If a corporation issues par value common stock and the proceeds are less than par value,
the
Common Stock account is credited for the par value.
A capital expenditure will result in an immediate increase in long-term assets.
Noncompete covenants should be amortized over the specified life of the contract.
A company’s management information system is a subsystem of its accounting
information system.
Inventory is an example of a nonmonetary asset.
Operating expenses include cost of goods sold.
Good internal control dictates that one employee should oversee all related parts of a
transaction.
Costs of postretirement benefits other than pension plans should be expensed when paid
to the retired employee.
Profit margin and gross margin are the same thing.
On the income statement, freight-in is treated as an operating expense.
If an accrued liability for salaries is not recorded, income for the following period will
be overstated.
Reversing entries are never required.
Accrual accounting is an application of the matching rule.
The costs associated with the development of software, for sale or internal use, should
be expensed in the period incurred.
A corporation often uses an underwriter to guarantee the sale of stock in an initial
public offering (IPO).
Decision makers rely on the future values, rather than on the present values of future
cash flows.
Leasehold improvements are not subject to any form of cost allocation.
The periodic inventory system provides no means of identifying losses from spoilage,
shoplifting, and theft.
Since interest and dividends received are most closely associated with investment
activity and are often called investment income, the FASB classifies the cash received
from these items as investing activities.
A bond discount is a component of interest cost because it represents the amount in
excess of the issue price that a corporation must pay on the maturity date.
Depreciation should not be recorded for an asset that is increasing in value.
Common-size statements are useful in assessing the changes in the composition of
statements over time.
Issuing bonds at a discount has the effect of increasing interest expense above the face
amount of interest.
The convention of consistency has led to an increase in the notes to financial
statements.
Sale and purchase of goods should be recorded at their list price, less any trade discount
involved.
A revenue expenditure results in the recognition of an asset.
Under the periodic inventory system, Cost of goods sold must be computed because it is
not updated for sales and other transactions during the accounting period.
A merchandiser’s operating cycle concludes with the sale of goods.
A trade discount is the same as a sales discount.
Costs incurred in storing inventory usually are not included in inventory costs.
For available-for-sale securities, an unrealized loss on long-term investments appears as
part of other comprehensive income (loss) in the company’s financial statements.
The lower the debt to equity ratio, the greater the financial risk the company is taking.
When disposing of equipment, Accumulated Depreciation is debited for the existing
carrying value.
A primary purpose of vertical analysis is to observe trends over a five-year period.
A commitment is a legal obligation that meets the technical requirements for recognition
as a liability.
Reversing entries are made to correct errors in the accounts.
Full disclosure of all important facts aids in overcoming the limitations of accounting
information.
When a U.S. company does business with a British company and payment is in British
pounds, an exchange gain or loss occurs if the exchange rate between dollars and
pounds changes between the date of sale and the date of payment.
When a company receives a product previously ordered, a recordable transaction has
occurred.
The perpetual inventory system
A. reduces the amount of clerical work.
B. eliminates the need for a physical count of the inventory.
C. keeps a continuous record of the quantity of inventory items.
D. All of these choices.
Unearned Revenue was $1,200 at the end of May and $1,500 at the end of June. Service
Revenue was $8,550 for the month of June. How much cash was received for services
provided during June?
A. $8,250
B. $5,850
C. $8,850
D. $11,250
Which of the following is not an application of accrual accounting?
A. Recording advertising fees earned at the time the work is done.
B. Adjusting unearned advertising fees to the proper balance at the end of the month.
C. Recording advertising fees earned at the time the cash payment is received.
D. Recording telephone expense in the accounting period covered by the monthly bill.
At the beginning of 20×5, Spur Corporation had 68,000 shares of $10 par value
common stock issued and outstanding. During January 20×5, Spur declared and
distributed a 10 percent stock dividend. The market value of Spur’s stock was $25
throughout the month of January. The entry to be recorded for the declaration of stock
dividend is
A. Stock Dividends 170,000
Common Stock Distributable 68,000
Additional Paid-in Capital 102,000
B. Common Stock Distributable 170,000
Common Stock 170,000
C. Common Stock Distributable 170,000
Common Stock 68,000
Retained Earnings 102,000
D. Stock Dividends 68,000
The purchase of treasury stock will result in
A. no net changes in assets, liabilities, or stockholders’ equity.
B. a decrease in assets and a decrease in stockholders’ equity.
C. a decrease in one asset account and an increase in a different asset account.
D. a decrease in assets and a decrease in liabilities.
The portion of a group purchase of land and building for $1,302,000 allocated to land,
when the land is appraised at $340,000 and the building on the land is appraised at
$1,020,000, is
A. $996,500.
B. $325,500.
C. $345,500.
D. $976,500.
When a note is dishonored, the payee’s journal entry includes a
A. debit to Accounts Receivable.
B. debit to Interest Expense.
C. debit to Notes Receivable.
D. debit to Interest Income.
Using the following amounts taken from the balance sheet and income statement of a
business, compute the measures listed below. After each answer, write “L” if it is a
measure of liquidity or “P” if it is a measure of profitability. Round to two decimal
places.
a. Return on assets
b. Working capital
c. Return on equity
d. Current ratio
Financial statement time periods should be of equal length
A. and should end during the peak season.
B. to make comparison easier.
C. and should correspond to the calendar year.
D. to comply with income tax regulations.
Copper, Inc. purchased merchandise worth $1,800 on credit, terms n/30 and returned
merchandise worth $200 on next day. What is the required journal entry to record the
merchandise returns under the periodic inventory system?
A. Accounts Payable 200
Purchases Returns and Allowances 200
B. Accounts Payable 200
Merchandise Inventory 200
C. Merchandise Inventory 200
Purchases Returns and Allowances 200
D. Purchases Returns and Allowances 200
A company purchases 300 shares of its $100 par value common stock at $110 per share.
It then reissues 50 shares at $114 per share. The entry upon reissue of the stock is:
A. Cash 5,700
Treasury Stock-Common 5,500
Paid-in Capital, Treasury Stock 200
B. Cash 5,700
Treasury Stock-Common 5,500
Gain on Sale of Treasury Stock 200
C. Cash 5,700
Treasury Stock-Common 5,000
Retained Earnings 700
D. Cash 5,700
Which of the following is an example of an investing activity?
A. Purchasing a building
B. Paying off a loan
C. Employing workers
D. Producing goods and services
Plum Corporation issues $400,000 of 7 percent, five-year bonds on January 1, 20×5,
when the market rate of interest is 8 percent. The bond indenture states that interest is to
be paid on January 1 and July 1 of each year. The entry to record the issuance includes
A. a credit to Cash.
B. a debit to Bonds Payable.
C. a debit to Unamortized Bond Discount.
D. All of these choices.
Under the perpetual inventory system, the entry to recognize inventory losses usually
contains a
A. debit to Cost of Goods Sold.
B. debit to Merchandise Inventory.
C. credit to Gross Margin.
D. credit to Cash.
Which of the following is an example of a financing activity?
A. Paying taxes to the government
B. Selling equipment
C. Obtaining a bank loan
D. Purchasing land
Use this information to answer the following question.
The debt to equity ratio is
A. 0.48.
B. 0.34.
C. 0.52.
D. 1.92.
Which of the following descriptions would not fit the definition of a liability?
A. Obligation to deliver services for which payment was received in advance
B. Result of past transaction
C. Future obligation for future salary payments
D. Present obligation for future payment
Which of the following statements is not true about a 2-for-1 stock split?
A. Total contributed capital increases.
B. Par value per share is reduced to half of what it was before the split.
C. A stockholder with ten shares before the split owns twenty shares after the split.
D. The market price probably will decrease.
Which of the following accounts would be found on the credit side of the adjusted trial
balance?
A. Accumulated Depreciation–Equipment
B. Prepaid Insurance
C. Owner’s Withdrawals
D. Depreciation Expense
Information from the Income Statement columns of the work sheet of Landry Laundry
Service is provided below:
The entry to close the expense accounts is
A. All Expenses 1,800
Landry, Capital 1,800
B. All Expenses 1,800
Income Summary 1,800
C. Income Summary 1,800
All Expenses 1,800
D. Landry, Capital 1,800
Liabilities have which of the following two major categories?
A. Accounts payable and notes payable
B. Contributed capital and retained earnings
C. Current and long term
D. Unearned revenues and other payables
When a company has performed a service but has not yet received payment, what is the
required journal entry to be recorded?
A. Accounts Receivable – Debit; Service Revenue – Credit
B. Service Revenue – Debit; Accounts Payable – Credit.
C. Service Revenue – Debit; Accounts Receivable – Credit
D. No entry is required until the cash is received.
Use this information to answer the following question.
A periodic inventory system is used.
Using the specific identification method and assuming that 50 of the items left are from the
October 13 purchase and the rest are from the October 20 purchase, the cost assigned to
ending inventory is
A. $3,840.
B. $3,312.
C. $3,372.
D. $3,176.
Sales Tax Payable is an example of a(n)
A. estimated liability.
B. contingent liability.
C. trade liability.
D. definitely determinable liability.
Using the following information, calculate for 20×5 (a) net sales, (b) cost of goods sold,
(c) gross margin, and (d) net income.
Copper Company began operations in April and then engaged in the following
transactions during April
What is the balance in cash after these transactions?
A. $302,000
B. $190,000
C. $144,000
D. $87,000
Which of the following is an example of a commitment?
A. Purchasing agreement
B. Note payable
C. Revenue received in advance
D. Dividend payable
The entry to record payment of a $3,000 purchase within the 2 percent discount period
would include a(n)
A. decrease to Accounts Payable for $2,940.
B. increase to Purchases Discounts for $60.
C. increase to Accounts Payable for $3,000.
D. increase to Cash for $3,000.
According to generally accepted accounting principles, treasury stock usually should be
recorded at
A. original issue cost.
B. par or stated value.
C. cost.
D. net realizable value.
Which of the following statements is not true about trading on the equity?
A. It can become a disadvantage to a corporation.
B. It is another phrase for financial leverage.
C. It will increase the number of shares of stock owned.
D. It will increase the interest a corporation must pay.
In a partnership liquidation, the Gain or Loss from Realization
A. is closed to Retained Earnings.
B. is distributed according to the partners’ stated ratios.
C. the last entry made to the partners’ Capital accounts.
D. All of these choices.
When applying the lower-of-cost-or-market rule to inventory valuation, market
generally means
A. original cost, less physical deterioration.
B. replacement cost.
C. original cost.
D. resale value.
In 2014, Barnes Enterprises purchased an oil well for $12,000,000. It is estimated that
80,000,000 barrels can be extracted from the well. Depletion expense during 2015,
when 2,000,000 barrels were extracted and sold, totaled
A. $30,000.
B. $300,000.
C. $33,333.
D. $3,333,333.
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 2 using the
double-declining-balance method?
A. $5,400
B. $7,200
C. $6,120
D. $13,500