Operating activities involve the acquiring and selling of goods and services for cash or
on account.
a. True
b. False
Promissory notes are non-negotiable.
a. True
b. False
Martinez Produce sells fresh vegetables and fruits in Sutton County. The following
unadjusted amounts were taken from the company’s accounting records at December
31, 2015: Note Payable, 12%, 4-month, dated December 1, 2015, for $20,000
Note Receivable, 10%, 6-month, dated October 1, 2015, for $12,000 A) Determine the
effects on the accounting equation of any adjusting entries that would be necessary at
December 31, 2015, for the notes.
B) Fill in the partial balance sheet below by showing the notes and the effects of any
adjustments related to the notes.
Current Assets Current Liabilities
A note payable due in two years is a current liability.
a. True
b. False
Contingent assets may be disclosed in the notes if probable and reasonably estimable.
a. True
b. False
Which of the following statements is true regarding a credit memorandum?
a. A credit memorandum is subtracted from the balance per the company’s books.
b. A credit memorandum could be issued for bank service charges.
c. A credit memorandum is issued when a customer gives the company an NSF check.
d. A credit memorandum is added to the balance per the company’s books.
On November 1, Greenfield Corporation borrowed $55,000 from a bank and signed a
12%, 90-day note payable in the amount of $55,000. If you assume 360 days in year,
the November 30 adjusting entry will be:
a. Debit Interest Expense $550 and credit Cash $550.
b. Debit Discount on Notes Payable $1,100 and credit Interest Payable $1,100.
c. Debit Interest Expense $550 and credit Interest Payable $550.
d. Debit Interest Expense $550 and credit Notes Payable $550.
For each of the following accounts, indicate whether it is a balance sheet account or an i
ncome statement account.
a. Balance sheet account
b. Income statement account
Interest Revenue
Which of the following trends can be unfavorable from the viewpoint of a bondholder?
a. The issuing company’s debt ratio is steadily declining.
b. The issuing company’s interest coverage ratio is steadily rising.
c. Market interest rates are steadily rising.
d. The issuing company’s net cash flow from operating activities is steadily increasing.
For each item listed, select the section of the balance sheet in which the item would be r
eported.
a. Current Assets
b. Property, Plant, and Equipment
c. Current Liabilities
d. Long-term Liabilities
e. Stockholders’ Equity
Capital stock
Harbor City Corporation’s endÂofÂyear balance sheet consisted of the following
amounts:
What is Harbor City’s retained earnings balance at the end of the current year?
a. $10,000
b. $110,000
c. $160,000
d. $170,000
Sales Returns and Allowances is a contra-asset account.
a. True
b. False
If bonds were initially issued at a discount, the interest expense on the bonds calculated
using the effective interest method will
a. decrease as the bonds approach their maturity date.
b. increase as the bonds approach their maturity date.
c. remain constant throughout the bonds’ life.
d. fluctuate throughout the bonds’ life.
Paulson Transport Company On January 1, 2015, Paulson Transport Company
purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of
$50,000. The company uses the double-declining-balance method.
If Paulson Transport continues to use the ship in its eleventh year, what is the correct
accounting procedure?
a. Take the asset off the books and record a gain on the disposal
b. Continue to depreciate it
c. The company may not use it any longer
d. No longer depreciate it but leave it on the records at its book value at the end of its
useful life
The correct term for the process of recording the economic effects of business
transactions in a book of original entry is
a. Double-entry system
b. Debit
c. Credit
d. Journalizing
Grenada Corporation Use the note on Disclosure of Leases for the Grenada Corporation
to answer the questions that follow. The Corporation leases office, warehouse and
showroom space, retail stores and office equipment under operating leases, which
expire no later than 2029. The Corporation normalizes fixed escalations in rental
expense under its operating leases. Minimum annual rentals under non-cancelable
operating leases, excluding operating cost escalations and contingent rental amounts
based upon retail sales, are payable as follows: Fiscal year ending March 31,
Rent expense was $12,551,000; $8,911,000; and $5,768,000 for the years ended March
31, 2014, 2013, and 2012 respectively.
Review the information for Grenada Corporation. REQUIRED:
Determine the effect on the accounting equation when recording each type of lease
described in the previous question.
_____________ ratio is capable of telling the user everything there is to know about a
particular company.
The following information is available from the records of Focus Seascapes, Inc. at the
end of the 2014 calendar year:
1> What is the total amount of Focus’ assets at December 31, 2014?
2> What is the total amount of Owners’ Equity at December 31, 2014?
3> What is the capital stock balance at December 31, 2014?
is a liquidity measure that is calculated by subtracting current assets from current
liabilities.
Why is liquidity important for businesses?
Explain by what processes the costs of operating assets are allocated to expense.
What is the purpose of a statement of stockholders’ equity? How does it differ from the
statement of retained earnings? Which statement is required?
On September 1, 2015, Ensign Inc. borrowed $21,000 from Emerald City National
Bank by issuing a 12-month note. The bank discounted the note at 7.5%. REQUIRED:
1> Prepare the journal entry needed to record the issuance of the note.
2> Prepare the journal entry needed at December 31, 2015, to accrue interest.
3> Prepare the journal entry to record the payment of the note on September 1, 2016.
4> What effective rate of interest did Ensign pay?
