What event and inventory method may have produced the following journal entry?
A.A return of goods by a customer under the perpetual inventory method.
B.A sale of goods under the periodic inventory method.
C.A return of goods by a customer under the periodic inventory method.
D.A sale of goods under the perpetual inventory method.
Which of the following businesses would most likely have the longest operating cycle?
A.A chain of coffee shops.
B.A national sporting goods chain.
C.An antiques dealer.
D.A Christmas tree farm.
On a classified balance sheet, the financial statement user will be able to distinguish
between:
A.cash flow from operations and cash flow from investing activities.
B.current and noncurrent assets.
C.product and period costs.
D.none of these answer choices are correct.
The accountant for the Bay Company made an error, which understated the ending
inventory for 2015 by $7,000. Bay Company uses the periodic inventory system.
Assuming that this error is not caught and corrected, indicate the effect of the error on
each of the following items. Write U (understated), O (overstated) or N (not affected)
next to each item.
a. 2016 Beginning Inventory: _________
b. 2016 Purchases: __________
c. 2015 Goods Available for Sale: ________
d. 2015 Net Income: ________
e. 2015 Retained Earnings ending balance: __________
f. 2015 Total Assets at end of year: ___________
g. 2016 Net Income: _________
h. 2016 Retained Earnings ending balance: _________
i. 2015 Cost of Goods Sold: ___________
j. 2015 Gross Margin: _________
Explain the computation and the meaning of each of the following:
a. Gross margin percentage
b. Return on sales
What factor distinguishes an employee from an independent contractor?
A.The amount of the pay.
B.Whether or not the company supervises and controls the work.
C.Whether or not the work is performed on company property.
D.Whether the individual chooses to be treated as an independent contractor.
On January 1, 2016 Ballard Company spent $12,000 on an asset to improve its quality.
The asset had been purchased on January 1, 2015 for $52,000. The asset had a $4,000
salvage value and a 6-year life. Ballard uses straight-line depreciation. What would be
the book value of the asset on January 1, 2019?
A.$24,800.
B.$20,800.
C.$10,400.
D.$24,000.
The recognition of an expense may be accompanied by which of the following?
A.An increase in liabilities
B.A decrease in liabilities
C.A decrease in revenue
D.An increase in assets
If prices are rising, which inventory cost flow method will produce the lowest amount
of cost of goods sold?
A.LIFO
B.FIFO
C.Weighted average
D.LIFO, FIFO, and weighted average will all produce equal amounts.
Which of the following would not be a cash flow from financing activities?
A.Borrowing on a long-term note payable
B.Repayment of principal on bonds payable
C.Payment of interest on bonds payable
D.Payment of a cash dividend
The following information is taken from the balance sheet of Menendez Company on
January 1, 2016:
Use the information on January 1, 2016 to determine the effect of the following entry
on the current ratio of Menendez Company:
This transaction will
A.have no effect on the current ratio.
B.cause the current ratio to increase.
C.cause the current ratio to decrease.
D.potentially affect the current ratio, but the direction of the change cannot be
determined without more information.
Hilliard Company, a small consulting firm, charges all of its operating expenses on
Accounts Payable. On January 1, 2016, Hilliard’s Accounts Payable balance was
$24,000 and, during the year, an additional $216,000 of operating expenses was
charged on account. The ending Accounts Payable balance was $72,000. What is the
amount of cash paid for expenses during 2016?
A.$264,000
B.$240,000
C.$168,000
D.$64,000
Indicate whether each of the following statements about stockholders’ equity is true or
false.
_____ a) Preferred stockholders generally have no preference to assets when the
company is liquidated.
_____ b) Preferred stockholders generally have a preference to dividends.
_____ c) Preferred stock carries voting rights that gives the preferred stockholders
greater power in the corporation’s decision making process than common stockholders
have.
_____ d) Preferred stockholders generally receive a set or fixed amount of dividends.
_____ e) If a corporation has issued non-cumulative preferred stock, common
stockholders may receive greater dividends than if the corporation has issued
cumulative preferred stock.
The Youngstown Company recorded the following adjustment in general journal form:
Which of the following choices accurately reflects how this event would affect the
company’s financial statements?
A.
B.
C.
D.
Blake Company established a petty cash fund in the amount of $400. At the end of the
accounting period, the petty cash box contained receipts for expenditures amounting to
$180 and $215 in cash. What effect will the entries to replenish the fund have on assets
and expenses?
A.
B.
C.
D.
Which of the following statements accurately describes a fidelity bond?
A.Procedures to provide reasonable assurance that the objectives of a company are
accomplished.
B.Proper procedures for processing transactions.
C.Insurance that the company buys to protect itself from loss due to employee
dishonesty.
D.Guidelines or policies that limit the actions of different levels of management.
Under the perpetual inventory system, the best estimate of the amount of inventory is:
A.shown on the previous period’s financial statements.
B.the book balance in the inventory account.
C.provided by application of the gross margin method.
D.the beginning inventory balance minus sales for the period.
Misty Mountain Outfitters is a merchandiser of specialized fly fishing gear. Its cost of
goods sold for 2016 was $295,000, and sales were $690,000. The amount of
merchandise on hand was $50,000, and total assets amounted to $585,000. Using this
information, which of the following answers correctly states the average days in
inventory ratio? Round to the nearest day.
A.26 days
B.62 days
C.31 days
D.40 days
Wayne Company issued bonds with a face value of $600,000, a 6% stated rate of
interest, and a 10-year term. The bonds were issued on January 1, 2016, and Wayne
uses the straight-line method of amortization. Interest is paid annually on December 31.
Assuming Wayne issued the bonds for 102, the carrying value of the bonds on the
December 31, 2016 balance sheet would be:
A.$601,500.
B.$613,500.
C.$615,000.
D.$616,500.
West Corporation’s 2015 ending inventory was overstated by $20,000; however, ending
inventory for 2016 was correct. Which of the following statements is correct?
A.Net income for 2015 is understated.
B.Retained earnings at the end of 2016 is overstated.
C.Cost of goods sold for 2015 is overstated.
D.Cost of goods sold for 2016 is overstated.
What type of account is Discount on Notes Payable?
A.Contra liability.
B.Liability.
C.Contra asset.
D.Expense.
Which of the following retailers would be expected to have the highest gross margin
percentage?
A.Kmart
B.Neiman Marcus
C.WalMart
D.A supermarket chain such as Safeway
The trial balance of Barger Company at the end of the accounting period, immediately
prior to recording closing entries, showed:
After closing entries, the Retained Earnings account will have a balance of
A.$17,600
B.$4,600
C.$18,600
D.$3,600
What effect does the following journal entry have on the amount of cash generated by
operating activities?
A.Decreases it
B.Increases it
C.Has no effect
D.Cannot be determined from the information given
Which of the following groups has the primary responsibility for establishing generally
accepted accounting principles for business entities in the United States?
A.Securities and Exchange Commission.
B.U.S. Congress.
C.International Accounting Standards Board.
D.Financial Accounting Standards Board.
Which of the following cash transactions results in no net change in assets?
A.Borrowing cash from a bank
B.Issuing common stock for cash
C.Purchasing land for cash
D.Providing services for cash
During the 2016 accounting period the Mallard Company earned $165,000 of sales
revenue on account and accrued $122,500 of operating expenses. The company also
earned $26,400 of service revenue that had previously been recorded as unearned
revenue. In addition, a $2,200 stock dividend was issued to the stockholders. What can
be said about cash flows considering these transactions?
A.Cash outflows from financing activities are $2,200.
B.Cash inflows from operating activities are $68,900.
C.Cash inflows from operating activities are $42,500.
D.There are no cash effects.
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 net income on the 2017 income statement would be:
A.$770.
B.$630.
C.$(190).
D.$1,890.
On January 12, 2016, Gilliam Corporation issued 550 shares of $12 par-value common
stock for $15 per share. The number of shares authorized is 5,000, and the number of
shares outstanding prior to this transaction is 1,200. Which of the following answers
describes the effect of the January 12, 2016 transaction?
A.
B.
C.
D.
Product costs are matched against sales revenue
A.in the period immediately following the purchase.
B.in the period immediately following the sale.
C.when the merchandise is purchased.
D.when the merchandise is sold.
Dixon Company collected cash in 2015 from a customer for services to be performed
beginning January 2016. Indicate whether each of the following statements about this
transaction is true or false.
_____ a) Dixon’s 2016 income statement would not be affected by this transaction.
_____ b) Dixon’s 2015 statement of cash flows would be affected by this transaction.
_____ c) This transaction is an asset exchange transaction.
_____ d) The revenue for the services provided will be recorded in 2016.
_____ e) The transaction increases Dixon’s liabilities.
Indicate whether each of the following statements is true or false.
_____ a) A cash discount is extended to reward the buyer for purchasing large quantities
of goods.
_____ b) A purchase discount refers to a cash discount as seen from the seller’s
viewpoint.
_____ c) A sales discount refers to a cash discount as seen from the buyer’s view.
_____ d) In a perpetual inventory system, a sales discount is recorded as a reduction of
sales revenue.
_____ e) In a perpetual inventory system, a purchase discount is recorded as a reduction
of merchandise inventory.
Indicate whether each of the following statements is true or false.
_____ a) In an accrual accounting system, a debit entry to Cash is never accompanied
by a credit entry to Revenue.
_____ b) The adjustment for accrued salaries would involve a debit to Salaries Expense
and a credit to Salaries Payable.
_____ c) Adjusting entries will always include either a debit to an expense account or a
credit to a revenue account.
_____ d) The closing entry for an expense involves a debit to Retained Earnings and a
credit to the expense.
_____ e) The closing entry for a revenue involves a debit to the revenue and a credit to
Retained Earnings.
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.
Landau Company replenished its petty cash fund. The expenditures of the fund included
postage, office supplies, and other miscellaneous items. Indicate the effects of
recognizing the expenditures on financial statements and the replenishment of the petty
cash fund.
Discuss one advantage of issuing bonds versus borrowing money from a bank.
The following is a partial list of account balances for the Fisherman’s Supply at
December 31, 2016:
1) After the temporary accounts are closed, what is the balance of Retained Earnings?
2) From the above information, prepare a multistep income statement.
How do the percent of revenue method and the percent of receivables method to
estimate uncollectible accounts expense differ?
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.
On December 31, 2016, Colefax Co. recognized accrued interest expense in the amount
of $1,500. The interest expense was related to a discount note Colefax had issued
earlier.
What ratio (usually an average from prior periods) can be used in estimating the current
period’s ending inventory?
Rexrode Company’s bank statement at January 31, 2016 showed an ending balance of
$24,712.80. The unadjusted cash account balance for Rexrode is $21,245.75. The
following data were gathered by Rexrode’s accountant:
Outstanding checks as of January 31: $4,895.44
NSF check from customer: $183.62
Debit memo related to the returned deposit: $20.00
Credit memo for interest earned: $12.00
Deposits in transit: $1,236.77
Required: 1) Prepare a bank reconciliation for Rexrode Company at January 31, 2016.
2) Prepare the required journal entries for Cash at January 31, 2016.
Under what conditions should a pending lawsuit be recognized in a company’s financial
statements? Under what conditions should the lawsuit be disclosed in the notes to the
financial statements?
Singleton Company is seeking a short-term loan from its local bank. The banker needs
assurance that the company will be able to repay the loan. Describe three financial
ratios the banker should consider including in the loan approval process. What
information does each of your selected ratios provide?
If the buyer is to pay the transportation cost of delivering merchandise, the freight or
shipping terms would be stated as:
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.
On May 16, 2016, Zirkle Corporation found it necessary to recognize an impairment
loss of $50,000 of goodwill. The goodwill was originally recorded two years earlier in
connection with the acquisition of another company. Show how the impairment loss
affected the financial statements in 2016.
Give an example of a type of industry in which a company can be very successful with
a relatively small amount of operational assets. Give an example of a type of industry
that requires a very large amount of operational assets in order to be successful.