1) when a company uses the first-in, first-out (fifo) method, the cost of goods sold
correlates to the most recently purchased goods, and the value of ending inventory
correlates to the oldest goods in stock.
2) treasury stock is recorded at cost without reference to par value.
3) the journal entry for the purchase of treasury stock includes a credit to the cash
account.
4) all items on the book side of the bank reconciliation require journal entries.
5) the debt ratio is the ratio of total debt divided by total equity.
6) an increase in the current ratio implies that the profitability of the company has
increased from the previous period.
7) a note payable can either be classified as a long-term liability or a short-term liability
depending on the discretion of the accountant.
8) a payment of an expense in advance is called a prepaid expense.
9) the allowance method violates the matching principle.
10) common stock represents the basic ownership of every corporation.
11) given the same purchase and sales data, the three major costing methods for
inventory will result in three different amounts for sales revenue. assume the cost of
inventory is rising.
12) which of the following is true of days’ sales in receivables?
a) it measures how many days it takes to order and receive inventory
b) it measures how many days it takes to collect the average level of accounts
receivable
c) it measures how many days it takes to sell inventory
d) it measures how slowly the inventory is depreciated
13) bubble wraps company receives cash from a stockholder, john trent, and issues
common stock to him. the two accounts involved in this transaction are ________.
a) the bubble wraps liability account and the cash account
b) the cash account and the common stock account
c) the equity account and john, payables account
d) the bubble wraps equity account and john, receivables account
14) the following transactions for the month of march have been journalized and posted
to the proper accounts.
mar. 1the business received $9,000 cash and issued common stock to stockholders.
mar. 2paid the first month’s rent of $800.
mar. 3purchased equipment by paying $3,000 cash and executing a note payable for
$5,000.
mar. 4purchased office supplies for $750 cash.
mar. 5billed a client for $10,000 of design services completed.
mar. 6received $8,000 on account for the services previously recorded.
what is the ending balance in the service revenue account?
a) $19,000
b) $9,000
c) $10,000
d) $8,000
15) a ________ is a document explaining the reasons for the difference between a
depositor’s cash records and the depositor’s cash balance in its bank account.
a) bank statement
b) deposit receipt
c) bank reconciliation
d) remittance advice
16) the purchase of equipment financed by a long-term notes payable is an example of
________.
a) investing activity
b) financing activity
c) operating activity
d) non-cash investing and financing activity
17) which of the following is included in the cost of land?
a) cost of fencing
b) cost of paving
c) brokerage commission
d) cost of outdoor lighting
18) which of the following items should be amortized?
a) natural resources
b) goodwill
c) patents, copyrights, trademarks
d) tangible property, plant, and equipment, other than land
19) sandra inc. had 200 units of inventory on hand at the end of the year. these were
recorded at a cost of $12 each using the last-in, first-out (lifo) method. the current
replacement cost is $10 per unit. the selling price charged by sandra inc. for each
finished product is $15. in order to record the adjusting entry needed under the
lower-of-cost-or-market rule, the merchandise inventory will be ________.
a) debited by $2,000
b) credited by $2,000
c) debited by $400
d) credited by $400
20) preferred stockholders ________.
a) are guaranteed that they will not take a loss on their investment
b) have higher voting rights than common stockholders
c) are sold for a price lower than that of common stock
d) have the first claim on dividend funds
21) which of the following statements is true of accrual basis accounting?
a) accrual basis accounting is required by generally accepted accounting principles
(gaap)
b) accrual basis accounting records expenses only when cash has been paid for them
c) accrual basis accounting records revenue only when cash is received
d) accrual basis accounting always results in greater net income than cash basis
accounting
22) on august 31, 2013, peter services received $3,500 in advance from a customer.
which of the following would be the journal entry to record the receipt of cash?
a) debit unearned revenue $3,500 and credit cash $3,500
b) debit cash $3,500 and credit service revenue $3,500
c) debit unearned revenue $3,500 and credit service revenue $3,500
d) debit cash $3,500 and credit unearned revenue $3,500
23) henry tax planning service bought computer equipment for $24,000 on january 1,
2014. it has an estimated useful life of 4 years and zero residual value. henry uses the
straight-line method to calculate depreciation and records depreciation expense in the
books at the end of every month. calculate the amount of depreciation expense for the
period, january 1, 2014 through september 30, 2014, for this equipment.
a) $6,000
b) $4,500
c) $6,500
d) $5,000
24) a company purchased a computer on july 1, 2015 for $50,000. estimated useful life
of the computer was 5 years and it has no residual value. which of the following
methods should be used to best match its expense against the revenue it produces?
a) the units-of-production method
b) the straight-line method
c) the double-declining-balance method
d) the first-in, first-out method
25) gordon corporation reported the following equity section on its current balance
sheet. the common stock is currently selling for $11.50 per share.
what would be the total stockholders’ equity after a 10% common stock dividend?
a) $656,000
b) $320,000
c) $610,000
d) $366,000
26) harris inc. had the following balances and transactions during 2014:
what would the cost of goods sold be as reported on the income statement for the year
ending december 31, 2014 if the perpetual, last-in, first-out costing method is used?
(round your answer to two decimal places.)
a) $15,750
b) $12,000
c) $3,750
d) $15,000
27) a company decides to ignore a very small error in their inventory balance. this is an
example of application of the ________.
a) accounting conservatism
b) materiality concept
c) disclosure principle
d) consistency principle
28) an asset was purchased for $24,000. the asset’s estimated useful life was 5 years,
and its residual value was $4,000. the straight-line method of depreciation was used.
calculate the gain or loss on sale if the asset is sold for $18,000 at the end of the first
year.
a) $1,000 gain
b) $2,000 loss
c) no gain or no loss
d) $2,000 gain
29) starfire telescopes company uses the indirect method to prepare the statement of
cash flows. refer to the following income statement:
starfire company
income statement
year ended december 31, 2015
sales revenue$275,000
interest revenue2,600
loss on sale of plant assets2,000
total revenues and (losses)$279,600
cost of goods sold135,000
salary expense66,500
depreciation expense32,000
other operating expenses35,900
interest expense2,400
income tax expense6,500
total expenses278,300
net income/(loss)$1,300
additional information provided by the company includes the following:
current assets other than cash decreased by $25,000
current liabilities increased by $3,000
prepare the operating activities section of the statement of cash flows.
30) avatar company uses the indirect method to prepare its statement of cash flows.
during 2014, plant assets with book value of $10,000(cost $10,000 and accumulated
depreciation $0) were sold for $14,000. using the worksheet shown below, enter the
adjustments needed to record the sale of plant assets and gain on sale of plant assets of
$4,000.
avatar company
spreadsheet for statement of cash flows
year ended december 31, 2014
31) refer to the following bank reconciliation:
bankbook
balance, june 30, 2014$11,240.00balance, june 30, 2014$10,200.00
add:add:
deposit in transit3,110.00note collected by bank2,100.00
interest revenue55.00
less:less:
outstanding checks #5061,200.00nsf check85.00
outstanding checks #510900.00bank service charge20.00
__________________
adjusted balance, adjusted balance,
june 30, 2014$12,250.00june 30, 2014$12,250.00
journalize the adjusting entry for the first reconciling item: note collected by bank.
32) on january 1, 2013, diagem services issued $140,000 of 4-year bonds with a stated
rate of 9%. the market rate at time of issue was 8%, so the bonds were issued at a
premium and sold for $144,713. diagem uses the effective-interest method to amortize
the bond premium. semiannual interest payments are made on june 30 and december 31
of each year. prepare the amortization table for the first four interest payments. (round
your answers to nearest dollar number.)
33) avatar auto parts company uses the indirect method to prepare its statement of cash
flows. refer to the following portion of the comparative balance sheet:
avatar company
comparative balance sheet
december 31, 2014 and 2013
34) on april 1, balsa inc. purchased office supplies for $1,500. at the end of april, they
took a count of the remaining supplies and found that there was $500 of supplies left.
please provide the adjusting entry needed at the end of april. (ignore explanation)
assume the office supplies were initially recorded as an asset. assume there were no
office supplies on hand prior to the purchase on april 1.
35) on january 1, 2015, server solutions paid $200,000 to acquire tabletz inc., an
electronic gadget-advertising website. at the time of the acquisition, tabletz’s balance
sheet reported total assets of $200,000 and liabilities of $100,000. the fair market value
of tabletz’s assets was $200,000. the fair market value of its liabilities was $100,000. at
the end of 2018, they measured goodwill and found its fair value to be $60,000.
calculate and record the impairment of goodwill.
36) a company purchased inventory for $100,000 on account, and recorded it as
follows:
the vendor’s invoice showed terms of 3/10, net 30. give the journal entry for the
payment of the invoice seven days after the invoice date, assuming that the vendor uses
the perpetual inventory system.
37) jelly bean company uses the indirect method to prepare its statement of cash flows.
refer to the following portion of the comparative balance sheet:
jelly bean company
comparative balance sheet
december 31, 2014 and 2013