Hungh Company had the following transactions pertaining to short-term investments in
equity securities.
Instructions
(a) Journalize the transactions.
(b) Indicate the income statement effects of the transactions.
Answer:
Newton Company has recorded the following items in its financial records.
The checking account is subject to a compensating balance of $5,000. The highly liquid
investments had maturities of 3 months or less when they were purchased. The stock
investment will be sold in the next 6 to 12 months. The plant expansion project will
begin in 3 years.
Instructions
(a) What amount should Newton report as “Cash and cash equivalents” on its balance
sheet?
(b) Where should the items not included in part (a) be reported on the balance sheet?
Answer:
The following items are taken from the financial statements of the Postal Service for the
year ending December 31, 2015:
The current assets should be listed on Postal Service’s balance sheet in the following
order:
a. cash, accounts receivable, prepaid insurance, equipment.
b. cash, prepaid insurance, supplies, accounts receivable.
c. cash, accounts receivable, prepaid insurance, supplies.
d. equipment, supplies, prepaid insurance, accounts receivable, cash.
Answer:
A change in the estimated useful life of equipment requires
a. a retroactive change in the amount of periodic depreciation recognized in previous
years.
b. that no change be made in the periodic depreciation so that depreciation amounts are
comparable over the life of the asset.
c. that the amount of periodic depreciation be changed in the current year and in future
years.
d. that income for the current year be increased.
Answer:
Treasury stock is reported in the balance sheet as a deduction from
a. capital stock.
b. additional paid-in capital.
c. retained earnings.
d. paid-in capital and retained earnings.
Answer:
Under the direct write-off method of accounting for uncollectible accounts, Bad Debt
Expense is debited
a. when a credit sale is past due.
b. at the end of each accounting period.
c. whenever a pre-determined amount of credit sales have been made.
d. when an account is determined to be uncollectible.
Answer:
Which of the following techniques are not used by accountants to interpret and report
financial information?
a. Graphs.
b. Special memos for each class of external users.
c. Charts.
d. Ratios.
Answer:
Inventory is
a. reported under the classification of Property, Plant, and Equipment on the balance
sheet.
b. often reported as a miscellaneous expense on the income statement.
c. reported as a current asset on the balance sheet.
d. generally valued at the price for which the goods can be sold.
Answer:
There are ten transactions listed below. Match the transactions that have the identical
effect on the accounting equation. You should end up with 5 matches.
a. Receive cash from customers on account.
b. Issued stock in exchange for cash.
c. Pay cash to reduce an accounts payable.
d. Purchase supplies for cash.
e. Pay cash to reduce a notes payable.
f. Purchase supplies on account.
g. Additional investment by a stockholder.
h. Purchase equipment with a note payable.
i. Pay utilities with cash.
j. Pay dividends.
Answer:
Shallot Company has the following data at December 31, 2014 for its securities.
Instructions
(a) Prepare the adjusting entries to report the securities at fair value.
(b) Indicate the statement presentation of the related unrealized gain (loss) accounts for
each class of securities.
Answer:
A private organization which establishes broad accounting principles as well as specific
accounting rules is the
a. Securities and Exchange Commission.
b. Internal Revenue Service.
c. Financial Accounting Standards Board.
d. Corporate Board of Directors.
Answer:
An analysis of the transactions made by White Stripes & Co., a law firm, for the month
of July is shown below. Each increase and decrease in stockholders’ equity is explained.
Instructions
(a) Determine how much stockholders’ equity increased for the month.
(b) Compute the amount of net income for the month.
Answer:
Which of the following would not appear in the operating activities section of a
statement of cash flows prepared under the direct method?
a. Cash receipts from customers
b. Cash paid for income taxes
c. Gain on sale of equipment
d. Cash paid to employees
Answer:
Nadine Manufacturing declared a 10% stock dividend when it had 200,000 shares of $5
par value common stock outstanding. The market price per common share was $12 per
share when the dividend was declared. The entry to record this dividend declaration
includes a credit to
a. Stock Dividends of $100,000.
b. Paid-in Capital in Excess of Par ‘“ Common Stock for $140,000.
c. Common Stock for $100,000.
d. Stock Dividends for $240,000.
Answer:
Accounts receivable arising from sales to customers amounted to $86,000 and $77,000
at the beginning and end of the year, respectively. Income reported on the income
statement for the year was $290,000. Exclusive of the effect of other adjustments, the
cash flows from operating activities to be reported on the statement of cash flows is
a. $290,000.
b. $299,000.
c. $213,000.
d. $280,000.
Answer:
The following information is available for Sally Corporation for the year ended
December 31, 2015:
In addition, the following information is available from the comparative balance sheet
for Sally at the end of 2014 and 2015:
Instructions
Prepare Sally’s statement of cash flows for the year ended December 31, 2015 using the
indirect method.
Answer:
Describe the process of preparing a trial balance. What is the purpose of preparing a
trial balance? If a trial balance does not balance, identify what might be the reasons
why it does not balance. If the trial balance does balance, does that insure that the
ledger accounts are correct? Explain.
Answer:
If a company uses the FIFO cost flow assumption, the cost of goods sold for the period
will be the same under a perpetual or periodic inventory system.
Answer:
Prepare a partial income statement, beginning with income before income taxes using
the following information for Stone Corporation for the fiscal year ended December 31,
2015:
Stone Corporation is subject to a 30% income tax rate.
Answer:
Accounting time periods that are one year in length are referred to as interim periods.
Answer:
To close net income to retained earnings, Income Summary is debited and Retained
Earnings is credited.
Answer:
Balance sheet amounts as of December 31, 2015 for Matt Pond’s Tutoring Service are
listed below. Prepare a balance sheet in good form.
Answer:
When the due date of a note is stated in months, the time factor in computing interest is
the number of months divided by 360 days.
Answer:
aIn a worksheet, cost of goods sold will be shown in the trial balance (Dr.), adjusted
trial balance (Dr.) and income statement (Dr.) columns.
Answer: