If the present value of the net cash flows expected from a machine is less than its
purchase price, the investment should not be made.
Intangible assets are subject to a process called depreciation.
Freight-in is treated as an addition in the cost of goods sold section of the income
statement.
There is an impact on the income statement (gain or loss) of a partnership when a
partner withdraws from the business.
Expenses that have been paid for and recorded are called accrued expenses.
The operating cycle is the average days’ inventory on hand minus the average number
of days to collect credit sales.
When a withdrawing partner withdraws assets less than his or her capital balance, the
excess is treated as a bonus to the remaining partners.
One of the general rules of the double-entry system is that total debits must always be
equal to total credits.
An individual can be prosecuted by the SEC for insider trading whether or not that
individual is employed by the company involved.
Under a capital lease, the lessee records both an asset and a liability.
Merchandisers usually end their fiscal year during the peak season.
When all the bonds of an issue mature at the same time, they are called term bonds.
The equity method usually is the most appropriate method for accounting for
investments of more than a 20 percent interest of another company’s stock.
Accrued liabilities often arise as a result of the passage of time.
The Public Company Accounting Oversight Board (PCAOB) was created to determine
the standards that auditors must follow.
Bonding means insuring a company against loss due to employee theft.
A petty cash fund is established for small payments for which writing a check would be
impractical.
The cost of assets acquired for a lump sum should be allocated equally among the
acquired assets.
When the equity method is used to account for an investment in stock, the investor will
report its share of the investee’s annual earnings as income in proportion to how much
the investee distributes in the form of dividends.
Loans to company employees should be included with accounts receivable on the
balance sheet.
Reversing entries are all dated as of the first day of the new accounting period.
Criminal penalties can be imposed on those who prepare fraudulent financial
statements.
Declining profitability and liquidity ratios are indications that a company may not
survive.
The entire cost of developing computer software should be capitalized and amortized
over the software’s useful life.
Despite its advantages, the just-in-time operating environment produces increased
carrying costs for inventory.
A bond agreement is referred to as the bond indenture.
The Withdrawals account bypasses the Income Summary account when it is being
closed.
The lower the interest rate, the higher the present value factor.
Research and development costs normally are capitalized and amortized over the
estimated sales life of the product developed.
In a deferred payment arrangement, interest is charged only if it is stated.
When a loss is closed into the partners’ Capital accounts, Income Summary is debited.
Jeffrey Gray is paid $6 per hour, plus double-time for hours worked on weekends.
During the two-week period ending February 5, Jeffrey worked 70 hours on weekdays
and 8 hours on weekends. Social Security taxes are 6.2 percent, Medicare taxes are 1.45
percent, $65 is withheld for federal taxes, $18 is withheld for state income taxes, and
$24 is withheld for charities. In addition, Jeffrey’s employer must pay Social Security
taxes of 6.2 percent, Medicare taxes of 1.45 percent, federal unemployment taxes of 0.8
percent, and state unemployment taxes of 5.4 percent. Calculate (a) Jeffrey’s gross
earnings, (b) Jeffrey’s net pay, (c) the employer’s payroll taxes expense, and (d) the total
cost of employing Jeffrey for the two-week period. Round all amounts to the nearest
penny.
A retail store has beginning inventory of $30,000, purchases of $220,000, sales of
$200,000, and a normal gross margin of 25 percent. What is estimated inventory based
on these facts and the gross profit method?
A. $50,000
B. $150,000
C. $100,000
D. $200,000
IFRS are important to multinational companies because
A. if they can use IFRS for all their operations, it would simplify the process of
preparing financial statements.
B. it would lower their taxes in each country in which they do business.
C. it would enable them to achieve higher profitability due to the different reporting
standards under IFRS.
D. All of these choices.
Following are the financial statements for Flynn Corporation for the year ended
December 31, 20×5. Assume that all balance sheet amounts represent both average and
ending figures.
What is the profit margin for this corporation? Round your answer to one decimal place.
A. 22.5 percent
B. 30.0 percent
C. 40.0 percent
D. 53.3 percent
The trial balance for Parker Company is as follows:
If the trial balance showed a balance of $14,000 in the Mike Parker, Withdrawals account
and a balance of $30,000 in the Wages Expense account, what would be the amount of
Advertising Fees Earned for the period?
A. $106,000
B. $86,000
C. $116,000
D. $56,000
Cash flow yield is a
A. liquidity ratio.
B. profitability ratio.
C. long-term solvency ratio.
D. market strength ratio.
A bond issue of $50,000 with a carrying value of $49,000 is converted into $10 par
value common stock at the rate of fifty shares for each $1,000 bond. The entry to be
recorded on the conversion of bonds is:
A. Bonds Payable 50,000
Loss on Retirement of Bonds 1,000
Unamortized Bond Discount 1,000
Common Stock 51,000
B. Bonds Payable 50,000
Common Stock 25,000
Additional Paid-In Capital 25,000
C. Bonds Payable 50,000
Common Stock 25,000
Additional Paid-In Capital 24,000
Unamortized Bond Discount 1,000
D. Bonds Payable 49,000
Which of the following items will not be disclosed on a statement of stockholders’
equity?
A. Conversion of preferred stock into common stock
B. Results of discontinued operations
C. Purchase of treasury stock
D. Declaration of a stock dividend
Lassen Corporation issued ten-year term bonds on January 1, 20×5, with a face value of
$800,000. The face interest rate is 6 percent and interest is payable semi-annually on
June 30 and December 31. The bonds were issued for $690,960 to yield an effective
annual rate of 8 percent. The effective interest method of amortization is to be used. The
entry to be recorded on December 31, 20×5, for the payment of interest (rounded to the
nearest dollar) and the amortization of discount is:
A. Bond Interest Expense 3,638
Unamortized Bond
Discount 3,638
B. Bond Interest Expense 27,784
Unamortized Bond
Discount 3,784
Cash 24,000
C. Bond Interest Expense 27,784
Cash 27,784
D. Bond Interest Expense 24,000
To find the days’ payable,
A. divide 365 by the payables turnover.
B. multiply the payables turnover by 365.
C. divide the payables turnover by 365.
D. subtract 365 from the payables turnover.
A purchase order is sent from a company’s
A. purchasing department to the supplier.
B. requesting department to the supplier.
C. requesting department to its accounting department.
D. treasurer to the supplier.
A company purchases 600 shares of its $100 par value common stock at $110 per share.
It then reissues 100 shares at $114 per share. The entry upon reissue of the stock is
A. Cash 11,400
Treasury Stock-Common 11,000
Paid-in Capital, Treasury Stock 400
B. Cash 11,400
Treasury Stock-Common 11,400
C. Cash 11,400
Treasury Stock-Common 11,000
Gain on Sale of Treasury Stock 400
D. Cash 11,400
Interest on a note receivable may be calculated without knowledge of the
A. principal amount.
B. rate of interest.
C. note’s maturity date.
D. note’s duration.
Use this information pertaining to Tucson Company to answer the following question.
1) The corporation’s Supplies account showed a beginning debit balance of $400 and
supplies purchased of $1,600. There were $600 of supplies on hand at year end.
2)Depreciation on a building being depreciated over 5 years is estimated to be $10,000
per year. The building was purchased at the beginning of the prior year for $50,000.
3)A one-year insurance policy was purchased for $4,800. Five months have passed
since the purchase.
4)Accrued interest on a note receivable amounted to $200.
5)The company received a $3,600 advance payment during the year on services to be
performed. By the end of thE year, one-third of the services had been performed.
Which of the following statements is correct regarding the building?
A. The adjusting entry to record depreciation will include a credit to Accumulated
Depreciation – Building $10,000.
B. The book value of the building at the end of the current year is $30,000.
C. The Accumulated Depreciation – Building account will have a balance of $20,000 at
the end of the current year.
D. All of these choices.
Lease agreements are
A. estimates.
B. commitments.
C. liabilities.
D. contingencies.
Use this balance sheet and income statement to answer the following question. Use
ending balances whenever average balances are required for computing ratios.
The profit margin for National Textile is
A. 60 percent.
B. 25 percent.
C. 20 percent.
D. 12 percent.
Failure to record depletion for a given accounting period will result in
A. understated total assets.
B. understated total liabilities.
C. overstated net income.
D. overstated total liabilities.
Use the following information to answer the question below.
When Langston Corporation was formed on January 1, 20×5, the corporate charter
provided for 50,000 shares of $20 par value common stock. The following transactions
were among those engaged in by the corporation during its first month of operation:
1) The corporation issued 200 shares of stock to its lawyer in full payment of the $5,000
bill for assisting the company in drawing up its articles of incorporation and filing the
proper papers with the state agency.
2) The company issued 8,000 shares of stock at a price of $25 per share.
3) The company issued 8,000 shares of stock in exchange for equipment that had a fair
market value of $160,000.
The entry to record transaction 3 is:
A. Equipment 160,000
Common Stock 160,000
B. Common Stock 160,000
Equipment 160,000
C. Additional Paid-in Capital 35,000
Equipment 125,000
Common Stock 160,000
D. Cash 160,000
Accelerated depreciation assumes all of the following except that
A. asset benefit increases with each year of use.
B. the asset provides more benefit in the early years.
C. obsolescence makes an asset less valuable in its later years.
D. repair expense is less in the early years than in the later years.
An asset was purchased for $100,000. It had an estimated residual value of $20,000 and
an estimated useful life of ten years. After four years of use, the estimated residual
value is revised to $14,000. Assuming straight-line depreciation, depreciation expense
in year 5 of use would be
A. $7,667.
B. $8,572.
C. $9,000.
D. $14,334.
When an intangible asset becomes worthless,
A. it should remain on the books at its existing carrying value.
B. its remaining carrying value should be written off immediately as a loss.
C. prior years’ accounting records should be adjusted retroactively.
D. its remaining carrying value should be amortized over 20 years.
Using the following amounts taken from the balance sheet and income statement of a
business, compute the measures listed below. After each answer, write “L” if it is a
measure of liquidity or “P” if it is a measure of profitability. Round to two decimal
places.
a. Current ratio
b. Return on equity
c. Return on assets
d. Working capital
Sofranko Corporation purchased 8,000 shares of Bussey Corporation common stock for
$80 per share on January 1, 2014. Bussey reported net income of $240,000 for 2014
and paid dividends of $84,000 during 2014. As of December 31, 2014, the market value
of Bussey Corporation common stock was $80 per share. Assuming the shares owned
by Sofranko represent 10 percent of the total outstanding stock of Bussey, the entry to
record the receipt of dividend income in Sofranko Corporation’s books is:
A. Cash 16,000
Dividend Income 16,000
B. Cash 8,000
Dividend Income 8,000
C. Cash 8,400
Dividend Income 8,400
D. Cash 24,000
Dividend Income 24,000
Which of the following is not a component of the operating cycle?
A. Sales to customers
B. Collection of accounts receivable
C. Recognition of depreciation
D. Purchases from suppliers
When a list of customers or subscribers is purchased, its cost is
A. immediately expensed.
B. capitalized as an intangible asset.
C. amortized over a maximum of 5 years.
D. amortized as people on the list move away or pass on.
Which of the following statements is false about a journal entry?
A. All debits are always listed before any credits.
B. It may have more than one debit or credit entry.
C. Credits are always indented.
D. Accounts that are increased are always listed first.
According to generally accepted accounting principles, the proper accounting treatment
for the cost of a trademark that management feels will retain its value indefinitely is to
A. write the cost off immediately.
B. amortize the cost over a reasonable life.
C. amortize the cost over five years.
D. carry the cost as an asset as long as circumstances continue to support an indefinite
life.
Faithful representation is comprised of all of the following except
A. Verifiability
B. Completeness
C. Neutrality
D. Free from error
During the most recent month, Campbell Company began operations with a cash
balance of $0 and made made cash sales of $162,000. During this same time period, the
company paid $64,000 in cash expenses. Additionally, the company purchased supplies
on account, $68,000, made sales on account, $180,000, and paid cash on account
$12,000.
a. If cash at the end of the month totals $148,000, how much cash was received on
account?
b. What is the total amount still to be paid?
c. What is the total amount still to be received?
Willow Corporation has retained earnings of $320,000. It has 5,000 shares of 6 percent,
$100 par value preferred stock outstanding that is callable at 102. The preferred stock is
cumulative, and one year of dividends is in arrears. It also has 10,000 shares of $50 par
value common stock outstanding. Assume all stock is issued at par. The book value of
each share of preferred stock is
A. $168.00.
B. $108.00
C. $163.20.
D. $176.00.
Given equal circumstances, which inventory method probably would be the most time
consuming?
A. Specific identification
B. FIFO
C. Average-cost
D. LIFO
Flint Company produces widgets that cost $30 each and have a 5 percent failure rate. If
500 widgets are sold, the entry to record the estimated product warranty expense would
be
A. Product Warranty Expense 150
Estimated Product Warranty Liability 150
B. Product Warranty Expense 750
Estimated Product Warranty Liability 750
C. Product Warranty Expense 75
Cash 75
D. Estimated Product Warranty Liability 150
Using the following information from an annual report, prepare a vertical analysis of
the consolidated balance sheet at June 30, 20×5. (Round percentage answers to one
decimal place.)
How is the account Allowance for Uncollectible Accounts presented in the financial
statements, and what purpose does this presentation serve?
What is horizontal analysis, and why is it useful in performing financial performance
measurement?
A less-preferred term for “owner’s equity.
Draw two distinctions between accounting for a stock split and accounting for a stock
dividend.
Include assets, usually long-term, that are not used in normal business operations and
that management does not plan to convert to cash within the next year.
At the beginning of the year, Pullman Company’s assets were $270,000 and its owner’s
equity was $201,000. During the year, assets decreased by $35,000 and liabilities
increased by $10,000. What was owner’s equity at the end of the year?
The balance of the Wages Expense account of Ryan Company, prior to adjustment, was
$95,000.
Novack Company has current assets of $100,000, total assets of $300,000, current
liabilities of $75,000 of which accounts payable are $35,000, and total liabilities of
$150,000.
Use the following accounts and information to prepare, in good form, an income
statement, statement of owner’s equity, and balance sheet for McCollum Enterprises for
the year ended December 31, 2014.
The following information relates to the number of common shares of the Jackson
Corporation:
60,000 Authorized shares 25,000 Unissued shares 3,500 Treasury shares
Calculate the number of outstanding shares from the information given.
In general, how does one determine whether or not an expenditure should be included
in the acquisition cost of property, plant, and equipment?
A company has the following listed asset accounts. Determine the amount that should
appear on the balance sheet as the total current assets.
How does the statement of owner’s equity relate to the income statement and the
balance sheet?
The following amounts are taken from the balance sheets of Candy Cane Enterprises:
How is it possible for a corporation to have more shares issued than it has outstanding?