The last step of the closing process of a merchandiser is to make the expense accounts
equal zero via the Income Summary account.
Economic resources and debts of the company are shown on the balance sheet.
Baytown Paper Company has a debt ratio of 25%, which means that 75% of the assets
are financed by creditors.
A company is uncertain whether a complex transaction should be recorded as a gain or
loss. Under the conservatism principle, it should choose to treat it as a loss.
Under the new revenue recognition standards, companies recognize revenue when
performance obligations associated with contracts are identified.
Revenue from contracts with multiple performance obligations is recognized as each
performance obligation is satisfied.
The cash flows from investing activities is completed by reviewing the long-term
liabilities section of the balance sheet.
Weighted average cost per unit is determined by dividing the cost of goods available for
sale by the number of units available.
A corporation issues 16,000 shares of its $3 stated value common shares. The issue
price is $9 per share. The credit to the Common Stock account is $144,000.
When using the specific identification inventory costing method, ending inventory costs
depend on which costs are assigned to the inventory sold.
Depletion expense should not be recorded for natural resources because they do not
decrease in value over time.
Under cash basis accounting, an expense is recorded only when cash is paid.
A payable involves a future receipt of cash.
The major difference between a cash basis accounting system and an accrual basis
accounting system is the timing of recording revenues and assets.
The entry to write off an account under the allowance method affects net income at the
time of entry.
Freight charges to ship goods to customers is recorded as a debit to Delivery Expense.
The process of allocating the cost of a plant asset over its useful life is known as cost
reduction.
A company that reports a discontinued operation item must also report earnings per
share for the item.
The Service Revenue account is a temporary account.
By looking at a statement of retained earnings, the effect of dividends on the ending
balance of retained earnings can be determined.
The fair value of a trading debt security is the price that would be used if the company
were to sell the investment on the market.
An accounting information system creates the structure to encourage adherence to
management policies.
Under the equity method, the Equity Investments account is credited for the receipt of a
dividend because the dividend decreases the investor’s investment.
Sales Revenue is recorded net of sales discounts, so it is labeled Net Sales Revenue on
the income statement.
In a computerized environment, the posting process is completed automatically when
the user enters the journal entry.
At the beginning of the year, the total stockholders’ equity of Cutting Edge
Technologies, Inc. was $80,000. The revenues and expenses were $70,000 and $30,000,
respectively. The company did not declare dividends. No common stock was issued
during the year. The total stockholders’ equity at the end of the year will amount to
$110,000.
All earnings are subject to Medicare tax.
Companies should not sell merchandise in exchange for notes receivable.
Using the gross method for recording sales, sales are recorded at the amount of the sale
less any sales discounts.
A common-size statement reports the same percentages that appear in a vertical
analysis.
Current liabilities must be paid either in cash or with goods and services within one
year or within the entity’s operating cycle, if the cycle is longer than a year.
In a periodic inventory system, a sale of inventory involves two entries, one to record
Sales Revenue and one to record Cost of Goods Sold.
Franchises are privileges granted by a business to sell goods and services under
specified conditions.
An accounting information system is said to have good compatibility, if it ________.
A) works smoothly with the business’s employees and organizational structure
B) safeguards a business’s assets and reduces the likelihood of fraud and errors
C) provides information that will improve decision making and reduce uncertainty
D) accommodates changes in the business over time
Adkins Bakery uses the modified half-month convention to calculate depreciation
expense in the year an asset is purchased or sold. Adkins has a calendar year accounting
period and uses the straight-line method to compute depreciation expense. On March
17, 2018, Adkins acquired equipment at a cost of $220,000. The equipment has a
residual value of $43,000 and an estimated useful life of 4 years. What amount of
depreciation expense will be recorded for the year ending December 31, 2018? (Round
any intermediate calculations to two decimal places, and your final answer to the
nearest dollar.)
A) $44,250
B) $36,875
C) $33,188
D) $22,125
The liability created when a business collects cash from its customers before
completing a service or delivering a product is called ________.
A) accrued revenue
B) accrued expense
C) deferred revenue
D) deferred expense
Camping Gear, Inc. had 600 units of inventory on hand at the end of the year. These
were recorded at a cost of $17 each using the last-in, first-out (LIFO) method. The
current replacement cost is $15 per unit. The selling price charged by Camping Gear,
Inc. for each finished product is $23. As a result of recording the adjusting entry as per
the lower-of-cost-or-market rule, the gross profit will ________.
A) increase by $9,000
B) decrease by $9,000
C) increase by $1,200
D) decrease by $1,200
Which one of the following account groups normally has a debit balance?
A) assets and expenses
B) revenues and expenses
C) liabilities and revenues
D) assets and liabilities
Which of the following accounts will be included in a post-closing trial balance?
A) Dividends
B) Salaries Expense
C) Common Stock
D) Supplies Expense
Barker, Inc. had reported the following details for the year ended December 31, 2019:
The company’s beginning total assets and liabilities were $15,800,000 and $9,900,000,
respectively. Calculate the asset turnover ratio for 2019. (Round your answer to two
decimal places.)
A) 2.41 times
B) 1.11 times
C) 1.84 times
D) 1.48 times
A business purchases $500 of office supplies on account. What is the effect on the
accounting equation?
A) Office Supplies increase and Cash decreases.
B) Office Supplies increase and Accounts Payable increase.
C) Office Supplies increase and Accounts Payable decrease.
D) Total assets increase and total liabilities decrease.
A company that uses the perpetual inventory system purchased 500 pallets of industrial
soap for $9,000 and paid $790 for the freight-in. The company sold the whole lot to a
supermarket chain for $13,000 on account. The company uses the specific-identification
method of inventory costing. Which of the following entries correctly records the cost
of goods sold?
A)
B)
C)
D)
If bonds with a face value of $209,000 are issued at 93, the amount of cash proceeds is
________.
A) $208,907
B) $209,000
C) $194,370
D) $179,740
Treasury stock is ________.
A) a contra equity account
B) a contra asset account
C) a liability account
D) an asset account
Mercury, Inc. sells tickets in advance for its weekly productions and records the
proceeds as Unearned Revenue. At the end of each month, the company makes an
adjusting entry to account for the tickets used during the month (ticket revenue.) On
March 1, the Unearned Revenue account had a credit balance of $2,000. During March,
Mercury sold 300 tickets at $20 each, and 250 tickets were used during the month.
What is the balance in Unearned Revenue at the end of March?
A) credit balance of $3,000
B) debit balance of $2,000
C) credit balance of $2,000
D) debit balance of $3,000
For the month of September, Seawide Sales, Inc. recorded gross pay of $74,500. The
net pay for the month amounted to $59,500. The salaries are paid on October 5. Which
of the following is the journal entry for the payment of salaries?
A)
B)
C)
D)
Calculate the current ratio using the following information: (Round your answer to two
decimal places.)
A) 1.82
B) 2.37
C) 3.09
D) 1.56
Consider the following accounts and identify each as an asset (A), liability (L), or
equity (E).
On July 7, University Bank lent $560,000 to Jazz Music Shop on a 60 day, 7% note.
What is the maturity value of the note? (Use a 360-day year and round answers to the
nearest dollar.)
A) $560,000
B) $599,200
C) $566,444
D) $566,533
For accounting purposes, depreciation refers to the process of ________.
A) allocating the cost of a plant asset to expense over its useful life
B) recording the decline in the market value of an asset to its book value
C) estimating an asset’s current market value
D) determining the selling price of an asset
Which of the following is an important aspect of control over payroll?
A) controls to limit salaries and wages so that they are no higher than competitors
B) controls for efficiency in payroll procedures
C) controls to screen potential employees for criminal records
D) controls to monitor employee behavior, such as use of security cameras
Bachman, Inc. plans to develop a shopping center. In the first quarter, the following
amounts were spent:
What amount should be recorded as the cost of the land in the corporation’s books?
A) $31,900
B) $24,900
C) $26,760
D) $30,400
Indicate the effects on the accounting equation of the following business transactions of
ABC Service Corporation for b) to d) below. Use proper account titles. Transaction a) is
answered as a guide.
a) Received cash from Mary Johnson; issued common stock to her.
Roger Technologies invests $50,000 to acquire $50,000 face value, 8%, five-year
corporate bonds on January 2, 2017. The bonds will mature on January 2, 2022. The
bonds pay interest semiannually on January 2 and July 2 each year until maturity. When
Roger Technologies receives interest payments, how is the accounting equation
affected?
A) assets will decrease
B) total assets will remain unchanged
C) liabilities will decrease
D) equity will increase
Under which of the following categories would bonds held as an investment for less
than a year appear?
A) long-term assets
B) current assets
C) long-term liabilities
D) current liabilities
Gross profit is calculated as the difference between net sales revenue and ________.
A) purchase expense
B) cost of goods sold
C) cost of merchandise inventory
D) operating expenses
Regarding the use of a spreadsheet for the preparation of the statement of cash flows,
which of the following statements is true?
A) The T-account approach works well for all companies.
B) The statement of cash flows cannot be prepared directly from the spreadsheet
because additional information is needed.
C) The spreadsheet is needed when companies face complex situations.
D) The spreadsheet can only be used if the indirect method for operating activities is
also used.
The following information is from the December 31, 2018 balance sheet of Millner
Corporation.
What was the average issue price of the common stock shares? (Round your answer to the
nearest cent.)
A) $1.88
B) $1.00
C) $2.68
D) $3.68
Regarding discontinued operations, which of the following statements is incorrect?
A) Gains and losses on the sale of plant assets and equipment are reported as Other
Income and (Expenses).
B) A loss on discontinued operations is reported with an addition for the applicable
income tax.
C) The sale of an identifiable division of the business is reported on the income
statement under the category Discontinued Operations.
D) The Discontinued Operations category of the income statement includes information
about segments of the business that have been sold.
Equipment was acquired for $208,000 and has accumulated depreciation of $85,000.
The business exchanges this equipment for new equipment. The new equipment has a
market value of $307,000 and the business pays $56,000 cash. Assume the exchange
has commercial substance. The exchange results in a ________.
A) loss of $128,000
B) gain of $184,000
C) gain of $128,000
D) loss of $184,000
Which of the following financial statements reports that total assets are equal to total
liabilities plus total stockholders’ equity?
A) Statement of retained earnings
B) Statement of cash flows
C) Income statement
D) Balance sheet
Jackson Services, Inc. earned revenues of $109,000, incurred expenses of $110,000, and
paid dividends of $5,000. Which of the following statements is correct?
A) A debit is needed to zero out the balance of the Income Summary account.
B) Retained Earnings will decrease $6,000.
C) Jackson has incurred a net loss of $4,000.
D) When compared to a business that earned net income, the only closing entry that
differs is the one to close dividends.
Which of the following statements regarding Accounts Payable is incorrect?
A) The Accounts Payable account is decreased with a credit.
B) Accounts payable occur because the business receives the goods or services before
payment has been made.
C) Because accounts payable are typically due in 30 days, they are current liabilities.
D) Accounts payable represent debts owed to creditors.
The relationship between total liabilities and total assets is the ________.
A) debt ratio
B) debt to equity ratio
C) current ratio
D) earnings per share
The net income of Hollywood Talent Services is $26,000. The beginning and ending
stockholders’ equity balances were $35,000 and $56,000, respectively. The company
issued no common stock. Calculate the amount of dividends.
A) $15,000
B) $5,000
C) $9,000
D) $8,000
Regarding the end of period adjusting entries to record estimated sales returns, which of
the following statements is correct? (Assume the perpetual inventory system is used.)
A) Companies use data published by the FASB to estimate the amount of sales returns
related to the sales of similar companies.
B) It is acceptable to prepare a single adjusting entry which debits Estimated Returns
Inventory and credits Refunds Payable.
C) Both Sales Revenue and Cost of Goods Sold accounts are decreased.
D) Estimated Returns Inventory is an income statement account.
A journal entry for a $220 payment to purchase office supplies was erroneously
recorded as a debit to Office Supplies for $500 and a credit to Cash for $220. Which of
the following statements correctly states the effect of the error on the trial balance?
A) The sum of the credits will exceed the sum of the debits by $280.
B) The sum of the debits will exceed the sum of the credits by $220.
C) The sum of the debits will exceed the sum of the credits by $280.
D) The sum of the debits will exceed the sum of the credits by $500.