If treasury stock is resold for more than cost, the difference is debited to the account
Paid-In Capital from Treasury Stock Transactions.
With the terms FOB shipping point, the freight cost becomes part of the cost of
merchandise inventory for the purchaser. (Assume a perpetual inventory system.)
Secured bonds give bondholders the right to take specified assets of the issuer if the
issuer fails to pay principal or interest.
A trend analysis would be used if an analyst wants to see how the gross profit of a
company has changed from one year to the next.
Ron is an employee of Panache, Inc. Panache pays a portion of his health insurance
premium and also contributes to a retirement plan in his name. The company’s share of
the health insurance premium is $600, and the company’s contribution to the retirement
plan is $860. The journal entry to record the employee benefits to be paid by the
company should include a debit to Employee Health Insurance Payable for $1,460.
Stock dividends have no effect on the total amount of stockholders’ equity.
If a business knows that a liability exists but does not know the exact amount, the
business is unable to record the liability.
The direct method starts with net income and adjusts it to net cash provided by
operating activities.
Income taxes are withheld from the employee’s paycheck.
Most corporations set par value low and issue common stock at a premium.
A business that has a vacant building that is not currently being used would classify the
building as a plant asset.
The time value of money is used to determine the market price of a bond.
A debtor is a party to a credit transaction who will receive the cash for the transaction at
a later date.
Securities are represented by a certificate and are commonly traded on an exchange.
The worksheet is an external tool that can be used to help in recording adjusting entries
and preparing financial statements.
Companies sometimes obtain financing and do not receive cash. Although such
transactions do not directly involve cash, they still must be reported in the financing
section of the statement of cash flows.
Investors and management use the statement of cash flows to evaluate a firm’s
profitability.
Assets are economic resources that have no future benefits for the business.
Companies that follow GAAP are required to use the direct write-off method for
uncollectible accounts receivable.
Adjusting entries either credit a revenue account or debit an expense account.
A preferred stock is an example of a debt security.
A reduction in the amount of revenue earned on sales for early payment is known as a
sales discount.
The Sarbanes-Oxley Act (SOX) requires companies to review internal control and take
responsibility for the accuracy and completeness of their financial reports.
Journal entries are required if the bank reconciliation includes outstanding checks.
The employer is required to directly deposit the employee’s take-home pay into the
employee’s bank account.
Under IFRS, interest revenue and dividend income may be reported either as an
operating activity or an investing activity.
Earnings per share reports the amount of net income (loss) for each share of the
company’s issued common stock.
Lightning Electric Company uses the direct method to prepare its statement of cash
flows. Lightning has reported operating expenses of $63,000 on its income statement
for the year 2019. If the balance in accrued liabilities has increased by $6,000 during
the year, then $6,000 needs to be added to $63,000 to calculate payments to suppliers
for operating expenses. Accrued liabilities relate to operating expenses.
The balance sheet is the first financial statement that is prepared at the end of the
period.
When using the effective-interest amortization method, the amount of the interest
expense is calculated using the face value of the bonds and the market interest rate.
Accounts Receivable has a balance of $8,000, and the Allowance for Bad Debts has a
credit balance of $450. The allowance method is used. What is the net realizable value
of Accounts Receivable after a $160 account receivable is written off?
A) $7,390
B) $7,710
C) $7,550
D) $8,000
The Allowance for Bad Debts account has a debit balance of $8,000 before the
adjusting entry for bad debts expense. After analyzing the accounts in the accounts
receivable subsidiary ledger, the company’s management estimates that uncollectible
accounts will be $12,000. What will be the amount of the adjustment in the Allowance
for Bad Debts account?
A) $19,250
B) $12,000
C) $18,900
D) $20,000
Which of the following inventory costing methods uses the costs of the oldest purchases
to calculate the value of the ending inventory?
A) specific identification
B) weighted-average
C) last-in, first-out
D) first-in, first-out
Intangible assets ________.
A) always have a definite life
B) are recorded at cost when purchased externally
C) are always expensed through amortization
D) do not include goodwill
A $45,000, two-month, 9% note payable was issued on December 1, 2018. What is the
amount of interest expense recorded in the year 2019? (Round the final calculation to
the nearest dollar.)
A) $4050
B) $338
C) $675
D) $45,675
A company that uses the perpetual inventory system purchases inventory for $62,000 on
account, with terms of 2/10, n/30. Which of the following is the journal entry to record
the payment made within 10 days?
A) a debit to Accounts Payable for $62,000, a credit to Cash for $1,240, and a credit to
Merchandise Inventory for $60,760
B) a debit to Accounts Payable for $62,000, a credit to Merchandise Inventory for
$1,240, and a credit to Cash for $60,760
C) a debit to Merchandise Inventory for $1,240, a debit to Accounts Payable for
$62,000, and a credit to Cash for $63,240
D) a debit to Accounts Payable for $60,760, a debit to Merchandise Inventory for
$1,240, and a credit to Cash for $62,000
Before any internal control procedure is initiated, which of the following questions
must be primarily addressed by a company?
A) Will this put an end to theft?
B) Is this the best security money can buy?
C) How much benefit will be derived from the cost of the procedure?
D) Will this prevent accounting errors?
Which of the following inventory costing methods results in the lowest value of ending
inventory during a period of rising inventory costs?
A) specific identification
B) weighted-average
C) last-in, first-out
D) first-in, first-out
Jones Financial Services, Inc. performed accounting services for a client in December.
A bill was mailed to the client on December 30. The company received the client’s
check by mail on January 5. Which of the following accounts should appear on the
income statement for the year ended December 31 as related to the services performed?
A) Service Revenue
B) Unearned Revenue
C) Accounts Payable
D) Prepaid Expense
Which of the following accounts will be included in a post-closing trial balance?
A) Service Revenue
B) Interest Payable
C) Interest Expense
D) Utilities Expense
Under which of the following inventory costing methods is the ending inventory based
on the costs of the most recent purchases?
A) specific identification
B) weighted-average
C) last-in, first-out
D) first-in, first-out
Transactions are first record in a ________.
A) chart of accounts
B) trial balance
C) journal
D) ledger
McCoy Corporation provides plumbing services. Transactions during the first year of
operations are provided below.
a) Received $12,000 cash and issued common stock to Sharon McCoy.
b) Paid $1,900 cash for equipment to be used for plumbing repairs.
c) Borrowed $10,000 from a local bank and deposited the money in the checking
account.
d) Paid $400 rent for the year.
e) Purchased $500 of office supplies by cash.
f) Completed a plumbing repair project for a local lawyer and received $3,200 cash.
Calculate the amount of total liabilities at the end of the first year.
A) $10,000
B) $12,000
C) $20,100
D) $3,200
An entity that buys goods and sells them to consumers at a markup is a ________.
A) retailer
B) wholesaler
C) manufacturer
D) producer
The return on assets is calculated by ________.
A) subtracting net income from average total assets
B) adding net income and average total assets
C) dividing net income by average total assets
D) multiplying net income and average total assets
Which of the following is an example of an estimable probable contingency?
A) FICA Taxes Payable
B) Income Taxes Payable
C) Warranty Payable
D) Accounts Payable
Which of the following will be categorized as an investing activity on the statement of
cash flows?
A) Purchase of land with a mortgage
B) Cash paid for purchase of new machinery
C) Cash paid for purchase of office supplies
D) Cash received from issuance of shares of common stock
A petty cash fund was established with a $600 balance. It currently has cash of $17 and
petty cash tickets as shown below:
Which of the following would be included in the journal entry to replenish the Petty Cash
fund?
A) debit to Cash Short & Over for $116
B) credit to Cash Short & Over for $116
C) debit to Petty Cash for $116
D) credit to Petty Cash for $116
Regarding accounting entries for debt securities, which of the following is true?
A) The receipt of interest revenue is recorded with a debit to Interest Revenue and a
credit to Cash.
B) Investments in debt securities are recorded at cost, including any brokerage fees
paid.
C) The receipt of interest revenue is recorded with a debit to Cash and a credit to
Held-to-Maturity Debt Investments.
D) Debt securities disposed of at maturity are recorded with a debit to the Short-term or
Long-term Investments account and a credit to Cash.
An electronic funds transfers system ________.
A) does not include debit card transactions
B) is seldom used by businesses
C) transfers cash by electronic communication rather than by paper documents
D) uses forms such as checks and deposit tickets to transfer cash
Which of the following sections of the statement of cash flows include activities that
increase and decrease long-term assets?
A) the financing activities section
B) the operating activities section
C) the investing activities section
D) the non-cash investing and financing section
Which of the following is a liability account?
A) Accounts Payable
B) Prepaid Expense
C) Salaries Expense
D) Service Revenue
The Interest Expense in the worksheet’s unadjusted trial balance column is $1,000.
Interest Expense in the income statement column is $12,000. Which of the following
entries would have caused this difference?
A) a $12,000 credit to Interest Expense in the worksheet’s adjustments column
B) a $12,000 credit to Interest Payable in the worksheet’s adjustments column
C) a $11,000 debit to Interest Expense in the worksheet’s adjustments column
D) a $11,000 credit to Interest Expense in the worksheet’s adjustments column
Under the net method of handling credit and debit card payments, the ________.
A) net amount of the sale is credited to the Sales Revenue account on the date of sale
B) credit to the sales revenue is selling price less the transaction fee
C) business writes a check to the third-party processor for the processing fee
D) processing fee is debited to the Credit Card Expense account on the date of sale
Which of the following will be recorded in the general journal when using a manual
accounting information system?
A) adjusting and closing entries
B) payment of accounts payable
C) purchase of merchandise inventory on account
D) sale of merchandise inventory on account
Angie’s gross pay for the week is $970.00. Her deduction for federal income tax is
based on a rate of 20%. She has voluntary deductions of $220.00. Her year-to-date pay
is under the limit for OASDI. What is the amount of FICA—Medicare Tax deducted
from her pay? (Assume a FICA—OASDI Tax of 6.2% and FICA—Medicare Tax of
1.45%. Do not round any intermediate calculations, and round your final answer to the
nearest cent.)
A) $194.00
B) $14.07
C) $60.14
D) $268.21
LLL Company reported the following items on its 2019 financial statements:
Requirement:
a. Determine LLL’s rate of return on total assets for 2019. Label your work and show
computations.
b. What does the rate of return on total assets mean? Discuss your findings for LLL.
Ketchen, Inc. provides the following information for 2018:
The company has no preferred stock outstanding. Calculate the price/earnings ratio of
common stock. (Round any intermediate calculations and your final answer to two decimal
places.)
A) 57.85 times
B) 70.00 times
C) 46.98 times
D) 36.27 times
Which of the following depreciation methods allocate a varying amount of depreciation
to expense each year based on an asset’s usage?
A) the straight-line method
B) the annuity method
C) the units-of-production method
D) the double-declining-balance method
A listing of all accounts in numerical order is called a(n) ________.
A) Ledger
B) Journal
C) Income statement
D) Chart of accounts
Social Security (FICA) tax is withheld from the employees’ pay and matched by the
employer.
Samson, Inc. had the following balances and transactions during 2019:
What is the balance of the company’s Merchandise Inventory, as disclosed in the
December 31, 2019 balance sheet as per the periodic FIFO inventory costing method?
A) $465
B) $490
C) $2,325
D) $784
A check payment for $658 was incorrectly entered in the Cash account as $856. Which
of the following adjustments needs to be made?
A) decrease the book balance
B) decrease the bank statement balance
C) increase the book balance
D) increase the bank statement balance
In an accounting information system, source documents are the documents which
________.
A) are not needed if a computerized system is used
B) detail the strategic planning of the business
C) have complete information about the financial statements
D) provide the evidence and data for accounting transactions
Brooks Landscaping Corporation performs lawn mowing services for its customers in
May. Payments for May’s services are expected to be received in June. How does the
transaction for performing services in May affect the accounting equation of Brooks
Landscaping?
A) Liabilities increase and equity decreases.
B) Assets and equity increase.
C) Assets and equity decrease.
D) Liabilities and equity increase.
Journalize the following transaction for a merchandiser that uses the perpetual
inventory system.
Sold goods for cash, $1,200 (cost $750). Omit explanations.
Data for Kahn, Inc. follows:
Kahn, Inc.
Comparative Income Statement
Years Ended Dec. 31, 2019 and 2018
Prepare a horizontal analysis of the comparative income statement of Kahn, Inc. (Round to
one decimal place.) Use a multi-step format for the income statement.
Answer the following questions regarding the current ratio:
The adjusted trial balance of Williams Landscaping at December 31, 2019 is as follows:
Using the information above, prepare a post-closing trial balance for Williams
Landscaping (dated December 31, 2019).
Provide a definition of each of the following types of bonds.
For the following situation, state whether it represents a strength or weakness in internal
control and give the reason for your answer.
The mailroom employee opens all incoming mail. Customers’ checks are sent to the
treasurer, and remittance advices are sent to the accounting department. The controller
compares the daily bank deposit amount from the treasurer and the daily debit to cash
from the accounting department.
Geller Electronics 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.
Journalize the acquisition of Tabletz in the books of Geller Electronics. Omit
explanation.
State whether the normal balance of each of the following accounts is a debit or credit.
On November 1, 2018, A & C Janitorial Supply sold merchandise on account with a
cost of $4,200 for $6,000 and payment terms of 3/10, n/30. The company uses a
perpetual inventory system. Prepare the journal entries for this transaction. Omit
explanations.
When computing a bond’s cash flow for interest, which interest rate is used? Why?
What is the difference between simple interest and compound interest?
Why is it important for companies to record adjusting entries?
An adjusted trial balance for a merchandiser is given below.
Prepare the journal entry to close the expense accounts. Omit explanation.
On December 2, 2018, St. Andrews, Inc. purchases land. In exchange for the land, St.
Andrews, Inc. issues 8,000 shares of common stock with $1.00 par value. The land has
been appraised at a market value of $400,000. Prepare the journal entry for this
transaction. Omit explanation.
Wentwood Clothing Store reported the following selected items at June 30, 2019
(previous year – 2018 – amounts are also given as needed):
Compute Wentwood’s acid-test ratio on June 30, 2019. Show your computations. Round
the answer to 2 decimal places.
Provide a definition for each of the following accounting principles.
