Adjusting entries do not update balance sheet accounts.
Installment payments for mortgages generally contain both an amount for principal
repayment and an amount for interest.
Generally, all transactions are recorded in both a special journal and the general journal.
For good internal control, the purchasing agent should neither receive the goods nor
approve the payment.
An equity security does not represent an ownership interest in a corporation, although it
pays dividends.
The market rate is the rate used to calculate the actual cash payments made to
bondholders.
Internal controls must always be judged in light of their costs versus their benefits.
The Cost of Goods Sold account is credited to write down the inventory as required by
the lower-of-cost-or-market rule.
FICA tax is a tax that is paid both by the employer and the employee.
A merchandiser adjusts and closes accounts differently than a service entity does.
A worksheet can be used to help prepare the financial statements.
Investors use the times-interest-earned ratio to evaluate a company’s ability to pay
interest expense.
The ending balance in the Retained Earnings account is shown on the income statement
columns of the worksheet.
Under the perpetual inventory system, two journal entries are used to record the sale of
merchandise. One entry records the Sales Revenue and another entry records the Cost
of Goods Sold.
Reversing entries are special journal entries that ease the burden of accounting for
transactions in a later period.
According to Generally Accepted Accounting Principles, goodwill must be amortized.
Contra asset accounts, such as Accumulated Depreciation, always have normal debit
balances.
Consolidated statements combine the balance sheets, income statements, and statement
of cash flows of the parent company with those of its controlling interest affiliates.
Small stock dividends are accounted for at the stock’s par value.
In a classified balance sheet, assets are reported in the order of liquidity and liabilities
are listed in the order in which they must be paid.
Working capital measures a business’s ability to meet its long-term obligations with its
current assets.
Financial analysts perform reviews of companies to ensure compliance to rules and
regulations.
Balancing errors can be detected by computing the difference between total debits and
total credits on the trial balance.
A retailer sells, for cash, a television set with a two-year service contract. The retailer
initially records the cash received for the service contract as Unearned Revenue.
Investors primarily use managerial accounting information for decision-making
purposes.
A payment of an expense in advance is called a prepaid expense.
Businesses must estimate the amount of bad debts expense at the end of the accounting
period only when using the balance sheet approaches.
Each category of the accounting equation contains accounts.
The two major types of receivables are interest receivable and taxes receivable.
Most small businesses have computerized all of their accounting.
The last-in, first-out (LIFO) costing system may or may not match the physical flow of
goods.
Under International Financial Reporting Standards (IFRS), companies may only use the
specific identification, FIFO, and weighted-average methods to cost inventory.
The owners’ claims to the assets of the business are called ________.
A) return on assets
B) expenses
C) equity
D) debt
FOB destination refers to a situation where title to goods while in transit belongs to the
________.
A) buyer
B) seller
C) transport agency
D) insurance agency
Janno Enterprises prepaid four months of office rent totaling $9,000 on October 1,
2019. The rent period begins on October 1. Assuming Janno records deferred expenses
using the alternative treatment, what would be the adjusting entry recorded on
December 31, 2019?
A) Debit Rent Expense and credit Prepaid Rent for $6,750.00.
B) No entry is needed since Rent Expense was recorded on October 1, 2019.
C) Debit Prepaid Rent and credit Rent Expense for $2,250.00.
D) Debit Prepaid Rent and credit Rent Expense for $27,000.00.
Which of the following appears on a statement of cash flows prepared using the direct
method?
A) adjustments to net income
B) cash payments for salaries
C) adjustments for gains and losses on sale of property
D) increase/decrease in current assets
Which of the following assets must be reported at the lower-of-cost-or-market value?
A) Accounts Receivable
B) Merchandise Inventory
C) Prepaid Insurance
D) Notes Receivable
The accounting records of Mason Service Company include the following selected,
unadjusted balances at June 30: Accounts Receivable, $2,700; Office Supplies, $1,800;
Prepaid Rent, $3,600; Equipment, $15,000; Accumulated Depreciation – Equipment,
$1,800; Salaries Payable, $0; Unearned Revenue, $2,400; Office Supplies Expense,
$2,800; Rent Expense, $0; Salaries Expense, $15,000; Service Revenue, $40,500.
The following data developed for adjusting entries are as follows:
a. Service revenue accrued, $1,400
b. Unearned Revenue that has been earned, $800
c. Office Supplies on hand, $700
d. Salaries owed to employees, $1,800
e. One month of prepaid rent has expired, $1,200
f. Depreciation on equipment, $1,500
Journalize the adjusting entries. Omit explanations.
Which of the following actions will increase the Common Stock account?
A) cash dividend
B) stock split
C) stock dividend declared and distributed
D) purchase of treasury stock
The income statement is also known as the ________.
A) statement of operations
B) statement of cash flows
C) statement of stockholders’ equity
D) statement of financial position
Financial statements are prepared from the balances in a(n) ________.
A) general journal
B) chart of accounts
C) unadjusted trial balance
D) adjusted trial balance
Closing entries are journalized and posted ________.
A) throughout the accounting period
B) before posting the adjusting entries
C) after preparing the post-closing trial balance
D) after preparing the financial statements
The following transactions for the month of March have been journalized and posted to
the proper accounts.
Mar. 1 The business received $8,000 cash and issued common stock to stockholders.
Mar. 2 Paid the first month’s rent of $600.
Mar. 3 Purchased equipment by paying $2,000 cash and executing a note payable for
$6,000.
Mar. 4 Purchased office supplies for $750 cash.
Mar. 5 Billed a client for $14,000 of design services completed.
Mar. 6 Received $5,000 on account for the services previously recorded.
What is the balance in Accounts Receivable?
A) $5,000
B) $9,000
C) $6,000
D) $14,000
When using the periodic inventory system, the Merchandise Inventory account is
________.
A) not used
B) never used when recording purchase discounts, or returns of inventory
C) replaced on the balance sheet with the Purchases account
D) updated after each sale
The trend analysis report of Marswell, Inc. is given below (in millions):
Which of the following is a correct conclusion from the above analysis?
A) Net income for 2017 has increased by 114% over that for 2015.
B) Net income for 2017 has decreased by 14% over that for 2015.
C) Net income for 2017 has decreased by 114% over that for 2015.
D) Net income for 2017 has increased by 14% over that for 2015.
Business Office Supplies, Inc. uses the periodic inventory system. On February 1, the
corporation purchased inventory on account for $20,000. The terms of invoice were
4/10, n/30. The amount due was paid on February 9. Which of the following journal
entries correctly records the payment in the books of Business Office Supplies?
A)
B)
C)
D)
Industrial Equipment Supply is a new business. During its first year of operations,
credit sales were $44,000 and collections of credit sales were $37,000. One account,
$650, was written off. Management uses the aging-of-receivables method to account for
bad debts expense and estimated $575 as uncollectible at year end. The ending balance
of the Allowance for Bad Debts is ________.
A) $230
B) $880
C) $1,225
D) $575
When a business factors its accounts receivables, the business ________.
A) uses the receivables as security for a loan
B) no longer has to deal with the collection of the receivables from the customers
C) receives the total amount of the receivables from the factor
D) receives cash, less an applicable fee, after the factor collects from the customers
Jason, an employee of Fitzgerald, Inc., has gross salary for March of $4,000. The entire
amount is under the OASDI limit of $118,500, and thus subject to FICA. His
year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. Which of
the following is a part of the journal entry to record the employer’s payroll taxes?
A) credit to Payroll Tax Expense
B) debit to FICA Taxes Payable
C) credit to FICA—Medicare Taxes Payable
D) debit to Cash
A check was written by a business for $507 but was recorded in the journal as $705.
How would this error be included on the bank reconciliation?
A) a deduction on the bank side
B) an addition on the book side
C) an addition on the bank side
D) a deduction on the book side
Which of the following is an example of hardware?
A) monitor
B) malware
C) firewall
D) operating system
The following is a summary of information presented on the financial statements of a
company on December 31, 2019.
With respect to long-term liabilities, a horizontal analysis reveals ________.
A) long-term liabilities decreased by $13,000
B) long-term liabilities decreased by 22.81%
C) long-term liabilities decreased by 15.38%
D) long-term liabilities decreased by $2000
A company purchased 90 units for $20 each on January 31. It purchased 180 units for
$25 each on February 28. It sold 180 units for $60 each from March 1 through
December 31. If the company uses the first-in, first-out inventory costing method, what
is the amount of Cost of Goods Sold on the income statement for the year ending
December 31? (Assume that the company uses a perpetual inventory system.)
A) $1,800
B) $4,500
C) $4,050
D) $6,300
The reason investors buy bonds is to ________.
A) earn interest
B) own controlling interest in the company
C) exercise voting rights in a company
D) receive dividend payments
Which of the following statements regarding the accounting equation is incorrect?
A) The equation is the basic tool of accounting.
B) The equation consists of three categories: assets, liabilities, and equity.
C) Each category of the accounting equation contains accounts.
D) The equation can be stated as assets plus liabilities equals equity.
Which of the following formulae is used to calculate average total assets for the return
on assets ratio?
A) Average total assets = (Beginning total assets + Ending total assets) × 2
B) Average total assets = (Beginning total assets – Ending total assets) × 2
C) Average total assets = (Beginning total assets – Ending total assets) / 2
D) Average total assets = (Beginning total assets + Ending total assets) / 2
Which of the following inventory costing methods results in the highest value of ending
inventory during a period of rising inventory costs?
A) specific identification
B) weighted-average
C) last-in, first-out
D) first-in, first-out
Unrealized gains or losses on available-for-sale debt investments occur when a
company adjusts the investment to ________.
A) fair value but has not yet disposed of the asset
B) fair value when an asset is disposed
C) average value but has not yet disposed of the asset
D) average value when an asset is disposed
What are the two basic components of a computerized accounting information system?
A) sales journal and purchase journal
B) hardware and software
C) cash payments journal and cash receipts journal
D) network and cloud computing
Regarding liabilities, which of the following statements is incorrect?
A) Liabilities represent one of the two claims to assets.
B) A creditor who has loaned money to a business has a claim to some of the business’s
assets until the business pays the debt.
C) Liabilities are economic resources that are expected to benefit the business in the
future.
D) Many, but not all, liabilities have the word payable in their titles.
Annual reports ________.
A) are required to be prepared by every corporation
B) discuss the company’s competitors and the risks related to the company’s business
C) are also called a Form 10-Q
D) only include the company’s financial statements
If bonds with a face value of $204,000 are issued at par, the amount of cash proceeds is
________.
A) $203,890
B) $204,000
C) $224,400
D) $244,800
The Golden Company issues $539,000 of 7%, 10-year bonds at 104 on March 31, 2019.
The bonds pay interest on March 31 and September 30. Assume that the company uses
the straight-line method for amortization. The journal entry to record the issuance
includes a ________.
A) debit to Cash for $539,000
B) credit to Bonds Payable for $560,560
C) debit to Premium on Bonds Payable for $21,560
D) debit to Cash for $560,560
An enterprise resource planning (ERP) is a ________.
A) hardware system that controls the access of employees to different levels of
production in a firm
B) software system used by small companies to record revenue and expenses
C) hardware system of electronic linkages that allows different computers to share the
same information
D) software system that can integrate all of a company’s functions, departments, and
data into a single system
List the three sections of the statement of cash flows and state what is included in each
section.
On January 1, 2018, Sport Planes Manufacturing Corporation purchased a machine for
$40,000,000. The corporation expects to use the machine for 24,000 hours over the next
six years. The estimated residual value of the machine at the end of the sixth year is
$40,000. The corporation used the machine for 3,600 hours in 2018 and 5,000 hours in
2019. What is the book value of the machine at the end of year 2019 if the corporation
uses double-declining-balance method of depreciation? (Round your intermediate
calculations.)
On October 1, 2019 Ranger Service Company paid $5,000 in rent for the next five
months, beginning with October 2019. On that date, Ranger debited Prepaid Rent and
credited Cash. If Ranger fails to make an adjusting entry on December 31, 2019,
indicate the effect on assets, liabilities, equity, and net income.
On December 31, 2018, Absolute Services, Inc. prepared the following accrual
adjustment:
The company paid salaries amounting to $1,500 on January 7, 2019 for the two-week pay
period that ended on January 6, 2019. Journalize the entries for January 1, 2019 and
January 7, 2019, assuming the company uses reversing entries. Omit explanations.
On November 30, 2019, Jenkins Company loaned M. Lee $4,000 for one year at an
annual interest rate of 4%. Prepare the entry that Jenkins Company will make on
November 30, 2019. Omit explanations.
A company using the perpetual inventory system purchased merchandise on account for
$5,000. Give the journal entry to record this transaction. Omit explanation.
Hardin Co. purchased $1,000,000 of 4% bonds of Westin Co. at face value on January
1, 2018. The bonds pay interest on June 30 and December 31 each year. They mature on
December 31, 2022. Hardin intends to hold the Westin bond investment until maturity
and has the ability to do so.
Requirements:
1. Journalize Hardin’s transactions related to the bonds for 2018. Omit explanations.
2. Journalize the entry that Hardin will make on the maturity date of the Westin Co.
bonds. Assume the last interest payment has already been recorded. Omit explanations.
Burton, Inc. purchased a van on January 1, 2018, for $800,000. Estimated life of the
van was five years, and its estimated residual value was $90,000. Burton uses the
straight-line method of depreciation. Prepare the journal entry to record the purchase of
van for cash. Omit explanation.
Eagle Auto Supplies reported the following income statement for the year ended
December 31,2018.
Eagle Auto Supplies
Income Statement
Year Ended December 31, 2018
Compute inventory turnover rate for the year. (Round to two decimal places.)
Compute days’ sales in inventory for the year. (Round to two decimal places.)
On December 1, 2018, Garland, Inc. had 200,000 shares of $1 par value common stock
issued and outstanding. The next day, Garland declared and distributed a 50% stock
dividend. The market value of the stock on December 2, 2018 was $9 per share. Prepare
the journal entry for the transaction. Omit explanation.
Management Services sells service plans for commercial computer maintenance. The
price for each plan is $1,350 per year, paid in advance. On October 1, 2019, a service
plan was sold to a new customer for cash, and the plan covers the period October 1,
2019 to September 30, 2020. Prepare the December 31, 2019 adjusting entry. Round to
two decimal places. Omit explanation.
On January 1, 2019, Drake Services issued $20,000 of 8% bonds that mature in five
years. The bonds were issued at par. Prepare the journal entry to issue bonds. Omit
explanation.
The following is the adjusted trial balance as of December 31, 2018 of Bravo
Photography:
Provide the closing entry for revenues. Omit explanation.
Long Island Corp. discards a truck that was originally purchased for $50,000 and had
accumulated depreciation of $30,000. Prepare the journal entry for the disposal. Omit
explanation.
On January 1, 2017, Dennis Supply purchased equipment for $60,000 cash, expecting it
to remain in service for six years. The equipment is depreciated using the straight-line
method with $2,000 estimated residual value. On April 30, 2019, the equipment was
sold for $48,000 cash. Record depreciation expense for 2019 and the sale of the
equipment on April 30, 2019. (Round all intermediate calculations to two decimal
places. Round final numbers to nearest dollar.) Omit explanations.
Colonial Company uses the direct method to prepare its statement of cash flows. Refer
to the following financial statement information for the year ending December 31,
2019:
Colonial Company
Comparative Balance Sheet
December 31, 2019 and 2018
Colonial Company
Income Statement
Year Ended December 31, 2019
Colonial Company
Statement of Retained Earnings
Year Ended December 31, 2019
Prepare the operating activities section of the statement of cash flows, using the direct
method. Accrued liabilities relate to other operating expenses.
When computing the present value of a bond, which interest rate is used? Why?