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Turnbull Department Store had net credit sales of $18,000,000 and cost of goods sold of
$15,000,000 for the year. The average inventory for the year amounted to $2,500,000.
The average number of days in inventory during the year was
a. 365 days.
b. 60.8 days.
c. 50.7 days.
d. 30 days.
Answer:
Selected financial statement data for Mure Company are presented below.
During 2016, net sales were $950,000, and cost of goods sold was $770,000.
Instructions
Compute the following ratios at December 31, 2016:
(a) Current.
(b) Acid-test.
(c) Accounts receivable turnover.
(d) Inventory turnover.
Answer:
Which of the following would not be reported on the balance sheet as a cash
equivalent?
a. Money market fund
b. Sixty-day certificate of deposit
c. Six-month Treasury bill
d. Money market savings certificate
Answer:
Ownership of common stock ordinarily carries the right to
a. declare dividends.
b. establish a drawing account.
c. enter into contracts for the corporation.
d. vote on corporate actions that require stockholder approval.
Answer:
Sales revenue
a. may be recorded before cash is collected.
b. will always equal cash collections in a month.
c. only results from credit sales.
d. is only recorded after cash is collected.
Answer:
The interest on a $10,000, 8%, 1-year note receivable is
a. $800.
b. $10,000.
c. $10,080.
d. $10,800.
Answer:
The daily cash count of cash register receipts made by department supervisors is an
example of
a. other controls.
b. independent internal verification.
c. establishment of responsibility.
d. segregation of duties.
Answer:
Which of the following statements concerning IFRS and U.S. GAAP is
true?
a. IFRS permits revaluation of all intangible assets, whereas U.S. GAAP
prohibits revaluation of intangible assets.
b. Gains on exchange of assets when the exchange has commercial
substance are recognized under both IFRS and U.S. GAAP.
c. Changes in depreciation method under IFRS are reported in current and
future periods, under U.S. GAAP such changes are treated as prior period
adjustments.
d. All of the choices are true regarding IFRS and U.S. GAAP.
IFRS:
Answer:
In a perpetual inventory system, the Cost of Goods Sold account is used
a. only when a cash sale of merchandise occurs.
b. only when a credit sale of merchandise occurs.
c. only when a sale of merchandise occurs.
d. whenever there is a sale of merchandise or a return of merchandise sold.
Answer:
In Ramon Company, Treasury Stock increased $20,000 from a cash purchase, and
Retained Earnings increased $80,000 as a result of net income of $120,000 and cash
dividends paid of $40,000. Net cash used by financing activities is:
a. $20,000.
b. $40,000.
c. $120,000.
d. $60,000.
Answer:
IFRS
a. implies that receivables with different characteristics should be reported
separately.
b. requires that receivables with different characteristics should be reported
separately.
c. implies that receivables with different characteristics should be reported
as one unsegregated amount.
d. requires that receivables with different characteristics should be reported
as one unsegregated amount.
Answer:
As a result of a thorough physical inventory, Horace Company determined that it had
inventory worth $320,000 at December 31, 2015. This count did not take into
consideration the following facts: Herschel Consignment currently has goods worth
$47,000 on its sales floor that belong to Horace but are being sold on consignment by
Herschel. The selling price of these goods is $75,000. Horace purchased $22,000 of
goods that were shipped on December 27, FOB destination, that will be received by
Horace on January 3. Determine the correct amount of inventory that Horace should
report.
a. $320,000.
b. $340,000.
c. $367,000.
d. $387,000.
Answer:
Listed below are seven errors or problems which might occur in the processing of cash
transactions. Also shown is a list of internal control principles. Evaluate each possible
error and cite a principle that is listed that would reduce the probability of the error
occurring. If none of the principles given will correct the problem, write "None." If you
think more than one principle is appropriate, list all principles that apply.
Possible Errors or Problems
1> An employee steals the cash collected from a customer for an account receivable and
conceals this theft by issuing a credit memorandum indicating that the customer
returned the merchandise.
2> A small fire destroys 3 days of cash receipts.
3> The official designated to sign checks is able to steal blank checks and issue them
without fear of detection.
4> A salesclerk in serving customers often rings up a sale for less than the actual
amount and then keeps the additional cash collected from the customer.
5> Three cashiers use one cash register drawer and the cash in the drawer is often short
of the balance kept on hand.
6> Each cashier counts his own register drawer each day and verbally reports the results
to the supervisor.
7> Cashiers with over 5 years' experience are not bonded.
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
Answer:
The collection of a $1,500 account after the 2 percent discount period will result in a
a. debit to Cash for $1,470.
b. debit to Accounts Receivable for $1,500.
c. debit to Cash for $1,500.
d. debit to Sales Discounts for $30.
Answer:
Cash-basis accounting is allowed under
a. GAAP but not IFRS.
b. IFRS but not GAAP.
c. both IFRS and GAAP.
d. neither IFRS nor GAAP.
Answer:
A corporation is not committed to a legal obligation when it declares
a. a cash dividend.
b. either a cash dividend or a stock dividend.
c. a stock dividend.
d. a distribution date.
Answer:
The income statement for the month of June, 2015 of Camera Obscura Enterprises
contains the following information:
The entry to close Income Summary to Retained Earnings includes
a. a debit to Revenues for $7,000.
b. credits to Expenses totalling $5,700.
c. a credit to Income Summary for $1,300
d. a credit to Retained Earnings for $1,300.
Answer:
The relationship between current assets and current liabilities is important in evaluating
a company's
a. profitability.
b. liquidity.
c. market value.
d. accounting cycle.
Answer:
Which depreciation method is most frequently used in businesses today?
a. Straight-line
b. Declining-balance
c. Units-of-activity
d. Double-declining-balance
Answer:
A separate paid-in capital account is used to record each of the following except the
issuance of
a. no-par stock.
b. par value stock.
c. stated value stock.
d. treasury stock above cost.
Answer:
Art, Inc., has 5,000 shares of 4%, $100 par value, cumulative preferred stock and
20,000 shares of $1 par value common stock outstanding at December 31, 2015. There
were no dividends declared in 2013. The board of directors declares and pays a $45,000
dividend in 2014 and in 2015. What is the amount of dividends received by the
common stockholders in 2015?
a. $30,000
b. $20,000
c. $45,000
d. $0
Answer:
The following information is for Sunny Day Real Estate:
The total dollar amount of assets to be classified as property, plant, and equipment is
a. $200,000.
b. $220,000.
c. $285,000.
d. $305,000.
Answer:
Most companies are required to compute overtime at
a. the worker's regular hourly wage.
b. 1.25 times the worker's regular hourly wage.
c. 1.5 times the worker's regular hourly wage.
d. 2.5 times the worker's regular hourly wage.
Answer:
A gain or loss on disposal of a plant asset is determined by comparing the
a. replacement cost of the asset with the asset's original cost.
b. book value of the asset with the asset's original cost.
c. original cost of the asset with the proceeds received from its sale.
d. book value of the asset with the proceeds received from its sale.
Answer:
Natural resources are
a. depreciated using the units-of-activity method.
b. physically extracted in operations and are replaceable only by an act of nature.
c. reported at their market value.
d. amortized over a period no longer than 40 years.
Answer:
On December 31, 2015, Colaw Company reports the following amounts in its
stockholder' equity section:
The common stock has a stated value of $10 per share. One million shares of common
stock are authorized and 40,000 shares are held in the treasury.
Instructions
Compute the book value per share of common stock
Answer:
Pincher Company purchased 50 Issac Company 12%, 10-year, $1,000 bonds on January
1, 2014, for $50,000. The bonds pay interest semiannually. On January 1, 2015, after
receipt of interest, Pincher Company sold 30 of the bonds for $28,300.
Instructions
Prepare the journal entries to record the transactions described above.
Answer:
When an investor owns between 20% and 50% of the common stock of a corporation, it
is generally presumed that the investor has _______________ influence over the
investee and therefore, the appropriate method of accounting for this type of investment
is the _______________ method.
Answer:
Garton Company had net income of $195,000 in 2014. Depreciation expense for the
year is $50,000. During the year, Accounts Receivable increased $8,000 and Prepaid
Expenses decreased $1,000. The company also sold equipment at a loss of $3,000.
Instructions
Calculate net cash flows from operating activities using the indirect method.
Answer:
Compute the maturity date and interest for the following notes.
Answer:
A classmate who is a computer science major thinks that accountants are obsolete. She
states that computers can do the entire process without any human assistance.
Discuss the steps in the recording process and indicate what role the computer plays in
that process.
Answer:
Frye Company is considering investing in an annuity contract that will return $50,000
annually at the end of each year for 20 years. What amount should Frye Company pay
for this investment if it earns an 8% return?
Answer:
Once an asset is fully depreciated, no additional depreciation can be taken even though
the asset is still being used by the business.
Answer:
Rob Honda plans to buy a home and can deposit $15,000 for the purchase today. If the
annual interest rate is 8%, how much can Rob expect to have for a down payment in 5
years?
Answer:
Baden's Hardware Store prepared the following analysis of cost of goods sold for the
previous three years:
Net income for the years 2014, 2015, and 2016 was $70,000, $60,000, and $55,000,
respectively. Since net income was consistently declining, Mr. Baden hired a new
accountant to investigate the cause(s) for the declines.
The accountant determined the following:
1> Purchases of $25,000 were not recorded in 2014.
2> The 2014 December 31 inventory should have been $24,000.
3> The 2015 ending inventory included inventory costing $5,000 that was purchased
FOB destination and in transit at year end.
4> The 2016 ending inventory did not include goods costing $4,000 that were shipped
on December 29 to Sampson Plumbing Company, FOB shipping point. The goods were
still in transit at the end of the year.
Instructions
Determine the correct net income for each year. (Show all computations.)
Answer:
