Kier Company issued $200,000 in bonds on January 1, 2016. The bonds were issued at
face value and carried a 4-year term to maturity. They had a 6 % stated rate of interest
that was payable in cash on December 31st. Based on this information alone, the
amount of interest expense shown on the 12/31/2016 income statement and the cash
flow from operating activities shown on the 12/31/2016 statement of cash flows would
be:
A.
B.
C.
D.
Leonard Company paid freight costs to have goods shipped to one of its customers.
What effect will these freight-out costs have on the company’s financial statements?
A.
B.
C.
D.
Which of the following statements is true in regard to accrual accounting?
A.Revenue is recorded only when cash is received.
B.Expenses are recorded when they are incurred.
C.Revenue is recorded in the period when it is earned.
D.Revenue is recorded in the period when it is earned and expenses are recorded when
they are incurred.
If a firm is using the lower-of-cost-or-market rule and if a write-down entry is required,
which of the following effects will apply?
A.Net income will increase.
B.Gross margin will decrease.
C.Assets will decrease.
D.Ggross margin will decrease and assets will also decrease .
Glasgow Enterprises started the period with 80 units in beginning inventory that cost
$7.50 each. During the period, the company purchased inventory items as follows
Glasgow sold 220 units after purchase 3 for $17.00 each.
Glasgow’s cost of goods sold under FIFO would be:
A.$1,650.
B.$1,860.
C.$2,310.
D.$2,100.
Nelson Corporation is required to record an inventory write-down of $2,500 as a result
of using the lower-of-cost-or-market rule. Which of the following answers correctly
shows how this entry would affect the financial statements?
A.
B.
C.
D.
Interest expense and interest paid are shown as:
A.an operating item on the income statement and an investing activity on the statement
of cash flows.
B.an operating activity on the statement of cash flows and a non-operating item on the
income statement.
C.an operating item on the income statement and a financing activity on the statement
of cash flows.
D.a financing activity on the cash statement and an operating item on the income
statement.
Harding Corporation acquired real estate that contained land, building and equipment.
The property cost Harding $1,900,000. Harding paid $350,000 and issued a note
payable for the remainder of the cost. An appraisal of the property reported the
following values: Land, $374,000; Building, $1,100,000 and Equipment, $726,000.
What journal entry would be used to record the purchase of the above assets?
A.
B.
C.
D.
Which of the following statements is correct?
A. The most widely quoted measure of a company’s earnings performance is return on
equity.
B. Earnings per share is calculated for a company’s preferred stock.
C. Investors need to understand that the value of a company’s earnings per share is
affected by its choices of accounting principles and assumptions.
D. The book value per share measures the market value of a corporation’s stock.
Indicate whether each of the following statements is true or false.
_____ a) Sales taxes paid on the purchase of equipment would be expensed in the year
of the purchase.
_____ b) Real estate fees and attorney’s fees related to the purchase of a building would
be added to the cost of the building.
_____ c) Payment of a fine for improper burning of a demolished building would be
added to the land account.
_____ d) Delivery charges on equipment would be expensed in the year of the
purchase.
_____ e) The matching concept requires that plant assets be recorded at the amount paid
for the assets.
At the end of the accounting period, Houston Company had $12,000 of par value
common stock issued, additional paid in capital of $11,000, retained earnings of
$12,000, and $4,000 of treasury stock. The total amount of stockholders’ equity is:
A.$37,000.
B.$39,000.
C.$19,000.
D.$31,000.
Weller Company issued bonds with a face value of $400,000, a 10% stated rate of
interest, and a 10-year term. The bonds were issued on January 1, 2016, and Weller uses
the effective interest method of amortization. The market rate of interest on the date of
issue was 8%. Interest is paid annually on December 31.
Assuming Weller issued the bonds for $431,940, the carrying value of the bonds on the
December 31, 2018 balance sheet would be closest to:
A.$420,615.
B.$426,495.
C.$414,264.
D.$404,800.
Monthly remittance of sales tax:
A.Reduces liabilities.
B.Is a claims exchange transaction.
C.Reduces stockholders’ equity.
D.All of these answer choices are correct.
If a company uses the effective interest method of amortizing a bond premium, the
carrying value of the bond
A.will decrease by equal amounts each year.
B.will decrease by smaller amounts each year.
C.will decrease by larger amounts each year.
D.will be lower than the face value of the bond until maturity.
The Ernie Company acquired the Bert Company in January of 2016. Ernie’s balance
sheet included $700,000 of assets, $250,000 of liabilities and equity of $450,000. Ernie
agrees to assume the liabilities and pay $480,000 to acquire Bert. An independent
appraiser assessed the fair value of Bert’s assets to be $630,000. Indicate whether each
of the following statements about this transaction is true or false.
_____ a) Ernie’s entry to record the transaction includes a debit to the assets for
$700,000.
_____ b) Ernie’s entry to record the transaction includes a debit to liabilities for
$250,000.
_____ c) Ernie will recognize $100,000 of goodwill in recording the acquisition of Bert.
_____ d) It is impossible for Ernie to estimate the length of life for goodwill.
_____ e) The goodwill will be amortized in the same manner as patents.
Indicate whether each of the following statements is true or false.
_____ a) The amount of warranty expense is an estimate that is based on the amount of
merchandise sold.
_____ b) A warranty obligation only occurs if a buyer purchases an extended warranty.
_____ c) When a warranty claim is made, the seller’s equity decreases.
_____ d) When a warranty claim is settled, the seller’s liabilities increase.
_____ e) Product warranties usually represent legal liabilities that must be reported in
the financial statements.
The recognition of depletion expense
A.decreases assets and equity and decreases cash flow from investing expenses under
the direct approach.
B.decreases cash flow from operating activities, and does not affect the amount of total
assets.
C.increases assets, equity, and cash flow from operating activities.
D.decreases assets and equity, and does not affect cash flow.
Which is one effect of the following journal entry?
A.Decreases liabilities
B.Increases equity
C.Increases liabilities
D.Decreases assets
Indicate whether each of the following statements about financial statement analysis is
true or false.
_____ a) A common size income statement is prepared by converting each component
to a percentage of net income.
_____ b) Common size financial statements are a form of vertical analysis, but the
common size statements for two or more years may usefully be compared.
_____ c) Vertical analysis of a balance sheet involves converting each component to a
percentage of stockholders’ equity.
_____ d) Small percentage changes resulting from vertical analysis may still represent
large dollar amounts; therefore, changes in both absolute dollar amounts and
percentages should be examined.
_____ e) Vertical analysis of a company’s balance sheet is useful in assessing its
liquidity.
Jones Company issued bonds with a $200,000 face value on January 1, 2016. The
five-year term bonds were issued at 97 and had a 7 % stated rate of interest that is
payable in cash on December 31st of each year. Jones amortizes the bond discount
using the straight-line method. Based on this information:
The amount of cash outflow from operating activities shown on Jones’s December 31,
2017 statement of cash flows would be:
A.$15,000.
B.$16,200.
C.$13,800.
D.$17,400.
For which of the following bank reconciliation adjustments would an adjusting journal
entry not be necessary?
A.An error in which the company’s accountant recorded a check as $235 that was
written correctly for $253.
B.A check for $37 deposited during the month, but returned for non-sufficient funds.
C. An error in which the bank charged the company $83 for a check that had been
written by another account holder.
D.All of these answer choices would require adjusting journal entries.
Eureka Company issued $100,000 in bonds payable on January 1, 2016. The bonds
were issued at face value and carried 5-year term to maturity. They had a 7% stated rate
of interest that was payable in cash on January 1st of each year beginning January 1,
2017. Based on this information, the amount of total liabilities appearing on the
December 31, 2016 balance sheet would be:
A.$100,000.
B.$7,000.
C.$99,300.
D.$107,000.
International accounting standards are formulated by the IASB. What does that
acronym stand for?
A.Internationally Accepted Standards Board
B.International Accounting Standards Board
C.International Accountability Standards Bureau
D.International Accounting and Sustainability Board
Which of the following is not a reason why a corporation may choose to not pay
dividends?
A.The board and management prefer to reinvest all net income for future growth.
B.The corporation does not have adequate cash.
C.The corporation does not have adequate retained earnings.
D.All of these are valid reasons to not pay dividends.
The Rupert Company purchased a delivery van on January 1, 2016 for $45,000. Rupert
uses straight-line depreciation for the asset, which has a five year estimated useful life
and a salvage value estimated at $9,000. The asset was sold on January 1, 2018 for
$33,300 cash. Indicate whether each of the following items related to Rupert Company
is true or false.
_____ a) Annual depreciation for Rupert’s equipment was $9,000.
_____ b) Accumulated depreciation on January 1, 2018 was $14,400.
_____ c) Book value on January 1, 2018 was $30,600.
_____ d) On the date of the sale, Rupert will record a loss of $2,400.
_____ e) A gain or loss on the sale of a plant asset is reported on the balance sheet.
Which ratio compares the earnings per share of a company to the market price for a
share of the company’s stock?
A. Return on equity
B. Price-earnings ratio
C. Book value per share
D. Dividend yield
Bonds that mature at specified intervals throughout the life of the issuance are called:
A.term bonds.
B.registered bonds.
C.coupon bonds.
D.serial bonds.
Victor Company issued bonds with a $250,000 face value and a 6% stated rate of
interest on January 1, 2016. The bonds carried a 5-year term and sold for 95. Victor uses
the straight-line method of amortization. Interest is payable on December 31 of each
year.
The carrying value of the bond liability on the December 31, 2018 balance sheet was:
A.$241,000.
B.$242,500.
C.$237,500.
D.$245,000.
One of the methods of accounting for uncollectible accounts is the direct write-off
method. Indicate whether each of the following statements is true or false.
_____ a) The direct write-off method does not comply with GAAP if uncollectible
accounts expense is immaterial.
_____ b) The direct write-off method is allowed for some companies because of the
going concern concept.
_____ c) The direct write-off method requires an advance estimate of anticipated
uncollectible accounts.
_____ d) The direct write-off method is easier to use than the allowance method.
_____ e) The direct write-off method does not require the use of an allowance account.
Expenses that are matched with the period in which they are incurred are frequently
called:
A.market expenses
B.matching expenses
C.period costs
D.working costs
Which of the following is an objective of ratio analysis?
A.Assessing past performance.
B.Assessing the prospects for future performance.
C.Analyzing how a company finances its operations.
D.All of these answer choices are correct.
Which of the following is not considered an accounting control?
A.Requiring employees to take vacations.
B.Performance evaluations.
C.Bonding of employees.
D.Use of prenumbered documents.
Geary, Inc. had the following sales during 2016:
Geary also had the following beginning and ending balances in the receivables
accounts:
Geary, who uses the allowance method of accounting for uncollectible accounts,
estimated that 3% of the credit sales will go uncollected. The credit card company
charges Geary a 4% service charge.
Required: a) Prepare Geary’s year-end adjusting journal entry for uncollectible accounts
expense.
b) Prepare the entry to record the credit card sales.
c) What is Geary’s cash flow from customers for the year?