Horngren's Financial & Managerial Accounting 6th Edition

As per the ________, the entity will remain in operation for the foreseeable future. A) economic entity concept B) monetary unit assumption C) going concern assumption D) cost principle C C C A business makes a payment in cash for advertising expense. Which of the following accounts is credited? A) Prepaid Advertising B) Accounts Receivable C) Cash D) Advertising

The permanent accountsassets, liabilities, and stockholders' equityare closed to the Common Stock account. FALSEExplanation: The permanent accountsassets, liabilities, and stockholders' equityare not closed. FALSEExplanation: The permanent accountsassets, liabilities, and stockholders' equityare not closed. FALSE Explanation: The permanent accountsassets, liabilities, and stockholders' equityare not closed. When using a periodic inventory system, the Merchandise

When preparing the statement of cash flows by the indirect method, it is necessary to adjust for non-cash expenses such as depreciation expense. TRUE TRUE TRUE Prepaid Rent is a liability account. FALSEExplanation: Prepaid Rent is an asset account. FALSEExplanation: Prepaid Rent is an asset account. FALSE Explanation: Prepaid Rent is an asset

Nevada Sales purchased some equipment for $12,000 by issuing a five-year note payable. This will appear in the non-cash investing and financing activities section of the statement of cash flows. TRUE TRUE TRUE The discount on bonds payable becomes interest expense through a process of depreciation. FALSEExplanation: The discount on bonds payable

California Corp. uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet: California Corp. Comparative Balance Sheet December 31, 2018 and 2017 The change in Accrued Liabilities is shown as a negative cash flow in the adjustments to net income. FALSE FALSE FALSE

An alternative to calling the bonds is to purchase any available bonds in the open market at their current market price. TRUE TRUE TRUE An external auditor is responsible for assessing the effectiveness of a company's internal controls. TRUE TRUE TRUE The Dividends account is increased by a debit. TRUE TRUE TRUE Dividends

For good internal control over cash payments, the company officer approving a payment voucher should be the same as the person who ordered the goods. This ensures that the correct amount of cash is paid. FALSEExplanation: For good internal control, the employee who prepared the purchase order should neither receive the goods

The entry to record inventory shrinkage includes a debit to the Merchandise Inventory account. Assume a perpetual inventory system is used. FALSEExplanation: The entry to record inventory shrinkage includes a credit to the Merchandise Inventory account. FALSEExplanation: The entry to record inventory shrinkage includes a credit to the Merchandise Inventory account.

If a physical count of inventory indicates that the Merchandise Inventory account is overstated, an adjusting entry is required to record the difference. Assume a perpetual inventory system is used. TRUE TRUE TRUE A worksheet is a substitute for the financial statements. FALSE FALSE FALSE An invoice is also known as a

Amortization is the process by which businesses spread the allocation of an intangible asset's cost to expense over its useful life. TRUE TRUE TRUE Days' sales in inventory measures how quickly a company can collect its receivables. FALSE FALSE FALSE For each petty cash payment, the custodian prepares a petty cash ticket. TRUE

Dividends can be paid in the form of cash, stock, or other property. TRUE TRUE TRUE When a business sells a plant asset for book value, a gain or loss should be recorded. FALSEExplanation: When a business sells a plant asset for book value, no gain or loss should be recorded. FALSEExplanation:

The statement of stockholders' equity has less information than the statement of retained earnings. FALSE FALSE FALSE The Supplies Expense account is a temporary account. TRUE TRUE TRUE Because companies use special journals, the use of the General Journal is optional. FALSEExplanation: Companies also use the general journal for sales returns and allowances

Adjusting entries do not update balance sheet accounts. FALSEExplanation: Adjusting entries update income statement and balance sheet accounts. FALSEExplanation: Adjusting entries update income statement and balance sheet accounts. FALSE Explanation: Adjusting entries update income statement and balance sheet accounts. Installment payments for mortgages generally contain both an amount for principal repayment and

No significant influence equity investments generally involve the ownership of less than 20% of the investee's voting stock. TRUE TRUE TRUE After posting entries in a sales journal to the general ledger, the Accounts Receivable balance in the general ledger should equal the sum of the individual customer balances in the

The Office Supplies account is a temporary account. FALSEExplanation: The Office Supplies account is a permanent account. FALSEExplanation: The Office Supplies account is a permanent account. FALSE Explanation: The Office Supplies account is a permanent account. Preferred Stock is included in the long-term assets section of the balance sheet. FALSEExplanation: Preferred Stock is

Which of the following is described as a system where customers send their checks directly to a post office box that belongs to a bank? A) an encryption system B) an imprest system C) a lock-box system D) a firewall system C C C An invoice of $600 for merchandise purchased is showing 2/15, n/30

Notes receivable represent a written promise that a party will pay a fixed amount of principal plus interest on a stated maturity date. TRUE TRUE TRUE The balance sheet shows whether or not a business is profitable. FALSEExplanation: The balance sheet provides information about assets, liabilities,and stockholders' equity. FALSEExplanation: The balance sheet

If treasury stock is resold for more than cost, the difference is debited to the account Paid-In Capital from Treasury Stock Transactions. FALSEExplanation: If treasury stock is resold for more than cost, the difference is credited to the account Paid-In Capital from Treasury Stock Transactions. FALSEExplanation: If treasury stock is resold

Refer to the following list of liability balances at December 31, 2018. What is the total amount of current liabilities? A) $35,380 B) $27,880 C) $27,480 D) $26,280 AExplanation: A) AExplanation: A) A Explanation: A) Converse Florists & Co. reported assets of $1,000 and equity of $450. What is its debt ratio? (Round your percentage answer

Purple Corporation pays $536,000 to acquire 40% of the equity securities of Blue, Inc. on May 5, 2019. In the journal entry to record this transaction ________. A) Equity InvestmentsBlue Inc. will be credited for $536,000 B) Equity InvestmentsBlue Inc. will be debited for $536,000 C) Common Stock HoldingsBlue Inc. will be debited

Gain or loss is determined by comparing the cash received and the market value of any other asset received with the historical cost of the asset disposed of. FALSEExplanation: Gain or loss is determined by comparing the cash received and the market value of any other asset received with the book

The last step of the closing process of a merchandiser is to make the expense accounts equal zero via the Income Summary account. FALSEExplanation: The last step of the closing process of a merchandiser is to make the Dividends account equal zero via the Retained Earnings account. FALSEExplanation: The last step

The amortization of bond premium increases interest expense over the life of the bonds. FALSEExplanation: The amortization of bond premium decreases interest expense over the life ofthe bonds. FALSEExplanation: The amortization of bond premium decreases interest expense over the life ofthe bonds. FALSE Explanation: The amortization of bond premium decreases interest expense

The gross profit percentage measures the profitability of each sales dollar above the cost of goods sold. TRUE TRUE TRUE There are three parties to a check: the depositor, the maker, and the bank. FALSE FALSE FALSE The financial statements under the periodic inventory system and the perpetual inventory system are the

Consider the following accounts and identify each as an asset (A), liability (L), or equity (E). A company that uses a perpetual inventory system purchased inventory on account and later returned goods worth $100 to the vendor. Which of the following would be the correct journal entry to

The United Way Payable account would normally be shown on the balance sheet under current liabilities. TRUE TRUE TRUE A corporation is a separate legal entity that is organized independently of its owners. TRUE TRUE TRUE When using the allowance method, Allowance for Bad Debts is debited when an account receivable is

The Common Stock account is increased by a debit. FALSEExplanation: The Common Stock account is increased by a credit. FALSEExplanation: The Common Stock account is increased by a credit. FALSE Explanation: The Common Stock account is increased by a credit. On a multi-step income statement, merchandisers report operating expenses in two categoriesselling

The left side of the accounting equation measures the amount that the business owes to creditors and to the stockholders. FALSEExplanation: Assets appear on the left side of the accounting equation. FALSEExplanation: Assets appear on the left side of the accounting equation. FALSE Explanation: Assets appear on the left side of the

At the end of each day, the accountant proves the cash by comparing the cash in the drawer against the point-of-sale terminal record of cash sales. FALSEExplanation: At the end of each day, the manager proves the cash by comparing the cash inthe drawer against the point-of-sale terminal record of cash

B-1 B-1 B-1 An accounting information system (AIS) is a system that collects, records, stores, and processes accounting data to produce information that is useful for decision makers. An accounting information system (AIS) is a system that collects, records, stores, and processes accounting data to produce information that is

1-1 The FASB oversees the creation and governance of accounting standards. They work with governmental regulatory agencies, congressionally created groups, and private groups. The FASB oversees the creation and governance of accounting standards. They work with governmental regulatory agencies, congressionally created groups, and private groups. The FASB oversees the

10-1 10-1 10-1 An equity security represents stock ownership in another company that sometimes pays cash or stock dividends. An equity security represents stock ownership in another company that sometimes pays cash or stock dividends. An equity security represents stock ownership in another company that sometimes pays cash or

11-1 11-1 11-1 Sales tax is recorded as a liability when it is charged to the customer; it is usually calculated as a percentage of the amount of the sale. It is not considered an expense to the business, but a current liability. Companies collect the sales tax

12-1 12-1 12-1 An amortization schedule details each loan payments allocation between principal and interest and the beginning and ending loan balances. An amortization schedule details each loan payments allocation between principal and interest and the beginning and ending loan balances. An amortization schedule details each loan payments allocation

13-1 13-1 13-1 b. Has one or more owners c. No personal stockholder liability for the debts of the corporation d. Does not allow stockholders to bind the business to a contract e. Has an indefinite life f. Is a separate taxable entity g. Allows for capital accumulation b.

14-1 14-1 14-1 The statement of cash flows reports on a businesss cash receipts and cash payments for a specific period. The statement of cash flows reports on a businesss cash receipts and cash payments for a specific period. The statement of cash flows reports on a businesss cash

15-1 15-1 15-1 The trend analysis is a form of horizontal analysis in which percentages are computed for line items by selecting a base period as 100% and expressing amounts for following periods as a percentage of the base period amount. (Any period amount / Base period amount)

2-1 2-1 2-1 With a double-entry you need to record the dual effects of each transaction. Every transaction affects at least two accounts. With a double-entry you need to record the dual effects of each transaction. Every transaction affects at least two accounts. With a double-entry you need to

3-1 3-1 3-1 Cash basis accounting records revenues only when cash is received and expenses only when cash is paid. Accrual basis accounting records revenues when earned and expenses when incurred. Cash basis accounting records revenues only when cash is received and expenses only when cash is

4-1 4-1 4-1 The income statement reports revenues and expenses and calculates net income or net loss for the time period. The income statement reports revenues and expenses and calculates net income or net loss for the time period. The income statement reports revenues and expenses and calculates net

5-1 5-1 5-1 A merchandiser is a business that sells merchandise, or goods, to customers. The merchandise that these types of businesses sell is called merchandise inventory. A merchandiser is a business that sells merchandise, or goods, to customers. The merchandise that these types of businesses sell is called

8-1 8-1 8-1 Common examples of other receivables include dividends receivable, interest receivable, and taxes receivable. Common examples of other receivables include dividends receivable, interest receivable, and taxes receivable. Common examples of other receivables include dividends receivable, interest receivable, and taxes receivable. A business must maintain

9-1 9-1 9-1 The historical cost of a plant asset includes the purchase price plus taxes, purchase commissions, and all other amounts paid to ready the asset for its intended use. The historical cost of a plant asset includes the purchase price plus taxes, purchase commissions, and all other

Normally, companies with low gross profit percentages will have low asset turnover. FALSE FALSE FALSE Equity securities, in which the investor lacks the ability to participate in the decisions of the investee company, are initially accounted for at the lower-of-cost-or-market value. FALSEExplanation: Equity securities, in which the investor lacks the ability to participate

Milton, Inc. provides the following income statement for 2019: Calculate the times-interest-earned ratio. (Round your answer to two decimal places.) A) 73.00 times B) 47.00 times C) 42.00 times D) 48.00 times DExplanation: D) Times-interest-earned ratio = (Net income + Income tax expense + Interest expense) / Interest expense = ($42,000 + 5000 + 1000)

Pioneer's adjusted trial balance as of December 31, 2018 is given below: Compute the current ratio. (Round your answer to two decimal places.) A) 8.16 B) 2.36 C) 1.75 D) 2.78 DExplanation: D) DExplanation: D) D Explanation: D) Current ratio = Total current assets / Total current liabilitiesCurrent ratio = $33,400 / $12,000 = 2.78 Current ratio = Total

Separate customer accounts receivable are called subsidiary accounts. TRUE TRUE TRUE The difference that arises between the balance on the bank statement and the balance on the company's books because of a time lag in recording transactions is known as a permanent difference. FALSE FALSE FALSE The Accounts Receivable balance in the general

Which of the following statements is true of a sole proprietorship? A) A sole proprietorship joins two or more individuals as co-owners. B) The sole proprietor is personally liable for the liabilities of the business. C) A sole proprietorship is taxed separately from the owner. D) A sole proprietorship has to pay business income

When the maturity date of a held-to-maturity debt investment is within one year of the balance sheet date, the investment is reported as a current asset. TRUE TRUE TRUE As per the economic entity assumption, an organization and its owners should be seen as the same entity. FALSEExplanation: An economic entity is

A worksheet is an external document that forms a part of the financial statements. FALSEExplanation: A worksheet is an internal document that helps summarize data for the preparation of financial statements. FALSEExplanation: A worksheet is an internal document that helps summarize data for the preparation of financial statements. FALSE Explanation: A worksheet

Noncumulative preferred stock is in arrears if the dividend has not been paid for the year. FALSEExplanation: A cumulative preferred stock is in arrears if the dividend has not been paid for the year. FALSEExplanation: A cumulative preferred stock is in arrears if the dividend has not been paid for the

The total amount of assets a business possesses may or may not be equal to the total of liabilities and equity of the business. FALSEExplanation: The accounting equation is an equation, thus the left side of the equation always equals the right side of the equation. FALSEExplanation: The accounting equation is

Which of the following is the correct description of dividends in arrears? A) the cumulative amount of dividends that were not paid in previous years B) the cumulative amount of dividends that were paid in previous years C) the amount of dividends that were paid after the payment date D) the amount of dividends

Which of the following users would rely on managerial accounting information for decision-making purposes? A) potential investors B) creditors C) customers D) company managers D D D Which of the following occurs when a 2-for-1 stock split is declared? A) The balance in Common Stock remains the same. B) The balance in Common Stock is reduced to

Regarding the double-entry system, which of the following statements is incorrect? A) A transaction would be incomplete if only one side were recorded. B) Because of technology, the use of the double-entry system of accounting is optional. C) The double-entry system is a system of accounting in which every transaction affects at least

Global Commerce Corporation purchased trading debt investments for $49,000 on December 31, 2018. There is a decrease of $3800 in the fair value of the trading debt investments by the end of the year 2019. Which of the following is the correct journal entry? A) B) C) D) C C C The current portion of

Special items and earnings per share are reported on the income statement after income from continuing operations. TRUE TRUE TRUE Using the effective-interest amortization method, the calculation for the amount of premium amortization is the difference between the cash paid for interest and the calculated interest expense based on the effective

A company has a petty cash fund amount of $200. When replenished, it has petty cash tickets of $33 for gas expense, $31 for postage expense, $16 for supplies expense, and $12 for miscellaneous expenses. Assume the cash balance is not over or short. In the journal entry, Cash would

When using the effective-interest amortization method, the discount amortization is the excess of the calculated interest expense based on the stated interest rate over the interest payment. FALSE FALSE FALSE A law firm provides legal services for clients who do not pay immediately. As a result of this transaction, assets and

Which of the following accounts would be used under the accrual basis of accounting, but not under cash basis accounting? A) Cash B) Unearned Revenue C) Service Revenue D) Salaries Expense B B B The cost of an asset is $1,020,000, and its residual value is $160,000. Estimated useful life of the asset is five

Contingencies that are reasonably possible are not described in the notes to the financial statements. FALSEExplanation: Contingencies that are reasonably possible should be described in the notes tothe financial statements. FALSEExplanation: Contingencies that are reasonably possible should be described in the notes tothe financial statements. FALSE Explanation: Contingencies that are reasonably possible should

Urban Installations Company uses the direct method to prepare its statement of cash flows. Urban has reported cost of goods sold of $95,000 on its income statement for 2018. If the balance in the Merchandise Inventory account decreased by $6,000 during the year, then $6,000 needs to be added to

Centennial, Inc. sold 600 units of inventory at $20 per unit on account. The company uses the perpetual inventory system and the last-in, first-out (LIFO) inventory costing system. The beginning inventory included 200 units at $9 per unit. The most recent purchases include 700 units at $12 per unit. The

Entries in the sales journal are posted to both the accounts receivable subsidiary ledger and the general ledger. TRUE TRUE TRUE As long as an increase and decrease of the same amount is recorded on one side of the accounting equation, the accounting equation remains in balance. TRUE TRUE TRUE The operating

Arizona Company plans to purchase a property to build its corporate headquarters. An investor is willing to exchange land with a market value of $500,000 for common stock. This transaction would be shown in the financing activities section of the statement of cash flows. FALSE FALSE FALSE Goodwill is the excess cost

The number of times a company collects the average accounts receivable balance in a year is known as the accounts receivable turnover ratio. TRUE TRUE TRUE Ending inventory is calculated by multiplying the number of units on hand by the unit cost. TRUE TRUE TRUE Par value is an arbitrary amount that

When preparing the statement of cash flows using the indirect method, a loss on the sale of plant assets must be shown as a subtraction from the investing activities section. FALSE FALSE FALSE Any portion of a long-term liability that is due with the next year is reported as a current

Which of the following is true of assets? A) Assets include Cash, Merchandise Inventory, and Accounts Payable. B) Assets are something of value the business owns or controls. C) Assets do not need to provide future benefit to the business. D) Assets can be recorded at the market value if acquired at a bargain. B