The following information pertains to Patterson Corporation. Assume that all balance
sheet amounts represent both average and ending figures.
Patterson Corporation had 6,000 shares of common stock issued and outstanding. The
market price of Patterson common stock on December 31, 20×5, was $20. Patterson paid
dividends of $0.90 per share during 20×5.
What is the return on assets for this corporation? Round your answer to 1 decimal place.
A. 5.0 percent
B. 10.0 percent
C. 11.7 percent
D. 26.7 percent
The post-closing trial balance differs from the adjusted trial balance in that it does not
A. take into account owner investments and withdrawals.
B. take into account adjusting entries.
C. include income statement accounts.
D. include balance sheet accounts.
The Income Summary account
A. appears on the balance sheet.
B. appears on the income statement.
C. is closed to the cash account to properly state cash at the end of the period.
D. does not appear in the financial statements.
Provide explanations for the following related journal entries:
Use this information to answer the following question.
Here is the balance sheet for Costello Container Company:
If the equipment were sold for $13,000, then the Jose Costello, Capital account would
A. increase by $37,000.
B. increase by $13,000.
C. decrease by $13,000.
D. stay the same.
Which of the following statements is correct regarding partnerships?
A. Accounting for a partnership is similar to accounting for a corporation.
B. If the partnership assumes a liability related to an asset invested in the partnership,
the partner’s capital account is credited and a liability account is debited.
C. It is necessary to maintain separate Capital and Withdrawals accounts for each
partner.
D. All of these choices.
Which type of account is Cost of Goods Sold?
A. An asset account.
B. A liability account.
C. An expense account.
D. An income account.
Which of the following accounts would not appear as an asset on a manufacturer’s
balance sheet?
A. Finished Goods
B. Work in Process
C. Factory Overhead
D. Raw Materials
Notes payable
A. are promissory.
B. involve debt to many creditors.
C. are secured by real property.
D. All of these choices.
Strathern Corporation issued ten-year term bonds dated January 1, 20×5, with a face
value of $800,000. The face interest rate is 10 percent, and interest is payable
semi-annually on June 30 and December 31. The bonds were issued for $708,400 to
yield an effective annual rate of 12 percent. Use the effective interest method of
amortization. Round answers to the nearest dollar.
a. Prepare entries in journal form without explanations to record the bond issue on
January 1, 20×5, and the payments of interest and amortization on June 30 and
December 31, 20×5.
b. Calculate the total amount to be reported as Bond Interest Expense on the income
statement for the year ended 20×6.
c. Calculate the carrying value of the bonds on December 31, 20×6.
A retail store has goods available for sale of $2 million at retail and $1,100,000 at cost,
and ending inventory of $160,000 at retail. What is the estimated cost of ending
inventory?
A. $128,000
B. $160,000
C. $110,000
D. $88,000
All of the following statements are true about the Sarbanes-Oxley Act except
A. it applies to publicly traded companies.
B. it shields chief executives from criminal penalties.
C. it orders the SEC to draw up certain rules.
D. its primary goal is to regulate financial reporting and the accounting profession.
Which of the following documents would not originate with the purchasing company?
A. Purchase order
B. Receiving report
C. Check
D. Invoice
If a revenue expenditure is incorrectly recorded on a company’s books as a capital
expenditure, which of the following statements will be true?
A. Stockholders’ equity will be overstated at year end.
B. Net income in the following year will be unaffected.
C. Total assets will be understated at year end.
D. Net income will be understated for the year.
An accounting measurement is concerned with all except which of the following?
A. Money measure
B. Financial position
C. Separate entity
D. Business transaction
In the space below, state whether each situation is a deferral or an accrual.
______a. Depreciation on machinery is $7,200 for the accounting period.
______b. Interest that has been incurred on a loan but that has not yet been paid or
recorded is $675.
______c. Office supplies of $965 were on hand at the beginning of the period.
Purchases of office supplies during the period totaled $640. At the end of the period,
$120 in office supplies remained.
______d. Commissions amounting to $975 were earned but not yet collected by year
end.
______e. Prepaid Rent had a $2,500 balance prior to adjustment. By year end, 50
percent had expired.
The manipulation of revenues and expenses to achieve a specific outcome is called
A. earnings management.
B. the matching rule.
C. adjusting entries.
D. revenue recognition.
The Supplies account had a $720 debit balance at the end of the accounting period
before adjustment for supplies used, and an inventory of $160 of unused supplies was
on hand. Which of the following is the required adjusting entry?
A. Debit Supplies Expense $160 and credit Supplies $160.
B. Debit Supplies Expense $560 and credit Supplies $560.
C. Debit Supplies $160 and credit Supplies Expense $160.
D. Debit Supplies $560 and credit Supplies Expense $560.
All of the following are broad principles underlying the accountant’s code of
professional ethics except
A. objectivity
B. integrity
C. loyalty
D. independence
Use this information to answer the following question.
The general ledger account for Accounts Receivable shows a debit balance of $50,000.
Allowance for Uncollectible Accounts has a credit balance of $1,000. Net sales for the
year were $500,000. In the past, 2 percent of sales have proved uncollectible, and an
aging of accounts receivable accounts results in an estimate of $11,700 of uncollectible
accounts.
Using the accounts receivable aging method, the Allowance for Uncollectible Accounts
balance would be credited for
A. $10,700.
B. $11,700.
C. $12,200.
D. $12,700.
An understatement of year 1’s ending inventory will
A. cause year 2’s cost of goods sold to be overstated.
B. result in an understatement of year 2’s beginning inventory.
C. not affect year 2’s ending owner’s equity.
D. have no effect on year 2’s gross margin.
Special purpose journals promote
A. economy and control.
B. faithful representation and relevance.
C. relevance and timeliness.
D. going concern and periodicity.
The value at which one share of stock can be bought or sold is called
A. book value.
B. call value.
C. par or stated value.
D. market value.
Extraordinary repairs usually are recorded by making a debit to
A. a capital account.
B. Repair Expense.
C. a contra-asset account.
D. an asset account.
Assume the direct method is used to compute net cash flows from operating activities.
For this item extracted from the financial statements—Decrease in Inventory—indicate
the effect on cash payments for purchases by choosing one of the following:
A. Add to Cost of Goods Sold to compute cash payments for purchases.
B. Subtract from Cost of Goods Sold to compute cash payments for purchases.
C. Not used to adjust Cost of Goods Sold to compute cash payments for purchases.
A promissory note is executed in June. When the note is paid the following January, the
payee’s entry includes (assuming a calendar-year accounting period and no reversing
entries) a
A. debit to Interest Income.
B. credit to Cash.
C. credit to Interest Receivable.
D. debit to Notes Receivable.
The stockholders’ equity of Crest Corporation as of December 31, 20×5, is as follows:
The preferred stock has one year’s dividends in arrears.
a. Compute the book value per share of preferred stock and the book value per share of
common stock. (Round to the nearest cent.)
b. Assume the preferred stock has two years’ dividends in arrears. Compute the book value
per share of preferred stock and the book value per share of common stock. (Round to the
nearest cent.)
Which of the following is a regulatory agency?
A. IASB
B. SEC
C. FASB
D. GASB
Which of the following is an example of an accrual?
A. Debit Office Supplies Expense, credit Office Supplies
B. Debit Wages Expense, credit Wages Payable
C. Debit Rent Expense, credit Prepaid Rent
D. Debit Unearned Revenue, credit Service Revenue
Use the following information to obtain the ratios requested below. Where necessary,
carry answers to one decimal place.
Dividends per share: $2.16
Market price per share: $48
Net income: $88,000
Average stockholders’ equity: $625,000
Earnings per share: $1.56
a. Dividends yield = _____________%
b. Return on equity = _____________%
c. Price/earnings (P/E) ratio = __________times
Use the following information to answer the question below.
The following accounts appear in the ledger of Pepper Corporation on December 31,
20×5
A balance sheet prepared on December 31, 20×5 , would report total contributed capital of
A. $176,000.
B. $190,000.
C. $226,000.
D. $306,000.