Gain or loss is determined by comparing the cash received and the market value of any
other asset received with the historical cost of the asset disposed of.
Ratio analysis is used most effectively to measure a company against other companies
in different industries.
The direct write-off method is only acceptable for companies that have very few
uncollectible receivables.
The debt ratio is one indication of the ability of a company to fulfill its obligation to
repay liabilities.
Under the allowance method, if a customer makes payment on a receivable that has
already been written off, the company needs to reverse the write-off to the Allowance
for Bad Debts account.
The cash flow from investing activities section appears exactly the same, whether the
company uses the direct or the indirect method to prepare the statement of cash flows.
The debt to equity ratio shows the proportion of total liabilities relative to total equity.
The balance in the Bonds Payable account is a credit of $77,000. The balance in the
Discount on Bonds Payable is a debit of $3,600. The balance sheet will report the bond
balance as $80,600.
The horizontal analysis of the balance sheet shows the changes in net sales and net
income.
A merchandiser’s statement of retained earnings looks exactly like that of a service
business.
In a vertical analysis of the balance sheet, each line item is shown as a percentage of
stockholders’ equity.
A company may purchase treasury stock to increase net assets by buying high and
selling low.
The audit report in the annual report attests to the fairness of the presentation of the
financial statements.
A corporation’s board of directors is elected by the chairperson of the company.
When a trading debt security is disposed, the fair value adjustment is used in
determining the calculation of the gain or loss on disposal.
The total change in cash should equal the net income for the period.
In the case of deferred revenue, the adjusting entry at the end of the period includes a
debit to Service Revenue. Assume the deferred revenue is initially recorded as a
liability.
The days’ sales in receivables indicates the number of days it takes to collect the
average level of accounts receivable.
On the maturity date, the bondholder is paid the face amount of the bond plus the last
interest payment.
The lower-of-cost-or-market rule demonstrates accounting conservatism in action.
Estimated Warranty Payable is included in the liability section of the balance sheet.
When using the allowance method, the receipt of a payment on receivables that have
been written-off requires an entry to reverse the write-off to the Allowance for Bad
Debts account and an entry to record the receipt of cash.
Gross pay is the total amount of compensation earned by an employee after the
deductions are made.
When a perpetual inventory system is used, at the time of each sale an entry to record
an expense and an increase in Merchandise Inventory must be made.
When using a periodic inventory system, the Merchandise Inventory DR column, in the
purchases journal, is replaced with a column titled Cost of Goods Sold DR.
The process for calculating present values is often called present valuing cash flows.
Interest rates are stated on an annual basis, therefore the time in the interest formula is
always stated as one year.
Management’s discussion and analysis of financial condition and results of operations
section of the annual report is the company’s attempt to explain its financial statements
and discuss its performance.
A mortgage payable is a long-term debt that is backed with a security interest in specific
property.
Sales tax is an expense of the business.
Strict internal controls must be implemented, regardless of the cost.
Bad Debt Expense is not debited when a company writes off an account receivable
when using the allowance method because the company has already recorded the Bad
Debt Expense as an adjusting entry.
Credit cards reduce the customer’s bank account immediately but allow the customer to
pay electronically instead of with currency or writing a check.
The income statement shows whether or not a business can generate enough cash to pay
its liabilities.
Outdoor Lighting Supply expects the following for 2018:
Outdoor expects to spend $150,000 to modernize its showroom.
How much free cash flow does Outdoor expect for 2018?
A) $134,000
B) $264,000
C) $105,000
D) $112,000
On July 1, 2018, Electrical Services issued $37,000 of 8% bonds that mature in five
years. The bonds were issued at a premium, for a total of $38,665. The bonds pay
semiannual interest payments on June 30 and December 31 of each year. On December
31, 2018, what is the total amount paid to bondholders?
A) $1480
B) $2960
C) $1547
D) $3093
Which of the following illustrates the internal control procedure—separation of duties?
A) Cashiers must not have access to accounting records.
B) External auditors will monitor internal controls.
C) Electronic devices must be installed to reduce theft.
D) The invoices and other documents must be pre-numbered.
The gain or loss on the sale of a plant asset is determined by comparing the market
value of assets received with the ________ of asset sold.
A) book value
B) residual value
C) original cost
D) salvage value
A subsidiary company is a company that ________.
A) is controlled by another corporation
B) owns a controlling interest in another company
C) is the first to begin operations in an industry
D) has any level of investment in another company
In regards to benchmarking, which of the following statements is incorrect?
A) Benchmarking is the practice of comparing a company with other leading
companies.
B) The industry average is not a useful benchmark for evaluating a company.
C) Providing common-size percentages in a graphical manner highlights differences.
D) The two main types of benchmarks in financial statement analysis include
benchmarking against the industry average and benchmarking against a key competitor.
Spring Company has assets and equity that amount to $220,000 and $20,000,
respectively. Liabilities total ________.
A) $20,000
B) $200,000
C) $220,000
D) $240,000
Dublin, Inc. uses the periodic inventory system. On February 1, the corporation
purchased inventory on account for $16,000. The terms were 4/10, n/30. On February 2,
it returned damaged goods worth $600 to the supplier. Give the journal entry for the
payment if the invoice is paid after the discount period. (Round your answers to the
nearest dollar.)
A)
B)
C)
D)
Following is a list of account balances of Nabers Delivery Services as of December 31,
after the first year of operations.
What is the amount of total liabilities at the end of the year?
A) $13,700
B) $22,900
C) $19,700
D) $13,500
On January 1, 2018, Earnest Company purchased equipment and signed a six-year
mortgage note for$80,000 at 15%. The note will be paid in equal annual installments of
$21,139, beginning January 1, 2019. Calculate the portion of principal paid on the third
installment. (Round any intermediate calculations to two decimal places, and your final
answer to the nearest dollar.)
A) $12,086
B) $12,000
C) $21,139
D) $9053
Smart Phones, Inc. had the following balances and transactions during 2019.
The company maintains its records of inventory on a perpetual basis using the last-in,
first-out inventory costing method. Calculate the amount of ending Merchandise Inventory
at December 31, 2019 using the lower-of-cost-or-market rule. (Round any intermediate
calculations two decimal places, and your final answer to the nearest dollar.)
A) $2,800
B) $3,244
C) $3,542
D) $3,404
Which of the following is the final step in the journalizing and posting process?
A) Posting the accounts to the ledger
B) Identifying each account affected and its type
C) Determining whether the accounting equation is in balance
D) Determining whether each account has increased or decreased
The purchases journal is a special journal that ________.
A) has special columns for credits to merchandise inventory
B) is used to record all purchases of merchandise inventory
C) has a special column for debits to accounts payable
D) is used to record merchandise inventory, office supplies, and other assets purchased
on account
In a perpetual inventory system, the physical count of inventory ________,
A) serves as a check of the perpetual records
B) captures transactions that are not recorded by the electronic system
C) establishes the correct amount of ending inventory for the financial statements
D) All statements are correct.
Maywood, Inc. recently signed a $350,000, six-month note on August 22, 2019. The
interest rate is 7%. How much interest will be due at maturity?
A) $10,208
B) $24,500
C) $12,250
D) $8167
If bonds with a face value of $205,000 are issued at 110, the amount of cash proceeds is
________.
A) $225,390
B) $205,000
C) $186,364
D) $225,500
New Orleans Chemicals Company follows the indirect method to prepare its statement
of cash flows. Refer to the following portion of the comparative balance sheet:
New Orleans Chemicals Company
Comparative Balance Sheet
December 31, 2018 and 2017
Net Income for 2018 was $91,000.
Based on the above information, determine the amount of dividends declared during 2018.
A) $2900
B) $91,000
C) $66,000
D) $25,000
When a company that uses the perpetual inventory system sells goods for cash, the
journal entry to record cost of goods sold is:
A)
B) No journal entry is required.
C)
D)
Under which of the following categories would Accounts Payable appear?
A) long-term assets
B) current assets
C) long-term liabilities
D) current liabilities
Which of the following is true of outputs in an accounting information system?
A) In a manual system, reports and financial statements can be created using Word
documents, Excel spreadsheets, or PowerPoint.
B) In a computerized system, the software can generate reports instantaneously that
cannot be formatted.
C) Examples of outputs in an accounting information system include purchase invoices,
bank checks, and sales invoices.
D) Since the output in an accounting information system is audited and error-free, it
provides the evidence and data for accounting transactions.
Which of the following financial statements would be most useful if an analyst wants to
know the profitability of a company?
A) income statement
B) balance sheet
C) statement of retained earnings
D) statement of cash flows
Ranger Pool Company received cash of $40,000 and issued common stock. Which of
the following accounts will be credited?
A) Accounts Receivable
B) Cash
C) Common Stock
D) Accounts Payable
On December 1, 2018, Garden Products borrowed $92,000 on a 5%, 10-year note with
annual installment payments of $9200 plus interest due on December 1 of each
subsequent year. Which of the following describes the first installment payment made
on December 1, 2019? (Round your answer to the nearest whole number.)
A) $9200 principal plus $4600 interest
B) $9200 principal plus $460 interest
C) $9200 principal plus $9200 interest
D) $4600 interest only
Which of the following statements regarding the price/earnings ratio is incorrect?
A) The price/earnings ratio represents the market price of one share of common stock.
B) A price/earnings ratio of 9.2 implies that the company’s stock is selling at 9.2 times
one year’s earnings per share.
C) A higher price/earnings ratio signifies a higher return on investment.
D) The price/earnings ratio is most useful when comparing one company to another.
Northern Corporation sold goods to Eastern Enterprises for $1,000 on account. Cost of
goods sold was $745. Northern uses a perpetual inventory system and special journals.
The cost of goods sold is recorded in the ________ column of the sales journal.
A) Accounts Receivable DR, Sales Revenue CR
B) Cost of Goods Sold CR, Merchandise Inventory DR
C) Cost of Goods Sold DR, Merchandise Inventory CR
D) Sales Revenue DR, Accounts Receivable CR
When a company uses the allowance method to measure bad debts, ________.
A) the Bad Debts Expense account is debited when an account is written off
B) the amount of bad debts expense is estimated at the end of the accounting period
C) the normal balance in the Allowance for Bad Debts account is a debit
D) the amount of bad debts expense is not estimated at the end of the accounting period
A check was written by a business for $549 but was recorded erroneously in the Cash
account as $459. How would this error be included on the bank reconciliation?
A) an addition on the book side
B) a deduction on the bank side
C) a deduction on the book side
D) an addition on the bank side
Which of the following inventory valuation methods should be used for unique items?
A) first-in, first-out
B) last-in, first-out
C) weighted-average
D) specific identification
Short-term investments ________.
A) are debt and equity securities that the investor expects to hold for more than a year
B) are investments in debt securities or equity securities in which the investor holds less
than 50 percent of the voting stock and that the investor plans to sell two years after the
balance sheet date
C) are investments in debt and equity securities that are readily marketable and that the
investor intends to convert to cash within one year
D) are investments in debt securities that the investor intends to hold until maturity
Which of the following is included in the cost of land?
A) cost of fencing
B) cost of paving
C) brokerage commission
D) cost of outdoor lighting
Equity securities in which the investor lacks the ability to participate in the decisions of
the investee company are classified as ________ investments.
A) controlling interest equity
B) no significant influence equity
C) significant influence equity
D) available-for-sale equity
A petty cash fund was established with a $525 balance. It currently has cash of $65 and
petty cash tickets as shown below:
Which of the following would be the journal entry to replenish the Petty Cash account?
A) debit various expenses $460; credit Cash $460
B) debit various expenses $460; credit Petty Cash $460
C) debit Cash $65; credit various expenses $65
D) credit Petty Cash $460; debit Cash $460
Regarding the issuance of stock, which of the following statements is incorrect?
A) Large corporations cannot finance all their operations through borrowing, so they
raise capital by issuing stock.
B) A company can sell its stock directly to stockholders, or it can use the services of the
state’s Securities and Exchange Commission.
C) The issue price is the amount the corporation receives from issuing its stock.
D) Large corporations need huge quantities of money.
Alden Corp. has the following balances as of December 31, 2019:
Calculate the debt to equity ratio. (Round your answer to two decimal points.)
A) 0.64
B) 0.92
C) 1.56
D) 2.56
A truck costs $307,000 and is expected to be driven 113,000 miles during its five-year
life. Residual value is expected to be zero. If the truck is driven 31,000 miles during the
first year, how much depreciation should the business record under the
units-of-production method? (Round any intermediate calculations to two decimal
places, and your final answer to the nearest dollar.)
A) $96,050
B) $28,107
C) $84,320
D) $56,070
On May 1, 2018, Plumbing Services issued a long-term note payable for $35,000. The
note will be paid over five-years with annual principal payments of $7,000, plus
interest, on May 1 of each year beginning on May 1, 2019. Prepare the journal entry for
the issuance of the note. Omit explanation.
Western Sky, Inc. sold 500 units of inventory at $25 per unit for cash. The company
uses the perpetual inventory system and the FIFO inventory costing method. The
beginning inventory included 550 units at a cost of $15 per unit. The cost of the most
recent purchases is $10 per unit. Prepare the journal entries to record the sale. Omit
explanations.
Thomas Business Supply reported a negative amount in Retained Earnings. What term
describes this negative amount? What can cause this to happen?
Gold Corporation had the following transactions:
Use the following sales journal to record the preceding transactions. The company uses the
perpetual inventory system.
A business purchased land for $250,000 cash. Record the transaction in the journal.
An adjusted trial balance of Meadows Company as of December 31, 2019 is given
below. Prepare a multi-step income statement for the year for the company.
Prepare an income statement and a statement of retained earnings for the month of June.
Also, prepare a balance sheet at June 30. The transactions of Modern Designer
Corporation for the first month of their operations are as follows:
• On June 1, 2019, Modern Designer Corporation received $25,000 cash from its
stockholders and gave common stock to the stockholders.
• The company rendered services to three clients on account with total revenues earned
of $9,000.
• It then incurred an advertising expense on four different web sites and promised to pay
a total of $1,200 at a later date.
• On June 13, Modern Designer purchased $1,000 worth of office supplies for cash.
(The supplies are not used by June 30.)
• On June 22, it received $2,000 on account from a client and deposited it into the
business account.
• On June 23, it incurred $1,300 for a legal expense and paid cash.
• On June 30, Modern Designer made a payment of $500 to one of the web sites that it
owed for advertising provided earlier in the month.
• No dividends were paid during the month.
Provide an explanation for each of the follow asset accounts.
On November 1, 2018, Downtown Jewelers accepted a 3-month, 15% note for $6,000
in settlement of an overdue account receivable. The accounting period ends on
December 31. Prepare the journal entry to record the accrued interest at the year end.
Omit explanation.
For each transaction, identify which account is debited and which account is credited.
Use proper account titles.
Griffen Service Company had the following unadjusted balances at December 31, 2018:
Salaries Payable, $0; Salaries Expense, $12,000. The following transactions took place
on December 31, 2018:
Accrued Salaries Expense, $5,000
Closed the Salaries Expense account.
The following transaction took place on January 4, 2019:
Paid salaries of $6,000. This payment included $5,000 that was accrued on December
31, 2018 and $1,000 for the first few days in January 2019.
Prepare the journal entries for January 1, 2019 and January 4, 2019, assuming that
reversing entries were made. Omit explanations.
Dynasty Corp sold a truck for $15,000 cash. It was originally purchased for $50,000
and had accumulated depreciation of $30,000 at the time of sale. Prepare the journal
entry for the sale of truck. Omit explanation.
On October 1, 2018, Mobile, Inc. purchased a patent for $100,000 cash. Although the
patent gives legal protection for 20 years, it is expected to be used for only eight years.
The patent has no residual value. Journalize the amortization expense for 2018. Assume
straight-line amortization. Omit explanation.
A petty cash fund was established with a $250 balance. It currently has cash of $38 and
petty cash tickets totaling $212 for travel expense. Prepare the journal entry to record
the replenishment of the fund. Omit explanation.
Copper Corporation had the following transactions:
Journalize the above transactions that should be recorded in the general journal. If a
transaction should not be recorded in the general journal, identify the special journal that
should be used. Assume the company uses the perpetual inventory system.
Data for Gobell, Inc. follow:
Gobell, Inc.
Comparative Balance Sheet
December 31, 2019 and 2018
Prepare a horizontal analysis of the comparative balance sheet of Gobell, Inc. (Round to
one decimal place.)
Meadows, Inc. sold 500 units of inventory at $25 per unit on account. The company
uses the perpetual inventory system and the FIFO inventory costing method. The
beginning inventory included 400 units at $15 per unit. The most recent purchases
include 600 units at $18 per unit. Prepare the journal entries to record the sale. Omit
explanations.
On November 1, 2019, Stateside, Inc. declared a dividend of $3.00 per share. Stateside,
Inc. has 20,000 shares of common stock outstanding and no preferred stock. The date of
record is November 15, and the payment date is November 30, 2019. Provide the
journal entry needed on November 30. Omit explanation.