Bonds are short-term interest-bearing notes issued to multiple lenders, usually in
increments of $1,000.
Form 941 taxes include OASDI, Medicare, and federal unemployment tax.
Depreciation Expense is reported on the statement of cash flows only when using the
direct method of preparing a statement of cash flows.
The income statement is a financial statement showing the change in owners equity.
Common Stock Dividend Distributable is a liability account.
The discount period is longer than the credit period.
The statement of partners’ equity reveals each partner’s ownership percentage of the
firm’s capital.
The Statement of Owner’s Equity is the same for a service business as for a
merchandise business.
Withdrawals increase on the credit side of the account.
Purchases Discounts are not taken on the purchased merchandise plus freight.
Receiving payment from a customer on an interest bearing note would entail a debit to
Interest Income.
An accountant is completing a trend analysis for a company by comparing sales for
years 2003 through 2013. The base year for the calculations is 2003.
The Income Summary account is used to adjust beginning and ending inventories.
The side of an account that increases the balance is always the same as the normal
balance side.
The maturity date of a 60-day note dated April 5 is June 4.
The amount for Cost of Goods Sold is found on the worksheet after Revenue.
In assigning a cost to ending inventory, the cost flow does not have to follow the
physical flow.
Accumulated Depreciation is a contra-asset account found on the income statement.
One section of a statement of cash flows is financing activities.
A note that is not paid on the maturity date is considered discounted.
Prior period adjustments are not included in the statement of retained earnings.
If a company issues a comparative balance sheet showing the change in the cash
balance, a statement of cash flows is not needed.
Under MACRS, furniture is depreciated over seven years.
Interest earned on the sinking fund will be added to the Bond Sinking Fund account.
An example of operating activities is the payment of dividends.
Under the accrual system, revenue is recognized when earned.
A company purchased new computer equipment from a local vendor. An employee
offered to pick up the equipment and received a speeding ticket on his way back to the
office. The cost of the speeding ticket should not be charged to the cost of the
equipment.
The voucher system is not a form of internal control.
Eliminating one department may increase the sales of another department.
The time a customer is granted to pay the bill is the discount period.
Individual credit customer accounts are kept in the general ledger.
When a company tracks gross profit by department, the sales journal has separate
columns for Accounts Receivable for each department.
A sole proprietorship ends with the death of the owner.
A current ratio of 1.5 times would mean that the business has 1.5 times more assets than
liabilities.
Sales Discount is used when calculating Net Purchases.
The formal income statement can be prepared from the income statement columns of
the worksheet.
The dollar amount of the debits must be equal to the dollar amount of the credits for
each transaction.
The last step in a partnership liquidation is sell the assets for cash.
The W-3 is filed only for odd years.
Net Income equals:
A) Net Sales – Cost of goods sold – Operating expenses.
B) Gross Profit – Operating expenses.
C) Sales – Sales Returns & Allowances – Sales Discount – Cost of goods sold –
Operating Expenses.
D) All of the above are correct.
On a departmental income statement, sales less cost of goods sold and direct expenses
equals:
A) gross margin.
B) income before taxes.
C) indirect expenses.
D) departmental contribution margin.
If Fees Earned has been credited, it is most likely that:
A) services were provided.
B) the owner made an investment.
C) a correcting entry for the overstatement of revenue was recorded.
D) All of these are possible.
If beginning capital was $120,000, ending capital is $90,000, and the owner’s
withdrawals were $15,000, the amount of net income or net loss was:
A) net income of $5,000.
B) net income of $15,000.
C) net loss of $15,000.
D) net loss of $5,000.
Which of the following is an operating expense?
A) Interest Expense
B) Interest Revenue
C) Salaries Expense
D) Prepaid Insurance Expense
The adjustment for bad debts using the percentage of receivables ignored the credit
balance in the Allowance account. This error would cause:
A) total assets to be overstated.
B) total liabilities to be understated.
C) net income to be understated.
D) None of these is correct.
Using the perpetual inventory system, the purchase of merchandise on account would
include a:
A) debit to Merchandise Inventory and a credit to Accounts Payable.
B) debit to Accounts Payable and a credit to Merchandise Inventory.
C) debit to Merchandise Inventory and a credit to Sales.
D) debit to Sales and a credit to Accounts Receivable.
Departmental accounting requires:
A) measuring departmental gross profit.
B) allocating direct costs to departments.
C) allocating indirect costs to departments.
D) Both A and C are correct.
When using a periodic inventory method, what account is increased when you buy
merchandise inventory?
A) Cost of Goods Sold
B) Beginning Inventory
C) Supplies
D) Purchases
An asset would be debited and a liability credited if:
A) the business bought supplies for cash.
B) the business incurred an expense and paid it.
C) the business bought equipment on account.
D) None of these is correct.
Rick Corporation’s Accounts Receivable increased by $25,000 during the year. What is
the adjustment to the cash flow statement when it is prepared by the indirect method?
A) Subtract the increase from the net income in operating activities section.
B) Add the increase to the net income in operating activities section.
C) Add the increase in the investing activities section.
D) Subtract the increase in the financing activities section.
The Sarbanes-Oxley Act:
A) requires a minimum cash balance.
B) does not allow adjusting entries.
C) states the need to have accurate financial reports.
D) does not allow the use of a worksheet.
Treasury stock is:
A) stock that is issued in a stock dividend.
B) stock that has been reacquired by the corporation.
C) previously issued stock that has been canceled.
D) unissued, but authorized stock.
Sarah’s Spices accrued wages are $1,800. Which of the following is the required
adjusting entry?
A) Debit Salaries Expense, $1,800; credit Salaries Payable, $1,800
B) Credit Salaries Expense, $1,800; debit Salaries Payable, $1,800
C) Debit Cash, $1,800; credit Salaries Expense, $1,800
D) Debit Salaries Payable, $1,800; credit Cash, $1,800
Selling expenses include:
A) Advertising Expense.
B) Freight-In.
C) Office Supplies Expense.
D) All of the above are correct.
An adjustment that must be made for the accrued interest on a note receivable would
include a:
A) debit to Note Receivable.
B) credit to Interest Receivable.
C) debit to Interest Receivable.
D) credit to Note Receivable.
Payment of a cash dividend causes:
A) a decrease in liabilities.
B) an increase in an asset.
C) an increase in stockholders’ equity.
D) All of the above are correct.
When a note receivable is discounted, the business that endorses the note becomes
potentially liable to the bank. This type of liability is called a:
A) dependent liability.
B) contingent liability.
C) potential liability.
D) conditional liability.
Expenses:
A) are costs the company incurs in carrying on operations.
B) are a subdivision of owner’s equity.
C) record personal expenses not related to the business.
D) Both A and B are correct.
A $100 petty cash fund has cash of $20 and valid receipts for $40. The entry to
replenish the fund would include a:
A) credit to Cash for $80.
B) credit to Cash for $40.
C) credit to Petty Cash for $30.
D) debit to Petty Cash for $40.
The purchase of plant and equipment for cash would result in:
A) an increase in cash from investing activities.
B) a decrease in cash from investing activities.
C) an increase added to net income from operations.
D) a decrease subtracted from net income from operations.
The cost of a plant asset did NOT include installation costs that were expensed. This
error would cause:
A) the period’s net income to be overstated.
B) the period’s net income to be understated.
C) the period end assets to be understated.
D) Both B and C are correct.
When completing a worksheet:
A) the ending inventory amount appears in the income statement debit column.
B) the beginning inventory amount appears in the adjustment credit column.
C) the ending inventory amount appears in the unadjusted trial balance debit column of
the worksheet.
D) the beginning inventory amount appears in the balance sheet debit column of the
worksheet.
The journal entry to record issuing supplies from the storeroom would include a:
A) Debit to Manufacturing Overhead-Applied
B) Credit to Manufacturing Overhead-Control
C) Credit to Manufacturing Overhead-Applied
D) Debit to Manufacturing Overhead-Control
The activity that is probably the most important indicator of financial health is the net
cash flow from:
A) buying and selling activities.
B) financing activities.
C) operating activities.
D) investing activities.
A note payable was recorded as additional paid-in capital. This error would cause:
A) the period’s net income to be understated.
B) the period’s net income to be overstated.
C) the period end liabilities to be understated.
D) None of these is correct.
The interest rate specified in the bond indenture is called the:
A) market rate.
B) discount rate.
C) contract rate.
D) effective rate.
What would the book value be at the end of year 6 for a piece of equipment using the
straight-line method when cost is $11,000, residual value is $1,000, and the expected
life is 10 years?
A) $4,400
B) $3,000
C) $5,000
D) $4,000
The individual employee earnings record provides a summary of the following for a
single employee, except:
A) hours.
B) withholding taxes.
C) net pay.
D) allowances.
On the date of record, the journal entry would include:
A) a debit to Dividend Payable.
B) a credit to Dividend Payable.
C) a credit to Cash.
D) No entry is required on date of record.
Interest calculated for one year on a $8,000, 6% promissory note is:
A) $4.80.
B) $480.
C) $48.
D) some other amount.
Crafton Corporation is planning to issue 5-year, 8%, semiannual interest bonds with a
face value of $500,000.
Required: Prepare the necessary journal entry under each of the following assumptions.
a. The bonds are sold on issuance date at par.
b. The bonds are sold on issuance date at 97.
c. The bonds are sold on issuance date at 105.
From the bank reconciliation, no entry was recorded for deposits in transit. This would
cause:
A) assets to be overstated.
B) assets to be understated.
C) no impact since deposits in transit are already included in the balance per books.
D) no impact since deposits are not recorded on the books.
Par value represents:
A) the market value of the stock.
B) an arbitrary value that is placed on each share of stock.
C) the legal capital of the corporation.
D) Both B and C are correct.
Depreciation Expense would be found on which of the following financial statements?
A) Balance sheet
B) Income statement
C) Statement of Owner’s Equity
D) Depreciation report
Explain the difference between F.O.B. shipping point and F.O.B. destination.
Determine the ending owner’s equity of a business having a beginning owner’s equity of
$3,200, withdrawals of $2,000, and after closing the revenues and expenses Income
Summary has a credit balance of $5,250.
$ ________
Prepare journal entries for the following transactions for Grant Company:
May 1 Purchased equipment from Knox, Inc. for $5,000 giving a 3 month 8% note
Aug. 1 Paid amount due on note
The portion of a natural resource cost that is recognized as an expense is ________.
Why are all of the employer payroll taxes listed in separate payable accounts?
For each of the following, identify in Column 1 the balance the account will have in the
adjusted trial balance columns (debit or credit), in Column 2 the financial statement
column(s) in which the account balance will be found (income statement or balance
sheet), and in Column 3 the effect the account will have on the determination of net
income (increase, decrease, or none).
For each of the following, identify in column 1 the category to which the account
belongs, in column 2 the normal balance for the account, in column 3 the financial
statement that the account in which the account balance is reported, and in column 4 the
account’s nature (permanent/temporary).
For each of the following, identify in Column 1 the category to which the account
belongs, in Column 2 the normal balance for the account, in Column 3 the financial
statement on which the account balance is reported, and in Column 4 the nature of the
account (permanent/temporary).
Example:
Explain why, when a customer returns merchandise after it was paid for, he/she may or
may not receive credit equal to the invoice value of the merchandise returned.
Describe bond refunding and explain why it might be advantageous for a company.
From the following, calculate income by departments.
Dept. 1 Dept. 2
Net Sales $8,000 $6,500
Cost of Goods Sold 5,000 3,200
Delivery Expense 570 420
Advertising Expense 390 310
Depreciation Expense 620 530
Under the periodic inventory method, purchase returns are credited to ________.
For each of the following, identify in column 1 the category to which the account
belongs, in column 2 the normal balance for the account, in column 3 the financial
statement that the account in which the account balance is reported, and in column 4 the
account’s nature.
Given the following accounts:
[1] Cash in bank
[2] Petty cash
[3] Supplies
[4] Equipment
[5] Notes payable
[6] Vouchers payable
[7] FICA payable
[8] Wages payable
[9] Purchases
[10] Purchase discounts
[11] Discounts lost
[12] Repairs expense
[13] Interest expense
[14] Delivery expense
Indicate the account(s) to be debited and credited to record the following transactions.
The company uses the periodic inventory method.
Prepared voucher #425 for a note payable. The principal amounts to $2,500 and there is
$100 of interest which has not been accrued.
Debit ________ & ________ Credit ________
The following data applies to the July 15 payroll for the Woodard Research Firm
(overtime is paid at 1 1/2)
Assume:
FICA-OASDI is 6.2% based on a limit of $117,000.
FICA-Medicare is 1.45%.
FUTA is .8% based on a limit of $7,000.
SUTA is 5.6% based on a limit of $7,000.
State income tax is 2.8%.
Compute the total regular earnings.
Identify the account types used in recording transactions related to a stock subscription
plan: Subscriptions Receivable-Common Stock; Common Stock Subscribed, Paid-In
Capital in Excess of Par Value-Common, Common Stock, Cash. Also list the financial
statement where the accounts are found.
Why would a business decide to use an external company to prepare their payroll
checks and related reports?