When a corporation has only one class of stock, it will be preferred stock.
The Purchases Discount account normally has a debit balance and is a contra-cost
account.
Under the accrual method of accounting, the allowance method is generally required for
financial reporting purposes.
The general ledger balances are used to prepare the post-closing trial balance.
Sports apparel department’s gross profit is $300,000; clothing department gross profit is
$300,000; indirect advertising expense is $6,000. Indirect expense charged to the sports
apparel department based on gross profit would be $3,600.
In a voucher system, Vouchers Payable is the controlling account for the subsidiary
ledger Unpaid Vouchers.
A maximum earnings limit is set for all FICA taxes.
Every amount needed for the income statement can be found on the worksheet.
The Purchases Returns and Allowances account normally has a debit balance.
Cash withdrawals by the owner increase both equity and assets.
The cost of workers’ compensation insurance must be estimated and paid in advance by
the employer.
Phishing occurs when a bank customer receives an email requesting personal
information.
The statement of cash flows can be used for evaluating, comparing, and predicting
future cash flows.
If a recovery of a written-off account is made in the same year using the direct write off
method, the Bad Debts Recovered account would be used.
Canceled checks are negotiable at the bank for the face value.
The balance in the Accounts Receivable account is $2,200 debit. Therefore, the
balances in the subsidiary ledger should be $2,000.
If an adjustment to Supplies is not made, the balance in the Supplies account will be too
low.
A slide is an error that results when zeros have been added or deleted when writing an
amount. Example: 10,000 is written as 1,000.
A department income statement showing gross profit by department is a useful tool in
analyzing performance of individual departments.
The Allowance for Doubtful Accounts may have a debit balance before adjustment.
A partnership can be formed with an oral agreement.
If 2,000 shares of stock were sold for $10 per share, cash flow from financing activities
would increase $20,000.
The two main sources of stockholders’ equity are investments by stockholders and net
income retained in the corporation.
Book value per share is calculated for both preferred stock and common stock.
Gross pay is equal to take-home pay less federal withholdings.
The formula for calculating interest on a note is: principal rate time.
Adjustments are necessary to update account balances for internal transactions.
Net Sales equals Gross Sales – Sales Returns and Allowances – Accounts Receivable.
The accountant must always consider operating expenses, such as rent and advertising,
when determining gross profit for a department.
Information to prepare W-2 forms can be obtained from the current payroll register.
The general ledger and the accounts receivable subsidiary ledger are the same book.
The direct write off approach estimates a percentage of Accounts Receivable that is
uncollectible.
Sales Returns and Allowances is a contra-revenue account with a normal debit balance.
If the ending balance in the Cash Short and Over account is a credit, it indicates that
cash shortages have exceeded cash overages for the period.
A compound journal entry affects only two accounts in the transaction.
If management wishes to evaluate the ability of a business to use sales to cover the
operating expenses, they could use the:
A) rate of return on total assets.
B) rate of return on common stockholders’ equity.
C) gross profit rate.
D) times interest earned.
The person or company promising to pay the note plus interest when it comes due is
known as the
A) drawee.
B) creditor.
C) maker.
D) payee.
Max received $6,000 in advance for renting part of his building. What is the entry to
record the receipt of payment?
A) Debit Cash; credit Rent Expense
B) Debit Cash; credit Prepaid Rent Expense
C) Debit Cash; credit Unearned Rent Revenue
D) Debit Cash; credit Rental Income
The adjusting entry for accrued salaries is to:
A) debit Salaries Expense; credit Salaries Payable.
B) debit Salaries Expense; credit Cash.
C) debit Salaries Payable; credit Salaries Expense.
D) debit Cash; credit Salaries Payable.
The cash flows from operating activities are reported by the direct method on the
statement of cash flows. Determine the following:
a. If accrued expenses showed $50,000 on the income statement and payables increased
from $15,000 to $18,500 on the balance sheet, what was the amount of cash paid?
b. If insurance expense showed $10,000 on the income statement and Prepaid Insurance
increased from $10,000 to $12,000 on the balance sheet, what was the amount of cash
paid for insurance?
Cash paid for insurance and rent would be reported in the statement of cash flows
(direct method) in:
A) a separate schedule.
B) operating activities.
C) financing activities.
D) investing activities.
Which of the following entries records the investment of cash by John, owner of a sole
proprietorship?
A) Debit John, Capital; credit Cash
B) Debit Cash; credit Revenue
C) Debit John, Withdrawals; credit Cash
D) Debit Cash; credit John, Capital
“Limited life” in a partnership agreement means:
A) a partnership is limited in the amount of debt it is liable for in the course of the
business.
B) a partnership is limited to the amount of revenue it can earn.
C) a partnership may be dissolved if the location of the business has changed.
D) a partnership may be dissolved as the result of any change in the ownership.
When historical cost is used in the accounting records, the book value of the asset is:
A) the original cost.
B) the market value.
C) original cost less accumulated depreciation.
D) closed out.
How would outstanding checks be handled when reconciling the ending cash balance
per the bank statement to the correct adjusted cash balance?
A) They would be added to the balance of the bank statement.
B) They would be subtracted from the balance of the bank statement.
C) They would be added to the balance per books.
D) They would be ignored.
One disadvantage of the LIFO method is that:
A) an equal cost is assigned to each unit, so net income does not fluctuate as much as
with other methods.
B) flow of goods and flow of costs are the same.
C) it matches current selling prices and current costs.
D) ending inventory is valued at very old costs.
Gross Profit equals:
A) Net sales – Net Purchases.
B) Sales – Sales Returns and Allowances – Sales Discounts – Cost of Goods Sold.
C) Cost of Goods Sold – Other Expenses.
D) Cost of Goods Sold – Operating Expenses.
Explain the following types of ratios:
a. Liquidity
b. Asset management
c. Debt management
d. Profitability
Which of the following best describes the term maturity date?
A) The date on which each interest payments is made
B) The date on which the bond is issued
C) The date on which the bond is called
D) The date on which the principal is repaid
Purchased office supplies on account. This will be recorded with:
A) a debit to Accounts Payable and a credit to Supplies.
B) a debit to Supplies and a credit to Supplies Expense.
C) a debit to Supplies and a credit to Accounts Payable.
D) a debit to Supplies and a credit to Purchases.
The entry to record rent expense $9,000, supervision expense $19,000, and depreciation
expense $7,000 to overhead is:
A) debit Manufacturing Overhead-Applied $35,000; credit Rent Expense $9,000,
Supervision $19,000, Depreciation Expense $7,000.
B) debit Work in Process Inventory $35,000; credit Rent Expense $9,000, Supervision
$19,000, Depreciation Expense $7,000.
C) debit Manufacturing Overhead-Applied $35,000; credit Manufacturing
Overhead-Control $35,000.
D) None of these answers is correct.
Sunrise Online issued 500 shares of its $10 common stock in exchange for equipment
with a fair market value of $7,500. The entry to record the transaction would include a:
A) debit to Equipment for $5,000.
B) credit to Common Stock for $5,000.
C) debit to Paid-in Capital in Excess of Par Value-Common for $2,500.
D) credit to Common Stock Subscribed for $5,000.
When Balance Sheet credits exceed the debits on the worksheet:
A) a net loss has occurred.
B) a net income has occurred.
C) an error has been made.
D) Not enough information has been provided.
Which accounts are affected when the company buys supplies for cash?
A) Assets and revenue
B) Liabilities and Capital
C) Assets and Liabilities
D) None of the above is correct.
The return of merchandise was recorded as a debit to Accounts Payable and a credit to
Purchases. This error would cause:
A) the period end assets to be understated.
B) the period end liabilities to be understated.
C) the period’s net income to be understated.
D) None of these is correct.
Which of the following adjustments would be in error if made to net income when
computing cash from operations using the indirect method?
A) Add an increase in Accounts Payable
B) Add Depreciation Expense
C) Add an increase in Accounts Receivable
D) None of the above
Which inventory account consists of products currently being processed?
A) Finished Goods Inventory
B) Raw Material Inventory
C) Manufacturing Overhead Inventory
D) Work-in-Process Inventory
When O’Rourke Corporation sells treasury stock for more than the original cost:
A) stockholders’ equity decreases.
B) paid-in capital increases.
C) retained earnings may increase.
D) retained earnings may decrease.
What is the closing entry to allocate net income of $54,000 to Sara, Ellen, and Mary?
Respective capital balances are $50,000, $80,000, and $20,000. No agreement was
made for division of income.
A) Debit Income Summary $54,000; credit Sara, Capital $18,000; credit Ellen, Capital
$18,000; credit Mary, Capital $18,000
B) Debit Income Summary $54,000; credit Sara, Capital $18,000; credit Ellen, Capital
$28,800; credit Mary, Capital $7,200
C) Debit Salary Expense $54,000; credit Salaries Payable $54,000
D) Net income cannot be allocated.
Owner’s withdrawals:
A) decrease assets.
B) increase expenses.
C) increase assets.
D) decrease withdrawals.
Declaration of a cash dividend causes:
A) a decrease in stockholders’ equity.
B) an increase in cash.
C) a decrease in liabilities.
D) None of these answers is correct.
Before paying an invoice, the accounting department must check:
A) the purchase order.
B) the invoice.
C) the receiving report.
D) All of the above are correct.
A statement of cash flows is helpful in:
A) evaluating past performance.
B) analyzing the earnings of the company.
C) predicting future cash flows.
D) Both A and C.
What would be the effect on the accounts if the business received the telephone bill but
did not pay it immediately?
A) An expense would be debited and a liability credited.
B) Capital would be debited and Revenue credited.
C) An expense would be debited and an asset credited.
D) An asset would be debited and Capital credited.
In preparing the trial balance of the K&L’s Bridal Service, the Withdrawals account
(which had a normal balance in the general ledger) was listed as a credit for $400. What
will be the difference between the debit and credit sides of the trial balance?
A) $150
B) $200
C) $300
D) $800
The entry to record the purchase of a machine on account that costs $15,000,
installation costs, $1,500, and freight, $700, would be:
A) debit Machinery $15,000; credit Accounts Payable $15,000.
B) debit Machinery $15,000; debit Expenses 2,200; credit Accounts Payable $17,200.
C) debit Machinery $17,200; credit Accounts Payable $17,200.
D) debit Machinery $16,500; debit Freight Expense 700; credit Accounts Payable
$17,200.
If preferred dividends are limited to the stated rate of dividend, the preferred stock is:
A) non-cumulative.
B) cumulative.
C) participating.
D) nonparticipating.
The payment of wages was debited to Retained Earnings. This error would cause:
A) the period end assets to be understated.
B) the period end liabilities to be understated.
C) the period end stockholders’ equity to be understated.
D) the period’s net income to be overstated.
Last year’s ending inventory was understated. This error would cause:
A) this period’s net income to be overstated.
B) this period’s net income to be understated.
C) this period’s end assets to be overstated.
D) None of these is correct.
The entry to close the Withdrawals account to Capital was omitted. This error would
cause:
A) the Capital account to be understated.
B) net income to be overstated.
C) Revenue to be understated.
D) the Capital account to be overstated.
The depreciation method that ignores the salvage value is ________.
Using the following accounts:
[1] Cash
[2] Dividends payable
[3] Preferred stock
[4] Common stock
[5] Common Stock dividend distributable
[6] Paid-in capital in excess of par value-common
[7] Paid-in capital in excess of par value – preferred
[8] Paid-in capital from treasury stock
[9] Retained earnings
[10] Appropriation for plant expansion
[11] Treasury stock
[12] Income summary
[13] Paid-in capital in excess of par value-Stock dividend
Indicate the account(s) to be debited and credited to record the following transactions.
Sold treasury stock at a price below cost when there was no paid-in capital from
treasury stock to absorb the difference between cost and selling price.
Debit ________ & ________ Credit ________
Plymouth Sharks Hockey Accessories had the following transactions involving the sale
of merchandise. You are to prepare the necessary general journal entries. All sales are
subject to a 6% sales tax and have a 2/10, n/30 discount terms.
December 2 Sold merchandise priced at $100 to Cathy Norton on account.
December 4 Sold merchandise priced at $125 to a cash customer.
December 10 Payment from Cathy Norton received.
December 16 Cash customer returned $40 worth of merchandise.
Prepare the necessary general journal entry for December 10.
__________________________________________ __________ __________
__________________________________________ __________ __________
__________________________________________ __________ __________
The employees collectively earn a gross wage of $90,000 for the pay period, but the
employer says that they cost $97,000. Discuss the discrepancy.
Below is a list of departments; you are to identify each as either [1] a profit center or [2]
a cost center.
The payroll department of a manufacturer. ________
John and Brad have average capital balances of $35,000 and $20,000, respectively. The
partners have agreed to allow $20,000 salary allowances. The partners will share
income and losses in a 1:2 ratio for John and Brad, respectively. How much will each
partner’s capital account change if net income is $100,000?
Spice Company completed the following transactions:
May 10 Prepared voucher #301 for purchase of merchandise for $4,000 from Sugar
Company
12 Returned $750 of the merchandise purchased from Sugar because of poor
quality.
Cancelled voucher #301 and replaced it with voucher #305.
Required: Prepare journal entries to record the above transactions. Assume Spice uses
the gross method for recording purchases. Omit explanations. Spice uses the periodic
method.
The following is a list of accounts and their balances for Myra’s Company for the month
ended May 31, 20xx. Prepare a trial balance in good form.
Given the following accounts:
[1] Cash
[2] Notes receivable
[3] Accounts receivable
[4] Interest receivable
[5] Notes payable
[6] Accounts payable
[7] Interest payable
[8] Discount on notes payable
[9] Interest expense
[10] Interest income
[11] Sales
Indicate the account(s) to be debited and credited to record the following transactions.
A promissory note received in granting a time extension to a charge customer.
Debit ________ Credit ________
Define two types of comparative income statements and compare the information
provided by them.
For each of the following items, indicate (by placing an X) whether the item would be
found on the statement of cash flows in column 1, the direct approach for determining
the cash flows from operating activities, column 2, the indirect approach for
determining the cash flows from operating activities, column 3, cash flows from
investing activities, column 4, cash flows from financing activities. If you identify that
an item affects the cash flows from operation, indirect method, also indicate whether it
will be increasing (+) or decreasing (-) the cash flows.
Why is beginning and ending inventory kept as two separate figures in the cost of goods
sold section?
Given the following accounts:
[1] Expense accounts.
[2] Accounts receivable
[3] Finished goods inventory.
[4] Work in process inventory.
[5] Raw materials inventory.
[6] Factory supplies inventory.
[7] Manufacturing overhead applied
[8] Depreciation expense
[9] Accounts payable.
[10] Payroll
[11] Utilities expense
[12] Sales.
[13] Raw materials purchases.
[14] Manufacturing overhead-control.
[15] Cost of goods sold.
Indicate the account(s) to be debited and credited to record the following transactions.
Issued supplies to production.
Debit ________ Credit ________
Dows and Sands’ partnership capital balances are $45,000 and $65,000, respectively.
They share profits and losses in a 1:3 ratio for Dows and Sands, respectively. Davis is
admitted to the partnership and invests $55,000 for a one-fourth interest, with a bonus
to the old partners. Prepare the journal entry to admit Davis to the partnership.
A piece of equipment is purchased for $78,000 on January 1. It has a 5-year life and a
salvage value of $8,000. Compute the annual depreciation expense using the double
declining-balance method for all 5 years.