If a physical count of inventory indicates that the Merchandise Inventory account is
overstated, an adjusting entry is required to record the difference. Assume a perpetual
inventory system is used.
A worksheet is a substitute for the financial statements.
An invoice is also known as a bill.
When a lock-box system is used, a bank employee empties the box daily and records
the deposits in the company’s journal.
The primary objective of financial reporting is to provide information useful for making
investment and lending decisions.
A parent company is a company that is controlled by another corporation.
On January 1, Unearned Revenue of Commercial Plumbing Services, Inc. had a
beginning balance of $1,800. During January, the company earned $500 of the deferred
revenue. The company also collected $5,000 from a new customer for services to be
performed the following month. At the end of January, the Unearned Revenue account
should have a balance of $5,000.
If a plant asset is sold for more than its book value, a loss is recorded.
If a bond is issued at a premium, the issue price is greater than face value.
On a bank reconciliation, deposits in transit are added on the bank side of the
reconciliation.
The IFRS definitions of current and long-term liabilities are much different than the
U.S. GAAP definitions.
Debit is abbreviated as DE and Credit is abbreviated as CR.
If a business has a net loss, the Income Summary T account would hold a debit balance
before the account is closed.
When using the weighted-average inventory costing method, the dollar amounts for
ending inventory and cost of goods sold are the same for both the perpetual and
periodic inventory costing methods.
It is important for a business to identify policies which ensure that all customers are
treated similarly and that results can be measured effectively.
Days’ sales in receivables measures the return on average receivables.
Many companies use free cash flow to estimate the amount of cash that would be
available for unexpected opportunities.
Depending on the maturity date, held-to-maturity debt investments are categorized as
current assets or long-term assets on the balance sheet.
On the statement of cash flows, investing activities include cash contributions by
stockholders.
The Employee Bonus Payable would normally be shown on the balance sheet under
long-term liabilities.
Sales through credit cards and debit cards are journalized in the same way as sales on
account.
When accounting for uncollectible accounts under IFRS, the allowance method is used
to accomplish the matching of bad debt expense to the sales of the period but not to
report receivables at net realizable value.
Gross profit is the extra amount the company receives from the customer for
merchandise sold over what the company paid to the vendor.
The three major types of receivables are accounts receivable, notes receivable, and
other receivables.
In a computerized accounting information system, all data are contained in paper
documents that are often stored in filing cabinets and off-site document warehouses.
Accounts receivable that are uncollectible must remain on the books because the
customer may eventually pay.
Net pay is the total amount of compensation that an employee takes home after the
deductions are made.
If a company receives cash before it does the work or delivers a product, no journal
entry is needed until the revenue has been earned.
The journal entry to record the employer’s payroll tax expense will include a debit to
Employee Income Taxes Payable.
The times-interest-earned ratio is 6.25 for Retailer A and 5.1 for Retailer B. This
indicates that Retailer B will find it easier to pay interest expense.
In a bank reconciliation, a deposit in transit will be shown on the bank side of the
reconciliation.
If a bank reconciliation includes interest revenue collected by a bank, a journal entry is
required which credits Cash and debits Interest Revenue.
Under the last-in, first-out (LIFO) method, the cost of goods sold is based on the oldest
purchases.
Unearned revenues are current liabilities until they are earned.
Consolidation accounting is the way to combine the financial statements of two or more
companies that have the same owners.
Because a company usually does not know the amount of the year-end bonus at
year-end, no liability is recorded.
On December 1, 2018, Atlas, Inc. sold machinery to a customer for $24,000. The
customer could not pay at the time of sale but agreed to pay 10 months later and signed
a 10-month note at 12% interest. How much interest revenue was earned during 2019?
(Round any intermediate calculations to two decimal places, and your final answer to
the nearest dollar.)
A) $1,440
B) $2,880
C) $2,640
D) $2,160
Under which of the following categories would Accounts Receivable appear?
A) current assets
B) current liabilities
C) long-term assets
D) long-term liabilities
When a business records accrued interest expense on a note payable, ________.
A) Interest Expense is credited
B) Note Payable is credited
C) Cash is debited
D) Interest Payable is credited
Which of the following is true of good internal controls over payroll?
A) Accounting for payroll should be separate from hiring and firing of employees.
B) Disbursement of paychecks should not be separate from the function of maintaining
payroll records.
C) Hiring and firing employees should not be separated from accounting and from
disbursing paychecks.
D) Cash receipts from customers should be separated from the accounting for accounts
receivable.
A $49,000, three-month, 12% note payable was issued on December 1, 2018. What is
the amount of accrued interest on December 31, 2018? (Do not round any intermediate
calculations, and round your final answer to the nearest dollar.)
A) $490
B) $708
C) $354
D) $823
Jones Supply Services paid $350 cash, the amount owed from the previous month, to a
materials supplier. Which of the following accounts decrease?
A) Accounts Receivable
B) Accounts Payable
C) Retained Earnings
D) Office Supplies
The vertical analysis of the income statement of Bates, Inc. is as shown below:
Bates, Inc.
Comparative Income Statement
Years Ended December 31, 2019 and 2018
The figure 47.0% shown for gross profit in 2019 signifies that the gross profit is ________.
A) equal to 47.0% of net income
B) increased by 47.0% over the previous year
C) 47.0% of net sales revenue
D) 47.0% of cost of goods sold
The ________ is a measure of a company’s ability to pay its current liabilities from cash
and cash equivalents.
A) cash conversion cycle
B) cash ratio
C) gross profit
D) debt equity ratio
Which of the following is NOT a purpose of using of using ratios to explain different
aspects of a company?
A) evaluating profitability
B) evaluating stock as an investment
C) evaluating the ability to pay current liabilities
D) evaluating income tax return information
When a company uses the perpetual inventory method, which of the following would
be the entry to adjust inventory to lower-of-cost-or-market?
A) debit Loss on Inventory and credit Merchandise Inventory
B) debit Merchandise Inventory and credit Inventory Adjustment
C) debit Cost of Goods Sold and credit Merchandise Inventory
D) debit Merchandise Inventory and credit Cost of Goods Sold
In reconciling a bank statement, the bank balance is $2,100, and the checkbook balance
is $2,001. Which of the following is the most probable reason for the bank balance
being larger than the book balance?
A) There are outstanding checks.
B) The bank has deducted certain amounts for bank service charges.
C) A deposit in transit was made at the end of the month.
D) The company erroneously recorded a check for an amount less than the actual
amount.
The Lakeside Company issues $518,000 of its 10%, 10-year bonds at 106 on March 31,
2019. The bonds pay interest on March 31 and September 30. On September 30, 2019,
how much cash did the company pay to the bondholders?
A) $2590
B) $51,800
C) $25,900
D) $12,950
A business pays $800 cash for office supplies. Which of the following accounts is
credited?
A) Cash
B) Accounts Payable
C) Office Supplies
D) Office Supplies Expense
Which of the following statements, regarding notes receivable, is incorrect?
A) Notes receivable usually have longer terms than accounts receivable.
B) A notes receivable is a written promise that a customer will pay a fixed amount of
principal plus interest by a certain date in the future.
C) All notes receivable are considered long-term assets.
D) Notes receivable are sometimes called promissory notes.
An adjusted trial balance is given below.
What will be the final balance in the corporation’s Retained Earnings account after
recording the closing
entries?
A) $25,800
B) $26,800
C) $14,000
D) $2,800
A company’s liquidity can be evaluated using all of the following ratios except
________.
A) Return on assets ratio
B) Acid-test ratio
C) Accounts receivable turnover
D) Days’ sales in receivables
The field of accounting that focuses on providing information for internal decision
makers is ________.
A) managerial accounting
B) financial accounting
C) nonmonetary accounting
D) governmental accounting
Preferred stockholders ________.
A) are guaranteed that they will not have a loss on their investment
B) are guaranteed to receive an annual dividend payment
C) receive a set percentage of corporation net income
D) receive a dividend preference over common stockholders
Which of the following is a cash outflow for a financing activity on the statement of
cash flows?
A) purchase of long-term investments, such as the stock of another company
B) loans made to another party
C) purchase of treasury stock
D) purchase of land
Which of the following is an example of an intangible asset?
A) Equipment
B) Plant
C) Property
D) Copyright
A company that uses the periodic inventory provides the following information:
1. Beginning Inventory $12,000
2. Net Purchases $93,000
At the end of the period, the physical count of inventory reveals that $14,000 of
inventory is on hand.
What is the amount of cost of goods sold?
A) $93,000
B) $119,000
C) $91,000
D) $79,000
Briefly discuss each of the following corporate characteristics.
A. Government regulation
B. Limited liability of stockholders
C. Continuous life and transferability of ownership
A company with significant amounts of accounts receivable experiences uncollectible
accounts from time to time. If the company uses the direct write-off method, the effect
of writing off an uncollectible receivable will be ________.
A) a reduction in net income
B) negligible on net income
C) an increase in total assets
D) a generation of positive cash flow
The lower-of-cost-or-market value (LCM) rule ________.
A) replaces the use of specific identification, FIFO, LIFO, or weighted-average
inventory costing methods
B) violates the conservatism principle
C) requires that merchandise inventory be reported in the financial statements at the
lower of the historical cost or the selling price of the inventory
D) is an accounting issue separate from applying an inventory costing method
Laramie Corporation has acquired a property that included both land and a building for
$560,000. The corporation hired an appraiser who has determined that the market value
of the land is $370,000 and that of the building is $440,000. At what amount should the
corporation record the cost of the building? (Round any intermediate calculations to
two decimal places, and your final answer to the nearest dollar.)
A) $237,600
B) $302,400
C) $280,000
D) $386,400
Designer Paints Company uses the direct method for preparing its statement of cash
flow. Designer Paints reports the following information regarding 2018:
From the income statement:
Sales Revenues, $268,000
Cost of Goods Sold, $210,000
Operating Expenses, $33,000
From the balance sheet:
What amount will be shown for payments to suppliers for Merchandise Inventory
purchases? (Assume that Accounts Payable are for purchases of merchandise inventory
only.)
A) $204,400
B) $211,400
C) $197,400
D) $208,600
Wellness, a healthy living magazine, collected $504,000 in subscription revenue on
May 31. Each subscriber will receive an issue of the magazine in each of the next 12
months, beginning with the June issue. The company uses the accrual method of
accounting. What is the balance in the Unearned Revenue account as of December 31?
A) $210,000
B) $294,000
C) $504,000
D) $378,000
A(n) ________ is represented by a certificate and is commonly traded on an exchange.
A) inventory
B) investee
C) interest
D) security
The following information is from the 2019 records of Uptown Antique Shop:
Bad debts expense is estimated by the percent-of-sales method. Management estimates that
3% of net credit sales will be uncollectible. The ending balance of the Allowance for Bad
Debts account after adjustment will be ________.
A) $6,900
B) $4,740
C) $7,740
D) $3,900