12. Which of the following is not a condition which would require the    recording of a lease

contract as a capital lease?

    a. The lease term is less than 75% of the economic life of the

       leased property.

    b. The lease contains a bargain purchase option.

    c. The lease transfers ownership of the property to the lessee.

    d. The present value of the lease payments equals or exceeds 90% of

       the fair market value of the leased property.

 13. If the cost method is used to account for a long-term investment in

    common stock, dividends received should be

    a. credited to the Stock Investments account.

    b. credited to the Dividend Revenue account.

    c. debited to the Stock Investments account.

    d. recorded only when 20% or more of the stock is owned.

 14. When an investor owns between 20% and 50% of the common stock of a

    corporation, it is generally presumed that the investor

    a. has insignificant influence on the investee and that the cost

       method should be used to account for the investment.

    b. should apply the cost method in accounting for the investment.

    c. will prepare consolidated financial statements.

    d. has significant influence on the investee and that the equity

       method should be used to account for the investment.

 15. If the equity method is being used, cash dividends received

    a. are credited to the Stock Investments account.       

    b. require no entry because investee net income has already been

       recorded at the proper proportion on the investor’s books.

    c. are credited to Dividend Revenue.

    d. are credited to the Revenue from Investment in Stock account.

 16. If the cost of an available-for-sale security exceeds its fair value

    by $40,000, the entry to recognize the loss

    a. is not required since the share prices will likely rebound in the

       long run.

    b. will show a debit to an expense account.

    c. will show a credit to a contra-asset account that appears in the

       stockholder’s equity section of the balance sheet.

    d. will show a debit to an unrealized loss account that is deducted

       in the stockholders’ equity section of the balance sheet.

 17. Short-term investments are securities that are readily marketable

    and intended to be converted into cash within the next

    a. year.

    b. two years.

    c. year or operating cycle, whichever is shorter.

    d. year or operating cycle, whichever is longer.

 18. The primary purpose of the statement of cash flows is to

    a. provide information about the investing and financing activities

       during a period.

    b. prove that revenues exceed expenses if there is a net income.

    c. facilitate banking relationships.

    d. provide information about the cash receipts and cash payments

       during a period.

 19. The acquisition of land by issuing common stock is

    a. a noncash transaction which is not reported in the body of a

       statement of cash flows.

    b. a cash transaction and would be reported in the body of a

       statement of cash flows.

    c. a noncash transaction and would be reported in the body of a

       statement of cash flows.

    d. only reported if the statement of cash flows is prepared using

       the direct method.

 20. The order of presentation of activities on the statement of cash

    flows is

    a. operating, financing, and investing

    b. operating, investing, and financing.

    c. financing, operating, and investing.

    d. financing, investing, and operating.

 21. Cash receipts from interest and dividends are classified as

    a. financing activities.

    b. investing activities.

    c. operating activities.

    d. either financing or investing activities.

 22. When equipment is sold for cash, the amount received is reflected as

    a cash

    a. inflow in the operating section.

    b. inflow in the financing section.

    c. inflow in the investing section.

    d. outflow in the operating section.

 23. Assume the following sales data for a company:

          2013    $1,200,000

          2012       960,000

          2011       840,000

          2010       600,000

    If 2010 is the base year, what is the percentage increase in sales

    from 2010 to 2012?

    a. 100%

    b. 160%

    c. 70%

    d. 60.0%

 24. In performing a vertical analysis, the base for cost of goods sold

    is

    a. total selling expenses.

    b. net sales.

    c. total revenues.

    d. total expenses.

                      ——————————

    Johnson Corporation had net income of $200,000 and paid dividends to

    common stockholders of $40,000 in 2013. The weighted average number

    of shares outstanding in 2013 was 50,000 shares. Terry Corporation’s

    common stock is selling for $60 per share on the New York Stock

    Exchange.

 25. Johnson Corporation’s price-earnings ratio is

    a. 3.8 times.

    b. 15 times.

    c. 18.8 times.

    d. 6 times.

 

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