No significant influence equity investments generally involve the ownership of less
than 20% of the investee’s voting stock.
After posting entries in a sales journal to the general ledger, the Accounts Receivable
balance in the general ledger should equal the sum of the individual customer balances
in the accounts receivable subsidiary ledger.
The bank statement shows the beginning and ending balances of cash in a bank account,
cash receipts and payments, and the names of all individuals who are authorized to sign
checks.
In a vertical analysis of the income statement, each line item is shown as a percentage
of net sales revenue.
Certified Public Accountants are licensed professional accountants who serve the
general public.
Internal auditors are employees of the business who ensure that employees are
following company policies and that operations are running efficiently.
The times-interest-earned ratio measures the number of times earnings before interest
and taxes can cover interest expense.
Prepaid Rent is an expense account that appears on the income statement.
When businesses accept payment by credit and debit cards, the costs of processing fees
are greater than the benefits of transferring the risk of not being able to collect from the
customer and avoiding the costs associated with credit customers.
Scott Enterprises has excess cash to invest and pays $200,000 to buy $200,000 face
value, 8%, five year bonds of Hamilton Company bonds on July 1, 2018. The bonds are
issued on July 1, 2018 and pay interest on June 30 and December 31. Scott will record
interest revenue every six months for five years.
Just as individuals invest in a variety of companies’ stocks and bonds, the same is true
for businesses.
If a company uses the contra account, Accumulated Amortization, this account is
typically shown on the balance sheet.
Adjusting entries record revenues in the period in which cash is received and expenses
in the period when cash is paid.
When a business records an accrued utility liability, the Utilities Expense account is
credited.
Financial statements are business documents used to communicate information needed
to make business decisions.
The rate of return on total assets measures a company’s success in using its assets to
earn a profit.
In order to keep accurate records about the collection of cash for a previously written
off account, a business should re-establish the Accounts Receivable by debiting the
receivable account.
In a periodic inventory system, merchandise inventory and purchasing systems are
integrated with the records for Accounts Receivable and Sales Revenue.
A trial balance summarizes the ledger by listing all the accounts with their balances at a
point in time.
A cash equivalent is a highly liquid investment that can be converted into cash in one
year or less.
Evaluated receipts settlement (ERS) is a streamlined process that bypasses paper
documents altogether.
A system cannot be overcome or broken into if its internal controls are properly
designed and structured.
The balance sheet helps analyze the business performance in terms of profitability.
Dallas Corp. has gross pay for March of $50,000. The journal entry to record salaries
expense would include a debit to Salaries and Wages Payable for $50,000.
In the case of deferred revenue, the cash is received first, and the revenue is earned
later.
On March 1, 2018, Vintage Services issued an 8% long-term notes payable for $22,000.
It is payable over a 16-year term in $1,375 principal installments on March 1 of each
year, beginning March 1, 2019. Each yearly installment will include both principal
repayment of $1,375 and interest payment for the preceding one-year period. The
journal entry to pay the first installment will include a debit to Interest Expense for
$1,760.
Premium on Bonds Payable is additional Interest Expense of the company that issues
the bond.
If a business has a net loss, the closing entry to close Income Summary would be a
debit to Income Summary and a credit to Retained Earnings.
The net realizable value of Accounts Receivable is calculated by subtracting Bad Debts
Expense from Accounts Receivable.
The fact that invested cash earns interest over time is called the time value of money.
Deferred revenues, also called unearned revenues, arise when a business collects cash
before earning the revenue.
Collusion involves two or more people working together to circumvent internal controls
and defraud a company.
A bank deposit slip is a source document that shows the total of all checks written by a
company.
The old age, survivors, and disability insurance component of FICA tax is imposed on
the entire amount of an individual employee’s earnings.
Companies usually report their retained earnings restrictions on the balance sheet.
The accounts that are used in a worksheet are taken from and listed in the same order as
the ________.
A) balance sheet
B) audit report
C) journal
D) chart of accounts
The financial statements are prepared from the ________.
A) adjusted trial balance
B) chart of accounts
C) statement of retained earnings
D) unadjusted trial balance
In a perpetual inventory system, multiple performance obligations ________.
A) represent one distinct performance obligation
B) may require the creation of an asset account, Unearned Revenue
C) result in revenue being recorded when the separate performance obligations are
identified because there is a binding contact
D) require the company to allocate the transaction price to each performance obligation
At the end of a month, a business shows the following balances in its ledger.
Use this data to prepare a trial balance.
Assume the following information for Western Sales, Inc.:
• Common Stock, $1.00 par, 232,000 shares issued, 185,000 shares outstanding
• Paid-In Capital in Excess of Par—Common: $1,690,000
• Retained Earnings: $2,460,000
• Treasury Stock: 47,000 shares purchased at $17 per share
If Western Sales purchases an additional 8000 shares of treasury stock at $20 per share,
what number of shares will be shown as issued and outstanding?
A) 185,000 issued; 185,000 outstanding
B) 224,000 issued; 185,000 outstanding
C) 232,000 issued; 177,000 outstanding
D) 232,000 issued; 185,000 outstanding
Which of the following is a weak internal control over cash collections from
receivables?
A) The credit department should have no access to cash.
B) A credit department should evaluate customers’ credit applications to determine
whether they meet the company’s approval standards.
C) A company should have written approval standards for processing customers’ credit
applications.
D) In order to avoid losing sales, all customers’ credit applications should be approved.
Justice, Inc. purchased a machine for $15,000 two years ago. The machine had no
residual value and had an estimated useful life of 10 years. If the company uses the
straight-line depreciation method, calculate the current book value of the machine.
A) $12,000
B) $3,000
C) $16,500
D) $15,000
Motor Sales sold its old office furniture for $9000. The original cost was $17,000, and
at the time of sale, accumulated depreciation was $14,000. What is the effect of this
transaction?
A) gain of $9000
B) gain of $6000
C) loss of $6000
D) loss of $9000
Unrealized holding gains or losses on trading debt investments are reported in the
________.
A) current assets section of the balance sheet
B) operating expenses section of the income statement
C) other income and (expenses) section of the income statement
D) accumulated other comprehensive income section of stockholders’ equity
Westbrook Financial Services, Inc. invested $15,000 to acquire 7250 shares of Cloud
Investments, Inc. on March 15, 2015. This investment represents less than 20% of the
investee’s voting stock. On May 7, 2018, Westbrook Financial Services, Inc. sells 2250
shares for $12,250. Which of the following will be the correct journal entry for the May
7, 2018 transaction? (Round any intermediate calculations to two decimal places, and
your final answer to the nearest dollar.)
A)
B)
C)
D)
An adjusting entry that debits Accounts Receivable is an example of a(n) ________.
A) deferred expense
B) accrued revenue
C) accrued expense
D) deferred revenue
McAlister Repair Service had net income for the year of $125,000. In addition, the
balance sheet reports the following balances:
Calculate the return on assets (ROA) for McAlister Repair Service for the year ending
December 31, 2018.
The journal entry for accrued interest on a note payable includes ________.
A) a debit to Interest Expense and credit to Cash
B) a debit to Interest Expense and credit to Interest Payable
C) a debit to Interest Payable and credit to Cash
D) a credit to Interest Expense and debit to Notes Payable
Hometown Grocery, Inc. has 41,000 shares of common stock outstanding and 5000
shares of preferred stock outstanding. The common stock is $6.00 par value; the
preferred stock is 4% noncumulative with a $100.00 par value. On October 15, 2018,
the company declares a total dividend payment of $55,000. What is the amount of
dividend that will be paid for each share of common stock? (Round your answer to the
nearest cent.)
A) $0.85
B) $24.60
C) $2460.00
D) $0.75
Which of the following is true of the internal control component—information system?
A) Internal auditors monitor company controls to safeguard assets, and external
auditors monitor the controls to ensure that the accounting records are accurate.
B) Control procedures are designed to ensure that the business’s goals are achieved.
C) Only authorized users have access to various parts of the information system.
D) The information system is the “tone at the top” or the culture of the business.
Businesses record goodwill ________.
A) when they enjoy an outstanding reputation and loyalty with customers
B) if they acquire another company at an amount higher than the market value of its net
assets
C) when they continue the business of an acquired corporation
D) if their market value has increased significantly in the recent years
Which of the following statements is incorrect?
A) The life cycle of a plant asset includes: acquisition, usage, and disposal.
B) Depreciation is recorded on all plant assets.
C) Plant assets not currently being used in business operations are classified as
long-term investments.
D) Plant assets are long-lived tangible assets used in the operations of a business.
A summary of significant accounting policies and explanations of specific items on the
financial statements are included in ________.
A) the balance sheet
B) the income statement
C) the notes to financial statements
D) the report of the independent registered public accounting firm
Mars Corp. had cash sales of $10,000. The state sales tax rate is 10.8%. What amount is
debited to the Cash account?
A) $10,000
B) $11,080
C) $1080
D) $1000
On January 1, 2019, Agree Company issued $85,000 of five-year, 8% bonds when the
market interest rate was 12%. The issue price of the bonds was $62,401. Agree uses the
effective-interest method of amortization for bond discount. Semiannual interest
payments are made on June 30 and December 31 of each year. Which of the following
is the correct journal entry to record the first interest payment? (Round all amounts to
the nearest whole dollar.)
A)
B)
C)
D)
Cash disbursement journals also are known as ________.
A) sales journals
B) purchases journals
C) cash receipts journals
D) cash payments journals
Which of the following is an intangible asset?
A) copyright
B) building
C) land
D) equipment
After initially recording a transaction, the data is then transferred to the ________.
A) chart of accounts
B) ledger
C) trial balance
D) journal
Which of the following is NOT included in the purchases journal?
A) purchases of merchandise inventory for cash
B) purchase of merchandise inventory on account
C) purchase of office supplies on credit
D) purchase of equipment on account
Sean’s gross pay for this month is $8750. His gross year-to-date pay, prior to this month,
totaled $112,000. Sean’s rate for federal income tax is 25%. His voluntary deductions
total $950. What is Sean’s net pay? (Assume an OASDI rate of 6.2%, applicable on the
first $118,500 earnings, and a Medicare rate of 1.45%, applicable on all earnings.
Round any intermediate calculations to two decimal places, and your final answer to the
nearest dollar.)
A) $6032.62
B) $5612.50
C) $6562.50
D) $5082.62
Match each term with its description.
A) Sent by the vendor after the inventory has been shipped to the purchaser.
B) Sent to the vendor when goods are ordered.
C) Prepared by the purchaser when the goods are received.
D) Sent to the vendor after all approving documents have been submitted.
Invoice
All assets that will not be converted to cash or used up within the business’s operating
cycle or one year, whichever is greater, are called ________.
A) long-term assets
B) fully depreciated assets
C) current assets
D) current liabilities
Orbit Services, Inc. pays $700,000 to acquire 30% (200,000 shares) of the voting stock
of State Investments, Inc. on January 5, 2019. State Investments, Inc. declares and pays
a cash dividend of $1.40 per share on June 14, 2019. Which of the following is the
correct journal entry for the transaction on June 14, 2019?
A)
B)
C)
D)
Valley, Inc. has 9000 shares of preferred stock outstanding. The preferred stock has a
$90 par value, a 14% dividend rate, and is noncumulative. If Valley has sufficient funds
to pay dividends, what is the total amount of dividends that will be paid out to preferred
stockholders?
A) $32,143
B) $113,400
C) $57,857
D) $8100
What is the effect of the adjusting entry for Depreciation Expense?
A) It increases total liabilities and increases total expenses.
B) It increases total assets and increases total expenses.
C) It decreases total assets and increases total expenses.
D) It decreases total liabilities and increases total expenses.
On December 31, 2018, Globe, Inc. borrowed $500,000 by signing a five-year, 8% note
payable. The note is payable in five yearly installments of $100,000 plus interest, due at
the end of every year beginning on December 31, 2019. Which portion is classified as
the long-term portion of Notes Payable at December 31, 2018?
Glasgow, Inc. provides the following:
Glasgow, Inc.
Comparative Balance Sheet
December 31, 2019 and 2018
Perform a vertical analysis of Glasgow’s balance sheet for each year. (Round to one
decimal place.)
On December 31, 2018, interest of $1,500 has accrued on a bank note. This interest
payment is due on January 20, 2019. If no adjusting entry is made on December 31,
2018, indicate the effect on assets, liabilities, equity, and net income.
What is the primary objective of financial reporting?
Brentwood Corp. purchased a mine in 2018 for $500,000 and estimated that 30,000
tons of iron ore could be extracted from it. There was no residual value. The business
extracted and sold 2,500 tons of ore in 2018. How will the mine be reported on the
balance sheet at the end of year 2018? (Round all intermediate calculations to the
nearest cent.) Omit explanation.
List the steps of the accounting cycle that take place during the period.
For each of the following accounts, state type of account and the normal account
balance. Assume a periodic inventory system.
Costas, Inc. purchased inventory on account for $6,500. Prepare the journal entry to
record the purchase of inventory on account. (Assume a perpetual inventory system.)
Omit explanation.
On December 1, 2019, Pinewood, Inc. sold machinery to a customer for $2,000.
Pinewood regularly sells machinery. The customer could not pay at the time of sale but
agreed to pay 9 months later and signed a 9-month note at 12% interest. Prepare the
journal entry to record the revenue at the time of sale. Ignore the entry for cost of goods
sold. Omit explanation.
On November 27, 2018, Metro Delivery Service Company signs a contract with
Brooklyn Financial Services Company. Metro Delivery Service will provide 3 months
of local delivery services for $5,000 per month. Brooklyn pays $15,000 cash to Metro
on November 27, 2018. Delivery services will begin on December 1, 2018. Complete
the following requirements for Metro Delivery Services.
(1) Prepare the journal entries for November 27, 2018 and December 31, 2018 (the end
of Metro’s fiscal year). Make proper journal entries (omit explanations).
(2) If Metro fails to record the December 31, 2018 adjusting entry, what is the effect on
net income, income statement account(s) and balance sheet account(s)?
(3) Why is it important for companies to record adjusting entries?
An adjusted trial balance for a merchandiser is given below.
Provide journal entries to close the Income Summary account and the Dividends account.
Omit explanations.
Rally Auto Supplies, Inc. uses a perpetual inventory system. Journalize the following
sales transactions for this company. Explanations are not required.
The ending inventory of a company was $450,000 as per the perpetual inventory
records. The current replacement cost for the ending inventory is $410,000. Prepare the
journal entry to adjust inventory. Omit explanation.
An adjusted trial balance for a merchandiser is given below.
Prepare the journal entry to close the revenue and other income accounts. Omit
explanation.
Jupiter Services sells service plans for commercial computer maintenance. The price for
each service plan is $1,650 per year, paid in advance. On October 1, 2018, a service
plan was sold to a new customer for cash. Prepare the journal entry to record this
transaction. Omit explanation.
In order to expand its business, the management of Areos, Inc. issued a long-term notes
payable for $50,000. The note will be paid over a 10-year period with equal annual
principal payments, beginning in one year. The annual interest rate is 12%. Prepare the
journal entry for the issuance of the note. Omit explanation.