Lines of credit from the bank need not be disclosed in the financial statements or in the
notes.
The information needed to record the adjusting entries can be copied from the work
sheet.
An ordinary annuity is a series of equal payments made at the end of equal intervals of
time.
Inventory turnover is a measure expressed in terms of a percentage.
The calculation of cash for interest to be paid each interest period in connection with a
bond payable is not influenced by any premium or discount upon issuance.
Using cash to expand by purchasing land and a building is an example of an operating
activity.
The sale of plant assets and the payment of dividends will increase free cash flow.
On a statement of cash flows prepared using the direct method, credit sales are a direct
cash inflow.
For a merchandising company, the difference between net sales and operating expenses
is called gross margin.
The petty cash voucher should be kept by the person being reimbursed.
A capital expenditure is an expenditure that benefits only the current accounting period.
One argument in favor of accelerated depreciation is that the asset’s benefit is greater in
the earlier years.
A company with a current ratio of 1.0 is considered more liquid than a company with a
current ratio of 2.0.
A partnership is liquidated when a new partner is admitted to the partnership.
The entry to record the purchase of treasury stock will cause total stockholders’ equity
to decrease by the amount of the cost of the treasury shares.
If a U.S. company purchases goods for a fixed number of British pounds, and the
exchange rate has fallen from $1.55 per pound to $1.50 per pound by the time payment
is made, the U.S. company would record an exchange gain.
Normally, depreciation calculations are based on the exact number of days the asset is
held during the period.
Legal capital of a corporation is the maximum amount that can be reported as
contributed capital.
Regardless of whether the straight-line method or the effective interest method is used,
the carrying value of a term bond issued at a discount will increase continually over the
life of the bond.
A copyright should be amortized over its legal life regardless of its expected useful life.
Depreciation is a process of allocation, not of valuation.
When bonds are called for retirement, any excess of the bonds’ call price over the
bonds’ carrying value is reported as a gain on the income statement.
Sales Discounts and Sales Returns and Allowances are contra-revenue accounts.
A corporation probably does not know who owns its registered bonds.
An advantage of accounting information is that it provides exact and completely
reliable measures.
The FUTA tax rate most often actually paid by employers is 0.8 percent.
Under the perpetual inventory system, the Cost of Goods Sold account is updated
continually throughout the period.
Residual value is relevant when calculating double-declining-balance depreciation.
Free cash flow is a good measure of a company’s ability to finance long-term assets.
Accounting periods of greater than a year are called interim periods.
One might see “J5” correctly placed in the Post. Ref. column of the journal.
Adjusting and closing entries regarding purchases and sales are recorded in the
purchases journal and the sales journal, respectively.
The cost of repairing a machine damaged during installation should be charged as an
operating expense.
Asset impairment occurs when the fair value of a long-term asset exceeds its carrying
value.
The death of a partner dissolves the partnership.
Misleading financial reports are not considered fraudulent if they are the result of the
misapplication of accounting principles.
An adjusted trial balance will probably list fewer accounts than are listed in the trial
balance.
Terms of “2/10, n/30” are an example of a sales discount.
To determine the payables turnover, one first calculates the days’ payable.
When a petty cash fund is replenished, the entry requires a credit to Cash.
The entry to record the declaration of a cash dividend will
A. not affect working capital.
B. reduce working capital.
C. not affect total stockholders’ equity.
D. increase total stockholders’ equity.
Which of the following is not a temporary account?
A. Depreciation Expense–Vehicles
B. Service Revenue
C. Unearned Revenue
D. Interest Income
In the rare instance when a par value stock is issued at a cash price below par, the
excess of the par value over the amount of cash received should be
A. credited to a liability account.
B. debited to the Retained Earnings account.
C. debited to an account titled Discount on Capital Stock.
D. credited to the Retained Earnings account.
Shannon, Thomas, and Williman are in a partnership that is being dissolved. The stated
ratios of Shannon, Thomas, and William are 3:3:4, respectively. The partnership’s assets
are sold at a loss of $240,000. Which of the following is correct?
A. Shannon’s Capital account will be credited for $72,000.
B. William’s Capital account will be debited for $96,000.
C. The Loss from Realization will be debited for $240,000.
D. All of these choices.
The golden globe used to identify the publisher of a textbook is an example of a
A. franchise.
B. patent.
C. trademark.
D. copyright.
Use the following information to calculate at or for the year ended December 31, 2014:
(a) net income, (b) owner’s capital, (c) total liabilities and owner’s equity, and (d)
accounts receivable.
On June 3, Lakeland Company sold merchandise worth $1,600 on credit, terms 2/10,
n/30. The merchandise sold had cost $1,100. The customer paid the amount on June 10.
What is the required journal entry to record the payment received under the periodic
inventory system?
A. Accounts Receivable 1,568
Sales Discounts 32
Cash 1,600
B. Accounts Receivable 1,600
Sales Discounts 32
Cash 1,568
C. Cash 1,568
Sales Discounts 32
Accounts Receivable 1,600
D. Cash 1,600
Indicate with an X in the appropriate column the type of entry to be made to close the
following accounts:
Which costing method can only be used when it is possible to identify units as coming
from specific purchases?
A. Specific identification
B. FIFO
C. Average-cost
D. LIFO
Equipment is purchased for $60,000. It has a five-year useful life and a $10,000
residual value. Under the double-declining-balance method, what is the depreciation
expense for year 3?
A. $6,400
B. $7,200
C. $7,680
D. $8,640
The cost of a long-term asset is expensed
A. in the period in which it is sold.
B. in the period in which it is acquired.
C. as the asset benefits the company.
D. when it is paid for.
Which of the following actions can distort company records and result in fraudulent
financial reporting?
A. Prepaying an expense and recording it as an asset.
B. Collecting revenue in advance of earning it.
C. Recording revenue that has not yet been earned.
D. Recording an expense that has been incurred but has not yet been paid.
Use this inventory information for the month of May to answer the following questions.
Assuming that a perpetual inventory system is used, what is ending inventory on a LIFO
basis?
A. More information is needed.
B. $10,240
C. $5,440
D. $5,760
Use this information to answer the following question.
The trial balance for Nowwick Company appears as follows:
If on December 31, 2014, the insurance still unexpired amounted to $20, the adjusting
entry would contain a
A. debit to Prepaid Insurance for $80.
B. credit to Prepaid Insurance for $80
C. debit to Insurance Expense for $20.
D. credit to Prepaid Insurance for $20.
As the controller of a large company, you notice that the Cash Short or Over account is
consistently debited for fairly large sums of cash when the petty cash fund is
replenished. You probably will want to
A. increase the amount of the fund.
B. decrease the amount of the fund.
C. find a new custodian for the fund.
D. offer the custodian your congratulations.
Which is the only type of investment that is always classified as short-term?
A. Trading securities
B. Held-to-maturity securities
C. Available-for-sale securities
D. Equity securities
The existence of diversified companies makes which of the following very difficult?
A. Comparison with industry norms
B. The preparation of interim financial statements
C. Use of more than one depreciation or inventory method
D. The compilation of segment information
Use this inventory information for the month of July to answer the following question.
Assuming that a periodic inventory system is used, what is cost of goods sold under the
average-cost method?
A. $3,648
B. $7,752
C. $3,712
D. $7,888
Which costing method will produce the same result under both a perpetual and periodic
system?
A. Specific identification
B. Average-cost
C. FIFO
D. Both FIFO and specific identification
During the year, Dempsey Corporation’s current ratio increased while its quick ratio
decreased. Which of the following could help explain this situation?
A. A decrease in accounts receivable during the year
B. An increase in accounts payable during the year
C. The sale of short-term investments during the year
D. An increase in inventory levels during the year
Interest expense on a mortgage would be classified on a multistep income statement
under the heading
A. general and administrative expenses.
B. selling expenses.
C. cost of goods sold.
D. other revenue and expenses.
A business accepts a 12 percent, $94,000 note due in three years. Assuming simple
interest, how much will the business receive when the note falls due?
A. $105,280
B. $127,840
C. $116,560
D. $94,000
A $150 petty cash fund has cash of $64 and valid receipts for $75. The entry to
replenish the fund would be:
Outstanding shares of stock are
A. authorized shares that have not yet been issued.
B. also called treasury shares.
C. issued shares that have not yet been authorized.
D. issued shares that are still in circulation.
If a company’s free cash flow is $66,000, net cash flows from operating activities total
$133,000, purchases of plant assets total $61,000, and the payment of dividends was
$20,000, what amount was obtained from the sale of plant assets?
A. $7,000
B. $14,000
C. $28,000
D. Impossible to determine from the facts given.
Which of the following is not expressed in terms of a percentage?
A. Return on equity
B. Debt to equity ratio
C. Current ratio
D. Profit margin
Which of the following items would not be included in a statement of cash flows
prepared using the direct method?
A. Net income.
B. Cash paid for dividends.
C. Sale of a plant asset.
D. Cash payments for purchases.
Which of the following is the first step in the accounting cycle?
A. Prepare financial statements.
B. Analyze business transactions from source documents.
C. Prepare and adjusted trial balance.
D. Post the journal entries to the ledger.
Vertical analysis of comparative financial statements includes the
A. development of common-size statements.
B. calculation of dollar amount changes and percentage changes from the previous to
the current year.
C. use of an index number.
D. All of these choices.
The contributed capital of a corporation does not include
A. additional paid-in capital.
B. preferred stock.
C. the stated value of common stock issued.
D. retained earnings.
A sale on March 21 with terms of n/10 eom is due to be collected by
A. April 30.
B. March 31.
C. April 10.
D. April 1.
Carrying value
A. equals cost minus accumulated depreciation.
B. equals cost minus residual value.
C. is the expired cost of an asset.
D. is the same as residual value.
On January 1, a machine with a useful life of five years and a residual value of $4,500
is purchased for $22,500. What is the depreciation expense in year 3 under straight-line
depreciation?
A. $4,500
B. $3,600
C. $10,800
D. $13,500
If Rex Corporation issued ten $1,000 bonds issued at 99.75 on the interest date, the
entry to record this transaction is :
A. Cash 990.75
Bonds Payable 990.75
B. Cash 9,907.50
Bonds Payable 9,907.50
C. Cash 997.50
Bonds Payable 997.50
D. Cash 9,975