The amortization of bond premium increases interest expense over the life of the bonds.
A computerized system uses software to process transactions. Thus employees are no
longer required to manually journalize and post transactions to the accounts.
Short-term notes payable represent a written promise by the business to pay a debt,
without the addition of interest, within one year or less.
The sales journal is used for all sales of merchandise inventory.
The statement of cash flows shows where cash came from and how cash was spent.
Purchase discounts are calculated on the amount of the merchandise purchased
including freight costs.
The units-of-production method is used to compute depletion expense.
The Public Company Accounting Oversight Board is a watchdog agency that monitors
the work of independent accountants who audit public companies.
When using QuickBooks, the Vendors tab is used to record a bill that has been received.
Cash dividends cause a decrease in both assets and stockholders’ equity of the
corporation.
The current portion of notes payable is reported on the balance sheet under current
liabilities.
Warranties pose an accounting challenge because a company does not know which or
how many products will have to be repaired.
In cash basis accounting, revenue is recorded when cash is received, and expenses are
recorded when they are paid.
Notes receivable due within 12 months or within the normal operating cycle if the cycle
is longer than a year are considered long-term assets.
The accounting is the same regardless of whether a business uses a manual or a
computerized accounting information system.
A contingency was evaluated at year-end and considered to have a reasonable
possibility of becoming an actual liability. If this was not reported on the balance sheet
or in the notes to the financial statements, it could be considered a violation of generally
accepted accounting principles.
For good controls over cash payments, the person who orders goods from a supplier
should always be different from the person who approves the payment.
The total change in cash for the period reconciles the statement of cash flows.
Cash equivalents are included in the calculation of the cash ratio.
Business owners use accounting information to set goals, evaluate progress toward
those goals, and make adjustments when needed.
Critical thinking and judgment skills are not necessary for accountants because
technology has made the activities routine.
The imprest system requires that the petty cash box contain cash and petty cash tickets
that total the amount of the imprest balance only at the end of each month.
Using the direct method, interest expense paid on a note payable is included in the
operating activities section of the statement of cash flows.
The direct write-off method for uncollectible accounts violates the matching principle.
Only contingencies that are probable and can be estimated are recorded as a liability
and an accrued expense.
The disposal of a business segment is reported as discontinued operations.
If a contingency that is probable can be reasonably estimated, a liability is recorded and
an expense is accrued.
To be useful, accounting must be relevant and have faithful representation.
Federal Unemployment Taxes Payable is typically shown on the balance sheet under the
long-term liabilities section.
Debit refers to the right side of the T-account, and credit refers to the left side.
Declaring and paying dividends causes an increase in both assets and stockholders’
equity of the corporation.
If a minor repair was incorrectly debited to the asset account, expenses and net income
would be understated.
A company can finance its assets by receiving cash or other assets from stockholders.
Given the same purchase and sales data, and assuming the cost of inventory is rising,
the costing methods for inventory will result in different amounts for sales revenue.
Companies determine the number of units on hand from perpetual inventory records
backed up by a physical count.
On March 18, James Smith purchased $5,000 of furniture from Home Furnishings on
account. The cost of the goods was $3,000. On March 20, Home Furnishings granted
the customer a $1,000 sales allowance for goods damaged in transit. Which of the
following represents the correct way to record this transaction?
A)
B)
C)
D)
A company purchased 500 units for $30 each on January 31. It purchased 550 units for
$33 each on February 28. It sold a total of 650 units for $45 each from March 1 through
December 31. What is the cost of ending inventory on December 31 if the company
uses the first-in, first-out (FIFO) inventory costing method? (Assume that the company
uses a perpetual inventory system.)
A) $13,200
B) $10,200
C) $12,000
D) $1,800
A corporation has 14,000 shares of 13%, $104 par noncumulative preferred stock
outstanding and 22,000 shares of no-par common stock outstanding. At the end of the
current year, the corporation declares a dividend of $220,000. What is the dividend per
share for preferred stock and for common stock? (Round your answer to the nearest
cent.)
A) The dividend per share is $13.52 to preferred stock and $1.40 to common stock.
B) The dividend per share is $8.26 to preferred stock and $1.40 to common stock.
C) The dividend per share is $13.52 to preferred stock and $13.52 to common stock.
D) The dividend per share is $13.52 to preferred stock and $27.50 to common stock.
Metro Event Planning Services collects fees from its customers in advance. On January
1, 2019, the balance of its Unearned Revenue account was $4,000 (CR). During January
and February, the company collected $2,000 and $600 as advance fees. During the
two-month period, it performed services of $5,500 related to the deferred revenue.
What is the balance in Unearned Revenue at the end of February?
A) debit balance of $4,000
B) credit balance of $4,000
C) debit balance of $1,100
D) credit balance of $1,100
Operating expenses include ________.
A) cost of goods sold
B) expenses that occur in an entity’s major line of business
C) cost of goods sold, selling expenses, and administrative expenses
D) loss on sale of plant asset
Which of the following is included in comprehensive income?
A) Foreign currency translation adjustments
B) Owners’ investments
C) Purchase of capital assets
D) Payment of dividends
Bill’s gross pay for the week is $2150. His deduction for federal income tax is based on
a rate of 25%. He has no voluntary deductions. His year-to-date pay is under the limit
for OASDI. What is the amount of FICA tax that will be withheld from Bill’s pay?
(Assume a FICA—OASDI Tax of 6.2% and FICA—Medicare Tax of 1.45%. Round
any intermediate calculations to two decimal places, and your final answer to the
nearest dollar.)
A) $537.50
B) $164.48
C) $701.98
D) $136.50
An expense that has been incurred but not yet paid is called a(n) ________.
A) accrued revenue
B) deferred expense
C) deferred revenue
D) accrued expense
A liability created when a business receives cash from customers in advance of
providing services or delivering goods is called a(n) ________.
A) notes receivable
B) unearned revenue
C) accrued liability
D) service revenue
The following is summary of information presented on the financial statements of a
company on December 31, 2019.
With respect to current liabilities, a horizontal analysis reveals ________. (Round your
answer to two decimal places.)
A) that current liabilities are 37.13% of total equity
B) a 44.23% increase in current liabilities
C) a current ratio of 0.88
D) a 30.67% increase in current liabilities
Elephant, Inc.’s cost of goods sold for the year is $2,000,000, and the average
merchandise inventory for the year is $129,000. Calculate the inventory turnover ratio
of the company. (Round your answer to two decimal places.)
A) 6.45 times
B) 15.50 times
C) 7.75 times
D) 9.36 times
Which of the following is a control procedure to prevent a dishonest employee from
cashing a paycheck that was written to a fictitious person?
A) having employees clock in and out of work
B) keeping computerized records of payroll data
C) serial numbering of paychecks
D) requiring photo IDs for employees picking up their paychecks
Buildings, land, and equipment are classified as ________.
A) current assets
B) long-term assets
C) current liabilities
D) long-term liabilities
A ________ is a schedule that summarizes the earnings, withholdings, and net pay for
each employee.
A) payroll register
B) bin card
C) cash ledger
D) bank reconciliation statement
Newell Corp. has acquired land and paid $500 as a brokerage commission to acquire
the land. However, the company’s accountant has recorded the $500 as a revenue
expenditure. What is the effect of this error?
A) Net income is understated by $500.
B) Liabilities are overstated by $500.
C) Revenue is overstated by $500.
D) Assets are overstated by $500.
The rate of return on total assets measures a company’s ________.
A) ability to meet its short-term obligations
B) ability to repay its long-term debt
C) success in using assets to earn income
D) success in earning high returns on investments in stocks and bonds of other
companies
On January 1, 2019, First Street Sales issued $38,000 in bonds for $15,700. These are
six-year bonds with a stated interest rate of 16% that pay semiannual interest. First
Street Sales uses the straight-line method to amortize the Bond Discount. Immediately
after the issue of the bonds, the ledger balances appeared as follows:
Bonds Payable
Discount on Bonds Payable
After the first interest payment on June 30, 2019, what is the balance of Discount on
Bonds Payable? (Round any intermediate calculations to two decimal places, and your
final answer to the nearest dollar.)
A) debit of $20,442
B) debit of $22,300
C) debit of $24,158
D) credit of $1858
Which of the following sections from the statement of cash flows includes borrowing
cash and paying off loans?
A) the investing activities section
B) the operating activities section
C) the financing activities section
D) the non-cash investing and financing section
A business prepays four months’ office rent. Which of the following accounts is
debited?
A) Rent Expense
B) Cash
C) Prepaid Rent
D) Unearned Rent
Which of the following is the correct formula to calculate weighted-average unit cost
for merchandise inventory?
A) Weighted-average unit cost = Cost of goods available for sale + Number of units
available
B) Weighted-average unit cost = Cost of goods available for sale × Number of units
available
C) Weighted-average unit cost = Cost of goods available for sale – Number of units
available
D) Weighted-average unit cost = Cost of goods available for sale / Number of units
available
The Allowance for Bad Debts account ________.
A) is a liability account
B) holds the pool of “unknown” uncollectible accounts
C) increases with a debit
D) is added to accounts receivable
Depreciation expense is recorded in a ________.
A) cash payments journal
B) sales journal
C) cash receipts journal
D) general journal
Which of the following sections of the statement of cash flows include purchases and
sales of long-term assets?
A) the financing activities section
B) the operating activities section
C) the investing activities section
D) the non-cash investing and financing section
Which of the following transactions would be shown in the non-cash investing and
financing activities section of the statement of cash flows?
A) sold equipment with book value of $6,500 in exchange for $6,500 cash
B) settled a long-term note payable by issuing common stock
C) issued 20,000 shares of stock at $4 per share
D) purchased land for $30,000 cash
Which of the following is NOT an example of a storage device in an accounting
information system?
A) computer
B) financial statements
C) filing cabinet
D) server
Lack of mutual agency is best described as which of the following?
A) The liabilities of the corporation cannot be extended to the personal assets of the
stockholder.
B) Shares of stock can be readily purchased and sold by investors on an organized stock
exchange.
C) Stockholders are not authorized to sign contracts or make business commitments on
behalf of the corporation.
D) Corporations pay income tax on corporate earnings, and shareholders pay income
tax on corporate dividends.
A company sold merchandise with a cost of $213 for $440 on account. The seller uses
the perpetual inventory system. The entry to record the cost of merchandise sold would
include ________.
A) a debit to Sales Revenue and a credit to Cash for $440
B) a debit to Cash and a credit to Sales Revenue for $440
C) a debit to Cost of Goods Sold and a credit to Merchandise Inventory for $213
D) a debit to Merchandise Inventory for $213 and a credit to Cost of Goods Sold for
$213
Which of the following is an account that is shown on the balance sheet for a
merchandiser but not on the balance sheet of a service business?
A) Unearned Revenue
B) Sales Discounts Forfeited
C) Estimated Returns Inventory
D) Cost of Goods Sold
The cost of an asset is $1,070,000, and its residual value is $220,000. Estimated useful
life of the asset is ten years. Calculate depreciation for the first year using the
double-declining-balance method of depreciation. (Do not round any intermediate
calculations, and round your final answer to the nearest dollar.)
A) $170,000
B) $214,000
C) $107,000
D) $85,000
Connecticut, Inc. uses the indirect method to prepare its statement of cash flows. Refer
to the following portion of the comparative balance sheet:
Connecticut, Inc.
Comparative Balance Sheet
December 31, 2019 and 2018
Additional information provided by the company includes the following:
1. Equipment was purchased for $67,000 with cash.
2. Equipment with a cost of $36,000 and accumulated depreciation of $7300 was sold for
$48,000.
What was the amount of net cash provided by (used for) investing activities?
A) $167,000
B) $19,000
C) $(167,000)
D) $(19,000)
Jump Company uses the direct method to prepare its statement of cash flows. Refer to
the following information reported for 2019:
Cost of Goods Sold, $150,000
Merchandise Inventory, beginning balance, $30,000
Merchandise Inventory, ending balance, $60,000
Accounts Payable, beginning balance, $8100
Accounts Payable, ending balance, $5000
Operating expenses, $28,000
Accrued Liabilities, beginning balance, $2900
Accrued Liabilities, ending balance, $6200
Use the direct method to compute the cash paid to suppliers. (Accrued Liabilities relate
to operating expenses.)
A) $158,000
B) $158,400
C) $183,100
D) $207,800
On June 16, 2018, Evergreen Inc. wrote off the $200 receivable from customer M.
Simmons. On October 14, 2018, Evergreen unexpectedly receives $200 cash from
M.Simmons. How should Evergreen record the $200 payment from M. Simmons?
Evergreen uses the allowance method.
A) debit Cash and credit Bad Debts Expense
B) debit Accounts Receivable – M. Simmons and credit Allowance for Bad Debts; debit
Cash and credit Accounts Receivable – M. Simmons
C) debit Accounts Receivable – M. Simmons and credit Bad Debts Expense; debit Cash
and credit Accounts Receivable – M. Simmons
D) debit Cash and credit Allowance for Bad Debts
Belton, Inc. had the following transactions in 2018, its first year of operations:
• Issued 33,000 shares of common stock. Stock has par value of $1.00 per share and
was issued at $24.00 per share.
• Earned net income of $73,000.
• Paid no dividends.
At the end of 2018, what is the total amount of paid-in capital?
A) $33,000
B) $865,000
C) $792,000
D) $73,000
A special journal is ________.
A) an accounting journal designed to record one specific type of transaction
B) an accounting journal that holds individual accounts that support a specific general
ledger account
C) a record of accounts that provides supporting details on individual balances, the total
of which appears in a general ledger account
D) a created list of the accounts used by a business entity to define each class of items
for which cash is spent or received
Luminous Electrical, Inc. performed services of $8,000 on January 24 and invoiced the
customer. Luminous received the $8,000 on January 31. Provide the journal entry on
January 24 when services were performed. (Ignore explanation.)
Data for Michelle, Inc. follow:
Michelle, Inc.
Comparative Balance Sheet
December 31, 2019 and 2018
Prepare a horizontal analysis of the comparative balance sheet of Michelle, Inc. (Round to
one decimal place.)
If the likelihood of a future event is reasonably possible, how should the company
report the contingency?
On June 30, 2018, Staton Island, Inc. discarded equipment costing $40,000.
Accumulated Depreciation as of December 31, 2017, was $25,000. Assume annual
depreciation on the equipment is $2,500. Prepare the journal entries for the 2018
depreciation expense and for the disposal of the equipment. Omit explanation.
On January 1, 2018, Belview, Inc. issued long-term notes payable for $50,000. The note
will be paid over 10 years with payments of $5,000 plus 12% interest due each January
1, beginning January 1, 2019. The amortization schedule for the first three payments is
provided. Prepare the journal entries for the issuance of the note and for the January 1,
2020 note payment. Omit explanation.
List the two categories of liabilities reported on the balance sheet and provide an
example of each.
Explain the difference between Accounts Receivable and Accounts Payable.
Superstore Electronics reported the following figures in its 2019 and 2018 financial
statements.
Compute the cash ratio for 2019 and 2018. What does the cash ratio measure? Use this
information to discuss the business performance of Superstore Electronics.
Work Room Corp. purchased equipment for $45,000. Total depreciation of $36,000 was
recorded. On January 1, 2019, Work Room exchanged the equipment for new
equipment, paying $65,000 cash. The market value of the new equipment is $65,000.
Prepare the journal entry to record this transaction. Assume the exchange had
commercial substance. Omit explanation.
Great Plains Corporation has acquired a property that included both land and a building
for $500,000. The corporation paid cash. The corporation hired an appraiser who has
determined that the market value of the land is $300,000 and that of the building is
$400,000. Journalize the lump-sum purchase. Omit explanation. (Round any
intermediate calculations to two decimal places, and your final answer to the nearest
dollar.)
Michael Company has just completed operations for the year ended December 31,
2018. This is the second year of operations for the company. The following data have
been assembled for the business.
Prepare the income statement. Use a proper heading.
List and briefly describe the method used to account for investments in equity securities
with more than 50% ownership.
Cafeteria Supply returned 2 cases of defective warming trays to the vendor for an
amount of $600. Prepare the journal entry for this transaction. Cafeteria Supply uses a
perpetual inventory system and purchased the cases on account. Omit explanation.
The following extract was taken from the worksheet of Miller and Miller, Inc. for the
year 2019.
Miller and Miller, Inc.
Worksheet
December 31, 2019
From the above information, determine the amount of the Rent Expense adjustment.
On January 16, Half Circle, Inc. sold $5,000 of merchandise to Arnold, on account.
Half Circle could not collect cash from Arnold and wrote off the account. Prepare a
journal entry to record the write-off, assuming Half Circle uses the allowance method.
Omit explanation.
Classify each of the following expenditures as capital expenditure (CE) or revenue
expenditure (RE).
1. _______ Repair of transmission or engine
2. _______ Sales tax paid on the purchase price
3. _______ Training of personnel for initial operation of machinery
4. _______ Modification for new use
For each of the following items, relating to the adjustments made to reconcile net
income to net cash provided by operating activities section, state whether the
adjustment is an increase or decrease to net income.
Nebraska Auto Parts Company uses the indirect method to prepare the statement of cash
flows. Refer to the following income statement:
Nebraska Auto Parts Company
Income Statement
Year Ended December 31, 2018
Additional information provided by the company includes the following:
Current assets other than cash increase by $36,000.
Current liabilities decrease by $1,500.
Prepare the operating activities section of the statement of cash flows.
Journalize the following transaction for a merchandiser that uses the perpetual
inventory system.
Sold goods for cash, $1,200 (cost $750). Omit explanations.
Describe how the cost of goods sold is calculated when using the periodic inventory
system.