Final Revision

1- On 1/11, Kayla Zayn and Hector Perez organize a partnership called

BOARDS. Zayn’s initial investment is $7,000 cash, $33,000 in
boarding facilities, and a note payable for $10,000 on the boarding
facilities. Perez’s initial investment is $10,000 cash. The Capital
balance of Zain is…………. 7000 + 33000 - 10000 = 30000
Answer 30,000
2. The Capital balance of Perez is……….
Answer 10,000
3. On 1/11, Kayla Zayn and Hector Perez organize a partnership
called BOARDS. Zayn’s initial investment is $7,000 cash, $33,000
in boarding facilities, and a note payable for $10,000 on the
boarding facilities. Perez’s initial investment is $10,000 cash. To
allocate the income based on stated ratio. The closing of Income
summery is……….
Answer 60,000
4. In their partnership agreement, Zayn and Perez agree to
allocate profits and losses on the basis of
their beginning capital balances. Allocation of income to Zayn
is ………
Answer 45000
5. Allocation of income to Perez according to his Capital
Balance is…………
Answer15,000
6. Zayn and Perez have a partnership agreement with the
following condition:
Zayn receives a $36,000 annual salary allowance and Perez receives
an allowance of $24,000, Each partner is allowed an annual interest
allowance of 10% on their beginning capital balance, Any remaining
balance of income or loss is allocated equally.Net income
is…………….
 Answer $70,000
7. The total income allocated to zayn is…………..
Answer 42,000 36000 + 3000 + 3000 = 42000

8. The total income allocated to Perez is…………..

Answer 28,000 24000 + 1000 + 3000 = 28000
9. On January 4th, Hector Perez sells one-half of his partnership
interest to Tyrell Rasheed for $18,000. Perez gives up a $13,000
recorded interest in the partnership and withdrew 12,000. The
capital balance of Perez after admission of new partner
is…………. 26000 - 13000 = 13000
Answer 13,000

10. The total capital balance of three partners after admission of

new partner assuming that zayn withdrew 20,000 is ………….
Answer 78,000 52000 + 13000 + 13000 = 78000
11.The income statement information would help in which of the
following tasks?
a. Evaluate the liquidity of a company.
b. Estimate future cash flows.
c. Evaluate the solvency of a company.
d. d. Estimate future financial flexibility.

12.The income statement provides investors and creditors

information that helps them predict
a. The amounts of future cash flows.
b. The uncertainty of future cash flows.
c. The timing of future cash flows.
d. All of these answers are correct.

2
 13.Investors and creditors use income statement information for
each of the following
except to
a. Evaluate the future performance of the company.
b. Provide a basis for predicting future performance.
c. Help assess the risk and uncertainty of achieving future cash flows.
d. All of these answers are correct.

14.The definition of expenses includes

a. Losses only.
b. expenses only.
c. Expenses and losses.
d. d. expenses and unrealized losses on securities.
15.Income taxes are allocated to
a. continuing operations.
b. prior period adjustments.
c. discontinued operations.
d. d. All of these answers are correct.

16. Which of the following is an ingredient of faithful representation?

a. Predictive value.
c. Neutrality.
b. Materiality.
d. Confirmatory value.
17- Investors and creditors use income statement information for each
of the following
except to
a.evaluate the future performance of the company.
b.provide a basis for predicting future performance.
c.help assess the risk and uncertainty of achieving future cash flows.
d.All of these answers are correct.

3
18-The income statement provides investors and creditors information
that helps them predict
a.the amounts of future cash flows.
b.the timing of future cash flows.
c. the uncertainty of future cash flows.
d. All of these answers are correct.
19- Investors and creditors use income statement information for each of
the following
except to
a.evaluate the future performance of the company.
b.provide a basis for predicting future performance.
c.help assess the risk and uncertainty of achieving future cash flows.
d.All of these answers are correct.
20- The definition of expenses includes
a. losses only.
b. expenses and losses.
c. expenses only.
d. expenses, losses and unrealized losses on securities

21. Income taxes are allocated to

a. continuing operations.
b. discontinued operations.
c. prior period adjustments.
d. All of these answers are correct.
22. Current cash debt coverage is often used to assess
a. financial flexibility.
b. liquidity.
c. profitability.
d. solvency.
23. Which of the following is a contra account?
a. Premium on bonds payable
b. Unearned service revenue
4
 c. Patents
d. Accumulated depreciation

24. When a company with a current ratio of 1.2 pays a current

liability:
a. Its current ratio decreases.
b. Its current ratio increases.
c. Its current ratio remains unchanged.
d. none o them
25. The underlying theme of the conceptual framework is
a. decision usefulness.
b. understandability.
c. faithful representation.
d. comparability.

27. The income statement information would help in which of the

following tasks?
a.Evaluate the liquidity of a company.
b.Evaluate the solvency of a company.
c.Estimate future cash flows
d.Estimate future financial flexibility.

5
23. The net assets of a business are equal to
a. curent assets minus curent liabilities.
b. total assets plus total liabilities .
c .total assets minus total shareholders' equity.
d. none of these choices are correct.
24. Which of the following is not an acceptable major asset
classification?
a. Current assets c. Property, plant,
and equipment
b. Investments d. Deferred charges
25. Cash debt coverage is computed by dividing net cash
provided by operating activities by
a. average non-current liabilities. c. ending non-current
liabilities.
b. average total liabilities. d. ending total liabilities.

True or False Questions

1. The statement of cash flows reports only the cash effects of
operations during a period and financing transactions. F
2. The primary purpose of a statement of cash flows is to report
the cash effects of operations during a period. T
3. The income statement is useful for helping to assess the risk or
uncertainty of achieving future cash flows. T
4. Income from operations represents a company’s results before
any gain or loss on discontinued operations. F
5. The income statement presents subtotals for gross profit, income
before continuing operations, income before income tax, and net
income. F
6. We measure income statement accounts at a point in time and
balance sheet accounts over a period of time. F
7. On the statement of financial position the non-controlling interest
account is reported as a long-term investment. F
6
 8. The statement of financial position omits many items that are of
financial value to the business but cannot be recorded
objectively. T
9. Land held for speculation is reported in the property, plant, and
equipment section of the statement of financial position. F
10. Income before income taxes is computed by deducting interest
expense from income from operations. T
11. A partnership may be ended voluntarily at any time through
the acceptance of a new partner or the withdrawal of a partner.T
12. Timeliness and neutrality are two ingredients of relevance. F
13. Liquidity refers to the ability of an enterprise to pay its debts
as they mature. F
14. The statement of financial position omits many items that are
of financial value to the business but cannot be recorded
objectively. T
15. Both revenues and gains increase both net income and equity. T
16. Prior period adjustments can either be added or subtracted in the
Retained Earnings Statement. T
17. Income before income taxes is computed by deducting interest
expense from income from operations. T
18. A partnership is an association of two or more persons to carry
on as co-owners of a business for profit.T
19. Mutual agency means that each partner acts on behalf of the
partnership when engaging in partnership business.T
20.A low current ratio indicates that a company has sufficient
current assets to pay current liabilities as they become due. F
21.The gross profit ratio is calculated as gross profit divided by net
sales. T
22.Under IFRS non-cash activities are reported as either investing
or financing activities in the body of the statement of cash flows.
F
23.Free cash flow is net income less capital expenditures and
dividends. F

7
 24.The primary purpose of a statement of cash flows is to report the
cash effects of operations during a period. T
25.Prior period adjustments can either be added or subtracted in the
Retained Earnings Statement. T
26.The income statement is useful for helping to assess the risk or
uncertainty of achieving future cash flows. T
27.A conceptual framework is a coherent system of concepts that flow
from an objective.T
28.The 2nd level of the IASB’s conceptual framework provides the
qualitative characteristics that make accounting information useful
and the elements of financial statements. T

29.Every liquidity ratio is calculated using one or more current asset

accounts. T
30.Solvency refers to a company's ability to pay its current liabilities
while liquidity refers to a company's ability to pay its long-term
liabilities. F