The use of computers in recording business events
a. has made the recording process more efficient.
b. does not use the same principles as manual accounting systems.
c. has greatly impacted the identification stage of the accounting process.
d. is economical only for large businesses.
Answer:
Under the corporate form of business organization
a. a stockholder is personally liable for the debts of the corporation.
b. stockholders’ acts can bind the corporation even though the stockholders have not
been appointed as agents of the corporation.
c. the corporation’s life is stipulated in its charter.
d. stockholders wishing to sell their corporation shares must get the approval of other
stockholders.
Answer:
Watson Retailers accepted $75,000 of Citibank Visa credit card charges for merchandise
sold on July 1. Citibank charges 4% for its credit card use. The entry to record this
transaction by Watson Retailers will include a credit to Sales of $75,000 and a debit(s)
to
a. Cash $72,000 and Service Charge Expense $3,000.
b. Accounts Receivable $72,000 and Service Charge Expense $3,000.
c. Cash $72,000 and Interest Expense $3,000.
d. Accounts Receivable $75,000.
Answer:
Hull Company acquires land for $86,000 cash. Additional costs are as follows:
Hull will record the acquisition cost of the land as
a. $96,000.
b. $87,690.
c. $89,610.
d. $89,370.
Answer:
Unrealized gains and losses related to available-for-sale/non-trading equity
investments are reported in other comprehensive income under
a. GAAP only.
b. IFRS only.
c. Both GAAP and IFRS.
d. Neither GAAP or IFRS.
Answer:
On June 30, 2015, Fox Enterprises sold equipment with an original cost of $990,000 for
$400,000. The equipment was purchased January 1, 2014, and was depreciated using
the straight-line method assuming a five-year useful life and $90,000 salvage value. The
necessary entries for 2015 include a
a. debit to Accumulated Depreciation’”Equipment for $180,000.
b. credit to Gain on Disposal of Equipment for $320,000.
c. credit to Cash for $400,000.
d. debit to Depreciation Expense for $90,000.
Answer:
A $100 petty cash fund has cash of $12 and receipts of $85. The journal entry to
replenish the account would include a credit to
a. Cash for $88.
b. Petty Cash for $88.
c. Cash Over and Short for $2.
d. Cash for $85.
Answer:
Treasury Stock is a(n)
a. contra asset account.
b. retained earnings account.
c. asset account.
d. contra stockholders’ equity account.
Answer:
In a manufacturing business, inventory that is ready for sale is called
a. raw materials inventory.
b. work in process inventory.
c. finished goods inventory.
d. store supplies inventory.
Answer:
All of the following are steps in analyzing ethics cases in financial reporting except
a. identify and analyze the principle elements in the situation.
b. contact law enforcement regarding any violations of corporate ethics codes
c. identify the alternatives and weigh the impact of each alternative on various
stakeholders.
d. recognize an ethical situation and the ethical issues involved.
Answer:
During August, 2015, Baxter’s Supply Store generated revenues of $60,000. The
company’s expenses were as follows: cost of goods sold of $36,000 and operating
expenses of $4,000. The company also had rent revenue of $1,000 and a gain on the
sale of a delivery truck of $2,000.
Baxter’s operating income for the month of August, 2015 is
a. $20,000.
b. $21,000.
c. $23,000.
d. $24,000.
Answer:
The income statement for Jones Company showed cost of goods sold of $80,000 and
operating expenses of $65,000. The comparative balance sheets for the year show that
inventory decreased $5,000, prepaid expenses increased $7,000, accounts payable
increased $3,000, and accrued expenses payable decreased $5,000.
Instructions
Compute (a) cash payments to suppliers and (b) cash payments for operating expenses
using the direct method.
Answer:
Corporations are granted the power to issue bonds through
a. tax laws.
b. state laws.
c. federal security laws.
d. bond debentures.
Answer:
On January 14, Edamame Industries purchased supplies of $700 on account. The entry
to record the purchase will include
a. a debit to Supplies and a credit to Accounts Payable.
b. a debit to Supplies Expense and a credit to Accounts Receivable.
c. a debit to Supplies and a credit to Cash.
d. a debit to Accounts Receivable and a credit to Supplies.
Answer:
The respective normal account balances of Sales Revenue, Sales Returns and
Allowances, and Sales Discounts are
a. credit, credit, credit.
b. debit, credit, debit.
c. credit, debit, debit.
d. credit, debit, credit.
Answer:
Selected transactions for Garver Company during its first month in business are
presented below.
The Chart of accounts shows: No. 101 Cash, No. 112 Accounts Receivable, No. 157
Equipment, No. 201 Accounts Payable, No. 311 Common Stock, No. 332 Dividends,
and No. 400 Service Revenue.
Instructions
(a) Journalize the transactions on page 1 of the journal (Omit explanations).
(b) Post the transactions using the standard account form.
(c) Based only on these transactions, what amount would Garver Company report as
total assets in the October 31 balance sheet?
(d) Based only on these transactions, what amount would Garver Company report as
total liabilities in the October 31 balance sheet.
Answer:
Which of the following is not a condition which would require the recording of a lease
contract as a capital lease?
a. The lease transfers ownership of the property to the lessee.
b. The lease contains a bargain purchase option.
c. The lease term is less than 75% of the economic life of the leased property.
d. The present value of the lease payments equals or exceeds 90% of the fair value of
the leased property.
Answer:
When a company holds stock of several different corporations, the group of securities is
identified as a(n)
a. affiliated investment.
b. consolidated portfolio.
c. investment portfolio.
d. controlling interest.
Answer:
The amortization of premium on bonds payable
a. increases interest expense.
b. increases the carrying value of the bond.
c. is recorded by debiting Premium on Bonds Payable.
d. reduces the cash paid to bondholders.
Answer:
During 2015, Pink Corporation had the following transactions and events:
1> Issued par value preferred stock for cash at par value.
2> Issued par value common stock for cash at an amount greater than par value.
3> Completed a 2 for 1 stock split in which the $10 par value common stock was
changed to $5 par value stock.
4> Declared a small stock dividend when the market value was higher than the par
value.
5> Declared a cash dividend.
6> Made a prior period adjustment for understatement of net income.
7> Issued par value common stock for cash at par value.
8> Paid the cash dividend.
9> Issued the shares of common stock required by the stock dividend declaration in 4.
above.
Instructions
Indicate the effect(s) of each of the foregoing items on the subdivisions of stockholders’
equity. Present your answers in tabular form with the following columns. Use (I) for
increase, (D) for decrease, and (NE) for no effect.
Answer:
A ________________ buys and sells goods rather than performing services to earn a
profit.
Answer:
Moyer Instruments is a rapidly growing manufacturer of medical devices. As a result of
its growth, the company’s management recently modified several of its procedures and
practices to improve internal control. Some employees are upset with the changes. They
have complained that all these changes just show that the company no longer trusts
them.
Answer:
The framework used to record and summarize the economic activities of a business
enterprise is referred to as the accounting equation. State the basic accounting equation
and define its major components. How are business transactions and financial
statements related to the accounting equation?
Answer:
Dredd Company has begun a worksheet for preparing a statement of cash flows. The
following additional information is provided:
1> Cash dividends of $8,000 were paid during the year.
2> Land which originally cost $60,000 was sold for $52,000.
3> Common stock was issued at par value for cash.
Instructions
Complete the worksheet for Dredd Company.
Answer:
Flower Company is considering an investment which will return a lump sum of
$2,500,000 six years from now. What amount should Flower Company pay for this
investment to earn an 11% return?
Answer:
A classmate who is a computer science major thinks that accountants are obsolete. She
states that computers can do the entire process without any human assistance.
Discuss the steps in the recording process and indicate what role the computer plays in
that process.
Answer:
Why is the statement of cash flows useful?
Answer: