Indicate whether each of the following statements regarding internal controls is true or
false.
_____ a) The Sarbanes-Oxley Act of 2002 requires public companies to evaluate their
internal controls and report those findings with SEC filings.
_____ b) The Sarbanes-Oxley Act applies to all companies, while the Enterprise Risk
Management (ERM) framework is used by public companies only.
_____ c) Enterprise Risk Management (ERM) is an expansion of the earlier framework
of the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
_____ d) The COSO framework includes five interrelated components: separation of
duties, quality employees, prenumbered documents, physical controls, and performance
evaluations.
_____ e) Congress passed the Sarbanes-Oxley Act in 2002 in response to high profile
fraud cases such as Enron and WorldCom.
The inventory records for Radford Co. reflected the following
Determine the amount of gross margin assuming the weighted average cost flow
method.
A.$3,015
B.$2,412
C.$1,314
D.$2,970
Which document issued by a bank reflects a transaction that decreases a company’s
checking account balance?
A.A debit entry.
B.A debit memo.
C.A credit memo.
D.A reconciling entry.
The left side of a T-account is known as the:
A.Equity side
B.Debit side
C.Credit side
D.Claims side
Sheffield Corporation purchased equipment on January 1, 2016 for $100,000. Sheffield
used the straight-line method of depreciation with a $12,000 salvage value and a useful
life of 5-years. On January 1, 2018 Sheffield sold this equipment for $70,000.
Required: a) Calculate the gain or loss Sheffield should recognize from this sale.
b) Prepare the journal entry to record the sale.
Sanchez Company engaged in the following transactions during 2015:
1) Started the business by issuing $42,000 of common stock for cash.
2) The company paid cash to purchase $26,400 of inventory.
3) The company sold inventory that cost $16,000 for $30,600 cash.
4) Operating expenses incurred and paid during the year, $14,000.
Sanchez Company engaged in the following transactions during 2016:
1) The company paid cash to purchase $35,200 of inventory.
2) The company sold inventory that cost $32,800 for $57,000 cash.
3) Operating expenses incurred and paid during the year, $18,000.
Note: Sanchez uses the perpetual inventory system.
Sanchez’s gross margin for the year 2016 is:
A.$6,200.
B.$24,200.
C.$21,800.
D.$32,800.
Which of the following financial statements provides information about a company as
of a specific point in time?
A.Income statement
B.Balance sheet
C.Statement of cash flows
D.Statement of changes in stockholders’ equity
Mays Corporation purchased a new truck on January 1, 2016 for $65,000 cash. Mays
estimated salvage value of $10,000 at the end of the useful life of 5 years. On January
1, 2018 Mays had to replace the engine of the truck paying $4,000 cash. Due to the
replaced engine, Mays estimates that the truck will continue a productive life for
another four years.
Required:
a) Prepare the journal entry to record the cost of the new engine.
b) Assuming straight-line depreciation is used, calculate the depreciation expense for
2018.
Blumenthal Company declared and paid a cash dividend totaling $50,000 on its
common stock. As a result of this transaction, the company’s debt to assets ratio will:
A. Decrease.
B.Increase.
C.Remain the same.
D. Cannot be determined.
Indicate whether each of the following statements about the auditor’s role in financial
accounting is true or false.
_____ a) The proper conduct of an audit guarantees the accuracy of all figures on the
financial statements.
_____ b) The financial statement audit is a detailed review of a company’s financial
statements and documents.
_____ c) The primary responsibility of the independent accounting firm is to the public.
_____ d) The most favorable type of audit report is called a qualified opinion.
_____ e) The ultimate responsibility for the financial statements lies with management
of the company rather than the independent accounting firm.
The balance sheet of Flo’s Restaurant showed total assets of $600,000, liabilities of
$160,000 and equity of $540,000. An appraiser estimated the fair value of the restaurant
assets at $680,000. If Alice Company pays $770,000 cash for the restaurant the amount
of goodwill acquired would be:
A.$90,000.
B.$170,000.
C.$250,000.
D.$230,000.
Gillock, Inc. uses MACRS for its income tax returns and straight line depreciation for
its financial statements. The company purchased 5 year property on January 1, 2016
that cost $130,000 and has a $10,000 salvage value and an expected 8 year useful life.
There is a depreciation percentage of 20% for the first year for 5-year property, for tax
purposes. The company would show which of the following on its financial records?
A.less depreciation expense on the tax return than on the income statement.
B.the same amount of depreciation expense for financial reporting as for income tax
preparation.
C.depreciation expense of $26,000 on the income statement and $15,000 on the tax
return.
D.a deferred tax liability.
Regardless of the specific type of long-term debt, which of the following is normally
required with debt transactions?
A.to repay the debt
B.to pay dividends
C.to pay interest
D.to repay the interest and repay the debt
On January 1, 2016, Pierce Corporation issued $25,000 in 8%, 5-year bonds payable at
102. Interest payments are due each December 31. Potter uses the straight-line method
of amortization.
Which of the following shows the effect of the interest payment and amortization on
12/31/16?
A.
B.
C.
D.
Which type of approach should be used when evaluating corporate results using
horizontal analysis?
A. Study of absolute amounts.
B.Percentages.
C.Trends.
D. All of these answer choices are correct.
Yowell Company granted a sales discount of $360 to a customer when it collected the
amount due on account. Yowell uses the perpetual inventory system. Which of the
following answers reflects the effects on the financial statements of only the discount?
A.
B.
C.
D.
Indicate whether each of the following statements about financial statement analysis is
true or false.
_____ a) Solvency ratios measure a company’s short-term debt paying ability and its
financial structure.
_____ b) A company with a high debt to assets ratio probably would be considered to
have a high level of financial risk.
_____ c) The debt to equity ratio and debt to assets ratio are two ways to measure the
same relationship.
_____ d) From the point of view of stockholders, a decline in the debt to equity ratio is
always good news.
_____ e) The lower the debt to equity ratio, the higher a company’s financial leverage.
Which resource providers lend financial resources to a business with the expectation of
repayment with interest?
A.Consumers
B.Creditors
C.Investors
D.Owners
Which of the following is a disadvantage of a sole proprietorship?
A.Entrenched management.
B.Double taxation.
C.Unlimited liability.
D.Excessive regulation.
Natalie Preston had the following transactions for Preston Business Services for 2016.
1) Provided services on account, $30,000.
2) Purchased $7,500 of office supplies on account.
3) At the end of the year, an adjusting entry was prepared for the supplies that had been
used. The amount of office supplies still on hand was $750.
Required:
a) Show the effect of the above three events on the accounting equation. (You need to
fill in the appropriate headings).
b) Set up the appropriate T-accounts and post each of the above transactions.
c) What is the amount of total assets at the end of 2016? What is the amount of net
income for 2016?
Which of the following circumstances is not a reason to compute an estimate of the
amount of inventory?
A.To complete the company’s annual income tax return.
B.To evaluate the accuracy of a physical count of goods.
C.To prepare monthly or quarterly financial statements without incurring the expense of
taking a physical inventory.
D.To support an insurance claim for a loss due to theft of inventory.
Keatts Company’s bank statement included an NSF check written by one of its
customers. What effect will the entry to recognize the NSF check have on the
company’s financial statements?
A.
B.
C.
D.
On January 1, 2016 Grande Company had a $16,000 balance in the Accounts
Receivable account and a zero balance in the Allowance for Doubtful Accounts
account. During 2016, Grande provided $104,000 of service on account. The company
collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated
to be 2% of sales on account.
Based on this information, the amount of cash flow from operating activities that would
appear on the 2016 statement of cash flows is:
A.$97,000.
B.$104,000.
C.$89,520.
D.$95,060.
The purpose of common size financial statements is to:
A.compare the amount of common stock to other types of stock.
B.make comparisons between firms of different sizes.
C.make comparisons between different time periods.
D.Make comparisons between firms of different sizes and between different time
periods.
Van Buren Company experienced an accounting event that was recorded in the
company’s general journal:
Which of the following choices accurately reflects how this event affects the company’s
financial statements?
A.
B.
C.
D.
A discount or premium on bonds payable can be defined by which of the following
statements?
A.The difference between the market price on the issue date and the face value.
B.The difference between the call price and the face value of the bond.
C.The market rate of interest on the date of the bond issuance.
D.The difference between the interest rate and the market price of the bond.
On October 1, 2016, Sengal Company recorded a journal entry debiting prepaid rent
and crediting cash for $1,200 in payment for one year of office rent. At December 31,
2016, the financial statements should report:
A.
B.
C.
D.
The owner of the Barnes Company established a petty cash fund amounting to $400.
What is the effect on the financial statements of the entry to record this transaction?
A.
B.
C.
D.
Which of the following is not an advantage of accepting credit cards from retail
customers?
A.The acceptance of credit cards tends to increase sales.
B.The credit card company performs credit worthiness assessments.
C.There are fees charged for the privilege of accepting credit cards.
D.The credit card company assumes the cost of slow collections and write-offs.
Ben Weaver is planning to invest in one of the following companies based on their
average performance over the past five years, summarized below.
If Ben is looking for a company that is likely to achieve rapid growth in revenues and
profitability, which one should he choose?
A.Galax, Inc.
B.Apex, Inc.
C.Bendex, Inc.
D.Curex, Inc.
Which of the following is not considered an advantage of the corporate form of
business organization?
A.Ability to raise capital.
B.Continuity of existence.
C.Ease of transferability of ownership.
D.Lack of government regulation.
Riley Company borrowed $36,000 on April 1, 2016 from the Titan Bank. The note
issued by Riley carried a one year term and a 7% annual interest rate. Riley earned cash
revenue of $1,700 in 2016 and $1,400 in 2017. Assume no other transactions.
The amount of total liabilities that would appear on Riley’s December 31 balance sheets
for 2016 and 2017 would be
Byrd Company experienced an accounting event that affected its financial statements as
indicated below:
Which of the following accounting events could have caused these effects on Byrd’s
statements?
A.Recognized depletion expense under the units-of-production method.
B.Recognized depreciation expense under the double declining balance method.
C.Amortized patent cost under the straight-line method.
D.All of these answer choices are correct.
When preparing its quarterly financial statements, Pace Co. uses the gross margin
method to estimate ending inventory. The following information is available for the 1st
quarter of 2016:
What was Pace’s estimated inventory on March 31, 2016?
A.$236,250
B.$288,750
C.$206,250
D.$258,750
Explain the meaning of the term, “matching concept.”
Turner Corporation has 150,000 shares of $12 par value common stock issued and
outstanding. If Turner Corporation issued a 3-for-1 stock split, what dollar amount
would be shown for common stock on the balance sheet after the stock split?
Name the group that has the primary authority for establishing U.S. GAAP.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts. Assume that Frank Company uses a perpetual inventory system.
Whetzel Co. purchased $10,000 of merchandise inventory on account from a supplier,
Jacobs Company.
Indicate how each event affects the income statement and the statement of cash flows.
Record the amount of the effect in the box shown below each element. Use the letter “I”
to indicate increase, the letter “D” to indicate decrease, and the letter “N” to indicate no
effect. Use only one letter for each element.
Howard Co. purchased land costing $25,000 by paying $8,000 cash and issuing a note
payable for the remaining balance.
On January 1, 2016, Howard Company carried inventory at the lower of cost or market
on an aggregate basis. The cost of the inventory was $19,456 but the current market
value is $19,950. Assuming the perpetual inventory system is used, how will the
inventory adjustment, if one is necessary, affect the financial statements?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts.
Who are the three distinct types of participants in a market? Briefly describe the role of
each group of participants.
List the three categories of cash inflows and outflows shown on the statement of cash
flows.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts. Enter only one letter for each element.
The Baker Company purchased an asset on January 1, 2016 for $200,000. The asset had
a $50,000 salvage value and a 10 year life. The asset was sold on January 1, 2018 for
$174,000. Show how the sale will affect Baker’s financial statements, assuming that
Baker uses straight-line depreciation.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts. Enter only one letter for each element.
In preparing the bank reconciliation for Heath Company, an employee discovered an
error. A $654 cash receipt for the collection of an account receivable was recorded in
the company’s books as $645. The deposit slip was correct, and the bank deposit had
been correctly prepared. The error appeared only in the company’s accounting records.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts.
An adjusting entry recorded as a debit to Supplies Expense and a credit to Supplies.
What is meant by the term “stakeholders?”
Indicate how each event affects the income statement and the statement of cash flows.
Record the amount of the effect in the box shown below each element. Use the letter “I”
to indicate increase, the letter “D” to indicate decrease, and the letter “N” to indicate no
effect. Use only one letter for each element.
Howard Co. made a $25,000 cash payment on a term loan. The payment included a
$23,000 reduction of principal as well as $2,000 of interest. Show the combined effects
of the events.