Issuing bonds between interest payment dates will have the effect of decreasing a bond
issuance discount or increasing a bond issuance premium.
Once an owner of convertible preferred stock has converted to common, he or she
cannot convert back to preferred.
Accounting methods may be a source of incomparability among companies.
One way of stating the accounting equation is: Assets – Liabilities = Owner’s Equity.
Treasury shares are shares that are authorized but unissued.
It is unlikely that a company would want to bond its employees who handle cash or
inventory.
The use of major credit cards does not require sellers to establish the customer’s credit.
The amount of property tax payable is usually an estimated liability for a portion of the
year.
A natural resource is expensed in the year it is extracted rather than when it is sold.
The general ledger is used to record the details of each transaction. The general journal
is used to update each account.
All decreases in owner’s equity are a result of expenses.
If a retailer makes a sale of $100 on a MasterCard, and MasterCard takes a 5 percent
discount on the sale, the retailer would record Cash for $100 and Accounts Payable for
$5.
Overhauling a company’s cooling system is an example of an extraordinary repair.
Normally, the value of an asset remains at its initial fair value or cost until the asset is
sold, expires, or is consumed.
In accounting, depreciation refers to the decline in fair value of a plant asset.
Accelerated methods of depreciation result in lower net income in the last years of an
asset’s life compared to the straight-line method.
It is not possible for one company to influence the operating policies of another
company unless it owns more than a 50 percent interest in that company.
The declaration of dividends is solely the decision of the corporation’s board of
directors.
In a liquidation, one partner may have to make up the deficit in another partner’s
account.
Cash and inventory are very vulnerable to theft.
The present value of a bond is determined by subtracting the discounted value of the
payment at maturity from the discounted value of a series of fixed interest payments.
The copyright granting the exclusive rights to sell artistic materials and computer
programs ends with the author’s life.
Liabilities related to assets invested in a partnership by a new partner can be transferred
to the partnership.
On a work sheet, the balance of the owner’s Capital account is its ending amount for the
period.
The inventory turnover measures the relative size of the inventory and the effectiveness
of credit policies.
At the time a company signs a contract to pay an employee a certain salary in the
future, it records a liability.
Net income is misleading when revenue is overstated or expenses are understated by
significant amounts.
The operating cycle involves the purchase and sale of merchandise inventory as well as
the subsequent collection of cash from credit sales.
If bonds are retired by an issuer by purchase on the open market at a price below the
bonds’ carrying value, a loss will result.
The cost-benefit convention holds that the benefits to be gained from providing
accounting information should be greater than the costs of providing it.
Unsecured bonds are also known as debentures.
Owner’s withdrawals should appear on the statement of owner’s equity.
A company with a profit margin of 6 percent earns sixty cents profit for every dollar of
net sales.
When bonds are sold between the interest payment dates, the issuing corporation pays
to investors the interest that has accrued since the last interest payment date.
The LIFO method tends to create peaks and valleys in the business cycle.
A company’s management can improve overall profitability by decreasing the profit
margin,
the asset turnover, or both.
Unless there is evidence to the contrary, an investor owning 35 percent of the stock of
an investee is assumed to have significant influence.
On a statement of cash flows prepared using the direct method, the FASB requires that
cash payments for interest be classified as operating activities.
Because accounting measures should be verifiable, liabilities should not be estimated.
Match the following financial statement ratios with their definition.
1) Working capital _____
2) Current ratio _______
3) Profit margin ______
4) Return on assets______
5) Debt to equity ratio________
6) Return on equity_______
7) Asset turnover_________
a. A measure of profitability that shows the proportion of a company’s assets that is
financed by creditors and the proportion financed by owners
b. A measure of liquidity that shows the net current assets on hand to continue business
operations
c. A measure of profitability that relates the amount earned by a business to the owner’s
investment in the business
d. A measure of profitability that shows the percentage of each sales dollar that results
in net income
e. A measure of liquidity; current assets divided by current liabilities
f. A measure of profitability that shows how efficiently a company uses its assets to
produce income
g. A measure of how efficiently assets are used to produce sales
A result of a separation of duties is that
A. operations become extremely inefficient because of constant training of employees.
B. more employees will need to be bonded.
C. theft by employees becomes impossible.
D. theft is possible only if several employees scheme together
Graczyk Company uses a periodic inventory system. During October, it sold 360 units
of Product Z. Its beginning inventory and purchases during the month were as follows:
Compute the cost of goods sold under each of three methods: (a) average-cost, (b) LIFO,
and (c) FIFO. (Show your work.)
a. Average-cost: (100 $20) + (100 $24) + (100 $22) + (100 $24) + (100 $28) + ($100 $26)
= $14,400; 14,400 600 = $24; $24 360 = $8,640
b. LIFO: (100 $26) + (100 $28) + (100 $24) + (60 $22) = $9,120
c. FIFO: (100 $20) + (100 $24) + (100 $22) + (60 $24) = $8,040
The entry to record the sale of equipment costing $40,000, with accumulated
depreciation of $34,000 and sale price of $7,700, will include
A. a gain on sale of equipment of 1,700.
B. a gain on sale of equipment of 7,700.
C. a loss on sale of equipment of 32,300.
D. a loss of sale of equipment of 26,300.
Which of the following is expressed in terms of a percentage?
A. Return on equity
B. Current ratio
C. Asset turnover
D. Working capital
In some liquidations, a partner’s share of the loss is greater than his or her capital
balance. In such a situation,
A. the partner must make up the deficit in his or her Capital account from personal
assets.
B. if the partner does not have the cash to cover his or her obligations, the deficit is
distributed according to the partners’ stated ratios.
C. all partners have unlimited liability.
D. All of these choices.
Bond issue costs
A. must be expensed when incurred.
B. must be amortized over the life of the bonds.
C. are recorded in an asset account and not amortized.
D. appear on the balance sheet as a liability.
When an adjusting entry is made debiting an expense account, the credit can be made to
any of the following accounts except
A. a liability.
B. a contra-asset account.
C. an asset.
D. a revenue.
Use this information to answer the following question.
A periodic inventory system is used.
Using the average-cost method, the cost assigned to ending inventory is
A. $3,036.
B. $3,168.
C. $3,384.
D. $8,556.
The depletion calculation is similar to which of the following depreciation methods?
A. Double-declining-balance
B. Straight-line
C. Group
D. Production
Use this inventory information for the month of August to answer the following
question.
Assuming that a perpetual inventory system is used, what is ending inventory on a FIFO
basis?
A. $3,904
B. $3,984
C. $4,024
D. More information is needed.
Which of the following must be reported by diversified companies for each of their
operating segments?
A. Segment profit or loss, expenses, and earnings per share
B. Segment profit or loss, certain revenue and expense items, and segment assets
C. Assets, liabilities, and earnings per share
D. Segment profit or loss, expenses, and unidentifiable assets
When special-purpose journals are used, which of the following is an entry that would
be recorded in the general journal rather than in a special journal?
A. Sale of merchandise on account.
B. Cash purchase of merchandise for resale.
C. A return of merchandise bought on account.
D. Cash receipt from a customer for payment on their account.
For available-for-sale equity securities, the Unrealized Loss on Long-Term Investments
account should be reported as a(n)
A. realized loss item on the income statement.
B. prior period adjustment.
C. contra-asset on the balance sheet.
D. other comprehensive income (loss).
Average inventory equals $200,000, and cost of goods sold equals $442,000. Days’
inventory on hand equals
A. 165.2 days.
B. Not enough information available to answer the question.
C. 154.3 days.
D. 188.7 days.
Use the following information to answer the question below.
When Langston Corporation was formed on January 1, 20×5, the corporate charter
provided for 100,000 shares of $10 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 400 shares of stock to its lawyer in full payment of the
$10,000 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 16,000 shares of stock at a price of $50 per share.
3) The company issued 14,000 shares of stock in exchange for equipment that had a fair
market value of $320,000.
The entry to record transaction 3 is:
A. Equipment 320,000
Common Stock 320,000
B. Common Stock 140,000
Equipment 140,000
C. Equipment 140,000
Common Stock 140,000
D. Equipment 320,000
Which of the following forms of organization are considered to be separate entities by
accountants?
A. Partnerships only
B. Sole proprietorships only
C. Corporations only
D. Sole proprietorships, partnerships, and corporations
Goods held on consignment are
A. kept for sale on the premises of the consignee.
B. included as part of no one’s ending inventory.
C. owned by the consignee.
D. included in the consignee’s ending inventory.
The following information pertains to Patterson Corporation. Assume that all balance
sheet amounts represent both average and ending figures.
Patterson Corporation had 6,000 shares of common stock issued and outstanding. The
market price of Patterson common stock on December 31, 20×5, was $20. Patterson paid
dividends of $0.90 per share during 20×5.
What is the return on equity for this corporation? Round your answer to 1 decimal place.
A. 5.0 percent
B. 10.0 percent
C. 23.3 percent
D. 53.3 percent
Which of the following items is associated with a purpose of the work sheet?
A. Recording adjusting entries.
B. Financial statements that are up to date for measuring financial progress.
C. Preparing budgets.
D. All of these choices.
Leah, Cameron, and Ryan each receive a $20,000 salary, as well as 10 percent interest
on their respective average investments of $120,000, $200,000, and $40,000. If they
share remaining income and losses in a 2:1:3 ratio, respectively, by how much would
Cameron’s account increase or decrease (indicate a decrease by placing parentheses
around the amount), assuming (a) net income of $144,000, (b) net income of $72,000,
and (c) net loss of $72,000.
Use the following information to answer the question below.
On January 1, 20×5, Falcon Corporation had 40,000 shares of $10 par value common
stock issued and outstanding. All 40,000 shares had been issued in a prior period at $17
per share. On February 1, 20×5, Falcon purchased 1,000 shares of treasury stock for
$19 per share and later sold the treasury shares for $26 per share on March 2, 20×5.
The entry to record the sale of the treasury shares on March 2, 20×5 is
A. Cash 26,000
Common Stock 19,000
Retained Earnings 7,000
B. Cash 24,000
Retained Earnings 2,000
Treasury Stock, Common 26,000
C. Cash 26,000
Treasury Stock, Common 19,000
Gain on Treasury Stock, Common 7,000
D. Cash 26,000
Jacob and Megan are partners who share profits and losses in a ratio of 2:3,
respectively, and have the following capital balances on September 30, 20×5:
The partners agree to admit Mitchell to the partnership. Calculate the capital balances of
each partner after the admission of Mitchell, assuming that bonuses are recorded when
appropriate for each of the following assumptions:
a. Mitchell pays Jacob $100,000 for 40 percent of his interest
b. Mitchell invests $100,000 for a one-sixth interest in the partnership
c. Mitchell invests $100,000 for a 25 percent interest in the partnership
d. Mitchell invests $100,000 for a 15 percent interest in the partnership
A truck that cost $24,000 and on which $18,000 of accumulated depreciation has been
recorded was disposed of on January 1. Assume that the truck was disposed of for
$4,000 cash. The entry to record this event would include
A. a debit to Cash.
B. a debit to Accumulated Depreciation.
C. a debit to Loss on Sale of Truck.
D. all of these choices.
When special journals are used, the general journal is used to record
A. purchase returns.
B. sales of merchandise on credit.
C. receipts of cash.
D. purchases on credit.
Which of the following statements is true regarding the time value of money?
A. Compound interest will produce equal amounts of interest each period on a fixed
deposit.
B. Earning simple interest is more beneficial than earning compound interest.
C. When making a purchase, it is better to make payment as soon as possible.
D. It is better to receive $1 now than a year from now.
Which of the following assets could be described as nonphysical?
A. Inventory
B. Cash
C. Trademarks
D. Supplies
The following lettered items represent a classification scheme for a balance sheet, and
the numbered items represent accounts. In the blank next to each account, write the
letter indicating to which category it belongs.
Par value is the minimum cushion of capital established for the protection of
A. investors (stockholders).
B. management.
C. creditors.
D. customers.
An adjusting entry would not include which of the following accounts?
A. Salaries Payable
B. Unearned Revenue
C. Interest Receivable
D. Cash
The owner’s Capital, Withdrawals, and Income Summary accounts for Harmon Repair
Company for the accounting period are presented below in T account form after the
recording and posting of closing entries:
The total amount of revenue earned for the period is
A. $300.
B. $600.
C. $700.
D. $900.
The Public Company Accounting Oversight Board was created by the
A. Sarbanes-Oxley Act.
B. GASB.
C. IRS.
D. IASB.
Mariposa Corporation had a Retained Earnings balance on January 1, 20×4, of
$936,000; declared cash dividends during 20×4 in the amount of $159,900, of which
$39,000 were not paid until 20×5; and reported an ending balance of Retained Earnings
of $1,326,000. Based on these facts alone, net income for 20×4 for Mariposa
Corporation must have been
A. $211,900.
B. $419,900.
C. $510,900.
D. $549,900.
Measures how efficiently assets are used to produce sales.
Indicate by letter the agency that applies to each statement.
Use the following information to calculate the ratios requested below. Round answers to
two decimal places. Show your work.
Match each description with the letter of the term to which it corresponds.
Under a perpetual inventory system, is it necessary to take a physical inventory at the
end of the period? Why or why not?
What is the chief objective of supply-chain management? How is it accomplished?
Using the income statement below, develop a common-size statement by filling in the
blanks provided. Show your work. Round to one decimal place.
When stock is issued for noncash assets or services, how does one place a valuation
(dollar amount) on the transaction?
One aspect of the corporate form can be considered both an advantage and a
disadvantage. What aspect is this, and why can it be considered both?
Assuming the use of the periodic inventory system, use the data below to calculate the
net cost of purchases and the cost of goods available for sale for the year ended
December 31, 20×5.
Kangjon Company allows each employee two weeks’ paid vacation after the employee
has worked at the company for one year (50 weeks work). On the basis of past
experience, management estimates that 80 percent of employees will qualify for
vacation pay this year. Assume that the March payroll is $400,000. Compute the
vacation pay expense for the month. Show your computation.
Briyanna and Greg form a partnership and invest the following assets and liabilities.
Parker Company has $1,000,000 worth of 7 percent convertible bonds outstanding. On
September 1, 20×5, there is $40,000 of unamortized discount associated with these
bonds. The bonds are convertible at the rate of 30 shares of $10 par value common
stock for each $1,000 bond. On September 1, 20×5, an interest payment date,
bondholders presented $700,000 of the bonds for conversion. Prepare an entry in
journal form without explanation to record the conversion of the bonds.
Describe how the current ratio is calculated. If a company has a very low current ratio,
what might this mean? If a company has a very high current ratio, what might this
mean?
You purchased Company B for $220,000 on January 1, 2014.
The following information relates to the number of common shares of the Swan
Corporation:
140,000 Authorized shares 60,000 Unissued shares 8,000 Treasury shares
Calculate the number of outstanding shares from the information given. Show your
calculations.
Doug Riley is the only accountant employed at Carmen Enterprises.