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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 A business makes a payment in cash for advertising expense. Which […]

The permanent accounts—assets, liabilities, and stockholders’ equity—are closed to the Common Stock account. When using a periodic inventory system, the Merchandise Inventory account will never be used when recording purchases, purchase discounts, purchase returns, or sales of inventory. TRUE Significant […]

When preparing the statement of cash flows by the indirect method, it is necessary to adjust for non-cash expenses such as depreciation expense. Prepaid Rent is a liability account. FALSE Explanation: Prepaid Rent is an asset account. A corporation’s income […]

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. The discount on bonds payable becomes interest expense through a […]

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 […]

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

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. An increase in the current […]

The entry to record inventory shrinkage includes a debit to the Merchandise Inventory account. Assume a perpetual inventory system is used. Prenumbered source documents provide necessary control in a system by automatically assigning a sequential number to each new transaction. […]

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. A worksheet is a substitute for the financial statements. FALSE […]

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

Dividends can be paid in the form of cash, stock, or other property. When a business sells a plant asset for book value, a gain or loss should be recorded. FALSE Explanation: When a business sells a plant asset for […]

The statement of stockholders’ equity has less information than the statement of retained earnings. The Supplies Expense account is a temporary account. TRUE Because companies use special journals, the use of the General Journal is optional. FALSE Explanation: Companies also […]

Adjusting entries do not update balance sheet accounts. Installment payments for mortgages generally contain both an amount for principal repayment and an amount for interest. TRUE Generally, all transactions are recorded in both a special journal and the general journal. […]

No significant influence equity investments generally involve the ownership of less than 20% of the investee’s voting stock. After posting entries in a sales journal to the general ledger, the Accounts Receivable balance in the general ledger should equal the […]

The Office Supplies account is a temporary account. Preferred Stock is included in the long-term assets section of the balance sheet. FALSE Explanation: Preferred Stock is included in the stockholders’ equity section of the balance sheet The current ratio 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 […]

Notes receivable represent a written promise that a party will pay a fixed amount of principal plus interest on a stated maturity date. The balance sheet shows whether or not a business is profitable. FALSE Explanation: The balance sheet provides […]

If treasury stock is resold for more than cost, the difference is debited to the account Paid-In Capital from Treasury Stock Transactions. With the terms FOB shipping point, the freight cost becomes part of the cost of merchandise inventory for […]

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 Converse Florists & Co. reported assets of $1,000 and equity of $450. […]

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 Investments—Blue Inc. will be credited for $536,000 B) Equity Investments—Blue Inc. […]

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. Ratio analysis is used most effectively to measure a company against other […]

The last step of the closing process of a merchandiser is to make the expense accounts equal zero via the Income Summary account. Economic resources and debts of the company are shown on the balance sheet. TRUE Baytown Paper Company […]

The amortization of bond premium increases interest expense over the life of the bonds. A computerized system uses software to process transactions. Thus employees are no longer required to manually journalize and post transactions to the accounts. TRUE Short-term notes […]

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

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 […]

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

The Common Stock account is increased by a debit. On a multi-step income statement, merchandisers report operating expenses in two categories—selling expenses and administrative expenses. TRUE In a periodic inventory system, businesses must obtain a physical count of inventory to […]

The left side of the accounting equation measures the amount that the business owes to creditors and to the stockholders. To complete the statement of cash flows, the net change in cash and its effects on the beginning cash balance […]

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. Estimated residual value can be zero if the company does not expect to receive […]

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 effective accounting information system provides control, compatibility, flexibility, relevance, and a positive cost/benefit relationship. […]

1-1 public. They work for public accounting firms, businesses, government, or educational institutions. To be certified they must meet educational and/or experience requirements and pass an exam. Certified Management Accountants (CMAs) specialize in accounting and financial management knowledge. They work […]

An equity security represents stock ownership in another company that sometimes pays cash or stock dividends. sale. Trading debt investments are categorized as current assets on the balance sheet. • Held-to-maturity debt investments are debt securities that the investor intends […]

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. […]

An amortization schedule details each loan payment’s allocation between principal and interest and the beginning and ending loan balances. Mortgages payable is a long-term debt that is backed with a security interest in specific property. A bond payable is a […]

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 […]

The statement of cash flows reports on a business’s cash receipts and cash payments for a specific period. activities are ones that create revenue or expenses in the entity’s business. Investing activities increase or decrease long-term assets. Financing activities include […]

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 […]

With a double-entry you need to record the dual effects of each transaction. Every transaction affects at least two accounts. A T-account is a shortened form of each account in the ledger. The debit is on the left side, credit […]

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. The time period concept requires companies to divide its activities into small […]

The income statement reports revenues and expenses and calculates net income or net loss for the time period. The statement of retained earnings shows how retained earnings changed during the period due to net income (or net loss) and dividends. […]

A merchandiser is a business that sells merchandise, or goods, to customers. The merchandise that these types of businesses sell is called merchandise inventory. The operating cycle of a merchandiser is as follows: It begins when the company purchases inventory […]

Common examples of other receivables include dividends receivable, interest receivable, and taxes receivable. A business must maintain a separate accounts receivable account for each customer in order to account for payments received from the customer and amounts still owed. All […]

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. Land improvements are depreciable improvements to land, such as fencing, sprinklers, paving, […]

Normally, companies with low gross profit percentages will have low asset turnover. 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. FALSE Explanation: […]

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 Which of the following statements regarding the allowance […]

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 D Explanation: D) A business purchases equipment for $8,000 […]

Separate customer accounts receivable are called subsidiary accounts. 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. […]

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 […]

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. As per the economic entity assumption, an organization and its owners should be seen […]

A worksheet is an external document that forms a part of the financial statements. Separation of cash-handling and cash-accounting duties is a critical element of internal control over receivables. TRUE All plant assets are depreciated. FALSE Explanation: All plant assets […]

Noncumulative preferred stock is in arrears if the dividend has not been paid for the year. The book value of a plant asset is reported on the balance sheet as the cost of the asset minus accumulated depreciation. TRUE Depending […]

The total amount of assets a business possesses may or may not be equal to the total of liabilities and equity of the business. The environment is the culture of a business, and it starts with the CEO or CFO […]

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 […]

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 Which of the following occurs when a 2-for-1 stock split is declared? A) The balance in […]

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 […]

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 […]

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

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 […]

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. A law firm provides legal services for clients who do not pay immediately. […]

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 The cost of an asset is $1,020,000, and its […]

Contingencies that are reasonably possible are not described in the notes to the financial statements. Any person or business to whom a business owes money is called the business’s creditor. TRUE After a machine is installed and is up and […]

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 […]

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 […]

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

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 […]

The number of times a company collects the average accounts receivable balance in a year is known as the accounts receivable turnover ratio. Ending inventory is calculated by multiplying the number of units on hand by the unit cost. TRUE […]

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. Any portion of a long-term liability that is due with […]

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. […]