A basic assumption of accounting that requires activities of an entity be kept separate
from the activities of its owner is referred to as the
a. stand alone concept.
b. monetary unit assumption.
c. corporate form of ownership.
d. economic entity assumption.
Answer:
Ware Company had purchases of $260,000. The comparative balance sheet analysis
revealed a $15,000 decrease in inventory and a $25,000 increase in accounts payable.
What were Ware’s cash payments to suppliers?
a. $235,000
b. $220,000
c. $275,000
d. $300,000
Answer:
The credit terms offered to a customer by a business firm are 2/10, n/30, which means
that
a. the customer must pay the bill within 10 days.
b. the customer can deduct a 2% discount if the bill is paid between the 10th and 30th
day from the invoice date.
c. the customer can deduct a 2% discount if the bill is paid within 10 days of the invoice
date.
d. two sales returns can be made within 10 days of the invoice date and no returns
thereafter.
Answer:
In recognizing a decline in the fair value of short-term stock investments, an unrealized
loss account is debited because
a. management intends to realize this loss in the near future.
b. the securities have not been sold.
c. the stock market is volatile.
d. management cannot determine the exact amount of the loss in value.
Answer:
The basic accounting equation cannot be restated as
a. Assets ‘“ Liabilities = Stockholders’ Equity.
b. Assets ‘“ Stockholders’ Equity = Liabilities.
c. Stockholders’ Equity + Liabilities = Assets.
d. Assets + Liabilities = Stockholders’ Equity.
Answer:
Proving the postings of a single-column purchases journal would involve comparing the
a. general ledger posting to Accounts Payable to the debit postings of the accounts
receivable subsidiary ledger.
b. general ledger debit posting to Accounts Payable to the general ledger credit posting
to Inventory.
c. general ledger credit posting to Accounts Payable to the general ledger debit posting
to Inventory.
d. debit postings to the accounts receivable subsidiary ledger to the credit postings to
the accounts payable subsidiary ledger.
Answer:
Indicate where the issuance of common stock issued for cash would appear, if at all, on
the indirect statement of cash flows.
a. Operating activities section
b. Investing activities section
c. Financing activities section
d. Does not represent a cash flow
Answer:
The stockholders’ equity section of Morton Corporation at December 31 is as follows.
Instructions
From a review of the stockholders’ equity section, answer the following questions.
(a) How many shares of common stock are outstanding?
(b) Assuming there is a stated value, what is the stated value of the common stock?
(c) What is the par value of the preferred stock?
(d) If the annual dividend on preferred stock is $15,000, what is the dividend rate on
preferred stock?
(e) If dividends of $30,000 were in arrears on preferred stock, what would be the
balance in Retained Earnings?
Answer:
The common characteristic possessed by all assets is
a. long life.
b. great monetary value.
c. tangible nature.
d. future economic benefit.
Answer:
If a corporation declares a 10% stock dividend on its common stock, the account to be
debited on the date of declaration is
a. Common Stock Dividends Distributable.
b. Common Stock.
c. Paid-in Capital in Excess of Par.
d. Retained Earnings.
Answer:
If a business has received cash in advance of services performed and credits a liability
account, the adjusting entry needed after the services are performed will be
a. debit Unearned Service Revenue and credit Cash.
b. debit Unearned Service Revenue and credit Service Revenue.
c. debit Unearned Service Revenue and credit Prepaid Expense.
d. debit Unearned Service Revenue and credit Accounts Receivable.
Answer:
The managers of Constantine Company receive performance bonuses based on the net
income of the firm. Which inventory costing method are they likely to favor in periods
of declining prices?
a. LIFO
b. Average Cost
c. FIFO
d. Physical inventory method
Answer:
Double Nickels Company purchased equipment for $9,000 on January 1, 2015. The
company expects to use the equipment for 3 years. It has no salvage value. Monthly
depreciation expense on the asset is
a. $0.
b. $250.
c. $3,000.
d. $9,000.
Answer:
As prepaid expenses expire with the passage of time, the correct adjusting entry will be
a
a. debit to an asset account and a credit to an expense account.
b. debit to an expense account and a credit to an asset account.
c. debit to an asset account and a credit to an asset account.
d. debit to an expense account and a credit to an expense account.
Answer:
If common stock is issued for an amount greater than par value, the excess should be
credited to
a. Cash.
b. Retained Earnings.
c. Paid-in Capital in Excess of Par.
d. Legal Capital.
Answer:
Ted Leo is the proprietor (owner) of Ted’s, a retailer of golf apparel. When recording the
financial transactions of Ted’s, Ted does not record an entry for a car he purchased for
personal use. Ted took out a personal loan to pay for the car. What accounting concept
guides Ted’s behavior in this situation?
a. Pay back concept
b. Economic entity assumption
c. Cash basis concept
d. Monetary unit assumption
Answer:
If the adjusting entry for depreciation is not made,
a. assets will be understated.
b. stockholders’ equity will be understated.
c. net income will be understated.
d. expenses will be understated.
Answer:
Additional paid-in capital includes all of the following except
a. paid-in capital from treasury stock.
b. paid-in capital in excess of par.
c. paid-in capital in excess of stated value.
d. paid-in capital in excess of book value.
Answer:
Depletion expense is computed using the
a. double-declining-balance method.
b. effective interest method.
c. straight-line method.
d. units-of-activity method.
Answer:
TB Nelson Company prepares monthly financial statements and uses the gross profit
method to estimate ending inventories. Historically, the company has had a 40% gross
profit rate. During June, net sales amounted to $180,000; the beginning inventory on
June 1 was $54,000; and the cost of goods purchased during June amounted to $90,000.
The estimated cost of TB Nelson Company’s inventory on June 30 is
a. $21,600.
b. $36,000.
c. $72,000.
d. $126,000.
Answer:
Major advantages of credit cards to the retailer include all of the following except the
a. issuer does the credit investigation of customers.
b. issuer undertakes the collection process.
c. retailer receives more cash from the credit card issuer.
d. All of these answers are correct.
Answer:
Deposits in transit
a. have been recorded on the company’s books but not yet by the bank.
b. have been recorded by the bank but not yet by the company.
c. have not been recorded by the bank or the company.
d. are checks from customers which have not yet been received by the company.
Answer:
A reversing entry
a. reverses entries that were made in error.
b. is the exact opposite of an adjusting entry made in a previous period.
c. is made when a business disposes of an asset it previously purchased.
d. is made when a company sustains a loss in one period and reverses the effect with a
profit in the next period.
Answer:
Closing entries are
a. an optional step in the accounting cycle.
b. posted to the ledger accounts from the worksheet.
c. made to close permanent or real accounts.
d. journalized in the general journal.
Answer:
Even though a partnership is not a separate legal entity, for accounting purposes the
partnership affairs should be kept separate from the personal activities of the owners.
Answer:
Selected transactions for Mountain Goats Tree Service are listed below.
1> Sold common stock for cash to start business.
2> Paid for monthly advertising.
3> Purchased supplies on account.
4> Billed customers for services performed.
5> Paid cash dividends.
6> Received cash from customers billed in (4).
7> Incurred utilities expense on account.
8> Purchased additional supplies for cash.
9> Received cash from customers when service was performed.
Instructions
List the numbers of the above transactions and describe the effect of each transaction on
assets,
liabilities, and stockholders’ equity. For example, the first answer is: (1) Increase in
assets and increase in stockholders’ equity.
Answer:
The requirement that companies use the same cost flow assumption of all goods of a
similar nature is found in
Answer:
Peter Cook, CPA, was asked by Carol Kane to review the accounting records and
prepare the financial statements for her upholstering shop. Peter reviewed the records
and found three errors.
1> Cash paid on accounts payable for $930 was recorded as a debit to Accounts Payable
$390 and a credit to Cash $390.
2> The purchase of supplies on account for $600 was debited to Equipment $600 and
credited to Accounts Payable $600.
3> The company paid dividends of $1,300 and the bookkeeper debited Accounts
Receivable for $130 and credited Cash $130.
Instructions
Prepare an analysis of each error showing the
[a] incorrect entry.
[b] correct entry.
[c] correcting entry.
Answer:
Carey Enterprises sold equipment on January 1, 2015 for $10,000. The equipment had
cost $48,000. The balance in Accumulated Depreciation at January 1 is $40,000. What
entry would Carey make to record the sale of the equipment?
Answer:
Current liabilities are expected to be paid within one year or the operating cycle,
whichever is longer.
Answer: