To distinguish the total on a financial statement, use single underline.
Retained Earnings is the account in which the stockholders’ investments are placed.
A bond that pays interest on February 28 and October 31 will have to be adjusted for 3
months interest on December 31.
Under the specific invoice method, costs are matched with individual sale items.
Withdrawals are business expenses that are included on the income statement.
The Allowance for Doubtful Accounts is shown on the balance sheet.
A business’s fiscal year that ends at the same time as the slow seasonal period begins is
the natural business year.
Sales Discounts and Sales Returns and Allowances are contra-asset accounts.
To obtain an extension of time for the payment of an account, a customer may issue a
note for any portion of the amount due.
A T account is used for demonstration purposes.
Sales Discounts is an asset account.
When a voucher is prepared, the invoice needs only to be compared to the purchase
requisition, purchase order and receiving report.
The proceeds of a discounted note are the maturity value less the bank discount.
Adjusting journal entries still need to be made after the worksheet; otherwise the
account balances will not be correct.
In computing interest, it is required to consider a 365-day year.
The accounts payable subsidiary ledger should equal the control account in the general
ledger.
The normal balance of the Allowance for Doubtful Accounts account is a credit.
To show that you have posted to an account in the General Ledger, you use a
checkmark.
When it is not possible to make a reasonable estimate of uncollectible accounts, the
allowance method is preferred for financial reporting purposes.
A department with sales of $75,000 and cost of goods sold of $55,000 has a gross profit
of $20,000.
The interest method amortizes an equal amount of discount to Bonds Interest Expense
each period.
The payee is the party to whom the note is payable.
The accounts added below the trial balance, on the worksheet, are always decreasing.
Each individual revenue account is credited when closing, and the total of all the
revenue accounts is transferred to Income Summary.
Total liabilities are included in the statement of owner’s equity.
The purpose of a cash flow statement is to show the inflows and outflows of cash.
A deposit must be made when filing the W-2 form.
If Blake invests $10,000 cash in a partnership, Cash is debited and Blake, Capital is
credited, $10,000.
Companies can choose different pay periods for hourly workers versus salary workers.
Any adjustment to the depositor’s records because of an item on the bank statement
does not require a journal entry.
A list of all the accounts from the ledger with their ending balances is called a:
A) normal balance.
B) trial balance.
C) chart of accounts.
D) bank statement.
The normal balance of the accounts receivable subsidiary ledger is:
A) credit.
B) debit.
C) It does not have a normal balance.
D) Not enough information provided.
Dividends paid to stockholders are:
A) taxable to the recipient stockholder.
B) taxable to the corporation.
C) treated the same as bond interest.
D) None of these answers is correct.
A partnership can be joined by:
A) investing into the business.
B) purchasing an equity interest in the business.
C) buying out one of the partners and taking over their interest (by mutual agreement).
D) All of the above are correct.
Malcolm Corporation declared a dividend of $3 per share on 1,200 shares. The entry to
record the transaction would be to:
A) debit Dividends Expense $3.600; credit Cash $3.600.
B) debit Retained Earnings $3,600; credit Cash $3,600.
C) debit Dividends Payable $3,600; credit Cash $3,600.
D) debit Retained Earnings $3,600; credit Dividends Payable $3,600.
Which accounts are affected when the owner withdraws cash from the business?
A) Assets and Withdrawals
B) Liabilities and Capital
C) Assets and Liabilities
D) None of the above is correct.
Depreciation on equipment was recorded twice this period. This would cause:
A) expenses to be overstated and total assets to be overstated.
B) expenses to be overstated and total assets to be understated.
C) expenses to be understated and total assets to be overstated.
D) expenses to be understated and total assets to be understated.
This method assumes that the oldest goods are sold first.
A) LIFO
B) FIFO
C) Specific invoice method
D) Weighted-average method
Sterling Supply uses a periodic inventory system. Sterling Supply sold 25 globes during
March. Other data for March includes:
Round per unit cost to two decimal places. Cost of goods sold under the
weighted-average method is:
A) $281.25.
B) $155.00.
C) $316.75.
D) $168.75.
When the Withdrawals account is closed:
A) Owner’s Capital will be debited.
B) Income Summary will be debited.
C) Income Summary will be credited.
D) Revenue will be debited.
If a company’s revenues are higher than its expenses, it will cause:
A) an increase in owner’s equity.
B) a decrease in owner’s equity.
C) an increase in assets.
D) no effect on owner’s equity.
Each adjustment affects:
A) the income statement.
B) the balance sheet.
C) the cash account.
D) Both A and B are correct.
Received payment, within the discount period, for merchandise sold previously. This
will be recorded with:
A) a credit to an asset account.
B) a debit to a liability account.
C) a debit to Sales.
D) None of these is correct.
The payment of a cash dividend was recorded as payment to Miscellaneous Expense.
This error would cause:
A) the period end net income to be understated.
B) the period end liabilities to be overstated.
C) the period end stockholders’ equity to be overstated.
D) Both A and B
The photography department in a department store experienced the following revenue
and expenses during October:
The photography departmental gross profit is:
A) $12,000.
B) $20,200.
C) $13,000.
D) $9,700.
When a business starts, what must it obtain that identifies itself to the government?
A) State Employment Number
B) Federal Unemployment Number
C) Employer Identification Number
D) A look-back period
When closing the Income Summary account when there is a net loss:
A) Capital would increase.
B) Capital would decrease.
C) Capital would remain the same.
D) Revenue would decrease.
When closing the Income Summary account when there is a net income:
A) Capital would increase.
B) Capital would decrease.
C) Capital would remain the same.
D) None of these is correct.
Which of the following would cause total assets to decrease and total expense to
increase?
A) Recording the depreciation of equipment
B) Recording the consumption of supplies
C) Recording the expiration of Prepaid Rent Expense
D) All of the above would have that effect
The journal entry for accrued interest on a note receivable includes:
A) debiting Interest Income.
B) debiting Interest Expense.
C) crediting Interest Expense.
D) crediting Interest Income.
Cost of merchandise sold for the year was $850,000. Inventories were $60,000 and
$120,000 at the beginning and end of the year, respectively. There were no changes in
accounts payable from the beginning to the end of the year. Cash payment for
merchandise to be reported on the cash flow statement using the direct method is:
A) $850,000.
B) $910,000.
C) $940,000.
D) $880,000.
The Salaries Payable account has total debit postings of $800 and credit postings of
$1,500. The ending balance of the account is:
A) $2,300 debit.
B) $700 credit.
C) $2,300 credit.
D) $700 debit.
The normal balance of Rental Income is:
A) a credit.
B) a debit.
C) zero.
D) dependent on the circumstances.
Depreciation of equipment was recorded twice this period. This would:
A) overstate expenses and overstate assets.
B) overstate expenses and understate assets.
C) understate expenses and overstate assets.
D) understate assets and understate assets.
Nathan Long is entering into a partnership with Terri. Nathan is investing $4,000 cash
and equipment currently on Nathan’s books at $10,000 and accumulated depreciation of
$2,000. The equipment has a fair market value of $6,000. The entry to record Nathan’s
investment should be to:
A) debit Cash $4,000; debit Equipment 10,000; credit Accumulated Depreciation
$2,000; credit Long, Capital $12,000.
B) debit Cash $4,000; debit Equipment $6,000; credit Accumulated Depreciation
$2,000; credit Long, Capital $8,000.
C) debit Long, Capital $12,000; debit Accumulated Depreciation $2,000; credit Cash
$4,000; credit Equipment $8,000.
D) debit Cash $4,000; debit Equipment $6,000; credit Long, Capital $10,000.
Using the indirect method for cash flows, depreciation expense is added to net income
to determine the:
A) cash flow from investing activities.
B) cash flow from financing activities.
C) cash flow from operating activities.
D) cash flow from fixed asset activities.
The drawee is the:
A) person who writes the check.
B) bank that drawer has an account with.
C) the person to whom the check is payable.
D) person named as the co-signer.
The direct costs were overstated. This error will cause:
A) the cost of goods manufactured to be understated.
B) the cost of goods sold to be understated.
C) the net income to be overstated.
D) None of these answers is correct.
Applying the profit and loss ratio method, compute Taylor and Timmy’s share of net
income if Taylor invested $200,000 and Timmy invested $800,000 and the profit and
loss ratio is 3:2. Net income was $75,000.
A) Taylor, $15,000; Timmy, $60,000
B) Taylor, $37,500; Timmy, $37,500
C) Taylor, $45,000; Timmy, $30,000
D) None of these answers is correct.
The three major manufacturing inventories do NOT include which of the following?
A) Indirect labor
B) Work-in-process
C) Raw materials
D) Finished goods
Prepaid Rent Expense is considered to be a(n):
A) liability.
B) asset.
C) contra-asset.
D) revenue.
The board of directors is considering approving a declaration and payment of dividends
for the second quarter of the year. How will this decision affect the period’s cash flows
from operationsindirect method?
A) It will increase this period’s cash flows from operations.
B) It will decrease this period’s cash flows from operations.
C) It will not affect this period’s cash flows from operations.
D) This does not affect cash flows from operations.
A summary of selected ledger accounts appear below for S. Ball for the current calendar
year.
Answer the following questions.
1. What was the total amount of withdrawals for the year?
2. What was the net income?
3. What was the total revenue?
4. What were the total expenses?
Journalize the following transactions. All purchases are on account and subject to terms
of 2/10, n/30. The periodic inventory method is used.
Nov. 3 Purchased merchandise with a price of $2,000 from the Bartkowski Inc.
Nov. 5 Purchased merchandise from the Thiesman and Co. with a price of $4,000.
Nov. 7 Purchased merchandise with a price of $2,000 from the Montana Supply Co.
Nov. 10 Paid the amount due to Bartkowski Inc.
Nov. 12 Paid the amount due to Thiesman and Co.
Nov. 23 Paid the amount due to Montana Supply Co.
Journalize the Nov. 10 transaction.
__________________________________________ __________ __________
__________________________________________ __________ __________
__________________________________________ __________ __________
For each of the following, identify in Column 1 the category to which the account
belongs, in Column 2 the normal balance for the account, in Column 3 the financial
statement on which the account balance is reported, and in Column 4 the nature of the
account (permanent/temporary).
In the first space below, indicate whether each account is a real or nominal account
using (R) Real Account and (N) Nominal Account. In the second space below, indicate
by an (X) if the account should be closed.
An employee earns $30 per hour.
She worked 49 hours the third week of January (assume time and a half for overtime)
Calculate the net pay.
The business is involved in interstate commerce.
Federal Income Tax rate = 20%
State Income Tax rate = 5%
FICA rate OASDI = 6.2% and Medicare = 1.45%
FUTA rate = .8%
SUTA rate = 5.6%
$ ________
Prepare the general journal entries to record the following transaction. All purchases are
on account and subject to terms of 2/10, n/30. The perpetual inventory method is in use.
May 5 Purchased merchandise from the Anderson Inc. with a price of $15,000.
May 9 Returned $1,500 worth of merchandise to Anderson Inc.
May 14 Paid the amount due to Anderson Inc.
Prepare the general journal entry for the May 9 transaction.
__________________________________________ __________ __________
__________________________________________ __________ __________
__________________________________________ __________ __________
Mack Corporation has been issued a charter by the state of New Hampshire. This
charter gives Mack the authority to issue 20,000 shares of $20 par value preferred stock
and 100,000 shares of $5 par value common stock. Journalize the entries listed below.
June 1 Issued 4,000 shares of preferred stock at $25 per share.
4 Issued 5,000 shares of common stock at $15 per share.
13 Issued 6,000 shares of common stock at $20 per share.
21 Issued 1,000 shares of preferred stock at $35 per share.
The Coral Co. had the following transactions involving the sale of merchandise. You
are to prepare the necessary general journal entries. All sales are subject to credit terms
of 1/10, n/30.
July 16 Sold merchandise on account with an invoice price of $4,500 to Carter and Co.
July 16 Sold merchandise on account with an invoice price of $5,000 to the Taylor Co.
July 20 Taylor Co. returned merchandise with an invoice price of $1,000.
July 25 Received full payment from Carter and Co.
July 28 Received full payment from Taylor Co.
Prepare the necessary general journal entry for July 28.
__________________________________________ __________ __________
__________________________________________ __________ __________
__________________________________________ __________ __________
For each of the following, identify in Column 1 the category to which the account
belongs, in Column 2 the normal balance for the account, in Column 3 the financial
statement that the account in which the account balance is reported, and in Column 4
the account’s nature (temporary/permanent).
Determine the amount of the adjustment for bad debts given:
Bad debts are estimated to be 9% of credit sales
Accounts receivable balance $370,000
Allowance for bad debts balance (debit) $900
Net Credit Sales $200,000
$ ________
For each of the following, identify in column 1 the category to which the account
belongs, in column 2 the normal balance for the account, in column 3 the financial
statement that the account in which the account balance is reported, and in column 4 the
account’s nature (permanent/temporary).
Below is a list of expenses; you are to identify each as either [1] a direct expense or [2]
an indirect expense.
Insurance paid on employees working in high risk areas of a machine shop. ________
A chart of accounts is below. Following is a series of transactions. Indicate for each
transaction the accounts that should be debited and credited by inserting the proper
account number in the space provided.
111 Cash
112 Accounts Receivable
211 Accounts Payable
311 C. Webster, Capital
312 C. Webster, Withdrawals
411 Delivery Fees Earned
121 Delivery Equipment
511 Salaries Expense
512 Rent Expense
513 Advertising Expense
514 Gas Expense
Debit Credit Transaction
________ ________ 1. Invested cash in the business.
________ ________ 2. Received cash for delivery services performed.
________ ________ 3. Billed a customer for services performed.
________ ________ 4. Paid accounts payable.
________ ________ 5. Collected accounts receivable.
________ ________ 6. Withdrew cash for personal use.
________ ________ 7. Paid advertising expense.
________ ________ 8. Paid rent expense for the month.
________ ________ 9. Purchased delivery equipment on account.
________ ________ 10. Paid salaries for the week.
Determine the beginning capital balance of a business having an ending capital balance
of $10,800, no additional investments, withdrawals of $2,600, and a net income of
$4,700.
$ ________
Under the ________ inventory system, cost of goods sold and the amount of
merchandise inventory on hand are updated at the end of the accounting period.