On January 1, 2016, The Hanover Corporation issued $70,500 of 8%, 5-year bonds at
97. Hanover uses the straight-line method of bond discount amortization. The interest
payments are due on December 31 each year.
The journal entry used to record the issuance of the bond and the receipt of cash would
be:
A.
B.
C.
D.
On November 1, 2016, Shumate Company paid $1,200 in advance for an insurance
policy that covered the company for six months. Assuming that Schumacher recorded
this purchase as an asset, the adjusting entry required on December 31, 2016 would
include:
A.a debit to Prepaid Insurance for $400.
B.a credit to Prepaid Insurance for $400.
C.a debit to Insurance Expense for $1,200.
D.a credit to Insurance Expense for $1,200.
Which of the following is a claims exchange transaction?
A. Recognized revenue earned on a contract where the cash had been collected at an
earlier date.
B.Issued common stock.
C.Invested cash in an interest earning account.
D.Purchased machine for cash.
During a company’s first year, the asset account, Office Supplies, was debited for
$2,300 for the purchases of supplies. At year-end, office supplies on hand were counted
and determined to be $825. The proper adjusting entry crediting supplies and debiting
supplies expense will
A.increase expenses and decrease assets by $1,475.
B.decrease assets and increase expenses by $825.
C.increase expenses and increase assets by $1,475.
D.have no effect on net income or the accounting equation.
Indicate whether each of the following statements is true or false.
_____ a) Straight-line depreciation is the most widely used method in the U.S.
_____ b) An accelerated depreciation method provides a lower depreciation charge in
the early years of an asset’s life cycle than does the straight-line method.
_____ c) The units-of-production depreciation method allocates the cost of a plant asset
in proportion to the asset’s usage.
_____ d) Total depreciation expense recognized over the asset’s life is not affected by
the choice of depreciation methods.
_____ e) The entry to record depreciation affects the income statement and the
statement of cash flows but not the balance sheet or statement of changes in
stockholders’ equity.
Which of the following would not be considered as primarily a merchandising
business?
A.Abercrombie and Fitch
B.Sam’s Clubs
C.Amazon
D.Regal Cinemas
Marvel Company sold land that cost $440,000 for $470,000 cash. Indicate whether each
of the following statements is true or false regarding Marvel’s statement of cash flows
(SCF).
_____ a) If Marvel uses the direct method, there would be a $30,000 cash inflow in the
operating section of the SCF.
_____ b) If Marvel uses the indirect method to prepare the statement of cash flows, the
gain on the sale of the land would be added to net income in calculating the cash flows
from operating activities.
_____ c) Marvel would report the event in the investing activities section of the SCF
the same way whether it uses the direct method or the indirect method.
_____ d) Marvel would disclose the event as a noncash investing and financing activity.
_____ e)Marvel would report a $470,000 cash inflow in the investing section of the
SCF.
Which of the following would not describe the effects of an asset source transaction on
a company’s financial statements?
A.
B.
C.
D.
The matching concept most significantly influences which financial statement?
A.Balance sheet
B.Income statement
C.Statement of changes in stockholders’ equity
D.Statement of cash flows
On November 30, 2016, Hernandez Company’s bank statement showed an ending
balance of $37,341. The following information is available about Hernandez’s account:
1) Debit memo in bank statement for bank service charge, $39
2) Deposit in transit, $2,988
3) Outstanding checks, $3,156
4) Customer’s NSF check for $723 was returned with the bank statement
Required:
a) Determine the true cash balance as of November 30, 2016.
b) Determine the unadjusted balance of the company’s Cash account as of November
30, 2016.
A firm’s operating cycle can be determined by:
A.Adding the inventory turnover ratio to the receivables turnover ratio divided into 365
days.
B.Adding the average days in inventory to the average days in receivables.
C.Dividing cost-of-goods-sold by average inventory.
D.Dividing 365 days by the difference in the inventory turnover and the receivable
turnover.
Which account is increased by a credit to the account?
A.Accounts receivable
B.Service revenue
C.Interest expense
D.Supplies
Indicate whether each of the following statements about bonds payable is true or false.
_____ a) At the time of issue, the effective interest rate of a particular bond is equal to
the market rate of interest for bonds with a similar level of risk.
_____ b) When bonds are sold at 105, the stated interest rate of the bonds is lower than
the market rate for investments with a similar level of risk.
_____ c) When bonds are sold at 95, the stated interest rate of the bonds is lower than
the market rate for investments with a similar level of risk.
_____ d) When bonds are sold at 100, the stated interest rate of the bonds is lower than
the market rate for investments with a similar level of risk.
_____ e) When bonds are sold at 101, the bonds were issued at a premium.
On January 1, 2016, Jefferson Manufacturing Company purchased equipment for
$212,000. Jefferson paid $4,000 to have the machine installed. The equipment is
expected to have a 5 year useful life and a salvage value of $26,000.
Required: a) At what dollar amount should this equipment be recorded in Jefferson’s
accounting records?
b) Compute depreciation expense for 2016 and 2017 using straight line depreciation.
c) What is the book value at the beginning of 2018?
d) Assume the equipment was sold on January 1, 2018, for $135,000. Compute the
amount of gain or loss from the sale.
e) Prepare the journal entry to record the sale of the equipment using the information in
part d).
The Gordon Corporation issued $70,000 of 6%, 5-year bonds on January 1, 2016 at 98.
The interest payments are due on December 31 each year. Gordon uses the straight-line
method of amortization.
Which of the following answers shows the effect of the first interest payment and
amortization of premium or discount?
A.
B.
C.
D.
During 2016, Millstone Company earned $6,500 of cash revenue, paid cash dividends
of $1,000 to owners and paid $4,000 for cash expenses. Liabilities were unchanged.
Which of the following accurately describes the effect of these events on the elements
of the company’s financial statements?
A.Assets increased by $6,500.
B.Assets increased by $1,500.
C.Equity increased by $2,500.
D.Assets increased by $5,500.
Indicate whether each of the following statements is true or false.
_____ a) The extension of a warranty on goods sold normally represents a legal liability
to the seller.
_____ b) The entry to recognize the warranty obligation increases the Warranties
Payable account and reduces the Revenue account.
_____ c) The entry to record the repairs provided to customers under the terms of
product warranties increase Warranties Expense and decrease the Warranties Payable
account.
_____ d) Net income is not affected by the entry to record the completion of warranty
work.
_____ e) Total assets are not affected by the end-of-period entry to record the warranty
obligation.
Peterson Corporation recorded an adjusting entry using T-accounts as follows:
Which of the following reflects how this adjustment affects the company’s financial
statements?
A.
B.
C.
D.
Where is treasury stock reported on a corporation’s balance sheet?
A.As an addition to total paid-in capital
B.As a deduction from total stockholders’ equity, following Retained Earnings
C.As a deduction from total paid-in capital
D.As a deduction from Retained Earnings
The following general journal entry is taken from the journal of Becker’s Bookstore:
Which of the following choices reflects how the entry will affect the company’s
financial statements?
A.
B.
C.
D.
Which of the following statements about Treasury Stock is correct?
A.The balance in the Treasury Stock account increases paid-in capital.
B.The balance in the Treasury Stock account reduces paid-in capital.
C.The balance in the Treasury Stock account reduces total Stockholders’ Equity.
D.The balance in Treasury Stock reduces Retained Earnings.
Vincent Company accepted a 12-month, 7% promissory note from a customer, Graves
Company, on September 1, 2016, in exchange for $24,000 of services that Vincent
performed. Prepare general journal entries for the following:
a) acceptance of the note on September 1, 2016
b) accrual of interest on December 31, 2016
c) collection of principal and interest on August 31, 2017
A review of the bank statement and accounting records of the Blake Company revealed
the following items:
Which of the item(s) would be subtracted from the company’s unadjusted book balance
to determine the true cash balance?
A.Item numbers 2 and 4.
B.Item numbers 2, 4, and 5.
C.Item numbers 1 and 4.
D.Item numbers 1, 2, 4, and 5.
Yowell Company began operations on January 1, 2016. During 2016, the company
engaged in the following cash transactions:
1) issued stock for $40,000
2) borrowed $25,000 from its bank
3) provided consulting services for $39,000
4) paid back $15,000 of the bank loan
5) paid rent expense for $9,000
6) purchased equipment costing $12,000
7) paid $3,000 dividends to stockholders
8) paid employees’ salaries, $21,000
What is Yowell’s net income?
A.$9,000
B.$30,000
C.$18,000
D.$6,000
Financial ratios can be used to assess which of the following aspects of a firm’s
performance?
A.Liquidity
B.Solvency
C.Profitability
D.All of these answer choices are correct.
On January 1, 2016, Stiller Company paid $800,000 to obtain a patent. Stiller expected
to use the patent for 5 years before it became technologically obsolete. The remaining
legal life of the patent was 8 years. Based on this information, the amount of
amortization expense on the December 31, 2018 income statement and the book value
of the patent on the December 31, 2018 balance sheet would be:
A.$10,000/$30,000.
B.$16,000/$48,000.
C.$10,000/$50,000.
D.$16,000/$32,000.
The following information is for Cleveland Company:
Additional data for 2016:
(1) Sales on account for the period were $80,000.
(2) Operating expenses for the period were $52,000.
Based on this limited information, what was the net cash inflow from operations?
A.$18,000.
B.$22,000.
C.$28,000.
D.$34,000.
At the end of the 2016 accounting period DeYoung Company determined that the
market value of its inventory was $79,800. The historical cost of this inventory was
$81,400. DeFazio uses the perpetual inventory method. The entry necessary to reduce
the inventory to the lower of cost or market will
A.decrease assets and decrease gross margin.
B.decrease assets and decrease net income.
C.increase assets and increase net income.
D.decrease assets, gross margin, and net income.
Bijan Corporation recorded the adjusting entry to recognize $4,000 of revenue
previously recorded as unearned. Which of the following shows the proper entry using
T-accounts?
A.
B.
C.
D.
On January 1, 2016, Mayberry Company borrowed cash from Central Bank by issuing a
$75,000 face value 3-year installment note payable that carried a 9% interest rate. The
note is to be repaid by making annual cash payments of $29,629.11, which includes
both principal and interest. The payments are to be made on December 31 of each year.
Required:
a) Prepare an amortization schedule for the term of the loan, showing the amounts to be
paid on principal and interest for 2016, 2017, and 2018 and the loan balance at the end
of each year.
b) What amount of interest expense will be shown on the 2017 income statement?
c) What amount of liability for the note will be shown on the balance sheet as of
December 31, 2017?
d) Prepare the journal entry to record the payment made on December 31, 2017.