Stockholders are most interested in evaluating
a. liquidity and solvency.
b. profitability and solvency.
c. liquidity and profitability.
d. marketability and solvency.
Answer:
In the Garnet Company, the beginning and ending balances in Land were $198,000 and
$240,000 respectively. During the year, land costing $50,000 was sold for $50,000 cash,
and land costing $92,000 was purchased for cash. The entries in the reconciling
columns of the worksheet will include a:
a. credit to Land $50,000 and a debit to Sale of Land $50,000 under investing activities.
b. debit to Land $92,000 and a credit to Purchase of Land $92,000 under financing
activities.
c. net debit to Land $42,000 and a credit to Purchase of Land $42,000 under investing
activities.
d. credit to Land $50,000 and a debit to Sale of Land $50,000 under financing activities.
Answer:
A company just starting business purchased three merchandise inventory items at the
following prices: first purchase $920; second purchase $880; third purchase $830. If
two items were sold during the period and the company used the LIFO costing method,
the gross profit for the period would be how much greater or less than if the FIFO
costing method had been used?
a. Gross profit would be $90 greater.
b. Gross profit would be $90 less.
c. Gross profit would be the same.
d. Gross profit would be $40 greater.
Answer:
The payroll is paid by the
a. personnel department.
b. payroll department.
c. cashier.
d. treasurer’s department.
Answer:
During 2015, Rathke Corporation reported net sales of $3,000,000, net income of
$1,200,000, and depreciation expense of $100,000. Rathke also reported beginning total
assets of $1,000,000, ending total assets of $1,500,000, plant assets of $800,000, and
accumulated depreciation of $500,000. Rathke’s asset turnover is
a. 3 times.
b. 2.4 times.
c. 2.0 times.
d. .96 times.
Answer:
The journal entry to record a return of merchandise purchased on account under a
periodic inventory system would be
a. Accounts Payable
Purchase Returns and Allowances
b. Purchase Returns and Allowances
Accounts Payable
c. Accounts Payable
Inventory
d. Inventory
Accounts Payable
Answer:
Seven thousand shares of treasury stock of Marker, Inc., previously acquired at $14 per
share, are sold at $20 per share. The entry to record this transaction will include a
a. credit to Treasury Stock for $140,000.
b. debit to Paid-In Capital from Treasury Stock for $42,000.
c. debit to Treasury Stock for $98,000.
d. credit to Paid-In Capital from Treasury Stock for $42,000.
Answer:
During 2014, Harvey Industries reported cash provided by operations of $670,000, cash
used in investing of $1,039,000, and cash used in financing of $145,000. In addition,
cash spent for fixed assets during the period was $404,000. No dividends were paid.
Based on this information, what was Harvey’s free cash flow?
a. ($369,000)
b. $1,450,000
c. $266,000
d. ($918,000)
Answer:
Short-term notes receivables
a. have a related allowance account called Allowance for Doubtful Notes Receivable.
b. are reported at their gross realizable value.
c. use the same estimations and computations as accounts receivable to determine cash
realizable value.
d. present the same valuation problems as long-term notes receivables.
Answer:
Which of the following statements about retained earnings restrictions is incorrect?
a. Many states require a corporation to restrict retained earnings for the cost of treasury
stock purchased.
b. Long-term debt contracts may impose a restriction on retained earnings as a
condition for the loan.
c. The board of directors of a corporation may voluntarily create retained earnings
restrictions for specific purposes.
d. Retained earnings restrictions are generally disclosed through a journal entry on the
books of a company.
Answer:
The following information pertains to Manning Video Company.
1> Cash balance per bank, July 31, $8,363.
2> July bank service charge not recorded by the depositor $22.
3> The bank erroneously charged another company’s $700 check against Manning’s
account.
4> Cash balance per books, July 31, $9,784.
5> The bank charged Manning’s account $350 for a customer’s NSF check.
6> Deposits in transit, July 31, $2,700.
7> Manning recorded a cash receipt from a customer as $32. The bank correctly
recorded it at $23
8> Bank collected a $1,750 note for Manning in July, plus interest $36. less fee $20.The
collection has not been recorded by Manning and no interest has been accrued.
9> Outstanding check, July 31, $594.
Instructions
(a) Prepare a bank reconciliation at July 31.
(b) Journalize the adjusting entries at July 31 on the books of Manning Video Company.
Answer:
If a petty cash fund is established in the amount of $250, and contains $153 in cash and
$94 in receipts for disbursements when it is replenished, the journal entry to record
replenishment should include credits to the following accounts
a. Petty Cash, $94.
b. Petty Cash, $97.
c. Cash, $94; Cash Over and Short, $3.
d. Cash, $97.
Answer:
The retained earnings statement
a. is the owners’ equity statement for a corporation.
b. will show an addition to the beginning retained earnings balance for an
understatement of net income in a prior year.
c. will not reflect net losses.
d. will, in some cases, fail to reconcile the beginning and ending retained earnings
balances.
Answer:
If an account is collected after having been previously written off,
a. the allowance account should be debited.
b. only the control account needs to be credited.
c. both income statement and balance sheet accounts will be affected.
d. there will be both a debit and a credit to accounts receivable.
Answer:
The method most commonly used to compute depletion is the
a. straight-line method.
b. double-declining-balance method.
c. units-of-activity method.
d. effective interest method.
Answer:
Treasury stock should be reported in the financial statements of a corporation as a(n)
a. investment.
b. liability.
c. deduction from total paid-in capital.
d. deduction from total paid-in capital and retained earnings.
Answer:
O’Brien Industries collected $190,000 from customers in 2015. Of the amount
collected, $40,000 was from revenue accrued from services performed in 2014, and
$20,000 was received in advance for 2016 revenue. In addition, O’Brien earned $70,000
of revenue in 2015, which will not be collected until 2016. O’Brien also earned $25,000
of revenue in 2015 which had been collected in 2014.
O’Brien Industries paid $150,000 for expenses in 2015. Of the amount paid, $50,000
was for expenses incurred on account in 2014, $22,000 was paid in advance for 2016
expenses. In addition, O’Brien incurred $78,000 of expenses in 2015, which will not be
paid until 2016. O’Brien also incurred $29,000 of expenses in 2015 which had been
paid in 2014.
Instructions
(a) Compute 2015 cash-basis net income.
(b) Compute 2015 accrual-basis net income.
Answer:
If an individual asset is increased, then
a. there must be an equal decrease in a specific liability.
b. there must be an equal decrease in stockholders’ equity.
c. there must be an equal decrease in another asset.
d. All of these answers are possible.
Answer:
Generally accepted accounting principles are
a. income tax regulations of the Internal Revenue Service.
b. standards that indicate how to report economic events.
c. theories that are based on physical laws of the universe.
d. principles that have been proven correct by academic researchers.
Answer:
The following financial statement information is available for Penn Corporation:
The return on common stockholders’ equity for 2015 is
a. 24.5%.
b. 32.9%.
c. 26%.
d. 29.4%.
Answer:
The ledger of Laurie Rental Agency on March 31 of the current year includes the
following selected accounts before adjusting entries have been prepared
An analysis of the accounts shown the following.
1> The equipment depreciates $400 per month.
2> Two-thirds of the unearned rent revenue was recognized during the quarter.
3> The note payable is dated January 1 and bears 12% interest.
4> Suppliers on hand total $800.
5> The insurance policy is a two-year policy dated January 1.
Instructions
A. Prepare the adjusting entries at March 31, assuming that adjusting entries are made
quarterly. Additional accounts are: Depreciation Expense, Insurance Expense, Interest
Payable, and Supplies Expense.
B. Compute the ending balances for Prepaid Insurance, Supplies, Unearned Rent
Revenue, and Rent Revenue, and indicate in which financial statement those items will
be reported.
Answer:
Using the following information:
During 2015, sales on account were $145,000 and collections on account were
$100,000. Also during 2015, the company wrote off $4,000 in uncollectible accounts.
An analysis of outstanding receivable accounts at year end indicated that uncollectible
accounts should be estimated at $40,000.
Bad debt expense for 2015 is
a. $4,000.
b. $5,000.
c. $9,000
d. $40,000.
Answer:
A post-closing trial balance will show
a. zero balances for all accounts.
b. zero balances for balance sheet accounts.
c. only balance sheet accounts.
d. only income statement accounts.
Answer:
If a retailer regularly sells its receivables to a factor, the service charge of the factor
should be classified as a(n)
a. selling expense.
b. interest expense.
c. other expense.
d. contra asset.
Answer:
A stockholder has the right to vote in the election of the board of directors.
Answer:
Wellington Company had the following transactions involving notes payable.
Nov. 1, 2014 Borrows $180,000 from Olathe State Bank by signing a 3-month, 10%
note.
Dec. 31, 2014 Prepares the adjusting entry.
Feb. 1, 2015 Pays principal and interest to Olathe State Bank.
Instructions
Prepare journal entries for each of the transactions.
Answer:
On January 1, 2014, Dumas Industries acquired a 18% interest in Arlongton
Corporation through the purchase of 12,000 shares of Arlongton Corporation common
stock for $250,000. During 2014, Arlongton Corp. paid $60,000 in dividends and
reported a net loss of $90,000. Dumas is able to exert significant influence on
Arlongton. However, Dumas mistakenly records these transactions using the cost
method rather than the equity method of accounting. Which of the following would
show the correct presentation for Dumas’s investment using the equity method?
Answer:
Admire County Bank agrees to lend Givens Brick Company $600,000 on January 1.
Givens Brick Company signs a $600,000, 8%, 9-month note. What entry will Givens
Brick Company make to pay off the note and interest at maturity assuming that interest
has been accrued to September 30?
Answer:
Notes payable are often used instead of accounts payable.
Answer:
The income statement of Frank Company is shown below:
Additional information:
1> Accounts receivable increased $400,000 during the year.
2> Inventory increased $250,000 during the year.
3> Prepaid expenses increased $200,000 during the year.
4> Accounts payable to merchandise suppliers increased $100,000 during the year.
5> Accrued expenses payable increased $160,000 during the year.
Instructions
Prepare the operating activities section of the statement of cash flows for the year ended
December 31, 2015, for Frank Company, using the direct method.
Answer:
Ralston Company is authorized to issue 10,000 shares of 8%, $100 par value preferred
stock and 500,000 shares of no-par common stock with a stated value of $1 per share. If
Ralston issues 9,000 shares of common stock to pay its recent attorney’s bill of $37,500
for legal services on a land access dispute, which of the following would be the journal
entry for Ralston to record?
Answer:
On July 9, Sheb Company sells goods on credit to Wooley Company for $5,000, terms
1/10, n/60. Sheb receives payment on July 18. The entry by Sheb on July 18 is:
Answer:
A check correctly written for $270 was incorrectly entered in the cash payments journal
for $720. In preparing a bank reconciliation, $_____________ must be
______________ the cash balance per ______________.
Answer: