The Office Supplies account is a temporary account.
Preferred Stock is included in the long-term assets section of the balance sheet.
The current ratio is calculated as total current assets divided by total current liabilities.
If the maker of the note does not pay at maturity, the note has expired and is no longer
in force.
The depreciation method that allocates an equal amount of depreciation to each year is
called the straight-line method.
Employer FICA tax is paid by the employer and is added to the employee’s earnings.
The accrual method is an easier accounting method to follow than cash basis accounting
because it generally requires less knowledge of accounting concepts and principles.
Bonds are short-term debt issued to multiple lenders called bondholders, usually in
increments of $1,000 per bond.
Net income or net loss is the balancing amount on the worksheet and should always be
entered on the side that makes the debit and credit columns balance.
If a company fails to make an adjusting entry to record accrued expenses, the liabilities
and net income will be overstated.
The effective-interest amortization method allocates an amount of bond discount or
premium, based on the market interest rate at issuance, to each interest period over the
life of the bond.
The cost of a plant asset includes all amounts paid to ready the asset for its intended
use.
A retailer can buy merchandise either from a manufacturer or a wholesaler.
Investments in debt securities are recorded at cost. Brokerage fees paid are treated as
expenses.
The cash disbursements journal is also called the check register.
When a company co-signs a note payable for another entity, a current liability must be
recorded.
Earnings per share for income from continuing operations must be reported on the face
of the income statement.
The percent-of-sales method, used to compute bad debt expense, is also known as the
balance sheet approach.
The net income calculated using either the single-step or multi-step income statement
formats is always the same.
Residual value is also known as depreciable cost.
In a trial balance, total debits must always equal total credits.
Present value is the amount a person would invest now to receive a greater amount in
the future.
The Dividends account is included in the income statement section of the worksheet.
The first step in the flow of accounting data is the preparation of source documents.
The account names in the chart of accounts are standardized and thus are the same for
all businesses.
The entry to accrue the warranty payable includes a credit to Warranty Expense.
Companies are now spending less amounts of cash to ensure that their data and
information are secure.
The time period concept assumes that the activities of a business can be sliced into
small time segments.
Knowing the net cost of inventory allows a business to determine the actual cost of the
merchandise purchased.
Land and land improvements are one and the same and therefore must be recorded in
single account.
Texas Corp. uses the indirect method to prepare the statement of cash flows. Refer to
the following section of the comparative balance sheet:
Texas Corp.
Comparative Balance Sheet
December 31, 2018 and 2017
The change in Accounts Payable is reported as a negative cash flow in the adjustments to
net income.
The creation of a corporation begins when its incorporators obtain a charter from the
state.
Paid-in capital in excess of par is recorded when no-par stock is issued.
Earnings per share is calculated as net income plus preferred dividends divided by the
average number of common shares outstanding.
Companies may choose to report plant assets as a single amount, with a note to the
financial statements that provides detailed information, or companies may provide
detailed information on the face of the statement.
IFRS requires the use of the indirect method for the operating activities section of the
statement of cash flows.
Properly recording inventory when sold and removing the units sold from the inventory
count will prevent a company from running out of inventory.
The financing section of the statement of cash flows involves transactions relating to
the equity accounts and the long-term liability accounts.
What type of account is Prepaid Rent, and what is its normal balance?
A) It is an expense account and has a debit balance.
B) It is a liability account and has a credit balance.
C) It is a revenue account and has a credit balance.
D) It is an asset account and has a debit balance.
Which of the following statements is true of expenses?
A) Expenses increase equity, so an expense account’s normal balance is a credit
balance.
B) Expenses decrease equity, so an expense account’s normal balance is a credit
balance.
C) Expenses increase equity, so an expense account’s normal balance is a debit balance.
D) Expenses decrease equity, so an expense account’s normal balance is a debit balance.
The cash ratios of four companies are listed below.
Which company has the highest ability to repay its current liabilities?
A) Juan Corp.
B) Rose, Inc.
C) Freelance, Inc.
D) Pioneer Corp.
Why would a corporation issue bonds payable instead of issuing stock?
A) Debt is a less expensive source of capital than stock.
B) Borrowing by issuing bonds payable carries no risk to the company.
C) Debt affects the percentage of ownership of the corporation by the stockholders.
D) Debt does not have to be shown on the balance sheet.
The economic resources of a business such as furniture, building, and land are its
________.
A) liabilities
B) revenues
C) assets
D) dividends
On December 1, 2020, Eagle, Inc. sold machinery to a customer for $23,000. The
customer could not pay at the time of sale but agreed to pay 3 months later and signed a
3-month note at 11% interest. How much interest revenue was earned for the entire term
of the note? (Round any intermediate calculations to two decimal places, and your final
answer to the nearest dollar.)
A) $633
B) $422
C) $211
D) $2,530
A merchandiser returned inventory worth $1,900 that was purchased on account. In a
periodic inventory system, the journal entry to record the return would include
________.
A) a debit to Purchase Returns and Allowances for $1,900 and a credit to Accounts
Payable for $1,900
B) a debit to Accounts Payable for $1,900 and a $1,900 credit to Purchase Returns and
Allowances
C) a debit to Purchases for $1,900 and a credit to Accounts Payable for $1,900
D) a debit to Accounts Payable for $1,900 and a credit to Purchases for $1,900
Baldwin, Inc. had the following balances and transactions during 2019:
What would be reported as Cost of Goods Sold on the income statement for the year
ending December 31, 2019 if the perpetual inventory system and the first-in, first-out
inventory costing method are used?
A) $10,125
B) $14,675
C) $29,475
D) $18,725
Under U.S. GAAP, which of the following is NOT an acceptable way to report plant
assets?
A) at fair market value
B) at book value
C) as a single amount, with a note to the financial statements that provides detailed
information
D) with detailed information on the face of the balance sheet
Country Homes Corporation just recorded a transaction in its books. If this transaction
increased the total liabilities by $10,000, then ________.
A) assets must increase, or equity must decrease by $10,000
B) either assets or equity must decrease by $10,000
C) both assets and equity must each decrease by $5,000
D) assets must decrease by $10,000
Which of the following is true of the statement of cash flows?
A) It indicates when long-term debt will mature.
B) It reports on the qualitative behavior of the company’s performance.
C) It covers a span of time and is dated the same as the income statement.
D) It shows how the profits or losses of the company were generated.
The unadjusted trial balance of James Business Consulting at December 31, 2018, and
the data for the adjustments follow:
James Business Consulting
Unadjusted Trial Balance
December 31, 2018
Data for adjustments:
a. James prepaid 6 months of business insurance on September 30, 2018, with coverage
beginning on October 1. James treats deferred expenses initially as assets.
b. A physical count of office supplies was made on December 31, 2018. This count showed
a balance of $4,200 office supplies on hand.
c. On December 31, 2018, James received a bill for the November and December
advertising in a local newspaper, $800. This bill will be paid on its due date, which is
1/10/2019.
James is preparing financial statements for the quarter ending December 31, 2018.
Requirements
1. Journalize the adjusting entries on December 31, 2018.
2. Prepare the December 31, 2018 adjusted trial balance. Use a proper heading.
Preferred stockholders ________.
A) receive a dividend preference over common stockholders
B) are guaranteed that they will not have a loss on their investment
C) generally have voting rights
D) have more investment risk compared to common stockholders
Under the perpetual inventory system, the adjusting journal entries to record estimated
sales returns (the original sales were on account) would be:
A)
B)
C)
D)
A business makes a cash payment to a supplier on account for office supplies that were
purchased earlier. Which of the following accounts is credited?
A) Cash
B) Accounts Payable
C) Office Supplies
D) Office Supplies Expense
The revenue recognition principle guides accountants in ________.
A) ensuring only revenues received in cash are recorded
B) determining when to record expenses
C) determining when to record revenues
D) ensuring expenses are deducted from revenues
The terms of an invoice are 3/10, n/25. This means that a ________ of the invoice date.
A) discount of 10 percent is allowed if the invoice is paid within three days after the
invoice date
B) discount of 3 percent is allowed if the invoice is paid within 10 days after the invoice
date
C) discount of 25 percent is allowed if the invoice is paid within 10 days after the
invoice date
D) discount of 3 percent is allowed if the invoice is paid after 25 days after the invoice
date
A company that uses the perpetual inventory system sold goods to a customer on
account for $4,000. The cost of the goods sold was $2,000. Which of the following
journal entries correctly records this transaction?
A)
B)
C)
D)
Jupiter, Inc. signed a one-year $24,000 note payable at 8% interest on March 1, 2019.
How much interest expense must be accrued on May 31, 2019? (Round any
intermediate calculations to two decimal places, and your final answer to the nearest
whole number.)
A) $1,920
B) $720
C) $480
D) $240
Anderson Corporation has purchased a group of assets for $20,300. The assets and their
relative market values are listed below.
Which of the following amounts would be debited to the Land account? (Round any
intermediate calculations to two decimal places, and your final answer to the nearest
dollar.)
A) $4233
B) $10,962
C) $3654
D) $5684
Amazon Services, Inc. invests its excess cash in Nile Technologies, Inc. and acquires
6000 shares for $61.75 per share. Amazon Services, Inc. owns less than 2% of Nile’s
voting stock and plans to hold the stock for two years. While preparing the journal entry
to record this transaction, ________.
A) Equity Investments is debited for $370,500
B) Common Stock is debited for $370,500
C) Long-term Investments is credited for $370,500
D) An equity account is debited for $370,500
Tony’s gross pay for the month is $2700. Tony’s deduction for federal income tax is
based on a rate of 21%. Tom has no voluntary deductions. Tony’s year-to-date pay is
under the limit for OASDI. What is the amount of FICA tax withheld from Tony’s pay?
(Assume a FICA—OASDI Tax of 6.2% and FICA—Medicare Tax of 1.45%. Do not
round any intermediate calculations, and round your final answer to the nearest cent.)
A) $773.55
B) $206.55
C) $567.00
D) $387.45
Lana Appliances sells dishwashers with a four-year warranty. In 2018, sales revenue for
dishwashers is $96,000. The company estimates warranty expense at 4.5% of revenues.
What is the 2018 warranty expense? (Round your final answer to the nearest dollar.)
A) $4320
B) $1080
C) $0
D) $3388
The 2019 balance sheet for Standard Electronics reported the following items — with
2018 figures given for comparison:
Net income for 2019 was $25,000. Compute the rate of return on common stockholders’
equity for 2019. (Round your final answer to two decimal places.)
A) 4.38%
B) 10.37%
C) 11.09%
D) 4.69%
Which of the following liabilities is created when a company receives cash for services
to be provided in the future?
A) Unearned Revenue
B) Accrued Liability
C) Accounts Payable
D) Estimated Warranty Payable
Ten years ago a corporation purchased a building for $160,000. At that time, the
corporation felt that the building was worth $185,000. The current market value of the
building is $430,000. The building has been assessed at $405,000 for property tax
purposes. At which amount should the corporation record the building in its accounting
records?
A) $160,000
B) $185,000
C) $405,000
D) $430,000
A business purchases equipment for $8,000 cash. Which of the following accounts is
debited?
A) Cash
B) Accounts Payable
C) Common Stock
D) Equipment
Which method of estimating the amount of bad debts expense violates the matching
principle?
A) percent-of-receivables
B) percent-of-sales
C) aging-of-receivables
D) All of these methods comply with the matching principle.
A corporation reported the following equity section on its current balance sheet. The
common stock is currently selling for $15.00 per share.
Which of the following would be included in the entry to record the distribution of a 15%
stock dividend?
A) Common Stock—$6 Par Value would be credited for $51,300.
B) Stock Dividends would be debited for $95,400.
C) Paid-In Capital in Excess of Par—Common is debited for $95,400.
D) Stock Dividends would be credited for $51,300.
Regarding net pay, which of the following statements is incorrect?
A) The net pay amount is not important for accounting purposes.
B) The amount of compensation that the employee actually takes home is net pay.
C) The employer either writes a paycheck to each employee for his or her net pay or
directly deposits the employee’s net pay into the employee’s bank account.
D) Net pay equals gross pay minus all deductions.
At the beginning of the year, Wilson Steel, Inc. purchased 10,000 shares of Barnes
Metals, Inc. for $34,000 in exchange for cash and now holds 3.2% of the voting stock
of Barnes Metals, Inc. The management of Wilson Steel intends to hold this stock for
two years. Assuming no other transaction happened during the year, the ________ in
the balance sheet will increase.
A) long-term assets
B) cash
C) total assets
D) current assets
Which of the following accounting principles requires that warranty expense must be
estimated and recognized in the same period when the related sales revenue is
recognized?
A) the matching principle
B) the disclosure principle
C) the revenue principle
D) the consistency principle
To match expenses against revenues means to ________.
A) add expenses incurred during one period to revenues earned during that same period
B) subtract expenses incurred during one period from revenues earned during the
previous period
C) add expenses incurred during one period to revenues earned during the previous
period
D) subtract expenses incurred during one period from revenues earned during that same
period
Jonas Corporation has excess cash to invest and pays $200,000 to buy 7%, five-year
bonds of Ridgeline Corporation, at face value, on June 30, 2018. The bonds pay interest
on June 30 and December 31. Jonas intends to hold the bonds to maturity. The bonds
are disposed of, at face value, on June 30, 2023.
Prepare the journal entry for December 31, 2018 (omit the explanation).
Describe the transactions recorded in the cash payments journal.
State the accounting term that applies to each of the following definitions.
Jefferson Anderson is a sole proprietor of a successful business. He is interested in
incorporating to protect his personal assets. What are some disadvantages of organizing
as a corporate entity?
Get Away, a travel magazine, collected $500,000 in subscription revenue in May. Each
subscriber will receive an issue of the magazine for each of the next 12 months,
beginning with the June issue. The company uses the accrual method of accounting.
Prepare the journal entry for collection of cash in May. (Ignore explanation). Assume
the magazine initially records a liability for the subscription revenue.
Home Theater Company has the following transaction related to the sale of
merchandise inventory.
June 1: Sold a home theater system (cost of $6,200) for $9,000 to a customer. The
customer paid cash. The sales price included a two-year service contract valued at $840.
Dec. 31: Recorded the amount of service contract earned.
Journalize the transactions of Home Theater assuming that the company uses the
perpetual inventory system. Do not record the cost of goods sold entry. Omit
explanations.
What are Generally Accepted Accounting Principles (GAAP)? Which entity is currently
responsible for determining GAAP?
Smart Electronics completed the following stock issuance transactions:
Prepare the journal entries to record these transactions. Explanations are not required.
State whether the normal balance of each of the following accounts is a debit or credit.
Dependable Tires Company uses the indirect method to prepare the statement of cash
flows. Refer to the following comparative balance sheet for Dependable Tires Company
and complete the third column to show the increases or decreases.
Dependable Tires Company
Comparative Balance Sheet
December 31, 2018 and 2017
Increase/(Decrease)
Provide an explanation for each of the follow liability accounts.
The trial balance for a merchandiser, before the journal entries below, is as follows. A
physical count of inventory at the end of the accounting year reveals $28,000 of
inventory on hand. (Assume a perpetual inventory system.)
Prepare the journal entry to record the inventory shrinkage and prepare all closing entries.
Omit explanations.
Gift Shops Unlimited’s unadjusted Merchandise Inventory at December 31, 2019 was
$7,600. The cost associated with the physical count of inventory on hand on December
31, 2019 was $7,350. In addition, Gift Shops Unlimited estimated approximately $800
of merchandise sold on account will be returned with a cost of $450. Assume a
perpetual inventory system is used.
Requirements:
1. Journalize the adjustment for inventory shrinkage. Omit explanation.
2. Journalize the adjustment for estimated sales returns. Omit explanation.
“All debits are increases and all credits are decreases.” Is this a correct statement?
Explain your answer.
On July 15, 2018, Ellison Brothers Oil, Inc. sold $5,000 of merchandise to S & G
Company, on account. Ignore cost of goods sold. Ellison could not collect cash from S
& G and wrote off the account on December 31, 2018. On November 4, 2019, S & G
unexpectedly paid $5,000. Journalize the transactions on December 31, 2018 and
November 4, 2019. (Ellison uses the allowance method.) Omit explanations.
Redbird Company uses the indirect method to prepare its statement of cash flows.
Using the following information, complete the worksheet for the year ended December
31, 2018.
– Net Income for the year ended December 31, 2018 was $49,000
– Depreciation expense for 2018 was $12,000
– During 2018, plant assets with a book value of $10,000 (cost $10,000 and
accumulated depreciation $0) were sold for $14,000
– Plant assets were acquired for $52,000 cash
– Issued common stock for $28,000
– Issued long-term notes payable for $34,000
– Repaid long-term notes payable for $40,000
– Purchased treasury stock for 3,000
– Paid dividends of $10,000
Redbird Company
Spreadsheet for Statement of Cash Flows
Year Ended December 31, 2018
Identify how each of the following items is shown on the statement of cash flows.
Identify each as operating (O), investing (I), financing (F), or non-cash investing and
financing (N).