ACCT 201 Pre-Quiz #2 (Ch. 3 and 4) PROFESSOR FARINA

ACCT 201 Pre-Quiz #2 (Ch. 3 and 4) -PROFESSOR FARINA

Name: ______

Instruction: for true-false or multiple choice questions, circle the letter of the best answer. For matching questions, place the letter of the best answer in the space provided.

CHAPTER 3

1.The balance sheet reports a company's financial position at a point in time.
TrueFalse

2.Intangible assets usually are reported as current assets in the balance sheet.
TrueFalse

3.Accrued salaries and wages in a balance sheet represent salary and wages that have been earned by employees but not paid.
TrueFalse

4.Payment terms, interest rates, and other details of long-term liabilities usually are reported in disclosure notes.
TrueFalse

5.Subsequent events are significant developments that take place after a firm's year-end, and after the financial statements are issued.
TrueFalse

For #6 through 10:Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase.
Terms:
A. Accrued liabilities
B. Current liabilities
C. Intangible asset
D. Liquidity
E. Long-term solvency
F. Notes receivable
G. Qualified opinion
H. Proxy statement
I. Times interest earned ratio
J. Unqualified opinion

6.____ Will be satisfied in the next year or the operating cycle, whichever is longer.

7.____ Presented fairly in conformity with GAAP.

8.____ The larger the better from a debt holder's perspective.

9.____ Supported by a negotiable instrument.

10.____ Expenses incurred but not yet paid.

Multiple-choice: Circle the letter of the best answer.

11. Janson Corporation Co.'s trial balance included the following account balances at December 31, 2018:

Accounts payable / $25,000
Bond payable, due 2027 / 22,000
Salaries payable / 16,000
Note payable, due 2019 / 20,000
Note payable, due 2023 / 40,000

What amount should be included in the current liabilities section of Janson’s December 31, 2018, balance sheet?

A. $ 63,000.

B. $ 61,000.

C. $ 41,000.

D. $101,000.

12.Assume a company's liquidity ratios all are less than 1.0 before it purchases inventory on credit.

When the inventory is purchased,

A. Its current ratio decreases.

B. Its quick ratio decreases.

C. Its current ratio remains unchanged.

D. Its quick ratio remains unchanged.

13.The quick ratio is:
A.The liquidity ratio divided by the equity ratio.
B.Current assets minus inventory divided by current liabilities minus accounts payable.
C.Current assets minus inventory and prepaid items divided by current liabilities.
D.Cash divided by accounts payable.

14.Which of the following would be disclosed in the summary of significant accounting policies disclosure note?

A.
B.
C.
D.

15.Which of the following is never a current liability account?
A.Accrued payroll
B.Dividends payable
C.Prepaid rent
D.Subscriptions collected in advance

16. Which of the following are disclosed in the summary of significant accounting policies disclosure note?

CompositionofDepreciation

Long-term debt Method

a.NoYes

1. Yes No
2. YesYes
3. No No

Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below.

Current liabilities / $ 180 / Income before interest and taxes / $ 125
10% Bonds, long-term / 360 / Interest expense / 36
Total liabilities / 540 / Income before tax / 89
Shareholders' equity / Income tax / 27
Capital stock / 200 / Net income / $ 62
Retained earnings / 280
Total shareholders' equity / 480
Total liabilities and equity / $1,020

17.HHF's debt to equity ratio is (rounded):

A. 0.75.

B. 1.13.

C. 0.53.

C. 1.80.

18. When a company pays a bill from a plumber for previous services on account:

A. Its debt to equity ratio will decrease

B. Its acid-test ratio does not change

C. Its current ratio does not change

D. Its return on shareholders’ equity will decrease

CHAPTER FOUR

19.Material restructuring costs are reported as an element of income from continuing operations.
TrueFalse

20.In a statement of cash flows prepared under International Financial Reporting Standards, interest paid is most often classified as a financing cash flow.

TrueFalse

21.Changes in accounting estimates require disclosure of their effects, if material, on current year net income and EPS but do not require restatement of prior years' financial statements.
TrueFalse

22.Comprehensive income reports an expanded version of income to include four types of gains and losses not included in traditional income statements.
TrueFalse

For #20 through #24: Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase.
Terms:
A. Change in accounting estimate
B. Income from discontinued operations
C. Income from continuing operations
D. Intraperiod tax allocation
E. Matching principle
F. Operating activities (income statement)
G. Prior period adjustment
H. Provision for income tax
I. Taxable income
J. Transitory earnings

23._____ Also known as income tax expense.

24._____ From transactions or events that are not likely to occur in the foreseeable future.

25._____ Associates tax with income statement items.

26._____ Used as the base for computing taxes currently payable.

27._____ Made to correct a material error.

28. Each of the following are reported as items of other comprehensive income except:

A. Foreign currency translation gains
B.Unrealized gains on available for sale securities.
C.Deferred gains from derivatives.
D.Gains from sale of equipment.

29.When a company sells land for cash and recognizes a $25,000 gain:
A.Its acid-test ratio decreases.
B.Its current ratio decreases.
C.Its debt to equity ratio decreases.
D.None of the above.

For #30 and #31: Misty Company reported the following before-tax items during the current year:
Sales$600

Operating expenses 250

Restructuring charges 20

Loss on discontinued operations 50
Misty's effective tax rate is 40%.

30.What is Misty's income from continuing operations?
A.$198.
B.$210.
C.$330.
D.$360.

31.What is Misty's net income for the current year?
A.$148.
B.$168.
C.$112.
D.None of the amounts given are correct.

32.A voluntary change in accounting principle is accounted for by:
A.A cumulative effect on income in the year of the change.
B.A retrospective reporting of all comparative financial statements shown.
C.A prior period adjustment.
D.A separate line component of income.

33.A change in depreciation method is accounted for by retrospectively revising prior years' financial statements.
TrueFalse

34.Cash flows from investing do not include cash flows from:
A.Lending money to another corporation.
B.The sale of equipment.
C.Borrowing.
D.The purchase of other corporation's securities.

35.Cash flows from financing activities include:
A.Interest received.
B.Interest paid.
C.Dividends received.
D.Dividends paid.

36.Which of the following is added to net income as an adjustment under the indirect method of preparing the statement of cash flows?
A.Salaries payable decrease.
B.Gain on sale of land.
C.Loss on sale of equipment.
D.Accounts receivable increase.

37.Shively Mfg. Co. sold for $18,000 equipment that cost $40,000 and had a book value of $30,000. Shively would report:
A.Operating cash inflows of $18,000.
B.Operating cash inflows of $8,000.
C.Financing cash inflows of $18,000.
D.Investing cash inflows of $18,000.

38.Lucia Ltd. reported net income of $135,000 for the year ended December 31, 2009. January 1 balances in accounts receivable and accounts payable were $29,000 and $26,000 respectively. Year-end balances in these accounts were $30,000 and $24,000, respectively. Assuming that all relevant information has been presented, Lucia's cash flows from operating activities would be:
A.$132,000.
B.$134,000.
C.$136,000.
D.$138,000.

39. On August 1, 2017, Rocket Retailers adopted a plan to discontinue its catalog sales division, which qualifies as a separate component of the business according toGAAP regarding discontinued operations. The disposal of the division was expected to be concluded by June 30, 2018. On January 31, 2018, Rocket's fiscal year-end, the following information relative to the discontinued division was accumulated:

Operating loss Feb. 1, 2017–Jan. 31, 2018 / $115,000
Estimated operating losses, Feb. 1–June 30, 2018 / 80,000
Impairment of division assets at Jan. 31, 2018 / 10,000

In its income statement for the year ended January 31, 2018, Rocket would report a before-tax loss on discontinued operations of:

a.$115,000.

b.$195,000.

c.$ 65,000.

d.$125,000.

40. Howard Co.'s 2018 income from continuing operations before income taxes was $280,000. Howard Co. reported before-tax income on discontinued operations of $50,000. All tax items are subject to a 40% tax rate. In its income statement for 2018, Howard Co. would show the following line-item amounts for net income and income tax expense:

a.$198,000 and $112,000.

b.$230,000 and $92,000.

c.$330,000 and $132,000.

d.$198,000 and $79,000.

42. PROBLEM

Bernardo Paint Company had the following income statement items for the year ended December 31, 2018 ($ in 000s):
Net sales / $ / 19,000 / Cost of goods sold / $ / 11,000
Interest income / 210 / Selling and administrative expenses / 2,600
Interest expense / 370 / Restructuring costs / 900
In addition, during the year the company completed the disposal of its plastics business and incurred a loss from operations of $1.7 million and a gain on disposal of the component’s assets of $2.2 million. 400,000 shares of common stock were outstanding throughout 2018. Income tax expense has not been recorded. The income tax rate is 40% on all items of income (loss).
Required:
Prepare a multiple-step income statement for 2018, including EPS disclosures. Round EPS to two decimal places.

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