Amortization is the process by which businesses spread the allocation of an intangible
asset’s cost to expense over its useful life.
Days’ sales in inventory measures how quickly a company can collect its receivables.
For each petty cash payment, the custodian prepares a petty cash ticket.
The current period earnings column of the payroll register only includes regular and
overtime earnings.
Treasury stock is recorded at cost, without reference to par value.
The balance sheet shows why cash increased or decreased.
When a bond is matured, the carrying value always equals the face value.
Horizontal analysis is computed by dividing a specific statement line item by its base
amount and then multiplying by 100.
Enterprise resource planning systems are software systems that can integrate all of a
company’s functions, departments, and data into a single system.
Money earns interest over time, a fact called the time value of money.
A business, which has a calendar year accounting period, purchased an asset on March
1, 2018. The business disposed of the asset on August 31, 2019. For the calendar year
2019, depreciation should be calculated from January 1 to August 31.
A wholesaler is a merchandiser who buys goods from a manufacturer and then sells the
goods to retailers.
A deposit ticket is a document that instructs a bank to pay the designated person a
specified amount of money.
A signature card is a card that shows each authorized person’s signature for a bank
account.
Because of the risk of fraud, electronic invoices and electronic receiving reports are
seldom used in accounting information systems.
Unlike the sales journal, entries in the cash receipts journal are posted monthly to the
accounts receivable subsidiary ledger and daily to the general ledger.
The Common Stock account is a temporary account.
The statement of retained earnings informs users about how much of the earnings were
kept and reinvested in the company.
When a company uses a perpetual inventory system, all merchandise transactions are
updated as they occur. However, the inventory account may not show the correct
balance at all times.
On the income statement, a service company reports the cost of merchandise inventory
that has been sold to customers.
The debt ratio is the ratio of total debt divided by total equity.
No single ratio tells the whole picture of any company’s performance.
The left side of the accounting equation always equals the right side of the accounting
equation.
Entries in the cash payments journal are posted daily to the accounts payable subsidiary
ledger and monthly to the general ledger.
A net loss for the year decreases the balance in Retained Earnings.
Estimated residual value is not depreciated because the company is guaranteed to
receive this amount when the asset is sold.
In the weighted-average inventory costing method, when using the periodic inventory
system, a single weighted average cost per unit is computed for the entire period.
After posting the journal entries from the journal to the ledger, the accounting equation
should be in balance.
The collection period of accounts receivable is usually long, and therefore, it is
classified as a long-term asset on the balance sheet.
To compare companies of different sizes, investors need some standard profitability
ratios.
A classified balance sheet can be presented in either a report or an account form.
Although either is acceptable, the report form is more popular.
In a bank reconciliation, a book error will be shown on the bank side of the
reconciliation.
When using the perpetual inventory system, the entry to close Cost of Goods Sold will
include a debit to Income Summary.
Controlling operations is a key responsibility of a business manager.
On January 1, 2018, the Prepaid Insurance account of Dogwood, Inc. had a beginning
balance of $2,700. Three months of insurance premiums remain in this beginning
balance. On February 21, 2018, the company paid an annual insurance premium in the
amount of $4,300 for the period beginning March 1. On February 28, 2018, the balance
in Prepaid Insurance is $1,800.
When a perpetual inventory system is used, at the time of each sale an entry to record
an expense and an increase in Merchandise Inventory must be made.
Sales on account are recorded in a cash receipts journal.
A fully depreciated plant asset ________.
A) is no longer reported on the balance sheet
B) can be discarded, sold, or exchanged for another plant asset
C) can no longer be used in the business
D) is removed from the accounting records
Oakland Tax Planning Service bought computer equipment for $22,000 on January 1,
2018. It has an estimated useful life of four years and zero residual value. Oakland uses
the straight-line method to calculate depreciation and records depreciation expense in
the books at the end of each month. Calculate the amount of Depreciation Expense for
the period, January 1, 2018 through September 30, 2018, for this equipment. (Round
any intermediate calculations to two decimal places, and your final answer to the
nearest dollar.)
A) $5,500
B) $4,125
C) $5,958
D) $4,583
On a multi-step income statement, the operating expenses are subtracted from
________ to arrive at operating income.
A) net sales
B) cost of goods sold
C) net profit
D) gross profit
Match the accounting position to the job description.
A) Performs reviews of companies to ensure compliance to rules and regulations
B) Compiles financial statements, interacts with auditors, oversees regulatory reporting
C) Specializes in accounting and financial management knowledge
D) Serves the general public
Controller
Which of the following is used to determine how the sales revenue of a company has
changed from one year to the next?
A) vertical analysis of the balance sheet
B) horizontal analysis of the income statement
C) horizontal analysis of the balance sheet
D) vertical analysis of the income statement
Which of the following is true of the Discount on Bonds Payable account? The bonds
are due in ten years.
A) It is added to the Bonds Payable balance and shown with long-term liabilities on the
balance sheet.
B) It is subtracted from the Bonds Payable balance and shown with the current
liabilities on the balance sheet.
C) It is added to the Bonds Payable balance and shown with stockholders’ equity on the
balance sheet.
D) It is subtracted from the Bonds Payable balance and shown with long-term liabilities
on the balance sheet.
Tan’s gross pay for the week is $1500. His year-to-date pay is under the limit for
OASDI. Assume that the rate for state and federal unemployment compensation taxes is
6% and that Tan’s year-to-date pay has previously exceeded the $7000 cap. What is the
amount of state and federal unemployment tax that his employer must record as payroll
tax expense and pay to the federal and state governments?
A) $0
B) $21.75
C) $111.75
D) $90
A six-month note receivable for $8,000 at 13%, dated October 1, 2020, has accrued
interest revenue of ________ as of December 31, 2020. (Round any intermediate
calculations to two decimal places, and your final answer to the nearest dollar.)
A) $1,040
B) $520
C) $260
D) $130
The distribution of a stock dividend ________.
A) decreases both assets and liabilities
B) decreases assets and increase liabilities
C) affects only stockholders’ equity accounts
D) increases both dividends payable and cash
Modern Designs is a new business. During its first year of operations, credit sales were
$45,000 and collections of credit sales were $34,000. One account, $700, was written
off. Management uses the percent-of-sales method to account for bad debts expense and
estimates 3% of credit sales to be uncollectible. Bad debts expense for the first year of
operations is ________.
A) $650
B) $1,350
C) $700
D) $2,370
An accounting information system is said to have good flexibility, if it ________.
A) works smoothly with the business’s employees and organizational structure
B) safeguards a business’s assets and reduces the likelihood of fraud and errors
C) provides information that will improve decision making and reduce uncertainty
D) accommodates changes in the business over time
The entry to record depreciation includes a credit to the ________ account.
A) Depreciation Payable
B) Cash
C) Accumulated Depreciation
D) Depreciation Expense
The bank charged a service fee of $55. How would this information be included on the
bank reconciliation?
A) a deduction on the bank side
B) an addition on the book side
C) a deduction on the book side
D) an addition on the bank side
At the beginning of 2019, Patriots, Inc. has the following account balances:
Accounts Receivable $45,000 (Debit)
Allowance for Bad Debts $8,000 (Credit)
Bad Debts Expense $0
During the year, credit sales amounted to $810,000. Cash collected on credit sales
amounted to $770,000, and $18,000 has been written off. At the end of the year, the
company adjusted for bad debts expense using the percent-of-sales method and applied
a rate, based on past history, of 3.5%. The amount of bad debts expense for 2019 is
________.
A) $28,350
B) $56,875
C) $18,000
D) $18,350
Held-to-maturity investments applies only to debt securities because ________.
A) these securities earn periodic interest
B) equity securities do not mature on a specific date
C) these are long-term investments
D) equity securities are held for a short period of time
The two basic sources of stockholders’ equity are ________.
A) common stock and bonds
B) common stock and preferred stock
C) paid-in capital and retained earnings
D) no-par and stated value stock
Candle Shop, Inc. has net sales on account of $1,800,000. The average net accounts
receivable are $680,000. Calculate the days’ sales in receivables.(Use 365 days for any
calculations. Round any intermediate calculations and your final answer to two decimal
places.)
A) 322.42 days
B) 365.00 days
C) 137.74 days
D) 2.65 days
On March 1, 2018, Barker Services issued a 5% long-term notes payable for $21,000. It
is payable over a 3-year term in $7000 annual principal payments on March 1 of each
year plus interest, beginning March 1, 2019. How will the notes payable be shown on
the balance sheet dated December 31, 2018?
A) $21,000 shown as current liability only
B) $7000 shown as current liability and $21,000 shown as long-term liability
C) $7000 shown as current liability and $14,000 shown as long-term liability
D) the entire $21,000 shown as long-term liability
O’Keith Corp. purchased a mine on January 1, 2018, for $500,000. The mine is
estimated to contain 40,000 tons of iron ore. There is no residual value. The business
extracted and sold 8500 tons of ore in 2018 and 11,800 tons of ore in 2019. What is the
book value of the mine at the end of 2019? (Round any intermediate calculations to two
decimal places, and your final answer to the nearest dollar.)
A) $420,000
B) $246,250
C) $350,000
D) $500,000
Handbags, Inc. had 400 units of inventory on hand at the end of the year. These were
recorded at a cost of $14 each using the last-in, first-out (LIFO) method. The current
replacement cost is $10 per unit. The selling price charged by Handbags, Inc. for each
finished product is $17. In order to record the adjusting entry needed under the
lower-of-cost-or-market rule, the Cost of Goods Sold will be ________.
A) debited by $4,000
B) credited by $4,000
C) debited by $1,600
D) credited by $1,600
A petty cash fund was established with a $200 balance. It currently has cash of $35 and
petty cash tickets as follows: Office expense $130 and Entertainment Expense $50.
Which of the following would be included in the journal entry to replenish the Petty
Cash fund?
A) debit to Cash Short & Over for $20
B) credit to Cash Short & Over for $15
C) credit to Cash Short & Over for $20
D) debit to Cash Short & Over for $15
Which of the following is true of the general journal?
A) All transactions recorded in one of the special journals are also recorded in the
general journal.
B) Manual accounting information systems do not need the general journal.
C) The adjusting entries and the closing entries are recorded in the general journal.
D) Non-routine transactions are generally not recorded in the general journal.
The Allowance for Bad Debts has a credit balance of $8,000 before the adjusting entry
for bad debts expense. After analyzing the accounts in the accounts receivable
subsidiary ledger using the aging-of- receivables method, the company’s management
estimates that uncollectible accounts will be $17,000. What will be the amount of Bad
Debts Expense reported on the income statement?
A) $25,000
B) $9,000
C) $17,000
D) $8,000
An invoice, with payment terms of 2/10, n/30, was issued on April 28 for $250.00. If
the payment was made on May 12, the amount of payment will be ________. (Round
your answer to the nearest cent.)
A) $250.00
B) $225.00
C) $245.00
D) $248.00
Accounts Payable is a(n) ________ account and has a normal ________ balance.
A) liability; debit
B) asset; debit
C) liability; credit
D) asset; credit
A way to account for petty cash by maintaining a constant balance in the petty cash
account and which at any time requires that cash plus petty cash tickets must total the
amount allocated to the petty cash fund, is known as the ________.
A) control system
B) voucher system
C) balanced system
D) imprest system
If there is cash involved in a business transaction, the transaction should be recorded in
either the ________.
A) cash payments journal or cash receipts journal
B) cash payments journal or general journal
C) cash payments journal or cash receipts journal and in general journal
D) sales journal or purchases journal
Regarding a business organized as a partnership, which of the following is an incorrect
statement?
A) Partners pay tax on their share of the partnership earnings.
B) Partners are personally liable for the debts of the business.
C) A partnership’s life is not dependent on a specific individual’s ownership.
D) Mutual agency is present in a partnership.
Green Bay Sales purchased equipment for $50,000 by issuing a three-year note payable.
On the statement of cash flows, this transaction would be shown in the ________.
A) non-cash financing and investing activities section
B) investing activities section
C) operating activities section
D) financing activities section
A merchandiser has sales discounts forfeited of $100, cost of goods sold of $22,000,
and other expenses of $1,100. The merchandiser uses a perpetual inventory system. The
second entry in the closing process would include ________.
A) a debit to Income Summary for $23,100
B) a credit to Income Summary for $23,200
C) a debit to Income Summary for $23,200
D) a credit to Income Summary for $1,200
The market rate of interest ________.
A) is also known as the stated rate of interest
B) affects the amount of cash interest the borrower pays each year
C) is printed on the bond and does not change from year to year
D) works with the stated rate of interest to set the price of a bond
Analyze the following independent situations.
Required: For each situation, state the likelihood of a future event and state how the
contingency will be reported.
a. Company A estimates it will have to pay $85,000 in warranty repairs next year.
b. Company B is being sued by a customer. Company B’s attorneys feel that this is a
frivolous lawsuit and there is very little chance that the customer will win.
c. Company C co-signed a note payable for Company D. Company D is having serious
financial problems and it is reasonably possible that Company C will have to pay the
note.
d. Company E is being sued for a patent infringement. Company E’s attorney feels that
Company E will be found liable for damages caused by the patent infringement.
However, the attorney states it is not possible to estimate the amount of the award.
In an accounting cycle, which of the following steps takes place only at the end of the
accounting period?
A) start with the beginning account balances
B) journalize transactions that occur
C) analyze transactions as they occur
D) journalize adjusting entries
Montgomery Corporation has excess cash to invest and pays $200,000 to buy 7%,
five-year bonds of Richmond Corporation, at face value, on June 30, 2018. The bonds
pay interest on June 30 and December 31. Montgomery intends to hold the bonds to
maturity and has the ability to hold the bonds to maturity. The bonds are disposed of, at
face value, on June 30, 2023.
Prepare the journal entry for June 30, 2018 (omit the explanation).
Prepare the journal entry to record an uncollectible accounts receivable of $10,000,
using the direct write-off method. Omit explanation.
Provide a definition of each of the follow accounting terms.
Preston Sales, Inc. has gross salaries and wages for March of $45,000. Provide the
journal entry to record salaries and wages expense and payroll withholdings. (Assume a
FICA—OASDI Tax of 6.2% and FICA—Medicare Tax of 1.45%.) Salaries and wages
to date are under the OASDI limit. Assume no federal or state income taxes are due.
Salaries and wages will be paid at a later date. Omit explanation.
Mason’s Restaurant and Catering had the following transactions during the month of
May.
The business uses the following accounts: Cash; Accounts Receivable; Office Supplies;
Delivery Van; Accounts Payable; Utilities Payable; Unearned Revenue; Notes Payable;
Common Stock; Dividends; Service Revenue; Salaries Expense; Equipment Rent Expense;
Restaurant Rent Expense; Utilities Expense; Catering Expense; and Advertising Expense.
Required: Journalize each transaction. Explanations are not needed.
The periodic inventory records of Northstar Sales indicate the following for the month
of April:
As of April 30, Northstar counts 8 units of merchandise inventory on hand.
Compute ending merchandise inventory and cost of goods sold for Northstar using the
LIFO inventory method.
What is a contingent liability? Provide two examples of contingencies.
Perkins Services reported the following balances:
Compute earnings per share for 2018, price/earnings ratio for 2018, assuming the market
price on December 31, 2018 is $37.50 per share, and the rate of return on common
stockholders’ equity for 2018.
(Show your computations and round to two decimal places.)
List the steps, in the correct order, that are used when analyzing transactions.
Define liabilities. Provide three examples of liabilities.
Why is it necessary to journalize transactions from the bank reconciliation? List two
examples of items that need to be journalized.
On March 21, 2019, the bond accounts of Pet Supplies Sales showed the following
balances.
Pet Supplies Sales retires the bonds for $66,150. Prepare the journal entry to record the
retirement of the bonds. Omit explanation.
List and briefly discuss three accounting concepts and principles that apply to accrual
basis accounting.
Identify how each of the following items is shown on the statement of cash flows.
Identify each as operating (O), investing (I), financing (F), or non-cash investing and
financing (N).
On January 1, 2018, Western Services issued $20,000 of 8% bonds that mature in five
years. The bonds were issued for $20,750. Prepare the journal entry to issue bonds.
Omit explanation.
Journalize the following transactions for Park Gift Shop. Explanations are not required.
Park uses a perpetual inventory system.
Mar. 5: Purchased $4,400 of merchandise inventory on account, 3/10, n/EOM and FOB
shipping point.
Mar. 9: Returned $700 of defective merchandise purchased on March 5.
Mar. 11: Paid the freight bill of $250 on the March 5 purchase.
Mar. 12: Sold merchandise inventory on account for $5,200., 2/15, n/30. These goods
cost the company $3,700.
Mar. 14: Paid amount owed on credit purchase of March 5, less the return and the
discount.
Mar. 30: Received cash from the March 12 customer in full settlement of the debt.
Journalize the following purchase transactions for Rocky’s Swimming Pool Supply
Company using the periodic inventory system. Explanations are not required.
Define internal control.
Logan Service Company earned revenues of $100,000 and incurred expenses of
$107,000. Prepare the entry to close the Income Summary account. Omit explanation.
To make sure that an error was not made in the closing process, compare the Adjusted
Trial Balance to the Post-Closing Trial Balance. List the three items that need to be
considered in order to complete the step.
