It is possible to allocate income or loss to partners based solely on interest.
A different set of financial statements usually is prepared for each user.
Corporate earnings are subject to double taxation.
A limited partnership normally has one or more general partners whose liability is
unlimited.
Using the cost-adjusted-to-market method of accounting for a long-term investment in
stock, the journal entry to record the receipt of dividends involves a debit to Dividend
Income.
It is never correct for a compound entry’s debit totals and credit totals to be unequal.
The price/earnings (P/E) ratio is an indication of investor confidence in a company.
In general, when prices are rising, use of the FIFO method will result in a lower tax
liability than the other methods.
Net income provides a good measure of a business’s debt-paying ability.
A stock split normally increases total stockholders’ equity.
A patent has a legal life of 20 years.
The declaration of cash dividends will increase the book value per share of common
stock.
The debtor named in a promissory note is called the payee.
There is no limit to the amount of income subject to the Medicare tax.
A check authorization is a document that permits the issuance of a check to pay an
invoice.
The single-step and multistep income statements result in different net income amounts.
Accounts Receivable is closed to Income Summary as part of the closing process.
When a partner invests assets in a partnership, the assets are recorded at their fair
market value on the date they are transferred to the partnership.
Per the Sarbanes-Oxley Act of 2002, public corporations must establish a compensation
committee to determine how its top executives will be compensated.
An $80,000 bond issue priced at 97 is sold for $77,600.
Financial leverage is also known as trading on the equity.
A corporation is an economic unit that is legally separate from its owners.
Cash dividends become a liability of a corporation when the stock goes ex-dividend.
Term bonds are of shorter duration than serial bonds.
The fewer debt securities a corporation issues, the greater the risk of default.
The Sarbanes-Oxley Act orders the SEC to hold chief executives and CFOs responsible
for the accuracy of their company’s financial statements.
The cost of a sewage system should be included in the Land Improvements account.
Merchandisers usually take a physical inventory when the volume of goods is at its
lowest levels.
Accounting periods should be of equal length to facilitate comparisons between
periods.
The Securities and Exchange Commission is an accounting information user with an
indirect financial interest.
An overstatement of beginning inventory in a period will result in an overstatement of
gross margin in the next period.
An understated ending inventory will produce an overstated cost of goods sold.
The adjusted trial balance may contain accounts that did not appear in the trial balance.
A positive free cash flow means that a company has funds available to reduce debt or
expand operations.
Barkely Corporation has invested in the stock of two other corporations, Hayes
Corporation and Motz Corporation. Barkely does not own a controlling interest or
exercise significant influence over either corporation. Barkely’s accountant is preparing
financial statements and has compiled the following information:
What should be the balance in the Allowance to Adjust Long-Term Investments to Market
account, based on the above information?
A. $2,000 credit
B. $4,000 debit
C. $4,000 credit
D. $2,000 debit
The calculation of free cash flow contains a deduction for
A. interest expense.
B. depreciation.
C. net capital expenditures.
D. net cash flows from operating activities.
Use this information to answer the following question.
If the income statement were prepared in a multistep form, operating expenses would be
A. $46,000.
B. $16,000.
C. $22,250.
D. $40,000.
Margo Dhang is paid $8 per hour plus time-and-one-half for hours over 40 for a given
week. During the week of January 21, Margo worked 46 hours. Social security taxes are
6.2 percent, Medicare taxes are 1.45 percent, $50 is withheld for federal income taxes,
$12 is withheld for state income taxes, and $15 is withheld for medical insurance. In
addition, Margo’s employer must pay Social Security taxes of 6.2 percent, Medicare
taxes of 1.45 percent, state unemployment taxes of 5.4 percent, and federal
unemployment taxes of 0.8 percent. Calculate (a) Margo’s gross earnings, (b) Margo’s
take-home pay, (c) the employer’s payroll taxes expense, and (d) the total cost of
employing Margo for the week. Round all amounts to the nearest penny.
Term bonds are
A. bonds that have a single maturity date.
B. bonds secured by specific assets of the issuing corporation.
C. issued only by the federal government.
D. issued on the general credit of the corporation and do not pledge certain assets as
collateral.
If the direct method is used to prepare a statement of cash flows, the cost of goods sold
from the income statement will be adjusted
A. for changes in inventory to arrive at net purchases.
B. for changes in accounts payable to arrive at cash payments for purchases.
C. Both of these choices.
Use this information to answer the following question.
The debt to equity ratio is
A. 0.46.
B. 0.67.
C. 2.18.
D. 0.33.
Which of the following adjustments most likely would be reversed?
A. Adjustment to record depreciation expense
B. Adjustment to allocate prepaid insurance to the current period
C. Adjustment to determine supplies expense for the period
D. Adjustment to accrue salaries
Which of the following is an example of an accrual?
A. The purchase of office supplies.
B. Wages expense incurred but not yet paid.
C. Rent revenue collected in advance.
D. Payment of two years’ insurance in advance.
The Sarbanes-Oxley Act of 2002 requires management to acknowledge its
responsibility for internal control
A. in the company’s annual report.
B. in a public statement posted on social media.
C. in a posted notice at the front of company headquarters.
D. in all of these.
The issue of deciding when to record a transaction is solved by
A. properly classifying the transaction.
B. deciding on a point of recognition.
C. assigning historical cost to the transaction.
D. analyzing the intent of management.
On the work sheet, account balances are “extended” from the
A. Adjusted Trial Balance columns to the Income Statement or Balance Sheet columns.
B. Income Statement and Balance Sheet columns to the financial statements.
C. Trial Balance and Adjustments columns to the Adjusted Trial Balance columns.
D. Trial Balance columns to the Adjusted Trial Balance columns.
Use this inventory information for the month of May to answer the following question.
Assuming that a perpetual inventory system is used, what is cost of goods sold (rounded)
under the average-cost method?
A. $5,620
B. $6,420
C. $10,380
D. $12,040
A company purchases an asset on a deferred payment plan, ultimately paying $15,000.
On the payment date, the company would
A. credit Cash for less than $15,000.
B. debit Interest Expense for the imputed amount.
C. debit the asset account for $15,000.
D. debit Accounts Payable for $15,000.
An overstatement of beginning inventory results in
A. no effect on the period’s gross margin.
B. an overstatement of gross margin.
C. an understatement of gross margin.
D. a need to adjust purchases.
Which of the following should be classified as an intangible asset?
A. Land held for future use
B. Long-term notes receivable
C. Special funds established to pay off a debt
D. Copyright
On the balance sheet, treasury stock owned by the company is classified properly as
A. contra-stockholders’ equity.
B. current assets.
C. investments.
D. a note to the financial statements.
The entry for establishing a $300 petty cash fund would be:
Which of the following situations results in a contingent liability?
A. Making a credit card sale
B. Dishonoring a note
C. Estimating uncollectible accounts expense
D. Discounting a note
When the straight-line method of amortization is used for a bond premium, the amount
of interest expense for an interest period is calculated by
A. adding the amount of premium amortization for the period to the amount of cash
paid for interest during the period.
B. deducting the amount of premium amortization for the period from the amount of
cash paid for interest during the period.
C. multiplying the carrying value of the bonds by the effective interest rate.
D. multiplying the face value of the bonds by the face interest rate.
Use this information to answer the following question.
If $200 is invested at 7 percent APR, which of the following formulas would be used to
determine to how much the deposit would grow at the end of three years?
A. $200 0.935 3
B. $200 0.816
C. $200 2.624 3
D. $200 2.624
Horshack Mining Company purchases a gravel pit for $5,000,000. It estimates that
10,000,000 tons of gravel can be extracted over the pit’s useful life. If 2,000,000 tons
are extracted during the first year but only 1,440,000 tons are sold, what amount should
be recorded for Gravel Inventory and Depletion Expense, respectively?
A. $280,000 and 720,000
B. $720,000 and $280,000
C. $720,000 and 720,000
D. $280,000 and $1,000,000
Which of the following accounts is not shown on the Statement of Owner’s Equity?
A. Owner’s Capital
B. Revenues
C. Expenses
D. Withdrawals
Agnes purchased a computer for $2,240. It has an estimated useful life of four years and
an estimated residual value of $240. The entry to record the depreciation charge for the
first year using the double-declining-balance method is:
A. Depreciation Expense—Computer 1,120
Accumulated Depreciation—Computer 1,120
B. Depreciation Expense—Computer 2,000
Accumulated Depreciation—Computer 2,000
C. Depreciation Expense—Computer 1,000
Accumulated Depreciation—Computer 1,000
D. Computer 2,000
A company has goods available for sale of $500,000 at retail and $350,000 at cost. It
also had sales of $420,000 for the period. What is the estimated cost of ending
inventory, using the retail method?
A. $56,000
B. $76,000
C. $80,000
D. $126,000
Which inventory method generally results in the most realistic balance sheet valuation?
A. FIFO
B. Specific identification
C. LIFO
D. Average-cost
Answer the following questions. (Show your work.)
a. Revenue of $60,000 was earned, but only $45,000 was collected. Expenses of
$36,000 were incurred, but only $30,000 was paid. What is reported net income?
b. Wages of $4,000 are paid every Friday for a five-day workweek. If year end falls on
a Tuesday, the adjusting entry for wages would be recorded at what amount?
c. A company vehicle is purchased for $24,000. Assuming an eight-year useful life and
zero value at that time, what is the balance of accumulated depreciation after five years?
d. Supplies Expense of $3,600 was recorded for a given year. Assuming that $2,400 in
supplies were purchased during the year and that $640 in supplies remained at year end,
what was the cost of supplies at the beginning of the year?
A retailer accepted Visa charge sales totaling $1,000 and deposited the charge slips in
the bank. Assuming a credit card discount expense of 4 percent, what would be the
increase to Cash and the increase to Sales, respectively?
A. $1,000 and $960
B. $960 and $1,000
C. $960 and $960
D. $1,000 and $1,000
An example of a monetary asset is
A. Accounts Receivable.
B. Copyright.
C. Retained Earnings.
D. Land.
Which of the following items will not be disclosed on a statement of stockholders’
equity?
A. Net income
B. Issuance of common stock for cash
C. Extraordinary gains and losses
D. Issuance of common stock in exchange for noncash assets
When a company uses an accounts receivable subsidiary ledger,
A. it need not maintain an Accounts Receivable account in the general ledger.
B. credit sales transactions must be posted to the individual customers’ accounts
monthly.
C. when the amounts in the subsidiary ledger and the controlling account do not match,
the accountant must find the error and correct it.
D. All of these choices.
The Sarbanes-Oxley Act has succeeded in
A. heightening awareness and diligence with respect to internal control.
B. increasing transparency in privately owned companies.
C. stopping fraud from occurring.
D. all of these.
Use this journal entry to answer the following question.
Explain how the above journal entry relates to the measurement issues of (a) recognition,
(b) valuation, and (c) classification.
Which of the following is correct?
A. Total assets + Partner’s equity = Total liabilities.
B. Total assets + Partner’s equity – Total liabilities = Total equity.
C. Total assets – Partner’s equity = Total liabilities.
D. Total assets + Total liabilities = Partner’s equity.
A company receives $200, of which $8 is for sales tax and $12 is for excise tax. The
journal entry to record the sale is:
A. Cash 180
Sales 180
B. Excise Tax Expense 12
Sales Tax Expense 8
Cash 180
Sales 200
C. Sales 200
Cash 200
D. Cash 200
Given the following information, prepare in good form the cost of goods sold section of
an income statement for 20×5.
Changes in the market value of the investments.
When bonds are converted to common stock, what is the basis for recording (valuing)
the stock issued?
Prior to a fire that destroyed most of its inventory, Tejada Company had inventory
purchases during the period of $40,000 and sales of $125,000.
Compute the dollar amount of each item indicated by a letter in the following table.
Treat each horizontal row of numbers as a separate problem.
Baird Corporation had 60,000 shares of $5 par value common stock issued and
outstanding on December 31, 20×4. Each share was issued during 20×2 at $14 per
share. Prepare the entries in journal form without explanations for the following
transactions occurring in 20×5:
Below are the adjusted accounts of Sterling Company for the month ended May 31,
20×5, listed in alphabetical order:
In the journal provided, prepare Sterling’s closing entries.
From the following items in the Income Statement columns of the work sheet of Lydon
Industries at December 31, 20×5, prepare the closing entries without explanations,
assuming that a $75 withdrawal was made by the owner during the period.
Describe how to compute the cost of goods available for sale.
On November 1, 20×5, Scarlett Company issued $400,000 worth of ten-year, 9 percent
bonds. The semiannual interest dates are November 1 and May 1. Because the market
interest rate of similar investments was 8.5 percent, the bonds were issued at a price of
103. Ignoring year-end accruals, prepare entries in journal form without explanations to
record the bond issue on November 1, 20×5, and the payments of interest and
amortization of premium on May 1 and November 1, 20×6. Use the effective interest
method of amortization. Round answers to the nearest dollar.
At December 31, 20×5, the book value per share of common stock of Camino
Corporation amounted to $21 per share. Determine the effect of each of the following
items on the book value per share of common stock computation assuming each item
occurs after December 31, 20×5. Consider each item independently of the other items
listed. Indicate your answer for each (I = increase, D = decrease, or NE = no effect) in
the appropriate blank.
_____ 1) Sale of newly issued shares of common stock at $23 per share
_____ 2) Purchase of treasury stock for $16 per share
_____ 3) Declaration of current cash dividends on preferred stock
_____ 4) Declaration and distribution of stock dividends on common stock
_____ 5) Sale of treasury stock (purchased at $16 per share) for $19 per share
_____ 6) Entry to close net income for the period to the Retained Earnings account
_____ 7) Dividends in arrears on preferred stock
_____ 8) Purchase of a truck with cash
_____ 9) Payment of a previously declared and recorded cash dividend on common
stock
Delta and Chen form a partnership and invest the following assets and liabilities
What does the preparation of reversing entries accomplish?