales. Based on past experience, Joyner estimates that 5% of its credit sales will be uncollectible. What is uncollectible accounts expense for January 2002?

a. $300,000

18. On July 10, 2002, Fins and Feathers Pet Shop purchased 100 bags of Koi Chow at $10 each from Far East Distributing Company. On July 11, Fins and Feathers sold 60 sacks bags at $15 each. Fins and Feathers uses a perpetual inventory system. Related to the sale of the 60 bags, the company should recognize, respectively, increases of ____ in sales revenue and in ____ cost of goods sold.

a. $900 and $600

19. When FIFO and LILO are compared,

a. LIFO yields a higher net income during inflationary times than FIFO.

20. The principal reason for reconciling the cash balance per books with the balance shown on the bank statement is to:

a. Determine the amount of cash in the account actually available to the entity.

21. Which one of the following statements about inventory errors is true?

a. Ending inventory and cost of goods sold have an inverse relationship; that is, if the value of cost of goods sold is too low, the value of ending inventory is too high.

On January 1, 2002, Run N' Go Pizza purchased a delivery truck for $50,000. The truck has a $5,000 salvage value and a four-year useful life or 56,250 miles.

22. If Run N' Go uses the straight line method, how much depreciation expense should Run N' Go recognize in 2002?

a. $11,250

23. If Run N' Go uses the double-declining balance method, how much depreciation expense should Run N' Go recognize in 2002?

a. $25,000

24. If Run N' Go uses the units-of-production method and puts 18,500 miles on the truck in 2002, how much depreciation expense should Run N' Go recognize in 2002?

a. $14,800

25. On January 1, 2002, Green Pharmaceuticals purchased a patent for a new arthritis medication from Winwood Research Labs for $1,000,000. The patent has a remaining legal life of 10 years and an estimated useful life of 5 years. What adjusting journal entry should Green prepare on December 31, 2002, relative to this patent?

a. Amortization Expense

200,000

Patent

200,000

b. Amortization Expense

200,000

Accumulated Amortization

200,000

c. Amortization Expense

100,000

Patent

100,000

d. Amortization Expense

100,000

Accumulated Amortization

100,000

e. No adjusting entry is necessary at December 31, 2002.

26. When choosing between issuing common stock and issuing bonds managers of corporations should take into account:

a. All of the above are considerations.

27. Which of the following statements about long-term assets and disclosures is true?

a. Companies often choose to use accelerated depreciation for their income statements and straight-line depreciation for tax returns

28. Grambling Corporation issued 500 shares of $5 par common stock for $22 per share. How should Grambling recognize this transaction?

a. Common Stock

11,000

Cash

11,000

29. Redwing Corporation issued 500 shares of $1 par-value common stock for $22 per share. Because of this transaction:

a. Redwing should credit its cash account for $11,000

30. Leverage refers to which of the following?

a. None of the above.