1) sales discounts and sales returns and allowances both have normal debit balances.
2) the sales returns and allowances account and the sales discount account are both
classified as expense accounts.
3) the holder of a note adjusts for accrued interest by debiting interest receivable and
crediting interest revenue.
4) receivables are valued and reported in the balance sheet at their gross amount less
any sales returns and allowances and less any cash discounts.
5) to be classified as a short-term investment, the investment must be readily
marketable and intended to be converted into cash within the next year or operating
cycle.
6) a characteristic of capital expenditures is that the expenditures occur frequently
during the period of ownership.
7) a $150,000 bond with a quoted priced of 102 is sold for $153,375.
8) a reason some companies purchase investments is because they generate a significant
portion of their earnings from investment income.
9) cost of goods sold is considered an expense of a merchandising firm.
10) the revenue recognition principle applies to merchandising companies by
recognizing sales revenues when they are earned.
11) in calculating depreciation, both plant asset cost and useful life are based on
estimates.
12) when the disposal of a significant segment occurs, the income statement should
report both income from continuing operations and income (loss) from discontinued
operations.
13) the current ratio is a measure of all the ratios calculated for the current year.
14) (a)which company is doing the best job of managing its accounts receivable? why?
be sure to support your answer with computations.
(b)what are your concerns about these companies?
15) from an internal control standpoint, the asset most susceptible to improper diversion
and use is
a.prepaid insurance
b.cash
c.buildings
d.land
16) if the sum of the debit column equals the sum of the credit column in a trial balance,
it indicates
a.no errors have been made.
b.no errors can be discovered.
c.that all accounts reflect correct balances.
d.the mathematical equality of the accounting equation.
17) a successful grocery store would probably have
a.a low inventory turnover
b.a high inventory turnover
c.zero profit margin
d.low volume
18) a truck costing $30,000 and on which $26,000 of accumulated depreciation has
been re-corded was discarded as having no value. the entry to record this event would
include a
a.gain of $4,000
b.loss of $4,000
c.credit to accumulated depreciation for $26,000
d.credit to accumulated depreciation for $30,000
19) hite company had an increase in inventory of $120,000. the cost of goods sold was
$270,000. there was a $30,000 decrease in accounts payable from the prior period.
using the direct method of reporting cash flows from operating activities, what were
hite’s cash payments to suppliers?
a.$420,000
b.$180,000
c.$360,000
d.$300,000
20) at december 1, 2014, orear company’s accounts receivable balance was $5,600.
during december, orear had credit sales of $15,000 and collected accounts receivable of
$12,000. at december 31, 2014, the accounts receivable balance is
a.$5,600 debit
b.$8,600 debit
c.$20,600 debit
d.$8,600 credit
21) in a common size financial statement, which of the following is given a percentage
of 100 percent?
a.total liabilities
b.net income
c.total assets
d.cost of goods sold
22) kingery corporation has current assets of $1,500,000 and current liabilities of
$750,000. if they pay $250,000 of their accounts payable what will their new current
ratio be?
a.2.5:1
b.2.0:1
c.3.0:1
d.1.7:1
23) the matching principle
a.requires that all credit losses be recorded when an individual customer cannot pay
b.necessitates the recording of an estimated amount for bad debts
c.results in the recording of a known amount for bad debt losses
d.is not involved in the decision of when to expense a credit loss
24) *net income is recorded on the work sheet under the:
a.debit column of the adjusted trial balance and the credit column of retained earnings
b.debit column of the income statement and the credit column of the balance sheet
c.credit column of the adjusted trial balance and the debit column of retained earnings
d.credit column of the income statement and the debit column of the balance sheet
25) jonathan company owns stock in maryland industries, which it intends to hold
indefinitely because of some negative tax consequences if sold. which of the following
statements is true regarding jonathan’s reporting of the stock?
a.the stock would be classified as trading securities
b.the stock would be classified as available-for-sale securities
c.the stock requires no market adjustments since there are no plans to sell it
d.any losses on the stock are recorded in the income statement
26) sparks company received proceeds of $211,500 on 10-year, 8% bonds issued on
january 1, 2011. the bonds had a face value of $200,000, pay interest annually on
december 31st, and have a call price of 102. sparks uses the straight-line method of
amortization. what is the carrying value of the bonds on january 1, 2013?
a.$200,000
b.$209,200
c.$190,800
d.$210,350
27) if farlington company had net income of $540,000 in 2012 and it experienced a
20% increase in net income over 2011, what was its 2011 net income?
28) the two criteria necessary for an item to be classified as an extraordinary item are
that the transaction or event must be (1) _______________ and (2) ________________.
29) a measurement to provide additional insight regarding a companys cash-generating
ability is _____________.
30) the declining-balance method of computing depreciation expense involves
multiplying a _______________ book value by a _______________ percentage.
31) recognizing when an expense contributes to the production of revenue is critical.
32) failure to adjust a prepaid expense account for the amount expired will cause
_______________ to be understated and ________________ to be overstated.
33) a change in depreciation methods during the year would be classified as a change in
____________________.
34) on december 31, 2011, when its allowance for doubtful accounts had a credit
balance of $1,500, leeds company estimates that 7% of its accounts receivable balance
of $95,000 will become uncollectible. on march 3, 2012, leeds company determined
that megan josts account of $950 was uncollectible. on may 15, 2012, jost paid the
amount previously written off.
prepare the journal entries for december 31, 2011, march 3, 2012 and may 15, 2012.
35) the adjusted trial balance of mccoy company included the following selected
accounts:
instructions
1>use the above information to prepare a multiple-step income statement for the year
ended december 31, 2012.
2>calculate the profit margin ratio and gross profit rate.
