The operating expense section of an income statement for a wholesaler would not
include
a. freight-out.
b. utilities expense.
c. cost of goods sold.
d. insurance expense.
Answer:
Match the principle of internal control to each of the following cases.
a) Establishment of responsibility
b) Segregation of duties
c) Accountability for assets
d) Documentation procedures
e) Physical controls
1> Cash is locked in a safe overnight.
2> Employees who receive shipments of goods do not have access to the accounting
records for merchandise.
3> Shipping documents are prenumbered.
4> The bookkeeper does not have physical custody of assets.
5> Only the treasurer of the company can sign checks.
Answer:
Improvements are
a. revenue expenditures.
b. debited to an appropriate asset account when they increase useful life.
c. debited to accumulated depreciation when they do not increase useful life.
d. debited to an appropriate expense account when they do not increase useful life.
Answer:
A single-column purchases journal indicates that
a. only purchases of merchandise on account can be recorded.
b. all purchases of merchandise can be recorded.
c. all acquisitions on account can be recorded.
d. another column must be added so that debits and credits can be recorded.
Answer:
A compound journal entry involves
a. two accounts.
b. three accounts.
c. three or more accounts.
d. four or more accounts.
Answer:
During 2015, Stein Corporation reported net sales of $5,000,000 and net income of
$2,100,000. Stein also reported beginning total assets of $1,000,000 and ending total
assets of $1,500,000. Stein’s asset turnover is
a. 5.0 times.
b. 4.0 times.
c. 3.3 times.
d. 1.7 times.
Answer:
Dawson’s Fashions sold merchandise for $40,000 cash during the month of July.
Returns that month totaled $1,000. If the company’s gross profit rate is 40%, Dawson’s
will report monthly net sales revenue and cost of goods sold of
a. $39,000 and $23,400.
b. $39,000 and $24,000.
c. $40,000 and $23,400.
d. $40,000 and $24,000.
Answer:
Match the statements below with the appropriate terms by entering the appropriate
letter code in the spaces provided.
TERMS:
A. Prepaid Expenses
B. Unearned Revenues
C. Accrued Revenues
D. Accrued Expenses
STATEMENTS:
1> A revenue not yet recognized; collected in advance.
2> Office supplies on hand that will be used in the next period.
3> Interest revenue collected; not yet recognized.
4> Rent not yet collected; already recognized.
5> An expense incurred; not yet paid or recorded.
6> A revenue recognized; not yet collected or recorded.
7> An expense not yet incurred; paid in advance.
8> Interest expense incurred; not yet paid.
Answer:
Short-term creditors are usually most interested in evaluating
a. solvency.
b. liquidity.
c. marketability.
d. profitability.
Answer:
Maximum benefit from independent internal verification is obtained when
a. it is made on a pre-announced basis.
b. it is done by the employee possessing custody of the asset.
c. discrepancies are reported to management.
d. it is done at the time of the audit.
Answer:
Sales taxes collected by a retailer are reported as
a. contingent liabilities.
b. revenues.
c. expenses.
d. current liabilities.
Answer:
If goods in transit are shipped FOB destination
a. the seller has legal title to the goods until they are delivered.
b. the buyer has legal title to the goods until they are delivered.
c. the transportation company has legal title to the goods while the goods are in transit.
d. no one has legal title to the goods until they are delivered.
Answer:
Investing activities include
a. collecting cash on loans made.
b. obtaining cash from creditors.
c. obtaining capital from owners.
d. repaying money previously borrowed.
Answer:
Dense Company’s income statement showed revenues of $275,000 and operating
expenses of $135,000. Accounts receivable decreased by $40,000 and accounts payable
increased by $35,000 during the year.
Instructions
Compute (a) cash receipts from customers and (b) cash payments for operating
expenses using the direct method.
Answer:
Presented below are two independent situations.
1> Guo Cosmetics acquired 10% of the 200,000 shares of common stock of Chy
Fashion at a total cost of $12 per share on March 18, 2014. On June 30, Chy declared
and paid a $50,000 dividend. On December 31, Chy reported net income of $110,000
for the year. At December 31, the market price of Chy Fashion was $15 per share. The
stock is classified as available-for-sale.
2> Liptin, Inc., obtained significant influence over Blurr Corporation by buying 25% of
Blurr 50,000 outstanding shares of common stock at a total cost of $7 per share on
January 1, 2014. On June 15, Blurr declared and paid a cash dividend of $40,000. On
December 31, Blurr reported a net income of $90,000 for the year.
Instructions
Prepare all the necessary journal entries for 2014 for (a) Guo Cosmetics and (b) Liptin,
Inc.
Answer:
The total cost of borrowing is increased only if the
a. bonds were issued at a premium.
b. bonds were issued at a discount.
c. bonds were sold at face value.
d. market interest rate is less than the contractual interest rate on that date.
Answer:
An inexperienced accountant for Olsen Corporation made the following entries.
Instructions
(a) On the basis of the explanation for each entry, prepare the entry that should have
been made for the transactions. (Omit explanations.)
(b) Prepare the correcting entries that should be made to correct the accounts of Olsen
Corporation. (Do not reverse the original entry.)
Answer:
The current source of “GAAP” in the private sector is the
a. Accounting Principles Board.
b. Internal Revenue Service.
c. Financial Accounting Standards Board.
d. Securities Exchange Commission.
Answer:
Which of the following is not true of a corporation?
a. It may buy, own, and sell property.
b. It may sue and be sued.
c. The acts of its owners bind the corporation.
d. It may enter into binding legal contracts in its own name.
Answer:
For each of the following, determine the missing amounts.
Answer:
Rachel Bells Havens is a friend of yours from high school. She decided to become a
beautician after leaving high school, rather than to attend college. She recently opened
her own shop, and has contracted her services to a local hospital. She is paid a monthly
fee for her services, and receives a small gratuity from each of the patients.
She has just received her first set of financial statements from her accountant. She is
quite upset. The statements show a cash balance of $3,600 at the end of the month, but a
net income of only $500. She has written you a letter, asking you whether such a
situation is possible, or whether she should find another accountant.
Required:
Write a short letter to your friend. Use proper form. Answer her question completely,
but briefly.
Answer:
Extraordinary items are reported net of applicable taxes in a separate section of the
income statement.
Answer:
The income statement for a merchandising company presents five amounts not shown
on a service company’s income statement. Identify and briefly explain the five unique
amounts.
Answer:
For each of the following, indicate whether the transaction increased (+), decreased (-),
or had no effect (NE) on assets, liabilities, and stockholders’ equity using the following
format.
Assets = Liabilities + Stockholders’ Equity
1> Issued stock in exchange for cash.
2> Billed customers for services performed.
3> Purchased equipment on account.
4> Paid dividends.
5> Paid for equipment purchased in 3. above.
Answer:
The sale of equipment at less than its book value is a(n) ______________ of cash that is
reported in the ______________ activities section.
Answer:
Internal transactions do not affect the basic accounting equation because they are
economic events that occur entirely within one company.
Answer: