A purchased patent has a legal life of 20 years. It should be
a. expensed in the year of acquisition.
b. amortized over 20 years regardless of its useful life.
c. amortized over its useful life if less than 20 years.
d. not amortized.
Answer:
Classify each of these items as an asset (A), liability (L), or stockholders’ equity (SE).
_____ 1> Accounts receivable
_____ 2> Accounts payable
_____ 3> Common stock
_____ 4> Supplies
_____ 5> Utilities expense
_____ 6> Cash
_____ 7> Notes payable
_____ 8> Equipment
Answer:
Prepare the necessary correcting entry for each of the following.
a. A payment on account of $840 was debited to Accounts Payable $480 and credited to
Cash $480.
b. The collection of Accounts Receivable of $680 was recorded as a debit to Cash $680
and a credit to Service Revenue $680.
Answer:
Sloman Corporation has 100,000 shares of $50 par value preferred stock authorized.
During the year, it had the following transactions related to its preferred stock.
(a) Issued 20,000 shares at $55 per share.
(b) Issued 10,000 shares for equipment having a $700,000 asking price. The stock had a
market value of $75 per share
Instructions
Journalize the transactions.
Answer:
Winter Gloves Company had checks outstanding totaling $12,800 on its May bank
reconciliation. In June, Winter Gloves Company issued checks totaling $79,800. The
July bank statement shows that $71,400 in checks cleared the bank in July. A check
from one of Winter Gloves Company’s customers in the amount of $2,000 was also
returned marked “NSF.” The amount of outstanding checks on Winter Gloves
Company’s July bank reconciliation should be
a. $8,400.
b. $19,200.
c. $21,200.
d. $23,200.
Answer:
Which receivables accounting and reporting issue is essentially the same
for IFRS and GAAP?
a. The use of allowance accounts and the allowance method.
b. How to record discounts.
c. How to record factoring.
d. All of these are essentially the same for IFRS and GAAP.
Answer:
A company regularly sells its receivables to a factor who assesses a 2% service charge
on the amount of receivables purchased. Which of the following statements is true for
the seller of the receivables?
a. The loss section of the income statement will increase each time receivables are sold.
b. The credit to Accounts Receivable is less than the debit to Cash when the accounts
are sold.
c. Selling expenses will increase each time accounts are sold.
d. The other expense section of the income statement will increase each time accounts
are sold.
Answer:
The acid-test ratio is also known as the
a. current ratio.
b. quick ratio.
c. fast ratio.
d. times interest earned ratio.
Answer:
Which of the following would be added to net income using the indirect method?
a. An increase in accounts receivable
b. An increase in prepaid expenses
c. Depreciation expense
d. A decrease in accounts payable
Answer:
Match the items below by entering the appropriate code letter in the space provided.
A. Compound interest
B. Future value of a single amount
C. Future value of an annuity
D. Present value of a single amount
E. Present value of an annuity
_____ 1> The value today of a future amount to be received or paid.
_____ 2> The value at a future date of a given amount invested.
_____ 3> Return on principal plus interest for two or more periods.
_____ 4> Value today of a series of future amounts to be received or paid.
_____ 5> The sum of all the payments or receipts plus the accumulated compound
interest on them.
Answer:
Farr Company purchased a new van for floral deliveries on January 1, 2015. The van
cost $56,000 with an estimated life of 5 years and $14,000 salvage value at the end of
its useful life. The double-declining-balance method of depreciation will be used. What
is the depreciation expense for 2015?
a. $11,200
b. $8,400
c. $16,800
d. $22,400
Answer:
The basis of estimating expected uncollectible accounts that emphasizes the matching
of expenses with revenues is the
a. percentage-of-receivables basis.
b. percentage-of-sales basis.
c. lower-of-cost-or-market basis.
d. direct write-off method.
Answer:
Management should select the depreciation method that
a. is easiest to apply.
b. best measures the plant asset’s market value over its useful life.
c. best measures the plant asset’s contribution to revenue over its useful life.
d. has been used most often in the past by the company.
Answer:
Sunset Corporation stockholders’ equity consisted of the following on January 1, 2015:
Note A: Preferred dividends are in arrears for 2014.
Instructions
Prepare the appropriate journal entries, if any, for the following transactions in 2015.
You may omit journal entry explanations but you should show computations.
1/25/15 Issued 20,000 shares of common stock for $40 per share.
2/18/15 The Board of Directors declared an annual cash dividend on preferred and
common stock totaling $700,000, payable on March 15, to stockholders of record on
February 28. (Record dividends payable on preferred and common stock in separate
accounts.)
2/28/15 Date of record for cash dividends on preferred and common stock.
3/15/15 Paid the cash dividend to preferred and common stockholders.
5/20/15 Declared a 10% stock dividend on the common stock, distributable on June 15,
to stockholders of record on May 31. The market value of Sunset Corporation’s
common stock was $40 per share.
6/15/15 Distributed stock dividend to common stockholders.
7/10/15 Purchased 40,000 shares of common stock for the treasury at $44 per share.
Answer:
When performing vertical analysis, the base amount for administrative expense is
generally
a. administrative expense in a previous year.
b. net sales.
c. gross profit.
d. fixed assets.
Answer:
The purpose of recording depreciation on productive assets is to
a. reflect the decline in the market value of the assets each period.
b. reduce income when the company has an exceptionally profitable year.
c. be in conformity with the monetary recognition principle.
d. allocate the original cost of productive assets to expense over its useful life.
Answer:
Bell Company and Kene Company exchanged trucks on January 1, 2015.
Bell’s truck cost $140,000, had accumulated depreciation of $115,000, and
has a fair value of $15,000. Kene’s truck cost $105,000, had accumulated
depreciation of $90,000, and has a fair value of $15,000.
Instructions
(a) Journalize the exchange for Bell Company.
(b) Journalize the exchange for Kene Company.
Answer:
Fetherston Company’s goods in transit at December 31 include:
Which items should be included in Fetherston’s inventory at December 31?
a. (2) and (3)
b. (1) and (4)
c. (1) and (3)
d. (2) and (4)
Answer:
John and Sam met at law school and decide to start a small law practice after
graduation. They agree to split revenues and expenses evenly. The most common form
of business organization for a business such as this would be a
a. joint venture.
b. partnership.
c. corporation.
d. proprietorship.
Answer:
Cash from sales of merchandise will be recorded in the
a. purchases journal.
b. sales journal.
c. cash receipts journal.
d. general journal.
Answer:
Jason Thomas has invested $200,000 in a privately held family corporation. The
corporation does not do well and must declare bankruptcy. What amount does Thomas
stand to lose?
a. Up to his total investment of $200,000.
b. Zero.
c. The $200,000 plus any personal assets the creditors demand.
d. $100,000.
Answer:
The accounting for warranty cost is based on the expense recognition principle, which
requires that the estimated cost of honoring warranty contracts should be recognized as
an expense
a. when the product is brought in for repairs.
b. in the period in which the product was sold.
c. at the end of the warranty period.
d. only if the repairs are expected to be made within one year.
Answer:
On January 1, Soft Corporation had 80,000 shares of $10 par value common stock
outstanding. On June 17, the company declared a 10% stock dividend to stockholders of
record on June 20. Market value of the stock was $15 on June 17. The entry to record
the transaction of June 17 would include a
a. debit to Stock Dividends for $120,000.
b. credit to Cash for $120,000.
c. credit to Common Stock Dividends Distributable for $120,000.
d. credit to Common Stock Dividends Distributable for $40,000.
Answer:
A check returned by the bank marked “NSF” means
a. no service fee.
b. no signature found.
c. not satisfactorily filled-out.
d. not sufficient funds.
Answer:
Days in inventory is calculated by dividing
a. the inventory turnover by 365 days.
b. average inventory by 365 days.
c. 365 days by the inventory turnover.
d. 365 days by average inventory.
Answer:
Depletion cost per unit is computed by dividing the total cost of a natural resource by
the estimated number of units in the resource.
Answer:
The normal balance of all accounts is a debit.
Answer:
Natural resources include standing timber and underground deposits of oil, gas, and
minerals.
Answer:
The steps in the accounting cycle are different for a merchandising company than for a
service company.
Answer:
On January 1, Chan & Chan, CPAs received a $15,000 cash retainer for accounting
services to be rendered ratably over the next 3 months. The full amount was credited to
the liability account Unearned Service Revenue. Assuming that the revenue is
recognized equally over the 3-month period, what adjusting journal entry should be
made at January 31?
Answer:
The cash proceeds from issuing par value stock may be equal to or greater than, but not
less than par value.
Answer: