The statement of stockholders’ equity has less information than the statement of
retained earnings.
The Supplies Expense account is a temporary account.
Because companies use special journals, the use of the General Journal is optional.
Liquidity is a measure of how quickly an item can be converted to net income.
On the statement of cash flows, the investing activities section is shown after the
financing activities section.
When a corporation issues no-par stock, it debits the asset received and credits the stock
account.
Office Supplies is an expense because the supplies will be used up in the future.
In reviewing the T-account for Accounts Receivable, you find that the beginning
balance is zero, the total increases are $5,200 and the total decreases are $2,400. This
means that the ending balance of the account is a credit balance of $2,800.
Promoting operational efficiency reduces expenses and business profits.
A creditor is any person who has an ownership interest in a business.
The use of the allowance method to record bad debts expense violates the matching
principle.
Only permanent accounts appear on the post-closing trial balance.
Ordinary repairs to plant assets are referred to as revenue expenditures.
The Merchandise Inventory account is debited to write down the inventory as required
by the lower-of-cost-or-market rule.
A corporation will never pay dividends on treasury stock.
By accepting credit and debit cards, companies are able to attract more customers.
Retained earnings represents amounts received from stockholders of a corporation in
exchange for stock.
Under the perpetual inventory system, purchase returns or allowances are debited to the
Merchandise Inventory account by the purchaser.
In practice, most companies face complex situations. In these cases, a spreadsheet can
help in preparing the statement of cash flows.
If the historical cost of inventory is less than its current replacement cost, the business
must adjust the inventory value.
If purchase allowances are granted, the buyer need not return the goods to the seller.
Most states prohibit corporations from paying a dividend if a deficit will occur.
An asset account is increased by a debit.
To match expenses against revenues means to add expenses paid in cash during one
month to revenues earned during that same month.
In a sole proprietorship, the owner is personally liable for the debts of the business.
On July 1, 2018, Jordie Equipment Dealer issued $600,000 of 9% bonds payable that
mature in seven years. These bonds were issued at face value and pay interest each June
30 and December 31. Each semiannual interest payment is $27,000.
The operating cycle of a merchandiser begins when the company purchases inventory
from a vendor and ends when the company collects cash from customers.
Debt is a less expensive source of capital than stock.
Debit card transactions are considered electronic funds transfers.
When a company uses the first-in, first-out (FIFO) method, the cost of goods sold
represents the cost of the most recently purchased goods and the value of ending
inventory represents the cost of the oldest goods in stock.
The Allowance for Bad Debts is a contra account to Accounts Receivable.
Corporations may not retire preferred stock in order to avoid paying the preferred
dividends.
The Sarbanes-Oxley Act requires all private companies in the United States to maintain
an internal control system.
When a company has issued both preferred and common stock, the common
stockholders receive their dividends first.
The net income (or net loss) must be calculated after the statement of retained earnings
is prepared.
FICA—OASDI Taxes Payable would normally be shown on the balance sheet under
long-term liabilities.
As a part of the closing process, revenues and expenses may be closed to a temporary
account called the Net Income (Loss).
The double-declining-balance method is an accelerated method of depreciation.
When a bond is issued, the issue price is the present value of the interest payments the
bondholder will receive while holding the bond, plus the present value of the bond
principal that will be received at maturity.
The change in cash is the key reconciling figure for the statement of cash flows and
must match the change in cash reported on the comparative income statements.
When performing vertical analysis of an income statement, the base amount is
________.
A) total expenses
B) net sales revenue
C) sales revenue
D) gross profit
Adventures Unlimited Company distributes cash dividends. How does this transaction
affect the accounting equation?
A) The assets, liabilities, and equity remain the same.
B) The assets decrease and equity decreases.
C) The assets increase and liabilities decrease.
D) The assets decrease and equity increases.
The accountant for Main Street Jewelry Repair Services, Inc. forgot to make an
adjusting entry for Depreciation Expense for the current year. Which of the following is
an effect of this error?
A) Total assets are understated.
B) Revenues are overstated.
C) Total assets are overstated.
D) Net income is understated.
Brownstone, Inc. has a current ratio of 6.00. This indicates that the company has $6 in
________.
A) current liabilities for every $1 of current assets
B) total assets for every $1 of current liabilities
C) current assets for every $1 of current liabilities
D) total assets for every $1 of current assets
When a company uses the perpetual inventory system, ________.
A) purchases of Office Supplies and Equipment that will be used in the day-to-day
operations of the business are recorded as debits to Merchandise Inventory.
B) the purchase of merchandise inventory on account is recorded as a debit to Accounts
Payable and a credit to Merchandise Inventory.
C) the Merchandise Inventory account is reported as an expense on the income
statement.
D) the Merchandise Inventory account is debited for purchases of goods that the
company intends to resell to customers.
O’Malley, Inc. issued 60,000 shares of common stock in exchange for manufacturing
equipment. The equipment has a fair value of $1,420,000. The stock has a par value of
$0.05 per share. The journal entry to record this transaction includes a ________.
A) debit to Cash for $14,170,000
B) credit to Gain on Sale of Common Stock for $1,480,000
C) credit to Paid-In Capital in Excess of Par—Common for $1,417,000
D) credit to Common Stock—$0.05 Par Value for $1,420,000
Bayside Technical Services signed a contract on a six-month job for a client, starting on
March 1. Bayside will collect $24,000 from its customer when the job is finished but
the revenue is earned evenly over the six months. On March 31, before adjusting entries
are made, Bayside’s Accounts Receivable account had a debit balance of $4,000. After
the March 31 monthly adjusting entry has been made, what will be the balance in
Accounts Receivable?
A) Debit balance of $4,000
B) Credit balance of $20,000
C) Debit balance of $8,000
D) Debit balance of $24,000
Pumpkin Corporation issued 10,000 shares of common stock on January 1, 2018. The
stock has no par value and was issued at $17 per share. The journal entry for this
transaction includes a ________.
A) debit to Cash for $170,000 and a credit to Common Stock—No-Par Value for
$170,000
B) debit to Cash for $170,000 and a credit to Paid-In Capital in Excess of Par—
Common for $170,000
C) credit to Cash for $170,000 and a debit to Common Stock—No-Par Value for
$170,000
D) credit to Cash for $170,000, a debit to Paid-In Capital in Excess of Par—Common
for $10,000, and a debit to Common Stock—No-Par Value for $160,000
Which of the following is the basic internal control procedure with respect to cash
receipts?
A) depositing all cash receipts in the bank shortly after the cash is received
B) requiring customers to pay with debit or credit cards
C) requiring the accountants to make the bank deposits
D) preventing collusion
ABC Tax Planning Service started business in January 2018. The company rented an
office for $5,400 per month starting from January 1, 2018. On that day, ABC prepaid
the rent through June 30. The company makes adjusting entries at the end of each
month. What is the balance in the Prepaid Rent account as of April 30, 2018?
A) $10,800
B) $900
C) $5,400
D) $2,700
The disclosure principle states that a company should disclose all major accounting
methods and procedures in the ________.
A) balance sheet
B) income statement
C) footnotes to the financial statements
D) internal accounting documents
Illinois Woodworking Company is preparing its statement of cash flows using the
indirect method. During the year, Illinois Woodworking sold equipment for $6490 cash.
The net book value of the asset was $4770. Which of the following statements is true?
A) The gain on sale of $1720 is added back to net income in the operating activities
section.
B) The book value of the asset sold is shown as a negative cash flow in the investing
activities section.
C) The cash receipt of $6490 is shown as a positive cash flow in the investing activities
section.
D) The gain on sale of $1720 is shown as a positive cash flow in the financing activities
section.
The times-interest-earned ratios of Orlando, Inc. are 20.56 and 7.35 for 2018 and 2019,
respectively. Which of the following can be the possible reason for such a change from
2018 to 2019?
A) Orlando, Inc. incurred less debt specifically in its revolving line of credit.
B) Orlando, Inc. incurred more debt specifically in its revolving line of credit.
C) Orlando, Inc. paid less interest in its revolving line of credit.
D) Orlando, Inc.’s debt-paying ability increased.
When a check is issued, the party who is paying the cash is referred to as the ________.
A) payee
B) maker
C) bank signatory
D) depositor
When a stockholder contributes land to a corporation in exchange for stock, ________.
A) liabilities and stockholders’ equity are increased
B) assets and stockholders’ equity are increased
C) one asset is increased and another asset is decreased
D) assets and liabilities are increased
The following transactions have been journalized and posted to the proper accounts.
March is the first month of business operations.
Mar. 1 The business received $10,000 cash and issued common stock to stockholders.
Mar. 2 Paid the first month’s rent of $800.
Mar. 3 Purchased equipment by paying $4,000 cash and executing a note payable for
$5,000.
Mar. 4 Purchased office supplies for $700 cash.
Mar. 5 Billed a client for $14,000 of design services completed.
Mar. 6 Received $6,000 on account for the services previously recorded.
What is the ending balance in the Service Revenue account?
A) $16,000
B) $10,000
C) $14,000
D) $6,000
An invoice ________.
A) is the bill that the purchaser receives from the vendor
B) is the purchaser’s request for payment from the seller
C) is a demand for immediate payment
D) must be paid within 10 days from the date of the invoice
A contingency was evaluated at year-end and considered to have a reasonable
possibility of becoming an actual liability. If this was not reported in the notes to the
financial statements, what is the effect on the financial reporting of the company?
A) There would be no effect.
B) The liabilities on the balance sheet would be understated.
C) The information about the transaction would be inadequately disclosed in the notes.
D) The net income of the company would be understated.
Refer to the following information for Tolan Corporation:
• Common Stock, $1.00 par, 106,000 shares issued, 100,000 shares outstanding
• Paid-In Capital in Excess of Par—Common: $2,190,000
• Retained Earnings: $920,000
• Treasury Stock: 6000 shares purchased at $21 per share
If Tolan resold 2500 shares of treasury stock for $22.50 per share, which of the
following statements would be true?
A) The Treasury Stock account would decrease by $26,250.
B) The Paid-In Capital in Excess of Par—Common account would increase by $2500.
C) The Treasury Stock account would decrease by $52,500.
D) The Retained Earnings account would increase by $56,250.
The Technology Company issues $517,000 of 11%, 10-year bonds at 104 on March 31,
2018. The bonds pay interest on March 31 and September 30. Assume that the company
uses the straight-line method for amortization. Calculate the net balance that will be
reported for the bonds on the September 30, 2018 balance sheet. (Round your
intermediate answers to the nearest dollar.)
A) $517,000
B) $537,680
C) $536,646
D) $538,714
Lisa Smith decided to start her CPA practice as a professional corporation, Smith CPA,
PC. The corporation purchased an office building for $35,000. The real estate agent said
the building was worth $50,000 in the current market. The corporation recorded the
building as a $50,000 asset because Lisa believes that is the real value of the building.
Which of the following concepts or principles of accounting is being violated?
A) cost principle
B) economic entity assumption
C) monetary unit assumption
D) going concern assumption
A pharmaceutical company testing drugs to determine possible side effects is a part of
________.
A) monitoring controls
B) information systems
C) control procedures
D) risk assessment
Which of the following statements is true if the income statement credit column
exceeds the income statement debit column on a worksheet?
A) The company made a net profit.
B) The company incurred a net loss.
C) The retained earnings account decreased during the period.
D) An error was made.
Which one of the following is true of the bank reconciliation?
A) It should not be prepared by an employee who handles cash transactions.
B) It is prepared in place of the cash ledger.
C) It is a financial statement.
D) It guarantees that no errors have been made.
The accounts payable subsidiary ledger ________.
A) does not indicate the amount owed to each vendor
B) shows only a single total for the amount owed on account
C) lists vendors in alphabetical order, along with amounts paid to the vendors and the
remaining amounts owed to them
D) has a format that is entirely different from an accounts receivable subsidiary ledger
Both the chart of accounts and the ledger ________.
A) provide the balance of each account at a specific point in time
B) list the account names and numbers of the business
C) fulfill the task of showing all of the increases and decreases in each account
D) All of the statements are correct.
Which of the following is NOT a way to accurately determine the financial
performance of a company?
A) carefully examining one year of data
B) evaluating a company’s performance from year to year
C) comparing a company’s performance with a competing company
D) comparing a company’s performance with the same industry as a whole
A business repays the amount borrowed on a note with cash. Which of the following
accounts is credited?
A) Accounts Payable
B) Cash
C) Notes Payable
D) Notes Receivable
Which of the following line items would appear on the income statement of a company
that uses the periodic inventory system, but not on that of a company that uses the
perpetual inventory system?
A) Net Sales Revenue
B) Cost of Goods Sold
C) Cost of Goods Available for Sale
D) Operating Expenses
Which of the following statements is true?
A) Accounts receivable are more liquid than cash.
B) Notes receivable are always classified as current assets.
C) Notes receivable usually have longer collection terms than accounts receivable.
D) Accounts receivable are liabilities.
A business has the following transactions:
The business receives $16,000 cash and issues common stock to stockholders.
The business purchases $500 of office supplies on account.
The business purchases $1,000 of furniture on account.
The business performs services for various clients totaling $14,000 on account.
The business pays $3,000 for salaries expense and $5,000 for rent expense.
The business pays $500 to a supplier for the office supplies purchased earlier.
The business collects $3,000 from one of its clients for services rendered earlier in the
month.
At the end of the month, all journal entries are posted to the ledger. Accounts
Receivable will appear as which of the following?
A) Accounts Receivable
B) Accounts Receivable
C) Accounts Receivable
D) Accounts Receivable
A merchandiser uses a perpetual inventory system. The beginning Retained Earnings
balance of the merchandiser was $110,000. During the year, Sales Revenue amounted
to $90,000, Cost of Goods Sold was $40,000, and all other expenses totaled $12,000.
The company declared and paid $27,000 as dividends. The ending balance of Retained
Earnings would be ________.
A) $148,000
B) $121,000
C) $175,000
D) $110,000
