California Corp. uses the indirect method to prepare the statement of cash flows. Refer
to the following section of the comparative balance sheet:
California Corp.
Comparative Balance Sheet
December 31, 2018 and 2017
The change in Accrued Liabilities is shown as a negative cash flow in the adjustments to
net income.
All asset accounts and equity accounts increase with a debit.
The statement of cash flows informs users about how much of the earnings were kept
and reinvested in the company.
International Financial Reporting Standards (IFRS) allows periodic revaluation of
certain assets and liabilities to restate them to market value.
Financial leverage occurs when a company earns less income on borrowed money than
the related interest expense.
A contingent liability is a potential, rather than an actual liability, because it depends on
a future event.
An economic entity is an organization that stands apart as a separate economic entity.
New York Production Company uses the indirect method to prepare its statement of
cash flows. The Treasury Stock account had a debit balance of $11,000 at the beginning
of the year and a debit balance of $16,000 at the end of the year. No treasury stock was
sold during the year. The financing section of the statement of cash flows will show a
positive cash flow of $5,000 for the buyback of treasury stock.
An annual report provides information about a company’s financial condition.
A 3-for-1 stock split of a $3 par value share will result in three shares of $1 par value
being issued for each share of $3 par value stock.
A payable is always a liability.
The lump-sum amount paid for a group of assets is divided among the acquired assets
based on their relative market values.
Gross profit is the excess of cost of goods sold over net sales revenue.
On the income statement, a merchandising company reports the cost of merchandise
inventory that has been sold to customers.
Term bonds all mature at the same specified time.
The cash ratio helps to determine a company’s ability to meet its short-term obligations.
Treasury stock has voting rights and receives cash or stock dividends.
The process by which businesses allocate a natural resource’s cost to expense over its
usage is known as depreciation.
The cost of a building depends on whether the company is constructing the building or
is acquiring an existing one.
The SEC is a governmental agency that oversees world-wide financial markets and
organizations that set accounting standards.
The main computer where data are stored, which can be accessed from many different
computers, is known as software.
Under the Sarbanes-Oxley Act, accounting firms are allowed to audit a public company
and provide certain consulting services for the same client.
Income tax payable represents the amount of taxes that a corporation owes but has not
yet paid.
Under the new revenue recognition standard, companies should only record sales
revenue in the amount they expect to eventually realize.
When replenishing the petty cash fund, the company debits the Petty Cash account and
credits the Cash account.
A corporation’s income statement includes some unique items that do not often apply to
smaller businesses. These items include gross profit and income from continuing
operations.
The corporate charter identifies the maximum number of shares of stock the corporation
may issue, which is called “available for issue” stock.
Merchandise inventory is included in a merchandising company’s current assets.
If a company fails to make an adjusting entry for accrued revenues, the net income will
be overstated.
The three sections of the statement of cash flows report only activities that involve cash.
Under accrual basis accounting, revenue is recorded only when cash is received.
Adjusting entries are recorded in the ________.
A) cash payments journal
B) purchases journal
C) cash receipts journal
D) general journal
Vaughan Services hires a new accountant to maintain its petty cash fund. Although the
employee possesses an accounting degree, he/she had been previously convicted of
embezzlement. Which internal control procedure needs to be addressed in this
situation?
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents
Credit sales of assets other than merchandise inventory occur infrequently and are
recorded in the ________.
A) sales journal
B) cash receipts journal
C) accounts receivable journal
D) general journal
Securities are ________.
A) commonly traded on an exchange
B) assets traded between companies working in the same industry
C) owned by the investee
D) always considered to be long-term investments
MacMan, Inc. reported the following data:
The horizontal analysis shows that cost of goods sold has ________. (Round your answer
to two decimal places.)
A) increased by 28.95%
B) decreased by 28.95%
C) increased by 56.82%
D) decreased by 56.82%
Which of the following is an input device in an accounting information system?
A) keyboard
B) Internet protocol
C) printer
D) router
Saturn, Inc. paid the rent for the current month in cash. Which of the following accounts
will be used to record the transaction?
A) Prepaid Rent
B) Rent Payable
C) Rent Revenue
D) Rent Expense
The purchase of equipment financed by a long-term notes payable is an example of
________.
A) investing activity
B) financing activity
C) operating activity
D) non-cash investing and financing activity
Which of the following is an advantage of the corporate form of business?
A) less degree of government regulation
B) limited liability of stockholders
C) separation of ownership and management
D) low start-up costs
For each of the following transactions related to Held-to-Maturity Debt securities, state
the following:
(1) Which account(s) is (are) increased?
(2) Which account(s) is (are) decreased?
(3) What is the net effect on total assets and total equity? This net effect can be increase,
decrease, or no net effect.
Transaction:
a. The investment was purchased at $50,000 (face value) plus brokerage fees of $2,000.
b. Semi-annual interest of $1,500 was received.
c. The investment was disposed of at maturity. Cash in the amount of $50,000 was
received.
The petty cash fund has a current balance of $350, which is the established fund
balance. Based on activity in the fund, it is determined that the balance needs to be
changed to $400. Which journal entry is needed to make this change?
A) Debit the Petty Cash account and credit the Cash account for $400.
B) No journal entry is needed because this change only involves cash.
C) Debit the Petty Cash account and credit the Cash account for $50.
D) Debit the Cash account and credit the Petty Cash account for $50.
Martinville, Inc. earned revenues of $18,000 and incurred expenses of $4,000. The
company declared and paid cash dividends of $3,500. What is the balance in the Income
Summary account prior to closing net income or loss to the Retained Earnings account?
A) debit balance of $14,000
B) debit balance of $10,500
C) credit balance of $14,000
D) credit balance of $18,000
Which of the following is the least desirable business reason for a company to invest in
debt or equity securities?
A) to generate investment income
B) to invest short-term, excess cash
C) to pursue certain business strategies
D) to weaken the relationship between the investing company and a key vendor.
On December 2, 2018, Eshares, Inc. purchases land. In payment for the land, Eshares,
Inc. issues 6000 shares of common stock with $6 par value. The land has been
appraised at a market value of $430,000. Which of the following is included in the
journal entry to record this transaction?
A) debit Common Stock—$6 Par Value for $36,000 and debit Paid-In Capital in Excess
of Par—Common $394,000
B) credit Common Stock—$6 Par Value for $36,000 and credit Paid-In Capital in
Excess of Par—Common $394,000
C) credit Common Stock—$6 Par Value for $430,000
D) debit Cash $430,000
Williams Enterprises prepaid eight months of office rent totaling $9,000 on October 1,
2019. Assuming Williams records deferred expenses using the alternative treatment,
what would be the entry on October 1, 2019?
A) Debit Prepaid Rent and credit Cash for $9,000.
B) No entry is needed until the expense is incurred.
C) Debit Cash and credit Unearned Rent for $9,000.
D) Debit Rent Expense and credit Cash for $9,000.
Global Enterprises, Inc. signed a one-year $46,000 note payable at 9% interest on April
1, 2018. If Global only adjusts its accounts once a year at year-end, how much interest
expense was accrued on December 31, 2018? (Round any intermediate calculations to
two decimal places, and your final answer to the nearest whole number.)
A) $1,035
B) $4,140
C) $3,105
D) $3,450
On January 1, 2018, Westside Sales issued $16,000 in bonds for $19,800. These are
eight-year bonds with a stated interest rate of 10% that pay semiannual interest.
Westside Sales uses the straight-line method to amortize the bond premium. After the
first interest payment on June 30, 2018, what is the bond carrying amount? (Round your
intermediate answers to the nearest dollar.)
A) $19,800
B) $19,562
C) $16,238
D) $16,000
Which of the following would be considered a long-term asset?
A) Accounts Payable
B) Land
C) Office Supplies
D) Retained Earnings
The ending merchandise inventory for the current accounting period is overstated by
$3,500. What will be the effect of this error?
A) The net income for the current accounting period will be overstated by $3,500.
B) The cost of goods sold for the current accounting period will be overstated by
$3,500.
C) The ending merchandise inventory for the next accounting period will be overstated
by $3,500.
D) The cost of goods sold for the next accounting period will be understated by $3,500.
Which of the following sequences states the order in which accounts are listed on a trial
balance?
A) Equity → Assets → Liabilities
B) Liabilities → Assets → Equity
C) Assets → Equity → Liabilities
D) Assets → Liabilities → Equity
On March 1, 2018, Lewis Services issued a 6% long-term notes payable for $18,000. It
is payable over a 3-year term in $6000 principal installments on March 1 of each year,
beginning March 1, 2019. Which of the following entries needs to be made on March 1,
2018?
A)
B)
C)
D)
Jason’s gross pay for the week is $1900. His year-to-date pay is under the limit for
OASDI. Assume that the rate for state and federal unemployment compensation taxes is
6% and that Jason’s year-to-date pay has not yet exceeded the $7000 cap. What is the
total amount of payroll taxes that his employer must record as payroll tax expenses?
(Do not round your intermediate calculations. Assume a FICA—OASDI Tax of 6.2%
and FICA—Medicare Tax of 1.45%.)
A) $107.35
B) $117.80
C) $259.35
D) $233.74
A business pays cash for dividends. Which of the following accounts is credited?
A) Common Stock
B) Dividends
C) Cash
D) Retained Earnings
Gaines Corporation invested $114,000 to acquire 24,000 shares of Owens Technologies,
Inc. on March 1, 2018. On July 2, 2019, Owens pays a cash dividend of $3.25 per
share. The investment is classified as equity securities with no significant influence.
Which of the following is the correct journal entry to record the transaction on July 2,
2019?
A)
B)
C)
D)
A contingency was evaluated at year-end and considered to have a remote possibility of
becoming an actual liability. If this was not reported on the balance sheet or in the notes
to the financial statements, what effect would this have on the financial reporting of the
company?
A) There would be no effect.
B) The liabilities on the balance sheet would be understated.
C) The information about the transaction would be inadequately disclosed in the notes.
D) The net income of the company would be understated.
Dividends in arrears are ________.
A) a liability on the balance sheet
B) passed dividends on noncumulative preferred stock
C) passed dividends on cumulative preferred stock
D) passed dividends on common stock
Your Business Advisor, a consulting company, uses reversing entries. On March 31,
2018, the bookkeeper journalized and posted the following adjusting entry to accrue
Utilities Expense:
Which of the following entries is the correct reversing entry to be prepared on April 1,
2018?
A)
B)
C)
D)
On April 1, a hardware retailer purchases inventory on account for $1500. Which of the
following correctly describes the effect of this transaction? Assume a perpetual
inventory system is used.
A) Merchandise Inventory decreases by $1500 and Accounts Receivable decreases by
$1500.
B) Merchandise Inventory decreases by $1500 and Accounts Receivable increases by
$1500.
C) Merchandise Inventory increases by $1500 and Accounts Payable decreases by
$1500.
D) Merchandise Inventory increases by $1500 and Accounts Payable increases by
$1500.
Florida Chemicals Company uses the indirect method to prepare its statement of cash
flows. Refer to the following portion of the comparative balance sheet:
Florida Chemicals Company
Comparative Balance Sheet
December 31, 2018 and 2017
Net Income for the year was $57,000.
Which of the following statements is true of Florida Chemicals Company’s statement of
cash flows for 2018?
A) The company issued stocks for $30,000.
B) The company declared $52,000 as dividends.
C) The company purchased treasury stock for $8400.
D) The net cash flow from financing activities is $180,600.
Which of the following accounts decreases with a debit?
A) Accounts Receivable
B) Notes Payable
C) Cash
D) Rent Expense
Which of the following inventory costing methods yields the lowest cost of goods sold
during a period of rising inventory costs?
A) specific identification
B) weighted-average
C) last-in, first-out
D) first-in, first-out
Regarding debt securities, which of the following statements is incorrect?
A) Debt securities include Treasury bills.
B) Debt securities represent a credit relationship with another company or
governmental entity.
C) Debt securities typically pay interest for a fixed period.
D) Debt securities include common and preferred stock.
The formula for calculating the cash ratio is ________.
A) (Cash) / Total liabilities
B) (Cash + Cash equivalents) / Total current liabilities
C) (Cash + Cash equivalents) / Total assets
D) (Cash equivalents) / Total current liabilities
A ________ is a document explaining the reasons for the difference between a
depositor’s Cash account in the ledger and the depositor’s cash balance in its bank
account.
A) bank statement
B) deposit receipt
C) bank reconciliation
D) remittance advice
GAAP requires companies to ________ method to record bad debts expense.
A) use the direct write-off
B) use the allowance
C) select either the direct write-off or allowance
D) use the fair value
