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In recording business transactions, evidence that an accounting transaction has taken
place is obtained from
a. business documents.
b. the Internal Revenue Service.
c. the public relations department.
d. the SEC.
Answer:
Hull Company acquires land for $86,000 cash. Additional costs are as follows:
Hull will record the acquisition cost of the land as
a. $96,000.
b. $87,690.
c. $89,610.
d. $89,370.
Answer:
All of the following are stockholders' equity accounts except
a. Dividends.
b. Common Stock.
c. Investment in Stock.
d. Retained Earnings.
Answer:
Suppose you have a winning lottery ticket and you are given the option of accepting
$3,000,000 three years from now or taking the present value of the $3,000,000 now.
The sponsor of the prize uses a 6% discount rate. If you elect to receive the present
value of the prize now, the amount you will receive is
a. $2,518,860.
b. $2,830,189.
c. $2,670,000.
d. $3,000,000.
Answer:
The Hartley Clinic purchased a new surgical laser for $90,000. The estimated salvage
value is $5,000. The laser has a useful life of five years and the clinic expects to use it
10,000 hours. It was used 1,600 hours in year 1; 2,200 hours in year 2; 2,400 hours in
year 3; 1,800 hours in year 4; 2,000 hours in year 5.
Instructions
(a) Compute the annual depreciation for each of the five years under each of the
following methods:
(1) straight-line.
(2) units-of-activity.
(b) If you were the administrator of the clinic, which method would you deem as most
appropriate? Justify your answer.
(c) Which method would result in the lowest reported income in the first year? Which
method would result in the lowest total reported income over the five-year period?
Answer:
If a common stock investment is sold at a gain, the gain
a. is reported as operating revenue.
b. is reported under a special section, 'Discontinued investments,' on the income
statement.
c. is reported in the Other revenues and gains section of the income statement.
d. contributes to gross profit on the income statement.
Answer:
To qualify as natural resources in the accounting sense, assets must be
a. underground.
b. replaceable.
c. of a mineral nature.
d. physically extracted in operations.
Answer:
The following data are taken from the financial statements of Dands Company:
Instructions
(a) Compute the accounts receivable turnover and the average collection period for both
years.
(b) What conclusion can an analyst draw about the management of the accounts
receivable?
Answer:
The general ledger of Link Company provides the following information:
The company's net sales for the year was $2,200,000 and cost of goods sold amounted
to $1,500,000.
Instructions
Compute the following:
(a) Cash receipts from customers.
(b) Cash payments to suppliers.
Answer:
Correcting entries
a. always affect at least one balance sheet account and one income statement account.
b. affect income statement accounts only.
c. affect balance sheet accounts only.
d. may involve any combination of accounts in need of correction.
Answer:
The income statement for the year 2015 of Fugazi Co. contains the following
information:
The entry to close the expense accounts includes a
a. debit to Income Summary for $7,500.
b. credit to Income Summary for $7,500.
c. debit to Income Summary for $77,500.
d. debit to Utilities Expense for $2,500.
Answer:
The balances that appear on the post-closing trial balance will match the
a. income statement account balances after adjustments.
b. balance sheet account balances after closing entries.
c. income statement account balances after closing entries.
d. balance sheet account balances after adjustments.
Answer:
Trading on the equity (leverage) refers to the
a. amount of working capital.
b. amount of capital provided by owners.
c. use of borrowed money to increase the return to owners.
d. number of times interest is earned.
Answer:
Both IFRS and GAAP require disclosure about
a. accounting policies followed.
b. judgements that management has made in the process of applying the entity's
accounting policies.
c. the key assumptions and estimation uncertainty.
d. All of these answer choices are correct.
Answer:
Adjusting entries are required
a. yearly.
b. quarterly.
c. monthly.
d. every time financial statements are prepared.
Answer:
Frank White the new controller of Youngman Company, has reviewed the expected
useful lives and salvage values of selected depreciable assets at the beginning of 2015.
His findings are as follows.
All assets are depreciated by the straight-line method. Youngman Company uses a
calendar year in preparing annual financial statements. After discussion, management
has agreed to accept Frank's proposed changes.
Instructions
(a) Compute the revised annual depreciation on each asset in 2015. (Show
computations.)
(b) Prepare the entry (or entries) to record depreciation on the building in 2015.
Answer:
Bay Company acquires 60, 8%, 5 year, $1,000 Community bonds on January 1, 2014
for $60,000.
Assume Community pays interest on January 1 and July 1, and the July 1 entry was
done correctly. The journal entry at December 31, 2014 would include a credit to
a. Interest Receivable for $2,400.
b. Interest Revenue for $4,800.
c. Accrued Expense for $4,800.
d. Interest Revenue for $2,400.
Answer:
The following items are taken from the financial statements of the Postal Service for the
year ending December 31, 2015:
What is the company's net income for the year ending December 31, 2015?
a. $12,000
b. $28,000
c. $42,000
d. $133,000
Answer:
Under IFRS, bank overdrafts are classified as
a. operating activities.
b. investing activities.
c. financing activities.
d. cash and cash equivalents.
Answer:
Selection of an inventory costing method by management does not usually depend on
a. the fiscal year end.
b. income statement effects.
c. balance sheet effects.
d. tax effects.
Answer:
The process of transferring net income [or loss) for the period to Retained Earnings is
accomplished by making ______________ entries.
Answer:
The market value of a corporation's stock is determined by the number of shares that the
corporation has been authorized to issue.
Answer:
Transaction amounts recorded in the general journal are never posted to accounts in the
subsidiary ledger.
Answer:
FIFO and LIFO are the two most common cost flow assumptions made in costing
inventories. The amounts assigned to the same inventory items on hand may be
different under each cost flow assumption. If a company has no beginning inventory,
explain the difference in ending inventory values under the FIFO and LIFO cost bases
when the price of inventory items purchased during the period have been (1) increasing,
(2) decreasing, and (3) remained constant.
Answer:
Errors occasionally occur when physically counting inventory items on hand. Identify
the financial statement effects of an overstatement of the ending inventory in the current
period. If the error is not corrected, how does it affect the financial statements for the
following year?
Answer:
