1) an increase in inventory would be added to cost of goods sold to determine net
purchases for the period.
2) the liability of a stockholder is usually limited to the stockholders investment in the
corporation.
3) if bad debt losses are significant, the direct write-off method is acceptable for
financial reporting purposes.
4) a loss on sale of equipment is added to net income in determining cash provided by
operations under the indirect method.
5) a buyer who acquires merchandise under credit terms of 1/10, n/30 has 20 days after
the invoice date to take advantage of the cash discount.
6) when a monthly mortgage payment is made and recorded, the debit to mortgage
payable represents the reduction in the principal balance.
7) prepaid expenses are assets.
8) if a retailer sells goods for a total price of $200, which includes a 5% sales tax, the
amount of the sales tax is $9.52.
9) if a retailer accepts a national credit card such as visa, the retailer must maintain
detailed records of customer accounts.
10) compound interest uses the accumulated balanceprincipal plus interest to dateat
each year-end to compute interest in the succeeding year.
11) return on common stockholders equity is computed by dividing net income by
ending stockholders equity.
12) the terms 2/10, n/30 mean that a 2 percent discount is allowed on payments made
over 10 but before 30 days after the invoice date.
13) for companies that use a perpetual inventory system, all of the following are
purposes for taking a physical inventory except to:
a. check the accuracy of the records
b. determine the amount of wasted raw materials
c. determine losses due to employee theft
d. determine ownership of the goods
14) connor corporation hired a new accountant. over than next four years, the
accountant used four different accounting methods to depreciation for connor’s
equipment. which of the following characteristics of useful information has connor
most likely violated?
a.comparability
b.relevance
c.faithful representation
d.consistency
15) runge company purchased machinery on january 1 at a list price of $200,000, with
credit terms 2/10, n/30. payment was made within the discount period. runge paid
$10,000 sales tax on the machinery, and paid installation charges of $3,520. prior to
installation, runge paid $8,000 to pour a concrete slab on which to place the machinery.
what is the total cost of the new machinery?
a.$209,520
b.$217,520
c.$221,520
d.$202,000
16) comprehensive income would not include
a.dividends declared
b.unrealized gains on available-for-sale securities
c.discontinued operations
d.extraordinary gains and losses
17) retained earnings are occasionally restricted
a.to set aside cash for dividends
b.to keep the legal capital associated with paid-in capital intact
c.due to contractual loan restrictions
d.if preferred dividends are in arrears
18) which of the following accounts is increased with a credit?
a.supplies expense
b.supplies
c.sales revenue
d.dividends
19) which of the following is the best definition of an internal user of accounting
information?
a.investors who use accounting information to decide whether to buy or sell stock
b.creditors like banks that use accounting information to evaluate the risk of lending
money
c.labor unions who use accounting information to examine the ability of the company to
pay increased wages and benefits
d.managers who use accounting information to plan, organize, and run a business
20) the payout ratio is computed by dividing
a.total cash dividends paid by retained earnings
b.dividends paid per share by net income
c.total cash dividends paid by net income
d.dividends paid per share by year-end stock price
21) a review of the ledger of wilde insurance co. at december 31, 2011, produces the
following data pertaining to the preparation of annual adjusting entries:
(a)salaries payable $0: salaries are paid every friday for the current week. five
employees receive a weekly salary of $800, and three employees earn a weekly salary
of $600. december 31 is a tuesday. employees do not work weekends. all employees
worked the last 2 days of december.
(b)unearned insurance revenue $58,000: the company sold several insurance policies
during the year as shown below:
(c)notes receivable $90,000: this is a 6-month note, dated november 1, 2011, with an
8% interest rate.
instructions:
prepare the adjusting entries at december 31, 2011. show all computations.
22) what is the proper adjusting entry at june 30, the end of the fiscal year, based on a
prepaid insurance account balance before adjustment, 20,500, and unexpired amounts
per analysis of policies of 6,000?
a.debit insurance expense, 6,000; credit prepaid insurance, 6,000
b.debit insurance expense, 20,500; credit prepaid insurance, 20,500
c.debit prepaid insurance, 14,500; credit insurance expense, 14,500
d.debit insurance expense, 14,500; credit prepaid insurance, 14,500
23) which of the following would not appear in the operating activities section of a
statement of cash flows prepared under the direct method?
a.cash receipts from customers
b.cash paid for income taxes
c.gain on sale of equipment
d.cash paid to employees
24) the inventory turnover ratio is calculated by dividing cost of goods sold by
a.beginning inventory
b.ending inventory
c.average inventory
d.365 days
25) a company usually determines the amount of supplies used during a period by:
a.adding the supplies on hand to the balance of the supplies account
b.summing the amount of supplies purchased during the period
c.taking the difference between the supplies purchased and the supplies paid for during
the period
d.taking the difference between the balance of the supplies account and the cost of
supplies on hand
26) to show how successfully your business performed during a period of time, you
would report its revenues and expense in the
a.balance sheet
b.income statement
c.statement of cash flows
d.retained earnings statement
27) the amount you must deposit now in your savings account paying 6% interest, in
order to accumulate $2,000 for a down payment 5 years from now on a new cruiser exl
coupe is
a.$400.00
b.$1,494.52
c.$1,492.44
d.$1,400.00
28) which of the following factors does not affect the initial market price of a stock?
a.the companys anticipated future earnings
b.the par value of the stock
c.the current state of the economy
d.the expected dividend rate per share
29) jenks company developed the following information about its inventories in
applying the lower of cost or market (lcm) basis in valuing inventories:
if jenks applies the lcm basis, the value of the inventory reported on the balance sheet
would be
a.$175,000
b.$171,000
c.$173,000
d.$181,000
30) the information needs of a specific user of financial accounting information
depends upon the kinds of decisions that user makes. identify the major users of
accounting information and discuss what questions financial accounting information
answers for each group of users.
31) on january 1, 2012, eberle company purchased at face value, a $1,000 7%, bond
that pays interest on january 1 and july 1. eberle company has a calendar year end. the
entry for the receipt of interest on january 1, 2013 is
32) the accountant for mega stores, inc. should have recorded the following correct
entry:
instead, he misunderstood the transaction and recorded an incorrect entry. which of the
following wrong entries pertaining to this transaction could have been detected as
erroneous when using a trial balance?
33) analyze the following transactions in terms of their effect on the basic accounting
equation. record each transaction by increasing (+) or decreasing (-) the dollar amount
of each item affected. indicate the new balance of each item after a transaction is
recorded.
34) accumulated depreciation is a liability account and has a credit normal account
balance.
35) angie and neal fry are department managers in the housewares and shoe
departments, respectively, for calhouns, a large department store. neal has observed
angie taking inventory from her own department home, apparently without paying for
it. he hesitates confronting angie because he is due to be promoted, and needs angie’s
recommendation. he also does not want to notify the company management directly,
because he doesn’t want an ethics investigation on his record, believing that it will give
him a goody-goody image. this week, angie tried on several pairs of expensive running
shoes in his department before finding a pair that suited her. she did not, however, buy
them. that very pair was missing this morning.
calhouns recently replaced its old periodic inventory system with a perpetual inventory
system using scanners and bar codes. in addition, the annual inventory is to be replaced
by a monthly inventory conducted by an independent firm. on hearing the news of the
changes, neal relaxes. “the system will catch angie now,” he says to himself.
36) sampson company had the following transactions that took place during the year:
i.recorded credit sales of $2,500
ii.collected $1,500 owning from customers
iii.recorded sales returns of $500 and credited the customer’s account.
what is the total effect of these transactions on free cash flow, current cash debt
coverage ratio, and cash debt coverage ratio, respectively?
37)
prepare the required end-of-period adjusting entries for each independent case listed
below.
case 1
the thoma company began the year with a $3,000 balance in the office supplies account.
during the year, $8,500 of additional office supplies were purchased. a physical count of
office supplies on hand at the end of the year revealed that $8,300 worth of office
supplies had been used during the year. no adjusting entry has been made until year end.
case 2
the leno company has a calendar year-end accounting period. on july 1, the company
purchased office equipment for $30,000. it is estimated that the office equipment will
depreciate $250 each month. no adjusting entry has been made until year end.
case 3
yeats realty is in the business of renting several apartment buildings and prepares
monthly financial statements. it has been determined that 2 tenants in $800 per month
apartments and one tenant in the $1,000 per month apartment had not paid their
december rent as of december 31st.
38) mossman company completed its first year of operations on december 31, 2012. its
initial income statement showed that mossman had revenues of $177,000 and operating
expenses of $88,000. accounts receivable and accounts payable at year-end were
$80,000 and $28,000, respectively. assume that accounts payable related to operating
expenses. ignore income taxes.
instructions
compute net cash provided by operating activities using the direct method.