Land held for speculative purposes should be classified as a short-term investment.
The degree of separation of duties varies with the size of the business.
Generally accepted accounting principles state that all business transactions should be
valued at fair value both when they occur and at all subsequent reporting dates.
Each partner is personally liable only for his/her share of the debts of the partnership.
The stockholders of a corporation elect the board of directors.
The cost of land should not include accrued property taxes paid by the purchaser.
A stock dividend is a pro rata distribution of cash to a corporation’s stockholders.
Start-up and organization costs should be expensed as incurred.
Current liabilities are classified as either definitely determinable liabilities or contingent
liabilities.
The main difference between intangible assets and property, plant, and equipment is
physical substance.
Computation of a partial year’s depreciation is often required for the proper
determination of net income.
Companies whose securities are sold to the general public must adhere to standards
established by the Securities and Exchange Commission.
The distinction between current and long-term liabilities affects the evaluation of a
company’s solvency.
Whether exchanging similar or dissimilar assets, accounting for the transaction is the
same.
The specific identification method is well suited for a discount department store.
The Sarbanes-Oxley Act of 2002 does not require any certification from a public
company’s chief executive officer about the company’s system of internal control.
The amount of unamortized discount at the end of an interest period is equal to the
amount of the unamortized discount at the beginning of the period minus the amount of
discount that was amortized during the period.
Partnership liquidation is not the same as partnership dissolution.
The operating cycle is equal to days’ sales uncollected plus days’ inventory on hand
minus days’ payable.
A write-down of assets which results in a decrease in earnings may indicate that
earnings will be poor in the future.
In horizontal analysis, the base year is the most current year being examined.
The economic resources invested in a business by the owner are represented by owner’s
equity.
Detailed information about a company’s investments is never disclosed in the notes to
the financial statements.
It is considered unethical to use the estimate for bad debts to purposely manipulate the
amount of net income.
Closing entries result in the transfer of net income or net loss into the owner’s Capital
account.
A liability must never be classified as current if it is due in more than one year.
Commercial paper normally is issued by companies with poor credit ratings.
Unamortized Bond Premium is subtracted from Bonds Payable on the balance sheet.
The percentage of net sales method of estimating uncollectible accounts is in violation
of the matching principle.
Accounting for a defined contribution pension plan is simpler than accounting for a
defined benefit plan.
On a statement of cash flows prepared using the direct method, if inventory has
decreased from one accounting period to another, net purchases will be greater than the
cost of goods sold because net purchases during the period have exceeded the dollar
amount of the items sold during the period.
When a company can prove it is worth more than its balance sheet indicates, it may
record some goodwill.
Another name for the ledger is the book of original entry.
Assets are converted to revenues as they benefit the company.
Gain on Sale of Machinery is recorded as a debit.
An asset purchased according to a deferred payment plan should be recorded based on
the total cash paid.
The most important accounting problem in dealing with merchandise inventory is the
application of which of the following conventions or rules?
A. Materiality
B. Full disclosure
C. Matching
D. Conservatism
The sales journal
A. is designed to handle all cash and credit sales.
B. requires that account names be written out for each debit and credit.
C. requires a brief explanation for each transaction.
D. requires that only one amount, total credit sales for the month, be posted.
Which of the following businesses most likely would have a large Unearned Revenue
account balance at all times?
A. Dry cleaners
B. Realtor
C. Magazine publisher
D. Department store
A company that is leveraged is one that
A. contains debt financing.
B. contains equity financing.
C. has a high earnings per share.
D. has minimized its risk of loss by acquiring a portfolio of investments.
The price/earnings (P/E) ratio is measured in terms of
A. dollars.
B. a percentage.
C. times.
D. days.
A “big bath”
A. often occurs in years when there is a change in management.
B. occurs in the current year so management can show improved results in future years.
C. is often an indication of poor management decisions in the past.
D. All of these choices.
A company’s acceptance of credit cards like Visa is an example of
A. securitization.
B. factoring with recourse.
C. discounting.
D. factoring without recourse.
Generally accepted accounting principles
A. are changing continually.
B. are sound in theory but rarely used in practice.
C. have eliminated all weaknesses in accounting practice.
D. are accounting rules formulated by the Internal Revenue Service.
The following information pertains to the bank transactions of Rawlins Company:
a. Cash on the books as of April 30 was $499. Cash as shown on the bank statement for
the same date was $1,330.
b. A deposit of $160, representing cash receipts as of April 30, did not apppear on the
bank statement.
c. Outstanding checks totaled $240.
d. Bank service charges for April amounted to $9
e. The bank collected for Rawlins Company $840 (which includes $40 interest) on a
note left for collection.
f. An NSF check for $80 from a customer, Joe Beck, was returned with the statement.
Required:
1. Prepare a bank reconciliation for Rawlins Company as of April 30.
2. State the amount of cash that would appear on the balance sheet as of April 30.
Which of the following topics involves a contingent liability?
A. Installment accounts receivable
B. A discounted note receivable
C. Securitization
D. Credit card sales
Which of the following items is not shown on a single-step income statement?
A. Cost of goods sold.
B. Interest expense.
C. Selling expenses.
D. Gross margin.
Which of the following might be motivation for fraudulently covering up a financial
weakness?
A. to obtain a loan
B. to meet stockholder expectations
C. to obtain bonus compensation
D. all of these are possible motivations
An adjusted trial balance is prepared to
A. test that the ledger is in balance after the accounts have been adjusted.
B. facilitate preparation of the adjusting entries.
C. both test that the ledger is in balance after the accounts have been adjusted and
facilitate preparation of the financial statements.
D. facilitate preparation of the financial statements.
The periodicity assumption recognizes that
A. the company may continue indefinitely.
B. all financial statements should cover a fiscal year.
C. net income is an estimate.
D. the value of an asset may vary from month to month.
When a work sheet is prepared
A. closing entries need not be entered into the journal.
B. a trial balance need not be prepared.
C. adjusting entries need not be entered into the journal.
D. financial statements need not be prepared.
Which of the following documents is mailed to the vendor (seller) of goods?
A. Receiving report
B. Invoice
C. Purchase order
D. Purchase requisition
Answer the following questions. (Show your work.)
a. A machine was purchased on July 1, 20×9. It had a cost of $36,000 and an estimated
useful life of nine years with zero value at that time. What is the machine’s carrying
value after four years?
b. On April 1, 20×0, a company paid in advance $54,000 for three years’ insurance.
How much Prepaid Insurance remains on the balance sheet on December 31, 20×0?
c. A company began the year with $800 in supplies, purchased $2,000 in supplies, and
ended the period with $600 in supplies. How much is Supplies Expense for the period?
d. A company was paid $1,800 in advance for services to be performed. At year end,
one-third had not yet been earned. How much in Service Revenue should be recorded?
Lassen Corporation issued ten-year term bonds on January 1, 20×5, with a face value of
$800,000. The face interest rate is 6 percent and interest is payable semiannually on
June 30 and December 31. The bonds were issued for $690,960 to yield an effective
annual rate of 8 percent. The effective interest method of amortization is to be used. The
entry to record the bond interest expense on the first interest payment date is: (Round
answer to the nearest dollar.)
A. Bond Interest Expense 24,000
Cash 24,000
B. Bond Interest Expense 27,638
Unamortized Bond
Discount 3,638
Cash 24,000
C. Bond Interest Expense 27,638
Cash 27,638
D. Bond Interest Expense 27,638
Ratios are most useful in identifying
A. causes.
B. differences.
C. relationships.
D. trends.
Each of the following companies is a merchandising business except a
A. candy store.
B. car wash.
C. wholesale parts company.
D. furniture store.
Which of the following guidelines is correct?
A. Dollar signs ($) are required in all financial statements and other schedules.
B. Account names are capitalized when referenced in text or listed in work documents
like the journal or ledger.
C. In financial statements only the first word of an account name is capitalized.
D. All of these choices.
a. Yorkshire Corporation has 9,000 shares of $10 par value common stock and 5,000
shares of $50 par value, 10 percent cumulative preferred stock outstanding. All shares
were issued at par value. In addition, retained earnings total $90,000. If the preferred
stock is callable at $54 per share, and one year’s dividends are in arrears, compute book
value per share of preferred stock.
b. Assume the same facts as in a above. Calculate book value per share of common
stock.
c. Assume the same facts as in a above and that Yorkshire Corporation declares a
5-for-1 stock split on its common stock. After the split, total par value of common stock
equals what amount?
d. Assume the same facts as in a above and that Yorkshire Corporation declares a 12
percent stock dividend on its preferred stock. If the market value on the declaration date
was $70 per share, for what amount will Preferred Stock Distributable be credited?
Land and a building on the land are purchased for $310,000. The appraised values of
the land and building are $66,000 and $264,000, respectively. The cost allocated to the
building should be
A. $25,200.
B. $109,800.
C. $135,000.
D. $248,000.
Which of the following is a market strength ratio?
A. Return on equity
B. Dividend yield
C. Debt to equity ratio
D. Payables turnover
Total payroll for a given week is $34,000. If 70 percent of the company’s employees
typically qualify to receive two weeks’ paid vacation per year (50 weeks), the entry to
record estimated liability for vacation pay for the week is
A. Estimated Liability for Vacation Pay 2,380
Cash 2,380
B. Vacation Pay Expense 1,360
Cash 1,360
C. Vacation Pay Expense 952
Estimated Liability for Vacation Pay 952
D. Cash 476
Par value
A. is established for a share of stock after it is issued.
B. is the legal capital established for a share of stock.
C. represents what a share of stock is worth.
D. represents the original selling price for a share of stock.
Use the following information to answer the question below.
The following transactions involving Cactus Wren Corporation occurred during the
year:
Apr. 1 Purchased 2,000 shares of its own preferred stock for $20, the current market
price. This is the first transaction involving its own stock engaged in by the company.
May 3 Sold 400 of the shares purchased on April 1 for $25 per share.
June 5 Retired 600 of the shares purchased on April 1. The original issue price was $10.
The par value of the stock is $5.
The entry to record the May 3 transaction is:
A. Treasury Stock, Preferred 10,000
Cash 10,000
B. Cash 10,000
Treasury Stock, Preferred 8,000
Paid-in Capital, Treasury Stock 2,000
C. Cash 4,000
Retained Earnings 6,000
Treasury Stock, Preferred 10,000
D. Treasury Stock, Preferred 8,000
When calculating a partial year’s depreciation, the length of time an asset has been
owned usually is rounded to the nearest month. This rounding practice is justified by
the principle or rule of
A. matching.
B. materiality.
C. conservatism.
D. full disclosure.
The following users of accounting information have a direct financial interest in a
business except
A. a creditor.
B. a financial adviser.
C. management.
D. an investor.
Liabilities that might arise from which of the following probably would be disclosed
only in the notes to the financial statements?
A. Possible warranty claims
B. Guarantees of the debt of other companies
C. Possible bankruptcy of an important customer whose account is current
D. Estimated income taxes for the current year
Pelican Company issued $200,000 of 20-year, 6 percent bonds at 98 on one of its
semiannual interest dates. The straight-line method of amortization is to be used. What
is the total interest cost of the bonds?
A. $240,000
B. $244,000
C. $236,000
D. $235,000
The advantages of financial leverage accrue primarily to
A. management.
B. stockholders.
C. the government.
D. creditors.
Brendan Company sold merchandise worth $1,600 on credit, terms n/15. The
merchandise sold had cost $1,100. What is the required journal entry to record the
transaction under the perpetual inventory system?
A. Accounts Receivables 1,600
Sales 1,600
Cost of Goods Sold 1,100
Merchandise Inventory 1,100
B. Sales 1,600
Accounts Receivables 1,600
Merchandise Inventory 1,100
Cost of Goods Sold 1,100
C. Accounts Receivables 1,600
Merchandise Inventory 1,600
Cost of Goods Sold 1,100
Merchandise Inventory 1,100
D. Merchandise Inventory 1,600
Jasmine Company has established a petty cash fund for small expenditures.
Match each item with the correct statement below.
From a practical standpoint, if a company issued bonds on several different days and
did not collect the accrued interest, records would have to be maintained for each
bondholder and date of purchase.
The information that follows pertains to stockholders’ equity data of Frame Corporation
on December 31, 20×5. Compute the amount of each item indicated by a letter in the
listing below.
In recent years, Redbird Corporation, a small manufacturer of jet skis for the leisure
industry, has followed the practice of issuing a 10 percent stock dividend annually.
Although the company’s net income has been almost $4 million in each of the past three
years, retained earnings have declined from about $10 million to about $6 million.
What is the probable motivation for management’s decision to issue an annual 10
percent stock dividend? What is the most likely explanation for the decrease in retained
earnings? Given your explanation, would stockholders’ equity also decrease by a like
amount?
Sam’s Menswear has $11,600 in Accounts Receivable at December 31. Sam’s
accountant estimates that $600 of the $11,600 will never be collected. Complete the
current asset section of the balance sheet below.
Special-purpose journals can promote efficiency, economy, and control. Describe how
special-purpose journals promote control, and how they promote efficiency and
economy.
Distinguish between cost of goods sold and operating expenses, describing the nature of
these two items and their placement on a multistep income statement.
How does the perpetual inventory system differ from the periodic inventory system in
the determination of cost of goods sold?
In practice, why is it often difficult to apply the retail method in determining the cost of
ending inventory?
Why are cost flow assumptions made when accounting for merchandise inventory?
On January 1, 2014, Woodside Corporation purchased 5,000 shares of Nieman
Corporation common stock for $120 per share. Woodside’s investment represents 30
percent of the total outstanding shares of Nieman. During 2014, Nieman paid total
dividends of $200,000. Woodside appropriately used the equity method to account for
this investment and accordingly reported the investment at a carrying value of $780,000
on December 31, 2014. Compute the amount of earnings reported by Nieman
Corporation for 2014.
Discuss the difference between the successful efforts and full-costing methods of
accounting for oil and gas resources.
Explain why a creditor would be concerned if your company had a current ratio of less
than 1.
On November 19, 2013, Bristol Company purchased 30,000 shares of JCN Corporation
stock for $480,000, and 10,000 shares of Nystrom Corporation stock for $250,000.
Bristol’s management intends to hold all 40,000 shares for a short period of time. On
December 31, 2013, the price of JCN’s stock was $13 per share, and the price of the
Nystrom stock was $30 per share. Finally, on January 27, 2014, Bristol sold all 10,000
shares of Nystrom stock for $320,000. In the journal provided below, prepare Bristol’s
entries for November 19, December 31, and January 27.
