1) establishing controls for efficiency of the payroll process is one of the two key
controls for payroll.
2) allen moving pictures company uses the indirect method to prepare its statement of
cash flows. the treasury stock account had a debit balance of $9,000 at the beginning of
the year, and a debit balance of $13,000 at the end of the year. no treasury stock was
sold during the year. the financing section of the statement of cash flows will show a
positive cash flow of $4,000 for the buy back of treasury stock.
3) a mortgage payable is a long-term debt that is backed with a security interest in
specific property.
4) the dividends account is a permanent account.
5) if the current replacement cost of inventory is less than its historical cost, the
business must adjust the inventory value.
6) depreciation is the allocation of a plant asset’s cost to expense over the useful life of
the asset.
7) an overstatement of ending merchandise inventory in the current period results in an
understatement of cost of goods sold in the current period.
8) the study of percentage changes in comparative financial statements is called
horizontal analysis.
9) in a balance sheet, assets are classified as either current or long-term depending on
their liquidity.
10) if the merchandise inventory’s market value is greater than its cost, then it must be
adjusted for the difference in amount.
11) greg financial services inc. invested $15,000 to acquire 3,750 shares of mitt
investments inc. on march 15, 2012. this investment represents less than 20% of the
investee’s voting stock. on may 7, 2016, greg financial services inc. sells 1,750 shares
for $12,250. which of the following will be the correct journal entry for this
transaction?
a)
b)
c)
d)
12) the balance in the bonds payable account is a credit of $68,000. the balance in the
premium on bonds payable account is a credit of $900. how much is the bond carrying
amount?
a) $900
b) $68,900
c) $68,000
d) $67,100
13) reliable waterworks corporation provides plumbing services. transactions of reliable
waterworks during the first year of operations are given below:
a) received $14,000 cash and issued stock to sharon, stockholder.
b) paid $2,000 for equipment to be used for plumbing repairs.
c) borrowed $15,000 from a local bank and deposited the money in the checking
account.
d) paid $600 as rent for the year.
e) paid $500 for plumbing supplies to be used on various jobs in the future.
f) completed a plumbing repair project for a local lawyer and received $3,500.
calculate the amount of total assets balance at the end of the first year. assume the
plumbing supplies of $500 are left at the end of the year.
a) $2,500
b) $2,000
c) $29,000
d) $31,900
14) the following is summary of information presented on the financial statements of a
company on december 31, 2015.
what would a horizontal analysis report show with respect to net income?
a) net income is 45.45% of net sales revenue
b) a $25,000 increase in net income
c) a 45.45% increase in net income
d) a 103.125% increase in net income
15) which of the following statements is true if a bond is sold at an amount less than its
face value?
a) the bond’s stated rate is lower than the prevailing market rate at the time of sale
b) the bond’s stated rate is the same as the prevailing market rate at the time of sale
c) the bond’s stated rate is higher than the prevailing market rate at the time of sale
d) the bond is not secured by specific assets of the issuer
16) which of the following statements is true if the income statement credit column
exceeds the income statement debit column on a worksheet?
a) the company made a net profit
b) the company incurred a net loss
c) the retained earnings account decreased during the period
d) the total liabilities exceed total assets
17) ________ represents a debt owed for renting a building currently.
a) prepaid rent
b) rent payable
c) rent revenue
d) rent expense
18) the salaries payable account is a(n) ________.
a) liability account with a normal debit balance
b) asset account with a normal debit balance
c) liability account with a normal credit balance
d) asset account with a normal credit balance
19) the following is the adjusted trial balance for tuttle photography.
after the closing entries, what will the final balance in retained earnings be?
a) $25,000
b) $191,200
c) $21,290
d) $156,200
20) which of the following is included in comprehensive income?
a) owners’ investments
b) purchase of capital assets
c) preferred dividends
d) deferred gains or losses from derivatives
21) which of the following statements is true of the debt to equity ratio?
a) the higher the debt to equity ratio, the lower the company’s financial risk
b) the higher the debt to equity ratio, the greater the company’s financial risk
c) if the debt to equity ratio is greater than 1, the company is then financing more assets
with equity than with debt
d) if the debt to equity ratio is less than 1, the company is then financing more assets
with debt than with equity
22) calculate the debt ratio using the following trial balance of melody instruments, inc.
as of december 31, 2015.
melody instruments
trial balance
december 31, 2015
account titledebitcredit
cash$88,800
accounts receivable5,000
office supplies3,400
equipment2,000
building16,500
land70,000
accounts payable$ 15,000
notes payable60,000
common stock50,000
dividends1,200
service revenue72,000
utilities expense4,100
salaries expense4,000
advertising expense2,000_______
total$197,000$197,000
23) the income statement and a partial balance sheet of williams alloy company for the
year ended december 31, 2014 is presented below. prepare the operating activities
section of the statement of cash flows using the direct method. assume the accrued
liabilities relate to miscellaneous operating expenses.
income statement
sales revenues$1,500,000
cost of goods sold1,170,000
gross profit$330,000
operating expenses:
salaries expense$210,000
depreciation expense60,000
miscellaneous expenses30,000300,000
net income$30,000
partial balance sheet
20142013
cash$240,000$195,000
accounts receivable (net)150,000150,000
inventories306,000258,000
accrued liabilities13,50015,000
accounts payable (inventory)174,000153,000
salaries payable22,50018,000
24) on october 1, 2015, nurix inc. purchased a patent for $200,000 cash. although the
patent gives legal protection for 20 years, the patent is expected to be used for only 10
years. journalize the amortization expense for 2015. assume straight-line amortization.
25) avatar company uses the indirect method to prepare its statement of cash flows.
using the worksheet shown below, enter the adjustments needed to record the following
transactions:
issued common stock for $28,000
issued new long-term notes payable for $34,000
repaid long-term notes payable for $40,000
avatar company
spreadsheet for statement of cash flows
year ended december 31, 2014
26) on january 1, 2013, davie services issued $20,000 of 8% bonds that mature in five
years. they were sold at a premium, for a total of $20,750. provide the journal entry to
issue bonds.
27) iverycoast inc. had purchased a van on january 1, 2015, for $800,000. estimated life
of the van was 5 years, and its estimated residual value was $90,000. iverycoast uses
the straight-line method of depreciation. prepare the depreciation schedule.
28) in order to expand business, the management of vereos inc. decided to issue
long-term notes payable for $50,000. the note will be paid over ten years with payments
of $5,000 plus 12% interest. provide the journal entry needed after one year for the first
installment payment.
29) a business renders services to its customer for $50,000 on account. record the
transaction in the journal.
30) on april 1, 2015, ardos gardening products borrowed $100,000 on a 15%, 10-year
note with annual installment payments of $10,000 plus interest due on april 1 of each
succeeding year. provide the first journal entry for the issuance of the note.