The use of reversing entries
a. is a required step in the accounting cycle.
b. changes the amounts reported in the financial statements.
c. simplifies the recording of subsequent transactions.
d. is required for all adjusting entries.
Answer:
A stock split
a. may occur in the absence of retained earnings.
b. will increase total paid-in capital.
c. will increase the total par value of the stock.
d. will have no effect on the par value per share of stock.
Answer:
Although a separate legal entity, the transactions of the following still must be kept
separate from the personal activities of the owners for accounting purposes:
a. Proprietorship.
b. Partnership.
c. Corporation.
d. Both a proprietorship and a partnership.
Answer:
Which of the following is a true statement about closing the books of a corporation?
a. Expenses are closed to the Expense Summary account.
b. Only revenues are closed to the Income Summary account.
c. Revenues and expenses are closed to the Income Summary account.
d. Revenues, expenses, and the dividends account are closed to the Income Summary
account.
Answer:
Bush Company reported net income of $60,000 for the year. During the year, accounts
receivable decreased by $8,000, accounts payable increased by $4,000 and depreciation
expense of $5,000 was recorded. Net cash provided by operating activities for the year
is
a. $48,000.
b. $77,000.
c. $59,000.
d. $55,000.
Answer:
In preparing the statement of cash flows, determining the net increase or decrease in
cash requires the use of
a. the adjusted trial balance.
b. the current period’s balance sheet.
c. a comparative balance sheet.
d. a comparative income statement.
Answer:
The left side of an account is
a. blank.
b. a description of the account.
c. the debit side.
d. the balance of the account.
Answer:
Othello Company understated its inventory by $20,000 at December 31, 2014. It did not
correct the error in 2014 or 2015. As a result, Othello’s stockholder’s equity was:
a. understated at December 31, 2014, and overstated at December 31, 2015.
b. understated at December 31, 2014, and properly stated at December 31, 2015.
c. overstated at December 31, 2014, and overstated at December 31, 2015.
d. understated at December 31, 2014, and understated at December 31, 2015.
Answer:
Free cash flow equals cash provided by
a. operations less capital expenditures and cash dividends.
b. operations less cash dividends.
c. investing activities less capital expenditures and cash dividends.
d. operations less capital expenditures.
Answer:
Below are descriptions of internal control problems. In the space to the left of each
item, enter the code letter of the one best internal control principle that is related to the
problem described.
Internal Control Principles
A. Establishment of responsibility
B. Segregation of duties
C. Physical controls
D. Documentation procedures
E. Independent internal verification
F. Human resource controls
1> The same person opens incoming mail and posts the accounts receivable subsidiary
ledger.
2> Three people handle cash sales from the same cash register drawer.
3> A clothing store is experiencing a high level of inventory shortages because people
try on clothing and walk out of the store without paying for the merchandise.
4> The person who is authorized to sign checks approves purchase orders for payment.
5> Some cash payments are not recorded because checks are not prenumbered.
6> Cash shortages are not discovered because there are no daily cash counts by
supervisors.
7> The treasurer of the company has not taken a vacation for over 20 years.
Answer:
An asset was purchased for $250,000. It had an estimated salvage value of $50,000 and
an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is
revised to $40,000 but the estimated useful life is unchanged. Assuming straight-line
depreciation, depreciation expense in year 6 would be
a. $30,000.
b. $22,000.
c. $15,000.
d. $21,000.
Answer:
When listing accounts in the statement of cash flows worksheet, the accumulated
depreciation account is shown
a. with accounts that have credit balances.
b. with accounts that have debit balances.
c. as a credit under the reconciling items.
d. as a debit under the reconciling items.
Answer:
During August, 2015, Baxter’s Supply Store generated revenues of $60,000. The
company’s expenses were as follows: cost of goods sold of $36,000 and operating
expenses of $4,000. The company also had rent revenue of $1,000 and a gain on the
sale of a delivery truck of $2,000.
Baxter’s operating income for the month of August, 2015 is
a. $20,000.
b. $21,000.
c. $23,000.
d. $24,000.
Answer:
Using the following information:
During 2015, sales on account were $145,000 and collections on account were
$100,000. Also during 2015, the company wrote off $4,000 in uncollectible accounts.
An analysis of outstanding receivable accounts at year end indicated that uncollectible
accounts should be estimated at $40,000.
The change in the cash realizable value from the balance at 12/31/14 to 12/31/15 was a
a. $36,000 increase.
b. $41,000 increase.
c. $44,000 increase.
d. $45,000 increase.
Answer:
IFRS
a. requires a specific format for the balance sheet (statement of financial position) that
is identical to U.S. GAAP.
b. requires a specific format for the balance sheet (statement of financial position) that
is different from U.S. GAAP.
c. requires no specific format for the balance sheet (statement of financial position) but
most companies that follow IFRS prepare the statement identical to U.S. GAAP.
d. requires no specific format for the balance sheet (statement of financial position) but
most companies that follow IFRS prepare the statement in a different format from U.S.
GAAP.
Answer:
During August, 2015, Baxter’s Supply Store generated revenues of $60,000. The
company’s expenses were as follows: cost of goods sold of $36,000 and operating
expenses of $4,000. The company also had rent revenue of $1,000 and a gain on the
sale of a delivery truck of $2,000.
Baxter’s nonoperating income (loss) for the month of August, 2015 is
a. $0.
b. $1,000.
c. $2,000.
d. $3,000.
Answer:
If a short-term debt investment is sold, the Investment account is
a. credited for the book value of the bonds at the sale date.
b. credited for the cost of the bonds at the sale date.
c. credited for the fair value of the bonds at the sale date.
d. debited for the cost of the bonds at the sale date.
Answer:
The balance of a control account in the general ledger
a. must always be zero.
b. must equal the amount of total assets.
c. is always greater than the composite balance of individual accounts in a related
subsidiary ledger.
d. must equal the composite balance of individual accounts in a related subsidiary
ledger.
Answer:
Restricting retained earnings for the cost of treasury stock purchased is a
a. contractual restriction.
b. legal restriction.
c. stock restriction.
d. voluntary restriction.
Answer:
Which of the following statements related to the adjusted trial balance is incorrect?
a. It shows the balances of all accounts at the end of the accounting period.
b. It is prepared before adjusting entries have been made.
c. It proves the equality of the total debit balances and the total credit balances in the
ledger.
d. Financial statements can be prepared directly from the adjusted trial balance.
Answer:
Blaney Clothing Store had a balance in the Accounts Receivable account of $437,500 at
the beginning of the year and a balance of $500,000 at the end of the year. Net credit
sales during the year amounted to $3,000,000. The average collection period of the
receivables in terms of days was
a. 53.2 days.
b. 365 days.
c. 60.1 days.
d. 57 days.
Answer:
An (x) below the “Other Accounts” column in a cash receipts journal indicates the
a. total has been posted to the general ledger.
b. total is not posted to the general ledger.
c. column has been footed.
d. column has been cross-footed.
Answer:
Lucky Company borrowed $1,000,000 on January 1, 2015, by issuing $1,000,000, 8%
mortgage note payable. The terms call for semiannual installment payments of $75,000
on June 30 and December 3
Instructions
(a) Prepare the journal entries to record the mortgage loan and the first two installment
payments.
(b) Indicate the amount of mortgage note payable to be reported as a current liability
and as a long-term liability at December 31, 2015.
Answer:
Posting
a. should be performed in account number order.
b. accumulates the effects of journalized transactions in the individual accounts.
c. involves transferring all debits and credits on a journal page to the trial balance.
d. is accomplished by examining ledger accounts and seeing which ones need updating.
Answer:
The cash effects of selling goods and services appears in the ______________ activities
section of a statement of cash flows.
Answer:
The par value of common stock must always be equal to its market value on the date the
stock is issued.
Answer:
The IRS does not require the taxpayer to use the same depreciation method on the tax
return that is used in preparing financial statements.
Answer:
Many companies prepare a stockholders’ equity statement instead of presenting a
detailed stockholders’ equity section in the balance sheet.
Answer:
The adjusted trial balance of Old 97 Automotive Service Company on June 30, 2015
includes the following accounts: Supplies, $300; Accumulated Depreciation, $9,500;
Salaries Payable, $1,550, Notes Payable $6,750; Service Revenue, $22,100; Salaries
and Wages Expense, $8,750; Depreciation Expense, $3,250; Supplies Expense, $1,000;
Rent Expense, $400; Utilities Expense, $350; and Interest Expense $250. Prepare an
income statement for the month of June.
Answer: