Logan Company debited Prepaid Insurance for $1,080 on July 1, 2015, for a one-year
fire insurance policy. If the company prepares monthly financial statements, failure to
make an adjusting entry on July 31 for the amount of insurance that has expired would
cause
a. assets to be overstated by $1,080 and expenses to be understated by $1,080.
b. expenses to be overstated by $90 and assets to be understated by $90.
c. assets to be overstated by $90 and expenses to be understated by $90.
d. expenses to be overstated by $1,080 and assets to be understated by $1,080.
Answer:
If a corporation issued $4,000,000 in bonds which pay 10% annual interest, what is the
annual net cash cost of this borrowing if the income tax rate is 30%?
a. $4,000,000
b. $120,000
c. $400,000
d. $280,000
Answer:
Two categories of expenses for merchandising companies are
a. cost of goods sold and financing expenses.
b. operating expenses and financing expenses.
c. cost of goods sold and operating expenses.
d. sales and cost of goods sold.
Answer:
Although a separate legal entity, the transactions of the following still must be kept
separate from the personal activities of the owners for accounting purposes:
a. Proprietorship.
b. Partnership.
c. Corporation.
d. Both a proprietorship and a partnership.
Answer:
Mary Chain Investments purchased an 18-month insurance policy on May 31, 2015 for
$3,600. The December 31, 2015 balance sheet would report Prepaid Insurance of
a. $0 because Prepaid Insurance is reported on the Income Statement.
b. $1,400.
c. $2,200.
d. $3,600.
Answer:
In a worksheet for a merchandising company, Inventory would appear in the
a. trial balance and adjusted trial balance columns only.
b. trial balance and balance sheet columns only.
c. trial balance, adjusted trial balance, and balance sheet columns.
d. trial balance, adjusted trial balance, and income statement columns.
Answer:
Equipment was purchased for $150,000. Freight charges amounted to $7,000 and there
was a cost of $20,000 for building a foundation and installing the equipment. It is
estimated that the equipment will have a $30,000 salvage value at the end of its 5-year
useful life. Depreciation expense each year using the straight-line method will be
a. $35,400.
b. $29,400.
c. $24,600.
d. $24,000.
Answer:
Which of the following employees would likely receive a salary instead of wages?
a. Store clerk
b. Factory employee
c. Sales manager
d. Manual laborer
Answer:
(a) A company purchased a patent on January 1, 2015, for $2,500,000. The patent’s
legal life is 20 years but the company estimates that the patent’s useful life will only be
5 years from the date of acquisition. On June 30, 2015, the company paid legal costs of
$135,000 in successfully defending the patent in an infringement suit. Prepare the
journal entry to amortize the patent at year end on December 31, 2015.
(b) Trent Company purchased a franchise from Tastee Food Company for $400,000 on
January 1, 2015. The franchise is for an indefinite time period and gives Trent Company
the exclusive rights to sell Tastee Wings in a particular territory. Prepare the journal
entry to record the acquisition of the franchise and any necessary adjusting entry at year
end on December 31, 2015.
(c) Kline Company incurred research and development costs of $500,000 in 2015 in
developing a new product. Prepare the necessary journal entries during 2015 to record
these events and any adjustments at year end on December 31, 2015.
Answer:
Vertical analysis is also called
a. common size analysis.
b. horizontal analysis.
c. ratio analysis.
d. trend analysis.
Answer:
Receivables might be sold to
a. lengthen the cash-to-cash operating cycle.
b. take advantage of deep discounts on the cash realizable value of receivables.
c. generate cash quickly.
d. finance companies at an amount greater than cash realizable value.
Answer:
The income summary account
a. is a permanent account.
b. appears on the balance sheet.
c. appears on the income statement.
d. is a temporary account.
Answer:
If a company utilizes reversing entries, they will
a. be made at the beginning of the next accounting period.
b. not actually be posted to the general ledger accounts.
c. be made before the post-closing trial balance.
d. be part of the adjusting entry process.
Answer:
Layton Company does not ring up sales taxes separately on the cash register. Total
receipts for October amounted to $29,400. If the sales tax rate is 5%, what amount must
be remitted to the state for October’s sales taxes?
a. $1,400
b. $1,470
c. $70
d. It cannot be determined.
Answer:
Adams Corporation began business by issuing 400,000 shares of $5 par value common
stock for $24 per share. During its first year, the corporation sustained a net loss of
$40,000. The year-end balance sheet would show
a. Common stock of $2,000,000.
b. Common stock of $9,600,000.
c. Total paid-in capital of $9,560,000.
d. Total paid-in capital of $7,600,000.
Answer:
Which one of the following is an optional step in the accounting cycle of a business
enterprise?
a. Analyze business transactions
b. Prepare a worksheet
c. Prepare a trial balance
d. Post to the ledger accounts
Answer:
A law firm received $3,000 cash for legal services to be rendered in the future. The full
amount was credited to the liability account Unearned Service Revenue. If the legal
services have been rendered at the end of the accounting period and no adjusting entry
is made, this would cause
a. expenses to be overstated.
b. net income to be overstated.
c. liabilities to be understated.
d. revenues to be understated.
Answer:
Accounts often need to be adjusted because
a. there are never enough accounts to record all the transactions.
b. many transactions affect more than one time period.
c. there are always errors made in recording transactions.
d. management can’t decide what they want to report.
Answer:
Selected comparative statement data for Willow Products Company are presented
below. All balance sheet data are as of December 3
Instructions
Compute the following ratios for 2016:
(a) Profit margin.
(b) Asset turnover.
(c) Return on assets.
(d) Return on common stockholders’ equity.
Answer:
Mattox Company is building a new plant that will take three years to construct. The
construction will be financed in part by funds borrowed during the construction period.
There are significant architect fees, excavation fees, and building permit fees. Which of
the following statements is true?
a. Excavation fees are capitalized but building permit fees are not.
b. Architect fees are capitalized but building permit fees are not.
c. Interest is capitalized during the construction as part of the cost of the building.
d. The capitalized cost is equal to the contract price to build the plant less any interest
on borrowed funds.
Answer:
Six internal control principles related to cash transactions are discussed in the textbook.
These inciples, with code letters, are:
Instructions: Match the above principles to the following applications related to cash
receipts and cash disbursements by placing the code in the space provided. Each code
letter can be used once, more than once, or not at all.
1> The duties of receiving and recording cash should be assigned to different
individuals.
2> Daily cash counts should be made by cashier department supervisors.
3> Employees should be required to take vacations.
4> Cash register tapes should be used for over-the-counter receipts.
5> Each check should be compared with approved invoices before being issued.
6> The duties of approving an item for payment and paying the item should be
performed by different individuals.
7> All checks should be prenumbered.
8> Only the treasurer should be authorized to sign checks.
9> All personnel who handle cash should be bonded.
10> Blank checks should be stored in a safe, and access should be restricted.
Answer:
On January 1, 2015, Morris Enterprises issued 9%, 5-year bonds with a face amount of
$900,000 at par. Interest is payable semiannually on June 30 and December 3
Instructions
Prepare the entries to record the issuance of the bonds and the first semiannual interest
payment.
Answer:
The financial statement columns of the worksheet for Miracle Max at December 31,
2015, are as follows:
Instructions
[a] Calculate the retained earnings balance that would appear on a balance sheet at
December 31, 2015.
[b] Prepare a classified balance sheet for Miracle Max at December 31, 2015 assuming
the note payable is a long-term liability.
Answer:
Scotsman Company prepares monthly financial statements. Below are listed some
selected accounts and their balances in the September 30 trial balance before any
adjustments have been made for the month of September.
(Note: Debit column does not equal credit column because this is a partial listing of
selected account balances)
An analysis of the account balances by the company’s accountant provided the
following additional information:
1> A physical count of supplies revealed $1,000 on hand on September 30.
2> A two-year life insurance policy was purchased on June 1 for $4,800.
3> Equipment depreciated $3,000 per year.
4> The amount of rent received in advance that remains unearned at September 30 is
$500.
Instructions
Using the above additional information, prepare the adjusting entries that should be
made by Scotsman Company on September 30.
Answer:
One part of eight adjusting entries is given below.
Instructions
Indicate the account title for the other part of each entry.
1> Unearned Service Revenue is debited.
2> Prepaid Rent is credited.
3> Accounts Receivable is debited.
4> Depreciation Expense is debited.
5> Salaries and Wages Expense is debited.
6> Interest Payable is credited.
7> Service Revenue is credited (give two possible debit accounts).
8> Supplies Expense is debited.
Answer:
On February 7, Jackson Company sold goods on account to Phillips Enterprises for
$5,200, terms 2/10, n/30. On March 9, Phillips gave Jackson a 60-day, 12% promissory
note in settlement of the account. Record the sale and the acceptance of the promissory
note on the books of Jackson Company.
Answer:
Raw materials inventories are the goods that a manufacturer has completed and are
ready to be sold to customers.
Answer: