1.
Unearned income is a liability.
A) True
B) False
2.
Prepaid expenses are assets.
A) True
B) False
3.
A business with no cash is insolvent.
A) True
B) False
4.
Assets must always equal liabilities plus capital.
A) True
B) False
5.
Assets normally have credit balances.
A) True
B) False
6.
Balance sheets report profitability.
A) True
B) False
7.
All payables are liabilites.
A) True
B) False
8.
FOB destination means buyer pays freight.
A) True
B) False
9.
Accrued revenue, by defintion, is unearned.
A) True
B) False
10.
Inventory is a current asset.
A) True
B) False
11.
Debits reduce liabilites.
A) True
B) False
12.
Sales returns are debited to inventory at cost.
A) True
B) False
13.
Sales minus sales returns, allowances, and discounts equals costof sales.
A) True
B) False
14.
Withdrawals reduce net income.
A) True
B) False
15.
A business with more debt than equity is insolvent.
A) True
B) False
16.
A business with more equity than debt is profitable.
A) True
B) False
17.
Net losses reduce capital.
A) True
B) False
18.
FIFO leaves the most recent costs in inventory.
A) True
B) False
19.
When creditors are paid, cash is always credited.
A) True
B) False
20.
There are two types of journal entires, simple and complex.
A) True
B) False
21.
Trade discounts reduce transportation costs.
A) True
B) False
22.
Cash discounts taken are credited to inventory.
A) True
B) False
23.
Cash discounts given are subtracted from sales.
A) True
B) False
24.
Recording unearned income requires a credit to cash.
A) True
B) False
25.
Journal entries must always contain both debits and credits.
A) True
B) False
26.
All adjusting entries always contain both income statement andbalance sheet accounts.
A) True
B) False
27.
Equity and capital are the same.
A) True
B) False
28.
Balance sheet accounts are either assets or liabilites.
A) True
B) False
29.
Debits reduce assets.
A) True
B) False
30.
when recording income, a revenue account must always becredited.
A) True
B) False
31.
All expense accounts, even prepaid expenses, normally have debitbalances.
A) True
B) False
32.
Accounts payable would be debited to record an expense owed.
A) True
B) False
33.
A seller would record freight costs paid FOB shipping as acredit.
A) True
B) False
34.
When receivables are collected, cash is always debited.
A) True
B) False
35.
When buyers return inventory, sellers credit cost of sales.
A) True
B) False
36.
Copyrights are amortized.
A) True
B) False
37.
Inventory is depleted.
A) True
B) False
38.
Land depreciates.
A) True
B) False
39.
A petty cash shortage would be recorded as a debit to cash shortand over.
A) True
B) False
40.
When notes are collected, cash is debited for their maturityvalue.
A) True
B) False
41.
When reconciling cash, deposits in transit are added to thedepositor's book balance.
A) True
B) False
42.
Trade discounts are recorded on worksheets.
A) True
B) False
43.
Accuumlated depreciation is a contra-asset.
A) True
B) False
44.
Depreciation is an expense that reflects the cost ofuncollectible receivables.
A) True
B) False
45.
Revenue would appear on a post closing trial balance as acredit.
A) True
B) False
46.
Income summary is closed to capital.
A) True
B) False
47.
Adjustments are recorded on worksheets.
A) True
B) False
48.
Journalizing follows posting.
A) True
B) False
49.
All general ledger accounts are adjusted and closed at the endof the accounting cycle.
A) True
B) False
50.
Supplies are assets.
A) True
B) False
1.
Unearned income is a liability.
A) True
B) False
2.
Prepaid expenses are assets.
A) True
B) False
3.
A business with no cash is insolvent.
A) True
B) False
4.
Assets must always equal liabilities plus capital.
A) True
B) False
5.
Assets normally have credit balances.
A) True
B) False
6.
Balance sheets report profitability.
A) True
B) False
7.
All payables are liabilites.
A) True
B) False
8.
FOB destination means buyer pays freight.
A) True
B) False
9.
Accrued revenue, by defintion, is unearned.
A) True
B) False
10.
Inventory is a current asset.
A) True
B) False
11.
Debits reduce liabilites.
A) True
B) False
12.
Sales returns are debited to inventory at cost.
A) True
B) False
13.
Sales minus sales returns, allowances, and discounts equals costof sales.
A) True
B) False
14.
Withdrawals reduce net income.
A) True
B) False
15.
A business with more debt than equity is insolvent.
A) True
B) False
16.
A business with more equity than debt is profitable.
A) True
B) False
17.
Net losses reduce capital.
A) True
B) False
18.
FIFO leaves the most recent costs in inventory.
A) True
B) False
19.
When creditors are paid, cash is always credited.
A) True
B) False
20.
There are two types of journal entires, simple and complex.
A) True
B) False
21.
Trade discounts reduce transportation costs.
A) True
B) False
22.
Cash discounts taken are credited to inventory.
A) True
B) False
23.
Cash discounts given are subtracted from sales.
A) True
B) False
24.
Recording unearned income requires a credit to cash.
A) True
B) False
25.
Journal entries must always contain both debits and credits.
A) True
B) False
26.
All adjusting entries always contain both income statement andbalance sheet accounts.
A) True
B) False
27.
Equity and capital are the same.
A) True
B) False
28.
Balance sheet accounts are either assets or liabilites.
A) True
B) False
29.
Debits reduce assets.
A) True
B) False
30.
when recording income, a revenue account must always becredited.
A) True
B) False
31.
All expense accounts, even prepaid expenses, normally have debitbalances.
A) True
B) False
32.
Accounts payable would be debited to record an expense owed.
A) True
B) False
33.
A seller would record freight costs paid FOB shipping as acredit.
A) True
B) False
34.
When receivables are collected, cash is always debited.
A) True
B) False
35.
When buyers return inventory, sellers credit cost of sales.
A) True
B) False
36.
Copyrights are amortized.
A) True
B) False
37.
Inventory is depleted.
A) True
B) False
38.
Land depreciates.
A) True
B) False
39.
A petty cash shortage would be recorded as a debit to cash shortand over.
A) True
B) False
40.
When notes are collected, cash is debited for their maturityvalue.
A) True
B) False
41.
When reconciling cash, deposits in transit are added to thedepositor's book balance.
A) True
B) False
42.
Trade discounts are recorded on worksheets.
A) True
B) False
43.
Accuumlated depreciation is a contra-asset.
A) True
B) False
44.
Depreciation is an expense that reflects the cost ofuncollectible receivables.
A) True
B) False
45.
Revenue would appear on a post closing trial balance as acredit.
A) True
B) False
46.
Income summary is closed to capital.
A) True
B) False
47.
Adjustments are recorded on worksheets.
A) True
B) False
48.
Journalizing follows posting.
A) True
B) False
49.
All general ledger accounts are adjusted and closed at the endof the accounting cycle.
A) True
B) False
50.
Supplies are assets.
A) True
B) False
Related questions
Case 2.3 Walgreens Co. and Subsidiaries
The following excerpts are from the 2013 Walgreen Co. Form 10-K:
| CONSOLIDATED BALANCE SHEETS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Walgreens Co. and Subsidiaries at August 31,2013 and 2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except shares and per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2012 | 2013 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current Assests | $2,106 | $1,297 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $2,632 | $2,167 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts Rec, net | $6,852 | $7,036 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories | $284 | $260 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other current assets | $11,874 | $10,760 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Current Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noncurrent Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property & equipment, at cost,less accumulated deprec & amortization | $12,138 | $12,038 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity investment in Alliance Boots | $2,410 | $2,161 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alliance Boots call option | $6,261 | $6,140 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill | $839 | $866 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other noncurrent assets | $1,959 | $1,497 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Assets | $23,607 | $22,702 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $35,481 | $33,462 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities and Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Short-term borrowings | $570 | $1,319 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trade accounts payable | $4,635 | $4,384 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accrued expenses and other liabilities | $3,577 | $3,019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes | $101 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Current Liabilites | $8,883 | $8,722 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noncurrent liabilites | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term debt | $4,477 | $4,073 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred income taxes | $600 | $545 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other noncurrent liabilities | $2,067 | $1,866 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total noncurrent liabilites | $7,144 | $6,504 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and contingencies(see note) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock, $.0625 per value; authorized 32 million shares; | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| issued 1,028,180,150 shares in 2013 and 2012 | $80 | $80 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Paid-in capital | $1,074 | $936 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Employee stock loan recievable | ($11) | ($19) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retained Earnings | $21,523 | $20,156 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated other comprehensive (loss) income | ($98) | $68 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury Stock at cost, 81,584,572 shares in 2013 and | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 84,124,816 shares in 2012 | ($3,114) | ($2,985) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Shareholders' Equity | $19,454 | $18,236 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Liabilites and Shareholder's Equity | $35,481 | $33,462 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The accompanying Notes to Consolidated Financial Statements are integral parts of these statments. Notes to Consolidated financial Statements 1.Summary of Major Accounting Policies Description of Business The company is principally in the retail drugstore business and its operations are within one reportable segment. At August 31,2013 there was 8,582 drugstore and other locations in 50 states, the District of Columbia, Guam, and Puerto Rico. Prescription sales were 62.9% of total sales for fiscal 2013 compared to 63.2% in 2012 and 64.7% in 2011. Allowance for Doubtful Accounts The provision for bad debt is based on both historical write-off percentages and specifically identified receivables. Activity in the allowance for doubtful accounts was as follows (In millions):
Inventories Inventories are valued on a lower of last-in, first-out (LIFO) cost or market basis. At August 31, 2013 and 2012, inventories would have been greater by $2.1 billion and $1.9 billion, respectively, if they had been valued on a lower of first-in, first-out (FIFO) cost or market basis. As a result of declining inventory levels, the fiscal 2013 and 2012 LIFO provisions were reduced by $194 million and $268 million of LIFO liquidation, respectively. Inventory includes product costs, inbound freight, warehousing costs, and vendor allowances not classified as a reduction of advertising expense. 3.Leases The company owns 20.2% of its operating locations; the remaining locations are leased premises. Initial terms are typically 20 to 25 years, followed by additional terms containing renewal options at five-year intervals, and may include rent escalation clauses. The commencement date of all lease terms is the earlier of the date the company becomes legally obligated to make rent payments or the date the Company has to right to control the property. The Company recognizes rent expense on a straight-line basis over the term of the lease. In addition to minimum fixed rentals, some leases provide for contingent rentals based upon a portion of sales. Minimum rental commitments at August 31, 2013, under all leases having an initial or remaining non-cancelable term of more than one year are shown below (in Millions):
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The capital lease amoutn includes $155 million of imputed interest and executory costs. Total minimum lease payments have not been reduced by minimum sublease rentals of approximately $140 million on leases due in the future under non-cancelable subleases.
The Company remains secondarily liable on 26 assigned leases. The maiximum potential undiscounted future payments are $18 million at August 31, 2013. Lease option dates vary, with some extending to 2041.
| WALGREEN CO. INFORMATION FROM CONSOLIDATED | ||||||||
| STATEMENTS OF COMPREHENSIVE INCOME | ||||||||
| For the Years Ended August 31,2013 and 2012 (in millions) | ||||||||
| 2013 | 2012 | |||||||
| Sales | $72,217 | $71,633 | ||||||
| Net Income | $2,450 | $2,127 | ||||||
Required:
a. Using the consolidated balance sheets for Walgreen Co. for August 31,2013 and 2012, prepare a common-size balance sheet.
b. Which current asset is the most significant? Which noncurrent asset is the most significant? Are the relative proportions of current and noncurrent assets what you would expect for a drug store?
c. Analyze accounts recievable and allowance for doubtful accounts.
d. What inventory is used to value inventories? Has Walgreen experienced inflation or deflation? Explain your answer. Explain the reference in the inventory note to the LIFO liquidation and what this means with regard to net income reported.
e. Assess the level of debt and risk that Walgreen has by looking only at the balnce sheet.
f. Estimate the dollar amount of dividends Walgreens paid in 2013.
g. Does Walgreen use off-balance sheet fiancing? Explain your answer.
h. Evaluate the creidtworthiness of Walgreen based on the Balance sheet and the excerpts from the notes.
