Which one of the following is usually performed only at the end of a company’s annual
accounting period?
a. Preparing financial statements
b. Journalizing and posting adjusting entries
c. Journalizing and posting closing entries
d. Preparing an adjusted trial balance
Answer:
Swiss Clothing Store had a balance in the Accounts Receivable account of $820,000 at
the beginning of the year and a balance of $780,000 at the end of the year. Net credit
sales during the year amounted to $7,200,000. The accounts receivable turnover ratio
was
a. 9.0 times.
b. 8.4 times.
c. 9.2 times.
d. 8.8 times.
Answer:
Mother Hips Garment Company purchased equipment on June 1 for $90,000, paying
$20,000 cash and signing a 9%, 2-month note for the remaining balance. The equipment
is expected to depreciate $18,000 each year. Mother Hips Garment Company prepares
monthly financial statements.
Instructions
(a) Prepare the general journal entry to record the acquisition of the equipment on June
1st.
(b) Prepare any adjusting journal entries that should be made on June 30th.
(c) Show how the equipment will be reflected on Mother Hips Garment Company’s
balance sheet on June 30th.
Answer:
Which one of the following ratios would not likely be used by a short-term creditor in
evaluating whether to sell on credit to a company?
a. Current ratio
b. Acid-test ratio
c. Asset turnover
d. Accounts receivable turnover
Answer:
An accounting convention is best described as
a. an absolute truth.
b. an accounting custom.
c. an optional rule.
d. something that cannot be changed.
Answer:
If merchandise is sold for $3,000 subject to credit terms of 2/10, n/30, the entry to
record collection in full within the discount period would include a
a. credit to Sales Discounts for $60.
b. credit to Cash for $2,940
c. credit to Accounts Receivable for $60.
d. none of These answer choices are correct.
Answer:
As prepaid expenses expire with the passage of time, the correct adjusting entry will be
a
a. debit to an asset account and a credit to an expense account.
b. debit to an expense account and a credit to an asset account.
c. debit to an asset account and a credit to an asset account.
d. debit to an expense account and a credit to an expense account.
Answer:
Lake Company received proceeds of $188,000 on 10-year, 6% bonds issued on January
1, 2015. The bonds had a face value of $200,000, pay interest semi-annually on June 30
and December 31, and have a call price of 101. Lake uses the straight-line method of
amortization.
What is the amount of interest Lake must pay the bondholders in 2015?
a. $11,200
b. $12,000
c. $13,200
d. $10,800
Answer:
The term “receivables” refers to
a. amounts due from individuals or companies.
b. merchandise to be collected from individuals or companies.
c. cash to be paid to creditors.
d. cash to be paid to debtors.
Answer:
Morton Watch Company reported the following income statement data for a 2-year
period.
Morton uses a periodic inventory system. The inventories at January 1, 2014, and
December 31, 2015, are correct. However, the ending inventory at December 31, 2014,
was overstated $5,000.
Instructions
(a) Prepare correct income statement data for the 2 years.
(b) What is the cumulative effect of the inventory error on total gross profit for the 2
years?
Answer:
LIFO can be used
a. under neither GAAP nor IFRS.
b. under IFRS but not GAAP.
c. under GAAP but not IFRS.
d. under both GAAP and IFRS.
Answer:
Which of the following are the same under both GAAP and IFRS?
a. The account.
b. Debit and credit rules.
c. Steps in the recording process.
d. All of these answers are correct.
Answer:
If the single amount of $3,000 is to be received in 3 years and discounted at 6%, its
present value is
a. $2,519.
b. $2,830.
c. $2,600.
d. $2,820.
Answer:
The information below relates to the Cash account in the ledger of Lee Company.
Balance September 1’”$25,725; Cash deposited’”$96,000.
Balance September 30’”$22,225; Checks written’”$99,500.
The September bank statement shows a balance of $24,635 on September 30 and the
following memoranda.
At September 30, deposits in transit were $4,695, and outstanding checks totaled
$3,575.
Instructions
Prepare the bank reconciliation at September 30.
Answer:
Husker Du Supplies Inc. purchased a 12-month insurance policy on March 1, 2015 for
$1,800. At March 31, 2015, the adjusting journal entry to record expiration of this asset
will include a
a. debit to Prepaid Insurance and a credit to Cash for $1,800.
b. debit to Prepaid Insurance and a credit to Insurance Expense for $200.
c. debit to Insurance Expense and a credit to Prepaid Insurance for $150.
d. debit to Insurance Expense and a credit to Cash for $150.
Answer:
In 2015, Rondelli Company had net sales of $650,000 and cost of goods sold of
$455,000. Operating expenses were $150,000, and interest expense was $10,000.
Rondelli prepares a multiple-step income statement.
Instructions
(a) Compute Rondelli gross profit.
(b) Compute the gross profit rate.
(c) What is Rondelli income from operations and net income?
(d) If Rondelli prepared a single-step income statement, what amount would it report
for net income?
Answer:
The preparation of adjusting entries is
a. straight forward because the accounts that need adjustment will be out of balance.
b. often an involved process requiring the skills of a professional.
c. only required for accounts that do not have a normal balance.
d. optional when financial statements are prepared.
Answer:
The entry to record patent amortization usually includes a credit to
a. Amortization Expense.
b. Accumulated Amortization.
c. Accumulated Depreciation.
d. Patents.
Answer:
Garner Supply Company reports net income of $120,000 in 2015. The ending inventory
did not include goods valued at $7,000 that Garner had consigned to Sharif’s Gift Shop.
(1) What is the correct net income for 2015?
(2) What impact will this error have on the balance sheet at 12/31/15?
Answer:
Gross profit represents the merchandising profit of a company.
Answer:
Jim Coleman, Jr. was appointed the manager of Maris Properties, a recently
formed company that manages residential rental properties. Linda Grider is
the accountant. She prepared a chart of accounts based on an analysis of
the expenditures of the company. Two of the largest expense categories are
Travel and Entertainment. Mr. Coleman believes that it is important to
maintain a presence in the social life of the city. In this, he sharply differs
from his father, Jim Coleman, Sr. The elder Mr. Coleman has set up Maris
Properties in order to test his son’s management skills before allowing him
to manage the more lucrative commercial property business. Mr. Coleman,
Sr. provided the capital for Maris, and maintains close contact with the
company. He allowed his son, however, to hire his own employees.
Mr. Coleman has asked Ms. Grider to change the names of the Travel and
Entertainment Expense accounts to Property Development. He hopes to
deflect his father’s attention away from the amount he has spent on travel
and entertainment until he has proven that his methods work. When Ms.
Grider resisted, he reminded her that he, not his father, hired her. He also
reminded her that she had been enthusiastic about his business plans when
she was hired.
1> Who are the stakeholders in this situation?
2> Should Ms. Grider agree to the change in the Travel Expense and
Entertainment Expense accounts to Property Development? Explain.
Answer:
At August 31, Coffman Company has this bank information: cash balance per bank
$6,450; outstanding checks $2,762; deposits in transit $1,700; and a bank service
charge $20. Determine the adjusted cash balance per bank at August 31, 2015.
Answer:
The stockholders’ equity statement shows the changes in each stockholders’ equity
account and in total stockholders’ equity during the year.
Answer: