An alternative to calling the bonds is to purchase any available bonds in the open
market at their current market price.
An external auditor is responsible for assessing the effectiveness of a company’s
internal controls.
The Dividends account is increased by a debit.
Dividends receivable, interest receivable, and taxes receivable are generally categorized
as other receivables.
When a plant asset is sold for less than its book value, a gain is recorded.
Cash is the most liquid asset reported on the balance sheet because it is the medium of
exchange.
A creditor who has loaned money to a business has a claim to some of the assets of the
business until the debt is paid.
When a trading debt security is disposed of, the amount of gain or loss is calculated as
the difference between the cash received and the cost of the debt security disposed of.
A security is a share or interest representing financial value.
A compound journal entry has more than two accounts, but the total dollar value of the
debits still must equal the total dollar value of the credits.
The accounting equation is made up of four parts or categories.
The key difference in the closing process under the periodic and perpetual inventory
systems is how merchandise inventory is handled.
The amounts obtained for cost of goods sold and ending merchandise inventory are not
the same for FIFO perpetual and FIFO periodic.
Given the same purchase and sales data, and assuming the cost of inventory is rising,
the costing methods for inventory will result in different amounts for cost of goods sold.
Given the same purchase and sales data, and assuming the cost of inventory is rising,
the costing methods for inventory will result in different amounts for net income.
Federal unemployment compensation tax is paid by the employer and is not deducted
from an employee’s gross earnings.
FICA tax is paid by the employee only.
In a period of rising costs, the last-in, first-out (LIFO) method results in a higher cost of
goods sold and a lower net income than the first-in, first-out (FIFO) method.
Simple interest means that interest is calculated on the principal and on all previously
earned interest.
Dividends received for equity securities in which the investor lacks the ability to
participate in the decisions of the investee company are recorded with a debit to the
Dividend Revenue account.
When a company uses the perpetual inventory system, there is no need to conduct a
physical count of inventory.
A key to strong control over petty cash is to ensure that several persons serve as
custodian at one time.
The three types of events that affect retained earnings are dividends, revenues, and
expenses.
A chart of accounts is a list of all of a company’s accounts with their account numbers.
The purchases journal is a special journal used to record all purchases of merchandise
inventory, office supplies, and other assets on account.
The inventory turnover ratio measures the average number of days that inventory is
held by a company.
Available-for-sale debt investments include all trading debt and held-to-maturity debt
investments.
When a business factors its receivables, the factor collects cash on the receivables.
The sum of all the depreciation expenses recorded to date for a depreciable asset is
called residual value.
John contributed $6,000 to the business by opening a bank account in the name of the
business, United Marketing. The corporation issued common stock to John. This
transaction results in an increase in the assets of the business.
On January 1, Nash, Inc. had $2,000 of supplies on hand. During January, Nash
purchased $5,500 worth of new supplies. At the end of the month, a count revealed
$700 worth of supplies remaining on the shelves. The adjusting entry needed will
include a debit to Supplies Expense of $6,800. The supplies were initially recorded as
an asset.
An accounts receivable turnover that is too high may indicate that credit is too tight,
causing the loss of sales to good customers.
A worksheet is an internal document that helps summarize data for the preparation of
financial statements.
When a sale is made on account, Accounts Receivable is debited.
The income from continuing operations helps investors make predictions about the
company’s past performance.
The T-account is a summary device that is shaped like a capital T with debits posted on
the right side of the vertical line and credits posted on the left side of the vertical line.
The specific identification method of inventory costing is required to be used by
businesses that sell unique, easily identified inventory items.
National Financial Services, Inc. invested $21,000 to acquire 6250 shares of
Stonebridge Investments, Inc. on March 15, 2015. This investment represents less than
20% of the investee’s voting stock. On May 7, 2018, National Financial Services, Inc.
sells 3000 shares for $19,250. When the journal entry to record the sale is made,
________.
A) Gain on Disposal will be credited
B) Equity Investments will be debited
C) Cash will be credited
D) Loss on Disposal will be debited
Which of the following represents a privilege granted by a government to use public
property in performing services?
A) goodwill
B) license
C) franchise
D) trademark
On the ________, cash dividends become a liability of a corporation.
A) declaration date
B) date of record
C) last day of the fiscal year
D) payment date
In a statement of retained earnings, decreases in retained earnings result from
________.
A) issuance of stock
B) net losses
C) net income
D) revenues earned
Which of the following statements best defines financial statements?
A) Financial statements are the information systems that record monetary and
nonmonetary business transactions.
B) Financial statements are the verbal statements made to business news organizations
by chief financial officers.
C) Financial statements are business documents that report on a business in monetary
terms, providing information to help users make informed business decisions.
D) Financial statements are plans and forecasts for future time periods based on
information from past financial periods.
The unadjusted trial balance of Albert Business Consulting at December 31, 2018, and
the data for the adjustments follow:
Albert Business Consulting
Unadjusted Trial Balance
December 31, 2018
Balance
Albert is preparing financial statements for the year ending December 31, 2018.
Adjustment data at December 31 follows:
a. Albert pays its employees each Friday. December 31, 2018 falls on a Monday. The
employees will earn $1,250 for the five-day work week.
b. On August 31, 2018, Albert agreed to provide consulting services to Smith Company for
6 months, beginning on September 1, 2018, at $1,500 per month. Smith paid $9,000 on
August 31, 2018. Albert treats deferred revenues initially as liabilities.
c. Albert prepaid 6 months of business insurance on September 30, 2018. The insurance
begins on October 1. Albert treats deferred expenses initially as assets.
d. On December 31, 2018, Albert received a bill for the November and December
advertising in a local newspaper, $800. This bill will be paid on its due date, which is
January 10, 2019.
e. As of December 31, 2018, Albert had performed services for Alliance Company for
$5,000. The invoice will be sent on January 5, 2019 and payment is due on January 15,
2019. Albert received the payment on its due date.
Requirement
1. Prepare the adjusting journal entries at December 31, 2018.
2. Prepare the adjusted trial balance at December 31, 2018. Include a proper heading.
Every transaction recorded in the cash receipts journal includes a ________.
A) credit to Cash
B) debit to Accounts Receivable
C) credit to Accounts Receivable
D) debit to Cash
The expected value of a depreciable asset at the end of its useful life is called
________.
A) book value
B) residual value
C) depreciation expense
D) accrued expense
Arena, Inc. uses the direct method to prepare its statement of cash flows. Use the
following information reported for 2019 to compute the amount of cash paid for
merchandise inventory.
Cost of Goods Sold, $132,000
Merchandise Inventory, beginning balance, $28,000
Merchandise Inventory, ending balance, $66,000
Accounts Payable, beginning balance, $7700
Accounts Payable, ending balance, $5000
A) $172,700
B) $94,000
C) $170,000
D) $167,300
A bond is issued at premium ________.
A) when a bond’s stated interest rate is equal to the market interest rate
B) when a bond’s stated interest rate is less than the effective interest rate
C) when a bond’s stated interest rate is less than the market interest rate
D) when a bond’s stated interest rate is higher than the market interest rate
When a company collects the face value of a long-term investment in bonds at maturity,
________.
A) total assets and equity of the firm remains unchanged
B) both assets and liabilities of the firm increase
C) both assets and equity of the firm increase
D) liabilities decrease and equity increases
Which of the following journal entries would be recorded if a business purchased office
supplies on account in a previous accounting period and now makes a cash payment of
$750 to the supplier to settle the account?
A)
B)
C)
D)
Which of the following describes a firewall?
A) a malicious program that enters program code or destroys data without authorization
B) when two or more people cooperate together to defraud a company
C) a technique for protecting data
D) when a company defrauds its suppliers by making false claims
To safeguard a business’s assets and reduce the likelihood of fraud and errors, its
accounting information system ________.
A) should be manual
B) must be flexible to accommodate changes in a business over time
C) should work smoothly with the business’s employees
D) must provide adequate controls of a business’s assets and data
List the four steps in the flow of accounting data.
Dan Jones and Pat Smith are two employees of Lone Star, Inc. In January 2019, Dan’s
gross pay was $11,500, and Pat’s gross pay was $15,400. All earnings are subject to
FICA—OASDI Tax of 6.2% and FICA—Medicare Tax of 1.45%. Which of the
following would be included in the entry to record the payroll tax expense to be paid
out by Lone Star, Inc. for January?
A) a debit to Salaries Payable to employees for $390.05
B) a debit to FICA—OASDI Taxes Payable for $390.05
C) a credit to FICA—Medicare Taxes Payable for $390.05
D) a credit to Salaries Expense for $390.05
A business makes a cash payment of $12,000 to a creditor. Which of the following
accounts is credited?
A) Cash
B) Accounts Payable
C) Bank
D) Accounts Receivable
Fast Bikes, Inc. offers warranties on all their bikes. They estimate warranty expense at
3.5% of sales. At the beginning of 2018, the Estimated Warranty Payable account had a
credit balance of $1900. During the year, Fast Bikes had $296,000 in sales and had to
pay out $5900 in warranty payments. At the end of the year, what is the ending balance
in the Estimated Warranty Payable accounts?
A) $6360
B) $7800
C) $8460
D) $10,360
The following extract was taken from the worksheet of Special Events Bakers for the
year 2019.
Special Events Bakers
Worksheet
December 31, 2019
For the above information, determine the amount of Depreciation Expense for the
equipment used in the business.
A) $9,600
B) $2,600
C) $5,900
D) $1,100
On January 1, 2017 Hilldale, Inc. had total assets of $368,000. During the year, the
company purchased new machinery worth $89,000 and promised to pay the amount due
after two years. Throughout the year, it earned revenue of $56,000 every month.
Calculate the asset turnover ratio.
A) 1.10 times
B) 1.81 times
C) 1.63 times
D) 1.47 times
Adjusting journal entries are prepared ________.
A) after preparing the adjusted trial balance
B) after preparing the unadjusted trial balance
C) after posting the closing entries
D) after preparing the financial statements
If the maker of a note does not pay at maturity, ________.
A) the debtor no longer owes the payee
B) interest revenue cannot be accrued on the note before the maturity date
C) the note is no longer in force because it has expired
D) the Accounts Receivable account increases for the amount of the note’s principal
only
Masterpiece Sales Corporation offers warranties on all their electronic goods. Warranty
expense is estimated at 3% of sales revenue. In 2019, the company had $603,000 in
sales. In the same year, Masterpiece Sales replaced defective goods with goods that had
a cost of $16,500. Which of the following is the entry needed to record the replacement
of the defective goods?
A)
B)
C)
D)
On the first day of January, Builders, Inc. borrowed $1,000 on a one-year note payable
bearing interest at 7% per year. The note specifies that principal and interest must be
paid in full at the end of the one-year period. On June 30, the adjusted trial balance will
show Interest Payable of ________.
A) $35 credit
B) $35 debit
C) $70 credit
D) $70 debit
Murphy, Inc. prepaid $9,600 on October 1, 2018 for a one-year insurance premium.
Coverage begins October 1. On January 1, 2019 (after December 31 adjustments), the
Prepaid Insurance account will have a debit balance of ________. (Round any
intermediate calculations to two decimal places, and your final answer to the nearest
whole number.)
A) $8,000
B) $10,400
C) $9,600
D) $7,200
The Metro Construction Company had the following financial data as of December 31,
2018:
Cash and cash equivalents $120,000
Total current liabilities 80,000
a. What is the cash ratio as of December 31, 2018? Show the formula and your
computations.
b. Comment on the cash ratio for Metro Construction Company.
When a company receives interest revenue on a long-term investment in bonds,
________.
A) long-term assets decrease
B) long-term assets increase
C) equity increases
D) current assets decrease
Gross profit is calculated as ________.
A) sales revenue less sales discounts and allowances
B) sales revenue less operating expenses
C) net sales revenue less sales discounts
D) net sales revenue less cost of goods sold
Changing the method of valuing inventory ignores the principle of ________.
A) conservatism
B) consistency
C) disclosure
D) materiality
Which of the following statements is true of the direct and indirect methods of
preparing the statement of cash flows?
A) The indirect method and the direct method will produce the same amount of net cash
provided by operating activities.
B) The investing activities section is the only section that differs between the direct and
indirect methods.
C) The indirect method shows three types of cash flows, but the direct method does not.
D) There is no difference in the way the operating activities section is presented.
The following is the adjusted trial balance for Baker Services.
After the closing entries are posted, what is the balance in Retained Earnings?
A) $22,000
B) $185,000
C) $21,500
D) $153,000
Gilmore Company uses the direct method to prepare its statement of cash flows. Refer
to the following financial statement information for the year ended December 31, 2018:
Gilmore Company
Comparative Balance Sheet
December 31, 2018 and 2017
Gilmore Company
Income Statement
December 31, 2018
Use the direct method, to compute the net cash provided by operating activities. (Accrued
Liabilities relate to other operating expense.)
A) $(55,700)
B) $39,700
C) $(39,700)
D) $55,700
When performing vertical analysis of a balance sheet, the base amount is ________.
A) total assets
B) total cash and cash equivalents
C) net income
D) gross profit
Which of the following accounts would NOT appear on the financial statements of a
retailer that does not issue its own private label credit card?
A) Merchandise Inventory
B) Cash and Cash Equivalents
C) Merchandise Sales
D) Credit Card Receivable
Which of the following is an application of conservatism?
A) reporting inventory at the lower of cost or market
B) reporting only material amounts in the financial statements
C) reporting all relevant information in the financial statements
D) using the same depreciation method from period to period
Provide a definition of each of the follow accounting terms.
Provide the definition of each of the following accounting assumptions or principles.
On September 28, 2018, Benson Consulting signs a contract with Commercial Cleaning
Services. Commercial Cleaning will provide 6 months of office cleaning services for
$2,000 per month. Benson Consulting pays $12,000 cash to Commercial Cleaning on
September 28, 2018. Cleaning services will begin on October 1, 2018. Complete the
following requirements for Benson Consulting.
(1) Prepare the journal entries for September 28, 2018 and December 31, 2018 (the end
of Benson’s fiscal year). Make proper journal entries (omit explanations).
(2) If Benson fails to record the December 31, 2018 adjusting entry, what is the effect
on net income, income statement account(s) and balance sheet account(s)?
(3) Why is it important for companies to record adjusting entries?
List three private groups that work with the Financial Accounting Standards Board
(FASB).
Wash N’ Dry Corp. purchased equipment for $45,000. Total depreciation of $36,000
was recorded. On January 1, 2017, Wash N’ Dry exchanges the equipment for new
equipment, paying $54,000 cash. The market value of the new equipment is $65,000.
Prepare the journal entry to record this transaction. Assume the exchange has
commercial substance. Omit explanation.
A business performs services for its customer for $50,000 on account. Record the
transaction in the journal.
Diamond Corp. has provided the following information for the year ended December
31, 2018.
Diamond Corp
Comparative Balance Sheet
December 31, 2018 and 2017
Diamond Corp
Income Statement
Year ended December 31, 2018
Additional information provided by the company includes the following:
Equipment costing $60,000 was purchased for cash.
Equipment with a net book value of $10,000 was sold for $16,000.
Depreciation expense of $16,000 was recorded during the year.
During 2018, the company repaid $43,000 of long-term notes payable.
During 2018, the company borrowed $34,000 on a new long-term note payable.
There were no stock retirements during the year.
There were no sales of treasury stock during the year.
All sales are on credit.
Prepare the 2018 statement of cash flows, using the indirect method.
A truck was acquired for $100,000 and has accumulated depreciation of $70,000. The
business exchanges the truck for a new one. The new truck has a market value of
$120,000 and the business pays $100,000 cash. Assume the exchange has commercial
substance. Prepare the journal entry to record this transaction. Omit explanation.
Refer to the following bank reconciliation:
Journalize the adjusting entry for the second reconciling item: Interest revenue. Omit
explanation
Adams Corporation’s accounting records include the following items for the year
ending December 31, 2019:
The income tax rate for the company is 25%. Prepare Adams’ multi-step income statement
for the year ended December 31, 2019. Omit earnings per share.
Silver Corporation had the following transactions:
Use the following cash payments journal to record the preceding transactions. The
company uses the perpetual inventory system.
Cash Payments Journal Page 8
Which accounts are closed at the end of the accounting period? Why is it necessary to
close these accounts?
On November 1, 2018, Worldwide, Inc. declared a dividend of $3.00 per share.
Worldwide, Inc. has 20,000 shares of common stock outstanding and no preferred
stock. Prepare the journal entry to record this transaction. Omit explanation.
Blueribbon Gallery reported the following assets on its December 31, 2019 balance
sheet:
If the net sales for the year amounted to $850,000, what is the asset turnover ratio for
2019?
Trendy Calendars is a new business. During its first year of operations, credit sales were
$40,000, and collections of credit sales were $36,000. One account, $650, was written
off. Using the aging-of-receivables method, management calculates $200 as its estimate
of uncollectible amounts at year end. Prepare the journal entry to record bad debts
expense. Omit explanation.
The accounts from the Adjusted Trial Balance are listed in alphabetical order. Use this
information for Lawrence Service Company to prepare the classified balance sheet at
September 30, 2018. Use the report form. You must compute the ending balance of
Retained Earnings.
Lawrence Service Company
Adjusted Trial Balance
September 30, 2018
Balance
List the four special journals that are often used in a manual accounting information
system. State what types of transactions are recorded in each of these special journals.