On April 1, year 1, Cricket Corporation issues $60 million of 12%, 10-year bonds
payable at par. Interest on the bonds is payable semiannually each April 1 and October
1.
Refer to the information above. The adjustment necessary at December 31, Year 1 (if
any), related to this bond issue involves:
A. Recognition of interest expense of $3,600,000.
B. Recognition of interest expense of $1,800,000.
C. Payment of cash of $1,800,000.
D. There is no adjustment necessary.
A trial balance that is out of balance indicates that:
A. The number of ledger accounts with debit balances is not equal to the number of
accounts with credit balances.
B. A debit has been posted to the wrong account.
C. There is not an equality of debit and credit amounts in the ledger.
D. A journal entry has been completely omitted from the posting process.
Which of the four inventory approaches transfers the most recent purchase cost to the
cost of goods sold and the remaining items in inventory are valued at the oldest
acquisition costs?
A. LIFO.
B. FIFO.
C. Average.
D. Specific identification.
Berg Tooling reports net sales of $325,000, gross profit of $175,000, and net income of
$15,000. The company’s cost of goods sold is:
A. $135,000.
B. $150,000.
C. $140,000.
D. $125,000.
The Income Summary account has debits of $85,000 and credits of $75,000. The
company had which of the following:
A. Net income of $10,000.
B. Net income of $160,000.
C. Net loss of $10,000.
D. Net loss of $160,000.
The rules of debit and credit may be summarized as follows:
A. Asset accounts are increased by debits, whereas, liabilities and owners’ equity are
increased by credits.
B. The balance of a ledger account is increased by debit entries and is decreased by
credit entries.
C. Accounts on the left side of the balance sheet are increased by credits, whereas
accounts on the right side of the balance sheet are increased by debits.
D. The balance of a ledger account is increased by credit entries and is decreased by
debit entries.
Austin Corporation issues $6,000,000 of 10%, 10-year bonds, dated December 31, Year
1. The bonds are issued on April 30, Year 2, at 100 plus accrued interest. Interest on the
bonds is payable semiannually each June 30 and December 31.
Refer to the information above. The entry to record the issuance of bonds payable on
April 30, Year 2, includes:
A. A credit to Premium on Bonds Payable of $200,000.
B. A debit to Cash of $150,000.
C. A debit to Bond Interest Expense of $200,000.
D. A credit to Bond Interest Payable of $200,000.
Bob Bertolucci, owner of Bob’s Bazaar, also owns a personal residence that costs
$575,000. The market value of his residence is $725,000. During preparation of the
financial statements for Bob’s Bazaar, the accounting principle most relevant to the
presentation of Bob’s home is:
A. The concept of the business entity.
B. The cost principle.
C. The going-concern assumption.
D. The objectivity principle.
Refer to the information above. Based solely on the above information, Korman’s net
cash flow from investing activities for 2015 is:
A. $80,000 net cash used by investing activities.
B. $80,000 net cash provided by investing activities.
C. $120,000 net cash provided by investing activities.
D. $240,000 net cash provided by investing activities.
The following information is available:
What is the net income percentage? (round to the nearest number)
A. 5%.
B. 15%.
C. 20%.
D. 25%.
Investors and creditors are interested in the probability that their original investment or
loan will eventually be returned, and that they will receive a reasonable return while
their funds are invested or borrowed. These expectations are collectively referred to as:
A. Expected profitability.
B. The objectives of financial reporting.
C. Cash flow prospects.
D. Financial position.
Before making month-end adjustments, net income of Cardinal Company was $116,000
for March. Adjusting entries are necessary for the following items:
-Depreciation for the month of March: $2,300.
-Rental income accrued during March, tenant to pay in April: $800.
-Supplies used in March: $100.
-Fees earned in March that had been collected in advance: $2,600.
After recording these adjustments, net income for March is:
A. $112,400.
B. $113,620.
C. $117,000.
D. $110,800.
When direct materials are used:
A. Manufacturing Overhead is debited.
B. Raw Materials Inventory is debited.
C. Cost of Goods Sold is debited.
D. Work in Process Inventory is debited.
The following data are available for product no. CK74, manufactured and sold by Ruby
Corporation:
Refer to the information above. The contribution margin per unit for product no. CK74
is:
A. $26.
B. $80.19.
C. $117.
D. $63.
In a manufacturing company, the “just-in-time” concept of inventory management is
best illustrated by:
A. Receiving deliveries of materials from suppliers just before the materials are used in
the production process.
B. Completing the manufacturing process just before the deadline established by the
customer.
C. An automated factory that reduces production time below that of other companies in
the industry.
D. Selling finished products before they go out of style.
The market price of a preferred stock will be affected by:
A. The dividend rate.
B. The chance that the company will not operate profitably.
C. The level of interest rates.
D. The dividend rate, the chance that the company will not operate profitably, and the
level of interest rates.
Materiality
(A.) Identify several factors considered by an accountant in deciding whether an item is
“material.”
(B.) Does the concept of materiality complicate or simplify the process of making
adjusting entries? Give an illustration to support your answer.
When short-term investments appear in the balance sheet at their current market values,
it is an exception to the ______ principle.
A. Revenue recognition
B. Matching
C. Cost
D. Relevance
Calculate the residual income assuming the following information:
A. $156,000.
B. $108,000.
C. $219,000.
D. $45,000.
Which of the following is not considered a capital investment?
A. The purchase of a large machine.
B. The development of a new product line.
C. The purchase of a large order of raw materials used in the production process.
D. The acquisition of a subsidiary company.
The auditor’s report on the published financial statements of a large corporation should
be viewed as:
A. The opinion of independent experts as to the overall fairness of the statements.
B. The opinion of the corporation’s chief accountant as to the overall fairness of the
statements.
C. A guarantee by a firm of certified public accountants that the statements are accurate.
D. A guarantee by the Financial Statements Insurance Board that the statements do not
overstate assets or net income.
Beacon Food Stores purchased canned goods at an invoice price of $4,000 and terms of
2/10, n/30. Half of the goods had been mislabeled and were returned immediately to the
supplier. If Beacon Food pays the remaining amount of the invoice within the discount
period, the amount paid should be:
A. $1,920.
B. $1,960.
C. $3,920.
D. $4,000.
Webster Company issues $1,000,000 face value, 6%, 5-year bonds payable on
December 31, 2015. Interest is paid semiannually each June 30 and December 31. The
bonds sell at a price of 97; Webster uses the straight-line method of amortizing bond
discount or premium.
Refer to the information above. Webster’s entry at June 30, 2016, to record the first
semiannual payment of interest and amortization of discount on the bonds includes a:
A. Debit to Bond Interest Expense of $30,000.
B. Credit to Cash of $33,000.
C. Debit to Discount on Bonds Payable of $3,000.
D. Debit to Bond Interest Expense of $33,000.
Rules of debit and credit as applied to balance sheet accounts
Items in the balance sheet are classified into three categories: assets, liabilities, and
owners’ equity.
(A.) Identify by name two ledger accounts in each of the first two categories above
(assets and liabilities) and one owners’ equity account. State whether each account
would normally have a debit or credit balance.
(B.) Describe briefly the rules of debits and credits as applied to the three categories of
balance sheet accounts: asset accounts, liability accounts, and owners’ equity accounts.
A company had 240,000 shares of common stock outstanding on January 1 and then
sold 60,000 additional shares on April 30. Net income for the year was $426,750. What
are earnings per share?
A. $1.42.
B. $1.52.
C. $1.78.
D. $7.11.
Nanu Corporation manufactures two products; data are shown below:
If Nanu’s monthly fixed costs average $425,000, what is its break-even point expressed
in sales dollars?
A. $1,320,000.
B. $1,250,000.
C. $1,400,000.
D. $990,000.
When comparing the units-of-output method of depreciation with straight-line
depreciation:
A. The depreciation expense in the first year will always be greater under
units-of-output method.
B. The depreciation expense in the first year will always be less under the
units-of-output method.
C. The depreciation expense in the first year will always be the same under both the
methods.
D. The depreciation expense in the first year may be greater than, equal to, or less under
the units-of-output method.
The bookkeeper prepared a check for $68 but accidentally recorded it as $86. When
preparing the bank reconciliation, this should be corrected by:
A. Adding $18 to the bank balance.
B. Subtracting $18 from the bank balance.
C. Adding $18 to the book balance.
D. Subtracting $18 from the book balance.
In preparing the bank reconciliation, certain transactions recorded by the depositor may
not have been recorded by the bank. Which of the following is an example of this type
of transaction?
A. Service charges.
B. Outstanding checks.
C. Credit for interest earned.
D. Charges for NSF checks.