Accrued expenses are
a. paid and recorded in an asset account before they are used or consumed.
b. paid and recorded in an asset account after they are used or consumed.
c. incurred but not yet paid or recorded.
d. incurred and already paid or recorded.
Answer:
A stockholder is interested in the ability of a firm to
a. pay consistent dividends.
b. appreciate in share price.
c. survive over a long period.
d. All of these answer choices are correct.
Answer:
Salvage (residual) value is deducted in the computation of depreciation expense in all of
the following methods with the exception of
a. straight-line.
b. units-of-activity.
c. declining-balance.
d. All of these answer choices include a deduction of salvage value.
Answer:
At January 1, 2014, the trading securities portfolio held by the Darren Corporation
consisted of the following investments:
1> 2,000 shares of Temper common stock purchased for $42 per share.
2> 1,500 shares of Logan common stock purchased for $50 per share.
At December 31, 2014, the fair values per share were Temper $38 and Logan $54.
Instructions
(a) Prepare a schedule showing the cost and fair value of the portfolio at December 31,
2014.
(b) Prepare the adjusting entry to report the portfolio at fair value at December 31,
2014.
Answer:
A prior period adjustment
a. appears on the income statement as an extraordinary item.
b. is a correction of an error, made directly to retained earnings.
c. is made when preferred dividends in arrears are finally paid.
d. is made to reverse an adjusting entry.
Answer:
If a company fails to make an adjusting entry to record supplies expense, then
a. stockholders’ equity will be understated.
b. expense will be understated.
c. assets will be understated.
d. net income will be understated.
Answer:
Which of the following items does not appear in the statement of cash flows under the
direct method?
a. Cash payments to suppliers
b. Cash collections from customers
c. Depreciation Expense
d. Cash from the sale of equipment
Answer:
Andrews, Inc. paid $45,000 to buy back 9,000 shares of its $1 par value common stock.
This stock was sold later at a selling price of $6 per share. The entry to record the sale
includes a
a. credit to Paid-in Capital from Treasury Stock for $9,000.
b. credit to Common Stock for $9,000.
c. debit to Paid-in Capital from Treasury Stock for $45,000.
d. debit to Retained Earnings for $45,000.
Answer:
aBarr, Inc. reports $4,000,000 of common stock, and $6,000,000 of additional paid-in
capital on its balance sheet. The number of common shares issued and outstanding is
500,000 shares. The book value per share is
a. $20.
b. $12.
c. $8.
d. not determinable.
Answer:
The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method
which
a. is used for tax purposes.
b. must be used for financial statement purposes.
c. is required by the SEC.
d. expenses an asset over a single year because capital acquisitions must be expensed in
the year purchased.
Answer:
Which of the following is not one of the main factors that contribute to fraudulent
activity?
a. Opportunity.
b. Incompatible duties.
c. Financial Pressure.
d. Rationalization.
Answer:
The face value of a note refers to the amount
a. that can be received if sold to a factor.
b. borrowed plus interest received at maturity from the maker.
c. that is identified on the formal instrument of credit.
d. remaining after a service charge has been deducted.
Answer:
In accordance with the revenue recognition principle, sales revenues are recorded when
a. the goods are transferred from the seller to the buyer.
b. cash is received from the customer for items already delivered.
c. an order is received from a customer with delivery of the product expected to take
place within the next 30 days.
d. the accountant determines which period’s income statement “needs” more revenue.
Answer:
Yocum Company purchased equipment on January 1 at a list price of $120,000, with
credit terms 2/10, n/30. Payment was made within the discount period and Yocum was
given a $2,400 cash discount. Yocum paid $6,000 sales tax on the equipment, and paid
installation charges of $1,760. Prior to installation, Yocum paid $4,000 to pour a
concrete slab on which to place the equipment. What is the total cost of the new
equipment?
a. $125,360
b. $129,360
c. $131,760
d. $123,600
Answer:
When performing vertical analysis, the base amount for administrative expense is
generally
a. administrative expense in a previous year.
b. net sales.
c. gross profit.
d. fixed assets.
Answer:
A company has net credit sales of $750,000 for the year and it estimates that
uncollectible accounts will be 2% of sales. If Allowance for Doubtful Accounts has a
credit balance of $2,000 prior to adjustment, its balance after adjustment will be a credit
of
a. $13,000.
b. $15,000.
c. $15,040.
d. $17,000.
Answer:
Ritter Company issues $1,200,000 of 10%, 10-year bonds on January 1, 2015, at 102.
Interest is payable semiannually on July 1 and January The company uses the
straight-line method of amortization.
Instructions
(a) Journalize the entries for the bonds on (1) January 1, 2015, (2) July 1, 2015, and (3)
December 31, 2015.
(b) Show the balance sheet presentation of the bonds at December 31, 2015.
(c) Assume on July 1 2015, after paying interest, Ritter calls bonds having a face value
of $600,000. The call price is 101. Record the redemption of the bonds.
Answer:
The declaration and distribution of a stock dividend will
a. increase total stockholders’ equity.
b. increase total assets.
c. decrease total assets.
d. have no effect on total assets.
Answer:
Don’s Copy Shop bought equipment for $450,000 on January 1, 2014. Don estimated
the useful life to be 3 years with no salvage value, and the straight-line method of
depreciation will be used. On January 1, 2015, Don decides that the business will use
the equipment for a total of 5 years. What is the revised depreciation expense for 2015?
a. $150,000
b. $ 60,000
c. $ 75,000
d. $112,500
Answer:
A periodic inventory system requires a detailed inventory record of inventory items.
Answer:
Postretirement benefits are accounted for on a cash basis.
Answer:
One of the reasons a corporation may purchase investments is that it has excess cash.
Answer:
Journalizing and posting closing entries is a required step in the accounting cycle.
Discuss why it is necessary to close the books at the end of an accounting period. If
closing entries were not made, how would the preparation of financial statements be
affected?
Answer:
The operating cycle of a company is the average time required to collect the receivables
resulting from producing revenues.
Answer:
When vacant land is acquired, expenditures for clearing, draining, filling, and grading
should be charged to the ______________ account.
Answer:
During October, 2015, Red’s Catering Company generated revenues of $14,000. Sales
discounts totaled $200 for the month. Expenses were as follows: Cost of goods sold of
$7,700 and operating expenses of $2,000.
Calculate (1) gross profit and (2) income from operations for the month.
Answer:
The Sales Returns and Allowances account and the Sales Discount account are both
classified as expense accounts.
Answer:
A disbursement system that uses wire, telephone, computers, etc., to transfer cash from
one location to another is referred to as ______________.
Answer: