When preparing the statement of cash flows by the indirect method, it is necessary to
adjust for non-cash expenses such as depreciation expense.
Prepaid Rent is a liability account.
A corporation’s income statement includes some unique items that do not often apply to
smaller businesses.
The days’ sales in receivables for Beckham Sales is 35. The days’ sales in receivables
for Xanadu Company is 25. This suggests that Xanadu is having greater difficulty than
Beckham in collecting its accounts receivable.
The goal of matching is to compute an accurate net income or net loss for the time
period.
A worksheet can be used to help prepare adjusting entries and the financial statements.
The third section presented on the statement of cash flows is the non-cash operating
activities section.
The percent-of-sales method calculates bad debts expense based on a percentage of net
cash sales.
As a part of the internal control over cash receipts by mail, the mailroom sends both the
customer checks and the remittance advices to the accounting department.
Proceeds from credit and debit card transactions are deposited on the day of the actual
sale.
When a business uses a computerized accounting system, the software automatically
closes the books.
An intangible asset is an asset with no physical form that is valuable because of the
special rights it carries.
After a bond is issued, investors may buy and sell it through the bond market.
An adverse opinion is issued if the auditor finds that the financial statements are not
presented fairly.
Short-term investments are investments in debt and equity securities that the investor
intends to hold for longer than one year.
Intangible assets are long-term assets that have no physical form and convey special
rights.
Under both the allowance method and the direct-write off method of accounting for
uncollectible accounts, the amount of bad debts expense is estimated at the end of each
accounting period.
The trial balance reports the balances of assets, liabilities, and equity.
Credit terms of 2/10, n/30 indicate that a discount of 2% will be given if payment is
made within 10 days of the invoice date. Otherwise, the total invoice amount is due
within 30 days of the invoice date.
The debt ratio shows the proportion of assets financed with debt.
Freight in is a delivery expense to the seller.
Sales Tax Payable is usually calculated as a percentage of the amount of the sale.
Factoring occurs when a business sells its receivables to a finance company or bank.
An expenditure that increases the capacity or efficiency of a plant asset or that extends
the asset’s life is known as a revenue expenditure.
An inventory error cancels out after two periods.
When a business uses a computerized accounting system, the closing entries must be
manually recorded.
For accounting purposes, par value stock is treated the same as stated value stock
except for the account names.
A patent is an exclusive right to reproduce and sell a book, musical composition, film,
other work of art, or intellectual property.
An amortization schedule details each loan payment’s allocation between principal as
well as interest and the beginning and ending balances of the loan.
When using the LIFO inventory costing method and the periodic inventory method, the
ending inventory comes from the newest costs of the period.
The current portion of notes payable is the principal amount that will be paid within two
years of the balance sheet date, and the remaining portion is long term.
When using a purchases journal, Accounts Payable is always credited.
The closing process helps in measuring each period’s net income separately from all
other periods.
A company is uncertain whether a complex transaction should be recorded as an asset
or an expense. Under the conservatism principle, it should choose to treat it as an asset.
A purchase discount is the amount offered to the purchaser for delaying the payment to
the seller.
In the United States, transactions are recorded in dollars because the dollar’s purchasing
power does not change over time.
The expected value of an asset at the end of its useful life is known as ________.
A) book value
B) residual value
C) carrying value
D) market value
Held-to-maturity debt investments are normally reported at ________.
A) current market value
B) average cost
C) amortized cost
D) historical cost
Surround, Inc. provides the following data:
Surround, Inc.
Comparative Balance Sheet
Dec. 31, 2019
Calculate the debt to equity ratio. (Round your answer to two decimal places.)
A) 0.42
B) 0.05
C) 1.16
D) 0.72
Assets with no physical form are ________.
A) current assets
B) intangible assets
C) not listed on the balance sheet because they have no value
D) included in stockholders’ equity
A corporation declares a dividend of $0.50 per share on 18,000 shares of common
stock. Which of the following is included in the entry to record the declaration?
A) Cash Dividends is debited for $9000.
B) Paid-In Capital in Excess of Par—Common is credited for $9000.
C) Cash Dividends is credited for $9000.
D) Dividends Payable—Common is debited for $9000.
Which of the following is the correct formula to calculate average merchandise
inventory?
A) Average merchandise inventory = (Beginning merchandise inventory – Ending
merchandise inventory) / 2
B) Average merchandise inventory = (Beginning merchandise inventory × Ending
merchandise inventory) / 2
C) Average merchandise inventory = (Beginning merchandise inventory / Ending
merchandise inventory) / 2
D) Average merchandise inventory = (Beginning merchandise inventory + Ending
merchandise inventory) / 2
The Public Company Accounting Oversight Board (PCAOB) was created ________.
A) by the Sarbanes-Oxley Act (SOX)
B) to perform audits of public companies
C) to make restitution to investors who were defrauded by the issuance of fraudulent
financial reports
D) to require auditors to take responsibility for the accuracy and completeness of
financial reports from firms they audit
Which of the following statements is true of the debt to equity ratio?
A) The higher the debt to equity ratio, the lower the company’s financial risk.
B) The higher the debt to equity ratio, the greater the company’s financial risk.
C) If the debt to equity ratio is greater than 1, the company is financing more assets
with equity than with debt.
D) If the debt to equity ratio is less than 1, the company is financing more assets with
debt than with equity.
Which of the following would be included in the entry to record the replenishment of a
petty cash fund?
A) a credit to Petty Cash
B) a debit to Accounts Receivable
C) a credit to Cash
D) a credit to Miscellaneous Expense
Reversing entries are ________.
A) the exact opposite of a prior adjusting entry
B) dated the last day of the new period
C) required according to GAAP
D) expensive to record and time consuming
Regarding the monetary unit assumption, which of the following statements is correct?
A) This assumption requires that the items on the financial statements be measured at
their current market value.
B) Accountants assume that the dollar’s purchasing power is stable.
C) The value of a dollar does not change over time.
D) During periods of inflation, a dollar will purchase more.
Reliable Moving Company reported the following amounts on its balance sheet as of
December 31, 2019 and December 31, 2018:
For the vertical analysis, what is the percentage of total liabilities for December 31, 2018?
(Round your answer to two decimal places.)
A) 100.00%
B) 46.50%
C) 31.03%
D) 38.67%
Outstanding stock represents shares of stock that ________.
A) are held by the stockholders
B) give the owners certain advantages
C) have been authorized by state law
D) have been issued but may or may not be held by stockholders
A sales journal is ________.
A) a special journal used to record all the cash sales
B) used to record the sales of assets other than merchandise inventory
C) a special journal used to record credit sales
D) a general journal used to record the adjustments in revenue account
The following information is available for Juno Company for the month ending June
30, 2019.
• Balance as per the bank statement is $12,000.
• Balance as per books is $10,400.
• Check #506 for $1,400 and check #510 for $800 were not shown on the June 30, bank
statement.
• A deposit in transit of $2,541 had not been received by the bank when the bank
statement
was generated.
• A bank debit memo indicated an NSF check for $90 written by Jane Smith to Juno
Company
on June 13.
• A bank credit memo indicated a note collected by the bank of $2,000 and interest
revenue
of $51 on June 20.
• The bank statement indicated service charges of $20.
What is the adjusted book balance?
A) $12,361
B) $12,341
C) $8,251
D) $8,200
Which of the following is true of the acid-test ratio?
A) It measures a company’s ability to pay its current liabilities.
B) It measures the ability of the company to earn net income.
C) It measures a company’s ability to meet its short-term obligations with cash and cash
equivalents.
D) It indicates how much cash could be realized by selling the inventory.
For a promissory note, the entity to whom the promise of future payment is made is the
________.
A) maker of the note
B) endorser of the note
C) banker of the note
D) payee of the note
Which of the following statements is true?
A) Both a stock dividend and a stock split increase the balance in the common stock
account.
B) Both a stock dividend and a stock split reduce retained earnings.
C) Neither a stock dividend nor a stock split will result in net gains or losses.
D) A stock split increases the par value per share of the stock.
Which of the following transactions would be shown in the non-cash investing and
financing activities section of the statement of cash flows?
A) sold equipment with book value of $8,000 in exchange for $8,000 cash
B) borrowed $32,000 cash on a note payable
C) issued 15,000 shares of common stock at $3 per share
D) purchased a building in exchange for 20,000 shares of common stock
In a typical computerized accounting information system, ________.
A) transactions must be recorded in debit and credit format
B) the software automatically knows to record a debit or a credit
C) transactions are posted manually
D) spreadsheets must be used to produce financial statements
The following information is from the December 31, 2018 balance sheet of January
Corporation.
What is the average issue price of the preferred stock shares? (Round answers to the
nearest dollar.)
A) $108
B) $100
C) $167
D) $106
Which of the following entries would be made because of the matching principle?
A)
B)
C)
D)
Which of the following is true of trading debt investments?
A) They are held for more than two years.
B) They are generally recorded as long-term investments.
C) They must be adjusted and reported at fair value at the end of each period.
D) They are always reported on the balance sheet at their historical cost.
State Street Digital, Inc. starts the year with $3500 in its Estimated Warranty Payable
account. During the year, there were $213,000 in sales and $4900 in warranty repair
payments. State Street Digital estimates warranty expense at 4% of sales. The Warranty
Expense for the year is ________.
A) $8520
B) $4900
C) $3500
D) $7120
On July 1, 2019, Reliable Services issued $39,000 of 15% bonds that mature in five
years for $64,000. The bonds pay semiannual interest payments on June 30 and
December 31 of each year. On December 31, 2019, what is the total amount paid to
bondholders?
A) $2925
B) $5850
C) $4800
D) $9600
A lower days’ sales in inventory for Samson, Inc., when compared to other companies,
indicates that it is ________.
A) selling its inventory more quickly
B) spending more on inventory storage
C) incurring higher insurance costs
D) holding excess obsolete inventory
What is the maturity value of a 6-month, 11% note for $60,000? (Round any
intermediate calculations to two decimal places, and your final answer to the nearest
dollar.)
A) $62,000
B) $66,600
C) $63,300
D) $60,000
The following are selected current month’s balances for Morgan, Inc.
Based on this information, calculate the total amount of credits for the trial balance.
A) $26,500
B) $22,750
C) $24,750
D) $33,750
Dickens Services, Inc. performed accounting services for a client in December. A bill
was mailed to the client on December 30. The company received a check by mail on
January 5. Which of the following accounts should appear on the balance sheet as of
December 31 as related to the services performed?
A) Prepaid Expense
B) Accounts Receivable
C) Unearned Revenue
D) None, there is no entry in December.
Unearned Revenue is a(n) ________ account and carries a normal ________ balance.
A) liability; credit
B) asset; credit
C) revenue; debit
D) asset; debit
Which of the following items would require an adjusting entry after preparation of the
bank reconciliation?
A) errors made by the bank revealed by the bank reconciliation
B) all items on the bank’s side
C) errors made on the books revealed by the bank reconciliation
D) outstanding checks
What is an annual report? Briefly describe the key parts of the annual report.
Before sending the check for payment of goods, the controller should examine the
payment pack. List the documents that are included in the payment pack and describe
the information provided by each document.
Complete Cleaning Services pays out wages every week on Friday. Payroll expense
totals $4,000 per week, based on a five-day week. The month of June ended on a
Thursday. On Thursday, June 30, Complete made the following accrual adjustment:
At the same time, they prepared the following reversing entry to be booked on July 1:
On Friday afternoon, when wages were paid, what journal entry was made? Omit
explanation.
Provide the definition of each of the following accounting assumptions.
List and briefly discuss the five components of internal control.
During December 2018, April Service Company performed $1,500 of services, but as of
December 31, 2018, the clients have not yet been billed. If April fails to make an
adjusting entry on December 31, 2018, indicate the effect on assets, liabilities, equity,
and net income.
Maddy’s Gifts received an allowance from the vendor for an amount of $400. Prepare
the journal entry for this transaction. Maddy’s uses a perpetual inventory system and
purchased the goods on account. Omit explanation.
The periodic inventory records of Hawk Dental Supply indicate the following for the
month of April:
As of April 30, Hawk counts 8 units of merchandise inventory on hand.
Compute ending merchandise inventory and cost of goods sold for Hawk using the FIFO
inventory method.
On November 1, 2018, A & C Janitorial Supply sold merchandise on account with a
cost of $4,200 for $6,000 and payment terms of 3/10, n/30. The company uses the gross
method and a perpetual inventory system. Prepare the journal entries for this
transaction. Omit explanations.
Concerning how companies control cash received by mail, state which employee should
perform the following duties:
Charter Schools, Inc. is authorized to issue 500,000 shares of $2 par common stock.
The company issued 106,000 shares at $6 per share. When the market price of common
stock was $10 per share, Charter declared and distributed a 10% stock dividend. Later,
Charter declared and paid a $0.10 per share cash dividend.
Prepare the journal entries to record these transactions. Explanations are not required.
Countrywide Sales sold 400 units of product to a customer on account. The selling price
was $28 per unit, and the cost, according to the company’s inventory records, was $14
per unit. Prepare the journal entry to record the cost of goods sold. (Assume a perpetual
inventory system and the FIFO inventory costing method.) Omit explanation.
Briefly describe each of the following source documents:
The Allowance for Bad Debts account has a credit balance of $2,000 before the
adjusting entry for bad debts expense. The company’s management estimates that 2% of
net credit sales will be uncollectible for the year 2019. Net credit sales for the year were
$250,000. Prepare the journal entry to record the bad debts expense on December 31,
2019. Omit explanation.
Durable Equipment Company uses the periodic inventory system. Durable reported the
following selected amounts at June 30, 2019 (the beginning inventory balance is also
provided):
Requirement A: Compute cost of goods sold.
Requirement B: Compute gross profit.
Extreme Discount Merchandisers has purchased merchandise on account and paid $450
for freight in. Prepare the journal entry for freight paid. (Assume a perpetual inventory
system.)
For each of the following events:
(1) State whether the event increases (INC) or decreases (DEC) retained earnings. If the
event does not affect retained earnings, state NE for no effect.
(2) State which equity account is affected.
Marketsite, Inc. completed the following treasury stock transactions in 2018:
June. 3 Purchased 2,000 shares of the company’s $5 par value common stock as
treasury stock, paying cash of $15 per share.
June 14 Sold 800 shares of the treasury stock for cash of $20 per share.
Journalize these transactions. Explanations are not required.
How will Marketsite, Inc. report treasury stock on its balance sheet as of December 31,
2018?
Modern Clothing Store reported the following selected items at June 30, 2019 (previous
year – 2018 – amounts are also given as needed):
Compute Modern’s accounts receivable turnover ratio for the year ending June 30, 2019.
Show your computations. (Round the answer to 2 decimal places.)
The following information is needed to reconcile the cash balance for Natural
Landscaping Services.
• A deposit of $5,800 is in transit.
• Outstanding checks total $1,500.
• The book balance is $6,800 at February 28, 2019.
• The bookkeeper recorded a $1,740 check as $17,400 in payment of the current
month’s rent.
• The bank balance at February 28, 2019 was $18,000.
• A deposit of $400 was credited by the bank for $4,000.
• A customer’s check for $3,700 was returned for nonsufficient funds.
• The bank service charge is $60.
Based on this information, prepare a bank reconciliation for Natural Landscaping
Services as of February 28, 2019.