69 Test Bank for Survey of Accounting 4th Edition by Edmonds Multiple Choice Questions Norris Company experienced the following transactions during 2013, its first year in operation Issued $6,000 of common stock to stockholders; Provided $2,300 of services on account; Paid $1,600 cash for operating expenses; Collected $1,900 of cash from accounts receivable; Paid a $100 cash dividend to stockholders The amount of net cash flow from operating activities shown on Norris Company's 2013 statement of cash flows is A $200 B $300 C $700 D $600 Which of the following would cause net income on the accrual basis to be different than (either higher or lower than) "cash provided by operating activities" on the statement of cash flows? A Purchased supplies for cash B Purchased land for cash C Invested cash in an interest earning account D All of these are correct The purpose of the accrual basis of accounting is to: A Report revenue when received B Match revenues and expenses in the proper period C Report expenses when cash disbursements are made D Improve the company's earnings per share The following accounts and balances were drawn from the records of Hoover Company on December 31, 2013: Cash: $1,000; Dividends: 500; Land: 800; Accounts payable: 450; Account receivable: $850; Common stock: 975; Revenue: 800; Expense: 550 The amount of net income shown on the December 31, 2013 income statement would amount to: A $550 B $800 C $50 D $250 Which of the following accounts is not closed at the end of an accounting cycle? A Liabilities B Revenues C Dividends D Expenses Norris Company experienced the following transactions during 2013, its first year in operation Issued $6,000 of common stock to stockholders; Provided $2,300 of services on account; Paid $1,600 cash for operating expenses; Collected $1,900 of cash from accounts receivable; Paid a $100 cash dividend to stockholders The amount of retained earnings appearing on Norris Company's December 31, 2013 balance sheet is: A $500 B $600 C $700 D $6,600 Norris Company experienced the following transactions during 2013, its first year in operation Issued $6,000 of common stock to stockholders; Provided $2,300 of services on account; Paid $1,600 cash for operating expenses; Collected $1,900 of cash from accounts receivable; Paid a $100 cash dividend to stockholders The amount of net income recognized on Norris Company's 2013 income statement is: A $500 B $400 C $700 D $600 The balance in a revenue account at the beginning of an accounting period will always be A equal to the amount of retained earnings for the previous period B last period's ending balance C higher than the previous periods beginning balance D zero Purchasing prepaid rent is classified as a(n): A asset source transaction B asset use transaction C asset exchange transaction D claims exchange transaction If retained earnings decreased during the year, and no dividends were paid, which of the following must be true? A Expenses for the year exceeded revenues B The company did not have enough cash to pay its expenses C Total equity decreased D Liabilities increased during the year Expenses that are matched with the period in which they are incurred are frequently called: A market expenses B matching expenses C period costs D working costs Tocca Co collected a $5,000 cash advance from a customer on November 1, 2013 for work to be performed over a six-month period beginning on that date If the year-end adjustment is properly recorded, what will be the effect on Tocca's 2013 financial statements? A Increase assets and increase liabilities B Increase assets and increase revenues C Decrease liabilities and increase revenues D No effect Earning revenue on account would be classified as a/an: A claims exchange transaction B asset source transaction C asset use transaction D asset exchange transaction James Company paid $1,800 for one year's rent in advance beginning on October 1, 2013 James's 2013 income statement would report rent expense, and its statement of cash flows would report cash outflow for rent, respectively, of A $1,800; $1,800 B $450; $1,800 C $450; $450 D $300; $1,800 Recognition of revenue may be accompanied by which of the following? A A decrease in a liability B An increase in a liability C An increase in assets D A decrease in a liability and an increase in assets Revenue on account amounted to $4,000 Cash collections of accounts receivable amounted to $2,300 Expenses for the period were $2,100 The company paid dividends of $450 Net income for the period was A $200 B $1,450 C $1,850 D $1,900 Which of the following is an asset exchange transaction? A Issued common stock B Accrued salary expense at the end of the accounting period C Recognized revenue earned on a contract where the cash had been collected at an earlier date D Collected cash on accounts receivable Which of the following correctly states the proper order of the accounting cycle? A Record transactions, adjust accounts, prepare statements, close temporary accounts B Adjust accounts, record transactions, close temporary accounts, prepare statements C Prepare statements, record transactions, close temporary accounts, adjust accounts D Adjust accounts, prepare statements, record transactions, close temporary accounts The entry to recognize work completed on unearned revenue involves which of the following? A An increase in assets and a decrease in liabilities B An increase in liabilities and a decrease in equity C A decrease in assets and a decrease in liabilities D A decrease in liabilities and an increase in equity Franklin Trash Removal Company received a cash advance of $9,000 on December 1, 2013 to provide services during the months of December, January, and February The year-end adjustment to recognize the partial expiration of the contract will A increase equity by $3,000 B increase assets by $3,000 C increase liabilities by $3,000 D Increase Equity by $3,000 and assets by $3,000 The accounting principle that guides accountants, when faced with a recognition dilemma, to choose the alternative that produces the lowest net income is referred to as A the matching principle B internal control C conservatism D materiality Which of the following is an asset source transaction? A Issued common stock B Paid a cash dividend to stockholders C Received a payment on accounts receivable D Accrued salary expense Which of the following is a claims exchange transaction? A Purchased machine for cash B Issued common stock C Invested cash in an interest earning account D Recognized revenue earned on a contract where the cash had been collected at an earlier date Revenue on account amounted to $3,000 Cash collections of accounts receivable amounted to $2,700 Cash paid for expenses was $2,500 The amount of employee salaries accrued at the end of the year was $300 Cash flow from operating activities was A $200 B $300 C $500 D None of these Ruiz Company provided services for $15,000 cash during the 2013 accounting period Ruiz incurred $12,000 expenses on account during 2013, and by the end of the year, $3,000 of that amount had been paid with cash Assuming that these are the only accounting events that affected Ruiz during 2013 A The amount of net income shown on the income statement is $3,000 B The amount of net income shown on the income statement is $9,000 C The amount of net loss shown on the income statement is $3,000 D The amount of net cash flow from operating activities shown on the statement of cash flows is $6,000 The matching concept refers to the "matching" of: A expenses and liabilities B expenses and revenues C assets and equity D assets and liabilities Which of the following financial statement elements is closed at the end of an accounting cycle? A Liabilities B Common stock C Assets D Revenues Mackie Company provided $25,500 of services on account, and collected $18,000 from customers during the year The company also incurred $17,000 of expenses on account, and paid $15,400 against its payables As a result of these events A total assets would increase B total liabilities would increase C total equity would increase D all of these are correct Which of the following statements is true in regard to accrual accounting? A Revenue is recorded only when cash is received B Expenses are recorded when they are incurred C Revenue is recorded in the period when it is earned D Expenses are recorded when they are incurred and revenue is recorded in the period when it is earned Prior to closing, XYZ Company's accounting records showed the following balances: Retained earnings: %5,600; Service revenue: 7,250; Interest revenue: 600; Salaries expense: 4,100; Operating expense: 1,150; Interest expense: 300; Dividends: 900 After closing, XYZ's retained earnings balance would be A $5,600 B $7,000 C $7,900 D None of these Bledsoe Company received $15,000 cash from the issue of stock on January 1, 2013 During 2013 Bledsoe earned $8,500 of revenue on account The company collected $6,000 cash from accounts receivable and paid $5,400 cash for operating expenses Based on this information alone, during 2013 A Total assets increased by $24,100 2 B Total assets increased by $600 C Total assets increased by $18,100 D Total assets did not change Norris Company experienced the following transactions during 2013, its first year in operation Issued $6,000 of common stock to stockholders; Provided $2,300 of services on account; Paid $1,600 cash for operating expenses; Collected $1,900 of cash from accounts receivable; Paid a $100 cash dividend to stockholders The total amount of assets shown on Norris Company's December 31, 2013 balance sheet is: A $6,200 B $6,600 C $6,700 D None of these Which of the following accounts would not appear on a balance sheet? A Unearned Revenue B Salaries Payable C Interest Revenue D Retained Earnings On December 31, 2013, Farrell Co owed $1,500 in salaries to employees who had worked during December but would be paid in January If the year-end adjustment is properly recorded on December 31, 2013, what will be the effect of the accrual on the following items for Farrell? A Net income: No effect; Cash flow from operating activities: No effect B Net income: Decrease; Cash flow from operating activities: No effect C Net income: Increase; Cash flow from operating activities: Decrease D Net income: No effect; Cash flow from operating activities: Decrease The following account balances were drawn from the 2013 financial statements of Gunn Company Cash: $4,400; Accounts receivable: $1,500; Land: $8,000 Accounts payable: $1,250; Common stock: ?; Retained earnings, Jan 1: $2,700; Revenue: $9,500; Expenses: $7,250 Based on the above information, what is the balance of Common Stock for Gunn Company? A $9,950 B $7,700 C $450 D $10,400 Which of the following events would not require an end-of-year adjusting entry? A Purchasing supplies for cash B Providing services on account C Purchasing a 12-month insurance policy on July D All of these would require an end-of-year adjustment In uncertain circumstances, the conservatism principle guides accountants to A accelerate revenue recognition and delay expense recognition B accelerate expense recognition and delay revenue recognition C recognize expense of prepaid items when payment is made D maximize reported net income Olaf Company began 2013 with $600 in its supplies account During the year, the company purchased $1,700 of supplies on account The company paid $1,500 on accounts payable by year end On December 31, 2013, Olaf counted $700 of supplies on hand Olaf's financial statements for 2013 would show: A $800 of supplies; $100 of supplies expense B $700 of supplies; $1,600 of supplies expense C $700 of supplies; $1,000 of supplies expense D $800 of supplies; $1,700 of supplies expense Gonzales Company collected $18,000 on September 1, 2013 from a customer for services to be provided over a one-year period beginning on that date How much revenue would Gonzales Company report related to this contract on its income statement for the year ended December 31, 2013? How much would it report as cash flows from operating activities for 2013? A $6,000; $6,000 B $6,000; $18,000 C $18,000; $18,000 D $0; $18,000 Which of the following transactions does not involve an accrual? A Recording interest earned that will be received in the next period B Recording operating expense incurred but not yet paid C Recording salary expense incurred but not yet paid D Recording the pre-payment of two years' worth of insurance The following accounts and balances were drawn from the records of Hoover Company on December 31, 2013: Cash: $1,000; Dividends: 500; Land: 800; Accounts payable: 450; Account receivable: $850; Common stock: 975; Revenue: 800; Expense: 550 Total assets on the December 31, 2013 balance sheet would amount to: A $3,150 B $3,450 C $1,800 D $2,650 The recognition of an expense may be accompanied by which of the following? A An increase in assets B A decrease in liabilities C A decrease in revenue D An increase in liabilities The following accounts and balances were drawn from the records of Hoover Company on December 31, 2013: Cash: $1,000; Dividends: 500; Land: 800; Accounts payable: 450; Account receivable: $850; Common stock: 975; Revenue: 800; Expense: 550 The amount of retained earnings as of January 1, 2014 was: A $1,475 B $1,800 C $975 D $1,225 The results of the matching process are best reported on which financial statement? A Balance sheet B Income statement C Statement of changes in stockholders' equity D Statement of cash flows Which of the following is an asset use transaction? A Purchased machine for cash B Recorded supplies expense at the end of the period C Invested cash in an interest earning account D Accrued salary expense 24 Free Test Bank for Fundamentals of Advanced Accounting 6th Edition by Hoyle Multiple Choice Questions What is the primary accounting difference between accounting for when the subsidiary is dissolved and when the subsidiary retains its incorporation? A If the subsidiary is dissolved, it will not be operated as a separate division B If the subsidiary is dissolved, assets and liabilities are consolidated at their book values C If the subsidiary retains its incorporation, there will be no goodwill associated with the acquisition D If the subsidiary retains its incorporation, assets and liabilities are consolidated at their book values E If the subsidiary retains its incorporation, the consolidation is not formally recorded in the accounting records of the acquiring company According to GAAP, the pooling of interest method for business combinations A Is preferred to the purchase method B Is allowed for all new acquisitions C Is no longer allowed for business combinations after June 30, 2001 D Is no longer allowed for business combinations after December 31, 2001 E Is only allowed for large corporate mergers like Exxon and Mobil Direct combination costs and stock issuance costs are often incurred in the process of making a controlling investment in another company How should those costs be accounted for in a pre-2009 purchase transaction? A Direct combination costs: Increase investment; Stock insurance costs: decrease investment B Direct combination costs: Increase investment; Stock insurance costs: decrease paid-in capital C Direct combination costs: Increase investment; Stock insurance costs: increase expenses D Direct combination costs: Decrease paid-in capital; Stock insurance costs: increase investment E Direct combination costs: Increase expenses; Stock insurance costs: decrease investment How are stock issuance costs and direct combination costs treated in a business combination which is accounted for as an acquisition when the subsidiary will retain its incorporation? A Stock issuance costs are a part of the acquisition costs, and the direct combination costs are expensed B Direct combination costs are a part of the acquisition costs, and the stock issuance costs are a reduction to additional paid-in capital C Direct combination costs are expensed and stock issuance costs are a reduction to additional paid-in capital D Both are treated as part of the acquisition consideration transferred E Both are treated as a reduction to additional paid-in capital Which of the following is a not a reason for a business combination to take place? A Cost savings through elimination of duplicate facilities B Quick entry for new and existing products into domestic and foreign markets C Diversification of business risk D Vertical integration E Increase in stock price of the acquired company In a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true? A Negative goodwill is recorded B A deferred credit is recorded C A gain on bargain purchase is recorded D Long-term assets of the acquired company are reduced in proportion to their fair values Any excess is recorded as a deferred credit E Long-term assets and liabilities of the acquired company are reduced in proportion to their fair values Any excess is recorded as an extraordinary gain Which one of the following is a characteristic of a business combination accounted for as an acquisition? A The combination must involve the exchange of equity securities only B The transaction establishes an acquisition fair value basis for the company being acquired C The two companies may be about the same size, and it is difficult to determine the acquired company and the acquiring company D The transaction may be considered to be the uniting of the ownership interests of the companies involved E The acquired subsidiary must be smaller in size than the acquiring parent Chapel Hill Company had common stock of $350,000 and retained earnings of $490,000 Blue Town Inc had common stock of $700,000 and retained earnings of $980,000 On January 1, 2013, Blue Town issued 34,000 shares of common stock with a $12 par value and a $35 fair value for all of Chapel Hill Company's outstanding common stock This combination was accounted for as an acquisition Immediately after the combination, what was the total consolidated net assets? A $2,520,000 B $1,190,000 C $1,680,000 D $2,870,000 E $2,030,000 How are direct and indirect costs accounted for when applying the acquisition method for a business combination? A Direct costs: Expensed; Indirect costs: Expensed B Direct costs: Increase investment account; Indirect costs: Decrease additional paid-in capital C Direct costs: Expensed; Indirect costs: Decrease additional paid-in capital D Direct costs: Increase investment account; Indirect costs: Expensed E Direct costs: Increase investment account; Indirect costs: Increase investment account In an acquisition where control is achieved, how would the land accounts of the parent and the land accounts of the subsidiary be combined? A Parent: Book value, Subsidiary: Book value B Parent: Book value, Subsidiary: Fair value C Parent: Fair value, Subsidiary: Fair value D Parent: Fair value, Subsidiary: Book value E Parent: Cost, Subsidiary: Cost An example of a difference in types of business combination is: A A statutory merger can only be effected by an asset acquisition while a statutory consolidation can only be effected by a capital stock acquisition B A statutory merger can only be effected by a capital stock acquisition while a statutory consolidation can only be effected by an asset acquisition C A statutory merger requires dissolution of the acquired company while a statutory consolidation does not require dissolution D A statutory consolidation requires dissolution of the acquired company while a statutory merger does not require dissolution 5 E Both a statutory merger and a statutory consolidation can only be effected by an asset acquisition but only a statutory consolidation requires dissolution of the acquired company Which of the following statements is true regarding a statutory merger? A The original companies dissolve while remaining as separate divisions of a newly created company B Both companies remain in existence as legal corporations with one corporation now a subsidiary of the acquiring company C The acquired company dissolves as a separate corporation and becomes a division of the acquiring company D The acquiring company acquires the stock of the acquired company as an investment E A statutory merger is no longer a legal option Which of the following statements is true regarding a statutory consolidation? A The original companies dissolve while remaining as separate divisions of a newly created company B Both companies remain in existence as legal corporations with one corporation now a subsidiary of the acquiring company C The acquired company dissolves as a separate corporation and becomes a division of the acquiring company D The acquiring company acquires the stock of the acquired company as an investment E A statutory consolidation is no longer a legal option Prior to being united in a business combination, Botkins Inc and Volkerson Corp had the following stockholders' equity figures: Common stock ($1 par value): $220,000 (Botkins), $54,000 (Volkerson) Additional paid-in capital: 110,000 (Botkins), 25,000 (Volkerson) Retained earnings: 360,000 (Botkins), 130,000 (Volkerson) Botkins issued 56,000 new shares of its common stock valued at $3.25 per share for all of the outstanding stock of Volkerson Assume that Botkins acquired Volkerson on January 1, 2012 A $56,000 B $182,000 C $209,000 D $261,000 E $312,000 Which of the following statements is true? A The pooling of interests for business combinations is an alternative to the acquisition method B The purchase method for business combinations is an alternative to the acquisition method C Neither the purchase method nor the pooling of interests method is allowed for new business combinations D Any previous business combination originally accounted for under purchase or pooling of interests accounting method will now be accounted for under the acquisition method of accounting for business combinations E Companies previously using the purchase or pooling of interests accounting method must report a change in accounting principle when consolidating those subsidiaries with new acquisition combinations Which of the following statements is true regarding the acquisition method of accounting for a business combination? A Net assets of the acquired company are reported at their fair values B Net assets of the acquired company are reported at their book values C Any goodwill associated with the acquisition is reported as a development cost D The acquisition can only be effected by a mutual exchange of voting common stock E Indirect costs of the combination reduce additional paid-in capital Prior to being united in a business combination, Botkins Inc and Volkerson Corp had the following stockholders' equity figures: Common stock ($1 par value): $220,000 (Botkins), $54,000 (Volkerson) Additional paid-in capital: 110,000 (Botkins), 25,000 (Volkerson) Retained earnings: 360,000 (Botkins), 130,000 (Volkerson) Botkins issued 56,000 new shares of its common stock valued at $3.25 per share for all of the outstanding stock of Volkerson Assume that Botkins acquired Volkerson on January 1, 2012 A $456,000 B $402,000 C $274,000 D $276,000 E $330,000 Which one of the following is a characteristic of a business combination that is accounted for as an acquisition? A Fair value only for items received by the acquirer can enter into the determination of the acquirer's accounting valuation of the acquired company 2 B Fair value only for the consideration transferred by the acquirer can enter into the determination of the acquirer's accounting valuation of the acquired company C Fair value for the consideration transferred by the acquirer as well as the fair value of items received by the acquirer can enter into the determination of the acquirer's accounting valuation of the acquired company D Fair value for only consideration transferred and identifiable assets received by the acquirer can enter into the determination of the acquirer's accounting valuation of the acquired company E Only fair value of identifiable assets received enters into the determination of the acquirer's accounting valuation of the acquired company Lisa Co paid cash for all of the voting common stock of Victoria Corp Victoria will continue to exist as a separate corporation Entries for the consolidation of Lisa and Victoria would be recorded in A a worksheet B Lisa's general journal C Victoria's general journal D Victoria's secret consolidation journal E the general journals of both companies A statutory merger is a(n) A business combination in which only one of the two companies continues to exist as a legal corporation B business combination in which both companies continue to exist C acquisition of a competitor D acquisition of a supplier or a customer E legal proposal to acquire outstanding shares of the target's stock Using the acquisition method for a business combination, goodwill is generally defined as: A Cost of the investment less the subsidiary's book value at the beginning of the year B Cost of the investment less the subsidiary's book value at the acquisition date C Cost of the investment less the subsidiary's fair value at the beginning of the year D Cost of the investment less the subsidiary's fair value at acquisition date E is no longer allowed under federal law Acquired in-process research and development is considered as A a definite-lived asset subject to amortization B a definite-lived asset subject to testing for impairment C an indefinite-lived asset subject to amortization 4 D an indefinite-lived asset subject to testing for impairment E a research and development expense at the date of acquisition In a transaction accounted for using the acquisition method where consideration transferred exceeds book value of the acquired company, which statement is true for the acquiring company with regard to its investment? A Net assets of the acquired company are revalued to their fair values and any excess of consideration transferred over fair value of net assets acquired is allocated to goodwill B Net assets of the acquired company are maintained at book value and any excess of consideration transferred over book value of net assets acquired is allocated to goodwill C Acquired assets are revalued to their fair values Acquired liabilities are maintained at book values Any excess is allocated to goodwill D Acquired long-term assets are revalued to their fair values Any excess is allocated to goodwill At the date of an acquisition which is not a bargain purchase, the acquisition method A consolidates the subsidiary's assets at fair value and the liabilities at book value B consolidates all subsidiary assets and liabilities at book value C consolidates all subsidiary assets and liabilities at fair value D consolidates current assets and liabilities at book value, long-term assets and liabilities at fair value E consolidates the subsidiary's assets at book value and the liabilities at fair value  ... expense 24 Free Test Bank for Fundamentals of Advanced Accounting 6th Edition by Hoyle Multiple Choice Questions What is the primary accounting difference between accounting for when the subsidiary... $700 of supplies on hand Olaf's financial statements for 2013 would show: A $800 of supplies; $100 of supplies expense B $700 of supplies; $1,600 of supplies expense C $700 of supplies; $1,000 of. .. accounted for under the acquisition method of accounting for business combinations E Companies previously using the purchase or pooling of interests accounting method must report a change in accounting